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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1997 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to
----------------------.
Commission File Number 0-27238
Western Pacific Airlines, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 86-0758778
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
2864 South Circle Drive, Suite 1100
Colorado Springs, Colorado 80906
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (719) 579-7737
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 No
As of November 1, 1997 there were 13,571,073 shares of Common Stock of the
registrant issued and outstanding.
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1
<PAGE>
WESTERN PACIFIC AIRLINES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page Number
Item 1. Financial Information
Balance Sheets
September 30, 1997 and December 31, 1996 3
Statements of Operations
Three Months ended September 30, 1997 and 1996 4
Nine Months ended September 30, 1997 and 1996
Statements of Cash Flows
Nine Months ended September 30, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 17
2
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<TABLE>
WESTERN PACIFIC AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
SEPT. 30, 1997 DEC. 31, 1996
---------------- ----------------
<CAPTION>
<S> <C> <C>
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,947,456 $ 12,076,034
Restricted cash and cash equivalents 5,545,110 8,314,887
Accounts receivable, net of allowance for uncollectable accounts 14,529,724 3,217,450
of $428,000 and $347,000 at September 30, 1997 and December 31, 1996, respectively
Prepaid expenses and other 7,855,116 6,104,414
Prepaid maintenance 7,567,361 6,819,841
Aircraft and engine reserves 11,134,756 5,204,698
---------------- ----------------
Total Current Assets 54,579,523 41,737,324
PROPERTY AND EQUIPMENT, net 35,033,119 41,702,859
AIRCRAFT AND ENGINE RESERVES 7,347,113 7,983,560
PREPAID MAINTENANCE 13,482,377 7,495,345
AIRCRAFT AND ENGINE DEPOSITS 19,224,733 21,308,588
RESTRICTED CASH AND CASH EQUIVALENTS 2,643,962 2,638,158
OTHER 113,065 180,855
---------------- ----------------
$ 132,423,892 $ 123,046,689
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 27,018,002 $ 11,637,006
Accrued expenses 22,179,343 21,947,117
Air traffic liability 30,318,679 15,617,460
Short-term financing 17,462,480 10,455,985
Current portion of long-term debt 1,228,633 1,007,757
Other 137,152 82,590
---------------- ----------------
Total Current Liabilities 98,344,289 60,747,915
LONG-TERM DEBT 14,619,202 15,214,819
OTHER LIABILITIES 1,951,385 1,396,735
MINORITY INTEREST - 2,239,033
PREFERRED STOCK 24,065,190 -
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value, no shares outstanding at September 30, 1997 and December 31, 1996 - -
Common stock. $.001 par value, 13,550,665 and 13,381,894 issued and outstanding at
September 30, 1997 and December 31, 1996, respectively 13,551 13,387
Common stock to be issued - 800,411
Deferred compensation (716,667) (1,016,667)
Additional paid-in capital 82,389,005 80,265,823
Treasury stock, at cost - (84,902)
Warrants 10,273,896 -
Accumulated deficit (98,515,959) (36,529,865)
---------------- ----------------
Total stockholders' equity (deficit) (6,556,174) 43,448,187
---------------- ----------------
$ 132,423,892 $ 123,046,689
================ ================
See accompanying notes.
</TABLE>
3
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<TABLE>
WESTERN PACIFIC AIRLINES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
---------------- ----------------- ---------------- ----------------
(Unaudited) (Unaudited)
<CAPTION>
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger Revenue $ 64,738,821 $ 44,374,767 $ 141,512,015 $ 115,426,934
Other 1,592,597 1,146,092 4,574,208 3,113,170
---------------- ----------------- ---------------- ----------------
Total operating revenues 66,331,419 45,520,859 146,086,223 118,540,104
---------------- ----------------- ---------------- ----------------
OPERATING EXPENSES:
Salaries, wages and benefits 12,006,801 7,671,333 31,861,865 21,872,593
Aircraft leases 13,924,968 11,747,081 34,572,433 28,618,915
Aircraft fuel and oil 12,125,311 8,841,993 29,549,605 21,518,814
Other rentals,landing and ground 11,035,721 4,288,427 21,757,927 12,645,003
handling fees
Advertising 533,061 2,105,384 6,810,752 6,544,083
Insurance 1,799,352 1,238,764 4,626,253 4,257,656
Maintenance materials and repairs 7,249,749 2,718,466 20,297,041 6,759,690
Agency commissions 3,688,253 1,631,491 7,764,570 4,051,106
Depreciation and amortization 1,514,635 1,358,172 4,420,287 3,209,824
Other operating 22,799,127 4,892,134 41,931,478 13,191,816
---------------- ----------------- ---------------- ----------------
Total Operating Expenses 86,676,978 46,493,245 203,592,211 122,669,500
---------------- ----------------- ---------------- ----------------
OPERATING LOSS (20,345,559) (972,386) (57,505,988) (4,129,396)
INTEREST INCOME, NET OF EXPENSE (637,486) 62,061 (1,315,595) 1,296,790
---------------- ----------------- ---------------- ----------------
NET LOSS BEFORE MINORITY INTEREST (20,983,045) (910,325) (58,821,583) (2,832,606)
MINORITY INTEREST - - 2,242,405 -
---------------- ----------------- ---------------- ----------------
NET LOSS $ (20,983,045) $ (910,325) $ (56,579,178) $ (2,832,606)
================ ================= ================ ================
NET LOSS ATTRIBUTABLE TO COMMON STOCK $ (22,837,605) $ (910,325) $ (61,911,191) $ (2,832,606)
================ ================= ================ ================
LOSS PER COMMON SHARE AND $ (1.68) $ (0.07) $ (4.59) $ (0.21)
================ ================= ================ ================
COMMON SHARE EQUIVALENT
WEIGHTED AVERAGE NUMBER OF COMMON 13,566,456 13,356,066 13,475,418 13,286,723
================ ================= ================ ================
SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING
See accompanying notes.
</TABLE>
4
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<TABLE>
WESTERN PACIFIC AIRLINES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
1997 1996
--------------- --------------
(Unaudited) (Unaudited)
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (56,579,178) $ (2,832,606)
Adjustments to reconcile net loss to net cash used for operations -
Depreciation and amortization 4,420,287 3,209,824
Write-down of property and equipment 7,149,191 -
Loss (Gain) on sale leaseback 18,471 (55,413)
Amortization of deferred management fee 300,000 300,000
Minority interest in loss of subsidiary (2,242,405) -
Increase in accounts receivable (11,312,274) (476,321)
Increase in prepaid expenses and deposits (1,750,702) (2,428,125)
Increase in prepaid maintenance (6,734,552) (9,181,468)
Increase in aircraft and engine reserves (5,293,611) (6,902,130)
Decrease (increase) in restricted cash and cash equivalents 2,763,973 (3,281,954)
Decrease (increase) in aircraft deposits (1,916,145) (2,296,507)
Decrease (increase) in other assets 67,790 (1,323,677)
Increase in accounts payable 15,380,996 3,803,278
Increase in accrued expenses 232,226 1,214,985
Increase in air traffic liability 14,701,219 7,423,817
Increase in other liabilities 609,212 536,696
--------------- --------------
Net cash used in operating activities (40,185,502) (12,289,601)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (4,899,738) (29,336,909)
Proceeds of (payments on) production and option deposits 4,000,000 (5,800,000)
--------------- --------------
Net cash flows provided by (used in) investing activities (899,738) (35,136,909)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock, net 18,399,520 -
Issuance of warrants 6,032,651 -
Increase in short term debt, net 11,478,008 -
Increase in long term debt, net (374,741) 16,241,017
Issuance costs related to initial public offering - (362,223)
Issuance of common stock 1,421,224 870,058
--------------- --------------
Net cash flows from financing activities 36,956,662 16,748,852
--------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS (4,128,578) (30,677,658)
CASH AND CASH EQUIVALENTS, beginning of period 12,076,034 49,966,697
--------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 7,947,456 $ 19,289,039
=============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes - 80
=============== ==============
See accompanying notes.
</TABLE>
5
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WESTERN PACIFIC AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
1. PREPARATION OF FINANCIAL STATEMENTS
The accompanying financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The organization and
business of Western Pacific Airlines, Inc. (the "Company"), accounting policies
followed by the Company, and other information are contained in the notes to the
Company's audited financial statements filed as part of the Company's December
31, 1996 Annual Report on Form 10-K. This quarterly report should be read in
conjunction with such annual report. The results of operations for the nine
months ended September 30, 1997 may not necessarily be indicative of the results
for the entire fiscal year ending December 31, 1997.
2. CHAPTER 11 REORGANIZATION
On October 5, 1997, the Company filed a petition (the "filing") for relief
under Chapter 11 of the U.S. Bankruptcy Code (the "Code") in Denver, Colorado
(Case No. 97-24701-SBB). Under Chapter 11, certain claims against the Company in
existence prior to the filing of the petition for relief are stayed while the
Company continues business operations as debtor-in-possession.
In the Chapter 11 case, substantially all liabilities as of the date of the
filing are subject to resolution under a plan of reorganization to be developed
and voted upon by the Company's creditors and confirmed by the Bankruptcy Court.
Schedules have been filed by the Company with the Bankruptcy Court setting forth
the assets and liabilities of the Company as of the date of the filing as shown
by the Company's accounting records. Differences between amounts shown by the
Company and claims filed by creditors will be investigated and resolved. The
ultimate amount and settlement terms for such liabilities are subject to a plan
of reorganization as yet to be developed, and accordingly, are not presently
determinable.
Under the Code, the Company may elect to assume or reject leases,
employment contracts, service contracts, and other executory pre-petition
contracts, subject to Bankruptcy Court review. The Company cannot presently
determine or reasonably estimate the ultimate liability which may result from
the filing of claims for any rejected contracts and no provisions have yet been
made for these items.
The Bankruptcy Court has authorized the Company to use the cash generated
by its operations to continue to fund its business obligations on an interim
basis, and to pay necessary operating costs. The various Bankruptcy Court
rulings authorize the Company to use cash so that it can conduct its operations
on an interim basis. The Company expects to fund its working capital and capital
expenditure requirements through cash generated by the Company's receipts from
operations, sales of assets, and through debtor-in-possession credit facilities.
However, there can be no assurance that the Company will be able to obtain such
debtor in possession credit facilities or, if obtained, that such facilities
will be sufficient to enable the Company to meet its liquidity requirements. The
Company's financing requirements for long-term growth, future capital
expenditures, and debt service cannot be determined until a plan of
reorganization is developed and confirmed by the Bankruptcy Court.
In the event that the Company is unable to obtain confirmation of a plan of
reorganization, the Company may liquidate its business either in its Chapter 11
case or by converting its Chapter 11 case to a Chapter 7 liquidation.
3. COLLATERAL ACCOUNT
On September 12, 1997, the Company borrowed the principal amount ("the
Note") of $10.0 million from Bank One, Texas, N.A. (the "Bank"). All amounts of
outstanding principal and interest accrued on the note are due and payable upon
the earlier of (i) March 11, 1998, or (ii) within seven days of demand therefore
by the Bank. Additionally, all amounts of principal outstanding in excess of
$5.0 million were due and payable within seven days of the closing of the merger
between the Company and Frontier Airlines, Inc. (See Note 4). The Note bears
6
<PAGE>
interest at the Company's option, at either (i) the Bank's prime rate or (ii)
the Bank's Eurodollar rate plus one and one eighth percent (1.125%). Actions to
collect on the note are stayed by the Chapter 11 proceedings.
Hunt Petroleum Corporation ("HPC"), the parent corporation of Hunt
Petroleum of Texas, Inc. ("HPTI"), a stockholder of the Company, (i) entered
into a guaranty ("Guaranty"), whereby it guaranteed the repayment of all amounts
owing under the Note, and (ii) entered into an indemnification agreement
("Indemnification Agreement") whereby it agreed to indemnify the Bank for any
liabilities that might arise in connection with the Note. GFI Company ("GFI"),
another stockholder of the Company, entered into a contribution agreement with
HPC, whereby it agreed to contribute 50% of all amounts payable by HPC under the
Guaranty or Indemnification Agreement. In addition, the Company entered into a
reimbursement agreement with HPC and GFI, whereby the Company agreed to
reimburse HPC or GFI, as the case may be, for any amounts incurred and paid
under the Guaranty or the Indemnification Agreement.
As security for the Note, the Company entered into a security agreement
with the Bank, whereby it granted the Bank a security interest in certain trade
accounts receivable. A further security interest was granted to HPC and GFI in
the same trade accounts receivable and in the Company's interest in the
satellite airport terminal at the Colorado Springs, Colorado airport. In
addition, the Company agreed to assign certain payments relating to trade
accounts receivable to (i) the Bank and (ii) HPC and GFI.
As consideration for the Guaranty and the Contribution Agreement, the
Company entered into a registration rights agreement with GFI and HTPI. Under
the registration rights agreement, the Company agreed to register on demand: (i)
all shares of the Company's common stock currently owned by GFI or HPTI, or
which HPTI or GFI has the right to acquire upon the exercise of any warrants,
options, or convertible securities; and (ii) any additional shares of Common
Stock HPTI or GFI may acquire from (i) the Company, (ii) an affiliate of the
Company, or (iii) any "joint filer" of HPTI or GFI, as the case may be, as
determined for purposes of Section 13(d) under the Securities Exchange Act of
1934, as amended, for a period of five (5) years commencing on September 11,
1997 and ending on September 11, 2002. Any securities of the Company which were
previously subject to registration rights on the part of HPTI or GFI are not
subject to the registration rights agreement.
4. TERMINATION OF MERGER
On June 30, 1997, the Company entered into a definitive agreement and plan
of merger with Frontier Airlines, Inc. ("Frontier"), pursuant to which Frontier
would merge with and into the Company, with Western Pacific as the surviving
corporation after the merger. Also, on June 30, 1997, the Company and Frontier
entered into a code share Agreement which became effective on August 1, 1997. On
September 29, 1997, Western Pacific and Frontier announced in a joint press
release that the parties had terminated the agreement and plan of merger. The
two companies also announced the termination of their current code share
agreement, effective November 16, 1997. The reasons cited for the termination of
the merger were the amount of time involved in consummating the merger and its
toll on employee morale, financial performance, and operations of both airlines.
Cultural differences and the contrast in scheduling philosophies were also
noted.
5. NON-RECURRING CHARGES
The Company incurred $8.8 million in non-recurring charges in the three
months ended September 30, 1997. These charges relate to the write-off of
certain capitalized costs relating to facilities in Colorado Springs, such as
the auxiliary concourse at the Colorado Springs airport, its investment in a
maintenance hangar at Colorado Springs, leasehold improvements at the Colorado
Springs airport and at the Company's headquarters building; costs related to the
terminated merger with Frontier; costs related to certain software whose use has
been discontinued; estimated loss on the sale of an aircraft; and investment in
Colorado Springs Car Rental, Inc., a Thrifty car rental franchisee. For the nine
months ended September 30, 1997, the Company incurred $12.2 million in
non-recurring charges, including the charges noted above, plus certain one-time
costs related to the move of the Company's operations to Denver International
Airport ("DIA"); write-off of deposits for a bus shuttle to be used at the
Company's Colorado Springs airport; and certain costs related to new uniforms
for the in-flight department.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT CONTAIN "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGIATION REFORM ACT
OF 1995. SUCH FORWARD LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS
AND UNCERTAINITIES. WESTERN PACIFIC'S ACTUAL ACTIONS OR RESULTS MAY DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD LOOKING STATEMENTS. SPECIFIC
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
WHETHER A PLAN OF REORGANIZATION WILL BE DEVELOPED OR CONFIRMED, AVAILABILITY OF
ADEQUATE WORKING CAPITAL, COMPETITIVE REACTION TO WESTERN PACIFIC'S OPERATIONS,
RISE IN FUEL COSTS, REGULATORY ACTIONS BY THE DEPARTMENT OF TRANSPORTATION OR
THE FEDERAL AVIATION ADMINISTRATION, POLITITCAL INSTABILITY, FUTURE AIRLINE
ACCIDENTS (PARTICULARLY IF INVOLVING A LOW FARE CARRIER), AND GENERAL ECONOMIC
CONDITIONS IN THE UNITED STATES. SEE ADDITIONAL DISCUSSION UNDER "RISK FACTORS".
OVERVIEW
On June 30, 1997, the Company entered into a definitive agreement and
plan of merger with Frontier Airlines, Inc. ("Frontier"), pursuant to which
Frontier would merge with and into the Company, with the Company as the
surviving corporation after the merger. Also, on June 30, 1997, the Company and
Frontier entered into a code-share agreement which became effective on August 1,
1997. On September 29, 1997, Western Pacific and Frontier announced in a joint
press release that the parties had terminated the agreement and plan of merger.
The two companies also announced the termination of their current code-share
agreement, effective November 16, 1997. The reasons cited for the termination of
the merger were the amount of time involved in consummating the merger and its
toll on employee morale, financial performance, and operations of both airlines.
Cultural differences and the contrast in scheduling philosophies were also
noted.
On October 3, 1997, four directors of the Company resigned from its Board
of Directors. The resigning directors included Ivan Irwin, Jr., Glenn
Stinchcomb, Clayton I. Bennett, and James R. Wikert. In addition, Messrs.
Bennett and Wikert also resigned from the Board of Directors of the Company's
subsidiary, Mountain Air Express, effective October 3, 1997. The reasons cited
for the resignation were potential conflicts of interest between the Directors
and their other business interests.
On October 5, 1997, the Company filed a petition for relief under Chapter
11 of the Code in Denver, Colorado. The filing enabled the Company to obtain
protection from creditors in order to conduct its operations while attempting to
develop a reorganization plan and seeking financing necessary to fund it. The
Bankruptcy Court has authorized the Company to use the cash generated by the
Company to fund its business obligations on an interim basis. While the Company
would have preferred to reorganize its operations without resorting to filing
for bankruptcy protection, it viewed the filing as the only viable alternative
given the adverse impact on the business of inadequate liquidity. The Company is
actively seeking debtor-in-possession financing to assist it in funding
operations and ultimately a plan of reorganization.
The Company commenced operations on April 12, 1994 as a development stage
enterprise organized to operate a low-fare, medium-haul, scheduled passenger
airline from its hub at the Colorado Springs Airport. The Company began flight
operations on April 28, 1995 with two Boeing 737-300 aircraft and provided six
daily round-trips between Colorado Springs and five cities. Thereafter, the
Company continued to add aircraft and cities and on June 29, 1997, moved a
significant portion of its operation to Denver International Airport ("DIA"). On
October 10, 1997, Western Pacific announced that it was terminating jet service
into and out of Colorado Springs, effective October 20, 1997. After that date,
air service between Colorado Springs and DIA would be provided by Western
Pacific's code-share partner, Mountain Air Express, on turboprop aircraft. This
announcement also included the termination of service to Houston, Texas,
effective October 20, 1997 and the termination of service to Indianapolis,
Indiana, effective November 16, 1997. The following chart indicates the
Company's changes in service since December 31, 1996.
8
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TOTAL NUMBER
NUMBER OF
OF ROUND
AS OF MONTH END AIRCRAFT TRIPS SERVICE CHANGES
- --------------- -------- ----- ---------------
February 1997..... 15 37 Added additional service to all cities
except Houston, Miami, and Seattle, and
withdrew service from Ontario (CA), San
Antonio, Nashville, and Las Vegas
April 1997........ 15 33 Withdrew service from Miami
May 1997.......... 16 33
June 1997 ........ 18 40 Moved the bulk of operations from
Colorado Springs to Denver International
Airport
July 1997......... 19 40
August 1997....... 19 40 Began code-sharing service with Frontier
October 1997...... 19 35 Withdrew service from Colorado Springs
and Houston
The Company has previously announced that on November 16, 1997, it will withdraw
service to Indianapolis and terminate the code-share agreement with Frontier.
During 1996, the Company assisted in the start-up of an affiliated regional
carrier, Mountain Air Express, ("MAX"), to carry traffic into and out of
Colorado ski markets and other smaller travel markets that cannot support
frequent jet service. MAX, which commenced flight operations on December 15,
1996, is a separate operating company with its own operating certificate and
management. The Company owns 57% of outstanding stock of MAX. MAX filed for
protection under Chapter 11 of the Code on November 6, 1997 in Denver, Colorado
(Case #97-26584-SBB).
RESULTS OF OPERATIONS
WESTERN PACIFIC AIRLINES
OPERATING REVENUES
Airline revenue is primarily a function of the number of passengers flown and
the fares charged by the airline. Passenger ticket sales are recognized as
revenue when the transportation is provided. The Company's fares are generally
non-refundable. Prior to completing the total conversion of the Company's
reservations to the SABRE computerized reservations system ("CRS") on April 25,
1997, changes in travel plans could only be made prior to scheduled departure
for a $50 change fee, plus any fare increase. After the conversion to SABRE,
tickets not used remain a liability of the airline, until used to pay for other
flights or until the ticket expires, generally after one year.
The chart presented below compares the Company's passenger load factor to
the incremental growth in capacity as measured by available seat miles (ASM).
The airline industry is extremely seasonal, with the highest load factors
typically occurring in the summer months, and the lowest load factors occurring
during September, October, January, February, April and May. The Company's load
factor decreased 3.4 percentage points for the quarter ended September 30, 1997
from the quarter ended June 30, 1997, due to a combination of factors including
the 37.3% increase in capacity and issues with the Frontier code-share
agreement. The Company's load factor increased 3.8 percentage points when
comparing the quarter ended September 30, 1997 to the quarter ended September
30, 1996. This increase can be attributed to the effects of shifting most of the
Company's operations to the larger DIA hub on June 29, 1997; aggressive
promotions such as "Peak Paks", and a promotion with King Soopers, a Colorado
grocery store chain; and increased frequencies to increase connecting
opportunities.
<TABLE>
<CAPTION>
Total Increase
Passenger Available (Decrease)
Operating Period Load Factor Seat Miles in Capacity
- ---------------- ----------- ---------- -----------
(OOOs)
<S> <C> <C> <C>
Quarter ended September 30, 1996 57.5% 745,821 ---%
Quarter ended December 31, 1996 60.1% 673,607 (9.7%)
Quarter ended March 31, 1997 48.7% 758,592 12.6%
Quarter ended June 30, 1997 64.7% 763,118 .6%
Quarter ended September 30, 1997 61.3% 1,037,728 36.0%
</TABLE>
Passenger revenue per revenue passenger mile (RPM) or yield may increase due
to a combination of factors, including increases in average fares and decreases
9
<PAGE>
in discounted fares as a percentage of total fares. However, in periods when the
Company introduces promotional fares in new markets or uses promotional fares to
stimulate additional travel in existing markets, the Company generally
experiences a decrease in passenger revenue per RPM. The Company believes that
the negative impact of entering new markets and the use of discounted fares
should decrease as the Company increases its overall revenue base and customer
awareness. For the quarter ended September 30, 1997, the Company produced a
yield of 9.45(cent) which is a 14.2% increase from the prior quarter primarily
as a result of the move of most of the Company's operations to DIA, and the
expanded schedule which allows more connecting opportunities.
Revenue Average Passenger
Passenger Passenger Segment Revenue
Operating Period Revenue Miles Fare Per RPM
- ---------------- ------- ----- ---- -------
(000's) (000's) (cents)
Quarter ended September 30,1996 44,375 428,509 $90.98 10.36
Quarter ended December 31, 1996 33,909 404,689 74.37 8.38
Quarter ended March 31, 1997 32,045 369,557 77.54 8.61
Quarter ended June 30, 1997 40,594 493,465 76.39 8.27
Quarter ended September 30, 1997 60,073 636,023 80.18 9.45
The Company's operating break-even load factor during the twenty nine months
of its operations has fallen from a high of 104.8% in May 1995 to 58.7% for the
quarter ended September 30, 1996. Historically, as the Company's fleet has
expanded, the incremental passenger revenue generated from the additional
capacity has covered the incremental costs of the expansion, as well as a
portion of the Company's existing fixed costs, resulting in a steady decline in
the operating break-even load factor. The Company's cost per ASM after
non-recurring charges for the quarter ended September 30, 1997 increased from
the prior quarter, while the cost per ASM before these non-recurring charges was
6.88(cent) for the quarter ended September 30, 1997, a decrease from the prior
quarter's cost per ASM before non-recurring charges of 7.09(cent). This decrease
is a function of the 37.7% increase in ASMs over the quarter ended September 30,
1997 from the prior quarter. There can be no assurance that any incremental
passenger revenue generated in the future as the Company expands its fleet will
be sufficient to cover incremental costs or that, ultimately, as a result of
these or other factors, the Company's operating break-even load factor will
decrease.
Operating Operating
Cost Per Break-Even
Operating Period ASM (cents) Load Factor
- ---------------- ----------- -----------
Quarter ended September 30, 1996 6.23 58.7%
Quarter ended December 31, 1996 8.28 96.2%
Quarter ended March 31, 1997 6.58 73.8%
Quarter ended June 30, 1997 7.55 88.4%
Quarter ended September 30, 1997 7.70 86.4%
MOUNTAIN AIR EXPRESS
Mountain Air Express commenced flight operations on December 15, 1996. The
determination of MAX's revenues had been governed by an Alliance Agreement
between MAX and the Company and the number of passengers flown. Under the
Alliance Agreement, all of MAX's marketing, scheduling, and pricing decisions
were made by the Company. In return, MAX received an agreed amount from the
Company for each passenger flown. The Alliance Agreement between the Company and
Mountain Air Express is in the process of being rejected by the Company pursuant
to a court order by the United States Bankruptcy Court. Effective October 22,
1997, MAX is paid $200,000 per week to fly the Company's connecting passengers
between Colorado Springs and DIA, and will be paid a pro rate portion of the
passenger fare for passengers connecting in other cities. MAX's load factor
increased for the quarter ended September 30, 1997 as compared to prior quarters
due to the Company's transfer of some of their service to Oklahoma City, Tulsa,
and Kansas City to MAX, and the larger Denver marketplace. MAX filed for
protection under Chapter 11 of the Code in Denver, Colorado on November 6, 1997.
10
<PAGE>
Passenger Total Passenger Operating
Load Available Revenue Break Even
Operating Period Factor Seat Miles Per RPM Load Factor
- ---------------- ------ ---------- ------- -----------
(000's)
December 15 - December 31, 1996 44.4% 1,250 43.39 67.4%
Quarter ended March 31, 1997 28.3% 12,215 65.84 50.4%
Quarter ended June 30, 1997 23.8% 21,481 25.43 89.2%
Quarter ended Sept. 30, 1997 55.9% 34,585 23.11 72.5%
OPERATING EXPENSES
WESTERN PACIFIC AIRLINES
The following table shows the components of operating cost per available seat
mile, (shown in cents):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1997 SEPT 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
-------------- ------------- -------------- --------------
(cents) (cents) (cents) (cents)
<S> <C> <C> <C> <C>
Salaries, wages and benefits........................... .98 1.03 1.07 1.13
Aircraft lease expense ................................ 1.25 1.57 1.26 1.48
Aircraft fuel and oil ................................. 1.11 1.19 1.10 1.11
Other rentals, landing, and ground handling fees....... .98 .58 .78 .65
Advertising and public relations....................... .05 .28 .20 .34
Insurance expense ..................................... .15 .17 .15 .22
Maintenance materials and repairs...................... .61 .36 .71 .35
Agency and cargo commissions........................... .36 .22 .30 .21
Depreciation and amortization.......................... .14 .18 .17 .17
Other operating expenses............................... 1.25 .66 1.12 .68
---- ---- ---- ----
Total ................................................. 6.88 6.23 6.86 6.34
==== ==== ==== ====
</TABLE>
All costs shown above have been adjusted by $8.8 million for the three months
ended September 30, 1997 and $12.2 million for the nine months ended September
30, 1997 for non-recurring charges related to the Company's termination of
service to various cities, primarily Colorado Springs, and one-time costs of
commencing service at Denver International Airport.
Salaries, wages and benefits decreased by .05 cents per ASM or 5% when
comparing the quarter ended September 30, 1997 to the quarter ended September
30, 1996. This decrease can be attributed to a 36% increase in ASMs, with only a
25% increase in full-time equivalent personnel (FTE). Salaries, wages, and
benefits decreased by .06 cents per ASM or 5% when comparing the nine months
ended September 30, 1997 to the nine months ended September 30, 1996. This
decrease can also be attributed to the increase in ASMs over the period noted,
with a proportionally smaller increase in FTEs.
Aircraft lease expense decreased .32 cents per ASM, or 20% for the quarter
ended September 30, 1997 from the quarter ended September 30, 1996. The decrease
is due to the wet lease of two Boeing 727 aircraft during the period of mid-June
through September 5, 1996 which increased the Company's cost for the quarter by
.30 cents per ASM for this quarter which did not occur in 1997. Aircraft lease
expense decreased .22 cents per ASM, or 14% for the nine months ended September
30, 1997 when comparing the nine months ended September 30, 1997 to the nine
months ended September 30, 1996. This decrease is due to the wet leases
described above as well as the 32% increase in ASMs for the nine months ended
September 30, 1997 from the nine months ended September 30, 1996 with a 27%
increase in the number of leased aircraft over the comparable periods.
Aircraft fuel and oil expense decreased by .08 cents per ASM or 7% when
comparing the quarter ended September 30, 1997 to the quarter ended September
30, 1996. This decrease reflects the effect of a 5.3 cent per gallon or 7% fuel
11
<PAGE>
price decrease over the period. Aircraft fuel and oil expense decreased by .01
cents per ASM or 1% when comparing the nine months ended September 30, 1997 to
the nine months ended September 30, 1997, on a decrease of 1.1 cents per gallon
over the same time period.
Other rentals, landing, airport and ground handling fees increased by .40
cents per ASM or 69% when comparing the quarter ended September 30, 1997 to the
quarter ended September 30, 1996. This increase was primarily due to increased
flight simulator rental time due to increased hiring of pilots required by the
higher utilization schedule, and increased ground handling, rent, and landing
fees at DIA. Other rental, landing, airport and ground handling fees increased
by .13 cents per ASM or 20% when comparing the nine months ended September 30,
1997 to the nine months ended September 30, 1996. This increase was due to the
increased simulator rental time previously noted, both for the increased
utilization schedule, and for new aircraft deliveries that occurred during May
and June 1997.
Advertising expense decreased by .23 cents per ASM or 82% when comparing
the quarter ended September 30, 1997 to the quarter ended September 30, 1996.
This decrease was intentional, due to the large amount of advertising placed in
the second quarter when the Company began service to Denver. Advertising expense
decreased by .14 cents per ASM or 41% when comparing the nine months ended
September 30, 1997 to the nine months ended September 30, 1996, after the
deduction of $1.8 million in launch advertising related to the commencement of
the Company's operations at DIA. Without this adjustment, advertising cost per
ASM for the nine months ended September 30, 1997 was .27 cents per ASM, or a 21%
reduction from the comparable period in 1996. This reduction was due to the cost
of advertising for seven new cities for which service was added during the first
nine months of 1996, with only one city (Denver) added during 1997.
Insurance expense decreased by .02 cents per ASM or 12% when comparing the
quarter ended September 30, 1997 to the quarter ended September 30, 1996, and
.07 cents per ASM or 32% when comparing the nine months ended September 30, 1997
to the nine months ended September 30, 1996. This decrease reflects a premium
reduction obtained by the Company due to fewer aircraft in service than
originally projected for the policy year.
Maintenance materials and repairs expense increased by .25 cents per ASM or
69% when comparing the quarter ended September 30, 1997 to the quarter ended
September 30, 1996, and .36 cents per ASM or 103% when comparing the nine months
ended September 30, 1997 to the nine months ended September 30, 1996. This
increase reflects the amortization of airframe "C" maintenance checks and engine
overhauls performed on the Company's fleet, as well as a shorter maintenance
cycle due to the Company's increased aircraft utilization. The Company uses the
deferral method of accounting for "C" check maintenance and engine overhaul
costs.
Agency and cargo commissions increased by .14 cents per ASM or 64% when
comparing the quarter ended September 30, 1997 to the quarter ended September
30, 1996, and .09 cents per ASM or 43% when comparing the nine months ended
September 30, 1997 to the nine months ended September 30, 1996. As anticipated,
agency and cargo commissions increased as a percentage of total expenses, as the
Company entered into agreements with several of the industry's computerized
reservation systems ("CRS") in March of 1997 so that seats on the Company's
flights could be booked directly by a travel agent without the need to telephone
the Company's reservation office. These agreements have given the Company's
flights increased exposure to travel agents, who now account for 60% of the
Company's flight booking activity.
Depreciation and amortization decreased .04 cents per ASM or 22% when
comparing the quarter ended September 30, 1997 to the quarter ended September
30, 1996; and remained at .17 cents per ASM when comparing the nine months ended
September 30, 1996 to the nine months ended September 30, 1995. The increase in
ASMs was directly proportional to the increase in assets for the nine months,
while the increase in ASMs for the quarter ended September 30, 1997 was larger
than the increase in assets.
Other operating expenses increased by .59 cents per ASM or 89% when comparing
the quarter ended September 30, 1997 to the quarter ended September 30, 1996 and
.44 cents per ASM or 65% when comparing the nine months ended September 30, 1997
to the nine months ended September 30, 1996. Excluded from this calculation were
one time charges related to the write-off of capitalized costs related to the
merger with Frontier, capitalized facility costs in Colorado Springs, one time
charges related to the commencement of operations at DIA, new uniforms, and the
write-off of deposits made on trams originally intended to be used at the
auxiliary concourse at Colorado Springs. Other operating expenses include
property taxes, telecommunication and utilities charges, professional and
consulting services, supplies and minor equipment (excluding aircraft
maintenance supplies), credit card processing fees, bad debt expense, travel and
12
<PAGE>
incidental expense, and passenger reaccomodation and baggage delivery charges.
While some of these costs, such as credit card processing fees and bad debt
expense will vary with the increase in ASM's, others such as supplies will not.
Significant increases or new charges in this category for the nine months ended
September 30, 1997 from the nine months ended September 30, 1996 include $3.0
million for CRS fees; $2.2 million for the outsourced Information Technology
functions; $3.3 million in reaccommodation charges related to the Company's
schedule changes and operational performance; and $.5 million in payments to an
outside revenue accounting (ticket) processor. The CRS fees and the expenses of
processing revenue are additional distribution costs related to the Company's
move into the SABRE multi-host reservation system, and are offset by the
additional revenue generated as a result of the wider distribution system. The
fees paid to reaccommodate passengers are expected to decrease as the Company
adjusts to its new flight schedule on November 16.
MOUNTAIN AIR EXPRESS
The following table shows the components of operating cost per available seat
mile (shown in cents):
THREE MONTHS THREE MONTH THREE MONTHS
ENDED ENDED ENDED
SEPT. 30, 1997 JUNE 30, 1997 MARCH 31, 1997
-------------- ------------- --------------
Salaries, wages and benefits......... 5.23 6.62 10.03
Aircraft lease expense .............. 2.64 4.21 4.87
Aircraft fuel and oil ............... 1.69 1.97 3.45
Other rentals, landing, and
ground handling fees............. 2.64 1.55 4.09
Insurance expense ................... .66 1.19 1.82
Maintenance materials and repairs.... 2.58 2.93 1.42
Depreciation and amortization........ .17 .27 .30
Other operating expenses............. 2.86 3.94 7.20
----- ----- -----
Total ............................... 18.47 22.68 33.18
===== ===== =====
The decrease in the cost per ASM for the quarter ended September 30, 1997 can
be attributed to the 61% increase in ASM's from the prior quarter.
BALANCE SHEET FLUCTUATION ANALYSIS
The Company's accounts receivable increased by $11.3 million during the
nine months ended September 30, 1997 due to $9.5 million due from the Airline
Clearing House and $1.1 million due from the Airlines Reporting Corporation.
Both of these receivables are a reflection of the Company joining the CRSs and
the timing of the payments that are made. The Company's aircraft and engine
reserves, both current and long term, increased by $5.3 million during the nine
months ended September 30, 1996. These reserves reflect the increase in the
number of aircraft in the Company's fleet, as well as the increased utilization.
Property and equipment decreased by $6.7 million during the nine months ended
September 30, 1997, as a result of the Company's decision to discontinue jet
service to Colorado Springs and therefore, the Company wrote down certain assets
such as the hangar, auxiliary concourse, and leasehold improvements at Colorado
Springs.
The Company's accounts payable increased by $15.4 million during the nine
months ended September 30, 1997. As previously noted, the Company filed for
Chapter 11 protection under the United States Federal Bankruptcy Code on October
5, 1997.
The Company's air traffic liability account increased by $14.7 million
during the nine months ended September 30, 1996. This increase resulted
primarily from advance reservations made for travel not yet taken due to the
increase in the number of flights from December 31, 1996 to September 30, 1997
and promotions offered by the Company.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1997, the Company's operating
activities resulted in a cash flow deficit of $40.2 million, which has been
funded primarily with short term borrowings and funds raised from two private
13
<PAGE>
placements of preferred stock. At September 30, 1997 the Company had cash and
cash equivalents of $7.9 million, restricted cash of $5.6 million, and a working
capital deficit of $43.8 million. At December 31, 1996, the Company had cash and
cash equivalents of $12.1 million, restricted cash of $8.3 million, and a
working capital deficit of $19.0 million.
Cash flow used in investing activities totaled $.9 million during the nine
months ended September 30, 1997, of which $4.9 million was for new capital
expenditures, offset by $4.0 million in proceeds from a production deposit. Cash
flows from investing activities totaled $35.1 million for the nine months ended
September 30, 1996, consisting primarily of the purchase of a used Boeing
737-300 aircraft.
At September 30, 1997, the Company operated nineteen aircraft, with eighteen
under operating leases with terms of either five or ten years. The Company's
nineteenth aircraft, which it owned, was sold by the Company on November 4,
1997, realizing net proceeds of approximately $5.4 million in cash from the sale
and a loss of $1.3 million which is included in the third quarter loss. The
Company has entered into an agreement with the new owner of the aircraft to
continue to use the aircraft for one month. The Company has negotiated for
delivery of one additional used aircraft in November 1997 and must decide if
delivery will be accepted by November 21, 1997. The Company is party to an
aircraft purchase agreement with the Boeing Company providing for delivery of
two new Boeing 737-300 aircraft, one in December 1997 and the second in November
1998. The Company has tentatively agreed to sell these delivery positions to a
third party. Additionally, the Company leases up to four spare engines at any
time under operating leases with terms ranging from several months to three
years.
Cash flow provided by financing activities totaled $37.0 million for the nine
months ended September 30, 1997 and $16.7 million for the nine months ended
September 30, 1996. See Note 3 of Notes to the Consolidated Financial Statements
for a discussion of the collateral account.
Under the Code, the Company has the exclusive right, for 120 days from the
filing date, or until February 2, 1998, to present a reorganization plan to the
Bankruptcy Court. This date may be extended by the Bankruptcy Court. During the
60 day period from the filing date, no payments need to be made on real or
personal property leases, including aircraft leases, except as specifically
agreed or ordered by the court. With respect to aircraft and real property
leases, the Company must commence payments at the end of the 60 day period
unless otherwise agreed between the Company and the lessor. Additionally, the
contractual payments deferred under aircraft leases during the first 60 days
must generally be brought current within the 60 day period for real property
leases (unless otherwise agreed) or by the later end of the 60 day period or 30
days from the due date of the payment for aircraft leases (unless otherwise
agreed). The Company estimates that its aircraft leases alone will require
approximately $10.1 million to be brought current on December 4, 1997. The
Company is actively seeking debtor-in-possession ("DIP") financing which will
allow it to continue operations and to assist in funding a plan of
reorganization. If the Company is unable to secure such financing, it may sell
assets or find other financing mechanisms to generate cash. There is no
assurance that the Company will be able to secure DIP financing or raise enough
funds to allow it to obtain confirmation of a plan of reorganization. If the
Company is unable to obtain confirmation of a plan, the assets of the Company
will be liquidated.
OUTLOOK: ISSUES AND UNCERTAINTIES
The following issues and uncertainties, among others, should be considered
in evaluating the Company's future performance.
EMERGENCE FROM BANKRUPTCY PROTECTION. The Company is currently operating
under protection of the Code. On or before the 60th day from the filing date of
October 5, 1997, the Company must agree to commence payments on its real and
personal property leases and bring most payments deferred during the 60 day
period current at that time, unless otherwise agreed by the lessor. The Company
has the exclusive right for the first 120 days after the filing date to present
a reorganization plan which must thereafter be approved by the Bankruptcy Court.
The Company will likely require debtor-in-possession financing to emerge from
Chapter 11 protection. There can be no assurance that such financing will be
obtained or that if obtained, the amount will be sufficient to allow the Company
to continue operations.
HISTORICAL LOSSES. The Company began scheduled flight operations on April
28, 1995. During the period from the Company's inception through September 30,
1997, the Company incurred net losses totaling $92.0 million and has had only
two profitable quarters in its history. Given the Company's limited operating
history, there can be no assurances that the Company will be profitable in the
future.
14
<PAGE>
CONSUMER CONCERN ABOUT OPERATING SAFETY CONDITIONS AT START-UP AND BANKRUPT
CARRIERS. The highly publicized safety issues that led to the Federal Aviation
Administration (FAA) grounding of ValuJet have caused some consumers to question
the operating safety of all start-up airlines. Though the Company passed a
rigorous National Aeronautical Safety Inspection audit conducted by the FAA and
passed an independently commissioned comprehensive safety audit conducted by the
Flight Safety Foundation, there is no assurance that the FAA will not take more
restrictive actions against the Company because of its being in Chapter 11
bankruptcy procedures. Such actions by the FAA could increase operating costs
and reduce future earnings potential.
RISING FUEL COSTS. At the Company's current consumption rate, each one cent
increase in the price of fuel increases the Company's monthly fuel expense by
approximately $40,000. Some carriers have begun to assess a fuel surcharge to be
added to their base fares to cover these increased costs. The Company has
considered this alternative, but there can be no assurance that the Company
would be able to pass along any increases in the price of fuel to its consumers.
Currently, the Company is prepaying for its fuel requirements with cash.
UNIONIZATION OF EMPLOYEE GROUPS. The Company's mechanics voted to join the
International Brotherhood of Teamsters union in May 1996. No other work groups
are currently represented by, or have voted to be represented by, a union. While
the mechanics' action has not altered the Company's work rules or increased the
Company's costs, there can be no assurance that such action will not result in
future changes or that other employee groups will not vote for union
representation, nor that labor costs for those groups represented by a union
will not increase. The Company currently has no contract with its mechanics or
any other labor group.
COMPETITION. The airline industry is highly competitive. Other airlines
that presently serve the Company's routes in competition with the Company are
larger and have greater name recognition and resources than the Company. The
Company may also face competition from other airlines which may begin serving
the markets that the Company currently serves or may serve in the future, and
competition from new low-cost airlines that may be formed to compete in the
low-fare market (including those formed by other major airlines) and from ground
transportation alternatives. The Company's hub is located at Denver
International Airport, where United Airlines presently has 64% (based on
September 1997 enplanements) of the market.
GENERAL STATE OF UNITED STATES ECONOMY. The airline industry is highly
susceptible to general changes in the economic climate, particularly in the
leisure travel segment of the market. Any downturn in the economy of the United
States could have an adverse effect on the Company's business.
EXHIBITS AND REPORTS ON FORM 8-K.
(a) Documents filed with this Report:
1. Financial Statements. The financial statements filed as a part of this
report are listed in Item 1, "Financial Statements and Supplementary Data,"
herein.
2. Financial Statement Schedules.
3. Exhibits. The following exhibits are filed herewith or incorporated by
reference as indicated. Exhibit numbers refer to Item 601 of Regulation S-K.
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
*10.82 -- Aircraft Lease Agreement dated June 27,1997 between the
Company and Wilmington Trust Company (MSN 28871).
*10.83 -- Aircraft Lease Agreement dated May 15, 1997 between the
Company and KG Aircraft Leasing Co., Ltd. (MSN 24060).
*10.84 -- Aircraft Lease Agreement dated March 26, 1997 between the
Company and Wilmington Trust Company (MSN 28868).
*10.85 -- Aircraft Lease Agreement dated June 27, 1997 between the
Company and Bouillioun Portfolio Finance, Inc. (MSN 28869).
*10.86 -- Aircraft Lease Agreement dated June 26, 1997 between the
Company and GATX Third Aircraft Corporation (MSN 28870).
15
<PAGE>
*10.87 -- Lease Agreement dated March 18, 1996 and amended and restated
as of July 7, 1997 between the Company and First Security Bank,
National Association.
*10.88 -- Engine Lease Agreement dated May 21, 1996 and amended and
restated as of July 7, 1997 between the Company and First
Security Bank, National Association.
*10.89 -- Aircraft Lease Novation Agreement dated July 9,1997 between
the Company and First Security Bank, National Association.
*10.90 -- Engine Lease Novation Agreement dated July 9, 1997 between
the Company and First Security Bank, National Association.
27 -- Financial Data Schedule
==============================================================================
* Portions of these documents have been redacted and filed separately with
the Commission as part of a request by the Company for confidential treatment
pursuant to Rule 406 under the Securities Act of 1933, as amended.
(b)The Company filed the following reports on Form 8-K during the quarter
ended September 30, 1997:
1) The Company filed a report on Form 8-K for an event dated September 12,
1997, reporting under Item 5 the detail of the pro forma financial
information for the combined Western Pacific Airlines and Frontier company.
2) The Company filed a report on Form 8-K for an event dated September 19,
1997, reporting under Item 5 the loan to the Company of $10.0 million from
Bank One Texas, which was guaranteed by Hunt Petroleum Corporation and GFI
Company.
3) The Company filed a report on Form 8-K for an event dated September 29,
1997, reporting under Item 5 the termination of the merger agreement between
Frontier Airlines and the Company.
4) The Company filed a report on Form 8-K for an event dated October 3, 1997,
reporting under Item 5 the resignation of four members of the Company's
Board of Directors.
5) The Company filed a report on Form 8-K for an event dated October 5, 1997,
reporting under Item 3 that the Company had filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code.
16
<PAGE>
Signatures
Pursuant to 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.
WESTERN PACIFIC AIRLINES, INC.
By: /s/ ROBERT A. PEISER
Robert A. Peiser
President and Chief Executive
Officer
Date: November 14, 1997.
By: /s/ GEORGE E. LEONARD
George E. Leonard
Vice President Finance and Chief
Financial Officer
Date: November 14, 1997.
17
<PAGE>
-----------------------------------
WILMINGTON TRUST COMPANY,
not in its individual capacity except
as otherwise expressly provided herein,
but solely as owner trustee
(Lessor)
- and -
WESTERN PACIFIC AIRLINES, INC.
(Lessee)
-----------------------------------
LEASE AGREEMENT
- relating to -
One Boeing 737-300 Aircraft
Manufacturer's Serial No: 28871
Registration Mark: N966WP
-------------------------------------
<PAGE>
CONTENTS
CLAUSE PAGE
1. DEFINITIONS and INTERPRETATION.................................. 1
1.1 Definitions............................................... 1
1.2 Interpretation............................................ 21
2. REPRESENTATIONS AND WARRANTIES.................................. 22
2.1 Lessee's Representations and Warranties................... 22
2.2 Lessee's further Representations and Warranties........... 23
2.3 Repetition................................................ 24
2.4 Lessor's and Trust Company's Representations and
Warranties................................................ 24
2.5 Repetition................................................ 26
3. CONDITIONS PRECEDENT............................................ 26
3.1 Documentary Conditions Precedent.......................... 26
3.2 Other Conditions Precedent................................ 28
3.3 Waiver.................................................... 28
3.4 Lessee's Conditions Precedent............................. 29
3.5 Waiver.................................................... 29
4. COMMENCEMENT.................................................... 30
4.1 Leasing................................................... 30
4.2 Delivery.................................................. 30
4.3 Condition on Delivery..................................... 30
4.4 (intentionally left blank)................................ 30
4.5 Indemnity................................................. 30
4.6 Acceptance and Risk....................................... 31
4.7 Delayed Delivery.......................................... 31
4.8 Options................................................... 32
5. PAYMENTS........................................................ 32
5.1 Aircraft Commitment Fee................................... 32
5.2 Rental Periods............................................ 33
5.3 Rent...................................................... 33
5.4 Supplemental Rent......................................... 34
5.5 Payments.................................................. 34
5.6 Gross-up.................................................. 35
5.7 Taxation.................................................. 35
5.8 Value Added Tax........................................... 36
5.9 Information............................................... 37
<PAGE>
5.10 Taxation of Indemnity Payments............................ 37
5.11 Default Interest.......................................... 38
5.12 Contest................................................... 38
5.13 Absolute.................................................. 39
5.14 Lessor's Moneys........................................... 40
5.15 Letter of Credit.......................................... 41
5.16 Verification.............................................. 42
6. MANUFACTURER'S WARRANTIES....................................... 43
6.1 Assignment................................................ 43
6.2 Proceeds.................................................. 43
6.3 Parts..................................................... 44
6.4 Agreement................................................. 44
7. LESSOR'S COVENANTS and DISCLAIMERS.............................. 44
7.1 Quiet Enjoyment........................................... 44
7.2 Maintenance Contribution ................................. 45
7.3 The Lessor's Obligations Following Expiry Date............ 46
7.4 Exclusion................................................. 47
7.5 Lessee's Waiver........................................... 48
7.6 Lessee's Confirmation..................................... 48
8. LESSEE'S COVENANTS.............................................. 49
8.1 Duration.................................................. 49
8.2 Information............................................... 49
8.3 Lawful and Safe Operation................................. 50
8.4 Taxes and other outgoings................................. 52
8.5 Sub-Leasing............................................... 52
8.6 Inspection................................................ 54
8.7 Protection of Title....................................... 55
8.8 General................................................... 57
8.9 Records................................................... 57
8.10 Registration and Filings.................................. 58
8.11 Maintenance and Repair.................................... 58
8.12 Removal of Engines and Parts.............................. 60
8.13 Installation of Engines and Parts ........................ 60
8.14 Non-Installed Engines and Parts........................... 61
8.15 Pooling of Engines and Parts.............................. 62
8.16 Equipment Changes; Non-Severable Modifications and
Severable Modifications................................... 63
8.17 Title to Engines and Parts ............................... 64
9. INSURANCE ...................................................... 64
9.1 Insurances................................................ 64
<PAGE>
9.2 Requirements.............................................. 65
9.3 Change.................................................... 65
9.4 Insurance Covenants....................................... 66
9.5 Failure to Insure......................................... 68
9.6 Continuing Indemnity...................................... 68
9.7 Application of Insurance Proceeds......................... 68
10. INDEMNITY....................................................... 69
10.1 General................................................... 69
10.2 Duration.................................................. 73
11. EVENTS OF LOSS.................................................. 73
11.1 Total Loss................................................ 73
11.2 Requisition............................................... 74
11.3 Application of Payments from Governmental Authorities
in Respect of Event of Loss............................... 75
12. RETURN OF AIRCRAFT.............................................. 75
12.1 Redelivery................................................ 75
12.2 Final Inspection ......................................... 76
12.3 Non-Compliance............................................ 77
12.4 Obligation to Return the Aircraft......................... 77
12.5 APU Adjustment............................................ 78
12.6 Documentation............................................. 78
12.7 Acknowledgement........................................... 78
12.8 Maintenance Programme..................................... 78
12.9 Fuel...................................................... 79
12.10 Storage................................................... 79
13. DEFAULT ....................................................... 79
13.1 Events.................................................... 79
13.2 Rights.................................................... 82
13.3 Deregistration............................................ 83
13.4 Default Payments.......................................... 83
13.5 Exercise of Remedies...................................... 85
14. ASSIGNMENT and TRANSFER......................................... 85
14.1 No assignment by Lessee................................... 85
14.2 Assignment................................................ 85
14.3 No increased liability.................................... 86
14.4 Right to grant mortgage................................... 86
15. ILLEGALITY...................................................... 86
<PAGE>
16. MISCELLANEOUS................................................... 86
16.1 Waivers, Remedies Cumulative.............................. 86
16.2 Delegation................................................ 87
16.3 Certificates.............................................. 87
16.4 Appropriation............................................. 87
16.5 Currency Indemnity........................................ 87
16.6 Set-off................................................... 88
16.7 Severability.............................................. 88
16.8 Remedy.................................................... 88
16.9 Expenses.................................................. 89
16.10 Time of Essence........................................... 89
16.11 Notices................................................... 89
16.12 Law and Jurisdiction...................................... 91
16.13 Sole and Entire Agreement................................. 93
16.14 Indemnities............................................... 93
16.15 Cost of Lessee's Work..................................... 93
16.16 Counterparts.............................................. 93
16.17 English Language.......................................... 93
16.18 Confidentiality........................................... 94
16.19 Geneva Convention......................................... 94
16.20 Civil Reserve Air Fleet Program........................... 94
16.21 Section 1110.............................................. 95
16.22 Article 2-A of the UCC.................................... 95
<PAGE>
SCHEDULES
1. Aircraft Specification
2. Certificate of Acceptance
3. Operating Condition at Redelivery
4. Insurance Requirements
5. Acknowledgments in Connection with Financing
6. Forms of Legal Opinions
7. Form of Letter of Credit
8. Engine Life-Limited Parts
9. Form of Monthly Status Report
10. Approved Jurisdictions for Sub-Leasing
12. Letter of Quiet Enjoyment
<PAGE>
THIS LEASE AGREEMENT is made the day of June 1997
BETWEEN: WILMINGTON TRUST COMPANY, a banking corporation organized under the
laws of the State of Delaware whose chief executive office is located at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, not in
its individual capacity except as otherwise expressly provided herein, but
solely as owner trustee (the "OWNER TRUSTEE"), as lessor (the "LESSOR")
and
WESTERN PACIFIC AIRLINES, INC., a company incorporated under the laws of
Delaware whose principal address is at 2864 S. Circle Drive, Suite 1100,
Colorado Springs, CO 80906, as lessee (the "LESSEE").
WHEREAS:
NBB Stream Lease Co., Ltd. has leased the Aircraft to Sunrock Aircraft
Corporation Limited which, pursuant to the head lease assignment (the "Head
Lease Assignment"), has assigned its rights but not its obligations under the
Head Lease (as defined below) to Wilmington Trust Company, as the Owner Trustee
and the Lessor under this Agreement. The Lessee has requested the Lessor to
lease the Aircraft to the Lessee which the Lessor has agreed to do in
consideration of, and subject to, the covenants, terms and conditions contained
in this Agreement.
NOW IT IS HEREBY AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this Agreement the following expressions shall, unless the context
otherwise requires, have the following respective meanings:
AFFILIATE in relation to any person, any entity
controlled directly or indirectly by that
person, any entity that controls directly or
indirectly that person, or any entity under
common control with that person. For this
purpose "control" of any entity or person
means ownership of a majority of the voting
power of the entity or person.
AFTER-TAX BASIS a basis whereby any payment required to be
made on such basis shall, if necessary, be
supplemented by a further payment so that
the aggregate of the two payments, after
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deduction of all Taxes resulting from the
receipt (actual or constructive) or accrual
of such payments, and after taking into
account all related Tax savings (whether by
relief, deduction, credit or otherwise)
actually realised as a result of such
payments, shall be equal to the payment so
required.
AGREED APPRAISER a reputable aircraft appraisal organization
of recognized expertise in the field of
valuation of commercial passenger jet
aircraft (including, without limitation,
Avitas, Avmark Inc., Avmark Services Limited
and Airclaims Limited) which is mutually
acceptable to the Lessor and the Lessee;
provided that if the Lessor and the Lessee
are unable to agree upon such an appraiser
within five (5) Business Days after the need
for such appraiser arises, the Lessor and
the Lessee shall each appoint such an
appraiser and the two appraisers so
appointed shall select a third such
appraiser which shall be the Agreed
Appraiser; and provided further that if
either party hereto fails to appoint an
appraiser as provided above, the Agreed
Appraiser shall be the appraiser appointed
by the other party.
AGREED MAINTENANCE PERFORMER (i) the Lessee or (ii) any other reputable
maintenance facility certified by the FAA
for the relevant work on Boeing 737-300
aircraft or engines such as the Engines,
which is then under contract with the Lessee
to perform comparable work on similar
aircraft or engines in the Lessee's fleet;
provided that any such maintenance facility
located outside the United States has been
approved in writing in advance by the
Lessor, such approval not to be unreasonably
withheld or delayed; or (iii) with the prior
written approval of the Lessor, such
approval not to be unreasonably withheld or
delayed, any other maintenance or repair
facility.
AGREED MAINTENANCE PROGRAMME the Maintenance Programme for the Lessee's
fleet of Boeing 737-300 aircraft approved
in writing by the Lessor prior to the
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Delivery Date, as subsequently amended from
time to time by the Lessee with all
required approvals of the FAA; provided
that any amendment or modification of such
Maintenance Programme effecting a change
from a programme based on block maintenance
to a programme not based on block
maintenance which is not required by the
FAA or the Manufacturer, shall require the
prior written approval of the Lessor, such
approval not to be unreasonably withheld or
delayed.
AGREED VALUE as of any date means the applicable amount
set forth in Letter Agreement No. 1 with
respect to such date.
AIRCRAFT the aircraft described in Part 1 of Schedule
1, (which term includes, where the context
admits, a separate reference to all Engines,
Parts and the Aircraft Documents.
AIRCRAFT DOCUMENTS the documents, data and records identified
in Part 2 of Schedule 1 and all additions,
renewals, revisions and replacements from
time to time made in accordance with this
Agreement.
AIRCRAFT SALE AGREEMENT the Aircraft Sale Agreement as defined in
the Purchase Agreement Assignment.
AIRFRAME the Aircraft, excluding the Engines and the
Aircraft Documents.
APU the auxiliary power unit installed on the
Aircraft on the Delivery Date or any
replacement auxiliary power unit which may
be substituted therefor in accordance with
this Agreement.
ASSIGNMENT any present or future assignment by the
Lessor in favour of the Bank of all or any
portion of the Lessor's rights, title and
interest in the Aircraft and under this
Agreement as security for its obligations.
AVIATION AUTHORITY the FAA or, if the State of Registration is
not then the United States of America, the
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authority and/or Government Entity and/or
agency which, under the laws of the State of
Registration, from time to time: (a) has
control or supervision of Civil Aviation; or
(b) has jurisdiction over registration,
airworthiness or operation of the Aircraft.
BANK(S) such financial institution(s) which from
time to time finance the Aircraft for the
Lessor or the Head Lessor and/or for whose
benefit security over, or rights relating
to, the Aircraft and/or this Agreement is
granted by the Lessor or the Head Lessor or
at their request, as applicable.
BENEFICIAL OWNER Sunrock Aircraft Corporation Limited, a
company incorporated under the laws of
Ireland whose registered office is at 1,
Earlsfort Centre, Hatch Street, Dublin 2,
Republic of Ireland, its successors and/or,
to the extent permitted hereunder, its
assignees, as beneficial owner under the
Trust Agreement.
BLOCK HOUR each hour or part of any hour (rounded to
one decimal place) elapsing from the moment
the chocks are removed from the wheels of
the Aircraft until the chocks are next again
returned to the wheels.
BOEING The Boeing Company, a Delaware corporation
with its principal office in Seattle, State
of Washington, USA.
BSC Boeing Sales Corporation, a corporation
incorporated under the laws of the United
States Territory of Guam, with its principal
office in Seattle, State of Washington, USA.
BUSINESS DAY a day (other than a Saturday or Sunday) on
which banks are open for business in New
York and Denver.
CERTIFICATE OF ACCEPTANCE a certificate in the form of Schedule 2 to
be completed and executed by the Lessee on
Delivery.
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CIVIL RESERVE AIR FLEET PROGRAM the Civil Reserve Air
Fleet Program administered by the United
States government and authorized under 10
U.S.C. Sec. 9511, et seq., as amended, or
any substantially similar or substitute
program of the United States Government.
COMMITMENT FEE means such sums as shall be paid by the
Lessee to the Lessor pursuant to Clause 5.1
in the amounts, and at the times, set forth
in Letter Agreement No. 1.
CYCLE one take-off and landing of the Aircraft.
DAMAGE NOTIFICATION THRESHOLD $[ ]*
DEFAULT any Event of Default and any event which
with the giving of notice or lapse of time
would constitute an Event of Default.
DELIVERY the acceptance by the Lessee of delivery of
the Aircraft in accordance with the terms of
this Agreement.
DELIVERY DATE the date on which Delivery takes place.
DELIVERY LOCATION Seattle, State of Washington, U.S.A.
DOLLARS AND $ the lawful currency of the United States of
America.
ENGINE whether or not installed on the Aircraft:
(a) each of the CFM International CFM56-3C1
engines specified by manufacturer's
serial numbers in the Certificate of
Acceptance to be executed by the Lessee
upon Delivery; or
(b) any engine which has replaced an engine
referred to in clause (a) above, title
to which has or should have passed to
the Holder of Legal Title in accordance
with Clause
8.17(a);
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and in each case includes all modules and
Parts from time to time belonging to or
installed in that engine but excludes any
engine replaced in accordance with Clause
8.13(a), title to which has, or should have,
passed to the Lessee in accordance with
Clause 8.17(c).
ENGINE LLP those life-limited Engine Parts specified in
Schedule 8.
ENGINE LOSS the occurrence of any of the events referred
to in the definition of "Total Loss", but
with the references therein to "Airframe"
being construed as references to an Engine.
ENGINE LOSS DATE the relevant date determined in accordance
with the definition of "Total Loss Date" as
if that definition applied to an Engine
Loss.
EVENT OF DEFAULT shall have the meaning specified in any one
or more provisions of Clause 13.1.
EXCUSABLE DELAY with respect to delivery of the Aircraft,
delay or non-performance due to or arising
out of acts of God or public enemy, civil
war, insurrection or riot, fire, flood,
explosion, earthquake, accident, epidemic,
quarantine restriction, any act of
government, governmental priority,
allocation, regulation or order affecting
directly or indirectly, the Aircraft, any
manufacturer, the Lessor or any materials or
facilities, strike or labour dispute causing
cessation, slowdown or interruption of work,
inability after due and timely diligence to
procure equipment, data or materials from
manufacturers, suppliers, any existing
owner, seller or lessee in a timely manner,
damage, destruction or loss, or any other
cause to the extent that such cause is
beyond the control of the Lessor whether
above mentioned or not and whether or not
similar to the foregoing.
EXPIRY DATE the day preceding the numerically
corresponding day 96 months after the
Delivery Date or if earlier the date on
which:
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(a) the Aircraft has been redelivered in
accordance with this Agreement; or
(b) the Lessor receives the Agreed Value
following a Total Loss.
FAA the Federal Aviation Administration of the
United States of America and any successor
thereof.
FAR the Federal Aviation Regulations for the
time being in force, issued by the FAA
pursuant to Subtitle VII of Title 49 of the
United States Code published in Title 14 of
the Code of Federal Regulations.
FAIR MARKET VALUE means the value of the Aircraft in Dollars
(free of any lease, sub-lease, conditional
sale agreement, option, mortgage, charge,
lien or other encumbrance) payable by a
willing buyer to a willing seller on an
"arm's length" basis, as determined at the
relevant time on a "desk top" basis by the
Agreed Appraiser.
FINANCIAL INDEBTEDNESS any indebtedness in excess of $[ ]*
principal amount in respect of:
(a) moneys borrowed;
(b) any liquidated liability under any
debenture, bond, note, loan stock,
acceptance credit, documentary credit
or other security;
(c) the acquisition cost of any asset to
the extent payable more than 120 days
after the time of acquisition or
possession; or
(d) the capitalised value (determined in
accordance with GAAP) of obligations
under finance leases; or
(e) any guarantee, indemnity or similar
assurance against financial loss of any
person in respect of the above.
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FLIGHT HOUR each hour or part thereof (rounded to one
decimal place) elapsing from the moment the
wheels of the Aircraft leave the ground on
take off until the moment the wheels of the
Aircraft next touch the ground.
GAAP United States generally accepted accounting
principles consistently applied as in effect
from time to time, which shall include the
official interpretations thereof by the
Financial Accounting Standards Board.
GOVERNMENT ENTITY (a) any national government, political
subdivision thereof, or local
jurisdiction therein;
(b) any instrumentality, board, commission,
court, or agency of any thereof,
however constituted whose actions,
rules or regulations have the force of
law; and
(c) any association, organization, or
institution controlled by any of the
above whose actions, rules or
regulations shall have the force of
law.
HABITUAL BASE the United States of America or, subject to
the prior written consent of the Lessor, any
other country or countries in which the
Aircraft is for the time being habitually
based.
HEAD LEASE the lease agreement relating to the Aircraft
between the Head Lessor, as lessor, and
Sunrock Aircraft Corporation Limited, as
lessee, as long so it remains in force and
effect.
HEAD LESSEE Sunrock Aircraft Corporation Limited, as
lessee, so long as it remains a lessee under
the Head Lease.
HEAD LESSOR NBB Stream Lease Co., Ltd., as lessor, so
long as it remains a lessor under the Head
Lease.
HOLDER OF LEGAL TITLE the Lessor or the Head Lessor, whoever is
the holder of legal title to the Aircraft
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and/or any Engine and/or any Part at the
applicable time, as advised by the Lessor to
the Lessee in writing.
INDEMNITEES each of the Head Lessor, the Head Lessee,
the Beneficial Owner, the Banks, the Trust
Company and the Lessor including, any of
their respective successors and permitted
assigns (and, in the case of a permitted
assign that is a partnership, the partners
of such partnership), and any combination
thereof and their respective shareholders,
Subsidiaries, Affiliates, directors,
officers, agents and employees.
LANDING GEAR the landing gear assemblies of the Aircraft
excluding the wheels and brake units.
LESSEE'S INTEREST subject to the application of Clause 11.3,
that portion of the compensation paid by a
Government Entity in connection with a
requisition of the Aircraft, provided that
such requisition has not been caused by any
action or omission of the Lessee (other than
pursuant to the Civil Reserve Air Fleet
Program), constituting an Event of Loss
hereunder equal to the excess, if any, of
(i) an amount equal to the present value,
discounted at a rate equal to the rate in
effect for United States Treasury
obligations with a term most nearly equal to
the remaining Lease Term, of fair market
rentals, determined by independent
appraisal, for the Aircraft for the balance
of the Lease Term from the date of
requisition minus (ii) the present value,
discounted at the same U.S. Treasury rate,
of the future rent payments due under this
Agreement for the balance of the Lease Term
from the date of the requisition; provided
that, for purposes of determining the
remaining Term and the balance of the Term
under this definition, the options set forth
in Clause 4.8 hereof shall be deemed to have
been exercised.
LESSEE as defined in the introductory paragraph of
this Agreement.
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LESSOR as defined in the introductory paragraph of
this Agreement.
LESSOR LIEN (a) any lien, encumbrance or security
interest whatever from time to time
created by or arising through the
Beneficial Owner or the Lessor in
connection with the financing or
refinancing of the Aircraft;
(b) any other lien, encumbrance or security
interest in respect of the Aircraft
which results from acts or omissions
of, or claims against, the Beneficial
Owner or the Lessor (or their
respective successors or assigns) not
related to the operation of the
Aircraft or the transactions
contemplated by or permitted under this
Agreement or resulting from affirmative
acts of the Beneficial Owner or the
Lessor not permitted without consent
(which consent has not been granted) by
the Lessee or that is in violation of
any term of this Agreement or any other
agreement executed in connection
herewith; and
(c) liens in respect of the Aircraft for
Lessor Taxes.
LESSOR TAXES (a) Taxes imposed as a direct result of
activities of the Lessor, the
Beneficial Owner or any other
Indemnitee (or any transferee of the
Lessor, the Beneficial Owner or any
other Indemnitee of any ownership
interest or Security Interest in the
Aircraft) in the jurisdiction
imposing the Tax (including, without
limitation, activities such as a
permanent establishment or doing
business in such jurisdiction) that are
unrelated to the Lessor's dealings
with the Lessee or to the transactions
contemplated by this Agreement or to
the operation of the Aircraft by the
Lessee other than such Taxes that
would not have been imposed but for the
Lessee's or any Permitted Sublessee's
use, storage, delivery or operation
of the Aircraft in such jurisdiction
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or the making of any payments under
this Agreement or related agreements
from or through such jurisdiction;
(b) Taxes imposed on the income, profits or
gains of the Lessor or the Beneficial
Owner (including, without limitation,
minimum taxes and alternative minimum
taxes) by any Government Entity in
Ireland, or on any Indemnitee in any
other jurisdiction where the Indemnitee
is liable to such Taxes by reason of
its activities unrelated to the
transactions contemplated by this
Agreement, but only to the extent that
such Taxes would have been imposed in
the absence of the transactions
contemplated by this Agreement;
(c) Taxes imposed with respect to any
period commencing or event occurring
before the date of this Agreement or
after the Expiry Date (other than Taxes
imposed with respect to the receipt
after the Expiry Date of an amount due
from the Lessee under this Agreement);
(d) Taxes imposed as a direct result of the
Lessor's, the Beneficial Owner's or any
other Indemnitee's sale or other
disposition of any interest in the
Aircraft, unless such sale or
disposition results in whole or in part
from an Event of Default which has
occurred and is continuing;
(e) Taxes on, or with respect to any
trustee fees, commissions or
compensation received by Lessor in its
capacity as owner trustee under the
Trust Agreement;
(f) Taxes imposed against a transferee or
assignee of any Indemnitee to the
extent of the excess of such Taxes over
the amount thereof which would have
been imposed had there not been such a
transfer or assignment;
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(g) Taxes to the extent the same would not
have been imposed but for the failure
by the Lessor, the Beneficial Owner or
any other Indemnitee to provide the
Lessee such certification with respect
to matters such as its citizenship, tax
status and address, or information of a
similar nature, in each case, in or on
the appropriate form (collectively, an
"Eligibility Certification") as shall
enable it to claim a reduced rate of
Tax or exemption from Tax for which the
Indemnitee is eligible and which may be
claimed by the Indemnitee without
material prejudice to its reporting
position with respect to any
unindemnified Tax; provided that, in
the case of an Eligibility
Certification requirement arising after
the Delivery Date (i) by reason of the
expiration of a previously provided
Eligibility Certification, (ii) in a
jurisdiction in which the Indemnitee is
not otherwise subject to Tax as the
result of operations or transactions
unrelated to this Agreement or the
transactions contemplated hereby or
(iii) arising as the result of a change
in applicable Tax law (other than in
the country in which the Indemnitee, as
applicable, is organized or has its
principal place of business), the
Lessee has requested such Eligibility
Certification in writing;
(h) Except as provided in Clause 5.12,
Taxes that are being contested in
accordance with Clause 5.12 during the
pendency of such contest;
(i) to the extent that such Taxes
constitute interest, fines or penalties
if such interest, fines or penalties
result from the failure to file or late
filing of any tax return by the Lessor,
the Beneficial Owner or any other
Indemnitee other than any such return
which the Lessee is required hereunder
to provide to the Lessor, the
Beneficial Owner or any other
Indemnitee and which the Lessee has not
provided in reasonably sufficient time
for such return to be timely filed or
has not provided notice to the Lessor,
the Beneficial Owner or any other
Indemnitee, as the case may be, of the
required filing date.
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LETTER AGREEMENT NO. 1 means that certain Letter Agreement No. 1
between the Lessor and the Lessee, relating
to the Aircraft, and dated as of the date of
this Agreement.
LETTER OF CREDIT an irrevocable standby letter of credit,
substantially in the form set out in
Schedule 7 or otherwise in form and
substance satisfactory to the Lessor, issued
in favour of the Lessor by a bank in the
United States reasonably acceptable to the
Lessor, in the face amount as provided in
Clause 5.1 hereof.
LETTER OF QUIET ENJOYMENT an executed letter of quiet enjoyment,
substantially in the form set out in
Schedule 11, provided to the Lessee by
Sunrock Aircraft Corporation Limited, as
Beneficial Owner (and any successors and
assigns of Sunrock Aircraft Corporation
Limited other than the Banks and other
security assigns).
LIBOR in respect of any day, the arithmetic mean
(rounded up to the nearest 1-16th) of the
annual rates of interest published or
reported by Reuters Limited (through its
Reuter Monitor Service, the "Screen"), by
reference to the Screen page "LIBOR" (or any
successor to such page) at or about 11.00
a.m. (London time) on that day (or, if such
day is not a Business Day, the immediately
preceding Business Day), as being the
interest rates offered for Dollar deposits
in an amount equal (or closest) to the
amount in question and for a duration equal
to the period in question (or for whichever
period appearing on the Screen is closest to
that period). If, on the date in question,
the Screen page "LIBO" (or any successor to
such page) is not available or does not
display rates for the required period,
"LIBOR" shall be the arithmetic mean
(rounded-up to the nearest two decimal
places) of the respective rates notified to
the Lessor by the Reference Banks as the
rates at which the Reference Banks offer
deposits in Dollars to leading banks in the
London Interbank Market at or about 11.00
a.m. (London time) on the date in question
for an amount equal (or closest) to the
amount in question and for a duration equal
(or closest) to the period in question.
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MAINTENANCE PROGRAMME an Aviation Authority approved maintenance
programme for the Aircraft encompassing
scheduled maintenance (including block
maintenance), condition monitored
maintenance, and/or on-condition maintenance
of Airframe, Engines and Parts, including
but not limited to, servicing, testing,
preventative maintenance, repairs,
structural inspections, system checks,
overhauls, approved modifications, service
bulletins, engineering orders, airworthiness
directives, corrosion control, inspections
and treatments.
MAJOR CHECKS any C-Check, multiple C-Check, structural
C-7 Check or annual heavy maintenance visit
or segment thereof suggested for Boeing
737-300 aircraft by the Manufacturer
(however denominated) as set out in the
Agreed Maintenance Programme.
MANUFACTURER Boeing except where the context otherwise
requires, in which case it shall be the
manufacturer of the specific Engine or Part,
as the case may be.
MINIMUM LIABILITY COVERAGE $[ ]* on each occurrence.
NET INCOME "net income (loss)," as determined in
accordance with GAAP.
NET WORTH "net worth," as determined in accordance
with GAAP.
NON-SEVERABLE MODIFICATION any modification, alteration or improvement
of or to the Aircraft which is not a
Severable Modification and which is not
required to be incorporated in the Aircraft
by the FAA or the terms of this Agreement.
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OWNER TRUSTEE Wilmington Trust Company, not in its
individual capacity, but solely as owner
trustee under the Trust Agreement.
PART whether or not installed on the Aircraft:
(a) any component, furnishing or equipment
(other than a complete Engine)
installed in or furnished with the
Aircraft at Delivery; and
(b) any other component, furnishing or
equipment (other than a complete Engine
or engine) title to which has, or
should have, passed to the Holder of
Legal Title pursuant to Clause 8.17(a),
but, in the case of both clause (a) and
clause (b), excluding any such items title
to which has, or should have, passed to the
Lessee pursuant to Clause 8.17(c).
PERMITTED LIEN (a) any lien for Taxes not assessed or, if
assessed, not yet due and payable, or
being contested in good faith by
appropriate proceedings;
(b) any lien of a repairer, mechanic,
carrier, hangarkeeper, unpaid seller or
other similar lien arising in the
ordinary course of business or by
operation of law in respect of
obligations which are not overdue or
are being contested in good faith by
appropriate proceedings;
(c) any leasehold interest, interest of a
conditional sale vendor, security
interest or license as to which the
Lessor has provided its express consent
with respect to and affecting only any
Severable Modification installed on the
Aircraft in accordance with Clause
8.16(c);
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but only if (in the case of each (a) and
(b)): (i) so long as adequate reserves have
been established by the Lessee in accordance
with GAAP with respect to such liens for the
payment of the Taxes or obligations; and
(ii) such proceedings, or the continued
existence of the lien, do not give rise to
the likelihood of the sale, forfeiture or
other loss of the Aircraft or any interest
therein or of criminal liability on the
Lessor, or any Bank; and
(d) any Lessor Lien.
PERMITTED TRANSFEREE a financially sound (determined at the time
of the transfer) person or entity which
shall not operate an airline, or be an
Affiliate of an airline, competing with the
Lessee and which meets one of the following
criteria: (i) has at the time of the
transfer a minimum Net Worth of not less
than $[ ]*, or (ii) if such transferee's Net
Worth is less than $[ ]* but at least $[ ]*,
the Beneficial Owner guarantees for the
benefit of the Lessee the Lessor's
obligations to pay the Commitment Fee as set
forth in Clauses 5.1, 7.3 and 11.1(a) and
the maintenance contributions as set forth
in Clause 7.2, or (iii) such other person or
entity to which the Lessee shall consent,
such consent not to be unreasonably withheld
or delayed.
PURCHASE AGREEMENT the Purchase Agreement as defined in the
Purchase Agreement Assignment.
PURCHASE AGREEMENT ASSIGNMENT the agreement relating to the Aircraft,
dated July 1, 1997, among Boeing, BSC, the
Beneficial Owner and the Lessee.
REDELIVERY LOCATION at a commercial airport chosen by the Lessor
on the Lessee's then prevailing scheduled
network. The technical acceptance will occur
at the Lessee's home base or at the facility
of the Approved Maintenance Provider.
REFERENCE BANKS Barclays Bank PLC, Societe Generale, Bankers
Trust and National Westminster Bank PLC (or,
in the absence of any such bank, any other
reputable bank selected by the Lessor).
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RELATED RELEVANT PERIOD in relation to any Rental Period, the
Relevant Period in which the first day of
that Rental Period falls.
RELEVANT PERIOD each period ascertained in accordance with
Clause 5.3.
RENT all amounts payable pursuant to Clause 5.3
RENTAL PERIOD each period ascertained in accordance with
Clause 5.2.
RENT DATE the first day of each Rental Period.
SCHEDULED DELIVERY DATE July 2, 1997.
SECURITY INTEREST any mortgage, charge, pledge, lien,
assignment, hypothecation, right of set-off,
or any agreement or arrangement having the
effect of creating a security interest,
other than a Permitted Lien.
SEVERABLE MODIFICATION any modification, alteration or improvement
of or to the Aircraft (including, without
limitation, severable components or systems
installed on or affixed to the Airframe
which (A) is not required to be incorporated
in the Aircraft by the FAA or the terms of
this Agreement, (B) at the time made does
not diminish the value, utility, condition
or airworthiness of the Aircraft below its
value, utility, condition or airworthiness
immediately before such modification,
alteration or improvement is made, and (C)
is removable from the Aircraft without
causing damage to the Aircraft (unless such
damage is promptly repaired) and without
diminishing the value, utility, condition or
airworthiness which the Aircraft would have
had at such time if the modification,
alteration or improvement had not been made.
SIGNIFICANT DEFAULT (a) any Default which with the giving of
notice or the passage of time would
constitute an Event of Default
specified in paragraphs (a), (b), (g)
or (h) of Clause 13.1; or
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(b) the Lessee shall be materially in
default of its maintenance and repair
obligations under Clause 8.11;
(c) the Lessee shall be operating the
Aircraft in violation of applicable
law;
(d) the Lessee shall be subleasing the
Aircraft to a sublessee which is not a
sublessee permitted under the terms of
this Agreement; or
(e) the Lessee shall be in default of any
other material provision hereof which
causes the Lessor to reasonably and in
good faith deem itself insecure.
STATE OF INCORPORATION the State of Delaware.
STATE OF REGISTRATION the United States of America.
SUBSIDIARY (a) in relation to any reference to
accounts, any company whose accounts
are consolidated with the accounts
of the Lessee in accordance with
GAAP; and
(b) for any other purpose, an entity from
time to time:
(i) of which another has direct or
indirect control or owns directly
or indirectly more than 50 per cent
of the voting share capital; or
(ii)which is a direct or indirect
a direct or indirect subsidiary
of another under the laws of the
jurisdiction of its incorporation.
SUPPLEMENTAL RENT all amounts payable under Clause 5.4(a).
TAXES any and all present and future taxes,
levies, imposts, duties or charges in the
nature of taxes, whatever and wherever
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imposed, including customs duties, value
added taxes or similar taxes and any gross
or net income, gross or net receipts,
minimum, alternative minimum, excess
profits, accumulated earnings, capital
gains, doing business, franchise, transfer,
sales, use, business, occupation, excise,
personal property (tangible or intangible),
stamp or other tax or duty imposed by any
national (domestic or foreign), state or
local taxing or fiscal authority or agency,
together with any penalties, additions to
tax, fines or interest thereon;
TERM the period commencing on the Delivery Date
and ending on the Expiry Date.
TOTAL LOSS with respect to the Airframe:
(a) the actual, arranged or constructive
total loss of the Airframe (including
any damage to the Airframe which
results in an insurance settlement on
the basis of a total loss, or
requisition for use or hire which
results in an insurance settlement on
the basis of a total loss); or
(b) it being destroyed, damaged beyond
repair or permanently rendered unfit
for normal use for any reason
whatsoever; or
(c) (i) the requisition of title, or (ii)
other compulsory acquisition, capture,
seizure, deprivation, confiscation or
detention for any reason of the
Airframe by the government of the State
of Registration or other competent
authority (whether de jure or de facto)
for a period in excess of 120
consecutive days, but excluding
requisition for use or hire not
involving requisition of title; or
(d) (i) the hi-jacking, theft,
condemnation, confiscation, seizure or
(ii) requisition for use or hire of the
Airframe (other than by the federal
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government of the United States),
which, in the case of each clause (i)
and (ii) above, deprives any person
permitted by this Agreement to have
possession and/or use of the Airframe
of its possession and/or use for more
than 120 consecutive days or (iii)
requisition for use or hire by the
federal government of the United
States, extending beyond the Expiry
Date.
TOTAL LOSS DATE (a) in the case of an actual
total loss, the actual date on which
the loss occurs or, if such date is
unknown, the day on which the Aircraft
was last heard of;
(b) in the case of any of the events
described in sub-paragraph (a) of the
definition of "Total Loss" (other than
an actual total loss), whichever is the
earlier of (i) 60 days after the date
on which notice claiming such total
loss is given to the relevant insurers,
and (ii) the date on which such loss is
admitted or compromised by the
insurers;
(c) in the case of any of the events
described in sub-paragraph (b) of the
definition of "Total Loss", the date on
which such destruction, damage or
rendering unfit occurs;
(d) in the case of any of the events
described in sub-paragraph (c) of the
definition of "Total Loss", with
respect to a requisition of title, the
date on which the relevant requisition
of title occurs, or with respect to any
other compulsory acquisition, capture,
seizure, deprivation, confiscation or
detention described in such
sub-paragraph, the expiry of the 120
consecutive day period referred to in
such sub-paragraph;
(e) in the case of any of the events
described in sub-paragraph (d) of the
definition of "Total Loss", (A) with
respect to clauses (i) and (ii)
thereof, the expiry of the period of
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120 consecutive days or (B) with
respect to clause (iii) thereof, the
Expiry Date;
and, in each case, the Total Loss shall be
deemed to have occurred at noon Greenwich
Mean Time on such date.
TRUST AGREEMENT the Trust Agreement dated as of June ___,
1997 between Sunrock Aircraft Corporation
Limited, as Beneficial Owner, and Wilmington
Trust Company, as Owner Trustee.
TRUST COMPANY Wilmington Trust Company, in its individual
capacity.
1.2 INTERPRETATION
(a) In this Agreement, unless the contrary intention is stated, a
reference to:
(i) each of "THE LESSOR," "THE BENEFICIAL OWNER," "THE HEAD LESSOR,"
"THE HEAD LESSEE" or "THE LESSEE" or any other person includes
without prejudice to the provisions of this Agreement any
successor in title to it and any permitted assignee;
(ii)a "PERSON" includes, without limitation, an individual, firm,
partnership, company, corporation, unincorporated body or any
Government Entity and shall also include their respective
successors and assignees;
(iii)words importing the plural shall include the singular and vice
versa;
(iv)any document shall include that document as amended, novated or
supplemented;
(v) a law (1) includes any statute, decree, constitution, regulation,
order, judgment or directive of any Government Entity; (2)
includes any treaty, pact, compact or other agreement to which any
Government Entity is a signatory or party; (3) includes any
judicial or official administrative interpretation or official
application thereof and (4) is a reference to that provision as
amended, substituted or re-enacted;
(vi)a Clause or a Schedule is a reference to a clause of or a
schedule to this Agreement.
(a) The headings in this Agreement are to be ignored in construing this
Agreement.
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(b) For the purposes of Clauses 7.4 and 7.5, "THE LESSOR" includes the
Lessor, the Beneficial Owner and the Head Lessor.
2. REPRESENTATIONS AND WARRANTIES
2.1 LESSEE'S REPRESENTATIONS AND WARRANTIES
The Lessee represents and warrants to the Lessor as of the date of this
Agreement that:
(a) STATUS: the Lessee is a corporation duly incorporated and validly
existing under the laws of the State of Incorporation and has the
corporate power to own its assets and carry on its business as it is
now being conducted and is (or will, at the relevant time, be) the
holder of all necessary air transportation licenses required in
connection therewith and with its use and operation of the Aircraft;
(b) POWER AND AUTHORITY: the Lessee has the corporate power to enter into
and perform, and has taken all necessary corporate action to authorize
the entry into, performance and delivery of, this Agreement and the
transactions contemplated by this Agreement;
(c) LEGAL VALIDITY: This Agreement constitutes the Lessee's legal, valid
and binding obligation;
(d) NON-CONFLICT: The entry into and performance by the Lessee of, and the
transactions contemplated by, this Agreement do not and will not:
(i) conflict with any existing laws binding on the Lessee; or
(ii)conflict with the constitutional documents of the Lessee; or
(iii)conflict with or result in default under any document which is
binding upon the Lessee or any of its assets, nor result in the
creation of any Security Interest over any of its assets;
(e) AUTHORIZATION: All authorizations, consents, registrations and
notifications required in connection with the Lessee's entry into,
performance, validity and enforceability against the Lessee of, this
Agreement and the transactions contemplated by this Agreement, have
been (or will on or before the Delivery Date have been) obtained or
effected (as appropriate) and are (or will on their being obtained or
effected be) in full force and effect;
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(f) NO IMMUNITY:
(i) the Lessee is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii)neither the Lessee nor any of its assets is entitled to any right
of sovereign immunity and the entry into and performance of this
Agreement by the Lessee constitute private and commercial acts;
and
(g) ACCOUNTS: the audited accounts of the Lessee, and, if required by
GAAP, the audited consolidated accounts of the Lessee and its
Subsidiaries and Affiliates most recently delivered to the Lessor:
(i) have been prepared in accordance with GAAP consistently applied
(except as otherwise disclosed therein); and
(ii)fairly represent in accordance with such accounting principles the
consolidated financial condition of the Lessee as at the date to
which they were drawn up.
2.2 LESSEE'S FURTHER REPRESENTATIONS AND WARRANTIES
The Lessee further represents and warrants to the Lessor as of the date of
this Agreement that:
(a) NO DEFAULT:
(i) no Default has occurred and is continuing or would result from the
entry into or performance of this Agreement; and
(ii)no other event has occurred and is continuing which constitutes
(or with the giving of notice, lapse of time, determination of
materiality or the fulfillment of any other applicable condition
or any combination of the foregoing, would reasonably be expected
to constitute) a material default under any document which is
binding on the Lessee or any assets of the Lessee;
(b) REGISTRATION: Except for the registration of the Aircraft and the
filing of this Agreement with the FAA and the filing of Uniform
Commercial Code financing statements in the State of Colorado, it is
not necessary under the laws of the State of Incorporation, the State
of Registration or the State of Colorado in order to ensure the
validity, effectiveness and enforceability of this Agreement or to
establish, perfect or protect the property rights of the Lessor in the
Aircraft or any Engine or Part that this Agreement or any other
instrument relating thereto be filed, registered or recorded or that
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<PAGE>
any other action be taken or, if any such filings, registrations,
recordings or other actions are necessary or advisable, the same have
been effected or will have been effected on or before Delivery;
(c) LITIGATION: no litigation, arbitration or administrative proceedings
are pending, or to its knowledge, threatened against the Lessee which
would reasonably be expected to have a material adverse effect upon
its financial condition or business or its ability to perform its
obligations under this Agreement;
(d) PARI PASSU: the obligations of the Lessee under this Agreement rank at
least pari passu with all other present and future unsecured and
unsubordinated obligations (including contingent obligations) of the
Lessee, with the exception of such obligations as are mandatorily
preferred by law and not by virtue of any contract;
(e) MATERIAL ADVERSE CHANGE: there has been no material adverse change in
the financial condition of the Lessee since the date to which the
accounts most recently provided to the Lessor on or prior to the
Delivery Date were drawn up;
(f) TAXES: the Lessee has filed all necessary returns and made all
payments shown due thereon to the tax authorities in the State of
Incorporation, the State of Registration and the State of Colorado and
is not required by law to deduct any Taxes from any payments under
this Agreement (other than those the Lessee is diligently contesting
in good faith and for which the Lessee has established adequate
reserves in accordance with GAAP; and
(g) INFORMATION: the financial and other information furnished by the
Lessee in connection with this Agreement is true and accurate in all
material respects.
2.3 REPETITION
The representations and warranties in Clause 2.1 and Clause 2.2 will
survive the execution of this Agreement. The representations and
warranties contained in Clause 2.1 and Clause 2.2 will be deemed to be
repeated by the Lessee on the Delivery Date with reference to the facts
and circumstances then existing.
2.4 LESSOR'S AND TRUST COMPANY'S REPRESENTATIONS AND WARRANTIES
The Trust Company represents and warrants to the Lessee as of the date of
this Agreement that:
(a) STATUS: the Trust Company is a banking corporation duly organized and
validly existing under the laws of the State of Delaware and has the
corporate power to own its assets and carry on its business as it is
now being conducted;
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<PAGE>
(b) POWER AND AUTHORITY: the Trust Company has the corporate power to
enter into and perform, and has taken all necessary corporate action
to authorize the entry into, performance and delivery of, this
Agreement and the transactions contemplated by this Agreement.
(c) LEGAL VALIDITY: This Agreement, to the extent entered into by the
Trust Company, constitutes the Trust Company's legal, valid and
binding obligation.
(d) NON-CONFLICT: The entry into and performance by the Trust Company of,
and the transactions contemplated by, this Agreement do not and will
not:
(i) conflict with any existing laws of the State of Delaware or
federal laws of the United States of America governing the banking
and trust powers of the Trust Company; or
(ii)conflict with the constitutional documents of the Trust
Company; or
(iii) conflict with any document which is binding upon the Trust
Company or any of its assets.
(e) AUTHORIZATION: So far as concerns the obligations of the Trust
Company, all authorizations, consents, registrations and notifications
required under the laws of the State of Delaware in connection with
the Trust Company's entry into, performance, validity and
enforceability against the Trust Company of, and the transactions
contemplated by, this Agreement by the Trust Company have been (or
will on or before the Delivery Date have been) obtained or effected
(as appropriate) and are (or will on their being obtained or effected
be) in full force and effect.
The Lessor represents and warrants to the Lessee as of the date of this
Agreement that:
(1) LEGAL VALIDITY: This Agreement constitutes the Lessor's legal, valid
and binding obligation.
(2) NO IMMUNITY:
(i) the Lessor is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii)neither the Lessor nor any of its assets is entitled to any right
of sovereign immunity and the entry into and performance of this
Agreement by the Lessor constitute private and commercial acts.
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<PAGE>
2.5 REPETITION
The representations and warranties in Clause 2.4 will survive the
execution of this Agreement. The representations and warranties contained
in Clause 2.4 will be deemed to be repeated by the Lessor on the Delivery
Date with reference to the facts and circumstances then existing.
3. CONDITIONS PRECEDENT
3.1 DOCUMENTARY CONDITIONS PRECEDENT
The Lessor's obligation to deliver and lease the Aircraft under this
Agreement is subject to the receipt or waiver of the following by the
Lessor on or before the Delivery Date in form and substance reasonably
satisfactory to the Lessor:
(a) CONSTITUTIONAL DOCUMENTS: a copy of the constitutional documents of
the Lessee;
(b) RESOLUTIONS: a copy of a resolution of the board of directors of the
Lessee approving the terms of, and the transactions contemplated by,
this Agreement, resolving that it enter into this Agreement, and
authorizing one or more officers or representatives to execute this
Agreement and accept delivery of the Aircraft on its behalf;
(c) OPINION: an opinion or opinions, substantially in the form set out in
Schedule 6, Part 1, issued on the Delivery Date by Smith, Gambrell &
Russell, LLP and/or other legal counsel reasonably acceptable to the
Lessor;
(d) ASSISTANT GENERAL COUNSEL OPINION: an opinion or opinions,
substantially in the form set out in Schedule 6, Part 2, issued on the
Delivery Date by the Assistant General Counsel of the Lessee and/or
other legal counsel reasonably acceptable to the Lessor;
(e) FAA OPINION: an opinion of Daugherty, Fowler & Peregrin or other
counsel reasonably acceptable to the Lessor who are recognized
specialists with regard to FAA registration matters in a form
acceptable to the Lessor acting reasonably as to the due filing for
recordation of this Agreement;
(f) APPROVALS: evidence of the issue of each governmental approval,
license and consent required of the Lessee for the performance by the
Lessee of any of its obligations hereunder;
(g) LICENSES: copies of the Lessee's air transport license, air operator's
certificates and all other licenses, certificates and permits required
by the Lessee in relation to, or in connection with, the operation of
the Aircraft;
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<PAGE>
(h) PROCESS AGENT: a letter from the process agent appointed by the
Lessee in this Agreement accepting that appointment;
(i) CERTIFICATE: a certificate of a duly authorized officer of the Lessee:
(i) setting out a specimen of each signature referred to in Clause
3.1(b); and
(ii)certifying that each copy document specified in this Clause 3.1 is
correct, complete and in full force and effect;
(j) INSURANCES: (x) certificates of insurance (and, if applicable,
reinsurance), (y) brokers' undertakings and (z) if reasonably
requested by the Lessor, other evidence (other than any insurance
policy or portion or extract thereof or any copy of any thereof and
other than any information that would violate any confidentiality
agreement or undertaking between the Lessee and the insurers)
reasonably satisfactory to the Lessor that the Lessee is taking the
required steps to ensure due compliance with the provisions of this
Agreement as to insurances with effect on and after Delivery;
(k) ACKNOWLEDGEMENT: an acknowledgement in the form set out in Part 2 of
Schedule 5 relating to the notice of assignment set out in Part 1 of
that Schedule
(l) ACCOUNTS: the latest available accounts of the Lessee as described in
Clause 8.2(b)(i) and (ii);
(m) MAINTENANCE PROGRAMME: receipt by the Lessor of such information and
documents relating to the Maintenance Programme as the Lessor may
reasonably require, and the Lessor having agreed to the Maintenance
Programme on or prior to the Delivery Date;
(n) LETTER OF CREDIT: receipt by Lessor of the Letter of Credit, if
applicable pursuant to Clause 5.1 hereof, duly executed by the issuing
bank; and
(o) FINANCING STATEMENTS: evidence that on the Delivery Date any financing
statements reasonably requested by the Lessor have been duly filed in
the State of Colorado and that all filings, registrations, recordings
and other actions have been or will be taken which are necessary or
advisable to ensure the validity, effectiveness and enforceability of
this Agreement and to protect the property rights of the Lessor in the
Aircraft, any Engine or any Part;
(p) GENERAL: such other documents as the Lessor may reasonably request
provided that such documents do not deprive the Lessee of any right or
privilege hereunder or impose on the Lessee any additional material
obligation.
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<PAGE>
3.2 OTHER CONDITIONS PRECEDENT
The obligation of the Lessor to deliver and lease the Aircraft under this
Agreement is also subject to the satisfaction or waiver of the following
additional conditions precedent:
(a) that the conditions precedent to the obligation of the Beneficial
Owner to (i) purchase the Aircraft from Boeing and/or BSC pursuant to
the Purchase Agreement and the Purchase Agreement Assignment shall
have been satisfied or waived, and Boeing and/or BSC shall have
tendered the Aircraft to the Beneficial Owner in accordance with the
Purchase Agreement and the Purchase Agreement Assignment and (ii)
accept delivery of the Aircraft under the Head Lease shall have been
satisfied or waived;
(b) that the representations and warranties of the Lessee under Clauses
2.1 and 2.2 are true and correct and would be true and correct if
repeated on the Delivery Date;
(c) that no Default shall have occurred and be continuing or would result
from the leasing of the Aircraft to the Lessee under this Agreement;
and
(d) there has been no material adverse change in the financial condition
of the Lessee since the date to which the accounts most recently
provided to the Lessor on or prior to the Delivery Date were drawn up;
(e) that the Aircraft shall be in the condition required under the
Purchase Agreement and that the Beneficial Owner shall have had a
reasonable opportunity to inspect the Aircraft prior to the Delivery
Date to satisfy itself that the Aircraft is in such condition; and
(f) that all payments due to the Lessor under this Agreement before the
Delivery Date shall have been received by the Lessor.
3.3 WAIVER
The conditions specified in Clauses 3.1 and 3.2 are for the sole benefit
of the Lessor and the Beneficial Owner, as the case may be, and may be
waived or deferred in whole or in part and with or without conditions by
the Lessor and the Beneficial Owner, respectively. If any of those
conditions are not satisfied on or before Delivery and the Lessor (in its
absolute discretion) nonetheless agrees to deliver the Aircraft to the
Lessee, the Lessee will ensure that those conditions are fulfilled within
15 days after the Delivery Date and the Lessor may treat as an Event of
Default the failure of the Lessee to do so.
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3.4 LESSEE'S CONDITIONS PRECEDENT
Lessee's obligation to Lease the Aircraft under this Agreement shall be
subject to satisfaction or waiver of the following conditions precedent:
(a) the Beneficial Owner shall have purchased the Aircraft pursuant to the
Purchase Agreement and the Purchase Agreement Assignment;
(b) The Aircraft shall be registered in the Lessor's name in the United
States;
(c) The Aircraft shall be in the same condition and configuration as when
delivered to the Beneficial Owner under the Purchase Agreement and the
Purchase Agreement Assignment and will be in such a condition as to
permit immediate operation by the Lessee in the United States under
FAR Part 121;
(d) The representations and warranties set out in Clause 2.4 are true and
correct and would be true and correct if repeated on the Delivery
Date;
(e) The Lessee shall have received a letter from the process agent
appointed by the Beneficial Owner in this Agreement accepting that
appointment;
(f) The Lessee shall have received a Letter of Quiet Enjoyment from
Sunrock Aircraft Corporation Limited, as Beneficial Owner;
(g) The Lessor shall have approved the Maintenance Programme on or before
the Delivery Date; and
(h) The Lessee shall have received such other documents as the Lessee
shall reasonably request provided that such documents do not deprive
the Lessor of any right or privilege hereunder or impose on the Lessor
any additional material obligation.
3.5 WAIVER
The conditions specified in Clause 3.4 are for the sole benefit of the
Lessee and may be waived or deferred in whole or in part and with or
without conditions by the Lessee. If any of those conditions are not
satisfied on or before Delivery and the Lessee (in its absolute
discretion) nonetheless agrees to accept delivery of the Aircraft from the
Lessor, the Lessor will ensure that those conditions are fulfilled within
15 days after the Delivery.
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4. COMMENCEMENT
4.1 LEASING
The Lessor will lease the Aircraft to the Lessee and the Lessee will take
the Aircraft on lease in accordance with this Agreement for the duration
of the Term.
4.2 DELIVERY
The Aircraft will be delivered to and accepted by the Lessee, as lessee,
(in a new condition as delivered by Boeing and/or BSC to the Beneficial
Owner under the Purchase Agreement and the Purchase Agreement Assignment,
at the Delivery Location, or such other location as may be agreed, on the
Scheduled Delivery Date (subject to Clause 4.7) or on such other day as
may be agreed.
4.3 CONDITION ON DELIVERY
When the Aircraft is presented by the Lessor for acceptance by the Lessee
under this Agreement:
(a) it shall comply in all respects with the specification set out in
Schedule 1 or, if different, the Purchase Agreement;
(b) it shall have been issued with a current valid Certificate of
Airworthiness issued by the FAA; and
(c) it shall be in such a condition as to permit immediate operation by
the Lessee in the United States under U.S. Federal Aviation
Regulation Part 121.
4.4 (INTENTIONALLY LEFT BLANK)
4.5 INDEMNITY
(a) The Lessee will indemnify and hold harmless the Indemnitees from and
against all Claims (as defined in Clause 10) arising from the death
of, or injury to, any observer or any employee or agent of the Lessee
in connection with any inspection of the Aircraft pursuant to (i) the
Purchase Agreement and/or the Purchase Agreement Assignment and (ii)
the Head Lease and the Aircraft Sale Agreement (which inspection and
delivery procedures will be the same as those provided for under the
Purchase Agreement and the Purchase Agreement Assignment).
(b) The Lessor or the Beneficial Owner, as the case may be, will indemnify
and hold harmless the Lessee from and against all Claims (as defined
in Clause 10) arising from the death of, or injury to, any observer or
any employee or agent of the Lessor or the Beneficial Owner in
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connection with any inspection of the Aircraft pursuant to (i) the
Purchase Agreement and/or the Purchase Agreement Assignment and (ii)
the Head Lease and the Aircraft Sale Agreement (which inspection and
delivery procedures will be the same as those provided for under the
Purchase Agreement and the Purchase Agreement Assignment).
4.6 ACCEPTANCE AND RISK
(a) When the conditions precedent set forth in Clause 3.4 have been
satisfied in full or waived by the Lessee and the Lessor has tendered
the Aircraft to the Lessee in compliance with the conditions set forth
in Clause 4.3, the Lessee shall immediately sign and deliver to the
Lessor the Certificate of Acceptance. Delivery of the signed
Certificate of Acceptance to the Lessor shall constitute conclusive
evidence for all purposes that the Aircraft has been accepted by the
Lessee for all purposes of this Agreement.
(b) After acceptance by the Lessee, the Aircraft and every Part will be in
every respect at the sole risk of the Lessee, who will bear all risk
of loss, theft, damage or destruction to the Aircraft from any cause
whatsoever.
4.7 DELAYED DELIVERY
If owing to:
(a) any seller, manufacturer or maintenance performer of the Aircraft
delaying in the delivery of, or failing to deliver, the Aircraft to
the Lessor for any reason (other than because of any default of the
Beneficial Owner in the performance of its obligations under an
agreement with that seller, manufacturer or maintenance performer
(including, without limitation, the Purchase Agreement and/or the
Purchase Agreement Assignment) unless the default arises from any act
or omission of the Lessee whether or not in circumstances entitling
that seller, manufacturer or maintenance performer to terminate that
agreement); or
(b) any Excusable Delay the Lessor delays in the delivery of, or fails to
deliver, the Aircraft under this Agreement:
(i) the Lessor will not be responsible for any losses, including loss
of profit, costs or expenses arising from or in connection with
the delay or failure suffered or incurred by the Lessee; and
(ii)the Lessee will not be entitled to terminate this Agreement or to
reject the Aircraft when tendered for delivery by the Lessor, on
the grounds of any such delay; provided that this Agreement shall
automatically terminate upon the termination of the Purchase
Agreement prior to the Delivery Date and the Lessee shall have the
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right to terminate this Agreement upon the termination of the
Purchase Agreement Assignment by the Beneficial Owner.
4.8 OPTIONS
(a) Notwithstanding the other provisions of this Agreement, the Lessor
hereby grants the Lessee the option (the "EXTENSION OPTION") to extend
the Term for a period of twenty-four (24) months (the "PERIOD OF
EXTENSION") provided that:
(i) the Lessee shall give the Lessor notice in writing not later than
the date eighteen (18) months prior to the Expiry Date (the
"LESSEE EXTENSION NOTICE") of the Lessee's election to exercise
the option, which Lessee Extension Notice, once given, shall be
irrevocable; and
(ii)no Significant Default or Event of Default shall have occurred and
be continuing on the date that the Lessee Extension Notice is
given or on the day before the Period of Extension commences.
(b) In the event the Lessee does not exercise the Lessee Extension Option,
the Lessor shall have the option (the "LESSOR EXTENSION OPTION") to
extend the Term for a period of twenty-four (24) months (the "PERIOD
OF EXTENSION"), provided that the Lessor shall give the Lessee notice
in writing not later than the date twelve (12) months prior to the
Expiry Date (the "LESSOR EXTENSION NOTICE") of the Lessor's election
to exercise the option, which Lessor Extension Notice, once given,
shall be irrevocable;
Upon the exercise of the Lessee Extension Option or the Lessor Extension
Option, all references in this Agreement to the Expiry Date shall be
deemed to refer to the last day of the Period of Extension and all other
terms and conditions of this Agreement shall remain in full force and
effect.
5. PAYMENTS
5.1 AIRCRAFT COMMITMENT FEE
Lessee shall pay to the Lessor a Commitment Fee in the amount and in
accordance with the schedule set forth in Letter Agreement No. 1:
The Commitment Fee shall be returned to the Lessee five Business Days
following the Expiry Date, but not before the Lessee shall have completely
performed all of its obligations then due under this Agreement. If the
Commitment Fee is in the form of cash, interest shall accrue on the
Commitment Fee at six months (6 months) LIBOR minus 1.00 % and shall be
payable to the Lessee together with the Commitment Fee unless any Event of
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Default occurs and is continuing at such time, in which case, such
interest shall be paid to the Lessee at such time as all amounts then due
from the Lessee to the Lessor hereunder shall have been paid in full.
At the Lessor's option, payment of the Commitment Fee may take the form of
the provision by the Lessee to the Lessor of a Letter of Credit, and in
such case, the Lessor agrees to exchange such Letter of Credit for a new
Letter of Credit in an appropriately reduced amount if and when the
Commitment Fee is reduced as provided in this Clause 5.1; provided that
the Lessee shall have the right to maintain the Commitment Fee in the form
of cash, subject to the conditions set forth in Clause 5.15(a).
5.2 RENTAL PERIODS
The first Rental Period shall commence on the Delivery Date and each
subsequent Rental Period shall commence on the date succeeding the last
day of the previous Rental Period. Each Rental Period shall end on the
date immediately preceding the day in the next month numerically
corresponding to the first day of such Rental Period except that:
(a) if there is no such numerically corresponding day in that month, it
shall end on the last day of that month; and
(b) if a Rental Period would otherwise overrun the Expiry Date, it shall
end on the Expiry Date.
5.3 RENT
(a) TIME OF PAYMENT: the Lessee shall pay to the Lessor or its order Rent
in advance on each Rent Date. Payment must be initiated adequately in
advance of the Rent Date to ensure that the Lessor receives credit for
the payment on the Rent Date.
(b) AMOUNT: The Rent payable in respect of each Rental Period will be
calculated as set forth in Letter Agreement No. 1.
(c) RELEVANT PERIODS: The Term will be divided into successive periods
("RELEVANT PERIODS"), the first of which will begin on the Delivery
Date and end on the date immediately preceding the numerically
corresponding day in the 6th calendar month after the Delivery Date.
Each succeeding Relevant Period shall be of six months (6 months)
duration commencing on the date succeeding the last day of the
preceding Relevant Period, save that if any Relevant Period would
otherwise end on a day which is not a Business Day, that Relevant
Period shall end on the immediately preceding Business Day.
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5.4 SUPPLEMENTAL RENT
(a) AMOUNT: the Lessee will also pay to the Lessor Supplemental Rent in
relation to each Rental Period (including without limitation the last
Rental Period of the Term) on the 15th day following the end of that
Rental Period:
(i) in respect of the Airframe, the applicable amount set forth in
Letter Agreement No. 1 for each Flight Hour flown by the Aircraft
during that Rental Period ("AIRFRAME SUPPLEMENTAL Rent"); and
(ii)in respect of each Engine, the applicable amount set forth in
Letter Agreement No. 1 for each Flight Hour operated by that
Engine during that Rental Period ("ENGINE SUPPLEMENTAL RENT"); and
(iii) in respect of each Engine's LLPs, the applicable amount set
forth in Letter Agreement No. 1 for each Flight Cycle operated by
the Engine on which the Engine LLP's are installed (taken as a
whole in relation to that Engine) during that Rental Period
("ENGINE LLP SUPPLEMENTAL RENT"); and
(iv)in respect of the Landing Gear, the applicable amount set forth in
Letter Agreement No. 1 for each Flight Hour operated by the
Landing Gear during that Rental Period ("LANDING GEAR SUPPLEMENTAL
RENT").
(b) ADJUSTMENT: On each anniversary of the Delivery Date, the Lessor and
the Lessee shall adjust the amount of the Supplemental Rent as set
forth in Letter Agreement No. 1.
5.5 PAYMENTS
(a) All payments by the Lessee to the Lessor under this Agreement will be
made for value on the due date, for the full amount due, in Dollars
and in same day funds, settled through the New York Clearing House
System or such other funds as may for the time being be customary for
the settlement in New York City of international payments in Dollars
by telegraphic transfer to the following account:
(i) Morgan Guaranty Trust Company, 23 Wall Street, New York, NY
10260-0023, for the account of the Bank of Ireland, Group
Treasury, Dublin (Account No: 65919429), to be credited to
Sunrock Aircraft Corporation Limited (Account No: 1422592); and
(b) if any Rent or other payment would otherwise become due on a day which
is not a Business Day, it shall be due on the immediately succeeding
Business Day.
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5.6 GROSS-UP
(a) All payments by the Lessee under or in connection with this Agreement
will be made without set-off or counterclaim, free and clear of and
without deduction or withholding for or on account of all Taxes.
(b) All Taxes (other than Lessor Taxes) in respect of payments under this
Agreement shall be for the account of the Lessee.
(c) If the Lessee is compelled by law to make payment to the Lessor under
or in connection with this Agreement subject to any Tax and the Lessor
does not actually receive for its own benefit on the due date a net
amount equal to the full amount provided for under this Agreement, the
Lessee will pay all necessary additional amounts to ensure receipt by
the Lessor of the full amount so provided for.
5.7 TAXATION
(a) The Lessee will on demand pay and indemnify each Indemnitee against
all Taxes (other than Lessor Taxes) levied or imposed against or upon
the Indemnitee or the Lessee or on any payments to such Indemnitee or
imposed against the Aircraft, any Engine or any Part and relating to
or attributable to the Lessee, this Agreement or the Aircraft, any
Engine or any Part directly or indirectly in connection with the
importation, exportation, registration, abandonment, ownership,
leasing, sub-leasing, pooling, purchase, delivery, possession, use,
operation, repair, condition, maintenance, modification, overhaul,
transportation, landing, storage, presence, transfer of title, other
disposition or redelivery of the Aircraft or any part thereof or any
rent, receipts, insurance proceeds, income or other amounts arising
therefrom or otherwise with respect to the transactions contemplated
hereby and the performance by the parties under this Agreement and the
related operative documents.
(b) If an Indemnitee shall actually realize any Tax savings (by way of
refund, deduction or credit) in respect of any amount with respect to
which the Lessee shall have made a payment (or increased payment)
pursuant to Clause 5.6, 5.10 or 8.4, or shall have indemnified such
Indemnitee pursuant to sub-clause (a) above, and such Tax savings
shall not have been taken into account previously in calculating any
indemnity payment made by the Lessee, then such Indemnitee shall pay
to the Lessee the amount of such Tax savings (together with, in the
case of a refund, any interest received thereon) PROVIDED HOWEVER that
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such Indemnitee shall not be obliged to make any payment to the Lessee
pursuant to this sub-clause (b) to the extent that the amount of any
Tax savings in respect of which such payment is to be made (other than
any portion thereof comprising interest on a refund) would exceed the
aggregate amount of all prior payments made by the Lessee to, on
behalf of, or as indemnification of, such Indemnitee under this
Agreement for Taxes less the amount of all prior payments made
pursuant to this sub-clause (b) in respect of such Tax savings and
PROVIDED FURTHER that should any Tax savings with respect to which an
Indemnitee shall have made a payment under this Clause 5.7
subsequently be disallowed or reduced, the Lessee shall, on demand,
refund such amount together with interest at LIBOR from the date which
is the later of the date of disallowance or the date payment was
demanded. Such Indemnitee shall have the right to arrange its Tax
affairs in whatever manner it sees fit; provided that each Indemnitee
shall act in good faith to claim any refund, deduction or credit to
which it is entitled and which, if allowed by the applicable taxing
authority, would result in a required payment from such Indemnitee to
the Lessee or a reduction in the amount of a payment to such
Indemnitee from the Lessee under this Clause 5 and would not adversely
affect such Indemnitee. Except to the extent provided in Clause 5.9 or
Clause 5.16, the Lessee shall not have the right to require any
Indemnitee to disclose its Tax filing information.
(c) The Lessee shall hold each Indemnitee harmless on an After Tax Basis
for any Taxes that result in whole or in part from any acts of the
Lessee or a permitted user under Clauses 8.15 and 8.16.
(d) The Provisions of this Clause 5.7 and Clauses 5.8, 5.9, 5.10, 5.12,
5.16, 8.15 and 8.16 shall survive the termination of this Agreement
and the related operative documents, and shall continue in full force
and effect beyond the Expiry Date.
5.8 VALUE ADDED TAX
(a) For the purposes of this sub-clause:
(i) "VAT" means value added tax and any sales or turnover tax,
imposition or levy of a like nature (other than Lessor Taxes);
(ii)"SUPPLY" includes anything on which VAT is chargeable.
(b) The Lessee will pay to the Lessor or the Trust Company, as the case
may be, the amount of any VAT chargeable in respect of any supply for
VAT purposes under this Agreement.
(c) Each amount stated as payable by the Lessee under this Agreement is
exclusive of VAT (if any) and is, accordingly, to be construed as a
reference to that amount plus any VAT in respect of it.
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5.9 INFORMATION If the Lessee is required by any applicable law, by the
Lessor, the Trust Company or the Beneficial Owner or by any third party,
to deliver any report or return in connection with any Taxes, the Lessee
will duly complete the same and, in particular, will not state or imply
therein that the Lessee is not exclusively responsible for the use and
operation of the Aircraft and for the Taxes (other than Lessor Taxes)
arising therefrom or take any position inconsistent with the Lessor's
status as the owner of the Aircraft for the United States tax purposes,
and the Lessee will, on reasonable request, supply a copy of the report or
return to the Lessor, the Trust Company or the Beneficial Owner, as the
case may be. The Lessor, the Trust Company and the Beneficial Owner shall
provide to the Lessee such information within their possession or control
as is reasonably requested by the Lessee and necessary for the proper
completion of any such report or return and the Lessee shall (except to
the extent incorporated in such report or return, or necessary to the
verification process described in Clause 5.16 or otherwise as the Lessor,
the Trust Company or the Beneficial Owner, as the case may be, shall
expressly permit in writing after the Lessee's request setting forth in
detail the reasons disclosure is otherwise necessary) keep all such
information strictly confidential.
5.10 TAXATION OF INDEMNITY PAYMENTS
(a) If and to the extent that any sums payable to an Indemnitee by the
Lessee under this Agreement by way of indemnity are insufficient, by
reason of any Taxes payable in respect of those sums, for the
Indemnitee to discharge the corresponding liability to the relevant
third party (including any taxation authority), or to reimburse the
Indemnitee for the cost incurred by it to a third party (including any
taxation authority), in each case after taking into account any Tax
benefits actually realized by the Indemnitee (whether in the form of
credits, deductions or otherwise) as a result of the matter
indemnified against, the Lessee will pay to the Indemnitee such sum as
will, after the tax liability has been fully satisfied, leave the
Indemnitee with the same amount as it would have been entitled to
receive in the absence of that liability, together with interest on
the amount of the deficit at the Default Rate in respect of the period
commencing on the date on which the payment of taxation is due (or, if
later, the date the Lessee receives notice from the Indemnitee of the
amount of such deficit) until payment by the Lessee.
(b) If and to the extent that any sums constituting (directly or
indirectly) an indemnity to an Indemnitee but paid by the Lessee to
any person other than the Indemnitee are treated as taxable in the
hands of the Indemnitee, the Lessee will pay to the Indemnitee such
sum as will, after the tax liability (computed by taking into account
any Tax benefits actually realised by the Indemnitee (whether in the
form of credits, deductions or otherwise) as a result of the payment
to such other person) has been fully satisfied, indemnify the
Indemnitee to the same extent as it would have been indemnified in the
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absence of such liability, together with interest on the amount
payable by the Lessee under this sub-clause (b) at: (i) LIBOR in
respect of the period commencing on the date on which the payment of
taxation is due through and including the date which is five (5) days
after demand for such payment by the Indemnitee and (ii) the Default
Rate thereafter until payment by the Lessee.
5.11 DEFAULT INTEREST
If the Lessee or any Indemnitee fails to pay the other any amount payable
under this Agreement on the due date, such non-performing party will pay
on demand from time to time to the party entitled to such payment interest
(both before and after judgment) on the amount, from the due date to the
day of payment in full, at the rate of one month Dollar LIBOR plus 300
basis points (the "DEFAULT RATE").
All such interest will be compounded monthly and calculated on the basis
of the actual number of days elapsed and on a 365 day year.
5.12 CONTEST
If a claim is made against any Indemnitee for any Taxes for which the
Indemnitee intends to seek indemnification hereunder, the Indemnitee shall
promptly notify the Lessee. If requested by the Lessee in writing and
provided that no Event of Default is then continuing, the Indemnitee shall
at the expense of the Lessee (including without limitation, all costs,
expenses, losses, legal and accounting fees and disbursements incurred by
the Indemnitee reasonably allocable to such contest) in good faith contest
or, at the Lessee's request, if permitted by applicable law, permit the
Lessee to contest (and in such case, provide all reasonable cooperation to
the Lessee) the validity, applicability or amount of such Taxes by (A)
resisting payment thereof if practicable, (B) paying the same under
protest, if protest is necessary and proper, or (C) if payment be made,
using reasonable efforts to obtain a refund thereof, in appropriate
administrative and judicial proceedings (including, without limitation, by
pursuit of available appeals if requested by the Lessee and if the Lessee
provides the Indemnitee with an opinion of outside counsel (at the expense
of the Lessee) that such appeal has a realistic possibility of success;
provided that no appeal shall be required to be taken to the United States
Supreme Court). In any case in which the Indemnitee shall determine to
pursue the contest by payment of the Tax, the Lessee shall advance, on an
interest free basis and at no net after tax cost to the Indemnitee, the
amount of the Tax and any interest, penalties or additions to Tax required
to be paid as a precondition to such contest. The Indemnitee shall consult
with the Lessee in good faith regarding the manner of contesting such
claim and shall keep the Lessee reasonably informed regarding the progress
of such contest and shall not release, settle, compromise or abandon the
contest of the Tax without the consent of the Lessee, such consent not to
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be unreasonably withheld or delayed. If the Indemnitee shall obtain a
refund of or be entitled to a credit against other liability for all or
any part of such Taxes paid by the Lessee, the Indemnitee shall pay the
Lessee the amount of such refund attributable to such Taxes paid by the
Lessee, after deducting any costs and expenses that were incurred by the
Indemnitee in connection therewith; provided that such amount shall not be
payable before such time as the Lessee shall have made all payments and
indemnities then due to the Indemnitee hereunder. If in addition to such
refund the Indemnitee shall receive an amount representing interest on the
amount of such refund, the Lessee shall be paid that proportion of such
interest which is fairly attributable to Taxes paid by the Lessee prior to
the receipt of such refund; provided, however, that no amount shall be
payable under this or the preceding sentence during any period in which an
Event of Default has occurred and is continuing. If the Indemnitee
receives an award of attorneys' fees in a contest for which the Lessee has
paid an allocable portion of the contest expenses, the Indemnitee shall
pay to the Lessee the same proportion of the amount of such award as the
amount of attorneys' fees paid or reimbursed by the Lessee bears to the
total amount of the attorneys' fees actually incurred by the Indemnitee in
conducting such contest.
Notwithstanding the foregoing, neither the Lessor nor the Trust Company
shall be required to contest a Tax if the action to be taken creates a
material danger of sale, forfeiture, loss or creation of a lien on the
Aircraft, the Airframe, any Engine or any Part or on the Lessor (or Head
Lessee's) interest therein, and shall not be obligated to continue the
contest of any Tax if (i) the Lessee has failed to pay, as and to the
extent provided above, the expenses of such contest incurred by the Lessor
or (ii) an Event of Default has occurred and is then continuing, unless
such contest is being conducted as a claim for refund or the Lessee has
provided security for the contested Tax liability satisfactory to the
Lessor or the Trust Company, as the case may be.
Notwithstanding the foregoing, neither the Lessor nor the Trust Company
will be required to contest the imposition of any Taxes and shall be
permitted to settle or compromise any claim without the Lessee's consent
if the Lessor or the Trust Company, as the case may be, (i) shall waive
its right to indemnity under Clauses 5.6, 5.7, 5.10 and 8.4 with respect
to such Taxes (and any directly related claim and any claim the outcome of
which is determined based upon the outcome of such claim) and (ii) shall
pay to the Lessee any amount previously paid or advanced by the Lessee
pursuant to this Clause 5.12 with respect to such Tax other than, in the
case of a contest conducted by means of payment of the Tax, the amount of
the Tax.
5.13 ABSOLUTE
The Lessee's obligations under this Agreement, including its obligations
to pay Rent and Agreed Value, are, subject to the Lessor's compliance with
its covenant of quiet enjoyment as specifically set forth in Clause 7.1
hereof and the Beneficial Owner's compliance with its undertakings as set
forth in the letter of Quiet Enjoyment delivered to the Lessee, absolute
and unconditional irrespective of any contingency whatever including (but
not limited to):
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(a) any right of set-off, counterclaim, recoupment, defence or other right
which either party to this Agreement may have against the other;
(b) any unavailability of the Aircraft for any reason, including, but not
limited to, a requisition of the Aircraft for any prohibition or
interruption of or interference with or other restriction against the
Lessee's use, operation or possession of the Aircraft;
(c) any lack or invalidity of title or any other defect in title (provided
always that such lack or invalidity of title or other defect does not
result in the Lessee being deprived of its possession of the
Aircraft), airworthiness, merchantability, fitness for any purpose,
condition, design, or operation of any kind or nature of the Aircraft
for any particular use or trade, or for registration or documentation
under the laws of any relevant jurisdiction, or any Total Loss in
respect of or any damage to the Aircraft;
(d) any insolvency, bankruptcy, reorganization, arrangement readjustment
of debt, dissolution, liquidation or similar proceedings by or against
the Lessor or the Lessee;
(e) any invalidity or unenforceability or lack of due authorization of, or
other defect in, this Agreement;
(f) any other cause which, but for this provision, would or might
otherwise have the effect of terminating or in any way affecting any
obligation of the Lessee under this Agreement.
PROVIDED ALWAYS that this Clause 5.13 shall be without prejudice to the
Lessee's right to claim damages and/or other relief from the courts in the
event of any breach by the Lessor of its obligations under this Agreement,
or in the event that, as a result of any lack or invalidity of title to
the Aircraft on the part of the Holder of Legal Title, the Lessee is
deprived of its possession of the Aircraft.
5.14 LESSOR'S MONEYS
(a) It is intended by the Lessor and the Lessee that the Commitment Fee
payable by the Lessee to the Lessor pursuant to Clause 5.1 and the
Supplemental Rent are amounts paid by the Lessee to the Lessor in
consideration for the Lessor removing the Aircraft from the market,
the use of the Aircraft by the Lessee and the satisfaction of the
Lessor's obligations under this Agreement and that, once paid, those
moneys, as well as any interest earned thereon or other proceeds
thereof, irrevocably and unconditionally shall be the property of the
Lessor, and the Lessor may commingle with its other funds all funds
paid by the Lessee under Clause 5.1 and this Clause. Notwithstanding
that stated intent, if and to the extent that those moneys or any part
thereof, under any applicable law or otherwise, are determined to be
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security deposits or otherwise the property of the Lessee or if it is
so determined those moneys are a debt owed to the Lessee or that the
Lessee shall have any interest in those moneys (the "LESSOR'S
MONEYS"), the parties agree that subclauses (b) and (c) below shall
apply.
(b) To the fullest extent permitted by law and by way of continuing
security the Lessee charges and grants a security interest in the
Lessor's Moneys and all rights of the Lessee to payment thereof, the
debt represented thereby and all interest thereon and/or any and all
interest of the Lessee therein to the Lessor by way of first priority
security interest and first fixed charge as security for the Lessee's
obligations and liability under this Agreement (the "LESSEE'S
LIABILITIES"). Except as expressly permitted under this Agreement, the
Lessee will not be entitled to payment of the Lessor's Moneys. The
Lessee will not assign, transfer or otherwise dispose of all or part
of its rights or interest in the Lessor's Moneys and the Lessee agrees
that it will enter into any additional documents and instruments
necessary or reasonably requested by Lessor to evidence, create or
perfect the Lessor's rights to the Lessor's Moneys.
(c) If a Significant Default or an Event of Default has occurred and is
continuing the Lessor may immediately or at any time thereafter, so
long as such Significant Default or Event of Default is continuing,
without prior notice to the Lessee:
(i) set-off all or any part of the Lessee's Liabilities then due and
owing against the liabilities of the Lessor in respect of the
Lessor's Moneys; or
(ii)apply or appropriate the Lessor's Moneys in or towards the payment
or discharge of the Lessee's Liabilities then due and owing in
such order as the Lessor sees fit.
5.15 LETTER OF CREDIT
(a) If an Event of Default occurs and for as long as it continues, the
Lessor may (but shall not be obliged to) call on the Letter of Credit
and use or apply the proceeds in or towards satisfaction of any sums
due and payable to the Lessor under this Agreement or to compensate
the Lessor for any sums which it advances or expends as a result of
any such Event of Default. Notwithstanding any such use or application
by the Lessor, the Lessee shall remain in default under this Agreement
until the full amount owed by the Lessee, including interest accrued
thereon pursuant to Clause 5.11, shall have been paid to the Lessor,
subject to the conditions set forth in the immediately following
paragraph, as a cash portion of the Commitment Fee or the Lessee
procures the issue of a new Letter of Credit acceptable to the Lessor
for an amount equal to the amount so used or applied and pays to the
Lessor an amount equal to the excess, if any, of (i) the amount so
advanced or expended by the Lessor plus interest accrued thereon
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pursuant to Clause 5.11 over (ii) the amount of the Letter of Credit
proceeds drawn by the Lessor and so used or applied.
Notwithstanding the foregoing, if, and to the extent that, the form of
a new Letter of Credit procured or proposed by the Lessee in
accordance with this Agreement (using its best efforts and acting in
good faith to procure a new Letter of Credit to the Lessor's
satisfaction), is deemed unsatisfactory by the Lessor, the Lessee
shall have the right to pay the equivalent amount to the Lessor in
cash as a cash portion of the Commitment Fee.
(b) The Letter of Credit applicable at the Expiry Date shall not expire
until 45 days after the scheduled Expiry Date.
(c) The Letter of Credit shall be returned to the Lessee within 20
Business Days of:
(i) redelivery of the Aircraft to the Lessor in the condition required
by Clause 12 of, and Schedule 3 to, this Agreement; or
(ii)receipt by the Lessor of the Agreed Value following a Total Loss
and all other amounts due under Clause 11.1(b); or
in either case, at such later time that the Lessee has paid to the
Lessor all amounts which are then outstanding or will be payable under
this Agreement, PROVIDED ALWAYS that the Lessor shall not be obliged
to return the Letter of Credit if and for so long as, at the relevant
time, an Event of Default shall have occurred and be continuing under
Clause 13.1(g) or (h).
5.16 VERIFICATION
At the Lessee's request, the computation of any amount owed by the Lessee
or any amount owed to the Lessee pursuant to Clause 5 or Clause 10 hereof
shall be verified and certified by an independent public accounting firm
selected by the Lessor and reasonably satisfactory to the Lessee (which
shall be a firm other than one typically employed by the Lessor respecting
its tax matters and other than the firm originally preparing or previously
reviewing the computation subject to verification). Such verification
shall be binding on both the Lessee and the Lessor absent manifest error.
The costs of such verification (including the fee of such public
accounting firm) shall be borne by the Lessee unless such verification
shall result in an adjustment in the Lessee's favor of the greater of (i)
5% or more of the payment as computed by the Lessor, and (ii) the costs of
such verification in which case the costs shall be paid by the Lessor. The
Lessor and the Lessee shall provide to such public accounting firm all
information within its possession or control that is reasonably necessary
for such verification and such firm shall keep all such information
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strictly confidential, and shall not provide either the Lessor or the
Lessee access to any information provided by the other to such firm for
purposes of such verification.
6. MANUFACTURER'S WARRANTIES
6.1 ASSIGNMENT
Notwithstanding this Agreement, except as provided in this Clause 6.1 and
Clause 6.2, the Lessor will remain entitled to the benefit of each
warranty, express or implied, and any unexpired customer and/or product
support given or provided in respect of the Aircraft, any Engine or Part
by any manufacturer, vendor, maintenance performer, subcontractor or
supplier. Unless a Significant Default or an Event of Default shall have
occurred and be continuing, the Lessor hereby assigns to the Lessee and
authorizes the Lessee to exercise such rights as the Lessor may have
thereunder and the Lessee agrees to diligently pursue, to the extent
deemed commercially reasonable, any such claim which arises at its own
cost. The Lessee will notify the Lessor promptly upon becoming aware of
any such claim. The Lessor will provide such assistance to the Lessee in
making a claim under any such warranties or customer and/or product
support as the Lessee may reasonably request, and, if requested by the
Lessee and at the Lessee's expense, will pursue a claim in its own name
where the relevant manufacturer, vendor, maintenance performer,
subcontractor or supplier has refused to acknowledge the Lessee's right to
pursue that claim. Where the Lessee has exercised its option not to pursue
a claim on the basis that it is not commercially reasonable, the Lessee
shall, at no out-of-pocket expense to the Lessee, provide the Lessor all
information and technical support as reasonably requested by the Lessor in
order for the Lessor to pursue such claim at its own expense.
6.2 PROCEEDS
The Lessee covenants and agrees to apply any proceeds of any claims
assigned to the Lessee by the Lessor under Clause 6.1 to remedy the
defect, if any, in the Aircraft, any Engine or any Part giving rise to
such claim if and to the extent that such defect has not already been
remedied. So long as no Significant Default or Event of Default has
occurred and is continuing and this Agreement has not terminated, the
Lessor agrees to cooperate with the Lessee to cause any proceeds from any
rights assigned by the Lessor to the Lessee under Clause 6.1 to be paid
directly to the Lessee, and, if any such proceeds are nonetheless paid to
the Lessor, the Lessor agrees to remit promptly such proceeds to the
Lessee. However, upon the occurrence of an Event of Default or termination
of this Agreement, whichever occurs earlier, the Lessor may immediately:
(a) retain any such proceeds previously paid to the Lessor which would
have been remitted to the Lessee under this Clause 6.2 absent such
Event of Default; and
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(b) seek to cause any proceeds of any pending claims to be paid to the
Lessor, rather than to the Lessee; and
(c) seek recovery from the Lessee the proceeds of any such claims
previously paid to the Lessee to the extent that such claims relate to
any defect in the Aircraft, any Engine or any part not fully and
completely rectified by the Lessee before such Event of Default or
termination.
Provided, however, that if payment of any such proceeds to the Lessee is
withheld due to one or more Events of Default, such proceeds shall be paid
or remitted to the Lessee after all Events of Default are cured.
6.3 PARTS
Except to the extent the Lessor otherwise agrees in a particular case, the
Lessee will procure that all engines, components, furnishings or equipment
provided by the manufacturer, vendor, maintenance performer, subcontractor
or supplier as a replacement for a defective Engine or Part pursuant to
the terms of any warranty or customer and/or product support arrangement
comply with Clause 8.13(a), are installed on the Aircraft promptly and
that title thereto vests in the Holder of Legal Title in accordance with
Clause 8.17(a). On installation those items will be deemed to be an Engine
or Part, as applicable.
6.4 AGREEMENT
To the extent any warranties or customer and/or product support relating
to the Aircraft are made available under an agreement between any
manufacturer, vendor, maintenance performer, subcontractor or supplier and
the Lessee, this Clause 6 is subject to that agreement.
However the Lessee will:
(a) pay the proceeds of any claim thereunder to the Lessor to the extent
such proceeds would not be payable to the Lessee pursuant to Clause
6.2 and, pending such payment, will hold the claim and the proceeds on
trust for the Lessor; and
(b) the Lessee will take all such steps as are necessary at the end of the
Term to ensure the benefit of any of those warranties or customer
and/or product support which have not expired are vested in the
Lessor.
7. LESSOR'S COVENANTS AND DISCLAIMERS
7.1 QUIET ENJOYMENT
The Lessor covenants that neither the Lessor nor any person or entity
lawfully claiming by or through the Lessor will interfere with the quiet
use, possession and enjoyment of the Aircraft by the Lessee or the
exercise by the Lessee in accordance with this Agreement of its rights
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with respect to the Aircraft and all rents, revenues, profits and income
therefrom; provided, however, that the exercise by the Lessor of its
rights in accordance with this Agreement will not constitute such an
interference.
7.2 MAINTENANCE CONTRIBUTION
Provided no Significant Default or Event of Default has occurred and is
continuing (but in such case, at such time as such Significant Default or
Event of Default is no longer continuing), the Lessor will pay to the
Lessee, by way of contribution to the cost of maintenance of the Aircraft,
within 14 days after submission by the Lessee to the Lessor of an invoice
and supporting documentation reasonably satisfactory to the Lessor
evidencing:
(a) with respect to the Airframe, the completion, in accordance with this
Agreement, of those items of maintenance characterized by the
manufacturer's maintenance planning document as "Structural C-7"
Check, as defined by the Agreed Maintenance Programme, (or equivalent)
(but not including repairs arising as the result of operational or
maintenance mishandling or accidental damage), the lesser of (i) the
amount of that invoice and (ii) an amount equal to the aggregate
amount of Airframe Supplemental Rent paid under this Agreement, LESS
the aggregate amount previously paid by the Lessor under this
sub-clause (a);
(b) with respect to any Engine, the performance, in accordance with this
Agreement, of all shop visits requiring an off-wing teardown and/or
disassembly and resulting in the refurbishment and restoration of
operating performance and/or the replacement of Engine LLP's (other
than (aa) the repairs of foreign object damage or damage resulting
from operational or from maintenance mishandling except to the extent
such overhaul or replacement results in the refurbishment or
"betterment" of the Engine and/or (bb) removal, installation,
maintenance and repair of QEC (Quick Engine Change) kits), the lesser
of (i) the amount of that invoice and (ii) an amount equal to the
aggregate amount of Engine Supplemental Rent paid in respect of that
Engine under this Agreement, LESS the aggregate amount previously paid
in respect of that Engine by the Lessor under this sub-clause (b); and
(c) with respect to any Engine LLP's, the performance, in accordance with
this Agreement, of all work on such Engine LLP's, including overhaul
or replacement (other than overhaul or replacement of foreign object
damage or operational or maintenance mishandling except to the extent
such overhaul or replacement results in the refurbishment or
"betterment" of the Engine), the lesser of (i) the amount of that
invoice and (ii) an amount equal to the aggregate amount of Engine LLP
Supplemental Rent paid under this Agreement (in respect of such
Engine), LESS the aggregate amount previously paid in respect of the
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overhaul or replacement of Engine LLP's by the Lessor in respect of
such Engine under this sub-clause (c);
(d) with respect to the Landing Gear, the performance in accordance with
this Agreement, of all work on the Landing Gear in the nature of
overhaul and requiring removal and disassembly (other than the repair
of damage arising as the result of operational or maintenance
mishandling or accident), the lesser of (i) the amount of that invoice
and (ii) an amount equal to the aggregate amount of Landing Gear
Supplemental Rent paid under this Agreement, LESS the aggregate amount
previously paid by the Lessor under this sub-clause (d); and
(e) with respect to the cost of incorporation of airworthiness directives,
the contributions pursuant to the formula and in accordance with the
terms as set forth in Letter Agreement No. 1.
Notwithstanding the above provisions of this Clause 7.2, the Lessee shall
not be entitled to receive any such contributions in respect of the cost
of the incorporation of airworthiness directives and mandatory
modifications to the extent paid by insurance or a warranty claim.
7.3 THE LESSOR'S OBLIGATIONS FOLLOWING EXPIRY DATE
So long as no Significant Default or Event of Default has occurred and is
continuing, within 3 Business Days of:
(a) redelivery of the Aircraft to the Lessor in accordance with and in
the condition required by this Agreement; or
(b) payment to the Lessor of the Agreed Value following a Total Loss after
Delivery,
the Lessor will pay to the Lessee:
(i) by way of (A) rebate of the Commitment Fee that is in the form of
cash, an amount equal to the sums paid by the Lessee pursuant to
Clause 5.1 (and not otherwise applied by the Lessor pursuant to
Clause 5.14(c) plus interest accrued thereon pursuant to Clause
5.1) or (B) if the Commitment Fee is in the form of a Letter of
Credit, returning the Letter of Credit, net of any amounts drawn
pursuant to Clause 5.14(c);
(ii)the amount of any Rent received in respect of any period falling
after the date of redelivery of the Aircraft or payment of the
Agreed Value, as the case may be; and
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(iii) in the case of a Total Loss only, by way of further contribution
to the cost of maintenance of the Aircraft, an amount equal to the
amount by which the aggregate amount of Supplemental Rent paid by
the Lessee exceeds the aggregate amount paid by the Lessor under
Clause 7.2 (other than paragraph (e) thereof).
(c) anything in this Agreement to the contrary notwithstanding, in the
event that any amount otherwise payable to the Lessee is retained by
the Lessor as the result of the occurrence of a Significant Default or
an Event of Default hereunder, the Lessor shall pay such amount to the
Lessee at such time as such Significant Default or Event of Default is
no longer continuing and, in the event that the Significant Default or
the Event of Default giving rise to the Lessor's right to retain such
amount constitutes a default in the payment of money owed by the
Lessee to the Lessor and the aggregate amount so retained by the
Lessor (the "Retained Amount") equals or exceeds the amount which is
the subject of such payment default (the "Default Amount"), the Lessor
shall deduct from the Retained Amount an amount equal to the Default
Amount (and such deduction shall constitute payment by the Lessee of
the payment obligations which is the subject of the Significant
Default or the Event of Default) and shall pay over to the Lessee the
amount, if any, equal to the balance of the Retained Amount.
7.4 EXCLUSION EXCEPT AS PROVIDED IN CLAUSE 4.3, THE AIRCRAFT IS TO BE LEASED
AND DELIVERED HEREUNDER "AS IS, WHERE IS" AND THE LESSEE AGREES AND
ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS AGREEMENT, THE LESSOR
WILL HAVE NO LIABILITY IN RELATION TO, AND THE LESSOR HAS NOT AND WILL NOT
BE DEEMED TO HAVE MADE OR GIVEN (WHETHER BY VIRTUE OF HAVING DONE OR
FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS
UNDER OR IN RELATION TO THIS AGREEMENT AND THE RELATED DOCUMENTS OR
OTHERWISE), ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO:
(a) THE TITLE, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS, OPERATION,
MERCHANTABILITY, FREEDOM FROM CLAIMS OF INTERFERENCE OR INFRINGEMENT
OR THE LIKE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE,
DURABILITY, CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL
OR WORKMANSHIP, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR WARRANTY
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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, ANY ENGINE OR ANY PART; OR
(b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR
NOT ARISING FROM LESSOR'S NEGLIGENCE, ACTUAL OR IMPUTED, OR STRICT
LIABILITY OR OTHERWISE, FOR:
(i) ANY LIABILITY, LOSS OR DAMAGE (INCLUDING ANY LIABILITY OF THE
LESSEE TO ANY THIRD PARTY) 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;
(ii)THE USE, OPERATION, OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS
RELATING THERETO;
(iii)ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED
ANTICIPATED PROFITS OR CONSEQUENTIAL DAMAGES;
(iv)THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR,
IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY
PART; OR
(v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
7.5 LESSEE'S WAIVER
THE LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL ITS RIGHTS
IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, ON THE
PART OF THE LESSOR AND ALL CLAIMS AGAINST THE LESSOR HOWSOEVER AND
WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE OPERATION OF THE
AIRCRAFT EXCEPT TO THE EXTENT ARISING UNDER WARRANTIES OR REPRESENTATIONS
IN CLAUSE 2.4 OR ARISING UNDER ANY MANUFACTURER'S WARRANTY, CUSTOMER
SUPPORT AGREEMENT OR PRODUCT SUPPORT AGREEMENT DESCRIBED IN CLAUSE 6
HEREOF.
7.6 LESSEE'S CONFIRMATION
LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF CLAUSES 7.4
AND 7.5 AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN
CALCULATED NOTWITHSTANDING ITS PROVISIONS.
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8. LESSEE'S COVENANTS
8.1 DURATION
The undertakings in this Clause and in Clause 12 will:
(a) except as otherwise stated in this Agreement, be performed at the
expense of the Lessee; and
(b) remain in force until redelivery of the Aircraft to the Lessor in
accordance with this Agreement and thereafter to the extent of any
accrued rights of the Lessor in relation to those undertakings.
8.2 INFORMATION
The Lessee will:
(a) notify the Lessor forthwith of the occurrence of any Significant
Default or Event of Default;
(b) furnish to the Lessor on a confidential basis:
(i) upon request, the unaudited consolidated management accounts of
the Lessee (comprising a balance sheet and profit and loss
statement) prepared for the most recent previous financial
quarter;
(ii)as soon as available but not in any event later than 120 days
after the last day of each financial year of the Lessee, its
audited consolidated balance sheet as of such day and its audited
consolidated profit and loss statement for the year ending on such
day;
(iii) at the same time as it is issued to the shareholders or
creditors of the Lessee, a copy of each notice or circular issued
to the Lessee's shareholders or creditors as a group with respect
to the Lessee's financial condition or the taking of any action
which may reasonably be expected to materially and adversely
affect the Lessee's ability to perform its obligations hereunder;
and
(iv)on request from time to time such other information regarding the
Lessee and its business and affairs as the Lessor may reasonably
request;
(c) keep the Lessor informed as to current serial numbers of the Engines
and any engine installed on the Aircraft;
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(d) promptly furnish to the Lessor all information which the Lessor from
time to time reasonably requests regarding the Aircraft, any Engine or
any Part, its use, location and condition including, without
limitation, the hours available on the Aircraft and any Engine until
the next scheduled check, inspection, overhaul or shop visit, as the
case may be;
(e) within 20 days after the end of any Rental Period, furnish to the
Lessor, evidence reasonably satisfactory to the Lessor of payment of
all Taxes (other than Lessor Taxes) due during that or any previous
Rental Period, and promptly upon receipt from a taxing authority,
forward to the Lessor or the Beneficial Owner notice of any assessment
or proposed assessment of any Lessor Tax;
(f) on request, furnish to the Lessor evidence reasonably satisfactory to
the Lessor that all Taxes and charges incurred by the Lessee with
respect to the Aircraft have been paid and discharged in full;
(g) provide the Lessor within 15 days after the end of each Rental Period
with a monthly report on the Aircraft and each Engine in the form set
out in Schedule 9 or such other form as the Lessor may, from time to
time, reasonably require;
(h) give the Lessor not less than 60 days' written notice as to the time
and location of all Major Checks;
(i) promptly notify the Lessor of:
(i) any loss, theft, damage or destruction to the Aircraft, any Engine
or any Part, or any modification to the Aircraft if the reasonably
expected cost may exceed the Damage Notification Threshold; and
(ii)any claim or other occurrence likely to give rise to a material
recovery under the public liability Insurances and details of any
negotiations with the insurance brokers over any such claim.
8.3 LAWFUL AND SAFE OPERATION
The Lessee shall (and shall cause any Permitted Sublessee to):
(a) comply with the law for the time being in force in any country or
jurisdiction which is applicable to the Aircraft or, so far as
concerns the use and operation of the Aircraft, an owner or operator
thereof;
(b) not use the Aircraft in any manner contrary to any rule or regulation
of the Aviation Authority or for any purpose for which the Aircraft is
not designed or reasonably suitable;
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(c) ensure that the crew and engineers employed by it in connection with
the operation and maintenance of the Aircraft have the qualifications
and hold the licenses required by the Aviation Authority and
applicable law;
(d) use the Aircraft solely in commercial or other operations for which
the Lessee is duly authorized by the Aviation Authority and applicable
law;
(e) not knowingly use the Aircraft for the carriage of:
(i) whole animals, living or dead, except in the cargo compartments
according to I.A.T.A. regulations, and except domestic pet animals
carried in a suitable container to prevent the escape of any
liquid and to ensure the welfare of the animal;
(ii)acids, toxic chemicals, other corrosive materials, explosives,
nuclear fuels, nuclear wastes, or any nuclear assemblies or
components, except as permitted for cargo aircraft under the
"Restriction of Goods" schedule issued by I.A.T.A. from time to
time and provided that all the requirements for packaging or
otherwise contained therein are fulfilled;
(iii) any other goods, materials or items of cargo which could
reasonably be expected to cause damage to the Aircraft and which
would not be adequately covered by the Insurances; or
(iv)any illegal item or substance;
(f) not utilize the Aircraft for purposes of training, qualifying or
re-confirming the status of cockpit personnel except for the benefit
of the Lessee's cockpit personnel, and then only if the use of the
Aircraft for such purpose is not substantially disproportionate to the
use for such purpose of other aircraft of the same type operated by
the Lessee;
(g) not cause or permit the Aircraft to proceed to, or remain at, any
location which is for the time being the subject of a prohibition
order (or any similar order or directive) by:
(i) any Government Entity of the State of Registration or the
Habitual Base; or
(ii)any Government Entity of the country in which such location is
situated; or
(iii)any Government Entity having jurisdiction over the Lessor
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Lessor, the Banks or the Aircraft;
(h) not operate or locate, or permit any Permitted Sub-Lessee to operate
or locate, the Aircraft or any Engine, or suffer the Airframe or any
Engine to be operated or located in, to or from Japan;
(i) obtain and maintain in full force all certificates, licenses, permits
and authorizations required for the use and operation of the Aircraft
for the time being, and for the making of payments required by, and
the compliance by the Lessee with its other obligations under, this
Agreement.
8.4 TAXES AND OTHER OUTGOINGS
The Lessee will promptly pay:
(a) all license and registration fees, Taxes and other amounts of any
nature imposed by any Government Entity (other than Lessor Taxes)
which are imposed on the Lessee or for which the Lessee is responsible
under this Agreement with respect to the Aircraft, including, without
limitation, the purchase, ownership, delivery, leasing, possession,
use, operation, return, sale or other disposition of the Aircraft; and
(b) all rent, fees, charges, Taxes and other amounts imposed on the Lessee
in respect of any premises where the Aircraft, any Engine or any Part
thereof is located from time to time during the Term;
except to the extent that such payment is being contested in good faith by
appropriate proceedings, in respect of which adequate reserves have been
established by the Lessee in accordance with GAAP and non-payment of which
does not give rise to the likelihood of the Aircraft or any interest
therein being seized, condemned, sold, forfeited or otherwise lost or of
criminal liability or unindemnified liability on the part of any
Indemnitee.
8.5 SUB-LEASING
(a) Subject to sub-clauses (b) and (c) below, the Lessee will not,
without the prior written consent of the Lessor (which consent shall
not be unreasonably withheld or delayed), sub-lease (other than in
the form of a "wet lease") or otherwise part with possession of the
Aircraft, the Engines or any Part except that the Lessee may part
with possession:
(i) with respect to the Aircraft, the Engines or any Part to the
relevant manufacturers for testing or similar purposes or to the
Agreed Maintenance Performer for service, repair, maintenance or
overhaul work, or alterations, modifications or additions to the
extent required or permitted by this Agreement; and
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(ii) with respect to an Engine or Part, as expressly permitted by
this Agreement.
(b) The Lessor shall not withhold its consent to a proposed sub-lease of
the Aircraft provided the following conditions are satisfied:
(i) no Event of Default shall have occurred and be continuing;
(ii) the proposed sub-lessee (the "PERMITTED SUB-LESSEE") is a
reputable, duly licensed and certificated operator of aircraft
of the same type as the Aircraft and is incorporated and
resident in one of the jurisdictions specified in Schedule 10;
(iii)the terms of the proposed sub-lease (the "PERMITTED Sub-Lease")
shall, when taken together with this Agreement, allow for full
compliance with the Lessee's obligations hereunder;
(iv) during the term of the Permitted Sub-Lease, the Lessee shall
remain primarily liable for the performance of all its
obligations under this Agreement;
(v) the term of the Permitted Sub-Lease shall not extend, or be
capable of being extended, beyond the scheduled Expiry Date;
(vi) the Permitted Sub-Lease shall be expressly subject and
subordinate to this Agreement and the rights of the Lessor
hereunder;
(vii)the Permitted Sub-Lease shall not be amended without the
Lessor's prior written consent (such consent not to be
unreasonably withheld);
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(viii) prior to delivery of the Aircraft to the Permitted Sub-Lessee,
the Lessee shall execute and deliver to the Lessor a security
assignment of the benefit of the Permitted Sub-Lease in form and
substance reasonably satisfactory to the Lessor, shall deliver
notice of such assignment to the Permitted Sub-Lessee, and shall
procure that the Permitted Sub-Lessee acknowledges such notice
to the Lessor (which such acknowledgment shall contain the
Permitted Sub-Lessee's confirmation of the matters set out in
sub-clauses (vi) and (vii) above). Any such security assignment
shall provide that the Lessee as the sub-lessor under the
Permitted Sub-Lease, shall be entitled to receive and retain the
rentals paid by the Permitted Sub-Lessee unless and until an
Event of Default occurs under this Agreement; provided that,
during the continuation of an Event of Default, the Lessor shall
have the right, but not the obligation, to receive the rentals
paid by the Permitted Sub-Lessee and to apply such rentals
toward the obligations of the Lessee then due hereunder; and
provided further that at such time as no Event of Default shall
be continuing hereunder, the Lessor shall pay over to the Lessee
that portion of such rentals received by the Lessor and not so
applied by the Lessor toward such obligations of the Lessee.
(ix) in the event that, pursuant to the Permitted Sub-Lease, the
Aircraft is to be de-registered from the national aircraft
register in the State of Registration, the Permitted Sub-Lessee
shall have provided the Lessor and the Lessee with a valid and
irrevocable power of attorney authorizing the Lessor and/or the
Lessee to de-register the Aircraft from the national aircraft
register of the new State of registration in the event of a
termination of the Permitted Sub-Lease as a consequence of a
default on the part of the Permitted Sub-Lessee;
(x) the Lessor shall have received a legal opinion reasonably
satisfactory to it in all respects from a reputable counsel in
the jurisdiction in which the Permitted Sub-Lessee is
incorporated and resident and (if different) in the new State of
registration. Such opinion shall be substantially in the form of
Schedule 6, mutatis mutandis;
(xi) all costs and expenses reasonably incurred by the Lessor
(including the cost of obtaining the legal opinion or opinions
referred to in sub-clause (x) above) in connection with the
Permitted Sub-Lease, whether or not the Lessor grants its
consent, shall be paid or provided for by the Lessee;
(xii)the Lessor shall receive a true and correct copy of the
Permitted Sub-Lease; and
(xiii) both the Permitted Sub-Lease and the Permitted Sub-Lessee
shall satisfy the requirements set forth in Clause 9.2 of the
Head Lease.
(c) The Lessor's consent shall not be required in relation to a "wet
lease" or charter of the Aircraft (whereby operational control of the
Aircraft remains with the Lessee at all times), provided the Aircraft
remains registered on the national aircraft register of the State of
Registration.
8.6 INSPECTION
(a) The Lessor and any person designated by the Lessor to the Lessee
in writing (including, without limitation, the Head Lessor and the
Banks, but other than an airline competing with the Lessee or an
Affiliate of such an airline or an employee or representative of
either thereof) may at any time visit, inspect and survey the
Aircraft Documents, the Aircraft, any Engine or any Part and for
such purpose take such other action as set forth in Letter
Agreement No. 1. Except as set forth in this clause, any such
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inspection of the Aircraft, any Engine or any Part shall be a
visual, walk-around inspection which shall not include opening any
panels, bays or the like or any disassembly or removal of
components which are not then opened, disassembled or removed in
the course of the Lessee's maintenance of the Aircraft at the time
of such inspection.
(b) The Lessor shall bear its own costs and expenses in connection with
any such visit, inspection or survey unless the visit, inspection or
survey occurs while a Significant Default or an Event of Default has
occurred is then continuing, in which case such costs and expenses
shall be paid by the Lessee on demand.
(c) The Lessor will:
(i) have no duty to make, or liability arising out of, any such
visit, inspection or survey; and
(ii) not exercise such right other than on reasonable notice and so
as not to disrupt unreasonably the maintenance or commercial
operation of the Aircraft.
8.7 PROTECTION OF TITLE
The Lessee shall:
(a) not do or knowingly permit to be done or omit or knowingly permit
to be omitted to be done any act or thing which might reasonably
be expected to jeopardize the rights, title and interest of the
Holder of Legal Title as owner of and title holder to the Aircraft
and lessor under this Agreement or under the Head Lease,
respectively, or assignee of this Agreement or of the Head Lease
or the rights of any assignee of the benefit of the Aircraft hull
Insurances or the validity, enforceability or priority of the
Assignment;
(b) on all occasions when the ownership of the Aircraft, any Engine or
any Part is relevant, inform applicable third parties that title is
held by the Holder of Legal Title;
(c) not at any time:
(i) represent or hold out the Lessor, the Beneficial Owner, the Head
Lessor or the Banks as carrying goods or passengers on the
Aircraft or as being in any way connected or associated with any
operation or carriage (whether for hire or reward or
gratuitously) which may be undertaken by the Lessee; or
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(ii) pledge the credit of the Lessor, the Head Lessor, the Beneficial
Owner or the Banks;
(d) ensure that there is always affixed, and not removed or in any way
obscured, a fireproof plate (having dimensions of not less than 10
cm. x 7 cm.) in a reasonably prominent position on the Aircraft and
on each Engine stating:
"This Aircraft/Engine is leased by Wilmington Trust Company, not in
its individual capacity but solely as Owner Trustee (for the benefit
of Sunrock Aircraft Corporation Limited), as Lessor, which is the
registered owner thereof on the U.S. FAA Aircraft Registry, and which
has leased the Aircraft/Engine to Western Pacific Airlines, Inc., as
Lessee, and may not be flown by any other person without the prior
written consent of the Owner Trustee and Sunrock Aircraft Corporation
Limited. Title to this Aircraft/Engine is held by NBB Stream Lease
Co., Ltd.";
(e) not create or permit to exist any Security Interest upon the
Aircraft, any Engine or any Part;
(f) not do or permit to be done anything which may reasonably be
expected to expose the Aircraft, any Engine or any Part to
penalty, forfeiture, impounding, detention, appropriation, damage
or destruction and, without prejudice to the foregoing, if any
such penalty, forfeiture, impounding, detention or appropriation,
damage or destruction occurs, give the Lessor notice and use best
endeavors to procure the immediate release of the Aircraft, any
Engine or the Part, as the case may be;
(g) not during the Term abandon the Aircraft, the Engine or any Part;
(h) pay and discharge or cause to be paid and discharged when due and
payable or establish adequate reserves in accordance with GAAP by
way of security or otherwise for all debts, damages, claims and
liabilities which have given or may reasonably be expected to give
rise to a Security Interest over or affecting the Aircraft, any
Engine or any Part except to the extent that such debts, damages,
claims and liabilities, in respect of which adequate reserves have
been established by the Lessee in accordance with GAAP, are being
contested in good faith by appropriate proceedings and nonpayment
of which does not give rise to the likelihood of the Aircraft or
any interest therein being seized, condemned, sold, forfeited or
otherwise lost or of criminal liability or unindemnified liability
on the part of any Indemnitee; and
(i) not attempt, or hold itself out as having any power, to sell, lease
or otherwise dispose of the Aircraft, any Engine or any Part other
than as expressly permitted by this Agreement.
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8.8 GENERAL
The Lessee shall:
(a) not make any substantial change in the type of the business in which
it is engaged, will preserve its corporate existence (other than in
connection with a solvent reconstruction the terms of which have been
approved by the Lessor, such approval not to be unreasonably withheld
or delayed), and will endeavor to conduct its business in an orderly
and efficient manner;
(b) maintain all rights, privileges, licenses and franchises material to
its status or activities set forth in clause (a) above and to
performing its obligations under this Agreement;
(c) not, without giving the Lessor 30 days prior written notice (in
accordance with this Agreement), change its executive office (as such
is defined in Article 9 of the Uniform Commercial Code as in effect
in the State of Colorado) from 2864 S. Circle Drive, Suite 1100,
Colorado Springs, CO 80906, to another state;
(d) remain a certificated air carrier and maintain its status so as to
entitle the Lessor to the benefits of a lessor under Section 1110 of
Title 11 of the United States Code or any analogous statute;
(e) remain a "citizen of the United States" as defined in Section 40102
of Title 49 of the United States Code; and
(f) ensure that no change will occur in the Habitual Base of the Aircraft
without the prior written consent of the Lessor.
8.9 RECORDS
The Lessee shall:
(a) procure that accurate, complete and current records of all flights
made by, and all maintenance carried out on, the Aircraft (including,
in relation to each Engine and Part subsequently installed, before
the installation) are kept; and keep the records in such manner as
the Aviation Authority may from time to time require. The records
will form part of the Aircraft Documents; and
(b) procure access to a revision service in respect of, and will maintain
with appropriate revisions in English, all Aircraft Documents,
records, logs, and other materials required in respect of the
Aircraft by applicable laws and in accordance with customary United
States airline practice.
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8.10 REGISTRATION AND FILINGS
The Lessee shall:
(a) maintain the registration of the Aircraft with the Aviation Authority
reflecting (so far as permitted by applicable law) the interest of
the Lessor and not do or suffer to be done anything which may
reasonably be expected to affect adversely that registration;
(b) do such reasonable acts and things (including, without limitation,
making any filing or registration with the Aviation Authority or any
other Government Entity) and executing and delivering all documents
(including, without limitation, any amendment of this Agreement) as
may be reasonably requested by the Lessor:
(i) at the Lessor's expense following any change or proposed change
in the ownership or financing of the Aircraft or in the manner
of securing the Lessor's obligations to the Banks; or
(ii) at the Lessee's expense following any modification of the
Aircraft, any Engine or any Part or the permanent replacement of
any Engine or Part in accordance with this Agreement, so as to
ensure that the rights of the Lessor under this Agreement apply
with the same effect as before; or
(iii)to establish, maintain, preserve, perfect and protect the rights
in the Aircraft of the Lessor under this Agreement and the Banks
or other assignees in the Assignment, provided that no such
action need be taken by the Lessee pursuant to this provision if
such action would adversely affect any of its material rights or
privileges or materially increase its obligations or liabilities
hereunder, and shall not knowingly take any action that would
prejudice the rights of the Head Lessor in the Aircraft under
the Head Lease.
8.11 MAINTENANCE AND REPAIR
The Lessee shall:
(a) keep the Aircraft in good repair and condition;
(b) not change the Agreed Maintenance Programme or the schedule of the
Agreed Programme except in accordance with the rules and regulations
of the FAA;
(c) maintain the Aircraft in accordance with the Agreed Maintenance
Programme through the Agreed Maintenance Performer and perform (at
the respective intervals provided in the Agreed Maintenance
Programme) all Major Checks;
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(d) maintain the Aircraft in accordance with FAR Part 121 and/or any
other applicable rules and regulations of the FAA, except to the
extent that they conflict with the rules and regulations of the
Aviation Authority;
(e) comply with all mandatory inspection and modification requirements,
airworthiness directives and similar requirements applicable to the
Aircraft, any Engine or Part having a compliance date during the Term
or, in the case of airworthiness directives, within 180 days after
the Expiry Date and which are required by the FAA.
(f) comply with any service bulletin issued by the Manufacturer if and
to the extent that (i) the Lessee has decided to comply with such
service bulletin with respect to substantially all of the Boeing
737-300 aircraft in its fleet and has commenced such compliance
with respect to other such aircraft and (ii) after the Lessee has
reached such decision and before the Expiry Date, the Aircraft
undergoes the applicable check or maintenance procedure at which
compliance with such service bulletin is normally effected with
respect to the Lessee's other Boeing 737-300 aircraft.
(g) comply with all applicable laws and applicable regulations of the
Aviation Authority and other aviation authorities with jurisdiction
over the Lessee or the Aircraft, any Engine or Part regardless of
upon whom such requirements are imposed and which relate to the
maintenance, condition, use or operation of the Aircraft or require
any modification or alteration to the Aircraft, any Engine or Part;
(h) maintain in good standing a current certificate of airworthiness (in
the appropriate category for the nature of the operations of the
Aircraft) for the Aircraft issued by the Aviation Authority except
when the Aircraft is undergoing maintenance, modification or repair
required or permitted by this Agreement and will from time to time
provide to the Lessor a copy on request;
(i) if required by the Aviation Authority with respect to the maintenance
functions which the Lessee is itself performing on the Aircraft or
any Engine, maintain a current certification as to maintenance issued
by or on behalf of the Aviation Authority in respect of the Aircraft
and will from time to time provide to the Lessor a copy on request;
(j) maintain the Engines with respect to overhaul build standards and
disc replacements at a level which is not inferior to the level
applied by the Lessee in relation to the engines in the Lessee's
fleet generally which are of the same type as the Engines; and
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(k) subject to Clause 11.1(c), procure promptly the replacement of any
Engine or Part which has become time, cycle or calendar expired,
lost, stolen, seized, confiscated, destroyed, damaged beyond
repair, unserviceable or permanently rendered unfit for use, with
an engine or part complying with the conditions set out in Clause
8.13(a). The Lessee shall ensure that any such replacement engine
or part has attached to it a current "serviceability tag" issued
by the manufacturer or supplier or overhaul agency, indicating
that the engine or part is new, serviceable or overhauled, and the
Lessee shall retain all such tags.
8.12 REMOVAL OF ENGINES AND PARTS
The Lessee will ensure that no Engine or Part installed on the Aircraft is
at any time removed from the Aircraft other than:
(a) if replaced as permitted by and in accordance with this Agreement;
or
(b) if the removal is of an obsolete item and is in accordance with the
Agreed Maintenance Programme; or
(c) pursuant to, and in accordance with, Clause 8.15; or
(d (i) during the course of maintaining, servicing, repairing,
overhauling or testing that Engine or the Aircraft, as the case
may be; or
(ii) as part of a normal engine or part rotation programme; or
(iii)for the purpose of making such modifications to the Engine or
the Aircraft, as the case may be, as are permitted under this
Agreement,
and then in each case only if it is reinstalled or replaced by an
engine or part complying with Clause 8.13(a) as soon as practicable
and in any event no later than the Expiry Date.
8.13 INSTALLATION OF ENGINES AND PARTS
The Lessee will:
(a) ensure that, except as permitted by this Agreement, no engine or part
is installed on the Aircraft unless:
(i) in the case of an engine, it is an engine of the same model as,
or an improved or advanced version of the Engine it replaces,
which is in the same or better operating condition, has
substantially similar hours/cycles available until the next
scheduled checks, inspections, overhauls and shop visits and has
the same or greater value and utility as the replaced Engine;
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(ii) in the case of a part, it is in as good operating condition, is
of the same or a more advanced make and model and has a value,
utility and remaining useful life, and at least the equivalent
or better modification status and service bulletin
accomplishment status, as the replaced Part;
(iii)in each case, it has become and remains the property of the
Holder of Legal Title free from Security Interests and on
installation on the Aircraft will, without further act, be
subject to this Agreement; and
(iv) in each case, the Lessee has full details as to its source and
maintenance records;
(b) if no Significant Default or Event of Default has occurred which
is continuing, be entitled to install any engine or part on the
Aircraft by way of replacement notwithstanding Clause 8.13(a)
provided that as soon as practicable after installation of the
same on the Aircraft but, in any event, no later than the Expiry
Date, the Lessee removes any such engine or part and replaces it
with the Engine or Part replaced by it or by an engine or part, as
the case may be, complying with Clause 8.13(a).
Lessor agrees, and will at the request of Lessee acknowledge in writing to
the owner of any installed engine, that it will recognize the interests of
such owner and any lessor in the installed engine and will not seek to
exercise any rights whatsoever in relation to it.
8.14 NON-INSTALLED ENGINES AND PARTS
The Lessee will:
(a) ensure that any Engine or Part which is not installed on the Aircraft
(or any other aircraft as permitted by this Agreement) is, except as
permitted by and in accordance with this Agreement, properly and
safely stored, and kept free from Security Interests;
(b) notify the Lessor whenever any Engine is removed from the Aircraft
and, from time to time, on request procure that any person to whom
possession of an Engine is given acknowledges in writing to the
Lessor, in form and substance reasonably satisfactory to the Lessor,
that it will respect the title and interest of the Holder of Legal
Title to and in the Engine and will not seek to exercise any rights
whatsoever in relation to it;
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(c) (notwithstanding any other provision in this Agreement), be
permitted, if no Significant Default or Event of Default has occurred
and is continuing, to install any Engine or Part on an aircraft, or
in the case of a Part, an engine:
(i) owned and operated by the Lessee free from Security
Interests; or
(ii) leased or hired to the Lessee pursuant to a lease or conditional
sale agreement on a long-term basis and on terms whereby the
Lessee has full operational control of that aircraft or engine;
or
(iii)acquired by the Lessee and/or financed or refinanced, and
operated by the Lessee, on terms that ownership of that aircraft
or engine, as the case may be, pursuant to a lease or
conditional sale agreement, or a Security Interest therein, is
vested in or held by any other person,
provided that in the case of (ii) and (iii):
(1) the terms of any such lease, conditional sale agreement or
Security Interest will not have the effect of prejudicing the
title and interest of the Holder of Legal Title to and in that
Engine or Part or the interests of the Banks in respect thereof
under the Assignment; and
(2) as provided in Section 8 of Letter Agreement No. 1, the lessor
under such lease, the seller under such conditional sale
agreement or the holder of such Security Interest, as the case
may be, has confirmed that it will respect the title and
interest of the Holder of Legal Title and the Banks to and in
that Engine or Part and that it will not seek to exercise any
rights whatever in relation thereto.
8.15 POOLING OF ENGINES AND PARTS
The Lessee will not enter into nor permit any pooling agreement or
arrangement in respect of an Engine or Part without the prior written
consent of the Lessor, such consent not to be unreasonably withheld in any
case where an Engine or Part is leased, let on hire or otherwise made
available by the Lessee. So long as no Significant Default or Event of
Default has occurred and is continuing, the Lessee may lease, let or hire
or charter or otherwise part with possession of (i) any Engine so long as
such Engine is transferred to such Engine's manufacturer or (ii) Part (in
the case of each clause (i) and (ii) above, on terms conferring no more
than a contractual right in personam against the Lessee and not a right in
rem against such Part) pursuant to a pooling or interchange arrangement to
which the Lessee is a party; and:
(a) (A) with respect to an Engine, the other party to which is an Engine
manufacturer and (B) with respect to Part, the other parties to which
are reputable, solvent commercial air carriers or the manufacturers
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or suppliers of Part (or other reputable, solvent organizations whose
business includes the administration of and participation in such
pooling agreements or arrangements); and
(b) which does not contemplate the transfer of title to the pooled Engine
or Part (or if title to the Engine is transferred, it will be treated
as a Total Loss); and
(c) either provides that the Lessor (or the Banks, as the case may be)
will be sole loss payee in respect of any loss or damage to the
Engine or Part, or provides for Holder of Legal Title to acquire
title to a substitute engine or part satisfying the conditions set
out in Clause 8.13(a) if the Engine or Part is destroyed.
8.16 EQUIPMENT CHANGES; NON-SEVERABLE MODIFICATIONS AND SEVERABLE
MODIFICATIONS
(a) The Lessee will not make any modification or addition to the Aircraft
(each an "EQUIPMENT CHANGE"), except for an Equipment Change which:
(i) is permitted by and in accordance with this Agreement or
required by the Aviation Authority, or
(ii) has the prior written consent of the Lessor (which consent shall
state whether or not the Equipment Change needs to be removed
and the Aircraft restored to the prior condition on or before
the Expiry Date).
(b) The Lessee will not, without the prior written consent of the Lessor,
make any Non-Severable Modification to the Aircraft, such consent not
to be unreasonably withheld or delayed. Any such Non-Severable
Modification shall, upon incorporation in the Aircraft, become the
property of the Holder of Legal Title.
(c) Notwithstanding Clause 8.16(a) above, the Lessee may at any time,
and from time to time, without the prior consent of the Lessor, so
long as no Significant Default or Event of Default has occurred
and is continuing, install on the Aircraft any Severable
Modification. Title to any such Severable Modification shall
remain in the Lessee and shall not be conveyed to the Lessor as
the result of its installation in the Aircraft. Provided no
Significant Default or Event of Default shall have occurred and be
continuing, the Lessee may remove any such Severable Modification
at any time, provided that, in connection with such removal, the
Lessee restores the Aircraft in to the condition it would have
been in had the installation of such Severable Modification not
occurred. Any such Severable Modification which is not removed
from the Aircraft prior to its return to the Lessor hereunder
shall, subject to such rights as any third party may have, become
the property of the Holder of Legal Title.
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For the avoidance of doubt (i) no Equipment Change, whether in the form of
Severable Modification or Non-Severable Modification, may diminish the
value, utility, condition or airworthiness of the Aircraft and (ii) any
Severable Modification to which title is not vested in the Lessee shall
require the Lessor's consent, such consent not to be unreasonably withheld
or delayed.
8.17 TITLE TO ENGINES AND PARTS
(a) Title to al engines and parts installed on the Aircraft, whether
by way of replacement, as the result of an Equipment Change (other
than Severable Modification) or otherwise (except those installed
pursuant to Clauses 8.13(b), 8.14(c), 8.15 or 8.16 (in relation to
parts which are leased to the Lessee)) will on installation, be
conveyed to the Holder of Legal Title subject to this Agreement
free and clear of all Security Interests. The Lessee will at its
own expense take all such steps and execute, and procure the
execution of, all such instruments as the Lessor or Head Lessor,
as the case may be, may reasonably request and which are necessary
to ensure that title to any such Engine or Part so passes to the
Holder of Legal Title according to all applicable laws. At any
time when requested by the Holder of Legal Title, the Lessee will
provide, at the Lessee's expense, evidence to the Lessor's
reasonable satisfaction (including the provision, if required, to
the Lessor of one of more legal opinions) that title has so passed
to the Holder of Legal Title;
(b) The Lessor may require the Lessee to remove any Equipment Change
(other than Non-Severable Modification) and to restore the Aircraft
to its condition prior to that Equipment Change, except as the Lessor
expressly stated otherwise in its prior written consent pursuant to
Clause 8.16(a)(ii);
(c) Except as referred to in Clause 8.16(b), any Engine or Part at any
time removed from the Aircraft will remain the property of the
Holder of Legal Title until a replacement has been made in
accordance with this Agreement and until title to that replacement
has passed, according to applicable laws, to the Holder of Legal
Title subject to this Agreement free of all Security Interests
whereupon title to the Engine or Part, will, provided no
Significant Default or Event of Default has occurred and is
continuing, pass to the Lessee free of Lessor Liens and in such
event the Holder of Legal Title will provide, at the Lessee's
expense, evidence to the Lessee's reasonable satisfaction that
title has so passed to the Lessee.
9. INSURANCE
9.1 INSURANCES
The Lessee, at its expense, will maintain in full force and effect during
the Term, and thereafter as expressly required in this Agreement,
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insurances in respect of the Aircraft in form and substance reasonably
satisfactory to the Lessor (the "INSURANCES" which expression includes,
where the context so admits, any relevant re-insurance(s)) through such
brokers and with such insurers and having such deductibles and being
subject to such exclusions as may be approved by the Lessor, such approval
not to be unreasonably withheld, it being understood that (i) the Lessee's
brokers and insurers will be deemed satisfactory to the Lessor if such
brokers and insurers are of recognized responsibility and good repute
specializing in aviation insurances in the World Aviation Insurance
Markets (as defined below) at the time and (ii) the Lessee's insurances,
including deductibles and exclusions, will be deemed satisfactory to
Lessor if consistent with insurances maintained with respect to air
carriers of a similar size as Lessee and operating similar aircraft on
similar routes as Lessee at the time of any such approval. The Insurances
will be effected either:
(a) on a direct basis with insurers of recognized standing who regularly
participate in aviation insurances in the London, United States,
European, Japanese or other leading international insurance markets
and led by reputable underwriter(s) ("World Aviation Insurance
Markets"); or
(b) with a single insurer or group of insurers specializing in
aviation insurances in the World Aviation Insurance Markets who do
not retain the risk but effect substantial reinsurance with
reinsurers in the World Aviation Insurance Markets and through
brokers each of recognized responsibility and standing
specializing in aviation insurances in the World Aviation
Insurance Markets for a percentage of all risks insured (the
"Reinsurances").
9.2 REQUIREMENTS
The requirements with regard to the Insurances are as specified in this
Clause and in Part 1 of Schedule 4. The Lessor acting reasonably and in
consultation with Lessee, may from time to time stipulate such other
requirements for the Insurances as may be necessary to ensure that the
scope and level of cover is maintained in accordance with the then
prevailing industry practice in the World Aviation Insurance Markets in
relation to aircraft of the same type as the Aircraft in relation to
United States airlines of similar standing to the Lessee; provided,
however, that any such further requirements shall be of the type generally
available in such markets at commercially reasonable rates. If the Lessor
determines that the Agreed Value shall be adjusted in accordance with this
Agreement, the Lessor may, upon prior written notice to the Lessee at
least 30 days prior to the expiry of the respective Insurances, require
the Lessee to renew the Insurances reflecting the Agreed Value so adjusted
in accordance with this Agreement.
9.3 CHANGE
If at any time, the Lessor decides, on reasonable grounds, to revoke its
approval of any insurer, reinsurers, Insurances or Reinsurances, the
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Lessor shall notify the Lessee accordingly and the Lessor and/or its
brokers will then consult in good faith with the Lessee and the Lessee's
brokers (as for the time being approved by the Lessor) with regard to such
proposed revocation. If, following the consultation, the Lessor is
satisfied that changes should be made, the Lessee will then arrange or
procure the arrangement of alternative cover reasonably satisfactory to
the Lessor. For purposes of this Clause 9.3, "reasonable grounds" for the
Lessor's decision hereunder shall include any similar decision under
similar conditions by the Head Lessor or the Security Trustee (as defined
in the Head Lease) under Clause 13.11 of the Head Lease.
9.4 INSURANCE COVENANTS
The Lessee shall:
(a) ensure that all legal requirements as to insurance of the Aircraft,
any Engine or any Part which may from time to time be imposed by the
laws of the State of Registration or any state to, from or over which
the Aircraft may be flown in so far as they affect or concern the
operation of the Aircraft, are complied with and, in particular,
those requirements compliance with which is necessary to ensure that:
(i) the Aircraft is not in danger of detention or forfeiture;
(ii) the Insurances remain valid and in full force and effect; and
(iii)the interests of the Indemnitees in the Insurances and the
Aircraft or any Part are not thereby prejudiced;
(b) not use, cause or permit the Aircraft, any Engine or any Part to be
used for any purpose or in any manner not covered by the Insurances
or outside any geographical limit imposed by the Insurances;
(c) comply with the terms and conditions of each policy of the Insurances
and not do, consent or agree to any act or omission which:
(i) invalidates or is reasonably expected to invalidate the
Insurances; or
(ii) renders or is reasonably expected to render void or voidable the
whole or any part of any of the Insurances; or
(iii) brings any particular liability within the scope of an
exclusion or exception to the Insurances;
(d) not take out without the prior written consent of the Lessor any
insurance or reinsurance in respect of the Aircraft other than
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those required under this Agreement, if such other insurance would
prejudice the Lessor's or any other Indemnitee's rights with
respect to the Insurances. The Lessor agrees that, subject to the
foregoing, the Lessee may maintain additional hull or other
insurance in relation to the Aircraft, Engines or Parts thereof or
insurance in excess of the amounts required to be maintained
hereunder. Insurance proceeds arising out of such other or excess
insurance shall be paid solely to the Lessee.
(e) commence renewal procedures at least 30 days prior to expiry of any
of the Insurances and provide to the Lessor:
(i) if requested by the Lessor, a written status report of renewal
negotiations 14 days prior to each expiry date;
(ii) telexed confirmation of completion of renewal prior to each
expiry date;
(iii)certificates of insurance (and where appropriate certificates of
reinsurance), and broker's (and any reinsurance brokers') letter
of undertaking substantially in the form set out in Parts 2 and
3 of Schedule 4, detailing the coverage and confirming the
insurers' (and any reinsurers') agreement to the specified
insurance requirements of this Agreement within 7 days after
each renewal date;
(f) on request and subject to clause (j) below, provide to the Lessor
copies of documents evidencing the Insurances;
(g) on request, provide to the Lessor evidence that the Insurance
premiums have been paid;
(h) not make any modification or alteration to the Insurance material and
adverse to the interests of any of the Indemnitees;
(i) be responsible for any deductible under the Insurances; and
(j) provide any other insurance and reinsurance related information,
or assistance, in respect of the Insurances as the Lessor may
reasonably request, provided always that the provision thereof
would not violate any confidentiality undertaking of the Lessee
with such insurers and that the Lessor shall not disclose such
information to any third parties other than the Beneficial Owner,
the Banks, the Head Lessor and their respective professional
advisors or as may be required by applicable law, in each case
obtaining such undertakings and taking such precautions as shall
be commercially reasonable under the circumstances to protect the
confidentiality of such information. The Lessee shall not be
required to provide any actual insurance policy hereunder unless
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the insurers decline coverage and a good faith dispute exists in
respect thereof with the Lessor in which event the Lessee shall
provide such portions of such policies bearing on such coverage or
dispute as the Lessor may reasonably request.
9.5 FAILURE TO INSURE
If the Lessee fails to maintain the Insurances in compliance in all
material respects with this Agreement, each of the Indemnitees will be
entitled but not bound (without prejudice to any other rights of the
Lessor under this Agreement, but after such consultation with the Lessee
as shall be reasonable under the circumstances):
(a) to pay the premiums due or to effect and maintain insurances
satisfactory to it or otherwise remedy the Lessee's failure in
such manner (including, without limitation, to effect and maintain
similar insurance cover through an "owners' interest" policy) as
it reasonably considers appropriate. Such sums as shall have been
reasonably so expended by it will upon written demand become
immediately due and payable by the Lessee to the Lessor together
with interest thereon at the Default Rate, from the date of
expenditure by it up to the date of reimbursement by the Lessee
(before and after any judgment);
(b) at any time while such failure is continuing to require the Aircraft
to remain at any airport or to proceed to and remain at any airport
designated by it until the failure is remedied to its reasonable
satisfaction.
9.6 CONTINUING INDEMNITY
The Lessor or the Trust Company may require the Lessee to effect and/or
maintain public liability insurance under the Lessee's normal fleet
policies after the Expiry Date with respect to its liability under the
indemnities in Clause 10 for such period as the Lessor may reasonably
require (but in any event not more than 2 years) which provides for each
Indemnitee to be named as additional insured. The Lessee's obligation
under this Clause 9.6 shall not be affected by the Lessee ceasing to be
lessee of the Aircraft and/or any of the Indemnitees ceasing to have any
interest in respect of the Aircraft.
9.7 APPLICATION OF INSURANCE PROCEEDS
As between the Lessor and the Lessee:
(a) all insurance payments received as the result of a Total Loss
occurring during the Term will be paid to the Lessor up to but not
exceeding the Agreed Value;
(b) all insurance proceeds in respect of any damage or loss to the
Aircraft, any Engine or any Part occurring during the Term not
constituting a Total Loss and equal or in excess of $[ ]* will
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be paid to the Lessor and applied in payment (or to reimburse the
Lessee) for repairs or replacement property upon the repairs being
made or replacement being effected to the reasonable satisfaction
of the Lessor in accordance with this Agreement. Insurance
proceeds in amounts below $[ ]* may be paid by the insurer
directly to the Lessee. Any balance remaining after completion of
repairs and/or replacement may be retained by the Lessee;
(c) all insurance proceeds in respect of third party liability will,
except to the extent paid by the insurers to the relevant third
party, be paid to the Lessor to be paid directly in satisfaction of
the relevant liability or to the Lessee in reimbursement of any
payment so made;
(d) notwithstanding Clauses 9.7(b) and (c), if at the time of the payment
of any such insurance proceeds a Significant Default or an Event of
Default has occurred and is continuing all such proceeds will be paid
to or retained by the Lessor to be applied toward payment of any
amounts which is or will become payable by the Lessee in such order
as the Lessor sees fit or as the Lessor may elect.
10. INDEMNITY
10.1 GENERAL
The Lessee agrees to defend, indemnify and hold harmless the Indemnitees
on an After-Tax-Basis from and against any and all claims, proceedings,
losses, liabilities, suits, judgments, costs, expenses, penalties or fines
(each a "Claim"):
(a) which may at any time be suffered or incurred directly or
indirectly as a result of or connected with the manufacture,
design, airworthiness, merchantability, fitness for use,
possession, delivery, performance, management, ownership,
registration, deregistration, control, maintenance, condition,
service, repair, overhaul, import, export, leasing, subleasing,
pooling, use, operation or return of the Aircraft, any Engine or
Part (either in the air or on the ground) whether or not the Claim
may be attributable to any defect in the Aircraft, any Engine or
any Part or to its design, testing or use or otherwise;
(b) which arise out of any act or omission which invalidates or which
renders voidable any of the Insurances;
(c) which may at any time be suffered or incurred as a consequence of any
design, article or material in the Aircraft, any Engine or any Part
or its operation or use constituting an infringement of patent,
copyright, trademark, design or other proprietary right or a breach
of any obligation of confidentiality owed to any person;
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(d) the Lessee's breach of any of its representations, warranties or
covenants hereunder or any other Event of Default under this
Agreement
but excluding any Claim to the extent (and only to the extent that):
(aa) it arises as a result of the wilful misconduct or gross
negligence of such Indemnitee;
(bb) it arises as a result of a material breach by the Lessor of any
of its obligations under this Agreement or the Beneficial
Owner's breach of its covenants under its Letter of Quiet
Enjoyment (which did not result from a breach by the Lessee of
any of its representations, warranties, covenants or other
obligations hereunder);
(cc) it constitutes a Lessor Tax or constitutes or results solely
from a Lessor Lien;
(dd) it is attributable to an event occurring after the Expiry Date
following the redelivery of the Aircraft by the Lessee to the
Lessor in full compliance with the terms and conditions of this
Agreement (including without limitation, in the condition
required or permitted by the terms of this Agreement, to the
extent that such Claim is solely attributable to acts,
omissions, events or circumstances (which are not the result of
acts or omissions of the Lessee, its employees, agents,
contractors or other representatives) which occur after such
redelivery;
(ee)it is the subject matter of another indemnity provision of this
Agreement or consists of a cost or expense imposed on the Lessor
or the Beneficial Owner by the terms hereof or is incurred by
the Lessor or the Beneficial Owner or any other Indemnitee in
performing its express obligations hereunder;
(ff) it consists of costs, fees or expenses related to the
negotiation, preparation or execution of this Agreement or any
other document executed in connection herewith;
(gg) it consists of costs, fees or expenses arising out of the
acquisition or transfer by the Lessor or any Indemnitee of any
interest in the Aircraft or this Agreement except any such
transfer in connection with the exercise of remedies hereunder
in accordance with the terms of Clause 13.2 hereof after the
occurrence of an Event of Default or as a result of a
replacement of a Part or an Engine pursuant to the terms hereof;
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(hh) it arises out of or results from acts of any Indemnitee prior
to the Delivery Date;
(ii) it relates to the costs, fees and any other out-of-pocket
expenses incurred in connection with the establishment,
maintenance or restructuring of or charges to the financing or
refinancing of the Aircraft, any Engine or any Part by any
Indemnitee (including without limitation, the Head Lessee) or
the creation or maintenance of the trust estate established
under the Trust Agreement (including, without limitation, any
fees payable to the Owner Trustee).
The following shall apply to all claims for indemnity under this Clause
10.1:
(i) If any Indemnitee has actual knowledge of any Claim hereby
indemnified against it shall give prompt written notice
thereof to the Lessee; provided, however, that the failure of
an Indemnitee to give such notice shall not relieve the
Lessee of its obligations hereunder, except to the extent
that such failure impairs the Lessee's ability to contest or
to participate in the contest of such Claim in any material
respect or materially increases the amount of such Claim.
(ii) Each claim against an Indemnitee by a third party which
constitutes a Claim shall, if reasonably requested by the
Lessee, be contested by the Indemnitee in good faith by
appropriate proceedings, provided that the Lessee shall
indemnify such Indemnitee in respect of any reasonable
out-of-pocket fees, costs or expenses actually incurred by such
Indemnitee in conducting such contest and the amount of any
interest or penalties or any other losses which are required to
be paid as a direct result of contesting such Claim, and
provided further that such contest proceedings would not result
in the likelihood of the seizure, condemnation, sale, forfeiture
or other loss of the Aircraft or any interest therein or of
criminal liability or unindemnified liability on the part of
such Indemnitee. The Lessee shall be entitled to assume
responsibility for and control of the defense of any Claim in
respect of which any Indemnitee (other than the Head Lessor or
any Bank) makes a claim against the Lessee for indemnity
pursuant to this Clause 10.1, provided that (i) the legal
counsel retained by the Lessee for such purpose is reasonably
acceptable to such Indemnitee and (ii) the Lessee pursues such
contest diligently and in good faith and, upon the reasonable
request of such Indemnitee, provides such Indemnitee with
reasonable details of the status of the contest and copies of
all legal briefs, court filings and, subject to applicable
considerations of legal privilege, counsel's memoranda relevant
to such contest. In the event that (1) an Event of Default shall
have occurred and be continuing or (2) the Lessee fails to
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comply with the foregoing requirements in any material respect,
the applicable Indemnitee may, if such Event of Default or
failure, as the case may be, continues after such Indemnitee has
given the Lessee a reasonable opportunity to effect the
applicable level of compliance, reassume responsibility for and
control of the relevant contest, which, in such circumstances,
such Indemnitee agrees to pursue diligently and in good faith.
To the extent the Lessee is entitled to defend any Claim
hereunder, the Indemnitee shall cooperate in good faith with the
Lessee and may participate (with its own counsel, if it so
desires) at such Indemnitee's sole cost and expense.
(iii)Each Indemnitee shall supply the Lessee with such information as
the Lessee shall reasonably request to defend or participate in
any proceeding permitted by this Clause 10.1.
(iv) No Indemnitee shall enter into a settlement or other compromise
or consent to a judgment with respect to any Claim without the
prior written consent of the Lessee, which consent shall not be
unreasonably withheld or delayed, unless such Indemnitee waives
its rights with respect to such Claims under this Clause 10.1;
provided that the payment of an amount to which a Claim relates
when legally compelled to do so by a Government Entity of
competent jurisdiction after which a request for a refund (if
not prohibited by law) of such amount is diligently pursued by
appropriate procedures in accordance with the terms of this
Clause 10.1 will not be considered a settlement, compromise or
consent to judgment requiring the Lessee's prior consent.
(v) In the event the Lessee shall be obligated to indemnify any
Indemnitee pursuant to this Clause 10.1, the Lessee shall
(provided no Event of Default shall have occurred and then be
continuing) be subrogated (without warranty by the
Indemnitee) to the rights of such Indemnitee in respect of
the matter as to which the indemnity was paid (except rights
under such Indemnitee's own insurance policies or under the
indemnification provisions of the Head Lease or any other
documents or agreements relating to the Aircraft between the
Head Lessor and the Banks) and may pursue the same at the
Lessee's expense. If any Indemnitee shall obtain a recovery
of all or any part of any amount which the Lessee shall have
paid to such Indemnitee or for which the Lessee shall have
reimbursed such Indemnitee pursuant to this Clause 10.1, such
Indemnitee shall promptly (or if such Indemnitee is the
Lessor, at such time as no Event of Default may have occurred
is then continuing) pay or cause to be paid to the Lessee an
amount equal to such recovery (but only up to the amount
previously paid by the Lessee to such Indemnitee).
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10.2 DURATION
The indemnities contained in this Agreement will continue in full force
after the Expiry Date.
11. EVENTS OF LOSS
11.1 TOTAL LOSS
(a) PRE-DELIVERY: If a Total Loss occurs prior to Delivery, this
Agreement will immediately terminate and, except as expressly
stated in this Agreement, neither party will have any further
obligation or liability under this Agreement other than the
obligation of the Lessor to return to the Lessee that portion of
the Commitment Fee that has been paid to the Lessor, if paid in
cash, or to return the Letter of Credit, if the Commitment Fee is
in the form of a Letter of Credit.
(b) POST-DELIVERY: If a Total Loss occurs after Delivery, the Lessee
will pay the Agreed Value (minus all insurance proceeds received
by the Lessor or paid to a third party pursuant to the Lessor's
instruction in respect of such Total Loss) to the Lessor on or
prior to the earlier of (i) ninety (90) days after the Total Loss
Date and (ii) the date of receipt of insurance proceeds in respect
of that Total Loss (the "SETTLEMENT DATE") unless the Aircraft is
restored to the Lessor or the Lessee within that period (or, in
the case of a Total Loss coming within paragraph (c) of the
definition of Total Loss and involving the loss of the Lessor's or
the Head Lessor's, as the case may be, title to the Aircraft, if
both the Aircraft and title thereto are restored to the Holder of
Legal Title or, in the case of the Aircraft, to the Lessee). The
receipt by the Lessor of the insurance proceeds in respect of the
Total Loss shall, to the extent of such proceeds, discharge or
partially discharge the Lessee from its obligation to pay the
Agreed Value to the Lessor pursuant to this sub-clause (b). In
the event that the Lessor received insurance proceeds with respect
to such Event of Loss (or such proceeds were paid as directed by
the Lessor) after the Lessee has paid the Agreed Value to the
Lessor, the Lessor shall pay or cause to be paid to the Lessee the
amount of such insurance proceeds (less any amounts which are or
will become due to the Lessor from the Lessee hereunder) plus
monthly interest at the rate equal to LIBOR from the date of
receipt of such insurance proceeds by the Lessor (or by the party
to whom such proceeds are paid as directed by the Lessor) to the
date such insurance proceeds are paid over to the Lessee. In the
event that the insurance proceeds are paid initially to the Lessee
and not to the Lessor, the amount, if any, by which such insurance
proceeds together with other amounts, if any, paid by the Lessee
to the Lessor with respect to the Lessee's obligation to pay the
Agreed Value, or any portion thereof, exceed the Agreed Value may
be retained by the Lessee, otherwise the Lessee shall pay the
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Agreed Value to the Lessor not later than the Settlement Date. In
the event that the Lessee pays the Agreed Value to the Lessor in
accordance with this sub-clause (b), the Lessor shall promptly
assign to the Lessee its rights under the Insurances to receive
the insurance proceeds in respect of the Total Loss (to the extent
that such proceeds shall not have been paid to the Lessee).
Subject to the rights of any insurers and reinsurers or other
third party, upon payment in full to the Lessor of that amount and
all other amounts which are or will become payable to the Lessor
under this Agreement, the Lessor will, without recourse or
warranty (except as to the absence of Lessor Liens), convey and
transfer, or cause to be conveyed and transferred, to the Lessee
by instrument in form and substance reasonably satisfactory to the
Lessee full legal and beneficial title to the Aircraft and to any
Engines or Parts not installed when the Total Loss occurred, all
on an "as-is where is" basis, and will, at the Lessee's expense,
execute and deliver, or cause to be executed and delivered, such
bills of sale and other documents and instruments as the Lessee
may reasonably request to evidence (on the public record or
otherwise) the transfer and conveyance of such title to the
Aircraft and such Engines and Parts to the Lessee, free and clear
of all rights of the Lessor and any Lessor Liens.
(c) ENGINE LOSS: Upon the occurrence of an Engine Loss (including,
for the avoidance of doubt, at time when the Engine is not
installed on the Airframe) in circumstances in which there has not
also occurred a Total Loss, the Lessee shall give the Lessor
written notice promptly upon becoming aware of the same and shall
within days after the Engine Loss Date, convey or cause to be
conveyed to the Holder of Legal Title as replacement for such
Engine, title, free and clear of all Security Interests, to a
replacement engine complying with the conditions set out in Clause
8.13(a). The Lessee shall, at the time of such conveyance, comply
in all respects with Clause 8.17(a) so that the replacement engine
becomes an Engine, whereupon the leasing of the replaced Engine
the subject of the Engine Loss shall cease and title to such
replaced Engine shall (subject to any salvage rights of insurers)
be conveyed to the Lessee pursuant to Clause 8.17(c). If the
Lessor receives any insurance proceeds relating to such Engine
Loss, the Lessor shall promptly remit such proceeds to the
Lessee. No Engine Loss with respect to any Engine which is
replaced in accordance with the provisions of this Clause 11.1(c)
shall result in any increase or decrease in Rent or the Agreed
Value.
11.2 REQUISITION
During any requisition for use or hire of the Aircraft, any Engine or Part
which does not constitute a Total Loss:
(a) the Rent and other charges payable under this Agreement will not be
suspended or abated either in whole or in part, and the Lessee will
not be released from any of its other obligations under this
Agreement (other than operational obligations with which the Lessee
is unable to comply solely by virtue of the requisition); and
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(b) so long as no Significant Default or Event of Default has occurred
and is continuing, the Lessee will be entitled to any hire paid by
the requisitioning authority in respect of the Term. The Lessee
will, as soon as practicable after the end of any such
requisition, cause the Aircraft to be put into the condition
required by this Agreement. The Lessor will be entitled to all
compensation payable by the requisitioning authority in respect of
any change in the structure, state or condition of the Aircraft
arising during the period of requisition, and the Lessor will
apply such compensation in reimbursing the Lessee for the cost of
complying with its obligations under this Agreement in respect of
any such change, but so that, if any Significant Default or Event
of Default has occurred and is continuing, the Lessor may apply
the compensation or hire in or towards settlement of any amounts
then due and owing by the Lessee under this Agreement.
11.3 APPLICATION OF PAYMENTS FROM GOVERNMENTAL AUTHORITIES IN RESPECT OF
EVENT OF LOSS.
Any payments (other than insurance covered by Clause 9) received at any
time by the Lessor or the Lessee from any Government Entity or other
person with respect to an Event of Loss with respect to the Aircraft or
any Engine will be applied as follows:
(a) if such payments are received with respect to an Event of Loss
relating to the Airframe or the Airframe and the Engines or
engines installed on such Airframe, (A) so much of such payment as
shall not exceed the Agreed Value due under Clause 11.1(b) shall
be applied (i) in reduction of the Lessee's obligation to pay such
amount, if not already paid by the Lessee, or (ii) if the Agreed
Value is already paid by the Lessee to the Lessor, to reimburse
the Lessee for its payment of such amount, and (B) the balance, if
any, of such payment remaining thereafter to the extent not
exceeding the Lessee's Interest shall be paid to the Lessee, and
(C) the balance, if any, of such payment remaining thereafter will
be paid over to or retained by the Beneficial Owner; and
(b) if such payments are received with respect to an Engine under
circumstances contemplated by Clause 11.1(c), such payments shall be
paid over to, or retained by, the Lessee, provided that the Lessee
shall have fully performed or concurrently therewith will fully
perform the requirements of Clause 11.1(c).
12. RETURN OF AIRCRAFT
12.1 REDELIVERY
On the Expiry Date or termination of the leasing of the Aircraft under
this Agreement, the Lessee will, unless a Total Loss has occurred, at its
expense, redeliver the Aircraft and Aircraft Documents to the Lessor at
the Redelivery Location or such other airport as is mutually acceptable to
the parties hereto, in a condition complying with Schedule 3, free and
clear of all Security Interests and Permitted Liens (other than Lessor
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Liens), in a condition qualifying for immediate issuance of a Certificate
of Airworthiness by the FAA and complying with the operational
requirements of FAR Part 121, or as otherwise agreed by the Lessor and the
Lessee.
12.2 FINAL INSPECTION
During the 15 days immediately prior to redelivery of the Aircraft, the
Lessee will make the Aircraft available to the Lessor for inspection
("FINAL INSPECTION") in order to verify that the condition of the Aircraft
complies with this Agreement. The Final Inspection will be long enough to
permit the Lessor to inspect:
(a) the Aircraft Documents;
(b) the Aircraft and uninstalled Parts; and
(c) the Engines, including without limitation (i) at the Lessee's cost, a
video-taped borescope inspection of (A) the low pressure and high
pressure compressors and (B) the turbine area, all performed, at the
Lessor's option, by engine manufacturer, (ii) at the Lessee's cost,
an engine condition run of each Engine, and (iii) magnetic chip
inspection.
At the Lessor's request, the Lessee shall permit the Lessor's
representatives reasonable access to the Aircraft. Notwithstanding the
preceding sentence, the Lessor shall not open any panels, bays or the like
or disassemble any components which are not otherwise opened or
disassembled or removed in the course of the Lessee's maintenance of the
Aircraft unless the Lessor has reasonable cause to believe that the
relevant portion of the Aircraft or component may not be in compliance
with the return conditions as set forth in Schedule 3 hereof. The cost of
opening, inspecting and closing any such areas shall be borne by the
Lessor unless such action reveals any discrepancies from the return
conditions required by this Clause 12 and Schedule 3 in which case the
cost of opening, inspecting and closing any such areas and the correcting
such discrepancies shall be borne by the Lessee.
The Lessor shall also be entitled, as part of the Final Inspection, to
require the Lessee to perform a 2 hour demonstration flight at the
Lessee's cost (with the Lessor's representatives as on-board observers).
In the event that a defect is discovered during such demonstration flight
and the Boeing test flight guide requires an in-flight verification of the
correction of such defect, the Lessee will, at the Lessee's expense,
perform an additional demonstration flight (or flights, as applicable) to
the extent required for the sole purpose of verifying the correction of
such defect.
On redelivery, the Lessee will comply with Clause 8.17(b) hereof.
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The Lessee shall indemnify and hold harmless the Indemnitees from and
against any and all liabilities, damages and losses (including costs and
expenses incidental thereto) arising by reason of death or injury to any
observer or employee of the Lessee, arising out of, or in any way
connected with such demonstration flight and Final Inspection of the
Aircraft.
The Lessor shall indemnify and hold harmless the Lessee from and against
any and all liabilities, damages and losses (including costs and expenses
incidental thereto) arising by reason of death or injury to any observer,
representative or employee of the Lessor or any Indemnitee, arising out
of, or in any connected with such demonstration flight and Final
Inspection of the Aircraft.
12.3 NON-COMPLIANCE
To the extent that, at the time of Final Inspection, the condition of the
Aircraft does not comply with this Agreement, the Lessee will at the
Lessee's option:
(a) immediately rectify the non-compliance and, to the extent the
non-compliance extends beyond the Expiry Date, the Term will be
automatically extended and this Agreement will remain in force until
the non-compliance has been rectified; or
(b) redeliver the Aircraft to the Lessor and indemnify the Lessor, and
provided that the Lessor shall have security for that indemnity,
against the cost of putting the Aircraft into the condition required
by this Agreement, provided that, notwithstanding such
non-compliance, the Aircraft is in such condition as to allow it to
be immediately placed into commercial passenger service.
Notwithstanding the Lessee's election of the option set forth in clause
(a) above, if the Lessor so directs the Lessee in writing, the Lessee
shall redeliver the Aircraft to the Lessor and indemnify the Lessor
against the cost of putting the Aircraft into the condition required by
this Agreement, in which case the Term of this Agreement shall not be
extended as provided in such clause (a).
12.4 OBLIGATION TO RETURN THE AIRCRAFT
Except with respect to the return of the Aircraft pursuant to Clause
12.3(b) and as otherwise provided in Clause 12.3, the failure to return
the Aircraft at the Expiry Date in full compliance with Clause 12 and
Schedule 3 of this Agreement, for any reason, shall result in an extension
of the Term, and this Agreement remaining in full force and effect,
including the Lessee's obligation to pay Rent (which the Lessee shall pay
on a per diem basis weekly in arrears); provided, however, that the Lessee
shall not operate, or permit others to operate (except during any period
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described in the definition of Total Loss in which possession of the
Aircraft is held by a third party) the Aircraft after the Expiry Date
except for testing and acceptance flights pursuant to Clause 12.2 hereof
and a ferry flight to the Redelivery Location and shall promptly return
the Aircraft to the Lessor after such non-compliance is rectified. Except
as expressly set forth in this Agreement, the Lessee has no right to keep
the Aircraft beyond the Expiry Date.
12.5 APU ADJUSTMENT
APU shall be adjusted as set forth in Letter Agreement No. 1.
12.6 DOCUMENTATION
Upon redelivery the Lessee shall reasonably assist and cooperate with the
Lessor, to the extent reasonably requested by the Lessor, in obtaining all
documents necessary to export the Aircraft from the Habitual Base
(including, without limitation, a valid and subsisting export license for
the Aircraft) and required in relation to the deregistration of the
Aircraft with the Aviation Authority.
12.7 ACKNOWLEDGEMENT
Upon redelivery of the Aircraft by the Lessee to the Lessor at the
Redelivery Location in accordance with and in compliance with this
Agreement, the Lessor will deliver to the Lessee an acknowledgment
confirming that the Lessee has redelivered the Aircraft to the Lessor in
accordance with this Agreement.
12.8 MAINTENANCE PROGRAMME
(a) Prior to the Expiry Date and upon the Lessor's request, the Lessee
will provide the Lessor or its agent reasonable access to the Agreed
Maintenance Programme and the Aircraft Documents solely in order to
facilitate the Aircraft's integration into any subsequent operator's
fleet;
(b) The Lessee will, if requested by the Lessor to do so, upon return of
the Aircraft deliver to the Lessor a current and complete copy of the
Agreed Maintenance Programme.
(c) The Lessor agrees that it will not disclose, and will use its
reasonable efforts to ensure that no other person receiving such
Maintenance Programme from or through the Lessor discloses, the
contents of the Agreed Maintenance Programme to any person or
entity except to the extent necessary to monitor the Lessee's
compliance with this Agreement and/or to bridge the maintenance
programme for the Aircraft from the Agreed Maintenance Programme
to another programme after the Expiry Date.
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12.9 FUEL
Upon redelivery of the Aircraft to the Lessor, an adjustment will be made
in respect of fuel on board at Delivery and the Expiry Date at the price
then prevailing at the Redelivery Location.
12.10 STORAGE
If the Lessor so requests, and subject to the availability of the
requisite space, the Lessee shall, at the Lessor's expense, park and store
the Aircraft at the Redelivery Location on behalf of the Lessor for a
period not exceeding 120 days from the Expiry Date. During that period the
Aircraft shall be at the Lessor's risk (save as to any loss or damage
caused by the Lessee's wilful misconduct or recklessness), but the Lessee
shall continue to maintain and insure the Aircraft in accordance with the
maintenance and insurance provisions of this Agreement. All reasonable
storage, maintenance and insurance costs incurred by the Lessee (excluding
any profit element accruing to the Lessee) pursuant to this Clause 12.10
shall be reimbursed by the Lessor promptly upon presentation of supporting
invoices and/or receipts.
13. DEFAULT
13.1 EVENTS
Each of the following events will constitute an Event of Default and a
repudiation of this Agreement by the Lessee:
(a) NON-PAYMENT: the Lessee fails to pay any Rent or Agreed Value under
this Agreement within 5 Business Days of the due date for payment or,
in the case of other sums payable to the Lessor or any Indemnitee,
within 10 Business Days of demand; or
(b) INSURANCE: the Lessee fails to obtain or maintain in full force
and effect any insurance required under the provisions of Clause 9
or shall operate the Aircraft outside the scope of or in violation
of the terms of the insurance or, if applicable, the United States
government indemnity coverage required to be maintained with
respect to such Aircraft; provided that, in the event that any
such insurance is cancelled or terminated or notice of
cancellation is given in respect of any such insurance, such
insurance is not replaced by insurance complying with Clause 9 and
Schedule 4 at least 10 days prior to the effective date of such
cancellation or termination date; or
(c) BREACH: the Lessee fails to comply with any other provision of
this Agreement provided, however, that if such failure is capable
of remedy and the Lessee is diligently proceeding to cure such
failure by appropriate means, (A) the failure continues for thirty
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(30) days after notice from the Lessor to the Lessee and (B) if,
in the reasonable opinion of the Lessor, any such default is not
capable of being cured or remedied within the said thirty (30)
days (notwithstanding diligent efforts of the Lessee), but is
capable of being cured or remedied within sixty (60) days, such
default is not cured or remedied within additional thirty (30)
days after such initial thirty (30) day period; or
(d) REPRESENTATION: any representation or warranty made (or deemed to be
repeated) by the Lessee in this Agreement is or proves to have been
incorrect in any material respect when made or deemed to be repeated;
or
(e) CROSS DEFAULT: any default or event of default occurs under any
Financial Indebtedness or any aircraft lease of the Lessee and, in
consequence thereof, the holder of such Financial Indebtedness
accelerates such indebtedness or enforces the security therefor or
the lessor under such aircraft lease terminates such lease or
exercises its remedies thereunder.
(f) APPROVALS: any consent, authorization, license, certificate or
approval of or registration with or declaration to any Government
Entity of or by the Lessee in order to perform its obligations under
this Agreement is not granted or is revoked or terminated or expires
and is not replaced or reinstated in full force and effect within
thirty (30) days thereof; or
(g) INSOLVENCY:
(i) the Lessee is, or is deemed for the purposes of any relevant law
to be, unable to pay its debts as they fall due or to be
insolvent, or admits inability to pay its debts as they fall
due; or
(ii) the Lessee suspends making payments on all or any class of its
debts or announces an intention to do so, or a moratorium is
declared in respect of any of its indebtedness;
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(h) BANKRUPTCY AND SIMILAR PROCEEDINGS:
(i) the Lessee consents to the appointment of a custodian, receiver,
trustee or liquidator of itself or all or any substantial part
of the Lessee's property or the Lessee's consolidated property;
or
(ii) the Lessee admits in writing its inability to pay its debts
generally as they become due, or the Lessee shall make a general
assignment for the benefit of creditors; or
(iii)the Lessee files a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization in a proceeding under
11 U.S.C. ss.ss. 101 et seq. or under any other laws dealing
with bankruptcy, insolvency, moratorium, winding-up of
corporations or creditors' rights generally, as now or hereafter
in effect, (any or all of which are hereinafter referred to as
"Bankruptcy Laws"), or an answer admitting the material
allegations of a petition filed against the Lessee in any such
proceeding, or the Lessee by voluntary petition, answer or
consent seeks relief under the provisions of any Bankruptcy
Laws; or
(iv) an order, judgment or decree is entered by any court appointing,
without the consent of the Lessee, a custodian, receiver,
trustee or liquidator of the Lessee, or of all or any
substantial part of the Lessee's property or the Lessee's
consolidated property is to be sequestered, and any such order,
judgment or decree of appointment or sequestration remains in
effect, undismissed, unstayed or unvacated for a period of 90
days after the date of entry thereof or at any time an order for
relief is granted; or
(v) an involuntary petition against the Lessee in a proceeding
under the Bankruptcy Laws is filed and is not withdrawn or
dismissed within 90 days thereafter or any time an order for
relief is granted in such proceeding, or if, under the
provisions of any Law providing for reorganization or which
may apply to the Lessee, any court of competent jurisdiction
assumes jurisdiction over, or custody or control of, the
Lessee or of all or any substantial part of the Lessee's
property, or the Lessee's consolidated property and such
jurisdiction, custody or control remains in effect,
unrelinquished, unstayed or unterminated for a period of 90
days or at any time an order for relief is granted in such
proceeding; or
(vi) any step (including petition, proposal or convening a meeting)
is taken by the Lessee with a view to a composition, general
assignment for the benefit of creditors or workout with its
creditors generally, or the reorganization, rehabilitation,
administration, liquidation, or dissolution of the Lessee, or
any corporate action (including, without limitation, any board
of directors or shareholder action) is taken by the Lessee in
furtherance of any of the foregoing, whether or not the same is
fully effected or accomplished.
(i) SUSPENSION OF BUSINESS: the Lessee suspends or ceases or threatens in
writing to suspend or cease to carry on its business such that the
ability of the Lessee to perform its obligations hereunder may
reasonably be expected to be materially adversely affected; or
(j) DISPOSAL: the Lessee disposes, conveys or transfers or threatens in
writing to dispose, convey or transfer of all or a substantial part
of its assets, other than for the purpose of a reconstruction or
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amalgamation the terms of which have received the previous consent in
writing of the Lessor and such disposition would have a material
adverse effect on the ability of the Lessee to perform its
obligations hereunder; or
(k) RIGHTS: the existence, validity, enforceability or priority of the
rights of the Lessor as owner and lessor in respect of the Aircraft
or the rights of the Banks as assignee of this Agreement under the
Assignment are challenged by the Lessee or any other person claiming
by or through the Lessee without appropriate cause; or
(l) DELIVERY: the Lessee fails to accept delivery of the Aircraft when
validly tendered pursuant to this Agreement by the Lessor at a time
when the Lessee is obligated to accept the Aircraft in accordance
with the terms hereof; or
(m) LETTER OF CREDIT: the Letter of Credit (i) ceases for any reason
to be in full force and effect, or (ii) is not renewed or replaced
at least 15 Business Days prior to its expiry (so that the renewal
or replacement becomes effective immediately following such
expiry) or (iii) in the event such Letter of Credit is drawn upon
by the Lessor prior to its expiration, such Letter of Credit is
not (x) reinstated by the Lessee to its original sum within five
(5) days of written notice by the Lessor, or (y) subject to
5.15(a), replaced by a cash deposit from the Lessee in the
required amount of such Letter of Credit.
13.2 RIGHTS
If an Event of Default occurs, the Lessor may at its option (and without
prejudice to any of its other rights under this Agreement), at any time
thereafter:
(a) treat such event as a repudiation by the Lessee of its obligations
under this Agreement and/or by notice to the Lessee with immediate
effect terminate the letting of the Aircraft (but without
prejudice to the continuing obligations of the Lessee under this
Agreement), whereupon all rights of the Lessee under this
Agreement, including, without limitation, the Lessee's rights to
possession and use of the Aircraft (other than for the purposes of
redelivery of the Aircraft to or as directed by the Lessor), shall
cease; and/or
(b) proceed by appropriate court action or actions to enforce performance
of this Agreement or to recover damages for the breach of this
Agreement; and/or
(c) either:
(i) take possession of the Aircraft, for which purpose the Lessor
may enter any premises belonging to or in the occupation of
or under the control of the Lessee (for which purpose the
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Lessee hereby grants to the Lessor an irrevocable license)
where the Aircraft may be located, or cause the Aircraft to
be redelivered to the Lessor at the Redelivery Location (or
such other location as the Lessor may require), and the
Lessor is hereby irrevocably authorized and empowered to
direct pilots of the Lessee or other pilots to fly the
Aircraft to that airport and will have all the powers and
authorizations necessary for taking such action; or
(ii) by serving notice, require the Lessee to redeliver the Aircraft
to the Lessor at the Redelivery Location (or such other location
as the Lessor may require).
13.3 DEREGISTRATION
If an Event of Default occurs, the Lessor may sell or otherwise deal with
the Aircraft as if this Agreement had never been made and the Lessee will,
at the request of the Lessor, take all steps necessary to effect (if
applicable) deregistration of the Aircraft and its export from the country
where the Aircraft is for the time being situated and any other steps
necessary to enable the Aircraft to be redelivered to the Lessor in
accordance with this Agreement.
13.4 DEFAULT PAYMENTS
If an Event of Default occurs, the Lessee will indemnify the Lessor on
demand against any loss, damage, expense, cost or liability, including,
without limitation, all reasonable attorneys' fees and disbursements,
which the Lessor may sustain or incur directly or indirectly as a result,
including but not limited to:
(i) any loss of profit suffered by the Lessor because of the
Lessor's inability to place the Aircraft on lease with
another lessee on terms as favourable to the Lessor as this
Agreement or because whatever use, if any, to which the
Lessor is able to put the Aircraft upon its return to the
Lessor, is not as profitable (calculated on an After-Tax
Basis) to the Lessor as this Agreement would have been but
for such Default or non-delivery;
(ii) whether or not the Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under Clause
13.2 hereof with respect to all or any part of the Aircraft, the
Lessor, by written notice to the Lessee specifying a payment
date not earlier than ten (10) days from the date of such
notice, may demand that the Lessee pay to the Lessor, and the
Lessee shall pay to the Lessor, on the payment date specified in
such notice, as liquidated damages for loss of a bargain and not
as a penalty, in lieu of the installments of Rent due on the
Aircraft, Airframe, Engines or Part thereof for periods
commencing on or after the payment date specified in such
notice, any unpaid Rent due for periods prior to the period
commencing with the payment date specified in such notice and
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other amounts owing under this Agreement (prorated in the case
of Rent on a daily basis), including interest thereon at the
Default Rate from the original date due under this Agreement to
and including the payment date specified in such notice, plus
the amount equal to the excess, if any, of the present value of
the aggregate of the remaining installments of Rent for the
remainder of the Term (determined without reference to any right
of the Lessor to terminate the leasing of the Aircraft, whether
or not such right is exercised) over the present value of the
fair market rental value of the Aircraft, Airframe, Engine or
Part thereof, for the remainder of such Term, using in each case
a discount rate of the amount of interest then paid on U.S.
Treasury bills of similar maturity;
(iii)any amount of principal, interest, fees or other sums whatsoever
paid or payable on account of funds borrowed in order to carry
any amount unpaid by the Lessee;
(iv) any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding
any swap, forward interest rate agreement or other financial
instrument relating in whole or in part to the Lessor's
financing of the Aircraft; and
(v) any loss, cost, expense or liability sustained or incurred by
or on behalf of the Lessor, together with interest thereon at
the Default Rate from the date such cost or expense is
incurred by the Lessor until the date of reimbursement
thereof by the Lessee, owing to such Event of Default, the
exercise of remedies hereunder or the Lessee's failure to
redeliver the Aircraft on the date, at the place and in the
condition required by this Agreement.
For the avoidance of doubt, the provisions of Clause 5.10(a) will apply to
any sums payable by the Lessee pursuant to this Clause 13.4.
For the purpose of Clause 13.4(ii) above, the "fair market rental value"
of the Aircraft, the Airframe, any Engine or Part thereof shall be the
rental value, net of all costs and expenses of recovering the Aircraft,
the Airframe or any Engine or Part thereon and restoring its condition to
the condition required hereunder, which would be obtained in an arm's
length transaction between informed and willing lessee and an informed and
willing lessor, based upon the actual condition and location of the
Aircraft, Airframe or any Engine or Part thereof, which value shall be
determined by a reputable firm of aircraft appraisers selected by the
Lessor, the Head Lessor or the Beneficial Owner. The cost of such
appraisal shall be borne by the Lessee.
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13.5 EXERCISE OF REMEDIES
Except as otherwise expressly set forth herein, no remedy referred to in
Clause 13 is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available to
the Lessor at law or in equity. The exercise or beginning of exercise by
the Lessor of any one or more of such remedies shall not preclude the
simultaneous or later exercise by the Lessor of any or all such other
remedies. No express or implied waiver by the Lessor of any Event of
Default hereunder shall in any way be or be construed to be, a waiver of
any future or subsequent Event of Default.
The Lessor's rights and the Lessee's obligations under Clause 13 shall
survive the Expiry Date.
14. ASSIGNMENT AND TRANSFER
14.1 NO ASSIGNMENT BY LESSEE
The Lessee will not assign or create or permit to exist any Security
Interest over any of its rights under this Agreement without the prior
written consent of the Lessor.
14.2 ASSIGNMENT
The Lessor may assign all or any of its rights, title and interest under
this Agreement and in the Aircraft but in the case of an assignment (other
than by way of security) only to any Permitted Transferee provided that
the assignment or any act required of the Lessee in connection therewith
will not result in any material respect (i) in the deprivation of any
material rights or privileges of the Lessee or (ii) an increase of the
Lessee's obligations. The Lessor will, however, in the case of an
assignment (other than by way of security) have no further obligation
under this Agreement with respect to periods following such assignment of
all its rights, title and interest under this Agreement and will remain
entitled to the benefit of each indemnity under this Agreement provided,
in any such event, the Permitted Transferee assumes in writing in form and
substance reasonably satisfactory to the Lessee all the Lessor's
obligations under this Agreement including, without limitation, all
obligations with respect to acts and events which occur prior to such
assignment and will agree not to interfere, except as otherwise permitted
by this Agreement, with the quiet use, possession and enjoyment of the
Aircraft by the Lessee or the exercise by the Lessee of its right
hereunder.
The Lessee will, at the Lessor's cost, comply with all reasonable requests
of the Lessor, its successors and assigns in respect of the consummation
of any such assignment. The Lessor will promptly notify the Lessee of any
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proposed assignment and, as a condition thereto, shall obtain the written
consent of the Lessee, such consent not to be unreasonably withheld or
delayed, to any proposed assignment (other than by way of security) to any
successor other than a Permitted Transferee.
14.3 NO INCREASED LIABILITY
Any assignment or transfer by the Lessor pursuant to Clause 14.2 shall be
subject to the condition that the tax risk exposure of the Lessee shall
not, as a consequence of such assignment or transfer, be greater than it
would have been in the absence of such assignment or transfer.
14.4 RIGHT TO GRANT MORTGAGE
The Lessee shall co-operate with the Banks, the Lessor and the Head Lessor
in taking or receiving a legal mortgage or other security interest over
the Aircraft or an assignment of the Lessor's interest in the Insurances
or other interest of the Lessor in favour of the Banks as security and
provide a written confirmation of its consent thereto, in each case, at no
cost to the Lessee, as may reasonably be required in order to facilitate
the financing of the acquisition of the Aircraft, including, without
limitation, the registration and/or other perfection and/or priority of
such mortgage or other security interest and shall execute such
agreements, at no cost to the Lessee, as the Lessor or the Head Lessor may
reasonably require for the purposes of effecting all necessary amendments
to this Agreement (including, without limitation, Clauses 8, 9 and 10 and
Schedule 4) subject, in each case, to the same limitations set forth in
Clause 14.3.
15. ILLEGALITY
If it is or becomes unlawful in any relevant jurisdiction for the Lessor
or the Lessee to give effect to any of its material obligations under this
Agreement or to continue this Agreement, the Lessor will consult in good
faith with the Lessee as to any steps which may reasonably be taken (at no
cost to the Lessor in the case of illegality with respect to the Lessee,
and at no cost to the Lessee in the case of illegality of the Lessor) to
restructure the transaction in order to avoid such unlawfulness. In the
event that no such steps can reasonably be taken, the Lessor or the
Lessee, as applicable, may, by notice in writing to the other, terminate
the leasing of the Aircraft under this Agreement and the Lessee will
forthwith redeliver the Aircraft to the Lessor in accordance with Clause
12.
16. MISCELLANEOUS
16.1 WAIVERS, REMEDIES CUMULATIVE
The rights of either party under this Agreement:
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(a) may be exercised as often as necessary;
(b) are cumulative and not exclusive of that party's rights under any
law; and
(c) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right is not a waiver of
that right.
16.2 DELEGATION
The Lessor may delegate to any person or persons (other than an airline
competing with the Lessee, an Affiliate of such an airline or an employee
or representative of either thereof) all or any of the trusts, powers or
discretions vested in it by these presents and any such delegation may be
made upon such terms and conditions and subject to such regulations
(including power to sub-delegate) to a person eligible to be delegated by
the Lessor as the Lessor in its reasonable discretion thinks fit.
16.3 CERTIFICATES
Any certificate or determination by the Lessor as to any rate of interest
or as to any other amount payable under this Agreement will, at the
request of the Lessee be subject to verification in accordance with the
procedures set forth in Clause 5.16.
16.4 APPROPRIATION
If any sum paid or recovered in respect of the liabilities of the Lessee
under this Agreement is less than the amount then due, the Lessor may
apply that sum to amounts then due under this Agreement in such
proportions and order and generally in such manner as the Lessor may
determine.
16.5 CURRENCY INDEMNITY
(a) If the Lessor receives an amount in respect of the Lessee's liability
under this Agreement or if such liability is converted into a claim,
proof, judgment or order in a currency other than the currency (the
"CONTRACTUAL CURRENCY") in which the amount is expressed to be
payable under this Agreement:
(i) the Lessee will indemnify the Lessor, as an independent
obligation, against any loss arising out of or as a result of
such conversion;
(ii) if the amount received by the Lessor, when converted into the
contractual currency (at the market rate at which the Lessor is
able on the relevant date to purchase the contractual currency
in London or, at its option, New York with that other currency)
is less than the amount owed in the contractual currency, the
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Lessee will, forthwith on demand, pay to the Lessor an amount in
the contractual currency equal to the deficit; and
(iii)the Lessee will pay to the Lessor on demand any exchange costs
and Taxes payable in connection with the conversion.
(b) The Lessor hereby agrees to indemnify the Lessee mutatis mutandis,
with respect to the matters set forth above in Clause 16.5(a).
(c) The Lessee and the Lessor each waives any right it may have in any
jurisdiction to pay any amount under this Agreement in a currency
other than that in which it is expressed to be payable.
16.6 SET-OFF
The Lessor may set off any matured, liquidated obligation owed by the
Lessee under this Agreement or under any other agreement between the
Lessor (or any affiliate or associate of the Lessor) and the Lessee (to
the extent beneficially owned by the Lessor) against any obligation owed
by the Lessor to the Lessee, regardless of the place of payment or
currency. If the obligations are in different currencies, the Lessor may
convert either obligation at the market rate of exchange available in
London, or at its option, New York for the purpose of such set-off. The
Lessor will not be obliged to pay any amounts to the Lessee under this
Agreement so long as any sums which are then due from the Lessee under
this Agreement remain unpaid and any such amounts which would otherwise be
due will fall due only if and when the Lessee has paid all such sums,
except to the extent the Lessor otherwise agrees or sets off such amounts
against such payment pursuant to the foregoing.
16.7 SEVERABILITY
If a provision of this Agreement is or becomes illegal, invalid or
unenforceable in any jurisdiction, that will not affect:
(a) the legality, validity or enforceability in that jurisdiction of
any other provision of this Agreement; or
(b) the legality, validity or enforceability in any other jurisdiction of
that or any other provision of this Agreement.
16.8 REMEDY
If the Lessee fails to comply with any provision of this Agreement, the
Lessor may, without being in any way obliged to do so or responsible for
so doing and without prejudice to the ability of the Lessor to treat the
non-compliance as a Default or an Event of Default, effect compliance on
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behalf of the Lessee after such notice to, and consultation with, the
Lessee as is reasonable under the circumstances, whereupon the Lessee
shall become liable to pay immediately any sums expended by the Lessor
together with all costs and expenses (including legal costs) in connection
therewith.
16.9 EXPENSES
(a) The Lessor and the Lessee shall each bear their respective
expenses (including legal, professional and out-of-pocket
expenses) incurred or payable in connection with the negotiation,
preparation and execution of this Agreement; provided, however,
that Lessee shall be responsible for all costs associated with
filing this Agreement with FAA and filing UCC financing statements
in the State of Colorado, including (but not limited to) the
provision of legal opinions, tax advice, stamp duties and
registrations; and
(b) The Lessee will pay to the Lessor on demand all expenses (including
legal, survey and other costs) payable or incurred by the Lessor as
the direct result of the Lessor's exercise of remedies in accordance
with this Agreement.
16.10 TIME OF ESSENCE
The time stipulated in this Agreement for all payments payable by the
Lessee to the Lessor and by the Lessor to the Lessee and for the
performance of the Lessee's and the Lessor's other obligations under this
Agreement will be of the essence of this Agreement.
16.11 NOTICES
(a) All notices and other communications given under or in connection
with this Agreement shall be in writing (including telex, facsimile
or similar writing) and shall be deemed to have been received
(i) in the case of a telex, at the time such telex is transmitted
(provided it is transmitted on a Business Day to the country of
receipt between 09.00 and 17.30 hours (local time) in the
country of receipt) and, if transmitted later, then at 09.00
hours (local time) in the country of receipt) on the next
succeeding Business Day) to the telex number specified in Clause
16.11(b) and the corresponding answerback received,
(ii) in the case of a facsimile, at the time of receipt by the sender
of a transmission report indicating that all pages of the
facsimile transmission were properly transmitted (unless the
recipient notifies the sender promptly, or if received after
17.30 hours (local time) in the country of receipt), by no later
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than 10.00 hours the following Business Day, that the
transmission was incomplete and/or illegible, in which case the
facsimile shall be deemed to have been received at the time of
receipt by the sender of a further clear transmission report on
retransmitting the facsimile, provided the transmitted document
is also then immediately sent by recorded delivery post or
delivered by hand to the recipient), PROVIDED the relevant
facsimile transmission (or retransmission, as the case may be)
was transmitted to the country of receipt on a Business Day
between 09.00 and 17.30 hours (local time) of the country of
receipt). If it was transmitted later, then it shall be deemed
to have been received at 09.00 hours (local time) on the
succeeding Business Day; and
(iii)in any other case, when delivered to the address specified in
Clause 16.11(b).
(b) All such notices, requests, demands and other communications shall be
sent:
(i) if to the Lessor, to it at:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Facsimile No: (302) 651-8882
Telex No: 835437
Answerback: WILM-TR
Telephone: (302) 651-1000
with a copy to:
Sunrock Aircraft Corporation Limited
Russell House, Russell Court
Harcourt Street
Dublin 2
Republic of Ireland
Attention: Chief Financial Officer
Facsimile No: (353-1) 478-5415
Telex No: 32316 SACL EI
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(ii) if to the Lessee, to it at:
Western Pacific Airlines
2864 S. Circle Drive, Suite 1100
Colorado Springs, CO 80906
Attention: Chief Financial Officer
Facsimile No: (719) 527-7480
or to such other address, facsimile number or telex number as shall
have been notified by one party to the other in the manner set out in
this Clause 16.11.
16.12 LAW AND JURISDICTION
(a) THIS AGREEMENT HAS BEEN DELIVERED IN NEW YORK AND SHALL, IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH NEW YORK
LAW WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES CONTAINED
THEREIN.
(b) For the benefit of the Lessor, the Lessee agrees, and for the benefit
of the Lessee, the Lessor and the Beneficial Owner agree, that the
United States District Court for the District Court for the Southern
District of New York (the "AGREED COURT") is to have the non-exclusive
jurisdiction to settle any claims or disputes in connection with this
Agreement and irrevocably submits to the jurisdiction of the Agreed
Court in connection with this Agreement.
(c) Without prejudice to any other mode of service:
(i) each of the Lessee and the Beneficial Owner appoints CT
Corporation in New York presently at 1633 Broadway, New York, New
York 10019 as its respective agent for service of process
relating to any proceedings before the Agreed Court in connection
with this Agreement and agrees to maintain the process agent in
New York;
(ii) each of the Beneficial Owner and the Lessee agrees that failure
by its respective process agent to notify it of the process shall
not invalidate the proceedings concerned;
(iii)each of the Lessor, Beneficial Owner and Lessee consents to the
service of process relating to any such proceedings by prepaid
posting of a copy of the process to its respective process agent
at the address identified in sub-clause (c)(i).
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(d) The Lessor, Beneficial Owner and the Lessee:
(i) waive objection to the Agreed Court on grounds of the laying of
venue, inconvenient forum or otherwise as regards proceedings in
connection with this Agreement;
(ii) agree that a judgment or order of the Agreed Court in connection
with this Agreement is conclusive and binding on it and may be
enforced against it in the courts of any other jurisdiction by
suit on the judgment or otherwise as permitted by applicable law,
a certified or true copy of which shall be conclusive evidence of
the facts and of the amount of any indebtedness or liability of
the Lessee or the Lessor;
(e) Nothing in this clause limits the right of the Lessor or the Lessee to
bring proceedings against the other in connection with this Agreement:
(i) in any other court of competent jurisdiction; or
(ii) concurrently in more than one jurisdiction;
(f) The Lessor, Beneficial Owner and the Lessee each irrevocably and
unconditionally:
(i) agree that, if any other party brings legal proceedings against
it or its assets in relation to this Agreement, no immunity from
such legal proceedings (which will be deemed to include without
limitation, suit, attachment prior to judgment, other attachment,
the obtaining of judgment, execution or other enforcement) will
be claimed by or on behalf of itself or with respect to its
assets;
(ii) waives any such right of immunity which it or its assets now has
or may in the future acquire;
(iii)consents generally in respect of any such proceedings to the
giving of any relief or the issue of any process in connection
with such proceedings including, without limitation, the making,
enforcement or execution against any property whatsoever
(irrespective of its use or intended use) of any order or
judgment which may be made or given in such proceedings.
(g) EACH OF THE LESSEE AND THE LESSOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BETWEEN THEM BASED UPON OR ARISING, DIRECTLY OR
INDIRECTLY, OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM
RELATING TO THE SUBJECT MATTER OF THE TRANSACTIONS CONTEMPLATED
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THEREBY OF THE LESSOR/LESSEE RELATIONSHIP BEING ESTABLISHED,
including, without limitation, contract claims, tort claims, breach of
duty claims and other common law and statutory claims. The Lessor and
the Lessee represent and warrant that each knowingly and voluntarily
waives its jury trial rights following consultation with such legal
counsel. THIS WAIVER IS IRREVOCABLE, AND THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND THE RELATING DOCUMENTS.
16.13 SOLE AND ENTIRE AGREEMENT
This Agreement is the sole and entire agreement between the Lessor and the
Lessee in relation to the leasing of the Aircraft, and supersedes all
previous agreements in relation to that leasing. The terms and conditions
of this Agreement can only be varied by an instrument in writing executed
by both parties or by their duly authorised representatives.
16.14 INDEMNITIES
All rights expressed to be granted to each Indemnitee under this Agreement
(other than the Lessor) are given to the Lessor as agent for and on behalf
of that Indemnitee.
16.15 COST OF LESSEE'S WORK
Whenever the Lessee itself performs work on the Aircraft (whether pursuant
to Clauses 7.2, 8.11(e) or otherwise) and is entitled, pursuant to this
Agreement, to receive reimbursement from the Lessor of all or part of the
cost of performing such work, the Lessee agrees that it will claim
reimbursement of the actual cost to it of carrying out the work at its
then prevailing fully burdened cost (provided always that such actual cost
is reasonable when compared with the cost typically charged for carrying
out the same or substantially the same work by similar organisations) and
not at the rate or rates charged by it at the time for the same or similar
work undertaken for third parties.
16.16 COUNTERPARTS
This Agreement may be executed in counterparts each of which will
constitute one and the same document.
16.17 ENGLISH LANGUAGE
All notices to be given under this Agreement will be in English. All
documents delivered pursuant to this Agreement will be in English, or if
not in English, will be accompanied by a certified English translation. If
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there is any inconsistency between the English version of this Agreement
and any version in any other language, the English version will prevail.
16.18 CONFIDENTIALITY
Neither the Lessor nor the Lessee shall, without the other's prior written
consent, communicate or disclose the terms of this Agreement or any
information or documents furnished pursuant to this Agreement (except to
the extent that the same are within the public domain) to any third party
(other than their respective external legal advisers, auditors, insurance
brokers and/or underwriters, the Airframe and/or Engine manufacturers, the
Head Lessor and the Banks) PROVIDED HOWEVER that disclosure will be
permitted, to the extent required:
(a) pursuant to an order of any court of competent jurisdiction; or
(b) pursuant to any procedure for discovery of documents in any
proceedings before any such court; or
(c) pursuant to any law or regulation having the force of law; or
(d) pursuant to a lawful requirement of any authority with whose
requirements the disclosing party is legally obliged to comply; or
(e) in order to perfect any assignment of any assignable warranties.
16.19 GENEVA CONVENTION
To the extent permitted by any applicable law, if and when the State of
Registration shall ratify the Convention on the International Recognition
of Rights in Aircraft signed at Geneva, Switzerland, on June 19, 1948, the
Lessee shall, at its own cost, do any and all things necessary in the
State of Registration to perfect recognition of the rights of the Title
Holder by every signatory state which has ratified such Convention.
16.20 CIVIL RESERVE AIR FLEET PROGRAM
So long as no Significant Default or Event of Default has occurred and is
continuing, the Lessee may subject the Aircraft, the Airframe or an Engine
to the Civil Reserve Air Fleet Program and transfer possession of the
Airframe or an Engine to the United States government, or any agency or
instrumentality thereof, pursuant to the Civil Reserve Air Fleet Program
so long as (i) the Lessee shall promptly notify the Lessor upon subjecting
the Airframe or an Engine to the Civil Reserve Air Fleet Program and
provide the Lessor with a name and address of the appropriate contracting
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officer representative for the Military Airlift Command of the United
States Air Force, (ii) the Lessee shall promptly notify the Lessor of any
such transfer and (iii) the period of such transfer does not extend beyond
the end of the Term. Except as expressly provided herein, all of the
Lessee's obligations under this Agreement shall continue and the Lessee
shall remain primarily liable for the performance of all of the terms of
this Agreement to the same extent as if the Aircraft had never become
subject to such Civil Reserve Air Fleet Program.
16.21 SECTION 1110
The Lessee acknowledges that the Lessor would not have entered into this
Agreement unless it had available to it the benefits of a lessor under
Section 1110 of Title 11 of the United States Code. The Lessee covenants
and agrees with the Lessor that to better ensure the availability of such
benefits, the Lessee shall support any motion, petition or application
filed by the Lessor with any bankruptcy court having jurisdiction over the
Lessee, whereby the Lessor seeks recovery of possession of the Aircraft
under said Section 1110 and shall not in any way oppose such action by the
Lessor unless the Lessee shall have complied with the requirements of said
Section 1110 to be fulfilled in order to entitle the Lessee to continued
use and possession of the Aircraft hereunder. In the event said Section
1110 is amended, or if it is repealed and another statute is enacted in
lieu thereof, the Lessor and the Lessee agree to amend this Agreement and
take such other action not inconsistent with this Agreement as the Lessor
reasonably deems necessary so as to afford to the Lessor the rights and
benefits as such amended or substituted statute confers upon owners and
lessors of aircraft similarly situated to the Lessor.
16.22 ARTICLE 2-A OF THE UCC
The parties hereto agree that this Agreement as extended, amended,
modified, renewed or supplemented, shall be governed by Article 2-A of the
Uniform Commercial Code of New York.
[The remainder of this page is intentionally left blank]
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IN WITNESS whereof the parties hereto have executed this Agreement on the date
shown at the beginning of this Agreement.
SIGNED on behalf of
WILMINGTON TRUST COMPANY, not in its individual capacity, except to the extent
expressly set forth herein, but solely as Owner Trustee
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
SIGNED on behalf of
WESTERN PACIFIC AIRLINES, INC.
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
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SCHEDULE 1
PART 1
AIRCRAFT SPECIFICATIONS
AIRCRAFT
Aircraft will be defined in accordance with Boeing Detail Specification
D6-38604-28.
AIRFRAME
Manufacturer BOEING
Model: 737-33R
Registration Number: N966WP
Serial Number: 28871
Date of Manufacture: July 2, 1997
Production/Line Number: PR044/2900
ENGINES
Manufacturer: CFM International, Inc.
Model Number: CFM56-3C-1
Serial Numbers: 858-578/858-574
AUXILIARY POWER UNIT (APU)
Manufacturer: ALLIED SIGNAL
Model Number: 85-129H
Serial Number: P-100807
LANDING GEAR
Nose Gear Part Number: 65-46200-80
Serial Number: T5611P2900
Left Main Gear Part Number: 65-46100-79
Serial Number: MC05795P2900
Right Main Gear Number: 65-46100-79
Serial Number: MC05798P2900
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AVIONICS
DESCRIPTION MANUFACTURER PART NUMBER QTY
Cockpit Voice Recorder Fairchild S100-0080-00 1
VHF Transceiver Collins 822-0323-002 3
SELCAL Decoder Motorola NA138-714B 1
Dig. Flt Control Computer Honeywell 4051600-914 2
Dig. Flt Data Recorder Allied Signal 980-4700-001 1
Dig. Flt Data Acq. Unit Teledyne 2233000-45 1
Dig. Air Data Computer Smiths 501FAD1-1 2
Heads Up Guidance Comp. Flight Dynamics 1500-0470-006 1
Flt Mgmt Computer Smiths 171497-05-01 1
Marker Beacon Receiver Collins 522-5996-011 2
Weather Radar Transceiver Collins 622-5132-630 1
Radio Altimeter Collins 622-3890-021 2
Grnd Prox Warn Computer Allied Signal 965-0648-009 1
VOR/ILS Transceiver Collins 622-3257-001 2
D.M.E. Transceiver Collins 622-2921-006 2
A.D.F. Receiver Collins 777-1492-005 2
ATC (Mode S) Transponder Collins 622-7878-201 2
TCAS Computer Rockwell 622-8971-020 1
Inertial Reference Unit Honeywell HG1050AE09 2
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SAFETY EQUIPMENT/FURNISHINGS
DESCRIPTION MANUFACTURER PART NO. or LOCATION QTY
First Class Seats n/a
Business Class Seats n/a
Tourist Class Seats BE Aerospace 136
Lavatories/Locations n/a (1) Fwd/(2) Aft 3
Galleys/Locations Driessen G1, G2 (Fwd) G4B (Aft) 3
Life Rafts n/a
Crew Life Vests Air Cruisers D21344-101 10
Escape Slides (Fwd) Air Cruisers 61620-468 2
Escape Slides (Aft) Air Cruisers 61620-469 2
PBE Smoke Hood Puritan 119003 4
Flashlights DME P2-07-001-10 6
First Aid Kits DME S6-01-0005-30 3
BCF Fire Extinguisher Kidde 898052 3
H2O Fire Extinguisher Kidde 892480 1
Hand Megaphone ACR ACRE/M1A 2
Port. Oxygen Cylinders Scott 5500C1ABF23A 5
Fire Axe 1
Smoke Goggles 4
Fire Resistant Gloves 4
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LOOSE EQUIPMENT
CARGO NETS (1) SET
FLYAWAY KIT
Thrust Reverser Lockout Kit (1)
Towing Eyebolt Assy (2)
Landing Gear Lock Pins (Main) (2)
Landing Gear Lock Pins (Nose) (1)
Steering Valve Lock Pin (1)
C Duct Pump (Part Number C-78005-1)
PMC Rig Pin (Part Number C-76001-2)
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SCHEDULE 1
PART 2
AIRCRAFT DOCUMENTS
MANUALS
Maintenance Manual Microfilm [3] Hard Copy [1]
Wiring Diagrams Microfilm [3] Hard Copy [1]
Illustrated Parts Catalog Microfilm [3] Hard Copy [1]
Systems Schematics Microfilm [3] Hard Copy [1]
Weight & Balance Manual Microfilm [-] Hard Copy [2]
Operations Manual Microfilm [-] Hard Copy [2]
Flight Manual Microfilm [-] Hard Copy [2]
Galley Manual Microfilm [-] Hard Copy [1]
Seat Manual Microfilm [-] Hard Copy [1]
Quick Reference Handbook Microfilm [ ] Hard Copy [2]
Structural Repair Manual Microfilm [3] Hard Copy [1]
Overhaul Manual Microfilm [2] Hard Copy [-]
Performance Engineer's Manual Microfilm [ ] Hard Copy [2]
Detail Specification Microfilm [ ] Hard Copy [2]
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TECHNICAL RECORDS
Certificate of Airworthiness
Aircraft Registration Certificate
Sanitation Certificate
Weight & Balance Report
Aircraft Readiness Log (ARL)
Engine Log Book (2 ea)
APU Log Book
Landing Gear Status Log
Statement of Airworthiness Directives
Miscellaneous Brochure
Fuel Calibration Brochure
Rigging Brochure
Engine Delivery Brochure (including LLP's and AD's)
APV Delivery documentation
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SCHEDULE 2
CERTIFICATE OF ACCEPTANCE
This Certificate of Acceptance is delivered, on the date set out below by
Western Pacific Airlines, Inc. (the "LESSEE"), to Wilmington Trust
Company, not in its individual capacity, but solely as Owner Trustee (the
"LESSOR"), pursuant to the Aircraft Lease Agreement dated June ___, 1997
between the Lessor and the Lessee (the "AGREEMENT"). The capitalised terms
used in this Certificate shall have the meaning given to such terms in the
Agreement.
1. DETAILS OF ACCEPTANCE
The Lessee hereby confirms to the Lessor that the Lessee has at ___
o'clock on this ____ day of July 1997, at _______________, accepted the
following, in accordance with the provisions of the Agreement:
(a) Boeing 737-300 airframe, Manufacturer's Serial No. 28871;
(b) CFM International, Inc. CFM56-3C1 Engines, bearing Manufacturer's
Serial Nos. 858-578 and 858-574; each of which Engines is 750 or more
rated takeoff horsepower;
(c) Fuel Status: Pounds ________
(d) Safety and Loose Equipment as specified in Schedule 1 - Part 1 of
the Agreement.
(e) Aircraft Documents as specified in Schedule 1 - Part 2 of the
Agreement.
2. CONFIRMATION
The Lessee confirms to the Lessor that as at the time indicated above,
being the time of Delivery:
(a) the representations and warranties of the Lessee contained in
Clause 2 are hereby repeated;
(b) the Aircraft is insured as required by the Agreement;
(c) the Lessee confirms that there have been affixed to the Aircraft and
the Engines the fireproof notices required by the Agreement;
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(d) the Lessee's authorised technical experts have inspected the Aircraft
to ensure the Aircraft conforms to the Lessee's requirements.
SIGNED on behalf of
WESTERN PACIFIC AIRLINES, INC.
By: ............................................
Name: ............................................
Title: ............................................
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SCHEDULE 3
OPERATING CONDITION AT REDELIVERY
On the Expiry Date the Aircraft, subject to fair wear and tear generally,
will be in the condition set out below.
1. GENERAL CONDITION
The Aircraft shall:
(a) be clean by airline standards;
(b) have installed the full complement of engines and other equipment,
parts and accessories and loose equipment (including one complete set
of removable catering trolleys, standard containers and drawers and
trays) as is normally installed in the Aircraft, and shall be in a
condition suitable for immediate operation in commercial service;
(c) have existing seat configuration;
(d) have a Maximum Take Off Weight (MTOW) of 138,500 lbs
(e) have in existence a valid certificate of airworthiness (or if required
by the Lessor, a valid export certificate of airworthiness) with
respect to the Aircraft issued by the Aviation Authority;
(f) comply with the manufacturer's original specifications;
(g) have undergone, immediately prior to redelivery, the next scheduled
"C" Check and lower multiple check required under the Approved
Maintenance Programme so that all Airframe inspections falling due
within the next following 3,200 Flight Hours of operation in
accordance with the Manufacturer's Maintenance Planning Document, have
been accomplished;
(h) have had accomplished all outstanding airworthiness directives and
mandatory orders affecting that model of Aircraft issued by the FAA
which, if the Aircraft were registered with the FAA, would have to be
complied with during the Term or within 180 days after the Expiry
Date;
(i) all changes (whether by way of modification, repair or otherwise)
carried out to the Aircraft subsequent to the Delivery Date shall have
been carried out in accordance with all FAA requirements and any
repairs shall be classified as permanent by the FAA;
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(j) have installed all applicable Vendor's and manufacturer's service
bulletin kits received free of charge by the Lessee that are
appropriate for the Aircraft and to the extent not installed, those
kits will be furnished free of charge to the Lessor;
(k) Lessee's external livery shall be fully stripped down reasonably and
repainted in such external livery as advised by the Lessor;
(l) have no installed life-limited Parts which shall have a total time
since new greater than 120% that of the Airframe provided that with
respect to all installed life limited Parts taken as a group, they
shall have on average a total time since new no greater than that of
the Airframe; and
2. PARTS
(a) Each life-limited Part shall have not less than 3,000 Flight Hours of
life remaining to the next scheduled removal, in accordance with the
Agreed Maintenance Programme;
(b) Each calendar-limited Part will have not less than twelve months (12
months) life remaining to its next scheduled removal in accordance
with the Agreed Maintenance Programme or 100% of its life if such life
is less than twelve months (12 months); and
(c) Each "on-condition" and "condition monitored" Part will be serviceable
in accordance with the Aviation Authority prescribed parameters.
3. ENGINES
Each engine installed on the Aircraft shall be an Engine and (if not the
engine installed at Delivery) shall be accompanied by all documentation
not previously provided by the Lessee to the Lessor as the Lessor may
require to evidence that title thereto has been properly conveyed to the
Holder of Legal Title in accordance with Clause 8.17(a) and will:
(a) have not less than 3,000 Flight Hours or Cycles expected life
remaining (whichever is applicable and the more limiting factor) to
the next complete major overhaul or refurbishment of its compressor
and turbine sections. The expected life remaining will be determined
by reference to the average number of Flight Hours or Cycles
(whichever is applicable and the more limiting factor) between the
overhaul of engines for the last twelve months (12 months) operation
of B737-300 in the Lessee's fleet.
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(b) have no defect which reduces the remaining life pursuant to
Manufacturer's or airworthiness requirements until overhaul to less
than 3,000 Flight Hours or Cycles;
(c) have no less than 3,000 Flight Hours (or Cycles) life remaining of any
hard time limited part; and
(d) have a full power assurance check to be carried out in accordance with
the Lessee's Maintenance Programme and any required remedial action
shall be undertaken.
4. LANDING GEAR
(a) The installed main and nose landing gear components and their
associated actuators and parts will be cleared of all inspections for
3,000 Flight Hours or Cycles (whichever is the more limiting factor)
of operation.
(b) The landing tyres and brakes will have 50% of the wear, as specified
by the manufacturer as serviceable limits, remaining until next
removal.
(c) The landing gear and wheel wells will be clean, free of leaks and
repaired as necessary.
5. AUXILIARY POWER UNIT (APU)
The APU shall be no more than 500 Flight Hours since its last overhaul.
6. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will not contain any dents, corrosion or abrasions which
exceed the prescribed parameters under the Manufacturer's structural
repair manual and shall be free of scab patches and loose, pulled or
missing rivets;
(b) The windows will not contain any delamination, blemishes or crazing
which exceed the prescribed parameters under the Manufacturer's
maintenance manual and will be properly sealed; and
(c) The doors will be free moving, correctly rigged and be fitted with
serviceable seals.
7. WINGS AND EMPENNAGE
(a) Leading edges will not contain any damage which exceeds the prescribed
parameters under the Manufacturer's structural repair manual;
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(b) Control surfaces will be waxed and polished;
(c) Unpainted cowlings and fairings will be polished; and
(d) Wings will be free of fuel leaks.
8. INTERIOR
(a) Interior will be fully serviceable and as at delivery otherwise as
mutually agreed between the parties;
(b) Emergency equipment shall meet FAA standard and have a calendar life
with a minimum of 1 year or 100% of its total approved life, whichever
is less, remaining;
(c) Curtains, carpets and seat covers will be clean and free from stains
and worn out (threadbare) areas, and will meet FAR fire resistance
regulations.
(d) Seats and panels will meet FAR fire resistance regulations which are
effective at redelivery and will be serviceable in good condition and
repaired as necessary; and
(e) All decals shall be clean, secure and legible.
9. COCKPIT
(a) Fairing panels shall be free of stains and cracks, will be clean
secure and repainted as necessary;
(b) Floor coverings will be clean and effectively sealed;
(c) Seat covers will be in good condition, clean and free of stains, and
will meet FAR fire resistance regulations which are effective at
redelivery; and
(d) Seats will be serviceable, in good condition and will meet FAR fire
resistance regulations which are effective at redelivery and will be
repainted as necessary.
10. CARGO COMPARTMENTS
(a) Panels will be in good condition and effectively sealed; and
(b) Nets will be in good condition.
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11. FLY-AWAY KIT
The fly-away kit will be complete as delivered in the detail spec of the
Aircraft.
12. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Programme;
(b) The entire fuselage will be substantially free from corrosion and will
be adequately treated and an approved corrosion prevention programme
will be in operation; and
(c) Fuel tanks will be free from contamination and corrosion and a tank
treatment programme will be in operation.
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SCHEDULE 4
PART 1
INSURANCE REQUIREMENTS
1. The Insurances required to be maintained are as follows:
(a) HULL "ALL RISKS" of Loss or Damage whilst flying and on the ground
with respect to the Aircraft for the Agreed Value and with a
deductible as shall be customary for United States airlines similarly
situated with Lessee but in any event not exceeding $[ ]*, subject to
any aggregate limit stipulated in such insurance; provided, however,
that the Lessee insures for any deductible in excess of $[ ]*.
(b) HULL WAR AND ALLIED PERILS, covering those risks excluded by AVN48B or
its equivalent from the Hull 'All Risks' Policy to the extent such
coverage is available from World Aviation Insurance Markets, including
confiscation and requisition by the State of Registration, for the
Agreed Value;
(c) "ALL RISKS" PROPERTY INSURANCE (INCLUDING WAR AND ALLIED RISK except
when on the ground or in transit other than by air or sea) on all
Engines on an "agreed value" basis and on Parts, on a "repair or
replace basis", in each case when not installed on the Aircraft (to
the extent not covered under the Aircraft hull insurances described in
paragraphs (a) and (b) above), including Engine test and running
risks, on an agreed value basis in the case of the Engines;
(d) AIRCRAFT THIRD PARTY, BODILY INJURY/PROPERTY DAMAGE, PASSENGER,
BAGGAGE, CARGO AND MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING
PRODUCTS) LEGAL LIABILITY for a combined single limit (Bodily
Injury/Property Damage) of an amount not less than the Minimum
Liability Coverage for the time being in respect of any one occurrence
(but, in respect of products liability, this limit may be an aggregate
limit for any and all losses occurring during the currency of the
policy, and in respect of liability arising out of certain offences,
the limit (within the said combined single limit) may be $[ ]* in
respect of any one offense and in the aggregate); War and Allied Risks
are also to be covered under the Policy to the extent customarily
available in the World Aviation Insurance Markets.
2. All required hull and spares insurance (specified in (1)(a), (b) and (c)
above), so far as it relates to the Aircraft, will:
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(a) include the Lessor, the Trust Company, the Head Lessor, the Beneficial
Owner and the Banks, and their respective successors and assigns, as
additional assureds;
(b) provide that any loss equal or in excess of $[ ]* will be settled
jointly with the Lessor and the Lessee and any claim which becomes
payable on the basis of a Total Loss shall be paid in Dollars to the
Lessor up to the Agreed Value as sole loss payee; with any other claim
below $[ ]* to be settled by Lessee and being payable as may be
necessary for the repair of the damage to which it relates;
(c) if separate Hull "All Risks" and "War Risks" insurances are arranged,
include a 50/50 provision in the terms of Lloyd's endorsement AVS.103
or its equivalent;
(d) if required under the Head Lease, confirm that the Insurers are not
entitled to replace the Aircraft in the event of a Total Loss;
(e) include a notice and/or acknowledgement of assignment (relating to the
assignment of the Lessor's interest in the Insurances to the Head
Lessor or the Banks, as applicable) in a form reasonably acceptable to
the Lessor; and
(f) provide that insurance proceeds in excess of the Agreed Value shall be
settled with and payable to the Lessee.
3. All required liability insurances (specified in (1)(d) above) will:
(a) include the Lessor, the Trust Company, the Beneficial Owner, the Head
Lessor and the Banks and their respective successors and assigns and
their respective shareholders, subsidiaries, directors, officers,
agents, employees and indemnitees as additional assureds for their
respective rights and interests, warranted (each as to itself only) no
operational interest; but the coverage provided will not include
claims arising out of their legal liability as manufacturer, repairer
or servicing agent;
(b) include a severability of interest clause, in the terms of clause 2.1
of the Lloyd's endorsement AVN 67B or its equivalent;
(c) contain a provision confirming that the policy is primary without
right of contribution and that the liability of the insurers will not
be affected by any other insurance of which the Lessor, the Beneficial
Owner, the Head Lessor, the Banks or the Lessee have the benefit.
(d) accept and insure the indemnity provisions of this Agreement to the
extent of the risks covered by the relevant policy or policies.
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4. All Insurances will:
(a) be in accordance with normal industry practice of persons operating
similar aircraft in similar circumstances;
(b) operate on a worldwide basis as is customarily available subject to
such limitations and exclusions as may be notified to the Lessor;
(c) acknowledge that the insurers are aware that title to the Aircraft is
held by the Holder of Legal Title and the Aircraft is subject to this
Agreement and the Head Lease, and that the Lessor's interests in the
Insurances are subject to a security assignment in favour of the
Banks, if applicable;
(d) provide that, in relation to the interests of each of the additional
assureds, the Insurances will not be invalidated by any act or
omission of any other person or party which results in a breach of any
terms conditions or warranty of the policy/ies PROVIDED THAT the
additional assured so protected has not caused, contributed to or
knowingly condoned such act or omission;
(e) provide that the Insurers will waive any rights of recourse and/or
subrogation against the additional assureds, (subject to and in
accordance with clause 3.5 of the Lloyd's endorsement AVN 67B) or its
equivalent;
(f) provide that the additional assured will have no obligation or
responsibility for the payment of any premiums (but reserve the right
to pay the same should any of them elect to do so) and that the
Insurers will waive any right of set-off or counterclaim against the
respective additional assureds other than for outstanding premiums in
respect of the Aircraft, any Engine or Part;
(g) provide that, except in the case of any provision for Cancellation or
Automatic Termination specified in the Policy/ies or Endorsements
thereof, the Insurance can only be cancelled or materially altered in
a manner adverse to the additional assureds by giving at least 30
days' written notice to the Lessor, the Head Lessor and the Banks,
except in the case of radioactive contamination as per Lloyd's
endorsement AVN 38A or its equivalent, for which 7 days' written
notice (or such lesser period as is or may be customarily available in
respect thereof) will be given;
(h) if required under the Head Lease (with respect to the Head Lessor)
contain a provision entitling the Lessor to initiate a claim under any
policy, if so desired; and
(i) provide cover denominated in Dollars and any other covenances which
the Lessor may reasonably require in relation to liability insurance.
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5. Reinsurances will:
(a) be on the same terms as the Insurances and will include the
provisions of this Schedule;
(b) provide that, notwithstanding any bankruptcy, insolvency, liquidation,
dissolution or similar proceedings of or affecting the reinsured, the
reinsurers' liability will be to make such payment thereunder as would
have fallen due under the relevant policy of reinsurance if the
reinsured had (immediately before such bankruptcy, insolvency,
liquidation, dissolution or similar proceedings) discharged its
obligations in full under the original insurance policies in respect
of which the then relevant policy of reinsurance has been effected;
and
(c) contain a "cut-through" clause in the following form (or such other
form as is satisfactory to the Lessor), subject to the provisions of
such clause not contravening any law of the State of Incorporation:
"The Reinsurers and the Reinsured hereby agree that, in the
event of any claim arising under the Reinsurances in respect of
a total loss or other claim where, as provided by the Lease
Agreement dated , 1997 and made between Wilmington Trust
Company, as lessor, and Western Pacific Airlines, Inc., as
lessee, such claim is to be paid to the person named as sole
loss payee under the primary insurances, the Reinsurers will, in
lieu of payment to the Reinsured, its successors in interest and
assigns, pay to the person named as sole loss payee under the
primary insurances effected by the Reinsured that portion of any
loss for which the Reinsurers would otherwise be liable to pay
the Reinsured (subject to proof of loss), it being understood
and agreed that any such payment by the Reinsurers will (to the
extent of such payment) fully discharge and release the
Reinsurers from any and all further liability in connection
therewith".
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PART 2
FORM OF BROKER'S UNDERTAKING
[Broker's Letter Issued by Marsh & McLennan Attached]
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PART 3
FORM OF INSURANCE CERTIFICATE
[Certificate Issued by Marsh & McLennan Attached]
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SCHEDULE 5
ACKNOWLEDGEMENTS IN CONNECTION WITH FINANCING
PART 1
NOTICE OF ASSIGNMENT
FROM: _____________________________________
TO: _____________________________________
Date
Dear Sirs,
We hereby give you notice that by an Assignment dated _____________, 19___ (the
"ASSIGNMENT") between us and _______________________ of
_________________________ (the "ASSIGNEE") we have assigned absolutely to
Assignee all our right, title and interest in and to the Aircraft Lease
Agreement dated June ___, 1997 (the "LEASE") between ourselves and yourselves
relating to one Boeing 737-300 aircraft with manufacturer's serial number 28871
together with the installed ______________ engines (the "AIRCRAFT").
Accordingly, all moneys which may be payable by you under the Lease shall
continue to be paid to the bank account specified in the Lease unless and until
the Assignee otherwise directs, whereupon you are authorised and required to
comply with the Assignee's directions.
This notice and the instructions herein contained are irrevocable. Please
acknowledge receipt of this notice to the Assignee on the enclosed
Acknowledgement. You are hereby authorised to assume the obligations expressed
to be assumed by you thereunder to the effect that, so far as the same would
otherwise be incompatible therewith, your obligations to us under the Lease will
be modified accordingly.
Yours faithfully,
For and on behalf of
- ---------------------------------------
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PART 2
ACKNOWLEDGEMENT
FROM: ________________________________________
TO: ________________________________________
Date_____________________
Dear Sirs,
We acknowledge receipt of a Notice of Assignment dated ____________________ (the
"ASSIGNMENT NOTICE") relating to an assignment (the "ASSIGNMENT") between
_________________ (the "ASSIGNOR") and you. We acknowledge that we will not
challenge the effectiveness of the Assignment to confer on you all rights, title
and interest of the Assignor under the Aircraft Lease Agreement dated June ___,
1997 between Assignor and ourselves (the "LEASE") in respect of one Boeing
737-300 aircraft with manufacturer's serial number 28871 together with the
installed __________________ engines.
In consideration of payment to us of $1 and the issue to us of a quiet enjoyment
letter, receipt of which we hereby acknowledge, we hereby agree as follows:
If you issue to us a notice (a the "LESSOR DEFAULT NOTICE") that your rights as
assignee under the Assignment have become exercisable we agree that we shall
thereafter:
(a) pay to you at such account as you may nominate all rentals and other
amounts from time to time payable by us under the Lease;
(b) perform, observe and comply with all our other undertakings and
obligations under the Lease in your favour and for your benefit as if you
were named as the Lessor therein instead of the Assignor; and
(c) if you so request, enter into a lease with you or your nominee, on the
same terms (mutatis mutandis) as the Lease, provided that the Lease is
thereby terminated.
If the Assignor is in breach of any of its obligations, express or implied,
under the Lease, or if any event occurs which would permit us to terminate,
cancel or surrender the Lease we will:
(a) promptly upon becoming aware of it, give you notice of such breach or
event;
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(b) accept as adequate remedy for any such breach performance by you of such
obligations within 7 days of our written notice to you, provided that
such performance by you fully compensates the Lessee for any damages,
costs and expenses suffered or incurred by the Lessee as the result of
such breach; and
(c) if you so request, enter into a lease with you or your nominee on terms
identical to the Lease, mutatis mutandis, provided that the Lease is
hereby terminated.
We agree that after issue by you of any Lessor Default Notice, we will not
recognise the exercise by the Assignor of any of its rights and powers under the
Lease unless and until requested to do so by you.
We agree that you will have the benefit of Clause 10 of the Lease (Indemnity)
and agree that we are bound by the terms of such clause for your benefit,
provided that you agree that you are also bound by the terms of such clause, in
each case, as though the same were set out herein in full, mutatis mutandis.
Yours faithfully,
For and on behalf of
- --------------------------------------
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SCHEDULE 6
PART 1
FORM OF LEGAL OPINION
[Smith, Gambrell's Opinion Attached]
119
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SCHEDULE 6
PART 2
FORM OF LEGAL OPINION OF ASSISTANT GENERAL COUNSEL OF LESSEE
[Assistant General Counsel's Opinion Attached]
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SCHEDULE 7
FORM OF LETTER OF CREDIT]
TO: WILMINGTON TRUST COMPANY,
not in its individual capacity,
but solely as Owner Trustee
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
DATE: _____________________
STANDBY LETTER OF CREDIT
At the request of Western Pacific Airlines, Inc. (the "LESSEE") for account of
same we hereby establish this irrevocable Standby Letter of Credit to authorise
you to draw on ______________ amount or amounts not exceeding in aggregate US$
_________________ upon receipt by us of the following demand certificate from
you:
"The undersigned are authorised officers of Wilmington Trust Company, not
in its individual capacity, but solely as Owner Trustee (the "LESSOR").
We refer to the Lease Agreement dated June ___, 1997 (as amended and
supplemented from time to time, the "LEASE AGREEMENT") between the Lessor
and Western Pacific Airlines, Inc. (the "LESSEE") and we hereby certify
that the Lessee has defaulted under the Lease Agreement. Accordingly, the
Lessor hereby draws upon your irrevocable Letter of Credit dated
________________ and we hereby instruct you to transfer immediately, with
telex confirmation to us, the sum of US$ _______________ (US Dollars
___________________________________) to Morgan Guaranty Trust Company, 23
Wall Street, New York, N.Y. 10260-0023, for the account of Bank of
Ireland, Group Treasury, Dublin (Account No. 65919429) to be credited to
Sunrock Aircraft Corporation Limited (Account No. 1422592).
We hereby agree with you that drawings drawn under and in compliance with the
terms of this Letter of Credit received on or prior to ____________________ will
be duly honoured upon receipt by us of such a demand certificate. Partial
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drawings are permitted. Payment of amounts drawn under this Letter of Credit
shall be made in full, without any set-off or counterclaim whatsoever and free
and clear of any deductions or withholdings.
All our charges and commissions are for the account of the Lessee.
References in this Letter of Credit to the Lease Agreement dated June ___, 1997,
(as amended and supplemented from time to time, the "LEASE AGREEMENT") between
the Lessor and the Lessee are for identification purposes only. The terms and
conditions of the Lease Agreement are not incorporated in nor made part of this
Letter of Credit and our obligations hereunder will not be affected by any
matter relating to the Lease Agreement or the obligations of the Lessee
thereunder including, without limitation, (i) any time or indulgence granted to,
or composition with, the Lessee or any other person; (ii) the taking, exercise,
variation, renewal or release of, or neglect to perfect or enforce, any
securities or any rights or remedies against the Lessee or any other person; or
(iii) any unenforceability or invalidity of any obligation of the Lessee.
Until all amounts which are or will become payable to the Lessor by the Lessee
have been irrevocably paid in full we shall not by virtue of this Letter of
Credit be subrogated to any of the Lessor's rights or claim in competition with
the Lessor against the Lessee.
This Letter of Credit is not transferable and constitutes an obligation to make
payment against documents. Except to the extent the express provisions hereof
conflict, this Letter of Credit is issued subject to the Uniform Customs and
Practice for Documentary Credits, 1993 Revision, ICC Publication no. 500 (to the
extent applicable to Standby Letters of Credit).
This Letter of Credit is governed by and construed in accordance with the laws
of New York.
Upon expiry this Standby Letter of Credit shall become null and void (but
without prejudice to any claims made prior to expiry), whether returned to us
for cancellation or not, and any claim or statement received after expiry shall
be ineffective.
SIGNED
- -----------------------------------
Authorised Signatory
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SCHEDULE 8
ENGINE LIFE-LIMITED PARTS
[To be provided by Lessee and approved by Beneficial Owner]
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SCHEDULE 9
FORM OF MONTHLY STATUS REPORT
AIRCRAFT TYPE REG. MARK SERIAL NO. MONTH ENDING
Boeing 737-300 N966WP 28871 .............
1. AIRCRAFT UTILISATION:
(a) Airframe Total Flight Hours
..................................................
(b) Airframe Total Cycles
..................................................
(c) Airframe Flight Hours for Month
.................................................
(d) Airframe Flight Cycles for Month
.................................................
2. POWERPLANT STATUS: NO.1 NO.2
(a) Serial Nos. of Delivered Engines ............ .............
(b) Serial Nos. of Replacement Engines ............ .............
(if applicable)
(c) Serial Nos. of Installed Engines ............ .............
(if different from (a) or (b) above)
(d) Current Location of Delivered or ............ .............
Replacement Engines (as applicable)
(if not installed on Airframe)
(e) Total Time Since New of Delivered ............ ............
or Replacement Engines (as applicable)
(f) Total Cycles Since New of Delivered ............ ............
or Replacement Engines (as applicable)
(g) Total Flight Hours for the Month for ............ ............
each Delivered or Replacement Engine
(as applicable)
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(h) Total Cycles for the Month for each ............ ............
Delivered or Replacement Engine
(as applicable)
(i) Serial No. of Delivered APU ..............
(j) Serial No. of Replacement APU ..............
(if applicable)
(k) Serial No. of Installed APU .............
(if different from (a) or (b) above)
(l) Current Location of Delivered or .............
Replacement APU (as applicable)
(if not installed on Airframe)
(m) Total Time Since New of Delivered .............
or Replacement APU (as applicable)
(n) Total Cycles Since New of Delivered .............
or Replacement APU (as applicable)
(o) Total Hours for the Month for .............
Delivered or Replacement APU
(as applicable)
(p) Total Cycles for the Month for .............
Delivered or Replacement APU
(as applicable)
3. ROUTINE CHECKS / A.D. AND S.B. COMPLIANCE:
(a) Routine Checks (A and above) ....................
performed during Month ....................
....................
(b) A.D.'s complied with during Month ....................
....................
....................
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(c) S.B.'s complied with during Month ....................
....................
....................
4. AIRCRAFT DAMAGE OR ENGINE CHANGES:
Details of any repairs carried out to the Aircraft beyond SRM limits,
and Engine changes, giving reasons for repair or
change...................................................................
.........................................................................
CERTIFIED BY .......................
For and on behalf of
[
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SCHEDULE 10
APPROVED JURISDICTIONS FOR SUB-LEASING
Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Greece
Iceland
Indonesia
Ireland
Italy
Luxembourg
Malaysia
Netherlands
New Zealand
Norway
Portugal
Singapore
South Korea
Spain
Sweden
Switzerland
Thailand
United Kingdom
United States of America
The Lessor shall be entitled from time to time to give notice to the Lessee that
it wishes to delete one or more of the above jurisdictions and the Lessee shall
be entitled from time to time to give notice to the Lessor that it wishes to add
one or more jurisdictions to the above list. In the event of the issue of any
such notice the Lessor and the Lessee shall, as soon as reasonably practicable,
consult in good faith as to the relevant deletion(s) or addition(s), as the case
may be. In the event that agreement is reached, the above list shall be amended
accordingly. If no such agreement is reached, the above list may be amended in
such a manner as the Lessor may, in its reasonable discretion consider
appropriate, provided that no jurisdiction shall be deleted unless the Lessor
specifies the reasons are commercially reasonable for such deletion and such
reasons are concerned exclusively with the jurisdiction itself (and not with a
particular operator in that jurisdiction).
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SCHEDULE 11
FORM OF LETTER OF QUIET ENJOYMENT
From: SUNROCK AIRCRAFT CORPORATION LIMITED (the "undersigned")
To: WESTERN PACIFIC AIRLINES, INC. (the "Lessee")
1997
In Re: One Boeing 737-300 Aircraft, Manufacturer's Serial Number 28871 (the
"Aircraft")/Aircraft Lease Agreement (the "Lease") dated 1997
between Wilmington Trust Company (the "Lessor") and the Lessee
Dear Sirs:
1. In consideration of $10 and other good and valuable consideration received
from the Lessee and/or the Lessor the receipt of which is hereby acknowledged,
we confirm to you that, so long as no Significant Default or Event of Default
(as defined in the Lease) has occurred and is continuing, neither we nor any
person or entity lawfully claiming by or through Sunrock Aircraft Corporation
Limited, as Beneficial Owner, will interfere with the quiet possession and use
of the Aircraft by the Lessee, subject at all times to the terms of the Lease;
provided that the exercise by us or our assigns of our rights or remedies under
or in connection with the Lease will not constitute such an interference.
2. The foregoing undertaking is not to be construed as restricting the rights of
the undersigned to dispose of its interest in the Aircraft to such persons and
on such terms as it considers appropriate. However, if the undersigned exercises
such rights during the term of the Lease and provided that at or prior to the
time of such disposal a Significant Default or an Event of Default (as defined
in the Lease) has not occurred and is continuing the undersigned will dispose of
the Aircraft expressly subject to the Lease and procure a letter of quiet
enjoyment with the same terms (mutatis mutandis) as this letter from such
transferee.
3. The undersigned hereby represents to Lessee that (i) it is a limited
liability company duly organized and validly existing under the laws of the
Republic of Ireland and has the organizational power to enter into and perform
its obligations under this letter of quiet enjoyment and to own its assets and
carry on its business as it is now being conducted and (ii) this letter of quiet
enjoyment is the legal, valid and binding obligation of the undersigned.
4. This Letter of Quiet Enjoyment shall be governed by, and construed in
accordance with, the internal laws of the State of New York.
128
<PAGE>
Please countersign this letter to confirm your agreement to the arrangements
contained herein.
For and on behalf of
SUNROCK AIRCRAFT CORPORATION LIMITED,
as Beneficial Owner
- --------------------
Agreed and accepted
- --------------------
For and on behalf of
WESTERN PACIFIC AIRLINES, INC.
129
<PAGE>
================================================================================
AIRCRAFT LEASE AGREEMENT
between
KG AIRCRAFT LEASING CO., LTD.
and
WESTERN PACIFIC AIRLINES, INC.
One Boeing Model 737-3S3 Aircraft
Manufacturer's Serial Number 24060
Philippine Registration Mark RP-C4005 (to be changed to N957WP)
With Two CFM56 - 3B2 Engines,
Manufacturer's Serial Nos. 722139 and 723130
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1. DEFINITIONS.................................................... 1
ARTICLE 2. ACCEPTANCE UNDER THE LEASE.................................... 10
2.1 Conditions Precedent....................................... 10
2.1.1 Lessor Conditions................................. 10
2.1.2 Other Lessor Conditions........................... 10
2.1.3 Lessee's Conditions............................... 12
2.2 Time of Delivery........................................... 13
2.3 Place of Delivery.......................................... 13
2.4 Delivery Fuel.............................................. 13
2.5 Indemnity.................................................. 14
ARTICLE 3. TERM AND RENT................................................. 14
3.1 Term....................................................... 14
3.2 Basic Rent................................................. 14
3.3 Security Deposit........................................... 15
3.4 Supplemental Rent.......................................... 16
3.5 Payments on Business Day................................... 16
3.6 Place of Payment........................................... 17
3.7 Prohibition Against Setoff, Counterclaim, etc.............. 17
ARTICLE 4. REPRESENTATIONS AND WARRANTIES................................ 18
4.1 Lessor's Representations and Warranties.................... 18
4.2 Lessee's Representations and Warranties.................... 19
4.3 Suppliers' Warranties...................................... 21
ARTICLE 5. POSSESSION AND USE............................................ 22
5.1 Possession................................................. 22
5.2 Lawful Operations; Use..................................... 23
5.3 Maintenance................................................ 24
5.4 Maintenance Payments....................................... 24
5.5 Registration and Insignia.................................. 29
ARTICLE 6. REPLACEMENT AND POOLING OF PARTS; ALTERATIONS,
MODIFICATIONS AND ADDITION.................................... 29
6.1 Replacement of Parts....................................... 30
6.2 Pooling of Engines and Parts............................... 30
6.3 Alterations, Modifications and Additions................... 31
ARTICLE 7. INSPECTION; FINANCIAL INFORMATION; RECORD..................... 34
7.1 Information and Inspection................................. 34
7.2 Financial Information...................................... 34
7.3 Reports of Aircraft Use.................................... 35
ARTICLE 8. INDEMNIFICATION BY LESSEE..................................... 35
8.1 General Indemnity.......................................... 35
8.2 General Tax Indemnity...................................... 39
ARTICLE 9. DAMAGE, DESTRUCTION, REQUISITION, CONDEMNATION................ 44
9.1 Event of Loss with Respect to the Aircraft................. 45
9.2 Event of Loss with Respect to an Engine.................... 45
9.3 Application of Payments from Governmental Authorities in
Respect of Event of Loss................................... 46
9.4 Requisition of an Airframe for Use by Government........... 47
9.5 Requisition of an Engine for Use by the Government......... 47
9.6 Application of Payments During Existence of Event or
Event of Default........................................... 48
ARTICLE 10. INSURANCE.................................................... 48
10.1 ........................................................... 48
10.9 Application of Insurance Proceeds for an Event of Loss..... 52
10.10 Application of Insurance Proceeds for Other than an
Event of Loss.............................................. 52
10.11 Application in Default..................................... 53
ARTICLE 11. MORTGAGES, LIENS, ETC......................................... 53
ARTICLE 12. RECORDATION AND FURTHER ASSURANCES............................ 54
ARTICLE 13. RETURN OF AIRCRAFT AND RECORDS................................ 54
13.1 Return..................................................... 54
13.2 Overhaul - General......................................... 55
13.3 Engines.................................................... 55
13.4 Liens...................................................... 55
13.5 Records.................................................... 55
13.6 Redelivery Fuel............................................ 56
13.7 Indemnity.................................................. 56
ARTICLE 14. EVENTS OF DEFAULT............................................. 56
14.1 Events of Default.......................................... 56
ARTICLE 15. REMEDIES...................................................... 58
ARTICLE 16. [Intentionally Omitted]....................................... 60
ARTICLE 17. LETTER OF CREDIT.............................................. 60
ARTICLE 18. MISCELLANEOUS................................................. 61
18.1 Construction and Applicable Law............................ 61
18.2 Notices.................................................... 61
18.3 Lessor's Right to Perform for Lessee....................... 63
18.4 Corporate Existence; Merger................................ 63
18.5 Quiet Enjoyment............................................ 63
18.6 Assignment................................................. 63
18.7 Expenses................................................... 64
18.8 Survival................................................... 64
18.9 English Language........................................... 65
18.10 Jurisdiction............................................... 65
18.11 Currency................................................... 66
18.12 Integration................................................ 66
18.13 Counterparts............................................... 66
18.14 Bankruptcy - Section 1110.................................. 67
EXHIBIT "A" LEASE SUPPLEMENT NO.1 APPENDIX A Aircraft Hours and Cycles APPENDIX
B Documentation Delivery Receipt Attachment 1 Technical Records at
Delivery APPENDIX C Loose Equipment Schedule
EXHIBIT "B" FORM OF LETTER OF QUIET ENJOYMENT
EXHIBIT "C" MAINTENANCE RESERVES ADJUSTMENT FORMULA
EXHIBIT "D" ADDITIONAL DELIVERY REQUIREMENTS
EXHIBIT "E" REDELIVERY CONDITION
APPENDIX A Redelivery of Technical Documents
EXHIBIT "F" LEASE SUPPLEMENT NO. 2
APPENDIX A Aircraft Hours and Cycles
APPENDIX B Documentation Redelivery Receipt
Attachment 1 Technical Records at Delivery
EXHIBIT "G" INSURANCE REQUIREMENTS
APPENDIX A Broker's Letter of Undertaking
EXHIBIT "H" IRREVOCABLE STANDBY LETTER OF CREDIT
EXHIBIT "I" CERTAIN TERMS
<PAGE>
AIRCRAFT LEASE AGREEMENT
This Lease Agreement, dated as of May 15, 1997, is entered into by and
between KG AIRCRAFT LEASING CO., LTD., an Irish corporation, having its
principal place of business at 3 Adelaide Court, Adelaide Road, Dublin 2,
Ireland ("KG" or the "Beneficiary"), and WESTERN PACIFIC AIRLINES, INC., a
Delaware corporation, having its principal place of business at 2864 South
Circle Drive, Suite 1100, Colorado Springs, Colorado 80906 (the "Lessee").
The Beneficiary is the owner of the Aircraft referred to below which is
registered in the Philippines and for purposes of registering the Aircraft in
the United States will enter into a trust agreement with First Security Bank,
National Association or another trust company which is a "citizen of the United
States" under the Federal Aviation Act whereby such trust company will acquire
legal title to, and be the registered owner of, the Aircraft for the Term of
this Lease (such trust company, not in its individual capacity but solely as
owner trustee under the Trust Agreement is herein called "Lessor"). On or prior
to the Delivery Date, Lessor will enter into a Lease Supplement agreeing to be
bound by the terms hereof.
Lessee desires to lease from Lessor and KG is willing to cause Lessor to
lease to Lessee the Aircraft described herein upon and subject to the terms and
conditions of this Lease. In consideration of the mutual promises herein, KG and
Lessee agree as follows:
TERMS AND CONDITIONS
ARTICLE 1. DEFINITIONS
The following terms shall have the following meanings and shall be equally
applicable to both the singular and the plural forms of the terms defined
herein:
"Agreed Value" has the meaning set forth on Exhibit "I".
"Aircraft" means the Airframe leased hereunder, together with each Engine
initially installed on such Airframe when delivered and leased hereunder (or any
engine substituted for any such Engine pursuant to the terms of this Lease),
whether or not any of such initial or substituted Engines may from time to time
no longer be installed on such Airframe or on any other aircraft and, where the
context permits, shall include all Records relating to the Airframe and each
Engine and all Loose Equipment.
"Airframe" means (i) the Boeing Model 737-3S3 airframe, bearing
manufacturer's serial number 24060, excluding any Engines or other engines that
may be installed on such airframe from time to time, and leased by Lessor to
Lessee hereunder; and (ii) any and all Parts, so long as the same shall be
incorporated in or installed on or attached to such Airframe or so long as title
thereto shall remain vested in Lessor in accordance with the terms of Article 6
hereof after removal from such Airframe.
"Approved Insurance Broker" shall mean JH Marsh & McLennan, or any other
reputable independent aviation insurance broker then arranging insurance for
Lessee.
"Authorized Maintenance Performer" means, with respect to any Airframe and
Engine maintenance inspections, repairs or overhauls in accordance with Lessee's
maintenance program, any individual or maintenance facility approved by the FAA
for the relevant work on Boeing 737-300 aircraft or engines such as the Engines,
(including, without limitation, Lessee if so approved), or, with the prior
written consent of Beneficiary, any other FAA approved maintenance or repair
facility.
"Basic Rent" for the Aircraft has the meaning set forth on Exhibit "I".
"Basic Term" has the meaning set forth in Article 3.1 hereof.
"Basic Term Expiration Date" has the meaning set forth in Exhibit "I".
"Beneficiary" means KG Aircraft Leasing Co., Ltd., an Irish corporation as
the beneficial owner of the Aircraft under the Trust Agreement, together with
its successors and, to the extent permitted hereunder, its assigns under the
Trust Agreement.
"Business Day" means any day other than a Saturday or a Sunday or other
than a day on which commercial banking institutions in the cities of New York
(or, in lieu thereof, another city designated by Beneficiary under Article 3.6),
Denver or London, are authorized by law to be closed.
"Cycle," with respect to the Airframe, an Engine or other engine, means
one take-off and landing of the Airframe or other airframe on which such Engine
or other engine is installed.
"Damage Notification Threshold" has the meaning set forth on Exhibit "I".
"Delivery Date" for the Aircraft means the date of the Lease Supplement
for the Aircraft, which date shall be the same date the Aircraft is delivered
to, and accepted by, Lessee hereunder.
"Dollars" or "$" means lawful currency of the United States of America.
"Eligible Claim" has the meaning specified in Article 5.4.
"Engine" means (i) each of the CFM International CFM56-3B2 engines
specified by manufacturer's serial numbers in a Lease Supplement on the Delivery
Date therefor, whether or not from time to time thereafter no longer installed
on such Airframe or installed on any other aircraft; or (ii) any engine which
may from time to time be substituted for an Engine pursuant to Article 9.2, 9.5
or 13.3 hereof; and (iii) any and all Parts, so long as the same shall be
incorporated in or installed on or attached to such Engine or so long as title
thereto shall remain vested in Lessor in accordance with the terms of Article 6
hereof after removal from such Engine.
"Equipment" means, as the context may require, any or all of the Aircraft,
Airframe, Engines and Loose Equipment then leased hereunder. An "item of
Equipment" means, as the context may require, the Aircraft, Airframe, Engine or
Loose Equipment then leased hereunder.
"Event" means an event or occurrence which, with the passing of time
and/or the giving of notice, would constitute an Event of Default.
"Event of Default" shall have the meaning ascribed thereto in Article 14
hereof.
"Event of Loss" with respect to the Aircraft, Airframe or any Engine shall
mean any of the following events with respect to such property: (i) the loss of
such property or of the use thereof due to the destruction of or damage to such
property which renders repairs uneconomic or which renders such property
permanently unfit for normal use by the Lessee for any reason whatsoever; (ii)
any damage to such property which results in an insurance settlement with
respect to such property on the basis of a total loss, or an actual,
constructive or compromised total loss; (iii) the theft or disappearance of such
property or the confiscation, condemnation, or seizure of, or requisition of
title to, or use of, such property by any governmental or purported governmental
authority (other than a requisition for use by the United States Government,
which in the case of any event referred to in this clause (iii) shall have
resulted in the loss of possession of such property by the Company for a period
in excess of (a) in the case of the requisition of title to such property by any
governmental or purported governmental authority, 90 consecutive days, or (b) in
any other case other than a requisition for use by the government of registry of
the Aircraft or any instrumentality or agency thereof, 180 consecutive days, or
(c) in the case of a requisition for use by the government of registry of the
Aircraft or any instrumentality or agency thereof such loss of possession shall
be for a period in excess of 365 days (iv) the "grounding" of the Aircraft for a
period of 180 days due to actions by a governmental body unless (a) the Lessee
is diligently carrying forward in a manner which does not discriminate against
the Aircraft all necessary or desirable steps to permit normal use of the
Aircraft by the Lessee and (b) the Lessee has obtained the approval of such
governmental body to operate, in the normal course of the Company's business,
one similarly grounded aircraft in its fleet within one year from the time of
"grounding," but in any event if the Aircraft has been "grounded" for a period
of one year; and (v) with respect to an Engine only, any divestiture of title to
such Engine treated as an Event of Loss pursuant to this Lease. An Event of Loss
with respect to the Aircraft shall be deemed to have occurred if an Event of
Loss occurs with respect to the Airframe.
"Expiration Date" has the meaning specified in Article 3.1.
"FAA" means the Federal Aviation Administration, the Administrator of the
Federal Aviation Administration, or any person, governmental department, bureau,
commission or agency succeeding to the functions of either of the foregoing in
the United States of America.
"Fair Rental Value" means the fair rental value of the Aircraft for the
relevant period determined by an independent aircraft appraisal expert agreed
upon by Beneficiary and Lessee, but if Beneficiary and Lessee are unable to
agree on such expert, each of them will select such an expert and the experts so
selected shall choose a third expert and the "Fair Rental Value" for such period
will be the average of the two least disparate appraisals. The cost of any such
appraisal(s) shall be borne equally by Beneficiary and Lessee.
"Federal Aviation Act" shall mean the United States Federal Aviation
Act of 1958, as amended.
"Federal Aviation Regulations" shall mean the regulations issued or
promulgated pursuant to the Federal Aviation Act from time to time.
"Flight Hour" has the meaning specified in Article 5.4.
"Government Entity" shall mean and include (i) any national government,
political subdivision thereof, or local jurisdiction therein; (ii) any
instrumentality, court, or agency of any thereof, however constituted; and (iii)
any association, organization, or institution of which any thereof is a member
or to which jurisdiction any thereof is subject or in whose activities any
thereof is a participant.
"Incentive Rate" means three percentage points above the prime rate of
interest charged by The Chase Manhattan Bank, N.A. from time to time as its
prime commercial lending rate, but, if prohibited by applicable law, the maximum
contract rate permitted by applicable law.
"Indemnitees" means Lessor and Beneficiary together in each case with
their respective shareholders, subsidiaries, directors, officers, agents,
employees, and such financial institutions as are providing financing of the
Aircraft.
"Inherent Defect" has the meaning specified in Article 5.4.
"Law" shall mean and include (i) any statute, decree, constitution,
regulation, order or any directive of any Government Entity; (ii) any treaty,
pact or other agreement to which any Government Entity is a signatory party;
(iii) any judicial or official administrative interpretation or application of
any thereof; and (iv) any amendment or revision of any thereof.
"Lease Agreement," "this Lease," "this Agreement," "herein," "hereof,"
"hereunder" or other like words means this Lease Agreement as the same may
hereafter from time to time be supplemented, amended, waived or modified
pursuant to the applicable provisions hereof, including, without limitation,
supplementation hereof by one or more Lease Supplements.
"Lease Supplement" means a document substantially in the form of Exhibit
"A" or Exhibit "F" hereto, to be entered into between Lessor and Lessee for the
purpose of adding Lessor as a party to this Agreement and/or subjecting the
Aircraft to the terms of this Lease Agreement or evidencing the expiration or
termination of this Lease Agreement and the return of the Aircraft to Lessor.
"Lessee's Interest" means that portion of the compensation paid by the
U.S. Government in connection with a requisition of the Aircraft constituting an
Event of Loss hereunder equal to the excess, if any, of (i) an amount equal to
the present value, discounted at 7% per annum of fair market rentals, determined
by independent appraisal, for the Aircraft for the balance of the Lease Term
from the date of requisition minus (ii) the present value, discounted at the
same rate, of the future rent payments due under this Agreement for the balance
of the Lease Term from the date of the requisition.
"Lessor's Tech Rep" means any person or organization designated as such by
Beneficiary to Lessee from time to time; provided that such person or
organization will not be an airline competing with Lessee, an affiliate thereof,
or an employee of either thereof or a subsequent lessee of the Aircraft or a
representative or employee thereof.
"Lessor Liens" shall mean Liens arising as a result of (i) claims against
Lessor or Beneficiary not related to the transactions contemplated by this Lease
or which violate any obligation of Lessor or Beneficiary under this Lease
Agreement; or (ii) Lessor Taxes; or (iii) the financing of the Aircraft by
Beneficiary or Lessor; or (iv) acts of Lessor or Beneficiary not contemplated
and expressly permitted under this Lease; or (v) taxes, fees and other charges
imposed against Lessor or any Indemnitee which are not indemnified against by
Lessee pursuant to Article 8.2; or (iv) claims against Lessor or Beneficiary
arising out of its transfer of all or any part of its interests in the Aircraft
or this Lease, other than a transfer pursuant to Article 9 or 15 hereof.
"Lessor Taxes" means taxes, fees and other charges:
(a) imposed as a direct result of activities of Lessor or
Beneficiary in the jurisdiction imposing the liability
unrelated to the transactions contemplated by this Agreement;
or
(b) taxes, fees and other charges imposed on Lessor or Beneficiary
by any jurisdiction or taxing authority in which Lessor or
Beneficiary, as applicable, is organized or has its principal
place of business or is otherwise subject to taxation as a
result of transactions unrelated to the transactions
contemplated hereby (I) on, based on, or measured by, the
gross or net income or gross or net receipts, including
capital gains taxes, minimum taxes from tax preferences,
alternative minimum taxes, branch profits taxes, accumulated
earnings taxes, personal holding company taxes, succession
taxes and estate taxes, and any state or local withholding
taxes on, based on or measured by gross or net income or (II)
on, or with respect to, or measured by, capital or net worth
or in the nature of a franchise tax or a tax for the privilege
of doing business (other than any such taxes, fees and other
charges in the nature of sales, use, rental, ad valorem,
license, property , value added or similar taxes)
(c) taxes, fees and other charges on, or with respect to, or
measured by, any trustee fees, commissions or compensation
received by Lessor in its capacity as owner trustee under the
Trust Agreement; or
(d) taxes, fees and other charges that are being contested as
provided in Article 8.2.
(e) imposed with respect to any period commencing or event
occurring prior to the Delivery Date or after the Expiration
Date (other than the receipt of payments due hereunder after
the Expiration Date); or
(f) imposed as a direct result of the gross negligence or wilful
misconduct of Lessor or Beneficiary;
(g) imposed as a direct result of a voluntary or involuntary sale,
transfer, assignment or disposition by Lessor or Beneficiary
of all or any part of its interest in the Aircraft or this
Agreement, except for any such sale, transfer, assignment or
other disposition which has occurred as a result of the
exercise of remedies hereunder, following the occurrence of an
Event of Default; or
(h) to the extent that same are imposed or arise as a direct
result of a Lessor Lien.
(i) taxes, fees and other charges resulting from the purchase or
other acquisition by Lessor or Beneficiary of the Aircraft,
any Engine or any Part or any interest therein; or
(j) taxes, fees and other charges imposed against a transferee or
assignee of Lessor or Beneficiary to the extent of the excess
of such taxes, fees and other charges over the amount thereof
which would have been imposed had there not been such a
transfer or assignment; or
(k) to the extent such taxes, fees or other charges (other than
U.S. income taxes described in Article 8.2(ii)) result from
any failure by Lessor or Beneficiary to file such returns,
statements or other documentation as shall be reasonably
available to Lessor or Beneficiary, as shall not subject
Lessor or Beneficiary to unreasonable cost or expense, and as
shall enable it to claim a reduced rate of tax or exemption
from tax with respect to any taxes, fees and other charges
subject to payment or reimbursement by Lessee hereunder and as
to which, in the case of returns, statements or other
documentation required by a change in applicable law or treaty
after the Delivery Date, Lessee shall have notified Lessor and
Beneficiary; or
(l) to the extent that such taxes, fees and other charges
constitute interest, fines or penalties if such interest,
fines or penalties result from the failure to file or late
filing of any tax return by Lessor or Beneficiary that is not
a result of an act or omission of Lessee or a breach of any of
Lessee's obligations under this Agreement.
"Letter of Credit" shall mean the letter of credit delivered by Lessee
pursuant to Articles 3.3 and 17 hereof, and any replacement therefor.
"Letter of Intent" means the letter of intent executed March 26 and March
28, 1997 by Beneficiary and Lessee, respectively.
"Letter of Quiet Enjoyment" means a letter of quiet enjoyment
substantially in the form attached hereto as Exhibit "B" provided to Lessee from
any transferee or assignee of Beneficiary and any holder of a security interest
in the Aircraft.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
security interest or claim.
"Loose Equipment" shall mean the equipment described as such in Appendix C
to Exhibit "A".
"Loss" has the meaning specified in Article 8.1.
"Maintenance Reserves" means the maintenance reserve payments payable by
Lessee pursuant to Article 5.4 hereof.
"Manufacturer" means The Boeing Company, in respect of the Airframe and
CFM International in respect of the Engines.
"Parts" means all appliances, components, parts, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
(excluding Engines or engines), so long as the same shall be incorporated in or
installed on or attached to the Airframe or any Engine or so long as title
thereto shall remain vested in Lessor in accordance with the terms of Article 6
hereof after removal from such Airframe or Engine.
"Permitted Liens" has the meaning specified in Article 11.
"Records" means all items referred to in clauses (i), (ii) and (iii) of
Article 13.5.
"Remarketing Commencement Date" has the meaning specified in Article
8.2.
"Renewal Term" has the meaning set forth in Article 3.1 hereof.
"Rent" means Basic Rent and Supplemental Rent.
"Scheduled Aircraft Delivery" for the Aircraft means the scheduled date of
delivery for the Aircraft set forth in Article 2.2 hereof.
"Security Deposit" has the meaning specified in Article 3.3.
"Severable Equipment" means severable components or systems installed on
or affixed to the Airframe that are used to (i) provide individual
telecommunications or electronic entertainment to passengers aboard the
Aircraft, or (ii) provide capabilities to the Aircraft cockpit navigational or
computer systems in addition to those which the Aircraft had when delivered to
Lessee, if and for so long as such equipment shall be owned by, or shall be
subject to a security interest, license or other interest of, another Person
(other than any Affiliate of Lessee) in accordance with the provisions of
Article 6.4 hereof.
"Supplemental Rent" means any and all amounts, liabilities, indemnities
and obligations which Lessee assumes or agrees hereunder to pay to Lessor,
Beneficiary and/or any Indemnitee, including Maintenance Reserves, Security
Deposit and Agreed Value payments, but excluding Basic Rent.
"taxes, fees and other charges" has the meaning specified in Article
8.2.
"Term," in respect of the Aircraft, means the term for which the Aircraft
is leased hereunder pursuant to Article 3.1 hereof.
"Termination Value" means as of the Expiration Date the sum of:
(i) the excess, if any, of the present value of the remaining
monthly payments of Basic Rent during the Basic Term over the
present value of the monthly Fair Rental Value of the Aircraft
for the remainder of the Basic Term, in each case calculated
using a discount rate of 7% per annum; plus
(ii) any break funding and interest rate swap break costs actually
incurred by Beneficiary in connection with the early
termination of its financing, if any, then applicable to the
Aircraft as a result of the termination of the Lease.
"Trust Agreement" means the Trust Agreement to be entered into between
First Security Bank, National Association (or another Trust Company), and the
Beneficiary prior to the Delivery Date, as amended, modified or supplemented
from time to time.
"Wet Lease" means any arrangement whereby the Lessee agrees to furnish the
Airframe and Engines or engines installed thereon to a third party pursuant to
which such Airframe and Engines or engines (i) shall be operated solely by
regular employees of the Lessee possessing all current certificates and licenses
that would be required under the Federal Aviation Act for the performance by
such employees of similar functions within the United States of America (it is
understood that cabin attendants need not be employees of the Lessee), (ii)
shall be maintained by the Lessee in accordance with its FAA-approved
maintenance program, and (iii) shall be insured by the Lessee on its policy in
accordance with the requirements of the Lease.
ARTICLE 2. ACCEPTANCE UNDER THE LEASE
2.1 CONDITIONS PRECEDENT.
Subject to and on the terms hereof, (i) Lessor hereby agrees to lease to
Lessee hereunder, and Lessee hereby agrees to lease from Lessor hereunder,
the Aircraft which shall be delivered to Lessee, such delivery to be
evidenced by the execution by Lessor and Lessee of a Lease Supplement, and
(ii) KG agrees to cause Lessor to lease the Aircraft to Lessee hereunder.
2.1.1 LESSOR CONDITIONS. Lessor's and KG's obligation to lease the
Aircraft hereunder shall be subject to satisfaction or waiver
of the following conditions precedent. On or prior to the
Delivery Date (except for (i) below), Lessor and KG shall have
received:
i. on the date of execution hereof, a resolution of the Board of
Directors of Lessee, certified by the Secretary or an
authorized officer of Lessee, duly authorizing the lease of
the Aircraft hereunder and the execution, delivery and
performance of this Lease, together with an incumbency
certificate as to the person or persons authorized to execute
and deliver such documents on behalf of Lessee;
ii. copies of the certificate of incorporation and by-laws of
Lessee, a good standing certificate, and copies of all
consents, authorizations and approvals of any governmental
agency or authority which are required in connection with the
execution, delivery and performance of the Lease by Lessee ;
iii. Uniform Commercial Code financing statements for filing in the
State of Colorado reasonably satisfactory to KG and duly
executed by Lessee; and
iv. a letter from the process agent appointed by Lessee hereunder
accepting such appointment.
2.1.2 OTHER LESSOR CONDITIONS. With respect to the Aircraft to be
leased hereunder, the following additional conditions shall be
waived or complied with at or prior to the time the Aircraft
is ready for delivery from Lessor to Lessee hereunder or on
such earlier date as may be applicable to such condition:
i. Lessor and KG shall have received the following on or before
the Delivery Date for the Aircraft:
A. a copy of Lessee's maintenance program for the
Aircraft;
B. a certificate signed by an Approved Insurance Broker
as to the due compliance with the insurance
provisions of Article 10 hereof with respect to the
Aircraft;
C. the Security Deposit described in Article 3.3;
D. a favorable opinion or opinions of counsel for Lessee,
addressed to Lessor and Beneficiary and dated the
Delivery Date for the Aircraft, concerning the matters
set forth in clauses (i) through (v), inclusive, and
clause (viii) of Article 4.2 hereof, and as to such
other matters as KG shall reasonably specify;
E. a favorable opinion of United States counsel to KG as to
such matters as KG may reasonably request;
F. a favorable opinion of Lytle, Soule & Curlee, special
FAA counsel concerning the proper registration of, and
recordation of Lessor's interest in the Aircraft;
G. such other documents as Lessor or KG may reasonably
request.
ii. Since March 31, 1997 there shall not have been any material
adverse change in Lessee's financial condition, and on the
Delivery Date for the Aircraft the following statements shall
be true, and Lessor and KG shall have received a certificate
signed by a duly authorized officer of Lessee, dated such
Delivery Date, stating that:
A. the representations and warranties contained in Article
4.2 hereof are true and accurate on and as of such date
as though made on and as of such date (except to the
extent that such representations and warranties relate
to an earlier date);
B. no event has occurred and is continuing, or would result
from the lease of the Aircraft, which constitutes an
Event or an Event of Default; and
C. all necessary approvals, authorizations, consents,
licenses, certificates and orders of the FAA and any
other governmental or regulatory authority having
jurisdiction with respect to the ownership, use or
operation of such Aircraft or the transactions
contemplated by this Lease and required by the terms
hereof to be obtained by Lessee have been obtained, and
such approvals, authorizations, consents, licenses,
certificates and orders are in full force and effect and
constitute sufficient authorization therefor.
2.1.3 LESSEE'S CONDITIONS.
Lessee's obligation to Lease the Aircraft shall be subject to satisfaction
or waiver of the following conditions precedent:
i. DELIVERY CONDITION. The Aircraft shall be delivered to Lessee
registered in Lessor's name in the United States with a valid
standard certificate of airworthiness issued by the FAA, with
all systems functioning in accordance with the Manufacturer's
recommendations. Lessee shall have received at least 48 hours
prior written notice of the proposed Delivery Date. In
addition, the Aircraft shall comply with the delivery
conditions defined in Exhibit "D" to this Lease. Except as so
specified in this section and/or in Exhibit"D", the Aircraft
shall be delivered to Lessee AS IS, WHERE IS, and upon
acceptance by Lessee shall be without representation or
warranty (except as to title) and subject to the exclusions
from warranties set forth in Article 4.1.
ii. OTHER CONDITIONS. The conditions set forth in Article
2.1.1(i), (ii) and (iv) and in Article 2.1.2(i)(F) and (G) and
in Article 2.1.2(ii)(A) and (C), in each case with respect to
Lessor and Beneficiary, mutatis mutandis, shall have been met.
In addition, Lessee shall have received from Beneficiary a
certificate, dated as of the Delivery Date, confirming that
the representation and warranty of Beneficiary set forth in
Article 8.2 of the Lease is true and accurate.
2.2 TIME OF DELIVERY.
Subject to the provisions of the next paragraph and satisfaction or waiver
of the conditions set forth in Article 2.1, the Aircraft shall be
delivered to Lessee, and Lessee shall accept delivery of the Aircraft on
or about November 25, 1997 (the "Scheduled Aircraft Delivery") or such
earlier or later date agreed mutually in writing by Beneficiary and
Lessee. Beneficiary shall give Lessee at least 48 hours prior written
notice of the proposed delivery of the Aircraft. The pre-delivery and
delivery procedures are described in Exhibit "D" hereto. Lessee's
acceptance of delivery of the Aircraft shall be evidenced by the execution
by Lessee and Lessor of a Lease Supplement substantially in the form of
Exhibit "A" hereto.
If KG expects to be unable to cause Lessor to tender delivery of the
Aircraft to Lessee on the Scheduled Aircraft Delivery date, KG shall
notify Lessee as soon as practicable prior thereto. If Lessor shall not
have tendered the Aircraft for delivery to Lessee by December 25, 1997 for
any reason other than the failure of Lessee to fulfill its obligations
hereunder, Lessee shall have the right, by written notice to KG, to
terminate this Lease, and KG shall thereupon return the Security Deposit
theretofore paid to Lessee, including interest thereon at the rate paid by
KG's bank on such deposit. If Lessor tenders delivery of the Aircraft to
Lessee on the Scheduled Aircraft Delivery Date, or prior to December 25,
1997 if there is a delay, and Lessee refuses to accept delivery for any
reason other than the failure of Lessee's conditions precedent contained
in Article 2.1.3 to have been met, KG may terminate this Lease and apply
the Security Deposit theretofore paid, including interest thereon at the
rate paid by KG's bank on such deposit against any actual damages suffered
by it as a result of Lessee's breach. In any suit by Lessee or KG for
breach of the obligation to take or deliver the Aircraft, as the case may
be, such party's damages shall be limited to its actual damages suffered,
and both Lessee and KG waive the right to claim consequential or similar
damages.
2.3 PLACE OF DELIVERY.
The Aircraft shall be delivered to Lessee hereunder, at KG's option, at BF
Goodrich/Tramco in Everett, Washington, or Colorado Springs, Colorado or
at such alternate site as may be agreed between Lessee and KG.
2.4 DELIVERY FUEL.
Fuel in the tanks of the Aircraft at delivery shall be recorded in the
Lease Supplement.
2.5 INDEMNITY.
i. The Lessee shall indemnify and hold harmless the Indemnitees
from and against any and all liabilities, damages, losses
(including costs and expenses incidental thereto) arising by
reason of death or injury to any observer or any employee of
the Lessee, arising out of, or in any way connected with any
demonstration flight and inspection of the Aircraft conducted
pursuant to Exhibit "D" hereto.
ii. The Lessor shall indemnify and hold harmless Lessee and its
shareholders, affiliates, directors, officers, agents and
employees from and against any and all liabilities, damages,
losses (including costs and expenses incidental thereto)
arising by reason of death or injury to any observer or any
employee of the Lessor or any Indemnitee, arising out of, or
in any way connected with any demonstration flight and
inspection of the Aircraft conducted pursuant to Exhibit "D"
hereto.
ARTICLE 3. TERM AND RENT
3.1 TERM.
The Aircraft shall be leased to Lessee hereunder for (i) a term commencing
on the Delivery Date for the Aircraft and ending on the Basic Term
Expiration Date (the "Basic Term"), and (ii) at Lessee's option, for an
additional period of up to two (2) years (the "Renewal Term"), unless, in
each case, earlier terminated as herein provided. If Lessee desires to
exercise its option to extend the Term of this Lease for the Renewal Term,
it shall give Beneficiary irrevocable written notice of such election not
less than 180 days prior to the last day of the Basic Term specifying the
length of the Renewal Term. The Renewal Term shall commence at the end of
the Basic Term and shall continue to the date specified in such notice. If
the Lessee exercises its option to extend the Term, the parties shall
execute a Lease Supplement evidencing the extension of the Term prior to
the end of the Basic Term. The date on which the Term of this Lease
expires or earlier terminates is herein called the "Expiration Date".
3.2 BASIC RENT.
Lessee shall pay to Beneficiary Basic Rent for the Aircraft monthly, in
advance, on the Delivery Date and on the same day as the Delivery Date in
each month thereafter during the Basic Term (or, if there is no such day
in such month, on the last day of such month), and monthly in advance on
the first day of the Renewal Term, if any, and on the same day of each
month thereafter during the Renewal Term.
3.3 SECURITY DEPOSIT.
Beneficiary has received from Lessee the sum of $[ ]* ([ ]* dollars) (the
"Signing Deposit") in cash pursuant to the terms of the Letter of Intent.
The Lessee shall pay to Beneficiary upon execution hereof $[ ]* (the
"Second Deposit").
In addition, Lessee shall pay to Beneficiary (i) $[ ] * on September 1,
1997 (the "Third Deposit") and (ii) on the Delivery Date, $[ ]* (the
"Fourth Deposit").
The Signing Deposit, the Second Deposit, Third Deposit and Fourth Deposit
aggregating $[ ]* are collectively referred to as the "Security Deposit".
Any cash portion of the Security Deposit shall be held by the Beneficiary
in a separate interest bearing account until such time as it is applied to
Lessee's obligations as herein provided or returned to Lessee. On or
before the tenth day after the Delivery Date, Lessee shall provide a
letter of credit in accordance with Article 17 for the Security Deposit;
provided that if such Letter of Credit is provided on the Delivery Date,
the Fourth Deposit shall not be payable by Lessee in cash. Upon the
receipt of such letter of credit, Beneficiary shall reimburse to Lessee
the Security Deposit, including interest thereon at the rate paid on such
deposit by Beneficiary's bank.
In the event that the Aircraft is not delivered to Lessee hereunder due to
the fault of Lessee, Beneficiary shall have the right to apply the
Security Deposit, including interest earned thereon, against any actual
damages suffered by it as a result of Lessee's breach. In the event that
the Aircraft is delivered to Lessee hereunder, the Security Deposit shall
be held by the Beneficiary as security for the timely and faithful
performance by Lessee of all of Lessee's obligations under this Lease, and
Lessee hereby grants Beneficiary a security interest in all sums deposited
under this Article 3.3. Lessee agrees to execute and file with the
appropriate governmental entities any and all documents necessary and
reasonably requested by Lessor to evidence and perfect such security
assignment in favor of Beneficiary. If an Event of Default shall have
occurred which is continuing in addition to all other rights Lessor and
Beneficiary shall have under the New York Uniform Commercial Code as a
secured party, Beneficiary may, but shall not be obligated to, use, apply,
set-off or retain all or any portion of the Security Deposit in payment
for sums due by Lessee, to compensate Lessor or Beneficiary for any sums
advanced as a result of an Event of Default by Lessee or to apply toward
any losses or expenses Lessor or Beneficiary actually incurs as a result
of such Event of Default. If Beneficiary uses or applies all or any
portion of such Security Deposit as provided above, such application shall
not be deemed a cure of any Events of Default, and Lessee shall within
five (5) days after written demand therefor deposit with Beneficiary in
cash an amount sufficient to restore the Security Deposit to the aggregate
amount of such Security Deposit prior to Beneficiary's use or application
and Lessee's doing so shall be deemed a cure of any such Event of Default
but the failure of Lessee to do so shall be a material breach of this
Lease by Lessee. Provided that an Event of Default shall not have occurred
and then be continuing and provided that Lessee shall have paid all
amounts owing hereunder, any cash portion of the Security Deposit,
including interest earned thereon, and any Letter of Credit shall be
returned to Lessee at the end of the Term and Lessee's return of the
Aircraft in compliance with Article 13 hereof; provided that if the Letter
of Credit or any cash portion of the Security Deposit is not returned to
Lessee because an Event of Default shall have occurred and then be
continuing or any amount owed by Lessee shall then be unpaid, such Letter
of Credit or cash portion of the Security Deposit, in each case, to the
extent not applied hereunder shall be returned to Lessee at such time as,
in the case of an Event of Default, such Event of Default is no longer
continuing or Lessee's obligations under Article 15 have been satisfied in
full, as the case may be, or, in the case of an unpaid amount owed by
Lessee, such unpaid amount has been satisfied in full.
3.4 SUPPLEMENTAL RENT.
Lessee also agrees to pay to Beneficiary, or the Person entitled thereto
hereunder, any and all Supplemental Rent as the same shall become due and
owing. Lessee will also pay to Beneficiary (or to the Person entitled
thereto), as Supplemental Rent, on demand, interest at the Incentive Rate
on any part of any Basic Rent not paid when due and on any other payment
of Supplemental Rent not paid when due in accordance with the terms hereof
for the period for which the same shall become due until the same shall be
paid.
3.5 PAYMENTS ON BUSINESS DAY.
If any date on which a payment of Rent becomes due and payable is not a
Business Day, the Rent payment otherwise due and payable on such date
shall be due and payable on the next Business Day (without interest being
payable as a result of such delay) unless such Business Day falls in the
next calendar month, in which case such amount shall be due on the
preceding Business Day.
3.6 PLACE OF PAYMENT.
Notwithstanding any other provision hereof, all payments of Rent (other
than indemnity payments in favor of a Person other than Beneficiary)
hereunder shall be payable in Dollars, in immediately available funds, to
the Beneficiary's account at:
The Bank of Tokyo-Mitsubishi, Ltd., New York
Chips UID: 076 886 ABA No. 026 009632
A/C The Bank of Tokyo-Mitsubishi, Ltd.,
London Branch
12-15 Finsbury Circus
London EC2M 7BT
England
Tel: 44 171 577 1087
Fax: 44 171 577 1128
F/O KG Aircraft Leasing Co., Ltd.
Number 245662 Current Account
or at such other location in the United States as Beneficiary
shall from time to time designate in writing.
3.7 PROHIBITION AGAINST SETOFF, COUNTERCLAIM, ETC.
Lessee's obligation to pay Basic Rent and Security Deposit hereunder shall
be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation: (i) any setoff,
counterclaim, recoupment, defense or other right which Lessee may have
against Lessor, Manufacturer, Beneficiary, or any other person for any
reason whatsoever, (ii) any defect in the title, (iii) any defect in the
airworthiness, condition, design, operation, or fitness for use, or any
damage to or loss or destruction, of the Equipment, or any interruption or
cessation in the use or possession thereof by Lessee for any reason
whatsoever, (iv) any insolvency, bankruptcy, reorganization or similar
proceedings by or against Lessee, or (v) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing and
Lessee hereby waives, to the extent permitted by applicable law, any and
all rights which it may now have or which may at any time hereafter be
conferred upon it by statute or otherwise to terminate, cancel, quit or
surrender this Lease or the Equipment, or to any abatement, suspension,
deferment or reduction of Rent, except in each case, with respect to any
period in which Lessee's use of the Aircraft is adversely affected by
Lessor's breach of the covenant set forth in Article 18.5 hereof.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
4.1 LESSOR'S REPRESENTATIONS AND WARRANTIES.
THE EQUIPMENT, ONCE ACCEPTED BY LESSEE HEREUNDER, IS LEASED HEREUNDER
"AS-IS", EXCEPT FOR DISCREPANCIES (IF ANY) IDENTIFIED IN LEASE SUPPLEMENT
NO. 1 WHICH LESSOR IS OBLIGED TO REMEDY AFTER ACCEPTANCE AND,
NOTWITHSTANDING THE DELIVERY CONDITION REQUIRED HEREBY, ONCE ACCEPTED BY
LESSEE THE PARTIES CONFIRM THAT (A) THE AIRCRAFT, THE AIRFRAME AND EACH
ENGINE ARE OF A SIZE, DESIGN, CAPACITY AND MANUFACTURE SELECTED BY AND
ACCEPTABLE TO LESSEE, (B) LESSOR IS NOT A MANUFACTURER OF PROPERTY OF SUCH
KIND, AND (C) LESSOR AND BENEFICIARY HAVE NOT MADE, NOR SHALL BE DEEMED TO
HAVE MADE, AND LESSOR AND BENEFICIARY WILL BE DEEMED TO HAVE EXPRESSLY
DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE
AIRWORTHINESS, CONDITION, VALUE, DESIGN, OPERATION, MERCHANTABILITY OR
FITNESS FOR USE FOR ANY PARTICULAR PURPOSE OF THE AIRCRAFT OR ANY PART
THEREOF, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP WITH RESPECT TO
THE AIRCRAFT OR ANY PARTY THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER
DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR ANY OTHER REPRESENTATION
OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT
OR ANY PART THEREOF; provided, however, Lessor warrants that on the
Delivery Date, (i) the Lessor shall have whatever interest in and to the
Aircraft that was conveyed to it by the Beneficiary; (ii) the Aircraft
shall be free of Lessor Liens attributable to it in its individual
capacity; and (iii) it is a "citizen of the United States" as defined in
Section 40102 of Title 49 of the United States Code. Beneficiary warrants
that on or prior to the Delivery Date, Beneficiary shall have caused good
title to the Aircraft to be transferred to Lessor free and clear of all
Liens other than any Lien permitted under clause (i) of Article 11 hereof.
THE REPRESENTATIONS AND WARRANTIES OF LESSOR AND BENEFICIARY SET FORTH IN
THIS ARTICLE 4 ARE EXCLUSIVE AND IN LIEU OF ALL OTHER REPRESENTATIONS AND
WARRANTIES OF LESSOR AND BENEFICIARY WITH RESPECT TO THE EQUIPMENT,
INCLUDING FITNESS FOR USE AND MERCHANTABILITY, WHETHER WRITTEN OR ORAL,
EXPRESS OR IMPLIED.
Beneficiary represents and warrants that:
(i) Beneficiary is a limited liability company incorporated and
existing under the laws of Ireland and has the power and
authority to enter into and to perform its obligations under
this Agreement;
(ii) this Agreement has been duly authorized by all necessary
corporate action on the part of Beneficiary, has been duly
executed and delivered by Beneficiary and constitutes the
valid, legal and binding obligation of Beneficiary enforceable
in accordance with its terms except as may be limited by
applicable bankruptcy, insolvency, moratorium and similar laws
affecting creditors' rights generally and except as equitable
remedies such as specific performance may be in the discretion
of the courts;
(iii) the execution and delivery by Beneficiary of this Agreement,
and performance of any of the transactions by Beneficiary
contemplated hereby, have received and Beneficiary has
complied with, every necessary consent, approval, order, or
authorization of, or registration with, or the giving of prior
notice to, any Government Entity in Ireland having
jurisdiction with respect to the execution and delivery of
this Agreement or the validity and enforceability hereof or
the satisfaction of all monetary and other obligations of
Beneficiary hereunder; and
(iv) the provisions of Article 18.1 and 18.10 concerning applicable
law and jurisdiction are valid and binding on Beneficiary
under the laws of Ireland and no provision of this Agreement
is prohibited, unlawful or unenforceable under any such laws.
4.2 LESSEE'S REPRESENTATIONS AND WARRANTIES.
Lessee represents and warrants that:
i. Lessee is a corporation duly organized and existing in good
standing under the laws of the State of Delaware, has full
power, authority and legal right to own its properties and to
carry on its business as presently conducted and to perform
its obligations under this Lease; holds all licenses,
certificates and permits from governmental authorities
necessary for the performance of its obligations hereunder and
is a "citizen of the United States" (as defined in section
40102 of the Federal Aviation Act) holding an air carrier
operating certificate issued by the Secretary of
Transportation pursuant to chapter 447 of the Federal Aviation
Act for aircraft capable of carrying ten or more individuals
or 6,000 pounds or more of cargo.
ii. This Lease has been duly authorized by all necessary action on
the part of Lessee, does not require any approval of
shareholders of Lessee, and neither the execution and delivery
hereof nor the consummation of the transactions contemplated
hereby nor compliance by Lessee with any of the terms and
provisions hereof do or will violate any provision of the
articles of incorporation or by-laws of Lessee or any law,
rule, regulation, judgment, order or decree of any government
or governmental instrumentality or court having jurisdiction
over Lessee or any of its activities or properties, or do or
will result in any breach of, or constitute any default under,
or result in the creation of any Lien upon any property of
Lessee under, any indenture, mortgage, deed of trust,
conditional sale contract, loan or credit agreement, or other
agreement or instrument to which Lessee is a party or by which
Lessee or its properties may be bound (other than this Lease
Agreement).
iii. Except for the registration of the Aircraft and the filing of
this Lease Agreement with the FAA and the filing of the
financing statements referred to in Article 2.1.1(iii) hereof,
neither the execution and delivery by Lessee of this Lease nor
the performance by Lessee of any of the transactions
contemplated hereby require the consent, approval, order or
authorization of, or registration with, or the giving of
notice to, the FAA, or any other domestic or foreign
governmental authority.
iv. This Lease has been duly executed and delivered by Lessee and
constitutes, and each Lease Supplement when executed and
delivered by Lessee will constitute, legal, valid and binding
obligations of Lessee, enforceable in accordance with their
terms except as such enforceability may be affected by
bankruptcy, insolvency, reorganization or other laws of
general application affecting creditors' or lessors' rights
and except for general principles of equity.
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 agency
against Lessee which may reasonably be expected to have a
materially adverse effect on the financial condition of
Lessee.
vi. Lessee has filed or caused to be filed all tax returns which
are required to be filed and has paid or caused to be paid all
taxes shown to be due or payable on said returns and on any
assessment received by Lessee, to the extent that such taxes
have become due and payable.
vii. The balance sheet of Lessee as of December 31, 1996 and the
statements of income and retained earnings of the Lessee for
the three fiscal years then ended and the balance sheet of
Lessee as of March 31, 1997 (copies of each of which have been
furnished to Beneficiary), are complete and correct and fairly
set forth Lessee's financial condition as of such dates and
the results of its operations for such periods, and since
March 31, 1997, there has been no materially adverse change in
such condition or operations.
viii. The provisions of Articles 18.1 and 18.10 concerning
applicable law and jurisdiction are valid and binding on
Lessee.
ix. Lessee's maintenance program for the Aircraft complies with
all FAA requirements.
x. The principal place of business and chief executive office of
the Lessee is the address set forth at the beginning of this
Lease.
4.3 SUPPLIERS' WARRANTIES.
Lessor hereby assigns to Lessee any and all warranties, representations,
services, policies and product support plans of Manufacturer or any
subcontractor, vendor or supplier of any Equipment or part hereof. Lessor
authorizes Lessee, to the extent it may legally do so, to enforce in its
own name such rights, claims and interests as Lessor or Beneficiary may
have under any warranty, representation, service policy or product support
plan of Manufacturer or any subcontractor, vendor or supplier of any
Equipment, or part thereof, and to retain any benefit resulting therefrom
to the extent the same relates to Lessee's interests in the Equipment
under this Lease and is not compensation in respect of work performed on
the Aircraft prior to the Delivery Date; provided, however,
notwithstanding anything herein to the contrary, if at any time an Event
of Default shall have occurred and be continuing: (i) at Beneficiary's
option, the authorization hereby given to Lessee may be suspended until
such time as no Event of Default which has occurred is then continuing or
terminated when the Lease is terminated and Beneficiary shall be entitled
to assert and enforce such rights, claims and interests, whether as
substitute party plaintiff or otherwise, and Lessee shall cooperate with
Beneficiary to enforce such rights, claims and interests and (ii) whether
or not Beneficiary exercises its option under clause (i) above,
Beneficiary shall be entitled to receive all proceeds resulting from any
such assertion or enforcement or rights, claims or interests and, after
deducting from the proceeds thereof all costs and expenses, including
attorneys' fees that have been incurred by Beneficiary in connection
therewith, Beneficiary may hold the remaining proceeds until Lessee shall
have cured, or Beneficiary in writing shall have waived, all Events of
Default, or at Beneficiary's option, if there is in existence an Event of
Default, apply all or any such remaining proceeds to the payment of any
obligation of Lessee at the time due hereunder and the balance, if any,
shall be payable to Lessee when Lessee shall have cured, or Beneficiary
shall have waived, all Events of Default. The assignment and authorization
hereby given as to the Equipment shall be effective so long, and only so
long, as such Equipment shall be subject to this Lease; provided, that
Lessee may pursue claims after the end of the Term against maintenance
providers subject to the same conditions set forth above in this Article
4.3; and provided further that the assignment and authorization shall be
permanent and free of all conditions with respect to any item of Equipment
which ceases to be subject to this Lease Agreement as the result of
replacement or substitution in accordance with the terms hereof.
ARTICLE 5. POSSESSION AND USE
5.1 POSSESSION.
Subject to the right of Lessee to deliver possession of any item of
Equipment to the Manufacturer thereof for testing or other similar
purposes or to any Authorized Maintenance Performer for service, repair,
maintenance or overhaul work on such item of Equipment or any part thereof
or for alterations or modifications in or additions to such item of
Equipment to the extent required or permitted by the terms of Articles 5
and 6 hereof or to any member of a pooling arrangement as provided in
Article 6.2, Lessee shall not sublease, assign or otherwise transfer
possession of any item of Equipment, or any part thereof, leased hereunder
without the prior written consent of Beneficiary which consent will not be
unreasonably withheld, but may be subject to such conditions as it
reasonably deems necessary to protect its interests and the interests of
Lessor; PROVIDED that a Wet Lease of 90 days or less (including all stated
renewals) may be entered into without Beneficiary's consent so long as
such Wet Lease is expressly subject and subordinate to this Lease and
Lessee provides a copy thereof to Beneficiary upon commencement thereof.
This Lease and all or any part of Lessee's rights hereunder shall not be
assigned or otherwise in any way transferred or hypothecated by Lessee
without the prior written consent of Lessor, and any purported assignment,
transfer or hypothecation without the prior written consent of Lessor
shall constitute an Event of Default hereunder and be void.
Lessor agrees for the benefit of Lessee and for the benefit of any other
holder of a security interest in any engine owned by Lessee, any lessor of
any engine leased to Lessee and any conditional vendor of any engine
purchased by Lessee subject to a conditional sale agreement or any other
security agreement, that no interest shall be created hereunder in any
engines so owned, leased or purchased and that neither Lessor nor its
successors or assigns will acquire or claim as against Lessee or any such
mortgagee, lessor or conditional vendor or other holder of a security
interest or any successor or assignee of any thereof, any right, title, or
interest in such engine as a result of such engine being installed on the
Airframe; PROVIDED that such agreement of Lessor shall not be for the
benefit of any lessor or secured party of an airframe leased to Lessee or
purchased by Lessee subject to a conditional sale or other security
agreement or for the benefit of any mortgagee or any other holder of a
security interest in an airframe owned by Lessee on which Lessee then
proposes to install an Engine, unless such lessor, conditional vendor,
other secured party or mortgagee party has effectively agreed (which
agreement may be contained in such lease, conditional sale or other
security agreement or mortgage) that neither it nor its successors or
assigns will acquire, as against Lessor or Beneficiary any right, title or
interest in an Engine as a result of such Engine being installed on such
airframe.
5.2 LAWFUL OPERATIONS; USE.
Lessee will not permit any item of Equipment to be maintained, used or
operated in violation of any law, rule, regulation or order of any
government or governmental authority having jurisdiction (domestic or
foreign), or in violation of any airworthiness certificate, license or
registration relating to any item of Equipment issued by any such
authority, unless (a) Lessee could not reasonably have known of such
violation in advance or prevented it through commercially reasonable
efforts or (b) the validity thereof is being contested in good faith and
by appropriate proceedings, but only so long as, (i) such proceedings do
not involve the likelihood of the sale, forfeiture or loss of any item of
Equipment or interest therein, and (ii) such violation will not subject
Lessor or Beneficiary to any criminal liability. Lessee shall base and use
the Equipment solely in its commercial airline operations, and shall not
use or permit the use of any item of Equipment for any purpose for which
such item of Equipment is not designed and reasonably suitable.
5.3 MAINTENANCE.
Lessee, at its own cost and expense shall, subject to Articles 5.4 and
6.3: (i) cause an Authorized Maintenance Performer to service, repair,
maintain, overhaul and test each item of Equipment leased hereunder (A) so
as to keep such item of Equipment in the same condition as when delivered
to Lessee hereunder (except as otherwise permitted hereunder), ordinary
wear and tear excepted, and in good operating condition, (B) so as to keep
the Aircraft in the condition as may be necessary to enable the
airworthiness certification of such Aircraft by the FAA to be maintained
in good standing (except for periods when such airworthiness certificate
is not in effect due to the performance of maintenance or overhaul of the
Equipment and periods when the airworthiness certificates of 737-300
aircraft in general are withdrawn or suspended by the FAA) and (C) in
strict compliance with Lessee's overhaul and maintenance program approved
by the FAA (ii) comply with all airworthiness directives issued by the FAA
prior to the Expiration Date having a mandatory compliance date prior to
12 months after the Expiration Date; (iii) maintain all records, logs and
other materials required by the FAA to be maintained with respect to such
Equipment; (iv) promptly furnish to Lessor such information as may be
required to enable Lessor and/or Beneficiary to file any reports required
to be filed by Lessor and/or Beneficiary with any governmental authority
because of Lessor's ownership of the Equipment.
5.4 MAINTENANCE PAYMENTS.
i. DEFINITIONS.
In this Article 5.4, the following expressions shall have the
meanings respectively ascribed thereto:
ELIGIBLE CLAIM means a claim submitted by the Lessee for
payment or reimbursement of the costs
incurred (including labor, parts and
materials) in performing or causing to be
performed in relation to the Aircraft in
accordance with such maintenance program any
or all of the maintenance processes referred
to in Article 5.4 (iii) (a) and (b);provided
that, subject to the provisions of Article
5.4(vi)(d) hereof, the amount payable or
reimbursable hereunder with respect to an
Eligible Claim shall not include those costs
attributable to the repair of foreign object
or other accidental damage to the Aircraft
or any Engine, negligent or other improper
maintenance, repair, modification,
alteration, use or operation of the Aircraft
or any Engine, or an Inherent Defect or any
cost which is reimbursable from insurance or
warranty claims.
FLIGHT HOUR means with respect to the Airframe, each
hour or part thereof (measured to one
decimal place) which elapses from takeoff to
touchdown and with respect to each Engine,
each hour or part thereof (measured to one
decimal place) which elapses from takeoff to
touchdown (whether such Engine is installed
on the Airframe or another airframe), in
each case as recorded in the relevant
aircraft log book or the applicable
technical records for the item of Equipment.
HOURLY RATE means the hourly rate payable by way of
maintenance reserve in respect of each
complete Flight Hour (pro rata for part
thereof) for the Airframe and each Engine.
INHERENT DEFECT means any defect in the Aircraft or
any part thereof arising out of a fault or
error in the design, manufacture or
construction thereof.
ii. MAINTENANCE RESERVE PAYMENTS.
The Lessee shall pay Maintenance Reserves to the Beneficiary
throughout the Term of this Lease for the period commencing on
the Delivery Date, monthly in arrears on the 15th day of each
month, each payment to be made in respect of the previous
calendar month based on a utilization report to be furnished
by Lessee on the 15th day of each month; provided always that
the final payment shall be made on the date on which the Term
expires in respect of that part of the calendar month ending
on that date. Each payment shall be calculated by multiplying
the applicable Hourly Rate or per Cycle rate by the number of
Flight Hours or Cycles, as the case may be, flown by the
Airframe or each Engine, as applicable, as evidenced by the
relevant aircraft log book for the relevant period.
iii. MAINTENANCE RESERVE ACCOUNTS.
Beneficiary shall maintain for its own purposes one account in
respect of each of the following maintenance processes:
(a) the Airframe heavy maintenance (C-7) or equivalent check (but
excluding rotable repairs) and landing gear overhauls; and
(b) two such accounts for each Engine (which expression shall, for
this purpose, not extend to any rotable components or Engine
components forming part of a quick engine change ("QEC")
assembly, nose cowl and thrust reverser) one for off-wing
scheduled maintenance and the accomplishment of comparable
work performed during unscheduled shop visits, and the other
for Engine life limited part ("LLP") replacement, but
excluding, in each case, QEC repair, foreign object damage,
operational misuse and Lessee's negligence.
Auxiliary power unit maintenance is not covered by the
Maintenance Reserves. The five Maintenance Reserve accounts
are to be maintained by the Beneficiary for its own
administrative convenience. Maintenance Reserves shall accrue
interest at the rate offered by Beneficiary's bank for one
month deposits from time to time. Interest accrued on
Maintenance Reserves shall be credited monthly and available
for the payment of Eligible Claims. The amount available for
the payment of Eligible Claims shall be the amount paid by
Lessee with respect to the relevant Maintenance Reserve
account plus interest accrued thereon.
iv. RATES.
The Hourly Rate and per Cycle rate payable shall be as set forth on
Exhibit "I" hereto:
v. ADJUSTMENT OF HOURLY RATES.
The Hourly Rates for Engine off-wing scheduled maintenance are
computed on the basis of 1.7 Flight Hours per Aircraft Cycle. On
each anniversary of the Delivery Date during the Term, the total
Engine Flight Hours for each Engine recorded in respect of the
previous twelve months shall be compared with the Cycles flown for
such Engine and, the Hourly Rate for such Engine applicable with
respect to Maintenance Reserve payments due from Lessee after such
adjustment and prior to the next annual adjustment shall be as
provided in Exhibit C hereof for such recomputed ratio of Flight
Hours to Cycles.
vi. APPLICATION OF MAINTENANCE RESERVES.
(a) Beneficiary's obligation to reimburse Lessee for any Eligible
Claims referred to in Article 5.4 (i)/(iii) is subject to the
conditions that: (i) before any work with respect to such
Eligible Claim is performed, Lessee shall notify Beneficiary
of the proposed date of the check or shop visit and the work
to be performed (to the extent then known to Lessee); and (ii)
following completion of the work with respect to such Eligible
Claim, the Lessee shall present to Lessor's Tech Rep all
worksheets, invoices, vouchers and/or receipts with respect
thereto which are reasonably necessary to establish the amount
of such Eligible Claim;
(b) Within 20 days after Lessor's Tech Rep receives such
documentation, Beneficiary will pay the amount of the Eligible
Claim to Lessee by making a drawdown against the amount in the
applicable Maintenance Reserve account. In the event that the
amount of such Eligible Claim exceeds the amount available for
reimbursement thereof pursuant to the terms hereof, the Lessee
shall be responsible for the payment of such excess.
The cost of replacement of LLPs at the first scheduled shop
visit for each Engine after the Delivery Date shall be
allocated as follows: (i) Beneficiary's share of the cost of
any LLP shall be an amount equal to the cost of the LLPs
replaced during such shop visit times a fraction the numerator
of which is the number of Cycles accumulated on the LLP prior
to the Delivery Date and the denominator is the number of
Cycles accumulated on the LLP since it was installed in such
Engine and (ii) the Lessee's share shall be the cost of the
LLP minus the Beneficiary's share. The Lessee may draw down
from respective LLP accounts of the Maintenance Reserves for
its share of the cost of such first scheduled shop visit, but
if the Lessee's share of such cost exceeds the amount in such
account Lessee will pay the difference. Beneficiary will pay
its share at the time Lessee draws from the Maintenance
Reserves.
Notwithstanding anything else to the contrary contained in
this Lease, in no event shall the Beneficiary be obligated to
pay any amounts with respect to Eligible Claims (whether out
of the applicable reserve account or otherwise) so long as an
Event under Article 14.1(a) or an Event of Default shall have
occurred and be continuing.
(c) Any repair or overhaul work that is performed by Lessee shall
be billed at Lessee's actual, fully-burdened labor cost (not
to exceed 130% of direct cost) and without any mark-up in the
cost of materials. If work is done by a company affiliated
with Lessee, charges made by such affiliate shall be
reasonable market rates for such maintenance work.
(d) For the avoidance of doubt, Maintenance Reserves in respect of
the Engines may be used for (i) the cost of a repair or
overhaul of an Engine which would otherwise be reimbursable
from the Maintenance Reserves and which is undertaken at the
same time as other remedial work which is excluded from
reimbursement (for example repair of a foreign object damage)
subject to the requirements of Article 5.4(vi)(a), and (ii) to
pay for the cost of bringing any Engine into compliance with
the return conditions hereof.
(e) NEITHER LESSOR NOR BENEFICIARY SHALL HAVE ANY DUTY TO LESSEE
TO DETERMINE WHETHER ANY ITEM OF EQUIPMENT IS REQUIRED TO BE
OVERHAULED OR MAINTAINED, OR TO OBSERVE OR INSPECT THE
OVERHAUL OR MAINTENANCE OF ANY ITEM OF EQUIPMENT, AND NEITHER
LESSOR NOR BENEFICIARY SHALL INCUR ANY LIABILITY OR OBLIGATION
TO LESSEE BY REASON OF THE FAILURE OF ANY EQUIPMENT TO BE
PROPERLY OVERHAULED OR MAINTAINED AFTER THE DELIVERY DATE OR
BY REASON OF LESSOR'S OR BENEFICIARY'S ELECTION TO OBSERVE OR
INSPECT OR NOT TO OBSERVE OR INSPECT ANY OVERHAUL OR
MAINTENANCE OF ANY ITEM OF EQUIPMENT.
vii. Lessee acknowledges that the Maintenance Reserve payments for
an item of Equipment shall become the unencumbered property of
Beneficiary upon payment thereof by Lessee, free of any claims
or rights thereto by Lessee and any Maintenance Reserves
remaining at the end of the Term shall belong to Beneficiary
provided that, if an Event of Loss occurs with respect to the
Aircraft or the Airframe, any Maintenance Reserves then
remaining shall be paid to Lessee upon satisfaction of
Lessee's obligation under Article 10 to pay, or cause to be
paid, the Agreed Value and all other amounts then due
hereunder, to Beneficiary. To the extent Maintenance Reserve
payments are used to pay for the cost of any overhaul or
maintenance contemplated in this Article 5.4, any recoveries
from Manufacturer or any subcontractor, vendor or supplier in
respect thereof shall be for the exclusive benefit of
Beneficiary.
On the 15th day of each month, Lessee shall notify Beneficiary
and Lessor's Tech Rep of the number of Flight Hours and Cycles
which have been accumulated on the Airframe and the number of
Flight Hours and Cycles that have been accumulated on each
Engine during the preceding calendar month, and Lessee shall
provide Beneficiary and Lessor's Tech Rep with such supporting
information and documentation as Beneficiary or Lessor's Tech
Rep may from time to time reasonably request.
5.5 REGISTRATION AND INSIGNIA.
Lessee agrees that it will at all times at Beneficiary's expense cooperate
with Lessor and Beneficiary in maintaining the U.S. registration of the
Aircraft. Upon delivery of the Aircraft, Lessee shall fasten or cause to
be fastened and maintained in the cockpit of the Aircraft adjacent to the
airworthiness certificate for the Aircraft and on each Engine, in a
prominent location, metal nameplates at least three inches by five inches
bearing the following legend:
"First Security Bank, National Association
Owner Trustee and Lessor"
Except as above provided, Lessee will not allow the name of any person,
firm or corporation to be placed on the Airframe or any Engine as a
designation that might be interpreted as a claim of ownership or to a Lien
thereon; provided, however, Lessee may cause the Airframe to be painted
with its name and in its livery during the Term hereof.
ARTICLE 6. REPLACEMENT AND POOLING OF PARTS; ALTERATIONS; MODIFICATIONS AND
ADDITION
6.1 REPLACEMENT OF PARTS.
Lessee, at its own cost and expense (but subject to Article 5.4 and 6.3
hereof), will replace as promptly as practicable all Parts which may from
time to time become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use.
All replacement Parts shall be free and clear of all Liens other than
Permitted Liens and shall be in as good operating condition as, and shall
have a value and utility at least equal to, the Parts replaced, assuming
such replaced Parts were in the condition and repair required to be
maintained by the terms hereof.
All Parts at any time removed from the Airframe or any Engine shall remain
the property of Lessor, no matter where located, until such time as such
Parts shall be replaced by parts owned or paid for by Lessee (or provided
by a Manufacturer or service provider pursuant to a warranty, service
contract or similar agreement) and incorporated or installed in or
attached to such Airframe or Engine in compliance with the requirements
for replacement Parts specified above. Immediately upon any such
replacement Part becoming incorporated or installed in or attached to the
Airframe or an Engine as above provided, without further act: (i) title to
such replacement Part shall thereupon vest in Lessor, (ii) such
replacement Part shall become subject to this Lease and be deemed part of
such Airframe or Engine, as the case may be, for all purposes hereof to
the same extent as the Part originally incorporated or installed in or
attached to such Airframe or Engine, and (iii) title to the removed Part
shall thereupon vest in Lessee, free and clear of all Lessor Liens and all
rights of Lessor and Beneficiary, and shall no longer be deemed a Part
hereunder.
6.2 POOLING OF ENGINES AND PARTS.
(i) The Lessee may subject the Engines to normal interchange or pooling
agreements with the Manufacturer or responsible scheduled commercial air
carriers customary in the airline industry and entered into by Lessee in
the ordinary course of business so long as (a) such Engine is required to
be returned to Lessee within two (2) months, (b) no transfer of title to
the Engine occurs (or if such transfer of title occurs it will be treated
as an Event of Loss), (c) the other terms of this Lease continue to be
observed with respect to the Engines and (d) Lessee continues to be fully
responsible to Lessor for the performance of all obligations hereunder
relating to such Engines
(ii) Any Part removed from the Airframe or an Engine as provided in
Article 6.1 may be subjected by Lessee to a normal pooling arrangement
customary in the airline industry entered into in the ordinary course of
Lessee's business, provided the part replacing such removed Part shall be
incorporated or installed in or attached to the Airframe or Engine in
accordance with Article 6.1 as promptly as possible after the removal of
such removed Part. In addition, any replacement part when incorporated or
installed in or attached to the Airframe or any Engine in accordance with
Article 6.1 may be owned by an air carrier subject to such a normal
pooling arrangement, provided Lessee, at its expense, as promptly
thereafter as possible either (a) causes title to such replacement part to
vest in Lessor in accordance with Article 6.1 by Lessee acquiring title
thereto for the benefit of, and transferring such title to, Lessor free
and clear of all Liens other than Permitted Liens, or (b) replaces such
replacement part by incorporating or installing in or attaching to the
Airframe or Engine a further replacement part owned by Lessee free and
clear of all Liens other than Permitted Liens, and causing title to such
further replacement part to vest in Lessor in accordance with Article 6.1
6.3 ALTERATIONS, MODIFICATIONS AND ADDITIONS.
Subject only to the last paragraph of this Article 6.3, Lessee, at its own
expense, shall make such alterations and modifications in and additions to
the Equipment as may be required from time to time by the FAA or other
governmental authority having jurisdiction, unless the validity thereof is
being contested in good faith and by appropriate proceedings (but only so
long as (i) such proceedings do not involve the likelihood of sale,
forfeiture or loss of any Equipment, or any interest therein and (ii) such
proceedings do not subject Lessor or Beneficiary to any criminal
liability).
In addition, Lessee, at its own expense, may from time to time make such
alterations and modifications in and additions to each item of Equipment
as Lessee may deem desirable in the proper conduct of its business,
provided that no such alteration, modification or addition diminishes the
value or utility of such item of Equipment or impairs the condition or
airworthiness thereof below the value, utility, condition and
airworthiness thereof immediately prior to such alteration, modification
or addition, assuming such item of Equipment was then of the value and
utility and in the condition and airworthiness required to be maintained
by the terms of this Lease; provided further that no such alteration,
modification, or addition with an estimated cost in excess of $[ ]* shall
be made (other than an alteration, modification, or addition required to
be made pursuant to the first sentence of this Article 6.3 or as provided
in Article 6.4) without the prior written consent of Beneficiary. Any
permitted modification shall be made in accordance with, and in compliance
with, FAA-approved modification documentation, any FAA certification
issues shall have been addressed to Lessor's Tech Rep's reasonable
satisfaction, and copies of all such documentation will be supplied to
Lessor's Tech Rep. Title to all Parts incorporated or installed in or
attached or added to any item of Equipment as the result of such
alteration, modification or addition shall, without further act, vest in
Lessor; provided, however, that so long as no Event under Article 14.1(a)
or Event of Default shall have occurred and be continuing, at any time
during the Term in effect for an item of Equipment, Lessee may remove any
Part from such item of Equipment, provided that (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 item of
Equipment at the time of the delivery thereof hereunder or any Part in
replacement of, or substitution for, any such Part, (ii) such Part is not
required to be incorporated or installed in or attached or added to such
item of Equipment pursuant to the terms of the first sentence of this
Article 6.3, and (iii) such Part can be removed from such item of
Equipment without causing any material damage thereto and without
diminishing or impairing the value, utility, condition or airworthiness
which such item of Equipment would have had at such time had such
alteration, modification or addition not occurred. Upon the removal by
Lessee of any such Part as provided above, title thereto shall, without
further act, vest in Lessee free of Lessor Liens and all rights of Lessor
and Beneficiary and such Part shall no longer be deemed a Part hereunder.
Any Part not removed by Lessee as above provided prior to the return of
the item of Equipment to Lessor hereunder shall remain the property of
Lessor.
Neither Lessor nor Beneficiary shall bear any liability or cost for any
alteration, modification, addition, or for any grounding or suspension of
certification of any item of Equipment or for loss of revenue; provided
always, however, that in the event that the cost (material and labor) of
(i) compliance with any airworthiness directive ("AD") issued by the FAA
during the Term which requires terminating action during the Term, or
within twelve months after the Expiration Date or (ii) compliance with any
regulatory requirement necessary for the Aircraft to meet FAR Part 121,
exceeds $[ ]*, Lessee shall pay the first $[ ]* and the excess will be
shared between Lessee and Beneficiary as follows. The Beneficiary's share
shall be calculated by application of the following formula:
[1 - (N - M)/(300 - (X + M))] x (C - $[ ]*)
where,
"N" equals 120;
"M" equals the number of whole months of the Term that have
elapsed as of the date of actual compliance with such AD or
regulatory change;
"X" equals the number of whole months from the date of
manufacture of the Aircraft to the Delivery Date; and
"C" equals the cost of compliance with such AD or regulatory
change.
The Lessee's share will be the balance. If during any calendar year Lessee
is required to comply with more than ten (10) ADs and/or regulatory
changes, and the cost to Lessee of such compliance exceeds $[ ]* in such
calendar year, then Beneficiary will contribute to the eleventh (11th) and
any subsequent AD or regulatory change during such calendar year in
accordance with the above formula without deducting $[ ]* from "C."
Lessee shall give Beneficiary prior written notice of any such AD or FAR before
commencing any alteration, modification or addition of the Aircraft with respect
thereto. Any work that is performed by Lessee with respect to any such AD or FAR
shall be billed at Lessee's actual fully burdened labor cost (which shall not
exceed 130% of direct cost) and without any mark-up in the cost of materials.
Lessee shall provide to Lessor's Tech Rep all original invoices, work sheets and
or receipts reasonably necessary to establish costs for which reimbursement is
sought, and Beneficiary shall reimburse Lessee for its share of any eligible
costs within 20 days of receipt of such documentation.
6.4 CERTAIN MATTERS REGARDING SEVERABLE EQUIPMENT.
Lessee may at any time and from time to time, so long as no Event under
Article 14.1(a) or Event of Default has occurred and is continuing,
install on the Airframe, subject to the requirements of the second
paragraph of Article 6.3 above, Severable Equipment that is (i) owned by
another Person and leased to Lessee, (ii) sold to Lessee by another Person
subject to a conditional sale contract or other retained security
interest, (iii) leased to Lessee pursuant to a lease which is subject to a
security interest in favor of another Person or (iv) installed on the
Aircraft subject to a license granted to Lessee by another Person, and in
any such case (A) Lessor will not acquire or claim, as against any such
other Person, any right, title or interest in any such Severable Equipment
solely as a result of its installation on the Airframe, (B) Lessee shall
notify such Person of Lessor's and Beneficiary's respective interest in
the Aircraft, and (C) Lessee shall procure that, and such Person shall
confirm in writing to Lessor that, upon the occurrence of any default
under the applicable lease, conditional sale agreement, security agreement
or license, such Person shall not be entitled to detain the Aircraft or
repossess such Severable Equipment unless it shall, in connection with
such repossession, restore the Aircraft to the condition it would have
been in had the installation of such Severable Equipment not occurred.
ARTICLE 7. INSPECTION; FINANCIAL INFORMATION; RECORD
7.1 INFORMATION AND INSPECTION.
During the Term of this Lease, Lessee shall furnish to Lessor and
Beneficiary such additional information concerning the location,
condition, modification status, compliance with the maintenance program,
installed equipment, use and operation of each item of Equipment as Lessor
or Beneficiary may reasonably request, and Lessee shall permit any person
designated by Lessor or Beneficiary in writing (other than a person who is
not eligible to be designated as Lessor's Tech Rep unless such person is
inspecting the Aircraft in connection with Beneficiary's remarketing
efforts during the final year of the Lease or during the continued
existence of an Event of Default), at Beneficiary's expense (or if an
Event under 14.1(a) or an Event of Default has occurred and is continuing,
at Lessee's expense), to inspect each item of Equipment, its condition,
use, and operation and the Records maintained in connection therewith, and
to meet with the principal officers of Lessee, all at such reasonable
times and as often as Lessor or Beneficiary may reasonably request so that
such inspections and meetings do not unreasonably interfere with the
operation or maintenance of the Aircraft or the conduct of the business of
Lessee. Any such inspection of the Aircraft shall be a visual walk-around
inspection which shall not include opening any panels, bays or the like or
any disassembly or removal of components which are not then opened,
disassembled or removed in the course of Lessee's maintenance of the
Aircraft at the time of such inspection. Lessor and Beneficiary shall have
no duty to make any such inspection and shall not incur any liability or
obligation by reason of not making such inspection.
7.2 FINANCIAL INFORMATION.
Lessee also agrees to furnish Lessor and Beneficiary with the following
during the Term of this Lease;
i. within one hundred twenty (120) days after the end of each
fiscal year of Lessee (or such longer period of time as agreed
by Lessor and Lessee), a balance sheet and statements of
income and retained earnings of Lessee, as of the close of
such fiscal year, setting forth in comparative form the
figures for the previous fiscal year, as certified by
independent public accountants, including their certificate
and accompanying comments;
ii. promptly upon their becoming available, copies of all regular
and periodic reports filed by Lessee with the Securities and
Exchange Commission and the principal securities exchange on
which the common stock of Lessee is listed; and
iii. such other information concerning Lessee as Beneficiary may
from time to time reasonably request.
7.3 REPORTS OF AIRCRAFT USE.
Without limiting Lessee's other obligations under this Lease, Lessee shall
also provide in a timely manner Beneficiary with details of: (i)
replacement of Engines, auxiliary power unit, avionics, undercarriage and
control surface changes (and the reason for such changes), (ii) major
repairs in excess of the Damage Notification Threshold, modifications,
alterations and additions to an item of Equipment, (iii) service bulletins
and airworthiness directives applicable to and accomplished with respect
to any item of Equipment, (iv) copies of any repair or modification
drawings and approvals or data covering any unique or non-standard
modifications to an item of Equipment, in each case with respect to such
preceding calendar month; and (v) within 30 days of the end of each
calendar year of the Term copies of Lessee's work papers prepared to
apportion Lessee's usage of the Aircraft among the various states. In the
case of (i), (ii), (iii) and (iv), the data shall be provided on a monthly
basis.
ARTICLE 8. INDEMNIFICATION BY LESSEE.
8.1 GENERAL INDEMNITY.
Lessee agrees to pay, and on demand to indemnify and hold harmless,
Lessor, Beneficiary and their respective successors, assigns, agents and
servants, from and against any and all claims, damages, losses,
liabilities (including, but not limited to, any claim or liability for
strict liability in tort or otherwise, including, without limitation,
liability arising under any applicable environment, noise or pollution
control statute, rule or regulation), demands, suits, judgments, causes of
action and all legal proceedings, whether civil or criminal, penalties,
fines and other sanctions, and any costs and expenses incurred in
connection therewith, including attorney's fees, which may result from,
relate to or arise out of the condition, lease, sub-lease, possession, use
or operation of any item of Equipment, or which may be caused by any
defect in any item of Equipment, latent or otherwise, arising from the
material or any article used therein or from the design, testing or use
thereof or from any maintenance, service, repair, overhaul or testing
thereof, (any such basis for an indemnity set forth above being referred
to herein as a "Loss"); provided, however, that in all cases referred to
in this Article 8.1, excluding any Loss to the extent that such Loss (i)
is the subject matter of another indemnity provision of this Lease
Agreement or consists of a cost or expense imposed on Lessor or
Beneficiary by the terms hereof or is incurred by Lessor or Beneficiary in
performing its obligations to Lessee hereunder, (ii) arises as a result of
the wilful misconduct or gross negligence of any Indemnitee, (iii) arises
as a result of Lessor Taxes or a Lessor Lien or any breach by any
Indemnitee of its representations or obligations hereunder, (iv) is caused
by acts, omissions or events which occur following the return of
possession of the Aircraft to Lessor or its designee at a time when no
Event or Default shall have occurred and then be continuing, (v) consists
of costs, fees or expenses related to the negotiation preparation or
execution of the Letter of Intent or the Lease Agreement, (vi) consists of
costs, fees or expenses arising out of the acquisition or transfer by
Lessor or any Indemnitee of any interest in the Aircraft or this Lease
Agreement except any such transfer in connection with the exercise of
remedies hereunder in accordance with the terms of Article 15 hereof after
the occurrence of an Event of Default or as a result of a replacement of a
Part or an Engine pursuant to Article 6.1 or 9.2 hereof, (vii) arises out
of or results from acts of any Indemnitee prior to the Delivery Date,
(viii) is one with respect to which the Indemnitee has a right to
participate in a proceeding with respect to such Loss, if such Indemnitee
refuses to implead, to the extent reasonable and practicable, any party
whom Lessee believes is ultimately responsible with respect to such Losses
or to assert, to the extent reasonable and practicable, any cross-Losses
Lessee deems appropriate where it in not possible for Lessee to assert
such rights itself, (ix) relates to the performance by any Indemnitee of
its obligations under this Lease Agreement or arising out of any default
under any financing of any item of Equipment that is not an Event of
Default hereunder, (x) arises, out of any change in any agreement related
to the financing of the Aircraft, any Engine or any Part thereof, unless
Lessee has expressly agreed to undertake such obligations, and/or (xi)
relates to the costs, fees and any other out-of-pocket expenses incurred
in connection with the establishment, maintenance or restructuring of the
financing or refinancing of the Aircraft or any Indemnitee's interest in
the trust estate established under the Trust Agreement or the creation or
maintenance of such trust estate or to any action or dispute between the
parties to any agreement with respect to the financing of any Item of
Equipment not resulting from the occurrence and continuance of an Event of
Default hereunder.
Notwithstanding anything to the contrary contained in this Article 8.1,
the indemnification provided for herein shall not include indemnification
of any person in such person's capacity as designer, manufacturer of or
maintenance performer for the Aircraft, any Engine or any Part.
The following shall apply to all claims for indemnity under this Article
8.1: an Indemnitee shall promptly notify Lessee of any claim as to which
indemnification is sought upon obtaining actual knowledge thereof;
provided that the failure to provide such notice shall not release Lessee
from any of its obligations to indemnity hereunder or from any other
obligation that the Lessee may have to such Indemnitee at law or in equity
(provided that Lessee's obligations to indemnify hereunder shall in no
event be increased due to such a failure to provide notice and no payment
by Lessee to such Indemnitee shall be deemed to constitute a waiver or
release of any right or remedy which Lessee may have against such
Indemnitee for any damages as a result of such failure to provide notice).
Subject to the rights of insurers under policies of insurance maintained
by Lessee, Lessee shall investigate, and provided no Event under Article
14.1(a), (b), (f) or (g) of the Lease or Event of Default under the Lease
shall have occurred and be continuing, at its sole cost and expense,
defend or compromise (other than with respect to a compromise of a
non-monetary claim the compromise of which shall adversely affect such
Indemnitee,) any claim for which indemnification is sought under this
Article 8.1, and the Indemnitee shall cooperate, at Lessee's expense, with
all reasonable requests of Lessee in connection therewith; provided that
if such an Event or Event of Default has occurred and is continuing, the
applicable Indemnitee shall in good faith contest such claim at the
request and expense of Lessee; and provided further that such proceedings
do not involve the likelihood of loss or forfeiture of title to the
Aircraft (unless Lessee shall have posted a bond or other security
reasonably satisfactory to such Indemnitee in respect of such risk) or any
material risk of any civil or criminal penalty being assessed against any
Indemnified Person. Where Lessee or the insurers under a policy of
insurance maintained by Lessee undertake the defense of an Indemnitee with
respect to a claim, no additional legal fees or expenses of such
Indemnitee in connection with the defense of such claim shall be
indemnified hereunder unless such fees or expenses were incurred at the
written request of Lessee or such insurers; provided, however, that if in
the written opinion of counsel to such Indemnitee a potential material, or
an actual, conflict of interest exists where is it advisable for such
Indemnitee to be represented by separate counsel, then the reasonable fees
and expenses of such separate counsel shall be borne by Lessee. Subject to
the requirements of any policy of insurance, an Indemnitee may participate
at its own expense in any judicial proceeding controlled by Lessee
pursuant to the preceding provisions; provided that such party's
participation does not, in the opinion of the independent counsel
appointed by Lessee or its insurers to conduct such proceedings, interfere
with such control (except in the case specified in the proviso to the
third sentence of this paragraph; and such participation shall not
constitute a waiver of the indemnification provided in this Article 8.1.
Notwithstanding anything to the contrary contained herein, Lessee shall
not under any circumstances be liable for the fees and expenses of more
than one counsel for all Indemnitee except in the case specified in the
proviso to the third sentence of this paragraph.
No Indemnitee shall enter into a settlement or other compromise or consent
to a judgment with respect to any Loss without the prior written consent
of Lessee, which consent shall not be unreasonably withheld or delayed,
unless such Indemnitee waives its rights with respect to such Losses under
this Article 8.1; provided that the payment of an amount to which a Loss
relates when legally compelled to do so by a Government Entity of
competent jurisdiction after which a request for a refund of such amount
is diligently pursued by appropriate procedures in accordance with the
terms of this Article 8.1 will not be considered a settlement, compromise
or consent to judgment requiring Lessee's prior consent or resulting in a
waiver of such Indemnitee's rights of indemnification with respect to such
amount. Except as otherwise provided in the immediately preceding
sentence, the entering into any such settlement or compromise or consent
without Lessee's prior written consent shall constitute a waiver by such
Indemnitee of all its rights of indemnification hereunder in respect of
such matter.
To the extent that a claim indemnified by Lessee under Article 8.1 is in
fact paid in full by Lessee and/or an insurer under a policy of insurance
maintained by Lessee, Lessee and/or such insurer, as the case may be,
shall be subrogated to rights and remedies of the Indemnitee on whose
behalf such claim was paid (other than rights of such Indemnitee under
insurance policies maintained at its own expense) with respect to the
transaction or event giving rise to such claim. So long as no Event under
Article 14.1(a), (b), (f) or (g) or Event of Default under the Lease shall
have occurred and be continuing, should an Indemnitee receive any payment
from any person other than Lessee or its insurers and except for payments
received under insurance policies maintained by an Indemnitee at its own
expense, in whole or in part, with respect to any claim already paid by
Lessee or its insurers hereunder, such Indemnitee shall promptly pay the
amount so received (but not an amount in excess of the amount Lessee or
any of its insurers has paid in respect of such claim) over to Lessee.
Notwithstanding anything to the contrary contained in this Article 8.1,
the indemnification provided for in this Article 8.1 shall only apply to
matters which occur or fail to occur subsequent to the acceptance of the
Aircraft hereunder and prior to the Expiration Date and return of the
Equipment pursuant to the terms hereof. The indemnities contained in this
Article 8.1 shall expire and be of no further force and effect with
respect to any claim or other circumstance set forth in the first
paragraph of this Article 8.1 notice of which shall not have been given to
Lessee in writing (referring expressly to this Article 8.1) on or prior to
the second anniversary of the Expiration Date.
8.2 GENERAL TAX INDEMNITY.
(i) Beneficiary represents and warrants that, on the date hereof it is,
and on the day prior to the Delivery Date it will be, eligible for a
withholding rate of zero under the double taxation treaty then in
effect between the United States and Ireland, and that payments of
Rent may be made directly to it without withholding on account of US
income taxes by Lessee.
(ii) Lessee agrees that, if as the result of a change in the U.S.-Irish
Tax Treaty occurring after the Delivery Date ("Irish Treaty Change")
withholding of U.S. income tax is required with respect to any
payment of Rent hereunder, each payment of Rent due after the
effective date of such change shall be free of all withholdings and
deductions for or on account of taxes, duties and any other charges
of any nature whatsoever, present or future, unless Lessee is
required by operation of law or otherwise to withhold or deduct
amounts for or on account of any of the same, in which event, Lessee
will pay such additional amounts as will result in the receipt by
Beneficiary on the due date for payment thereof of the sums which
would otherwise have been receivable on such date had there been no
such withholding or deduction; Lessor and Beneficiary shall file and
provide to Lessee such returns, statements or other documentation as
shall enable it to claim any reduced rate of tax withholding and any
exemption from tax withholding with respect to any taxes, fees or
other charges to which the terms of Article 8.2 hereof apply, in
each case, to the extent properly available under applicable law or
any applicable treaty without subjecting Lessor or Beneficiary to
any unreasonable cost or expense. If and to the extent that Lessor
and Beneficiary fail to file or provide any such return, statement
or other documentation (as to which, in the case of any such item
required by a change in applicable law or treaty after the Delivery
Date, Lessee has notified them) and as a result thereof either (i)
tax withholding is required at a rate which is higher than that
which would have been applicable had such return, statement or other
documentation been filed or provided or (ii) tax withholding is
required which would not have been required had such return,
statement or other documentation been filed or provided, Lessee's
obligation to make the increased payment otherwise required by this
paragraph of Article 8.2(ii) hereof shall be limited to the amount
which would have been required if Lessor or Beneficiary had filed or
provided such return, statement or other documentation.
If, as a result of any change in applicable statutory or any
applicable tax law or treaties which has an effective date after the
Delivery Date, including, without limitation, an Irish Treaty
Change, any withholding or deduction is required to be made by
Lessee (or Lessor as withholding agent) and/or taxes, fees and other
charges indemnified by Lessee pursuant to this Article 8.2 are
imposed in an amount which increases the cost to Lessee of making
Basic Rent payments hereunder by more than ten (10) percent in any
calendar year, the parties will in good faith negotiate for 60 days
following written notice from Lessee a method of restructuring the
transaction in order to avoid the withholding, deduction, taxes,
fees or other charges (during which period Lessee shall make all
payments in the full amount required hereby) and if no solution can
be found in such period which is acceptable to the parties, then
Beneficiary will begin remarketing the Aircraft on such 60th day
(the "Remarketing Commencement Date"). For the period starting on
the Remarketing Commencement Date, and ending on the earlier of (i)
the date of sale or commencement of a new lease for the Aircraft,
and (ii) twelve months from the Remarketing Commencement Date, this
Lease will continue (unless terminated by Lessor as provided below),
Lessee will continue to pay Basic Rent (including any gross-up
required by this Article 8.2(11)), and Beneficiary will remarket the
Aircraft. During such period, Lessor may require Lessee to return
the Aircraft upon thirty days' prior written notice and, on the date
the Aircraft is returned, it shall meet the return conditions
required herein this Lease Agreement shall terminate and Lessee
shall pay the Termination Value to Beneficiary.
(iii) If such a change of law or treaty described in the preceding
paragraph occurs and has an effective date prior to the Delivery
Date such that Beneficiary's representation above would be incorrect
in any material respect on the Delivery Date, the parties will in
good faith attempt to restructure the transaction to avoid any such
tax withholding and if no solution can be found by the Scheduled
Delivery Date, which is acceptable to the parties, Beneficiary may
terminate this Lease and will return the amounts paid in respect of
the Security Deposit, plus interest thereon at the rate paid on such
deposit by Beneficiary's bank.
In addition, and not by way of limiting the foregoing, Lessee agrees to
pay and to indemnify and hold harmless Lessor and Beneficiary from, all
license fees and all taxes, levies, imposts, duties, assessments, charges
and withholdings of any nature whatsoever, together with any penalties,
additions to tax, fines and interest thereon (collectively, "taxes, fees
and other charges") imposed against the Lessor, Beneficiary, Lessee or any
item of Equipment or any part thereof by any Federal, state, or local
government or governmental subdivision or taxing authority in the United
States of America or any possession or territory thereof, or by any other
country or international taxing authority, or by any subdivision or taxing
authority of any of the foregoing upon or with respect to the Equipment or
any part thereof, or interest therein, or upon the manufacture, financing,
servicing, maintenance, warranty, repair, replacement, insuring,
improvement, transfer of title, purchase, erection, installation, testing,
acceptance or rejection, ownership, delivery, non-delivery, lease,
sublease, rental, acquisition, registration, rebuilding, abandonment,
transportation, storage, possession, use, operation, condition, sale,
return or other disposition thereof, or upon the rentals, receipts or
earnings arising therefrom, or with respect to any contract relating to
the manufacture, construction, acquisition or delivery of the Equipment or
otherwise with respect to the transactions contemplated by this Agreement.
Notwithstanding the foregoing, the indemnity provided for in this Article
8.2 does not extend to any Lessor Taxes or to any withholding of US income
taxes except to the extent provided in Article 8.2(ii) hereof.
If a claim is made against Lessor or Beneficiary for any taxes, fees and
other charges for which Lessor or Beneficiary intends to seek
indemnification hereunder, Lessor or Beneficiary shall promptly notify
Lessee. If requested by Lessee in writing, Lessor or Beneficiary shall, in
good faith contest or, at Lessee's request if permitted by applicable law,
permit Lessee to contest (and in such case, provide all reasonable
cooperation to Lessee) the validity, applicability or amount of such
taxes, fees and other charges by (A) resisting payment thereof if
practicable, (B) paying the same under protest, if protest is necessary
and proper, or (C) if payment be made, using reasonable efforts to obtain
a refund thereof, in appropriate administrative and judicial proceedings
including appeals other than to the Supreme Court. Notwithstanding
anything to the contrary herein, in no event shall Lessor and Beneficiary
be required or Lessee permitted to contest the imposition of any taxes,
fees or other charges asserted against Lessor or Beneficiary for which
Lessee is obligated pursuant to this Section 8.2 unless (i) on demand from
time to time, Lessee pays any and all expenses incurred by Lessor and/or
Beneficiary reasonably allocable to such contest (including, without
limitation, all costs, expenses, losses, legal and accounting fees and
disbursements), (ii) no Event under Article 14.1(a) or Event of Default
shall have occurred and be continuing, (iii) the action to be taken will
not result in the likelihood of sale, forfeiture or loss of, or the
creation of any lien on the Equipment or any interest therein (except if
Lessee shall have adequately bonded such lien or otherwise made provision
to protect the interests of Lessor and Beneficiary in a manner reasonably
satisfactory to Lessor and Beneficiary or result in any criminal
penalties, and (iv) Lessee shall have delivered to Lessor and Beneficiary,
at Lessee's sole expense, an opinion of independent tax counsel selected
by Lessee and reasonably acceptable to the indemnified party to the effect
that a reasonable basis for such contest exists. If any such contest
involves payment of the taxes, fees and other charges in question, Lessee
shall either make such payment directly to the appropriate authority or
furnish to Lessor and Beneficiary sufficient funds on an interest-free and
after-tax basis to make such payment. Lessor or Beneficiary, as the case
may be, shall consult with Lessee in good faith regarding the means of
contesting such claim and shall keep Lessee reasonably informed regarding
the progress of such contest. If Lessor or Beneficiary shall obtain a
refund of or be entitled to a credit against other liability for all or
any part of such taxes, fees and other charges paid by Lessee, Lessor or
Beneficiary as the case may be shall pay Lessee the amount of such refund
(or credit), after deducting all costs and expenses that were incurred by
Lessor or Beneficiary in connection therewith; provided, however, that
such amount shall in no event be payable before such time as Lessee shall
have made all payments and indemnities then due to Lessor or Beneficiary
under this Agreement; provided further, however, that the aggregate amount
of all payments pursuant to this sentence by Lessor or Beneficiary with
respect to any taxes, fees and other charges shall not exceed the
aggregate amount of all payments made by Lessee pursuant to this Section
8.2 with respect to such taxes, fees and other charges. If in addition to
such refund (or credit) Lessor or Beneficiary shall receive an amount
representing interest on the amount of such refund (or credit), or would
have received interest but for an offsetting liability for taxes, fees and
other charges not indemnified by Lessee hereunder, Lessee shall promptly
be paid that portion of such interest (or such interest that would have
been received) that is fairly attributable to any tax, fees and other
charges paid or reimbursed by Lessee prior to the receipt of such refund
for the period from Lessee's payment or reimbursement to the payment to
Lessee of such refund, reduced by the amount of any Federal, state or
local income taxes payable by the Indemnified Party by reason of the
receipt or accrual of such interest and increased by the amount of any tax
benefits resulting from such payment to Lessee; provided, however, that no
amount shall be payable under this or the preceding sentence during any
period in which an Event of Default has occurred and is continuing. If
Lessor or Beneficiary receives an award of attorney's fees in a contest
for which Lessee has paid an allocable portion of the contest expenses,
Lessor or Beneficiary, as applicable, shall pay to Lessee the same
proportion of the amount of such award as the amount of attorney's fees
paid or reimbursed by Lessee bears to the total amount of the attorney's
fees actually incurred by Lessor or Beneficiary, as applicable, in
conducting such contest. In case any report or return is required to be
made with respect to any obligation of Lessee under or arising out of this
Article 8.2, Lessee will either make such report or return in such manner
as will show the ownership of Lessor in the Aircraft and send a copy of
such report or return to Lessor, or will notify Lessor of such requirement
and make such report or return in such manner as shall be reasonably
satisfactory to Lessor. Lessor shall provide to Lessee such information
within its possession or control as is necessary to enable Lessee to
properly make such return or report.
If Lessor or Beneficiary shall release, waive, compromise or settle, or
fail to pursue any required contest of any claim which may be
indemnifiable by Lessee pursuant to this Article 8.2 without the written
permission of Lessee, Lessee's obligation to indemnify Lessor or
Beneficiary with respect to such claim (and all directly related claims
and claims based on the outcome of such claim) shall terminate, and Lessor
or Beneficiary, as applicable, shall repay to Lessee any amount previously
paid or advanced with respect to such claim, plus interest at the rate
that would have been payable by the relevant taxing authority with respect
to a refund of such taxes, fees and other charges. Notwithstanding the
foregoing, Lessor and Beneficiary will not be required to contest the
imposition of any taxes, fees and other charges and shall be permitted to
settle or compromise any claim without Lessee's consent if such Lessor or
Beneficiary, as applicable, (I) shall waive its right to indemnity under
this Article 8.2 with respect to such taxes, fees and other charges (and
any directly related claim and any claim the outcome of which is
determined based upon the outcome of such claim) and (II) shall pay to
Lessee any amount previously paid or advanced by Lessee pursuant to this
Article 8.2 with respect to such Tax, plus interest at the rate that would
have been payable by the relevant taxing authority with respect to a
refund of such taxes, fees and other charges.
Lessee further agrees that any payment or indemnity made under Article 8.1
or this Article 8.2 by Lessee shall include any amount necessary to hold
Lessor and Beneficiary harmless on an after-tax basis (after giving effect
to all deductions, credits and other tax benefits available to the
recipient of such indemnity payments with respect to the matter
indemnified under Article 8.1 or with respect to the payments of the
taxes, fees and other charges indemnified under Article 8.2) from all
taxes, fees and other charges required to be paid by Lessor or Beneficiary
with respect to such payment or indemnity under the laws of any domestic
or foreign governmental or taxing authority, agency or subdivision.
At Lessee's request, the computation of any amount owed by Lessee or any
amount owed to Lessee by an Indemnitee pursuant to Article 8.1 hereof or
by Lessor or Beneficiary pursuant to this Article 8.2 shall be verified
and certified by an independent public accounting firm selected by Lessee
and reasonably satisfactory to the applicable Indemnitee, Lessor or
Beneficiary, as the case may be. Such verification shall be binding on
both Lessee and such Indemnitee, Lessor and Beneficiary. The costs of such
verification (including the fee of such public accounting firm) shall be
borne by Lessee unless such verification shall result in an adjustment in
Lessee's favor of 10% or more of the net present value of the payment as
computed by such Indemnitee, Lessor or Beneficiary, as applicable. Such
Indemnitee, Lessor or Beneficiary, as applicable, shall provide to such
public accounting firm on a confidential basis all information reasonably
necessary for such verification.
All of the rights and obligations of Lessee under this Article 8.2 shall
continue in full force and effect to the extent provided herein
notwithstanding the expiration or sooner termination of this Lease and
such obligations are expressly made for the benefit of, and shall be
enforceable by, Lessor and Beneficiary and their respective successors.
and assigns.
ARTICLE 9. DAMAGE, DESTRUCTION, REQUISITION, CONDEMNATION
9.1 EVENT OF LOSS WITH RESPECT TO THE AIRCRAFT.
Upon the occurrence of an Event of Loss with respect to the Airframe or
the Airframe and any Engines or engines then installed thereon, Lessee
shall give Lessor and Beneficiary prompt written notice thereof (and in
any event within two Business Days) and shall pay or cause to be paid to
Beneficiary on the 90th day after such Event of Loss (or earlier if the
insurance or other proceeds have been paid earlier): (i) the Agreed Value
in respect of the Aircraft, and (ii) all other Rent, other than amounts
paid pursuant to Clause (i), then due and payable hereunder. At such time
as Beneficiary has received the sum of (i), and (ii) above: (A) the
obligation of Lessee to pay Basic Rent hereunder with respect to such
Aircraft shall terminate and (B) the Term for the Aircraft shall end and
(C) Lessor shall transfer full legal and beneficial title to the Aircraft
to Lessee (or, if applicable, to Lessee's insurers) free of all rights of
Beneficiary and all Lessor's Liens. An Event of Loss with respect to the
Airframe shall be deemed to constitute an Event of Loss with respect to
the Aircraft.
9.2 EVENT OF LOSS WITH RESPECT TO AN ENGINE.
Upon the occurrence of an Event of Loss with respect to an Engine not then
installed on the Airframe, or in the Event of Loss with respect to an
Engine installed on the Airframe but not involving an Event of Loss with
respect to such Airframe, Lessee shall give Lessor and Beneficiary prompt
written notice thereof (and in any event within five Business Days) and
Lessee shall, as promptly as possible and in any event within 120 days
after the occurrence of such Event of Loss, duly convey to Lessor, as a
replacement for the Engine with respect to which such Event of Loss
occurred, title to another CFM56-3B2 engine owned by Lessee free and clear
of all Liens and having, unless Beneficiary otherwise agrees, a value and
utility at least equal to, and being in as good operating condition as,
the Engine with respect to which such Event of Loss occurred, assuming
such Engine was of the value and utility and in the condition and repair
required by the terms hereof immediately prior to the occurrence of such
Event of Loss. Lessee shall demonstrate to Lessor's Tech Rep's reasonable
satisfaction the value and utility of any substitute engine by providing
all necessary information and data in respect of such engine as Lessor's
Tech Rep shall reasonably request. In such case, Lessee, at its own
expense, will promptly (i) furnish Lessor with a bill of sale, in form and
substance satisfactory to Lessor and Beneficiary, for such replacement
engine, (ii) execute a supplement hereto in form and substance reasonably
satisfactory to Lessor and Beneficiary subjecting such replacement engine
to this Lease, (iii) furnish Lessor and Beneficiary with evidence of
Lessee's title to such replacement engine (including, if requested, an
opinion of Lessee's counsel) and of compliance with the insurance
provisions of Article 10 hereof with respect to such replacement engine as
Lessor and Beneficiary may reasonably request, and (iv) take such other
action as Lessor and Beneficiary may reasonably request in order that
title to such replacement engine be duly and properly vested in Lessor and
leased hereunder to the same extent as the Engine replaced thereby. Upon
full compliance by Lessee with the terms of this Article 9.2, Lessor will
transfer to Lessee, without representation, recourse or warranty of any
kind, express or implied (except a warranty that such Engine is free of
Lessor Liens, other than Liens which Lessee is required to discharge
hereunder, and all rights of Beneficiary and defects in title resulting
from Lessor's acts), all of Lessor's right, title and interest, if any, in
and to the Engine with respect to which such Event of Loss occurred and,
for all purposes hereof, such replacement engine shall be deemed an
Engine. No Event of Loss with respect to an Engine shall result in any
reduction in Basic Rent.
9.3 APPLICATION OF PAYMENTS FROM GOVERNMENTAL AUTHORITIES IN RESPECT OF
EVENT OF LOSS.
Any payments (other than insurance proceeds, the application of which is
provided for in Article 10 hereof) received at any time by Lessor,
Beneficiary or Lessee from any governmental authority or other person with
respect to an Event of Loss with respect to any item of Equipment will be
applied as follows:
i. if such payments are received with respect to an Event of Loss
relating to the Airframe or the Airframe and the Engines or
engines installed on such Airframe, after reimbursement of
Lessor and Beneficiary for its reasonable out-of-pocket costs
and expenses if any, so much of such payment as shall not
exceed the amounts due under Article 9 shall be applied in
reduction of Lessee's obligation to pay such amounts, if not
already paid by Lessee, or, if already paid by Lessee, shall
be applied to reimburse Lessee for its payment of such
amounts, and the balance, if any, of such payment remaining
thereafter to the extent not exceeding Lessee's Interest shall
be paid to Lessee, and the balance, if any, of such payment
remaining thereafter will be paid over to or retained by
Beneficiary; and
ii. if such payments are received with respect to an Engine under
circumstances contemplated Article 9.2, so much of such
payments remaining after reimbursement of Beneficiary for its
reasonable out-of-pocket costs and expenses, if any, shall be
paid over to, or retained by, Lessee, provided that Lessee
shall have fully performed or concurrently therewith will
fully perform the terms of Article 9.2.
9.4 REQUISITION OF AN AIRFRAME FOR USE BY GOVERNMENT.
In the event of the requisition for use by the Government of the United
States of America ("Government") of the Airframe and the Engines or
engines installed thereon during the Term therefor, Lessee shall promptly
notify Lessor and Beneficiary of such requisition and all of Lessee's
obligations under this Lease Agreement with respect to such items of
Equipment shall continue to the same extent as if such requisition had not
occurred (except to the extent that compliance with such obligations by
Lessee is not possible as the result of such requisition); PROVIDED,
HOWEVER, that if such items of Equipment are not returned to the Lessor
prior to the end of the Term therefor, the Term shall automatically be
extended until such requisition for use ceases (subject to the next
PROVISO) and such Equipment is returned to Lessor in compliance with the
provisions of Article 13 as soon as reasonably practicable after its
return by the Government, and, during such extended Term, Lessee shall
continue to perform all obligations under this Lease as if such
requisition for use had not occurred (except to the extent that compliance
with such obligations by Lessee is not possible as the result of such
requisition); PROVIDED FURTHER, HOWEVER, if such Equipment is not returned
to Lessor prior to the first anniversary of the extended Term contemplated
by this Article 9.4 in full compliance with Article 13, at Beneficiary's
sole option such Equipment shall be deemed to have been subjected to an
Event of Loss as of such anniversary date and Lessee shall, on such date,
pay to Beneficiary the Agreed Value. Lessee shall be entitled to all
compensation payable by the Government with respect to such requisition
and, to the extent received by Lessor or Beneficiary, shall be paid over
to Lessee on receipt.
9.5 REQUISITION OF AN ENGINE FOR USE BY THE GOVERNMENT.
In the event of the requisition for use by the Government of any Engine
without the requisition for use of the Airframe, if and when such
requisition exceeds 180 consecutive days, Lessee will replace such Engine
hereunder by complying with the terms of Article 9.2 to the same extent as
if an Event of Loss had occurred with respect to such Engine, and any
payments received by Beneficiary or Lessee from the Government with
respect to such requisition shall be paid over to, or retained by, Lessee.
9.6 APPLICATION OF PAYMENTS DURING EXISTENCE OF EVENT OR EVENT OF DEFAULT.
Any amount referred to in clause (i) or (ii) of Article 9.3 or in Article
9.4 or 9.5 which is payable to Lessee shall not be paid to Lessee or, if
such amount has been previously paid to Lessee, shall not be retained by
Lessee, if at the time of such payment an Event described in Article
14.1(a) or Event of Default shall have occurred and be continuing. In such
event, all such amounts shall be paid to and held by Beneficiary as
security for the performance by Lessee of its obligations hereunder or, at
Beneficiary's option, applied by Beneficiary toward payment of any of such
obligations of Lessee at the time due hereunder as Beneficiary may elect.
At such time as Lessee shall have cured all such Events and Events of
Default, all such amounts at the time held by Beneficiary in excess of the
amounts, if any, which Beneficiary shall have elected to apply as above
provided shall be paid to Lessee.
ARTICLE 10. INSURANCE
10.1 From the Delivery Date and at all times during the Term and thereafter, to
the extent provided in Article 10.7, Lessee shall be responsible for
effecting and maintaining or causing to be effected and maintained, in
full force and effect, insurance in respect of the Aircraft in form
comparable to that maintained by other similarly-situated United States
airlines (the "Insurance" which expression shall where the context so
admits include any relevant re-insurance(s) obtained in respect thereof)
through the Approved Insurance Broker. The Insurance will be effected
either (1) on a direct basis with insurers of recognized standing who
normally participate in aviation insurance in the London, United States,
European or Japanese aviation insurance markets (collectively, together
with such other aviation insurance market(s) as Beneficiary may approve,
such approval not to be unreasonably withheld or delayed, "World Aviation
Insurance Markets") (such insurers to be led in any case by reputable
underwriter(s) who regularly participate in World Aviation Insurance
Markets) or (2) with such an insurer who will effect reinsurance of such
primary insurance, in whole or in part, in World Aviation Insurance
Markets. In the latter case, Lessee shall procure that the Approved
Insurance Broker maintains in full force and effect reinsurances with
reinsurers in the World Aviation Insurance Markets and through brokers
each of recognized standing who regularly deal in such insurance markets
for that percentage of the risks insured not retained on a direct basis
(the "Reinsurance").
10.2 The requirements at the date of this Agreement as to required Insurance
are as specified in this Article 10 and in Exhibit "G". The Beneficiary
acting reasonably and in consultation with Lessee shall be entitled from
time to time to stipulate other reasonable insurance requirements (other
than those prescribed in this Article 10 or Exhibit "G") to reflect
changes in insurance practice relating to the method in which insurable
risks are covered in World Aviation Insurance Markets, which other
insurance requirements shall be in accordance with normal practice of
organizations operating similar aircraft in similar circumstances;
provided, however, that any such further requirements shall be of the type
generally available in such markets at commercially reasonably rates.
10.3 If at any time due to changes in World Aviation Insurance Market practice
or custom, it becomes or will become commercially impracticable for Lessee
to comply with its obligations under this Article 10 or in Exhibit "G"
then the Lessee shall forthwith notify the Beneficiary and as soon as
practicable thereafter Beneficiary and Lessee shall in good faith consult
as to what changes, if any, might be made to the terms and conditions of
the insurance required hereunder in order to take account of the changes
in World Aviation Insurance Market practice or custom and as to what
amendments, if any, should be made to the provisions of this Article 10 or
Exhibit "G" provided no amendment to the insurances required by this
Article 10 and Exhibit "G" shall be effective unless and until consented
to by Beneficiary.
10.4 [Intentionally Omitted]
10.5 Lessee shall:-
(a) ensure that all legal requirements as to insurance of the Aircraft
or any Part thereof which may from time to time be imposed by the
United States or any state to, from or over which the Aircraft shall
be flown, in so far as they affect or concern the operation of the
Aircraft, are complied with and in particular those requirements
compliance with which is necessary to ensure that (a) the Aircraft
is not in danger of detention or forfeiture, (b) the Insurance
remain valid and in full force and effect, and (c) the interests of
the Indemnities in the Insurance and the Aircraft or any part
thereof are not thereby prejudiced;
(b) not use, cause or permit the Aircraft to be used for any purpose or
in any manner not covered by the Insurance or outside any
geographical limit imposed by such Insurance or for any purpose or
in any manner which is contrary to applicable Law. Lessee shall
comply and procure compliance, with the terms and conditions of each
and every policy of the Insurance and shall not do, consent or agree
to any act or omission which invalidates or may invalidate or
renders unenforceable or may render unenforceable the whole or any
part of any such Insurance;
(c) ensure that no insurance or reinsurance in respect of the Aircraft
other than those required under this Article 10 and Exhibit "G" are
taken out if such other insurance or reinsurances would prejudice
Lessor's or Beneficiary's rights with respect to the Insurance.
Lessor and Beneficiary agree that subject to the foregoing, Lessee
may maintain hull and other insurance in relation to the Aircraft,
Engines or Parts thereof. Insurance proceeds arising out of such
insurance shall be paid to Lessee;
(d) ensure that the renewal negotiation is commenced prior to expiration
of any of the Insurance. If requested by Beneficiary in writing, a
written status report shall be given to the Lessor and Beneficiary
seven (7) Business Days prior to expiry date. Facsimile confirmation
of completion of renewal shall be provided by the Lessee to the
Lessor and the Beneficiary at least two (2) Business Days before
such expiry. Certificates of insurance (and where appropriate
Certificates of reinsurance), in the English language, detailing the
coverage and confirming the insurers' (or as the case may be, the
reinsurers') agreement to the specified insurance requirements of
this Lease must be provided to Lessor and Beneficiary at delivery
and within seven days after each renewal date;
(e) if requested by Beneficiary, provide or procure the provision to
Lessor or Beneficiary of copies of documents evidencing the
Insurance upon request if there is a denial of coverage; provided
always that Lessor and Beneficiary shall not disclose the contents
of actual insurance policies to third parties other than (i) its
professional advisors, (ii) as may be required by applicable law,
and (iii) when required to settle a dispute over coverage but, in
any such event, shall take such actions in good faith as may
reasonably be requested by Lessee to protect the confidentiality of
such documents;
(f) on request, provide or procure the provision to Lessor and
Beneficiary of evidence of premium payment;
(g) promptly notify Beneficiary of any occurrence (i) with respect to
which Lessee believes the cost of repairs to the Airframe, Engines
or any Part will exceed, or (ii) which is likely to give rise to a
claim in excess of, the Damage Notification Threshold for Hull
claims and US$[ ]* for claims arising under the legal liability
insurance;
(h) not make or cause to be made any modification or alteration to the
Insurance which is adverse and material to any of the Indemnities,
nor do or leave undone anything which reasonably would be expected
to invalidate the insurance coverage;
(i) be responsible for any deductible/excluded loss under the Insurance;
(j) subject to the limitations of 10.5(e), provide and cause Lessee's
insurance broker to provide any other insurance and reinsurance
related information, or assistance, as Beneficiary may reasonably
request;
(k) reimburse Lessor and/or the Beneficiary for any premiums (together
with interest thereon at the Incentive Rate from the date of payment
until the date of reimbursement) paid by any of them pursuant to
Article 10.6.
10.6 If at any time Lessee fails to maintain the Insurance (without prejudice
to any other rights which Lessor may have acquired under this Agreement by
reason of such failure), Lessor and the Beneficiary shall, after such
advance notice to and consultation (if possible) with Lessee as shall be
reasonable under the circumstances, be entitled
(a) to pay the premiums due or, in the event Lessor or Beneficiary is
not allowed to pay such premiums, with notice to Lessee to effect
and maintain similar insurance satisfactory to it. Such sums so as
shall have been so expended by it shall, upon written demand, become
immediately due and payable by Lessee together with interest thereon
at the Incentive Rate, from the date of expenditure by it up to the
date of reimbursement by Lessee;
(b) at any time while such failure is continuing to require the Aircraft
to remain at any airport or (as the case may be) to proceed to and
remain at any airport designated by it until such failure is
remedied to its reasonable satisfaction.
10.7 Beneficiary shall be entitled, after the expiry or termination of the
leasing of the Aircraft, to require Lessee at Lessee's expense to maintain
legal liability insurance under Lessee's fleet policies in the amount
required immediately prior to the expiry or termination of the leasing of
the Aircraft insofar as the same relates to the Aircraft for two (2) years
after the end of the Term such insurance to provide for each of the
Indemnities to be named as additional insured thereunder to the extent of
its interest under the said indemnities, and the obligation of Lessee to
effect the same shall not be affected by Lessee ceasing to be lessee of
the Aircraft and/or any of the Indemnities ceasing to have any interest
in, or in respect of, the Aircraft.
10.8 Notwithstanding any other provision of this Lease, Lessor and Beneficiary
agree to accept, in lieu of the insurance required hereunder,
indemnification from, or insurance provided by the government of the
United States (or any agency or instrumentality thereof the obligations of
which (including this indemnity) are supported by the full faith and
credit of the government of the United States), against the risks required
to be insured pursuant to this Article 10 and in an amount which, when
added to the amount of any such insurance maintained by Lessee, shall be
at least equal to the amounts which Lessee would otherwise be required to
maintain hereunder. Such indemnity or written evidence of such insurance
shall be provided to Lessor and Beneficiary at least three Business Days
prior to the date on which such insurance would become effective as to the
Aircraft.
10.9 APPLICATION OF INSURANCE PROCEEDS FOR AN EVENT OF LOSS.
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 an Event of Loss shall be applied as follows:
(i) if such payments are received with respect to an Event of Loss
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 Article
9.1 hereof shall be paid to Beneficiary for immediate application towards
sums owed by Lessee, and the balance to Lessee; and
(ii) if such payments are received with respect to an Event of Loss
relating to an Engine under circumstances contemplated by Article 9.2
hereof, such payment shall be paid over to Lessee, provided that Lessee
shall have fully performed or, concurrently therewith, fully performs the
terms of Article 9.2 hereof.
10.10 APPLICATION OF INSURANCE PROCEEDS FOR OTHER THAN AN EVENT OF LOSS.
Except as otherwise provided in Exhibit G hereto, the insurance payments
for any property damage loss to the Airframe or any Engine not
constituting an Event of Loss, or to any Part, may be held by Beneficiary
until Lessee furnishes Beneficiary with satisfactory evidence that the
repairs or replacement property Lessee is required to perform or obtain in
accordance with the terms of Article 5 and 6 of this Lease have been made
or an agreement with the Manufacturer or other third person or entity
reasonably satisfactory to Beneficiary has been entered into for the
replacement of such damaged item or the completion of the repairs by
Lessee. In any event, whether repairs are made by Lessee or a third party,
Insurance payments will be applied and made available by Beneficiary upon
reasonable request by Lessee in periodic progress payments as work is
accomplished and/or replacement effected. Upon receipt of such evidence of
repair or replacement or contract, Beneficiary shall pay Lessee, if the
repairs have been completed, or to the Manufacturer or such other repairer
for such repairs, the amount of the insurance payment received with
respect to such loss. Any balance of insurance proceeds remaining after
such payments and completion of such repairs, shall be paid over to
Lessee.
10.11 APPLICATION IN DEFAULT.
Any amount referred to in Article 10.9 or Article 10.10 which is otherwise
payable to Lessee shall not be paid to Lessee, or, if it has been
previously paid to Lessee, shall be delivered by Lessee to Beneficiary, if
at the time of such payment, an Event under Article 14.1(a) or an Event of
Default shall have occurred and be continuing. In either case, all such
amounts shall be held by Beneficiary as security for the obligations of
Lessee or, at the option of Beneficiary, applied by Beneficiary toward
payment of any of Lessee's obligations at the time due hereunder. At such
time as there shall not be continuing any such Event or Event of Default,
all such amounts at the time held by Beneficiary in excess of the amount,
if any, which Beneficiary has elected for application as provided above
shall be paid to Lessee.
ARTICLE 11. MORTGAGES, LIENS, ETC.
Lessee shall not directly or indirectly create, incur, assume or suffer to
exist any Lien on or with respect to any item of Equipment, any part thereof,
title thereto or any interest therein, except: (i) the respective rights of
Lessor and Lessee as herein provided and the rights of any financier under any
mortgage granted by Lessor to such financier at the request of Beneficiary, (ii)
Lessor Liens, (iii) Liens for taxes, fees and other charges (other than Lessor
Taxes) either not yet due or being contested in good faith by appropriate
proceedings, but only so long as such proceedings do not involve the likelihood
of the sale, forfeiture or loss of any item of Equipment, or interest therein,
and (iv) inchoate materialmen's, mechanics', workmen's, repairmen's, employees
or other like liens arising in the ordinary course of business and for amounts
the payment of which is either not delinquent or is being contested in good
faith by appropriate proceedings, but only so long as such proceedings do not
involve the likelihood of the sale, forfeiture or loss of any item of Equipment,
or any interest therein (such Liens described in clauses (i) through (iv) above
being referred to herein as "Permitted Liens"). Lessee shall promptly, at its
own expense, take such action as may be necessary to duly discharge any Lien not
excepted above if the same shall arise at any time with respect to any Equipment
leased hereunder.
If any Lien (other than in favor of the Beneficiary) is created by Lessor
or Beneficiary on the Aircraft or this Lease securing indebtedness, the Lessee
shall cooperate with Beneficiary, at Beneficiary's expense, in perfecting the
rights of the financier and the Beneficiary shall cause the lender before such
Lien is effected to provide a Letter of Quiet Enjoyment to Lessee.
ARTICLE 12. RECORDATION AND FURTHER ASSURANCES
Lessor, Beneficiary and Lessee will promptly and duly execute and deliver
to Lessor or Beneficiary or Lessee, as applicable, such further documents and
assurances and take such further action as Lessor, Beneficiary or Lessee may
from time to time reasonably request in order to more effectively carry out the
intent and purpose of this Lease and to establish and protect the rights and
remedies created or intended to be created hereunder, including, without
limitation, if requested by Lessor or Beneficiary, 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, or of financing statements with respect thereto for filing
in the state in which the principal office of Lessee is located. Lessee will
consent to the assignment of this Lease to a financier if requested to do so by
Beneficiary and will cooperate in amending the insurances to cover any such
assignee as an additional assured; provided that no such assignment shall
diminish the rights and privileges of Lessee hereunder or increase Lessee's
obligations hereunder.
ARTICLE 13. RETURN OF AIRCRAFT AND RECORDS
13.1 RETURN.
Except as otherwise provided herein, at the expiration of the Term for the
Equipment or upon the sooner termination of this Lease, Lessee, at its own
expense, shall return the Equipment to Lessor by delivering the same to
Lessor at Lessee's facilities in Colorado Springs, Colorado or at those of
the Authorized Maintenance Performer performing the redelivery "C" check.
Lessee will, at Beneficiary's request, ferry the Aircraft from the
redelivery location to any other location within the 48 contiguous United
States of America, as may be designated by Beneficiary, at Beneficiary's
expense. The Aircraft, at the time of return to Lessor, shall be fully
equipped with Engines or other CFM56-3B2 engines owned by Lessee (and
complying with Article 13.3) properly installed thereon. In addition, on
redelivery the Aircraft shall comply in all respects with the Redelivery
Conditions stated in Exhibit "E" to this Lease.
13.2 OVERHAUL - GENERAL.
Immediately prior to such return of the Aircraft, Lessee shall have caused
a "C" check, to have been performed to the Airframe, at Lessee's cost, in
accordance with Exhibit "E" hereto.
13.3 ENGINES.
In the event any engine not owned by Lessor shall be delivered with the
Airframe, such engine shall be free and clear of Liens, of the same model
(or an improved version) and Manufacturer as the replaced Engine, suitable
for use on such Airframe and shall have a value and utility at least equal
to, and be in substantially the same or better condition (and shall have a
comparable core value in the LLP stack) as, the Engine that should have
been returned, assuming such Engine which should have been returned was in
the condition and repair as required by the terms hereof immediately prior
to such required return; and Lessee will, at its own expense and
concurrently with such delivery, furnish Lessor with a bill of sale, in
form and substance reasonably satisfactory to Lessor and Beneficiary, for
each such engine and with evidence of Lessee's title to such engine
(including, if requested, an opinion of Lessee's counsel) and shall take
such other action as Lessor or Beneficiary may reasonably request in order
that title to such engine shall be duly and properly vested in Lessor.
Upon full compliance with this Article 13.3 and passage of title to such
engine to Lessor, such engine shall be an Engine for all purposes of this
Lease and Lessor will transfer to Lessee all Lessor's right, title and
interest in an Engine constituting part of the Aircraft so returned but
not installed on such Aircraft at the time of such return, without any
representation, warranty or recourse of any kind whatsoever, express or
implied, except a warranty that such Engine is free and clear of Lessor
Liens, defects in title resulting from Lessor's acts, and all rights of
Beneficiary.
13.4 LIENS.
At redelivery, Lessee shall warrant to Lessor that no Liens (other than
Lessor Liens) exist at that time on the Equipment and that Lessee is
current on its payments to relevant authorities and/or suppliers for
landing, handling, fuel navigation and other charges accrued by the
Equipment during the Term of the Lease.
13.5 RECORDS.
Upon the return of the Equipment, Lessee shall deliver to Lessor (i) all
logs, manuals, certificates, data and inspection, modification,
maintenance and overhaul records required to be maintained with respect
thereto under applicable rules and regulations of the FAA or other
governmental authority having jurisdiction, (ii) all logs, manuals and
catalogs included with the Equipment on the Delivery Date therefor, and
(iii) all logs, manuals, certificates, data and inspection, modification,
maintenance and overhaul records that are required to be maintained with
respect thereto under the rules and regulations of the FAA; provided that
Lessee will not in any event be required to provide any logs,
certificates, data or records of any type with respect to the use,
operation, repair, maintenance or overhaul of the Equipment prior to the
Delivery Date which were not provided to Lessee at the time of Lessee's
acceptance of the Aircraft hereunder.
13.6 REDELIVERY FUEL.
Fuel in the tanks of the Aircraft at re-delivery shall be recorded in
Appendix A to Lease Supplement No. 2. At redelivery of the Aircraft, if
there is more or less fuel in the tanks than at delivery, Lessee (if less)
or Beneficiary (if more) will pay for the difference at the price of fuel
at the re-delivery location.
13.7 INDEMNITY.
The Lessee shall indemnify and hold harmless the Indemnitees from and
against any and all liabilities, damages and losses (including costs and
expenses incidental thereto) arising by reason of death or injury to any
observer or employee of the Lessee, arising out of, or in any way
connected with the demonstration flight and inspection of the Aircraft
conducted pursuant to Exhibit "E" hereto or the ferry flight set forth in
Article 13.1.
The Lessor shall indemnify and hold harmless the Lessee from and against
any and all liabilities, damages and losses (including costs and expenses
incidental thereto) arising by reason of death or injury to any observer
or employee of the Lessor or any Indemnitee arising out of, or in any way
connected with the demonstration flight and inspection of the Aircraft
conducted pursuant to Exhibit "E" hereto or the ferry flight set forth in
Article 13.1.
ARTICLE 14. EVENTS OF DEFAULT
14.1 EVENTS OF DEFAULT.
Each of the following events shall constitute an Event of Default (whether
any such event shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule, regulation of
any administrative or governmental body):
(a) if Lessee fails to pay any Rent payable under this Lease (including,
without limitation, Maintenance Reserves or any portion of the
Security Deposit) to the Beneficiary in the currency in which such
sum is due within 5 days after the due date for payment thereof or
if such amount is payable on demand, within 15 days after demand
therefor; or
(b) if insurances on or with respect to the Equipment are not maintained
in accordance with the provisions of Article 10; or Lessee shall
operate the Aircraft outside of the scope of the insurance coverage
maintained with respect to the Aircraft; or
(c) if the Lessee defaults in the due performance and observance of any
of its obligations under the Lease (other than as set forth in
Article 14.1 (a) and (b)) and such default is not remedied within
thirty (30) days of notice from the Lessor to the Lessee requiring
such remedy or, if any such default is not capable by due diligence
of being cured or remedied within said thirty (30) days, such
default is not cured or remedied within sixty (60) days after such
notice by Lessor to Lessee; or
(d) if any representation, warranty or statement made or deemed to be
made by the Lessee to the Lessor and Beneficiary in this Lease in
any certificate, statement or opinion delivered by it hereunder or
thereunder or in connection herewith or therewith is incorrect,
inaccurate or misleading in any material respect when made or deemed
to be made or repeated; or
(e) if all, or substantially all, of the Lessee's air transport licenses
are revoked, or if its commercial passenger operating certificate is
revoked, canceled or otherwise terminated; or
(f) if a liquidator for the winding up of the Lessee shall be appointed,
or an encumbrancer shall take possession or a receiver shall be
appointed of the whole or substantially all of the property or
assets of the Lessee or the Lessee applies for, or consents to, the
appointment of any receiver or similar official for it or
substantially all of its property or assets, or an administrative
receiver is appointed of all or substantially all of the Lessee's
property or assets or any similar or analogous event shall occur in
relation to the Lessee in any relevant jurisdiction including the
United States; or
(g) if 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 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 ninety (90) days thereafter; or
(h) if the Lessee shall stop payments on its aircraft financing or
leasing obligations generally or shall cease to carry on its
business or shall be unable to pay its debts as they become due; or
(i) if the Security Deposit shall be attached or rendered unavailable to
the Beneficiary or the Beneficiary shall be ordered by a court of
competent jurisdiction to repay or return the Security Deposit prior
to the end of the Term or the Letter of Credit shall not be renewed
or replaced prior to the third Business Date prior to its expiry
date unless (i) Lessee shall have made a cash deposit with
Beneficiary of $[ ]* or (ii) Beneficiary shall have drawn under the
Letter of Credit, on or prior to such expiry date.
ARTICLE 15. REMEDIES
Upon the occurrence of any Event of Default under the provisions of
Article 14.1 (f) or (g), all of Lessee's rights hereunder in and to the
Equipment shall automatically terminate. Upon the occurrence of any Event of
Default under any other provision of Article 14, and at any time thereafter so
long as the same shall be continuing, Lessor may, at its option, declare this
Lease to be in default and at any time thereafter, Lessor may, in addition to
any other remedies provided herein or by applicable law, exercise one or more of
the following remedies with respect to the Equipment or any part thereof, as
Lessor in its sole discretion shall elect:
(a) Demand that Lessee, and Lessee shall upon the written demand of Lessor and
at Lessee's expense, return promptly to Lessor the Equipment as Lessor may
specify in the manner and condition required by, and otherwise in
accordance with all of the provisions of, Article 13 hereof (including,
without limitation, the return of all Records) as if the Equipment were
being returned at the end of the Term therefor; or Lessor, at its option,
may enter upon the premises where all or any part of the Equipment is
located and take immediate possession of and remove the same (together
with any engine which is not an Engine but which is installed on the
Airframe, subject to all of the rights of the owner, lessor, lienor or
secured party of such engine, provided, however, that such Airframe with
an engine (which is not an Engine) installed thereon may be flown to a
location within the continental United States, and such engine shall be
held for the account of any such owner, lessor, lienor or secured party
or, if owned by Lessee, may, at the option of Lessor, be exchanged with
Lessee for an Engine in accordance with the terms of Article 13 hereof) by
summary proceedings or otherwise, all without liability accruing to Lessor
for or by reason of such entry or taking of possession, whether for the
restoration of damage to property caused by such taking or otherwise;
(b) Whether or not Lessor shall have exercised, or shall thereafter at any
time exercise, any of its rights under paragraph (a) above, Lessor, by
written notice to Lessee specifying a payment date, may demand that Lessee
pay to Beneficiary, and Lessee shall pay to Beneficiary, on the payment
date specified in such notice, as liquidated damages for loss of a bargain
and not as a penalty (in lieu of the Basic Rent for the Equipment due for
the period commencing after the date specified for payment in such
notice), any accrued but unpaid Basic Rent for such Aircraft due to and
including the payment date specified in such notice, plus an amount equal
to the excess of (i) the aggregate unpaid Basic Rent for the Equipment
which would otherwise have accrued over the remainder of the Term therefor
but for the Event of Default, discounted monthly to present value as of
the payment date specified in such notice at 7% per annum over (ii) the
Fair Rental Value of the Aircraft for the remainder of the Term discounted
to present value at the same rate. The amounts specified in such notice
shall continue to bear interest at the Incentive Rate from the payment
date specified in said notice until payment is made;
(c) In the event Lessor shall have relet the Equipment, Lessor, in lieu of
exercising its rights under paragraph (b) above with respect to the
Equipment may, if it shall so elect, demand that Lessee pay Beneficiary
and Lessee shall pay Beneficiary, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of the Basic Rent for the Equipment
due for the period commencing after the date of reletting) any accrued but
unpaid Basic Rent for the Equipment due up to and including the date of
reletting or sale plus the excess of: (i) the aggregate unpaid Basic Rent
for the Equipment which would otherwise have become due over the Term
therefor discounted monthly to present value as of the date of reletting
at 7% per annum over (ii) the aggregate basic rental payments to become
due under the reletting from the date of such reletting to the date upon
which the Term would have expired but for Lessee's default, discounted
monthly to present value as of the date of the reletting at 7% per annum;
(d) Proceed by appropriate court action or actions to enforce performance by
Lessee of the applicable covenants of this Lease and to recover damages
for the breach hereof;
(e) Terminate this Lease as to any or all items of Equipment, which
termination shall be effective immediately upon Lessor having given notice
of termination to Lessee, whereupon Lessee's right to possess and use such
items of Equipment shall immediately cease.
Except as otherwise specifically provided above, Lessee shall also be liable for
all unpaid Rent due hereunder before, during or after the exercise of any of the
foregoing remedies with respect thereto, including all technical and remarketing
expenses, legal fees and other costs and expenses incurred by Lessor and/or
Beneficiary by reason of the occurrence of any Event of Default or the exercise
of Lessor's remedies with respect thereto and all costs and expenses incurred in
connection with the return of the Aircraft in accordance with the terms of
Article 13 hereof, or in placing such Aircraft in the condition and
airworthiness as required by such Article.
Except as otherwise expressly provided above, no remedy referred to in this
Article is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available to Lessor
at law or in equity; and the exercise or beginning of exercise by Lessor of any
one or more of such remedies shall not preclude the simultaneous or later
exercise by Lessor of any or all of such other remedies. No express or implied
waiver by Lessor of any Event or Event of Default shall in any way be, or be
construed to be, a waiver of any future or subsequent Event or Event of Default.
ARTICLE 16. [Intentionally Omitted]
ARTICLE 17. LETTER OF CREDIT
As required by Section 3.3, Lessee shall deliver to Beneficiary as the
Security Deposit an irrevocable standby Letter of Credit ("L/C") in the amount
of $[ ]*. Such L/C shall be substantially in the form of Exhibit H hereto and
otherwise in form and substance and from a bank satisfactory to Beneficiary and
shall provide, among other things, that the L/C is irrevocable until 90 days
after the end of the Term, the L/C may be drawn upon by Beneficiary upon
presentation to the issuing bank of a certificate of Beneficiary stating that an
Event of Default has occurred and is continuing under the Lease. Lessee agrees
that in an Event of Default, Beneficiary may, at its option, immediately draw
under such L/C and apply the same towards any or all amounts due under this
Lease, whether such amounts due constitute Basic Rent payments, damages for
breach of this Lease or other Rent payments, all in Beneficiary's sole
discretion. Partial drawings will be permitted. If the L/C expires prior to the
date set forth above, Beneficiary may draw the L/C in full if Lessee has not
caused it to be renewed prior to the third Business Date prior to its expiry
date.
ARTICLE 18. MISCELLANEOUS
18.1 CONSTRUCTION AND APPLICABLE LAW.
Any provision of this Lease which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
such provisions hereof, and any such prohibition or enforceability in any
jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction. To the extent permitted by applicable law,
Lessee hereby waives any provision of law which renders any provision
hereof prohibited or unenforceable in any respect. No term or provision of
this Lease may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by the party against whom the
enforcement of the change, waiver, discharge or termination is sought.
This Lease shall constitute an agreement of lease, and nothing herein
shall be construed as conveying to Lessee any right, title or interest in
the Aircraft or Engine except as a lessee only. The captions in this Lease
are for convenience of reference only and shall not define or limit any of
the terms or provisions hereof. This Lease shall in all respects be
governed by, and construed in accordance with, the laws of the State of
New York, United States of America, including all matters of construction,
validity and performance, without regard to the conflict of laws rules
thereof.
18.2 NOTICES.
All notices, demands and other communications required under the terms
hereof shall be in writing, and any such notice shall be deemed given when
received (if personally delivered) or, if sent by recognized international
courier, three Business Days after being sent, prepaid, addressed to the
appropriate party at its address set forth below, or at such other place
as such party may from time to time hereafter designate to such other
parties in writing:
If to Lessee:
Western Pacific Airlines, Inc.
2864 South Circle Drive
Suite 1100
Colorado Springs, Colorado 80906
Attention: Chief Financial Officer
Telephone: (719) 527-7394
Telecopy: (719) 527-7480
with a copy to:
Smith, Gambrell & Russell, LLP
1230 Peachtree Street
Suite 3100
Atlanta, Georgia 30309
Attention: Howard E. Turner, Esq.
Telephone: (404) 815-3594
Telecopy: (404) 815-3509
If to Lessor:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telephone: (801) 246-5630
Telecopy: (801) 246-5053
With a copy to Beneficiary:
KG Aircraft Leasing Co., Ltd.
3 Adelaide Court
Adelaide Road
Dublin 2, Ireland
Attention: Managing Director
Telephone: 353-1-475-7373
Telecopy: 353-1-475-7378
and with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: C. Payson Coleman
Telephone: 212-858-1426
Telecopy: 212-858-1500
All such notices, demands and other communications may also be given by
telefax. In such event, such notice, demand or communication shall be
deemed given on the Business Day following actual transmission to the
recipient party of the telefax. Changes in the addresses for notices
hereunder may be made by written notice to the other parties mentioned
above.
18.3 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 perform or comply with any of its
agreements contained herein in each case, beyond any applicable grace
period, Lessor or Beneficiary may itself, after such prior consultation
with Lessee as shall be reasonable under the circumstances, make such
payment or perform or comply with such agreement, and the amount of such
payment and the amount of the reasonable expenses of Lessor and/or
Beneficiary incurred in connection with such payment or the performance of
or compliance with such agreement, as the case may be, together with
interest thereon at the Incentive Rate, shall be deemed Supplemental Rent,
payable by Lessee upon demand.
18.4 CORPORATE EXISTENCE; MERGER.
Lessee will preserve and maintain its corporate existence and all its
rights, privileges and franchises in every jurisdiction in which the
character of its property or the nature of its business makes licensing or
qualification necessary. Lessee will not merge or consolidate with or into
any person or entity or sell, lease or otherwise dispose of all or
substantially all of its properties, unless the surviving corporation
expressly assumes in a manner reasonably satisfactory to Beneficiary all
of Lessee's obligations hereunder.
18.5 QUIET ENJOYMENT.
Lessor covenants that as long as no Event of Default has occurred and is
continuing, neither Lessor nor any person claiming by, through or under
Lessor shall interfere during the Lease Term with the use, possession and
quiet enjoyment of the Aircraft by the Lessee or the exercise by Lessee of
its rights and privileges hereunder.
18.6 ASSIGNMENT.
Except as specifically set forth in Article 5.1, this Lease and all or any
part of Lessee's rights and obligations hereunder shall not be assigned or
transferred by Lessee without Lessor's prior written consent, and any
purported assignment or transfer shall be void. Subject to the foregoing,
this Lease shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties hereto, including but not
limited to any corporation into which Lessee may merge, or which may
succeed to all or substantially all of the assets of Lessee, and such
corporation shall expressly assume the liability created hereunder.
Lessor's and Beneficiary's interest in this Lease Agreement and in the
Aircraft and in the trust created under the Trust Agreement are assignable
and alienable by Lessor and Beneficiary in whole but not in part upon
receipt of Lessee's consent (which will not be required if an Event of
Default has occurred and is continuing) which will not be unreasonably
withheld or delayed, and upon such assignment Lessor and Beneficiary shall
be discharged from all further obligations hereunder in respect of such
interest or Equipment assigned and the assignee or transferee shall
succeed to all of Lessor's and Beneficiary's rights, interests and
obligations in respect thereof as though such assignee or transferee had
been the initial owner or lessor, as the case may be, in respect thereof.
Lessee shall at Beneficiary's expense comply with all reasonable requests
of Lessor and/or Beneficiary, their successors and assigns in respect of
the assignment so long as Lessee's obligations hereunder are not increased
and Lessee's rights and privileges are not reduced thereby (including, if
requested, execution of a lease agreement on terms substantially identical
to this Lease Agreement substituting the name of such successor or
assignee for Lessor and/or Beneficiary). For the avoidance of doubt, the
foregoing shall not (i) restrict Lessor's and Beneficiary's right to
finance the Aircraft and create a security interest therein and in the
Lease without Lessee's consent, or (ii) change Lessee's obligation to
cooperate as and to the extent provided in Article 11.
18.7 EXPENSES.
Each party shall bear its own expenses in connection with entering into
this Lease except that Beneficiary shall be responsible for Lessor's costs
and expenses and Lessee and Beneficiary will split FAA counsel's fees and
expenses evenly. The prevailing party in any action or proceeding between
Lessor, Beneficiary and/or Lessee to enforce the terms of this Lease shall
be entitled to recover from the other party all its costs and expenses,
including reasonable attorneys' fees incurred by such prevailing party in
such action or proceeding.
18.8 SURVIVAL.
The representations, warranties, indemnities and agreements of the parties
provided for in this Lease, and each party's obligations under any and all
provisions hereof, shall survive the delivery of the Aircraft and the
expiration or other termination of this Lease and are expressly made for
the benefit of, and shall be enforceable by the applicable party and their
respective successors and assigns.
18.9 ENGLISH LANGUAGE.
All Records shall be kept and maintained in the English language with
respect to entries made therein pertaining to the operation, repair,
maintenance or overhaul of the Equipment during the Lease Term. All other
information, notices, communications, opinions, reports, records, and the
like required to be given, kept or maintained by Lessee or to be delivered
to Lessor hereunder, if not in the English language, shall be accompanied
by an English translation; provided, however, that the English version of
all such information, notices, communications, opinions, reports, and
records and other documents, including this Lease, shall govern in the
event of any conflict with the non-English version thereof.
18.10 JURISDICTION.
The Lessor, Beneficiary and Lessee each irrevocably agrees that any state
or Federal Court in the State of New York shall have jurisdiction to hear
and determine any suit, action or proceeding, and to settle any disputes,
which may arise out of or in connection with this Agreement and, for such
purposes, irrevocably submits to the jurisdiction of such courts. The
Lessor, Beneficiary and Lessee each (i) irrevocably waives any objection
which it might now or hereafter have to the courts referred to in the
above provisions of this Article being nominated as the forum to hear and
determine any suit, action or proceeding, and to settle any disputes,
which may arise out of or in connection with this Agreement and agrees not
to claim that any such court is not a convenient or appropriate forum and
(ii) KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF ANY PARTIES
HERETO OR THERETO.
The submission to the jurisdiction of the courts referred to in the above
provisions of this Article shall not (and shall not be construed so as to)
limit the right of the Lessor, Lessee or Beneficiary to take proceedings
against the Lessee, Lessor or Beneficiary, as applicable, in any other
court of competent jurisdiction nor shall the taking of proceedings in any
one or more jurisdictions preclude the taking of proceedings in any other
jurisdiction, whether concurrently or not.
Lessee, Lessor and Beneficiary, each hereby appoints CT Corporation
System, New York, N.Y., as its agent for service of process relating to
any proceedings before the New York courts in connection with this
Agreement and agrees to maintain a process agent in New York throughout
the Term. Lessee agrees to service of process by mail to its address set
forth herein.
18.11 CURRENCY.
If for the purpose of obtaining judgment in any court in any country it
becomes necessary to convert the amount due under this Lease into the
currency of such country, then the conversion shall be at the rate of
exchange prevailing on the day on which the court judgment is given. For
this purpose, "rate of exchange" means the rate at which Lessor,
Beneficiary or Lessee, as applicable, is able on the relevant date to
purchase Dollars with such currency in such country. In the event that
there is a change in the rate of exchange prevailing between the day on
which the judgment is given and the date of payment of the amount due,
Lessee, Lessor or Beneficiary, as applicable, shall pay such additional
amount as may be necessary to ensure that the amount paid on such date is
the amount in the currency of such country which, when converted at the
rate of exchange prevailing on the date of payment, is the amount then due
under this Lease in Dollars. Any amount due from Lessee under this Article
18.11 shall be due as a separate debt and shall not be affected by
judgment being obtained for any other sums due under or in respect of this
Lease.
18.12 INTEGRATION.
This Lease Agreement incorporates and supersedes all prior agreements and
understandings between the parties hereto including the Letter of Intent.
This Agreement may not be amended, waived or modified orally, but only in
a written supplement hereto signed by the parties hereto.
18.13 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 that this Agreement constitutes chattel paper under the
Uniform Commercial Code of any relevant jurisdiction, no security interest
in this Agreement may be perfected except by possession of the counterpart
marked "ORIGINAL" and containing the executed receipt on the signature
page hereof. Any other counterpart of this Agreement shall constitute a
duplicate but shall not be the chattel paper counterpart.
18.14 BANKRUPTCY - SECTION 1110
It is the intention of the parties that the provisions of 11 U.S.C.
Section 1110 or any analogous section of the Federal bankruptcy laws, as
amended from time to time, shall be applicable to the interests of the
Lessor and Beneficiary in the Aircraft and to any right of the Lessor and
Beneficiary to take possession of the Aircraft in compliance with this
Agreement. This Agreement is intended to be a lease for Federal income tax
purposes.
<PAGE>
IN WITNESS WHEREOF, Lessor, Beneficiary and Lessee and have each caused
this Lease to be duly executed by their authorized officers or representatives
as of the day and year first above written.
WESTERN PACIFIC AIRLINES, INC.
By:___________________________
Title:________________________
KG AIRCRAFT LEASING CO., LTD.
By:___________________________
Title:________________________
Receipt of the chattel paper counterpart marked "ORIGINAL" is hereby
acknowledged.
KG AIRCRAFT LEASING CO., LTD.
By:___________________________
Title:________________________
<PAGE>
EXHIBIT "A"
LEASE SUPPLEMENT NO.1
THIS LEASE SUPPLEMENT NO. 1, dated _______________, 1997, between FIRST
SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity except as
set forth herein but as Trustee for and on behalf of KG Aircraft Leasing Co.,
Ltd., pursuant to Trust Agreement dated , 1997 (the "Lessor"), KG AIRCRAFT
LEASING CO., LTD., an Irish limited liability company ("KG") and Western Pacific
Airlines, Inc., a Delaware corporation (the "Lessee").
KG and Lessee have heretofore entered into a Lease Agreement dated as of
May , 1997, (herein the "Lease Agreement" and the terms defined therein being
herein used with the same meaning), which Lease Agreement provides for the
execution and delivery from time to time of Lease Supplements, under the Lease
Agreement.
KG and Lessee, by their execution hereof agree that First Security Bank,
National Association will be the Lessor under the Lease Agreement and Lessor
agrees to be bound by the terms thereof.
The Lease Agreement relates to the Airframe and Engines described below,
and a counterpart of the Lease Agreement is attached hereto and made a part
hereof and this Lease Supplement, together with such attachment, is being filed
for recordation on the date hereof with the relevant authorities as one
document.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee, and Lessee hereby accepts and
leases from Lessor, under the Lease Agreement, the following described
Boeing Model 737-353 airframe:
(i) Airframe: U.S. Registration: N957WP;
Manufacturer's Serial No. 24060; and
(ii) Engines: Two CFM International CFM56-3B2 engines bearing
respectively manufacturer's serial numbers
722139 and 723130
2. The Delivery Date of the Aircraft is the date of this Lease Supplement set
forth in the opening paragraph hereof.
3. The Term for the Aircraft shall commence on the date hereof.
4. Lessee's duly appointed and authorized technical experts have inspected
the Aircraft and Lessee accepts the Aircraft for all purposes of the Lease
Agreement, [subject to rectification of any discrepancies detected during
the Test Flight and set forth on the list attached hereto].
5. Lessee hereby confirms its agreement to pay Lessor Rent and any other
amounts with respect to the Aircraft throughout the Term therefor in
accordance with the terms of the Lease Agreement.
6. Lessee hereby confirms to Lessor that the Airframe and Engines have been
duly marked as showing Lessor's title thereto in accordance with the terms
of the Lease Agreement.
7. The Aircraft is insured in accordance with the terms of Lease.
8. No Event of Default is subsisting and the representations and warranties
contained in Article 4.2 of the Lease are, by reference to the facts and
circumstances existing today, true and accurate in all respects.
9. To the best of Lessee's knowledge and belief, the Lessee has no right of
set-off, deduction, withholding or counterclaim against the Lessor
whatsoever as of the date hereof except with respect to the discrepancies,
if any, set forth on the list attached hereto.
10. All of the terms and provisions of this Lease Supplement are hereby
incorporated by reference into the Lease Agreement to the same extent as
if fully set forth therein. Appendices A, B and C to this Lease Supplement
and any attachments thereto are to be read together and form part of this
Lease Supplement.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease
Supplement to be duly executed by their authorized officers or representatives
as of the day and year first above written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION, in its individual capacity but solely
as Owner Trustee under the Trust Agreement dated , 1997.
By: _______________________
Title: ____________________
WESTERN PACIFIC AIRLINES, INC.
By:_______________________
Title:____________________
<PAGE>
KG AIRCRAFT LEASING CO., LTD.
By: _______________________
Title: ____________________
<PAGE>
APPENDIX A
Aircraft Hours and Cycles
as of , 19___
U.S. Registration Mark: N957WP Serial Number 24060
A. AIRFRAME
Aircraft Total Time (Hours) _______
Aircraft Total Landings (Cycles) _______
Lessee Service Check - Time to next Check _______
Lessee 'A' Check - Time to next Check _______
Lessee 'C' Check - Time to next Check _______
B. CFM International CFM56-3B2 Engine
Serial Hours/Cycles
Position Number TCSN TTSN TTSV/TCSV to Next Limit
1
2
C. Auxiliary Power Unit
Serial Total Hours/Cycles
Number Hour/Cycles TTSV TTSOH to Next Limit
D. Landing Gear
Hours Cycles
Nos. Hours/Cycles Remaining Remaining
NLG
Rt Main Gear
Lt Main Gear
E. Fuel Remaining in Tanks
- -----
Key:
TCSN: Total Cycles Since New
TTSN: Total Time Since New
TTSV/TCSV: Total Time Since Shop Visit/Total Cycles Since Shop Visit
TTSOH: Total Time Since Last Overhaul
<PAGE>
APPENDIX B
DOCUMENTATION DELIVERY RECEIPT
Western Pacific Airlines, Inc. (the "Lessee"), and First Security Bank,
N.A., as Owner Trustee (the "Lessor") hereby confirm the delivery by the Lessor
and receipt by the Lessee of the Technical Records as described on the
Attachment 1 hereto and a part hereof, on __________________, 19__, in ________,
at _________ time.
WESTERN PACIFIC AIRLINES, INC. FIRST SECURITY BANK, NATIONAL
ASSOCIATION,
as Owner Trustee
By ________________________ By _______________________
Its _______________________ Its ______________________
<PAGE>
ATTACHMENT 1
TECHNICAL RECORDS AT DELIVERY
MANUALS LISTING
(ALL HARDCOPY UNLESS NOTED)
The Aircraft will be re-delivered with the same number of copies of the
documents listed below as were delivered to Lessee at delivery.
1. AD's and SB compliance records (Airframe and Engines) - information must
include method of compliance, date of accomplishment and signature of
person accomplishing work.
2. Engine Records - record of last (major inspection) overhaul, disc part
numbers, cycle/hour limits.
3. Records of life limited parts, life limited parts history since new (both
Engine and Airframe) and hours/cycles used.
4. Complete record of last Airframe ("D" check or equivalent) overhaul
information must include both routine and non-routine data.
5. Landing gear overhaul records (including shop report).
6. Copies of engineering orders relating to repairs/modifications of the
Airframe, components or systems.
7. If applicable, stress analysis and material certification date relating to
major interior modifications, i.e., galley installations, overhead and bin
enclosures if no STC available.
8. Ground proximity warning system-certification details and installation
information, including part numbers of major components.
9. Time control records - engine TSO, TSEHM, TSHSI and similar data on
time-controlled components under operator's approved program.
10. Approved flight manual, IPC, maintenance manual, wiring manuals, galley
manuals and passenger seat manuals.
11. Record of last weighing.
12. Copy of current weight and balance (loading system) for passenger and
cargo loading.
13. Aircraft weight and balance manual (MFG's).
14. Approved Interior arrangement drawing.
15. Records of last "A" check "B" check and "C" check.
16. Log book pages (1 year).
17. Letter certifying Aircraft status relating to accident or incidents.
18. Avionics equipment list (must include flight data recorder information).
19. Flight data recorder calibration sheet, if applicable.
20. Last calibration information on altimeters, airspeed indicators and ATC
transponder test, including date of accomplishment.
21. Operators current maintenance program document, if permitted.
22. Part 36 compliance information.
23. List of approved overhaul agencies, if permitted.
24. Record of last APU overhaul.
25. Records of last overhaul of hard time limited component as controlled by
operator's maintenance program.
26. List of all emergency equipment with part numbers.
27. Aircraft Maintenance Manual - Microfilm.
28. Illustrated parts Catalogue - Microfilm.
29. Wiring Diagram Manual - Microfilm.
30. System Schematics Manual - Hard copy.
31. Structural Repair Manual - Microfilm.
32. Bite Manual - Hard Copy.
33. Boeing Service Letters - Microfilm.
34. Boeing Service Letters Index - Microfilm.
35. Boeing Service Bulletins - Microfilm.
36. Boeing Service Bulletins Index - Microfilm.
37. Boeing Service Activities Report - Hard Copy.
38. Component Maintenance/OVHL Manual - Microfilm.
39. Illustrated Parts Catalogue - Hard Copy.
40. Dispatch Deviation Procedures
41. Power Plant Build-up Manual.
42. Aircraft Operations Manual.
43. Quick Reference Handbook - Hardcopy, if available.
<PAGE>
APPENDIX C
LOOSE EQUIPMENT SCHEDULE
EQUIPMENT
1. 4 Emergency Flashlights, DME Corp
2. PBE, S/N 01860, PB Corp.
3. PBE, S/N 0819, PB Corp.
4. Scott 5500 Oxygen bottle
5. Scott 5500 Oxygen bottle
6. Scott 5500 Oxygen bottle
7. Scott 5500 Oxygen bottle
8. ACR Electronics EM-1 Megaphone (2)
9. General Halon 1211 Fire Extinguisher
10. General Halon 1211 Fire Extinguisher
11. Kidde Liquid Fire Extinguisher
12. Zee First Aid Kits (2)
DOCUMENTS
1. Boeing 737-300 Quick Reference Handbook
2. CFM 56 Performance Card
3. 737 Exterior Inspection Card
4. 737 Adjusted Weight Tables Card
5. Pilots Rider Reference Card
6. 737 Operations Manual Volumes 1, 2, 3
7. 737 Airplane Flight Manual Volumes 1, 2, 3, 4
8. PBE S/N 02703
<PAGE>
EXHIBIT "B"
FORM OF LETTER OF QUIET ENJOYMENT
From: _______________________ (the "undersigned")
To: WESTERN PACIFIC AIRLINES, INC. (the "Lessee")
In Re: One Boeing 737-300 Aircraft Manufacturer's Serial Number 24060
(the "Aircraft")/Aircraft Lease Agreement (the "Lease") dated
____________, 1997 between KG Aircraft Leasing Co., Ltd. (the
"Lessor") and the Lessee
Dear Sirs:
1. In consideration of $10 and other good and valuable consideration received
from Lessee and/or Lessor the receipt of which is hereby acknowledged, we
confirm to you that we will not interfere with the quiet possession and use of
the Aircraft by the Lessee or the exercise by the Lessee of its rights and
privileges under the Lease throughout the term of the Lease, but subject to the
terms of the Lease so long as no Event of Default (as defined in the Lease) has
occurred and is continuing.
2. The foregoing undertaking is not to be construed as restricting the rights of
the undersigned to dispose of its interest in the Aircraft to such persons and
on such terms as it considers appropriate. However, if the undersigned exercises
such rights during the term of the Lease and provided that at or prior to the
time of such disposal the Lessor has not issued a termination notice with
respect to an Event of Default (as defined in the Lease) which has occurred and
is continuing at the time such notice was issued, the undersigned will (subject
to any requirements or restrictions imposed by applicable law) dispose of the
Aircraft expressly subject to the Lease and on terms that the purchaser issues a
written undertaking to you in form and substance satisfactory to you that it
will not interfere with your quiet possession and use of the Aircraft throughout
the remaining term of the Lease, so long as no Event of Default (as defined in
the Lease) has occurred and is continuing.
3. The undersigned hereby represents to Lessee that (i) it is a company
incorporated and validly existing under the laws of [ ] and has the corporate
power to enter into and perform its obligations under this letter of quiet
enjoyment and to own its assets and carry on its business as it is now being
conducted and (ii) this letter of quiet enjoyment is the legal, valid and
binding obligation of the undersigned.
4. This Letter of Quiet Enjoyment shall be governed by, and construed in
accordance with, the internal laws of the State of New York.
Please countersign this letter to confirm your agreement to the arrangements
contained herein.
[Lessor and Beneficiary]
For and on behalf of
[ ]
Agreed and accepted:
For and on behalf of WESTERN PACIFIC AIRLINES, INC.
<PAGE>
EXHIBIT "C"
MAINTENANCE RESERVES ADJUSTMENT FORMULA
Flight Hour/ Rates
Cycle Ratio
2.5 - 2.59 $[ ]*
2.4 - 2.49 [ ]*
2.3 - 2.39 [ ]*
2.2 - 2.29 [ ]*
2.1 - 2.19 [ ]*
2.0 - 2.09 [ ]*
1.9 - 1.99 [ ]*
1.8 - 1.89 [ ]*
1.61 - 1.79 [ ]*
1.51 - 1.6[ ]*
1.41 - 1.5[ ]*
1.31 - 1.4[ ]*
1.21 - 1.3[ ]*
1.11 - 1.2[ ]*
1.01 - 1.1[ ]*
.91 - 1.0[ ]*
<PAGE>
EXHIBIT "D"
ADDITIONAL DELIVERY REQUIREMENTS
In addition to the delivery conditions defined in Article 2.1.3(i) of this
Agreement, the following additional conditions shall apply on delivery of the
Aircraft to Lessee at Beneficiary's cost:
<PAGE>
1. The Aircraft will be in 142 seat all economy configuration (or as
otherwise agreed by Lessee);
2. The Aircraft will be painted in Philippine Airlines ("PAL") livery;
3. The Aircraft shall be in condition to meet the minimum conditions required
to operate the Aircraft under FAR Part 121; provided that Lessee's
FAA-approved maintenance personnel shall be in attendance at Lessee's
expense for the entire "C" check in Manila so that they can sign off the
work cards;
4. The Aircraft shall be in good operating condition airworthy and with all
systems operational and within manufacturers' manual limits, irrespective
of deviations or variations authorized by the Minimum Equipment List (MEL)
or Configuration Deviation List (CDL);
5. The Aircraft shall have been cleaned externally within the last two weeks
and have had its interior deep cleaned immediately prior to delivery in
accordance with Lessee's deep clean specification and in conformance with
major airline standards. The seat covers shall be in good condition;
6. The Aircraft shall comply with the Manufacturer's specification, as
revised from time to time by the incorporation of certain airworthiness
directives, service bulletins and modifications which enhance the
Aircraft's operational capability;
7. The Aircraft shall have had accomplished thereon on a terminating action
basis and be in compliance with all outstanding mandatory orders,
directives, FARs and instructions affecting the Aircraft as issued by the
FAA or the Manufacturer which have a compliance deadline prior to the
first anniversary of the Delivery Date.
8. All damage to the Aircraft which is not within the applicable limits shall
have been permanently repaired and certified in accordance with the
requirements of the FAA and the Manufacturer. External repairs will, where
applicable, be flushed or otherwise permanently repaired and certified in
accordance with the requirements of the FAA and the Manufacturer;
9. Lessor shall provide one full set of all technical documents in English
relating to the Aircraft as listed on the Attachment to Appendix B to the
form of Lease Supplement No. 1 attached hereto as Exhibit "A", including
copies of all engineering orders, complete records of AD and Service
Bulletin compliance and copies of manufacturer's manuals relating to the
Airframe, Engines, interior configurations, components and APU, all in
compliance with FAA regulations. All records necessary for Lessee to
comply with its obligations under the Lease and to operate the Aircraft
under FAR Part 121 shall be delivered to Lessee at the same time as the
Aircraft and shall be in English;
The Records shall be delivered with the Aircraft, except that
documentation relating to the pre-delivery "C" Check shall be delivered as
soon as practicable but in any event, within 15 days from the date the
Aircraft is delivered to Lessee. At the time of delivery of the Records
for the Aircraft to Lessee, Lessee and Lessor shall execute an aircraft
documentation return receipt (the "Aircraft Documentation Delivery
Receipt") in the form attached as Appendix B to Lease Supplement No. 1;
10. Cleaning and treating of minor or moderate corrosion and correction of all
severe or exfoliated corrosion deferred by the prior operator or found by
the Lessee during the Lessee's ground inspection shall be accomplished by
the Beneficiary in accordance with FAA approved data prior to delivery;
11. The Aircraft shall have all deferred maintenance items and pilot log book
reports rectified on a terminating action basis;
12. The Aircraft shall be capable of certificated, full rated performance
without limitations throughout the entire operating envelope as defined in
the Airplane Flight Manual. Performance compliance will be demonstrated at
the time of the pre-delivery test flight and/or by inspection and testing
of the powerplants (engines, nacelles and accessories) in accordance with
the Engine Maintenance Manual, at Lessee's option;
13. The Aircraft (including the Records and other related documents to be
delivered therewith in accordance with Appendix B hereto) shall be made
available to Lessee for ground inspection by Lessee at the delivery
location. Records will be made available to Lessee at least 15 days prior
the date of delivery. Such inspection shall commence as soon as
Beneficiary begins its performance of the pre-delivery check referred to
below. The areas of the Aircraft required to perform the checks described
in these delivery conditions, shall be opened and Beneficiary shall allow
Lessee to accomplish its inspection in order to determine that the
Aircraft (including the Records) is in the condition required herein.
During such checks, Lessee personnel shall not have the right to request
that adjacent additional panels or areas be opened to allow further
inspection. Beneficiary, at its own expense, shall promptly correct all
deficiencies affecting airworthiness and any discrepancies from the
condition required by the provisions of this Lease which are observed
during such inspection and are communicated in writing by Lessee to
Beneficiary. All repairs shall be classified as permanent;
14. The Aircraft shall be test flown by PAL for approximately two hours,
during which Lessee's and Beneficiary's representatives shall be on board,
in Manila and then, following correction of any defects identified during
such test flight, ferried by PAL to the Delivery Location. Up to three (3)
of the Lessee's representatives (or more if consented to by PAL and
Beneficiary) may participate in such test flight as observers. The test
flight shall be flown using Boeing's standard operational test flight
procedures. Upon completion of the test flight, the representatives of
Lessee and Beneficiary shall agree in writing upon any discrepancies in
such Aircraft required to be corrected by Beneficiary in order to comply
with the provisions of this Lease and Beneficiary shall, or shall cause
PAL, to promptly correct any such discrepancies. Lessee may be on board
for the ferry flight, but not for the purpose of discovering additional
defects. There will be no additional test flight following any work done
at the Delivery Location and prior to acceptance of the Aircraft; provided
that the Aircraft will be flown at the Delivery Location by PAL or
Beneficiary to the extent required to prove that any defect discovered on
the ferry flight by Beneficiary which requires proving has been corrected.
All flights pursuant to this clause above shall be made at Beneficiary's
(or PAL's) expense, except that Lessee shall provide its observers at
Lessee's expense;
15. The condition of the Airframe upon delivery shall be as follows:
a. The Airframe shall have accomplished, in accordance with the
Manufacturer's Maintenance Planning Document, immediately prior to
the test flight in Manila a "C" Check. All routine and non-routine
maintenance items will be corrected during the "C" Check and no
carry-over items will exist at delivery;
b. the installed main landing gear and nose landing gear shall be in
good operating condition and shall have at least half-time remaining
prior to removal from the Aircraft for overhaul or sampling;
16. The condition of installed systems upon delivery shall be as follows:
a. CONTROLLED COMPONENTS
Aircraft and engine hour and/or cycle controlled components at time
of delivery to Lessee shall have remaining as a minimum, 3,000
Flight Hours and/or 1200 Cycles, whichever is applicable until the
next scheduled removal for overhaul, test, inspection or
disassembly. All components controlled on a calendar basis shall
have remaining, as a minimum, twelve (12) months before scheduled
removal for testing, inspection or overhaul. Such hour/cycle or
calendar controlled components are defined as those components for
which hours and/or cycles and/or calendar times are controlled under
the maintenance program. However, if a component or part has a life,
overhaul or check interval limit that is less than the above stated
hours, cycles or calendar time limit requirement, such component or
part shall have as a minimum 90 per cent of the interval remaining
to removal for replacement or overhaul. Beneficiary will not install
life-limited or rotable components on the Aircraft for the purpose
of depleting the value of the Aircraft;
b. CONDITION OF MONITORED COMPONENTS
Aircraft and engine systems, components or parts maintained "on
condition" or condition monitored shall be within the relevant
manufacturer's specified or recommended limits with no adverse
trends;
17. Each of the Engines and each module and part thereof at time of delivery
to Lessee shall be in good operating condition and shall meet the
following requirements:
a. TIME SINCE REFURBISHMENT
Each Engine shall have remaining no less than three thousand (3,000)
Flight Hours to its next scheduled shop visit pursuant to the
manufacturer's engine management program policy recommendation, and
shall not meet the delivery condition if any Engine has remaining
less than such Flight Hours;
b. LIFE LIMITED PARTS
Life limited parts shall have remaining at least 3,000 Cycles until
next scheduled removal for replacement of life limited parts;
c. BOROSCOPE INSPECTION
Both the hot and cold sections of the Engines and APU shall be
boroscoped in accordance with Manufacturer's recommendations at
Beneficiary's expense at delivery, and Beneficiary will correct all
discrepancies that exceed Manufacturer's maintenance manual
limitations at its expense. Beneficiary shall provide Lessee with a
written report and video tape of such boroscope and Lessee will be
entitled to be present at any such boroscope. Beneficiary shall
conduct a maximum power assurance run on each Engine to ensure that
each Engine has an EGT temperature margin of 21 degrees or higher.
Satisfactory evidence shall be provided to Lessee reflecting the
correction of any discrepancies found during such inspection;
d. TREND MONITORING
All Engine parameters shall be within the Manufacturer's Engine
Maintenance Program limits with no adverse trends. If the Aircraft
engine historical and maintenance records and/or trend monitoring
data indicate a rate of acceleration in performance deterioration or
oil consumption of any Engine and/or the Auxiliary Power Unit (APU)
which is higher than normal, Beneficiary shall, prior to delivery,
correct or cause to be corrected such conditions to meet normal
manufacturer's tolerances;
18. The condition of the Auxiliary Power Unit upon return shall be as follows:
The installed APU at the time of delivery to Lessee shall be in good
operating condition, shall have remaining at least one half of the
interval time remaining before the next scheduled hot section inspection;
19. Upon completion of the ferry flight from Manila and after Beneficiary has
corrected the discrepancies as required to comply with all of the delivery
conditions set forth in this Schedule, the Aircraft condition shall be
technically accepted by Lessee's representatives at the delivery location
by the execution of a technical acceptance certificate in the form of
Lease Supplement No. 1.
20. The Aircraft shall have installed all optional no charge vendors, and
manufacturers' service bulletin kits theretofore received by previous
operator for the Aircraft and to the extent received but not installed,
such kits shall be furnished free of charge to Lessee (and properly packed
and loaded on the Aircraft as cargo at delivery);
21. At a minimum, and without limitation of any more stringent requirements
set forth herein, the Aircraft and all Aircraft records shall be at least
in condition upon delivery as Lessee would be required to return the
Aircraft and Aircraft records upon redelivery and Lessee shall have all
such rights with respect to noncompliance as Lessor would have upon return
of the Aircraft and Aircraft records.
<PAGE>
EXHIBIT "E"
REDELIVERY CONDITION
The condition of the Aircraft on redelivery shall be as follows:
1. The Aircraft shall be in good operating condition airworthy and with all
systems operational and within manufacturers' manual limits, irrespective
of deviations or variations authorized by the Minimum Equipment List (MEL)
or Configuration Deviation List (CDL);
2. The Aircraft shall have been cleaned externally within the last two weeks
and have had its interior deep cleaned immediately prior to redelivery in
accordance with Lessee's deep clean specification and in conformance with
major airline standards. The seat covers shall be in good condition;
3. The Aircraft shall comply with the Manufacturer's specification at the
original delivery date, as revised from time to time by the incorporation
of certain airworthiness directives, service bulletins and modifications
which enhance the Aircraft's operational capability. The Aircraft shall be
in the same configuration and condition as it was in when delivered to
Lessee by Lessor under this Lease, excepting only ordinary wear and tear,
replacements and local modifications, substitute parts and equipment of
equal or enhanced value as may have been properly made by Lessee pursuant
to this Lease and as specifically otherwise set forth herein;
4. The Aircraft shall have had accomplished thereon and be in compliance with
all outstanding mandatory orders, directives, FARs and instructions
affecting the Aircraft as issued by the FAA which have a known compliance
deadline during the Term. In the event that Lessee has obtained a waiver
or deviation from the FAA from having to comply with any such mandatory
orders, directives, FARs and instructions, Lessee shall, irrespective of
such waiver or deviation, comply with all such mandatory orders,
directives and instructions covered by such waiver or deviation prior to
return of the Aircraft to Lessor on a terminating action basis under the
directive, order, FARs or instruction. The airworthiness directives
required by Article 5.3 shall also have been accomplished;
5. The Aircraft shall have an Export Certificate of Airworthiness issued by
the FAA to the country of Beneficiary's choice or, if Beneficiary desires
to keep the Aircraft on the same register, a current Certificate of
Airworthiness under FAR Part 121;
6. Lessee shall, at Beneficiary's expense, take all action reasonably
requested to assist Lessor and Beneficiary, to accomplish immediate
deregistration and export of the Aircraft from the United States,
including signing a lease termination certificate for recording at the
FAA;
7. All damage to the Aircraft which is not within the applicable limits shall
have been permanently repaired and certified in accordance with the
requirements of the FAA and the Manufacturer. External repairs will, where
applicable, be flushed or otherwise permanently repaired to such standard.
8. The Aircraft shall have installed all optional no charge vendors' and
manufacturers' service bulletin kits theretofore received by Lessee for
the Aircraft and to the extent received but not installed, such kits shall
be furnished free of charge to Beneficiary (and properly packed and loaded
on the Aircraft as cargo at redelivery);
9. Lessee shall provide one full set of all technical documents relating to
the Aircraft as listed under "Technical Documentation" in Appendix A
hereto and Lease Supplement No. 2, including copies of all engineering
orders, complete records of AD and Service Bulletin compliance and copies
of manufacturer's manuals relating to the Airframe, Engines, interior
configurations, components and APU, all in compliance with FAA
regulations;
The Records shall be redelivered with the Aircraft, except that
documentation relating to the "C" Check shall be returned as soon as
practicable but in any event, within 15 days from the date the Aircraft is
returned to Lessor. At the time of return of the Records for the Aircraft
to Lessor, Lessee and Lessor shall execute an aircraft documentation
return receipt (the "Aircraft Documentation Return Receipt") in the form
attached as Appendix B to Lease Supplement No. 2;
In the event Lessor's Tech Rep requires copies of any of the Records prior
to the return of the Aircraft to Lessor in order for Lessor to plan or
accomplish modifications, recertification, sale, lease or other
disposition of or utilization of the Aircraft upon such return, Lessee
shall, as soon as practicable upon receipt of each such Lessor request,
provide one advance copy of such Records as requested by Lessor's Tech
Rep, at Beneficiary's expense;
10. Prior to redelivery the Lessee shall either rubdown or strip (as
appropriate in the reasonable opinion of Beneficiary) and paint the
Aircraft in an all-white color scheme; the method of painting and
selection of paint shop shall be agreed upon with the Beneficiary. For
this purpose, a qualified representative of the Beneficiary may be present
during the painting operation. After painting, the Lessee shall balance
all control surfaces, if appropriate, in accordance with the Boeing
Maintenance Manual or Structural Repair Manual;
11. Name plates shall be removed from Airframe and Engines, if requested by
Beneficiary;
12. Up to the date of redelivery of the Aircraft the Lessee's approved
maintenance program shall include a corrosion program based on the
corrosion prevention, treatment and correction criteria established by
Boeing as set forth in the corrosion prevention and control document
("CPCP") and the Structural Repair Manual. Cleaning and treating of minor
or moderate corrosion and correction of all severe or exfoliated corrosion
deferred by the Lessee or found by the Beneficiary during the
Beneficiary's ground inspection shall be accomplished by the Lessee in
accordance with FAA approved data prior to redelivery;
13. The Aircraft shall have all deferred maintenance items and pilot log book
reports rectified on a terminating action basis;
14. The Aircraft shall be capable of certificated, full rated performance
without limitations throughout the entire operating envelope as defined in
the Airplane Flight Manual. Performance compliance will be demonstrated at
the time of the redelivery test flight and/or by inspection and testing of
the powerplants (engines, nacelles and accessories) in accordance with the
Engine Maintenance Manual, at Beneficiary's option;
15. The Aircraft (including the Records and other related documents to be
returned therewith in accordance with Appendix B hereto) shall be made
available to Beneficiary for ground inspection by Beneficiary at the
Redelivery Location. The Records will be made available to Lessor's Tech
Rep at least 15 days prior the date of redelivery. Such inspection shall
commence as soon as Lessee begins its performance of the Redelivery Check
referred to in Article 19(a) hereunder. Lessee shall remove the Aircraft
from commercial service and open the areas of the Aircraft as required to
perform the checks described in these return conditions, and shall allow
Beneficiary to accomplish its inspection in order to determine that the
Aircraft (including the Records) is in the condition required herein.
During such checks, Beneficiary personnel shall not have the right to
request that adjacent additional panels or areas be opened to allow
further inspection. Lessee, at its own expense, shall promptly correct all
deficiencies affecting airworthiness and any discrepancies from the
condition required by the provisions of this Lease which are observed
during such inspection and are communicated in writing by Beneficiary to
Lessee. All repairs shall be classified as permanent;
16. The Aircraft shall be test flown by Lessee, using qualified flight test
personnel, for not more than one hundred twenty (120) minutes in the
vicinity of the redelivery location for the purpose of demonstrating to
Beneficiary the satisfactory operation of the Aircraft and its equipment.
During such test flight command, care, custody and control of the Aircraft
shall at all times remain with Lessee. Up to three (3) of the
Beneficiary's representatives (or more if consented to by Lessee) may
participate in such flight as observers. Beneficiary's designated pilot
shall occupy either the pilot's or co-pilot's seat during such operational
test flight. Such flight shall be flown using Boeing's standard
operational test flight procedures. Upon completion of such operational
flight testing the representatives of Lessee and Beneficiary participating
in such testing shall agree in writing upon any discrepancies in such
Aircraft required to be corrected by Lessee in order to comply with the
provisions of this Lease and Lessee shall promptly correct any such
discrepancies.
All flights pursuant to the clause above shall be made at Lessee's expense
and Lessee shall pay for or reimburse Beneficiary for any costs incurred
by Beneficiary associated with such flights including, but not limited to,
costs for fuel, oil, airport fees, insurance, take-off/landing fees,
airway communication fees and ground handling fees, except that
Beneficiary shall provide its observers at Beneficiary's expense;
17. The condition of the Airframe upon return shall be as follows:
a. The Airframe shall have accomplished, in accordance with the
Lessee's approved maintenance program (or if Beneficiary so
requires, in accordance with the Manufacturer's Maintenance Planning
Document), immediately after removal from service and prior to
return to Lessor, a "C" Check or, if Lessee's terminology for checks
or its approved maintenance program has changed during the Term,
Lessee's equivalent of the complete applicable C check. All routine
and non-routine maintenance items will be corrected during the "C"
check and no carry-over items will exist upon re-delivery;
b. the installed main landing gear and nose landing gear shall be in
good operating condition and shall have at least half-time remaining
prior to the next scheduled removal from the Aircraft for overhaul
or sampling;
18. The condition of installed systems upon return shall be as follows:
a. CONTROLLED COMPONENTS
Aircraft and engine hour and/or cycle controlled components at time
of redelivery to Lessor shall have remaining as a minimum, 3,000
Flight Hours and/or 1200 Cycles, whichever is applicable until the
next scheduled removal for overhaul, test, inspection or
disassembly. All components controlled on a calendar basis shall
have remaining, as a minimum, twelve (12) months before scheduled
removal for testing, inspection or overhaul. Such hour/cycle or
calendar controlled components are defined as those components for
which hours and/or cycles and/or calendar times are controlled under
the Maintenance Program. However, if a component or part has a life,
overhaul or check interval limit that is less than the above stated
hours, cycles or calendar time limit requirement, such component or
part shall have as a minimum 90 per cent of the interval remaining
to removal for replacement or overhaul. Lessee will not install
life-limited or rotable components on the Aircraft for the purpose
of depleting the value of this Aircraft.
b. CONDITION OF MONITORED COMPONENTS
Aircraft and engine systems, components or parts maintained "on
condition" or condition monitored shall be within the relevant
manufacturer's specified or recommended limits with no adverse
trends. Each component, at all times during the Lease, shall have
been maintained and monitored in accordance with the requirements of
the FAA.
19. Each of the Engines and each module and part thereof at time of redelivery
to Lessor shall be in good operating condition and shall meet the
following requirements:
a. TIME SINCE REFURBISHMENT
Each Engine shall have remaining no less than three thousand (3,000)
Flight Hours to its next scheduled shop visit pursuant to the
manufacturer's engine management program policy recommendation, and
shall not meet the return condition if any Engine has remaining less
than such Flight Hours ;
b. LIFE LIMITED PARTS
Life limited parts shall have remaining at least 3,000 Cycles until
next scheduled removal for replacement of life limited parts.
c. BOROSCOPE INSPECTION
Both the hot and cold sections of the Engines and APU shall be
boroscoped in accordance with Lessee's Approved Maintenance Program
and manufacturer's recommendations at Lessee's expense at
redelivery, and Lessee will correct all discrepancies that exceed
Manufacturer's maintenance manual limitations at its expense. Lessee
shall provide Beneficiary with a written report and video tape of
such boroscope and Lessor's Tech Rep will be entitled to be present
at any such boroscope. Lessee shall conduct a maximum power
assurance run on each Engine to ensure that each Engine has an EGT
temperature margin of 21 degrees or higher. Satisfactory evidence
shall be provided to Beneficiary reflecting the correction of any
discrepancies found during such inspection;
d. TREND MONITORING
The Engines shall have been maintained and monitored for condition
in accordance with Lessee's approved Engine Maintenance Program
(EMP); all Engine parameters shall be within the Manufacturer's and
Lessee's EMP limits with no adverse trends, determined through the
provision by Lessee of the last 20 monitoring reports or as agreed
mutually by Lessee and Beneficiary;
If the Aircraft engine historical and maintenance records and/or
trend monitoring data indicate a rate of acceleration in performance
deterioration or oil consumption of any Engine and/or the Auxiliary
Power Unit (APU) which is higher than normal, Lessee shall, prior to
return, correct or cause to be corrected such conditions to meet
normal manufacturer's tolerances;
20. The condition of the Auxiliary Power Unit upon return shall be as follows:
The installed APU at the time of return to Lessor shall be in good
operating condition, shall have no more than 1,000 Flight Hours since its
last overhaul, at the time of return. If the Flight Hours on the APU are
more or less than the Flight Hours accumulated on the APU since overhaul
at delivery as set forth in Lease Supplement No. 1 (the "Baseline"), there
will be a financial adjustment payable by Lessee or Beneficiary in respect
of the Flight Hours above or below the Baseline, and the relevant party
shall pay to the other the pro rata portion of the cost of an APU overhaul
based on the cost of the last APU overhaul prior to re-delivery (the
"Cost") determined by multiplying the Cost by a fraction, the numerator of
which is the number of Flight Hours on the APU more or less than the
Baseline, and the denominator of which is the Flight Hours between
overhauls of the APU;
21. At redelivery, if requested by Lessor, Lessee shall return the Aircraft's
interior (seats, lavs and galleys) to its Delivery Date configuration
unless Beneficiary has previously agreed to accept a revised configuration
on return. If Beneficiary has agreed to accept such a revised
configuration on return equipment the removed interior items shall become
the property of Lessee and the replacement items the property of Lessor.
22. To the extent that, at the time of redelivery, the condition of the
Aircraft and records does not comply with the provisions hereof, the
Lessee at its own expense shall cause such rectification to be carried out
as soon as possible. In the event that such rectification extends beyond
the end of the Term and provided that unless and until such rectification
is effected the Beneficiary would not be able immediately to put the
Aircraft into commercial operation in the required redelivery
configuration, the Term shall, at the option of the Beneficiary, be
extended and the provisions of this Agreement shall remain in force until
such rectification has been accomplished; provided, HOWEVER, that the
Beneficiary shall have the right, after the end of the Term, to take
possession of the Aircraft and demand compensation for costs reasonably
incurred by the Beneficiary in connection with such repossession and
ensuring compliance with these return conditions.
23. Upon completion of the operational test flight pursuant to Article 18
hereto and after Lessee has corrected the discrepancies as required to
comply with all of the redelivery conditions set forth in this Schedule,
the Aircraft condition shall be technically accepted by Beneficiary's
representatives at the redelivery location by the execution of a technical
acceptance certificate in the form of Lease Supplement No. 2.
<PAGE>
APPENDIX A
REDELIVERY OF TECHNICAL DOCUMENTS
1. Original copy of U.S. Export Certificate of Airworthiness or standard
Certificate of Airworthiness as requested by Lessor.
2. AD's and SB compliance records (Airframe and Engines) - information must
include method of compliance, date of accomplishment and signature of
person accomplishing work.
3. Engine Records - record of last (major inspection) overhaul, disc part
numbers, cycle/hour limits.
4. Records of life limited parts, life limited parts history since new (both
Engine and Airframe) and hours/cycles used.
5. Complete record of last Airframe ("D" check or equivalent) overhaul
information must include both routine and non-routine data.
6. Landing gear overhaul records (including shop report).
7. Copies of engineering orders relating to repairs/modifications of the
Airframe, components or systems.
8. If applicable, stress analysis and material certification date relating to
major interior modifications, i.e., galley installations, overhead and bin
enclosures if no STC available.
9. Ground proximity warning system-certification details and installation
information, including part numbers of major components.
10. Time control records - engine TSO, TSEHM, TSHSI and similar data on
time-controlled components under operator's approved program.
11. Approved flight manual, IPC, maintenance manual, wiring manuals, galley
manuals and passenger seat manuals.
12. Record of last weighing.
13. Copy of current weight and balance (loading system) for passenger and
cargo loading.
14. Aircraft weight and balance manual (MFG's).
15. Approved Interior arrangement drawing.
16. Records of last "A" check and "C" check.
17. Log book pages (1 year).
18. Letter certifying Aircraft status relating to accident or incidents.
19. Avionics equipment list (must include flight data recorder information).
20. Flight data recorder calibration sheet, if applicable.
21. Last calibration information on altimeters, airspeed indicators and ATC
transponder test, including date of accomplishment.
22. Operators current maintenance program document, if permitted.
23. Part 36 compliance information.
24. List of approved overhaul agencies, if permitted.
25. Record of last APU overhaul.
26. Records of last overhaul of hard time limited component as controlled by
operator's maintenance program.
27. List of all emergency equipment with part numbers.
28. Aircraft Maintenance Manual - Microfilm.
29. Illustrated parts Catalogue - Microfilm.
30. Wiring Diagram Manual - Microfilm.
31. System Schematics Manual - Hard copy.
32. Structural Repair Manual - Microfilm.
33. Bite Manual - Hard Copy.
34. Boeing Service Letters - Microfilm.
35. Boeing Service Letters Index - Microfilm.
36. Boeing Service Bulletins - Microfilm.
37. Boeing Service Bulletins Index - Microfilm.
38. Boeing Service Activities Report - Hard Copy.
39. Component Maintenance/OVHL Manual - Microfilm.
40. Illustrated Parts Catalogue - Hard Copy.
41. Dispatch Deviation Procedures
42. Power Plant Build-up Manual.
43. Aircraft Operations Manual.
44. Quick Reference Handbook - Hardcopy, if available.
45. FAA form 337 or equivalent, covering major mods, to airframe, components,
engines.
<PAGE>
EXHIBIT "F"
LEASE SUPPLEMENT NO. 2
THIS LEASE SUPPLEMENT NO. 2, dated _______________, 199___, between FIRST
SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity except asset
forth herein but as Trustee for and on behalf of KG Aircraft Leasing Co., Ltd.,
pursuant to Trust Agreement, dated , 1997 (the "Lessor"), and Western Pacific
Airlines, Inc., a Delaware corporation (the "Lessee").
Lessor and Lessee have heretofore entered into a Lease Agreement dated as
of April , 1997 (herein the "Lease Agreement" and the terms defined therein
being herein used with the same meaning), which Lease Agreement provides for the
execution and delivery from time to time of Lease Supplements, under the Lease
Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
1. Lessee hereby delivers to Lessor, and Lessor hereby accepts from Lessee,
under the Lease Agreement, the following described Boeing 737-353 aircraft
and engines:
(i) Airframe: Registration: N957WP;
Manufacturer's Serial No. 24060; and
(ii) Engines: Two CFM56-3B2 engines bearing,
respectively manufacturer's serial numbers 722139
and 723130
2. The redelivery date of the Aircraft is the date of this Lease Supplement
set forth in the opening paragraph hereof.
3. The Term for the Aircraft shall terminate on the date hereof.
4. Lessor's duly appointed and authorized technical experts have inspected
the Aircraft to ensure that the Aircraft conforms to the redelivery
conditions in Article 13 and Exhibit E of the Lease Agreement and Lessor
accepts the Aircraft for all purposes of the Lease Agreement.
5. Lessee and Lessor each hereby confirms its agreement to pay to the other
any amounts with respect to the Aircraft that may have become due during
the Term in accordance with the terms of the Lease Agreement and that such
payments will be made no later than 10 days after the date of this Lease
Supplement No. 2.
6. All of the terms and provisions of this Lease Supplement are hereby
incorporated by reference into the Lease Agreement to the same extent as
if fully set forth therein. Appendices A and B to this Lease Supplement
and any attachments thereto are to be read together and form part of this
Lease Supplement.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease
Supplement to be duly executed by their authorized officers or representatives
as of the day and year first above written.
FIRST SECURITY BANK, NATIONAL WESTERN PACIFIC AIRLINES, INC.
ASSOCIATION, in its individual
capacity but solely as Owner
Trustee under the Trust
Agreement dated
, 1997.
By: _______________________ By:_______________________
Title: ____________________ Title:____________________
KG AIRCRAFT LEASING CO., LTD.
By: _______________________
Title: ____________________
<PAGE>
APPENDIX A
Aircraft Hours and Cycles
as of , 19___
Registration Mark: N Serial Number 24060
A. AIRFRAME
Aircraft Total Time (Hours) _______
Aircraft Total Landings (Cycles) _______
Lessee Service Check - Time to next Check _______
Lessee 'A' Check - Time to next Check _______
Lessee 'C' Check - Time to next Check _______
B. CFM56-3B2 engines
Serial Hours/Cycles
Position Number TCSN TTSN TTSV/TCSV to Next Limit
1
2
C. AUXILIARY POWER UNIT
Serial Total Hours/Cycles
Number Hour/Cycles TTSV TTSOH to Next Limit
- -----
D. LANDING GEAR
Hours Cycles
Nos. Hours/Cycles Remaining Remaining
NLG
Rt Main Gear
Lt Main Gear
E. FUEL REMAINING IN TANKS
- -----
Key:
TCSN: Total Cycles Since New
TTSN: Total Time Since New
TTSV/TCSV: Total Time Since Shop Visit/Total Cycles Since Shop Visit
TTSOH: Total Time Since Last Overhaul
<PAGE>
APPENDIX B
DOCUMENTATION REDELIVERY RECEIPT
Western Pacific Airlines, Inc. (the "Lessee"), and First Security Bank,
N.A., as Owner Trustee (the "Lessor") hereby confirm the delivery by the Lessee
and receipt by the Lessor of the Technical Records pertaining to Boeing 737-300
Serial 24060 as described on Attachment 1 hereto and a part hereof, on
_______________, 19___, in ________________________, at _____ time.
FIRST SECURITY BANK, NATIONAL WESTERN PACIFIC AIRLINES, INC.
ASSOCIATION, not in its individual capacity but solely as Owner Trustee under
the Trust Agreement dated , 1997.
By: _______________________ By:___________________________
Title: ____________________ Title:________________________
<PAGE>
ATTACHMENT 1
TECHNICAL RECORDS AT REDELIVERY
MANUALS LISTING
<PAGE>
EXHIBIT "G"
INSURANCE REQUIREMENTS
The Insurance required to be maintained shall be as follows:
(a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with
respect to the Aircraft for the Agreed Value and with a deductible not
exceeding US$750,000, or such other amount agreed by Lessee and
Beneficiary from time to time other than in the case of a total loss,
arranged total loss and total losses arising from War and Allied Perils.
(b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull All
Risks Policy (mentioned in (a) above) by the terms of the War, Hijacking
and Perils Exclusion Clause AVN 48B. Such insurance shall, if and to the
extent available to Lessee as an addback to the Hull War and Allied Perils
coverage at no extra expense, include confiscation and requisition under
any order of any Government Entity of or within the United States for the
Agreed Value but in no event shall the Lessee be required to cover the
risks excluded by paragraph (b) of AVN 48B or its equivalent.
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISKS) property insurance on all
Engines and Parts when not installed on the Aircraft on an "agreed value"
basis, in respect of the Engines, and on a repair or replace basis, in
respect of any Parts.
(d) AIRCRAFT THIRD PARTY, LIABILITY, PROPERTY DAMAGE, PASSENGER, BAGGAGE,
CARGO AND MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL
LIABILITY for a Combined Single Limit (Bodily Injury/Property Damage)
$350,000,000 (three hundred fifty million Dollars), combined single limit
any one occurrence. War and Allied Risks are also to be covered under this
Policy to the extent such insurance is customarily available in World
Aviation Insurance Markets for this type policy.
(e) All required hull and spares insurance (as specified in paragraphs (a),
(b), and (c) above), so far as it relates to the Aircraft shall:-
(i) name Lessor, the Beneficiary their respective successors and
assigns as additional assureds for their respective rights and
interests in the Aircraft, warranted, each as to itself only,
no operational interest;
(ii) provide that (a) any loss which results in a payment on the
basis of a total loss, constructive total loss or arranged
total loss shall be settled with the Beneficiary and shall
name the Beneficiary as sole loss payee up to but not in
excess of Agreed Value, (b) any loss that does not exceed U.S.
$750,000 will be settled with and paid to the Lessee unless
and until the Beneficiary has notified the insurer that an
Event of Default has occurred and is continuing in which event
the loss payee shall be the Beneficiary and (c) any loss which
exceeds the policy deductible of U.S. $750,000 up to but not
in excess of Agreed Value but is less than a total loss shall
name the Beneficiary as sole loss payee for amounts up to the
Agreed Value. Insurance proceeds in excess of Agreed Value
shall be settled with and payable to Lessee.
(iii) provide that, in relation to the interests of each of the
additional assureds, the Insurance (A) shall not be
invalidated by any act or omission by Lessee or any other
person other than the respective additional assured seeking
protection provided that the additional assured so protected
has not caused, contributed to or knowingly condoned the said
act or omission and (B) shall insure the interests of each of
the additional assureds regardless of any breach or violation
by Lessee of any warranty, declaration or condition contained
in such insurance;
(iv) if separate Hull "All Risks" and "War Risks" insurance are
arranged, include a 50/50 provision in accordance with market
practice (AVS. 103 is the current market language);
(v) confirm that the insurers are not entitled to replace the
Aircraft in the event of an insured Event of Loss.
(f) All required liability insurance shall (it being understood that
endorsement of AVN 67B to the policy shall satisfy the following
requirements):
(i) include Lessor and the Beneficiary and their respective
successors and assigns and their respective shareholders,
subsidiaries, directors, officers, agents and employees as
additional assureds for their respective rights and interests,
warranted, each as to itself only, no operational interest;
(ii) provide that, in relation to the interests of each of the
additional assureds, its directors, officers, employees,
agents and Indemnities, the liability insurance shall not be
invalidated by any act or omission by Lessee, the Lessor, the
Beneficiary or any other person other than the respective
additional insured seeking indemnity provided that the
additional insured seeking indemnity has not caused,
contributed to or knowingly condoned the said act or omission,
and shall insure the interests of each of the additional
assureds, its directors, officers, servants, agents and
employees regardless of any breach or violation by Lessee, of
any warranty, declaration or condition contained in such
insurance;
(iii) include a Severability of Interest Clause which provides that
the insurance shall operate to give each assured the same
protection as if there was a separate policy issued to each
assured but shall not increase the overall limit of coverage
afforded;
(iv) contain a provision confirming that the policy is primary
without right of contribution and the liability of the
insurers shall not be affected by any other insurance of which
Lessor, the Beneficiary, or Lessee have the benefit so as to
reduce the amount payable on behalf of the additional assureds
under such policies.
(g) All insurance (as specified in paragraphs (a), (b), (c) and (d) above),
shall (it being understood that endorsement of AVN 67B to the policy shall
satisfy the requirements of clauses (iii) - (v) below):-
(i) be in accordance with normal industry practice of
organizations operating a similar aircraft in similar
circumstances;
(ii) provide cover denominated in U.S. dollars;
(iii) acknowledge the insurer is aware of this Lease and that the
Aircraft is owned by Lessor and Beneficiary and leased to
Lessee;
(iv) provide that the insurers shall waive any rights of recourse
and/or subrogation against Lessor and the Beneficiary, (and
additionally, in respect of liability insurance, their
respective directors, officers, employees and agents);
(v) provide that Lessor and the Beneficiary and in respect of
liability insurance, their respective directors, officers,
employees, agents and Indemnities shall have no obligation or
responsibility for the payment of any premiums due (but
reserve the right to pay the same should any of them elect so
to do) and that the insurers waive any right of set-off or
counter-claim in respect of any premium due against the
respective interests of such parties (and in the case of the
liability insurance their respective directors, officers,
employees, agents and indemnities);
(vi) provide that, if such insurance is canceled for any reason
whatever, or any material change is made in the coverage which
adversely affects the interest of the additional insureds or
if such insurance is allowed to lapse for non-payment of
premium, such cancellation, change or lapse shall not be
effective as to the additional assureds for thirty (30) days
(but seven (7) days, or such lesser period as may from time to
time be available in accordance with policy conditions, in the
case of any war risk and allied perils coverage) after written
notice of such cancellation, change or lapse shall have been
sent to broker who shall upon receipt pass on such notice to
the Beneficiary and Lessor at the following address:
Notice will not however be given in respect of the natural
expiry of the policy or of any non-renewal of the policy;
(vii) if reinsurance is a requirement in accordance with the terms
of Article 10.1, such reinsurance shall (i) be on the same
terms as the original insurance (and shall include the
provisions of this appendix), (ii) provide in case of any
bankruptcy, insolvency,liquidation, dissolution or similar
proceedings of or affecting the original insurer that the
reinsurers' liability shall be to make such payments as would
have fallen due under the relevant policy of reinsurance if
the original insurer had (immediately before such bankruptcy,
insolvency, liquidation, dissolution or similar proceedings)
discharged its obligations in full under the original
insurance policies in respect of which the then relevant
policy of reinsurance has been effected; and (iii) contain a
"cut-through" clause in the following form (or otherwise
satisfactory to Beneficiary):
"The Reinsurers and the Reassured hereby agree that in the
event of any valid claim arising hereunder within the original
policy coverage limitations and conditions, and written notice
of such claim being given to the Reinsurers by the original
Assured and/or any Additional Assured, then Reinsurers shall
in lieu of payment to the Reassured, its successor in interest
and assigns pay that portion of any loss due to the Additional
Assureds for which Reinsurers would otherwise be liable to pay
the Reassured, it being understood and agreed that any such
payment by Reinsurers directly to said Additional Assureds
shall fully discharge and release the Reinsurers from any and
all further liability in connection therewith. For the purpose
of this Reinsurance the above clause shall only apply in
respect of the interest of Additional Assureds under the
original policy. It is mutually agreed that the rights
conferred upon Additional Assureds and Reinsurers by the above
clause form an integral part of the policy. Agreement to the
above shall be subject to Reinsurers reserving their rights to
set off against any claim payable under this clause, any
outstanding premiums applicable to the Aircraft the subject of
the Lease Agreement. Such set off shall be first applied to
any financial interest of Lessee in the Aircraft involved. Any
payment due under this clause shall not contravene any law,
statute or decree of the United States.
In the case of liquidation, bankruptcy, dissolution or similar
proceedings of or affecting the Reinsured, the Reinsurers'
liability shall be to make such payments hereunder as would
have fallen due if the Reinsured had (immediately before such
liquidation, bankruptcy, dissolution or similar proceeding)
discharged its obligations in full under the Policies in
respect to which the Reinsurance Policies were effected.
(viii) contain a provision entitling Beneficiary or any insured
party to initiate a claim under any policy in the event of the
wrongful refusal or failure of Lessee to do so;
<PAGE>
EXHIBIT "H"
Irrevocable Standby Letter of Credit No. ____
KG Aircraft Leasing Co., Ltd.
3 Adelaide Court
Adelaide Road
Dublin 2, Ireland
RE: WESTERN PACIFIC AIRLINES, INC. (THE "ACCOUNT PARTY")
Dear Sirs:
1. We hereby establish our Irrevocable Standby Letter of Credit No.
____ in your favor for the account of the Account Party in the aggregate of
U.S.$470,000 (the "Credit Limit") available by sight draft at our New York
office in an amount not exceeding the Credit Limit accompanied by a certificate
signed by an officer of your Company confirming that an event of default has
occurred and is continuing under the Lease Agreement between First Security
Bank, National Association, not in its individual capacity but solely as Trustee
pursuant to the Trust Agreement dated as of , 1997, and Western Pacific
Airlines, Inc. relating to one Boeing 737-300 aircraft, MSN 24060.
2. Partial drawings are permitted.
3. We confirm to you that all drafts drawn under and in compliance
with the terms of this credit will be duly honored on the delivery of documents
as specified in paragraph 1 above if presented on or before the expiration date.
4. This Letter of Credit expires on .
5. This Letter of Credit is subject to the Uniform Customs and
Practices for Documentary Credits, 1993 Revision, International Chamber of
Commerce Publication No. 500 (the "Uniform Customs"). This Letter of Credit
shall be deemed to be made under the laws of the State of New York, including
Article 5 of the Uniform Commercial Code, and shall, as to matters not governed
by the Uniform Customs, be governed by the laws of the State of New York.
Very truly yours,
[Name of bank]
Letter of Credit Department
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT "I"
CERTAIN TERMS
"Agreed Value" means, with respect to the Aircraft, $25,000,000 on the
Delivery Date and shall decline on the same day as the Delivery Date in each
third month following such date (or, if there is no such day in such month, on
the last day of such month) by $250,000 to a minimum of $15,000,000 at the
Expiration Date of the Basic term and by $250,000 each quarter during any
Renewal Term.
"Basic Rent" means $235,000.
"Basic Term Expiration" means the tenth (10th) anniversary of the
Delivery Date.
"Damage Notification Threshold" means $1,000,000.
Maintenance Reserve rates for Article 5.4(iv) are:
(a) For the Airframe, $65 per Airframe Flight Hour;
(b) For each Engine, $70 per Engine Flight Hour for off-wing scheduled
maintenance; and
(c) For each Engine, $55 per Engine Cycle for LLP replacement.
<PAGE>
================================================================================
DATED AS OF MARCH 26, 1997
WILMINGTON TRUST COMPANY, AS OWNER TRUSTEE (1)
LESSOR
and
WESTERN PACIFIC AIRLINES, INC. (2)
LESSEE
AIRCRAFT LEASE AGREEMENT
for
One Boeing 737-300 Aircraft
Manufacturer's Serial Number 28868
To the extent, if any, that this Aircraft Lease Agreement
constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable
jurisdiction), no security interest in this Aircraft Lease
Agreement may be created through the transfer or possession
of any counterpart other than the original executed
counterpart, which shall be identified as the counterpart
containing the receipt therefor executed by the secured party
or the Beneficiary on the signature page thereof.
================================================================================
<PAGE>
CONTENTS
CLAUSE HEADING PAGE
1. Definitions...................................................... 1
2. Representations and Warranties................................... 13
3. Term of Lease.................................................... 18
4. Conditions....................................................... 18
5. Delivery and Acceptance.......................................... 20
6. Lessor's Warranties and Manufacturer's Warranties................ 25
7. Rent............................................................. 26
8. Payments, Interest and Calculations.............................. 27
9. Costs and Indemnities............................................ 28
10. Taxation......................................................... 33
11. General Undertakings............................................. 44
11.1 ..........................................................44
(a) Consents and Authorizations........................ 44
(b) Preparation of Accounts............................ 45
(c) Supply of Accounts and Officer's Certificate....... 45
(d) Lessee Financial Information....................... 45
11.2 ..........................................................45
(a) Status Report...................................... 45
(b) Information Concerning the Aircraft................ 46
(c) Inspection......................................... 46
(d) No Operational Interest............................ 47
(e) Compliance with Insurances......................... 47
(f) Air Traffic Control Information and
Third Party Information............................ 47
(g) Status of the Lessee............................... 47
(h) Certificated Air Carrier........................... 47
(i) Citizen of the United States....................... 47
11.3 ..........................................................48
(a) Disposal and Encumbrance of the Aircraft........... 48
(b) Prevention of Arrest............................... 48
<PAGE>
(c) No Pledging of Credit.............................. 48
(d) Protection of Rights in the Aircraft............... 48
12. Sub-Leasing...................................................... 49
13. Operations and Maintenance....................................... 50
13.1 ..........................................................50
(a) Certificates and Licenses.......................... 50
(b) Operation and Use.................................. 51
(c) Base of Operations................................. 52
(d) Maintenance........................................ 52
(e) Replacement of Engines and Parts................... 54
(f) Removal of Parts................................... 55
(g) Installation of Engines and Parts.................. 55
(h) Non-installed Engines.............................. 55
(i) Nameplates......................................... 55
(j) Alterations........................................ 56
(k) Changes to Approved Maintenance Programme.......... 56
13.2 Temporary Installation of Parts........................... 56
13.3 Interchange of Engines.................................... 57
13.4 Maintenance Accruals...................................... 60
13.5 ..........................................................63
14. Manuals and Technical Records.................................... 63
15. Title and Registration........................................... 64
16. Insurance........................................................ 65
17. Loss and Damage.................................................. 69
18. Requisition or Grounding......................................... 71
19. Re-delivery...................................................... 72
20. Termination Events............................................... 76
21. Lessor's Rights Following a Termination Event.................... 79
22. Notices.......................................................... 81
23. Assignment....................................................... 83
24. Miscellaneous.................................................... 84
25. Law and Jurisdiction............................................. 86
<PAGE>
26. Section 1110..................................................... 86
27. True Lease....................................................... 87
SCHEDULE
1 Part 1 ..........................................................89
Part 2 ..........................................................91
Part 3 ..........................................................93
Part 4 ..........................................................95
2 Acceptance Certificate........................................... 98
3 Insurance Requirements...........................................102
4 Return Conditions................................................106
5 Form of Brokers' Letter of Undertaking...........................112
6 Form of Letter of Quiet Enjoyment................................114
7 Form of Status Report............................................117
8 Officer's Certificate............................................121
<PAGE>
A LEASE AGREEMENT dated as of March 26, 1997, and made BETWEEN:
1) WILMINGTON TRUST COMPANY, a Delaware banking corporation with its chief
executive office at Rodney Square North, 1100 N. Market Street,
Wilmington, Delaware, 19890, USA, not in its individual capacity but
solely as Owner Trustee under the Trust Agreement (the "LESSOR"); and
(2) WESTERN PACIFIC AIRLINES, INC., a Delaware corporation with its chief
executive office at 2864 South Circle Drive, Suite 1100, Colorado
Springs, Colorado 80906, USA (the "LESSEE").
BY WHICH IT IS AGREED as follows:
1. DEFINITIONS
1.1 In this Agreement, unless the context otherwise requires:
"ACCEPTANCE CERTIFICATE" means an Acceptance Certificate in the form set
out in Schedule 2 to be signed by the Lessee and delivered to the Lessor
on the Delivery Date pursuant to Clause 5.1 (Delivery and Acceptance);
"ACCRUAL PERIOD" means (except for the last Accrual Period) each period
of one (1) month during the Lease Period, the first Accrual Period
commencing on the Delivery Date and each subsequent Accrual Period
commencing on the expiry of the previous Accrual Period; provided,
however, that, notwithstanding the foregoing, the last Accrual Period
shall end upon the expiry or earlier termination of the Lease Period;
"ADVANCE PAYMENT DATE" means the date on which the Lessor makes the
advance payments for the Aircraft to the Manufacturer pursuant to the
Purchase Assignment.
"AGREED VALUE" as of any date means, with respect to the Aircraft, the
Airframe and any Engine, the applicable amounts set forth in Letter
Agreement No. 1 with respect to such date;
"AGREEMENT" means this Lease Agreement and Letter Agreement No. 1 as
they may from time to time be supplemented or amended;
"AIRCRAFT" means the Airframe together with the Engines (whether or not
any of the Engines may from time to time be installed on the Airframe)
<PAGE>
and, where the context permits, references to the "AIRCRAFT" shall
include the Manuals and Technical Records and, unless otherwise provided
herein, shall mean the Aircraft as a whole and any portion thereof;
"AIRCRAFT COMMITMENT FEE" means such sums as shall be paid by the Lessee
to the Lessor (or the Lessor's order) pursuant to Clause 7.3 in the
amounts, and at the times, set forth in paragraph 1 of Letter Agreement
No. 1;
"AIRFRAME" means the new Boeing 737-300 aircraft with manufacturer's
serial number 28868 and the United States Registration Number set forth
in the Acceptance Certificate (excluding the Engines or engines from
time to time installed thereon), and all Parts installed at Delivery, or
installed on the Airframe thereafter, or which having been removed
therefrom remain the property of the Head Lessor pursuant to this
Agreement, and all replacements, renewals and additions made to the
foregoing in accordance with this Agreement;
"AIRLINE STANDARDS" means the interpretation applied to assessing the
cleanliness and general appearance of the Aircraft and as a benchmark
standard should be considered as the standards acceptable to a United
States scheduled airline ex- C Check, external wash and/or interior deep
clean;
"APPROVED MAINTENANCE PERFORMER" means, as the context so admits, the
Lessee or any of the independent maintenance performers listed in
Schedule I to Letter Agreement No. 1 engaged by the Lessee to perform
major maintenance work on the Aircraft or, as the case may be, the
Engine Manufacturer or the independent engine overhaul shops listed in
Schedule I to Letter Agreement No. 1 engaged by the Lessee to perform
engine repair and overhaul work on the Engines; additional airframe
and/or engine maintenance performers may be added to the list in
Schedule I to Letter Agreement No.1 subject only to the Lessor receiving
notification of the addition 30 days prior to first use of the new
maintenance performer and such maintenance performer being appropriately
licensed or approved by the FAA. No Lessor approval of maintenance
performers or engine overhaul shops shall be required for overhaul of
components, rotables or Parts other than the Landing Gear and APU.
"APPROVED MAINTENANCE PROGRAMME" means the Aviation Authority approved
maintenance programme for the Aircraft approved by the Lessor prior to
the Delivery Date, as subsequently amended from time to time by the
Lessee as approved by the FAA, encompassing scheduled maintenance
(including block maintenance), condition monitored maintenance and
on-condition maintenance of Airframe, Engines and Parts of the Aircraft
including, but not limited to, servicing, testing, preventive
maintenance, repairs, structural inspections, system checks, overhauls,
approved modifications, service bulletins, engineering orders,
Airworthiness Directives, Corrosion Control, inspections and treatments,
in each case as described in the MPD;
<PAGE>
"APU" means the auxiliary power unit installed on the Aircraft on the
Delivery Date or any substitute or replacement auxiliary power unit
installed in accordance with this Agreement title to which has been
transferred to the Head Lessor;
"ASSIGNMENT" means the assignment of the Lessor's rights, title and
interest in and under this Agreement granted or, as the context may
require, to be granted by the Lessor in favor of the Head Lessor or the
Lenders;
"AVIATION AUTHORITY" means the FAA and/or any Government Entities which,
under the laws of the State of Registration or, to the extent
applicable, any other jurisdiction in which the Aircraft is operated,
have control over civil aviation or the registration, airworthiness or
operation of aircraft;
"BANKING DAY" means each day (other than a Saturday or a Sunday) on
which banks are open for business in London, the State of Colorado and,
(if payment is required to be made on such day) in New York City;
"BENEFICIARY" means ORIX Aviation Systems Limited, a company
incorporated under the laws of Ireland and having its registered office
at 2nd Floor, IFSC House, International Financial Services Centre,
Custom House Docks, Dublin 1, Ireland;
"CERTIFICATED AIR CARRIER" means any Person (except the United States
Government) domiciled in the United States of America and holding a
Certificate of Convenience and Necessity issued under Section 41101 of
Title 49 of the United States Code by the Department of Transportation
or any predecessor or successor agency thereto, or, in the event such
Certificates shall no longer be issued, any Person (except the United
States Government) domiciled in the United States of America and legally
engaged in the business of transporting for hire passengers or cargo by
air predominately to, from or between points within the United States of
America, and, in either event, operating commercial jet aircraft, which
also is certificated so as to fall within the purview of Section 1110 of
Title 11 of the United States Code or any analogous statute;
"CITIZEN OF THE UNITED STATES" shall have the meaning given in Section
40102(a)(15) of Title 49 of the United States Code;
"COMPULSORY ACQUISITION" means compulsory acquisition, requisition,
appropriation, expropriation, deprivation or confiscation of title or
ownership of the Aircraft for any reason by any Government Entity of the
State of Registration or by any other Government Entity or other
competent authority, whether de jure or de facto, but shall exclude
requisition for use or hire not involving requisition of title or
ownership;
<PAGE>
"COURTS" means the courts of the State of New York located in New York
City and any United States District Court located in New York City;
"CYCLE" means one take-off and landing of the Aircraft or, in respect of
any Engine or Part temporarily installed on another aircraft, that other
aircraft and for this purpose "take-off and landing" shall include
"touch and go" take-offs and landings;
"DELIVERY" means the time at which the Aircraft is delivered to and
accepted by the Lessee pursuant to the terms of this Agreement;
"DELIVERY DATE" means the date on which Delivery shall occur, which date
shall be the date of the Acceptance Certificate delivered to the Lessor
by the Lessee pursuant to Clause 5 of this Agreement;
"DELIVERY LOCATION" means the Manufacturer's facility in Seattle,
Washington, USA or such other location mutually agreed to by Lessor and
Lessee;
"DOLLARS" and "$" mean the lawful currency of the United States of
America and in respect of all payments to be made under this Agreement
in Dollars, mean funds which are for same day settlement in the New York
Clearing House Interbank Payments System (or such other US dollar funds
as may at the relevant time be customary for the settlement of
international banking transactions denominated in United States
dollars);
"ENCUMBRANCE" means any mortgage, charge (whether fixed or floating),
pledge, lien, hypothecation, assignment, security interest, title
retention or other encumbrance of any kind securing, or any right
conferring a priority of payment in respect of, any obligation of any
person;
"ENGINE" means either of the CFM International CFM56-3C-1 engines
specified in the Acceptance Certificate as being installed on the
Airframe at Delivery, or any other similar engine substituted therefor
in accordance with Clauses 13.1(e) and 13.(g) from time to time
installed on the Airframe thereafter title to which has been transferred
to the Head Lessor pursuant to this Agreement, or any Removed Engine
which remains the property of the Head Lessor pursuant to this
Agreement, together with all Parts from time to time belonging to,
installed in or appurtenant to any such engine;
"ENGINE LIFE LIMITED PARTS" means those Parts, defined by the engine
manufacturer in the CFM International Engine Shop Manual, Revision 43,
or as the same may be further revised from time to time, or through
airworthiness directive action, requiring retirement and replacement on
a mandatory basis prior to or upon the expiration of the engine
manufacturer's stated life, such life being expressed in terms of
Cycles, Flight Hours, landings or calendar time;
<PAGE>
"ENGINE MANUFACTURER" means CFM International, Inc.
"ENGINE SHOP VISIT" means the work carried out on an Engine by an
Approved Maintenance Performer of refurbishment, restoration or overhaul
following normal in-service deterioration of the Engine to restore
performance to the workscope standard developed by Lessee and agreed by
Lessor, Lessor's agreement not to be unreasonably withheld, at each shop
visit event, and based upon the CFM 56-3 Workscope Planning Guide (WPG3)
and Engine Shop Manual involving separation of pairs of major mating
engine flanges other than (1) work for the purposes of transportation;
and/or (2)(a) inspections at which no maintenance and/or repair is
required and/or (b) repairs of foreign object damage or operational
mishandling (being an operation or event on the ground or in the air
whereby, due to negligence, the tolerances, limits and/or recommended
maximums and minimums and/or other operation matters as specified in the
Aircraft flight, operational, maintenance and other relevant manuals and
documents are not complied with by any person) of the Engine save to the
extent such repairs and/or associated refurbishment carried out during
the shop visit result in refurbishment or "betterment" of the Engine to
the standard specified for an Engine Shop Visit (as herein defined);
and/or (c) maintenance and repair of spare engines and associated engine
build-up units; and/or (d) the removal, installation, maintenance and
repair of QEC (Quick Engine Change) kits; and/or (e) repair or
modification of external engine line repairable units;
"EXPECTED DELIVERY DATE" means May 12, 1997 or such other date as the
Aircraft is scheduled to be delivered by the Manufacturer pursuant to
the Purchase Agreement, as advised by the Manufacturer;
"FAA" means the Federal Aviation Administration of the United States of
America, the Administrator thereof and any agency or instrumentality of
the United States government succeeding to their functions;
"FAR" means the Federal Aviation Regulations set forth in Title 14 of
the United States Code of Federal Regulations, as amended and modified
from time to time;
"FEDERAL AVIATION ACT" means the United States Federal Aviation Act of
1958, as amended and as recodified in Subtitle VII of Title 49 of the
United States Code, or any similar legislation of the United States of
America enacted in substitution or replacement thereof;
"FINANCING STATEMENTS" means Uniform Commercial Code Financing
Statements in respect of the Aircraft and Engines leased hereunder,
prepared in a form acceptable for filing with the applicable Government
Entities in the State in which the chief executive office of the Lessee
is located and, in the case of a sublessee, such other jurisdictions as
the Lessor shall reasonably require;
<PAGE>
"FLIGHT HOUR" shall mean each hour or part thereof of operation of the
Aircraft elapsing from the moment at which the wheels of the Aircraft
(or other aircraft in the case of temporarily installed Parts or
Engines) leave the ground on the take-off of such aircraft until the
wheels of such aircraft touch the ground on the landing of such aircraft
following such take-off; for the purpose of all calculations under this
Agreement measured in Flight Hours, such hours, including fractions
thereof measured to one decimal place, shall be accumulated throughout
each Accrual Period; Lessee will record sector flight times in hours and
minutes in the aircraft flight logs and historical records unless the
FAA specifically requires otherwise;
"FUNDING AGREEMENT" means the agreement or agreements, if any, entered
or to be entered into between the Head Lessor and the Lenders whereby
the Lenders will agree, on the terms and conditions therein contained,
to make finance available for the purchase or continued ownership of the
Aircraft;
"GOVERNING LAW" means the laws of the State of New York;
"GOVERNMENT ENTITY" means and includes (whether having a distinct legal
personality or not) any national or local government authority, board,
commission, department, division, organ, instrumentality, court or
agency and any association, organization or institution of which any of
the foregoing is a member or to whose jurisdiction any of the foregoing
is subject or in whose activities any of the foregoing is a participant;
"HEAD LEASE" means the Aircraft Lease Agreement entered into or to be
entered into between the Head Lessor, as lessor, and the Beneficiary, as
lessee, relating to the Aircraft;
"HEAD LESSOR" means, if applicable, such company or entity that the
Lessor may notify to the Lessee from time to time and, in the absence of
such notification, references to Head Lessor shall be deemed to be
references to the Lessor;
"INDEBTEDNESS" means any obligation for the payment or repayment of
money, whether as principal or as surety, and whether present or future,
actual or contingent;
"INDEMNITEES" means the Head Lessor, the Beneficiary, the Lessor
individually and as trustee and the Lenders or any of them and, in each
case, their respective shareholders, affiliates, directors, officers,
servants, agents and employees;
"INSURANCES" means any and all contracts or policies of insurance and
reinsurance required to be effected and maintained under this Agreement;
"LANDING GEAR" means the landing gear assembly of the Aircraft;
<PAGE>
"LEASE PERIOD" means, save as otherwise provided in this Agreement, the
Lease Term and any period during which the Lessee shall have the
possession of the Aircraft pursuant to this Agreement and/or shall have
failed to redeliver the Aircraft to the Lessor in the condition required
by this Agreement following expiry of the Lease Term and, for the
avoidance of doubt, shall include (i) any period during which the
Aircraft is requisitioned for hire by any governmental or other
competent authority; and (ii) any period prior to the payment of the
Agreed Value in accordance with Clauses 17.3(a) and Clause 17.4
following a Total Loss which occurs prior to the redelivery of the
Aircraft to the Lessor;
"LEASE TERM" means the period commencing on the Delivery Date and ending
on 31 March 2007 except as otherwise provided in this Agreement;
"LENDERS" means the banks, financial institutions and other parties to
the Funding Agreement other than the Head Lessor and the Lessor;
"LENDERS DOCUMENTS" means the Funding Agreement, the Assignment and the
Mortgage and any other Security Documents or similar documents referred
to in the Funding Agreement;
"LESSEE'S COUNTRY" means the United States of America or, where the
context so admits, the State of Colorado;
"LESSEE DOCUMENTS" means this Agreement, Letter Agreement No. 1, the
Purchase Assignment and other agreements to which the Lessee is a party
to be issued pursuant to or in connection with any of the foregoing;
"LESSEE'S INTEREST" means that portion of the Requisition Compensation
equal to the excess, if any, of (i) an amount equal to the present
value, discounted at a rate equal to the rate in effect for United
States Treasury obligations with a term most nearly equal to the
remaining Lease Term, of fair market rentals, determined by independent
appraisal, for the Aircraft for the balance of the Lease Term from the
date of the Compulsory Requisition minus (ii) the present value,
discounted at the same U.S. Treasury rate, of the future rent payments
due under this Agreement for the balance of the Lease Term from the date
of the Compulsory Requisition;
"LESSOR'S ENCUMBRANCE" means:
(a) any Encumbrance arising out of the Lender Documents and
any other Encumbrance whatsoever from time to time created
by or through any Indemnitee in connection with any such
Indemnitee's financing, transfer or purchase of the
Aircraft;
(b) any other Encumbrance in respect of the Aircraft which
results from acts of or claims against any of the
<PAGE>
Indemnitees not related to the transactions contemplated
by or permitted under this Agreement or which arise as a
result of any obligation of any Indemnitee under the
Lessee Documents or Lender Documents;
(c) Encumbrances in respect of the Aircraft for Taxes imposed
against any Indemnitee not indemnified by the Lessee
pursuant to this Agreement; and
(d) any Encumbrance arising out of a voluntary transfer by any
Indemnitee of an interest in the Aircraft unless such
transfer is made pursuant to an exercise of remedies after
the occurrence and during the continuance of a Termination
Event;
"LETTER OF QUIET ENJOYMENT" means a letter of quiet enjoyment in the
form attached hereto as Schedule 6;
"LETTER AGREEMENT NO. 1" means that certain Letter Agreement No. 1
between the Lessor and the Lessee, relating to the Aircraft, and dated
as of the date of this Agreement;
"LIBOR" means the rate which is either
(a) the rate quoted by Citibank on the display designated as page
"LIBO" on the Reuters Monitor Rates Service; or
(b) if the required rate is not displayed and ascertainable in
accordance with paragraph (a) above, the rate quoted by Bank of
America in the London inter-bank market;
for acquiring deposits in Dollars for a period of six (6) months at or
about 11.00 a.m. (London time) on the fifth (5th) Banking Day before the
date as to which, or the commencement of any period for which LIBOR is
required to be calculated;
"MAJOR CHECK" means any of the heavy maintenance visits for which
Airframe Maintenance Accruals have been accrued which comprise the
Structural Inspection tasks as defined in Section 7 of the MPD, Hard
Time Components requiring overhaul at 22,400 Flight Hours (as the same
may be revised from time to time in the MPD in respect of any of such
items) as defined in Section 6 of the MPD and/or Zonal Inspection and
Related Corrosion Prevention and Protection Program requirements as
defined in Section 10 of the MPD;
"MANUALS AND TECHNICAL RECORDS" means all such records, logs, manuals,
technical data, serviceable parts tags (including JAA Form 1 and/or FAA
8130 Tags) and other materials and documents relating to the Aircraft
and required to be kept for Lessee to operate the Aircraft lawfully and
<PAGE>
in compliance with any regulation of the Aviation Authority, including,
but not limited to, those listed in Part 1 of the appendix to the
Acceptance Certificate and the Technical Publications;
"MANUFACTURER" means The Boeing Company of Seattle, Washington, USA;
"MINOR DEFECTS" shall have the meaning given in Clause 19.4(a) hereof;
"MONTH" means a period beginning in one (1) calendar month and ending in
the next following calendar month on the day immediately preceding the
day numerically corresponding to the day of the calendar month on which
it started; provided that (i) if the period started on the last Banking
Day in a calendar month or if there is no such numerically corresponding
day, it shall end on the last Banking Day in such next following
calendar month and (ii) if such numerically corresponding day is not a
Banking Day, the period shall end on the next following Banking Day in
the same calendar month but if there is no such Banking Day it shall end
on the immediately succeeding Banking Day and "months" and "monthly"
shall be construed accordingly;
"MORTGAGE" means an aircraft mortgage relating to the Aircraft in favor
of the Lenders or a trustee on behalf of the Lenders or such other
security over the Aircraft as may be created by the Beneficiary or the
Head Lessor in connection with the Beneficiary's or Head Lessor's
financing of the Aircraft from time to time;
"MPD" means the Manufacturer's maintenance planning data with reference
number D6-38278, revision 4 dated July 1996 relating to Boeing 737-300,
-400 and -500 aircraft, as the same may be revised from time to time by
the Manufacturer;
"PART" means all appliances, parts, accessories, auxiliary power units,
instruments, navigational and communications equipment, furnishings,
modules, components and other items of equipment (other than complete
Engines or engines);
"PAYMENT DATE" means, subject to Clause 8.2, the Delivery Date and the
dates falling at successive one (1) monthly intervals thereafter
throughout the Lease Period;
"PERMITTED LIEN" means in respect of the Aircraft or any Engine:
(a) the Mortgage and any other Lessor Encumbrance;
<PAGE>
(b) any Encumbrance for Taxes either not yet assessed or, if
assessed, not yet due and payable or being contested in good
faith by appropriate proceedings (and for the payment of which
adequate reserves have been set aside) so long as any such
proceedings or the continued existence of such Encumbrance do not
involve the likelihood of the sale, forfeiture or loss of, or of
any interest in, the Aircraft or any Engine;
(c) airport hangar keepers', mechanics', material men's, carriers',
employees' or other similar Encumbrances arising in the ordinary
course of business by statute or by operation of law in respect
of obligations which are not overdue or which are being contested
in good faith by appropriate proceedings (and for the payment of
which adequate reserves have been set aside) so long as any such
proceedings or the continued existence of such Encumbrance do not
involve the likelihood of the sale, forfeiture or loss of, or of
any interest in, the Aircraft or any Engine;
"PERSON" means and includes any individual person, corporation,
partnership, firm, joint stock company, joint venture, trust, estate,
unincorporated organization, association, Government Entity or
organization or association of which any of the above is a member or a
participant;
"PURCHASE AGREEMENT" means the" Purchase Agreement" as defined in the
Purchase Assignment;
"PURCHASE ASSIGNMENT" means the Purchase Agreement Assignment of even
date herewith among the Lessor, Lessee and Manufacturer in respect of
the Lessee's right, title and interest in and to the Purchase Agreement
to the extent relating to the Aircraft (but excluding certain side
letters thereto to the extent specified in such assignment) and the
Manufacturer's Consent and Agreement thereto;
"REDELIVERY LOCATION" means such airport in the United Kingdom as may be
specified by the Lessor or such other location as the Lessor may agree;
"RELEVANT EVENT" means any Termination Event or any event which with the
giving of notice or lapse of time or the satisfaction of any other
condition (or any combination thereof) would constitute a Termination
Event;
"RELEVANT RATE OF INTEREST" means:
(a) for amounts due but unpaid for a period not exceeding ten (10)
days, two per cent (2%) per annum above the United States Dollar
Prime Rate offered by Citibank, N.A. (or if not available, the
United States Dollar Prime Rate offered by Bank of America) on
the first date in the period in respect of which the Relevant
Rate of Interest falls to be determined; or
<PAGE>
(b) for amounts due but unpaid for a period exceeding ten (10) days,
four per cent (4%) per annum above the United States Dollar Prime
Rate offered by Citibank, N.A. (or if not available, the United
States Dollar Prime Rate offered by Bank of America) on the first
date in the period in respect of which the Relevant Rate of
Interest falls to be determined;
"REMOVED ENGINE" means an Engine which is not installed on the Airframe.
"REQUISITION COMPENSATION" means all moneys or other compensation from
time to time payable in respect of the Compulsory Acquisition of the
Aircraft;
"SECURITY DOCUMENTS" means the Assignment and the Mortgage and any other
document or agreement entered or to be entered into between any of the
Lessor, the Beneficiary, the Head Lessor and the Lenders and all
notices, consents, certificates and other documents and agreements to be
issued pursuant to the foregoing;
"SERVICEABLE" means that a system operates in full compliance with the
Aircraft Maintenance Manual specifications and limitations, disallowing
consideration for any Minimum Equipment List or other form of
dispensation. In the case of an individual component part or assembly
serviceable means the item is in such a state of repair that it is fit
for its intended use and purpose and complies with the applicable rules
and regulations of the FAA and, if not specified in the Aircraft
Maintenance Manual, otherwise conforms to the specifications in the
relevant Manufacturer's component maintenance manual;
"STATE OF REGISTRATION" means the United States of America or such other
jurisdiction in which the Aircraft is from time to time registered with
the consent of the Lessor and the Lenders;
"SUBSIDIARY" of a person means any company or entity directly or
indirectly controlled by such person for which purpose "CONTROL" means
either ownership of more than fifty per cent. (50%) of the voting share
capital (or equivalent right of ownership) of such company or entity, or
power to direct its policies and management whether by contract or
otherwise;
"TAXES" includes all present and future taxes, levies, imposts, duties,
fees or charges of whatever nature, including, without limitation, any
value added or similar tax at the rate applicable for the time being,
imposed by any national or local taxing authority or any other agency or
government, together with any interest thereon and penalties imposed in
respect thereof and "TAXATION" shall be construed accordingly;
"TECHNICAL PUBLICATIONS" means the technical publications relating to
the Aircraft listed in Part 2 of the appendix to the Acceptance
Certificate;
"TERMINATION EVENT" shall have the meaning given in Clause 20;
"THRESHOLD AMOUNT" means, when used in Clauses 6.3 and 11.2, $[ ]*, and,
when used in Schedule 3, $[ ]*;
"TOTAL LOSS" means any of the following events:
(a) the actual or constructive total loss of the Aircraft (including
any damage to the Aircraft which results in an insurance
settlement on the basis of a total loss, or requisition for use
or hire of the Aircraft which results in an insurance settlement
on the basis of a total loss);
<PAGE>
(b) the Aircraft being destroyed, damaged beyond repair, or
permanently rendered unfit for normal use for any reason
whatsoever;
(c) the Compulsory Acquisition of the Aircraft; or
(d) the hijacking, theft, condemnation, confiscation, capture,
detention, seizure or requisition for use or hire of the
Aircraft, other than where the same amounts to Compulsory
Acquisition of the Aircraft, which deprives the operator of the
use of the Aircraft for more than ninety (90) days, but excluding
requisition for use or hire by the government of the State of
Registration;
"TRUST AGREEMENT" means the Master Trust Agreement dated as of 22 June
1992 between the Beneficiary, as beneficiary, and the Lessor, as amended
and supplemented from time to time.
1.2 Clause headings and the Index are inserted for convenience of reference
only and shall be ignored in the interpretation of this Agreement.
1.3 In this Agreement, unless the context otherwise requires:
(a) references to Clauses and Schedules are to be construed as
references to the Clauses of, and Schedules to, this Agreement
and references to this Agreement include its Schedules;
(b) references to (or to any specified provision of) this Agreement
or any other document shall be construed as references to this
Agreement, that provision or that document as in force for the
time being and as amended in accordance with the terms hereof or
thereof, or as the case may be, with the agreement of the
relevant parties and (where such consent is, by the terms of this
Agreement or the relevant document required to be obtained as a
condition to such amendment being permitted) the prior written
consent of the Lessor;
(c) words importing the plural shall include the singular and vice
versa;
<PAGE>
(d) references to a person shall be construed as including, without
limitation, references to an individual, firm, company,
corporation, unincorporated body of persons and any Government
Entity; and
(e) references to the Beneficiary, the Lessor or the Lessee shall be
construed as including any successor in title to the Beneficiary,
the Lessor or the Lessee respectively and references to the
Beneficiary, the Lessor or the Lenders shall be construed as
including any permitted assignee or transferee of the
Beneficiary, the Lessor or the Lenders respectively.
2. REPRESENTATIONS AND WARRANTIES
2.1 The Lessee acknowledges that the Lessor has entered into this Agreement
in full reliance on the representations and warranties in this Clause 2,
and the Lessee represents and warrants to the Lessor that:
(a) the Lessee is duly incorporated and validly existing in good
standing under the laws of the State of Delaware as a corporation
and has power to carry on its business as it is now being
conducted and to own its property and other assets;
(b) the Lessee has the corporate power to execute, deliver and
perform its obligations under the Lessee Documents and all
necessary corporate, shareholder and other action has been taken
to authorize the execution, delivery and performance by Lessee of
the same and the transactions contemplated by the Lessee
Documents;
(c) the Lessee Documents have been duly entered into and delivered by
the Lessee and constitute or will, upon execution thereof,
constitute valid and legally binding obligations of the Lessee
enforceable in accordance with their respective terms, except as
such enforcement may be affected by bankruptcy, insolvency,
reorganization or other laws of general application affecting
creditors or Lessor's rights and except for general principles of
equity;
(d) the execution and delivery of, the performance of its obligations
under, and compliance with the provisions of, the Lessee
Documents by the Lessee will not (i) contravene any existing
applicable law, statute, rule or regulation, or, to the extent
known to Lessee, any judgment, decree or permit to which the
Lessee is subject, (ii) conflict with, or result in any breach of
any of the terms of, or constitute a default under, any agreement
or other instrument to which the Lessee is a party or is subject
or by which it or any of its property is bound, or (iii)
contravene or conflict with any provision of the Lessee's
constituent documents;
<PAGE>
(e) no litigation, arbitration or administrative proceeding is taking
place, pending or, to the best knowledge of the officers of the
Lessee, threatened against the Lessee which may reasonably be
expected to have a material adverse effect on the business,
assets or financial condition of the Lessee or its ability to
perform its obligations under the Lessee Documents;
(f) the consolidated audited financial statements of the Lessee and
its Subsidiaries in respect of the financial year ended on
December 31, 1995 as delivered to the Lessor, and the quarterly
financial statements of the type referred to in Clause 11.1(c)
and previously delivered by Lessee to Lessor have been prepared
in accordance with generally accepted accounting principles and
practices in the United States which have been consistently
applied and present fairly in accordance with such principles the
consolidated financial position of the Lessee and its
Subsidiaries as at such date and the results of the operations of
the Lessee and the consolidated results of the operations of the
Lessee and its Subsidiaries respectively for the financial year
ended on such date, and the unaudited consolidated financial
statements in respect of each quarter delivered to the Lessor
have been prepared on the same basis as the annual statements
except as to absence of footnotes and subject to year-end
adjustments;
(g) except for registration of the Aircraft and the filing of this
Agreement with the FAA and the filing of the Financing
Statements, it is not necessary to ensure the legality, validity,
enforceability or admissibility in evidence of the Lessee
Documents that any of them or any other instrument be notarized,
filed, recorded, registered or enrolled in any court, public
office or elsewhere in Lessee's Country;
(h) the choice of the Governing Law to govern this Agreement and the
submission by the Lessee to the jurisdiction of the Courts are
valid and binding and not subject to unilateral revocation by
Lessee;
(i) the Lessee is subject to civil and commercial law with respect to
its obligations under the Lessee Documents and the transactions
contemplated thereby constitute private and commercial acts done
for private and commercial purposes and neither the Lessee nor
any of its assets is entitled to any immunity on the grounds of
sovereignty from any legal actions or proceeding (which shall
include, without limitation, suit, attachment prior to judgment,
execution or other enforcement);
(j) the Lessee's chief executive office (as that term is defined in
Article 9 of the Uniform Commercial Code as in effect in the
State of Colorado) is located at 2864 South Circle Drive, Suite
1100, Colorado Springs, Colorado, 80906, USA;
<PAGE>
(k) the Lessee is a Certificated Air Carrier and the Lessor, as the
lessor of the Aircraft to the Lessee, is entitled to the benefit
of Section 1110 of Title 11 of the United States Code with
respect to the Aircraft;
(l) the Lessee is a Citizen of the United States; and
(m) the Purchase Agreement is in full force and effect, neither the
Manufacturer, to Lessee's knowledge and belief, nor Lessee is in
breach of any of its obligations thereunder and Lessor has been
given a full and complete copy thereof.
2.2 The Lessee further represents and warrants to the Lessor that:
(a) there has been no material adverse change in the consolidated
financial position of the Lessee and its Subsidiaries from that
set forth in the unaudited consolidated financial statements
delivered to the Lessor and Beneficiary for the quarter ending
December 31, 1996;
(b) except for registration of the Aircraft and the filing of this
Agreement with the FAA and the filing of the Financing
Statements, every consent, authorization, license or approval of,
or registration with, or declaration to, governmental or public
bodies or authorities or courts required by the Lessee to
authorize, or required by the Lessee in connection with, the
execution, delivery, validity or enforceability of the Lessee
Documents or the performance by the Lessee of its obligations
under the Lessee Documents has been obtained or made and is in
full force and effect, and there has been no default in the
observance of the conditions or restrictions (if any) imposed in,
or in connection with, any of the same;
(c) the obligations of the Lessee under the Lessee Documents are
direct and general obligations of the Lessee and rank at least
pari passu with all other present and future unsecured and
unsubordinated obligations (including contingent obligations) of
the Lessee with the exception of such obligations as are
mandatorily preferred by law and not by contract;
(d) the Lessee is not (nor would with the giving of notice or lapse
of time or both be) in breach of or in default under any
agreement relating to Indebtedness to which it is a party or by
which it may be bound;
(e) the information, exhibits and reports furnished by the Lessee to
the Lessor in connection with the matters contemplated by this
Agreement or with the negotiation and preparation of this
Agreement are true and accurate in all material respects;
(f) no Relevant Event has occurred and is continuing; and
<PAGE>
(g) as of the date of this Agreement, the Lessee does not hold any
contract or other obligation to operate the Aircraft to any of
the countries designated under the United States Foreign Asset
Control Regulations (31 C.F.R. Parts 500 - 599), including, as of
the date of this Agreement, Cuba, Iraq, Libya, North Korea and
the Federal Republic of Yugoslavia (Serbia and Montenegro).
2.3 The representations and warranties in Clauses 2.1 and 2.2 shall be
deemed to be repeated by the Lessee on the Advance Payment Date and on
the Delivery Date as if made with reference to the facts and
circumstances then existing.
2.4 The rights and remedies of the Lessor in relation to any
misrepresentation or breach of warranty on the part of the Lessee shall
not be prejudiced by any investigation by or on behalf of the Lessor.
2.5 The Lessor acknowledges that the Lessee has entered into this Agreement
in full reliance on the representations and warranties in this Clause
2.5, and the Lessor represents and warrants to the Lessee that:
(a) the Lessor is a banking corporation duly incorporated and validly
existing under the laws of Delaware and has the power to carry on
its business as it is now being conducted and to own its property
and other assets;
(b) the Lessor has the power and authority to execute, deliver and
perform its obligations under the Lessee Documents to which it is
a party and all necessary corporate, shareholder and other action
has been taken to authorize the execution, delivery and
performance of the same and the transactions contemplated by the
Lessee Documents to which it is a party;
(c) the Lessee Documents to which it is a party have been duly
entered into and delivered by the Lessor and constitute or will,
upon execution thereof, constitute valid and legally binding
obligations of the Lessor enforceable in accordance with their
respective terms (subject to applicable bankruptcy, insolvency or
other laws affecting creditor's rights generally and to general
principles of equity from time to time in effect);
(d) the execution and delivery of, the performance of its obligations
under, and compliance with the provisions of, the Lessee
Documents to which it is a party by the Lessor will not (i)
contravene any existing applicable law, statute, rule or
regulation of the State of Delaware or any federal law, statute
or regulation of the United States of America governing the
<PAGE>
banking or trust power of the Lessor, or any judgment, decree or
permit to which the Lessor is subject; (ii) conflict with, or
result in any breach of any of the terms of, or constitute a
default under, any agreement or other instrument to which the
Lessor is a party or is subject or by which it or any of its
property is bound; or (iii) contravene or conflict with any
provision of the Lessor's constituent documents;
(e) no litigation, arbitration or administrative proceeding is taking
place, pending or, to the knowledge of the officers of the
Lessor, threatened against the Lessor which could have a material
adverse effect on the Lessor's ability to perform its obligations
under the Lessee Documents to which it is a party;
(f) the Lessor is subject to civil and commercial law with respect to
its obligations under the Lessee Documents to which it is a party
and the transactions contemplated thereby constitute private and
commercial acts done for private and commercial purposes and
neither the Lessor nor any of its assets is entitled to any
immunity on the grounds of sovereignty or otherwise from any
legal actions or proceeding (which shall include, without
limitation, suit, attachment prior to judgment, execution or
other enforcement);
(g) the Lessor is a citizen of the United States as defined in
Section 40102 of Title 49 of the United States Code;
(h) every consent, authorization, license or approval of, or
registration with, or declaration to, governmental or public
bodies or authorities or courts required by the Lessor to
authorize, or required by the Lessor in connection with, the
execution, delivery, validity or enforceability of the Lessee
Documents has been obtained or made and is in full force and
effect, and there has been no default in the observance of the
conditions or restrictions (if any) imposed in, or in connection
with, any of the same;
(i) the Head Lessor shall hold at Delivery whatever title to the
Aircraft as shall have been conveyed to it by the Manufacturer
and shall hold whatever title to any replacement Engine or Part
as shall have been conveyed to Head Lessor by or on behalf of the
Lessee during the Lease Term pursuant to the provisions of this
Agreement; and
(j) the choice of the Governing Law to govern this Agreement and the
submission by the Lessor to the jurisdiction of the Courts are
valid and binding and not subject to unilateral revocation by
Lessor.
<PAGE>
2.6 The rights and remedies of the Lessee in relation to any
misrepresentation or breach of warranty on the part of the Lessor shall
not be prejudiced by any investigation by or on behalf of the Lessee.
3. TERM OF LEASE
3.1 The Lessor shall lease and the Lessee shall take on lease the Aircraft,
subject to the terms and conditions of this Agreement, for the Lease
Term.
4. CONDITIONS
4.1 The obligation of the Lessor to lease the Aircraft to the Lessee under
this Agreement is subject to the condition that, not later than three
(3) Banking Days prior to the Expected Delivery Date, the Lessor shall
have received the documents and evidence specified in Part 1 of Schedule
1 in form and substance reasonably satisfactory to the Lessor.
4.2 The obligation of the Lessor to lease the Aircraft to the Lessee under
this Agreement is subject to the further condition that, prior to
Delivery, the Lessor shall have received the documents and evidence
specified in Part 2 of Schedule 1 in form and substance reasonably
satisfactory to the Lessor.
4.3 The obligation of the Lessor to lease the Aircraft to the Lessee under
this Agreement is subject to the further conditions that:
(a) the Manufacturer shall have delivered the Aircraft in accordance
with the Purchase Agreement and Purchase Assignment;
(b) all necessary governmental and regulatory consents and approvals
required to permit the Lessor to lease the Aircraft to the Lessee
and the Lessor to register the Aircraft in the State of
Registration shall have been received by the Lessor and/or the
Lessee as appropriate;
(c) the representations and warranties set out in Clauses 2.1 and 2.2
shall be true and correct as if each were made with respect to
the facts and circumstances existing immediately prior to the
time when Delivery is to take place;
(d) no Relevant Event shall have occurred and be continuing or would
arise by reason of Delivery taking place;
(e) the Lessee shall have executed and delivered the Lessee Documents;
and
(f) the conditions precedent to the Lessor's obligations in the
Purchase Assignment in Sections 7(a) and 7(c) thereof shall have
been satisfied.
<PAGE>
4.4 The obligation of the Lessor to execute and deliver the Lessee Documents
and to make the advance payments for the Aircraft to the Manufacturer
pursuant to the Purchase Assignment on the Advance Payment Date is
subject to the following conditions:
(a) the Lessor shall have received the documents and evidence
specified in Part 3 of Schedule 1 in form and substance
reasonably satisfactory to the Lessor;
(b) the representations and warranties set out in Clauses 2.1 and 2.2
shall be true and correct as if each were made with respect to
the facts and circumstances existing immediately prior to the
time when Lessor makes such advance payments;
(c) no Relevant Event shall have occurred and be continuing or would
arise by reason of Lessor executing and delivering the Lessee
Documents or making such advance payments; and
(d) the Lessee shall have executed and delivered the Lessee Documents.
4.5 The conditions specified in Clauses 4.1, 4.2, 4.3 and 4.4 are inserted
for the sole benefit of the Lessor and may be waived in whole or in part
and with or without conditions by the Lessor. If any of those conditions
are not satisfied on the Delivery Date and the Lessor (in its absolute
discretion) nonetheless agrees to make the advance payments or deliver
the Aircraft to the Lessee, the Lessee will ensure that those
outstanding conditions are fulfilled within such period as the Lessor
may reasonably require.
4.6 The obligation of the Lessee to lease the Aircraft from the Lessor under
this Agreement is subject to the conditions that:
(a) the Manufacturer shall have delivered the Aircraft in accordance
with the Purchase Agreement and Purchase Assignment;
(b) the Lessor shall have registered the Aircraft in the State of
Registration;
(c) the representations and warranties set out in Clause 2.5 shall be
true and correct as if each were made with respect to the facts
and circumstances existing immediately prior to the time when
Delivery is to take place; and
(d) the Lessor shall have executed and delivered the Lessee
Documents.
4.7 The conditions specified in Clause 4.6 are inserted for the sole benefit
of the Lessee and may be waived in whole or in part and with or without
conditions by the Lessee. If any of those conditions are not satisfied
on the Delivery Date and the Lessee (in its absolute discretion)
nonetheless agrees to accept delivery of the Aircraft from the Lessor,
the Lessor will ensure that those outstanding conditions are fulfilled
within such period as the Lessee may reasonably require.
<PAGE>
5. DELIVERY AND ACCEPTANCE
5.1 Subject to Clauses 4 and 5.8 hereof, the Aircraft shall be delivered to
and accepted by the Lessee at the Delivery Location when the
Manufacturer delivers the Aircraft in compliance with the Purchase
Agreement. The Lessee and Lessor shall jointly determine when the
Aircraft has been delivered in accordance with the Purchase Agreement,
as further set out in the Purchase Assignment. If the Lessee and Lessor
jointly determine that the Aircraft does not meet the conditions
required at delivery under the Purchase Agreement or there is a
disagreement between the Lessee and Lessor as to whether such conditions
have been met, Clauses 5.7 through 5.8 (as applicable) shall govern.
Upon such delivery and acceptance, the Aircraft shall become subject to
and be governed by this Agreement, the Lease Period shall commence and
the Lessee shall thereupon sign and deliver to the Lessor the Acceptance
Certificate. After Delivery, the Aircraft and every part thereof will
be, in every respect, at the sole risk of the Lessee who will bear all
risk of loss, theft, damage or destruction to the Aircraft from any
cause whatsoever. Prior to Delivery, the risk of loss, theft, damage or
destruction to the Aircraft shall be borne by the Manufacturer pursuant
to the Purchase Agreement.
5.2 The Lessor shall not be responsible for any loss or expense, or any loss
of profit, arising from any delay in the delivery of, or failure to
deliver, the Aircraft to the Lessee under this Agreement unless such
delay or failure arises as a direct consequence of the default or
failure of the Lessor to perform its obligations hereunder or to pay the
advance payments and aircraft price for the Aircraft to the Manufacturer
when it is obligated to do so under the Purchase Assignment and (to the
extent provided in the Purchase Assignment) the Purchase Agreement.
5.3 (a) The Lessee shall indemnify and hold harmless the Indemnitees from
and against any and all liabilities, damages, losses (including
costs and expenses incidental thereto) arising by reason of death
or injury to any observer or any employee of the Lessee, arising
out of, or in any way connected with any demonstration flight and
inspection of the Aircraft conducted pursuant to the Purchase
Agreement.
(b) The Lessor shall indemnify and hold harmless the Lessee and its
shareholders, affiliates, directors, officers, agents and
employees from and against any and all liabilities, damages,
losses (including costs and expenses incidental thereto) arising
by reason of death or injury to any observer or any employee of
the Lessor or any Indemnitee, arising out of, or in any way
connected with any demonstration flight and inspection of the
Aircraft conducted pursuant to the Purchase Agreement.
5.4 (a) If by reason of a default by the Manufacturer (including, but not
limited to, failure to tender the Aircraft for delivery in the
condition required by the Purchase Agreement), the Aircraft shall
<PAGE>
not have been delivered to and accepted by the Lessee in
accordance with Clause 5.1 by August 31, 1997, (i) the Lessor's
obligation contained in this Agreement to lease the Aircraft to
the Lessee and the Lessee's obligation to lease the Aircraft from
the Lessor shall expire and (ii) not later than fifteen (15) days
after August 31, 1997, Lessee shall repay Lessor all advance
payments theretofore made by Lessor for the Aircraft plus
interest thereon at an interest rate of LIBOR plus one percent
(1.0%) (net of any interest paid to Lessor by the Manufacturer)
from the date of payment through the day prior to the date of
repayment by Lessee and, upon such repayment, the Purchase
Assignment shall terminate. Concurrent with receipt of the
advance payments and interest as provided in the preceding
sentence, Lessor shall deliver written notice to the Manufacturer
and Lessee pursuant to the terms of the Purchase Assignment that
such Purchase Assignment has terminated. If Lessee fails to pay
such repayments fully when due, the Purchase Assignment shall not
terminate and, notwithstanding anything to the contrary in this
Clause 5, Lessor will be entitled to pursue remedies against the
Manufacturer with respect to the advance payments made by it.
Nothing in this Clause 5.4 (a) is intended to or shall be deemed
to waive any rights and remedies which either the Lessor or the
Lessee may have against the Manufacturer under the Purchase
Assignment or Purchase Agreement.
(b) If by reason of a Relevant Event the Aircraft is not leased to
the Lessee and such Relevant Event is or becomes a Termination
Event, the Lessor's obligation to lease the Aircraft to the
Lessee hereunder shall expire and the Lessor shall be entitled to
accept delivery of the Aircraft from the Manufacturer as provided
in the Purchase Assignment, in each case without adversely
affecting any right of Lessor to pursue remedies available
against Lessee hereunder, under the Purchase Assignment or at
law.
(c) The Lessee agrees to diligently perform its obligations under the
Purchase Assignment and Purchase Agreement and to take
commercially reasonable steps within its control to cause the
Aircraft to be delivered in May 1997 or as soon thereafter as
possible, subject, in all cases, to the terms of the Purchase
Agreement.
(d) If by reason of a failure by the Lessor to make advance payments
or pay the net aircraft purchase price to the Manufacturer when
the Lessor is obligated to do so under the terms of the Purchase
Assignment, the Aircraft is not leased to the Lessee when
tendered by the Manufacturer in accordance with the Purchase
Agreement, following a return to Lessor of any advance payments
previously made by it, the Lessee's obligation to lease the
Aircraft from the Lessor hereunder shall expire and this
Agreement and the Purchase Assignment shall terminate, but
<PAGE>
without adversely affecting any right of any party to pursue
remedies available hereunder, under the Purchase Assignment or at
law against other parties thereto. Concurrent with receipt of the
advance payments as provided in the preceding sentence, Lessor
shall deliver written notice to the Manufacturer and Lessee
pursuant to the terms of the Purchase Assignment that such
Purchase Assignment has terminated.
5.5 (a) The Lessee shall (i) indemnify the Lessor in respect of any
reasonable out-of-pocket costs or expenses, if any, incurred by
the Lessor as a consequence of any delay in the delivery of or
non-delivery of the Aircraft to the Lessee, or non-acceptance of
the Aircraft by the Lessee under this Agreement (collectively, a
"Delay") and (ii) without duplication of any payment made under
the preceding clause (i), pay the Lessor interest on the advanced
payments made to the Manufacturer under the Purchase Assignment
as provided in Clause 5.5(b), in either such case, if and to the
extent that such Delay arises as a direct consequence of the
failure of the Lessee to perform its obligations hereunder or
under the Purchase Assignment or any Relevant Event, provided,
however, that nothing in this Clause 5.5 is intended to or shall
be deemed to waive any other right or remedy provided to the
Lessor in this Agreement and in the Purchase Assignment in the
event of such failure by the Lessee, including, but not limited
to Clause 5.4(b).
(b) The interest payable by Lessee pursuant to Clause 5.5(a)(ii)
shall accrue on a daily basis beginning on the first day of the
Delay and ending on the earlier of the day prior to (i) Delivery
of the Aircraft hereunder or (ii) expiration of the Lessor's
obligation to lease the Aircraft hereunder pursuant to Clause 5.4
hereof on the full amount of the outstanding advance payments
made by Lessor at an interest rate of LIBOR plus one percent
(1.0%). Such interest shall be payable upon the earlier of such
delivery or expiration and/or if the Delay exceeds one month,
monthly.
5.6 (a) If (i) there is an Excusable Delay (as defined in the Purchase
Agreement) and as a result thereof the Aircraft is not delivered
by August 31, 1997 or (ii) the Manufacturer estimates that by
reason of an Excusable Delay, the Aircraft will not be delivered
until after August 31, 1997, the Lessor may elect, by notice
delivered to the Lessee and the Manufacturer, to require the
Lessee to repay within fifteen (15) days of delivery of such
notice all advance payments theretofore made by Lessor for the
Aircraft plus interest thereon at an interest rate of LIBOR plus
one percent (1%) (net of any interest paid to Lessor by
Manufacturer) from the date of payment through the day prior to
the date of repayment by Lessee and, upon such repayment, the
Purchase Assignment shall terminate and the Lessor's obligation
to lease the Aircraft to Lessee hereunder shall expire.
Concurrent with receipt of the advance payments and interest as
provided in the preceding sentence, Lessor shall deliver written
notice to the Manufacturer and Lessee pursuant to the terms of
the Purchase Assignment that such Purchase Assignment has
terminated.
<PAGE>
(b) If by reason of an Excusable Delay or for any other reason the
Aircraft is not delivered by the Manufacturer under the Purchase
Agreement by November 30, 1997, the Lessor may elect, by notice
delivered to the Lessee and the Manufacturer, to require the
Lessee to repay within fifteen (15) days of delivery of such
notice all advance payments theretofore made by Lessor for the
Aircraft plus interest thereon at an interest rate of LIBOR plus
one percent (1.0%) (net of any interest paid to Lessor by
Manufacturer) from the date of payment through the day prior to
the date of repayment by Lessee and, upon such repayment, the
Purchase Assignment shall terminate and the Lessor's obligation
to lease the aircraft to Lessee hereunder shall expire.
Concurrent with receipt of the advance payments and interest as
provided in the preceding sentence, Lessor shall deliver written
notice to the Manufacturer and Lessee pursuant to the terms of
the Purchase Assignment that such Purchase Assignment has
terminated.
(c) If Lessee fails to repay the advance payments and interest
thereon when required to do so by Lessor pursuant to Clause
5.6(a) or (b), the Purchase Assignment shall not terminate and,
notwithstanding anything to the contrary in this Clause 5, Lessor
will be entitled to pursue remedies against the Lessee and/or
Manufacturer with respect to the advance payments made by it.
Nothing in this Clause 5.6 is intended to or shall be deemed to
waive any rights and remedies which the Lessor may have against
the Lessee and Manufacturer under this Agreement, the Purchase
Assignment or Purchase Agreement.
5.7 (a) If the Manufacturer tenders the Aircraft for delivery under the
Purchase Agreement and the Lessor and Lessee mutually agree that
the Aircraft does not meet the conditions required under the
Purchase Agreement for such delivery, the Lessee shall not accept
delivery of the Aircraft under the Purchase Agreement or this
Agreement and, at its expense (except as provided in the last
sentence of this Clause 5.7), shall pursue diligently all
commercially reasonable actions (including, but not limited to
litigation if necessary) to cause the Manufacturer to deliver the
Aircraft as soon as practicable in the condition required by the
Purchase Agreement. The Lessee shall keep the Lessor advised of
the actions that it is taking to obtain delivery of the Aircraft
in the required condition and shall consult with the Lessor prior
to taking such actions to the extent practicable. If the Lessee
reasonably elects, in the pursuit of remedies against the
Manufacturer, to pursue litigation against the Manufacturer, the
parties shall mutually agree on an equitable sharing of the
expenses of such litigation (including prelitigation expenses
reasonably incurred, regardless of whether a lawsuit is actually
<PAGE>
filed) and any recoveries therefrom, provided, however, that such
agreement shall include whatever provisions may be reasonably
requested by Lessor to ensure that the litigation is conducted by
Lessee to the reasonable satisfaction of Lessor with due regard
to Lessor's interest in the Aircraft.
(b) Notwithstanding anything in Clause 5.7(a) to the contrary, if the
Lessor's obligation to lease the Aircraft to Lessee expires under
Clause 5.4(a) or 5.6 hereof, the Lessor may directly pursue any
remedies that it elects to pursue against the Manufacturer under
the Purchase Assignment and Purchase Agreement. Without
limitation of the foregoing, the Lessee and Lessor will cooperate
with each other to the extent reasonably requested in any effort
or pursuit of remedies to obtain return of the advance payments
made by Lessor to the Manufacturer and any reasonable damages
sought by the Lessor and/or Lessee with respect thereto.
5.8 (a) If, following mutual consultation, the Lessee reasonably believes
that the Manufacturer has tendered the Aircraft for delivery in
the condition required by the Purchase Agreement and the Lessor
disagrees, the Lessee shall, at its option, either elect to
concur in the Lessor's position and attempt to cause the
Manufacturer to deliver the Aircraft as provided in Clause 5.7 or
accept delivery of the Aircraft under the Purchase Agreement and
this Agreement, in which case Clause 5.8(b) shall apply. If the
Lessee accepts delivery of the Aircraft as provided in the
preceding sentence, subject to satisfaction or waiver of the
conditions in Clause 4 (other than Clause 4.3(a)), the Lessor
shall pay the aircraft price to the Manufacturer and lease the
Aircraft to the Lessee under this Agreement.
(b) If the Lessee elects to accept delivery of the Aircraft under the
circumstances described in Clause 5.8(a), the Lessor shall be
entitled to require that a determination be made by an
arbitration panel as to (i) whether the Aircraft met the
conditions required by the Purchase Agreement when it was
accepted for delivery by the Lessee and (ii) if not, the amount
by which the value of the Aircraft was diminished by virtue of
its deficient condition (the "Deficiency Amount"). Such
determination shall be obtained by arbitration in the City of New
York, pursuant to the rules then obtaining of the American
Arbitration Association or any written agreement of the parties.
Such determination shall be rendered by a panel of three
arbitrators each of recognized expertise in aircraft valuation,
one arbitrator to be chosen by each of the Lessor and Lessee
within twenty (20) days of written request therefore being made
by the Lessor to the Lessee and the third arbitrator to be chosen
by the other two arbitrators within ten (10) days thereafter. If
the arbitration panel decides that the Aircraft was not in the
condition required by the Purchase Agreement when accepted by the
Lessee and that the Deficiency Amount is $[ ]* or more, the
Lessee shall pay the Lessor the Deficiency Amount within ten (10)
days after the determination of such amount by the arbitration
<PAGE>
panel and shall pay the Lessor's reasonable legal and other
out-of-pocket costs associated with the arbitration promptly
after the Lessor submits invoices or other reasonable evidence of
such costs to the Lessee. If the arbitration panel decides that
the Aircraft was in the condition required by the Purchase
Agreement when accepted by the Lessee or, if not, that the
Deficiency Amount is less than $[ ]*, the Lessor shall pay the
Lessee's reasonable legal and other out-of-pocket costs
associated with the arbitration promptly after the Lessee submits
invoices or other reasonable evidence of such costs to the Lessor
and the Lessee shall have no obligation to pay such Deficiency
Amount.
6. LESSOR'S WARRANTIES AND MANUFACTURER'S WARRANTIES
6.1 The Lessor warrants that as long as no Termination Event has occurred
and is continuing, neither the Lessor nor the Head Lessor, nor any
person claiming by, through or under Lessor or Head Lessor, shall
interfere during the Lease Period with the use, possession and quiet
enjoyment of the Aircraft (including, but not limited to, the Manuals
and Technical Records) by the Lessee or the exercise by Lessee of its
rights and privileges hereunder.
6.2 THE LESSEE EXPRESSLY AGREES AND ACKNOWLEDGES THAT, SAVE ONLY AS PROVIDED
IN CLAUSE 6.1 AND CLAUSE 2.5, NO WARRANTY OR REPRESENTATION OF ANY KIND
IS OR HAS BEEN GIVEN BY OR ON BEHALF OF THE LESSOR IN RESPECT OF THE
AIRCRAFT OR ANY PART THEREOF AND, ACCORDINGLY, THE LESSEE CONFIRMS THAT
IT HAS NOT, IN ENTERING INTO THIS AGREEMENT, RELIED ON ANY WARRANTY OR
REPRESENTATION BY THE LESSOR OR ANY PERSON ON THE LESSOR'S BEHALF,
EXPRESS OR IMPLIED, WHETHER ARISING BY LAW OR OTHERWISE IN RELATION TO
THE AIRCRAFT OR ANY PART THEREOF, INCLUDING, WITHOUT LIMITATION,
WARRANTIES OR REPRESENTATIONS AS TO THE DESCRIPTION, AIRWORTHINESS,
MERCHANTABILITY, FITNESS FOR ANY PURPOSE, VALUE, CONDITION, DESIGN OR
OPERATION OF ANY KIND OR NATURE OF THE AIRCRAFT OR ANY PART THEREOF, AND
THE BENEFIT OF ANY SUCH WARRANTY OR REPRESENTATION BY THE LESSOR IS
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVED BY THE LESSEE. TO THE
EXTENT PERMISSIBLE UNDER APPLICABLE LAW, THE LESSEE HEREBY ALSO WAIVES
ANY RIGHTS WHICH IT MAY HAVE IN TORT IN RESPECT OF ANY OF THE MATTERS
REFERRED TO ABOVE AND IRREVOCABLY AGREES THAT THE LESSOR SHALL HAVE NO
GREATER LIABILITY TO LESSEE IN TORT IN RESPECT OF ANY SUCH MATTER THAN
IT WOULD HAVE IN CONTRACT AFTER TAKING ACCOUNT OF ALL OF THE FOREGOING
EXCLUSIONS. NO THIRD PARTY MAKING ANY REPRESENTATION OR WARRANTY
RELATING TO THE AIRCRAFT OR ANY PART THEREOF IS THE AGENT OF THE LESSOR
NOR HAS ANY SUCH THIRD PARTY AUTHORITY TO BIND THE LESSOR THEREBY.
<PAGE>
NOTWITHSTANDING ANYTHING CONTAINED ABOVE, NOTHING CONTAINED HEREIN IS
INTENDED TO OBVIATE, REMOVE OR WAIVE ANY RIGHTS OF WARRANTY OR OTHER
CLAIMS RELATING THERETO WHICH THE LESSEE OR THE LESSOR MAY HAVE AGAINST
THE MANUFACTURER OR SUPPLIER OF THE AIRCRAFT (INCLUDING ANY ENGINE OR
PART THEREOF) OR ANY THIRD PARTY.
6.3 The Lessor agrees to assign to the Lessee the benefit of all assignable
warranties and indemnities, product support and operational benefits
given by the Manufacturer pursuant to the Purchase Agreement (as same
have been assigned to the Lessor pursuant to the Purchase Assignment) or
supplier of any part of the Aircraft as provided in the Purchase
Assignment. The Lessee acknowledges that any such assignment is subject
to the prior written consent of the Manufacturer or supplier of any part
of the Aircraft and each party hereto agrees to execute and deliver to
the other party such notices of assignment of warranties as such other
party may reasonably request. The Lessee agrees to the extent
commercially reasonable to pursue by reasonable procedures such warranty
claims in respect of the Aircraft as to its knowledge may arise having
taken reasonable steps to ascertain such claims and to notify the Lessor
of all such claims in excess of the Threshold Amount.
6.4 The Lessee agrees to assign or re-assign to the Lessor or its nominee at
the time of redelivery of the Aircraft or thereafter, the benefit of all
remaining warranties and indemnities, product support and operational
benefits that are given to the Lessee during the Lease Period by the
Manufacturer or supplier of any part of the Aircraft and any person who
has repaired the Aircraft or any part thereof to the extent
transferable.
7. RENT
7.1 During the Lease Period the Lessee shall pay to the Lessor (or to the
Lessor's order) installments of rent for the Aircraft monthly in
advance, each such instalment being of the amount specified in paragraph
2 of Letter Agreement No. 1 opposite the relevant Payment Date and being
payable on such Payment Date.
7.2 The Lessee's obligation to pay rent and make other payments in
accordance with this Agreement shall be absolute and unconditional
irrespective of any contingency whatsoever including, but not limited
to, (i) any right of set-off, counterclaim, recoupment, defence or other
right which either party hereto may have against the other, (ii) any
unavailability of the Aircraft for any reason, including, but not
limited to, any lack or invalidity of title or any other defect in the
title, airworthiness, merchantability, fitness for any purpose,
condition, design, or operation of any kind or nature of the Aircraft,
or the ineligibility of the Aircraft for any particular use or trade, or
for registration or documentation under the laws of any relevant
jurisdiction, or the Total Loss of, or any damage to, the Aircraft,
(iii) any failure or delay on the part of either party hereto, whether
<PAGE>
with or without fault on its part, in performing or complying with any
of the terms or conditions of this Agreement, (iv) any insolvency,
bankruptcy, administration, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceedings by or against the
Lessor, the Lessee or any permitted sub-lessee, or (v) any lack of due
authorization of, or other defect in, this Agreement, excluding,
however, any period in which the Lessee cannot operate the Aircraft due
to a breach by the Lessor of Clause 6.1 hereof.
7.3 In addition to all other payments to be made by the Lessee under this
Agreement, the Lessee shall pay to the Lessor (or to the Lessor's order)
an Aircraft Commitment Fee in the amount, and in accordance with the
schedule, set forth in paragraph 1 of Letter Agreement No. 1.
8. PAYMENTS, INTEREST AND CALCULATIONS
8.1 All payments to be made by the Lessee under this Agreement shall be made
(unless specifically otherwise provided in this Agreement) without prior
demand and in full, without any set-off or counterclaim whatsoever and,
subject as provided in Clause 10.3 (Taxation), free and clear of any
deductions or, to the extent provided in Clauses 10.2 and 10.3,
withholdings in Dollars for value on the day on which payment is due to
such bank and account as the Lessor may from time to time notify to the
Lessee in writing.
8.2 When any payment under this Agreement would otherwise be due on a day
which is not a Banking Day, the due date for payment shall be extended
to the next following Banking Day unless such Banking Day falls in the
next calendar month in which case payment shall be made on the
immediately preceding Banking Day.
8.3 If the Lessee fails to pay any sum payable to any Indemnitee (including
without limitation, any sum payable pursuant to this Clause 8.3) on its
due date for payment under this Agreement the Lessee shall pay to such
Indemnitee on demand interest on such sum from the due date through the
day prior to the date of actual payment (as well after as before any
relevant judgment) at the Relevant Rate of Interest.
8.4 All interest under this Agreement shall accrue from day to day and shall
be calculated on the basis of the actual days elapsed and a 365 day
year.
8.5 Any certificate or determination of the Lessor as to any rate of
interest or any other amount payable under this Agreement shall, in the
absence of manifest error, be entitled to a rebuttable presumption of
correctness.
8.6 If any sum due from the Lessee under this Agreement or under any order
or judgment given or made in relation thereto has to be converted from
the currency ("the first currency") in which the same is payable under
<PAGE>
this Agreement or under such order or judgment into another currency
("the second currency") for the purpose of (i) making or filing a claim
or proof against the Lessee, (ii) obtaining an order or judgment in any
court or other tribunal or (iii) enforcing any order or judgment given
or made in relation to this Agreement, the Lessee shall indemnify and
hold harmless the Lessor from and against any loss suffered as a result
of any difference between (a) the rate of exchange used for such purpose
to convert the sum in question from the first currency into the second
currency and (b) the rate or rates of exchange at which the Lessor may
in the ordinary course of business purchase the first currency with the
second currency upon receipt of a sum paid to it in satisfaction, in
whole or in part, of any such order, judgment, claim or proof. Any
amount due from the Lessee under this Clause 8.6 shall be due as a
separate debt and shall not be affected by judgment being obtained for
any other sums due under or in respect of this Agreement and the term
"rate of exchange" includes any premium and costs of exchange payable in
connection with the purchase of the first currency with the second
currency.
9. COSTS AND INDEMNITIES
9.1 The Lessee shall pay promptly all costs or expenses incurred by Lessee
in connection with the performance of the Lessee's obligations under
this Agreement, including, but not limited to, the pre-Delivery testing
by the Lessee, the delivery of the Aircraft to Lessee, the registration
of the Aircraft and filing of the Agreement at the FAA, including, but
not limited to, the fees and expenses of special FAA counsel. During the
Lease Period, Lessee will pay (or cause a permitted sublessee to pay)
promptly all costs and expenses of registration, possession, control,
use, operation, leasing, sub-leasing, insurance, maintenance, repair,
refurbishment, overhaul, modification, alteration, damage, storage and
re-delivery of the Aircraft.
9.2 Whether or not the Aircraft is delivered to the Lessee pursuant to this
Agreement, the Lessee shall pay to the Lessor:
(a) no later than the date of this Agreement, the sum of $[ ]* as a
contribution towards the legal costs incurred by the Lessor in
connection with the negotiation and preparation of the Lessee
Documents and the Security Documents;
(b) on demand, all out-of-pocket expenses (including reasonable legal
fees and expenses) reasonably incurred by the Lessor and
Beneficiary in connection with any amendment or extension of, or
the granting of any waiver or consent under any of the Lessee
Documents or the Security Documents requested by the Lessee and
all out-of-pocket expenses (including reasonable legal fees and
expenses) reasonably incurred by the Lessor and Beneficiary
resulting from (i) the enforcement of, or preservation of any
rights under, any of the Lessee Documents in any such case after
<PAGE>
the occurrence and during the continuance of a Termination Event
or (ii) breach of any representation, warranty, covenant,
agreement, condition or stipulation by the Lessee therein
contained.
All expenses payable pursuant to this Clause 9.2 shall be paid in the
currency in which the same are incurred.
9.3 The Lessee shall indemnify and hold harmless the Indemnitees, without
prejudice to any of the Indemnitees' other rights under any of the
Lessee Documents, from and against any costs or expenses which the
Lessee has agreed to pay in any Lessee Document but which shall
nevertheless be claimed from or assessed against or paid by any
Indemnitee (after prior consultation with Lessee to the extent
practicable as reasonably determined by the Lessor), and against any
liability incurred by any Indemnitee by reason of any delay or failure
of the Lessee to pay any such costs or expenses.
9.4 Without prejudice to the Lessee's obligations under Clauses 9.1 to 9.3
inclusive (Costs and Indemnities), the Lessee agrees at all times during
or after the Lease Period, to indemnify and hold harmless the
Indemnitees from and against all costs, expenses, payments, charges,
losses, demands, liabilities, claims, actions, proceedings, penalties,
fines, damages, judgements, orders or other sanctions (in this Clause 9
together referred to as "Losses") which may be incurred by, or made or
asserted against such Indemnitee at any time:
(a) relating to, or arising directly or indirectly in any manner or
for any cause or reason whatsoever out of, the design,
manufacture, testing, delivery, import, export, registration,
ownership, possession, control, use, operation, leasing,
sub-leasing, insurance, maintenance, repair, refurbishment,
condition, service, overhaul, modification, change, alteration,
loss, damage, removal, storage, re-delivery, sale or disposal of,
in or to the Aircraft, or otherwise in connection with the
Aircraft, or relating to loss or destruction of or damage to any
property, or death or injury of, or other loss of whatsoever
nature suffered by, any person caused by, relating to, or arising
from or out of (in each case whether directly or indirectly) any
of the foregoing matters; or
(b) on the grounds that, as the result of any alterations or
modifications of the Aircraft, any Engine or any Part after the
Delivery Date, any design, article or material in the Aircraft or
the operation or use thereof constitutes an infringement of
patent, intellectual property right or any other right
whatsoever.
9.5 Any Loss is excluded from Lessee's agreement to indemnify under Clause
9.4 to the extent such Loss:
<PAGE>
(a) Is attributable to acts or events occurring after the Aircraft is
redelivered to Lessor or its designee or to the Head Lessor or
the Lenders, as the case may be, in compliance with Clause 19 and
Schedule 4 hereof;
(b) Is a Tax, whether or not Lessee is required to indemnify therefor
under Clause 10 hereof;
(c) Arises as a result of a Lessor Encumbrance;
(d) Is attributable to the gross negligence or willful misconduct of
any Indemnitee or the breach by any Indemnitee of any of its
representations or obligations under any of the Lease Documents;
(e) Is a cost or expense imposed on Lessor or any Indemnitee by the
terms of any of the Lessee Documents or incurred by Lessor or any
Indemnitee in performing its obligations to Lessee hereunder or
thereunder;
(f) Consists of a cost, fee or expense arising out of the transfer by
Lessor or transfer or acquisition by any Indemnitee of any
interest in the Aircraft or Lessee Documents at a time when no
Termination Event has occurred and is continuing;
(g) Arises out of or results from the acts of any Indemnitee prior to
the date of this Agreement;
(h) Consists of any cost, fee or other expense incurred in connection
with preparing or negotiating any Lenders Document and any
amendment to or restructuring of any Lenders Document unless
Lessee has expressly agreed to pay such cost, fee or expense
under any Lessee Document or such Lender Document or amendment or
restructuring results from the occurrence and continuance of a
Termination Event;
(i) With respect to a Loss incurred under Clause 9.5(b) only, is
indemnified by the Manufacturer under the Purchase Agreement;
(j) With respect to any Indemnitee, arises from acts, events or
omissions by such Indemnitee in such Indemnitee's capacity as
designer, manufacturer of or maintenance performer for the
Aircraft or any Part;
(k) Consists of costs, fees or expenses related to the negotiation,
preparation or execution of the Lessee Documents in excess of the
$[ ]* specified in Clause 9.2(a);
(l) Arises out of any default under any Lenders Document that is not
a Relevant Event hereunder; or
<PAGE>
(m) Consists of costs, fees and/or expenses incurred in connection
with the establishment, maintenance or restructuring of the
financing or refinancing of the Aircraft (including, without
limitation, the Head Lease) or any Indemnitee's interest in the
Trust Estate established under the Trust Agreement or any action
or dispute between or among the parties to any Lenders Document,
in each case not resulting from the occurrence and continuance of
a Relevant Event hereunder;
9.6 In the case of any Loss indemnified by Lessee under Clause 9.4 which is
covered by a policy of insurance maintained by Lessee pursuant to Clause
16 and Schedule 3 of this Agreement, as a condition to such
indemnification, each Indemnitee shall agree to cooperate with the
insurers in the exercise of their rights to investigate, defend or
compromise such Loss as may be required to retain the benefits of such
insurance with respect to such Loss.
9.7 An Indemnitee shall promptly notify Lessee of any Loss as to which
indemnification is sought, provided that failure to provide such notice
promptly shall not affect Lessee's obligation to indemnify any Loss
hereunder except to the extent that such failure materially adversely
affects the ability of the Lessee to contest such Loss. Subject to the
rights of insurers under policies of insurance maintained pursuant to
Section 16 and Schedule 3 this Agreement, Lessee shall have the right to
contest and defend any Loss, in its own name or in the name of the
applicable Indemnitee, and shall be entitled to assume responsibility
for and control of the defense of any Loss in respect of which any
Indemnitee makes or intends to make a claim against Lessee for indemnity
pursuant to this Clause 9 (other than a Loss or claim arising out of any
Relevant Event) PROVIDED THAT (a) the legal counsel retained by Lessee
for such purpose is reasonably acceptable to Lessor and (b) Lessee
pursues such contest diligently and in good faith and, upon the
reasonable request of the Indemnitee, provides the Indemnitee with
reasonable details of the status of the contest and copies of all legal
briefs, court filings and, subject to applicable considerations of legal
privilege, counsel's memoranda relevant to such contest; and provided
further, that if Lessee is legally precluded from pursuing such contest
or defense itself or from impleading any party which the Lessee
reasonably believes is ultimately responsible for such Loss or from
asserting any defense, cross-claim reasonably deemed required by Lessee,
the applicable Indemnitee shall, upon Lessee's request and at Lessee's
expense (with respect to reasonable out-of-pocket costs and expenses)
and if legally able to do so and fully indemnified by Lessee hereunder,
diligently and in good faith pursue such contest, defense, impleader or
cross-claim and provide Lessee information and documents thereon
comparable to that described above. In the event that (1) a Termination
Event has occurred and is continuing or (2) the Lessee fails to comply
with the foregoing requirements in any material respect, the applicable
Indemnitee may assume responsibility for and control the relevant
contest. To the extent Lessee is entitled to defend any claim hereunder,
the Indemnitee shall cooperate with all reasonable requests of Lessee in
<PAGE>
connection with such defense. Subject to the requirements of any policy
of insurance, an Indemnitee may participate at its own expense in any
judicial proceeding controlled by Lessee pursuant to the preceding
provisions, and such participation shall not constitute a waiver of the
indemnification provided in Clause 9.4. Except as above provided in this
Clause 9.7, an Indemnitee shall not be required to contest any Loss or
to assume responsibility for or control of any judicial proceeding with
respect thereto.
9.8 (a) To the extent that a Loss indemnified by Lessee under Clause 9.4
is in fact paid in full by Lessee and/or an insurer under a
policy of insurance maintained by Lessee pursuant to Clause 16
and Schedule 3 of this Agreement, Lessee and/or such insurer, as
the case may be, shall be subrogated to the rights and remedies
of the Indemnitee on whose behalf such Loss was paid with respect
to the transaction or event giving rise to such Loss. Should an
Indemnitee receive any refund, in whole or in part, with respect
to any Loss paid by Lessee hereunder and no Relevant Event has
occurred and is continuing, it shall promptly pay the amount
refunded (but not an amount in excess of the amount Lessee has
paid in respect of such Loss plus interest attributable thereto
in an amount reasonably determined by the Indemnitee and in no
event will the amount paid by the Indemnitee exceed the amount
refunded to the Indemnitee) over to Lessee less any net tax
detriment realized by such Indemnitee as a result of the receipt
or accrual of such refund plus any net tax savings realized by
such Indemnitee as a result of such payment. If the Indemnitee is
later required to repay all or part of such refund, such
repayment shall be a Loss and the Lessee shall indemnify the
Indemnitee against such Loss in accordance with the terms of
Clause 9.
(b) No Indemnitee shall enter into a settlement or other compromise
or consent to a judgment with respect to any Loss without the
prior written consent of the Lessee, which consent shall not be
unreasonably withheld or delayed, unless such Indemnitee waives
its rights under this Clause 9 with respect to such Losses. The
entering into any such settlement or compromise or consent
without the prior written consent of Lessee shall constitute a
waiver by such Indemnitee of all its rights of indemnification
with respect to the Loss which is the subject of such settlement
or compromise or consent.
9.9 In the event Lessee is required to indemnify any Indemnified Person
under Clause 9.4, Lessee shall pay to such Indemnified Person an amount
which, after deduction of all taxes actually required to be paid by such
Indemnified Person in respect of the receipt of such amount under the
applicable laws of any government or taxing jurisdiction (after giving
credit for any saving in respect of any such taxes by reason of
deductions, credits or allowances related to the payment of the Loss
indemnified against and the payment of related taxes), shall be equal to
<PAGE>
the amount of the indemnification required.
9.10 The general indemnification provisions of Clauses 9.4 through Clause 9.9
are not intended to waive or supersede any specific provisions of this
Agreement to the extent such provisions apply to any Loss.
9.11 The Lessee's obligations under Clause 9 shall survive the end of the
Lease Period.
10. TAXATION
10.1 (a) Sums payable to the Indemnitees by the Lessee under this
Agreement by way of indemnity or reimbursement shall be
calculated on an after-tax basis. Accordingly, if and to the
extent that any such sum payable to any Indemnitee is taxable in
the hands of such Person (as the auditors of such Person acting
as experts and not as arbitrators shall certify from time to
time) such sum shall be increased to an amount which (after
subtracting any Taxes suffered by such Person in respect of the
receipt of such amount and after taking into account any
deduction, credit or other benefit for Tax purposes for Taxes
available in the same taxable year as such sum is taxable to such
Person in respect of the discharge by such Person of any
corresponding liability to a third party) shall equal the amount
which such Person would have received had the sum payable by the
Lessee not been taxable in the hands of such Person. If the sum
payable by the Lessee is initially paid on the basis that it is
not taxable in the hands of any Indemnitee and it is subsequently
determined to be taxable or vice versa, subject to the terms of
Clause 10.9 hereof, such adjustment and payment shall be made
between such Person and the Lessee as the auditors of such
Indemnitee (acting as experts and not as arbitrators) shall
certify as appropriate to restore the after-tax position of such
Person to that which it would have been had the adjustment not
been necessary.
(b) If and to the extent that any sum (the "indemnity sum")
constituting (directly or indirectly) an indemnity to any
Indemnitee but paid by the Lessee to any person other than such
Indemnitee, shall properly be treated under applicable law as
taxable in the hands of such Indemnitee, the Lessee shall pay to
such Person such sum (the "compensating sum") as (after
subtracting any Taxes incurred by such Person in respect of the
compensating sum and after taking into account any deductions,
credits and other Tax benefits currently available to such
Indemnitee in respect of the payment of the indemnity sum to such
third person for the benefit of, or on behalf of, such
Indemnitee) shall reimburse such Indemnitee for any Taxes
incurred by it in respect of the indemnity sum.
(c) For the purposes of this Clause 10.1(a) a sum shall be deemed to
be taxable in the hands of an Indemnitee if it is required under
applicable law to be taken into account in computing the taxable
<PAGE>
profits or gains of such Indemnitee, and if so such Indemnitee
shall be deemed to have suffered Taxes thereon at the rate of
taxation applicable to such Person's profits or gains for the
period in which the payment is so required to be taken into
account for the purposes of such taxation, and any associated or
resulting deduction, credit or other benefit to the extent
realized in the same taxable year as the sum referred to in
Clause 10.1(a) or 10.1(b) is deemed to be taxable shall be taken
into account. Each Indemnitee shall use good faith in filing its
Tax returns and in dealing with taxing authorities to the extent
required to seek and claim Tax benefits which would reduce the
amount of any indemnity payment required pursuant to this Clause
10, it being understood and agreed, however, that no Indemnitee
will be under any obligation to take any such actions which are
not consistent with the Tax reporting practices and policies of
such Indemnitee without regard to this transaction.
(d) If any Indemnitee shall actually recognize (as determined in good
faith by the relevant Indemnitee) a tax benefit by reason of any
Tax paid or indemnified against by Lessee pursuant to this Clause
10 or a Loss indemnified against by Lessee pursuant to Clause 9,
(whether such tax benefit shall be by means of a foreign tax
credit, depreciation or cost recovery deduction or otherwise) not
otherwise taken into account in computing any payment or
indemnity by Lessee under this Agreement, such Indemnitee shall
pay to Lessee an amount equal to such tax benefit plus any tax
benefit recognized as the result of any payment made pursuant to
this sentence; PROVIDED, that such Indemnitee shall not be
required to make any payment pursuant to this sentence if and so
as long as Termination Event of a monetary nature has occurred
and is continuing; provided, FURTHER, that payments to the Lessee
by an Indemnitee hereunder shall not exceed (i) the aggregate
amount of all prior payments (plus any interest reasonably
attributable thereto in an amount reasonably determined by the
Indemnitee) with respect to such Tax or Loss by the Lessee to the
Indemnitee LESS (ii) the aggregate amount of all prior payments
with respect to such Tax or Loss by the Indemnitee to the Lessee
pursuant to this Clause 10.1(d). Any Taxes that are imposed on
any Indemnitee as a result of the disallowance or reduction
(including the expiration of any tax credit carryovers or
carrybacks of such Indemnitee that would not otherwise have
expired) of any reduction in Taxes or refund referred to in this
Clause 10.1(d), as to which (and to the extent) such Indemnitee
has made any payment to the Lessee required hereby, shall be
treated as a Tax for which the Lessee is obligated to indemnify
such Indemnitee pursuant to the provisions of Clause 10 without
regard to the exclusions set forth in Clause 10.4 hereof.
10.2 WITHHOLDING. If at any time any applicable law, regulation or regulatory
requirement, or any governmental authority, monetary agency or central
bank requires the Lessee to make any deduction or withholding in respect
<PAGE>
of Taxes from any payment due to the Lessor or the Beneficiary under the
Lease Documents as a result of any change occurring after the date of
this Agreement in applicable law, regulation, treaty or ruling:
(1) the sum due from the Lessee in respect of such payment shall be
increased to the extent necessary to ensure that, after the
making of such deduction or withholding, each Indemnitee receives
on the due date for such payment a net sum equal to the sum which
it would have received had no such deduction or withholding been
required to be made; PROVIDED, HOWEVER, that the Lessee shall not
be required to pay any such additional amount to the extent that
such Tax would not have been imposed but for (x) Taxes in effect
on the date of a voluntary transfer by a Indemnitee of any
interest in the Aircraft or any of the Lease Documents (other
than any such transfer that occurs after the occurrence and
during the continuance of a Termination Event) which would not
have been imposed had such Indemnitee not transferred its
interest in the Aircraft or the Lease Documents or (y) in the
case of the Beneficiary, failure to deliver a properly completed
Internal Revenue Service Form 1001 (or any substitute form) under
the applicable United States income tax convention (i) initially,
on or prior to the due date of the first payment due to the
Lessor under this Agreement, or (ii) after the form referred to
in clause (i) has expired, after a request by the Lessee for such
form, unless it shall no longer be entitled to deliver such form
due to a change in law, regulation ruling or such convention;
(2) the Lessee shall pay to the relevant authority within the period
for payment permitted by applicable law the full amount of the
deduction or withholding (including, but without prejudice to the
generality of the foregoing, the full amount of any deduction or
withholding from any increased amount paid pursuant to this
Clause 10.2); and
(3) the Lessee shall furnish to the appropriate Indemnitee written
evidence of payment to the relevant authority within the period
for payment permitted by applicable law, of all amounts deducted
or withheld as aforesaid.
10.3 TAXES INDEMNIFIED. The Lessee agrees to indemnify and hold harmless each
Indemnitee against and agrees to protect, save and keep harmless each
Indemnitee against, all Taxes that may be imposed upon or with respect
to any Indemnitee, the Lessee, this Agreement, the Lease Documents, the
Aircraft, the Airframe, any Engine, or any Part or any interest in any
of the foregoing, upon, based upon, measured by, in whole or in part, or
with respect to:
(a) the Aircraft, the Airframe, any Engine, any Part or any interest
in or with respect to the foregoing;
<PAGE>
(b) the delivery, location, ownership, manufacture, design,
importation, exportation, transfer of title, return, storage,
leasing, operation, use, maintenance, repair, alteration,
location, subleasing, ownership, purchase, sale, registration,
presence, re-registration, subleasing, hire, conditional sale,
delivery, redelivery, nondelivery, acceptance, rejection,
transport, modification, substitution, replacement or other
disposition of or other action or event with respect to the
Aircraft, the Airframe, any Engine or Part or any interest with
respect to the foregoing;
(c) rent, including all installments of rent, payable under this
Agreement;
(d) this Agreement and the other Lease Documents or amendments or
supplements thereto and any other documents contemplated thereby
or the transactions contemplated thereby or resulting therefrom
or the exercise of any rights or remedies thereunder or the
enforcement thereof; or
(e) otherwise with respect to or in connection with the transactions
contemplated by this Agreement or the other Lease Documents.
10.4 TAXES EXCLUDED. The indemnity provided for in Clause 10.3 above shall
not apply to, and the Lessee shall have no indemnity liability with
respect to, any of the following:
(a) Taxes (other than Taxes in the nature of sales, use, property,
rental, value-added, goods and services, transfer or turnover
taxes or, in the case of Taxes imposed by any jurisdiction, to
the extent such Taxes are required pursuant to Clause 10.1 for
the computation of amounts payable by the Lessee on an after-tax
basis) on, based on, measured by or with respect to the net or
gross income, capital or net worth, net or gross receipts,
franchises, excess profits or conduct of business of such
Indemnitee (including, without limitation, capital gains taxes,
minimum taxes, alternative minimum taxes, branch profits taxes
and accumulated earnings taxes) imposed by (A) any federal, state
or local government, political subdivision or taxing authority in
the United States other than (x) any such Taxes imposed by
withholding on or with respect to amounts payable under this
Agreement by any federal, state or local government, political
subdivision or taxing authority in the United States by reason of
<PAGE>
a change of law, regulation, treaty or ruling as in effect on the
date hereof and (y) any such Taxes that are imposed by any state
or local government, political subdivision or taxing authority
thereof in the United States (other than any state in which the
applicable Indemnitee is organized, has its principal place of
business or is otherwise subject to taxation as a result of
transactions unrelated to the transactions contemplated hereby
(unless such Indemnitee would not have been subject to taxation
by such taxing authority but for leasing transactions involving
aircraft in which the Lessor is the owner or the Beneficiary is
the owner or beneficial owner of such aircraft) or any local
government or political subdivision or taxing authority in any
such state) to the extent that such Taxes would not have been
imposed but for (1) the registration, operation, location or use
of the Aircraft, Airframe, any Engine or any Part in the
jurisdiction imposing such Tax or (2) the activities or presence
of any of the Lessee, any affiliate of the Lessee or any Person
in possession of the Aircraft, Airframe, any Engine or any Part
(other than the Lessor or the Beneficiary) (each referred to as a
"Lessee Person") in or any payment under this Agreement being
made by a Lessee Person from the jurisdiction imposing such Tax,
(B) any government or taxing authority of or in any jurisdiction
(other than the United States or any political subdivision or
taxing authority thereof or therein) other than Taxes that are
imposed as a result of the registration, operation, location or
use of the Aircraft, Airframe, any Engine or any Part in, the
existence of an office, fixed place of business or permanent
establishment of a Lessee Person in, a Lessee Person making
payments from or other activities or presence of a Lessee Person
in the jurisdiction imposing the Tax, provided that the
applicable Indemnitee is not organized, does not have its
principal place of business and is not otherwise subject to
taxation in such jurisdiction as the result of transactions
unrelated to the transactions contemplated hereby (unless such
Indemnitee would not have been subject to taxation by such taxing
authority but for leasing transactions involving aircraft in
which the Lessor is the owner or the Beneficiary is the owner or
beneficial owner of such aircraft), or (C) any taxing authority
in Ireland;
(b) Taxes to the extent resulting from (1) any voluntary sale,
assignment, transfer or other voluntary disposition by such
Indemnitee of the Aircraft, Airframe, any Engine or any Part or
interest with respect to the foregoing, (2) any involuntary
transfer by such Indemnitee of the Aircraft, Airframe, any
Engine, any Part, the rent, the trust on behalf of which the
Lessor is acting or any interest with respect to any of the
foregoing resulting from any bankruptcy or other proceeding for
the relief of debtors in which such Indemnitee is the debtor, or
(3) any involuntary transfer by such Indemnitee of the Aircraft,
Airframe, any Engine or any Part or interest with respect to the
foregoing resulting from a default by such Indemnitee under any
secured financing transaction relating to the Aircraft (unless,
in each preceding case, such sale, assignment, transfer or
disposition occurs pursuant to the exercise of remedies after the
occurrence and during the continuance of a Termination Event);
(c) Taxes that are imposed on a transferee from an Indemnitee to the
extent of the excess of such Taxes imposed under applicable law
in effect on the date of transfer, over the amount of Taxes which
would have been imposed had there not been a sale, assignment,
<PAGE>
transfer or other disposition to such transferee, unless such
sale, assignment, transfer or other disposition occurs pursuant
to an exercise of remedies hereunder after a Termination Event
has occurred and while such Termination Event is continuing (it
being understood and agreed that this Clause 10.4(c) shall not
apply to the calculation of the amount necessary for any payment
required to be made on an after-tax basis);
(d) Taxes imposed in respect of any period after the expiration or
earlier termination of this Agreement in accordance with its
terms, except to the extent such Taxes are imposed with respect
to the receipt by an Indemnitee of any amounts due under the
Lease Documents after such expiration or termination of the
Lease, it being understood that the exception from indemnity set
forth in this Clause 10.4(d) shall not apply to Taxes to the
extent such Taxes relate to events occurring or matters arising
prior to or simultaneously with the time of the earliest
occurrence of the events covered by this Clause 10.4(d);
(e) Taxes imposed upon the Lessor that are on, based on, measured by
or with respect to any fees, commissions or compensation for
services rendered by the Lessor in its capacity as trustee under
the Trust Agreement, or fees, commissions or compensation
received by the Head Lessor or any Lender;
(f) Without affecting the Lessee's rights and obligations under
Clauses 10.2 and 10.6, Taxes for so long as such Taxes are being
contested in accordance with the provisions of Clause 10.6
hereof;
(g) Taxes that would not have been imposed with respect to a
Indemnitee but for any failure of such Indemnitee (after timely
written notice from the Lessee accompanied by a properly
completed draft form of any such requirement prepared by Lessee
at Lessee's expense, other than the Form 1001 to be delivered
prior to the date the first payment is due to the Lessor under
this Agreement) to comply with certification, information,
documentation, reporting or other similar requirements concerning
the nationality, residence, identity, connection with the
jurisdiction imposing such Taxes or any other matters, that is
required by law as a condition to exemption or the relief from,
or reduction of, such Tax (but only if and to the extent that
such compliance may be effected by such Indemnitee without
materially increasing such Indemnitee's risk of exposure to any
Tax in the applicable jurisdiction, related expenses or other
adverse consequences not indemnified by the Lessee hereunder);
(h) Taxes to the extent that such Taxes would not have been imposed
on or with respect to a Indemnitee but for the willful misconduct
or gross negligence of any Indemnitee thereof;
<PAGE>
(i) Taxes which an Indemnitee would be required to contest pursuant
to Clause 10.6 and which such Indemnitee has failed to contest as
and to the extent required by clause 10.6 and any other Taxes for
which a successful contest is foreclosed because of such failure
of the Indemnitee, provided that such failure by the Indemnitee
has a material adverse effect on the ability of the Lessee to
contest such Tax or if and to the extent such failure results in
an increase in the amount of any penalties, interests or addition
to such Tax (unless any such failure by an Indemnitee is the
result of a failure by the Lessee to fulfill its obligations
under Clause 10.6);
(j) Taxes imposed on any Indemnitee resulting from such Indemnitee's
original purchase or other acquisition of the Aircraft, any
Engine or any Part or any interest in any thereof;
(k) Taxes imposed with respect to any period prior to the Delivery
Date;
(l) Taxes which have been included in the cost of the Aircraft; or
(m) Taxes, to the extent that (1) such Taxes constitute interest or
penalties relating to a Tax (but not the underlying Tax) and (2)
such interest or penalties result from the failure to file or
late filing of any Tax return by any Indemnitee, unless such
failure by the Indemnitee to file or late filing results from a
failure of the Lessee to fulfill its obligation under clause 10.7
or any other provision of this Agreement compliance with which by
Lessee is necessary in order for such Indemnitee to be able to
file such Tax return.
10.5 PAYMENTS. Each Indemnitee shall promptly forward to Lessee any written
notice, bill or advice received by it from any taxing authority
concerning any Tax for which it seeks indemnification under this clause
10. The Lessee shall pay any Tax for which it is liable pursuant to this
Clause 10 directly to the appropriate taxing authority when due or to
the Indemnitee within 30 days after receipt of a written demand therefor
from such Indemnitee accompanied by a written statement describing in
reasonable detail the Taxes which are the subject of and basis for such
indemnity and the computation of the amount so payable, but not prior to
the later of (i) in the case of Taxes paid to an Indemnitee, five
Business Days prior to the date payment of such Taxes is due, or in the
case of Taxes paid directly to the appropriate taxing authority, the
date such Taxes are due, in each case, provided Lessee has actual
knowledge of the date such Tax is due or (ii) in the case of amounts
which are being contested, within 30 Business Days after a Final
<PAGE>
Determination (as defined below). For purposes of this Clause 10, a
"Final Determination" shall mean (I) a decision, judgment, decree or
other order by any court of competent jurisdiction that occurs pursuant
to the provisions of Clause 10.6, which decision, judgment, decree or
other order has become final and unappealable, (II) a closing agreement
or settlement agreement entered into in accordance with Clause 10 that
has become binding and is not subject to further review or appeal
(absent fraud, misrepresentation, etc.), or (III) the termination of
administrative proceedings and the expiration of the time for
instituting a claim in a court proceeding, in each case, in accordance
with Clause 10.6.
10.6 CONTESTS; REFUNDS. If a written claim is made against any Indemnitee for
any Taxes that the Lessee could be required to indemnify against
pursuant to this Clause 10, such Indemnitee shall promptly notify the
Lessee in writing (and shall take no action with respect to such claim
to the extent reasonably practicable for a period of 30 days following
such notice to the Lessee), but the failure to give such notice shall
not diminish the Lessee's obligation hereunder, except to the extent
that the Lessee's ability to contest such Tax is materially adversely
affected or if and to the extent such failure results in the imposition
of or an increase in the amount of any penalties, interest or additions
to such Tax. If requested by the Lessee in writing, within 30 days of
receipt of such notice from the Indemnitee, such Indemnitee shall in
good faith contest (including pursuing all judicial appeals other than
appeals to the United States Supreme Court), at the expense of the
Lessee, in the name of such Indemnitee (or the Indemnitee, in its sole
discretion, may permit the Lessee, if permitted by law, to contest in
the name of the Lessee or such Indemnitee) the validity, applicability
and amount of such Taxes by (in the sole discretion of the Person
conducting such contest) (i) resisting payment thereof, (ii) not paying
the same except under protest, if protest is necessary and proper, or
(iii) if payment shall be made, seeking a refund thereof in appropriate
administrative and judicial proceedings; PROVIDED that (u) prior to
taking such action, the Lessee shall have agreed to pay such Indemnitee
all reasonable out-of-pocket costs and expenses that such Indemnitee
incurs in connection with and reasonably allocable to contesting such
claim, including, without limitation, all reasonable out-of-pocket
legal, accountants' and investigatory fees and disbursements, (v) if
such contest is to be initiated by the payment of, and the claiming of a
refund for, such Taxes, then notwithstanding Clauses 10.4 or 10.5, the
Lessee shall provide such Indemnitee with sufficient funds (on an
interest-free basis and at no additional net after-tax cost to such
Indemnitee) to make such payment, (w) such proceedings do not involve
(A) the likelihood of the sale, forfeiture or loss of the Aircraft,
Airframe any Engine or any Part, unless the Lessee shall have provided
security for the Lessee's obligations under this Clause 10 with respect
to such claim reasonably satisfactory to such Indemnitee and the
Beneficiary, or (B) any material risk of the imposition of criminal
penalties arising from the proper conduct of such proceeding, (x) the
Lessee shall have provided to the Indemnitee an opinion of the Lessee's
independent tax counsel (such counsel to be reasonably acceptable to the
Indemnitee) to the effect that a reasonable basis, within the meaning of
ABA Formal Opinion No. 85-352, exists for such contest, and (y) no
Termination Event shall have occurred and be continuing, unless the
Lessee shall have provided security for the Lessee's obligations under
this Clause 10 with respect to such claim satisfactory to such
Indemnitee. In any contest conducted by a Indemnitee, the Indemnitee
shall consult in good faith with the Lessee concerning the method and
the forum for such contest and shall permit the Lessee to review and
<PAGE>
comment upon all written claims and submissions, but the Indemnitee
shall have ultimate control over all aspects of such contest. The Lessee
shall keep the Indemnitee fully informed as to the nature, conduct and
results of any contest conducted by the Lessee in the name of such
Indemnitee. Any Indemnitee may elect not to contest pursuant to this
Clause 10.6, or to settle any contest, but such election to settle or
not to contest without the written consent of Lessee (which consent
shall not be unreasonably withheld) shall constitute a waiver by such
Indemnitee of any right to indemnification pursuant to this Clause 10
with respect to the claim which was the subject of such proposed contest
or settlement, as the case may be (and any other claim or Tax with
respect to which a successful contest is foreclosed as the result of
such settlement or election not to contest) and, if the Lessee has
theretofore provided such Indemnitee with the funds to pay the Taxes
that are the subject of such proposed contest or settlement, as the case
may be, such Indemnitee shall promptly repay such funds.
Notwithstanding anything contained in this Clause 10 to the contrary,
the Indemnitee shall not be required to contest any claim if the subject
matter thereof shall be of a continuing nature and shall have previously
been decided adversely by a court of competent jurisdiction pursuant to
the contest provisions of this Clause 10.6, unless there shall have been
a change in law (or interpretation thereof) or a change in facts after
the date with respect to which such previous contest shall have been
decided, and the Indemnitee shall have received, at the Lessee's
expense, an opinion of independent tax counsel selected by the Lessee
and reasonably acceptable to such Indemnitee to the effect that as a
result of such change in law (or interpretation thereof) or a change in
facts, it is more likely than not that the Indemnitee will prevail in
such contest.
If any Indemnitee shall obtain a refund or credit of all or any part of
any Taxes that the Lessee, pursuant to this Clause 10.6, shall have paid
for or advanced to such Indemnitee or for which the Lessee shall have
reimbursed such Indemnitee, such Indemnitee shall, at such time as no
Termination Event shall have occurred and be continuing, promptly pay to
the Lessee an amount which, after the subtraction of the amount of any
further net tax savings actually realized by such Indemnitee as a result
of the payment under this paragraph, and the addition of any net tax
detriment realized by such Indemnitee as a result of the receipt or
accrual of such refund and any interest received or accrued by such
Indemnitee on such refund, is equal to the amount of such refund or
credit, plus any interest actually received or credited by such
Indemnitee on such refund or credit that is fairly attributable to any
Taxes paid by the Lessee to or for such Indemnitee; PROVIDED that such
Indemnitee shall not be obligated to make any payment to the Lessee
pursuant to this sentence (other than on account of interest actually
received or credited) to the extent that the amount of such payment
would exceed (x) the amount of all prior payments made by the Lessee to
such Indemnitee pursuant to this Clause 10 less (y) the amount of all
prior payments by such Indemnitee to the Lessee (other than that portion
<PAGE>
of such payments attributable to interest payable to the Lessee
hereunder) pursuant to this Clause 10 (and the amount of any excess
described in this proviso shall reduce PRO TANTO the amount that the
Lessee is subsequently obligated to pay pursuant to this Clause 10
hereof). If it is later determined that the Indemnitee was not entitled
to such refund and such refund would not otherwise have been available
as a credit against a tax liability of such Indemnitee not indemnified
by the Lessee hereunder, the portion of such refund that is repaid,
recaptured or disallowed will be treated as Taxes for which the Lessee
must indemnify the Indemnitee pursuant to this Clause 10 without regard
to Clause 10.4. If the Indemnitee receives an award of attorney's fees
in a contest for which Lessee has paid an allocable portion of the
contest expenses, such Indemnitee shall pay to Lessee the same
proportion of the amount of such award as the amount of such
Indemnitee's attorney's fees paid or reimbursed by Lessee bears to the
total amount of the attorneys' fees actually incurred by the Indemnitee
in conducting such contest.
10.7 REPORTS. The Lessee will provide (at the Lessee's expense) such
information as is within its control and reasonably requested in writing
by an Indemnitee that is required or reasonably necessary to enable such
Indemnitee to fulfill its tax filing, audit or litigation requirements
with respect to the transactions contemplated by the Lease Documents. In
case any report, return or statement is required to be made or filed
with respect to Taxes for which the Lessee has an indemnity obligation
under this Clause 10, the Lessee shall promptly notify the Indemnitee of
such requirement and shall take the appropriate action specified in the
next succeeding sentence, PROVIDED that such Indemnitee shall have
furnished the Lessee at the Lessee's expense (with respect to reasonable
out-of-pocket costs and expenses only) with such information requested
by the Lessee, not within the control of the Lessee, as is in such
Indemnitee's control reasonably necessary to file such report, return or
statement. The Lessee shall either (i) to the extent permitted by law
(except for any such report, return or statement which the affected
Indemnitee has notified the Lessee that such Indemnitee intends to
prepare and file in its own name) or required by law, file in its own
name any report, return or statement required to be filed with respect
to Taxes for which the Lessee has an indemnity obligation under this
Clause 10, so as to show the beneficial ownership of the Aircraft,
Airframe and Parts in the Beneficiary and furnish the Indemnitee with a
copy of such report, return or statement, (ii) where such report, return
or statement is required to be in the name of or filed by such
Indemnitee or the Indemnitee otherwise requests that such report, return
or statement be filed in its name, if permitted by applicable law
prepare and deliver such report, return or statement (in each case, at
the expense of the Lessee (with respect to reasonable out-of-pocket
costs and expenses only)) to the Indemnitee in such manner as shall be
reasonably satisfactory to the Indemnitee within a reasonable time prior
to the time such report, return or statement is to be filed (but in no
event later than fifteen (15) days prior to the due date thereof) or
<PAGE>
(iii) where such report, return or statement is required to reflect
items in addition to Taxes imposed on or indemnified against under this
Clause 10 as determined by such Indemnitee, provide such Indemnitee with
information with respect to such indemnified Taxes within Lessee's
control and required for the completion of such report, return or
statement within a reasonable time, sufficient to permit such report,
return or statement to be properly made and timely filed. Nothing in
this Agreement shall require the Lessee or an Indemnitee to violate any
law, regulation or administrative pronouncement of any taxing authority.
10.8 FORMS. Each Indemnitee agrees to furnish from time to time to the Lessee
or to such other person as the Lessee may designate, at the Lessee's
written request and expense (limited to reasonable out-of-pocket
expenses of such Indemnitee), such duly executed and properly completed
forms or other documentation as may be necessary or appropriate in order
to claim any reduction of or exemption from any withholding or other Tax
which the Lessee may be required to indemnify against hereunder (but
only if and to the extent such (x) Indemnitee is legally entitled to
furnish such forms or other documentation and (y) such forms or other
documentation may be filed by such Indemnitee without the imposition of
any Tax or related expense not indemnified by the Lessee hereunder). If
and to the extent that an Indemnitee fails to file or provide any such
form or other documentation and as a result thereof either (i) Tax
withholding is required at a rate which is higher than that which would
have been applicable had such return, statement or other documentation
been filed or provided or (ii) Tax withholding is required which would
not have been required had such form or other documentation been filed
or provided, Lessee's obligation to make the increased payment otherwise
required by Clause 10.2(a) hereof shall be limited to the amount which
would have been required if such Indemnitee had filed or provided such
form or other documentation.
10.9 VERIFICATION. At the Lessee's written request, the amount of any
indemnity payment by the Lessee to any Indemnitee or any payment by an
Indemnitee to the Lessee pursuant to Clause 10 shall be reviewed by an
internationally recognized independent accounting firm mutually
acceptable to the Indemnitee and the Lessee. In the case of indemnity
payments by the Lessee to an Indemnitee, such written request must be
received within ninety (90) days of receipt of the written demand under
Clause 10.5. In the case of payments by an Indemnitee to the Lessee, (i)
such written request must be received within ninety (90) days after
payment by an Indemnitee of any amounts due to the Lessee under this
Clause 10 (or, if later, ten (10) days after receipt of the
certification from the Indemnitee's firm of outside auditors, described
below, provided that the Indemnitee's firm of outside auditors receives
such request within ninety (90) days after such payment by the
Indemnitee), and (ii) within such notice period, the Lessee (or its firm
of outside auditors) has set forth in writing to the Indemnitee a
reasonable basis to assert that the amount of the payment was erroneous.
The Lessee may, at its sole cost and expense, request that the firm of
independent outside auditors of the Indemnitee certify to the firm of
independent outside auditors of the Lessee the basis for the computation
of such payment by the Indemnitee; PROVIDED that both auditing firms and
the Lessee agree to treat such matter on a confidential basis in
accordance with the confidentiality provisions set forth below, and that
the Lessee will have no right to review or inspect such certification or
any information referred to therein. The verifying accounting firm shall
<PAGE>
be asked to verify, after consulting with the Lessee and the Indemnitee,
whether the Indemnitee's computations are correct, and to report its
conclusions simultaneously to both the Lessee and the Indemnitee. Each
Indemnitee and the Lessee hereby agree to provide such accountants with
all information and materials as shall be reasonably necessary or
desirable in connection herewith. The fees and expenses of the
accountants in verifying a payment amount pursuant to this Clause 10.9
shall be paid by the Lessee, unless the accountants shall determine that
the amount calculated by the Indemnitee is (i) more than 105 percent of
the correct amount in the case of a payment due from the Lessee to an
Indemnitee, or (ii) less than 95 percent of the correct amount in the
case of a payment made by an Indemnitee to the Lessee. In all other
cases, such fees and expenses of the accountants shall be paid by the
Lessee. Such accounting firm shall be requested to make its
determination within 30 days. In the event such accounting firm shall
determine that such computations are incorrect, then such firm shall
determine what it believes to be the correct computations. The
computations of the accounting firm shall be final, binding and
conclusive upon the Lessee and the Indemnitee, as the case may be. Any
information provided to such accountants by any Indemnitee shall be and
remain the exclusive property of and shall be deemed by the parties to
be (and the accountants will confirm in writing in a manner satisfactory
to the Indemnitee that they will treat such information as) the private,
proprietary and confidential property of such Indemnitee, and shall not
be disclosed by the accountants to any Person for any purpose, and all
such materials shall be returned to such Indemnitee. The Lessee shall
have no right to inspect the books, records, tax returns or other
documents of or relating to the Indemnitee, as the case may be. The
Lessee and each Indemnitee agree that the accounting firm's sole
responsibility shall be to verify the amount of any payment, and that
matters of interpretation of the terms of this Agreement are not within
the scope of such firm's responsibilities.
10.10 SURVIVAL. The rights and obligations of each Indemnitee and of the
Lessee under this Clause 10 shall survive the expiration or other
termination of this Agreement and the other Lease Documents.
11. GENERAL UNDERTAKINGS
11.1 The Lessee undertakes with the Lessor, until redelivery of the Aircraft
to the Lessor in accordance with this Agreement and thereafter until
satisfaction of all outstanding obligations of the Lessee under this
Agreement, that it will:
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(a) CONSENTS AND AUTHORIZATIONS
without prejudice to paragraph 4 of Schedule 1, Part 1, obtain or
cause to be obtained, maintain in full force and effect and
comply in all material respects with the conditions and
restrictions (if any) imposed in, or in connection with, every
consent, authorization, license or approval of governmental or
public bodies or authorities or courts which are from time to
time reasonably necessary to enable the Lessee to perform its
obligations hereunder and under the Lessee Documents;
(b) PREPARATION OF ACCOUNTS
cause to be prepared in each financial year and cause to be
certified by its auditors consolidated financial statements which
are prepared in accordance with generally accepted accounting
principles and practices in Lessee's Country, which have been
consistently applied (save as disclosed in the relevant financial
statements)and correctly present in accordance with such
principles the consolidated financial position of the Lessee and
its Subsidiaries as at the end of the relevant financial year;
(c) SUPPLY OF ACCOUNTS AND OFFICER'S CERTIFICATE
deliver to the Lessor and Beneficiary as soon as available but
not in any event later than sixty (60) days after the last day of
each of the first three financial quarters of the Lessee, a copy
of its quarterly report on Form 10-Q, as filed with the
Securities and Exchange Commission; and as soon as available but
not in any event later than one hundred twenty (120) days after
the last day of each financial year of the Lessee, a copy of its
annual report on Form 10-K, as filed with the Securities and
Exchange Commission and, together with such report, an officer's
certificate, in the form attached hereto as Schedule 8, from a
responsible officer of the Lessee certifying that he is familiar
with the terms of this Agreement and that no Termination Event
has occurred and is continuing hereunder; and a copy of every
report, notice or like document issued by it to its shareholders
or creditors generally (in each case at or about the time of
issue thereof);
(d) LESSEE FINANCIAL INFORMATION
as promptly as practicable, provide the Lessor on a confidential
basis with such financial, operational and other information
concerning the Lessee and its affairs and (where relevant to the
Aircraft operations) its Subsidiaries and their respective
affairs as the Lessor may from time to time reasonably request in
writing.
11.2 The Lessee further undertakes with the Lessor that it will:
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(a) STATUS REPORT
provide to the Lessor (aa) no later than the fifteenth (15th) day
after the expiration of each Accrual Period; (bb) no later than
the date falling within fifteen (15) days after the date of
expiry or termination of the Lease Period; and (cc) whenever
reasonably requested by the Lessor, a status report on the
Aircraft and the Engines in the form set out in Schedule 7
containing or indicating, inter alia, (i) the serial numbers of
the engines, then installed on the Aircraft and the owners of
such engines, (ii) the serial numbers, condition and whereabouts
of any Engines not then installed on the Aircraft, (iii) Engine
and Airframe utilization in Flight Hours and Cycles, (iv)
scheduled and unscheduled engine changes, (v) any variations in
the Approved Maintenance Programme for the Airframe and the
Engines, (vi) any material deferred items carried forward and
(vii) any damage reports in excess of the Threshold Amount;
(b) INFORMATION CONCERNING THE AIRCRAFT
provide the Lessor as promptly as practicable with such
information regarding the location, operation, use, insurance,
maintenance and condition of the Aircraft as the Lessor may from
time to time reasonably request in writing, including, without
limitation, copies of any agreement relating to the Aircraft in
the Lessee's possession. The Lessee will provide the Lessor with
a forecast of the major scheduled maintenance events (such as
Engine scheduled repairs, C Checks or their equivalent) so that
the Lessor may plan to be present during such events;
(c) INSPECTION
throughout the Lease Period permit the Lessor and/or its agents
or representatives to inspect the Aircraft at any reasonable time
upon giving the Lessee reasonable prior written notice and
provide them with appropriate temporary access to an office and
telephone. The Lessee will permit the Lessor to have the Lessor's
designated representatives present during any C Check or its
equivalent or major check or unscheduled repair or overhaul of
the Aircraft and will provide reasonable notice of such C Check
or equivalent or major check or (as soon as reasonably
practicable) a major repair to enable Lessor's representatives to
be present. The cost of such inspections shall be paid by the
Lessor in respect of the Lessor's annual inspection and survey of
the Aircraft and by the Lessee in respect of any inspection and
survey carried out by the Lessor as a result of any maintenance
failure by Lessee constituting a Relevant Event. All time taken
in respect of such inspections shall form part of the Lease
Period. The Lessor shall have no duty or liability whatsoever to
carry out or take any action arising out of any such visit or
inspection. Any such inspections by the Lessor of the Aircraft
shall not interfere with the Lessee's commercial flight
operations or delay the completion of any maintenance and will be
relevant to the work being accomplished on the Aircraft at the
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time of inspection and any such inspection by Lessor shall be a
visual walk-around inspection which shall not include opening any
panels, bays or the like or any disassembly or removal of
components which are not then opened, disassembled or removed in
the course of Lessee's maintenance of the Aircraft at the time of
such inspection, provided that such limitations shall not apply
to inspections occurring (i) under Clause 19 hereof except to the
extent expressly provided therein or (ii) within a reasonable
time following a maintenance failure by Lessee constituting a
Relevant Event;
(d) NO OPERATIONAL INTEREST
not represent in any way that any Indemnitee is carrying goods or
passengers on the Aircraft or engaging in any operation of the
Aircraft or caring for, repairing or having any responsibility
for the condition of the Aircraft;
(e) COMPLIANCE WITH INSURANCES
comply with the terms and conditions of the Insurances, and not
do, consent to, or permit any act or omission which would
invalidate or render unenforceable the whole or any part of the
Insurances;
(f) AIR TRAFFIC CONTROL INFORMATION AND THIRD PARTY INFORMATION
where relevant when the Aircraft is under sublease, procure that
the Aviation Authority, Eurocontrol and any other relevant air
traffic control authority or airport shall furnish to the Lessor
upon the Lessor's request from time to time, statements of
account of all sums due by the sub-lessee to such authorities or
airports in respect of all aircraft (including, but not limited
to, the Aircraft) operated by the sub-lessee and shall provide
and, if applicable, procure that any sub-lessee shall provide to
the Lessor a letter substantially in the form of Schedule 8;
(g) STATUS OF THE LESSEE
not, without giving the Lessor thirty (30) day's prior notice,
change its chief executive office (as such term is defined in
Article 9 of the Uniform Commercial Code as in effect in the
State of Colorado) from 2864 South Circle Drive, Suite 1100,
Colorado Springs, Colorado 80906, USA;
(h) CERTIFICATED AIR CARRIER
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remain a Certificated Air Carrier and maintain its status so as
to fall within the purview of Section 1110 of Title 11 of the
United Status Code or any analogous statute which may replace
such statute and then be applicable;
(i) CITIZEN OF THE UNITED STATES
remain a Citizen of the United States.
11.3 The Lessee further undertakes with the Lessor that it will:
(a) DISPOSAL AND ENCUMBRANCE OF THE AIRCRAFT
not attempt or hold itself out as having any power to sell,
charge, lease or otherwise encumber or dispose of the Aircraft
(save as provided in Clause 12 (Sub-Leasing)), nor create, incur
or suffer to exist any Encumbrance over the Aircraft (other than
Permitted Liens);
(b) PREVENTION OF ARREST
not do, and will use its best reasonable endeavors to prevent,
any act which could reasonably be expected to result in the
Aircraft being arrested, confiscated, seized, taken in execution,
impounded, forfeited, detained in exercise or purported exercise
of any possessory lien or other claim or otherwise taken from the
possession of the Lessee and, if any such arrest, confiscation,
seizure, taking, impounding, forfeiture or detention occurs, the
Lessee will give the Lessor immediate notice thereof and will use
its best efforts to procure the prompt release of the Aircraft;
(c) NO PLEDGING OF CREDIT
not pledge nor allow any operator of the Aircraft to pledge the
credit of any Indemnitee for any maintenance, service, repairs,
overhauls of, or modifications to, or changes or alterations in,
the Aircraft or for any other purpose whatsoever;
(d) PROTECTION OF RIGHTS IN THE AIRCRAFT
The Lessee will do all acts and things which the Lessor may
reasonably request to protect and preserve the title, rights and
interest of the Head Lessor, the Beneficiary, the Lessor and the
Lenders (and to protect or perfect their rights under the
Security Documents) to and in the Aircraft within the
jurisdiction of any State of Registration or in any territory in
which the Aircraft is or may be based or operated. The Lessee
shall do such acts and things at its own cost and expense except
that, unless a Termination Event has occurred and is continuing,
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the Lessor shall pay the reasonable out-of-pocket expenses
incurred by Lessee in doing such acts and things to protect and
preserve the rights and interest of the Head Lessor, the
Beneficiary or the Lenders. No action which may otherwise be
required by this Clause 11.3(d) shall deprive Lessee of any right
or privilege or result in the incurrence by Lessee of any
additional obligations except as otherwise expressly provided
herein.
12. SUB-LEASING
12.1 The Lessee will not at any time, without the prior written consent of
the Lessor, sub-lease, charter, hire or otherwise part with the
possession or operational control of the Aircraft; provided that this
Clause shall not prevent the Lessee from:
(a) putting the Aircraft in the possession of any qualified person
for the purpose of maintenance, service, repair or overhaul work
or any modifications, changes or alterations permitted under this
Agreement being carried out thereon;
(b) entering into and carrying out any charter, wet lease or other
agreement with respect to the Aircraft on terms whereby the
Aircraft will at all times be operated by air crew employed by
and subject to the operational control of the Lessee; provided
that any such charter or other agreement shall be permitted by
the laws of the Lessee's Country and shall be subordinate in all
respects to this Agreement and will not in any event be capable
of extending beyond the end of the Lease Period.
The consent of the Lessor to any approved sub-lease to another aircraft
operator shall not be unreasonably withheld or delayed but may be based,
among other things, on the criteria that:
(i) any such sub-lease does not extend beyond the Lease Term;
(ii) any such sub-lease does not allow such operator to take any
action that the Lessee is not permitted to take under this
Agreement, is consistent with the terms of this Agreement and
permits discharge of all of the Lessee's undertakings under this
Agreement;
(iii) any such sub-lease shall be subject to and subordinate to all of
the terms of this Agreement and the Sub-Lessee signs a
subordination and undertaking in favor of the Lessor and the Head
Lessor;
(iv) the Aircraft remains registered in the State of Registration
unless the consent of the Lessor to re-register the Aircraft in
the state where any proposed Sub-Lessee has its principal place
of business has been obtained and the Lessee pays all reasonable
out-of-pocket expenses incurred by Lessor, Head Lessor and
Lenders (including, but not limited to legal fees and filing
expenses) in connection with such re-registration;
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(v) such operator is not subject to proceedings of the type described
in clauses 20.1(b), 20.1(i), 20.1(j) or 20.1(k) at the
commencement of any such sub-lease;
(vi) no such operator shall have any right to further sub-lease the
Aircraft;
(vii) the country in which the principal place of business of such
operator is located maintains diplomatic relations with Ireland,
Japan, the United Kingdom and the United States of America and
there are no hostilities or any imminent threat of hostilities
between such country and the aforementioned countries;
(viii) the Lessee shall, regardless of any sublease remain primarily
liable for all obligations under this Agreement;
(ix) the Lessee shall provide the Lessor with a copy of any proposed
sub-lease for review twenty (20) days prior to delivery of the
Aircraft thereunder together with such financial and other
information in relation to the proposed Sub-Lessee as the Lessor
may reasonably request and the Lessee shall provide evidence
reasonably requested by the Lessor of the ability of the proposed
Sub-Lessee to perform its obligations under the proposed
sub-lease;
(x) the Lessee shall assign any such sub-lease to the Lessor as
security for the Lessee's obligations hereunder; and
(xi) the Lessee adequately indemnifies the Lessor and the Head Lessor
in respect of any out-of-pocket costs incurred or adverse tax
consequences arising resultant upon such proposed sub-lease and
pays their reasonable out-of-pocket fees and expenses (including,
but not limited to legal fees) reasonably incurred in connection
with such proposed sublease.
13. OPERATIONS AND MAINTENANCE
13.1 The Lessee further undertakes with the Lessor that throughout the Lease
Period it will at its own cost and expense:
(a) CERTIFICATES AND LICENSES
obtain and maintain in full force and effect all necessary
certificates, licenses, permits and authorizations required for
the use and operation of the Aircraft, including, but without
limitation, an Air Carrier's Certificate, a standard Certificate
<PAGE>
of Airworthiness with respect to the Aircraft in the public
transport passenger category issued by the Aviation Authority
(subject to Clause 18) and such certificates of maintenance as
are required for the Aircraft to be used for the public transport
of passengers or cargo in the State of Registration;
(b) OPERATION AND USE
(i) procure that the Aircraft is used, operated and controlled
in accordance with applicable laws, ordinances, rules,
regulations, orders or requirements of the State of
Registration (and of any country or territory to, from, in
or over which the Aircraft may be flown) and in accordance
with applicable certificates, licenses, permits,
authorizations and registrations relating to the Aircraft,
and regardless of the person upon whom any of the same are
by their terms imposed;
(ii) use the Aircraft solely in commercial or other operations
for which the Lessee is duly authorized by the laws of the
State of Registration and/or any jurisdiction to whose laws
the Lessee's operation of the Aircraft is subject and the
Lessee shall procure that the Aircraft will not be used for
any purpose for which it is not designed or reasonably
suited, or outside the tolerances and limitations for which
the Aircraft was designed (provided that any such use
resulting from a nonrecurring circumstance not within the
control of the Lessee shall not be deemed to violate this
provision) and so as not to invalidate any manufacturer's
warranties and will be operated in accordance with the
Manuals and Technical Records. The Lessee shall, and shall
procure that, the Aircraft is not used for the carriage of
(A) whole animals, living or dead, except in the cargo
compartments according to IATA regulations, and except for
domestic pets carried in a suitable container designed to
prevent the escape of any liquid and to ensure the welfare
of the animal and handicap passenger help animals in the
passenger cabin, or (B) acids, toxic chemicals, other
corrosive materials, explosives, nuclear fuels, waste or any
nuclear assemblies or components, except as permitted for
passenger aircraft under the "Restriction of Goods Schedule"
issued by IATA, or (C) any other goods, materials or items
which would reasonably be expected to cause damage to the
Aircraft and which would not be adequately covered by the
Insurances, and, save for the benefit of the Lessee's or
sublessee's cockpit personnel, the Lessee shall, and shall
procure that, the Aircraft is not utilized for the purposes
of training, qualifying or re-confirming the status of
cockpit personnel, and then only if the use of the Aircraft
for such purpose is not reasonably disproportionate to the
use for such purpose of other Aircraft of the same type
operated by the Lessee;
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(iii) procure that the Aircraft will not be used for any purpose
or in any manner not fully covered by the Insurances, or
outside any geographical limit imposed by the Insurances,
or for any illegal purpose or in an illegal manner;
(iv) ensure that the crew and engineers employed by the Lessee
in connection with the maintenance and operation of the
Aircraft shall have such qualifications and hold such
valid licenses as are required by the Aviation Authority
and all applicable laws and regulations;
(v) not cause or permit the Aircraft to proceed to, or remain
at, any location which is then the subject of a
prohibition order (or any similar order or directive),
sanctions or restriction by or under the US International
Economic Emergency Powers Act or the United Nations
Security Council;
(c) BASE OF OPERATIONS
except with the prior written consent of the Lessor, ensure that
the Aircraft shall be based in and operated from Lessee's Country
and that it will not be located outside Lessee's Country for a
period of more than fourteen (14) consecutive days or, in each
case (if longer), the term of a permitted sublease, charter or
wet lease or for the time required to accomplish any Major Check,
repair or overhaul;
(d) MAINTENANCE
ensure that the Aircraft is maintained, serviced, repaired and
overhauled by the Lessee or, in the case of Major Checks by the
Approved Maintenance Performer, in accordance with the Approved
Maintenance Programme and in full compliance with the tasks
required by the MPD by properly qualified personnel acceptable to
the Aviation Authority so as to:
(i) keep the Aircraft in good repair, condition and appearance,
airworthy so as to maintain the FAA airworthiness
certificate on the Aircraft (subject to Clause 18), clean by
Airline Standards, in as good operational condition as when
delivered to the Lessee on the Delivery Date, fair wear and
tear excepted and to at least the same standard as other
aircraft which it owns or operates, PROVIDED, HOWEVER, that,
with respect to inspections and modifications not subject to
clause 13.1(d)(ii), if no Relevant Event has then occurred
and is continuing, during the last year of the Lease Term,
the Lessee shall not be obligated to perform an alteration,
modification or addition to the Aircraft solely because it
has performed such modification, alteration or addition on
other aircraft which it owns or operates if (aa) such
modification, alteration or addition is not otherwise
<PAGE>
required by the terms of this Clause 13.1(d)(i) or any other
provision of this Agreement, (bb) such alteration,
modification or addition is not the incorporation of a
service bulletin or, if it is such incorporation, costs in
excess of $[ ]* in April 1997 Dollars and (cc) Lessee
provides Lessor with written notice as soon as is reasonably
practicable but, in any event, not later than 6 (six) months
prior to the end of the Lease Term of its decision not to
perform any such alteration, modification or addition on the
Aircraft;
(ii) comply with all airworthiness directives or similar alert
advisory requirements affecting airworthiness and all
mandatory inspection and modification requirements
applicable to the Aircraft or any Part issued during the
Lease Term and/or having a compliance date during the Lease
Term or within three hundred and sixty (360) days after the
redelivery of the Aircraft and which are required by the
Aviation Authority and/or the FAA or by any manufacturer of
the Aircraft or any Engine or Part. If the Lessee applies to
or canvasses the Aviation Authority to postpone any
compliance date noted in this Clause and such postponement
would affect the condition of the Aircraft when it is
redelivered under Clause 19 hereof, then Lessee, not later
than the end of the Lease Term, shall, if such application
was granted by the Aviation Authority (as reasonably
evidenced in writing to Lessor), pay the out-of-pocket costs
to Lessor (as reasonably estimated by Lessor) to comply with
such requirement unless such application or canvass (aa) was
also made by other U.S. airlines similarly situated to
Lessee with respect to Boeing 737-300 aircraft and (bb) was
made by Lessee with respect to other applicable 737-300
aircraft operated by Lessee;
(iii) comply with all applicable laws, ordinances, rules,
regulations, orders and requirements of the State of
Registration and other aviation authorities with
jurisdiction over the Lessee or the Aircraft or any Part
or to, from, or over which the Aircraft may be flown;
(iv) maintain in good standing a current certificate of
airworthiness (in the appropriate category for the nature
of the operations of the Aircraft) for the Aircraft issued
by the Aviation Authority (subject to Clause 18) and will
from time to time provide to the Lessor a copy on request;
(v) if required by the Aviation Authority, maintain a current
certification as to maintenance issued by or on behalf of
the Aviation Authority in respect of the Aircraft and will
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from time to time provide to the Lessor a copy on request;
(vi) maintain, inspect, function check, protect and repair the
Aircraft in accordance with the Approved Maintenance Program
to the same standards, with the same care and without
discrimination to other aircraft owned or leased by the
Lessee and perform in accordance with the MPD, each of the
Structural Inspection, Zonal Inspection, Corrosion
Protection/Prevention tasks during the Lease Period. In the
event that the Lessee operates a structural inspection
sampling program in respect of the Aircraft during the Lease
Period, such program shall be operated strictly in
accordance with the MPD. The Lessee shall accomplish all
service bulletins that the Lessee generally incorporates
into aircraft in its fleet of Boeing 737 aircraft;
(vii) maintain the Aircraft in accordance with Part 121 of the
FAR and any other Rules and Regulations of the FAA as may
be applicable to passenger category aircraft, except to
the extent that they conflict with the rules and
regulations of the Aviation Authority;
(viii) remedy any damage or defect shown to be required by any
inspection effected pursuant to Clause 11.2(c)
(Inspection) and as otherwise required by the terms of
this Agreement; and
(ix) comply with the return conditions referred to in Clause 19
(Redelivery) at the end of the Lease Period or when the
Aircraft is required to be redelivered pursuant to Clause
21;
(e) REPLACEMENT OF ENGINES AND PARTS
ensure that any Engine or any Part installed in the Airframe or
any Engine which has become worn out, lost, destroyed,
confiscated, unserviceable, time expired, or otherwise unfit for
use or which the Lessee is required to replace under any
provision of this Agreement other than this Clause 13.(e) is
promptly replaced with an item of the same make and model or an
improved or advanced version thereof, of at least equivalent
value (having regard to service bulletin modification status,
shop visit history (other than Flight Hours or Cycles since last
Engine Shop Visit in respect of time on the Engine at such Engine
Shop Visit), Engine Life Limited Parts status and component hard
time life status, but otherwise without regard to the hours and
cycles on such replacement engine or part, provided that the
applicable credits are adjusted as provided in Clause 13.4(d)
hereof), which is suitable for installation and use on the
Airframe or Engine without diminishing the value or utility
thereof and, if such replacement occurs at the end of the Lease
Period, such replacement engine or part shall meet the applicable
requirements of Clause 19 and Schedule 4;
<PAGE>
(f) REMOVAL OF PARTS
subject to Clause 13.2 (Temporary Installation of Parts), ensure
that any Part installed in the Airframe or any Engine is not at
any time removed therefrom otherwise than during the course of
maintaining, servicing, repairing, overhauling or testing the
Airframe or such Engine, or making such modifications, changes or
alterations to the Airframe or such Engine as are permitted under
this Agreement, and then only if it is promptly reinstalled, or
promptly replaced or substituted by an item complying with the
provisions of Clause 13.1(e) and 13.1(g);
(g) INSTALLATION OF ENGINES AND PARTS
ensure that, save in accordance with Clause 13.2 and 13.3, no
engine is installed in the Airframe and no Part is installed in
the Airframe or any Engine, whether by way of substitution,
replacement, renewal, mandatory improvement or addition unless it
meets the requirements of Clause 13.3(e) and it is (i) then the
property of the Head Lessor or the Beneficiary and subject to the
Mortgage or (ii) is such that on installation in the Airframe or
Engine title thereto shall vest in the Head Lessor and become
subject to the charge created by the Mortgage but be otherwise
free from Encumbrances (other than Permitted Liens), in which
case the Lessee shall ensure that there is promptly recorded in
the Manuals and Technical Records an acknowledgement that title
thereto does so vest in the Head Lessor as aforesaid, which
acknowledgement in the case of any Engine shall specify the
manufacturer's serial number of the substitute or replacement
Engine, and the Lessee shall ensure that as soon as practicable
thereafter a notification that title does so vest in the Head
Lessor is delivered to the Lessor;
(h) NON-INSTALLED ENGINES
ensure that any Engine which is not installed on the Aircraft or
any other aircraft pursuant to the provisions of Clause 13.3
(otherwise than during the course of maintaining, servicing,
repairing, overhauling or testing any such Engine) is properly
and safely stored in accordance with its relevant maintenance
manual and kept free from Encumbrances other than Permitted Liens
and that appropriate insurance cover is effected in respect of
any Engine or Parts belonging to the Head Lessor or the
Beneficiary which are not installed on the Airframe or any
Engine;
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(i) NAMEPLATES
ensure that there is affixed and kept a fireproof nameplate of
not less than 10cm x 7cm in a reasonably prominent position on
the flightdeck or cockpit of the Aircraft stating that the
Aircraft is the property of the Head Lessor, is subject to the
Trust Agreement, is leased to the Lessor and is subject to the
Mortgage, and that there is affixed and kept a fireproof
nameplate of not less than 10cm x 7cm in a reasonably prominent
position on each Engine stating that the relevant Engine is the
property of the Head Lessor, is subject to the Trust Agreement,
is leased to the Lessor and is subject to the Mortgage and in
each case will ensure that the same is not covered or painted
over;
(j) ALTERATIONS
procure that no modification to or change or alteration in the
Aircraft is made which will have the effect of reducing the value
or airworthiness of the Aircraft except as (i) necessary for
compliance with the provisions of this Agreement or (ii) required
by the Manufacturer or (iii) required by the Aviation Authority;
(k) CHANGES TO APPROVED MAINTENANCE PROGRAMME
the Lessee shall provide to the Lessor, in advance for its
approval, a copy of the Lessee's Approved Maintenance Programme
and all subsequent revisions adopted by the Lessee and approved
by the Aviation Authority as and when the same are issued,
approved and incorporated and in no event shall the Approved
Maintenance Programme be amended by the Lessee in any manner
which would have a material adverse effect on the redelivery
provisions of this Agreement and/or on the residual value of the
Aircraft without the prior written approval of the Lessor, such
approval not to be unreasonably withheld.
13.2 TEMPORARY INSTALLATION OF PARTS
Provided that no Termination Event shall have occurred and be
continuing, the Lessee shall be entitled to install any part on the
Airframe or any Engine by way of substitution or replacement
notwithstanding that such installation is not in accordance with Clause
13.1(e) and Clause 13.1(g) if such substitute or replacement part is
suitable for installation and use on the Airframe or Engine and (a)
there shall not have been available to the Lessee at the time and in the
place that such part was required to be installed on the Airframe or any
Engine a substitute or replacement Part complying with the requirements
of Clause 13.1(e) and Clause 13.1(g), and (b) it would have resulted in
an unreasonable disruption of the operation of the Aircraft and/or the
business of the Lessee as an airline to have grounded the Aircraft until
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such time as a Part complying with the requirements of Clause 13.1(e)
and Clause 13.1(g) became available for installation in the Airframe or
any Engine, and (c) as soon as practicable after installation of the
same on the Airframe or any Engine, the Lessee shall ensure that any
such Part not complying with the requirements of Clause 13.1(e) and
Clause 13.1(g) is removed and replaced or substituted by a Part
complying with the requirements of Clause 13.1(e) and Clause 13.1(g).
13.3 INTERCHANGE OF ENGINES
(a) GENERAL PRINCIPLES
(i) The Lessee shall not at any time during the Lease Period
remove an Engine from the Airframe or install any engine other than an
Engine (complying with the provisions of Clause 13.1(e) and 13.1(g)) on
the Airframe except (aa) for purposes of engine management, maintenance
or repairs to an Engine permitted by this Agreement or (bb) as expressly
permitted by this Clause 13.3.
(ii) If an Engine is at any time removed from the Airframe for
purposes of maintenance or repairs, the Lessee shall complete the same
or procure that same are completed, as soon as practicable after
removal.
(iii) Except in accordance with Clause 13.3(c) or 13.3(d), the
Lessee shall not at any time during the Lease Period install a Removed
Engine on an airframe other than the Airframe.
(iv) If an Engine is at any time removed from the Airframe for
any reason whatsoever, title to such Removed Engine shall remain vested
in the Head Lessor at all times (other than as provided in Clause
13.1(e) and Clause 13.1(g)), subject to the Head Lease, the Trust
Agreement, this Agreement and the Mortgagee and the Lessee shall not
take any steps which may reasonably be expected to (aa) jeopardize the
Head Lessor's ownership rights in the Removed Engine or (bb) lead
reasonable third parties to believe that the Removed Engine is the
property of any person other than the Head Lessor or (cc) create, incur
or suffer to exist any Encumbrance other than a Permitted Lien over such
Removed Engine.
(b) TEMPORARY REMOVAL OF ENGINES
Except as provided in Clause 13.3(c), if an Engine shall become
unserviceable at any time or if scheduled maintenance works are required
to be performed on such Engine, the Lessee shall be entitled to remove
such Engine from the Airframe and to install an engine owned or operated
by the Lessee and suitable for installation and use on the Airframe
provided that the following conditions are satisfied:
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(i) it would have resulted in an unreasonable disruption of the
operation of the Aircraft and/or the business of the Lessee as an
airline to have grounded the Aircraft until such time as a Removed
Engine became available for re-installation on the Airframe;
(ii) the Lessee shall have notified the Lessor prior to or, in
the case of urgency as soon as practicable after, the making of such
substitution; and
(iii) as soon as practicable after installation of the same on
the Airframe (and in any event no later than 120 days thereafter), the
Lessee shall move the installed engine and re-install a Removed Engine.
(c) POOLING OF ENGINES WITHIN THE LESSEE'S FLEET
(i) In this Clause 13.3(c), "Fleet Aircraft" means any Boeing
737-300 aircraft from time to time operated by the Lessee.
(ii) The Lessee shall be entitled, so long as no Termination
Event shall have occurred and be continuing, to remove an Engine from
the Airframe and to install on the Airframe an engine provided that:
(aa) such engine is leased to the Lessee with a Fleet
Aircraft, is owned by the Lessee or otherwise leased to the Lessee and
is suitable for installation and use on the Airframe;
(bb) the Removed Engine is, during the period of
substitution, either being safely housed and sheltered in accordance
with Manufacturer's recommendations and this Agreement or repaired or
maintained in accordance with this Agreement, or is installed on a Fleet
Aircraft in compliance with Clause 13.3(c)(iii) hereof;
(cc) the Lessee maintains insurance cover in accordance
with this Agreement for the Engine Agreed Value in respect of the
Removed Engine at all times while it is installed on a Fleet Aircraft;
and
(dd) prior to the expiration or termination of the Lease
Period, such engine is removed from the Airframe and the Removed Engine,
or, at the end of the Lease Period, an Engine complying with the
provisions of Clause 13.1(e) and 13.1(g), is installed on the Airframe.
(iii) The Lessee will be entitled, so long as no Termination
Event shall have occurred and be continuing, to install an Engine on a
Fleet Aircraft:
(aa) owned and operated by Lessee free from any Liens;or
<PAGE>
(bb) leased to Lessee on a long-term basis and on terms
whereby Lessee has full operational control of the aircraft or purchased
by Lessee subject to a conditional sale or other security agreement
PROVIDED THAT: (1) the terms of any such lease, conditional sale
agreement or security interest will not have the effect of impairing the
title and interests of Lessor as owner and lessor of the Engine; and (2)
the lessor under such lease, the seller under such conditional sale
agreement or the holder of such security interest, as the case may be,
has confirmed and acknowledged in writing, in form and substance
reasonably satisfactory to Lessor, that it will respect the interests of
Lessor as owner and lessor of that Engine and that it will not seek to
exercise any rights whatever in relation thereto (it being understood
that such agreement may be in the form described in Clause 13.3(c)(iv),
in which case such agreement need not be provided to Lessor).
(iv) In the event the Lessee shall have received from the lessor
or secured party of any Fleet Aircraft leased to Lessee or owned by
Lessee subject to a conditional sale or other security interest a
written agreement complying with Clause 13.3(c)(iii)(bb) hereof (which
agreement may be contained in the lease, conditional sale or other
security interest covering such Fleet Aircraft) and such lease or
conditional sale or other security interest covering such Fleet Aircraft
also covers an engine or engines owned by the lessor under such lease or
subject to a security interest in favor of the secured party under such
conditional sale or other security interest, 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,
conditional sale or other security interest and owned by such lessor or
subject to a security interest in favor of such secured party.
(d) POOLING OF ENGINES WITH OTHER OPERATORS
the Lessee may, with the prior written consent of the
Lessor (such consent not to be unreasonably withheld) lease, let or hire
or charter or otherwise part with possession of an Engine (on terms
conferring no more than a contractual right against the Lessee but not
rights against the Engine) pursuant to pooling arrangements to which the
Lessee is a party and which either:
(i) are arrangements involving responsible, solvent
scheduled Certificated Air Carriers;
(ii) do not contemplate transfer of title to any pooled
Engine (or if title is so transferred, such transfer will be deemed an
event of loss under Clause 13.1(e)); and
<PAGE>
(iii) either provide that the Lessor (or at the Lessor's
direction, any of the Indemnitees) will be sole loss payee in respect of
any loss or damage to such Engine for the Engine Agreed Value, or
provide for the Head Lessor to acquire title to a substitute engine free
from Encumbrances satisfying the conditions set out in Clause 13.1(e) if
the Engine is a Total Loss.
13.4 MAINTENANCE ACCRUALS
(a) In addition to rent, with respect to each Accrual Period, the
Lessee shall pay to the Lessor maintenance accruals ("MAINTENANCE
ACCRUALS") as follows:
(i) in respect of airframe maintenance accrual, an amount equal
to (a) the applicable amount set forth in paragraph 3 of
Letter Agreement No. 1; MULTIPLIED BY (b) the number of
Flight Hours operated by the Aircraft during such Accrual
Period ("AIRFRAME MAINTENANCE ACCRUAL") (as adjusted from
time to time); and
(ii) in respect of an engine maintenance accrual, in respect of
each Engine an amount equal to (a) the applicable amount set
forth in paragraph 3 of Letter Agreement No. 1; MULTIPLIED
BY (b) the number of Flight Hours operated by such Engine
during such Accrual Period ("ENGINE MAINTENANCE ACCRUAL")
(as adjusted from time to time); and
(iii)in respect of Engine Life Limited Parts maintenance accrual
in respect of each Engine, an amount equal to (a) the
applicable amount set forth in paragraph 3 of Letter
Agreement No. 1; MULTIPLIED BY (b) the number of Cycles
operated by each Engine during such Accrual Period ("ENGINE
LIFE LIMITED PART MAINTENANCE ACCRUAL" (as adjusted from
time to time); and
(iv) in respect of Landing Gear accrual, an amount equal to (a)
the applicable amount set forth in paragraph 3 of Letter
Agreement No. 1; MULTIPLIED BY (b) the number of Flight
Hours operated by the Aircraft during such Accrual Period
("LANDING GEAR MAINTENANCE ACCRUAL") (as adjusted from time
to time).
The Airframe Maintenance Accrual, Engine Maintenance Accrual,
Engine Life Limited Part Maintenance Accrual, and Landing Gear
Maintenance Accrual accruing in any Accrual Period shall be paid by the
Lessee to the Lessor not later than fifteen (15) days after the expiry
of such Accrual Period (other than the final Accrual Period) with the
amount payable in respect of the final Accrual Period being paid on the
date of the end of the Lease Period. Concurrently with the payment
thereof, the Lessee shall deliver the status report specified in
Schedule 7 duly completed.
(b) The rates of Airframe Maintenance Accrual, Engine Maintenance
Accrual, Engine Life Limited Part Maintenance Accrual and
<PAGE>
Landing Gear Maintenance Accrual will be subject to adjustment
annually by reference to the formula contained in Schedule 1,
Part 4 to take account of movements in the cost of relevant
labor or materials.
(c) Payments by way of Maintenance Accruals received by the Lessor
shall be credited, in the proportions corresponding to the rates
specified in Clause 13.4(a), to separate credits to be known as
the "Airframe Maintenance Credit", "No.1 Engine Maintenance
Credit", "No.2 Engine Maintenance Credit" (there being one such
Engine Maintenance Credit for each Engine), "No. 1 Engine LLP
Maintenance Credit", No. 2 Engine LLP Maintenance Credit (there
being one such Engine LLP Maintenance Credit for each Engine)
and "Landing Gear Maintenance Credit" which credits shall reduce
as monies are paid to the Lessee with respect to the applicable
credit in accordance with Clause 13.4(d). The credits shall be
solely for the purpose of determining the amounts payable by
Lessor to Lessee pursuant to Clause 13.4(d) and Lessor shall
have no obligation to place the Maintenance Accruals in a
segregated account or to account for them to the Lessee in any
way other than through its payment obligations to the Lessee
under Clause 13.4(d).
(d) Upon submission by the Lessee to the Lessor of certified
invoices or receipts evidencing the performance in accordance
with the provisions of this Agreement by or at the direction of
the Lessee of:
(i) with respect to the Airframe, the accomplishment of the
Major Check tasks in accordance with the MPD ("AIRFRAME
MAINTENANCE"); or
(ii) with respect to any Engine, the performance of an Engine
Shop Visit ("ENGINE MAINTENANCE"); or
(iii) with respect to Engine Life Limited Parts, the replacement
of any Engine Life Limited Part during off-the-wing Engine
shop visit maintenance or repair other than replacement (a)
arising as a result of foreign object damage, or,
operational mishandling (being an operation or event on the
ground or in the air whereby, due to negligence, the
tolerances, limits and/or recommended maximums and minimums
and/or other operation matters as specified in the Aircraft
flight, operational, maintenance and other relevant manuals
or documents are not complied with by any person) save to
the extent such replacement results in the refurbishment or
"betterment" of the Engine; or (b) following premature
failure except that in the event of the premature failure
leading to the replacement of any Engine Life Limited Part a
drawing will be permitted by the Lessor in respect of such
replacement, however, the amount of the drawing shall be
reduced by the amount of any available warranty claim with
respect to such premature failure and capped at the funds
available in the Engine LLP Maintenance Credit, any
shortfall being for the account of the Lessee; and/or (c)
maintenance and repair of spare engines and associated
engine build up units and/or the removal, installation,
maintenance and repair of QEC (Quick Engine Change) kits
("ENGINE LLP REPLACEMENT"); or
<PAGE>
(iv) with respect to Landing Gear, the performance of scheduled
overhaul in accordance with the Approved Maintenance
Programme ("LANDING GEAR MAINTENANCE");
the Lessor shall, provided that a Relevant Event shall not
have occurred and be continuing, pay to the Lessee or
directly to the relevant maintenance performer (as
appropriate) within fifteen (15) Banking Days of receipt of
the documentation sufficient to enable the Lessor to
determine the amounts owed as provided in Clause 13.4(e), in
the case of Airframe Maintenance, to be deducted from the
Airframe Maintenance Credit and, in the case of Engine
Maintenance, from the applicable Engine Maintenance Credit
relating to the Engine the subject of such Engine
Maintenance and, in the case of Engine LLP Replacement from
the applicable Engine LLP Maintenance Credit and, in the
case of Landing Gear Maintenance, from the Landing Gear
Maintenance Credit, a sum equal to the aggregate amount
evidenced by such invoices or receipts, to the extent there
is sufficient credit in such Airframe Maintenance Credit or
relevant Engine Maintenance Credit or relevant Engine LLP
Maintenance Credit or Landing Gear Maintenance Credit. To
the extent that there is insufficient credit in such
Airframe Maintenance Credit, relevant Engine Maintenance
Credit or relevant Engine LLP Maintenance Credit or Landing
Gear Maintenance Credit, the Lessee shall be liable to, and
shall forthwith, pay the shortfall to the relevant
maintenance performer. Lessor shall have no obligation to
make any payments or otherwise to account to Lessee for any
credits remaining in the aforementioned maintenance credits
at the expiration or other termination of the Lease Period
except that Lessor shall pay Lessee an amount equal to the
outstanding amount of such credits if the Lease Period has
terminated pursuant to Clause 17.4 hereof and the Lessor has
received the Agreed Value for the Aircraft.
(e) The Lessor shall not be required to pay moneys to the Lessee or
directly to the relevant maintenance performer (as appropriate)
as provided for by this Clause 13.4 until such time as it shall
have received reasonable documentation adequate to enable it to
determine the amount to be paid (in which case, for the
avoidance of doubt, it must pay such amounts pursuant to Clause
13.4(d) within fifteen (15) Banking Days thereafter). The
documentation delivered by the Lessee to the Lessor evidencing
the incurring of expenses shall include an invoice, a shop
workscope, a shop visit or maintenance visit report and if
reasonably requested any additional substantiating data from the
person that performed such maintenance or, if performed by the
Lessee, a statement of completion thereof together with
completed work cards or other documents requested by the Lessor
and a certificate from an authorized representative of the
Lessee that the amounts and other information set forth in such
statement and invoice are correct. Any overhaul or other work
performed by the Lessee or by any affiliated or associated
company of the Lessee shall be invoiced at the Lessee's or such
affiliated or associated company's actual cost of material
without mark-up or profit and its fully burdened labor cost
capped at 130% of Lessee's internal manhour rate of performing
such work without any mark-up or profit (as reasonably
demonstrated by documentation delivered to Lessor).
<PAGE>
(f) If an Engine is replaced as provided in Clauses 13.1(e) and (g)
hereof, at the time of such replacement the applicable Engine
Credit and LLP Maintenance Credit will be adjusted either upward
by payment by Lessee of Engine Maintenance Accrual and/or Engine
Life Limited Part Accrual with respect of such Engine in amounts
determined as provided in Clause 13.4(a) hereof or downward by
payments by Lessor to Lessee if the amount of the current amount
of the credits is too high. Specifically, the value of any
Engine Maintenance Accrual Credit will be determined by direct
comparison of prior Engine Shop Visit history, work scopes and
histories of the relevant engines. The Lessee shall provide
Lessor with documentation adequate, in the reasonable
determination of the Lessor, to enable Lessor to verify the
amounts of such adjustments.
13.5 The Lessor shall have no duty to determine whether the Aircraft,
Airframe, Engine or any Part requires overhaul or maintenance, or to
observe, or inspect the overhaul or maintenance of the Aircraft,
Airframe, any Engine or any Part, and the Lessor shall not incur any
liability or obligation to Lessee by reason of the failure of the
Aircraft to be properly overhauled or maintained or by reason of the
Lessor's election to observe or inspect or not to observe or inspect any
overhaul or maintenance.
14. MANUALS AND TECHNICAL RECORDS
14.1 Throughout the Lease Period the Lessee shall keep, and shall procure
that there are kept, accurate, complete and current records of all
flights made by the Aircraft, and of all maintenance and repairs carried
out to the Airframe and each Engine, and shall maintain, and shall
procure that there are maintained, all other records, logs and documents
including, but not limited to, JAA Form 1 and/or FAA 8130 Tags and
repair or overhaul shop visit reports which are required to be
maintained in respect of the Aircraft by the Aviation Authority, and
shall allow the Lessor and/or its agents or representatives to examine
and take copies of such records at any reasonable time upon giving
notice to the Lessee.
14.2 The records so kept shall conform with the regulations from time to time
in force of the Aviation Authority, and with the normal practices of
public air transport operators, and shall disclose the whereabouts of
all Engines and Parts not installed on the Airframe.
14.3 The records so kept shall be in English, shall be part of the Manuals
and Technical Records and shall be the property of the Lessor and
subject to the Mortgage and, at the end of the Lease Period, the Lessee
shall deliver the same to the Lessor, provided that the Lessee shall be
entitled to make and retain copies thereof.
14.4 The Lessee shall (save as hereinafter provided) keep all the Manuals and
Technical Records on the Aircraft or in its possession or in the
possession of the Approved Maintenance Performer, and shall not permit
any other person (other than a person entitled to have possession or
control of the Aircraft under the terms of this Agreement) to have
possession of or control over the Manuals and Technical Records or any
of them, except with the prior written consent of the Lessor.
<PAGE>
14.5 The Lessee will compensate the Lessor (a) for overhaul cost and/or life
limited part replacement cost, if any, reasonably incurred in respect of
the Aircraft resultant upon the failure to maintain adequate historical
records by the Lessee during the Lease Term as required by the Aviation
Authority; and (b) for all recertification costs incurred in respect of
any Parts resultant upon the failure by the Lessee to maintain JAA Forms
1 and/or FAA 8130 Tags in respect of each Part.
15. TITLE AND REGISTRATION
15.1 Title to the Aircraft shall remain vested in the Head Lessor, subject to
this Agreement, the Head Lease, the Trust Agreement, the Security
Documents and any assignments, charges or other disposals the Head
Lessor or the Beneficiary and/or the Lessor may make in accordance with
Clause 23 (Assignment).
15.2 (a) Subject to Clause 13.3, the Lessee agrees that all Engines and
Parts installed on the Airframe or any Engine at Delivery shall be the property
of the Head Lessor, subject to the Head Lease, the Trust Agreement and this
Agreement and that, subject to Clause 13.1(f), 13.2 and Clause 13.3, all
replacements, renewals or substitutions thereof shall be made with engines or,
as the case may be, parts which comply with the requirements of Clause 13.1(e)
and Clause 13.1(g).
(b) Any Engine or Part at any time removed from the Airframe or
any Engine shall remain the property of the Head Lessor and subject to the Head
Lease, the Trust Agreement, this Agreement and the Mortgage until such time as a
replacement or substitute shall have been installed (other than pursuant to
Clause 13.1(f), Clause 13.2 or Clause 13.3) on the Airframe or the relevant
Engine in accordance with this Agreement and, in particular, complying with the
requirements of Clause 13.1(e) and Clause 13.1(g).
(c) Upon installation in accordance with Clause 13.1 (e) and
Clause 13.1(g) but subject to Clauses 13.2 and 13.3, title to any replacement or
substitute engine or part shall thereupon without further act vest in the Head
Lessor subject to the Head Lease, the Trust Agreement and this Agreement and the
same shall become subject to the Mortgage for all purposes as though it had been
installed in or attached to the Airframe or an Engine at Delivery and become
subject to the Head Lease, the Trust Agreement, this Agreement and the Mortgage,
and subject thereto, title to the Engine or Part replaced or substituted (if not
replaced or substituted by an engine or part which at the time of replacement or
substitution belonged to the Head Lessor or the Beneficiary) shall vest in the
Lessee free of the Mortgage and such replaced or substituted Engine or Part
shall no longer form part of the Aircraft, Airframe or any Engine and references
herein to the Aircraft, Airframe or Engine shall be construed accordingly.
<PAGE>
(d) The Lessee shall, without prejudice to the Head Lessor, the
Beneficiary or the Lessor, promptly and duly execute and do and deliver to the
Lessor all such acts, deeds, assurances or things as may be reasonably requested
in writing by the Head Lessor and/or the Lessor and/or the Beneficiary to ensure
that all replacement or substitute engines or parts installed in or attached to
the Airframe or any Engine (other than pursuant to Clauses 13.1(f), 13.2 or
13.3) shall satisfy the requirements of Clause 13.1(e) and become and remain
part of the Airframe or the relevant Engine and the property of the Head Lessor
subject to the Head Lease, the Trust Agreement, this Agreement and the Security
Documents and, without limiting the foregoing, the Lessee shall, if requested by
and without cost to the Lessor, (i) produce evidence reasonably satisfactory to
the Lessor that all such replacement or substitute engines meet the requirements
of Clause 13.1(e), (ii) produce evidence satisfactory to the Lessor (including,
but not limited to, legal opinions and bills of sale) that all such replacement
or substitute engines or parts have become the property of the Head Lessor
subject to the Head Lease, the Trust Agreement, this Agreement and the Security
Documents and (iii) in the case of replacement or substitute engines, make such
filings as reasonably requested by Lessor (including, but not limited to filings
at the FAA and filings of Financing Statements) to perfect any of the interests
referred to in clause (ii).
15.3 Throughout the Lease Period the Lessee shall (a) at its own cost, ensure
that the Aircraft is registered in the name of the Lessor subject to the
Head Lease, the Trust Agreement and this Agreement or, if not possible
or required by applicable law, in the name of the Lessee (or if
applicable any permitted sublessee) under the laws of the State of
Registration, such registration to reflect (so far as is permitted by
applicable law) the respective interests of the Head Lessor, the
Beneficiary, the Lessor, the Lessee, any Sublessee (if applicable) and
the Lenders under the Security Documents; and (b) ensure that the Head
Lease (if requested by the Lessor and a copy is provided to the Lessee),
this Agreement and the Mortgage (so far as permitted by applicable law)
are kept, filed, registered and recorded in such office or offices and
on such registers in the State of Registration (and, to the extent
applicable, any other state where the Aircraft is based or operated) as
may be necessary to ensure the full legality, validity, priority and
enforceability thereof and the Lessee shall not do any act or thing
which may reasonably be expected to prejudice or cancel such
registration PROVIDED THAT (i) any filing or other action undertaken
with respect to the Agreement by Lessee under this clause (b) shall be
at Lessee's own cost and (ii) the Lessor shall pay the reasonable out-of
pocket costs incurred by Lessee (unless such filing or action is
undertaken in connection with the occurrence of a Termination Event)
with respect to any filing or other action undertaken by the Lessee at
Lessor's request with respect to the Head Lease or Mortgage under this
clause (b).
<PAGE>
16. INSURANCE
16.1 On or before Delivery and throughout the Lease Period and thereafter
until the Aircraft is redelivered to the Lessor the Lessee shall obtain,
maintain and keep in full force and effect insurance with respect to the
Aircraft and liability insurance with respect to the Aircraft reasonably
satisfactory to the Lessor. Such insurances shall comply with the
provisions of this Clause 16 and Schedule 3, and shall be in such form
and carried with such insurers and where appropriate through such
brokers, and subject to such exclusions and deductibles in each case
carried with insurers of internationally recognised responsibility and
financial standing who normally participate in international airline
insurance programmes with respect to aircraft and through brokers of
international repute, recognised in the aviation market and of good
standing. The Lessee shall provide to the Lessor a listing of
participating insurers showing the relevant percentage underwritten with
each certificate of insurance provided to the Lessor. Subject to the
satisfaction of the above criteria, the insurances shall be deemed by
the Lessor to have satisfied the requirement of the Lessor with regard
to the standing of any broker or insurer.
16.2 Throughout the Lease Period and thereafter until the Aircraft is
redelivered to the Lessor the Lessee shall ensure that all legal
requirements as to the insurance of the Aircraft which may from time to
time be imposed by the laws of the State of Registration or any state
to, from or over which the Aircraft shall be flown are duly complied
with.
16.3 On or before Delivery, the Lessee shall provide the Lessor with a
certificate of insurance prepared in accordance with normal market
practice and complying with the provisions of this Agreement and shall
procure that brokers issue a letter of undertaking addressed by the
Lessee's insurance brokers to the Lessor either in the form set out in
Schedule 6 or otherwise in form and substance reasonably satisfactory to
the Lessor) that the Insurances are and will continue in full force
after Delivery for the balance of the policy year (subject in the case
of War Risks policies to usual termination or cancellation rights). Not
less than five (5) (or such later period prior to renewal as may be
practicable having regard to the circumstances) Banking Days before the
date of expiration of any of the Insurances, the Lessee shall procure
that its brokers shall give a report to the Lessor specifying the
current status of renewal negotiations. Not less than five (5) (or such
later period prior to renewal as may be practicable having regard to the
circumstances) Banking Days prior to date of such expiration the Lessee
shall procure that its brokers shall confirm in writing to the Lessor
that the Insurances have been renewed and that all premiums in respect
thereof as are due upon renewal have been paid. At least two (2) days
(or such later period, but prior to renewal, as may be practicable
having regard to the circumstances) prior to the renewal date the
renewal certificates and letters of undertaking with respect to the
Insurances shall be furnished to the Lessor. In addition the Lessee
shall upon request furnish to the Lessor, as and when required by the
Lessor, relevant appropriate extracts of policies (where there is an
insurance issue in dispute, coverage or a claim is denied) or other
evidence satisfactory to the Lessor that the requirements of this Clause
16 and Schedule 3 are being complied with and letters of undertaking
from the Lessee's insurance brokers in the form set out in Schedule 6 or
in such other form as the Lessor may from time to time require.
<PAGE>
16.4 The Lessee shall not, without the prior written consent of the Lessor,
take out insurances, or permit the Lessee or any Indemnitee to be named
assured in insurances with respect to the Aircraft or any Engine other
than as required under this Agreement where such insurances will or may
prejudice the Insurances or recovery thereunder (excluding insurances
carried by the Indemnitees). The Lessee shall not create or permit to
exist any Encumbrance (other than any Encumbrance created by the
Indemnitees) over the Insurances, or its interest therein, save as
constituted by this Agreement and the other Lessee Documents.
16.5 If the Insurances are not kept in full force and effect and in
accordance with the provisions of this Agreement the Lessor, without
prejudice to any other rights it may have on the occurrence of a
Termination Event, shall be entitled (but not bound):
(a) at any time while such failure is continuing to require the
Aircraft to remain at an airport or, as the case may be, (after
taking out new insurances pursuant to paragraph (b) below) to
proceed to and remain at an airport designated by the Lessor
until the Insurances are in full force and effect; and/or
(b) to pay the premiums due or to take out and maintain new
insurances complying with the requirements of this Clause 16,
including an owner's interest policy in such form as the Lessor
may reasonably require, and any sums so expended by the Lessor
shall become immediately due and payable to the Lessor by the
Lessee together with interest thereon at the Relevant Rate of
Interest from the date of expenditure by the Lessor until the
date of reimbursement thereof by the Lessee (both before and
after any relevant judgment).
16.6 The Lessor shall be entitled, after the expiry or termination of the
Lease Period, to require the Lessee at the Lessee's expense to effect
and to maintain insurance, if available, with respect to its liability
under the indemnities set forth in Clause 9.5(a) for such period (which
shall not exceed two (2) years from the date of such expiry or
termination) as the Lessor may reasonably require (having regard to the
potential exposure of the Lessor and/or the other Indemnitees to the
liabilities indemnified against pursuant to Clause 9.5(a)) such
insurance to provide for the Lessor and the other Indemnitees to be
named as additional insured thereunder to the extent of their respective
<PAGE>
interests under the said indemnities, and the obligation of the Lessee
to effect the same to continue notwithstanding the Lessee ceasing to be
the user or operator of the Aircraft and/or any of the Engines and/or
the Lessor ceasing to be the owner of the Aircraft.
16.7 If at any time the Lessor (acting reasonably and having regard to
internationally recognised insurance principles and practices generally
accepted) considers that either (a) the Insurances effected or procured
by the Lessee hereunder do not adequately protect the interests of the
Lessor and/or the other Indemnitees, or (b) there has otherwise been any
significant and material change in circumstances (including, without
limitation, any change in the terms and conditions available for
insurances of the type of the Insurances in relevant markets or in
generally accepted market practice), the Lessor shall be entitled acting
reasonably and only where same could have a material adverse effect on
the Indemnitees interests in the Insurances (without prejudice to any
other rights which it may have or acquire under any Lessee Document) to
require the Lessee to procure that the terms and conditions of the
Insurances be changed as soon as is reasonably practicable having regard
to the circumstances and in such a way as the Lessor may reasonably
require, again having regard to the criteria set out above.
16.8 If the Insurances required by this Clause 16 and Schedule 3 are not
effected and maintained through internationally recognised aviation
markets or in any other insurance markets as the Lessor may approve
(such approval not to be unreasonably withheld) the Lessee shall procure
that the relevant insurers maintain in full force and effect
reinsurances with reinsurers of recognised standing in the international
aviation insurance market. Such reinsurances shall be on the same terms
as the original insurances and shall include, where appropriate, the
provisions set out in Schedule 3.
The Lessee shall use reasonable business efforts as evidenced to the
reasonable satisfaction of the Lessor to have included a "cut through"
clause in the following terms or otherwise reasonably satisfactory to
the Lessor in respect of reinsurances noted above:-
(a) "The reinsurers hereby agree that in the event of any claim
arising under the reinsurances in respect of a Total Loss or
other claim where, as provided by the Lease, such claim is to be
paid to the person named as sole loss payee under the primary
insurances, the reinsurers shall in lieu of payment to the
reassured, its successors in interest and assigns, pay to the
person named as sole loss payee under the primary insurances
effected by the Assured that portion of any loss due for which
the reinsurers would otherwise be liable to pay the reassured
(subject to proof of loss), it being understood and agreed that
any such payment by the reinsurers shall (to the extent of such
payment) fully discharge and release the reinsurers from any and
all further liability in connection therewith"; and
<PAGE>
(b) provide in case of any bankruptcy, liquidation, dissolution or
similar proceedings of or affecting the reassured that the
reinsurers' liability shall be to make such payments as would
have fallen due under the relevant policy of reinsurance in
accordance with the cut-through Clause referred to above if the
reassured had (immediately before such bankruptcy, liquidation,
dissolution or similar proceedings) discharged its obligations in
full under the original insurance policies in respect of which
the then relevant policy of reinsurance has been effected.
16.9 Unless and until a Relevant Event shall occur, the Lessor will not give
any direction to the insurers as contemplated by paragraph 1.2(b)(2) of
Schedule 3.
16.10 If any of the Insurances referred to in paragraphs 1.1(a) or (c) of
Schedule 3 are subject to an annual aggregate limit and that, by reason
of any claims made thereunder during the course of any policy year in
respect of any property subject to such policy, the aggregate amount of
coverage available thereunder in respect of the balance of such policy
year shall have been reduced;
(a) the Lessee shall forthwith notify the Lessor of the amount of any
such claim; and
(b) the Lessor shall be entitled to require the Lessee to increase
the aggregate limit under the relevant policy to such amount as
the Lessor may require.
17. LOSS AND DAMAGE
17.1 Notwithstanding Clause 6.1 (Lessor's Warranties and Manufacturer's
Warranties), throughout the Lease Period the Lessee shall bear the full
risk of any loss, destruction, hijacking, theft, condemnation,
confiscation, seizure or requisition of or damage to the Aircraft and of
any other occurrence of whatever kind which shall deprive the Lessee or
the operator of the Aircraft for the time being of the use, possession
or enjoyment thereof.
17.2 (a) The Lessee shall give the Lessor prompt notice in writing of any
such occurrence as is referred to in Clause 17.1 other than
repairable damage the likely cost of rectification of which will
not exceed in aggregate $[ ]*, or, in relation to any Engine, $[
]* in aggregate.
(b) The Lessee shall supply to the Lessor all necessary information,
documentation and assistance which may be reasonably requested by
the Lessor in connection with making any claim under the
Insurances.
17.3 (a) If the Aircraft shall become a Total Loss during the Lease
Period, the Lessee shall pay, or procure that the insurers pay,
to either the Head Lessor, the Lessor or the Lenders (as the
Lessor may direct in writing) being loss payee under the
Insurances within ninety (90) days (or such longer period as may
be agreed) of the date on which the Total Loss occurred, the
Agreed Value together with all amounts of rent and any other
amounts then due and payable under this Agreement.
<PAGE>
(b) For the purposes of this Agreement a Total Loss shall be deemed
to have occurred:
(i) in the case of an actual total loss, at noon (London time)
on the actual date the Aircraft was lost or, if such date is
not known, noon (London time) on the day on which the
Aircraft was last heard of;
(ii) in the case of any of the events described in sub-paragraph
(a) of the definition of Total Loss (other than an actual
total loss), upon the date that notice claiming the loss of
the Aircraft is given to the relevant insurers, unless the
insurers do not forthwith admit such claim, when such Total
Loss shall be deemed to have occurred at the date and time
at which either a total loss is subsequently admitted by the
insurers or a competent court or arbitration tribunal issues
a judgment to the effect that a total loss has occurred;
(iii) in the case of any of the events described in subparagraph
(b) of the definition of Total Loss, upon the date of
occurrence of such destruction, damage or rendering unfit;
(iv) in the case of Compulsory Acquisition, upon the date upon
which the relevant requisition of title or other compulsory
acquisition, requisition, appropriation, expropriation,
deprivation or confiscation occurs; and
(v) in the case of any of the events described in sub-paragraph
(d) of the definition of Total Loss, upon the expiry of the
period of ninety (90) days referred to in such subparagraph
(d) after the date upon which the relevant hijacking, theft,
condemnation, confiscation, capture, detention, seizure or
requisition for use or hire occurred.
17.4 The Lessee shall continue to pay rent on the days and in the amounts
required under this Agreement notwithstanding any Total Loss; provided
always that no further installments of rent shall become due after the
date on which all sums due under Clause 17.3(a) shall have been paid in
full, and the Lease Period shall terminate on the date of such payment.
Upon such termination of the Lease Period and following payment of the
Agreed Value, the Lessor shall make a payment to the Lessee in the
amount described in paragraph 5 of Letter Agreement No.1. to the extent
that Lessor received insurance proceeds or Requisition Compensation with
respect to such Total Loss in excess of the amounts required to be paid
by Lessee under Clause 17.3(a) and, for the avoidance of doubt, Lessor
shall be entitled to apply such excess insurance proceeds or Requisition
Compensation for the purpose of making such payment.
<PAGE>
17.5 In the event of repairable damage to the Aircraft or any of the Engines,
or the loss or destruction of any Engine (when no Total Loss has
occurred), the Lessor or the Lenders as loss payee under the Insurances
shall either pay any insurance moneys received by it or them to the
Lessee upon the Lessee furnishing evidence to the Lessor that such
damage has been made good or repaired or put in hand for repair or, in
the case of the loss or destruction of any Engine, utilize the relevant
insurance moneys in the purchase of a replacement Engine provided always
that if a Relevant Event has occurred and is continuing, the Lessor
shall be entitled to require that such insurance moneys be applied in or
towards settlement of any amounts owing by the Lessee to the Lessor
under this Agreement.
17.6 In the event of repairable damage to the Aircraft or any of the Engines,
or the loss or destruction of an Engine (when no Total Loss has
occurred), and if the insurance moneys paid in respect thereof are
insufficient to pay the cost or estimated cost of making good or
repairing such damage or the cost of purchasing a replacement Engine,
the Lessee will pay the deficiency.
17.7 Any Requisition Compensation on account of a Compulsory Acquisition
received at any time by Lessor or by Lessee from any governmental
authority or any other source will be directed or paid to Lessor (if not
already received by Lessor) and applied by Lessor as follows: (a) so
much of such payments as shall not exceed the Agreed Value and other
amounts payable by the Lessee pursuant to Clause 17.3(a) shall be
applied in reduction of Lessee's obligation to make such payments to the
extent not already paid by Lessee and, to the extent such payments are
fully paid by such application or have already been made in full by
Lessee, to reimburse the Lessee; (b) the remaining balance, if any,
shall be paid to the Lessee up to an amount equal to Lessee's Interest
(if any) minus any amount paid by Lessor to Lessee pursuant to Clause
17.4. and (c) any amount remaining thereafter shall be retained by
Lessor.
18. REQUISITION OR GROUNDING
18.1 If the Aircraft is requisitioned for hire by any governmental or other
competent authority during the Lease Period then, unless and until the
Aircraft becomes a Total Loss following such requisition and the Lessee
shall have made payment of all sums due pursuant to Clause 17.3(a), the
lease of the Aircraft to the Lessee under this Agreement shall continue
in full force and effect (subject always to the provisions of Clause 21
(Lessor's Rights Following a Termination Event)) and the Lessee shall
remain fully responsible for the due compliance with all its obligations
under this Agreement other than such obligations which the Lessee is
unable to comply with solely by virtue of such requisition.
18.2 If the Lessee shall duly comply with all its obligations under this
Agreement, save as mentioned in Clause 18.1, the Lessee shall during the
Lease Period, be entitled to all requisition hire paid to the Lessor or
to the Lessee on account of such requisition.
<PAGE>
18.3 The Lessee shall as soon as practicable after the end of any requisition
for hire, cause the Aircraft to be put into the condition required by
this Agreement, and where that requisition shall end after the date on
which the Lease Period would otherwise have expired or terminated but
for such requisition, the Lessee shall, as soon as practicable, cause
the Aircraft to be put into the redelivery condition required by Clause
19, allowance being made for fair wear and tear in respect of the period
from the date on which the Lease Period would otherwise have expired or
terminated but for such requisition until the actual expiry or
termination of the Lease Period.
18.4 The Lessor shall be entitled to all compensation payable in respect of
any change in the structure, state or condition of the Aircraft arising
during the period of requisition for hire. The Lessor shall apply such
compensation in reimbursing the Lessee for the cost of complying with
its obligation under Clause 18.3, provided always that if a Termination
Event has occurred and is continuing, the Lessor shall be entitled to
apply such compensation in or towards settlement of any amounts owing by
the Lessee under this Agreement.
18.5 If the Aviation Authority has grounded the Aircraft and other similar
U.S. registered Boeing 737 aircraft for reasons related to the
airworthiness of such aircraft and the Lessee has been diligently
attempting since such grounding to correct the cause of such grounding
and, notwithstanding such effort, the grounding continues: (a) no
Termination Event shall arise hereunder solely as a result of the
Aircraft not holding a currently effective Certificate of Airworthiness
due to such grounding and (b) if such grounding continues after the date
on which the Lease Period would otherwise have expired or terminated but
for such grounding, the lease of the Aircraft to the Lessee under this
Agreement shall continue in full force and effect and the Lessee shall
remain fully responsible for the due compliance with all its obligations
under this Agreement and the Lessee shall, as soon as practicable after
the cause of such grounding is corrected, cause the Aircraft to be put
into the redelivery condition required by Clause 19 and Schedule 4,
allowance being made for fair wear and tear in respect of the period
from the date on which the Lease Period would otherwise have expired or
terminated but for such requisition until the actual expiry or
termination of the Lease Period.
19. RE-DELIVERY
19.1 At the end of the Lease Period (other than following a Total Loss) the
Lessee at its own expense shall redeliver the Aircraft to the Lessor at
the Re-delivery Location, and the Lessee shall provide such assistance
as the Lessor may reasonably request in connection with the
de-registration and export of the Aircraft from the State of
Registration.
<PAGE>
19.2 On re-delivery, the Lessee shall ensure that (i) the Aircraft shall be
maintained and repaired in compliance with Clause 13.1(d) and all other
requirements of this Agreement, (ii) the Engines installed on the
Aircraft at Delivery (or, replacement or substitute Engines pursuant to
Clause 13.1(e) or Clause 13.3(c)(ii)(dd) and, in either event, meeting
the requirements of Clause 13.1(e), Clause 13.1(g), Clause 15.2 and
Schedule 4, paragraph 3, shall be installed on the Aircraft; (iii) there
shall be a current Certificate of Airworthiness (and the Lessee shall
cooperate, where requested by the Lessor, to obtain an export
certificate of airworthiness) issued in respect of the Aircraft by the
Aviation Authority in the public transport (passenger) category and such
current certificates of maintenance issued as shall allow the Aircraft
to be used for the public transport of passengers or cargo under the
regulations of the Aviation Authority; (iv) the Aircraft shall be in a
condition qualifying for immediate certification of airworthiness by the
Aviation Authority and the FAA; (v) the Aircraft shall be clean by
Airline Standards (vi) all applicable vendor's and manufacturer's
service bulletin kits received by the Lessee or any Sub-Lessee relating
to the Aircraft shall be installed on the Aircraft at no cost to Lessor
or delivered separately (with reasonable advance notice to Lessor) at a
charge to the Lessor not to exceed Lessee's direct cost of procuring and
delivering such kits to the Lessor in a serviceable condition with all
relevant documentation attached thereto provided that the Lessor may
decline (with reasonable advance notice to Lessee) to accept any such
noninstalled kits; (vii) the livery, insignia and markings of the Lessee
or any operator of the Aircraft shall have been stripped from the
Aircraft which shall have been rubbed down and repainted at the Lessee's
cost in neutral white or such other base colour as is advised by the
Lessor prior to redelivery; (viii) the Aircraft shall be free and clear
of all Encumbrances other than Lessor's Encumbrances; (ix) the Aircraft
shall have no deferred maintenance, repair or inspection items
outstanding; and (x) all Aircraft repairs shall be permanent and where
commercially feasible flush type repairs (provided that the flush repair
does not require substantial rework of adjacent airframe structures and
a nonflush repair achieves equivalent technical standards) and in any
event be in accordance with the Manufacturer's structural repair manual
or as otherwise approved by the FAA and the Aircraft shall comply with
the Return Conditions set out in Schedule 4.
19.3 During the period of thirty (30) days prior to re-delivery of the
Aircraft, the Lessee, at no cost to the Lessor, shall, if the Lessor so
requests, make the Manuals and Technical Records available to the Lessor
and during the entire period of the C check required upon redelivery
make the Aircraft available for such detailed inspection in order to
verify that the condition of the Aircraft complies with the provisions
hereof. During such periods, the Lessor may accomplish the following:
(a) inspection of the Manuals and Technical Records;
<PAGE>
(b) appropriate functional testing of the Aircraft, Engines and
Parts, including without limitation, a boroscope inspection, a
spectrographic oil analysis programme (SOAP) sample and/or
magnetic chip detection inspection of the Engines;
(c) up to a two hour test flight with the Lessor's representatives
(up to two) as observers, including an engine condition run on
each Engine; and
(d) The detailed inspections and checks during the redelivery
procedures specified in this Clause shall be commercially
reasonable in manner and extent and will be carried out by the
Lessor solely so as to enable the Lessor to verify that the
Aircraft complies with the provisions of this Agreement and such
inspections and checks will be appropriate and reasonable having
regarded to: (i) the age of the Aircraft; (ii) the maintenance
history of the Aircraft; and (iii) any then current aviation
industry issues regarding such model of Aircraft. Opening of bays
and panels may not be required unless Lessor reasonably
demonstrates a requirement therefor and in no event shall such
panels or bays be opened arbitrarily or unnecessarily.
19.4 (a) If on re-delivery the Aircraft (including the Manuals and
Technical Records) shall not be in the condition required by
Clause 19.2, the Lessor shall be entitled to require the Lessee
at the Lessee's expense to rectify any defects or deficiencies in
the Aircraft when it is redelivered, and the Lessee shall
promptly comply with any such requirement. To the extent that
such rectification extends beyond the Lease Term, the Lessor may
at its sole discretion (i) remedy such defects and deficiencies
and recover on demand from the Lessee the costs so incurred,
together with interest at the Relevant Rate of Interest from the
date of expenditure and demand for payment by the Lessor of the
relevant cost through the day prior to the date of recovery
thereof from the Lessee (both before and after any relevant
judgment), or (ii) continue the Lease Period on a day to day
basis until such non-compliance is rectified by the Lessee with
rent being payable by the Lessee at the rate at which rent was
payable at the date on which re-delivery would otherwise have
occurred, PROVIDED, HOWEVER, that if (aa) such defects and
deficiencies are Minor Defects, (bb) the Aircraft is capable of
being placed in immediate commercial use notwithstanding such
Minor Defects and (cc) no Relevant Event has then occurred and is
continuing other than such Minor Defects, the Lessor shall accept
re-delivery of the Aircraft as provided in clause (i) of this
sentence subject to such Minor Defects. The Lessee will
compensate the Lessor for loss of value to the Aircraft where any
damage has resulted in permanent structural changes to the
Aircraft's type design excluding fair wear and tear. Minor
Defects means defects or deficiencies in the Aircraft which the
Lessee was unable to correct by the end of the Lease Term or any
extension of the Lease Period pursuant to the preceding sentence
of this Clause through commercially reasonable efforts and which
<PAGE>
(1) in no single case or in the aggregate will cost the Lessor
more than $[ ]*, as reasonably estimated by the Lessor, to remedy
(2) can be remedied by the Lessor or the next operator of the
Aircraft within thirty (30) days of re-delivery to Lessor, (3) do
not prevent the Aircraft from holding a fully valid and
unconditional standard Certificate of Airworthiness issued by the
FAA, (4) will not prevent the Aircraft from being granted a
standard Certificate of Airworthiness in the State of
Registration to which it is being exported (if any) and (5) does
not constitute a commercially reasonable basis for the next
operator of the Aircraft to refuse to accept delivery thereof.
(b) Prior to the re-delivery of the Aircraft and upon the Lessor's
request, the Lessee will ensure that there is provided to the
Lessor or its agent reasonable access to the Approved Maintenance
Programme and the Manuals and Technical Records in order to
facilitate the Aircraft's integration into any subsequent
operator's fleet. The Lessee will upon return of the Aircraft
deliver to the Lessor a certified true current and complete copy
of the Approved Maintenance Programme which shall be kept
confidential and promptly returned to Lessee together with all
copies thereof after any use of such Maintenance Programme by
Lessor which shall be solely for bridging to a subsequent
operator's maintenance programme.
19.5 Upon re-delivery of the Aircraft to the Lessor, an adjustment shall be
made in respect of fuel on board the Aircraft at the time of Delivery
and at the time of re-delivery at the price prevailing at the time of
re-delivery at the Re-delivery Location.
19.6 Upon re-delivery of the Aircraft provided that (i) no Relevant Event
shall have occurred or be continuing; and (ii) the Lessee has satisfied
all of its obligations then due under this Agreement (including, without
limitation, its obligation to redeliver the Aircraft in accordance with
this Clause 19 and Schedule 4), the Lessor shall make a payment to the
Lessee in the amount described in paragraph 5 of Letter Agreement No. 1.
Notwithstanding the foregoing, if the Aircraft is re-delivered subject
to Minor Defects as provided in Clause 19.4(a) and no Relevant Event has
then occurred and is continuing other than such Minor Defects, upon such
re-delivery, the Lessor shall make a payment to the Lessee in an amount
equal to the amount described in paragraph 5 of Letter Agreement No. 1
less an amount (the "Remedy Amount") reasonably estimated by Lessor to
be sufficient to pay for its costs to remedy such Minor Defects. If in
fact it costs Lessor less than the Remedy Amount to remedy such Minor
Defects, the Lessor shall make a payment to the Lessee in an amount
equal to the difference between the Remedy Amount and such actual costs.
If such actual costs exceed the Remedy Amount, the Lessee shall pay the
Lessor such deficiency as provided in Clause 19.4(a).
<PAGE>
19.7 Notwithstanding anything to the contrary in Clause 19 or Schedule 4,
unless a Termination Event has occurred and is continuing (in which case
this Clause 19.7 shall not apply), the C Check and all other procedures
and inspections required by Schedule 4 will be performed at the Lessee's
principal maintenance facility in the United States and the inspections
and test flight set forth in Clause 19.3 shall take place at such
location. Following such procedures, inspections and test flight, either
the Aircraft will be in the condition required by Clause 19.2 or the
provisions of Clause 19.4 (a) will apply (collectively the "Predelivery
Requirements"). After the Predelivery Requirements have been satisfied,
the Lessee shall ferry the Aircraft to the Redelivery Location with the
Lessor's representatives (up to two) as observers. At the Redelivery
Location, the Aircraft shall be re-delivered by the Lessee in compliance
with all terms of Clause 19 and Schedule 4. Following the ferry flight
to the Redelivery Location, the Lessor shall conduct engine boroscope
inspections and an external walkaround inspection and Lessee shall
correct any deficiencies and defects discovered. If the Aircraft is not
in the condition required by Clause 19.2, the provisions of Clause
19.4(a) will apply.
19.8 The Lessee shall indemnify and hold harmless the Indemnitees from and
against any and all liabilities, damages and losses (including costs and
expenses incidental thereto) arising by reason of death or injury to any
observer or employee of the Lessee, arising out of, or in any way
connected with the ferry flight set forth in Clause 19.7.
19.9 The Lessor shall indemnify and hold harmless the Lessee from and against
any and all liabilities, damages and losses (including costs and
expenses incidental thereto) arising by reason of death or injury to any
observer or employee of the Lessor, arising out of, or in any connected
with the ferry flight set forth in Clause 19.7.
20. TERMINATION EVENTS
20.1 Any of the following events shall constitute a "Termination Event":
(a) the Lessee fails to pay any sum payable by it under this
Agreement when due within three (3) Banking Days of a scheduled
payment and, in the case of a nonscheduled payment, within three
(3) Banking Days after notice thereof has been delivered to the
Lessee; or
(b) (i) the Lessee fails to obtain and/or maintain the Insurances or
(ii) any insurer or reinsurer in respect of any part of the
Insurances cancels any part of the Insurances or disclaims or
repudiates liability by reason, in either case, of any
mis-statement in any proposal for the Insurances or for any other
failure or default on the part of the Lessee and, in the case of
this clause (ii), if the Insurances continue in full force and
effect as to Lessor, Beneficiary, Head Lessor and Lenders, (aa)
such cancellation, disclaimer or repudiation is not withdrawn and
(bb) the Insurances which are the subject of such cancellation,
disclaimer or repudiation are not replaced with Insurances in
full compliance with the terms of this Agreement, in each case
within ten (10) days of the occurrence of such cancellation,
disclaimer or repudiation; or
<PAGE>
(c) the Lessee commits any breach of or omits to observe any of the
obligations or undertakings expressed to be assumed by it under
this Agreement (other than those referred to in sub-clauses (a)
and (b) above) or any of the other Lessee Documents and, in
respect of any such breach or omission which in the opinion of
the Lessor is capable of remedy, such action as the Lessor may
require shall not have been taken within thirty (30) days of the
Lessor notifying the Lessee of such default and of such required
action or, if any such breach or omission is not cured or
remedied within said thirty (30) days notwithstanding diligent
efforts by Lessee to effect such cure or remedy, Lessee continues
such diligent efforts and such breach or omission is not cured or
remedied within sixty (60) days of such notice; or
(d) any representation or warranty made or deemed to be made or
repeated by the Lessee in or pursuant to any of the Lessee
Documents is or proves to have been untrue in any material
respect when made or deemed repeated and continues to be material
at the time relied upon by Lessor for purposes of establishing a
Termination Event; or
(e) 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 under any lease which has a
principal amount of [ ]* 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 an acceleration of such indebtedness or an early
termination or declaration of default under such lease, or Lessee
shall default in the performance of any other term, agreement, or
condition contained in any agreement or instrument under or by
which any such obligation is created, evidenced or secured, if
the effect of such default is to cause such obligation to become
due prior to its stated maturity or to cause such lease to be
early terminated or declared in default or;
<PAGE>
(f) a "Termination Event," "Event of Default" or other default (after
the lapse of any applicable grace period) shall occur under any
other aircraft lease agreement between a lessor acting as owner
trustee under a trust in which the Beneficiary is the beneficiary
and the Lessee; or
(g) any consent, authorization, license or approval of or
registration with or declaration to governmental or public bodies
or authorities or courts required by the Lessee in order to
perform its obligations under any of the Lessee Documents is not
granted or is revoked or terminated or expires and is not
replaced or reinstated in full force and effect within thirty
(30) days thereafter; or
(h) a creditor attaches or takes possession of a material part of the
assets or revenues of the Lessee and such attachment is not
discharged within sixty (60) days; or
(i) the Lessee suspends payment of its debts or becomes or is
judicially determined to be insolvent or unable to pay its debts
as they fall due or commences negotiations with its creditors
generally with a view to the re-adjustment or re-scheduling of
all or part of its indebtedness or proposes or enters into any
composition or other arrangement for the benefit of its creditors
generally or any class of creditors commence proceedings in
relation to the Lessee under any law, regulation or procedure
relating to reconstruction or readjustment of debts and the same
are not contested by Lessee; or
(j) the Lessee shall file a voluntary petition in bankruptcy or a
voluntary petition seeking protection from creditors or
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 the Lessee in any such
proceedings, or Lessee shall by voluntary petition, answer, or
consent seek relief under the provisions of any bankruptcy or
other similar law providing for the reorganization or winding-up
of corporations, or consents to the appointment of a receiver,
trustee, liquidator of itself or a substantial part of its
assets; or
(k) an order, judgment or decree is entered by any court, with or
without the consent of the Lessee, appointing a receiver, trustee
or liquidator for Lessee of all or any substantial part of its
property, or all or any substantial part of the property of the
Lessee is sequestered, and any such order, judgment or decree of
appointment or sequestration remains in effect, undismissed,
unstayed or unvacated for a period of sixty (60) days after the
date of entry thereof; or
(l) a petition against the Lessee in a proceeding under any
bankruptcy, insolvency or other similar laws (as now or hereafter
in effect) shall be filed, or if, under the provisions of any law
<PAGE>
<PAGE>
providing for reorganization or winding-up of corporations which
may apply to Lessee any court of competent jurisdiction shall
assume jurisdiction, custody or control of the Lessee, and such
petition is not voluntarily or otherwise dismissed within sixty
(60) days after the filing thereof; or
(m) the Lessee suspends or ceases or threatens in writing to suspend
or cease to carry on its business such that the ability of Lessee
to perform its obligations under the Lessee Documents may
reasonably be expected to be materially adversely affected; or
(n) all or substantially all of the assets or revenues of the Lessee
are seized, nationalized, expropriated or compulsorily acquired
by or under the authority of any government; or
(o) the Lessee threatens to dispose of all or substantially all of
its assets, whether by one or a series of transactions, related
or not, other than for the purpose of a reconstruction or
amalgamation the terms of which have received the previous
consent in writing of the Lessor and such disposition would have
a material adverse effect on the ability of the Lessee to perform
its obligations under the Lessee Documents;
(p) the Lessee ceases to be a Certificated Air Carrier or ceases to
hold a United States Air Carrier License or Certificate under
Part 121 of the FAR (or any successor provision) or Certificate
under Section 41101 of Title 49 of the United States Code (or any
successor provision); or
(q) delivery of the Aircraft by the Manufacturer under the Purchase
Agreement does not occur or is delayed by more than thirty days
beyond the scheduled date of delivery by reason of failure of the
Lessee to meet its obligations under the Purchase Assignment or
Purchase Agreement; or
(r) Lessee enters into any amendment, modification, supplement,
cancellation or termination of the Purchase Agreement with
respect to the Aircraft or grants any waiver or consent
thereunder with respect to the Aircraft or enters into any change
order thereunder with respect to the Aircraft, in each case
without the prior written consent of Lessor, provided, however,
that if, in any such case, such consent has been unreasonably
withheld or delayed, such case shall not constitute a Termination
Event under this Clause 20.1(r).
21. LESSOR'S RIGHTS FOLLOWING A TERMINATION EVENT
21.1 Upon the occurrence of any Termination Event and at any time thereafter
so long as the same shall be continuing, the Lessor may, at its option,
declare by written notice to the Lessee this Agreement to be in default
(provided, however, that in the case of a Termination Event under
<PAGE>
Clauses 20.1(i), (j), (k), (l) and (m) the Lessor need not declare the
Agreement to be in default); and at any time thereafter, the Lessor may
do, and the Lessee shall comply with, one or more of the following with
respect to all or any part of the Airframe and the Engines, as the
Lessor in its sole discretion shall elect, to the extent permitted by,
and subject to compliance with any mandatory requirements of, applicable
law then in effect:
(a) Cause the Lessee, upon the written demand of the Lessor and at
the Lessee's expense, to, and the Lessee shall, promptly return
all or such part of the Airframe or the Engines as Lessor may
demand to Lessor at such location in the United Kingdom or
elsewhere as selected by Lessor in the manner and condition
required by, and otherwise in accordance with all of the
provisions of, Section 19 and Schedule 4 hereof; or Lessor, at
its option, may enter upon the premises where the Airframe or any
or all Engines are located or believed to be located and take
immediate possession of and remove such Airframe or Engines
without the necessity for first instituting proceedings, or by
summary proceedings or otherwise (and, at Lessor's option, store
the same at the Lessee's premises until disposal thereof by
Lessor), and the Lessee shall comply therewith, all without
liability to Lessor for or by reason of such entry or taking
possession or storage, whether for the restoration or damage to
property caused by such taking or storage or otherwise;
(b) Whether or not Lessor shall have exercised, or shall thereafter
at any time exercise, any of its rights under paragraph (a) above
with respect to all or any part of the Aircraft, Lessor, by
written notice to the Lessee specifying a payment date not
earlier than ten (10) days from the date of such notice, may
demand that the Lessee pay to Lessor, and Lessee shall pay
Lessor, on the payment date specified in such notice, as
liquidated damages for loss of a bargain and not as a penalty (in
lieu of the installments of rent due on the Aircraft, Airframe,
Engine or Part thereof for periods commencing on or after the
payment date in such notice), any unpaid installments of rent due
for periods prior to the period commencing with the payment date
specified in such notice plus an amount equal to the excess, if
any, of the present value of the remaining installments of rent
during the Lease Term over the present value of the fair market
rental value of the Aircraft, Airframe, Engine or Part thereof,
for the remainder of such Lease Term, using in each case a
discount rate of the amount of interest then paid on U.S.
Treasury Bills of similar maturity;
(c) Terminate the Lease Term and/or the leasing of the Airframe or
any or all of the Engines, or exercise any other right or remedy
which may be available under applicable law or proceed by
appropriate court action to enforce the terms hereof or to
recover damages for the breach hereof.
<PAGE>
21.2 In addition to the amounts set forth in Clause 21.1, Lessee shall be
liable for any and all unpaid amounts due hereunder before or after any
termination hereof and for all costs and expenses (including reasonable
attorneys' fees and disbursements) incurred by Lessor and Beneficiary in
connection with or as a result of any Termination Event or exercise of
remedies hereunder, including, but not limited to, (i) all costs and
expenses incurred in connection with the return of the Airframe or any
Engine in accordance with the terms of Section 19 and Schedule 4 hereof
and/ or in connection with restoring the Aircraft or any portion thereof
to the condition required by Section 19 and Schedule 4 hereof and
remarketing the Aircraft, (ii) any loss, premium, penalty or expense
which may be incurred in repaying funds raised to finance the Aircraft
or in unwinding any swap, forward interest rate agreement or other
financial instrument relating in whole or in part to the Head Lessor's
or the Beneficiary's financing of the Aircraft and (iii) interest at the
Relevant Rate on any amount not paid when due under this Agreement, and
all such obligations shall survive any termination of this Agreement or
the leasing of the Aircraft or any portion thereof hereunder. All costs
and expenses referred to in the preceding sentence shall be payable by
Lessee upon demand by the Lessor or Beneficiary unless otherwise
specified in this Agreement. Except as otherwise expressly provided
above, no remedy referred to in this Clause 21 is intended to be
exclusive, but each shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Lessor at law or in
equity. 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 such other remedies. No express or
implied waiver by Lessor of any Termination Event hereunder shall in any
way be, or be construed to be, a waiver of any future or subsequent
Termination Event.
21.3 For the purposes of Subclause 21.1 (b) above, the "fair market rental
value" of the Aircraft, Airframe, any Engine or Part thereof shall be
the rental value, net of all costs and expenses of recovering the
Aircraft, Airframe or any Engine or Part thereof and restoring its
condition to the condition required hereunder, which would be obtained
in an arm's-length transaction between an informed and willing lessee,
under no compulsion to lease, and an informed and willing lessor, based
upon the actual condition and location of the Aircraft, Airframe or any
Engine of Part thereof, which value shall be determined by a reputable
firm of aircraft appraisers selected by Lessor or Beneficiary. The cost
of such appraisal shall be borne by Lessee.
21.4 If the Lessee fails to comply with any of its obligations under this
Agreement the Lessor may, without being in any way obliged so to do, and
without being responsible for so doing, and without prejudice to the
ability of the Lessor to treat that non-compliance as a Termination
Event, effect compliance on the Lessee's behalf, and if the Lessor
incurs any expenditure in effecting such compliance the Lessor shall be
<PAGE>
entitled (without prejudice to Clause 21.1 or Clause 21.2) to recover
such expenditure from the Lessee together with interest thereon at the
Relevant Rate of Interest from the date on which such expenditure is
incurred by the Lessor until the date of reimbursement thereof by the
Lessee (both before and after any relevant judgment).
21.5 The Lessee's obligations under this Clause 21 shall survive the end of
the Lease Period.
22. NOTICES
22.1 Every notice, request,demand or other communication under this Agreement
shall:
(a) be in writing delivered personally or by prepaid first class
airmail letter or by Federal Express or similar courier service,
or facsimile transmission (confirmed in the case of a facsimile
transmission, by such courier service sent within 24 hours of
despatch but so that the non-receipt of such confirmation shall
not affect in any way the validity of the facsimile transmission
in question);
(b) be deemed to have been received, subject as otherwise provided in
this Agreement, in the case of a facsimile transmission, at the
time of despatch with confirmation that the communication was
well received (provided that, in the case of a facsimile
transmission, if the date of despatch is not a business day in
the country of the addressee it shall be deemed to have been
received at the opening of business on the next such business
day), in the case of a courier service, when received and, in the
case of a letter, when delivered personally or five (5) days
after being put in the post; and
(c) be sent:
(1) to the Lessor to:
Wilmington Trust Company
Rodney Square North
1100 N. Market Street
Wilmington, Delaware 19890
USA
Fax: 001-302-651-8882
(Attention: Corporate Trust Administration);
Telephone: 302-651-1428
WITH A COPY TO THE BENEFICIARY
<PAGE>
(2) to the Beneficiary to:
ORIX Aviation Systems Limited
2nd Floor
IFSC House
International Financial Services Centre
Custom House Docks
Dublin 1
Ireland
Fax: 353-1-670-0644
(Attention: Company Secretary/Assistant Director -
Legal Affairs)
Telephone: 011-353-1-670-0633; or
(3) to the Lessee to:-
Western Pacific Airlines, Inc.
2864 South Circle Drive, Suite 1100
Colorado Springs
Colorado 80906
USA
Fax: 001 -719-527-7480
(Attention: Chief Financial Officer)
Telephone: 719-527-7394
or to such other address or facsimile number as is notified by one party
to the others under this Agreement.
23. ASSIGNMENT
23.1 (a) The Lessee may not assign or, except as herein provided with
respect to subleases, otherwise transfer any of its rights or
obligations under this Agreement without the prior written
consent of the Lessor.
(b) The Lessor may assign or otherwise transfer any or all of its
rights under, and the benefit of, this Agreement at any time
during the Lease Period with the consent of the Lessee, such
consent not to be unreasonably denied, provided, however, that
the consent of the Lessee shall not be required with respect to
<PAGE>
any assignment (i) to the Head Lessor or Lenders as otherwise
contemplated herein, (ii) to any affiliate of the Lessor that is
a Citizen of the United States, (iii) to any financially
responsible company or person (as reasonably determined by
Lessor) that is a Citizen of the United States and is not an
airline that competes directly with Lessee on specific routes or
(iv) to any assignment that occurs after a Termination Event has
occurred and is continuing which is made in consequence of such
Termination Event. Except in the case of an assignment or
transfer that occurs after a Termination Event has occurred and
is continuing (including at the time of such assignment or
transfer), each assignee or transferee under this Clause 23.1 or
under Clause 23.2 shall deliver, as a condition to such
assignment or transfer, a Letter of Quiet Enjoyment to the Lessee
at or before such assignment or transfer. Under no circumstances
shall Lessee be obligated to pay any assignee or transferee any
greater amount or incur any greater obligation than that which it
would have been obligated to pay or incur under this Agreement if
no assignment or transfer had taken place nor shall any such
assignment impair any right of the Lessee under this Agreement or
impose any additional obligation on Lessee.
23.2 It is understood that the Head Lessor, the Beneficiary, the Lessor
and/or the Lenders may from time to time effect, amend, modify or
replace the security arrangements in respect of the financing of, or
refinance the Aircraft; the Lessee agrees to cooperate with the Lessor
in connection therewith and in connection with the Security Documents,
any mortgage and any assignment or transfer by the Lessor pursuant to
Clause 23.1 and to execute and deliver to the Lessor such documents as
are reasonably requested by the Head Lessor, the Beneficiary, the Lessor
or the Lenders relating thereto provided no such documents impair any
right granted to Lessee hereunder or impose any additional obligation on
Lessee not otherwise required by this Agreement. The Lessee agrees to
change the nameplates referred to in Clause 13.1 and to give all
reasonable assistance as may be reasonably requested in writing by
Lessor for the perfection and acknowledgement of the rights of the Head
Lessor, the Beneficiary, the Lessor and/or the Lenders and/or any
mortgagee hereunder or thereunder. The Lessor shall pay the reasonable
out-of-pocket expenses incurred by the Lessee in executing and
delivering documents or otherwise cooperating at the request of the
Lessor in connection with any assignment or transfer made as
contemplated by Clause 23.1 and Clause 23.2. Nothing in Clause 23.1 or
23.2 shall restrict the right of the Beneficiary to assign the Aircraft
and Lease to a successor trustee pursuant to the terms of the Trust
Agreement provided that such successor trustee is capable of making
substantially the same representations of the Lessor as in clause 2.5
hereof.
23.3 The agreements, covenants, obligations and liabilities contained in this
Agreement, including, but not limited to all obligations to pay rent and
indemnify the Lessor, are made for the benefit of the Lessor, any
assignee or transferee of the Lessor and their respective successors and
assigns.
<PAGE>
24. MISCELLANEOUS
24.1 This Agreement (together with Letter Agreement No. 1 and any other
related side letters) contains the entire agreement between the Lessor
and the Lessee relating to the leasing of the Aircraft, and the terms
and conditions of this Agreement shall not be varied otherwise than by
an instrument in writing of even date herewith or subsequent hereto
executed by or on behalf of the Lessor and the Lessee.
24.2 No failure or delay on the part of the Lessor or Lessee in exercising
any right, power or remedy under this Agreement shall operate as a
waiver thereof nor shall any single or partial exercise by the Lessor or
Lessee of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
The rights and remedies provided in this Agreement are cumulative and
are not exclusive of any rights and remedies provided by law.
24.3 Subject to the periods of grace referred to in Clause 20, time shall be
of the essence as regards the performance by the Lessee and Lessor of
their respective obligations under this Agreement.
24.4 The Lessee and Lessor shall from time to time do and perform such other
and further acts and execute and deliver any and all such further
instruments as may be required by law or reasonably requested by the
other to establish, maintain and protect the rights and remedies of the
Head Lessor, the Beneficiary, the Lessor, the Lenders or the Lessee and
to carry out and effect the intent and purposes of this Agreement
provided that no party shall be required under this Clause to take any
action or execute and deliver any document that would materially
increase the obligations or impair the rights of such party under this
Agreement.
24.5 This Agreement may be executed by the parties hereto in separate
counter-parts, each of which, when so executed and delivered, shall be
an original, and both counter-parts shall constitute one and the same
instrument.
24.6 If any provision of this Agreement shall become invalid, illegal or
unenforceable in any respect under any law, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not
in any way be affected or impaired.
24.7 The Lessor is entering into this Agreement in its capacity as Owner
Trustee and not in its individual capacity as such. The Lessor in its
individual capacity shall not be liable to the Lessee for or on account
of any statements, representations, warranties, covenants or obligations
stated to be those of the Lessor hereunder. The Lessor may exercise its
rights and remedies hereunder and under the other Lessee Documents
through agents and representatives, including, but not limited to, the
Beneficiary and its agents and representatives.
<PAGE>
24.8 Any amount which the terms of this Agreement provide that the Lessor
shall pay to the Lessee but for the occurrence of a Termination Event or
Relevant Event shall, unless application of such amount is provided for
elsewhere in this Agreement and such amount has been so applied, be paid
by Lessor to Lessee at such time as no Termination Event or Relevant
Event (as the case may be) has occurred and is continuing.
24.9 All obligations under this Agreement are continuing obligations
throughout the Lease Period. The end of the Lease Period shall not
prejudice or otherwise limit the accrued or surviving rights and
obligations of the parties hereunder of under any of the Lessee
Document.
25. LAW AND JURISDICTION
25.1 This Agreement is governed by and shall be construed in accordance with
the Governing Law.
25.2 For the benefit of the Lessor and Lessee, the parties irrevocably agree
that any legal action or proceedings in connection with this Agreement
may be brought in the Courts, which shall have jurisdiction to settle
any disputes arising out of or in connection with this Agreement. The
parties hereto hereby irrevocably and unconditionally submit to the
jurisdiction of the Courts. The submissions to such jurisdiction shall
not (and shall not be construed so as to) limit the rights of the Lessor
and Lessee to take proceedings against the other in any other court of
competent jurisdiction, nor shall the taking of proceedings by the
Lessor or Lessee in any one or more jurisdictions preclude the taking of
proceedings by the Lessor or Lessee in any other jurisdiction, whether
concurrently or not. The Lessee and Lessor irrevocably waives any
objection it may now or hereafter have to the laying of venue of any
action or proceeding in any court and any claim it may now or hereafter
have that any action or proceeding has been brought in an inconvenient
forum. The Lessee hereby irrevocably designates, appoints and empowers
CT Corporation System at present of 1633 Broadway, New York, N.Y. 10019
to receive for it and on its behalf service of process issued out of the
Courts in any legal action or proceeding arising out of or in connection
with this Agreement and/or any other Lessee Document. The Lessor hereby
irrevocably designates, appoints and empowers ORIX USA Corporation at
present of 780 Third Avenue, 48th Floor, New York, N.Y. 10017 to receive
for it and on its behalf service of process issued out of the Courts in
any legal action or proceeding arising out of or in connection with this
Agreement and/or any other lessor document.
25.3 The Lessee and Lessor agrees that in any legal action or proceedings
against it or its assets in connection with this Agreement, no immunity
from legal action or proceedings (which shall include, without
limitation, suit, attachment prior to judgment, other attachment, the
obtaining of judgment, execution or other enforcement) shall be claimed
by or on behalf of the Lessee or with respect to its assets, irrevocably
waives any such right of immunity which it or its assets now have or may
hereafter acquire or which may be attributed to it or its assets and
<PAGE>
consents generally in respect of any such legal action or proceedings to
the giving of any relief or the issue of any process in connection with
such action or proceedings including, without limitation, the making,
enforcement or execution against any property whatsoever (irrespective
of its use or intended use) of any order of judgment which may be made
or given in such action or proceedings.
26. SECTION 1110
The Lessee acknowledges that the Lessor would not have entered into this
Agreement unless it had available to it the benefits of a lessor under
Section 1110 of Title 11 of the United States Code. The Lessee covenants
and agrees with the Lessor that, to better ensure the availability of
such benefits, the Lessee shall support any motion, petition or
application filed by the Lessor with any bankruptcy court having
jurisdiction over the Lessee, whereby the Lessor seeks recovery of
possession of the Aircraft under said Section 1110 and shall not in any
way oppose such action by the Lessor unless the Lessee shall have
complied with the requirements of said Section 1110 to be fulfilled in
order to entitle the Lessee to continued use and possession of the
Aircraft hereunder. In the event said Section 1110 is amended, or if it
is repealed and another statute is enacted in lieu thereof, the Lessor
and the Lessee agree to amend this Agreement and take such other action
not inconsistent with this Agreement as the Lessor reasonably deems
necessary so as to afford to the Lessor the rights and benefits as such
amended or substituted statute confers upon owners and lessors of
aircraft similarly situated to the Lessor.
It is expressly agreed that the title of Head Lessor to, and the
interest of the Lessor and the Beneficiary to, and the interest of the
Lessor and the Beneficiary in, the Aircraft, and any right of the Lessor
and the Beneficiary to take possession of the Aircraft in compliance
with the provisions of this Agreement, shall not be affected by Sections
362, 363 and 1129 of the Federal Bankruptcy Code.
27. TRUE LEASE
THIS AGREEMENT SHALL CONSTITUTE AN AGREEMENT OF LEASE AND IS A TRUE
OPERATING LEASE AND NOTHING HEREIN SHALL BE CONSTRUED AS CONVEYING TO
THE LESSEE ANY RIGHT, TITLE OR INTEREST IN THE AIRCRAFT OR ANY ENGINE OR
PART EXCEPT AS A LESSEE ONLY. WITHOUT LIMITING THE FOREGOING, THE LESSEE
WILL NOT FILE A TAX RETURN OR TAKE ANY OTHER ACTION WHICH IS
INCONSISTENT WITH THE FOREGOING.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective officers thereof duly authorized as of the day and
year first above written.
WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as Owner
Trustee under the Trust Agreement, as Lessor
By:
Title:
WESTERN PACIFIC AIRLINES, INC., as Lessee
By:
Title:
* Receipt of this original counter-part of the foregoing Aircraft Lease
Agreement is hereby acknowledged on this day of , 199 .
[ ]
As Beneficiary/Secured Party
By:
Title:
* This language is to be inserted in the original counter-part only.
<PAGE>
SCHEDULE 1
PART 1
LIST OF DOCUMENTS AND EVIDENCE
1. A copy certified by the Secretary of the Lessee to be a true, complete
and up to date copy, of the constituent documents of the Lessee.
2. A copy, certified by the Secretary of the Lessee to be a true copy, and
as being in full force and effect and not amended or rescinded, of
resolutions of the board of directors of the Lessee:
(i) approving the transactions contemplated by the Lessee
Documents; and
(ii) authorizing a person or persons to execute and deliver on
behalf of the Lessee of the Lessee Documents to which it is
a party and any notices or other documents to be given
pursuant thereto
together with a copy of the power(s) of attorney issued to the
authorized person(s) pursuant to said board resolutions.
3. (i) Specimen signatures, authenticated by the Secretary of the Lessee of
each of the authorized signatories referred to in sub-clause 2(ii) of
this Schedule 1 and (ii) a good standing certificate.
4. An officer's certificate of the Lessee certifying that the
representations and warranties given by the Lessee in the Lessee
Documents are true and accurate as of the Delivery and no Relevant Event
has occurred.
5. Evidence that the Aircraft Commitment Fee has been received by the
Lessor's designated bank.
6. Draft opinion(s) (the "OPINION(S)") to be obtained at the Lessee's
expense of Smith, Gambrell & Russell, LLP, legal counsel to Lessee, and
, FAA counsel, each in form and substance reasonably acceptable to the
Lessor and Beneficiary.
7. Receipt by the Lessor of such information and documents relating to the
proposed maintenance programme for the Aircraft as the Lessor may
reasonably require and the Lessor having agreed the proposed maintenance
programme in its sole discretion on or prior to the Delivery Date.
<PAGE>
8. A certificate signed by the Chief Technical Officer of the Lessee
certifying that the provisions of Clause 13 have been read by, and will
be distributed to, the relevant engineers of the Lessee following
Delivery.
9. Such other documents or evidence as the Lessor may reasonably request.
<PAGE>
SCHEDULE 1
PART 2
1. (a) Originals or certified copies of certificates evidencing the
insurance and reinsurance required to be maintained pursuant to
Clause 16, and Schedule 3; and
(b) a letter addressed to the Head Lessor, the Beneficiary, the
Lessor and the Lenders by a recognized firm of aviation insurance
brokers reasonably satisfactory to the Lessor confirming that the
insurance required to be maintained pursuant to Clause 16 and
Schedule 3 adequately protects the interests of the Head Lessor,
the Beneficiary, the Lessor and the Lenders; and
(c) a letter of undertaking addressed to the Head Lessor, the
Beneficiary, the Lessor and the Lenders from the Lessee's
insurance brokers substantially in the form of Schedule 5 or
otherwise acceptable to Lessor.
2. A certified copy of each of the Certificate of Airworthiness in
the public transport (passenger) category issued by the Aviation
Authority with respect to the Aircraft, such certificates of
maintenance as are required for the Aircraft to be used for the
public transport of passengers or cargo, the current air
transport license, air operator's certificate issued by the
Aviation Authority to the Lessee with respect to the aircraft of
the type of the Aircraft, the current Certificate of Registration
for the Aircraft in the name of the Head Lessor and of the
application made by the Lessee for registration of the Aircraft
with the Aviation Authority.
3. Legal opinion of Smith, Gambrell & Russell, LLP obtained at the
Lessee's expense in form and substance reasonably acceptable to
the Lessor .
4. A legal opinion of FAA counsel acceptable to the Lessor as to the
filing for recordation of this Agreement, due registration of the
Aircraft in the name of the Lessor, to the effect that title to
the Aircraft is held by the Lessor free and clear of any
Encumbrances other than this Agreement and otherwise satisfactory
to Lessor in form and substance.
5. Evidence that the plaque required to be affixed to the Airframe
and Engines by virtue of Clause 13.1 has been duly affixed.
6. Execution copies of each of the Lessee Documents duly executed by
the parties thereto, other than the Lessor.
7. Evidence that, on the Delivery Date, the Aircraft has been
validly registered under the laws of the State of Registration,
that the Agreement has been filed with the FAA for recordation,
<PAGE>
that supplement(s) to the Trust Agreement have been filed with
the FAA (if applicable), that the Financing Statements have been
duly filed and that all filings, registrations, recordings and
other actions have been or will be taken which are necessary or
advisable to ensure the validity, effectiveness and
enforceability of this Agreement and to protect the respective
interests of the Head Lessor, the Beneficiary, the Lessor and the
Lenders in the Aircraft.
8. A full warranty bill of sale and FAA form bill of sale for the
Aircraft delivered by the Manufacturer to the Lessor.
9. Evidence that no sales, use, doing business or other Taxes will
be payable by any Person as a result of delivery of the Aircraft
by the Manufacturer to Lessee under the Purchase Agreement and
delivery of the Aircraft by the Lessor to Lessee under this
Agreement.
10. Such other documents and evidence as the Lessor may reasonably
require.
<PAGE>
SCHEDULE 1
PART 3
1. A copy certified by the Secretary of the Lessee to be a true, complete
and up to date copy, of the constituent documents of the Lessee.
2. A copy, certified by the Secretary of the Lessee to be a true copy, and
as being in full force and effect and not amended or rescinded, of
resolutions of the board of directors of the Lessee:
(i) approving the transactions contemplated by the Lessee
Documents; and
(ii) authorizing a person or persons to execute and deliver on
behalf of the Lessee of the Lessee Documents to which it is
a party and any notices or other documents to be given
pursuant thereto
together with a copy of the power(s) of attorney issued to the
authorized person(s) pursuant to said board resolutions.
3. Specimen signatures, authenticated by the Secretary of the Lessee of
each of the authorized signatories referred to in sub-clause 2(ii) of
this Part 3.
4. A good standing certificate of Lessee.
5. Opinion of Smith,Gambrell & Russell LLP in form and substance
satisfactory to Lessor and Beneficiary.
6. Evidence that the portion of the Aircraft Commitment Fee payable by the
Advance Payment date has been paid.
7. Evidence that the Lessor has been assigned all of the Lessee's rights
under the Purchase Agreement to the extent provided in the Purchase
Assignment free and clear of any Encumbrances, including, but not
limited to, a release from Newcourt Capital.
8. A copy of the Purchase Agreement certified by an officer of the Lessee
to be complete and accurate.
9. Each of the Lessee Documents shall have been executed and delivered by
the Lessee.
10. The Consent and Agreement has been executed and delivered by the
Manufacturer.
<PAGE>
11. Opinion of in-house counsel of Manufacturer, in form and substance
reasonably satisfactory to Lessor and Beneficiary.
12. An invoice from the Manufacturer to be delivered upon receipt of the
advance payments for the Aircraft (it being understood that such invoice
will not be delivered until the closing occurs).
13. Such other documents and evidence as may be reasonably requested by
Lessor.
<PAGE>
SCHEDULE 1
PART 4
AIRFRAME MAINTENANCE ACCRUAL ADJUSTMENT FORMULA
1. BASE RATE
The base rate per Flight Hour as set forth in Letter Agreement No. 1 and
as such rate shall be adjusted from time to time in accordance with the
provisions of Clause 13.4(b) is subject to adjustment for changes in
economic conditions as measured by data obtained from the US Department
of Labor, Bureau of Labor statistics, and in accordance with the
provisions of paragraph 3 hereof.
2. INDEXES:
LABOR INDEX : "Aircraft and Parts" Standard Industrial Classification
372 - Average Hourly Earnings (hereinafter referred to as "HE Sic 372")
as published in "Employment and Earnings".
MATERIAL INDEX:"Industrial Commodities (hereinafter referred to as "IC")
as published in "Producer Prices and Price indexes".
3. REVISION FORMULA
A = B * ((0.75 HEa/HEb) + (0.25 ICa/ICb))
A The adjusted airframe maintenance accrual
B Base accrual as per contract
HEa The arithmetic average of the HE-Index Sic 372 for the 10th, 11th
and 12th month prior to the adjustment calculation date.
HEb The arithmetic average of the HE-Index Sic 372 for the 10th, 11th
and 12th month prior to the month of the aircraft delivery to the
Beneficiary.
ICa The arithmetic average of the IC-Index for the 10th, 11th and 12th
month prior to the adjustment calculation date.
ICb The arithmetic average of the IC-Index for the 10th, 11th and 12th
month prior to the month of the aircraft delivery to the Beneficiary.
<PAGE>
ENGINE AND ENGINE LIFE LIMITED PARTS MAINTENANCE ACCRUAL ADJUSTMENT FORMULA
1. BASE RATE
The base rate per Flight Hour per Engine for the Engine Maintenance
Accrual and the base rate per Cycle per Engine for the Engine Life
Limited Parts Maintenance Accrual, in each case as set forth in Letter
Agreement No. 1 and as such rates shall be adjusted from time to time in
accordance with the provisions of Clause 13.4(b) are subject to
adjustment for changes in economic conditions as measured by data
obtained from the US Department of Labor, Bureau of Labor statistics,
and in accordance with the provisions of paragraph 3 hereof.
2. INDEXES:
Labor Index : "Aircraft Engine and Engine Parts" Standard Industrial
Classification 3724 - Average Hourly Earnings (hereinafter referred to
as "HE Sic 3724") as published in "Employment and Earnings".
Material Index:"Metals and Metal Products" Code 10 (hereinafter referred
to as "MMP") as published in "Producer Prices and Price indexes".
3. REVISION FORMULA
A = B * ((0.75 HEa/HEb) + (0.25 MMPa/MMPb))
A The adjusted maintenance accrual
B Base accrual as per contract
HEa The arithmetic average of the HE-Index Sic 3724 for the 10th,
11th and 12th month prior to the adjustment calculation date.
HEb The arithmetic average of the HE-Index Sic 3724 for the 10th,
11th and 12th month prior to the month of the aircraft delivery to the
Beneficiary.
MMPa The arithmetic average of the MMP-Index for the 10th, 11th
and 12th month prior to the adjustment calculation date.
MMPb The arithmetic average of the MMP-Index for the 10th, 11th
and 12th month prior to the month of the aircraft delivery to the Beneficiary.
<PAGE>
LANDING GEAR MAINTENANCE ACCRUAL ADJUSTMENT FORMULA
1. BASE RATE
The base rate per Flight Hour for the landing gear, as set forth in
Letter Agreement No. 1 and as such rate shall be adjusted from time to
time in accordance with the provisions of Clause 13.4(b), is subject to
adjustment for changes in economic conditions as measured by data
obtained from the US Department of Labor, Bureau of Labor statistics,
and in accordance with the provisions of paragraph 3 hereof.
2. INDEXES
Labor Index:"Aircraft Parts and Auxiliary Equipment" Standard Industrial
Classification 3728 - Average Hourly Earnings (hereinafter referred to
as "HE Sic 3728") as published in "Employment and Earnings".
Material Index:"Metals and Metal Products" Code 10 (hereinafter referred
to as "MMP") as published in "Producer Prices and Price indexes".
3. REVISION FORMULA
A = B * ((0.75 HEa/HEb) + (0.25 MMPa/MMPb))
A The adjusted maintenance accrual
B Base accrual as per contract
HEa The arithmetic average of the HE-Index Sic 3728 for the 10th,
11th and 12th month prior to the adjustment calculation date.
HEb The arithmetic average of the HE-Index Sic 3728 for the 10th,
11th and 12th month prior to the month of the aircraft delivery to the
Beneficiary.
MMPa The arithmetic average of the MMP-Index for the 10th, 11th
and 12th month prior to the adjustment calculation date.
MMPb The arithmetic average of the MMP-Index for the 10th, 11th
and 12th month prior to the month of the aircraft delivery to the Beneficiary.
<PAGE>
SCHEDULE 2
ACCEPTANCE CERTIFICATE
This Acceptance Certificate is delivered, on and as of the Delivery Date set
forth below by [ [ (the "Lessee") to Wilmington Trust Company, not in its
individual capacity, but solely as Owner Trustee (the "Lessor"), pursuant to an
Aircraft Lease Agreement dated as of [ ] and made between the Lessor and the
Lessee (the "Agreement").
DETAILS OF ACCEPTANCE
The Lessee hereby confirms to the Lessor, its successors and assigns, that the
Lessee has at hours ([ ] time) on this [ ] day of
[ ] at [ ] accepted the following in accordance with
the provisions of the Agreement:
(a) Airframe: One (1) Boeing 737-300 jet airframe bearing Manufacturer's
Serial No. [ ] and United States Registration Number ;
Hours since new:
Cycles since new:
(b) Engines: Two (2) Model CFM International CFM56-3C-1 Engines bearing
Manufacturer's Serial Numbers [ ] and [ ].
Hours since new: Engine No. 1: Engine No. 2:
Cycles since new: Engine No. 1: Engine No. 2:
CONFIRMATION OF UNDERTAKINGS
The capitalised terms used in this Acceptance Certificate shall, unless
otherwise defined, have the meaning given to such terms in the Agreement.
The Lessee confirms that as at hours ([ ] time) today, being the Delivery Date
as defined in the Agreement:
(i) the Aircraft was duly accepted by the Lessee in accordance with and
subject to all of the terms and conditions contained in the Agreement
and the execution and delivery of this Acceptance Certificate further
confirms the acceptance of the Aircraft by the Lessee for all purposes
of the Agreement;
(ii) the Lease Period commenced and the Lessee became obliged to pay to the
Lessor the amounts provided for in the Agreement with respect to the
Aircraft;
<PAGE>
(iii) the Aircraft is insured in accordance with the Agreement;
(iv) the representations and warranties made by it under Clause 2 of the
Agreement remain, and if made at the date hereof, would be, true and
correct in all respects;
(v) solely as between the Lessor and Lessee the Lessee agrees that the
Aircraft for all purposes of the Agreement conforms to the Lessee's
requirements;
(vi) affixed to the Aircraft and Engines are the fireproof plaques required
by the Agreement;
(vii) fuel on board is [ ] kgs;
(viii) no Relevant Event has occurred or will result from Delivery taking place;
(ix) [the Manuals and Technical Records listed in Part 1 of the attached
appendix, the Technical Publications listed in Part 2 of the attached
appendix and the loose equipment listed in Part 3 of the attached
appendix have been received by the Lessee in proper order and condition]
[as per the Purchase Agreement];
IN WITNESS WHEREOF the Lessee has caused this Acceptance Certificate to be
executed in its name, by its duly authorized officer on the Delivery Date.
,
as the Lessee
By:
Title:
<PAGE>
APPENDIX TO SCHEDULE 2
PART 1
LIST OF DOCUMENTS TO BE DELIVERED WITH MSN [ ]
DESCRIPTION QUANTITY
[To be as provided as per
the Purchase Agreement]
<PAGE>
PART 2
TECHNICAL PUBLICATIONS
[to be provided as per
the Purchase Agreement]
Part 3
LOOSE EQUIPMENT DELIVERED WITH MSN [ ]
[as per the Purchase Agreement]
<PAGE>
SCHEDULE 3
INSURANCE REQUIREMENTS
1 INSURANCE WITH RESPECT TO THE AIRCRAFT
1.1 The Lessee shall obtain and maintain:
(a) "All-Risks" hull insurance on the Aircraft and each Engine (as
appropriate) therefor including all flight and ground risks in
such amount in Dollars as is equal to the Agreed Value as at the
time the Insurance is placed or renewed.
(b) "All-Risks" insurance on any Engine, Parts, components or spares
when not installed on the Aircraft for their full replacement
value and including engine test and running risks.
(c) "War Risks" hull insurance which shall include confiscation,
requisition (including by the State of Registration), hijacking,
strikes, riots, malicious damage and civil commotion and any
other risks excluded from the "All Risks" insurance described in
Clause 1.1(a) above (other than any peril which cannot be
insured) by any exclusion therein of these and/or similar risks
in such amount in Dollars as is equal to the Agreed Value of the
Aircraft and each Engine (as appropriate) as at the time the
insurance is placed or renewed.
1.2 The insurances required under paragraphs (a), (b) and (c) of Clause 1.1
of this Schedule 3 shall be provided on an agreed value basis, and each
of the policies related to the insurances required under Clause 1.1 of
this Schedule 3 shall:
(a) include the Lessor and each of the other Indemnitees as
additional named assured for their respective rights and
interests;
(b) include a loss payee clause which provides that (i) any payment
in respect of a Total Loss shall be payable to the Lessor or its
designated assigns for the account of all interests and (ii) any
payment other than in respect of a Total Loss shall be paid by
insurers in or towards the cost of repairs or replacement, or if
the insurers do not, for whatever reason, pay any such proceeds
to the relevant repairers or suppliers in respect of any
replacement, then the following shall apply:
(1) unless the Lessor or its designated assignee shall have
directed to the contrary, any payment in respect of any
damage or loss (other than in respect of a Total Loss) not
in excess of $[ ]* inclusive of any deductible shall be
payable directly to Lessee or its order; and
<PAGE>
(2) (A) any payment in respect of any damage or loss in
excess of $[ ]*, or
(B) following a direction to the Insurers by the Lessor
or its designated assignee any amount payable in
respect of any loss or damage,
shall be payable directly to the Lessor or its designated
assignee as loss payee for the account of all interests;
(c) provide that the insurance shall not be invalidated, so far
as concerns the Lessor or any other Indemnitee, by any act
or omission (including non-disclosure and misrepresentation)
by the Lessee or any other person, and insure the interest
of the Lessor and each other Indemnitee regardless of any
breach or violation by the Lessee or any other person of any
term, condition or warranty contained in such policies
provided that the Lessor or, as the case may be, such other
Indemnitee has or have not caused, contributed to or
knowingly condoned the said act or omission;
(d) have deductibles of no more than (i) $[ ]* with respect to the
Aircraft and $[ ]* with respect to any Engine or Part;
and the certificate of insurance issued by the relevant brokers shall
confirm, in the event of separate insurances being arranged to cover the
"All-Risks" hull insurance and the "War Risks" and related insurance,
that the underwriters subscribing to such insurance have agreed in the
terms of AVS 103 (or equivalent) that in the event of any dispute as to
whether a claim is covered by the "All Risks" or "War Risks" policy,
such claim shall be settled on a 50/50 claim funding basis.
(1) LIABILITY INSURANCE
2.1 The Lessee shall obtain and maintain aircraft third party, passenger
(including personal injury), baggage (checked and unchecked), cargo,
mail and airline general third party liability (including premises,
hangers and products liability) insurance for a combined single limit of
not less than $[ ]* for any one accident.
2.2 The policies evidencing the insurances required under Clause 2.1 of this
Schedule 3 shall:
<PAGE>
(a) include the Lessor and each other Indemnitee and their respective
officers, directors, employees, agents, successors and designated
assignees (together the "Liability Additional Named Assureds") as
additional named assured for their respective rights and
interests;
(b) provide by means of a Severability of Interests/Cross-Liability
clause that all the provisions thereof, except the limits of
liability, shall operate to give each assured the same protection
as if there were a separate policy issued to each named assured;
(c) be primary and without right of contribution from other insurance
which may be available to the Liability Additional Named
Assureds; and
(d) provide that the insurance shall not be invalidated, so far as
concerns any Liability Additional Named Assured, by any act or
omission (including non-disclosure and misrepresentation) by the
Lessee or any other person and insure the interests of each
Liability Additional Named Assured regardless of any breach or
violation by the Lessee or any other person of any term,
condition or warranty contained in such policy, provided that the
relevant Liability Additional Named Assured has not caused,
contributed to or knowingly condoned the said act or omission.
(2) PROVISIONS RELATING TO ALL INSURANCES
3.1 The policies evidencing the insurances required under Clause 1.1 and
Clause 2.1 of this Schedule 3 shall:
(a) specifically reference the Head Lease, this Agreement and, if
applicable, the Mortgage;
(b) provide for worldwide coverage (subject only to such exceptions
as the Lessor may agree in writing);
(c) provide that the insurers shall waive any right of subrogation
against the Lessor and each other Indemnitee;
(d) provide that neither the Lessor nor any other Indemnitee shall be
liable for any premiums in respect thereof, and that the insurers
shall not exercise any right of set-off or counterclaim (other
than in respect of unpaid premiums with respect to the Aircraft)
against the interests of the Lessor or such other Indemnitee; and
(e) provide that the brokers will be promptly notified in the event
of cancellation or of any material change in the Insurances or in
the event that any premium or instalment of premium shall not be
paid when due and that the Insurances shall continue unaltered
for the benefit of the Lessor, each other Indemnitee and its
successors and designated assigns, directors, officers, agents
and employees for at least thirty (30) days after issue by the
insurers of any such notification, except in the case of War
Risks for which seven (7) days' notice (or such lesser period as
may be customarily available in respect of War Risks or Allied
Perils) will be given, or in the case of war between any of the
five great powers, or Nuclear Peril for which termination is
automatic.
<PAGE>
SCHEDULE 4
RETURN CONDITIONS
On redelivery of the Aircraft, the following Return Conditions shall apply in
addition to those specified in Clauses 19.2 and 19.3.
1. GENERAL CONDITION
(a) The Aircraft shall have installed the full complement of
engines and Parts as is normally installed in such Aircraft, and shall be in a
condition suitable for operation in commercial service, all installed systems to
be fully operational;
(b) The Aircraft shall comply with the Manufacturer's original
specifications as defined in the Boeing Detail Specification Document No. [ ]
and the Manuals and Technical Records delivered with the Aircraft and modified
by the incorporation of all airworthiness directives and approved service
bulletins and engineering orders which are accepted by the Lessee up to the date
of redelivery;
(c) Have undergone, immediately prior to redelivery (save for
such additional Flight Hours as are required to conduct the test flight and
ferry flight referred to in Clause 19.7), a C Check performed by the Approved
Maintenance performer in accordance with the Approved Maintenance Programme;
(d) All outstanding airworthiness directives, Structural
Inspection requirements and mandatory orders affecting such model of Aircraft
issued by the Manufacturer of the Aircraft or the Aviation Authority and/or the
FAA which require compliance or termination within three hundred and sixty (360)
days following redelivery of the Aircraft or until the next C Check of the
Aircraft following redelivery of the Aircraft, whichever is the later, shall
have been accomplished and all maintenance discrepancies cleared from the
logbook;
(e) A Spectrographic Oil Analysis Programme ("SOAP") sample shall
be taken of the oil in each Engine and auxiliary power unit and the results
shall meet the requirements of the appropriate maintenance manual; and
(f) The Aircraft shall be in the same seating configuration as at
Delivery or, subject to Lessor receiving in a serviceable condition with FAA
8130 Tags attached the removed seats from the delivery configuration, the
seating configuration used by Lessee at the time of redelivery inclusive of
associated documentation.
<PAGE>
2. COMPONENTS
(a) Each and every life-limited component shall have not less
than 12 months, 4,000 hours and 2,500 cycles, whichever is the more limiting, of
the total approved life remaining to the next scheduled removal, in accordance
with the Approved Maintenance Programme;
(b) Each and every calendar-limited component shall have not less
than 12 months of actual life remaining to the next scheduled removal (with the
exceptions at 6(e) (emergency equipment), in accordance with the Approved
Maintenance Programme;
(c) "On-condition" and "Condition Monitored" components shall be
Serviceable and subject to inspection including, but not limited to, boroscope
and visual inspection and examination of magnetic chip detectors, and shall meet
the requirements of the appropriate maintenance manual;
(d) The APU shall be in serviceable condition and shall have the
same part number as at Delivery with a modification status at least equal to
that of the other APUs operated by the Lessee but in no event less than the
modification status of the APU at Delivery with no more than 500 Flight Hours
since its last Hot Section Inspection shop visit; and
(e) The Lessee shall have completed, contemporaneously with such
return, an inspection of the APU including a hot and cold section boroscope; any
discrepancies detected during such inspection that are required to be corrected
by the Manufacturer's maintenance manual shall be corrected in accordance with
those procedures. For the avoidance of doubt, the APU shall not be subject to
any programme of additional inspection, i.e., "on watch".
3. ENGINES
(a) The Engines shall be Serviceable and the Lessee shall have
completed, contemporaneously with such return, an on-wing inspection of each
Engine (including a hot and cold section boroscope and a power assurance run)
and engine condition runs; trend analysis should not indicate near-term failure;
and any discrepancies detected during such inspection that are required to be
corrected by the Manufacturer's maintenance manual shall be corrected in
accordance with those procedures. For the avoidance of doubt, no Engine shall be
subject to any programme of additional inspection, i.e., "on watch";
(b) All Engine Life Limited Parts shall have a minimum of 3,000
cycles of life remaining at re-delivery. If fewer than 3,000 cycles of life
remain then the Lessee shall reimburse the Lessor a pro rata amount based upon
the total life of each Part and the cost of the Part (as determined by
manufacturer's list price) as at the time of re-delivery less relevant
maintenance accrual payments in respect of such cycles, provided, however, that
in no event shall an Engine be returned with less than 1500 cycles remaining on
Engine Life Limited Parts;
<PAGE>
(c) In any case where oil consumption of each installed Engine,
measured within 100 Flight Hours prior to re-delivery, shall not be within the
limits set forth in the approved Aircraft Maintenance Manual, the Lessee shall
take corrective action to meet the approved Aircraft Maintenance Manual; and
(d) Any installed Engine at re-delivery shall have at least ten
(10) degrees Centigrade Exhaust Gas Temperature margin remaining in accordance
with the Aircraft Maintenance Manual performance charts, such margin being
measured by the trend monitoring system with the Engine installed on the
Airframe during flight.
4. FUSELAGE, WINDOWS AND DOORS
(a) Fuselage shall be free of major dents and abrasions,
temporary repairs and loose, pulled or missing rivets;
(b) Windows shall be Serviceable in accordance with the approved
Aircraft Maintenance Manual, free of delamination, blemishes, crazing that
affects clear vision and shall be properly sealed; and
(c) Doors shall be free moving, correctly rigged and be fitted
with Serviceable seals.
5. WINGS AND EMPENNAGE
(a) All leading edges shall be free from damage that should be
repaired in accordance with the structural repair manual ("SRM") or
Manufacturer's FAA approved repair scheme where an [SRM] repair does not exist;
(b) All control surfaces shall be clean and serviceable to
industry standard;
(c) All unpainted cowlings and fairings shall be polished to
industry standard; and
(d) The Aircraft shall be shown to be free of fuel leaks by
topping off the fuel tanks for twelve (12) hours and no previous fuel leaks
shall have temporary repairs.
6. INTERIOR
(a) Ceilings, sidewalls and bulkhead panels shall be clean and
free of damage, cracks and stains beyond fair wear and tear;
<PAGE>
(b) All carpets and seat covers shall be in good condition,
steamed or scrubbed clean (as appropriate), seat covers and aisle carpets shall
be stain free and meet FAA fire resistance regulations;
(c) All seats, including seatbelts, shall be Serviceable, with
frames repainted and trim repaired or replaced as necessary and meet FAA fire
resistance regulations;
(d) All signs and decals shall be clean, legible and in English;
(e) All emergency equipment having a calendar life shall have a
minimum of one (1) year or one hundred per cent. (100%) of its total approved
life, whichever is less, remaining; and
(f) All galleys and lavatories shall be clean and free of leaks
and corrosion beyond applicable maintenance manual limits, with all equipment
operational and all damages assessed and properly repaired as necessary.
7. COCKPIT
(a) All decals shall be clean, secure, legible and in English;
(b) All fairing and instrument panels shall be Serviceable,
clean, secure and touch-up painted as necessary;
(c) Floor coverings shall be steamed or scrubbed clean (as
appropriate) and effectively sealed;
(d) Seat covers shall be in Serviceable condition, steamed clean
and shall conform to FAA fire resistance regulations; and
(e) Seats, including seatbelts, shall be Serviceable and shall be
repainted as necessary.
8. CARGO COMPARTMENTS
(a) All panels (including floor panels) shall be Serviceable
condition; and
(b) All nets shall be installed and in Serviceable condition.
9. LANDING GEAR AND WHEEL WELLS
(a) The Landing Gear and wheel wells shall be clean, free of
leaks, repaired if necessary and coated with corrosion inhibitor;
<PAGE>
(b) All decals shall be clean, secure and legible;
(c) Each tyre and brake shall have not less than fifty per cent.
(50%) life remaining in accordance with the Manufacturer's recommendation; and
(d) The Landing Gear shall have not less than fifty per cent
(50%) life remaining on re-delivery. If on re-delivery the Landing Gear has no
more than 2,000 hours in excess of fifty per cent (50%) life remaining to the
next overhaul or removal, the Lessee shall compensate the Lessor for such usage
by payment to the Lessor of the sum of US$[ ]* per additional Flight Hour or
utilization (as adjusted in accordance with the provisions of Schedule 1, Part 4
hereto and Appendix B to Letter Agreement No. 1 as applied over the life of the
Lease Period), payable on the re-delivery date.
10. CORROSION
(a) The Aircraft shall fully comply with the Corrosion Protection
Corrosion Prevention (CPCP) Programme referred to in the Approved Maintenance
Programme and on redelivery the external surface of the Aircraft shall be free
from untreated corrosion; and
(b) Fuel tanks shall be subject to a tank treatment programme in
accordance with the Manufacturer's maintenance manual, the requirements of the
FAA and the Approved Maintenance Programme.
11. TEST FLIGHT/GROUND RUN
(a) All systems must be shown to be Serviceable within the
tolerances specified in the appropriate maintenance manuals;
(b) The Engines must meet the tolerances and performance
requirements specified in the appropriate maintenance manual for engine ground
runs; and
(c) The Aircraft must be free of fuel, hydraulic, pneumatic,
water or waste systems leaks as assessed in accordance with the Aircraft
Maintenance Manual and this is to be demonstrated by topping off the tanks and
reservoirs and executing a functioning check on all systems.
12. DOCUMENTS
(a) All historical Aircraft records inclusive of Component Tags
(JAA Form 1 / FAA 81-30) and a full and completely amended set of technical
publications relating to the Aircraft shall be certified as correct by the
Approved Maintenance Performer;
<PAGE>
(b) All Aircraft Technical Publications issued by the
Manufacturers and provided by the Lessor relating to the Aircraft shall be
amended to latest revised status and redelivered with the Aircraft; and
(c) At the redelivery date, the Lessee shall redeliver to the
Lessor all the documents listed in Part 2 and Part 3 to the form of Acceptance
Certificate set out in Schedule 2, such documents, to the extent applicable,
complying with the requirements of sub-paragraph (a) above.
<PAGE>
SCHEDULE 5
ORIX Aviation Services (Lessor)
Re: Western Pacific Airlines
Lease Agreement
For One B737-3B7 Aircraft, N___WP
As the insurance broker for Western Pacific Airlines (the "Client"), we have
been requested to provide you with this letter with respect to certain insurance
placed by us on the Client's behalf.
In connection with this letter, we have read Article 16 and Schedule 3 of the
Aircraft Lease Agreement between the Client and you dated ____________
("Agreement"), dealing with insurance requirements, a copy of which is attached
(the "Insurance Covenant"). We have not read or reviewed the balance of the
Agreements, including without limitation any provisions thereof which might
relate to or influence the meaning of the language in the Insurance Covenant.
We have placed the insurance which is the subject of this letter after
consultation with the Client and based upon the Client's instructions, which may
not have contemplated or reflected the Insurance Covenant. Terms of coverage,
including limits and deductibles are based upon information furnished to us by
the Client, which information we have not independently verified.
On the basis of the foregoing and subject to the other qualifications stated in
this letter, we are pleased to confirm the following:
1. The insurance policy(ies) listed on Exhibit A hereto (the "Policies") is
(are) in full force and effect as of the date hereof.
2. As of this date, we have not received any notice of cancellation or
non-renewal with respect to the Policies and are not aware of any
circumstances which would make the giving of such a notice by an insurer
likely.
3. In our view, based upon our understanding of the language of the
Insurance Covenant, the Policies are consistent with the minimum
requirements of the Insurance Covenant.
4. Based upon our experience as insurance brokers, the coverages provided
by the Policies are consistent with those normally provided to companies
similarly situated to the Client.
<PAGE>
5. We will endeavor to advise Lessor of Notice of Cancellation by Insurers
as soon as practicable upon receiving the advice from the insurance
carrier.
6. We will endeavor to advise Lessor if the Client does not provide us with
renewal instructions 14 days prior to expiration.
7. We will endeavor to advise Lessor if we (MMI) cease to be the Client's
appointed broker as soon as practicable.
We express no view and assume no liability with respect to the solvency or
future ability to pay of any of the insurance companies which have issued the
Policies.
We assume no obligation to advise you of any developments regarding the Policies
subsequent to the date hereof. This letter is given on the condition that you
forever waive any liability against us based upon the placement of the Policies
and/or the statements made herein with the exception only of gross negligence or
fraud.
This letter may not be republished by you or used for any other purpose without
our prior written consent.
Very truly yours,
[SUBJECT TO CONFIRMATION BY ORIX]
<PAGE>
SCHEDULE 6
FORM OF LETTER OF QUIET ENJOYMENT
From: (the "undersigned")
To: WESTERN PACIFIC AIRLINES, INC. (the "Lessee")
[Date]
In Re: One Boeing 737-300 Aircraft, Manufacturer's Serial Number 28868 (the
"Aircraft")\Aircraft Lease Agreement (the "Lease") dated March 26, 1997,
between Wilmington Trust Company, as Owner Trustee (the "Lessor") and
the Lessee
Dear Sirs:
1. In consideration of $10 and other good and valuable consideration received
from Lessee and/or Lessor the receipt of which is hereby acknowledged, we
confirm to you that we will not interfere with the possession and use of the
Aircraft by the Lessee or the rights of the Lessee under the Lease, in each case
throughout the term of the Lease, but subject to the terms of the Lease, so long
as no Termination Event (as defined in the Lease) has occurred and is
continuing.
2. The foregoing undertaking is not to be construed as restricting the rights of
the undersigned to dispose of its interest in the Aircraft to such persons and
on such terms as it considers appropriate. However, if the undersigned exercises
such rights during the term of the Lease and provided that no Termination Event
(as defined in the Lease) has occurred and is continuing at the time of such
disposal, the undersigned will (subject to any requirements or restrictions
imposed by applicable law) dispose of such interest expressly subject to the
Lease and on terms that the purchaser issues a written undertaking to you in
substantially the form of this letter that it will not interfere with your
possession and use of the Aircraft throughout the remaining term of the Lease,
so long as no Termination Event (as defined in the Lease) has occurred and is
continuing.
3. The undersigned hereby represents to Lessee that (i) it is a company
incorporated and validly existing under the laws of [ ] and has the corporate
power to enter into and perform its obligations under this letter of quiet
enjoyment and to own its assets and carry on its business as it is now being
conducted and (ii) this letter of quiet enjoyment is the legal, valid and
binding obligation of the undersigned.
4. This Letter of Quiet Enjoyment shall be governed by, and construed in
accordance with, the internal laws of the State of New York. It is being
delivered to you for your benefit and may be relied upon and enforced by you.
[Assignee/Transferee]
<PAGE>
SCHEDULE
ORIX Aircraft Corporation
ORIX Corporation
Export Import Bank of Japan
<PAGE>
SCHEDULE 7
FORM OF STATUS REPORT
MONTHLY AIRCRAFT UTILIZATION AND STATUS REPORT
Report Date Report Period
Aircraft type Engine No. 1 Original ESN
Aircraft msn Engine No. 2 Original ESN
Aircraft reg
Aircraft Status
1. A/C Total Time Since New
2. A/C Total Cycles Since New
3. Total Block Hours During Period
4. Total Cycles During Period
5. Total Flight Hours During Period
6. Non-Revenue Cycles
7. Non-Revenue Flight Hours
8. Serial No's of Engines Currently Installed Engine 1
Engine 2
9. Serial Numbers of Engines Removed and Installed During Period
ESN Reason for Removal Current Location Date Removed Date Installed
<PAGE>
Engine Status
Orig. Engine No 1 Orig. Engine No 2 Other Engine
10. Engine Total Time Since New
11. Engine Total Cycles Since New
12. Current Location
13. Owner of Engine
14. Total Block Hours During Period
15. Total Cycles During Period
16. Total Flight Hours During Period
17. Thrust Bump Utilization (Yes/No)
If Yes, Give Reason
Other Information
18. AMS Revised (Yes/No - If Yes, See Attachment)
19. Material Deferred Items (Yes/No - If Yes, See Attachment)
20. APU Change (Yes/No - If Yes, See Attachment)
<PAGE>
21. Damage Report (Yes/No - If Yes, See Attachment)
22. Warranty Claim Advice (Yes/No - If Yes, See Attachment
Compiled By: Date:
<PAGE>
SCHEDULE 8
OFFICER'S CERTIFICATE
Pursuant to Section 11.1(c) of the Aircraft Lease Agreement, dated as of
February 1, 1997, between Wilmington Trust Company, as Owner Trustee, as Lessor
(the "Lessor"), and Western Pacific Airlines, Inc., as Lessee (the "Lessee"),
with respect to one Boeing 737-300 aircraft bearing manufacturer's serial number
28868 (the "Lease"), the undersigned, [responsible officer] of Lessee, hereby
certifies to Lessor and ORIX Aviation Systems Limited that:
1. I am the duly elected, qualified and acting [officer] of Lessee.
2. Unless otherwise defined herein, terms defined in the Lease shall
have the same meanings in this Certificate.
3. I have reviewed and am familiar with the terms of the Lease and I
have reviewed in reasonable detail the transactions and financial condition of
Lessee during the accounting period covered by the enclosed Form 10-K which was
filed with the Securities and Exchange Commission. Such review has not disclosed
the existence during or at the end of such accounting period, and as at the date
hereof the undersigned does not have knowledge, of any condition or event which
constitutes a Termination Event or would, with the giving of notice, the passage
of time, or both, give rise to a Termination Event.
IN WITNESS WHEREOF, th undersigned has executed this Certificate on
this __ day of .
----------------------------------
Name:
Title:
<PAGE>
================================================================================
LEASE AGREEMENT
(MSN 28869)
between
BOULLIOUN PORTFOLIO FINANCE I, INC., as Lessor
and
WESTERN PACIFIC AIRLINES, INC., as Lessee
Dated as of June 27, 1997
Relating to One New 737-33R Aircraft
Bearing Manufacturer's Serial Number 28869
To the extent, if any, that this Lease Agreement constitutes chattel paper
(as such term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction), no security interest in this Lease Agreement may be
created through the transfer or possession of any counterpart other than the
original executed counterpart containing the receipt therefor executed by the
Security Agent (as defined herein) on the signature page thereof.
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Definitions; Construction and Interpretation.... 1
Section 2. Lease of Aircraft............................... 1
2.1 Agreement to Lease.............................. 1
2.2 No Right to Refuse.............................. 2
2.3 Change in Delivery Date; Limitation of Lessor's
Obligation to Deliver Aircraft.................. 2
Section 3. Lease Term; Rent; Payments...................... 3
3.1 Basic Lease Term................................ 3
3.2 Renewal Lease Term.............................. 3
3.3 Basic Rent and Renewal Rent..................... 4
3.4 Supplemental Rent. ............................. 4
3.5 Payments in General............................. 4
3.6 Illegality...................................... 5
Section 4. Security Deposit; Letter of Credit.............. 6
4.1 Payment of the Security Deposit................. 6
4.2 Lessor's Interest in Security Deposit........... 6
4.3 Return of Security Deposit...................... 7
4.4 Substitution of Letter of Credit................ 7
4.5 Return of Letter of Credit...................... 8
4.6 Release of Boullioun Aviation Services, Inc..... 8
Section 5. Representations and Warranties.................. 8
5.1 Disclaimer; Representations and Warranties...... 8
5.2 Lessee's Representations and Warranties......... 11
Section 6. General Covenants............................... 14
6.1 Lessor's Covenants.............................. 14
6.2 Lessee's Covenants.............................. 15
Section 7. Title; Registration and Filings; Etc............ 22
7.1 Title to the Aircraft........................... 22
7.2 Registration, Recordation, Filings, Etc......... 22
7.3 Lessor's Cooperation............................ 24
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Section 8. Possession...................................... 24
8.1 Subleasing...................................... 25
8.2 Maintenance, Etc. .............................. 25
8.3 Installation of Engines on Other Airframes...... 25
8.4 Wet Lease....................................... 25
8.5 Civil Reserve Air Fleet Program................. 26
Section 9. Indemnities..................................... 26
9.1 General Indemnity............................... 26
9.2 Exceptions to General Indemnity................. 28
9.3 Taxes........................................... 29
9.4 Insured Claims; Subrogation...................... 29
9.5 Scope, Survival, Etc. .......................... 29
9.6 Indemnities Payable on After-Tax Basis.......... 31
Section 10. Risk of Loss, Destruction and Requisition, Etc.. 31
10.1 Risk of Loss.................................... 31
10.2 Event of Loss With Respect to the Aircraft...... 31
10.3 Event of Loss With Respect to an Engine......... 32
10.4 Requisition for Use of the Aircraft by any
Government Entity............................... 34
Section 11. Insurance....................................... 34
11.1 Scope of Insurances............................. 34
11.2 Application of Proceeds of Hull Insurance....... 36
11.3 Continuation of Liability Insurance............. 37
11.4 Reports, Etc. .................................. 38
11.5 Self-Insurance.................................. 38
11.6 Change of Industry Practice..................... 38
11.7 Change of Circumstance.......................... 38
11.8 Negative Undertakings........................... 37
11.9 Failure to Insure............................... 39
11.10 Additional Insurance............................ 40
11.11 Insurance Required by Airframe Manufacturer..... 40
Section 12. Events of Default............................... 40
12.1 Failure to Pay Scheduled Amounts................ 40
12.2 Failure to Pay Demand Amounts................... 41
12.3 Insurance....................................... 41
12.4 Return.......................................... 41
12.5 Certain Covenants............................... 41
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12.6 Other Covenants................................. 41
12.7 Representations and Warranties.................. 41
12.8 Voluntary Bankruptcy, Etc....................... 42
12.9 Involuntary Bankruptcy, Etc..................... 42
12.10 Illegality...................................... 42
12.11 Indebtedness or Lease Default................... 43
12.12 Government Action............................... 43
12.13 Judgments....................................... 43
Section 13. Remedies........................................ 44
13.1 Retake Possession............................... 44
13.2 Termination or Enforcement...................... 45
13.3 Application of Funds............................ 45
13.4 Damages......................................... 46
Section 14. Assignment of Lease............................. 46
14.1 Assignment by Lessor............................ 46
14.2 Assignment by Lessee............................ 49
14.3 Successors and Assigns.......................... 49
Section 15. No Setoff, Counterclaim, Etc.................... 49
Section 16. Further Assurances, Etc......................... 51
16.1 Further Assurances.............................. 51
16.2 Lessor's Performance of Lessee's Obligations.... 51
16.3 No Implied Waivers; Rights Cumulative........... 52
Section 17. [Intentionally Left Blank]...................... 52
Section 18. Governing Law and Jurisdiction.................. 52
18.1 New York Law.................................... 52
18.2 Nonexclusive Jurisdiction in New York........... 53
18.3 Process Agent................................... 53
18.4 Waiver of Immunity.............................. 54
18.5 Service of Process............................... 54
Section 19. Miscellaneous................................... 55
19.1 Construction.................................... 55
19.2 Amendments...................................... 56
19.3 Severability.................................... 56
19.4 Counterparts.................................... 56
19.5 Chattel Paper................................... 56
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19.6 Time of the Essence............................. 56
19.7 Notices......................................... 57
19.8 Entire Agreement................................ 57
19.9 Documentation Costs............................. 57
19.10 Language........................................ 57
SCHEDULE 1
DEFINITIONS
Section 1. Transaction Specific Definitions............... 1
Section 2. Technical Definitions........................... 3
Section 3. General Definitions............................. 9
SCHEDULE 2
OPERATIONAL MATTERS
Section 1. Maintenance; Operation; Etc..................... 1
Section 2. Maintenance Reserve Payments.................... 14
Section 3. Return of the Aircraft.......................... 17
ANNEX 1 TO
SCHEDULE 2
RETURN CONDITIONS
Section 1. Condition of Airframe and Engines............... 1
Section 2. Aircraft Documentation.......................... 6
SCHEDULE 3
CONFIDENTIAL INFORMATION
Section 1. Definitions..................................... 1
Section 2. Required Modifications.......................... 2
SCHEDULE 4
NOTICE AND ACCOUNT INFORMATION
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SCHEDULE 5
TAX MATTERS
Section 1. Lessee Liability................................ 1
Section 2. Exclusions From Lessee's Liability.............. 2
Section 3. No Reduction for Withholding, Etc............... 3
Section 4. Reports......................................... 3
Section 5. Payment......................................... 4
Section 6. Contest..... ................................... 5
Section 7. Tax Savings..................................... 6
SCHEDULE 6
CONDITIONS PRECEDENT
Section 1. Agreements and Documents........................ 1
Section 2. First Rent Payment Made......................... 3
Section 3. Security Deposit Paid or Letter of Credit
Delivered....................................... 3
Section 4. Registration of Aircraft........................ 3
Section 5. Filings, Etc. .................................. 3
Section 6. Authorizations.................................. 3
Section 7. No Default...................................... 4
Section 8. Section 1110.................................... 4
Section 9. Matters Related to the Novation Agreement....... 4
Section 10. Other Matters................................... 4
EXHIBIT A Acceptance Certificate
EXHIBIT B Form of Certificate of Insurance
EXHIBIT C Form of Insurance Broker's Letter
EXHIBIT D [Intentionally Left Blank]
EXHIBIT E [Intentionally Left Blank]
EXHIBIT F Aircraft Status Report
EXHIBIT G Letter of Credit
EXHIBIT H Officer's Certificate
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LEASE AGREEMENT
(MSN 28869)
LEASE AGREEMENT (MSN 28869), dated as of June 27, 1997 (this "Lease Agreement"),
between BOULLIOUN PORTFOLIO FINANCE I, INC. ("Lessor") and WESTERN PACIFIC
AIRLINES, INC. ("Lessee").
RECITALS:
Lessor has agreed, simultaneously herewith, to acquire the Aircraft (this and
all other capitalized terms used herein shall have the respective meanings, and
shall be interpreted and construed in the manner, set forth in Section 1) from
Airframe Manufacturer pursuant to the Novation Agreement for the purpose of
leasing the Aircraft to Lessee.
Lessee desires, upon the terms and conditions hereof, to lease the Aircraft from
Lessor, and Lessor is willing, upon the terms and conditions hereof, to lease
the Aircraft to Lessee.
AGREEMENT:
In consideration of the foregoing premise, and for other good and valuable
consideration the adequacy and receipt of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS; CONSTRUCTION AND INTERPRETATION
The capitalized terms used in this Lease Agreement shall have the
respective meanings ascribed thereto in Schedule 1. The rules of construction
and interpretation that apply to this Agreement are set forth in Section 19.1.
SECTION 2. LEASE OF AIRCRAFT
2.1 Agreement to Lease
Subject to satisfaction of the conditions set forth in Schedule 6 and
to the provisions of this Section 2, Lessor hereby agrees to deliver the
Aircraft to Lessee at the Delivery Location and to lease the Aircraft to Lessee,
and Lessee hereby agrees to accept the Aircraft at the Delivery Location and to
lease the Aircraft from Lessor, in each case, on the Scheduled Delivery Date and
in the condition delivered to Lessor by Airframe Manufacturer under the Novation
Agreement, but otherwise in the "as is, where is" condition of the Aircraft,
pursuant to the terms and conditions of this Lease Agreement and the other
Operative Documents, the commencement of such leasing to be evidenced by the
execution and delivery by Lessee to Lessor of, and the confirmation by Lessor
of, the Acceptance Certificate.
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2.2 No Right to Refuse
Lessee acknowledges that Lessor has agreed to purchase the Aircraft
pursuant to the Novation Agreement for the sole purpose of leasing the Aircraft
to Lessee pursuant to this Lease Agreement. Accordingly, Lessee shall not be
entitled for any reason whatsoever to refuse to accept delivery of the Aircraft
under this Lease once the Aircraft has been accepted by Lessor under the
Novation Agreement and, without limiting the effect of Section 5.1, Lessor shall
not be liable for any loss or expense, or any loss of profit, resulting directly
or indirectly from any defect or alleged defect in the Aircraft or failure or
alleged failure of the Aircraft to comply with the requirements of the Novation
Agreement. As between Lessor and Lessee, Lessee shall have sole responsibility
for ensuring that the Aircraft is in the condition on the Delivery Date required
by the Airframe Manufacturer Purchase Agreement (as defined in the Novation
Agreement).
2.3 Changes in Delivery Date; Limitation of Lessor's Obligation to Deliver
Aircraft
If, owing to (1) any of the conditions precedent specified in
Schedule 6 not having been met or not having been waived by Lessor in accordance
with Schedule 6, (2) any delay in the delivery of, or failure to deliver, the
Aircraft to Lessor for whatsoever reason and/or (3) reasons of Force Majeure,
the delivery of the Aircraft under this Lease Agreement shall be delayed beyond
the Scheduled Delivery Date, then Lessee shall accept delivery of the Aircraft
on the first Business Day after such date on which no Force Majeure prevents
such delivery, Lessor has possession of the Aircraft at the Delivery Location
and all of such conditions precedent have been satisfied or waived in accordance
with Schedule 6, provided that if delivery of the Aircraft under this Lease
Agreement is delayed beyond the Commitment Termination Date, then either party
hereto (so long as such party is not in default hereunder) may, by written
notice to the other, terminate this Lease Agreement and each other Operative
Document (including the Novation Agreement), whereupon neither Lessor nor Lessee
shall have any further obligation to the other hereunder or thereunder, except
as otherwise expressly provided herein or therein and except that Lessor shall
be obligated to return the Security Deposit and/or the Letter of Credit and any
amounts of Basic Rent paid by Lessee prior to such termination (in each case,
free and clear of Liens other than Lessee Liens). In the event of any such delay
or any eventual termination of this Lease Agreement, neither Lessor nor Lessee
shall be responsible for any losses, including loss of profit, costs or expenses
arising therefrom suffered or incurred by the other. Notwithstanding the
foregoing, (y) if such delay or failure is caused by a Default, Lessor shall
have all the rights and remedies against Lessee described in Section 13,
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including the right to collect damages for Expenses in connection with any delay
in delivery of the Aircraft, and Lessor shall not be obligated to return the
Security Deposit or the Letter of Credit or any amounts of Basic Rent paid by
Lessee (except to the extent not applied, drawn and applied and/or used as
setoff by Lessor pursuant hereto) and (z) if Lessor shall delay or fail to
deliver the Aircraft in breach of its obligations hereunder or under the other
Operative Documents, Lessee shall have all rights provided by Law arising out of
such breach, including the right to terminate this Lease Agreement and the other
Operative Documents.
SECTION 3. LEASE TERM; RENT; PAYMENTS
3.1 Basic Lease Term
The Basic Lease Term shall commence on the Delivery Date and, unless
this Lease Agreement is terminated earlier pursuant to the provisions hereof,
shall end on the Basic Lease Term Termination Date, provided that if the
scheduled last day of the Basic Lease Term shall not be a Business Day, then the
Basic Lease Term shall expire on the next preceding Business Day.
3.2 Renewal Lease Term
Lessee shall have the option to extend the Lease Term up to two
times, with each such extension to be for a one year period. Such option may be
exercised only by delivery of (1) a Renewal Rent Determination Request on a
timely basis (as provided below) and (2) written irrevocable notice to Lessor at
least 6 months prior to the then scheduled expiration of the Lease Term electing
to extend the Lease Term by one year, provided that Lessee may not exercise such
option at any time when an Event of Default has occurred and is continuing. Each
Renewal Lease Term shall commence on last day of the Lease Term (without regard
to such Renewal Lease Term) and end on the Renewal Lease Term Termination Date,
provided that if the last day of a Renewal Lease Term shall not be a Business
Day, then such Renewal Lease Term shall expire on the next preceding Business
Day.
Upon written request (a "Renewal Rent Determination Request") from
Lessee to Lessor at least 8 months but no more than 10 months prior to the then
scheduled expiration of the Lease Term, Lessor and Lessee shall in good faith
and acting reasonably determine the Renewal Rent Amount. If 15 days prior to the
Renewal Rent Determination Date, Lessor and Lessee cannot determine the Renewal
Rent Amount, then the Renewal Rent Amount shall be determined by two recognized
independent aircraft appraisers, one of which shall be selected by Lessee (at
its expense) and one of which shall be selected by the Lessor (at its expense),
or if such appraisers cannot agree, by a third independent appraiser chosen by
the mutual assent of the first two appraisers (with the cost of such third
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appraiser to be shared equally by Lessor and Lessee). If either party shall fail
to appoint an appraiser at least 11 days prior to the Renewal Rent Determination
Date, or if such two appraisers cannot agree on the amount of the Renewal Rent
and fail to appoint a third appraiser at least eight days prior to the Renewal
Rent Determination Date, then Lessor and Lessee shall jointly request the
American Association of Equipment Lessors (or any successor organization) to
appoint the relevant appraiser. Any such third appraiser shall determine the
amount of the Renewal Rent on or prior to the Renewal Rent Determination Date.
3.3 Basic Rent and Renewal Rent
Lessee shall pay rent for the Aircraft in installments (1) on each
Basic Rent Payment Date during the Basic Lease Term equal to the Basic Rent
Amount and (2) on each Renewal Rent Payment Date during any Renewal Lease Term
equal to the Renewal Rent Amount, in each case, in advance in immediately
available Dollars.
3.4 Supplemental Rent
Lessee shall pay, or cause to be paid, promptly to Lessor, or to
whomsoever shall be entitled thereto, any and all Supplemental Rent when and as
the same shall become due and owing. Lessee also shall pay to Lessor, or to
whomsoever shall be entitled thereto, on demand, as Supplemental Rent, to the
extent permitted by applicable Law, interest at the Past Due Rate on any Rent
(including any interest accrued thereon pursuant to this Section 3 (compounded
on a daily basis)) not paid when due for any period for which the same shall
remain unpaid.
3.5 Payments in General
3.5.1 Timing and Place of Payment
All payments of Rent payable to Lessor shall be made directly by
Lessee in Dollars by wire transfer of immediately available funds on the
required date of payment and with value on such date, to the account for Lessor
specified in Schedule 4, or to such other account as Lessor shall otherwise
direct by prior notice to Lessee.
3.5.2 Business Day Convention
If the due date for any payment of Rent is not a Business Day,
then, unless otherwise provided herein, such payment shall be made on the
Business Day next preceding such scheduled date with the same force and effect
as if made on such scheduled date and without adjustment in the amount due.
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3.5.3 Calculation of Interest
All amounts of interest or amounts calculated by reference to
interest payable under any of the provisions of this Lease Agreement or any
other Operative Document shall be calculated on the basis of the actual number
of days elapsed in a 360-day year.
3.5.4 Determination by Lessor
Any determination by Lessor or any other payee as to any rate of
interest, Rent, Reserves or any other amount shall, in the absence of manifest
error, be conclusive and binding on Lessee.
3.5.5 Payments to Lessee
Any amount referred to in this Agreement or any other Operative
Document which is payable by Lessor to Lessee or received by Lessee and
expressly retainable by Lessee hereunder shall not be paid to or retained by
Lessee if at the time of such payment or receipt by Lessee a Default shall have
occurred and be continuing, but shall be held by or paid over to Lessor, as
security for the obligations of Lessee under this Agreement and the other
Operative Documents to be held and applied pursuant to Section 13 and applied
against Lessee's obligations hereunder as and when due. At such time as there
shall not be continuing any Default, such amount shall be paid to Lessee to the
extent not applied in accordance with the preceding sentence.
3.6 Illegality
If this Agreement becomes invalid, unenforceable or illegal as the
result of any change of Law arising after the date hereof, the parties shall use
reasonable efforts to modify or amend this Agreement so as to render it valid
and legal in all respects. In the event that it is not possible so to modify or
amend this Agreement within a reasonable period (which shall not, in any event,
exceed 60 days or such shorter period as may be required by Law) Lessor may
terminate this Agreement upon 14 days' (or such shorter period as may be
required by Law) notice of termination to Lessee whereupon Lessee shall deliver
the Aircraft to Lessor in accordance with the provisions of Section 3 of
Schedule 2 and, in the absence of a prohibition pursuant to applicable Law,
Lessee shall continue to pay Basic Rent and, if applicable, Renewal Rent to the
end of the Lease Term as specified herein (but not Reserves or indemnities with
respect to periods after the Return of the Aircraft in accordance with Section 3
of Schedule 2). Upon compliance by the Lessee with the foregoing, Lessor shall
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return to Lessee the Security Deposit and any amounts of Basic Rent and, if
applicable, Renewal Rent paid by Lessee to the extent that Lessor has actually
received rental from any person in respect of the Aircraft with respect to any
period for which such Basic Rent and, if applicable, Renewal Rent was paid.
Lessor shall use reasonable efforts to minimize the amount of Basic Rent and, if
applicable, Renewal Rent to be retained by Lessor.
SECTION 4. SECURITY DEPOSIT; LETTER OF CREDIT
4.1 Payment of the Security Deposit
Lessor acknowledges to Lessee that it has received the Initial
Security Deposit. Unless Lessee shall have exercised its option to provide
Lessor a Letter of Credit pursuant to Section 4.4 of the Lease Agreement, Lessee
shall pay to Lessor, by wire transfer of immediately available Dollars to the
account of Lessor specified in Schedule 4 on or before the date both Lessor and
Lessee sign this Agreement, the Documentation Security Deposit Installment.
All such amounts, as held by Lessor or Security Agent from time to
time, are referred to in this Lease Agreement and the other Operative Documents
as the "Security Deposit."
4.2 Lessor's Interest in Security Deposit
The Security Deposit shall secure the timely payment and performance
by Lessee of (1) its obligations hereunder and under each other Operative
Document and (2) its obligations under each of the Other Leases and under each
of the "Operative Documents" (howsoever denominated) related to the Other Leases
(such documents and agreements referred to in subclause (1) and (2),
collectively, the "Transaction Documents" and such obligations referred to in
subclause (1) and (2), collectively, the "Secured Obligations"). Lessee hereby
assigns, transfers and pledges to Lessor, and hereby grants to Lessor, a
first-priority security interest in the Security Deposit to secure such payment
and such performance. Lessee shall not assign, transfer, pledge or otherwise
dispose of any right, title or interest in or to the Security Deposit except as
provided in the preceding sentence. Subject only to Sections 2.3 and 4.3, the
Security Deposit may be assigned or pledged by Lessor to any Person. The
Security Deposit may be commingled by Lessor or such other Person, as the case
may be, with its own general or other funds during the Lease Term. Any interest
earned on the Security Deposit shall be for Lessor's or such Person's sole
account. If an Event of Default (hereunder or under any of the Other Leases)
shall occur and be continuing, then in addition to any other rights Lessor may
have under applicable Law as a secured party or otherwise, or under this
Agreement or any other Transaction Document, Lessor or such Person, as the case
may be, may at any time as an agreed remedy set off against, use, apply or
retain all or any portion of the Security Deposit in full or partial payment for
6
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amounts constituting the Secured Obligations (including to compensate Lessor or
such Person, as the case may be, for any amount it may in its reasonable
discretion advance as a result of the occurrence of any Default (hereunder or
under any of the Other Leases), or to apply toward Expenses arising as a result
of the occurrence of any Default (hereunder or under any of the Other Leases) or
otherwise). If Lessor or such Person uses or applies all or a portion of the
Security Deposit, such application shall not be deemed a cure by Lessee, or
waiver by Lessor or any other Person, of any Default (hereunder and under any of
the Other Leases), and Lessee shall, within ten days after Lessor's or such
Person's demand therefor, pay to Lessor or such Person, as the case may be, an
amount sufficient to restore the Security Deposit to its required total sum.
4.3 Return of Security Deposit
That portion, if any, of the Security Deposit that has not previously
been used or applied, or set off against, as provided for in this Agreement or
any other Operative Document, shall be returned to Lessee (free and clear of
Liens other than Lessee Liens) by wire transfer of immediately available Dollars
to Lessee's account specified in Schedule 4, or to such other account as Lessee
shall specify in writing to Lessor, on the date which is not more than 10
Business Days after and excluding the date upon which the Aircraft is returned
to Lessor in accordance with this Lease Agreement so long as no Default shall
have occurred and be continuing at such time.
4.4 Substitution of Letter of Credit
Lessee shall have the one-time irrevocable option to substitute for
the Security Deposit a letter of credit (a "Letter of Credit"), in respect of
all of the Secured Obligations, with a stated amount equal to the amount of the
Security Deposit required as of the Delivery Date. The Letter of Credit shall
(1) be in the form of Exhibit G, (2) be issued or confirmed by a bank
satisfactory to Lessor and (3) have an expiry date of no earlier than the date
one month after the Scheduled Return Date (upon request of Lessee, Lessor shall
consider accepting a one-year (or longer period) rolling letter of credit). In
the event that at any time during the Lease Term the bank issuing or confirming
the Letter of Credit becomes unacceptable to Lessor, in its reasonable judgment,
Lessee shall within fourteen days of demand therefor by Lessor provide Lessor
with a replacement letter of credit issued or confirmed, as the case may be, by
a bank that is acceptable to Lessor, in its reasonable judgment. The Letter of
Credit may be assigned or pledged by Lessor to any Person. If for any reason
Lessor or such other Person is paid under the Letter of Credit, then in addition
to any other rights Lessor or such Person may have under applicable Law, or
under this Lease Agreement or any other Transaction Document, Lessor or such
Person, as the case may be, (1) may at any time as an agreed remedy set off
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against, use, apply or retain all or any portion of the amounts so paid in full
or partial payment for amounts constituting the Secured Obligations (including
to compensate Lessor or such Person, as the case may be, for any amount it may
in its reasonable discretion advance as a result of the occurrence of any
Default (hereunder or under any of the Other Leases), or to apply toward
Expenses arising as a result of the occurrence of any Default (hereunder or
under any of the Other Leases) or otherwise) and/or (2) may retain all or any
portion of the amounts so paid as security for the performance the Secured
Obligations (and Lessee hereby grants Lessor a security interest in all such
amounts). Any such use or application shall not, however, be deemed a cure by
Lessee, or waiver by Lessor or any Person, of any Default (hereunder or under
any of the Other Leases). Any interest earned on the amounts so drawn shall be
for Lessor's or such other Person's sole account. If for any reason, Lessor or
such other Person is paid under a Letter of Credit, then Lessee shall cause an
additional Letter of Credit (which shall become the "Letter of Credit") to be
issued so that the Lessor or such other Person shall at all times have the
benefit of a Letter of Credit for the full Security Deposit required under this
Section 4.4.
4.5 Return of Letter of Credit
So long as no Default shall have occurred and be continuing at such
time, the Letter of Credit, unless drawn by Lessor and no longer in Lessor's
possession, and any then unapplied cash proceeds from a drawing of the Letter of
Credit shall be returned to Lessee at its address set forth in Schedule 4 on the
date which is not more than 10 Business Days after and excluding the date upon
which the Aircraft is returned to Lessor in accordance with this Agreement.
4.6 Release of Boullioun Aviation Services, Inc.
For the benefit of Lessor and its Affiliate, Boullioun Aviation
Services, Inc., upon payment of the same by Boullioun Aviation Services Inc. to
Lessor, Lessee confirms that it shall have no further claim against Boullioun
Aviation Services Inc. for, and Lessee hereby releases Boullioun Aviation
Services, Inc. from any further obligation or liability in respect of, the
Initial Security Deposit Installment.
SECTION 5. REPRESENTATIONS AND WARRANTIES
5.1 Disclaimer; Representations and Warranties
5.1.1 Disclaimer
EFFECTIVE UPON ACCEPTANCE OF THE AIRCRAFT BY LESSEE, WHICH SHALL BE
EVIDENCED BY LESSEE'S EXECUTION AND DELIVERY OF THE ACCEPTANCE CERTIFICATE, THE
AIRCRAFT SHALL BE LEASED UNDER THIS LEASE AGREEMENT "AS IS, WHERE IS WITH ALL
8
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FAULTS" (LESSEE HEREBY CONFIRMING THAT IT HAS BEEN ADVISED OF AND FULLY
UNDERSTANDS THE LEGAL IMPORT AND IMPLICATIONS OF SUCH PHRASE AND THE PROVISIONS
OF THIS SECTION 5.1 AND THAT SUCH IS APPROPRIATE IN A TRANSACTION OF THIS KIND)
AND LESSEE AGREES, ACKNOWLEDGES AND ACCEPTS THAT NONE OF LESSOR OR ANY OTHER
INDEMNIFIED PARTY MAKES ANY WARRANTY OR REPRESENTATION WHATSOEVER CONCERNING THE
AIRCRAFT. EFFECTIVE UPON ACCEPTANCE OF THE AIRCRAFT BY LESSEE, WHICH SHALL BE
EVIDENCED BY LESSEE'S EXECUTION AND DELIVERY OF THE ACCEPTANCE CERTIFICATE,
LESSEE, FOR THE BENEFIT OF LESSOR AND EACH INDEMNIFIED PARTY, HEREBY WAIVES,
RELEASES AND RENOUNCES ALL WARRANTIES, REPRESENTATIONS AND OTHER INDEMNITIES,
GUARANTIES, OBLIGATIONS AND LIABILITIES OF LESSOR AND ANY OTHER INDEMNIFIED
PARTY AND ANY RIGHTS, CLAIMS AND REMEDIES OF LESSEE, EXPRESS OR IMPLIED, ARISING
BY LAW OR OTHERWISE, IN EACH CASE, WITH RESPECT TO THE AIRCRAFT, ANY ENGINE, ANY
PART, ANY AIRCRAFT DOCUMENTATION OR ANY OTHER THING DELIVERED, LEASED, SOLD OR
TRANSFERRED UNDER THIS LEASE AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT,
INCLUDING:
5.1.1.1 ANY WARRANTY AS TO THE AIRWORTHINESS, VALUE, CONDITION,
DESIGN OR OPERATION OF, OR THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN, OR THE
ABSENCE OF ANY DEFECT IN, THE AIRCRAFT, THE AIRFRAME, ANY ENGINE, ANY PART, ANY
AIRCRAFT DOCUMENTATION OR ANY OTHER THING DELIVERED, SOLD OR TRANSFERRED
HEREUNDER OR ANY OTHER OPERATIVE DOCUMENT.
5.1.1.2 ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE OR
FOR A PARTICULAR PURPOSE. 5.1.1.3 ANY EXPRESS OR IMPLIED WARRANTY AS TO
TITLE (EXCEPT TO THE EXTENT CONTAINED IN SECTION 5.1.2.4).
5.1.1.4 ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE,
COURSE OF DEALING OR USAGE OF TRADE. 5.1.1.5 ANY OBLIGATION OR LIABILITY
WITH RESPECT TO ANY ACTUAL OR ALLEGED PATENT OR OTHER INTELLECTUAL PROPERTY
INFRINGEMENT.
5.1.1.6 ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT,
WHETHER OR NOT IN STRICT OR ABSOLUTE LIABILITY OR ARISING FROM THE
NEGLIGENCE OF LESSOR OR ANY INDEMNIFIED PARTY, ACTUAL OR IMPUTED, ACTIVE OR
PASSIVE.
5.1.1.7 ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR
LOSS OR DAMAGE TO THE AIRCRAFT, ANY ENGINE, ANY PART, ANY AIRCRAFT DOCUMENTATION
OR ANY OTHER THING, FOR ANY LOSS OF USE, REVENUE OR PROFIT OR FOR ANY OTHER
DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
FOR THE AVOIDANCE OF DOUBT, THE FOREGOING SHALL NOT AFFECT OR LESSEN IN ANY WAY
LESSEE'S RIGHTS AGAINST AIRFRAME MANUFACTURER, ENGINE MANUFACTURER OR THE
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MANUFACTURER OF ANY PART UNDER ANY ASSIGNMENT BY LESSOR TO LESSEE OF THE
WARRANTY AND/OR CUSTOMER SUPPORT PROVISIONS OF THE AIRFRAME MANUFACTURER
PURCHASE AGREEMENT OR OTHERWISE.
EFFECTIVE UPON ACCEPTANCE OF THE AIRCRAFT BY LESSEE, WHICH SHALL BE EVIDENCED BY
LESSEE'S EXECUTION AND DELIVERY OF THE ACCEPTANCE CERTIFICATE, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES
CONFERRED UPON A LESSEE BY ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE AS IN
EFFECT IN THE STATE OF NEW YORK AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY ANY
OTHER STATUTE OR OTHERWISE THAT MAY LIMIT OR MODIFY LESSOR'S RIGHTS AS DESCRIBED
IN THIS LEASE AGREEMENT.
DELIVERY BY LESSEE TO LESSOR OF THE ACCEPTANCE CERTIFICATE WILL BE CONCLUSIVE
PROOF AS BETWEEN LESSOR AND LESSEE (BUT WITHOUT PREJUDICE TO ANY CLAIMS LESSOR
OR LESSEE MAY HAVE AGAINST THE AIRFRAME MANUFACTURER, ENGINE MANUFACTURER OR ANY
VENDOR WITH RESPECT TO THE AIRCRAFT) THAT LESSEE HAS EXAMINED AND INVESTIGATED
THE AIRCRAFT, THAT THE AIRCRAFT AND THE AIRCRAFT DOCUMENTATION ARE SATISFACTORY
TO LESSEE AND THAT LESSEE HAS IRREVOCABLY AND UNCONDITIONALLY ACCEPTED THE
AIRCRAFT FOR LEASE HEREUNDER WITHOUT ANY RESERVATIONS WHATSOEVER.
5.1.2 Lessor's Representations and Warranties
In order to induce Lessee to enter into this Lease Agreement and
each other Operative Document and to lease the Aircraft from Lessor, Lessor
hereby represents and warrants to Lessee that:
5.1.2.1 Organization, Corporate Power, Etc.
Lessor (1) is a corporation duly organized under the laws of the Lessor
Jurisdiction and (2) has the corporate power and authority to own or hold under
lease its properties wherever located or used and to enter into and perform its
obligations hereunder and under each other Operative Document.
5.1.2.2 Corporate Authority
The execution, delivery and performance by Lessor of this Lease Agreement,
the Acceptance Certificate and each other Operative Document to which Lessor is
a party have been duly authorized by all necessary corporate action on the part
of Lessor.
5.1.2.3 Legal, Valid and Binding Agreements
This Lease Agreement, the Acceptance Certificate and the other Operative
Documents each have been (as and when delivered to Lessee) duly executed and
delivered by Lessor and constitutes the legal, valid and binding obligation of
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Lessor, enforceable against Lessor in accordance with its terms, except as may
be limited by (1) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other laws relating to or affecting creditors' rights
generally and (2) general principles of equity (regardless of whether considered
in a proceeding in equity or at law), including those relating to the
availability of the remedy of specific performance or injunctive relief.
5.1.2.4 Right to Lease
Lessor has the full right and power to lease the Aircraft pursuant hereto.
5.2 Lessee's Representations and Warranties
In order to induce Lessor to enter into this Lease Agreement and each
other Operative Document and to lease the Aircraft to Lessee:
5.2.1 Continuing Representations and Warranties
Lessee hereby represents and warrants to Lessor that:
5.2.1.1 Organization, Corporate Power, Etc.
Lessee (1) is a corporation duly organized under the laws of the State of
Delaware and (2) has the corporate power and authority to own or hold under
lease its properties wherever located or used and to enter into and perform its
obligations hereunder and under each other Operative Document.
5.2.1.2 Corporate Authority
The execution, delivery and performance by Lessee of this Lease Agreement,
the Acceptance Certificate and each other Operative Document to which Lessee is
a party have been duly authorized by all necessary corporate action on the part
of Lessee.
5.2.1.3 Authorizations
Lessee holds all Authorizations necessary to (1) authorize Lessee to engage
in air transport and to carry on scheduled passenger and cargo service in each
case as presently conducted, (2) permit the execution and delivery by Lessee of
this Lease Agreement, the Acceptance Certificate and each other Operative
Document and the performance by Lessee of its obligations hereunder and
thereunder and (3) operate the Aircraft in compliance with applicable Law.
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5.2.1.4 No Contravention
Neither the execution and delivery of this Lease Agreement, the Acceptance
Certificate or any other Operative Document by Lessee nor the performance by
Lessee of its obligations hereunder or thereunder contravenes any of the
provisions of the organizational or charter documents of Lessee.
5.2.1.5 Legal, Valid and Binding Agreements
This Lease Agreement, the Acceptance Certificate and the other Operative
Documents each have been (as and when delivered to Lessor) duly executed and
delivered by Lessee and constitutes the legal, valid and binding obligation of
Lessee, enforceable against Lessee in accordance with its terms, except as may
be limited by (1) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other laws relating to or affecting creditors' rights
generally and (2) general principles of equity (regardless of whether considered
in a proceeding in equity or at law), including those relating to the
availability of the remedy of specific performance or injunctive relief.
5.2.1.6 [Intentionally Left Blank]
5.2.1.7 Pari Passu
The obligations of Lessee under this Lease Agreement and the other
Operative Documents are direct, general and unconditional obligations of Lessee
and rank at least pari passu in right of payment with all other present and
future unsecured and unsubordinated obligations (including contingent
obligations) of Lessee with the exception of such obligations as are mandatorily
preferred by Law and not by virtue of any contract.
5.2.1.8 Governing Law
In any proceedings taken in the State of Colorado for the enforcement of
this Agreement or any other Operative Document, the choice in Section 18 of the
governing law for this Agreement and the Operative Documents, and any judgment
obtained in any jurisdiction referred to in Section 18, will be recognized.
5.2.1.9 No Violation
Neither the execution and delivery of this Lease Agreement, the Acceptance
Certificate or any other Operative Document by Lessee nor the performance by
Lessee of its obligations hereunder or thereunder violate any Law existing on
the date hereof applicable to or binding upon the Aircraft or Lessee.
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5.2.1.10 All Disclosures Made
The financial and other information furnished by Lessee in connection with
this Agreement or any other Operative Document does not contain any untrue
statement or omit to state facts, the omission of which makes the statements
therein, in the light of the circumstances under which they were made,
misleading in any material respect.
5.2.1.11 No Immunity
Lessee is subject to civil and commercial Law with respect to its
obligations under this
Lease Agreement and each other Operative Document to which it is a party and
neither Lessee nor any of its assets is entitled to any right of sovereign
immunity and the entry into and performance of this Lease Agreement and each
other Operative Document by Lessee constitute private and commercial acts.
The representations and warranties contained in this Section
5.2.1 are continuing representations, warranties and covenants and shall be
deemed made and given throughout the Lease Term.
5.2.2 Initial Representations and Warranties
Lessee hereby represents and warrants to Lessor as of the date
hereof and as of the Delivery Date (unless, in each case, such representation
and warranty is expressly applicable on and as of another date or dates) that:
5.2.2.1 Litigation
There are no pending or, to Lessee's knowledge, threatened actions or
proceedings before any court or administrative agency (1) in respect of this
Lease Agreement or any other Operative Document or the Aircraft or the
performance by Lessee of its obligations hereunder or under any other Operative
Document or (2) which may reasonably be expected to materially adversely affect
the ability of Lessee to perform its obligations under the Operative Documents.
5.2.2.2 Registration, Recordation and Filing
Except for the registrations, recordations and filings described in Section
7, each of which will be duly made and effected by Lessor and Lessee, as the
case may be, on or prior to the Delivery Date, no further action, including the
registration, recordation or filing of any instrument or document is necessary
or advisable under the Laws of the State of Registration, the Lessee
Jurisdiction, or any jurisdiction in which the Aircraft is currently operated by
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Lessee (1) in order for this Lease Agreement to constitute a valid and
enforceable lease of record relating to the Aircraft, (2) to authorize or permit
Lessee to perform its obligations hereunder or under each other Operative
Document or (3) fully to protect, establish, perfect and preserve Lessor's title
to, and Lessor's rights and interests in, the Aircraft and the Operative
Documents as against Lessee and any other Person.
5.2.2.3 Financial Condition
The Quarterly Financial Report of Lessee for the period ended March 31,
1997, a copy of which has been furnished to Lessor fairly presents the financial
condition of Lessee as at such date and the results of operations of Lessee for
the period ended on such date, all in accordance with GAAP, consistently
applied.
5.2.2.4 [Intentionally Left Blank]
5.2.2.5 Taxes
Lessee has filed or caused to be filed all tax returns which are required
to be filed and has paid or caused to be paid all Taxes shown to be due and
payable on such returns and (except to the extent being contested in good faith
and by appropriate proceedings, but only as long as such proceedings do not
involve any material danger of the sale, forfeiture, confiscation, seizure or
loss (including loss of use) of the Aircraft or any interest therein or of
criminal or civil liability of Lessor) on any assessment received by Lessee to
the extent that such Taxes have become due and payable.
5.2.3 No Prejudice
Unless expressly waived by Lessor pursuant to Section 19.2, the
rights and remedies of Lessor in relation to any misrepresentation or breach of
warranty on the part of Lessee shall not be prejudiced by any investigation by
or on behalf of Lessor into the affairs of Lessee, by the performance of this
Lease Agreement or any other Operative Document or by any other act or thing
which may be done or omitted to be done by Lessor under this Lease Agreement or
any other Operative Document or any related document and which would or might,
but for this provision, prejudice such rights and remedies.
SECTION 6. GENERAL COVENANTS
6.1 Lessor's Covenants
In order to induce Lessee to enter into this Lease Agreement and each
other Operative Document and to lease the Aircraft from Lessor:
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6.1.1 Quiet Enjoyment
Lessor hereby covenants to Lessee that so long as no Event of
Default shall have occurred and be continuing, except as may be expressly
provided in this Lease Agreement or any other Operative Document, neither Lessor
nor any Person claiming by or through Lessor shall take or cause to be taken any
action inconsistent with Lessee's right of quiet enjoyment of, or otherwise in
any way interfere with or interrupt, the continuing use, operation and
possession of the Aircraft by Lessee. The foregoing, however, shall not be
construed or deemed to modify or condition in any respect the obligations of
Lessee pursuant to Section 15, which obligations are absolute and unconditional.
6.1.2 No Claims by Lessor
For the benefit of each lessor of an airframe or engine leased
to Lessee, each seller of an airframe or engine purchased by Lessee subject to a
conditional sale and each holder of a security interest in an airframe or engine
owned by Lessee under a security agreement, Lessor hereby covenants that it
shall not acquire or claim, as against such lessor, seller or security interest
holder, any right, title or interest in any engine covered by any such lease,
conditional sale or security agreement, which engine is attached to the
Airframe, provided that such agreement of Lessor shall not be for the benefit of
any lessor, seller or security interest holder of any such airframe, unless such
lessor, seller or security interest holder has expressly agreed (which agreement
may be contained in such lease, conditional sale agreement or security
agreement) that neither it nor its successors or assigns will acquire, as
against Lessor, any right, title or interest in an Engine as a result of such
Engine's being installed on such airframe.
6.2 Lessee's Covenants
Lessee covenants and agrees with Lessor, at Lessee's sole cost and
expense, that:
6.2.1 Continuing Business; Merger, Consolidation, Etc.
Lessee shall not:
6.2.1.1 Discontinue Business
Permanently discontinue its business as a commercial
passenger or cargo air carrier.
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6.2.1.2 Suspend Operations
Voluntarily suspend all or substantially all of its commercial airline
operations (Lessor
and Lessee agree that a labor stoppage or strike or any suspension of operations
due to FAA regulations or orders not specifically directed at Lessee shall not
in itself constitute a discontinuance of business).
6.2.1.3 Consolidation, Merger, Etc.
Consolidate with or merge into any other corporation, or permit any other
corporation to consolidate with or merge into Lessee, or convey, transfer or
lease substantially all of Lessee's assets as an entirety to any Person,
provided that Lessee may consolidate with or merge into any other corporation,
or permit any other corporation to consolidate with or merge into Lessee, and
Lessee may convey, transfer or lease substantially all of Lessee's assets as an
entirety to any Person if:
6.2.1.3.1 The corporation formed by such consolidation or merger or the
Person which acquires by conveyance, transfer or lease substantially all of the
assets of Lessee as an entirety (each such corporation and such Person being
hereinafter called the "Successor") shall be a corporation under the laws of the
United States or any state thereof or District of Columbia and shall be a
"citizen of the United States" as defined in the U.S. Aviation Laws and shall be
a U.S. Air Carrier.
6.2.1.3.2 Such Successor (if not the Lessee) shall execute and deliver to
Lessor an agreement in form and substance reasonably satisfactory to Lessor
containing an assumption by such Successor of the due and punctual performance
of each covenant and condition of Lessee under this Lease Agreement, the
Acceptance Certificate and all other Operative Documents and shall reissue or
reproduce the documents required under Schedule 6, in each case, with such
changes as necessary to reflect the change to such Successor.
6.2.1.3.3 Immediately after giving effect to such transaction, (1) no
Payment/Bankruptcy Default under this Lease Agreement shall have occurred and be
continuing and (2) the Tangible Net Worth of the Successor shall not be less
than the Tangible Net Worth of Lessee at March 31, 1997.
6.2.1.3.4 Lessee shall have delivered to Lessor an officer's certificate,
and an opinion of counsel reasonably satisfactory to Lessor, each stating that
(1) such consolidation, merger, conveyance, transfer or lease and the assumption
agreement required by Section 6.2.1.3.2 comply with this Section 6.2.1.3, (2)
all conditions precedent herein provided for relating to such action have been
complied with and (3) the agreement described in Section 6.2.1.3.2 is valid,
binding and enforceable against the Successor.
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Upon any consolidation or merger, or any conveyance, transfer or lease of
substantially all of the assets of Lessee as an entirety in accordance with this
Section 6.2.1.3, the Successor shall succeed to, and be substituted for, and may
exercise every right and power of, Lessee under this Lease Agreement and the
other Operative Documents with the same effect as if such Successor or such
Person had been named as Lessee herein and therein. No such conveyance, transfer
or lease of substantially all of the assets of Lessee as an entirety shall have
the effect of releasing Lessee, or any Successor which shall theretofore have
become such in the manner prescribed in this Section 6.2.1.3, from its liability
hereunder or under any other Operative Document to which Lessee is a party.
Nothing contained herein shall permit any lease, sublease or other arrangement
for the use, operation or possession of the Aircraft except in compliance with
the applicable provisions of this Lease Agreement.
6.2.2 Reporting Requirements
6.2.2.1 Financial Reports
Lessee shall furnish to Lessor:
6.2.2.1.1 Monthly Reports Within 30 days after the end of each month,
copies of unaudited monthly financial reports detailing revenues, expenses, net
income, cash position, operating statistics and other similar information,
prepared by Lessee that Lessee makes available for review by other creditors.
6.2.2.1.2 Quarterly Reports
Within 45 days after the close of each fiscal quarter
of Lessee (other than the last
fiscal quarter in each fiscal year of Lessee), copies of unaudited
(consolidated, if prepared) financial statements (including a balance sheet,
statement of cash flows and a profit and loss statement) prepared in Dollars in
accordance with GAAP.
6.2.2.1.3 Annual Reports
Within 120 days after the close of each fiscal year of Lessee, copies of
audited consolidated financial statements (including a balance sheet, statement
of cash flows and a profit and loss statement) prepared in Dollars in accordance
with GAAP, all in reasonable detail and setting forth in comparative form the
respective figures as of the end of and for the preceding fiscal year as
certified by Lessee's independent public accountants, including their
certificate and accompanying comments.
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6.2.2.1.4 Other Information
Such other information respecting the business and properties, operations
or condition (financial or otherwise) of Lessee as Lessor may from time to time
reasonably request, including copies of all regular, periodic and special
reports, that Lessee makes available for review by the public or other
creditors.
6.2.2.2 Notice of Loss or Damage
Lessee shall notify Lessor promptly of any loss or damage (whether or not
constituting an Event of Loss) of or to the Aircraft or the Airframe or any
Engine for which the cost of correction or repairs may reasonably be expected to
exceed the Damage Notice Threshold and, if not constituting an Event of Loss,
shall provide a proposal for carrying out the correction or repair. If after its
receipt of such proposal, Lessor does not reasonably believe that Lessee's
proposal complies with the provisions hereof or applicable Law, Lessor shall
promptly notify Lessee of such disagreement. Lessee and Lessor shall then
consult with Airframe Manufacturer, Engine Manufacturer or other relevant
manufacturer, as appropriate, and Lessee and Lessor agree to accept as
conclusive, and be bound by, such Person's directions or recommendations as to
the manner in which to carry out such repairs. In connection with any repair of
such damage for which the cost of correction or repairs may reasonably be
expected to exceed the Damage Notice Threshold, Lessee shall provide Lessor with
the information required in Section 1.2.3.2 of Schedule 2.
6.2.2.3 Notice of Material Adverse Effect or Default
Lessee shall (1) promptly provide notice in writing to Lessor of any event,
happening or circumstance which could reasonably be expected to have a Material
Adverse Effect, including the commencement of any action, suit or proceeding by
or before any Government Entity that, if adversely determined, could reasonably
be expected to have a Material Adverse Effect, and (2) provide notice in writing
to Lessor immediately after an officer of Lessee obtains knowledge of the
occurrence of a Default.
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6.2.2.4 Information Regarding Aircraft or Lessee
From time to time, Lessee shall promptly provide such other information as
Lessor may reasonably request concerning the location, condition, use and
operation of the Aircraft or the financial condition and business of Lessee.
6.2.2.5 Monthly Aircraft Status Report
Lessee shall provide Lessor on the fifteenth day of each calendar month
during the Lease Term with a completed and duly executed Aircraft Status Report
substantially in the form of Exhibit F.
6.2.2.6 Principal Place of Business
Lessee shall give at least 30 days' prior written notice to Lessor of any
change of its principal place of business or chief executive office or major
executive office, in each case, as set forth in Schedule 4.
6.2.2.7 Government Filings
Lessee shall promptly on request furnish or cause to be furnished to Lessor
such information in the possession and under the control of Lessee as may be
required to enable Lessor to file on a timely basis any reports required to be
filed by Lessor with any Government Entity because of Lessor's rights, title and
interests in and to the Aircraft or under the Lease Agreement or any other
Operative Document.
6.2.2.8 Periodic Certification
Upon not less than 10 Business Days' prior written request
by Lessor (but not more than four
times in any 12-month period) execute, acknowledge and deliver to Lessor, or any
intended successor or permitted assign of Lessor, a statement in writing (which
may be conclusively relied upon by Lessor or any such intended successor or
permitted assign):
6.2.2.8.1 Certifying that this Lease and each other
Operative Document (together with any amendments and modifications) are in full
force and effect.
6.2.2.8.2 Certifying that there are not any uncured
Defaults, or if any such Default is then existing, stating the nature of such
Default or Defaults and the action that Lessee is then taking, or then proposes
to take, to cure such Default or Defaults.
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6.2.2.8.3 In connection with any transaction
described in Section 14.1, certifying (1) that there has been no amendment or
modification of this Lease Agreement or any other Operative Document, or if any
such amendment or modification has been effected, stating the nature of all
such amendments or modifications, (2) the date to which Basic or Renewal Rent,
as the case may be, has been paid, (3) that Lessee is not aware of any claim
against Lessor by reason of the condition of the Aircraft or under the
Operative Documents (or specifying such claim), (a) as of the Delivery Date or
(b) arising subsequent thereto and (4) the amount of the Reserves (by account)
as of the date of the certificate.
Lessee's failure to deliver such statement within such time shall be deemed
to constitute a material misrepresentation under Section 12.7.
6.2.3 Liens
6.2.3.1 No Liens
Lessee shall not directly or indirectly create, incur, assume or suffer to
exist, or agree to create or assume, any Lien on or with respect to the
Aircraft, any Engine or any Part or any Operative Document, or in any right,
title or interest in any of the foregoing, except:
6.2.3.1.1 Liens of the Operative Documents
The rights of Lessor and Lessee provided in this Lease Agreement and the
other Operative Documents.
6.2.3.1.2 Permitted Transfer of Possession
The rights of others under agreements or arrangements to the extent
permitted by the terms of Sections 6.1.2 and 8 and Section 1.4.6 of Schedule 2.
6.2.3.1.3 Lessor Liens
Lessor Liens.
6.2.3.1.4 Certain Tax Liens
Liens for Taxes of Lessee arising in the ordinary course of business either
not yet due or being contested in good faith by appropriate proceedings so long
as such contest does not involve any material danger of the sale, forfeiture,
seizure or loss (including loss of use) of the Airframe, any Engine or any Part
or any interest therein or of any criminal or civil liability of Lessor.
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6.2.3.1.5 Mechanics' Liens
Materialmen's, mechanics', workmen's, repairmen's, employees' or other like
Liens arising by operation of Law in the ordinary course of Lessee's business
(including those arising under maintenance agreements entered into in the
ordinary course of business) securing obligations that are not yet due or are
being contested in good faith by appropriate proceedings so long as such contest
does not involve any material danger of the sale, forfeiture or loss (including
loss of use) of the Airframe, any Engine or any Part or any interest therein or
of any criminal or civil liability of Lessor.
6.2.3.2 Obligation to Discharge
Lessee will promptly, at its own expense, take, or cause to be taken, such
actions as may be necessary to discharge any Lien not excepted under this
Section 6.2.3 that may at any time arise, exist or be levied upon the Airframe,
any Engine, any Part or in this Lease Agreement or any other Operative Document,
or in any right, title or interest in any of the foregoing.
6.2.3.3 Protection
Without limiting the foregoing or any other provision of this Lease
Agreement or any other Operative Document, Lessee will not do or permit to be
done anything which may reasonably be expected to expose the Aircraft or any
part thereof to penalty, forfeiture, seizure, arrest, impoundment, detention,
confiscation, taking in execution, attachment, appropriation or destruction, nor
abandon the Aircraft or any Part or which may reasonably be expected to expose
Lessor to any criminal or civil liability.
6.2.4 Section 1110
Lessee shall be a "citizen of the United States" as defined in
the U.S. Aviation Laws and shall be a U.S. Air Carrier and Lessee shall
otherwise continue to be certified, qualified and/or registered to the extent
necessary to fall within the purview of, and to provide to Lessor the benefits
contemplated by, 11 U.S.C. Section 1110 or any analogous section of the federal
bankruptcy laws, as amended from time to time.
6.2.5 Taxes
Lessee shall file or cause to be filed all tax returns which are
required to be filed and shall pay or cause to be paid all Taxes shown to be due
and payable on such returns and (except to the extent being contested in good
faith and by appropriate proceedings, but only as long as such proceedings do
not involve any material danger of the sale, forfeiture, confiscation, seizure
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or loss (including loss of use) of the Aircraft or any interest therein or of
criminal or civil liability of Lessor) on any assessment received by Lessee to
the extent that such Taxes have become due and payable.
SECTION 7. TITLE; REGISTRATION AND FILINGS; ETC.
7.1 Title to the Aircraft
7.1.1 Lessor as Owner
Lessee acknowledges that title to the Aircraft shall at all
times be and remain solely and exclusively vested in Lessor and that this Lease
Agreement and the other Operative Documents constitute for all purposes,
including tax purposes, an agreement to lease the Aircraft to Lessee and,
accordingly, Lessee shall have no right, title or interest in the Aircraft
except the right to use the Aircraft as provided herein.
7.1.2 Lessee Not Owner
Lessee will not at any time represent or hold out Lessor or any
Financing Party as carrying goods or passengers on the Aircraft or as being in
any way connected or associated with any operation of the Aircraft or, except as
expressly provided herein or the Novation Agreement, attempt, or hold itself out
as having any power, to sell, charge, lease or otherwise dispose of or encumber
the Aircraft, the Engines or any Part.
7.1.3 Title Vis a Vis Third Parties
On all occasions when the ownership of the Aircraft or any part
of it is relevant, Lessee will make clear to third parties that title to the
same is held by Lessor.
7.2 Registration, Recordation, Filings, Etc.
7.2.1 Register Aircraft
Prior to delivery of the Aircraft pursuant to Section 2, Lessor
shall, at Lessor's expense, procure that the Aircraft is duly registered with
the Aviation Authority in the name of Lessor as owner, and thereafter shall
maintain, or procure the maintenance of, such registration throughout the Lease
Term. At no time during the Lease Term shall Lessee take any action to interfere
with such registration.
7.2.2 Recordation of Lease
Upon delivery of the Aircraft pursuant to Section 2, Lessor
shall, at Lessor's expense, cause the recordation of this Lease Agreement and
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the Acceptance Certificate with the Aviation Authority. At no time during the
Lease Term shall Lessee take any action to interfere with such recordation.
7.2.3 Other Registration, Recordation and Filing
Lessee shall, at Lessee's expense (except with respect to the
Financing Security Documents, then at Lessor's expense), take, or cause to be
taken, such action with respect to the registration, recording, filing,
reregistering, rerecording and refiling of this Lease Agreement, any other
Operative Document, any Financing Security Document or other documents or
instruments as necessary or reasonably advisable under the Laws of the State of
Registration, the Lessee Jurisdiction, or any jurisdiction in which the Aircraft
will be operated by Lessee, and such other actions:
7.2.3.1 In order for this Lease Agreement to constitute a
valid and enforceable lease of
record relating to the Aircraft.
7.2.3.2 To authorize or permit Lessee to perform its
obligations hereunder and under each
other Operative Document.
7.2.3.3 Fully to protect, establish, perfect and preserve
Lessor's title to, and Lessor's and each Financing Party's rights and
interests in, the Aircraft, this Agreement and under the other Operative
Documents as against Lessee and any other Person.
If, notwithstanding the foregoing, Lessor or Security Agent
notifies Lessee that it wishes to take any such action itself, Lessee shall
cooperate with and assist Lessor or Security Agent, as the case may be, in
taking, and reimburse to Lessor or Security Agent, as the case may be, the
reasonable expenses of taking, such action. With respect to the Financing
Security Documents, Lessor shall notify Lessee of the requirement of such filing
before Lessee has any obligations under this Section 7.2.3.
At Lessor's or Security Agent's reasonable request from time to
time, Lessee shall, at Lessee's expense, furnish to Lessor and Security Agent an
opinion of counsel and/or other evidence satisfactory to Lessor of any such
registration, recording, filing, reregistering, rerecording, refiling or other
action.
7.2.4 Geneva Convention
Without limiting the effect of the foregoing, Lessee shall do or
cause to be done any and all acts and things which are required under the terms
of the Convention for the International Recognition of Rights in Aircraft,
signed at Geneva, Switzerland, on June 18, 1948, to protect, establish, perfect
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and preserve Lessor's title to, and Lessor's and each Financing Party's rights
and interests in, the Aircraft within the jurisdiction of any signatory state
that has ratified such Convention, and 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 agreement, treaty, convention, pact or by any practice,
custom or understanding involving any jurisdiction in which Lessee may operate,
and any and all acts and things which Lessor or Security Agent may reasonably
request, to protect, establish, perfect and preserve Lessor's title to, and
Lessor's and each Financing Party's rights and interests in, the Aircraft and
the Operative Documents.
7.2.5 Transfer of Interest in Aircraft, Etc.
Without limiting the provisions of Section 14, Lessee will do
all acts and things (including making any filing or registration with the
Aviation Authority or any Governmental Entity) and executing and delivering all
documents (including any amendment of this Lease Agreement) as may be reasonably
required by Lessor following any change or proposed change in the ownership of
the Aircraft or the equity and/or debt financing of the Aircraft, but in each
case at Lessor's expense and subject, where appropriate, to the conditions set
out in Section 14.
7.3 Lessor's Cooperation
Lessor shall execute and deliver such documents as Lessee may
reasonably request in order to permit Lessee to comply with Lessee's obligations
under this Section 7.
SECTION 8. POSSESSION
Lessee will not, without the prior written consent of Lessor, in any
manner deliver, transfer or relinquish possession of the Aircraft, Airframe or
an Engine or any Part, or install an Engine, or permit any such Engine to be
installed, on an airframe other than the Airframe covered hereby, provided that
so long as (1) no Payment/Bankruptcy Default shall have occurred and be
continuing, (2) the action to be taken shall not adversely affect, or be of a
nature that could reasonably be expected to adversely affect, Lessor's or any
Financing Party's right, title and interest in and to the Aircraft or Airframe,
or any Engine or Part, or under this Lease Agreement or any other Operative
Document (including any impairment of title to or the registration with the
Aviation Authority of, the Aircraft), (3) all applicable approvals, if any, of
the Aviation Authority and any other Government Entity having jurisdiction shall
have been obtained, and (4) the insurance provisions of Section 11 shall have
been complied with, then:
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8.1 Subleasing
NOTWITHSTANDING THE FOREGOING OR ANY OTHER PROVISION OF ANY OPERATIVE
DOCUMENT, LESSEE SHALL NOT SUBLEASE THE AIRCRAFT AT ANY TIME WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD.
8.2 Maintenance, Etc.
Without the prior consent of Lessor, Lessee may deliver or cause to
be delivered possession of the Airframe or an Engine or any Part to the
manufacturer thereof or to any Approved Maintenance Performer for testing,
service, repair, maintenance or overhaul work or for alterations, modifications
or additions to the extent required or permitted by the terms hereof.
8.3 Installation of Engines on Other Airframes
Without the prior consent of Lessor, Lessee may install an Engine on
any Airframe Manufacturer model 737-300 or -500 airframe (other than the
Airframe) owned or leased by Lessee or subject to a conditional sales agreement
where Lessee is the conditional vendee if (1) such airframe is free and clear of
all Liens except the rights of the parties to any security agreement and
Permitted Liens, lease or conditional sale agreement covering such airframe and
(2) Lessee shall have obtained from any security interest holder, lessor or
conditional seller of such airframe a written agreement (which may be the
security agreement, lease or conditional sale agreement), whereby such security
interest holder, lessor or conditional seller expressly and effectively agrees
that neither it nor its successors or assigns will acquire or claim any right,
title or interest in any Engine by reason of such Engine's being installed on
such airframe at any time while such Engine is owned by Lessor.
8.4 Wet Lease
Without the prior consent of Lessor, Lessee may enter into one or
more arrangements whereby Lessee agrees to operate the Aircraft for the benefit
of a third party under a "wet lease" arrangement, pursuant to which the Aircraft
(1) shall at all times remain in the sole possession, dominion and control of
Lessee, and shall at all times maintain its registration in the State of
Registration without any amendment or modification as a consequence of such
arrangement, (2) shall be operated in all respects solely by regular employees
of Lessee, and (3) shall be maintained, insured and otherwise operated by Lessee
in accordance with the requirements of this Agreement and each other Operative
Document.
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8.5 Civil Reserve Air Fleet Program
Lessee may subject the Aircraft, the Airframe or any Engine to the
Civil Reserve Air Fleet Program and transfer possession of the Airframe or any
Engine to the United States, or any agency or instrumentality thereof, pursuant
to the Civil Reserve Air Fleet Program, so long as (1) Lessee shall promptly
notify Lessor upon subjecting the Airframe or any Engine to the Civil Reserve
Air Fleet Program and provide Lessor with the name and address of the
appropriate Contracting Officer Representative for the Military Airlift Command
of the United States Air Force, (2) Lessee shall promptly notify Lessor of any
such transfer, and (3) the period of such transfer does not extend beyond the
end of the Lease Term. Lessor shall reasonably cooperate with Lessee in Lessee's
participation in such program, provided that Lessor shall not be required to
provide any such cooperation to the extent such cooperation would have a
material adverse effect on Lessor's or any Financing Party's rights hereunder or
under any other Operative Document or such cooperation by Lessor is prohibited
by the Financing Security Documents.
The rights of any Person who receives possession by reason of a transfer
permitted by this Section 8 shall be effectively and expressly subject and
subordinate to all the terms of this Agreement and each other Operative
Document, including the covenants contained in this Section 8 and Section 11 and
the rights of Lessor to repossession pursuant to Section 13 and to avoid
transfer upon such possession. No sublease, wet lease or other relinquishment or
transfer of possession of the Aircraft or Airframe, or any Engine or Part, shall
in any way release, discharge or otherwise limit or diminish any of Lessee's
obligations to Lessor or any Financing Party (it being agreed that
notwithstanding any such sublease or other transfer or relinquishment of
possession, Lessee shall continue to be primarily liable and responsible for
performance of all of its obligations under this Agreement and each other
Operative Document), or constitute a waiver of Lessor's or any Financing Party's
rights or remedies hereunder or affect the registration of the Aircraft with the
Aviation Authority.
SECTION 9. INDEMNITIES
9.1 General Indemnity
Subject only to the exceptions set forth in Section 9.2, Lessee
hereby assumes liability for and hereby agrees to indemnify each Indemnified
Party against, and agrees to protect, save and keep harmless each Indemnified
Party from, any and all Expenses from time to time (whether before, during or
after the Lease Term) imposed on, incurred by or asserted against any
Indemnified Party in any way relating to or arising out of:
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9.1.1 The Aircraft, the Airframe, any Engine or engine installed
on the Aircraft, Part or Aircraft Documentation or any other thing delivered
under this Lease Agreement or any other Operative Document.
9.1.2 The acceptance, rejection, delivery, ownership,
nondelivery, lease, sublease, charter, transport, subcharter, registration,
deregistration (after the occurrence of an Event of Default), reregistration,
possession, repossession, presence, operation, location, condition, use or
non-use, control, airworthiness, overhaul, replacement, existence, storage,
preparation, installation, testing, manufacture, design, modification,
alteration, maintenance, repair, re-lease, sale (after the occurrence of an
Event of Default), return, transfer, exportation, importation, abandonment or
other disposition (after the occurrence of an Event of Default) of, or the
imposition of any Lien (or the incurrence of any liability to refund or pay over
any amount as the result of any such Lien) on, the Aircraft, the Airframe, any
Engine or engine or Part or any other thing delivered under this Lease Agreement
or any other Operative Document or interest therein (or the incurrence of any
liability to refund or pay over any amount as the result of any such Lien)
(including any claim for patent, trademark or copyright infringement, any claim
or penalty arising out of violations of applicable Laws by Lessee, including
environmental control, noise and pollution regulations, any liability for any
injury to or death of any Person or loss of or damage to any property or to the
environment, latent or other defects, whether or not discoverable and whether or
not any of the foregoing shall arise as a result of the action or inaction,
negligent or otherwise, of Lessee, any Indemnified Party or any other Person).
9.1.3 This Agreement or any of the Operative Documents, any of
the transactions contemplated hereby or thereby or the enforcement of any of the
terms hereof or thereof, including the enforcement of this Section 9.
9.1.4 Any breach or noncompliance by Lessee with any covenant,
term, agreement, condition, undertaking or obligation under this Lease Agreement
or under any other Operative Document or agreement entered into or furnished by
Lessee in connection herewith or therewith, or the falsity or inaccuracy of any
representation or warranty of Lessee set forth herein or therein, or the
occurrence of any other Default, including any Expenses incurred, assumed or
suffered by Lessor or any other Person as a consequence of Lessee's failure to
return the Aircraft in accordance with this Lease Agreement and each other
Operative Document on any date specified or required herein.
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9.2 Exceptions to General Indemnity
The indemnity provided for in Section 9.1 will not extend to any of
the following Expenses of any Indemnified Party (but without limiting any rights
of Lessor under Section 13):
9.2.1 Expenses incurred as the result of the decline in the
market value of the Aircraft, except to the extent that such decline is due to
any Default by Lessee.
9.2.2 Expenses solely and directly caused by the gross
negligence or willful misconduct of any Indemnified Party (other than negligence
imputed to any Indemnified Party by reason of its interest in the Aircraft).
9.2.3 Expenses solely and directly caused by a breach by any
Indemnified Party of any covenant or inaccuracy or falsity of a representation
or warranty made by any Indemnified Party in this Lease Agreement or the
documents and agreements delivered by such party to Lessee.
9.2.4 Taxes or loss of Tax benefits, it being understood that
Section 9.6 and Schedule 5 sets forth Lessee's entire obligation with respect to
Taxes.
9.2.5 Expenses attributable solely to acts of any Indemnified
Party or the Follow-On Operator, or events which occur, in either case, after
this Lease Agreement has terminated or expired and Lessee has returned the
Aircraft to Lessor in the condition and manner required by this Lease Agreement.
9.2.6 Expenses attributable to any financing or refinancing of
the Aircraft by Lessor or any other transfer by Lessor or any Financing Party of
any interest in the Aircraft (without limiting Lessor's rights under Section
13).
9.2.7 Expenses that Lessor has expressly agreed to pay under
this Lease Agreement or any other Operative Document.
9.2.8 Expenses constituting ordinary and usual operating or
overhead expenses (without limiting Lessor's rights under Section 13).
9.2.9 Expenses attributable to any Lessor Lien (without limiting
Lessor's rights under Section 13).
9.2.10 Expenses to the extent arising after the Return and the
satisfaction of all of Lessee's obligations then due under the Operative
Documents.
9.2.11 Expenses payable by Lessee under any other provision of
Operative Documents.
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9.3 Taxes
Lessee's tax indemnity and other related agreements are contained in
Schedule 5, which schedule is hereby incorporated in this Section 9.3 by
reference.
9.4 Insured Claims; Subrogation
9.4.1 Insured Claims
In the case of any Expense indemnified by Lessee under Section
9.1 that is covered by a policy of insurance maintained by Lessee, each
Indemnified Party making a claim agrees to cooperate with the insurers in the
exercise of their rights to investigate, defend or compromise such Expense to
the extent required to retain the benefits of such insurance with respect to
such Expense.
9.4.2 Subrogation
If and only if an Expense indemnified by Lessee under Section
9.1 is in fact paid in full (as required under the Operative Documents) by
Lessee and/or an insurer under a policy of insurance maintained by Lessee and
provided that no Default has occurred and is continuing, (1) Lessee and/or such
insurer, as the case may be, shall be subrogated to the rights and remedies of
the Indemnified Party on whose behalf such Expense was paid (other than rights
of such Indemnified Party under insurance policies maintained at its own
expense) to the extent of, and with respect to the event giving rise to, such
Expense (other than such rights and remedies against any Indemnified Party) and
(2) should an Indemnified Party receive any payment from any party other than
Lessee or its insurers, in whole or in part, with respect to such Expense, such
Indemnified Party shall promptly pay the amount paid (but not an amount in
excess of the amount Lessee or any of its insurers has paid in respect of such
Expense) over to Lessee.
9.5 Scope, Survival, Etc.
9.5.1 Lessee shall be obligated under this Section 9 and
Schedule 5 as a primary obligor irrespective of whether an Indemnified Party
shall also be indemnified, guaranteed or insured with respect to the same matter
under any of the Operative Documents or otherwise by any other Person, and such
Indemnified Party may proceed directly against Lessee under this Section 9
and/or Schedule 5 without first resorting to any such other rights of
indemnification, guarantee or insurance.
9.5.2 All indemnities, obligations, adjustments and payments
provided for in this Section 9 and Schedule 5 shall, to the extent herein
provided, survive and remain in full force and effect, notwithstanding the
expiration or termination of the Lease Term or of this Lease Agreement or any
other Operative Documents and the payment in full of all sums payable under the
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Operative Documents. The obligations of Lessee in respect of all such
indemnities, obligations, adjustments and payments are expressly made for the
benefit of, and shall be enforceable by, the Indemnified Party entitled thereto,
without declaring this Lease Agreement to be in default or taking other action
under this Lease Agreement or any other Operative Document.
9.5.3 Lessee acknowledges that the Indemnified Parties, or any
of them, may authorize Lessor, by notice in writing to Lessor and Lessee, to
make claims and demands under any indemnity hereunder or under any other
Operative Document on behalf of such Indemnified Parties, and Lessee shall be
obligated to make all payments pursuant to any such indemnity to Lessor, to the
extent claimed by Lessor on behalf of such Indemnified Parties (it being
understood that Lessee is entitled to, and shall, conclusively rely upon the
instructions of Lessor with respect to the payment of amounts owing to any
Indemnified Party under the indemnities).
9.5.4 Each Indemnified Party and Lessee will give prompt written
notice one to the other of any liability of which such party has knowledge for
which Lessee is, or may be, liable under Section 9.1, provided that failure to
give such notice will not prejudice or otherwise affect any of the rights of the
Indemnified Parties under Section 9.1.
9.5.5 This Agreement, insofar as it provides rights to an
Indemnified Party or Tax Indemnitee, constitutes a separate agreement with
respect to each such Person and is enforceable directly by each such Person.
9.5.6 Lessee will provide the relevant Indemnified Party or Tax
Indemnitee with such information not within the control of such Person, as is in
Lessee's control or is reasonably available to Lessee, which such Person may
reasonably request and Lessee will otherwise cooperate with such Person so as to
enable such Person to defend any action, suit or proceeding brought against such
Person for which Lessee is responsible under this Section 9, provided that
nothing contained in this Section 9 shall be deemed to require any such Person
to contest any Expense or to assume responsibility for or control of any
judicial proceeding with respect thereto.
9.5.7 The obligations of Lessee in respect of all indemnities,
obligations, adjustments and payments in this Section 9 are expressly made for
the benefit of, and shall be enforceable by, the Indemnitee entitled thereto,
without declaring the Lease to be in default or taking other action hereunder.
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9.6 Indemnities Payable on After-Tax Basis
Lessee agrees that, with respect to any payment or indemnity to an
Indemnified Party or Tax Indemnitee under this Section 9 or Schedule 5, Lessee's
payment or indemnity obligations shall be increased by an amount, if any, which
shall be necessary to hold such Indemnified Party or Tax Indemnitee harmless
from all Taxes required to be paid by such Indemnified Party or Tax Indemnitee
with respect to the receipt or accrual of such payment or indemnity (including
any payment by such Indemnified Party or Tax Indemnitee of any Taxes in respect
to any indemnity payments received or receivable under this Section 9 or
Schedule 5).
SECTION 10. RISK OF LOSS, DESTRUCTION AND REQUISITION, ETC.
10.1 Risk of Loss
Throughout the Lease Term and until the Return, Lessee shall bear all
risk of loss, damage, theft or destruction of, or any other Event of Loss with
respect to, the Aircraft, the Airframe, each Engine and each Part.
10.2 Event of Loss With Respect to the Aircraft
10.2.1 Upon the occurrence of an Event of Loss with respect to
the Airframe or the Airframe and Engines, Lessee shall forthwith (and, in any
event, within three days after such occurrence) give Lessor and Security Agent
written notice of such Event of Loss. By the earlier of (1) 60 days after the
occurrence of such Event of Loss or (2) the date on which the applicable
insurance or requisition proceeds are paid, Lessee shall pay or cause to be paid
to Lessor in immediately available funds the Stipulated Loss Value (but only to
the extent the full amount of the Stipulated Loss Value was not obtained and
applied by Lessor pursuant to Section 11.2.1 or received by Lessor from the
relevant Government Entity in connection with any requisition).
10.2.2 Until the date on which the Stipulated Loss Value is paid
in full, Lessee shall be obligated to pay all Basic Rent and Renewal Rent as
scheduled and shall continue to perform all of its other obligations hereunder
and under the other Operative Documents, except to the extent rendered
impossible by the occurrence of such Event of Loss or rendered, in the opinion
of Lessor, unnecessary. If the Stipulated Loss Value is paid on a date other
than a Rent Payment Date, Lessor shall refund or cause to be refunded to Lessee
any paid (but unaccrued on such date) Basic Rent or Renewal Rent. Upon receipt
of the full amount of the Stipulated Loss Value by Lessor pursuant to this
Section 10.2, and if Lessee has paid all other amounts then due and payable by
Lessee under this Lease Agreement and the other Operative Documents, then (1)
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Lessor shall, upon the joint written request of Lessee and each insurer which
contributed to the payment of the Stipulated Loss Value, transfer to the Person
designated in such request title to the Aircraft (including the Engines and all
Parts) without recourse or warranty (except as to absence of all rights of
Lessor and all Lessor Liens) and subject to the disclaimer set forth in Section
5.1, (2) Lessor shall return to Lessee the Security Deposit or Letter of Credit,
as applicable, and any insurance, requisition, condemnation or similar proceeds
received after and related to such Event of Loss in excess of the Stipulated
Loss Value and all Reserves previously paid by Lessee in respect of the Aircraft
(in each case, to the extent not previously applied in accordance with the terms
hereof) and (3) Lessee shall be relieved of its obligations under this Lease
Agreement and the other Operative Documents except those that are expressly
stated to survive termination hereof and thereof.
10.3 Event of Loss With Respect to an Engine
10.3.1 Upon the occurrence of an Event of Loss with respect to
an Engine under circumstances in which there has not occurred an Event of Loss
with respect to the Airframe, Lessee shall promptly (and, in any event, within
three days after such occurrence) give Lessor and Security Agent written notice
thereof and shall, promptly and, in any event, within 90 days after the
occurrence of such Event of Loss (or, if earlier the date of expiration or
termination of the Lease Term) and upon five days' prior written notice, convey
or cause to be conveyed to Lessor, as replacement for the Engine with respect to
which such Event of Loss occurred, title to a Replacement Engine, free and clear
of all Liens (other than Permitted Liens). For all purposes hereof, each such
Replacement Engine shall, after such conveyance, be deemed part of the property
leased hereunder, and shall be deemed an "Engine."
10.3.2 Prior to or at the time of any conveyance of a
Replacement Engine, Lessee shall, at its own expense, comply with each of the
following requirements:
10.3.2.1 Furnish Lessor with a full warranty bill of sale,
in form and substance
satisfactory to Lessor, conveying to Lessor such Replacement Engine.
10.3.2.2 Execute one or more lease supplements subjecting
such Replacement Engine to this
Lease Agreement.
10.3.2.3 Without limiting the obligations of Lessee under Section 7.2.3,
cause the filing of such instruments, in form and substance satisfactory to
Lessor, as are necessary or advisable to establish and protect the interests of
Lessor and the Financing Parties in any such Engine (including such lease
supplements).
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10.3.2.4 Furnish Lessor with such evidence of the transfer
of title to such Replacement
Engine to Lessor as Lessor may reasonably request, including that such
Replacement Engine is free and clear of all Liens, except Permitted Liens, such
evidence to include, without limitation, an opinion of Lessee's counsel
addressed to Lessor and opining that such title has been so conveyed and that
such Replacement Engine has been duly subjected to this Lease Agreement.
10.3.2.5 Furnish Lessor with such evidence of compliance with the
provisions of Sections 1.5 and 1.7 of Schedule 2 and Section 11 with respect to
such Replacement Engine as Lessor may reasonably request.
10.3.2.6 [Intentionally Left Blank]
10.3.2.7 Assign to Lessor the benefit of all manufacturers' and vendors'
warranties with respect to such Replacement Engine pursuant to an assignment in
form and substance reasonably acceptable to both parties.
10.3.2.8 [Intentionally Left Blank]
10.3.2.9 Furnish Lessor with a certificate signed by a
duly authorized officer of Lessee
certifying that, upon consummation of such replacement, no Default will exist
hereunder.
10.3.2.10 Furnish Lessor with an appraisal satisfactory to
Lessor which shall establish,
and a certificate of an aircraft engineer (who may be an employee of Lessee)
certifying, that such Replacement Engine complies with the definition of
"Replacement Engine" for purposes of this Lease Agreement and each other
Operative Document.
10.3.3 Upon compliance by Lessee with the requirements of this
Section 10.3, if no Payment/Bankruptcy Default shall have occurred or be
continuing, Lessor shall, upon the joint written request of Lessee and each
insurer which contributed to the payment of any insurance proceeds with respect
to the lost Engine, transfer to the Person designated in such request title to
such Engine without recourse or warranty (except as to absence of all rights of
Lessor and all Lessor Liens) and subject to the disclaimer set forth in Section
5.1, and such Engine shall thereupon cease to be an Engine leased hereunder.
10.3.4 No Event of Loss with respect to an Engine shall result
in any reduction in Rent.
Other than as provided in this Section 10.3, Lessee shall not
have the right to substitute any engine for an Engine.
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10.4 Requisition for Use of the Aircraft by any Government Entity
In the event of the requisition for use of the Airframe and the
Engines or engines installed on the Airframe during the Lease Term by any
Government Entity not constituting an Event of Loss, Lessee shall promptly
notify Lessor and the Security Agent of such requisition, and all of Lessee's
obligations under this Lease Agreement and each other Operative Document with
respect to the Aircraft shall continue to the same extent as if such requisition
had not occurred. All payments received by Lessor or Lessee from such Government
Entity for the use of such Airframe and Engines or engines during the Lease Term
shall be paid over to, or retained by, Lessee if no Default shall have occurred
and be continuing and all payments received by Lessor or Lessee from such
Government Entity for the use of such Airframe and Engines or engines after the
end of the Lease Term shall be paid over to, or retained by, Lessor (to the
extent they do not relate to the Lease Term).
SECTION 11. INSURANCE
11.1 Scope of Insurances
At all times during the Lease Term, and until the Aircraft is
returned to Lessor in the condition and manner required by this Lease Agreement
and each other Operative Document, Lessee shall maintain or cause to be
maintained with respect to the Aircraft, at its own expense, the following
described insurances:
11.1.1 Liability Coverage
Worldwide (subject to standard insurance market geographical
limits) aircraft liability and comprehensive general liability, bodily injury
(including passengers), property damage, non-owned aircraft liability, personal
injury, cargo, mail, baggage, hangarkeepers liability, comprehensive general
liability (including premises, products, and completed operations and
contractual) insurance (exclusive of Airframe Manufacturer's product liability
insurance), (1) in an amount not less than the greater of (a) the amounts of
comprehensive airline liability insurance from time to time applicable to
aircraft owned or leased and operated by Lessee of the same type as the Aircraft
and (b) the Stipulated Liability Coverage, provided that if Lessor, on the basis
of advice received from an independent insurance advisor of international
reputation, believes that such limit should be revised upwards based on amounts
then customary in the industry generally, it shall be replaced by such higher
limit, if any, as such independent insurance advisor may consider appropriate,
(2) of the type and covering the same risks usually carried by first class
United States air carriers operating similar aircraft and engines on similar
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routes and covering risks of the kind customarily insured against by such air
carriers with respect to such aircraft operating on such routes, (3) with
insurers of recognized reputation, responsibility and substantial financial
capacity reasonably acceptable to Lessor and (4) that names each Insured Party
as an additional insured and otherwise complies with the requirements set forth
in, and is consistent with the issuance of a valid Certificate of Insurance
issued in the form of, Exhibit B.
11.1.2 Hull Coverage
Worldwide (subject to standard insurance market geographical
limits) all-risk ground and flight aircraft hull insurance covering the
Aircraft, and all-risk spares insurance covering Engines and Parts while
temporarily removed from the Aircraft (including while in transit) (1) for an
agreed value not less than the Stipulated Loss Value in respect of all-risk hull
insurance, (2) for the full replacement value, in respect of all-risk spares
insurance, (3) of the type and covering the same risks usually carried by first
class United States air carriers operating similar aircraft and engines on
similar routes with respect to such aircraft operating on such routes, (4)
confirming that the insurers shall not be entitled to replace the Aircraft or
Airframe upon the occurrence of an insured Event of Loss with respect thereto,
(5) with insurers of recognized reputation, responsibility and substantial
financial capacity reasonably acceptable to Lessor and (6) that names Lessor or
the Security Agent, as designated from time to time by Lessor, as the sole loss
payee for all amounts up to the Stipulated Loss Value, names each Insured Party
as an additional insured, provides that claims shall be adjusted and/or settled
only with the consent of Lessor (and the Security Agent if one is then
designated) and otherwise complies with the requirements set forth in, and is
consistent with the issuance of a valid Certificate of Insurance in the form of
Exhibit B.
11.1.3 War Hull and Liability Coverage
Worldwide (subject to standard insurance market geographical
limits) coverage of war-risk, hijacking and related perils insurance of the type
and covering the same risks usually carried by first class United States air
carriers operating similar aircraft and engines on similar routes (1) in no
event in an amount less than (a) the Stipulated Liability Coverage with respect
to liability coverage and (b) the Stipulated Loss Value with respect to hull
coverage and (c) full replacement value with respect to spares coverage, (2)
covering the perils of (a) war, invasion, acts of foreign enemies, hostilities
(whether war be declared or not), civil war, rebellion, revolution,
insurrection, martial law, military or usurped power or attempts at usurpation
of power, (b) strikes, riots, civil commotions or labor disturbances, (c) any
act of one or more Persons, whether or not agents of a sovereign power, for
political or terrorist purposes and whether the loss or damage resulting
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therefrom is accidental or intentional, (d) any malicious act or act of
sabotage, (e) confiscation, nationalization, seizure, restraint, detention,
appropriation, requisition for title or use by or under the order of any
government (whether civil, military or de facto) or public or local authority,
and (f) hijacking, or any unlawful seizure or wrongful exercise of control of
any aircraft or crew in flight (including any attempt at such seizure or
control) made by any Person or Persons on board any aircraft acting without the
consent of the insured (including if committed by Persons engaged in a program
of irregular warfare for terrorist purposes), (3) with insurers of recognized
reputation, responsibility and substantial financial capacity reasonably
acceptable to Lessor and (4) that names each Insured Party as an additional
insured and, for hull and spares coverage only, names Lessor or the Security
Agent, as designated from time to time by Lessor, as the sole loss payee for all
amounts up to the Stipulated Loss Value and provides that claims shall be
adjusted and/or settled only with the consent of Lessor (and the Security Agent
if one is then designated), and otherwise complies with the requirements set
forth in, and is consistent with the issuance of a valid Certificate of
Insurance in the form of Exhibit B.
11.2 Application of Proceeds of Hull Insurance
11.2.1 Event of Loss
All proceeds of hull insurance maintained in compliance with
this Section 11 and received as the result of the occurrence of an Event of Loss
shall be applied as follows:
11.2.1.1 Aircraft Event of Loss
If such proceeds are received with respect to the Airframe (or the Airframe
and the Engines or engines installed thereon):
11.2.1.1.1 To pay all amounts owing by Lessee
hereunder (other than Stipulated Loss
Value) and under the other Operative Documents, including all expenses and costs
of Lessor due under Section 9 to Lessor in connection with such Event of Loss.
11.2.1.1.2 In reduction of the Stipulated Loss Value payable by Lessee to
the extent not already paid by Lessee.
11.2.1.1.3 With the remaining amount, if any, of such proceeds to be paid
to, and retained by, Lessee.
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11.2.1.2 Engine Event of Loss
If such proceeds are received with respect to an Engine under the
circumstances contemplated by Section 10.3:
11.2.1.2.1 To pay all amounts owing by Lessee hereunder and under the other
Operative Documents, including all expenses and costs of Lessor due under
Section 9 to Lessor in connection with such Event of Loss.
11.2.1.2.2 With the remaining amount, if any, of such proceeds to be paid
to, and retained by, Lessee, provided that Lessee shall have replaced such
Engine with a Replacement Engine and otherwise complied with all of the terms of
Section 10.3.
11.2.2 Damage
All proceeds of hull insurance maintained in compliance with
this Section 11 and received with respect to damage to or loss of any part of
the Aircraft not constituting an Event of Loss with respect to the Airframe or
an Engine shall be applied as follows:
11.2.2.1 To pay all amounts owing by Lessee hereunder and under the other
Operative Documents, including all expenses and costs of Lessor due under
Section 9 to Lessor in connection with such damage or loss.
11.2.2.2 To reimburse Lessee for or pay directly the cost of the related
repair or replacement, where such repair or replacement is performed in
accordance with the terms hereof.
11.2.2.3 With the remaining amount, if any, of such proceeds to be paid to,
and retained by, Lessee.
11.3 Continuation of Liability Insurance
For a period of two years after the last day of the Lease Term, and
at Lessee's cost, Lessee shall carry the following insurance coverage:
11.3.1 During such portion of the two-year period following such
expiration or termination that Lessee is the owner or operator of the Aircraft
or any Engine (whether resulting from the purchase of the Aircraft or any Engine
from Lessor or otherwise), Lessee shall carry or cause to be carried, at its own
expense, liability insurance of the types and in the amounts required under this
Section 11 and providing that each Insured Party shall be named as an additional
insured thereunder.
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11.3.2 During each portion of the two-year period that Lessee is
not the owner or operator of the Aircraft or any Engine, Lessee shall carry or
cause to be carried products liability insurance in the amount required under
this Section 11 and providing that each Insured Party shall be named as an
additional insured thereunder.
11.4 Reports, Etc.
Lessee shall furnish, or cause to be furnished, to Lessor and the
Security Agent, if one is then designated, on or before the Delivery Date and
not later than the renewal date of any insurance, and otherwise upon reasonable
request, (1) a letter from the Insurance Brokers, substantially in the form of
Exhibit C, and (2) a certificate of insurance issued by the Insurance Brokers
substantially in the form of Exhibit B.
11.5 Self-Insurance
Lessee may not self-insure the risks required to be insured against
pursuant to this Section 11, provided that Lessee may self-insure the risks
covered by the hull insurance maintained in compliance with this Section 11 by
way of deductible (except in connection with a total loss), in such amounts as
are customarily self-insured with respect to aircraft of the same type and used
in the same manner as the Aircraft by other similar air carriers, but in no
event in an amount greater than the Stipulated Deductible Amount per aircraft
per occurrence.
11.6 Change of Industry Practice
In the event that there is a material change in the generally
accepted industry-wide practice with regard to the insurance of similar aircraft
or any material change with respect to the insurance of similar aircraft based
or operated in any jurisdiction in which the Aircraft may then be based or
operated (whether relating to all or any of the types of insurance required to
be effected under this Section 11), such that Lessor, on the basis of advice
received from an independent insurance advisor of international reputation,
shall be of the reasonable opinion that the insurance required pursuant to this
Section 11 is insufficient to protect the respective interests of Lessor and/or
any other Insured Parties, the insurance requirements set forth in this Section
11 shall be amended so as to include such additional or varied requirements as
Lessor (upon the advice of such independent insurance advisor) may reasonably
consider appropriate.
11.7 Change of Circumstance
If at any time, Lessor reasonably considers that any change in
circumstances is likely to occur, or has occurred and is continuing, which would
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materially affect or is materially affecting the insurance of the Aircraft or
Airframe, then Lessor shall be entitled (without prejudice to any other rights
which it may have or acquire under this Agreement or any other Operative
Document by reason of such change in circumstances) to require the Aircraft or
Airframe, as the case may be, to remain at any airport or to proceed to and
remain at any airport designated by Lessor on the routes flown by Lessee until
Lessee shall have supplemented or replaced, or implemented any necessary
amendments to the terms of, such insurance, and implemented any operational
changes, which Lessor reasonably considers are required as the result of such
change in circumstances. Except in the case of exigent circumstances, Lessor
shall give Lessee notice prior to exercising its rights under this section.
11.8 Negative Undertakings
Lessee shall not act or fail to act, or cause, permit or suffer an
act or failure to act, whereby any insurance required by this Section 11 would
or might reasonably be expected to be limited or rendered in whole or in part
invalid, unenforceable or otherwise not in full force and effect (including any
limitation resulting from inaccuracy of any representation or warranty of
Lessee, or any illegal use of the Aircraft).
11.9 Failure to Insure
If at any time Lessee fails to maintain insurance in compliance with
this Section 11, each of Lessor and Security Agent shall be entitled but not
bound to do any of the following (without prejudice to any other rights which it
may have under this Lease Agreement or any other Operative Document by reason of
such failure):
11.9.1 To pay any premiums due or effect or maintain such
insurance or otherwise remedy such failure in such manner as Lessor or Security
Agent, as the case may be, considers appropriate (and Lessee shall upon demand
reimburse Lessor or Security Agent, as the case may be, in full for any
reasonable amount so expended) and/or
11.9.2 At any time while such failure is continuing, require the
Aircraft to remain at any airport or, as the case may be, upon provision by
Lessor or Security Agent, as the case may be, of insurance coverage satisfactory
to Lessee, proceed to and remain at any airport designated by Lessor or Security
Agent, as the case may be, until such failure is remedied to Lessor's and
Security Agent's satisfaction.
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11.10 Additional Insurance
Lessee acknowledges that Lessor has an insurable interest in the
Aircraft. Lessor shall have the right to obtain insurance in its own name with
respect to such insurable interest. Lessee will render Lessor all reasonable
assistance requested by Lessor in order that Lessor may adequately protect such
insurable interest. Lessee agrees that the maximum amounts payable to it or to
others for its account or to be applied in discharge of its obligations by any
underwriter or carrier of insurance maintained by Lessee upon the occurrence of
an Event of Loss with respect to the Aircraft shall be limited to the Stipulated
Loss Value unless the maintenance of any such insurance in an amount in excess
of such Stipulated Loss Value in respect of Lessee's insurable interest in the
Aircraft does not prejudice Lessor's interests under the insurances otherwise
required by this Section 11, or prevent Lessor from obtaining such insurances as
it requires, in which event nothing herein shall prevent Lessee from effecting
such additional insurance for its account. At Lessor's request, Lessee will have
any such additional insurance coverage for the Aircraft amended so as to cover,
in addition, Lessor's insurable interest therein, provided that Lessor, in such
case, reimburses Lessee in the amount of the additional premium required to
provide such coverage for such insurable interest of Lessor.
11.11 Insurance Required by Airframe Manufacturer
Without limiting any other provision of this Section 11, Lessee
hereby assumes and undertakes to perform (to the exclusion of Lessor), and shall
comply with, the indemnity obligations of "Buyer" and the insurance requirements
applicable to "Buyer" under Part E to Exhibit C of the Airframe Manufacturer
Purchase Agreement as if Lessee were originally named "Buyer" therein.
SECTION 12. EVENTS OF DEFAULT
A fundamental term and condition of this Agreement is that none of the
following events shall occur during the Lease Term and that the occurrence of
any of the following events shall constitute an "Event of Default" (whether any
such event shall be voluntary or involuntary or come about or be effected by
operation of Law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Government Entity):
12.1 Failure to Pay Scheduled Amounts
Lessee shall have failed to make any periodic or scheduled payment in
accordance with this Lease Agreement or any other Operative Document (including
any payment of Basic Rent or Renewal Rent) within three Business Days after the
date the same shall have become due.
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12.2 Failure to Pay Demand Amounts
Lessee shall have failed to make any demand payment in accordance
with this Lease Agreement or the other Operative Documents when the same shall
have become due after demand and such failure shall continue for 20 Business
Days.
12.3 Insurance
12.3.1 Lessee shall have failed to carry and maintain, or cause
to be carried and maintained, on or with respect to the Aircraft, any insurance
required to be maintained in accordance with the provisions of Section 11.
12.3.2 The Aircraft shall be operated at a time in contravention
of any requirements or conditions of any insurance required under Section 11.
12.4 Return
Lessee shall have failed to return the Aircraft at the end of the
Lease Term as and in the condition required by Section 3 of Schedule 2.
12.5 Certain Covenants
Lessee shall have failed to comply with its obligations under Section
2.1, 4, 6.2.1, 6.2.3, 8 or 14.2, or Section 1.4, 1.6, 1.9.2 or 3.1 of Schedule
2.
12.6 Other Covenants
Lessee shall have failed to comply with, observe or perform, and
shall fail to cause to be complied with, observed and performed, any of its
covenants, agreements or obligations hereunder or under any other Operative
Document, except to the extent provided above in this Section 12, and such
failure shall continue for 30 days after the earlier of (1) the date of written
notice thereof to Lessee or (2) the date Lessee assuming exercise of reasonable
diligence, should have known of such failure.
12.7 Representations and Warranties
Any representation or warranty made by Lessee herein or in any other
Operative Document shall have proven to have been incorrect, inaccurate or
untrue in any material respect as of the time made and (i) such incorrectness,
inaccuracy or untruth shall be material at any relevant time and (ii) with
respect to any incorrectness, inaccuracy or untruth that is capable of cure,
such incorrectness, inaccuracy or untruth shall have continued for a period of
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30 days after the earlier of (y) the date of written notice thereof to Lessee or
(z) the date Lessee, assuming exercise of reasonable diligence, should have
known of the same.
12.8 Voluntary Bankruptcy, Etc.
Lessee shall have (1) commenced any proceeding or filed any petition
seeking relief under any applicable bankruptcy, insolvency, liquidation,
administration, receivership or other similar Law, (2) consented to or
acquiesced in the institution of, or failed to contravene in a timely and
appropriate manner, any such proceeding or the filing of any such petition, (3)
applied for or consented to the appointment of a receiver, trustee, custodian,
sequestrator or similar official for itself or for a substantial part of its
property or assets, (4) filed an answer admitting the material allegations of a
petition filed against it in any such proceeding, (5) proposed or entered into
any composition or other arrangement, or made a general assignment, for the
benefit of creditors or declared a moratorium on the payment of indebtedness,
(6) become insolvent or suspended payments on, become unable to, admitted in
writing its inability to or failed generally to pay, any material portion of its
debts as they become due, (7) sought its own liquidation, reorganization,
dissolution or winding up or (8) taken any corporate action (including a
petition, proposal or convening of a meeting by the shareholders or directors of
Lessee) for the purpose of effecting any of the foregoing.
12.9 Involuntary Bankruptcy, Etc.
A proceeding shall have been commenced or a petition shall have been
filed, in either case, without the consent or application of Lessee, seeking (1)
relief in respect of Lessee or of a substantial part of its property or assets
under any applicable bankruptcy, insolvency, liquidation, administration,
receivership or similar Law, (2) the appointment of a receiver, trustee,
custodian, sequestrator or similar official for Lessee or for a substantial part
of its property or assets or (3) the liquidation, reorganization, dissolution or
winding up of Lessee; and such proceeding or petition shall continue undismissed
for 60 days or an order or decree approving or ordering any of the foregoing
shall be issued and shall not immediately be stayed.
12.10 Illegality
The validity, legality or enforceability of Lessee's obligations
under this Agreement or any other Operative Document is challenged by Lessee or
any other Person claiming by or through Lessee.
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12.11 Indebtedness or Lease Default
(1) Lessee shall have failed to pay any amount in respect of any
Indebtedness, or any interest or premium thereon, when due (whether by a
scheduled maturity, required prepayment, acceleration, demand or otherwise), or
Lessee shall fail to perform or to comply with any other covenant, agreement or
condition contained in any agreement or instrument relating to such
Indebtedness, and such failure to pay, perform or comply shall continue after
the applicable grace period, if any, specified in the agreement or instrument
relating to such Indebtedness, if, as a result of any such failure, the maturity
of such Indebtedness is capable of being accelerated and if the aggregate
outstanding amount of all such Indebtedness exceeds, in the aggregate together
with any other Indebtedness in respect of which Lessee has failed to make any
payment or in respect of which Lessee has otherwise failed to perform or comply,
US$[ ]* (or the equivalent thereof), (2) Lessee shall breach or otherwise fail
to perform or comply with any representation, warranty or covenant of any two
aircraft leases and such breaches or failures to perform or comply shall
continue after the applicable grace periods, if any, specified in such leases,
if, as a result of such breaches or failures, one or more aircraft lessors shall
have the contractual or other legal right to terminate the leasing of the
relevant aircraft or repossess, or order the redelivery of, such aircraft and
the remaining term of each such lease is greater than six months, or (3) any
"Event of Default" shall occur and be continuing under and as defined in any
Other Lease.
12.12 Government Action
Except as permitted under Section 8.5, any Government Entity or any
Person acting or purporting to act under governmental authority shall have taken
any action to condemn, seize or appropriate, or to assume custody or control of,
or to levy or sue out upon any distress or other execution involving, all or a
material part of the property of Lessee.
12.13 Judgments
One or more judgments are rendered against Lessee that either (1)
imposes or impose on Lessee an obligation or obligations for the payment of
money in excess of US$[ ]* (or the equivalent thereof) in the aggregate or (2)
grants or grant to any Person equitable relief of any nature that could, if
enforced, be reasonably expected to have a Material Adverse Effect and, in the
case of any such judgment or judgments, the same shall remain undischarged for a
period of 30 days or more, during which time execution of such judgment or
judgments shall not be effectively stayed nor adequate bonding fully covering
such judgment or judgments exist.
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SECTION 13. REMEDIES
Upon the occurrence of any Event of Default and so long as the same shall
be continuing, Lessor shall have the right, effective upon notice to Lessee, to
terminate this Lease Agreement and each other Operative Document and at any time
thereafter Lessor may do all or any of the following, at its option and in its
sole discretion (in addition to such other rights and remedies which Lessor may
have under applicable Law):
13.1 Retake Possession
Upon the written demand of Lessor and at Lessee's expense, cause
Lessee to return promptly, and Lessee shall return promptly, the Airframe and
Engines or such part of the Aircraft as Lessor may so demand to Lessor or its
order in the manner and condition required by, and otherwise in accordance with
all the provisions of, Section 3 of Schedule 2 as if such Airframe and Engines
or such part of the Aircraft were being returned at the expiration of the Lease
Term, or Lessor at its option, may enter upon the premises where the Airframe or
an Engine, or such part of the Aircraft is located and take immediate possession
of and remove the same (together with any engine which is not an Engine but
which is installed on the Airframe, subject to all the rights of the owner,
lessor, lienor or secured party of such engine, and such engine shall be held
for the account of any such owner, lessor, lienor or secured party or, if owned
by Lessee, may, at the option of Lessor, be exchanged with Lessee for an Engine
as if the original Engine had suffered an Event of Loss) by summary proceedings
or otherwise, and Lessee waives any right it may have under applicable Law to a
hearing prior to repossession of the Aircraft, Airframe or any Engine or part
(and/or, at Lessor's option, store the same at Lessee's premises until disposal
thereof by Lessor), all without liability (except for Lessor's gross negligence
or willful misconduct) accruing to Lessor for or by reason of such entry or
taking of possession or removing whether for the restoration of damage to
property caused by such action or otherwise, and Lessor is hereby irrevocably by
way of security for Lessee's obligations under this Lease Agreement appointed
attorney for Lessee in causing the redelivery or in directing the pilots of
Lessee or other pilots to fly the Aircraft to the designated location and will
have all the powers and authorizations necessary for taking that action. It
shall be deemed to be an "unlawful act," under Article 3(2) of the Rome
Convention, for Lessee to retain possession of the Aircraft, Airframe or any
Engine or part after Lessor shall have issued any written demand for Lessee to
return the same pursuant to this Section 13.1.
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13.2 Termination or Enforcement
Rescind this Lease Agreement and any other Operative Document,
terminate this Lease Agreement and any other Operative Document and/or exercise
any other right or remedy which may be available to it under applicable Law or
proceed by appropriate court action to enforce the terms hereof and/or exercise
any other power, right or remedy which may be available to Lessor hereunder or
under applicable Law. Without limiting the generality of the foregoing Lessor
shall have the right, without need of any consent, authorization or action of
Lessee, to cause the Aircraft to be deregistered by the Aviation Authority, and
to be made ready for export and to be exported out of the Lessee Jurisdiction,
and to cause all rights of Lessee in respect of the Aircraft and this Lease
Agreement and each other Operative Document under or in connection with or
resulting from the registration of the Aircraft or the recordation of the
Operative Documents with the Aviation Authority or otherwise under or in
connection with or resulting from any Law in the Lessee Jurisdiction, to be
terminated and extinguished. In furtherance of the foregoing, Lessor shall be
entitled and empowered to act in the name and in the place of Lessee as may be
necessary or desirable, in Lessor's sole discretion, including with respect to
the execution of documents and instruments, to effect such deregistration,
derecordation, exportation, termination and extinguishment. Lessee hereby
irrevocably and by way of security for its obligations under this Lease
Agreement appoints Lessor as its attorney to execute and deliver any
documentation and to do any act or thing required in connection with the
foregoing.
13.3 Application of Funds
Without limiting any other provision of this Lease Agreement or of
any other Operative Document (but subject to Sections 4.3 and 4.5), Lessor or
Security Agent shall have the right to continue to hold the Security Deposit
and/or Letter of Credit, as the case may be, and any other amounts received or
held as security for Lessee's obligations hereunder and under any other
Operative Document, and to withhold or set off against all amounts otherwise
payable to Lessee hereunder or under any other Operative Document (all as
security for Lessee's obligations and liabilities under this Lease Agreement and
the other Operative Documents) and to use and apply in whole or in part any or
all of such amounts, withholdings and setoffs to and against such obligations
and liabilities of Lessee (in whatever order and according to whatever priority
Lessor or Security Agent, as the case may be may choose), and any such use,
application or setoff shall be absolute, final and irrevocable.
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13.4 Damages
In addition to Lessor's rights under Section 9.1, recover from
Lessee, and Lessee shall on demand pay damages to equal the sum of:
13.4.1 All accrued and unpaid Rent payable hereunder in respect
of any period prior to Return of the Aircraft to Lessor in the condition and
otherwise in the manner required under Section 3 of Schedule 2.
13.4.2 All Expenses incurred by Lessor in connection with such
Event of Default or the exercise of Lessor's remedies with respect thereto,
including (1) all costs and expenses incurred in connection with recovering
possession of the Airframe or any Engine or in placing such Airframe or Engine
in the configuration, condition and repair required by Section 3 of Schedule 2
and all lost Rent payments during such recovery and reconditioning and (2) all
damages incurred by Lessor in connection with such Event of Default, including
all losses (including reasonable lost profits) suffered by Lessor because of
Lessor's inability to place the Aircraft on lease with another lessee on terms
as favorable to Lessor as this Lease Agreement or because whatever use, if any,
to which Lessor is able to put the Aircraft upon its return to Lessor, or the
amount received by Lessor upon a sale or other disposal of the Aircraft, is not
as profitable to Lessor as leasing the Aircraft in accordance with the terms of
this Lease Agreement would have been, including in each case, lost Rent payments
during any remarketing period.
SECTION 14. ASSIGNMENT OF LEASE
14.1 Assignment by Lessor
14.1.1 Right to Assign
Lessor (and any subsequent permitted assignee or transferee)
shall have the right at any time to transfer, assign (including assign as
security), mortgage, grant participations in, or otherwise dispose of, all or
any portion of its right, title and interest in and to this Lease Agreement and
any other Operative Document and the Aircraft to any Person (including in
connection with any conversion of the lease transaction contemplated by this
Lease Agreement to a "leveraged lease" structure or a "headlease-sublease"
structure with a new headlease which may be either a "leveraged lease" or a
"single-investor lease"). The foregoing right of Lessor is subject (1) in the
case of an Absolute Transfer (as defined below), to Lessor's compliance with the
requirements of Section 14.1.3 or absent such compliance, to receipt of Lessee's
consent (such consent not to be unreasonably withheld) and (2) in all cases, to
Lessee receiving from the transferee or assignee a covenant of quiet enjoyment
substantially in the form of Section 6.1.1.
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14.1.2 Cooperation and Limitations
Lessee shall comply, at Lessor's expense, with all reasonable
requests of Lessor in connection with any such transfer, assignment, mortgage,
grant or other disposition (including in connection with any such conversion),
including the execution of all consents and amendments in connection therewith
and the reissuance of any insurance certificates, broker's letters and broker's
acknowledgment required in connection therewith and otherwise, the reissuance or
reproduction of the documents required under Schedule 6, in each case, with such
changes as necessary to reflect such transfer, assignment, mortgage, grant or
other disposition.
14.1.3 Absolute Transfer
In connection with the transfer of Lessor's entire interest in
this Lease Agreement (other than as security and other than with respect to
indemnities and third-party liability insurance) as provided herein (an
"Absolute Transfer"):
14.1.3.1 Lessor's obligations under this Lease Agreement and the other
Operative Documents shall be assumed by the transferee or assignee (and
thereupon the assigning Lessor shall be released from all of its obligations
hereunder).
14.1.3.2 Lessor shall transfer (1) any cash constituting the Security
Deposit or (2) the Letter of Credit to such transferee or assignee.
14.1.3.3 (1) Lessee's rights under the Operative Documents shall not be
materially adversely affected by such Absolute Transfer and (2) Lessee shall, as
an immediate consequence of such Absolute Transfer, incur no additional material
obligations or additional material (over $[ ]* in the aggregate) costs
(financial or otherwise) hereunder or under any other Operative Document (unless
Lessor agrees to indemnify Lessee therefor), provided that neither a change in
the Person or Persons to whom, or for whose benefit, Lessee performs its
obligations under the Operative Documents, nor an increase in the number of, or
change in the nature of, beneficiaries under any indemnification, insurance or
other obligation shall, in each case, constitute by itself or in the aggregate a
material increase in the obligations of Lessee under the Operative Documents.
Notwithstanding any provision to the contrary, Lessor agrees that the
requirements of this Section 14.1.3.3 shall also apply to any transfer by Lessor
of any part of its interest in this Lease Agreement.
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14.1.3.4 Such transferee or assignee shall make for the benefit of Lessee
all of the Lessor's representations set forth herein.
14.1.3.5 Such transferee or assignee shall be a "citizen of the United
States" as defined in 49 U.S.C. 40102(a)(15) and shall execute and record with
the Aviation Authority all such documents and instruments as may be necessary or
appropriate in order to preserve without interruption the registration of the
Aircraft.
14.1.3.6 Such transferee or assignee shall not be the subject of any
bankruptcy, reorganization or similar proceeding and shall have a Tangible Net
Worth not less than US$[ ]*.
14.1.3.7 Such transferee or assignee shall not be an air carrier that is a
competitor of Lessee.
Without prejudice to any rights of any Indemnified Party hereunder or under any
other Operative Document in effect on or after the occurrence of an Absolute
Transfer, for a period of two years after such Absolute Transfer and at Lessee's
cost, if any, Lessee shall comply with the terms and conditions of Section 11.3
with respect to the "Lessor" and each other "Indemnified Party" (as determined
immediately prior to such Absolute Transfer) as if the effective date of such
Absolute Transfer were the last day of the Lease Term.
14.1.4 Transfer as Security
Without limiting the generality of Section 14.1.2, in connection
with any transfer, assignment, mortgage, grant, novation or other disposition as
security (a "Security Transaction") by Lessor of its interests hereunder, under
the other Operative Documents or in the Aircraft, to any Security Agent, Lessee
shall, at Lessor's expense:
14.1.4.1 Enter into documentation customary for Security Transactions of
the type so contemplated, and shall make such filings, and take such actions, as
may be requested by Lessor in connection therewith.
14.1.4.2 Lessee and Lessor shall amend and/or restate this Agreement and
any relevant Operative Document to reflect the Security Transaction, including
(1) an amendment to the definition of Operative Documents to include the
documents and instruments to be entered into and/or delivered in connection with
the Security Transaction, and, in the case where the Security Transaction is
consummated on the Delivery Date, the inclusion of such documents and
instruments in Section 1 of Schedule 6, and (2) amendments to the insurance and
indemnity provisions and definitions, in each case, in order to provide the
Financing Parties with customary rights and protections.
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14.2 Assignment by Lessee
Except as otherwise expressly provided herein, Lessee may not,
without the prior written consent of Lessor, which consent may be withheld in
Lessor's sole discretion, assign (by express assignment, merger, consolidation
or otherwise) any of its rights or delegate any of its obligations hereunder or
under any other Operative Document.
14.3 Successors and Assigns
Subject to the foregoing, the terms and provisions of this Lease
Agreement and each other Operative Document shall be binding upon and inure to
the benefit of Lessor and Lessee and their respective permitted successors and
assigns.
SECTION 15. NO SETOFF, COUNTERCLAIM, ETC.
This Lease Agreement is a net lease and Lessee's obligation to pay Rent is
and shall be absolute and unconditional and shall not be abated, suspended,
diminished, reduced, delayed, discontinued or otherwise affected by any
condition, circumstance, act or event of any kind whatsoever, including any of
the following: (1) any right of setoff, deduction, counterclaim, recoupment,
defense, suspension, deferment or other right (including any right of
reimbursement) which Lessee may have against Lessor, Airframe Manufacturer,
Engine Manufacturer, any Insured Party, any Inspecting Party, any Indemnified
Party or any other Person for any reason whatsoever, including any claim Lessee
may have for the foregoing, any present or future Law to the contrary
notwithstanding, (2) the unavailability, interruption or cessation in use of the
Aircraft for any reason, including (a) any requisition thereof or any
restriction, prohibition or curtailment of, interference with, or other
restriction against, Lessee's use, operation or possession of the Aircraft
(whether by Law, any Government Entity or other Person (other than Lessor,
except as permitted by this Lease Agreement or any other Operative Document or
by law) or otherwise) and (b) any damage to or loss or destruction (including an
Event of Loss) of or to the Aircraft and (c) the removal of the Aircraft from
service to permit the Final Inspection, Final Maintenance or Return of the
Aircraft, (3) any defect in the title, airworthiness, merchantability, fitness
for any purpose, condition, design, specification or operation of any kind or
nature of the Aircraft, or the ineligibility of the Aircraft for any particular
use or trade or for registration or certification, (4) any amendment or
modification of or supplement to any of the Operative Documents, any agreements
relating to any thereof or any other instrument or agreement applicable to the
Aircraft, the Airframe or any Engine, or any assignment or transfer of any
thereof, or any furnishing or acceptance of any additional security, or any
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failure or inability to perfect any security, (5) any insolvency, bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution, liquidation,
receivership, administration or similar proceedings by or against Lessee,
Lessor, any Indemnified Party or any other Person, (6) the invalidity,
unenforceability or impossibility of performance of this Lease Agreement, any
other Operative Document or any of the terms hereof or thereof, the lack of
power or authority of Lessee to enter into this Lease Agreement or any other
Operative Document, or any other defect in this Lease Agreement or any other
Operative Document, (7) any breach by Lessor, any Indemnified Party or any other
Person of any representation, warranty or covenant, express or implied, made or
alleged to be made to Lessee, or any right, claim, bill, action or suit
whatsoever by or against or on the part of Lessee, including whether arising out
of legal action or otherwise, at law or in equity, whether affirmative, negative
or defensive in nature for or on account of the legality, validity,
enforceability or otherwise arising as a result of (a) this Lease Agreement or
any other Operative Document or any of the terms or conditions hereof or
thereof, (b) any express or implied warranty or (c) any contract, agreement or
transaction between Lessee and Lessor or any other Person, whether direct or
indirect, written or oral, (8) any waiver, consent, change, extension,
indulgence or any action or inaction under or in respect of any such instrument
or agreement or any exercise or nonexercise of any right, remedy, power or
privilege in respect of any such instrument or agreement or this Lease Agreement
or any other Operative Document, (9) any transfer of any interest in this Lease
Agreement or any other Operative Document or in the Aircraft by Lessor or any
change of ownership of Lessor, or (10) any other circumstance, happening or
event whatsoever, whether or not similar to the foregoing, which but for this
provision would or might have the effect of terminating or in any other way
affecting any obligation of Lessee hereunder, it being the express intention of
Lessor and Lessee that all Rent and other amounts payable by Lessee hereunder or
under any other Operative Document shall be payable in all events, unless the
obligation to pay the same shall be terminated pursuant to the express
provisions of this Lease Agreement.
Lessee hereby waives, to the extent permitted by applicable Law, any and
all rights which it may have or which at any time hereafter may be conferred
upon Lessee, by Law or otherwise, to terminate, cancel, quit or surrender this
Lease Agreement or any other Operative Document, or to abate, suspend, defer,
reduce or otherwise fail to comply in full with any obligation imposed upon
Lessee hereunder or thereunder or in relation hereto, except termination of this
Lease Agreement in accordance with the express provisions hereof. If for any
reason whatsoever this Lease Agreement is terminated in whole or in part by
operation of Law or otherwise, except as specifically provided herein, Lessee
nonetheless agrees to pay Lessor an amount equal to each Rent payment at the
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time such payment would have become due in accordance with this Lease Agreement
and each other Operative Document had this Lease Agreement not been terminated
in whole or in part until Return of the Aircraft to Lessor. Each Rent payment
made by Lessee shall be final, and Lessee shall not seek to recover all or any
part of any such payment for any reason whatsoever.
Nothing in this Section 15 shall be construed to limit any right Lessee
may have to independently pursue any claim it may have against Lessor or any
Indemnified Party under this Lease Agreement, applicable Law or otherwise.
SECTION 16. FURTHER ASSURANCES, ETC.
16.1 Further Assurances
Without limiting the other obligations and liabilities of Lessee
under this Lease Agreement and the other Operative Documents, Lessee agrees to
promptly and duly execute and deliver to Lessor such further documents and
assurances and take such further action as Lessor may from time to time
reasonably request in order to effectively carry out the intent and purpose of
this Lease Agreement and the other Operative Documents and to establish, perfect
and protect the rights and remedies created or intended to be created in favor
of Lessor and each Financing Party hereunder and thereunder and if applicable,
any Security Agent under any Security Transaction.
16.2 Lessor's Performance of Lessee's Obligations
If Lessee fails to make any payment of Rent or fails to perform or
comply with any agreement, covenant or obligation contained herein or in any
other Operative Document, Lessor or Security Agent shall have the right, but not
the obligation, at its election and without waiver of any of its rights or
remedies against Lessee, to perform or comply with such covenant, agreement or
obligation and/or pay such amount, and the amount of such payment and any
Expenses incurred by Lessor or Security Agent, as the case may be, in connection
with such payment or the performance of or compliance with such agreement,
covenant or obligation, as the case may be, together with interest at the Past
Due Rate, shall be payable by Lessee to Lessor or Security Agent, as the case
may be, upon demand as Supplemental Rent. The taking of any action by Lessor or
Security Agent, as the case may be, pursuant to this Section 16.2 shall not
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constitute a waiver or release of any obligation of Lessee hereunder or under
any other Operative Document nor a waiver of any Default which may arise out of
Lessee's nonperformance of such obligation, nor an election or waiver by Lessor
or Security Agent, as the case may be, of any right or remedy available to
Lessor under or in relation to this Lease Agreement or any other Operative
Document.
16.3 No Implied Waivers; Rights Cumulative
16.3.1 No failure on the part of Lessor or any other Person to
exercise and no delay in exercising any right, power, remedy or privilege under
any Operative Document or provided by statute or at Law or in equity or
otherwise shall impair, prejudice or constitute a waiver of any such right,
power, remedy or privilege or be construed as a waiver of any Event of Default
or as an acquiescence thereto, nor shall any single or partial exercise of any
such right, power, remedy or privilege impair, prejudice or preclude any other
or further exercise thereof or the exercise of any other right, power, remedy or
privilege. No acceptance of partial payment or performance shall, whether or not
expressly stated, be or be deemed to be a waiver of any Event of Default then
existing or a waiver or release of full payment and performance. No notice to or
demand on Lessee shall in any case entitle Lessee to any other or further notice
or demand in other or similar circumstances or constitute a waiver of the right
of Lessor or any other Person to any other or further action in any
circumstances without notice or demand.
16.3.2 Each and every right, power, remedy and privilege of
Lessor and any other Person under the Operative Documents (1) shall be in
addition to and not in limitation of, or in substitution for, any other right,
power, remedy or privilege under any Operative Document or at law or in equity,
(2) may be exercised from time to time or simultaneously and as often and in
such order as may be deemed expedient by Lessor and such Person and (3) shall be
cumulative and not mutually exclusive, and the exercise of one shall not be
deemed a waiver of the right to exercise any other.
SECTION 17. [INTENTIONALLY LEFT BLANK]
SECTION 18. GOVERNING LAW AND JURISDICTION
18.1 New York Law
THIS LEASE AGREEMENT AND EACH OTHER OPERATIVE DOCUMENT, UNLESS
OTHERWISE EXPRESSLY PROVIDED THEREIN, SHALL IN ALL RESPECTS, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS ENTERED INTO IN THAT STATE BETWEEN CITIZENS OF THAT
STATE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE WITHOUT REFERENCE TO ANY
RULES GOVERNING CONFLICTS OF LAWS.
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18.2 Nonexclusive Jurisdiction in New York
Lessee and Lessor each hereby irrevocably consents that any legal
action or proceeding against it or any of its assets arising out of or relating
to this Lease Agreement or any other Operative Document may be brought in any
jurisdiction where it or any of its assets may be found, in the courts of the
United States of America for the Southern District of New York or in the courts
of the State of New York located in Manhattan, as the party bringing such action
or proceeding may elect, and by execution and delivery of this Lease Agreement
each of Lessor and Lessee hereby irrevocably submits to and accepts with regard
to any such action or proceeding, for itself and in respect of its assets,
generally and unconditionally, the jurisdiction of the aforesaid courts and
irrevocably agrees to be bound by any judgment rendered thereby. Nothing herein
shall limit the right of Lessor and Lessee from bringing any legal action or
proceeding or obtaining execution of judgment against Lessee or Lessor, as the
case may be, in any other appropriate jurisdiction or concurrently in more than
one jurisdiction. Lessee and Lessor further agree that a final judgment in any
action or proceeding arising out of or relating to this Lease Agreement or any
other Operative Document 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 the indebtedness or liability therein described,
or in any other manner provided by Law. Each of Lessee and Lessor hereby
irrevocably waives, to the fullest extent permitted by Law, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Lease Agreement or any other
Operative Document brought in any court in or of the State of New York, and
hereby further irrevocably waives any claim that any such suit, action or
proceeding brought in any court in or of the State of New York has been brought
in an inconvenient forum.
LESSEE AND LESSOR HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE
DOCUMENT.
18.3 Process Agent
18.3.1 Lessee shall maintain the process agent specified for it in
Section 18.5, or such other Person located within the State of New York as may
be acceptable to Lessor, as its agent for service of process in the State of New
York during the Lease Term and six months thereafter, at Lessee's sole cost and
expense.
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18.3.2 Lessor shall maintain the process agent specified for it in
Section 18.5, or such other Person located within the State of New York as may
be acceptable to Lessee, as its agent for service of process in the State of New
York during the Lease Term and six months thereafter, at Lessor's sole cost and
expense.
18.4 Waiver of Immunity
Each of Lessor and Lessee irrevocably and unconditionally agrees that
if Lessee or Lessor, respectively, brings legal proceedings against it or its
assets in relation to this Agreement no immunity from such legal proceedings
(which will be deemed to include suit, attachment prior to judgment, other
attachment, the obtaining of judgment, execution or other enforcement) will be
claimed by or on behalf of itself or with respect to its assets. Each of Lessor
and Lessee further irrevocably and unconditionally (1) waives any such right of
immunity which it or its assets now have or may in the future acquire and (2)
consents generally in respect of any such proceedings to the giving of any
relief or the issue of any process in connection with such proceedings,
including the making, enforcement or execution against any property whatsoever
(irrespective of its use or intended use) of any order or judgment which may be
made or given in such proceedings.
18.5 Service of Process
18.5.1 Lessee hereby irrevocably designates, appoints and
empowers CT Corporation, as its authorized agent to receive on its behalf and on
behalf of its property service of copies of the summons and complaint and any
other process which may be served in any action or proceeding arising out of or
relating to this Lease Agreement or any other Operative Document. Such service
may be made by mailing or delivering a copy of such process in care of the
appropriate process agent set forth above and Lessee hereby irrevocably
authorizes and directs its designated process agent to accept such service on
its behalf. Lessee further agrees that failure by a process agent appointed in
accordance with the foregoing terms to notify Lessee of the process shall not
invalidate the proceeding concerned. Notwithstanding the foregoing, nothing
herein shall affect the rights of either party to serve process in any other
manner permitted by Law.
18.5.2 Lessor hereby irrevocably designates, appoints and
empowers National Corporate Research, Ltd. as its authorized agent to receive on
its behalf and on behalf of its property service of copies of the summons and
complaint and any other process which may be served in any action or proceeding
arising out of or relating to this Lease Agreement or any other Operative
Document. Such service may be made by mailing or delivering a copy of such
process in care of the appropriate process agent set forth above and Lessor
hereby irrevocably authorizes and directs its designated process agent to accept
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such service on its behalf. Lessor further agrees that failure by a process
agent appointed in accordance with the foregoing terms to notify Lessor of the
process shall not invalidate the proceeding concerned. Notwithstanding the
foregoing, nothing herein shall affect the rights of either party to serve
process in any other manner permitted by Law.
SECTION 19. MISCELLANEOUS
19.1 Construction
19.1.1 In this Lease Agreement and each other Operative
Document, unless expressly provided otherwise, a reference to:
19.1.1.1 Each of "Lessor" or "Lessee" or any other Person includes, without
prejudice to the provisions of this Lease Agreement or any other Operative
Document, any successor in interest to it and any permitted assignee and, in the
case of any Government Entity, any Government Entity succeeding to all or any of
its functions.
19.1.1.2 The word "including" shall be construed as "including, without
limitation."
19.1.1.3 Words importing the plural include the singular and vice versa.
19.1.1.4 Any document includes that document as amended, modified or
supplemented from time to time in accordance with its terms, and any document
entered into in substitution or replacement therefor.
19.1.1.5 The words "this Lease," "this Agreement," "this Lease Agreement,"
"hereby," "herein," "hereto," "hereof" and "hereunder" and words of similar
import when used in this Lease Agreement refer to this Lease Agreement as a
whole including the Schedules and Exhibits, and all Annexes, Attachments and
Supplements thereto, and not to any particular provisions of this Lease
Agreement.
19.1.1.6 A Section or an Exhibit or a Schedule is a reference to a section
of, or an exhibit or a schedule to, this Lease Agreement.
19.1.2 Headings used in this Lease Agreement and each other Operative
Document are for convenience only and shall not in any way affect the
construction of, or be taken into consideration in interpreting, this Lease
Agreement or such Operative Document.
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19.2 Amendments
No provision of this Lease Agreement or any other Operative Document
may be amended, changed, waived or discharged orally, but only by an instrument
in writing specifying the provision intended to be amended, changed, waived or
discharged and signed by each party hereto or thereto; and no provision of this
Lease Agreement or any other Operative Document shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or other
matter not specifically set forth in an agreement in writing and signed by each
party hereto or thereto.
19.3 Severability
If any provision hereof or of any Operative Document should be held
invalid, illegal or unenforceable in any respect in any jurisdiction, then, to
the extent permitted by Law (1) all other provisions hereof or thereof shall
remain in full force and effect in such jurisdiction and (2) such invalidity,
illegality or unenforceability shall not affect the validity, legality or
enforceability of such provision in any other jurisdiction.
19.4 Counterparts
This Lease Agreement, any Operative Document and any amendments,
waivers, consents or supplements hereto or thereto may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original, and all of which counterparts, taken together, shall constitute one
and the same instrument.
19.5 Chattel Paper
To the extent, if any, that this Lease Agreement constitutes chattel
paper (as defined in the Uniform Commercial Code in effect from time to time in
any applicable jurisdiction) no security interest in this Lease Agreement may be
created through the transfer or possession of any counterpart other than the
original executed counterpart, which shall be identified as the counterpart
containing the receipt therefor executed by Lessor on the signature page
thereof.
19.6 Time of the Essence
Subject only to the periods of grace referred to herein, time shall
be of the essence as regards the performance by Lessee of its obligations under
this Lease Agreement and each other Operative Document.
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19.7 Notices
All notices, requests and other communications to Lessee, Lessor or
any other Person hereunder or under any other Operative Document shall be in
writing (for this purpose, "writing" includes telecopy or similar electronic
transmissions), shall refer specifically to this Lease Agreement or such other
Operative Document, as the case may be, and shall be personally delivered or
sent by telecopy or other similar electronic facsimile transmission, or sent by
overnight courier service (e.g., Federal Express), in each case to the
respective address and telecopy number specified in Schedule 4 or such other
address or telecopy number as such Person may hereafter specify by notice to the
other party or to the parties hereto. Each such notice, request or other
communication shall be effective when received or, if by telecopier or other
similar electronic transmission, when "confirmed" by the sending telecopy or
similar machine and written evidence of such confirmation is produced by such
machine.
19.8 Entire Agreement
This Lease Agreement constitutes the entire agreement between the
parties concerning the subject matter hereof, and supersedes all previous
proposals, agreements, understandings, negotiations and other written and oral
communications in relation hereto. The parties acknowledge that there have been
no representations, warranties, promises, guarantees or agreements, express or
implied, except as set forth herein.
19.9 Documentation Costs
Whether or not the transactions contemplated hereby are consummated,
each of Lessor and Lessee shall bear and be responsible for its own costs and
expenses incurred in connection with the negotiation, preparation, execution and
delivery of this Lease Agreement and the other Operative Documents and the
consummation of the transactions contemplated hereby and thereby, and neither
Lessor or Lessee shall have any right of reimbursement or indemnity for such
costs and expenses as against each other.
19.10 Language
All notices to be given under this Lease Agreement and each other
Operative Document shall be in English. All documents delivered to Lessor
pursuant to this Lease Agreement and each other Operative Document will be in
English, or if not in English, will be accompanied by a certified English
translation. The language of this Lease Agreement and each other Operative
Document, and the language of its interpretation, is English. If there is any
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inconsistency between the English version of this Lease Agreement or any other
Operative Document and any version in any other language, whether or not such
other version is executed by Lessor, Lessee, the English version will prevail
for all purposes.
[This space intentionally left blank.]
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Lessee and Lessor have caused this Lease Agreement to be executed by their
respective officers as of the day and year first above written and is delivered
in New York State.
BOULLIOUN PORTFOLIO FINANCE I, INC.
By:
Title:
WESTERN PACIFIC AIRLINES, INC.
By:
Title:
[THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.]
[RECEIPT OF THIS ORIGINAL COUNTERPART OF THE FOREGOING LEASE
AGREEMENT IS HEREBY ACKNOWLEDGED ON THIS ____ DAY OF _____, 1997.
BOULLIOUN PORTFOLIO FINANCE I, INC.
By:
Title:
<PAGE>
Schedule 1
Definitions
Lease Agreement
(MSN 28869)
SCHEDULE 1
DEFINITIONS
(MSN 28869)
This Schedule is a schedule to the Lease Agreement (MSN 28869), dated as of June
27, 1997 (the "Lease Agreement"), between Boullioun Portfolio Finance I, Inc.
and Western Pacific Airlines, Inc. and is divided into three sections, the first
section containing transaction specific definitions, the second section
containing the majority of the definitions affecting the technical aspects of
this Lease Agreement (e.g., the maintenance and operation of the Aircraft) and
the third section containing the remainder of the definitions used in this Lease
Agreement.
Section 1. Transaction Specific Definitions
The following terms shall have the following meanings for all purposes of
this Lease Agreement:
"Airframe Manufacturer" shall mean The Boeing Company.
"Airframe Manufacturer Purchase Agreement" shall have the meaning set
forth in Section 1 of the Novation Agreement.
"Airframe Reserve Amount" shall have the meaning set forth in Schedule 3
to the Lease Agreement.
"APU Reserve Amount" shall have the meaning set forth in Schedule 3 to the
Lease Agreement.
"Assumed Hour-to-Cycle Ratio" shall mean 1.7:1.
"Aviation Authority" shall mean the U.S. Federal Aviation Administration
and any Person succeeding to all or any of its functions.
"Basic Lease Term Termination Date" shall mean the tenth anniversary of
the Delivery Date.
"Basic Rent Amount" shall have the meaning set forth in Schedule 3 to the
Lease Agreement.
"Business Day" shall mean a day (other than a Saturday or Sunday) on which
banks are not required or authorized to close in Denver or Seattle or one other
jurisdiction (in the United States or England), if any, designated to Lessee by
Lessor in writing from time to time.
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"Commitment Termination Date" shall mean July 31, 1997.
"Damage Notice Threshold" shall have the meaning set forth in Schedule 3
to the Lease Agreement.
"Delivery Location" shall mean a Boeing facility in the State of
Washington or such other location, if any, as Lessor and Lessee shall agree in
writing.
"Documentation Security Deposit Installment" shall have the meaning set
forth in Schedule 3 to the Lease Agreement.
"Engine Life Limited Part Reserve Amount" shall have the meaning set forth
in Schedule 3 to the Lease Agreement.
"Engine Manufacturer" shall mean CFM International, Inc.
"Engine Overhaul Reserve Amount" shall have the meaning set forth in
Schedule 3 to the Lease Agreement.
"Initial Security Deposit Installment" shall have the meaning set forth in
Schedule 3 to the Lease Agreement.
"Insurance Brokers" shall mean Marsh McLennan or any other independent
firm of internationally recognized insurance brokers reasonably acceptable to
Lessor.
"Landing Gear Reserve Amount" shall have the meaning set forth in Schedule
3 to the Lease Agreement.
"Lessee Jurisdiction" shall mean the United States, which shall include
the nation and national government of, any Government Entity affiliated
therewith or subordinate thereto, any political subdivision thereof, any
regional or local government authority therewithin or any Government Entity
affiliated with or subordinate to any such political or regional or local
government authority.
"Lessor Jurisdiction" shall mean the State of Washington, U.S.A.
"Permitted Jurisdiction" shall mean any country (1) that is not the
subject of sanctions under the U.S. International Economic Emergency Partners
Act or under any UN Security Council directives, (2) that is not restricted
under the U.S. Trading with the Enemy Act and (3) the operation of the Aircraft
to or from which is not a violation of any Law applicable to the Aircraft,
Lessee or Lessor.
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"Renewal Lease Term Termination Date" shall mean the eleventh or twelfth
anniversary of the Delivery Date, depending upon whether Lessee exercises its
option to extend the Lease Term once or twice.
"Renewal Rent Amount" shall mean the amount determined as such in
accordance with Section 3.2 of the Lease Agreement, which shall be the fixed
monthly cash rental reasonably achievable by Lessor in the worldwide operating
lease market (1) on the Renewal Rent Determination Date, (2) for the Aircraft,
(3) from a lessee in a similar financial condition to Lessee's then current
financial condition and otherwise similar to Lessee, (4) for such one year
renewal period and (5) in an arms-length transaction between an informed lessee
under no compulsion to lease and an informed lessor under no compulsion to
lease, and shall be determined assuming that the Aircraft has been maintained in
compliance with the requirements of the Lease Agreement and the other Operative
Documents and complies with all Return requirements of the Lease Agreement,
including the requirements of Annex 1 to Schedule 2 to the Lease Agreement.
"Reserve Inflation Rate" shall have the meaning set forth in Schedule 3 to
the Lease Agreement.
"Return Location" shall mean the location of the Final Maintenance or such
other location chosen by Lessor and reasonably acceptable to Lessee.
"Scheduled Delivery Date" shall mean the date Airframe Manufacturer is
ready, willing and able to deliver the Aircraft pursuant to the Airframe
Manufacturer Purchase Agreement (local time at the Delivery Location), which
delivery date is scheduled, as of the date hereof, for June 1997.
"State of Registration" shall mean the United States.
"Stipulated Loss Value" shall have the meaning set forth in Schedule 3 to
the Lease Agreement.
"Stipulated Deductible Amount" shall have the meaning set forth in
Schedule 3 to the Lease Agreement.
"Stipulated Liability Coverage" shall have the meaning set forth in
Schedule 3 to the Lease Agreement.
Section 2. Technical Definitions
The following terms shall have the following meanings for all purposes of
this Lease Agreement:
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"AD" shall mean any airworthiness directive or other requirement of the
Aviation Authority applicable to the Airframe, either Engine, any Part or the
Aircraft Documentation.
"Aircraft Documentation" shall mean the documentation described in Section
1.5 of Schedule 2 to the Lease Agreement.
"Airframe" shall mean, collectively, (1) Airframe Manufacturer Model
737-33R airframe (except only Engines or engines from time to time installed
thereon), bearing Airframe Manufacturer's serial number 28869 and (2) any and
all Parts so long as the same shall be incorporated or installed in or attached
to such airframe, and any and all Parts removed therefrom so long as title to
such removed Parts shall remain vested in Lessor in accordance with the terms of
Section 1.3 of Schedule 2 to the Lease Agreement and all Loose Equipment.
"Airframe Cycle" shall mean one takeoff and landing of the Airframe.
"Airframe Flight Hour" shall mean each hour or part thereof elapsing from
the moment the wheels of the Airframe leave the ground on takeoff until the
wheels of the Airframe touch the ground on landing following such flight. For
purposes of all calculations under the Operative Documents measured in Airframe
Flight Hours, such Airframe Flight Hours (or parts thereof) shall be rounded to
the nearest one-tenth of an hour.
"Airframe 7C/SI Check" shall mean a "7C/SI Check," including all lower
level checks, CPCP checks, typical component overhaul, repairs and overhauls and
inspections normally included at the 7C/SI interval (as defined in the Airframe
Manufacturer's Maintenance Planning Document), all non-recurring work, flight
deck and Cabin interior refurbishment and typical cleaning and cosmetic repairs.
"Airworthiness Certificate" shall mean a valid, current transport category
airworthiness certificate issued in respect of the Aircraft by the Aviation
Authority.
"Approved Maintenance Performer" shall mean Lessee, TRAMCO, Inc., G.E.
Struthers and any maintenance performer having a valid repair station license
and otherwise approved by the Aviation Authority and approved in writing in
advance by Lessor.
"Approved Maintenance Program" shall mean the Lessee's Aviation
Authority-approved written block maintenance, inspection and repair program and
schedule for Airframe Manufacturer 737-300 aircraft, designed and maintained in
accordance with Airframe Manufacturer's Maintenance Planning Document as in
effect from time to time and in accordance with Engine Manufacturer's and Parts
manufacturers' respective maintenance planning documents and maintenance manuals
as in effect from time to time, including Lessee's current approved maintenance
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schedule and the CPCP, as such maintenance, inspection and repair program is
approved by Lessor pursuant to Section 1.10 of Schedule 6 of the Lease Agreement
and as amended from time to time in accordance with the Lease Agreement, or such
other written maintenance, inspection and repair program, if any, as Lessor and
Lessee shall agree in writing, in either case, as in effect from time to time.
"APU" shall mean (1) the auxiliary power unit identified by manufacturer's
serial number in the Acceptance Certificate and (2) any auxiliary power unit
substituted for such auxiliary power unit in accordance with the Lease
Agreement.
"APU Basic Shop Visit" shall mean, with respect to the APU, a core
overhaul as defined by the APU manufacturer.
"APU Hour" shall mean each hour or part thereof from the moment the APU is
started until the APU is turned off. For purposes of all calculations measured
in APU hours (or parts thereof) shall be rounded to the nearest one-tenth of an
hour.
"Cabin" shall mean the passenger compartment and all doors (interior
only), windows, interior panels, storage bins, lights, seats, seat covers,
carpets, lavatories, galleys, galley equipment, closets, flight attendant seats,
passenger communications and entertainment systems (with respect to which Lessor
has or should, in accordance with the Lease Agreement, have title), emergency
and miscellaneous equipment, seat tracks and floor areas.
"CPCP" shall mean a Corrosion Prevention and Control Program that
establishes minimum requirements for the Aircraft, incorporating, among other
things, the recommendations of Airframe Manufacturer as described in the Boeing
Maintenance Planning Document and the mandatory requirements established by FAA
AD 90-25-01 and Airframe Manufacturer document D6-38528.
"Delivery Documentation" shall have the meaning set forth in Section 1 of
the Novation Agreement.
"Engine" shall mean (1)(a) either of Engine Manufacturer Model CFM56-3C-1
engines listed by Engine Manufacturer's serial numbers in the Acceptance
Certificate and originally installed on the Airframe at the time of delivery to
Lessee hereunder whether or not from time to time thereafter installed on the
Airframe or installed on any other airframe and (b) any Replacement Engine which
may from time to time be substituted, pursuant to the terms hereof, for either
of such Engines, and (2) in each case, any and all Parts incorporated or
installed in or attached thereto or any and all Parts removed therefrom so long
as title thereto shall remain vested in Lessor in accordance with the terms of
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Section 1.3 of Schedule 2 to the Lease Agreement after removal from such Engine,
provided that at such time as an engine shall be deemed part of the property
leased hereunder in substitution for an "Engine," pursuant to the applicable
provisions hereof, the replaced Engine shall cease to be an "Engine" hereunder.
The term "Engines" shall mean, as of any date of determination, all Engines then
leased hereunder. Each Engine has 750 or more rated takeoff power or its
equivalent.
"Engine Basic Shop Visit" shall mean, with respect to any Engine, any shop
visit, as defined by Engine Manufacturer that is based on an approved program of
condition monitoring and trend monitoring of performance deterioration requiring
complete disassembly, inspection and repair of any module of such Engine or a
whole Engine that results in a minimum of 3,500 cycles of operation remaining on
each of the life limited Parts in such Engine and with an attempt to restore
performance to a level consistent with Engine Manufacturer's specifications upon
the completion of the shop visit.
"Engine Cycle" shall mean, with respect to any Engine, one takeoff and
landing of the airframe (including the Airframe) on which such Engine is then
installed.
"Engine Flight Hour" shall mean each hour or part thereof elapsing from
the moment the wheels of the airframe (including the Airframe) on which such
Engine is then installed leave the ground on takeoff until the wheels of such
airframe touch the ground on landing following such flight. For purposes of all
calculations under the Operative Documents measured in Engine Flight Hours, such
Engine Flight Hours (and parts thereof) shall be rounded to the nearest
one-tenth of an hour.
"External Repair" shall mean any repair to a penetration, scratch or dent
of the exterior surface of the Airframe accomplished in conformity with the
Structural Repair Manual or approved by Airframe Manufacturer or the Aviation
Authority.
"FAA Condition" shall mean, in respect of the Aircraft, being in a
condition suitable for (upon due application) immediate issuance of an FAA
Standard Certificate of Airworthiness for Transport Category Aircraft and
operation by a U.S. Part 121 operator.
"Final Inspection" shall mean the inspection of the Aircraft by Lessor and
any other Inspecting Parties during any part of the inspections, checks, and
test flights required pursuant to Sections 3.3, 3.4 and 3.5 of Schedule 2 to the
Lease Agreement or otherwise performed in connection with the Return, which, in
each case, shall be at Lessee's risk, cost and expense (other than the cost and
expense of Lessor's and each other Inspecting Party's personnel).
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"Final Maintenance" shall mean the work to be performed by Lessee in order
to cause the Aircraft to meet the requirements of Schedule 2 to the Lease
Agreement, including Annex 1 thereto.
"Flight Charges" shall mean all flight charges, route navigation charges,
navigation service charges and all other fees, charges or Taxes payable for the
use of or for services provided at any airport or otherwise payable to any
airport, airport authority, navigation or flight authority or other similar
entity or for any services provided in connection with the operation, landing or
navigation of aircraft.
"Follow-On Operator" shall mean any Person acquiring title to or the right
to use the Aircraft after the end of the Lease Term (whether or not such Person
is an airline or other operator).
"Inspecting Party" has the meaning set forth in Section 3.3.1 of Schedule 2
to the Lease Agreement.
"Landing Gear" shall mean (1) the landing gear assemblies (LH, RH and
nose) of the Aircraft identified by the respective serial numbers in the
Acceptance Certificate and (2) any landing gear assembly substituted for any
such identified landing gear assembly in accordance with the Lease Agreement.
"Landing Gear Overhaul" shall mean any full overhaul of any Landing Gear
to essentially full manufacturer specification and operating condition, and, for
the avoidance of doubt, "full overhaul" does not mean only the replacement,
repair or overhaul of any rotable components, any cleaning or replacement of
seals, any repair of brakes, wheels or tires, brake rods, struts or braces, in
each case, that occurs any more frequently than a full overhaul.
"Loose Equipment" shall mean that equipment identified as such by Lessor
and Lessee on or prior to the Delivery Date.
"Major Checks" shall mean any Airframe "C" check, multiple "C" checks,
Airframe 7C/SI Check, systems/zonal, structure (or equivalent) or annual heavy
maintenance visit or segment thereof recommended for commercial aircraft of the
same model as the Aircraft by Airframe Manufacturer or as set out in the
Approved Maintenance Program.
"Major Modifications" shall include, but shall not be limited to (1)
changes that alter the fundamental nature of the Aircraft as a passenger and
cargo carrying aircraft or Cabin modifications that materially change the
interior layout of the Aircraft, (2) changes to the Aircraft structure or
performance of the Aircraft, (3) changes that adversely affect
interchangeability or replaceability of Parts, (4) changes that invalidate or
impair any warranty with respect to the Aircraft or any Engine or Part, (5)
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changes that adversely affect the eligibility of the Aircraft to obtain an
airworthiness certificate from the Aviation Authority, (6) any changes that
result in a variation from the original type certificate for the Aircraft, but
shall exclude changes pursuant to ADs and SBs and all Required Modifications or
(7) modifications that are irreversible.
"Modification" shall mean any modification, addition, alteration, removal
or other change (including performance of ADs and SBs and the removal of
Obsolete Parts) to the Airframe, any Engine or any Part.
"Modification Parts" shall mean those Parts installed on the Aircraft in
connection with a Modification.
"Obsolete Parts" shall mean Parts that Lessee has determined in its
reasonable judgment to be no longer suitable or appropriate for use on the
Airframe or such Engine.
"Parts" shall mean any and all appliances, parts, components, modules,
navigation, avionics and communications equipment, computers, instruments,
appurtenances, accessories, furnishings and other equipment (including certain
buyer furnished equipment designated in a bill of sale from Lessee to Lessor and
delivered to Lessor after the Delivery Date) of whatever nature (including the
APU and the Landing Gear but excluding complete Engines or engines) which may
from time to time be incorporated or installed in or attached to the Airframe or
any Engine, so long as title thereto shall remain vested in Lessor, in
accordance with the terms of Section 1.3 of Schedule 2 to the Lease Agreement,
and Loose Equipment.
"Replacement Engine" shall mean an Engine Manufacturer Model CFM56-3C-1
engine (or an improved model having a modification status, value, thrust rating
and utility at least equal to such an Engine Manufacturer Model CFM56-3C-1
engine) (including all warranty rights with respect to such engine) (1) which is
suitable for installation and use on the Airframe without impairing the value or
utility of the Aircraft and (2) which has a modification status, value,
condition and utility (in each case, taking into account, among other things,
the age of the Engine and the accumulated Engine Flight Hours and Engine Cycles)
at least equal to the Engine it is replacing (assuming such Engine was at least
in the modification status, condition and repair required by the terms hereof
immediately prior to being replaced).
"Required Modifications" has the meaning set forth in Section 1.2.1 of
Schedule 2 to the Lease Agreement.
"Reserves" shall mean all amounts payable by Lessee pursuant to Section 2
of Schedule 2 to the Lease Agreement.
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"Return" shall mean the return of the Aircraft by Lessee to Lessor at the
Return Location (or such other location as may be agreed by Lessor and Lessee)
in the condition and manner required by Section 3 of Schedule 2 and the other
provisions of the Lease Agreement and the other Operative Documents, as
evidenced by the execution by Lessor, and the delivery to Lessee, of a return
receipt.
"Technical Acceptance Certificate" shall mean the acceptance certificate
to be delivered by Lessor to Lessee pursuant to Section 3.6 of Schedule 2 to the
Lease Agreement in the form of Attachment 2 to Annex 1 to Schedule 2 to the
Lease Agreement.
"SB" shall mean any optional, recommended, mandatory or alert service
bulletin or service letter as, where not expressly specified herein or in any
other Operative Document, issued by Airframe Manufacturer, Engine Manufacturer
or the manufacturer of any Part.
Section 3. General Definitions
The following terms shall have the following meanings for all purposes of
the Lease Agreement:
"Absolute Transfer" has the meaning set forth in Section 14.1.3 of the
Lease Agreement.
"Acceptance Certificate" shall mean the Acceptance Certificate, dated
the Delivery Date, signed by Lessee and confirmed by Lessor, in the form of
Exhibit A.
"Affiliate" shall mean in relation to a Person, any other Person
directly or indirectly controlling, controlled by or under common control with
that Person. For purposes of this definition, "control" means the power,
directly or indirectly, to direct or cause the direction of the management and
policies of such person, whether through the ownership of voting securities or
by contract or otherwise and "controlling," "controlled by" and "under common
control with" have correlative meanings.
"Aircraft" shall mean, collectively, the Airframe and the Engines
and, unless the context does not permit, the Aircraft Documentation.
"Authorizations" shall mean each and every approval, waiver,
authorization, consent, license, certificate or order of, or registration with,
or requirement for the giving of prior notice to, or the taking of any action in
respect of, the Aviation Authority, any Government Entity in the Lessee
Jurisdiction or any other Government Entity having jurisdiction over Lessee, the
operation of the Aircraft or any action or transaction contemplated hereby or by
any Operative Document.
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"Basic Lease Term" shall mean the period described in Section 3.1 of
the Lease Agreement.
"Basic Rent" shall mean the rent payable in respect of the Basic
Lease Term with respect to the Aircraft pursuant to Section 3.3 of the Lease
Agreement.
"Basic Rent Payment Date" shall mean (i) the date this Agreement is
signed by Lessor and Lessee and (ii) the date, in each calendar month during the
Basic Lease Term after the month in which the Delivery Date occurs, numerically
corresponding to the Delivery Date (or, if no corresponding date exists in any
such calendar month, the last day of such month).
"Basis Point" shall mean 1/100th of 1%.
"Contractual Currency" shall have the meaning set forth in Section
9.4 of the Lease Agreement.
"Civil Reserve Air Fleet Program"shall mean the Civil Reserve Air
Fleet Program administered by the United States Government pursuant to Executive
Order No. 11490, as amended, or any substantially similar program.
"Default" shall mean any Event of Default or any condition,
circumstance, act or event which, upon the giving of notice, the lapse of time
and/or the fulfillment of any other condition would constitute or give rise to
an Event of Default.
"Delivery Date" shall mean the date, local time at the Delivery
Location, on which the Aircraft is delivered by Lessor and accepted by Lessee
pursuant to this Lease Agreement as such date is set forth in the Acceptance
Certificate.
"Dollars" and "US$" mean the lawful currency of the United States of
America.
"Event of Default" has the meaning set forth in Section 12 of the
Lease Agreement.
"Event of Loss" shall mean, with respect to the Aircraft, the
Airframe or any Engine, any of the following events, conditions or circumstances
with respect to such property:
(1) Retention of possession of the Aircraft by Lessee for more than
60 days beyond the last day of the Lease Term without the express written
consent or instructions of Lessor.
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(2) The destruction of or damage of such property which renders (a)
repair of such property uneconomical or (b) such property permanently unfit for
normal use by Lessee or Lessor.
(3) Any loss of or damage to such property or other occurrence which
the insurers determine or agree to be a total loss.
(4) The confiscation, condemnation, seizure, forfeiture, requisition
or similar taking of the title to such property (for any reason whatsoever and
whether de jure or de facto).
(5) The disappearance, hijacking or theft (including a confiscation,
condemnation, seizure, forfeiture, requisition or similar taking of title or use
not otherwise included in this definition) of such property which shall have
resulted in the loss of possession or use of such property by Lessee for a
period that continues until the earliest of (a) the date that is 60 days
following the commencement of such loss of possession or use (or, if less, the
remaining Lease Term) and (b) the date upon which the Aircraft is modified in
such a manner as would render conversion of such property for use in normal
commercial passenger service impractical or uneconomical.
(6) The confiscation, condemnation, seizure, requisition or similar
taking by any Government Entity or purported Government Entity (other than a
requisition for use or hire by a Government Entity of the State of Registration
or any political subdivision thereof) of use or hire of such property which
shall have resulted in the loss of possession or use of such property by Lessee
for a period that continues until the earliest of (a) the date that is 90 days
following the commencement of such loss of property or use (or, if earlier, the
last day of the Lease Term) and (b) the date upon which the Aircraft is modified
in such a manner as would render conversion of such property for use in normal
commercial passenger service impractical or uneconomical.
(7) The requisition for use or hire by a Government Entity of the
State of Registration which shall have resulted in the loss of possession or use
of such property by Lessee for a period that continues until the earliest of (a)
the last day of the Lease Term and (b) the date upon which the Aircraft is
modified in such a manner as would render conversion of such property for use in
normal commercial passenger service impractical or uneconomical.
(8) As a result of any Law, the use of such property in the normal
course of the business of air transportation of persons and/or cargo shall have
been prohibited for a continuous period in excess of 180 days (or if less, the
remaining Lease Term), unless Lessee, prior to the expiration of such period,
shall have undertaken and shall be diligently carrying forward all steps which
are necessary or desirable to permit such use of such property by Lessee and so
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long as such use shall not have been prohibited for a continuous period in
excess of 270 days (or if less, the remaining Lease Term), provided that at
Lessor's option (to be exercised prior to the last day of the Lease Term),
Lessor may waive such incipient event of loss and Lessee shall return the
Aircraft in accordance with the terms and conditions of this Agreement and the
other Operative Documents.
(9) Any divestiture or impairment of any right, title or interest of
Lessor in or to an Engine as a result of the installation of such Engine on any
other airframe in violation of Section 8.
An Event of Loss with respect to the Aircraft shall be deemed to have
occurred if an Event of Loss occurs with respect to the Airframe. An Event of
Loss with respect to one or more Engines without loss of the Airframe shall not
be deemed an Event of Loss with respect to the Aircraft.
"Expense" shall mean any liabilities, obligations, losses, damages
(including damages for loss of life, injury to persons or damage to any
property), penalties, fines, sanctions, claims (whether fraudulent, groundless,
false or not), actions, suits, judgments, legal proceedings (whether civil or
criminal), investigations, Taxes, costs, disbursements and expenses (including
reasonable legal fees and expenses, costs of investigation and related expenses)
of every kind and nature whatsoever (including any liability, obligation or
claim for loss of use and any liability, obligation or claim arising in contract
or tort, whether or not arising from the negligence, actual, implied or imputed,
active or passive, or absolute or strict liability of an Indemnified Party or
any other Person or under any other theory).
"Financing Party" shall mean (1) each Person, if any, providing,
directly or indirectly, debt or equity financing or refinancing related to the
purchase price of the Aircraft and holding a direct or indirect security or
equity interest in the Aircraft, as such parties are identified by Lessor to
Lessee from time to time, and (2) the Security Agent, if any.
"Financing Security Documents" shall mean all documents related,
directly or indirectly, to the debt or equity financing or refinancing of the
purchase price of the Aircraft and providing for a security, mortgage or other
interest in the Aircraft, this lease Agreement or any other Operative Document,
as such documents are identified by Lessor to Lessee from time to time.
"Force Majeure" shall mean acts of God or public enemy, civil war,
insurrection or riot, fire, flood, explosion, earthquake, accident, epidemic,
quarantine restriction, any act of government, governmental priority,
allocation, regulation or order affecting, directly or indirectly, the Aircraft,
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Lessor, Airframe Manufacturer or Engine Manufacturer or any materials or
facilities, strike or labor dispute causing cessation, slowdown or interruption
of work, inability after due and timely diligence to procure equipment, data or
materials from suppliers in a timely manner, any other "Excusable Delay" as
defined in the Airframe Manufacturer Purchase Agreement or any other cause to
the extent that such cause is beyond the control of Lessor whether above
mentioned or not and whether or not similar to the foregoing.
"GAAP" shall mean generally accepted accounting principles in Lessee
Jurisdiction, as such principles may at any time or from time to time be varied
by any applicable financial accounting rules and, with respect to any Person,
shall mean such principles applied on a basis consistent with prior periods.
"Government Entity" shall mean (1) any national, state or local
government of any country or any international authority (including in each
case, any central bank or fiscal, tax or monetary authority), (2) any board,
commission, department, division, instrumentality, court, agency, territory,
possession or political subdivision of any entity described in clause (1) above,
however constituted, (3) any association, organization or institution of which
any entity described in clause (1) or (2) above is a member or to whose
jurisdiction any thereof is subject or in whose activities any thereof is a
participant and (4) any taxing authority of any entity described in clause (1),
(2) or (3) above.
"Indebtedness" shall mean all obligations of Lessee that would, in
accordance with GAAP, be shown as a liability on Lessee's balance sheet, and in
any footnotes or notations thereto, including (1) obligations for the repayment
of monies borrowed or raised, (2) obligations under finance leases,
hire-purchase arrangements, conditional sale agreements and other obligations
for the deferred purchase price of property, (3) guarantees, direct or indirect,
of the obligations of any other Person, including any such obligations secured
by a Lien on any property of Lessee, (4) indemnity and reimbursement
obligations, including any such obligations arising to any issuer of a letter of
credit or similar instrument, and (5) obligations to purchase or otherwise
acquire any indebtedness of, or to advance monies to or on behalf of, or make
any investment in any other Person.
"Indemnified Party" shall mean Lessor and its Affiliates, Airframe
Manufacturer (to the extent required by Part E to Exhibit C to the Airframe
Manufacturer Purchase Agreement), each Financing Party and the successors and
permitted assigns of each of the foregoing and the directors, officers,
corporate stockholders, partners, employees, servants and agents of each of the
foregoing.
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"Insured Party" shall mean each Indemnified Party.
"Law" shall (1) include any statute, decree, constitution,
regulation, decision, finding, order, rule, judgment or directive of any
Government Entity, (2) include any treaty, pact, compact or other agreement to
which any Government Entity is a signatory or party having the force of law, (3)
include any judicial or administrative interpretation or application thereof
having the force of law, (4) includes any guideline, directive, interpretation,
rule or regulation of any Person, whether or not having the force of law, but,
if not having the force of law, with respect to which compliance is customary
and (5) is a reference to any of the foregoing as amended, substituted, reissued
or reenacted.
"Lease Term" shall mean the Basic Lease Term and, if any, the Renewal
Lease Term.
"Lessee Lien" shall mean any Lien over all or any part of the
Aircraft arising as a result of any act or omission by Lessee.
"Lessor Lien" shall mean any Lien over all or any part of the
Aircraft arising as a result of any act or omission by Lessor, including any
Lien over all or any part of the Aircraft arising as a result of (a) claims
against Lessor not related to the transactions contemplated or permitted by this
Agreement or the other Operative Documents, (b) claims against Lessor for Taxes
not indemnified against by Lessee hereunder or under any other Operative
Document or (c) claims against Lessor arising out of the voluntary transfer by
Lessor of all or any part of its interest in the Aircraft.
"Letter of Credit" has the meaning set forth in Section 4.4 of the
Lease Agreement.
"Lien" shall mean any mortgage, pledge, lien, charge, encumbrance,
hypothecation, lease, sublease, seizure, exercise of rights, security interest,
judgment, writ, order or other claim or right of possession of any kind or
nature whatsoever, however and wherever created or arising and whether or not
consensual (including any agreement or arrangement to give or effect any of the
foregoing and any conditional sale or other title retention agreement).
"Material Adverse Effect" shall mean (1) as of any date, a material
adverse change between the date hereof and such date, in the business, assets,
financial condition or prospects of Lessee, or (2) the occurrence of any event
or the existence of any circumstances that has or could reasonably be expected
to have a material adverse effect on (1) the ability of Lessee to carry on its
business or to perform its obligations under any Operative Document to which it
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is or will be a party or (2) the rights or interests of Lessor or any Financing
Party under any Operative Document to which it is or will be a party.
"Operative Documents" shall mean the Lease Agreement, the Novation
Documents (as defined in the Novation Agreement), the Acceptance Certificate,
each other document delivered by Lessee to Lessor pursuant to Schedule 6, each
other document delivered by Lessee to Lessor after the date hereof under or in
connection with any of the foregoing and any other document which Lessor and
Lessee agree is an "Operative Document".
"Other Lease" shall mean any other aircraft lease agreement between
from time to time (1) Lessor or any Affiliate of Lessor and (2) Lessee or any
Affiliate of Lessee.
"Novation Agreement" shall mean that certain Novation Agreement (MSN
28869), dated as of the date hereof, among Lessor, Lessee and Airframe
Manufacturer.
"Past Due Rate" shall mean a rate equal to a fluctuating rate per
annum equal to 300 basis points above the Dollar prime rate in effect from time
to time at the main office of Seattle First National Bank, but, in any case, at
least 9%, provided that such rate as determined from time to time shall not in
any event be higher than the highest rate per annum permitted from time to time
under any applicable Law.
"Payment/Bankruptcy Default" shall mean any Event of Default or any
condition, circumstance, act or event described in Section 12.1, 12.2, 12.8 or
12.9, which, upon the giving of notice, the lapse of time and/or the fulfillment
of any other condition would constitute or give rise to an Event of Default.
"Permitted Lien" shall mean any Lien referred to in Sections
6.2.3.1.1 through 6.2.3.1.5 of the Lease Agreement.
"Person" shall mean any individual, corporation, trust, partnership,
unincorporated association, joint venture, association, joint-stock company,
government or Government Entity.
"Rent" shall mean, collectively, Basic Rent, Renewal Rent and
Supplemental Rent.
"Renewal Lease Term" shall mean the period described in Section 3.2.
"Renewal Rent" shall mean the rent payable during the Renewal Lease
Term with respect to the Aircraft pursuant to Section 3.3.
"Renewal Rent Determination Date" shall mean the date seven months
prior to the then scheduled expiration of the Lease Term.
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"Renewal Rent Determination Request" has the meaning set forth in
Section 3.2 of the Lease Agreement.
"Renewal Rent Payment Date" shall mean (1) the first day of the
Renewal Lease Term and (2) the date in each calendar month during the Renewal
Lease Term after the first day of the Renewal Lease Term corresponding to the
first day of the Renewal Lease Term (or, if no corresponding date exists in any
such calendar month, the last day of such month).
"Rent Payment Date" shall mean a Basic Rent Payment Date and/or a
Renewal Rent Payment Date, as the context may require.
"Rome Convention" means the Convention for the Unification of Certain
Rules Relating to the Precautionary Arrest of Aircraft (Rome, 1933).
"Secured Obligations" has the meaning set forth in Section 4.2 of the
Lease Agreement.
"Security Agent" shall mean the designated representative, howsoever
denominated, of one or more of the Financing Parties, as such agent is
identified by Lessor to Lessee from time to time.
"Security Deposit" has the meaning set forth in Section 4.1 of the
Lease Agreement.
"Security Transaction" has the meaning set forth in Section 14.1.4
of the Lease Agreement.
"Successor" has the meaning set forth in Section 6.2.1.3.1 of the
Lease Agreement.
"Supplemental Rent" shall mean all amounts, liabilities and
obligations (other than Basic Rent and Renewal Rent) which Lessee assumes,
agrees or otherwise becomes liable to pay to Lessor or any Indemnified Party
hereunder or under any of the other Operative Documents, including payments of
or in respect of the Security Deposit, Reserves, Stipulated Loss Value,
Expenses, Taxes, interest accrued pursuant to Section 3.5 or other amounts
payable under any indemnities.
"Tangible Net Worth" shall mean, for any Person, the excess of the
total assets (excluding goodwill, intangible assets and revaluation of fixed
assets) over total liabilities of such Person, each determined in accordance
with generally accepted accounting principles consistently applied.
"Taxes" shall mean any and all present or future fees (including
license, documentation and registration fees), taxes (including income, gross
receipts, sales, rental, use, turnover, value-added, property (tangible or
intangible), excise, franchise, capital, user, transfer, doing business and
stamp taxes or duties), licenses, levies, imposts, duties, recording charges or
fees, or other charges, assessments, deductions or withholdings of any nature
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whatsoever, together with any assessments, penalties, late payment charges,
notary charges, fines, additions to tax or other similar liabilities with
respect to any of the foregoing and interest on any of the foregoing.
"Tax Indemnitee" shall mean Lessor and its Affiliates and each
Financing Party and any successor or assign of any of the foregoing and any
Person that is a member of a group that files a consolidated or combined tax
return that includes Lessor or any of its Affiliates or any Financing Party.
"Transaction Documents" has the meaning set forth in Section 4.2 of
the Lease Agreement.
"U.S. Air Carrier" shall mean a commercial United States air carrier
as to which there is in force an operating certificate issued by the Secretary
of Transportation pursuant to chapter 447 of U.S. Aviation Laws for aircraft
capable of carrying 10 or more individuals or 6,000 pounds or more of cargo and
an operating certificate issued pursuant to Part 121 of the U.S. Aviation
Regulations, or which may operate as an air carrier by certification or
otherwise under any successor or substitute provisions therefor.
"U.S. Aviation Laws" shall mean the provisions of Subtitle VII of
Title 49 of the U.S.Code, as amended from time to time, or any similar
legislation of the United States enacted in substitution, replacement or
supplement of all or any part of such subtitle, together with the U.S. Aviation
Regulations.
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SCHEDULE 2
OPERATIONAL MATTERS
(MSN 28869)
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28869), dated as of June 27, 1997
(the "Lease Agreement"), between Boullioun Portfolio Finance I, Inc. and Western
Pacific Airlines, Inc., to which this document is a schedule.
Section 1. Maintenance; Operation; Etc.
1.1 General Maintenance
Lessee, at its own expense, shall, at all times during the Lease Term
and until the Aircraft is returned pursuant to the requirements of the Lease
Agreement in the condition and manner required by this Schedule 2 and the Lease
Agreement maintain, service, repair, test, inspect and overhaul the Aircraft, or
cause the Aircraft (subject to Section 8 of the Lease Agreement) to be
maintained, serviced, repaired, tested, inspected and overhauled:
1.1.1 In accordance with:
1.1.1.1 The Approved Maintenance Program (which shall not be amended in any
way adverse to Lessor's interests or its rights under the Lease Agreement
without Lessor's prior written consent, except as may be required by Law or by
the applicable rules and regulations of the Aviation Authority).
1.1.1.2 The Airframe, Engine and Parts manufacturers' maintenance (to the
extent not inconsistent with the Approved Maintenance Program), overhaul and
repair manuals and documents, including Airframe Manufacturer's Structural
Repair Manual.
1.1.1.3 The rules and regulations of the Aviation Authority, including the
rules and regulations with which Lessee must comply in order to enable a legal
and valid Airworthiness Certificate for the Aircraft, and the registration of
the Aircraft, to be maintained in good standing at all times under applicable
Law.
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1.1.1.4 To the extent not inconsistent with the Approved Maintenance
Program, U.S. domestic passenger airline standards.
1.1.2 So as to keep the Aircraft in the same condition
(operating and otherwise) as when delivered on the Delivery Date, ordinary wear
excepted, with all systems fully functional, in a condition so that the
airworthiness certificate can be maintained and operating in accordance with the
Airframe, Engine and Parts manufacturers' specifications.
1.1.3 So as to ensure that the Aircraft at all times receives
the same level of attention to maintenance, inspections and improvements as
Lessee affords the balance of its fleet, including the method of compliance with
ADs, the rules and regulations issued by the Aviation Authority and the
incorporation status and method of compliance with SBs.
1.2 Modifications and Other Maintenance
Without limiting Lessee's obligations under Section 1.1 of this Schedule 2,
Lessee shall, at its own expense:
1.2.1 Required Modifications
Procure that the Aircraft shall comply on a terminating basis
with (1) all applicable ADs issued by the Aviation Authority and all alert and
mandatory SBs issued by Airframe Manufacturer, Engine Manufacturer or the
manufacturer of any Part and (2) and all Modifications required to comply with
the rules and regulations of the Aviation Authority (clauses (1) and (2),
collectively, "Required Modifications"), (y) in the case of ADs and other
Aviation Authority-required Modifications, the mandatory compliance date for
which action on such basis falls during the Lease Term and (z) in the case of
alert and mandatory SBs, the issuance date thereof is prior to the scheduled
expiration of the Lease Term, provided that Lessee may, in good faith, contest
the validity or application of any such Required Modification during the Lease
Term in any manner which does not involve any danger of the sale, forfeiture or
loss of the Aircraft or, in the reasonable judgment of Lessor, otherwise
materially adversely affect Lessor.
1.2.2 Corrosion Prevention and Control
Procure that the Aircraft shall be maintained in accordance with
an effective corrosion prevention and control program based on Airframe
Manufacturer's Maintenance Planning Document, CPCP and additional manufacturers'
recommendations, including the recommendations set forth in SBs. Without
limiting the generality of the foregoing, (1) the Approved Maintenance Program
shall include a corrosion prevention and control program, including an
anti-fungus/biological growth and contamination prevention, testing, control and
treatment program of all fuel tanks, (2) periodic inspections of all areas of
the Aircraft shall be routinely performed and an application of corrosion
inhibiting compound shall be applied to the exposed areas of the Landing Gear,
wheel wells, critical surface areas and principal structural elements, (3)
periodic inspections, cleanup and resealing shall be performed under all galleys
and lavatories, (4) all galley and lavatory floor cover material and floor
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panels shall be free of damage and tears, secure and properly sealed to prevent
moisture ingress and (5) any corrosion found during these inspections shall be
promptly repaired in accordance with the Airframe Manufacturer's structural
repair manual and a map of all areas with corrosion and a record of the actual
percentage of material loss after blend-out of each corroded area shall be
prepared.
1.2.3 Repairs
1.2.3.1 Procure that all repairs to the Aircraft shall be (1)
made by an Approved Maintenance Performer by Aviation Authority-licensed
mechanics, (2) classified as major or minor in accordance with the applicable
manufacturer's instructions, (3) permanent repairs (or if temporary, shall be
made permanent not later than the next Major Check performed on the Aircraft),
(4) accomplished in accordance with FAA-approved data, including engineering
change orders, (5) accomplished in accordance with, as applicable, Airframe
Manufacturer's Structural Repair Manual, Engine Manufacturer's Maintenance,
Overhaul and Repair Manual, any Parts manufacturer's Maintenance, Overhaul and
Repair Manual, or equivalent manuals, documents, instructions and/or
recommendations issued by the applicable manufacturer of the repaired item,
including engineering change orders, (6) accomplished in accordance with the
rules and regulations of the Aviation Authority and (7) with respect to all
structural repairs, mapped.
1.2.3.2 Procure that the following information (to the extent
applicable) shall be provided by Lessee with respect to each repair for which
the cost of repair exceeds the Damage Notification Threshold: (1) a complete
description of the damage and the repair, including the specific location and
cause of the damage, (2) detailed damage assessment, including (if applicable)
identification of the damaged fuselage skin or stringer material specification
and identification of the thickness and dimensions of cracks, dents or gouges as
compared to manufacturer's allowable limitations, (3) all original engineering
orders, work cards, non-routine job cards, manufacturer's written instructions
and/or recommendations utilized during accomplishment of the damage assessment
and/or repair, (4) all data utilized in connection with the damage assessment
and/or repair, including drawings, if applicable, calculations and stress and
load analyses, (5) a list of all parts and materials used to accomplish such
repair and (6) the original FAA Form 337 and FAA Form 8110-3 (or equivalent
forms) for such repair.
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1.2.4 Communications
Make available for review by Lessor copies of any written
communications with the Aviation Authority, Airframe Manufacturer, Engine
Manufacturer or other vendors with respect to damage, defects or malfunctions of
the Aircraft.
1.2.5 Correction of Discrepancies
Diligently correct any and all discrepancies from the
requirements of the Lease Agreement identified by Lessor.
1.2.6 Approved Maintenance Performer
Ensure that only an Approved Maintenance Performer services,
maintains, overhauls, repairs or performs any Modifications on or to the
Aircraft or any installed engine or part.
1.2.7 Aviation Authority Approved Parts
Ensure that only Aviation Authority-approved and
manufacturer-approved parts and materials are installed or used on the Aircraft.
1.2.8 Maintenance of Non-"Engine"
Notwithstanding anything to the contrary contained herein,
maintain any engine which is not an Engine but which is installed on the
Airframe as if it were an Engine.
1.2.9 Certificate of Release
Have a certificate of release to service issued by appropriately
authorized certifying staff after completion of any maintenance or repair of the
Aircraft and/or Parts by an Approved Maintenance Performer, which release shall
be issued in accordance with the procedures specified in such Approved
Maintenance Performer's approved operations specifications.
1.3 Replacement of Parts
1.3.1 Replacement of Parts Required
Except as otherwise provided in Section 1.4 of this Schedule 2
with respect to Modification Parts which may be removed pursuant to Section
1.4.6 of this Schedule 2 and Obsolete Parts, Lessee shall replace, at its own
expense, all Parts which may from time to time become worn out, obsolete, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use for any reason whatsoever with replacement parts as set
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forth in this Section 1.3. Each such replacement part incorporated or installed
in or attached or added to the Airframe or any Engine shall:
1.3.1.1 Free of Liens
Be free and clear of all Liens(except for Permitted Liens).
1.3.1.2 Good Operating Condition, Etc.
(1) Be in as good operating condition as such replaced Part, (2) have no
more hours, cycles or calendar time than, be no more than six months older than,
have the same interchangeable modification status as, and have a value and
utility at least equal to, the Part replaced, assuming such replaced Part was in
the condition and repair required to be maintained by the terms hereof, and (3)
with respect to avionics, navigation and communications equipment, be of the
same make and the same or more advanced model.
1.3.1.3 Aviation Authority Tag
Have a current, legal and valid release certificate/airworthiness approval
tag identified as a FAA Form 8130-3, which constitutes evidence of the
airworthiness and eligibility of a Part issued by the manufacturer or the
Approved Maintenance Performer providing such Part and which shall identify the
manufacturer, vendor, manufacturer's part number, serial number, make, model,
date and/or total hours and cycles since new or since the last overhaul and,
where applicable, indicate that such Part is new, serviceable or overhauled.
Lessee may use a replacement part that does not comply with the requirements of
this Section 1.3.1 if a complying part cannot be procured or installed within
the available ground time of the Aircraft, provided that the original Part is
reinstalled or the noncomplying part is removed and replaced by a complying
part, in each case as promptly as practicable (and in any event within 60 days
of removal or, if earlier, on or before the last day of the Lease Term).
1.3.2 Ownership of Parts
Immediately upon any part's (including Modification Parts)
becoming incorporated in, installed on or attached to the Airframe or any
Engine, without further act (1) title to such part shall thereupon vest in
Lessor, free and clear of all Liens (other than Permitted Liens), (2) such part
shall become subject to the Lease Agreement and be deemed a "Part" of such
Airframe or such Engine for all purposes hereof and (3) title to any replaced
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Part shall thereupon vest in Lessee, free and clear of all rights of Lessor and
all Lessor Liens and shall no longer be deemed a Part hereunder, except that
with respect to non-complying parts described in the last sentence of Section
1.3.1 of this Schedule 2 where such non-compliance is due to the failure to meet
the requirements of Section 1.3.1.1 or 1.3.1.2 of this Schedule 2 and the parts
described in Section 1.4.6 of this Schedule 2, title thereto shall not vest in
Lessor. Lessee will at its own expense take all such steps and execute, and
procure the execution of, all such instruments as Lessor may reasonably require
and which are necessary to ensure that title so passes to Lessor according to
all applicable laws. At any time when requested by Lessor, Lessee will provide
evidence to Lessor's reasonable satisfaction (including the provision, if
required, to Lessor of a legal opinion) that title has so passed to Lessor. All
Parts (other than Modification Parts) at any time removed from the Airframe or
any Engine shall remain the property of Lessor, no matter where located, until
such time as such Parts shall be replaced by Parts which have been incorporated
or installed in or attached to the Airframe or any Engine and which meet the
requirements set forth in Section 1.3.1 of this Schedule 2. Upon any removal of
Modification Parts pursuant hereto, title thereto shall, without further act,
vest in Lessee free and clear of all rights of Lessor and all Lessor Liens, and
such Modification Part shall no longer be deemed a Part hereunder.
1.3.3 Removed Parts
The asset value, performance standards, manufacturer's
specifications, modification status, interchangeability status and SB and AD
incorporation status of all removed Parts shall be maintained during the
accomplishment of all maintenance, modifications, inspections, repairs and
overhauls.
1.4 Modifications
1.4.1 Ability to Modify
Lessee, at its own expense, may from time to time add further
parts or accessories and make such Modifications to the Airframe or any Engine
as Lessee may deem desirable in the proper conduct of its business (so long as
title to any Obsolete Parts shall remain in Lessor), provided that:
1.4.1.1 No Major Modifications
Lessee shall not, without Lessor's prior written consent, make any Major
Modifications to the Aircraft, and in connection with obtaining such consent
Lessee shall (1) provide Lessor with advance copies of all designs, plans,
diagrams, drawings and data to be used by Lessee in accomplishing such Major
Modifications and (2) obtain the prior approval of the Aviation Authority
evidenced by the issuance by the Aviation Authority of a supplemental type
certificate or similar certificate.
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1.4.1.2 May Not Diminish Value, Etc.
No such Modification shall diminish the value or utility of the Airframe or
such Engine, or impair the condition or airworthiness thereof, below the value,
utility, condition or airworthiness thereof immediately prior to such
Modification, assuming the Airframe or such Engine were then of the value and
utility and in the condition and repair required to be maintained by the terms
of the Lease Agreement and each other Operative Document.
1.4.2 No Obligation of Lessor to Pay
Except as required under Section 1.2.1 of this Schedule 2,
Lessor shall not be required under any circumstances to pay directly or
indirectly for any Modifications.
1.4.3 Removal of Modification Part
Notwithstanding the foregoing, Lessee may, at any time during
the Lease Term, so long as no Payment/Bankruptcy Default shall have occurred and
be continuing, remove or suffer to be removed any such Modification Part,
provided that such Modification Part (1) is in addition to, and not in
replacement of or substitution for, any Part originally incorporated or
installed in or attached to the Airframe or any Engine at the time of delivery
thereof or any Part in replacement of or substitution for any such Part, (2) is
not required to be incorporated or installed in or attached or added to the
Airframe or any Engine pursuant to the terms hereof and (3) can be removed from
the Airframe or such Engine without damaging the Airframe or such Engine (unless
such damage is repaired by Lessee) or diminishing or impairing the value,
utility, condition or airworthiness which the Airframe or such Engine would have
had at such time had such Modification not been made, assuming the Airframe or
such Engine was then of the value and utility and in the condition and repair
required to be maintained by the terms of the Lease Agreement and the other
Operative Documents.
1.4.4 Reversal of Modification
Except as otherwise agreed by Lessor in writing, upon the
written request of Lessor, to be given at least 30 Business Days prior to the
scheduled expiration of the Lease Term, Lessee shall, on or before the last day
of the Lease Term and at its own expense, reverse any Modification and restore
the Aircraft to its required condition as if such Modification had not been
made.
1.4.5 Title to Removed Modification Part
Upon the removal by Lessee of any Modification Part as provided
in Sections 1.4.3 and 1.4.4 of this Schedule 2, title thereto shall, without
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further act, vest in Lessee free and clear of Lessor and all Lessor Liens, and
such Modification Part shall no longer be deemed a Part of the Airframe or
Engine from which it was removed. Any Modification Part not removed by Lessee as
above provided prior to the return of the Airframe or Engine to Lessor hereunder
shall remain the property of Lessor.
1.4.6 Passenger Communication Equipment
Notwithstanding Sections 1.3.1.1 and 1.3.2 of this Schedule 2,
Lessee may from time to time install on the Aircraft equipment that is leased or
conditionally sold to Lessee (and title to such equipment shall remain vested in
the lessor or conditional vendor thereof) if (1) such equipment is passenger
communications and entertainment equipment and (2) it can be removed without
causing material damage to the Aircraft and any damage caused by such removal
is, prior to Return, repaired so that the Aircraft is restored to a condition at
least as good as prior to such installation (ordinary wear and tear excepted).
1.4.7 Service Bulletin Kits
During the Lease Term, Lessee shall from time-to-time request,
and shall install or retain, all SB kits relating to the Aircraft, any Engine or
any Part which are available to Lessee at no cost other than shipping and
handling costs. If any "no cost" period lapses without Lessee acquiring such
kit, Lessee shall be obligated to acquire such kit at the manufacturer's then
cost for such kit.
1.5 Documentation
1.5.1 During the Lease Term, Lessee shall maintain:
1.5.1.1 The Delivery Documentation and all other
documentation delivered to Lessee with respect to the Aircraft, either Engine
or any Part.
1.5.1.2 All other logbooks, records (including, without
limitation, records relating to the
operation, service, inspection, maintenance, modification, testing, overhaul and
repair of the Aircraft and all Parts installed therein or thereon), manuals
(including, without limitation, operations, maintenance, repair, overhaul or
parts manuals), data, drawings or other documents (1) that are required to be
maintained during the Lease Term under the terms of the Lease Agreement or any
other Operative Document, by the Aviation Authority, the Approved Maintenance
Program, Airframe Manufacturer, Engine Manufacturer or the manufacturer of any
Part and those that are provided to Lessee or otherwise maintained during the
Lease Term with respect to the Aircraft (including, without limitation, the
Airframe, any Engine, the APU and Parts) and (2) in a manner necessary to ensure
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that the Aircraft is at all times in FAA Condition. Any such documents which
Lessee is no longer required to retain under the provisions of Lessee's approved
maintenance policies and the requirements of the Aviation Authority shall be
returned to Lessor at or before the Return.
1.5.1.3 Updates or additions to any of the foregoing and renewals,
revisions and replacements to any of the foregoing from time to time created or
obtained in accordance with the Lease Agreement or any other Operative Document,
applicable Law or otherwise.
1.5.1.3.1 In the English language.
1.5.1.3.2 Current and up-to-date (through subscription to Airframe
Manufacturer and Engine Manufacturer update services and with all documents and
records unique to the Aircraft to be maintained unique to the Aircraft).
1.5.1.3.3 In conformity with the rules of the Aviation Authority and with
normal practices of Lessee, and in a manner necessary to ensure that the
Aircraft is at all times in FAA Condition.
1.5.1.3.4 So that such documentation:
1.5.1.3.4.1 Accurately discloses the location of each Engine and Part not
installed on the Airframe.
1.5.1.3.4.2 Accurately records the amount of time consumed and/or the
cycles of use (as appropriate) of the Airframe, each Engine and all Parts
(including the APU) and all work performed thereon.
1.5.1.3.4.3 Contains accurate back-to-birth records of (1) each
life-limited Part first installed on the Aircraft on the Delivery Date to the
extent back-to-birth records therefor were delivered to Lessee on the Delivery
Date and (2) all life-limited/Part first installed on the Aircraft by Lessee
during the Lease Term.
1.5.2 Any Aircraft Documentation not already owned by Lessor,
when and as created or obtained by Lessee, shall thereupon become the property
of Lessor.
1.6 Operation
1.6.1 Lessee shall not operate the Aircraft (or permit the
operation of the Aircraft) in violation of any Law of any Government Entity
having jurisdiction, in violation of the Approved Maintenance Program, any
manufacturer's operating manuals, recommendations or instructions, in violation
of any airworthiness certificate, license or registration relating to the
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Aircraft issued by any such Government Entity or in any manner inconsistent with
the practices of U.S. domestic aircraft carriers.
1.6.2 Lessee shall not operate or locate the Aircraft or permit
the Aircraft to be operated or located (1) outside of the Permitted
Jurisdictions, (2) on routes other than those approved by the government of the
State of Registration (if the government of the State of Registration is
approving routes) between destinations in the Permitted Jurisdictions, (3)
except as permitted pursuant to Section 8.5 of the Lease Agreement, in any area
excluded from coverage by any insurance in effect or required by the terms of
the Lease Agreement or in any war zone or in any recognized or threatened area
of hostilities (without Lessor's consent) and unless fully covered to the
satisfaction of Lessor by war-risk and allied perils insurance.
1.6.3 Lessee shall not use, suffer or cause the Aircraft to be
used for the carriage of (1) whole animals living or dead (other than living
humans) except in the cargo compartments according to I.A.T.A. regulations and
except domestic pet animals carried in suitable containers to prevent the escape
of any liquid and as to ensure the welfare of the animal, (2) explosives, acids,
toxic chemicals or other corrosive materials, unless the same are appropriately
packaged and labeled in compliance with applicable Law, (3) nuclear fuels or
wastes, (4) illegal drugs, controlled substances or the like or (5) any other
goods, materials or items of cargo which are prohibited by Law or which could
reasonably be expected or anticipated to cause damage to or forfeiture or
seizure of the Aircraft.
1.6.4 Lessee shall not use, or permit the use of, the Aircraft
for testing or for training, qualifying or reconfirming the status of flight
crew members other than employees of Lessee, and then only if the use of the
Aircraft for such purpose is not disproportionate to the use for such purpose of
other Airframe Manufacturer Model 737-300 aircraft owned or operated by Lessee.
1.6.5 Notwithstanding anything herein to the contrary, Lessee
shall not install, and shall not permit the installation of, any Engine on any
airframe that is not an Airframe Manufacturer Model 737-300 or -500 airframe.
1.7 Identification Plates, Etc.
Lessee shall affix and at all times maintain in respect of the
Airframe and each Engine and the APU a fireproof and legible identification
plate of a reasonable size, in the location specified below, that contains the
following legends or any other legend requested from time to time by Lessor in
writing:
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1.7.1 In the case of the Airframe, in the upper sill of the left-hand
forward entry door, adjacent to Airframe Manufacturer's plate, "THIS AIRCRAFT IS
OWNED BY BOULLIOUN PORTFOLIO FINANCE I, INC. AND IS HELD UNDER LEASE BY WESTERN
PACIFIC AIRLINES, INC."
1.7.2 In the case of each Engine, in a clearly visible place in close
proximity to the manufacturer's plate, "THIS ENGINE IS OWNED BY BOULLIOUN
PORTFOLIO FINANCE I, INC. AND IS HELD UNDER LEASE BY WESTERN PACIFIC AIRLINES,
INC."
1.7.3 In the case of the APU, in a clearly visible place in close proximity
to the manufacturer's plate, "THIS APU IS OWNED BY BOULLIOUN PORTFOLIO FINANCE
I, INC. AND IS HELD UNDER LEASE BY WESTERN PACIFIC AIRLINES, INC."
If any such identification plate is lost or damaged or becomes
illegible, Lessee shall promptly replace it with a identification plate
complying with the requirements of this Section 1.7. If Lessor sells or
transfers its interest in the Aircraft in accordance with the Lease Agreement or
if Lessor notifies Lessee that any Security Agent is a mortgagee of the
Aircraft, then Lessee will promptly replace all identification plates with new
identification plates which specify the new owner and lessor of the Aircraft
and/or which note the interests of such Security Agent, in any case in the
manner specified by Lessor. Lessee shall not alter or remove or permit the
alteration or removal of the registration certificate or the nationality and
registration marks required to be maintained on the Aircraft.
1.8 Costs of Maintenance, Operation, Etc.
1.8.1 In General
Except as expressly provided herein, Lessee shall pay or cause
to be paid all costs incurred in the operation of the Aircraft for profit or
otherwise during the Lease Term, including the costs and expenses of flight
crews, cabin personnel, fuel, oil, lubricants, maintenance, insurance, landing
fees, navigation fees, airport charges, passenger service and any and all other
expenses or claims of any kind or nature, directly or indirectly incurred or
imposed in connection with or related to the acceptance, delivery, nondelivery,
lease, sublease, charter, subcharter, deregistration, reregistration,
possession, use, presence, existence, operation, condition, storage,
preparation, installation, testing, manufacture, design, modification,
alteration, maintenance, repair, re-lease, sale, return, transportation,
transfer, exportation, importation, abandonment or other disposition of the
Aircraft, the Airframe, any Engine or engine or Part or any other thing
delivered under the Lease Agreement during the Lease Term.
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1.8.2 Payment of Flight Charges
Without limiting the effect of Section 6.2.3 of the Lease
Agreement, Lessee shall pay promptly upon the same becoming due and payable all
Flight Charges incurred by Lessee whether in respect of the Aircraft or any
other aircraft of Lessee, except to the extent being contested in good faith by
appropriate proceedings (and for the payment of which adequate reserves have
been provided) so long as such contest does not involve any material danger of
the sale, forfeiture or loss of the Airframe, any Engine or any Part or any
interest therein or any adverse effect on Lessor. Upon Lessor's written request,
Lessee shall provide to Lessor a list of the airports to which Lessee operates
the Aircraft and, if also reasonably so requested by Lessor, any other aircraft
operated by Lessee. Upon Lessor's written request, Lessee shall authorize Lessor
(or its designee) to confirm the status of Lessee's payment of Flight Charges at
such airports or with any other Government Entity specified by Lessor.
1.9 Inspection
1.9.1 Maintenance Schedule
During the Lease Term, Lessee shall furnish Lessor such
information concerning the location, condition, maintenance, use and operation
of the Aircraft as Lessor may reasonably request. Lessee shall provide Lessor
with maintenance schedules relating to the Aircraft from time to time as such
schedules are adjusted or updated. Lessee shall give Lessor reasonable prior
notice of the date of, and any change in the date of, any Major Checks and/or
planned visit to a maintenance facility, in order to enable Lessor, or its
agents, representatives or designees, to inspect the Aircraft (including the
Aircraft Documentation) at Lessee's maintenance facility and at the time and
place any such Major Checks or visits occur.
1.9.2 Reasonable Inspections
1.9.2.1 Lessor's Inspections
At all reasonable times (including during Major Checks), Lessor's personnel
and/or its authorized representatives (including the personnel and/or authorized
representatives of a potential Follow-On Operator) may (at Lessor's expense, or
if such inspection is made in connection with or following an Event of Default
which is then continuing, at Lessee's expense) inspect the Airframe and Engines
and inspect and make copies of the books and records of Lessee relating to the
Airframe and Engines and the maintenance of the Airframe and Engines (including
any Aircraft Documentation, the Approved Maintenance Program, and also
including, for the avoidance of doubt, any airworthiness directive and service
bulletin compliance records, component life status reports, and the then-current
aircraft configuration), and if such inspection is made at the time of any
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maintenance operation, such Persons may inspect behind any panels, bays or other
apertures that have already been opened in the course of such maintenance
operation, provided that, so long as no Event of Default shall have occurred and
be continuing, no exercise of such inspection right shall unreasonably interfere
with the normal operation or maintenance of the Aircraft by Lessee and provided
that if Lessor detects or observes any corrosion or other condition requiring
repair under the Approved Maintenance Program, and such corrosion or other
condition is not limited to the then-open panels, bays or other components of
the Aircraft, Airframe or Engine, then Lessor shall be entitled to require
Lessee to open, or cause to be opened, such additional panels as may be
necessary to identify, correct, repair or defer such corrosion or condition in
accordance with the Approved Maintenance Program, the Airframe Manufacturer
Structural Repair Manual and the Corrosion Prevention Manual. Except with
respect to inspections occurring after the occurrence and during the
continuation of an Event of Default and except during the last 12 months of the
scheduled Lease Term, in both cases, in connection with the potential transition
of the Aircraft from Lessee, Lessor shall not designate any personnel of any
competitor of Lessee as Lessor's authorized representative under this Section
1.9.2.1.
1.9.2.2 Purchase and/or Follow-On Lease
Without limiting any other provision of the Lease Agreement or any other
Operative Document, upon request by Lessor, Lessee shall from time to time
during the Lease Term make the Aircraft, including the Aircraft Documentation,
available for inspection and/or photocopying to designated representatives or
technical teams evaluating the Aircraft for purchase and/or use after the end of
the Lease Term. Lessor agrees to give Lessee reasonable advance notice of any
such inspection and, so long as no Payment/Bankruptcy Default shall have
occurred and be continuing, to coordinate such inspections with Lessee so as not
to unreasonably interfere with Lessee's operation or maintenance or with its
personnel. All such inspections and photocopying shall be at the sole cost of
Lessor (or if such inspection is made in connection with or following an Event
of Default which is then continuing, at Lessee's expense). Lessee will cooperate
with Lessor, or any prospective purchaser or Follow-On Operator, in permitting
and facilitating the review of the Approved Maintenance Program, including work
cards, for the purpose of transitioning the Aircraft to a different maintenance
program.
1.9.3 No Duty to Inspect
Lessor shall not have a duty to make any such inspection nor
shall it incur any liability or obligation to Lessee by reason of making or not
making any such inspection.
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Section 2. Maintenance Reserve Payments
2.1 Maintenance Reserve Amounts
2.1.1 Maintenance Reserve Amounts
Lessee shall pay to Lessor with respect to the Lease Term on the
fifteenth day of each calendar month, commencing on the fifteenth day of the
calendar month following the Delivery Date, and ending on the fifteenth day of
the calendar month following the last day of the Lease Term, the amounts set
forth below:
2.1.1.1 Airframe Reserve Amount
In respect of the Airframe, the Airframe Reserve Amount for each Airframe
Flight Hour that the Airframe is operated during the preceding calendar month.
2.1.1.2 Engine Overhaul Reserve Amount
In respect of each Engine, the Engine Overhaul Reserve Amount for each
Engine Flight Hour that each Engine is operated during the preceding calendar
month.
2.1.1.3 Engine Life-Limited Parts Reserve Amount
In respect of life-limited Parts installed in each Engine, the Engine Life
Limited Part Reserve Amount for each Engine Cycle completed by such Engine
during the preceding calendar month.
2.1.1.4 Landing Gear Reserve Amount
In respect of the Landing Gear, the Landing Gear Reserve Amount for each
Airframe Flight Hour that the Airframe is operated during the preceding calendar
month.
2.1.1.5 APU Reserve Amount
In respect of the APU, the APU Reserve Amount for each Airframe Flight Hour
that the Airframe is operated during the preceding calendar month.
2.1.2 Assumed Hour-to-Cycle Ratio Amount
The Dollar amounts referred to in this Section 2.1 (except
Section 2.1.1.3) are based upon the Assumed Hour-to-Cycle Ratio. On or about
each anniversary of the Delivery Date, Lessor and Lessee shall determine whether
during the preceding 12 months the actual ratio fell below or rose above this
assumed level by more than 0.1, and if so the relevant Dollar amounts shall be
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adjusted upwards or downwards to reflect such actual ratio, the amount of such
adjustment to be determined by mutual agreement of Lessor and Lessee after
prompt, good faith negotiation.
2.1.3 Reserve Inflation Rate
Each of the Dollar amounts set forth in this Section 2.1 (as may
have been previously adjusted pursuant to the preceding paragraph), and as
adjusted pursuant to this paragraph shall be adjusted on the anniversary of the
Delivery Date each year during the Lease Term by multiplying (1) such Dollar
amount by (2) the Reserve Inflation Rate.
2.2 Reimbursement
2.2.1 Airframe Reimbursement
Lessor shall, subject to Section 2.4 of this Schedule 2 and if
no Default has occurred and is then continuing, reimburse Lessee from the
Airframe account for the actual costs incurred by Lessee in respect of labor and
materials consumed during the Airframe 7C/SI Check (or equivalent) (excluding
APU and Landing Gear) including the cost of defect rectification (but excluding
components (unless they are scheduled to be overhauled at that check and their
lives are fully restored) and any maintenance resulting from design faults or
damage covered by warranty or caused by accidental damage, foreign objects,
faulty maintenance or operational mishandling).
2.2.2 Engine Reimbursement
Lessor shall, subject to Section 2.4 of this Schedule 2 and if
no Default has occurred and is then continuing, reimburse Lessee for the cost of
a scheduled Basic Shop Visit pursuant to the Approved Maintenance Program, from
the appropriate Engine sub-account and for such amounts as are equal to the
costs incurred by Lessee for such Basic Shop Visit, including replacement of
life-limited parts and components that are scheduled for overhaul or replacement
at that Basic Shop Visit and for the portion of unscheduled overhauls that
replace work which would have been carried out at the time of a scheduled
removal or overhaul (but excluding any maintenance resulting from design faults
or damage covered by warranty or caused by accidental damage, foreign objects,
faulty maintenance or operational mishandling).
2.2.3 APU Reimbursement
Lessor shall, subject to Section 2.4 of this Schedule 2 and if
no Default has occurred and is then continuing, reimburse Lessee from the APU
account the actual costs incurred by Lessee in respect of labor and materials
consumed during a scheduled Basic Shop Visit for the APU, including the cost of
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defect rectification (but excluding any maintenance resulting from design faults
or damage covered by warranty or caused by accidental damage, foreign objects,
faulty maintenance or operational mishandling).
2.2.4 Landing Gear Reimbursement
Lessor shall, subject to Section 3.4 of this Schedule 2 and if
no Default has occurred and is then continuing, reimburse Lessee from the
Landing Gear account the actual costs incurred by Lessee in respect of labor and
materials consumed during any scheduled Landing Gear Overhaul, including the
cost of defect rectification (but excluding any maintenance resulting from
design faults or damage covered by warranty or caused by accidental damage,
foreign objects, faulty maintenance or operational mishandling).
2.3 Account Balances
Lessor shall keep a notional running account in respect of the
Airframe, each Engine (with overhaul and life limited parts sub-accounts), the
APU and the Landing Gear to which shall be credited all amounts in respect
thereof received under Section 2.1 hereof and debited all sums paid in respect
thereof by Lessor to, or on behalf of, Lessee under Section 2.2.
2.4 No Negative Balances
Lessor shall not be obliged to pay any sum under Sections 2.2 of this
Schedule 2 to the extent the amount requested would exceed the lesser of (1) the
balance in the relevant notional account at and as of the time the relevant
check, Basic Shop Visit or Landing Gear Overhaul was completed and (2) the
balance of such notional account at the time Lessor is required pursuant to this
Section 2 to make a payment to Lessee in respect of such request. In any case in
which the amount paid to Lessee is not sufficient to pay the cost of such check,
Basic Shop Visit or Landing Gear Overhaul, to such extent Lessee shall be
obligated to meet such costs from its own resources. No shortfall may be carried
forward or made the subject of any further claim for reimbursement.
2.5 Rights in Reserves
For the avoidance of doubt, it is agreed and acknowledged that as
between Lessor and Lessee the amounts in the accounts referred to in Section 2.3
of this Schedule 2 are the sole and exclusive property of Lessor and Lessor
shall be entitled to retain absolutely any credit balance, including any
interest thereon, on the accounts referred to in Section 2.3 of this Schedule 2
remaining after any expiration or termination of the Lease Term, except as set
forth in Section 10.2 of the Lease Agreement.
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2.6 Payments
Lessee shall submit to Lessor detailed and substantiated labor and
material invoices for all maintenance for which reimbursement is sought under
this Section 2 (using best efforts so that Lessor receives such invoices not
later than the 30th day following receipt by Lessee of such invoices from the
Approved Maintenance Performer (or, if such maintenance is performed by Lessee,
not later than the 30th day following completion of such maintenance)). Lessor
shall pay to Lessee all amounts reimbursable hereunder promptly upon its receipt
of such invoices. In the event that any payment otherwise due to Lessee is not
paid to Lessee as the result of any Default then continuing, Lessor shall pay
such amount to Lessee promptly upon Lessee's having cured such Default, but only
if no other Default shall be then continuing.
Section 3. Return of the Aircraft
3.1 Date and Location of Return
Not later than the end of the Lease Term, subject only to Section
10.2 of the Lease Agreement, Lessee, at its own risk, cost and expense, shall
return the Aircraft, including the Airframe, the Engines, all Parts thereof and
the Aircraft Documentation to Lessor at the Return Location in accordance with
the provisions of the Lease Agreement, including this Schedule 2, and the other
Operative Documents.
3.2 Condition of Aircraft
At Return, Lessee shall, at its sole risk, cost and expense, procure
that the Aircraft is free and clear of all Liens (other than Lessor Liens) and
that the Aircraft complies in all respects with the conditions and requirements
set forth in the Lease Agreement, including Annex 1 to this Schedule 2, and the
other Operative Documents.
3.3 Final Inspection
3.3.1 No less than 120 days prior to commencement of the Return,
Lessee shall provide Lessor with written notice of the date of, and a reasonably
complete plan for the content of, the Final Maintenance and, no less than 30
days in advance of the commencement of the Final Maintenance, shall give Lessor
further written notice of the date of, and any changes to the plan for, the
Final Maintenance. During such Final Maintenance, the Aircraft, including the
Aircraft Documentation, shall be made available to Lessor and/or Lessor's
agents, representatives and designees (each, an "Inspecting Party") for ground
inspection by the Inspecting Parties at Lessee's facilities or such other
location as may be agreed by Lessor and Lessee. No less than 60 days prior to
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the end of the Lease Term, Lessee shall make available to the Inspecting Parties
such documentation regarding the condition, use, maintenance, operation and
history of the Aircraft during the Lease Term as Lessor may reasonably request.
The Final Inspection shall include the procedures set forth in Annex 1 to this
Schedule 2. During the Final Inspection, Lessor's personnel shall have the right
to have the right to reasonably request additional panels or areas be opened in
order to allow further inspection by any Inspecting Party. Lessee shall remove
the Aircraft from scheduled service and open the areas of the Aircraft as
required to perform the Final Maintenance and the other inspections and checks
as contemplated in this Section 3 and Annex 1 to this Schedule 2 and otherwise
permit Lessor to determine that the Aircraft, including the Aircraft
Documentation, is in the condition required under the Operative Documents.
3.3.2 Promptly after such inspections, except as otherwise
agreed in writing by Lessor and Lessee, any discrepancies from the Aircraft
return condition requirements set forth in this Section 3, and any discrepancies
that must be corrected in order to comply with the Approved Maintenance Program,
which shall include clearing of all deferred maintenance items, shall be
corrected by Lessee at its cost prior to the operational ground check described
in Section 3.4 of this Schedule 2.
3.4 Operational Ground Check
3.4.1 Promptly after the correction of any discrepancies
pursuant to Section 3.3 of this Schedule 2, Lessee shall conduct an operational
ground check of the Aircraft in accordance with the procedures set forth in the
Approved Maintenance Program and Airframe Manufacturer's maintenance manual
criteria for the purpose of demonstrating to the reasonable satisfaction of
Lessor the operation of the systems, including, if required and at Lessee's
cost, a full fuel tank leak check, audible ignition check (both systems), pitot
and static systems check and hydraulic system internal leak check.
3.4.2 Promptly after the operational ground check, except as
otherwise agreed in writing by Lessor and Lessee, any discrepancies from the
Aircraft return condition requirements set forth in this Section 3, and any
discrepancies that must be corrected in order to comply with the Approved
Maintenance Program and Airframe Manufacturer's maintenance manual criteria,
shall be corrected by Lessee at its cost prior to the demonstration flight
described in Section 3.5 of this Schedule 2.
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3.5 Demonstration Flight
3.5.1 Immediately following the operational ground check
pursuant to Section 3.4 of this Schedule 2, but prior to Lessor's technical
acceptance of the Aircraft, Lessee shall, using its own pilots, carry out for
the Inspecting Parties a demonstration flight in the Aircraft in accordance with
such procedures as may be mutually agreed between Lessor and Lessee, which shall
be no less stringent than the procedures used in Airframe Manufacturer's
predelivery flight test, to demonstrate the proper functioning of the Aircraft
systems and components within limits and/or guidelines established by the
relevant manufacturers and the Aviation Authority. Such flight shall continue
for the duration necessary to perform such check flight procedures, but for a
period not exceeding 2 hours of flying time.
3.5.2 Except as otherwise agreed in writing by the Lessor or
Lessee, promptly following such demonstration flight, any deficiencies from the
Aircraft return condition requirements set forth in this Section 3, and any
discrepancies that must be corrected in order to comply with the Approved
Maintenance Program and Airframe Manufacturer's maintenance manual and to
achieve the proper functioning of the Aircraft systems and components, shall be
corrected by Lessee at its cost prior to Return.
3.6 Technical Acceptance
Upon completion of the Final Inspection and, unless otherwise agreed
in writing by Lessor and Lessee, correction of any discrepancies or deficiencies
required to be corrected by Lessee prior to Return, Lessor shall execute and
deliver to Lessee, a Technical Acceptance Certificate which shall, for all
purposes hereof, constitute complete, irrevocable and absolute evidence of
Lessor's technical acceptance of the Aircraft, except as noted in the Technical
Acceptance Certificate.
3.7 Indemnity
Lessor hereby assumes liability for and shall fully indemnify and
hold harmless Lessee and its Affiliates on demand and shall keep Lessee and its
Affiliates fully indemnified at all times and on an after-tax basis from and
against all Expenses arising directly or indirectly from any injuries to or
deaths of Lessor's representatives or loss of or damage to property of Lessor or
its representatives or the Inspecting Parties or designees during the
inspections described in this Section 3.
3.8 Failure to Return Aircraft
If Lessee shall, for any reason whatsoever, fail to return the
Aircraft at the time or in the condition specified herein or return of the
Aircraft is not accepted by Lessor (in its sole discretion) because of Lessee's
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failure to meet the requirements of this Section 3, the obligations of Lessee
provided in the Lease Agreement and each other Operative Document to which
Lessee is a party (including the obligation to pay Rent) shall continue in
effect with respect to the Aircraft, and the Lease Term shall, unless earlier
terminated in accordance with the Lease Agreement, be deemed to be extended
until Return of the Aircraft to Lessor, provided that this Section 3.8 shall not
be construed as permitting or authorizing Lessee to fail to meet, or consenting
to or waiving any failure by Lessee to perform, Lessee's obligation to return
the Aircraft in accordance with the requirements of the Lease Agreement.
3.9 Transition
Lessor intends to lease or sell the Aircraft to another Person at the
end of the Lease Term and in order to facilitate such lease or sale of the
Aircraft, Lessee agrees to reasonably cooperate with Lessor at Lessor's expense
(except to the extent that Lessee is otherwise so obligated hereunder or under
any other Operative Document) and to otherwise assist Lessor by, upon Lessor's
request:
3.9.1 Allowing inspections of the Aircraft by the Follow-On
Operator (without interrupting any scheduled flight or the Final Maintenance)
and, specifically, inspections necessary to determine compliance with the return
requirements set forth in this Section 3.
3.9.2 Scheduling the Return of the Aircraft and the Final
Inspection in a manner that will allow for a simultaneous delivery of the
Aircraft to the Follow-On Operator.
3.9.3 Providing Aircraft Documentation and the Aircraft
Maintenance Program (including work cards) so that the Follow-On Operator can
effect the transition of the Aircraft from the Approved Maintenance Program to
the maintenance program of the Follow-On Operator.
3.9.4 Performing maintenance or modifications to the Aircraft in
addition to those required upon Return as reasonably requested by Lessor
(subject to agreeing compensation and scheduling with Lessee for any such
additional maintenance or modifications).
3.9.5 Assisting Lessor in obtaining a certificate of airworthiness
for the Aircraft, including, if desired by Lessor, an FAA Standard Certificate
of Airworthiness for Transport Category Aircraft for operation by a U.S. Part
121 operator.
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3.10 [Intentionally Left Blank]
3.11 Deferred Discrepancy Correction
Lessor may, at its sole option, accept delivery of the Aircraft and
any discrepancies found during the ground inspection, operational ground check
and operational test flight set forth in this Section 3 that were not corrected
by Lessee prior to return of the Aircraft to Lessor may be corrected by Lessor
or its designee after return of the Aircraft, at Lessee's cost and expense,
provided that this Section 3.11 shall not be construed as permitting or
authorizing Lessee to fail to meet, or consenting to or waiving any failure by
Lessee to perform, Lessee's obligation to return the Aircraft in accordance with
the requirements of the Lease Agreement. Lessee shall reimburse Lessor on demand
for the expenses incurred by Lessor in accomplishing such discrepancy
corrections.
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Annex 1 to
Schedule 2 to
Lease Agreement
(MSN 28869)
ANNEX 1 TO
SCHEDULE 2
RETURN CONDITIONS
Capitalized terms used but not defined herein (or in any attachment hereto)
shall have the respective meanings, and shall be interpreted and construed in
the manner, set forth in the Lease Agreement (MSN 28869), dated as of June 27,
1997 (the "Lease Agreement"), between Boullioun Portfolio Finance I, Inc. and
Western Pacific Airlines, Inc., to which this document is an annex to a
schedule.
Section 1. Condition of Airframe and Engines
On the last day of the Lease Term, the Aircraft (1) shall be in compliance
with Boeing Detail Specification D6-38604-28 Revision A dated June 9, 1997,
except as changed in a manner either required or permitted pursuant to the Lease
Agreement or any other Operative Document and (2) shall:
1.1 General Requirements
Have been operated, maintained and repaired in accordance with the
Lease Agreement, have all the same capabilities as on the Delivery Date, have
all of its components and systems functioning in accordance with relevant
manufacturer's specifications and within applicable limits and comply materially
with the requirements of Attachment 1 to this Annex 1.
1.2 Condition Permitting Commercial Operation
Be in FAA Condition and in a condition permitting immediate
commercial passenger and cargo revenue service by Lessee under the applicable
operating regulations of the Aviation Authority. Lessee shall have reversed any
Modification as required by Section 1.4.4 of Schedule 2 to the Lease Agreement.
1.3 Deregistration and Export Matters
Have, and be in compliance with, at Lessor's option, (1) a valid
export certificate of airworthiness (or its equivalent) or (2) a valid
certificate of airworthiness (or its equivalent), in either case, issued by the
Aviation Authority.
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1.4 Final Airframe Check
1.4.1 Required Check
With respect to the Airframe, have accomplished immediately
after removal from service and immediately prior to delivery to Lessor the
completion of the next due "C" check in accordance with Airframe Manufacturer's
Maintenance Planning Document in respect of the Aircraft under the Approved
Maintenance Program (which checks shall incorporate all lower-level checks,
structural inspections and any special repair items or special inspections
(including CPCP items) as well as inspections that have a frequency less than a
"C" check) (with the effect that no Major Check for the Airframe shall be
required under the Approved Maintenance Program for 3,000 Airframe Flight
Hours).
If during the Lease Term the Aircraft is maintained under a
phased maintenance program (as opposed to a block maintenance program), Lessee
shall, at Lessee's cost and expense, perform all checks, inspections,
maintenance, etc., necessary to return the Aircraft to a block maintenance
program based upon the Boeing Maintenance Planning Document and otherwise
acceptable to Lessor.
1.4.2 Related Work
Have, as a part of the final "C" Check, completed a
refurbishment of the flight deck and Cabin and all interior and flight deck
equipment, which shall include replacement of damaged, discolored or severely
worn seat suits and cushions and other work to insure that such seats are in
good operating condition. The Aircraft carpeting shall be replaced.
1.5 ADs, SBs, Etc.
(1) Be in compliance on a terminating basis with all Required
Modifications where (a) in the case of ADs and other Aviation Authority-required
Modifications, the mandatory compliance date for which action on such basis
falls during the Lease Term or 12 months (or the equivalent hours and cycles
based on Lessee's then current usage of 737-300 aircraft) after the Return and
(b) in the case of alert and mandatory SBs, the issuance date thereof is during
the Lease Term and the recommended incorporation date falls during the Lease
Term or 12 months after (or the equivalent hours and cycles based on Lessee's
then current usage of 737-300 aircraft), and (2) have no required inspection
under any outstanding Aviation Authority AD or under any alert or mandatory SB
or instruction due within either (a) as applicable, 12 months (or the equivalent
hours and cycles based on Lessee's then current usage of 737-300 aircraft) or
(b) a full inspection period whichever is less, provided that, in the case of
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<PAGE>
both clauses (1) and (2), in the event that Lessee has obtained a waiver or
deviation from the Aviation Authority, Airframe Manufacturer or from any such
manufacturer from having to comply with any such Required Modification or
inspection, Lessee shall, irrespective of such waiver or deviation, comply with
all such Required Modifications and inspections prior to the Return. In the case
of each such Required Modification, Lessor shall reimburse Lessee for the cost
of such modification pursuant to Section 2 of Schedule 3 to the Lease Agreement
as if such modification fell within the scope of such section, provided further
that if Lessor shall be so required to reimburse Lessee, Lessee shall, prior to
performing such modification, provide Lessor with at least 10 Business Days
written notice of Lessee's intent to perform such modification together with a
detailed cost estimate, and Lessor may, within such 10 Business Day period,
elect to have Lessee not perform such modification.
1.6 Engine Condition
Have neither Engine on watch for any reason whatsoever, and (1) each
of the Engines shall have an EGT margin of not less than 22(degree)C, (2) the
trend monitoring data for each Engine shall not exhibit any abnormal trends
during the six month period prior to Return, and (3) the Engine operational and
performance parameters shall be sufficiently within limits specified by Engine
Manufacturer and the condition of the Engine shall otherwise be such to permit
full take-off power to manufacturer's specification. If Lessor and Lessee are
unable to agree whether such criteria have been met, Lessor and Lessee shall
consult a qualified Engine Manufacturer engineer and agree to be bound by the
determination of such engineer (the cost of such engineer to be shared equally
by Lessor and Lessee). Any deficiencies shall be corrected by Lessee.
1.6.1 Engine Borescope
With respect to each Engine, have had a complete (100% of all
stages) video borescope inspection performed by Lessee during Final Inspection,
and in the presence of the Inspecting Parties, and satisfactory evidence shall
be provided to Lessor reflecting the correction of any discrepancies from
manufacturer or regulatory limitations, specifications and/or tolerances found
during such inspection.
1.6.2 Full-Rated Performance
Be capable of certificated, full-rated performance without
limitations throughout the operating envelope as defined in the airplane flight
manual; performance compliance will be demonstrated by one or two of the
following, at Lessor's option: (1) at the time of the acceptance flight test,
(2) by on-wing static inspection and testing of the powerplants in accordance
with the engine maintenance manual, (3) by review of trend monitoring and
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<PAGE>
EGT/test cell data (in the event an Engine is just out of test cell) or (4) by a
power assurance check in accordance with the Approved Maintenance Program and
Engine Manufacturer's recommendations.
1.7 APU Condition
With respect to the APU, have no more than 3,000 APU hours since last
removal and the most recent Basic Shop Visit and capable of full-rated
performance, and the APU shall have had a video borescope inspection performed
by Lessee during Final Inspection, and in the presence of the Inspecting
Parties, and satisfactory evidence shall be provided to Lessor reflecting the
correction of any discrepancies from manufacturer or regulatory limitations,
specifications and/or tolerances found during such inspection.
1.8 Landing Gear Condition
With respect to each Landing Gear, have at least 5,000 Airframe
Flight Hours and 3,000 Airframe Cycles remaining until its next scheduled
Landing Gear Overhaul.
1.9 Life Limited Parts
1.9.1 With respect to each Airframe life and calendar controlled
component, have a minimum of 12 months, and 3,200 Airframe Flight Hours and
1,500 Airframe Cycles remaining to next scheduled test, inspection or removal
(in accordance with the Approved Maintenance Program), but (1) if a component
has a life, overhaul or check interval limit that is less than the above-stated
hours, cycles or calendar time requirement (in accordance with the Approved
Maintenance Program), then such component shall have a full check interval
remaining and (2) "on-condition" and "condition-monitored" components shall be
fully functioning in accordance with manufacturer's specifications and shall
have been operationally checked and tested during the Final Maintenance and
shall have no indication of incipient faults. All Airframe life and calendar
controlled components shall on average be no older in hours or cycles than the
Aircraft and in no case shall any single such Part be more than six month's
older in hours or cycles than the Aircraft, provided that, without limiting the
foregoing, each component shall have the same or more recent part or dash number
as the component installed on the Aircraft on the Delivery Date.
1.9.2 No Engine life-limited Parts shall have less than 3,000 Engine
Cycles remaining until the next scheduled removal or replacement.
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1.10 Tires and Brakes
Have at least 50% treads on each of the tires (with not more than two
re-caps) and have remaining not less than 50% percent service wear life on each
brake. Lessee shall compensate Lessor (at Lessee's then current cost) for the
difference in the condition and value of the tires and brakes between the
Delivery Date and the Return.
1.11 Paint
Be properly stripped and painted in a livery to be designated by
Lessor provided that Lessor provides Lessee with necessary templates and
drawings at least 15 days prior to the Return, and after such painting Lessee
shall balance the rudder in accordance with Airframe Manufacturer procedures.
1.12 Service Bulletin Kits
Have all service bulletins for which kits have been received or
manufactured by Lessee for the Aircraft, as of the commencement of the Final
Inspection, installed thereon prior to Return (with all other such kits received
by Lessee after such time to be shipped by commercial carrier to a location
specified by Lessor).
1.13 Fuel and Oil
With each fuel tank and oil tank containing the same quantity of fuel
or oil as was contained in such fuel and oil tanks when the Airframe was
delivered to Lessee or, in the case of differences in any such quantities, an
appropriate adjustment will be made by payment to Lessor or Lessee, as
appropriate, at the then-current market price at the Return Location of fuel or
oil, as the case may be.
1.14 Lessee Certificate
Be accompanied by a certificate from a senior technical officer of
Lessee stating and certifying that:
1.14.1 The Aircraft has not been involved in any accidents
(other than those disclosed on an annex to such certificate) during the Lease
Term.
1.14.2 All Aircraft Documentation for the Aircraft has been
delivered with the Aircraft.
1.14.3 The Aircraft is free of corrosion to the extent required
by the Approved Maintenance Program.
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1.14.4 The Engines and APU have been completely borescoped and
that either no defects exceeding the relevant manufacturer's tolerances were
found or such defects have been repaired.
1.14.5 All Required Modifications which are required by the
Lease Agreement or any other Operative Document to be incorporated in the
Aircraft prior to the last day of the Lease Term have been so incorporated on
the date and in the manner of described in such certificate.
1.14.6 The completeness and accuracy of the list of engineering
orders attached to such certificate reflecting any Modification to the Aircraft.
1.14.7 The completeness and accuracy of the record of status of
life-limited Parts in each Engine and, if any such Part is a replacement for a
previous Part and is not a new Part, the full back-to-birth history of such
replacement Part (to the extent required by the Lease Agreement).
Section 2. Aircraft Documentation
At Return, Lessee shall deliver to Lessor at the Return Location the
Aircraft Documentation. All Aircraft Documentation provided to Lessor at time of
Return shall be listed and included as an attachment to the Technical Acceptance
Certificate. Lessee shall ensure that all Aircraft Documentation provided to
Lessor shall be in good condition, readable and capable of being reproduced
using standard reproduction processes and otherwise shall have been maintained
in accordance with the Lease Agreement and the other Operative Documents. All
Aircraft Documentation shall be in printed form (except only those documents
which Lessee has received or maintained only in non-printed form).
Notwithstanding the above, the flight manual shall be revised, if necessary, to
delete master change 7200MP3286 ("Thrust Enhancement").
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<PAGE>
Attachment 1 to
Annex 1 to
Schedule 2 to
Lease Agreement
(MSN 28869)
GENERAL CONDITION RETURN REQUIREMENTS
General
1. The Aircraft shall (a) be clean and in good operational and physical
condition by U.S. domestic airline standards for commercial passenger service
commensurate with a deep cleaning of the Aircraft, (b) be free of temporary
repairs, (c) have no excessive, multiple or overlaid External Repairs, (d) have
no repairs not in accordance with Airframe Manufacturer structural repair manual
or approved by Airframe Manufacturer, (e) be free of damage and loose, missing
or pulled fasteners, (f) be free of scratches, buckles and damage exceeding
manufacturer tolerances and (g) have no deferred or hold over maintenance.
2. The Aircraft shall be free of fuel leaks, and the fuel, hydraulic and oil
systems of the Aircraft, including the Engines, shall have been tested and free
of any contaminants and Lessee shall provide to Lessor the results of laboratory
tests of all such systems.
Fuselage, Windows and Doors
3. Windows shall be free of delamination, blemishes, crazing, and shall be
properly sealed and free of any air leaks.
4. Doors shall be free moving, correctly rigged and be fitted with serviceable
seals, and free of any air noise or leaks.
Wings and Empennage
5. All leading edges shall be free from significant damage.
6. All control surfaces shall be waxed and polished.
7. All unpainted cowlings and fairings shall be polished.
8. Wings shall be free of fuel leaks.
9. With respect to the wings and horizontal stabilizer and all control surfaces,
be clean, in good condition, free of dents, cracks, abrasions, stain and
discoloration outside of manufacturer tolerances.
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Interior
10. Ceilings, sidewalls and bulkhead panels shall be clean and free of cracks
and stains.
11. All carpets and seat covers shall be in good condition, clean and stain free
and meet applicable fire resistance regulations as required for continued
commercial operation by Lessee.
12. All seats shall be serviceable, in good condition and repainted as
necessary.
13. All signs and decals shall be clean and legible.
14. All emergency equipment having a calendar life shall have a minimum
remaining life of one year or one hundred percent (100%) of its total approved
life, whichever is less.
15. All passenger communication systems and entertainment systems shall be
functional and in good condition.
Galleys and Galley Equipment
16. All galley areas shall be clean, free from food contamination and free of
cracks and corrosion, and meet safety and health standards.
17. All galley areas and equipment shall be in good condition, clean, sealed,
stain free and meet safety and health standards.
18. All galley structure, galley inserts and galley carts shall be clean, free
of defects and serviceable.
Flight Deck
19. Flight deck shall be clean, free of stains and cracks, and all features
shall be functional.
20. All decals shall be clean, secure and legible.
21. All fairing panels shall be free of stains and cracks, shall be clean,
secure and repainted, as necessary.
22. Floor coverings shall be clean and effectively sealed.
23. Seat covers shall be in good condition, clean and shall conform to
applicable fire resistance regulations.
24. Seats shall be fully serviceable and shall be repainted, as necessary.
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<PAGE>
Cargo Compartments
25. All panels shall be in good condition, properly installed, free of cracks
and stains and properly sealed.
26. All nets shall be in good condition.
27. All decals and required notices shall be installed.
28. All doors shall be in good repair, properly functional, sealed and properly
rigged.
Landing Gear and Wheel Wells
29. Landing gear and doors shall be clean, free of leaks and damage, properly
rigged and repaired, as necessary.
30. Wheel wells should be clean, free of leaks and damage, and properly treated
for corrosion prevention.
31. All decals shall be clean, secure and legible.
32. Wheels shall be clean and free of corrosion.
Corrosion
33. The entire fuselage shall be substantially free from corrosion and shall be
adequately treated and an approved corrosion prevention program shall be in
operation.
34. After stripping and prior to painting as required in Annex 1 to Schedule 2
to the Lease Agreement, the exterior of the Aircraft shall be inspected and any
corrosion, structure damage, or other defects shall be corrected in accordance
with the corrosion treatment and correction criteria set forth in the Boeing
Structural Repair Manual and the Corrosion Prevention Manual and as recommended
by Airframe Manufacturer.
35. Fuel tanks shall be free from contamination and corrosion and a tank
treatment program shall be in operation.
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Attachment 2 to
Annex 1 to
Schedule 2 to
Lease Agreement
(MSN 28869)
AIRCRAFT AND AIRCRAFT DOCUMENTATION
TECHNICAL ACCEPTANCE CERTIFICATE
Boullioun Portfolio Finance I, Inc. ("Lessor") hereby accepts and
acknowledges receipt from Western Pacific Airlines, Inc. ("Lessee") in
accordance with the terms and conditions of the Lease Agreement (MSN 28869),
dated as of June 27, 1997 (the "Lease Agreement"), between Lessor and Lessee,
of:
Aircraft: 737-33R
Airframe Manufacturer's Serial Number: 28869
APU Serial Number: [______]
Landing Gear Serial Numbers:
Right [______]
Left [______]
Nose [________]
with two installed CFM56-3C-1 engines with Engine Manufacturer's Serial Numbers:
Position (1) [_________]
Position (2) [_________]
together with the aircraft documentation described in Supplement 1 hereto and
with the operating times and cycles as accumulated on the Aircraft up to the
time of redelivery as described in Supplement 2 hereto, and the loose equipment
described in Supplement 3 hereto, in [return location] on [date], at
/a.m.//p.m./
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Lessor and Lessee have each caused this receipt to be duly executed on the above
date.
BOULLIOUN PORTFOLIO FINANCE I, INC.
By:
Title:
WESTERN PACIFIC AIRLINES, INC.
By:
Title:
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<PAGE>
Supplement 1 to
Attachment 2 to
Annex 1 to
Schedule 2 to
Lease Agreement
(MSN 28869)
AIRCRAFT DOCUMENTATION
Identification
Title/Description Number Quantity
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<PAGE>
Supplement 2 to
Attachment 2 to
Annex 1 to
Schedule 2 to
Lease Agreement
(MSN 28869)
AIRCRAFT STATUS ON ________, 19____
Airframe __________
Serial Number: _____________________
Registration Number: _____________________
Airframe Flight Hours Since New: _____________________
Airframe Cycles Since New: _____________________
Last C-Check Performed: _____________________
Flight Hours at Last C-Check: _____________________
Cycles at Last C-Check: _____________________
Last Airframe 7C/SI-Check Performed: _____________________
Flight Hours at Last Airframe 7C/SI-Check: _____________________
Cycles at Last Airframe 7C/SI-Check: _____________________
Fuel Aboard: _____________________
Oil Aboard:
Engines Position 1 Position 2
Serial Number of Original Engine*: _______________ _________________
Flight Hours Since New: _______________ _________________
Cycles Since New: _______________ _________________
Last Basic Shop Visit Performed (type): _______________ _________________
Flight Hours at Last Basic Shop Visit: _______________ _________________
Cycles at Last Basic Shop Visit: _______________ _________________
*or Replacement Engine, if applicable
Auxiliary Power Unit
Serial Number _____________
APU Hours Since New: _____________
APU Cycles Since New: _____________
Last Maintenance Visit (type): _____________
APU Hours at Last Basic Shop Visit: _____________
APU Cycles at Last Basic Shop Visit: _____________
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<PAGE>
Landing Gear Nose LMG RMG
Serial Number: _____________ _____________
Flight Hours Since New: _____________ _____________
Cycles Since New: _____________ _____________
Flight Hours Since OH: _____________ _____________
Cycles Since OH: _____________ _____________
Cycles Last Shop Visit: _____________ _____________
Tires and Brakes
% Wear Life Remaining
Nose Tires Brakes
Left
Right
RH Main:
Left
Right
LH Main:
Left
Right
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<PAGE>
Supplement 3 to
Attachment 2 to
Annex 1 to
Schedule 2 to
Lease Agreement
(MSN 28869)
LOOSE EQUIPMENT
15
<PAGE>
Schedule 3
Confidential
Information
Lease Agreement
(MSN 28869)
SCHEDULE 3
CONFIDENTIAL INFORMATION
This Schedule is a schedule to the Lease Agreement (MSN 28869), dated as of
June 27,1997(the "Lease Agreement"), between Boullioun Portfolio Finance I Inc.
and Western Pacific Airlines, Inc.
Section 1. Definitions
"Airframe Reserve Amount" shall mean US$[ ]*.
"APU Reserve Amount" shall mean US$[ ]*.
"Basic Rent Amount" shall mean US$[ ]*.
"Damage Notice Threshold" shall mean US$[ ]*.
"Documentation Security Deposit Installment" shall mean US[ ]*.
"Engine Life Limited Part Reserve Amount" shall mean US$[ ]*, provided
that if Lessee uses enhanced thrust capabilities of either Engine, and Lessor
reasonably determines that such use significantly increases the cost per cycle
of Engine Life Limited Parts, Lessor and Lessee shall agree a reasonable
adjustment to such Dollar amount. Lessee shall promptly provide to Lessor any
reports provided by Lessee to the Engine Manufacturer relating to or evidencing
the use of enhanced thrust capabilities.
"Engine Overhaul Reserve Amount" shall mean US$[ ]*, provided that if
Lessee uses enhanced thrust capabilities of either Engine, and Lessor reasonably
determines that such use significantly increases the cost of Basic Shop Visits
or shortens the time between Basic Shop Visits, Lessor and Lessee shall agree a
reasonable adjustment to such Dollar amount. Lessee shall promptly provide to
Lessor any reports provided by Lessee to the Engine Manufacturer relating to or
evidencing the use of enhanced thrust capabilities.
"Initial Security Deposit Installment" shall mean the US$[ ]* received
from Lessee in accordance with that certain letter agreement, dated June 13,
1997, between Boullioun Aviation Services, Inc. and Lessee.
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"Landing Gear Reserve Amount" shall mean US$[ ]*.
"Reserve Inflation Rate" shall mean [ ]*.
"Stipulated Loss Value" shall mean, for each of the following periods, the
amount set forth opposite such period:
Year _________ Amount
1 [ ]*
2 [ ]*
3 [ ]*
4 [ ]*
5 [ ]*
6 [ ]*
7 [ ]*
8 [ ]*
9 [ ]*
10 [ ]*
11 [ ]*
12 [ ]*
"Stipulated Deductible Amount" shall mean US$[ ]*.
"Stipulated Liability Coverage" shall mean US$[ ]*.
Section 2. Required Modifications
With respect to each Required Modification (within the meaning of Section 1.2.1
of Schedule 2) with a mandatory compliance date during the Lease Term (without
giving effect to any exceptions or extensions sought by or granted to Lessee),
complied with during the Lease Term and with a cost of compliance (determined as
provided below) in excess of US$[ ]*, Lessor shall reimburse Lessee for a
portion of the cost of compliance with such modification as follows:
R = 120 - M x (C-US$[ ]*) 120
where
"R" means the portion of the cost of compliance with such modification to be
reimbursed to Lessee.
"M" means the number of calendar months (including parts thereof) between (1)
the earlier of (a) the date of actual compliance with such modification and (b)
the originally required date of mandatory compliance and (2) the end of the
scheduled Lease Term.
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"C" means the cost of compliance with such modification at the normal labor
rates (less profit if Lessee performs the work and no change kits supplied by
the Manufacturer) of the Approved Maintenance Performer(s) performing such
modification, plus reasonable cost of direct materials incorporated (but not
including loss or expenses incurred because of inability to operate the
Aircraft).
Lessee shall submit to Lessor detailed and substantiated labor and material
invoices for all such costs for which reimbursement is sought under this Section
1.2.1 and in any event (using best efforts so that Lessor receives such invoices
not later than the 30th day following receipt by Lessee of such invoices from
the Approved Maintenance Performer (or, if such maintenance is performed by
Lessee, not later than the 30th day following completion of such maintenance)).
Lessor shall pay to Lessee all amounts then reimbursable hereunder on the fifth
anniversary of the Delivery Date and on the last day of the Lease Term provided
no Default has occurred and is then continuing. In the event that any payment
otherwise due to Lessee is not paid to Lessee as the result of any Default then
continuing, Lessor shall pay such amount to Lessee promptly upon Lessee's having
cured such Default, but only if no other Default shall be then continuing. [Note
to reader: Also read Section 1.5 of Annex 1 to Schedule 2, including the last
sentence thereof.
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Schedule 4
Notice and Account
Information
Lease Agreement
(MSN 28869)
SCHEDULE 4
NOTICE AND ACCOUNT INFORMATION
(MSN 28869)
LESSOR ADDRESS:
Boullioun Portfolio Finance I, Inc.
c/o Boullioun Aircraft Holding Company, Inc.
500 - 108th Avenue N.E., 25th Floor
Bellevue, Washington 98004
Attention: Secretary
Facsimile: 425-450-1581
Telephone: 425-454-3106
LESSOR ACCOUNT:
Bank: Seafirst Bank
Seattle, Washington
ABA Number: 125000024
Account Number: To be advised
Contact: Kathy Tran
Facsimile: 206-358-8051
Telephone: 206-358-2914
Reference: WPA 28869
LESSEE ADDRESS:
Western Pacific Airlines, Inc.
2864 South Circle Drive, Suite 1100
Colorado Springs, Colorado 80906
Attention: President
Facsimile: 719-527-7480
Telephone: 719-527-7200
LESSEE ACCOUNT:
Bank: Colorado National Bank
Colorado Springs, Colorado
ABA Number: 102000021
Beneficiary: Western Pacific Airlines, Inc.
Account Name: Western Pacific Airlines, Inc.
Operating Account
Account Number: 194312007769
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WestPac Lease Agreement (MSN 28869)
Schedule 5
Execution Copy
Schedule 5
Tax Matters
Lease Agreement
(MSN 28869)
SCHEDULE 5
TAX MATTERS
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28869), dated as of June 27, 1997
(the "Lease Agreement"), between Boullioun Portfolio Finance I, Inc. and Western
Pacific Airlines, Inc., to which this document is a schedule.
Section 1. Lessee Liability
Except as provided in Section 2, Lessee shall pay or cause to be paid, and
on written demand shall indemnify and hold harmless each Tax Indemnitee from and
against, any and all Taxes howsoever imposed or levied on or asserted against,
from time to time, any Tax Indemnitee, Lessee, the Aircraft, Airframe or any
Engine or any Parts thereof or any interest therein by any Government Entity on,
with respect to, based on or measured by:
(A) the acceptance, rejection, delivery, redelivery, nondelivery,
transport, ownership, registration, deregistration, reregistration, possession,
repossession, operation, location, use, condition, maintenance, repair, sale,
return, import, export, repossession, abandonment, installation, storage,
manufacture, charter, leasing, subleasing, modification, rebuilding,
improvement, importation, exportation or other disposition of, or the imposition
of any Lien on, the Aircraft, Airframe or any Engine or any Part or interest
therein (or the incurrence of any liability to refund or pay over any amount as
the result of any such Lien);
(B) the rentals, receipts or earnings from the Aircraft, Airframe or any
Engine or Parts thereof or interest therein;
(C) the Aircraft, Airframe or any Engine or any Parts thereof or interest
therein (including, without limitation, title or a security interest therein) or
any data or any other thing delivered or to be delivered under the Operative
Documents; or
(D) otherwise with respect to or in connection with the execution,
delivery, enforcement, amendment or supplement to the Operative Documents or the
transactions contemplated by the Operative Documents.
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Section 2. Exclusions From Lessee's Liability
The provisions of Section 1 shall not apply to:
(A) Taxes that are imposed on a Tax Indemnitee by any Government Entity
and that are based on, or measured by, gross or net income or gross or net worth
or capital of any Tax Indemnitee (notwithstanding the foregoing, Section 1 shall
apply to, and the Tax Indemnitees shall be indemnified against, any such Taxes
(1) which are in the nature of sales, use, rental, ad valorem, license, property
or value-added Taxes or (2) to the extent such Taxes would not have been imposed
by such Government Entity (other than the U.S. Federal government) upon such Tax
Indemnitee but for (x) a relation or asserted relation of any such Government
Entity to the Aircraft or the transactions contemplated by the Operative
Documents, (y) the registration or change in registration or the actual or
deemed use, operation or location by or for any Lessee Person of the Aircraft or
(z) the activities of any Lessee Person, including activities both related to
the Aircraft, including, without limitation, Modifications, replacements and
substitutions, and unrelated to the Aircraft);
(B) Sales, use or similar transfer Taxes imposed on a Tax Indemnitee upon
any voluntary or involuntary transfer or disposition (other than any transfer
pursuant to any exercise of remedies in connection with an Event of Default,
pooling arrangement, Event of Loss or any deemed transfer caused by any Lessee
Person) by such Tax Indemnitee of any equitable or legal interest in the
Aircraft, Airframe, any Engine or any Part to any Person other than Lessee or
any Affiliate of Lessee ("Lessor Transfer"); or
(C) Taxes to the extent incurred with respect to any period after the
later of (1) expiration or earlier termination of this Lease and (2) the (y)
return of possession of the Aircraft in accordance with the terms of this Lease
or (z) sale or other transfer of the Aircraft hereof following an Event of Loss
with respect to the Aircraft in accordance with the terms of this Lease;
provided, however, that the exclusion set forth in this clause (C) shall not
apply to the extent such Taxes relate to periods prior to, or events occurring
or matters arising prior to or in connection with, such expiration, termination
or sale.
(D) Taxes imposed solely as a result of (I) the willful misconduct or
gross negligence of a Tax Indemnitee, (II) the breach by any Tax Indemnitee of
any of its representations, warranties or covenants contained in this Agreement
(unless caused by any Lessee Person) or (III) Lessor Liens;
(E) Taxes either not yet due or being contested in accordance with the
provisions of Section 6;
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<PAGE>
(F) Taxes due solely to any failure of a Tax Indemnitee to (x) file proper
and timely reports or returns or to pay any Taxes when due, or (y) comply with
any certification, information, documentation, reporting or other similar
requirements concerning the nationality, residence, identity or connection with
the jurisdiction imposing such Taxes, if such compliance is required to obtain
or establish relief or exemption from or reduction in such Taxes and Lessor was
eligible to comply with such requirement;
(G) Taxes imposed under Section 887 of the Code; or
(H) Taxes to the extent they exceed the amount of Taxes that would have
been imposed if there had not been a transfer of the Aircraft to a Person that
is not a U.S. person.
Section 3. No Reduction for Withholding, Etc.
All payments by Lessee under this Agreement or any other Operative
Document, whether in respect of Rent, interest, fees or any other item, shall be
made in full without any deduction or withholding (whether in respect of setoff,
counterclaim, duties, Taxes, monetary transfer and other charges, wages or
otherwise whatsoever), unless the withholding or deduction is required by Law,
in which event Lessee shall:
(A) forthwith pay to Lessor such additional amount so that the net amount
received by Lessor after the deduction or withholding will equal the full amount
which would have been received by it had no such deduction or withholding been
made;
(B) pay to the relevant Government Entity within the period for payment
permitted by applicable Law the full amount of the deduction or withholding
(including, but without prejudice to the generality of the foregoing, the full
amount of any deduction or withholding from any additional amount paid pursuant
to this Section 3); and
(C) promptly furnish to Lessor an official receipt of the relevant
taxation or other authorities involved for all amounts deducted or withheld as
aforesaid or, if no such receipt is issued, a certificate of deduction or
equivalent evidence thereof.
Section 4. Reports
Lessee will provide promptly upon request such information as may be
reasonably requested by a Tax Indemnitee or required to enable a Tax Indemnitee
to timely and properly fulfill its tax filing requirements with respect to the
transactions contemplated by the Operative Documents, including, without
limitation, those requirements that relate to Taxes based on or measured by the
total time the Aircraft is located in a particular place irrespective of whether
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<PAGE>
the Aircraft is there for revenue, maintenance or storage purposes. If any
report, return or statement is required to be filed with respect to any Tax
which is subject to indemnification under Section 1, Lessee shall timely file
the same (except for any such report, return or statement which such Tax
Indemnitee intends to file or for income tax returns or any other return, report
or statement which the Tax Indemnitee is required by Law to file in its own
name). Lessee shall either file such report, return or statement and send a copy
of such report, return or statement to the Tax Indemnitee or, where Lessee is
not permitted to file such report, return or statement, it shall notify such Tax
Indemnitee of such requirement and prepare and deliver such report, return or
statement to such Tax Indemnitee in a manner satisfactory to such Tax Indemnitee
no later than 30 days prior to the time such report, return or statement is to
be filed. Lessee shall hold each Tax Indemnitee harmless from and against any
liabilities, including, without limitation, penalties, late payment charges,
notary charges, additions to tax, fines and interest arising out of any failure
to timely file or inaccuracy in any such return, statement, report or
information if such failure to timely file or inaccuracy is attributable to
Lessee's failure to fulfill its obligations hereunder. Lessee shall not have any
right to examine the income tax returns of any Tax Indemnitee. Lessee agrees to
use commercially reasonable efforts to obtain official receipts indicating the
payment by it of all foreign income and withholding Taxes that are subject to
indemnification under Section 1 and shall promptly deliver to the relevant Tax
Indemnitee each such receipt obtained by Lessee.
Section 5. Payment
Upon written demand of the Tax Indemnitee, Lessee shall pay any Tax for
which it is liable pursuant to Section 1 in immediately available funds directly
to the appropriate Government Entity or to such Tax Indemnitee, but in no event
shall such payment be required more than five days prior to the date such Tax is
due. Any such demand for payment from a Tax Indemnitee shall specify, in
reasonable detail, the calculation of the amount of the payment and the facts
upon which the right to payment is based and shall be verified upon the request
and at the expense of Lessee by the independent accountants for Lessor. Each Tax
Indemnitee shall promptly forward to Lessee any notice, bill or advice in the
nature of a notice or bill received by it concerning any Tax. As soon as
practical after each payment of any Tax by Lessee directly to any Government
Entity, Lessee shall furnish the appropriate Tax Indemnitee with the original or
a certified copy of a receipt for Lessee's payment of such Tax or such other
evidence of payment of such Tax as is reasonably acceptable to such Tax
Indemnitee. Lessee shall also furnish promptly upon request such data as any Tax
Indemnitee may require to enable such Tax Indemnitee to comply with the
requirements of any taxing jurisdiction.
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<PAGE>
Section 6. Contest
If a claim is made in writing against a Tax Indemnitee (whether on audit
or otherwise) for any Taxes that Lessee is required to pay or indemnify against
pursuant to Section 1, such Tax Indemnitee shall notify Lessee in writing within
30 Business Days of the receipt of such claim, provided that a failure to so
notify will not diminish or relieve Lessee of any obligations under Section 1,
unless such failure is willful and the failure precludes a contest. If requested
by Lessee in accordance with Section 1 and in writing within 30 days after
receipt by Lessee of the notice described in the preceding sentence, such Tax
Indemnitee shall in good faith and with due diligence contact (including
pursuing all administrative and judicial appeals) in the name of Tax Indemnitee
or, if permitted by law and requested by Lessee and reasonably acceptable to
such Tax Indemnitee in the name of Lessee, the validity, applicability or amount
of such Taxes in appropriate administrative or judicial proceedings, provided
that (1) prior to taking such action Lessee shall have agreed to pay to Tax
Indemnitee promptly after written demand all out-of-pocket costs and expenses
that Tax Indemnitee may incur in connection with contesting such claim,
including, without limitation, all reasonable legal and accountant's fees and
disbursements and costs of administrative and judicial proceedings, and the
amount of any interest or penalties that may be attributable to and payable as a
result of contesting such claim, and such Tax Indemnitee shall not be required
to continue any contest or waive any indemnity claims if Lessee does not make
such payments promptly after receiving notice of the amounts due, (2) if such
contest is to be initiated by the payment of, and the claiming of a refund for
such Taxes, Lessee shall have advanced Tax Indemnitee sufficient funds (on an
interest-free basis) to make such payment, (3) no Event of Default has occurred
and is continuing, (4) the action to be taken will not result in a material risk
of sale, forfeiture or loss of Lessor's title to the Aircraft (unless Lessee
provides a bond or other security satisfactory to Lessor), (5) prior to
commencing any action, Lessee acknowledges its liability hereunder for the Taxes
being contested and (6) at Tax Indemnitee's request, Lessee shall provide to Tax
Indemnitee a written opinion of independent tax counsel selected by such Tax
Indemnitee that there is a reasonable basis for such contest. Notwithstanding
that the conditions set forth in clauses (1), (2), (3), (4), (5) and (6) above
may have been satisfied, Tax Indemnitee, after consulting in good faith with
Lessee, may elect not to pursue any contest or proceeding pursuant to the
preceding sentence or elect to discontinue (by settlement or otherwise) any such
contest or proceeding commenced pursuant to the preceding sentence, but such
election shall constitute a waiver by Tax Indemnitee of any right to payment or
indemnification pursuant to Section 1 with respect to the adjustment that was
the subject of such proposed contest or proceeding (and any other adjustment the
5
<PAGE>
contest of which is precluded by such failure to contest) and, if Lessee has
theretofore paid or provided Tax Indemnitee with funds to pay any amount with
respect to such adjustments, Tax Indemnitee shall promptly repay such amount to
Lessee. If Tax Indemnitee shall obtain a refund in whatever form of all or any
part of any Taxes that Lessee shall have paid or reimbursed to Tax Indemnitee
hereunder, Tax Indemnitee shall, provided that no Event of Default shall have
occurred and be continuing, pay to Lessee an amount that is equal to the sum of
the amount of such refund or credit, plus any interest received on such refund
attributable to any Taxes paid by, or with funds provided by, Lessee prior to
receipt of such refund, reduced by any Taxes incurred by Lessor by reason of the
receipt or accrual of such refund and interest and net of any expenses described
in clause (1) of the second sentence of Section 1 that have not been previously
reimbursed, and increased by any Tax benefit realized by Tax Indemnitee as a
result or any payment by Tax Indemnitee made pursuant to this sentence, provided
further that, if, at the time of such payment an Event of Default shall have
occurred and be continuing, Tax Indemnitee shall hold the amount of such payment
as security for the obligations of Lessee to Tax Indemnitee under the Lease, and
at such time as there shall not be continuing any such Event of Default, shall
pay such amount to the Lessee. Tax Indemnitee hereby agrees that it will inform
Lessee of the time and place of, and Tax Indemnitee will not object to Lessee's
presence at, any proceeding conducted pursuant to this Section 6 if in its good
faith discretion it determines that such proceeding will not involve any matters
unrelated to Taxes that are the subject of Section 1 and that it will not
otherwise adversely affect the Tax Indemnitee, provided that Lessee's presence
also must be allowed by applicable law and provided further that the conditions
set forth in clauses (1), (2), (3), (4), (5) and (6) above shall have been, and
shall continue to be satisfied.
Section 7. Tax Savings
If an Indemnified Party or Tax Indemnitee determines in its good faith
that it has actually recognized a Tax benefit (other than a foreign tax credit)
as a result of or with respect to any Taxes paid or indemnified against by
Lessee under Section 1 (whether by way of deduction, credit or otherwise), such
Indemnified Party or Tax Indemnitee shall pay to Lessee, promptly after
recognition of such Tax benefit, an amount that, after subtraction of any
further Tax savings that such Indemnified Party or Tax Indemnitee recognizes as
a result of the payment thereof, is equal to the amount of such Tax benefit,
provided that if any such Tax benefit is subsequently disallowed, lost or
reduced, Lessee shall, upon written notice from such Indemnified Party or Tax
Indemnitee, promptly repay the amounts paid to the Lessee with respect to such
Tax benefit, provided further that the amount payable under this Section 7 to an
Indemnified Party or Tax Indemnitee, as the case may be, shall not exceed the
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amount of all prior payments by Lessee to such Tax Indemnitee or Indemnified
Party, as the case may be, under Section 1 hereof, or Section 9 of the Lease, as
the case may be, and any excess shall be carried forward to reduce pro tanto any
future obligations of Lessee to such Tax Indemnitee or Indemnified Party under
Section 1 hereof, or Section 9 of the Lease, as the case may be, provided
further that such Indemnified Party or Tax Indemnitee shall not be obligated
under this Section 7 to pay Lessee any amounts with respect to Tax benefits
realized as a result of any Taxes not paid or indemnified against by Lessee.
Notwithstanding anything to the contrary in Section 1, if at the time any
payments would otherwise be due to Lessee pursuant to this Section 7, an Event
of Default shall have occurred and be continuing, such Indemnified Party or Tax
Indemnitee shall hold the amount of such payment as security for the obligations
of the Lessee to Lessor under the Lease and at such time as there shall not be
continuing any such Event of Default, shall pay such amount to Lessee.
Indemnified Parties and Tax Indemnitees shall use reasonable efforts in good
faith in filing their Tax returns and in dealing with taxing authorities to seek
and to promptly claim any such Tax benefit or savings and to minimize the Taxes
payable or indemnifiable by Lessee hereunder.
7
<PAGE>
Schedule 6
Conditions Precedent
Lease Agreement
(MSN 28869)
SCHEDULE 6
CONDITIONS PRECEDENT
Capitalized terms used but not defined herein (or in any annex hereto) shall
have the respective meanings, and shall be interpreted and construed in the
manner, set forth in the Lease Agreement (MSN 28869), dated as of June 27, 1997
(the "Lease Agreement"), between Boullioun Portfolio Finance I, Inc. and Western
Pacific Airlines, Inc., to which this document is a schedule.
The obligation of Lessor to lease the Aircraft to Lessee under this Lease
Agreement is subject to the fulfillment to the satisfaction of Lessor, and
Lessee shall procure such fulfillment, to the satisfaction of Lessor, on the
Delivery Date (or, if another date is specified below, on or prior to such date)
of the following conditions precedent:
Section 1. Agreements and Documents
The following documents, agreements, instruments or certificates
shall have been duly authorized, executed and delivered by the respective party
or parties thereto (other than Lessor), shall each be satisfactory in form and
substance to Lessor and shall be in full force and effect (unless expressly
provided otherwise) and in the English language, and executed counterparts shall
have been delivered to Lessor:
1.1 Lease Agreement
This Lease Agreement.
1.2 Acceptance Certificate
The Acceptance Certificate evidencing the delivery and acceptance of
the Aircraft, duly and properly completed and dated the Delivery Date.
1.3 Insurance Documents
(1) A certificate of insurance in the form of Exhibit B to the Lease
Agreement and which otherwise complies with the requirements of Section 11 of
the Lease Agreement, (2) a broker's letter in the form of Exhibit C to the Lease
Agreement from the Insurance Broker and which otherwise complies with the
1
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requirements of Section 11 of the Lease Agreement and (3) a certificate of
insurance evidencing compliance with Section 11.12 of the Lease Agreement.
1.4 [Intentionally Left Blank]
1.5 Legal Opinion
An opinion of each of (1) Lessee's counsel in form and substance
satisfactory to Lessor and dated the Delivery Date, such counsel to be
reasonably acceptable to Lessor, (2) Lessor's counsel in form and substance
satisfactory to Lessor and (3) Crowe & Dunlevy in form and substance
satisfactory to Lessor.
1.6 Process Agent Letter
A letter from the process agent appointed by Lessee pursuant to
Section 18.5 of the Lease Agreement accepting such appointment.
1.7 Officer Certificate
A certificate in the form of Exhibit H.
1.8 Financial Information
Copies of audited consolidated financial statements (including a
balance sheet, statement of cash flows and a profit and loss statement) of
Lessee, prepared in Dollars in accordance with GAAP, in reasonable detail and
setting forth in comparative form the respective figures as of the end of and
for the preceding fiscal year as certified by Lessee's independent public
accountants, including their certificate and accompanying comments.
1.9 [Intentionally Left Blank]
1.10 Lessee's Maintenance Program
Prior to the Scheduled Delivery Date, the Lessee's proposed
maintenance program for the Aircraft and such information reasonably requested
by Lessor regarding the proposed maintenance program (including all work cards
associated with maintenance checks and evidence that the Aviation Authority has
approved the proposed maintenance program), such program to comply with the
definition of "Approved Maintenance Program" in Section 2 of Schedule 1 to the
Lease Agreement and otherwise be satisfactory in form and substance to Lessor;
upon acceptance of the proposed maintenance program by Lessor, such maintenance
program shall become the "Approved Maintenance Program" for purposes of this
Lease Agreement and all other Operative Documents.
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1.11 [Intentionally Left Blank]
1.12 Novation Agreement
The Novation Agreement.
Section 2. First Rent Payment Made
Lessee shall have paid the first installment of Basic Rent when due
pursuant to Section 3.3 of the Lease Agreement.
Section 3. Security Deposit Paid or Letter of Credit Delivered
Lessee shall have (1) paid all installments of the Security Deposit
due on or before the Delivery Date pursuant to Section 4.1 of the Lease
Agreement or (2) delivered to Lessor a Letter of Credit, which Letter of Credit
complies with the requirements of Section 4.4 of the Lease Agreement.
Section 4. Registration of Aircraft
The Aircraft shall have been duly registered with the Aviation
Authority and a certificate of airworthiness shall have been issued by the
Aviation Authority and Lessor shall have received evidence of such registration
and issuance.
Section 5. Filings, Etc.
Lessor shall have received evidence that on the Delivery Date all filings,
registrations, recordings and other actions have been or will be taken which are
necessary or advisable to ensure the validity, effectiveness and enforceability
of the Lease Agreement and the other Operative Documents and to protect and
perfect the rights and interest of Lessor and the Financing Parties in the
Aircraft and the Operative Documents.
Section 6. Authorizations
Evidence of the issuance of each Authorization which may be required in
relation to, or in connection with, (1) Lessee engaging in air transport and
carrying on scheduled passenger and cargo service in each case as presently
conducted, (2) the operation of the Aircraft in compliance with applicable Law,
(3) permitting the execution and delivery by Lessee of the Lease Agreement, the
Acceptance Certificate and each other Operative Document and the performance by
Lessee of its obligations hereunder and thereunder.
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Section 7. No Default
No Default, Event of Loss, or event, condition or circumstance that would
with the giving of notice or passage of time become or give rise to an Event of
Loss, shall have occurred.
Section 8. Section 1110
Lessor shall have received evidence that Lessor is entitled to the
protection of Section 1110 of the United States Bankruptcy Code in connection
with its right to take possession of the Aircraft in the event of a case under
Chapter 11 of the United States Bankruptcy Code in which Lessee is a debtor.
Section 9. Matters Related to the Novation Agreement
All conditions precedent to Lessor's obligation to purchase the Aircraft
under the Novation Agreement shall have been met to the satisfaction of Lessor
and the Aircraft shall have been delivered to and accepted by Lessor pursuant to
the Airframe Manufacturer Purchase Agreement.
Section 10. Other Matters
All other matters incident to the Lease Agreement and the other Operative
Documents and the lease of the Aircraft shall be reasonably satisfactory to
Lessor.
The conditions precedent specified in this Schedule 6 are for the sole benefit
of Lessor and may be waived or deferred in whole or in part and with or without
condition by Lessor. If any of such conditions is not satisfied or waived in
writing by Lessor on and as of the Delivery Date and Lessor, in its sole
discretion, nonetheless proceeds with the delivery of the Aircraft to Lessee
hereunder, Lessee hereby covenants and agrees to satisfy, or cause the
satisfaction of, such outstanding conditions within 15 days after the Delivery
Date.
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Exhibit A
Lease Supplement
Lease Agreement
(MSN 28869)
EXHIBIT A
ACCEPTANCE CERTIFICATE
(MSN 28869)
ACCEPTANCE CERTIFICATE (MSN 28869), dated [_______], 199[__] (this
"Acceptance Certificate"), by Western Pacific Airlines, Inc. ("Lessee").
Reference is made to Lease Agreement (MSN 28869), dated as of June 27, 1997 (the
"Lease Agreement"), between Lessee and Boullioun Portfolio Finance I, Inc.
("Lessor"). Capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Lease Agreement.
1. Lessee hereby irrevocably and unconditionally accepts and leases from Lessor,
under and for all purposes of the Lease Agreement and the other Operative
Documents, the Aircraft, as more particularly defined in the Lease Agreement,
but including the following:
One Boeing Model 737-33R airframe bearing manufacturer's serial number
28869 and FAA Registration Number N964WP, together with (a) two
CFM56-3C-1 engines bearing manufacturer's serial numbers 858550 and
858552, respectively, (b) APU bearing manufacturer's serial number
P-100814 and (c) three landing gear assemblies bearing manufacturer's
serial numbers MC05771P2887 (LM), MC05772P2887 (RM) and T5598P2887 (N).
2. Lessee confirms that the "Delivery Date" for all purposes of the Lease
Agreement is the date set forth in the opening paragraph of this Acceptance
Certificate and confirms that the Lease Term shall commence on the Delivery
Date.
3. Lessee hereby confirms its agreement to pay Rent throughout the Lease Term in
the amounts, to the Persons and otherwise in accordance with the provisions of
Section 3 of the Lease Agreement and in accordance with the other provisions of
the Lease Agreement and the other Operative Documents.
4. THIS ACCEPTANCE CERTIFICATE SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS ENTERED INTO IN THAT STATE BETWEEN CITIZENS OF THAT
STATE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE WITHOUT REFERENCE TO ANY
RULES GOVERNING CONFLICTS OF LAWS.
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Lessee has caused this Acceptance Certificate to be executed by its duly
authorized officer as of the day and year first above written.
WESTERN PACIFIC AIRLINES, INC.
By:
Title:
Confirmed:
BOULLIOUN PORTFOLIO FINANCE I, INC.
By:
Title:
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Exhibit B to
Certificate of
Insurance
Lease Agreement
(MSN 28869)
EXHIBIT B
FORM OF CERTIFICATE OF INSURANCE
ISSUED TO: NAMED INSURED:
BOULLIOUN PORTFOLIO WESTERN PACIFIC AIRLINES, INC.
FINANCE I, INC. (Lessee)
(Lessor) 2864 South Circle Drive,
500-108th Avenue N.E. Suite 1100
25th Floor Colorado Springs, CO 80906
Bellevue, WA 98004
[Security Agent]
COVERAGE: The Insurers acknowledge advice of a certain Lease Agreement (MSN
28869) dated as of June 27, 1997 by and between Boullioun Portfolio Finance I,
Inc. ("Lessor") and Western Pacific Airlines, Inc. ("Lessee") with respect to
one (1) Boeing 373-33R Aircraft, U.S. Registration No. N964WP, Manufacturer's
Serial No. 28869 and two (2) CFM-56C-1 engines, serial nos. 858550 and 858552.
[Reference loan documents and define agent and lenders as "Financing
Parties" and agent as "Agent"]
This Certificate of Insurance is issued subject to the terms and conditions of
the referenced policies. This Certificate neither affirmatively nor negatively
amends, alters or extends the coverage afforded by any policy described herein.
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INSURERS HULL/SPARES/LIABILITY
[DESCRIBE]
BRIEF DESCRIPTION OF INSURANCE
A. WORLDWIDE COMPREHENSIVE LIABILITY COVERAGE
Combined Single Limit of Liability each occurrence and annual aggregate
(where applicable) for Bodily Injury and/or Property Damage Liability,
including War liability, Aircraft Passenger Liability, Aircraft Public
Liability,, Aircraft Property Damage Liability, Passenger Baggage
Liability, Airport Liability, Hangarkeepers, Premises, Products,
Contractual, Cargo and Mail Liability.
B. WORLDWIDE HULL/SPARES - "ALL RISK"
Physical Loss or Damage, subject to policy terms, conditions,
limitations, exclusions, and deductibles, for aircraft or spare parts
owned by or leased under written contract to Western Pacific Airlines,
Inc.
C. HULL - "WAR RISK"
Physical Loss or Damage arising from risks of War and Allied Perils (as
per form RJM Airline 1A 11/94 (LSW 555B) wording plus AVN.65 clause) as
more fully described in the policy language. The available limit may be
affected by the annual aggregate limit of [$[ ]*] for all aircraft. In
no event will more than seven days notice of cancellation be afforded
with respect to this coverage. Coverage is provided on a Worldwide
basis.
SPECIAL PROVISIONS
A. GENERAL PROVISIONS
1. Coverage is of the type usually carried by corporations engaged in the
same or a similar business, similarly situated with Lessee and owning
and operating similar aircraft and engines, and covering risks of the
kind customarily insured against by such corporations.
2. The insurance shall not be invalidated by any action or inaction by
Lessee and insure the interest of Lessor and each Financing Party
regardless of any breach or violation by Lessee or any other named
insured or additional insured of any warranty, declaration or condition
contained in such policies.
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3. Neither Lessor nor any Financing Party shall have any liability for
premiums, commissions, calls or assessments with respect to such
policies.
4. Insurers hereon waive any right to any set-off or counterclaim or any
other deduction, whether by attachment or otherwise, in respect of any
liability of Lessor, any Financing Party or any other Additional
Insureds.
5. The Lessor and Security Agent will be provided thirty (30) days notice
of any cancellation or material change in policy terms or conditions
except with respect to "war risk" coverage for which the notice of
cancellation period shall be seven (7) days or whatever shorter period
may be customarily obtainable.
6. The insurers waive their rights of subrogation with respect to this
lease against Lessor, each Financing Party and each other additional
insured.
7. All sums expressed herein are in U.S. dollars.
B. HULL COVERAGE - "ALL RISK" AND "WAR RISK"
1. Agreed Value: $[_____]* each aircraft
2. Spares: $[ ]* any one location/$[ ]* any one transit
3. The War Risk Underwriters and the All Risk Underwriters agree to a
50/50 claim funding agreement in the event of any dispute as to which
insurance is applicable.
4. The hull deductible applicable to the aircraft is the current standard
market deductible of $[ ]*.
5. The Lessor and each Financing Party and their respective successors and
assigns are named as Additional Insureds.
6. A loss will be settled jointly with Lessor and Lessee, and will be
payable in Dollars to [Lessor/Security Agent], as sole loss payee, to
the extent of the Agreed Value, for the account of all interests.
C. LIABILITY INSURANCE
1. Limit: Not less than $[ ]* per occurrence except Personal Injury which
has a $[ ]* Limit.
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2. Lessor and each Financing Party and their respective affiliates and
their respective shareholders, subsidiaries, agents, employees,
officers, directors, successors and assigns to which this certificate
pertains are Additional Insureds as their respective interests may
appear.
3. The insurance evidenced hereon is primary to and not contributory with
any separate insurance maintained by Lessor or any Financing Party.
4. All the provisions of this coverage, except with respect to the limits
of liability, shall operate in the same manner as if there were a
separate policy covering each such insured.
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<PAGE>
Exhibit C to
Broker's Letter
Lease Agreement
(MSN 28869)
EXHIBIT C
FORM OF INSURANCE BROKER'S LETTER
[_____], 1997
Boullioun Portfolio Finance I, Inc.
c/o Boullioun Aircraft Holding Company, Inc.
500 - 108th Avenue N.E., 25th Floor
Bellevue, Washington 98004
[Security Agent]
Re: Western Pacific Airlines Lease Agreement (MSN 28869)
dated as of June 27, 1997 For One B737-33R Aircraft U.S.Registration
No. N964WP Manufacturer's Serial No. 28869
As the insurance broker for Western Pacific Airlines, Inc. (the "Client"), we
have been requested to provide you with this letter with respect to certain
insurance placed by us on the Client's behalf.
In connection with this letter, we have read Section 11 and Exhibits B and C of
the agreement (and the related definitions) between the Client and you dated as
of June 27, 1997 ("Agreement"), dealing with insurance requirements, a copy of
which is attached (the "Insurance Covenant"). We have not read or reviewed the
balance of the Agreement, including without limitation any provision thereof
which might relate to or influence the meaning of the language in the Insurance
Covenant.
We have placed the insurance which is the subject of this letter after
consultation with the Client and based upon the Client's instructions, which may
not have contemplated or reflected the Insurance Covenant. Terms of coverage,
including limits and deductibles are based upon information furnished to us by
the Client, which information we have not independently verified.
On the basis of the foregoing and subject to the other qualifications stated in
this letter, we are pleased to confirm the following:
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1. The insurance policy(ies) listed on Exhibit A hereto (the "Policies")
is (are) in full force and effect as of the date hereof;
2. As of this date, we have not received any notice of cancellation or
non-renewal with respect to the Policies and are not aware of any
circumstances which would make the giving of such a notice by an
insurer likely;
3. In our view, based upon our understanding of the language of the
Insurance Covenant, the Policies are consistent with the minimum
requirements of the Insurance Covenant.
4. Based upon our experience as insurance brokers, the coverages provided
by the Policies are consistent with those normally provided to
companies similarly situated to the Client.
5. We will endeavor to advise you of Notice of Cancellation by Insurers as
soon as practicable upon receiving the advice from the insurance
carrier.
6. We will endeavor to advise you if the insured does not provide us with
renewal instructions 14 days prior to expiration.
7. We will endeavor to advise you if we (MMI) cease to be the insured's
appointed broker as soon as practicable.
We express no view and assume no liability with respect to the solvency or
future ability to pay of any of the insurance companies which have issued the
Policies.
We assume no obligation to advise you of any developments regarding the Policies
subsequent to the date hereof. This letter is given on the condition that you
forever waive any liability against us based upon the placement of the Policies
and/or the statements made herein with the exception only of gross negligence or
fraud.
This letter may not be republished by you or used for any other purpose without
our prior written consent.
Very truly yours,
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Exhibit D to
Lease Agreement
(MSN 28869)
EXHIBIT D
[Intentionally Left Blank]
<PAGE>
Exhibit E
Lease Agreement
(MSN 28869)
EXHIBIT E
[Intentionally Left Blank]
<PAGE>
Exhibit F
Aircraft Status
Report
Lease Agreement
(MSN 28869)
EXHIBIT F
AIRCRAFT STATUS REPORT
(MSN 28869)
MONTH ENDING:_________________
AIRFRAME
AIRCRAFT S/N __________ TYPE ___________ REG.____________
TOTAL FLIGHT HOURS __________ TOTAL CYCLES ____________
FLT. HOURS FOR MONTH ____________ CYCLES FOR MONTH ___________
DATE AND TIME APPROX. DATE AND
LAST "C" CHECK _____________ TIME NEXT "C" CHECK ____________
ENGINES ENGINE 1 ENGINE 2
- ---------------------------------------------------------------------
S/N
TOTAL FLIGHT HRS
TOTAL CYCLES
FLIGHT HRS FOR MONTH
CYCLES FOR MONTH
TIME/CYCLES SLSV
CURRENT LOCATION
Technical Activity during relevant period
1. Major Maintenance (including C-Check or Structural check) 2. Engine, APU or
Landing Gear Maintenance - indicate cause 3. ADs complied with
4. Other significant Damages, Repairs or Modifications - indicate cause and
attach any copies of repair or Modification drawings or data in respect of
unique or nonstandard repair of Modification to the Aircraft or any Part.
<PAGE>
Exhibit G
Letter of Credit
Lease Agreement
(MSN 28869)
EXHIBIT G
LETTER OF CREDIT
(MSN 28869)
______________, 199[__]
Letter of Credit No. _______
Boullioun Portfolio Finance I, Inc.
c/o Boullioun Aircraft Holding Company, Inc.
500-108th Avenue N.E.,
Twenty-Fifth Floor
Bellevue, Washington 98004
Attention: [______]
Dear Sir or Madam:
We hereby establish in your favor, at the request and for the account of
[_________] (the "Company"), our irrevocable letter of credit in the amount of
US$[________] (the "Stated Amount") available against presentation of (a) a
sight draft drawn on us dated on or before the date of such presentation and in
the form of the Exhibit A hereto and (b) a certificate dated the date of such
draft in the form of Exhibit B hereto, in each case, signed by an individual
being or purporting to be your authorized representative.
Such presentation must be made on a Business Day to our Letter of Credit
Department in [New York] at [Bank's address] (Facsimile Number: [__________];
Confirmation Number: [______________])) on or before [___________] or if such
date is not a Business Day, then on or before the following Business Day.
"Business Day" means a day other than a Saturday, a Sunday or a day on which
banks are required or authorized to be closed in New York, New York. Any such
presentation may be made by means of telefacsimile and we shall be entitled to
rely thereon as if such draft and certificate were presented in person, provided
such draft and certificate are in conformity with the requirements for the same
as set forth herein, but for the requirement of an original signature. In
addition, any draft and certificate hereunder may be presented by mail, express
courier (e.g., DHL) or in person.
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A draft presented hereunder may be in an amount of up to the Stated Amount. More
than one draft may be presented hereunder, subject to the aggregate amount of
such drafts not exceeding the Stated Amount.
We hereby agree with you that each draft presented hereunder in compliance with
the terms hereof will be duly honored by our payment to you (or in accordance
with your instruction) of the amount of such draft in immediately available
funds:
(a) not later than 3:00 p.m., [New York] time, on the day such draft is
presented to us as aforesaid, if such presentation is made to us at or before
12:00 noon, [New York] time, or
(b) not later than 3:00 p.m., [New York] time, on the Business Day following the
day such draft is presented to us as aforesaid, if such presentation is made to
us after 12:00 noon, [New York] time.
Upon the earlier of (a) [__________], and (b) irrevocable payment by us of the
entire Stated Amount (in one or more drawings), this Letter of Credit shall
automatically terminate.
Except as otherwise provided herein, this Letter of Credit shall be governed by
and construed in accordance with the Uniform Customs and Practice for
Documentary Credits (1993 Revision), ICC Publication No. 500 (the "UCP").
Notwithstanding Article 17 of the UCP, if this Letter of Credit expires during
an interruption of business as described in said Article 17, we agree to effect
payment if a drawing is made against this Letter of Credit within thirty (30)
days after the resumption of business.
Notwithstanding Article 48 of the UCP, this Letter of Credit may be transferred
and assigned in its entirety more than once.
Upon request, but no more than once in any thirty day period, we will confirm to
you in writing that this Letter of Credit is in full force and effect and is
enforceable against us in accordance with its terms.
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<PAGE>
This Letter of Credit sets forth in full the terms of our undertaking and shall
not in any way be modified, amended or amplified by reference to any documents
instruments or agreements referred to herein, or in which this Letter of Credit
is referred to or to which this Letter of Credit relates and any such reference
shall not be deemed to incorporate herein by reference any such documents,
instruments and agreements.
Very truly yours,
[BANK]
By
Name:
Title:
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<PAGE>
Exhibit A to
Letter of Credit
No. _______________
SIGHT DRAFT
Irrevocable Letter of Credit No: ____ Date of Draft: _______, 19__
To the Order of BOULLIOUN PORTFOLIO FINANCE I, INC.
Pay [_____________] DOLLARS
At SIGHT by wire transfer of such amount to the account of [_________] at
[Bank, Address] (ABA number: [___________]; account number: [__________])
DRAWN UNDER [ISSUING BANK] LETTER OF CREDIT NO. __________
TO: [ISSUING BANK]
[Presentment Address]
BOULLIOUN PORTFOLIO FINANCE I, INC.
By:
Name:
Title:
[Endorse on back]
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<PAGE>
Exhibit B to
Letter of Credit
No. _______________
DRAWING CERTIFICATE
Irrevocable Letter of Credit No.
The undersigned, a duly authorized representative of Boullioun
Portfolio Finance I, Inc. ("Beneficiary"), hereby certifies to [ISSUING BANK]
(the "Bank") with reference to Irrevocable Letter of Credit No. [__________]
(the "Letter of Credit"), issued by the Bank in favor of Beneficiary, as
follows:
1. Beneficiary is presenting a sight draft herewith to draw funds under
the Letter of Credit in the amount of US$[__________].
2. Demand for payment under the Letter of Credit is being made prior to
the expiration thereof.
3. An Event of Default has occurred and is continuing under that
certain Lease Agreement (MSN 28869), dated as of June [__], 1997, between
Boullioun Portfolio Finance I, Inc. and Western Pacific Airlines, Inc.
IN WITNESS WHEREOF, Beneficiary has caused this certificate and the
accompanying draft to be executed as of the [__________] day of [__________],
199__.
BOULLIOUN PORTFOLIO FINANCE I, INC.
By:
Name:
Title:
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<PAGE>
Exhibit H
Officer's Certificate
Lease Agreement
(MSN 28869)
EXHIBIT H
OFFICER'S CERTIFICATE
(MSN 28869)
I, __________________________, the [__________________] of WESTERN PACIFIC
AIRLINES, INC. (the "Company"), a corporation duly organized under the laws of
the State of Delaware, in connection with that certain Lease Agreement (MSN
28869), dated as of June [__], 1997, between Boullioun Portfolio Finance I,
Inc.("Lessor") and the Company (the "Lease Agreement") hereby certify that
attached hereto is a true and correct copy of the following documents; each has
not been amended since the date specified therein and remain in full force and
effect as of the date of this Certificate:
1. The [Articles of Association, By-Laws] and any other organizational or
charter documents of the Company.
2. Resolutions of the Company approving the terms of, and the transactions
contemplated by, the Lease Agreement and the other Operative Documents
(as defined in the Lease Agreement), authorizing the execution,
delivery and performance by the Company of the Lease Agreement and the
other Operative Documents.
I further certify that following are the names of, the positions held by, and
the specimen signatures of, the Officers of the Company duly authorized by the
Company to execute and deliver the Lease Agreement and all other documents and
instruments in connection therewith:
Name Position Specimen Signature
<PAGE>
IN WITNESS WHEREOF, this Certificate is issued as of this _____ day of [_____],
199__.
WESTERN PACIFIC AIRLINES, INC.
By:
Title:
<PAGE>
================================================================================
AIRCRAFT LEASE AGREEMENT
Dated as of June 26, 1997
BETWEEN
GATX THIRD AIRCRAFT CORPORATION,
as Lessor,
AND
WESTERN PACIFIC AIRLINES, INC.,
as Lessee,
Concerning:
One Boeing 737-300 Aircraft
and
Two CFM56-3C1 Turbofan Engines.
================================================================================
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
SECTION 1. DEFINITIONS.......................................1
SECTION 2. DELIVERY AND ACCEPTANCE...........................7
2.1. Time and Place........................................7
2.2. A LETTING ONLY........................................7
2.3. LESSOR'S CONDITIONS TO DELIVERY.......................8
2.4. LESSEE'S CONDITIONS TO DELIVERY......................10
SECTION 3. TERM.............................................10
SECTION 4. RENT.............................................11
4.1. BASIC RENT...........................................11
4.2. SUPPLEMENTAL RENT....................................11
4.4. SECURITY DEPOSIT.....................................12
4.5. MANNER AND PLACE OF PAYMENT..........................12
SECTION 5. REPRESENTATIONS AND WARRANTIES;
COVENANTS OF THE PARTIES ........................14
5.L. LESSOR'S REPRESENTATIONS AND WARRANTIES
AND DISCLAIMER.......................................14
5.2. LESSEE'S REPRESENTATIONS AND WARRANTIES..............17
5.3. COVENANTS OF LESSEE..................................20
5.4. COVENANTS OF LESSOR..................................22
6.6. MAINTENANCE..........................................27
6.7. INSIGNIA AND NOTICES.................................28
6.8. Use of Aircraft......................................28
SECTION 7. INSPECTION.......................................32
SECTION 9. REPLACEMENT AND POOLING OF PARTS;
Alterations, Modifications
AND ADDITIONS...................................34
9.1. REPLACEMENT OF PARTS.................................34
9.2. TITLE TO REPLACED AND REPLACEMENT PARTS..............34
9.3. POOLING..............................................34
9.4. ALTERATIONS, MODIFICATIONS AND ADDITIONS.............35
9.5. TITLE TO PARTS.......................................35
SECTION 13. GENERAL INDEMNIFICATION........................46
SECTION 14. LIENS...........................................47
SECTION 15. RETURN OF AIRCRAFT AND RECORDS..................48
SECTION 16. EVENTS OF DEFAULT...............................48
17.2. FURTHER RIGHTS......................................53
17.3. REMEDIES CUMULATIVE.................................53
SECTION 18. MISCELLANEOUS...................................54
18.1. CONSTRUCTION AND APPLICABLE LAW.....................54
18.2. NOTICES.............................................54
18.3. LESSOR'S RIGHT TO PERFORM...........................54
18.4. ASSIGNMENT BY LESSOR................................55
18.5. SERVICE OF PROCESS; WAIVER OF IMMUNITIES............55
18.7. ARBITRATION.........................................57
18.8. SURVIVAL............................................57
18.9. ENTIRE AGREEMENT; COUNTERPARTS......................57
18.10. SUCCESSORS AND ASSIGNS.............................58
18.11. FURTHER ASSURANCES.................................58
<PAGE>
AIRCRAFT LEASE AGREEMENT
THIS AIRCRAFT LEASE AGREEMENT, dated as of June 26, 1997 ("Lease"),
between GATX THIRD AIRCRAFT CORPORATION, a Delaware corporation, ("Lessor") and
WESTERN PACIFIC AIRLINES, INC., a Delaware corporation, ("Lessee").
W I T N E S S E T H :
WHEREAS, Lessee desires to lease from Lessor and Lessor is willing to
lease to Lessee the Aircraft (this and all other capitalized terms being defined
below) upon the terms and conditions set forth in this Lease;
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, Lessor and Lessee hereby agree as follows:
SECTION 1. DEFINITIONS
The following terms shall have the following meanings for all
purposes of this Lease and such meanings shall be equally applicable to both the
singular and the plural forms of the terms defined:
"ADDITIONAL INSUREDS" shall mean the Lessor, any Assignee and their
respective officers, directors, servants, agents and employees and the
successors and assigns of each of the foregoing.
"AIRCRAFT" shall mean the Airframe described in the Certificate of
Acceptance together with, as the context requires, either the engines installed
thereon or the Engines, whether or not installed thereon.
"AIRCRAFT RECORDS" means the records, manuals and logbooks relating
to the Aircraft specified in Appendix II to Certificate of Acceptance No. 1
(presently Exhibit A hereto).
"AIRFRAME" shall mean the Boeing 737-300 airframe described in the
Certificate of Acceptance (except for any engines or Engines installed thereon),
and (except as otherwise provided in Section 9.3 hereof) any and all Parts
incorporated or installed therein or attached thereto or, so long as title
thereto shall remain vested in Owner in accordance with the terms of Section 9
hereof, removed therefrom.
"APU" shall mean the Auxiliary Power Unit installed on the Aircraft
as more specifically described in the Certificate of Acceptance.
"ASSIGNEE" shall mean any transferee of all or any portion of
Lessor's interest in the Aircraft or this Lease as set forth in Section 18.5
below.
"AUTHORIZED MAINTENANCE PERFORMER" is defined in Section 6.6 below.
"BASIC RENT" shall mean the rent payable pursuant to Section 4.1
hereof.
"BASIC RENT PAYMENT DATE" shall mean each date on which Basic Rent is
payable hereunder in accordance with Section 4.1 hereof.
"BOEING" shall mean The Boeing Company of Seattle, Washington.
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"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
day on which commercial banking institutions in New York, Denver or Chicago are
authorized by law to be closed.
"CFMI" shall mean CFM International, Inc.
"CERTIFICATE OF ACCEPTANCE" shall mean the Certificate of Acceptance,
substantially in the form of Exhibit A hereto, to be entered into by Lessor and
Lessee on the Delivery Date for the purpose of leasing the Items of Equipment
pursuant to the terms of this Lease. The Certificate of Acceptance shall be
deemed to incorporate by reference all of the provisions of this Lease to the
same extent as if such provisions were fully set forth therein.
"CYCLE" shall mean each combination of the take-off and landing of
the Airframe, or in the case of an Engine, the airframe on which such Engine is
then installed.
"DEBT" shall mean any obligation for the payment of borrowed money or
deferred purchase price.
"DEFAULT" shall mean any event or condition which, with the lapse of
time or the giving of notice or both, would constitute an Event of Default.
"DELIVERY DATE" with respect to an Aircraft or an Item of Equipment
shall mean the date on which such Aircraft or Item is delivered to and accepted
by Lessee pursuant to the provisions of Section 2 hereof.
"DOLLARS" and "$" shall mean the lawful currency of the United
States of America.
"ELIGIBLE SUBLESSEE" shall mean any financially responsible
commercial air carrier holding an airline operating certificate in the United
States, Canada, Western Europe, Japan or Australia.
"ENGINE" shall mean: (a) any of the two CFM56-3C1 turbofan engines
described in the Certificate of Acceptance whether or not from time to time
thereafter installed on the Airframe; (b) any engine which may from time to time
be substituted or be a replacement for any such engine pursuant to Section 11
hereof; and (c) except as otherwise provided in Section 9.3 hereof, any and all
Parts incorporated or installed in or attached thereto or removed therefrom, so
long as title thereto shall remain vested in the Lessor in accordance with the
terms of Section 9 hereof; provided, however, that the term "Engine" shall not
include any engine with respect to which this Lease shall have been terminated.
"EQUIPMENT" shall mean, as the context may require, any or all of the
Airframe, the Engines and the Parts, and an "Item of Equipment" or "Item" shall
mean, as the context may require, any one of the foregoing.
"EVENT OF DEFAULT" shall have the meaning specified in Section 16
hereof.
"EVENT OF LOSS" shall mean, with respect to any Item of Equipment,
any of the following: (a) loss of such Item or the use thereof due to theft,
disappearance for a period in excess of 90 days (or such shorter period ending
on the date on which an insurance settlement has been reached on the basis of a
total loss), destruction, damage beyond economic repair or rendition of such
Item permanently unfit for normal use for any reason whatsoever; (b) any damage
to such Item which results in an insurance settlement with respect to such Item
2
<PAGE>
on the basis of a total loss; (c) the condemnation, confiscation or seizure of,
or requisition of title to, such Item by any government or any political
subdivision thereof; (d) the use of the Aircraft in the normal cause of
passenger operations shall have been prohibited by applicable law, rule or
regulation for a period in excess of 180 days (or the balance of the Term, if
less). An Event of Loss with respect to the Aircraft shall be deemed to have
occurred if an Event of Loss occurs with respect to the Airframe.
"FAA" shall mean, as context requires, the United States Federal
Aviation Administration and/or the Administrator of the United States Federal
Aviation Administration, or any person, governmental department, bureau,
commission or agency succeeding to the functions of either of the foregoing.
"FAIR MARKET RENTAL" shall mean the rental which would apply in an
arm's length transaction between a willing lessor and a willing lessee for the
Aircraft assuming it is in the condition required hereunder and for the period
of time in question.
"FAR" or "FEDERAL AVIATION REGULATION" shall mean one or more of the
Federal Aviation Regulations issued by the FAA.
"FEDERAL AVIATION ACT" shall mean the United States Federal Aviation
Act of 1958, as amended, as in effect on the date of this Lease, or any
successor or substituted legislation at the time in effect and applicable.
"FLIGHT HOUR" shall mean each hour or portion thereof during each
period commencing with liftoff from the runway and concluding when the Aircraft
or, in the case of an Engine, the airframe on which such Engine is then
installed touches down upon landing.
"GATX" shall mean GATX Capital Corporation, Four Embarcadero
Center, San Francisco, California 94111.
"HEREBY", "HEREIN", "HEREOF", "HEREUNDER", and other like words shall
refer to this Lease as originally executed or as amended, modified or
supplemented pursuant to the applicable provisions hereof, including, without
limitation, as supplemented by the Certificate of Acceptance.
"INCENTIVE RATE" shall mean a rate of interest equal to the Prime
Rate on the due date of any payment with respect to which interest shall accrue
hereunder, plus 4.0% per annum, but in no event greater than the maximum rate
permitted by applicable law.
"INSURED VALUE" with respect to an Aircraft shall mean the amount
specified on Exhibit E hereto.
"ITEM OF EQUIPMENT" or "ITEM" is defined under Equipment.
"LEASE" shall mean this Agreement and, where applicable, the
Certificate of Acceptance.
"LEASE DOCUMENTS" shall mean this Agreement and the Certificate of
Acceptance.
"LEASE TERMINATION DATE" shall mean the date on which the Term
expires.
"LESSOR LIENS" shall mean any Lien with respect to any Item which
results from (a) nonpayment by Lessor of any Taxes imposed on it (except Taxes
as to which Lessee is obliged hereunder to indemnify Lessor), (b) claims against
Lessor not related to the transactions described in this Lease or the Purchase
3
<PAGE>
Agreement or the Lessorship of the Items of Equipment, or (c) an affirmative act
of Lessor not related to the transactions described in this Lease or the
Purchase Agreement.
"LESSOR'S COST" is defined in the Certificate of Acceptance.
"LIEN" shall mean any assignment by way of security, mortgage,
pledge, lien, charge, encumbrance, lease, exercise of rights or security
interest.
"MAINTENANCE PROGRAM" shall mean Lessee's FAA-approved 737-300
overhaul and maintenance program, included in the Lessee's maintenance manual
and including all subsequent revisions thereto.
"MORTGAGE" shall mean any security interest in the Aircraft granted
by Lessor.
"MORTGAGEE" shall mean any entity or entities to which the Lessor
grants a security interest in the Aircraft.
"PART" shall mean any and "Parts" shall mean all appliances, parts,
instruments, accessories, furnishings and other equipment of whatever nature
(other than the Engines or engines), which (a) are from time to time
incorporated or installed in or attached to the Airframe or the Engines, or (b)
having been so installed or attached, are later removed therefrom, so long as
title thereto remains vested in Lessor in accordance with Section 9 hereof;
provided, however, the term "Parts" shall not include any of the Lessee Parts.
"PERMITTED LIENS" shall mean (a) the respective rights of the parties
hereunder; (b) Liens for taxes, assessments or other governmental charges either
not yet due or being contested in good faith (and for the payment of which
adequate reserves have been provided) by appropriate proceedings so long as such
proceedings do not involve any danger of the sale, forfeiture, loss or loss of
use of the Aircraft, the Airframe or any Engine or any interest therein; (c)
materialmen's, mechanics', workers', repairers', employees', or other like Liens
arising in the ordinary course of business for amounts the payment of which is
either not yet due or is being contested in good faith (and for the payment of
which adequate reserves have been provided) by appropriate proceedings so long
as such proceedings do not involve danger of the sale, forfeiture or loss of use
of the Aircraft, the Airframe or any Engine or any interest therein; (d) any
other Liens with respect to which Lessee shall have provided security in form
and amount acceptable to Lessor; (e) the lien of the Mortgage; and (f) Lessor
Liens.
"PRIME RATE" shall mean the publicly announced "prime rate" by The
Chase Manhattan Bank as its best lending rate for commercial borrowers.
"PURCHASE AGREEMENT" shall mean that certain Purchase Agreement No.
, dated between Boeing, as seller, and Lessee,
as buyer, including all Exhibits, Letter Agreements and amendments thereto.
"PURCHASE AGREEMENT ASSIGNMENT" shall mean that certain Purchase
Agreement Assignment dated on or before the Delivery Date, transferring to
Lessor the right to purchase the Aircraft from Boeing and also transferring to
Lessor the product support and warranty rights with respect to the Aircraft.
"RENT" shall mean Basic Rent and Supplemental Rent, collectively.
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"SECURITY DEPOSIT" shall mean the amount paid by Lessee and held as
security by Lessor pursuant to Section 4.4.
"STATE OF REGISTRATION" shall mean the United States of America.
"SUPPLEMENTAL RENT" shall mean all amounts, liabilities and
obligations (other than Basic Rent) which Lessee assumes, agrees or is obligated
to pay hereunder.
"SUPPLIER" shall mean the manufacturer, vendor or supplier of any
Item of Equipment other than Boeing or CFMI.
"TAXES" shall have the meaning set forth in Section 10.
"TERM" shall mean the period for which the Items of Equipment are
leased hereunder pursuant to Section 3 hereof. If such period is extended, the
word "Term" shall be deemed to refer to such period as so extended, and all
provisions of this Lease shall apply until the expiration date of such period,
except as may be otherwise specifically provided herein.
SECTION 2. DELIVERY AND ACCEPTANCE.
2.1. TIME AND PLACE. Subject to the satisfaction of the conditions set
forth in Section 2.3 hereof, Lessor shall deliver the Aircraft, together with
the Aircraft Records relating thereto, to Lessee at the Boeing delivery center
at Renton, Washington or at such other time and/or location as may be mutually
agreed. Subject to satisfaction of the conditions set forth in Section 2.4
below, Lessee shall accept the Items of Equipment, by executing the Certificate
of Acceptance and delivering the same to Lessor and upon Lessor's
countersignature on the Certificate of Acceptance the Aircraft and other Items
shall be subject to this Lease. The date of the Certificate of Acceptance with
respect to the Aircraft shall be its Delivery Date.
It is anticipated that the Delivery Date of the Aircraft will be June 27,
1997. If the Delivery Date has not occurred prior to December 31, 1997 then
Lessee or Lessor may give written notice of cancellation to the other party, the
balance of the Security Deposit held by Lessor shall be promptly returned and
this Agreement shall be without further force or effect. In the event Boeing
terminates the Purchase Agreement as to the Aircraft because of an anticipated
or actual delay in delivery exceeding 12 months, then Lessor may give notice of
such event to Lessee, return the balance of the Security Deposit, and this
Agreement shall be deemed cancelled and without further force or effect.
2.2. A LETTING ONLY. At all times during the Term, full legal title to and
ownership of the Aircraft shall remain vested in Lessor to the exclusion of
Lessee, notwithstanding the delivery of the Aircraft to, and the possession and
use thereof by, Lessee.
2.3. LESSOR'S CONDITIONS TO DELIVERY. Lessor's obligation to deliver and
lease the Items of Equipment to Lessee hereunder shall be subject to
satisfaction of the following conditions on or before the Delivery Date:
(a) Lessor shall have received the Security Deposit in the form
of an irrevocable stand-by letter of credit in a form and from a bank
acceptable to Lessor in the amount of $[ ]* which shall be held in
the manner specified in Section 4.4(a) hereof;
(b) Lessor shall have received satisfactory written evidence of
appropriate corporate action, certified by the Head of the Legal
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Department of Lessee, duly authorizing or ratifying the lease of the
items of Equipment hereunder and the execution, delivery and
performance of this Lease, together with an incumbency certificate as
to the person or entity or persons authorized to execute and deliver
said certification and said documents and to take delivery of the
Aircraft on behalf of Lessee;
(c) certified copies of Lessee's certificate of incorporation
and bylaws, together with a good standing certificate from the
Secretary of State of Delaware, and copies of all consents,
authorizations or approvals required in connection with the
execution, delivery and performance of the Lease by Lessee.
(d) insurance certificates and a letter of undertaking from
independent aircraft insurance brokers evidencing Lessee's compliance
with the insurance provisions of Section 12 hereof;
(e) the favorable written opinion of Lessee's independent legal
counsel in the form attached hereto as Exhibit C.
(f) the Certificate of Acceptance duly executed by Lessee, dated the
Delivery Date;
(g) a certificate signed by a duly authorized officer of Lessee,
dated the Delivery Date, to the effect that:
(1) the representations and warranties contained in Section 5.2
hereof are true and correct on and as of the Delivery Date as
though made on and as of such date, and all authorizations and
approvals of, givings of notice to, and filings and recordings
with, all regulatory bodies and authorities which may be
conditions to the validity or enforceability of this Lease or
Lessee's performance of the terms hereof have been duly
accomplished;
(2) no Default or Event of Default has occurred and is
continuing, or would result from the lease of the items of
Equipment hereunder;
(h) evidence satisfactory to Lessor confirming that the Aircraft has
been registered with the Aeronautics Authority in the name of Lessor,
as owner, and that this Lease and the Certificate of Acceptance have
been duly filed with the Aeronautics Authority;
(i) Uniform Commercial Code financing statements evidencing filing in
the State of Colorado in favor of Lessor with respect to the Lease
and the Aircraft;
(j) a letter from the Agent (specified in Section 5.2(g) below)
accepting the appointment specified in Section 18.5 hereof;
(k) a copy of the Maintenance Program;
(l) the favorable opinion of William C. Boston and Associates,
special FAA counsel, concerning the due and proper registration of
the Aircraft in the name of Lessor and the filing of the Lease;
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(m) an executed original of the warranty bill of sale from Boeing,
conveying title to the Aircraft to Lessor;
(n) satisfactory documentation evidencing that the Aircraft complies
with the delivery requirements of the Purchase Agreement;
(o) a copy of the Certificate of Airworthiness for the Aircraft;
(p) certified copies of Lessee's 737 airframe maintenance and
overhaul contract with BF Goodrich (Tramco) and Lessee's engine
overhaul contract with General Electric Aircraft Engines (Strother);
and
(q) such other documents as Lessor may reasonably request.
2.4. LESSEE'S CONDITIONS TO DELIVERY. Lessee's obligation to accept and
lease the Aircraft from Lessor hereunder shall be subject to the satisfaction of
the following conditions:
(a) Lessor shall have accepted delivery of the Aircraft from Boeing
under the Purchase Agreement.
(b) The Aircraft shall be in the condition and configuration
specified in the Purchase Agreement.
(c) On or before the Delivery Date, Lessee shall have received:
(i) a certificate signed by a duly authorized officer of
Lessor, dated the Delivery Date, to the effect that the
representations and warranties contained in Section 5.1 hereof
are true and correct on and as of such date as though made on
and as of such date; and
(ii) a copy of the Purchase Agreement Assignment showing
consent by Boeing thereto.
SECTION 3. TERM.
The Term with respect to the Aircraft shall commence on the Delivery
Date and shall expire on the tenth (10th) anniversary thereof, unless extended
pursuant to paragraph 6 of Exhibit D hereto or earlier terminated pursuant to
Section 17.
SECTION 4. RENT.
4.1. BASIC RENT. Commencing on the Delivery Date and on the same day of
each month thereafter, Lessee shall pay Lessor rent for the Aircraft, each such
payment in the amount specified in Exhibit B hereto ("Basic Rent"). The Basic
Rent amounts are subject to adjustment as set forth in Exhibit B. If the
Delivery Date has no corresponding numerical day in any month, the Basic Rent
Payment Date shall be the last Business Day in such month. As a courtesy to
Lessee, Lessor agrees to provide Lessee with an invoice in advance of each Basic
Rent Payment Date. The failure to provide such an invoice shall not relieve
Lessee of its obligation to pay Basic Rent hereunder.
4.2. SUPPLEMENTAL RENT. Lessee shall also pay to Lessor or, at Lessor's
direction, to whomsoever shall be entitled thereto, subject to the proviso
contained in Section 18.5, any and all Supplemental Rent on the due date
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specified in the invoice from Lessor to Lessee for such Supplemental Rent.
Lessee shall pay to Lessor, as Supplemental Rent, interest at the Incentive Rate
on any part of any installment of Rent not paid on the due date thereof. All
computations of interest under this Lease to be made on the basis of a 365-day
year and actual days elapsed.
4.3. PROHIBITION AGAINST SETOFF, COUNTERCLAIM, ETC. Lessee's obligation to
pay Rent and make other payments in accordance with this Lease, shall be
absolute and unconditional irrespective of any contingency whatsoever including
(but not limited to) (i) any right of setoff, counterclaim, recoupment, defence
or other right which either party hereto may have against the other, (ii) any
unavailability of the Aircraft for any reason, including, but not limited to, a
requisition thereof or any prohibition or interpretation or interference with or
other restriction against Lessor's or Lessee's use, operation or possession of
the Aircraft (other than in violation of a covenant of quiet enjoyment), or the
airworthiness, merchantability, fitness for any purpose, condition, design or
operation of any kind or nature of the Aircraft, or the ineligibility of the
Aircraft for any particular use or trade, or for registration or documentation
under the laws of any relevant jurisdiction, or any Event of Loss (subject to
the provision for cessation of Basic Rent as stated in Section 11.1) in respect
of or any damage to the Aircraft or any part thereof, (iii) any insolvency,
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceedings by or against Lessor or Lessee, (iv) any
invalidity or unenforceability or lack of due authorization of, or other defect
in, this Lease, and (v) any other cause which but for this provision would or
might have the effect of termination or in any way affecting any obligation of
Lessee hereunder.
4.4. SECURITY DEPOSIT. On or before the Delivery Date Lessor shall have
received an irrevocable standby letter of credit from a bank and in a form
acceptable to Lessor in the face amount of $[ ]* (the "Letter of Credit").
Promptly upon receipt of the Letter of Credit, Lessor shall refund to Lessee $[
]* previously paid to Lessor. The Letter of Credit shall remain in place
throughout the Term, except as specified in this Section 4.4.
The Security Deposit shall be held by the Lessor as security for the
timely and faithful performance by Lessee of Lessee's obligations under this
Lease, and Lessee hereby grants Lessor a security interest in all sums deposited
with or otherwise held by Lessor under this Section 4.4. Lessee agrees to
execute and file with the appropriate governmental entities any and all
documents necessary or reasonably requested by Lessor to evidence and perfect
such security assignment in favor of Lessor. If an Event of Default shall have
occurred and is continuing, in addition to all other rights Lessor shall have
under the New York Uniform Commercial Code as a secured party, Lessor may, but
shall not be obligated to, draw on the Letter of Credit and/or use, apply,
set-off or retain all or any portion of the Security Deposit, in payment for
sums due by Lessee, to compensate Lessor for any sums advanced as a result of an
Event of Default by Lessee or to apply toward any expenses Lessor actually
incurs as a result of such Event of Default. If Lessor uses or applies all or
any portion of such Security Deposit as provided above, such application shall
not be deemed a cure of any Events of Default, and Lessee shall within five (5)
days deposit with Lessor in cash an amount sufficient to restore the Security
Deposit to the aggregate amount of such Security Deposit prior to Lessor's use
or application and Lessee's doing so shall be deemed a cure of any such Event of
Default but the failure of Lessee to do so shall be a material breach of this
Lease by Lessee. Provided that an Event of Default shall not have occurred and
then be continuing (and in such case, at such time as no such Event of Default
shall then be continuing) and provided that Lessee shall have paid all amounts
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<PAGE>
owing hereunder, the Security Deposit together with accrued interest thereon
shall be returned to Lessee at the end of the Term and Lessee's return of the
Aircraft in compliance with Article 13 hereof.
Provided no Event of Default has occurred or is continuing, promptly
following the third anniversary of the Delivery Date Lessor agrees to review the
Lessee's financial condition and will confer with Lessee to determine if said
financial condition merits a reduction in the amount of the Security Deposit.
4.5. MANNER AND PLACE OF PAYMENT. All amounts to be paid by Lessee
hereunder shall be paid by wire transfer of same day funds, consisting of lawful
currency of the United States of America, to the account of Lessor at The First
National Bank of Chicago, ABA No. 071000013, Chicago, IL 60670 account no. 52
47209, account name: GATX Capital Corporation, or to such other party or account
as Lessor shall designate in writing. If any such amount is due to be paid on a
day other than a Business Day, such amount shall be payable on the next
succeeding Business Day. Any payment of Rent not received in Lessor's bank
account by 11:00 a.m. on the due date shall be treated as having been received
on the next succeeding Business Day.
SECTION 5. REPRESENTATIONS AND WARRANTIES; COVENANTS OF THE PARTIES.
5.l. LESSOR'S REPRESENTATIONS AND WARRANTIES AND DISCLAIMER.
a. Lessor represents and warrants that on the Delivery Date
Lessor shall hold such title as shall have been conveyed to it by
Boeing and shall have the right to lease the Aircraft to Lessee
hereunder. EXCEPT FOR THE FOREGOING REPRESENTATION, AND THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS SECTION 5.1, LESSOR
DOES NOT MAKE AND SHALL NOT BE DEEMED TO HAVE MADE OR TO MAKE ANY
WARRANTIES, REPRESENTATIONS OR GUARANTEES OF ANY KIND, INCLUDING (I)
AS TO THE AIRWORTHINESS, VALUE, CONDITION, DESIGN OR OPERATION OF, OR
QUALITY OF THE MATERIAL OR WORKMANSHIP IN, OR ANY DEFECT IN, THE
AIRCRAFT, THE AIRFRAME, ANY ENGINE, ANY PART, ANY DATA OR ANY OTHER
THING DELIVERED, LEASED, OR TRANSFERRED HEREUNDER, (II) ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR
PURPOSE, AGAINST INFRINGEMENT OR THE LIKE, OR ARISING FROM COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, (III) AS TO ANY
OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT WITH RESPECT TO
THE AIRCRAFT, THE AIRFRAME, ANY ENGINE, ANY PART, ANY DATA OR ANY
OTHER THING DELIVERED, LEASED, OR TRANSFERRED HEREUNDER, WHETHER OR
NOT IN STRICT OR ABSOLUTE LIABILITY OR ARISING FROM THE ACTUAL OR
IMPUTED NEGLIGENCE OF LESSOR OR MORTGAGEE, OR (IV) AS TO ANY
OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF, OR DAMAGE
TO, THE AIRCRAFT, THE AIRFRAME, ANY ENGINE, ANY PART, ANY DATA OR ANY
OTHER THING, FOR ANY LOSS OF USE, REVENUE OR PROFIT, OR ANY OTHER
DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. Lessor hereby assigns
(but only for such time as no Event of Default shall have occurred
and be continuing) to Lessee such rights as Lessor may from time to
time have under any warranty made by Boeing, CFMI or any other
Manufacturer with respect to the Aircraft or other Items of
Equipment, and any other claims against Boeing, CFMI or any other
Manufacturer with respect to the Aircraft or other items of
Equipment.
b. CORPORATE EXISTENCE AND QUALIFICATION. Lessor is a
corporation duly incorporated and validly existing under the law of
the State of Delaware and has the power and authority to enter into
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and perform its obligations hereunder and under the Purchase
Agreement Assignment and the Certificate of Acceptance.
c. ASSIGNMENTS. The Purchase Agreement Assignment has been duly
executed and delivered by the officers of the Lessor who are duly
authorized to execute and deliver such agreements and is legal, valid
and binding on the Lessor, enforceable in accordance with its terms.
.
d. AUTHORITY. Lessor has full corporate power and authority to
enter into and perform this Lease, the Purchase Agreement Assignment
and the Certificate of Acceptance, and the other agreements executed
pursuant hereto and thereto; and the execution, delivery and
performance of this Lease and the other documents executed by Lessor
pursuant hereto have been duly authorized by all necessary corporate
action on the part of Lessor, do not require any stockholder approval
or approval or consent of any trustee or holders of any Debt or other
obligations of Lessor except such as have been duly obtained and do
not contravene any provision of any law, governmental rule,
regulation or order binding on Lessor, or any applicable
interpretation or administration of any such law, governmental rule,
regulation or order, or contravene the certificate of incorporation,
Bylaws or other organic documents of Lessor or any indenture,
mortgage, contract or other agreement or instrument to which Lessor
is a party or by which it or any of its assets may be bound or
affected.
e. GOVERNMENTAL APPROVALS. Neither the making nor performance by
Lessor of this Lease or any other document to be executed by Lessor
pursuant hereto, nor the consummation of any of the transactions by
Lessor contemplated hereby or thereby, nor the acquisition,
Lessorship or leasing by Lessor of the Aircraft under such documents,
requires the consent or approval of, the giving of notice to, the
registration or filing for recordation with, or the taking of any
other action in respect of, any authority of or in the United States
of America, including any governmental or political agency,
subdivision or instrumentality thereof.
f. NO VIOLATION. The execution and delivery by the Lessor of
this Lease are not, and the execution and delivery of the Certificate
of Acceptance and the Purchase Agreement Assignment will not be, and
the performance by the Lessor of its obligations under each of the
foregoing documents will not be, inconsistent with the terms of its
charter or by-laws, do not and will not contravene any law,
governmental rule or regulation, judgment or order applicable to it,
and do not and will not contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument
to which the Lessor is a party or by which it is bound or require the
consent or approval of, the giving of notice to, the registration
with or the taking of any action in respect of or by, and Federal,
state or local governmental authority or agency or other person,
except such as have been obtained, given or accomplished.
g. Lessor is a "citizen of the United States" within the meaning of
Section 40102 of Title 49 of the United States Code.
5.2. LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee covenants,
represents and warrants that:
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a. CORPORATE EXISTENCE AND QUALIFICATION. Lessee is a
corporation duly incorporated and validly existing under the laws of
the State of Delaware and is an air carrier of persons and property,
registered, licensed or otherwise certificated or duly authorized
under Part 121 of the Federal Aviation Regulations to engage in such
air transportation and is duly qualified or otherwise authorized to
do business as an air carrier in all jurisdictions in which it has
air routes, except for jurisdictions where failure to so qualify or
obtain authorization would not have a material adverse effect on the
business of Lessee and would not involve any danger of the sale,
forfeiture or loss of any item of Equipment or impairment of the
value thereof.
b. AUTHORITY. Lessee has full corporate power and authority to
enter into and perform this Lease and the other Lease Documents; and
the execution, delivery and performance of this Lease and the other
documents executed by Lessee pursuant hereto have been duly
authorized by all necessary corporate action on the part of Lessee,
do not require any stockholder approval or approval or consent of any
trustee or holders of any Debt or other obligations of Lessee except
such as have been duly obtained and do not contravene any provision
of any law, governmental rule, regulation or order binding on Lessee,
or any applicable interpretation or administration of any such law,
governmental rule, regulation or order, or contravene the certificate
of incorporation, bylaws or other organic documents of Lessee or any
indenture, mortgage, contract or other agreement or instrument to
which Lessee is a party or by which it or any of its assets may be
bound or affected.
c. GOVERNMENTAL APPROVALS. Neither the making nor performance by
Lessee of this Lease or any other document to be executed by Lessee
pursuant hereto, nor the consummation of any of the transactions by
Lessee contemplated hereby or thereby, nor the acquisition,
Lessorship or leasing by Lessor of the Aircraft under such documents,
requires the consent or approval of, the giving of notice to, the
registration or filing for recordation with, or the taking of any
other action in respect of, any authority of or in the United States,
including any governmental or political agency, subdivision or
instrumentality thereof, except for a certificate of airworthiness
and a certificate of registration with respect to the Aircraft issued
by the FAA naming Lessor as the owner of the Aircraft.
d. BINDING OBLIGATIONS. This Lease and each other Lease Document
executed by Lessee constitutes or, when executed and delivered will
constitute, the valid and legally binding obligations of Lessee
enforceable against Lessee in accordance with the terms thereof.
e. LITIGATION. Except as otherwise disclosed to Lessor in
writing prior to the execution and delivery of this Lease, there are
no suits or proceedings pending in any court of before any regulatory
commission, board or other administrative or governmental agency in
the United States against or affecting Lessee which relate to the
transactions contemplated hereby or which, if adversely determined,
would have a material adverse effect on the ability of Lessee to
fulfill its obligations hereunder.
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f. FINANCIAL CONDITION. The audited balance sheet of Lessee as
at December 31, 1996 (the "1996 Balance Sheet"), and the audited
statements of profit and loss of Lessee for 1996, each certified by
the independent auditor of Lessee, heretofore furnished to Lessor,
are complete and correct and have been prepared in accordance with
generally accepted accounting principles. Lessee has no contingent
obligations (to its knowledge), liabilities for taxes or unusual
forward or long-term commitments which could have a material adverse
effect on its financial condition, except as disclosed in the 1996
Balance Sheet or the notes thereto.
g. REGISTRATION, FILING, ETC. The agent in the State of New York
upon whom service of process may be made on behalf of Lessee, is CT
Corporation System. Lessee will give written notice in accordance
with Section 18.2 hereof prior to any change of address for such
agent. Lessee agrees to maintain an agent in the State of New York
throughout the term who is authorized to accept service of process on
behalf of Lessee. In the event Lessee fails to maintain such an agent
in the State of New York, Lessee agrees that service by mail to the
location specified in Section 18.2 hereof shall be sufficient for all
purposes.
h. USE OF AIRCRAFT. The Aircraft will be used exclusively for
the carriage of persons, property, cargo and mail as permitted under
the laws of the United States.
i. PARI PASSU RANKING. The obligations of Lessee to pay Rent
hereunder will be direct and unconditional general obligations of
Lessee, and will rank in right of payment at least PARI PASSU with
all Debt, whether now or hereafter outstanding. The PARI passu
ranking referred to in the preceding sentence refers to ranking in
right of payment only, and does not address the issues of collateral
security for any Debt or recourse in respect of any Debt against any
direct or indirect guarantor thereof.
j. NO CONFLICTING AGREEMENTS. Lessee is not a party to any
agreement or instrument or subject to any charter or other corporate
restriction which individually or in the aggregate is, in the
reasonable judgment of Lessee, likely to adversely affect its ability
to perform its obligations under this Lease.
k. NO DEFAULT. No Default has occurred and is continuing.
l. REPETITION. The representations and warranties contained in
this Section 5.2 (other than Section 5.2(f)) shall be deemed to be
repeated in full upon each Basic Rent Payment Date having regard to
the facts and circumstances then existing.
5.3. COVENANTS OF LESSEE. Until payment in full of all Rent and
performance by Lessee of all its other obligations hereunder, Lessee agrees
that:
a. FINANCIAL STATEMENTS, REPORTS, ETC. Lessee will furnish to
Lessor:
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i. as soon as available and in any event within 60 days
after the end of each quarter and within 90 days after the close
of each fiscal year of Lessee, the audited balance sheet of
Lessee as at the end of such quarter or fiscal year and the
related statements of earnings for such fiscal year, prepared in
accordance with generally accepted accounting principles and on
a basis consistent with that used in the preparation of the
financial statements referred to in Section 5.2(f), except as
noted in such balance sheet and statements, certified by
Lessee's independent public accountants and including their
certificate and accompanying comment;
ii. promptly after Lessee shall have obtained knowledge of
the occurrence of any Default, a written notice specifying the
nature and period of existence thereof and what action Lessee
has taken or is taking or proposes to take with respect thereto;
iii. not later than 30 days after entering into or becoming
bound or affected by any pooling or interchange agreement or
arrangement permitted by Section 6.1 by which any Engine may be
affected and promptly after each amendment or modification of
any such agreement or arrangement, Lessee at its option will
either deliver to Lessor a certified copy of the agreement in
English, or will deliver to Lessor a certificate duly executed
by an authorized officer of Lessee to the effect that the
pooling or interchange agreement is (or remains) in compliance
with the terms of this Lease;
iv. prompt written notice of any damage to any Item if the
estimated cost of repair exceeds $[ ]* (or the equivalent in
local currency); and
v. from time to time such other information regarding the
Aircraft as Lessor may reasonably request, including reports
from time to time as to maintenance of the Aircraft and the
Engines (including total Flight Hours and Cycles and time
between overhauls).
b. RECORDING. Subject to the requirements of Section 5.4(a)
below, Lessee will be responsible for and bear the expense of
registering the Aircraft in the United States in the name of Lessor,
as owner and lessor, and of recording and rerecording, registering
and reregistering and filing and refiling this Lease, each and every
supplement to this Lease, the Mortgage(s), and such other instruments
as are necessary or reasonably requested by Lessor to protect the
right, title and interest of Lessor and Mortgagee and to perfect and
maintain the interests of Lessor and Mortgagee created hereunder and
under the Mortgage, provided, however, Lessee shall not be
responsible for filings with respect to any mortgage or security
interest granted by Lessor on the Aircraft or the Lease, but Lessee
shall cooperate with Lessor's reasonable requests in making and
maintaining any such filings.
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c. CORPORATE EXISTENCE, MERGERS, ETC.
i. Lessee will do or cause to be done all things
necessary to preserve and keep in full force and effect its
status as a duly certificated air carrier pursuant to (or, in
the event such law or regulation is superseded, its
authorization under) FAR Part 121 to be an air carrier engaged
in the carriage of persons and property for compensation or
hire.
ii. Lessee will, except as permitted by the next
sentence, at all times maintain its corporate existence. Lessee
will not consolidate with or merge into any other Person, or
sell, lease, exchange, transfer or otherwise dispose (whether in
one transaction or in a series of related transactions) of all
or substantially all its property, assets or revenues, whether
now owned or hereafter acquired, unless (i) Lessee shall have
obtained the prior written consent of Lessor, which shall not be
unreasonably withheld or delayed, (ii) the entity formed by such
consolidation or merger or the person or entity which so
acquires such assets by purchase, lease, exchange or transfer,
shall be a corporation duly organized and validly existing under
the laws of one of the United States of America and is a
certificated air carrier and shall have executed and delivered
to Lessor an agreement in form satisfactory to Lessor containing
an assumption by such successor of the obligations of Lessee
under this Lease, (iii) no Event of Default exists and is
continuing and immediately after giving effect to such
consolidation, merger or acquisition, no Default shall have
occurred and be continuing and (iv) the financial condition of
the surviving entity shall not be any worse than that of Lessee
immediately prior to such consolidation, merger or acquisition.
5.4. COVENANTS OF LESSOR.
a. REGISTRATION. Lessor will take such action as may be
requested by Lessee, at the expense of Lessee, in order to file or
record the Lease, the Certificate of Acceptance and such other
documents as may be necessary and to register the Aircraft with the
FAA and Lessee hereby consents to such filing, recordation and
registration by Lessee.
b. QUIET ENJOYMENT. So long as no Event of Default shall have
occurred and be continuing, Lessor agrees that, except as
specifically permitted by the terms of this Lease, it will not,
through its own actions or through the actions of others duly
claiming through or under Lessor, interfere with Lessee's peaceful
and quiet use, operation and possession of the Aircraft.
SECTION 6. POSSESSION AND USE.
6.1. POSSESSION.
a. SUBLEASE: ASSIGNMENT AND TRANSFER. Lessee will not assign, pledge
or otherwise encumber this Lease or, except as provided in Section
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6.1(b) below, sublet or transfer possession of the Aircraft, Airframe
or any Engine or install any Engine or permit any Engine to be
installed on any airframe other than the Airframe, provided that a
"wet" lease of the Aircraft, pursuant to which Lessee's flight crews
remain in sole command of the Aircraft and its operations, will not
be deemed to be a sublease of the Aircraft, and provided further,
that so long as no Default or Event of Default shall have occurred
and be continuing 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 have been obtained, then Lessee, without the prior written
consent of Lessor, but in all cases with prior written notice to
Lessor, may:
(i) subject any Engine to normal interchange or pooling
agreements or similar arrangements in each case customary in the
commercial airline industry and entered into in the ordinary
course of its business with an air carrier approved by Lessor or
an FAA-licensed engine overhaul agency; provided that (A) no
such agreement or arrangement results in or requires the
transfer of title to such Engine; and (B) if Lessor's title to
such Engine shall be divested under any such agreement or
arrangement, such divestiture shall be deemed to be an Event of
Loss with respect to such Engine and Lessee shall comply with
Section 11.2 hereof in respect thereof;
(ii) deliver possession of the Aircraft, the Airframe or any
Engine to the Manufacturer thereof for testing or other similar
purposes or to any FAA-licensed repair station 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 of
Section 9 hereof;
(iii) install an Engine on an airframe (other than the Airframe)
owned by Lessee free and clear of all Liens except: (A)
Permitted Liens and those which apply only to the engines (other
than Engines), appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment (other than Parts)
installed on such airframe (but not to the airframe as an
entirety); and (B) the rights of the participants under normal
interchange agreements which are customary in the airline
industry and do not contemplate, permit, result in or require
the transfer of title to the airframe, engines or parts
installed thereon; and
(iv) install an Engine on an airframe leased to Lessee or owned
by Lessee subject to a conditional sale or other security
agreement; provided, that (x) such airframe is free and clear of
all Liens except the rights of the parties to the lease or
conditional sale or other security agreement covering such
airframe and except Permitted Liens, and the lien of any
mortgage which either by its terms does not apply to the Engine
or which effectively provides that each Engine leased to Lessee
hereby shall not become subject to the lien thereof or to any
rights of any party thereunder other than Lessee (with respect
to Lessee's rights expressly granted hereunder), notwithstanding
the installation of such Engine on any airframe subject to the
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lien of such mortgage, unless and until Lessee shall become the
owner of such Engine and Lessor shall have no further interest
therein, all pursuant to the express terms of this Lease; and
(y) there shall be in effect a written agreement of the lessor
or secured party of such airframe (which may be the lease or
conditional sale or other security agreement covering such
airframe) substantially similar in effect to the agreement of
Lessor in Section 6(b) below whereby such lessor or secured
party effectively and expressly agrees that neither it nor its
successors or assigns will acquire or claim any right, title or
interest in any Engine by reason of such Engine being installed
on such airframe at any time while such Engine is owned by
Lessor and is subject to this Lease, and a copy of such
agreement shall be provided to Lessor upon written request.
b. PERMITTED SUBLEASE. So long as no Default or Event of Default has
occurred and is continuing, and provided that Lessee is and remains
an air carrier and not an aircraft leasing company, Lessee may
sublease the Aircraft to an Eligible Sublessee, for use on the
Eligible Sublessee's regularly scheduled route or in its charter
services, subject to the provisions of Section 6(c) below and the
following additional terms and conditions:
(1) no such sublease shall be scheduled to extend beyond that
date which is one month short of the end of the Term;
(2) no such sublease shall be to foreign air carrier until after
the seventh anniversary of the Delivery Date; and
(3) no sublease shall have a term of longer than three years.
c. CERTAIN LIMITATIONS ON TRANSFERS AND SUBLEASE. With respect to any
transfer of possession pursuant to this Section 6.1:
(i) the rights of any transferee that receives possession by
reason of a transfer permitted by this Section 6.1 shall be
subject and subordinate to all the terms of this Lease and such
transferee shall recognize in writing such subordination;
(ii) 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; and
(iii) no interchange agreement or other relinquishment of
possession pursuant to the terms of this Section 6.1 shall in
any way discharge or diminish any of Lessee's obligations to
Lessor hereunder.
6.2. 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 complying with clause (y) of Section 6.1(a)(iv) hereof, and
such lease, 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 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
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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
complying with clause (x) of Section 6.1(a)(iv) hereof, relating to installation
of an Engine on an airframe owned by Lessee, subject to the lien of such
mortgage, 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.
6.3. NET LEASE. Lessee shall pay for and provide all electric power, oil,
fuel and lubricant consumed by and required for the operation of the Aircraft.
Lessee shall promptly pay all navigation charges (including landing fees,
departure fees and airport taxes) the nonpayment of which could result in a Lien
upon the Aircraft.
6.4. OPERATIONAL EXPENSES; LAWFUL INSURED OPERATIONS. Lessee will not
cause or permit any item of Equipment to be maintained, used or operated in
violation of any law, treaty, statute, rule, regulation or order of any
government or governmental authority having jurisdiction or contrary to any
manufacturer's operating manuals and instructions, or, in the case of the
Aircraft and the Engines, in violation of any airworthiness certificate or
registration relating thereto. Lessee agrees not to operate any item of
Equipment, or suffer such item of Equipment to be operated, (a) unless such item
of Equipment is covered by insurance as required by the provisions of Section 12
hereof, or (b) contrary to the terms of the insurance required by the provisions
of Section 12 hereof. If the Aircraft is brought into any location or country in
which the insurance required by Section 12.2 is not in full force and effect,
Lessee, in addition to its liability under Sections 17 and 18, shall be liable
to Lessor for loss or damage to the Aircraft up to the Insured Value.
6.5. NOTICE OF MAINTENANCE. Regardless of the identity of the Authorized
Maintenance Performer, Lessee shall notify Lessor, not less than 30 days prior
to the scheduled commencement thereof, of each upcoming structural inspection
(complete or partial), or other major check to be performed on the Airframe and
of any Engine overhaul. Lessee agrees that the Aircraft shall be treated on
maintenance matters in the same manner as other 737-300 aircraft in the fleet of
Lessee and shall not be discriminated against in any way.
6.6. MAINTENANCE. Lessee, at its own cost and expense, shall:
a. service, repair, maintain, overhaul and test, or cause the same to
be done to, each Item leased hereunder (i) so as to keep such Item in
the same condition as when delivered to Lessee hereunder, ordinary
wear and tear excepted, and in good operating condition, (ii) so as
to keep each Aircraft in the condition necessary to enable the
airworthiness certification of such Aircraft for operation under FAR
Part 121 to be maintained in good standing at all times under all
applicable laws and regulations of the FAA, and (iii) in strict
compliance with the Maintenance Program. All revisions to the
Maintenance Program shall be delivered by Lessee to Lessor promptly
after the issuance of such revisions.
b. maintain all records, logs and other materials required by the FAA
in respect of the Aircraft;
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c. timely furnish to Lessor such information as may be requested by
Lessor to enable Lessor to file any reports required to be filed by
Lessor with any governmental authority concerning the Aircraft;
d. incorporate into the Aircraft all mandatory Service Bulletins
issued by Boeing, CFMI or other vendors during the Lease Term and all
recommended Service Bulletins issued by Boeing, CFMI or other vendors
that Lessee adopts during the Lease Term for at least 50% of the
owned or leased Boeing 737-300 aircraft in Lessee's fleet, it being
the intent of the parties that this Aircraft shall not be
discriminated against in Service Bulletin compliance and other
maintenance matters;
e. carry out, on the Aircraft, each applicable AD which the FAA may
from time to time issue and which may become due during the Lease
Term;
f. maintain during the Term all records and documents required by the
FAA or the Maintenance Program;
g. maintain, service, repair and overhaul the Airframe and all
Engines to comply with all warranty requirements pursuant to the
Purchase Agreement;
h. equip each Airframe at all times with two Engines (except as may
be required for maintenance); and
i. cause all maintenance and repairs to the Aircraft to be done by
Lessee or an FAA-certificated overhaul and repair station approved in
writing by Lessor (the "Authorized Maintenance Provider").
6.7. INSIGNIA AND NOTICES. Lessee will affix and maintain in the cockpit
of the Aircraft adjacent to and in an equally prominent position as the
airworthiness certificate therein and on each Engine a nameplate satisfactory to
Lessor bearing the inscription "This [Aircraft] [Engine] is owned by GATX Third
Aircraft Corporation and leased to Western Pacific Airlines, Inc. and is subject
to a Mortgage in favor of [Mortgagee]" or such other inscription as Lessor from
time to time may reasonably request in order to show its interest in the
Aircraft or to show the interests of third parties holding a mortgage or
security interest in the Aircraft. Except as otherwise provided, Lessee will not
allow the name of any Person to be placed on the Airframe or any Engine as a
designation that might be interpreted as a claim of Lessorship except that
Lessee may place its customary colors and insignia on the Airframe and any
Engine.
6.8. USE OF AIRCRAFT. Lessee shall use the Aircraft solely in commercial
operations for which Lessee is duly authorized. Lessee shall not use, or permit
the use of, any Aircraft for any purpose for which it is not suitable. Lessee
shall comply with all regulations of the FAA. Lessee shall not permit any
Aircraft or any Engine to be under the control of any citizen or company of any
of the following countries: Cuba, Haiti, Iran, Iraq, Libya, North Korea or any
of the countries formerly comprising Yugoslavia, or any country subject to
technology transfer restrictions imposed by the government of the United States
of America. The foregoing sentence shall not prohibit overflight of such
countries, nor shall the foregoing sentence impose any greater restriction on
the operation of the Aircraft than is mandated by the government of the United
States of America.
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6.9 MAINTENANCE RESERVES
a. PAYMENT. As soon as possible, but in no event later than the tenth
day of each month, Lessee shall provide Lessor with the number of
Flight Hours and Cycles accumulated on the Airframe, each Engine, the
Landing Gear and the APU and the number of take-offs at each of B-1
and B-2 thrust levels in the prior month. On or before the 15th day
of each month throughout the Term, and with one final payment on the
last day of the Term, Lessee shall pay Lessor as Supplemental Rent
the following amounts (the "Reserve Rates"): (i) $[ ]* per Flight
Hour accumulated on the Airframe in the preceding month for the C-7
Check (the "C-7 Reserve"); (ii) $[ ]* per Flight Hour on the Airframe
in the preceding month for Landing Gear replacement and overhaul (the
"Landing Gear Reserve"); (iii) $[ ]* for each running hour
accumulated on the APU during the preceding month (the "APU
Reserve"); (iv) $[ ]* per Flight Hour accumulated on each Engine
during the preceding month for shop visits on the Engine modules as
specified below (each an "Engine Reserve"); and, (v) $[ ]* for each
Cycle accumulated on each Engine during the preceding month for
replacement of Life Limited Parts ("LLPs") in each Engine (the "LLP
Reserve").
The LLP Reserve shall be allocated among the LLPs in proportion to
their catalog prices. Each Engine Reserve will be allocated among the
Engine modules as follows:
$ AMOUNTS PERCENTAGE COST
MODULE PER FLIGHT HOUR DISTRIBUTION
Fan and Booster $[ ]* [ ]*
HPT [ ]* [ ]*
HPC [ ]* [ ]*
LPT [ ]* [ ]*
Gearbox [ ]* [ ]*
Combuster [ ]* [ ]*
-------------------------------------
$[ ]* [ ]*
The amount of the Reserve Rates shall be adjusted annually commencing
on the first anniversary of the Delivery Date by the increase from
January 1, 1997, which results from applying the escalation formula
contained in Lessee's airframe maintenance and overhaul contract with
BF Goodrich (Tramco) (or if such contract, or the escalation formula
therein, no longer exists, then the Boeing airframe escalation
formula) to all of the Maintenance Reserves except the APU and Engine
Reserve Rates, which shall be adjusted based on the CFM escalation
formula. Additional increases or decreases in the Reserve Rates may
be made on the first anniversary of the Delivery Date and annually
thereafter based upon Lessee's usage pattern, actual maintenance
costs and the number of Flight Hours and Cycles actually accumulated
on the Airframe and Engines in the prior year and anticipated for the
coming year, as well as changes in the Maintenance Program. The
payments have been calculated on the assumptions that Lessee's
utilization will average [ ]* Flight Hours per Cycle and that each
Engine will operate at B-1 power for [ ]*% of all take-offs and at
B-2 power for [ ]*% of all take-offs.
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1. AVAILABILITY OF RESERVES. Each Maintenance Reserve shall
remain under the sole control and direction of Lessor, subject to the
provisions of this Section 6.9, and shall be available to be drawn
upon, following receipt of an invoice from Lessee (giving details of
the payee and accompanied by such supporting information as Lessor
shall require), to pay for:
a) the C-7 Check on the Airframe up to the amount
available in the C-7 Reserve on the date such Check is
completed;
a) overhauls and shop visits of the APU, up to the
amount then available in the APU Reserve on the date the work
on the APU is completed;
b) Engine shop visits, up to the amount then available in
the Engine Reserve applicable to such Engine module on the date
the work on such Engine is completed;
a) replacement of LLPs up to the amount available in the
LLP Reserve applicable to the LLP being replaced on the date
such LLP is removed from the Engine; and
a) overhauls of the landing gear, up to the amount
available in the Landing Gear Reserve on the date the work on
the landing gear is completed.
c. PAYMENTS. All payments from the Maintenance Reserves shall be
reduced by the actual amounts received by Lessee or due to Lessee
under any applicable manufacturer's warranties, guarantees and
concessionary adjustments. If, on any occasion, the balance of any
funds held in the particular Reserve account is insufficient to meet
a claim for reimbursement in respect of such Reserve, the shortfall
will be Lessee's responsibility and may not be carried forward or
made the subject of any further claim for reimbursement.
Each invoice shall be accompanied by substantiating data from the
Authorized Maintenance Performer. No reimbursement shall be made from
any Reserve for any repair, overhaul or inspection occasioned by
Foreign Object Damage (FOD), ADs, SBs, faulty maintenance or
installation, improper operation, misuse, neglect, ingestion or other
accidental cause, or repair reimbursable from insurance (for which
purpose the deductible, if any, shall be treated as insurance
proceeds) or Manufacturer's warranty, guarantee or adjustment.
Lessor shall have no duty to determine whether any item of Equipment
requires overhaul or maintenance, or to observe or inspect the
overhaul or maintenance of any Item, and Lessor shall not incur any
liability or obligation by reason of the failure of the Aircraft to
be properly overhauled or maintained or by reason of Lessor's
election to observe or inspect or not to observe or inspect any
overhaul or maintenance.
d. REMAINING BALANCE. At the end of the Term, the balance, if any, in
the Maintenance Reserves shall be retained by Lessor. If the Aircraft
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suffers an Event of Loss, upon compliance with the requirements of
Section 11.1, the balance, if any, of the Maintenance Reserves shall
be promptly paid over to Lessee. e. COST OF ENGINE REPAIRS. Prior to
start of a repair of an Engine (after disassembly) Lessee shall
provide Lessor with a written estimate of total repair costs,
including test cell run and consumable liquids.
SECTION 7. INSPECTION.
During the Term, Lessee shall furnish to Lessor such information
concerning the location, condition, use and operation of the Items of Equipment
as Lessor may reasonably request. Lessee shall permit any person designated in
writing by Lessor to, at Lessor's expense, visit and inspect (at any reasonable
time, provided that such inspection shall not interfere with Lessee's
operational commitments) the Items of Equipment, their condition, use and
operation and the records maintained in connection therewith and, at Lessee's
expense, to make copies of such records as Lessor may reasonably designate;
provided, however, Lessor shall not have access to information from the aircraft
data recorders (QAR, DFDR and CVR) until such information has been disclosed by
the FAA. 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.
SECTION 8. ADDITIONAL COVENANTS OF LESSEE. Lessee covenants and agrees to the
following:
a. Lessee is, and shall remain so long as it shall be the Lessee
under this Lease, a "citizen of the United States" as defined by 49
USC ss. 40102(a)(15), and Lessee is and shall maintain and operate
the Aircraft at all times as a Certificated Air Carrier;
b. Lessee will not, without prior written notice to Lessor, change
its principal place of business or chief executive office if there is
more than one place of business and will maintain all records with
respect to the Aircraft and the Engines at its principal place of
business;
c. Lessee shall not (i) voluntarily suspend its operations as a
Certificated Air Carrier; or (ii) voluntarily or involuntarily permit
to be revoked, canceled or otherwise terminated all or substantially
all of the franchises, concessions, permits, rights or privileges
required for the conduct of business and operations of Lessee or the
free and continued use and exercise thereof;
d. Lessee specifically covenants that during the Term hereof it will
not operate the Aircraft to any location where such operation is
prohibited by applicable law, rule or regulation.
e. Lessee shall pay or cause to be paid promptly when due all en
route navigation charges, navigation service charges (including to
the extent applicable Eurocontrol charges) and all other charges
payable in respect of the use of the Aircraft or for services
provided at any airport in respect of the Aircraft. Lessee agrees to
indemnify and hold the Lessor harmless in respect of all such charges
in respect of the Aircraft. This indemnity shall continue in full
force and effect notwithstanding the termination or expiration of the
Term for any reason whatsoever or the return of the Aircraft but only
with respect to acts or events occurring on or prior to such
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<PAGE>
termination, expiration or return. Upon request of Lessor, Lessee
shall provide Lessor with a letter addressed to Eurocontrol or any
other relevant air traffic control authority pursuant to which Lessee
authorizes the addressee to issue to Lessor a statement of account of
all sums due by Lessee to the authority in respect of the operation
of the Aircraft (and other aircraft owned or operated by Lessee).
f. Lessee shall not become a "tax exempt entity" as defined in
Section 168(h) of the Internal Revenue Code.
g. Lessee shall not permit the predominant use of the Aircraft to be
outside the United States within the meaning of Section 168(g) of the
Internal Revenue Code prior to the seventh anniversary of the
Delivery Date.
h. Lessee will make no claim or file any document which is
inconsistent with the ownership of the Aircraft by the Lessor.
i. Lessee will not alter or amend the Tramco Agreement or the GE
Agreement without the prior written consent of Lessor.
j. Lessee will not operate or permit the operation of the Engines at
B3 or C1 thrust, except on an emergency basis.
SECTION 9. REPLACEMENT AND POOLING OF PARTS;
ALTERATIONS, MODIFICATIONS AND ADDITIONS.
9.1. REPLACEMENT OF PARTS. Lessee, at its own cost and expense, shall
promptly replace all Parts which may from time to time become worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use for any reason whatsoever. In addition, in the ordinary
course of maintenance, service, repair, overhaul or testing, Lessee may remove
any Part, whether or not worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or permanently rendered unfit for use; provided that
Lessee shall promptly replace such Part as promptly as practicable. All
replacement Parts shall be free and clear of all Liens, except those permitted
under Section 9.3 hereof and shall be in as good operating condition as, and
shall have a value and utility and modification status at least equal to, the
Parts replaced, assuming such replaced Parts were in the condition and repair
required to be maintained by the terms hereof.
9.2. TITLE TO REPLACED AND REPLACEMENT PARTS. All Parts removed from an
Airframe or an Engine 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 such
Airframe or Engine and which meet the requirements for replacement Parts
specified above. Immediately upon any replacement Part becoming incorporated,
installed or attached as above provided, without further act, (a) title to the
replaced Part shall thereupon vest in Lessee, free and clear of all rights of
Lessor and Lessor and free of all Liens, other than Permitted Liens (not
including Lessor Liens); (b) such replaced Part shall no longer be deemed a Part
hereunder; (c) title to the replacement Part shall thereupon vest in Lessor; and
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<PAGE>
(d) such replacement Part shall become subject to this Lease and be deemed to be
a Part hereunder to the same extent as the Parts originally incorporated or
installed in or attached to an Airframe or Engine.
9.3. POOLING. Any replacement Part when incorporated or installed in or
attached to an Airframe or Engine in accordance with Section 9.1 hereof may be
owned by another air carrier, subject to a normal pooling arrangement; provided
that Lessee, at its expense, as promptly thereafter as possible either (a)
causes title to such replacement Part to vest in Lessor in accordance with
Section 9.2 by Lessee acquiring title thereto for the benefit of Lessor, free
and clear of all Liens, or (b) replaces such replacement Part with a further
replacement Part owned by Lessee free and clear of all Liens.
Any Part removed from an Airframe or Engine as provided in Section
9.1 may be subjected by Lessee to a normal pooling arrangement customary in the
airline industry entered into the ordinary course of Lessee's business with
another air carrier; PROVIDED that a Part replacing such removed Part shall be
incorporated or installed in or attached to such Airframe or Engine in
accordance with Section 9.1 as promptly as possible after the removal of such
removed Part.
9.4. ALTERATIONS, MODIFICATIONS AND ADDITIONS. Except as provided in
Section 6.6 hereof, Lessee shall not make any alteration, modification or
addition to any Airframe or any of the Engines, without Lessor's prior written
consent; provided, however, Lessor's consent shall not be required if the
modification, alteration or addition has a cost (including cost of installation,
if applicable) of less than $[ ]* and does not decrease the value or utility of
the Aircraft or Engine. Lessor shall bear no liability whatsoever for the cost
of alterations, modifications or additions to the Aircraft whether due to
grounding of any Aircraft or any Engine or the suspension or revocation of
certification of any Aircraft or for any other cause.
9.5. TITLE TO PARTS. Subject to the provisions hereof, title to all Parts
incorporated or installed in or attached or added to each Aircraft as the result
of any alteration, modification or addition, or otherwise installed on the
Aircraft by Lessee and necessary for the transportation of persons or property
under the rules of the FAA, shall, without further act, vest in Lessor and
become subject to this Lease; PROVIDED, HOWEVER, that so long as no Default or
Event of Default shall have occurred and be continuing, at any time during the
Term, Lessee may remove any Part from an Item of Equipment, provided that (a)
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 Item at the
time of delivery thereof hereunder or any Part in replacement of, or
substitution for, any such original Part; (b) such Part is not required to be
incorporated or installed in or attached or added to such Item pursuant to the
terms hereof; and (c) such Part can be removed from such Item without
diminishing or impairing the value, utility or airworthiness which such item
would have had at such time had such alteration, modification or addition not
occurred. Upon the removal by Lessee of any such Part as above provided, title
thereto shall, without further act, vest in Lessee and such Part shall no longer
be deemed a Part hereunder. Any Part not removed by Lessee as above provided
prior to the return to the respective Item to Lessor hereunder shall remain the
property of Lessor and subject to this Lease.
SECTION 10. TAXES.
10.1.GENERAL. Lessee shall pay, assume liability for and indemnify,
protect, defend, save and hold Lessor, Mortgagee and any permitted successor,
assignee or transferee of any of the foregoing, and any affiliate of any of the
foregoing with which such entity files a consolidated or combined return (each
an "Indemnitee"), harmless from and against, all taxes (including value-added
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<PAGE>
taxes), fees (including license and registration fees), levies, imposts, duties,
charges or withholdings of any nature whatsoever, together with any penalties,
fines or interest thereon, (all the foregoing being collectively called "Taxes"
and each a "Tax") which are imposed by any government (or any political
subdivision or fiscal or taxing authority thereof) and are imposed on or with
respect to, or are measured by, (a) this Lease, (b) the Aircraft or any Part
thereof, (c) the Lessorship, delivery, possession, use, presence, storage,
registration, deregistration, modification, maintenance, operation, return,
import, export, subleasing, repair, overhaul, transportation, landing,
redelivery, leasing or other disposition of the Aircraft or any Part or portion
thereof, or (d) the receipts, earnings, insurance proceeds or other amounts
arising from the Aircraft or any Part, or this Lease; PROVIDED, HOWEVER, the
foregoing indemnity shall not apply to: (i) Taxes imposed on or measured by the
net income, net worth, gross receipts, capital or excess profits of any
Indemnitee by the jurisdiction of incorporation or principal place of business
of such Indemnitee, or where such Indemnitee is otherwise subject to taxation as
a result of transactions unrelated to the Aircraft or the Lease, unless such Tax
resulted solely from the operation by Lessee of the Aircraft in such
jurisdiction; (ii) Taxes imposed with respect to any period prior to the
Delivery Date or the period after return of the Aircraft pursuant to Section 15
hereof; (iii) Taxes imposed on or with respect to a transfer by an Indemnitee of
all or any part of its rights, title and interest in, to or under the Aircraft
(or any Part thereof, except a transfer of a Part pursuant to Section 9 of this
Lease) or this Lease to any person or entity, unless any such transfer occurs
because an Event of Default has occurred and is continuing, (iv) Taxes which any
Indemnitee is subject to as a result of business or transactions unrelated to
the transactions contemplated by this Lease; (v) any Tax imposed on a transferee
of any Indemnitee to the extent such Tax exceeds the amount Lessee would be
required to indemnify the transferring Indemnitee hereunder; (vi) any Tax or
penalty due to a failure by the Lessor, after receipt of timely written notice
thereof from the Lessee to comply with any certification, information,
documentation, notification or other reporting requirement which is required by
law or a precondition to exemption or other relief from (or reduction) such
taxes; (vii) any tax or penalty due to the Indemnitee's willful misconduct or
inaccuracy of any representation of the Indemnitee, or the breach of any
agreement of the Indemnitee, in the Lease or any other Lease Documents; (viii)
any increase in Taxes caused by a change of jurisdiction of incorporation or
place of business of an Indemnitee or a change in the place of any payment due
hereunder.
10.2.WITHHOLDING TAXES. Notwithstanding anything to the contrary contained
in this Section 10 (other than subsection 10.1(viii) above), if Lessee is
required by law to make any withholding from Rent or any other amount payable by
Lessee to an Indemnitee under this Lease, Lessee shall pay to such Indemnitee
such additional amount as may be necessary to enable such Indemnitee to receive
(after such withholding) and retain an amount equal to the full amount then
payable to such Indemnitee absent such withholding. As soon as practicable after
Lessee makes any withholding from any amount payable to an Indemnitee under this
Lease, Lessee shall deliver to such Indemnitee a receipt or other document,
reasonably satisfactory to such Indemnitee and reasonably obtainable by Lessee,
evidencing such withholding and the payment of the amount withheld to the
relevant governmental authority, for the purpose of enabling such Indemnitee to
substantiate a claim for credit or deduction for income tax purposes of the
amounts so withheld. If Lessee pays to Lessor pursuant to this Section 10.2 any
additional amount with respect to any withholding for which Lessee is not
required by Section 10.1 hereof to indemnify Lessor, Lessor shall repay such
additional amount to Lessee within 30 days after Lessor receives Lessee's
written request therefor accompanied by the receipt or other document referred
to in the preceding sentence, together with interest on such amount repaid at
LIBOR as in effect from time to time, and in such case, Lessee shall not be
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further obliged to pay such additional amount in the future once it is
determined that Lessee is not required to indemnify for such withholding. This
Section 10.2 shall not apply to any withholding tax imposed by the United States
of America.
10.3.AMOUNT OF INDEMNITY. Each indemnity provided for in this Section 10
or Section 13 below, shall be in an amount which, after taking into account all
taxes, fees or other charges payable or imposed with respect thereto or as a
result of the receipt thereof by any Indemnitee in any jurisdiction (whether or
not excepted above), shall be equal to the amount of such indemnity otherwise
payable under this Lease. Any payment required to be made by Lessee under
Sections 10.1 or 10.3 shall be due and payable within 30 days following Lessee's
receipt of Lessor's written demand therefor (accompanied by a written statement
of Lessor describing in reasonable detail the Taxes for which the Indemnitee is
demanding an indemnity and the computation of the amount of the indemnity being
demanded), subject to the provisions of Section 10.4.
10.4.CONTEST. If a claim is made against any Indemnitee for any Tax that
is subject to indemnification under this Section 10, Lessor will give Lessee
written notice of such claim. If Lessee so requests in writing within 30 days
after receipt of such notice, the Indemnitee shall permit Lessee to contest the
claim in the name of such Indemnitee or in the name of Lessee, to the extent
permitted by law. However, if such claim together with other claims which could
be made with respect to other transactions to which such Indemnitee is then a
party could (if sustained) have an adverse effect on such Indemnitee's business
or financial affairs (a "Special Claim"), or (b) if Lessee shall not be
permitted by law to contest a claim (other than a Special Claim) on behalf of
such Indemnitee, then such Indemnitee shall contest such claim in good faith.
Notwithstanding the foregoing, no claim shall be contested unless and until: (a)
the Indemnitee shall have received (i) an indemnity reasonably satisfactory to
it for all expenses reasonably expected to be paid in contesting the claim
(including attorneys' and accountants' fees and disbursements) and (ii) written
acknowledgment by Lessee of its liability hereunder (if such contest is decided
adversely) in respect of such Taxes; (b) the action to be taken will not involve
any material risk of the sale, forfeiture or loss of, or the creation of any
Lien (except a Lien which Lessee shall have bonded in an amount and manner
reasonably satisfactory to Lessor) on, the Aircraft or any part thereof or any
interest therein; (c) if such contest shall be conducted in a manner requiring
the payment of the claim, Lessee shall have advanced the amount required on an
after-tax basis; (d) no Default or Event of Default shall have occurred and be
continuing and Lessor shall be receiving all amounts of Rent when due, without
reduction by reason of any Taxes; and (e) if such claim is a Special Claim, and
if Lessor shall have received a legal opinion (at the expense of Lessee) from
counsel satisfactory to Lessor indicating that a reasonable basis for such
contest exists. Lessor and Lessee shall in good faith consider the other party's
views regarding the conduct of the contest. Lessor and Lessee shall provide to
each other, upon request, such reasonably obtainable information and such other
reasonable assistance as may be necessary or advisable for the effective
evaluation or conduct of such contest. Notwithstanding the foregoing provisions
of this Section 10.4, if at any time Lessor waives its right of indemnification
under this Section 10 in respect of a claim, or if, after having received
payment of indemnification from Lessee hereunder in respect to such claim,
Lessor tenders such payment to Lessee, then Lessee shall not be entitled to
contest, or to continue to contest, any such claim.
10.5.TAX RETURNS. Lessee will provide such information as may be
reasonably requested by Lessor and reasonably obtainable by Lessee to enable
Lessor to fulfil its tax filing requirements with respect to the transactions
contemplated hereby. In the event that any return, statement or report is
required to be made or filed with respect to any Tax required to be indemnified
against by Lessee under this Section 10, Lessee shall notify Lessor of such
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requirement and (a) to the extent permitted by law and requested by Lessor or
required by law, make and file in its own name such return, statement or report
in such manner as will show the Lessorship of the Aircraft in Lessor and furnish
Lessor with a copy of such return, statement or report or (b) where such return,
statement or report is required to be in the name of or filed by Lessor, prepare
and furnish such return, statement or report for filing by Lessor in such manner
as shall be satisfactory to Lessor and send the same to Lessor for filing no
later than 30 days prior to the due date. Where Lessor is required to make or
file a return, statement or report reflecting items of Equipment other than or
in addition to Taxes indemnified against by Lessee under this Section 10, Lessee
shall, upon Lessor's request, provide Lessor with information, within a
reasonable time, sufficient to permit such return, statement or report to be
properly made and timely filed.
10.6.MUTUAL ASSISTANCE. Lessor and Lessee agree to consider in good faith
(but without any obligation to agree thereto) any reasonable modifications of
the transaction described in this Lease that would reduce or eliminate any Taxes
imposed on either party as a result of such transaction.
10.7 REFUND OF INDEMNITY. If any amount paid under this Section 10 to an
Indemnitee is later recovered in whole or in part, whether by way of refund of
tax or utilization of a tax credit generated by the Tax indemnified hereunder,
the Indemnitee shall repay such amount, together with such interest as may be
paid by the taxing authority, to Lessee. No refund to Lessee shall exceed the
sum of the indemnity payments to such Indemnitee hereunder.
10.8 MACRS INDEMNITY. Lessee will indemnify the Lessor for the loss,
reduction or recapture of deductions with respect to the Aircraft otherwise
available to the Lessor under Section 168 of the Internal Revenue Code of 1986,
as amended, caused by (i) the Lessee's or any sublessee's being a "tax-exempt
entity" within the meaning of Code Section 168(g) or (ii) the use of the
Aircraft by Lessee or any sublessee "predominantly outside the United States"
within the meaning of Code Section 168(h).
[Customary exceptions and contest rights and provision for the payment to the
Lessee by the Lessor of any tax benefits available to the Lessor (whether by
deduction, credit or otherwise) as the result of the indemnified matter.]
SECTION 11. EVENT OF LOSS.
11.1.WITH RESPECT TO THE AIRCRAFT. Upon the occurrence of an Event of Loss
with respect to the Aircraft, Lessee shall forthwith (and in any event within 10
days after such occurrence) give Lessor written notice of such Event of Loss,
and Lessor and Lessee shall proceed diligently and cooperate fully with each
other in the recovery of any and all proceeds of insurance applicable thereto.
On the earlier of the date of receipt of proceeds of insurance or the 90th day
following the Event of Loss Lessee shall pay or cause to be paid to Lessor: (a)
the Insured Value of the Aircraft; (b) all other amounts of Rent which are due
and unpaid hereunder.
At such time as Lessor or Mortgagee shall have received the entire
Insured Value for the Aircraft and all accrued and unpaid Rent and any other
amounts due Lessor hereunder, Lessor shall transfer to Lessee all Lessor's
right, title, and interest, "as-is, where-is," without recourse or warranty,
express or implied, in and to (a) the Aircraft, (b) all claims for damage to
such Items, if any, against third persons arising from the Event of Loss (unless
any insurance carrier requires that such claims be assigned to it), (c) all
rights to any insurance claims and proceeds under all insurance, except
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liability insurance, maintained by Lessee hereunder, all without representation,
recourse or warranty of any kind whatsoever, and (d) the Term of the Lease shall
end.
11.2.WITH RESPECT TO AN ENGINE. Upon the occurrence of an Event of Loss
with respect to an Engine under circumstances in which there has not occurred an
Event of Loss with respect to the Aircraft, Lessee shall forthwith (and in any
event within 10 days after such occurrence) give Lessor written notice thereof
and Lessee shall replace such Engine as soon as reasonably possible by duly
conveying to Lessor, free and clear of all Liens, title to another engine of the
same or an improved model and suitable for installation and use on the Airframe
with the other Engine, which engine shall have a value and utility at least
equal to, and be in as good operating condition as, the Engine with respect to
which such Event of Loss shall have occurred, assuming such Engine was of the
value and utility and in the condition and repair as required by the terms
hereof immediately prior to the occurrence of such Event of Loss. Such
replacement engine shall be deemed an "Engine" as defined herein for all
purposes hereunder. Lessee agrees to promptly notify Lessor of any such
substitution, provide Lessor with an officer's certificate demonstrating full
compliance with this Section 11.2 and Lessee agrees to take such action and
execute such documents, including a warranty bill of sale, as Lessor may
reasonably request in order that any such replacement Engine shall be duly and
properly titled in the name of the Lessor and leased hereunder to the same
extent as any Engine replaced thereby. Lessor shall take such action and shall
execute such documents as are reasonably necessary to convey the Engine replaced
pursuant to the preceding sentence to Lessee or its insurer.
11.3.APPLICATION OF PAYMENTS FROM GOVERNMENTAL AUTHORITIES. Payments
received by Lessor or Lessee from any governmental authority or entity with
respect to an Event of Loss resulting from the condemnation, confiscation or
seizure of, or requisition of title to an Aircraft, an Airframe or any of the
Engines, shall be retained by Lessor, if received by Lessor, or promptly paid
over to Lessor, if received by Lessee, up to the Insured Value (plus any amounts
of Rent then due and owing). At such time as Lessor has received such amounts in
full, Lessor shall promptly remit the excess, if any, of such payments to the
Lessee. Payments received by Lessor or Lessee from any governmental authority or
entity with respect to a requisition of use during the Term of an Aircraft, an
Airframe or any of the Engines shall be paid to or retained by Lessee, and
Lessee's obligation to make all payments of Rent shall continue undiminished.
Payments received by Lessor or Lessee with respect to periods after the end of
the Term shall be paid to (or retained by) Lessor.
SECTION 12. INSURANCE.
12.1.PUBLIC LIABILITY, BODILY INJURY AND PROPERTY DAMAGE LIABILITY
INSURANCE. Lessee, at its own expense, shall maintain or cause to be maintained
in effect third party aircraft liability insurance (which includes coverage with
respect to liabilities arising while the Items of Equipment are not in
operation), passenger legal liability insurance and property damage liability
insurance, including contractual liability insurance and war risk, hijacking
(air piracy), confiscation, nationalization, expropriation (excluding the
Government of the United States of America) and related perils coverages, during
the Term in an amount not less than the greater of (a) $[ ]*, per occurrence,
combined single limit or (b) the amount normally carried by Lessee on its other
owned or leased aircraft, for any one accident, or series of accidents arising
out of any one event, with respect to the items of Equipment. All such policies
shall be maintained in effect directly with independent insurers of recognized
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reputation and financial responsibility, reasonably satisfactory to Lessor. Any
policies of insurance carried in accordance with this Section 12.1 and any
policies taken out in substitution or replacement for any of such policies
shall: (i) name Lessor and all other Additional Insureds, as additional
insureds; (ii) provide that in respect of the interests of the Additional
Insureds such policies of insurance shall insure the Additional Insureds
regardless of any breach or violation of any warranty, declarations or
conditions contained in such policies by any other insured party other than
Additional Insureds; (iii) provide that if the insurers cancel such insurance
for any reason whatever, or the same is allowed to lapse for nonpayment of
premium, or if there is any material change in policy terms and conditions, such
cancellation, lapse or change shall not be effective until 30 days (and with
respect to war risk insurance, such shorter period as shall be customary in the
International Aviation market for such insurance in such area of the world)
after prior written notice to the Additional Insureds, in care of the Lessor at
the address shown in Section 18.2 below, from such insurers or brokers of such
cancellation, lapse or change; (iv) be primary without right of contribution
from any other insurance which may be available to any Additional Insured; (v)
expressly provide that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate policy
covering each insured, but this provision shall not operate to include any claim
arising in respect of loss or damage to the Aircraft or Engines insured under
the hull insurance provided in Section 12.2 below, and provided further that the
foregoing shall not increase the total liability of the insurers beyond the
limits of liability stated in the Policy; (vi) provide that the insurers agree
to waive any right of subrogation or setoff, counterclaim or other deduction
against any Additional Insured; and (vii) provide for world wide coverage in
full force and effect throughout any geographical areas traversed by the
Aircraft or Engines. Without increasing the scope of coverage under the airline
liability policies, the insurers thereunder shall acknowledge the existence of
this Lease and the Mortgage and provide coverage for the indemnification
provisions of this Lease. Insurers shall also acknowledge that Lessor has no
operational control over the Aircraft.
12.2.INSURANCE AGAINST LOSS OR DAMAGE TO THE AIRCRAFT. Lessee, at its own
expense, shall maintain directly in effect with independent insurers of
recognized reputation and financial responsibility, reasonably satisfactory to
Lessor: (a) all-risk ground and flight aircraft hull insurance covering each
Aircraft; (b) fire and extended perils coverage with respect to Engines or Parts
while removed from the Aircraft; and (c) war risk, hijacking (air piracy),
confiscation, nationalization, expropriation (excluding the Government of the
United States of America) and related perils coverages. All such insurance shall
be in full force and effect throughout any geographical areas traversed at any
time by each Aircraft or Engines, shall be payable in Dollars and shall be in an
amount of not less than the Insured Value. Any hull insurance carried in
accordance with this Section 12.2 shall not contain a provision for deductible
or self-insurance amount in excess of $[ ]*. Each Engine, after removal pursuant
to Section 6.1, shall be insured for not less than $[ ]* under the policy
referenced in 12.2(b) above. Any policies carried in accordance with this
Section 12.2 shall (i) name the Lessor, the Lessee and the Mortgagee as loss
payee(s); (ii) provide that if such insurance is cancelled or materially changed
for any reason whatever, or the same is allowed to lapse for nonpayment of
premium, such cancellation, change or lapse shall not be effective for 30 days
(and with respect to war risk insurance, such shorter period as shall be
customary in the International Aviation market for such insurance in such area
of the world) after prior written notice to the Additional Insureds from such
insurers of such cancellation or lapse or material change in policy terms and
conditions; (iii) provide that in respect of the interests of the Additional
Insureds such policies of insurance shall insure each Additional Insured
regardless of any breach or violation of any warranty, declarations or
conditions contained in such policies by any other insured other than the
Additional Insureds; (iv) shall include waivers by the insurers of any rights of
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subrogation or setoff, counterclaim or other deduction whether by attachment or
otherwise, in respect of any liability of Lessor except in respect of premiums
in respect of the Aircraft which are the subject of this Lease; (v) be primary
without right of contribution from any other insurance which may be available to
any Additional Insured; and (vi) provide that in the event of a dispute between
the insurance and reinsurance underwriters subscribing to the Hull Risks Policy
and the insurance and reinsurance underwriters subscribing to the Hull War and
Allied Risks Policy each policy shall subscribe to 50% of the agreed valid claim
in accordance with "50/50" clause AVS 103. Without increasing the scope of
coverage under the airline liability policies, the insurers thereunder shall
acknowledge the existence of this Lease and the Mortgage and provide coverage
for the indemnification provisions of this Lease. Insurers shall also
acknowledge that Lessor has no operational control over the Aircraft.
12.3.NOTICE OF ADDITIONAL PARTIES. Lessor agrees to provide written notice
to Lessee of the name, address and telephone and fax numbers of all Additional
Insureds at the inception of this Lease and at the time of any change therein.
12.4.APPLICATION OF PROCEEDS IN AN EVENT OF LOSS. All payments under
insurance policies required to be maintained hereunder and received by Lessee or
by Lessor as the result of the occurrence of an Event of Loss shall be applied
as follows:
a. If such payments are received with respect to an Airframe (or an
Airframe and the Engines or engines installed thereon), Lessor and
Lessee shall proceed diligently and cooperate fully with each other
in the recovery of any and all proceeds of insurance applicable
thereto, and so much of such insurance proceeds as shall not exceed,
in the aggregate, the sums due under Section 11.1 above shall be paid
first to Mortgagee, if any, as first priority loss payee, then to
Lessor as second priority loss payee, in accordance with their
respective interests.
b. If such payments are received with respect to an Engine under the
circumstances contemplated by Section 11.2 hereof, provided that no
Event of Default exists and is continuing, such payments shall be
paid over to, the Lessee, provided that the Lessee shall have fully
performed the terms of Section 11.2 hereof with respect to the
provision of a satisfactory replacement Engine.
12.5.APPLICATION OF PROCEEDS IN THE ABSENCE OF AN EVENT OF LOSS. As
between Lessor and Lessee, the insurance payments of any property damage loss to
an Aircraft or any Engine not constituting an Event of Loss with respect thereto
will be applied as follows:
a. in respect of a claim for damage not exceeding $[ ]* any payment
from the insurers shall be released directly to Lessee, or where the
work has been contracted out, to the repairers; and
b. in respect of a claim where damage exceeds $[ ]* any payment from
the insurers shall be payable to Mortgagee and Lessor or its
assignee(s) up to and including the amount of the Insured Value, but
will be paid over to Lessee in reimbursement for completed repairs
or, where the approved work has been contracted out, will be paid
over to the repairer.
Any amount referred to in this Section 12.5 which is payable to
Lessee shall not be paid to Lessee if at the time of such payment an Event of
Default declared to Lessee's Insurers shall have occurred and be continuing, but
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shall be held by Lessor as security for the obligations of Lessee under this
Lease and such amount shall be paid to Lessee at such time as there no longer
exists any Default or Event of Default.
12.6.REPORTS, ETC. Lessee and Lessee's independent insurance broker shall
advise Lessor in writing promptly of any default in the payment of any premium
and of any other act or omission on the part of Lessee which might invalidate or
render unenforceable, in whole or in part, any insurance on the Aircraft. At the
Delivery Date and at least 10 days prior to the renewal date of any insurance
policy maintained with respect to the Aircraft pursuant to this Section 12,
Lessee shall provide Lessor with:
a. the insurance certificates executed by an independent aircraft
insurance broker together with their letter of undertaking; and
b. the written opinion of Lessee's insurance broker that the
insurance maintained by Lessee and its insurers is in compliance with
the provisions of this Lease.
12.7.LESSEE'S ADDITIONAL INSURANCE. Lessee shall not place insurance on
the Aircraft in excess of the amounts specified in Section 12.2 beyond the next
policy renewal date without the prior written approval of Lessor, which consent
shall not be unreasonably withheld. Any proceeds of insurance maintained by
Lessee in excess of the amount specified in Section 12.2, assuming Lessor has
consented thereto, shall be paid to Lessee as soon as practical after the date
such insurance proceeds are received by Lessor, Lessor or Mortgagee. In any
event Lessor shall be entitled to receive all insurance proceeds derived from
insurance coverage paid for by Lessor. No additional insurance procured by
Lessee shall have the effect of suspending, impairing, defeating, invalidating
or rendering unenforceable or reducing, in whole or in part, the coverage of or
the proceeds payable under any insurance required to be provided and maintained
by Lessee pursuant to this Section 12.
12.8.LESSOR NOT LIABLE FOR PREMIUMS. All policies of insurance carried
hereunder shall clearly state that neither Lessor nor any assignee of Lessor,
shall have any liability for or obligation with respect to premiums,
commissions, assessments or calls, but shall have the right to pay the same with
respect to the Aircraft and/or Engines. Lessor shall have the right, but not the
obligation, to place additional insurance on the Aircraft in such amounts as
Lessor in its sole discretion deems proper; provided, however, no such insurance
shall impair, defeat or invalidate the coverage effected pursuant to Section
12.2 above and such additional insurance shall be at Lessor's sole expense.
12.9.CONTINUING INSURANCE. Lessor may require Lessee to effect and to
maintain insurance after the expiration of the Term with respect to its
liability under the indemnities in Section 13 for such period as Lessor may
require (but in any event not after the second anniversary of the termination of
the leasing of the Aircraft under this Lease, which provides for each Indemnitee
to be named as additional insured. Lessee's obligation under this Section shall
not be affected by Lessee ceasing to be lessee of the Aircraft and/or any of the
Indemnities ceasing to have any interest in the Aircraft.
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SECTION 13. GENERAL INDEMNIFICATION.
13.1 SCOPE. Lessee shall hold Lessor, Mortgagee and GATX and their
respective directors, officers, agents, shareholders contractors, employees,
successors, assigns and servants (each an "Indemnitee") harmless from any and
all claims, demands, suits, causes of action and all legal proceedings, whether
civil or criminal, damages, losses, liabilities (including, but not limited to,
strict liability in tort), obligations, penalties, judgments or fines and other
sanctions, and any costs and expenses in connection therewith, including
reasonable legal fees and expenses of whatever kind and nature ("Loss") which
may result from or arise out of (a) the condition, use or operation during the
Term of any Item of Equipment either in the air or on the ground, or (b) any
maintenance, service, repair, overhaul, possession, delivery, performance
management, registration, control, return or testing of any Item during the
Term, whether or not such Item is at the time in the possession of Lessee;
provided, however, that the Lessee shall not be required to indemnify any
Indemnitee for any Loss, (i) to the extent that such Loss is caused by the acts
or events which occur after full and final compliance by Lessee with all terms
of the Lease, unless attributable to acts, omissions, circumstances or events
occurring during the Term, (ii) to the extent that such Loss is caused by acts
or events which occur following expiration or termination of the Lease, or the
taking of possession of the Aircraft by any Indemnitee pursuant to Section 17
hereof, (iii) which is a Tax or a loss of tax benefit (it being understood that
Section 10 provides for Lessee's liability with respect to Taxes), (iv) to the
extent that such Loss results from the willful misconduct of any Indemnitee, or
(v) to the extent that such Loss results from any breach by Lessor of any
representation or warranty in Section 5.1 contained herein. Upon payment in full
to any party indemnified hereunder of any indemnities contained in this Section
13 by Lessee, Lessee shall be subrogated to all rights and remedies which such
indemnified party has or may have against manufacturers of the relevant Item or
any other person. Lessor shall notify Lessee promptly of any such Loss and in no
event later than 30 days after the Lessor has notice thereof.
13.2.LESSEE'S RELEASE. Lessee hereby waives and releases any claim now or
hereafter existing against any Indemnitee on account of any and all claims,
demands, suits, causes of action and all legal proceedings, whether civil or
criminal, damages, losses, liabilities (including, but not limited to, strict
liability in tort), obligations, penalties, judgments or fines and other
sanctions, and any costs and expenses in connection therewith, including
reasonable legal fees and expenses of whatever kind and nature, which may result
from or arise out of injury to or death of personnel of Lessee or its agents or
contractors or loss or damage to property of Lessee or the loss of use of any
property which may result from or arise out of (a) the condition, use or
operation during the Term of any Item of Equipment, either in the air or on the
ground, or (b) any maintenance, service, repair, overhaul, possession, delivery,
performance management, registration, control, return or testing of any Item
during the Term, whether or not such Item is at the time in the possession of
Lessee. The foregoing waiver and/or release shall not apply to injury, death,
loss or damage solely resulting from (i) the gross negligence or wilful
misconduct of such Indemnitee or (ii) the breach by Lessor of any representation
or warranty contained in Section 5.1 above.
13.3.CONTEST. If Lessee is not permitted to contest in its own name and if
an Indemnitee is unable to assign to Lessee whatever right such Indemnitee may
have to bring or defend such an action, then if requested by Lessee in writing,
Lessor shall upon receipt of an opinion of Lessee's counsel stating that
reasonable grounds exist to take the action requested, in good faith contest the
validity, applicability or amount of any liability or loss which Lessor may
incur as a result of its contesting an indemnified amount (an "Indemnified
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Amount") by (a) resisting payment thereof, (b) not paying the same except under
protest if protest is necessary and proper, or (c) if payment is made, using
reasonable efforts to obtain a refund in appropriate administrative or judicial
proceedings; provided, however, that Lessor need not contest the applicability
of any such Indemnified Amount, if the matter in question is of a continuing
nature and has previously been resolved pursuant to the provisions of this
Section 13.3.
13.4.REPAYMENT. If an Indemnitee shall obtain a repayment of any
Indemnified Amount paid by Lessee, such Indemnitee shall, so long as there
exists no Event of Default, promptly pay to Lessee the amount of such repayment,
together with the amount of any interest received by such Indemnitee on account
of such repayment.
13.5.PAYMENT. Subject to the provisions of Section 13.3 hereof, Lessee
shall pay directly to each party indemnified hereunder all amounts due under
this Section 13 within 30 days of the receipt of notice that such payment is
due.
SECTION 14. LIENS.
Lessee shall not, directly or indirectly create, incur, assume or suffer
to exist any Lien on or with respect to any Item of Equipment or any interest
therein, except Permitted Liens. Lessee shall promptly, at its own expense, take
such action as may be necessary to duly discharge any such Lien not excepted
above if the same shall arise at any time with respect to any Item of Equipment.
As Lessor may reasonably request from time to time due to changes in applicable
law or changes in other circumstances Lessee shall provide Lessor with the
written opinion of independent counsel reasonably satisfactory to Lessor or
other written evidence satisfactory to Lessor to the effect that, based upon an
examination of the documents of the Lessee and the records of the FAA and any
other documents deemed necessary, and subject to the accuracy of such records,
no Liens exist against the Aircraft or any Engine except Permitted Liens (and
specifying which, if any, such Permitted Liens exist).
SECTION 15. RETURN OF AIRCRAFT AND RECORDS.
On the expiration or earlier termination of this Lease, the Aircraft and
the Aircraft Records shall be returned to Lessor in accordance with the
provisions of Exhibit F hereto, all of which shall be deemed incorporated by
reference as though set forth in full herein. This Section 15 shall not limit
any rights or remedies under Section 17 hereof. Any references in this Lease to
Section 15 shall be deemed to refer to this Section 15 and Exhibit D.
SECTION 16. EVENTS OF DEFAULT.
The following events shall constitute Events of Default:
a. Lessee shall fail to make any payment of Basic Rent on the day the
same is due hereunder or fails to make any payment of Supplemental
Rent within three Business Days of the date when due hereunder; or
b. Lessee shall fail to procure and maintain any insurance required
by Section 12 hereof or Lessee shall operate the Aircraft at any time
when insurance required by Section 12 shall not be in effect or in an
area excluded from such insurance cover; or
c. Lessee shall fail to perform or observe in any material respect
any other of the covenants, conditions, or agreements to be performed
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or observed by it hereunder and such failure shall continue for a
period in excess of 30 days from the date written notice is received
from the Lessor requiring the same to be remedied, or if such failure
can not be remedied within this time period, failure to have taken
all reasonable measures, so that it could be remedied immediately
thereafter; or
d. Any representation or warranty made by Lessee herein or in any
document or certificate furnished Lessor in connection herewith or
pursuant hereto shall prove to have been incorrect in any material
respect when made or deemed to be repeated; or
e. 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 under any lease which has a
principal amount of [ ]* 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 an acceleration of such
indebtednessor any early termination or declaration of default under
such lease, or Lessee shall default in the performance of any other
term, agreement, or condition contained in any agreement or
instrument under or by which any such obligation is created,
evidenced or secured, if the effect of such default is to cause such
obligation to become due prior to its stated maturity or to cause
such lease to be early terminated or declared in default or;
f. any consent, authorization, license or approval of or registration
with or declaration to governmental or public bodies or authorities
or courts required by the Lessee in order to perform its obligations
under any of the Lessee Documents is not granted or is revoked or
terminated or expires and is not replaced or reinstated in full force
and effect within thirty (30) days thereafter; or
g. a creditor attaches or takes possession of a material part of the
assets or revenues of the Lessee and such attachment is not
discharged within sixty (60) days; or
h. the Lessee suspends payment of its debts or becomes or is
judicially determined to be insolvent or unable to pay its debts as
they fall due or commences negotiations with its creditors generally
with a view to the re-adjustment or re-scheduling of all or part of
its indebtedness or proposes or enters into any composition or other
arrangement for the benefit of its creditors generally or any class
of creditors commence proceedings in relation to the Lessee under any
law, regulation or procedure relating to reconstruction or
readjustment of debts and the same are not contested by Lessee; or
i. the Lessee shall file a voluntary petition in bankruptcy or a
voluntary petition seeking protection from creditors or
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 the Lessee in any such proceedings, or
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Lessee shall by voluntary petition, answer, or consent seek relief
under the provisions of any bankruptcy or other similar law providing
for the reorganization or winding-up of corporations, or consents to
the appointment of a receiver, trustee, liquidator of itself or a
substantial part of its assets; or
j. an order, judgment or decree is entered by any court, with or
without the consent of the Lessee, appointing a receiver, trustee or
liquidator for Lessee of all or any substantial part of its property,
or all or any substantial part of the property of the Lessee is
sequestered, and any such order, judgment or decree of appointment or
sequestration remains in effect, undismissed, unstayed or unvacated
for a period of sixty (60) days after the date of entry thereof; or
k. a petition against the Lessee in a proceeding under any
bankruptcy, insolvency or other similar laws (as now or hereafter in
effect) shall be filed, or if, under the provisions of any law
providing for reorganization or winding-up of corporations which may
apply to Lessee any court of competent jurisdiction shall assume
jurisdiction, custody or control of the Lessee, and such petition is
not voluntarily or otherwise dismissed within sixty (60) days after
the filing thereof; or
l. the Lessee suspends or ceases or threatens in writing to suspend
or cease to carry on its business such that the ability of Lessee to
perform its obligations under the Lessee Documents may reasonably be
expected to be materially adversely affected; or
m. all or substantially all of the assets or revenues of the Lessee
are seized, nationalized, expropriated or compulsorily acquired by or
under the authority of any government; or
n. the Lessee threatens to dispose of all or substantially all of its
assets, whether by one or a series of transactions, related or not,
other than for the purpose of a reconstruction or amalgamation the
terms of which have received the previous consent in writing of the
Lessor and such disposition would have a material adverse effect on
the ability of the Lessee to perform its obligations under the Lessee
Documents;
o. the Lessee ceases to be a Certificated Air Carrier or ceases to
hold a United States Air Carrier License or Certificate under Part
121 of the FAR (or any successor provision) or Certificate under
Section 41101 of Title 49 of the United States Code (or any successor
provision); or
p. Lessee voluntarily suspends all of its airline operations or
substantially all the franchises, concessions, permits and rights
required for the conduct of the business and operations of Lessee are
revoked, cancelled or otherwise terminated or Lessee ceases to be a
certificated commercial air carrier under Section 1110(a) of the
Bankruptcy Code; or
q. Judgment for the payment of money in excess of $[ ]* is rendered
against Lessee by a court of competent jurisdiction and enforceable
against Lessee's assets and the same shall remain undischarged for a
period of 30 days during which execution of such judgment shall not
be effectively stayed; or
34
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r. Lessee fails to accept delivery of either Aircraft when validly
tendered to it pursuant to this Lease; or
s. The existence, validity, enforceability or priority of the rights
of Lessor as owner and lessor of the Aircraft or the rights of any
Mortgagees as mortgagees are challenged by Lessee or any other person
claiming by or through Lessee.
SECTION 17. RIGHTS AND REMEDIES.
17.1.REMEDIES. Upon the occurrence of any Event of Default and at any time
thereafter so long as the same shall be continuing, Lessor may, at its option,
declare this Lease to be in default and at any time thereafter, so long as
Lessee shall not have remedied all outstanding Events of Default, Lessor may
exercise one or more of the following remedies with respect to any or all of the
Items of Equipment as Lessor, in its sole discretion, shall elect, to the extent
available and permitted by, and subject to compliance with any mandatory
requirements of, applicable law then in effect:
a. Subject to Section 4.4, apply all or any portion of the Security
Deposit to Lessor's damages attributable to such Event of Default or
to the costs of curing such Event of Default; provided, however the
Event of Default shall continue until the Security Deposit is
restored to its original amount.
b. Terminate this Lease and demand that Lessee, and Lessee shall upon
written demand of Lessor and at Lessee's expense, forthwith return
all items of Equipment to Lessor in the manner and condition required
by, and otherwise in accordance with all of the provisions of,
Section 15 hereof as if the items of Equipment were being returned at
the end of the Term; or Lessor may enter upon the premises where the
items of Equipment are located and take immediate possession of and
remove the same by summary proceedings or otherwise, all without
liability for or by reason of such entry or taking of possession
whether for the restoration of damage to property caused by such
taking or otherwise.
c. Proceed by appropriate court action or actions, either at law or
in equity, to enforce performance by Lessee of the applicable
covenants of this Lease and to recover damages for the breach
thereof.
d. In addition to all other legal and equitable rights of Lessor,
upon notice to Lessee, Lessor may, following an Event of Default
lease the Aircraft to any third party upon such commercially
reasonable terms and conditions as Lessor may determine and apply the
rental therefrom to any amounts due to Lessor as provided herein.
The total proceeds of such lease less expenses of Lessor (including
attorneys' fees), to the extent actually received and retained by
Lessor, shall be applied to the total amount due to Lessor as
provided herein and Lessee shall immediately pay to Lessor any
deficiency.
e. On the date on which the Lessor shall become entitled to
repossession of the Aircraft, Lessor, in addition to all other
remedies herein provided, may by notice to Lessee, demand that Lessee
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<PAGE>
pay, and Lessee shall pay, on the first Basic Rent payment date
following said notice, (1) any due and unpaid Basic Rent and
Supplemental Rent, together with interest at the Incentive Rate from
the due date to the date the same are paid, and (2) as liquidated
damages for loss of a bargain and not as a penalty, an amount equal
to the difference between (i) the sum of all remaining payments of
Basic Rent falling due hereunder after the date of said notice,
discounted to the date of said notice at seven percent per annum on a
monthly basis (and assuming that the remaining payments of Basic Rent
shall be in identical amounts as that payment falling due immediately
prior to the Event of Default), and (ii) the Fair Rental Value (as
determined by an independent aviation appraiser of recognized
standing selected by Lessor) of the Aircraft for the remaining Term,
discounted at the same rate and frequency specified in (i) above;
provided, however, if Lessor has already leased the Aircraft as
permitted by Section 17.1(d) above, the rental specified in said
lease shall be conclusive as to the "fair market rentals".
17.2.FURTHER RIGHTS. Lessee shall be liable for any and all unpaid Rent
and for all reasonable legal fees and other costs and expenses incurred by
reason of the occurrence of any Event of Default or the exercise of Lessor's
remedies with respect thereto, including all costs and expenses incurred in
connection with the return of any Item in accordance with the terms of Section
15 hereof or in placing such Item in the condition and with airworthiness
certificates as required by said Section.
17.3.REMEDIES CUMULATIVE. Except as otherwise expressly provided in
Section 17.1 hereof, no remedy referred to in this Section 17 is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Lessor at law or in equity; and the
exercise or beginning of exercise by Lessor or any one or more of such remedies
shall not preclude the simultaneous or later exercise by Lessor of any or all of
such other remedies. No express or implied waiver by Lessor of any Event of
Default shall in any way be, or be construed to be, a waiver of any future or
further Event of Default.
SECTION 18. MISCELLANEOUS.
18.1.CONSTRUCTION AND APPLICABLE LAW. Any provision of this Lease which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. No term or provision of
this Lease may be changed, waived, discharged or terminated orally, but only by
a written instrument signed by the party against which the enforcement of the
change, waiver, discharge or termination is sought. The captions in this Lease
are for convenience of reference only and shall not define or limit any of the
terms or provisions hereof.
This Lease shall in all respects be governed by, and construed in
accordance with, the laws of the State of New York, including all matters of
construction, validity and performance, but not including the choice of law
provisions thereof.
18.2.NOTICES. All notices provided for herein shall be in writing and
shall be deemed to have been given when delivered personally or when telexed or
telefaxed and receipt confirmed and shall be deemed to have been received five
36
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days after deposit in the United States mail, first class postage prepaid,
addressed as follows:
If to Lessee: Western Pacific Airlines, Inc.
2864 South Circle Drive, Suite 1100
Colorado Springs, CO 80906
Attn: Chief Financial Officer
Telefax: (719) 527-7480
If to Lessor: GATX Third Aircraft Corporation
Four Embarcadero Center, Suite 2200
San Francisco, California 94111
Attn: Air Portfolio Administration
Telefax: (415) 955-3424 or (415) 955-3444
or to such other address as any party may designate for itself by written notice
to the other party.
18.3.LESSOR'S RIGHT TO PERFORM. If Lessee fails to perform any of its
obligations hereunder, Lessor may discharge such obligation, and the amount of
the expenses of Lessor incurred in connection with such discharge shall be
deemed Supplemental Rent, payable by Lessee upon demand.
18.4.ASSIGNMENT BY LESSOR. Lessor shall have the absolute right to
transfer or assign to any person, firm, corporation or other entity any or all
of Lessor's rights, obligations, benefits and interests under this Lease,
including, without limitation, the right to receive Rent or any other payment
due under this Lease, the right to transfer or assign title to any Item of
Equipment or to transfer or assign the right to purchase any item of Equipment
and the right to make all waivers and agreements, to give all notices, consents
and releases, to take all action upon the occurrence of an Event of Default, or
to do any and all other things which Lessor is or may become entitled to do
under this Lease; PROVIDED, HOWEVER, that Lessor shall not have the right,
without Lessee's prior written consent, to transfer or assign any or all of its
rights, title or interest in the Aircraft or this Lease to United Airlines,
Delta Air Lines, Southwest Airlines, or American Airlines; and, PROVIDED FURTHER
that any transferee of Lessor's entire interest shall be an entity with a net
worth of at least $[ ]*, and, PROVIDED FURTHER that no such assignment by Lessor
shall have any impact on Lessee's maintenance or operation of the Aircraft.
Lessee acknowledges that, if Lessor should sell or transfer to a third party all
of Lessor's interest under this Lease and in the items of Equipment, Lessor
shall thereupon be relieved of all of its obligations hereunder and Lessor's
transferee shall succeed to all of Lessor's rights, interests and obligations
under this Lease as though Lessor's transferee had been the initial lessor
hereunder; provided, however, that, in the event of a transfer or assignment of
a security interest in any item of Equipment Lessor shall remain liable
hereunder. Any assignment, pledge or other conveyance, for security or
otherwise, of this Lease by Lessor shall be subject to Lessee's rights under
this Lease and shall not be effective unless and until Lessee shall have been
given notice of such assignment identifying the assignee or transferee hereof.
No assignment or transfer permitted hereby shall increase Lessee's financial
obligations to Lessor hereunder, nor shall it serve to otherwise increase in any
material respect Lessee's obligations when compared with those obligations which
would have arisen had such assignment or transfer not occurred, or serve to
decrease Lessee's rights, hereunder.
18.5.SERVICE OF PROCESS; WAIVER OF IMMUNITIES. Lessee (a) irrevocably
submits itself to the nonexclusive jurisdiction of the Supreme Court of the
State of New York, New York County, of the United States District Court for the
Southern District of New York for the purpose of any suit, action or other
37
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proceeding arising out of this Lease or any other Lease Document, or the subject
matter hereof or thereof or any of the transactions contemplated hereby or
thereby, brought by Lessor or its successor, subrogees or assigns; and (b)
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such New York State or United States Federal court.
Lessee consents to service of process in any suit, action or other proceeding
arising out of this Lease or the subject matter hereof or any of the
transactions contemplated hereby in such New York State or United States Federal
courts and irrevocably designates and appoints the person specified in Section
5.2(g) hereof (herein referred to as "Agent"), as its attorney-in-fact to
receive service of process in such action, suit or proceeding, it being agreed
that service upon such attorney-in-fact shall constitute valid service upon
Lessee and its successors and assigns. Lessee agrees that (x) the sole
responsibilities of Agent shall be to receive such process, to send a copy of
any such process so received to Lessee at the address of Lessee set forth in
Section 18.2 above, or at the last address filed in writing by Lessee with
Agent, and to give prompt telefax notice of receipt thereof to Lessee at such
address and (y) Agent shall have no responsibility for the receipt or nonreceipt
by Lessee of such process, nor for any performance or nonperformance by Lessee
or Lessor or their respective successors or assigns. Lessee agrees to pay to
Agent such compensation as shall be agreed upon from time to time for services
hereunder. Lessee agrees that its submission to jurisdiction and its designation
of Agent set forth above is made for the express benefit of Lessor and its
successors, subrogees and assigns. Lessee agrees that a final judgment against
Lessee in any such action or proceeding shall be conclusive, and may be enforced
in other jurisdictions by suit on the judgment or in any other manner provided
by law, a certified or true copy of which final judgment shall be conclusive
evidence of the fact and of the amount of any indebtedness or liability of
Lessee therein described. Nothing in this Section 18.6 shall affect the right of
Lessor, or its successors, subrogees or assigns to serve legal process in any
other manner permitted by law or affect the right of Lessor, or its successors,
subrogees or assigns, to bring any action or proceeding against Lessee or its
property in the courts of other jurisdictions. In the event of the transfer of
all or substantially all the assets and business of Agent to any other
corporation, by consolidation, merger, sale of assets or otherwise, such other
corporation shall be substituted hereunder for Agent with the same effect as if
named herein in place of Agent. Lessee agrees that so long as this Lease shall
be in effect, Lessee shall maintain a duly appointed agent for the service of
summonses and other legal processes in New York City and shall give Lessor
written notice prior to any change of address for such agent.
18.6.EXPENSES. Each party shall bear its own expenses in connection with
the negotiation and documentation of this Lease and the other Lease Documents,
except that Lessee shall be solely responsible for the fees, if any, due
Newcourt Capital and for the fees and expenses of William C. Boston and
Associates, special FAA counsel to Lessor. In any action or proceeding between
Lessor and Lessee to enforce the terms of this Lease, the prevailing party shall
be entitled to recover its costs and expenses, including attorneys' and experts'
fees and expenses, incurred in connection with such action or proceeding. If
there is less than a full recovery the court or arbitrator shall determine the
"prevailing party" for purposes of this Section.
18.7.ARBITRATION. Except for a failure of Lessee to pay Rent hereunder,
any dispute hereunder shall be submitted to binding arbitration in the City of
New York before an arbitrator mutually acceptable to Lessor and Lessee under the
rules of the American Arbitration Association. If Lessor and Lessee are unable
to agree upon a single arbitrator, they shall each appoint one arbitrator and
the two so selected shall select a third. All arbitrators shall be selected
within 30 days after written demand by either party. Prior to commencing any
arbitration proceeding the parties agree to meet in person, on not less than two
Business Days notice, in New York and make a good faith effort to resolve their
38
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differences. In any such dispute the prevailing party shall be entitled to
recover its costs and expenses, including legal fees and expenses, in addition
to any other recovery or award. If there is less than a full recovery, the court
or arbitrator, as the case may be, shall determine the prevailing party for
purposes of this Section 18.8.
18.8.SURVIVAL. The representations, warranties, covenants, agreements and
indemnities of Lessee and Lessor set forth in this Lease, and Lessee's and
Lessor's obligations hereunder, shall survive the expiration or other
termination of this Lease to the extent required for full performance and
satisfaction thereof, but in any case for two years after the return of the
Aircraft.
18.9.ENTIRE AGREEMENT; COUNTERPARTS. This Lease and the Certificate of
Acceptance executed pursuant hereto constitute the entire agreement between
Lessor and Lessee regarding the Aircraft and there are no other prior or
contemporaneous written or oral understandings with regard to the subject matter
hereof. At least three counterparts of this Lease have been executed by the
parties hereto, each of which shall be deemed to be an original, but all of
which taken together shall constitute a single agreement.
18.10. SUCCESSORS AND ASSIGNS. This Lease shall be binding on and shall
inure to the benefit of Lessee, Lessor and their respective successors and
permitted assigns.
18.11. FURTHER ASSURANCES. Each party hereto shall, at its respective
expense, promptly and duly execute and deliver to the other party such further
documents and promptly take such further action not inconsistent with the terms
hereof as the other party may from time to time reasonably request in order to
more effectively carry out the intent and purpose of this Lease or to perfect
and protect the rights and, with respect to Lessor, remedies created or intended
to be created hereunder.
18.12BANKRUPTCY, SECTION 1110.It is the intention of the parties that the
provisions of 11 U.S.C. Section 1110 and any analogous section of the Federal
bankruptcy laws, as amended from time to time shall be applicable to the
interests of the Lessor in the Aircraft and to any right of the Lessor to take
possession of the Aircraft in compliance with this Agreement. The parties agree
that this Agreement is intended to by a true lease for Federal income tax
purposes.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to
be duly executed by their authorized officers as of the date first above
written.
GATX THIRD AIRCRAFT CORPORATION,
as Lessor
By: _______________________________
Title:_______________________________
WESTERN PACIFIC AIRLINES, INC.,
as Lessee
By:____________________________
Its:_____________________________
39
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================================================================================
LEASE AGREEMENT
dated as of March 18, 1996
and
AMENDED AND RESTATED
as of July 7, 1997
between
FIRST SECURITY BANK, NATIONAL ASSOCIATION
not in its individual capacity
(except as otherwise specified)
but solely as Owner Trustee under the 1997 Trust Agreement,
as Lessor,
and
WESTERN PACIFIC AIRLINES, INC.
as Lessee
One Used Boeing Model B737-3S3 Aircraft,
current United States Registration Mark N375TA (to be changed to
N954WP) and
Manufacturer's Serial No. 23787 with
two CFM International, Inc. Model CFM 56-3B2 Engines,
Manufacturer's Serial Nos. 720890 and 721734, Respectively
ONLY THE ORIGINAL COUNTERPART CONTAINS THE RECEIPT THEREFOR
EXECUTED BY FIRST SECURITY BANK, NATIONAL ASSOCIATION, AS OWNER
TRUSTEE, AS LESSOR ON THE SIGNATURE PAGE THEREOF
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
1. Definitions.......................................................... 1
2. Lease; Lease Term; Delivery of Aircraft.............................. 6
(a) Lease; Lease Term.............................................. 6
(b) [Intentionally left blank.].................................... 6
(c) Condition of Aircraft at Delivery.............................. 6
3. Security Deposit and Other Payments.................................. 6
(a) Security Deposit............................................... 6
(b) Basic Rent..................................................... 7
(c) [Intentionally left blank.].................................... 7
(d) Supplemental Rent.............................................. 7
(e) Manner of Payment.............................................. 7
(f) Late Payments.................................................. 8
(g) No Setoff, Counterclaim, etc................................... 8
4. Conditions Precedent and Other Requirements. ....................... 9
(a) Execution and Delivery of Documents............................ 9
(b) Representations, Warranties, No Default........................ 9
(c) Resolutions, etc............................................... 9
(d) Security Deposit and Basic Rent................................ 9
(e) Side Letter................................................... 10
(f) Insurance Certificate......................................... 10
(g) Filings; Financing Statements................................. 10
(h) Opinions of Counsel........................................... 10
(i) No Event of Loss.............................................. 10
(j) Acceptance by Process Agent................................... 10
(k) Net Worth..................................................... 10
(l) Other Documents............................................... 10
(a) Delivery of Assignments of Warranties................... 10
(b) Resolutions, etc........................................ 10
(c) Consents to Sublease.................................... 11
(d) Extension of Lease...................................... 11
(e) Certificate of No Default............................... 11
(f) Delivery of Lease Supplement............................ 11
(g) Certificate of Airworthiness............................ 11
(h) Acceptance by Process Agent............................. 11
(i) Broker.................................................. 11
<PAGE>
5. Disclaimer; Manufacturer and Vendor Warranties...................... 11
(a) Disclaimer by Lessor.......................................... 11
(b) Lessor's Representations, Warranties and Covenants............ 12
(c) Manufacturer and Vendor Warranties............................ 12
6. Maintenance; Alterations, Modifications and Additions............... 13
(a) Maintenance................................................... 13
(b) Maintenance Reserves.......................................... 15
(c) Replacement of Parts.......................................... 17
(d) Pooling of Parts.............................................. 18
(e) Alterations, Modifications and Additions...................... 18
7. Title and Registration; Liens; Possession........................... 19
(a) Title and Registration........................................ 19
(b) Liens......................................................... 20
(c) Operation, Quiet Enjoyment.................................... 20
(d) Possession.................................................... 20
(e) Identification Plates......................................... 22
(f) Reporting Requirements........................................ 22
(g) Inspections................................................... 22
8. Loss, Destruction, Requisition, etc................................. 22
(a) Event of Loss with Respect to the Aircraft.................... 22
(b) Event of Loss with Respect to an Engine....................... 22
(c) Application of Payments from Governmental Authorities......... 23
(d) Requisition for Use of the Aircraft........................... 24
(e) Quiet Enjoyment............................................... 24
9. Insurance........................................................... 25
(a) Liability..................................................... 25
(b) Other Insurance............................................... 25
(c) Terms of Insurance............................................ 26
(d) Application of Insurance...................................... 28
(e) Reports....................................................... 28
(f) Failure to Insure............................................. 29
(g) Additional Insurance.......................................... 29
(h) Notice of Claims.............................................. 29
(i) Stipulated Loss Value......................................... 29
10. Return of Aircraft.................................................. 29
(a) Redelivery upon Termination................................... 29
(b) Condition of Aircraft3/4General............................... 30
(c) Condition of Airframe......................................... 31
(d) Condition of Controlled Components............................ 32
(e) Condition of Engines.......................................... 32
(f) Ground Inspection by Lessor................................... 33
(g) Operational Ground Check...................................... 33
(h) Demonstration Flight.......................................... 33
(i) Ferry Flight.................................................. 33
(j) Deferred Discrepancy Correction............................... 33
<PAGE>
(k) Flight Cost................................................... 34
(l) Aircraft Documentation........................................ 34
(m) Service Bulletin Kits......................................... 34
(n) Non U.S. Manufactured Items................................... 34
(o) Lessee's Continuing Obligations............................... 34
11. Representations, Warranties and Covenants of Lessee........... 35
12. Indemnification..................................................... 37
(a) General Indemnity and Expenses................................ 37
(b) General Tax Indemnity......................................... 39
(c) Calculation of Tax Indemnity Payments......................... 42
(d) Contest; Reports.............................................. 42
(e) Payment....................................................... 44
(f) Survival...................................................... 44
13. Assignment; Lease Subject and Subordinate........................... 44
(a) No Impermissible Sublease by Lessee........................... 44
(b) [Intentionally left blank.]................................... 44
(c) Lease Subject and Subordinate................................. 45
(d) Assignments by Lessor......................................... 45
14. Events of Default; Remedies......................................... 45
(a) Events of Default............................................. 45
(b) Remedies...................................................... 47
15. Notices............................................................. 49
16. Governing Law and Jurisdiction...................................... 50
(a) Governing Law................................................. 50
(b) Jurisdiction; Service of Process.............................. 50
(c) Waiver of Immunity............................................ 50
17. Miscellaneous....................................................... 51
(a) Entire Agreement.............................................. 51
(b) English Language.............................................. 51
(c) Lessor's Right to Perform for Lessee.......................... 51
(d) Application of Payments During Existence of Default........... 51
(e) Expenses...................................................... 51
(f) Further Assurances............................................ 51
(g) Judgment Currency............................................. 52
(h) Invalidity of any Provision................................... 52
(i) Changes in Law................................................ 52
(j) Headings...................................................... 52
(k) Consent....................................................... 52
(l) Third Party Beneficiaries..................................... 52
(m) Counterparts.................................................. 52
(n) True Lease.................................................... 52
<PAGE>
SCHEDULE I - STIPULATED LOSS VALUE
EXHIBIT A - AIRCRAFT DESCRIPTION
EXHIBIT B - FORM OF ACCEPTANCE CERTIFICATE
EXHIBIT C - FORM OF RETURN ACCEPTANCE CERTIFICATE
EXHIBIT D - FORM OF CERTIFICATES OF SUBLESSEE
EXHIBIT E - FORM OF OPINION OF SUBLESSEE'S COUNSEL
EXHIBIT F - FORM OF MONTHLY REPORT
EXHIBIT G - MAINTENANCE RESERVES ADJUSTMENT FORMULA
<PAGE>
This LEASE AGREEMENT, dated as of March 18, 1996, and AMENDED AND RESTATED
as of July 7, 1997, between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a
national banking association with its principal place of business in Salt Lake
City, Utah, not in its individual capacity but solely as trustee under the 1997
Trust Agreement, except as otherwise expressly provided herein, and its
successors and assigns (in such capacity, "LESSOR"; and in its individual
capacity, "FSB"), and WESTERN PACIFIC AIRLINES, INC., a corporation organized
and existing under the laws of Delaware with its principal place of business in
Colorado Springs, Colorado ("Lessee").
RECITALS
WHEREAS, TACA, as sublessor, and Lessee, as sublessee, have executed this
Aircraft Sublease Agreement dated as of March 18, 1996 (as supplemented and
amended, the "SUBLEASE") for the sublease of the Aircraft from TACA, which
together with Sublease Supplement No. 1 thereto dated March 29, 1996 was
recorded by the FAA on May 30, 1996 and assigned Conveyance No. HH011973; and
WHEREAS, the Sublease was amended pursuant to Amendment No. 1 to Sublease
Agreement dated June 11, 1996, and recorded by the FAA on July 31, 1996 as
Conveyance No. BB24106, and supplemented by Supplement No. 2 to Sublease
Agreement dated as of June 11, 1996, and recorded by the FAA on May 31, 1996 and
assigned Conveyance No. BB24107; and
WHEREAS, the Sublease was further amended pursuant to Amendment No. 2 to
Sublease Agreement dated March 22, 1997, which was filed with the FAA on June
10, 1997, but not yet recorded; and
WHEREAS, the Head Lease has been terminated, and the rights and
obligations of TACA under the Sublease have been novated to Lessor pursuant to
the Aircraft Lease Novation dated July __, 1997 (the "Closing Date"), which was
filed with the FAA on the date thereof, but not yet recorded; and
WHEREAS, Lessor has assumed the rights and obligations of TACA under the
Sublease, and Lessor and Lessee desire to amend and restate the Sublease as this
Amended and Restated Lease Agreement with effect from and after the Closing Date
as set forth herein; and
WHEREAS, Lessee desires to lease the Aircraft from Lessor and Lessor is
willing to lease the Aircraft to Lessee upon and subject to the terms,
conditions and covenants herein set forth;
In consideration of and subject to the mutual covenants, terms and
conditions contained in this Lease, Lessor and Lessee agree as follows:
<PAGE>
1. DEFINITIONS.
Unless the context otherwise requires the following terms shall have
the following meanings for all purposes of this Lease and shall be equally
applicable both to the singular and plural forms of the terms defined. Any
agreement defined below shall include each amendment, modification and
supplement thereto and waiver thereof in effect from time to time.
"ADDITIONAL INSURANCE" shall have the meaning ascribed to it in
SECTION 9(G) hereof.
"ADDITIONAL INSUREDS" shall have the meaning ascribed to it in
SECTION 9(C) hereof.
"AIRCRAFT" shall mean (i) the Airframe, together with two (2)
Engines initially installed on such Airframe at the Commencement Date or any
Replacement Engine substituted for any such Engine, whether or not any of said
initial Engines or Replacement Engines may from time to time no longer be
installed on such Airframe or may be installed upon another airframe and the
Parts; and (ii) the Aircraft Documentation. As the context requires, "Aircraft"
shall also mean the Airframe, any Engine (including a Replacement Engine), any
Part, the Aircraft Documentation, or any part thereof individually.
"AIRCRAFT DOCUMENTATION" shall mean all (i) log books, aircraft
records, manuals and other data or documents provided to Lessee on or before the
Commencement Date, as evidenced by any Schedule attached to the Acceptance
Certificate as a receipt therefor; and, (ii) any other documents, drawings, or
data which are required to be maintained during the Lease Term pursuant hereto
or by the FAA or the Maintenance Program.
"AIRCRAFT LEASE NOVATION" shall mean the Aircraft Lease Novation
Agreement dated the Closing Date by and among Former Head Lessor, Lessor,
TACA and Lessee.
"AIRFRAME" shall mean that certain Boeing model 737-3S3 airframe
bearing manufacturer's serial number 23787 and United States registration no.
N375TA (to be changed to N954WP).
"AIRFRAME RESERVE AMOUNT" shall have the meaning ascribed to it
in SECTION 6(B).
"AGENT" shall mean ING Aviation Lease, B.V., as agent for the
Lenders, its successors and assigns.
"APPROVED REPAIR FACILITY" shall have the meaning ascribed to it
in SECTION 6(A)(II).
"BASIC RENT" shall have the meaning ascribed to it in SECTION
3(b) hereof.
"COMMENCEMENT DATE" shall mean March 29, 1996, the date upon which
the Aircraft was tendered to Lessee in conformity with the Sublease and the
Lease Supplement was executed and delivered.
"CREDIT AGREEMENT" shall mean the Credit Agreement dated as of
November 4, 1993 between First Security Bank of Utah, National Association, as
owner trustee, as borrower, Amerilease Capital Corporation, as owner participant
and guarantor and the Agent, as may be amended or supplemented from time to
time.
<PAGE>
"CYCLE" shall mean any flight of the Aircraft or, in the case of an
engine not attached to an aircraft, any airframe to which an Engine is attached,
consisting of one take-off and one landing regardless of time elapsed between
take-off and landing and distance flown.
"DEBT" shall mean, with respect to any Person, (a) all obligations
of such Person for borrowed money or with respect to deposits and advances of
any kind, whether evidenced by bonds, debentures, notes or other instruments,
(b) all obligations of such Person upon which interest charges are customarily
paid, (c) all obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person, (d) all
obligations of such Person issued or assumed as the deferred purchase price of
property or services, (e) any lease obligation that, in accordance with
generally accepted accounting principles has been or should be capitalized on
the books of such Person, and (f) all guarantees of such Person of the debts or
obligations for borrowed money of any other Person, whether direct or indirect,
absolute, contingent or otherwise.
"DEFAULT" shall mean any event that, with the passage of time or the
giving of notice or both, would become an Event of Default.
"DOLLARS" and "US$" shall mean lawful currency of the United
States of America.
"ENGINE" shall mean (i) each of the two CFM International Inc. Model
CFM 56-3B2 jet aircraft engines bearing manufacturer's serial numbers 720890 and
721734, respectively, whether or not from time to time installed on such
Airframe or installed on any other airframe, and (ii) any Replacement Engine
that may from time to time be substituted as contemplated by SECTION 8(B) for an
Engine leased hereunder; 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 shall remain vested in Lessor in accordance
with the terms of SECTION 6(C) after removal from any 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. Each Engine has and any Replacement Engine hereunder will have not
less than 750 rated takeoff horsepower.
"ENGINE LOSS VALUE" shall mean, in respect of each engine, [ ]*
United States Dollars (US$ [ ]*).
"ENGINE RESERVE AMOUNT" shall have the meaning ascribed to it in
SECTION 6(B) hereof.
"EVENT OF DEFAULT" shall have the meaning ascribed to it in
SECTION 14(A) hereof.
"EVENT OF LOSS" with respect to the Aircraft, the Airframe or any
Engine (hereinbelow referred to as "property") shall mean any of the following
events with respect to such property: (i) loss of such property or the use
thereof due to theft, disappearance, destruction, damage beyond repair or
rendition of such property permanently unfit for normal use for any reason
whatsoever; (ii) any damage to such property that results in the receipt of
insurance proceeds with respect to such property on the basis of a total loss;
(D) the condemnation, confiscation or seizure of, or requisition of title to,
such property by any authority, or a requisition for use of such property by any
authority other than a Government Entity of the United States of America; (iv)
as a result of any rule, regulation, order or other action by the FAA, or other
governmental body having jurisdiction thereof, or any other occurrence, the use
of such property in the normal course of air transportation of persons shall
have been prohibited for a period of three consecutive months unless Lessee,
prior to the expiration of such three-month period, shall have undertaken and
shall be diligently carrying forward all steps that are necessary or desirable
to permit the normal use of such property by Lessee or, in any event, if such
use shall have been prohibited for a period of six consecutive months; (v) the
inability for any reason of Lessor to obtain possession of such Aircraft within
30 days after this Lease shall have been declared to be in default pursuant to
SECTION 14, free and clear of all liens (other than Lessor's Liens). An Event of
Loss with respect to the Aircraft shall be deemed to have occurred if an Event
of Loss occurs with respect to the Airframe.
"FAA" shall mean the United States Federal Aviation Administration
and any successor agency thereto.
<PAGE>
"FEDERAL AVIATION ACT" shall mean the United States Federal Aviation
Act of 1958 as amended, and the regulations promulgated thereunder.
"FLIGHT HOUR" shall mean each hour or part thereof elapsing from the
moment the wheels of the Airframe (or other airframe on which an Engine is then
installed) leave the ground on takeoff until the wheels of the Airframe (or such
other airframe) touch the ground on landing following such flight. For purposes
of all calculations under this Lease measured in Flight Hours, such hours,
including fractions thereof, shall be measured to two decimal places.
"FORMER HEAD LESSOR" shall mean First Security Bank of Utah,
National Association, not in its individual capacity but solely as owner trustee
under that certain Trust Agreement dated as of November 4, 1993, between FSB and
the owner participant named therein.
"GOVERNMENT ENTITY" means (i) any national, state or local
government of the United States of America or any other country where the
Aircraft may be flown and operated by Lessee, (ii) any board, commission,
department, division, instrumentality, court, agency or political subdivision of
any entity described in (i) above, however constituted, and (iii) any
association, organization or institution of which any entity described in (i) or
(ii) above is a member or to whose jurisdiction any thereof is subject or in
whose activities any thereof is a participant.
"HEAD LEASE" shall mean that certain Aircraft Lease Agreement dated
as of November 4, 1993, between Former Head Lessor and TACA, as originally
executed or as modified, amended or supplemented pursuant to the applicable
provisions thereof.
"INDEMNITEE" shall have the meaning ascribed to it in SECTION
12(A) hereof.
"KGAL" shall mean KG Aircraft Leasing Co., Limited, a corporation
organized and existing under the laws of Ireland.
"LEASE," "this Lease Agreement," "this Lease," "this Agreement,"
"herein," "hereunder," "hereby," or other like words shall mean this Lease as
originally executed or as modified, amended or supplemented pursuant to the
applicable provisions hereof.
"LEASE SUPPLEMENT" shall mean the Sublease Supplement dated March
29, 1996, in form and substance satisfactory to Lessor.
"LEASE TERM" shall have the meaning ascribed to it in SECTION
2(a) hereof.
"LENDERS" shall mean ING Aviation Lease, B.V. and each Person who
shall become a Lender in accordance with the provisions of the Credit
Agreement.
"LESSOR LIEN" shall mean any Lien arising as a result of (i) claims
against Lessor not related to the transactions contemplated by this Lease, (ii)
Taxes imposed against Lessor that are not indemnified against by Lessee pursuant
to SECTION 12(B) or (iii) claims against Lessor arising out of the transfer by
it of all or any part of its interest in the Aircraft, other than by reason of
the occurrence of an Event of Loss or following an Event of Default.
"LIEN" shall mean any mortgage, pledge, lien, charge, encumbrance,
lease, exercise of rights, security interest or claim of any nature whatsoever.
"MAINTENANCE PROGRAM" shall have the meaning ascribed to it in
SECTION 6(A) hereof.
"MAINTENANCE RESERVES" shall have the meaning ascribed to it in
SECTION 6(B) hereof.
<PAGE>
"MANUFACTURER" shall mean The Boeing Company, a corporation
organized and existing under the laws of Delaware.
"MORTGAGE" shall mean the Mortgage and Security Agreement, dated as
of November 4, 1993, between Former Head Lessor and Agent relating to the
Aircraft, as the same may be amended, supplemented or modified from time to
time.
"PARTS" shall mean any and all appliances, parts, avionics,
attachments, accessions, instruments, appurtenances, accessories, furnishings
and other equipment of whatever nature (other than complete Engines or engines).
"PAYMENT DATE" shall mean the fifteenth (15) day of each consecutive
calendar month commencing with the calendar month immediately following the
Commencement Date and each consecutive calendar month thereafter during the
Lease Term; provided however that Lessee, on or prior to the Commencement Date,
shall pay Basic Rent in respect of the Aircraft corresponding to the first month
of the Lease Term.
"PERMITTED LIEN" shall have the meaning ascribed to it in SECTION
7(B) hereof.
"PERSON" shall mean an individual, corporation, partnership, joint
venture, trust, unincorporated organization or any other juridical entity, or a
Government Entity.
"POST-DEFAULT RATE" shall mean a rate per annum equal to three
percent (3%) above the rate publicly announced from time to time by Citibank,
N.A., New York, New York (or any successor institution) as its "prime rate" (or,
if no such rate exists, any comparable reference rate established by such
institution) on the basis of the actual number of days elapsed over a 360-day
year.
"PROCESS AGENT" shall have the meaning ascribed to it in SECTION
16(B) hereof.
"RENT" shall mean Basic Rent and Supplemental Rent.
"REPLACEMENT ENGINE" shall mean a CFM International, Inc. CFM 56-3B2
jet aircraft engine (or engine of the same manufacturer of the same or an
improved model) approved by Lessor, that has a value, utility and thrust at
least equal to those of the Engines, together with all Parts relating to such
engine.
"SECURITY ASSIGNMENTS" shall mean an instrument or instruments, in
form and substance satisfactory to Former Head Lessor and Lender, pursuant to
which TACA assigns to Former Head Lessor (and Former Head Lessor further assigns
to Agent) all of TACA's right and interest in and to this Lease.
"SECURITY DEPOSIT" shall have the meaning ascribed to it in
SECTION 3(A) hereof.
"STIPULATED LOSS VALUE" shall mean in respect of the Aircraft as of
any particular date, such amount as is set forth on Schedule 1 hereto.
"SUPPLEMENTAL RENT" shall mean all amounts, sums, monies,
indebtedness, liabilities and obligations (other than Basic Rent) that Lessee
assumes, agrees or otherwise becomes liable to pay to Lessor or others hereunder
<PAGE>
or under any other document or agreement entered into by Lessee and Lessor in
connection herewith or with the transactions contemplated hereby and thereby
including, without limitation, payments of Maintenance Reserves, Stipulated Loss
Value and any interest payable with respect to payments pursuant to SECTION
3(D).
"TACA" shall mean TACA International Airlines, S.A., a corporation
organized and existing under the laws of El Salvador.
"TAX" or "TAXES" shall mean any and all fees (including, without
limitation, license and registration fees), taxes (including, without
limitation, gross receipts, income, sales, rental, use, turnover, value added,
property (tangible or intangible), excise and stamp taxes, levies, imposts,
duties, charges, assessments or withholdings of any nature whatsoever, together
with any and all penalties, fines, additions to tax and interest thereon or
computed by reference thereto.
"TAXING AUTHORITY" shall have the meaning ascribed to it in
SECTION 12(B) hereof.
"1997 TRUST AGREEMENT" shall mean the Trust Agreement dated as of
June 15, 1997 between FSB and KGAL, as originally executed or as modified,
amended or supplemented pursuant to the applicable provisions thereof.
2. LEASE; LEASE TERM; DELIVERY OF AIRCRAFT.
(a) LEASE; LEASE TERM. Lessor hereby leases to Lessee, for a
period (the "LEASE TERM") commencing from the Commencement Date and ending,
unless earlier terminated pursuant to the provisions of this Lease, on such date
as shall fall 120 consecutive calendar months following the Commencement Date
(the "EXPIRATION DATE").
(b) [Intentionally left blank.]
(c) CONDITION OF AIRCRAFT AT DELIVERY. Lessee acknowledges
that on the Commencement Date, the Aircraft (i) was in an airworthy condition
and had all systems functioning in accordance with manufacturer's
recommendations, (ii) had a current and valid Certificate of Airworthiness
issued by the FAA, (iii) was painted white, (iv) was fresh from its last
scheduled "C" check, other than hours flown in respect of test and ferry
flights, (v) was in a 136Y (136 seat, single class cabin) configuration, and
(vi) was in accord with the description thereof set forth in EXHIBIT A hereto.
Lessee acknowledges that it inspected and technically accepted the Aircraft on
March 6, 1996, and that Lessee accepted the Aircraft under the terms of this
Lease when duly tendered by Lessor in accordance herewith. Upon such tender,
Lessee executed a Lease Supplement, which is conclusive proof as between Lessor
and Lessee that Lessee has examined the Aircraft, that the Aircraft and the
Aircraft Documentation are satisfactory to Lessee and that Lessee has accepted
the Aircraft for all purposes hereof without any reservations whatsoever (except
as noted therein).
3. SECURITY DEPOSIT AND OTHER PAYMENTS.
(a) SECURITY DEPOSIT. Lessor acknowledges receipt from or for
the account of Lessee of a security deposit (the "Security Deposit") in the
total amount of [ ]* Dollars (US$[ ]*) (the "SECURITY DEPOSIT AMOUNT"). The
Security Deposit shall be held by Lessor during the Lease Term as security for
the full and punctual performance by Lessee of all of its obligations hereunder.
<PAGE>
During the Lease Term, the Security Deposit may be commingled by Lessor with
other funds. Interest, if any, earned on the Security Deposit shall be for
Lessor's sole account. Lessor may, but shall not be obligated to, apply the
Security Deposit, in whole or in part for the payment of any Basic Rent owing
hereunder or any other amount owing from time to time by Lessee hereunder, or
utilize the Security Deposit in whole or in part to perform any of Lessee's
obligations hereunder or otherwise remedy any Event of Default, without
prejudice to any other remedy of Lessor. Lessee shall not attempt to subject the
Security Deposit to any Lien or to assign any interest therein to any Person
and, to the extent of its interest therein, Lessee hereby grants to Lessor a
Lien in the Security Deposit and assigns and transfers to Lessor any and all of
Lessee's right, title and interest therein, as security as provided above, and
Lessor shall be entitled to the remedy of offset against and application of the
Security Deposit, without any prior notice to or demand against Lessee (except
to the extent otherwise required by applicable law), all of which are hereby
waived. If Lessor uses or applies all or a portion of the Security Deposit, such
application shall not be deemed a cure of any Event of Default, until and unless
Lessee shall have replenished the amount applied hereunder within the time
period provided herein. Lessee shall replenish any portion or all of the
Security Deposit applied by Lessor to satisfy, in whole or in part, any Event of
Default by depositing with Lessor in immediately available funds an amount
sufficient to restore the Security Deposit to the Security Deposit Amount within
three (3) Business Days after Lessor's demand therefor. Within fifteen (15) days
after redelivery of the Aircraft to Lessor by Lessee, and provided the Aircraft
is delivered in full conformity with the return conditions set forth in SECTION
10 hereof, and that Lessee has paid, in full, all amounts owing by Lessee
hereunder and performed all of its obligations hereunder, Lessor will return to
Lessee the Security Deposit, without interest, less any amounts applied by
Lessor and not replenished by Lessee.
(b) BASIC RENT. Lessee agrees to pay Lessor rent with respect
to the aircraft, monthly, in advance on each Payment Date, in the amount of [ ]*
Dollars (US $[ ]*) per month ("BASIC RENT"). All payments of Basic Rent shall be
made in immediately available funds, in Dollars by 2:00 p.m. New York time on
the date when due; provided, however, that in the event that any payment should
be due on a day that is not a Business Day, then such payment shall be made on
the next succeeding Business Day without any penalty for late payment.
(c) [Intentionally left blank.]
(d) SUPPLEMENTAL RENT. Lessee also agrees promptly to pay to
Lessor any and all Supplemental Rent, as the same shall become due and owing,
and in the event of any failure on the part of Lessee to pay any Supplemental
Rent, Lessor shall have all rights, powers and remedies provided for herein or
by law or equity or otherwise in the case of nonpayment of Basic Rent.
(e) MANNER OF PAYMENT. All Basic Rent and Supplemental Rent
required to be made to Lessor hereunder shall be paid to:
The Bank of Tokyo-Mitsubishi, Ltd., New York
Chips UID: 076 886 ABA No. 026 009632
A/C The Bank of Tokyo-Mitsubishi, Ltd.,
London Branch
12-15 Finsbury Circus
London EC2M 7BT
England
Tel: 44 171 577 1087
Fax: 44 171 577 1128
F/O KG Aircraft Leasing Co., Ltd.
Number 245662 Current Account
<PAGE>
or such other bank accounts as Lessor shall specify by written notice to Lessee.
All payments of Supplemental Rent shall be made in immediately available funds
in Dollars by 2:00 p.m. New York time, on the date when due; provided, however,
that in the event that any payment should be due on a day that is not a Business
Day then such payment shall be made on the Business Day next succeeding such day
without any penalty for late payment.
(f) LATE PAYMENTS. As to any (i) amount due under this Lease
that is not paid when due as herein provided, or (ii) advance made by Lessor of
any amount required to be paid by Lessee as herein provided and not so paid by
Lessee, Lessee shall pay to Lessor at the time of payment thereof, as
Supplemental Rent, interest thereon at the Post-Default Rate, from either the
due date thereof (as to amounts referred to in clause (i)) or the date of the
advance by Lessor (as to amounts referred to in clause (ii)), as the case may
be, to the date such late payment is paid in full.
(g) NO SETOFF, COUNTERCLAIM, ETC. Notwithstanding anything to
the contrary herein and except as otherwise set forth in this SECTION 3(G),
Lessee's obligations and liabilities to pay all amounts payable hereunder shall
be absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, (i) any setoff, counterclaim, recoupment, defense
or other right that Lessee may have against Lessor or any other Person for any
reason whatsoever, (ii) any defect in the title caused directly by an act or
omission of Lessee, airworthiness, condition, design, operation or fitness for
use of or any damage to or loss or destruction of, the Aircraft, the Airframe,
any Engine or any Part of any thereof or any interruption or cessation in the
use or possession of any thereof by Lessee for any reason whatsoever, (iii) any
insolvency, bankruptcy, reorganization or similar proceedings by or against
Lessee, (iv) the disaffirmance or rejection of this Lease by Lessor or any
trustee in bankruptcy (or similar party) provided that there shall have been no
change materially adverse to the Lessee in any of the terms or conditions of
this Lease in connection with applicable bankruptcy proceedings, (v) claims
against the Manufacturer or manufacturers of the Aircraft, the Airframe, any
Engine, Part or component thereof, (vi) enforceability or lack of enforceability
of any of the terms or conditions of this Lease, (vii) breach by Lessor of any
warranty, express or implied, with regard to the Aircraft, the Airframe, any
Engine any Part of any thereof, including, without limitation, merchantability
or fitness for any purpose or use relating to or otherwise made or alleged to be
made by Lessor to Lessee or any of its agents, representatives or employees with
regard to the Aircraft, the Airframe, any Engine or any Part of any thereof,
(viii) any right, claim, demand, bill, action or suit whatsoever by or against
or on the part of Lessee against Lessor, including, without limitation, whether
arising out of legal action or otherwise (x) at law or in equity, (y) whether
affirmative, negative or defensive in nature for or on account of the legality,
enforceability, validity or other infirmity as to (A) any of the terms or
conditions of this Lease, (B) any express or implied warranty as to the
Aircraft, the Airframe, any Engine or any Part of any thereof or (C) arising out
of or as a result of any contract, agreement, assignment or transaction between
Lessor and Lessee whether direct or indirect, written or oral, (ix) any
interruption or cessation in the use or possession of the Aircraft by or
availability of the Aircraft to Lessee for any reason whatsoever whether arising
out of relating to an act or omission of Lessee; or (x) any other circumstances,
happening or event whatsoever, whether or not similar to any of the foregoing
which but for this provision might have the effect of terminating this Lease, it
being the intention of the Lessor and Lessee that all Rent and other amounts
payable by Lessee 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. Lessee hereby waives, to the fullest extent permitted by applicable law
any and all rights it may now have or that at any time hereafter may be
conferred upon it, by statute or otherwise, to terminate, cancel, quit or
surrender this Lease except in accordance with the express terms hereof.
<PAGE>
Notwithstanding anything contained in this SECTION 3(G) in the event that as a
result of a breach by Lessor or anyone claiming by through or under Lessor of
its covenant of quiet enjoyment (including any defect in title not caused by an
act or omission of Lessee which defect in title shall have caused the Aircraft
to be deregistered under the Federal Aviation Act), Lessee shall be deprived of
possession or use of the Aircraft under and in accordance with this Lease,
Lessee shall not be required to pay Basic Rent and Maintenance Reserves in
respect of such period of non-possession of or inability to use the Aircraft.
Each payment of Rent made by Lessee shall be final as to Lessor and Lessee, and
Lessee will not seek to recover all or any part of any such payment of Rent from
Lessor or its successors or assigns for any reason whatsoever.
Nothing in this SECTION 3(G) or elsewhere in this Lease shall be construed
to limit Lessee's right to seek a recovery of any payment of Rent or any other
amount which is not due and payable hereunder, or to limit Lessee's rights and
remedies to pursue, in a court of law or otherwise, any claim it may have
against Lessor on account of any failure of Lessor to perform its obligations
hereunder or in connection herewith.
4. CONDITIONS PRECEDENT AND OTHER REQUIREMENTS.
(i) The obligation of Lessor to lease the Aircraft to Lessee
on the terms and conditions herein set forth was subject to the
satisfaction, on or before the Commencement Date, of each of the
following conditions (which the parties hereto agree were satisfied
or waived on or before the Commencement Date):
(b) EXECUTION AND DELIVERY OF DOCUMENTS. Lessee shall have
duly executed and delivered to Lessor (i) this Lease, (ii) an Acceptance
Certificate in the form of EXHIBIT B hereto covering the Aircraft and effective
as of the Commencement Date, (iii) the Lease Supplement, and (iv) a consent or
consents to the Security Assignments in form and substance satisfactory to
Former Head Lessor and Agent.
(c) REPRESENTATIONS, WARRANTIES, NO DEFAULT. (i) All of the
representations and warranties of Lessee contained in this Lease shall be true
and correct on and as of the Commencement Date as though made on such date or,
if they relate solely to an earlier date, as of such date and (ii) no Default or
Event of Default shall have occurred and be continuing or would result from
Lessee's execution, delivery and performance of this Lease, and Lessor shall
have received an Officer's Certificate in form and substance satisfactory to it,
to the effect of each of the foregoing.
(d) RESOLUTIONS, ETC. Lessor shall have received, in form and
substance satisfactory to it: (i) a certificate of the Secretary or an Assistant
Secretary of Lessee with respect to the resolutions of the Board of Directors of
Lessee authorizing the execution, delivery and performance by Lessee of this
Lease and all other documents and certificates contemplated hereby to be
executed on behalf of Lessee, and the authority and signatures of the persons
authorized to execute and deliver such documents on behalf of Lessee; and (ii)
such other documents and evidence with respect to Lessee as Lessor may
reasonably request in order to establish the consummation of the transactions
contemplated by this Lease, the taking of all proceedings in connection
therewith and compliance with the conditions set forth in this SECTION 4.
<PAGE>
(e) SECURITY DEPOSIT AND BASIC RENT. On or before the
Commencement Date (i) Lessor shall have received immediately available funds in
the amount of the balance of the Security Deposit Amount and (ii) Agent shall
have received the first Basic Rent payment.
(f) SIDE LETTER. On or before the Commencement Date, Lessor
shall have received all amounts due to it under that certain side letter dated
as of even date herewith.
(g) INSURANCE CERTIFICATE. Lessor shall have received, on or
prior to the Commencement Date, in form and substance satisfactory to it and to
Agent, an insurer's or broker's certificate as to the due compliance by Lessee
with the insurance provisions of SECTION 9.
(h) FILINGS; FINANCING STATEMENTS. Lessor shall have received
evidence satisfactory to it that this Lease and the Security Assignments shall
each have been duly filed for recordation with the FAA pursuant to the Federal
Aviation Act. If requested by Lessor, Lessee shall have executed (as debtor) and
delivered to Lessor one or more precautionary Uniform Commercial Code financing
statements for filing in such places in the United States as, in the Lessor's
opinion, are necessary or desirable.
(i) OPINIONS OF COUNSEL. Lessor shall have received a
favorable opinion or opinions addressed to TACA and Former Head Lessor from
Winthrop, Stimson, Putnam & Roberts and Sparks, Dix, counsel for Lessee, dated
as of the Commencement Date.
(j) NO EVENT OF LOSS. No Event of Loss shall have occurred
with respect to the Aircraft or any Engine.
(k) ACCEPTANCE BY PROCESS AGENT. CT Corporation System shall
have accepted its appointment as Process Agent on behalf of Lessee by one or
more instruments in writing delivered to Lessor.
(l) NET WORTH. On and as of the Commencement Date Lessee shall
have a net worth of not less than U.S. $[ ]*, as determined in accordance with
generally accepted accounting principles.
(m) OTHER DOCUMENTS. Lessor shall have received such other
documents and matters incident to foregoing as TACA, Former Head Lessor or Agent
may reasonably request and such other agreements as TACA, Former Head Lessor or
Agent may reasonably request, as each deems necessary or desirable to consummate
the transactions contemplated hereby.
(ii) The obligation of Lessee to lease the Aircraft from
Lessor pursuant hereto was subject to the satisfaction, on or before
the Commencement Date, of each of the following conditions (which
the parties hereto agree were satisfied or waived on or before the
Commencement Date):
(a) DELIVERY OF ASSIGNMENTS OF WARRANTIES. Lessee shall have
received from Lessor Assignments of Warranties in form and substance reasonably
acceptable to Lessee, duly accepted by the Manufacturers of the Airframe and the
Engines.
(b) RESOLUTIONS, ETC. Lessee shall have received, in form and
substance reasonably satisfactory to it: (i) a certificate of the Secretary or
an Assistant Secretary of Lessor, in the form attached as part of EXHIBIT D
hereto, with respect to the resolutions of the Board of Directors of Lessor
authorizing the execution, delivery and performance by Lessor of this Lease and
all other documents and certificates contemplated hereby to be executed on
behalf of Lessor, and the authority and signatures of the persons authorized to
execute and deliver such documents on behalf of Lessor; and (ii) such other
documents and evidence with respect to Lessor as Lessee may reasonably request
in order to establish the consummation of the transactions contemplated by this
Lease, the taking of all proceedings in connection therewith and compliance with
the conditions set forth in this SECTION 4.
<PAGE>
(c) CONSENTS TO SUBLEASE. Lessee shall have received the written
consents of Former Head Lessor and Agent to this Sublease.
(d) EXTENSION OF LEASE. Lessee shall have received a copy of that
certain Amendment to Lease dated March 29, 1996 pursuant to which the term of
the Head Lease shall have been extended such that it shall be at least
coterminous herewith.
(e) CERTIFICATE OF NO DEFAULT. Lessee shall have received a
certificate of a duly authorized officer of Lessor to the effect that no Default
or Event of Default, as defined therein, has occurred and is continuing under
the Head Lease or the Mortgage.
(f) DELIVERY OF LEASE SUPPLEMENT. Lessor shall have delivered to
Lessee the Lease Supplement.
(g) CERTIFICATE OF AIRWORTHINESS. The Certificate of Airworthiness
for the Aircraft shall not have been withdrawn.
(h) ACCEPTANCE BY PROCESS AGENT. Greenberg, Traurig et al. shall
have accepted its appointment as Process Agent on behalf of TACA.
(i) BROKER. Lessee shall have received a letter from Cauff, Lippman
& Crane Aviation, Inc., addressed to and in form and substance satisfactory to
it, to the effect that Cauff, Lippman & Crane Aviation will not seek to recover
any amounts in respect of the Aircraft, Engines or Parts from Lessee.
5. DISCLAIMER; MANUFACTURER AND VENDOR WARRANTIES.
(a) DISCLAIMER BY LESSOR. PRIOR TO THE EXECUTION OF THIS
LEASE, LESSEE HAS SELECTED THE TYPE OF AIRCRAFT, AIRFRAME, ENGINES AND PARTS.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 5(B) BELOW, NEITHER LESSOR,
NOR ANY SUCCESSOR IN INTEREST TO EITHER HAS MADE NOR SHALL BE DEEMED TO HAVE
MADE AND ACCORDINGLY MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING THE CONDITION OF THE AIRCRAFT, AIRFRAME, ENGINES AND
PARTS, THEIR MERCHANTABILITY OR THEIR FITNESS FOR ANY PARTICULAR PURPOSE, AND
LESSOR EXPRESSLY DISCLAIMS THE SAME AND AS RESPECTS LESSOR, LESSEE LEASES THE
AIRCRAFT, AIRFRAME, ENGINES AND PARTS "AS IS" AND "WHERE IS". EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN SECTION 5(B) BELOW, LESSOR HEREBY EXPRESSLY
DISCLAIMS ANY WARRANTY EITHER EXPRESS OR IMPLIED (WHETHER STATUTORY OR
OTHERWISE) RELATING TO THE CAPACITY, AGE, QUALITY, DESCRIPTION, STATE,
CONDITION, DESIGN, CONSTRUCTION, USE, OPERATION, OR PERFORMANCE OF THE AIRCRAFT
<PAGE>
OR THE SUITABILITY OF THE AIRCRAFT OR ITS FITNESS FOR ANY PARTICULAR PURPOSE OR
AS TO ITS AIRWORTHINESS. LESSOR SHALL HAVE NO LIABILITY TO LESSEE FOR ANY CLAIM,
LOSS OR DAMAGE WHATSOEVER INCLUDING, BUT NOT LIMITED TO, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY
THE AIRCRAFT OR AIRFRAME, ANY OF THE ENGINES OR PARTS, OR BY ANY INADEQUACY
THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY INCIDENT WHATSOEVER IN
CONNECTION THEREWITH ARISING IN STRICT LIABILITY, NEGLIGENCE, GROSS NEGLIGENCE
OR OTHERWISE, OR IN ANY ACTION RELATED TO OR ARISING OUT OF THIS LEASE OR ANY
OTHER DOCUMENT AND WHETHER INVOLVING PERSONAL INJURY, PROPERTY DAMAGE OR
OTHERWISE. EXCEPT AS EXPRESSLY PROVIDED IN SECTION 5(B) BELOW, LESSEE HEREBY
WAIVES AS BETWEEN ITSELF, LESSOR AND ANY PERSON CLAIMING BY, THROUGH OR UNDER
LESSOR, ALL ITS RIGHTS, EXPRESS OR IMPLIED (WHETHER STATUTORY OR OTHERWISE),
AGAINST LESSOR OR ANY OTHER SUCH PERSON IN AND TO THE AIRCRAFT RELATING TO THE
CAPACITY, AGE, QUALITY, DESCRIPTION, STATE, CONDITION, DESIGN, CONSTRUCTION,
USE, OPERATION OR PERFORMANCE OF THE AIRCRAFT AND THE LEASING THEREOF BY LESSOR
TO LESSEE, OR TO THE MERCHANTABILITY OR SUITABILITY OF THE AIRCRAFT OR ITS
FITNESS FOR ANY PARTICULAR PURPOSE OR AS TO ITS AIRWORTHINESS. In particular and
without prejudice to the generality of the foregoing, neither Lessor nor any
such other Person shall be under any liability whatsoever and howsoever arising,
whether in contract or tort or both, in respect of any loss, liability, damage
or delay of or to or in connection with any of the Aircraft or any Person or
property whatsoever, whether on board the Aircraft or elsewhere, irrespective of
whether such loss, damage or delay shall arise (x) from the unairworthiness of
the Aircraft, or (y) from any action or omission of Lessor or any other such
Person (other than any action or omission that constitutes willful misconduct or
gross negligence of Lessor).
(b) LESSOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
Notwithstanding and as the sole exception to SECTION 5(A), (i) FSB represents
and warrants that it is a national banking association duly organized, validly
existing and in good standing under the laws of the United States and has all
requisite corporate power, authority and legal right to enter into and to
perform its obligations under the 1997 Trust Agreement; (ii) Lessor represents
and warrants that: (A) unless a Default or an Event of Default shall have
occurred and be continuing neither Lessor nor anyone claiming by, under or
through Lessor shall take any actions inconsistent with Lessee's right of quiet
enjoyment; (B) FSB holds all material licenses, certificates and permits
necessary for the conduct of its business as now conducted; (C) the execution,
delivery and performance of this Lease has been duly authorized by all necessary
corporate action of Lessor, and does not and will not (1) result in the
violation of the provisions of the charter documents or bylaws of Lessor as in
effect on the date hereof, (2) require stockholder approval or approval or
consent of any trustee or holders of any indebtedness of Lessor, except such
approvals which have been obtained and are in full force and effect, (3)
contravene any law, rule or regulation or any order of any Government Entity
binding on Lessor, and (4) conflict with or result in a breach of any terms or
provisions of or constitute a default under, or result in or require the
creation or imposition of any Lien upon any material property or assets of
Lessor under, any indenture, mortgage or other agreement or instrument as in
effect on the date hereof to which Lessor is a party or by which it or any of
its property is bound, or any applicable law, rule or regulation, judgment,
order or decree of any Government Entity or court having jurisdiction over
Lessor or any of its properties; and (D) this Lease constitutes the legal, valid
and binding obligation of Lessor, enforceable against Lessor in accordance with
its terms except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting 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 at law or in equity)
as a court having jurisdiction may impose.
(c) MANUFACTURER AND VENDOR WARRANTIES. Lessor hereby assigns
to Lessee for the duration of the Lease Term (so long as no Event of Default
shall have occurred and be continuing) all assignable warranties, if any, given
by the Manufacturer and other vendors with respect to the Aircraft and Engines
and shall obtain Manufacturer's consent to such assignment. Lessee will
diligently and promptly pursue any valid claims it may have under such
<PAGE>
warranties and will provide notice of the same to Lessor. To the extent that any
warranty given by the Manufacturer or others with respect to the Aircraft or
Engines is not assignable or otherwise made available to Lessee, Lessor agrees,
at its option, either (i) to authorize Lessee to take such action to enforce
such warranty in the name of Lessor as Lessee sees fit or (ii) to exert
reasonable efforts at Lessee's request and expense (and subject to Lessee making
adequate provision to the satisfaction of Lessor with respect to such expense)
to enforce any such warranties for the benefit of Lessee. Effective on the
return of the Aircraft or the termination of this Lease, whichever is earlier,
Lessee hereby assigns any remaining warranties, and any claims thereunder, to
Lessor or its designee. Upon exercise by Lessor or any Party claiming by,
through or under Lessor of any remedies in respect of an Event of Default, and
at the latest, upon expiration of the Lease Term, the benefit of all warranties
referred to herein shall immediately revert and be deemed to have been
reassigned by Lessee to Lessor.
6. MAINTENANCE; ALTERATIONS, MODIFICATIONS AND ADDITIONS.
(a) MAINTENANCE.
(i) So long as Lessor has not committed a breach of its covenant of
quiet enjoyment which shall have the effect of depriving Lessee of the use
or possession of the Aircraft, during the Lease Term and until the
Aircraft is returned to Lessor, Lessee shall, at its sole cost and
expense, service, inspect, test, maintain, overhaul and repair the
Aircraft, the Engines and all of the Parts in accordance with Lessee's FAA
approved airworthiness maintenance and inspection program, a copy of which
has been or will be delivered to Lessor on or prior to the Commencement
Date (the "MAINTENANCE PROGRAM") and in conformity with the rules and
regulations of the FAA, (A) so as to keep the Aircraft in as good
condition (operating and otherwise), appearance and repair as when
delivered to Lessee hereunder, ordinary wear and tear excepted and
otherwise to enable the airworthiness certification of the Aircraft to be
maintained in good standing at all times under applicable law, and to be
and remain registered in the United States pursuant to the Federal
Aviation Act, and (B) in the same manner and with the same care as used by
Lessee with respect to similar aircraft and engines owned or operated by
Lessee (it being the intention of the parties hereto that Lessee shall not
discriminate against the Aircraft in respect of any maintenance matters).
Lessee shall be authorized to amend its Maintenance Program; provided,
however, that notwithstanding such amendment, the Maintenance Program
shall, at all times during the Lease Term, be in full conformity with the
requirements set forth above and, further provided, that Lessee shall have
obtained Lessor's prior written consent to any material amendment or
change in or to the Maintenance Program. All service, inspection,
maintenance, modification, repair and overhaul shall be performed or
caused to be performed by Lessee in accordance with all applicable FAA
requirements and under the Maintenance Program, and shall be accomplished
in accordance with all applicable service, inspection, maintenance,
modification, repair and overhaul manuals and bulletins published by the
Manufacturer or the manufacturers of the Engines or engines, equipment,
accessories or Parts installed on the Aircraft. Without limiting the
generality of the foregoing or the obligations of Lessee hereunder, Lessee
agrees that such maintenance and repairs will include but will not be
limited to each of the following:
(A) to perform in accordance with the Maintenance
Program all routine and non-routine maintenance work;
(B) to comply on a terminating basis with all
outstanding mandatory orders, airworthiness directives and
instructions issued by the FAA affecting the Aircraft that
have an effective date for compliance prior to, or sooner than
one hundred eighty (180) days after, the return date of the
Aircraft;
<PAGE>
(C) to incorporate in the Aircraft all service bulletins
of the Manufacturer, the Engine manufacturer and other vendors
which Lessee schedules to incorporate during the Lease Term on
aircraft or engines in its Boeing 737 fleet;
(D) to incorporate in the maintenance schedule for the
Aircraft a corrosion control program as recommended by
Manufacturer and the FAA and to carry out such work as may be
required to comply therewith, including periodic inspections
of fuel tanks, periodic inspection and clean-up under galleys
and lavatories, the cleaning and treating of all mild and
moderate corrosion and the correcting of all severe and
exfoliated corrosion in accordance with the recommendations of
the Manufacturer; and
(E) to maintain, in the English language (1) the
Aircraft Documentation and (2) any other records, logs or
other documents, information or materials relating to the
service, inspection, testing, maintenance, modification,
overhaul and repair of the Aircraft, any Engine and any Part
which are required by the FAA or by applicable law, all of
which shall at all times be kept current and up-to-date, shall
conform with the laws of any Government Entity having
jurisdiction and with normal practices of commercial air
carriers, shall disclose the location of any Engine or Part
not installed on the Airframe and shall be made available for
review by Lessor on reasonable notice.
(ii) Lessee shall have designated persons in its employment
authorized by the FAA to perform service, inspection, modifications repair
and alterations of the Aircraft, and to return the Aircraft to Lessee's
revenue service after such performance has been accomplished by Lessee or
shall have the same performed on its behalf by an FAA approved repair and
overhaul station in conformity with FAR 145 ("Approved Repair Facility").
For purposes hereof, Lessor acknowledges that Lessee's maintenance and
repairs in connection with "C" checks and "D" checks (or the equivalent
thereof) are being performed by Tramco, Inc. of Seattle, Washington. In
the event Lessee has a third party accomplish, on a continuous basis, some
or all of the maintenance requirements under the Maintenance Program
(excluding "A," preflight and transit checks) such maintenance by said
third party must be accomplished in accordance with the provisions of this
SECTION 6(A). Lessor shall be entitled and Lessee shall ensure that Lessor
is permitted to reasonably visit the facilities of any such third party
maintenance performer to inspect the maintenance work performed on and the
maintenance records of the Aircraft including any Engine or Part.
(iii) Lessor may request that Lessee accomplish changes desired by
Lessor to the Aircraft during Lessee's layup of the Aircraft for
maintenance under the Maintenance Program in those circumstances where
such changes are not required under this SECTION 6(A) or initiated by
Lessee under SECTION 6(C). No such request shall be unreasonably denied by
Lessee provided that no such changes shall require Lessee to keep the
Aircraft out of service for any longer period than the period which
Lessee's maintenance of the Aircraft was scheduled to require. With
respect to such requested changes, Lessor, at its expense, shall provide
retrofit kits of parts and installation instructions to Lessee. Lessor
shall, within thirty (30) days (or such earlier period as may be required
by any Authorized Repair Facility performing the requested change(s)) of
<PAGE>
receipt of an invoice detailing the same, pay all costs thereof which
costs shall have been agreed upon prior to performance of the requested
changes.
(iv) Lessee shall give Lessor not less than thirty (30) days' prior
written notice of the anticipated date, location and Approved Repair
Facility in respect of any "C"check or "D" check (or its equivalent) to be
performed on the Aircraft.
(v) Repairs will be accomplished as follows: (A) any repair to the
Aircraft shall be accomplished pursuant to the appropriate manufacturer's
repair manual instructions under an FAA approved program; and (B) any
material repair to the Aircraft that is not covered by the appropriate
manufacturer's repair manual instructions shall be subject to Lessor's
prior written approval and shall be made under an FAA approved program.
(vi) Notwithstanding anything to the contrary contained herein and
provided that the same shall not violate the terms of or conflict with any
lease, sublease, credit or security agreement to which such engine, an
aircraft engine that is not an Engine, but that is installed on the
Airframe, shall be maintained in accordance with this SECTION 6(A).
(b) MAINTENANCE RESERVES.
(i) Lessee shall pay Lessor, as Supplemental Rent for the use
of the Aircraft during the Lease Term, within fifteen (15) days
following the last day of each calendar month during the Lease Term
and on the redelivery date, the following sums ("MAINTENANCE
RESERVES"): (A) with respect to each Engine, the sum (the "ENGINE
RESERVE AMOUNT") of (x) the amount determined by multiplying the
number of Flight Hours of operation of such Engine during the
immediately preceding month (irrespective of whether such Engine is
installed on the Airframe or any other airframe) by [ ]* Dollars
(US$[ ]*) which amount shall be applied toward restoration shop
visits (the "SHOP VISIT PORTION") and (y) the amount determined by
multiplying the number of Cycles of operation of such Engine during
the immediately preceding month (irrespective of whether such Engine
is installed on the Airframe or any other airframe) by [ ]* Dollars
(US$[ ]*) which amount shall be applied toward the cost of
life-limited parts (the "LLP Portion"), and (B) with respect to the
Airframe, the amount (the "AIRFRAME RESERVE AMOUNT") determined by
multiplying the number of Flight Hours of operation of the Airframe
during such month by [ ]* Dollars (US$[ ]*). It is the intent of the
parties hereto that the Aircraft and Engines be operated during the
Lease Term at an average Flight Hour/Cycle ratio (the "Ratio") of [
]* Flight Hours to one Cycle ([ ]*:1). During any calendar year
during the Lease Term, the total Engine Flight Hours for each Engine
recorded in respect of the previous twelve months shall be compared
with the Cycles flown for such Engine and the Ratio computed. The
rate payable by way of maintenance reserve in respect of each
complete Flight Hour (pro rata for part thereof) for such Engine
applicable with respect to the Shop Visit Portion of the Engine
Reserve Amount due from Lessee after such annual Ratio computation
and prior to the next annual Ratio computation shall be as provided
in EXHIBIT G hereof for such Ratio. Any excess Maintenance Reserves
remaining at the expiration of the Lease Term or earlier termination
of this Lease shall be retained by Lessor.
(ii) Lessee shall be entitled to reimbursement from the Shop
Visit Portion of the Engine Reserve Amount held for an Engine for
Lessee's actual costs (without mark-up) incurred with respect to
<PAGE>
heavy maintenance of such Engine requiring a shop visit, excluding
any costs associated with replacement of life limited parts and the
cost of any repairs or maintenance required due to accidents, abuse,
misuse, mishandling, faulty maintenance, foreign object damage,
elective part replacement or any insured event. Such reimbursement
shall be made within ten (10) Business Days after presentation to
Lessor of appropriate written evidence of such expenses (which shall
include a copy of an invoice from an FAA-approved maintenance
facility indicating that the maintenance has been completed and
identifying those engine maintenance tasks accomplished and the
labor and material breakdown thereof, and a receipt from the
maintenance facility for payment of the invoice, or at least such
amount thereof as shall exceed the portion of the Maintenance
Reserves available to Lessee hereunder); PROVIDED, that (A) the
amount reimbursed to Lessee shall not exceed the amount of the
Maintenance Reserves paid by Lessee (and not previously disbursed)
allocable to the Shop Visit Portion of the Engine Reserve Amount for
the Engine requiring a shop visit, and (B) in no event shall Lessee
be entitled to reimbursement for any expenses related to removal or
installation of any Engine for maintenance or any other shipping or
transportation expenses. To the extent that any amount reimbursable
hereunder has not been paid by Lessee, such amount shall be paid
directly to the maintenance facility which performed the services
for which reimbursement is sought.
(iii) Lessee shall be entitled to reimbursement from the LLP
Portion of the Engine Reserve Amount (i) for the full replacement
cost of life limited parts having a remaining life of up to and
including one thousand two hundred fifty (1250) Cycles. Upon
reimbursement of such replacement costs, Lessee shall deliver the
removed life limited parts to Lessor at the overhaul facility and
cause title thereto to vest in Lessor free and clear of all Liens
other than Lessor Liens, and (ii) of such portion of the replacement
cost of life limited parts having a remaining life in excess of one
thousand two hundred fifty (1250) Cycles as corresponds to the
utilized (non-remaining) portion of the life of such life limited
parts as compared to the total life thereof when new, as expressed
in Cycles. With respect to such life limited parts having a
remaining life in excess of one thousand two hundred fifty (1250)
Cycles, title to such life limited parts shall be deemed to vest in
Lessee upon installation of replacement parts on an Engine. Such
reimbursement shall be made within ten (10) Business Days after
presentation to Lessor of appropriate written evidence of such costs
(which shall include a copy of an invoice from an FAA-approved
supplier of such life limited parts, identifying those purchased and
receipt of payment therefor or at least payment for such portion as
shall exceed the LLP Portion of the Engine Reserve Amount available
to Lessee hereunder and of the Approved Repair Facility indicating
that such life limited parts have been installed on an Engine;
provided, that (A) the amount reimbursed to Lessee shall not exceed
the amount of the Maintenance Reserves paid by Lessee (and not
previously disbursed) allocable to the LLP Portion of the Engine
Reserve Amount for the Engine requiring a shop visit, and (B) in no
event shall Lessee be entitled to reimbursement for any expenses
related to removal, shipping or transportation expenses. To the
extent that any amount reimbursable hereunder has not been paid by
Lessee, such amount shall be paid directly to the supplier of the
life limited part(s) for which reimbursement is sought.
(iv) Lessee shall be entitled to reimbursement from the
Airframe Reserve Amount for the costs incurred pursuant to a full
structural and systems "D" check (or its equivalent) to occur during
the Lease Term. Such reimbursement shall be made within ten (10)
Business Days after presentation to Lessor of appropriate written
<PAGE>
evidence of such expenses (which shall include a copy of an invoice
from an FAA-approved maintenance facility indicating that the "D"
check (or its equivalent) has been completed and identifying those
maintenance tasks accomplished and the labor and material breakdown
thereof, and a receipt from the maintenance facility for payment of
the invoice, or at least such amount thereof as shall exceed the
portion of the Maintenance Reserves available to Lessee from the
Airframe Reserve Amount hereunder); provided, that (A) the amount
reimbursed to Lessee shall not exceed the amount of the Maintenance
Reserves paid by Lessee (and not previously disbursed) allocable to
the Airframe Reserve Amount, and (B) in no event shall Lessee be
entitled to reimbursement for any expenses related to removal,
shipping or transportation expenses. To the extent that any amount
reimbursable hereunder has not been paid by Lessee, such amount
shall be paid directly to the maintenance facility which performed
the "D" check for which reimbursement is sought.
(v) In respect of any maintenance work to be performed or
replacement of life limited parts for which reimbursement from the
applicable portion of the Maintenance Reserves will be requested,
Lessee, prior to the performance of such maintenance or replacement
of life limited parts, shall deliver to Lessor a detailed workscope
to be performed with an estimate of all costs to be incurred in
connection with such maintenance and/or replacement of life limited
parts, including, without limitation, the estimated cost of labor,
materials and parts for which reimbursement is available under this
SECTION 6(B).
(vi) Provided that no breach by Lessor of Lessor's covenant of
quiet enjoyment depriving Lessee of its use or possession of the
Aircraft has occurred and is continuing, nothing herein shall
modify, limit or otherwise affect Lessee's obligation to maintain
and repair the Aircraft in accordance with the terms of this Lease
and, except as specifically provided herein, any and all maintenance
and repairs on or to the Aircraft shall be at Lessee's sole cost and
expense.
(c) REPLACEMENT OF PARTS. Lessee, at its own cost and expense
(except as otherwise expressly provided herein), will promptly replace all Parts
that may from time to time be incorporated or installed in or attached to the
Aircraft or any Engine and that may from time to time become worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use for any reason whatsoever, except as otherwise provided
in SECTION 6(E). In addition, Lessee may, at its own cost and expense, remove in
the ordinary course of maintenance, service, repair, overhaul or testing, any
Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or permanently rendered unfit for use; provided that
Lessee, except as otherwise provided in SECTION 6(E), will, at its own cost and
expense, replace such Parts as promptly as possible. All replacement Parts shall
(i) be free and clear of all Liens (except Permitted Liens, as hereinafter
defined, and except for pooling arrangements to the extent permitted by SECTION
6(D)), (ii) be in airworthy and good operating condition and of at least
equivalent model and modification status and have a value and utility at least
equal to, the Parts replaced (assuming such replaced Parts were in the condition
and repair required to be maintained by the terms hereof) and (iii) if
applicable, have a current "serviceable tag" of the manufacturer or maintenance
facility providing such items to Lessee, indicating that such Parts are new,
serviceable or overhauled. All Parts at any time removed from the Aircraft or
any Engine shall remain subject to this Lease, no matter where located, until
such time as such Parts shall be replaced by Parts that have been incorporated
or installed in or attached to the Aircraft or such Engine and that meet the
requirements for replacement Parts specified above. Immediately upon any
replacement Part becoming incorporated or installed in or attached to the
Aircraft or any Engine as above provided, without further act, (i) title to the
<PAGE>
replaced Part shall thereupon vest in Lessee, free and clear of Lessor's Liens
and all rights of Lessor, and shall no longer be deemed a Part hereunder
provided, however, that in the case of any Part that is replaced by a
replacement Part subject to a pooling arrangement, title to such replaced Part
shall not vest in Lessee until Lessee has complied with the provisions of
SECTION 6(D), (ii) title to such replacement Part shall vest in Lessor and such
replacement Part shall thereupon become subject to this Lease (subject only to a
pooling arrangement to the extent permitted by SECTION 6(D)) and (iii) such
replacement Part shall be deemed part of the Aircraft or such Engine for all
purposes hereof to the same extent as the Parts originally incorporated or
installed in or attached to the Aircraft or such Engine.
(i) there is not available to Lessee at the time and in the
place that an engine or part is required to be installed on the
Aircraft, a Replacement Engine or, as the case may be, Part
complying with the requirements of SECTION 6(C); (ii) it would
result in an unreasonable disruption of the operation of the
Aircraft and/or the business of Lessee to ground the Aircraft until
an Engine or Part, as the case may be, complying with SECTION 6(C)
becomes available for installation on the Aircraft; and (iii) as
soon as practicable after installation of the same on the Aircraft
but, in any event, no later than the date of the next major
maintenance check (except as such time may be extended pursuant to
SECTION 8(B)), Lessee removes any such engine or part and replaces
it with an Engine or Part, as the case may be, complying with
SECTION 6(C).
(d) POOLING OF PARTS. Any Part (other than Engines) removed
from the Aircraft as provided in SECTION 6(C) may be subjected by Lessee to a
normal pooling arrangement customary in the airline industry entered into in the
ordinary course of Lessee's business with financially and operationally
responsible air carriers; provided no Default or Event of Default shall have
occurred and be continuing and further provided that the Part replacing such
removed Part shall be incorporated or installed in or attached to the Aircraft
in accordance with SECTION 6(C) after the removal of such removed Part. In
addition, any replacement Part when incorporated or installed in or attached to
the Aircraft in accordance with SECTION 6(C) may be owned by a financially and
operationally responsible air carrier subject to such a normal pooling
arrangement; provided that Lessee, at its expense, either (i) causes such
replacement Part to become subject to this Lease in accordance with SECTION 6(C)
by Lessee acquiring title thereto for the benefit of Lessor free and clear of
all Liens other than Permitted Liens or (ii) replaces such replacement Part by
incorporating or installing in or attaching to the Aircraft a further
replacement Part owned by Lessee free and clear of all Liens other than
Permitted Liens and by causing such further replacement Part to become subject
hereto in accordance with SECTION 6(C).
(e) ALTERATIONS, MODIFICATIONS AND ADDITIONS. EXCEPT FOR SUCH
ALTERATIONS AND MODIFICATIONS TO THE AIRCRAFT AND THE ENGINES AS MAY BE REQUIRED
FROM TIME TO TIME TO MEET THE STANDARDS OF THE FAA OR OTHER GOVERNMENTAL ENTITY
HAVING JURISDICTION AND AS REQUIRED TO CONFORM TO MANUFACTURERS' MANDATORY
SERVICE BULLETINS, LESSEE SHALL MAKE NO ALTERATIONS, MODIFICATIONS OR ADDITIONS
TO THE AIRCRAFT OR ANY ENGINE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR.
Lessee, at its own expense, will make such alterations and modifications to the
Aircraft and the Engines as may be required from time to time to meet the
standards of the FAA or other Governmental Entity having jurisdiction and as
required to conform to Manufacturers' mandatory service bulletins, and shall
notify Lessor of the nature and schedule for making such changes and, upon
submission of the Monthly Report for the month during which completion of the
same shall have occurred, of completion thereof. Unless expressly required by
the FAA or Manufacturer's mandatory service bulletins, no alteration,
modification or addition shall diminish the value or utility of the Aircraft or
<PAGE>
such Engine, or impair the condition or airworthiness thereof, below the value,
utility, condition and airworthiness thereof immediately prior to such
alteration, modification or addition (assuming the Aircraft or such Engine was
then of the value or utility and in the condition and airworthiness required to
be maintained by the terms of this Lease), it being understood that any such
alteration, modification or addition that adversely affects interchangeability
of Parts shall be deemed to diminish the value of the Aircraft. Promptly upon
request therefor, Lessee shall provide to Lessor copies of all drawings and data
with respect to any proposed alteration, modification or addition not mandated
by the FAA. Lessor may impose as a condition to its consent to all or any part
of such proposed alteration, modification or addition that, prior to the return
of the Aircraft to Lessor in accordance with SECTION 10, such alteration,
modification or addition be removed and the Aircraft returned, all at Lessee's
expense, to the condition it was in prior to such alteration, modification or
addition, and otherwise as required by SECTION 10. All parts incorporated or
installed in or attached or added to the Aircraft or such Engine as the result
of such alteration, modification or addition shall, without further act, become
subject to this Lease. Notwithstanding the foregoing sentence of this SECTION
6(E), so long as no Default or Event of Default shall have occurred and be
continuing, Lessee may remove any Part; provided that (i) such Part is in
addition to, and not in replacement of or substitution for, any Part originally
incorporated or installed in or attached to the Aircraft or any Engine at the
time of delivery thereof hereunder or any Part in replacement of, or
substitution for any such Part, (ii) such Part is not required to be
incorporated or installed in or attached or added to the Aircraft or such Engine
pursuant to the terms of this SECTION 6(E) and (iii) such Part can be removed
from the Aircraft or such Engine without diminishing or impairing the value,
utility, condition or airworthiness required to be maintained by the terms of
this Lease that the Aircraft or such Engine would have had at such time had such
removal not occurred. Upon the removal by Lessee of any Part as above provided,
title thereto shall, without further act, vest in Lessee and such Part shall no
longer be deemed part of the Aircraft or such Engine from which it was removed.
Any Part removed by Lessee in any manner other than as above provided prior to
the return of the Aircraft or such Engine to Lessor hereunder shall remain the
property of Lessor.
Notwithstanding anything herein to the contrary, Lessee shall be
permitted to install and remove, at its sole cost and expense, new galleys,
seats, video and entertainment systems and telephones, provided that Lessee
shall store any galleys and video, entertainment and telephone systems currently
installed on the Aircraft and removed therefrom by Lessee, in a safe manner and
at its sole cost and expense and, provided, except as otherwise agreed between
Lessee and Lessor, that any such equipment installed upon the Aircraft by Lessee
is removed by Lessee at its sole cost and expense and Lessee shall return the
Aircraft with the Lessor's equipment reinstalled thereon or, if lost or damaged,
with the equivalent thereof, satisfactory to Lessor, and further provided that
Lessee shall repair at its sole cost and expense and to Lessor's reasonable
satisfaction, any damage to the Aircraft caused by or in connection with such
installation and removal.
7. TITLE AND REGISTRATION; LIENS; POSSESSION.
(a) TITLE AND REGISTRATION. Lessee acknowledges and agrees
that as between Lessee and Lessor, title shall at all times be and remain vested
solely and exclusively in Lessor, and Lessee shall have no right, title or
interest in the Aircraft except the right to use the Aircraft as provided
herein. The Aircraft has been duly registered, and shall at all times during the
Lease Term remain duly registered, in the name of Lessor under the laws of the
United States, except as otherwise required by the Federal Aviation Act. Lessee,
at its sole cost and expense, shall from time to time do or cause to be done any
and all acts and things then required by law (including the Geneva Convention on
the International Recognition of Rights in Aircraft, if applicable) or by
practice, custom or understanding or as Lessor may reasonably request to
protect, preserve and perfect Lessor's, rights and interests in the Aircraft and
this Lease in the United States or in any other jurisdiction into or over which
Lessee may operate the Aircraft or to which Lessee is subject. Without limiting
the generality of the foregoing, if at any time any filing or recording is
<PAGE>
necessary or advisable to perfect, protect and/or preserve the rights and
interests of Lessor in the Aircraft (including Engines and Parts) or this Lease,
Lessee shall, at its own cost and expense, cause this Lease, financing
statements with respect hereto, and any and all additional documents or
instruments which shall be executed pursuant to the terms hereof or thereof, so
far as permitted by applicable law, to be kept, filed and recorded and to be
reexecuted, refiled and rerecorded at all times in the appropriate offices
pursuant or in relation to the applicable laws and regulations of the United
States, and shall furnish to Lessor an opinion of counsel and/or other evidence
satisfactory to Lessor of such registrations, recordation and filings required
hereunder.
(b) LIENS. Lessee will not directly or indirectly create,
incur, assume or suffer to exist any Lien on or with respect to the Airframe or
any Engine, title thereto or any Part or interest therein or in this Lease
except (i) the respective rights of Lessor and Lessee as herein provided, (ii)
the rights of others under agreements or arrangements to the extent expressly
permitted by the terms of SECTION 6(D), (iii) Lessor Liens, (iv) Liens for Taxes
either not yet due or being contested in good faith (and, in respect of such
contest, for the payment of which adequate reserves have been provided) by
appropriate proceedings diligently pursued so long as such proceedings do not
involve any material danger of the sale, forfeiture or loss of the Airframe or
any Engine or Part or interest therein and (v) materialmen's, mechanics',
workmen's, repairmen's, employees' or other like Liens arising in the ordinary
course of business for amounts the payment of which is either not yet delinquent
or is being contested in good faith (and, in respect of such contest, for the
payment of which adequate reserves or other adequate provisions for payment by
way of security or otherwise, have been provided) by appropriate proceedings
diligently pursued so long as such proceedings do not involve any danger of the
sale, forfeiture or loss of the Airframe or any Engine or Part or interest
therein (each of the Liens referred to in clauses (i) to (v) being herein
referred to as "PERMITTED Liens"). Lessee will notify, as soon as reasonably
practicable, Lessor and shall promptly, at its sole cost and expense, take such
action as may be necessary to discharge any such Lien not excepted above if the
same shall arise at any time. Lessee hereby further agrees that no mechanics' or
similar Lien for any labor, services or materials supplied directly by Lessee,
shall attach to or otherwise affect the Aircraft, any Engine or any Part and
Lessee hereby irrevocably waives disclaims and releases any such Lien.
(c) OPERATION, QUIET ENJOYMENT. Lessee shall not operate or
locate the Aircraft, or suffer the Aircraft to be operated or located, (i) in
violation of any applicable law or the Aircraft's certificate of airworthiness,
(ii) other than on regularly scheduled or charter commercial passenger or cargo
flights between any points in the Americas except (inclusive of any landings) in
Cuba except if otherwise required to ferry the Aircraft to an Approved Repair
Facility, (iii) in any area excluded from coverage by any insurance required by
the terms of SECTION 9, or (iv) in any recognized or threatened area of
hostility without Lessor's written consent and unless fully covered to Lessor's
satisfaction by war risk, confiscation and hijacking insurance. Lessee shall not
use the Aircraft for testing or for training of flight crewmembers other than
Lessee's own crewmembers. Except as otherwise provided herein, Lessee shall pay
all costs incurred in the operation of the Aircraft during the Lease Term, for
profit or otherwise, including the costs of flight crews, cabin personnel, fuel,
oil, lubricants, maintenance, insurance, storage, landing and navigation fees,
airport charges, passenger service and any and all other expenses of any kind or
nature, directly or indirectly, in connection with or related to the use,
movement and operation of the Aircraft. Provided no Default or Event of Default
shall occur and be continuing, Lessor shall not take or cause or permit to be
taken any action inconsistent with Lessee's right of quiet enjoyment of, or
otherwise in any way interfere with or interrupt the continuing use, operation
and possession of the Aircraft, the Airframe or any Engine by Lessee.
(d) POSSESSION. EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION
7(D), LESSEE SHALL HAVE NO RIGHT WHATSOEVER TO SUBLEASE THE AIRCRAFT OR ANY
ENGINE TO ANY PERSON WITHOUT HAVING OBTAINED THE PRIOR WRITTEN CONSENT OF
<PAGE>
LESSOR. Lessor agrees that it will not unreasonably withhold its consent to a
proposed sublease by Lessee. In addition and notwithstanding anything in this
Lease to the contrary, Lessee will not in any manner without Lessor's prior
written consent deliver, transfer or relinquish possession of the Aircraft, the
Airframe or any Engine or install any Engine, or permit any Engine to be
installed, on any airframe other than the Airframe; provided, that, so long as
no Default or Event of Default shall have occurred and be continuing, and so
long as the action to be taken shall not deprive Lessor of its interest in the
Aircraft, Lessee may, from time to time, take any of the following actions:
(i) deliver possession of the Airframe or any Engine to the
manufacturer thereof or to any organization for testing, service,
repair, maintenance or overhaul work on the Airframe or any Engine
or any Part of any thereof or for alterations or modifications in or
additions to such Airframe or any Engine to the extent required or
permitted by the terms of SECTION 6(E); or
(ii) to the extent permitted by this SECTION 7(D), subject any
appliances, parts or other equipment owned by Lessor and removed
from the Airframe or any Engine to any pooling arrangement referred
to in SECTION 6(D) of the Lease; or
(iii) install the Engines on any airframe owned or leased by
Lessee; provided that, no lien shall attach to any such Engine by
virtue of or in connection with such installation, and the owner,
lessor, or any party having a security interest in any such airframe
grants reciprocal rights to Lessor; and further provided that,
Lessee shall maintain any and all insurance required to be
maintained upon or in respect of the Engines hereunder at all times
during the Lease Term and until redelivery of the same in the
condition required in SECTION 10 hereof, or
(iv) transfer possession of the Airframe or any Engine to any
Government Entity of the United States pursuant to a sublease, a
copy of which shall be promptly furnished to Lessor, provided that
such sublease shall (A) not extend beyond the end of the Lease Term
and (B) Lessee shall have delivered to Lessor signed copies of a
notice of assignment of such sublease in favor of Lessor under the
Assignment of Claims Act of 1940, as amended (31 U.S.C. Section
3727, 41 U.S.C. Section 15) or any superseding or successor
provisions thereto, and in compliance with the applicable provisions
of 32 C.F.R. Section 7-103.8 and 41 C.F.R. Section 1-30.7, or
superseding or successor laws and regulations, and Lessor may at any
time when a Default or Event of Default shall have occurred and then
be continuing, file such sublease and an original and three copies
of such notice of assignment with the proper contracting and
disbursing officers and otherwise comply with all applicable
provisions of 32 C.F.R. Section 7-103.8 or any superseding or
successor provisions thereto.
Any "wet lease" or other similar arrangement under which Lessee
maintains operational control of, and continues to maintain and insure the
Aircraft, for a term not exceeding twelve (12) months (including all extensions
and renewals), shall not constitute a sublease, transfer or relinquishment of
possession for purposes of this SECTION 7(D). Lessee shall notify Lessor
concurrently with entering into any "wet lease" with a term, including renewals
of more than six (6) months.
No sublease, transfer or relinquishment of possession of the
Airframe or any Engine permitted under this SECTION 7(D) shall in any way
discharge or diminish any of Lessee's obligations hereunder, or constitute a
<PAGE>
waiver of any of Lessor's rights and remedies hereunder. Notwithstanding any
sublease, transfer or relinquishment of possession permitted under this SECTION
7(D), Lessee shall remain primarily liable hereunder for the performance of all
of the terms of this Lease to the same extent as if any such transfer or
relinquishment of possession had not occurred.
(e) IDENTIFICATION PLATES. Lessee shall at all times maintain
in a prominent position in the cockpit of the Airframe and on each Engine the
identification plates installed thereon or attached thereto. Lessee shall
promptly replace any such identification plate that becomes illegible, lost,
damaged or destroyed for any reason.
(f) REPORTING REQUIREMENTS. Commencing with a report furnished
fifteen (15) days after the end of the calendar month of the Commencement Date,
Lessee will furnish to Lessor a Monthly Report in the form attached hereto as
EXHIBIT F, which report will include (i) the hours/cycles operated for the
Airframe and each of the Engines (and their location by airframe). On at least a
quarterly basis Lessee's report will also contain a list of those service
bulletins, ADs and engineering modifications incorporated on the Aircraft. Each
Monthly Report will be furnished within fifteen (15) days after the end of each
calendar month, except that the Monthly Report pertaining to the last month (or
any portion thereof) of the Lease Term will be furnished to Lessor on the last
day of the Lease Term.
(g) INSPECTIONS. During the Lease Term Lessee shall furnish
Lessor such information concerning the location, condition, use and operation of
the Aircraft as Lessor may reasonably request. Lessee shall give Lessor
reasonable prior notice of the anticipated date of any major maintenance checks,
in order to enable Lessor to inspect the Aircraft (should it choose to do so) at
the time and place such major checks occur. Lessor shall be entitled to have its
technical representatives present during any major maintenance checks. On
reasonable notice, Lessor and/or its authorized agents or representatives shall
have the right to inspect the Aircraft and Aircraft documentation (whether in
connection with scheduled major maintenance checks or otherwise) and/or make
copies of the Aircraft documentation; provided, that such inspections do not
unreasonably disrupt Lessee's commercial operations or operation of the
Aircraft. Lessor shall have no duty to make any such inspection and shall not
incur any liability or obligation by reason of making or not making any such
inspection or by reason of any reports it receives or any reviews it may make of
the Aircraft records.
8. LOSS, DESTRUCTION, REQUISITION, ETC. During the Lease Term except
as otherwise expressly provided herein, Lessee shall bear the entire risk of
loss of or damage to the Aircraft. Accordingly:
(a) EVENT OF LOSS WITH RESPECT TO THE AIRCRAFT. Upon the
occurrence of an Event of Loss with respect to the Aircraft, Lessee shall
forthwith (and, in any event, within seven (7) days after such occurrence) give
Lessor written notice of such Event of Loss. On or before the earlier to occur
of (x) the actual receipt by Lessee of any insurance proceeds in respect of such
Event of Loss and (y) the one hundred twentieth (120th) day after the date of
such Event of Loss, but in no case later than the last day of the Lease Term,
Lessee shall pay to Lessor in immediately available funds the Stipulated Loss
Value, whereupon (l) the obligation of Lessee to pay Basic Rent with respect to
the Aircraft for any period commencing after the date of payment of such
Stipulated Loss Value shall terminate; provided that Lessee shall remain liable
for all payments of Basic Rent due on or before the date of such payment of
Stipulated Loss Value, (2) the Lease Term shall end and (3) Lessor, after
compliance by Lessee with all of its other obligations hereunder, including
without limitation payment of Supplemental Rent then due, will cause Lessor to
transfer to Lessee, without recourse or warranty, title to the Aircraft free and
clear of Lessor Liens.
(b) EVENT OF LOSS WITH RESPECT TO AN ENGINE. Upon the
occurrence of an Event of Loss with respect to an Engine only, Lessee shall give
<PAGE>
Lessor prompt written notice thereof and shall, as soon as practical but in any
event within one hundred twenty (120) days after the occurrence of such Event of
Loss, convey or cause to be conveyed to Lessor, as replacement for the Engine
with respect to which such Event of Loss occurred, title to a Replacement Engine
free and clear of all Liens, other than Permitted Liens, and having a value,
utility, mod status at least equal to, and of the same or improved model,
service bulletin status, and maintenance status (I.E. total time, hours/cycles
remaining until next inspection, overhaul or scheduled removal) and in at least
as good operating condition as, the Engine with respect to which such Event of
Loss occurred, assuming such Engine was of the value, utility and remaining life
and in the condition and repair required by the terms hereof immediately prior
to the occurrence of such Event of Loss. Prior to or at the time of any such
conveyance, Lessee, at its own expense, will promptly (i) furnish Lessor with a
bill of sale, in form and substance 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, and recorded pursuant to the Federal
Aviation Act; (iii) furnish Lessor with such evidence of title to such
Replacement Engine and of compliance with the insurance provisions of SECTION 9
with respect to such Replacement Engine as Lessor may reasonably request; (iv)
furnish Lessor with an opinion of Lessee's counsel to the effect that title to
such Replacement Engine has been duly conveyed to Lessor free and clear of all
Liens, encumbrances and rights of others (except Permitted Liens) and is duly
leased hereunder; (v) furnish Lessor with a certificate signed by a duly
authorized financial officer or executive of Lessee certifying that Lessee's
representations and warranties set forth in SECTION 11 are true and accurate on
and as of said date as though made on and as of said date and that upon
consummation of such replacement, no Default or Event of Default will exist
hereunder; (vi) furnish Lessor with such documents and evidence with respect to
Lessee as Lessor may reasonably request in order to establish the consummation
of the transactions contemplated by this SECTION 8(B), the taking of all
corporate proceedings in connection therewith and compliance with the conditions
set forth in this SECTION 8(B), in each case in form and substance satisfactory
to such party; (vii) furnish Lessor with a certificate of a duly authorized
officer of Lessee to the effect that no Event of Default has occurred and is
continuing; and (viii) furnish Lessor with Uniform Commercial Code financing
statements covering such Replacement Engine. Upon full compliance by Lessee with
the terms of this subparagraph (b), such Engine shall no longer be subject to
the terms of this Lease and Lessor will transfer to Lessee title to the Engine
with respect to which the Event of Loss occurred, without recourse or warranty
(except that the Engine is free and clear of Lessor Liens) and shall cause
Lessor to execute and deliver to Lessee an instrument releasing the Engine from
the Lease. 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 Aircraft as was the Engine replaced
thereby. No Event of Loss covered by this SECTION 8(B) shall result in any
reduction in Basic Rent. Notwithstanding the foregoing, if, as of the one
hundred twentieth (120th) day following the occurrence of the Event of Loss,
Lessee shall not have furnished a Replacement Engine as required hereunder and
conforming to the requirements set forth above, at Lessor's option (i) Lessor
shall extend the time period within which Lessee may perform its obligations to
furnish a Replacement Engine hereunder, or, (ii) Lessee shall forthwith pay to
Lessor, an amount equal to the Engine Loss Value and upon receipt of such
payment Lessor shall, as soon as practicable but in any event prior to the end
of Lease Term, lease to Lessee hereunder, a Replacement Engine complying with
the conditions of this SECTION 8(B). Notwithstanding the provisions of SECTION
6(C) hereof any engine installed by Lessee on the Aircraft following an Event of
Loss to an Engine may remain thereon until replaced by a Replacement Engine as
hereinafter provided.
(c) APPLICATION OF PAYMENTS FROM GOVERNMENTAL Authorities. Any
payments (other than insurance proceeds the application of which is provided for
in SECTION 9) received at any time by Lessor or by Lessee from any Government
Entity or other Person with respect to an Event of Loss resulting from the
condemnation, confiscation, theft or seizure of, or requisition of title to or
use of,
<PAGE>
the Aircraft or any Engine, other than a requisition for use by a
Government Entity of the United States not constituting an Event of Loss, will
be applied as follows:
(i) if such payments are received with respect to the Airframe
or the Airframe and one or more Engines or engines installed on the
Airframe, such payments shall be paid to or retained by Lessor and
applied in reduction of Lessee's obligation to pay the Stipulated
Loss Value, if not already paid by Lessee, or, if already paid by
Lessee, shall be paid to or retained by Lessee and applied to
reimburse Lessee for its payment of such Stipulated Loss Value, and
the balance, if any, of such payment remaining thereafter shall be
distributed to Lessee; and
(ii) if such payments are received with respect to an Engine,
such payments shall be held by the Lessor until (A) replacement of
the Engine by Lessee by a Replacement Engine at which time said
payments shall be paid to Lessee; (B) if Lessor shall have elected
to provide a Replacement Engine as provided in SECTION 8(B) said
payments shall be applied in reduction of Lessee's obligation to pay
the Engine Loss Value, if not already paid by Lessee; or if already
paid by Lessee, shall be paid to Lessee and applied to reimburse
Lessee for its payment of such Engine Loss Value; and, (C) the
balance, if any, of such payment remaining thereafter to Lessee.
(d) REQUISITION FOR USE OF THE AIRCRAFT. In the event of the
requisition for use of the Aircraft by a Government Entity of the United States
and one or more related Engines or engines during the Lease Term under
circumstances not constituting an Event of Loss, Lessee shall promptly notify
Lessor of such requisition. All of Lessee's obligations under this Lease with
respect to such Aircraft including, but not limited to Lessee's obligation to
pay Rent, shall continue to the same extent as if such requisition had not
occurred. In the event of a breach of Lessee's obligations pursuant to this
SECTION 8(D), all payments received by Lessor or Lessee from such Government
Entity for the use of such Aircraft and Engines or engines shall be paid over
to, or retained by, Lessor to the extent of Lessee's obligations under this
Lease.
(e) QUIET ENJOYMENT. Notwithstanding the provisions of this
SECTION 8, if (i) Lessee has been deprived of both use and possession of the
Aircraft or any Engine or Part thereof solely as a result of the breach by
Lessor of its covenant of quiet enjoyment set forth herein and (ii) Lessee shall
have provided Lessor written notice to the effect that Lessee has been deprived
of such use and possession and that Lessee intends to cancel its insurance with
respect to the Aircraft or any such Engine or Part on a date specified in such
notice (which date shall not be earlier than thirty (30) days after the date of
Lessor's receipt of such notice), then, from and after the date so specified,
but only during the period that Lessee shall continue to be deprived of both use
and possession of the Aircraft or such Engine or Part (the "Suspension Period"),
(A) Lessor shall bear the entire risk of loss or damage thereof (other than loss
or damage caused by an act or omission of Lessee during the Suspension Period),
and (B) Lessee shall be relieved of its obligation to maintain insurance, as set
forth in SECTION 9 hereof, with respect thereto. In the event of an Event of
Loss of the Aircraft during any such period, the Lease shall terminate and, upon
such termination (i) the Aircraft shall be deemed to have been redelivered to
Lessor in the condition required as of the date on which such deprivation of use
or possession first occurred, (ii) Lessee shall be relieved of all further
obligations hereunder except such as are expressly stated to survive the
termination of this Lease and (iii) Lessor shall, return the Security Deposit to
Lessor as provided in SECTION 3. In the event of an Event of Loss with respect
to an Engine not involving an Event of Loss with respect to the Airframe during
any such period, Lessor shall at its sole cost and expense, as soon as
practicable but in any event within 120 days after the date of such Event of
Loss, provide a Replacement Engine complying with all terms of this Lease and
meeting all conditions otherwise imposed hereunder on Lessee in the event of an
<PAGE>
Event of Loss with respect to an Engine. Immediately upon Lessee being restored
use and possession of the Aircraft or any Engine or Part with respect to which
the risk of loss shall have passed from Lessee to Lessor in accordance with this
SECTION 8(E), the entire risk of loss thereof shall again be borne by Lessee in
accordance with the terms of this Lease.
9. INSURANCE. Except as otherwise set forth in SECTION 8(E) hereof
in respect of any Suspension Period, Lessee, at its sole cost and expense, shall
maintain or cause to be maintained throughout the Lease Term and until the
return of the Aircraft to Lessor in such condition as is required under SECTION
10 hereof with insurers of recognized responsibility and good repute and under
policies reasonably satisfactory to Lessor all such insurance as is required to
be procured and maintained pursuant to this SECTION 9. Such insurance shall
include:
(a) LIABILITY. Public liability (including, without
limitation, aircraft third-party, baggage, cargo, contractual and passenger
legal liability including war risks), property damage liability insurance with
respect to the Aircraft and general airline third party legal liability
(including products liability insurance) with insurers of recognized
responsibility and good repute specializing in aviation insurance in the leading
international markets, in form satisfactory to Lessor and in amounts at least
equal to the greater of (a) [ ]* Dollars (US$[ ]*) per occurrence subject to no
deductible except deductibles as to baggage and cargo that are standard in the
airline industry in respect of carriers operating in the countries in which
Lessee operates and (b) the amount of such insurance carried by Lessee
applicable to other aircraft of similar type in Lessee's fleet.
(b) OTHER INSURANCE. (i) all-risk (including, without
limitation, ground and flight) aircraft hull insurance with respect to the
Aircraft in an amount which shall not at any time while the Aircraft is subject
to this Lease be less than Stipulated Loss Value;
(i) hull war-risk insurance with respect to the Aircraft in an
amount which shall not be less than the Stipulated Loss Value of the
Aircraft; provided, further, however, that such insurance shall
include but not be limited to, coverage against (1) war, invasion,
acts of foreign enemies, hostilities (whether war be declared or
not), civil war, rebellion, revolution, insurrection, martial law,
military or usurped power or attempts at usurpation of power, (2)
strikes, riots, civil commotions or labor disturbances, (3) any act
of one or more persons, whether or not agents of a sovereign power,
for political or terrorist purposes and whether the loss or damage
resulting therefrom is accidental or intentional, (4) any malicious
act or act of sabotage, (5) confiscation, nationalization, seizure,
restraint, detention, appropriation, requisition of title or use
(other than requisition for use by a Government Entity of the United
States) by or under the order of any government (whether civil,
military or de facto) or any public or local authority and (6)
hijacking or any unlawful seizure or wrongful exercise of control of
the Aircraft or crew in flight (including any attempt at such
seizure or control) made by any person or persons on board the
Aircraft acting without the consent of Lessee;
(ii) all-risk (including, without limitation, fire, transit
and extended coverage) insurance, and war-risk insurance of the type
specified in SECTION 9(B)(II) to the extent available, with respect
to each Engine when not installed on the Airframe in an amount not
less than the Engine Loss Value of such Engine;
(iii) such other insurance as Lessee carries in respect of
other similar aircraft in its fleet.
<PAGE>
Notwithstanding anything in the foregoing to the contrary, no insurance
shall have a deductible in excess of $[ ]*.
(c) TERMS OF INSURANCE.
(i) Without limiting any of Lessee's obligations hereunder,
any policies carried in accordance with SECTION 9(A) of this Lease
covering the Aircraft or the Engines and any policies taken out in
substitution or replacement for any such policies shall:
(A) insure the interests of, and name as additional
insureds, each Indemnitee (the "ADDITIONAL INSUREDS") and
provide that the Additional Insureds bear no liability for the
payment of premiums;
(B) provide that if the insurers cancel such insurance
for any reason whatever, or the same is allowed to lapse for
nonpayment of premium, or if there is any alteration,
termination, or cancellation (whether by Lessee or any other
Person and for whatever reason) of the insurance, such
cancellation, lapse, alteration, termination or cancellation
shall not be effective as to the Additional Insureds for
thirty (30) days (with respect to war risk insurance seven (7)
days or the maximum shorter or longer period available in the
market for any portion of the required war risk coverage)
after receipt by such Additional Insureds of notice from such
insurers thereof;
(C) provide that in respect of the interest of Lessor
and each other Additional Insured in such policies, such
insurance shall not be invalidated by any action or inaction
of Lessee or any other Person and shall insure Lessor's and
the Additional Insureds' interests, regardless of any breach
or violation by Lessee or any other Person of any warranties
declarations or conditions contained in such policies;
(D) shall contain a waiver by the insurers of (i) all
rights of subrogation against any and all of the Additional
Insureds and (ii) any rights of set-off, counterclaim or any
other deductions whether by attachment or otherwise, which
they may have against any Additional Insured;
(E) shall be primary and without right of contribution
from any other insurance carried by any of the Additional
Insureds, and shall expressly provide that all of the
provisions provide that all of the provisions thereof (except
limits of liability) shall operate in the same manner as if
there were a separate policy covering each Additional Insured;
and
(F) shall, with respect to hull risk, hull war risk and
allied perils insurance, include a 50%-50% provision.
(ii) Any policies carried in accordance with SECTION 9(B) of
this Lease covering the Aircraft or the Engines and any policies
taken out in substitution or replacement for any such policies
shall:
<PAGE>
(A) insure the interests of, and name as additional
insureds, each Indemnitee (the "ADDITIONAL INSUREDS") and
provide that the Additional Insureds bear no liability for the
payment of premiums;
(B) be made payable in the United States to the extent
of the Stipulated Loss Value to KGAL, as sole "loss payee"
(except that proceeds with respect to partial loss or damage
of less than $[ ]* shall be payable to Lessee subject to the
last sentence of SECTION 9(D));
(C) provide that if the insurers cancel such insurance
for any reason whatever, or the same is allowed to lapse for
nonpayment of premium, or if there is any alteration,
termination or cancellation (whether by Lessee or any other
Person and for whatever reason) of the insurance, such
cancellation, lapse, alteration, termination or cancellation
shall not be effective as to the Additional Insureds for
thirty (30) days (with respect to war risk insurance seven (7)
days or the maximum shorter or longer period available in the
market for any portion of the required war risk coverage)
after receipt by such Additional Insureds of notice from such
insurers thereof;
(D) provide that in respect of the interest of Lessor
and each other Additional Insured in such policies, such
insurance shall not be invalidated by any action or inaction
of Lessee or any other Person and shall insure Lessor's and
the Additional Insureds' interests, regardless of any breach
or violation by Lessee or any other Person of any warranties
declarations or conditions contained in such policies;
(E) shall contain a waiver by the insurers of all rights
of subrogation against any and all of the Additional Insureds;
and
(F) shall be primary and without right of contribution
from any of the Additional Insureds; and
(iii) All amounts payable under policies carried in accordance
with this SECTION 9 shall be paid in immediately available, freely
transferable Dollars in the United States. In the case of a lease or
contract with the United States or any Government Entity thereof in
respect of the Aircraft, a valid agreement duly assigned to Lessor
to indemnify Lessee against the same risks that Lessee is required
under SECTION 9(B) to insure against by the United States or such
Government Entity in an amount at least equal to the Stipulated Loss
Value shall be considered adequate insurance with respect to the
Aircraft to the extent of the risks and in the amounts that are the
subject of any such agreement to indemnify.
(iv) All insurance maintained pursuant to this SECTION 9 shall
be (A) maintained with recognized aircraft and aviation insurance
companies in the United States or international markets that
normally participate in aviation insurance or (B) supported by 99%
reinsurance issued by recognized aircraft and aviation insurance
companies in the international markets that normally participate in
international aviation insurance. Any such reinsurance shall be with
<PAGE>
insurers, in form and in amounts reasonably satisfactory to Lessor
and shall be subject to "cut through" endorsements or other
endorsements or agreements satisfactory in form and substance to
Lessor which shall provide that all payments under such reinsurance
in respect of losses shall be paid (x) in the case of insurance
maintained pursuant to SECTION 9(A) hereof, to the applicable
Additional Insured or (y) in the case of insurance maintained
pursuant to SECTION 9(B) hereof, to KGAL as sole "loss payee"
(except as provided in SECTION 9(C)(II)(B)) and not to any such
primary insurance company.
(d) APPLICATION OF INSURANCE. All insurance or indemnity
payments received as the result of the occurrence of an Event of Loss with
respect to the Airframe or an Engine will be applied as follows:
(i) if such payments are received with respect to the
Airframe, the Engines or engines installed thereon, such payments
shall be applied in the following order of priority: (A) to Lessor
in the amount required to be paid by Lessee pursuant to SECTION
8(A), which amount shall be applied in reduction of Lessee's
obligation to pay such amount if not already paid by Lessee or, to
the extent such amount has been paid by Lessee to Lessor, to Lessee
to reimburse Lessee for its payment thereof and (B) to Lessee the
balance, if any, of such payment; and
(ii) if such payments are received with respect to an Engine,
such payments shall be held by the insurer until (A) replacement of
the Engine by Lessee by a Replacement Engine at which time said
payments shall be paid to Lessee; (B) if Lessor shall have elected
to provide a Replacement Engine as provided in SECTION 8(B) said
payments shall be paid to Lessor to be applied in reduction of
Lessee's obligation to pay the Engine Loss Value, if not already
paid by Lessee, or if already paid by Lessee, shall be paid to
Lessee and applied to reimburse Lessee for its payment of such
Engine Loss Value; and (C) the balance of such payment, if any, to
Lessee.
The insurance payments with respect to any property damage loss not
constituting any Event of Loss with respect to the Airframe or an Engine will be
paid to Lessor and applied by Lessor in payment (or to reimburse Lessee) for
repairs to or replacement of property in accordance with the terms of SECTION
6(C) against evidence satisfactory to Lessor that such repairs and replacement
have been made, or, if such repairs or replacement have already been paid for by
Lessee, to reimburse Lessee therefor, and any balance remaining after compliance
with such Section with respect to such loss shall be paid to Lessee. Any amount
referred to in the preceding sentence or in paragraph (i) or (ii) of this
SECTION 9(D) that is payable to Lessee shall not be paid to Lessee if at the
time of such payment an Event of Default or Default shall have occurred and be
continuing, but shall be held by Lessor as security for and may be applied to
the obligations of Lessee under this Lease and, at such time as there shall not
be continuing any such Default or Event of Default, such amount not previously
so applied shall be paid to Lessee. Notwithstanding the provisions of this
paragraph, payments in respect of partial losses of less than [ ]* Dollars (US$[
]*) shall be paid directly to Lessee to be applied by Lessee toward the cost of
repair or replacement of such property in conformity herewith.
(e) REPORTS. On or before the Commencement Date, Lessee will
furnish or cause to be furnished to Lessor a report signed by a firm of
independent aircraft insurance brokers, appointed by Lessee and acceptable to
Lessor, stating the opinion of such firm that the insurance then carried and
maintained on the Aircraft complies with the terms hereof. Lessee will cause
such firm to advise Lessor and each other Additional Insured in writing promptly
of any default in the payment of any premium, of any other act or omission on
the part of Lessee of which such firm has knowledge that might invalidate or
render unenforceable, in whole or in part, any insurance on the Aircraft and of
<PAGE>
each claim made by Lessee in respect of the Aircraft. Lessee will also cause
such firm to advise Lessor and each other Additional Insured in writing at least
thirty (30) days prior to the expiration or termination of any insurance carried
and maintained on the Aircraft pursuant to this SECTION 9.
(f) FAILURE TO INSURE. In the event that Lessee shall fail to
maintain or cause to be maintained insurance as herein provided, Lessor may, at
its option, but without liability to Lessee for failure to do so, provide such
insurance and, in such event, Lessee shall, upon written demand, reimburse
Lessor for the cost thereof as Supplemental Rent. At any time while such failure
is continuing, Lessor may require the Aircraft to remain at any airport or (as
the case may be) proceed to and remain at any airport within the United States
as designated by Lessor, until such failure is remedied to Lessor's
satisfaction.
(g) ADDITIONAL INSURANCE. Nothing contained in this Lease
shall prevent Lessor or Lessee, each at its own expense and for its exclusive
benefit, from carrying insurance covering the Aircraft in addition to the
insurance required under this SECTION 9 (any such additional insurance,
"ADDITIONAL INSURANCE"); provided, however, that such Additional Insurance shall
be excess and non-contributory to the insurance required to be procured and
maintained by Lessee hereunder. The insurance payments for any property damage
loss covered by Additional Insurance shall be paid directly to the party
carrying such Additional Insurance. Lessee may carry hull all risks or hull war
and allied perils on the Aircraft in excess of the Stipulated Loss Value only to
the extent such excess insurance which would be payable to Lessee following an
Event of Loss does not prejudice the insurances required herein or the recovery
by Lessor thereunder. Lessee agrees that it will not create or permit to exist
any Liens (other than Lessor Liens) over the insurances required hereunder, or
its interest therein, except as constituted by this Lease.
(h) NOTICE OF CLAIMS. Lessee shall give Lessor notice in
writing of any claim or request for payment of an amount in excess of $[ ]*
under any physical damage insurance policy required to be maintained hereunder
promptly (but in any event within five (5) days) of the filing of such claim or
request for payment.
(i) STIPULATED LOSS VALUE. At any time following the first
anniversary of the Commencement Date, Lessee may propose a revision to the
Stipulated Loss Value Schedule set forth as Schedule I hereof, and, upon receipt
of any such proposal, Lessor and Lessee shall negotiate in good faith a revised
Schedule I of this Lease.
10. RETURN OF AIRCRAFT. The provisions of this SECTION 10 shall apply to
any return of the Aircraft to Lessor upon termination of this Lease (including,
without limitation, such return resulting from an Event of Default); provided,
that if this Lease is terminated pursuant to SECTION 14 and the Aircraft is
repossessed by Lessor, any action that is required to be taken by Lessee
pursuant to this SECTION 10 prior to the return of the Aircraft shall be taken
immediately after the return of such Aircraft.
(a) REDELIVERY UPON TERMINATION. On the date of termination of
this Lease, except as otherwise provided pursuant to SECTION 8(E) hereof, Lessee
shall at its sole cost and expense, return the Aircraft to Lessor, at the
Lessee's facilities in Colorado Springs, Colorado or at those of its FAA
approved maintenance provider performing the pre-redelivery "C" check (provided
that if this Lease shall be terminated as a result of a default by Lessee under
the Lease the Aircraft shall be returned to a point in the United States
reasonably requested by Lessor). At the time of return of the Aircraft to
Lessor, Lessor and Lessee shall execute a Return Acceptance Receipt in
substantially the form of EXHIBIT C hereto.
<PAGE>
(b) CONDITION OF AIRCRAFT 3/4 GENERAL. The Aircraft at the
time of its return to Lessor shall have been maintained and repaired in
accordance with the Maintenance Program as if such Aircraft were to be kept in
further service by Lessee, shall be free and clear of all Liens (other than
Lessor Liens) and shall meet the following requirements:
(i) The Aircraft shall be in good operating condition with all
of the Aircraft equipment, components and systems functioning in
accordance with Manufacturer's limitations, irrespective of
deviations or variations authorized by the Minimum Equipment List or
Configuration Deviation List prepared and authorized by the
Manufacturer or authorized by the FAA.
(ii) The interior of the Aircraft shall be in as good
condition as upon delivery (normal wear and tear excepted).
(iii) The brakes and tires shall have a remaining life at
least equal to the remaining life of the brakes and tires installed
upon the Aircraft as of March 6, 1996.
(iv) The Aircraft shall be clean by international commercial
airline standards.
(v) The Aircraft shall have, and be in compliance with, a
current valid standard certificate of airworthiness issued by the
FAA and shall meet the requirements of FAR Part 121 as applied to
Lessee's then current operations without any corrections, repairs,
modifications, alterations or overhauls having to be performed to
meet such standards and rules.
(vi) The Aircraft shall have had accomplished thereon, at
Lessee's sole cost and expense, on a terminating action basis, and
be in compliance with all outstanding airworthiness directives and
mandatory service bulletins issued by the FAA affecting the Aircraft
that have an effective date for compliance prior to, or sooner than
one hundred eighty (180) days after the return date of the Aircraft.
In the event Lessee has obtained a waiver or deviation from the FAA
from having to comply with any such FAA airworthiness directives and
mandatory service bulletins Lessee shall, irrespective of such
waiver or deviation, comply with all such mandatory orders,
airworthiness, directives, service bulletins and instructions
covered by such waiver or deviation prior to return of the Aircraft
to Lessor.
(vii) All outstanding pilot discrepancies and deferred
maintenance items shall have been cleared on a terminating action
basis.
(viii) The Aircraft shall have had accomplished thereon the
cleaning and treating of all mild and moderate corrosion and
correcting of all severe or exfoliated corrosion in accordance with
the provisions of the Manufacturer's Maintenance Planning Document,
Corrosion Prevention Manual or 737 Structural Repair Manual
criteria, in each case, without discrimination as between the
Aircraft and Lessee's other Boeing 737-300 aircraft.
(ix) Except as otherwise permitted in SECTION 6(E) hereto, the
Aircraft shall be in the same configuration and condition with all
<PAGE>
equipment installed therein as that in which the Aircraft was
delivered to Lessee by Lessor under this Lease, excepting only
ordinary wear and tear, replacements and substitute parts and
equipment as may have been properly made by Lessee pursuant to this
Lease.
(x) The Aircraft will be free of fuel, oil and hydraulic
leaks. Any temporary fuel leak repairs will have been replaced by
permanent repairs.
(xi) The Aircraft fluid reservoirs (including oil, hydraulic,
water and waste tanks) will be serviced to full in accordance with
Manufacturer's instructions, and each fuel tank shall contain at
least the quantity of fuel as was contained therein when the
Aircraft was delivered to Lessee on the Commencement Date; or, in
the case of any deficiency, Lessee shall pay Lessor for such
deficiency at Lessor's then current cost of fuel.
(xii) No special or unique Manufacturer, Engine manufacturer
or FAA inspection or check requirements which are specific to the
Aircraft or Engines and have which arisen during the Lease Term (as
opposed to all aircraft or engines of their types) will exist with
respect to the Airframe, Engines and Aircraft equipment, components
and systems.
(xiii) All repairs, modifications and alterations made to the
Aircraft or the addition or removal of equipment, systems or
components will have been made in accordance with FAA-approved data
and properly documented in accordance with the rules and regulations
of the FAA.
(xiv) No Part or component of the Airframe shall be older than
the Airframe.
(c) Condition of Airframe. The Airframe at the time of its return to
Lessor shall have a currently effective U.S. certificate of airworthiness, shall
meet the requirements of FAR 121 as applied to Lessee's then current operations,
shall meet the requirements and shall have such hours and cycles remaining under
the Maintenance Program as set forth below:
(i) The Airframe shall have accomplished the next complete
structural and systems "C" check sufficient to clear the Aircraft
for 3,000 hours, 3,000 cycles or, at least twelve (12) months of
operations determined with reference to the Maintenance Program.
(ii) The installed main landing gear and nose landing gear
shall each have at least 8,000 hours or 4,000 cycles remaining
before overhaul.
(iii) Perform an internal and external corrosion inspection as
required pursuant to the pre-return "C" check as per the Maintenance
Program and CPCP and correct any discrepancies in accordance with
the recommendations of Manufacturer and the Structural Repair
Manual.
(iv) Remove Lessee's exterior markings, including all exterior
paint and decals, by scuff/sanding the paint from the Airframe and
repaint the Airframe white.
(v) Permanently repair in accordance with Manufacturer's
Structural Repair Manual damage to the Aircraft that exceeds
Manufacturer's limits and replace any non-flush structural patch
repairs installed on the Airframe by Lessee, unless otherwise
recommended by Manufacturer, if required by Manufacturer's
maintenance and repair guidelines with flush-type repairs.
<PAGE>
(d) CONDITION OF CONTROLLED COMPONENTS. Each life-limited part
or component and aircraft hour and/or cycle controlled components of the
Aircraft and of each Engine at the time of redelivery of the Aircraft to Lessor
shall have remaining at least 3,000 hours and/or 3,000 cycles, whichever is more
limiting, between scheduled removals for overhaul, testing, or disassembly. All
components controlled on a calendar basis shall have remaining at least 12
months before scheduled removal for testing or overhaul. Such hour/cycle or
calendar controlled components are defined as those components controlled under
the Maintenance Program. However, if the component or part has a check interval
limit that is less than the above stated hours, cycles or calendar time limit
requirement, the check interval limit shall prevail.
(e) CONDITION OF ENGINES. (i) Each Engine at the time of
return to Lessor whether or not installed on the Airframe shall have been
maintained on an "on-condition" program.
(i) Each Engine shall have no more cycles or hours since the
last shop visit for full performance restoration, as described in
the Aviall Caledonian Workscope definitions, than such Engine had
when delivered.
(ii) Lessee shall perform a full and complete video borescope
on each Engine and its modules in accordance with the Engine
manufacturer's maintenance manual, with Lessor or its
representatives entitled to be present. Lessee will provide evidence
to Lessor's satisfaction that such inspection does not reveal any
condition which would cause the Engine or any module to be
unserviceable, beyond serviceable limits, or serviceable with
limitations under the Engine manufacturer's maintenance manual.
Lessee will correct any discrepancies in accordance with the
guidelines set out by the Engine manufacturer which may be
discovered during such inspection.
(iii) Each Engine shall have an exhaust gas temperature margin
remaining of 15 degrees or higher and shall, at a minimum, meet all
the requirements of the maximum power assurance run criteria for CFM
56-3B2 engines.
(iv) The Aircraft shall be capable of certificated, full rated
performance without limitations throughout the entire operating
envelope as defined in the Manufacturer's flight manual applicable
to the Aircraft which performance compliance will be demonstrated at
the time of the demonstration flight referred to in SECTION 10(H)
and/or by on-wing static inspection and testing of the powerplants
(engines, nacelles and accessories) in accordance with the
maintenance manual applicable to such Engine, at Lessor's option.
(v) The auxiliary power unit or units installed in the
Aircraft at the time of return to Lessor shall have no more than 500
Flight Hours since the last overhaul as per the Garret Workscope
definition, shall be in good operating condition and shall have a
borescope inspection and "on-condition" check performed in
accordance with the Maintenance Program. Satisfactory evidence shall
be provided to Lessor reflecting the correction of any discrepancies
found during such inspection or such check, as the case may be.
<PAGE>
(f) GROUND INSPECTION BY LESSOR. The Aircraft (including the
Aircraft documentation and other related documents to be returned therewith as
provided in SECTION 10(L)) shall be made available to Lessor for ground
inspection by Lessor at Lessee's facilities or those of its FAA approved
maintenance provider during the pre-redelivery "C" check. Such inspection shall
commence not less than seven working days prior to the date of return of the
Aircraft to Lessor. Lessee shall remove the Aircraft from scheduled service and
open the areas of the Aircraft as required to perform the necessary checks as
contemplated by this Lease and shall allow Lessor to accomplish its inspection
in order to determine that the Aircraft (including the Aircraft documentation)
and other related documents are in the condition set forth in SECTION 10. During
such pre-redelivery "C" check, Lessor's personnel shall have the right to
reasonably request that adjacent additional panels or areas be opened in order
to allow further inspection by Lessor personnel. Lessee shall promptly correct
any discrepancies from the condition required by the provisions of SECTION 10
that are observed during such inspection and are communicated by Lessor to
Lessee.
(g) OPERATIONAL GROUND CHECK. Promptly after completion of any
corrections required under SECTION 10(F), Lessee shall conduct an operations
ground check (including an engine power assurance run and a flight control
operational and rigging check) in accordance with the Manufacturer's maintenance
manual criteria for the purpose of demonstrating that each of the following
systems meet applicable manufacturer's criteria: (i) full fuel tank leak check;
(ii) altimeter calibration; (iii) ATC transponder system operational check; (iv)
audible ignition check (both systems); (v) pilot and static systems check; (vi)
hydraulic system internal leak check; and (vii) brake wear check. Promptly after
the operational ground check, Lessee shall repair any discrepancies resulting
therefrom.
(h) DEMONSTRATION FLIGHT. Promptly after completion of any
corrections required under SECTIONS 10(F) and 10(G), the Aircraft shall be flown
by Lessee, using qualified flight test personnel and the applicable
Manufacturer's test flight document, for approximately one and one-half hours
for the purpose of demonstrating to Lessor the satisfactory operation of the
Aircraft and its equipment. During such test flight, command, care, custody and
control of the Aircraft shall at all times remain with Lessee. Representatives
of Lessor may participate in such flight as observers. A qualified pilot
designated by Lessor shall occupy the cockpit observer's seat as an observer
during such demonstration flight. Upon completion of such demonstration flight,
the representatives of Lessee and Lessor participating in such demonstration
shall agree in writing upon any discrepancies in the Aircraft required to be
corrected by Lessee in order to comply with the provisions of this SECTION 10
and Lessee shall promptly correct any such discrepancies. Subsequent to
corrections of such discrepancies, Lessor shall inspect and technically accept
the Aircraft for redelivery subject to the requirements of this SECTION 10(H)
and SECTIONS 10(I) and (J) below. If any of the discrepancies referred to in
SECTIONS 10(F) and 10(G) or this SECTION 10(H) continue to persist, Lessor may,
at its option, agree to accept redelivery of the Aircraft and apply the
procedure set forth in SECTION 10(J) for such discrepancies.
(i) FERRY FLIGHT. Upon completion of the demonstration flight
and after Lessee has corrected discrepancies as required to comply with the
provisions of this SECTION 10, or Lessor has agreed to apply the procedure set
forth in SECTION 10(J), the Aircraft shall be ferried by Lessee to the
redelivery point set forth in SECTION 10(A) hereof. Lessee shall, at the
Lessor's request, ferry the Aircraft from the redelivery point set forth in
SECTION 10(A) hereof to any other location within the 48 contiguous United
States of America, as may be designated by the Lessor, at the Lessor's expense.
(j) DEFERRED DISCREPANCY CORRECTION. Any discrepancies found
during the ground inspection, operational ground check, demonstration flight and
ferry flight provided for in SECTIONS 10(F), 10(G), 10(H) and 10(i),
respectively, that were not corrected by Lessee prior to return of the Aircraft
to Lessor may be corrected by Lessor or its designee after return of the
Aircraft and Lessee shall reimburse Lessor for the expenses incurred by Lessor
or its designee for accomplishing such discrepancy corrections. Lessee shall pay
Lessor for such expenses incurred within thirty (30) days of the date of
Lessor's invoice therefor.
<PAGE>
(k) FLIGHT COST. All flights pursuant to SECTIONS 10(H) and
10(I) shall be made at Lessee's expense and Lessee shall pay or reimburse Lessor
for any costs associated with such flights including, but not limited to, costs
for fuel, oil, airport fees, insurance, takeoff/landing fees, airway
communication fees and ground handling fees.
(l) AIRCRAFT DOCUMENTATION. Lessee shall return to Lessor at
the time the Aircraft is returned to Lessor, all of the Aircraft records
documents, manuals and data provided to Lessee by Lessor prior to, on or after
the Commencement Date, updated and maintained by Lessee through the date of
return of the Aircraft. In addition, Lessee shall also provide Lessor at the
time the Aircraft is returned to Lessor with all records, documents, manuals
authorizations, drawings and data, in each case in the English language, that
were developed or caused to be developed by Lessee and/or required by the
appropriate governmental agency having jurisdiction updated and maintained by
Lessee for the Aircraft through the date of return of such Aircraft. Any such
Aircraft documentation not already owned by Lessor, when delivered to Lessor
pursuant to this SECTION 10(L), shall thereupon become the property of Lessor.
In the event Lessor requires copies of any of such Aircraft documentation prior
to the return of the Aircraft to Lessor to enable Lessor to plan or accomplish
modifications, recertification, sale, lease or other disposition of or
utilization of the Aircraft upon such return, Lessee shall, promptly upon
receipt of each such Lessor request, provide to Lessor a reasonable number of
copies of such Aircraft documentation requested by Lessor at Lessor's sole cost
and expense.
(m) SERVICE BULLETIN KITS. All vendor and Manufacturer
supplied mandatory service bulletin kits delivered to Lessee for the Aircraft
but not installed therein shall be returned with the Aircraft, as part of the
Aircraft at the time of the return of the Aircraft, and shall be loaded by
Lessee on board the Aircraft as cargo. Title to such kits shall pass to Lessor
concurrently with the delivery of the Aircraft to Lessor.
(n) NON-U.S. MANUFACTURED ITEMS. Lessee shall provide to
Lessor at the time of the return of the Aircraft a complete list, describing by
Part number and name, of all non-United States manufactured equipment,
components and parts, if any, installed on such Aircraft by Lessee during the
Lease Term. Such list shall include quantity, the acquisition price and the
manufacturer's name and country in respect of each such item.
(o) LESSEE'S CONTINUING OBLIGATIONS. In the event that Lessee
does not return the Aircraft to Lessor upon termination of this Lease
(including, without limitation, any termination resulting from an Event of
Default by Lessee) and in the condition required herein for any reason, the
obligations of Lessee under this Lease shall continue; provided, however, that
such failure to return the Aircraft to Lessor in such condition shall not be the
result of a breach by Lessor of its covenant of quiet enjoyment which has
resulted in Lessee having been deprived of use and possession of the Aircraft
immediately prior to such termination, in which case the Aircraft shall be
returned in its then condition provided that, immediately prior to such breach
by Lessor of its covenant of quiet enjoyment such Aircraft shall have been in
such condition as to meet the requirements of SECTION 8 hereof but for such
breach. Such continuation of Lessee's obligations shall not be considered a
renewal of the terms of this Lease or of Lessee's rights to use the Aircraft, an
extension of the Lease Term or a waiver of any Default or Event of Default or
an
<PAGE>
right of Lessor hereunder. Until such time as the Aircraft is redelivered to
Lessor as required herein, Lessee agrees, during the first thirty (30) days
following the termination hereof, to pay Basic Rent with interest at the
Post-Default Rate and thereafter to pay twice the amount of Basic Rent for each
day from such thirtieth (30th) day after the termination hereof until redelivery
of the Aircraft in the condition required hereunder (the monthly Basic Rent
payable being prorated based on the actual number of days in the applicable
month).
11. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.
Lessee represents and warrants to, and covenants with Lessor as follows:
(a) Lessee (i) has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, (ii) has full corporate power and authority and legal right to own its
properties and to carry on its business as presently conducted and to perform
its obligations under this Lease, (iii) is the holder of an air carrier
certificate duly issued pursuant to the Federal Aviation Act and such
certificate is in full force and effect, and (iv) holds all material licenses,
certificates and permits from all Government Entities of the United States and
other jurisdictions necessary for the conduct of its business as now conducted
and for the operation of the Aircraft.
(b) The execution, delivery and performance of this Lease has
been duly authorized by all necessary corporate action of Lessee, and does not
and will not (i) result in the violation of the provisions of the charter
documents or bylaws of Lessee as in effect on the date hereof, (ii) require
stockholder approval or approval or consent of any trustee or holders of any
indebtedness of Lessee, except such approvals which have been obtained and are
in full force and effect, (iii) contravene any law, rule or regulation or any
order of any Government Entity binding on Lessee, or (iv) conflict with or
result in a breach of any terms or provisions of or constitute a default under,
or result in or require the creation or imposition of any Lien upon any material
property or assets of Lessee under, any material indenture, mortgage or other
agreement or instrument as in effect on the date hereof to which Lessee is a
party or by which it or any of its property is bound, or any applicable law,
rule or regulation, judgment, order or decree of any Government Entity or court
having jurisdiction over Lessee or any of its properties.
(c) No authorization, approval, consent, license or order of,
or registration with, or the giving of notice to, or the taking of any other
action in respect of, any Government Entity is required for the valid
authorization, execution, delivery and performance by Lessee of this Lease or
the consummation of any of the transactions contemplated hereby, except (i)
approvals, authorizations, consents, licenses, certificates and orders of the
FAA and any other regulatory authority having jurisdiction with respect to the
ownership, use and operation of the Aircraft and the transactions contemplated
hereby, all of which have been (or on the Delivery Date will have been) duly
obtained and are (or will on the Delivery Date be) in full force and effect,
(ii) the filing of this Lease or other necessary documentation with the civil
aviation authority of each country (other than the United States) in which the
Aircraft may be operated or located which filings have been made, or will be
made as to each such country prior to such Aircraft being operated or located in
such country and (iii) any normal periodic and other reporting requirements and
renewals and extensions of any of the foregoing, in each case to the extent
required to be given or obtained only after the Delivery Date.
(d) Except for (i) the filing and recording pursuant to the
Federal Aviation Act of this Lease, (ii) the filing of duly executed financing
statements naming Lessee as debtor and Lessor as secured party (and continuation
statements with respect to such financing statements) with the Secretary of
State of the State of Colorado and, if applicable, the appropriate filing
authority in El Paso County Colorado and (iii) the retention by Lessor of the
original counterpart of the Lease to the extent, if any, that the Lease
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no further action, including
any filing or recording of any document (including any financing statement in
<PAGE>
respect thereof under Article 9 of the Uniform Commercial Code of any applicable
jurisdiction), is necessary in order to establish and perfect Lessor's title to
the Aircraft as against Lessee and any third parties in any applicable
jurisdictions in the United States.
(e) This Lease constitutes the legal, valid and binding
obligation of Lessee, enforceable against Lessee in accordance with its terms
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting 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 at law or in equity) as a court
having jurisdiction may impose.
(f) There are no suits or proceedings pending or, to Lessee's
knowledge, threatened in any court or before any Government Entity against or
affecting Lessee that would, if adversely determined, (i) prevent or adversely
affect Lessee's ability to perform its obligations under this Lease or (ii)
materially adversely affect the financial condition or operations of Lessee and
its consolidated subsidiaries, taken as a whole.
(g) The chief executive office (as such term is used in
Article 9 of the Uniform Commercial Code) of Lessee and the office where Lessee
will keep its corporate records concerning the Aircraft is located in El Paso
County, Colorado. Lessee will notify Lessor thirty (30) days in advance of
moving either such office to another location.
(h) [Intentionally left blank.]
(i) Neither Lessee nor any of its property has any immunity
from jurisdiction of any court located in the United States or from any legal
process in the United States (whether through service or notice, attachment
prior to judgment, attachment in aid of execution, execution or otherwise).
(j) There is no Tax, levy, impost, deduction, charge or
withholding imposed by the State of Colorado or any Taxing Authority thereof or
therein either (i) on or by virtue of the execution or delivery of this Lease or
(ii) on any payment made or to be made by Lessee under this Lease.
(k) The obligations of Lessee under this Lease rank at least
pari passu in right of payment with all other unsecured obligations of Lessee,
with the exception of such obligations as are mandatorily preferred by law.
(l) Lessee will promptly give notice to Lessor upon obtaining
actual knowledge of any Default or Event of Default; and
(m) Lessee acknowledges that in the event Lessee files a
petition or otherwise seeks relief under the Bankruptcy Code or an involuntary
petition is filed against Lessee, it is the intention of Lessor that Lessor
shall be entitled to the benefits of Title 11 U.S.C. ss. 1110 and any similar or
analogous provisions of any successor statute ("Section 1110") with respect to
the Aircraft and this Lease, and Lessee agrees that it shall not oppose any
motion, petition or application filed by Lessor with any bankruptcy court having
jurisdiction over Lessee whereby Lessor seeks recovery of possession of the
Aircraft under Section 1110 unless Lessee shall have complied with the
requirements of Section 1110 to be fulfilled in order to entitle Lessee to
continue use and possession of the Aircraft hereunder.
(n) Without having obtained the prior written consent of
Lessor, Lessee will not consolidate with or merge into, sell or lease, in one
transaction or a series of transactions, all or substantially all of its assets
to another corporation or other entity unless such other corporation or
subsidiary thereof is engaged in the airline business, the net worth of the
<PAGE>
corporation resulting from such merger or consolidation or corporation or other
entity to which such sale or lease is made would be at least equal to the net
worth of Lessee at the date hereof, such corporation or other entity assumes all
of Lessee's obligations under this Lease in a manner and by documents and
agreements satisfactory to Lessor in its sole discretion, such corporation or
other entity immediately subsequent to such merger, consolidation, lease or sale
is not in default hereunder and if Lessor receives an opinion of counsel
satisfactory to it as to such assumption and documentation.
(o) Lessee agrees to furnish to Lessor as soon as practicable,
but in no event later than (i) sixty (60) days after the end of each of the
first three quarterly fiscal periods in each fiscal year of Lessee, a
consolidated balance sheet of Lessee and its subsidiaries prepared by it as of
the close of such period, together with the related consolidated statements of
income and of surplus and statements of changes in financial position for such
period (this requirement may be satisfied by delivery to Lessor of a copy of
Lessee's Form 10-Q), (ii) one hundred and twenty (120) days after the close of
each fiscal year of Lessee, a consolidated balance sheet of Lessee and its
subsidiaries as of the close of such fiscal year, together with the related
consolidated statements of income and of surplus and statements of changes in
financial position for such fiscal year, as certified by independent public
accountants, including their accompanying opinion letter related thereto, (iii)
with each such financial statement, a certificate of Lessee signed by a duly
authorized financial officer of Lessee, to the effect that the signer has
reviewed the relevant terms of this Lease and has made, or caused to be made
under his supervision, a review of the transactions and condition of Lessee
during the accounting period covered by the financial statements and that such
review has not disclosed the existence during such accounting period, nor does
the signer have knowledge of the existence as at the date of such certificate,
of any condition or event that constitutes a Default or Event of Default, or, if
any such condition or event existed or exists, specifying the nature and period
of existence thereof and what action Lessee has taken or is taking or proposes
to take with respect thereto and (iv) from time to time, such other information
as Lessor may reasonably request; provided that such other information is either
in the public domain or is provided to lessors of aircraft to Lessee or to
creditors of Lessee.
(p) Lessee shall, within fifteen (15) days of the end of each
and every calendar month during the Lease Term, deliver to Lessor a monthly
report, in such form and containing such information as set forth in EXHIBIT F
hereof.
(q) Lessee shall, at the end of each calendar quarter, have a
long term debt to equity ratio of not more than 4:1 as determined in accordance
with generally accepted accounting principles consistently applied. For purposes
hereof, debt shall exclude all off balance sheet financing and operating leases.
(r) Lessee shall, at the end of each calendar quarter, have a
ratio of current assets to current liabilities of not less than 1:1 as
determined in accordance with generally accepted accounting principles
consistently applied.
12. INDEMNIFICATION.
(a) GENERAL INDEMNITY AND EXPENSES. Lessee hereby assumes
liability for, and hereby agrees to, indemnify, protect, save and keep harmless
Lessor, KGAL and their respective Affiliates, agents, officers, directors,
employees, successors and permitted assigns (each of the foregoing and their
respective Affiliates, agents, officers, directors, employees, successors and
assigns being hereinafter referred to as an "INDEMNITEE" and any reference
herein to an Indemnitee shall include its respective Affiliates, agents,
<PAGE>
officers, directors, employees, successors and permitted assigns) from and
against, and on written demand to pay, or to reimburse each Indemnitee for the
payment of, as the case may be, any and all liabilities, obligations, losses,
damages, penalties, claims (including, without limitation, claims arising out of
negligence or involving strict liability in tort), suits, actions, costs,
expenses and disbursements, including without limitation legal fees and
expenses, of whatsoever kind and nature imposed on, incurred by or asserted
against any Indemnitee relating to or arising out of (A) this Lease, any
payments made pursuant hereto or the exercise of rights or remedies hereunder,
(B) the preparation, negotiation, execution and delivery of any amendments,
modifications or waivers required by this Lease or requested by Lessee (or
resulting from any requests of Lessee) hereunder, (C) the Aircraft, each Engine
and any Part thereof, whether or not arising out of the airworthiness, delivery,
nondelivery, sublease, presence, storage, modification, substitution,
replacement, alteration, maintenance, inspection, failure to inspect, repair,
release, possession, repossession after an Event of Default, registration
(unless, in respect of Lessor, any act or omission of Lessor shall cause the
deregistration of the Aircraft under the Federal Aviation Act), use, operation,
condition, condition upon return, return, exportation, importation, transfer or
other application or disposition thereof (including, in each case and without
limitation, latent or other defects, whether or not discoverable), any claim for
patent, trademark or copyright infringement arising as a result of or in
connection with Lessee's patents, trademarks, copyrights, servicemarks or logos
or those of Lessee's advertisers, sponsors, and others whose designs and/or
logos appear on the Aircraft, at any time, any claim based on strict or absolute
liability, statutory liability or tort and any liability for any injury to or
death of any person or loss of or damage to any property including, without
limitation, any such arising out of any test flight, demonstration flight or
ferry flight performed by Lessee or any entity to which Lessee may have further
subleased the Aircraft pursuant to SECTION 7 hereof and (D) any breach of,
noncompliance with or misrepresentation made or deemed made in, under or in
connection with this Lease or any agreement to which Lessee is a party
concerning the Aircraft or any warranty, certificate or agreement made or
delivered in, under or in connection therewith made or deemed to have been made
by Lessee or anyone claiming by, through or under Lessee; provided, that Lessee
shall not be required to indemnify any Indemnitee hereunder (w) for any
liability attributable to acts or events which occur prior to the Commencement
Date or after the Lease Term or the proper return of the Aircraft to Lessor in
the condition required hereunder whichever shall occur later, (x) for liability
resulting solely and directly from acts of gross negligence or misconduct of
such Indemnitee (other than gross negligence or willful misconduct attributed to
such Indemnitee solely by of its interest in the Aircraft, any Engine or any
Part), it being agreed that gross negligence or willful misconduct of an
Indemnitee shall not affect the rights to be indemnified hereunder of any other
Indemnitee (other than the rights of any Indemnitee that is an Affiliate, agent,
officer, director, employee or successor of any such Indemnitee that is so
grossly negligent or guilty of such misconduct), (y) for any Taxes that Lessee
has not agreed to indemnify against pursuant to the provisions of SECTION 12(B)
or (z) for any liability imposed on any Indemnitee arising as a result of a
disposition of all or any part of such Indemnitee's interest in the Aircraft,
other than by reason of the occurrence of a Default or an Event of Default and
further provided that no indemnification hereunder shall be paid by Lessee to
Indemnitees in respect of any claim arising during any period during which
Lessee is deprived of use and possession of the Aircraft as a result of a breach
by Lessor of its covenant of quiet enjoyment provided that such claim is not
caused by any act or omission of Lessee.
If any Indemnitee shall have knowledge of any claim or liability
required to be indemnified against under this SECTION 12(A), such Indemnitee
shall give prompt written notice thereof to Lessee, but the failure of such
Indemnitee so to notify Lessee shall not relieve Lessee from any liability that
it would otherwise have to such Indemnitee hereunder except to the extent that
Lessee's rights respecting any defense thereto are irrevocably and materially
impaired directly and solely as a result of such failure.
<PAGE>
Lessee shall be obligated to each Indemnitee under this SECTION
12(A) irrespective of whether any Indemnitee shall also be indemnified with
respect to the same matter under any other agreement, and each Indemnitee may
proceed directly against Lessee under this SECTION 12(A) without first resorting
to any such other rights of indemnification.
Any payment or indemnity pursuant to this SECTION 12(A) shall
include the amount, if any, necessary to hold each Indemnitee harmless on a net
after-tax basis from all Taxes required to be paid by such recipient with
respect to such payment or indemnity under laws, rules or regulations of any
Government Entity or Taxing Authority. If any Indemnitee is entitled to a
permanent tax benefit (whether by way of deduction, credit or otherwise) not
taken into account pursuant to the preceding sentence as a result of the matter
indemnified against under this SECTION 12(A), such Indemnitee shall promptly pay
to Lessee, after such permanent tax benefit is realized but not before Lessee
shall have made all payments theretofore due to such Indemnitee under this Lease
and any other agreement in respect of the Aircraft, an amount that, after
subtraction of any further tax savings to which such Indemnitee is entitled as a
result of the payment thereof, is equal to the amount of such permanent tax
benefit; provided, however, that such Indemnitee shall not be obligated to make
any payment to Lessee pursuant to this sentence so long as a Default or Event of
Default shall have occurred and be continuing or any Rent or Supplemental Rent
then due and owing shall not have been paid.
Upon the indefeasible payment in full of any indemnities due and
owing under this SECTION 12(A), Lessee shall be subrogated to any right of the
Indemnitee in respect of the matter against which indemnity has been given.
(b) GENERAL TAX INDEMNITY.
(i) Lessee agrees that each payment of Rent or any amount
payable hereunder shall be free of all withholdings of any nature
whatsoever, and in the event that any withholding is required,
Lessee shall pay an additional amount of Rent such that after the
deduction of all amounts required to be withheld, the net amount of
Rent that is actually received by Lessor, will equal the amount of
Rent or any such amount payable hereunder or such other amount, as
the case may be, that would be due absent such withholding,
(ii) Lessee hereby agrees to indemnify and hold harmless from
and against, and on written demand, to pay or reimburse each
Indemnitee for the payment of, as the case may be, any and all Taxes
imposed upon or asserted against any Indemnitee or the Aircraft, the
Airframe, any Engine, or any Part thereof or interest therein, or
this Lease, or the rentals received under this Lease, by any
federal, state or local government or other taxing authority in the
United States, in any territory or possession thereof or by any
foreign government or any political subdivision or taxing authority
thereof or therein (the foregoing being referred to herein
individually as a "TAXING AUTHORITY" and collectively as "TAXING
AUTHORITIES") upon or with respect to (a) the acceptance, rejection,
delivery, transport, insuring, registration, deregistration,
reregistration, assembly, possession, repossession, operation, use,
presence, condition, maintenance, repair, return, abandonment,
preparation, installation, storage, redelivery, manufacture,
subleasing, modification, rebuilding, or importation of, or the
imposition of any Lien (other than a Lessor Lien) (or the incurrence
of any liability to refund or pay over any amount as a result of any
Lien (other than a Lessor Lien)) on the Aircraft, the Airframe, any
Engine or any Part thereof or interest therein, (b) payments of
Basic Rent or Supplemental Rent, (c) the Aircraft, the Airframe, any
<PAGE>
Engine, or any Part thereof or any interest therein or the
applicability of this Lease to the Aircraft, the Airframe, any
Engine, or any Part thereof or any interest therein, (d) any or all
of the documents and agreements relating to the Aircraft,
contemplated hereby and amendments or supplements hereto and
thereto, or the execution, delivery, filing or recording thereof, or
(e) otherwise with respect to or in connection with the transactions
effected under this Lease and the documents and agreements
contemplated hereby including the exercise of remedies hereunder.
(iii) The provisions of SECTION 12(B)(I) and (II) shall not
apply to, and Lessee shall have no liability to Lessor or any other
person thereunder with respect to Taxes to the extent excluded under
any of the following provisions or any combination thereof:
(A) Taxes imposed by any country, taxing authority or
governmental subdivision thereof or therein or any
international authority except to the extent that such Taxes
would not have been due (whether or not from the same person
on whom they are actually imposed) but for the transactions
contemplated by this Agreement, provided that the presence or
activities of any person other than Lessor in any jurisdiction
shall not be imputed for purposes of this subparagraph (A);
(B) Taxes (I) imposed as a result of a sale, assignment,
transfer or other disposition (whether voluntary or
involuntary) (a "Transfer") (x) by Lessor or any other person
(other than Lessee or any affiliate or transferee of or
successor to Lessee) of any legal or beneficial interest in
the Aircraft or in or arising under this Agreement or (y) of
any direct or indirect interest in Lessor or any such other
person having any such legal or beneficial interest (any event
described in (x) or (y) being a "Lessor Transfer") or (II) to
the extent such Taxes exceed the amount of Taxes that would
have been imposed and indemnified against by Lessee had there
not been a "Lessor Transfer," provided that the exclusion set
forth in this subparagraph (B) shall not apply to a Transfer
(other than a sale of the Aircraft or any interest therein)
resulting from the exercise of any remedies provided for in
this Agreement in connection with an Event of Default or an
Event of Loss;
(C) Taxes incurred in respect of any period after the
occurrence of any of the following events: (I) the sale or
return of the Aircraft or any part thereof or interest therein
to the extent the Taxes relate solely to such part or
interest) in accordance with the terms of this Agreement; (II)
the termination of this Agreement and the return of the
Aircraft or (III) the sale or other transfer of the Aircraft
and the return of the Aircraft (or any part thereof or
interest therein to the extent the Taxes relate solely to such
part or interest) following a Total Loss with respect to the
Aircraft, provided that the exclusion set forth in this
subparagraph (C) shall not apply to Taxes to the extent such
Taxes relate to periods prior to, or events occurring or
matters arising prior to or simultaneously with, such event;
(D) Taxes to the extent imposed as a result of (I) the
willful misconduct or gross negligence of Lessor, (II) the
breach by Lessor of any of its representations, warranties or
covenants contained in this Agreement or (III) Lessor's Liens;
<PAGE>
(E) Taxes either not yet due or being contested in
accordance with the provisions of SECTION 12(D);
(F) Taxes on, based on, measured by or with respect to
the net or gross income, or net or gross receipts, including
any capital gains Taxes, minimum Taxes, Taxes on or measured
by any items of tax preference and withholding Taxes,
including Taxes imposed under Subtitle A of the Internal
Revenue Code of 1986, as amended (the "Code") or Section 3406
of the Code or any successor provisions required to be
withheld from any payment under this Agreement), capital, net
worth, franchise, or conduct of business of Lessor or any
other person (other than Taxes in the nature of sales, use,
rental, property, or value-added Taxes) imposed by any
federal, state or local government or taxing authority in the
United States;
(G) Taxes on, based on, measured by or with respect to
the net or gross income or net or gross receipts (including
any capital gains Taxes, minimum Taxes, Taxes on or measured
by any items of tax preference and withholding Taxes),
capital, net worth, franchise, or conduct of business of
Lessor or any other person (other than Taxes in the nature of
sales, use, rental, property, or value-added Taxes) imposed by
any foreign government, foreign government subdivision or
other foreign taxing authority or by any territory or
possession of the United States, or by any international
authority, provided that the exclusion set forth in this
subparagraph (G) shall not exclude such Taxes if and to the
extent that such Taxes (i) would not have been imposed but for
the operation, presence or registration in such jurisdiction
of the Aircraft or any part thereof, or (ii) would have been
imposed solely as a result of (x) the presence in such
jurisdiction of a permanent establishment or fixed place of
business of Lessee, or any user or person in possession of the
Aircraft or any part thereof, (y) the residence, nationality
or place of management and control of Lessee or any user or
person in possession of the Aircraft or any part thereof, (z)
the payment from such jurisdiction by Lessee or any user or
person in possession of the Aircraft or any part thereof of
any amount due hereunder, or (iii) any combination of clauses
(i) and (ii);
(H) Taxes that would not have been imposed but for any
failure of Lessor to (x) file proper and timely reports or
returns or to pay any Taxes when due, or (y) comply with any
certification, information, documentation, reporting or other
similar requirements concerning the nationality, residence,
identity or connection with the jurisdiction imposing such
Taxes, if such compliance is required to obtain or establish
relief or exemption from or reduction in such Taxes and Lessor
was eligible to comply with such requirement.
(I) Taxes imposed under Section 887 of the Code.
Notwithstanding any provision in this SECTION 12 to the contrary, Lessee shall
in no event be obligated to pay any amount pursuant to this SECTION 12 in excess
of the Taxes Lessee would be required by this SECTION 12 to pay if (i) Lessor
were the lessor of the Aircraft and (ii) no person other than the owner
participant as of the date hereof pursuant to the 1997 Trust Agreement, Lessor,
Lessee or any sublessee or other user or person in possession of the Aircraft or
any part thereof had any interest in the Aircraft or part thereof.
<PAGE>
(c) CALCULATION OF TAX INDEMNITY PAYMENTS.
(i) Any payment that Lessee shall be required to make to or
for the account of any Indemnitee with respect to any Tax that is
subject to indemnification under SECTION 12(B) shall include the
amount necessary to hold such Indemnitee harmless on a net after-tax
basis from the net amount of all Taxes required to be paid by such
Indemnitee as the result of such payment pursuant to the laws of any
Taxing Authority.
(ii) If Lessor shall realize a Tax benefit as a result of or
with respect to any Taxes paid or indemnified against by Lessee
under this SECTION 12 (whether by way of deduction, credit or
otherwise), Lessor shall pay to Lessee, promptly after realization
of such Tax benefit, an amount that, prior to the application of any
withholding tax to that payment but after subtraction of any further
Tax savings Lessor realizes as a benefit, provided that if any such
Tax benefit is subsequently disallowed, lost or reduced, Lessee
shall, upon written notice from Lessor, promptly repay the amounts
paid to the Lessee with respect to such Tax benefit, provided
further that Lessor shall not be obligated under this SECTION
12(C)(II) to pay Lessee any amounts with respect to Tax benefits
realized as a result of any Taxes not paid or indemnified against by
Lessee. Notwithstanding anything to the contrary in this SECTION 12,
if, at the time any payments would otherwise be due to Lessee
pursuant to this SECTION 12(C)(II), an Event of Default shall have
occurred and be continuing, Lessor shall hold the amount of such
payment as security for the obligations of the Lessee to Lessor
under the Lease and at such time as there shall not be continuing
any such Event of Default, shall pay such amount to Lessee. Lessor
shall use reasonable efforts in good faith in filing its Tax returns
and in dealing with taxing authorities to seek and to claim any such
Tax benefit or savings and to minimize the Taxes payable or
indemnifiable by Lessee hereunder.
(iii) At Lessee's request, the computation by Lessor of any
amount payable by Lessee pursuant to this SECTION 12 shall be
verified by an independent accounting firm of national reputation
selected by Lessor. The fees of such accountants shall be paid by
Lessee unless such accountants determine that the amount payable to
Lessee is at least 25% more, or the amount payable by Lessee is at
least 25% less, than the amount computed by Lessor, in which case
such fees shall be payable by Lessor.
(d) CONTEST; REPORTS.
(i) If a claim is made in writing against Lessor (whether on
audit or otherwise) for any Taxes that Lessee is required to pay or
indemnify against pursuant to SECTION 12(B), Lessor shall notify
Lessee in writing within 30 Business Days of the receipt of such
claim, provided that a failure to so notify will not diminish or
relieve Lessee of any obligations under SECTION 12(b), except to the
extent Lessee is entitled to contest or to cause Lessor to contest
such Taxes and Lessee's or Lessor's successful defense of such claim
is materially prejudiced or precluded thereby. If the amount of the
claim exceeds $[ ]* and if requested by Lessee in accordance with
this SECTION 12(D) and in writing within 30 Business Days after
receipt by Lessee of the notice described in the preceding sentence,
Lessor shall in good faith and with due diligence contest (including
pursuing all administrative and judicial appeals) in the name of
Lessor or, if permitted by law and requested by Lessee in the name
of Lessee, the validity, applicability or amount of such Taxes in
appropriate administrative or judicial proceedings to be determined
<PAGE>
by Lessor, provided that (1) prior to taking such action, Lessee
shall have agreed to pay Lessor all out-of-pocket costs and expenses
that Lessor may incur in connection with contesting such claim,
including, without limitation, all reasonable legal and accountant's
fees and disbursements and costs of administrative and judicial
proceedings, and the amount of any interest or penalties that may be
attributable to and payable as a result of contesting such claim
(or, at Lessor's request, Lessee shall advance to Lessor funds with
which to pay the foregoing amounts, and Lessor's obligation to
contest any Tax shall be suspended during any period Lessee does not
advance sufficient funds to pay such amounts as they accrue or
become payable), (2) if such contest is to be initiated by the
payment of, and the claiming of a refund for such Taxes (and any
interest and penalties that also must be paid), Lessee shall have
advanced Lessor sufficient funds (on an interest-free basis) to make
such payment, (3) no Event of Default has occurred and is
continuing, (4) the action to be taken will not result in a material
risk of sale, forfeiture or loss of Lessor's title to the Aircraft
(unless Lessee provides a bond or other security satisfactory to
Lessor), and (5) at Lessor's request, Lessee shall provide to Lessor
a written opinion in form and substance satisfactory to Lessor of
independent legal counsel satisfactory to Lessor that there is a
reasonable basis for such contest. Notwithstanding that the
conditions set forth in clauses (1), (2), (3), (4) and (5) above may
have been satisfied, Lessor, after consulting in good faith with
Lessee, may elect not to pursue any contest or proceeding pursuant
to the preceding sentence or elect to discontinue (by settlement or
otherwise) any such contest or proceeding commenced pursuant to the
preceding sentence, but such election shall constitute a waiver by
Lessor of any right to payment or indemnification pursuant to
SECTION 12(B) with respect to the adjustment that was the subject of
such proposed contest or proceeding (and any other adjustment the
contest of which is precluded by such failure to contest) and, if
Lessee has theretofore paid or provided Lessor with funds to pay any
amount with respect to such adjustment, Lessor shall promptly repay
such amount to Lessee. If Lessor shall obtain a refund in whatever
form of all or any part of any Taxes that Lessee shall have paid or
reimbursed to Lessor hereunder, Lessor shall, provided that no Event
of Default shall have occurred and be continuing, pay to Lessee an
amount that is equal to the sum of the amount of such refund or
credit, plus any interest received on such refund fairly
attributable to any Taxes paid by or with funds provided by Lessee
prior to receipt of such refund, reduced by any Taxes incurred by
Lessor by reason of the receipt or accrual of such refund and
interest and net of any expenses described in clause (1) of the
second sentence of this SECTION 12(D) that have not been previously
reimbursed, and increased by any Tax benefit realized by Lessor as a
result of any payment by Lessor made pursuant to this sentence,
provided further that, if, at the time of such payment an Event of
Default shall have occurred and be continuing, Lessor shall hold the
amount of such payment as security for the obligations of Lessee to
Lessor under the Lease, and at such time as there shall not be
continuing any such Event of Default, shall pay such amount to the
Lessee. Lessor hereby agrees that it will inform Lessee of the time
and place of, and Lessor will not object to Lessee's presence at,
any proceeding conducted pursuant to this SECTION 12(D), provided
that Lessee's presence also must be allowed by applicable law and
provided further that the conditions set forth in clauses (1), (2),
(3), (4) and (5) above shall have been, and shall continue to be,
satisfied.
(ii) Lessee shall provide Lessor with such information in the
possession of Lessee or otherwise reasonably available to it as
Lessor may reasonably require to enable Lessor to fulfill its tax
filing obligations under this SECTION 12 and any audit information
request arising in connection with the Taxes subject to this SECTION
12. Lessor shall provide Lessee with such information in the
possession of Lessor or otherwise reasonably available to it as
Lessee may reasonably request to fulfill its tax filing requirements
under this SECTION 12 and any audit information request arising in
connection with the Taxes subject to this SECTION 12. If any report
or return is required to be made with respect to any obligation of
Lessee under this SECTION 12, Lessee will make such report or
return, provided that Lessee shall have no obligation to file any
<PAGE>
such return or report if (A) Lessor, after Lessee's written request
therefor, shall have failed to furnish Lessee with such information
as is peculiarly within the control of, or reasonably available to
Lessor and is necessary for the filing of such report or return, or
(B) such return or report would or should have been filed by Lessor
even if it had not entered into the Lease.
(iii) Lessor shall furnish from time to time to Lessee or to
such other person as Lessee may designate, such returns, statements
or other documentation ("Tax Forms") (including, without limitation,
if then required, information as to the ultimate beneficial owners
of Lessor and the stock interests in Lessee held actually and
constructively by Lessor, if not otherwise known to Lessee) in such
form and with such substance as are necessary or appropriate to
enable Lessor or Lessee, to claim an available reduction of or
exemption from Taxes which Lessee may be required to pay or
indemnify against hereunder, provided that Lessee shall have
provided Lessor with any information within the Lessee's control or
reasonably available to Lessee that is necessary to prepare such
return, statement or other documentation. Any such Tax Forms shall
be provided promptly after receipt of a written request therefor
from the Lessee.
(e) PAYMENT. Unless otherwise requested by the appropriate
Indemnitee, Lessee shall pay when due any Tax for which it is liable pursuant to
SECTION 12(B) directly to the appropriate Taxing Authority, or, upon written
demand, shall reimburse the appropriate Indemnitee for the payment of any such
Tax made by such Indemnitee. Within 30 days after the date of each payment by
Lessee of any Tax referred to in the preceding sentence, Lessee shall furnish
the appropriate Indemnitee evidence of payment of such Tax acceptable to such
Indemnitee. Lessee shall also cause to be furnished, promptly upon request, such
data as any Indemnitee may reasonably require from Lessee to enable such
Indemnitee to comply with the requirements of any Taxing Authority in respect of
any Tax referred to in SECTION 12(B).
(f) SURVIVAL. The obligations contained in this SECTION 12
shall survive the termination of this Lease, to the extent they have accrued, or
relate to events that have occurred, on or before the date of such termination;
provided that obligations arising as a result of the occurrence of a Default or
an Event of Default shall in any event, without limiting the foregoing, survive
until payment in full and performance of all obligations owing to each
Indemnitee under the foregoing agreements and all other agreements referred to
herein or contemplated hereby. The obligations of Lessee in respect of all such
indemnities, obligations, adjustments and payments are expressly made for the
benefit of, and shall be enforceable by, each Indemnitee entitled thereto at the
option of such Indemnitee without declaring this Lease to be in default or
taking any other action hereunder.
13. ASSIGNMENT; LEASE SUBJECT AND SUBORDINATE.
(a) NO IMPERMISSIBLE SUBLEASE BY LESSEE. EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, LESSEE SHALL NOT ASSIGN OR OTHERWISE TRANSFER IN ANY
MANNER ANY OF ITS RIGHTS OR INTERESTS WITH RESPECT TO THIS LEASE, THE AIRCRAFT,
ANY ENGINE OR ANY PART THEREOF.
(b) [Intentionally left blank.]
<PAGE>
(c) LEASE SUBJECT AND SUBORDINATE. Lessee acknowledges and
agrees that this Lease, and Lessee's rights hereunder, are subject and
subordinate in all respects to any Lien that Lessor may grant over the Aircraft
and the benefit of this Lease as provided in SECTION 13(D), including, without
limitation, any rights to repossession of the Aircraft upon a default.
Notwithstanding anything to the contrary herein, upon the occurrence of an event
of default entitling any Assignee (as defined below) to demand return of the
Aircraft by Lessor under the Lease, Lessee shall, if requested to do so by
Lessor or Assignee, as the case may be, return the Aircraft to Lessor or
Assignee, as the case may be.
(d) ASSIGNMENTS BY LESSOR. Subject to Lessee's rights
hereunder and at Lessor's cost and expense, Lessor may at any time and without
Lessee's consent sell, assign or transfer its rights and interest hereunder or
with respect to the Aircraft to a third party and/or grant a Lien over the
Aircraft and the benefit of this Lease to any Person as security for Lessor's
obligations to such Person (each such transferee, assignee or other Person, an
"ASSIGNEE"). On request by Lessor, Lessee will execute all such documents (such
as a lease assignment agreement) as Lessor may reasonably require to confirm
Lessee's obligations under this Lease. No sale, assignment or transfer of
Lessor's interest or creation of any Lien by Lessor shall adversely affect
Lessee's rights hereunder or increase Lessee's duties, expenses or the
liabilities of Lessee in respect of any Tax or under any of its indemnification
obligations or otherwise. Lessee will provide all other reasonable assistance
and cooperation to Lessor and any Assignee in connection with any such sale or
assignment or the perfection and maintenance of any Lien granted in connection
therewith, including, at Lessor's sole cost and expense, making all necessary
filings and registrations including filings or registrations of mortgages,
financing statements and re-registration of the Aircraft. Upon any such
assignment or transfer, Lessor shall cause any Assignee to deliver to Lessee
evidence of its corporate authority to enter into any such sale, assignment or
transfer and such Assignee shall grant to Lessee the same covenant(s) of quiet
enjoyment as are set forth herein. Wherever the term "Lessor" is used in this
Lease in relation to any of the provisions relating to disclaimer, title and
registration, indemnity and insurance, such terms shall be construed to include
each Assignee, as applicable.
14. EVENTS OF DEFAULT; REMEDIES.
(a) EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "EVENT OF DEFAULT" (whether any such event shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) and
each such Event of Default shall be deemed to exist and continue so long as it
shall not have been remedied:
(i) Lessee shall fail to make any payment of Basic Rent,
Maintenance Reserves, Stipulated Loss Value or Supplemental Rent
hereunder within five (5) Business Days after the same shall have
become due and payable;
(ii) Lessee shall fail to carry and maintain insurance on or
with respect to the Aircraft in accordance with the provisions of
SECTION 9 hereof or Lessee shall fail to provide an insurer's
certificate evidencing the renewal or replacement of such policy,
upon the renewal or replacement thereof, in accordance with the
terms hereof;
(iii) any document required to be filed or recorded by Lessee
pursuant hereto is not duly filed and recorded by Lessee as required
to perfect and continue the perfection of the interest of Lessor in
the Aircraft or the filings and recordings provided for herein are
not made by the time required; or Lessee shall fail to perform or
observe any other covenant, term, condition or agreement to be
<PAGE>
performed or observed by it hereunder or under any instrument,
document or agreement furnished by Lessee to Lessor in connection
with the transactions referred to herein or contemplated hereby, and
such failure shall continue unremedied for a period of thirty (30)
days after written notice thereof to Lessee or thirty (30) days
after Lessee, assuming exercise of reasonable diligence, should have
known of such failure; provided, however, such failure to observe
any covenant, term, condition or agreement does not pose a material
danger to the rights and interests of Lessor in the Aircraft and the
same is of such a nature that it can be cured; and, further provided
that Lessee shall have commenced and shall diligently pursue such
cure, Lessee shall have an additional thirty (30) day period within
which to cure the same;
(iv) any representation or warranty made by Lessee herein or
in any document, or certificate furnished by Lessee in connection
herewith shall at any time prove to have been false or incorrect in
any material respect at the time made;
(v) Lessee shall (A) voluntarily commence any proceeding or
file any petition seeking relief under any applicable bankruptcy,
insolvency, liquidation or similar law now or hereafter in effect,
(B) consent to the institution of, or fail to contravene in a timely
and appropriate manner, any such proceeding or the filing of any
such petition, (C) apply for or consent to the appointment of a
receiver, trustee, custodian sequestrator or similar official for
itself or for a substantial part of its property or assets, (D) file
an answer admitting the material allegations of a petition filed
against it in any such proceeding, (E) make a general assignment for
the benefit of creditors, (F) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or
(G) take corporate action for the purpose of effecting any of the
foregoing;
(vi) an involuntary proceeding shall be commenced or for
involuntary petition shall be filed in a court of competent
jurisdiction seeking (A) relief in respect of Lessee, or of a
substantial part of the property or assets of Lessee under any
applicable bankruptcy, insolvency, receivership or similar law, (B)
the appointment of a receiver, trustee, custodian, sequestrator or
similar official for Lessee or for a substantial part of the
property of Lessee or (C) the winding-up or liquidation of Lessee;
and such proceeding or petition shall continue undismissed, unstayed
or unbonded for sixty (60) days or an order or decree approving or
ordering any of the foregoing shall continue unstayed and in effect
for thirty (30) days;
(vii) Lessee or any subsidiary thereof, the debt of which has
been guaranteed by Lessee thereof shall fail to pay, in accordance
with its terms and when due and payable, the principal of or
interest on any Debt the principal amount of which exceeds $[ ]* and
the maturity of any such Debt, in accordance with the provisions of
any such Debt or any contract evidencing, providing for the creation
of or concerning such Debt shall have been accelerated or any event
shall have occurred and be continuing that would permit any holder
or holders of such Debt, any trustee or agent acting on behalf of
such holder or holders or any other Persons so to accelerate such
maturity;
(viii) final judgment for the payment of money in excess of $[
]* not fully covered by insurance (or the equivalent in another
currency) shall be rendered against Lessee and the same shall remain
undischarged for a period of thirty (30) days during which execution
of such judgment shall not be effectively stayed or bonded in a
manner satisfactory to Lessor;
<PAGE>
(ix) Lessee shall fail to remain a "certificated air-carrier"
within the meaning of the Federal Aviation Act;
(x) Lessee shall voluntarily suspend all or substantially all
of its commercial airline operations, or the franchises,
concessions, permits, rights or privileges acquired for the conduct
of the business and operations of Lessee shall be revoked canceled
or otherwise terminated or the free and continued use and exercise
thereof curtailed or prevented;
(xi) except as otherwise permitted pursuant to SECTION 11(N)
hereof, Lessee shall merge with or into or consolidate with or into
or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all
of its assets (whether now owned or hereafter acquired) to any
Person or fifty-one percent (51%) or more of the capital stock of
Lessee shall be acquired in a single transaction or series of
transactions, directly or indirectly by any Person and/or its
Affiliates not a shareholder of Lessee on the Commencement Date;
(xii) possession of the Aircraft, the Airframe or any Engine
shall be transferred to another Person, other than in accordance
with the express provisions of SECTION 7(D); and/or
(xiii) the Aircraft shall cease to be (or cease to be eligible
to be) registered in the United States as a result of any act or
omission of Lessee .
(b) REMEDIES. Upon the occurrence of any Event of Default and
at any time thereafter so long as the same shall be continuing, Lessor may, at
its option, declare this Lease to be in default by notice to Lessee; and at any
time thereafter, so long as Lessee shall not have remedied all outstanding
Events of Default before Lessor shall have commenced to exercise its rights or
remedies hereunder, Lessor may exercise one or more of the following rights and
remedies with respect to all or any part of the Aircraft, Airframe or any Engine
as Lessor in its sole discretion shall elect, to the extent permitted by, and
subject to compliance with any mandatory requirements of, applicable law then in
effect:
(i) cause Lessee, upon the written demand of Lessor and at
Lessee's expense, to return promptly, and Lessee shall return
promptly (and in no event later than two days after such demand),
all or such part of the Aircraft, the Airframe or any Engine as
Lessor may demand, to Lessor or its order in the manner and
condition required by, and otherwise in accordance with all the
provisions of, SECTION 10 as if such Aircraft, Airframe or Engine
were being returned at the end of the Lease Term, or Lessor, at its
option, may enter upon the premises where all or any part of the
Aircraft, Airframe or any Engine is located and take immediate
possession of and remove the same;
(ii) hold, use, operate, keep idle or lease to others all or
any part of the Aircraft, with or without taking possession thereof
as Lessor in its sole discretion may determine, free and clear of
any rights of Lessee and without any duty to account to Lessee with
respect to such action or inaction or for any proceeds with respect
thereto, except that Lessee's obligation to pay Basic Rent pursuant
to the Lease for any periods in respect of the Aircraft or part
thereof accruing after Lessee shall have been deprived of possession
of such Aircraft or part thereof pursuant to this SECTION 14 shall
be reduced by the net proceeds, if any, received by Lessor from
leasing the Aircraft or part thereof to any Person other than Lessee
for the same periods or any portions thereof;
<PAGE>
(iii) Lessor may exercise any other right or remedy that may
be available to it under applicable law or proceed by appropriate
court action to enforce the terms hereof or to recover damages for
the breach or to rescind this Lease;
(iv) Lessor may terminate this Lease; and/or
(v) whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under clauses
(i), (ii), (iii) or (iv) above, Lessor, by written notice to Lessee
specifying a payment date not earlier than five (5) Business Days
after the date of such notice, may terminate this Lease and 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 a bargain and not as a penalty, the sum of: (A) any unpaid
Basic Rent due under this Agreement for periods ending on or prior
to the payment date specified in such notice and any unpaid
Supplemental Rents due on or prior to such payment date, plus (B),
an amount equal to the aggregate unpaid Basic Rent which would
otherwise have accrued hereunder over the remainder of the Lease
Term but for the Event of Default, discounted to present value as of
the date specified for payment in such notice, less (C), if
applicable, for any period until the expiration of the Lease Term
that Lessor has not been able to sublease the Aircraft but has been
able, in the normal course of its operations to use the Aircraft,
the Basic Rent payable by Lessee to Lessor for the lease of the
Aircraft during any such period of use discounted to present value
as of the date specified for payment in such notice. The amounts
specified in such notice shall bear interest at the Post-Default
Rate from the payment date specified in such notice until payment is
made. In calculating Lessor's damages hereunder upon an Event of
Default, all Basic Rent which would have become due during the
remainder of the Lease Term if an Event of Default had not occurred
will be calculated on a present value basis using a discounting rate
equal to the rate of interest on United States Treasury Bills having
a maturity which will most closely approximate the period equal to
the remainder of the Lease Term, as quoted in the Wall Street
Journal on the date of Lessor's notice.
In addition, Lessee shall be liable, except as otherwise provided
above, for any and all unpaid Basic Rent and Supplemental Rent then due
hereunder before or during or after the exercise of any of the foregoing
remedies and for all legal fees and other 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 all or any part of the Aircraft in accordance with
SECTION 10 or this SECTION 14 or in storing or maintaining the Aircraft or any
part thereof or placing the same in the condition and airworthiness required by
SECTION 10.
Except as otherwise expressly provided above, no remedy referred to
herein is intended to be exclusive, but each shall be cumulative and in addition
to any other remedy referred to herein 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 such other remedies; provided, that Lessor may recover only
once from each element of damages sustained and, provided further, that the
preceding proviso shall not be deemed to require proof of damages actually
sustained in the case of liquidated damages provided for herein. 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. To the extent permitted by law, Lessee hereby waives any rights now or
<PAGE>
hereafter conferred by statute or otherwise (A) that may confer any right to
prior notice or judicial hearing in connection with Lessor's taking possession
or disposing of the Aircraft including, without limitation, any and all prior
notice and hearing for any prejudgment remedy or remedies and any such right
that Lessee might otherwise have under applicable law, (B) except as provided in
this SECTION 14, that impose any requirements as to the time, place or terms of
lease other disposition or other requirements with respect to the enforcement of
Lessor's rights and remedies hereunder, (C) all rights of redemption,
appraisement, valuation, stay, extension or moratorium now or hereafter in
effect under applicable law that may have the effect of delaying the enforcement
of this Lease or the absolute lease or other disposition of the Aircraft, or (D)
except as otherwise provided herein, that may otherwise limit or modify any of
Lessor's rights or remedies hereunder. The failure or delay of Lessor in
exercising any right or remedy granted it hereunder upon any occurrence of any
of the contingencies set forth herein shall not constitute a waiver of any such
right or remedy upon the continuation or recurrence of any such contingencies or
similar contingencies and any single or partial exercise hereunder of any
particular right or remedy of Lessor shall not exhaust the same or constitute a
waiver of any other right provided herein.
Notwithstanding anything contained in this SECTION 14 to the
contrary, Lessor shall use reasonable efforts to mitigate damages.
15. NOTICES. All notices required or permitted hereunder shall be in
writing and shall be delivered in person or sent by telecopier, international
courier service or letter (mailed certified and return receipt requested),
addressed to the parties as follows:
if to Lessor: First Security Bank,
National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telecopier: 801-246-5053
with copies to: KG Aircraft Leasing Co., Limited
3 Adelaide Court, Adelaide Road
Dublin 2, Ireland
Attention: Managing Director
Telecopier: 353-1-475-7378
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Attention: C. Payson Coleman, Esq.
Telecopier: 212-858-1500
if to Lessee: Western Pacific Airlines, Inc.
2864 S. Circle Drive, Suite 1100
Colorado Springs, Colorado 80906
Attention: Robert Peiser, President & CEO
Telecopier: (719) 527-7480
with a copy to: Smith, Gambrell & Russell
1230 Peachtree Street NE, Suite 3100
Atlanta, Georgia 30309-3592
Attention: Howard Turner, Esq.
Telecopier: 404-815-3509
<PAGE>
or at such other address as Lessee or Lessor shall from time to time designate
in writing to the other. In the case of a notice delivered in person or sent by
telecopier or international courier, notice will be deemed received upon actual
receipt. In the case of a mailed letter, notice will be deemed received on the
tenth (10th) Business Day after deposit in the mail, with proper postage for
registered or certified first-class mail prepaid.
16. GOVERNING LAW AND JURISDICTION.
(a) GOVERNING LAW. This Lease shall in all respects be
governed by, and construed in accordance with, the internal laws of the State of
New York, inclusive of all matters of construction, validity and performance.
(b) JURISDICTION; SERVICE OF PROCESS. Lessee and Lessor hereby
irrevocably submit to the jurisdiction of any New York State or federal court
sitting in New York City in any action or proceeding arising out of or relating
to this Lease, and hereby irrevocably agree that all claims in respect of such
action or proceeding may be heard and determined in such New York State court
or, to the extent permitted by law, in such federal court. Lessee and Lessor
hereby irrevocably waive, to the fullest extent they may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or
proceeding. Lessee hereby irrevocably appoints CT Corporation System, with an
office on the date hereof at 1633 Broadway, New York, New York 10019, and Lessor
hereby irrevocably appoints CT Corporation System, with an office on the date
hereof at 1633 Broadway, New York, New York 10019 (the "PROCESS AGENT"), as
their respective agents to receive on their behalf and in respect of their
proper service of copies of the summons and complaint and any other process that
may be served in any such action or proceeding. Such service may be made by
mailing or delivering a copy of such process to Lessee or Lessor, as the case
may be, in care of their respective Process Agents at such Process Agent's above
address, and Lessee and Lessor hereby irrevocably authorize and direct their
respective Process Agents to accept such service on their behalf. As an
alternative method of service, Lessee and Lessor also irrevocably consent to the
service of any and all process in any such action or proceeding by the mailing
of copies of such process to the address specified in SECTION 15. Lessee and
Lessor agree that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this SECTION 16(B) shall affect
the right of any Person to serve legal process in any other manner permitted by
law or affect the right of any other party to bring any action or proceeding
against Lessee or Lessor, or their respective properties in the courts of other
jurisdictions. LESSEE AND LESSOR HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER ARISING OUT OF OR RELATING TO THIS LEASE.
(c) WAIVER OF IMMUNITY. To the extent that Lessor or Lessee
has or hereafter may acquire any sovereign immunity, Lessor and Lessee hereby
irrevocably waive such immunity in respect of their respective obligations under
this Lease and all other documents and agreements relating to the Aircraft and
the transactions referred to or contemplated herein.
<PAGE>
17. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Lease constitutes the entire
agreement between the parties concerning the subject matter hereof, and
supersedes all previous proposals, agreements, understandings, negotiations and
other written and oral communications in relation hereto. NO LEASE TERM OR
PROVISION OF THIS LEASE MAY BE CHANGED, WAIVED, DISCHARGED OR TERMINATED, EXCEPT
(i) WITH THE PRIOR WRITTEN CONSENT OF LESSOR AND (ii) BY AN INSTRUMENT IN
WRITING SIGNED BY A DULY AUTHORIZED REPRESENTATIVE OF THE PARTY AGAINST WHICH
THE ENFORCEMENT OF THE CHANGE, WAIVER, DISCHARGE OR TERMINATION IS SOUGHT.
Nothing herein shall be construed as conveying to Lessee any right, title or
interest in the Aircraft, the Airframe or any Engine or Part except as Lessee
under this Lease.
(b) ENGLISH LANGUAGE. All notices, communications, reports,
opinions and other documents given under this Lease shall be in the English
language.
(c) LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to
make any payment of Rent or Supplemental Rent required to be made by it
hereunder or fails to perform or comply with any of its agreements contained
herein, Lessor may itself make such payment or perform or comply with such
agreement, and the amount of such payment and the amount of any expenses of
Lessor incurred in connection with such payment or the performance of or
compliance with such agreement, as the case may be, shall be deemed Supplemental
Rent payable by Lessee upon demand; provided, however, that no such payment,
performance or compliance by Lessor shall (i) be deemed to have satisfied the
obligation of Lessee to make such payment or to perform or comply with such
agreement, as the case may be, unless and until Lessee shall have paid all such
Supplemental Rent payable pursuant to this section by reason of such failure or
(ii) be deemed a waiver of Lessor's rights and remedies against Lessee
hereunder.
(d) APPLICATION OF PAYMENTS DURING EXISTENCE OF Default. Any
amount referred to herein that is payable to Lessee shall not be paid to Lessee,
or if it has been previously paid directly to Lessee, shall not be retained by
Lessee, if at the time of such payment a Default or Event of Default shall have
occurred and be continuing, but shall be paid to and held by Lessor as security
for and may be applied to the obligations of Lessee under this Lease and, at
such time as Lessor shall receive evidence in form and substance satisfactory to
it that there is not continuing any such Default or Event of Default, all such
amounts in excess of amounts so paid on obligations of Lessee shall be paid to
Lessee.
(e) EXPENSES. Lessee agrees to reimburse Lessor for its
out-of-pocket costs and expenses, including attorney's fees, incurred in
connection with any amendments, modifications or waivers required by this Lease
or requested by Lessee (or resulting from any requests of Lessee) hereunder.
(f) FURTHER ASSURANCES. Lessee will promptly and duly execute
and deliver to Lessor such further documents and assurances and take such
further action as Lessor may from time to time reasonably request in order to
more effectively carry out the intent and purpose of this Lease and to establish
and protect the rights and remedies created or intended to be created in favor
of Lessor hereunder, including, without limitation, if 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 hereof, and all such other documents and
instruments, in accordance with the laws of such jurisdictions as Lessor may
from time to time deem advisable.
<PAGE>
(g) JUDGMENT CURRENCY. The obligations of Lessee in respect of
any sum due from it to Lessor hereunder shall, notwithstanding any judgment in a
currency other than Dollars, be discharged only to the extent that Lessor may in
accordance with normal banking procedures purchase, or cause to be purchased for
its account Dollars with such other currency; if the Dollars so purchased are
less than the sum originally due in Dollars, Lessee agrees to indemnify Lessor
against such loss, and if the Dollars so purchased exceed the sum originally due
to Lessor in Dollars, Lessor agrees to remit to Lessee such excess.
(h) INVALIDITY OF ANY PROVISION. Any provision of this Lease
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the fullest
extent permitted by applicable law, Lessee hereby waives any provision of law
that renders any provision hereof prohibited or unenforceable in any respect.
(i) CHANGES IN LAW. If there shall be any change (or such
change shall be enacted or made by notice or otherwise and shall be scheduled to
become thereafter effective) in the laws or treaties of the United States that
has a material adverse effect on the validity, legality, perfection or
enforceability of Lessor's rights or interest in the Aircraft or this Lease or
the validity, legality, perfection or enforceability of this Lease, Lessor may
terminate this Agreement, whereupon Lessee shall promptly return the Aircraft to
Lessor or its designee in the condition required hereunder.
(j) HEADINGS. All section and paragraph headings and captions
are purely for convenience of reference only and shall not modify, define,
expand, limit or otherwise affect any of the terms or provisions hereof and all
references herein to numbered sections, unless otherwise indicated, are to
sections of this Lease.
(k) CONSENT. Whenever in this Lease, the consent (whether or
not, in writing) of either Lessor or Lessee is required, such consent shall not
be unreasonably withheld or delayed.
(l) THIRD PARTY BENEFICIARIES. Lessee recognizes that this
Lease confers certain rights and interests on the Indemnitees. Notwithstanding
that the Indemnitees are not parties to this Lease, the Indemnitees are intended
third party beneficiaries of such rights and interests and Lessor hereby
acknowledges that the Indemnitees may enforce such rights and interests
directly, as if they were parties to this Lease.
(m) COUNTERPARTS. This Lease may be executed in any number of
identical counterparts, all of which together will be deemed to be one and the
same instrument. Delivery of an executed counterpart of this Lease by facsimile
will be deemed effective as delivery of an originally executed counterpart. Any
party delivering an executed counterpart of this Lease by facsimile will also
deliver an originally executed counterpart; provided the failure of any party to
deliver an originally executed counterpart of this Lease will not affect the
validity or effectiveness of this Lease.
(n) TRUE LEASE. This Lease shall be treated as a lease for
Federal income tax purposes.
[CONTINUED ON SIGNATURE PAGE]
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Amended and
Restated Lease to be duly executed as of the day and year first above written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in
its individual capacity, except as otherwise
expressly provided, but solely as Owner Trustee
under the 1997 Trust Agreement, as Lessor
By:
Name:
Title:
WESTERN PACIFIC AIRLINES, INC.,
as Lessee
By:
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Amended and
Restated Lease to be duly executed as of the day and year first above written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in
its individual capacity, except as otherwise
expressly provided, but solely as Owner Trustee
under the 1997 Trust Agreement, as Lessor
By:
Name:
Title:
WESTERN PACIFIC AIRLINES, INC., as Lessee
By:
Name:
Title:
RECEIPT OF THIS ORIGINAL COUNTERPART OF THE FOREGOING LEASE IS HEREBY
ACKNOWLEDGED ON THIS _____ DAY OF ___________, 1997.
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity,
except as otherwise expressly provided, but solely as Owner Trustee under the
1997 Trust Agreement, as Lessor
By ________________________________
Name:
Title:
<PAGE>
SCHEDULE 1
LEASE AGREEMENT
STIPULATED LOSS VALUE
The Stipulated Loss Value as of any date shall be equal to the amount of
U.S. Dollars set forth in the table below and set forth opposite such date.
Stipulated Loss Value
Stipulated
Loss Value
LEASE PERIOD DATES (IN U.S. DOLLARS)
March 18, 1996 - March 17, 1997 $[ ]*
March 18, 1997 - March 17, 1998 [ ]*
March 18, 1998 - March 17, 1999 [ ]*
March 18, 1999 - March 17, 2000 [ ]*
March 18, 2000 - End of Lease Term [ ]*
<PAGE>
EXHIBIT A
AIRCRAFT DESCRIPTION
One Boeing Model B737-3S3 Aircraft, United States Registration Mark N375TA
and Manufacturer's Serial No. 23787 with two CFM International, Inc. Model
CFM 56-3B2 Engines, Manufacturer's Serial Nos. 721734 and 720890,
respectively in a 136-seat, single class configuration.
AIRFRAME*:
Aircraft Total Time (Hours) ______
Aircraft Total Landings (Cycles) ______
Time since last "C" Check ______
Time since last "D" Check ______
ENGINES*:
Time to Next
Total Replacement of
Serial Engine Total Time Since Lowest Life
Number Cycles Time Overhaul Limited Part
- ------------- ---------- -------- ------------- ----------------
721734
720890
- -------------------
*as of March __, 1996
<PAGE>
EXHIBIT B
FORM OF ACCEPTANCE CERTIFICATE
WESTERN PACIFIC AIRLINES, INC., a corporation organized and existing under
the laws of ______________ with its principal place of business in Colorado
Springs, Colorado ("Sublessee") does hereby represent, acknowledge, warrant and
agree as follows:
(a) Sublessee and TACA INTERNATIONAL AIRLINES, S.A. ("Sublessor") have
entered into an Sublease of Lease Agreement dated as of March __, 1996
(hereinafter referred to as the "Sublease"). Capitalized words used herein and
not otherwise defined will have the meanings set forth in the Sublease.
(b) Sublessee has this __ day of March, 1996 (Time: ____ ____________), at
El Salvador International Airport, received from Sublessor possession of:
(i) One (1) Boeing 737-3S3 Aircraft bearing Manufacturer's
serial number 23787 and two (2) CFM International, Inc. Model CFM
56-3B2 Engines, Manufacturer's Serial Nos. 721734 and 720890 (the
"Aircraft"); and
(ii) The manuals, logbooks, flight records and historical
information regarding the Aircraft, Engines and Parts listed in
Attachment 1 hereto (the "Aircraft Documentation").
(c) Except as noted on Attachment 2 hereto, Sublessee hereby confirms and
agrees that the above described Aircraft and Aircraft Documentation have been
duly accepted by Sublessee pursuant to the terms and provisions of the Sublease.
(d) As of the date hereof, the Aircraft and Engines had the following
hours/cycles:
AIRFRAME: Aircraft Total Time (Hours) ______
Aircraft Total Landings (Cycles) ______
Time since last "C" Check ______
Time since last "D" Check ______
<PAGE>
ENGINES:
Time to Next
Total Replacement of
Serial Engine Total Time Since Lowest Life
Number Cycles Time Overhaul Limited Part
- ------------- ---------- -------- ------------- ----------------
721734
720890
(e) Quantity of fuel on board the Aircraft at delivery:
- ------------------.
<PAGE>
IN WITNESS WHEREOF, Sublessee has caused this Acceptance Certificate to be
executed by its duly authorized representative as of the day and year set forth
above.
WESTERN PACIFIC AIRLINES, INC.
By:
Name:
Title:
ATTACHMENTS: 1. List of Aircraft Documentation
2. List of Discrepancies
<PAGE>
ATTACHMENT 1
TO ACCEPTANCE CERTIFICATE
AIRCRAFT DOCUMENTATION
MANUALS
NAME
FAA Approved Airplane Flight Manual
Manufacturer's Operations Manual - Volume No.
Quick Reference Handbook
Maintenance Manuals
Wiring Diagram Manuals
Structural Repair Manual
Illustrated Parts Catalog
Vendor Illustrated Parts Catalog
Overhaul Manuals
Vendor Overhaul Manuals
Drawings (Major Assembly and Installation)
Weight and Balance Control and Loading Manual)
Weight and Balance Manual Supplement
Actual Weight and Balance Compliance
Rigging Document
<PAGE>
AIRCRAFT RECORDS AND HISTORICAL DOCUMENTS
Aircraft log book (current file copies)
Aircraft Readiness Log (revised to time of return)
Maintenance Time Control Report (components, maintenance visit, special items
next due Airframe hours and cycles)
Aircraft previous maintenance visit record including the last inspection
performed.
Airworthiness Directive Compliance Summary
Serviceable Tags for all rotable components installed (Airframe & Engines)
Ads requiring continuous surveillance
Service bulletin terminated accomplishment status
Service bulletin requiring continuous surveillance summary and maintenance
control action
Airframe and component history records
FAA Form 337 for Airframe, repair/overhaul certification of last major visit
FAA Form 337 for each Engine, repair/overhaul certification of last shop visit
Engine Readiness Log for each Engine (components installed)
Summary of Service Bulletin's accomplished for each Engine
Summary of AD's accomplished for each Engine
SB and AD status requiring continuous surveillance with maintenance, control
action for each engine
Engine time summary sheet including life limited items (for each Engine)
Engine log books for each Engine (current and file copies)
Receipt of the foregoing documents, except as noted, is hereby acknowledged.
<PAGE>
ATTACHMENT 2
TO ACCEPTANCE CERTIFICATE
DISCREPANCIES
<PAGE>
EXHIBIT C
FORM OF RETURN ACCEPTANCE RECEIPT
WESTERN PACIFIC AIRLINES, INC. ("Lessee") and FIRST SECURITY BANK,
NATIONAL ASSOCIATION, not in its individual capacity (except as otherwise
specified) but solely as trustee ("Lessor") have entered into a Lease Agreement
dated as of March 18, 1996 and Amended and Restated as of July 7, 1997 (as
supplemented and amended, referred to as the "Lease"). Capitalized words used
herein and not otherwise defined will have the meanings set forth in the Lease.
(a) Lessor has this __ day of ____________, _____ (Time: ____
____________), at ____________, received from Lessee possession of:
(i) One (1) Boeing 737-3S3 Aircraft bearing Manufacturer's
serial number 23787 and two (2) CFM International, Inc. Model CFM
56-3B2 Engines, Manufacturer's Serial Nos. 721734 and 720890 (the
"Aircraft"); and
(ii) The manuals, logbooks, flight records and historical
information regarding the Aircraft, Engines and Parts listed in
Attachment 1 hereto (the "Aircraft Documentation").
(b) Except as noted on Attachment 2 hereto, the above specified Aircraft
and Aircraft Documentation are hereby accepted by Lessor pursuant to the terms
and provisions of the Sublease.
(c) As of the date hereof, the Aircraft and Engines had the following
hours/cycles:
AIRFRAME: Aircraft Total Time (Hours) ______
Aircraft Total Landings (Cycles) ______
Time since last "C" Check ______
Time since last "D" Check ______
ENGINES:
Time to Next
Total Replacement of
Serial Engine Total Time Since Lowest Life
Number Cycles Time Overhaul Limited Part
- ------------- ---------- -------- ------------- ----------------
721734
720890
(d) Quantity of fuel on board the Aircraft at redelivery:
- ------------------.
<PAGE>
IN WITNESS WHEREOF, Lessee and Lessor have caused this Return Acceptance
Receipt to be executed by their duly authorized representatives as of the day
and year set forth above.
WESTERN PACIFIC AIRLINES, INC.
By:
Name:
Title:
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
in its individual capacity but solely as trustee
By:
Name:
Title:
ATTACHMENTS: 1. List of Aircraft Documentation
2. List of Discrepancies
<PAGE>
ATTACHMENT 1
TO RETURN ACCEPTANCE RECEIPT
AIRCRAFT DOCUMENTATION
(NOTE: At time of Aircraft return list all of the records, manuals,
documents and data (by title/description, identification number and
quantity) which were provided to Lessee by Lessor with delivery of
the Aircraft under the Lease. Also list all additional records/data
developed for and returned with this Aircraft by Lessee.)
MANUALS
NAME
FAA Approved Airplane Flight Manual
Manufacturer's Operations Manual - Volume No.
Quick Reference Handbook
Maintenance Manuals
Wiring Diagram Manuals
Structural Repair Manual
Illustrated Parts Catalog
Vendor Illustrated Parts Catalog
Overhaul Manuals
Vendor Overhaul Manuals
Drawings (Major Assembly and Installation)
Weight and Balance Control and Loading Manual)
Weight and Balance Manual Supplement
Actual Weight and Balance Compliance
Rigging Document
<PAGE>
AIRCRAFT RECORDS AND HISTORICAL DOCUMENTS
Aircraft log book (current file copies)
Aircraft Readiness Log (revised to time of return)
Maintenance Time Control Report (components, maintenance visit, special items
next due Airframe hours and cycles)
Aircraft previous maintenance visit record including the last inspection
performed.
Airworthiness Directive Compliance Summary
Serviceable Tags for all rotable components installed (Airframe & Engines)
Ads requiring continuous surveillance
Service bulletin terminated accomplishment status
Service bulletin requiring continuous surveillance summary and maintenance
control action
Airframe and component history records
FAA Form 337 for Airframe, repair/overhaul certification of last major visit
FAA Form 337 for each Engine, repair/overhaul certification of last shop visit
Engine Readiness Log for each Engine (components installed)
Summary of Service Bulletin's accomplished for each Engine
Summary of AD's accomplished for each Engine
SB and AD status requiring continuous surveillance with maintenance, control
action for each engine
Engine time summary sheet including life limited items (for each Engine)
Engine log books for each Engine (current and file copies)
Receipt of the foregoing documents, except as noted, is hereby acknowledged.
<PAGE>
ATTACHMENT 2
TO RETURN ACCEPTANCE RECEIPT
DISCREPANCIES
<PAGE>
EXHIBIT D
FORM OF CERTIFICATES OF SUBLESSEE
OFFICER'S CERTIFICATE
Reference is hereby made to the Sublease of Lease Agreement dated as of
March __, 1996, between TACA International Airlines, S.A., as Sublessor and
WESTERN PACIFIC AIRLINES, INC. (the "Sublease"). Capitalized terms used herein
shall, except as otherwise defined herein, have the respective meanings assigned
thereto or incorporated by reference to any other document in the Sublease.
Pursuant to Section 4(a) of the Sublease, in connection with the Sublease, the
undersigned hereby certifies as follows:
1. The undersigned is the duly appointed, qualified and acting President
of WESTERN PACIFIC AIRLINES, INC. (the "Sublessee"), a corporation duly
organized and existing under the laws of [Delaware], with its principal place of
business in Colorado Springs, Colorado;
2. All of the representations and warranties made by Sublessee in the
Sublease are true and accurate as of the date hereof, except to the extent that
such representations and warranties relate solely to an earlier date (in which
case, the undersigned reaffirms that such representations and warranties are
true and accurate as of such earlier date); and
3. No Default or Event of Default has occurred and is continuing, or will
result from Sublessee's execution, delivery and performance of the Sublease.
IN WITNESS WHEREOF, the undersigned has signed this Officer's Certificate
this ____ day ______________, 1996.
Name:
Title:
<PAGE>
SECRETARY'S CERTIFICATE
Reference is hereby made to the Sublease of Lease Agreement dated as of
March __, 1996, between TACA International Airlines, S.A., as Sublessor and
WESTERN PACIFIC AIRLINES, INC., as Sublessee, (the "Sublease"). Capitalized
terms used herein, have the respective meanings assigned thereto or incorporated
by reference to any other documents in the Sublease. In connection with the
Sublease and pursuant to Section 4(b) of the Sublease, the undersigned hereby
certifies as follows:
1. The undersigned is the duly appointed, qualified and acting
[Secretary][Assistant Secretary] of Sublessee, a corporation duly organized
under the laws of Delaware, with its principal place of business in Colorado
Springs, Colorado.
2. Attached as Annex A is a true and complete copy of the Articles of
Incorporation and the By-laws of Sublessee, as in effect on the date hereof.
3. There is no pending or contemplated proceeding for the amendment of the
Articles of Incorporation or By-laws of Sublessee.
4. Attached as Annex B is a true and complete copy of resolutions of the
Board of Directors of Sublessee, as duly adopted by the Board of Directors in
accordance with the Articles of Incorporation and By-laws of Sublessee, duly
authorizing the execution, delivery and performance by Sublessee of this
Sublease and all other agreements, documents and certificates contemplated
hereby or thereby to be executed on behalf of Sublessee, and such resolutions
have not been amended, rescinded, modified or revoked and are in full force and
effect on the date hereof.
5. Set forth below are is the genuine signature of the Executive President
of Sublessee, who is the person duly authorized to execute and deliver the
Sublease and such other documents and instruments required to be delivered under
the Sublease, and who continues to hold his office as of the date hereof:
Name Title Signature
- ------------------------ ----------------------- ----------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed this Secretary's
Certificate this ____ day of ___________________, 1996.
Name:
Title:
The undersigned, being one of the officers referred to in the foregoing
Secretary's Certificate, does hereby certify as of the date of the foregoing
Certificate that is the [Secretary/Assistant Secretary]
of WESTERN PACIFIC AIRLINES, INC. and the signature above is his genuine
signature.
Name:
Title:
<PAGE>
EXHIBIT E
FORM OF OPINION OF SUBLESSEE'S COUNSEL
To Each Person Listed
on Schedule A Hereto
Gentlemen:
We have acted as counsel for WESTERN PACIFIC AIRLINES, INC., a corporation
organized and existing under the laws of _____________ ("WPA") in connection
with the preparation, execution and delivery of the Sublease of Lease Agreement
dated as of March __, 1996 (the "Sublease"), between TACA International
Airlines, S.A., as Sublessor, and WPA, as Sublessee, relating to the lease of
the Aircraft. Capitalized terms used herein and not otherwise defined shall have
the meanings defined in the Sublease.
In that connection we have examined the following: (i) the Sublease; (ii)
the Lease; (iii) the Security Subleases; (iv) the Mortgage; (v) the Articles of
Incorporation and bylaws of WPA and all amendments thereto (the "Charter"); and
(vi) such other documents, agreements and instruments as we have deemed
necessary as a basis for the opinions hereinafter expressed. We have also
examined originals or copies, certified or otherwise identified to our
satisfaction, of such other records and such other instruments and certificates
of public officials and of officers and representatives of WPA as we have deemed
necessary or appropriate as a basis for the opinions hereinafter expressed.
In arriving at the opinions expressed below, we have assumed the
genuineness of all signatures and the due authorization, execution and delivery
by the parties thereto (other than WPA) of each of the documents listed above.
In addition, we have made such investigations of law as we have deemed
appropriate for the purpose of giving the opinions expressed below.
On the basis of the foregoing, the further assumptions set forth below and
our consideration of such other matters of fact and questions of law as we have
deemed relevant in the circumstances, and subject to the limitations set forth
below, we are of the opinion that:
(a) WPA is a corporation duly organized, validly existing and in good
standing under the laws of ___________ and has the corporate power and authority
to carry on its business as presently conducted and to enter into and perform
its obligations under the Sublease, the Lease and all other documents
contemplated thereby to which it is or will become a party (collectively the
"Documents"), and holds all material licenses, certificates and permits from all
Government Entities of ______________ necessary for the conduct of its business
as now conducted.
(b) The execution, delivery and performance by WPA of the Documents (a)
have been duly authorized by all necessary corporate action on the part of WPA,
(b) do not require any stockholder approval, or approval or consent of any
trustee or holders of any indebtedness or obligations of WPA, (c) do not
contravene any law, rule or regulation of any Government Entity binding on WPA,
(d) do not contravene any order binding on WPA, (e) do not contravene any
provision of the Charter of WPA, and (f) do not contravene the provisions of, or
constitute a default under, or result in the creation of any lien upon any
property or assets of WPA under any indenture, mortgage, contract or other
agreement to which WPA is a party or by which it or its properties may be bound
or affected or any applicable law, rule or regulation, judgment, order or decree
of any Government Entity or court having jurisdiction over WPA or any of its
properties or assets. Each of the Documents has been duly executed and delivered
by WPA.
(c) No authorization or approval (including exchange control approval) or
other action by, and no notice to or filing with, any Governmental Entity is
required for the due execution, delivery and performance by WPA of the
Documents, but the failure so to record or file the Sublease will not affect the
enforceability of WPA's obligations under the Documents. The Documents are in
proper form for filing and recording.
(d) The Documents are the legal, valid and binding obligations of WPA
enforceable against WPA in accordance with their respective terms.
(e) The obligations of WPA under the Documents rank at least PARI PASSU in
all respects with all other unsecured obligations of WPA and are not subject to
any law, rule or regulation of _____________ or any Governmental Entity thereof
with regard to any preference for payment of obligations or any rescheduling of
the payment of any debt or other obligations.
(f) The Lease, as assigned to WPA pursuant to the Sublease, creates a
valid leasehold interest in the Aircraft.
(g) There is no pending or, to the best of our knowledge after due
inquiry, threatened action or proceeding affecting WPA or any of its
subsidiaries before any court, governmental agency or arbitrator, or which
affects or purports to restrain the making or performance of, or affects the
legality, validity or enforceability of the Documents or the transactions
contemplated thereby.
(h) Neither WPA nor any of its property has any immunity from jurisdiction
of any court or from any legal process (whether through service or notice,
attachment prior to judgment, attachment in aid of execution, execution or
otherwise).
(i) There is and will be no Tax, levy, impost, deduction, charge or
withholding imposed by any Taxing Authority of any relevant jurisdiction therein
or thereof either (i) on or by virtue of the execution or delivery of the
Documents or any other document to be furnished thereunder or in connection
therewith or (ii) on any payment made, or to be made, by WPA pursuant to any of
the Documents.
(j) It is not necessary to take any action in Colorado or under the laws
of Ecuador to perfect the interest of the Lessor in the Aircraft or the security
interests in favor of the Lender which the Mortgage or the Security Subleases
purport to create in the Aircraft, the Lease or any other portion of the
Security (as defined in the Mortgage). No person, by performing any act in
Colorado including, without limitation, the execution or recording of a bill of
sale or any security interest, can acquire any interest prior in right to the
Lessor or the interests in favor of the Lender which the Mortgage purports to
create in the Aircraft or any other portion of the Security.
(k) It is not necessary under the laws of Colorado (i) in order to enable
the Sublessor to enforce its rights under the Sublease, the Lessor to enforce
its rights under the Lease or the Lender to enforce its rights under the
Mortgage, or (ii) by reason of the execution, delivery and performance of any of
the Documents that the Sublessor, the Lessor, the Lender or any Lender should be
licensed, qualified or otherwise entitled to carry on business in Colorado.
(l) Neither Sublessor, Lessor nor Lender will be deemed to be a resident
domiciled or carrying on business or subject to taxation or other unfavorable
consequences in Colorado by reason only of the execution, delivery, performance
and/or enforcement of the Sublease or the Security Subleases.
(m) Neither WPA nor any of its subsidiaries is, to the best of our
knowledge after due inquiry, in breach of or default under any agreement to
which it is a party or which is binding on it or any of its assets.
(n) The choice of New York law set forth (a) in the Sublease, the Lease,
the Security Subleases and the Mortgage, in each case to govern such respective
document and to control the construction thereof, is in each case, under the
laws of Colorado, a valid, effective and enforceable choice of law.
(o) A judgment obtained against WPA in a court in the State of New York
pursuant to service of process in accordance with the Sublease would be
enforceable in Colorado against WPA's assets located therein, and execution
against WPA's assets in Ecuador to satisfy such a judgment could be obtained in
Ecuador.
(p) WPA has legally, validly, effectively and irrevocably submitted to the
jurisdiction of any United States or state courts in New York City, New York,
and has legally, validly, effectively and irrevocably appointed CT Corporation
System as its authorized agent for the purposes described in the Sublease.
Very truly yours,
<PAGE>
EXHIBIT F
FORM OF MONTHLY REPORT
MONTHLY AIRCRAFT UTILIZATION AND STATUS REPORT
To: FIRST SECURITY BANK, NATIONAL ASSOCIATION
as Owner Trustee, (the "Lessor")
79 South Main Street
Salt Lake City, Utah 94111
Attention: Corporate Trust Department
with a copy to:
KG AIRCRAFT LEASING CO., LIMITED
3 Adelaide Court, Adelaide Road
Dublin 2, Ireland
From: WESTERN PACIFIC AIRLINES, INC. (the"Lessee")
2864 S. Circle Drive, Suite 1100
Colorado Springs, Colorado 80806
Re: AIRCRAFT TYPE: Boeing 737-3S3
REGISTRATION:
SERIAL NUMBER: 23787
MONTH OF 19
===============================================================================
AIRCRAFT TOTAL TIME SINCE NEW HRS:
===============================================================================
AIRCRAFT TOTAL CYCLES SINCE NEW CYCLES:
===============================================================================
AIRFRAME FLIGHT HOURS DURING MONTH HRS:
===============================================================================
AIRFRAME BLOCK HOURS DURING MONTH HRS:
===============================================================================
AIRFRAME CYCLES/LANDING DURING MONTH CYCLES:
===============================================================================
TIME REMAINING TO D OR HEAVY MAINTENANCE CHECK
===============================================================================
Date of next scheduled "C" check: __________
<PAGE>
================================================================================
ENGINE SERIAL NUMBER ENGINE SERIAL NUMBER
ORIGINAL POSITION ORIGINAL POSITION
- ---------------------------------------------===================================
ACTUAL LOCATION: ACTUAL LOCATION:
- ---------------------------------------------===================================
==================================------------------------------------------====
HOURS: HOURS:
==================================-----------------------------------===========
TOTAL TIME SINCE NEW TOTAL TIME SINCE NEW
==================================-----------------------------------===========
TOTAL CYCLES SINCE NEW TOTAL CYCLES SINCE NEW
==================================-----------------------------------===========
FLIGHT HOURS FLOWN DURING MONTH HOURS FLOWN DURING MONTH
==================================-----------------------------------===========
CYCLES DURING MONTH CYCLES DURING MONTH
- --------------------------------------==========================================
TIME REMAINING TO HSI TIME REMAINING TO HSI
- --------------------------------------==========================================
TIME REMAINING TO EHM TIME REMAINING TO EHM
================================================================================
NOTE: IF LESSOR OWNED ENGINE IS REMOVED OR INSTALLED ON ANOTHER AIRCRAFT IT
MUST BE REPORTED MONTHLY ON THIS FORM.
SERVICE BULLETINS, AIRWORTHINESS DIRECTIVES, ENGINEERING MODIFICATIONS OR
CHANGES SCHEDULED OR COMPLETED (INDICATE DATE SCHEDULED FOR COMPLETION OR
DATE OF COMPLETION, AS APPLICABLE):
WARRANTY CLAIMS MADE OR SETTLED SINCE LAST REPORT (INDICATE NATURE OF CLAIM AND
SETTLEMENT, AS APPLICABLE:
The undersigned, a duly elected officer of Lessee, hereby certifies to Lessor
that (i) the information set forth in the above Monthly Aircraft Utilization and
Status Report is true and correct, and (ii) all airport landing fees and other
charges related to or incurred in connection with the operation of the Aircraft
and all other aircraft in Lessee's fleet, have been paid and are current.
WESTERN PACIFIC AIRLINES, INC.
By:
Its:
<PAGE>
EXHIBIT G
MAINTENANCE RESERVES ADJUSTMENT FORMULA
Flight Hour/
CYCLE RATIO RATES
[ ]* - [ ]* $[ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
<PAGE>
SCHEDULE I - STIPULATED LOSS VALUE
EXHIBIT A - AIRCRAFT DESCRIPTION
EXHIBIT B - FORM OF ACCEPTANCE CERTIFICATE
EXHIBIT C - FORM OF RETURN ACCEPTANCE CERTIFICATE
EXHIBIT D - FORM OF CERTIFICATES OF SUBLESSEE
EXHIBIT E - FORM OF OPINION OF SUBLESSEE'S COUNSEL
EXHIBIT F - FORM OF MONTHLY REPORT
EXHIBIT G - MAINTENANCE RESERVES ADJUSTMENT FORMULA
================================================================================
ENGINE LEASE AGREEMENT
dated as of May 21, 1996
and
AMENDED AND RESTATED
as of July 7, 1997
between
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity
(except as otherwise specified)
but solely as Owner Trustee under the 1997 Trust Agreement
as Lessor,
and
WESTERN PACIFIC AIRLINES, INC.
as Lessee
One Used CFM International, Inc. Model CFM 56-3B2 Engine
Manufacturer's Serial No. 721150
ONLY THE ORIGINAL COUNTERPART CONTAINS THE RECEIPT THEREFOR
EXECUTED BY FIRST SECURITY BANK, NATIONAL ASSOCIATION, AS OWNER
TRUSTEE, AS LESSOR ON THE SIGNATURE PAGE THEREOF
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Definitions.................................................... 1
Section 2. Lease; Lease Term; Delivery of Engine.......................... 5
(a) Lease; Lease Term........................................ 5
(b) Condition of Engine at Delivery.......................... 5
Section 3. Security Deposit and Other Payments............................ 5
(a) Security Deposit......................................... 5
(b) Basic Rent............................................... 6
(c) [Intentionally left blank.].............................. 6
(d) Supplemental Rent........................................ 6
(e) Manner of Payment........................................ 6
(f) Late Payments............................................ 6
(g) No Setoff, Counterclaim, etc............................. 6
Section 4. Conditions Precedent and Other Requirements.................... 7
(i)
(a) Execution and Delivery of Documents...................... 7
(b) Representations, Warranties, No Default.................. 8
(c) Resolutions, etc......................................... 8
(d) Security Deposit and Basic Rent.......................... 8
(e) Insurance Certificate.................................... 8
(f) Filings; Financing Statements. .......................... 8
(g) Opinions of Counsel...................................... 8
(h) No Event of Loss......................................... 8
(i) Acceptance by Process Agent.............................. 8
(ii) 8
(a) Delivery of Assignments of Warranties.................... 8
(b) Resolutions, etc......................................... 8
(c) Representations, Warranties; No Default.................. 9
(d) Acceptance by Process Agent.............................. 9
(e) Credit Deposit for Reserves.............................. 9
Section 5. Disclaimer; Manufacturer and Vendor Warranties................. 9
(a) Disclaimer by Lessor..................................... 9
(b) Lessor's Representations, Warranties and
Covenants............................................... 10
(c) Manufacturer and Vendor Warranties...................... 10
<PAGE>
Section 6. Maintenance; Replacement and Pooling of Parts; Alterations,
Modifications and Additions................................... 11
(a) Maintenance............................................. 11
(b) Engine Reserves......................................... 12
(c) Replacement of Parts.................................... 13
(d) Pooling of Parts........................................ 14
(e) Alterations, Modifications and Additions................ 14
Section 7. Title and Registration; Liens; Possession..................... 15
(a) Title................................................... 15
(b) Liens................................................... 15
(c) Operation............................................... 15
(d) Possession.............................................. 16
(e) Identification Plate.................................... 18
(f) Reporting Requirements.................................. 18
(g) Inspections............................................. 18
Section 8. Loss, Destruction, Requisition, etc........................... 18
(a) Event of Loss........................................... 18
(b) Application of Payments from Governmental
Authorities............................................. 19
(c) Requisition for Use of the Engine....................... 19
(d) Quiet Enjoyment......................................... 19
Section 9. Insurance..................................................... 20
(a) Liability............................................... 20
(b) Property Damage Insurance............................... 20
(c) Terms of Insurance...................................... 20
(d) Application of Insurance................................ 22
(e) Reports................................................. 22
(f) Failure to Insure....................................... 22
(g) Additional Insurance.................................... 23
(h) Notice of Claims........................................ 23
Section 10. Return of Engine............................................ 23
(a) Redelivery upon Termination............................. 23
(b) Condition of Engine..................................... 23
(c) Condition of Controlled Components...................... 23
(d) Engine Documentation.................................... 24
(e) Service Bulletin Kits................................... 24
(f) Non U.S. Manufactured Items............................. 24
(g) Lessee's Continuing Obligations......................... 24
Section 11. Representations, Warranties and Covenants of Lessee........... 25
Section 12. Indemnification............................................... 27
(a) General Indemnity and Expenses.......................... 27
(b) General Tax Indemnity................................... 28
(c) Calculation of Tax Indemnity Payments................... 30
(d) Contest; Reports........................................ 31
(e) Payment................................................. 32
(f) Survival................................................ 33
<PAGE>
Section 13. Assignment; Lease Subject and Subordinate..................... 33
(a) Sublease by Lessee...................................... 33
(b) Assignments by Lessor................................... 33
Section 14. Events of Default; Remedies................................... 33
(a) Events of Default....................................... 33
(b) Remedies................................................ 35
Section 15. Notices....................................................... 37
Section 16. Governing Law and Jurisdiction................................ 38
(a) Governing Law........................................... 38
(b) Jurisdiction; Service of Process........................ 38
(c) Waiver of Immunity...................................... 38
Section 17. Miscellaneous................................................. 38
(a) Entire Agreement........................................ 38
(b) English Language........................................ 39
(c) Lessor's Right to Perform for Lessee.................... 39
(d) Application of Payments During Existence of
Default................................................. 39
(e) Expenses................................................ 39
(f) Further Assurances...................................... 39
(g) Judgment Currency....................................... 39
(h) Invalidity of Any Provision............................. 40
(i) Changes in Law.......................................... 40
(j) Headings................................................ 40
(k) Consent................................................. 40
(l) Third Party Beneficiaries............................... 40
(m) Counterparts............................................ 40
EXHIBIT A ENGINE DESCRIPTION
EXHIBIT B FORM OF ACCEPTANCE CERTIFICATE
EXHIBIT C FORM OF RETURN ACCEPTANCE RECEIPT
EXHIBIT D FORM OF MONTHLY REPORT
EXHIBIT E MAINTENANCE RESERVES ADJUSTMENT FORMULA
<PAGE>
This LEASE AGREEMENT, dated as of May 21, 1996, and AMENDED AND RESTATED
as of July 7, 1997, between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a
national banking association with its principal place of business in Salt Lake
City, Utah, not in its individual capacity but solely as trustee under the 1997
Trust Agreement, except as otherwise expressly provided herein, and its
successors and assigns (in such capacity, "Lessor"; and in its individual
capacity, "FSB"), and WESTERN PACIFIC AIRLINES, INC., a corporation organized
and existing under the laws of Delaware with its principal place of business in
Colorado Springs, Colorado ("Lessee").
RECITALS
WHEREAS, TACA, as lessor, and Lessee, as lessee, have executed this Engine
Lease Agreement dated as of May 21, 1996 (as supplemented and amended, the
"Lease") for the lease of the Engine from TACA, which was recorded by the FAA on
July 31, 1996 and assigned Conveyance No. BB24108; and
WHEREAS, the rights and obligations of TACA under the Lease have been
novated to Lessor pursuant to the Engine Lease Novation dated July __, 1997 (the
"Closing Date"), which was filed with the FAA on the date thereof, but not yet
recorded; and
WHEREAS, Lessor has assumed the rights and obligations of TACA under the
Lease, and Lessor and Lessee desire to amend and restate the Lease as this
Amended and Restated Lease Agreement with effect from and after the Closing Date
as set forth herein; and
WHEREAS, Lessee desires to lease the Engine from Lessor and Lessor is
willing to lease the Engine to Lessee upon and subject to the terms, conditions
and covenants herein set forth;
In consideration of and subject to the mutual covenants, terms and
conditions contained in this Lease, Lessor and Lessee agree as follows:
<PAGE>
Section 1. DEFINITIONS. Unless the context otherwise requires the
following terms shall have the following meanings for all purposes of this Lease
and shall be equally applicable both to the singular and plural forms of the
terms defined. Any agreement defined below shall include each amendment,
modification and supplement thereto and waiver thereof in effect from time to
time.
"ACCEPTANCE CERTIFICATE" shall mean the Acceptance Certificate, dated the
Commencement Date, in the form of Exhibit B hereto.
"ADDITIONAL INSURANCE" shall have the meaning ascribed to it in Section
9(g) hereof.
"ADDITIONAL INSUREDS" shall have the meaning ascribed to it in Section
9(c) hereof.
"APPROVED REPAIR FACILITY" shall have the meaning ascribed to it in
Section 6(a)(ii).
"BASIC RENT" shall have the meaning ascribed to it in Section 3(b)
hereof.
"COMMENCEMENT DATE" shall mean June 11, 1996, the date upon which the
Engine was tendered to Lessee in conformity with this Lease and the Acceptance
Certificate was executed and delivered.
"CYCLE" shall mean any flight of any airframe to which the Engine is
attached, consisting of one take-off and one landing regardless of time elapsed
between take-off and landing and distance flown.
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"DEBT" shall mean, with respect to any Person, (a) all obligations of such
Person for borrowed money or with respect to deposits and advances of any kind,
whether evidenced by bonds, debentures, notes or other instruments, (b) all
obligations of such Person upon which interest charges are customarily paid, (c)
all obligations of such Person under conditional sale or other title retention
agreements relating to property purchased by such Person, (d) all obligations of
such Person issued or assumed as the deferred purchase price of property or
services, (e) any lease obligation that, in accordance with generally accepted
accounting principles has been or should be capitalized on the books of such
Person, and (f) all guarantees of such Person of the debts or obligations for
borrowed money of any other Person, whether direct or indirect, absolute,
contingent or otherwise.
"DEFAULT" shall mean any event that, with the passage of time or the
giving of notice or both, would become an Event of Default.
"DOLLARS" and "US$" shall mean lawful currency of the United States of
America.
"ENGINE" shall mean the CFM International Inc. Model CFM 56-3B2 jet
aircraft engine bearing manufacturer's serial number 721150, whether or not from
time to time installed on an airframe, and (ii) any Replacement Engine that may
from time to time be substituted as contemplated by Section 8(a) for the Engine
leased hereunder; 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 shall remain vested in Lessor in accordance with the terms of
Section 6(c) 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 "Engine" means,
as of any date the Engine then leased hereunder. The Engine has and any
Replacement Engine hereunder will have not less than 750 rated takeoff
horsepower.
"ENGINE LEASE NOVATION" shall mean the Engine Lease Novation Agreement
dated the Closing Date by and among TACA, Lessor and Lessee.
"ENGINE LOSS VALUE" shall mean [ ]* United States Dollars(US$[ ]*).
"ENGINE RESERVES" shall have the meaning ascribed to it in Section 6(b)
hereof.
"ENGINE STAND" shall mean that certain PF Industries, Inc. model PF71-169
engine stand bearing serial number 0001B.
"EVENT OF DEFAULT" shall have the meaning ascribed to it in Section
14(a) hereof.
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"EVENT OF LOSS" with respect to the Engine shall mean any of the following
events, whether or not the same shall constitute and Event of Loss with respect
to any airframe to which the Engine is, at any time attached, and whether or not
the Engine is attached to an airframe: (i) loss of the Engine or the use thereof
due to theft, disappearance, destruction, damage beyond repair or rendition of
such property permanently unfit for normal use for any reason whatsoever; (ii)
any damage to the Engine that results in the receipt of insurance proceeds with
respect to the Engine on the basis of a total loss; (iii) the condemnation,
confiscation or seizure of, or requisition of title to, such Engine by any
authority, or a requisition for use of such property by any authority other than
a Government Entity of the United States of America; (iv) as a result of any
rule, regulation, order or other action by the FAA, or other governmental body
having jurisdiction thereof, or any other occurrence, the use of the Engine in
the normal course of air transportation of persons shall have been prohibited
for a period of three consecutive months unless Lessee, prior to the expiration
of such three-month period, shall have undertaken and shall be diligently
carrying forward all steps that are necessary or desirable to permit the normal
use of the Engine by Lessee or, in any event, if such use shall have been
prohibited for a period of six consecutive months; (v) the inability for any
reason of Lessor to obtain possession of the Engine within 30 days after this
Lease shall have been declared to be in default pursuant to Section 14, free and
clear of all liens (other than Lessor's Liens); and (vi) as described in clause
(iv) of Section 7(d).
"FAA" shall mean the United States Federal Aviation Administration and any
successor agency thereto.
"FEDERAL AVIATION ACT" shall mean the United States Federal Aviation Act
of 1958 as amended, and the regulations promulgated thereunder.
"FLIGHT HOUR" shall mean each hour or part thereof elapsing from the
moment the wheels of the airframe on which the Engine is then installed leave
the ground on takeoff until the wheels of such airframe touch the ground on
landing following such flight. For purposes of all calculations under this Lease
measured in Flight Hours, such hours, including fractions thereof, shall be
measured to two decimal places.
"GOVERNMENT ENTITY" means (i) any national, state or local government of
the United States of America or any other country where an airframe upon which
the Engine is attached may be flown and operated by Lessee, (ii) any board,
commission, department, division, instrumentality, court, agency or political
subdivision of any entity described in (i) above, however constituted, and (iii)
any association, organization or institution of which any entity described in
(i) or (ii) above is a member or to whose jurisdiction any thereof is subject.
"INDEMNITEE" shall have the meaning ascribed to it in Section 12a hereof.
"KGAL" shall mean KG Aircraft Leasing Co., Limited, a corporation
organized and existing under the laws of Ireland.
"LEASE," "this Lease Agreement," "this Lease," "this Agreement," "herein,"
"hereunder," "hereby," or other like words shall mean this Lease as originally
executed or as modified, amended or supplemented pursuant to the applicable
provisions hereof.
"LEASE TERM" shall have the meaning ascribed to it in Section 2(a) hereof.
"LESSOR LIEN" shall mean any Lien arising as a result of (i) claims
against Lessor not related to the transactions contemplated by this Lease, (ii)
Taxes imposed against Lessor that are not indemnified against by Lessee pursuant
to Section 12(b), (iii) claims against Lessor arising out of the transfer by
Lessor of all or any part of its interest in the Engine, other than by reason of
the occurrence of an Event of Loss or following an Event of Default.
"LIEN" shall mean any mortgage, pledge, lien, charge, encumbrance, lease,
exercise of rights, security interest or claim of any nature whatsoever.
"MAINTENANCE PROGRAM" shall have the meaning ascribed to it in Section
6(a) hereof.
"MANUFACTURER" shall mean CFM International, Inc., a Delaware
corporation.
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"PARTS" shall mean any and all appliances, parts, attachments, accessions,
appurtenances, accessories and other equipment of whatever nature attached to or
incorporated in the Engine.
"PAYMENT DATE" shall mean the fifteenth (15) day of each consecutive
calendar month commencing with the calendar month immediately following the
Commencement Date and each consecutive calendar month thereafter during the
Lease Term; provided however that Lessee, on or prior to the Commencement Date,
shall pay Basic Rent in respect of the Engine corresponding to the first month
of the Lease Term.
"PERMITTED LIEN" shall have the meaning ascribed to it in Section 7(b)
hereof.
"PERSON" shall mean an individual, corporation, partnership, joint
venture, trust, unincorporated organization or any other juridical entity, or a
Government Entity.
"POST-DEFAULT RATE" shall mean a rate per annum equal to three percent
(3%) above the rate publicly announced from time to time by Citibank, N.A., New
York, New York (or any successor institution) as its "prime rate" (or, if no
such rate exists, any comparable reference rate established by such institution)
on the basis of the actual number of days elapsed over a 360-day year.
"PROCESS AGENT" shall have the meaning ascribed to it in Section 16(b)
hereof.
"RENT" shall mean Basic Rent and Supplemental Rent.
"REPLACEMENT ENGINE" shall mean a CFM International, Inc. CFM 56-3B2 jet
aircraft engine (or engine of the same manufacturer of the same or an improved
model) approved by Lessor, that has a value, utility and thrust at least equal
to those of the Engine, together with all Parts relating to such engine.
"SECURITY DEPOSIT" shall have the meaning ascribed to it in Section
3(a) hereof.
"SUPPLEMENTAL RENT" shall mean all amounts, sums, monies, indebtedness,
liabilities and obligations (other than Basic Rent) that Lessee assumes, agrees
or otherwise becomes liable to pay to Lessor or others hereunder or under any
other document or agreement entered into by Lessee and Lessor in connection
herewith or with the transactions contemplated hereby and thereby including,
without limitation, payments of Engine Reserves, Engine Loss Value and any
interest payable with respect to payments pursuant to Section 3(f).
"TACA" shall mean TACA International Airlines, S.A., a corporation
organized and existing under the laws of El Salvador.
"TAX" or "TAXES" shall mean any and all fees (including, without
limitation, license and registration fees), taxes (including, without
limitation, gross receipts, income, sales, rental, use, turnover, value added,
property (tangible or intangible), excise and stamp taxes, levies, imposts,
duties, charges, assessments or withholdings of any nature whatsoever, together
with any and all penalties, fines, additions to tax and interest thereon or
computed by reference thereto.
"TAXING AUTHORITY" shall have the meaning ascribed to it in Section
12(b) hereof.
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"1997 TRUST AGREEMENT" shall mean the Trust Agreement dated as of June 15,
1997 between FSB and KGAL, as originally executed or as modified, amended or
supplemented pursuant to the applicable provisions thereof.
Section 2. LEASE; LEASE TERM; DELIVERY OF ENGINE
a) LEASE; LEASE TERM. Lessor hereby Leases to Lessee the Engine and the
Engine Stand, for a period (the "Lease Term") commencing from the Commencement
Date and ending, unless earlier terminated pursuant to the provisions of this
Lease, on such date as shall fall 120 consecutive calendar months following the
Commencement Date (the "Expiration Date").
(b) CONDITION OF ENGINE AT DELIVERY. Lessee acknowledges that on the
Commencement Date, the Engine was delivered to Lessee in Dallas, Texas, and was
in conformity with the description thereof set forth in Exhibit A hereto. On
June 11, 1996, Lessee delivered to Lessor an Acceptance Certificate, which is
conclusive proof as between Lessor and Lessee that Lessee has examined the
Engine, that the Engine and the Engine Documentation are satisfactory to Lessee
and that Lessee has accepted the Engine for lease hereunder without any
reservations whatsoever (except as noted therein).
Section 3. SECURITY DEPOSIT AND OTHER PAYMENTS
(a) SECURITY DEPOSIT. Lessor acknowledges receipt from or for the account
of Lessee of a security deposit (the "Security Deposit") in the total amount of
[ ]* Dollars (US$[ ]*) (the "Security Deposit Amount"). The Security Deposit
shall be held by Lessor during the Lease Term as security for the full and
punctual performance by Lessee of all of its obligations hereunder. During the
Lease Term, the Security Deposit may be commingled by Lessor with other funds.
Interest, if any, earned on the Security Deposit shall be for Lessor's sole
account. Lessor may, but shall not be obligated to, apply the Security Deposit,
in whole or in part for the payment of any Basic Rent owing hereunder or any
other amount owing from time to time by Lessee hereunder, or utilize the
Security Deposit in whole or in part to perform any of Lessee's obligations
hereunder or otherwise remedy any Event of Default, without prejudice to any
other remedy of Lessor. Lessee shall not attempt to subject the Security Deposit
to any Lien or to assign any interest therein to any Person and, to the extent
of its interest therein, Lessee hereby grants to Lessor a Lien on the Security
Deposit and assigns and transfers to Lessor any and all of Lessee's right, title
and interest therein, as security as provided above, and Lessor shall be
entitled to the remedy of offset against and application of the Security
Deposit, without any prior notice to or demand against Lessee (except to the
extent otherwise required by applicable law), all of which are hereby waived. If
Lessor uses or applies all or a portion of the Security Deposit, such
application shall not be deemed a cure of any Event of Default, until and unless
Lessee shall have replenished the amount applied hereunder within the time
period provided herein. Lessee shall replenish any portion or all of the
Security Deposit applied by Lessor to satisfy, in whole or in part, any Event of
Default by depositing with Lessor in immediately available funds an amount
sufficient to restore the Security Deposit to the Security Deposit Amount within
three (3) Business Days after Lessor's demand therefor. Within fifteen (15) days
after redelivery of the Engine to Lessor by Lessee, and provided the Engine is
delivered in full conformity with the return conditions set forth in Section 10
hereof, and that Lessee has paid, in full, all amounts owing by Lessee hereunder
and performed all of its obligations hereunder, Lessor will return to Lessee the
Security Deposit, without interest, less any amounts applied by Lessor and not
replenished by Lessee.
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(b) BASIC RENT. Lessee agrees to pay Lessor rent with respect to the
Engine, monthly, in advance on each Payment Date, in the amount of [ ]* Dollars
(US$[ ]*) per month ("Basic Rent").
(c) [Intentionally left blank.]
(d) SUPPLEMENTAL RENT. Lessee agrees promptly to pay to Lessor any and all
Supplemental Rent, as the same shall become due and owing, and in the event of
any failure on the part of Lessee to pay any Supplemental Rent, Lessor shall
have the same rights, powers and remedies provided for herein or by law or
equity or otherwise as in the case of nonpayment of Basic Rent.
(e) MANNER OF PAYMENT. All payments of Rent shall be paid directly to
Lessor to:
The Bank of Tokyo-Mitsubishi, Ltd., New York
Chips UID: 076 886 ABA No. 026 009632
A/C The Bank of Tokyo-Mitsubishi, Ltd.,
London Branch
12-15 Finsbury Circus
London EC2M 7BT
England
Tel: 44 171 577 1087
Fax: 44 171 577 1128
F/O KG Aircraft Leasing Co., Ltd.
Number 245662 Current Account
or such other bank accounts as Lessor shall specify by written notice to Lessee.
All payments of Rent shall be made in immediately available funds in Dollars by
2:00 p.m. New York City time, on the date when due; provided, however, that in
the event that any payment should be due on a day that is not a Business Day
then such payment shall be made on the Business Day next succeeding such day
without any penalty for late payment.
(f) LATE PAYMENTS. As to any (i) amount due under this Lease that is not
paid when due as herein provided, or (ii) advance made by Lessor of any amount
required to be paid by Lessee as herein provided and not so paid by Lessee,
Lessee shall pay to Lessor at the time of payment thereof, as Supplemental Rent,
interest thereon at the Post-Default Rate, from either the due date thereof (as
to amounts referred to in clause (i)) or the date of the advance by Lessor (as
to amounts referred to in clause (ii)), as the case may be, to the date such
late payment is paid in full.
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(g) NO SETOFF, COUNTERCLAIM, ETC. Notwithstanding anything to the
contrary herein and except as otherwise set forth in this Section 3(g), Lessee's
obligations and liabilities to pay all amounts payable hereunder shall be
absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, (i) any setoff, counterclaim, recoupment, defense
or other right that Lessee may have against Lessor or any other Person for any
reason whatsoever, (ii) any defect in the title caused directly by an act or
omission of Lessee, airworthiness, condition, design, operation or fitness for
use of or any damage to or loss or destruction of, the Engine, any Engine or any
Part thereof or of any airframe upon which the same is installed or any
interruption or cessation in the use or possession thereof by Lessee for any
reason whatsoever, (iii) any insolvency, bankruptcy, reorganization or similar
proceedings by or against Lessee, (iv) the disaffirmance or rejection of this
Lease by Lessor or any trustee in bankruptcy (or similar party) provided that
there shall have been no change materially adverse to the Lessee in any of the
terms or conditions of this Lease in connection with applicable bankruptcy
proceedings, (v) claims against the Manufacturer or manufacturer of any airframe
upon which the Engine is installed, (vi) enforceability or lack of
enforceability of any of the terms or conditions of this Lease, (vii) breach by
Lessor of any warranty, express or implied, with regard to the Engine or any
Part thereof, including, without limitation, merchantability or fitness for any
purpose or use relating to or otherwise made or alleged to be made by Lessor to
Lessee or any of its agents, representatives or employees with regard to the
Engine or any Part thereof, (viii) any right, claim, demand, bill, action or
suit whatsoever by or against or on the part of Lessee against Lessor,
including, without limitation, whether arising out of legal action or otherwise
(x) at law or in equity, (y) whether affirmative, negative or defensive in
nature for or on account of the legality, enforceability, validity or other
infirmity as to (A) any of the terms or conditions of this Lease, (B) any
express or implied warranty as to the Engine or any Part thereof or (C) arising
out of or as a result of any contract, agreement, assignment or transaction
between Lessor and Lessee whether direct or indirect, written or oral, (ix) any
interruption or cessation in the use or possession of the Engine by or
availability of the Engine to Lessee for any reason whatsoever whether arising
out of relating to an act or omission of Lessee; or (x) any other circumstances,
happening or event whatsoever, whether or not similar to any of the foregoing
which but for this provision might have the effect of terminating this Lease, it
being the intention of the Lessor and Lessee that all Rent and other amounts
payable by Lessee 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. Lessee hereby waives, to the fullest extent permitted by applicable law
any and all rights it may now have or that at any time hereafter may be
conferred upon it, by statute or otherwise, to terminate, cancel, quit or
surrender this Lease except in accordance with the express terms hereof.
Notwithstanding anything contained in this Section 3(g), in the event that as a
result of a breach by Lessor or anyone claiming by, through or under Lessor of
its covenant of quiet enjoyment (including any defect in title not caused by an
act or omission of Lessee), Lessee shall be deprived of possession or use of the
Engine under and in accordance with this Lease, Lessee shall not be required to
pay Basic Rent and Maintenance Reserves in respect of such period of
non-possession of or inability to use the Engine. Each payment of Rent made by
Lessee shall be final as to Lessor and Lessee, and Lessee will not seek to
recover all or any part of any such payment of Rent from Lessor or its
successors or assigns for any reason whatsoever.
Nothing in this Section 3(g) or elsewhere in this Lease shall be construed
to limit Lessee's right to seek a recovery of any payment of Rent or any other
amount which is not due and payable hereunder, or to limit Lessee's rights and
remedies to pursue, in a court of law or otherwise, any claim it may have
against Lessor on account of any failure of Lessor to perform its obligations
hereunder or in connection herewith.
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Section 4. CONDITIONS PRECEDENT AND OTHER REQUIREMENTS.
(i) The obligation of Lessor to lease the Engine to Lessee on the terms
and conditions herein set forth was subject to the satisfaction, on or before
the Commencement Date, of each of the following conditions (which the parties
hereto agree were satisfied or waived on or before the Commencement Date):
(a) EXECUTION AND DELIVERY OF DOCUMENTS. Lessee shall have duly executed
and delivered to Lessor (i) this Lease, and (ii) the Acceptance Certificate.
(b) REPRESENTATIONS, WARRANTIES, NO DEFAULT. (i) All of the
representations and warranties of Lessee contained in this Lease shall be true
and correct on and as of the Commencement Date as though made on such date or,
if they relate solely to an earlier date, as of such date and (ii) no Default or
Event of Default shall have occurred and be continuing or would result from
Lessee's execution, delivery and performance of this Lease, and Lessor shall
have received an Officer's Certificate in form and substance satisfactory to it,
to the effect of each of the foregoing.
(c) RESOLUTIONS, ETC. Lessor shall have received, in form and substance
satisfactory to it, a certificate of the Secretary or an Assistant Secretary of
Lessee with respect to the resolutions of the Board of Directors of Lessee
authorizing the execution, delivery and performance by Lessee of this Lease and
all other documents and certificates contemplated hereby to be executed on
behalf of Lessee, and the authority and signatures of the persons authorized to
execute and deliver such documents on behalf of Lessee.
(d) SECURITY DEPOSIT AND BASIC RENT. On or before the Commencement Date
Lessor shall have received immediately available funds in the amount of the
balance of the Security Deposit Amount and the first Basic Rent payment.
(e) INSURANCE CERTIFICATE. Lessor shall have received, on or prior to the
Commencement Date, in form and substance satisfactory to it, an insurer's or
broker's certificate as to the due compliance by Lessee with the insurance
provisions of Section 9.
(f) FILINGS; FINANCING STATEMENTS. Lessor shall have received evidence
satisfactory to it that this Lease shall have been duly filed for recordation
with the FAA pursuant to the Federal Aviation Act. If requested by Lessor,
Lessee shall have executed (as debtor) and delivered to Lessor one or more
precautionary Uniform Commercial Code financing statements for filing in such
places in the United States as, in the Lessor's opinion, are necessary or
desirable.
(g) OPINIONS OF COUNSEL. Lessor shall have received favorable opinions
addressed to Lessor from Winthrop, Stimson, Putnam & Roberts and Sparks, Dix,
P.C., counsel for Lessee, dated as of the Commencement Date.
(h) NO EVENT OF LOSS. No Event of Loss shall have occurred with respect to
the Engine.
(i) ACCEPTANCE BY PROCESS AGENT. CT Corporation System shall have accepted
its appointment as Process Agent on behalf of Lessee by one or more instruments
in writing delivered to Lessor.
(ii) The obligation of Lessee to Lease the Engine from Lessor pursuant
hereto was subject to the satisfaction, on or before the Commencement Date, of
each of the following conditions (which the parties hereto agree were satisfied
or waived on or before the Commencement Date):
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(a) DELIVERY OF ASSIGNMENTS OF WARRANTIES. Lessee shall have received from
Lessor an Assignment of Warranties in form and substance reasonably acceptable
to Lessee, duly accepted by the Manufacturer.
(b) RESOLUTIONS, ETC. Lessee shall have received, in form and substance
reasonably satisfactory to it, a certificate of the Secretary or an Assistant
Secretary of Lessor with respect to the resolutions of the Board of Directors of
Lessor authorizing the execution, delivery and performance by Lessor of this
Lease and all other documents and certificates contemplated hereby to be
executed on behalf of Lessor, and the authority and signatures of the persons
authorized to execute and deliver such documents on behalf of Lessor.
(c) REPRESENTATIONS, WARRANTIES; NO DEFAULT. (i) All of the representations
and warranties of Lessor contained in this Lease shall be true and correct on
and as of the Commencement Date as though made on such date or, if they relate
solely to an earlier date, as of such date and (ii) no default or event of
default under any credit agreement, mortgage, lease or other agreement binding
on Lessor or any of its assets shall have occurred and be continuing or would
result from Lessor's execution, delivery and performance of this Lease, and
Lessee shall have received an Officer's Certificate in form and substance
satisfactory to it, to the effect of each of the foregoing, and (iii) Lessor
shall have received and furnished to Lessee the consent of ING Aviation Lease,
B.V. ("ING") and First Security Bank of Utah, National Association ("FSBU") to
the release of the Engine, Engine records and related Engine Reserves from the
Sublease Agreement dated as of March 18, 1996 between TACA and Lessee (the
"Sublease") and from the related Assignment of Sublease between TACA and FSBU
and the Assignment of Security Document between FSBU and ING, both dated as of
even date therewith, as the case may be.
(d) ACCEPTANCE BY PROCESS AGENT. Greenberg, Traurig et.al. shall have
accepted its appointment as Process Agent on behalf of Lessor.
(e) CREDIT DEPOSIT FOR RESERVES. Lessor shall, on the Commencement Date,
credit Lessee with the full amount of Engine Reserves actually received by
Lessor under the Sublease prior to the Commencement Date, including all amounts
received in respect of the Shop Visit Portion and the LLP Portion of said Engine
Reserves which amounts shall be credited as appropriate to the Shop Visit
Portion and the LLP Portion of Engine Reserves payable pursuant to Section 6(b)
hereof. The amount so credited shall constitute Engine Reserves available to be
reimbursed to Lessee as provided in Section 6(b)(ii) below.
Section 5. DISCLAIMER; MANUFACTURER AND VENDOR WARRANTIES
a) DISCLAIMER BY LESSOR. TO THE EXECUTION OF THIS LEASE, LESSEE HAS
SELECTED THE TYPE OF ENGINE AND PARTS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
SECTION 5(b) BELOW, NEITHER LESSOR NOR ANY SUCCESSOR IN INTEREST TO LESSOR HAS
MADE NOR SHALL BE DEEMED TO HAVE MADE AND ACCORDINGLY MAKES NO WARRANTY, EXPRESS
OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE ENGINE
AND PARTS, ITS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND LESSOR
EXPRESSLY DISCLAIMS THE SAME AND AS RESPECTS LESSOR, LESSEE LEASES THE ENGINE
AND PARTS "AS IS" AND "WHERE IS". EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
SECTION 5(b) BELOW, LESSOR HEREBY EXPRESSLY DISCLAIMS ANY WARRANTY EITHER
EXPRESS OR IMPLIED (WHETHER STATUTORY OR OTHERWISE) RELATING TO THE CAPACITY,
AGE, QUALITY, DESCRIPTION, STATE, CONDITION, DESIGN, CONSTRUCTION, USE,
OPERATION, OR PERFORMANCE OF THE ENGINE OR THE SUITABILITY OF THE ENGINE OR ITS
FITNESS FOR ANY PARTICULAR PURPOSE OR AS TO ITS AIRWORTHINESS. LESSOR SHALL HAVE
NO LIABILITY TO LESSEE FOR ANY CLAIM, LOSS OR DAMAGE WHATSOEVER INCLUDING, BUT
NOT LIMITED TO, INCIDENTAL OR CONSEQUENTIAL DAMAGES, CAUSED OR ALLEGED TO BE
CAUSED DIRECTLY OR INDIRECTLY BY THE ENGINE OR PARTS, OR BY ANY INADEQUACY
THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY INCIDENT WHATSOEVER IN
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CONNECTION THEREWITH ARISING IN STRICT LIABILITY, NEGLIGENCE OR OTHERWISE, OR IN
ANY ACTION RELATED TO OR ARISING OUT OF THIS LEASE OR ANY OTHER DOCUMENT AND
WHETHER INVOLVING PERSONAL INJURY, PROPERTY DAMAGE OR OTHERWISE. EXCEPT AS
EXPRESSLY PROVIDED IN SECTION 5(b) BELOW, LESSEE HEREBY WAIVES AS BETWEEN ITSELF
AND LESSOR AND ANY PERSON CLAIMING BY, THROUGH OR UNDER LESSOR, ALL ITS RIGHTS,
EXPRESS OR IMPLIED (WHETHER STATUTORY OR OTHERWISE), AGAINST LESSOR IN AND TO
THE ENGINE RELATING TO THE CAPACITY, AGE, QUALITY, DESCRIPTION, STATE,
CONDITION, DESIGN, CONSTRUCTION, USE, OPERATION OR PERFORMANCE OF THE ENGINE AND
THE LEASING THEREOF BY LESSOR TO LESSEE, OR TO THE MERCHANTABILITY OR
SUITABILITY OF THE ENGINE OR ITS FITNESS FOR ANY PARTICULAR PURPOSE OR AS TO ITS
AIRWORTHINESS. In particular and without prejudice to the generality of the
foregoing, Lessor shall not be under any liability whatsoever and howsoever
arising, whether in contract or tort or both, in respect of any loss, liability,
damage or delay of or to or in connection with the Engine or any Person or
property whatsoever, whether or not the Engine is attached to an airframe and
irrespective of whether such loss, damage or delay shall arise (x) from the
unairworthiness of the Engine, or (y) from any action or omission of Lessor
(other than any action or omission that constitutes willful misconduct or gross
negligence of Lessor).
(b) LESSOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding
and as the sole exception to Section 5(a), (i) FSB represents and warrants that
it is a national banking association duly organized, validly existing and in
good standing under the laws of the United States and has all requisite
corporate power, authority and legal right to enter into and to perform its
obligations under the 1997 Trust Agreement, (ii) Lessor represents and warrants
that (A) unless a Default or an Event of Default shall have occurred and be
continuing neither Lessor nor anyone claiming by, under or through Lessor shall
take any actions inconsistent with Lessee's right of quiet enjoyment; (B) FSB
holds all material licenses, certificates and permits necessary for the conduct
of its business as now conducted; (C) the execution, delivery and performance of
this Lease has been duly authorized by all necessary corporate action of Lessor,
and does not and will not (1) result in the violation of the provisions of the
charter documents or bylaws of Lessor as in effect on the date hereof, (2)
require stockholder approval or approval or consent of any trustee or holders of
any indebtedness of Lessor, except such approvals which have been obtained and
are in full force and effect, (3) contravene any law, rule or regulation or any
order of any Government Entity binding on Lessor, nor (4) conflict with or
result in a breach of any terms or provisions of or constitute a default under,
or result in or require the creation or imposition of any Lien upon any material
property or assets of Lessor under, any indenture, mortgage or other agreement
or instrument as in effect on the date hereof to which Lessor is a party or by
which it or any of its property is bound, or any applicable law, rule or
regulation, judgment, order or decree of any Government Entity or court having
jurisdiction over Lessor or any of its properties; and (D) this Lease
constitutes the legal, valid and binding obligation of Lessor, enforceable
against Lessor in accordance with its terms except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting 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 at law or in equity) as a court having jurisdiction may impose.
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(c) MANUFACTURER AND VENDOR WARRANTIES. Lessor hereby assigns to Lessee for
the duration of the Lease Term (so long as no Event of Default shall have
occurred and be continuing) all assignable warranties, if any, given by the
Manufacturer and other vendors with respect to the Engine and shall obtain
Manufacturer's consent to such assignment. Lessee will diligently and promptly
pursue any valid claims it may have under such warranties and will provide
notice of the same to Lessor. To the extent that any warranty given by the
Manufacturer or others with respect to the Engine are not assignable or
otherwise made available to Lessee, Lessor agrees, at its option, either (i) to
authorize Lessee to take such action to enforce such warranty in the name of
Lessor as Lessee sees fit or (ii) to exert reasonable efforts at Lessee's
request and expense (and subject to Lessee making adequate provision to the
satisfaction of Lessor with respect to such expense) to enforce any such
warranties for the benefit of Lessee. Effective on the return of the Engine or
the termination of this Lease, whichever is earlier, Lessee hereby assigns any
remaining warranties, and any claims thereunder, to Lessor or its designee. Upon
the exercise by Lessor of any remedies in respect of an Event of Default, and at
the latest, upon expiration of the Lease Term, the benefit of all warranties
referred to herein shall immediately revert and be deemed to have been
reassigned by Lessee to Lessor.
Section 6. MAINTENANCE; REPLACEMENT AND POOLING OF PARTS; ALTERATIONS,
MODIFICATIONS AND ADDITIONS.
a) MAINTENANCE
(i) So long as Lessor has not committed a breach of its covenant of
quiet enjoyment which shall have the effect of depriving Lessee of the use
or possession of the Engine during the Lease Term and until the Engine is
returned to Lessor, Lessee shall, at its sole cost and expense, service,
inspect, test, maintain, overhaul and repair the Engine and all of the
Parts in accordance with the Lessee's FAA approved airworthiness
maintenance and inspection program, a copy of which has been or will be
delivered to Lessor on or prior to the Commencement Date (the "Maintenance
Program") and in conformity with the rules and regulations of the FAA, (A)
so as to keep the Engine in as good condition (operating and otherwise)
and repair as when delivered to Lessee hereunder, ordinary wear and tear
excepted and otherwise so as not to adversely effect the airworthiness
thereof, and (B) in the same manner and with the same care as used by
Lessee with respect to similar engines owned or operated by Lessee (it
being the intention of the parties hereto that Lessee shall not
discriminate against the Engine in respect of any maintenance matters).
Lessee shall be authorized to amend its Maintenance Program; provided,
however, that not withstanding such amendment, the Maintenance Program
shall, at all times during the Term, be in full conformity with the
requirements set forth above and, further provided, that Lessee shall have
obtained Lessor's prior written consent to any material amendment or
change in or to the Maintenance Program. All service, inspection,
maintenance, modification, repair and overhaul shall be performed or
caused to be performed by Lessee in accordance with all applicable FAA
requirements and under the Maintenance Program, and shall be accomplished
in accordance with all applicable service, inspection, maintenance,
modification, repair and overhaul manuals and bulletins published by the
Manufacturer. Without limiting the generality of the foregoing or the
obligations of Lessee hereunder, Lessee agrees that such maintenance and
repairs will include but will not be limited to each of the following:
(A) to perform in accordance with the Maintenance
Program all routine and non-routine maintenance work;
(B) to comply on a terminating basis with all outstanding
mandatory orders, and airworthiness directives issued by the FAA
during the Lease Term affecting the Engine that have an effective
date for compliance prior to, or sooner than one hundred (180) days
after, the return date of the Engine;
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(C) to incorporate in the Engine all mandatory service
bulletins of the Manufacturer and other vendors issued during the
Lease Term which Lessee schedules to incorporate during the Lease
Term on engines in its Boeing 737 fleet; and
(D) to maintain, in the English language (1) the Engine
Documentation and (2) any other records, logs or other documents,
information or materials relating to the service, inspection,
testing, maintenance, modification, overhaul and repair of the
Engine, any Engine and any Part which are required by the FAA or by
applicable law, all of which shall at all times be kept current and
up-to-date, shall conform with the laws of any Government Entity
having jurisdiction and with normal practices of commercial air
carriers, shall disclose the location of the Engine and shall be
made available for review by Lessor on reasonable notice.
(ii) Lessee shall have designated persons in its employment
authorized by the FAA to perform service, inspection, modifications repair
and alterations of the Engine, or shall have the same performed on its
behalf by an FAA approved repair and overhaul station in conformity with
FAR 145 ("Approved Repair Facility"). In the event Lessee has a third
party accomplish, on a continuous basis, some or all of the maintenance
requirements under the Maintenance Program such maintenance by said third
party must be accomplished in accordance with the provisions of this
Section 6(a). Lessor shall be entitled and Lessee shall ensure that Lessor
is permitted to visit the facilities of any such third party maintenance
performer to inspect the maintenance work performed and the maintenance
record of the Engine.
(iii) Any repair to the Engine that is not covered by the
Manufacturer's repair manual instructions shall be subject to Lessor's
prior written approval and shall be made under an FAA approved program.
(b) ENGINE RESERVES
(i) Lessee shall pay Lessor, as a Supplemental Rent for the use of
the Engine during the Lease Term, within fifteen (15) days following the
last day of each calendar month during the Lease Term and on the
redelivery date, with respect to the Engine, the sum (the "Engine
Reserves") of (x) the amount determined by multiplying the number of
Flight Hours of operation of such Engine during the immediately preceding
month by [ ]* Dollars (US$[ ]*) which amount shall be applied toward
restoration shop visits (the "Shop Visit Portion") and (y) the amount
determined by multiplying the number of Cycles of operation of the Engine
during the immediately preceding month by [ ] Dollars (US$[ ]*) which
amount shall be applied toward the cost of life-limited parts (the "LLP
Portion"). It is the intent of the parties hereto that the Engine be
operated during the Lease Term at an average Flight Hour/Cycle ratio (the
"Ratio") of one and seven-tenths Flight Hours to one Cycle 1.7:1. During
any calendar year during the Lease Term, the total Engine Flight Hours for
the Engine recorded in respect of the previous twelve months shall be
compared with the Cycles flown for the Engine and the Ratio computed. The
rate payable by way of maintenance reserve in respect of each complete
Flight Hour (pro rata for part thereof) for the Engine applicable with
respect to the Shop Visit Portion of the Engine Reserves due from Lessee
after such annual Ratio computation and prior to the next annual Ratio
computation shall be as provided in Exhibit E hereof for such Ratio. Any
excess Engine Reserves remaining at the expiration of the Lease Term or
earlier termination of this Lease shall be retained by Lessor.
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(ii) Lessee shall be entitled to reimbursement from the Shop Visit
Portion of the Engine Reserves for Lessee's actual costs (without mark-up)
incurred with respect to restoration shop visits of the Engine, excluding
any costs associated with replacement of life limited parts and the cost
of any repairs or maintenance required due to accidents, abuse, misuse,
mishandling, faulty maintenance, foreign object damage, elective part
replacement or any insured event. Such reimbursement shall be made within
ten (10) Business Days after presentation to Lessor of appropriate written
evidence of such expenses (which shall include a copy of an invoice from
an FAA-approved maintenance facility indicating that the maintenance has
been completed and identifying those engine maintenance tasks accomplished
and the labor and material breakdown thereof, and a receipt from the
maintenance facility for payment of the invoice, or at least such amount
thereof as shall exceed the portion of the Engine Reserves available to
Lessee hereunder); provided, that (A) the amount reimbursed to Lessee
shall not exceed the amount of the Engine Reserves paid by Lessee (and not
previously disbursed) allocable to the Shop Visit Portion of the Engine
Reserves, and (B) in no event shall Lessee be entitled to reimbursement
for any expenses related to removal or installation of the Engine for
maintenance or any other shipping or transportation expenses. To the
extent that any amount reimbursable hereunder has not been paid by Lessee,
such amount shall be paid directly to the maintenance facility which
performed the services for which reimbursement is sought.
(iii) Lessee shall be entitled to reimbursement from the LLP Portion
of the Engine Reserves (i) for the full replacement cost of life limited
parts having a remaining life of up to and including one thousand two
hundred fifty (1250) Cycles. Upon reimbursement of such replacement costs,
Lessee shall deliver the removed life limited parts to Lessor at the
overhaul facility and cause title thereto to vest in Lessor free and clear
of all Liens other than Lessor Liens, and (ii) of such portion of the
replacement cost of life limited parts having a remaining life in excess
of one thousand two hundred fifty (1250) Cycles as corresponds to the
utilized (non-remaining) portion of the life of such life limited parts as
compared to the total life thereof when new, as expressed in Cycles. With
respect to such life limited parts having a remaining life in excess of
one thousand two hundred fifty (1250) Cycles, title to such life limited
parts shall be deemed to vest in Lessee upon installation of replacement
parts on an Engine. Such reimbursement shall be made within ten (10)
Business Days after presentation to Lessor of appropriate written evidence
of such costs (which shall include a copy of an invoice from an
FAA-approved supplier of such life limited parts, identifying those
purchased and receipt of payment therefor or at least payment for such
portion as shall exceed the LLP Portion of the Engine Reserves available
to Lessee hereunder and of the Approved Repair Facility indicating that
such life limited parts have been installed on an Engine; provided, that
(A) the amount reimbursed to Lessee shall not exceed the amount of the
Maintenance Reserves paid by Lessee (and not previously disbursed)
allocable to the LLP Portion of the Engine Reserves and (B) in no event
shall Lessee be entitled to reimbursement for any expenses related to
removal, shipping or transportation expenses. To the extent that any
amount reimbursable hereunder has not been paid by Lessee, such amount
shall be paid directly to the supplier of the life limited part(s) for
which reimbursement is sought.
(c) REPLACEMENT OF PARTS. Lessee, at its own cost and expense, will
promptly replace all Parts that may from time to time be incorporated or
installed in or attached to the Engine and that may from time to time become
worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever. In addition,
Lessee may, at its own cost and expense, remove in the ordinary course of
maintenance, service, repair, overhaul or testing, any Parts, whether or not
worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use; provided that Lessee will, at its own cost
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and expense, replace such Parts as promptly as possible. All replacement Parts
shall be free and clear of all Liens (except Permitted Liens and pooling
arrangements permitted by Section 6(d)) and shall be in as good operating
condition as, and shall have a value and utility at least equal to, the Parts
replaced (assuming such replaced Parts were in the condition and repair required
to be maintained by the terms hereof). All Parts at any time removed from the
Engine shall remain subject to this Lease, no matter where located, until such
time as such Parts shall be replaced by Parts that have been incorporated or
installed in or attached to the Engine and that meet the requirements for
replaced Parts specified above. Immediately upon any replacement Part becoming
incorporated or installed in or attached to the Engine as above provided,
without further act, (i) title to the replaced Part shall there upon vest in
Lessee, free and clear of Lessor's Liens and all rights of Lessor and shall no
longer be deemed a Part hereunder provided, however, that in the case of any
Part that is replaced by a replacement Part subject to a pooling arrangement,
title to such replaced Part shall not vest in Lessee until Lessee has complied
with Section 6(d), (ii) title to such replacement Part shall vest in Lessor and
such replacement Part shall thereupon become subject to this Lease (subject only
to a pooling arrangement to the extent permitted by Section 6(d)) and (iii) such
replacement Part shall be deemed part of the Engine for all purposes hereof to
the same extent as the Parts originally incorporated or installed in or attached
to the Engine.
Notwithstanding the provisions of this Section 6(c), provided that no
Event of Default has occurred and is continuing, Lessee may install any part on
the Engine by way of temporary replacement if: (i) there is not available to
Lessee at the time and in the place that a part is required to be installed on
the Engine, a Replacement Part complying with the requirements of Section 6(c);
(ii) it would result in an unreasonable disruption of the operation of the
Engine and/or the business of Lessee to ground the Engine until a Part complying
with Section 6(c) becomes available for installation on the Engine; and (iii) as
soon as practicable after installation of the same on the Engine but, in any
event, no later than the date of the next restoration shop visit (except as such
time may be extended pursuant to Section 8(a)), Lessee removes any such part and
replaces it with a part complying with Section 6(c).
(d) POOLING OF PARTS. Any part removed from the Engine as provided in
Section 6(c) may be subjected by Lessee to a normal pooling arrangement
customary in the airline industry entered into in the ordinary course of
Lessee's business with financially and operationally responsible air carriers;
provided, that the Part replacing such removed Part shall be incorporated or
installed in or attached to the Engine in accordance with Section 6(c) as
promptly as possible after the removal of such removed Part. In addition, any
replacement Part when incorporated or installed in or attached to the Engine in
accordance with Section 6(c) may be owned by a financially and operationally
responsible air carrier subject to such a normal pooling arrangement; provided
that Lessee, at its expense as promptly thereafter as possible, either (i)
causes such replacement Part to become subject to this Lease in accordance with
Section 6(c) by Lessee acquiring title thereto for the benefit of Lessor free
and clear of all Liens other than Permitted Liens or (ii) replaces such
replacement Part by incorporating or installing in or attaching to the Engine a
further replacement Part owned by Lessee free and clear of all Liens other than
Permitted Liens and by causing such further replacement Part to become subject
hereto in accordance with Section 6(c).
(e) ALTERATIONS, MODIFICATIONS AND ADDITIONS. EXCEPT FOR SUCH ALTERATIONS
AND MODIFICATIONS TO THE ENGINE AS MAY BE REQUIRED FROM TIME TO TIME TO MEET THE
STANDARDS OF THE FAA OR OTHER GOVERNMENTAL ENTITY HAVING JURISDICTION AND AS
REQUIRED TO CONFORM TO MANUFACTURERS' MANDATORY SERVICE BULLETINS, LESSEE SHALL
MAKE NO ALTERATIONS, MODIFICATIONS OR ADDITIONS TO THE ENGINE WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR. Lessee, at its own expense, will make such
alterations and modifications to the Engine as may be required from time to time
to meet the standards of the FAA or other Governmental Entity having
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jurisdiction and as required to conform to Manufacturers' mandatory service
bulletins, and shall notify Lessor of the nature and schedule for making such
changes and, upon submission of the Monthly Report for the month during which
completion of the same shall have occurred, of completion thereof. Unless
expressly required by the FAA or Manufacturer's mandatory service bulletins, no
alteration, modification or addition shall diminish the value or utility of the
Engine, or impair the condition or airworthiness thereof, below the value,
utility, condition and airworthiness thereof immediately prior to such
alteration, modification or addition (assuming the Engine was then of the value
or utility and in the condition and airworthiness required to be maintained by
the terms of this Lease). All parts incorporated or installed in or attached or
added to the Engine as the result of such alteration, modification or addition
shall, without further act, become subject to this Lease. Notwithstanding the
foregoing sentence of this Section 6(e), so long as no Default or Event of
Default shall have occurred and be continuing, Lessee may remove any Part;
provided that (i) such Part is in addition to, and not in replacement of or
substitution for, any Part originally incorporated or installed in or attached
to the Engine at the time of delivery thereof hereunder or any Part in
replacement of, or substitution for any such Part, (ii) such Part is not
required to be incorporated or installed in or attached or added to the Engine
pursuant to the terms of this Section 6(e) and (iii) such Part can be removed
from the Engine without diminishing or impairing the value, utility, condition
or airworthiness required to be maintained by the terms of this Lease that the
Engine would have had at such time had such removal not occurred. Upon the
removal by Lessee of any Part as above provided, title thereto shall, without
further act, vest in Lessee and such Part shall no longer be deemed part of the
Engine from which it was removed. Any Part removed by Lessee in any manner other
than as above provided prior to the return of the Engine to Lessor hereunder
shall remain the property of Lessor.
Section 7. TITLE AND REGISTRATION; LIENS; POSSESSION.
(a) TITLE. Lessee acknowledges and agrees that as between Lessor and
Lessee title to the Engine shall at all times be and remain solely and
exclusively vested in Lessor, and Lessee shall have no right, title or interest
in the Engine except the right to use the Engine as provided herein. Lessee
shall from time to time do or cause to be done all acts and things then required
by law or by practice, custom or understanding or as Lessor may reasonably
request to protect, preserve and perfect Lessor's rights, title and interest in
the Engine and this Agreement in such other jurisdictions where Lessee may
operate the Engine or to the laws of which Lessee or the Engine is or may become
subject.
(b) LIENS. Lessee will not directly or indirectly create, incur, assume or
suffer to exist any Lien on or with respect to the Engine, title thereto or any
Part or interest therein or in this Lease except (i) the respective rights of
Lessor and Lessee as herein provided, (ii) the rights of others under agreements
or arrangements to the extent expressly permitted by the terms of Section 6(d),
(iii) Lessor Liens, (iv) Liens for Taxes either not yet due or being contested
in good faith (and, in respect of such contest, for the payment of which
adequate reserves have been provided) by appropriate proceedings diligently
pursued so long as such proceedings do not involve any danger of the sale,
forfeiture or loss of the Engine or any Part or interest therein and (v)
materialmen's, mechanics', workmen's, repairmen's, employees' or other like
Liens arising in the ordinary course of business for amounts the payment of
which is either not yet delinquent or is being contested in good faith (and, in
respect of such contest, for the payment of which adequate reserves or other
adequate provisions for payment by way of security or otherwise have been
provided) by appropriate proceedings diligently pursued so long as such
proceedings do not involve any danger of the sale, forfeiture or loss of the
Engine or any Part or interest therein (each of the Liens referred to in clauses
(i) to (v) being herein referred to as "Permitted Liens"). Lessee will, at its
own expense, take such action as may be necessary duly to discharge any such
Lien not excepted above if the same shall arise at any time. Lessee hereby
further agrees that no mechanics' or similar Lien for any labor, services or
materials supplied directly by Lessee shall attach to or otherwise affect the
Engine or any Part and Lessee hereby irrevocably waives disclaims and releases
any such Lien.
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(c) OPERATION. Lessee shall not operate or locate the Engine, or suffer
the Engine to be operated or located, (i) in violation of any applicable law,
(ii) in any area excluded from coverage by any insurance required by the terms
of Section 9, except in the case of a requisition by a Government Entity of the
United States where Lessee obtains indemnity in lieu of such insurance from such
Government Entity against the risks and in the amounts required by Section 9
covering such areas or (iii) in any recognized or threatened area of hostility
without Lessor's written consent and unless fully covered to Lessor's
satisfaction by war risk, confiscation and hijacking insurance, or unless the
Engine is operated or used under contract with a Government Entity of the United
States under which contract such Government Entity assumes direct liability to
Lessor for any damage, loss, destruction or failure to return possession of the
Engine at the end of the term of such contract and for injury to Persons or
damage to property of others. Except as otherwise provided herein, Lessee shall
not install or permit the Engine to be installed on any airframe not owned or
leased by Lessee or on any airframe owned or leased by Lessee unless and for so
long as no Lien will attach to the Engine by virtue or otherwise as a result of
such installation, without Lessor's prior written consent. Provided no Default
or Event of Default shall occur and be continuing, Lessor shall not take or
cause or permit to be taken any action inconsistent with Lessee's right of quiet
enjoyment of, or otherwise in any way interfere with or interrupt the continuing
use, operation and possession of the Engine by Lessee.
(d) POSSESSION. Except as otherwise provided in this Section 7(d), Lessee
shall have no right to sublease the Engine to any Person without having obtained
the prior written consent of Lessor, which shall not be unreasonably withheld.
In addition, Lessee will not in any manner without Lessor's prior written
consent deliver, transfer or relinquish possession of the Engine; provided,
that, so long as no Default or Event of Default is continuing, and so long as
the action to be taken shall not deprive Lessor of its interest in the Engine,
Lessee may, from time to time, take any of the following actions:
(i) deliver possession of the Engine to the Manufacturer or to any
organization for testing, service, repair, maintenance or overhaul work or
for alterations or modifications in or additions to the Engine to the
extent required or permitted by the terms of Section 6(e).
(ii) install the Engine on any airframe owned or leased by Lessee;
provided that, no Lien shall attach to any such Engine by virtue of or in
connection with such installation, and the owner, lessor, or any party
having a security interest in any such airframe grants reciprocal rights
to Lessor; and further provided that, Lessee shall maintain any and all
insurance required to be maintained upon or in respect of the Engine
hereunder at all times during the Lease Term and until redelivery of the
same in the condition required in Section 10 hereof.
(iii) transfer possession of the Engine to any Government Entity of
the United States pursuant to a sublease, a copy of which shall be
promptly furnished to Lessor, provided that such sublease shall (A) not
extend beyond the end of the Lease Term and (B) Lessee shall have
delivered to Lessor signed copies of a notice of assignment of such
sublease in favor of Lessor under the Assignment of Claims Act of 1940, as
amended (31 U.S.C. Section 3727, 41 U.S.C. Section 15) or any superseding
or successor provisions thereto, and in compliance with the applicable
provisions of 32 C.F.R. Section 7-103 and 41 C.F.R. Section 1-30.7, or
superseding or successor laws and regulations, and Lessor may at any time
when a Default or Event of Default shall have occurred and then be
continuing, file such sublease and an original and three copies of such
notice of assignment with the proper contracting and disbursing officers
and otherwise comply with all applicable provisions of 32 C.F.R. Section
7-103.8 or any superseding or successor provisions thereto; or
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(iv) with Lessor's prior written consent, which consent shall not be
unreasonably withheld, Sublease the Engine, for a term (including all
extensions and renewals) which shall not extend beyond the end of the
Lease Term, to any United States air carrier certificated under Section
41101 of the Federal Aviation or any foreign air carrier certificated
under Section 41302 of the Federal Aviation Act. If Lessee is unable to
obtain possession of the Aircraft within thirty (30) days after such
sublease shall have been declared to be in default, free and clear of all
Liens other than Lessor Liens, or the Engine shall be deemed to have been
subject to an Event of Loss, the same shall be deemed to constitute an
Event of Loss hereunder.
Lessee shall give at least ten (10) days' prior written notice to
the Lessor of any proposed sublease under clause (iv) of this Section 7(d)
and shall provide Lessor with a copy of the proposed Sublease Agreement
and other proposed documents to be executed in connection with such
sublease. Such notice shall specify the sublessee, term of such sublease
and the domicile of the sublessee. Such notice shall also confirm that the
proposed sublease (a) requires the return of the Engine to Lessee in the
United States promptly (but in no case more than five (5) days after the
expiration of the term of the sublease and in no event later than the
expiration of the Lease Term, (B) in the case of a proposed sublease to an
air carrier other than a U.S. certificated air carrier, contains an
express waiver by such sublease of the defense of sovereign immunity (x)
in any suit, act in or proceeding arising out of or relating to such
sublease and (y) of such sublessee's property from execution or
attachment, and (C) provides that is shall terminate immediately if
insurance shall not be maintained at all times in accordance with this
Lease.
Any sublease permitted under this Section 7(d) shall (a) include terms
substantially similar to those contained in Section 12 and appropriate
provisions:
(1) requiring maintenance, insurance and operation of the
Engine to be in accordance with the relevant provisions of this
Sublease,
(2) requiring the sublessee to keep the Engine free and clear
of Liens other than Permitted Liens, and
(3) prohibiting further transfer of the Engine to or
possession thereof by any third Person (except for temporary
possession thereof to an authorized maintenance performer for
purposes of performing maintenance, testing or repairs);
(b) expressly prohibit any further sublease of the Engine by such sublessee; and
(c) be made expressly subject and subordinate to all the terms of this Lease
including, without limitation, the covenants contained in this Section 7 and
Lessor's rights to repossession pursuant to Section 14 and to avoid such
sublease upon a default thereunder or an Event of Default hereunder.
In connection with any sublease to an air carrier other than a U.S.
certificated air carrier pursuant to clause (iv) of this Section 7(d), Lessee
shall obtain, as a condition to the delivery to the proposed sublessee of the
Engine, an opinion from reputable counsel in the country of such sublessee's
domicile (or, if Lessee determined during the term of the sublease that the
Engine will be based or primarily used in a country other than the country of
such sublessee's domicile, an additional opinion or opinions of reputable
counsel in such other country) to the effect that Lessor's interest in the
Engine will be recognized, the proposed sublease is valid, binding and (except
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as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' or lessors' rights generally) enforceable
against such sublessee, under the laws of such country or countries
(notwithstanding any claim or defense by sublessee or any other Person of
sovereign immunity), copies of such opinion or opinions (x) to be forwarded
promptly to Lessor, (y) may, if different opinions are required hereunder, be
made by a single counsel qualified to render opinions in each such country and
(z) to be in form and substance reasonably satisfactory to Lessee and Lessor.
No transfer or relinquishment of possession of the Engine permitted under
this Section 7(d) shall in any way discharge or diminish any of Lessee's
obligations hereunder, or constitute a waiver of any of Lessor's rights and
remedies hereunder. Notwithstanding any transfer or relinquishment of possession
permitted under this Section 7(d), Lessee shall remain primarily liable
hereunder for the performance of all of the terms of this Lease to the same
extent as if any such transfer or relinquishment of possession had not occurred.
(e) IDENTIFICATION PLATE. Lessee shall maintain on the Engine the
identification plate installed thereon by Lessor. Lessee shall promptly replace
any such nameplate that becomes illegible, lost, damaged or destroyed for any
reason.
(f) REPORTING REQUIREMENTS. Commencing with a report furnished fifteen
(15) days after the end of the calendar month of the Commencement Date, Lessee
will furnish to Lessor a Monthly Report in the form attached hereto as Exhibit
D.
(g) INSPECTIONS. During the Lease Term, Lessee shall furnish Lessor such
information concerning the location, condition, use and operation of the Engine
as Lessor may reasonably request. Lessee shall give Lessor reasonable prior
notice of the anticipated date of any shop visits, in order to enable Lessor to
inspect the Engine (should it choose to do so) at the time and place such shop
visits occur. Lessor shall be entitled to have its technical representatives
present during any shop visits. On reasonable notice, Lessor and/or its
authorized agents or representatives shall have the right to inspect the Engine
and Engine documentation (whether in connection with shop visits or otherwise)
and/or make copies of the Engine documentation; provided, that such inspections
do not unreasonably disrupt Lessee's use and operation of the Engine. Lessor
shall have no duty to make any such inspection and shall not incur any liability
or obligation by reason of making or not making any such inspection or by reason
of any reports it receives or any reviews it may make of the Engine records.
Section 8. LOSS, DESTRUCTION, REQUISITION, ETC.
(a) EVENT OF LOSS. Except as otherwise set forth herein, during the Lease
Term, Lessee shall bear the entire risk of loss of or damage to the Engine. Upon
the occurrence of an Event of Loss with respect to the Engine, Lessee shall give
Lessor prompt written notice thereof and shall, as soon as practical but in any
event within one hundred twenty (120) days after the occurrence of such Event of
Loss, at Lessee's option either (A) convey or cause to be conveyed to Lessor, as
replacement for the Engine, title to a Replacement Engine free and clear of all
Liens, other than Permitted Liens, and having a value, utility, mod status at
least equal to, and of the same or improved model, service bulletin status, and
maintenance status (i.e. total time, hours/cycles remaining until next
inspection, overhaul or scheduled removal) and in at least as good operating
condition as the Engine, assuming the Engine was of the value, utility and
remaining life and in the condition and repair required by the terms hereof
immediately prior to the occurrence of such Event of Loss. Prior to or at the
time of any such conveyance, Lessee, at its own expense, will promptly (i)
furnish Lessor with a bill of sale, in form and substance satisfactory to
Lessor, with respect to such Replacement Engine; (ii) cause a supplement hereto,
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in form and substance reasonably satisfactory to Lessor, subjecting such
Replacement Engine to this Lease, to be duly executed by Lessee, and recorded
pursuant to the Federal Aviation Act; (iii) furnish Lessor, with such evidence
of title to such Replacement Engine and of compliance with the insurance
provisions of Section 9 with respect to such Replacement Engine as Lessor may
reasonably request; (iv) furnish Lessor with an opinion of Lessee's counsel to
the effect that title to such Replacement Engine has been duly conveyed to
Lessor free and clear of all Liens, encumbrances and rights of others (except
Permitted Liens) and is duly leased hereunder; (v) furnish Lessor with a
certificate signed by a duly authorized financial officer or executive of Lessee
certifying that Lessee's representations and warranties set forth in Section 11
are true and accurate on and as of said date as though made on and as of said
date and that upon consummation of such replacement, no Default or Event of
Default will exist hereunder; (vi) furnish Lessor with such documents and
evidence with respect to Lessee as Lessor may reasonably request in order to
establish the consummation of the transactions contemplated by this Section
8(a), the taking of all corporate proceedings in connection therewith and
compliance with the conditions set forth in this Section 8(a), in each case in
form and substance satisfactory to Lessor; (vii) furnish Lessor with a
certificate of a duly authorized officer of Lessee to the effect that no Event
of Default has occurred and is continuing; and (viii) furnish Lessor with
Uniform Commercial Code financing statements covering such Replacement Engine,
or (B) pay to Lessor in immediately available funds the Engine Loss Value,
whereupon this Lease shall terminate, Lessee shall be relieved of all further
obligations hereunder except such as are expressly stated to survive the
termination of this Lease and Lessor shall return the Security Deposit to Lessee
as provided in Section 3. Upon full compliance by Lessee with the terms of this
subparagraph (a), the Engine shall no longer be subject to the terms of this
Lease and Lessor will cause Lessor to transfer to Lessee title to the Engine,
without recourse or warranty (except that the Engine is free and clear of Lessor
Liens).
(b) APPLICATION OF PAYMENTS FROM GOVERNMENTAL AUTHORITIES. Any payments
(other than insurance proceeds the application of which is provided for in
Section 9) received at any time by Lessor or Lessee from any Government Entity
or other Person with respect to an Event of Loss resulting from the
condemnation, confiscation, theft or seizure of, or requisition of title to or
use of, the Engine, other than a requisition for use by a Government Entity of
the United States not constituting an Event of Loss, will be applied as follows:
such payments shall be held by the Lessor until (A) replacement of the Engine by
Lessee by a Replacement Engine at which time said payments shall be paid to
Lessee; (B) if Lessee shall have elected not to provide a Replacement Engine as
provided in Section 8(a) said payments shall be applied in reduction of Lessee's
obligation to pay the Engine Loss Value, if not already paid by Lessee; or if
already paid by Lessee, shall be paid to Lessee and applied to reimburse Lessee
for its payment of such Engine Loss Value; and, (C) the balance, if any, of such
payment remaining thereafter to Lessee.
(c) REQUISITION FOR USE OF THE ENGINE. In the event of the requisition of
the Engine for use by a Government Entity of the United States during the Term
under circumstances not constituting an Event of Loss, Lessee shall notify
Lessor of such requisition and all of Lessee's obligations including the
obligation to pay Rent, shall continue to the same extent as if such requisition
had not occurred. Provided that no Event of Default has occurred and is
continuing, all payments received by Lessor or Lessee from such Government
Entity for the use of the Engine shall be paid over to, or retained by, Lessee.
All amounts received by Lessor during the continuance of an Event of Default
shall be held by Lessor as security for and may be applied to the obligations of
Lessee under this Lease and, at such time as there shall not be continuing an
Event of Default, such amounts not previously applied shall be paid to Lessee.
(d) QUIET ENJOYMENT. Notwithstanding the provisions of this Section 8, if
(i) Lessee has been deprived of both use and possession of the Engine thereof
solely as a result of the breach by Lessor of its covenant of quiet enjoyment
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set forth herein and (ii) Lessee shall have provided Lessor written notice to
the effect that Lessee has been deprived of such use and possession and that
Lessee intends to cancel its insurance with respect to the Engine on a date
specified in such notice (which date shall not be earlier than thirty (30) days
after the date of Lessor's receipt of such notice), then, from and after the
date so specified, but only during the period that Lessee shall continue to be
deprived of both use and possession of the Engine (the "Suspension Period"), (A)
Lessor shall bear the entire risk of loss or damage thereof (other than loss or
damage caused by an act or omission of Lessee during the Suspension Period), and
(B) Lessee shall be relieved of its obligation to maintain insurance, as set
forth in Section 9 hereof, with respect thereto. In the event of an Event of
Loss of the Engine during any such period, the Lease shall terminate and, upon
such termination (i) the Engine shall be deemed to have been redelivered to
Lessor in the condition required as of the date on which such deprivation of use
or possession first occurred, (ii) Lessee shall be relieved of all further
obligations hereunder except such as are expressly stated to survive the
termination of this Lease and (iii) Lessor shall return the Security Deposit to
Lessee as provided in Section 3.
Section 9. INSURANCE. Except as otherwise set forth in Section 8(d) hereof
in respect of any Suspension Period, Lessee, at its sole cost and expense, shall
maintain or cause to be maintained throughout the Lease Term and until the
return of the Engine to Lessor in such condition as is required under Section 10
hereof with insurers of recognized responsibility and good repute and under
policies reasonably satisfactory to Lessor all such insurance as is required to
be procured and maintained pursuant to this Section 9. Such insurance shall
include:
(a) LIABILITY. Lessee, at its sole cost and expense, shall maintain or
cause to be maintained throughout the Term and until the return of the Engine to
Lessor in such condition as is required under Section 10 hereof, public
liability (including, without limitation, aircraft third-party, baggage, cargo,
contractual and passenger legal liability including war risks), property damage
liability insurance with respect to any aircraft on which the Engine is
installed and general airline third party legal liability (including products
liability insurance) with insurers of recognized responsibility and good repute
specializing in aviation insurance in the leading international markets, in form
and in amounts satisfactory to Lessor at least equal to the greater of (a) [ ]*
Dollars (US$[ ]*) per occurrence subject to no deductible except deductibles as
to baggage and cargo that are standard in the airline industry in respect of
carriers operating in the countries in which Lessee operates and (b) the amount
of such insurance carried by Lessee applicable to other aircraft of similar type
in Lessee's fleet.
(b) PROPERTY DAMAGE INSURANCE. Lessee, at its own expense, shall maintain
or cause to be maintained throughout the Lease Term all-risk (including, without
limitation, fire, transit and extended coverage) insurance and war-risk
insurance (to the extent available), with respect to the Engine, whether or not
installed on an airframe in an amount not less than the Engine Loss Value; and
such other insurance with respect to the Engine as is carried by Lessee in
respect of other engines of similar make and model in its fleet.
Notwithstanding anything in the foregoing or in the Lease to the contrary,
no property damage policies shall have a deductible in excess of $[ ]*.
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(c) TERMS OF INSURANCE
(i) Any policies carried in accordance with Section 9(a) hereof
covering the Engine and any policies taken out in substitution or
replacement for any such policies shall:
(A) insure the interests of each Indemnitee (the "Additional
Insureds") and provide that none of the Additional Insureds bear
liability for the payment of premiums;
(B) provide that if there is any material adverse alteration
or cancellation (whether by Lessee or any other Person and for
whatever reason) of the insurance, such alteration or cancellation
shall not be effective as to any Additional Insured for thirty (30)
days (with respect to war risk insurance seven (7) days or the
maximum short or longer period available in the market) after notice
is given by the underwriters of the insurance;
(C) provide that in respect of the interest of Lessor and each
other Additional Insured in such policies, such insurance shall not
be invalidated by any action or inaction of Lessee or any other
Person and shall insure Lessor's and the Additional Insureds'
interests, regardless of any breach or violation by Lessee or any
other Person of any warranties, declarations or conditions contained
in such policies;
(D) contain a waiver by the insurers of (x) all rights of
subrogation against any Additional Insured and (y) any rights of
set-off, counterclaim or any other deduction, whether by attachment
or otherwise, which they may have against any Additional Insured;
(E) shall be primary and without right of contribution from
any of the Additional Insureds; and
(ii) Any policies carried in accordance with Section 9(b) covering
the Engine and any policies taken out in substitution or replacement for
any such policies shall:
(A) insure the interests of, and name as additional insureds,
each Additional Insured and provide that the Additional Insureds
shall bear no liability for the payment of premiums;
(B) be made payable in the United States to the extent of the
Engine Loss Value to KGAL as sole "loss payee" (except that proceeds
with respect to loss or damage of less than $[ ]* shall be payable
to Lessee subject to the last sentence of Section 9(d));
(C) provide that if there is any material adverse alteration
or cancellation (whether by Lessee or any other Person and for
whatever reason) of the insurance, such alteration or cancellation
shall not be effective as to the Additional Insureds for thirty (30)
days (with respect to war risk insurance seven (7) days or the
maximum shorter or longer period customarily available in the
market) after notice is given by the underwriters of the insurance;
(D) provide that in respect of the interest of Lessor and each
other Additional Insured in such policies, such insurance shall not
be invalidated by any action or inaction of Lessee or any other
Person and shall insure Lessor's and the Additional Insureds'
interests, regardless of any breach or violation by Lessee or any
other Person of any warranties, declarations or conditions contained
in such policies; and
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(iii) All amounts payable under policies carried in accordance with
this Section 9 shall be paid in immediately available Dollars in the
United States. In the case of a lease or contract with the United States
or any Government Entity thereof in respect of the Engine, a valid
agreement duly assigned to Lessor to indemnify Lessee against the same
risks that Lessee is required under Section 9 to insure against by the
United States or such Government Entity in an amount at least equal to the
Engine Loss Value shall be considered adequate insurance with respect to
the Engine to the extent of the risks and in the amounts that are the
subject of any such agreement to indemnify.
(iv) All insurance maintained pursuant to this Section 9 shall be
(A) maintained with recognized aircraft and aviation insurance companies
in the United States or international markets that normally participate in
aviation insurance or (B) supported by 99% reinsurance issued by
recognized aircraft and aviation insurance companies in the international
markets that normally participate in aviation insurance. Any such
reinsurance shall be with insurers, in form and in amounts reasonably
satisfactory to Lessor and shall be subject to "cut through" endorsements
or other endorsements or agreements satisfactory in form and substance to
Lessor which shall provide that all payments under such reinsurance in
respect of losses shall be paid (x) in the case of insurance maintained
pursuant to Section 9(a) hereof, to the applicable Additional Insured or
(y) in the case of insurance maintained pursuant to Section 9(b) hereof,
to KGAL as sole "loss payee" (except as provided in Section 9(c)(ii)(B))
and not to any such primary insurance company.
(d) APPLICATION OF INSURANCE. All insurance or indemnity payments received
as the result of an Event of Loss with respect to the Engine will be applied as
follows: such payments shall be held by the insurer until (A) replacement of the
Engine by Lessee by a Replacement Engine at which time said payments shall be
paid to Lessee; (B) if Lessee shall have elected not to provide a Replacement
Engine as provided in Section 8(a) said payments shall be paid to Lessor to be
applied in reduction of Lessee's obligation to pay the Engine Loss Value, if not
already paid by Lessee, or if already paid by Lessee, shall be paid to Lessee
and applied to reimburse Lessee for its payment of such Engine Loss Value; and
(C) the balance of such payment, if any, to Lessee. The insurance payments with
respect to any property damage or loss not constituting an Event of Loss with
respect to the Engine will be paid to Lessor and applied by Lessor in payment
(or to reimburse Lessee) for repairs to or replacement of property in accordance
with the terms of Section 6(c) against evidence satisfactory to Lessor that such
repairs and replacement have been made, or to Lessee if such repairs or
replacement have already been paid for by Lessee, to reimburse Lessee therefor,
and any balance remaining after compliance with such Section with respect to
such loss shall be paid to Lessee.
Any amount referred to in this Section 9(d) that is payable to Lessee shall not
be paid to Lessee if at the time of such payment an Event of Default or Default
shall have occurred and be continuing, but shall be held by Lessor as security
for and may be applied to the obligations of Lessee under this Lease and, at
such time as there shall not be continuing any such Default or Event of Default,
such amount not previously so applied shall be paid to Lessee.
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(e) REPORTS. On or before the Commencement Date, Lessee will arrange for
appropriate certification of the insurance required hereunder to be made by
Lessee's independent aviation insurance broker and furnish or cause to be
furnished to Lessor a report signed by such firm stating the opinion of such
firm that the insurance then carried and maintained on the Engine complies with
the terms hereof. Lessee will cause such firm to advise Lessor and each other
Additional Insured in writing promptly of any default in the payment of any
premium, of any other act or omission on the part of Lessee of which such firm
has knowledge that might invalidate or render unenforceable, in whole or in
part, any insurance on the Engine and of each claim made by Lessee in respect of
the Engine. Prior to the expiration or on or prior to the termination date of
any insurance required hereunder, Lessee will provide Lessor with telex or fax
confirmation from Lessee's independent aviation insurance broker that renewed
certificates of insurance evidencing the renewal or replacement of such
insurance and complying with the provisions of this Lease will be issued on the
termination date of the prior certificate. Within seven (7) days after such
renewal, Lessee will furnish brokers' certificates of insurance to Lessor.
(f) FAILURE TO INSURE. In the event that Lessee shall fail to maintain or
cause to be maintained insurance as herein provided, Lessor may, at its option,
but without liability to Lessee for failure to do so, provide such insurance
and, in such event, Lessee shall, upon written demand, reimburse Lessor for the
cost thereof as Supplemental Rent. At any time while such failure is continuing,
Lessor may require the Engine to remain at any airport until such failure is
remedied to Lessor's satisfaction.
(g) ADDITIONAL INSURANCE. Nothing contained in this Lease shall prevent
Lessor or Lessee, each at its own expense and for its exclusive benefit, from
carrying insurance covering the Engine in addition to the insurance required
under this Section 9 (any such additional insurance, "Additional Insurance");
provided that such Additional Insurance shall be excess and noncontributory and
shall not adversely affect coverages under such insurance policies as are
required hereunder. The insurance payments for any property damage loss covered
by Additional Insurance shall be paid directly to the party carrying such
Additional Insurance.
(h) NOTICE OF CLAIMS. Lessee shall give Lessor notice in writing of any
claim or request for payment of an amount in excess of $[ ]* under any physical
damage insurance policy required to be maintained hereunder promptly (but in any
event within five (5) days) of the filing of such claim or request for payment.
Section 10. RETURN OF ENGINE. The provisions of this Section 10 shall
apply to any return of the Engine to Lessor upon termination of this Lease
(including, without limitation, such return resulting from an Event of Default);
provided, that if this Lease is terminated pursuant to Section 14 and the Engine
is repossessed by Lessor, any action that is required to be taken by Lessee
pursuant to this Section 10 prior to the return of the Engine shall be taken
immediately after the return of such Engine.
(a) REDELIVERY UPON TERMINATION. On the date of termination of this Lease
(except as otherwise provided pursuant to Section 8(d)) hereof, Lessee shall at
its sole cost and expense, return the Engine to Lessor, at the Lessee's
facilities in Colorado Springs, Colorado [or at those of its FAA approved
maintenance provider performing the pre-redelivery "C" check] (provided that if
this Lease shall be terminated as a result of a default by Lessee under the
Lease the Engine shall be returned to a point in the United States reasonably
requested by Lessor). At the time of return of the Engine to Lessor, Lessor and
Lessee shall execute a Return Acceptance Receipt in the form of Exhibit C
hereto.
(b) CONDITION OF ENGINE. (i) The Engine at the time of return to Lessor
shall have been maintained on an "on-condition" program.
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(ii) Each Engine shall have no more cycles or hours since the last
shop visit for full performance restoration, as described in the CFM
International, Inc. workscope definitions, than such Engine had when
delivered.
(iii) Lessee shall perform a full and complete video borescope on
each Engine and its modules in accordance with the Engine manufacturer's
maintenance manual, with Lessor or its representatives entitled to be
present. Lessee will provide evidence to Lessor's satisfaction that such
inspection does not reveal any condition which would cause the Engine or
any module to be unserviceable, beyond serviceable limits, or serviceable
with limitations under the Engine manufacturer's maintenance manual.
Lessee will correct any discrepancies (which may be discovered during such
inspection) in accordance with the guidelines set out by the Engine
manufacturer.
(iv) The Engine shall have an exhaust gas temperature margin
remaining of 15 degrees or higher and shall, at a minimum, meet all the
requirements of the maximum power assurance run criteria for CFM 56-3B2
engines.
(c) CONDITION OF CONTROLLED COMPONENTS. Each life-limited part or
component and hour and/or cycle controlled components of the Engine at the time
of redelivery of the Engine to Lessor shall have remaining at least 3,000 hours
and/or 3,000 cycles, whichever is more limiting, between scheduled removals for
overhaul, testing, or disassembly. All components controlled on a calendar basis
shall have remaining at least 12 months before scheduled removal for testing or
overhaul. Such hour/cycle or calendar controlled components are defined as those
components controlled under the Maintenance Program. However, if the component
or part has a check interval limit that is less than the above stated hours,
cycles or calendar time limit requirement, the check interval limit shall
prevail.
(d) ENGINE DOCUMENTATION. Lessee shall return to Lessor at the time the
Engine is returned to Lessor, all of the Engine records documents, manuals and
data provided to Lessee by Lessor prior to, on or after the Delivery Date,
updated and maintained by Lessee through the date of return of the Engine. In
addition, Lessee shall also provide Lessor at the time the Engine is returned to
Lessor with all records, documents, manuals authorizations, drawings and data,
in each case in the English language, that were developed or caused to be
developed by Lessee and/or required by the appropriate governmental agency
having jurisdiction updated and maintained by Lessee for the Engine through the
date of return of the Engine. Any such Engine Documentation not already owned by
Lessor, when delivered to Lessor pursuant to this Section 10(l), shall thereupon
become the property of Lessor. In the event Lessor requires copies of any of
such Engine Documentation prior to the return of the Engine to Lessor to enable
Lessor to plan or accomplish modifications, recertification, sale, lease or
other disposition of or utilization of the Engine upon such return, Lessee
shall, immediately upon receipt of each such Lessor request, provide to Lessor a
reasonable number of copies of such Engine Documentation requested by Lessor at
Lessor's sole cost and expense.
(e) SERVICE BULLETIN KITS. All vendor and manufacturer provided mandatory
service bulletin kits ordered and received by Lessee for the Engine but not
installed therein shall be returned with the Engine. Title to such kits shall
pass to Lessor concurrently with the delivery of the Engine to Lessor.
(f) NON-U.S. MANUFACTURED ITEMS. Lessee shall provide to Lessor at the
time of the return of the Engine a complete list, describing by Part number and
name, of all non-United States manufactured equipment, components and parts, if
any, installed on the Engine by Lessee during the Lease Term. Such list shall
include quantity, the acquisition price and the manufacturer's name and country
in respect of each such item.
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(g) LESSEE'S CONTINUING OBLIGATIONS. In the event that Lessee does not
return the Engine to Lessor upon termination of this Lease (including, without
limitation, any termination resulting from an Event of Default by Lessee) and in
the condition required herein for any reason, the obligations of Lessee under
this Lease shall continue; provided, however, that such failure to return the
Engine to Lessor in such condition shall not be the result of a breach by Lessor
of its covenant of quiet enjoyment which has resulted in Lessee having been
deprived of use and possession of the Engine immediately prior to such
termination, in which case the Engine shall be returned in its then condition
provided that, immediately prior to such breach by Lessor of its covenant of
quiet enjoyment such Engine shall have been in such condition as to meet the
requirements of Section 8 hereof but for such breach. Such continuation of
Lessee's obligations shall not be considered a renewal of the terms of this
Lease or of Lessee's rights to use the Engine, an extension of the Lease Term or
a waiver of any Default or Event of Default or any right of Lessor hereunder.
Until such time as the Engine is redelivered to Lessor as required herein,
Lessee agrees, during the first thirty (30) days following the termination
hereof, to pay Basic Rent with interest at the Post-Default Rate and thereafter
to pay twice the amount of Basic Rent for each day from such thirtieth (30th)
day after the termination hereof until redelivery of the Engine in the condition
required hereunder (the monthly Basic Rent payable being prorated based on the
actual number of days in the applicable month).
Section 11. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.
Lessee represents and warrants to, and covenants with Lessor as follows:
(a) Lessee (i) has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, (ii) has
full corporate power and authority and legal right to own its properties and to
carry on its business as presently conducted and to perform its obligations
under this Lease, (iii) is the holder of an air carrier certificate duly issued
pursuant to the Federal Aviation Act and such certificate is in full force and
effect, and (iv) holds all material licenses, certificates and permits from all
Government Entities of the United States and other jurisdictions necessary for
the conduct of its business as now conducted and for the operation of the
Engine.
(b) The execution, delivery and performance of this Lease has been duly
authorized by all necessary corporate action of Lessee, and does not and will
not (i) result in the violation of the provisions of the charter documents or
bylaws of Lessee as in effect on the date hereof, (ii) require stockholder
approval or approval or consent of any trustee or holders of any indebtedness of
Lessee, except such approvals which have been obtained and are in full force and
effect, (iii) contravene any law, rule or regulation or any order of any
Government Entity binding on Lessee, and (iv) conflict with or result in a
breach of any terms or provisions of or constitute a default under, or result in
or require the creation or imposition of any Lien upon any material property or
assets of Lessee under, any material indenture, mortgage or other agreement or
instrument as in effect on the date hereof to which Lessee is a party or by
which it or any of its property is bound, or any applicable law, rule or
regulation, judgment, order or decree of any Government Entity or court having
jurisdiction over Lessee or any of its properties.
(c) No authorization, approval, consent, license or order of, or
registration with, or the giving of notice to, or the taking of any other action
in respect of, any Government Entity is required for the valid authorization,
execution, delivery and performance by Lessee of this Lease or the consummation
of any of the transactions contemplated hereby.
(d) Except for (i) the filing and recording pursuant to the Federal
Aviation Act of this Lease, (ii) the filing of duly executed financing
statements naming Lessee as debtor and Lessor as secured party (and continuation
statements with respect to such financing statements) with the Secretary of
State of the State of Colorado and (iii) the retention by Lessor of the original
counterpart of the Lease to the extent, if any, that the Lease constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no further action, including any filing
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or recording of any document (including any financing statement in respect
thereof under Article 9 of the Uniform Commercial Code of any applicable
jurisdiction), is necessary in order to establish and perfect Lessor's title to
the Engine against Lessee and any third parties in any applicable jurisdictions
in the United States.
(e) This Lease constitutes the legal, valid and binding obligation of
Lessee, enforceable against Lessee in accordance with its terms except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting 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 at law or in equity) as a court having jurisdiction
may impose.
(f) There are no suits or proceedings pending or, to Lessee's knowledge,
threatened in any court or before any Government Entity against or affecting
Lessee that would, if adversely determined, (i) prevent or adversely affect
Lessee's ability to perform its obligations under this Lease or (ii) materially
adversely affect the financial condition or operations of Lessee and its
consolidated subsidiaries, taken as a whole.
(g) The chief executive office (as such term is used in Article 9 of the
Uniform Commercial Code) of Lessee and the office where Lessee will keep its
corporate records concerning the Engine is located in El Paso County, Colorado.
Lessee will notify Lessor thirty (30) days in advance of moving either such
office to another location.
(h) There is no Tax, levy, impost, deduction, charge or withholding
imposed by the State of Colorado or any Taxing Authority thereof or therein
either (i) on or by virtue of the execution or delivery of this Lease or (ii) on
any payment made or to be made by Lessee under this Lease.
(i) The obligations of Lessee under this Lease rank at least pari passu in
right of payment with all other unsecured obligations of Lessee, with the
exception of such obligations as are mandatorily preferred by law.
(j) Lessee will give notice to Lessor promptly upon obtaining actual
knowledge of any Default or Event of Default; and
(k) Lessee acknowledges that it is the intention of Lessor that Lessor
shall be entitled to the benefits of Title 11 U.S.C. S-1110 and any similar or
analogous provisions of any successor statute ("Section 1110") with respect to
the Engine and this Lease, and Lessee shall not oppose any motion, petition or
application filed by Lessor with any bankruptcy court having jurisdiction over
Lessee whereby Lessor seeks recovery of possession of the Engine under Section
1110 unless Lessee shall have complied with the requirements of Section 1110 to
be fulfilled in order to entitle Lessee to continue use and possession of the
Engine hereunder.
(l) Without having obtained the prior written consent of Lessor, Lessee
will not consolidate with or merge into, or sell or lease in one transaction or
a series of transactions all or substantially all of its assets to, another
corporation or other entity unless such other corporation or entity is engaged
in the airline business, the net worth of the corporation resulting from such
merger or consolidation or corporation or other entity to which such sale or
lease is made would be at least equal to the net worth of Lessee at the date
hereof, such corporation or other entity assumes all of Lessee's obligations
under this Lease in a manner and by documents and agreements satisfactory to
Lessor in its sole discretion, such corporation or other entity immediately
subsequent to such merger, consolidation, lease or sale is not in default
hereunder and Lessor receives an opinion satisfactory to it, of counsel
satisfactory to it, as to such assumption and documentation.
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(m) Lessee shall, within fifteen (15) days of the end of each and every
calendar month during the Term, deliver to Lessor a monthly report, in such form
and containing such information as set forth in Exhibit D hereof.
(n) Lessee shall, at the end of each calendar quarter, have a long term
debt to equity ratio of not more than 4:1 as determined in accordance with
generally accepted accounting principles consistently applied. For purposes
hereof, debt shall exclude all off balance sheet financing and operating leases.
(o) Lessee shall, at the end of each calendar quarter, have a ratio of
current assets to current liabilities of not less than 1:1 as determined in
accordance with generally accepted accounting principles consistently applied.
Section 12. INDEMNIFICATION.
(a) GENERAL INDEMNITY AND EXPENSES. Lessee hereby assumes liability for,
and hereby agrees to, indemnify, protect, save and keep harmless Lessor, KGAL
and their respective affiliates, agents, officers, directors and employees (the
"Indemnitees"), and any reference herein to the Indemnitee shall include its
affiliates, agents, officers, directors, employees, successors and permitted
assigns) from and against, and on written demand to pay, or to reimburse
Indemnitee for the payment of, as the case may be, any and all liabilities,
obligations, losses, damages, penalties, claims (including, without limitation,
claims arising out of negligence or involving strict liability in tort), suits,
actions, costs, expenses and disbursements, including without limitation legal
fees and expenses, of whatsoever kind and nature imposed on, incurred by or
asserted against Indemnitees relating to or arising out of (A) this Lease, any
payments made pursuant hereto or the exercise of rights or remedies hereunder,
(B) the preparation, negotiation, execution and delivery of any amendments,
modifications or waivers required by this Lease or requested by Lessee (or
resulting from any requests of Lessee) hereunder, (C) the Engine and any Part
thereof, whether or not arising out of the airworthiness, delivery, nondelivery,
lease, presence, storage, modification, substitution, replacement, alteration,
maintenance, inspection, failure to inspect, repair, release, possession,
repossession after an Event of Default, use, operation, condition, condition
upon return, return, exportation, importation, transfer or other application or
disposition thereof (including, in each case and without limitation, latent or
other defects, whether or not discoverable), any claim for patent, trademark or
copyright infringement arising as a result of or in connection with Lessee's
patents, trademarks, copyrights, servicemarks or logos or those of Lessee's
advertisers, sponsors, and others whose designs and/or logos appear on the
Engine or any airframe upon which the Engine is installed at any time, any claim
based on strict or absolute liability, statutory liability or tort and any
liability for any injury to or death of any person or loss of or damage to any
property including, without limitation, any such arising out of any test flight,
demonstration flight or ferry flight of any aircraft on which the Engine is
installed or performed by Lessee or any entity to which Lessee may have further
subleased the Engine pursuant to Section 7 hereof and (D) any breach of,
noncompliance with or misrepresentation made or deemed made in, under or in
connection with this Lease or any agreement to which Lessee is a party
concerning the Engine or any warranty, certificate or agreement made or
delivered in, under or in connection therewith made or deemed to have been made
by Lessee or anyone claiming by, through or under Lessee; provided, that Lessee
shall not be required to indemnify any Indemnitee hereunder (w) for any
liability attributable to acts or events which occur prior to the Commencement
Date or after the Lease Term or the return of the Engine to Lessor in the
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condition required hereunder whichever shall occur later, (x) for liability
resulting solely and directly from acts of gross negligence or misconduct of the
Indemnitee (other than gross negligence or willful misconduct attributed to the
Indemnitee solely by reason of its interest in the Engine or any Part), (y) for
any Taxes that Lessee has not agreed to indemnify against pursuant to the
provisions of Section 12(b) or (z) for any liability imposed on the Indemnitee
arising as a result of a disposition of all or any part of Indemnitee's interest
in the Engine, other than by reason of the occurrence of a Default or an Event
of Default and further provided that no indemnification hereunder shall be paid
by Lessee to Indemnitee in respect of any claim arising during any period during
which Lessee is deprived of use and possession of the Engine as a result of a
breach by Lessor of its covenant of quiet enjoyment.
If any Indemnitee shall have knowledge of any claim or liability required
to be indemnified against under this Section 12(a), the Indemnitee shall give
prompt written notice thereof to Lessee, but the failure of the Indemnitee so to
notify Lessee shall not relieve Lessee from any liability that it would
otherwise have to the Indemnitee hereunder except to the extent that Lessee's
rights respecting any defense thereto are irrevocably and materially impaired
directly and solely as a result of such failure.
Lessee shall be obligated to the Indemnitee under this Section 12(a)
irrespective of whether the Indemnitee shall also be indemnified with respect to
the same matter under any other agreement, and the Indemnitee may proceed
directly against Lessee under this Section 12(a) without first resorting to any
such other rights of indemnification.
Any payment or indemnity pursuant to this Section 12(a) shall include the
amount, if any, necessary to hold the Indemnitee harmless on a net after-tax
basis from all Taxes required to be paid by such recipient with respect to such
payment or indemnity under laws, rules or regulations of any Government Entity
or Taxing Authority. If the Indemnitee is entitled to a permanent tax benefit
(whether by way of deduction, credit or otherwise) not taken into account
pursuant to the preceding sentence as a result of the matter indemnified against
under this Section 12(a), the Indemnitee shall promptly pay to Lessee, after
such permanent tax benefit is realized but not before Lessee shall have made all
payments theretofore due to the Indemnitee under this Lease and any other
agreement in respect of the Engine an amount that, after subtraction of any
further tax savings to which the Indemnitee is entitled as a result of the
payment thereof, is equal to the amount of such permanent tax benefit; provided,
however, that the Indemnitee shall not be obligated to make any payment to
Lessee pursuant to this sentence so long as a Default or Event of Default shall
have occurred and be continuing or any Rent or Supplemental Rent then due and
owing shall not have been paid.
Upon the indefeasible payment in full of any indemnities due and owing
under this Section 12(a), Lessee shall be subrogated to any right of the
Indemnitee in respect of the matter against which such indemnity has been given.
(b) GENERAL TAX INDEMNITY
(i) Lessee agrees that each payment of Rent or any amount payable
hereunder shall be free of all withholdings of any nature whatsoever, and in the
event that any withholding is required, Lessee shall pay an additional amount of
Rent such that after the deduction of all amounts required to be withheld, the
net amount of Rent that is actually received by Lessor, will equal the amount of
Rent or any such amount payable hereunder or such other amount, as the case may
be, that would be due absent such withholding,
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(ii) Lessee hereby agrees to indemnify and hold harmless from and
against, and on written demand, to pay or reimburse each Indemnitee for the
payment of, as the case may be, any and all Taxes imposed upon or asserted
against the Indemnitee or the Engine, or any Part thereof or interest therein,
or this Lease, or the rentals received under this Lease, by any federal, state
or local government or other taxing authority in the United States, in any
territory or possession thereof or by any foreign government or any political
subdivision or taxing authority thereof or therein (the foregoing being referred
to herein individually as a "Taxing Authority" and collectively as "Taxing
Authorities") upon or with respect to (a) the acceptance, rejection, delivery,
transport, insuring, registration, deregistration, reregistration, assembly,
possession, repossession, operation, use, presence, condition, maintenance,
repair, return, abandonment, preparation, installation, storage, redelivery,
subleasing, modification, rebuilding, or importation of, or the imposition of
any Lien (other than a Lessor Lien) (or the incurrence of any liability to
refund or pay over any amount as a result of any Lien (other than a Lessor
Lien)) on the Engine or any Part thereof or interest therein, (b) payments of
Basic Rent or Supplemental Rent, (c) the Engine, or any Part thereof or any
interest therein or the applicability of this Lease to the Engine, or any Part
thereof or any interest therein, (d) any or all of the documents and agreements
relating to the Engine contemplated hereby and amendments or supplements hereto
and thereto, or the execution, delivery, filing or recording thereof, or (e)
otherwise with respect to or in connection with the transactions effected under
this Lease and the documents and agreements contemplated hereby including the
exercise of remedies hereunder.
(iii) The provisions of Section 12(b)(i) and (ii) shall not apply
to, and Lessee shall have no liability to Lessor or any other person thereunder
with respect to Taxes to the extent excluded under any of the following
provisions or any combination thereof:
(A) Taxes imposed by any country, taxing authority or
governmental subdivision thereof or therein or any international
authority except to the extent that such Taxes would not have been
due (whether or not from the same person on whom they are actually
imposed) but for the transactions contemplated by this Agreement,
provided that the presence or activities of any person other than
Lessor in any jurisdiction shall not be imputed for purposes of this
subparagraph (A);
(B) Taxes (I) imposed as a result of a sale, assignment,
transfer or other disposition (whether voluntary or involuntary) (a
"Transfer") (x) by Lessor or any other person (other than Lessee or
any affiliate or transferee of or successor to Lessee) of any legal
or beneficial interest in the Engine or in or arising under this
Agreement or (y) of any direct or indirect interest in Lessor or any
such other person having any such legal or beneficial interest (any
event described in (x) or (y) being a "Lessor Transfer") or (II) to
the extent such Taxes exceed the amount of Taxes that would have
been imposed and indemnified against by Lessee had there not been a
Lessor Transfer, provided that the exclusion set forth in this
subparagraph (B) shall not apply to a Transfer (other than a sale of
the Engine or any interest therein) resulting from the exercise of
any remedies provided for in this Agreement in connection with an
Event of Default or an Event of Loss;
(C) Taxes incurred in respect of any period after the
occurrence of any of the following events: (I) the sale or return of
the Engine or any part thereof or interest therein to the extent the
Taxes relate solely to such part or interest) in accordance with the
terms of this Agreement; (II) the termination of this Agreement and
the return of the Engine or (III) the sale or other transfer of the
Engine and the return of the Engine (or any part thereof or interest
therein to the extent the Taxes relate solely to such part or
interest) following a Total Loss with respect to the Engine,
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<PAGE>
provided that the exclusion set forth in this subparagraph (C) shall
not apply to Taxes to the extent such Taxes relate to periods prior
to, or events occurring or matters arising prior to or
simultaneously with, such event;
(D) Taxes to the extent imposed as a result of (I) the willful
misconduct or gross negligence of Lessor, (II) the breach by Lessor
of any of its representations, warranties or covenants contained in
this Agreement or (III) Lessor's Liens;
(E) Taxes either not yet due or being contested in accordance
with the provisions of Section 12(d);
(F) Taxes on, based on, measured by or with respect to the net
or gross income, or net or gross receipts, including any capital
gains Taxes, minimum Taxes, Taxes on or measured by any items of tax
preference and withholding Taxes, including Taxes imposed under
Subtitle A of the Internal Revenue Code of 1986, as amended (the
"Code") or Section 3406 of the Code or any successor provisions
required to be withheld from any payment under this Agreement),
capital, net worth, franchise, or conduct of business of Lessor or
any other person (other than Taxes in the nature of sales, use,
rental, property, or value-added Taxes) imposed by any federal,
state or local government or taxing authority in the United States;
(G) Taxes on, based on, measured by or with respect to the net
or gross income or net or gross receipts (including any capital
gains Taxes, minimum Taxes, Taxes on or measured by any items of tax
preference and withholding Taxes), capital, net worth, franchise, or
conduct of business of Lessor or any other person (other than Taxes
in the nature of sales, use, rental, property, or value-added Taxes)
imposed by any foreign government, foreign government subdivision or
other foreign taxing authority or by any territory or possession of
the United States, or by any international authority, provided that
the exclusion set forth in this subparagraph (G) shall not exclude
such Taxes if and to the extent that such Taxes (i) would not have
been imposed but for the operation, presence or registration in such
jurisdiction of the Engine or any part thereof, or (ii) would have
been imposed solely as a result of (x) the presence in such
jurisdiction of a permanent establishment or fixed place of business
of Lessee, or any user or person in possession of the Engine or any
part thereof, (y) the residence, nationality or place of management
and control of Lessee or any user or person in possession of the
Engine or any part thereof, (z) the payment from such jurisdiction
by Lessee or any user or person in possession of the Engine or any
part thereof of any amount due under the Lease, or (iii) any
combination of clauses (i) and (ii);
(H) Taxes that would not have been imposed but for any failure
of Lessor to (x) file proper and timely reports or returns or to pay
any Taxes when due, or (y) comply with any certification,
information, documentation, reporting or other similar requirements
concerning the nationality, residence, identity or connection with
the jurisdiction imposing such Taxes, if such compliance is required
to obtain or establish relief or exemption from or reduction in such
Taxes and Lessor was eligible to comply with such requirement.
(I) Taxes imposed under Section 887 of the Code.
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(c) CALCULATION OF TAX INDEMNITY PAYMENTS
(i) Any payment that Lessee shall be required to make to or for the
account of the Indemnitee with respect to any Tax that is subject to
indemnification under Section 12(b) shall include the amount necessary to hold
the Indemnitee harmless on a net after-tax basis from the net amount of all
Taxes required to be paid by the Indemnitee as the result of such payment
pursuant to the laws of any Taxing Authority.
(ii) If Lessor shall realize a Tax benefit as a result of or with
respect to any Taxes paid or indemnified against by Lessee under this Section 12
(whether by way of deduction, credit or otherwise), Lessor shall pay to Lessee,
promptly after realization of such Tax benefit, an amount that, prior to the
application of any withholding tax to that payment but after subtraction of any
further Tax savings Lessor realizes as a benefit, provided that if any such Tax
benefit is subsequently disallowed, lost or reduced, Lessee shall, upon written
notice from Lessor, promptly repay the amounts paid to the Lessee with respect
to such Tax benefit, provided further that Lessor shall not be obligated under
this Section 12(c)(ii) to pay Lessee any amounts with respect to Tax benefits
realized as a result of any Taxes not paid or indemnified against by Lessee.
Notwithstanding anything to the contrary in this Section 12, if, at the time any
payments would otherwise be due to Lessee pursuant to this Section 12(c)(ii), an
Event of Default shall have occurred and be continuing, Lessor shall hold the
amount of such payment as security for the obligations of the Lessee to Lessor
under the Lease and at such time as there shall not be continuing any such Event
of Default, shall pay such amount to Lessee. Lessor shall use reasonable efforts
in good faith in filing its Tax returns and in dealing with taxing authorities
to seek and to claim any such Tax benefit or savings and to minimize the Taxes
payable or indemnifiable by Lessee hereunder.
(iii) At Lessee's request, the computation by Lessor of any amount
payable by Lessee pursuant to this Section 12 shall be verified by an
independent accounting firm of national reputation selected by Lessor. The fees
of such accountants shall be paid by Lessee unless such accountants determine
that the amount payable to Lessee is at least 25% more, or the amount payable by
Lessee is at least 25% less, than the amount computed by Lessor, in which case
such fees shall be payable by Lessor.
(d) CONTEST; REPORTS
(i) If a claim is made in writing against Lessor (whether on audit
or otherwise) for any Taxes that Lessee is required to pay or indemnify against
pursuant to Section 12(b), Lessor shall notify Lessee in writing within 30
Business Days of the receipt of such claim, provided that a failure to so notify
will not diminish or relieve Lessee of any obligations under Section 12(b),
except to the extent Lessee is entitled to contest or to cause Lessor to contest
such Taxes and Lessee's or Lessor's successful defense of such claim is
materially prejudiced or precluded thereby. If the amount of the claim exceeds
$[ ]* and if requested by Lessee in accordance with this Section 12(d) and in
writing within 30 Business Days after receipt by Lessee of the notice described
in the preceding sentence, Lessor shall in good faith and with due diligence
contest (including pursuing all administrative and judicial appeals) in the name
of Lessor or, if permitted by law and requested by Lessee in the name of Lessee,
the validity, applicability or amount of such Taxes in appropriate
administrative or judicial proceedings to be determined by Lessor, provided that
(1) prior to taking such action, Lessee shall have agreed to pay Lessor all
out-of-pocket costs and expenses that Lessor may incur in connection with
contesting such claim, including, without limitation, all reasonable legal and
accountant's fees and disbursements and costs of administrative and judicial
proceedings, and the amount of any interest or penalties that may be
attributable to and payable as a result of contesting such claim (or, at
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Lessor's request, Lessee shall advance to Lessor funds with which to pay the
foregoing amounts, and Lessor's obligation to contest any Tax shall be suspended
during any period Lessee does not advance sufficient funds to pay such amounts
as they accrue or become payable), (2) if such contest is to be initiated by the
payment of, and the claiming of a refund for such Taxes (and any interest and
penalties that also must be paid), Lessee shall have advanced Lessor sufficient
funds (on an interest-free basis) to make such payment, (3) no Event of Default
has occurred and is continuing, (4) the action to be taken will not result in a
material risk of sale, forfeiture or loss of Lessor's title to the Engine
(unless Lessee provides a bond or other security satisfactory to Lessor), and
(5) at Lessor's request, Lessee shall provide to Lessor a written opinion in
form and substance satisfactory to Lessor of independent legal counsel
satisfactory to Lessor that there is a reasonable basis for such contest.
Notwithstanding that the conditions set forth in clauses (1), (2), (3), (4) and
(5) above may have been satisfied, Lessor, after consulting in good faith with
Lessee, may elect not to pursue any contest or proceeding pursuant to the
preceding sentence or elect to discontinue (by settlement or otherwise) any such
contest or proceeding commenced pursuant to the preceding sentence, but such
election shall constitute a waiver by Lessor of any right to payment or
indemnification pursuant to Section 12(b) with respect to the adjustment that
was the subject of such proposed contest or proceeding (and any other adjustment
the contest of which is precluded by such failure to contest) and, if Lessee has
theretofore paid or provided Lessor with funds to pay any amount with respect to
such adjustment, Lessor shall promptly repay such amount to Lessee. If Lessor
shall obtain a refund in whatever form of all or any part of any Taxes that
Lessee shall have paid or reimbursed to Lessor hereunder, Lessor shall, provided
that no Event of Default shall have occurred and be continuing, pay to Lessee an
amount that is equal to the sum of the amount of such refund or credit, plus any
interest received on such refund fairly attributable to any Taxes paid by or
with funds provided by Lessee prior to receipt of such refund, reduced by any
Taxes incurred by Lessor by reason of the receipt or accrual of such refund and
interest and net of any expenses described in clause (1) of the second sentence
of this Section 12(d) that have not been previously reimbursed, and increased by
any Tax benefit realized by Lessor as a result of any payment by Lessor made
pursuant to this sentence, provided further that, if, at the time of such
payment an Event of Default shall have occurred and be continuing, Lessor shall
hold the amount of such payment as security for the obligations of Lessee to
Lessor under the Lease, and at such time as there shall not be continuing any
such Event of Default, shall pay such amount to the Lessee. Lessor hereby agrees
that it will inform Lessee of the time and place of, and Lessor will not object
to Lessee's presence at, any proceeding conducted pursuant to this Section
12(d), provided that Lessee's presence also must be allowed by applicable law
and provided further that the conditions set forth in clauses (1), (2), (3), (4)
and (5) above shall have been, and shall continue to be, satisfied.
(ii) Lessee shall provide Lessor with such information in the
possession of Lessee or otherwise reasonably available to it as Lessor may
reasonably require to enable Lessor to fulfill its tax filing obligations under
this Section 12 and any audit information request arising in connection with the
Taxes subject to this Section 12. Lessor shall provide Lessee with such
information in the possession of Lessor or otherwise reasonably available to it
as Lessee may reasonably request to fulfill its tax filing requirements under
this Section 12 and any audit information request arising in connection with the
Taxes subject to this Section 12. If any report or return is required to be made
with respect to any obligation of Lessee under this Section 12, Lessee will make
such report or return, provided that Lessee shall have no obligation to file any
such return or report if (A) Lessor, after Lessee's written request therefor,
shall have failed to furnish Lessee with such information as is peculiarly
within the control of, or reasonably available to Lessor and is necessary for
the filing of such report or return, or (B) such return or report would or
should have been filed by Lessor even if it had not entered into the Lease.
(iii) Lessor shall furnish from time to time to Lessee or to such
other person as Lessee may designate, such returns, statements or other
documentation ("Tax Forms") (including, without limitation, if then required,
information as to the ultimate beneficial owners of Lessor and the stock
interests in Lessee held actually and constructively by Lessor, if not otherwise
known to Lessee) in such form and with such substance as are necessary or
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appropriate to enable Lessor or Lessee, to claim an available reduction of or
exemption from Taxes which Lessee may be required to pay or indemnify against
hereunder, provided that Lessee shall have provided Lessor with any information
within the Lessee's control or reasonably available to Lessee that is necessary
to prepare such return, statement or other documentation. Any such Tax Forms
shall be provided promptly after receipt of a written request therefor from the
Lessee.
(e) PAYMENT. Unless otherwise requested by the appropriate Indemnitee,
Lessee shall pay when due any Tax for which it is liable pursuant to Section
12(b) directly to the appropriate Taxing Authority, or, upon written demand,
shall reimburse the appropriate Indemnitee for the payment of any such Tax made
by the Indemnitee. Within 30 days after the date of each payment by Lessee of
any Tax referred to in the preceding sentence, Lessee shall furnish the
Indemnitee evidence of payment of such Tax acceptable to the Indemnitee. Lessee
shall also cause to be furnished, promptly upon request, such data as the
Indemnitee may reasonably require from Lessee to enable the Indemnitee to comply
with the requirements of any Taxing Authority in respect of any Tax referred to
in Section 12(b).
(f) SURVIVAL. The obligations contained in this Section 12 shall survive
the termination of this Lease, to the extent they have accrued, or relate to
events that have occurred, on or before the date of such termination; provided
that obligations arising as a result of the occurrence of a Default or an Event
of Default shall in any event, without limiting the foregoing, survive until
payment in full and performance of all obligations owing to the Indemnitee under
the foregoing agreements and all other agreements referred to herein or
contemplated hereby. The obligations of Lessee in respect of all such
indemnities, obligations, adjustments and payments are expressly made for the
benefit of, and shall be enforceable by, the Indemnitee entitled thereto at the
option of the Indemnitee without declaring this Lease to be in default or taking
any other action hereunder.
Section 13. ASSIGNMENT; LEASE SUBJECT AND SUBORDINATE.
(a) SUBLEASE BY LESSEE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN,
LESSEE SHALL NOT, WITHOUT HAVING FIRST OBTAINED THE WRITTEN CONSENT OF LESSOR,
WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD, ASSIGN OR OTHERWISE TRANSFER
IN ANY MANNER ANY OF ITS RIGHTS OR INTERESTS WITH RESPECT TO THIS LEASE, THE
ENGINE, OR ANY PART THEREOF.
(b) ASSIGNMENTS BY LESSOR. Subject to Lessee's rights hereunder, Lessor
may at any time and without Lessee's consent sell, assign or transfer its rights
and interests hereunder or with respect to the Engine to a third party and/or
grant a Lien over the Engine and the benefit of this Lease to any Person as
security for Lessor's obligations to such Person (each such transferee, assignee
or other Person, an "Assignee"). On request by Lessor, Lessee will execute all
such documents as Lessor may reasonably require to confirm Lessee's obligations
under this Lease. No sale, assignment or transfer of Lessor's interest or
creation of any Lien by Lessor shall adversely affect Lessee's rights hereunder
or increase Lessee's duties, expenses or the liabilities of Lessee in respect of
any Tax or under any of its indemnification obligations or otherwise. Lessee
will provide all other reasonable assistance and cooperation to Lessor and any
Assignee in connection with any such sale or assignment or the perfection and
maintenance of any Lien granted in connection therewith, including, at Lessor's
cost, making all necessary filings and registrations. Wherever the term "Lessor"
is used in this Lease in relation to any of the provisions relating to
disclaimer, title and registration, indemnity and insurance, such terms shall be
construed to include each Assignee, as applicable.
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Section 14. EVENTS OF DEFAULT; REMEDIES.
(a) EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" (whether any such event shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) and
each such Event of Default shall be deemed to exist and continue so long as it
shall not have been remedied:
(i) Lessee shall fail to make any payment of Basic Rent, Engine
Reserves, Engine Loss Value or Supplemental Rent hereunder within five (5)
Business Days after the same shall have become due and payable;
(ii) Lessee shall fail to carry and maintain insurance on or with
respect to the Engine in accordance with the provisions of Section 9
hereof or Lessee shall fail to provide an insurer's certificate evidencing
the renewal or replacement of such policy, upon the renewal or replacement
thereof, in accordance with the terms hereof;
(iii) any document required to be filed or recorded by Lessee
pursuant hereto is not duly filed and recorded by Lessee as required to
perfect and continue the perfection of the interests of Lessor in the
Engine or the filings and recordings provided for herein are not made by
the time required; or Lessee shall fail to perform or observe any other
covenant, term, condition or agreement to be performed or observed by it
hereunder or under any instrument, document or agreement furnished by
Lessee to Lessor, in connection with the transactions referred to herein
or contemplated hereby, and such failure shall continue unremedied for a
period of thirty (30) days after written notice thereof to Lessee or
thirty (30) days after Lessee, assuming exercise of reasonable diligence,
should have known of such failure; provided, however, such failure to
observe any covenant, term, condition or agreement does not pose a
material danger to the respective rights and interests of Lessor, Lessor
in the Engine and the same is of such a nature that it can be cured; and,
further provided that Lessee shall have commenced and shall diligently
pursue such cure, Lessee shall have an additional thirty (30) day period
within which to cure the same;
(iv) any representation or warranty made by Lessee herein or in any
document, or certificate furnished by Lessee in connection herewith shall
at any time prove to have been false or incorrect in any material respect
at the time made;
(v) Lessee shall (A) voluntarily commence any proceeding or file any
petition seeking relief under any applicable bankruptcy, insolvency,
liquidation or similar law now or hereafter in effect, (B) consent to the
institution of, or fail to contravene in a timely and appropriate manner,
any such proceeding or the filing of any such petition, (C) apply for or
consent to the appointment of a receiver, trustee, custodian sequestrator
or similar official for itself or for a substantial part of its property
or assets, (D) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (E) make a general
assignment for the benefit of creditors, (F) become unable, admit in
writing its inability or fail generally to pay its debts as they become
due or (G) take corporate action for the purpose of effecting any of the
foregoing;
(vi) an involuntary proceeding shall be commenced or for involuntary
petition shall be filed in a court of competent jurisdiction seeking (A)
relief in respect of Lessee, or of a substantial part of the property or
assets of Lessee under any applicable bankruptcy, insolvency, receivership
or similar law, (B) the appointment of a receiver, trustee, custodian,
sequestrator or similar official for Lessee or for a substantial part of
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the property of Lessee or (C) the winding-up or liquidation of Lessee; and
such proceeding or petition shall continue undismissed, unstayed or
unbonded for sixty (60) days or an order or decree approving or ordering
any of the foregoing shall continue unstayed and in effect for thirty (30)
days;
(vii) Lessee or any subsidiary thereof, the debt of which has been
guaranteed by Lessee thereof shall fail to pay, in accordance with its
terms and when due and payable, the principal of or interest on any Debt
the principal amount of which exceeds $[ ]* and the maturity of any such
Debt, in accordance with the provisions of any such Debt or any contract
evidencing, providing for the creation of or concerning such Debt shall
have been accelerated or any event shall have occurred and be continuing
that would permit any holder or holders of such Debt, any trustee or agent
acting on behalf of such holder or holders or any other Persons so to
accelerate such maturity;
(viii) final judgment for the payment of money in excess of $[ ]*
not fully covered by insurance (or the equivalent in another currency)
shall be rendered against Lessee and the same shall remain undischarged
for a period of thirty (30) days during which execution of such judgment
shall not be effectively stayed or bonded in a manner satisfactory to
Lessor;
(ix) Lessee shall fail to remain a "certificated air carrier" within
the meaning of the Federal Aviation Act;
(x) Lessee shall voluntarily suspend all or substantially all of its
commercial airline operations, or the franchises, concessions, permits,
rights or privileges acquired for the conduct of the business and
operations of Lessee shall be revoked canceled or otherwise terminated or
the free and continued use and exercise thereof curtailed or prevented;
(xi) except as otherwise permitted pursuant to Section 11(l) hereof,
Lessee shall merge with or into or consolidate with or into or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in
a series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to any Person or fifty-one percent (51%)
or more of the capital stock of Lessee shall be acquired in a single
transaction or series of transactions, directly or indirectly by any
Person and/or its affiliates not a shareholder of Lessee on the
Commencement Date;
(xii) possession of the Engine shall be transferred to another
Person, other than in accordance with the express provisions of Section
7(d); and/or
(b) REMEDIES. Upon the occurrence of any Event of Default and at any time
thereafter so long as the same shall be continuing, Lessor may, at its option,
declare this Lease to be in default by notice to Lessee; and at any time
thereafter, so long as Lessee shall not have remedied all outstanding Events of
Default before Lessor shall have commenced to exercise its rights or remedies
hereunder, Lessor may exercise one or more of the following rights and remedies
with respect to all or any part of the Engine as Lessor in its sole discretion
shall elect, to the extent permitted by, and subject to compliance with any
mandatory requirements of, applicable law then in effect:
(i) cause Lessee, upon the written demand of Lessor and at Lessee's
expense, to return promptly, and Lessee shall return promptly (and in no
event later than two days after such demand), all or such part of the
Engine as Lessor may demand, to Lessor or its order in the manner and
condition required by, and otherwise in accordance with all the provisions
of, Section 10 as if the Engine were being returned at the end of the
Term, or Lessor, at its option, may enter upon the premises where all or
any part of the Engine located and take immediate possession of and remove
the same;
35
<PAGE>
(ii) hold, use, operate, keep idle or lease to others all or any
part of the Engine, with or without taking possession thereof as Lessor in
its sole discretion may determine, free and clear of any rights of Lessee
and without any duty to account to Lessee with respect to such action or
inaction or for any proceeds with respect thereto, except that Lessee's
obligation to pay Basic Rent for any periods in respect of the Engine or
part thereof accruing after Lessee shall have been deprived of possession
of such Engine or part thereof pursuant to this Section 14 shall be
reduced by the net proceeds, if any, received by Lessor from leasing the
Engine or part thereof to any Person other than Lessee for the same
periods or any portions thereof;
(iii) Lessor may exercise any other right or remedy that may be
available to it under applicable law or proceed by appropriate court
action to enforce the terms hereof or to recover damages for the breach or
to rescind this Lease;
(iv) Lessor may terminate this Lease; and/or
(v) whether or not Lessor shall have exercised, or shall thereafter
at any time exercise, any of its rights under clauses (i), (ii), (iii) or
(iv) above, Lessor, by written notice to Lessee specifying a payment date
not earlier than five (5) Business Days after the date of such notice, may
terminate this Lease and 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 a bargain and not as a penalty, the sum of: (A) any
unpaid Basic Rent due under this Agreement for periods ending on or prior
to the payment date specified in such notice and any unpaid Supplemental
Rent due on or prior to such payment date, plus (B), an amount equal to
the aggregate unpaid Basic Rent which would otherwise have accrued
hereunder over the remainder of the Lease Term but for the Event of
Default, discounted to present value as of the date specified for payment
in such notice, less (C), if applicable, for any period until the
expiration of the Lease Term that Lessor has not been able to Lease the
Engine but has been able, in the normal course of its operations to use
the Engine, the Basic Rent payable by Lessee to Lessor for the lease of
the Engine during any such period of use discounted to present value as of
the date specified for payment in such notice. The amounts specified in
such notice shall bear interest at the Post-Default Rate from the payment
date specified in such notice until payment is made. In calculating
Lessor's damages hereunder upon an Event of Default, all Basic Rent which
would have become due during the remainder of the Lease Term if an Event
of Default had not occurred will be calculated on a present value basis
using a discounting rate equal to the rate of interest on United States
Treasury Bills having a maturity which will most closely approximate the
period equal to the remainder of the Lease Term, as quoted in the Wall
Street Journal on the date of Lessor's notice.
In addition, Lessee shall be liable, except as otherwise provided above,
for any and all unpaid Basic Rent and Supplemental Rent then due hereunder
before or during or after the exercise of any of the foregoing remedies and for
all legal fees and other 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 all the Engine in accordance with Section 10 or this Section 14 or
in storing or maintaining the Engine or any part thereof or placing the same in
the condition required by Section 10.
36
<PAGE>
Except as otherwise expressly provided above, no remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to herein 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 such other remedies; provided, that Lessor may recover only once
from each element of damages sustained and, provided further, that the preceding
proviso shall not be deemed to require proof of damages actually sustained in
the case of liquidated damages provided for herein. 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. To the extent permitted by law, Lessee hereby waives any rights now or
hereafter conferred by statute or otherwise (A) that may confer any right to
prior notice or judicial hearing in connection with Lessor's taking possession
or disposing of the Engine including, without limitation, any and all prior
notice and hearing for any prejudgment remedy or remedies and any such right
that Lessee might otherwise have under applicable law, (B) except as provided in
this Section 14, that impose any requirements as to the time, place or terms of
lease other disposition or other requirements with respect to the enforcement of
Lessor's rights and remedies hereunder, (C) all rights of redemption,
appraisement, valuation, stay, extension or moratorium now or hereafter in
effect under applicable law that may have the effect of delaying the enforcement
of this Lease or the absolute lease or other disposition of the Engine, or (D)
except as otherwise provided herein, that may otherwise limit or modify any of
Lessor's rights or remedies hereunder. The failure or delay of Lessor in
exercising any right or remedy granted it hereunder upon any occurrence of any
of the contingencies set forth herein shall not constitute a waiver of any such
right or remedy upon the continuation or recurrence of any such contingencies or
similar contingencies and any single or partial exercise hereunder of any
particular right or remedy of Lessor shall not exhaust the same or constitute a
waiver of any other right provided herein.
Notwithstanding anything contained in this Section 14 to the contrary,
Lessor shall use reasonable efforts to mitigate damages.
Section 15. NOTICES. All notices required or permitted hereunder shall be
in writing and shall be delivered in person or sent by telecopier, international
courier service or letter (mailed certified and return receipt requested),
addressed to the parties as follows:
if to Lessor: First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telecopier: 801-246-5053
with copies to: KG Aircraft Leasing Co., Limited
3 Adelaide Court, Adelaide Road
Dublin 2, Ireland
Attention: Managing Director
Telecopier: 353-1-475-7378
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Attention: C. Payson Coleman, Esq.
Telecopier: 212-858-1500
37
<PAGE>
if to Lessee: Western Pacific Airlines, Inc.
2864 S. Circle Drive, Suite 1100
Colorado Springs, Colorado 80906
Attention: Robert Peiser, President & CEO
Telecopier: (719) 527-7480
with a copy to: Smith, Gambrell & Russell
1230 Peachtree Street NE, Suite 3100
Atlanta, Georgia 30309-3592
Attention: Howard Turner, Esq.
Telecopier: 404-815-3509
or at such other address as Lessee or Lessor shall from time to time designate
in writing to the other. In the case of a notice delivered in person or sent by
telecopier or international courier, notice will be deemed received upon actual
receipt. In the case of a mailed letter, notice will be deemed received on the
tenth (10th) Business Day after deposit in the mail, with proper postage for
registered or certified first-class mail prepaid. All notices required or
permitted under the Lease shall be given in the manner set forth in Section 18
of the Lease.
Section 16. GOVERNING LAW AND JURISDICTION.
(a) GOVERNING LAW. This Lease shall in all respects be governed by, and
construed in accordance with, the internal laws of the State of New York,
inclusive of all matters of construction, validity and performance.
(b) JURISDICTION; SERVICE OF PROCESS. Lessee and Lessor hereby irrevocably
submit to the jurisdiction of any New York State or federal court sitting in New
York City in any action or proceeding arising out of or relating to this Lease,
and hereby irrevocably agree that all claims in respect of such action or
proceeding may be heard and determined in such New York State court or, to the
extent permitted by law, in such federal court. Lessee and Lessor hereby
irrevocably waive, to the fullest extent they may effectively do so, the defense
of an inconvenient forum to the maintenance of such action or proceeding. Lessee
hereby irrevocably appoints CT Corporation System, with an office on the date
hereof at 1633 Broadway, New York, New York 10019, and Lessor hereby irrevocably
appoints CT Corporation System, with an office on the date hereof at 1633
Broadway, New York, New York 10019 (the "Process Agent"), as their respective
agents to receive on their behalf and in respect of their proper service of
copies of the summons and complaint and any other process that may be served in
any such action or proceeding. Such service may be made by mailing or delivering
a copy of such process to Lessee or Lessor, as the case may be, in care of their
respective Process Agents at such Process Agent's above address, and Lessee and
Lessor hereby irrevocably authorize and direct their respective Process Agents
to accept such service on their behalf. As an alternative method of service,
Lessee and Lessor also irrevocably consent to the service of any and all process
in any such action or proceeding by the mailing of copies of such process to the
address specified in Section 15. Lessee and Lessor agree that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing in this Section 16(b) shall affect the right of any Person
(including Lessor) to serve legal process in any other manner permitted by law
or affect the right of any other party to bring any action or proceeding against
Lessee or Lessor, or their respective properties in the courts of other
jurisdictions. Lessee AND Lessor HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER ARISING OUT OF OR RELATING TO THIS LEASE.
38
<PAGE>
(c) WAIVER OF IMMUNITY. To the extent that Lessor or Lessee has or
hereafter may acquire any sovereign immunity, Lessor and Lessee hereby
irrevocably waive such immunity in respect of their respective obligations under
this Lease and all other documents and agreements relating to the Engine and the
transactions referred to or contemplated herein.
Section 17. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Lease constitutes the entire agreement between
the parties concerning the subject matter hereof, and supersedes all previous
proposals, agreements, understandings, negotiations and other written and oral
communications in relation hereto. NO TERM OR PROVISION OF THIS LEASE MAY BE
CHANGED, WAIVED, DISCHARGED OR TERMINATED, EXCEPT (i) WITH THE PRIOR WRITTEN
CONSENT OF LESSOR AND (ii) BY AN INSTRUMENT IN WRITING SIGNED BY A DULY
AUTHORIZED REPRESENTATIVE OF THE PARTY AGAINST WHICH THE ENFORCEMENT OF THE
CHANGE, WAIVER, DISCHARGE OR TERMINATION IS SOUGHT. Nothing herein shall be
construed as conveying to Lessee any right, title or interest in the Engine or
any Part except as Lessee under this Lease.
(b) ENGLISH LANGUAGE. All notices, communications, reports, opinions and
other documents given under this Lease shall be in the English language.
(c) LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to make any
payment of Rent or Supplemental Rent required to be made by it hereunder or
fails to perform or comply with any of its agreements contained herein, Lessor
may itself make such payment or perform or comply with such agreement, and the
amount of such payment and the amount of any expenses of Lessor incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, shall be deemed Supplemental Rent payable by
Lessee upon demand; provided, however, that no such payment, performance or
compliance by Lessor shall (i) be deemed to have satisfied the obligation of
Lessee to make such payment or to perform or comply with such agreement, as the
case may be, unless and until Lessee shall have paid all such Supplemental Rent
payable pursuant to this section by reason of such failure or (ii) be deemed a
waiver of Lessor's rights and remedies against Lessee hereunder.
(d) APPLICATION OF PAYMENTS DURING EXISTENCE OF DEFAULT. Any amount
referred to herein that is payable to Lessee shall not be paid to Lessee, or if
it has been previously paid directly to Lessee, shall not be retained by Lessee,
if at the time of such payment a Default or Event of Default shall have occurred
and be continuing, but shall be paid to and held by Lessor as security for and
may be applied to the obligations of Lessee under this Lease and, at such time
as Lessor shall receive evidence in form and substance satisfactory to it that
there is not continuing any such Default or Event of Default, all such amounts
in excess of amounts so paid on obligations of Lessee shall be paid to Lessee.
(e) EXPENSES. Lessee agrees to reimburse Lessor, for its out-of-pocket
costs and expenses, including attorney's fees, incurred in connection with any
amendments, modifications or waivers required by this Lease or requested by
Lessee (or resulting from any requests of Lessee) hereunder.
39
<PAGE>
(f) FURTHER ASSURANCES. Lessee will promptly and duly execute and deliver
to Lessor such further documents and assurances and take such further action as
Lessor may from time to time reasonably request in order to more effectively
carry out the intent and purpose of this Lease and to establish and protect the
rights and remedies created or intended to be created in favor of Lessor
hereunder, including, without limitation, if 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 hereof, and all such other documents and
instruments, in accordance with the laws of such jurisdictions as Lessor may
from time to time deem advisable.
(g) JUDGMENT CURRENCY. The obligations of Lessee in respect of any sum
due from it to Lessor hereunder shall, notwithstanding any judgment in a
currency other than Dollars, be discharged only to the extent that Lessor may in
accordance with normal banking procedures purchase, or cause to be purchased for
its account Dollars with such other currency; if the Dollars so purchased are
less than the sum originally due in Dollars, Lessee agrees to indemnify Lessor
against such loss, and if the Dollars so purchased exceed the sum originally due
to Lessor in Dollars, Lessor agrees to remit to Lessee such excess.
(h) INVALIDITY OF ANY PROVISION. Any provision of this Lease that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the fullest extent
permitted by applicable law, Lessee hereby waives any provision of law that
renders any provision hereof prohibited or unenforceable in any respect.
(i) CHANGES IN LAW. If there shall be any change (or such change shall be
enacted or made by notice or otherwise and shall be scheduled to become
thereafter effective) in the laws or treaties of the United States that has a
material adverse effect on the validity, legality, perfection or enforceability
of Lessor's rights or interest in the Engine or this Lease or the validity,
legality, perfection or enforceability of this Lease, Lessor may terminate this
Agreement, whereupon Lessee shall promptly return the Engine to Lessor or its
designee in the condition required hereunder.
(j) HEADINGS. All section and paragraph headings and captions are purely
for convenience of reference only and shall not modify, define, expand, limit or
otherwise affect any of the terms or provisions hereof and all references herein
to numbered sections, unless otherwise indicated, are to sections of this Lease.
(k) CONSENT. Whenever in this Lease, the consent (whether or not, in
writing) of either Lessor or Lessee is required, such consent shall not be
unreasonably withheld or delayed.
(l) THIRD PARTY BENEFICIARIES. Lessee recognizes that this Lease confers
certain rights and interests on the Indemnitees. Notwithstanding that the
Indemnitees are not parties to this Lease, the Indemnitees are intended third
party beneficiaries of such rights and interests and Lessor hereby acknowledges
that the Indemnitees may enforce such rights and interests directly, as if they
were parties to this Lease.
(m) COUNTERPARTS. This Lease may be executed in any number of identical
counterparts, all of which together will be deemed to be one and the same
instrument. Delivery of an executed counterpart of this Lease by facsimile will
be deemed effective as delivery of an originally executed counterpart. Any party
delivering an executed counterpart of this Lease by facsimile will also deliver
an originally executed counterpart; provided the failure of any party to deliver
an originally executed counterpart of this Lease will not affect the validity or
effectiveness of this Lease.
40
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Amended and
Restated Engine Lease to be duly executed as of the day and year first above
written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity, except as otherwise
expressly provided, but solely as Owner Trustee
under the 1997 Trust Agreement, as Lessor
By:
Name:
Title:
WESTERN PACIFIC AIRLINES, INC.,
as Lessee
<PAGE>
RECEIPT OF THE ORIGINAL COUNTERPART OF THE FOREGOING LEASE IS HEREBY
ACKNOWLEDGED ON THIS ____ DAY OF ________, 1997.
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity, except as otherwise
expressly provided, but solely as Owner Trustee
under the 1997 Trust Agreement, as Lessor
By:
Name:
Title:
<PAGE>
EXHIBIT A
ENGINE DESCRIPTION
One General Electric Model CFM56-3B2 Airframe Engine
bearing Manufacturer's Serial No. 721150 with one PF
Industries, Inc. Model PF71-169 Engine Stand bearing
serial number 001B.
ENGINE:
Time to Next
Total Replacement of
Engine Total Time Since Lowest Life
Cycles Time Overhaul Limited Part
- -------------- ----------- ---------------- --------------------
ENGINE STAND:
- -------------------
*as of March __, 1996
<PAGE>
EXHIBIT B
ACCEPTANCE CERTIFICATE
WESTERN PACIFIC AIRLINES, INC., a corporation organized and existing under
the laws of the State of Delaware with its principal place of business in
Colorado Springs, Colorado ("Lessee") does hereby represent, acknowledge,
warrant and agree as follows:
(a) Lessee and TACA INTERNATIONAL AIRLINES, S.A. ("Lessor") have entered
into a Lease Agreement dated as of May 21, 1996 (hereinafter referred to as the
"Lease"). Capitalized words used herein and not otherwise defined will have the
meanings set forth in the Lease.
(b) Lessee has this __ day of June, 1996 (Time: ____ ____________), at
Dallas, Texas, received from Lessor possession of:
(i) One (1) General Electric Model CFM56-3B2 Engine bearing
Manufacturer's Serial No. 721150 (the "Engine");
(ii) The manuals, logbooks, flight records and historical
information regarding the Engine listed in Attachment 1 hereto (the
"Engine Documentation"); and
(iii) One (1) PF Industries, Inc. model PF71-169 engine stand
bearing serial number 0001B.
(c) Except as noted on Attachment 2 hereto, Lessee hereby confirms and
agrees that the above described Engine and Engine Documentation have been duly
accepted by Lessee pursuant to the terms and provisions of the Lease.
(d) As of the date hereof, the Engine had the following hours/cycles:
Time to Next
Total Replacement of
Engine Total Time Since Lowest Life
Cycles Time Overhaul Limited Part
------------ --------- --------------- ------------------
721150
<PAGE>
IN WITNESS WHEREOF, Lessee has caused this Acceptance Certificate to be
executed by its duly authorized representative as of the day and year set forth
above.
WESTERN PACIFIC AIRLINES, INC.
By:
Name:
Title:
ATTACHMENTS: 1. List of Engine Documentation
2. List of Discrepancies
<PAGE>
ATTACHMENT 1
TO ACCEPTANCE CERTIFICATE
ENGINE DOCUMENTATION
Engine Log Book (current and file copies)
Engine Data Submittal
Engine previous maintenance visit record including the last inspection
performed
Airworthiness Directive Compliance Summary
ADs requiring continuous surveillance
Service Bulletin terminated accomplishment status
Service Bulletin requiring continuous surveillance summary and maintenance
control action
FAA Form 337 for repair/overhaul certification of last shop visit
Engine time summary sheet including life limited items
Receipt of the foregoing documents, except as noted, is hereby acknowledged.
<PAGE>
ATTACHMENT 2
TO ACCEPTANCE CERTIFICATE
DISCREPANCIES
<PAGE>
EXHIBIT C
FORM OF RETURN ACCEPTANCE RECEIPT
<PAGE>
WESTERN PACIFIC AIRLINES, INC. ("Lessee") and FIRST SECURITY BANK,
NATIONAL ASSOCIATION, not in its individual capacity (except as otherwise
specified) but solely as trustee ("Lessor") have entered into an Engine Lease
Agreement dated as of May 21, 1996 and Amended and Restated as of July 7, 1997
(as supplemented and amended, hereinafter referred to as the "Agreement").
Capitalized words used herein and not otherwise defined will have the meanings
set forth in the Agreement.
(a) Lessor has this ___ day of _____________, _____, at
______________________, received from Lessee possession of:
(i) One (1) General Electric Model CFM56-3B2 jet aircraft
engine, Manufacturer's Serial No. 721150 (the "Engine");
(ii) The manuals, records and historical information regarding the
Engine and Parts listed in Attachment 1 hereto (the "Engine
Documentation") and
(iii) One (1) PF Industries, Inc. model PF71-169 engine stand
bearing serial number 0001B.
(b) Except as noted on Attachment 2 hereto, the above specified Engine and
Engine Documentation are hereby accepted by Lessor pursuant to the terms and
provisions of the Lease.
(c) As of the date hereof, the Engine had the following hours/cycles:
Time to Next
Total Total Time Since Replacement of Lowest
Engine Cycles Time Overhaul Life Limited Part
- ---------------- ------------- --------------- ----------------------
721150
<PAGE>
IN WITNESS WHEREOF, Lessee and Lessor has caused this Return Acceptance
Receipt to be executed by their duly authorized representatives as of the day
and year set forth above.
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as
trustee
By:
Name:
Title:
WESTERN PACIFIC AIRLINES, INC.
By:
Name:
Title:
ATTACHMENTS: 1. List of Engine Documentation
2. List of Discrepancies
<PAGE>
ATTACHMENT 1
TO RETURN ACCEPTANCE RECEIPT
ENGINE DOCUMENTATION
Engine Log Book (current and file copies)
Engine Data Submittal
Engine previous maintenance visit record including the last inspection
performed
Airworthiness Directive Compliance Summary
ADs requiring continuous surveillance
Service Bulletin terminated accomplishment status
Service Bulletin requiring continuous surveillance summary and maintenance
control action
FAA Form 337 for repair/overhaul certification of last shop visit
Engine time summary sheet including life limited items
Receipt of the foregoing documents, except as noted, is hereby acknowledged.
<PAGE>
ATTACHMENT 2
TO RETURN ACCEPTANCE RECEIPT
DISCREPANCIES
<PAGE>
EXHIBIT D
FORM OF MONTHLY REPORT
MONTHLY ENGINE UTILIZATION AND STATUS REPORT
To: FIRST SECURITY BANK,
NATIONAL ASSOCIATION
as Owner Trustee ("Lessor")
79 South Main Street
Salt Lake City, Utah 94111
Attention: Corporate Trust Department
with a copy to:
KG Aircraft Leasing Co., Ltd.
3 Adelaide Court, Adelaide Road
Dublin 2, Ireland
Attention: Managing Director
From: WESTERN PACIFIC AIRLINES, INC. ("Lessee")
2864 S. Circle Drive, Suite 1100
Colorado Springs, Colorado 80806
Re: ENGINE TYPE: GENERAL ELECTRIC CFM56-3B2
REGISTRATION:
SERIAL NUMBER: 721150
MONTH OF 19
===============================================================================
Engine TOTAL TIME SINCE NEW HRS:
===============================================================================
Engine TOTAL CYCLES SINCE NEW CYCLES:
===============================================================================
HOURS DURING MONTH HRS:
===============================================================================
BLOCK HOURS DURING MONTH HRS:
===============================================================================
CYCLES/LANDING DURING MONTH CYCLES:
===============================================================================
TIME REMAINING TO NEXT OVERHAUL
===============================================================================
<PAGE>
NOTE: IF LESSOR OWNED ENGINE IS REMOVED FROM AN AIRFRAME AND/OR INSTALLED ON
AN AIRFRAME IT MUST BE REPORTED MONTHLY ON THIS FORM.
SERVICE BULLETINS, AIRWORTHINESS DIRECTIVES, ENGINEERING MODIFICATIONS OR
CHANGES SCHEDULED OR COMPLETED (INDICATE DATE SCHEDULED FOR COMPLETION OR
DATE OF COMPLETION, AS APPLICABLE):
WARRANTY CLAIMS MADE OR SETTLED SINCE LAST REPORT (INDICATE NATURE OF CLAIM AND
SETTLEMENT, AS APPLICABLE:
The undersigned, a duly elected officer of Lessee, hereby certifies to
Lessor that all airport landing fees and other charges related to or incurred in
connection with any airframe on which the Engine is installed and all other
aircraft in Lessee's fleet, have been paid and are current.
WESTERN PACIFIC AIRLINES, INC.
By:
Its:
<PAGE>
EXHIBIT E
MAINTENANCE RESERVES ADJUSTMENT FORMULA
Flight Hour/
Cycle Ratio Rates
----------- -----
[ ]* - [ ]* $[ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
[ ]* - [ ]* [ ]*
<PAGE>
EXHIBIT A ENGINE DESCRIPTION
EXHIBIT B FORM OF ACCEPTANCE CERTIFICATE
EXHIBIT C FORM OF RETURN ACCEPTANCE RECEIPT
EXHIBIT D FORM OF MONTHLY REPORT
<PAGE>
================================================================================
AIRCRAFT LEASE NOVATION AGREEMENT
This AIRCRAFT LEASE NOVATION AGREEMENT (this "Novation") dated
July __, 1997, is by and among (i) FIRST SECURITY BANK, NATIONAL ASSOCIATION
(formerly First Security Bank of Utah, National Association), not in its
individual capacity (except as otherwise specified), but solely as Owner Trustee
(the "Original Lessor") under a Trust Agreement dated as of November 4, 1993
between itself and Amerilease Capital Corporation Limited ("Amerilease"), (ii)
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity
(except as otherwise specified), but solely as Owner Trustee (the "New Lessor")
under a Trust Agreement dated as of June 15, 1997 between itself and KG Aircraft
Leasing Co., Ltd., (iii) TACA INTERNATIONAL AIRLINES, S.A., a corporation
organized and existing under the laws of El Salvador ("Sublessor") and (iv)
WESTERN PACIFIC AIRLINES, INC., a corporation organized and existing under the
laws of Delaware ("Sublessee").
RECITALS
WHEREAS, Original Lessor and Sublessor, as lessee, are parties to that
certain Aircraft Lease Agreement dated as of November 4, 1993 (as supplemented
and amended, the "Lease"), which together with Lease Supplement No. 1 thereto
dated November 10, 1993 and the Mortgage and Security Agreement dated as of
November 4, 1993 (the "Mortgage") between Lessor and ING Lease International
Equipment Finance B.V. (formerly Internationale Nederlanden Aviation Lease
B.V.), as Agent for itself and each of the Lenders under the Credit Agreement
described therein (the "Mortgagee") were recorded by the FAA on November 12,
1993 and assigned Conveyance No. S091609; and
WHEREAS, pursuant to the Lease, Lessor has leased to Sublessor, as lessee,
one (1) Boeing 737-3S3 aircraft bearing manufacturer's serial number 23787 and
United States registration no. N375TA (to be changed to N954WP), together with
two (2) CFM International, Inc. engines, Model CFM 56-3B2, bearing
manufacturer's serial numbers 720890 and 721734 (the "Aircraft"); and
WHEREAS, the Lease was amended pursuant to Amendment No. 1 to Aircraft
Lease Agreement dated March 29, 1996 which was recorded by the FAA on May 30,
1996 and assigned Conveyance No. HH011972; and
WHEREAS, Sublessor, as sublessor, and Sublessee, as sublessee, are parties
to that certain Aircraft Sublease Agreement dated as of March 18, 1996 (as
supplemented and amended, the "Sublease"), which together with Sublease
Supplement No. 1 thereto dated March 29, 1996, the Assignment of Sublease
Agreement dated as of March 29, 1996 between the Sublessor, as assignor and the
Lessor, as assignee (the "Sublease Assignment") and the Assignment of Security
Document dated as of March 29, 1996 between the Lessor, as assignor, and the
Mortgagee, as assignee (the "Security Assignment") were recorded by the FAA on
May 30, 1996 and assigned Conveyance No. HH011973; and
WHEREAS, pursuant to the Sublease, Sublessor, as sublessor, has leased the
Aircraft to Sublessee, as sublessee; and
1
<PAGE>
WHEREAS, the Sublease was amended pursuant to Amendment No. 1 to Sublease
Agreement dated June 11, 1996, and recorded by the FAA on July 31, 1996 as
Conveyance No. BB24106, and supplemented by Supplement No. 2 to Sublease
Agreement dated June 11, 1996, and recorded by the FAA on May 31, 1996 and
assigned Conveyance No. BB24107; and
WHEREAS, the Sublease was further amended pursuant to Amendment No. 2 to
Sublease Agreement dated March 22, 1997, which was filed with the FAA on June
10, 1997, but not yet recorded; and
WHEREAS, on the date that the Aircraft is sold (the "Closing Date") by the
Original Lessor to the New Lessor, (i) all right, title and interest of the
Mortgagee in and to the Lease, the Mortgage and the Security Assignment is being
released by the Mortgagee and (ii) the Sublease Assignment and the Lease are
being terminated and all rights of the Original Lessor thereunder are being
released, in each case, contemporaneously with the execution and delivery of
this Novation; and
WHEREAS, Sublessor desires to novate certain of its rights and obligations
under the Sublease to the New Lessor, and the New Lessor desires to assume such
rights and obligations and in connection with such novation and simultaneously
therewith, the New Lessor and the Sublessee intend to enter into an Amended and
Restated Aircraft Lease Agreement (the "Amended and Restated Lease"); and
Section 1. DEFINITIONS. Capitalized terms used herein and not defined
otherwise herein shall have the meanings specified in the Sublease or by
reference therein.
Section 2. NOVATION OF SUBLEASE. Subject to the terms and conditions of
this Novation, the parties hereto agree that from and after the Closing Date:
(a) The Sublessor assigns to New Lessor all of Sublessor's
right, title and interest, and all of the covenants, undertakings, duties,
liabilities and obligations of the Sublessor in and under the Sublease arising
on or after the Closing Date.
(b) The Sublessor releases and discharges the Sublessee from
the performance of any and all of its covenants, undertakings, obligations,
duties and liabilities to the Sublessor under the Sublease to the extent the
same arise or accrue on or after the Closing Date. The Sublessor releases and
discharges the Sublessee and its officers, directors, employees, agents and
servants, and the Sublessee releases and discharges the Sublessor and its
officers, directors, employees, agents and servants, of and from any and all
actions, causes of action, claims, demands, costs, expenses, compensation and
consideration, which either party (Sublessor or Sublessee) now has, or may
hereafter have, on account of, or arising out of that certain letter of intent,
dated July 25, 1996, among Amerilease, the Sublessor and the Sublessee, or
otherwise on account of, related to or arising out of the transaction
contemplated thereby, and each party (Sublessor and Sublessee) agrees to
indemnify, defend and hold the other harmless for, from and against any and all
claims that may be asserted by any third party (including without limitation
Amerilease) with respect to the matters subject to the foregoing releases.
(c) The Sublessee releases and discharges the Sublessor from
the Sublessor's covenants, undertakings, obligations, duties and liabilities to
Sublessee under the Sublease to the extent the same arise or accrue on or after
the Closing Date.
2
<PAGE>
(d) The New Lessor agrees with the Sublessee and the Sublessor
to assume all of the right, title and interest, and all of the covenants,
undertakings, duties, liabilities and obligations of the Sublessor in and under
the Sublease, other than the obligation to Cauff, Lippman & Crane Aviation, Inc.
as provided in Section 3(c) thereof, arising on or after the Closing Date and
hereby undertakes to observe and perform in favor of the Sublessee at all times
on or after the Closing Date, all of the covenants, undertakings, duties,
obligations and liabilities originally made, given or assumed by the Sublessor
under or pursuant to the Sublease, including, without limitation, any and all
obligations in respect of the Security Deposit and the Maintenance Reserves.
(e) The Sublessee agrees with the New Lessor to observe and
perform in favor of and for the benefit of the New Lessor all of the covenants,
undertakings, duties, obligations and liabilities originally made, given or
assumed by the Sublessee in favor of the Sublessor under or pursuant to the
Sublease arising on or after the Closing Date.
(f) The Sublessee hereby expressly consents to and accepts the
assumption by the New Lessor of the Sublessor's right, title, interest,
covenants, undertakings, obligations, duties and liabilities under the Sublease
arising or accruing on or after the Closing Date.
(g) The Sublessee agrees that it will not assert against the
Sublessor any claim or defense that it may have against the New Lessor under the
Amended and Restated Lease to the extent the same is attributable to any act or
event occurring on or after the Closing Date.
(h) The Sublessee agrees that it will not assert against the
New Lessor any claim or defense that it may have against the Sublessor under the
Sublease to the extent the same is attributable to any act or event occurring
prior to the Closing Date.
(i) The Sublessee, the New Lessor and the Sublessor
accordingly agree that
(i) from and after the Closing Date, the Amended and
Restated Lease constitutes an agreement between the
New Lessor (as lessor) and the Sublessee (as lessee)
on the terms and conditions set forth therein;
(ii) from and after the Closing Date, the Sublessor's
obligation to lease the Aircraft to the Sublessee is
terminated and the Sublessee accepts the New Lessor's
obligation to lease the Aircraft to the Sublessee and
the Sublessee will take the Aircraft on lease from
the New Lessor, and the New Lessor agrees to lease
the Aircraft to the Sublessee, on the terms and
conditions set forth in the Amended and Restated
Lease; and
(iii) from and after the Closing Date, the Sublessee shall
make all payments of Rent and all other amounts due
and payable under the Amended and Restated Lease to
the New Lessor, or as the New Lessor may direct in
accordance with the terms of the Amended and Restated
Lease, and shall look solely to the New Lessor for
reimbursement of the Security Deposit and the
Maintenance Reserves in accordance with the terms
thereof.
3
<PAGE>
Section 3. CLAIMS ARISING PRIOR TO THE CLOSING DATE. (a) Without prejudice
to the rights of the New Lessor under the Amended and Restated Lease, the
Sublessor and the Sublessee agree that each of them, and each Indemnitee (as
defined in the Sublease) shall have, pursuant to this Section 3, the same rights
and remedies as they would have had under the Sublease (including, without
limitation, Sublessee's indemnities under Section 12 of the Sublease), without
regard to any amendment thereto effected by the Amended and Restated Lease, in
respect of any losses, liabilities indemnities or claims suffered or incurred or
brought against, or payment due to, the other to the extent attributable to any
period ending prior to the Closing Date to the same extent as provided for under
the Sublease as in effect prior to the execution and delivery of the Amended and
Restated Lease.
(b) The Sublessee hereby acknowledges and agrees that all of the covenants,
undertakings, obligations and liabilities of the Sublessor under Section 6(b) of
the Sublease have been fully performed and that it has no claims against any
Maintenance Reserves or the Sublessor in respect thereof.
Section 4. MAINTENANCE RESERVES; SECURITY DEPOSIT. (a) On the Closing Date,
the New Lessor has agreed to pay the purchase price to the Original Lessor, and
such purchase price reflects a reduction in respect of the amount of Maintenance
Reserves and Security Deposit held on the Closing Date by or on behalf of the
Sublessor. From and after the Closing Date, the Sublessee shall look only to the
New Lessor for the reimbursement of the Security Deposit and any Maintenance
Reserves in accordance with the provisions of the Amended and Restated Lease.
For the avoidance of doubt, the Sublessee confirms, for the benefit of the
Sublessor and the New Lessor, that the amounts being held by the Sublessor for
Maintenance Reserves are as set forth below:
Airframe C-7 or D-check $[ ]*
Engine MSN 720890
Shop Visit Portion $[ ]*
LLP Portion $[ ]*
Engine MSN 721734
Shop Visit Portion $[ ]*
LLP Portion $[ ]*
The amount of the Security Deposit being held in respect of the
Aircraft is $[ ]*
(b) From and after the Closing Date, all payments to be made by the
Sublessee in respect of Maintenance Reserves shall be paid to the New Lessor and
not to the Sublessor, and the Sublessor shall not make any claim thereon or have
any right therein. From and after the Closing Date, the New Lessor shall have
the right to receive all Maintenance Reserve payments that have accrued since
the immediately preceding date on which Maintenance Reserves were due pursuant
to Section 6(b) of the Sublease and the Sublessee shall pay all such amounts to
the New Lessor on the due date therefor in accordance with the terms of the
Amended and Restated Lease.
4
<PAGE>
Section 5. CONDITIONS PRECEDENT. On or prior to the Closing Date, the
Sublessee shall deliver to the New Lessor and Sublessor (i) an opinion of
counsel in form and substance reasonably satisfactory to the New Lessor to the
effect, among other things, that this Novation and the Amended and Restated
Lease have been duly authorized by the Sublessee and constitute enforceable
obligations of the Sublessee and (ii) a certificate of insurance evidencing
compliance by the Sublessee with the provisions of Section 9 of the Amended and
Restated Lease and Section 6 of this Novation.
Section 6. INSURANCE. (a) Required Insurance. From and after the Closing
Date and until the earlier of April 30, 1999 or the date of the next "D" check
(or its equivalent) on the Aircraft, Sublessee shall maintain public liability
(including, without limitation, aircraft third-party, baggage, cargo,
contractual and passenger legal liability including war risks), property damage
liability insurance with respect to the Aircraft and general airline third party
legal liability insurance (including products liability insurance) with insurers
of recognized responsibility and good repute specializing in aviation insurance
in the leading international markets, in amounts at least equal to [ ]* Dollars
(U.S. $[ ]*) per occurrence subject to no deductible except deductibles as to
baggage and cargo that are standard in the airline industry in respect of
carriers operating in the countries in which the operator of the Aircraft
operates.
(b) TERMS OF INSURANCE. Any policies carried in accordance with Section
6(a) hereof and any policies taken out in substitution or replacement for any
such policies shall (i) insure the interests of and name as additional insureds,
each of the Original Lessor, Amerilease and Sublessor and their respective
officers, directors, employees and agents (the "Additional Insureds") and
provide that the Additional Insureds bear no liability for the payment of
premiums; (ii) provide that the coverages afforded by such policies to the
Additional Insureds shall not be invalidated by any act or omission of any named
insured or other person which results in a violation of the terms, conditions or
warranties of the policies, provided that the named insured or the person so
protected has not caused, contributed to or knowingly condoned the said act or
omission; (iii) provide that if there is any cancellation of the insurance, such
cancellation shall not be effective as to any Additional Insured for thirty (30)
days (with respect to war risk insurance, seven (7) days or such lesser period
as may be customarily available) after the underwriters of such insurance issue
written notice of such cancellation or alteration; (iv) contain a waiver by the
insurers of (A) all rights of subrogation against any and all of the Additional
Insureds and (B) and rights of set-off, counterclaim or any other deductions
whether by attachment or otherwise, which they may have against any Additional
Insured; and (v) be primary and without right of contribution from any other
insurance carried by any of the Additional Insureds, and shall expressly provide
that all of the provisions thereof (except limits of liability) shall operate in
the same manner as if there were a separate policy covering each Additional
Insured; with substantially the same endorsements (insofar as the same apply to
liability coverage) as are currently in effect with respect to the Aircraft.
(c) INSURANCE CERTIFICATES. On or before the Closing Date, and promptly
after each renewal or replacement of the policies of insurance covering the
Aircraft, Sublessee shall cause to be furnished to Sublessor an insurance
certificate of independent aircraft insurance brokers evidencing that the
insurance then carried and maintained on the Aircraft complies with the terms
hereof. Sublessee shall cause such firm to advise the Additional Insureds in
writing promptly of any default in the payment of any premium, of any other act
or omission on the part of Sublessee of which such firm has knowledge that might
invalidate or render unenforceable, in whole or in part, any insurance provided
pursuant to Section 6(a).
5
<PAGE>
Section 7. REPRESENTATIONS. (a) REPRESENTATIONS OF EACH PARTY. Each party
hereto represents and warrants (each as to itself only) to each of the other
parties as of the Closing Date as follows:
(i) Such party has the power, authority and legal right
to execute and deliver this Novation and to perform
its obligations hereunder, such execution, delivery
and performance have been authorized by all necessary
corporate and other action of such party and this
Novation constitutes the legal, valid and binding
agreement of such party, enforceable in accordance
with its terms except as limited by bankruptcy,
insolvency, moratorium, reorganization, receivership,
fraudulent conveyance or other similar laws or
equitable principles of general application to or
affecting the enforcement of creditors' rights and
remedies generally from time to time in effect,
regardless of whether such enforceability is
considered in a proceeding at equity or at law.
(ii) All governmental and other licenses, approvals and
consents that may be necessary for such party to
enter into this Novation have been obtained and are
in full force and effect.
(iii) The execution, delivery and performance of this
Novation by such party will not contravene or violate
any provision of any law, rule, regulation or order
binding on such party or any of its organizational
documents and will not contravene the provisions of,
or constitute a default under, any contract or other
instrument binding upon such party.
(b) REPRESENTATIONS OF SUBLESSOR. Sublessor represents and warrants to the
Sublessee and to the New Lessor as of the Closing Date as follows:
(i) all payments of Rent due as at the Closing Date
have been duly made to the Sublessor and received by
it, and
(ii) as of the Closing Date, Sublessor is not aware of any
claims that it has against the Sublessee arising
under or pursuant to the Sublease.
(c) REPRESENTATIONS OF SUBLESSEE. The Sublessee represents and warrants to
the Sublessor and to the New Lessor as of the Closing Date as follows:
(i) each of the representations and warranties of the
Sublessee set forth in the Amended and Restated Lease
are true on and as of the Closing Date, and
(ii) as of the Closing Date, the Sublessee is not aware of
any claims that it has against the Sublessor,
Amerilease or the Original Lessor, including, without
limitation, any claims for reimbursement of
Maintenance Reserves pursuant to Section 6(b) of the
Sublease.
(d) REPRESENTATIONS OF NEW LESSOR. The New Lessor represents and warrants
to the Sublessee as of the Closing Date that each of the representations and
warranties of the New Lessor set forth in the Amended and Restated Lease are
true on and as of the Closing Date.
6
<PAGE>
Section 8. MISCELLANEOUS.
(a) COUNTERPARTS. This Novation may be executed by the parties hereto in
separate counterparts each of which, when so executed and delivered, shall be an
original for all purposes, but all such counterparts shall together constitute
but one and the same instrument.
(b) SEVERABILITY. If any term or provision hereof or the application
thereof to any circumstance shall, in any jurisdiction and to any extent, be
invalid or unenforceable, such term or such provision shall be ineffective as to
such jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable any remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable. To the extent permitted
by applicable law, the parties hereto hereby waive any provision of law that
renders any term or provision hereof invalid or unenforceable in any respect.
(c) FURTHER ASSURANCES. Each party will promptly and duly execute and
deliver all such documents and assurances and take such further action as the
other party may from time to time reasonably request in order to carry out more
effectively the intent and purpose of this Novation and to establish and protect
the rights and remedies created or intended to be created in favor of the
parties, including, without limitation, if requested by Lessor, at the expense
of Lessor, the recording or filing of this Novation or any other document or
financing statement with respect to the transactions contemplated hereby so as
to more effectively carry out the intent of such transactions, in accordance
with the laws of such jurisdictions as either party from time to time reasonably
requests.
(d) ENTIRE AGREEMENT. This Novation embodies the entire agreement and
understanding between the parties relating to the matters provided for herein,
and supersedes all prior agreements and understandings relating thereto.
(e) SUCCESSORS AND ASSIGNS. This Novation shall be binding upon and inure
to the benefit of the parties hereto and their successors and assigns.
(f) GOVERNING LAW. THIS NOVATION SHALL IN ALL RESPECTS, INCLUDING WITHOUT
LIMITATION, ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(g) EXPENSES. Each of the parties hereto shall bear its own expenses in
connection with this Novation and the transactions contemplated hereby,
including, without limitation, its own attorneys' fees, except that KGAL and
TACA shall each pay one half of any expenses in connection with any Aviation
Authority or other filings, including the fees and disbursements of special
local counsel retained in connection therewith. All expenses incurred by WestPac
for which it is entitled to reimbursement pursuant to the Sublease shall be for
the account of TACA except any such expenses relating solely to the negotiation,
preparation, execution and delivery of the Amended and Restated Aircraft Lease,
which shall be for the account of KGAL.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Novation
to be duly executed as of the day and year first above written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION, (formerly First
Security Bank of Utah, National Association), not in its
individual capacity but solely as Owner Trustee under the 1993
Trust Agreement
By:_____________________________________________
Name:
Title:
FIRST SECURITY BANK, NATIONAL ASSOCIATION, (formerly First
Security Bank of Utah, National Association), not in its
individual capacity but solely as Owner Trustee under the 1997
Trust Agreement
By:_____________________________________________
Name:
Title:
TACA INTERNATIONAL AIRLINES, S.A.
By:______________________________________________
Name:
Title:
WESTERN PACIFIC AIRLINES, INC.
By:______________________________________________
Name:
Title:
<PAGE>
================================================================================
ENGINE LEASE NOVATION AGREEMENT
-------------------------------
This ENGINE LEASE NOVATION AGREEMENT (this "Novation")
dated July __, 1997, is by and among (i) FIRST SECURITY
BANK, NATIONAL ASSOCIATION, not in its individual capacity (except as otherwise
specified), but solely as Owner Trustee (the "New Lessor") under a Trust
Agreement dated as of June 15, 1997 between itself and KG Aircraft Leasing Co.,
Ltd., (ii) TACA INTERNATIONAL AIRLINES, S.A., a corporation organized and
existing under the laws of El Salvador ("Original Lessor") and (iii) WESTERN
PACIFIC AIRLINES, INC., a corporation organized and existing under the laws of
Delaware ("Lessee").
RECITALS
--------
WHEREAS, Original Lessor and Lessee are parties to that certain Engine
Lease Agreement dated as of May 21, 1996 (as supplemented and amended, the
"Engine Lease"), which was recorded by the FAA on July 31, 1996 and assigned
Conveyance No. BB24108; and
WHEREAS, pursuant to the Engine Lease, Original Lessor has leased to
Lessee, as lessee, one (1) CFM International, Inc. engine, Model CFM56-3B2,
bearing manufacturer's serial number 721150 (the "Engine") together with that
certain PF Industries, Inc. model PF71-169 engine stand bearing serial number
0001B; and
WHEREAS, on the date that the Engine is sold (the "Closing Date") by the
Original Lessor to the New Lessor, Original Lessor desires to novate certain of
its rights and obligations under the Engine Lease to the New Lessor, and the New
Lessor desires to assume such rights and obligations and in connection with such
novation and simultaneously therewith, the New Lessor and the Lessee intend to
enter into an Amended and Restated Engine Lease Agreement (the "Amended and
Restated Engine Lease"); and
Section 1. DEFINITIONS. Capitalized terms used herein and not defined
otherwise herein shall have the meanings specified in the Engine Lease or by
reference therein.
Section 2. NOVATION OF ENGINE LEASE. Subject to the terms and conditions of
this Novation, the parties hereto agree that from and after the Closing Date:
(a) The Original Lessor assigns to New Lessor all of Original Lessor's
right, title and interest, and all of the covenants, undertakings, duties,
liabilities and obligations of the Original Lessor in and under the Engine Lease
arising on or after the Closing Date.
(b) The Original Lessor releases and discharges the Lessee from the
performance of any and all of its covenants, undertakings, obligations, duties
and liabilities to the Original Lessor under the Engine Lease to the extent the
same arise or accrue on or after the Closing Date.
(c) The Lessee releases and discharges the Original Lessor from the
Original Lessor's covenants, undertakings, obligations, duties and liabilities
to Lessee under the Engine Lease to the extent the same arise or accrue on or
after the Closing Date.
1
<PAGE>
(d) The New Lessor agrees with the Lessee and the Original Lessor to assume
all of the right, title and interest, and all of the covenants, undertakings,
duties, liabilities and obligations of the Original Lessor in and under the
Engine Lease, other than the obligation to Cauff, Lippman & Crane Aviation, Inc.
as provided in Section 3(c) thereof, arising on or after the Closing Date and
hereby undertakes to observe and perform in favor of the Lessee at all times on
or after the Closing Date, all of the covenants, undertakings, duties,
obligations and liabilities originally made, given or assumed by the Original
Lessor under or pursuant to the Engine Lease, including, without limitation, any
and all obligations in respect of the Security Deposit and the Engine Reserves.
(e) The Lessee agrees with the New Lessor to observe and perform in favor
of and for the benefit of the New Lessor all of the covenants, undertakings,
duties, obligations and liabilities originally made, given or assumed by the
Lessee in favor of the Original Lessor under or pursuant to the Engine Lease
arising on or after the Closing Date.
(f) The Lessee hereby expressly consents to and accepts the assumption by
the New Lessor of the Original Lessor's right, title, interest, covenants,
undertakings, obligations, duties and liabilities under the Engine Lease arising
or accruing on or after the Closing Date.
(g) The Lessee agrees that it will not assert against the Original Lessor
any claim or defense that it may have against the New Lessor under the Amended
and Restated Engine Lease to the extent the same is attributable to any act or
event occurring on or after the Closing Date.
(h) The Lessee agrees that it will not assert against the New Lessor any
claim or defense that it may have against the Original Lessor under the Engine
Lease to the extent the same is attributable to any act or event occurring prior
to the Closing Date.
(i) The Lessee, the New Lessor and the Original Lessor accordingly agree
that
(i) from and after the Closing Date, the Amended and
Restated Engine Lease constitutes an agreement
between the New Lessor (as lessor) and the Lessee
(as lessee) on the terms and conditions set forth
therein;
(ii) from and after the Closing Date, the Original
Lessor's obligation to lease the Engine to the
Lessee is terminated and the Lessee accepts the
New Lessor's obligation to lease the Engine to
the Lessee and the Lessee will take the Engine on
lease from the New Lessor, and the New Lessor
agrees to lease the Engine to the Lessee, on the
terms and conditions set forth in the Amended and
Restated Engine Lease; and
(iii) from and after the Closing Date, the Lessee shall
make all payments of Rent and all other amounts
due and payable under the Amended and Restated
Engine Lease to the New Lessor, or as the New
Lessor may direct in accordance with the terms of
the Amended and Restated Engine Lease, and shall
look solely to the New Lessor for reimbursement
of the Security Deposit and the Engine Reserves
in accordance with the terms thereof.
2
<PAGE>
Section 3. CLAIMS ARISING PRIOR TO THE CLOSING DATE. (a) Without prejudice
to the rights of the New Lessor under the Amended and Restated Engine Lease, the
Original Lessor and the Lessee agree that each of them, and each Indemnitee (as
defined in the Engine Lease) shall have, pursuant to this Section 3, the same
rights and remedies as they would have had under the Engine Lease (including,
without limitation, Lessee's indemnities under Section 12 of the Engine Lease),
without regard to any amendment thereto effected by the Amended and Restated
Engine Lease, in respect of any losses, liabilities indemnities or claims
suffered or incurred or brought against, or payment due to, the other to the
extent attributable to any period ending prior to the Closing Date to the same
extent as provided for under the Engine Lease as in effect prior to the
execution and delivery of the Amended and Restated Engine Lease.
(b) The Lessee hereby acknowledges and agrees that all of the covenants,
undertakings, obligations and liabilities of the Original Lessor under Section
6(b) of the Engine Lease have been fully performed and that it has no claims
against any Engine Reserves or the Original Lessor in respect thereof.
Section 4. ENGINE RESERVES; SECURITY DEPOSIT. (a) On the Closing Date, the
New Lessor has agreed to pay the purchase price to the Original Lessor, and such
purchase price reflects a reduction in respect of the amount of Engine Reserves
and Security Deposit held on the Closing Date by or on behalf of the Original
Lessor. From and after the Closing Date, the Lessee shall look only to the New
Lessor for the reimbursement of the Security Deposit and any Engine Reserves in
accordance with the provisions of the Amended and Restated Engine Lease. For the
avoidance of doubt, the Lessee confirms, for the benefit of the Original Lessor
and the New Lessor, that the amounts being held by the Original Lessor for
Engine Reserves are as set forth below:
Engine MSN 721150
Shop Visit Portion $[ ]*
LLP Portion $[ ]*
The amount of the Security Deposit being held in respect of the Engine is
$[ ]*.
(b) From and after the Closing Date, all payments to be made by the Lessee
in respect of Engine Reserves shall be paid to the New Lessor and not to the
Original Lessor, and the Original Lessor shall not make any claim thereon or
have any right therein. From and after the Closing Date, the New Lessor shall
have the right to receive all Engine Reserve payments that have accrued since
the immediately preceding date on which Engine Reserves were due pursuant to
Section 6(b) of the Engine Lease and the Lessee shall pay all such amounts to
the New Lessor on the due date therefor in accordance with the terms of the
Amended and Restated Engine Lease.
Section 5. CONDITIONS PRECEDENT. On or prior to the Closing Date, the
Lessee shall deliver to the New Lessor and Original Lessor(i) an opinion of
counsel in form and substance reasonably satisfactory to the New Lessor to the
effect, among other things, that this Novation and the Amended and Restated
Engine Lease have been duly authorized by the Lessee and constitute enforceable
obligations of the Lessee and (ii) a certificate of insurance evidencing
compliance by the Lessee with the provisions of Section 9 of the Amended and
Restated Engine Lease and Section 6 of this Novation.
3
<PAGE>
Section 6. INSURANCE. (a) REQUIRED INSURANCE From and after the Closing
Date and until the earlier of April 30, 1999 or the date of the next "D" check
(or its equivalent) on the Boeing 737-3S3 aircraft bearing manufacturer's serial
number 23787 and United States registration no. N375TA (to be changed to N954WP)
(the "Aircraft"), Lessee shall maintain public liability (including, without
limitation, aircraft third-party, baggage, cargo, contractual and passenger
legal liability including war risks), property damage liability insurance with
respect to any aircraft on which the Engine is installed and general airline
third party legal liability insurance (including products liability insurance)
with insurers of recognized responsibility and good repute specializing in
aviation insurance in the leading international markets, in amounts at least
equal to [ ]* Dollars (U.S. $[ ]*) per occurrence subject to no deductible
except deductibles as to baggage and cargo that are standard in the airline
industry in respect of carriers operating in the countries in which the operator
of the aircraft on which the Engine is installed operates.
(b) TERMS OF INSURANCE.Any policies carried in accordance with Section 6(a)
hereof and any policies taken out in substitution or replacement for any such
policies shall (i) insure the interests of and name as additional insureds,
Original Lessor and its respective officers, directors, employees and agents
(the "Additional Insureds") and provide that the Additional Insureds bear no
liability for the payment of premiums; (ii) provide that the coverages afforded
by such policies to the Additional Insureds shall not be invalidated by any act
or omission of any named insured or other person which results in a violation of
the terms, conditions or warranties of the policies, provided that the named
insured or the person so protected has not caused, contributed to or knowingly
condoned the said act or omission; (iii) provide that if there is any
cancellation of the insurance, such cancellation shall not be effective as to
any Additional Insured for thirty (30) days (with respect to war risk insurance,
seven (7) days or such lesser period as may be customarily available) after the
underwriters of such insurance issue written notice of such cancellation or
alteration; (iv) contain a waiver by the insurers of (A) all rights of
subrogation against any and all of the Additional Insureds and (B) and rights of
set-off, counterclaim or any other deductions whether by attachment or
otherwise, which they may have against any Additional Insured; and (v) be
primary and without right of contribution from any other insurance carried by
any of the Additional Insureds, and shall expressly provide that all of the
provisions thereof (except limits of liability) shall operate in the same manner
as if there were a separate policy covering each Additional Insured; with
substantially the same endorsements (insofar as the same apply to liability
coverage) as are currently in effect with respect to the Engine.
(c) INSURANCE CERTIFICATES. On or before the Closing Date, and promptly
after each renewal or replacement of the policies of insurance covering the
Aircraft, Lessee shall cause to be furnished to Original Lessor an insurance
certificate of independent aircraft insurance brokers evidencing that the
insurance then carried and maintained on any aircraft on which the Engine is
installed complies with the terms hereof. Lessee shall cause such firm to advise
the Additional Insureds in writing promptly of any default in the payment of any
premium, of any other act or omission on the part of Lessee of which such firm
has knowledge that might invalidate or render unenforceable, in whole or in
part, any insurance provided pursuant to Section 6(a).
4
<PAGE>
Section 7. REPRESENTATIONS. (a) REPRESENTATIONS OF EACH PARTY. Each party
hereto represents and warrants (each as to itself only) to each of the other
parties as of the Closing Date as follows:
(i) Such party has the power, authority and legal
right to execute and deliver this Novation and
to perform its obligations hereunder, such
execution, delivery and performance have been
authorized by all necessary corporate and other
action of such party and this Novation
constitutes the legal, valid and binding
agreement of such party, enforceable in
accordance with its terms except as limited by
bankruptcy, insolvency, moratorium,
reorganization, receivership, fraudulent
conveyance or other similar laws or equitable
principles of general application to or
affecting the enforcement of creditors' rights
and remedies generally from time to time in
effect, regardless of whether such
enforceability is considered in a proceeding at
equity or at law.
(ii) All governmental and other licenses, approvals
and consents that may be necessary for such party
to enter into this Novation have been obtained
and are in full force and effect.
(iii) The execution, delivery and performance of this
Novation by such party will not contravene or
violate any provision of any law, rule,
regulation or order binding on such party or any
of its organizational documents and will not
contravene the provisions of, or constitute a
default under, any contract or other instrument
binding upon such party.
(b) REPRESENTATIONS OF ORIGINAL LESSOR. Original Lessor represents and
warrants to the Lessee and to the New Lessor as of the Closing Date as follows:
(i) all payments of Rent due as at the Closing Date
have been duly made to the Original Lessor and
received by it, and
(ii) as of the Closing Date, Original Lessor is not
aware of any claims that it has against the
Lessee arising under or pursuant to the Engine
Lease.
(c) REPRESENTATIONS OF LESSEE. The Lessee represents and warrants to the
Original Lessor and to the New Lessor as of the Closing Date as follows:
(i) each of the representations and warranties of the
Lessee set forth in the Amended and Restated
Engine Lease are true on and as of the Closing
Date, and
(ii) as of the Closing Date, the Lessee is not aware
of any claims that it has against the Original
Lessor, including, without limitation, any claims
for reimbursement of Engine Reserves pursuant to
Section 6(b) of the Engine Lease.
(d) REPRESENTATIONS OF NEW LESSOR. The New Lessor represents and warrants
to the Lessee as of the Closing Date that each of the representations and
warranties of the New Lessor set forth in the Amended and Restated Engine Lease
are true on and as of the Closing Date.
Section 8. MISCELLANEOUS.
(a) COUNTERPARTS. This Novation may be executed by the parties hereto in
separate counterparts each of which, when so executed and delivered, shall be an
original for all purposes, but all such counterparts shall together constitute
but one and the same instrument.
5
<PAGE>
(b) SEVERABILITY. If any term or provision hereof or the application
thereof to any circumstance shall, in any jurisdiction and to any extent, be
invalid or unenforceable, such term or such provision shall be ineffective as to
such jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable any remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable. To the extent permitted
by applicable law, the parties hereto hereby waive any provision of law that
renders any term or provision hereof invalid or unenforceable in any respect.
(c) FURTHER ASSURANCES. Each party will promptly and duly execute and
deliver all such documents and assurances and take such further action as the
other party may from time to time reasonably request in order to carry out more
effectively the intent and purpose of this Novation and to establish and protect
the rights and remedies created or intended to be created in favor of the
parties, including, without limitation, if requested by Lessor, at the expense
of Lessor, the recording or filing of this Novation or any other document or
financing statement with respect to the transactions contemplated hereby so as
to more effectively carry out the intent of such transactions, in accordance
with the laws of such jurisdictions as either party from time to time reasonably
requests.
(d) ENTIRE AGREEMENT. This Novation embodies the entire agreement and
understanding between the parties relating to the matters provided for herein,
and supersedes all prior agreements and understandings relating thereto.
(e) SUCCESSORS AND ASSIGNS. This Novation shall be binding upon and inure
to the benefit of the parties hereto and their successors and assigns.
(f) GOVERNING LAW. THIS NOVATION SHALL IN ALL RESPECTS, INCLUDING WITHOUT
LIMITATION, ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(g) EXPENSES. Each of the parties hereto shall bear its own expenses in
connection with this Novation and the transactions contemplated hereby,
including, without limitation, its own attorneys' fees, except that KGAL and
TACA shall each pay one half of any expenses in connection with any Aviation
Authority or other filings, including the fees and disbursements of special
local counsel retained in connection therewith. All expenses incurred by WestPac
for which it is entitled to reimbursement pursuant to the Engine Lease shall be
for the account of TACA except any such expenses relating solely to the
negotiation, preparation, execution and delivery of the Amended and Restated
Engine Lease, which shall be for the account of KGAL.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Novation
to be duly executed as of the day and year first above written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION, (formerly First
Security Bank of Utah, National Association), not in its
individual capacity but solely as Owner Trustee under the
1997 Trust Agreement
By:_____________________________________________
Name:
Title:
TACA INTERNATIONAL AIRLINES, S.A.
By:______________________________________________
Name:
Title:
WESTERN PACIFIC AIRLINES, INC.
By:______________________________________________
Name:
Title:
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> BALANCE SHTS, INCOME STATEMTS, & CASH FLOWS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,947,456
<SECURITIES> 0
<RECEIVABLES> 14,529,724
<ALLOWANCES> 428,000
<INVENTORY> 0
<CURRENT-ASSETS> 54,579,523
<PP&E> 35,033,119
<DEPRECIATION> 4,420,287
<TOTAL-ASSETS> 132,423,892
<CURRENT-LIABILITIES> 98,344,289
<BONDS> 0
0
24,065,190
<COMMON> 13,551
<OTHER-SE> (6,605,725)
<TOTAL-LIABILITY-AND-EQUITY> (6,556,174)
<SALES> 64,738,821
<TOTAL-REVENUES> 66,331,419
<CGS> 0
<TOTAL-COSTS> 86,676,978
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 637,486
<INCOME-PRETAX> (20,983,045)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,983,045)
<EPS-PRIMARY> (1.68)
<EPS-DILUTED> 0
</TABLE>
