<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED NOVEMBER 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-25202
KITTY HAWK, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2564006
(State of Incorporation) (I.R.S. Employer
Identification No.)
1515 West 20th Street
P.O. Box 612787
Dallas/Fort Worth International Airport, Texas 75261
(972) 456-2200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x ] No [ ]
Number of shares outstanding of the registrant's common stock, $0.01 par value,
as of January 13, 1997:
10,451,807.
<PAGE> 2
KITTY HAWK, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Page Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
November 30, 1996 and August 31, 1996 ....................... 3
Condensed Consolidated Statements of Income
Three months ended November 30, 1996 and 1995 ............... 4
Condensed Consolidated Statements of Cash Flows
Three months ended November 30, 1996 and 1995 ............... 5
Condensed Consolidated Statements of Stockholders' Equity
Three months ended November 30, 1996 ........................ 6
Notes to Condensed Consolidated Financial Statements ........... 7 - 8
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations. ........................ 9 - 14
PART II. OTHER INFORMATION
Item 1.Legal Proceedings ......................................... 15
Item 2.Changes in Securities. .................................... 15
Item 3.Defaults upon Senior Securities ........................... 15
Item 4.Submission of Matters to a Vote of Security Holders ....... 15
Item 5.Other Information ......................................... 15
Item 6.Reports on Form 8-K and Exhibits .......................... 15 - 16
Signatures ....................................................... 17
</TABLE>
2
<PAGE> 3
PART I.FINANCIAL INFORMATION
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
ASSETS 1996 1996
-------------- --------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents ............................. $ 27,294,783 $ 5,763,904
Trade accounts receivable ............................. 9,141,216 14,195,990
Deferred income taxes ................................. 156,562 156,562
Income tax receivable ................................. 176,015 765,395
Inventory and aircraft supplies ....................... 2,578,197 1,713,812
Prepaid expenses and other assets ..................... 2,702,441 918,929
-------------- --------------
Total current assets .............................. 42,049,214 23,514,592
-------------- --------------
Property and equipment
Aircraft .............................................. 58,782,586 53,695,320
Aircraft work-in-progress ............................. 16,271,689 13,476,355
Machinery and equipment ............................... 2,493,605 1,776,319
Furniture and fixtures ................................ 246,370 241,370
Transportation equipment .............................. 289,499 236,708
-------------- --------------
78,083,749 69,426,072
Less: accumulated depreciation and amortization ...... (15,016,667) (13,112,786)
-------------- --------------
Net property and equipment ........................ 63,067,082 56,313,286
-------------- --------------
Total assets ............................................... $ 105,116,296 $ 79,827,878
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ...................................... $ 8,069,013 $ 12,952,180
Accrued expenses ...................................... 1,840,769 1,580,465
Accrued maintenance reserves .......................... 2,105,471 2,323,466
Revolving Credit Facility for aircraft acquisitions
expected to be refinanced ........................... 10,000,000 10,000,000
Current maturities of long-term debt .................. 3,658,916 3,620,240
-------------- --------------
Total current liabilities ......................... 25,674,169 30,476,351
Long-term debt ............................................. 22,344,902 23,291,302
Deferred income taxes ...................................... 2,421,480 2,421,480
Commitments and contingencies
Stockholders' equity
Preferred stock, $1 par value: Authorized shares
--1,000,000, none issued ........................... -- --
Common stock, $.01 par value: Authorized
shares --25,000,000; issued and outstanding
--10,669,517 and 7,967,710, respectively ........... 106,695 79,677
Additional paid in capital ............................ 34,013,159 4,635,524
Retained earnings ..................................... 22,632,193 20,999,846
Less common stock in treasury,
217,710 shares ..................................... (2,076,302) (2,076,302)
-------------- --------------
Total stockholders' equity ........................ 54,675,745 23,638,745
-------------- --------------
Total liabilities and stockholders' equity ................. $ 105,116,296 $ 79,827,878
============== ==============
</TABLE>
See accompanying notes.
3
<PAGE> 4
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Air freight carrier ......................... $ 13,252,829 $ 12,816,182
Air logistics ............................... 12,160,877 23,229,016
------------ ------------
Total revenues ........................... 25,413,706 36,045,198
------------ ------------
Costs of revenues:
Air freight carrier ......................... 9,081,228 8,518,032
Air logistics ............................... 11,214,356 21,590,934
------------ ------------
Total costs of revenues .................. 20,295,584 30,108,966
------------ ------------
Gross profit ................................... 5,118,122 5,936,232
General and administrative expenses ............ 2,031,897 2,012,230
Non-qualified employee profit sharing expense .. 235,620 359,781
------------ ------------
Operating income ............................... 2,850,605 3,564,221
Other income (expense):
Interest expense ............................ (463,304) (360,784)
Other, net .................................. 333,278 29,834
------------ ------------
Income before income taxes ..................... 2,720,579 3,233,271
Income taxes ................................... 1,088,232 1,277,142
------------ ------------
Net income ..................................... $ 1,632,347 $ 1,956,129
============ ============
Net income per share ........................... $ 0.18 $ 0.25
============ ============
Weighted average common and common
equivalent shares outstanding ............... 9,322,527 7,967,710
============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
Operating activities:
Net income ......................................... $ 1,632,347 $ 1,956,129
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization .................... 1,903,881 1,187,356
Stock bonus ...................................... 21,684 --
Changes in operating assets and liabilities:
Trade accounts receivable ...................... 5,054,774 (3,933,225)
Income taxes receivable ........................ 589,380 --
Inventory and aircraft supplies ................ (864,385) (86,824)
Prepaid expenses and other ..................... (1,783,512) (2,776,366)
Accounts payable and accrued expenses .......... (4,622,863) 1,396,476
Accrued maintenance reserves ................... (217,995) --
Income taxes payable ........................... -- 1,064,051
------------ ------------
Net cash provided by (used in)
operating activities ........................... 1,713,311 (1,192,403)
Investing activities:
Capital expenditures ............................... (8,657,677) (174,697)
------------ ------------
Financing activities:
Repayments of long-term debt ....................... (907,724) (873,557)
Proceeds from issuance of common stock ............. 29,382,969 --
------------ ------------
Net cash provided by (used in) financing
activities ......................................... 28,475,245 (873,557)
------------ ------------
Net increase (decrease) in cash and cash
equivalents ........................................ 21,530,879 (2,240,657)
Cash and cash equivalents at beginning of
period ............................................. 5,763,904 3,801,378
------------ ------------
Cash and cash equivalents at end of period ............ $ 27,294,783 $ 1,560,721
============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS STOCK TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1996 ................ 7,967,710 $ 79,677 $ 4,635,524 $20,999,846 $(2,076,302) $23,638,745
Shares sold in initial public offering .... 2,700,000 27,000 29,355,969 -- -- 29,382,969
Shares issued to employees under the
Annual Incentive Compensation Plan ..... 1,807 18 21,666 -- -- 21,684
Net income ................................ -- -- -- 1,632,347 -- 1,632,347
----------------------------------------------------------------------------------
Balance at November 30, 1996 .............. 10,669,517 $ 106,695 $34,013,159 $22,632,193 $(2,076,302) $54,675,745
==================================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 7
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements, which should
be read in conjunction with the consolidated financial statements and footnotes
included in the Annual Report on Form 10-K filed with the Securities and
Exchange Commission on November 27, 1996, are unaudited (except for the August
31, 1996 condensed consolidated balance sheet which was derived from the
Company's audited consolidated balance sheet included in the aforementioned
Form 10-K), but have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended November 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ended August 31, 1996. On December 17, 1996, the Company filed a Form 8-K and
elected to change its fiscal year end to December 31. Operating results for the
three month period ended November 30, 1996 are not necessarily indicative of
the results that may be expected for a calendar year.
Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. The effect of options to purchase 390,707 and 153,567 shares of the
Company's common stock at $0.01 granted to certain executives in December 1995
and June 1996, respectively, have been included in the calculation of weighted
average common and common equivalent shares for the three month period ended
November 30, 1996.
2. REGISTRATION OF STOCK OFFERING
In October 1996, the Company sold in an initial public offering 2,700,000
shares of Common Stock.
3. LITIGATION
The Company filed suit against Express One International, Inc. ("Express
One") in July 1992 in Dallas County, Texas, claiming that Express One breached
an aircraft charter agreement and seeking actual damages of approximately
$60,000. Express One counterclaimed, asserting that the Company wrongfully
repudiated the lease agreement and seeking damages of $356,718 for services
performed, $1,140,000 for additional fees it would have received under the
contract, punitive damages and its attorney's fees and costs.
In February 1995, a jury awarded the Company $25,000 in damages plus its
attorneys' fees and denied Express One's counterclaims. The court entered
judgment in favor of the Company for $25,000 in damages, for $148,115 in
attorneys fees through trial and for additional attorneys fees if Express One
appeals. Before expiration of the time for appeal, Express One filed a petition
under Chapter 11 of the U.S. Bankruptcy Code. There is a dispute about whether
Express One has preserved a right to appeal and whether the judgment has become
final. Therefore, the judgment awarded to the Company has not been recorded in
the financial statements. The Company does not expect the outcome to have a
material adverse effect upon the Company's financial condition or results of
operations.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The USPS selected the Company's air freight carrier in September 1992 as
the successful bidder on a contract for a multi-city network of air
transportation services supporting the USPS Express Mail system. Two
unsuccessful bidders sued the USPS to enjoin the award. The Company intervened.
This litigation (the "ANET Litigation") was settled in April 1993 by agreements
under which the USPS terminated the Company's contract for convenience and
awarded the contract to the incumbent contractor, Emery Worldwide Airlines,
Inc. ("Emery").
In March 1995, the Company was served with a complaint in a qui tam
lawsuit filed on behalf of the U.S. Government by a third-party plaintiff
seeking to share a recovery under the Federal False Claims Act (the "Act"). The
suit, filed in May 1994, was filed under seal in accordance with the Act, to
enable the U.S. Government to review the claim before its disclosure to the
defendants. The U.S. Government declined to pursue the claim, but the
third-party plaintiff chose to continue. The suit claimed that the Company and
another defendant fraudulently failed to disclose to the USPS, both in the
Company's successful bid and in the settlement of the ANET litigation, that
certain of the aircraft the Company proposed to purchase and use to perform the
contract were aging aircraft with high use, and claimed that the Company and
Emery similarly fraudulently conspired in connection with the settlement of the
ANET litigation. The suit sought to recover treble the $10 million settlement
payment made by the USPS in settling the ANET litigation, plus the third party
plaintiff's costs and fees. In May 1996, the court dismissed the suit and
awarded the Company its attorneys' fees and costs. The plaintiff has asked the
court to reconsider its ruling. The Company does not expect the outcome of this
matter to have a material adverse effect upon the Company's financial condition
or results of operations.
4. SUBSEQUENT EVENTS
In December 1996, the Company sold two recently acquired and modified
Boeing 727-200 aircraft to an operating lessor and entered into an operating
lease agreement for such aircraft commencing January 1, 1997, ending December
31, 1997, with five successive one year renewal options. The Company has an
option to purchase the aircraft at the end of each year, and must guarantee to
the lessor certain minimum sale values if the Company elects not to renew the
lease or exercise its purchase option. The funds from the sale were partially
used to pay indebtedness incurred to acquire, convert to cargo configuration,
perform maintenance updates and hushkit the aircraft.
In November 1996, the Company acquired a Boeing 727-200 aircraft in
passenger configuration under a seven year operating lease at a monthly rate of
$50,000.00. The aircraft is being modified to cargo configuration and is
undergoing maintenance updates at the Company's cost.
In November 1996, the Company purchased a Boeing 727-200 aircraft in
passenger configuration. The aircraft was slightly damaged in the process of
its original delivery to the Company and is expected to be repaired and finally
delivered in January 1997. The aircraft will be modified to cargo
configuration, undergo maintenance updates, and equipped with a hushkit.
In December 1996, the Company entered into a revision of its agreement
with the supplier of noise abatement equipment increasing the number of
hushkits it has firmly committed to purchase and establishing fixed prices for
those kits.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations - "Liquidity and Capital Resources".
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Revenues. The Company's revenues are derived from two related businesses:
(i) air freight carrier and (ii) air logistics. Air freight carrier revenues
are derived substantially from ACMI contract and on-demand charters flown with
Company aircraft. Air logistics revenues are derived substantially from
on-demand air freight charters arranged by Kitty Hawk for its customers
utilizing the flight services of third-party air freight carriers. For those
on-demand charters that are arranged by the Company and flown by its air
freight carrier, charges to the customer for air transportation are accounted
for as air freight carrier revenues and charges for ground handling and
transportation are accounted for as air logistics revenues. As the Company's
fleet size increases, the Company expects the percentage of its revenues
derived from its air freight carrier business to materially increase.
GM, the US Postal Service and Burlington Air Express, Inc. have each
accounted for more than 10% of the Company's revenues for the last fiscal year.
Cost of Revenues. The principal components of the costs of revenues
attributable to the air freight carrier consist of the costs for the
maintenance and operation of aircraft, including the salaries of pilots and
maintenance personnel, charges for fuel, insurance and maintenance, and
depreciation of engines and airframes. Generally, charges for fuel are only
applicable for the on-demand charters flown by the air freight carrier because
fuel for the ACMI contract charters is generally provided by the customer or
billed to them on a direct pass-through basis. The principal components of the
costs of revenues attributable to air logistics consist of sub-charter costs
paid to third-party air freight carriers and costs paid for ground handling and
transportation. With respect to on-demand charters that are flown by the air
freight carrier, all related air transportation expenses are allocated to the
air freight carrier and all related cargo ground handling and transportation
expenses are allocated to air logistics.
Due to recent strikes and labor disruptions at certain GM plants, there
has been a decrease during the three month period ended November 30, 1996 in
the number of charters flown by the Company's air logistics business.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth, on a comparative basis for the periods
indicated, the components of the Company's gross profit (in thousands) and the
gross profit margin by revenue type:
<TABLE>
<CAPTION>
Three months ended November 30,
1996 1995
----------------- -----------------
<S> <C> <C> <C> <C>
Air freight carrier:
Revenues ..................... $13,253 100.0% $12,816 100.0%
Costs of revenues ............ 9,081 68.5% 8,518 66.5%
------- ------- ------- -------
Gross profit ................. $ 4,172 31.5% $ 4,298 33.5%
======= ======= ======= =======
Air logistics:
Revenues ..................... $12,161 100.0% $23,229 100.0%
Costs of revenues ............ 11,214 92.2% 21,591 92.9%
------- ------- ------- -------
Gross profit ................. $ 947 7.8% $ 1,638 7.1%
======= ======= ======= =======
</TABLE>
The following table presents, for the periods indicated, condensed
consolidated income statement data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
Three months ended November 30,
1996 1995
------ ------
<S> <C> <C>
Revenues:
Air freight carrier ................................. 52.1% 35.6%
Air logistics ....................................... 47.9 64.4
------ ------
Total revenues .................................. 100.0 100.0
Total costs of revenues .................................. 79.9 83.5
------ ------
Gross profit ............................................. 20.1 16.5
General and administrative expenses ................. 8.0 5.6
Non-qualified employee profit sharing expense ....... 0.9 1.0
------ ------
Operating income ......................................... 11.2 9.9
Interest expense .................................... (1.8) (1.0)
Other income ........................................ 1.3 0.1
------ ------
Income before income taxes ............................... 10.7 9.0
Income taxes ............................................. 4.3 3.5
====== ======
Net income ............................................... 6.4% 5.5%
====== ======
</TABLE>
10
<PAGE> 11
QUARTER ENDED NOVEMBER 30, 1996 COMPARED TO QUARTER ENDED NOVEMBER 30, 1995
Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI
contract charter revenues were $2.4 million and $10.4 million, or 17.9% and
78.4%, respectively, of total air freight carrier revenues for the quarter
ended November 30, 1996, as compared to $6.8 million and $5.3 million, or 53.0%
and 41.6%, respectively, for the quarter ended November 30, 1995. ACMI contract
charter revenues for the quarter ended November 30, 1996 increased 96.2% over
quarter ended November 30, 1995, primarily as the result of additional Boeing
727-200 ACMI contract charters. Revenues from on-demand charters flown by
Company aircraft for the quarter ended November 30, 1996 decreased 64.7% from
the comparable prior year period due to aircraft being shifted from on-demand
to ACMI and lower general on-demand activity during the recent strikes and
labor disruptions involving GM. For the quarter ended November 30, 1996, as
compared to the quarter ended November 30, 1995, prices for the Company's
on-demand and ACMI contract charters remained relatively constant.
Revenues -- Air Logistics. Air logistics revenues decreased $11.1 million,
or 47.6%, to $12.2 million in the quarter ended November 30, 1996, from $23.2
million in the quarter ended November 30, 1995. This decrease was primarily due
to decreased demand for on-demand charters from the automobile industry
resulting from the recent strikes and labor disruptions involving GM in the
quarter ended November 30, 1996. For the quarter ended November 30, 1996, as
compared to the quarter ended November 30, 1995, prices for the Company's air
logistics services remained relatively constant.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $563,000 or 6.6% to $9.1 million in the quarter ended
November 30, 1996, from $8.5 million in the quarter ended November 30, 1995,
reflecting increased pilot and maintenance personnel costs associated with
increased fleet size and ACMI activities. These increases were partially offset
by reduced fuel costs due to aircraft being shifted from on-demand to ACMI
contract charters. As a result of these factors, gross profit margin from the
air freight carrier decreased to 31.5% in the quarter ended November 30, 1996,
from 33.5% in the quarter ended November 30, 1995.
As reported to the FAA, overall aircraft utilization increased to 5,460
flight hours for the quarter ended November 30, 1996, from 4,617 in the quarter
ended November 30, 1995, a 18.3% increase. This increase was primarily due to
the increased hours flown for ACMI contract charters.
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
decreased $10.4 million, or 48.1%, to $11.2 million in the quarter ended
November 30, 1996, from $21.6 million in the quarter ended November 30, 1995,
reflecting the decreased volume of business. The gross profit margin from air
logistics increased to 7.8% in the quarter ended November 30, 1996, from 7.1%
in the comparable prior period, a 9.9% increase. This increase was primarily
due to the Company's success in reducing its costs paid to third-party air
freight carriers and ground service providers.
General and Administrative Expenses. General and administrative expenses
increased $20,000, or 1.0%, to $2.0 million in the quarter ended November 30,
1996. This increase was primarily due to an increase in support functions and
administrative costs associated with the growth in the aircraft fleet and the
increased revenue volume for the air freight carrier in the quarter ended
November 30, 1996. As a percentage of total revenues, general and
administrative expenses increased to 8.0% in the quarter ended November 30,
1996, from 5.6% in quarter ended November 30, 1995.
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense decreased $124,000, or 34.5%, to $236,000 in the quarter ended November
30, 1996, from $360,000 in the quarter ended November 30, 1995, reflecting the
reduction of net income before taxes in the quarter ended November 30, 1996.
Operating Income. As a result of the above operating income decreased
$714,000, or 20%, to $2.9 million in the quarter ended November 30, 1996, from
$3.6 million in the quarter ended November 30, 1995. Operating income margin
increased to 11.2% from 9.9%, for the quarters ended November 30, 1996 and
1995, respectively.
11
<PAGE> 12
Interest Expense. Interest expense increased to $463,000 for the quarter
ended November 30, 1996 from $361,000 for the quarter ended November 30, 1995,
a 28.4% increase. The increase was primarily the result of the incurrence of
additional long-term debt to finance the acquisition of three Boeing 727-200
aircraft.
Other Income (Expense). Other income increased to $333,000 in the quarter
ended November 30, 1996, from $30,000 in the comparable prior year period. The
increase was primarily due to increased interest income from the investment of
IPO proceeds in the quarter ended November 30, 1996.
Income Taxes. Income taxes as a percentage of income before income taxes
increased to 40.0% for the quarter ended November 30, 1996, from 39.5% for the
comparable prior year period. The increase was primarily due to increased state
income taxes.
Net Income. As a result of the above, net income decreased to $1.6 million
in the quarter ended November 30, 1996, compared to $2.0 million in the quarter
ended November 30, 1995. Net income as a percentage of total revenues increased
to 6.4% in the quarter ended November 30, 1996, from 5.5% in the comparable
prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily for the acquisition and
modification of aircraft and working capital. In addition, the Company has, and
will continue to have, capital requirements for the requisite periodic and
major overhaul maintenance checks for its air freight carrier fleet. The
Company's funding of its capital requirements historically has been primarily
from a combination of internally generated funds and bank borrowings. In
addition, the Company has leased aircraft and entered into a sale leaseback for
acquisition and may do so in the future.
Cash provided by operating activities was $1.7 million and cash used in
operating activities was $1.2 million in the quarters ended November 30, 1996
and 1995, respectively. At the end of the quarters ended November 30, 1996 and
1995, the Company had working capital of $16.4 million and $3.8 million,
respectively.
On August 14, 1996, Kitty Hawk entered into a Credit Agreement with Wells
Fargo Bank (Texas), National Association ("WFB"), and Bank One, Texas, N.A.
("BOT") for a $15 million Revolving Credit Loans Facility (the "Revolving
Credit Facility"), and a $10 million Term Loan Facility (the "Term Loan")
(collectively, the "Commitments"). As of January 13, 1997 $1.5 million was
outstanding under the Revolving Credit Facility, and $0 was outstanding under
the Term Loan. Borrowings under these Commitments bear interest at WFB's prime
rate or, at Kitty Hawk's option, a Eurodollar rate plus 1.5% to 2.0% based upon
a debt-to-cash flow ratio of Kitty Hawk.
Under the Credit Agreement, $10 million of proceeds of the Revolving
Credit Facility are restricted to use from time to time for interim financing
of up to $6.5 million per aircraft for aircraft acquisitions by the Company;
the remaining $5 million of the Revolving Credit Facility may be used for
general corporate purposes, including interim financing for acquired aircraft
that exceeds the limits that apply to the restricted portion. Term Loans must
be used to finance the purchase of one DC9-15F hushkit and up to seven major
maintenance checks for jet aircraft.
The Revolving Credit Facility expires on December 31, 1998. Any advance
under the portion of the Revolving Credit Facility that is restricted to
interim financing for aircraft acquisition must repaid in full within 150 days
of first advance for the acquired aircraft. All advances under the Term Loan
must be made by April 29, 1998. The Term Loan matures on March 31, 2003. The
Commitments are cross-collateralized and are secured by certain aircraft owned
by the Company, all aircraft acquired with advances under the restricted portion
of the Revolving Credit Facility while those advances are outstanding, certain
leases of aircraft and engines, accounts, chattel paper, general intangibles and
other personal property.
12
<PAGE> 13
The Credit Agreement prohibits (i) the redemption or repurchase of the
Company's securities, (ii) the payment of dividends to Kitty Hawk's
stockholders in an amount over 25% of the Company's net income of the
immediately preceding fiscal year, (iii) certain investments, acquisitions of
stock, acquisitions of assets to the extent that the business acquired is not
in the present lines of business of the Company, and other business
combinations, (iv) certain transactions with affiliates and (v) the Company to
incur any additional indebtedness, liabilities or obligations other than debt
incurred (a) with the prior written consent of WFB and BOT or (b) in the
ordinary course of business not to exceed $25 million.
The Credit Agreement also contains certain other covenants, including
limitations on the ability of the Company to change its lines of business. If a
"Change of Control" occurs, WFB and BOT may accelerate or terminate the
Commitments. "Change of Control" includes (a) the failure of Kitty Hawk to own
all of the outstanding stock of certain of its subsidiaries, (b) M. Tom
Christopher failing to own at least 51% of the outstanding stock of Kitty Hawk,
(c) M. Tom Christopher ceasing to be Chief Executive Officer of Kitty Hawk or
active in the management of the Company or (d) if, after the consummation of a
public offering, any person (or two or more persons acting as a group)
acquiring beneficial ownership of 25% or more of the outstanding shares of
Common Stock. During the quarters ended November 30, 1996 and 1995, these and
similar restrictions and prohibitions under the Company's other credit
facilities did not have a material impact on the Company's ability to meet its
cash obligations and the Company does not believe that the restrictions under
the Credit Agreement will have any such impact in the future.
In addition, the Company has a loan with 1st Source Bank. As of January
13, 1997, the outstanding balance of this loan was approximately $1 million.
The loan bears interest at 9.75%, is secured by a DC9-15F and matures in May
2000. The 1st Source loan contains certain aircraft maintenance covenants and
provides that a change in the Company's business is an event of default upon
which 1st Source may declare all or any part of the remaining unpaid principal
due and payable.
In November 1996, in connection with the Company's recent acquisition of a
one-third undivided interest in four Falcon 20 jet aircraft, the Company and
the two other co-owners of such aircraft entered into a five year, $4.3 million
term loan. The loan bears interest at a floating prime rate, is secured by the
four Falcon 20 jet aircraft and requires monthly payments of principal and
interest. The Company's liability under such loan is limited to $2.0 million.
Capital expenditures were $8.7 million and $174,697 for the quarters ended
November 30, 1996 and 1995, respectively. Capital expenditures for the quarter
ended November 30, 1996 were primarily for the purchase of: (i) one Boeing
727-200 aircraft and (ii) cargo and noise abatement modification of two Boeing
727-200 aircraft. Capital expenditures for the quarter ended November 30, 1995
were primarily for the purchase of one JT8D-7 engine.
In October 1996, the Company sold in an initial public offering 2,700,000
shares of Common Stock, raising net proceeds of approximately $29.4 million to
purchase and modify to cargo configuration five Boeing 727-200 aircraft. As of
January 13, 1997, the Company has purchased one Boeing 727-200 freighter
aircraft for $4.7 million and one Boeing 727-200 aircraft for $2.31 million,
which will be modified to cargo configuration in early 1997 for an additional
cost of approximately $3.1 million (including approximately $1.82 million for
noise abatement equipment). The Company further expects to finalize the
purchase of two additional Boeing 727-200s and subsequently to modify them to
cargo configuration for a total expenditure of approximately $17.0 million
(including noise abatement equipment for approximately $5.0 million). As of
January 13, 1997, Company has used approximately $10.0 million of the net
proceeds of the initial public offering to fund these expenses.
In December 1996, the Company amended its agreement with the supplier of
noise abatement equipment to increase the number of hushkits it has firmly
committed to purchase and to establish fixed prices. In connection with this
new agreement, the Company paid the vendor an additional $350,000 in deposits
on seven (7) future, firm orders valued between $13 and 17.5 million, depending
on type selected. The Company further believes the $6.9 million amount for
noise abatement modifications proposed for fiscal year 1997 for these three
aircraft together with an additional $1.5 million to modify a currently owned
DC9-15Faircraft with noise abatement equipment during fiscal 1997, represents
the total capital expenditures that would currently be necessary to comply with
the requirements of existing applicable environmental regulations for such
fiscal year. In fiscal year 1998, the Company anticipates an aggregate capital
13
<PAGE> 14
expenditure ranging from $9.0 million to $11.0 million for noise abatement
modifications to aircraft currently owned or proposed to be purchased. In the
event the Company acquires more aircraft than currently proposed, the Company's
anticipated aggregate capital expenditures for noise abatement modifications in
fiscal year 1998 could materially increase.
The Company's revenue fleet is comprised of ten Boeing 727-200 aircraft
manufactured between 1969 and 1978, five Douglas DC9-15F aircraft manufactured
during 1967 and 1968, and nine turbo-prop Convairs manufactured between 1948
and 1957. Manufacturers' Service Bulletins ("Service Bulletins") and FAA
Airworthiness Directives ("Directives") issued under the FAA's "Aging Aircraft"
program or issued on an ad hoc basis cause certain of these aircraft to be
subject to extensive aircraft examinations and require certain of these
aircraft to undergo structural inspections and modifications to address
problems of corrosion and structural fatigue at specified times. It is possible
that additional Service Bulletins or Directives applicable to the types of
aircraft included in the Company's fleet could be issued in the future. The
cost of compliance with such Directives and Service Bulletins cannot currently
be estimated, but could be substantial.
The Company understands the FAA has established an internal procedure to
review approvals for new and existing transport category airplane cargo door and
other modifications that could affect the Company's fleet of Boeing 727-200
aircraft. The Company believes that as a result of this FAA review, changes to
existing and future cargo door and other modifications may be required in 1997
or thereafter. While it is unknown at this time the precise nature of the
changes that may be required, if any, or the impact of the changes on Kitty
Hawk's fleet of Boeing 727-200 aircraft, compliance with any such changes could
have a material adverse impact on Kitty Hawk and its operations.
The Company historically has followed, and currently intends to follow, a
policy of retiring Convairs at the time of their next scheduled major overhaul
maintenance checks rather than expending the amounts necessary for such checks.
Kitty Hawk presently intends to purchase the facility it currently
occupies at Dallas/Fort Worth International Airport on or before March 1, 1997.
Based upon negotiations with the lessor of the facility, the Company expects to
purchase the facility for approximately $1.75 million.
The Company believes that the net proceeds from its initial public
offering, together with available funds, bank borrowings, and cash flows
expected to be generated by operations, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for at
least the next 12 months. Thereafter, if cash generated by operations is
insufficient to satisfy the Company's liquidity requirements, the Company may
sell additional equity or debt securities or obtain additional credit
facilities.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information pertaining to this item is incorporated from Part I.
Financial Information (Note 3 - Litigation).
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 3, 1996, the Company held its 1996 annual meeting of
stockholders. The only matter voted on at this meeting was the
re-election of two persons, Richard R. Wadsworth, Jr. and Lewis S.
White, as Class 2 directors to serve as members of the Company's Board
of Directors for terms of three years ending at the 1999 annual
meeting of stockholders, or until their successors are duly elected
and qualified. With respect to each nominee, 7,750,000 shares were
voted for such nominee and no shares were voted against or withheld.
There were no abstentions or broker non-votes. Each Class 1 and 3
director continued as a member of the Company's Board of Directors
after the meeting.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. REPORTS ON FORM 8-K AND EXHIBITS
(a) The Company did not file any reports on Form 8-K during the three
months ended November 30, 1996.
(b) Exhibits:
The following exhibits are filed herewith or are incorporated by
reference from previous filings with the Securities and Exchange
Commission.
15
<PAGE> 16
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 -- Certificate of Incorporation of the Company.(2)
3.2 -- Bylaws of the Company.(2)
3.3 -- Amendment No. 1 to the Certificate of Incorporation of the
Company.(2)
3.4 -- Amendment No. 1 to the Bylaws of the Company.(2)
4.1 -- Specimen Common Stock Certificate.(3)
10.1 -- Aircraft Purchase Agreement between the Company and Intrepid
Aviation Partners, LLC dated as of September 24, 1996.(3)
10.2 -- Purchase Agreement between the Company and International
Aero Components, Inc. dated as of November 15, 1996.(4)
10.3 -- Purchase Agreement between the Company and International
Technical Consultants, Inc. dated as of November 25, 1996.(4)
10.4 -- Aircraft Lease Agreement between the Company and Pegasus
Capital Corporation dated as of November 25, 1996. (1)
10.5 -- Aircraft Lease (N750US) between the Company and Fleet Capital
Corporation dated December 27, 1996. (1)
10.6 -- Amendment No. 6 dated December 1996 to that certain Purchase
Agreement between Federal Express Corporation and Postal Air, Inc.
(predecessor to the Company) dated as of October 22, 1992 (1)(5)
10.7 -- Aircraft Lease (N751US) between the Company and Fleet Capital
Corporation dated December 27, 1996.(1)
11.1 -- Statement of Computation of Net Income per Share.(1)
21.1 -- Subsidiaries of the Registrant.(3)
27.1 -- Financial Data Schedule.(1)
</TABLE>
- -----------
(1) Filed herewith.
(2) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (Reg. No. 333-8307) dated as of October 1996, and
incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Annual Report on Form
10-K dated as of November 27, 1996, and incorporated herein by
reference.
(5) Confidential treatment request for certain portions thereof pursuant to
Rule 24b-2 promulgated pursuant to the Securities and Exchange Act of
1934, as amended.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 14th day of January, 1997.
KITTY HAWK, INC.
By: /s/ RICHARD R. WADSWORTH
-----------------------------------
Richard R. Wadsworth
Senior Vice President -- Finance,
Chief Financial Officer, and
Secretary
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 -- Certificate of Incorporation of the Company.(2)
3.2 -- Bylaws of the Company.(2)
3.3 -- Amendment No. 1 to the Certificate of Incorporation of the
Company.(2)
3.4 -- Amendment No. 1 to the Bylaws of the Company.(2)
4.1 -- Specimen Common Stock Certificate.(3)
10.1 -- Aircraft Purchase Agreement between the Company and Intrepid
Aviation Partners, LLC dated as of September 24, 1996.(3)
10.2 -- Purchase Agreement between the Company and International
Aero Components, Inc. dated as of November 15, 1996.(4)
10.3 -- Purchase Agreement between the Company and International
Technical Consultants, Inc. dated as of November 25, 1996.(4)
10.4 -- Aircraft Lease Agreement between the Company and Pegasus
Capital Corporation dated as of November 25, 1996. (1)
10.5 -- Aircraft Lease (N750US) between the Company and Fleet Capital
Corporation dated December 27, 1996. (1)
10.6 -- Amendment No. 6 dated December 1996 to that certain Purchase
Agreement between Federal Express Corporation and Postal Air, Inc.
(predecessor to the Company) dated as of October 22, 1992 (1)(5)
10.7 -- Aircraft Lease (N751US) between the Company and Fleet Capital
Corporation dated December 27, 1996.(1)
11.1 -- Statement of Computation of Net Income per Share.(1)
21.1 -- Subsidiaries of the Registrant.(3)
27.1 -- Financial Data Schedule.(1)
</TABLE>
- -----------
(1) Filed herewith.
(2) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (Reg. No. 333-8307) dated as of October 1996, and
incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Annual Report on Form
10-K dated as of November 27, 1996, and incorporated herein by
reference.
(5) Confidential treatment request for certain portions thereof pursuant to
Rule 24b-2 promulgated pursuant to the Securities and Exchange Act of
1934, as amended.
<PAGE> 1
EXHIBIT 10.4
------------------------------
AIRCRAFT LEASE AGREEMENT
DATED AS OF
NOVEMBER 25, 1996
BETWEEN
PEGASUS CAPITAL CORPORATION
AS LESSOR
AND
KITTY HAWK AIRCARGO, INC.
AS LESSEE
ONE (1) BOEING MODEL 727-251 AIRCRAFT
U.S. REGISTRATION N264US
MANUFACTURER'S SERIAL NUMBER 19983
AND THREE (3) PRATT AND WHITNEY JT8D-7B ENGINES
------------------------------
COUNTERPART NO. 3 OF 6 SERIALLY NUMBERED, MANUALLY EXECUTED COUNTERPARTS. TO THE
EXTENT THAT THIS AIRCRAFT LEASE AGREEMENT CONSTITUTES CHATTEL PAPER UNDER THE
UNIFORM COMMERCIAL CODE IN THE U.S. OR ANY CORRESPONDING LAW IN ANY FOREIGN
JURISDICTION, NO SECURITY INTEREST IN THIS AIRCRAFT LEASE AGREEMENT MAY BE
CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART HERETO OTHER THAN
COUNTERPART NO.1.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
SECTION HEADING PAGE
- ------- ------- ----
<S> <C>
Preamble 1
1. Definitions 1
2. Lease and Conditions 7
3. Delivery and Acceptance; Term 9
4. Rent 10
5. Representations and Warranties 12
6. Possession and Use 15
7. Information 21
8. Covenants of Lessee 22
9. Replacement of Parts; Alterations, Modifications and
Additions 24
10. General Tax Indemnity 25
11. Casualty Occurrences 26
12. Insurance 29
13. Indemnification 32
14. Liens 33
15. Perfection of Title and Further Assurances 33
16. Return of Aircraft and Records 34
17. Events of Default 37
18. Remedies 39
19. Alienation 42
20. Miscellaneous 43
EXHIBITS
EXHIBIT A Description of Aircraft I
EXHIBIT B Aircraft Document Summary II
EXHIBIT C Definitions and Values III
EXHIBIT D Form of Lease Supplement VI
EXHIBIT E Return Condition Requirements IX
EXHIBIT F Delivery and Other Requirements XII
EXHIBIT G Maintenance Recording Requirements XIV
EXHIBIT H (Intentionally Omitted) XVI
EXHIBIT J-l/J-2 Casualty Values XVII
EXHIBIT K Hush Kits
</TABLE>
<PAGE> 3
AIRCRAFT LEASE AGREEMENT
THIS AGREEMENT, dated as of November 25, 1996, is by and between PEGASUS CAPITAL
CORPORATION a California corporation ("Lessor"), and KITTY HAWK AIRCARGO, INC.,
a Texas corporation ("Lessee").
WITNESSETH
WHEREAS, Lessee desires to lease from Lessor, and Lessor is willing to lease to
Lessee, the Aircraft described herein, upon and subject to the following terms
and conditions.
NOW THEREFORE, for and in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Lessor and Lessee hereby agree as follows:
Section 1. Definitions.
Unless the context otherwise requires, the following terms shall have the
following respective meanings for all purposes of this Agreement and shall be
equally applicable to both the singular and the plural forms of the terms
herein defined:
Aircraft shall mean the Airframe, together with: (i) the three (3) Engines,
whether or not installed on the Aircraft; (ii) all Parts and all components
thereof; (iii) all ancillary Aircraft or devices furnished with the Aircraft
under this Lease; (iv) all Aircraft Documents, and (v) all substitutions,
replacements and renewals of any and all thereof.
Aircraft Documents shall mean the maintenance and inspection records and all
other current and historical records and documentation pertaining to the
Aircraft, including, without limitation, the items identified in Exhibit B
hereto, those generated by Lessee during the Term, and all such documents and
records required to be maintained under Applicable Law and in accordance with
the requirements of the FAR Part 121.380, as set forth in Exhibit G hereto.
Airframe shall mean: (a) the Boeing model 727-251 airframe (excluding Engines
or engines from time to time installed thereon) bearing manufacturer's serial
number 19983 and U.S. Registration N264US; and (b) any and all Parts which are
from time to time incorporated or installed on or attached thereto or which
have been removed therefrom so long as title thereto remains vested in Lessor
in accordance herewith, including the terms of Section 9 hereof.
Applicable Law shall mean: (i) any law, statute, decree, constitution,
regulation, order, judgment, rule, license, permit, injunction or other
directive of any Governmental Entity; (ii) any treaty, pact, compact or other
agreement to which any Governmental Entity is a signatory or party; (iii) any
judicial interpretation with binding characteristics or
1
<PAGE> 4
application of those described in (i) or (ii) above; (iv) any administrative
interpretation with binding characteristics or application of those described
in (i) or (ii) above; and (v) any amendment or revision of any of those
described in (i), (ii), (iii) or (iv) above, and in each case, which is
applicable to the Aircraft and its use and operation, the Lessee, any
Sublessee, or the transactions contemplated by this Lease and the Operative
Agreements.
Approved Insurance Broker shall mean that insurance broker of internationally
recognized responsibility and standing specializing in Aircraft insurance as is
reasonably acceptable to and approved by Lessor.
Approved Insurer shall mean that insurer of internationally recognized
responsibility and standing effecting Aircraft insurance as is reasonably
acceptable to and approved by Lessor.
Approved Maintenance Provider shall mean: (i) with respect to any scheduled
maintenance or any modification or alteration to the Aircraft, Lessee, Hamilton
Aviation of Tucson, Arizona or Aero Corporation of Lake City, Florida, or AAR
of Oklahoma, or any other Person which is an FAA approved maintenance facility
and which is approved in advance in writing by Lessor to perform maintenance on
the Aircraft; and (ii) with respect to any other required maintenance
hereunder, an FAA approved maintenance facility which is approved in writing,
in advance, by Lessor.
Basic Rent shall mean the rent for the Aircraft specified on Exhibit C and
payable throughout the Term for the Aircraft pursuant to Section 4(a) hereof.
Basic Rent Payment Date shall mean the day for payment of Basic Rent determined
in accordance with Exhibit C. It is further understood and agreed that if a
Basic Rent Payment Date shall fall on a day which is not a Business Day, any
payment due on such Basic Rent Payment Date shall be made on the preceding
Business Day.
Business Day shall mean any day other than a Saturday, Sunday or other day on
which banking institutions in Dallas, Texas, or San Francisco, California are
authorized or required by law to be closed.
Cargo Door shall mean the modifications made to the Airframe to convert the
same from passenger to cargo configuration, including the cargo door kit
manufactured by Aeronautical Engineers, Inc., STC #'s SA1797SO and SA1798SO.
Casualty Occurrence shall mean any of the following events with respect to the
Aircraft, Airframe or any Engine: (a) loss of such property or its use due to
theft or disappearance for a period in excess of sixty (60) consecutive days,
or destruction, damage beyond economic repair, or rendition of such property
permanently unfit for normal use by Lessee for any reason whatsoever; (b) any
damage to such property which results in an insurance settlement with respect
to such property on the basis of a
2
<PAGE> 5
total loss or on the basis of a compromised or constructive total loss; (c) the
condemnation, confiscation, appropriation or seizure of, or requisition of
title to, such property; or the use of such property by any Governmental Entity
or purported Governmental Entity, which in any such case shall have resulted in
the loss of possession thereof by Lessee for a period in excess of sixty (60)
consecutive days (or for such shorter period ending on the date which is the
date of receipt of an insurance settlement with respect to such property on the
basis of a total loss); (d) the disposal of such property by an administrator
of Lessee (including a receiver, manager, liquidator or provisional liquidator)
or any official exercising similar powers pursuant to applicable bankruptcy
law, or any similar statute, or any disposal of such property by an
administrator of Lessee or any person exercising similar powers pursuant to any
security interest over the assets of Lessee; or (e) the occurrence of any event
described in Section 6(a)(iii)(4) hereof. A Casualty Occurrence with respect to
the Airframe shall constitute a Casualty Occurrence with respect to the
Aircraft.
Casualty Value shall mean Six Million Four Hundred Thousand Dollars
(US$640,000.00), or if the Lessee notifies Lessor that the Hush Kits are to be
insured by Lessee under policies of insurance as provided in Exhibit K hereto,
then Four Million Five Hundred Thousand Dollars (U.S.$4,500,000.00), or, in
either case, such greater value as shall be agreed between Lessor and Lessee
during the Term, as allocated in Exhibits J-1 and J-2 hereto.
Commencement Date shall mean the date of Lease Supplement No.1.
Default shall mean an event which would constitute an Event of Default but for
the lapse of time or the giving of notice or both.
Delivery Location shall mean the location specified in Exhibit C hereto for the
delivery of the Aircraft by Lessor to Lessee.
Dollars shall mean lawful currency of the United States of America.
Engine shall mean any Engine installed on or furnished with the Aircraft on the
Delivery Date, such Engines being identified as to manufacturer, type and
manufacturer serial number in Exhibit A hereto, and any Replacement Engine
which may from time to time be substituted therefor pursuant to Section 11 or
16 hereof; together in each case with any and all Parts (excluding the Hush
Kits) incorporated or installed in or attached thereto and any and all Parts
(excluding the Hush Kits) removed therefrom so long as title thereto remains
vested in Lessor in accordance with the terms of Section 9 hereof after removal
from such Engine. Except as otherwise set forth herein, at such time as a
Replacement Engine shall be so substituted, such replaced Engine shall cease to
be an Engine hereunder. The term "Engines" means, as of any date of
determination, all Engines then leased hereunder.
Estimated Delivery Date shall mean the date specified on Exhibit C hereto.
3
<PAGE> 6
Event of Default shall mean the occurrence of any of the events specified in
Section 17 hereof.
Expiration Date shall mean the date which is thirty (30) days after the Last
Basic Rent Payment Date, unless sooner terminated as provided herein, or
extended pursuant to Section 21 hereof.
FAA shall mean the Federal Aviation Administration of the United States
Department of Transportation or any successor thereto.
FAR shall mean the Federal Aviation Regulations promulgated under the Federal
Aviation Act, as amended and supplemented from time to time.
Federal Aviation Act shall mean 49 U.S.C. Section 40101 et. seq., as amended
and as in effect on the date of this Lease, or any successor or substituted
U.S. legislation at the time in effect and applicable.
Governmental Entity shall mean and include: (i) the FAA; (ii) any national,
state, or local government (whether domestic or foreign), any political
subdivision thereof or local jurisdiction therein; (iii) any board, commission,
department, division, organ, instrumentality, court or agency of any entity
described in (ii) above, however constituted, and (iv) any association,
organization or institution of which any entity described in (ii) or (iii) above
is a member or to whose jurisdiction any such entity is subject or in whose
activities any such entity is a participant but only (except for purposes of
defining "Applicable Law" above) to the extent that any entity described in (i)
through (iv) above has jurisdiction over this Lease, the Operative Agreements or
the Aircraft and its operations, or any of the parties hereto.
Hush Kit shall mean all noise reduction hardware as described in Exhibit K
hereto, and as acquired by the Lessee from the Federal Express Corporation, as
may be installed by Lessee on the Airframe and the Engines from time to time,
together with relevant data, manuals, and documents.
Indemnities shall mean, collectively, the Lessor, and any Lessor Lender, and
their respective officers, directors, shareholders, controlling persons,
agents, and employees, and their respective successors and assigns.
Lease Agreement, this Lease Agreement, this Lease, this Agreement, herein,
hereunder or other like words shall mean this Lease and all Exhibits, Lease
Supplements, amendments or modifications hereto or thereto from time to time
entered into.
Lease Identification shall mean a placard in the form set forth in Exhibit C
hereto.
4
<PAGE> 7
Lease Payment shall mean the amount specified in Exhibit C hereto.
Lease Supplement shall mean Lease Supplement No. 1, substantially in the form of
Exhibit D hereto.
Lessor Lender shall mean any Person(s) to whom Lessor grants a security
interest in the Aircraft and/or this Lease and the other Operative Agreements,
pursuant to Section 19 hereof, for the purpose of any financing by Lessor.
Lessor's Estate shall mean all estate, right, title and interest of the Lessor
in and to the Aircraft, the Lease, the Lease Supplement, any bill of sale, any
warranty with respect to the Airframe or the Engines, all amounts of Basic Rent
and Supplemental Rent, including, without limitation, insurance proceeds and
requisition, indemnity or other payments of any kind for or with respect to the
Aircraft (other than the Hush Kits).
Lessor's Liens shall mean Liens on the Aircraft (other than the Hush Kits) or
the Lessor's Estate arising as a result of: (i) claims against Lessor or the
Lessor's Estate not related to the transactions contemplated by this Lease; or
(ii) acts or omissions of Lessor, not contemplated and expressly permitted
under this Lease; or (iii) Taxes imposed against Lessor, the Lessor's Estate,
or the Aircraft which are not indemnified against by Lessee pursuant to Section
10 hereof; or (iv) claims against Lessor, Lessor's Estate or the Aircraft
arising out of the voluntary transfer by Lessor of all or any part of its
interests in the Lessor's Estate, the Aircraft or this Lease, other than a
transfer pursuant to Sections 11 or 18 hereof; or (v) Liens granted by the
Lessor to any Lessor Lender.
Lien shall mean any mortgage, pledge, lien, charge, encumbrance, hypothecation,
lease, exercise of rights, security interest or claim (including any imposed
with respect to any Taxes, or any airport or landing fees or related charges).
Maintenance Program shall mean the Lessee's FAA-approved maintenance program
for Boeing model 727-200 Aircraft, or such other FAA-approved manufacturer's
maintenance program as in effect from time to time for the Aircraft
encompassing scheduled maintenance, condition-monitored maintenance and
on-condition maintenance of the Airframe, Engines and components of the
Aircraft as shall be approved by Lessor. Upon request by Lessor, a copy of such
Maintenance Program shall be provided to Lessor by Lessee.
Maintenance Reserves shall mean the Maintenance Reserve Payments for the
Aircraft specified on Exhibit C payable by the Lessee throughout the Term
pursuant to Section 4(a) and Section 6(g) hereof.
Operative Agreements shall mean this Lease, any Lease Supplement, any Permitted
Sublease, the Letter Agreement (as defined in Lease Supplement No. 1), and any
other documents and agreements executed and delivered by Lessor, Lessee and any
5
<PAGE> 8
Sublessee, or any Lessor Lender or any other Person in furtherance of the
transactions contemplated hereby.
Parts shall mean all appliances, components, parts, instruments, appurtenances,
avionics, accessories, furnishings, Hush Kits, the Cargo Door, and all other
equipment of whatever nature (other than complete Engines or engines), which
may now or from time to time be incorporated or installed in or attached to the
Airframe or any Engine. Except as otherwise set forth herein, only at such time
as a replacement part shall be substituted for a Part in accordance with
Section 9 hereof, shall the Part so replaced cease to be a Part hereunder.
Permitted Lien shall mean: (i) any Lien for Taxes which are either not assessed
or, if assessed, are not yet due and payable or are being contested in good
faith by appropriate proceedings so long as such proceedings shall not involve
any danger of the sale, forfeiture or loss of the Aircraft; or (ii) any
undetermined or inchoate Lien of a repairer, carrier, hangarkeeper, material
supplier or other similar Lien arising in the ordinary course of business in
respect of obligations which are not overdue or which have been adequately
bonded or are being contested in good faith by appropriate proceedings;
provided that (in the case of both (i) and (ii)) such proceedings, or the
continued existence of such Lien, do not involve any danger of the sale,
forfeiture or loss of the Aircraft; or (iii) the respective rights of the
parties to the Operative Agreements as set forth therein, and any Liens
expressly permitted thereby including Liens granted by the Lessor to any Lessor
Lender.
Permitted Sublease shall mean: (i) any charter agreement, "wet lease", ACMI
agreement, or other contract for the use of the Aircraft under the terms of
which Lessee retains possession and operational control of the Aircraft at all
times; or (ii) or any sublease or other contract between Lessee and a Sublessee
whereby Lessee does not retain possession and operational control of the
Aircraft, provided that Lessor has expressly accepted and approved the same in
writing subject to the provisions of Section 6(a)(ii) hereof.
Person shall mean and include any individual, corporation, company, limited
liability company, partnership, firm, joint stock company, joint venture,
trust, estate, unincorporated organization, association or Governmental Entity.
Rent shall mean Basic Rent and Supplemental Rent, collectively.
Replacement Engine shall mean an engine of the same manufacturer and model, and
having equivalent value, utility, modification status and remaining useful life
as the Engine it is intended to replace under Section 11 (b) hereof, or, at
Lessee's option, an engine of the same manufacturer as such Engine but of an
improved model, and otherwise of an equivalent value, utility and remaining
useful life and suitable for installation and use on the Airframe without any
diminution in the value, utility or remaining useful life of the Airframe.
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Return Occasion shall mean the return of possession of the Aircraft from Lessee
to Lessor at the end of the Term of this Lease, or upon Lessor demanding that
Lessee return or Lessor taking possession of the Aircraft pursuant to Section
18 hereof.
Sublessee shall mean any Person in possession of the Aircraft pursuant to a
Permitted Sublease.
Supplemental Rent shall mean any and all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay hereunder to
Lessor, or any Lessor Lender, including without limitation: (i) any payment of
Casualty Value; (ii) any payment of indemnity required by Sections 10 and 13
hereof; (iii) to the extent permitted by any Applicable Law, interest at the
Interest Rate (all computations of interest under this Lease to be made on the
basis of a 365 day year for the actual number of days elapsed) calculated: (1)
on any part of any installment of Basic Rent not paid on the due date thereof
for the period the same remains unpaid, and (2) on any Supplemental Rent not
paid when due hereunder until the same is paid; (iv) Maintenance Reserves; and
(v) the Lease Payment.
Taxes shall mean any and all sales, use, business, gross income, personal
property, transfer, fuel, leasing, occupational, value added, excess profits,
excise, gross receipts, franchise, stamp, ad valorem, documentation,
registration, income, levies, imposts, customs, import, export, withholdings or
other taxes, excises, or duties of any nature whatsoever, together with any
penalties, fines, charges or interest thereon.
Term shall mean the term of this Lease which shall commence on the Commencement
Date and which shall end on the Expiration Date.
The terms Engine Manufacturer, First Basic Rent Payment Date, Interest Rate,
Last Basic Rent Payment Date, Lease Identification, Lessee's Address, Lessor's
Address, Manufacturer, and Payment Location, shall have the meanings set forth
in Exhibit C hereto.
Section 2. Lease and Conditions.
(a) Lessor hereby agrees to lease the Aircraft to Lessee, and Lessee
hereby agrees to lease the Aircraft from Lessor, subject to and in accordance
with the terms hereof, as supplemented by the Lease Supplement.
(b) Lessor shall deliver the Aircraft hereunder to Lessee upon the
receipt by Lessor of the following items on or before the Commencement Date (or
such other date as may be designated by Lessor), all of which shall be
reasonably satisfactory to Lessor in form and substance, and duly authorized
and executed:
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<PAGE> 10
(1) this Lease and the Lease Supplement in the form of
Exhibit D hereto, along with each of the other Operative Agreements;
(2) a copy of the certificate of incorporation and by-laws of
Lessee certified by the Secretary or a Director of Lessee as being correct and
as containing all amendments and additions, a certificate of good standing
issued by the state of Lessee's incorporation, as well as a certificate of the
Secretary or a Director of Lessee certifying as to the resolutions of the board
of directors of Lessee authorizing the execution, delivery and performance of
this Lease, the Operative Agreements, and all other documents related thereto,
together with an incumbency certificate as to the Person or Persons authorized
to execute and deliver such documents on behalf of Lessee;
(3) a certificate signed by a duly authorized officer of
Lessee, dated the Commencement Date, stating that: (i) the representations and
warranties contained in Section 5(c) hereof are true and accurate on and as of
such date as though made on and as of such time; and (ii) no event has occurred
and is continuing, or would result from the execution, delivery and performance
by Lessee of this Lease and the Operative Agreements which constitutes a
Default or an Event of Default;
(4) an opinion or report, dated the Commencement Date,
signed by an Approved Insurance Broker or Approved Insurer as to the due
compliance with the insurance provisions of Section 12 hereof with respect to
the Aircraft in form and substance reasonably satisfactory to Lessor;
(5) certificates of an Approved Insurance Broker
evidencing the insurance as required by Section 12 hereof in form and substance
reasonably satisfactory to Lessor;
(6) the first installment of Basic Rent;
(7) legal opinions from Lessee's counsel, and from Crowe
& Dunlevy, special FAA counsel, as to all required filings under Applicable Law
with Governmental Entities, recordation and registration of the Lease, and the
perfection of any Lessor Lender's security interest thereunder and therein, and
as to such matters as may reasonably be requested by Lessor, in form and
substance reasonably satisfactory to Lessor;
(8) certified copies of all necessary governmental and
corporate consents to the Lease, including but not limited to any approvals
required from the FAA;
(9) a copy of Lessee's Operating Certificate and
Operations Specifications or any other documentation or authority pursuant to
which the Aircraft will be operated by Lessee;
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<PAGE> 11
(10) payment of the Security Deposit;
(11) six (6) original, executed counterparts of the
Lease, and evidence of its filing and registration with the FAA, and the
payment of all fees and Taxes in connection therewith; and
(12) such other documents and matters incident to any of
the foregoing as Lessor may reasonably request (including but not limited to a
precautionary UCC-1 filing in Texas).
(c) Lessee's obligation to lease the Aircraft hereunder from
Lessor shall be conditioned upon the tender of Aircraft for delivery and the
receipt by Lessee of the following documents on or before the Commencement Date
for the Aircraft, all of which shall be reasonably satisfactory in form and
substance to Lessee;
(1) this Lease and the Lease Supplement in the form of
Exhibit D hereto;
(2) an officer's certificate evidencing the due
authority of Lessor for the execution, delivery and performance of this Lease
and all other documents related thereto, together with an incumbency
certificate as to the person or persons authorized to execute and deliver such
documents on behalf of Lessor;
(3) (Intentionally Omitted);
(4) a copy of a currently effective airworthiness
certificate for the Aircraft;
(5) a copy of the current registration certificate for
the Aircraft; and
(6) an opinion, at Lessee's expense, from Crowe & Dunlevy,
special FAA counsel, to the effect that Lessor is the owner of record of the
Aircraft and that the Aircraft is duly registered in the United States, that
the Aircraft is unencumbered but for this Lease, and as to such other matters
as may reasonably be requested by Lessee.
Section 3. Delivery and Acceptance; Effective Date, Term.
(a) Delivery. The Aircraft will become available for delivery on
or about the Estimated Delivery Date set forth in Exhibit C.
(b) Place of Delivery and Acceptance. The Aircraft shall be
delivered to and accepted by Lessee at the Delivery Location set forth in
Exhibit C. After acceptance by Lessee, Lessee may conduct a test flight of the
Aircraft at the Delivery Location, at
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<PAGE> 12
Lessor's expense, such test flight not to exceed one (1) hour in duration.
Lessor shall repair, at Lessor's expense, discrepancies in the condition of the
Aircraft which render the Aircraft unairworthy, noted by Lessee during the test
flight. Lessor and Lessee agree that the first hour of the ferry flight shall
be deemed to be the test flight hereunder.
(c) Casualty to the Aircraft Preceding Delivery. In the event of a
Casualty Occurrence with respect to the Aircraft prior to its delivery, Lessor
shall promptly notify Lessee in writing and the obligation of the Lessor to
make the Aircraft available to the Lessee shall terminate. In such event,
Lessor shall promptly return to Lessee any monies paid by Lessee hereunder with
respect to the Lease Payment. Notwithstanding anything to the contrary
contained in this Lease or any other Operative Agreement, Lessor shall not be
liable for any delay in delivery of the Aircraft, or failure to deliver the
Aircraft, caused by acts of God, (including but not limited to fire, floods,
earthquakes or other natural disasters) or caused by acts of any Governmental
Entity.
(d) Acceptance of Aircraft. The Aircraft to be leased hereunder
shall be delivered to Lessee in compliance with Exhibit F hereto, but otherwise
in "AS IS, WHERE IS" condition and SUBJECT TO EACH AND EVERY DISCLAIMER OF
WARRANTY AND REPRESENTATION AS SET FORTH IN SECTIONS 5(a) AND (b) HEREOF. Upon
tender of delivery in the condition required by this Lease, Lessee shall
immediately accept delivery of the Aircraft. Upon acceptance of the Aircraft,
Lessee shall hereupon indicate and confirm its acceptance of the Aircraft by
delivery to Lessor of a Lease Supplement, dated the Commencement Date, in the
form set forth in Exhibit D hereto.
(e) Effective Date and Term of Lease. The effective date of this
Lease shall be the Commencement Date and the Term of this Lease shall continue
until the Expiration Date; provided that this Lease may be earlier terminated
by Lessor pursuant to the provisions of Sections 3(c) or 18 hereof.
Section 4. Rent.
(a) Rent. Lessee covenants and agrees to pay to Lessor, or its
assigns (including but not limited to any Lessor Lender), the following as
Rent:
(i) the Basic Rent as set forth in Exhibit C hereto
throughout the Term hereof, payable in consecutive monthly installments and due
on each Basic Rent Payment Date; and
(ii) any and all Supplemental Rent as the same becomes due,
including without limitation the Maintenance Reserves, payable in accordance
with Section 6(g) hereof.
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<PAGE> 13
(b) Place and Method of Payment. All Basic Rent and Supplemental
Rent payable under this Lease shall be paid in U.S. Dollars, by wire transfer
of immediately available funds at the Payment Location specified on Exhibit C
hereto, or at such other location as Lessor shall designate in writing.
(c) Prohibition Against Setoff, Counterclaim, Etc. This Lease is a
net lease. Lessee's obligation to pay all Rent hereunder shall be absolute and
unconditional and shall not be affected or reduced by any circumstances,
including, without limitation: (i) any setoff, counterclaim, recoupment,
defense or other right which Lessee may have against Lessor, the Manufacturer,
any seller of or Person providing services with respect to the Aircraft or any
other Person, for any reason whatsoever; (ii) any defect in the title,
airworthiness or eligibility for registration under Applicable Law, or any
condition, design, operation, merchantability or fitness for use of, or any
damage to or loss or destruction of, the Aircraft, or any interruption or
cessation in the use or possession thereof by Lessee for any reason whatsoever,
whether arising out of or related to an act or omission of Lessee, or any other
Person; (iii) any Liens, Lessor Liens, or Permitted Liens with respect to the
Aircraft; (iv) the invalidity or unenforceability or lack of due authorization
or other infirmity of this Lease or any absence of right, power or authority of
Lessor or Lessee to enter into this Lease; (v) any insolvency, bankruptcy,
reorganization or similar proceedings by or against Lessor or Lessee or any
other Person; (vi) any other circumstance or happening of any nature
whatsoever, whether or not similar to any of the foregoing; or (vii) any Taxes
(with respect to which Lessee's obligations shall be as set forth in Section 10
hereof); it being the express intention of Lessor and Lessee that all Rent
payable hereunder shall be payable in all events, unless the obligation to pay
the same shall be terminated pursuant to the express provisions of this Lease.
Notwithstanding anything to the contrary contained herein, in the
event that the Aircraft is lost or destroyed, in lieu of paying Rent
thereafter, Lessee shall indemnify the Lessor for all losses, liabilities and
damages arising out of such loss or destruction, and pay to the order of Lessor
all amounts due and owing pursuant to Section 11 hereof, on demand.
Lessee hereby waives, to the extent permitted by Applicable Law, any
and all rights which it may now have or which at any time hereafter may be
conferred upon it, by law or otherwise, to terminate this Lease or any
obligation imposed upon Lessee hereunder or in relation hereto.
If for any reason whatsoever this Lease shall be terminated in whole
or in part by operation of law or Applicable Law, and so long as Lessor honors
its covenant of quiet enjoyment under Section 20(f) hereof, Lessee nonetheless
agrees to pay to Lessor amounts equal to the Rent payments hereunder at the
time such payments would have become due and payable in accordance with the
terms hereof had this Lease not been so terminated.
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<PAGE> 14
Section 5. Representations and Warranties.
(a) In reliance on Lessee's representations, warranties and covenants
contained in this Agreement, LESSOR HAS NOT AND SHALL NOT BE DEEMED TO HAVE MADE
(WHETHER BY VIRTUE OF HAVING LEASED THE AIRCRAFT UNDER THIS LEASE, OR HAVING
ACQUIRED THE AIRCRAFT, OR HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING
ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS LEASE OR
OTHERWISE) AND LESSOR HEREBY SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED (EXCEPT AS HEREIN BELOW PROVIDED IN THIS SECTION
5(a)), AS TO AIRWORTHINESS, CONDITION, DESIGN, OPERATION, MERCHANTABILITY,
FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE LIKE, OR FITNESS FOR USE FOR A
PARTICULAR PURPOSE OF THE AIRCRAFT, OR AS TO THE QUALITY OF THE MATERIAL OR
WORKMANSHIP OF THE AIRCRAFT, THE ABSENCE THEREFROM OF LATENT OR OTHER DEFECTS,
WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR WARRANTY
WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A
COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE), WITH RESPECT TO THE
AIRCRAFT; AND LESSEE HEREBY WAIVES, RELEASES, RENOUNCES AND DISCLAIMS
EXPECTATION OF OR RELIANCE UPON ANY SUCH WARRANTY OR WARRANTIES. LESSOR SHALL
HAVE NO RESPONSIBILITY OR LIABILITY WHATSOEVER TO LESSEE OR ANY OTHER PERSON,
WHETHER ARISING IN CONTRACT OR TORT, OUT OF ANY NEGLIGENCE OR STRICT LIABILITY
OF LESSOR OR OTHERWISE, FOR: (i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED
TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY
INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE
IN CONNECTION THEREWITH; (ii) THE USE, OPERATION OR PERFORMANCE OF THE AIRCRAFT
OR ANY ENGINE OR ANY RISKS RELATING THERETO; (iii) ANY INTERRUPTION OF SERVICE,
LOSS OF BUSINESS OR ANTICIPATED PROFITS OR CONSEQUENTIAL DAMAGES; OR (iv) THE
DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT
OF THE AIRCRAFT. THE WARRANTIES AND REPRESENTATIONS SET FORTH IN THIS SECTION
5(a) ARE EXCLUSIVE AND IN LIEU OF ALL OTHER REPRESENTATIONS OR WARRANTIES
WHATSOEVER, EXPRESS OR IMPLIED, AND LESSOR SHALL NOT BE DEEMED TO HAVE MADE ANY
OTHER WARRANTIES, EXCEPT THAT:
(i) Lessor warrants that on the Commencement Date the
Aircraft shall be free and clear of any and all Lessor Liens;
(ii) Lessor further represents and warrants that the making
and performance by Lessor of this Lease has been duly authorized by all
necessary action on the part of Lessor and will not violate any provision of
its articles of incorporation or by-laws; and
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<PAGE> 15
(iii) Lessor further represents and warrants that this Lease
has been duly executed and delivered by Lessor, and that this Lease and the
Lease Supplement when executed and delivered hereunder constitute legal, valid
and binding obligations of Lessor, enforceable in accordance with their
respective terms except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and, to the extent that certain remedies require
or may require enforcement by a court of equity, by such principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) as a court having jurisdiction may impose and by laws which
may affect some of such remedies;
(iv) no consent, approval or authorization of, or notice to,
any Governmental Entity having jurisdiction with respect to the execution,
delivery or performance by Lessor of this Lease, and each of the Operative
Agreements to which Lessor is a party (including all monetary and other
obligations hereunder or thereunder) is required for Lessor to execute and
deliver this Lease, and to perform the transactions contemplated hereby; and
(v) there are no suits or proceedings pending or, to the
knowledge of Lessor, threatened in any court or before any Governmental Entity
against or affecting Lessor which will have a materially adverse effect on the
current business or financial condition of Lessor.
(b) Manufacturers' Warranties. So long as Lessee is not in Default
and Lessor has not terminated this Lease, Lessor hereby assigns to Lessee such
rights as Lessor may have under any warranty, express or implied, with respect
to the Aircraft and the Engines made by the Manufacturer, the Engine
Manufacturer, or any other Person (including any Approved Maintenance
Provider), to the extent that the same exist or may be assigned or otherwise
made available to Lessee; and that any monies recovered by Lessor pursuant to
such warranties which are suffered by Lessee during the Term shall be paid over
by Lessor to Lessee; provided, however, that upon the occurrence of an Event of
Default and any termination of this Lease pursuant thereto, all such rights
shall immediately revert to Lessor including all claims thereunder whether or
not perfected.
(c) Lessee's Representations and Warranties. Lessee hereby
represents, warrants, and covenants, each of which shall survive the execution
and delivery of this Lease, and the delivery by Lessor and acceptance by Lessee
of the Aircraft:
(i) Lessee is a corporation duly incorporated and validly
existing under the laws of the State of Texas and has the full power and
authority to carry on its business as presently conducted and to perform its
obligations under this Lease;
(ii) this Lease, and each of the Operative Agreements to
which Lessee is a party, has been duly authorized by all necessary action on
the part of Lessee, does
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not require any approval of stockholders 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
will, to the knowledge of Lessee after having made due inquiry, contravene any
Applicable Law or result in any breach of, or constitute any default under, or
result in the creation of any Lien upon any property of Lessee under Lessee's
articles of incorporation or any credit agreement or instrument or other
agreement or instrument to which Lessee is a party or by which Lessee or its
properties or assets are bound or affected;
(iii) no consent, approval or authorization of, or notice to,
any Governmental Entity having jurisdiction with respect to the execution,
delivery or performance by Lessee of this Lease, and each of the Operative
Agreements to which Lessee is a party (including all monetary and other
obligations hereunder or thereunder) is required for Lessee to execute and
deliver this Lease, and to perform the transactions contemplated hereby;
(iv) this Lease has been duly executed and delivered by
Lessee, and the Lease, the Lease Supplement and the other Operative Agreements,
when executed and delivered by Lessee, constitute legal, valid and binding
obligations of Lessee, enforceable in accordance with their respective terms;
(v) there are no suits or proceedings pending or, to the
knowledge of Lessee, threatened in any court or before any Governmental Entity
against or affecting Lessee which will have a materially adverse effect on the
current business or financial condition of Lessee;
(vi) except for the registration on the Aircraft registry
maintained by the FAA and the placing on the Aircraft and on each Engine of the
plates containing the legends referred to in Section 6(f) hereof, and the
precautionary filing of a UCC-1 financing statement in Texas, no further filing
or recording of this Lease or of any other document and no further action, is
necessary under the Laws of any Governmental Entity in order to fully protect
and establish Lessor's title to the Aircraft as against Lessee or any third
party;
(vii) other than with respect to the Hush Kits, Lessee will
not claim to have any legal or beneficial interest in the Aircraft or make any
demands with respect thereto against Lessor, other than in respect of the
Lessee's interest conferred by this Lease;
(viii) Lessee has not received notice of default or exercise
of remedies with respect to any of its obligations: (a) for the payment of
indebtedness for borrowed money, of any currency, equal to an amount in excess
of the equivalent of One Hundred Thousand Dollars (US $100,000.00) or of any
interest or premium thereon; or (b) for the payment of rent under any lease or
agreement to lease real, personal or mixed property where the aggregate rentals
over the term thereof is more than an
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<PAGE> 17
amount equal to or greater than the equivalent of One Hundred Thousand Dollars
(US $100,000.00);
(ix) the Maintenance Program will comply with all FAA
requirements (including but not limited to those under Part 121 of the FAR's);
(x) subject to compliance with Section 8(h) hereof, Lessee
will maintain in full force and effect during the Term of this Lease, or cause
any Sublessee to maintain to the satisfaction of Lessor, a current operating
certificate, air transport license and a current certificate of airworthiness
for the type of operations conducted by Lessee or Sublessee, as the case may be
(in accordance with Applicable Law and the requirements of the FAA, the Lessee,
any Sublessee, and each of the transactions contemplated hereby and by the other
Operative Agreements); and
(xi) Lessee is a duly authorized and certificated air
carrier in good standing under Applicable Law, has satisfied all of the
requirements of and is in good standing with the FAA, and has complied with and
satisfied all requirements of the FAA, as applicable, so as to enable it to
fulfill its obligations hereunder, and to otherwise lawfully operate, possess,
use and maintain the Aircraft.
Section 6. Possession and Use.
(a) Possession.
(i) Sublease, Assignment and Transfer. Subject only to
Section 22 hereof, Lessee hereby covenants and agrees that it will not, and
hereby acknowledges and confirms that it has no right to, without the prior
written consent of Lessor (which consent Lessor may withhold in its reasonable
sole discretion), assign this Lease or sublet or transfer possession of the
Aircraft, Airframe or any Engine pursuant to a Permitted Sublease or otherwise,
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 as long as the action to be
taken shall not affect the registration of, Lessor's title to, or the priority
of any Lien of any Lessor Lender in and to, the Aircraft and so long as all
necessary approvals of each Governmental Entity having jurisdiction over
Lessee, and its operations, have been obtained, then Lessee may:
(1) without the prior written consent of Lessor,
deliver possession of the Aircraft, the Airframe or any Engine, or any Part
thereof, to the manufacturer thereof for testing or other similar purposes or
to any Approved Maintenance Provider for service, repair, maintenance, testing
or overhaul work on the Aircraft, Airframe or Engine or any Part thereof to the
extent required or permitted by the terms of Section 9 hereof;
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(2) without the prior written consent of Lessor,
install an Engine on an airframe (other than the Airframe) owned by Lessee free
and clear of all Liens except: (A) those of the type permitted under Section 14
hereof and those which apply only to the engines (other than Engines),
appliances, parts, instruments, appurtenances, accessories, furnishings and
other Aircraft (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 or pooling agreements which are customary in the airline industry
and do not contemplate, permit, result in or require the transfer of title to
the airframe or engines installed thereon;
(3) without the prior written consent of Lessor,
install an Engine on an airframe leased to Lessee or in the possession of
Lessee subject to a conditional sale agreement or owned by Lessee subject to a
security agreement, provided, that: (A) such airframe is free and clear of all
Liens except the rights of the parties to the lease or conditional sale or
other security agreement covering such airframe and except Liens of the type
permitted by clauses (A) and (B) of Section 6(a)(i)(2), and except 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' rights expressly granted hereunder),
notwithstanding the installation of such Engine on any airframe subject to the
lien of such mortgage; and (B) there shall be in effect a written agreement of
the lessor or owner or secured party of such airframe (which may be a 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 owner 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 subject to this Lease, and a
copy of such agreement shall be provided to Lessor and any Lessor Lender upon
written request, provided, however, that the restriction contained in this
clause shall not apply to the installation of an Engine on an airframe leased
to Lessee or in the possession of Lessee subject to a conditional sale
agreement or owned by Lessee subject to a security agreement for a period not
to exceed sixty (60) days so long as Lessee installs a Replacement Engine or
re-installs such Engine on the Airframe at the expiration of such period free
and clear of any Liens other than those of the type permitted under Section 14
hereof;
(4) without the prior written consent of Lessor,
install an engine (other than an Engine) on the Airframe or a part (other than
a Part) on the Aircraft, provided that such installation does not create, or
permit to exist, any Liens on the Aircraft except those of the type permitted
under Section 14 hereof and those which apply only to such engine or part which
has been installed on the Aircraft; and
(5) without the prior written consent of Lessor,
and provided that it is in the ordinary course of Lessee's business, enter into
a Permitted Sublease as described in clause (i) of the definition of "Permitted
Sublease".
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(ii) Subleases. In the event that Lessee seeks to sublease
the Aircraft pursuant to a Permitted Sublease whereby Lessee does not retain
possession and operational control of the Aircraft at all times, in addition to
securing Lessor's advance written consent to any such Permitted Sublease and
the terms and conditions thereof, Lessee shall execute and deliver any and all
such documents and agreements, and secure all such approvals and consents from
any Person or Governmental Entity, as Lessor and any Lessor Lender shall deem
reasonably necessary or desirable in order to preserve and protect its
respective rights and interests hereunder and under the other Operative
Agreements; and provided further that:
(1) any Sublessee shall be a duly certificated air
carrier holding a current and valid U.S. air operator's certificate;
(2) any such Sublessee shall have duly executed and
delivered a Permitted Sublease and all documents and agreements contemplated
thereby, each in form and substance satisfactory to, and approved in writing
by, Lessor, such approval not to be unreasonably withheld; and
(3) Lessee and Sublessee shall have executed and
delivered to Lessor and any Lessor Lender any and all such documents, and
secured all such approvals and consents from any Person or Governmental Entity,
as Lessor and any Lessor Lender shall reasonably require in order to preserve
and protect their respective rights and interests hereunder, Lessor's rights as
owner and lessor of the Aircraft, and Lessor's rights to the proceeds hereof,
including but not limited to an opinion of legal counsel addressing the
foregoing and otherwise in form and substance and from a qualified law firm of
recognized standing acceptable to Lessor.
Notwithstanding anything to the contrary contained in this Lease,
including but not limited to Sections 6(a)(i) and 6(a)(ii), (x) any transfer of
possession or control of the Aircraft by reason of any Permitted Sublease shall
be, and shall expressly provide that it is, subject and subordinate to all of
the terms of this Lease, including, without limitation, Lessor's right to the
return and/or repossession of the Aircraft upon the occurrence of an Event of
Default or otherwise pursuant hereto; (y) none of the terms and provisions of
such Permitted Sublease shall be adverse or inconsistent with the terms and
provisions hereof and the rights and privileges of Lessor hereunder; and (z)
Lessee shall remain primarily liable hereunder for the performance of all the
provisions hereof, and obligations and duties of Lessee hereunder to the same
extent as if such transfer of possession of the Aircraft had not occurred and
notwithstanding the terms and provisions of any Permitted Sublease. Lessee
shall advise Lessor in writing of its request for consent to sublease the
Aircraft at least ninety (90) days prior to the proposed commencement date, and
shall provide Lessor with copies of the various documents and agreements
proposed to be executed and delivered between it and any Sublessee, as soon as
practicable Lessor shall review the same with
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reasonable diligence and expedition, and promptly either approve or reject the
same in writing to Lessee.
(iii) Certain Limitations on Transfers. With respect to any
transfer pursuant to Section 6(a)(i) or 6(a)(ii) hereof:
(1) the rights of any transferee that received
possession by reason of a transfer permitted by this Section 6(a) shall be
subject and subordinate to all of the terms of this Lease;
(2) Lessee shall remain primarily liable hereunder
for the performance of all terms of this Lease to the same extent as if such
transfer had not occurred;
(3) no relinquishment of possession of the
Aircraft, the Airframe or any Engine pursuant to the terms of this Section 6(a)
shall in any way discharge or diminish any of Lessee's obligations to Lessor
hereunder; and
(4) if any of the actions permitted under Section
6(a)(i), or accomplished pursuant to Section 6(a)(ii), shall result in the
divestiture of Lessor's title in and to such Aircraft, Airframe, Engine or
Part, such action shall be deemed a Casualty Occurrence with respect to such
Aircraft, Airframe, Engine or Part, and Lessee shall comply with Section 11 in
respect thereof.
(b) Reciprocal Recognition of Rights.In the event Lessee shall
have received from the lessor or secured party of any airframe leased to Lessee
or owned by Lessee subject to a conditional sale or other security agreement a
written agreement complying with clause (B) of Section 6(a)(i)(3) hereof (which
agreement may be contained in the lease, conditional sale agreement or security
agreement relating to such airframe), and the lease or conditional sale or
other security agreement covering such airframe also covers an engine or
engines owned by the lessor under such lease or subject to a security interest
in favor of the secured party under such conditional sale or other security
agreement, Lessor hereby agrees for the benefit of such lessor or secured party
that Lessor will not acquire or claim, as against such lessor or secured party,
any right, title or interest in any such engine as the result of such engine
being installed on the Airframe at any time while such engine is subject to
such lease or conditional sale or other security agreement and owned by such
lessor or subject to a security interest in favor of such secured party.
(c) Lawful Insured Operations. Lessee will not permit the Aircraft
to be maintained, used or operated in violation of any Applicable Law or law of
any Governmental Entity, or in violation of any airworthiness certificate, or
license or registration issued by any such authority, or contrary to the
Manufacturer's operating manuals or instructions for the Aircraft. In the event
that any Applicable Laws require alteration of the Aircraft (other than Stage 3
noise requirements under FAR Part 36),
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Lessee shall comply therewith at its sole cost and expense and shall maintain
the same in proper condition for operation under all Applicable Laws. Lessee
agrees not to operate the Aircraft, or permit the Aircraft to be operated: (i)
unless the Aircraft is covered by insurance as required by the provisions
hereof, or (ii) contrary to the terms of such insurance. Lessee also agrees not
to operate or locate the Aircraft or suffer or permit the Aircraft to be
operated or located in any area excluded from coverage by any insurance policy
issued pursuant to the requirements of this Lease.
(d) Maintenance. Lessee, at its own cost and expense, shall:
(i) perform or cause the Approved Maintenance Provider to
perform all airworthiness directives, mandatory manufacturer's service
bulletins, and all other mandatory service, inspections, repair, maintenance,
overhaul and testing: (A) as may be required under applicable FAA rules and
regulations and in compliance with the Maintenance Program, (B) in the same
manner and with the same care as shall be the case with similar Aircraft and
engines owned by or operated on behalf of Lessee without discrimination, and
(C) so as to keep the Aircraft in as good operating condition as when delivered
to the Lessee, ordinary wear and tear excepted, with all systems in good
operating condition;
(ii) keep the Aircraft in such condition as is necessary to
enable the airworthiness certification of the Aircraft to be maintained at all
times under applicable FAA regulations and any other Applicable Law, including,
but not limited to any Aircraft modifications or installations required by the
FAA (provided, however, that nothing contained herein shall preclude Lessee
from removing the Hush Kits so long as the Airframe and Engines are restored to
their respective configurations as existed prior to Hush Kit installation);
(iii) maintain, in the English language, all records, logs
and other materials required by, and in accordance with the requirements of
Exhibit G hereto, and in a manner acceptable to the FAA and any other
Governmental Entity having jurisdiction over the Aircraft and its operation;
and
(iv) Lessee shall furnish Lessor reports on a monthly basis,
concurrent with its payment of Maintenance Reserves: (A) on the hours/cycles
operated for the Airframe, APU, and Landing Gear; (B) on the hours/cycles
operated for each Engine (noting its location); and (C) on an annual basis, a
list of those service bulletins, airworthiness directives and engineering
modifications incorporated on the Aircraft during the preceding calendar year.
(e) Registration. At all times during the Term: (i), Lessor shall,
at its sole cost and expense, cause the Aircraft to continue to be registered
in the United States in accordance with Applicable Law in the name of Lessor as
owner and lessor hereunder; (ii) Lessee shall, at its sole cost and
expense, make all such other filings as are required by the FAA and Applicable
Law and any other government or Governmental
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Entity having jurisdiction over Lessee, the Aircraft and its operation; and
(iii) each of Lessee and Lessor (provided that no Event of Default has occurred
and is continuing) shall refrain from taking any action or inaction that would
adversely affect the United States registration of the Aircraft and the Lease.
(f) Lease Identification. Upon delivery of the Aircraft, Lessee
agrees to place the Lease Identification, as delivered by Lessor, in the
cockpit in a location reasonably adjacent to, and not less prominent than, the
airworthiness certificate for the Aircraft and to place the Lease
Identification on each Engine. Lessee agrees to make such changes to the Lease
Identification as Lessor may reasonably request from time to time.
(g) Maintenance Reserves.
(i) Lessee shall pay in arrears, no later than the tenth
(10th) calendar day following the last day of each calendar month during the
Term, to Lessor, as Supplemental Rent, the Maintenance Reserves on such dates
and in such amounts with respect to the Airframe and each Engine, as specified
in Exhibit C hereto. Such payments are Supplemental Rent and are the exclusive
property of Lessor, and Lessee shall have no rights thereto except as expressly
provided herein.
(ii) Use of Maintenance Reserves. Lessor shall hold the
aggregate amounts of Maintenance Reserves paid by Lessee less any disbursements
from Maintenance Reserves pursuant to this Section 6(g) in reserve to reimburse
Lessee for the actual cost of: (A) the replacement of time expired life-limited
Parts during Engine restoration visits (where such visits constitute scheduled
shop visits requiring teardown and disassembly, or where Engine flanges are
split and time is restored to life limited parts within the Engine) in
accordance with the Maintenance Program; (B) major overhauls of the Landing
Gear and APU, and (C) such other major maintenance project as Lessor shall
approve in writing (any of which events contemplated by (A), (B), or (C) hereof
being a "Major Maintenance Program"). If Lessee intends to undertake a Major
Maintenance Program, the cost for which it will seek reimbursement from the
Maintenance Reserves, Lessee shall notify Lessor at least thirty (30) days in
advance and shall request Lessor's consent in writing, of the workscope Lessee
desires to accomplish, the estimated cost thereof and the maintenance facility
Lessee proposes to have accomplish the work. Lessor shall advise in writing of
its consent or rejection within ten (10) days after receipt of Lessee's notice.
(iii) Payment by Lessor. Any claims by Lessee for
reimbursement from Maintenance Reserves shall be made not later than ninety
(90) days after completion of the related work for which reimbursement is
sought.
Provided no Event of Default shall have occurred and be continuing,
Lessor shall pay to Lessee, or directly to the repair facility if Lessee so
directs Lessor in writing, within thirty (30) days after presentation of an
invoice together with supporting evidence
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reasonably acceptable to Lessor, such as third party bills and work package
certified completed, such amounts as are equal to the cost incurred by Lessee,
during the Term of the Lease and claimed by Lessee (together with supporting
evidence of the purpose and amount of the expenditure satisfactory to Lessor),
in respect of a Major Maintenance Program, including without limitation a Major
Maintenance Program undertaken to comply with the requirements set forth in
Section 16 and in Exhibit E hereof provided, however, that:
(1) no payment shall be made in respect of
replacements or repairs caused by premature failure, ingestion, faulty
maintenance or installation, or covered by manufacturer's service bulletins,
improper operations, misuse, neglect, accidental cause, or any cost which is
reimbursable by a claim under the manufacturer's warranties or by insurance
(deductibles being treated as reimbursable by insurance for this purpose) after
due diligence in effecting recovery, or any other replacements or repairs paid
for or reimbursable by any other Person;
(2) the total amounts payable at any time by Lessor
to Lessee in respect of each Engine, individually, shall not in any event
exceed with respect to each Engine the balance of any funds paid by Lessee to
Lessor pursuant to this Section 6(g) in respect of each such Engine
respectively (after taking account of all such previous payments by Lessor
hereunder), less any repair or overhaul expenditure which Lessor may incur in
accordance with the terms of this Lease, and provided further that payments for
overhaul of an Engine shall be reimbursed up to the amount proportionately
allocated for each Engine as set forth in the description of Maintenance
Reserves in Exhibit C; and
(3) (Intentionally Omitted)
(4) if, on any occasion during the Term, the
maximum amount available to Lessee in respect of each Engine, respectively, is
insufficient to meet a claim for payment, the shortfall is for the account of
Lessee and may not be carried forward or made the subject of any further claim
for payment.
(iv) Lessee's Right to Payment. For the avoidance of doubt,
Lessee has no right to the payment or return of any Maintenance Reserves except
as expressly provided in this Section 6(g), and as provided in Exhibit E
hereto, and without limitation no such right shall be deemed to arise on
termination or expiry of this Lease for any reason.
Section 7. Information and Inspection.
During the Term of this Lease, Lessee agrees to furnish Lessor the following:
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(a) promptly upon the same being made generally available to the
shareholders of Lessee, after the end of each calendar quarter, a copy of the
interim financial statements of Lessee;
(b) promptly upon the same being made available to the
shareholders of Lessee and any Sublessee, but in no event later than ninety
(90) days after the end of each fiscal year, a copy of Lessee's annual audited
consolidated profit and loss account and balance sheet; and
(c) from time to time at the request for the same from Lessor, and
no more frequently than quarterly (unless a Default has occurred), such
information concerning the location, condition, use and operation of the
Aircraft, as well as financial and system-wide operational data of Lessee, as
the Lessor may reasonably request.
Lessee shall permit Lessor or its designee, on three (3) days' prior
written notice or at each "C" check or any portion thereof, to visit and
inspect the Aircraft, its condition, use and operation, and the records
maintained in connection therewith, at any reasonable time without interfering
with the normal commercial operation of the Aircraft. Lessee shall provide
Lessor with ten (10) Business Days' prior written notice of each "C" check or
portion thereof. Lessor shall have no duty to make any such inspection and
shall not incur any liability or obligation by reason of not making any such
inspection. Lessor's failure to object to any condition or procedure observed
or observable in the course of an inspection hereunder shall not be deemed to
waive or modify any of the terms of this Lease with respect to such condition
or procedure.
Section 8. Covenants of Lessee.
In addition to and not in limitation of Lessee's other
representations, warranties, covenants and agreements set forth elsewhere in
this Lease, Lessee covenants and agrees that:
(a) Maintenance of Corporate Existence. Subject only to Section 22
hereof, during the term of this Lease, Lessee will preserve and maintain its
corporate existence and such of its rights, privileges, licenses and franchises
in any jurisdiction where failure to obtain such licensing or qualification
would have a material adverse effect upon Lessee and its business and its
ability to perform hereunder.
(b) Maintenance of Status. Lessee is, and shall remain so long as
it shall be the Lessee under this Lease, duly qualified to operate and maintain
the Aircraft under Applicable Law and in accordance with the requirements of
this Agreement.
(c) Payment of Taxes. Lessee will pay or cause to be paid all
Taxes (including but not limited to any withholding tax imposed under
Applicable Law on Rent payments made to Lessor hereunder), assessments and
governmental charges or levies imposed upon it, the Lessor, any Lessor Lender
and the Aircraft and its use and
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operation (including all landing fees, customs duties, airport fees and the
like), or upon Lessee's income or profits, or upon any property belonging to
it, prior to the date on which the same, if not paid, would give rise to a Lien
(other than a Lien permitted by Section 14 hereof) upon the Aircraft, including
the Airframe, the Engines or any of the Parts thereof, except as may be
excluded by the proviso to Section 10(a) hereof. Lessee shall promptly pay any
and all such Taxes as and when the same are due, and Lessee, on reasonable
demand from time to time, shall provide written evidence to Lessor that it has
paid, or set aside adequate reserves to pay, any Taxes so imposed.
(d) Place of Business. 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.
(e) Notice of Default. Immediately after Lessee or any of its
corporate officers obtains knowledge of an Event of Default hereunder or under
any other Operative Agreement, Lessee shall notify Lessor in writing of such
Event of Default.
(f) Governmental Consents. Lessee, at its sole cost and expense,
shall maintain in full force and effect all governmental consents, licenses,
authorizations, approvals, declarations, filings and registrations obtained or
effected in connection with this Lease, each Operative Agreement, and/or
required by any Applicable Law or by any other Governmental Entity, and every
document or instrument contemplated hereby or thereby and to take all such
additional action as may be proper in connection herewith or therewith. Lessee
further undertakes, at its sole cost and expense, to obtain or effect any new
or additional governmental consents, licenses, authorizations, approvals,
declarations, filings or registrations of any Governmental Entity as may become
necessary for the performance of any of the terms and conditions of this
Lease, each Operative Agreement, or any other document or instrument
contemplated hereby or thereby or as is otherwise required by Applicable Law.
(g) No Liens. Lessee, at its sole cost and expense, shall at all
times keep the Aircraft free and clear of Liens (excluding, however, any
Permitted Liens).
(h) Licenses. Subsequent to the execution and delivery of this
Lease, Lessee will diligently pursue and acquire, and thereafter maintain in
full force and effect during the Term of this Lease, or cause any Sublessee to
maintain to the satisfaction of Lessor, a current operating certificate, air
transport license and a current certificate of airworthiness for the type of
operations conducted by Lessee or Sublessee, as the case may be, in accordance
with Applicable Law and each other Governmental Entity having jurisdiction over
the Aircraft, the Lessee, any Sublessee and each of the transactions
contemplated hereby and by the other Operative Agreements.
(i) No Discrimination. Lessee shall not discriminate in its
maintenance and care of the Aircraft as between it and the other Boeing model
727-200 Aircraft operated by Lessee.
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Section 9. Replacement of Parts; Alterations, Modifications and Additions.
(a) Replacement of Parts. Other than Parts which constitute the
Hush Kits, Lessee, at its own cost and expense, will promptly replace or cause
to be replaced by the Approved Maintenance Provider, or applicable vendor of
the same, 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, at its own cost
and expense, cause to be removed any Parts, whether or not worn out, destroyed,
damaged beyond repair or permanently rendered unfit for use, provided that
Lessee shall immediately replace such Parts (other than Parts constituting the
Hush Kits, which may be removed or replaced at Lessee's option), at its own
cost and expense. All replacement Parts (other than the Hush Kits) shall be
free and clear of all Liens, other than Liens permitted by Section 14 hereof,
shall be in at least the same modification status and service bulletin
accomplishment status, shall be interchangeable as to form, fit and function,
shall have been overhauled, repaired and inspected by an FAA-approved agency
and shall bear FAA acceptable tags, and shall be in as good an operating
condition as, and have a value, utility and remaining useful life at least
equal to, the Parts replaced (assuming such replaced Parts were in the
condition and repair in which they were required to be maintained by the terms
hereof) and all historical records relating to such replacement Parts shall be
maintained by Lessee in English, and in compliance with the requirements of the
FAA.
All Parts (other than the Hush Kits) which are at any time removed
from the Aircraft shall remain the property of Lessor and subject to this Lease,
no matter where located, until such time as such Parts shall be replaced by
Parts which have been incorporated or installed in or attached to the Aircraft
and which meet the requirements for replacemeent Parts specified above.
Immediately upon any replacement Part becoming incorporated or installed in or
attached to the Aircraft as above provided, (i) title to the removed Part shall
thereupon vest in Lessee, free and clear of all rights of Lessor, (ii) title to
such replacement Part shall thereupon vest solely in Lessor, and (iii) such
replacement Part shall become subject to this Lease and be deemed a Part for all
purposes hereof to the same extent as the Part which it has replaced.
(b) Alterations, Modifications and Additions. Lessee, at its own
cost and expense, shall make or cause to be made such alterations and
modifications in and additions to the Aircraft as may be required from time to
time to meet the applicable standards of the FAA, or to comply with any
Applicable Law, rule, directive, bulletin, regulation or order of any
Governmental Entity or of the manufacturer of the Aircraft, Engines or Parts
(provided, however, that neither Lessee or Lessor shall have any obligation to
equip the Aircraft with Hush Kits so as to comply with Stage 3 noise
requirements of FAR Part 36). In addition, Lessee, at its own cost and expense,
and with the advance written consent of Lessor, may from time to time make
alterations and
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modifications in and additions to the Aircraft (including the installation of
the Cargo Door, and installation and removal of the Hush Kits for which no
additional consent of Lessor is required), provided no such alteration,
modification or addition diminishes the remaining warranty, value or utility,
or impairs the condition or airworthiness of the Aircraft. Title to all Parts
(excluding, however, the Hush Kits) incorporated or installed in or attached or
added to the Aircraft as the result of such alteration, modification or
addition shall vest immediately in Lessor and shall become subject to this
Lease, without the necessity for any further act or transfer, document or
notice, provided, however, that Lessee may remove such Parts (including the
Hush Kits, so long as the Airframe and Engines are restored to their respective
configurations as existed prior to Hush Kit installation) prior to return of
the Aircraft to Lessor on the Expiration Date if such removal does not damage
or otherwise result in any diminution in value of the Aircraft. (The removal of
the Hush Kits, in accordance herewith, will not constitute an impairment or
diminution in value of the Aircraft.)
In no event shall Lessor bear any liability or cost for any
alteration, modification or addition to, or for any grounding or suspension of
certification of the Aircraft, or for any loss of revenue arising therefrom.
(c) Airworthiness Directives. The costs of complying with and
otherwise accomplishing any airworthiness directive shall be paid by, and such
compliance shall be the sole responsibility of, Lessee.
Section 10. General Tax Indemnity.
(a) Indemnity. Lessee shall pay when due and indemnify and hold
each Indemnitee harmless from and against any and from all Taxes imposed
against any such Indemnitee, Lessee, the Aircraft or any interest therein or
use thereof, and any and all license, registration and recording fees and
assessments, as well as Taxes arising directly or indirectly out of this Lease,
and each other Operative Agreement, or based on or measured by, the payments of
Rent and other amounts due hereunder or thereunder, the terms, covenants and
conditions hereof and thereof, or the use, operation, maintenance,
possession, condition, control, occupancy, servicing, installation,
transportation, storage, substitution, recording, documentation, import,
export, hypothecation, rental, lease, pledge, modification, location, repair,
abandonment, replacement, delivery, registration, repossession, improvement,
subleasing, manufacture, rental, settlement of any insurance claim, return or
other disposition of the Aircraft or any Part thereof or interest therein
regardless of the method of calculation; provided, however, that Lessee shall
have no obligation to pay any Taxes assessed by the federal government of the
United States, or any state thereof, against the Lessor or any Lessor Lender
which are based upon or measured by their respective gross annual incomes or
profits, capital gains, personal holding company Taxes or Taxes incurred under
Internal Revenue Code Section 341, or any sales or use taxes in the event that
Lessor, or any Indemnitee sells the Aircraft (other than pursuant to the
exercise of remedies under Section 18 hereof).
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(b) Miscellaneous. In case any report or return is required to be
made with respect to any Taxes which are an obligation of Lessee under this
Section 10, Lessee will either make such report or return in such manner as
will show the ownership of the Aircraft in Lessor and send a copy of such
report or return to Lessor or will notify Lessor of such requirement and make
such report or return in such manner as shall be reasonably satisfactory to
Lessor. If actual notice is given by any taxing authority to Lessor that a
report or return is required to be filed with respect to any such Taxes
referred to in this Section 10, Lessor shall promptly notify Lessee of such
required report or return. Lessor agrees to respond to any reasonable request
of Lessee for information within the control of Lessor with respect to the
filing of any report or return, but Lessee agrees to pay any reasonable costs,
fees or other charges of independent counsel or independent accountants
incurred in connection with such request.
Lessee's obligations under this Section 10 shall not be affected by
any circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which Lessee may have against Lessor or any
other Person for any reason whatsoever. Lessee will pay to an Indemnitee, on
demand, to the extent permitted by Applicable Law, interest at the Interest
Rate on any amount not paid when due pursuant to this Section 10 until the same
shall be paid in full. All indemnities, obligations, adjustments and payments
provided for in this Section 10 shall survive, and remain in full force and
effect, notwithstanding the expiration or other termination of this Lease. 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, an Indemnitee, without declaring this Lease to be in default or
taking other action thereunder, and notwithstanding any provision to the
contrary contained herein.
(c) Gross-Up. The Lessee further agrees that if at any time any
Applicable Law or any Governmental Entity requires any deduction or withholding
in respect of Taxes from any payment of Rent or other amounts due under this
Lease or under any other Operative Agreement, the sum due from the Lessee in
respect of such payment shall be increased to the extent necessary to ensure
that, after paying such Taxes or making such deductions or withholding, the
Lessor or other Person entitled to the same, 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.
Section 11. Casualty Occurrences.
(a) Casualty Occurrence with respect to the Airframe. Upon a
Casualty Occurrence with respect to the Airframe, Lessee shall give Lessor
written notice of such occurrence. On or before ninety (90) days after the date
of the Casualty Occurrence, or upon receipt of insurance proceeds in an amount
equal to the Casualty Value, whichever is sooner, Lessee shall pay to Lessor in
immediately available funds the Casualty Value to which it is entitled (as set
forth in Exhibit J hereto). Upon such
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payment, and the payment of all other amounts then due and payable under this
Lease: (i) the obligation of Lessee to make further payments of Basic Rent
hereunder shall terminate, (ii) this Lease shall terminate with respect to the
Aircraft, and (iii) Lessor will transfer to Lessee, without recourse or
warranty, all of Lessor's right, title and interest, in and to the Airframe and
Engines (if any) suffering the Casualty Occurrence, free and clear of Lessor's
Liens, as well as all of Lessor's right, title and interest in and to any
Engine constituting part of the Aircraft but not installed thereon at the time
of the Casualty Occurrence. No Casualty Occurrence shall result in any
abatement of Rent until receipt by Lessor of the Casualty Value.
(b) Casualty Occurrence with respect to an Engine. Upon a Casualty
Occurrence with respect to an Engine only, Lessee shall give Lessor prompt
written notice thereof and shall, within thirty (30) days after the date of
such Casualty Occurrence, convey to Lessor, as replacement for the Engine
suffering a Casualty Occurrence, title to a Replacement Engine. Each
Replacement Engine shall be free of all Liens (except those Liens which are
permitted by Section 14 hereof), shall be the same or better make and model,
and shall be in as good an operating condition as the Engine being replaced,
assuming the Engine being replaced was in the condition and repair required by
the terms hereof immediately prior to the Casualty Occurrence, it being
understood that Lessee shall have no obligation to provide a Hush Kit for any
such Replacement Engine whether or not a Hush Kit had been provided with
respect to the Engine being replaced. Upon full compliance by Lessee with the
terms of this paragraph, Lessor will transfer to Lessee title to the Engine
which suffered the Casualty Occurrence. Prior to or at the time of any such
conveyance, Lessee, at its own expense, will promptly: (i) furnish Lessor with
a full warranty bill of sale, in form and substance reasonably satisfactory to
Lessor, with respect to such Replacement Engine; (ii) cause a further Lease
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 Applicable Law; (iii) furnish Lessor with such
evidence of title to such Replacement Engine and of compliance with the
insurance provisions of Section 12 hereof with respect to such Replacement
Engine as Lessor may reasonably request; (iv) furnish Lessor with an opinion of
Lessee's counsel acceptable to Lessor and any Lessor Lender to the effect that
title to such Replacement Engine has been duly conveyed to Lessor, free and
clear of all Liens, that such Replacement Engine is duly leased hereunder and
that such Replacement Engine is duly subjected to the Operative Agreements and
the Lien of the Lessor Lender's mortgage or security agreement; (v) furnish a
certificate signed by a duly authorized financial officer or executive of
Lessee certifying that, upon consummation of such replacement, no Default or
Event of Default will exist hereunder; (vi) furnish Lessor with such documents
as Lessor may reasonably request in connection with the consummation of the
transactions contemplated by this Section 11(b), in each case in form and
substance satisfactory to Lessor; (vii) furnish such financing statement
covering the Replacement Engine as may be reasonably requested by Lessor; and
(viii) furnish Lessor with a report by an independent power plant engineer,
acceptable to Lessor, that the Replacement Engine meets the requirements of
this Lease. Upon full
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compliance by Lessee with the terms of this Section 11(b), Lessor will
transfer to Lessee all of the right, title and interest in the Engine, free and
clear of Lessor's Liens, which suffered the Casualty Occurrence and which was
originally leased to Lessee. For all purposes hereof, each such Replacement
Engine shall be deemed part of the property leased hereunder, shall be deemed
an "Engine" as defined herein and shall be deemed part of the Aircraft. No
Casualty Occurrence covered by this Section 11(b) shall result in any
reduction in Rent.
(c) Application of Proceeds and Payments. Any payments received at
any time by Lessor or by Lessee from any insurer under insurance (other than
liability insurance), or from any Governmental Entity or other Person with
respect to a Casualty Occurrence will be applied as follows:
(i) unless clause 11(c)(ii) below is applicable, so much
of such payments as shall not exceed the Casualty Value required to be paid by
Lessee pursuant to Section 11(a) of this Lease shall be paid to or as directed
by Lessor in reduction of Lessee's obligation to pay such Casualty Value if not
already paid by Lessee, or, if already paid by Lessee (unless a Default or an
Event of Default shall have occurred and be continuing) shall be applied by
Lessor to reimburse Lessee for its payment of such Casualty Value and the
balance of such payment, if any, remaining thereafter, if such payment is
received with respect to insurance other than liability insurance (unless a
Default or an Event of Default shall have occurred and be continuing) shall be
paid over to, or retained by Lessee; or
(ii) if such payments are received as a result of a
Casualty Occurrence with respect to an Engine which is being replaced by Lessee
with a Replacement Engine pursuant to Section 11(b) hereof, unless a Default
or Event of Default shall have occurred and be continuing, all such payments
shall be paid over to, or retained by, Lessee if Lessee shall have satisfied
Lessor, in its sole discretion, that Lessee has fully performed or,
concurrently therewith will fully perform, the terms of Section 11(b) and of
Section 15 hereof with respect to the Casualty Occurrence for which such
payments are made.
(d) Requisition for Use by Government with Respect to the
Aircraft. In the event of the requisition for use by a Governmental Entity of
the Airframe or any Engine (other than a requisition constituting a Casualty
Occurrence), all of Lessee's obligations under this Lease, including without
limitation those with respect to the Airframe or such Engine, shall continue to
the same extent as if such requisition had not occurred; provided, however,
that if it is impossible for Lessee to perform its maintenance obligations with
respect to the Airframe or such Engine because of the possession of the
Airframe or such Engine by such Governmental Entity, promptly upon the return
of the Airframe or such Engine to Lessee, Lessee shall undertake all actions
necessary to restore the Aircraft or such Engine to the condition it would have
been in had Lessee fully performed such obligations throughout the period of
time the Aircraft or such Engine was in the possession of such Governmental
Entity. All payments received by
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Lessor or Lessee from the Governmental Entity for the use of the Airframe or
such Engine during the Term therefor shall be paid over to, or retained by,
Lessee if no Default or Event of Default shall have occurred and be continuing;
and all payments received by Lessor or Lessee from the Governmental Entity for
the use of such item after the Term therefor shall be paid over to, or retained
by, Lessor.
(e) Other Applications. Any amounts not payable to or retained by
Lessee pursuant to this Section 11 or Section 12 hereof because a Default or an
Event of Default shall have occurred and be continuing shall be paid to Lessor
until such Default or Event of Default shall cease to be continuing, except
that if Lessor shall have theretofore declared this Lease to be in default
pursuant to Section 18 hereof, such amounts shall be retained by Lessor and
disposed of in accordance with the provisions thereof.
Section 12. Insurance.
(a) Public Liability and Property Damage Insurance. Lessee will
carry and maintain in effect, at its own cost and expense, with Approved
Insurers, comprehensive public liability insurance (including, without
limitation, contractual liability to cover Lessee's obligations under Section
13 of this Lease, and passenger legal liability), and property damage insurance
with respect to the Aircraft. Such insurance shall be in an amount not less
than the amount applicable to similar aircraft and engines which comprise
Lessee's fleet, shall be of the type usual and customary by international
airline standards for airline carriers operating other similar Aircraft in
international operations and carried by Lessee on the other Aircraft in
Lessee's fleet and shall at all times be in amounts not less than Two Hundred
Fifty Million Dollars (US$250,000,000.00), per occurrence, with zero
deductible. Lessee shall not discriminate against the Aircraft in providing such
insurance.
(b) Insurance Against Loss or Damage. Lessee, at its own cost and
expense, will maintain in effect with Approved Insurers "all-risk" ground and
flight Aircraft hull insurance (which shall include, but not be limited to,
full war risk and allied perils, hijacking, a disappearance clause and coverage
against strikes, riots, commotions or labor disturbances, malicious acts or
acts of sabotage and unlawful seizure or wrongful exercise of control of the
Aircraft in flight by a person on board such Aircraft acting without the
consent of Lessee, and foreign object damage to Engines) covering such
Aircraft, and fire, transit and extended and "all-risk" coverage insurance with
respect to Engines and Parts while not installed on such Aircraft or an
Aircraft, which in each case is at least as broad as coverage of the type usual
and customary by international airline standards for airline carriers operating
other similar Aircraft in international operations and carried by Lessee on the
other Aircraft in Lessee's fleet. Such insurance shall be for an amount not
less than the Casualty Value. Such insurance shall include provisions for
deductibles in an amount of not more than Two Hundred Fifty Thousand Dollars
(US$250,000.00). No deductible shall apply in the event of a Casualty occurrence
with repect to the Airframe.
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(c) Required Policy Designations and Provisions. Each policy of
insurance obtained and maintained pursuant to this Section, and each policy
obtained in substitution or replacement for any such policies, shall: (i)
designate Lessor as owner of the Aircraft (excluding the Hush Kits) covered
thereby, and shall designate the Indemnities as additional named insureds, and
the Lessor and/or the Lessor Lender as sole loss payee, as their interests may
appear (but without imposing upon the Indemnities any obligation imposed upon
the insured, including, without limitation, the liability to pay any premiums
for any such policies); provided, however, that Lessee shall be sole loss payee
with respect to insurance relating to the Hush Kits; (ii) expressly provide
that, in respect of the interests of the Indemnities in such policies, the
insurance shall not be invalidated by any action or inaction of Lessee, and
shall insure the Indemnities regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by Lessee; (iii)
provide that if such insurance is canceled by the Approved Insurers for any
reason whatsoever, or is adversely changed in any way with respect to the
interests of the Indemnities or if such insurance is allowed to lapse for
nonpayment of premium, such cancellation, adverse change or lapse shall not be
effective as to the Indemnities for thirty (30) days (seven (7) days in the
case of any war risks or allied perils coverage or such lesser period of time
as may be customarily applicable) after issuance to the Indemnities of written
or telex notice by such insurer or insurers to Lessor and Lessor's Lender of
such prospective cancellation, change or lapse; (iv) include coverage for the
territorial limits of any country in which the Aircraft may at any time be
located; (v) provide that, as against the Indemnities, the insurer waives any
rights of set-off, counterclaim or any other deduction, whether by attachment
or otherwise, and waives the rights it may have to be subrogated to any right
of any insured against the Indemnities with respect to the Aircraft; and (vi)
provide that in the event of any damage or loss, other than damage or loss to
a Hush Kit, whether or not a Casualty Occurrence hereunder, and which results
in a payment, such payment shall be payable directly to Lessor as the sole loss
payee, for the account of all interests. Any payment with respect to loss or
damage to a Hush Kit shall be payable to Lessee directly. Each such policy
shall be primary without right of contribution from any other insurance which
may be carried by the Indemnities.
Lessee shall have the right to carry insurance in excess of the
amounts required hereunder and the proceeds of such excess insurance shall be
payable to Lessee. Similarly, the Indemnities shall have the right to carry
additional and separate insurance for their own benefit at their own expense,
without, however, thereby limiting Lessee's obligations under this Section 12.
(d) Application of Insurance Proceeds for a Casualty Occurrence.
It is agreed that insurance payments which arise from insurance obtained
hereunder and received as the result of the occurrence of a Casualty Occurrence
shall be applied in accordance with Section 11(c) hereof.
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(e) Application of Insurance Proceeds for Other than a Casualty
Occurrence. The insurance payments for any property damage loss to the Airframe
or any Engine (but excluding payments with respect to the Hush Kits) not
constituting a Casualty Occurrence, or to any Part, shall be paid to Lessor,
and thereafter be applied by Lessor in payment for the repairs or for
replacement property Lessee is required to perform or that Lessee must obtain
in accordance with the terms of Sections 9 or 11 of this Lease, or, if such
repair or replacement has already been paid for by the Lessee, to reimburse
Lessee for such repairs or replacements, and any balance remaining after
compliance with such sections with respect to such loss shall be applied, in
the sole discretion of Lessor, towards any amounts due and owing to Lessor
hereunder by Lessee.
(f) Application in Default. Any amount (other than amounts
relating to the Hush Kits) referred to in Section 11(c) or Section 12(e) hereof
which is otherwise payable to Lessee shall not be paid to Lessee, or, if it has
been previously paid to Lessee, and not yet applied by Lessee as permitted or
required hereunder, shall be immediately delivered by Lessee to Lessor, if at
the time of such payment, a Default or an Event of Default shall have occurred
and be continuing. In either case, all such amounts shall be held by Lessor as
security for the obligations of Lessee, or, at the option of Lessor, applied by
Lessor toward payment of any of Lessee's obligations at the time due hereunder.
At such time as there shall not be continuing any such Default or Event of
Default, all such amounts at the time held by Lessor in excess of the amount,
if any, which Lessor has elected for application as provided above, shall be
paid to Lessee.
(g) Certificates of Insurance. On or before the Delivery Date, and
thereafter on each renewal by the Lessee of the insurance required hereby,
Lessee will furnish to Lessor a certificate and a letter of undertaking
executed and delivered by an Approved Insurance Broker who is authorized by an
Approved Insurer, appointed by Lessee, describing in reasonable detail
insurance carried on the Aircraft and certifying that the insurance then
maintained on the Aircraft complies with the terms of this Lease. Lessee will
cause such Approved Insurance Broker who is authorized by an Approved Insurer
to agree to advise Lessor in writing or by telex: (i) at least thirty (30) days
(seven (7) days in the case of any war risk and allied perils coverage or such
lesser period of time as may be customarily applicable) prior to the
termination or cancellation by the underwriters for any reason (including,
without limitation, failure to pay the premium therefor) of any such insurance;
and (ii) at least three (3) Business Days or, in the case of any war risk and
allied perils coverage, such lesser period of time as may be customarily
applicable, prior to any non-renewal by the underwriters for any reason
(including, without limitation, failure to pay the premium therefor) of any
such insurance.
(h) Reinsurance. In the event that the insurances required
hereunder are reinsured, such reinsurance shall contain a "cut-through" clause
reasonably satisfactory to Lessor, and Lessee will furnish to Lessor a
certificate and a letter of undertaking executed and delivered by an Approved
Insurance Broker who is authorized by an Approved Insurer appointed by Lessee,
describing in reasonable detail the reinsurance
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carried on the Aircraft and certifying that the reinsurance then maintained on
the Aircraft complies with the terms of this Lease.
Section 13. Indemnification,
Lessee hereby agrees and undertakes, from and after the delivery of the
Aircraft on the Commencement Date (or such earlier time as Lessee takes
possession of the Aircraft), to indemnify, reimburse and hold harmless each
Indemnitee from and against any and all claims, damages, losses, liabilities,
demands, suits, judgments, settlements, causes of action, legal proceedings
(whether civil or criminal), penalties, fines, Taxes, other actions, and any
attorneys' fees and all other costs and expenses in connection therewith,
including any of the foregoing arising or imposed with or without any such
Indemnitee's fault or negligence or under the doctrine of strict liability or
any other theory of liability (any and all of which are hereafter referred to
as "Claims") which in any way may result from, pertain to, or arise in any
manner out of, or are in any manner related to: (i) the Aircraft or this Lease
or the enforcement of any of the terms hereof and thereof, including but not
limited to the breach of any representation, warranty, covenant, obligation or
duty of Lessee hereunder or under any Operative Agreement or any other document
of agreement executed and delivered in connection herewith or with respect to
any Indemnitee; or (ii) the condition, ownership, manufacture, purchase,
delivery, lease, acceptance, possession, repossession, return, disposition,
use, registration, import, export, maintenance, storage or operation of the
Aircraft either in the air or on the ground; or (iii) any defect in the
Aircraft (whether or not discovered or discoverable by Lessee or Lessor)
arising from any material or articles or Parts used therein or from the design,
testing, or use thereof or from any maintenance, service, repair, overhaul, or
testing of the Aircraft, whether or not the Aircraft is in the possession of
Lessee, and regardless of where the Aircraft may then be located; or (iv) any
transaction, approval, or document contemplated by this Lease or any Operative
Agreement, or given or entered into in connection herewith or therewith;
provided, however, that Lessee shall be subrogated to all rights and remedies
of Lessor against any Person pursuant to which Lessee has paid a Claim
hereunder, including but not limited to any rights or remedies that Lessor may
have against the Manufacturer, the Engine Manufacturer, the Approved
Maintenance Provider, or the manufacturer of any Part, or any of their
subcontractors. In the event Lessee is required to indemnify any Indemnitee
hereunder, Lessee shall pay to such Indemnitee an amount which, after deduction
of all Taxes and like charges required to be paid by such Indemnitee in respect
of such payment, is equal to the amount of the indemnification required,
provided, however, that all of the provisions of Section 10 hereof shall apply
to such payment; and provided further, however, that Lessee shall not be
required to indemnify any Indemnitee against Claims arising out of such
Indemnitee's gross negligence or willful misconduct.
Lessee hereby waives, and releases each Indemnitee from any Claims
(whether now existing or hereafter arising) for or on account of or arising or
in any way connected with injury to or death of personnel or any agent of
Lessee or loss or damage to
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property of Lessee or the loss of use of any property which may result from or
arise in any manner out of or in relation to the ownership, manufacture,
purchase, delivery, leasing, condition, use, maintenance, storage, repossession
or operation of the Aircraft, either in the air or on the ground, or which may
be caused by any defect in the Aircraft from the material or any article or
Part used therein or from the design or testing thereof, or use thereof or from
any maintenance, service, repair, overhaul, or testing of the Aircraft
regardless of when such defect may be discovered, whether or not the Aircraft
is at the time in the possession of Lessee, and regardless of the location of
the Aircraft at any such time.
The indemnities contained in this Section 13 shall survive the
execution and delivery of this Lease and the other Operative Agreements, and
shall continue in full force and effect notwithstanding the expiration or other
termination of this Lease or other Operative Agreement and are expressly made
for the benefit of and shall be enforceable by each Indemnitee.
Section 14. Liens.
Lessee shall not directly or indirectly create, incur, assume or
suffer to exist any Lien on or with respect to the Aircraft, title thereto or
any interest therein, except: (i) the respective rights of Lessor and Lessee as
herein provided; (ii) Lessor's Liens with respect to the Aircraft; (iii)
Permitted Liens; and (iv) Liens in favor of any Lessor Lender; provided,
however, that Lessee may create a Lien on the Hush Kits, provided that any such
lienholder expressly acknowledges and agrees with Lessor or any Lessor Lender
that it shall have no Lien on the Aircraft or any other Part thereof
Section 15. Perfection of Title and Further Assurances.
(a) Recordation of Lease. Lessee shall, at its sole cost and
expense, and as may otherwise be directed by Lessor from time to time, cause
this Lease, all exhibits hereto, any amendments or supplements hereto, and any
and all additional instruments which shall be executed pursuant to the terms
hereof to be kept, filed and recorded, and to be re-executed, re-filed and
re-recorded at all times during the Term with the FAA and each other
Governmental Entity having jurisdiction over the Aircraft, this Lease, the
Operative Agreements and the transactions contemplated hereby and thereby to
the extent required to perfect and preserve Lessor's and Lessor Lender's
interest and title in and to the Aircraft, this Lease and each Operative
Agreement to the maximum extent possible under Applicable Law.
(b) Other Filings.
(i) If at any time any filing or recording is reasonably
necessary to protect the interest of Lessor or any Lessor Lender, Lessee, at
Lessor's cost and expense (unless an Event of Default shall have occurred and
be continuing or unless in the event of a Permitted Sublease, then, at Lessee's
cost and expense) and upon
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request by Lessor or any Lessor Lender, shall cause this Lease and any Lessor
Lender's security agreement and any and all additional instruments which shall
be executed pursuant to the terms hereof or thereof, to be kept, filed and
recorded and to be re-executed, refiled and re-recorded in the appropriate
office pursuant to Applicable Law to perfect, protect and preserve the rights
and interests of Lessor and any Lessor Lender hereunder and in the Aircraft. At
the reasonable request of Lessor or any Lessor Lender, Lessee shall furnish to
Lessor and any Lessor Lender opinions of counsel or other evidence satisfactory
to Lessor and any Lessor Lender of each such filing or refiling and recordation
or re-recordation.
(ii) Without limiting the foregoing, Lessee shall do or
cause to be done, and pay all Taxes in connection with (pursuant to Section 10
hereof), at Lessee's sole cost and expense, any and all acts and things which
may be required to perfect and preserve the title and interest of Lessor and
the Lien of any Lessor Lender in the Aircraft and this Lease, as Lessor and any
Lessor Lender may reasonably request, arising out of or in any way related to
Lessee's or Sublessee's use or operation of the Aircraft. Lessee shall also do
or cause to be done, at its sole cost and expense, any and all acts and things
which may be required under the terms of any other Applicable Law involving any
jurisdiction in which Lessee may operate, or any and all acts and things which
the Lessor or any Lessor Lender may reasonably request, to perfect and preserve
Lessor's ownership rights regarding and any Lessor Lender's Lien in and to the
Aircraft within any such jurisdiction.
(iii) In addition, Lessee will promptly and duly execute and
deliver to Lessor such further documents and assurances and take such further
actions as Lessor may from time to time reasonably request in order to more
effectively carry out the intent and purpose of this Lease and to establish,
protect and perfect the rights and remedies created or intended to be created
in favor of Lessor and any Lessor Lender hereunder, including, without
limitation, if reasonably requested by Lessor at the expense of Lessee, the
execution and delivery of supplements or amendments hereto or to any Lessor
Lender's security agreement in recordable form, subjecting to this Lease and to
the Lien of any Lessor Lender's security agreement, any Replacement Engine and
the recording or filing of counterparts thereof, in accordance with the laws of
any appropriate jurisdiction. Lessee shall not consolidate with or merge into
any other corporation unless Lessee has notified Lessor and any Lessor Lender
in writing prior to the consummation of such transaction and Lessee shall have
taken all such actions requested by Lessor or Lender pursuant to this Section
15.
Section 16. Return of Aircraft and Records.
(a) Return. On the Expiration Date or such other Return Occasion,
Lessee, at its own expense, shall return the Aircraft to Lessor in the
condition specified in Exhibit E hereto (it being agreed, however, that Lessee
need not comply with Stage 3 noise requirements of FAR Part 36 for the
Aircraft) at a location designated by Lessor in the United States (the "Return
Location"), fully equipped, with all required Parts
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(excluding, however, the Hush Kits) and Engines, duly installed thereon, by
delivering the same to Lessor at such location. At such time as the Aircraft
has been inspected by Lessor and found to be in the condition required
hereunder, Lessor shall issue a redelivery receipt to Lessee confirming the
same. Any engines installed on the Aircraft returned to Lessor hereunder which
had not originally been installed on the Aircraft will be deemed to be part of
the Aircraft and owned by Lessor, and Lessor shall, subject to such engines
fulfilling all requirements of a Replacement Engine under Section 11(b) hereof,
and otherwise complying with all requirements of Exhibit E hereto, relinquish
title to any Engines previously removed and replaced by such last-installed
engines.
(b) Engines. Lessee may return the Aircraft on the Return Occasion
with an engine not owned by Lessor, so long as (i) such engine conforms in all
respects to the requirements set forth in Section 11(b) hereof with respect to
a Replacement Engine; (ii) such engine conforms to the return condition
requirements set forth in Subsections 16(d) and 16(f) hereof; and (iii) Lessee,
at its own expense and concurrently with such delivery, furnishes Lessor with a
warranty bill of sale, in form and substance reasonably satisfactory to Lessor,
with respect to such engine and with evidence of Lessee's full and unencumbered
title to such engine (including, if requested, an opinion of Lessee's counsel
to the effect of the opinion required by Section 11(b)(iv) hereof) and Lessee
takes such other action as Lessor may reasonably request in order that full
legal and beneficial ownership and title to such engine shall be duly and fully
vested in Lessor. Lessee's obligation to comply with the terms of this
Subsection 16(c) shall be conditioned on the Lessor's transferring to Lessee
full legal and beneficial ownership and title to any Engine not installed on
the Aircraft at the Return Occasion, without any representation, warranty or
recourse of any kind whatsoever, express or implied, except a warranty that
such Engine is free and clear of Liens, other than Liens which Lessee is
required to discharge hereunder.
(c) Records. Upon the Return Occasion, Lessee shall deliver to
Lessor all logs, manuals, data and inspection, modification, and overhaul
records which are required to be maintained with respect to the Aircraft under
applicable rules and regulations of the FAA, and otherwise in accordance with
the terms of this Lease and Exhibit G hereto. Lessee shall deliver to Lessor
all such Maintenance Program data and task cards as required to transition the
Aircraft to another operator's maintenance program.
(d) Service Bulletin and Modification Kits. At or upon the return
of the Aircraft pursuant to this Section 16, Lessee shall deliver to Lessor, at
no cost to Lessor, all service bulletin kits furnished without charge by a
manufacturer for installation on the Aircraft which have not been so installed,
together with appropriate instructions for installation. In the event such
uninstalled kits were purchased or manufactured by Lessee, then Lessor shall
have a right to purchase such kits at Lessee's acquisition price for a period
of ninety (90) days after return of the Aircraft.
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(e) Condition of Aircraft. Upon the Return Occasion, Lessee shall
return the Aircraft (other than the Hush Kits) to Lessor in such condition that
the Aircraft (other than the Hush Kits) shall comply with all of the conditions
set forth in Exhibit E hereto, with all Aircraft systems fully functional and
in good working order.
(f) Final Inspection. Upon the Return Occasion, Lessee shall make
the Aircraft available, at Lessee's expense, to Lessor at Lessee's principal
maintenance base or such other location mutually agreed to by Lessor and Lessee
for detailed inspection in order to verify that the condition of the Aircraft
(other than the Hush Kits) complies with the requirements set forth above, and
Lessee shall thereafter make the Aircraft available at the Return Location for a
further and final Engine inspection, including borescope and power assurance
runs (such inspection being hereinafter collectively referred to as the "Final
Inspection"). Lessor shall cause the Final Inspection to be conducted only
during those times when the Aircraft is not engaged in operation. Lessee shall
give Lessor not less than ten (10) days prior written notice of the commencement
date of such Final Inspection. The period allowed for the Final Inspection shall
have such duration as to permit the opening of any areas of the Aircraft which
would be opened by Lessee to satisfy the requirements of Exhibit E. The Final
Inspection shall commence on or before the Expiration Date with respect to the
Aircraft and shall continue on consecutive days until all activity required
above to be conducted during the Final Inspection has been concluded. To the
extent that any portion of the Final Inspection extends beyond the Expiration
Date, the Term shall be deemed to have been automatically extended, and the
obligation to pay Rent hereunder shall continue on a daily basis at the rate of
125% of the Basic Rent until the Final Inspection shall have been concluded. All
storage expenses attributable to any extension of the Term pursuant to the
preceding sentence shall be payable by Lessee, and Lessee shall continue to
insure the Aircraft in accordance with Section 12 during any such extension
period. Lessor shall work diligently in its inspection of the Aircraft, such
that any delay in completion of the Final Inspection is not caused solely by any
act or omission by or on behalf of Lessor.
(g) Aircraft Documentation. In order to enable Lessor to prepare
for the Final Inspection of the Aircraft pursuant to Subsection 16(g) above,
Lessee agrees to make available to Lessor at Lessee's principal maintenance
base not later than ten (10) days prior to the commencement of such Final
Inspection, the Aircraft Documents, together with such other documentation
regarding the condition, use, maintenance, operation and history of the
Aircraft generated during Lessee's possession of the Aircraft, and as Lessor
may otherwise reasonably request.
(h) Corrections and Subsequent Corrections. To the extent that the
Aircraft or any Engine fails upon the Return Occasion to conform to any
requirement imposed by this Lease and particularly Section 16(f), Lessor, at
its sole option, may continue the Lease in effect in the manner provided for in
Section 16(f) above with regard to automatic extension until such time as the
Aircraft (other than the Hush Kits) is brought up to the condition required by
Section 16(f) above; or Lessor may accept the return of
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the Aircraft and thereafter have any such nonconformance corrected at such time
as Lessor may deem appropriate but not to occur later than ninety (90) days
following the return of the Aircraft, at commercial rates then charged by the
Person selected by Lessor to perform such correction and Rent shall continue as
set forth in Section 16(f) above for the number of days required to perform
such correction. Any direct expense incurred by Lessor for such correction
shall become Supplemental Rent payable by Lessee within thirty (30) days
following the submission of a written statement by Lessor to Lessee,
identifying the items corrected and setting forth the expense of such
correction. Lessee's obligation to pay such Supplemental Rent shall survive the
passage of the Expiration Date or other termination of this Lease.
(i) Functional Check Flight. Immediately prior to the expiration
of the Term, observers (not to exceed three (3) in number) selected by and at
the expense of Lessor, will accompany Lessee's flight crew on a functional
check flight (not to exceed two (2) hours in duration) to be accomplished in
accordance with Manufacturer's procedures and at Lessee's expense to
demonstrate the airworthiness of the Aircraft being returned and proper
functioning of all systems and components. At all times during such functional
check flight Lessee's flight crew shall be in command of the Aircraft;
provided, however, that Lessor's qualified pilots may operate the controls. Any
discrepancy or malfunction detected shall be corrected at Lessee's expense and
subject to the requirements of this Section 16.
Section 17. Events of Default.
Any one or more of the following occurrences or events shall
constitute an Event of Default:
(a) Lessee shall fail to make any payment of Rent to Lessor when
due under this Lease and such payment shall be overdue for a period of five (5)
Business Days;
(b) Lessee shall fail to obtain and maintain any insurance
required under the provisions of Section 12 hereof, or shall let any such
insurance coverage lapse, or shall operate the Aircraft outside of the scope of
the insurance coverage maintained with respect to the Aircraft;
(c) any representation or warranty made by Lessee in Sections
5(c)(i) through 5(c)(vi) hereof inclusive is incorrect at the time given in any
material respect; any other representation or warranty made by Lessee herein or
in any document or certificate furnished to Lessor in connection herewith or
therewith or pursuant hereto is incorrect in any material respect at any time
during the Term and the Lessee fails to cure the same so as to make the
representation or warranty correct within fifteen (15) days after Lessee has
actual notice thereof (or such longer period as Lessor may agree, in its sole
discretion, provided that Lessee is diligently pursuing efforts to cure the
same and the defect is capable of correction);
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(d) Lessee shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it pursuant to this Lease
and such failure shall continue for a period of fifteen (15) days after notice
thereof is given by Lessor to Lessee, or if Lessee shall fail to observe its
covenant to keep the Aircraft free and clear of Liens, seven (7) days after the
date of imposition of any such Lien (or such longer period as Lessor may agree,
in its sole discretion, provided that Lessee is diligently pursuing efforts to
cure the same and the defect is capable of correction);
(e) Lessee consents to the appointment of a receiver, trustee or
liquidator of itself or of a substantial part of its property, or Lessee admits
in writing its inability to pay its debts generally as they come due, or makes
a general assignment for the benefit of creditors, or Lessee files a voluntary
petition in bankruptcy or a voluntary petition seeking reorganization in a
proceeding under any bankruptcy laws, as now or hereafter in effect (other than
for purposes of a solvent reorganization on terms previously approved by
Lessor), or an answer admitting the material allegations of a petition filed
against Lessee in any such proceeding, or Lessee by voluntary petition, answer
or consent seeks relief under the provisions of any bankruptcy, insolvency or
other similar law providing for the reorganization or winding-up of
corporations, or provides for an agreement, composition, extension or
adjustment with its creditors;
(f) an order, judgment or decree is entered by any court, with or
without the consent of Lessee, appointing a receiver, trustee or liquidator for
Lessee or of all or any substantial part of its property, or all or any
substantial part of the property of Lessee is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in effect,
undismissed, unstayed or unvacated for a period of sixty (60) days after the
date of entry thereof;
(g) a petition against Lessee in a proceeding under bankruptcy,
insolvency or other similar laws of any Governmental Entity (as now or
hereafter in effect) is filed and is not withdrawn or dismissed within sixty
(60) days thereafter, or if, under the provisions of any Applicable Law
providing for reorganization or winding-up of corporations which may apply to
Lessee, any court of competent jurisdiction assumes jurisdiction over, or
custody or control of, Lessee or of all or any substantial part of its property
and such jurisdiction, custody or control remains in effect, unrelinquished,
unstayed or unterminated for a period of sixty (60) days;
(h) a final judgment for the payment of money not covered by
insurance in excess of One Hundred Thousand Dollars (US $100,000.00), or final
judgments for the payment of money not covered by insurance in excess of One
Hundred Fifty Thousand Dollars (US $150,000.00) in the aggregate, shall be
rendered against Lessee and the same shall remain undischarged for a period of
thirty (30) days during which execution thereof shall not be effectively stayed
by agreement of the parties involved, stayed by court order or adequately
bonded or attachments or other Liens, except for security interests;
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(i) Lessee shall receive notice of default or exercise of remedies
with respect to the payment of any obligation for the payment of borrowed
money, for the deferred purchase price of property or for the payment of rent
or hire under any lease of Aircraft which has a principal amount of One Hundred
Thousand Dollars (US $100,000.00) 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; or Lessee shall receive notice of default
or exercise of remedies with respect to the performance of any other term,
agreement or condition contained in any material agreement or instrument under
or by which any such obligation is created, evidenced or secured, and Lessee
fails to cure the same;
(j) except as permitted under Section 22 hereof, Lessee shall
either temporarily or permanently discontinue its business or sell or otherwise
dispose of all or substantially all of its assets or Lessee shall voluntarily
suspend all or substantially all of its commercial airline operations or the
franchises, concessions, permits, rights or privileges required 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, and as a result thereof the preponderant business
activity of Lessee ceases to be that of a commercial airline, or Lessee shall
cease to be an "air carrier operating under a certificate of convenience and
necessity" within the meaning of 11 U.S. C. Section 11 10;
(k) a default or an event of default by Lessee shall occur under
any other Operative Agreement, or other agreement between Lessor and Lessee;
or
(l) any of the foregoing occurrences or events shall have occurred
or be continuing with respect to any Sublessee, if any, or under any Permitted
Sublease, mutatis mutandis, as if Sublessee were substituted in the place of
Lessee hereunder.
Section 18. Remedies.
(a) Upon the occurrence of any Event of Default and at any time
thereafter, Lessor may, at its option and without notice to Lessee, declare
this Lease to be in default and Lessor may exercise one or more of the
following remedies as Lessor in its sole discretion shall elect, to the extent
available and permitted by, and subject to compliance with any mandatory
requirements of any applicable Law then in effect:
(i) demand that Lessee, and Lessee shall upon such demand
of Lessor and at Lessee's expense, immediately return the Aircraft to Lessor at
such location as may be directed by Lessor, in the manner specified in such
notice, and such return shall not be delayed for purposes of complying with the
return conditions specified in Section 16 hereof (none of which conditions
shall be deemed to affect
39
<PAGE> 42
Lessor's possession of the Aircraft) or delayed for any other reason.
Notwithstanding the foregoing, at Lessor's option, Lessee shall be required
thereafter to take such actions, at Lessee's expense, as would be required by
the provisions of this Lease if the Aircraft were being returned at the end of
the Term hereof. In addition, Lessor, at its option and to the extent permitted
by Applicable Law, may enter upon the premises where all or any part of the
Aircraft is located and take immediate possession of and, at Lessor's sole
option, remove the same (and/or any engine which is not an Engine but which is
installed on the Airframe, subject to the rights of the owner, lessor or
secured party thereof) by summary proceedings or otherwise, all without
liability accruing to Lessor for or by reason of such entry or taking of
possession whether for the restoration of damage to property, or otherwise,
caused by such entry or taking, except damage caused by gross negligence or
willful misconduct of Lessor;
(ii) sell at private or public sale, as Lessor may
determine, or hold, use, operate or lease to others the Aircraft as Lessor in
its sole discretion may determine, all free and clear of any rights of Lessee;
(iii) proceed by appropriate court action or actions, either
at law or in equity, to enforce performance by Lessee of the applicable
covenants of this Lease and to recover damages for the breach thereof and to
rescind this Lease;
(iv) retain and/or liquidate the Security Deposit;
(v) terminate this Lease by written notice to Lessee
and/or repossess the Aircraft; and
(vi) exercise any other remedy available under Applicable
Law.
In addition to the foregoing, Lessee shall be liable for any and all
unpaid Rent during or after the exercise of any of the aforementioned remedies,
together with interest on such unpaid amounts at the Interest Rate, and until
satisfaction of all of Lessee's obligations to Lessor hereunder and for all
reasonable legal fees and other costs and out-of-pocket expenses actually
incurred by Lessor by reason of the occurrence of any Event of Default or the
exercise of Lessor's remedies with respect thereto, including all costs and
expenses incurred in connection with the return of the Aircraft in accordance
with the terms of Section 16 hereof or in placing the Aircraft in the condition
and with airworthiness certification as required by such Section. Further, upon
the occurrence of any of the events specified in Sections 17(e), 17(f),
and/or 17(g), this Lease shall immediately terminate and Lessee shall forthwith,
or shall require and instruct any such receiver or trustee to return the
Aircraft to Lessor in the condition required by and otherwise in accordance with
Section 16 hereof.
(b) In effecting any repossession, Lessor, its representatives and
agents, to the extent permitted by Applicable Law shall: (i) have the right to
enter upon any premises where it reasonably believes the Aircraft, the
Airframe, an Engine or Part to
40
<PAGE> 43
be located; (ii) not be liable, in conversion or otherwise, for the taking of
any personal property of Lessee which is in or attached to the Aircraft, the
Airframe, an Engine or Part which is repossessed; provided, however, that
Lessor shall return to Lessee all personal property of Lessee which was on the
Aircraft at the time Lessor re-takes possession of the Aircraft; (iii) not be
liable or responsible, in any manner, for any inadvertent damage or injury to
any of Lessee's property in repossessing and holding the Aircraft, the
Airframe, an Engine or Part, except for that caused by or in connection with
Lessor's gross negligence or willful misconduct; (iv) have the right to
maintain possession of and dispose of the Aircraft, the Airframe, an Engine or
Part on any premises owned by Lessee or under Lessee's control; and (v) have
the right to obtain a key to any premises at which the Aircraft, the Airframe,
an Engine or Part may be located from the landlord or owner thereof.
(c) If demanded by Lessor, Lessee, at its sole expense, shall
assemble and make the Aircraft, the Airframe, any Engines or Parts available at
such location as may be directed by Lessor. Lessee hereby agrees that, in the
event of the return to or repossession by Lessor of the Aircraft, the Airframe,
any Engines or Parts, any rights in any warranty (express or implied)
heretofore assigned to Lessee or otherwise held by Lessee shall without further
act, notice or writing be assigned or reassigned to Lessor, if assignable.
Lessee shall be liable to Lessor for all out-of-pocket expenses, disbursements,
costs and fees incurred in: (i) repossessing, storing, preserving, shipping,
maintaining, repairing and refurbishing the Aircraft, the Airframe, an Engine
or Part to the condition required by Section 16 hereof; and (ii) preparing the
Aircraft, the Airframe, an Engine or Part for sale or lease, advertising the
sale or lease of the Aircraft, the Airframe, an Engine or Part and selling or
releasing the Aircraft, the Airframe, an Engine or Part. Lessor is hereby
authorized and instructed, at its option, to make reasonable expenditures which
Lessor, in its sole discretion, considers advisable to repair and restore the
Aircraft, the Airframe, an Engine or Part to the condition required by Section
16 hereof, all at Lessee's sole expense.
(d) Whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights hereunder with respect to
the Aircraft, Lessor, by written notice to Lessee specifying a payment date not
earlier than ten (10) days from the date of such notice, may demand, and Lessee
hereby agrees to pay to Lessor on demand on the payment date specified in such
notice, as liquidated damages for loss of a bargain and not as a penalty, any
Rent due on or before such payment date plus an amount equal to the excess, if
any, of (A) the Casualty Value over (B) the fair market value of the Aircraft,
computed as of the payment date specified pursuant to this Section 18(d),
except that Lessee shall be required to pay the Casualty Value without credit
for fair market value if Lessee does not voluntarily return the Aircraft to
Lessor within such ten (10) day notice period at the location designated by
Lessor or other location mutually agreed to between Lessor and Lessee, together
with interest, to the extent permitted by Applicable Law, at the Interest Rate
on the amount of such excess, if any, from such payment date specified pursuant
to this Section 18(d) to the date of actual payment of such amount.
41
<PAGE> 44
(e) Whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights hereunder with respect to
the Aircraft or Lessee upon the occurrence of an Event of Default, Lessee and
Lessor hereby stipulate that Lessor shall be entitled to sequester the Aircraft
and Lessee hereby agrees to deliver the Aircraft into the custody of Lessor or
its designated agents for such purpose, at Lessee's expense, upon receipt of a
written demand from Lessor with respect thereto.
(f) No remedy referred to in this Section 18 is intended to be
exclusive, but, to the extent permissible hereunder or under Applicable Law,
each shall be cumulative and in addition to any other remedy referred to above
or otherwise available to Lessor at law or in equity; and the exercise or
beginning of exercise by Lessor of any one or more of such remedies shall not
preclude the simultaneous or later exercise by Lessor of any or all of such
other remedies. No express or implied waiver by Lessor of any Default or Event
of Default shall in any way be, or be construed to be, a waiver of any future
or subsequent Default or Event of Default.
Section 19. Alienation.
Lessor shall have the right, at its sole cost and expense, to assign, sell or
encumber any interest of Lessor in the Aircraft (other than the Hush Kits) or
this Lease and/or the proceeds hereof subject to the rights of Lessee under the
provisions of this Lease, and in accordance with Applicable Law; and provided
that the Aircraft shall remain registered in the United States, and provided
further that in the event of a sale of the Aircraft, any such purchaser shall
be a Person of recognized standing and ability in the aviation industry so as
to be able to fulfill its obligations as lessor hereunder to the reasonable
satisfaction of Lessee. To effect or facilitate any such assignment, sale or
encumbrance, Lessee agrees to provide, at Lessor's sole cost and expense, such
agreements, consents, conveyances or documents as may be reasonably requested
by Lessor, which shall include, without limitation, in the event of a sale
complying herewith, an unrestricted release of Lessor from its obligations
under this Lease. The agreements, covenants, obligations and liabilities
contained herein including, but not limited to, all obligations to pay Rent and
indemnify each Indemnitee are made for the benefit of each Indemnitee and their
respective successors and permitted assigns; provided, however, that no
assignment, sale or encumbrance shall increase the aggregate financial exposure
or Rent obligations of Lessee under this Lease as compared to what such
obligations would have been had such assignment, sale or encumbrance not
occurred. In the event this Lease is assigned, sold or encumbered by Lessor,
any assignee, transferee or Lessor Lender shall agree in writing delivered to
Lessee as a condition precedent thereto not to disturb or otherwise interfere
with the quiet enjoyment by Lessee of the Aircraft so long as no Default or
Event of Default shall have occurred and be continuing, and that such assignee,
transferee or Lessor Lender shall have no interest whatsoever in the Hush Kits
absent Lessee's express transfer or conveyance thereof in a written bill of
sale. Any purchaser of the Aircraft subject to the Lease shall assume the
obligations of Lessor, specifically including Lessor's obligations
42
<PAGE> 45
under Exhibit E hereto, under the Lease and shall acknowledge in writing to
Lessee, receipt of the Security Deposit and Maintenance Reserves remaining at
the time of any such purchase, and that it shall receive, hold and distribute
such funds only in accordance with and subject to the terms and conditions of
this Lease. Any subsequent sale, assignment or encumbrance made by any
transferee, assignee, or mortgagee shall be subject to the terms of this
Section 19.
Section 20. Miscellaneous.
(a) Severability, Amendment and Construction. Any provision of
this Lease which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof; and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction. To the extent
permitted by Applicable Law, Lessee hereby waives any provisions of Applicable
Law which renders any provisions hereof prohibited or unenforceable in any
respect. This Lease supersedes any prior or contemporaneous agreements, whether
oral or in writing, of the parties hereto and shall constitute the entire
agreement of the parties hereto. No term or provision of this Lease may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing expressed to be a supplement to this Lease signed under hand by an
officer of the party against which the enforcement of the change, waiver,
discharge or termination is sought. This Lease shall constitute an agreement of
lease, and nothing herein shall be construed as conveying to Lessee any right,
title or interest in the Aircraft or any Engine or Part except as a lessee
only, and subject in all events to the terms and conditions hereof. The
headings in this Lease are for convenience of reference only and shall not
define or limit any terms of the provisions hereof. Whenever required by the
context hereof, the singular shall include the plural and vice versa. All
Exhibits and Schedules attached hereto are incorporated herein by reference and
are deemed to be a part hereof.
(b) Governing Law; Jurisdiction. (i) This Lease shall in all
respects be governed by, and construed in accordance with, the laws of the
State of California, including all matters of construction, validity and
performance. Lessor and Lessee hereby expressly submit to the non-exclusive
jurisdiction of California. Lessee further agrees that any legal action or
proceeding against it or any of its assets may be brought in California or in
any jurisdiction where Lessee or any of its assets may be found.
(ii) Lessee further irrevocably consents to the service of
process in any such action or proceeding by the mailing of copies thereof by
certified mail, postage prepaid, to Lessee and to Lessee's counsel at their
respective addresses set forth in Exhibit C hereto. The foregoing, however,
shall not limit the rights of the Lessor to serve process in any other manner
permitted by Applicable Law or to bring any legal action or proceeding or to
obtain execution of judgment or to recover the Aircraft in any jurisdiction.
Lessee further agrees that final judgment against Lessee in any action or
43
<PAGE> 46
proceeding or arbitration in connection with this Lease or any of the other
Operative Agreements shall be conclusive and may be enforced in any other
jurisdiction within or outside of California by suit on the judgment, a
certified or exemplified copy of which shall be conclusive evidence of the fact
and the amount of Lessee's indebtedness. Lessee hereby irrevocably waives, to
the fullest extent permitted by Applicable Law, any objection which Lessee may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Lease or any of the other Operative
Agreements brought in California or the courts of any country or place where
Lessee or any of its assets may be found, and hereby further irrevocably waives
any claim that any such suit, action or proceeding brought in California has
been brought in an inconvenient forum.
(iii) The foregoing submission to jurisdiction shall not be
construed so as to limit the right of either party to take proceedings to
enforce any judgment awarded against the other in whatsoever jurisdictions
shall to it seem fit nor shall the taking of proceedings in any one or more
jurisdiction, preclude the taking of proceedings in any other jurisdiction,
whether concurrently or not. To the extent that each of Lessor and Lessee may
be entitled, in any jurisdiction on which judicial proceedings may at any time
be commenced with respect to this Lease or any instrument, agreement or
documents contemplated hereby or referred to herein, to claim for itself or its
revenues or assets immunity (whether by reason of sovereignty or otherwise)
from suit, from the in rem or in personam jurisdiction of any court, from
attachment prior to judgment, from attachment in aid of execution of judgment
or from any other legal process, and to the extent that in any such
jurisdiction there may be attributed such an immunity (whether or not claimed),
each of Lessor and Lessee hereby irrevocable waives such immunity in respect of
suit, jurisdiction of any court attachment prior to judgment, attachment in aid
of execution of judgment, set-off, execution of judgment and other legal
process and 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) or any order or judgment which may be made or given
in such action or proceedings. Lessee hereby expressly and irrevocably waives
any rights it may have to a trial by jury in any action or proceeding brought
to enforce any provision of this Lease or any of the other Operative
Agreements.
(c) Notices. All notices required under the terms and provisions
hereof shall be in writing, shall be sent to Lessor or Lessee at their
respective addresses or facsimile numbers set forth in Exhibit C hereto (or
such other addresses or facsimile numbers as the parties may designate from
time to time by notice pursuant to this Section 20(c)) by telefax and by air
courier.
Any such notice shall become effective upon the earlier of actual
receipt or the fifth (5th) day following the date such notice is sent by air
courier.
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<PAGE> 47
(d) Lessor's 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 covenant, agreement or obligation contained herein,
Lessor shall have the right but not the obligation to make such payment or
conform or comply with such agreement, covenant or obligation, and the amount
of such payment and the amount of the reasonable expenses of Lessor incurred in
connection with such payment or the performance thereof or compliance
therewith, together with interest thereon at the Interest Rate, shall be
payable by Lessee to Lessor (as Supplemental Rent) upon demand. Lessor agrees
to notify Lessee in writing prior to making any payment under this Section
20(d), unless the Aircraft will be in danger of loss, sale, confiscation,
forfeiture or seizure should such payment not be made. The taking of any such
action by Lessor pursuant to this Subsection 20(d) shall not constitute a
waiver or release of any obligation of Lessee under the Lease, nor a waiver of
any Event of Default which may arise out of Lessee's nonperformance of such
obligation, nor an election or waiver by Lessor of any remedy or right
available to Lessor under or in relation to this Lease.
(e) Counterparts. To the extent, if any, that this Lease
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction) no security interest in this
Lease or in any Lease Supplement may be created through the transfer or
possession of any counterpart other than the original counterpart, which shall
be so identified. Subject to the preceding sentence, this Lease and each Lease
Supplement 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.
(f) Quiet Enjoyment. Lessor covenants that, so long as no Event of
Default has occurred and is continuing, Lessee shall quietly enjoy the use and
possession of the Aircraft without interference by Lessor, or by any Person
lawfully claiming by or through Lessor.
(g) Brokers. Each party agrees to indemnify and hold the other
harmless from and against any and all claims, suits, damages, costs and
expenses (including, but not limited to reasonable attorneys' fees) asserted by
any agent, broker or other third party for any commission or compensation of
any nature whatsoever based upon the lease of the Aircraft, if such claim,
damage, cost or expense arises out of any action or alleged action by the
indemnifying party, its employees or agents.
(h) Confidential Treatment. Each of the parties agrees not to
disclose to any third party (other than their auditors and respective
professional advisors, lenders or potential lenders, and except as otherwise
required by Applicable Law) any non-public, proprietary information provided by
and concerning the other party which the other party specifies as being of a
sensitive and confidential nature, including but not limited to the amount of
Basic Rent due and owing hereunder.
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<PAGE> 48
(i) Section 1110. To the extent provided thereby (or to the
fullest extent it may lawfully so agree, whether or not provided thereby),
Lessee hereby agrees that any right of Lessor to take possession of such
Aircraft or Engines in compliance with the provisions of this Lease and in
accordance with Section 1110 of Title 11 of the United States Code or any
similar provision of any superseding statute, as amended from time to time,
shall not be affected by the provisions of Sections 362 or 363 of said Title,
or other analogous part of any superseding statute, as amended from time to
time, and accordingly, it is the intention of the parties hereto that this
Lease be afforded the benefits of said Section 1110.
(j) Expenses. Each party will pay all expenses (including legal,
professional and out-of-pocket expenses) incurred or payable by it in
connection with the negotiation, preparation, and execution of this Lease and
the other Operative Agreements and all such expenses related to any amendment
to or extension of or other documentation in connection with, or the granting
of any waiver or consent under this Lease and the other Operative Agreements.
Notwithstanding the foregoing, Lessee will pay to Lessor and Lessor Lender or
its order on demand all reasonable expenses (including reasonable legal and
other costs) payable or incurred by Lessor and Lessor Lender for FAA counsel
and in connection with the enforcement of, registration of or preservation of
any of Lessor's and Lessor Lender rights under this Lease and the other
Operative Agreements associated with or arising, directly or indirectly, from
the occurrence of an Event of Default or from a Permitted Sublease hereunder.
Section 21. Renewal.
Provided that no Default or Event of Default has occurred and
is continuing, then Lessee may, upon ninety (90) days advance written notice to
Lessor, elect to extend the Term of this Lease, for an additional twenty four
(24) months, from eighty four (84) months to one hundred and eight (108) months.
All other terms and conditions of this Lease, and the respective parties
obligations hereunder, including but not limited to the payment of Rent, shall
continue in full force and effect.
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<PAGE> 49
Section 22. Merger.
Provided that no Default or Event of Default shall have
occurred and be continuing, in the event that Lessee consolidates with or merges
into any other corporation or conveys, transfers or leases in one or more
transactions substantially all of its assets to any Person (a "Merger
Transaction"), prior thereto the Lessee shall cause the successor entity (the
"Successor") to execute and deliver to Lessor a duly authorized, valid, binding
and enforceable agreement in form and substance reasonably satisfactory to
Lessor containing an assumption by the Successor of the due and punctual
performance and observance of all terms, covenants, agreements and conditions of
this Agreement to be performed or observed by Lessee, and such other matters as
Lessor may reasonably request; and provided further that the Successor shall be
solvent and shall be able to fulfill all of the obligations of Lessee hereunder.
[Remainder of Page Intentionally Left Blank.]
47
<PAGE> 50
IN WITNESS WHEREOF, Lessor and Lessee, each pursuant to due authority, have
each caused this Lease to be executed by their duly authorized officers as of
the day and year first above written.
LESSOR:
PEGASUS CAPITAL CORPORATION
By: /s/ GREGORY HARDING BROWN
----------------------------------------------
Name: GREGORY HARDING BROWN
--------------------------------------------
Title: EXECUTIVE VICE PRESIDENT
-------------------------------------------
LESSEE:
KITTY HAWK AIRCARGO, INC.
BY: /s/ RICHARD R. WADSWORTH, JR.
----------------------------------------------
Name: RICHARD R. WADSWORTH, JR.
--------------------------------------------
Title: VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
-------------------------------------------
48
<PAGE> 1
EXHIBIT 10.5
AIRCRAFT LEASE
(N750US)
DATED AS OF DECEMBER 30, 1996
between
FLEET CAPITAL CORPORATION
as Lessor
and
KITTY HAWK AIRCARGO, INC.
as Lessee
This is Counterpart No. 1 of a total of 3 counterparts. Only Counterpart No.
1 shall be considered chattel paper for purposes of the Uniform Commercial Code
and a security interest may be perfected only by possession of Counterpart No.
1.
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1 Acceptance and Lease of Aircraft
SECTION 2 Conditions to Closing; Closing Covenants
SECTION 3 Term and Rent
SECTION 4 Acceptance
SECTION 5 Covenants and Warranties
SECTION 6 Representations, Warranties and Agreements of Lessee
SECTION 7 Net Lease
SECTION 8 Return of Aircraft
SECTION 9 Liens
SECTION 10 Taxes
SECTION 11 Registration, Maintenance and Operation; Compliance and Use; Replacement Parts;
Additions; Aircraft Marking
SECTION 12 Inspection
SECTION 13 Loss or Destruction
SECTION 14 Insurance
SECTION 15 Indemnification
SECTION 16 Assignment and Sublease
SECTION 17 [Intentionally Left Blank]
SECTION 18 Events of Default
SECTION 19 Remedies
SECTION 20 Performance of Obligations of Lessee by Lessor
SECTION 21 Intent
SECTION 22 Notices
SECTION 23 End of Term Options
SECTION 24 [Intentionally Left Blank]
SECTION 25 Transaction Expenses
SECTION 26 Miscellaneous
SECTION 27 Amendments
SECTION 28 Truth in Leasing
EXHIBIT A - Definitions
Lease Supplement No. 1
Schedule No. 1 to Lease Supplement No. 1
Schedule No. 2 to Lease Supplement No. 1
Schedule No. 2-A to Lease Supplement No. 1
Schedule No. 2-B to Lease Supplement No. 1
Schedule No. 3 to Lease Supplement No. 1
Lease Supplement No. 2
EXHIBIT B - Aircraft Bill of Sale
EXHIBIT C-1 - Opinion of Counsel - Lessee (with Section 1110 provisions)
EXHIBIT C-2 - Opinion of Counsel - Guarantor
EXHIBIT D - Financial Covenants Rider
</TABLE>
<PAGE> 2
AIRCRAFT LEASE
This AIRCRAFT LEASE (together with all Supplements, Exhibits and
Certificates hereto, the "Lease") is made and entered into as of the 30th day
of December, 1996 by and between Fleet Capital Corporation, a Rhode Island
corporation ("Lessor"), with a place of business at 50 Kennedy Plaza, Fifth
Floor, Providence, RI 02903-2305, and Kitty Hawk Aircargo, Inc., a Texas
corporation ("Lessee"), having its principal place of business and chief
executive office at P.O. Box 612787, 1515 W. 20th Street, DFW International
Airport, Texas 75261. Certain capitalized terms as used in this Lease are
defined in Exhibit A hereto, and such definitions are hereby incorporated
herein and made a part hereof as though set forth herein in full.
SECTION 1. Acceptance and Lease of Aircraft
Subject to the satisfaction of each condition set forth in Section 2
(I) and (II), Lessor hereby agrees to purchase the Aircraft from the Lessee and
to lease the same to Lessee and Lessee hereby agrees to lease the same from
Lessor for the Basic Term hereof pursuant to the terms and conditions of this
Lease. The sale of the Aircraft to Lessor shall include all of Lessee's right,
title and interest in and to the Aircraft.
SECTION 2. Conditions to Closing; Closing Covenants.
(I) Conditions Precedent. Lessor's obligations to purchase the
Aircraft from the Lessee and to lease said Aircraft to Lessee, shall each be
both subject to and conditioned upon all of the following conditions being
satisfied:
(a) Lessor receiving on or prior to the Acceptance Date, all
of the following in form and substance satisfactory to it:
(i) the Purchase Documents duly executed and
accompanied by evidence of authenticity and authority;
(ii) evidence of reservation of an "N" number for
the Aircraft, together with an assignment of Lessee's rights in such "N" number
to Lessor;
(iii) evidence that the Aircraft has been duly
certified as to type and airworthiness by the FAA in the form of a Standard
Airworthiness Certificate (FAA Form 8100-2) issued by the FAA;
(iv) three (3) duly executed originals of the Lease,
including, Lease Supplement No. 1, Lease Supplement No. 2 and all Schedules and
Exhibits thereto;
(v) a certificate or certificates, executed by the
Lessee's secretary or other authorized officer certifying: (A) resolutions of
Lessee's Board of Directors authorizing the execution, delivery and performance
of this Lease, the Purchase Documents, the applicable FAA documents and the
transactions contemplated hereby and thereby and (B) the name(s) of the
person(s) authorized to execute and deliver such documents on behalf of Lessee
together with specimen signature(s) of such person;
(vi) certificate(s) of insurance as to the coverage
required under Section 14 hereof, accompanied, if requested by Lessor, by the
applicable policies and report(s) of insurance broker(s) or underwriter(s)
pursuant thereto as to the conformity of such coverage with such requirements;
(vii) evidence that FAA Counsel has received in
escrow the executed FAA AC Form 8050-2 Aircraft Bill of Sale (the "Bill of
Sale" in the name of Lessor and AC Form 8050-1 Aircraft Registration
Application in the name of Lessor (the "Registration Application") (except for
the pink copy which shall be available to be placed on the Aircraft upon
acceptance thereof), releases in form and substance satisfactory to FAA
Counsel, Lessor's counsel and/or Lessor of any Liens, such other bills of sale,
in the form of FAA AC Form 8050-2 or otherwise, as are necessary, in the
opinion of Lessor's counsel and/or FAA Counsel to vest good and marketable
title to the Aircraft in the name of Lessor and executed duplicates of the
Lease and Lease Supplements No. 1 and 2, all the foregoing (except for such
Warranty Bill of Sale) being in proper form for filing with the FAA;
(viii) opinions of counsel for Lessee and the
Guarantors satisfactory to Lessor and substantially in the forms of Exhibits
C-1 and C-2, respectively, hereto;
<PAGE> 3
(ix) certificate(s) of good standing for Lessee from
the state of its incorporation and the state(s) where the Primary Hangar
Location and Lessee's chief executive offices and principal place of business
are located;
(x) UCC financing statements executed by Lessee
(and, where needed, assignment, release and/or termination statements) with
respect to the Aircraft in all places which are, in Lessor's opinion, necessary
or appropriate to protect Lessor's interest therein have been delivered to
Lessor;
(xi) an opinion of FAA Counsel satisfactory to
Lessor that title to the Airframe is vested in Lessor and that the Aircraft
(including, without limitation the Airframe and Engines) is free and clear of
all liens and encumbrances of record;
(xii) a Guaranty in favor of Lessor, duly executed
by each Guarantor, in form and substance satisfactory to Lessor and Lessor's
counsel, unconditionally guaranteeing, among other things, the payment and
performance by Lessee of all its obligations under the Lease;
(xiii) resolutions of each Guarantor's Board of
Directors, certified by such Guarantor's Secretary, authorizing the execution,
delivery and performance of the Guaranty by such Guarantor, and an incumbency
certificate of each Guarantor, containing the names of the person(s) authorized
to execute and deliver such Guaranty on behalf of such Guarantor and, if
requested, certified copies of the organizational documents of each Guarantor;
(xiv) a Security Deposit Agreement, in form and
substance satisfactory to Lessor, executed by Lessee and providing for a
security deposit securing payment and performance of the obligations of Lessee
hereunder ;
(xv) an escrow agreement, in form and substance
satisfactory to Lessor, executed by Lessee and Fleet National Bank providing
for the deposit and possession and investment of the security deposit referred
to in the preceding paragraph; and
(xvi) such other documents, certificates and
opinions, and evidence of such other matters, as Lessor, Lessor's counsel or
FAA Counsel may reasonably request.
(b) No material adverse change in the financial condition of
Lessee has occurred since the date of the last financial statements furnished
to Lessor as set forth on Schedule No. 2 to Lease Supplement No. 1.
(c) Receipt by Lessor of a satisfactory inspection report
with respect to the Aircraft prepared by inspector(s) acceptable to Lessor.
(d) Lessee's acceptance of the Aircraft on or before the
Acceptance Date.
(e) In addition to the above listed conditions precedent,
Lessee covenants and agrees that upon Lessor's acknowledgment that all the
conditions to the sale and lease as aforestated have been satisfied, Lessee
shall release from escrow to Lessor the documents held by FAA Counsel on behalf
of Lessee and shall authorize FAA Counsel to file and record all appropriate
documentation, including, without limitation, the Lease and Lease Supplements
No. 1 and No. 2, with the FAA on the Acceptance Date. Upon satisfaction of the
foregoing conditions precedent Lessor shall fund the amount of the Lessor's
Cost as instructed by Lessee.
(II) Conditions Subsequent. On or subsequent to the Acceptance Date,
but not later than the date of the Aircraft's first flight under the leasehold
conveyed herein, Lessee shall provide written confirmation to Lessor that a
copy of the Registration Application has been properly placed within the
Aircraft.
In addition, prior to the date of the Aircraft's first flight
hereunder Lessee shall provide Lessor with written confirmation that:
(a) a copy of this Lease, including Lease Supplements No. 1
and No. 2, has been properly placed within the Aircraft;
(b) a copy of this Lease, including Lease Supplements No. 1
and No. 2, was mailed, within 24 hours following execution thereof, to the
Flight Standards Technical Division of the FAA; and
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(c) Lessee has notified the FAA (such notification to have
been given by telephone or in person to the FAA Flight Standards District
Office, General Aviation District Office, Air Carrier District Office or
International Field Office nearest the airport where such flight will
originate) concerning the first flight of the Aircraft under this Lease.
SECTION 3. Term and Rent.
(a) The leasing of the Aircraft by Lessor to Lessee shall commence on
the Acceptance Date and end on the Expiration Date each as set forth on
Schedule No. 2 to Lease Supplement No. 1, unless this Lease shall have been
terminated or extended in accordance with the terms hereof.
(b) Lessee shall pay to Lessor as basic rent (herein referred to as
"Basic Rent") the following:
(i) on the Acceptance Date, an amount equal to the Daily
Lease Rate, multiplied by the number of days elapsed from and including the
Acceptance Date with respect to the Aircraft to but excluding the Rent
Commencement Date;
(ii) on the First Basic Rent Date and on each Basic Rent Date
thereafter, to and including the Last Basic Rent Date, an amount equal to the
Basic Rent set forth on Schedule 2-A to Lease Supplement No. 1; and
(iii) after the Expiration Date until the Aircraft is
returned to the Lessor in accordance with Section 8 hereof, an amount equal to
the Basic Rent which amount shall be payable each and every calendar month
immediately after the Expiration Date until the return of the Aircraft to the
Lessor as provided under this Lease on the day of the month on which Basic Rent
was payable during the Term.
(c) In addition, Lessee shall pay to Lessor the following amounts
(herein referred to as "Supplemental Rent" and, together with all Basic Rent,
collectively as "Rent"): (i) any other amount payable hereunder which Lessee
assumes the obligation to pay, or agrees to pay, under this Lease to Lessor or
others; (ii) on the date provided herein, any amount payable hereunder as
Casualty Value and/or any amounts due pursuant to Section 23 hereof plus any
and all amounts regarding the same and (iii) to the extent permitted by
applicable law, interest at the Late Payment Rate for the number of days
actually elapsed on any amount payable hereunder not paid when due, plus, as an
administrative and late charge, an amount equal to five percent (5%) of the
amount payable if not paid when due. The expiration or other termination of
Lessee's obligation to pay Basic Rent hereunder shall not terminate, limit or
modify the obligations of Lessee with respect to Supplemental Rent, which shall
survive such expiration or other termination.
(d) All payments of Rent or other amounts required hereunder shall be
made to Lessor in immediately available United States funds on the date payable
hereunder at its address set forth herein or at such other address or to such
other Person as Lessor may direct by notice in writing to Lessee.
SECTION 4. Acceptance.
The execution by Lessee of Lease Supplement No. 1 shall evidence that
the Aircraft is leased under, and is subject to all of the terms, provisions
and conditions of, this Lease and constitute Lessee's unconditional and
irrevocable acceptance of the Aircraft for all purposes of this Lease.
SECTION 5. Covenants and Warranties.
Lessor warrants that during the term of this Lease, so long as no
Event of Default or Default has occurred and is continuing hereunder, Lessee's
possession and quiet enjoyment of the Aircraft shall not be divested or
interfered with by Lessor or anyone claiming through or under Lessor. This
provision shall be binding upon any assignee of Lessor pursuant to the
penultimate paragraph of Section 16 hereof.
The warranty set forth hereinabove is in lieu of all other warranties
of Lessor, whether written, oral or implied, with respect to this Lease or the
Aircraft, and Lessor shall not be deemed to have modified in any respect the
obligations of Lessee pursuant to Section 7 hereof, which obligations are and
shall remain absolute, irrevocable and unconditional under all events and
circumstances whatsoever. LESSEE EXPRESSLY ACKNOWLEDGES THAT IT HAS SELECTED
THE AIRCRAFT WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES AND
LESSEE EXPRESSLY AGREES THAT IT IS LEASING THE AIRCRAFT FROM LESSOR IN AN "AS
IS" CONDITION. LESSOR SHALL NOT BE DEEMED TO HAVE MADE, AND LESSOR HEREBY
EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY (EXCEPT FOR THE WARRANTY
CONTAINED IN THIS SECTION 5), EITHER EXPRESS OR IMPLIED, AS TO THE AIRCRAFT,
ANY PART THEREOF, ANY RECORDS, OR ANY MATTER WHATSOEVER, INCLUDING, WITHOUT
LIMITATION, THE DESIGN, CONDITION,
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CAPACITY OR DURABILITY OF THE AIRCRAFT, ITS MERCHANTABILITY OR ITS FITNESS FOR
ANY PARTICULAR PURPOSE, USE OR OPERATION, THE QUALITY OF THE MATERIALS OR
WORKMANSHIP OF THE AIRCRAFT, ITS VALUE OR AIRWORTHINESS, TITLE, SAFETY, THE
ABSENCE OF ANY PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT OR LATENT DEFECT
(WHETHER OR NOT DISCOVERABLE BY LESSEE), COMPLIANCE OF THE AIRCRAFT WITH THE
REQUIREMENTS OF ANY LAW, RULE, REGULATION OR STANDARD PERTAINING THERETO, OR
THE CONFORMITY OF THE AIRCRAFT TO THE PROVISIONS AND SPECIFICATIONS OF ANY
PURCHASE DOCUMENT RELATING THERETO OR ANY INTERFERENCE OR ANY COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, NOR SHALL LESSOR BE LIABLE,
REGARDLESS OF ANY ACTUAL OR ALLEGED NEGLIGENCE OF LESSOR, FOR ANY DEFECTS,
EITHER PATENT OR LATENT (WHETHER OR NOT DISCOVERABLE BY LESSEE), IN THE
AIRCRAFT OR ANY PART THEREOF OR ANY DIRECT OR INDIRECT DAMAGE TO PERSONS OR
PROPERTY RESULTING THEREFROM OR FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL
OR CONSEQUENTIAL DAMAGES OR FOR STRICT OR ABSOLUTE LIABILITY IN TORT. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, LESSEE HEREBY WAIVES ANY CLAIM
(INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT OR
INFRINGEMENT) IT MIGHT HAVE AGAINST LESSOR FOR ANY LOSS, DAMAGE (INCLUDING,
WITHOUT LIMITATION, DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGE) OR EXPENSE CAUSED BY THE AIRCRAFT OR BY LESSEE'S LOSS OF USE THEREOF
FOR ANY REASON WHATSOEVER.
Lessee acknowledges that Lessee, and not Lessor, has selected the
Aircraft, the Airframe and the Engines. Lessee further acknowledges that the
Lessor has not manufactured or supplied the Aircraft, the Airframe, or the
Engines and that the Lessor acquired or will acquire the Aircraft and/or the
right to possession thereto in connection with this Lease.
So long and only so long as an Event of Default or Default hereunder
shall not have occurred and be continuing, and so long and only so long as the
Aircraft shall be subject to this Lease and Lessee shall be entitled to
possession of the Aircraft hereunder, Lessor assigns to Lessee and authorizes
Lessee, at Lessee's expense, to assert for Lessor's account, all rights and
powers of Lessor under any manufacturer's, vendor's or dealer's warranty on the
Aircraft or any part thereof, (including, without limitation, any warranty of
Manufacturer). Notwithstanding the foregoing, Lessee shall not attempt to
enforce any such performance by legal proceeding without Lessor's prior written
approval.
SECTION 6. Representations, Warranties and Agreements of Lessee.
Lessee represents, warrants and agrees as follows:
(a) Due Organization. Lessee has the form of business organization
indicated in the caption of this Lease and is duly organized and existing in
good standing under the laws of the state listed in the caption of this Lease
and is duly qualified to do business wherever necessary to carry on its present
business and operations and to own its property including, without limitation,
the Primary Hangar Location.
(b) Due Authorization; No Violation. This Lease has been duly
authorized by all necessary action on the part of Lessee consistent with its
form of organization, does not require any further shareholder, member or
partner approval, does not require the approval of, or the giving notice to,
any Federal, state, local or foreign governmental authority (including, without
limitation, the Department of Transportation and/or the FAA) and does not
contravene any law binding on Lessee or contravene any provision of, or
constitute a default or result in the creation of any Lien other than a
Permitted Lien under any certificate or articles of incorporation or
organization or by-laws or partnership certificate or agreement, or any
agreement, indenture, or other instrument to which Lessee is a party or by
which it may be bound.
(c) Enforceability. This Lease has been duly executed and delivered
by authorized officers or partners of Lessee and constitutes a legal, valid and
binding obligation of Lessee enforceable in accordance with its terms.
(d) Financial Statements. To the extent that separately audited
financial statements are prepared by the Lessee or separately prepared
financial statements are filed with the Securities and Exchange Commission
("SEC"), Lessee agrees to furnish Lessor (i) as soon as available, and in any
event within one hundred twenty (120) days after the last day of each fiscal
year of Lessee, a copy of the balance sheet of Lessee as of the end of such
fiscal year, and related statements of income and retained earnings of Lessee
for such fiscal year, all in reasonable detail prepared in accordance with
generally accepted accounting principles consistently applied each on a
comparative basis with corresponding statements for the prior fiscal year; (ii)
within sixty (60) days after the last day of each fiscal quarter of Lessee
(except the last fiscal quarter of any fiscal year), a copy of the balance
sheet of Lessee as of the end of each such quarter, and statement of income and
retained earnings covering the fiscal year to date of Lessee, each on a
comparative basis with the corresponding period of the prior year, all in
reasonable detail and certified by the treasurer or principal financial officer
of Lessee and (iii) within thirty (30) days after the date on which they are
filed, all reports, forms and other filings, if any, required to be made by
Lessee to the SEC or (in
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respect of the Aircraft or the Lease) the FAA, including, without limitation,
any SEC Form 10-Q and related reports or documents. All credit, financial and
other information provided by Lessee or at Lessee's direction is, and all such
information hereafter furnished will be, true, correct and complete in all
material respects.
(e) Furnishing of Information. Lessee agrees that it shall furnish
from time to time to Lessor such information relating to Lessee, each Guarantor
their subsidiaries and/or affiliates, financial or otherwise, as Lessor shall
reasonably request. Lessor agrees that any such information furnished to it by
Lessee shall be held pursuant to the terms and conditions of a confidentiality
agreement executed by Lessor in connection with this Lease.
(f) Location of Chief Executive Offices; Lessee Name. The chief
executive offices and principal place of business of Lessee is located at the
address set forth in Schedule No. 2 to Lease Supplement No. 1, and Lessee
agrees to give Lessor thirty (30) days' prior written notice of any relocation
of said chief executive offices or principal place of business from its present
location, or of any change in its name or identity. Within the previous six (6)
years Lessee has not changed its name, done business under any other names,
changed its chief place of business from its present location or merged or been
the surviving entity of any merger.
(g) Documents on Board. A current and valid Registration Application
or Certificate of Aircraft Registration, and a copy of this Lease and the Lease
Supplements, will be kept on board the Aircraft at all times during the term of
this Lease.
(h) Selection of Aircraft. Lessor has not selected, manufactured
or supplied the Aircraft to Lessee and has acquired the Aircraft subject hereto
solely in connection with this Lease and Lessee has received and approved the
terms of any purchase order or agreement with respect to the Aircraft.
(i) Litigation. There are no proceedings pending or, so far as
the officers of Lessee know, threatened against or affecting Lessee or any of
its property before any court, administrative officer or administrative agency
which would, directly or indirectly, adversely affect or impair the title of
Lessor to the Aircraft, or which, if decided adversely affect the financial
condition or operations of Lessee or the ability of Lessee to perform its
obligations under this Lease.
(j) No Adverse Mortgages. The right, title and interest of Lessor
in and to the Aircraft and the Rent will not be adversely affected or impaired
by the terms of any mortgage, loan agreement or indenture or any other
contract, agreement or instrument to which Lessee is a party, or under which it
or any of its property is or may become bound. In addition, no mortgage, deed
of trust, or other Lien which now covers or affects, or which may hereafter
cover or affect, any property or interest therein of Lessee, now attaches or
hereafter will attach to the Aircraft, the Airframe or any Engine, or in any
manner affects or will affect adversely Lessor's right, title and interest
therein.
(k) Taxes. Lessee has filed or caused to be filed and will continue
to file all Federal, state and local tax returns which are required to be
filed, and has paid or caused to be paid and will continue to pay all taxes
shown to be due and payable on such returns or (except to the extent being
contested in good faith and for the payment of which adequate reserves have
been provided) on any assessment received by Lessee, to the extent that such
taxes have heretofore or in the future become due and payable.
(l) Filing. Except for the registration of the Aircraft with the
FAA and except for filing and recording of the applicable documents pursuant to
the Federal Aviation Act no further action, including any filing or recording
of any document (except for any financing statement under Article 9 of the UCC
of any applicable jurisdiction to be filed pursuant hereto) is necessary or
advisable in order to establish and perfect Lessor's title to and interest in,
the Aircraft, as against Lessee and/or any Person in any applicable
jurisdiction.
(m) Good Title. Lessor will be the owner of the Aircraft as of the
Acceptance Date and will have good and marketable title to the Aircraft, free
and clear of all Liens other than any Liens created in favor of Lessor under
this Lease.
(n) Records. Lessee has reviewed all Records with respect to the
operation and maintenance of the Aircraft prior to the Acceptance Date and such
Records have been kept in accordance with the requirements of the FAA rules and
regulations and industry standards. Lessee shall maintain all such Records
during the Term in accordance with the requirements of the FAA, and any
manufacturer's maintenance programs or requirements as well as Sections 8 and
11 of this Lease.
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(o) Claims. Except as set forth in a letter from Lessee to Lessor
delivered contemporaneously herewith, Lessee has no pending claims, and does
not have knowledge of any facts upon which a future claim may be based, against
any prior owner, the Manufacturer of the Aircraft or of any Engine or part
thereof for breach of warranty or otherwise.
(p) U.S. Citizen. The Lessee is, and for the remainder of the Term
will continue to be, a "citizen of the United States" within the meaning of the
Federal Aviation Act.
(q) Engines. Each of the Engines has 750 or greater rated takeoff
horsepower or the equivalent of such horsepower.
(r) Due Authorization of Guarantors, No Violation. The execution,
delivery and performance of the Guarantees have been duly authorized by all
necessary action on the part of each Guarantor consistent with its form of
organization; does not require any further shareholder, member or partner
approval or the approval of any trustee or holders of any indebtedness or
obligations of any Guarantor except such as have been duly obtained; does not
require the approval of, or the giving notice to, any Federal, state, local or
foreign governmental authority (including, without limitation, the Department
of Transportation and/or the FAA) and does not contravene any law binding on
any Guarantor or contravene any provision of, or constitute a default or result
in the creation of any Lien other than a Permitted Lien under any certificate
or articles of incorporation or organization or by-laws or partnership
certificate or agreement, or any agreement, indenture, or other instrument to
which Lessee is a party or by which it may be bound.
(s) Binding Obligations of Guarantors. Each Guaranty constitutes
the legal, valid and binding obligation of the signatory Guarantor enforceable
against such Guarantor in accordance its terms.
(t) Litigation Regarding Guarantors. There are no pending legal
actions or proceedings to which any Guarantor is a party, and there are no
other pending or threatened legal actions or proceedings affecting any
Guarantor of which Lessee has knowledge, before any court, arbitrator or
administrative agency, and there are no final judgments of record against any
Guarantor of which Lessee has knowledge, which, whether individually or in the
aggregate would materially and/or adversely affect the financial condition of
any Guarantor, or the ability of any Guarantor to perform its obligations under
its Guaranty. Further, no Guarantor is in default under any material
obligation for the payment of borrowed money, for the deferred purchase price
of property, or for the payment of any rent which, either individually or in
the aggregate, would have the same such effect.
(u) Delivery of Further Financial Statements. Lessee agrees to
cause Parent to furnish Lessor (i) as soon as available, and in any event
within one hundred twenty (120) days after the last day of each fiscal year of
Parent, a copy of the balance sheets of Parent as of the end of such fiscal
year, and related statements of income and retained earnings of Parent for such
fiscal year, all in reasonable detail prepared in accordance with generally
accepted accounting principles consistently applied and certified by an
independent certified public accounting firm of recognized standing and which
is reasonably acceptable to Lessor, each on a comparative basis with
corresponding statements for the prior fiscal year; (ii) within sixty (60) days
after the last day of each fiscal quarter of Parent (except the last fiscal
quarter of any fiscal year), a copy of the balance sheet as of the end of each
such quarter, and statement of income and retained earnings covering the fiscal
year to date of Parent, each on a comparative basis with the corresponding
period of the prior year, all in reasonable detail and certified by the
treasurer or principal financial officer of Parent; and (iii) within thirty
(30) days after the date on which they are filed, all reports, forms and other
filings, if any, required to be made by Parent to the SEC or (in respect of the
Aircraft or the Lease) the FAA, including, without limitation, any SEC Forms
10-K, 10-Q and related reports or documents. All credit, financial and other
information provided by Parent or at Parent's or Lessee's direction is, and all
such information hereafter furnished will be, true, correct and complete in all
material respects. Notwithstanding anything to the contrary, Lessor agrees that
the independent certified public accounting firm currently preparing financial
statements for Parent, Ernst & Young, shall be deemed to be acceptable to
Lessor for the Term of this Lease unless and until Lessor provides notice to
Lessee that such independent certified public accounting firm is no longer
reasonably acceptable.
(v) Insolvency, Fair Consideration. Lessee is not insolvent within
the meaning of any applicable state or Federal laws. The sale of the Aircraft
by Lessee to Lessor and Lessee's undertaking of the obligations contained
herein shall not cause Lessee to be insolvent within the meaning of applicable
state and/or Federal laws. The payment by Lessor to Lessee of the Lessor's
Cost of the Aircraft is fair consideration for the Aircraft within the meaning
of applicable state and Federal laws.
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(w) Approvals, Consents and No Contravention. Without limiting the
generality of any of the foregoing representations and warranties, the sale by
Lessee to Lessor of the Aircraft does not require any stockholder approval or
consent of any trustee or holders of any indebtedness or obligations of Lessee
and will not contravene any laws, statutes, regulations, judgments or decrees
applicable to Lessee, including, but not limited to, laws or statutes regarding
fraudulent conveyances, bankruptcy, creditors' rights or bulk transfers, or the
certificate of incorporation or by-laws of Lessee, or contravene the provisions
of, or constitute a default under, or violate any restrictive covenants or
other agreement to which Lessee is a party or by which Lessee or its assets may
be bound or affected, and any authorization, approval, license, filing or
registration with any court or governmental agency or instrumentality which is
necessary in connection with such sale has been effected and a written copy
thereof has been delivered to Lessor. Lessee has full power, authority and
legal right to sell the Aircraft to Lessor. The sale of the Aircraft to Lessor
has been duly authorized by all necessary corporate action and constitutes a
legal, valid and binding obligation of Lessee.
(x) Section 1110. Lessee holds, and for the remainder of the Term will
continue to hold, an air carrier operating certificate issued by the FAA and/or
the Secretary of Transportation pursuant to Chapter 447 of the Federal Aviation
Act for aircraft capable of carrying ten (10) or more individuals or 6,000
pounds or more of cargo within the meaning of 11 U.S.C. Section 1110 ("Section
1110"). To the best of Lessee's knowledge, Lessor and any assignee, mortgagee
or lender of the Lessor is entitled to the benefits of Section 1110 (or any
comparable or successor provision affecting protection to Lessors, mortgagees
or lenders of aircraft) with respect to the Aircraft and this Lease. Lessee
further agrees not to take any position in connection with any bankruptcy
proceedings involving it that is inconsistent with a Lessor's (and any
assignee, mortgagee or lender of the Lessor's) rights under Section 1110 or any
comparable or successor provision affecting protection to lessors, mortgagees
or lenders of aircraft. Lessee further agrees to take reasonable steps as
requested consistent with the terms of this Lease to permit Lessor and any
assignee, mortgagee or lender of the Lessor to maintain such rights.
SECTION 7. Net Lease.
This Lease is a net lease, and Lessee acknowledges and agrees that
Lessee's obligation to pay all Rent hereunder and the rights of Lessor in and
to such Rent, shall be absolute, irrevocable and unconditional and shall not be
subject to cancellation, termination, modification or repudiation by Lessee or
any abatement, reduction, setoff, defense, counterclaim or recoupment
(collectively, "Abatements") for any reason or under any circumstance
whatsoever, including, without limitation, Abatements due to any present or
future claims of Lessee against Lessor, its successors and assigns whether
under this Lease or otherwise, the Manufacturer or any other Person for
whatever reason. Lessee hereby waives any and all existing and future claims
to any Abatement against such Rent, and agrees to pay all such Rent regardless
of any Abatement which may be asserted in connection with this Lease, the
Aircraft or otherwise. Except as otherwise expressly provided herein, this
Lease shall not terminate, nor shall the obligations of Lessee be affected, by
reason of any defect in or damage to, or any loss or destruction of, the
Aircraft or any part thereof from whatsoever cause, or the invalidity or
unenforceability or lack of due authorization of this Lease or lack of right,
power or authority of Lessor to enter into this Lease, or for any other cause,
whether similar or dissimilar to the foregoing, any present or future law or
regulation to the contrary notwithstanding, it being the express intention of
Lessor and Lessee that all Rent payable to Lessor hereunder shall be, and
continue to be, payable in all events unless and until the obligation to pay
the same shall be terminated pursuant to the express provisions of this Lease.
Notwithstanding the foregoing, the payment of Rent by Lessee hereunder shall
not constitute a waiver of any defense, offset or counterclaim hereunder.
SECTION 8. Return of Aircraft.
(a) Condition Upon Return. Unless purchased by Lessee, upon the
expiration or other termination of this Lease (whether following an Event of
Default, at the end of the Basic Term or any Renewal Term or otherwise),
Lessee, at its own expense, will return the Aircraft to Lessor at a location
specified by the Lessor within the continental United States or to such other
location as Lessor may reasonably request and in the condition in which the
Aircraft is required to be maintained pursuant to Section 11 hereof and any
other applicable provisions of the Lease, fully equipped with the same number,
make and model number of Engines as are set forth on Schedule No. 1 to Lease
Supplement No. 1, which shall fully comply with Section 8(g) hereof, and which,
in the opinion of Lessor, have the same or improved utility, value, useful
life, performance, and efficiency as such Engines had on the Acceptance Date
and are suitable for use on the Airframe and owned by Lessor and properly
installed thereon. Lessee shall not be relieved of any of its duties,
obligations, covenants, or agreements under this Lease (including, without
limitation, its obligation to pay Basic Rent) prior to the return of the
Aircraft in the manner and condition required with
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respect to such return. The Aircraft, at Lessee's expense, upon redelivery
pursuant hereto, (i) shall be duly certified by the FAA as an airworthy
aircraft, (ii) shall be free and clear of all Liens (other than this Lease and
any Lessor's Liens), and rights of third parties under pooling, interchange,
overhaul, repair or other or similar arrangements, (iii) shall be in the same
configuration and in the same operating condition, ordinary wear and tear
excepted, as when delivered to Lessee hereunder, (iv) shall be in good
operating condition, in good physical condition and good appearance (ordinary
wear and tear excepted) with all systems operating, shall be in compliance with
Lessee's written FAA-approved maintenance program for Boeing B727-214 Advanced
Freighter series aircraft and in compliance with all applicable airworthiness
directives and shall have been maintained in a nondiscriminatory manner with
all Boeing B727-214 Advanced Freighter series aircraft in Lessee's fleet, (v)
shall be in compliance with all so-called "mandatory", "alert" and (to the
extent applicable to Lessee, or its operations and to the extent such service
bulletins relate to the safety and/or airworthiness of the Aircraft) "highly
recommended" service bulletins, Service Letters, modification kits, and similar
notices and components issued, supplied, or available by or through the
Manufacturer and/or the Manufacturer(s) of any Engine or Part with respect to
the Aircraft and all "airworthiness alerts" and Airworthiness or other
Directives, Circulars, Operator Bulletins and Instructions and all other
applicable service, maintenance, repair and overhaul regulations issued by the
FAA or similar regulatory agency having jurisdictional authority which require
compliance or termination within six (6) months after the redelivery date of
the Aircraft, (vi) shall have all logos and other identifying marks of Lessee
or others removed and the exterior of the Aircraft shall have a good overall
appearance with no material damage and (vii) shall be otherwise in the
condition and repair required under this Lease.
In addition to any other requirements of this Section 8 or any other
applicable provisions of this Lease, the Aircraft shall be in the following
condition:
I. General Condition of Aircraft.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease, the Aircraft shall:
(i) be clean by commercial airline standards;
(ii) have installed the full complement of Engines and
Parts and accessories and loose equipment as would
remain installed in such Aircraft, and shall be in a
condition suitable for operation in commercial
service, all installed systems to be fully
operational;
(iii) have in existence a valid and existing airworthiness
certificate with respect to the Aircraft issued by
the FAA;
(iv) [Intentionally Left Blank];
(v) all then current outstanding airworthiness directives
affecting such model of Aircraft issued by the FAA
which require compliance or termination within six
(6) months after the redelivery date of the Aircraft
shall have been accomplished, and all pilot
discrepancies cleared from the logbook;
(vi) have installed all applicable vendors' and
Manufacturers' service bulletin kits theretofore
received by Lessee that are appropriate for the
Aircraft and to the extent not installed, such kits
shall be furnished free of charge to Lessor; and
(vii) have all of the operator's markings removed in a
workmanlike manner and to the approval of the Lessor.
II. General Condition of Fuselage, Windows and Doors.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) all dents, abrasions or external doublers on the
fuselage shall meet the requirements of the
Manufacturer approved "Structural Repair Manual";
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(ii) all windows shall be free of delamination, blemishes,
crazing and shall be properly sealed; and
(iii) all doors shall be free moving, correctly rigged and
be fitted with serviceable seals.
III. General Condition of Wings and Empennage.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) all leading edge shall be repaired in accordance with
Manufacturer approved "Structural Repair Manual";
(ii) all control surfaces shall be painted or waxed and
polished, to industry standard;
(iii) all unpainted cowlings and fairings shall be polished
to industry standard; and
(iv) all wings shall be free of fuel leaks, and no
previous fuel leaks shall have temporary repairs.
IV. General Condition of Interior.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) all ceilings, sidewalls and bulkhead panels shall be
clean and free of cracks and stains;
(ii) all signs and decals shall be clean, legible, and in
English; and
(iii) all required calendar life limited emergency
equipment shall have a minimum of one year life
remaining.
V. General Condition of Cockpit.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) all decals in the cockpit shall be clean, secure,
legible, and in English;
(ii) all fairing and instrument panels shall be free of
stains and cracks, shall be clean, secure and
repainted as necessary;
(iii) all floor coverings shall be clean;
(iv) all seat covers shall be in good condition, clean and
shall conform to applicable FAA fire resistance
regulations or requirements; and
(v) all seats shall be fully serviceable and frames shall
be repainted as necessary.
VI. General Condition of Cargo Compartments.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) all panels shall be in as good condition as on
delivery; and
(ii) all rollers and cargo moving mechanisms shall be
serviceable.
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VII. General Condition of Landing Gear and Wheel Wells.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) all the landing gear and wheel wells shall be clean,
free of leaks and repaired as necessary, and coated
with corrosion inhibitor; and
(ii) all landing gear and wheel wells decals shall be
clean, secure and legible.
VIII. Further Condition of Aircraft regarding Corrosion.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) the Aircraft shall meet the requirements of any then
existing FAA-approved corrosion control program and
aging aircraft corrosion control program on the date
of return; and
(ii) the fuel tanks of the Aircraft shall be free from
contamination and corrosion, and a tank treatment
program shall be in operation.
IX. Documentation. In addition to any other requirements of this
Section 8 or any other applicable provisions of this Lease,
Lessee shall, upon the return of the Aircraft to the Lessor,
deliver to the Lessor all of the currently revised:
(i) current Illustrated Parts Catalogue, including
Airframe and Engines on microfilm or hard copy;
(ii) current Maintenance Manual on microfilm or hard copy;
(iii) current Structural Repair Manual on microfilm or hard
copy;
(iv) Wiring Diagram Manual on microfilm or hard copy;
(v) FAA-approved Flight Manual in hard copy;
(vi) Weight and Balance Manual in hard copy;
(vii) Airworthiness Directives and Modifications status in
hard copy;
(viii) Operational Specifications in hard copy;
(ix) current status of all time controlled, on condition
and condition monitored units which are on the
Aircraft and Engines in hard copy;
(x) cross reference list of operator's part number to
Manufacturer's part number microfilm (if applicable);
(xi) one copy of all FAA Forms 337 required;
(xii) Aircraft and Engine Time Status report; and
(xiii) all existing Aircraft and Engine historical records
in hard copy or microfilm.
(b) Overhaul-General. At the time of such return, (i) the Airframe
(including, without limitation, the landing gear on the Aircraft) shall not
have been operated more than one-half of the allowable time between major
airframe overhauls or major block maintenance before the next major airframe
overhaul or major block maintenance, whichever shall then apply, in accordance
with Lessee's then approved overhaul and/or maintenance program authorized by
and performed to FAA requirements applicable to Lessee, and shall have no less
than half life (as measured by reference to calendar, phase and/or periodic
maintenance and/or inspection standards) remaining on any life limited Airframe
part or component (including, without
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limitation, the landing gear on the Aircraft) before overhaul or replacement
and (ii) each Engine shall not have been operated more than one-half of the
allowable time remaining before overhaul (both hot and cold sections as
measured by reference to calendar, phase and/or periodic maintenance and/or
inspection standards) and all cycle limited parts or time controlled components
of each Engine shall not have been operated more than one-half of the allowable
cycles or time remaining before replacement; said Engine overhaul and Engine
parts and components replacement to be performed in accordance with Lessee's
then approved engine overhaul and parts and components replacement program
authorized by and performed to FAA requirements applicable to Lessee. In
addition to the requirements set forth in clauses (i) and (ii) above, all
inspections and scheduled maintenance required to be performed on the Airframe,
Engines and all life limited parts and components within one hundred twenty
(120) days and/or one hundred hours (100) shall have been performed by Lessee.
(c) Overhaul-Airframe. In the event that Lessee does not meet the
conditions in clause (i) and/or the final sentence of Section 8(b) hereof with
respect to the Airframe, Lessee shall pay Lessor a dollar amount computed by
multiplying (i) Lessor's then current cost for such major overhaul or major
block maintenance as the case may be (such cost being the then current rates
charged by an airframe overhaul facility approved by the Manufacturer of the
Airframe and acceptable to Lessor, together with all costs associated with such
overhaul), by (ii) a fraction of which (x) the numerator shall be the excess of
the number of hours since the last such major overhaul or major block
maintenance, as the case may be, over fifty percent (50%) of the number of
hours of allowable time between major overhauls or major block maintenance and
(y) the denominator shall be the total number of hours of such allowable time.
In the event the life limited parts or components requirement
contained in clauses (i) or (ii) and/or the final sentence of Section 8(b)
hereof are not met, Lessee shall pay to Lessor with respect to each part or
component for which said requirement is not met the dollar amount obtained by
multiplying (i) the ratio that the life expended in excess of half-life bears
to the total allowable life for such part or component by (ii) Lessor's cost of
replacement of such part or component. Lessor's cost of replacement of a part
or component shall include Lessor's then current cost of purchasing the part or
component itself and all of Lessor's then current costs associated with the
replacement.
(d) Overhaul-Engine. In the event that Lessee does not meet the
conditions in clause (ii) and/or the final sentence of Section 8(b) hereof with
respect to the Engines, Lessee shall pay to the Lessor with respect to each
Engine for which said conditions are not met the dollar amount per Engine
obtained by multiplying (i) the ratio that the time accumulated since half time
bears to the time allowable between overhaul by (ii) Lessor's cost for such
overhaul of such Engine; Lessor's cost referred to in this clause (ii) being
the then current rates charged by an engine overhaul facility approved by the
Manufacturer of the Engines and acceptable to Lessor, together with all costs
associated with such overhaul.
In the event the foregoing Engine cycle limited part and time
controlled component requirement set forth in clause (ii) and/or the final
sentence of Section 8(b) hereof are not met, Lessee shall pay to Lessor with
respect to each Engine for which said requirement is not met the dollar amount
per part (or per component) obtained by multiplying (i) the ratio that the time
(or cycles) accumulated since half time (or one-half of the allowable cycles)
bears to the time (or cycles) accumulated since half time (or one-half of the
allowable cycles) bears to the time (or cycles) allowable between replacements
by (ii) Lessor's cost of replacement of the part (or component). Lessor's cost
of replacement of a part or component shall include Lessor's then current cost
of purchasing the part or component itself and all of Lessor's then current
costs associated with the replacement.
(e) Fuel; Records. Upon the return of the Aircraft in accordance
with this Section; (i) each fuel tank shall contain the same quantity of fuel
as was contained in such tank when the Aircraft was delivered to Lessee on the
Acceptance Date (which shall be presumed to be fifty percent (50%) of full
capacity, unless otherwise specified in the Purchase Documents) or, in the case
of differences in such quantity, an appropriate adjustment will be made at the
then current market price of fuel, and (ii) Lessee shall deliver
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<PAGE> 13
all Records to Lessor. In the event any Records are missing or incomplete,
Lessor shall have the right to cause any such Records to be reconstructed at
the expense of Lessee.
(f) Storage. Upon the expiration or other termination of the Lease,
Lessee will, if requested by Lessor, permit Lessor to store the Aircraft at the
Primary Hangar Location as described in Schedule No. 2 to Lease Supplement No.
1, at Evergreen Air Center, Inc., Pinal Air Park, Marana, AZ 85653 or at some
other location mutually acceptable to the Lessor and Lessee. During such
storage period Lessee will, at its own cost and expense, keep the Aircraft
properly hangared or tied down, and will permit Lessor or any person designated
by Lessor, including the authorized representative or representatives of any
prospective purchaser, lessee or user of the Aircraft to inspect the same.
Lessee shall not be liable, except in the case of negligence or intentional
misconduct of Lessee or of its employees or agents, for injury to, or the death
of, any person exercising, either on behalf of Lessor or any prospective
purchaser, Lessee or user, the rights of inspection granted hereunder. Lessee
shall bear the risk of loss and shall pay any and all expenses connected with
insuring and maintaining the Aircraft during such storage period.
(g) Return of Engines. In the event that any engine not owned by
Lessor shall be installed on the returned Airframe as set forth in paragraph
(a) of this Section, then Lessee will, concurrently with such delivery, at its
own expense and not at any cost to Lessor, furnish Lessor with a full warranty
bill of sale, in form and substance satisfactory to Lessor, with respect to
each such engine and with a written opinion of FAA Counsel to the effect that,
upon such return, Lessor will acquire good and marketable title to such engine,
free and clear of all Liens (except Lessor's Liens). Thereupon, unless a
Default or Event of Default shall have occurred and be continuing, Lessor will
transfer to Lessee, without recourse or warranty of any kind whatsoever (except
as to Lessor's Liens) on an "AS-IS, WHERE-IS" BASIS WITHOUT ANY REPRESENTATION
BY, OR RECOURSE OR WARRANTY TO, LESSOR, all of Lessor's right, title and
interest in and to any Engine not installed on the Airframe at the time of the
return of such Airframe.
(h) Inspection Prior to Return. Not more than ninety (90) days prior
to the expiration of the Lease, upon the written request of Lessor, Lessee
shall, at its expense, review the maintenance records of the Aircraft to
determine if the Aircraft is in the condition required by Section 8(a).
Following such review, Lessee shall certify to Lessor that such Aircraft is in
the condition required by Section 8(a) according to the maintenance records for
such Aircraft, or, if the maintenance records so indicate, indicate what
maintenance or repair is needed to bring the Aircraft to the specified
condition.
(i) Survival. The provisions of this Section 8 shall survive the
expiration or other termination of this Lease and the return of the Aircraft
for any reason whatsoever.
(j) Injunctive Relief. Without limiting any other terms or
conditions of this Lease, the provisions of this Section 8 are of the essence
of this Lease, and upon application to any court of equity having jurisdiction,
Lessor shall be entitled to a decree against Lessee requiring specific
performance of the covenants of Lessee set forth in this Section 8.
SECTION 9. Liens.
Lessee will not directly or indirectly, voluntarily or involuntarily,
create, incur, assume or suffer to exist any Liens on or with respect to the
Aircraft or any part thereof, Lessor's title thereto or any interest of Lessor
therein (and Lessee will promptly, at its own expense, take such action as
Lessor deems necessary or advisable to duly discharge any such Lien), except
Permitted Liens. In the event that Lessee fails to take action to discharge or
remove any such Lien, Lessor may take such action as it deems necessary or
appropriate to discharge or remove such Lien. Lessee shall reimburse Lessor on
demand for any costs incurred by Lessor in connection with such action together
with interest at the Late Payment Rate. Lessor's rights hereunder are in
addition to, and not in derogation of, any other rights which Lessor may have
hereunder, at law or in equity.
SECTION 10. Taxes.
Lessee agrees to (i) report, to the extent legally permissible (or if such
reporting by Lessee is not legally permissible, then to prepare reports for
filing by Lessor), (ii) pay when due and (iii) to defend and indemnify Lessor
against liability for all license and registration fees, assessments, and
sales, use, property, excise, privilege and other taxes (including any related
interest or penalties) or other charges or fees now or hereafter imposed by any
governmental body or agency upon the Aircraft, or with respect to landing,
airport use, manufacturing, ordering, shipment, purchase, ownership, delivery,
installation, leasing, operation, possession, use, return, or other disposition
thereof or the rentals hereunder (other than taxes on or measured solely by the
net income of Lessor)("Impositions"). Any fees, taxes or other
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<PAGE> 14
lawful charges paid by Lessor upon failure of Lessee to make such payments
shall at Lessor's option become immediately due from Lessee to Lessor.
Notwithstanding the foregoing, Lessee shall pay, indemnify Lessor for, and hold
Lessor harmless on a net after-tax basis from and against, all Impositions on
or measured by the net income of Lessor imposed against Lessor by any local or
foreign government or other taxing authority if and to the extent that Lessor
would not have incurred such Impositions but for the operation or presence of
the Aircraft within the jurisdiction asserting an Imposition.
SECTION 11. Registration, Maintenance and Operation; Compliance and Use;
Replacement Parts; Additions; Aircraft Marking.
(a) Registration, Maintenance and Operation. During the Term,
Lessee, at its own cost and expense, shall (i) cause the Aircraft to be duly
registered in the name of the Lessor under the Federal Aviation Act at all
times; (ii) maintain, inspect, service, repair, overhaul and test the Airframe
and each Engine in accordance with Lessee's FAA approved and Manufacturer's
recommended maintenance programs; (iii) maintain (in the English language) all
Records and (iv) promptly furnish to Lessor such information as may be required
to enable Lessor to file any reports required by any governmental authority as
a result of Lessor's ownership of the Aircraft. All maintenance procedures
required by Section 11, subparagraph (a)(ii) or any other provision of this
Lease shall be performed in accordance with all FAA and Manufacturer's
standards and procedures by properly trained, licensed, and certified
maintenance sources and maintenance personnel utilizing replacement parts
approved by the FAA and the Manufacturer, so as to keep the Airframe and each
Engine in good operating condition, ordinary wear and tear alone excepted, and
to enable the airworthiness certificate of the Aircraft to be continually
maintained.
(b) Compliance and Use. Lessee shall operate the Aircraft solely in
the conduct of its business and/or for commercial purposes (and not for
consumer, personal, home or family purposes) and in a cargo configuration for
which Lessee is duly authorized by the FAA and it will not operate or permit
the Aircraft to be operated at any time or in any geographic area when or where
insurance required by the provisions of Section 14 hereof shall not be in
effect, or in a manner, for any time period, such that Lessor or a third party
shall be deemed to have "operational control" of the Aircraft. At all times the
Aircraft will be operated only by duly qualified, currently certificated pilots
as required by the insurance policies required under this Lease. IN ADDITION,
EXCEPT AS EXPRESSLY PERMITTED BY THE FOLLOWING PARAGRAPH OR AS SPECIFICALLY
CONSENTED TO IN WRITING BY LESSOR, THE AIRCRAFT SHALL NOT BE OPERATED, USED OR
LOCATED OUTSIDE THE CONTINENTAL UNITED STATES.
Notwithstanding the foregoing, Lessor agrees that the Aircraft may be
flown temporarily to any country in the world in connection with the conduct of
Lessee's business; provided, however, that in no event may the Aircraft
temporarily fly, be operated, used or located in, or to any such country or
area (1) which is excluded from coverage by any insurance policy in effect with
respect to such Aircraft or by any insurance policy required by the terms of
Section 14 hereof or any country or area not specifically and fully covered by
such insurance; (2) in a recognized or threatened area of hostility unless
fully covered to Lessor's satisfaction by hull, political, expropriation,
hijacking and war risk insurance or (3) to Libya, Iraq, Cuba (other than the
United States government facility at Guantanamo Bay), North Korea, or such
other country or countries as Lessor shall set forth pursuant to written notice
to Lessee from time to time. Lessee further agrees that it shall not operate
the Aircraft, or permit the Aircraft to be operated in any manner unless the
insurance coverages set forth in Section 14 hereof are in full force and
effect.
(c) Replacement Parts. Except as otherwise provided in the
succeeding paragraph (d) of this Section, Lessee, at its own cost and expense,
will promptly replace all Parts which may from time to time become worn out,
lost, stolen, taken, destroyed, seized, confiscated, requisitioned, damaged
beyond repair or permanently rendered or declared unfit for use for any reason
whatsoever. (such substituted Parts hereinafter called "Replacement Parts").
In addition, in the ordinary course of maintenance, service, repair, overhaul
or testing, Lessee may, at its own cost and expense, remove serviceable Parts,
provided that Lessee shall, at its own cost and expense, replace such
serviceable Parts as promptly as practicable. All Replacement Parts (i) shall
be free and clear of all Liens, (ii) be in an airworthy condition and of at
least equivalent model and modification status and service bulletin
accomplishment status, be fully interchangeable as to form, fit and function
and shall be in a good operating condition as, and shall have a value, useful
life 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, (iii) 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, (iv) if overhauled, have all overhaul
records, (v) if a life limited Part, have continuous records since the date of
manufacture or the date of the last overhaul, and (vi) shall not in any manner
alter or adversely affect the Aircraft's airworthiness certificate. 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
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Parts shall be replaced by Parts which have been incorporated or installed in
or attached to the Airframe or such Engine and which meet the requirements for
Replacement Parts specified above. Immediately upon any Replacement Part
becoming incorporated or installed in or attached to the Airframe or such
Engine as above provided, without further act, (i) title to the removed Part
shall thereupon vest in Lessee, on an AS IS, WHERE IS BASIS WITHOUT ANY
REPRESENTATION BY, OR RECOURSE OR WARRANTY TO, LESSOR, free and clear of all
rights of Lessor and Lessor's Liens and shall no longer be deemed a Part
hereunder, (ii) title to such Replacement Part shall thereupon vest in the
Lessor, and (iii) such Replacement Part shall become subject to this Lease and
be deemed part of the Airframe or Engine, as the case may be, for all purposes
hereof to the same extent as the Parts originally incorporated or installed in
or attached to the Airframe or such Engine.
(d) Additions. Lessee shall be entitled from time to time during the
Term to acquire and install on the Aircraft at Lessee's own cost and expense
(and Lessor hereby appoints Lessee to be Lessor's agent for such purpose, so
long as no Event of Default has occurred and is continuing), any additional
accessory, device or equipment as may be available at such time ("Additions")
but only so long as such Additions (i) are ancillary to the Aircraft, (ii) are
not required to render the Aircraft complete for its intended use by Lessee,
(iii) will not impair the originally intended function or use of the Aircraft
or diminish the value of the same and (iv) can be readily removed without
causing material damage to the Aircraft. Title to Additions which are not
removed by Lessee prior to the return of the Aircraft to Lessor shall vest in
Lessor upon such return. Lessee shall repair all damage to the Aircraft
resulting from such installation and removal of Additions so as to restore the
Aircraft to its condition prior to installation, ordinary wear and tear
excepted.
(e) Aircraft Marking. Lessee agrees, at its own cost and expense, to
(i) cause the Airframe and the Engines to be kept numbered with the
identification or serial number therefor as specified in Schedule No. 1 to
Lease Supplement No. 1 hereof; (ii) prominently display on the Aircraft that
"N" number, and only that "N" number, specified in Schedule No. 1 to Lease
Supplement No. 1 or such other "N" number as has been approved in writing by
the Lessor and duly recorded with the FAA; (iii) notify Lessor in writing
thirty (30) days prior to making any change in the configuration (other than
changes in configuration mandated by the FAA), appearance or coloring of the
Aircraft from that in effect at the time the Aircraft is accepted by Lessee
hereunder, and in the event of such change or modification of configuration,
coloring or appearance, at the request of Lessor to restore the Aircraft to the
configuration, coloring and/or appearance in effect on the Acceptance Date or,
at Lessor's option to pay to Lessor an amount equal to the reasonable cost of
such restoration and (iv) affix and maintain in the Airframe adjacent to the
airworthiness certificate and on each Engine a metal nameplate bearing the
Aircraft Marking specified in Lease Supplement No. 2 and such other markings as
from time to time may be required by law or otherwise deemed necessary or
advisable by Lessor in order to protect the title of Lessor to the Aircraft and
the rights of Lessor under this Lease. Lessee will not place the Aircraft in
operation or exercise any control or dominion over the same until such Aircraft
Markings have been placed thereon. Lessee will replace promptly any such
Aircraft Marking which may be removed, defaced or destroyed.
(f) Pooling of Parts. Any Part removed from the Airframe or any
Engine as provided in Section 11(c) hereof may be subjected by Lessee (or any
Permitted Sublessee) to normal pooling arrangements customary in the airline
industry entered into in the ordinary course of Lessee's (or any Permitted
Sublessee's) business with a U.S. Air Carrier; provided that the Part replacing
such removed Part shall be incorporated or installed in or attached to the
Aircraft in accordance with Section 11(c) hereof immediately upon 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 11(c)
hereof may be owned by another U.S. Air Carrier subject to such a normal
pooling arrangement; provided that Lessee (or any Permitted Sublessee) ensures
that the Part so removed remains the property of Lessor, and that Lessee (or
any Permitted Sublessee), at its expense, immediately thereafter either (x)
causes title to such Replacement Part to vest in Lessor free and clear of all
Liens and rights of others in accordance with Section 11(c) hereof, or (y)
replaces such Replacement Part by incorporating or installing in or attaching
to the Aircraft a further Replacement Part owned by Lessee (or any Permitted
Sublessee) free and clear of all Liens and rights of others (except for any
Lessor Liens) by causing title to such further Replacement Part to vest in
Lessor in accordance with Section 11(c) hereof.
SECTION 12. Inspection.
(a) During the Term of this Lease, Lessee shall furnish to Lessor
such information concerning the location, condition, use and operation of the
Aircraft (or any component thereof including, the Airframe and any Engine or
Part), as Lessor may reasonably request. Lessor or its authorized
representatives or agents shall have the right, at any reasonable time and from
time to time and wherever located, to inspect the Aircraft and its condition,
use, and operation, and the Records, and to travel on the flight deck as
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observers at any such inspection. Lessor shall not have any duty to make any
such inspection nor shall Lessor incur any liability or obligation of any kind
whatsoever by reason of not making any such inspection. Without limiting the
generality of the foregoing or any other term of this Lease, Lessor or its
authorized representatives or agents shall have the right to inspect the
Aircraft during any "C" and/or "D" checks (as such checks are determined and/or
defined by the Manufacturer or the Lessee's FAA-approved maintenance program)
or their respective equivalent (such checks collectively the "Major Checks"),
performed by or on behalf of Lessee during the Term of this Lease, and Lessee
shall inform Lessor of any such Major Check schedule by providing written
notice as to time and location of all said Major Checks. During any Major
Checks, Lessee agrees to provide sufficient manpower to allow Lessor or its
authorized representatives or agents to inspect, during the course of any Major
Check, any area of the Aircraft which Lessor requests to inspect and which
would normally be required during any such Major Check.
(b) No later than five (5) days prior to the date the Aircraft is
to be returned, Lessee shall make the Aircraft available to Lessor for a
detailed inspection by a qualified FAA designated airworthiness representative
or any other authorized representative or agent of the Lessor in order to
verify that the condition of the Aircraft complies with all of the requirements
of this Lease, including, without limitation, Section 8 hereof, (any such
inspection the "Final Inspection"). Such Final Inspection may be scheduled at
an appropriate maintenance facility of the Lessee or a FAA authorized
maintenance performer then performing maintenance on such Aircraft. Lessor
shall use its best efforts to conduct such Final Inspection during operational
downtime of the Aircraft. The Lessee shall provide the Lessor not less than
sixty (60) days prior written notice of the location and commencement date of
the Final Inspection. The Final Inspection, at Lessor's sole option, shall
also include a two hour operational test flight of the Aircraft ("Test
Flight"). Any such Test Flight shall be conducted by Lessee at its sole cost
and expense using the Lessee's approved test flight procedures. Lessor shall be
permitted to have a minimum of two (2) authorized representatives attend the
Final Inspection. In the event that the Lessee has exercised its Sale Option
pursuant to Section 23 (c) and the Aircraft has either not been sold within
ninety (90) days of the then current Expiration Date or the proposed sale price
is less than the then current Maximum Lessor Risk, the Lessee shall be required
to open any areas of the Aircraft reasonably requested to be opened by the
Lessor or its authorized representatives or agents in order to verify any
aspect of the Aircraft's condition or any item or component thereof, including,
without limitation, the lower cargo compartment bilges, and borescoping of the
Engines. Without limiting the generality of the foregoing or any other term of
this Agreement, all Engines shall, upon the request of Lessor, have had within
the thirty (30) day period immediately preceding the Final Inspection an
"engine trim run" and a "combustion chamber" inspection performed in
conformance with the Manufacturer's recommended procedures. All Records shall
be provided to the Lessor or its authorized representatives or agents at the
Final Inspection.
(c) The cost and expense of the Test Flight and Final Inspection
shall be paid by the Lessee.
SECTION 13. Loss or Destruction.
(a) Event of Loss with Respect to the Aircraft. Upon the occurrence
of any Event of Loss with respect to the Aircraft, Lessee shall notify Lessor
of any such Event of Loss within five (5) days of the date thereof. On the
next Basic Rent Date following the date of such notice (or, if such Event of
Loss occurs after the Last Basic Rent Date, within thirty (30) days after such
notice), Lessee shall pay to Lessor any Rent then due, plus the Casualty Value
of the Aircraft determined as of the Basic Rent Date immediately following the
date of such Event of Loss, together with interest at the Late Payment Rate for
the period (if any) from the Basic Rent Date following the date of such notice
through the date of payment. Upon making such payment and all Rent due and
owing, Lessee's obligation to pay further Basic Rent for the Aircraft
subsequent to such payment shall cease, but Lessee's obligation to pay
Supplemental Rent as well as any other amounts due under this Lease, if any,
for the Aircraft shall remain unchanged. Except in the case of loss, permanent
disappearance, destruction or Return to Manufacturer, Lessor shall be entitled
to recover possession of the Aircraft, unless possession thereof is required to
be delivered to a third party insurance carrier in order to settle an insurance
claim. Lessor shall be entitled to any salvage value in excess of the Casualty
Value paid to Lessor. Lessor shall be under no duty to Lessee to pursue any
claim against any Person in connection with an Event of Loss, but Lessee may at
its own cost and expense and with Lessor's prior written consent pursue the
same on behalf of Lessor in such manner as may be acceptable to Lessor.
Following the payment of the Casualty Value of the Aircraft in
accordance with the provisions of this subsection, Lessee, if possible, shall,
as agent for Lessor, dispose of the Aircraft as soon as it is able to do so for
the best price obtainable. Any such disposition shall be on an AS-IS, WHERE-IS
BASIS WITHOUT ANY REPRESENTATION BY, OR RECOURSE OR WARRANTY TO, LESSOR, of any
kind whatsoever. Lessee may, after paying Lessor the amounts specified in this
subsection, retain all amounts of such price up to the Casualty Value of the
Aircraft actually paid by Lessee, together with Lessee's reasonable costs and
expenses of disposition attributable thereto and any excess shall be paid over
to, and retained by, Lessor. In the event of a Return to Manufacturer, Lessor
agrees that Lessee shall receive and retain all amounts payable to Lessor by
the Manufacturer up to the amount, if any, of the Casualty Value actually paid
by Lessee hereunder, but any
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excess shall be retained by Lessor. With respect to a Requisition of Use,
Lessor agrees that Lessee shall receive and retain all amounts paid by any
governmental authority up to the Casualty Value actually paid by Lessee
hereunder, and any excess shall be paid over to, and retained by, Lessor.
(b) Event of Loss with Respect to an Engine. Upon an Event of Loss
with respect to any Engine under circumstances in which there has not occurred
an Event of Loss with respect to the Airframe upon which such Engine was
installed or upon the occurrence of an Event of Loss of an Engine not then
installed on the Airframe, Lessee shall give Lessor prompt written notice
thereof and shall within thirty (30) days after the occurrence of such Event of
Loss, duly convey to Lessor title to a similar engine of the name, make and
model number as that suffering the Event of Loss. Such engine shall be free
and clear of all Liens, have a value, utility, and useful life at least equal
to, and (ii) be in as good an operating condition as, the Engine with respect
to which such Event of Loss has 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, at its own
cost and expense, shall furnish Lessor with such documents to evidence such
conveyance as Lessor shall request. Upon full compliance by Lessee with the
terms of this paragraph, Lessor will transfer to Lessee, without recourse,
representation or warranty of any kind whatsoever, all of Lessor's right, title
and interest, if any, in and to the Engine with respect to which such Event of
Loss has occurred. SUCH TRANSFER SHALL BE "AS-IS, WHERE-IS" AND LESSOR SHALL
NOT BE DEEMED TO HAVE MADE, AND LESSOR HEREBY DISCLAIMS, ANY REPRESENTATION OR
WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE ENGINE SO TRANSFERRED TO LESSEE
other than that the Engine is free and clear of Lessor's Liens. Each such
replacement engine shall, after such conveyance shall be deemed an "Engine" as
defined herein and shall be deemed part of the same Aircraft as was the Engine
replaced thereby. No Event of Loss with respect to an Engine shall result in
any reduction or delay in the payment of Basic Rent or relieve Lessee of any
obligation under this Lease.
(c) Risk of Loss; no Release of Obligations. Except as provided in
this Section 13, Lessee shall bear the risk of loss and shall not be released
from its obligations hereunder in the event of any damage to the Aircraft or
any part thereof or any Event of Loss relating thereto.
SECTION 14. Insurance.
(a) Aircraft Liability and Property Damage Insurance. Lessee shall
maintain at its own cost and expense for the entire Term with insurers
satisfactory to Lessor, (i) comprehensive aircraft and general public liability
insurance against bodily injury and property damage claims including, without
limitation, contractual liability, premises damage, public liability, personal
property liability, personal injury liability, death and property damage
liability, public and passenger legal liability coverage in an amount not less
than $200,000,000.00 for each single occurrence and (ii) such other property
damage insurance with respect to the Aircraft as is of the type and in the
amounts usually carried by companies engaged in the same or a similar business
as Lessee and which covers risks of the kind customarily insured against by
such companies. Lessee shall also provide worker's compensation insurance with
all-states coverage for the Aircraft's crew and maintenance personnel.
(b) Insurance Against Loss or Damage to the Aircraft. Lessee shall
maintain at its own cost and expense for the entire Term with insurers
satisfactory to Lessor, all-risk ground and flight aircraft hull insurance
covering the Aircraft, including foreign object damage, fire and explosion
coverage, cargo, environmental, ingestion and lightning and electrical damage
and comparable insurance with respect to any Engines or Parts while removed
from the Aircraft, and with respect to any engines or parts while temporarily
installed on the Aircraft, provided that such insurance shall at all times be
in an amount not less than the Casualty Value of the Aircraft (such amount
determined at the Rent Commencement Date and at each annual renewal date of the
insurance policies provided hereunder for the next succeeding year throughout
the Term). Lessee shall maintain in effect hijacking (air piracy) insurance
with respect to the Aircraft in a face amount of not less than the Casualty
Value of the Aircraft (determined as described herein), which shall be in full
force and effect worldwide throughout any geographical areas at any time
traversed by the Aircraft. Such insurance shall also include war risk,
governmental confiscation and expropriation and related insurance.
(c) Lessor as Additional Insured; Notice. Any policies of insurance
carried in accordance with this Section and any policies taken out in
substitution or replacement or any such policies (i) shall be amended to name
Lessor as the owner of the Aircraft and as additional insured as its interests
may appear, (ii) with respect to insurance carried in accordance with paragraph
(b) of this Section 14 covering the Aircraft, shall provide that any amount
payable thereunder which exceeds $100,000.00 in the aggregate shall be paid
directly to Lessor as sole loss payee and not to Lessor and Lessee jointly
(and, so long as no Event of Default has occurred, such amounts shall be
disbursed by Lessor to Lessee or other appropriate Persons in payment of the
costs actually incurred with respect to repairs made to the Aircraft so as to
restore it to the operating condition required by Section 11 hereof, or shall
be disbursed by Lessor as otherwise required by the Lease), and that, provided
no Default or Event of Default has occurred and is continuing, any amount(s) of
less than $100,000.00 in the aggregate shall be paid to Lessee (and such
amounts shall be applied by Lessee to pay the costs of such repairs), (iii)
shall provide for thirty (30) days, or in the case of war risk insurance, seven
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(7) days, written notice by such insurer of cancellation, change, non-renewal
or reduction and (iv) shall provide that in respect of the interests of Lessor
in such policies, the insurance shall not be invalidated by any action or
inaction of Lessee regardless of any breach or violation of any warranties,
declarations or conditions contained in such policies by or binding upon
Lessee. Each shall be primary insurance, not subject to any co-insurance
clause and shall be without right of contribution from any other insurance.
Lessee shall arrange for appropriate certification as to the satisfaction of
the requirements set forth above in this Section 14 to be delivered to Lessor
not later than the Acceptance Date by each such insurer or underwriter
therefor, which certification shall specifically acknowledge that the insurance
is in conformity with this Section 14. Notwithstanding the foregoing, Lessee
shall promptly provide Lessor with a copy of each policy of insurance required
hereunder if it so requests.
(d) Reports, etc. Annually on the anniversary of the Acceptance
Date, Lessee shall furnish to Lessor a report describing in reasonable detail
the insurance then carried and maintained on the Aircraft and certifying that
such insurance complies with the terms hereof and, if Lessor shall so request,
a copy of each applicable policy. In the event Lessee shall fail to maintain
insurance as herein provided, Lessor may, at its option, provide such
insurance, and Lessee shall, upon demand, reimburse Lessor for the cost
thereof, together with interest at the Late Payment Rate from the date of
payment through the date of reimbursement.
(e) Agreed Value. Anything herein to the contrary notwithstanding,
at all times while the Aircraft is subject to this Lease, the insurance
required hereunder shall be for an amount on an "agreed value" basis not less
than the lower of the Casualty Value or the Lessor's Cost.
(f) No Right To Self-Insure. Lessee shall not self-insure (by
deductible, premium adjustment, or risk retention arrangement of any kind) the
insurance required to be maintained hereunder, except to the extent of
deductibles usually and customarily maintained by companies engaged in the same
or similar business as Lessee and operating the same or similar aircraft, but
in no event shall any deductible exceed the Permitted Deductible amount on
Schedule No. 2-A to Lease Supplement No. 1. Lessee hereby irrevocably
appoints Lessor as Lessee's attorney-in-fact to file, settle or adjust, and
receive payment of claims under any such insurance policy and to endorse
Lessee's name on any checks, drafts or other instruments on payment of such
claims. Lessee further agrees to give Lessor prompt notice of any damage to or
loss of, the Aircraft, or any part thereof.
(g) Attorney-in Fact. Lessee irrevocably appoints Lessor (and any
assignee, mortgagee and/or lender of the Lessor) its attorney-in-fact to act in
Lessee's name and on its behalf to make, execute, deliver and file any
instruments or documents, settle, receive payment, make claim or proof of loss
and to take any action as Lessor (and any such assignee, mortgagee and/or
lender) deems necessary or appropriate to carry out the intent of this Section
14 or any agreements, documents or instruments related thereto. To the extent
appropriate or permissible under applicable law, such appointment is coupled
with an interest, shall be irrevocable and shall terminate only upon payment in
full of the obligations set forth in this Lease and/or any agreements,
documents or instruments related thereto. Notwithstanding the foregoing, to
the extent that no Default or Event of Default has occurred and is continuing,
Lessor agrees that it shall not exercise its powers as attorney in fact with
respect to amounts of less than $100,000.00 payable under such policies of
insurance as are provided for hereunder.
SECTION 15. Indemnification.
Lessee assumes liability for, and hereby agrees to indemnify, protect,
save, defend and keep harmless Lessor, its agents, employees, officers,
directors, shareholders, subsidiaries, affiliates, successors and assigns
(collectively "Lessor"), on a net after-tax basis, from and against any and all
liabilities, obligations, losses, damages, penalties, claims (including,
without limitation, claims involving or alleging product liability or strict or
absolute liability in tort), actions, suits, demands, costs, expenses and
disbursements (including, without limitation, legal fees and expenses) of any
kind and nature whatsoever (other than Impositions, the indemnification against
which is set forth in Section 10 hereof) ("Claims") which may be imposed on,
incurred by or asserted against Lessor, whether or not Lessor shall also be
indemnified as to any such Claim by any other Person, in any way relating to or
arising out of this Lease or any documents contemplated hereby, or the
performance or enforcement of any of the terms hereof or thereof, or in any way
relating to or arising out of the assertion or enforcement of any
manufacturer's, vendor's or dealer's warranties on the Aircraft or any part
thereof, (including, without limitation, any warranty of any Manufacturer), the
manufacture, inspection, construction, purchase, pooling, interchange,
acceptance, rejection, ownership, titling or re-titling, delivery, lease,
sublease, possession, use, operation, maintenance, condition, registration or
re-registration, sale, return, removal, repossession, storage or other
disposition of the Aircraft or any part thereof or any accident in connection
therewith (including, without limitation, latent and other defects, whether or
not discoverable, and any Claim for patent, trademark or copyright
infringement).
Notwithstanding the foregoing, Lessee shall not be required to
indemnify Lessor for (a) any Claim caused by the gross negligence or willful
misconduct of the Lessor, (b) any Claim caused by the failure of
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Lessor to comply with any regulatory requirements which non-compliance is
caused solely and directly by Lessor, negligence or willful misconduct or (c)
any Claim in respect of the Aircraft arising from acts or events which occur
after (x) possession of the Aircraft has been redelivered to Lessor (which
return and delivery shall be in full and complete compliance with the terms of
this Lease, including, without limitation, Section 8) and (y) any and all other
obligations of any kind whatsoever of the Lessee under this Lease which have
been fully paid and/or performed, including, without limitation pursuant to
Section 10 hereof, as the case may be, unless any such Claims were caused by
Lessee (or any stockholder, director, officer, employee, successor, assignee,
agent or servant of the Lessee) or resulted or arose, directly or indirectly,
from any acts, events or omissions of any kind whatsoever during the Term of
this Lease.
WITHOUT LIMITING THE GENERALITY OF THE TERMS OF THIS LEASE, LESSEE
AGREES THAT LESSOR SHALL NOT BE LIABLE TO LESSEE FOR ANY CLAIM CAUSED DIRECTLY
OR INDIRECTLY BY THE INADEQUACY OF THE AIRCRAFT OR ANY PART THEREOF FOR ANY
PURPOSE OR ANY DEFICIENCY OR DEFECT THEREIN OR THE USE OF MAINTENANCE THEREOF
OR ANY REPAIRS, SERVICING OR ADJUSTMENTS THERETO OR ANY DELAY IN PROVIDING OR
FAILURE TO PROVIDE ANY OF THE SAME OR ANY INTERRUPTION OR LOSS OF SERVICE OR
USE THEREOF OR ANY LOSS OF BUSINESS, OR PROFITS ALL OF WHICH SHALL BE THE SOLE
RISK AND RESPONSIBILITY OF LESSEE.
The liability of Lessee to make indemnification payments pursuant to
this Section 15 shall, notwithstanding any expiration or other termination
(whether voluntary, as the result of Default or Event of Default, or otherwise)
of this Lease, continue to exist until such indemnity payments are irrevocably
made by Lessee in full and received by Lessor. If any Claim is made against
Lessee or Lessor, the party receiving notice of such Claim shall promptly
notify the other, but the failure of the party receiving notice to so notify
the other shall not relieve Lessee of any obligation hereunder.
SECTION 16. Assignment and Sublease.
EXCEPT AS EXPRESSLY SET FORTH HEREIN OR AS MAY BE OTHERWISE CONSENTED
TO IN WRITING BY LESSOR, LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, SUBLEASE,
CONVEY, PLEDGE, MORTGAGE OR OTHERWISE ENCUMBER ITS OR LESSOR'S INTEREST IN AND
TO THE LEASE OR THE AIRCRAFT, AND ANY SUCH SALE, TRANSFER, ASSIGNMENT,
SUBLEASE, CONVEYANCE, PLEDGE, MORTGAGE, OR ENCUMBRANCE, WHETHER BY OPERATION OF
LAW OR OTHERWISE, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR SHALL BE NULL AND
VOID. IN ADDITION, LESSEE SHALL NOT RELINQUISH POSSESSION OF THE AIRFRAME OR
ANY ENGINE OR INSTALL ANY ENGINE OR PART, OR PERMIT ANY ENGINE OR PART TO BE
INSTALLED, ON ANY AIRFRAME OTHER THAN THE AIRFRAME LEASED HEREUNDER EXCEPT AS
EXPRESSLY SET FORTH HEREIN. No acceptance, assignment, subletting,
relinquishment or installation shall in any event relieve Lessee of primary,
absolute and unconditional liability for its duties and obligations under this
Lease. In no event may the Aircraft be subleased to a Person who is not a
"citizen of the United States" within the meaning of the Federal Aviation Act.
Notwithstanding anything to the contrary set forth herein, nothing herein shall
prohibit Lessee from entering into any contract or arrangement with any third
party so long as Lessee maintains operational control of the Aircraft and the
rights, title and interests of such third party are subject and subordinate to
the rights, title and interests of Lessor hereunder.
(a) Notwithstanding the foregoing, provided that, so long as no
Default or Event of Default shall have occurred hereunder and be continuing,
and Lessee shall continue to comply with the provisions of Sections 11 and 14,
Lessee (and any Permitted Sublessee except that any Permitted Sublessee shall
not have the right to sublease or lease the Aircraft to any other Person) may,
without the prior written consent of Lessor:
(i) subject the Airframe, the Engines or engines then
installed thereon to normal interchange agreements or any Engine to normal
pooling or similar arrangements, in each case customary in the airline industry
and entered into by Lessee (or any Permitted Sublessee) in the ordinary course
of its business with a U.S. Air Carrier or any other air carrier approved by
Lessor; provided that (A) no transfer of registration of the Airframe or any
Engine shall be effected in connection therewith and the terms of this Lease
shall be observed; (B) no such agreement or arrangement contemplates or
requires the transfer of title to the Airframe or any Engine and (C) if
Lessor's title to any Engine shall be divested under any such agreement or
arrangement, such divestiture shall be deemed to be an Event of Loss with
respect to such Engine and Lessee shall comply with Section 13(b) hereof in
respect thereof;
(ii) 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, Engine or any part thereof or for
alterations or modifications in or additions to such Airframe or Engine to the
extent required or permitted by the terms of Section 11 hereof;
(iii) install an Engine on an airframe owned by Lessee (or any
Permitted Sublessee) which airframe is free and clear of all Liens, except:
(A) Permitted Liens and those which apply only to the engines (other than
Engines), appliances, parts, instruments, appurtenances, accessories,
furnishings and other equipment (other than Parts) installed on such airframe
(but not to the airframe as an entirety), (B) the rights of third parties under
interchange agreements which would be permitted under clause (i)
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above, provided that Lessor's title to such Engine shall not be divested as a
result thereof and (C) mortgage Liens or other security interests, provided,
that (as regards this clause (C)), such mortgage Liens or other security
interests provide that such Engine shall not become subject to the lien of
such mortgage or security interest, notwithstanding the installation thereof on
such airframe;
(iv) install an Engine on an airframe leased to Lessee (or any
Permitted Sublessee) or purchased by Lessee subject to a conditional sale or
other security agreement, provided that (x) such airframe is free and clear of
all Liens, except: (A) the rights of the parties to the lease or conditional
sale or other security agreement covering such airframe, or their assignees,
and (B) Liens of the type permitted by subparagraph (iii) of this paragraph (b)
and (y) such lease, conditional sale or other security agreement provides that
such Engine shall not become subject to the lien or security interest of such
lease, conditional sale or other security agreement, notwithstanding the
installation thereof on such airframe;
(v) transfer possession of the Airframe or any Engine to the
United States of America or any instrumentality or agency thereof pursuant to
the Civil Reserve Air Fleet Program for a period that does not extend beyond
the end of the Term so long as Lessee (or any Permitted Sublessee) shall (A)
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
Contracting Office Representative for the Military Aircraft Command of the
United States Air Force, and (B) promptly notify Lessor upon transferring
possession of the Airframe or any Engine to the United States of America or any
agency or instrumentality thereof pursuant to such program; or
(vi) transfer possession of the Airframe or any Engine to the
United States of America or any agency or instrumentality thereof pursuant to a
contract, a copy of which shall be provided to Lessor, provided that the terms
of such contract shall not be inconsistent with the terms hereof (including,
without limitation, that no such contract shall extend beyond the end of the
Term).
(vii) sublease the Aircraft to any Permitted Sublessee,
provided, however, that
A. Lessee shall provide to the Lessor prior written
notice of any proposed sublease and a copy of such sublease
prior to entering into said sublease.
B. Any sublease shall provide that it shall terminate at
the option of Lessor, upon the expiration or earlier
termination of this Lease and the term of such sublease shall
not exceed the then remaining Term of this Lease (including,
any Renewal Term as to which the option to renew has been
irrevocably exercised).
C. Any sublease shall be a true lease and not a lease
intended as "security" as such term is used in Section 1-201
(37) of the UCC.
D. With respect to any sublease, to the extent that it
has not already done so, Lessee agrees to assign, and does
hereby assign, as collateral security, and grant, and does
hereby grant, to Lessor a security interest in (i) the
sublease, (ii) all amounts payable thereunder, (iii) all
proceeds of insurance payable to Lessee pursuant to the
sublease, and (iv) all rights and remedies of Lessee under the
sublease and proceeds from the exercise thereof all to secure
payment and performance of all of Lessee's liabilities,
obligations and indebtedness under this Lease. Lessor's
security interest which is created hereby, if Lessor so
elects, may be perfected by possession of the sublease rather
than filing, as provided in the UCC. Until the occurrence of
a Default or an Event of Default hereunder, Lessee shall have
the right to collect and receive, in accordance with the terms
hereof, rent and other sums payable under such sublease and to
retain, use and enjoy the same. The filing of this Lease with
the FAA shall constitute notice to all third parties of the
security interest of Lessor in any such subleases without the
need for the filing of a specific assignment thereof.
E. Lessee shall deliver to the Lessor a fully executed
copy of each and every sublease, which are, and will be, the
only copies of such sublease marked "Secured Party's
Original." All copies of the sublease shall bear the
following legend: "To the extent, if any, this instrument
constitutes chattel paper under the UCC, no security interest
herein may be created through the transfer and/or possession
of any counterpart other than the counterpart marked 'Secured
Party's Original.'" All copies of each sublease, other than
the "Secured Party's Original" shall bear the following
legend: "'Copy.' No interest herein may be
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created or the aircraft subject hereto through the transfer
and/or possession hereof."
F. Any sublease shall be expressly subject and
subordinate to this Lease and the rights of Lessor hereunder
and in and to the Aircraft. No amendment, termination, waiver
or modification of any of the terms and/or conditions of such
sublease shall be effective unless consented to in writing in
advance by Lessor, provided, however, that Lessor's consent
shall not be necessary with respect to any amendment or
modification of such sublease which increases the amount of
the monthly rentals under such sublease or with respect to any
renewal of such sublease provided that the term of such
sublease, upon effecting such renewal ends on or before the
then current Term of this Lease.
G. Lessee shall deliver to Lessor a consent and
acknowledgment executed by Lessee and Permitted Sublessee in
the form and substance satisfactory to Lessor along with such
other instruments (including, without limitation, FAA
recording documents and UCC financing statements) as Lessor
may reasonably require. Lessee shall agree to take such other
actions as are deemed necessary by Lessor to effect the terms
and conditions of this Section.
H. Lessee shall provide evidence, satisfactory to
Lessor, that Lessor shall have the benefits of Section 1110
(as set forth in Section 6 (x) of this Lease) after giving
effect to such sublease.
I. Such other terms and conditions as Lessor deems
necessary and appropriate.
Notwithstanding anything to the contrary set forth herein,
nothing in this subparagraph (vii) shall prohibit Lessee from
entering into any contract or arrangement with any third party
so long as Lessee maintains operational control of the
Aircraft and the rights, title and interests of such third
party are subject and subordinate to the rights, title and
interests of Lessor hereunder.
Without limiting the generality of the foregoing, the rights of any
Permitted Sublessee or other transferee who receives possession by reason of a
transfer permitted by this Section 16 (other than the transfer of an Engine
which is deemed an Event of Loss) shall be subject and subordinate to, and any
sublease permitted by this Section 16, shall expressly provide that it is
subject and subordinate to, all the terms of this Lease, including, without
limitation, the covenants contained in Section 8 hereof and Lessor's rights,
powers and remedies hereunder, including the right to repossession pursuant to
Section 19 hereof and to avoid such sublease upon such repossession and each
sublease shall expressly require any Permitted Sublessee to forthwith deliver
the Aircraft to Lessor upon any rightful demand therefor pursuant to Section 19
hereof, and the terms of any such sublease shall (A) not permit any Permitted
Sublessee to take any action not permitted to be taken by Lessee in this Lease
with respect to the Aircraft, (B) be consistent with the requirements of this
Lease, (C) not permit any further subleasing or leasing of the Aircraft by the
Permitted Sublessee or otherwise, (D) include appropriate provisions for the
continued registration and maintenance of the Aircraft in accordance with FAA
standards, and compliance with the terms and conditions hereof, including,
without limitation, use and operation, insurance with an appropriate insurance
certificate to be furnished to Lessor prior to Lessee's entry into any such
sublease, (E) provide that the Lessor may, at its option, void or terminate
such sublease following an Event of Default or Default hereunder, (F) provide
that in the event that Lessor declares the Lease to be in default pursuant to
Section 18 hereof, any Permitted Sublessee's rights under such sublease shall,
at the option of Lessor, automatically be deemed to be assigned to Lessor (to
the extent not already assigned to the Lessor), and (G) that the Permitted
Sublessee shall not transfer possession of or any other rights to the Airframe
or any Engine to any Person, except as expressly permitted herein.
No pooling agreement, sublease or other relinquishment of possession
of the Airframe or any Engine shall in any way whatsoever discharge or diminish
any of Lessee's obligations to Lessor (and any assignee, mortgagee and lender
of the Lessor) hereunder, discharge or diminish the obligations of the
Guarantor under the Guaranty or constitute a waiver of Lessor's (or any such
assignee, mortgagee or lender of the Lessor's) rights or remedies hereunder and
all of the obligations of Lessee hereunder shall be and remain primary and
shall continue in full force and effect as the obligations of a principal and
not of a guarantor or surety.
Lessor, may at any time, with or without notice to Lessee, mortgage,
grant a security interest in or otherwise transfer, sell or assign all or any
part of its interest in this Lease or the Aircraft or any Rent or other sums
due or to become due hereunder and Lessee shall perform all of its obligations
under this Lease for the benefit of such assignee, lender, creditor, mortgagee,
transferee or Person except that the interest of any such assignee, lender,
creditor, mortgagee, transferee or Person shall be subject to Lessee's rights
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of use and possession, renewal rights, and purchase options, if any, hereunder,
so long as no Default or Event of Default has occurred and is continuing
hereunder. Lessee agrees that the rights hereunder of any such assignee,
lender, creditor, mortgagee, transferee or Person shall not be subject to any
defense, setoff, recoupment, abatement, reduction, claim or counterclaim
(collectively the "Defenses") that Lessee has or may at any time have against
Lessor for any reason whatsoever and Lessee hereby waives any right to assert
at any time any of the foregoing Defenses against any such assignee, lender,
creditor, mortgagee, transferee or Person. Lessee further agrees that any such
assignee, lender, creditor, mortgagee, transferee or Person shall have all of
Lessor's rights hereunder, but none of the Lessor's obligations or duties.
Lessee acknowledges that any such assignment, transfer or sale will not
materially change its duties or materially increase its burdens or risks
hereunder and that any such assignment, transfer or sale shall be permitted
even if the assignment, transfer or sale would be deemed to materially affect
the Lessee's interests hereunder. Lessee further agrees, if so directed in
writing, to, among other things, pay all sums due or to become due hereunder
directly to the assignee, lender, creditor, mortgagee, transferee or Person or
any other party designated in writing by Lessor or any such assignee, lender,
creditor, mortgagee, transferee or Person. Upon the request of Lessor or any
assignee, lender, creditor, mortgagee, transferee or Person, Lessee also agrees
(i) to promptly execute and deliver to Lessor or to such assignee, lender,
creditor, mortgagee, transferee or Person an acknowledgment of assignment in
form and substance satisfactory to the requesting party which, among other
things, reaffirms the basic terms and conditions of this Lease and (ii) to
comply with the reasonable demands of any such assignee, lender, creditor,
mortgagee, transferee or Person in order to perfect any such assignment or
transfer.
This Lease, including all agreements, covenants, representations and
warranties, shall be binding upon and inure to the benefit of, and may be
enforced by (a) Lessor and its successors, assigns (including, without
limitation, all parties referred to in Section 16), agents and servants and (b)
Lessee and its successors and, to the extent expressly permitted by Lessor,
assigns.
SECTION 17. [Intentionally Left Blank]
SECTION 18. Events of Default.
The term "Event of Default", wherever used herein, shall mean any of
the following events or circumstances (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary, or come about or be
effected by operation of law, or be pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation or any
administrative or governmental body):
(a) Lessee shall fail to make any payment of Rent, Casualty Value
and/or any amount due pursuant to Section 23 hereof within ten (10) days after
any or all of the same shall become due and payable, or, upon demand, any other
amount required to be paid herein or under any other agreement with Lessor; or
(b) Lessee shall fail to keep in full force and effect any of the
insurance required under this Lease, or shall operate the Aircraft at a time
when, or at a place in which, such insurance shall not be in effect; or
(c) Lessee shall fail to perform or observe any covenant, condition
or agreement, (other than those specifically referred to in this Section 18)
required to be performed or observed by it under this Lease or any agreement,
document or certificate delivered by or on behalf of Lessee in connection
herewith, and such failure shall continue for (I) ten (10) days after written
notice thereof from Lessor to Lessee and (II) provided that Lessee is
diligently pursuing a cure of such default to the satisfaction of Lessor, for
forty-five (45) days thereafter; or
(d) Lessee shall default in the payment or performance of any
indebtedness or obligation to Lessor or any affiliated person, firm or entity
controlling, controlled by or under common control with Lessor, under any loan,
note, security agreement, lease, guaranty, title retention or conditional sales
agreement or any other instrument or agreement evidencing such indebtedness
with Lessor or such other affiliated person, firm or entity affiliated with
Lessor; or
(e) any representation or warranty made by Lessee herein or in any
certificate, agreement, statement or document hereto or hereafter furnished to
Lessor in connection herewith, including without limitation, any financial
information disclosed to Lessor, shall prove to be or to have been false or
incorrect in any material respect; or
(f) the commencement of any bankruptcy, insolvency, arrangement,
reorganization, receivership, liquidation or other similar proceeding by or
against Lessee or any of its properties or businesses, the appointment of a
trustee, receiver, liquidator or custodian for Lessee or any of its properties
of business, if Lessee suffers the entry of an order for relief under Title 11
of the United States Code or the making by Lessee of a general assignment or
deed of trust for the benefit of creditors; or
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(g) Lessee defaults in any payment or other obligation to any third
party which default gives rise to a right on behalf of such third party to
accelerate such obligation and such obligation is either accelerated by the
third party or paid in full by the Lessee during the continuance of such
default; or
(h) Lessee (I) sells, transfers or disposes of all or substantially
all of its respective stock, assets or property and after giving effect to such
sale, transfer or disposition the Lessee's tangible net worth does not equal or
exceed its tangible net worth immediately preceding such occurrence, or (II)
merges with or into any other entity and the surviving entity after giving
effect to such merger does not comply with all of the terms and conditions of
this lease, including, without limitation, the terms and conditions of the
Financial Covenants Rider hereto; or
(i) if M. Tom Christopher shall cease to own a minimum of 25% of
Parent's voting capital stock issued and outstanding from time to time; or if
Parent shall cease to own 100% of Lessee's or any Guarantor's (other than
Parent's) voting capital stock issued and outstanding from time to time; or if
M. Tom Christopher shall no longer serve as chairman of the board or chief
executive officer of Parent; or any major automobile manufacturer; or
(j) there shall be a change in the ownership of Parent's stock such
that Parent is no longer subject to the reporting requirements of the
Securities Exchange Act of 1934 or no longer has a class of equity securities
registered under Section 12 of the Securities Act of 1933; or
(k) Lessee shall fail to return the Aircraft to Lessor at the end of
the Term in accordance and in compliance with Section 8 hereof unless Lessee is
diligently pursuing compliance with such Section to the satisfaction of Lessor;
or
(l) Lessee shall or shall attempt to remove, sell, transfer, convey,
pledge, mortgage, encumber, part with possession of, assign or sublet the
Aircraft or any part thereof (except as expressly permitted by the provisions
of this Lease or such use by the United States Government pursuant to the Civil
Reserve Air Fleet Program), use the Aircraft for an illegal purpose or permit
the same to occur or Lessee shall create, incur, assume or suffer to exist any
Lien (other than Permitted Liens) with respect to the Aircraft, this Lease or
Lessor's interests thereunder; or
(m) any event or condition set forth in subsections (b) through (j)
of this Section 18 shall occur with respect to any guarantor or other person
responsible, in whole or in part, for payment or performance of this Lease; or
(n) any event or condition set forth in subsections (d) through (j)
of this Section 18 shall occur with respect to any affiliated person, firm or
entity controlling, controlled by or under common control with Lessee.
Lessee shall promptly notify Lessor of the occurrence of any Default
or Event of Default.
SECTION 19. Remedies.
(a) Upon the occurrence of any Event of Default and so long as the
same shall be continuing, Lessor may, at its option, declare this Lease to be
in default (provided that no such declaration shall be a condition to any suit
against Lessee for specific performance of a defaulted covenant or for damages
in respect of such default upon such occurrence or at any time thereafter), and
at any time thereafter, whether or not such Event of Default shall be
continuing, Lessor may exercise any one or more of the following remedies, as
Lessor in its sole discretion shall lawfully elect:
(i) Proceed by appropriate court action, either at law or in
equity, to enforce performance by Lessee of the applicable covenants of this
Lease or to recover damages for breach thereof.
(ii) By notice terminate this Lease, whereupon all rights of
Lessee to the use of the Aircraft or any part thereof shall absolutely cease
and terminate but Lessee shall remain liable as hereinafter provided and
thereupon Lessee, if so requested by Lessor, shall (a) at its expense promptly
return the Aircraft to the possession of Lessor at such place as Lessor shall
designate and in the condition required upon the return thereof pursuant to and
in accordance with the terms of this Lease, (b) Lessor, at its option, may
enter upon the premises where the Aircraft is located and take immediate
possession of and remove the same, together with any Engines and Parts by
self-help, summary proceedings or otherwise without any liability of any kind
whatsoever on the part of Lessor for or by reason of such entry or taking of
possession and Lessee hereby waives any cause of action it may have arising
from, or in connection with, the foregoing or (c) Lessee will provide storage
as set forth in this Lease. In addition, upon the written request of Lessor,
Lessee, at its expense, will replace any engine installed on the Airframe with
an Engine. Lessee shall, without further demand, forthwith pay to Lessor an
amount equal to any unpaid Rent due and payable for all periods up to and
including the Basic Rent Date following the date on which Lessor has
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<PAGE> 24
declared this Lease to be in default, plus, as liquidated damages for loss of a
bargain and not as a penalty, an amount equal to the Casualty Value of the
Aircraft, computed as of the Basic Rent Date immediately following the date on
which Lessor has declared this Lease to be in default (plus all costs, charges
and expenses including, legal fees and disbursements incurred by Lessor by
reason of the occurrence of any Event of Default or the exercise of any of
Lessor's remedies with respect thereto or otherwise). Following the return of
the Aircraft to Lessor pursuant to this subparagraph (ii), Lessor shall proceed
at its option to sell or otherwise dispose of the Aircraft by public or private
sale, with or without notice, and without having the Aircraft present at the
place of sale and in such manner as it shall deem appropriate, provided that
Lessor, if it so elects, may purchase the Aircraft at such sale for a price not
less than the highest bona fide bid given by a Person unrelated to Lessee.
Lessee waives all its rights under laws governing such sale to the extent
permitted by law. Lessor may apply any deposit or other cash collateral or
sale or remarketing proceeds of the Aircraft at any time to reduce any amounts
due to Lessor. Notwithstanding the foregoing, Lessor may at its option and in
its sole discretion keep idle, lease, or use or operate all or part of the
Aircraft without any liability whatsoever and may use Lessee's premises for
storage pending lease or sale or for holding a sale without liability for rent
or costs or any other matter whatsoever. The net proceeds of such sale or
lease as provided above shall be applied by Lessor (x) first, to pay all costs,
charges and expenses, including the cost of discharging all Liens, on the
Aircraft and all legal fees and disbursements incurred by Lessor as a result of
the Event of Default and/or the exercise of its remedies with respect thereto,
(y) second, to pay to Lessor an amount equal to any unpaid Rent due and payable
and the Casualty Value, to the extent not previously paid and (z) third, to
reimburse Lessee for the Casualty Value to the extent paid by Lessee as
liquidated damages. Any surplus remaining thereafter shall be retained by
Lessor. To the extent that all Rent then due and payable with respect to the
Aircraft and the Casualty Value have not been previously paid, Lessee shall
forthwith pay upon demand to Lessor the sum of (A) the amount by which (1) the
sum of (aa) all Rent then due and payable with respect to the Aircraft, (bb)
the Casualty Value or portion thereof not theretofore paid and (cc) the amount
payable under clause (x) of the preceding sentence exceeds (2) the net proceeds
of the sale or lease of the Aircraft actually received by the Lessor and (B)
interest at the Late Payment Rate on the full amount of said Casualty Value and
Rent then due and unpaid, computed from the date such sums are due until the
same are paid by Lessee. For purposes of computing liquidated damages under
this subparagraph (ii) only, the proceeds of any releasing of the Aircraft
shall be determined by discounting to present value, at the rate of twelve and
one-half percent (12.5%) per annum, the periodic rentals which are payable to
Lessor pursuant to such re-lease, up to and including the Expiration Date.
(b) Lessee shall be liable for all costs, charges and expenses,
including legal fees and disbursements, incurred by Lessor by reason of the
occurrence of any Event of Default, the exercise of any of Lessor's rights or
remedies with respect thereto or otherwise.
(c) Lessee hereby waives, to the maximum extent now or hereafter
permitted by applicable law, for itself and for its successors or assigns any
and all rights Lessee or Lessee's successors or assigns may have following an
Event of Default under any bankruptcy, insolvency or similar laws, rules or
regulations with respect to the continued possession or use of the Aircraft or
relief from the payment of Rent therefor or otherwise with respect to this
Lease. Rejection of this Lease by any bankruptcy trustee or
debtor-in-possession shall entitle Lessor to the immediate return of the
Aircraft and to liquidated damages calculated in the manner provided for in
Section 19(a)(ii) above with respect to an Event of Default.
(d) No right or remedy referred to herein is intended to be
exclusive, but each shall be cumulative and in addition to any other right or
remedy referred to above or otherwise available to Lessor at law or in equity,
including, without limitation, such rights and/or remedies as are provided for
in the UCC. No express or implied waiver by Lessor of any Default or Event of
Default hereunder shall in any way be, or be construed to be, a waiver of any
future or subsequent Default or Event of Default. The failure or delay of
Lessor in exercising any rights granted it hereunder upon the occurrence of any
of the contingencies set forth herein shall not constitute a waiver of any such
right upon the continuation or reoccurrence of any such contingencies or
similar contingencies, and any single or partial exercise of any particular
right by Lessor shall not exhaust the same or constitute a waiver of any other
right provided for or otherwise referred to herein.
(e) To the extent permitted by applicable law, Lessee hereby waives
any rights now or hereafter conferred by statute or otherwise which may require
Lessor to sell, lease or otherwise use the Aircraft in mitigation of Lessor's
damages as set forth in this Section 19 or which may otherwise limit or modify
any of Lessor's rights or remedies under this Section 19. To the extent
permitted by applicable law, Lessee waives any and all rights and remedies
conferred upon a lessee by Section 2A-508 to 2A-522 (inclusive) of the UCC,
including, without limitation, any rights of Lessee (a) to cancel or repudiate
this Lease or any supplement or any document relating thereto, (b) to reject or
evoke acceptance of the Aircraft or any component thereof and (c) to recover
from Lessor any general or consequential damages, for any reason whatsoever.
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<PAGE> 25
SECTION 20. Performance of Obligations of Lessee by Lessor.
If any Default or Event of Default occurs or if Lessee fails to
perform or comply with any of its agreements contained herein, Lessor shall
have the right, but shall not be obligated, to effect such performance or
compliance and the amount of any out-of-pocket expenses and other reasonable
expenses of Lessor incurred in connection with the performance of or compliance
with such agreements, as the case may be, together with interest thereon at the
Late Payment Rate, shall be payable by Lessee promptly upon demand and any such
action by Lessor shall not be deemed a cure or waiver of any Default or Event
of Default hereunder.
SECTION 21. Intent
Title to the Aircraft shall at all times remain in Lessor and at no
time during the Term shall title become vested in Lessee. Lessee shall acquire
no right, title or interest in or to the Aircraft except the right to use the
same pursuant to the terms of this Lease. Notwithstanding anything to contrary
contained herein or otherwise, (i) should a court of competent jurisdiction
determine that this agreement is one intended as security, and (ii) to secure
the prompt and full payment and performance as and when due of any and all
obligations and indebtedness of Lessee to Lessor, now existing or hereafter
created of any kind whatsoever, including, without limitation any other
aircraft lease executed contemporaneously with this Lease, Lessee hereby grants
and conveys to, Lessor a security interest and lien in this Lease, the
Aircraft, any subleases relating to the Aircraft or any part thereof and any
and all proceeds (including insurance proceeds) of any or all of the foregoing.
The security interest granted herein shall survive the termination or
expiration of this Lease by any Event of Default or Default or otherwise and
shall remain in full force and effect until such time as Lessee has no further
obligations of any kind whatsoever under this Lease.
SECTION 22. Notices.
All communications and notices provided for herein shall be in writing
and shall become effective upon hand delivery or upon delivery to an overnight
delivery service or two (2) Business Days after being deposited in the United
States mail with proper postage for first-class mail prepaid, sent by
registered or certified mail, return receipt requested, and addressed to Lessor
or Lessee at their respective addresses set forth under the signatures hereto
or such other address as either party may hereafter designate by written notice
to the other.
SECTION 23. End of Term Options.
(a) If no Event of Default (or event or condition which, with the
passage of time or giving of notice, or both, would become such an Event of
Default) has occurred and is continuing, on each Expiration Date, Lessee shall
have the option to: (i) purchase the Aircraft pursuant to paragraph (b) below
(the "Purchase Option"), (ii) sell the Aircraft pursuant to paragraph (c) below
(the "Sale Option") or (iii) on any Expiration other than the Final Expiration
Date, to renew the Term of the Lease for an additional one year period on the
same terms and conditions as are set forth herein except that the amount of
Basic Rent payable during such Renewal Term shall be as set forth for such
Renewal Term on Schedule 2-A to Lease Supplement No. 1 (the "Renewal Option").
Subject to the foregoing limitations on exercise of the Renewal Option, Lessee
shall give Lessor 180 days irrevocable written notice (the "Option Notice")
prior to each Expiration Date if Lessee intends to exercise the Purchase
Option, the Sale Option or the Renewal Option. If Lessee does not provide a
timely Option Notice, then the Lessee shall be irrevocably deemed to have
exercised (x) the Renewal Option as of the then current Expiration Date
provided that the then current Expiration Date is not the Final Expiration
Date, or (y) the Purchase Option as of the then current Expiration Date if the
then current Expiration Date is Final Expiration Date.
(b) Upon exercise of the Purchase Option, Lessee shall pay to Lessor
on the applicable Expiration Date an amount equal to: (i) all Rent then due
and owing under the Lease; plus (ii) all taxes, assessments and other charges
due or payable in connection with the sale of the Aircraft to Lessee; plus
(iii) the Purchase Option Price as of such Expiration Date. Upon receipt of
the amounts set forth in the preceding sentence, Lessor shall convey all of
Lessor's right, title and interest in and to the Aircraft to Lessee on an
"AS-IS," "WHERE-IS" BASIS WITHOUT REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, and without recourse to Lessor, except that the Aircraft shall be free
and clear of all liens created by Lessor.
(c) Upon exercise of the Sale Option, Lessee shall place the Aircraft
in the condition required by Section 8 of the Lease and shall obtain bids for
the Aircraft and market such Aircraft in a commercially reasonable manner to
the highest qualified bidder on or before the Expiration Date, at Lessee's sole
cost and expense; provided, however, that no sale shall occur without Lessor's
prior written consent. Lessor agrees that, if so requested by Lessee and upon
performance of and compliance with the other terms and conditions of this
Section 23 by Lessee, it shall consent to any bona fide offer to purchase the
Aircraft, including, any offer to purchase the Aircraft made by Lessee, which
equals or exceeds the Maximum Lessor Risk. Lessor may also offer to purchase
the Aircraft pursuant to this Section 23 and/or solicit and/or obtain bids for
the Aircraft, provided, however, that Lessor shall be under no duty to so act.
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If the Aircraft is sold pursuant to the exercise of a Sale Option on
or before the applicable Expiration Date, then, on the earlier of such
Expiration Date or the date on which the proceeds from such sale are paid by
the purchaser of the Aircraft (the "Termination Date"), Lessor shall receive
all proceeds of such sale and Lessee shall pay to Lessor: (i) all Rent due and
owing under the Lease through and including the Expiration Date; plus (ii) all
taxes, assessments and other charges due or payable in connection with the sale
of the Aircraft; plus (iii) the amount by which the net proceeds of such sale
are less than the Purchase Option Price as of the Expiration Date, if any, but
in no event more than the Maximum Lessee Risk, as of the Expiration Date. In
the event that the sale price is greater than the Purchase Option Price,
together with the amounts set forth in (i) and (ii) above to the extent that
such amounts have not already been paid by Lessee, any excess of such sales
price shall be remitted to Lessee. Upon receipt of the amounts set forth in
the preceding sentence, Lessor shall convey all of Lessor's right, title and
interest in and to the Aircraft to the purchaser thereof on an "AS-IS,"
"WHERE-IS" BASIS WITHOUT REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, and
without recourse to Lessor, except that the Aircraft shall be free and clear of
all liens created by Lessor.
If the Aircraft is not sold pursuant to the exercise of a Sale Option
on or before such Expiration Date, then, on such Expiration Date, Lessee shall
return the Aircraft to Lessor under the terms and in the condition required by
Section 8 of the Lease, and shall pay to Lessor an amount equal to: (i) all
Rent then due and owing under the Lease through and including such Expiration
Date; plus (ii) the applicable Purchase Option Price. Lessor's actual out-of-
pocket costs and expenses incurred in removing, storing, repairing and selling
the Aircraft during the period between the date the Aircraft is returned and
the actual sale thereof shall be payable to Lessor by Lessee upon presentation
of Lessor's invoice therefor. Upon sale of the Aircraft, the net proceeds
thereof shall be allocated: FIRST, to Lessor in an amount equal to: (i) to
the extent that such amounts have not already been paid by Lessee, all Rent
then due and owing under the Lease through and including such Expiration Date,
plus (ii) to the extent that such amounts have not already been paid by Lessee,
Lessor's actual out-of-pocket costs and expenses incurred in removing, storing,
repairing and selling the Aircraft, plus (iii) all taxes, assessments and other
charges due or payable in connection with the sale of the Aircraft, plus (iv)
to the extent that such amount has not already been paid by Lessee the Purchase
Option Price and SECOND, the excess, if any, to Lessee.
SECTION 24. Intentionally Left Blank.
SECTION 25. Transaction Expenses.
Lessee shall pay all actual and reasonable fees, costs and expenses
incurred by Lessor in connection with this Lease, whether or not the
transactions contemplated hereby are consummated, including, without
limitation, appraisal fees, Lessor's in-house counsel expenses and fee of
$15,000.00, FAA Counsel fees and expenses, and FAA and UCC title and lien
searches, reports, filing and recording fees, charges and taxes. Lessee also
agrees to pay all fees and expenses of Lessor's counsel, FAA Counsel and all
other third parties who are engaged by Lessor to enforce Lessor's rights and/or
remedies hereunder, to update any FAA or UCC title and/or lien reports and/or
to review, file and record any and all documents and instruments as required by
Lessor or the FAA during and after the Term of this Lease.
SECTION 26. Miscellaneous.
(a) All agreements, indemnities, representations, covenants and
warranties contained in this Lease or any agreement, document or certificate
delivered pursuant hereto or thereto or in connection herewith or therewith
shall survive the execution and delivery of this Lease and the expiration or
other termination of this Lease for any reason whatsoever.
(b) Any provision of this Lease which may be determined to be
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, Lessee hereby waives any provision hereof
prohibited or unenforceable in any respect.
(c) This Lease, and each related instrument, document, agreement and
certificate, collectively constitute, and are intended to collectively
constitute, the complete and exclusive statement of the terms of the agreement
between Lessor and Lessee with respect to the purchase and leasing of the
Aircraft and cancel and supersede any and all prior or contemporaneous oral or
written understandings, memoranda, negotiations, communications and agreements
with respect thereto including, without limitation, any proposal letter,
commitment letter and/or term sheet delivered to the Lessee by Lessor.
(d) This Lease may be executed in any number of counterparts and by
the different parties hereto on separate counterparts. Each counterpart of the
Lease bears the following legend on the face and execution pages thereof:
"This is Counterpart No. 1 of a total of 3 counterparts. Only Counterpart No.
1 shall be
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considered chattel paper for purposes of the Uniform Commercial Code and a
security interest may be perfected only by possession of Counterpart No. 1."
To the extent, if any, that this Lease constitutes chattel paper (as such term
is defined in the UCC as in effect in any applicable jurisdiction) no security
interest in this Lease may be created through the transfer or possession of any
counterpart other than the counterpart marked "Counterpart No. 1".
(e) The division of this Lease into sections, the provision of a
table of contents and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Lease.
(f) The actual dates of execution hereof by the parties hereto are
respectively the dates set forth under the signatures hereto, however this
Lease shall be effective as of the date first above written.
(g) Lessee will promptly and duly execute and deliver to Lessor and
any assignee, mortgagee and/or lender of the Lessor, such other documents and
assurances, including, without limitation, such amendments to this Lease as may
be required by Lessor (and by any assignee, mortgagee and/or lender of the
Lessor), and UCC financing statements and continuation statements, and will
take such further action as Lessor or any such assignee, mortgagee and/or
lender may from time to time request in order to carry out more effectively the
intent and purposes of this Lease and to establish and protect the rights and
remedies created or intended to be created in favor of Lessor and of any such
assignee, mortgagee and/or lender. Lessee irrevocably appoints Lessor (and any
assignee, mortgagee and/or lender of the Lessor) its attorney-in-fact to act in
Lessee's name and on its behalf to make, execute, deliver and file any
instruments or documents and to take any action as Lessor (and any such
assignee, mortgagee and/or lender) deems necessary or appropriate to carry out
the intent of this Lease or any agreements, documents or instruments related
thereto. To the extent appropriate or permissible under applicable law, such
appointment is coupled with an interest, shall be irrevocable and shall
terminate only upon payment in full of the obligations set forth in this Lease
and/or any agreements, documents or instruments related thereto.
(h) Time is of the essence in the payment and performance of all of
Lessee's obligations under the Lease. This Lease shall be deemed to have been
executed in Rhode Island by virtue of the Lessor having countersigned and
accepted the Lease in Rhode Island and shall be deemed to be performed in Rhode
Island by virtue of the payment of Rent to be made to Lessor in Rhode Island,
and this Lease shall be delivered for closing purposes in Lessor's office at 50
Kennedy Plaza, Providence, Rhode Island. This Lease shall in all respects be
governed by, and construed in accordance with, the laws of the State of Rhode
Island, without giving effect to principles of conflicts of law or choice of
law, including all matters of construction, validity and performance. Lessee
hereby irrevocably consents and agrees that any legal action, suit or
proceeding arising out of or in any way in connection with this Agreement may
be instituted or brought in the courts of the State of Rhode Island or the
United States District Court for the District of Rhode Island, as Lessor may
elect, and by execution and delivery of this Lease, Lessee hereby irrevocably
accepts and submits to, for itself and in respect of its property, generally
and unconditionally, the non-exclusive jurisdiction of any such court, and to
all proceedings in such courts. To the extent permitted by applicable law,
this Lease shall be deemed a "finance lease" under Section 2A-103(g) of the
UCC. LESSEE ACKNOWLEDGES AND AGREES THAT THIS LEASE IS A COMMERCIAL
TRANSACTION. LESSEE ALSO HEREBY KNOWINGLY AND FREELY WAIVES ALL RIGHTS TO
TRIAL BY JURY IN ANY LITIGATION ARISING HEREFROM OR IN RELATION HERETO. Any
action by Lessee against Lessor for any cause of action relating to this Lease
shall be brought within one year after any such cause of action first arises.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
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SECTION 27. AMENDMENTS.
NO TERM OR PROVISION OF THIS LEASE MAY BE AMENDED, ALTERED, WAIVED,
DISCHARGED OR TERMINATED ORALLY, EXCEPT IN A WRITING SIGNED BY A DULY
AUTHORIZED OFFICER OF THE PARTY AGAINST WHOM THE ENFORCEMENT OF THE AMENDMENT,
ALTERATION, WAIVER, DISCHARGE OR TERMINATION IS SOUGHT.
RRW
-----------------
LESSEE'S INITIALS
SECTION 28. Truth in Leasing.
THE AIRCRAFT, AS EQUIPMENT, BECAME SUBJECT TO THE MAINTENANCE
REQUIREMENTS OF PART 121 OF THE FEDERAL AVIATION REGULATIONS ("FARS") UPON THE
REGISTRATION OF THE AIRCRAFT WITH THE FAA. LESSOR CERTIFIES THAT DURING THE 12
MONTHS (OR PORTION THEREOF DURING WHICH THE AIRCRAFT HAS BEEN SUBJECT TO U.S.
REGISTRATION) PRECEDING THE EXECUTION OF THIS LEASE, THE AIRCRAFT HAS BEEN
MAINTAINED AND INSPECTED UNDER PART 121 OF THE FARS. LESSEE CERTIFIES THAT THE
AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER PART 121 OF THE FARS FOR
OPERATIONS TO BE CONDUCTED UNDER THE LEASE. UPON EXECUTION OF THIS LEASE, AND
DURING THE TERM HEREOF, THE LESSEE, WHOSE NAME AND ADDRESS ARE SET FORTH
IMMEDIATELY BELOW, ACTING BY AND THROUGH THE SIGNATORY HERETO, WHO EXECUTES
THIS SECTION SOLELY IN HIS CAPACITY OF THE LESSEE SET FORTH BELOW HIS
SIGNATURE, CERTIFIES THAT THE LESSEE SHALL BE RESPONSIBLE FOR THE OPERATIONAL
CONTROL OF THE AIRCRAFT UNDER THE LEASE, UNLESS, THE AIRCRAFT IS SUBLEASED TO
AN AIR CARRIER OR AIR TAXI OPERATOR CERTIFICATED UNDER PART 121 OR PART 135,
RESPECTIVELY, OF THE FARS. THE LESSEE FURTHER CERTIFIES THAT IT UNDERSTANDS ITS
RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FARS, PROVIDED HOWEVER, THAT
THE LESSEE SHALL NOT BE DEEMED TO BE RESPONSIBLE FOR THE OPERATIONAL CONTROL OF
THE AIRCRAFT FOR SO LONG AS THE AIRCRAFT IS IN POSSESSION OF ANY SUBLESSEE THAT
IS CERTIFICATED UNDER PART 121 OR PART 135 OF THE FARS. AN EXPLANATION OF
FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FARS CAN BE OBTAINED FROM
THE NEAREST FEDERAL AVIATION FLIGHT STANDARD DISTRICT OFFICE, GENERAL AVIATION
DISTRICT OFFICE OR AIR CARRIER DISTRICT OFFICE.
IN WITNESS WHEREOF, the parties hereto have caused the Lease to be
duly executed by the respective officers thereunto duly authorized.
Lessor: Lessee:
Fleet Capital Corporation Kitty Hawk Aircargo, Inc.
By: /s/ PATRICE S. KANE By: /s/ RICHARD R. WADSWORTH
------------------------- ----------------------------
Print Name: Patrice S. Kane Print Name: Richard R. Wadsworth
Title: Vice President Title: Vice President and CFO
Date: December 26, 1996 Date: December 27, 1996
Address: 50 Kennedy Plaza, 5th Fl. Address: P.O. Box 612787
Providence, RI 02903 1515 W. 20th Street
DFW International Airport,
Texas 75261
This is Counterpart No. 1 of a total of 3 counterparts. Only Counterpart No.
1 shall be considered chattel paper for purposes of the Uniform Commercial Code
and a security interest may be perfected only by possession of Counterpart No.
1.
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EXHIBIT A
Definitions
(a) All References in the Lease to designated Sections and other
subdivisions are to such designated Sections and other subdivisions only, and
the words "herein," "hereof" and "hereunder" and other words of similar import
refer to the Lease as whole and not to any particular Section or other
subdivision.
(b) Except as otherwise indicated, all the agreements and instruments
defined herein or in the Lease shall mean such agreements and instruments as
the same may from time to time be supplemented or amended, or as the terms
thereof may be waived or modified to the extent permitted by, and in accordance
with, the terms thereof.
(c) The terms defined herein and in the Lease shall, for purposes of
the Lease and all Lease Supplements, Schedules and Exhibits thereto, have the
meanings assigned to them and shall include the plural as well as the singular
as the context requires.
(d) Unless otherwise specified, all financial terms used in this
Lease shall be defined in accordance with GAAP and shall be determined on a
consolidated basis for Parent.
(e) The following terms shall have the following meanings for all
purposes of the Lease:
Basic Rent Date, Daily Lease Rate, Expiration Date, First Basic Rent
Date, Last Basic Rent Date, Maximum Lessee Risk, Maximum Lessor Risk, Permitted
Deductible, Primary Hangar Location, Purchase Option Price and Rent
Commencement Date shall have the meanings set forth in Schedules 2, 2-A and 2-B
to Lease Supplement No. 1 to the Lease.
Abatements shall have the meaning set forth therefor in Section 7 of
the Lease.
Acceptance Date shall mean the date (which date shall be no later than
the date designated as the "Last Acceptance Date" on Schedule No. 2 to Lease
Supplement No. 1) on which Lessee has irrevocably and unconditionally accepted
the Aircraft for lease under the Lease as evidenced by the execution and
delivery of Lease Supplement No. 1 relating thereto dated such date.
Additions shall have the meaning set forth in Section 11 of the Lease.
Aircraft shall mean (i) the Airframe, (ii) the Engines, and (iii) to
the extent applicable, the Records.
Aircraft Marking shall mean the marking described on Lease Supplement
No. 2.
Airframe shall mean (i) the Aircraft described in Schedule No. 1 to
Lease Supplement No. 1, and, unless the context requires otherwise, shall not
include the Engines and (ii) any and all Parts from time to time incorporated
in, installed on or attached to such Aircraft and any and all Parts removed
therefrom so long as title thereto shall remain vested in Lessor in accordance
with the applicable terms of this Lease after removal from the Aircraft.
Basic Rent shall have the meaning set forth in Section 3 of the Lease.
Basic Term shall mean the number of months set forth in Schedule No. 2
to Lease Supplement No. 1.
Bill of Sale shall have the meaning set forth in Section 2 of the
Lease.
Business Day shall mean any day other than a Saturday, Sunday or other
day on which banks located in Providence, Rhode Island are closed or are
authorized to close.
Casualty Value shall have the meaning set forth in Schedule No. 3 to
Lease Supplement No. 1 to the Lease except that, in the case of an Event of
Loss covered by the insurance required to be maintained by Lessee pursuant to
Section 14(b) of the Lease (or which would have been covered by such insurance,
had such insurance been maintained as required), Casualty Value shall mean the
higher of fair market sales value (as determined by the Lessor in its sole
discretion) or the value determined in accordance with Schedule No. 3 to Lease
Supplement No. 1.
29
<PAGE> 30
Civil Reserve Air Fleet Program shall mean the Civil Reserve Fleet
Program administered by the United States Government pursuant to Executive
Order No. 11490, as amended, or any substantially similar program.
Claims shall have the meaning set forth in Section 15 of the Lease.
Default shall mean an event or circumstance which, after the giving of
notice or lapse of time, or both, would become an Event of Default.
Defenses shall have the meaning set forth in Section 16 of the Lease.
Engine shall mean (i) each of the engines described and listed by
manufacturer's serial numbers in Schedule No. 1 to Lease Supplement No. 1 and
originally installed on the Airframe covered by such Lease Supplement whether
or not thereafter installed on such Airframe or any other airframe from time to
time; (ii) any engine which may from time to time be substituted, pursuant to
the applicable terms of this Lease, for an Engine leased hereunder and (iii) in
each case set forth in clauses (i) and (ii) hereof, with any and all Parts
incorporated in or installed on or attached to such Engine or engine or any and
all Parts removed therefrom so long as title thereto shall remain vested in
Lessor in accordance with the applicable terms of this Lease after removal from
such Engine. The term "Engines" means, as of any date of determination, all
Engines leased hereunder.
Event of Default shall have the meaning set forth in Section 18 of the
Lease.
Event of Loss with respect to the Aircraft, the Airframe or any Engine
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 which results
in an insurance settlement with respect to such property on the basis of a
total loss or constructive total loss; (iii) the condemnation, confiscation or
seizure of, or requisition of title to or use of, such property by the act of
any government (foreign or domestic) or of any state or local authority or any
instrumentality or agency of the foregoing other than use by the United States
Government pursuant to the Civil Reserve Air Fleet Program where such use is in
express compliance with the terms and conditions of this Lease ("Requisition of
Use"); (iv) as a result of any rule, regulation, order or other action by any
government (foreign or domestic) or governmental body (including, without
limitation, the FAA or any similar foreign governmental body) having
jurisdiction, the use of such property shall have been prohibited, or such
property shall have been declared unfit for use, for a period of six (6)
consecutive months, unless Lessee, prior to the expiration of six-month period,
shall have undertaken and, in the opinion of the Lessor, shall be diligently
carrying forward all steps which are necessary or desirable to permit the
normal use of such property by Lessee or, in any event, if use shall have been
prohibited, or such property shall have been declared unfit for use, for a
period of twelve (12) consecutive months; (v) with respect to an Engine, the
removal thereof from the Airframe for a period of six (6) months or longer,
whether or not such Engine is operational other than as expressly permitted by
Sections 11 (f) or 13(b) hereof, or (vi) such property shall be returned to the
Manufacturer, other than for modification in the event of patent infringement
or for repair or replacement (any such return being herein referred to as a
"Return to Manufacturer"). The date of such Event of Loss shall be the date of
such theft, disappearance, destruction, damage, Requisition of Use,
prohibition, unfitness for use for the stated period, removal for the stated
period or Return to Manufacturer. 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 any Engine shall
not, without loss of the Airframe, be deemed an Event of Loss with respect to
the Aircraft.
FAA shall mean the United States Federal Aviation Administration
and/or the Administrator of the Federal Aviation Administration and the
Department of Transportation, or any person, governmental department, bureau,
authority, commission or agency succeeding the functions of any of the
foregoing.
FAA Counsel shall mean Messrs. Daugherty, Fowler & Peregrin, 204 North
Robinson, 900 City Place, Oklahoma City, Oklahoma 73102, or such other counsel
as Lessor may designate.
Federal Aviation Act shall Subtitle VII of Title 49 of the United
States Code, as amended and recodified.
Final Inspection shall have the meaning set forth therefor in Section
12 of the Lease.
30
<PAGE> 31
Financial Covenants Rider shall mean the Financial Covenants Rider set
forth as Exhibit D hereto.
GAAP shall mean generally accepted accounting principles, applied on a
consistent basis, as set froth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are to be applied on a "consistent basis" when the
accounting principles applied in a current period are comparable in all
material respects to those accounting principles applied in a preceding period.
Guarantor shall mean each of Kitty Hawk, Inc., a Delaware corporation,
Aircraft Leasing, Inc., a Texas corporation and Kitty Hawk Charters, Inc. a
Texas corporation.
Guaranty shall mean the Guaranty described in Section 2 (I)(a)(xii) of
the Lease.
Impositions shall have the meaning set forth in Section 10 of the
Lease.
Late Payment Rate shall mean the lesser of a rate equal to 1.5% per
month or the highest rate permitted by applicable law. The Late Payment Rate
shall be computed on the basis of a 360 day year and a 30 day month.
Lease Supplement shall mean a supplement to the Lease to be entered
into on the Acceptance Date by Lessor and Lessee, which supplement shall be
substantially in the form as attached to the Lease and identified as either
Lease Supplement No. 1 or Lease Supplement No. 2 both of which are attached to
the Lease and made a part thereof.
Lessor's Cost shall have meaning set forth in Schedule No. 2 to Lease
Supplement No. 1 to the Lease.
Lessor's Liens shall mean any Liens created or granted by Lessor with
respect to Lessor's purchase or financing of the Aircraft or resulting from
claims against Lessor not related to Lessor's ownership of the Aircraft.
Liens shall mean all liens, charges, security interests, and
encumbrances of every nature and description whatever, including, without
limitation, liens, charges, security interests and encumbrances with respect to
Impositions, (other than Lessor's Liens) and rights of third parties under
management, pooling, interchange, overhaul, repair or other similar agreements
or arrangements.
Major Checks shall have the meaning set forth therefor in Section 12
of the Lease.
Manufacturer shall mean the manufacturers identified on Lease
Supplement No. 2 and their respective successors and assigns.
Option Notice shall have the meaning set forth therefor in Section 23
of the Lease.
Parent shall mean Kitty Hawk, Inc., a Delaware corporation.
Parts shall mean all appliances, avionics, parts, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
(other than Additions or complete Engines), which may from time to time be
incorporated or installed in or attached to the Airframe or any Engine or so
long as title thereto shall be vested in Lessor in accordance with the
applicable terms of this Lease.
Permitted Liens shall mean (a) the respective rights of others under
agreements or arrangements to the extent expressly provided by the terms of
Section 16 of the Lease, (b) Lessor's Liens and (c) Liens for taxes either not
yet due or being contested by Lessee in good faith and inchoate materialmen's,
mechanic's, workmen's, repairmen's, employee's or other like Liens arising in
the ordinary course of business of Lessee for sums not yet delinquent or being
contested in good faith (and for the payment of which adequate assurances
and/or security have, in Lessor's sole judgment, been provided to Lessor) with
due diligence and by appropriate proceedings, if counsel for Lessor shall have
determined in his sole opinion that the nonpayment of any such tax or Lien or
the contest of any such payment in such proceedings does not and will not
adversely affect the title, property or rights of Lessor.
31
<PAGE> 32
Permitted Sublessee shall mean any person, firm or entity controlling,
controlled by or under common control with Lessee (or such other Person
consented to in writing by Lessor, which consent shall be given, if at all, in
the sole discretion of Lessor) which is (i) a U.S. Air Carrier, (ii) is not the
subject of a petition, proceeding or final order under any bankruptcy,
insolvency, liquidation or reorganization laws, or subject to any receivership
or custodian proceedings or appointments under laws, or any other similar laws,
in effect on the date any permitted sublease is entered into pursuant to this
Lease, and (iii) which enters into a sublease in accordance with, and contains
all the terms and conditions of, Section 16 hereof.
Person shall mean any individual, partnership, corporation, trust,
association, joint venture, joint stock company, limited liability company,
limited liability partnership or non-incorporated organization or government or
any department or agency thereof, or any other entity of any kind whatsoever.
Purchase Documents shall mean the documents identified on Lease
Supplement No. 2 and such other documents as Lessor shall consider necessary or
advisable in order to convey to Lessor title to the Aircraft as contemplated
under the Lease, which documents shall be in form and substance satisfactory to
Lessor.
Purchase Option shall have the meaning set forth therefor in Section
23 of the Lease.
Records means any and all logs, manuals, certificates, date and
inspection, modification, maintenance, engineering, technical and overhaul
records (including all computerized data, records and materials of any kind
whatsoever) with respect to the Aircraft, including, without limitation, all
records required to be maintained by the FAA or any other governmental agency
or authority having jurisdiction with respect to the Aircraft or any
Manufacturer of the Aircraft (or any part thereof) with respect to the
enforcement of warranties or otherwise, which Records shall be at all times the
property of the Lessor after the Acceptance Date.
Renewal Term shall have the meaning set forth in Section 23 of the
Lease.
Rent shall have the meaning set forth in Section 3 of the Lease.
Replacement Parts shall have the meaning set forth in Section 11 of
the Lease.
Requisition of Use shall have the meaning set forth in the Event of
Loss definition contained herein.
Renewal Option shall have the meaning set forth therefor in Section 23
of the Lease.
Return to Manufacturer shall have the meaning set forth in the Event
of Loss definition contained herein.
Sale Option shall have the meaning set forth therefor in Section 23 of
the Lease.
Section 1110 shall have the meaning set forth in Section 6 of the
Lease.
Supplemental Rent shall have the meaning set forth in Section 3 of the
Lease.
Termshall mean the Basic Term together with any Renewal Term entered
into pursuant to Section 23 of the Lease.
Termination Date shall have the meaning set forth therefor in Section
23 of the Lease.
Test Flight shall have the meaning set forth therefor in Section 12 of
the Lease.
UCC shall mean the Uniform Commercial Code as in effect in the
applicable jurisdiction.
32
<PAGE> 33
U.S. Air Carrier means any United States air carrier as to which there
is in force exemption authority under Part 298 issued by the U.S. Department of
Transportation or a certificate issued pursuant to Section 401 of the Federal
Aviation Act, and as to which there is in force an air carrier operating
certificate issued pursuant to Part 121 of the regulations under such Federal
Aviation Act, or which may operate as an air carrier by certification or
otherwise under any successor or substitute provisions therefor or in the
absence thereof.
Warranty Bill of Sale shall mean a warranty bill of sale in the form
of Exhibit B hereto.
Initials:
Lessee: RRW
------------------
Lessor: PSK
------------------
33
<PAGE> 34
LEASE SUPPLEMENT NO. 1
under
AIRCRAFT LEASE dated as of December 30, 1996, by and between Fleet
Capital Corporation, as lessor ("Lessor"), and Kitty Hawk Aircargo, Inc., as
lessee ("Lessee").
(a) The Aircraft.
Lessee hereby acknowledges, agrees and certifies that the Aircraft as
set forth and described in Schedule No. 1 hereto is in Lessee's possession, has
been inspected by Lessee to its complete satisfaction, has been found to be in
good working order, repair and condition and fully equipped to operate as
required under applicable law for its purpose, is of a size, design, capacity
and manufacture selected by Lessee and suitable for Lessee's purposes, and is,
as of the date set forth below, unconditionally, irrevocably and fully accepted
by Lessee for lease under the Lease. Lessee hereby further unconditionally and
irrevocably reaffirms its acknowledgments and agreements in the Lease. All
capitalized terms used herein which are not otherwise defined herein shall have
the meanings given to such terms in the Lease.
(b) Representations by Lessee.
Lessee hereby represents and warrants to Lessor that on the date
hereof:
(1) The representations and warranties of Lessee set forth in the
Lease and all certificates and opinions delivered in connection therewith were
true and correct in all respects when made and are true and correct as of the
date hereof, with the same force and effect as if the same had been made on
this date.
(2) Lessee has satisfied or complied with all conditions precedent
and requirements as set forth in the Lease and Lease Supplements which are
required to be or to have been satisfied or complied with on or prior to the
date thereof.
(3) No Default or Event of Default under the Lease has occurred and
is continuing on the date hereof.
(4) Lessee has obtained, and there are in full force and effect, such
insurance policies with respect to the Aircraft, as such term is defined in the
Lease, as are required to be obtained under the terms of the Lease.
(5) Lessee has furnished no equipment for the Aircraft other than as
stated on Schedule No. 1 hereto or permitted as an Addition thereto pursuant to
the Lease.
(6) The facts, terms, information, description and costs set forth in
the attached schedules hereto are true, complete, accurate and correct.
(7) The Lease shall be deemed a "finance lease" under Section 2A-103
(g) of the UCC.
Date of unconditional, irrevocable and final acceptance by Lessee:
December __, 1996.
IN WITNESS WHEREOF, Lessee has caused this Lease Supplement No. 1 to
be duly executed by its officer thereunto duly authorized.
Kitty Hawk Aircargo, Inc.
By: /s/ RICHARD R. WADSWORTH
-------------------------
Title: Vice President and CFO
----------------------
Date: December 27, 1996
34
<PAGE> 35
SCHEDULE NO. 1
TO
LEASE SUPPLEMENT NO. 1
Description of Aircraft
1978 Boeing B727-214 Advanced Freighter aircraft which consists of the
following components:
(a) Airframe bearing FAA Registration Mark 750US and manufacturer's
serial number 21512.
(b) three (3) Pratt & Whitney JT8D-15A engine(s) bearing
manufacturer's serial numbers 708904, 708342 and 708909, (each of which has
750 or more rated takeoff horsepower or the equivalent of such horsepower).
(c) Standard accessories and optional equipment and such other items
fitted or installed on the Aircraft and as may be more particularly described
hereinafter:
See Schedule A which is attached hereto and made a part hereof.
(d) Those items of Lessee furnished equipment described in a bill of
sale or bills of sale therefor (copies of which may be appended hereto),
delivered by Lessee to Lessor which constitute appliances and equipment which
will be installed on the Aircraft.
Initials: Lessee: RRW
---------
Lessor: PSK
---------
35
<PAGE> 36
SCHEDULE NO. 2
TO
LEASE SUPPLEMENT NO. 1
Financial Terms
Rent Commencement Date: February 1, 1997
Basic Term: twelve months commencing
January 1, 1997 and through
and including December 31,
1997
Basic Rent Dates: The first day of each and
every calendar month from and
including February 1, 1997
through January 1, 1998.
(Upon each exercise by Lessee
of its Renewal Option
pursuant to Section 23 of the
Lease, the Basic Rent Dates
shall include the first day
of each of the twelve
calendar months commencing
with the first day of
February after the then
current Expiration Date
through the next January 1)
First Basic Rent Date: February 1, 1997
Last Basic Rent Date: January 1, 1998 (upon each
exercise by Lessee of its
Renewal Option pursuant to
Section 23 of the Lease, the
definition of Last Basic Rent
Date shall be amended by
adding one calendar year to
the Last Basic Rent Date then
in effect.)
Expiration Date: December 31, 1997 (upon each
exercise by Lessee of its
Renewal Option pursuant to
Section 23 of the Lease, the
definition of Expiration Date
shall be amended by adding
one calendar year to the then
current Expiration Date.)
Final Expiration Date: December 31, 2002
Renewal Terms: a series of five additional
and consecutive twelve month
terms commencing on the 12th,
24th, 36th, Basic Rent Dates
Primary Hangar Location: DFW International Airport,
Texas
Lessee's Chief Executive Offices P.O. Box 612787
and Principal Place of Business: 1515 W. 20th Street
DFW International Airport, Texas 75261
Acceptance Date: December __, 1996
Last Acceptance Date: December 31, 1996
Date of Last Financial Statements: August 31, 1996
Lessor's Cost: $9,391,188.00
Initials:
Lessee: RRW
_________
Lessor: PSK
_________
36
<PAGE> 37
SCHEDULE NO. 2-A
TO
LEASE SUPPLEMENT NO. 1
Financial Terms (continued)
Basic Rent:
Basic Rent Dates 1 to 12 $128,444.80
Basic Rent Dates 13 to 36 $128,444.80 (during any applicable
Renewal Term)
Basic Rent Dates 37 to 72 $105,091.20 (during any applicable
Renewal Term)
Permitted Deductible: $500,000.00 per occurrence
Initials:
Lessee: RRW
_________
Lessor: PSK
_________
37
<PAGE> 38
SCHEDULE NO. 2-B
TO
LEASE SUPPLEMENT NO. 1
"Maximum Lessee Risk" shall mean an amount equal to the percentage of
the Lessor's Cost of the Aircraft set forth below for each of the following
Expiration Dates:
Expiration Date: Amount: (expressed as a percentage of Lessor's Cost)
---------------- -------
December 31, 1997 79.52%
December 31, 1998 71.28%
December 31, 1999 62.33%
December 31, 2000 55.72%
December 31, 2001 48.18%
December 31, 2002 40.00%
"Maximum Lessor Risk" shall mean an amount equal to the percentage of
the Lessor's Cost of the Aircraft set forth below for each of the following
Expiration Dates:
Expiration Date: Amount: (expressed as a percentage of Lessor's Cost)
---------------- -------
December 31, 1997 14.20%
December 31, 1998 13.17%
December 31, 1999 12.07%
December 31, 2000 10.87%
December 31, 2001 9.94%
December 31, 2002 6.67%
"Purchase Option Price" shall mean an amount equal to the percentage
of the Lessor's Cost of the Aircraft set forth below for each of the following
Expiration Dates:
Expiration Date: Amount: (expressed as a percentage of Lessor's Cost)
---------------- -------
December 31, 1997 93.72%
December 31, 1998 84.45%
December 31, 1999 74.40%
December 31, 2000 66.59%
December 31, 2001 58.12%
December 31, 2002 46.67%
38
<PAGE> 39
SCHEDULE NO. 3 TO LEASE
SUPPLEMENT NO. 1
CASUALTY VALUES
The Casualty Value of the Aircraft for any Basic Rent Date shall be
the amount set forth opposite such Basic Rent Date.
BASIC
RENT CASUALTY
DATE VALUE
------ -------------
1-12 $9,602,489.93
13-24 $8,801,421.39
25-36 $7,930,858.27
37-48 $6,987,043.87
49-60 $6,253,592.09
61-72 $5,458,158.47
Initials:
Lessee: _________
Lessor: PSK
---------
39
<PAGE> 40
LEASE SUPPLEMENT NO. 2
under
AIRCRAFT LEASE dated as of December 30, 1996, by and between Fleet
Capital Corporation, as lessor ("Lessor"), and Kitty Hawk Aircargo, Inc., as
lessee ("Lessee").
Manufacturer of Airframe: Boeing
Manufacturer of Engines: Pratt & Whitney
Purchase Documents:
1. Aircraft Purchase Agreement between Aircraft Leasing, Inc.
("ALI") and First Security Bank National Association ("First Security").
2. First Security's Warranty Bill of Sale to ALI.
3. First Security's FAA Bill of Sale to ALI.
4. ALI's Warranty Bill of Sale to Lessee dated December __, 1996.
5. ALI's FAA Bill of Sale to Lessee dated December __, 1996.
6. Lessee's Warranty Bill of Sale to Lessor dated December __, 1996
in the form of Exhibit B hereto.
7. FAA Bill of Sale transferring title to the Aircraft from Lessee
to Lessor.
8. Invoices for the Aircraft, including the Engines, showing ALI
and/or Lessee as the purchasers thereof, all other above referenced contracts
and evidence that such invoices have been are paid in full.
Aircraft Marking (Referenced in Section 11 of the Lease):
Two-inch by four-inch plaque to be maintained in cockpit and affixed in
conspicuous position stating:
"This property is Owned by and Leased from Fleet Capital
Corporation, 50 Kennedy Plaza, Fifth Floor, Providence, Rhode Island 02903.
Any removal, alteration, disposal or other change in the condition or location
of this property must be approved by the Owner-Lessor."
Similar markings to be permanently affixed to each Engine.
IN WITNESS WHEREOF, the parties hereto have each caused this Lease
Supplement No. 2 to be duly executed by their respective officers, thereunto
duly authorized.
FLEET CAPITAL CORPORATION,
AS LESSOR
By: /s/ PATRICE S. KANE
---------------------------------
Name: Patrice S. Kane
Title: Vice President
Date: December __, 1996
KITTY HAWK AIRCARGO, INC.,
AS LESSEE
By: /s/ RICHARD R. WADSWORTH
---------------------------------
Name: Richard R. Wadsworth
Title: Vice President and CFO
Date: December 27, 1996
40
<PAGE> 41
EXHIBIT B TO AIRCRAFT LEASE AGREEMENT
WARRANTY BILL OF SALE
Kitty Hawk Aircargo, Inc. (the "Seller"), in consideration of the sum of
__________________________________ and __/100 Dollars ($____________) paid by
Fleet Capital Corporation (the "Buyer"), receipt of which is acknowledged,
hereby grants, sells, assigns, transfers and delivers to Buyer the aircraft
described below together with the engines installed thereon and all appliances,
parts, instruments, appurtenances, accessories, furnishings, avionics,
components and other equipment of whatever nature installed on said aircraft
and all logbooks, manuals, certificates, data and inspection, modification,
maintenance, engineering, technical, overhaul and all other books and records
(including all computerized data, records and materials) as pertain to the
operation and maintenance of such aircraft (all of the foregoing hereinafter
collectively referred to as the "Aircraft"), along with whatever claims and
rights Seller may have against the manufacturer and/or vendor of the Aircraft
(collectively, the "Vendor"), including, but not limited to, all warranties and
representations. At Buyer's request, Seller will cause the Vendor to execute an
Acknowledgment in form and substance satisfactory to Buyer in its sole
discretion.
DESCRIPTION OF AIRCRAFT
Boeing B727-214 Advanced Freighter aircraft bearing FAA Registration Mark
N_____ and manufacturer's serial number _____ and three (3) Pratt & Whitney
JT8D-____ engines, respectively, bearing manufacturer's serial numbers. ____,
______ and
(See also Schedule A attached hereto and made a part hereof for further
description of the Aircraft.)
Seller represents, warrants and agrees to Buyer that (1) Seller is the
lawful owner of the full title to the Aircraft and that Buyer will acquire by
the terms of this Bill of Sale good and full title to the Aircraft free and
clear of all mortgages, leases, security interests, claims, charges, liens and
encumbrances of any kind whatsoever; (2) Seller has the right to sell the
Aircraft as aforesaid; (3) Seller shall warrant and defend title to the
Aircraft and indemnify Buyer against the claims of any person, party, firm,
corporation or entity of any kind whatsoever and (4) the Aircraft had been
delivered to Seller, and has been delivered to Buyer, in good order and
condition and conforms to the specifications and the requirements and standards
applicable thereto.
Seller agrees to save and hold harmless Buyer from and against any and
all foreign, Federal, state, municipal and local license fees and taxes of any
kind or nature, including, without limiting the generality of the foregoing,
any and all excise, personal property, privilege, use and sales taxes, and from
and against any and all liabilities, obligations, losses, damages, penalties,
claims, actions and suits, including, without limitation, attorney's fees,
resulting therefrom and imposed upon, incurred by or asserted against Buyer as
a consequence of the sale of the Aircraft to the Buyer.
Seller agrees and acknowledges that the terms and conditions of this
Bill of Sale, including, without limitation, all representations, warranties
and agreements for the benefit of Buyer, shall survive the delivery of the
Aircraft and the delivery, execution and recording of this or any Federal
Aviation Administration Bill of Sale.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale this
_______day of December, 1996
SELLER: Kitty Hawk Aircargo, Inc.
By:
-------------------------
Title:
----------------------
41
<PAGE> 42
EXHIBIT C-1 TO AIRCRAFT LEASE
OPINION LETTER
(Lessee)
December __, 1996
Fleet Capital Corporation
50 Kennedy Plaza
Providence, Rhode Island 02903
Re: Aircraft Lease
Gentlemen:
We have acted as counsel for ____________________ (hereinafter called
the "Lessee"), a ____________________ corporation, in connection with the
transaction between the Lessee and Fleet Capital Corporation, a Rhode Island
corporation (hereinafter called "Lessor"), whereby the Lessee will lease from
the Lessor, a _______________ aircraft, Model No. ______________, Serial No.
_______________, FAA Registration No. N _______, equipped with ______________
(_) __________ engines, Model No. __________, manufacturer's serial numbers
__________ and __________, (hereinafter collectively called the "Aircraft")
under an Aircraft Lease between the Lessee and the Lessor dated as of
_______________, 19 ___, (said Aircraft Lease together with all Lease
Supplements and Exhibits thereto from time to time collectively referred to as
the "Lease"), upon and subject to the terms and conditions of the Lease. All
capitalized terms used herein which are not otherwise defined herein shall have
the meanings assigned to such terms in the Lease.
(Please insert a paragraph setting forth in detail the relationship
and length of association of Counsel with the Lessee and a description of the
review conducted by Counsel which shall, list among other things, the items
reviewed and the inquiries and investigations involved in making the
representations listed below.)
It is our opinion that:
1. Lessee is a corporation duly organized, validly existing and in
good standing under the laws of the State of ____________, and is qualified to
do business in each jurisdiction in which such qualification is necessary in
order for Lessee to carry on its business and to perform its obligations under
the Lease, and is in good standing under the laws of each jurisdiction in which
it is so qualified.
2. Lessee has the corporate power and authority to execute, deliver
and perform the Lease and to lease the Aircraft from Lessor thereunder.
3. The leasing of the Aircraft from Lessor by Lessee, the execution
and delivery of the Lease, the applicable FAA documents, Purchase Documents and
other related instruments, documents and agreements, and the compliance by the
Lessee with the terms thereof, and the payment and performance by Lessee of all
of its obligations thereunder (a) have been duly and legally authorized by
appropriate corporate action taken by Lessee (b) are not in contravention of,
and will not result in a violation or breach of, any of the terms of Lessee's
certificate of incorporation (or equivalent document) its by-laws, or of any
provisions relating to shares of the capital stock of Lessee, and (c) will not
violate or constitute a breach of any provision of law, any order of any court
other governmental body, agency, authority or instrumentality or any indenture,
agreement or other instrument to which Lessee is a party, or by or under which
Lessee or any of Lessee's property is bound, or be in conflict with, result in
a breach of, or constitute (with due notice and/or lapse of time) a default
under any such indenture, agreement or any instrument, or result in the
creation or imposition of any Lien upon any of Lessee's property or assets.
4. The Lease, the Purchase Documents, the applicable FAA documents
and related instruments, documents and agreements with respect thereto and the
Aircraft have been executed by the duly authorized officer or officers of
Lessee and delivered to Lessor, and constitute the
42
<PAGE> 43
legal, valid and binding obligations of Lessee enforceable in accordance with
the respective terms thereof.
5. Neither the execution and delivery of the Lease, the Purchase
Documents, the applicable FAA documents and related instruments, documents and
agreements with respect thereto and the Aircraft, nor the payment and
performance by Lessee of all of its obligations under the foregoing documents,
require the consent or approval of, the giving of notice to, or the
registration, filing or recording with, or the taking of any other action in
respect of, the Federal Aviation Administration, the Department of
Transportation or any other federal, state, local or foreign government or
governmental authority or agency, except for the registration, recording and
filing referred to herein.
6. No mortgage, deed of trust, or other Lien which now covers or
affects, or which may hereafter cover or affect, any property or interest
therein of Lessee, now attaches or hereafter will attach to the Aircraft, the
Airframe or any Engine, or in any manner affects or will affect adversely
Lessor's right, title and interest therein.
7. There is no litigation or other proceedings now pending, or to
the best of our knowledge, threatened, against the Lessee, in any court or
before any regulatory commission, board or other administrative governmental
agency, authority, body or instrumentality which would directly or indirectly
adversely affect or impair the title of Lessor to the Aircraft, or which, if
decided adversely to Lessee, would materially adversely affect the business
operations or financial condition of Lessee.
8. Except for the (I) registration of the Aircraft pursuant to the
Federal Aviation Act, (II) the filing and recording of (a) the Lease and (b)
the Bill of Sale for the Aircraft from the Lessee, as seller of the Aircraft to
Lessor pursuant to the Federal Aviation Act and (III) the filing of the Uniform
Commercial Code Financing Statements executed by Lessee in connection with the
execution of the Lease, no further action, including any filing or recording of
any other documents, is necessary or advisable in order to establish and
perfect Lessor's title to and interest in, the Aircraft as against Lessee
and/or third parties in any applicable jurisdiction.
9. Lessee is a "citizen of the United States" within the meaning of
the Federal Aviation Act.
10. Lessor will acquire title to the Aircraft to be sold and leased
back free and clear of all liens and encumbrances and claims of any present or
future creditors of the Lessee. The Bills of Sale covering the Aircraft will
grant and convey to Lessor full legal title and ownership in and to the
Aircraft. Without limiting the generality of the foregoing, the retention of
possession by the Lessee of the Aircraft following the sale of the Aircraft to,
and the lease back of the Aircraft from, Lessor, shall not be deemed fraudulent
or void as against any present or future creditor of the Lessee under the laws
of the jurisdiction in which the Aircraft is now, or will at the time of such
sale and leaseback be, located, nor would any subsequent bona fide purchaser
from the Lessee of the Aircraft, in the event of any attempted subsequent sale
thereof by the Lessee, acquire any title to or rights in the Aircraft superior
to Lessor's title to and rights in the Aircraft.
Very truly yours,
43
<PAGE> 44
EXHIBIT C-2 TO AIRCRAFT LEASE
OPINION LETTER
(Guarantor)
December __, 1996
Fleet Capital Corporation
50 Kennedy Plaza
Providence, Rhode Island 02903
RE: ___________________
Gentlemen:
We have acted as general counsel for ________, a ________ corporation,
("Guarantor"), an affiliate of Kitty Hawk Aircargo, Inc. ("Obligor"), in
connection with the preparation, execution, and delivery of the Guaranty
Agreement ("Guaranty"), by Guarantor and which Guaranty will be delivered in
connection with the Aircraft Lease dated December __, 1996 between Fleet
Capital Corporation ("Fleet"), as lessor, and Obligor, as lessee, (the
"Agreement") and the related transactions contemplated thereby. Terms not
otherwise defined herein shall have the defined meanings set forth in the
Agreement.
We are familiar with the Guarantor, its affairs, and its charters,
by-laws, and corporate records. We have examined originals or copies,
certified or otherwise identified to our satisfaction, of such records,
instruments, decisions, certificates, and documents, have made such inquiries
as to questions of fact of officers and representatives of and Guarantor and
have made such examinations of laws, rules, regulations, orders, decrees,
writs, judgments, awards, injunctions, and the like, as are necessary and
appropriate for purposes of giving the opinions hereinafter expressed.
Based upon the foregoing, it is our opinion:
1. That Guarantor is duly organized, validly existing and in good
standing under the laws of _________. Guarantor has the necessary authority
and power to own its assets and to transact the business in which it is
engaged. Guarantor is fully licensed and duly qualified to do business in each
jurisdiction in which the conduct of its business and the ownership of its
assets requires such qualification, including every jurisdiction where such
licensing or qualification is or will be required for the purpose of enforcing
Fleet's rights under the Guaranty.
2. That Guarantor has full power, authority, and legal right to
execute and deliver the Guaranty and to perform its obligations thereunder.
3. That no consent of any other party (including any
stockholders, trustees or holders of indebtedness), and no consent, license,
approval or authorization of, exemption by, or registration or declaration
with, any governmental body, authority, bureau or agency is required in
connection with the execution, delivery or performance by Guarantor of the
Guaranty or the validity or enforceability of the Guaranty.
4. That (A) the execution, delivery and performance by Guarantor
of the Guaranty do not and will not violate any provision of any applicable law
or regulation or of any judgment, award, order, writ or decree of any court or
governmental instrumentality, will not violate any provision of its charter or
by-laws and will not violate any provision of, or cause a default under, any
mortgage, indenture, contract, agreement or other undertaking to which
Guarantor is a party, or which purports to be binding upon Guarantor or upon
any of its assets; and (B) the execution, delivery, and performance by
Guarantor of the Guaranty will not result in the creation or imposition of any
lien or other encumbrance on any of the assets of Guarantor.
5. That the Guaranty has been duly authorized, executed, and
delivered by Guarantor and constitutes a legal, valid, and binding obligation
of Guarantor enforceable in accordance with its terms.
44
<PAGE> 45
6. That there is no action, suit, investigation or proceeding
(whether or not purportedly on behalf of Guarantor) pending or threatened
against or effecting Guarantor or any of its assets (A) which involves the
Guaranty or any of the Engines or any of the transactions contemplated by the
Agreement or (B) if which adversely determined could have an adverse effect
upon the Guaranty or any of the Engines or any of the transactions contemplated
by the Agreement or a material adverse effect on the business, operations, or
financial condition of Guarantor.
7. That (A) the Guarantor has received reasonably equivalent
value and adequate and sufficient consideration in exchange for the giving of
the Guaranty (B) the Guarantor was not insolvent on the date of the execution
by Guarantor of the Guaranty and did not become insolvent as a result of the
execution by Guarantor of the Guaranty, (C) the Guarantor has sufficient
capital to perform its obligations under the Guaranty and (D) the performance
of the obligations by Guarantor under the Guaranty will not cause the Guarantor
to exceed its ability to pay its debts as they mature.
Very truly yours,
45
<PAGE> 46
EXHIBIT D TO AIRCRAFT LEASE
(To be omitted from FAA filing copy)
FINANCIAL COVENANTS RIDER
Throughout the Term, the following minimum financial ratios shall be
met by the Parent on a consolidated basis. Each of the following ratios shall
be calculated at the end of each fiscal quarter of the Parent for the then
previous four fiscal quarters of Parent.
A. Debt Service Coverage Ratio shall be equal to or greater than
1.25 to 1.00.
B. Leverage Ratio shall be less than or equal to 3.25 to 1.00.
C. Senior Debt to Cash Flow Ratio shall be less than or equal to
5.00 to 1.00.
Lessee shall provide Lessor with written notice of any change, modification,
amendment, extension, renewal, transfer, compromise or discharge to the "Senior
Debt to Cash Flow Ratio," "Debt Service Coverage Ratio" or "Leverage Ratio"
set forth in the Credit Agreement ("Credit Modification"). Any such Credit
Modification which raises any or all of the above referenced ratios in the
Credit Agreement shall, for purposes of this Lease, automatically raise the
corresponding Debt Service Coverage Ratio, Leverage Ratio and/or Senior Debt to
Cash Flow Ratio set forth above to the levels then set forth in the Credit
Agreement. Lessee hereby authorizes Lessor to take such actions as are
necessary to document the foregoing amendments to the above referenced ratios
without the need for Lessee's signature or consent thereto.
ADDITIONAL DEFINITIONS:
Credit Agreement shall mean that certain Amended and Restated Credit
Agreement dated as of August 14, 1996 among Lessee and Guarantors, as borrowers
and guarantors, as the case may be, Skyfreighters, Inc. , as a party, and Wells
Fargo Bank (Texas), National Association and certain other lenders named
therein.
Currently Maturing Long Term Debt shall mean that portion of Debt which
is payable within twelve (12) months of Parent's last fiscal quarterly or
annual financial statement, as the case may be.
Debt shall mean Parent's (a) indebtedness, liabilities and obligations
for borrowed money and/or capitalized leases, (b) indebtedness, liabilities and
obligations evidenced by bonds, notes, debentures or other similar instruments
and (c) indebtedness, liabilities and obligations to pay the deferred purchase
price of goods or services, except trade accounts payable arising in the
ordinary course of business that are note past due by more than ninety (90)
days.
Debt Service Coverage Ratio shall mean Parent's net income plus
depreciation plus amortization plus the taxable equivalent of non-recurring
items divided by Currently Maturing Long Term Debt. For purposes of this
definition, the term "taxable equivalent of non-recurring items" shall mean the
pre-tax expenses of non-recurring accounting changes and restructuring charges
multiplied by Parent's then current combined effective tax rate.
Debt to Cash Flow Ratio shall mean Parent's Senior Debt divided by
EBITDA.
EBITDA shall mean Parent's earnings before interest, taxes,
depreciation and amortization.
Leverage Ratio shall mean the ratio of Parent's total liabilities
divided by Parent's tangible net worth , which calculation shall be made in
accordance wit GAAP.
Senior Debt shall mean that portion of Parent's (a) indebtedness,
liabilities and obligations for borrowed money and/or capitalized leases and
(b) indebtedness, liabilities and obligations evidenced by bonds, notes,
debentures or other similar instruments which mature by their terms on a date
more than one year after the original creation thereof, including, without
limitation, any debt evidenced by the Credit Agreement or which would be
classified as "long-term indebtedness" on the balance sheet of Parent in
accordance with GAAP.
46
<PAGE> 1
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED WITH
THE SECURITIES AND EXCHANGE
COMMISSION
EXHIBIT 10.6
AMENDMENT SIX
TO THAT CERTAIN PURCHASE AGREEMENT
DATED OCTOBER 22, 1992
BETWEEN FEDERAL EXPRESS CORPORATION AND POSTAL AIR, INC.
THIS AMENDMENT TO THE PURCHASE AGREEMENT ("Amendment #6") is entered
into by and between Federal Express Corporation ("FedEx") and Kitty Hawk Air
Cargo, Inc., as successor-in-interest to Postal Air, Inc., and Aircraft
Leasing, Inc., an affiliate of Kitty Hawk Air Cargo, Inc. ("Buyer"), and amends
the Purchase Agreement dated October 22, 1992 (and as amended by Amendments
One, Two, Three, Four and Five dated November 17, 1992, February, 1993, June
11, 1993, May 10, 1994, and September 29, 1995, respectively, the "Purchase
Agreement"), by and between FedEx and Buyer. Terms capitalized herein which
are not otherwise defined in this Amendment shall have the meanings set forth
for such terms as provided in the Purchase Agreement unless the context clearly
requires otherwise.
RECITALS
1. Buyer has purchased and taken Delivery of Five Aircraft Kits pursuant
to the Agreement;
2. Buyer holds open firm orders for two (2) Aircraft Kits and options for
six (6) Aircraft Kits under the Agreement;
3. Buyer and FedEx wish to amend the Agreement to provide for additional
Firm Order Aircraft Kits and options for additional Aircraft Kits for
Delivery to Buyer between January 7, 1997 and May 31, 1999 in
accordance with the terms and conditions of the Agreement;
NOW, THEREFORE, in consideration of the foregoing, and subject to the
terms and conditions set forth herein, the parties hereto agree as follows:
1. Articles 4 and 6 of the Agreement shall be replaced in their entirety
with the revised terms attached hereto as Attachment I to this
Amendment #6.
2. With respect to Firm Order Kits #6 through #15, Exhibit C of the
Purchase Agreement shall be replaced in its entirety with the new
Delivery Schedule in Attachment II to this Amendment #6.
3. With respect to Firm Order Kits #6 through #15, Exhibit D shall be
replaced in its entirety with Attachment III to this Amendment #6.
4. All Option Kits provided under Amendment #5, Exhibit D shall be
canceled and replaced with the option grant provided in Attachment II
to this Amendment #6.
5. Exhibit F (Escalation Formula) shall be modified as follows:
A. The formula term for Pbase shall be defined as follows:
Page 1 of 2
<PAGE> 2
Pbase = Base Kit Price (December 1996 dollars).
B. The formula term for Ppw1 shall be defined as follows:
Ppw1 = Pratt & Whitney (PW) Commercial Parts Support Price
List prices as of December 1, 1996.
C. The formula for CPIbase shall be modified as follows:
CPIbase = U.S. Government Consumer Price Index for all urban
areas as of December 1996.
6. Except as otherwise specified in this Amendment, all terms and
conditions of the Purchase Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have signed this Amendment on
this 6th day of December, 1996.
FEDERAL EXPRESS CORPORATION
("FedEx")
By: /s/ JAMES R. PARKER
Name: James R. Parker
Title: Vice President
KITTY HAWK AIR CARGO, INC.
("Buyer")
By: /s/ TILMON J. REEVES
Name: Tilmon J. Reeves
Title: President
AIRCRAFT LEASING, INC.
("Buyer")
By: /s/ RICHARD R. WADSWORTH, JR.
Name: Richard R. Wadsworth, Jr.
Title: President
Page 2 of 2
<PAGE> 3
ATTACHMENT #1 TO AMENDMENT #6
ARTICLE 4
INDEMNIFICATION
SECTION 4.1 - BUYER'S INDEMNIFICATION.
(a) EXCEPT FOR THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OR
MALICIOUS ACTS OF THE PARTIES INDEMNIFIED IN THIS SECTION, BUYER SHALL BE
SOLELY LIABLE FOR, AND SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS, FEDEX, ITS
OFFICIALS, DIRECTORS, AGENTS AND EMPLOYEES FROM AND AGAINST ALL LIABILITIES,
DAMAGES, LOSSES, COSTS AND EXPENSES OF ANY KIND WHATSOEVER FOR (1) BODILY
INJURIES TO OR DEATHS OF PERSONS, AND (2) LOSS OR DAMAGE TO, OR LOSS OF USE OF
PROPERTY, INCLUDING THE AIRCRAFT, WHETHER OR NOT CAUSED BY OR ARISING IN TORT
OR OCCASIONED IN WHOLE OR IN PART BY THE FAULT OR NEGLIGENCE OF FEDEX, ITS
OFFICERS, DIRECTORS, AGENTS, AND EMPLOYEES OR OF ITS VENDORS, CONTRACTORS,
SUBCONTRACTORS OR CONSULTANTS. BUYER SPECIFICALLY AGREES TO INDEMNIFY, DEFEND
AND HOLD HARMLESS FEDEX, ITS OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS FROM AND
AGAINST ANY CLAIM ARISING FROM OR RELATED TO THE NOISE CREATED BY THE OPERATION
OF AIRCRAFT UPON WHICH THE KIT IS INSTALLED.
(b) If any claim for damages, losses, costs and expenses is made
or suit is brought against any indemnified party, the liability for which has
been expressly assumed by Buyer, the party against whom such claim is so made
or suit is so brought shall promptly notify Buyer, and Buyer shall have the
right to assume and conduct the defense thereof or to effect any settlement
which it, in its opinion, deems proper.
Page 1 of 2
<PAGE> 4
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED WITH
THE SECURITIES AND EXCHANGE
COMMISSION
ARTICLE 6
INSURANCE
SECTION 6.1 - BUYER'S INSURANCE. Buyer shall, at all times from the
date of Delivery of the first Kit hereunder, at Buyer's own expense, carry and
maintain in effect with respect to the Aircraft upon which a Kit is installed,
all-risk aircraft hull, third-party public liability and property damage
insurance covering the liability assumed by Buyer under this Agreement. Such
coverage shall be in an amount (i) as to aircraft hull insurance, at the values
set by Buyer under its insurance policy, and (ii) as to third-party public
liability and property damage insurance, $[BLACKED-OUT] combined single limit.
Additionally, such hull insurance shall contain a waiver of subrogation
provision in favor of FedEx, its officers, directors, agents and employees, and
FedEx vendors, subcontractors and consultants, and such public liability and
property damage insurance shall name FedEx, its officers, directors, agents and
employees and FedEx's vendors, subcontractors and consultants as additional
insureds.
Page 2 of 2
<PAGE> 5
AMENDMENT #6, ATTACHMENT II
EXHIBIT C
TO THAT CERTAIN PURCHASE AGREEMENT
BETWEEN
FEDERAL EXPRESS CORPORATION
("FEDEX")
AND
KITTY HAWK AIR CARGO, INC. AND AIRCRAFT LEASING, INC., AS
SUCCESSORS IN INTEREST TO POSTAL AIR, INC. ("BUYER")
DATED OCTOBER 22, 1992
AIRCRAFT KIT DELIVERY SCHEDULE _
<TABLE>
<CAPTION>
AIRCRAFT MODEL/ SCHEDULED
KIT NO. TYPE OF KIT DELIVERY DATE
------- ----------- -------------
<S> <C> <C>
6* 727-200 / Lightweight On or about 3-Jan-97
7* 727-200 / Heavyweight On or about 6-Feb-97
8 727-200 / Heavyweight On or about 6-Feb-97
9 TBD/TBD Between 4-Feb-97 & 31-May-99
10 TBD/TBD Between 4-Feb-97 & 31-May-99
11 TBD/TBD Between 4-Mar-97 & 31-May-99
12 TBD/TBD Between 4-Apr-97 & 31-May-99
13 TBD/TBD Between 4-Apr-97 & 31-May-99
14 TBD/TBD Between 4-Apr-97 & 31-May-99
15 TBD/TBD Between 4-Apr-97 & 31-May-99
</TABLE>
* Note: Firm Order Kits #6 & #7 are carried over from Amendment #5.
Buyer shall provide FedEx with the FAA-approved flight manual pages referencing
the Aircraft serial number, engine power rating, the maximum takeoff and
landing weights for the Aircraft on which each Kit shall be installed, and
copies of Airframe major repairs and installed supplemental type certificates,
not later than sixty (60) days prior to the delivery date established above.
Buyer acknowledges its understanding that the normal FAA processing time for
the Stage 3 aircraft flight manual supplement is 30-60 days and that FedEx
shall not be liable for delays resulting from not receiving the above
referenced information at least (60) days prior to each scheduled Kit Delivery
Date.
Unless otherwise specified, Buyer shall also provide FedEx with at least (60)
days notice of whether the double chamfer-cut C-1 fan blades should be
delivered concurrent with Delivery of each Kit or
Page 1 of 2
<PAGE> 6
at a later date upon (30) days notice from Buyer (i.e., to facilitate the 5-
day return requirement on the removed C-1 fan blades). Unless otherwise
specified, Heavyweight Kit Buyers shall also provide FedEx with at least 180
days notice of whether -15, -15A, -17 or -17A engines will be installed.
Page 2 of 2
<PAGE> 7
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED WITH
THE SECURITIES AND EXCHANGE
COMMISSION
AMENDMENT #6, ATTACHMENT III
EXHIBIT D
TO THAT CERTAIN
PURCHASE AGREEMENT
BETWEEN
FEDERAL EXPRESS CORPORATION
("FEDEX")
AND
KITTY HAWK AIR CARGO, INC. AND AIRCRAFT LEASING, INC.
AS SUCCESSORS IN INTEREST TO POSTAL AIR, INC. ("BUYER")
DATED OCTOBER 22, 1992
_
PURCHASE PRICE AND PAYMENT SCHEDULE
Notwithstanding anything in this Agreement to the contrary, the entire Purchase
Price for any Kit must be paid not later than the Delivery Date of such Kit.
I. PURCHASE PRICE AND DELIVERY OF KITS
A. FIRM ORDER KIT. The 1997 Base Purchase Price for the ten (10) Firm
Order Aircraft Kits described in Exhibit C shall be [BLACKED-OUT]
Dollars ($[BLACKED-OUT]) per 727-200 Lightweight Kit and [BLACKED-
OUT] Dollars ($[BLACKED-OUT]) per 727-200 Heavyweight Kit. For any
deliveries after December 31, 1997, the above 1997 Base Kit Price
shall be adjusted according to the formula outlined in Exhibit F.
B. OPTION KITS. In addition to the Kits described in paragraph I.A
above, Buyer shall be granted five (5) options exercisable upon at
least 180 days written notice for delivery on dates to be mutually
agreed upon between March 1, 1997 and May 31, 1999, subject to
availability. Option Kits shall be available only following delivery
of all Firm Order Kits under the Agreement. The 1997 Base Purchase
Price for Option Kits shall be as follows:
727-200 727-200
Lightweight Heavyweight
Kit Kit
----------------- ------------------
Option Kit #1-#5 $[BLACKED-OUT] $[BLACKED-OUT]
Page 1 of 3
<PAGE> 8
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED WITH
THE SECURITIES AND EXCHANGE
COMMISSION
For deliveries after December 31, 1997, the above Base Purchase Price
shall be adjusted according to the formula outlined in Exhibit F. All
costs of meeting the Configuration Specification in Exhibit A shall be
for Buyer's account.
C. CREDITS. FedEx shall extend to Buyer a credit of $[BLACKED-OUT] per
engine if such Engine is already installed with Pratt & Whitney double
chamfer cut C-1 fan blades or is in compliance with Pratt & Whitney
service bulletin 6072 (as appropriate). These credits shall only be
available if specifically requested by Buyer prior to Kit Delivery.
D. DELIVERY OF KITS. All Kits shall be delivered F.O.B. Memphis,
Tennessee. With respect to Option Kits, and Firm Order Kits which do
not have a specific Delivery Date, Buyer shall provide FedEx with at
least 180 days written notice of the date delivery of each Kit is
requested and the type of Kit being ordered. Subject to delivery
position availability, FedEx shall confirm delivery position
availability to Buyer in writing within five (5) Business Days of
Buyer's request.
E. TRANSFER OF KITS BETWEEN BUYER'S AIRCRAFT. Following Aircraft Kit
Installation on an Aircraft, Buyer shall be permitted, upon 210 days
written notice to FedEx, to purchase Transfer Kits, as available from
FedEx, to allow the transfer of the Stage 3 Kit engines from such
Aircraft to another Buyer-owned or operated Aircraft, subject to the
payment of the following transfer fees:
i. The 1997 Base Purchase Price of each Transfer Kit to allow
transfer of a Lightweight Kit shall be [BLACKED-OUT] Dollars
($[BLACKED-OUT]).
ii. The 1997 Base Purchase Price of each Transfer Kit to allow the
transfer of a Heavyweight Kit shall be [BLACKED-OUT] Dollars
($[BLACKED-OUT]).
The Transfer Kit Prices in this paragraph shall be escalated, as
appropriate, in accordance with the formula in Exhibit F. All costs
of meeting the Configuration Specification in Exhibit A shall be at
Buyer's expense.
II. PAYMENT AND DEPOSIT SCHEDULE
A. DEPOSITS
i. INITIAL DEPOSITS: FedEx acknowledges its previous receipt of
Buyer's initial $[BLACKED-OUT] per Kit deposits for Firm Order
Kits #6 and #7. Upon contract execution, Buyer shall pay to
FedEx a non-refundable deposit of [BLACKED-OUT] Dollars
($[BLACKED-OUT]) per Kit for Firm Order Kits #6 and #7,
[BLACKED-OUT] Dollars ($[BLACKED-OUT]) per Kit for Firm Order
Kit #8, and [BLACKED-OUT] Dollars ($[BLACKED-OUT]) per Kit for
Firm Order Kits #9 through #15 as an advance payment
applicable to the Purchase Price.
ii. PROGRESS PAYMENTS FOR FIRM ORDER KITS #9 THROUGH #15 ONLY: At
least 180 days prior to the scheduled Delivery Date of each
Firm Order Kit, Buyer shall pay to FedEx a non- refundable
deposit of [BLACKED-OUT] Dollars ($[BLACKED-OUT]) as an
advance payment applicable to the Purchase Price at Delivery.
Page 2 of 3
<PAGE> 9
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED WITH
THE SECURITIES AND EXCHANGE
COMMISSION
iii. OPTION KITS: Upon exercising each option pursuant to paragraph
I.B above, Buyer shall pay to FedEx a non- refundable deposit
of [BLACKED-OUT] Dollars ($[BLACKED-OUT]) as an advance
payment applicable to the Purchase Price at Delivery.
iv. TRANSFER KITS: Upon ordering Transfer Kits, Buyer shall pay to
FedEx a non-refundable deposit of [BLACKED-OUT] Dollars
($[BLACKED-OUT]) for each Lightweight Transfer Kit and
[BLACKED-OUT] Dollars ($[BLACKED-OUT] ) for each Heavyweight
Transfer Kit.
B. PAYMENT OF BALANCE OF PURCHASE PRICE
Upon delivery of each Kit or Transfer Kit to Buyer, Buyer shall pay
FedEx the balance of the Kit price. All payments shall be made by
wire transfer in immediately available U.S. funds to the account of
Federal Express Corporation, account number 07701985, at Citibank
N.A., New York, NY (ABA number 021000089).
Page 3 of 3
<PAGE> 1
EXHIBIT 10.7
AIRCRAFT LEASE
(N751US)
DATED AS OF DECEMBER 30, 1996
between
FLEET CAPITAL CORPORATION
as Lessor
and
KITTY HAWK AIRCARGO, INC.
as Lessee
This is Counterpart No. 1 of a total of 3 counterparts. Only Counterpart No.
1 shall be considered chattel paper for purposes of the Uniform Commercial Code
and a security interest may be perfected only by possession of Counterpart No.
1.
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1 Acceptance and Lease of Aircraft
SECTION 2 Conditions to Closing; Closing Covenants
SECTION 3 Term and Rent
SECTION 4 Acceptance
SECTION 5 Covenants and Warranties
SECTION 6 Representations, Warranties and Agreements of Lessee
SECTION 7 Net Lease
SECTION 8 Return of Aircraft
SECTION 9 Liens
SECTION 10 Taxes
SECTION 11 Registration, Maintenance and Operation; Compliance and Use; Replacement Parts;
Additions; Aircraft Marking
SECTION 12 Inspection
SECTION 13 Loss or Destruction
SECTION 14 Insurance
SECTION 15 Indemnification
SECTION 16 Assignment and Sublease
SECTION 17 [Intentionally Left Blank]
SECTION 18 Events of Default
SECTION 19 Remedies
SECTION 20 Performance of Obligations of Lessee by Lessor
SECTION 21 Intent
SECTION 22 Notices
SECTION 23 End of Term Options
SECTION 24 [Intentionally Left Blank]
SECTION 25 Transaction Expenses
SECTION 26 Miscellaneous
SECTION 27 Amendments
SECTION 28 Truth in Leasing
EXHIBIT A - Definitions
Lease Supplement No. 1
Schedule No. 1 to Lease Supplement No. 1
Schedule No. 2 to Lease Supplement No. 1
Schedule No. 2-A to Lease Supplement No. 1
Schedule No. 2-B to Lease Supplement No. 1
Schedule No. 3 to Lease Supplement No. 1
Lease Supplement No. 2
EXHIBIT B - Aircraft Bill of Sale
EXHIBIT C-1 - Opinion of Counsel - Lessee (with Section 1110 provisions)
EXHIBIT C-2 - Opinion of Counsel - Guarantor
EXHIBIT D - Financial Covenants Rider
</TABLE>
<PAGE> 2
AIRCRAFT LEASE
This AIRCRAFT LEASE (together with all Supplements, Exhibits and
Certificates hereto, the "Lease") is made and entered into as of the 30th day
of December, 1996 by and between Fleet Capital Corporation, a Rhode Island
corporation ("Lessor"), with a place of business at 50 Kennedy Plaza, Fifth
Floor, Providence, RI 02903-2305, and Kitty Hawk Aircargo, Inc., a Texas
corporation ("Lessee"), having its principal place of business and chief
executive office at P.O. Box 612787, 1515 W. 20th Street, DFW International
Airport, Texas 75261. Certain capitalized terms as used in this Lease are
defined in Exhibit A hereto, and such definitions are hereby incorporated
herein and made a part hereof as though set forth herein in full.
SECTION 1. Acceptance and Lease of Aircraft
Subject to the satisfaction of each condition set forth in Section 2
(I) and (II), Lessor hereby agrees to purchase the Aircraft from the Lessee and
to lease the same to Lessee and Lessee hereby agrees to lease the same from
Lessor for the Basic Term hereof pursuant to the terms and conditions of this
Lease. The sale of the Aircraft to Lessor shall include all of Lessee's right,
title and interest in and to the Aircraft.
SECTION 2. Conditions to Closing; Closing Covenants.
(I) Conditions Precedent. Lessor's obligations to purchase the
Aircraft from the Lessee and to lease said Aircraft to Lessee, shall each be
both subject to and conditioned upon all of the following conditions being
satisfied:
(a) Lessor receiving on or prior to the Acceptance Date, all
of the following in form and substance satisfactory to it:
(i) the Purchase Documents duly executed and
accompanied by evidence of authenticity and authority;
(ii) evidence of reservation of an "N" number for
the Aircraft, together with an assignment of Lessee's rights in such "N" number
to Lessor;
(iii) evidence that the Aircraft has been duly
certified as to type and airworthiness by the FAA in the form of a Standard
Airworthiness Certificate (FAA Form 8100-2) issued by the FAA;
(iv) three (3) duly executed originals of the Lease,
including, Lease Supplement No. 1, Lease Supplement No. 2 and all Schedules and
Exhibits thereto;
(v) a certificate or certificates, executed by the
Lessee's secretary or other authorized officer certifying: (A) resolutions of
Lessee's Board of Directors authorizing the execution, delivery and performance
of this Lease, the Purchase Documents, the applicable FAA documents and the
transactions contemplated hereby and thereby and (B) the name(s) of the
person(s) authorized to execute and deliver such documents on behalf of Lessee
together with specimen signature(s) of such person;
(vi) certificate(s) of insurance as to the coverage
required under Section 14 hereof, accompanied, if requested by Lessor, by the
applicable policies and report(s) of insurance broker(s) or underwriter(s)
pursuant thereto as to the conformity of such coverage with such requirements;
(vii) evidence that FAA Counsel has received in
escrow the executed FAA AC Form 8050-2 Aircraft Bill of Sale (the "Bill of
Sale" in the name of Lessor and AC Form 8050-1 Aircraft Registration
Application in the name of Lessor (the "Registration Application") (except for
the pink copy which shall be available to be placed on the Aircraft upon
acceptance thereof), releases in form and substance satisfactory to FAA
Counsel, Lessor's counsel and/or Lessor of any Liens, such other bills of sale,
in the form of FAA AC Form 8050-2 or otherwise, as are necessary, in the
opinion of Lessor's counsel and/or FAA Counsel to vest good and marketable
title to the Aircraft in the name of Lessor and executed duplicates of the
Lease and Lease Supplements No. 1 and 2, all the foregoing (except for such
Warranty Bill of Sale) being in proper form for filing with the FAA;
(viii) opinions of counsel for Lessee and the
Guarantors satisfactory to Lessor and substantially in the forms of Exhibits
C-1 and C-2, respectively, hereto;
<PAGE> 3
(ix) certificate(s) of good standing for Lessee from
the state of its incorporation and the state(s) where the Primary Hangar
Location and Lessee's chief executive offices and principal place of business
are located;
(x) UCC financing statements executed by Lessee
(and, where needed, assignment, release and/or termination statements) with
respect to the Aircraft in all places which are, in Lessor's opinion, necessary
or appropriate to protect Lessor's interest therein have been delivered to
Lessor;
(xi) an opinion of FAA Counsel satisfactory to
Lessor that title to the Airframe is vested in Lessor and that the Aircraft
(including, without limitation the Airframe and Engines) is free and clear of
all liens and encumbrances of record;
(xii) a Guaranty in favor of Lessor, duly executed
by each Guarantor, in form and substance satisfactory to Lessor and Lessor's
counsel, unconditionally guaranteeing, among other things, the payment and
performance by Lessee of all its obligations under the Lease;
(xiii) resolutions of each Guarantor's Board of
Directors, certified by such Guarantor's Secretary, authorizing the execution,
delivery and performance of the Guaranty by such Guarantor, and an incumbency
certificate of each Guarantor, containing the names of the person(s) authorized
to execute and deliver such Guaranty on behalf of such Guarantor and, if
requested, certified copies of the organizational documents of each Guarantor;
(xiv) a Security Deposit Agreement, in form and
substance satisfactory to Lessor, executed by Lessee and providing for a
security deposit securing payment and performance of the obligations of Lessee
hereunder ;
(xv) an escrow agreement, in form and substance
satisfactory to Lessor, executed by Lessee and Fleet National Bank providing
for the deposit and possession and investment of the security deposit referred
to in the preceding paragraph; and
(xvi) such other documents, certificates and
opinions, and evidence of such other matters, as Lessor, Lessor's counsel or
FAA Counsel may reasonably request.
(b) No material adverse change in the financial condition of
Lessee has occurred since the date of the last financial statements furnished
to Lessor as set forth on Schedule No. 2 to Lease Supplement No. 1.
(c) Receipt by Lessor of a satisfactory inspection report
with respect to the Aircraft prepared by inspector(s) acceptable to Lessor.
(d) Lessee's acceptance of the Aircraft on or before the
Acceptance Date.
(e) In addition to the above listed conditions precedent,
Lessee covenants and agrees that upon Lessor's acknowledgment that all the
conditions to the sale and lease as aforestated have been satisfied, Lessee
shall release from escrow to Lessor the documents held by FAA Counsel on behalf
of Lessee and shall authorize FAA Counsel to file and record all appropriate
documentation, including, without limitation, the Lease and Lease Supplements
No. 1 and No. 2, with the FAA on the Acceptance Date. Upon satisfaction of the
foregoing conditions precedent Lessor shall fund the amount of the Lessor's
Cost as instructed by Lessee.
(II) Conditions Subsequent. On or subsequent to the Acceptance Date,
but not later than the date of the Aircraft's first flight under the leasehold
conveyed herein, Lessee shall provide written confirmation to Lessor that a
copy of the Registration Application has been properly placed within the
Aircraft.
In addition, prior to the date of the Aircraft's first flight
hereunder Lessee shall provide Lessor with written confirmation that:
(a) a copy of this Lease, including Lease Supplements No. 1
and No. 2, has been properly placed within the Aircraft;
(b) a copy of this Lease, including Lease Supplements No. 1
and No. 2, was mailed, within 24 hours following execution thereof, to the
Flight Standards Technical Division of the FAA; and
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<PAGE> 4
(c) Lessee has notified the FAA (such notification to have
been given by telephone or in person to the FAA Flight Standards District
Office, General Aviation District Office, Air Carrier District Office or
International Field Office nearest the airport where such flight will
originate) concerning the first flight of the Aircraft under this Lease.
SECTION 3. Term and Rent.
(a) The leasing of the Aircraft by Lessor to Lessee shall commence on
the Acceptance Date and end on the Expiration Date each as set forth on
Schedule No. 2 to Lease Supplement No. 1, unless this Lease shall have been
terminated or extended in accordance with the terms hereof.
(b) Lessee shall pay to Lessor as basic rent (herein referred to as
"Basic Rent") the following:
(i) on the Acceptance Date, an amount equal to the Daily
Lease Rate, multiplied by the number of days elapsed from and including the
Acceptance Date with respect to the Aircraft to but excluding the Rent
Commencement Date;
(ii) on the First Basic Rent Date and on each Basic Rent Date
thereafter, to and including the Last Basic Rent Date, an amount equal to the
Basic Rent set forth on Schedule 2-A to Lease Supplement No. 1; and
(iii) after the Expiration Date until the Aircraft is
returned to the Lessor in accordance with Section 8 hereof, an amount equal to
the Basic Rent which amount shall be payable each and every calendar month
immediately after the Expiration Date until the return of the Aircraft to the
Lessor as provided under this Lease on the day of the month on which Basic Rent
was payable during the Term.
(c) In addition, Lessee shall pay to Lessor the following amounts
(herein referred to as "Supplemental Rent" and, together with all Basic Rent,
collectively as "Rent"): (i) any other amount payable hereunder which Lessee
assumes the obligation to pay, or agrees to pay, under this Lease to Lessor or
others; (ii) on the date provided herein, any amount payable hereunder as
Casualty Value and/or any amounts due pursuant to Section 23 hereof plus any
and all amounts regarding the same and (iii) to the extent permitted by
applicable law, interest at the Late Payment Rate for the number of days
actually elapsed on any amount payable hereunder not paid when due, plus, as an
administrative and late charge, an amount equal to five percent (5%) of the
amount payable if not paid when due. The expiration or other termination of
Lessee's obligation to pay Basic Rent hereunder shall not terminate, limit or
modify the obligations of Lessee with respect to Supplemental Rent, which shall
survive such expiration or other termination.
(d) All payments of Rent or other amounts required hereunder shall be
made to Lessor in immediately available United States funds on the date payable
hereunder at its address set forth herein or at such other address or to such
other Person as Lessor may direct by notice in writing to Lessee.
SECTION 4. Acceptance.
The execution by Lessee of Lease Supplement No. 1 shall evidence that
the Aircraft is leased under, and is subject to all of the terms, provisions
and conditions of, this Lease and constitute Lessee's unconditional and
irrevocable acceptance of the Aircraft for all purposes of this Lease.
SECTION 5. Covenants and Warranties.
Lessor warrants that during the term of this Lease, so long as no
Event of Default or Default has occurred and is continuing hereunder, Lessee's
possession and quiet enjoyment of the Aircraft shall not be divested or
interfered with by Lessor or anyone claiming through or under Lessor. This
provision shall be binding upon any assignee of Lessor pursuant to the
penultimate paragraph of Section 16 hereof.
The warranty set forth hereinabove is in lieu of all other warranties
of Lessor, whether written, oral or implied, with respect to this Lease or the
Aircraft, and Lessor shall not be deemed to have modified in any respect the
obligations of Lessee pursuant to Section 7 hereof, which obligations are and
shall remain absolute, irrevocable and unconditional under all events and
circumstances whatsoever. LESSEE EXPRESSLY ACKNOWLEDGES THAT IT HAS SELECTED
THE AIRCRAFT WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES AND
LESSEE EXPRESSLY AGREES THAT IT IS LEASING THE AIRCRAFT FROM LESSOR IN AN "AS
IS" CONDITION. LESSOR SHALL NOT BE DEEMED TO HAVE MADE, AND LESSOR HEREBY
EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY (EXCEPT FOR THE WARRANTY
CONTAINED IN THIS SECTION 5), EITHER EXPRESS OR IMPLIED, AS TO THE AIRCRAFT,
ANY PART THEREOF, ANY RECORDS, OR ANY MATTER WHATSOEVER, INCLUDING, WITHOUT
LIMITATION, THE DESIGN, CONDITION,
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CAPACITY OR DURABILITY OF THE AIRCRAFT, ITS MERCHANTABILITY OR ITS FITNESS FOR
ANY PARTICULAR PURPOSE, USE OR OPERATION, THE QUALITY OF THE MATERIALS OR
WORKMANSHIP OF THE AIRCRAFT, ITS VALUE OR AIRWORTHINESS, TITLE, SAFETY, THE
ABSENCE OF ANY PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT OR LATENT DEFECT
(WHETHER OR NOT DISCOVERABLE BY LESSEE), COMPLIANCE OF THE AIRCRAFT WITH THE
REQUIREMENTS OF ANY LAW, RULE, REGULATION OR STANDARD PERTAINING THERETO, OR
THE CONFORMITY OF THE AIRCRAFT TO THE PROVISIONS AND SPECIFICATIONS OF ANY
PURCHASE DOCUMENT RELATING THERETO OR ANY INTERFERENCE OR ANY COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, NOR SHALL LESSOR BE LIABLE,
REGARDLESS OF ANY ACTUAL OR ALLEGED NEGLIGENCE OF LESSOR, FOR ANY DEFECTS,
EITHER PATENT OR LATENT (WHETHER OR NOT DISCOVERABLE BY LESSEE), IN THE
AIRCRAFT OR ANY PART THEREOF OR ANY DIRECT OR INDIRECT DAMAGE TO PERSONS OR
PROPERTY RESULTING THEREFROM OR FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL
OR CONSEQUENTIAL DAMAGES OR FOR STRICT OR ABSOLUTE LIABILITY IN TORT. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, LESSEE HEREBY WAIVES ANY CLAIM
(INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT OR
INFRINGEMENT) IT MIGHT HAVE AGAINST LESSOR FOR ANY LOSS, DAMAGE (INCLUDING,
WITHOUT LIMITATION, DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGE) OR EXPENSE CAUSED BY THE AIRCRAFT OR BY LESSEE'S LOSS OF USE THEREOF
FOR ANY REASON WHATSOEVER.
Lessee acknowledges that Lessee, and not Lessor, has selected the
Aircraft, the Airframe and the Engines. Lessee further acknowledges that the
Lessor has not manufactured or supplied the Aircraft, the Airframe, or the
Engines and that the Lessor acquired or will acquire the Aircraft and/or the
right to possession thereto in connection with this Lease.
So long and only so long as an Event of Default or Default hereunder
shall not have occurred and be continuing, and so long and only so long as the
Aircraft shall be subject to this Lease and Lessee shall be entitled to
possession of the Aircraft hereunder, Lessor assigns to Lessee and authorizes
Lessee, at Lessee's expense, to assert for Lessor's account, all rights and
powers of Lessor under any manufacturer's, vendor's or dealer's warranty on the
Aircraft or any part thereof, (including, without limitation, any warranty of
Manufacturer). Notwithstanding the foregoing, Lessee shall not attempt to
enforce any such performance by legal proceeding without Lessor's prior written
approval.
SECTION 6. Representations, Warranties and Agreements of Lessee.
Lessee represents, warrants and agrees as follows:
(a) Due Organization. Lessee has the form of business organization
indicated in the caption of this Lease and is duly organized and existing in
good standing under the laws of the state listed in the caption of this Lease
and is duly qualified to do business wherever necessary to carry on its present
business and operations and to own its property including, without limitation,
the Primary Hangar Location.
(b) Due Authorization; No Violation. This Lease has been duly
authorized by all necessary action on the part of Lessee consistent with its
form of organization, does not require any further shareholder, member or
partner approval, does not require the approval of, or the giving notice to,
any Federal, state, local or foreign governmental authority (including, without
limitation, the Department of Transportation and/or the FAA) and does not
contravene any law binding on Lessee or contravene any provision of, or
constitute a default or result in the creation of any Lien other than a
Permitted Lien under any certificate or articles of incorporation or
organization or by-laws or partnership certificate or agreement, or any
agreement, indenture, or other instrument to which Lessee is a party or by
which it may be bound.
(c) Enforceability. This Lease has been duly executed and delivered
by authorized officers or partners of Lessee and constitutes a legal, valid and
binding obligation of Lessee enforceable in accordance with its terms.
(d) Financial Statements. To the extent that separately audited
financial statements are prepared by the Lessee or separately prepared
financial statements are filed with the Securities and Exchange Commission
("SEC"), Lessee agrees to furnish Lessor (i) as soon as available, and in any
event within one hundred twenty (120) days after the last day of each fiscal
year of Lessee, a copy of the balance sheet of Lessee as of the end of such
fiscal year, and related statements of income and retained earnings of Lessee
for such fiscal year, all in reasonable detail prepared in accordance with
generally accepted accounting principles consistently applied each on a
comparative basis with corresponding statements for the prior fiscal year; (ii)
within sixty (60) days after the last day of each fiscal quarter of Lessee
(except the last fiscal quarter of any fiscal year), a copy of the balance
sheet of Lessee as of the end of each such quarter, and statement of income and
retained earnings covering the fiscal year to date of Lessee, each on a
comparative basis with the corresponding period of the prior year, all in
reasonable detail and certified by the treasurer or principal financial officer
of Lessee and (iii) within thirty (30) days after the date on which they are
filed, all reports, forms and other filings, if any, required to be made by
Lessee to the SEC or (in
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<PAGE> 6
respect of the Aircraft or the Lease) the FAA, including, without limitation,
any SEC Form 10-Q and related reports or documents. All credit, financial and
other information provided by Lessee or at Lessee's direction is, and all such
information hereafter furnished will be, true, correct and complete in all
material respects.
(e) Furnishing of Information. Lessee agrees that it shall furnish
from time to time to Lessor such information relating to Lessee, each Guarantor
their subsidiaries and/or affiliates, financial or otherwise, as Lessor shall
reasonably request. Lessor agrees that any such information furnished to it by
Lessee shall be held pursuant to the terms and conditions of a confidentiality
agreement executed by Lessor in connection with this Lease.
(f) Location of Chief Executive Offices; Lessee Name. The chief
executive offices and principal place of business of Lessee is located at the
address set forth in Schedule No. 2 to Lease Supplement No. 1, and Lessee
agrees to give Lessor thirty (30) days' prior written notice of any relocation
of said chief executive offices or principal place of business from its present
location, or of any change in its name or identity. Within the previous six (6)
years Lessee has not changed its name, done business under any other names,
changed its chief place of business from its present location or merged or been
the surviving entity of any merger.
(g) Documents on Board. A current and valid Registration Application
or Certificate of Aircraft Registration, and a copy of this Lease and the Lease
Supplements, will be kept on board the Aircraft at all times during the term of
this Lease.
(h) Selection of Aircraft. Lessor has not selected, manufactured
or supplied the Aircraft to Lessee and has acquired the Aircraft subject hereto
solely in connection with this Lease and Lessee has received and approved the
terms of any purchase order or agreement with respect to the Aircraft.
(i) Litigation. There are no proceedings pending or, so far as
the officers of Lessee know, threatened against or affecting Lessee or any of
its property before any court, administrative officer or administrative agency
which would, directly or indirectly, adversely affect or impair the title of
Lessor to the Aircraft, or which, if decided adversely affect the financial
condition or operations of Lessee or the ability of Lessee to perform its
obligations under this Lease.
(j) No Adverse Mortgages. The right, title and interest of Lessor
in and to the Aircraft and the Rent will not be adversely affected or impaired
by the terms of any mortgage, loan agreement or indenture or any other
contract, agreement or instrument to which Lessee is a party, or under which it
or any of its property is or may become bound. In addition, no mortgage, deed
of trust, or other Lien which now covers or affects, or which may hereafter
cover or affect, any property or interest therein of Lessee, now attaches or
hereafter will attach to the Aircraft, the Airframe or any Engine, or in any
manner affects or will affect adversely Lessor's right, title and interest
therein.
(k) Taxes. Lessee has filed or caused to be filed and will continue
to file all Federal, state and local tax returns which are required to be
filed, and has paid or caused to be paid and will continue to pay all taxes
shown to be due and payable on such returns or (except to the extent being
contested in good faith and for the payment of which adequate reserves have
been provided) on any assessment received by Lessee, to the extent that such
taxes have heretofore or in the future become due and payable.
(l) Filing. Except for the registration of the Aircraft with the
FAA and except for filing and recording of the applicable documents pursuant to
the Federal Aviation Act no further action, including any filing or recording
of any document (except for any financing statement under Article 9 of the UCC
of any applicable jurisdiction to be filed pursuant hereto) is necessary or
advisable in order to establish and perfect Lessor's title to and interest in,
the Aircraft, as against Lessee and/or any Person in any applicable
jurisdiction.
(m) Good Title. Lessor will be the owner of the Aircraft as of the
Acceptance Date and will have good and marketable title to the Aircraft, free
and clear of all Liens other than any Liens created in favor of Lessor under
this Lease.
(n) Records. Lessee has reviewed all Records with respect to the
operation and maintenance of the Aircraft prior to the Acceptance Date and such
Records have been kept in accordance with the requirements of the FAA rules and
regulations and industry standards. Lessee shall maintain all such Records
during the Term in accordance with the requirements of the FAA, and any
manufacturer's maintenance programs or requirements as well as Sections 8 and
11 of this Lease.
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<PAGE> 7
(o) Claims. Except as set forth in a letter from Lessee to Lessor
delivered contemporaneously herewith, Lessee has no pending claims, and does
not have knowledge of any facts upon which a future claim may be based, against
any prior owner, the Manufacturer of the Aircraft or of any Engine or part
thereof for breach of warranty or otherwise.
(p) U.S. Citizen. The Lessee is, and for the remainder of the Term
will continue to be, a "citizen of the United States" within the meaning of the
Federal Aviation Act.
(q) Engines. Each of the Engines has 750 or greater rated takeoff
horsepower or the equivalent of such horsepower.
(r) Due Authorization of Guarantors, No Violation. The execution,
delivery and performance of the Guarantees have been duly authorized by all
necessary action on the part of each Guarantor consistent with its form of
organization; does not require any further shareholder, member or partner
approval or the approval of any trustee or holders of any indebtedness or
obligations of any Guarantor except such as have been duly obtained; does not
require the approval of, or the giving notice to, any Federal, state, local or
foreign governmental authority (including, without limitation, the Department
of Transportation and/or the FAA) and does not contravene any law binding on
any Guarantor or contravene any provision of, or constitute a default or result
in the creation of any Lien other than a Permitted Lien under any certificate
or articles of incorporation or organization or by-laws or partnership
certificate or agreement, or any agreement, indenture, or other instrument to
which Lessee is a party or by which it may be bound.
(s) Binding Obligations of Guarantors. Each Guaranty constitutes
the legal, valid and binding obligation of the signatory Guarantor enforceable
against such Guarantor in accordance its terms.
(t) Litigation Regarding Guarantors. There are no pending legal
actions or proceedings to which any Guarantor is a party, and there are no
other pending or threatened legal actions or proceedings affecting any
Guarantor of which Lessee has knowledge, before any court, arbitrator or
administrative agency, and there are no final judgments of record against any
Guarantor of which Lessee has knowledge, which, whether individually or in the
aggregate would materially and/or adversely affect the financial condition of
any Guarantor, or the ability of any Guarantor to perform its obligations under
its Guaranty. Further, no Guarantor is in default under any material
obligation for the payment of borrowed money, for the deferred purchase price
of property, or for the payment of any rent which, either individually or in
the aggregate, would have the same such effect.
(u) Delivery of Further Financial Statements. Lessee agrees to
cause Parent to furnish Lessor (i) as soon as available, and in any event
within one hundred twenty (120) days after the last day of each fiscal year of
Parent, a copy of the balance sheets of Parent as of the end of such fiscal
year, and related statements of income and retained earnings of Parent for such
fiscal year, all in reasonable detail prepared in accordance with generally
accepted accounting principles consistently applied and certified by an
independent certified public accounting firm of recognized standing and which
is reasonably acceptable to Lessor, each on a comparative basis with
corresponding statements for the prior fiscal year; (ii) within sixty (60) days
after the last day of each fiscal quarter of Parent (except the last fiscal
quarter of any fiscal year), a copy of the balance sheet as of the end of each
such quarter, and statement of income and retained earnings covering the fiscal
year to date of Parent, each on a comparative basis with the corresponding
period of the prior year, all in reasonable detail and certified by the
treasurer or principal financial officer of Parent; and (iii) within thirty
(30) days after the date on which they are filed, all reports, forms and other
filings, if any, required to be made by Parent to the SEC or (in respect of the
Aircraft or the Lease) the FAA, including, without limitation, any SEC Forms
10-K, 10-Q and related reports or documents. All credit, financial and other
information provided by Parent or at Parent's or Lessee's direction is, and all
such information hereafter furnished will be, true, correct and complete in all
material respects. Notwithstanding anything to the contrary, Lessor agrees that
the independent certified public accounting firm currently preparing financial
statements for Parent, Ernst & Young, shall be deemed to be acceptable to
Lessor for the Term of this Lease unless and until Lessor provides notice to
Lessee that such independent certified public accounting firm is no longer
reasonably acceptable.
(v) Insolvency, Fair Consideration. Lessee is not insolvent within
the meaning of any applicable state or Federal laws. The sale of the Aircraft
by Lessee to Lessor and Lessee's undertaking of the obligations contained
herein shall not cause Lessee to be insolvent within the meaning of applicable
state and/or Federal laws. The payment by Lessor to Lessee of the Lessor's
Cost of the Aircraft is fair consideration for the Aircraft within the meaning
of applicable state and Federal laws.
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<PAGE> 8
(w) Approvals, Consents and No Contravention. Without limiting the
generality of any of the foregoing representations and warranties, the sale by
Lessee to Lessor of the Aircraft does not require any stockholder approval or
consent of any trustee or holders of any indebtedness or obligations of Lessee
and will not contravene any laws, statutes, regulations, judgments or decrees
applicable to Lessee, including, but not limited to, laws or statutes regarding
fraudulent conveyances, bankruptcy, creditors' rights or bulk transfers, or the
certificate of incorporation or by-laws of Lessee, or contravene the provisions
of, or constitute a default under, or violate any restrictive covenants or
other agreement to which Lessee is a party or by which Lessee or its assets may
be bound or affected, and any authorization, approval, license, filing or
registration with any court or governmental agency or instrumentality which is
necessary in connection with such sale has been effected and a written copy
thereof has been delivered to Lessor. Lessee has full power, authority and
legal right to sell the Aircraft to Lessor. The sale of the Aircraft to Lessor
has been duly authorized by all necessary corporate action and constitutes a
legal, valid and binding obligation of Lessee.
(x) Section 1110. Lessee holds, and for the remainder of the Term will
continue to hold, an air carrier operating certificate issued by the FAA and/or
the Secretary of Transportation pursuant to Chapter 447 of the Federal Aviation
Act for aircraft capable of carrying ten (10) or more individuals or 6,000
pounds or more of cargo within the meaning of 11 U.S.C. Section 1110 ("Section
1110"). To the best of Lessee's knowledge, Lessor and any assignee, mortgagee
or lender of the Lessor is entitled to the benefits of Section 1110 (or any
comparable or successor provision affecting protection to Lessors, mortgagees
or lenders of aircraft) with respect to the Aircraft and this Lease. Lessee
further agrees not to take any position in connection with any bankruptcy
proceedings involving it that is inconsistent with a Lessor's (and any
assignee, mortgagee or lender of the Lessor's) rights under Section 1110 or any
comparable or successor provision affecting protection to lessors, mortgagees
or lenders of aircraft. Lessee further agrees to take reasonable steps as
requested consistent with the terms of this Lease to permit Lessor and any
assignee, mortgagee or lender of the Lessor to maintain such rights.
SECTION 7. Net Lease.
This Lease is a net lease, and Lessee acknowledges and agrees that
Lessee's obligation to pay all Rent hereunder and the rights of Lessor in and
to such Rent, shall be absolute, irrevocable and unconditional and shall not be
subject to cancellation, termination, modification or repudiation by Lessee or
any abatement, reduction, setoff, defense, counterclaim or recoupment
(collectively, "Abatements") for any reason or under any circumstance
whatsoever, including, without limitation, Abatements due to any present or
future claims of Lessee against Lessor, its successors and assigns whether
under this Lease or otherwise, the Manufacturer or any other Person for
whatever reason. Lessee hereby waives any and all existing and future claims
to any Abatement against such Rent, and agrees to pay all such Rent regardless
of any Abatement which may be asserted in connection with this Lease, the
Aircraft or otherwise. Except as otherwise expressly provided herein, this
Lease shall not terminate, nor shall the obligations of Lessee be affected, by
reason of any defect in or damage to, or any loss or destruction of, the
Aircraft or any part thereof from whatsoever cause, or the invalidity or
unenforceability or lack of due authorization of this Lease or lack of right,
power or authority of Lessor to enter into this Lease, or for any other cause,
whether similar or dissimilar to the foregoing, any present or future law or
regulation to the contrary notwithstanding, it being the express intention of
Lessor and Lessee that all Rent payable to Lessor hereunder shall be, and
continue to be, payable in all events unless and until the obligation to pay
the same shall be terminated pursuant to the express provisions of this Lease.
Notwithstanding the foregoing, the payment of Rent by Lessee hereunder shall
not constitute a waiver of any defense, offset or counterclaim hereunder.
SECTION 8. Return of Aircraft.
(a) Condition Upon Return. Unless purchased by Lessee, upon the
expiration or other termination of this Lease (whether following an Event of
Default, at the end of the Basic Term or any Renewal Term or otherwise),
Lessee, at its own expense, will return the Aircraft to Lessor at a location
specified by the Lessor within the continental United States or to such other
location as Lessor may reasonably request and in the condition in which the
Aircraft is required to be maintained pursuant to Section 11 hereof and any
other applicable provisions of the Lease, fully equipped with the same number,
make and model number of Engines as are set forth on Schedule No. 1 to Lease
Supplement No. 1, which shall fully comply with Section 8(g) hereof, and which,
in the opinion of Lessor, have the same or improved utility, value, useful
life, performance, and efficiency as such Engines had on the Acceptance Date
and are suitable for use on the Airframe and owned by Lessor and properly
installed thereon. Lessee shall not be relieved of any of its duties,
obligations, covenants, or agreements under this Lease (including, without
limitation, its obligation to pay Basic Rent) prior to the return of the
Aircraft in the manner and condition required with
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<PAGE> 9
respect to such return. The Aircraft, at Lessee's expense, upon redelivery
pursuant hereto, (i) shall be duly certified by the FAA as an airworthy
aircraft, (ii) shall be free and clear of all Liens (other than this Lease and
any Lessor's Liens), and rights of third parties under pooling, interchange,
overhaul, repair or other or similar arrangements, (iii) shall be in the same
configuration and in the same operating condition, ordinary wear and tear
excepted, as when delivered to Lessee hereunder, (iv) shall be in good
operating condition, in good physical condition and good appearance (ordinary
wear and tear excepted) with all systems operating, shall be in compliance with
Lessee's written FAA-approved maintenance program for Boeing B727-214 Advanced
Freighter series aircraft and in compliance with all applicable airworthiness
directives and shall have been maintained in a nondiscriminatory manner with
all Boeing B727-214 Advanced Freighter series aircraft in Lessee's fleet, (v)
shall be in compliance with all so-called "mandatory", "alert" and (to the
extent applicable to Lessee, or its operations and to the extent such service
bulletins relate to the safety and/or airworthiness of the Aircraft) "highly
recommended" service bulletins, Service Letters, modification kits, and similar
notices and components issued, supplied, or available by or through the
Manufacturer and/or the Manufacturer(s) of any Engine or Part with respect to
the Aircraft and all "airworthiness alerts" and Airworthiness or other
Directives, Circulars, Operator Bulletins and Instructions and all other
applicable service, maintenance, repair and overhaul regulations issued by the
FAA or similar regulatory agency having jurisdictional authority which require
compliance or termination within six (6) months after the redelivery date of
the Aircraft, (vi) shall have all logos and other identifying marks of Lessee
or others removed and the exterior of the Aircraft shall have a good overall
appearance with no material damage and (vii) shall be otherwise in the
condition and repair required under this Lease.
In addition to any other requirements of this Section 8 or any other
applicable provisions of this Lease, the Aircraft shall be in the following
condition:
I. General Condition of Aircraft.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease, the Aircraft shall:
(i) be clean by commercial airline standards;
(ii) have installed the full complement of Engines and
Parts and accessories and loose equipment as would
remain installed in such Aircraft, and shall be in a
condition suitable for operation in commercial
service, all installed systems to be fully
operational;
(iii) have in existence a valid and existing airworthiness
certificate with respect to the Aircraft issued by
the FAA;
(iv) [Intentionally Left Blank];
(v) all then current outstanding airworthiness directives
affecting such model of Aircraft issued by the FAA
which require compliance or termination within six
(6) months after the redelivery date of the Aircraft
shall have been accomplished, and all pilot
discrepancies cleared from the logbook;
(vi) have installed all applicable vendors' and
Manufacturers' service bulletin kits theretofore
received by Lessee that are appropriate for the
Aircraft and to the extent not installed, such kits
shall be furnished free of charge to Lessor; and
(vii) have all of the operator's markings removed in a
workmanlike manner and to the approval of the Lessor.
II. General Condition of Fuselage, Windows and Doors.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) all dents, abrasions or external doublers on the
fuselage shall meet the requirements of the
Manufacturer approved "Structural Repair Manual";
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(ii) all windows shall be free of delamination, blemishes,
crazing and shall be properly sealed; and
(iii) all doors shall be free moving, correctly rigged and
be fitted with serviceable seals.
III. General Condition of Wings and Empennage.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) all leading edge shall be repaired in accordance with
Manufacturer approved "Structural Repair Manual";
(ii) all control surfaces shall be painted or waxed and
polished, to industry standard;
(iii) all unpainted cowlings and fairings shall be polished
to industry standard; and
(iv) all wings shall be free of fuel leaks, and no
previous fuel leaks shall have temporary repairs.
IV. General Condition of Interior.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) all ceilings, sidewalls and bulkhead panels shall be
clean and free of cracks and stains;
(ii) all signs and decals shall be clean, legible, and in
English; and
(iii) all required calendar life limited emergency
equipment shall have a minimum of one year life
remaining.
V. General Condition of Cockpit.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) all decals in the cockpit shall be clean, secure,
legible, and in English;
(ii) all fairing and instrument panels shall be free of
stains and cracks, shall be clean, secure and
repainted as necessary;
(iii) all floor coverings shall be clean;
(iv) all seat covers shall be in good condition, clean and
shall conform to applicable FAA fire resistance
regulations or requirements; and
(v) all seats shall be fully serviceable and frames shall
be repainted as necessary.
VI. General Condition of Cargo Compartments.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) all panels shall be in as good condition as on
delivery; and
(ii) all rollers and cargo moving mechanisms shall be
serviceable.
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VII. General Condition of Landing Gear and Wheel Wells.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) all the landing gear and wheel wells shall be clean,
free of leaks and repaired as necessary, and coated
with corrosion inhibitor; and
(ii) all landing gear and wheel wells decals shall be
clean, secure and legible.
VIII. Further Condition of Aircraft regarding Corrosion.
In addition to any other requirements of this Section 8 or any
other applicable provisions of this Lease,
(i) the Aircraft shall meet the requirements of any then
existing FAA-approved corrosion control program and
aging aircraft corrosion control program on the date
of return; and
(ii) the fuel tanks of the Aircraft shall be free from
contamination and corrosion, and a tank treatment
program shall be in operation.
IX. Documentation. In addition to any other requirements of this
Section 8 or any other applicable provisions of this Lease,
Lessee shall, upon the return of the Aircraft to the Lessor,
deliver to the Lessor all of the currently revised:
(i) current Illustrated Parts Catalogue, including
Airframe and Engines on microfilm or hard copy;
(ii) current Maintenance Manual on microfilm or hard copy;
(iii) current Structural Repair Manual on microfilm or hard
copy;
(iv) Wiring Diagram Manual on microfilm or hard copy;
(v) FAA-approved Flight Manual in hard copy;
(vi) Weight and Balance Manual in hard copy;
(vii) Airworthiness Directives and Modifications status in
hard copy;
(viii) Operational Specifications in hard copy;
(ix) current status of all time controlled, on condition
and condition monitored units which are on the
Aircraft and Engines in hard copy;
(x) cross reference list of operator's part number to
Manufacturer's part number microfilm (if applicable);
(xi) one copy of all FAA Forms 337 required;
(xii) Aircraft and Engine Time Status report; and
(xiii) all existing Aircraft and Engine historical records
in hard copy or microfilm.
(b) Overhaul-General. At the time of such return, (i) the Airframe
(including, without limitation, the landing gear on the Aircraft) shall not
have been operated more than one-half of the allowable time between major
airframe overhauls or major block maintenance before the next major airframe
overhaul or major block maintenance, whichever shall then apply, in accordance
with Lessee's then approved overhaul and/or maintenance program authorized by
and performed to FAA requirements applicable to Lessee, and shall have no less
than half life (as measured by reference to calendar, phase and/or periodic
maintenance and/or inspection standards) remaining on any life limited Airframe
part or component (including, without
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<PAGE> 12
limitation, the landing gear on the Aircraft) before overhaul or replacement
and (ii) each Engine shall not have been operated more than one-half of the
allowable time remaining before overhaul (both hot and cold sections as
measured by reference to calendar, phase and/or periodic maintenance and/or
inspection standards) and all cycle limited parts or time controlled components
of each Engine shall not have been operated more than one-half of the allowable
cycles or time remaining before replacement; said Engine overhaul and Engine
parts and components replacement to be performed in accordance with Lessee's
then approved engine overhaul and parts and components replacement program
authorized by and performed to FAA requirements applicable to Lessee. In
addition to the requirements set forth in clauses (i) and (ii) above, all
inspections and scheduled maintenance required to be performed on the Airframe,
Engines and all life limited parts and components within one hundred twenty
(120) days and/or one hundred hours (100) shall have been performed by Lessee.
(c) Overhaul-Airframe. In the event that Lessee does not meet the
conditions in clause (i) and/or the final sentence of Section 8(b) hereof with
respect to the Airframe, Lessee shall pay Lessor a dollar amount computed by
multiplying (i) Lessor's then current cost for such major overhaul or major
block maintenance as the case may be (such cost being the then current rates
charged by an airframe overhaul facility approved by the Manufacturer of the
Airframe and acceptable to Lessor, together with all costs associated with such
overhaul), by (ii) a fraction of which (x) the numerator shall be the excess of
the number of hours since the last such major overhaul or major block
maintenance, as the case may be, over fifty percent (50%) of the number of
hours of allowable time between major overhauls or major block maintenance and
(y) the denominator shall be the total number of hours of such allowable time.
In the event the life limited parts or components requirement
contained in clauses (i) or (ii) and/or the final sentence of Section 8(b)
hereof are not met, Lessee shall pay to Lessor with respect to each part or
component for which said requirement is not met the dollar amount obtained by
multiplying (i) the ratio that the life expended in excess of half-life bears
to the total allowable life for such part or component by (ii) Lessor's cost of
replacement of such part or component. Lessor's cost of replacement of a part
or component shall include Lessor's then current cost of purchasing the part or
component itself and all of Lessor's then current costs associated with the
replacement.
(d) Overhaul-Engine. In the event that Lessee does not meet the
conditions in clause (ii) and/or the final sentence of Section 8(b) hereof with
respect to the Engines, Lessee shall pay to the Lessor with respect to each
Engine for which said conditions are not met the dollar amount per Engine
obtained by multiplying (i) the ratio that the time accumulated since half time
bears to the time allowable between overhaul by (ii) Lessor's cost for such
overhaul of such Engine; Lessor's cost referred to in this clause (ii) being
the then current rates charged by an engine overhaul facility approved by the
Manufacturer of the Engines and acceptable to Lessor, together with all costs
associated with such overhaul.
In the event the foregoing Engine cycle limited part and time
controlled component requirement set forth in clause (ii) and/or the final
sentence of Section 8(b) hereof are not met, Lessee shall pay to Lessor with
respect to each Engine for which said requirement is not met the dollar amount
per part (or per component) obtained by multiplying (i) the ratio that the time
(or cycles) accumulated since half time (or one-half of the allowable cycles)
bears to the time (or cycles) accumulated since half time (or one-half of the
allowable cycles) bears to the time (or cycles) allowable between replacements
by (ii) Lessor's cost of replacement of the part (or component). Lessor's cost
of replacement of a part or component shall include Lessor's then current cost
of purchasing the part or component itself and all of Lessor's then current
costs associated with the replacement.
(e) Fuel; Records. Upon the return of the Aircraft in accordance
with this Section; (i) each fuel tank shall contain the same quantity of fuel
as was contained in such tank when the Aircraft was delivered to Lessee on the
Acceptance Date (which shall be presumed to be fifty percent (50%) of full
capacity, unless otherwise specified in the Purchase Documents) or, in the case
of differences in such quantity, an appropriate adjustment will be made at the
then current market price of fuel, and (ii) Lessee shall deliver
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<PAGE> 13
all Records to Lessor. In the event any Records are missing or incomplete,
Lessor shall have the right to cause any such Records to be reconstructed at
the expense of Lessee.
(f) Storage. Upon the expiration or other termination of the Lease,
Lessee will, if requested by Lessor, permit Lessor to store the Aircraft at the
Primary Hangar Location as described in Schedule No. 2 to Lease Supplement No.
1, at Evergreen Air Center, Inc., Pinal Air Park, Marana, AZ 85653 or at some
other location mutually acceptable to the Lessor and Lessee. During such
storage period Lessee will, at its own cost and expense, keep the Aircraft
properly hangared or tied down, and will permit Lessor or any person designated
by Lessor, including the authorized representative or representatives of any
prospective purchaser, lessee or user of the Aircraft to inspect the same.
Lessee shall not be liable, except in the case of negligence or intentional
misconduct of Lessee or of its employees or agents, for injury to, or the death
of, any person exercising, either on behalf of Lessor or any prospective
purchaser, Lessee or user, the rights of inspection granted hereunder. Lessee
shall bear the risk of loss and shall pay any and all expenses connected with
insuring and maintaining the Aircraft during such storage period.
(g) Return of Engines. In the event that any engine not owned by
Lessor shall be installed on the returned Airframe as set forth in paragraph
(a) of this Section, then Lessee will, concurrently with such delivery, at its
own expense and not at any cost to Lessor, furnish Lessor with a full warranty
bill of sale, in form and substance satisfactory to Lessor, with respect to
each such engine and with a written opinion of FAA Counsel to the effect that,
upon such return, Lessor will acquire good and marketable title to such engine,
free and clear of all Liens (except Lessor's Liens). Thereupon, unless a
Default or Event of Default shall have occurred and be continuing, Lessor will
transfer to Lessee, without recourse or warranty of any kind whatsoever (except
as to Lessor's Liens) on an "AS-IS, WHERE-IS" BASIS WITHOUT ANY REPRESENTATION
BY, OR RECOURSE OR WARRANTY TO, LESSOR, all of Lessor's right, title and
interest in and to any Engine not installed on the Airframe at the time of the
return of such Airframe.
(h) Inspection Prior to Return. Not more than ninety (90) days prior
to the expiration of the Lease, upon the written request of Lessor, Lessee
shall, at its expense, review the maintenance records of the Aircraft to
determine if the Aircraft is in the condition required by Section 8(a).
Following such review, Lessee shall certify to Lessor that such Aircraft is in
the condition required by Section 8(a) according to the maintenance records for
such Aircraft, or, if the maintenance records so indicate, indicate what
maintenance or repair is needed to bring the Aircraft to the specified
condition.
(i) Survival. The provisions of this Section 8 shall survive the
expiration or other termination of this Lease and the return of the Aircraft
for any reason whatsoever.
(j) Injunctive Relief. Without limiting any other terms or
conditions of this Lease, the provisions of this Section 8 are of the essence
of this Lease, and upon application to any court of equity having jurisdiction,
Lessor shall be entitled to a decree against Lessee requiring specific
performance of the covenants of Lessee set forth in this Section 8.
SECTION 9. Liens.
Lessee will not directly or indirectly, voluntarily or involuntarily,
create, incur, assume or suffer to exist any Liens on or with respect to the
Aircraft or any part thereof, Lessor's title thereto or any interest of Lessor
therein (and Lessee will promptly, at its own expense, take such action as
Lessor deems necessary or advisable to duly discharge any such Lien), except
Permitted Liens. In the event that Lessee fails to take action to discharge or
remove any such Lien, Lessor may take such action as it deems necessary or
appropriate to discharge or remove such Lien. Lessee shall reimburse Lessor on
demand for any costs incurred by Lessor in connection with such action together
with interest at the Late Payment Rate. Lessor's rights hereunder are in
addition to, and not in derogation of, any other rights which Lessor may have
hereunder, at law or in equity.
SECTION 10. Taxes.
Lessee agrees to (i) report, to the extent legally permissible (or if such
reporting by Lessee is not legally permissible, then to prepare reports for
filing by Lessor), (ii) pay when due and (iii) to defend and indemnify Lessor
against liability for all license and registration fees, assessments, and
sales, use, property, excise, privilege and other taxes (including any related
interest or penalties) or other charges or fees now or hereafter imposed by any
governmental body or agency upon the Aircraft, or with respect to landing,
airport use, manufacturing, ordering, shipment, purchase, ownership, delivery,
installation, leasing, operation, possession, use, return, or other disposition
thereof or the rentals hereunder (other than taxes on or measured solely by the
net income of Lessor)("Impositions"). Any fees, taxes or other
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lawful charges paid by Lessor upon failure of Lessee to make such payments
shall at Lessor's option become immediately due from Lessee to Lessor.
Notwithstanding the foregoing, Lessee shall pay, indemnify Lessor for, and hold
Lessor harmless on a net after-tax basis from and against, all Impositions on
or measured by the net income of Lessor imposed against Lessor by any local or
foreign government or other taxing authority if and to the extent that Lessor
would not have incurred such Impositions but for the operation or presence of
the Aircraft within the jurisdiction asserting an Imposition.
SECTION 11. Registration, Maintenance and Operation; Compliance and Use;
Replacement Parts; Additions; Aircraft Marking.
(a) Registration, Maintenance and Operation. During the Term,
Lessee, at its own cost and expense, shall (i) cause the Aircraft to be duly
registered in the name of the Lessor under the Federal Aviation Act at all
times; (ii) maintain, inspect, service, repair, overhaul and test the Airframe
and each Engine in accordance with Lessee's FAA approved and Manufacturer's
recommended maintenance programs; (iii) maintain (in the English language) all
Records and (iv) promptly furnish to Lessor such information as may be required
to enable Lessor to file any reports required by any governmental authority as
a result of Lessor's ownership of the Aircraft. All maintenance procedures
required by Section 11, subparagraph (a)(ii) or any other provision of this
Lease shall be performed in accordance with all FAA and Manufacturer's
standards and procedures by properly trained, licensed, and certified
maintenance sources and maintenance personnel utilizing replacement parts
approved by the FAA and the Manufacturer, so as to keep the Airframe and each
Engine in good operating condition, ordinary wear and tear alone excepted, and
to enable the airworthiness certificate of the Aircraft to be continually
maintained.
(b) Compliance and Use. Lessee shall operate the Aircraft solely in
the conduct of its business and/or for commercial purposes (and not for
consumer, personal, home or family purposes) and in a cargo configuration for
which Lessee is duly authorized by the FAA and it will not operate or permit
the Aircraft to be operated at any time or in any geographic area when or where
insurance required by the provisions of Section 14 hereof shall not be in
effect, or in a manner, for any time period, such that Lessor or a third party
shall be deemed to have "operational control" of the Aircraft. At all times the
Aircraft will be operated only by duly qualified, currently certificated pilots
as required by the insurance policies required under this Lease. IN ADDITION,
EXCEPT AS EXPRESSLY PERMITTED BY THE FOLLOWING PARAGRAPH OR AS SPECIFICALLY
CONSENTED TO IN WRITING BY LESSOR, THE AIRCRAFT SHALL NOT BE OPERATED, USED OR
LOCATED OUTSIDE THE CONTINENTAL UNITED STATES.
Notwithstanding the foregoing, Lessor agrees that the Aircraft may be
flown temporarily to any country in the world in connection with the conduct of
Lessee's business; provided, however, that in no event may the Aircraft
temporarily fly, be operated, used or located in, or to any such country or
area (1) which is excluded from coverage by any insurance policy in effect with
respect to such Aircraft or by any insurance policy required by the terms of
Section 14 hereof or any country or area not specifically and fully covered by
such insurance; (2) in a recognized or threatened area of hostility unless
fully covered to Lessor's satisfaction by hull, political, expropriation,
hijacking and war risk insurance or (3) to Libya, Iraq, Cuba (other than the
United States government facility at Guantanamo Bay), North Korea, or such
other country or countries as Lessor shall set forth pursuant to written notice
to Lessee from time to time. Lessee further agrees that it shall not operate
the Aircraft, or permit the Aircraft to be operated in any manner unless the
insurance coverages set forth in Section 14 hereof are in full force and
effect.
(c) Replacement Parts. Except as otherwise provided in the
succeeding paragraph (d) of this Section, Lessee, at its own cost and expense,
will promptly replace all Parts which may from time to time become worn out,
lost, stolen, taken, destroyed, seized, confiscated, requisitioned, damaged
beyond repair or permanently rendered or declared unfit for use for any reason
whatsoever. (such substituted Parts hereinafter called "Replacement Parts").
In addition, in the ordinary course of maintenance, service, repair, overhaul
or testing, Lessee may, at its own cost and expense, remove serviceable Parts,
provided that Lessee shall, at its own cost and expense, replace such
serviceable Parts as promptly as practicable. All Replacement Parts (i) shall
be free and clear of all Liens, (ii) be in an airworthy condition and of at
least equivalent model and modification status and service bulletin
accomplishment status, be fully interchangeable as to form, fit and function
and shall be in a good operating condition as, and shall have a value, useful
life 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, (iii) 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, (iv) if overhauled, have all overhaul
records, (v) if a life limited Part, have continuous records since the date of
manufacture or the date of the last overhaul, and (vi) shall not in any manner
alter or adversely affect the Aircraft's airworthiness certificate. 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
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Parts shall be replaced by Parts which have been incorporated or installed in
or attached to the Airframe or such Engine and which meet the requirements for
Replacement Parts specified above. Immediately upon any Replacement Part
becoming incorporated or installed in or attached to the Airframe or such
Engine as above provided, without further act, (i) title to the removed Part
shall thereupon vest in Lessee, on an AS IS, WHERE IS BASIS WITHOUT ANY
REPRESENTATION BY, OR RECOURSE OR WARRANTY TO, LESSOR, free and clear of all
rights of Lessor and Lessor's Liens and shall no longer be deemed a Part
hereunder, (ii) title to such Replacement Part shall thereupon vest in the
Lessor, and (iii) such Replacement Part shall become subject to this Lease and
be deemed part of the Airframe or Engine, as the case may be, for all purposes
hereof to the same extent as the Parts originally incorporated or installed in
or attached to the Airframe or such Engine.
(d) Additions. Lessee shall be entitled from time to time during the
Term to acquire and install on the Aircraft at Lessee's own cost and expense
(and Lessor hereby appoints Lessee to be Lessor's agent for such purpose, so
long as no Event of Default has occurred and is continuing), any additional
accessory, device or equipment as may be available at such time ("Additions")
but only so long as such Additions (i) are ancillary to the Aircraft, (ii) are
not required to render the Aircraft complete for its intended use by Lessee,
(iii) will not impair the originally intended function or use of the Aircraft
or diminish the value of the same and (iv) can be readily removed without
causing material damage to the Aircraft. Title to Additions which are not
removed by Lessee prior to the return of the Aircraft to Lessor shall vest in
Lessor upon such return. Lessee shall repair all damage to the Aircraft
resulting from such installation and removal of Additions so as to restore the
Aircraft to its condition prior to installation, ordinary wear and tear
excepted.
(e) Aircraft Marking. Lessee agrees, at its own cost and expense, to
(i) cause the Airframe and the Engines to be kept numbered with the
identification or serial number therefor as specified in Schedule No. 1 to
Lease Supplement No. 1 hereof; (ii) prominently display on the Aircraft that
"N" number, and only that "N" number, specified in Schedule No. 1 to Lease
Supplement No. 1 or such other "N" number as has been approved in writing by
the Lessor and duly recorded with the FAA; (iii) notify Lessor in writing
thirty (30) days prior to making any change in the configuration (other than
changes in configuration mandated by the FAA), appearance or coloring of the
Aircraft from that in effect at the time the Aircraft is accepted by Lessee
hereunder, and in the event of such change or modification of configuration,
coloring or appearance, at the request of Lessor to restore the Aircraft to the
configuration, coloring and/or appearance in effect on the Acceptance Date or,
at Lessor's option to pay to Lessor an amount equal to the reasonable cost of
such restoration and (iv) affix and maintain in the Airframe adjacent to the
airworthiness certificate and on each Engine a metal nameplate bearing the
Aircraft Marking specified in Lease Supplement No. 2 and such other markings as
from time to time may be required by law or otherwise deemed necessary or
advisable by Lessor in order to protect the title of Lessor to the Aircraft and
the rights of Lessor under this Lease. Lessee will not place the Aircraft in
operation or exercise any control or dominion over the same until such Aircraft
Markings have been placed thereon. Lessee will replace promptly any such
Aircraft Marking which may be removed, defaced or destroyed.
(f) Pooling of Parts. Any Part removed from the Airframe or any
Engine as provided in Section 11(c) hereof may be subjected by Lessee (or any
Permitted Sublessee) to normal pooling arrangements customary in the airline
industry entered into in the ordinary course of Lessee's (or any Permitted
Sublessee's) business with a U.S. Air Carrier; provided that the Part replacing
such removed Part shall be incorporated or installed in or attached to the
Aircraft in accordance with Section 11(c) hereof immediately upon 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 11(c)
hereof may be owned by another U.S. Air Carrier subject to such a normal
pooling arrangement; provided that Lessee (or any Permitted Sublessee) ensures
that the Part so removed remains the property of Lessor, and that Lessee (or
any Permitted Sublessee), at its expense, immediately thereafter either (x)
causes title to such Replacement Part to vest in Lessor free and clear of all
Liens and rights of others in accordance with Section 11(c) hereof, or (y)
replaces such Replacement Part by incorporating or installing in or attaching
to the Aircraft a further Replacement Part owned by Lessee (or any Permitted
Sublessee) free and clear of all Liens and rights of others (except for any
Lessor Liens) by causing title to such further Replacement Part to vest in
Lessor in accordance with Section 11(c) hereof.
SECTION 12. Inspection.
(a) During the Term of this Lease, Lessee shall furnish to Lessor
such information concerning the location, condition, use and operation of the
Aircraft (or any component thereof including, the Airframe and any Engine or
Part), as Lessor may reasonably request. Lessor or its authorized
representatives or agents shall have the right, at any reasonable time and from
time to time and wherever located, to inspect the Aircraft and its condition,
use, and operation, and the Records, and to travel on the flight deck as
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observers at any such inspection. Lessor shall not have any duty to make any
such inspection nor shall Lessor incur any liability or obligation of any kind
whatsoever by reason of not making any such inspection. Without limiting the
generality of the foregoing or any other term of this Lease, Lessor or its
authorized representatives or agents shall have the right to inspect the
Aircraft during any "C" and/or "D" checks (as such checks are determined and/or
defined by the Manufacturer or the Lessee's FAA-approved maintenance program)
or their respective equivalent (such checks collectively the "Major Checks"),
performed by or on behalf of Lessee during the Term of this Lease, and Lessee
shall inform Lessor of any such Major Check schedule by providing written
notice as to time and location of all said Major Checks. During any Major
Checks, Lessee agrees to provide sufficient manpower to allow Lessor or its
authorized representatives or agents to inspect, during the course of any Major
Check, any area of the Aircraft which Lessor requests to inspect and which
would normally be required during any such Major Check.
(b) No later than five (5) days prior to the date the Aircraft is
to be returned, Lessee shall make the Aircraft available to Lessor for a
detailed inspection by a qualified FAA designated airworthiness representative
or any other authorized representative or agent of the Lessor in order to
verify that the condition of the Aircraft complies with all of the requirements
of this Lease, including, without limitation, Section 8 hereof, (any such
inspection the "Final Inspection"). Such Final Inspection may be scheduled at
an appropriate maintenance facility of the Lessee or a FAA authorized
maintenance performer then performing maintenance on such Aircraft. Lessor
shall use its best efforts to conduct such Final Inspection during operational
downtime of the Aircraft. The Lessee shall provide the Lessor not less than
sixty (60) days prior written notice of the location and commencement date of
the Final Inspection. The Final Inspection, at Lessor's sole option, shall
also include a two hour operational test flight of the Aircraft ("Test
Flight"). Any such Test Flight shall be conducted by Lessee at its sole cost
and expense using the Lessee's approved test flight procedures. Lessor shall be
permitted to have a minimum of two (2) authorized representatives attend the
Final Inspection. In the event that the Lessee has exercised its Sale Option
pursuant to Section 23 (c) and the Aircraft has either not been sold within
ninety (90) days of the then current Expiration Date or the proposed sale price
is less than the then current Maximum Lessor Risk, the Lessee shall be required
to open any areas of the Aircraft reasonably requested to be opened by the
Lessor or its authorized representatives or agents in order to verify any
aspect of the Aircraft's condition or any item or component thereof, including,
without limitation, the lower cargo compartment bilges, and borescoping of the
Engines. Without limiting the generality of the foregoing or any other term of
this Agreement, all Engines shall, upon the request of Lessor, have had within
the thirty (30) day period immediately preceding the Final Inspection an
"engine trim run" and a "combustion chamber" inspection performed in
conformance with the Manufacturer's recommended procedures. All Records shall
be provided to the Lessor or its authorized representatives or agents at the
Final Inspection.
(c) The cost and expense of the Test Flight and Final Inspection
shall be paid by the Lessee.
SECTION 13. Loss or Destruction.
(a) Event of Loss with Respect to the Aircraft. Upon the occurrence
of any Event of Loss with respect to the Aircraft, Lessee shall notify Lessor
of any such Event of Loss within five (5) days of the date thereof. On the
next Basic Rent Date following the date of such notice (or, if such Event of
Loss occurs after the Last Basic Rent Date, within thirty (30) days after such
notice), Lessee shall pay to Lessor any Rent then due, plus the Casualty Value
of the Aircraft determined as of the Basic Rent Date immediately following the
date of such Event of Loss, together with interest at the Late Payment Rate for
the period (if any) from the Basic Rent Date following the date of such notice
through the date of payment. Upon making such payment and all Rent due and
owing, Lessee's obligation to pay further Basic Rent for the Aircraft
subsequent to such payment shall cease, but Lessee's obligation to pay
Supplemental Rent as well as any other amounts due under this Lease, if any,
for the Aircraft shall remain unchanged. Except in the case of loss, permanent
disappearance, destruction or Return to Manufacturer, Lessor shall be entitled
to recover possession of the Aircraft, unless possession thereof is required to
be delivered to a third party insurance carrier in order to settle an insurance
claim. Lessor shall be entitled to any salvage value in excess of the Casualty
Value paid to Lessor. Lessor shall be under no duty to Lessee to pursue any
claim against any Person in connection with an Event of Loss, but Lessee may at
its own cost and expense and with Lessor's prior written consent pursue the
same on behalf of Lessor in such manner as may be acceptable to Lessor.
Following the payment of the Casualty Value of the Aircraft in
accordance with the provisions of this subsection, Lessee, if possible, shall,
as agent for Lessor, dispose of the Aircraft as soon as it is able to do so for
the best price obtainable. Any such disposition shall be on an AS-IS, WHERE-IS
BASIS WITHOUT ANY REPRESENTATION BY, OR RECOURSE OR WARRANTY TO, LESSOR, of any
kind whatsoever. Lessee may, after paying Lessor the amounts specified in this
subsection, retain all amounts of such price up to the Casualty Value of the
Aircraft actually paid by Lessee, together with Lessee's reasonable costs and
expenses of disposition attributable thereto and any excess shall be paid over
to, and retained by, Lessor. In the event of a Return to Manufacturer, Lessor
agrees that Lessee shall receive and retain all amounts payable to Lessor by
the Manufacturer up to the amount, if any, of the Casualty Value actually paid
by Lessee hereunder, but any
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excess shall be retained by Lessor. With respect to a Requisition of Use,
Lessor agrees that Lessee shall receive and retain all amounts paid by any
governmental authority up to the Casualty Value actually paid by Lessee
hereunder, and any excess shall be paid over to, and retained by, Lessor.
(b) Event of Loss with Respect to an Engine. Upon an Event of Loss
with respect to any Engine under circumstances in which there has not occurred
an Event of Loss with respect to the Airframe upon which such Engine was
installed or upon the occurrence of an Event of Loss of an Engine not then
installed on the Airframe, Lessee shall give Lessor prompt written notice
thereof and shall within thirty (30) days after the occurrence of such Event of
Loss, duly convey to Lessor title to a similar engine of the name, make and
model number as that suffering the Event of Loss. Such engine shall be free
and clear of all Liens, have a value, utility, and useful life at least equal
to, and (ii) be in as good an operating condition as, the Engine with respect
to which such Event of Loss has 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, at its own
cost and expense, shall furnish Lessor with such documents to evidence such
conveyance as Lessor shall request. Upon full compliance by Lessee with the
terms of this paragraph, Lessor will transfer to Lessee, without recourse,
representation or warranty of any kind whatsoever, all of Lessor's right, title
and interest, if any, in and to the Engine with respect to which such Event of
Loss has occurred. SUCH TRANSFER SHALL BE "AS-IS, WHERE-IS" AND LESSOR SHALL
NOT BE DEEMED TO HAVE MADE, AND LESSOR HEREBY DISCLAIMS, ANY REPRESENTATION OR
WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE ENGINE SO TRANSFERRED TO LESSEE
other than that the Engine is free and clear of Lessor's Liens. Each such
replacement engine shall, after such conveyance shall be deemed an "Engine" as
defined herein and shall be deemed part of the same Aircraft as was the Engine
replaced thereby. No Event of Loss with respect to an Engine shall result in
any reduction or delay in the payment of Basic Rent or relieve Lessee of any
obligation under this Lease.
(c) Risk of Loss; no Release of Obligations. Except as provided in
this Section 13, Lessee shall bear the risk of loss and shall not be released
from its obligations hereunder in the event of any damage to the Aircraft or
any part thereof or any Event of Loss relating thereto.
SECTION 14. Insurance.
(a) Aircraft Liability and Property Damage Insurance. Lessee shall
maintain at its own cost and expense for the entire Term with insurers
satisfactory to Lessor, (i) comprehensive aircraft and general public liability
insurance against bodily injury and property damage claims including, without
limitation, contractual liability, premises damage, public liability, personal
property liability, personal injury liability, death and property damage
liability, public and passenger legal liability coverage in an amount not less
than $200,000,000.00 for each single occurrence and (ii) such other property
damage insurance with respect to the Aircraft as is of the type and in the
amounts usually carried by companies engaged in the same or a similar business
as Lessee and which covers risks of the kind customarily insured against by
such companies. Lessee shall also provide worker's compensation insurance with
all-states coverage for the Aircraft's crew and maintenance personnel.
(b) Insurance Against Loss or Damage to the Aircraft. Lessee shall
maintain at its own cost and expense for the entire Term with insurers
satisfactory to Lessor, all-risk ground and flight aircraft hull insurance
covering the Aircraft, including foreign object damage, fire and explosion
coverage, cargo, environmental, ingestion and lightning and electrical damage
and comparable insurance with respect to any Engines or Parts while removed
from the Aircraft, and with respect to any engines or parts while temporarily
installed on the Aircraft, provided that such insurance shall at all times be
in an amount not less than the Casualty Value of the Aircraft (such amount
determined at the Rent Commencement Date and at each annual renewal date of the
insurance policies provided hereunder for the next succeeding year throughout
the Term). Lessee shall maintain in effect hijacking (air piracy) insurance
with respect to the Aircraft in a face amount of not less than the Casualty
Value of the Aircraft (determined as described herein), which shall be in full
force and effect worldwide throughout any geographical areas at any time
traversed by the Aircraft. Such insurance shall also include war risk,
governmental confiscation and expropriation and related insurance.
(c) Lessor as Additional Insured; Notice. Any policies of insurance
carried in accordance with this Section and any policies taken out in
substitution or replacement or any such policies (i) shall be amended to name
Lessor as the owner of the Aircraft and as additional insured as its interests
may appear, (ii) with respect to insurance carried in accordance with paragraph
(b) of this Section 14 covering the Aircraft, shall provide that any amount
payable thereunder which exceeds $100,000.00 in the aggregate shall be paid
directly to Lessor as sole loss payee and not to Lessor and Lessee jointly
(and, so long as no Event of Default has occurred, such amounts shall be
disbursed by Lessor to Lessee or other appropriate Persons in payment of the
costs actually incurred with respect to repairs made to the Aircraft so as to
restore it to the operating condition required by Section 11 hereof, or shall
be disbursed by Lessor as otherwise required by the Lease), and that, provided
no Default or Event of Default has occurred and is continuing, any amount(s) of
less than $100,000.00 in the aggregate shall be paid to Lessee (and such
amounts shall be applied by Lessee to pay the costs of such repairs), (iii)
shall provide for thirty (30) days, or in the case of war risk insurance, seven
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<PAGE> 18
(7) days, written notice by such insurer of cancellation, change, non-renewal
or reduction and (iv) shall provide that in respect of the interests of Lessor
in such policies, the insurance shall not be invalidated by any action or
inaction of Lessee regardless of any breach or violation of any warranties,
declarations or conditions contained in such policies by or binding upon
Lessee. Each shall be primary insurance, not subject to any co-insurance
clause and shall be without right of contribution from any other insurance.
Lessee shall arrange for appropriate certification as to the satisfaction of
the requirements set forth above in this Section 14 to be delivered to Lessor
not later than the Acceptance Date by each such insurer or underwriter
therefor, which certification shall specifically acknowledge that the insurance
is in conformity with this Section 14. Notwithstanding the foregoing, Lessee
shall promptly provide Lessor with a copy of each policy of insurance required
hereunder if it so requests.
(d) Reports, etc. Annually on the anniversary of the Acceptance
Date, Lessee shall furnish to Lessor a report describing in reasonable detail
the insurance then carried and maintained on the Aircraft and certifying that
such insurance complies with the terms hereof and, if Lessor shall so request,
a copy of each applicable policy. In the event Lessee shall fail to maintain
insurance as herein provided, Lessor may, at its option, provide such
insurance, and Lessee shall, upon demand, reimburse Lessor for the cost
thereof, together with interest at the Late Payment Rate from the date of
payment through the date of reimbursement.
(e) Agreed Value. Anything herein to the contrary notwithstanding,
at all times while the Aircraft is subject to this Lease, the insurance
required hereunder shall be for an amount on an "agreed value" basis not less
than the lower of the Casualty Value or the Lessor's Cost.
(f) No Right To Self-Insure. Lessee shall not self-insure (by
deductible, premium adjustment, or risk retention arrangement of any kind) the
insurance required to be maintained hereunder, except to the extent of
deductibles usually and customarily maintained by companies engaged in the same
or similar business as Lessee and operating the same or similar aircraft, but
in no event shall any deductible exceed the Permitted Deductible amount on
Schedule No. 2-A to Lease Supplement No. 1. Lessee hereby irrevocably
appoints Lessor as Lessee's attorney-in-fact to file, settle or adjust, and
receive payment of claims under any such insurance policy and to endorse
Lessee's name on any checks, drafts or other instruments on payment of such
claims. Lessee further agrees to give Lessor prompt notice of any damage to or
loss of, the Aircraft, or any part thereof.
(g) Attorney-in Fact. Lessee irrevocably appoints Lessor (and any
assignee, mortgagee and/or lender of the Lessor) its attorney-in-fact to act in
Lessee's name and on its behalf to make, execute, deliver and file any
instruments or documents, settle, receive payment, make claim or proof of loss
and to take any action as Lessor (and any such assignee, mortgagee and/or
lender) deems necessary or appropriate to carry out the intent of this Section
14 or any agreements, documents or instruments related thereto. To the extent
appropriate or permissible under applicable law, such appointment is coupled
with an interest, shall be irrevocable and shall terminate only upon payment in
full of the obligations set forth in this Lease and/or any agreements,
documents or instruments related thereto. Notwithstanding the foregoing, to
the extent that no Default or Event of Default has occurred and is continuing,
Lessor agrees that it shall not exercise its powers as attorney in fact with
respect to amounts of less than $100,000.00 payable under such policies of
insurance as are provided for hereunder.
SECTION 15. Indemnification.
Lessee assumes liability for, and hereby agrees to indemnify, protect,
save, defend and keep harmless Lessor, its agents, employees, officers,
directors, shareholders, subsidiaries, affiliates, successors and assigns
(collectively "Lessor"), on a net after-tax basis, from and against any and all
liabilities, obligations, losses, damages, penalties, claims (including,
without limitation, claims involving or alleging product liability or strict or
absolute liability in tort), actions, suits, demands, costs, expenses and
disbursements (including, without limitation, legal fees and expenses) of any
kind and nature whatsoever (other than Impositions, the indemnification against
which is set forth in Section 10 hereof) ("Claims") which may be imposed on,
incurred by or asserted against Lessor, whether or not Lessor shall also be
indemnified as to any such Claim by any other Person, in any way relating to or
arising out of this Lease or any documents contemplated hereby, or the
performance or enforcement of any of the terms hereof or thereof, or in any way
relating to or arising out of the assertion or enforcement of any
manufacturer's, vendor's or dealer's warranties on the Aircraft or any part
thereof, (including, without limitation, any warranty of any Manufacturer), the
manufacture, inspection, construction, purchase, pooling, interchange,
acceptance, rejection, ownership, titling or re-titling, delivery, lease,
sublease, possession, use, operation, maintenance, condition, registration or
re-registration, sale, return, removal, repossession, storage or other
disposition of the Aircraft or any part thereof or any accident in connection
therewith (including, without limitation, latent and other defects, whether or
not discoverable, and any Claim for patent, trademark or copyright
infringement).
Notwithstanding the foregoing, Lessee shall not be required to
indemnify Lessor for (a) any Claim caused by the gross negligence or willful
misconduct of the Lessor, (b) any Claim caused by the failure of
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Lessor to comply with any regulatory requirements which non-compliance is
caused solely and directly by Lessor, negligence or willful misconduct or (c)
any Claim in respect of the Aircraft arising from acts or events which occur
after (x) possession of the Aircraft has been redelivered to Lessor (which
return and delivery shall be in full and complete compliance with the terms of
this Lease, including, without limitation, Section 8) and (y) any and all other
obligations of any kind whatsoever of the Lessee under this Lease which have
been fully paid and/or performed, including, without limitation pursuant to
Section 10 hereof, as the case may be, unless any such Claims were caused by
Lessee (or any stockholder, director, officer, employee, successor, assignee,
agent or servant of the Lessee) or resulted or arose, directly or indirectly,
from any acts, events or omissions of any kind whatsoever during the Term of
this Lease.
WITHOUT LIMITING THE GENERALITY OF THE TERMS OF THIS LEASE, LESSEE
AGREES THAT LESSOR SHALL NOT BE LIABLE TO LESSEE FOR ANY CLAIM CAUSED DIRECTLY
OR INDIRECTLY BY THE INADEQUACY OF THE AIRCRAFT OR ANY PART THEREOF FOR ANY
PURPOSE OR ANY DEFICIENCY OR DEFECT THEREIN OR THE USE OF MAINTENANCE THEREOF
OR ANY REPAIRS, SERVICING OR ADJUSTMENTS THERETO OR ANY DELAY IN PROVIDING OR
FAILURE TO PROVIDE ANY OF THE SAME OR ANY INTERRUPTION OR LOSS OF SERVICE OR
USE THEREOF OR ANY LOSS OF BUSINESS, OR PROFITS ALL OF WHICH SHALL BE THE SOLE
RISK AND RESPONSIBILITY OF LESSEE.
The liability of Lessee to make indemnification payments pursuant to
this Section 15 shall, notwithstanding any expiration or other termination
(whether voluntary, as the result of Default or Event of Default, or otherwise)
of this Lease, continue to exist until such indemnity payments are irrevocably
made by Lessee in full and received by Lessor. If any Claim is made against
Lessee or Lessor, the party receiving notice of such Claim shall promptly
notify the other, but the failure of the party receiving notice to so notify
the other shall not relieve Lessee of any obligation hereunder.
SECTION 16. Assignment and Sublease.
EXCEPT AS EXPRESSLY SET FORTH HEREIN OR AS MAY BE OTHERWISE CONSENTED
TO IN WRITING BY LESSOR, LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, SUBLEASE,
CONVEY, PLEDGE, MORTGAGE OR OTHERWISE ENCUMBER ITS OR LESSOR'S INTEREST IN AND
TO THE LEASE OR THE AIRCRAFT, AND ANY SUCH SALE, TRANSFER, ASSIGNMENT,
SUBLEASE, CONVEYANCE, PLEDGE, MORTGAGE, OR ENCUMBRANCE, WHETHER BY OPERATION OF
LAW OR OTHERWISE, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR SHALL BE NULL AND
VOID. IN ADDITION, LESSEE SHALL NOT RELINQUISH POSSESSION OF THE AIRFRAME OR
ANY ENGINE OR INSTALL ANY ENGINE OR PART, OR PERMIT ANY ENGINE OR PART TO BE
INSTALLED, ON ANY AIRFRAME OTHER THAN THE AIRFRAME LEASED HEREUNDER EXCEPT AS
EXPRESSLY SET FORTH HEREIN. No acceptance, assignment, subletting,
relinquishment or installation shall in any event relieve Lessee of primary,
absolute and unconditional liability for its duties and obligations under this
Lease. In no event may the Aircraft be subleased to a Person who is not a
"citizen of the United States" within the meaning of the Federal Aviation Act.
Notwithstanding anything to the contrary set forth herein, nothing herein shall
prohibit Lessee from entering into any contract or arrangement with any third
party so long as Lessee maintains operational control of the Aircraft and the
rights, title and interests of such third party are subject and subordinate to
the rights, title and interests of Lessor hereunder.
(a) Notwithstanding the foregoing, provided that, so long as no
Default or Event of Default shall have occurred hereunder and be continuing,
and Lessee shall continue to comply with the provisions of Sections 11 and 14,
Lessee (and any Permitted Sublessee except that any Permitted Sublessee shall
not have the right to sublease or lease the Aircraft to any other Person) may,
without the prior written consent of Lessor:
(i) subject the Airframe, the Engines or engines then
installed thereon to normal interchange agreements or any Engine to normal
pooling or similar arrangements, in each case customary in the airline industry
and entered into by Lessee (or any Permitted Sublessee) in the ordinary course
of its business with a U.S. Air Carrier or any other air carrier approved by
Lessor; provided that (A) no transfer of registration of the Airframe or any
Engine shall be effected in connection therewith and the terms of this Lease
shall be observed; (B) no such agreement or arrangement contemplates or
requires the transfer of title to the Airframe or any Engine and (C) if
Lessor's title to any Engine shall be divested under any such agreement or
arrangement, such divestiture shall be deemed to be an Event of Loss with
respect to such Engine and Lessee shall comply with Section 13(b) hereof in
respect thereof;
(ii) 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, Engine or any part thereof or for
alterations or modifications in or additions to such Airframe or Engine to the
extent required or permitted by the terms of Section 11 hereof;
(iii) install an Engine on an airframe owned by Lessee (or any
Permitted Sublessee) which airframe is free and clear of all Liens, except:
(A) Permitted Liens and those which apply only to the engines (other than
Engines), appliances, parts, instruments, appurtenances, accessories,
furnishings and other equipment (other than Parts) installed on such airframe
(but not to the airframe as an entirety), (B) the rights of third parties under
interchange agreements which would be permitted under clause (i)
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above, provided that Lessor's title to such Engine shall not be divested as a
result thereof and (C) mortgage Liens or other security interests, provided,
that (as regards this clause (C)), such mortgage Liens or other security
interests provide that such Engine shall not become subject to the lien of
such mortgage or security interest, notwithstanding the installation thereof on
such airframe;
(iv) install an Engine on an airframe leased to Lessee (or any
Permitted Sublessee) or purchased by Lessee subject to a conditional sale or
other security agreement, provided that (x) such airframe is free and clear of
all Liens, except: (A) the rights of the parties to the lease or conditional
sale or other security agreement covering such airframe, or their assignees,
and (B) Liens of the type permitted by subparagraph (iii) of this paragraph (b)
and (y) such lease, conditional sale or other security agreement provides that
such Engine shall not become subject to the lien or security interest of such
lease, conditional sale or other security agreement, notwithstanding the
installation thereof on such airframe;
(v) transfer possession of the Airframe or any Engine to the
United States of America or any instrumentality or agency thereof pursuant to
the Civil Reserve Air Fleet Program for a period that does not extend beyond
the end of the Term so long as Lessee (or any Permitted Sublessee) shall (A)
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
Contracting Office Representative for the Military Aircraft Command of the
United States Air Force, and (B) promptly notify Lessor upon transferring
possession of the Airframe or any Engine to the United States of America or any
agency or instrumentality thereof pursuant to such program; or
(vi) transfer possession of the Airframe or any Engine to the
United States of America or any agency or instrumentality thereof pursuant to a
contract, a copy of which shall be provided to Lessor, provided that the terms
of such contract shall not be inconsistent with the terms hereof (including,
without limitation, that no such contract shall extend beyond the end of the
Term).
(vii) sublease the Aircraft to any Permitted Sublessee,
provided, however, that
A. Lessee shall provide to the Lessor prior written
notice of any proposed sublease and a copy of such sublease
prior to entering into said sublease.
B. Any sublease shall provide that it shall terminate at
the option of Lessor, upon the expiration or earlier
termination of this Lease and the term of such sublease shall
not exceed the then remaining Term of this Lease (including,
any Renewal Term as to which the option to renew has been
irrevocably exercised).
C. Any sublease shall be a true lease and not a lease
intended as "security" as such term is used in Section 1-201
(37) of the UCC.
D. With respect to any sublease, to the extent that it
has not already done so, Lessee agrees to assign, and does
hereby assign, as collateral security, and grant, and does
hereby grant, to Lessor a security interest in (i) the
sublease, (ii) all amounts payable thereunder, (iii) all
proceeds of insurance payable to Lessee pursuant to the
sublease, and (iv) all rights and remedies of Lessee under the
sublease and proceeds from the exercise thereof all to secure
payment and performance of all of Lessee's liabilities,
obligations and indebtedness under this Lease. Lessor's
security interest which is created hereby, if Lessor so
elects, may be perfected by possession of the sublease rather
than filing, as provided in the UCC. Until the occurrence of
a Default or an Event of Default hereunder, Lessee shall have
the right to collect and receive, in accordance with the terms
hereof, rent and other sums payable under such sublease and to
retain, use and enjoy the same. The filing of this Lease with
the FAA shall constitute notice to all third parties of the
security interest of Lessor in any such subleases without the
need for the filing of a specific assignment thereof.
E. Lessee shall deliver to the Lessor a fully executed
copy of each and every sublease, which are, and will be, the
only copies of such sublease marked "Secured Party's
Original." All copies of the sublease shall bear the
following legend: "To the extent, if any, this instrument
constitutes chattel paper under the UCC, no security interest
herein may be created through the transfer and/or possession
of any counterpart other than the counterpart marked 'Secured
Party's Original.'" All copies of each sublease, other than
the "Secured Party's Original" shall bear the following
legend: "'Copy.' No interest herein may be
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<PAGE> 21
created or the aircraft subject hereto through the transfer
and/or possession hereof."
F. Any sublease shall be expressly subject and
subordinate to this Lease and the rights of Lessor hereunder
and in and to the Aircraft. No amendment, termination, waiver
or modification of any of the terms and/or conditions of such
sublease shall be effective unless consented to in writing in
advance by Lessor, provided, however, that Lessor's consent
shall not be necessary with respect to any amendment or
modification of such sublease which increases the amount of
the monthly rentals under such sublease or with respect to any
renewal of such sublease provided that the term of such
sublease, upon effecting such renewal ends on or before the
then current Term of this Lease.
G. Lessee shall deliver to Lessor a consent and
acknowledgment executed by Lessee and Permitted Sublessee in
the form and substance satisfactory to Lessor along with such
other instruments (including, without limitation, FAA
recording documents and UCC financing statements) as Lessor
may reasonably require. Lessee shall agree to take such other
actions as are deemed necessary by Lessor to effect the terms
and conditions of this Section.
H. Lessee shall provide evidence, satisfactory to
Lessor, that Lessor shall have the benefits of Section 1110
(as set forth in Section 6 (x) of this Lease) after giving
effect to such sublease.
I. Such other terms and conditions as Lessor deems
necessary and appropriate.
Notwithstanding anything to the contrary set forth herein,
nothing in this subparagraph (vii) shall prohibit Lessee from
entering into any contract or arrangement with any third party
so long as Lessee maintains operational control of the
Aircraft and the rights, title and interests of such third
party are subject and subordinate to the rights, title and
interests of Lessor hereunder.
Without limiting the generality of the foregoing, the rights of any
Permitted Sublessee or other transferee who receives possession by reason of a
transfer permitted by this Section 16 (other than the transfer of an Engine
which is deemed an Event of Loss) shall be subject and subordinate to, and any
sublease permitted by this Section 16, shall expressly provide that it is
subject and subordinate to, all the terms of this Lease, including, without
limitation, the covenants contained in Section 8 hereof and Lessor's rights,
powers and remedies hereunder, including the right to repossession pursuant to
Section 19 hereof and to avoid such sublease upon such repossession and each
sublease shall expressly require any Permitted Sublessee to forthwith deliver
the Aircraft to Lessor upon any rightful demand therefor pursuant to Section 19
hereof, and the terms of any such sublease shall (A) not permit any Permitted
Sublessee to take any action not permitted to be taken by Lessee in this Lease
with respect to the Aircraft, (B) be consistent with the requirements of this
Lease, (C) not permit any further subleasing or leasing of the Aircraft by the
Permitted Sublessee or otherwise, (D) include appropriate provisions for the
continued registration and maintenance of the Aircraft in accordance with FAA
standards, and compliance with the terms and conditions hereof, including,
without limitation, use and operation, insurance with an appropriate insurance
certificate to be furnished to Lessor prior to Lessee's entry into any such
sublease, (E) provide that the Lessor may, at its option, void or terminate
such sublease following an Event of Default or Default hereunder, (F) provide
that in the event that Lessor declares the Lease to be in default pursuant to
Section 18 hereof, any Permitted Sublessee's rights under such sublease shall,
at the option of Lessor, automatically be deemed to be assigned to Lessor (to
the extent not already assigned to the Lessor), and (G) that the Permitted
Sublessee shall not transfer possession of or any other rights to the Airframe
or any Engine to any Person, except as expressly permitted herein.
No pooling agreement, sublease or other relinquishment of possession
of the Airframe or any Engine shall in any way whatsoever discharge or diminish
any of Lessee's obligations to Lessor (and any assignee, mortgagee and lender
of the Lessor) hereunder, discharge or diminish the obligations of the
Guarantor under the Guaranty or constitute a waiver of Lessor's (or any such
assignee, mortgagee or lender of the Lessor's) rights or remedies hereunder and
all of the obligations of Lessee hereunder shall be and remain primary and
shall continue in full force and effect as the obligations of a principal and
not of a guarantor or surety.
Lessor, may at any time, with or without notice to Lessee, mortgage,
grant a security interest in or otherwise transfer, sell or assign all or any
part of its interest in this Lease or the Aircraft or any Rent or other sums
due or to become due hereunder and Lessee shall perform all of its obligations
under this Lease for the benefit of such assignee, lender, creditor, mortgagee,
transferee or Person except that the interest of any such assignee, lender,
creditor, mortgagee, transferee or Person shall be subject to Lessee's rights
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of use and possession, renewal rights, and purchase options, if any, hereunder,
so long as no Default or Event of Default has occurred and is continuing
hereunder. Lessee agrees that the rights hereunder of any such assignee,
lender, creditor, mortgagee, transferee or Person shall not be subject to any
defense, setoff, recoupment, abatement, reduction, claim or counterclaim
(collectively the "Defenses") that Lessee has or may at any time have against
Lessor for any reason whatsoever and Lessee hereby waives any right to assert
at any time any of the foregoing Defenses against any such assignee, lender,
creditor, mortgagee, transferee or Person. Lessee further agrees that any such
assignee, lender, creditor, mortgagee, transferee or Person shall have all of
Lessor's rights hereunder, but none of the Lessor's obligations or duties.
Lessee acknowledges that any such assignment, transfer or sale will not
materially change its duties or materially increase its burdens or risks
hereunder and that any such assignment, transfer or sale shall be permitted
even if the assignment, transfer or sale would be deemed to materially affect
the Lessee's interests hereunder. Lessee further agrees, if so directed in
writing, to, among other things, pay all sums due or to become due hereunder
directly to the assignee, lender, creditor, mortgagee, transferee or Person or
any other party designated in writing by Lessor or any such assignee, lender,
creditor, mortgagee, transferee or Person. Upon the request of Lessor or any
assignee, lender, creditor, mortgagee, transferee or Person, Lessee also agrees
(i) to promptly execute and deliver to Lessor or to such assignee, lender,
creditor, mortgagee, transferee or Person an acknowledgment of assignment in
form and substance satisfactory to the requesting party which, among other
things, reaffirms the basic terms and conditions of this Lease and (ii) to
comply with the reasonable demands of any such assignee, lender, creditor,
mortgagee, transferee or Person in order to perfect any such assignment or
transfer.
This Lease, including all agreements, covenants, representations and
warranties, shall be binding upon and inure to the benefit of, and may be
enforced by (a) Lessor and its successors, assigns (including, without
limitation, all parties referred to in Section 16), agents and servants and (b)
Lessee and its successors and, to the extent expressly permitted by Lessor,
assigns.
SECTION 17. [Intentionally Left Blank]
SECTION 18. Events of Default.
The term "Event of Default", wherever used herein, shall mean any of
the following events or circumstances (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary, or come about or be
effected by operation of law, or be pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation or any
administrative or governmental body):
(a) Lessee shall fail to make any payment of Rent, Casualty Value
and/or any amount due pursuant to Section 23 hereof within ten (10) days after
any or all of the same shall become due and payable, or, upon demand, any other
amount required to be paid herein or under any other agreement with Lessor; or
(b) Lessee shall fail to keep in full force and effect any of the
insurance required under this Lease, or shall operate the Aircraft at a time
when, or at a place in which, such insurance shall not be in effect; or
(c) Lessee shall fail to perform or observe any covenant, condition
or agreement, (other than those specifically referred to in this Section 18)
required to be performed or observed by it under this Lease or any agreement,
document or certificate delivered by or on behalf of Lessee in connection
herewith, and such failure shall continue for (I) ten (10) days after written
notice thereof from Lessor to Lessee and (II) provided that Lessee is
diligently pursuing a cure of such default to the satisfaction of Lessor, for
forty-five (45) days thereafter; or
(d) Lessee shall default in the payment or performance of any
indebtedness or obligation to Lessor or any affiliated person, firm or entity
controlling, controlled by or under common control with Lessor, under any loan,
note, security agreement, lease, guaranty, title retention or conditional sales
agreement or any other instrument or agreement evidencing such indebtedness
with Lessor or such other affiliated person, firm or entity affiliated with
Lessor; or
(e) any representation or warranty made by Lessee herein or in any
certificate, agreement, statement or document hereto or hereafter furnished to
Lessor in connection herewith, including without limitation, any financial
information disclosed to Lessor, shall prove to be or to have been false or
incorrect in any material respect; or
(f) the commencement of any bankruptcy, insolvency, arrangement,
reorganization, receivership, liquidation or other similar proceeding by or
against Lessee or any of its properties or businesses, the appointment of a
trustee, receiver, liquidator or custodian for Lessee or any of its properties
of business, if Lessee suffers the entry of an order for relief under Title 11
of the United States Code or the making by Lessee of a general assignment or
deed of trust for the benefit of creditors; or
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(g) Lessee defaults in any payment or other obligation to any third
party which default gives rise to a right on behalf of such third party to
accelerate such obligation and such obligation is either accelerated by the
third party or paid in full by the Lessee during the continuance of such
default; or
(h) Lessee (I) sells, transfers or disposes of all or substantially
all of its respective stock, assets or property and after giving effect to such
sale, transfer or disposition the Lessee's tangible net worth does not equal or
exceed its tangible net worth immediately preceding such occurrence, or (II)
merges with or into any other entity and the surviving entity after giving
effect to such merger does not comply with all of the terms and conditions of
this lease, including, without limitation, the terms and conditions of the
Financial Covenants Rider hereto; or
(i) if M. Tom Christopher shall cease to own a minimum of 25% of
Parent's voting capital stock issued and outstanding from time to time; or if
Parent shall cease to own 100% of Lessee's or any Guarantor's (other than
Parent's) voting capital stock issued and outstanding from time to time; or if
M. Tom Christopher shall no longer serve as chairman of the board or chief
executive officer of Parent; or any major automobile manufacturer; or
(j) there shall be a change in the ownership of Parent's stock such
that Parent is no longer subject to the reporting requirements of the
Securities Exchange Act of 1934 or no longer has a class of equity securities
registered under Section 12 of the Securities Act of 1933; or
(k) Lessee shall fail to return the Aircraft to Lessor at the end of
the Term in accordance and in compliance with Section 8 hereof unless Lessee is
diligently pursuing compliance with such Section to the satisfaction of Lessor;
or
(l) Lessee shall or shall attempt to remove, sell, transfer, convey,
pledge, mortgage, encumber, part with possession of, assign or sublet the
Aircraft or any part thereof (except as expressly permitted by the provisions
of this Lease or such use by the United States Government pursuant to the Civil
Reserve Air Fleet Program), use the Aircraft for an illegal purpose or permit
the same to occur or Lessee shall create, incur, assume or suffer to exist any
Lien (other than Permitted Liens) with respect to the Aircraft, this Lease or
Lessor's interests thereunder; or
(m) any event or condition set forth in subsections (b) through (j)
of this Section 18 shall occur with respect to any guarantor or other person
responsible, in whole or in part, for payment or performance of this Lease; or
(n) any event or condition set forth in subsections (d) through (j)
of this Section 18 shall occur with respect to any affiliated person, firm or
entity controlling, controlled by or under common control with Lessee.
Lessee shall promptly notify Lessor of the occurrence of any Default
or Event of Default.
SECTION 19. Remedies.
(a) Upon the occurrence of any Event of Default and so long as the
same shall be continuing, Lessor may, at its option, declare this Lease to be
in default (provided that no such declaration shall be a condition to any suit
against Lessee for specific performance of a defaulted covenant or for damages
in respect of such default upon such occurrence or at any time thereafter), and
at any time thereafter, whether or not such Event of Default shall be
continuing, Lessor may exercise any one or more of the following remedies, as
Lessor in its sole discretion shall lawfully elect:
(i) Proceed by appropriate court action, either at law or in
equity, to enforce performance by Lessee of the applicable covenants of this
Lease or to recover damages for breach thereof.
(ii) By notice terminate this Lease, whereupon all rights of
Lessee to the use of the Aircraft or any part thereof shall absolutely cease
and terminate but Lessee shall remain liable as hereinafter provided and
thereupon Lessee, if so requested by Lessor, shall (a) at its expense promptly
return the Aircraft to the possession of Lessor at such place as Lessor shall
designate and in the condition required upon the return thereof pursuant to and
in accordance with the terms of this Lease, (b) Lessor, at its option, may
enter upon the premises where the Aircraft is located and take immediate
possession of and remove the same, together with any Engines and Parts by
self-help, summary proceedings or otherwise without any liability of any kind
whatsoever on the part of Lessor for or by reason of such entry or taking of
possession and Lessee hereby waives any cause of action it may have arising
from, or in connection with, the foregoing or (c) Lessee will provide storage
as set forth in this Lease. In addition, upon the written request of Lessor,
Lessee, at its expense, will replace any engine installed on the Airframe with
an Engine. Lessee shall, without further demand, forthwith pay to Lessor an
amount equal to any unpaid Rent due and payable for all periods up to and
including the Basic Rent Date following the date on which Lessor has
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<PAGE> 24
declared this Lease to be in default, plus, as liquidated damages for loss of a
bargain and not as a penalty, an amount equal to the Casualty Value of the
Aircraft, computed as of the Basic Rent Date immediately following the date on
which Lessor has declared this Lease to be in default (plus all costs, charges
and expenses including, legal fees and disbursements incurred by Lessor by
reason of the occurrence of any Event of Default or the exercise of any of
Lessor's remedies with respect thereto or otherwise). Following the return of
the Aircraft to Lessor pursuant to this subparagraph (ii), Lessor shall proceed
at its option to sell or otherwise dispose of the Aircraft by public or private
sale, with or without notice, and without having the Aircraft present at the
place of sale and in such manner as it shall deem appropriate, provided that
Lessor, if it so elects, may purchase the Aircraft at such sale for a price not
less than the highest bona fide bid given by a Person unrelated to Lessee.
Lessee waives all its rights under laws governing such sale to the extent
permitted by law. Lessor may apply any deposit or other cash collateral or
sale or remarketing proceeds of the Aircraft at any time to reduce any amounts
due to Lessor. Notwithstanding the foregoing, Lessor may at its option and in
its sole discretion keep idle, lease, or use or operate all or part of the
Aircraft without any liability whatsoever and may use Lessee's premises for
storage pending lease or sale or for holding a sale without liability for rent
or costs or any other matter whatsoever. The net proceeds of such sale or
lease as provided above shall be applied by Lessor (x) first, to pay all costs,
charges and expenses, including the cost of discharging all Liens, on the
Aircraft and all legal fees and disbursements incurred by Lessor as a result of
the Event of Default and/or the exercise of its remedies with respect thereto,
(y) second, to pay to Lessor an amount equal to any unpaid Rent due and payable
and the Casualty Value, to the extent not previously paid and (z) third, to
reimburse Lessee for the Casualty Value to the extent paid by Lessee as
liquidated damages. Any surplus remaining thereafter shall be retained by
Lessor. To the extent that all Rent then due and payable with respect to the
Aircraft and the Casualty Value have not been previously paid, Lessee shall
forthwith pay upon demand to Lessor the sum of (A) the amount by which (1) the
sum of (aa) all Rent then due and payable with respect to the Aircraft, (bb)
the Casualty Value or portion thereof not theretofore paid and (cc) the amount
payable under clause (x) of the preceding sentence exceeds (2) the net proceeds
of the sale or lease of the Aircraft actually received by the Lessor and (B)
interest at the Late Payment Rate on the full amount of said Casualty Value and
Rent then due and unpaid, computed from the date such sums are due until the
same are paid by Lessee. For purposes of computing liquidated damages under
this subparagraph (ii) only, the proceeds of any releasing of the Aircraft
shall be determined by discounting to present value, at the rate of twelve and
one-half percent (12.5%) per annum, the periodic rentals which are payable to
Lessor pursuant to such re-lease, up to and including the Expiration Date.
(b) Lessee shall be liable for all costs, charges and expenses,
including legal fees and disbursements, incurred by Lessor by reason of the
occurrence of any Event of Default, the exercise of any of Lessor's rights or
remedies with respect thereto or otherwise.
(c) Lessee hereby waives, to the maximum extent now or hereafter
permitted by applicable law, for itself and for its successors or assigns any
and all rights Lessee or Lessee's successors or assigns may have following an
Event of Default under any bankruptcy, insolvency or similar laws, rules or
regulations with respect to the continued possession or use of the Aircraft or
relief from the payment of Rent therefor or otherwise with respect to this
Lease. Rejection of this Lease by any bankruptcy trustee or
debtor-in-possession shall entitle Lessor to the immediate return of the
Aircraft and to liquidated damages calculated in the manner provided for in
Section 19(a)(ii) above with respect to an Event of Default.
(d) No right or remedy referred to herein is intended to be
exclusive, but each shall be cumulative and in addition to any other right or
remedy referred to above or otherwise available to Lessor at law or in equity,
including, without limitation, such rights and/or remedies as are provided for
in the UCC. No express or implied waiver by Lessor of any Default or Event of
Default hereunder shall in any way be, or be construed to be, a waiver of any
future or subsequent Default or Event of Default. The failure or delay of
Lessor in exercising any rights granted it hereunder upon the occurrence of any
of the contingencies set forth herein shall not constitute a waiver of any such
right upon the continuation or reoccurrence of any such contingencies or
similar contingencies, and any single or partial exercise of any particular
right by Lessor shall not exhaust the same or constitute a waiver of any other
right provided for or otherwise referred to herein.
(e) To the extent permitted by applicable law, Lessee hereby waives
any rights now or hereafter conferred by statute or otherwise which may require
Lessor to sell, lease or otherwise use the Aircraft in mitigation of Lessor's
damages as set forth in this Section 19 or which may otherwise limit or modify
any of Lessor's rights or remedies under this Section 19. To the extent
permitted by applicable law, Lessee waives any and all rights and remedies
conferred upon a lessee by Section 2A-508 to 2A-522 (inclusive) of the UCC,
including, without limitation, any rights of Lessee (a) to cancel or repudiate
this Lease or any supplement or any document relating thereto, (b) to reject or
evoke acceptance of the Aircraft or any component thereof and (c) to recover
from Lessor any general or consequential damages, for any reason whatsoever.
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<PAGE> 25
SECTION 20. Performance of Obligations of Lessee by Lessor.
If any Default or Event of Default occurs or if Lessee fails to
perform or comply with any of its agreements contained herein, Lessor shall
have the right, but shall not be obligated, to effect such performance or
compliance and the amount of any out-of-pocket expenses and other reasonable
expenses of Lessor incurred in connection with the performance of or compliance
with such agreements, as the case may be, together with interest thereon at the
Late Payment Rate, shall be payable by Lessee promptly upon demand and any such
action by Lessor shall not be deemed a cure or waiver of any Default or Event
of Default hereunder.
SECTION 21. Intent
Title to the Aircraft shall at all times remain in Lessor and at no
time during the Term shall title become vested in Lessee. Lessee shall acquire
no right, title or interest in or to the Aircraft except the right to use the
same pursuant to the terms of this Lease. Notwithstanding anything to contrary
contained herein or otherwise, (i) should a court of competent jurisdiction
determine that this agreement is one intended as security, and (ii) to secure
the prompt and full payment and performance as and when due of any and all
obligations and indebtedness of Lessee to Lessor, now existing or hereafter
created of any kind whatsoever, including, without limitation any other
aircraft lease executed contemporaneously with this Lease, Lessee hereby grants
and conveys to, Lessor a security interest and lien in this Lease, the
Aircraft, any subleases relating to the Aircraft or any part thereof and any
and all proceeds (including insurance proceeds) of any or all of the foregoing.
The security interest granted herein shall survive the termination or
expiration of this Lease by any Event of Default or Default or otherwise and
shall remain in full force and effect until such time as Lessee has no further
obligations of any kind whatsoever under this Lease.
SECTION 22. Notices.
All communications and notices provided for herein shall be in writing
and shall become effective upon hand delivery or upon delivery to an overnight
delivery service or two (2) Business Days after being deposited in the United
States mail with proper postage for first-class mail prepaid, sent by
registered or certified mail, return receipt requested, and addressed to Lessor
or Lessee at their respective addresses set forth under the signatures hereto
or such other address as either party may hereafter designate by written notice
to the other.
SECTION 23. End of Term Options.
(a) If no Event of Default (or event or condition which, with the
passage of time or giving of notice, or both, would become such an Event of
Default) has occurred and is continuing, on each Expiration Date, Lessee shall
have the option to: (i) purchase the Aircraft pursuant to paragraph (b) below
(the "Purchase Option"), (ii) sell the Aircraft pursuant to paragraph (c) below
(the "Sale Option") or (iii) on any Expiration other than the Final Expiration
Date, to renew the Term of the Lease for an additional one year period on the
same terms and conditions as are set forth herein except that the amount of
Basic Rent payable during such Renewal Term shall be as set forth for such
Renewal Term on Schedule 2-A to Lease Supplement No. 1 (the "Renewal Option").
Subject to the foregoing limitations on exercise of the Renewal Option, Lessee
shall give Lessor 180 days irrevocable written notice (the "Option Notice")
prior to each Expiration Date if Lessee intends to exercise the Purchase
Option, the Sale Option or the Renewal Option. If Lessee does not provide a
timely Option Notice, then the Lessee shall be irrevocably deemed to have
exercised (x) the Renewal Option as of the then current Expiration Date
provided that the then current Expiration Date is not the Final Expiration
Date, or (y) the Purchase Option as of the then current Expiration Date if the
then current Expiration Date is Final Expiration Date.
(b) Upon exercise of the Purchase Option, Lessee shall pay to Lessor
on the applicable Expiration Date an amount equal to: (i) all Rent then due
and owing under the Lease; plus (ii) all taxes, assessments and other charges
due or payable in connection with the sale of the Aircraft to Lessee; plus
(iii) the Purchase Option Price as of such Expiration Date. Upon receipt of
the amounts set forth in the preceding sentence, Lessor shall convey all of
Lessor's right, title and interest in and to the Aircraft to Lessee on an
"AS-IS," "WHERE-IS" BASIS WITHOUT REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, and without recourse to Lessor, except that the Aircraft shall be free
and clear of all liens created by Lessor.
(c) Upon exercise of the Sale Option, Lessee shall place the Aircraft
in the condition required by Section 8 of the Lease and shall obtain bids for
the Aircraft and market such Aircraft in a commercially reasonable manner to
the highest qualified bidder on or before the Expiration Date, at Lessee's sole
cost and expense; provided, however, that no sale shall occur without Lessor's
prior written consent. Lessor agrees that, if so requested by Lessee and upon
performance of and compliance with the other terms and conditions of this
Section 23 by Lessee, it shall consent to any bona fide offer to purchase the
Aircraft, including, any offer to purchase the Aircraft made by Lessee, which
equals or exceeds the Maximum Lessor Risk. Lessor may also offer to purchase
the Aircraft pursuant to this Section 23 and/or solicit and/or obtain bids for
the Aircraft, provided, however, that Lessor shall be under no duty to so act.
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If the Aircraft is sold pursuant to the exercise of a Sale Option on
or before the applicable Expiration Date, then, on the earlier of such
Expiration Date or the date on which the proceeds from such sale are paid by
the purchaser of the Aircraft (the "Termination Date"), Lessor shall receive
all proceeds of such sale and Lessee shall pay to Lessor: (i) all Rent due and
owing under the Lease through and including the Expiration Date; plus (ii) all
taxes, assessments and other charges due or payable in connection with the sale
of the Aircraft; plus (iii) the amount by which the net proceeds of such sale
are less than the Purchase Option Price as of the Expiration Date, if any, but
in no event more than the Maximum Lessee Risk, as of the Expiration Date. In
the event that the sale price is greater than the Purchase Option Price,
together with the amounts set forth in (i) and (ii) above to the extent that
such amounts have not already been paid by Lessee, any excess of such sales
price shall be remitted to Lessee. Upon receipt of the amounts set forth in
the preceding sentence, Lessor shall convey all of Lessor's right, title and
interest in and to the Aircraft to the purchaser thereof on an "AS-IS,"
"WHERE-IS" BASIS WITHOUT REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, and
without recourse to Lessor, except that the Aircraft shall be free and clear of
all liens created by Lessor.
If the Aircraft is not sold pursuant to the exercise of a Sale Option
on or before such Expiration Date, then, on such Expiration Date, Lessee shall
return the Aircraft to Lessor under the terms and in the condition required by
Section 8 of the Lease, and shall pay to Lessor an amount equal to: (i) all
Rent then due and owing under the Lease through and including such Expiration
Date; plus (ii) the applicable Purchase Option Price. Lessor's actual out-of-
pocket costs and expenses incurred in removing, storing, repairing and selling
the Aircraft during the period between the date the Aircraft is returned and
the actual sale thereof shall be payable to Lessor by Lessee upon presentation
of Lessor's invoice therefor. Upon sale of the Aircraft, the net proceeds
thereof shall be allocated: FIRST, to Lessor in an amount equal to: (i) to
the extent that such amounts have not already been paid by Lessee, all Rent
then due and owing under the Lease through and including such Expiration Date,
plus (ii) to the extent that such amounts have not already been paid by Lessee,
Lessor's actual out-of-pocket costs and expenses incurred in removing, storing,
repairing and selling the Aircraft, plus (iii) all taxes, assessments and other
charges due or payable in connection with the sale of the Aircraft, plus (iv)
to the extent that such amount has not already been paid by Lessee the Purchase
Option Price and SECOND, the excess, if any, to Lessee.
SECTION 24. Intentionally Left Blank.
SECTION 25. Transaction Expenses.
Lessee shall pay all actual and reasonable fees, costs and expenses
incurred by Lessor in connection with this Lease, whether or not the
transactions contemplated hereby are consummated, including, without
limitation, appraisal fees, Lessor's in-house counsel expenses and fee of
$15,000.00, FAA Counsel fees and expenses, and FAA and UCC title and lien
searches, reports, filing and recording fees, charges and taxes. Lessee also
agrees to pay all fees and expenses of Lessor's counsel, FAA Counsel and all
other third parties who are engaged by Lessor to enforce Lessor's rights and/or
remedies hereunder, to update any FAA or UCC title and/or lien reports and/or
to review, file and record any and all documents and instruments as required by
Lessor or the FAA during and after the Term of this Lease.
SECTION 26. Miscellaneous.
(a) All agreements, indemnities, representations, covenants and
warranties contained in this Lease or any agreement, document or certificate
delivered pursuant hereto or thereto or in connection herewith or therewith
shall survive the execution and delivery of this Lease and the expiration or
other termination of this Lease for any reason whatsoever.
(b) Any provision of this Lease which may be determined to be
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, Lessee hereby waives any provision hereof
prohibited or unenforceable in any respect.
(c) This Lease, and each related instrument, document, agreement and
certificate, collectively constitute, and are intended to collectively
constitute, the complete and exclusive statement of the terms of the agreement
between Lessor and Lessee with respect to the purchase and leasing of the
Aircraft and cancel and supersede any and all prior or contemporaneous oral or
written understandings, memoranda, negotiations, communications and agreements
with respect thereto including, without limitation, any proposal letter,
commitment letter and/or term sheet delivered to the Lessee by Lessor.
(d) This Lease may be executed in any number of counterparts and by
the different parties hereto on separate counterparts. Each counterpart of the
Lease bears the following legend on the face and execution pages thereof:
"This is Counterpart No. 1 of a total of 3 counterparts. Only Counterpart No.
1 shall be
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considered chattel paper for purposes of the Uniform Commercial Code and a
security interest may be perfected only by possession of Counterpart No. 1."
To the extent, if any, that this Lease constitutes chattel paper (as such term
is defined in the UCC as in effect in any applicable jurisdiction) no security
interest in this Lease may be created through the transfer or possession of any
counterpart other than the counterpart marked "Counterpart No. 1".
(e) The division of this Lease into sections, the provision of a
table of contents and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Lease.
(f) The actual dates of execution hereof by the parties hereto are
respectively the dates set forth under the signatures hereto, however this
Lease shall be effective as of the date first above written.
(g) Lessee will promptly and duly execute and deliver to Lessor and
any assignee, mortgagee and/or lender of the Lessor, such other documents and
assurances, including, without limitation, such amendments to this Lease as may
be required by Lessor (and by any assignee, mortgagee and/or lender of the
Lessor), and UCC financing statements and continuation statements, and will
take such further action as Lessor or any such assignee, mortgagee and/or
lender may from time to time request in order to carry out more effectively the
intent and purposes of this Lease and to establish and protect the rights and
remedies created or intended to be created in favor of Lessor and of any such
assignee, mortgagee and/or lender. Lessee irrevocably appoints Lessor (and any
assignee, mortgagee and/or lender of the Lessor) its attorney-in-fact to act in
Lessee's name and on its behalf to make, execute, deliver and file any
instruments or documents and to take any action as Lessor (and any such
assignee, mortgagee and/or lender) deems necessary or appropriate to carry out
the intent of this Lease or any agreements, documents or instruments related
thereto. To the extent appropriate or permissible under applicable law, such
appointment is coupled with an interest, shall be irrevocable and shall
terminate only upon payment in full of the obligations set forth in this Lease
and/or any agreements, documents or instruments related thereto.
(h) Time is of the essence in the payment and performance of all of
Lessee's obligations under the Lease. This Lease shall be deemed to have been
executed in Rhode Island by virtue of the Lessor having countersigned and
accepted the Lease in Rhode Island and shall be deemed to be performed in Rhode
Island by virtue of the payment of Rent to be made to Lessor in Rhode Island,
and this Lease shall be delivered for closing purposes in Lessor's office at 50
Kennedy Plaza, Providence, Rhode Island. This Lease shall in all respects be
governed by, and construed in accordance with, the laws of the State of Rhode
Island, without giving effect to principles of conflicts of law or choice of
law, including all matters of construction, validity and performance. Lessee
hereby irrevocably consents and agrees that any legal action, suit or
proceeding arising out of or in any way in connection with this Agreement may
be instituted or brought in the courts of the State of Rhode Island or the
United States District Court for the District of Rhode Island, as Lessor may
elect, and by execution and delivery of this Lease, Lessee hereby irrevocably
accepts and submits to, for itself and in respect of its property, generally
and unconditionally, the non-exclusive jurisdiction of any such court, and to
all proceedings in such courts. To the extent permitted by applicable law,
this Lease shall be deemed a "finance lease" under Section 2A-103(g) of the
UCC. LESSEE ACKNOWLEDGES AND AGREES THAT THIS LEASE IS A COMMERCIAL
TRANSACTION. LESSEE ALSO HEREBY KNOWINGLY AND FREELY WAIVES ALL RIGHTS TO
TRIAL BY JURY IN ANY LITIGATION ARISING HEREFROM OR IN RELATION HERETO. Any
action by Lessee against Lessor for any cause of action relating to this Lease
shall be brought within one year after any such cause of action first arises.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
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SECTION 27. AMENDMENTS.
NO TERM OR PROVISION OF THIS LEASE MAY BE AMENDED, ALTERED, WAIVED,
DISCHARGED OR TERMINATED ORALLY, EXCEPT IN A WRITING SIGNED BY A DULY
AUTHORIZED OFFICER OF THE PARTY AGAINST WHOM THE ENFORCEMENT OF THE AMENDMENT,
ALTERATION, WAIVER, DISCHARGE OR TERMINATION IS SOUGHT.
RRW
_________________
LESSEE'S INITIALS
SECTION 28. Truth in Leasing.
THE AIRCRAFT, AS EQUIPMENT, BECAME SUBJECT TO THE MAINTENANCE
REQUIREMENTS OF PART 121 OF THE FEDERAL AVIATION REGULATIONS ("FARS") UPON THE
REGISTRATION OF THE AIRCRAFT WITH THE FAA. LESSOR CERTIFIES THAT DURING THE 12
MONTHS (OR PORTION THEREOF DURING WHICH THE AIRCRAFT HAS BEEN SUBJECT TO U.S.
REGISTRATION) PRECEDING THE EXECUTION OF THIS LEASE, THE AIRCRAFT HAS BEEN
MAINTAINED AND INSPECTED UNDER PART 121 OF THE FARS. LESSEE CERTIFIES THAT THE
AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER PART 121 OF THE FARS FOR
OPERATIONS TO BE CONDUCTED UNDER THE LEASE. UPON EXECUTION OF THIS LEASE, AND
DURING THE TERM HEREOF, THE LESSEE, WHOSE NAME AND ADDRESS ARE SET FORTH
IMMEDIATELY BELOW, ACTING BY AND THROUGH THE SIGNATORY HERETO, WHO EXECUTES
THIS SECTION SOLELY IN HIS CAPACITY OF THE LESSEE SET FORTH BELOW HIS
SIGNATURE, CERTIFIES THAT THE LESSEE SHALL BE RESPONSIBLE FOR THE OPERATIONAL
CONTROL OF THE AIRCRAFT UNDER THE LEASE, UNLESS, THE AIRCRAFT IS SUBLEASED TO
AN AIR CARRIER OR AIR TAXI OPERATOR CERTIFICATED UNDER PART 121 OR PART 135,
RESPECTIVELY, OF THE FARS. THE LESSEE FURTHER CERTIFIES THAT IT UNDERSTANDS ITS
RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FARS, PROVIDED HOWEVER, THAT
THE LESSEE SHALL NOT BE DEEMED TO BE RESPONSIBLE FOR THE OPERATIONAL CONTROL OF
THE AIRCRAFT FOR SO LONG AS THE AIRCRAFT IS IN POSSESSION OF ANY SUBLESSEE THAT
IS CERTIFICATED UNDER PART 121 OR PART 135 OF THE FARS. AN EXPLANATION OF
FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FARS CAN BE OBTAINED FROM
THE NEAREST FEDERAL AVIATION FLIGHT STANDARD DISTRICT OFFICE, GENERAL AVIATION
DISTRICT OFFICE OR AIR CARRIER DISTRICT OFFICE.
IN WITNESS WHEREOF, the parties hereto have caused the Lease to be
duly executed by the respective officers thereunto duly authorized.
Lessor: Lessee:
Fleet Capital Corporation Kitty Hawk Aircargo, Inc.
By: /s/ PATRICE S. KANE By: /s/ RICHARD R. WADSWORTH
------------------------- ----------------------------
Print Name: Patrice S. Kane Print Name: Richard R. Wadsworth
Title: Vice President Title: Vice President and CFO
Date: December 26, 1996 Date: December 27, 1996
Address: 50 Kennedy Plaza, 5th Fl. Address: P.O. Box 612787
Providence, RI 02903 1515 W. 20th Street
DFW International Airport,
Texas 75261
This is Counterpart No. 1 of a total of 3 counterparts. Only Counterpart No.
1 shall be considered chattel paper for purposes of the Uniform Commercial Code
and a security interest may be perfected only by possession of Counterpart No.
1.
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EXHIBIT A
Definitions
(a) All References in the Lease to designated Sections and other
subdivisions are to such designated Sections and other subdivisions only, and
the words "herein," "hereof" and "hereunder" and other words of similar import
refer to the Lease as whole and not to any particular Section or other
subdivision.
(b) Except as otherwise indicated, all the agreements and instruments
defined herein or in the Lease shall mean such agreements and instruments as
the same may from time to time be supplemented or amended, or as the terms
thereof may be waived or modified to the extent permitted by, and in accordance
with, the terms thereof.
(c) The terms defined herein and in the Lease shall, for purposes of
the Lease and all Lease Supplements, Schedules and Exhibits thereto, have the
meanings assigned to them and shall include the plural as well as the singular
as the context requires.
(d) Unless otherwise specified, all financial terms used in this
Lease shall be defined in accordance with GAAP and shall be determined on a
consolidated basis for Parent.
(e) The following terms shall have the following meanings for all
purposes of the Lease:
Basic Rent Date, Daily Lease Rate, Expiration Date, First Basic Rent
Date, Last Basic Rent Date, Maximum Lessee Risk, Maximum Lessor Risk, Permitted
Deductible, Primary Hangar Location, Purchase Option Price and Rent
Commencement Date shall have the meanings set forth in Schedules 2, 2-A and 2-B
to Lease Supplement No. 1 to the Lease.
Abatements shall have the meaning set forth therefor in Section 7 of
the Lease.
Acceptance Date shall mean the date (which date shall be no later than
the date designated as the "Last Acceptance Date" on Schedule No. 2 to Lease
Supplement No. 1) on which Lessee has irrevocably and unconditionally accepted
the Aircraft for lease under the Lease as evidenced by the execution and
delivery of Lease Supplement No. 1 relating thereto dated such date.
Additions shall have the meaning set forth in Section 11 of the Lease.
Aircraft shall mean (i) the Airframe, (ii) the Engines, and (iii) to
the extent applicable, the Records.
Aircraft Marking shall mean the marking described on Lease Supplement
No. 2.
Airframe shall mean (i) the Aircraft described in Schedule No. 1 to
Lease Supplement No. 1, and, unless the context requires otherwise, shall not
include the Engines and (ii) any and all Parts from time to time incorporated
in, installed on or attached to such Aircraft and any and all Parts removed
therefrom so long as title thereto shall remain vested in Lessor in accordance
with the applicable terms of this Lease after removal from the Aircraft.
Basic Rent shall have the meaning set forth in Section 3 of the Lease.
Basic Term shall mean the number of months set forth in Schedule No. 2
to Lease Supplement No. 1.
Bill of Sale shall have the meaning set forth in Section 2 of the
Lease.
Business Day shall mean any day other than a Saturday, Sunday or other
day on which banks located in Providence, Rhode Island are closed or are
authorized to close.
Casualty Value shall have the meaning set forth in Schedule No. 3 to
Lease Supplement No. 1 to the Lease except that, in the case of an Event of
Loss covered by the insurance required to be maintained by Lessee pursuant to
Section 14(b) of the Lease (or which would have been covered by such insurance,
had such insurance been maintained as required), Casualty Value shall mean the
higher of fair market sales value (as determined by the Lessor in its sole
discretion) or the value determined in accordance with Schedule No. 3 to Lease
Supplement No. 1.
29
<PAGE> 30
Civil Reserve Air Fleet Program shall mean the Civil Reserve Fleet
Program administered by the United States Government pursuant to Executive
Order No. 11490, as amended, or any substantially similar program.
Claims shall have the meaning set forth in Section 15 of the Lease.
Default shall mean an event or circumstance which, after the giving of
notice or lapse of time, or both, would become an Event of Default.
Defenses shall have the meaning set forth in Section 16 of the Lease.
Engine shall mean (i) each of the engines described and listed by
manufacturer's serial numbers in Schedule No. 1 to Lease Supplement No. 1 and
originally installed on the Airframe covered by such Lease Supplement whether
or not thereafter installed on such Airframe or any other airframe from time to
time; (ii) any engine which may from time to time be substituted, pursuant to
the applicable terms of this Lease, for an Engine leased hereunder and (iii) in
each case set forth in clauses (i) and (ii) hereof, with any and all Parts
incorporated in or installed on or attached to such Engine or engine or any and
all Parts removed therefrom so long as title thereto shall remain vested in
Lessor in accordance with the applicable terms of this Lease after removal from
such Engine. The term "Engines" means, as of any date of determination, all
Engines leased hereunder.
Event of Default shall have the meaning set forth in Section 18 of the
Lease.
Event of Loss with respect to the Aircraft, the Airframe or any Engine
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 which results
in an insurance settlement with respect to such property on the basis of a
total loss or constructive total loss; (iii) the condemnation, confiscation or
seizure of, or requisition of title to or use of, such property by the act of
any government (foreign or domestic) or of any state or local authority or any
instrumentality or agency of the foregoing other than use by the United States
Government pursuant to the Civil Reserve Air Fleet Program where such use is in
express compliance with the terms and conditions of this Lease ("Requisition of
Use"); (iv) as a result of any rule, regulation, order or other action by any
government (foreign or domestic) or governmental body (including, without
limitation, the FAA or any similar foreign governmental body) having
jurisdiction, the use of such property shall have been prohibited, or such
property shall have been declared unfit for use, for a period of six (6)
consecutive months, unless Lessee, prior to the expiration of six-month period,
shall have undertaken and, in the opinion of the Lessor, shall be diligently
carrying forward all steps which are necessary or desirable to permit the
normal use of such property by Lessee or, in any event, if use shall have been
prohibited, or such property shall have been declared unfit for use, for a
period of twelve (12) consecutive months; (v) with respect to an Engine, the
removal thereof from the Airframe for a period of six (6) months or longer,
whether or not such Engine is operational other than as expressly permitted by
Sections 11 (f) or 13(b) hereof, or (vi) such property shall be returned to the
Manufacturer, other than for modification in the event of patent infringement
or for repair or replacement (any such return being herein referred to as a
"Return to Manufacturer"). The date of such Event of Loss shall be the date of
such theft, disappearance, destruction, damage, Requisition of Use,
prohibition, unfitness for use for the stated period, removal for the stated
period or Return to Manufacturer. 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 any Engine shall
not, without loss of the Airframe, be deemed an Event of Loss with respect to
the Aircraft.
FAA shall mean the United States Federal Aviation Administration
and/or the Administrator of the Federal Aviation Administration and the
Department of Transportation, or any person, governmental department, bureau,
authority, commission or agency succeeding the functions of any of the
foregoing.
FAA Counsel shall mean Messrs. Daugherty, Fowler & Peregrin, 204 North
Robinson, 900 City Place, Oklahoma City, Oklahoma 73102, or such other counsel
as Lessor may designate.
Federal Aviation Act shall Subtitle VII of Title 49 of the United
States Code, as amended and recodified.
Final Inspection shall have the meaning set forth therefor in Section
12 of the Lease.
30
<PAGE> 31
Financial Covenants Rider shall mean the Financial Covenants Rider set
forth as Exhibit D hereto.
GAAP shall mean generally accepted accounting principles, applied on a
consistent basis, as set froth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are to be applied on a "consistent basis" when the
accounting principles applied in a current period are comparable in all
material respects to those accounting principles applied in a preceding period.
Guarantor shall mean each of Kitty Hawk, Inc., a Delaware corporation,
Aircraft Leasing, Inc., a Texas corporation and Kitty Hawk Charters, Inc. a
Texas corporation.
Guaranty shall mean the Guaranty described in Section 2 (I)(a)(xii) of
the Lease.
Impositions shall have the meaning set forth in Section 10 of the
Lease.
Late Payment Rate shall mean the lesser of a rate equal to 1.5% per
month or the highest rate permitted by applicable law. The Late Payment Rate
shall be computed on the basis of a 360 day year and a 30 day month.
Lease Supplement shall mean a supplement to the Lease to be entered
into on the Acceptance Date by Lessor and Lessee, which supplement shall be
substantially in the form as attached to the Lease and identified as either
Lease Supplement No. 1 or Lease Supplement No. 2 both of which are attached to
the Lease and made a part thereof.
Lessor's Cost shall have meaning set forth in Schedule No. 2 to Lease
Supplement No. 1 to the Lease.
Lessor's Liens shall mean any Liens created or granted by Lessor with
respect to Lessor's purchase or financing of the Aircraft or resulting from
claims against Lessor not related to Lessor's ownership of the Aircraft.
Liens shall mean all liens, charges, security interests, and
encumbrances of every nature and description whatever, including, without
limitation, liens, charges, security interests and encumbrances with respect to
Impositions, (other than Lessor's Liens) and rights of third parties under
management, pooling, interchange, overhaul, repair or other similar agreements
or arrangements.
Major Checks shall have the meaning set forth therefor in Section 12
of the Lease.
Manufacturer shall mean the manufacturers identified on Lease
Supplement No. 2 and their respective successors and assigns.
Option Notice shall have the meaning set forth therefor in Section 23
of the Lease.
Parent shall mean Kitty Hawk, Inc., a Delaware corporation.
Parts shall mean all appliances, avionics, parts, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
(other than Additions or complete Engines), which may from time to time be
incorporated or installed in or attached to the Airframe or any Engine or so
long as title thereto shall be vested in Lessor in accordance with the
applicable terms of this Lease.
Permitted Liens shall mean (a) the respective rights of others under
agreements or arrangements to the extent expressly provided by the terms of
Section 16 of the Lease, (b) Lessor's Liens and (c) Liens for taxes either not
yet due or being contested by Lessee in good faith and inchoate materialmen's,
mechanic's, workmen's, repairmen's, employee's or other like Liens arising in
the ordinary course of business of Lessee for sums not yet delinquent or being
contested in good faith (and for the payment of which adequate assurances
and/or security have, in Lessor's sole judgment, been provided to Lessor) with
due diligence and by appropriate proceedings, if counsel for Lessor shall have
determined in his sole opinion that the nonpayment of any such tax or Lien or
the contest of any such payment in such proceedings does not and will not
adversely affect the title, property or rights of Lessor.
31
<PAGE> 32
Permitted Sublessee shall mean any person, firm or entity controlling,
controlled by or under common control with Lessee (or such other Person
consented to in writing by Lessor, which consent shall be given, if at all, in
the sole discretion of Lessor) which is (i) a U.S. Air Carrier, (ii) is not the
subject of a petition, proceeding or final order under any bankruptcy,
insolvency, liquidation or reorganization laws, or subject to any receivership
or custodian proceedings or appointments under laws, or any other similar laws,
in effect on the date any permitted sublease is entered into pursuant to this
Lease, and (iii) which enters into a sublease in accordance with, and contains
all the terms and conditions of, Section 16 hereof.
Person shall mean any individual, partnership, corporation, trust,
association, joint venture, joint stock company, limited liability company,
limited liability partnership or non-incorporated organization or government or
any department or agency thereof, or any other entity of any kind whatsoever.
Purchase Documents shall mean the documents identified on Lease
Supplement No. 2 and such other documents as Lessor shall consider necessary or
advisable in order to convey to Lessor title to the Aircraft as contemplated
under the Lease, which documents shall be in form and substance satisfactory to
Lessor.
Purchase Option shall have the meaning set forth therefor in Section
23 of the Lease.
Records means any and all logs, manuals, certificates, date and
inspection, modification, maintenance, engineering, technical and overhaul
records (including all computerized data, records and materials of any kind
whatsoever) with respect to the Aircraft, including, without limitation, all
records required to be maintained by the FAA or any other governmental agency
or authority having jurisdiction with respect to the Aircraft or any
Manufacturer of the Aircraft (or any part thereof) with respect to the
enforcement of warranties or otherwise, which Records shall be at all times the
property of the Lessor after the Acceptance Date.
Renewal Term shall have the meaning set forth in Section 23 of the
Lease.
Rent shall have the meaning set forth in Section 3 of the Lease.
Replacement Parts shall have the meaning set forth in Section 11 of
the Lease.
Requisition of Use shall have the meaning set forth in the Event of
Loss definition contained herein.
Renewal Option shall have the meaning set forth therefor in Section 23
of the Lease.
Return to Manufacturer shall have the meaning set forth in the Event
of Loss definition contained herein.
Sale Option shall have the meaning set forth therefor in Section 23 of
the Lease.
Section 1110 shall have the meaning set forth in Section 6 of the
Lease.
Supplemental Rent shall have the meaning set forth in Section 3 of the
Lease.
Termshall mean the Basic Term together with any Renewal Term entered
into pursuant to Section 23 of the Lease.
Termination Date shall have the meaning set forth therefor in Section
23 of the Lease.
Test Flight shall have the meaning set forth therefor in Section 12 of
the Lease.
UCC shall mean the Uniform Commercial Code as in effect in the
applicable jurisdiction.
32
<PAGE> 33
U.S. Air Carrier means any United States air carrier as to which there
is in force exemption authority under Part 298 issued by the U.S. Department of
Transportation or a certificate issued pursuant to Section 401 of the Federal
Aviation Act, and as to which there is in force an air carrier operating
certificate issued pursuant to Part 121 of the regulations under such Federal
Aviation Act, or which may operate as an air carrier by certification or
otherwise under any successor or substitute provisions therefor or in the
absence thereof.
Warranty Bill of Sale shall mean a warranty bill of sale in the form
of Exhibit B hereto.
Initials:
Lessee: RRW
__________________
Lessor: PSK
__________________
33
<PAGE> 34
LEASE SUPPLEMENT NO. 1
under
AIRCRAFT LEASE dated as of December 30, 1996, by and between Fleet
Capital Corporation, as lessor ("Lessor"), and Kitty Hawk Aircargo, Inc., as
lessee ("Lessee").
(a) The Aircraft.
Lessee hereby acknowledges, agrees and certifies that the Aircraft as
set forth and described in Schedule No. 1 hereto is in Lessee's possession, has
been inspected by Lessee to its complete satisfaction, has been found to be in
good working order, repair and condition and fully equipped to operate as
required under applicable law for its purpose, is of a size, design, capacity
and manufacture selected by Lessee and suitable for Lessee's purposes, and is,
as of the date set forth below, unconditionally, irrevocably and fully accepted
by Lessee for lease under the Lease. Lessee hereby further unconditionally and
irrevocably reaffirms its acknowledgments and agreements in the Lease. All
capitalized terms used herein which are not otherwise defined herein shall have
the meanings given to such terms in the Lease.
(b) Representations by Lessee.
Lessee hereby represents and warrants to Lessor that on the date
hereof:
(1) The representations and warranties of Lessee set forth in the
Lease and all certificates and opinions delivered in connection therewith were
true and correct in all respects when made and are true and correct as of the
date hereof, with the same force and effect as if the same had been made on
this date.
(2) Lessee has satisfied or complied with all conditions precedent
and requirements as set forth in the Lease and Lease Supplements which are
required to be or to have been satisfied or complied with on or prior to the
date thereof.
(3) No Default or Event of Default under the Lease has occurred and
is continuing on the date hereof.
(4) Lessee has obtained, and there are in full force and effect, such
insurance policies with respect to the Aircraft, as such term is defined in the
Lease, as are required to be obtained under the terms of the Lease.
(5) Lessee has furnished no equipment for the Aircraft other than as
stated on Schedule No. 1 hereto or permitted as an Addition thereto pursuant to
the Lease.
(6) The facts, terms, information, description and costs set forth in
the attached schedules hereto are true, complete, accurate and correct.
(7) The Lease shall be deemed a "finance lease" under Section 2A-103
(g) of the UCC.
Date of unconditional, irrevocable and final acceptance by Lessee:
December __, 1996.
IN WITNESS WHEREOF, Lessee has caused this Lease Supplement No. 1 to
be duly executed by its officer thereunto duly authorized.
Kitty Hawk Aircargo, Inc.
By: /s/ RICHARD R. WADSWORTH
--------------------------------
Title: Vice President and CFO
-----------------------------
Date: December 27, 1996
34
<PAGE> 35
SCHEDULE NO. 1
TO
LEASE SUPPLEMENT NO. 1
Description of Aircraft
1978 Boeing B727-214 Advanced Freighter aircraft which consists of the
following components:
(a) Airframe bearing FAA Registration Mark 751US and manufacturer's
serial number 21513.
(b) three (3) Pratt & Whitney JT8D-15A engine(s) bearing
manufacturer's serial numbers 708336, 708393 and 657572, (each of which has
750 or more rated takeoff horsepower or the equivalent of such horsepower).
(c) Standard accessories and optional equipment and such other items
fitted or installed on the Aircraft and as may be more particularly described
hereinafter:
See Schedule A which is attached hereto and made a part hereof.
(d) Those items of Lessee furnished equipment described in a bill of
sale or bills of sale therefor (copies of which may be appended hereto),
delivered by Lessee to Lessor which constitute appliances and equipment which
will be installed on the Aircraft.
Initials: Lessee: RRW
---------
Lessor: PSK
---------
35
<PAGE> 36
SCHEDULE NO. 2
TO
LEASE SUPPLEMENT NO. 1
Financial Terms
Rent Commencement Date: February 1, 1997
Basic Term: twelve months commencing
January 1, 1997 and through
and including December 31,
1997
Basic Rent Dates: The first day of each and
every calendar month from and
including February 1, 1997
through January 1, 1998.
(Upon each exercise by Lessee
of its Renewal Option
pursuant to Section 23 of the
Lease, the Basic Rent Dates
shall include the first day
of each of the twelve
calendar months commencing
with the first day of
February after the then
current Expiration Date
through the next January 1)
First Basic Rent Date: February 1, 1997
Last Basic Rent Date: January 1, 1998 (upon each
exercise by Lessee of its
Renewal Option pursuant to
Section 23 of the Lease, the
definition of Last Basic Rent
Date shall be amended by
adding one calendar year to
the Last Basic Rent Date then
in effect.)
Expiration Date: December 31, 1997 (upon each
exercise by Lessee of its
Renewal Option pursuant to
Section 23 of the Lease, the
definition of Expiration Date
shall be amended by adding
one calendar year to the then
current Expiration Date.)
Final Expiration Date: December 31, 2002
Renewal Terms: a series of five additional
and consecutive twelve month
terms commencing on the 12th,
24th, 36th, Basic Rent Dates
Primary Hangar Location: DFW International Airport,
Texas
Lessee's Chief Executive Offices P.O. Box 612787
and Principal Place of Business: 1515 W. 20th Street
DFW International Airport, Texas 75261
Acceptance Date: December __, 1996
Last Acceptance Date: December 31, 1996
Date of Last Financial Statements: August 31, 1996
Lessor's Cost: $9,070,191.00
Initials:
Lessee: RRW
_________
Lessor: PSK
_________
36
<PAGE> 37
SCHEDULE NO. 2-A
TO
LEASE SUPPLEMENT NO. 1
Financial Terms (continued)
Basic Rent:
Basic Rent Dates 1 to 12 $124,054.47
Basic Rent Dates 13 to 36 $124,054.47 (during any applicable
Renewal Term)
Basic Rent Dates 37 to 72 $101,494.11 (during any applicable
Renewal Term)
Permitted Deductible: $500,000.00 per occurrence
Initials:
Lessee: RRW
--------------------
Lessor: PSK
--------------------
37
<PAGE> 38
SCHEDULE NO. 2-B
TO
LEASE SUPPLEMENT NO. 1
"Maximum Lessee Risk" shall mean an amount equal to the percentage of
the Lessor's Cost of the Aircraft set forth below for each of the following
Expiration Dates:
Expiration Date: Amount: (expressed as a percentage of Lessor's Cost)
---------------- -------
December 31, 1997 79.52%
December 31, 1998 71.28%
December 31, 1999 62.33%
December 31, 2000 55.72%
December 31, 2001 48.18%
December 31, 2002 40.00%
"Maximum Lessor Risk" shall mean an amount equal to the percentage of
the Lessor's Cost of the Aircraft set forth below for each of the following
Expiration Dates:
Expiration Date: Amount: (expressed as a percentage of Lessor's Cost)
---------------- -------
December 31, 1997 14.20%
December 31, 1998 13.17%
December 31, 1999 12.07%
December 31, 2000 10.87%
December 31, 2001 9.94%
December 31, 2002 6.67%
"Purchase Option Price" shall mean an amount equal to the percentage
of the Lessor's Cost of the Aircraft set forth below for each of the following
Expiration Dates:
Expiration Date: Amount: (expressed as a percentage of Lessor's Cost)
---------------- -------
December 31, 1997 93.72%
December 31, 1998 84.45%
December 31, 1999 74.40%
December 31, 2000 66.59%
December 31, 2001 58.12%
December 31, 2002 46.67%
38
<PAGE> 39
SCHEDULE NO. 3 TO LEASE
SUPPLEMENT NO. 1
CASUALTY VALUES
The Casualty Value of the Aircraft for any Basic Rent Date shall be
the amount set forth opposite such Basic Rent Date.
<TABLE>
<CAPTION>
BASIC BASIC
RENT CASUALTY RENT CASUALTY
DATE VALUE DATE VALUE
---- ----- ---- -----
<S> <C> <C> <C>
</TABLE>
Initials:
Lessee: _________
Lessor: _________
39
<PAGE> 40
LEASE SUPPLEMENT NO. 2
under
AIRCRAFT LEASE dated as of December 30, 1996, by and between Fleet
Capital Corporation, as lessor ("Lessor"), and Kitty Hawk Aircargo, Inc., as
lessee ("Lessee").
Manufacturer of Airframe: Boeing
Manufacturer of Engines: Pratt & Whitney
Purchase Documents:
1. Aircraft Purchase Agreement between Aircraft Leasing, Inc.
("ALI") and First Security Bank National Association ("First Security").
2. First Security's Warranty Bill of Sale to ALI.
3. First Security's FAA Bill of Sale to ALI.
4. ALI's Warranty Bill of Sale to Lessee dated December __, 1996.
5. ALI's FAA Bill of Sale to Lessee dated December __, 1996.
6. Lessee's Warranty Bill of Sale to Lessor dated December __, 1996
in the form of Exhibit B hereto.
7. FAA Bill of Sale transferring title to the Aircraft from Lessee
to Lessor.
8. Invoices for the Aircraft, including the Engines, showing ALI
and/or Lessee as the purchasers thereof, all other above referenced contracts
and evidence that such invoices have been are paid in full.
Aircraft Marking (Referenced in Section 11 of the Lease):
Two-inch by four-inch plaque to be maintained in cockpit and affixed in
conspicuous position stating:
"This property is Owned by and Leased from Fleet Capital
Corporation, 50 Kennedy Plaza, Fifth Floor, Providence, Rhode Island 02903.
Any removal, alteration, disposal or other change in the condition or location
of this property must be approved by the Owner-Lessor."
Similar markings to be permanently affixed to each Engine.
IN WITNESS WHEREOF, the parties hereto have each caused this Lease
Supplement No. 2 to be duly executed by their respective officers, thereunto
duly authorized.
FLEET CAPITAL CORPORATION,
AS LESSOR
By: /s/ PATRICE S. KANE
----------------------------------
Name: Patrice S. Kane
Title: Vice President
Date: December 26, 1996
KITTY HAWK AIRCARGO, INC.,
AS LESSEE
By: /s/ RICHARD R. WADSWORTH
---------------------------------
Name: Richard R. Wadsworth
-------------------------------
Title: Vice President and CFO
------------------------------
Date: December 27, 1996
40
<PAGE> 41
EXHIBIT B TO AIRCRAFT LEASE AGREEMENT
WARRANTY BILL OF SALE
Kitty Hawk Aircargo, Inc. (the "Seller"), in consideration of the sum of
__________________________________ and __/100 Dollars ($____________) paid by
Fleet Capital Corporation (the "Buyer"), receipt of which is acknowledged,
hereby grants, sells, assigns, transfers and delivers to Buyer the aircraft
described below together with the engines installed thereon and all appliances,
parts, instruments, appurtenances, accessories, furnishings, avionics,
components and other equipment of whatever nature installed on said aircraft
and all logbooks, manuals, certificates, data and inspection, modification,
maintenance, engineering, technical, overhaul and all other books and records
(including all computerized data, records and materials) as pertain to the
operation and maintenance of such aircraft (all of the foregoing hereinafter
collectively referred to as the "Aircraft"), along with whatever claims and
rights Seller may have against the manufacturer and/or vendor of the Aircraft
(collectively, the "Vendor"), including, but not limited to, all warranties and
representations. At Buyer's request, Seller will cause the Vendor to execute an
Acknowledgment in form and substance satisfactory to Buyer in its sole
discretion.
DESCRIPTION OF AIRCRAFT
Boeing B727-214 Advanced Freighter aircraft bearing FAA Registration Mark
N_____ and manufacturer's serial number _____ and three (3) Pratt & Whitney
JT8D-____ engines, respectively, bearing manufacturer's serial numbers. ____,
______ and
(See also Schedule A attached hereto and made a part hereof for further
description of the Aircraft.)
Seller represents, warrants and agrees to Buyer that (1) Seller is the
lawful owner of the full title to the Aircraft and that Buyer will acquire by
the terms of this Bill of Sale good and full title to the Aircraft free and
clear of all mortgages, leases, security interests, claims, charges, liens and
encumbrances of any kind whatsoever; (2) Seller has the right to sell the
Aircraft as aforesaid; (3) Seller shall warrant and defend title to the
Aircraft and indemnify Buyer against the claims of any person, party, firm,
corporation or entity of any kind whatsoever and (4) the Aircraft had been
delivered to Seller, and has been delivered to Buyer, in good order and
condition and conforms to the specifications and the requirements and standards
applicable thereto.
Seller agrees to save and hold harmless Buyer from and against any and
all foreign, Federal, state, municipal and local license fees and taxes of any
kind or nature, including, without limiting the generality of the foregoing,
any and all excise, personal property, privilege, use and sales taxes, and from
and against any and all liabilities, obligations, losses, damages, penalties,
claims, actions and suits, including, without limitation, attorney's fees,
resulting therefrom and imposed upon, incurred by or asserted against Buyer as
a consequence of the sale of the Aircraft to the Buyer.
Seller agrees and acknowledges that the terms and conditions of this
Bill of Sale, including, without limitation, all representations, warranties
and agreements for the benefit of Buyer, shall survive the delivery of the
Aircraft and the delivery, execution and recording of this or any Federal
Aviation Administration Bill of Sale.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale this
_______day of December, 1996
SELLER: Kitty Hawk Aircargo, Inc.
By:
-------------------------
Title:
----------------------
41
<PAGE> 42
EXHIBIT C-1 TO AIRCRAFT LEASE
OPINION LETTER
(Lessee)
December __, 1996
Fleet Capital Corporation
50 Kennedy Plaza
Providence, Rhode Island 02903
Re: Aircraft Lease
Gentlemen:
We have acted as counsel for ____________________ (hereinafter called
the "Lessee"), a ____________________ corporation, in connection with the
transaction between the Lessee and Fleet Capital Corporation, a Rhode Island
corporation (hereinafter called "Lessor"), whereby the Lessee will lease from
the Lessor, a _______________ aircraft, Model No. ______________, Serial No.
_______________, FAA Registration No. N _______, equipped with ______________
(_) __________ engines, Model No. __________, manufacturer's serial numbers
__________ and __________, (hereinafter collectively called the "Aircraft")
under an Aircraft Lease between the Lessee and the Lessor dated as of
_______________, 19 ___, (said Aircraft Lease together with all Lease
Supplements and Exhibits thereto from time to time collectively referred to as
the "Lease"), upon and subject to the terms and conditions of the Lease. All
capitalized terms used herein which are not otherwise defined herein shall have
the meanings assigned to such terms in the Lease.
(Please insert a paragraph setting forth in detail the relationship
and length of association of Counsel with the Lessee and a description of the
review conducted by Counsel which shall, list among other things, the items
reviewed and the inquiries and investigations involved in making the
representations listed below.)
It is our opinion that:
1. Lessee is a corporation duly organized, validly existing and in
good standing under the laws of the State of ____________, and is qualified to
do business in each jurisdiction in which such qualification is necessary in
order for Lessee to carry on its business and to perform its obligations under
the Lease, and is in good standing under the laws of each jurisdiction in which
it is so qualified.
2. Lessee has the corporate power and authority to execute, deliver
and perform the Lease and to lease the Aircraft from Lessor thereunder.
3. The leasing of the Aircraft from Lessor by Lessee, the execution
and delivery of the Lease, the applicable FAA documents, Purchase Documents and
other related instruments, documents and agreements, and the compliance by the
Lessee with the terms thereof, and the payment and performance by Lessee of all
of its obligations thereunder (a) have been duly and legally authorized by
appropriate corporate action taken by Lessee (b) are not in contravention of,
and will not result in a violation or breach of, any of the terms of Lessee's
certificate of incorporation (or equivalent document) its by-laws, or of any
provisions relating to shares of the capital stock of Lessee, and (c) will not
violate or constitute a breach of any provision of law, any order of any court
other governmental body, agency, authority or instrumentality or any indenture,
agreement or other instrument to which Lessee is a party, or by or under which
Lessee or any of Lessee's property is bound, or be in conflict with, result in
a breach of, or constitute (with due notice and/or lapse of time) a default
under any such indenture, agreement or any instrument, or result in the
creation or imposition of any Lien upon any of Lessee's property or assets.
4. The Lease, the Purchase Documents, the applicable FAA documents
and related instruments, documents and agreements with respect thereto and the
Aircraft have been executed by the duly authorized officer or officers of
Lessee and delivered to Lessor, and constitute the
42
<PAGE> 43
legal, valid and binding obligations of Lessee enforceable in accordance with
the respective terms thereof.
5. Neither the execution and delivery of the Lease, the Purchase
Documents, the applicable FAA documents and related instruments, documents and
agreements with respect thereto and the Aircraft, nor the payment and
performance by Lessee of all of its obligations under the foregoing documents,
require the consent or approval of, the giving of notice to, or the
registration, filing or recording with, or the taking of any other action in
respect of, the Federal Aviation Administration, the Department of
Transportation or any other federal, state, local or foreign government or
governmental authority or agency, except for the registration, recording and
filing referred to herein.
6. No mortgage, deed of trust, or other Lien which now covers or
affects, or which may hereafter cover or affect, any property or interest
therein of Lessee, now attaches or hereafter will attach to the Aircraft, the
Airframe or any Engine, or in any manner affects or will affect adversely
Lessor's right, title and interest therein.
7. There is no litigation or other proceedings now pending, or to
the best of our knowledge, threatened, against the Lessee, in any court or
before any regulatory commission, board or other administrative governmental
agency, authority, body or instrumentality which would directly or indirectly
adversely affect or impair the title of Lessor to the Aircraft, or which, if
decided adversely to Lessee, would materially adversely affect the business
operations or financial condition of Lessee.
8. Except for the (I) registration of the Aircraft pursuant to the
Federal Aviation Act, (II) the filing and recording of (a) the Lease and (b)
the Bill of Sale for the Aircraft from the Lessee, as seller of the Aircraft to
Lessor pursuant to the Federal Aviation Act and (III) the filing of the Uniform
Commercial Code Financing Statements executed by Lessee in connection with the
execution of the Lease, no further action, including any filing or recording of
any other documents, is necessary or advisable in order to establish and
perfect Lessor's title to and interest in, the Aircraft as against Lessee
and/or third parties in any applicable jurisdiction.
9. Lessee is a "citizen of the United States" within the meaning of
the Federal Aviation Act.
10. Lessor will acquire title to the Aircraft to be sold and leased
back free and clear of all liens and encumbrances and claims of any present or
future creditors of the Lessee. The Bills of Sale covering the Aircraft will
grant and convey to Lessor full legal title and ownership in and to the
Aircraft. Without limiting the generality of the foregoing, the retention of
possession by the Lessee of the Aircraft following the sale of the Aircraft to,
and the lease back of the Aircraft from, Lessor, shall not be deemed fraudulent
or void as against any present or future creditor of the Lessee under the laws
of the jurisdiction in which the Aircraft is now, or will at the time of such
sale and leaseback be, located, nor would any subsequent bona fide purchaser
from the Lessee of the Aircraft, in the event of any attempted subsequent sale
thereof by the Lessee, acquire any title to or rights in the Aircraft superior
to Lessor's title to and rights in the Aircraft.
Very truly yours,
43
<PAGE> 44
EXHIBIT C-2 TO AIRCRAFT LEASE
OPINION LETTER
(Guarantor)
December __, 1996
Fleet Capital Corporation
50 Kennedy Plaza
Providence, Rhode Island 02903
RE: ___________________
Gentlemen:
We have acted as general counsel for ________, a ________ corporation,
("Guarantor"), an affiliate of Kitty Hawk Aircargo, Inc. ("Obligor"), in
connection with the preparation, execution, and delivery of the Guaranty
Agreement ("Guaranty"), by Guarantor and which Guaranty will be delivered in
connection with the Aircraft Lease dated December __, 1996 between Fleet
Capital Corporation ("Fleet"), as lessor, and Obligor, as lessee, (the
"Agreement") and the related transactions contemplated thereby. Terms not
otherwise defined herein shall have the defined meanings set forth in the
Agreement.
We are familiar with the Guarantor, its affairs, and its charters,
by-laws, and corporate records. We have examined originals or copies,
certified or otherwise identified to our satisfaction, of such records,
instruments, decisions, certificates, and documents, have made such inquiries
as to questions of fact of officers and representatives of and Guarantor and
have made such examinations of laws, rules, regulations, orders, decrees,
writs, judgments, awards, injunctions, and the like, as are necessary and
appropriate for purposes of giving the opinions hereinafter expressed.
Based upon the foregoing, it is our opinion:
1. That Guarantor is duly organized, validly existing and in good
standing under the laws of _________. Guarantor has the necessary authority
and power to own its assets and to transact the business in which it is
engaged. Guarantor is fully licensed and duly qualified to do business in each
jurisdiction in which the conduct of its business and the ownership of its
assets requires such qualification, including every jurisdiction where such
licensing or qualification is or will be required for the purpose of enforcing
Fleet's rights under the Guaranty.
2. That Guarantor has full power, authority, and legal right to
execute and deliver the Guaranty and to perform its obligations thereunder.
3. That no consent of any other party (including any
stockholders, trustees or holders of indebtedness), and no consent, license,
approval or authorization of, exemption by, or registration or declaration
with, any governmental body, authority, bureau or agency is required in
connection with the execution, delivery or performance by Guarantor of the
Guaranty or the validity or enforceability of the Guaranty.
4. That (A) the execution, delivery and performance by Guarantor
of the Guaranty do not and will not violate any provision of any applicable law
or regulation or of any judgment, award, order, writ or decree of any court or
governmental instrumentality, will not violate any provision of its charter or
by-laws and will not violate any provision of, or cause a default under, any
mortgage, indenture, contract, agreement or other undertaking to which
Guarantor is a party, or which purports to be binding upon Guarantor or upon
any of its assets; and (B) the execution, delivery, and performance by
Guarantor of the Guaranty will not result in the creation or imposition of any
lien or other encumbrance on any of the assets of Guarantor.
5. That the Guaranty has been duly authorized, executed, and
delivered by Guarantor and constitutes a legal, valid, and binding obligation
of Guarantor enforceable in accordance with its terms.
44
<PAGE> 45
6. That there is no action, suit, investigation or proceeding
(whether or not purportedly on behalf of Guarantor) pending or threatened
against or effecting Guarantor or any of its assets (A) which involves the
Guaranty or any of the Engines or any of the transactions contemplated by the
Agreement or (B) if which adversely determined could have an adverse effect
upon the Guaranty or any of the Engines or any of the transactions contemplated
by the Agreement or a material adverse effect on the business, operations, or
financial condition of Guarantor.
7. That (A) the Guarantor has received reasonably equivalent
value and adequate and sufficient consideration in exchange for the giving of
the Guaranty (B) the Guarantor was not insolvent on the date of the execution
by Guarantor of the Guaranty and did not become insolvent as a result of the
execution by Guarantor of the Guaranty, (C) the Guarantor has sufficient
capital to perform its obligations under the Guaranty and (D) the performance
of the obligations by Guarantor under the Guaranty will not cause the Guarantor
to exceed its ability to pay its debts as they mature.
Very truly yours,
45
<PAGE> 46
EXHIBIT D TO AIRCRAFT LEASE
(To be omitted from FAA filing copy)
FINANCIAL COVENANTS RIDER
Throughout the Term, the following minimum financial ratios shall be
met by the Parent on a consolidated basis. Each of the following ratios shall
be calculated at the end of each fiscal quarter of the Parent for the then
previous four fiscal quarters of Parent.
A. Debt Service Coverage Ratio shall be equal to or greater than
1.25 to 1.00.
B. Leverage Ratio shall be less than or equal to 3.25 to 1.00.
C. Senior Debt to Cash Flow Ratio shall be less than or equal to
5.00 to 1.00.
Lessee shall provide Lessor with written notice of any change, modification,
amendment, extension, renewal, transfer, compromise or discharge to the "Senior
Debt to Cash Flow Ratio," "Debt Service Coverage Ratio" or "Leverage Ratio"
set forth in the Credit Agreement ("Credit Modification"). Any such Credit
Modification which raises any or all of the above referenced ratios in the
Credit Agreement shall, for purposes of this Lease, automatically raise the
corresponding Debt Service Coverage Ratio, Leverage Ratio and/or Senior Debt to
Cash Flow Ratio set forth above to the levels then set forth in the Credit
Agreement. Lessee hereby authorizes Lessor to take such actions as are
necessary to document the foregoing amendments to the above referenced ratios
without the need for Lessee's signature or consent thereto.
ADDITIONAL DEFINITIONS:
Credit Agreement shall mean that certain Amended and Restated Credit
Agreement dated as of August 14, 1996 among Lessee and Guarantors, as borrowers
and guarantors, as the case may be, Skyfreighters, Inc. , as a party, and Wells
Fargo Bank (Texas), National Association and certain other lenders named
therein.
Currently Maturing Long Term Debt shall mean that portion of Debt which
is payable within twelve (12) months of Parent's last fiscal quarterly or
annual financial statement, as the case may be.
Debt shall mean Parent's (a) indebtedness, liabilities and obligations
for borrowed money and/or capitalized leases, (b) indebtedness, liabilities and
obligations evidenced by bonds, notes, debentures or other similar instruments
and (c) indebtedness, liabilities and obligations to pay the deferred purchase
price of goods or services, except trade accounts payable arising in the
ordinary course of business that are note past due by more than ninety (90)
days.
Debt Service Coverage Ratio shall mean Parent's net income plus
depreciation plus amortization plus the taxable equivalent of non-recurring
items divided by Currently Maturing Long Term Debt. For purposes of this
definition, the term "taxable equivalent of non-recurring items" shall mean the
pre-tax expenses of non-recurring accounting changes and restructuring charges
multiplied by Parent's then current combined effective tax rate.
Debt to Cash Flow Ratio shall mean Parent's Senior Debt divided by
EBITDA.
EBITDA shall mean Parent's earnings before interest, taxes,
depreciation and amortization.
Leverage Ratio shall mean the ratio of Parent's total liabilities
divided by Parent's tangible net worth , which calculation shall be made in
accordance wit GAAP.
Senior Debt shall mean that portion of Parent's (a) indebtedness,
liabilities and obligations for borrowed money and/or capitalized leases and
(b) indebtedness, liabilities and obligations evidenced by bonds, notes,
debentures or other similar instruments which mature by their terms on a date
more than one year after the original creation thereof, including, without
limitation, any debt evidenced by the Credit Agreement or which would be
classified as "long-term indebtedness" on the balance sheet of Parent in
accordance with GAAP.
46
<PAGE> 1
EXHIBIT 11.1
KITTY HAWK, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED NOVEMBER 30
1996 1995
---------- ----------
<S> <C> <C>
Primary net income per share (1):
Weighted average number of common shares
outstanding .................................. 9,322,527 7,423,436
Common shares related to SAB No. 83 (2) ........... -- 544,274
---------- ----------
Weighted average common and common equivalent
shares outstanding ........................... 9,322,527 7,967,710
========== ==========
Net income ........................................ $1,632,347 $1,956,129
========== ==========
Net income per share .............................. $ 0.18 $ 0.25
========== ==========
Fully diluted net income per share:
Weighted average number of common shares
outstanding ................................... 9,322,527 7,423,436
Common shares related to SAB No. 83 (2) ........... -- 544,274
---------- ----------
Weighted average common and common equivalent
shares outstanding ............................ 9,322,527 7,967,710
========== ==========
Net income ........................................ $1,632,347 $1,956,129
========== ==========
Net income per share .............................. $ 0.18 $ 0.25
========== ==========
</TABLE>
(1) The Company reports primary net income per share as the effect of dilutive
securities is less than 3%.
(2) Stock options granted to executives within 12 months of the filing date
have been included in this line item through the date of exercise. See
Note 1 of Notes to Consolidated Financial Statements.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 27,294,783
<SECURITIES> 0
<RECEIVABLES> 9,141,216
<ALLOWANCES> 0
<INVENTORY> 2,578,197
<CURRENT-ASSETS> 42,049,214
<PP&E> 78,083,749
<DEPRECIATION> (15,016,667)
<TOTAL-ASSETS> 105,116,296
<CURRENT-LIABILITIES> 25,674,169
<BONDS> 0
0
0
<COMMON> 106,695
<OTHER-SE> 54,569,050
<TOTAL-LIABILITY-AND-EQUITY> 105,116,296
<SALES> 0
<TOTAL-REVENUES> 25,413,706
<CGS> 0
<TOTAL-COSTS> 20,295,584
<OTHER-EXPENSES> 2,397,543
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,720,579
<INCOME-TAX> 1,088,232
<INCOME-CONTINUING> 1,632,347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,632,347
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
