<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number 000-23447
MIDWAY AIRLINES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3915637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2801 Slater Road, Suite 200
Morrisville, NC 27560
(Address of principal executive offices)
(Zip Code)
919-595-6000
(Registrant's telephone number, including area code)
Indicate by checkmark 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 ________
As of November 10, 1999 there were 8,602,395 shares of Common Stock, $.01
par value, of the registrant outstanding
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
Midway Airlines Corporation
BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited) (Audited)
---------------------------------------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 14,839 $ 48,736
Restricted cash 14,360 9,512
Short-term investments 4,770 -
Accounts receivable
Credit cards and travel agencies 8,332 4,702
Other (net) 1,469 1,946
Inventories 3,401 2,916
Deferred tax asset 457 457
Prepaids and other 8,128 10,886
-------- --------
Total current assets 55,756 79,155
Equipment and property:
Flight 115,726 107,143
Other 10,297 6,657
Less accumulated depreciation and amortization (13,992) (10,793)
-------- --------
Total equipment and property, net 112,031 103,007
Other noncurrent assets:
Equipment and aircraft purchase deposits 45,728 18,103
Aircraft lease deposits and other 8,918 3,316
-------- --------
Total other noncurrent assets 54,646 21,419
-------- --------
Total assets $222,433 $203,581
======== ========
Liabilities and stockholders' equity
- ------------------------------------
Current liabilities:
Accounts payable $ 9,767 $ 7,327
Accrued expenses 5,254 5,732
Accrued income and excise taxes 4,330 581
Advance ticket sales 30,971 21,483
Other current liabilities 5,429 5,803
Current maturities of long-term debt and capital leases 5,949 5,349
obligations
-------- --------
Total current liabilities 61,700 46,275
Noncurrent liabilities:
Long-term debt and capital lease obligations 75,002 78,764
Deferred tax liability 7,022 7,022
Other - 1,057
-------- --------
Total noncurrent liabilities 82,024 86,843
-------- --------
Total liabilities 143,724 133,118
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Stockholders' equity:
Preferred stock - -
Common stock 86 86
Additional paid-in-capital 51,032 51,032
Retained earnings ($51.1 million of accumulated deficit eliminated
in the quasi-reorganization as of June 30, 1997) 27,591 19,345
-------- --------
Total stockholders' equity 78,709 70,463
-------- --------
Total liabilities and stockholders' equity $222,433 $203,581
======== ========
</TABLE>
<PAGE>
Midway Airlines Corporation
Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 1998
---- ----
<S>
Operating revenues: <C> <C>
Passenger $ 48,500 $ 48,151
Cargo 427 627
Contract and other 581 693
---------- ----------
Total revenues 49,508 49,471
Operating expenses:
Wages, salaries and related costs 9,756 7,969
Aircraft fuel 5,933 4,734
Aircraft and engine rentals 7,639 7,355
Commissions 3,241 3,205
Maintenance, materials and repairs 3,019 3,875
Other rentals and landing fees 2,471 2,420
Depreciation and amortization 1,724 1,759
Other 14,928 14,192
Equipment retirement charges - -
---------- ----------
Total operating expenses 48,711 45,509
---------- ----------
Operating income 797 3,962
Other income (expense):
Interest income 1,217 1,100
Interest expense (1,644) (1,727)
---------- ----------
Total other expense (427) (627)
---------- ----------
Income before income taxes 370 3,335
Provision for income taxes (141) (960)
---------- ----------
Net income $ 229 $ 2,375
========== ==========
Basic earnings per share: $ 0.03 $ 0.28
========== ==========
Weighted average shares used in computing
basic earnings per share 8,602,395 8,577,747
========== ==========
Diluted earnings per share: $ 0.02 $ 0.24
========== ==========
Weighted average shares used in computing
diluted earnings per share 9,445,495 9,727,215
========== ==========
</TABLE>
<PAGE>
Midway Airlines Corporation
Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Operating revenues:
Passenger $ 156,547 $ 151,429
Cargo 1,350 1,592
Contract and other 2,149 2,679
---------- ----------
Total revenues 160,046 155,700
Operating expenses:
Wages, salaries and related costs 28,443 23,600
Aircraft fuel 14,737 14,745
Aircraft and engine rentals 22,353 22,088
Commissions 10,537 11,368
Maintenance, materials and repairs 9,808 12,003
Other rentals and landing fees 7,401 7,200
Depreciation and amortization 5,296 4,293
Other 44,311 40,435
Equipment retirement charges 2,008 0
---------- ----------
Total operating expenses 144,894 135,732
---------- ----------
Operating income 15,152 19,968
Other income (expense):
Interest income 3,124 3,022
Interest expense (4,974) (4,400)
---------- ----------
Total other expense (1,850) (1,378)
---------- ----------
Income before income taxes 13,302 18,590
Provision for income taxes (5,055) (7,062)
---------- ----------
Net income $ 8,247 $ 11,528
========== ==========
Basic earnings per share: $ 0.96 $ 1.35
========== ==========
Weighted average shares used in computing
basic earnings per share 8,602,395 8,566,408
========== ==========
Diluted earnings per share: $ 0.86 $ 1.18
========== ==========
Weighted average shares used in computing
diluted earnings per share 9,553,665 9,765,177
========== ==========
</TABLE>
<PAGE>
Midway Airlines Corporation
Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
(Unaudited)
-----------
<S> <C> <C>
Operating activities:
Net income $ 8,247 $ 11,528
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,296 4,293
Capitalized interest on purchase deposits (1,333) (597)
Provision for deferred income taxes - 5,052
Loss on disposal of assets 48 60
Changes in operating assets and liabilities:
Restricted cash (4,848) (7,959)
Accounts receivable (3,153) (8,054)
Inventories (485) (968)
Prepaids and other 2,439 (2,461)
Aircraft lease deposits and other (5,635) (660)
Accounts payable and accrued expenses 1,544 1,947
Accrued excise and income taxes 3,749 (1,914)
Advance ticket sales 9,488 6,603
Other current liabilities (245) (1,486)
Other noncurrent liabilities (1,057) (131)
--------- ---------
Net cash provided by operating activities 14,055 5,253
Investing activities:
Purchase of short-term investments (7,820) (8,250)
Sale of short-term investments 3,050 751
Purchase of equipment and property (10,886) (6,027)
Aircraft and equipment purchase deposits (38,463) (975)
Refund of aircraft and equipment purchase deposits 10,760 -
--------- ---------
Net cash used in investing activities (43,359) (14,501)
Financing activities:
Issuance of common and preferred stock - 156
Proceeds from issuance of long-term debt - 1,800
Repayment of long-term debt and capital lease obligations (4,928) (19,277)
Accreted interest on long-term debt 335 441
--------- ---------
Net cash used in financing activities (4,593) (16,880)
--------- ---------
Decrease in cash and cash equivalents (33,897) (26,128)
Cash and cash equivalents at beginning of period 48,736 54,509
--------- ---------
Cash and cash equivalents at end of period $ 14,839 $ 28,381
========= =========
Supplemental cash flow information:
Interest paid $ 5,276 $ 2,447
========= =========
Income taxes paid $ 2,191 $ 6,204
========= =========
Schedule of non-cash activities:
Issuance of capital leases for equipment purchases $ 1,529 $ 51,425
========= =========
</TABLE>
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements
(Information as of September 30, 1999 and for the three month
and nine month periods ended
September 30, 1999 and 1998 are unaudited)
1. Basis of Presentation
The unaudited interim financial statements included herein have been prepared by
Midway Airlines Corporation ("Midway" or the "Company"), in accordance with
generally accepted accounting principles ("GAAP") for interim financial
reporting pursuant to the rules and regulations of the Securities and Exchange
Commission. The information furnished in the interim financial statements
includes normal recurring adjustments and reflects all adjustments which, in the
opinion of management, are necessary for a fair presentation of such financial
statements. The results of operations for any interim period presented are not
necessarily indicative of the results to be expected for any other period.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with GAAP have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. These condensed financial statements
should be read in conjunction with the financial statements, and the notes
thereto, included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
2. Significant Accounting Policies and Other Matters
Use of Estimates and Assumptions
Preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during those reporting periods. Actual results could
differ from those estimates.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include investments with an original maturity of three
months or less or which may be redeemed without penalty at any time. These
investments are stated at cost, which approximates market value. As of September
30, 1999 and December 31, 1998, approximately $14.4 million and $9.5 million,
respectively, of cash and cash equivalents were restricted as to withdrawal;
these funds serve as collateral to support letters of credit and a credit card
holdback and are classified as restricted cash in the balance sheets.
Short-term Investments
Short-term investments consist of corporate bonds which mature between three
months and one year of the original investment date. These investments are
carried at cost, which approximates market value.
<PAGE>
3. Earnings per Share of Common Stock
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
For the three months For the nine months
September 30, ended ended September 30,
-------------------- --------------------
1999 (1) 1998 1999 (1) 1998
--------- ---- -------- ----
<S> <C> <C> <C> <C>
Numerator:
Net income (2) $ 229,000 $2,375,000 $8,247,000 $11,528,000
Denominator:
Denominator for basic earnings per share:
weighted average shares 8,602,395 8,577,747 8,602,395 8,566,408
Effect of dilutive securities: (3)
Employee stock options 452,598 758,878 560,719 808,176
Warrants 390,502 390,590 390,551 390,593
---------- ---------- ---------- -----------
Dilutive common shares 843,100 1,149,468 951,270 1,198,769
Denominator for diluted earnings per share-
adjusted weighted average shares and assumed
conversions 9,445,495 9,727,215 9,553,665 9,765,177
========== ========== ========== ===========
Basic earnings per share $ 0.03 $ 0.28 $ 0.96 $ 1.35
Diluted earnings per share $ 0.02 $ 0.24 $ 0.86 $ 1.18
</TABLE>
(1) Options to purchase 237,280 shares of common stock at $15.50 per
share were outstanding as of September 30, 1999 but were not
included in the computation of diluted earnings per share for the
three months and the nine months ended September 30, 1999 because
the exercise price of the options was greater than the average
market price of the common shares and, therefore, the effect would
be antidilutive.
(2) Numerator for basic and diluted earnings per share.
(3) Shares calculated using the "Treasury Stock" method under SFAS No.
128.
4. Commitments and Contingencies
Purchase Commitments:
As of September 30, 1999, the Company had firm orders to purchase 10 newly
manufactured CRJ-200ER Canadair Regional Jet (CRJ) aircraft, all of which are
scheduled to be delivered by December 2001. Midway also has options to acquire
up to 14 additional CRJ aircraft. The Company has ordered two General Electric
CF34-3B1 spare engines to support the operation of its CRJ aircraft.
The Company has placed firm orders to purchase 15 Boeing 737-700 aircraft, and
has agreed to lease two additional Boeing 737-700s. Deliveries of the two leased
Boeing 737-700 aircraft are scheduled for December 1999 and January 2000, and
deliveries of the other 15 Boeing 737-700 aircraft are scheduled to begin in
September 2000 and end in October 2002. The Company has options to acquire 10
additional Boeing 737-770 aircraft. The Company intends to purchase four CFM
56-7B spare engines to support the operation of its Boeing 737-700 aircraft.
The Boeing purchase agreement requires the Company to make pre-delivery deposits
with respect to each aircraft. The pre-delivery deposits to be made will, in the
aggregate, reach a peak of $117.1 million by August 2000. Thereafter, these
deposits will begin to decrease and monies will be returned to Midway as the
aircraft are delivered. The aircraft manufacturer has agreed to finance a
portion of this obligation at interest. Midway's unfinanced obligation will peak
at about $62.6 million in August of 2000. As of September 30, 1999, Midway had
paid $28.0 million of the pre-delivery deposits and its remaining obligation is
approximately $34.6 million. This obligation is due in monthly installments.
(See Liquidity and Capital Resources).
In March 1995, Midway entered into an agreement for the acquisition of four
Airbus A320 aircraft with deliveries beginning in 1998. The Company also agreed
to purchase one IAE V2527-A5 spare engine to support the operation of the four
A320 aircraft. The delivery dates of these aircraft and the spare engine have
been extended to 2005 and later. The Company is required to make deposits on the
four A320 aircraft
<PAGE>
and the spare engine in amounts to be determined beginning in 2003. The Company
is considering several alternatives with respect to the A320s, including
restructuring its purchase agreement or selling its position.
Other Contingencies:
In the fourth quarter of 1998, the Company retired two Fokker F-100 aircraft at
the expiration of the related lease terms. In each of March and May 1999, the
Company retired one F-100 aircraft at the expiration of the related lease. With
respect to the retirement of these aircraft, the Company and the lessor disagree
as to the amount of certain life cycle costs required to maintain the aircraft
and as to the level of the Company's responsibility to pay for such costs. The
Company believes that it has met or exceeded its obligations. The lessor
believes that the Company has not met its obligations and has brought an action
against the Company alleging breach of contract and unjust enrichment, seeking
damages in excess of $5 million under each claim. The Company believes it has
meritorious legal defenses to the lessor's claims and will vigorously defend the
action, if necessary. At this time, it is not possible to predict the outcome of
this matter.
In August 1998, the Compliance and Enforcement Branch of the Drug Abatement
Division of the Federal Aviation Administration ("FAA") conducted an inspection
of the Company's compliance with certain regulations related to its alcohol and
drug testing programs. In September 1998, the FAA notified the Company that it
was investigating alleged violations discovered during the August 1998
inspection. The Company responded to these alleged violations in October 1998.
In May 1999, the FAA requested that the Company provide the FAA with an update
of certain matters raised during the investigation. The Company promptly
provided this information to the FAA and has received no further communications
from the FAA in this respect. The Company is unable to determine whether the
FAA's investigation will result in the finding of violations of these
regulations and, if so, whether the FAA will pursue an assessment as a result of
any such findings or what the amount of any such assessment might be.
In September 1997, the Civil Aviation Security Division of the Federal Aviation
Administration ("FAA") conducted an investigation of the Company's compliance
with certain regulations requiring the Company to verify the accuracy of the
background information provided by its employees who have access to secure
airport areas. The Company revised its background check procedures during the
course of the FAA's investigation and then obtained and verified the necessary
background information of those employees who had been identified by the FAA as
having insufficient background check documentation. This investigation will
likely result in a finding by the FAA of violations of these regulations. The
Company has received no communications from the FAA in this respect since 1998.
The Company has been named as a defendant in certain pending litigation. The
outcome of these matters cannot be predicted, but it is management's belief that
whatever the outcome, the results will not, either individually or in the
aggregate have a material adverse effect on the Company's financial position,
results of operations or cash flows.
The Company's pilots, fleet service (ramp) agents, and flight attendants are
represented by labor unions. The pilots' representative, the Air Line Pilots
Association ("ALPA"), was elected in December 1997, the ramp employees'
representative, International Association of Machinists and Aerospace Workers,
AFL-CIO ("IAM"), was elected in June 1998, and the flight attendants'
representative, the Association of Flight Attendants, AFL-CIO ("AFA") was
elected in December 1998. Prior to those times, none of the Company's employees
were represented by a union. Although the Company believes mutually acceptable
agreements can be reached with the unions representing such employees,
negotiations have not yet concluded with ALPA, AFA, or the IAM, and the ultimate
outcome of such negotiations cannot be predicted. With respect to the IAM
negotiations, a contract proposal was submitted to the covered employees for
ratification on October 28, 1999 and it was rejected. The IAM filed an
application for mediation with the National Mediation Board ("NMB") on November
3, 1999 and the NMB appointed a mediator on November 8, 1999. Mediation meetings
have not yet been scheduled.
<PAGE>
5. Subsequent Events
On November 8, 1999, the Company announced that it had received a proposal from
two shareholders, Dr. James H. Goodnight and Mr. John P. Sall, under which a
newly formed corporation to be wholly owned by Messrs. Goodnight and Sall would
merge with Midway. In the merger, all shares of Midway stock not owned by
Messrs. Goodnight and Sall would be exchanged for cash at $8.00 per share.
There are approximately 8.6 million shares of Midway common stock outstanding,
of which approximately 4.1 million, or 47.4%, are owned by Goodnight and Sall.
On November 5, 1999, the closing price on the Nasdaq National Market of Midway
common stock was $6.125 per share.
As proposed by Messrs. Goodnight and Sall, the merger would be subject to
execution of an acceptable employment agreement with the Chief Executive Officer
of Midway and any required vote of the outstanding shares of Midway. The
proposal is also subject to negotiation of a merger agreement containing terms
and conditions mutually satisfactory to the parties.
At a meeting of the Company's Board of Directors, the Board appointed Mr.
Gregory J. Robitaille and Mr. Gregory Harding-Brown, independent members of the
Board of Directors of the Company to serve as a special committee of the Board
of Directors in connection with the proposal. The special committee was given
the power and authority to assess the proposal from Messrs. Goodnight and Sall,
to retain advisors as necessary to carry out its responsibilities, and to make a
recommendation to the full Board of Directors with respect to the proposal.
At a subsequent meeting of the Board of Directors, the special committee advised
the Board of Directors that it had met with potential financial and legal
advisors and that it was taking other necessary actions in connection with its
review of the proposal.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Selected Operating Data
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1999 1998
---- ----
<S> <C> <C>
Available seat miles (000s) 381,540 389,544
Revenue passenger miles (000s) 252,243 256,411
Load factor 66.1% 65.8%
Break-even load factor 65.5% 61.3%
Departures 11,710 9,329
Block hours 18,071 14,160
Passenger revenue per ASM (cents) 12.71 12.36
Passenger yield (cents) 19.23 18.78
Average fare $ 95 $ 93
Operating cost per available seat mile 12.77 11.68
Onboard passengers 509,460 515,519
Average seats per departure 66 87
Average stage length (miles) 471 460
Aircraft (average during period) 22.7 18.5
Aircraft utilization (hours per day) 8.7 8.3
Fuel price per gallon (cents) (1) 54.2 42.6
</TABLE>
(1) Excludes taxes and into-plane fees
Results of Operations
For the three months ended September 30, 1999 the Company's net income was
$0.2 million, down 90.4% from the net income of $2.4 million for the three
months ended September 30, 1998. Revenue for the three months ended September
30, 1999 was up 0.1% from 1998 to $49.5 million. The Company's operating margin
decreased to 1.6% in 1999 from 8.0% in 1998.
<PAGE>
Diluted earnings per share for the three months ended September 30, 1999
amounted to $0.02 compared to $0.24 for the three months ended September 30,
1998.
Unusual Items
During September 1999, Hurricanes Floyd and Dennis and two tropical storms
resulted in the cancellation of 5.5 percent of Midway's scheduled flights,
pushing aircraft utilization down, reducing revenue, and resulting in passenger
reaccommodation costs which are included in other operating expenses.
<PAGE>
Capacity. In the three months ended September 30, 1999, the company produced 382
million ASMs, a decrease of 8.0 million or 2.1% over the three months ended
September 30, 1998. The decrease in ASM production is attributable to 24.1%
fewer seats per departure (to 66 seats) partially offset by 25.5% more
departures (to 11,710) and a 2.4% longer average stage length (to 471 miles).
These changes resulted from the change in the Company's fleet (see below) and a
schedule realignment initiated in February 1999.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Aircraft As of September 30,
----------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------
<S> <C> <C>
F100 (98 seats) 8 12
----------------------------------------------------------------------
A320 (148 seats) 0 1
----------------------------------------------------------------------
CRJ (50 seats) 16 7
----------------------------------------------------------------------
</TABLE>
Operating Revenues. The Company's operating revenues remained stable at $49.5
million for the three months ended September 30, 1999. Passenger revenue
increased 0.7% due to a 2.4% increase in passenger yield to 19.2 cents partially
offset by a 1.6% decrease in revenue passenger miles to 252 million. Passenger
revenue per ASM increased to 12.7 cents per ASM for the three months ended
September 30, 1999 from 12.36 cents. Cargo revenue decreased due to less mail
being carried partially offset by more cargo being carried, while contract and
other revenue decreased due to a reduction in charter operations partially
offset by ground handling services provided to other airlines in the three
months ended September 30, 1999.
Operating Expenses. The Company's operating expenses increased 7.0% to $48.7
million for the three months ended September 30, 1999 from $45.5 million for the
three months ended September 30, 1998. Operating expenses increased primarily
due to increases in wages, salaries and related costs and aircraft fuel,
partially offset by a reduction in maintenance expense. Operating expense per
ASM increased 9.3% to 12.77 cents from 11.68 cents. This increase is
attributable primarily to an increase in wages, salaries and related costs and
aircraft fuel, partially offset by a decrease in maintenance cost per ASM and
the reduction in ASM production year over year.
<TABLE>
<CAPTION>
Three months ended September 30,
1999 1998
---- ----
Percent of Total Cost per ASM Percent of Total Cost per ASM
Expenses (cents) Expenses (cents)
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Wages, salaries and related costs 19.9% 2.56 17.3% 2.05
Aircraft fuel 12.1 1.56 10.3 1.22
Aircraft and engine rentals 15.5 2.00 15.9 1.89
Commissions 6.6 0.85 6.9 0.82
Maintenance, materials and repairs 6.1 0.79 8.4 0.99
Other rentals and landing fees 5.0 0.65 5.2 0.62
Depreciation and amortization 3.5 0.45 3.8 0.45
Other 30.4 3.91 30.8 3.64
----- ----- ----- -----
Sub-total operating expenses before
equipment retirement charges 99.1 12.77 98.6 11.68
Equipment retirement charges 0.0 -- 0.0 --
----- ----- ----- -----
Total operating expenses 99.1 12.77 98.6 11.68
Other expenses 0.9 0.11 1.4 0.16
----- ----- ----- -----
Total expenses 100.0% 12.88 100.0% 11.84
===== ===== ===== =====
</TABLE>
<PAGE>
Wages, salaries and related costs increased $1.8 million or 22.4% to $9.8
million for the three months ended September 30, 1999 from $8.0 million for the
three months ended September 30, 1998. The increase is attributable to increased
staffing associated with the addition of the CRJs, increased staffing in
reservations and increased wages per employee, partially offset by a decrease
in the profit sharing expense in the three months ended September 30, 1999
related to the Company's Bonus Plan implemented in 1998. Wages, salaries and
related cost per ASM increased 0.51 cents or 24.9% to 2.56 from 2.05 cents. The
increase in unit costs is attributable to the items noted above as well as the
changes noted in "Capacity".
Aircraft fuel expense increased 25.3% to $5.9 million for the three months
ended September 30, 1999 from $4.7 million for the three months ended September
30, 1998. The increase was due to a 27.2% increase in the average fuel price
per gallon to 54.2 cents from 42.6 cents (net of into plane fees and taxes), and
the 27.6% increase in block hours, partially offset by the flying of the lower
fuel burn CRJ aircraft. Aircraft fuel expense per ASM increased 27.9% to 1.56
cents from 1.22 cents.
Aircraft and engine rental expense increased 3.9% to $7.6 million for the
three months ended September 30, 1999 from $7.4 million for the three months
ended September 30, 1998. The increase in expense is attributable to $3.4
million in lease expense in the three months ended September 30, 1999 for leased
CRJs which were placed in service beginning in September 1998, partially offset
by the return at the end of their leases of four F100s and one Airbus A320 (see
Capacity). Aircraft and engine rentals expense per ASM increased 5.8% to 2.00
cents from 1.89 cents. The increase in cost per ASM resulted from a combination
of the 2.1% decrease in ASMs discussed above in "Capacity" and the increase in
the number of aircraft under lease.
Commission expense remained stable at $3.2 million for the three months ended
September 30, 1999. This was due to a reduction in the commission rate paid and
a decrease of travel agency revenues as a percent of passenger revenue to 63.2%
from 63.4%, partially offset by the 0.7% increase in passenger revenues.
Commissions expense per ASM increased 3.7% to 0.85 cents from 0.82 cents,
primarily driven by the reduction in capacity operated.
Maintenance, materials and repairs expense decreased 22.1% to $3.0 million for
the three months ended September 30, 1999 from $3.9 million for the three months
ended September 30, 1998. The expense decrease is largely attributable to the
new maintenance contracts on most of the Company's F100 aircraft, the retirement
of 4 Fokker F100 aircraft and the A320, and the lower maintenance cost of the
new CRJ fleet, offset somewhat by the 27.6% increase in block hours.
Maintenance, materials and repairs expense per ASM decreased 20.2% to 0.79 cents
from 0.99 cents due to the changes noted above.
Other rentals and landing fees expense increased 2.1% to $2.5 million for the
three months ended September 30, 1999 from $2.4 million for the three months
ended September 30, 1998. The expense increase is attributable primarily to
25.5% more departures and by new facility rentals, partially offset by lower
landing fee rates at the Company's hub, and the shift in the fleet mix,
resulting in 187% more CRJ landings and 40% fewer landings by the larger Fokker
and Airbus aircraft. Other rentals and landing fees expense per ASM increased
4.8% to 0.65 cents from 0.62 cents.
Depreciation and amortization expense decreased 2.0% to $1.7 million for the
three months ended September 30, 1999 from $1.8 million for the three months
ended September 30, 1998. Depreciation and amortization expense per ASM
remained stable at 0.45 cents.
Other operating expense increased 5.2% to $14.9 million for the three months
ended September 30, 1999 from $14.2 million for the three months ended September
30, 1998. Other operating expenses consist primarily of reservations, ground
handling, advertising, crew overnight accommodations and training, general and
administrative expense and insurance. The expense increase is attributable to
the 25.5% increase in departures, and crew accommodations and training,
partially offset by savings in insurance,
<PAGE>
outside reservation services, and marketing and administrative expenses and the
1.2% decrease in passengers. Other operating expense per ASM increased 7.4% to
3.91 cents from 3.64 cents.
<TABLE>
<CAPTION>
Selected Operating Data
For the nine months ended September 30,
---------------------------------------
1999 1998
---- ----
<S> <C> <C>
Available seat miles (thousands) 1,132,665 1,150,462
Revenue passenger miles (thousands) 742,542 749,952
Load factor 65.6% 65.2%
Break-even load factor (1) 59.1% 57.2%
Departures 32,978 25,888
Block hours 50,863 40,469
Passenger revenue per ASM (cents) 13.82 13.16
Passenger yield (cents) 21.08 20.19
Average fare $ 105 $ 103
Operating cost per available seat mile (1) 12.61 11.80
Onboard passengers 1,484,406 1,473,240
Average seats per departure 70 90
Average stage length (miles) 470 479
Aircraft (average during period) 21.7 16.9
Aircraft utilization (hours per day) 8.6 8.8
Fuel price per gallon (cents) (2) 44.5 46.6
</TABLE>
(1) Excludes equipment retirement charges
(2) Excludes taxes and into-plane fees
For the nine months ended September 30, 1999 the Company's net income was $8.2
million. Excluding the equipment retirement charges discussed below, net income
was $9.5 million (net of taxes), down 17.7% from the net income of $11.5 million
for the nine months ended September 30, 1998. Revenue for the nine months ended
September 30, 1999 was up 2.8% over 1998 to $160.0 million. Excluding the
equipment retirement charges the Company's operating margin decreased to 10.7%
in 1999 from 12.8% in 1998.
Diluted earnings per share for the nine months ended September 30, 1999 amounted
to $0.86 ($0.99 excluding unusual items) compared to $1.18 for the nine months
ended September 30, 1998.
Unusual Items
During September 1999, Hurricanes Floyd and Dennis and two tropical storms
resulted in the cancellation of 5.5 percent of Midway's scheduled flights,
pushing aircraft utilization down, reducing revenue, and resulting in passenger
reaccommodation costs.
During the nine months ended September 30, 1999 the Company incurred $2.0
million in equipment retirement charges related to the retirement of three
aircraft, one of which left the fleet in March, one in May and one in June.
Additionally, during the first six months of 1999 the Company incurred added
cost and reduced revenue due to a shortage of pilots driven by a tripling of the
normal pilot attrition rate and pilot absenteeism due to illness during that
period. Attrition, which was up due to increased hiring by the major carriers,
and the increased absence from sick calls had the effect of forcing the
cancellation of one aircraft's worth of
<PAGE>
capacity throughout the six months ended June 30, 1999. Increased hiring and a
reduction in pilot attrition have since reduced the pilot shortage.
Capacity. In the nine months ended September 30, 1999, the Company produced
1,133 million ASMs, a decrease of 17.8 million or 1.5% over the nine months
ended September 30, 1998. The decrease in ASM production is attributable to a
1.9% shorter average stage length (to 470 miles) and 22.2% fewer seats per
departure (to 70 seats) partially offset by 27.4% more departures (to 32,978).
These changes resulted from the change in the Company's fleet, (decreasing the
number of 98-seat F100s to eight during the nine months ended September 30,
1999, the 148-seat A320 being out of service for two months in the first quarter
and being removed from service in May and returned at the expiration of its
lease in June, 1999, and an increase in the number of 50-seat CRJs to 16), the
pilot shortage noted above, the hurricanes, and a schedule realignment initiated
in February 1999.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Aircraft As of September 30,
----------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------
<S> <C> <C>
F100 (98 seats) 8 12
----------------------------------------------------------------------------
A320 (148 seats) 0 1
----------------------------------------------------------------------------
CRJ (50 seats) 16 7
----------------------------------------------------------------------------
</TABLE>
Operating Revenues. The Company's operating revenues increased 2.8% to $160.0
million for the nine months ended September 30, 1999 from $155.7 million for the
nine months ended September 30, 1998. Passenger revenue increased 3.4% due to a
4.4% increase in passenger yield (revenue per RPM) to 21.1 cents partially
offset by a 1.0% decrease in revenue passenger miles to 742.5 million. Passenger
revenue per ASM increased 5.0% to 13.8 cents per ASM due to the 4.4% increase in
yield combined with a 0.4 percentage point increase in load factor to 65.6%.
Cargo revenue decreased due to less mail being carried partially offset by more
cargo being carried, while contract and other revenue decreased due to a
reduction in charter operations, partially offset by ground handling services
provided to other airlines in the nine months ended September 30, 1999.
Operating Expenses. The Company's operating expenses increased 6.8% to $144.9
million for the nine months ended September 30, 1999 from $135.7 million for the
nine months ended September 30, 1998. Total expenses increased primarily due to
increases in wages, salaries and related costs, depreciation and amortization,
other miscellaneous operating expenses, and equipment retirement charges,
partially offset by a reduction in fuel cost per gallon, lower commission
expense, and lower maintenance expense. Operating expense per ASM increased 8.3%
to 12.79 cents from 11.80 cents. This increase is attributable to an increase in
depreciation and amortization expense related to the ownership of five CRJs and
the parts for the fleet, equipment retirement charges, and an increase in other
expenses and the reduction in ASM production year over year.
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
---- ----
Percent of Total Cost per ASM Percent of Total Cost per ASM
Expenses (cents) Expenses (cents)
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Wages, salaries and related costs 19.4% 2.51 17.2% 2.05
Aircraft fuel 10.0 1.30 10.7 1.28
Aircraft and engine rentals 15.2 1.97 16.1 1.92
Commissions 7.2 0.93 8.3 0.99
Maintenance, materials and repairs 6.7 0.87 8.8 1.04
Other rentals and landing fees 5.0 0.65 5.3 0.63
Depreciation and amortization 3.6 0.47 3.1 0.37
Other 30.2 3.91 29.5 3.52
----- ----- ----- ------
Sub-total operating expenses before
equipment retirement charges 97.3 12.61 99.0 11.80
Equipment retirement charges 1.4 0.18 -- --
----- ----- ----- -----
Total operating expenses 98.7 12.79 99.0 11.80
Other expenses 1.3 0.16 1.0 0.12
----- ----- ----- -----
Total expenses 100.0% 12.95 100.0% 11.92
===== ===== ===== =====
</TABLE>
Wages, salaries and related costs increased $4.8 million or 20.5% to $28.4
million for the nine months ended September 30, 1999 from $23.6 million for the
nine months ended September 30, 1998. The increase is attributable to increased
staffing associated with the addition of the CRJs and the increased number of
stations and flights, increased wages per employee, partially offset by a
decreased profit sharing expense in the nine months ended September 30, 1999
related to the Company's Bonus Plan implemented in 1998. Wages, salaries and
related cost per ASM increased 0.46 cents or 22.4% to 2.51 cents. The increase
in unit costs is attributable to the items noted above as well as the changes
noted in "Capacity".
Aircraft fuel expense remained stable at $14.7 million for the nine months
ended September 30, 1999. Aircraft fuel expense per ASM increased 1.6% to 1.30
cents from 1.28 cents.
Aircraft and engine rental expense increased 1.2% to $22.4 million for the
nine months ended September 30, 1999 from $22.1 million for the nine months
ended September 30, 1998. The increase resulted from the change in the fleet mix
year over year (see Capacity). Aircraft engine rentals expense per ASM increased
2.6% to 1.97 cents from 1.92 cents.
Commission expense decreased 7.3% to $10.5 million for the nine months ended
September 30 1999 from $11.4 million for the nine months ended September 30,
1998. This was due to a reduction in the commission rate paid and a decrease of
travel agency revenues as a percent of passenger revenue to 64.1% from 66.5%,
partially offset by the 3.4% increase in passenger revenues. Commissions
expense per ASM decreased 6.1% to 0.93 cents from 0.99 cents, primarily driven
by the reduction in the commission rate paid and the decrease in agency
revenues.
Maintenance, materials and repairs expense decreased 18.3% to $9.8 million for
the nine months ended September 30, 1999 from $12.0 million for the nine months
ended September 30, 1998. The expense decrease is largely attributable to the
new maintenance contracts on most of the Company's F100 aircraft, and the
retirement of 4 Fokker F100 and one A320 aircraft and lower maintenance costs
for the new CRJ fleet, offset somewhat by the 25.7% increase in block hours.
Maintenance, materials and repairs expense per ASM decreased 16.4% to 0.87 cents
from 1.04 cents.
<PAGE>
Other rentals and landing fees expense increased 2.8% to $7.4 million for the
nine months ended September 30, 1999 from $7.2 million for the nine months ended
September 30, 1998. The expense increase is attributable primarily to 27.4% more
departures and facility rentals in newly opened stations and the new
headquarters facility in Morrisville, North Carolina, partially offset by lower
landing fee rates at the Company's hub, the shift in the fleet mix, resulting in
230% more CRJ landings and 33% fewer landings by the larger Fokker and Airbus
aircraft. Other rentals and landing fees expense per ASM increased 3.2% to 0.65
cents from 0.63 cents.
Depreciation and amortization expense increased 23.4% to $5.3 million for the
nine months ended September 30, 1999 from $4.3 million for the nine months ended
September 30, 1998. Depreciation and amortization expense per ASM increased
27.0% to 0.47 cents from 0.37 cents in the nine months ended September 30, 1998.
The increase is attributable to the acquisition of five owned CRJs and related
spare parts.
Other operating expense increased 9.6% to $44.3 million for the nine months
ended September 30, 1999 from $40.4 million for the nine months ended September
30, 1998. Other operating expenses consist primarily of reservations, ground
handling, advertising, general and administrative expense and insurance. The
expense increase is attributable to the 27.4% increase in departures and the
0.8% increase in passengers, partially offset by savings in insurance, marketing
and administrative expenses. Other operating expense per ASM increased 11.1% to
3.91 cents from 3.52 cents.
Liquidity and Capital Resources
Liquidity
- ---------
The Company's working capital decreased during the nine months ended September
30, 1999 compared to the year ended December 31, 1998. As of September 30, 1999,
the Company had cash, restricted cash, and short-term investments of $33.9
million and working capital deficit of $5.9 million compared to $58.2 million
and $32.9 million respectively as of December 31, 1998. The decrease in working
capital is due primarily to the net increase in aircraft purchase deposits of
$27.6 million and the increase in advanced ticket sales of $9.5 million. During
the nine months ended September 30, 1999, cash, restricted cash and short-term
investments decreased $24.3 million, reflecting net cash provided by operating
activities of $18.9 million (net of changes in restricted cash), net cash used
in investing activities of $38.6 million (net of purchases and sales of short
term investments), and net cash used in financing activities of $4.6 million.
During the nine months ended September 30, 1999, net cash provided by operating
activities was primarily due to net income and advance ticket sales partially
offset by the increase in aircraft lease deposits and other; net cash used in
investing activities was due to net payments of equipment purchase deposits and
purchases of equipment and property; and net cash used in financing activities
reflects repayment of long-term debt and capital lease obligations.
Capital Resources
- -----------------
The Company's aircraft purchase obligations amount to approximately $565
million. The Company's remaining pre-delivery deposit obligations amount to
approximately $34 million. The Company's anticipated near-term, non-aircraft
capital expenditures amount to approximately $20 million. Together, these
obligations exceed the Company's internal capital resources and accordingly, the
Company will be required to obtain capital from external sources. A substantial
portion of the required external capital has been committed to the Company by
the aircraft and engine manufacturers, subject to satisfaction of certain
conditions. The Company is diligently pursuing financing for the remaining
unfunded obligations although no assurances can be given that such financing
will be available on a timely basis. To the extent financing can not be obtained
timely, the Company's liquidity and capital resources will be adversely
affected.
Capital Expenditures
- --------------------
The Company's cash outflows for capital expenditures in the nine months ended
September 30, 1999 and 1998 were $10.9 million and $6.0 million, respectively,
excluding financed purchases.
<PAGE>
The Company has in place firm orders to purchase 10 additional newly
manufactured CRJ-200ER Canadair Regional Jet aircraft, all of which are
scheduled to be delivered by December 2001. Midway also has options to acquire
up to 14 additional CRJs. The Company has ordered two General Electric CF34-3B1
spare engines to support the operation of its CRJ aircraft.
The Company has placed firm orders to purchase 15 Boeing 737-700 aircraft, and
has leased two additional Boeing 737-700s. Deliveries of the two leased Boeing
737-700 aircraft are scheduled for December 1999 and January 2000, and delivery
for the other 15 Boeing 737-700 aircraft are scheduled to begin in September
2000 and end in October 2002. The Company has options to acquire 10 additional
Boeing 737-700s. The Company intends to purchase four CFM 56-7B spare engines
to support the operation of its Boeing 737-700 aircraft.
The Company's fixed costs will increase significantly with the induction of
the new CRJs and the 737-700s. Based on the current interest rate environment,
the Company estimates that its fixed charges will increase by approximately $9.2
million over the next twelve months as a result of the financing of the aircraft
to be delivered during that time. However, depending upon the financing method
ultimately chosen, the Company's balance sheet liabilities may or may not
increase.
Year 2000
State of Readiness
The Company's Year 2000 Project was designed to ensure that the Company's
computer systems and embedded operating systems will function properly beyond
1999. The Project involved five phases: Inventory, Assessment, Remediation,
Testing and Contingency Planning.
During the Inventory Phase, the Company identified six business-critical
functions which rely heavily on computer or embedded systems for safe or
reliable operations. These six functions include the operation of aircraft,
the operation of the Company's computer reservation system and related telephone
systems, the transmission and reconciliation of credit card and travel agency
sales and collection of money, the operation of the Company's yield management
systems, the operation of the Company's aircraft dispatch and air traffic
control systems as they communicate with the FAA's air traffic controllers and
other agencies and the utilization of certain time-sensitive crew qualification
and tracking systems, and aircraft maintenance control and planning systems.
The Company has completed the Assessment Phase which first began with a
detailed review of these six critical functions and the applicable systems used
by the Company or its vendors in performing these functions. This review has
concluded and the results were as follows:
. With respect to its aircraft, the Company has received assurances and
warranties that the embedded technology in such aircraft and parts
will process date data correctly in the Year 2000. The manufacturers
and suppliers of these aircraft and parts have provided the Company
with regular updates of their investigation and testing of the
component systems for Year 2000 compliance. To date, the information
provided by these sources has not identified any aircraft or parts in
the Company's projected Year 2000 fleet which are not now Year 2000
compliant.
. With respect to its yield management systems and its computer
reservation system, each of these systems is operated and maintained
by American Airlines, Inc. and/or its affiliate, SABRE Group Holdings,
Inc. The SABRE Group Holdings, Inc. has stated that the computer
reservation system is now Year 2000 compliant, with only testing of
minor sub-systems remaining to be completed. The Company's computer
reservation system has, in fact, begun taking reservations for travel
in the Year 2000. The SABRE Group has also stated that
<PAGE>
substantially all of its core systems are either completed or in the
final testing phases of its Year 2000 Project.
. With respect to its telephone systems, the Company has installed and
is using a new phone switch and related systems/equipment in its
headquarters and reservations center. The phone switch and related
systems/equipment have been warranted as Year 2000 compliant by the
seller, a leading communications technology company.
. With respect to the systems used in the transmission and
reconciliation of credit card sales, the Company is reliant upon the
systems of the credit card companies, the systems used by these
companies to transact business with their customers' banks and the
systems used by the Company's revenue accounting vendor. The Company
has received written assurances from its revenue accounting vendor
that its systems are Year 2000 compliant and that it successfully
completed Year 2000 testing in September 1998. The Company has
reviewed information made available by the credit card companies (such
as MasterCard and American Express) and these companies have stated
that card members should not experience any problems using cards with
expiration dates of the Year 2000 or beyond.
. With respect to its primary maintenance control and planning system,
the Company had previously determined that this system was not Year
2000 compliant. The Company and its third party consultants have
completed remediation and testing of this system and it is currently
being used to tracking maintenance tasks in the Year 2000. The Company
has developed a contingency plan to utilize in the event that the
current system fails to be Year 2000 compliant. With respect to its
crew qualification and tracking systems, the vendor has warranted the
systems are Year 2000 compliant when operated on an appropriate
platform. The Company has been using these systems on its current
platform and the systems are properly recording Year 2000 events.
. With respect to the Company's aircraft dispatch and related air
traffic control systems, the Company is largely dependent upon the
systems operated by certain governmental entities such as the FAA that
provide the aviation industry with critical information and reports.
The Company is reviewing and will continue to review the Year 2000
information and readiness reports issued by these entities. The FAA
asserts that its systems are Y2K compliant, although the Company has
no independent method to verify this assertion.
In summary, the Company identified the computer systems which support its
business-critical functions and has taken necessary remedial actions to address
Year 2000 problems identified during the review of these systems and which could
be addressed within the Company's own systems and facilities. As part of its
Remediation and Testing Phases, the Company continues to review Year 2000
information and reports issued by its vendors and other third parties as they
relate to business critical (and other) functions in order to respond to systems
information or changes that could affect the Company's Year 2000 readiness.
During the Inventory Phase, the Company also identified a number of other
Company functions which require the use of computer systems for operation, but
which are not business-critical. These functions include the preparation of
financial books and records, the scheduling of crew and aircraft, the processing
of payroll and similar functions. The Company has completed its Year 2000
remediation efforts with respect to these systems.
The Company's System-Testing Phase has been completed and the Company has
verified successful testing of third party systems, or has otherwise completed
testing with respect to its business-critical functions. With respect to third
party computer systems which support other functions, the Company has limited or
no ability to independently test the systems of third parties which support
these operations and must rely on testing completed and reported by these third
parties. To the extent possible, testing of the systems which support these
operations will be completed in a timely manner.
<PAGE>
Although the Contingency Planning Phase of the Company's Year 2000 Project has
concluded in a number of select areas, it has not yet been fully completed. The
Company believes that most of its business-critical and other functions can be
performed manually or without aid of computer systems (such as scheduling of
crew and aircraft and revenue collection processes), but that the performance of
these functions will obviously be materially impacted should certain systems
fail to operate past 1999. To the extent reasonably possible, the Company
intends to develop contingency plans to ensure continued operations in the event
certain systems fail to operate after 1999.
The Company has completed the Remediation and Testing Phases, and intends
to complete the Contingency Planning phase and believes it is prepared, to the
fullest extent possible, for the Year 2000 cut-over.
Separately, the Federal Aviation Authority Year 2000 Program Office required
the Company to supply the agency with materials related its Year 2000 Project.
The FAA year 2000 Program Office has reviewed these materials, with additional
information from the FAA Flights Standards Service organization, and informed
the Company that it has been assigned a category 1 rating for Year 2000
readiness.
A category 1 definition is:
"Most available information regarding this airline indicates that a
comprehensive and thorough program to attempt to identify and correct
potential aviation-related Y2K problems has been implemented. While there is
no guarantee that Y2K-related problems will not occur, the probability of
numerous, lengthy or severe Y2K-related disruptions of airline operation is
anticipated to be low. This statement is based primarily upon self-reported
information not subject to independent Department of Transportation
verification."
Costs of Compliance:
- --------------------
The total costs of the Company's Year 2000 Project were immaterial and were
funded from available cash balances. To date, the Company has incurred less than
$100,000 in connection with the Project, all of which has been expensed as
incurred. The cost of the Company's Year 2000 Project is limited by the
substantial outsourcing of its systems, the relative youth of the Company and
its operating systems and the purchase of new technology.
Risks of Non-Compliance:
- ------------------------
The Company believes that the Year 2000 issue will not pose significant
operational problems for its computer systems. However, there can be no
assurance that the systems of third parties on which the Company's business
relies (including those of its customers, its vendors or the FAA) will be
modified on a timely basis. The Company's business, financial condition or
results of operations could be materially adversely affected by the failure of
its systems or those operated by other parties to operate properly beyond 1999.
To the extent reasonably possible, the Company will continue developing and
executing
<PAGE>
contingency plans designed to allow continued operation in the event of the
failure of the systems of the Company or certain third parties. These
contingency plans have not yet been fully established.
Forward-Looking Statements
- --------------------------
The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe
harbor for forward-looking statements made by or on behalf of the Company. The
Company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in the Company's
filings with the Securities and Exchange Commission and in reports to share
owners. All statements which address operational performance, events or
developments which are anticipated to occur in the future, including statements
relating to revenue growth, cost reductions and earnings growth or statements
expressing general optimism about future operating results, are forward-looking
statements within the meaning of the Act. The forward-looking statements are
and will be based on management's then current views and assumptions regarding
future events and operating performance.
Some of the factors that could cause actual results to differ materially from
estimates contained in the Company's forward-looking statements include the
following:
. The ability to generate sufficient cash flows to support capital expansion
plans and general operating activities.
. Change in laws and regulations, including changes in accounting standards,
taxation requirements (including tax rate changes, new tax laws and revised
tax law interpretations) and environmental laws.
. Fluctuations in the cost and availability of materials, fuel, equipment and
labor, including the continued availability of landing slots at New
York/LaGuardia and Washington Reagan airports.
. The ability to achieve earnings forecasts, which are based on projected
Traffic and fares in the different markets the Company serves, some of which
are more profitable than others.
. Interest rate fluctuations and other capital market conditions.
. The reliance on a limited number of markets and the ability to enter and
develop new markets.
. The effectiveness and availability of resources to support advertising,
marketing, and promotional programs.
. The impact of increased competition in the Raleigh-Durham market on fares,
traffic, new market opportunities and related matters.
. The uncertainties of litigation and/or administrative proceedings.
. Adverse weather conditions, which could affect the Company's ability to
operate.
. The Company's significant dependence on the Raleigh Durham market.
. Control by existing stockholders, and the proposal to acquire the Company.
. The Company's indebtedness (including capital and operating lease
obligations).
PART II. Other Information
Item 1. Legal Proceedings.
In the fourth quarter of 1998, the Company retired two Fokker F-100 aircraft at
the expiration of the related lease terms. In each of March and May 1999, the
Company retired one F-100 aircraft at the expiration of the related lease. With
respect to the retirement of these aircraft, the Company and the lessor disagree
as to the amount of certain life cycle costs required to maintain the aircraft
and as to the level of the Company's responsibility to pay for such costs. The
Company believes that it has met or exceeded its obligations. The lessor
believes that the Company has not met its obligations and has brought an action
<PAGE>
against the Company alleging breach of contract and unjust enrichment, seeking
damages in excess of $5 million under each claim. The Company believes it has
meritorious legal defenses to the lessor's claims and will vigorously defend the
action, if necessary. At this time, it is not possible to predict the outcome
of this matter.
The Company has been named as a defendent (along with the members of its Board
of Directors and Messrs. Goodnight and Sall) in a class action complaint filed
on November 8, 1999 in Delaware State Chancery Court. The complaint was filed in
response to the merger proposed made by Messrs. Goodnight and Sall and alleges
that the consideration is unfair and inadequate and that the proposal serves no
legitimate business purpose, among other things. The Company will review the
matter with counsel and defend the claims brought against the Company.
The Company is otherwise a party to routine litigation incidental to its
business. Management believes that none of this litigation is likely to have a
material adverse effect on the Company's financial position or results of
operations.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk:
The Company's financial results and cash flows are subject to fluctuation due to
changes in interest rates primarily from its investment of available cash
balances in highly rated institutions. Current policies do not allow it to use
interest rate derivative instruments to manage exposure to interest rate
changes. The Company does not expect its operating results or cash flows to be
affected to any significant degree by a sudden change in market interest rates.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None
ITEM 5. Other Information.
On November 8, 1999, the Company announced that it had received a merger
proposal from two shareholders, Dr. James H. Goodnight and Mr. John P. Sall.
(See Notes to Financial Statements, Subsequent Events).
On November 11, 1999, Howard Wolf, a senior partner at Fulbright and Jaworski
resigned his position as a member of Midway's Board of Directors.
ITEM 6. Exhibits and Reports on Form 8-K
a.) Reports on Form 8-K
None
b.) Exhibits
10.1* Participation Agreement [N583ML] dated as of August 10, 1999 among
Midway Airlines Corporation as Lessee, Polaris Holding Company as
Owner Participant, First Union Trust Company, National Association not
in its individual capacity (except otherwise expressly set forth
herein) but solely as Owner Trustee, Allfirst Bank as Indenture
Trustee, and Canadian Regional Aircraft Finance Transaction No. 1
Limited, as Loan Participant. Midway Airlines Corporation is a party
to two additional Participation Agreements which are substantially
identical in all material respects except as indicated on the exhibit.
10.2* Trust Agreement [N583ML] dated as of August 10, 1999 between Polaris
Holding Company as Owner Participant and First Union Trust Company,
National Association as Owner Trustee. There are two additional Trust
Agreements which are substantially identical in all material respects
except as indicated on the exhibit.
10.3* Trust Indenture and Security Agreement [N583ML] dated as of August 10,
1999 between First Union Trust Company, National Association as Owner
Trustee and Allfirst Bank as Indenture Trustee. There are two
additional Trust Indenture and Security Agreements which are
substantially identical in all material respects except as indicated
on the exhibit.
10.4* Indenture Supplement [N583ML] dated as of August 16, 1999 of First
Union Trust Company, National Association, a national banking
association, not in its individual capacity but solely as Owner
Trustee. There are two additional Indenture Supplements which are
substantially identical in all material respects except as indicated
on the exhibit.
10.5*+ Lease Agreement [N583ML] dated as of August 10, 1999 between First
Union Trust Company, National Association as Owner Trustee and Lessor
and Midway Airlines Corporation as Lessee. Midway Airlines Corporation
is a party to two additional Lease Agreements which are substantially
identical in all material respects except as indicated on the exhibit.
10.6* Lease Supplement No.1 [N583ML] dated as of August 10, 1999 between
First Union Trust Company, National Association not in its individual
capacity but solely as Owner Trustee except as otherwise provided
therein, the Lessor and Midway Airlines Corporation, as Lessee. Midway
Airlines Corporation is a party to two additional Lease Supplements
No.1 which are substantially identical in all material respects except
as indicated on the exhibit.
10.7* Purchase Agreement Assignment and Aircraft Manufacturer's Consent
[N583ML] dated as of August 10, 1999 between Midway Airlines
Corporation as Assignor and First Union Trust Company, National
Association as Assignee. Midway Airlines Corporation is a party to two
additional Purchase Agreement Assignment and Aircraft Manufacturer's
Consents which are substantially identical in all material respects
except as indicated on the exhibit.
10.8* Engine Warranty Assignment and Engine Manufacturer's Consent [N583ML]
dated as of August 10, 1999 between Midway Airlines Corporation, First
Union Trust Company, National Association not in its individual
capacity but solely as Owner Trustee and General Electric Company.
Midway Airlines Corporation is a party to two additional Engine
Warranty Assignment and Engine Manufacturer's Consents which are
substantially identical in all material respects except as indicated
on the exhibit.
10.9+ General Terms Agreement No. 6-13593 dated as of June 11, 1999 by and
between CFM International, Inc. and Midway Airlines Corporation.
10.10 Aircraft Lease Common Terms Agreement dated as of September 10, 1999
between General Electric Capital Corporation and Midway Airlines
Corporation.
10.11+ Aircraft Lease Agreement (serial no. 28613) dated as of September 10,
1999 between General Electric Capital Corporation, as Lessor, and
Midway Airlines Corporation, as Lessee.
10.12+ Aircraft Lease Agreement (serial no. 30051) dated as of September 10,
1999 between General Electric Capital Corporation, as Lessor, and
Midway Airlines Corporation, as Lessee.
27 Financial Data Schedule
* Exhibits containing differences filed herewith
+ Portions have been omitted pursuant to a request for confidential
treatment. The confidential portions have been seperately filed with the
securities and Exchange Commission.
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Midway Airlines Corporation
Registrant
November 15, 1999 By /s/ STEVEN WESTBERG
Steven Westberg
Sr. Vice President and CFO
<PAGE>
EXHIBIT 10.1
CONFORMED COPY
--------------
================================================================================
PARTICIPATION AGREEMENT [N583ML]
Dated as of August 10, 1999
among
MIDWAY AIRLINES CORPORATION,
as Lessee,
POLARIS HOLDING COMPANY,
as Owner Participant,
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
not in its individual capacity (except as otherwise
expressly set forth herein) but solely
as Owner Trustee,
CANADIAN REGIONAL AIRCRAFT FINANCE TRANSACTION NO. 1 LIMITED,
as Loan Participant,
and
ALLFIRST BANK,
as Indenture Trustee
================================================================================
COVERING ONE CANADAIR REGIONAL JET SERIES 200ER
AIRCRAFT BEARING U.S. REGISTRATION NO. N583ML
AND MANUFACTURER'S SERIAL NUMBER 7327
<PAGE>
TABLE OF CONTENTS
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ARTICLE 1. INTERPRETATION............................................................................ 2
Section 1.01. Definitions............................................................... 2
Section 1.02. References................................................................ 2
Section 1.03. Headings.................................................................. 2
Section 1.04. Appendices, Schedules and Exhibits........................................ 2
ARTICLE 2. SALE, LEASING AND SECURED LOAN TRANSACTIONS............................................... 3
Section 2.01. Participation............................................................... 3
(a) Sale and Purchase............................................................... 3
(b) Leasing......................................................................... 3
(c) Owner Participant's Equity Investment........................................... 3
(d) Secured Loan.................................................................... 3
(e) Delivery Date................................................................... 3
Section 2.02. Closing Procedure........................................................... 4
(a) Time and Place.................................................................. 4
(b) Actions of the Owner Trustee.................................................... 4
(c) Actions of the Lessee........................................................... 5
ARTICLE 3. CONDITIONS PRECEDENT...................................................................... 5
Section 3.01. Conditions Precedent to Obligations of Participants......................... 5
(a) Notice.......................................................................... 6
(b) Delivery of Documents........................................................... 6
(c) Airworthiness................................................................... 9
(d) Other Commitments............................................................... 9
(e) Violation of Law................................................................ 9
(f) [Reserved]...................................................................... 9
(g) No Event of Default............................................................. 9
(h) No Event of Loss................................................................ 9
(i) Title........................................................................... 10
(j) Certification................................................................... 10
(k) Section 1110.................................................................... 10
(1) Filings......................................................................... 10
(m) Financing Statements............................................................ 10
(n) Precautionary Financing Statements.............................................. 10
(o) No Proceedings.................................................................. 10
(p) Governmental Action............................................................. 10
(q) Trust Company Filing............................................................ 11
(r) Perfected Security Interest..................................................... 11
(s) Representations and Warranties.................................................. 11
(t) Loan Participant Fee............................................................ 11
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(u) Other Documents................................................................. 11
Section 3.02. Conditions Precedent to Obligations of Lessee............................... 11
(a) Documents....................................................................... 11
(b) Other Conditions Precedent...................................................... 11
(c) Loan Participant Tax Forms...................................................... 12
Section 3.03. Post-Registration Opinion................................................... 12
ARTICLE 4. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................................ 12
Section 4.01. Lessee's Representations and Warranties..................................... 12
Section 4.02. Certain Covenants of Lessee................................................. 17
(a) Filings and Recordings.......................................................... 17
(b) Registration.................................................................... 17
(c) Information..................................................................... 20
(d) Corporate Existence............................................................. 20
(e) Merger and Consolidation........................................................ 20
(f) Change of Location.............................................................. 21
(g) Financial Statements............................................................ 21
(h) [Reserved]...................................................................... 22
(i) Filing of Documents............................................................. 22
(j) Annual Foreign Opinion.......................................................... 23
(k) Lessee's Agreement Regarding Debt............................................... 23
Section 4.03. Survival of Representations and Warranties.................................. 23
ARTICLE 5. OTHER PARTIES' REPRESENTATIONS, WARRANTIES AND COVENANTS.................................. 23
Section 5.01. Representations, Warranties and Covenants of Owner Participant............. 23
(a) Representations and Warranties.................................................. 23
(b) Lessor's Liens.................................................................. 25
(c) Assignment of Interests of Owner Participant.................................... 25
(d) Actions with Respect to Lessor's Estate, Etc.................................... 27
(e) Citizenship..................................................................... 27
(f) Tail Insurance.................................................................. 28
Section 5.02. Citizenship................................................................ 28
(a) Generally....................................................................... 28
(b) Owner Trustee................................................................... 28
Section 5.03. Representations, Warranties and Covenants of Trust Company
and the Owner Trustee...................................................... 29
(a) Representations and Warranties.................................................. 29
(b) Lessor's Liens.................................................................. 31
(c) Indemnity for Lessor's Liens.................................................... 31
(d) Securities Act.................................................................. 31
(e) Actions With Respect to Lessor's Estate, Etc.................................... 31
(f) Other Business.................................................................. 31
</TABLE>
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(g) Performance of Agreements...................................................... 31
Section 5.04. Representations, Warranties and Covenants of the Indenture
Trustee................................................................... 31
(a) Representations and Warranties................................................. 32
(b) Indenture Trustee's Liens...................................................... 33
(c) Indemnity for Indenture Trustee's Liens........................................ 33
Section 5.05. Indenture Trustee's Notice of Default..................................... 33
Section 5.06. Releases from Indenture................................................... 33
Section 5.07. The Lessee's Right of Quiet Enjoyment..................................... 33
Section 5.08. Representations, Warranties and Covenants of the Loan Participant......... 33
(a) Representations and Warranties................................................. 33
(b) Transfer of Equipment Notes.................................................... 34
Section 5.09. Survival of Representations, Warranties and Covenants..................... 34
Section 5.10. Lessee's Assumption of the Equipment Notes................................ 34
Section 5.11. Compliance with Trust Agreement, Etc...................................... 37
Section 5.12. [Reserved]................................................................ 37
Section 5.13. Amendments to the Indenture............................................... 37
ARTICLE 6. TAXES........................................................................................ 37
Section 6.01. Lessee's Obligation to Pay Taxes.......................................... 37
(a) Generally...................................................................... 37
(b) Exceptions..................................................................... 39
(c) Withholding.................................................................... 41
Section 6.02. After Tax Basis........................................................... 43
Section 6.03. Time of Payment........................................................... 44
Section 6.04. Contests.................................................................. 44
(a) Notice of Claim................................................................ 44
(b) Request for Contest............................................................ 44
(c) Declining to Contest; Settlement............................................... 47
(d) Continuing Claims.............................................................. 47
(e) Claims Barred.................................................................. 48
Section 6.05. Refunds................................................................... 48
Section 6.06. Reports................................................................... 48
Section 6.07. Survival of Obligations................................................... 49
Section 6.08. Payment of Taxes.......................................................... 49
Section 6.09. Reimbursements by Indemnitees Generally................................... 49
Section 6.10. Forms..................................................................... 49
Section 6.11. Verification.............................................................. 49
Section 6.12. Non-Parties............................................................... 50
Section 6.13. Foreign Tax On Loan Payments.............................................. 5O
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ARTICLE 7. GENERAL INDEMNITY........................................................................ 50
Section 7.01. Generally.................................................................. 50
(a) Indemnity................................................................. 50
(b) Exceptions................................................................ 52
(c) Non-Parties............................................................... 54
Section 7.02. Notice and Payment......................................................... 54
Section 7.03. Defense of Claims.......................................................... 54
Section 7.04. Insured Claims............................................................. 55
Section 7.05. Subrogation................................................................ 56
Section 7.06. Information................................................................ 56
Section 7.07. Survival of Obligations.................................................... 56
Section 7.08. Effect of Other Indemnities................................................ 56
Section 7.09. Waiver of Certain Claims................................................... 56
Section 7.10. Certain Limitations........................................................ 57
Section 7.11. Certain Transfers.......................................................... 57
ARTICLE 8. TRANSACTION COSTS........................................................................ 57
Section 8.01. Transaction Costs and Other Costs.......................................... 58
(a) Transaction Costs......................................................... 58
(b) Continuing Expenses....................................................... 58
(c) Amendments and Supplements................................................ 58
ARTICLE 9. SUCCESSOR OWNER TRUSTEE.................................................................. 58
Section 9.01. Appointment of Successor Owner Trustee..................................... 58
(a) Resignation and Removal................................................... 59
(b) Conditions to Appointment................................................. 59
ARTICLE 10. LIABILITIES AND INTERESTS OF THE OWNER PARTICIPANT AND NOTEHOLDERS....................... 59
Section 10.01. Liabilities of the Owner Participant...................................... 59
Section 10.02. Interest of Noteholders................................................... 60
ARTICLE 11. OTHER DOCUMENTS.......................................................................... 60
Section 11.01. Consent of Lessee to Other Documents...................................... 60
ARTICLE 12. NOTICES.................................................................................. 60
Section 12.01. Notices................................................................... 60
ARTICLE 13. REFINANCING.............................................................................. 61
Section 13.01. Refinancing............................................................... 61
ARTICLE 14. [RESERVED]............................................................................... 64
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ARTICLE 15. MISCELLANEOUS............................................................................ 64
Section 15.01. Counterparts............................................................. 64
Section 15.02. No Oral Modifications.................................................... 64
Section 15.03. Captions................................................................. 64
Section 15.04. Successors and Assigns................................................... 64
Section 15.05. Concerning the Owner Trustee and Indenture Trustee....................... 64
Section 15.06. Severability............................................................. 65
Section 15.07. Certain Limitations on Reorganization.................................... 65
Section 15.08. GOVERNING LAW............................................................ 65
Section 15.09. Section 1110 Compliance.................................................. 66
Section 15.10. Payment in Dollars....................................................... 66
Section 15.11. Year 2000 Compliance Survey.............................................. 67
Section 15.12. Like-Kind Exchange....................................................... 67
</TABLE>
Schedule I Commitments
Schedule II Participants
Appendix A Definitions
Exhibit A-1 Form of Opinion of General Counsel of Lessee
Exhibit A-2 Form of Opinion of Fulbright & Jaworski L.L.P.
Exhibit A-3 Form of Opinion of Ober, Kaler, Grimes & Shriver, A
Professional Corporation, as special counsel to Indenture
Trustee
Exhibit A-4 Form of Opinion of Morris, James, Hitchens & Williams, as
special counsel to the Owner Trustee
Exhibit A-5 Form of Opinion of Crowe & Dunlevy P.C.
Exhibit A-6 Form of Opinion of Dewey Ballantine LLP, special counsel for
the Owner Participant
Exhibit A-7 Form of Opinion of Counsel to the Owner Participant
Exhibit B-1 Form of Assignment and Assumption Agreement
Exhibit B-2 Form of Owner Participant Guaranty
v
<PAGE>
Exhibit B-3 Form of Opinion of counsel to the Owner Participant in
respect of the Assignment and Assumption Agreement
Exhibit C Form of Certificate of Non-Bank Status
vi
<PAGE>
PARTICIPATION AGREEMENT [N583ML] dated as of August 10, 1999 (this
"Agreement") among MIDWAY AIRLINES CORPORATION, a Delaware corporation (herein,
together with its successors and permitted assigns, the "Lessee"), FIRST UNION
TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, not in its
individual capacity, except as otherwise expressly stated herein, but solely as
owner trustee under the Trust Agreement referred to below (in such capacity as
trustee, together with its successors and permitted assigns, the "Owner
Trustee"), POLARIS HOLDING COMPANY, a Delaware corporation (together with its
successors and permitted assigns, the "Owner Participant"), CANADIAN REGIONAL
AIRCRAFT FINANCE TRANSACTION NO. 1 LIMITED, a Jersey, Channel Islands company
(together with its successors and permitted assigns, the "Loan Participant"),
and ALLFIRST BANK, a Maryland state-chartered commercial bank, as indenture
trustee under the Indenture referred to below (together with its successors and
permitted assigns, the "Indenture Trustee").
W I T N E S S E T H:
-------------------
WHEREAS, capitalized terms used herein shall have the respective
meanings set forth or referred to in Article 1 hereof.
WHEREAS, pursuant to the Purchase Agreement the Manufacturer agreed to
manufacture and sell to the Lessee and the Lessee agreed to purchase from the
Manufacturer the Aircraft; and
WHEREAS, concurrently with the execution and delivery of this
Agreement, the Owner Participant and First Union Trust Company, National
Association, are entering into the Trust Agreement whereby, among other things,
First Union Trust Company, National Association, is appointed as Owner Trustee
and has undertaken to acquire and hold the Trust Estate in trust for the benefit
of the Owner Participant; and
WHEREAS, subject to the terms and conditions of this Agreement, the
Owner Trustee is willing to purchase the Aircraft from the Seller for immediate
lease to the Lessee pursuant to the Lease; and
WHEREAS, subject to the terms and conditions of this Agreement and the
Trust Agreement, the Owner Participant is willing to make the equity investment
provided for herein to fund such purchase by the Owner Trustee; and
WHEREAS, the Owner Trustee and the Indenture Trustee are concurrently
entering into the Indenture for the benefit of the Noteholders, pursuant to
which Indenture the Owner Trustee shall, subject to the terms and conditions set
forth therein, issue to the Loan Participant an Equipment Note substantially in
the form set forth in the Indenture as evidence of the loan to be made by the
Loan Participant to the Owner Trustee to finance a portion of Lessor's Cost for
the Aircraft, all as more particularly described herein and in the Indenture;
and
<PAGE>
WHEREAS, subject to the terms and conditions of this Agreement, the
Lessee has agreed to assign to the Owner Trustee, upon the terms and conditions
contained in the Purchase Agreement Assignment and the Engine Warranty
Assignment, respectively, certain of the Lessee's rights and interests in and to
the Purchase Agreement and the Warranties (as defined in the Engine Warranty
Assignment), respectively; and
WHEREAS, to induce the Owner Participant to make the equity investment
provided for herein to fund the purchase of the Aircraft by the Owner Trustee
from the Seller, the Manufacturer has agreed to enter into the Residual
Agreement [N583ML], dated as of August 10, 1999 (the "Residual Agreement") with
the Owner Participant and to undertake the obligations provided therein; and
WHEREAS, to induce the Owner Trustee to purchase the Aircraft and to
enter into the Lease, Bombardier Inc. (the "Deficiency Obligor") has agreed to
enter into the Deficiency Agreement [N583ML], dated as of August 10, 1999 (the
"Deficiency Agreement") with the Owner Trustee and the Owner Participant and to
undertake the obligations provided therein;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration and receipt and adequacy of
which is hereby acknowledged, and intending to be legally bound, the parties do
hereby agree as follows:
ARTICLE 1.
INTERPRETATION
Section 1.01. Definitions. Capitalized terms used herein and defined
-----------
in Appendix A shall, except as such definitions may be specifically modified in
the body of this Agreement for the purposes of a particular section, paragraph
or clause, have the meanings given such terms in Appendix A.
Section 1.02. References. References in this Agreement to sections,
----------
paragraphs, clauses, appendices, schedules and exhibits are to sections,
paragraphs, clauses, appendices, schedules and exhibits in and to this Agreement
unless otherwise specified.
Section 1.03. Headings. The headings of the various sections,
--------
paragraphs and clauses of this Agreement and the table of contents are for
convenience of reference only and shall not modify, define, expand or limit any
of the terms or provisions hereof.
Section 1.04. Appendices, Schedules and Exhibits. The appendices,
----------------------------------
schedules and exhibits hereto are part of this Agreement.
2
<PAGE>
ARTICLE 2.
SALE, LEASING AND SECURED LOAN TRANSACTIONS
Section 2.01. Participation. Subject to all of the terms and
-------------
conditions of this Agreement, the parties agree to participate in the sale,
leasing and secured loan transactions with respect to the Aircraft provided for
in this Section 2.
(a) Sale and Purchase. The Owner Trustee agrees to purchase the
-----------------
Aircraft from the Seller on the Delivery Date for a purchase price equal to
Lessor's Cost.
(b) Leasing. The Owner Trustee agrees to lease to the Lessee, and the
-------
Lessee agrees to lease from the Owner Trustee, the Aircraft pursuant to the
Lease, such leasing to take place concurrently with the purchase of the Aircraft
by the Owner Trustee on the Delivery Date.
(c) Owner Participant's Equity Investment. The Owner Participant
-------------------------------------
agrees to provide immediately available funds in the amount determined by
multiplying Lessor's Cost by the percentage set forth opposite its name on
Schedule I (the Owner Participant's "Commitment") (i) by paying such amount to
the Owner Trustee prior to the time of closing on the Delivery Date at the
account specified by the Owner Trustee on or prior to the Delivery Date, such
amount to be held and applied toward the Owner Trustee's payment of Lessor's
Cost for the Aircraft on the Delivery Date (and if not so applied, to be
promptly returned to the Owner Participant) or (ii) by paying such amount at the
time of the closing on the Delivery Date directly to the Seller's account
specified by the Lessee prior to the closing to be applied toward the payment of
Lessor's Cost. Such funds, once so applied, shall constitute an equity
investment by the Owner Participant in the Trust Estate, provided that the Owner
--------
Participant shall have no obligation to provide its Commitment after August 31,
1999.
(d) Secured Loan. The Loan Participant agrees to provide immediately
------------
available funds in the amount determined by multiplying Lessor's Cost by the
percentage set forth opposite its name on Schedule I (the Loan Participant's
"Commitment") to or on behalf of the Owner Trustee by paying or causing to be
paid such amount to the Owner Trustee, at the account specified by the Owner
Trustee on or prior to the Delivery Date, such amount to be held and applied
toward the Owner Trustee's payment of Lessor's Cost for the Aircraft on the
Delivery Date (and if not so applied, to be promptly returned to the Loan
Participant), provided that the Loan Participant shall have no obligation to
--------
provide its Commitment after January 31, 2000. Such funds, once so applied,
shall constitute a loan to the Owner Trustee to be evidenced by an Equipment
Note substantially in the form set forth in the Indenture and as more
particularly described herein and in the Indenture and secured as provided in
the Indenture.
(e) Delivery Date. The "Delivery Date" shall be the date fixed by the
-------------
Lessee in accordance with this Section 2.01(e) for the closing of the sale,
leasing and loan transactions with respect to the Aircraft contemplated hereby,
except that following such closing the "Delivery Date" shall mean the date on
which such transactions actually closed. The Lessee shall give at least two
3
<PAGE>
Business Days' notice to each other party hereto of the Delivery Date, which
notice shall also specify the amount of the Owner Participant's Commitment and
the Loan Participant's Commitment. The Lessee may postpone a scheduled Delivery
Date from time to time, for any reason by notice given to the other parties
hereto not later than 2:00 p.m. on the date last scheduled as the Delivery Date,
such notice to specify a new Delivery Date. In the event that a Participant
shall have provided the amount of its Commitment to the Owner Trustee prior to
such a postponement, the Owner Trustee shall return such amount to such
Participant by 2:00 p.m. on the scheduled Delivery Date unless such Participant
shall have agreed otherwise in writing. Absent such an agreement, in the event
that the Owner Participant's Commitment is not returned to the Owner Participant
by 2:00 p.m. on a scheduled Delivery Date on which the closing does not occur,
the Lessee shall pay interest to the Owner Participant at a rate equal to the
rate per annum announced from time to time by Citibank, N.A. as its prime rate
plus two percent (2%) per annum for each day that such commitment is not
returned to the Owner Participant by 2:00 p.m.. The making available by the
Owner Participant of its Commitment at the closing shall be deemed a waiver of
notice of the Delivery Date by the Owner Participant and the Owner Trustee, and
the making available by the Loan Participant of its Commitment at the closing
shall be deemed a waiver of notice of the Delivery Date by the Loan Participant
and the Indenture Trustee.
Section 2.02. Closing Procedure.
-----------------
(a) Time and Place. The closing shall take place at 11:00 a.m. New
--------------
York City local time on the Delivery Date at the offices of Fulbright & Jaworski
L.L.P., 666 Fifth Avenue, New York, New York or at such other time and place as
the parties may agree. The closing shall be preceded by a pre-closing at the
same place, the time for which shall be fixed by the Lessee, at which the forms
of the Operative Agreements to be executed, the certificates and other documents
to be delivered and the forms of the legal opinions to be delivered at the
closing by each party or its counsel pursuant to this Agreement shall be
available for inspection by the parties and their respective counsel.
(b) Actions of the Owner Trustee. Upon receipt in full by the Owner
----------------------------
Trustee of the Commitment of each Participant together with instructions (which
may be oral) from each Participant or its special counsel that the applicable
conditions precedent set forth in Section 3.01 have been satisfied or waived by
such Participant, the Owner Trustee on the Delivery Date shall purchase the
Aircraft from the Seller, lease the Aircraft to the Lessee, issue an Equipment
Note to the Loan Participant and make a security assignment of all of its right,
title and interest in and to the Indenture Estate to the Indenture Trustee. To
accomplish such transactions, the Owner Trustee shall, concurrently with the
actions of the Lessee pursuant to Section 2.02(c), take the following actions:
(i) pay or cause to be paid an amount equal to Lessor's Cost to the Seller for
the purchase of the Aircraft by transferring such amount in immediately
available funds to the account specified by the Lessee on or prior to the
Delivery Date; (ii) authorize its representative or representatives, who shall
be a person or persons designated by the Lessee and acceptable to the Owner
Trustee, to accept delivery of the Aircraft pursuant to this Agreement; (iii)
accept the Bills of Sale for the Aircraft; (iv) execute, and cause to be
authenticated and delivered to the Loan Participant, its Equipment Note
4
<PAGE>
specified, by reference to principal amount, maturity date and interest rate, in
the Indenture; (v) execute and deliver the Lease, the Lease Supplement, the
Indenture and the Indenture Supplement and each other Operative Agreement to
which it is a party; (vi) deliver the Aircraft to the Lessee pursuant to the
Lease; and (vii) execute and deliver all other documents or certificates and
take such other actions as may be required of the Owner Trustee on or before the
Delivery Date pursuant to any Operative Agreement. In addition, the Owner
Trustee shall take such actions as may be requested by the Lessee to effect the
due registration of the Aircraft with the FAA in the name of the Owner Trustee
and to file and perfect the security interest of the Indenture Trustee in all or
any part of the Indenture Estate.
(c) Actions of the Lessee. Upon satisfaction or waiver by the Lessee
---------------------
of the conditions precedent set forth in Section 3.02, the Lessee shall on the
Delivery Date sell the Aircraft (or cause the Aircraft to be sold) to the Owner
Trustee, lease the Aircraft from the Owner Trustee pursuant to the Lease, assign
to the Owner Trustee pursuant to the Purchase Agreement Assignment certain of
the Lessee's rights and interests in and to the Purchase Agreement and assign to
the Owner Trustee pursuant to the Engine Warranty Assignment the Lessee's rights
and interests in and to the Warranties (as defined in the Engine Warranty
Assignment). To accomplish such transactions the Lessee shall, concurrently
with the actions of the Owner Trustee pursuant to Section 2.02(b), take the
following actions:
(i) execute and deliver the Lease and the Lease Supplement;
(ii) authorize its representative or representatives (who shall be
the same person or persons designated by the Lessee for purposes of clause
(ii) of Section 2.02(b)), to accept delivery of the Aircraft from the Owner
Trustee pursuant to the Lease; and
(iii) execute and deliver all other documents or certificates and
take such other actions as may be required of the Lessee on or before the
Delivery Date pursuant to any Operative Agreement.
ARTICLE 3.
CONDITIONS PRECEDENT
Section 3.01. Conditions Precedent to Obligations of Participants. The
---------------------------------------------------
obligation of each Participant to make the Dollar amount of its respective
Commitment available for payment as directed by the Owner Trustee on the
Delivery Date is subject to satisfaction or waiver by each such Participant, on
or prior to the Delivery Date, of the conditions precedent set forth below in
this Section 3.01; provided, that it shall not be a condition precedent to the
--------
obligation of any Participant that any document be produced or action taken that
is to be produced or taken by such Participant or by a Person within such
Participant's control; provided, further, that Sections 3.01(b)(iii), (xiii) and
-------- -------
(xix)(H) shall not be conditions precedent to the obligation of Loan Participant
and
5
<PAGE>
Sections 3.01(b)(xix)(B) and 3.01(r) shall not be conditions precedent to
the obligation of Owner Participant:
(a) Notice. Such Participant shall have received the notice of the
------
Delivery Date as provided in Section 2.01(e), or shall have waived such notice.
(b) Delivery of Documents. Such Participant shall, except as noted
---------------------
below, have received executed counterparts of the following agreements,
instruments, certificates or documents, and such counterparts (a) shall have
been duly authorized, executed and delivered by the respective party or parties
thereto, (b) shall be reasonably satisfactory in form and substance to such
Participant and (c) shall be in full force and effect:
(i) the Lease; provided that, only the Indenture Trustee shall
-------- ----
receive the sole executed chattel paper original thereof;
(ii) Lease Supplement No. 1; provided that, only the Indenture
-------- ----
Trustee shall receive the sole executed chattel paper original thereof;
(iii) the Tax Indemnity Agreement; provided that, only Owner
-------- ----
Participant and Lessee shall receive copies of the Tax Indemnity Agreement;
(iv) the Trust Agreement;
(v) the Indenture;
(vi) Indenture Supplement No. 1;
(vii) the Purchase Agreement and the Manufacturer's invoice with
respect to the Aircraft;
(viii) the Purchase Agreement Assignment, the Warranties and the
Engine Warranty Assignment;
(ix) the PAA Consent and the Engine Manufacturer's Consent;
(x) the Equipment Note of the Loan Participant dated the Delivery
Date; provided that, only the Loan Participant shall receive the original
-------- ----
Equipment Note, all other parties shall receive photocopies;
(xi) the Bills of Sale;
(xii) the broker's report and insurance certificates required by
Section 9 of the Lease;
6
<PAGE>
(xiii) an appraisal or appraisals from BK Associates, which
appraisal or appraisals shall be satisfactory in form and substance to
Owner Participant; provided, that only Owner Participant shall receive
--------
copies of such appraisal or appraisals;
(xiv) (A) a copy of the Certificate of Incorporation and By-Laws
of Lessee and resolutions of the board of directors of Lessee, in each case
certified as of the Delivery Date, by the Secretary or an Assistant
Secretary of Lessee, duly authorizing the execution, delivery and
performance by Lessee of the Operative Agreements required to be executed
and delivered by Lessee on or prior to the Delivery Date in accordance with
the provisions hereof and thereof; (B) an incumbency certificate of Lessee,
Owner Participant, Indenture Trustee and Trust Company as to the person or
persons authorized to execute and deliver the relevant Operative Agreements
on behalf of such party; and (C) a copy of the Certificate of Incorporation
or Articles of Incorporation or Articles of Association and By-Laws and
general authorizing resolutions of the boards of directors (or executive
committees) or other satisfactory evidence of authorization of Owner
Participant, Indenture Trustee and Trust Company, certified as of the
Delivery Date by the Secretary or an Assistant Secretary of Owner
Participant, Indenture Trustee and Trust Company, respectively, which
authorize the execution, delivery and performance by Owner Participant,
Indenture Trustee and Trust Company, respectively, of each of the Operative
Agreements to which it is a party, together with such other documents and
evidence with respect to it as any Participant may reasonably request in
order to establish the consummation of the transactions contemplated by
this Agreement and the taking of all corporate proceedings in connection
therewith;
(xv) an Officer's Certificate of Lessee, dated as of the Delivery
Date, stating that its representations and warranties set forth in this
Agreement and in any other Operative Agreement to which such Person is a
party are true and correct as of the Delivery Date (or, to the extent that
any such representation and warranty expressly relates to an earlier date,
true and correct as of such earlier date);
(xvi) an Officer's Certificate of Trust Company, dated as of the
Delivery Date, stating that its representations and warranties, in its
individual capacity and as Owner Trustee, set forth in this Agreement and
in any other Operative Agreement to which such Person is a party are true
and correct as of the Delivery Date (or, to the extent that any such
representation and warranty expressly relates to an earlier date, true and
correct as of such earlier date);
(xvii) an Officer's Certificate of Owner Participant, dated as of
the Delivery Date, stating that its representations and warranties set
forth in this Agreement are true and correct as of the Delivery Date (or,
to the extent that any such representation and warranty expressly relates
to an earlier date, true and correct as of such earlier date);
7
<PAGE>
(xviii) an Officer's Certificate of Indenture Trustee, dated as of
the Delivery Date, stating that its representations and warranties, in its
individual capacity or as Indenture Trustee, set forth in this Agreement
and in any other Operative Agreement to which such Person is a party are
true and correct as of the Delivery Date (or, to the extent that any such
representation and warranty expressly relates to an earlier date, true and
correct as of such earlier date);
(xix) the following opinions of counsel, in each case dated the
Delivery Date:
(A) (I) Jonathan Waller, Senior Vice President and General
Counsel of the Lessee substantially in the form of Exhibit A-1 hereto and
addressed to the Owner Participant, the Loan Participant, the Owner Trustee
and the Indenture Trustee, and (II) Fulbright & Jaworski, L.L.P., special
counsel for the Lessee substantially in the form of Exhibit A-2 hereto and
addressed to the Owner Participant, the Loan Participant, the Owner
Trustee, the Indenture Trustee and the Lessee;
(B) in the case of the Loan Participant only, Morgan, Lewis &
Bockius LLP, special counsel for the Loan Participant, addressed to the
Loan Participant, in the form and substance satisfactory to it;
(C) Morris, James, Hitchens & Williams, special counsel for the
Owner Trustee substantially in the form of Exhibit A-3 hereto and addressed
to the Owner Participant, the Loan Participant, the Owner Trustee, the
Indenture Trustee and the Lessee;
(D) Ober, Kaler, Grimes & Shriver, A Professional Corporation,
special counsel for the Indenture Trustee substantially in the form of
Exhibit A-4 hereto and addressed to the Owner Participant, the Loan
Participant, the Owner Trustee, the Indenture Trustee and the Lessee;
(E) Crowe & Dunlevy P.C., special aviation counsel substantially
in the form of Exhibit A-5 hereto and addressed to the Owner Participant,
the Loan Participant, the Owner Trustee, the Indenture Trustee and the
Lessee;
(F) Morgan, Lewis & Bockius LLP, special counsel for the
Manufacturer, in a form reasonably acceptable to the Participants and
addressed to the Owner Participant, the Loan Participant, the Owner
Trustee, the Indenture Trustee and the Lessee;
8
<PAGE>
(G) counsel for the Engine Manufacturer, in a form reasonably
acceptable to the Participants and addressed to the Owner Participant, the
Loan Participant, the Owner Trustee, the Indenture Trustee and the Lessee;
(H) in the case of the Owner Participant only, Dewey Ballantine
LLP, tax counsel to the Owner Participant, addressed to the Owner
Participant, with respect to tax matters;
(I) Dewey Ballantine LLP, special counsel for the Owner
Participant, and the Counsel to the Owner Participant, substantially in the
forms of Exhibits A-6 and A-7, addressed to the Loan Participant, the Owner
Trustee, the Indenture Trustee and the Lessee;
(J) counsel for the Deficiency Obligor, in a form reasonably
acceptable to the Owner Participant and addressed to the Owner Participant;
(K) counsel for the Seller, in a form reasonably acceptable to
the Participants and addressed to the Owner Participant, the Loan
Participant, the Owner Trustee, the Indenture Trustee and the Lessee;
(L) counsel for the Deficiency Obligor, in a form reasonably
acceptable to the Participants and addressed to the Owner Participant, the
Loan Participant, the Owner Trustee, the Indenture Trustee and the Lessee;
(xx) [Reserved];
(xxi) the Deficiency Agreement; and
(xxii) the Residual Agreement.
(c) Airworthiness. Each Participant shall receive a copy of a
-------------
current, valid Standard Certificate of Airworthiness for the Aircraft duly
issued by the FAA.
(d) Other Commitments. Each other Participant shall have made
-----------------
available the Dollar amount of its Commitment as directed by Owner Trustee in
accordance with Section 2.01(c) or 2.01(d), as the case may be.
(e) Violation of Law. No change shall have occurred after the date
----------------
of this Agreement in any Applicable Law that makes it a violation of law for (a)
Lessee, any Participant, Owner Trustee or the Indenture Trustee to execute,
deliver and perform the Operative Agreements to which any of them is a party or
(b) any Participant to make the Dollar amount of its Commitment available or, in
the case of the Loan Participant, to acquire its Equipment Note or to realize
the benefits of the security afforded by the Indenture.
9
<PAGE>
(f) [Reserved].
(g) No Event of Default. On the Delivery Date, no event shall have
-------------------
occurred and be continuing, or would result from the sale, mortgage or lease of
the Aircraft, which constitutes a Default, Event of Default, Indenture Default
or Indenture Event of Default.
(h) No Event of Loss. No Event of Loss with respect to the
----------------
Airframe or any Engine shall have occurred and no circumstance, condition, act
or event that, with the giving of notice or lapse of time or both, would give
rise to or constitute an Event of Loss with respect to the Airframe or any
Engine shall have occurred.
(i) Title. Owner Trustee shall have good title (subject to filing
-----
and recordation of the FAA Bill of Sale with the FAA) to the Aircraft, free and
clear of Liens, except Permitted Liens.
(j) Certification. The Aircraft shall have been duly certificated
-------------
by the FAA as to type and airworthiness as required by the terms of the Lease.
(k) Section 1110. Owner Trustee, as lessor under the Lease (and
------------
Indenture Trustee, as assignee of Owner Trustee under the Indenture), shall be
entitled to the benefits of Section 1110 (as currently in effect) with respect
to the right to take possession of the Airframe and Engines as provided in the
Lease in the event of a case under Chapter 11 of the Bankruptcy Code in which
Lessee is a debtor.
(l) Filings. On the Delivery Date (i) application for
-------
registration of the Aircraft in the name of the Owner Trustee shall have been
duly made with the FAA in compliance with the provisions of the Transportation
Code; and (ii) the Indenture, Indenture Supplement No. 1, the Lease, Lease
Supplement No. 1 and the FAA Bill of Sale shall have been duly filed for
recordation with the FAA in accordance with the Transportation Code.
(m) Financing Statements. A Uniform Commercial Code financing
--------------------
statement or statements covering the security interest contemplated by the
Indenture shall have been executed and delivered by the Owner Trustee as debtor
and by the Indenture Trustee as secured party, and such financing statement or
statements shall have been duly filed in all places necessary or desirable
within the State of Delaware.
(n) Precautionary Financing Statements. A Uniform Commercial Code
----------------------------------
"precautionary" financing statement or statements describing the Lease as a
lease but covering any security interest in favor of the Owner Trustee (and the
Indenture Trustee as assignee of the Owner Trustee) which may be created
thereby, shall have been executed and delivered by the Lessee and the Owner
Trustee (naming the Owner Trustee as Lessor and secured party and Indenture
Trustee as assignee), and shall have been duly filed in all places necessary or
desirable within the State of North Carolina.
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(o) No Proceedings. No action or proceeding shall have been
--------------
instituted, nor shall any action be threatened in writing, before any
governmental authority, nor shall any order, judgment or decree have been issued
or proposed to be issued by any governmental authority, to set aside, restrain,
enjoin or prevent the completion and consummation of this Agreement or any other
Operative Agreement or the transactions contemplated hereby or thereby.
(p) Governmental Action. All appropriate action required to have
-------------------
been taken prior to the Delivery Date by the FAA, or any governmental or
political agency, subdivision or instrumentality of the United States, in
connection with the transactions contemplated by this Agreement shall have been
taken, and all orders, permits, waivers, authorizations, exemptions and
approvals of such entities required to be in effect on the Delivery Date in
connection with the transactions contemplated by this Agreement shall have been
issued.
(q) Trust Company Filing. The Trust Company shall have provided
--------------------
evidence reasonably satisfactory to the Participants that the filing required by
Section 131 of the New York Banking Law has been effected.
(r) Perfected Security Interest. On the Delivery Date, after
---------------------------
giving effect to the filing of the documents referenced in Section 3.01(l)(ii)
and the financing statements referenced in Sections 3.01(m) and (n), the
Indenture Trustee shall have received a duly perfected first priority security
interest in all of Owner Trustee's right, title and interest in the Indenture
Estate, subject only to Permitted Liens.
(s) Representations and Warranties. The representations and
------------------------------
warranties of each other party to this Agreement made, in each case, in this
Agreement and in any other Operative Agreement to which it is party, shall be
true and accurate in all material respects as of the Delivery Date (unless any
such representation and warranty shall have been made with reference to a
specified date, in which case such representation and warranty shall be true and
accurate as of such specified date) and each other party to this Agreement shall
have performed and observed, in all material respects, all of its covenants,
obligations and agreements in this Agreement and in any other Operative
Agreement to which it is a party to be observed or performed by it as of the
Delivery Date.
(t) Loan Participant Fee. The Loan Participant shall have been
--------------------
paid, by wire transfer in immediately available funds to the account specified
by the Loan Participant on or prior to the Delivery Date, such loan fee as has
been agreed to by the Loan Participant and the Lessee.
(u) Other Documents. Such other documents and evidence with
---------------
respect to the Lessee, the Indenture Trustee, the Manufacturer and the Engine
Manufacturer as either Participant or its special counsel may reasonably request
in order to establish the consummation of the transactions contemplated hereby
and by the other Operative Agreements, the taking of all corporate proceedings
in connection therewith and compliance with the conditions herein or therein set
forth.
11
<PAGE>
Section 3.02. Conditions Precedent to Obligations of Lessee. The
---------------------------------------------
obligation of Lessee to lease the Aircraft on the Delivery Date is subject to
the satisfaction or waiver by Lessee, on or prior to the Delivery Date, of the
conditions precedent set forth below in this Section 3.02.
(a) Documents. Executed originals of the agreements, instruments,
---------
certificates, documents and opinions described in Section 3.01(b) shall have
been received by Lessee, except as specifically provided therein, and shall be
satisfactory to Lessee, unless the failure to receive any such agreement,
instrument, certificate or document is the result of any action or inaction by
Lessee.
(b) Other Conditions Precedent. Each of the conditions set forth in
--------------------------
Sections 3.01(c), (d) (as to all Participants), (e), (g) (as to Indenture
Defaults and Indenture Events of Default not arising from Defaults or Events of
Default, as the case may be), (h), (i), (j), (k), (l), (m), (n) and (o) shall
have been satisfied or waived by Lessee, unless the failure of any such
condition to be satisfied is the result of any action or inaction by Lessee.
(c) Loan Participant Tax Forms. The Lessee and the Indenture Trustee
--------------------------
shall have received a Form W-8 (or any subsequent versions thereof or successors
thereto) from the Loan Participant, together with a certificate of the Loan
Participant in substantially the form of Exhibit C hereto.
Section 3.03. Post-Registration Opinion. Promptly upon the
-------------------------
registration of the Aircraft and the recordation of the documents referenced in
Section 3.01(l)(ii), Lessee will direct Crowe & Dunlevy P.C., special counsel in
Oklahoma City, Oklahoma, to deliver to Lessee, each Participant, Owner Trustee
and the Indenture Trustee a favorable opinion or opinions addressed to each of
them with respect to such registration and recordation, the absence of any
intervening Liens filed with the FAA with respect to the Aircraft and the due
perfection under the Transportation Code of the Indenture Trustee's security
interest in the Aircraft pursuant to the Indenture.
ARTICLE 4.
LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 4.01. Lessee's Representations and Warranties. The Lessee
---------------------------------------
represents and warrants that, as of the Delivery Date (unless any such
representation and warranty is specifically made as of an earlier date, in which
case the Lessee represents and warrants as of such earlier date):
(a) the Lessee is a corporation duly organized and validly existing
and is in good standing under the laws of Delaware, has its principal place of
business and chief executive office (as such terms are used in Article 9 of the
Uniform Commercial Code) in Morrisville, North Carolina at the address set forth
in Section 12.01(a), and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the failure to be
so qualified or in good standing would have a materially adverse effect on its
business or would impair its ability to
12
<PAGE>
perform its obligations or impair the ability of the other parties to the Lessee
Documents to enforce such obligations under the Lessee Documents;
(b) the Lessee has full power, authority and legal right to conduct
its business and operations as currently conducted and to own or hold under
lease its properties and to enter into and perform its obligations under the
Lessee Documents;
(c) the Lessee is an "air carrier" within the meaning of the
Transportation Code and a holder of a certificate under Section 41102(a) of the
Transportation Code and a "citizen of the United States" within the meaning of
Section 40102(a)(15) of the Transportation Code holding an "air carrier
operating certificate" issued under Chapter 447 of the Transportation Code for
aircraft capable of carrying ten or more individuals or 6,000 pounds or more of
cargo, and each such certificate is in full force and effect;
(d) the Lessee possesses all necessary certificates, franchises,
licenses, permits, rights and concessions and consents (collectively "permits")
which are necessary to the operation of the routes flown by it and the conduct
of its business and operations as currently conducted and each such permit is in
full force and effect, except for any such permits the failure to have or
maintain which would not have a material adverse effect on the Lessee or its
ability to perform its obligations under the Lessee Documents;
(e) the execution, delivery and performance of the Lessee Documents
by the Lessee have been duly authorized by all necessary corporate action on the
part of the Lessee and do not require any stockholder approval, or approval or
consent of any trustee or holder of any indebtedness or obligations of the
Lessee, and each such Lessee Documents has been duly executed and delivered and
constitutes the legal, valid and binding obligations of the Lessee enforceable
against it in accordance with the terms thereof except as such enforceability
may be limited by bankruptcy, insolvency, or other similar laws or by general
equitable principles;
(f) no authorization, consent or approval of or other action by, and
no notice to or filing with, any United States federal or state governmental
authority or regulatory body is required for the execution, delivery or
performance by the Lessee of the Lessee Documents except for such registrations,
applications and recordings referred to in the opinion of Crowe and Dunlevy P.C.
delivered pursuant to Section 3.01(b)(xix)(E) and the filings referred to in
Section 3.01(l)(ii);
(g) neither the execution, delivery or performance by the Lessee of
the Lessee Documents nor compliance with the terms and provisions hereof or
thereof, conflicts or will conflict with or results or will result in a breach
or violation of any of the terms, conditions or provisions of, or will require
any consent (other than the PAA Consent and the Engine Manufacturer's Consent)
or approval under, any Applicable Law or the charter documents, as amended, or
bylaws, as amended, of the Lessee or any order, writ, injunction or decree of
any court or governmental authority against the Lessee or by which it or any of
its properties is bound or any indenture, mortgage or contract or other
agreement or instrument to which the Lessee is a party or by which
13
<PAGE>
it or any of its properties is bound, or constitutes or will constitute a
default thereunder or results or will result in the imposition of any Lien upon
the Aircraft or any of its properties (other than Permitted Liens), except for
any such conflict, breach or default which would not have a material adverse
effect on the Lessee or its ability to perform its obligations under the Lessee
Documents;
(h) except as disclosed in any of the filings of the Lessee referred
to in Section 4.01(t) or as otherwise disclosed in writing to the Owner
Participant and the Loan Participant, there are no pending or, to the knowledge
of the Lessee, threatened actions, suits, investigations or proceedings against
or affecting the Lessee or any of its properties before or by any court,
governmental agency, arbitration board, tribunal or other administrative agency
which, (A) involve the Aircraft, (B) if adversely determined, may reasonably be
expected to have a materially adverse effect on the Lessee's consolidated
financial condition, business, or operations, or (C) if adversely determinated
may reasonably be expected to materially adversely affect the ability of the
Lessee to consummate the transactions contemplated by the Operative Agreements
or perform its obligations under the Lessee Documents;
(i) [Reserved];
(j) except for (A) the registration in the Owner Trustee's name of
the Aircraft pursuant to the Transportation Code, (B) the filing with and, where
appropriate, recordation by the FAA pursuant to the Transportation Code of the
Indenture (including Indenture Supplement No. 1), and the Lease (including Lease
Supplement No. 1), (C) the filing of the financing statements referred to in
Sections 3.01(m) and 3.01(n) and (D) the taking of possession by the Indenture
Trustee of the original counterpart of the Lease (including Lease Supplement No.
1), no further action, including any filing or recording of any document, is
necessary or advisable in order (i) to establish the Owner Trustee's title to
and interest in the Aircraft and the Lessor's Estate as against the Lessee and
any third parties, or (ii) to perfect the first security interest in and Lien on
the Indenture Estate in favor of the Indenture Trustee, for the benefit of the
Noteholders and on the Delivery Date, subject to making the filings described
above, the Indenture Trustee, for the benefit of the Noteholders, shall have a
duly perfected first priority Lien in the United States in all of the items of
Indenture Estate, subject to no Liens other than Permitted Liens, as security
for the Secured Obligations;
(k) the Owner Trustee has received good and marketable title to the
Aircraft, free and clear of all Liens, except Permitted Liens;
(l) assuming the truth and accuracy of the representations and
warranties contained in Section 5.01(a)(vii) made by the Owner Participant and
Section 5.08(a)(iii) made by the Loan Participant and in reliance upon such
representations and warranties, the execution and delivery of this Agreement and
the other Operative Agreements and the consummation of the transactions
contemplated hereby and thereby will not involve any prohibited transaction
within the meaning of Section 406(a) of ERISA or Section 4975(c)(1)(A) through
(D) of the Code;
14
<PAGE>
(m) all premiums which have become due with respect to the insurance
required to be provided by the Lessee on or prior to the Delivery Date under
Section 9 of the Lease have been paid by the Lessee;
(n) no Default or Event of Default exists and no Event of Loss, or
event which with the passage of time or giving of notice, or both, would
constitute an Event of Loss, exists;
(o) the Aircraft is in such condition so as to enable the
airworthiness certificate of such Aircraft to be in good standing under the
Transportation Code; the Aircraft has been duly certificated by the FAA as to
type and airworthiness; there is in effect with respect to the Aircraft a
current and valid airworthiness certificate issued by the FAA pursuant to the
Transportation Code;
(p) the Lessee is not in default (after any applicable grace periods)
in the performance of any material term or condition of the Purchase Agreement;
(q) neither the Lessee nor any subsidiary of the Lessee is an
"investment company" or a company "controlled by an investment company" within
the meaning of the Investment Company Act of 1940, as amended;
(r) there are no broker's or underwriter's fees payable on behalf of
the Lessee in connection with the transactions contemplated in the Operative
Agreements, other than those of the Loan Participant referred to in Section
3.01(t) hereof and the Lessee Advisor (as defined in Section 8.01(a)) referred
to in Article 8 hereof;
(s) the Lessee represents and warrants that neither it nor anyone
acting on its behalf has directly or indirectly offered any Equipment Note or
any security similar thereto for sale to, or solicited any offer to acquire any
of the same from, anyone other than the Loan Participant; and not more than 50
institutions believed capable of evaluating and bearing the risks of investment
in the transactions contemplated hereby;
(t) (i) the audited consolidated balance sheet of Lessee with respect
to Lessee's most recent fiscal year included in Lessee's most recent Annual
Report on Form 10-K, as amended, filed by Lessee with the SEC, and the related
consolidated statements of operations and cash flows for the period then ended
have been prepared in accordance with generally accepted accounting principles
in the United States and fairly present in all material respects the financial
condition of Lessee and its consolidated subsidiaries as of such date and the
results of its operations and cash flows for such period, and since the date of
such balance sheet, there has been no material adverse change in such financial
condition or operations of Lessee, except for matters disclosed in (a) the
financial statements referred to above, (b) any subsequent Quarterly Report on
Form 10-Q or Current Report on Form 8-K filed by Lessee with the SEC on or prior
to the date hereof, or (c) otherwise disclosed in writing by Lessee to the
Participants; and (ii) the financial statements of the Lessee as of March 31,
1999 fairly represent the financial condition of the Lessee for the three-month
period
15
<PAGE>
then ended in accordance with generally accepted accounting principles in the
United States consistently applied (except as otherwise stated in the notes
thereto);
(u) Lessee is not in default under, or in violation of, any
Applicable Law, the violation of which would give rise to a Material Adverse
Change to Lessee;
(v) neither Lessee nor any person authorized to act on its behalf has
directly or indirectly offered any beneficial interest or security relating to
the ownership of the Aircraft or the Lease or any interest in the Trust Estate
and Trust Agreement, or any of the Equipment Notes or any other interest in or
security under the Indenture, for sale to, or solicited any offer to acquire any
such interest or security from, or has sold any such interest or security to,
any person in violation of the Securities Act or any applicable state securities
laws;
(w) Owner Trustee, as lessor under the Lease (and Indenture Trustee,
as assignee under the Indenture), is entitled to the benefits of Section 1110
(as currently in effect) with respect to the Aircraft;
(x) the Class D Certificates of Lessee's 1998-1 Pass-Through Trust
Offering are not rated below CCC by Standard & Poor's;
(y) no "employee benefit plan" as defined in Section 3(3) of ERISA
maintained by the Lessee or any entity required to be aggregated with the Lessee
under Section 414(b) or (c) of the Code (an "ERISA Affiliate") had an
"accumulated funding deficiency", as defined in Section 302 of ERISA, as of the
last day of the most recent fiscal year of the employee benefit plan ending on
or prior to the Delivery Date, and neither the Lessee nor any ERISA Affiliate
has incurred any material liability to the Pension Benefit Guaranty Corporation
that has not been satisfied (other than for the payment of premiums pursuant to
Section 4007 of ERISA);
(z) no governmental approval (with respect to the United States or
any state thereof) of any kind is required of the Loan Participant for its
execution of or performance under this Agreement or any agreement contemplated
hereby solely by reason of any fact or circumstance peculiar to: (a) the Lessee,
(b) the nature of the Aircraft or (c) the Lessee's proposed operations or use of
the Aircraft;
(aa) all material income tax returns which are required to be filed by
the Lessee have been filed, and all taxes shown to be due and payable on such
returns or on any assessment received by the Lessee (except to the extent being
contested in good faith and by appropriate proceedings or negotiations
diligently conducted, and for the payment of which adequate reserves have been
provided in accordance with United States generally accepted accounting
principles) have been paid (or, in the case of taxes being contested in good
faith, adequate provision for the payment thereof has been made) to the extent
that such taxes have become due and payable. There is no ongoing audit or, to
the knowledge of the Lessee, other investigation by any government entity of
the tax liability of the Lessee and there is no unresolved claim by a taxing
authority concerning the
16
<PAGE>
Lessee's tax liability, for any period for which returns have been filed or were
due, that, in either case, could result in liability of the Lessee which could
have a material adverse effect on the business, operations or financial
condition of the Lessee or the ability of the Lessee to perform its obligations
under the Lessee Documents;
(ab) the Lessee is not in default under any lease, mortgage, deed of
trust, indenture or other instrument or agreement to which the Lessee is a party
or by which it or any of its properties or assets may be bound, which default
creates a material risk of a material adverse effect on the business or
financial condition of the Lessee or on its ability to perform its obligations
contained in the Lessee Documents;
(ac) the Lessee is not entitled to (or has waived) sovereign immunity
under the laws of any jurisdiction;
(ad) the Aircraft has been duly certified by the FAA as to type and
airworthiness, has been insured by the Lessee in accordance with the terms of
Section 9 of the Lease, and is in the condition and state of repair required
under the terms of the Lease; and
(ae) insofar as it relates to the Aircraft and the Engines, the
Purchase Agreement is in full force and effect.
Section 4.02. Certain Covenants of Lessee. The Lessee covenants and
---------------------------
agrees as follows:
(a) Filings and Recordings. The Lessee will cause to be done,
----------------------
executed, acknowledged and delivered, at the Lessee's cost and expense, all such
further acts, conveyances and assurances as the Owner Trustee, the Indenture
Trustee, the Loan Participant and the Owner Participant shall reasonably require
for accomplishing the purposes of the Operative Agreements. Without limiting the
generality of this Section 4.02(a), the Lessee (i) will promptly take, or cause
to be taken, at the Lessee's cost and expense, such action with respect to the
recording, filing, re-recording and re-filing of the Indenture (including each
supplement thereto), the Lease (including each supplement thereto), and any
financing statements or other instruments and (ii) will promptly take, or cause
to be taken, all such other actions as may be reasonably requested by the
Indenture Trustee and appropriate, in each case to maintain the perfection of
the first security interest and the Lien created by the Indenture, and the Owner
Trustee's title to and interest in the Aircraft and the Lessor's Estate, as
against the Lessee and any third parties, or if the Lessee cannot itself take,
or cause to be taken, such action, will furnish to the Indenture Trustee and the
Owner Trustee timely notice of the necessity of such action, together with such
instruments, in execution form, and such other information as may be required to
enable either of them to take such action, at the Lessee's cost and expense, in
a timely manner.
(b) Registration. From and after the Delivery Date, the Lessee shall
------------
cause the Aircraft to be duly registered, and at all times to remain duly
registered, in the name of the Owner
17
<PAGE>
Trustee (provided, that the Owner Trustee and the Owner Participant shall be and
--------
remain Citizens of the United States), under the Transportation Code, and shall
furnish to the Owner Trustee such information as may be required to enable the
Owner Trustee to make application for such registration; provided, however, that
-------- -------
the Lessee may at any time cause the Aircraft to be appropriately re-registered
under the laws of a country with which at the time of such registration the
United States maintains normal diplomatic relations and is listed on Exhibit E
to the Lease; provided that prior to any change in the country of registry of
--------
the Aircraft the following conditions are met:
(i) at the time of re-registration, no Specified Default exists
or would occur as a result of such re-registration;
(ii) the Lessee shall pay all fees and expenses, recording and
registration taxes (including the reasonable fees and expenses of local
counsel in such country) relating to such re-registration or proposed re-
registration;
(iii) the Lessee shall, at its cost, cause the interest of the
Owner Trustee as owner of the Aircraft and the Indenture Trustee as
mortgagee thereof to be duly registered or recorded under the laws of such
country and at all times thereafter to remain so duly registered or
recorded unless and until the registration of the Aircraft is changed as
provided herein, and shall, at its cost, cause to be done at all times all
other acts including the filing, recording and delivery of any document or
instrument and the payment of any sum necessary or, by reference to prudent
industry practice in such country, advisable in order to create, preserve
and protect such interest in the Aircraft (including the first priority
duly perfected Lien under the Indenture) as against the Lessee or any third
parties in such jurisdiction, and the laws of such country would give
effect to the Owner Trustee's title to and ownership interest in the
Aircraft and the Lien of the Indenture Trustee thereon;
(iv) the obligations of the Lessee (and of the Permitted
Sublessee under a Sublease) and each other party under the Operative
Agreements and the rights and remedies of the Lessor, the Owner
Participant, the Indenture Trustee and the Noteholders under the Operative
Agreements shall remain or be, as the case may be, legal, valid, binding
and enforceable under the laws of such country;
(v) the Lessee shall ensure that all insurance required by
Section 9 of the Lease shall be in full force and effect prior to, at the
time of, and after such change in registration and the Owner Participant,
the Owner Trustee, and the Indenture Trustee shall receive a certificate of
Lessee's insurance broker to such effect;
(vi) the country of such re-registration imposes aircraft
maintenance standards approved by, or at least as stringent as those
approved by, the FAA or the central civil aviation authority of the United
Kingdom, France, Germany, Japan, the Netherlands or Canada;
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<PAGE>
(vii) it shall not be necessary by reason of such re-registration
or for purposes of exercising rights or enforcing remedies contained in the
Lease or the Indenture or the related Sublease or other Operative
Agreements for the Owner Trustee, the Indenture Trustee, the Owner
Participant or any Noteholder to register or qualify to do business in such
country;
(viii) no Liens (except Permitted Liens) shall arise by reason of
such re-registration, and the Indenture shall continue as a valid and duly
perfected (to the extent relevant in the applicable jurisdiction) first
priority Lien on the collateral thereunder (subject only to Permitted
Liens);
(ix) none of the Owner Trustee, the Indenture Trustee, the Owner
Participant and the Noteholders shall be subjected to any risk of adverse
tax consequences as a result of such re-registration for which the Lessee
does not then indemnify or cause to be indemnified such Person in a manner
satisfactory in form and substance to such Person;
(x) any export licenses and certificate of deregistration
required in connection with any repossession or return of the Aircraft will
be readily obtainable in the normal course without material delay or
material burden on the Owner Trustee, the Indenture Trustee or the
Participants, it being agreed that the Lessee shall be responsible for the
cost thereof and (if not contrary to the Applicable Laws of such country)
the Indenture Trustee (or, if the Indenture shall have been satisfied and
discharged in accordance with its terms, the Owner Trustee) will be granted
a deregistration power of attorney by the Lessee and the Permitted
Sublessee;
(xi) there is no tort liability of the owner or lessor of an
aircraft not in possession thereof under the laws of such jurisdiction more
onerous than under the laws of the United States or any state thereof (it
being agreed that, in the event such opinion cannot be given in a form
satisfactory to each Participant, such opinion shall be waived if insurance
reasonably satisfactory to each Participant is provided to cover such
risk);
(xii) unless Lessee shall have agreed to provide insurance
reasonably satisfactory to the Participants covering the risk of
requisition of use of or title to the Aircraft by the government of such
country (so long as the Aircraft is registered under the laws of such
country), the laws of such country require fair compensation by the
government of such country payable in currency freely convertible into
Dollars and freely removable from such country (without license or permit,
unless Lessee prior to such proposed reregistration has obtained such
license or permit or such license or permit will be readily obtainable in
the normal course without material delay or material burden on the
Participants) for the taking or requisition by such government of such use
or title;
(xiii) the courts of such proposed country of registry will
respect the choice of New York law to govern the Lease;
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(xiv) such re-registration may not be affected until after
December 31, 2006 unless the Lessee prepays on a lump sum basis any
liability due under the Tax Indemnity Agreement as a result of such re-
registration;
(xv) there exist no possessory rights in favor of the Lessee
(or any Permitted Sublessee) or any third party including any government or
instrumentality thereof, which would, upon bankruptcy or insolvency of or
other default by the Lessee and assuming that at such time such Permitted
Sublessee or third party is not insolvent or bankrupt, prevent the return
or repossession of the Aircraft in accordance with and when permitted by
the terms of Section 17(a) of the Lease upon the exercise by Owner Trustee
(or the Indenture Trustee, as assignee of the Owner Trustee) of its
remedies under Section 17(a) of the Lease;
(xvi) the Owner Participant, the Owner Trustee, the Indenture
Trustee and the Loan Participants shall have received opinions in scope,
form and substance reasonably satisfactory to them, of counsel, expert in
the laws of such country, to the effect set forth in clauses (iii), (iv),
(vii), (ix), (x), (xi), (xii), (xiii) and (xv) of this Section 4.02(b);
(xvii) such proposed change in registration is made in connection
with a Sublease to a Permitted Air Carrier and such Permitted Sublessee is
domiciled in such country;
(xviii) Lessee shall deliver such request to Indenture Trustee,
Owner Trustee and Owner Participant in writing at least 30 days in advance
of the date of any such proposed change in registration;
(xix) the Deficiency Agreement and the Residual Agreement shall
remain in full force and effect.
Lessee agrees to pay on an After Tax Basis all reasonable out-of-pocket costs
and expenses (including, without limitation, reasonable counsel fees and
disbursements) of the Owner Participant, the Owner Trustee, the Indenture
Trustee and the Loan Participant in connection with any re-registration pursuant
to this Section.
(c) Information. The Lessee shall promptly furnish to the Owner
-----------
Trustee and the Owner Participant such information as may be required to enable
the Owner Trustee and the Owner Participant timely to file any reports required
to be filed by the Owner Trustee as the Lessor and the Owner Participant under
the Lease with any governmental authority as a result of the Owner Trustee's
ownership interest in the Aircraft.
(d) Corporate Existence. The Lessee shall at all times maintain
-------------------
its corporate existence, except as permitted by Section 4.02(e) hereof, and it
shall do or cause to be done all things necessary to preserve and keep in full
force and effect all of its corporate rights, powers, privileges and franchises
necessary in the normal conduct of its business, except for any corporate right,
power,
20
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privilege or franchise that it determines, in its reasonable, good faith
business judgment, is no longer necessary or desirable in the conduct of its
business.
(e) Merger and Consolidation. The Lessee shall not, during the
------------------------
Term, enter into any merger with or into or consolidation with, or sell, convey,
transfer, lease or otherwise dispose of in one or a series of transactions all
or substantially all of its assets as an entirety to any Person, unless (x) no
Event of Default of the type described in Section 16(a), (f), (g) or (h) of the
Lease shall have occurred and be continuing, (y) no Event of Default shall arise
as a result of such merger, consolidation, purchase, conveyance, transfer, lease
or other disposition and (z) the surviving corporation or Person which acquires
by purchase, conveyance, transfer or lease all or substantially all of the
assets of the Lessee as an entirety (i) is a domestic corporation organized and
existing under the laws of the United States or any State of the United States,
(ii) is a Citizen of the United States, (iii) the benefits of Section 1110
available to the Owner Trustee and the Indenture Trustee immediately prior to
such transaction shall not be adversely affected as a result of such
transaction, (iv) is a Section 1110 Person, so long as such status is a
condition to the availability of protection for the Lessor and the Indenture
Trustee under Section 1110, (v) if not the Lessee, executes a duly authorized,
legal, valid, binding, and enforceable agreement, reasonably satisfactory in
form and substance to Owner Trustee, Owner Participant and Indenture Trustee,
containing an effective assumption of all of the Lessee's obligations hereunder
and under the other Operative Agreements, and each other document contemplated
hereby or thereby and delivers such instrument to the Indenture Trustee, the
Participants and the Owner Trustee, (v) provides an opinion from counsel (which
counsel may be the Lessee's General Counsel) delivered to the Owner Trustee, the
Indenture Trustee and the Owner Participant, which opinion shall be reasonably
satisfactory to the Owner Participant and the Indenture Trustee, and an
officer's certificate (which may rely, as to legal matters, on such legal
opinion), each stating that such merger, consolidation, conveyance, transfer,
lease or other disposition and the instrument noted in clause (iv) above comply
with this Section 4.02(e), that such instrument has been duly authorized,
executed and delivered and is a legal, valid and binding obligation of, and is
enforceable against, such survivor or Person, and that all conditions precedent
herein provided for relating to such transaction have been complied with, and
(vi) such survivor or Person makes such filings and recordings with the FAA as
may be required pursuant to part A of subtitle VII or Title 49, United States
Code to evidence such merger or consolidation and such filings and recordings
necessary in order to preserve and protect the rights of the Owner Trustee, the
Indenture Trustee and the Noteholders under the Indenture.
Upon any consolidation or merger, or any conveyance, transfer or
lease of all or substantially all of the assets of the Lessee and the
satisfaction of the conditions specified in this Section 4.02(e), the successor
corporation formed by such consolidation or into which the Lessee is merged or
the Person to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Lessee
under this Agreement and the Lease and each other Operative Agreement and any
other document contemplated hereby and thereby to which the Lessee is a party
with the same effect as if such successor corporation had been named as the
Lessee herein and therein. No such consolidation or merger, or sale, conveyance,
transfer or lease of all or substantially all of the assets of the Lessee as an
entirety shall have the
21
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effect of releasing the Lessee or any successor corporation which shall
theretofore have become the Lessee hereunder in the manner prescribed in this
Section 4.02(e) from its liability hereunder or under the other Operative
Agreements. Nothing contained herein shall permit any lease, sublease, or other
arrangement for the use, operation or possession of the Aircraft except in
compliance with the applicable provisions of the Lease.
(f) Change of Location. The Lessee agrees to give prompt written
------------------
notice (but in any event within 30 days prior to the expiration of the period of
time specified under Applicable Law to prevent lapse of perfection) to the Owner
Participant, the Owner Trustee and the Indenture Trustee of any change in the
address of its chief executive office (as such term is used in Section 9-103(3)
of the North Carolina Uniform Commercial Code) or of any change in its corporate
name or any change in the location of the place where its records concerning the
Aircraft and the Operative Agreements are located.
(g) Financial Statements. The Lessee agrees to furnish to the Owner
--------------------
Participant and the Indenture Trustee during the Term:
(i) within 60 days after the end of each of the first three
fiscal quarters in each fiscal year of the Lessee, unaudited consolidated
balance sheets of the Lessee and its subsidiaries (if any) as of the end of
such quarter and related consolidated statements of income, shareholder's
equity and cash flows of the Lessee and its subsidiaries (if any) for the
period commencing at the end of the previous fiscal year and ending with
the end of such quarter, each of which shall be prepared in accordance with
generally accepted accounting principles in the United States, provided
--------
that so long as the Lessee is subject to the reporting provisions of the
Securities Exchange Act of 1934, a copy of the Lessee's quarterly report on
Form 10-Q will satisfy this requirement (to the extent such report contains
the information required to be provided by this clause (i));
(ii) within 120 days after the end of each fiscal year of the
Lessee, a copy of the annual report for such year for the Lessee or the
affiliated group of which the Lessee is a member (on a consolidated basis,
if applicable) and a balance sheet of the Lessee and its subsidiaries (if
any) as of the end of such fiscal year and related statements of income,
shareholder's equity and cash flows of the Lessee and its subsidiaries (if
any) for such fiscal year, in comparative form with the preceding fiscal
year, in each case certified by independent certified public accountants of
national standing as having been prepared in accordance with generally
accepted accounting principles in the United States, provided that so long
--------
as the Lessee is subject to the reporting provisions of the Securities
Exchange Act of 1934, a copy of the Lessee's annual report on Form 10-K
will satisfy this requirement (to the extent such report contains the
information required to be provided by this clause (ii));
(iii) within 120 days after the end of each fiscal year of the
Lessee, an Officer's Certificate of the Lessee, to the effect that the
signer is familiar with or has reviewed the relevant terms of the Lease and
has made, or caused to be made under his supervision, a
22
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review of the transactions and conditions of the Lessee during the
preceding fiscal year and that such review has not disclosed the existence
during such period, nor does the signer have knowledge of the existence as
of the date of such certificate, of any condition or event which
constituted or constitutes a Default or Event of Default, or, if any such
condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Lessee has taken or is taking or
proposes to take with respect thereof;
(iv) simultaneously with sending or no later than thirty (30)
days after filing thereof, copies of all such proxy statements, financial
statements, or reports, if any, which the Lessee sends to its stockholders
and copies of all regular, periodic and current reports, which the Lessee
files with the SEC or any governmental authority which may be substituted
therefor or with any national securities exchange;
(v) promptly (but no later than five (5) Business Days) after
the occurrence thereof and actual knowledge thereof by a Responsible
Officer of the Lessee, notice of any Default or Event of Default and the
action that the Lessee proposes to take with respect thereto; and
(vi) from time to time, such other non-confidential financial
information as the Lessor or the Owner Participant, the Loan Participant or
the Indenture Trustee or any Noteholder may reasonably request.
(h) [Reserved].
----------
(i) Filing of Documents. Lessee, at its sole cost and expense, will
-------------------
cause the documents filed with the FAA pursuant to Section 3.01(l), the
financing statements required pursuant to Section 3.01(m) and (n) and all
continuation statements (and any amendments necessitated by any combination,
consolidation or merger pursuant to Section 4.02(e), or any relocation of its
chief executive office) in respect of such financing statements to be prepared
and, subject only to the execution and delivery thereof by Owner Trustee and
Indenture Trustee, as applicable, duly and timely filed and recorded, or filed
for recordation, to the extent permitted under the Transportation Code (with
respect to such documents filed with the FAA) or the Uniform Commercial Code or
similar law of any other applicable jurisdiction (with respect to such other
documents).
(j) Annual Foreign Opinion. If the Aircraft has been registered in
----------------------
a country other than the United States pursuant to Section 4.02(b), Lessee will
furnish to Owner Trustee, Indenture Trustee and each Participant annually after
such registration is effected, an opinion of special counsel reasonably
satisfactory to Owner Participant and Indenture Trustee stating that, in the
opinion of such counsel, either that (i) such action has been taken with respect
to the recording, filing, rerecording and refiling of the Operative Agreements
and any supplements and amendments thereof as is necessary to establish, perfect
and protect Owner Trustee's and Indenture Trustee's respective right, title and
interest in and to the Aircraft, the Indenture Estate and the Operative
Agreements,
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reciting the details of such actions, or (ii) no such action is necessary to
maintain the perfection of such right, title and interest.
(k) Lessee's Agreement Regarding Debt. Neither the Lessee nor any
---------------------------------
Person authorized to act on its behalf will acquire, or guaranty the payment of
any amounts due in respect of, any Equipment Note.
Section 4.03. Survival of Representations and Warranties. The
------------------------------------------
representations and warranties of the Lessee provided in Section 4.01 and in any
other Operative Agreement shall survive the delivery of the Aircraft and the
expiration or other termination of this Agreement and the other Operative
Agreements.
ARTICLE 5.
OTHER PARTIES' REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 5.01. Representations, Warranties and Covenants of Owner
--------------------------------------------------
Participant.
- -----------
(a) Representations and Warranties. The Owner Participant represents
------------------------------
and warrants that, as of the Delivery Date (unless any such representation and
warranty is specifically made as of an earlier date, in which case the Owner
Participant represents and warrants as of such earlier date):
(i) it is a corporation duly incorporated and validly existing
in good standing under the laws of the State of Delaware and it has full
corporate power, authority and legal right to carry on its present business
and operations, to own or lease its properties and to enter into and to
carry out the transactions contemplated by this Agreement and the other
Operative Agreements to which it is party;
(ii) the execution, delivery and performance by it of this
Agreement and the other Operative Agreements to which it is party have been
duly authorized by all necessary corporate action on its part;
(iii) neither the execution, delivery or performance by the Owner
Participant of the Operative Agreements to which it is party, nor
compliance with the terms and provisions hereof or thereof, conflicts or
will conflict with or results or will result in a breach or violation of
any of the terms, conditions or provisions of, any law, governmental rule
or regulation applicable to the Owner Participant or the charter documents,
as amended, or bylaws, as amended, of the Owner Participant or any order,
writ, injunction or decree of any court or governmental authority against
the Owner Participant or by which it or any of its properties is bound or
any indenture, mortgage or contract or other agreement or instrument to
which the Owner Participant is a party or by which it or any of its
properties is bound, or constitutes or will constitute a default thereunder
or results or will result in the
24
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imposition of any Lien upon any of its properties, except for any such
conflict, breach or default which would not have a material adverse effect
on the Owner Participant or its ability to perform its obligations under
the Operative Agreements;
(iv) the Operative Agreements to which it is party have been
duly executed and delivered by the Owner Participant and constitute the
legal, valid and binding obligations of the Owner Participant enforceable
against it in accordance with their terms except as such enforceability may
be limited by bankruptcy, insolvency, or other similar laws or general
equitable principles;
(v) there are no pending or, to the knowledge of the Owner
Participant, threatened actions, suits, investigations or proceedings
against the Owner Participant before any court, administrative agency or
tribunal which are expected to materially adversely affect the ability of
the Owner Participant to perform its obligations under this Agreement and
the other Operative Agreements to which it is or is to be a party and the
Owner Participant knows of no pending or threatened actions or proceedings
before any court, administrative agency or tribunal involving it in
connection with the transactions contemplated by the Operative Agreements;
(vi) neither the execution and delivery by it of this Agreement
or the other Operative Agreements to which it is a party nor the
performance of obligations hereunder or thereunder requires the consent or
approval of or the giving of notice to, the registration with, or the
taking of any other action in respect of, any governmental authority or
agency that would be required to be obtained or taken by the Owner
Participant except for filings contemplated by this Agreement;
(vii) the funds to be used by the Owner Participant to acquire
its interests under this Agreement do not constitute assets (within the
meaning of ERISA and any applicable rules and regulations) of an ERISA
Plan;
(viii) the Owner Participant is a bank, trust company, insurance
company, financial institution or corporation with a combined capital and
surplus or tangible net worth of at least $50,000,000; and
(ix) it is a Citizen of the United States.
Notwithstanding the foregoing or anything else contained in
this Agreement, the Owner Participant makes no representation or warranty in
this Agreement with respect to laws, rules or regulations relating to aviation
or to the nature or use of the equipment owned by the Owner Trustee, including,
without limitation, the airworthiness, value, condition, workmanship, design,
patent or trademark infringement, operation, merchantability or fitness for use
of the Aircraft, other than such laws, rules or regulations relating to the
citizenship requirements of the Owner Participant under applicable aviation law.
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(b) Lessor's Liens. The Owner Participant represents, warrants and
--------------
covenants that on the Delivery Date there are no Lessor's Liens attributable to
it (or an Affiliate thereof). The Owner Participant agrees with and for the
benefit of the Lessee, the Owner Trustee, the Noteholders and the Indenture
Trustee that the Owner Participant will, at its own cost and expense, take such
action as may be necessary to duly discharge and satisfy in full, promptly after
the same first becomes known to the Owner Participant, any Lessor's Lien
attributable to the Owner Participant (or an Affiliate thereof), provided,
--------
however, that the Owner Participant shall not be required to discharge or
- -------
satisfy such Lessor's Lien which is being contested by the Owner Participant in
good faith and by appropriate proceedings so long as such proceedings do not
involve any material risk of the sale, forfeiture or loss of the Aircraft or the
Lessor's Estate or the Indenture Estate or any interest in any thereof or
otherwise materially adversely affect the validity or priority of the Lien of
the Indenture.
(c) Assignment of Interests of Owner Participant. At any time after
--------------------------------------------
the Delivery Date and subject to satisfaction of the conditions set forth in
this Section 5.01(c), the Owner Participant may assign, convey or otherwise
transfer to a single Person all (but not less than all) of the Beneficial
Interest, provided that (i) the Owner Participant gives the Lessee, the Loan
--------
Participant and the Indenture Trustee at least 10 days' notice of such
assignment, conveyance or other transfer, (ii) the Owner Participant and any
Owner Participant Guarantor shall remain liable for all obligations of the Owner
Participant under the Trust Agreement and the other Operative Agreements to
which the Owner Participant is a party to the extent (but only to the extent)
relating to the period on or before the date of such transfer, (iii) the
transferee agrees by a written instrument substantially in the form attached
hereto as Exhibit B-1 (or otherwise in form and substance reasonably
satisfactory to Lessee and Indenture Trustee) to assume liability for, and
undertake performance of, all obligations of the Owner Participant under the
Trust Agreement and the other Operative Agreements to which such Owner
Participant is a party relating to the period after the date of transfer, (iv)
at or prior to the time of such transfer, the transferee shall furnish an
opinion of counsel substantially in the form attached hereto as Exhibit B-3 (or
otherwise in form and substance reasonably satisfactory to Lessee and Indenture
Trustee) (which counsel may be in-house counsel) to the effect that such
transferee and any guarantor of the payment and performance obligations of such
transferee, as the case may be, shall have requisite power and authority and
legal right to enter into and carry out the transactions contemplated hereby;
and that such agreement and any guaranty of the transferee's obligations has
been duly authorized, executed and delivered by the transferee or the guarantor
of the payment and performance obligations of such transferee, as the case may
be, and is a valid and binding agreement of the transferee or the guarantor of
the payment and performance obligations of such transferee enforceable in
accordance with its terms, subject to customary exceptions for such opinions and
that the transfer does not violate the Applicable Law of the jurisdiction in
which such counsel is located, and (v) the Lessee shall have received with
respect to each Identified Country identified by Lessee as provided for below
either (A) a certificate from such transferee stating that it is not presently
subject to income taxation in such Identified Country or (B) an opinion from
counsel selected by Owner Participant and reasonably acceptable to Lessee that
no withholding taxes will be imposed by such Identified Country on the interest
on the Equipment Notes, assuming that Lessee is a U.S. person and assuming all
relevant facts concerning the Equipment Notes are as they
26
<PAGE>
exist on the date of the transfer. Within 7 days of Lessee receiving notice of a
proposed transfer it will send to Owner Participant a list of "Identified
Countries", if any, as to which Lessee has received a written opinion from legal
counsel that there is a significant likelihood that withholding taxes will be
imposed by such Identified Country on the interest on the Equipment Notes due to
the presence of the prospective transferee in such Identified Country, together
with a copy of the opinion describing the basis on which Lessee has determined
that the country is a Identified Country; provided, however, that in no event
-----------------
shall a country be considered an Identified Country if such country imposes
withholding taxes on the interest on the Equipment Notes prior to the proposed
transfer to the same extent as such country would impose such withholding taxes
after the proposed transfer. Any such transferee shall (a) be (i) a bank,
savings institution, finance company, leasing company or trust company, national
banking association acting for its own account or in a fiduciary capacity as
trustee or agent under any pension, retirement, profit sharing or similar trust
or fund, insurance company, financial institution, fraternal benefit society or
a corporation acting for its own account having a combined capital and surplus
(or, if applicable, tangible net worth or its equivalent) of not less than
$50,000,000, (ii) a subsidiary of any Person described in clause (i) where such
Person provides a guaranty of such transferee subsidiary's obligations
substantially in the form attached hereto as Exhibit B-2 (or otherwise in form
and substance reasonably satisfactory to Lessee, Owner Trustee and Indenture
Trustee), or (iii) an Affiliate of the transferring Owner Participant, so long
as such Affiliate has a combined capital and surplus (or, if applicable,
tangible net worth or its equivalent) of not less than $50,000,000 (unless the
Owner Participant remains liable for the obligations of such Affiliate under the
Operative Agreements, in which case there shall be no such net worth
requirement), (b) be legally capable of binding itself to the obligations of the
Owner Participant and shall expressly agree to assume all obligations of the
Owner Participant under the Trust Agreement and the other Operative Agreements
to which the Owner Participant is a party and (c) provide representations,
warranties, and covenants substantially similar to those contained in clauses
(a) and (c) of this Section 5.01; provided that, without the prior written
--------
consent of the Lessee, such transferee shall not be an airline or other aircraft
operator or competitor of the Lessee in the business of air transportation or an
Affiliate of any thereof unless such Affiliate is (i) General Electric Company,
International Lease Finance Corporation, GPA, GATX Corporation or Bouillon
Aviation, (ii) any wholly-owned subsidiary of an entity listed in the foregoing
clause (i) that is (X) a special purpose corporation limited to holding Owner
Participant's interest in the transactions or (Y) primarily engaged in the
business of owning and leasing assets to third-party lessees and which is not
engaged in the business of an airline, other commercial aircraft operation or
freight forwarder or (iii) an entity from which Lessee has leased an aircraft
directly (or through a trust) and not as a result of the transfer to such entity
of any aircraft subject to an existing lease with Lessee; provided that Lessee's
--------
consent shall not be required if an Event of Default shall have occurred and be
continuing at the time of such transfer; and provided further that neither such
-------- -------
transferee nor any Affiliate thereof shall (x) be a party to any material
litigation or arbitration (whether as plaintiff or defendant) with the Lessee or
any Affiliate of the Lessee or (y) be attempting a hostile takeover of the
Lessee or any Affiliate of the Lessee. A transferee hereunder shall be (I) a
"United States person" within the meaning of Section 7701(a)(30) of the Code and
(II) a Citizen of the United States or has established a voting trust, voting
powers or other arrangement reasonably satisfactory to the Indenture Trustee,
the Owner Trustee, and the Lessee to permit the Owner Trustee to be the
27
<PAGE>
registered owner of the Aircraft under the Transportation Code, without in any
way restricting the Lessee's use and operation of the Aircraft. The Owner
Trustee shall not be on notice of or otherwise bound by any such assignment,
conveyance or transfer unless and until it shall have received an executed
counterpart of the instrument of such assignment, conveyance or transfer. Upon
any such disposition by the Owner Participant to a transferee as above provided,
the transferee shall be deemed the "Owner Participant" for all purposes of the
Operative Agreements, and shall be deemed to have acquired the same interest in
the Lessor's Estate as theretofore held by its transferor; and each reference
therein to the "Owner Participant" shall thereafter be deemed a reference to
such transferee and the transferring Owner Participant shall be released from
all of its obligations under the Operative Agreements to the extent such
obligations are assumed by such transferee. All reasonable fees and expenses
incurred by Lessee, Owner Participant, Indenture Trustee, any Noteholder or
Owner Trustee in connection with any transfer by the Owner Participant permitted
by this Section 5.01(c) will be promptly reimbursed by the Owner Participant,
unless an Event of Default has occurred and is continuing, in which case any
fees and expenses incurred by Lessee shall not be so reimbursed; provided,
--------
however, that in each case bills shall be submitted to the Owner Participant
- -------
prior to payment. Each of the parties hereto agree, to the extent so requested
by the Owner Participant,
to use reasonable efforts to cooperate with the Owner Participant in effecting
any assignment, conveyance or other transfer permitted pursuant to this Section
5.01(c), including providing its written consent and acknowledgement to any such
assignment, conveyance or other transfer and, in the case of the Lessee,
providing new insurance certificates that reflect the interest of the
transferee. After the expiration or termination of the Term of the Lease and
after the Lien of the Indenture shall have been discharged in accordance with
its terms, the Owner Participant may freely assign, convey or otherwise transfer
all or any part of the Beneficial Interest without compliance with this Section
5.01(c), provided that no such transfer shall release the Owner Participant from
its obligations under the Operative Agreements accrued prior to the end of the
Term.
(d) Actions with Respect to Lessor's Estate, Etc. The Owner
---------------------------------------------
Participant agrees that it will not take any action to subject the Lessor's
Estate or the trust established by the Trust Agreement, as debtor, to the
reorganization or liquidation provisions of the Bankruptcy Code or any other
applicable bankruptcy or insolvency statute.
(e) Citizenship. The Owner Participant agrees, solely for the benefit
-----------
of the Lessee, each Noteholder, the Indenture Trustee and the Owner Trustee,
that if at any time on or after the Delivery Date when the Aircraft is
registered or the Lessee proposes to register the Aircraft in the United States
(i) either the Owner Participant shall cease to be, or an event which has been
publicly disclosed has occurred of which the Owner Participant has knowledge and
which will cause the Owner Participant to cease to be, a Citizen of the United
States, and (ii) the Aircraft shall or would therefore become ineligible for
registration in the name of the Owner Trustee under the Transportation Code and
regulations then applicable thereunder (such eligibility to be determined
without regard to any provision of law that permits the U.S. registration of the
Aircraft by restricting where it is based or used), then the Owner Participant
shall give notice thereof to the Lessee, the Owner Trustee, each Noteholder and
the Indenture Trustee and shall (at its own expense and without
28
<PAGE>
any reimbursement or indemnification from the Lessee) immediately (and in any
event within a period of 20 days) promptly (x) effect a voting trust or other
similar arrangement, (y) transfer in accordance with the terms of this Agreement
and the Trust Agreement all its rights, title and interest in and to such Trust
Agreement, the Lessor's Estate, this Agreement and the other Operative
Agreements to which it is a party, or (z) take any other alternative action that
would prevent any deregistration, or maintain or permit the United States
registration, of the Aircraft (determined without regard to any provision of law
that permits the U.S. registration of the Aircraft by restricting where it is
based or used). Each party hereto agrees, upon the request and at the sole
expense of the Owner Participant, to cooperate with the Owner Participant in
complying with its obligations under the provisions of the first sentence of
this Section 5.01(e), but without any obligation on the part of such other party
to take any action believed by it in good faith to be unreasonably burdensome to
such party or materially adverse to its business interests.
(f) Tail Insurance. If (i) any purchaser of the Aircraft from the
--------------
Owner Trustee or the Owner Participant agrees to include the Owner Trustee and
the Owner Participant as a named additional insured on any liability insurance
policy relating to the Aircraft for the period referred to below, (ii) such
purchase occurs within two years following repayment in full of the Equipment
Notes, (iii) the initial Loan Participant is the Noteholder at the time of such
repayment, (iv) such purchaser is not the Lessee or the Manufacturer or any
Affiliate or designee thereof, and (v) such purchase does not occur in
connection with the exercise of remedies under the Lease or the Indenture or the
termination of the Lease pursuant to Section 14 thereof, the Owner Participant
shall use reasonable efforts to obtain an agreement from such purchaser to
include (to the same extent as is provided to the Owner Participant or the Owner
Trustee) the Indenture Trustee and the Noteholders as named additional insureds
on any liability policy for two years following the repayment in full of the
Equipment Notes or until the next major overhaul ("D-check" or equivalent),
whichever is earlier.
Section 5.02. Citizenship.
-----------
(a) Generally. The Owner Trustee, in its individual capacity,
---------
represents and warrants that it is and on the Delivery Date will be a Citizen of
the United States. If the Owner Trustee in its individual capacity does not
comply with the requirements of this Section 5.02, the Owner Trustee and the
Indenture Trustee hereby agree that no Default shall be deemed to exist due to
non-compliance by the Lessee with the registration requirements in the Lease or
in Section 4.02(b) hereof occasioned solely by such noncompliance of the Owner
Trustee.
(b) Owner Trustee. The Owner Trustee, in its individual capacity,
-------------
covenants that if at any time on or after the Delivery Date any of its
Responsible Officers shall have actual knowledge that it has ceased to be a
Citizen of the United States, it will resign immediately as the Owner Trustee if
such citizenship is necessary for registration of the Aircraft in the Owner
Trustee's name under the Transportation Code as in effect at such time (such
necessity to be determined without regard to any provision of law that permits
the U.S. registration of the Aircraft by restricting where it is based or used)
or, if it is not necessary for such registration, if the Owner Trustee is
29
<PAGE>
informed in writing by the Lessee, the Indenture Trustee or any Participant that
such lack of United States citizenship would have any adverse effect on the
Lessee, the Indenture Trustee or any Participant. The Owner Trustee, in its
individual capacity, further covenants that if at any time it appears reasonably
probable that it will cease to be a Citizen of the United States based on
information that is (i) known to a Responsible Officer of the Owner Trustee or
(ii) generally known to the public, it will promptly so notify, to the extent
permitted by law, all parties to this Agreement.
Section 5.03. Representations, Warranties and Covenants of Trust
--------------------------------------------------
Company and the Owner Trustee.
- -----------------------------
(a) Representations and Warranties. In addition to and without
------------------------------
limiting its other representations and warranties provided for in this Article
5, Trust Company represents and warrants, in its individual capacity with
respect to items (i), (ii), (iii)(A), (iv), (v), (vi), (vii), (viii), (ix) and
(x) below, and as the Owner Trustee with respect to items (iii)(B) and (iv), on
the Delivery Date that:
(i) it is a national banking association duly organized and
validly existing in good standing under the laws of the United States with
its principal place of business and chief executive office (as such terms
are used in Article 9 of the Uniform Commercial Code) in Delaware at the
address set forth in Section 12.01(b), and has full corporate power and
authority, in its individual capacity or (assuming the Trust Agreement has
been duly authorized, executed and delivered by the Owner Participant) as
the Owner Trustee, as the case may be, to carry on its business as now
conducted, and to execute, deliver and perform this Agreement and the
Operative Agreements to which it is or is to be a party;
(ii) the execution, delivery and performance by Trust Company,
either in its individual capacity or as the Owner Trustee, as the case may
be, of this Agreement and the Operative Agreements to which it is or is to
be party have been duly authorized by all necessary corporate action on its
part, and do not contravene its articles of association or by-laws; each of
this Agreement and the other Operative Agreements to which it is or is to
be a party has been duly authorized, and has been duly executed and
delivered by Trust Company, either in its individual capacity or as the
Owner Trustee, as the case may be, and neither the execution and delivery
thereof nor Trust Company performance of or compliance with any of the
terms and provisions thereof will violate any federal or Delaware law or
regulation governing Trust Company's banking or trust powers,
(iii) (A) assuming due authorization, execution and delivery by
each other party thereto, each of the Operative Agreements to which it is
or is to be party when duly executed and delivered will, to the extent each
such document is entered into by Trust Company in its individual capacity,
constitute the legal, valid and binding obligation of Trust Company in its
individual capacity enforceable against it in such capacity in accordance
with its respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws or equitable
principles of general application to or affecting the enforcement of
creditors' rights (regardless of whether enforceability is
30
<PAGE>
considered in a proceeding in equity or at law), and the performance by
Trust Company in its individual capacity of any of its obligations
thereunder does not contravene any lease, regulation or contractual
restriction binding on Trust Company in its individual capacity;
(B) assuming due authorization, execution and delivery by each
other party thereto, each of the Operative Agreements to which it is or is
to be party when duly executed and delivered will, to the extent each such
document is entered into by the Owner Trustee in its trust capacity,
constitute the legal, valid and binding obligation of the Owner Trustee
enforceable against it in such capacity in accordance with its respective
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws or general equitable
principles, and the performance by the Owner Trustee of any of its
obligations thereunder does not contravene any lease, regulation or
contractual restriction binding on the Owner Trustee;
(iv) there are no pending or, to its knowledge, threatened actions
or proceedings against Trust Company, either in its individual capacity or
as the Owner Trustee, before any court or administrative agency which would
materially adversely affect the ability of Trust Company, either in its
individual capacity or as the Owner Trustee, as the case may be, to perform
its obligations under the Operative Agreements to which it is or is to be
party;
(v) its chief executive office (as such term is defined in Article
9 of the Uniform Commercial Code) is One Rodney Square, 920 King Street,
Suite 102, Wilmington, Delaware 19801, and it shall give the Lessee, the
Indenture Trustee and the Owner Participant prompt written notice (but in
any event within 30 days prior to the expiration of the period of time
specified under Applicable Law to prevent lapse of perfection) in the event
of any change in its chief executive office or of any change in its name or
any change in the location of the place where its records concerning the
Aircraft and the Operative Agreements are located;
(vi) neither the execution and delivery by it, either in its
individual capacity or as the Owner Trustee, as the case may be, of any of
the Operative Agreements to which it is or is to be a party, requires on
the part of Trust Company in its individual capacity or any of its
Affiliates the consent or approval of or the giving of notice to, the
registration with, or the taking of any other action in respect of, any
federal or Delaware governmental authority or agency governing its banking
or trust powers;
(vii) the Owner Trustee holds whatever title to the Aircraft as was
conveyed to it by the Seller and the Aircraft is free of Lessor's Liens
attributable to Trust Company in its individual capacity;
(viii) Trust Company is a Citizen of the United States;
31
<PAGE>
(ix) Trust Company has made a filing with the New York State
Banking Department under Section 131(3) of the New York State Banking Law
with respect to the trust formed by the Trust Agreement; and
(x) there are no Expenses or Taxes that may be imposed on or
asserted against the Trust, the Trust Estate or any part thereof or any
interest therein, the Indenture Estate, Lessee, Owner Participant, any
Noteholder, Owner Trustee or Indenture Trustee (except, as to Owner
Trustee, Taxes imposed on the fees payable to Owner Trustee) under the laws
of the State of Delaware in connection with the execution, delivery or
performance of any Operative Agreement by Owner Trustee or in connection
with the issuance of the Equipment Notes, which Expenses or Taxes would not
have been imposed if Owner Trustee had not (x) had its principal place of
business in, (y) performed (in its individual capacity or as Owner Trustee)
any or all of its duties under the Operative Agreements in or (z) engaged
in any activities unrelated to the transactions contemplated by the
Operative Agreements in, the State of Delaware.
(b) Lessor's Liens. Trust Company, in its individual capacity,
--------------
further represents, warrants and covenants that there are no Lessor's Liens
attributable to it in its individual capacity on the Delivery Date. Trust
Company, in its individual capacity, covenants and agrees that it will at its
own expense take such action as may be necessary to duly discharge and satisfy
in full, promptly, and in any event within 30 days after the same shall first
become known to it, any Lessor's Liens attributable to it in its individual
capacity which may arise at any time after the date of this Agreement.
(c) Indemnity for Lessor's Liens. Trust Company, in its individual
----------------------------
capacity, agrees to indemnify and hold harmless the Lessee, the Indenture
Trustee, the Owner Participant, each Noteholder and the Owner Trustee from and
against any loss, cost, expense or damage which may be suffered by the Lessee,
the Indenture Trustee, the Owner Participant, each Noteholder or the Owner
Trustee as a result of the failure of Trust Company to discharge and satisfy any
Lessor's Liens attributable to it in its individual capacity, as described in
Section 5.03(b).
(d) Securities Act. None of Trust Company, the Owner Trustee or any
--------------
Person authorized by either of them to act on its behalf has directly or
indirectly offered or sold or will directly or indirectly offer or sell any
interest in the Lessor's Estate, or in any similar security relating to the
Lessor's Estate, or in any security the offering of which for purposes of the
Securities Act of 1933, as amended, would be deemed to be part of the same
offering as the offering of the aforementioned securities to, or solicited any
offer to acquire any of the same from, any Person.
(e) Actions With Respect to Lessor's Estate, Etc. Neither Trust
--------------------------------------------
Company, in its individual capacity, nor the Owner Trustee will take any action
to subject the Lessor's Estate or the trust established by the Trust Agreement,
as debtor, to the reorganization or liquidation provisions of the Bankruptcy
Code or any other applicable bankruptcy or insolvency statute.
32
<PAGE>
(f) Other Business. Owner Trustee will not enter into any
--------------
business or other activity except as contemplated by the Operative Agreements.
(g) Performance of Agreements. Owner Trustee shall perform its
-------------------------
obligations under the Operative Agreements to which it is a party in accordance
with the terms thereof.
Section 5.04. Representations, Warranties and Covenants of the
------------------------------------------------
Indenture Trustee.
- -----------------
(a) Representations and Warranties. The Indenture Trustee in its
------------------------------
individual capacity represents on the Delivery Date as follows:
(i) it is a state-chartered commercial bank duly organized and
validly existing in good standing under the laws of the State of Maryland
and has the corporate power and authority to enter into and perform its
obligations under the Indenture, this Agreement and the other Operative
Agreements to which it is a party and to authenticate the Equipment Note to
be delivered to the Loan Participant on the Delivery Date;
(ii) the Indenture and this Agreement and the other Operative
Agreements to which it is or is to be a party, and the authentication of
the Equipment Note to be delivered to the Loan Participant on the Delivery
Date, have been duly authorized by all necessary corporate action on its
part, and neither the execution and delivery thereof nor its performance of
any of the terms and provisions thereof will violate any federal or
Maryland law or regulation relating to its banking or trust powers or
contravene or result in any breach of, or constitute any default under, its
articles of incorporation or by-laws;
(iii) assuming due authorization, execution and delivery by each
other party thereto, each of the Indenture and this Agreement, and the
other Operative Agreements to which it is a party, has been duly executed
and delivered by it and, assuming that each such agreement is the legal,
valid and binding obligation of each other party thereto, is (or will be,
as the case may be), the legal, valid and binding obligation of the
Indenture Trustee, enforceable against the Indenture Trustee in accordance
with its terms except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws or equitable principles of
general application to or affecting the enforcement of creditors' rights
(regardless of whether enforceability is considered in a proceeding in
equity or at law);
(iv) neither the execution and delivery by it of the Indenture
and this Agreement and the other Operative Agreements to which it is or is
to be a party, nor the performance by it of any of the transactions
contemplated hereby or thereby, requires the consent or approval of, the
giving of notice to, the registration with, or the taking of any other
action in respect of, any Federal or Maryland governmental authority or
agency governing its banking or trust powers;
33
<PAGE>
(v) it has made a filing with the New York State Banking
Department under Section 131(3) of the New York Banking Law in respect of
the performance of its duties relating to the Indenture Estate; and
(vi) there are no pending or, to the knowledge of the Indenture
Trustee, threatened actions or proceedings against the Indenture Trustee
before any court, administrative agency or tribunal which, if determined
adversely to the Indenture Trustee, would materially adversely affect the
ability of the Indenture Trustee to perform its obligations under any of
the Operative Agreements to which it is a party.
(b) Indenture Trustee's Liens. The Indenture Trustee, in its
-------------------------
individual capacity, represents, warrants and covenants that there are no
Indenture Trustee's Liens on the Delivery Date. The Indenture Trustee, in its
individual capacity, covenants and agrees that it will not directly or
indirectly create, incur, assume or suffer to exist any Indenture Trustee's Lien
and that it will at its own expense take such action as may be necessary to duly
discharge and satisfy in full, promptly, and in any event within 30 days, after
the same shall first become known to it, any Indenture Trustee's Liens which may
arise at any time after the date of this Agreement.
(c) Indemnity for Indenture Trustee's Liens. The Indenture
---------------------------------------
Trustee, in its individual capacity, agrees to indemnify and hold harmless the
Lessee, the Owner Participant, the Owner Trustee and each Noteolder from and
against any actual out-of-pocket loss, cost, expense or damage (including but
not limited to any reduction in the amount payable out of the Trust Estate or
the Indenture Estate and any interference with the possession, operation or
other use of all or any part of the Aircraft) which may be suffered by the
Lessee, the Indenture Trustee, the Owner Participant, the Owner Trustee or any
Noteholder as a result of the failure of the Indenture Trustee to discharge and
satisfy any Indenture Trustee's Liens attributable to it in its individual
capacity, as described in Section 5.04(b) hereof.
Section 5.05. Indenture Trustee's Notice of Default. The Indenture
-------------------------------------
Trustee agrees to give the Lessee and the Owner Participant notice of any
Default or Event of Default promptly upon a Responsible Officer of the Indenture
Trustee having actual knowledge thereof.
Section 5.06. Releases from Indenture. The Indenture Trustee covenants
-----------------------
and agrees, for the benefit of the Lessee and the Owner Participant and at the
sole cost and expense of the Lessee, to execute and deliver the instruments of
release from the Lien of the Indenture which it is required to execute and
deliver in accordance with the provisions of Article IX of the Indenture, and
the Owner Participant agrees, for the benefit of the Lessee, to cause the Owner
Trustee to request the Indenture Trustee to execute and deliver such instruments
of release upon written notice from the Lessee to make such request.
Section 5.07. The Lessee's Right of Quiet Enjoyment. Notwithstanding
-------------------------------------
any other provision of any of the Operative Agreements, each other party to this
Agreement agrees, severally and as to its own actions only, that it will not, so
long as no Event of Default shall have occurred and
34
<PAGE>
be continuing, take or cause to be taken any action that would interfere with
the Lessee's possession, use and quiet enjoyment of the Aircraft pursuant to the
terms of the Lease during the Term; provided that nothing contained herein shall
--------
affect any of the rights of any Noteholder, the Owner Participant, the Owner
Trustee or the Indenture Trustee expressly granted to such Person under any
Operative Agreement.
Section 5.08. Representations, Warranties and Covenants of the Loan
-----------------------------------------------------
Participant.
- -----------
(a) Representations and Warranties. The Loan Participant represents
------------------------------
and warrants that, as of the Delivery Date (unless any such representation and
warranty is specifically made as of an earlier date, in which case the Loan
Participant represents and warrants as of such earlier date):
(i) the Equipment Note to be issued to the Loan Participant on
the Delivery Date is being acquired for investment, and not with a present
view to any resale or distribution thereof, provided that the disposition
of its property shall remain within its control at all times;
(ii) the Loan Participant acknowledges that its Equipment Note
has not been registered under the Securities Act of 1933, as amended, and
the Indenture has not been registered under the Trust Indenture Act of
1939, as amended, and that any disposition thereof will require
registration and/or qualification under said Acts unless it is a
transaction exempt from registration and/or qualification; and
(iii) the Loan Participant represents and warrants that it is not
acquiring and will not at any time hold its interest in its Equipment Note
with the assets of, or as an asset of, any ERISA Plan.
(b) Transfer of Equipment Notes. The Loan Participant may
---------------------------
transfer its interest in and to the Equipment Note held thereby to any Person
which is not an airline or an Affiliate of an airline; provided, however, (i)
-------- -------
the Loan Participant shall not transfer any interest in an Equipment Note except
pursuant to a transaction which is exempt from registration under the Securities
Act of 1933, as amended and (ii) in connection with any such transfer, (A) the
proposed transferee shall make a representation for the benefit of the Lessee
identical to the representation made by the Loan Participant in Section
5.08(a)(iii) with respect to the source of the funds being used by such
transferee to purchase such interest in such Equipment Note, and (B) the
proposed transferee shall agree to be bound by the provisions of the Indenture
(to the extent applicable to the Loan Participant) and this Agreement
(including, without limitation, this Section 5.08(b)) in connection with any
transfer by such transferee of its Equipment Note to the same extent as the Loan
Participant is bound in connection with any transfer thereby.
Section 5.09. Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Representations, warranties and covenants of the Owner Participant, the Owner
Trustee (in its
35
<PAGE>
individual or trust capacity), the Loan Participant and the Indenture Trustee
(in its individual or trust capacity) provided for in this Article 5, and their
respective obligations under any and all of them, shall survive the delivery of
the Aircraft and the expiration or other termination of this Agreement and the
other Operative Agreements.
Section 5.10. Lessee's Assumption of the Equipment Notes.
------------------------------------------
(a) Subject to compliance by the Lessee with all of its
obligations under the Operative Agreements, each of the Owner Participant, the
Owner Trustee, the Indenture Trustee, the Noteholders and the Lessee covenants
and agrees that if the Lessee elects to purchase the Aircraft on the EBO Date
pursuant to Section 13(b) of the Lease, if no Default or Event of Default shall
exist, then, upon compliance with the applicable provisions of the Operative
Agreements, the Owner Trustee will transfer to the Lessee, without recourse or
warranty (except as to the absence of Lessor's Liens attributable to the Owner
Trustee) but subject to the Lien of the Indenture, all of the Owner Trustee's
right, title and interest in and to the Aircraft, and if the Lessee, in
connection with such purchase, elects to assume the obligations of the Owner
Trustee to the Indenture Trustee and the Noteholders under the Indenture, the
Equipment Notes, and hereunder, the Lessee shall so notify the Indenture Trustee
(such notice to be given at least 30 and not more than 60 days prior to the
effective date of such assumption), and each of the parties shall execute and
deliver documentation satisfactory in form and substance to the Indenture
Trustee and each Noteholder permitting the Lessee to assume such obligations on
the basis of full recourse to the Lessee, maintaining for the benefit of the
Noteholders the security interest in the Aircraft created by the Indenture, and
upon compliance with the provisions of this Section 5.10, such documentation
shall become effective releasing the Owner Participant and the Owner Trustee
from all obligations in respect of the Equipment Notes, the Indenture, this
Agreement, and the other Operative Agreements, except any obligations relating
to the period prior to such assumption and take all such other actions, at the
Lessee's expense, as are reasonably necessary to permit such assumption by the
Lessee.
(b) In connection with such assumption:
(i) the Lessee shall execute and deliver an instrument
satisfactory in form and substance to the Indenture Trustee and each
Noteholder (A) pursuant to which the Lessee irrevocably and unconditionally
assumes and undertakes, with full recourse to the Lessee, to pay, satisfy,
and discharge when and as due (at the stated maturity thereof, by
acceleration or otherwise) the principal of, Make-Whole Amount, if any,
interest, and all other sums owing on all Outstanding Equipment Notes (or
on the Lessee's substituted obligations) in accordance with their terms,
and punctually to perform and observe all of the covenants and obligations
hereunder and under the Indenture and the Equipment Notes (as the same may
be amended in connection with such assumption) to be performed or observed
by the Owner Trustee, and (B) which contains amendments to the Indenture,
in form and substance as satisfactory to the Indenture Trustee and each
Noteholder, which amend the Indenture so that it is substantially in the
form of the Trust Indenture and Security Agreement [N570ML]
36
<PAGE>
dated as of February 5, 1998 between the Lessee and The First National Bank
of Maryland (now known as Allfirst Bank);
(ii) the instrument referred to in paragraph (i) of this Section
5.10(b), any Uniform Commercial Code financing statements relating thereto,
and any other documents which shall be necessary (or reasonably requested
by the Indenture Trustee or any Noteholder) to establish the Lessee's title
to and interest in the Aircraft or to reflect the substitution of the
Lessee for the Owner Trustee under the Operative Agreements or to continue
the perfection of the security interests in the Aircraft and the other
rights, property, and interests included in the Indenture Estate for the
benefit of the Noteholders shall be filed in such form, manner, and places
as are necessary or, in the reasonable opinion of the Indenture Trustee or
any Noteholder, advisable for such purpose;
(iii) each Noteholder and the Indenture Trustee shall have
received an insurance report dated the effective date of such assumption of
an independent insurance broker and certificates of insurance, each in form
and substance satisfactory to each Noteholder and the Indenture Trustee, as
to the due compliance as of the effective date of such assumption with the
terms of Section 9 of the Lease relating to the insurance with respect to
the Aircraft (provided that the required amount of all-risk hull insurance,
--------
subject to the self insurance rights of the Lessee, shall be in an amount
at least equal to 110% of the outstanding principal amount of the Equipment
Notes;
(iv) no Default or Event of Default shall exist as of the
effective date of such assumption and the Indenture Trustee shall have
received a certificate from the Lessee to such effect;
(v) each Noteholder and the Indenture Trustee shall have
received evidence reasonably satisfactory to them that as of the
effectiveness of such assumption the Aircraft is free and clear of all
Liens other than the Lien of the Indenture and other Permitted Liens;
(vi) each Noteholder and the Indenture Trustee shall have
received (x) an opinion of independent tax counsel chosen by Lessee and
reasonably acceptable to the Noteholders and the Indenture Trustee to the
effect that such assumption by the Lessee will not result in any adverse
tax consequences to such Noteholder or the Indenture Trustee or (y) an
indemnity from the Lessee for any adverse tax consequences to such
Noteholder and the Indenture Trustee resulting from such assumption that is
reasonably acceptable to such Noteholder and the Indenture Trustee;
(vii) each Noteholder and the Indenture Trustee shall have
received (A) from counsel for the Lessee a legal opinion, in form and
substance as reasonably satisfactory to such Noteholder and the Indenture
Trustee: (w) with respect to the compliance of the assumption contemplated
hereby with the terms hereof, (x) with respect to the due authorization,
execution, delivery, validity, and enforceability of the instrument
referred to
37
<PAGE>
in paragraph (i) of this Section 5.10(b), (y) with respect to the continued
perfection of the first priority security interest in the Aircraft for the
benefit of the Noteholders and the due filing of the financing statements
and other documents referred to in paragraph (ii) of this Section 5.10(b),
and (z) with respect to the continued availability of the benefits of
Section 1110 to the Indenture Trustee for the benefit of the Noteholders
with respect to the Aircraft after giving effect to such assumption (but
only to the extent such benefits would have been available to the
Noteholders prior to such assumption assuming compliance with the Operative
Agreements by the parties thereto), (B) from counsel to the Indenture
Trustee, counsel to Lessee and Lessee's special aviation counsel, a legal
opinion comparable to the respective opinions delivered on the Delivery
Date, as the case may be, with such changes therein as may be appropriate
in light of such assumption, and (C) in the case of each opinion described
in clause (A) or (B) above, covering such additional matters as the
Indenture Trustee or the Noteholders shall reasonably request.
(c) whether or not the assumption contemplated by this Section 5.10
is accomplished, the Lessee shall pay all reasonable expenses (including
reasonable fees and expenses of counsel) of the Indenture Trustee, the Owner
Trustee, each Noteholder and the Owner Participant in connection with such
assumption.
Section 5.11. Compliance with Trust Agreement, Etc. Each of the Owner
-------------------------------------
Participant, Trust Company, and the Owner Trustee agrees with the Lessee, the
Indenture Trustee and the Noteholders that so long as the Lien of the Indenture
shall be in effect it will (i) comply with all of the terms of the Trust
Agreement applicable to it in its respective capacity, the noncompliance with
which would adversely affect any such party and (ii) not take any action, or
cause any action to be taken, to amend, modify or supplement any other provision
of the Trust Agreement in a manner that would adversely affect any such party
without the prior written consent of such party. The Owner Trustee confirms for
the benefit of the Lessee, the Indenture Trustee and the Noteholders that it
will comply with the provisions of Article 2 of the Trust Agreement.
Notwithstanding anything else to the contrary in the Trust Agreement, so long as
the Lease remains in effect, the Owner Participant agrees not to terminate or
revoke the trust created by the Trust Agreement without the consent of the
Lessee. If and so long as the Indenture shall not have been discharged in
accordance with its terms the consent of the Indenture Trustee shall also be
required prior to any termination or revocation of such trust. In addition, the
Owner Trustee will, at the Lessee's expense, promptly and duly execute and
deliver to the Indenture Trustee such documents and assurances including,
without limitation, conveyances, financing statements and continuation
statements with respect to financing statements and take such further action as
the Indenture Trustee may from time to time reasonably request in order to
protect the rights and remedies created or intended to be created in favor of
the Indenture Trustee under the Indenture and to create for the benefit of the
Noteholders a valid first priority Lien with respect to, and a first and prior
perfected security interest in, the Indenture Estate.
Section 5.12. [Reserved].
----------
Section 5.13. Amendments to the Indenture.
---------------------------
38
<PAGE>
Each of the Owner Trustee and the Indenture Trustee agrees that it
will not during the Term enter into any amendment or supplement to the Indenture
without the prior consent of the Lessee, if such amendment or supplement would
have the effect of limiting any right or of increasing any obligation or
liability of the Lessee under the terms of the Lease or any other Operative
Agreement.
ARTICLE 6.
TAXES
Section 6.01. Lessee's Obligation to Pay Taxes.
--------------------------------
(a) Generally. The Lessee agrees promptly to pay when due, and to
---------
indemnify on an After Tax Basis and hold each Tax Indemnitee harmless from all
license, recording, documentary, registration and other fees and all taxes
(including, without limitation, income, gross receipts, sales, rental, use,
value added, property (tangible and intangible), ad valorem, excise and stamp
-- -------
taxes), fees, levies, imposts, recording duties, duties, charges, assessments or
withholdings of any nature whatsoever, together with any assessments, penalties,
fines, additions to tax or interest thereon (individually, a "Tax," and
collectively called "Taxes"), however imposed or asserted (whether imposed upon
any Tax Indemnitee, the Lessee, all or any part of the Aircraft, Airframe, any
Engine or any Part or the Lessor's Estate, the Indenture Estate, Rent, the
Equipment Notes, or otherwise upon or with respect to any Operative Agreement or
any transactions contemplated thereunder or any payments thereunder or otherwise
in connection therewith), by any Federal, state or local government or taxing
authority in the United States, or by any government or taxing authority of a
foreign country or of any political subdivision or taxing authority thereof or
by a territory or possession of the United States or an international taxing
authority, in any such case as relating to or measured by:
(i) the acquisition, construction, mortgaging, financing,
refinancing, purchase, charter, rental, assignment, testing, existence,
insurance, presence, overhaul, control, acceptance, rejection, delivery,
nondelivery, transport, location, ownership, registration, reregistration,
deregistration, insuring, assembly, possession, repossession, operation,
use, non-use, condition, maintenance, repair, improvement, conversion,
sale, return, abandonment, preparation, installation, storage, redelivery,
replacement, manufacture, leasing, subleasing, sub-subleasing,
modification, alteration, rebuilding, importation, transfer of title,
transfer of registration, exportation or other application or disposition
of, or the imposition of any Lien (or the incurrence of any liability to
refund or pay over any amount as a result of any Lien) on, the Aircraft,
the Airframe, any Engine or any Part or any interest therein;
(ii) amounts payable under the Operative Agreements;
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(iii) the Aircraft, or the income or other proceeds (x) received
with respect to the Aircraft attributable to the transactions contemplated
by the Operative Agreements, (y) held by the Owner Trustee under the Trust
Agreement or after an Event of Default under the Lease or (z) held by the
Indenture Trustee under the Indenture;
(iv) with respect to any Operative Agreement, any interest
therein or by reason of the transactions described in or contemplated by
the Operative Agreements;
(v) the principal or interest or other amounts payable with
respect to the Equipment Notes;
(vi) the Equipment Notes or the issuance, sale, acquisition,
reoptimization, or refinancing thereof or the beneficial interests in the
Trust Estate or the Indenture Estate or the creation thereof under the
Trust Agreement or the Indenture, or the security interest created or
perfected thereby or by any filing thereof;
(vii) any assumption by the Lessee pursuant to Section 5.10 of
this Agreement;
(viii) the Aircraft, the Airframe, any Engine or any Part;
(ix) the rentals (including Basic Rent and Supplemental Rent),
receipts, earnings, principal, interest, fees, proceeds and any other
income or amounts payable, whether actual or deemed, arising upon, under or
in connection with any of the Operative Agreements;
(x) in the case of the Owner Participant, any "prohibited
transaction," within the meaning of Section 406 of ERISA or Section
4975(c)(1) of the Code, arising out of or in connection with the
acquisition or holding of the Owner Participant's interest in the Trust
Estate;
(xi) the execution, delivery or registration of this Agreement
or any other Operative Agreement.
(b) Exceptions. The indemnity provided for in Section 6.01(a)
----------
shall not extend to any of the following:
(i) Other than a Noteholder Tax Indemnitee, with respect to a
Tax Indemnitee, Taxes, whether imposed by withholding or otherwise, based
upon, measured by or with respect to the net or gross income, items of tax
preference or minimum tax or excess profits, alternative minimum taxes,
receipts, capital, franchise, net worth (whether, denominated income,
excise, capital stock, or doing business taxes) or other similarly-based
taxes (other than taxes that are in the nature of license, sales, use,
value-added, transfer, rental, ad valorem, stamp, property, or similar
taxes) ("Income Taxes") imposed by the United States or by any state, local
or foreign jurisdiction in which such Tax Indemnitee is subject to tax
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without regard to the transactions contemplated by the Operative Agreement;
provided, however, that this clause shall not exclude from the indemnity
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described in Section 6.01(a) above any such Income Taxes to be imposed by
any jurisdiction (other than the United States or any state or local taxing
authority in any state in the United States) as a result of (I) the
operation, registration, location, presence, or use of the Aircraft,
Airframe, any Engine or any Part thereof, by the Lessee or any Affiliate
thereof or any Sublessee within the jurisdiction of the taxing authority
imposing such Tax, (II) the presence or activities of the Lessee or any
Affiliate thereof or any Sublessee within the jurisdiction of the taxing
authority imposing such Tax, (III) the status of the Lessee or any
Affiliate thereof or any Sublessee as a foreign entity or as an entity
owned in whole or in part by foreign persons, or (IV) the Lessee or any
Affiliate thereof or any Sublessee having made (or having been deemed to
have made) payments to such Tax Indemnitee from the jurisdiction of the
taxing authority imposing such Tax, (it being understood that any such
indemnity for Income Taxes not excluded from the indemnity described in
Section 6.01(a) shall be payable only to the extent of the net harm
incurred by the Tax Indemnitee from such Income Taxes, taking into account
any incremental Tax benefit in another tax jurisdiction resulting from
payment of such Income Taxes);
(ii) Taxes imposed with respect to any period beginning after the
later of (A) the discharge in full of the Lessee's obligation, if any, to
pay Termination Value under and in accordance with the Lease and the
payment in full of all amounts due under the Equipment Notes, (B) the
expiration of the Term of the Lease or (C) the termination of the Lease in
accordance with the applicable provisions of the Lease thereof;
(iii) As to the Owner Trustee, Taxes imposed against the Owner
Trustee upon or with respect to any fees for services rendered in its
capacity as Owner Trustee under the Trust Agreement or, as to the Indenture
Trustee, Taxes imposed against the Indenture Trustee upon or with respect
to any fees received by it for services rendered in its capacity as
Indenture Trustee under the Indenture;
(iv) Other than a Noteholder Tax Indemnitee, with respect to any
Tax Indemnitee, Taxes resulting from the willful misconduct or gross
negligence of such Tax Indemnitee or a Related Tax Indemnitee;
(v) Taxes imposed on the Owner Trustee or the Owner Participant
or any successor, assign or Affiliate thereof, any of the foregoing which
became payable by reason of any voluntary transfer or disposition by such
Tax Indemnitee subsequent to the Delivery Date, including revocation of the
Trust, of any interest in some or all of the Aircraft, Airframe, Engines or
Parts thereof or its interest in the Lessor's Estate or a transfer or
disposition of shares or other interests in the Owner Trustee or the Owner
Participant (not including any transfers of any Equipment Note pursuant to
Section 13.01 (a) hereof) or a disposition in connection with a bankruptcy
or similar proceedings involving either the Lessor or the Owner Participant
or a transfer or disposition of shares or other interests in the
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Owner Trustee or the Owner Participant in each case other than (A)
transfers resulting from a loss, substitution or modification of the
Aircraft, Engines or any Part, (B) transfers pursuant to the Lessor's
exercise of remedies in accordance with Section 17 of the Lease, (C)
termination of the Lease upon the Lessee's exercise of Lessee's options
pursuant to Section 14 of the Lease, (D) a transfer to Lessee pursuant to
Section 13(b) of the Lease, or (E) any other transfer required by the
Operative Agreements; the parties agree to cooperate to minimize any such
Taxes covered by this provision;
(vi) Other than a Noteholder Tax Indemnitee, Taxes subject to
indemnification by the Lessee pursuant to the Tax Indemnity Agreement;
(vii) [Reserved];
(viii) Other than a Noteholder Tax Indemnitee, any Taxes which
have been properly included in the Purchase Price;
(ix) Any Taxes imposed on the Owner Trustee or Owner Participant
which would not have been imposed but for a Lessor's Lien or any Taxes
imposed on the Indenture Trustee which would not have been imposed but for
an Indenture Trustee's Lien;
(x) In the case of the Owner Participant, any Taxes relating
to, resulting from, arising out of or in connection with a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section
4975(c)(1) of the Code resulting from the direct or indirect use of assets
of any ERISA Plan to acquire or hold Owner Participant's interest in the
Trust Estate or in the case of any transferee of the Owner Participant
referred to in Section 5.01(c), to purchase the Beneficial Interest
pursuant to Section 5.01(c);
(xi) [Reserved];
(xii) [Reserved];
(xiii) Taxes that are being contested in accordance with the
provisions hereof; or
(xiv) United States withholding Taxes imposed on the Owner
Participant as a result of the Owner Participant not being a U.S. Person.
(xv) In the case of a Noteholder, Taxes on based on, or
measured by net income, receipts, capital franchises, excess profits or
conduct of business of a Tax Indemnitee except such Taxes as to which such
Tax Indemnitee would not have been subject to tax in the relevant
jurisdiction but for this transaction;
(xvi) In the case of any Noteholder, Taxes which become payable
by reason of (x) any voluntary transfer by such Tax Indemnitee of all or
any portion of its interest in the
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Operative Agreement, the Equipment Notes, or shares of stock in such Tax
Indemnitee with respect to such Tax Indemnitee (other than transfers which
occur during or as a result of the continuance of any Event of Default) or
(y) an involuntary transfer of the Equipment Notes, rights under the
Operative Agreements or shares of stock in a Tax Indemnitee resulting from
any bankruptcy, foreclosure or similar proceedings in which a Tax
Indemnitee is the debtor (other than transfers which occur during or as a
result of the continuance of an Event of Default);
(xvii) In the case of a Noteholder, Taxes imposed by Section
4975 of the Code or any successor provision thereto; and
(xviii) In the case of a Noteholder, any Excluded Noteholder
Withholding Tax, as defined in Section 6.01(c) below.
(c) Withholding. The Indenture Trustee shall withhold any
-----------
Taxes required to be withheld on any payment to a Noteholder pursuant to Section
3.08 of the Indenture. If the Lessee or the Indenture Trustee is required by law
or regulation to make any deduction or withholding of any Taxes from any payment
to a Noteholder under the Operative Agreements, then the amount payable by the
Lessee will be increased by such additional amounts (together with interest,
penalties and additions to Tax), as may be necessary to ensure that, after such
deduction or withholding, the Noteholder receives on an After Tax Basis the full
amount it would have received had the payment not been subject to deduction or
withholding of Taxes other than any Taxes which are Excluded Noteholder
Withholding Taxes (as defined below). If the Indenture Trustee fails to withhold
and pay over a Tax required to be withheld and paid over with respect to any
Noteholder or any claim is otherwise asserted by a taxing authority against the
Owner Trustee or Owner Participant in connection with any withholding tax, the
Lessee will indemnify the Owner Trustee and the Owner Participant (without
regard to the exclusions set forth in Section 6.01(b) hereof) on an After Tax
Basis against any such Taxes and any interest and penalties with respect
thereto, along with any other costs (including reasonable attorney's fees)
incurred in connection with any such claim.
An Excluded Noteholder Withholding Taxes is any Tax which is a U.S. federal
withholding tax on payments of interest or Rent by the Lessee or the Indenture
Trustee to a Noteholder, if such Noteholder satisfies none of the following
conditions:
(x) such Noteholder is a corporation organized under the laws of a
jurisdiction in the United States, any State thereof or the District of
Columbia;
(y) such Noteholder has delivered to the Lessee and the Indenture
Trustee, when such Noteholder first becomes a Noteholder, two copies of
either United States Internal Revenue Service Form 1001 or Form 4224 or any
subsequent versions thereof or successors thereto, properly completed and
duly executed by such Noteholder claiming complete exemption from U.S.
federal withholding tax on payments of interest by the Lessee and the
Indenture Trustee under the Operative Agreements and has, thereafter at
each time it has been so
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requested by the Lessee or the Indenture Trustee; delivered within a
reasonable time an updated Form 1001 or Form 4224 or subsequent version
thereof or successor thereto (each an "Updated Form") unless the failure to
deliver an Updated Form shall be because such Noteholder cannot truthfully
complete such form solely as a result of a change in law, regulation, or
other official pronouncement;
(z) such Noteholder is not a "bank" as such term is defined for
purposes of Section 881(c)(3)(A) of the Code or any successor provision as
in effect on the date such Noteholder acquired its Notes, such Noteholder
has delivered to the Lessee and the Indenture Trustee, upon first becoming
a Noteholder, two copies of United States Internal Revenue Service Form W-8
or any subsequent versions thereof or successors thereto, properly
completed and duly executed by such Noteholder claiming complete exemption
from U.S. federal withholding tax on payments of interest by the Lessee and
the Indenture Trustee under this Agreement and the other Note Purchase
Documents together with a certificate in the form attached as Exhibit C
(the "Nonbank Certificate") and has, thereafter, at each time it has been
so requested by the Lessee or the Indenture Trustee, delivered within a
reasonable time an updated Form W-8 and Nonbank Certificate or subsequent
version (each an "Updated Form") unless such person cannot truthfully
provide such Updated Form solely as a result of a change in law,
regulation, or other official pronouncement;
If the Lessee or the Indenture Trustee makes any payment hereunder in respect of
which it is required by Applicable Law to make any deduction or withholding or
if the Lessee or the Indenture Trustee is otherwise required to pay any Taxes,
the Lessee shall pay the full amount due or to be deducted or withheld to the
relevant taxation authority or other Governmental Authority within the time
allowed for such payment under Applicable Law, in each case, and shall deliver
to the relevant Noteholder Tax Indemnitee as soon as practicable after it has
made such payment to the applicable Governmental Authority a receipt issued by
such Governmental Authority or a statement of the Company confirming the payment
to such Governmental Authority of all amounts so required to be deducted or
withheld from such payment.
Section 6.02. After Tax Basis. The amount which the Lessee shall be
---------------
required to pay with respect to any Tax indemnified against under Section 6.01
(an "Indemnifiable Tax") shall be an amount sufficient to restore the Tax
Indemnitee, on an After Tax Basis, to the same position such party would have
been in had such Tax not been incurred, taking into account any tax benefits
recognized by such Tax Indemnitee as a result of the Indemnifiable Tax. If any
Tax Indemnitee actually realizes a tax benefit (whether by credit, deduction or
otherwise), or would have realized such a benefit as to which it has been given
notice if properly claimed (but only if the Lessee has (I) notified such Tax
Indemnitee of such benefit, (II) provided to such Tax Indemnitee an opinion of
counsel selected by Lessee and reasonably acceptable to such Tax Indemnitee that
there is reasonable basis for making such claim, and (III) the Tax Indemnitee
does not determine in good faith that it will suffer an unindemnified adverse
consequence of making such claim), and with respect to Owner Participant, the
Owner Participant has not determined in good faith that claiming such benefit
would have a material adverse impact on the Owner Participant or an Affiliate
thereof, by reason of the
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payment of any Tax paid or indemnified against by the Lessee, provided that an
Event of Default has not occurred and is not continuing, such Tax Indemnitee
shall promptly pay to the Lessee, to the extent such tax benefit was not
previously taken into account in computing such payment or indemnity, but not
before the Lessee shall have made all payments then due to such Tax Indemnitee
under this Agreement, the Tax Indemnity Agreement and any other Operative
Agreement, an amount equal to the lesser of (x) the sum of such tax benefit plus
any other tax benefit realized by such Tax Indemnitee that would not have been
realized but for any payment made by such Tax Indemnitee pursuant to this
sentence and not already paid to the Lessee, or (y) the amount of the payment
made under Section 6.01 hereof and this Section 6.02 by the Lessee to such Tax
Indemnitee plus the amount of any other payments by the Lessee to such Tax
Indemnitee theretofore required to be made under this Section 6.02 and Sections
6.01 and 6.05 hereof (and the excess, if any, of the tax benefit over the
applicable amount described in clause (x) over the amount described in clause
(y) above shall be carried forward and applied to reduce pro tanto any
--- -----
subsequent obligations of the Lessee to make payments to such Tax Indemnitee
pursuant to Section 6.01 hereof). If an amount payable by any Tax Indemnitee to
the Lessee pursuant to this Section 6.02 is not paid when due because of the
occurrence and continuation of any Event of Default, such amount shall be
payable by any Tax Indemnitee to the Lessee upon the Lessee's curing all Events
of Default. The Lessee shall reimburse on an After Tax Basis such Tax Indemnitee
(subject to Section 6.01(b), but only insofar as subsections (iv), (vi), (x),
(xi) and (xiii) thereof would apply) for any payment of a tax benefit pursuant
to the preceding sentence (or a tax benefit otherwise taken into account in
calculating the Lessee's indemnity obligation hereunder) to the extent that such
tax benefit is subsequently disallowed or reduced.
In determining the order in which any Tax Indemnitee utilizes
withholding or other foreign taxes as a credit against such Tax Indemnitee's
United States income taxes, such Tax Indemnitee shall be deemed to utilize (i)
first, all foreign taxes other than those described in clause (ii) below; and
(ii) then, on a pro rata basis, all foreign taxes with respect to which such Tax
Indemnitee is entitled to obtain indemnification pursuant to an indemnification
provision contained in any lease, loan agreement, or other financing document
(including this Participation Agreement) that is similar to the indemnification
provision in this Article 6.
Section 6.03. Time of Payment. Any amount payable to a Tax Indemnitee
---------------
pursuant to this Article 6 shall be paid promptly, but in any event within 30
days after receipt of a written demand therefor from such Tax Indemnitee
accompanied by a written statement describing in reasonable detail the basis for
such indemnity and the computation of the amount so payable, provided that in
--------
the case of amounts which are being contested by the Lessee in good faith or by
the Tax Indemnitee in either case pursuant to Section 6.04 hereof, or subject to
verification proceedings pursuant to Section 6.11 hereof, such amount shall be
payable within 30 days after the time such contest or verification proceeding,
as the case may be, is finally resolved. In no event shall any amount be payable
under Section 6.01 until two Business Day prior to the due date for Tax in
issue.
Section 6.04. Contests.
--------
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(a) Notice of Claim. If a written claim is made against any Tax
---------------
Indemnitee for Taxes with respect to which the Lessee is liable for a payment or
indemnity hereunder, such Tax Indemnitee shall promptly (but in any event within
30 days of receipt thereof) give the Lessee notice in writing of such claim and
shall furnish the Lessee with copies of any written requests for information
sent to such Tax Indemnitee from any taxing authority to the extent relating to
such Taxes with respect to which the Lessee may be required to indemnify
hereunder; provided, however, that the failure of a Tax Indemnitee to give such
-------- -------
notice or furnish such copy shall not terminate any of the rights of such Tax
Indemnitee under this Article 6, except (A) to the extent that the Lessee's
contest rights have been materially and adversely impaired by the failure to
provide such notice or copy or (B) except with respect to a Noteholder Tax
Indemnitee, to the extent that such failure results in the imposition of, or an
increase in the amount of, any penalties, interest or additions to Tax related
to the Tax which is the subject of such claim or proceeding.
(b) Request for Contest. If a written claim shall be made for any
-------------------
Tax, other than an Income Tax, for which the Lessee may be obligated to
indemnify pursuant to Section 6.01 hereunder, and under applicable law of the
taxing jurisdiction the Lessee is allowed to contest directly such Tax and the
Tax to be contested is not reflected in a report or return with other Taxes of
any Tax Indemnitee (as confirmed in writing by such Tax Indemnitee) and if the
Tax Indemnitee determines in good faith that it will not suffer any adverse
consequences as a result (as confirmed in writing by such Tax Indemnitee), then
the Lessee shall be permitted, at its expense and in its own name, or, if
consented to in writing by the Tax Indemnitee, in the name of such Tax
Indemnitee, to contest the imposition of such Tax; provided, however, that the
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Lessee shall not be permitted or entitled to contest any Tax unless (A) such
contest will not result in the risk of an imposition of criminal penalties or a
more than de minimis risk of a sale, forfeiture or loss of the Aircraft, the
Airframe, the Engines or any part thereof or the creation of any Lien other than
Liens for Taxes of the Lessee (x) either not yet due or being contested in good
faith by appropriate proceedings so long as such proceedings do not involve the
risk of an imposition of criminal penalties or the more than de minimis risk of
any sale, forfeiture or loss of the Aircraft, and (y) for the payment of which
such reserves, if any, as required to be provided under generally accepted
accounting principles have been provided and, to the extent permitted by law,
the Lessee shall be entitled to withhold payment during pendency of such
contest, (B) if an Event of Default shall have occurred and be continuing, the
Lessee shall have provided security for its obligations hereunder reasonably
satisfactory to the Owner Participant by placing in escrow funds to cover any
such obligations, (C) the Lessee shall have agreed to pay such Tax Indemnitee on
demand and on an After Tax Basis all costs and expenses that such Tax Indemnitee
actually incurs in connection with contesting such claim (including, without
limitation, all costs, expenses, losses, reasonable legal and accounting fees,
disbursements, or penalties, interest and addition to tax), (D) if such contest
shall be conducted in a manner requiring the payment of the claim in advance,
the Lessee shall have advanced sufficient funds, on an interest free basis, to
make the payment required, and agreed to indemnify the Tax Indemnitee against
any additional net adverse tax consequences on an After Tax Basis to such Tax
Indemnitee of such advance, (E) if such contest shall be conducted in a manner
requiring the payment of the claim, the Lessee shall have paid the amount
required, (F) Lessee shall have acknowledged its liability for such claims, (G)
such contest and related contests involving other equipment involve
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potential payments and/or indemnities by the Lessee (whether or not such
indemnity is pursuant to this Agreement) of at least $25,000 in the aggregate,
and (H) independent tax counsel selected by Owner Participant and reasonably
acceptable to the Lessee has rendered an opinion within 30 days of the Owner
Participant providing notice of the claim to the Lessee that a Reasonable Basis
exists for contesting such claim.
If the Lessee shall so request within 30 days after receipt of such
notice from a Tax Indemnitee under this Section 6.04 hereof and with respect to
a Tax for which the Lessee may be obligated to indemnify pursuant to Section
6.01, such Tax Indemnitee shall in good faith at the Lessee's after-tax expense
contest the imposition of such Tax; provided, however, that such Tax Indemnitee,
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after considering in good faith any advice of the Lessee and the Lessee's
counsel concerning the forum in which the adjustment is most likely to be
favorably resolved, may in its sole discretion select the manner and forum for
such contest and determine whether any such contest shall be made by (a)
resisting payment thereof if lawful and practicable or not paying the same
except under protest if protest is necessary and proper in each case so long as
non-payment will not result in a more than de minimis risk of the sale,
forfeiture or loss of, or the creation of a Lien other than a Permitted Lien on
the Aircraft, Airframe or any Engine or any risk of criminal liability; or (b)
if the payment be made, using reasonable efforts to obtain a refund thereof in
appropriate administrative and/or judicial proceedings; provided further,
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however, that at such Tax Indemnitee's option, such contest shall be conducted
- -------
by the Lessee in the name of such Tax Indemnitee if such Tax Indemnitee so
requests in writing and that in no event shall such Tax Indemnitee be required
or the Lessee permitted to contest under this paragraph the imposition of any
Tax for which the Lessee may be obligated pursuant to this Section 6.01 unless:
(i) in the case of an Income Tax, the Lessee shall have furnished
at the Lessee's expense an opinion of counsel selected by the Lessee and
reasonably satisfactory to such Tax Indemnitee to the effect that a
Reasonable Basis exists for pursuing such contest;
(ii) the Lessee shall have agreed to pay such Tax Indemnitee on
demand and on an After Tax Basis all reasonable costs and expenses that
such Tax Indemnitee may incur in connection with contesting such claim
(including, without limitation, all costs expenses, losses, reasonable
legal and accounting fees, disbursements, penalties, interest and additions
to tax);
(iii) such Tax Indemnitee shall have determined that the action to be
taken will not result in any more than de minimis danger of sale,
forfeiture or loss of, or the creation of any Lien other the Liens for
Taxes of the Lessee (or any Sublessee) either not yet due or being
contested in good faith by appropriate proceedings so long as such
proceedings do not involve any more than de minimis risk of the sale,
forfeiture or loss of the Aircraft, the Airframe or any Engine or any
interest therein and for the payment of which such reserves, if any, as are
required to be provided under generally accepted accounting principles have
been provided;
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(iv) if an Event of Default shall have occurred and be continuing,
the Lessee shall have provided security for its obligations hereunder
reasonably satisfactory to the Owner Participant by placing in escrow
sufficient funds to cover any such obligations;
(v) Lessee shall have acknowledged its liability in writing for
such claims;
(vi) such contest and related contests involving other equipment
involve potential payments and/or indemnities by the Lessee (whether or not
such indemnity is pursuant to this Agreement) of at least $25,000 in the
aggregate; and
(vii) if such contest shall be conducted in a manner requiring the
payment of the claim in advance, the Lessee shall have advanced sufficient
funds, on an interest free basis, to make the payment required, and agreed
to indemnify the Tax Indemnitee against any additional net adverse tax
consequences on an After Tax Basis to such Tax Indemnitee of such advance.
If requested by the Lessee, the Tax Indemnitee shall appeal any
adverse administrative or judicial decision, except that the Tax Indemnitee
shall not be required to pursue any appeals to the United States Supreme Court
provided that with respect to an appeal of a judicial decision it must be more
likely than not that such appeal will be successful. Notwithstanding the
foregoing, the Lessee shall not be permitted or entitled to contest any such Tax
in its own name unless the Tax is reflected in a report or a return of the
Lessee or raised in an audit or other proceeding of the Lessee, the Lessee is
allowed to contest such Tax under applicable law of the taxing jurisdiction, and
no tax return of the Tax Indemnitee is kept open as a result of such contest
beyond the applicable statute of limitations period. If the Lessee is permitted
under applicable law to contest a Tax asserted against the Lessee and the same
or similar Tax is also asserted against the Tax Indemnitee, subject to the
conditions herein, each of the Lessee and such Tax Indemnitee shall conduct its
contest in its own name and the Lessee and such Tax Indemnitee will cooperate in
a reasonable manner with respect to the respective contests of such Tax.
If such Tax Indemnitee shall elect to contest a claim for Taxes by
paying the Tax claimed (including such amounts payable as interest, penalties or
additions to tax) and seeking a refund, then upon timely request by such Tax
Indemnitee, the Lessee shall advance to such Tax Indemnitee on an interest-free
basis the amount of such Tax (including such amounts payable as interest,
penalties or additions to tax) and shall indemnify the Tax Indemnitee on an
After Tax Basis against any additional net cost to such Tax Indemnitee with
respect to such advance.
(c) Declining to Contest; Settlement. (i) If, after the Lessee
--------------------------------
has properly requested a contest in accordance with this Section 6.04 and Lessee
is then complying with the terms of this Section 6.04, any Tax Indemnitee shall
at any time decline to take any action required under Section 6.04 with respect
to such contest, then, if such failure shall cause the contest to be determined
adversely or shall preclude such contest as a matter of law, the Lessee shall
not be obligated to indemnify such Tax Indemnitee for such Tax and such Tax
Indemnitee shall reimburse
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the Lessee for all amounts previously advanced by the Lessee in connection with
such contest (other than costs and expenses of such contest).
(ii) No Tax Indemnitee shall settle a contest of any indemnified Tax
without requesting the Lessee's written consent (which consent will not be
unreasonably withheld, as determined in the Lessee's good faith judgment).
If any Tax Indemnitee shall settle a contest for any Tax without receiving
the Lessee's written consent, then the Lessee shall not be obligated to
indemnify such Tax Indemnitee for such Tax and the Tax Indemnitee shall
reimburse the Lessee for all amounts previously advanced with respect to
such contest (other than costs and expenses of such contest).
Notwithstanding the preceding two sentences, no Tax Indemnitee shall be
required to take or continue any action unless the Lessee shall have agreed
to pay the Tax Indemnitee on a current and After Tax Basis all reasonable
costs and expenses (including, without limitation, all costs, expenses,
losses, reasonable attorney's and accountant's fees, disbursements,
penalties, interest and additions to tax) which such Tax Indemnitee may
incur as a result of contesting such Taxes.
(d) Continuing Claims. Notwithstanding anything contained in this
-----------------
Section 6.04 to the contrary, no Tax Indemnitee shall be required to contest any
claim if the subject matter thereof shall be of a continuing nature and shall
have previously been adversely decided pursuant to the contest provisions of
this Section 6.04 unless there shall have been a change in the law (including,
without limitation, amendments to statutes or regulations, administrative
rulings and court decisions) or the Lessee shall have provided new facts after
such claim shall have been so previously decided, and such Tax Indemnitee shall
have received an opinion of independent tax counsel selected by it and
reasonably approved by the Lessee and furnished at the Lessee's sole expense to
the effect that, as a result of such change or new facts, it is more likely than
not that the position which such Tax Indemnitee or the Lessee, as the case may
be, had asserted in such previous contest, would prevail.
(e) Claims Barred. If (A) any Tax Indemnitee fails to give the Lessee
-------------
written notice pursuant to this Section 6.04 of any claim by any government or
taxing authority for any Tax for which the Lessee is obligated pursuant to this
Section 6.01, (B) as a direct result of such failure the contest of such claim
becomes barred by law and (C) the Lessee furnishes, at the Lessee's expense, an
opinion of counsel selected by the Lessee and reasonably satisfactory to such
Tax Indemnitee to the effect that, had the contest of such claim not become
barred by law, a Reasonable Basis, would have existed for pursuing such contest,
such Tax Indemnitee shall be deemed to have waived its right to any payment by
the Lessee that would otherwise be payable by the Lessee pursuant to this
Section 6.01 in respect of such claim.
Section 6.05. Refunds. When a Tax Indemnitee becomes entitled to
-------
receive a refund or credit against Tax of all or any part of any Taxes which the
Lessee shall have paid for such Tax Indemnitee or for which the Lessee shall
have reimbursed or indemnified such Tax Indemnitee, such Tax Indemnitee shall
pay, provided an Event of Default has not occurred and is not continuing, to the
Lessee an amount equal to the amount of such refund or credit less (x) all
payments then due to such Tax Indemnitee under this Article 6, and (y) Taxes
imposed with respect to the accrual or
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receipt thereof, including interest received attributable thereto, plus any tax
benefit realized by such Tax Indemnitee as a result of any payment by such Tax
Indemnitee made pursuant to this sentence; provided, however, that such amount
-------- -------
shall not be payable (a) before such time as the Lessee shall have made all
payments or indemnities then due and payable to such Tax Indemnitee under this
Article 6 and (b) to the extent that the amount of such payment would exceed (i)
the amount of all prior payments by the Lessee to such Tax Indemnitee pursuant
to this Article 6 less (ii) the amount of all prior payments by such Tax
Indemnitee to the Lessee pursuant to this Article 6 (any such excess shall be
carried forward to reduce pro tanto any subsequent obligations of the Lessee to
make payments to such Tax Indemnitee pursuant to Section 6.01 hereof). If an
amount payable by any Tax Indemnitee to the Lessee pursuant to this Section 6.02
is not paid when due because of the occurrence and continuation of an Event of
Default, such amount shall be payable by any Tax Indemnitee to the Lessee upon
the Lessee's curing all Events of Default.
Any subsequent loss of such refund or tax benefit shall be treated as
a Tax subject to indemnification under the provisions of this Article 6 (in the
case of any such tax benefit, subject to Section 6.01(b) but only insofar as
subsections (iv), (vi), (x), (xi), (xiii) and (xiv) thereof would apply).
Section 6.06. Reports. In case any report or return is required to be
-------
made with respect to any Taxes against which the Lessee is or may be obligated
to indemnify the Indemnities under this Article 6, the Lessee shall, to the
extent it has knowledge thereof, make such report or return, except for any such
report or return that the Tax Indemnitee has notified the Lessee that it intends
to file, in such manner as will show the ownership of the Aircraft in the Owner
Trustee and shall send a copy of the applicable portions of such report or
return to the Tax Indemnitee and the Owner Trustee or will notify the Tax
Indemnitee of such requirement and make such report or return in such manner as
shall be satisfactory to such Tax Indemnitee and the Owner Trustee. The Lessee
will provide such information within the possession or control of the Lessee as
the Tax Indemnitee may reasonably request in writing from the Lessee to enable
the Tax Indemnitee to fulfill its tax filing requirements with respect to the
transactions contemplated by the Operative Agreements (without duplication of
any comparable requirements of the Tax Indemnity Agreement) and any audit
information request arising from any such filing. The Tax Indemnitee will
provide such information within its possession or control as the Lessee may
reasonably require from such Tax Indemnitee to enable the Lessee to fulfill its
tax filing requirements with respect to the transactions contemplated by the
Operative Agreements and any audit information request arising from such filing;
provided that in no event shall any Tax Indemnitee be required to provide copies
- --------
of any of its tax returns.
Section 6.07. Survival of Obligations. The representations,
-----------------------
warranties, indemnities and agreements of the Lessee provided for in this
Article 6 and the Lessee's obligations under any and all of them, in each case,
with respect to events or periods prior to the expiration or termination of the
Lease shall survive the expiration or other termination of the Operative
Agreements.
Section 6.08. Payment of Taxes. With respect to any Tax otherwise
----------------
indemnifiable hereunder by the Lessee and applicable to the Aircraft, Airframe,
any Engine or Parts, to the extent
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permitted by the applicable federal, state, local or foreign law, the Lessee
shall pay such tax directly to the relevant Taxing authority and file any
returns or reports required with respect thereto to the extent legally entitled
to do so in its own name; provided, however, that the Lessee shall not make any
-------- -------
statements or take any action which would indicate that the Lessee or any Person
other than the Owner Trustee or Owner Participant is the owner of the Aircraft,
the Airframe, any Engine or any Part or which would otherwise be inconsistent
with the terms of the Lease or the Tax Indemnity Agreement and the position
thereunder of the Owner Trustee and the Owner Participant.
Section 6.09. Reimbursements by Indemnitees Generally. To the extent
---------------------------------------
the Lessee is required to pay or withhold any Tax imposed on or with respect to
a Tax Indemnitee in respect of the transactions contemplated by the Operative
Agreements, which Tax is not otherwise the responsibility of the Lessee under
the Operative Agreements, or any other written agreements between the Lessee and
such Tax Indemnitee, then such Tax Indemnitee shall pay to the Lessee within 30
days of the Lessee's demand therefor an amount which equals the amount actually
paid by the Lessee with respect to such Taxes.
Section 6.10. Forms. Each Tax Indemnitee agrees to furnish from time
-----
to time to Lessee or to such other person as Lessee may designate, at Lessee's
request and, except in respect to Form W-8, Form 1001 or Form 4224, expense,
such duly executed and properly completed forms as may be necessary or
appropriate in order to claim any reduction of or exemption from any withholding
or other Tax imposed by any taxing authority, if (x) such reduction or exemption
is available to such Tax Indemnitee as reasonably determined by such Tax
Indemnitee in good faith, (y) Lessee has provided such Tax Indemnitee with any
information necessary to complete such form not otherwise reasonably available
to such Tax Indemnitee, and (z) with respect to Owner Participant, the Owner
Participant has determined in good faith that furnishing such form could not
have a material adverse impact on the Owner Participant or an Affiliate thereof.
Section 6.11. Verification. At the Lessee's request, the accuracy of
------------
any calculation of amount(s) payable pursuant to this Article 6 shall be
verified by independent public accountants selected by the applicable Tax
Indemnitee and reasonably satisfactory to the Lessee (it being understood, in
the case of a Noteholder Tax Indemnitee, that such Tax Indemnitee's own
independent public accountant shall be reasonably satisfactory to Lessee so long
as such accountant is otherwise reasonably satisfactory to Lessee), and such
verification shall bind the applicable Tax Indemnitee and the Lessee. In order,
and to the extent necessary, to enable such independent accountants to verify
such amounts, such Tax Indemnitee shall provide to such independent accountants
(for their confidential use and not to be disclosed to the Lessee or any other
person) all information reasonably necessary for such verification.
Verification shall be at the expense of the Lessee, unless such verification
results in an adjustment in the Lessee's favor of $10,000 or more of the amount
of the payment as computed by such Tax Indemnitee, in which case the
verification shall be at the expense of the Tax Indemnitee.
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<PAGE>
Section 6.12. Non-Parties. If a Tax Indemnitee is not a party to this
-----------
Agreement, Lessee may require the Tax Indemnitee to agree in writing, in a form
reasonably acceptable to Lessee, to the terms of this Article 6 prior to making
any payment to such Tax Indemnitee hereunder.
Section 6.13. Foreign Tax On Loan Payments. If an Owner Participant is
----------------------------
incorporated or organized in a country other than the United States or in a
territory, possession or commonwealth of the United States (within the meaning
of the tax law of that foreign jurisdiction) and if as a result thereof any
foreign withholding Taxes are imposed on any Noteholder, then Owner Participant
shall reimburse Lessee for any payments Lessee is required to make to or on
behalf of any Noteholder under this Article 6 as a result of the imposition of
such Taxes. The amount payable by Owner Participant to Lessee shall be an amount
which, after taking into account any such Taxes, any Tax imposed upon the
receipt or accrual by Lessee of such payment by Owner Participant and any tax
benefits or tax savings realized by Lessee with respect to the payment of such
withholding Tax or the payment hereunder, shall equal the amount of Lessee's
payment to or on behalf of such Noteholder.
ARTICLE 7.
GENERAL INDEMNITY
Section 7.01. Generally.
---------
(a) Indemnity. The Lessee agrees to indemnify each Indemnitee against
---------
and agrees to protect, defend, save and keep harmless each Indemnitee from and
against and in respect of, and will pay on an After Tax Basis, any and all
liabilities (including strict or absolute liability without fault in tort or
otherwise), obligations, losses, damages, settlements, penalties, fines, claims,
actions, proceedings, judgments, suits, costs, disbursements and expenses,
demands or judgments (including reasonable legal fees and expenses) of every
kind and nature, whether or not any of the transactions contemplated by this
Agreement are consummated and whether arising before, on or after the Delivery
Date (individually, an "Expense," collectively, "Expenses"), which may be
imposed on, incurred or suffered by or asserted against any Indemnitee, in any
way relating to, arising out of or in connection with, any one or more of the
following:
(i) any Operative Agreement, Sublease or any transaction
contemplated thereby;
(ii) the Aircraft (or any portion thereof) or any engine
installed on the Airframe or any airframe on which an Engine is installed
whether or not arising out of the operation, possession, use, non-use,
maintenance, storage, overhaul, delivery, non-delivery, control, condition,
alteration, modification, addition, improvement, airworthiness,
replacement, substitution, return, abandonment, redelivery or other
disposition, repair or testing of the Aircraft, Airframe, or any Engine or
any engine used in connection with the Airframe, or any Part thereof by the
Lessee, any sublessee or any other Person whatsoever, whether or not such
operation, possession, use, non-use, maintenance, storage, overhaul,
delivery, non-
52
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delivery, control, condition, alteration, modification, addition,
existence, refurbishing, insurance, service, removal, improvement,
airworthiness, replacement, substitution, return, abandonment, redelivery
or other disposition, repair or testing is in compliance with the terms of
the Lease, including, without limitation, claims for death, personal injury
or property damage or other loss or harm to any Person whatsoever,
including, without limitation, any passengers, shippers or other Persons
wherever located, claims or penalty relating to any Applicable Laws
pertaining to any of the foregoing, including Applicable Laws relating to
environmental control, noise and pollution laws, rules or regulation
including, without limitation, latent and other defects, whether or not
discoverable, and patent, trademark or copyright infringement, and any
Liens in respect of the Aircraft, any Engine or any Part;
(iii) the manufacture, design, sale, return, purchase,
acceptance, nonacceptance, rejection, delivery, non-delivery, condition,
repair, modification, servicing, rebuilding, airworthiness, registration,
reregistration, deregistration, ownership, financing, import, export,
performance, non-performance, lease, sublease, transfer, merchantability,
fitness for use, alteration, substitution or replacement of any Airframe,
Engine, or Part or other transfer of use or possession, or other
disposition of the Aircraft, the Airframe, any Engine or any Part
including, without limitation, latent and other defects, whether or not
discoverable, tort liability, whether or not arising out of the negligence
of any Indemnitee (whether active, passive or imputed and including strict
liability without fault), and any claims for patent, trademark or copyright
infringement;
(iv) any breach of or failure to perform or observe, or any
other non-compliance with, any condition, covenant or agreement to be
performed, or other obligations of the Lessee under any of the Operative
Agreements, or the falsity or inaccuracy of any representation or warranty
of the Lessee in any of the Operative Agreements (other than
representations and warranties in the Tax Indemnity Agreement) or the
occurrence of any Default or Event of Default;
(v) the enforcement of the terms of the Operative Agreements
(including this Section 7.01(a));
(vi) the offer, issuance, sale or delivery of any Equipment Note
(or any certificates or securities issued in connection with any
refinancing thereof pursuant to Article 13 hereof) or interest in the
Lessor's Estate or the Trust Agreement or any similar interest;
(vii) any "prohibited transaction," within the meaning of Section
406 of ERISA or Section 4975(c)(1) of the Code, arising out of or in
connection with the acquisition or holding of the Owner Participant's
interest in the Trust Estate or the Loan Participant's interest in the
Equipment Notes;
(viii) any requisition of or total loss or partial loss of the
Aircraft; and
53
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(ix) actions taken in preventing or seeking to prevent the
arrest, seizure, confiscation, taking in execution, impounding, forfeiture
or detention of the Aircraft or in or with a view to securing the release
thereof.
(b) Exceptions. The indemnity provided for in Section 7.01(a)
----------
shall not extend to any Expense of any Indemnitee to the extent it:
(i) is attributable to the willful misconduct or gross
negligence of such Indemnitee (other than gross negligence or willful
misconduct imputed to such person by reason of its interest in the Aircraft
or any transaction documents);
(ii) except to the extent fairly attributable to acts or events
occurring prior thereto, is attributable to acts or events (other than the
performance by Lessee of its obligations pursuant to the terms of the
Operative Agreements) which occur after the earlier of (i) the return of
possession of the Aircraft to the Lessor or its designee in accordance with
the Lease and (ii) if the Lessee is not required to return the Aircraft to
the Lessor, termination of the Lease and payment by the Lessee of all
amounts then required to be paid by the Lessee pursuant to the terms of the
Operative Agreements; provided that if the Lease has been terminated
--------
pursuant to Section 17 thereof, the indemnity provided in Section 7.01(a)
hereof shall survive for so long as Lessor or the Indenture Trustee shall
be exercising remedies under such Section 17); provided further, that
-------- -------
nothing in this clause (ii) shall be deemed to exclude or limit any claim
that any Indemnitee may have under Applicable Law by reason of an Event of
Default or for damages from Lessee for breach of Lessee's covenants
contained in the Lessee Documents or to release Lessee from any of its
obligations under the Lessee Documents that expressly provide for
performance after termination of the Term;
(iii) other than as expressly provided herein or in the other
Operative Agreements and other than a Tax arising out of any "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975(c)
of the Code, is a Tax or loss of a Tax benefit, whether or not the Lessee
is required to indemnify therefor pursuant to Article 6 hereof or pursuant
to the Tax Indemnity Agreement;
(iv) is a cost or expense expressly required to be paid by such
Indemnitee or its permitted transferees (and not by the Lessee) pursuant to
(x) Sections 5.01(b), 5.01(c), 5.01(e), 5.03(b), 5.03(c), 5.04(b), 5.04(c),
6.11, 7.03, 8.01(a) and 8.01(c) of this Agreement; and (y) Sections 3(d),
6, 12(f) and 14(a) of the Lease and, in the case of clause (x) and (y) for
which the Lessee is not otherwise obligated to reimburse such Indemnitee
directly or indirectly pursuant to the terms of any Operative Agreement
(other than this Section 7.01);
(v) is attributable to the incorrectness or breach by such
Indemnitee of its representations or warranties, under any of the Operative
Agreements except to the extent such incorrectness or breach was caused by
a breach by Lessee of any representation or
54
<PAGE>
warranty or by any failure of Lessee to perform any obligation under an
Operative Agreement;
(vi) is attributable to the failure by such Indemnitee to
perform any of its obligations under any of the Operative Agreements except
to the extent such failure was caused by a breach by Lessee of any
representation or warranty or by any failure of Lessee to perform any
obligation under an Operative Agreement;
(vii) is, in the case of the Owner Participant, Lessor's Liens
attributable to the Owner Participant; in the case of the Owner Trustee,
Lessor's Liens to the extent attributable to the Owner Trustee; in the case
of Trust Company, Lessor's Liens to the extent attributable to Trust
Company; and in the case of the Indenture Trustee, Indenture Trustee's
Liens;
(viii) is, in the case of the Owner Participant or the Owner
Trustee, attributable to the offer or sale by such Indemnitee of any
interest in the Aircraft, the Lessor's Estate or the Trust Agreement or any
similar interest (including an offer or sale resulting from bankruptcy or
other proceedings for the relief of debtors in which such Indemnitee is the
debtor), unless in each case such offer or sale shall occur (A) pursuant to
the exercise of remedies under Section 17 of the Lease or (B) pursuant to
Section 5(b), 7(b), 7(c), 7(d), 7(e), 8, 12(b), 13(b) or 14 of the Lease or
(C) in connection with any other transfer required by the Operative
Agreements;
(ix) in the case of the Owner Participant, is an Expense
relating to, resulting from, arising out of or in connection with a
"prohibited transaction" within the meaning of Section 406 of ERISA or
Section 4975(c)(1) of the Code resulting from the direct or indirect use of
assets of any ERISA Plan to acquire or hold Owner Participant's interest in
the Trust Estate or in the case of any transferee of the Owner Participant
referred to in Section 5.01(c), to purchase the Beneficial Interest
pursuant to Section 5.01(c);
(x) except during the continuation of an Event of Default, is
attributable to any amendment to any of the Operative Agreements which is
not (i) requested, or consented to, by the Lessee, (ii) required or made
pursuant to the terms of any of the Operative Agreements or by Applicable
Law or (iii) necessitated by the action or inaction of the Lessee;
(xi) constitutes the loss of future profits of such Indemnitee
or an ordinary and usual overhead expense for such Indemnitee or its
permitted transferees, except to the extent incurred in connection with an
Event of Default;
(xii) is, in the case of any Noteholder, attributable to a
disposition (voluntary or involuntary) by any Noteholder of all or any part
of its interest in any Equipment Note or the Operative Agreements, other
than a disposition during the continuance of or as a result of an Event of
Default;
55
<PAGE>
(xiii) in the case of any Noteholder, relates to or results from
any pledge by a Noteholder of any interest in an Equipment Note held
thereby;
(xiv) is, in the case of any Noteholder, solely in the case of
Expenses resulting from or arising out of items or events described in
Section 7.01(a)(i), an Expense arising as a result of the formation,
incorporation, organization or domicile of a Noteholder in a particular
jurisdiction;
(xv) is, in the case of any Noteholder, attributable to any
claim or suit brought by one or more Indemnitees against any Person,
including the Lessee, to the extent a final judgment is entered dismissing
such claim or suit as being frivolous or without merit; and
(xvi) in the case of any Noteholder, relates to insurance
maintained by or for the benefit of an Indemnitee which the Lessee is not
required to maintain at its own cost and expense pursuant to Section 9 of
the Lease.
(c) Non-Parties. If an Indemnitee is not a party to this
-----------
Agreement, Lessee may require such Indemnitee to agree in writing, in a form
reasonably acceptable to Lessee, to the terms of this Article 7 prior to making
any payment to such Indemnitee under this Article 7.
Section 7.02. Notice and Payment. Each Indemnitee shall give prompt
------------------
written notice to the Lessee of any liability as to which an officer of such
Indemnitee has actual knowledge, for which the Lessee is, or may be, liable
under this Article 7; provided, however, that failure to give such notice shall
-------- -------
not terminate any of the rights of an Indemnitee under this Article 7 and shall
not release Lessee from any of its obligations to indemnify such Indemnitee
hereunder, except to the extent that such failure adversely affects any
applicable defense or counterclaim or otherwise increases the amount the Lessee
would have been liable for in the absence of such failure to provide such
notice.
Section 7.03. Defense of Claims. The Lessee or its insurers shall have
-----------------
the right (in each such case at the Lessee's sole expense) to investigate,
defend (and control the defense of) any such claim for which indemnification is
sought pursuant to this Article 7 (so long as Lessee has agreed in writing
reasonably acceptable to the relevant Indemnitee that Lessee is liable to such
Indemnitee for any Expenses relating to or arising out of the claim for which
indemnification is sought, provided that Lessee will not be so liable to the
-------- ----
extent that it is reasonably determined that one or more of the exclusions
contained in Section 7.01(b) would be applicable to such claim) and each
Indemnitee shall cooperate, at Lessee's expense, with all reasonable requests of
the Lessee or its insurers with respect thereto; provided that, without limiting
-------- ----
the right of the Lessee's insurers to assume and control the defense of or to
compromise, any such claim, the Lessee shall not be entitled to assume and
control the defense of or compromise any such claim (A) during the continuance
of any Event of Default, (B) if an actual or potential material conflict of
interest exists making it advisable in the good faith opinion of such Indemnitee
(on the basis of prevailing standards of professional responsibility) for such
Indemnitee to be represented by separate counsel or if such
56
<PAGE>
proceeding could in the good faith judgment of such Indemnitee involves the
potential imposition of criminal liability on such Indemnitee or (C) if such
proceeding will involve any non-de minimis risk of the sale, forfeiture or loss
of, or the creation of any Lien (other than Permitted Liens) on the Aircraft,
the Indenture Estate or the Trust Estate (unless the Lessee posts a bond or
other security reasonably acceptable in form and substance to such Indemnitee)
or involve any risk of criminal liability to such Indemnitee. Subject to the
immediately foregoing sentence, where the Lessee or the insurers under a policy
of insurance maintained by the Lessee undertake the defense of an Indemnitee
with respect to such a claim, no additional legal fees or expenses of such
Indemnitee in connection with the defense of such claim shall be indemnified
hereunder unless the fees or expenses were incurred at the written request of
the Lessee or such insurers. Subject to the requirement of any policy of
insurance applicable to a claim, an Indemnitee may participate at its own
expense at any judicial proceeding controlled by the Lessee or its insurers
pursuant to the preceding provisions, to the extent that such party's
participation does not, in the reasonable opinion of the independent counsel
appointed by the Lessee or its insurers to conduct such proceedings, interfere
with the defense of such claim (it being agreed that the making of copies,
giving notice of proceedings and the like shall not be considered interference);
and such participation shall not constitute a waiver of the indemnification
provided in this Section 7.03; provided that, the reasonable fees and expenses
--------
of such Indemnitee's counsel shall be paid by the Lessee if any of the
circumstances described in clauses (A)-(C) of the second preceding sentence
exists. Nothing contained in this Article 7 shall be deemed to require an
Indemnitee to contest any Expense or to assume responsibility for or control of
any judicial proceeding with respect thereto. No Indemnitee shall enter into any
settlement or other compromise with respect to any claim described in this
Section 7.03 (other than any claim involving potential criminal liability)
without the prior written consent of the Lessee, unless such Indemnitee waives
its right to be indemnified under this Article 7 with respect to such claim or
unless an Event of Default is continuing. The Lessee shall not enter into any
settlement or compromise with respect to which the Lessee has not agreed to
indemnify such Indemnitee to such Indemnitee's satisfaction or which admits any
criminal violation, gross negligence or willful misconduct on the part of any
Indemnitee without the prior written consent of such Indemnitee.
Section 7.04. Insured Claims. Notwithstanding any other provision of
--------------
this Article 7 to the contrary, in the case of any Expense indemnified by the
Lessee hereunder which is covered by a policy of insurance maintained by the
Lessee (or a Permitted Sublessee) pursuant to Section 9 of the Lease or
otherwise, each relevant Indemnitee shall cooperate with the insurers in the
exercise of their rights to investigate, defend or compromise such claim as may
be required to retain the benefits of such insurance with respect to such claim.
Section 7.05. Subrogation. To the extent that an Expense indemnified
-----------
by the Lessee under this Article 7 is in fact paid in full by the Lessee and/or
an insurer under a policy of insurance maintained by the Lessee, the Lessee
and/or such insurer, as the case may be, shall, so long as no Specified Default
or Event of Default has occurred and is continuing, be subrogated to the extent
of such payment to the rights and remedies of the Indemnitee on whose behalf
such Expense was paid with respect to the transaction or event giving rise to
such Expense (other than the rights and remedies in respect of insurance
policies maintained by such Indemnitee and other than the rights
57
<PAGE>
of the Trust Company or the Owner Trustee and remedies against the Owner
Participant under the Trust Agreement). Should an Indemnitee receive any refund
(except under insurance policies paid for by such Indemnitee), in whole or in
part, with respect to any Expense paid in full by the Lessee hereunder, it shall
promptly pay over the amount refunded (but not an amount in excess of the amount
Lessee and/or such insurer has paid to such Indemnitee in respect of such
Expense) to the Lessee unless a Specified Default or an Event of Default shall
have occurred and be continuing (or would have occurred and be continuing if the
Owner Participant had given the notice specified in Section 16(a) of the Lease),
in which case, provided that Lessee shall have paid such Indemnitee all amounts
required under this Article 7 or under any other Operative Agreement, such
amounts shall be paid over to Owner Trustee (or, so long as the Indenture shall
not have been discharged in accordance with its terms, to the Indenture Trustee)
to hold as security for Lessee's obligations under the Lessee Documents or, if
requested by Lessee, applied to satisfy such obligations.
Section 7.06. Information. Subject to Section 7.04, Lessee will
-----------
provide the relevant Indemnitee with such information, not within the control of
such Indemnitee, as is in Lessee's control or is reasonably available to Lessee,
which such Indemnitee may reasonably request, and will otherwise cooperate with
such Indemnitee, so as to enable such Indemnitee to fulfill its obligations
under Section 7.03 and to control or participate in any proceeding to the extent
permitted by Section 7.03. The Indemnitee shall supply Lessee with such
information, not within the control of Lessee, as is in such Indemnitee's
control or is reasonably available to such Indemnitee, which Lessee may
reasonably request to control or participate in any proceeding to the extent
permitted by Section 7.03.
Section 7.07. Survival of Obligations. The indemnities and
-----------------------
agreements of the Lessee provided for in this Article 7 shall survive the
expiration or other termination of this Agreement.
Section 7.08. Effect of Other Indemnities. The Lessee's obligations
---------------------------
under this Article 7 shall be those of a primary obligor whether or not the
Person indemnified shall also be indemnified with respect to the same matter
under the terms of this Agreement, or any other document or instrument, and the
Person seeking indemnification from the Lessee pursuant to any provision of this
Agreement may proceed directly against the Lessee without first seeking to
enforce any other right of indemnification.
Section 7.09. Waiver of Certain Claims. The Lessee hereby waives and
------------------------
releases any Expense now or hereafter existing against any Indemnitee arising
out of death or personal injury to personnel of the Lessee, loss or damage to
property of the Lessee, or the loss of use of any property of the Lessee, which
results from or arises out of the condition, use or operation of the Aircraft
during the Term, including, without limitation, any latent or patent defect
whether or not discoverable.
Section 7.10. Certain Limitations. The Lessee does not guarantee and
-------------------
nothing in the general indemnification provisions of this Article 7 shall be
construed as a guarantee (or an indemnification) by the Lessee (i) that the
principal of, premium, if any, or interest on any Equipment Note will be paid or
(ii) with respect to the residual value of the Aircraft or any part thereof.
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Section 7.11. Certain Transfers. If the Owner Participant (i) makes
-----------------
any claim for payment as a result of the indemnity provided by the Lessee in
Section 6.01(a)(x) or 7.01(a)(vii), and (ii) such claim is the result of the
direct or indirect acquisition or holding of an Equipment Note by an ERISA Plan,
established or maintained by Owner Participant or any entity that is treated as
a single employer with Owner Participant under Section 414(b), (c), (m) or (o)
of the Code (an "ERISA Affiliate") or as to which Owner Participant or any ERISA
Affiliate of Owner Participant contributed or is a member, the Lessee shall have
the right, upon 30 days notice to the Owner Participant, to purchase the
Beneficial Interest (and in connection with such purchase, the Lessee shall give
the Loan Participant and the Indenture Trustee 10 days notice of such purchase
and in connection with any such transfer of Beneficial Interest, the Owner
Participant and the Lessee shall comply with Section 5.01(c) (other than (v)
clauses (i) and (v) of the first proviso to such Section, (w) clause (a) of the
third sentence of such Section, (x) the proviso to such third sentence, (y)
clause (c) of the third sentence of such Section to the extent that it requires
the making of the representations or covenants relating to those contained in
clause (viii) of Section 5.01(a) and in clause (a) of the third sentence of
Section 5.01(c) and (z) the seventh sentence of Section 5.01(c)), provided that,
-------- ----
the Owner Participant shall not be obligated to proceed with any such transfer
of Beneficial Interest if the Lessee cannot comply with the requirements of a
transferee), on a Termination Date specified in such notice, for a price equal
to the higher of (1) the Owner Participant's Share of Termination Value and (2)
the Owner Participant's Share of FMV. In connection with any such purchase, the
Lessee shall pay all unpaid Supplemental Rent (including payment of such
indemnity claim) due on or before such Termination Date. All reasonable fees
and expenses incurred by Owner Participant, Indenture Trustee, any Noteholder or
Owner Trustee in connection with such transfer shall be promptly paid by Lessee.
The Lessee shall not have the right to purchase the Beneficial Interest in any
instance pursuant to the foregoing sentence in the event the Owner Participant
waives any claim for payment it may have in such instance pursuant to clause (i)
above. For purposes of this Section 7.11, "Owner Participant's Share of
Termination Value" means the excess of (w) the Termination Value as of such
Termination Date, over (x) the aggregate principal amount of Equipment Notes
that would be outstanding on such Termination Date (and accrued interest thereon
at the Applicable Rate) assuming all payments of Basic Rent payable on or prior
to such Termination Date shall have been paid when due, and "Owner Participant's
Share of FMV" means the Fair Market Sales Value of the Aircraft as of such
Termination Date, determined in accordance with the definition thereof but
assuming (y) that the Aircraft is subject to the Lease, the Indenture, the
indebtedness evidenced by the Equipment Notes and the other Operative Agreements
and (z) that the violation giving rise to such indemnity claim has been cured.
Nothing in this Section 7.11 shall affect the obligation of the Lessee to make
any payment of Supplemental Rent or Basic Rent due on or prior to such
Termination Date, the payment of which amount is a condition precedent to the
exercise by the Lessee of its rights under this Section 7.11; provided that, the
-------- ----
advance portion, if any, of Basic Rent payable on such Termination Date shall,
in connection with any purchase under this Section 7.11, be deemed to be paid
following such purchase, and accordingly the Owner Participant shall have no
interest in such advance portion of Basic Rent following such purchase.
ARTICLE 8.
TRANSACTION COSTS
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Section 8.01. Transaction Costs and Other Costs.
---------------------------------
(a) Transaction Costs. If the transactions contemplated by this
-----------------
Agreement to occur on the Delivery Date are consummated, the Owner Participant
shall pay (or reimburse the Lessee if the Lessee shall have previously made such
payment) all fees and expenses of the following persons relating to the
transactions contemplated hereby, following receipt by the Owner Participant of
appropriate invoices with respect thereto: (i) the out-of-pocket expenses of the
Owner Participant relating to the time sharing charges of Warren & Selbert and
the reasonable fees and expenses of counsel for Owner Participant; (ii) the
reasonable fees and expenses of the respective counsel for the Lessee, the Owner
Trustee, the Indenture Trustee, the Manufacturer, the Seller, the Deficiency
Obligor and the Loan Participant; (iii) the reasonable fees and expenses of
special aviation counsel; (iv) any initial fees and expenses of the Loan
Participant and the initial fees and expenses of the Owner Trustee and the
Indenture Trustee; (v) printing and duplication expenses and any recording and
filing fees incurred in connection with the Operative Agreements; (vi) the fees
and expenses of The Seabury Group LLC (the "Lessee Advisor"); (vii) any amounts
paid in connection with any appraisal report prepared for the Owner Participant;
and (viii) any other amounts approved by the Lessee and the Owner Participant.
(b) Continuing Expenses. The Lessee agrees to pay, as Supplemental
-------------------
Rent, (i) the continuing fees, expenses and disbursements (including reasonable
counsel fees and expenses) of Trust Company and the Owner Trustee, with respect
to the administration of the Lease and the Lessor's Estate and (ii) the
continuing fees, expenses and disbursements (including reasonable counsel fees
and expenses) of the Indenture Trustee, with respect to the administration of
the Indenture Estate.
(c) Amendments and Supplements. Without limitation of the foregoing,
--------------------------
the Lessee agrees to pay, as Supplemental Rent, to the Owner Trustee, the Owner
Participant, the Indenture Trustee and each Noteholder all costs and expenses
(including reasonable legal fees and expenses) incurred by any of them in
connection with any amendment, supplement, waiver or consent (whether or not
entered into) under this Agreement or any other Operative Agreement or document
or instrument delivered pursuant to any of them, which amendment, supplement,
waiver or consent is required by any provision of any Operative Agreement
(including any adjustment pursuant to Section 3(d) of the Lease) or is required
by Applicable Law or necessitated by the action or inaction of the Lessee or
occurs after an Event of Default has occurred and is continuing or is requested
by or consented to by the Lessee; provided, however, that if such amendment,
-------- -------
supplement, waiver or consent is not requested by the Lessee, the requesting
parties (other than the Lessee) shall pay all such costs and expenses on behalf
of the Lessee (without any right of reimbursement or indemnification from the
Lessee).
ARTICLE 9.
SUCCESSOR OWNER TRUSTEE
Section 9.01. Appointment of Successor Owner Trustee.
--------------------------------------
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(a) Resignation and Removal. The Owner Trustee or any successor Owner
-----------------------
Trustee may resign or may be removed (with the consent of the Lessee) by the
Owner Participant, and a successor Owner Trustee may be appointed and a Person
may become Owner Trustee under the Trust Agreement only in accordance with the
provisions of Section 9.01 of the Trust Agreement and the provisions of
paragraphs (b) and (c) of this Section 9.01.
(b) Conditions to Appointment. The appointment in any manner of a
-------------------------
successor Owner Trustee pursuant to Section 9.01 of the Trust Agreement shall be
subject to the following conditions:
(i) such successor Owner Trustee shall be a Citizen of the
United States;
(ii) such successor Owner Trustee shall be a bank or a trust
company having combined capital, surplus and undivided profits of at least
$100,000,000 or a bank or trust company fully guaranteed by a direct or
indirect parent thereof having a combined capital, surplus and undivided
profits of at least $100,000,000;
(iii) such appointment shall not violate any provisions of the
Transportation Code or any applicable rule or regulation of the applicable
regulatory agency or body of any other jurisdiction in which the Aircraft
may then be registered or create a relationship which would be in violation
of the Transportation Code or any applicable rule or regulation of the
applicable regulatory agency or body of any other jurisdiction in which the
Aircraft may then be registered;
(iv) such successor Owner Trustee shall enter into an agreement
or agreements, in form and substance reasonably satisfactory to the Lessee,
the Owner Participant, each Noteholder and the Indenture Trustee whereby
such successor Owner Trustee confirms that it shall be deemed a party to
this Agreement and each other Operative Agreement to which the Owner
Trustee is a party and agrees to be bound by all the terms of such
documents applicable to the Owner Trustee and makes the representations and
warranties contained in Section 5.03 hereof (except that it may be duly
incorporated, validly existing and in good standing under the laws of the
United States of America or any State thereof); and
(v) all filings of Uniform Commercial Code financing and
continuation statements, filings in accordance with the Transportation Code
and amendments thereto shall be made and all further actions taken in
connection with such appointment as may be necessary in connection with
maintaining the validity, perfection and priority of the Lien of the
Indenture and the valid and continued registration of the Aircraft in
accordance with the Transportation Code.
ARTICLE 10.
LIABILITIES AND INTERESTS OF THE OWNER PARTICIPANT AND NOTEHOLDERS
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Section 10.01. Liabilities of the Owner Participant. The Owner
------------------------------------
Participant shall not have any obligation or duty to the Lessee or to any
Noteholder with respect to the transactions contemplated by this Agreement,
except those obligations or duties expressly set forth in this Agreement, the
Indenture (but only to the extent set forth in Section 2.12 of the Indenture) or
(to the Lessee only) the Tax Indemnity Agreement or in any other Operative
Agreement to which the Owner Participant is a party and the Owner Participant
shall not be liable for the performance by any other party hereto of such other
party's obligations or duties hereunder.
Section 10.02. Interest of Noteholders. A Noteholder shall not, as
-----------------------
such, have any further interest in, or other right with respect to, the
Indenture Estate when and if the principal amount of and Make-Whole Amount, if
any, and interest on and other amounts due under all Equipment Notes held by
such Noteholder and all other sums due to such Noteholder under the Indenture
and under the other Operative Agreements shall have been paid in full.
ARTICLE 11.
OTHER DOCUMENTS
Section 11.01. Consent of Lessee to Other Documents. The Lessee
------------------------------------
hereby consents in all respects to the execution and delivery of the Indenture
and the Trust Agreement.
ARTICLE 12.
NOTICES
Section 12.01. Notices. Except as otherwise specifically provided
-------
herein, all notices, requests, approvals or consents required or permitted by
the terms hereof shall be in writing (it being understood that the specification
of a writing in certain instances and not in others does not imply an intention
that a writing is not required as to the latter). Any notice shall be effective
when received. Any notice shall either be mailed, certified or registered mail,
return receipt requested with proper first class postage prepaid, or sent in the
form of a telecopy, provided that there is receipt of such notice the next
--------
Business Day from an overnight courier service, or by overnight delivery service
or delivered by hand. Any notice shall be directed to the Lessee, the Lessor,
the Indenture Trustee or any other party hereto to the respective addresses set
forth below or to such other address or telecopy number as any such party may
designate pursuant to this Section 12.01:
(a) if to the Lessee, to its office at 2801 Slater Road, Morrisville,
North Carolina 27560, Attention: General Counsel, telephone (919) 595-6009,
facsimile (919) 595-1705; or to such other address as the Lessee shall from
time to time designate in writing to the Lessor, the Indenture Trustee and
each Participant;
(b) if to the Lessor or the Owner Trustee, to its office at One Rodney
Square, 920 King Street, Suite 102, Wilmington, Delaware 19801, Attention:
Corporate Trust Administration, telephone (302) 888-7539, facsimile (302)
888-7544; or to such other
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address as the Lessor shall from time to time designate in writing to the
Lessee, the Indenture Trustee and each Noteholder, with a copy to the Owner
Participant;
(c) if to the Owner Participant to its office at 201 High Ridge Road,
Stamford, Connecticut 06927-4900, Attention: Contracts Manager, telephone
(203) 357-3773 facsimile (203) 357-3201; or to such other address as the
Owner Participant shall from time to time designate in writing to the
Lessee, and the Owner Trustee, the Indenture Trustee and each Noteholder;
(d) if to the Indenture Trustee, to its office at 25 South Charles
Street, Mail Code 101-591, Baltimore, Maryland 21201 Attention: Corporate
Trust Department, telephone (410) 244-4626 facsimile (410) 244-4236; or to
such other address as the Indenture Trustee shall from time to time
designate in writing to the Lessor, the Lessee and each Participant;
(e) if to the Loan Participant, to its office at 22 Grenville Street,
St. Helier, Jersey, Channel Islands, Attention: Mourant & Co. Secretaries
Limited, Group 12, telephone 44 (0) 1534-609-000 and facsimile 44 (0) 1534-
609-333, with a copies to (i) NatWest Aerospace Trust Company Limited c/o
NatWest Agency Group, 5/th/ Floor, Juno Court, 24 Prescot Street, London E1
8BB, Attention: Gary Smith, Head of NatWest Agency Group, telephone 44 (0)
171-714-6444 and facsimile 44 (0) 171-714-6167; (ii) Bombardier Inc., 800
Rene Levesque Boulevard West, Montreal, Quebec H3B 1Y8, Attention:
Executive Vice President, telephone (514) 861-9481 and facsimile (514) 861-
7274 and Vice President, Legal Services, telephone (514) 861-9481 and
facsimile (514) 861-7053; or to such other address as the Loan Participant
shall from time to time designate in writing to the Lessor, the Lessee, the
Indenture Trustee and the Owner Participant; and
(f) if to any other Noteholder, to its address set forth in the
Register.
ARTICLE 13.
REFINANCING
Section 13.01. Refinancing
-----------
(a) Subject to the terms and conditions of this Section 13.01, on any
date on or after the fifth anniversary of the Delivery Date (except in the case
of a refinancing which occurs after a Noteholder has requested the payment of
(x) any Increased Costs pursuant to Section 2.14(a) of the Indenture or (y) any
amounts pursuant to Article 6 hereof in respect of withholding Taxes, in which
case such refinancing may be requested by the Lessee at any time), the Lessee
may request the Owner Participant to participate in two refinancings in whole
but not in part, of the Equipment Notes prior to the end of the Basic Term (a
"Refinancing"). Such Refinancing may be placed in either the private or public
markets and shall be denominated in Dollars and shall be on terms reasonably
satisfactory to the Owner Participant. The Owner Participant will agree to
negotiate promptly in good faith to conclude an agreement with the Lessee as to
the terms of any such Refinancing transaction (including the terms of any debt
to be issued in connection with such
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refinancing and the documentation to be executed in connection therewith).
Without the prior written consent of the Owner Participant, the prospectus and
other offering materials relating to any Refinancing in the form of a public
offering shall not identify the Owner Participant and shall not include any
financial statements of the Owner Participant or any Affiliate thereof. In
connection with any such Refinancing in the form of a public offering, the
Lessee shall indemnify the Owner Participant in a manner satisfactory to it for
any liabilities under federal, state or foreign securities laws resulting from
such offering. The aggregate principal amount of the new Equipment Notes issued
in connection with any Refinancing shall be the same as the aggregate principal
amount outstanding on the Equipment Notes being refinanced.
(b) Notwithstanding anything herein to the contrary, no Refinancing
will be permitted unless the Owner Participant and the Indenture Trustee shall
have received at least 15 days' prior written notice of the scheduled closing
date of such Refinancing and the Owner Participant shall have been provided such
longer period as it shall have required for a reasonable opportunity to review
the relevant documentation and the Owner Participant shall have determined in
good faith that neither it nor the Owner Trustee shall suffer any loss or
expense or bear any increased risk as a result of such Refinancing (including,
without limitation, any risk with respect to taxes or other adverse consequences
to the Owner Participant including the application of Revenue Procedures 75-21
and 75-28 and Section 467 of the Code) for which it has not been or will not
have been indemnified in a manner satisfactory in form and substance to the
Owner Participant.
Prior to the consummation of any Refinancing pursuant to this Section
13.01, the Owner Participant and the Lessee shall agree upon a schedule setting
forth each installment of Basic Rent and setting forth Termination Values
payable pursuant to the Lease as a result of the Refinancing in accordance with
Section 3(d) of the Lease, and thereafter the amounts set forth in such schedule
shall become the amounts payable under the Lease. Upon the consummation of the
Refinancing, the evidence of indebtedness issued pursuant to the Refinancing
shall be considered "Equipment Notes" for purposes of this Agreement and the
Lease.
(c) Notwithstanding the foregoing, the Owner Participant shall have no
obligation to proceed with any Refinancing transaction as contemplated by this
Section 13.01 unless the Lessee provides an indemnity on an After Tax Basis to
the Owner Trustee and the Owner Participant by agreement in form and substance
satisfactory to each of them (provided that Taxes are excluded from such
--------
indemnity), for any liability, obligation (other than, in the case of the Owner
Trustee, the non-recourse obligation to pay principal and interest in respect of
the refinanced indebtedness), cost or expense (including, without limitation,
reasonable attorneys' fees and Make-Whole Amount or other amounts due under the
Indenture).
(d) Without the prior written consent of the Owner Participant, no
such refinancing shall (1) cause the aggregate principal amount of the
indebtedness to be substituted for the Equipment Notes to exceed the aggregate
principal amount of the then outstanding Equipment Notes, (2) cause the weighted
average life of such indebtedness to be longer than the remaining weighted
average life of the then outstanding Equipment Notes, or (3) cause the date of
maturity of such indebtedness to be later than the date of maturity of the
Equipment Notes being refinanced.
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(e) Subject to the foregoing provisions of this Section 13.01, each
party agrees to take or cause to be taken all requested action, including,
without limitation, the execution and delivery of any documents and instruments,
including, without limitation, amendments or supplements to the Lease, which may
be reasonably necessary or desirable to effect such Refinancing, including, in
the case of the Owner Participant, direction to the Owner Trustee by the Owner
Participant to prepay the Equipment Notes then outstanding; provided, however,
-------- -------
that such Refinancing shall be subject to the satisfaction of each of the
following conditions:
(i) Payment shall have been made with respect to principal,
accrued interest, Make-Whole Amount, if any, and all other sums due and
owing on the Equipment Notes payable under the Indenture;
(ii) Payment in full of all other amounts then due and owing by
the Lessee under this Agreement, the Indenture, the Lease, the Trust
Agreement, and the Equipment Notes then outstanding shall have been made by
the Lessee;
(iii) Such party shall have received such opinions of counsel
(including, without limitation, an opinion received by the Owner
Participant from independent tax counsel selected by Owner Participant and
reasonably satisfactory to the Lessee that such Refinancing shall not
result in any, or the risk of any, adverse tax consequences to such Owner
Participant, unless the Lessee shall have provided, or caused to be
provided, an indemnity in respect thereof satisfactory in form and
substance to the Owner Participant), certificates and other documents as it
may reasonably request, each in form and substance reasonably satisfactory
to such party;
(iv) All authorizations, approvals and consents which in the
reasonable judgment of the Owner Participant are necessary for such
Refinancing shall have been obtained;
(v) No Specified Default shall exist or would occur immediately
after giving effect to such Refinancing;
(vi) In the event the Lessee shall not prohibit the purchase of
the Refinancing loan certificates by, or with the assets of, an ERISA Plan,
the Lessee will permit the placement of the Refinancing loan certificates
with an ERISA Plan only if either (A) if such placement is in the form of
pass-through certificates, the sole underwriter or the manager or co-
manager of the underwriting syndicate or the selling or placement agent of
such pass-through certificates represents to the Lessee that it has a
prohibited transaction exemption from the U.S. Department of Labor with
respect to pass-through certificates (such as Prohibited Transaction
Exemption 89-88 or any other comparable exemption) or (B) purchasers of the
Refinancing loan certificates (or if the Refinancing involves the issuance
and sale of pass-through certificates, purchasers of such pass-through
certificates) provide a representation (which may be in the form of a
deemed representation) regarding their source of funds used in acquiring
the Refinancing loan certificates (or such pass-through certificates, as
the case may be) and, if such purchasers represent that they are using
funds of an ERISA Plan in acquiring the Refinancing loan certificates (or
such pass-through certificates, as the case may
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be), such purchasers further represent that they are relying on a
prohibited transaction exemption from the U.S. Department of Labor with
respect to their purchase and holding of the Refinancing loan certificates
(or such pass-through certificates, as the case may be). The reliance on
any such exemption will not be conditional on the Owner Participant's
representation concerning its party in interest or other status with
respect to ERISA Plans; and
(vii) The Lessee shall pay all costs and expenses (including
legal fees and disbursements) incurred in connection with any proposed or
actually consummated Refinancing.
ARTICLE 14.
[RESERVED]
ARTICLE 15.
MISCELLANEOUS
Section 15.01. Counterparts. This Agreement may be executed by the
------------
parties in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
Section 15.02. No Oral Modifications. Neither this Agreement nor any
---------------------
of its terms may be terminated, amended, supplemented, waived or modified
orally, but only by an instrument in writing signed by the party against which
the enforcement of the termination, amendment, supplement, waiver or
modification is sought and in the case of the Noteholders, by such an instrument
approved by the Noteholders in accordance with Section 8.01 of the Indenture. No
such written termination, amendment, supplement, waiver or modification shall be
effective unless a signed copy shall have been delivered to and executed by the
Owner Trustee and the Indenture Trustee. A copy of each such termination,
amendment, supplement, waiver or modification shall also be delivered to each
other party to this Agreement.
Section 15.03. Captions. The table of contents preceding this
--------
Agreement and the headings of the various Articles and Sections of this
Agreement are for convenience of reference only and shall not modify, define,
expand or limit any of the terms or provisions of this Agreement.
Section 15.04. Successors and Assigns. The terms of this Agreement
----------------------
shall be binding upon, and shall inure to the benefit of, the Lessee and its
successors and permitted assigns, the Loan Participant and its successors and
permitted assigns, including without limitation each other Noteholder, the Owner
Participant and its successors and permitted assigns, the Owner Trustee and its
successors as Owner Trustee (and any additional owner trustee appointed) under
the Trust Agreement, the Indenture Trustee and its successors as Indenture
Trustee (and any additional indenture trustee appointed) under the Indenture.
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Section 15.05. Concerning the Owner Trustee and Indenture Trustee.
--------------------------------------------------
Each of Trust Company and Indenture Trustee is entering into this Agreement
solely in its capacities (except to the extent otherwise expressly indicated),
in the case of Trust Company, not in its individual capacity but solely as Owner
Trustee under the Trust Agreement, in the case of Indenture Trustee, not in its
individual capacity but solely as Indenture Trustee under the Indenture, and
except as otherwise expressly provided in this Agreement or in the Lease, the
Indenture or the Trust Agreement, neither Trust Company nor Indenture Trustee
shall be personally liable for or on account of its statements, representations,
warranties, covenants or obligations under this Agreement; provided, however,
-------- -------
that each of Trust Company and Indenture Trustee accepts the benefits running to
it under this Agreement, and each agrees that (except as otherwise expressly
provided in this Agreement or any other Operative Agreement to which it is a
party) it shall be liable in its individual capacity for (a) its own gross
negligence or willful misconduct (whether in its capacity as trustee or in its
individual capacity), (b) any breach of representations and warranties or any
breach of covenants made in its individual capacity pursuant to or in connection
with this Agreement or the other Operative Agreements to which it is a party,
(c) any breach, in the case of the Owner Trustee, of its covenants contained in
Sections 4.01 and 6.03 of the Indenture, (d) the failure to use ordinary care in
receiving, handling and disbursing funds, (e) in the case of the Owner Trustee,
Lessor's Liens attributable to it in its individual capacity, (f) in the case of
the Indenture Trustee, Indenture Trustee's Liens, and (g) taxes, fees or other
charges on, or based on, or measured by, any fees, commissions or compensation
received by it in connection with the transactions contemplated by the Operative
Agreements.
Section 15.06. Severability. Any provision of this Agreement which
------------
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 15.07. Certain Limitations on Reorganization. The Indenture
-------------------------------------
Trustee, the Loan Participant and each Noteholder each agrees that, if (i) the
Owner Trustee becomes or all or any part of the Lessor's Estate or the trust
created by the Trust Agreement becomes the property of, a debtor subject to the
reorganization provisions of the Bankruptcy Code or any other applicable
bankruptcy or insolvency statutes, (ii) pursuant to any such reorganization
provisions, the Owner Participant is held to have recourse liability to the
Indenture Trustee, any Noteholder, the debtor, the Owner Trustee or the trustee
of the debtor directly or indirectly on account of any amount payable as Make-
Whole Amount, principal or interest on the Equipment Notes, or any other amount
payable on any Equipment Note that is provided in the Operative Agreements to be
nonrecourse to the Owner Participant and (iii) any Noteholder or the Indenture
Trustee actually receives any Recourse Amount which reflects any payment by the
Owner Participant on account of (ii) above, then such Noteholder or the
Indenture Trustee, as the case may be, shall promptly refund to the Owner
Participant such Recourse Amount. For purposes of this Section 15.07, "Recourse
Amount" means the amount by which the portion of such payment by the Owner
Participant on account of clause (ii) above received by such Noteholder or the
Indenture Trustee exceeds the amount which would have been received by such
Noteholder or the Indenture Trustee if the Owner Participant had not become
subject to the recourse liability referred to in (ii) above. Nothing contained
in this Section shall
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prevent the Loan Participant, any Noteholder or the Indenture Trustee from
enforcing any individual obligation (and retaining the proceeds thereof) of the
Owner Participant under this Agreement or, any other Operative Agreement to the
extent herein or therein provided, for which the Owner Participant has expressly
agreed by the terms of this Agreement to accept individual responsibility.
Section 15.08. GOVERNING LAW. (a) THIS AGREEMENT IS BEING DELIVERED
-------------
IN THE STATE OF NEW YORK, AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS.
(b) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY (OTHER THAN
THE LOAN PARTICIPANT) HERETO IRREVOCABLY AGREES, ACCEPTS AND SUBMITS ITSELF TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE
CITY AND COUNTY OF NEW YORK AND OF THE UNITED STATES FOR THE SOUTHERN DISTRICT
OF NEW YORK, IN CONNECTION WITH ANY LEGAL ACTION, SUIT OR PROCEEDING WITH
RESPECT TO ANY MATTER RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT.
(c) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
(OTHER THAN THE LOAN PARTICIPANT) HEREBY IRREVOCABLY CONSENTS AND AGREES THAT
THE SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS OF ANY
OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE
BY MAILING COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT
THE ADDRESS SET FORTH PURSUANT TO SECTION 12.01. EACH PARTY HERETO (OTHER THAN
THE LOAN PARTICIPANT) AGREES THAT SERVICE UPON IT, OR ANY OF ITS AGENTS, IN EACH
CASE IN ACCORDANCE WITH THIS SECTION 15.08(c), SHALL CONSTITUTE VALID AND
EFFECTIVE PERSONAL SERVICE UPON SUCH PARTY, AND EACH PARTY HERETO (OTHER THAN
THE LOAN PARTICIPANT) HEREBY AGREES THAT THE FAILURE OF ANY OF ITS AGENTS TO
GIVE ANY NOTICE OF SUCH SERVICE TO ANY SUCH PARTY SHALL NOT IMPAIR OR AFFECT IN
ANY WAY THE VALIDITY OF SUCH SERVICE ON SUCH PARTY OR ANY JUDGMENT RENDERED IN
ANY ACTION OR PROCEEDING BASED THEREON.
(d) EACH PARTY HERETO (OTHER THAN THE LOAN PARTICIPANT) HEREBY
IRREVOCABLY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO
ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR
PROCEEDING BROUGHT HEREUNDER IN ANY OF THE ABOVE-NAMED COURTS, THAT SUCH ACTION
OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT VENUE FOR THE ACTION OR
PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT
MAY NOT BE ENFORCED IN OR BY SUCH COURTS.
68
<PAGE>
(e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF OR RELATING
TO THIS AGREEMENT.
Section 15.09. Section 1110 Compliance. The parties hereto agree
-----------------------
that the transactions contemplated by the Operative Agreements are expressly
intended to be, shall be, and should be construed so as to be entitled to the
benefits and protection of Section 1110.
Section 15.10. Payment in Dollars.
------------------
(a) If, for the purposes of obtaining judgment in, or enforcing the
judgment of, any court, it is necessary for any Person to convert a sum due
hereunder or under any other Operative Agreement in Dollars into another
currency (the "Judgment Currency"), the rate of exchange used shall be that at
-----------------
which in accordance with normal banking procedures such Person could purchase
Dollars with the Judgment Currency on the Business Day preceding that on which
final judgment is given or the order of enforcement made.
(b) The obligation of the Lessee in respect of any sum due from it to
any Person hereunder or under any other Operative Agreement shall,
notwithstanding any judgment or order of enforcement in such Judgment Currency,
be discharged only to the extent that on the Business Day following that on
which final judgment is given or the order of enforcement made, such Person may
in accordance with normal banking procedures purchase Dollars with the Judgment
Currency; if the Dollars so purchased are less than the sum originally due to
such Person in Dollars, the Lessee agrees, as a separate obligation and
notwithstanding any such judgment or order of enforcement, to indemnify such
Person against such loss attributable to any of its obligations hereunder or
under any other Operative Agreement, and if the Dollars so purchased exceed the
sum originally due from the Lessee, in Dollars, such Person shall remit to the
Lessee such excess. Any additional amount due from the Lessee under this
Section 15.10 will be due as a separate debt and shall not be affected by
judgment or order of enforcement being obtained for any other sums due under or
in respect of this Agreement or any other Operative Agreement.
Section 15.11. Year 2000 Compliance Survey. The Owner Participant
---------------------------
hereby acknowledges that, notwithstanding anything herein or in any of the other
Operative Agreements to the contrary, nothing contained in the Year 2000
Compliance Survey provided (or to be provided) to the Owner Participant by the
Lessee shall be construed as a representation, warranty or covenant (or in the
case of any failure to provide the same to the Owner Participant, shall not be
construed as a breach of any covenant) on the part of the Lessee for the purpose
of this Agreement or any of the other Operative Agreements, or (without in any
way limiting any obligations of the Lessee otherwise expressly provided for in
any Operative Agreement) impose any obligation on the Lessee in respect of the
matters discussed therein or constitute or be deemed to constitute a waiver of
any obligations of the Lessee under the Operative Agreements.
Section 15.12. Like-Kind Exchange. Notwithstanding anything to the
------------------
contrary contained herein or in any other Operative Agreement, on or prior to
the Delivery Date, upon notice
69
<PAGE>
to the Seller, each of the Owner Trustee's and Owner Participant's rights (but
not any of their respective obligations other than the obligation to pay Owner
Participant's Commitment for the Aircraft) under this Agreement to acquire the
Aircraft shall be freely assignable in connection with a like-kind exchange
under Section 1031 of the Code, provided that on or prior to the Delivery Date
the Owner Trustee and the Owner Participant shall have reacquired all such
rights which have been so assigned.
* * *
70
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Participation
Agreement to be executed by their respective, duly authorized officers as of the
day and year first written above.
MIDWAY AIRLINES CORPORATION,
as Lessee
By: /s/ Jonathan S. Waller
----------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
POLARIS HOLDING COMPANY,
as Owner Participant
By: /s/ Norman Liu
--------------
Name: Norman Liu
Title: Executive Vice President
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual
capacity, except as otherwise expressly
provided herein but solely as Owner
Trustee
By: /s/ Stephen J. Kaba
-------------------
Name: Stephen J. Kaba
Title: Vice President
CANADIAN REGIONAL AIRCRAFT FINANCE
TRANSACTION NO. 1 LIMITED, as Loan
Participant
By: /s/ Timothy R. Myers
--------------------
Name: Timothy R. Myers
Title: Director
ALLFIRST BANK, as Indenture Trustee
By: /s/ Robert D. Brown
-------------------
Name: Robert D. Brown
Title: Vice President
71
<PAGE>
Schedule I
Commitments
Participants Amount of Commitment
- ------------ --------------------
Polaris Holding Company 23.59229991% of Lessor's Cost
Canadian Regional Aircraft Finance 76.40770009% of Lessor's Cost
Transaction No. 1 Limited
<PAGE>
Schedule II
Loan Participant
Canadian Regional Aircraft Finance Transaction No. 1 Limited ("CRAFT")
- ----------------------------------------------------------------------
Wire Transfer Instructions:
wire transfer of immediately available funds to Fleet Bank N.A., New York, 1185
Avenue of the Americas, New York, New York ABA no. 021-200-339, NATCO Collection
Account 9403499580, or as otherwise specified by CRAFT.
Owner Participant
Polaris Holding Company ("Owner Participant")
- ---------------------------------------------
Wire Transfer Instructions:
wire transfer of immediately available funds to Bankers Trust Company, New York,
New York, ABA no. 021001033 for the account of GECC T&I Depository Account,
Account No. 50-255-888, Reference: Midway N583ML, or as otherwise specified by
the Owner Participant.
<PAGE>
APPENDIX A
DEFINITIONS [N583ML]
GENERAL PROVISIONS
The following terms shall have the following meanings for all purposes
of the Operative Agreements (as defined below), unless otherwise defined in an
Operative Agreement or the context thereof shall otherwise require. In the case
of any conflict between the provisions of this Appendix and the provisions of
any Operative Agreement, the provisions of such Operative Agreement shall
control the construction of such Operative Agreement.
Unless the context otherwise requires, (i) references to agreements
shall be deemed to mean such agreements as amended and supplemented from time to
time, and any agreement, instrument or document entered into in substitution or
replacement therefor, and (ii) references to parties to agreements shall be
deemed to include the successors and permitted assigns of such parties.
"Additional Insureds" means the Owner Trustee (in its individual and
-------------------
trust capacities), the Owner Participant, the Indenture Trustee (in its
individual and trust capacities) and each of the Noteholders and each of the
respective successors and permitted assigns and respective directors, officers
and employees of the foregoing.
"Aeronautical Authority" means as of any time of determination, the
----------------------
FAA or other governmental airworthiness authority having jurisdiction over the
Aircraft or the Airframe and Engines or engines attached thereto under the laws
of the country in which the Airframe is then registered.
"Affiliate" means, with respect to any Person, any other Person
---------
directly or indirectly controlling 50% or more of any class of voting securities
of such Person or otherwise controlling, controlled by or under common control
with such Person. For the purposes of this definition, "control" (including
"controlled by" and "under common control with") shall mean the power, directly
or indirectly, to direct or cause the direction of the management and policies
of such Person whether through the ownership of voting securities or by contract
or otherwise.
"After Tax Basis" means a basis such that any payment to be received
---------------
or accrued or deemed to be received by a Person shall be supplemented by a
further payment or payments to such Person so that the sum of such payments,
after deduction of the net amount of all Taxes (taking into account any related
credits or deductions) actually payable to any taxing authority resulting from
the actual or constructive receipt or accrual of such payments, shall be equal
to the payment to be received.
"Aircraft" means the Airframe together with the two Engines, whether
--------
or not any of the Engines may at the time of determination be installed on the
Airframe or installed on any other airframe or on any other aircraft.
<PAGE>
"Airframe" means (i) the Canadair Regional Jet Model CL-600-2B19
--------
Series 200ER aircraft (excluding the Engines and any other engines which may
from time to time be installed thereon, but including any and all Parts which
may from time to time be incorporated in, installed on or attached to such
aircraft, and including any and all such Parts removed therefrom so long as
title to such removed Parts remains vested in the Lessor under the terms of
Section 7 of the Lease) originally delivered and leased under the Lease,
identified by national registration number and manufacturer's serial number in
the Lease Supplement executed and delivered on the Delivery Date, so long as a
Replacement Airframe shall not have been substituted therefor pursuant to
Section 8 of the Lease, and (ii) a Replacement Airframe, so long as another
Replacement Airframe shall not have been substituted therefor pursuant to
Section 8 of the Lease.
"Allfirst" means Allfirst Bank, a Maryland state-chartered commercial
--------
bank, and its successors and permitted assigns.
"Applicable Law" means all applicable laws, statutes, treaties, rules,
--------------
codes, ordinances, regulations, certificates, orders, interpretations, licenses
and permits of any Governmental Authority of competent jurisdiction and
judgments, decrees, injunctions, writs, orders or like action of any court,
arbitrator or other administrative, judicial or quasi-judicial tribunal or
agency of competent jurisdiction.
"Applicable Rate" has the meaning specified in Exhibit B to the
---------------
Lease.
"Average Life Date" means, for any Equipment Note, the date which
-----------------
follows the prepayment date by a period equal to the Remaining Weighted Average
Life of such Equipment Note.
"Bankruptcy Code" means Title 11 of the United States Code, as
---------------
amended, and any successor thereto.
"Basic Rent" means the rent payable on Basic Rent Payment Dates
----------
throughout the Basic Term for the Aircraft pursuant to Section 3(b) of the Lease
and rent payable during any Renewal Term pursuant to Section 13(a) of the Lease.
"Basic Rent Payment Date" means each date listed under the heading
-----------------------
"Basic Rent Payment Date" in Exhibit C to the Lease.
"Basic Term" means the period commencing at the beginning of the day
----------
on the Delivery Date and ending at end of the day on the Expiration Date, or
such earlier date on which the Lease shall be terminated as provided therein.
"Beneficial Interest" means the interest of the Owner Participant
-------------------
under the Trust Agreement.
"Bills of Sale" means the FAA Bill of Sale and the Warranty Bill of
-------------
Sale.
<PAGE>
"Business Day" means any day other than a Saturday or Sunday or other
------------
day on which commercial banks are authorized or required by law to close in New
York City, Morrisville, North Carolina (or in the event the Lessee changes the
location of its chief executive offices to a location other than Morrisville,
North Carolina such other location), Baltimore, Maryland (or in the event the
Indenture Trustee administers its corporate business in a location other than
Baltimore, Maryland such other location), and after the Lien of the Indenture is
discharged, Wilmington, Delaware.
"Citizen of the United States" means a citizen of the United States as
----------------------------
defined in (S)40102(a)(15) of the Transportation Code, or any analogous part of
any successor or substituted legislation or regulation at the time in effect.
"Code" means the United States Federal Internal Revenue Code of 1986,
----
as amended from time to time, or any similar legislation of the United States
enacted to supersede, amend, or supplement such Code (and any reference to a
provision of the Code shall refer to any successor provision(s), however
designated).
"Commitment" of a Loan Participant shall have the meaning given such
----------
term in Section 2.01(d) of the Participation Agreement; "Commitment" of the
----------
Owner Participant shall have the meaning given such term in Section 2.01(c) of
the Participation Agreement.
"CRAF Program" has the meaning specified in Section 5(b)(vii) of the
------------
Lease.
"Designated Maturity" means, with respect to any determination of a
-------------------
Treasury Rate, the maturity of the United States Treasury Notes designated
pursuant to the definition of "Make-Whole Amount" as being those to be used in
the calculation of such Treasury Rate.
"Default" means any event or condition which, with the lapse of time
-------
or the giving of notice, or both, would constitute an Event of Default.
"Deficiency Agreement" has the meaning given to such term in the
--------------------
recitals of the Participation Agreement.
"Deficiency Obligor" has the meaning given to such term in the
------------------
recitals of the Participation Agreement.
"Delivery Date" means the date on which the Aircraft is delivered and
-------------
sold to the Lessor and leased by the Lessor to the Lessee under the Lease, which
date shall be the date of the initial Lease Supplement.
"Dollars", "Dollar" and "$" means the lawful currency of the United
------- ------ -
States of America.
<PAGE>
"DOT" means the United States Department of Transportation and any
---
agency or instrumentality of the United States Government succeeding to its
functions.
"EBO Date" has the meaning given to such term in Exhibit B to the
--------
Lease.
"EBO Amount" has the meaning given to such term in Exhibit B to the
----------
Lease.
"Engine" means (A) each of the two General Electric CF34-3B1 Series
------
200 engines originally delivered and leased under the Lease, identified by
manufacturer's serial number in the Lease Supplement executed and delivered on
the Delivery Date, so long as a Replacement Engine shall not have been
substituted therefor pursuant to Section 7(e) of the Lease, and (B) a
Replacement Engine, so long as another Replacement Engine shall not have been
substituted therefor pursuant to Section 7(e) of the Lease, whether or not such
engine or Replacement Engine, as the case may be, is from time to time installed
on the Airframe or installed on any other aircraft, and including in each case
all Parts incorporated or installed in or attached thereto and any and all Parts
removed therefrom so long as title to such Parts remains vested in the Lessor
under the terms of Section 7 of the Lease. The term "Engines" means, as of any
-------
date of determination, the two engines each of which is an Engine on that date.
"Engine Manufacturer" means General Electric Company, a New York
-------------------
corporation, and its successors and permitted assigns.
"Engine Manufacturer's Consent" means the Engine Manufacturer's
-----------------------------
Consent and Agreement [N583ML], dated as of August 10, 1999, from the Engine
Manufacturer.
"Engine Warranty Assignment" means the Engine Warranty Assignment
--------------------------
[N583ML], dated as of August 10, 1999, between Lessee and Owner Trustee.
"Equipment Notes" means the Equipment Notes issued by the Owner
---------------
Trustee pursuant to the Indenture and any equipment note issued in exchange
therefor or replacement thereof pursuant to the Indenture, each substantially in
the form set forth in Exhibit B to the Indenture.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
-----
any regulations and rulings issued thereunder all as amended and in effect from
time to time.
"ERISA Plan" means, individually or collectively, an employee benefit
----------
plan, as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA
or any applicable regulation thereunder or a plan or individual retirement
account which is subject to Section 4975(c) of the Code;
"Event of Default" has the meaning given to such term in Section 16
----------------
of the Lease.
"Event of Loss" means any of the following events with respect to the
-------------
Aircraft, the Airframe or any Engine:
<PAGE>
(i) any theft, hijacking or disappearance of such property for a
period of 30 consecutive days (provided that, so long as Lessee shall be
diligently pursuing recovery of such property, such period shall be
extended to 60 consecutive days) or more or, if earlier for a period that
extends until the end of the Term;
(ii) destruction, damage beyond economic repair or rendition of such
property permanently unfit for normal use for any reason whatsoever;
(iii) any event which results in an insurance settlement with respect to
such property on the basis of an actual, constructive or compromised total
loss;
(iv) with respect to the Airframe only, requisition of use of such
property by any foreign government or purported government or any agency or
instrumentality thereof (other than the Government), for a period in excess
of 180 consecutive days (for countries listed in Exhibit E to the Lease) or
30 consecutive days (for any other country) or such shorter period ending
on the expiration of the Term;
(v) with respect to the Airframe only, requisition of use of such
property by the Government for a period extending beyond the Term;
(vi) condemnation, confiscation or seizure of, or requisition of title
of such property by any foreign government or purported government or any
agency or instrumentality thereof or by the Government, for a period in
excess of 10 consecutive days or such shorter period ending on the
expiration of the Term;
(vii) as a result of any law, rule, regulation, order or other action by
the Aeronautical Authority, the use of the Aircraft for the transportation
of passengers or Airframe in the normal course of air transportation shall
have been prohibited by virtue of a condition affecting all Canadair
Regional Jet Series 200ER aircraft equipped with engines of the same make
and model as the Engines for a period of 180 consecutive days (or beyond
the end of the Term), unless the Lessee, prior to the expiration of such
180-day period, shall be diligently carrying forward all necessary and
desirable steps to permit normal use of the Aircraft and shall within 12
months have conformed at least one Canadair Regional Jet Series 200ER
aircraft (but not necessarily the Aircraft) to the requirements of any such
law, rule, regulation, order or action, and shall be diligently pursuing
conformance of the Aircraft in a non-discriminatory manner provided that,
notwithstanding the foregoing, if such normal use of such property subject
to the Lease shall be prohibited at the end of the Term, an Event of Loss
shall be deemed to have occurred; and
(viii) with respect to an Engine only, the requisition or taking of
use thereof by any government, or instrumentality or agency thereof and any
divestiture of title or ownership deemed to be an Event of Loss with
respect to an Engine under Section 5(b)(iii) or 5(b)(vi) of the Lease.
<PAGE>
The date of such Event of Loss shall be (aa) the 31st day following loss of such
property or its use due to theft or disappearance or the 61st day following such
loss if such period shall have been extended (or the end of the Term if
earlier); (bb) the date of any destruction, damage beyond economic repair or
rendition of such property permanently unfit for normal use; (cc) the date of
any insurance settlement on the basis of an actual, constructive or compromised
total loss; (dd) the 181st day (for countries listed in Exhibit E to the Lease)
or 31st day (for any other country) following requisition of use of such
property by a foreign government or other Governmental Authority referred to in
clause (iv) above, or the end of the Term if earlier than such 181st or 31st
day; (ee) the 11th day following condemnation, confiscation or seizure of, or
requisition of title of such property by a foreign government or other
Governmental Authority referred to in clause (vi) above or the Government or the
end of the Term if earlier than such 11th day; (ff) the last day of the Term in
the case of requisition of use of such property by the Government; and (gg) the
last day of the applicable period referred to in clause (vii) above (or if
earlier, the end of the Term). An Event of Loss with respect to the Aircraft
shall be deemed to have occurred if any Event of Loss occurs with respect to the
Airframe.
"Excluded Payments" means collectively, (i) indemnity, expense,
-----------------
reimbursement or other payments (including without limitation, Transaction
Costs) paid or payable by the Lessee in respect of the Owner Participant, the
Owner Trustee in its individual capacity or any of their respective successors,
permitted assigns, directors, officers, employees, servants and agents or
Affiliates (other than the Owner Trustee in its trust capacity), pursuant to the
Participation Agreement or any other Operative Agreement or any indemnity
hereafter granted to the Owner Participant or the Owner Trustee in its
individual capacity pursuant to the Lease or the Participation Agreement, (ii)
proceeds of public liability insurance (or government indemnities in lieu
thereof) in respect of the Aircraft payable as a result of insurance claims paid
for the benefit of, or losses suffered by, the Owner Trustee in its individual
capacity or by the Owner Participant, or their respective successors, permitted
assigns or Affiliates, (iii) proceeds of insurance maintained with respect to
the Aircraft by the Owner Participant or any Affiliate thereof (whether directly
or through the Owner Trustee) in accordance with Section 9(f) of the Lease, (iv)
payments by the Lessee in respect of any amounts payable under the Tax Indemnity
Agreement, (v) any purchase price paid to the Owner Participant for its interest
in the Trust Estate, (vi) any amounts paid or payable pursuant to the Deficiency
Agreement or the Residual Agreement, (vii) any payments in respect of interest
to the extent attributable to payments referred to in clauses (i) through (vi)
above, and (viii) any right to demand, collect or otherwise receive and enforce
the payment of any amount described in clauses (i) through (vii) above.
"Expenses" has the meaning given to such term in Section 7.01(a) of the
--------
Participation Agreement.
"Expiration Date" means the date specified as such in the Lease Supplement
---------------
executed and delivered on the Delivery Date.
"FAA Bill of Sale" means (A) the bill of sale for the Airframe on AC Form
----------------
8050-2, or such other form as may be approved by the Aeronautical Authority,
executed by the Seller in favor of the Owner Trustee and to be dated the
Delivery Date, and (B) a bill of sale for a Replacement Airframe on
<PAGE>
AC Form 8050-2, or such other form as may be approved by the Aeronautical
Authority, executed by the seller thereof in favor of the Owner Trustee.
"Fair Market Rental Value" or "Fair Market Sales Value" of the Airframe or
------------------------ -----------------------
any Engine shall mean the value that would be obtained in an arms'-length
transaction between an informed and willing lessee-user or buyer-user (other
than a lessee currently in possession or a used equipment dealer) under no
compulsion to lease or buy, as the case may be, and an informed and willing
lessor or seller, as the case may be, under no compulsion to lease or sell, as
the same shall be specified by agreement between the Lessor and the Lessee or,
if not agreed to by the Lessor and the Lessee within a period of 15 days after
either party requests a determination, then as specified in an appraisal
prepared and delivered in New York City mutually agreed to by two recognized
independent aircraft appraisers, one of which shall be appointed by the Lessor
and the other of which shall be appointed by the Lessee, or, if such appraisers
cannot agree on such appraisal, an appraisal arrived at by a third independent
recognized appraiser chosen by the mutual consent of the two aircraft
appraisers. If either party should fail to appoint an appraiser within 15 days
of receiving notice of the appointment of an appraiser by the other party, then
such appraisal shall be made by the appraiser appointed by the first party. If
the two appraisers cannot agree on such appraisal and fail to appoint a third
independent recognized aircraft appraiser within 15 days after the appointment
of the second appraiser, then either party may apply to the American Arbitration
Association to make such appointment. The appraisal shall be completed within
30 days of the appointment of the last appraiser appointed. In determining Fair
Market Rental Value or Fair Market Sales Value by appraisal or otherwise, it
will be assumed that the Aircraft, Airframe or Engine is in the condition,
location and overhaul status in which it is required to be returned to the
Lessor pursuant to Section 12 of the Lease and that the Lessee has removed all
Parts which it is entitled to remove pursuant to Section 7 of the Lease and that
the Aircraft is not encumbered by the Lease. Except as otherwise expressly
provided in the Lease, all appraisal costs will be shared equally by the Lessor
and the Lessee; provided that if the Lessee elects not to renew the Lease or
--------
purchase the Aircraft following the conclusion of such appraisal, the Lessee
shall pay all appraisal costs. Notwithstanding the foregoing, for purposes of
Section 17 of the Lease, the "Fair Market Rental Value" or "Fair Market Sales
Value" of the Aircraft, the Airframe or any Engine, shall be determined on an
"as is, where is" basis and shall take into account customary brokerage and
other out-of-pocket fees and expenses which typically would be incurred in
connection with a re-lease or sale of the Aircraft, the Airframe or any Engine.
Any such determination pursuant to Section 17 of the Lease shall be made by a
recognized independent aircraft appraiser selected by Lessor and the costs and
expenses associated therewith shall be borne by Lessee, unless Lessor does not
obtain possession of the Aircraft, Airframe and Engines pursuant to Section 17
of the Lease, in which case an appraiser shall not be appointed and Fair Market
Rental Value and Fair Market Sales Value for purposes of Section 17 of the Lease
shall be zero.
"Fair Market Value Renewal Term" has the meaning given to such term in
------------------------------
Section 13(a) of the Lease.
<PAGE>
"Federal Aviation Administration" or "FAA" means the United States Federal
------------------------------- ---
Aviation Administration, the Administrator thereof and any agency or
instrumentality of the United States government succeeding to their functions.
"Fixed Renewal Term" has the meaning given to such term in Section 13(a) of
------------------
the Lease.
"Government" means the United States of America or an agency or
----------
instrumentality thereof the obligations of which bear the full faith and credit
of the United States of America.
"Governmental Authority" means (a) any federal, state, county, provincial,
----------------------
municipal, foreign, international, regional or other governmental or regulatory
authority, agency, department, board, body, instrumentality, commission, court
or any political subdivision of any of the foregoing, and (b) each person who
shall, from time to time, be vested with the control and supervision of, or have
jurisdiction over, the registration, airworthiness, operation or other matters
relating to aviation including any competent airport authority, air traffic
control or navigation authority (including European Organization for the Safety
of Air Navigation (Eurocontrol) and the Federal Aviation Administration of the
United States of America or any person acting on its behalf).
"Indemnitee" means each of Trust Company, in its individual capacity and as
----------
Owner Trustee, the Owner Participant, the Indenture Trustee, in its individual
capacity and as trustee, the Loan Participant, each of the other Noteholders,
and each of their respective successors, transferees or assigns permitted under
the terms of the Operative Agreement, and each Affiliate, officer, director,
employee, agent, representative, servant and corporate shareholder of any of the
foregoing Persons.
"Indenture" means the Trust Indenture and Security Agreement [N583ML],
---------
dated as of August 10, 1999, between the Owner Trustee and the Indenture
Trustee.
"Indenture Default" means any event or condition which, with the lapse of
-----------------
time or the giving of notice, or both, would constitute an Indenture Event of
Default.
"Indenture Documents" has the meaning specified in the Granting Clause of
-------------------
the Indenture.
"Indenture Estate" means all estate, right, title and interest of the
----------------
Indenture Trustee in and to any of the property, rights, interest, and
privileges granted to the Indenture Trustee pursuant to the Granting Clause of
the Indenture, other than Excluded Payments and any and all other rights of the
Owner Trustee or the Owner Participant expressly reserved to the Owner Trustee
or the Owner Participant pursuant to the Indenture.
"Indenture Event of Default" means each of the events specified in Section
--------------------------
4.02 of the Indenture.
"Indenture Supplement" means (a) the Trust Indenture and Security Agreement
--------------------
Supplement No. 1, substantially in the form of Exhibit A to the Indenture, which
shall describe with particularity
<PAGE>
the Aircraft included in the property of the Owner Trustee covered by the
Indenture by reference to the Lease Supplement, and which creates a first
priority purchase money equipment security interest in the Aircraft and (b) any
other supplement to the Indenture from time to time executed and delivered in
accordance with the Indenture.
"Indenture Trustee" means Allfirst Bank, a Maryland state-chartered
-----------------
commercial bank, as indenture trustee under the Operative Agreements on behalf
of the Noteholders, and its successors and permitted assigns.
"Indenture Trustee's Liens" means any Lien against, on or with respect to
-------------------------
the Aircraft, any Engine, the Lessor's Estate or the Indenture Estate or any
part thereof resulting from (i) claims against the Indenture Trustee or any
Affiliate thereof not related to the administration of the Indenture Estate or
any transactions contemplated by the Operative Agreements, (ii) any act or
omission of the Indenture Trustee or any Affiliate thereof which is not related
to the transactions contemplated by the Operative Agreements or is in violation
of any of the terms of the Operative Agreements, or (iii) Taxes imposed against
the Indenture Trustee or any Affiliate thereof in its individual capacity in
respect of which the Lessee has not indemnified (and is not obligated to
indemnify) the Indenture Trustee or any Affiliate thereof in such capacity.
"Lease" means the Lease Agreement [N583ML], dated as of August 10, 1999
-----
between the Lessor and the Lessee.
"Lease Supplement" means any Lease Supplement, substantially in the form of
----------------
Exhibit A to the Lease, entered into between the Lessor and the Lessee for the
purpose of leasing the Aircraft under and pursuant to the terms of the Lease,
including any amendment thereto entered into subsequent to the Delivery Date.
"Lessee" means Midway Airlines Corporation, a Delaware corporation, and its
------
successors and permitted assigns.
"Lessee Documents" means the Operative Agreements to which the Lessee is a
----------------
party.
"Lessor" means First Union Trust Company, National Association, a national
------
banking association, not in its individual capacity but solely as Owner Trustee
under the Trust Agreement, and its successors and permitted assigns.
"Lessor's Cost" has the meaning given to such term in Exhibit B of the
-------------
Lease.
"Lessor's Estate" means all estate, right, title and interest of the Owner
---------------
Trustee in and to the Aircraft, and Engines and the Operative Agreements (other
than the Tax Indemnity Agreement) including, without limitation, all amounts of
Rent, insurance proceeds and requisition, indemnity or other payments of any
kind, but specifically excluding any Excluded Payments.
<PAGE>
"Lessor's Liens" means Liens against, on or with respect to the Aircraft,
--------------
any Engine, the Lessor's Estate or the Indenture Estate or any part thereof,
title thereto or any interest therein arising as a result of (i) claims against
or affecting the Trust Company or the Owner Participant, in each case not
related to the Operative Agreements or the transactions contemplated thereby,
(ii) acts or omissions of the Trust Company or of the Owner Participant not
contemplated or permitted under the terms of the Operative Agreements, (iii)
Taxes or Expenses imposed against the Trust Company, Owner Participant, Lessor's
Estate or the trust created by the Trust Agreement which are not required to be
indemnified against by the Lessee pursuant to Articles 6 or 7 of the
Participation Agreement (other than due to the exclusions contained in Section
6.01(b)(x) or 7.01(b)(vii)) and which are not required to be indemnified against
by the Lessee pursuant to the Tax Indemnity Agreement, or (iv) claims against
the Trust Company or the Owner Participant arising from the transfer by the
Lessor or the Owner Participant of its interests in the Aircraft or any Engine
other than a transfer of the Aircraft or any other portion of the Lessor's
Estate pursuant to Section 5(b), 7(b), 7(c), 7(d), 7(e), 8, 12(b), 13(b), 14(a)
or 17 of the Lease and other than a transfer pursuant to the exercise of the
remedies set forth in Section 17 of the Lease or any other transfer required by
the Operative Agreements.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
exercise of rights, security interest, claim, including any right of ownership
or other similar interest of any nature whatsoever.
"Loan Participant" means and includes each registered holder from time to
----------------
time of an Equipment Note issued under the Indenture including, so long as it
holds any Equipment Note issued under the Indenture, Canadian Regional Aircraft
Finance Transaction No. 1 Limited, a Jersey, Channel Islands company, and its
successors and permitted assigns.
"Majority in Interest of Noteholders" means, as of a particular date of
-----------------------------------
determination, the Noteholders of more than 66 2/3% of the aggregate unpaid
principal amount of all Equipment Notes Outstanding as of such date (excluding
any Equipment Notes owned or held by Owner Trustee, Lessee or the Owner
Participant or any Affiliate of any such party or any interests of Owner Trustee
or the Owner Participant therein by reason of subrogation pursuant to Section
2.12 of the Indenture (unless all Equipment Notes Outstanding shall be held by
Owner Trustee, Lessee, the Owner Participant or any Affiliate thereof)).
"Make-Whole Amount" means, with respect to the prepayment or repayment of
-----------------
any Equipment Note, an amount equal to the excess, if any, of (i) the present
value, as of the date of the relevant prepayment or repayment of such Equipment
Note, of the respective installments of principal of and interest on such
Equipment Note that, but for such prepayment or repayment, would have been
payable on each Payment Date after such prepayment or repayment over (ii) the
principal amount of such Equipment Note then being prepaid or repaid. Such
present value shall be determined by discounting the amounts of such
installments from their respective Payment Dates to the date of such prepayment
or repayment at a rate equal to the Treasury Rate determined on the basis of a
Designated Maturity equal to the then Remaining Weighted Average Life of such
Equipment Note plus 0.5% (or in the case of any prepayment of such Equipment
Note made within six months after the holder of such
<PAGE>
Equipment Note has made demand for the payment of any Increased Cost or of any
amount pursuant to Article 6 of the Participation Agreement in respect of
withholding Taxes, the Treasury Rate determined on the basis of a Designated
Maturity equal to the then Remaining Weighted Average Life of such Equipment
Note plus 1.00%). Each holder of an Equipment Note will furnish to the Lessee
and the Indenture Trustee a certificate setting forth the calculation and amount
of the Make-Whole Amount with respect to its Equipment Note, which account shall
be conclusive absent manifest error.
"Manufacturer" means Bombardier Inc., a Canadian corporation, and its
------------
successors and permitted assigns.
"Material Adverse Change" means, with respect to any Person, any event,
-----------------------
condition or circumstance that materially and adversely affects such Person's
business or consolidated financial condition or its ability to perform its
obligations under the Operative Agreements.
"Minimum Liability Amount" has the meaning given to such term in Exhibit B
------------------------
to the Lease.
"Net Economic Return" means the Owner Participant's nominal after-tax book
-------------------
yield (utilizing the multiple investment sinking fund method of analysis),
aggregate net after-tax cash and periodic FASB 13 earnings (plus or minus 5%),
computed on the basis of the same methodology, constraints and assumptions as
were utilized by the initial Owner Participant in determining Basic Rent
percentages and Termination Value percentages as of the Delivery Date; provided,
--------
that, if the initial Owner Participant shall have transferred its interest, Net
Economic Return shall be calculated as if the initial Owner Participant had
retained its interest; provided, further, that, notwithstanding the preceding
-------- -------
proviso, solely for purposes of Article 13 of the Participation Agreement and
calculating any adjustments to Basic Rent percentages and Termination Values
percentages in connection with a refinancing pursuant to such Article 13 at a
time when the Owner Participant is a transferee (other than an Affiliate of the
initial Owner Participant), the after-tax yield (but not the after-tax cash)
component of Net Economic Return shall be calculated on the basis of the
methodology and assumptions utilized by the transferee Owner Participant as of
the date on which it acquired its interest.
"Non-U.S. Person" means any Person other than a U.S. Person.
---------------
"Noteholder" means and includes the Loan Participant and each subsequent
----------
registered holder from time to time of an Equipment Note issued under the
Indenture for so long as the Loan Participant or such subsequent holder shall
hold such Equipment Note.
"Noteholder Tax Indemnitee" means each Noteholder and all Affiliates,
-------------------------
directors, officers, agents, representatives, servants and corporate
shareholders thereof.
"Officer's Certificate" means as to any company a certificate signed by a
---------------------
Responsible Officer of such company.
<PAGE>
"Operative Agreements" means the Participation Agreement, the Trust
--------------------
Agreement, the Deficiency Agreement, the Residual Agreement, the Return
Condition Agreement, the FAA Bill of Sale, the Warranty Bill of Sale, the
Purchase Agreement, the Purchase Agreement Assignment, the Engine Warranty
Assignment, the PAA Consent, the Engine Manufacturer's Consent, the Lease, each
Lease Supplement, any Owner Participant Guaranty, the Equipment Notes
outstanding at the time of reference, the Indenture, each Indenture Supplement
and the Tax Indemnity Agreement.
"Opinion of Counsel" means when delivered pursuant to the Indenture, a
------------------
written opinion of legal counsel, who in the case of counsel (a) for the Lessee
may be (i) an attorney employed by the Lessee who is generally empowered to
deliver such written opinions, (ii) Fulbright & Jaworski L.L.P., or (iii) other
counsel designated by the Lessee and reasonably satisfactory to the Indenture
Trustee, and (b) for the Owner Trustee or the Indenture Trustee, an attorney
selected by such Person and reasonably satisfactory to the Lessee and, in the
case of the Owner Trustee, reasonably satisfactory to the Indenture Trustee.
"Outstanding" means, when used with respect to Equipment Notes, as of the
-----------
date of determination, all Equipment Notes theretofore executed and delivered
under the Indenture, with the exception of the following:
a) Equipment Notes theretofore canceled by the Indenture Trustee or
delivered to the Indenture Trustee for cancellation pursuant to the
Indenture or otherwise;
b) Equipment Notes for which prepayment money in the necessary amount
has been theretofore deposited with the Indenture Trustee in trust for
the holders of such Equipment Notes pursuant to Section 9.01 of the
Indenture; provided that if such Equipment Notes are to be prepaid,
-------- ----
notice of such prepayment has been duly given pursuant to the
Indenture or provision therefor satisfactory to the Indenture Trustee
has been made; and
c) Equipment Notes in exchange for or in lieu of which other
Equipment Notes have been executed and delivered pursuant to Article
II of the Indenture.
"Owner Participant" means Polaris Holding Company, a Delaware corporation,
-----------------
and its successors and permitted transferees and assigns.
"Owner Participant Guarantor" means the provider of an Owner Participant
---------------------------
Guaranty.
"Owner Participant Guaranty" means any guaranty delivered or to be
--------------------------
delivered to support the obligations of the Owner Participant under the
Operative Agreements in connection with the transfer by the Owner Participant of
the Beneficial Interest.
<PAGE>
"Owner Trustee" means the Trust Company, not in its individual capacity
-------------
except as otherwise expressly stated, but solely as trustee under the Trust
Agreement, and its successors and permitted assigns.
"PAA Consent" means the Aircraft Manufacturer's Consent and Agreement
-----------
[N583ML], dated as of August 10, 1999, from the Manufacturer.
"Participants" means, collectively, the Owner Participant and the Loan
------------
Participant; "Participant" means, individually, one of the Participants.
-----------
"Participation Agreement" means the Participation Agreement [N583ML], dated
-----------------------
as of August 10, 1999, among the Lessee, the Owner Trustee not in its individual
capacity except as otherwise expressly provided therein, but solely as owner
trustee, the Owner Participant, the Indenture Trustee and the Loan Participant.
"Parts" means any and all appliances, parts, instruments, components,
-----
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature (other than complete Engines or engines and temporary replacement parts
as provided in Section 8 of the Lease and cargo containers) which may from time
to time be incorporated or installed in or attached to any Airframe or any
Engine or which have been removed therefrom so long as title to such removed
Parts remains vested in Lessor under the terms of Section 7 of the Lease,
exclusive of any items leased by the Lessee from third parties and not required
to be installed on the Aircraft in accordance with the Lease or otherwise
required in the navigation or operation of the Aircraft.
"Past Due Rate" means a rate per annum equal to 2% plus the Applicable Rate
-------------
or, if the Equipment Notes have been paid in full, a rate per annum equal to the
TV Rate identified in Exhibit B to the Lease.
"Payment Date" means each June 1 and December 1 through and including June
------------
1, 2015, commencing on December 1, 1999.
"Permitted Air Carrier" means (a) any Section 1110 Person and (b) any
---------------------
foreign air carrier that is principally based in any foreign country listed on
Exhibit E to the Lease except those that do not maintain normal diplomatic
relations with the United States and, with respect to both clause (a) and (b) of
this definition, which shall not then be subject to a proceeding or final order
under applicable bankruptcy, insolvency or reorganization laws.
"Permitted Investments" means (a) direct obligations of the United States
---------------------
of America or any agency or instrumentality thereof, (b) obligations fully
guaranteed by the United States of America or any agency or instrumentality
thereof, (c) any mutual fund the portfolio of which is limited to obligations of
the type described in clauses (a) and (b), including any proprietary mutual fund
of Allfirst Bank for which such bank or an affiliate is investment advisor or to
which such bank provides other services to such mutual fund and receives
reasonable compensation for such services,
<PAGE>
(d) certificates of deposit issued by, or bankers' acceptances of, or time
deposits or a deposit account with, any bank, trust company, or national banking
association incorporated or doing business under the laws of the United States
of America or one of the states thereof, having a combined capital and surplus
of at least $100,000,000 and having a short-term debt rating of "A1" by Standard
& Poor's or "P1" by Moody's Investors Service, Inc. (or, if neither such
organization shall provide such ratings at any time, a rating equal to the
highest ratings assigned by any nationally recognized rating organization in the
United States of America) and having a final maturity of one year or less from
date of purchase thereof; (e) commercial paper issued by companies in the United
States which directly issue their own commercial paper and which are doing
business under the laws of the United States of America or one of the states
thereof and in each case having a rating assigned to such commercial paper by a
nationally recognized rating organization in the United States of America equal
to the highest short-term debt rating assigned by such organization, or (f)
obligations of the type described in clauses (a) or (b) above, purchased from
any bank, trust company, or banking association referred to in clause (d) above
pursuant to repurchase agreements obligating such bank, trust company, or
banking association to repurchase any such obligation not later than 30 days
after the purchase of any such obligation. Unless otherwise specified in writing
by the Indenture Trustee (or after the Lien of the Indenture has been
discharged, the Owner Trustee), all such Permitted Investments shall mature not
later than 30 days from the date of purchase. If any of the above investments
are unavailable, the entire amount to be invested may be used to purchase
Federal Funds overnight from an entity described in (d) above.
"Permitted Lien" has the meaning given to such term in Section 10 of the
--------------
Lease.
"Permitted Sublessee" means (a) any Permitted Air Carrier, (b) any airframe
-------------------
or engine manufacturer, or Affiliate of such a manufacturer, who is domiciled in
the United States of America or a country listed on Exhibit E to the Lease or
(c) the United States of America or any instrumentality or agency thereof.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, entity or government (federal, state, local, foreign
or any agency, instrumentality, division or body thereof) or other entity of
whatever nature.
"Purchase Agreement" means Bombardier Regional Aircraft Division Purchase
------------------
Agreement No. PA-0393 dated September 17, 1997, as amended, between the Lessee
and the Manufacturer (including all exhibits thereto, together with all letter
agreements entered into that by their terms constitute part of such Purchase
Agreement).
"Purchase Agreement Assignment" means the Purchase Agreement Assignment
-----------------------------
[N583ML], dated as of August 10, 1999, between Lessee and Owner Trustee.
"Purchase Price" means an amount equal to Lessor's Cost.
--------------
<PAGE>
"Reasonable Basis" means that a realistic possibility of success, within
----------------
the meaning of ABA Formal Opinion No. 85-352, exists for pursuing such contest.
"Recovery Period" means "Tax Attribute Period" as defined in the Tax
---------------
Indemnity Agreement.
"Refinancing" has the meaning given to such term in Section 13.01 of the
-----------
Participation Agreement.
"Register" has the meaning given to such term in Section 2.07 of the
--------
Indenture.
"Registrar" has the meaning given to such term in Section 2.07 of the
---------
Indenture.
"Regulation D" means Regulation D of the Board of Governors of the Federal
------------
Reserve System (or any successor), as the same may be modified and supplemented
and in effect from time to time.
"Related Tax Indemnitee" means any Affiliate of any Tax Indemnitee.
----------------------
"Remaining Weighted Average Life" means on a given date with respect to any
-------------------------------
Equipment Note the number of days equal to the quotient obtained by dividing (i)
the sum of each of the products obtained by multiplying (a) the amount of each
then remaining scheduled payment of principal of such Equipment Note by (b) the
number of days from and including such date to but excluding the dates on which
each such payment of principal is scheduled to be made; by (ii) the then
outstanding principal amount of such Equipment Note.
"Renewal Term" has the meaning given to such term in Section 13(a) of the
------------
Lease.
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"Rent Payment Date" means each Payment Date during the Term.
-----------------
"Replacement Aircraft" means any Aircraft of which a Replacement Airframe
--------------------
is part.
"Replacement Airframe" means a Canadair Regional Jet Series 200ER series
--------------------
aircraft or a comparable or improved model of such aircraft of the Manufacturer
(except Engines or engines from time to time installed thereon) which shall have
become subject to the Lease pursuant to Section 8 thereof.
"Replacement Closing Date" has the meaning given such term in Section 8(d)
------------------------
of the Lease.
"Replacement Engine" means a General Electric CF34-3B1 Series 200 engine
------------------
(or engine of the same manufacturer of a comparable or an improved model and
suitable for installation and use on the Airframe), which has a value, utility
and remaining useful life at least equal to, and which is in good operating
condition as, the Engine to be replaced thereby (assuming that such Engine being
replaced
<PAGE>
was in the condition required to be maintained in accordance with the Lease),
and which shall have become subject to the Lease pursuant to Section 7(e)
thereof; provided that, such engine shall be compatible with the other Engine,
and shall be an engine of a type then being utilized by the Lessee on other
Canadair Regional Jet Series 200 aircraft operated by the Lessee.
"Residual Agreement" has the meaning given to such term in the recitals of
------------------
the Participation Agreement.
"Responsible Officer" means, with respect to the Owner Trustee or the
-------------------
Indenture Trustee, any officer in its Corporate Trust Administration, as the
case may be, designated by such Person to perform obligations under the
Operative Agreements, and with respect to any other party, any corporate officer
of a party who, in the normal performance of his or her operational
responsibilities, with respect to the subject matter of any covenant, agreement
or obligation of such party pursuant to any Operative Agreement, would have
responsibility for and knowledge of such matter and the requirements of any
Operative Agreement with respect thereto.
"Return Condition Agreement" means the Return Condition Agreement [N583ML],
--------------------------
dated as of August 10, 1999, between the Manufacturer and the Lessee.
"SEC" means the Securities and Exchange Commission of the United States and
---
any successor agencies or authorities.
"Section 1110" means 11 U.S.C. (S) 1110 or any successor or analogous
------------
section of the federal bankruptcy law in effect from time to time.
"Section 1110 Person" means a Citizen of the United States who is an air
-------------------
carrier holding a valid air carrier operating certificate issued pursuant to 49
U.S.C. ch. 447 for aircraft capable of carrying 10 or more individuals.
"Secured Obligations" has the meaning specified in the Granting Clause of
-------------------
the Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller" has the meaning given to such term in Exhibit B to the Lease.
------
"Security Trustee" means NatWest Aerospace Trust Company Limited, as
----------------
Security Trustee under the Deed of Charge, Assignment and Priorities dated April
20, 1998, among, inter alia, the initial Loan Participant, as at any time
amended, modified, novated or replaced by any corresponding agreement or
agreements (the "Deed of Charge"), or any other person acting as Security
Trustee under the Deed of Charge as from time to time designated in writing to
the Lessee.
<PAGE>
"Specified Default" means (a) an event or condition described in Section
-----------------
16(a), (b), (f), (g), (h), (k) or (l) of the Lease that, after the giving of
notice or lapse of time, or both, would become an Event of Default, or (b) any
Event of Default.
"Specified Indenture Default" means (a) any Specified Default, or (b) any
---------------------------
Indenture Default arising under Sections 4.02(b), 4.02(c), 4.02(h) or 4.02(i) of
the Indenture.
"Specified Lease" means, at any time of determination, any lease under
---------------
which an aircraft is leased to the Lessee, if the Owner Participant or an
Affiliate of the Owner Participant, or a trustee for the benefit of the Owner
Participant or an Affiliate of the Owner Participant, shall be the lessor under
such lease.
"Sublease" means any sublease agreement between the Lessee and a Permitted
--------
Sublessee as permitted by Section 5(b) of the Lease.
"Supplemental Rent" means (a) all amounts, liabilities, indemnities and
-----------------
obligations which the Lessee assumes or agrees to perform or pay under the Lease
or under the Participation Agreement or Tax Indemnity Agreement or any other
Operative Agreement to the Lessor, the Owner Participant, the Indenture Trustee,
any Noteholder or others, including payments of Termination Value, EBO Amount,
and amounts calculated by reference to Termination Value, any amounts of Make-
Whole Amount payable under the Indenture to the extent provided in Section 3(c)
or Section 14 of the Lease, all other amounts payable under Section 3(c) of the
Lease, and all amounts required to be paid by Lessee under the agreements,
covenants, and indemnities contained in the Lease or in the Participation
Agreement or the Tax Indemnity Agreement or any other Operative Agreement, but
excluding Basic Rent, and (b) all amounts that the Owner Trustee is obligated to
pay in accordance with Section 2.14 of the Indenture.
"Tax" or "Taxes" has the meaning set forth in Section 6.01(a) of the
--- -----
Participation Agreement.
"Tax Indemnitee" means each Indemnitee.
--------------
"Tax Indemnity Agreement" means the Tax Indemnity Agreement [N583ML], dated
-----------------------
as of August 10, 1999 between the Lessee and the Owner Participant.
"Term" has the meaning given to such term in Section 3(a) of the Lease.
----
"Termination Date" means each date listed in the column entitled
----------------
"Termination Date" in Exhibit D to the Lease or, during a Renewal Term or
otherwise during any period following the last day of the Term, the second day
of each month.
"Termination Value" means (a) as of any Termination Date during the Basic
-----------------
Term, the amount determined as set forth in Exhibit D to the Lease for that
Termination Date, and (b) during any Renewal Term, the amount for the date
involved, determined in accordance with Section 13(a) of the Lease, in either
case adjusted as required by Section 3(d) of the Lease.
<PAGE>
"Transaction Costs" means those costs and expenses set forth in Section
-----------------
8.01(a) of the Participation Agreement.
"Transportation Code" means Title 49 of the United States Code, subtitle
-------------------
VII, as amended and in effect on the date of the Lease or as subsequently
amended, or any successor or substituted legislation at the time in effect and
applicable, and the regulations promulgated pursuant thereto.
"Treasury Rate" means for any Designated Maturity, the average yield to
-------------
maturity of, and resulting from the bidding for, the most recently auctioned
United States Treasury Notes with maturities equal to such Designated Maturity
on the date three Business Days prior to the relevant calculation of Make-Whole
Amount; and if United States Treasury Notes with such a maturity are not then
auctioned and publicly traded, the weighted average yield to maturity of United
States Treasury Notes with maturities next above and below such Designated
Maturity (calculated as provided below); such yields in each case to be
determined by averaging (and rounding upward to the nearest whole multiple of
1/1000 of 1% per annum, if the average is not such a multiple) the yields of the
relevant United States Treasury Notes (rounded, if necessary, to the nearest
1/1000 of 1% with any figure of 1/2000 of 1% or above rounded upward) as
displayed on the applicable Telerate screen (page 7677), or if such screen is
not available, as quoted by two reputable dealers in United Stated Treasury
Notes selected by a Majority in Interest of Noteholders, in either case, at
approximately 11:00 a.m. New York time on the date, and notified to the Lessee,
the Indenture Trustee and the Noteholders; any weighted average yield of United
States Treasury Notes with two maturities is to be calculated in accordance with
the following formula:
(Y2-Y1)(DM-X1)
--------------
WAY=Y1+ (X2-X1)
Where:
WAY = Weighted Average Yield
DM = relevant Designated Maturity
X1 = whole integer in years closest to and less than DM which equals
the maturity of a United States Treasury Note then publicly
traded.
X2 = whole integer in years closest to and greater than DM which
equals the maturity of a United States Treasury Note then
publicly traded.
Y1 = yield, determined as provided above, of United States Treasury
Notes then most recently auctioned with maturities equal to X1.
Y2 = yield, determined as provided above, of United States Treasury
Notes then most recently auctioned with maturities equal to X2.
<PAGE>
"Trust Agreement" means the Trust Agreement [N583ML], dated as of August
---------------
10, 1999, between the Owner Participant and the Trust Company.
"Trust Company" means First Union Trust Company, National Association, a
-------------
national banking association, and its successors and permitted assigns.
"Trust Estate" means the Lessor's Estate.
------------
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
-------------------
"Uniform Commercial Code" means the Uniform Commercial Code as in effect
-----------------------
from time to time in any relevant jurisdiction.
"United States", "U.S." or "US" means the United States of America.
------------- ---- --
"U.S. Person" means a Person described in (S) 7701(a)(30) of the Code.
-----------
"Warranty Bill of Sale" means (A) the full warranty bill of sale covering
---------------------
the Aircraft (and specifically referring to each Engine) executed by the Seller
in favor of the Owner Trustee and to be dated the Delivery Date, and (B) a full
warranty bill of sale covering a Replacement Aircraft (and specifically
referring to each Engine) executed by the seller thereof in favor of the Owner
Trustee.
<PAGE>
Exhibit A-1 to
Participation Agreement
[Lessee's General Counsel's Opinion]
__________________, 1999
To Each of the Parties Named
on the Attached Schedule
Re: Leveraged Lease Financing of One Canadair Regional
Jet Series 200ER Aircraft Bearing U.S. Registration No. N583ML
--------------------------------------------------------------
Ladies and Gentlemen:
I am General Counsel for Midway Airlines Corporation, a Delaware
corporation (the "Lessee"), and have acted as counsel for the Lessee in
connection with the transactions contemplated by the Participation Agreement
[N583ML] dated as of August 10, 1999, between the Lessee; Polaris Holding
Company, as Owner Participant; First Union Trust Company, National Association,
as Owner Trustee; Canadian Regional Aircraft Finance Transaction No. 1 Limited,
as Loan Participant; and Allfirst Bank, as Indenture Trustee.
This opinion is being delivered pursuant to Section 3.01(b)(xix)(A)(I) of
the Participation Agreement. Capitalized terms not defined herein are used as
defined in the Participation Agreement.
In connection with the opinions expressed below, I, or counsel under my
supervision in the office of the General Counsel of the Lessee, have examined
the Participation Agreement, the Purchase Agreement Assignment, the Lease, the
Lease Supplement covering the Aircraft, the Engine Warranty Assignment, the
Residual Agreement, the Return Condition Agreement, the Deficiency Agreement and
the Tax Indemnity Agreement (the "Lessee's Agreements"). In addition I have
reviewed the Indenture and the other Operative Agreements. In arriving at the
opinions expressed below, I have assumed (except as to the Lessee) the
genuineness of all signatures and the due authorization, execution and delivery
by the parties thereto of the Lessee's Agreements and that each such party has
full power and authority to perform its obligations thereunder. I have examined
and relied without independent verification on the representations and
warranties by parties other than the Lessee as to factual matters contained in
or made pursuant to the Lessee's Agreements. In addition, I have examined
originals or copies certified to my satisfaction, of such other agreements,
<PAGE>
documents, certificates and statements of government officials and other papers
as I have deemed necessary or advisable as a basis for such opinions.
Based upon the foregoing, I am of the opinion that:
1. The Lessee is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware and has the corporate
power and authority to own or hold under lease its properties and conduct its
business as presently conducted and to enter into and perform its obligations
under the Lessee's Agreements. The Lessee is an "air carrier" within the
meaning of the Transportation Code and a holder of a certificate under Section
41102(a) of the Transportation Code and a "citizen of the United States" within
the meaning of Section 40102(a)(15) of the Transportation Code holding an "air
carrier operating certificate" issued under Chapter 447 of the Transportation
Code for aircraft capable of carrying ten or more individuals or 6,000 pounds or
more of cargo, and each such certificate is in full force and effect. The
Lessee is duly qualified to do business as a foreign corporation and in good
standing in each jurisdiction where the activities of the Lessee require such
qualification except where the failure to so qualify would not have a material
adverse effect on the Lessee or the ability of the Lessee to perform its
obligations under the Lessee's Agreements. The Lessee's chief executive office
(as such term is defined in the Uniform Commercial Code as in effect in the
State of North Carolina) is at 2801 Slater Road, Morrisville, North Carolina
27560.
2. The execution, delivery and performance by the Lessee of the Lessee's
Agreements do not require the approval or consent of, or the giving of notice
to, any trustee, stockholders or holders of any indebtedness or obligations of
the Lessee (except for such consents or approvals as have been obtained on or
prior to the Delivery Date), and neither the execution and delivery by the
Lessee thereof nor the performance by the Lessee of the transactions
contemplated thereby nor compliance by the Lessee with any of the terms and
provisions thereof will contravene any applicable law of the State of Delaware
or the United States of America applicable to or binding upon the Lessee (other
than the securities or Blue Sky laws of the various states, as to which I
express no opinion), or any of its properties, or contravene or result in any
breach of, or constitute any default under or result in the creation of any Lien
(other than as permitted under the Operative Agreements) upon any property of
the Lessee under any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract bank loan or credit agreement, corporate charter, by-
law or other agreement, or instrument to which the Lessee is a party or by which
the Lessee or any of its property may be bound or affected (except for such
conflicts, breaches or defaults or liens, charges or encumbrances, that, singly
or in the aggregate, would not have material adverse effect on the Lessee's
ability to perform its obligations under the Lessee's Agreements).
3. The execution, delivery and performance of the Lessee's Agreements
have been duly authorized by all necessary corporate action on the part of the
Lessee, and the Lessee's Agreements have been duly executed and delivered by the
Lessee.
4. There are no pending or, to our knowledge, threatened actions, suits,
or proceedings before any court or administrative agency or arbitration against
the Lessee or involving the Lessee
<PAGE>
that question the validity of any of the Lessee's Agreements or that is required
to have been disclosed in the Lessee's Annual Report on Form 10-K filed for the
year ended December 31, 1998, or any subsequent Quarterly Report on Form 10-Q or
Current Report on Form 8-K, except such as are therein disclosed.
No opinion is expressed herein as to state securities laws or other laws
other than the General Corporation Law of the State of Delaware and the federal
laws of the United States.
This opinion is furnished by me as counsel to the Lessee to you as parties
to the Participation Agreement and is solely for your benefit.
Very truly yours,
<PAGE>
Schedule of Addressees
----------------------
Polaris Holding Company
First Union Trust Company, National Association,
individually and as Owner Trustee
Canadian Regional Aircraft Finance Transaction No. 1 Limited
Allfirst Bank,
as Indenture Trustee
<PAGE>
Exhibit A-2 to
Participation Agreement
[F&J Leased Aircraft Opinion]
____________________, 1999
To Each of the Parties Listed
on the Attached Schedule
Re: Lease Financing of One Canadair Regional Jet
Series 200ER Aircraft -- U.S. Registration No. N583ML
-----------------------------------------------------
Ladies and Gentlemen:
We have acted as special New York counsel for Midway Airlines Corporation,
a Delaware corporation (the "Lessee"), in connection with the Participation
Agreement [N583ML] dated as of August 10, 1999, among the Lessee; Polaris
Holding Company, as Owner Participant; First Union Trust Company, National
Association ("FUTC"), as Owner Trustee; Canadian Regional Aircraft Finance
Transaction No. 1 Limited, as Loan Participant; and Allfirst Bank, as Indenture
Trustee. Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth or referred to in the Participation Agreement. For
purposes hereof, "Documents" shall be a collective reference to the
Participation Agreement, the Lease, Lease Supplement No. 1, Purchase Agreement
Assignment, the Engine Warranty Assignment, the Residual Agreement, the Return
Condition Agreement and the Tax Indemnity Agreement.
This opinion is furnished to you pursuant to Section 3.01(b)(xix)(A)(II) of
the Participation Agreement.
In rendering this opinion, we have examined the Documents and such other
Operative Agreements as are necessary in order to give the opinions expressed
herein. We have further examined and relied upon the accuracy of original,
certified, conformed, photographic or telecopied copies of such records,
agreements, certificates, certificates of public officials and such other
documents, and have made an investigation of such laws, as we have deemed
necessary and appropriate for the purpose of rendering this opinion. As to
certain questions of fact material to our opinions, we have relied solely upon
the accuracy of the statements, representations and warranties made in the
Documents and such other Operative Agreements and we have made no independent
investigation or inquiry with respect to such factual matters.
<PAGE>
Based on the foregoing and upon an examination of such questions of law as
we have considered necessary or appropriate, and subject to the assumptions,
exceptions, qualifications and limitations set forth below, we advise you that
in our opinion:
1. Each of the Documents constitutes a legal, valid and binding
obligation of the Lessee, enforceable against the Lessee in accordance with its
terms.
2. The execution and delivery by the Lessee of the Documents, the
consummation by the Lessee of the transactions contemplated thereby and the
compliance by the Lessee with any of the terms and provisions thereof do not
contravene any applicable federal law of the United States or any applicable law
of New York.
3. Except for the filings with the FAA referred to in paragraph 4 below,
the execution and delivery by the Lessee of the Documents and the consummation
by the Lessee of the transactions contemplated thereby do not require the
consent or approval of, or the giving of notice to, or the registration,
recording or filing of any document with, or the taking of any other action with
respect to any authority or agency of the federal government of the United
States of America or the State of New York.
4. The Lease as supplemented by Lease Supplement No. 1 thereto and the
Indenture as supplemented by Indenture Supplement No. 1 thereto are in due form
for filing in accordance with Subtitle VII of Title 49 of the United States Code
(the "Act"). The Indenture as supplemented by Indenture Supplement No. 1
thereto will create, for the benefit of the Indenture Trustee, a valid security
interest in the Indenture Estate identified therein. Except for the filings
with the FAA referred to in the opinion dated today and addressed to you of
Crowe & Dunlevy, the filing of the Uniform Commercial Code financing statements
referenced in Section 3.01(m) and (n) of the Participation Agreement, which
filings we assume have been duly effected and are adequate for their intended
purpose (and subject to the timely filings in the future of continuation
statements with respect to such financing statements), and the taking of
possession by the Indenture Trustee of the original of the Lease and Lease
Supplement No. 1, each with a chattel paper receipt attached, no recording or
filing in the United States of America of any of the Operative Agreements, nor
any other action, is necessary or advisable in order to establish and perfect in
the United States of America, the Owner Trustee's rights and interest in the
applicable Aircraft as against the Lessee or any third party, or the mortgage
and security interest of the Indenture Trustee under the Indenture on the
Aircraft, the Lease or the other property included in the Indenture Estate in
favor of the Indenture Trustee as against the Lessee, the Owner Trustee or any
third party.
5. The Participation Agreement, the Lease, the Lease Supplement No. 1,
the Indenture, the Indenture Supplement No. 1 and the Equipment Notes (the
"Owner Trustee Instruments") constitute legal, valid and binding obligations of
FUTC, to the extent any of such Owner Trustee Instruments were entered into by
FUTC in its individual capacity, and the Owner Trustee, or both, as the case may
be, enforceable against FUTC or the Owner Trustee, or both, as the case may be,
in
<PAGE>
accordance with the terms of such agreements, and the holders of the Equipment
Notes are entitled to the benefits of the Indenture.
6. The Participation Agreement and the Indenture (the "Indenture Trustee
Documents") constitute legal, valid and binding obligations of the Indenture
Trustee, enforceable against the Indenture Trustee in accordance with their
respective terms.
7. So long as the Lessee continues to be a "citizen of the United
States," as defined in Section 40102 of Title 49 of the United States Code,
holding an air carrier operating certificate issued by the Secretary of
Transportation pursuant to Chapter 447 of Title 49 of the United States Code for
aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of
cargo, the Owner Trustee, as lessor under the Lease, and the Indenture Trustee,
as assignee of the Owner Trustee's rights under the Lease pursuant to the
Indenture, would be entitled to the benefits of Section 1110 of the Bankruptcy
Code ("Section 1110") with respect to the Aircraft.
The foregoing opinions are subject to the following assumptions,
exceptions, qualifications and limitations:
A. The foregoing opinions are expressly limited to matters under and
governed by the internal laws of the State of New York and applicable federal
laws of the United States of America, except that we express no opinion as to
the securities law of any state, including the State of New York. Our opinion
in paragraph 2 above as to the contravention of certain laws, rules and
regulations is based upon such examination of laws and regulations as in our
judgment was necessary and appropriate for the purpose of such opinion.
B. The foregoing opinions regarding the enforceability of the Operative
Agreements against any of the parties thereto are subject to the following:
(i) The enforceability of any of the Operative Agreements may be
limited or affected by (a) bankruptcy, insolvency, reorganization,
moratorium, liquidation, rearrangement, probate, conservatorship,
fraudulent transfer, fraudulent conveyance and other similar laws
(including court decisions) now or hereafter in effect and affecting
the rights and remedies of creditors generally or providing for the
relief of debtors, (b) the refusal of a particular court to grant (1)
equitable remedies, including, without limiting the generality of the
foregoing, specific performance and injunctive relief or (2) a
particular remedy sought by the Owner Trustee under the Lease or by
the Indenture Trustee under the Indenture as opposed to another remedy
provided for therein or another remedy available at law or in equity,
but which does not in our opinion make such remedies inadequate for
the practical realization of the benefits intended to be provided
thereby, (c) general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and (d) the
refusal of a federal court to grant jurisdiction in connection with
any suit commenced relating to the Operative Agreements.
<PAGE>
(ii) In rendering the foregoing opinions, we express no opinion as to
the enforceability of provisions of any of the Operative Agreements
(a) purporting to waive or affect rights, claims, defenses or other
benefits bestowed by law, including without limitation the right to
receive notices, to the extent that any of the same cannot be waived
or affected or (b) relating to indemnities to the extent prohibited by
public policy or limited by federal or state securities laws or which
might require indemnification for losses or expenses caused by gross
negligence, willful misconduct, fraud or illegality of an indemnified
party, or the exercise of rights and remedies with respect to the
Aircraft other than in a commercially reasonable manner or as
otherwise provided in the Uniform Commercial Code or other applicable
law.
(iii) We note that the enforceability of specific provisions of the
Operative Agreements may be subject to standards of reasonableness,
care and diligence and "good faith" limitations and obligations such
as those provided in Sections 1-102(3) and 1-203, of the Uniform
Commercial Code and similar applicable principles of common law and
judicial decisions.
(iv) We express no opinion with respect to compliance with the anti-
fraud provisions of applicable federal rules or regulations.
C. With respect to the opinion given in paragraph 4 above as to the
creation of a security interest in the Indenture Estate, we express no opinion
as to the creation of any security interest in any portion of the Indenture
Estate other than (I) that portion of the Indenture Estate consisting of the
Aircraft, (II) that portion of the Indenture Estate (except for the Aircraft)
which is not excluded by Section 9-104 of the Uniform Commercial Code of any
relevant jurisdiction and (III) if possession or control and dominion or both by
the Indenture Trustee is required or necessary, such portion of the Indenture
Estate as has been deposited with the Indenture Trustee pursuant to the
Indenture, or which possession or control and dominion or both, has otherwise
effectively occurred.
D. The foregoing opinions, to the extent they address the creation and
perfection of a security interest in any portion of the Indenture Estate are
further subject to the following: we have made no examination of, and we
express no opinion as to, (a) the title of any person to the Indenture Estate or
any portion thereof, (b) the value of any security granted to the Indenture
Trustee and (c) the priority of any such security interest.
E. We have assumed the due authorization, execution and delivery of the
Operative Agreements by each of the parties thereto (including the Lessee) and
that each of such parties has the full power, authority and legal right to
execute, deliver and perform such documents.
F. Except to the extent expressly set forth in paragraphs 1, 5 and 6, we
have assumed that each of the Operative Agreements is enforceable against each
of the parties thereto.
<PAGE>
G. With respect to the opinion given in paragraph 5, our opinion is
subject to limitations of Delaware law applicable to FUTC and the Owner Trustee,
as to which we express no opinion.
H. With respect to the opinion given in paragraph 6, our opinion is
subject to limitations of Maryland law applicable to Allfirst Bank or the
Indenture Trustee, as the case may be, as to which we express no opinion.
I. We have assumed the genuineness of all signatures, the authenticity of
all documents submitted to us as originals and the conformity to the originals
of all documents submitted to us as copies, which facts we have not verified
independently.
J. We express no opinion as to whether the Lease constitutes a "true
lease."
K. We have assumed that the Operative Agreements and the transactions
contemplated thereby are not within the prohibitions of Section 406 of the
Employee Retirement Income Security Act of 1974.
L. With respect to the opinion given in paragraph 7, we express no
opinion as to the availability of the benefits of Section 1110 of the Bankruptcy
Code to any Replacement Aircraft or Replacement Engine.
M. In giving the foregoing opinion, we have relied upon the opinions
delivered to you today of Crowe & Dunlevy with respect to the matters set forth
therein. Our opinion is subject to all applicable qualifications and exceptions
(except for those set forth in clauses (i) (subject however to paragraph A
above) and (ii) thereof set forth in such opinion).
The opinions expressed herein are solely for the benefit of, and may only
be relied upon by, the named addressees in connection with the transactions
contemplated by the Participation Agreement. This opinion may not be furnished
or relied upon by any other person without the prior written consent of this
Firm. We make no undertaking to amend or supplement such opinions as facts and
circumstances come to our attention or changes in the law occur which could
affect such opinions.
Very truly yours,
<PAGE>
Schedule of Addressees
----------------------
Polaris Holding Company
First Union Trust Company, National Association,
individually and as Owner Trustee
Canadian Regional Aircraft Finance Transaction No. 1 Limited
Allfirst Bank,
as Indenture Trustee
<PAGE>
Exhibit A-3 to
Participation Agreement
August , 1999
To Each of the Parties Listed on the Attached Schedule
Re: Midway Airlines Corporation
Leveraged Lease Financing of
One Canadair Regional Jet Aircraft Series 200ER
Aircraft Bearing
U.S. Registration No. N583ML
-----------------------------------------------
Ladies and Gentlemen:
We have acted as special Maryland counsel to Allfirst Bank, a Maryland
state-chartered commercial bank (in its individual capacity such bank being
referred to herein as "Allfirst" and, when acting not in its individual capacity
but solely as trustee being referred to herein as the "Indenture Trustee"), in
connection with the execution and delivery by the Indenture Trustee of (i) the
Participation Agreement [N583ML], dated as of August 10, 1999, among Midway
Airlines Corporation, as lessee (the "Lessee"), Polaris Holding Company, as
owner participant (the "Owner Participant"), First Union Trust Company, National
Association, not in its individual capacity (except as otherwise expressly set
forth therein) but solely as owner trustee (the "Owner Trustee"), Allfirst Bank,
not in its individual capacity (except as otherwise expressly set forth therein)
but solely as Indenture Trustee, and Canadian Regional Aircraft Finance
Transaction No. 1 Limited, as loan participant (the "Loan Participant"); and
(ii) the Trust Indenture and Security Agreement [N583ML], dated as of August 10,
1999 (the "Indenture"), between the Owner Trustee and the Indenture Trustee.
Except as otherwise defined herein, capitalized terms used herein shall have the
meanings set forth in Appendix A to the Participation Agreement.
As such counsel, we have examined executed counterparts or copies of the
Participation Agreement, the Indenture and the Equipment Note (collectively, the
"Indenture Trustee's Documents") and the other Operative Agreements to be
entered into by the parties in connection therewith, and such certificates of
public officials, such certificates of officers of the Indenture Trustee, and
originals or copies certified to our satisfaction of such corporate and other
documents, records and certificates of
<PAGE>
the Indenture Trustee and have considered such questions of law and fact, as we
have deemed relevant or necessary as a basis for the opinion, hereinafter set
forth.
In such examination, we have assumed with your approval (a) the genuineness
of all signatures (other than that of the Indenture Trustee) on the Indenture
Trustee's Documents, the authenticity of all documents and instruments submitted
to us as originals, and the conformity to the originals of all documents and
instruments submitted to us as copies, which facts we have not independently
verified; (b) the due authorization, execution and delivery by each of the
parties to the Indenture Trustee's Documents (other than the Indenture Trustee)
and that each of such parties has the full power, authority and legal right to
execute, deliver and perform each such document; and (c) each of the Indenture
Trustee's Documents constitutes the legal, valid and binding agreement of the
parties thereto (other than the Indenture Trustee) and is enforceable against
each such party in accordance with the terms thereof.
As to certain facts material to the opinions expressed herein, we have
relied solely upon the accuracy of the statements, representations and
warranties made by the parties in the Operative Agreements, and we have made no
independent investigation or inquiry with respect to such factual matters.
In basing the opinions and other matters set forth herein on "our
knowledge", the words "our knowledge" signify that, in the course of our review
and analysis for the purpose of rendering this opinion, no information has come
to our attention that would give us actual knowledge or actual notice that any
such opinions or other matters are not accurate or that any of the foregoing
documents, records, certificates, statements and information on which we have
relied are not accurate and complete. Except as otherwise stated herein, we
have undertaken no independent investigation or verification of such matters.
The words "our knowledge" and similar language used herein are further intended
to be limited to the knowledge of the lawyers within our firm who have worked on
matters relating to this opinion.
Based upon the foregoing and upon an examination of such questions of law
as we have deemed necessary or appropriate, and subject to the assumptions,
exceptions, qualifications and limitations set forth below, we advise you that
in our opinion:
1. Allfirst is a state-chartered commercial bank duly incorporated and
presently existing under the laws of the State of Maryland and has the
corporate power and authority to enter into and perform its obligations
under the Indenture Trustee's Documents and the Indenture Trustee has the
corporate power and authority to authenticate the Equipment Note to be
delivered to the Loan Participant on the Delivery Date.
2. Each of the Indenture Trustee's Documents has been duly authorized,
executed and delivered by Allfirst or the Indenture Trustee (as the case
may be) and each of the Indenture Trustee's Documents constitutes the
legal, valid and binding obligation of the Indenture Trustee enforceable
against the Indenture Trustee in accordance with its terms.
<PAGE>
3. The Equipment Note to be issued and delivered to the Loan Participant on
the Delivery Date has been duly authenticated and delivered by the
Indenture Trustee pursuant to the terms of the Indenture.
4. Neither the authorization, execution and delivery by Allfirst or the
Indenture Trustee (as the case may be) of the Indenture Trustee's
Documents, nor the authentication and delivery by the Indenture Trustee of
the Equipment Note to be delivered to the Loan Participant on the Delivery
Date nor the fulfillment or compliance by Allfirst or the Indenture Trustee
(as the case may be) with the respective terms and provisions thereof nor
the consummation of any of the transactions contemplated thereby, requires
the consent or approval of, the giving of notice to, the registration with,
or the taking of any other action in respect of, any court or
administrative or governmental authority or agency of the State of Maryland
or the United States of America governing the banking or trust powers of
Allfirst.
5. The execution, delivery and performance by Allfirst or the Indenture
Trustee (as the case may be) of each of the Indenture Trustee's Documents
and the authentication and delivery by the Indenture Trustee of the
Equipment Note to be delivered to the Loan Participant on the Delivery Date
do not and will not contravene the articles of incorporation or bylaws of
Allfirst or, to our knowledge, of any existing law, governmental rule, or
regulation or any judgment or order of the State of Maryland or the United
States of America governing the banking or trust powers of Allfirst or, to
our knowledge but without any independent investigation on our part, of any
indenture, mortgage, contract or other instrument to which Allfirst or the
Indenture Trustee (as the case may be) is a party or by which it or any of
their respective properties may be bound.
6. To our knowledge, there are no actions, suits, investigations or
proceedings pending or threatened against or affecting Allfirst or the
Indenture Trustee (as the case may be) or any of its properties in any
court or before any administrative agency or arbitrator, which, if
adversely determined, could materially adversely affect the ability of
Allfirst or the Indenture Trustee (as the case may be) to perform its
obligations under the Indenture Trustee's Documents, and to our knowledge,
there are no actions or proceedings pending or threatened before any court,
administrative agency or tribunal involving Allfirst or the Indenture
Trustee (as the case may be) in connection with the transactions
contemplated by any of the Indenture Trustee's Documents.
The foregoing opinions are subject to the following assumptions, exceptions
and qualifications and limitations:
A. We are admitted to practice law in the State of Maryland and we do not
hold ourselves out as being experts on the laws of any other jurisdiction.
Accordingly, the foregoing opinions are expressly limited to matters under and
governed by the internal laws of the State of Maryland and applicable federal
laws of the United States of America governing the banking and trust powers of
Allfirst. We express no opinion with respect to (i) ERISA, (ii) federal or
state (including the State of Maryland) laws, rules or regulations relating to
environmental matters or the offering of securities,
<PAGE>
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and the Trust Indenture Act of
1939, as amended, or (iii) the aviation laws of the United States of America
including, without limitation, the Federal Aviation Act of 1958, as amended.
B. Insofar as the foregoing opinions relate to the validity and
enforceability in the State of Maryland of the Indenture Trustee's Documents
expressed to be governed by the laws of the State of New York, we have assumed
that the laws of the State of New York are identical to the laws of the State of
Maryland in all material respects, and the each of the Indenture Trustee's
Documents constitutes legal, valid, binding and enforceable documents or
instruments under such laws (as to which we express no opinion).
C. The foregoing opinions regarding the enforceability of the Indenture
Trustee's Documents against any of the parties thereto are subject to the
following:
(i) The enforceability of any of the Indenture Trustee's Documents
may be limited or affected by (a) bankruptcy, insolvency, reorganization,
moratorium, liquidation, rearrangement, probate, conservatorship, fraudulent
transfers, fraudulent conveyances and other similar laws (including court
decisions) now or hereafter in effect and affecting the rights and remedies of
creditors generally or providing for the relief or debtors, (b) the refusal of a
particular court to grant (1) equitable remedies, including, without limiting
the generality of the foregoing, specific performance and injunctive relief, or
(2) a particular remedy sought by the Indenture Trustee under the Indenture as
opposed to another remedy provided for therein or another remedy available at
law or in equity, but which does not in our opinion make such remedies
inadequate for the practical realization of the benefits intended to be provided
thereby, and (c) general principles of equity (regardless or whether enforcement
is sought in a proceeding in equity or at law).
(ii) In rendering the foregoing opinions, we express no opinion as to
the enforceability of provisions of any of the Indenture Trustee's Documents (a)
purporting to waive or affect rights, claims, defenses or other benefits
bestowed by law, including, without limitation, the right to receive notices, to
the extent that any of the same cannot be waived or affected, or (b) relating to
indemnities to the extent prohibited by public policy or limited by federal or
state securities laws or which might require indemnification for losses or
expenses caused by gross negligence, willful misconduct, fraud or illegality of
an indemnified party, the rights of third parties, or the exercise of rights and
remedies with respect to the Aircraft other than in a commercially reasonable
manner or as otherwise provided in the Uniform Commercial Code or other
applicable law, or (c) imposing liquidated damages, late payment charges or
forfeitures if such amounts are determined to be penalties in light of the
actual amount of damages incurred.
(iii) We note that the enforceability of specific provisions of
the Indenture Trustee's Documents may be subject to standards of reasonableness,
care and diligence and "good faith" limitations and obligations such as those
provided in Sections 1-102(3) and 1-203 of the Uniform Commercial Code and
similar applicable principles of common law and judicial decisions.
<PAGE>
(iv) We express no opinion with respect to compliance with the anti-
fraud provisions of applicable federal or state securities rules or regulations.
D. Except to the extent expressly set forth in Paragraph 2, we have
assumed that each of the Indenture Trustee's Documents is enforceable against
each of the parties thereto.
E. We have assumed that the Participation Agreement and the transactions
contemplated thereby are not within the prohibitions of Section 406 of the
Employee Retirement Income Security Act of 1974, as amended.
F. We do not purport to be experts in respect of, and express no opinion
concerning any of the laws, rules or regulations applicable to, the particular
nature of the Aircraft and other equipment involved in this transaction.
G. We have made no investigation of, and we express no opinion
concerning, the ownership of, or legal or equitable title to, the Aircraft and
other equipment or property involved in this transaction or the creation,
perfection or priority of any security interest granted pursuant to any of the
Operative Agreements.
H. We express no opinion as to the availability of the benefits of
Section 1110 of the Bankruptcy Code to the Aircraft, any Replacement Aircraft or
Replacement Engine.
I. The opinions expressed herein concern only the effect of the laws
(excluding the principles of conflict of laws) of the State of Maryland and the
United States of America as currently in effect. We assume no obligation to
supplement this opinion if any applicable laws change after the date hereof or
if we become aware of any fact that might change the opinions expressed herein
after the date hereof.
J. The opinions expressed in this letter are limited to the matters set
forth in this letter, and no other opinions should be inferred beyond the
matters expressly stated.
This opinion is being delivered pursuant to Section 3.01(b)(xix)(D) of the
Participation Agreement for your sole benefit and may only be relied upon by you
and your successors and permitted assigns in connection with the transactions
contemplated by the Participation Agreement. This opinion may not be furnished
or relied upon by any other person or entity for any purpose without our prior
written consent.
Sincerely yours,
OBER, KALER, GRIMES & SHRIVER,
A Professional Corporation
<PAGE>
Distribution List
-----------------
Polaris Holding Company
Stamford, Connecticut
Canadian Regional Aircraft Finance
Transaction No. 1 Limited
St. Helier
Jersey, Channel Islands
First Union Trust Company, National Association
Wilmington, Delaware
Allfirst Bank
Baltimore, Maryland
Midway Airlines Corporation
Morrisville, North Carolina
<PAGE>
Exhibit A-4 to
Participation Agreement
To Each of the Persons
Listed on Schedule A
Attached Hereto
Re: One Bombardier Inc. CL-600-2BI9 Aircraft Bearing U.S. Registration No.
N583ML and leased to Midway Airlines Corporation
Ladies and Gentlemen:
We have acted as counsel to First Union Trust Company, National
Association (the "Trust Company"), in connection with the Trust Agreement, dated
as of August 10, 1999, (the "Trust Agreement"), by and between the Trust Company
and Polaris Holding Company, as Owner Participant (the "Owner Participant").
Pursuant to the Participation Agreement, dated as of August 10, 1999 (the
"Participation Agreement"), by and among Midway Airlines Corporation, as Lessee
(the "Lessee"), the Owner Participant, Allfirst Bank, as Indenture Trustee,
Canadian Regional Aircraft Finance Transaction No. 1 Limited, as Loan
Participant, and the Trust Company, not in its individual capacity, except as
specifically set forth therein, but solely as Owner Trustee under the Trust
Agreement (the "Owner Trustee"), financing is being provided in connection with
one Bombardier Inc. CL-600-2B19 aircraft bearing U.S. Registration No. N583ML
(the "Aircraft"). This opinion is furnished upon the request of the Owner
Trustee pursuant to Section 3.01(b)(xix)(C) of the Participation Agreement.
Capitalized terms used herein and not otherwise defined are used as defined in
or by reference in the Participation Agreement, except that reference herein to
any instrument shall mean such instrument as in effect on the date hereof.
We have examined forms, counterparts or copies otherwise identified to
our satisfaction of the following documents:
(a) the Participation Agreement;
(b) the Trust Agreement;
(c) the Lease Agreement and Lease Supplement No. 1;
<PAGE>
(d) the Trust Indenture and Security Agreement and Indenture
Supplement No. 1;
(e) the Deficiency Agreement;
(f) the Equipment Note being issued today (the "Equipment Note");
(g) the Engine Warranty Assignment; and
(h) the Purchase Agreement Assignment.
The documents identified in paragraphs (a) through (h) above are
collectively referred to herein as the "Owner Trustee Agreements".
We have also examined originals or copies of such other documents,
such corporate records, certificates and other statements of governmental
officials and corporate officers and other representatives of the corporations
or entities referred to herein and such other instruments as we have deemed
necessary or appropriate for the purposes of this opinion. Moreover, as to
certain facts material to the opinions expressed herein, we have relied upon the
representations and warranties contained in the instruments referred to above.
Based upon the foregoing and upon an examination of such questions of
law as we have considered necessary or appropriate, and subject to the
assumptions, exceptions and qualifications set forth below, we advise you that,
in our opinion:
1. The Trust Company is a national banking association, duly
organized and validly existing in good standing under the laws of the United
States, is a Citizen of the United States, and has the corporate, banking and
trust powers to enter into and perform its obligations under the Trust Agreement
and the Participation Agreement, and the Owner Trustee has the authority under
the Trust Agreement to execute, deliver and perform its obligations under the
Owner Trustee Agreements and to issue, execute, deliver and perform the
Equipment Note.
2. The Trust Agreement and each other Owner Trustee Agreement have
been duly authorized, executed and delivered by the Trust Company or by the
Owner Trustee, as the case may be, and are the legal, valid and binding
obligations of the Trust Company or the Owner Trustee, as the case may be,
enforceable against the Trust Company or the Owner Trustee, as the case may be,
in accordance with their respective terms; and the Trust Agreement is the legal,
valid and binding obligation of the Owner Participant, enforceable against the
Owner Participant in accordance with its terms.
3. The Equipment Note has been duly authorized, issued, executed and
delivered by the Owner Trustee, pursuant to authorization contained in the Trust
Agreement, and constitutes a legal, valid and binding obligation of the Owner
Trustee, enforceable against the Owner Trustee in accordance with its terms and
the terms of the Trust Indenture; and the Equipment Note is entitled to the
benefits and security afforded by the Trust Indenture in accordance with its
terms and the terms of the Trust Indenture.
<PAGE>
4. Neither the execution and delivery by the Trust Company or the
Owner Trustee, as the case may be, of the Owner Trustee Agreements, nor the
issuance, execution and delivery by the Owner Trustee of the Equipment Note, nor
the fulfillment of or compliance by the Trust Company or the Owner Trustee, as
the case may be, with the respective provisions thereof, conflicts with, or
results in a breach of the terms, conditions or provisions of, or constitutes a
default under, or results in a violation of, the charter or by-laws of the Trust
Company, any law, governmental rule or regulation of the State of Delaware or
any federal law, governmental rule or regulation of the United States of America
governing the banking or trust powers of the Trust Company or, to the best of
our knowledge, any agreement, indenture, mortgage, bank credit agreement, note
or bond purchase agreement, instrument, order, judgment or decree to which the
Trust Company, the Owner Trustee or any of their respective properties is
subject.
5. No consent, approval or other action by or any notice to or
filing with any court or administrative or governmental body is required under
the laws of the State of Delaware or the federal laws of United States of
America governing the banking or trust powers of the Trust Company in connection
with the authorization, execution and delivery by the Trust Company or the Owner
Trustee of the Owner Trustee Agreements, the authorization, issuance, execution
and delivery by the Owner Trustee of the Equipment Note, or the fulfillment of
or compliance by the Trust Company or the Owner Trustee with the respective
terms and provisions thereof.
6. The Trust Agreement creates for the benefit of the Owner
Participant the rights and interests in the Trust Estate which the Trust
Agreement by its terms purports to create.
7. There is no fee, tax or other governmental charge under the laws
of the State of Delaware or any political subdivision thereof in existence on
the date hereof on, based on or measured by any payments under the Lease or the
beneficial interests in the Trust Estate, by reason of the creation of the trust
under the Trust Agreement pursuant to the laws of the State of Delaware or the
Owner Trustee's performance of its duties under the Trust Agreement within the
State of Delaware, which would not have been imposed if the Trust Company did
not have its principal place of business and did not perform its obligations
under the Owner Trustee Agreements in the State of Delaware.
8. Assuming that (i) the Aircraft is not used in the State of
Delaware and is not physically located in the State of Delaware at the
commencement or termination of the Term or during such Term, (ii) in connection
with any sale of the Aircraft, such Aircraft will not be physically delivered in
the State of Delaware to a buyer nor be shipped from a point within the State of
Delaware to a buyer, and (iii) the trust created by the Trust Agreement is
treated as a grantor trust for federal income tax purposes within the
contemplation of Sections 671 through 678 of the Internal Revenue Code of 1986,
as amended, there are no fees, taxes, or other charges (except taxes imposed on
fees payable to the Owner Trustee) payable to the State of Delaware or any
political subdivision thereof in connection with the execution, delivery or
performance by the Owner Trustee, the Indenture Trustee, the Loan Participant,
the Lessee or the Owner Participant, as the case may be, of the Owner Trustee
Agreements or in connection with the making by the Owner Participant of its
acquisition of the beneficial interest in the Trust Estate or in connection with
the issuance and acquisition of the Equipment Note, and neither the Owner
Trustee, the Trust Estate nor the trust created by the Trust Agreement will be
subject to any fee, tax or other governmental charge (except taxes on fees
payable to the Owner Trustee) under
<PAGE>
the laws of the State of Delaware or any political subdivision thereof on, based
on or measured by, directly or indirectly, the gross receipts, net income or
value of the Trust Estate solely by reason of the creation or continued
existence of the trust under the terms of the Trust Agreement pursuant to the
laws of the State of Delaware or the Owner Trustee's performance of its duties
under the Trust Agreement.
9. To the best of our knowledge, there are no proceedings pending or
threatened against or affecting the Trust Company or the Owner Trustee in any
court or before any governmental authority, agency or arbitration board or
tribunal which, if adversely determined, individually or in the aggregate, would
materially and adversely affect the right, power and authority of the Trust
Company or the Owner Trustee to enter into or perform its obligations under the
Owner Trustee Agreements and the Equipment Note.
10. Neither a Delaware court nor a Federal court applying federal or
Delaware law, if properly presented with the issue and after having properly
considered such issue, would permit the Owner Participant to terminate the Trust
Agreement, except in accordance with its terms.
11. Creditors of any person that is an Owner Participant, holders of
a lien against the assets of any such person and representatives of creditors of
any such person, such as trustees, receivers or liquidators (whether or not any
insolvency proceeding has been commenced) (collectively, the "Creditors") may
acquire valid claims and liens, as to the Trust Estate, only against the rights
of such Owner Participant under the Trust Agreement or in the Trust Estate, and
do not have, and may not through the enforcement of such Creditors' rights
acquire, any greater rights than such Owner Participant with respect to the
Trust Agreement or the Trust Estate.
The foregoing opinions are subject to the following assumptions,
exceptions and qualifications:
A. The foregoing opinions are limited to the laws of the State of
Delaware and the federal laws of the United States of America governing the
banking and trust powers of the Trust Company, except that the opinion rendered
in paragraph 10 above is limited to the laws of the State of Delaware and Title
11 of the United States Code entitled "Bankruptcy" and the opinion rendered in
paragraph 11 above is limited to the laws of the State of Delaware. In addition,
we express no opinion with respect to (i) federal securities laws, including the
Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as
amended, (ii) the Federal Aviation Act of 1958, as amended (except with respect
to the opinion set forth in paragraph 1 above concerning the citizenship of the
Trust Company), (iii) the Federal Communications Act of 1934, as amended, or
(iv) state securities or blue sky laws. Insofar as the foregoing opinions relate
to the validity and enforceability of the Equipment Note and the Owner Trustee
Agreements expressed to be governed by laws other than the laws of the State of
Delaware, we have assumed that the Equipment Note and such Owner Trustee
Agreements constitute legal, valid, binding and enforceable documents or
instruments under such laws (as to which we express no opinion).
B. The foregoing opinions regarding enforceability of any document
are subject to (i) applicable bankruptcy, insolvency, moratorium,
reorganization, fraudulent transfer, receivership and similar laws affecting the
rights and remedies of creditors generally, and (ii) general principles of
equity
<PAGE>
(regardless of whether such enforceability is considered in a proceeding
in equity or at law). For the avoidance of doubt, the opinions rendered in
paragraphs 10 and 11 above are not subject to the qualifications set forth in
this paragraph B, except to the extent expressly stated in paragraph I hereof.
C. We have assumed the due authorization, execution and delivery by
each of the parties thereto, other than the Trust Company and the Owner Trustee,
of the Owner Trustee Agreements to which each is a party and that each of such
parties has the full power, authority and legal right to execute and deliver
each such document.
D. The opinion set forth in paragraph 1 above concerning the
citizenship of the Trust Company is based upon an affidavit of an officer of the
Trust Company, the facts set forth in which we have not independently verified.
E. We have assumed that all signatures, other than those of the
Trust Company or the Owner Trustee, on documents and instruments submitted to us
as originals are authentic, and that all documents and instruments submitted to
us as copies conform with the originals, which facts we have not independently
verified.
F. We do not purport to be experts in respect of, or express any
opinion concerning, aviation law or other laws, rules or regulations applicable
to the particular nature of the equipment to be acquired by the Owner Trustee.
G. We have assumed that the Owner Trustee Agreements and the
transactions contemplated thereby are not within the prohibitions of Section 406
of the Employee Retirement Income Security Act of 1974.
H. No opinion is expressed as to the nature of the title to any part
of the Trust Estate or the priority of any mortgage or security interest.
I. The opinions set forth in paragraphs 10 and 11 above are subject
to (i) fraudulent transfer laws and avoidance actions (e.g. preference laws),
and (ii) general principles of equity, including, without limitation,
substantive consolidation (regardless of whether considered in a proceeding in
equity or at law) and should be interpreted in accordance with the Special
Report by the TriBar Opinion Committee, Opinions in the Bankruptcy Context:
----------------------------------
Rating Agency, Structured Financing and Chapter 11 Transactions, 46 Bus. Law.
- ---------------------------------------------------------------
717 (1991).
This opinion is rendered solely for your benefit and may not be
furnished or quoted to or relied upon by any other person or entity for any
purpose without our prior written consent.
Very truly yours,
<PAGE>
OWNER TRUSTEE
- -------------
First Union Trust Company, National Association
OWNER PARTICIPANT
- ------------------
Polaris Holding Company
LESSEE
- -------
Midway Airlines Corporation
INDENTURE TRUSTEE
- ------------------
Allfirst Bank
LOAN PARTICIPANT
- ----------------
Canadian Regional Aircraft Finance Transaction No. 1 Limited
<PAGE>
Exhibit A-5 to
Participation Agreement
August __, 1999
To the Addresses on the
Schedule Attached Hereto
- ------------------------
Re: Bombardier Inc. model CL-600-2B19 aircraft with manufacturer's
serial number 7327 and United States nationality and
registration marks N583ML (the "Aircraft")
--------------------------------------------------------------
Ladies and Gentlemen:
This letter confirms that we filed the following described instruments with
the Federal Aviation Administration (the "FAA") today at the respective times
noted below:
(a) AC Form 8050-2 Aircraft Bill of Sale dated August __, 1999 (the "FAA
Bill of Sale") by Bombardier Capital Inc. to First Union Trust Company, National
Association, as Owner Trustee (the "Owner Trustee") under Trust Agreement
[N583ML] dated as of August __, 1999 (the "Trust Agreement") between Polaris
Holding Company as Owner Participant and the Owner Trustee, covering the
Aircraft was filed at __:__ _.M., C. D. T.;
(b) AC Form 8050-1 Aircraft Registration Application by the Owner Trustee
covering the Aircraft, to which were attached the Affidavits required by Section
47.7(c)(2)(ii) of Part 47 of the Federal Aviation Regulations, was filed at:
__:__ _.M., C.D.T.;
(c) the Trust Agreement was filed at __:__ _.M., C.D.T.;
(d) Trust Indenture and Security Agreement [N583ML] dated as of August __,
1999 (the "Indenture") between the Owner Trustee and Allfirst Bank as Indenture
Trustee (the "Indenture Trustee"), to which was attached Indenture Supplement
No. 1 [N583ML] dated August __, 1999 (the "Indenture Supplement") covering the
Aircraft and the General Electric model CF34-3B1 aircraft engines with
manufacturer's serial numbers GE-E-872529 and GE-E-872530 (the "Engines"), was
filed at __:__ _.M., C.D.T.; and
(e) Lease Agreement [N583ML] dated as of August __, 1999 (the "Lease")
between the Owner Trustee as lessor and Midway Airlines Corporation (the
"Lessee"), to which were attached Lease Supplement No. 1 [N583ML] dated August
__, 1999 (the "Lease Supplement") covering the Aircraft and the Engines, the
Indenture and the Indenture Supplement, was filed at __:__ _.M., C.D.T.
<PAGE>
Based upon our examination of the above described instruments and of such
records of the FAA as we deemed necessary to render this opinion and as were
made available to us by the FAA, it is our opinion that:
a. the FAA Bill of Sale, the Indenture with the Indenture Supplement
attached and the Lease with the Lease Supplement, attached are in due form for
recordation by and have been duly filed for recordation with the FAA pursuant to
and in accordance with the provisions of Section 44107 of Title 49 of the United
States Code;
b. legal title to the Aircraft is vested in the Owner Trustee and
all instruments necessary to cause the FAA in due course to issue to the Owner
Trustee an AC Form 8050-3 Certificate of Aircraft Registration covering the
Aircraft have been duly filed with the FAA pursuant to and in accordance with
the provisions of Sections 44102 and 44103 of Title 49 of the United States
Code;
c. the Aircraft and the Engines are free and clear of Liens (as such
term is defined in the Lease) other than such as are created by the Indenture,
as supplemented by the Indenture Supplement, and by the Lease, as supplemented
by the Lease Supplement;
d. the Indenture, as supplemented by the Indenture Supplement,
creates a duly and validly perfected first priority security interest in favor
of the Indenture Trustee in the Aircraft and the Engines and in all of the
right, title and interest of the Owner Trustee in and to the Lease, as
supplemented by the Lease Supplement (insofar as such security interest affects
an interest covered by the recording system established by the FAA pursuant to
Section 44107 of Title 49 of the United States Code);
e. the rights of the Owner Trustee and the Lessee under the Lease,
as supplemented by the Lease Supplement, with respect to the Aircraft and the
Engines are perfected;
f. none of the Indenture, the Indenture Supplement, the Lease or the
Lease Supplement is required under the applicable laws of any jurisdiction
within the United States to be refiled with the FAA or filed or recorded in any
other place within the United States in order to perfect or maintain the
perfection of (i) the security interest in the Aircraft and the Engines and (ii)
the assignment for security purposes of the Lease (insofar as such assignment
affects an interest covered by the recording system established by the FAA
pursuant to Section 44107 of Title 49 of the United States Code), all as created
by the Indenture, as supplemented by the Indenture Supplement;
g. no other registration of the Aircraft and no filings or
recordings (other than the filings and recordings with the FAA Aircraft Registry
which have been effected) are necessary to perfect in any jurisdiction within
the United States the Owner Trustee's title to the Aircraft or the security
interest created by the Indenture, as supplemented by the Indenture Supplement,
in the Aircraft and the Engines under the applicable laws of any jurisdiction
within the United States; and
h. no authorization, approval, consent, license or order of, or
registration with, or the giving of notice to the FAA Aircraft Registry is
required for the valid authorization, delivery and
<PAGE>
performance of the Indenture or the Indenture Supplement, except for such
filings as are referred to above.
No opinion is herein expressed as to: (i) laws other than the federal laws
of the United States; (ii) the validity or enforceability under local law of the
Indenture, as supplemented by the Indenture Supplement; (iii) the recognition of
the perfection of the security interest created by the Indenture, as
supplemented by the Indenture Supplement, against third parties in any legal
proceedings outside the United States; and (iv) the record status of the
Aircraft prior to the commencement of its United States registration. Since our
examination was limited to records maintained by the FAA Aircraft Registry, our
opinion does not cover liens which are perfected without the filing of notice
thereof with the FAA, such as federal tax liens, liens arising under Section
1368(a) of Title 29 of the United States Code and possessory artisans' liens,
and was subject to the accuracy of FAA personnel in the filing, indexing and
recording of instruments filed with the FAA and in the search for encumbrance
cross-reference index cards for the Engines. This opinion is rendered in
reliance upon the opinion of the Aeronautical Center Counsel dated August 9,
1999 (a copy of which is attached hereto) and upon the past practice of the FAA
which is consistent with said opinion.
Very truly yours,
ROBIN D. JENSON
For the Firm
RDJ: adw
<PAGE>
SCHEDULE
--------
First Union Trust Company, National Association, as Owner Trustee
Allfirst Bank as Indenture Trustee
Midway Airlines Corporation
Polaris Holding Company
<PAGE>
EXHIBIT A-6
[Delivery Date]
To the Addressees Listed
on Schedule A Attached Hereto:
- -----------------------------
Re: Participation Agreement [N _____ ML]
------------------------------------
Ladies and Gentlemen:
We have acted as special counsel for Polaris Holding Company, a
Delaware corporation (the "Owner Participant"), in connection with the
transactions contemplated by the Participation Agreement [N____ML], dated as of
________________ (the "Participation Agreement"), among (a) Midway Airlines
Corporation, as Lessee (the "Lessee"), (b) the Owner Participant, (c) First
Union Trust Company, National Association, as Owner Trustee (the "Owner
Trustee"), (d) Canadian Regional Aircraft Finance Transaction No. 1 Limited, as
Loan Participant, and (e) Allfirst Bank, as Indenture Trustee. This opinion is
delivered pursuant to Section 3.01(b)(xix)(I) of the Participation Agreement.
Unless otherwise defined herein, all capitalized terms used herein shall have
the respective meanings set forth or referred to in Appendix A to the
Participation Agreement.
In connection with our opinions expressed herein, we have examined
executed counterparts of the Participation Agreement, the Trust Agreement and
the Tax Indemnity Agreement (collectively, the "Owner Participant Agreements").
We have further examined and relied upon the accuracy of original, certified,
conformed, photographic or telecopied copies of such records, agreements,
certificates and other documents as we have deemed necessary or appropriate to
enable us to render the opinions expressed herein. In all such examinations, we
have assumed the genuineness of signatures on original documents and the
conformity to such original documents of all copies submitted to us as
certified, conformed, photographic or telecopied copies, and as to certificates
and telegraphic and telephonic confirmations given by public officials, we have
assumed the same to have been properly given and to be accurate. As to all
matters of fact material to our opinions, we have relied upon the accuracy of
the statements, representations and warranties made in the Owner Participant
Agreements and certificates furnished to us, and we have made no independent
investigation or verification with respect to such factual matters.
We have assumed (without making any independent investigation or
verification with respect thereto) the due authorization, execution and delivery
of the Operative Agreements by each of the parties thereto and that each
Operative Agreement constitutes the legal, valid and binding obligation of each
of such parties (other than the Owner Participant), enforceable against each
such party (other than the Owner Participant) in accordance with its terms, that
each such party has or had, at the time
<PAGE>
of its execution thereof, the requisite power, authority and legal right to
execute, deliver and perform each Operative Agreement to which it is a party,
that the execution, delivery and performance thereof by each such party do not
violate its respective partnership agreement, or charter or by-laws, and that
the execution, delivery and performance thereof by each such party do not
violate any laws or governmental rules or regulations (federal, state or
otherwise) that may be applicable to it, in any capacity in which it may be
acting, and that the transactions provided for in the Operative Agreements are
not within the prohibition of Section 406 of the Employee Retirement Income
Security Act of 1974, as amended.
Based upon and subject to the foregoing and the matters hereinafter
set forth, we are of the opinion that each Owner Participant Agreement
constitutes a legal, valid and binding obligation of the Owner Participant
enforceable against it in accordance with its terms, except as limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights and remedies of creditors generally, (b) public policy
considerations (in the case of the indemnity provisions contained therein), and
(c) general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
We express no opinions herein as to the laws of any state or
jurisdiction other than the laws of the State of New York and the federal laws
of the United States of America. We note that the Trust Agreement is governed
by the laws of the State of Delaware. Insofar as the foregoing opinions relate
to the legality, validity, binding effect and enforceability of the Trust
Agreement, we have assumed for purposes of such opinions (notwithstanding the
express provisions of the Trust Agreement to the contrary) that the Trust
Agreement is governed by the laws of the State of New York and we express no
opinion as to the enforceability of the choice of law provisions in the Trust
Agreement. We express no opinion herein as to (i) any state or federal
securities or tax laws, (ii) the perfection or priority of any security interest
created by any of the Operative Agreements or as to the right, title or interest
in or to the Lessor's Estate or the Indenture Estate on the part of any Person
or (iii) matters governed by Title 49 of the United States Code or by any other
aviation law or law, statute, rule or regulation of the United States of America
relating to the acquisition, ownership, leasing, registration, use, operation,
maintenance, repair, replacement, sale of or the particular nature of the
Aircraft, Airframe or Engines.
Insofar as our opinions expressed herein related to the Tax Indemnity
Agreement, such opinions are being rendered solely to the Lessee.
In rendering the foregoing opinions, we have relied, without making
any independent investigation with respect thereto, upon the opinion of Jeanette
Pinard, acting as internal counsel for Polaris Holding Company, delivered to you
on the date hereof, as to the matters addressed therein.
This opinion is furnished by us for your sole benefit and we agree
that you may rely on the opinions expressed herein. No other Person shall be
entitled to rely on the opinions expressed herein without our express written
consent. This opinion is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated herein.
Very truly yours,
<PAGE>
SCHEDULE A
Midway Airlines Corporation, as Lessee
First Union Trust Company, National Association, as Owner Trustee
Allfirst Bank, as Indenture Trustee
Canadian Regional Aircraft Finance Transaction No. 1 Limited, as Loan
Participant
<PAGE>
EXHIBIT A-7
[Delivery Date]
To the Addresses Listed on
Exhibit A Attached Hereto
Re: Participation Agreement [N__ML]
-------------------------------
Ladies and Gentlemen:
I have acted as internal counsel for Polaris Holding Company, a
Delaware corporation (the "Owner Participant") in connection with the
transactions contemplated by the Participation Agreement [N___ML], dated as of
_______________________ (the "Participation Agreement"), among (a) Midway
Airlines Corporation, as Lessee, (b) the Owner Participant, (c) First Union
Trust Company, National Association, as Owner Trustee, (d) Canadian Regional
Aircraft Finance Transaction No. 1 Limited, as Loan Participant, and (e)
Allfirst Bank, as Indenture Trustee. This opinion letter is given pursuant to
Section 3.01(b)(xix)(I) of the Participation Agreement. For purposes of this
opinion letter, all capitalized terms used but not defined herein are used as
defined in Appendix A to the Participation Agreement.
In connection with the opinions contained herein, I have examined
executed counterparts of the Participation Agreement, the Trust Agreement and
the Tax Indemnity Agreement (collectively, the "Owner Participant Agreements").
I have further examined and relied upon the accuracy of original, certified,
conformed, photocopied or telecopied copies of such records, agreements,
certificates and other documents as I have deemed necessary or appropriate to
enable me to render the opinions expressed herein. In all such examinations, I
have assumed the genuineness of signatures on original documents (other than
signatures of the Owner Participant) and the conformity to such original
documents of all copies submitted to me as certified, conformed, photocopied or
telecopied copies, and as to certificates and telegraphic and telephonic
confirmations given by public officials, I have assumed the same to have been
properly given and to be accurate. As to various questions of fact material to
my opinions, I have relied, when relevant facts were not independently
established by me, solely upon the accuracy of the statements, representations
and warranties made in the Owner Participant Agreements and in any certificate
furnished to me.
Based upon the foregoing, and subject to the specific assumptions,
qualifications and reliances herein set forth, and on the basis of my
consideration of such facts and laws as I have deemed necessary for purposes of
this opinion letter, it is my opinion that:
<PAGE>
1. The Owner Participant is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and has the
corporate power and authority to execute and deliver and to perform its
obligations under the Owner Participant Agreements.
2. Each of the Owner Participant Agreements has been duly authorized, executed
and delivered by the Owner Participant.
3. Neither the execution and delivery by the Owner Participant of the Owner
Participant Agreements nor the performance by the Owner Participant of its
obligations under the Owner Participant Agreements, (i) requires for its
validity the consent or approval of, the giving of notice to, the
registration with, or the taking of any other action with respect to, any
governmental authority or agency of the United States of America or the
State of New York, other than Federal Aviation Administration filings as to
which I express no opinion; (ii) contravenes any law or governmental rule
or regulation of the United States of America or the State of New York, or,
to the best of my knowledge, any judgment or order applicable to or binding
on the Owner Participant; or (iii) contravenes, results in any breach of or
constitutes any default under, any provision of the Owner Participant's
certificate of incorporation or its by-laws or, to the best of my
knowledge, any agreement or instrument to which the Owner Participant is a
party or by which it is bound.
4. To my knowledge, after reasonable inquiry, there are no pending or overtly
threatened actions or proceedings before any court or administrative agency
or arbitrator which, if adversely determined, would materially and
adversely affect the Owner Participant's ability to perform its obligations
under any of the Owner Participant Agreements.
I am qualified to practice law in the State of New York and I express
no opinion as to the laws of any jurisdiction other than laws of the State of
New York, the General Corporation Law of the State of Delaware and the federal
laws of the United States of America. I express no opinion herein as to (i) any
federal or state securities or tax laws or (ii) aviation law or other laws,
statutes, rules or regulations applicable to the registration, use, operation,
maintenance, repair or replacement of or the nature of the Aircraft. Further,
no opinion is expressed as to title to the Aircraft or any part thereof.
Insofar as my opinions relate to the Tax Indemnity Agreement, such
opinions are being rendered solely to the Lessee.
I understand and agree that you may rely upon this opinion letter in
connection with the transactions described in the Owner Participant Agreements,
but no other person or entity shall be entitled to rely on the opinions
contained herein without my express written consent. My opinions are limited to
the matters stated herein, and no opinion is implied or may be inferred beyond
the matters expressly stated herein.
Dewey Ballantine LLP, as special counsel to Polaris Holding Company,
may rely on the opinions expressed in this letter in rendering their opinions
pursuant to Section 3.01(b)(xix)(I) of the Participation Agreement.
Very truly yours,
<PAGE>
EXHIBIT A
---------
Midway Airlines Corporation, as Lessee
First Union Trust Company, National Association, as Owner Trustee
Allfirst Bank, as Indenture Trustee
Canadian Regional Aircraft Finance Transaction No. 1 Limited, as Loan
Participant
<PAGE>
Exhibit B-1 to
Participation Agreement
-----------------------
[Form of Assignment and Assumption Agreement]
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of ___________,
________ between [_____________________] (the "Transferee") and
----------
________________________________________ (the "Transferor").
----------
W I T N E S S E T H:
-------------------
WHEREAS, the Transferor is a party to a Participation Agreement, dated
as of August 10, 1999 among Midway Airlines Corporation, as Lessee, First Union
Trust Company National Association, not in its individual capacity (except as
otherwise expressly provided therein) but solely as Owner Trustee, the
Transferor, as Owner Participant, Canadian Regional Aircraft Finance Transaction
No. 1 Limited, as Loan Participant and Allfirst Bank, as Indenture Trustee (as
the same may be from time to time amended, the "Participation Agreement") and
-----------------------
certain other Transaction Documents (as defined herein);
WHEREAS, the Transferor desires to sell and assign to the Transferee
all of its right, title and interest in, to and under the Trust Agreement (as
defined in the Participation Agreement) (except as reserved below), and the
Transferee desires to (i) purchase and accept from the Transferor the assignment
of all of the Transferor's right, title and interest in, to and under the Trust
Agreement (except as reserved below) and (ii) assume the Assumed Obligations (as
defined herein); and
WHEREAS, capitalized terms used herein without definition and which
are defined in the Participation Agreement are used herein with the respective
meanings given such terms in the Participation Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties agree as follows:
1. Assignment. Effective as of the date hereof (the "Transfer
---------- --------
Date"), the Transferor hereby irrevocably sells, assigns, transfers, conveys and
- ----
sets over to the Transferee all its right, title and interest in, to and under
the Trust Estate, the Participation Agreement, the Trust Agreement, the Tax
Indemnity Agreement and all other Operative Agreements (as defined in the
Participation Agreement), agreements, contracts, documents and instruments
executed and delivered at any time prior to the execution and delivery of this
Agreement in connection with any of the foregoing (the "Transaction Documents"),
---------------------
and any proceeds therefrom, except such rights of the Transferor as have arisen
or accrued prior to the Transfer Date (such excepted rights to include, without
limitation, the right to receive any amounts due or accrued to the Transferor
under any Transaction Document as of a date prior to the Transfer Date and the
right to enforce and receive any Excepted
<PAGE>
Payments pursuant to the Participation Agreement or the Tax Indemnity Agreement
with respect to acts or events occurring prior to the Transfer Date).
2. Assumption. The Transferee hereby assumes all of the
----------
obligations, liabilities and duties of the Transferor arising from and after the
Transfer Date under each Transaction Document (the "Assumed Obligations") and
-------------------
confirms that from and after the Transfer Date it shall be deemed a party to
each Transaction Document to which the Transferor is a party and shall be bound
by all the terms thereof (including the agreements and obligations of the
Transferor set forth therein) as if it were named as the Transferor therein.
3. Further Assurances. Each party hereto shall, at any time and
------------------
from time to time, upon the request of the other party hereto, promptly and duly
execute and deliver any and all such further instruments and documents and take
such further action as the other party may reasonably request to obtain the full
benefits of this Agreement and of the rights and powers herein granted.
4. Representations and Warranties. The Transferee hereby represents
------------------------------
and warrants to the other parties hereto that:
(a) Organization; Authority. The Transferee (i) is a __________ duly
-----------------------
organized, validly existing and in good standing under the laws of
___________________ and (ii) has the full [corporate] power and authority to
conduct its business as presently conducted, to own or hold under lease its
properties and to execute, deliver and perform this Agreement and to perform the
Assumed Obligations.
(b) Due Authorization. The execution, delivery and performance of
-----------------
this Agreement and the performance of the Assumed Obligations have been duly
authorized by all necessary corporate action on the part of the Transferee.
(c) Conflict. The execution, delivery and performance by the
--------
Transferee of this Agreement and the performance of the Assumed Obligations and
the consummation or performance by the Transferee of the transactions
contemplated thereby will not conflict with or result in any violation of,
constitute a default under, or result in the creation of any Lien upon any
property of the Transferee under, any term of the Certificate of Incorporation
or By-laws of the Transferee or any agreement, mortgage, contract, indenture,
lease or other instrument, or any Applicable Law, by which the Transferee or its
properties or assets are bound, except for any such violation, conflict or
default which would not have a material adverse effect on the Transferee or its
ability to perform the Assumed Obligations.
(d) Government Consents. Neither the execution or delivery of this
-------------------
Agreement and the performance of the Assumed Obligations nor the consummation of
any of the transactions contemplated hereby or thereby by the Transferee
requires the consent or approval of, the giving of notice to, the registration
with, or the taking of any other action in respect of any United States federal,
state or other governmental authority or agency, including any judicial body,
that would be required to be taken or obtained by the Transferee.
<PAGE>
(e) Legal, Valid and Binding Obligations. The Assumed Obligations and
------------------------------------
this Agreement constitute the legal, valid and binding obligations of the
Transferee enforceable against the Transferee in accordance with their
respective terms except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, and other similar laws affecting the
rights of creditors generally and by general principles of equity, regardless of
whether enforcement is pursuant to a proceeding in equity or at law.
(f) Litigation. There are no pending or, to the knowledge of the
----------
Transferee, threatened actions or proceedings against the Transferee by or
before any court or administrative agency or arbitrator that, either
individually or in the aggregate, are reasonably likely to materially adversely
affect the ability of the Transferee to perform its obligations under this
Assumption Agreement or the Assumed Obligations.
(g) Securities Representation. The Transferee is acquiring its
-------------------------
interest in the Trust Estate for investment and not with a view to any resale or
distribution thereof, but subject, nevertheless, to any requirement of law that
the disposition of its property remain within its control at all times, and that
neither it nor anyone authorized by it to act on its behalf has directly or
indirectly offered any Equipment Note or interest in the Trust Estate, or any
similar security for sale to, or solicited any offer to acquire any of the same
from, anyone.
(h) Lessor's Liens. Upon the execution of this Assumption Agreement,
--------------
there will be no Lessor's Lien attributable to the Transferee on the Trust
Estate.
(i) ERISA. No part of the funds to be used by the Transferee to
-----
acquire the interests to be acquired by it hereunder constitutes assets (within
the meaning of ERISA and any rules and regulations thereunder) of any ERISA
plan.
(j) Permitted Transferee. The Transferee is a bank, savings
--------------------
institution, finance company, leasing company or trust company, national banking
association acting for its own account or in a fiduciary capacity as trustee or
agent under any pension, retirement, profit sharing or similar trust or fund,
insurance company, financial institution, fraternal benefit society or a
corporation acting for its own account having [a combined capital and surplus]
[tangible net worth or its equivalent] of not less than $50,000,000]./1/
-
[The Transferee is a Citizen of the United States.]/2/ [The Transferee is
-
not an airline or other aircraft operator or competitor of Lessee in the
business of air transportation or an Affiliate of any thereof.]/3/
-
/1/ If a guaranty is being provided pursuant to Section 5.01(c) of the
-
Participation Agreement, replace "The Transferee" at the beginning of this
sentence with the name of the guarantor.
/2/ Include if required pursuant to Section 5.01(c) of the Participation
-
Agreement.
/3/ Include unless consented to by Lessee as contemplated in the first
-
proviso in the second sentence of Section 5.01(c) of the Participation Agreement
or unless the Transferee satisfies clause (i), (ii) or (iii) of such first
proviso.
<PAGE>
(k) U.S. Person. The Transferee is a "United States person" within
-----------
the meaning of Section 7701(a)(30) of the Code.
Notwithstanding the foregoing or anything else contained in this
Agreement, the Transferee makes no representation or warranty in this Agreement
with respect to laws, rules or regulations relating to aviation or to the nature
or use of the equipment owned by the Owner Trustee, including, without
limitation, the airworthiness, value, condition, workmanship, design, patent or
trademark infringement, operation, merchantability or fitness for use of the
Aircraft[, other than as set forth in the second sentence of Section 4(j)
hereof]/4/.
-
5 Reliance. The representations, warranties, covenants and
--------
agreements of the Transferee are made for the benefit of, and may be relied upon
by, the Owner Trustee, Lessee, Transferor, Indenture Trustee, Loan Participant
and each Noteholder (collectively, the "Beneficiaries"), and each of the
-------------
Beneficiaries shall be deemed to be an express third party beneficiary with
respect thereto, entitled to enforce directly and in its own name any rights or
claims it may have against such Transferee as such beneficiary.
6 Payments. Transferor hereby covenants and agrees to pay over to
--------
Transferee, if and when received on or following the Transfer Date, any amounts
(including any sums payable as interest in respect thereof) paid to or for the
benefit of Transferor that, under Section 2 hereof, belong to Transferee, and
Transferee hereby covenants and agrees to pay over to Transferor, if and when
received on or following the Transfer Date, any amounts (including any sums
payable as interest in respect thereof) paid to or for the benefit of Transferee
that, under Section 2 hereof, belong to Transferor.
7 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto on separate counterparts (or upon
separate signature pages), all of which together shall constitute but one and
the same instrument.
______________________
/4/ Include if a citizenship representation is required pursuant to Section
-
5.01(c) of the Participation Agreement.
<PAGE>
8 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered on the date first above written.
[_____________________________]
Transferee
By:___________________________
Name:
Title:
[_____________________________]
Transferor
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT B-2
-----------
FORM OF GUARANTY AGREEMENT
[DATE]
Re: Midway Airlines Corporation - One
Canadian Regional Jet Series 200 ER
Aircraft Bearing Registration No. N___ML
----------------------------------------
Ladies and Gentlemen:
Reference is made to that certain Assignment and Assumption Agreement
dated as of ___________________ (the "Assignment Agreement") by and between
--------------------
_______________ ("Assignor") and _________________ ("Assignee"). Assignee is a
-------- --------
direct or indirect subsidiary of the undersigned, __________________, a
______________ ("Guarantor"). Except as otherwise noted herein, all capitalized
---------
terms used herein shall have the respective defined meanings set forth in that
certain Participation Agreement [N__ML] (the "Participation Agreement"), dated
-----------------------
as of ___________ __, ____, among (a) Midway Airlines Corporation, a Delaware
corporation ("Lessee"); (b) _________________, a ______________ ("Owner
------ -----
Participant"); (c) First Union Trust Company, National Association, a national
- -----------
banking association, not in its individual capacity, except as expressly
provided therein, but solely as Owner Trustee; (d) Canadian Regional Aircraft
Finance Transaction No. 1 Limited, a Jersey, Channel Islands company, as Loan
Participant; and (e) Allfirst Bank, a Maryland state-chartered commercial bank,
as Indenture Trustee (each of the parties named in the foregoing clauses (a),
(c), (d) and (e), together with its successors and permitted assigns, a
"Guaranteed Party").
----------------
In connection with the transactions contemplated by the Assignment
Agreement, Guarantor represents and warrants to, and covenants with, each
Guaranteed Party, as follows:
1. Ownership of Assignee. Assignee is a direct or indirect subsidiary of
---------------------
Guarantor.
2. Representations and Warranties. Guarantor represents and warrants that
------------------------------
Guarantor is duly organized and validly existing in good standing under the laws
of ___________. The execution, delivery and performance of this Guaranty
Agreement are within Guarantor's power and authority, have been duly authorized
by all necessary corporate action on the part of Guarantor and do not contravene
<PAGE>
the charter or the by-laws of Guarantor or any indenture, mortgage, credit
agreement, note, long-term lease or other material agreement to which Guarantor
is a party or by which Guarantor is bound, and this Guaranty Agreement
constitutes a legal, valid and binding obligation of Guarantor, enforceable
against Guarantor in accordance with its terms.
3. Submission to Jurisdiction, Etc. Guarantor hereby agrees to be bound,
-------------------------------
to the same extent Owner Participant is bound, by the provisions of Section
15.08 of the Participation Agreement, which are incorporated herein by reference
as if fully set forth herein.
4. Undertaking. Guarantor hereby unconditionally and irrevocably
-----------
guaranties not merely as surety but as primary obligor, the due and punctual:
(i) performance by Assignee of all of the obligations of the "Owner Participant"
under the Operative Agreements assumed by Assignee under the Assignment
Agreement; (ii) payment of any and all sums which are payable by the Owner
Participant pursuant to any of the Operative Agreements which payment
obligations were assumed by Assignee under the Assignment Agreement; and (iii)
performance of, observance of and compliance with all other obligations,
covenants and undertakings and representations and warranties of, or made by,
Assignee in the Assignment Agreement or the Owner Participant contained in or
arising under the Operative Agreements and assumed by Assignee under the
Assignment Agreement (such payments and other obligations referred to in this
Section 4(a) hereinafter referred to as the "Obligations"). Guarantor agrees
-----------
that it will not use the assets of any ERISA Plan to fund its payment
obligations hereunder.
(a) Guarantor agrees that this Guaranty Agreement is an unconditional
and absolute guaranty of payment and performance (not merely collectability),
that its undertakings hereunder are not contingent upon any Guaranteed Party
bringing any action against Assignee or resorting to any security and hereby
expressly waives any claim that its undertakings hereunder are so contingent.
(b) Guarantor irrevocably waives promptness, diligence, demand, and all
notices whatsoever as to the Obligations guaranteed hereby, and any other
circumstances which might otherwise constitute a defense available to it, or a
discharge of it (other than the defense of payment or performance), and agrees
that it shall not be required to consent to or receive any notice of any
amendment or modification of, or waiver, consent or extension with respect to,
the Participation Agreement or the other Operative Agreements to which Assignee
is a party that may be made or given as provided herein or otherwise.
(c) Guarantor further agrees to pay all expenses (including, without
limitation, all fees and disbursements of counsel) that may be paid or incurred
by any Guaranteed Party in enforcing any rights with respect to, or collecting,
any or all of the Obligations and/or enforcing any rights with respect to, or
collecting against, the Guarantor under this Guaranty Agreement.
(d) Guarantor understands and agrees that its obligations hereunder shall
be construed as continuing, absolute and unconditional without regard to (i) the
validity, regularity or enforceability of any Operative Agreement, any of the
Obligations or any collateral security therefor or guarantee or right of offset
with respect thereto at any time or from time to time held by any Guaranteed
Party, (ii)
<PAGE>
any defense, set-off or counterclaim (other than a defense of payment or
performance) that may at any time be available to or be asserted by Assignee
against any Guaranteed Party, or (iii) any other circumstances whatsoever (with
or without notice to or knowledge of Assignee or the Guarantor) that
constitutes, or might be construed to constitute, an equitable or legal
discharge of Assignee for the Obligations, or of Guarantor under this Guaranty
Agreement, in bankruptcy or in any other instance.
5. No Discharge. The obligation of Guarantor hereunder will not be
------------
discharged by: (a) any extension or renewal with respect to any obligation of
Assignee, as Owner Participant, under the Operative Agreements; (b) any
modification of, or amendment or supplement to, any such agreement; (c) any
furnishing or acceptance of additional security or any release of any security;
(d) any waiver, consent or other action or inaction or any exercise or non-
exercise of any right, remedy or power with respect to Assignee, or any change
in the structure of Assignee; (e) any insolvency, bankruptcy, reorganization,
arrangement, composition, liquidation, dissolution or similar proceedings with
respect to Assignee; (f) except as provided in Section 6 any change in ownership
of the shares of capital stock of Guarantor or Assignee; or (g) any other
occurrence whatsoever, except payment in full of all amounts payable by
Assignee, as Owner Participant, under the Operative Agreements and performance
in full of all Obligations of Assignee, as Owner Participant, in accordance with
the terms and conditions of the Operative Agreements.
6. Transfers. Guarantor may assign, convey or otherwise transfer its
---------
obligations hereunder to any other Person (hereinafter referred to as the
"Transferee Guarantor"), provided that (i) the Transferee Guarantor enters into
--------------------
an agreement substantially in the form of this Guaranty Agreement and (ii) the
Transferee Guarantor meets the requirements of Section 5.01(c) of the
Participation Agreement relating to a "guarantor". If pursuant to Section
5.01(c) of the Participation Agreement or the preceding sentence, a new guaranty
shall be delivered or the obligations of the Guarantor shall be transferred, the
Transferee Guarantor shall deliver an opinion or opinions of counsel
substantively similar to the form of opinion attached to the Participation
Agreement as Exhibit B-3 to the effect that the obligations incurred by the
Transferee Guarantor pursuant hereto constitute the legal, valid, binding and
enforceable obligations of such Transferee Guarantor. Upon the satisfaction by
the Guarantor of the conditions set forth in this Section 6, the Guarantor shall
be released and discharged of any and all further obligations under this
Guaranty Agreement.
7. Reinstatement. Guarantor agrees that this Guaranty Agreement shall be
-------------
automatically reinstated with respect to any payment made prior to the
termination of this Guaranty Agreement by or on behalf of Assignee pursuant to
the Participation Agreement or the other Operative Agreements to which Assignee
is a party if and to the extent that such payment is rescinded or must be
otherwise restored, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise.
8. No Subrogation. Notwithstanding any payment or payments made by
--------------
Guarantor hereunder or any set-off or application of funds of Guarantor by any
Guaranteed Party, Guarantor shall not be entitled to be subrogated to any of the
rights of any Guaranteed Party against Assignee or any collateral, security or
guarantee or right of set-off held by any Guaranteed Party for the payment of
the Obligations, nor shall Guarantor seek or be entitled to seek any
reimbursement from Assignee in respect of payments made by Guarantor hereunder,
until all amounts and performance owning to the Guaranteed Parties by Assignee
on account of the Obligations are paid and performed in full.
<PAGE>
9. Severability. Any provision of this Guaranty Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10. Miscellaneous. This Guaranty Agreement shall: (a) be binding upon
-------------
Guarantor, its successors and assigns; (b) inure to the benefit of, and be
enforceable by, the Guaranteed Parties but shall not, and is not intended to,
create rights in any other third parties; (c) not be waived, amended or modified
without the written consent of each of the Guaranteed Parties; (d) be governed
by and construed in accordance with, the internal laws of the State of New York,
and (e) remain in full force and effect until the earlier of (i) payment in full
of all sums payable by Assignee, as Owner Participant, under the Assignment
Agreement and the Operative Agreements and by Guarantor hereunder, and
performance in full of all other Obligations of Assignee, as Owner Participant,
under the Assignment Agreement and the Operative Agreements and (ii) the
compliance by Guarantor with Section 6. All notices to, requests of, demands on
and other communications with Guarantor shall be made in writing and shall be
personally delivered, sent by facsimile or telecommunication transmission (which
in either case provides written confirmation to the sender of its delivery) or
sent by registered or certified mail, postage prepaid, or by prepaid courier
service to Guarantor at: [ ].
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
duly executed this _____ day of __________________.
[GUARANTOR]
By:_________________________________________________________________
Name:
Title:
<PAGE>
EXHIBIT B-3
-----------
FORM OF OPINION
To Each of the Persons Named
on the Attached Schedule I:
- --------------------------
Re: Midway Airlines Corporation - One Canadian Regional Jet
-------------------------------------------------------
Series 200ER Aircraft Bearing Registration No. N____ML
------------------------------------------------------
Ladies and Gentlemen:
As counsel to ____________, a ______________ ("Assignee"), I advise you
--------
as follows in connection with the Assignment and Assumption Agreement dated as
of _________ __, ____ (the "Assignment Agreement") between Assignee and
--------------------
_______________, a ____________ ("Assignor"), and the transactions contemplated
--------
thereby. Capitalized terms used herein and not defined herein shall have the
respective meanings attributed thereto in the Assignment Agreement. This
opinion is being furnished to you pursuant to the request of Assignee and
Section 5.01(c)(v) of the Participation Agreement.
I have, or an attorney under my supervision has, examined the
Assignment Agreement. I have, or an attorney under my supervision has, also
examined the originals, or certified, conformed, photocopied or telecopied
copies of such corporate records, certificates, instruments and other documents
as I have deemed necessary or appropriate to enable me to render the opinions
expressed herein. In all such examinations, I have assumed the genuineness of
signatures on original documents (other than those of Assignee) and the
conformity to such original documents of all copies submitted to me as
certified, conformed, photocopied or telecopied copies, and as to certificates
and telegraphic and telephonic confirmations given by public officials, I have
assumed the same to have been properly given and to be accurate. As to all
matters of fact material to my opinions, I have, when relevant facts were not
independently established, relied upon statements, representations and
warranties contained in the Assignment Agreement and upon the statements and
certificates furnished to me.
In addition, in rendering the opinions expressed herein I have assumed
that (i) the Assignment Agreement has been duly authorized, executed and
delivered by Assignor and constitutes the legal, valid and binding obligation of
Assignor, enforceable against Assignor in accordance with its terms, (ii)
Assignor has the requisite power, authority and legal right to enter into and
perform its respective obligations under the Assignment Agreement and (iii) the
transactions provided for in the Assignment Agreement are not within the
prohibitions of Section 406 of the Employee Retirement Income Security Act of
1974, as amended or Section 4975 of the Internal Revenue Code of 1986, as
amended.
<PAGE>
A. Based upon the foregoing and subject to the limitations expressed in
paragraph B below, I am of the opinion that:
1. Assignee is a __________ duly organized, validly existing and in
good standing under the laws of [ ] and has full corporate power and authority
to execute, deliver and perform the Assignment Agreement.
2. The Assignment Agreement has been duly authorized, executed and
delivered by Assignee.
3. Neither the execution and delivery of the Assignment Agreement by
Assignee, nor the consummation by Assignee of the transactions contemplated
thereby and by the Operative Agreements, conflicts with, results in a breach
of or violates any of the terms, conditions or provisions of (i) the
[Certificate] [Articles] of Incorporation or By-laws of the Assignee, (ii) to
the best of my knowledge, any order, writ, injunction or decree of any court
or government authority against the Assignee or by which the Assignee or any
of its properties is bound or (iii) to the best of my knowledge, any
indenture, mortgage or contract or other material agreement or instrument to
which Assignee is a party or by which it or any of its properties is bound or
constitutes a default thereunder.
4. To the best of my knowledge, there are no actions, suits or
proceedings pending or threatened before any court of administrative agency or
arbitrator which would materially adversely affect the ability of Assignee to
perform its obligations under the Assignment Agreement and the Operative
Agreements.
5. The Assignment Agreement constitutes a legal, valid and binding
obligation of Assignee enforceable against Assignee in accordance with the
terms thereof, except as the enforceability thereof my be limited by (a)
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law), (b) applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally and (c) public policy considerations (in the case of any
indemnity provisions contained therein).
6. Except for filings with the Federal Aviation Administration, neither
the execution and delivery by Assignee of the Assignment Agreement, nor the
consummation by Assignee of any of the transactions contemplated thereby or by
the Operative Agreements, (a) requires the consent or approval of, the giving
of notice to, or the registration or filing with, or the taking of any action
with respect to, any governmental authority or agency of the United States or
(b) violates any law, governmental rule or regulation of the United States of
the State of [ ].
B. I am qualified to practice law in the State of [ ] and I express no
opinion as to any laws other than the laws of the State of [ ], the General
Corporation Law of the State of [ ] and the federal laws of the United
States of America. I express no opinion herein as to (i) any federal or state
securities laws, (ii) any tax laws or (iii) any aviation law or other laws,
statutes, rules or regulations applicable due to the particular nature of the
equipment subject to the Lease. In addition, no opinion is expressed as to
matters governed by Title 49 of the United States Code, as amended, or by any
other
<PAGE>
law, statute, rule or regulation or the United States relating to the
acquisition, ownership, registration, use, operation, maintenance, repair,
replacement or sale of or the nature of aircraft. Further, no opinion is
expressed as to title to any part of the Trust Estate. In addition, I express no
opinion as to the perfection or priority of any security interests or as to the
right, title or interest in or to the Trust Estate on the part of any Person.
This opinion is furnished by me for your sole benefit, and no other
person or entity is entitled to rely on this opinion without my express written
consent. This opinion may not be published or reproduced in any manner or
distributed or circulated to any person or entity without my express written
consent. This opinion is limited to the matter stated herein, and no opinion is
implied or may be inferred beyond the matters expressly stated herein.
Very truly yours,
<PAGE>
SCHEDULE I
----------
[Insert names of Lessee, Indenture Trustee, Owner Trustee, Loan
Participant and Assignor]
<PAGE>
Exhibit C
FORM OF CERTIFICATE OF NON-BANK STATUS
Reference is made to the Equipment Note(s) held by the undersigned pursuant
to (i) the Participation Agreement [N583ML] dated as of August 10, 1999 among
MIDWAY AIRLINES CORPORATION, as Lessee, POLARIS HOLDING COMPANY, as Owner
Participant, FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, as Owner Trustee,
CANADIAN REGIONAL AIRCRAFT FINANCE TRANSACTION NO. 1 LIMITED, as Loan
Participant and ALLFIRST BANK, as Indenture Trustee and (ii) the Trust Indenture
and Security Agreement [N583ML] dated as of August 10, 1999 between FIRST UNION
TRUST COMPANY, NATIONAL ASSOCIATION, as Owner Trustee and ALLFIRST BANK, as
Indenture Trustee (capitalized terms not otherwise defined herein having the
meanings given in said Participation Agreement and Trust Indenture and Security
Agreement). The undersigned hereby declares under penalty of perjury that:
(A) the undersigned is the beneficial owner of the Equipment Note(s)
registered in its name;
(B) to the best of its knowledge and belief, the income from the
Equipment Note(s) held by the undersigned is not effectively connected with the
conduct of a trade or business within the United States;
(C) the undersigned is not a deposit-taking institution and is not
regulated as a "Bank" in its country of incorporation;
(D) to the best of its knowledge and belief, the undersigned is not a
controlled foreign corporation related (within the meaning of Section 864(d)(4)
of the Code) to the Lessee;
(E) to the best of its knowledge and belief, the undersigned is not a 10%
shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the
Lessee;
(F) the undersigned is a Person other than (i) a citizen or resident of
the United States of America, its territories and possessions (including the
Commonwealth of Puerto Rico and all other areas subject to its jurisdiction)
(for purposes of this definition, the "United States"), (ii) a corporation, a
partnership or other entity created or organized under the laws of the United
States or any political subdivision thereof or therein or (iii) an estate or
trust that is subject to United States federal income taxation regardless of the
source of its income; and
<PAGE>
(G) the undersigned is not a natural person.
[Loan Participant]
By: __________________
Name:
Date:
Dated: ___________________, ____
<PAGE>
Note to Exhibit 10.1
The following Participation Agreement is substantially identical in all material
respects to the Participation Agreement filed herewith except as follows:
Date Aircraft Tail No.
---- -----------------
August 10, 1999 N584ML
September 10, 1999 N585ML
<PAGE>
CONFORMED COPY
--------------
EXHIBIT 10.2
================================================================================
TRUST AGREEMENT [N583ML]
Dated as of August 10, 1999
between
POLARIS HOLDING COMPANY,
as Owner Participant
and
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
as Owner Trustee
______________________
One Canadair Regional Jet Series 200 ER Aircraft
N583ML
================================================================================
<PAGE>
<TABLE>
<CAPTION>
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TABLE OF CONTENTS
-----------------
<S> <C>
ARTICLE I DEFINITIONS AND TERMS................................................................................. 1
Section 1.01. Definitions.................................................................................... 1
ARTICLE II AUTHORITY TO EXECUTE CERTAIN OPERATIVE AGREEMENTS; DECLARATION OF TRUST............................... 2
Section 2.01. Authority to Execute Documents................................................................. 2
Section 2.02. Declaration of Trust........................................................................... 2
ARTICLE III ACCEPTANCE AND DELIVERY OF AIRCRAFT; ISSUANCE OFEQUIPMENT NOTE; LEASE OF AIRCRAFT; REPLACEMENT........ 2
Section 3.01. Authorization.................................................................................. 2
Section 3.02. Conditions Precedent........................................................................... 4
Section 3.03. Postponement of Delivery Date.................................................................. 4
Section 3.04. Authorization in Respect of a Replacement Airframe or Replacement Engines...................... 4
Section 3.05. Trust Agreement Remaining in Full Force and Effect............................................. 5
Section 3.06. Authorization in Respect of Return of an Engine................................................ 5
ARTICLE IV RECEIPT, DISTRIBUTION AND APPLICATIONOF INCOME FROM THE TRUST ESTATE.................................. 6
Section 4.01. Distribution of Payments....................................................................... 6
Section 4.02. Method of Payments............................................................................. 7
ARTICLE V DUTIES OF THE OWNER TRUSTEE........................................................................... 7
Section 5.01. Notice of Event of Default..................................................................... 7
Section 5.02. Action Upon Instructions....................................................................... 8
Section 5.03. Indemnification................................................................................ 8
Section 5.04. No Duties Except as Specified in Trust Agreement or Instructions............................... 8
Section 5.05. No Action Except Under Specified Documents or Instructions..................................... 9
ARTICLE VI THE OWNER TRUSTEE..................................................................................... 9
Section 6.01. Acceptance of Trusts and Duties................................................................ 9
Section 6.02. Absence of Certain Duties...................................................................... 10
Section 6.03. No Representations or Warranties as to Certain Matters......................................... 11
Section 6.04. No Segregation of Monies Required; Investment Thereof.......................................... 11
Section 6.05. Reliance Upon Certificates, Counsel and Agents................................................. 11
Section 6.06. Not Acting in Individual Capacity.............................................................. 12
Section 6.07. Fees; Compensation............................................................................. 12
Section 6.08. Tax Returns.................................................................................... 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Section 6.09. Fixed Investment Trust......................................................................... 13
ARTICLE VII INDEMNIFICATION OF THE OWNER TRUSTEE BY THE OWNER PARTICIPANT........................................ 13
Section 7.01. The Owner Participant to Indemnify the Owner Trustee........................................... 13
ARTICLE VIII [RESERVED]........................................................................................... 14
ARTICLE IX SUCCESSOR OWNER TRUSTEES; CO-TRUSTEES................................................................ 14
Section 9.01. Resignation of the Owner Trustee; Appointment of Successor..................................... 14
Section 9.02. Co-Trustees and Separate Trustees.............................................................. 15
ARTICLE X SUPPLEMENTS AND AMENDMENTS TO TRUST AGREEMENT AND OTHER DOCUMENTS................................... 17
Section 10.01. Supplements and Amendments..................................................................... 17
Section 10.02. Discretion as to Execution of Documents........................................................ 18
Section 10.03. Absence of Requirements as to Form............................................................. 18
Section 10.04. Distribution of Documents...................................................................... 18
ARTICLE XI MISCELLANEOUS....................................................................................... 18
Section 11.01. Termination of Trust Agreement................................................................. 18
Section 11.02. The Owner Participant Has No Legal Title in Trust Estate....................................... 19
Section 11.03. Assignment, Sale, etc., of Aircraft............................................................ 19
Section 11.04. Trust Agreement for Benefit of Certain Parties Only............................................ 19
Section 11.05. Notices........................................................................................ 20
Section 11.06. Severability................................................................................... 20
Section 11.07. Waivers, etc................................................................................... 20
Section 11.08. Counterparts................................................................................... 20
Section 11.09. Binding Effect, etc............................................................................ 20
Section 11.10. Headings; References........................................................................... 20
Section 11.11. GOVERNING LAW.................................................................................. 20
Section 11.12. Administration of Trust........................................................................ 21
</TABLE>
ii
<PAGE>
TRUST AGREEMENT [N583ML]
This TRUST AGREEMENT [N583ML], dated as of August 10, 1999 between
POLARIS HOLDING COMPANY, a Delaware corporation (together with its successors
and permitted assigns, the "Owner Participant"), and FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, a national banking association, in its individual capacity
only as expressly stated herein and otherwise not in its individual capacity but
solely as trustee hereunder (herein in such capacity with its permitted
successors and assigns called the "Owner Trustee").
W I T N E S S E T H :
- - - - - - - - - -
ARTICLE I
DEFINITIONS AND TERMS
Section 1.01 Definitions. Unless the context shall otherwise
-----------
require and except as contained in this Section 1.01, the capitalized terms used
herein shall have the respective meanings assigned thereto in the Lease (as
hereinafter defined) for all purposes hereof. All definitions contained in this
Section 1.01 shall be equally applicable to both the singular and plural forms
of the terms defined. For all purposes of this Trust Agreement the following
terms shall have the following meanings:
"Excluded Payments" has the meaning given to such term in the Lease.
-----------------
"First Union" means First Union Trust Company, National Association, a
-----------
national banking association.
"Indenture" means Trust Indenture and Security Agreement [N583ML],
---------
dated as of August 10, 1999, between the Owner Trustee and the Indenture
Trustee, as the same may be amended, modified, or supplemented from time to
time. The term "Indenture" shall also include each Indenture Supplement entered
---------
into pursuant to the terms of the Indenture.
"Lease" means Lease Agreement [N583ML] dated as of August 10, 1999,
-----
between the Lessor and the Lessee, as the same may be modified, amended or
supplemented from time to time. The term "Lease" shall also include each Lease
-----
Supplement entered into pursuant to the terms of the Lease.
"Lessee" means Midway Airlines Corporation, a Delaware corporation,
------
and its successors and permitted assigns, as the lessee under the Lease.
<PAGE>
"Owner Participant" means the Person identified as such in the
-----------------
introduction hereto.
"Owner Trustee" means the Person identified as such in the
-------------
introduction hereto.
"Participation Agreement" means Participation Agreement [N583ML],
-----------------------
dated as of August 10, 1999, among the Lessee, the Owner Participant, the
Lessor, the Indenture Trustee and the Loan Participant, as the same may be
amended, modified or supplemented from time to time.
"Trust Agreement" means this Trust Agreement [N583ML] dated as of
---------------
August 10, 1999 between First Union and the Owner Participant, as the same may
be amended, modified or supplemented from time to time.
"Trust Estate" has the meaning given to such term in the Participation
------------
Agreement.
ARTICLE II
AUTHORITY TO EXECUTE CERTAIN OPERATIVE AGREEMENTS;
DECLARATION OF TRUST
Section 2.01. Authority to Execute Documents. The Owner Participant
------------------------------
hereby authorizes and directs the Owner Trustee (i) to execute and deliver the
Participation Agreement, the Lease, the Lease Supplement covering the Aircraft,
the Indenture, the Indenture Supplement covering the Aircraft, the Equipment
Notes and any other agreements, instruments or documents, to which the Owner
Trustee is a party in the respective forms thereof in which delivered from time
to time by the Owner Participant to the Owner Trustee for execution and delivery
and (ii) subject to the terms hereof, to exercise its rights (upon instructions
received from the Owner Participant) and perform its duties under the documents
referred to in this Section in accordance with the terms thereof.
Section 2.02. Declaration of Trust. First Union hereby declares that
--------------------
it will hold the Trust Estate upon the trusts hereinafter set forth for the use
and benefit of the Owner Participant, subject, however, to the provisions of and
the Lien created under the Indenture.
2
<PAGE>
ARTICLE III
ACCEPTANCE AND DELIVERY OF AIRCRAFT; ISSUANCE OF
EQUIPMENT NOTE; LEASE OF AIRCRAFT; REPLACEMENT
Section 3.01. Authorization. (a) The Owner Participant hereby
-------------
authorizes and directs the Owner Trustee to, and the Owner Trustee agrees for
the benefit of the Owner Participant that, on the Delivery Date it will, subject
to due compliance with the terms of Section 3.02 hereof:
(i) authorize a representative or representatives of the
Owner Trustee to accept delivery of the Aircraft pursuant to the
Participation Agreement;
(ii) execute and deliver each of the Operative Agreements to
which the Owner Trustee is to be a party;
(iii) purchase the Aircraft pursuant to the Participation
Agreement;
(iv) pay an amount equal to Lessor's Cost to, or at the
direction of, the Lessee pursuant to the Participation Agreement in
consideration of the sale of the Aircraft to the Owner Trustee
thereunder;
(v) issue to the Loan Participant its Equipment Note in
respect of the Aircraft in the amounts and otherwise as provided in
the Participation Agreement and the Indenture;
(vi) execute and deliver the financing statements
contemplated by Sections 3.01(m) and (n) of the Participation
Agreement;
(vii) make application to the FAA for registration of the
Aircraft in the name of the Owner Trustee;
(viii) take such other action as may reasonably be required of
the Owner Trustee hereunder or under the Participation Agreement, the
Indenture or the Lease to effectuate the transactions contemplated
thereby; and
(ix) execute and deliver all such other instruments,
documents or certificates and take all such other actions in
accordance with the directions of the Owner Participant, as the Owner
Participant may reasonably deem necessary or advisable in connection
with the transactions contemplated hereby and by the other Operative
Agreements.
3
<PAGE>
(b) The Owner Participant hereby authorizes and directs the Owner
Trustee to, and the Owner Trustee agrees for the benefit of the Owner
Participant that it will:
(i) immediately after the delivery of the Aircraft to the Owner
Trustee, cause the Aircraft to be leased to Lessee under the Lease;
and
(ii) execute and deliver a Lease Supplement and an Indenture
Supplement, in each case covering the Aircraft.
Section 3.02. Conditions Precedent. The right and obligation of the
--------------------
Owner Trustee to take the action required by Section 3.01 hereof shall be
subject to the following conditions precedent:
(a) the Owner Participant shall have made the full amount of its
Commitment with respect to the Aircraft available to the Owner Trustee, in
immediately available funds, in accordance with Section 2.01(c) of the
Participation Agreement; and
(b) the terms and conditions of Section 3.01 of the Participation
Agreement shall have been waived by the Owner Participant or complied with
in a manner satisfactory to the Owner Participant. The Owner Participant
shall, by instructing Owner Trustee to release the full amount of its
Commitment then held by Owner Trustee as provided in Section 2.01 of the
Participation Agreement, be deemed to have found satisfactory to it, or
waived, all such conditions precedent.
Section 3.03. Postponement of Delivery Date. The Owner Trustee, upon
-----------------------------
instructions from the Owner Participant, shall take all action specified in
Section 2.01(e) of the Participation Agreement as action to be taken by the
Owner Trustee.
Section 3.04. Authorization in Respect of a Replacement Airframe or
-----------------------------------------------------
Replacement Engines. The Owner Trustee agrees for the benefit of the Owner
- -------------------
Participant that, upon the receipt by a Responsible Officer of Owner Trustee of
an authorization and direction from the Owner Participant, it will, in the
event of a Replacement Airframe or Replacement Engines, if any, being
substituted pursuant to Section 8(a)(i) of the Lease, or a Replacement Engine
being substituted pursuant to Section 7(e) of the Lease, subject to due
compliance with the terms of Sections 8(d) and 7(e) of the Lease, as the case
may be:
(a) to the extent not previously accomplished by a prior
authorization, authorize a representative or representatives of the Owner
Trustee to accept delivery of the Replacement Airframe or Replacement
Engines, if any, or the Replacement Engine;
4
<PAGE>
(b) accept from Lessee or other vendor of the Replacement Airframe or
Replacement Engines, if any, or the Replacement Engine, a bill of sale or
bills of sale (if tendered) and the invoice, if any, with respect to the
Replacement Airframe and Replacement Engines, if any, or the Replacement
Engine being furnished pursuant to Section 8(a)(i) or 7(e) of the Lease;
(c) in the case of a Replacement Airframe, make application to the
FAA (or the Aeronautical Authority of any jurisdiction other than the
United States of America in which the Replacement Airframe is then
registered in accordance with the terms of the Lease) for registration in
the name of the Owner Trustee of the Aircraft of which such Replacement
Airframe is a part;
(d) execute and deliver a Lease Supplement and an Indenture
Supplement covering (i) the Aircraft of which such Replacement Airframe is
part of and, (ii) such Replacement Engine, as the case may be;
(e) transfer its interest in (without recourse except as to
obligations in respect of Lessor's Liens) and to the Airframe and Engines
(if any) or the Engine being replaced to or at the direction of Lessee;
(f) request in writing that the Indenture Trustee executes and
delivers to Lessee appropriate instruments to release the Airframe or
Engines (or engines) being replaced from the Lien created under the
Indenture and release the Assignment of Warranties (solely with respect to
such replaced Airframe or Engines, if any) from the assignment and pledge
under the Indenture; and
(g) take such further action as may be contemplated by Sections 8(d)
or 7(e) of the Lease, as the case may be.
Section 3.05. Trust Agreement Remaining in Full Force and Effect. In
--------------------------------------------------
the event of the substitution of a Replacement Airframe for the Airframe or the
substitution of a Replacement Engine for any Engine or engine all provisions of
this Trust Agreement relating to such replaced Airframe or Engine or engine
shall be applicable to such Replacement Airframe or Replacement Engine, with the
same force and effect as if such Replacement Airframe or Replacement Engine were
the same airframe, engine or propeller as the Airframe or Engine being replaced
but for the Event of Loss with respect to such Airframe or Engine.
Section 3.06. Authorization in Respect of Return of an Engine. The
-----------------------------------------------
Owner Trustee agrees for the benefit of the Owner Participant that, upon the
receipt by a Responsible Officer of the Owner Trustee of an authorization and
direction from the Owner Participant, it will, in the event of
5
<PAGE>
an engine being transferred to the Owner Trustee pursuant to Section 12(b) of
the Lease, subject to due compliance with the terms of such Section 12(b):
(a) accept from Lessee or other vendor the bill of sale contemplated
by such Section 12(b) with respect to such engine being transferred to the
Owner Trustee;
(b) transfer its right, title and interest in (without recourse or
warranty except a warranty against Lessor's Liens) and to an Engine to or
at the direction of Lessee as contemplated by such Section 12(b); and
(c) request in writing that the Indenture Trustee executes and
delivers to Lessee appropriate instruments to release the Engine being
transferred to Lessee pursuant to such Section 12(b) from the Lien of the
Indenture and to release Assignment of Warranties (solely with respect to
such Engine) from the assignment and pledge under the Indenture.
ARTICLE IV
RECEIPT, DISTRIBUTION AND APPLICATION
OF INCOME FROM THE TRUST ESTATE
Section 4.01. Distribution of Payments. (a) Payments to the Indenture
------------------------ -------------------------
Trustee. Until the Indenture shall have been terminated pursuant to Section 9.01
- -------
thereof or until the Aircraft shall have been released from the Lien created
under the Indenture pursuant to the terms thereof, all Basic Rent, Supplemental
Rent, insurance proceeds and requisition, indemnity or other payments of any
kind included in the Trust Estate (it being understood that Excluded Payments
are not part of the Trust Estate) shall be payable directly to the Indenture
Trustee (and if any of the same are received by the Owner Trustee shall upon
receipt be paid over to the Indenture Trustee without deduction, set-off or
adjustment of any kind) for distribution in accordance with the provisions of
Article III of the Indenture; provided, that any payments received by Owner
--------
Trustee from (i) Lessee with respect to Owner Trustee's fees and disbursements
or (ii) Owner Participant pursuant to Section 7.01 shall not be paid over to
Indenture Trustee but shall be retained by Owner Trustee and applied toward the
purpose for which such payments were made.
(b) Payments to the Owner Trustee; Other Parties. Any payment of the
--------------------------------------------
type required to be paid to the Indenture Trustee referred to in paragraph (a)
of this Section 4.01 received by the Owner Trustee after the Indenture shall
have been terminated, any payment received by the Owner Trustee pursuant to the
provisions of Article III of the Indenture (other than Excluded Payments) and
any other amounts received as part of the Trust Estate and for the application
or distribution of which no provision is made herein, shall be distributed
forthwith upon receipt by the Owner Trustee in the following order of priority:
first, so much of such payment as shall be required
- -----
6
<PAGE>
to pay or reimburse the Owner Trustee for any fees or expenses not otherwise
paid or reimbursed as to which the Owner Trustee is entitled to be so paid or
reimbursed pursuant to the provisions hereof or of the Indenture shall be
retained by the Owner Trustee; and second, the balance, if any, shall be paid to
------
the Owner Participant.
(c) Excluded Payments. Any Excluded Payments received by the Owner
-----------------
Trustee shall be paid by the Owner Trustee to the Person to whom such Excluded
Payments are payable under the provisions of the Tax Indemnity Agreement, the
Participation Agreement, the Lease or any other Operative Agreement.
(d) Certain Distributions to Owner Participant. All amounts from time
------------------------------------------
to time distributable to Owner Participant pursuant to the Indenture shall, if
paid to Owner Trustee, be distributed by Owner Trustee to Owner Participant in
accordance with the provisions of Article III of the Indenture.
Section 4.02. Method of Payments. The Owner Trustee shall make
------------------
distributions or cause distributions to be made to (i) the Owner Participant
pursuant to this Article IV by transferring by wire transfer in immediately
available funds the amount to be distributed to the account designated in
Schedule II to the Participation Agreement under the heading "Owner Participant"
or such other account or accounts of the Owner Participant as it may designate
from time to time by written notice to the Owner Trustee (and the Owner Trustee
shall use reasonable efforts to cause such funds to be transferred by wire
transfer on the same day as received, but in any case not later than the next
succeeding Business Day), and (ii) the Indenture Trustee pursuant to this
Article IV by paying the amount to be distributed to the Indenture Trustee in
the manner specified in the Indenture; provided, however, that the Owner Trustee
--------- --------
shall use its best efforts to invest overnight, for the benefit of the Owner
Participant, in investments that would be permitted by Section 15 of the Lease
(but only to the extent such investments are available and, if such investments
are not available, then in such other investments available to the Owner Trustee
which, after consultation with the Owner Participant, the Owner Participant
shall direct), all funds not transferred by the Owner Trustee by wire transfer
on the same day as they were received. Notwithstanding the foregoing but subject
always to the provisions of and Lien created by the Indenture, the Owner Trustee
will, if so requested by the Owner Participant by written notice, pay any and
all amounts payable by the Owner Trustee hereunder to the Owner Participant
either (i) by crediting, or causing the Indenture Trustee to credit, such amount
or amounts to an account or accounts maintained by the Owner Participant as it
may designate from time to time by written notice to the Owner Trustee, in
immediately available funds, or (ii) by mailing, or causing the Indenture
Trustee to mail, an official bank check or checks in such amount or amounts
payable to the Owner Participant at such address as the Owner Participant shall
have designated in writing to the Owner Trustee.
7
<PAGE>
ARTICLE V
DUTIES OF THE OWNER TRUSTEE
Section 5.01. Notice of Event of Default. If the Owner Trustee shall
--------------------------
have knowledge of a Default or an Event of Default or an Indenture Default or
Indenture Event of Default, the Owner Trustee shall give to the Owner
Participant and the Lessee prompt telephonic or telecopied notice thereof
followed by prompt confirmation thereof by certified mail, postage prepaid.
Subject to the terms of Section 5.03, the Owner Trustee shall take such action
or shall refrain from taking such action, not inconsistent with the provisions
of the Operative Agreements, with respect to such Default, Event of Default,
Indenture Default or Indenture Event of Default as the Owner Trustee shall be
directed in writing by the Owner Participant. For all purposes of this Trust
Agreement and the Lease, the Owner Trustee shall not be deemed to have knowledge
of a Default, an Event of Default, an Indenture Default or an Indenture Event of
Default unless notified in writing thereof in the manner and at the address set
forth in Section 11.05 or unless an officer in the Corporate Trust
Administration Department who has responsibility for, or familiarity with, the
transactions contemplated hereunder, under the Participation Agreement and under
the Indenture or any Vice President in the Corporate Trust Administration
Department of the Owner Trustee has actual knowledge thereof.
Section 5.02. Action Upon Instructions. Subject in all respects to the
------------------------
terms of Sections 5.01 and 5.03 and to the terms of the other Operative
Agreements, upon the written instructions at any time and from time to time of
the Owner Participant, the Owner Trustee will take such of the following actions
as may be specified in such instructions: (i) give such notice or direction or
exercise such right, remedy or power hereunder or under any of the Operative
Agreements to which the Owner Trustee is a party, or in respect of all or any
part of the Trust Estate, as shall be specified in such instructions; (ii) take
such action to preserve or protect the Trust Estate (including the discharge of
any Liens or encumbrances) as may be specified in such instructions; (iii)
approve as satisfactory to it all matters required by the terms of the Lease to
be satisfactory to the Owner Trustee, it being understood that without written
instructions of the Owner Participant, the Owner Trustee shall not approve any
such matter as satisfactory to it; (iv) after the expiration or earlier
termination of the Lease, convey all of the Owner Trustee's right, title and
interest in and to the Aircraft for such amount, on such terms and to such
purchaser or purchasers as shall be designated in such instructions, or retain,
lease or otherwise dispose of, or from time to time take such action with
respect to, the Aircraft on such terms as shall be set forth in such
instructions or deliver the Aircraft to the Owner Participant in accordance with
such instructions; and (v) take or refrain from taking such other action or
actions as may be specified in such instructions. In the event that the Owner
Trustee is unsure of the application of any provision of this Trust Agreement or
any other agreement relating to the transactions contemplated hereby, the Owner
Trustee may request and rely upon instructions of the Owner Participant.
8
<PAGE>
Section 5.03. Indemnification. The Owner Trustee shall not be
---------------
required to take or refrain from taking any action under Section 5.01 (other
than the giving of notices referred to therein) or 5.02 unless the Owner Trustee
shall have been indemnified by the Owner Participant, in manner and form
satisfactory to the Owner Trustee, against any liability, cost or expense
(including reasonable counsel fees and disbursements) which may be incurred in
connection therewith; and, if the Owner Participant shall have directed the
Owner Trustee to take or refrain from taking any such action, the Owner
Participant agrees to furnish such indemnity as shall be required and in
addition to pay the reasonable fees and charges of the Owner Trustee for the
services performed or to be performed by it pursuant to such direction. The
Owner Trustee shall not be required to take any action under Section 5.01 or
5.02 if the Owner Trustee shall reasonably determine, or shall have been advised
by counsel, that such action is contrary to the terms of any of the Operative
Agreements to which the Owner Trustee is a party, or is otherwise contrary to
Applicable Law.
Section 5.04. No Duties Except as Specified in Trust Agreement or
---------------------------------------------------
Instructions. The Owner Trustee shall not have any duty or obligation to manage,
- ------------
control, use, sell, dispose of or otherwise deal with the Aircraft or any other
part of the Trust Estate, or otherwise to take or refrain from taking any action
under, or in connection with any of the Operative Agreements to which the Owner
Trustee is a party, except as expressly required by the terms of any of the
Operative Agreements to which the Owner Trustee is a party, or (to the extent
not inconsistent with the provisions of the Indenture) as expressly provided by
the terms hereof or in written instructions from the Owner Participant received
pursuant to the terms of Section 5.01 or 5.02, and no implied duties or
obligations shall be read into this Trust Agreement or any of the Operative
Agreements to which the Owner Trustee is a party against the Owner Trustee. The
Owner Trustee nevertheless agrees that it will, in its individual capacity and
at its own cost and expense (but without any right of indemnity in respect of
any such cost or expense under Section 7.01) promptly take such action as may be
necessary duly to discharge and satisfy in full (i) all Lessor's Liens
attributable to the Owner Trustee in its individual capacity, (ii) any Liens
(other than Lessor's Liens attributable to it in its individual capacity)
created as a result of its breach of any of its obligations under this Trust
Agreement (subject to the limitations on the liability of the Owner Trustee in
its individual capacity set forth in Section 6.01) on any part of the Trust
Estate, or on any properties of the Owner Trustee assigned, pledged or mortgaged
as part of the Trust Estate, which arise from acts of the Owner Trustee in its
individual capacity, except the Lien created under the Indenture, the rights of
Lessee under the Lease and the rights of the Owner Participant hereunder, and
(iii) any other Liens or encumbrances attributable to the Owner Trustee in its
individual capacity on any part of the Trust Estate which result from claims
against the Owner Trustee in its individual capacity unrelated to the ownership
of the Aircraft, the administration of the Trust Estate or the transactions
contemplated by the Operative Agreements.
Section 5.05. No Action Except Under Specified Documents or
---------------------------------------------
Instructions. The Owner Trustee shall have no power or authority to, and the
- ------------
Owner Trustee agrees that it will not, manage, control, use, sell, dispose of or
otherwise deal with the Aircraft or any other part of the
9
<PAGE>
Trust Estate except (i) as expressly required by the terms of any of the
Operative Agreements to which the Owner Trustee is a party, (ii) as expressly
provided by the terms hereof, or (iii) as expressly provided in written
instructions from the Owner Participant pursuant to Section 5.01 or 5.02, but
subject always to the provisions of the Lien created by the Indenture.
ARTICLE VI
THE OWNER TRUSTEE
Section 6.01. Acceptance of Trusts and Duties. First Union accepts
-------------------------------
the trusts hereby created and agrees to perform the same but only upon the terms
hereof applicable to it. First Union also agrees to receive and disburse all
monies received by it constituting part of the Trust Estate upon the terms
hereof. First Union shall not be answerable or accountable under any
circumstances, except for (i) its own willful misconduct or gross negligence,
(ii) its performance of the terms of the last sentence of Section 5.04, (iii)
its failure to use ordinary care in receiving or disbursing funds or to comply
with the first sentence of Section 6.08, (iv) liabilities that may result from
the inaccuracy of any representation or warranty of the Owner Trustee in its
individual capacity (or from the failure by the Owner Trustee in its individual
capacity to perform any covenant made in its individual capacity) in Section
6.03 or in any of the Operative Agreements to which the Owner Trustee is a
party, (v) taxes, fees or other charges on, based on or measured by any fees,
commissions or other compensation received by First Union as compensation for
its services rendered as the Owner Trustee, (vi) its failure (in its individual
capacity or as Owner Trustee) to use ordinary care in connection with its
obligations to invest funds pursuant to Section 15 of the Lease or Section 4.02
hereof and (vii) for any liability on the part of the Owner Trustee arising out
of its negligence or willful or negligent misconduct in connection with its
obligations under Section 5.01, 6.08 or 9.02 hereof or Section 4.01 of the
Indenture; provided, however, that the failure to act or perform in the absence
-------- -------
of instructions after the Owner Trustee has requested instructions from the
Owner Participant pursuant to the last sentence of Section 5.02 shall not
constitute willful misconduct or gross negligence for purposes of clause (i) of
this Section 6.01.
Section 6.02. Absence of Certain Duties. Except in accordance with
-------------------------
written instructions furnished pursuant to Sections 5.01 and 5.02 and except as
provided in, and without limiting the generality of, Sections 3.01, 5.04 and
5.05 and the last sentence of Section 9.01(b), the Owner Trustee shall have no
duty (i) to see to any registration of the Aircraft or any recording or filing
of the Lease, this Trust Agreement, the Indenture, any financing or continuation
statement or of any supplement to any thereof or to see to the maintenance of
any such registration, rerecording or refiling, except that of Owner Trustee to
comply with the FAA reporting requirements set forth in 14 C.F.R. (S) 47.45 and
14 C.F.R. (S) 47.51 or any successor provisions, and that the Owner Trustee
shall upon written request furnished by Lessee take such action as may be
required of the Owner Trustee to maintain the registration of the Aircraft in
the name of the Owner Trustee under the Act
10
<PAGE>
or, to the extent the Aircraft is registered in a country other than the United
States of America pursuant to Section 4.02 of the Participation Agreement, other
Applicable Law, and to the extent that information for that purpose is supplied
by Lessee pursuant to any of the Operative Agreements, complete and timely
submit any and all reports relating to the Aircraft which may from time to time
be required by the FAA or any government or governmental authority having
jurisdiction, (ii) to see to any insurance on the Aircraft or to effect or
maintain any such insurance, whether or not Lessee shall be in default with
respect thereto, (iii) to see to the payment or discharge of any tax, assessment
or other governmental charge or any Lien or encumbrance of any kind owing with
respect to, assessed or levied against any part of the Trust Estate except as
provided by Section 5.04 hereof or Section 5.03(b) of the Participation
Agreement, (iv) to confirm or verify any financial statements of Lessee or (v)
to inspect the Aircraft or the books and records of Lessee with respect to the
Aircraft. Notwithstanding the foregoing, the Owner Trustee will furnish to the
Indenture Trustee and Owner Participant, promptly upon receipt thereof,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and other instruments furnished to Owner Trustee under the
Lease or any other Operative Agreement except to the extent to which a
Responsible Officer of Owner Trustee reasonably believes (and confirms by
telephone call with Owner Participant) that duplicates or copies thereof have
already been furnished to Owner Participant by some other Person.
Section 6.03. No Representations or Warranties as to Certain Matters.
------------------------------------------------------
THE OWNER TRUSTEE IN ITS INDIVIDUAL CAPACITY OR AS THE OWNER TRUSTEE DOES NOT
MAKE AND SHALL NOT BE DEEMED TO HAVE MADE (a) ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE TITLE, VALUE, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT, ANY
ENGINE THEREOF, ABSENCE OF LATENT OR OTHER DEFECTS (WHETHER OR NOT DISCOVERABLE)
OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE AIRCRAFT OR ANY
ENGINE WHATSOEVER, except that the Owner Trustee in its individual capacity
warrants that on the Delivery Date the Owner Trustee shall have received and
shall hold whatever title to the Aircraft was conveyed to it by Seller free and
clear of Lessor's Liens attributable to the Owner Trustee in its individual
capacity, shall be in compliance with the last sentence of Section 5.04 hereof
and that the Aircraft shall during the Lease Term be free of Lessor's Liens
attributable to it in its individual capacity, or (b) any representation or
warranty as to the validity, legality or enforceability of this Trust Agreement
or any other Operative Agreement to which the Owner Trustee in its individual
capacity or as Owner Trustee is a party, or any other document or instrument, or
as to the correctness of any statement contained in any thereof except to the
extent that any such statement is expressly made herein or therein as a
representation by the Owner Trustee in its individual capacity and except that
the Owner Trustee in its individual capacity hereby represents and warrants that
it has all corporate power and authority to execute, deliver and perform this
Trust Agreement and that this Trust Agreement has been, and (assuming the due
authorization, execution and delivery of the Trust Agreement by the Owner
Participant) the other Operative Agreements to which the Owner Trustee is a
party have been (or at the time of execution and delivery of any such instrument
11
<PAGE>
by the Owner Trustee hereunder or pursuant to the terms of the Participation
Agreement that such an instrument will be) duly executed and delivered by one of
its officers who is or will be, as the case may be, duly authorized to execute
and deliver such instruments on behalf of the Owner Trustee and that this Trust
Agreement has been duly authorized, executed and delivered by First Union and
constitutes the legal, valid and binding obligation of First Union enforceable
against it in accordance with its terms, except as such terms may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally and by general principles of equity,
regardless of whether considered in a proceeding in equity or at law.
Section 6.04. No Segregation of Monies Required; Investment Thereof.
-----------------------------------------------------
Monies received by the Owner Trustee hereunder need not be segregated in any
manner except to the extent required by Applicable Law, and may be deposited
under such general conditions as may be prescribed by Applicable Law, and shall
be invested as provided in Section 4.02 hereof or Section 15 of the Lease.
Section 6.05. Reliance Upon Certificates, Counsel and Agents. The
----------------------------------------------
Owner Trustee shall incur no liability to anyone in acting in reliance upon any
signature, instrument, notice, resolution, request, consent, order, certificate,
report, opinion, bond or other document or paper reasonably believed by it to be
genuine and reasonably believed by it to be signed by the proper party or
parties. Unless other evidence in respect thereof is specifically prescribed
herein, any request, direction, order or demand of the Owner Participant, Lessee
or the Indenture Trustee mentioned herein or in any of the other Operative
Agreements to which the Owner Trustee is a party shall be sufficiently evidenced
by written instruments signed by a person purporting to be an officer of the
Owner Participant, Lessee or the Indenture Trustee, as the case may be. The
Owner Trustee may accept a copy of a resolution of the Board of Directors of
Lessee, the Owner Participant or the Indenture Trustee, as the case may be,
certified by the Secretary or an Assistant Secretary of Lessee, the Owner
Participant or the Indenture Trustee, as the case may be, as duly adopted and in
full force and effect, as conclusive evidence that such resolution has been duly
adopted by said Board and that the same is in full force and effect. As to any
fact or matter the manner of ascertainment of which is not specifically
described herein, the Owner Trustee may, absent actual knowledge to the
contrary, for all purposes hereof rely on a certificate signed by an officer of
Lessee, the Owner Participant or the Indenture Trustee, as the case may be, as
to such fact or matter, and such certificate shall constitute full protection to
the Owner Trustee for any action taken or omitted to be taken by it in good
faith in reliance thereon.
In the administration of the trusts hereunder, the Owner Trustee may
exercise its powers and perform its duties hereunder directly or through agents
or attorneys and the Owner Trustee shall not be liable for the default or
misconduct of any agents or attorneys selected by it with reasonable care. In
the administration of the trusts hereunder, the Owner Trustee may consult with
counsel, accountants and other skilled persons and the Owner Trustee shall not
be liable for anything
12
<PAGE>
done, suffered or omitted in good faith by it in accordance with the advice or
opinion of any such counsel, accountants or other skilled persons selected by it
with reasonable care.
Section 6.06. Not Acting in Individual Capacity. In acting hereunder,
---------------------------------
the Owner Trustee acts solely as trustee and not in its individual capacity
except as otherwise expressly provided herein; and, except as may be otherwise
expressly provided in this Trust Agreement, including without limitation,
Section 6.01, the Lease, the Participation Agreement or the Indenture, all
Persons having any claim against the Owner Trustee by reason of the transactions
contemplated hereby shall look only to the Trust Estate for payment or
satisfaction thereof.
Section 6.07. Fees; Compensation. Except as provided in Section 5.03
------------------
or 7.01, the Owner Trustee agrees that it shall have no right against the Owner
Participant or the Trust Estate for any fee as compensation for its services
hereunder.
Section 6.08. Tax Returns. The Owner Trustee shall be responsible for
-----------
the keeping of all appropriate books and records relating to the receipt and
disbursement by it of all monies under this Trust Agreement or any agreement
contemplated hereby. The Owner Trustee shall be responsible for causing to be
prepared and filed, at Lessee's expense, all income tax returns required to be
filed with respect to the trust created hereby as requested by the Owner
Participant and shall execute and file such returns as directed by the Owner
Participant.
Section 6.09. Fixed Investment Trust. Notwithstanding anything herein
----------------------
to the contrary, the Owner Trustee shall not be authorized and shall have no
power to "vary the investment" of the Owner Participant within the meaning of
section 301.7701-4(c) of the Treasury Regulations.
ARTICLE VII
INDEMNIFICATION OF THE OWNER TRUSTEE
BY THE OWNER PARTICIPANT
Section 7.01. The Owner Participant to Indemnify the Owner Trustee.
----------------------------------------------------
The Owner Participant hereby agrees, whether or not any of the transactions
contemplated hereby shall be consummated, to assume liability for, and does
hereby indemnify, protect, save, defend and hold harmless the Owner Trustee in
its individual capacity, and its successors, assigns (but not security assigns),
directors, officers, representatives, agents, employees and servants, from and
against any and all liabilities, obligations, losses, damages, penalties, taxes
(excluding any taxes payable by the Owner Trustee on or measured by any
compensation received by the Owner Trustee for its services hereunder), claims,
actions, suits, costs, expenses or disbursements (including, without limitation,
reasonable legal fees, but excluding internal costs and expenses such as
salaries and overhead) and
13
<PAGE>
expenses of any kind and nature whatsoever which may be imposed on, incurred by
or asserted against the Owner Trustee in its individual capacity (whether or not
also indemnified against by Lessee under the Lease or under the Participation
Agreement or also indemnified against by any other Person; provided that Owner
--------
Participant shall be subrogated to the rights of Owner Trustee against Lessee or
any other indemnitor) in any way relating to or arising out of this Trust
Agreement or any of the other Operative Agreements or the enforcement of any of
the terms of any thereof, or in any way relating to or arising out of the
manufacture, purchase, acceptance, nonacceptance, rejection, ownership,
delivery, lease, possession, use, operation, condition, sale, return or other
disposition of the Airframe, any Engine or any Part of the foregoing (including,
without limitation, latent and other defects, whether or not discoverable, and
any claim for patent, trademark or copyright infringement), or in any way
relating to or arising out of the administration of the Trust Estate or the
action or inaction of the Owner Trustee hereunder, except (a) in the case of
willful misconduct or gross negligence on the part of the Owner Trustee either
as trustee or in its individual capacity in the performance or nonperformance of
its duties hereunder or under any of the other Operative Agreements to which it
is a party or (b) those resulting from the inaccuracy of any representation or
warranty of the Owner Trustee in its individual capacity (or from the failure of
the Owner Trustee in its individual capacity to perform any covenant) in Section
6.03, or in any of the Operative Agreements, or (c) those arising or resulting
from any of the matters described in the last sentence of Section 6.01, or (d)
those resulting from its failure to perform the terms of the last sentence of
Section 5.04 hereof or from its failure to use ordinary care in the receipt and
disbursement of funds or in connection with its obligation to invest funds
pursuant to Section 15 of the Lease or Section 4.02 hereof or in compliance with
the first Section of Section 6.08, or (e) any liability on the part of Owner
Trustee arising out of its negligence or willful or negligent misconduct in
connection with its obligations under Section 5.01, 6.08 or 9.02 hereof or
Section 4.01 of the Indenture, or (f) those arising under any circumstances or
upon any terms where Lessee would not have been required to indemnify Owner
Trustee, in its individual capacity, pursuant to Section 6.01 or 7.01 of the
Participation Agreement; provided, that before asserting its right to
--------
indemnification, if any, pursuant to this Section 7.01, Owner Trustee shall
first demand its corresponding right to indemnification pursuant to Section 6.01
or 7.01 of the Participation Agreement (but need not exhaust any or all remedies
available thereunder). The indemnities contained in this Section 7.01 extend to
the Owner Trustee only in its individual capacity and shall not be construed as
indemnities of the Indenture Estate or the Trust Estate. The indemnities
contained in this Section 7.01 shall survive the termination of this Trust
Agreement and the resignation or removal of the Owner Trustee. In addition, if
necessary, the Owner Trustee shall be entitled to indemnification from the Trust
Estate, subject however to the provisions of Section 4.01 hereof and the Lien
created under the Indenture, for any liability, obligation, loss, damage,
penalty, tax, claim, action, suit, cost, expense or disbursement indemnified
against pursuant to this Section 7.01 to the extent not reimbursed by Lessee,
the Owner Participant or others, but without releasing any of them from their
respective agreements of reimbursement.
14
<PAGE>
ARTICLE VIII
[RESERVED]
ARTICLE IX
SUCCESSOR OWNER TRUSTEES; CO-TRUSTEES
Section 9.01. Resignation of the Owner Trustee; Appointment of
------------------------------------------------
Successor. (a) Resignation or Removal. The Owner Trustee or any successor Owner
- ---------
Trustee (i) shall resign if required to do so pursuant to Section 5.02(b) of the
Participation Agreement and (ii) may resign at any time without cause by giving
at least 60 days prior written notice to the Owner Participant, the Indenture
Trustee and Lessee, such resignation to be effective upon the acceptance of
appointment by the successor Owner Trustee under Section 9.01(b). In addition,
the Owner Participant may at any time remove the Owner Trustee, or revoke the
trusts created by this Trust Agreement, in either case with or without cause by
a notice in writing delivered to the Owner Trustee, the Indenture Trustee and
Lessee. Any such removal shall be effective upon the acceptance of appointment
by the successor Owner Trustee under Section 9.01(b). In the case of the
resignation or removal of the Owner Trustee, the Owner Participant may appoint a
successor Owner Trustee by an instrument in writing. If a successor Owner
Trustee shall not have been appointed within 30 days after such notice of
resignation or removal, the Owner Trustee or the Indenture Trustee may apply to
any court of competent jurisdiction to appoint a successor Owner Trustee to act
until such time, if any, as a successor shall have been appointed as above
provided. Any successor Owner Trustee so appointed by such court shall
immediately and without further act be superseded by any successor Owner Trustee
appointed as above provided within one year from the date of the appointment by
such court.
(b) Execution and Delivery of Documents, etc. Any successor Owner
-----------------------------------------
Trustee, however appointed, shall execute and deliver to the predecessor Owner
Trustee, with a copy to Owner Participant, Lessee and Indenture Trustee, an
instrument accepting such appointment and assuming the obligations of Owner
Trustee, in its individual capacity and as Owner Trustee, under the Operative
Agreements to which Owner Trustee is a party, and thereupon such successor Owner
Trustee, without further act, shall become vested with all the estates,
properties, rights, powers, duties and trusts of the predecessor Owner Trustee
in the trust hereunder with like effect as if originally named the Owner Trustee
herein; but nevertheless, upon the written request of such successor Owner
Trustee, such predecessor Owner Trustee shall execute and deliver an instrument
transferring to such successor Owner Trustee upon the trusts herein expressed,
all the estates, properties, rights, powers and trusts of such predecessor Owner
Trustee, and such predecessor Owner Trustee shall duly assign, transfer, deliver
and pay over to such successor Owner Trustee all monies or other property then
held by such predecessor Owner Trustee upon the trusts herein expressed.
15
<PAGE>
Upon the appointment of any successor Owner Trustee hereunder, the predecessor
Owner Trustee will complete, execute and deliver to the successor Owner Trustee
such documents as are necessary to cause registration of the Aircraft included
in the Trust Estate to be transferred upon the records of the FAA or other
governmental authority having jurisdiction, into the name of the successor Owner
Trustee.
(c) Qualification. Any successor Owner Trustee, however appointed,
-------------
shall be a Citizen of the United States, shall be qualified to act as a trustee
in Delaware (if the trust created hereby is to remain in such state) and shall
also be a bank or trust company organized under the laws of the United States of
America or any state thereof having a combined capital and surplus of at least
$100,000,000, if there be such an institution willing, able and legally
qualified to perform the duties of the Owner Trustee hereunder upon reasonable
and customary terms.
(d) Merger, etc. Any corporation into which the Owner Trustee may be
------------
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Owner
Trustee shall be a party, or any corporation to which substantially all the
corporate trust business of the Owner Trustee may be transferred, shall, subject
to the terms of Section 9.01(c), be the Owner Trustee hereunder without further
act; provided that such corporation shall not also be the Indenture Trustee.
Section 9.02. Co-Trustees and Separate Trustees. If at any time or
---------------------------------
times it shall be necessary or prudent in order to conform to any Applicable Law
of any jurisdiction in which all or any part of the Trust Estate is located, or
the Owner Trustee shall be advised by counsel that it is so necessary or prudent
in the interest of the Owner Participant or the Owner Trustee, or the Owner
Trustee shall have been directed to do so by the Owner Participant, the Owner
Trustee and the Owner Participant shall execute and deliver an agreement
supplemental hereto and all other instruments and agreements necessary or proper
to constitute another bank or trust company or one or more Persons (any and all
of which shall be a Citizen of the United States) approved by the Owner Trustee
and the Owner Participant, either to act as co-trustee or co-trustees, jointly
with the Owner Trustee, or to act as separate trustee or trustees hereunder (any
such co-trustee or separate trustee being herein sometimes referred to as an
"additional trustee"). In the event (i) the Owner Participant shall not have
joined in the execution of such agreements supplemental hereto within ten days
after the receipt of a written request from the Owner Trustee so to do, or (ii)
an Indenture Event of Default not arising from an Event of Default shall occur
and be continuing, the Owner Trustee may act under the foregoing provisions of
this Section 9.02 without the concurrence of the Owner Participant; and the
Owner Participant hereby appoints the Owner Trustee its agent and attorney-in-
fact to act for it under the foregoing provisions of this Section 9.02 in either
of such contingencies.
Every additional trustee hereunder shall, to the extent permitted by
Applicable Law, be appointed and act, and the Owner Trustee and its successors
shall act, subject to the following provisions and conditions:
16
<PAGE>
(a) all powers, duties, obligations and rights conferred upon the
Owner Trustee in respect of the custody, control and management of monies,
the Aircraft or documents authorized to be delivered hereunder or under the
Participation Agreement shall be exercised solely by the corporation
designated as the Owner Trustee in the first paragraph of this Trust
Agreement, or its successors as the Owner Trustee hereunder;
(b) all other rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee and any limitations thereon shall be
conferred or imposed upon and exercised or performed by the corporation
designated as the Owner Trustee in the first paragraph of this Trust
Agreement or its successors as the Owner Trustee, and such additional
trustee or trustees jointly, except to the extent that under any Applicable
Law of any jurisdiction in which any particular act or acts are to be
performed (including the holding of title to the Trust Estate), the Owner
Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations shall be exercised
and performed by such additional trustee or trustees;
(c) no power given to, or which it is provided hereby may be
exercised by, any such additional trustee or trustees shall be exercised
hereunder by such additional trustee or trustees, except jointly with, or
with the consent in writing of, the corporation designed as the Owner
Trustee in this Trust Agreement or its successor as the Owner Trustee,
anything herein contained to the contrary notwithstanding;
(d) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder;
(e) the Owner Participant, at any time, by an instrument in writing
may remove any such additional trustee. In the event that the Owner
Participant shall not have joined in the execution of any such instrument
within ten days after the receipt of a written request from the Owner
Trustee so to do, the Owner Trustee shall have the power to remove any such
additional trustee without the concurrence of the Owner Participant; and
the Owner Participant hereby appoints the Owner Trustee its agent and
attorney-in-fact to act for it in such connection in such contingency; and
(f) no appointing of, or action by, any additional trustee will
relieve the Owner Trustee of any of its obligations under, or otherwise
affect any of the terms of the Indenture or affect the interests of the
Indenture Trustee or the Noteholders in the Trust Estate.
In case any separate trustee under this Section 9.02 shall die, become
incapable of acting, resign or be removed, the title to the Trust Estate and all
rights and duties of such separate trustee shall, so far as permitted by
Applicable Law, vest in and be exercised by Owner Trustee, without the
appointment of a successor to such separate trustee.
17
<PAGE>
ARTICLE X
SUPPLEMENTS AND AMENDMENTS TO TRUST AGREEMENT
AND OTHER DOCUMENTS
Section 10.01. Supplements and Amendments. (a) Supplements and
-------------------------- ---------------
Amendments. At any time and from time to time, upon the written request of the
- ----------
Owner Participant, (i) the Owner Trustee, together with the Owner Participant,
shall, subject to Section 5.11 of the Participation Agreement, execute a
supplement to this Trust Agreement for the purpose of adding provisions to, or
changing or eliminating provisions of, this Trust Agreement (except Section
11.11) as specified in such request, and (ii) the Owner Trustee shall, subject
to compliance with the applicable provisions of Section 8.01 of the Indenture,
enter into such written amendment of or supplement to any other Operative
Agreement to which the Owner Trustee is a party as the Indenture Trustee,
Noteholders and Lessee may agree to and as may be specified in such request, or
execute and deliver such written waiver or modification of or consent under the
terms of any such Operative Agreement as Lessee, Noteholders and the Indenture
Trustee may agree to and as may be specified in such request.
(b) Delivery of Amendments and Supplements to Certain Parties. Until
---------------------------------------------------------
the Indenture shall have been terminated pursuant to Section 9.01 thereof or the
Aircraft shall have been released from the Indenture Estate, a signed copy of
each amendment or supplement to the Trust Agreement shall be delivered by the
Owner Trustee to the Indenture Trustee without in any way affecting the
Indenture or the Equipment Notes and without imposing any duty on the Indenture
Trustee with respect to such amendment or supplement.
Section 10.02. Discretion as to Execution of Documents. If in the
---------------------------------------
opinion of the Owner Trustee any document required to be executed pursuant to
the terms of Section 10.01 adversely affects any right, duty, immunity or
indemnity in favor of the Owner Trustee hereunder or under any other Operative
Agreement to which the Owner Trustee is a party, the Owner Trustee may in its
discretion decline to execute such document unless Owner Trustee is furnished
with indemnification from Lessee or any other party upon terms and in amounts
reasonably satisfactory to Owner Trustee to protect the Trust Estate and Owner
Trustee against any and all liabilities, costs and expenses arising out of the
execution of such documents.
Section 10.03. Absence of Requirements as to Form. It shall not be
----------------------------------
necessary for any written request furnished pursuant to Section 10.01 to specify
the particular form of the proposed documents to be executed pursuant to such
Section, but it shall be sufficient if such request shall indicate the substance
thereof.
18
<PAGE>
Section 10.04. Distribution of Documents. Promptly after the
-------------------------
execution by the Owner Trustee of any document entered into pursuant to Section
10.01, the Owner Trustee shall mail, by certified mail, postage prepaid, a
conformed copy thereof to the Owner Participant, but the failure of the Owner
Trustee to mail such conformed copy shall not impair or affect the validity of
such document.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Termination of Trust Agreement. This Trust Agreement
------------------------------
and the trusts created hereby shall terminate and this Trust Agreement shall be
of no further force or effect upon the earliest of (a) the later of (x) the
termination of the Indenture pursuant to Section 9.01 thereof and the sale or
other final disposition by the Owner Trustee of all property constituting part
of the Trust Estate and the final distribution by the Owner Trustee of all
monies or other property or proceeds constituting part of the Trust Estate in
accordance with Article IV hereof, provided that at such time Lessee shall have
--------
fully complied with all of the terms of the Participation Agreement and the
Lease, and (y) the expiration or termination of the Lease in accordance with its
terms or (b) 110 years after the earlier execution of this Trust Agreement by
either party hereto, but if this Trust Agreement and the trusts created hereby
shall be or become authorized under applicable law for a period subsequent
thereto (or, without limiting the generality of the foregoing, if legislation
shall become effective providing for the validity of this Trust Agreement and
the trusts created hereby and the effective grant of such rights, privileges and
options for a period in gross) exceeding the period for which this Trust
Agreement and the trusts created hereby are hereinabove stated to extend and be
valid), then such rights, privileges or options shall not terminate as aforesaid
but shall extend to and continue in effect, but only if such non-termination and
extension shall then be valid under Applicable Law, until such time as the same
shall under Applicable Law cease to be valid, whereupon all monies or other
property or proceeds constituting part of the Trust Estate shall be distributed
in accordance with the terms of Article IV hereof, otherwise this Trust
Agreement and the trusts created hereby shall continue in full force and effect
in accordance with the terms hereof.
Notwithstanding the foregoing, this Trust Agreement and trust created
hereby shall terminate and the Trust Estate shall be distributed to the Owner
Participant, and this Trust Agreement shall be of no further force and effect,
upon the election of the Owner Participant by notice to the Owner Trustee, if
such notice shall be accompanied by the written agreement (in form and substance
satisfactory to the Owner Trustee) of the Owner Participant assuming all
obligations of the Owner Trustee under or contemplated by the Operative
Agreements or incurred by it as trustee hereunder and releasing the Owner
Trustee therefrom; provided, however, that such notice may be given only after
the time the Lien of the Indenture is discharged under Section 9.01 of the
Indenture and after the Lease shall no longer be in effect.
19
<PAGE>
Section 11.02. The Owner Participant Has No Legal Title in Trust
-------------------------------------------------
Estate. The Owner Participant does not have legal title to any part of the Trust
- ------
Estate. No transfer, by operation of law or otherwise, of any right, title and
interest of the Owner Participant in and to the Trust Estate hereunder shall
operate to terminate this Trust Agreement or the trusts hereunder or entitle any
successors or transferees of the Owner Participant to an accounting or to the
transfer of legal title to any part of the Trust Estate.
Section 11.03. Assignment, Sale, etc., of Aircraft. Any assignment,
-----------------------------------
sale, transfer or other conveyance of the Aircraft, any Engine, any Part or any
interest therein by the Owner Trustee made pursuant to the terms hereof or of
the Lease or the Participation Agreement shall bind the Owner Participant and
shall be effective to transfer or convey all right, title and interest of the
Owner Trustee and the Owner Participant in and to the Aircraft, such Engine,
such Part or interest therein. No purchaser or other grantee shall be required
to inquire as to the authorization, necessity, expediency or regularity of such
assignment, sale, transfer or conveyance or as to the application of any sale or
other proceeds with respect thereto by the Owner Trustee.
Section 11.04. Trust Agreement for Benefit of Certain Parties Only.
---------------------------------------------------
Except for the terms of Section 4.01, Articles V and IX, Sections 10.01, 11.01
and 11.03 hereof, nothing herein, whether express or implied, shall be construed
to give any Person other than the Owner Trustee and the Owner Participant any
legal or equitable right, remedy or claim under or in respect of this Trust
Agreement; but this Trust Agreement shall be held to be for the sole and
exclusive benefit of the Owner Trustee and the Owner Participant.
Section 11.05. Notices. Unless otherwise expressly specified or
-------
permitted by the terms hereof, all notices shall be given in the manner set
forth in Section 12.01 of the Participation Agreement.
Section 11.06. Severability. Any provision hereof which is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 11.07. Waivers, etc. No term or provision hereof may be
-------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing entered into in compliance with the terms of Article X hereof; and any
waiver of the terms hereof shall be effective only in the specified instance and
for the specific purpose given.
Section 11.08. Counterparts. This Trust Agreement may be executed by
------------
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
20
<PAGE>
Section 11.09. Binding Effect, etc. All covenants and agreements
--------------------
contained herein shall be binding upon, and inure to the benefit of, the Owner
Trustee and its successors and permitted assigns, and the Owner Participant, its
successors and permitted assigns. Any request, notice, direction, consent,
waiver or other instrument or action by the Owner Participant shall bind its
successors and permitted assigns.
Section 11.10. Headings; References. The headings of the various
--------------------
Articles and Sections herein are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof.
Section 11.11. GOVERNING LAW. (a) THIS TRUST AGREEMENT SHALL IN ALL
-------------
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF DELAWARE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
(b) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
HEREBY IRREVOCABLY AGREES, ACCEPTS AND SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY AND COUNTY OF
NEW YORK AND OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN
CONNECTION WITH ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO ANY MATTER
RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THIS TRUST AGREEMENT.
(c) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
HEREBY IRREVOCABLY CONSENTS AND AGREES THAT THE SERVICE OF ANY AND ALL LEGAL
PROCESS, SUMMONS NOTICES AND DOCUMENTS OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY MAILING COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT THE ADDRESS REFERRED TO IN
SECTION 11.05. EACH PARTY HERETO HEREBY AGREES THAT SERVICE UPON IT IN
ACCORDANCE WITH THIS SECTION 11.11(c) SHALL CONSTITUTE VALID AND EFFECTIVE
PERSONAL SERVICE UPON SUCH PARTY.
(d) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A
DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR PROCEEDING BROUGHT HEREUNDER IN
ANY OF THE ABOVE-NAMED COURTS, THAT SUCH ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT VENUE FOR THE ACTION OR PROCEEDING IS IMPROPER OR THAT
THIS TRUST
21
<PAGE>
AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT MAY NOT BE ENFORCED IN OR BY SUCH
COURTS.
(e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF OR RELATING
TO THIS TRUST AGREEMENT.
Section 11.12. Administration of Trust. The principal place of
-----------------------
administration of the trust created by this Trust Agreement shall be in the
State of Delaware.
* * *
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
POLARIS HOLDING COMPANY
By: /s/ Norman Liu
--------------
Name: Norman Liu
Title: Executive Vice President
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
By: /s/ Stephen J. Kaba
-------------------
Name: Stephen J. Kaba
Title: Vice President
23
<PAGE>
Note to Exhibit 10.2
The following Trust Agreement is substantially identical in all material
respects to the Trust Agreement filed herewith except as follows:
Date Aircraft Tail No.
---- -----------------
August 10, 1999 N584ML
September 10, 1999 N585ML
<PAGE>
CONFORMED COPY
--------------
EXHIBIT 10.3
________________________________________________________________________________
TRUST INDENTURE AND SECURITY AGREEMENT [N583ML]
Dated as of August 10, 1999
between
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
Owner Trustee
and
ALLFIRST BANK,
Indenture Trustee
_________________________________
COVERING ONE CANADAIR REGIONAL JET SERIES 200ER
AIRCRAFT BEARING U.S. REGISTRATION NO. N583ML
AND MANUFACTURER'S SERIAL NUMBER 7327
_________________________________
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS........................................................................................ 5
SECTION 1.01. Definitions.................................................................. 5
ARTICLE II
THE EQUIPMENT NOTES................................................................................ 6
SECTION 2.01. Form of Equipment Notes...................................................... 6
SECTION 2.02. Terms of Equipment Notes..................................................... 6
SECTION 2.03. Payments from Indenture Estate Only.......................................... 7
SECTION 2.04. Method of Payment............................................................ 8
SECTION 2.05. Application of Payments...................................................... 8
SECTION 2.06. Termination of Interest in Indenture Estate.................................. 9
SECTION 2.07. Registration, Transfer and Exchange of Equipment Notes....................... 9
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Equipment Notes......................... 10
SECTION 2.09. Payment of Expenses on Transfer.............................................. 10
SECTION 2.10. Prepayment................................................................... 11
SECTION 2.11. Provisions Relating to Prepayment............................................ 12
SECTION 2.12. Purchase Upon an Event of Default............................................ 12
SECTION 2.13. Equipment Notes in Respect of Replacement Aircraft........................... 13
SECTION 2.14. Increased Costs.............................................................. 14
ARTICLE III
RECEIPT, DISTRIBUTION AND APPLICATION
OF INCOME FROM THE INDENTURE ESTATE................................................................ 16
SECTION 3.01. Basic Rent Distribution...................................................... 16
SECTION 3.02. Lease Termination, Event of Loss and Replacement............................. 17
SECTION 3.03. Payment After Indenture Event of Default, etc................................ 18
SECTION 3.04. Certain Payments............................................................. 19
SECTION 3.05. Other Payments............................................................... 20
SECTION 3.06. Payments to Owner Trustee.................................................... 20
SECTION 3.07. Investment of Amounts Held by Indenture Trustee.............................. 20
SECTION 3.08. Taxes; Withholding........................................................... 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV
COVENANTS; EVENTS OF DEFAULT;
REMEDIES OF INDENTURE TRUSTEE...................................................................... 22
SECTION 4.01. Covenants of the Trust Company and the Owner Trustee......................... 22
SECTION 4.02. Indenture Event of Default................................................... 23
SECTION 4.03. Certain Cure Rights.......................................................... 25
SECTION 4.04. Remedies..................................................................... 27
SECTION 4.05. Return of Aircraft, etc...................................................... 29
SECTION 4.06. Remedies Cumulative.......................................................... 30
SECTION 4.07. Discontinuance of Proceedings................................................ 30
SECTION 4.08. Waiver of Past Defaults...................................................... 30
ARTICLE V
DUTIES OF THE INDENTURE TRUSTEE.................................................................... 31
SECTION 5.01. Notices...................................................................... 31
SECTION 5.02. Action Upon Instructions..................................................... 32
SECTION 5.03. Indemnification.............................................................. 32
SECTION 5.04. No Duties Except as Specified in Indenture or Instructions................... 33
SECTION 5.05. No Action Except Under Lease, Participation
Agreement, Indenture or Instructions...................................... 33
SECTION 5.06. Replacement Airframes and Replacement Engines................................ 33
SECTION 5.07. Indenture Supplements for Replacements....................................... 36
SECTION 5.08. Effect of Replacement........................................................ 36
SECTION 5.09. Certain Rights of Owner Trustee and Owner Participant........................ 36
ARTICLE VI
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE........................................................ 38
SECTION 6.01. Acceptance of Trusts and Duties.............................................. 38
SECTION 6.02. Absence of Duties............................................................ 39
SECTION 6.03. No Representations or Warranties as to Aircraft or Documents................. 39
SECTION 6.04. No Segregation of Monies; No Interest........................................ 40
SECTION 6.05. Reliance; Agents; Advice of Counsel.......................................... 40
SECTION 6.06. Capacity in Which Acting..................................................... 40
SECTION 6.07. Compensation................................................................. 40
SECTION 6.08. May Become Noteholder........................................................ 41
SECTION 6.09. Further Assurances; Financing Statements..................................... 41
SECTION 6.10. Assumption of Equipment Notes upon Purchase of Aircraft...................... 41
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII
SUCCESSOR TRUSTEES; SEPARATE TRUSTEES.............................................................. 41
SECTION 7.01. Notice of Successor Owner Trustee............................................ 41
SECTION 7.02. Resignation of Indenture Trustee; Appointment of Successor................... 42
SECTION 7.03. Appointment of Separate Trustees............................................. 43
ARTICLE VIII
SUPPLEMENTS AND AMENDMENTS TO
THIS INDENTURE AND OTHER DOCUMENTS................................................................. 45
SECTION 8.01. Instructions of Majority; Limitations........................................ 45
SECTION 8.02. Trustees Protected........................................................... 46
SECTION 8.03. Documents Mailed to Noteholders.............................................. 46
SECTION 8.04. No Request Necessary for Lease Supplement or Indenture
Supplement................................................................... 46
ARTICLE IX
MISCELLANEOUS...................................................................................... 46
SECTION 9.01. Termination of Indenture..................................................... 46
SECTION 9.02. No Legal Title to Indenture Estate in Noteholders............................ 47
SECTION 9.03. Sale of Aircraft by Indenture Trustee is Binding............................. 47
SECTION 9.04. Indenture for Benefit of Owner Trustee, Indenture Trustee,
Owner Participant and Noteholders............................................ 47
SECTION 9.05. No Action Contrary to Lessee's Rights under the Lease........................ 47
SECTION 9.06. Notices...................................................................... 47
SECTION 9.07. Severability................................................................. 47
SECTION 9.08. No Oral Modifications or Continuing Waivers.................................. 48
SECTION 9.09. Successors and Assigns....................................................... 48
SECTION 9.10. Headings..................................................................... 48
SECTION 9.11. Governing Law................................................................ 48
SECTION 9.12. Counterpart Form............................................................. 48
SECTION 9.13. Waiver of Jury Trial......................................................... 48
SECTION 9.14. Submission to Jurisdiction................................................... 48
SECTION 9.15. Payment in Dollars........................................................... 49
</TABLE>
APPENDIX A DEFINITIONS
EXHIBIT A INDENTURE SUPPLEMENT
EXHIBIT B FORM OF EQUIPMENT NOTE
<PAGE>
TRUST INDENTURE AND SECURITY AGREEMENT [N583ML]
TRUST INDENTURE AND SECURITY AGREEMENT [N583ML] dated as of August 10,
1999 between FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national banking
association, not in its individual capacity, except as otherwise specifically
set forth herein (when acting in such individual capacity, "Trust Company"), but
-------------
solely as owner trustee (the "Owner Trustee") under the Trust Agreement, as
-------------
defined herein, and ALLFIRST BANK, a Maryland state-chartered commercial bank
(when acting in its individual capacity, "Allfirst"), as Indenture Trustee
--------
hereunder (the "Indenture Trustee").
-----------------
WHEREAS, all capitalized terms used herein shall have the respective
meanings set forth or referred to in Article I hereof;
WHEREAS, the Owner Participant and the Trust Company have entered into
the Trust Agreement whereby, among other things, the Trust Company has declared
a certain trust for the use and benefit of the Owner Participant, subject,
-------
however, to the Lien of this Indenture, and the Owner Trustee is authorized and
- -------
directed to execute and deliver this Indenture;
WHEREAS, the Owner Trustee desires by this Indenture, among other
things, (i) to provide for the issuance by the Owner Trustee to the Loan
Participant of an Equipment Note evidencing participation by the Loan
Participant in the payment of Lessor's Cost for the Aircraft as provided in the
Participation Agreement, and (ii) to provide for the assignment, mortgage and
pledge by the Owner Trustee to the Indenture Trustee, as part of the Indenture
Estate hereunder, among other things, of certain of the Owner Trustee's right,
title and interest in and to the Aircraft and the Indenture Documents and the
payments and other amounts received thereunder or in respect thereof in
accordance with the terms hereof, as security for, among other things, the Owner
Trustee's and Lessee's obligations to the Noteholders, and for the benefit and
security of the Noteholders;
WHEREAS, all things have been done to make the Equipment Note to be
delivered to the Loan Participant on the Delivery Date, when executed by the
Owner Trustee and authenticated, issued and delivered hereunder, the valid
obligations of the Owner Trustee; and
WHEREAS, all things necessary to make this Indenture the valid,
binding and legal obligation of the Owner Trustee, for the uses and purposes
herein set forth and in accordance with its terms, have been done and performed
and have happened.
1
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- - GRANTING CLAUSE - -
NOW, THEREFORE, THIS TRUST INDENTURE AND SECURITY AGREEMENT
WITNESSETH, that, to secure the prompt payment when due of the principal of and
Make-Whole Amount (if any) and interest on, and all other amounts due with
respect to, all Equipment Notes from time to time outstanding hereunder and the
performance and observance by the Owner Trustee of all the agreements, covenants
and provisions for the benefit of the Noteholders herein and in the
Participation Agreement and the Equipment Notes contained, and the prompt
payment of any and all amounts from time to time owing hereunder and under the
Participation Agreement and the other Operative Agreements by the Owner Trustee,
the Owner Participant or the Lessee to the Noteholders (collectively, the
"Secured Obligations"), and for the uses and purposes and subject to the terms
-------------------
and provisions hereof, and in consideration of the premises and of the covenants
herein contained, and of the acceptance of the Equipment Notes by the holders
thereof, and of the sum of $1 paid to the Owner Trustee by the Indenture Trustee
at or before the delivery hereof, the receipt whereof is hereby acknowledged,
the Owner Trustee has granted, bargained, sold, assigned, transferred, conveyed,
mortgaged, pledged and confirmed, and does hereby grant, bargain, sell, assign,
transfer, convey, mortgage, pledge and confirm, unto the Indenture Trustee and
its successors and assigns, for the security and benefit of the Noteholders, as
aforesaid, a first priority security interest in and first mortgage lien upon,
all right, title and interest of the Owner Trustee in, to and under the
following described property, rights and privileges, other than Excluded
Payments and subject to the rights of the Owner Trustee and the Owner
Participant set forth herein (which collectively, excluding Excluded Payments
but including all property hereafter specifically subjected to the Lien of this
Indenture by an Indenture Supplement or any other mortgage supplemental hereto
shall constitute the "Indenture Estate"), to wit:
----------------
(1) all estate, right, title and interest of the Owner Trustee in
the Aircraft (including the Airframe and the Engines) and all
replacements thereof and substitutions therefor to which the Owner
Trustee shall from time to time acquire title as provided herein and
in the Lease, all as more particularly described in the Indenture
Supplement executed and delivered with respect to the Aircraft or any
such replacements or substitutions therefor, as provided in this
Indenture, and all records, logs, manuals and data and inspection,
modification and overhaul records and other documents at any time
maintained with respect to the foregoing property;
(2) all estate, right, title and interest of the Owner Trustee
in, to and under the Lease and all Rent thereunder, including, without
limitation, all Basic Rent, Supplemental Rent, insurance proceeds and
requisition and other payments of any kind thereunder and including
all rights of the Owner Trustee to execute any election or option or
to give any notice, consent, waiver, or approval under or in respect
of the Lease or to accept any surrender of the Aircraft or any part
thereof, as well as any rights, powers or remedies on the part of the
Owner Trustee, whether arising under the Lease or by statute or at law
or in equity, or otherwise, arising out of any Event
2
<PAGE>
of Default and to do any and all other things whatsoever which the
Owner Trustee is or may be entitled to do under the Lease;
(3) all estate, right, title and interest of the Owner Trustee
in, to and under the Participation Agreement, the Warranty Bill of
Sale, the FAA Bill of Sale, the Purchase Agreement (to the extent
assigned by the Purchase Agreement Assignment), the Purchase Agreement
Assignment, the PAA Consent, the Engine Warranty Assignment, the
Warranties (as defined in the Engine Warranty Assignment), the Engine
Manufacturer's Consent and any Sublease (including, without
limitation, all rights to amounts paid or payable to the Owner Trustee
thereunder and all rights to enforce such payments) (collectively, and
together with the Lease and the Equipment Notes, the "Indenture
---------
Documents") and including all rights of the Owner Trustee to execute
---------
any election or option or to give any notice, consent, waiver or
approval under or in respect thereof and to do any and all other
things which the Owner Trustee is or may be entitled to do thereunder;
(4) all tolls, rents, issues, profits, revenues and other income
of the property subjected or required to be subjected to the Lien of
this Indenture including all payments or proceeds payable to the Owner
Trustee after termination of the Lease with respect to the Aircraft as
the result of the sale, lease or other disposition thereof, and all
estate, right, title and interest of every nature whatsoever of the
Owner Trustee in and to the same and every part thereof;
(5) all insurance and requisition proceeds and all other payments
of any kind with respect to the Aircraft, including but not limited to
the insurance required under Section 9 of the Lease;
(6) all monies and securities deposited or required to be
deposited with the Owner Trustee or the Indenture Trustee pursuant to
any term of this Indenture or the Lease or required to be held by the
Indenture Trustee hereunder; and
(7) all proceeds of the foregoing.
BUT EXCLUDING, in all events from each of the foregoing clauses (1)
through (7), inclusive, and the Indenture Estate, all Excluded Payments, and
SUBJECT TO, the rights of the Owner Trustee and the Owner Participant under
Section 5.09.
The Owner Trustee is concurrently with the delivery hereof delivering to the
Indenture Trustee an executed chattel paper original counterpart of each of the
Lease and the Lease Supplement covering the Aircraft, together with executed
copies of the Trust Agreement and each of the other Indenture Documents (other
than the Participation Agreement and the FAA Bill of Sale). All property
referred to in this Granting Clause, whenever acquired by the Owner Trustee,
shall secure the Secured Obligations at any time outstanding. Any and all
properties referred to in this Granting Clause which
3
<PAGE>
are hereafter acquired by the Owner Trustee, shall, without further conveyance,
assignment or act by the Owner Trustee or the Indenture Trustee thereby become
and be subject to the security interest hereby granted as fully and completely
as though specifically described herein.
- - HABENDUM CLAUSE - -
TO HAVE AND TO HOLD all and singular the aforesaid property unto the
Indenture Trustee, its successors and assigns, in trust for the benefit and
security of the Noteholders, and for the uses and purposes and subject to the
terms and provisions set forth in this Indenture.
It is expressly agreed that anything herein contained to the contrary
notwithstanding, the Owner Trustee shall remain liable under the Indenture
Documents to perform all of the obligations assumed by it thereunder, all in
accordance with and pursuant to the terms and provisions thereof, and the
Indenture Trustee and the Noteholders shall have no obligation or liability
under any thereof by reason of or arising out of the assignment hereunder, nor
shall the Indenture Trustee or the Noteholders be required or obligated in any
manner to perform or fulfill any obligations of the Owner Trustee under or
pursuant to any of the Indenture Documents, except as therein or herein
expressly provided, to make any payment, or to make any inquiry as to the nature
or sufficiency of any payment received by it, or present or file any claim, or
take any action to collect or enforce the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.
The Owner Trustee does hereby constitute the Indenture Trustee the
true and lawful attorney of the Owner Trustee, irrevocably, coupled with an
interest and with full power (in the name of the Owner Trustee or otherwise) to
ask, require, demand, receive, compound and give acquittance for any and all
monies and claims for monies (in each case including insurance and requisition
proceeds but in all cases excluding Excluded Payments) due and to become due
under or arising out of the Indenture Documents and all other property which now
or hereafter constitutes part of the Indenture Estate, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or to
take any action or to institute any proceedings which the Indenture Trustee may
deem to be necessary or advisable in the premises. Without limiting the
provisions of the foregoing, during the continuance of any Indenture Event of
Default but subject to the terms hereof and of the other Operative Agreements,
the Indenture Trustee shall have the right under such power of attorney to sue
for, compound and give acquittance for, to accept any offer of any purchaser to
purchase the Airframe and Engines as provided herein or in the Lease and upon
such purchase to execute and deliver in the name of and on behalf of the Owner
Trustee an appropriate bill of sale and other instruments of transfer relating
to the Airframe and Engines, when purchased by such purchaser, and to perform
all other necessary or appropriate acts with respect to any such purchase, and
in its discretion to file any claim or take any other action or proceedings,
either in its own name or in the name of the Owner Trustee or otherwise, which
the Indenture Trustee may reasonably deem necessary or appropriate to protect
and preserve the right, title and interest of the Indenture Trustee in and to
such Rent and other sums and the security intended to be afforded hereby;
provided no action of the Indenture Trustee pursuant to this paragraph shall
- --------
increase the obligations or liabilities
4
<PAGE>
of the Owner Trustee to any Person beyond those obligations and liabilities
specifically set forth in this Indenture and the other Operative Agreements.
Under the Lease the Lessee is directed to make all payments of Rent (other than
Excluded Payments) and all other amounts which are required to be paid to or
deposited with the Owner Trustee pursuant to the Lease (other than Excluded
Payments), directly to the Indenture Trustee at such address or addresses as the
Indenture Trustee shall specify, for application as provided in this Indenture.
The Owner Trustee agrees that promptly on receipt thereof, it will transfer to
the Indenture Trustee any and all monies from time to time received by it
constituting part of the Indenture Estate, for distribution by the Indenture
Trustee pursuant to this Indenture.
The Owner Trustee does hereby warrant and represent that (except as
permitted herein) it has not assigned or pledged any of its right, title, and
interest hereby assigned to anyone other than the Indenture Trustee.
The Owner Trustee does hereby ratify and confirm the Indenture
Documents and does hereby agree that (except as permitted herein) it will not
take or omit to take any action, the taking or omission of which would result in
an alteration or impairment of any of the Indenture Documents or of any of the
rights created by any thereof or the assignment hereunder.
The Owner Trustee agrees that at any time and from time to time, upon
the written request of the Indenture Trustee, the Owner Trustee will promptly
and duly execute and deliver any and all such further instruments and documents
as the Indenture Trustee may reasonably request in obtaining the full benefits
of this assignment and of the rights and powers herein granted.
Notwithstanding the Granting Clause or any of the preceding
paragraphs, there are hereby expressly excluded from the foregoing grant,
bargain, sale, assignment, transfer, conveyance, mortgage, pledge and security
interest all Excluded Payments. Further, nothing in the Granting Clause or any
of the preceding paragraphs shall impair in any respect the rights of the Owner
Trustee or the Owner Participant under Section 5.09.
IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto
as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. For all purposes of this Indenture, terms
-----------
defined in the heading and recitals of this Indenture are used as so defined and
capitalized terms used but not defined in this Indenture are used as define in
Appendix A hereto (such definitions to be equally applicable to both the
singular and plural forms of the terms defined). Any agreement referred to below
shall mean such agreement as amended, supplemented and modified from time to
time in accordance with the applicable provisions thereof and of the other
Operative Agreements. Any
5
<PAGE>
Person referenced to herein shall mean such Person and its successors and
permitted assigns. Unless otherwise specified, Section and Article references
are to Sections and Articles of this Indenture.
ARTICLE II
THE EQUIPMENT NOTES
SECTION 2.01. Form of Equipment Notes. The Equipment Notes and the
-----------------------
Indenture Trustee's certificate of authentication to appear on the Equipment
Notes shall each be substantially in the form set forth on Exhibit B.
SECTION 2.02. Terms of Equipment Notes. (a) On the Delivery Date the
------------------------
Owner Trustee shall issue an Equipment Note to the Loan Participant in an
aggregate original principal amount in Dollars equal to the percentage of
Lessor's Cost set forth opposite the Loan Participant's name on Schedule I to
the Participation Agreement. Each Equipment Note shall bear interest on the
unpaid principal amount thereof from time to time outstanding from and including
the date thereof until such principal amount is paid in full at the Applicable
Rate, payable in arrears on each Payment Date and on the date such Equipment
Note is paid in full. Interest hereunder and under the Equipment Notes shall be
calculated on the basis of a year of 360 days consisting of twelve 30-day
months; provided that interest on past due amounts shall be calculated on the
--------
basis of a year of 360 days and actual days elapsed.
(b) The principal of the Equipment Notes shall be due and payable on
each Payment Date in the number of installments as noted at Annex A to each
Equipment Note.
(c) Each Equipment Note shall bear interest at the Past Due Rate on
any principal thereof and, to the extent permitted by Applicable Law, interest
and other amounts due thereunder and hereunder, not paid when due (whether at
stated maturity, by acceleration or otherwise), for any period during which the
same shall be overdue, payable by the Owner Trustee on demand from the
respective Noteholder given through the Indenture Trustee. Interest under this
clause (c) shall be calculated on the basis of a year of 360 days and the actual
number of days elapsed.
(d) The Equipment Notes shall be executed on behalf of the Owner
Trustee by one of its authorized officers. Equipment Notes bearing the
signatures of individuals who were at any time the proper officers of the Owner
Trustee shall bind the Owner Trustee, notwithstanding that such individuals or
any of them have ceased to hold such offices prior to the authentication and
delivery of such Equipment Notes or did not hold such offices at the respective
dates of such Equipment Notes. No Equipment Notes shall be issued hereunder
except those provided for in Section 2.02(a) and any Equipment Notes issued in
exchange or replacement therefor pursuant to the terms of this Indenture. The
Equipment Note issued under this Section 2.02 shall be dated the Delivery Date.
No Equipment Note shall be secured by or entitled to any benefit under this
Indenture or be valid or obligatory for any purpose, unless there appears on
such Equipment Note a certificate of authentication in the form provided for
herein executed by the Indenture Trustee by the manual
6
<PAGE>
signature of one of its authorized officers and such certificate upon any
Equipment Note shall be conclusive evidence, and the only evidence, that such
Equipment Note has been duly authenticated and delivered hereunder.
The principal amount of the Equipment Note issued to the Loan Participant
on the Delivery Date shall not exceed the Loan Participant's Commitment.
SECTION 2.03. Payments from Indenture Estate Only. Except as otherwise
-----------------------------------
expressly provided in the next succeeding sentence of this Section 2.03, all
payments to be made by the Owner Trustee under this Indenture shall be made only
from the income and the proceeds from the Indenture Estate and only to the
extent that the Owner Trustee shall have sufficient income or proceeds from the
Indenture Estate to enable the Owner Trustee to make payments in accordance with
the terms hereof. Each Noteholder, by its acceptance of an Equipment Note, and
the Indenture Trustee, each agrees that it will look solely to the income and
proceeds from the Indenture Estate to the extent available for distribution to
it as above provided and that none of the Owner Participant, the Trust Company
or the Indenture Trustee is personally liable to it for any amounts payable or
any liability under this Indenture or such Equipment Note or for any amounts
payable or liability under any Equipment Note or this Indenture, except, in the
case of the Trust Company and the Indenture Trustee, as expressly provided
herein or in the Participation Agreement; provided, however, that nothing
contained in this Section 2.03 shall be construed to limit the exercise and
enforcement in accordance with the terms of this Indenture or any other
Operative Agreement or such other agreements of rights and remedies against the
Indenture Estate or any such other Person as to their respective obligations to
the Noteholders thereunder.
The Indenture Trustee hereby waives to the fullest extent permitted by law
the benefit of the provisions of Section 1111(b) of Title 11 of the Bankruptcy
Code with respect to recourse against the Owner Trustee (in its individual
capacity) and the Owner Participant on account of any amount payable as
principal of, Make Whole Amount, if any, and interest on the Equipment Notes,
provided that such waiver shall not preclude the Indenture Trustee from electing
- --------
application of Section 1111(b) (2) of Title 11 of the Bankruptcy Code. The Loan
Participant, each Noteholder and the Indenture Trustee agree that, if (i) the
Trust Estate or the trust created by the Trust Agreement becomes a debtor
subject to the reorganization provisions of the Bankruptcy Code or any other
applicable bankruptcy or insolvency statutes, (ii) pursuant to such
reorganization provision, the Owner Participant is held to have recourse
liability to the Indenture Trustee or any Noteholder directly or indirectly on
account of any amount payable as principal, interest or premium on the Equipment
Notes, and (iii) any Noteholder or the Indenture Trustee actually receives any
Recourse Amount which reflects any payment by the Owner Participant on account
of (ii) above, then such Noteholder or the Indenture Trustee, as the case may
be, shall promptly refund to the Owner Participant such Recourse Amount. For
purposes of this Section 2.03, "Recourse Amount" means the amount by which the
portion of such payment by the Owner Participant on account of clause (ii) above
received by such Noteholder or Indenture Trustee exceeds the amount which would
have been received by such Noteholder or the Indenture Trustee if the Owner
Participant had not become subject to the recourse liability referred to in (ii)
above. Nothing contained in this Section shall
7
<PAGE>
prevent any Noteholder or the Indenture Trustee from enforcing any individual
obligation (and retaining the proceeds thereof) of the Owner Participant under
the Participation Agreement or any other Operative Agreement to the extent
therein provided, for which the Owner Participant has expressly agreed by the
terms of the Participation Agreement to accept individual responsibility.
SECTION 2.04. Method of Payment. Principal and interest and other
-----------------
amounts due hereunder or under the Equipment Notes or in respect hereof or
thereof shall be payable in Dollars in immediately available funds prior to
12:00 noon, New York time, on the due date thereof, to the Indenture Trustee at
its Corporate Trust Department located at the address specified in Section 2.07
and the Indenture Trustee shall, subject to the terms and conditions hereof,
remit all such amounts so received by it to the Noteholders at such account or
accounts at such financial institution or institutions as the Noteholders shall
have designated to the Indenture Trustee in writing (which in the case of the
initial Noteholder shall be the account designated on Schedule II to the
Participation Agreement under the heading "Loan Participant"), in immediately
available funds for distribution to the relevant Noteholders, such payment to be
made, in the case of any such designated account in New York, New York, prior to
2:00 p.m., New York time, on the due date thereof. In the event the Indenture
Trustee, through negligence or willful misconduct, shall fail to make any such
payment as provided in the immediately foregoing sentence after its receipt of
funds at the place and prior to the time specified above, the Indenture Trustee,
in its individual capacity and not as trustee, agrees to compensate the
Noteholders for loss of use of funds in a commercially reasonable manner, and
the Owner Trustee shall have no liability for and the Indenture Estate shall not
secure any such loss or any overdue interest on the Equipment Notes in
connection with any such failure of the Indenture Trustee to timely distribute
funds. All such payments by the Owner Trustee and the Indenture Trustee shall be
made without presentment or surrender of any Equipment Note and free and clear
of and without reduction for account of all wire and other like charges. Prior
to the due presentment for registration of transfer of any Equipment Note, the
Owner Trustee and the Indenture Trustee may deem and treat the Person in whose
name any Equipment Note is registered on the Register as the absolute owner of
such Equipment Note for the purpose of receiving payment of all amounts payable
with respect to such Equipment Note and for all other purposes whether or not
such Equipment Note shall be overdue, and neither the Owner Trustee nor the
Indenture Trustee shall be affected by any notice to the contrary. If any sum
payable under the Equipment Notes or under this Indenture falls due on a day
which is not a Business Day, then such sum shall be payable on the next
succeeding Business Day, without additional interest as a result of such
extension.
SECTION 2.05. Application of Payments. Each payment of principal and
-----------------------
interest or other amounts due in respect of each Equipment Note shall, except as
otherwise expressly provided herein, be applied, first, to the payment of any
-----
amount (other than the principal of or Make-Whole Amount or interest on such
Equipment Note) due in respect of such Equipment Note, second, to the payment of
------
Make-Whole Amount, if any, and interest on such Equipment Note (as well as any
interest on overdue principal and, to the extent permitted by law, interest and
other amounts payable thereunder) due thereunder, third, to the payment of the
-----
principal of such Equipment Note then due and fourth, the balance, if any,
------
remaining thereafter, to the payment of the principal of such Equipment Note
remaining unpaid (provided that such Equipment Note shall not be subject to
8
<PAGE>
prepayment or purchase without the consent of the affected Noteholder except as
permitted by Sections 2.10, 2.11, 2.12 and 2.14). The amounts paid pursuant to
clause fourth above shall be applied to the installments of principal of such
Equipment Note in inverse order of maturity.
SECTION 2.06. Termination of Interest in Indenture Estate. A
-------------------------------------------
Noteholder shall not, as such, have any further interest in, or other right with
respect to, the Indenture Estate when and if the principal amount of and Make-
Whole Amount, if any, and interest on and other amounts due under all Equipment
Notes held by such Noteholder and all other sums due to such Noteholder
hereunder and under the other Operative Agreements shall have been paid in full.
SECTION 2.07. Registration, Transfer and Exchange of Equipment Notes.
------------------------------------------------------
The Indenture Trustee agrees with the Owner Trustee that the Indenture Trustee
shall keep a register (herein sometimes referred to as the "Register") in which
--------
provisions shall be made for the registration of Equipment Notes and the
registration of transfers of Equipment Notes. The Register shall be kept at the
Indenture Trustee's Corporate Trust Department located at 25 South Charles
Street, Mail Code 101-591, Baltimore, Maryland 21201 or at the office of any
successor indenture trustee, and the Indenture Trustee is hereby appointed the
"Registrar" for the purpose of registering Equipment Notes and transfers of
Equipment Notes as herein provided. Upon surrender for registration of transfer
of any Equipment Note at the Indenture Trustee's Corporate Trust Department, the
Owner Trustee shall execute, and the Indenture Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Equipment Notes of a like aggregate principal amount. At the option of the
Noteholder, its Equipment Notes may be exchanged for other Equipment Notes of
any authorized denominations, of a like aggregate principal amount, upon
surrender of the Equipment Notes to be exchanged at the Indenture Trustee's
Corporate Trust Department. Each new Equipment Note issued upon transfer or
exchange shall be in a principal amount of at least $1,000,000 (except as may be
necessary to evidence the entire outstanding principal amount of an Equipment
Note) and dated the Delivery Date. Whenever any Equipment Notes are so
surrendered for exchange, the Owner Trustee shall execute, and the Indenture
Trustee shall authenticate and deliver, the Equipment Notes which the Noteholder
making the exchange is entitled to receive. All Equipment Notes issued upon any
registration of transfer or exchange of Equipment Notes shall be the valid
obligations of the Owner Trustee evidencing the same respective obligations, and
entitled to the same security and benefits under this Indenture, as the
Equipment Notes surrendered upon such registration of transfer or exchange.
Every Equipment Note presented or surrendered for registration of transfer or
exchange, shall (if so required by the Owner Trustee or the Indenture Trustee)
be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Owner Trustee and the Indenture Trustee duly executed by the
Noteholder thereof or his attorney duly authorized in writing, and the Indenture
Trustee may require evidence satisfactory to it as to the compliance of any such
transfer with the Securities Act. The Indenture Trustee shall make a notation on
each new Equipment Note or Equipment Notes of the amount of all payments of
principal previously made on the old Equipment Note or Equipment Notes with
respect to which such new Equipment Note is issued and the date to which
interest accrued on such old Equipment Note or Equipment Notes has been paid.
The Indenture Trustee shall not be required to register the transfer or exchange
of any surrendered
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Equipment Notes as above provided during the ten (10) Business Day period
preceding the due date of any payment on such Equipment Notes. Any Noteholder
may transfer any or all of its Equipment Notes to any Person other than the
Lessee or its Affiliates. The Owner Trustee and the Indenture Trustee shall
treat the Person in whose name each Equipment Note is registered on the Register
as the Noteholder with respect thereto for all purposes hereof until due
presentment for registration of transfer as provided in this Section 2.07. The
Indenture Trustee shall give the Lessee and each Noteholder prompt notice of
such transfer of an Equipment Note under this Section 2.07. Each holder of an
Equipment Note, by its acceptance thereof, agrees that any transfer of any
Equipment Note acquired by it hereunder shall not be effected unless the
transferee shall have delivered to the Indenture Trustee, the Lessee, the Owner
Participant and the Owner Trustee (i) a representation as to the matters
specified in Section 5.08 of the Participation Agreement and, notwithstanding
the above, such transferee by its acceptance of an Equipment Note shall be
deemed to have made such a representation and (ii) an agreement to be bound by
and comply with the provisions of the Participation Agreement and this Indenture
binding on a Loan Participant and, notwithstanding the above (but without
derogation to the requirements for delivery of such agreement), such transferee
by its acceptance of an Equipment Note shall be deemed to have made such
representations and such agreement.
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Equipment Notes. If
----------------------------------------------------
any Equipment Note shall become mutilated, destroyed, lost or stolen, the Owner
Trustee shall, upon the written request of the affected Noteholder, execute, and
the Indenture Trustee shall authenticate and deliver in replacement thereof, a
new Equipment Note in the same principal amount, dated the date of such
Equipment Note and designated as issued under this Indenture. If the Equipment
Note being replaced has become mutilated, such Equipment Note shall be
surrendered to the Indenture Trustee. If the Equipment Note being replaced has
been destroyed, lost or stolen, the affected Noteholder shall furnish to the
Owner Trustee and the Indenture Trustee such security or indemnity as may be
reasonably required by them to hold the Owner Trustee and the Indenture Trustee
harmless and evidence satisfactory to the Owner Trustee and the Indenture
Trustee of the destruction, loss or theft of such Equipment Note and of the
ownership thereof; provided, however, that if the affected Noteholder is an
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original party to the Participation Agreement or an Affiliate thereof, the
written notice of such destruction, loss or theft and such ownership and the
written undertaking of such Noteholder delivered to the Owner Trustee and the
Indenture Trustee to hold harmless the Owner Trustee and the Indenture Trustee
in respect of the execution, authentication and delivery of such new Equipment
Note shall be sufficient evidence, security and indemnity.
SECTION 2.09. Payment of Expenses on Transfer. Upon the issuance of a
-------------------------------
new Equipment Note or new Equipment Notes pursuant to Section 2.07 or 2.08, the
Owner Trustee and/or the Indenture Trustee may require from the party requesting
such new Equipment Note or Equipment Notes payment of a sum sufficient to
reimburse the Owner Trustee and/or the Indenture Trustee for, or to provide
funds for, the payment of any tax or other governmental charge in connection
therewith or any charges and expenses connected with such tax or other
governmental charge paid or payable by the Owner Trustee or the Indenture
Trustee.
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SECTION 2.10. Prepayment. (a) The Owner Trustee may, in accordance
----------
with Section 2.10(b), if requested to do so by the Lessee and upon no less than
30 days' prior irrevocable notice to the Indenture Trustee and the original
Noteholder (so long as it holds an Equipment Note), on any date on or after the
fifth anniversary of the Delivery Date prepay in whole but not in part the
Equipment Notes then outstanding (except in the case of a prepayment which
occurs after a Noteholder has requested the payment of (x) any Increased Costs
pursuant to Section 2.14(a) or (y) any amounts pursuant to Article 6 of the
Participation Agreement in respect of withholding Taxes, in which case such
prepayment, if elected to be made by the Owner Trustee, may be made at any time)
at the principal amount thereof, together with accrued interest thereon to the
date of prepayment plus the Make-Whole Amount (if any) and all other amounts due
to the holders of the Equipment Notes hereunder, thereunder and under the other
Operative Agreements.
(b) The Equipment Notes shall be prepaid in full but not in part,
together with accrued interest thereon to the date of prepayment and all other
amounts due thereunder and hereunder and under the other Operative Agreements to
the Noteholders:
(i) Upon the occurrence of an Event of Loss with respect to the
Airframe (unless pursuant to Section 8(a)(i) of the Lease and Section 5.06
a Replacement Airframe, together with the same number of Replacement
Engines as the Engines, if any, subject to such Event of Loss, shall have
been substituted for the Airframe and/or the Engines subject to such Event
of Loss), on the earlier of the date of the Lessee's payment with respect
to such Event of Loss in Section 8(a)(ii) of the Lease and the last day
permitted for such payment under said Section 8(a)(ii);
(ii) Upon the Lessee's election to terminate the Lease with respect to
the Aircraft as provided in Section 14(a) of the Lease, on the Termination
Date of the Lease as provided in said Section 14(a);
(ii) Upon the Lessee's election to purchase the Aircraft on the EBO
Date as provided in Section 13(b) of the Lease, on the date of such
purchase as provided in said Section 13(b) of the Lease (unless Lessee has
assumed the Owner Trustee's obligations pursuant to and in accordance with
Section 5.10 of the Participation Agreement); and
(iv) Upon the Lessee's election to refinance the Equipment Notes as
provided in Section 13.01 of the Participation Agreement, and upon no less
than 30 days' prior notice to the Indenture Trustee, on the closing date of
such refinancing as provided in said Section 13.01 of the Participation
Agreement.
The Owner Trustee will give notice of prepayment under this Section 2.10(b) to
Indenture Trustee and the original Noteholder (so long as it holds an Equipment
Note) promptly after receipt of the Lessee's notice of payment under Section
8(a)(ii), 13(b) or 14(a) of the Lease, or refinancing under Section 13.01 of the
Participation Agreement, as the case may be. Any prepayment of the Equipment
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Notes pursuant to clause (ii), clause (iii) or clause (iv) of this Section
2.10(b) (but not clause (i)) shall be accompanied by the Make-Whole Amount (if
any) for each Noteholder.
SECTION 2.11. Provisions Relating to Prepayment. (a) The Owner Trustee
---------------------------------
shall have no right to prepay the principal amount of the Equipment Notes, in
whole or in part, or purchase the Equipment Notes except as permitted by
Sections 2.10, 2.11, 2.12 and 2.14. Any such prepayment shall, except as
otherwise expressly provided in this Indenture, Section 13.01 of the
Participation Agreement or Section 13(b) of the Lease, as the case may be, be
made by the Owner Trustee only on a date coincident with a Termination Date and
upon notice to the Indenture Trustee, the Noteholders and the Lessee provided
for in Section 2.10 or in Section 8(a)(ii) or 14(a) of the Lease, as the case
may be. Notice of prepayment having been given as aforesaid, the principal
amount of the Equipment Notes so to be prepaid, plus accrued interest thereon to
the date of prepayment, together with the Make-Whole Amount, if any, if required
to be paid as herein provided, shall become due and payable on the prepayment
date; provided, however, with respect to any prepayment under Section 2.10(b),
-------- -------
if any applicable notice of termination is timely revoked (or if the Lease does
not in fact so terminate) pursuant to Section 14 of the Lease or if all amounts
due and payable pursuant to Section 8(a)(ii), 13(b) or 14(a) of the Lease, or
Section 13.01 of the Participation Agreement, as the case may be, are not paid
or the refinancing is not consummated pursuant to Section 13.01 of the
Participation Agreement, or if the Lessee assumes the Owner Trustee's
obligations under the Equipment Notes and this Indenture pursuant to and in
accordance with Section 5.10 of the Participation Agreement, then the principal
amount of the Equipment Notes shall not be deemed to have been due and no Make-
Whole Amount, if any, shall be payable as a result thereof.
(b) On the date fixed for prepayment under Section 2.10, immediately
available funds in Dollars shall be deposited by the Owner Trustee in the
account of the Indenture Trustee at the place and by the time and otherwise in
the manner provided in Section 2.04, in an amount equal to the principal amount
of Equipment Notes to be prepaid together with accrued and unpaid interest
thereon to the date fixed for such prepayment, all Make-Whole Amount, if any,
and all other amounts due to the holders of the Equipment Notes hereunder,
thereunder and under the other Operative Agreements.
SECTION 2.12. Purchase Upon an Event of Default. At any time while (x)
---------------------------------
an Event of Default (without regard to any waiver thereof by the Indenture
Trustee) has occurred and has been continuing for a period of 190 days during
which the Noteholders or the Indenture Trustee shall not have been stayed or
otherwise precluded by operation of law from taking action to accelerate the
Equipment Notes or to exercise remedies hereunder or under the Lease and shall
not, during such 190 day period, have taken any such action or exercised any
such remedy, or (y) the Equipment Notes shall have become due and payable as
provided in Section 4.04(b) or 4.04(c) or (z) an Event of Default (without
regard to any waiver thereof by the Indenture Trustee) has occurred and is
continuing, the Owner Participant may, at any time within 120 days after such
190-day period in the case of clause (x) above, at any time after the Equipment
Notes have become due in the case of clause (y) above and at any time during
which such Event of Default shall have occurred and been
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<PAGE>
continuing in the case of clause (z) above but (in the case of clauses (x) and
(z)) so long as no Indenture Event of Default which is not a, or does not arise
out of a, Default or Event of Default has occurred and be continuing, elect to
purchase all, but not less than all, Equipment Notes then outstanding (at par
plus, solely in the case of clause (z) above, the Make-Whole Amount); and
provided, that the Owner Participant may not so purchase the Equipment Notes in
- --------
accordance with the foregoing at any time on or after the fifteenth (15th)
Business Day following receipt by it of notice of a proposed sale or disposition
of the Indenture Estate or any portion thereof, the Equipment Notes or any
interest of the Noteholders in the Trust Estate. Upon receipt of written notice
of such election from the Owner Participant, which notice in order to be
effective shall state that it is irrevocable (and shall constitute a recourse
obligation of Owner Participant) and shall designate a date not more than
fourteen calendar days thereafter as the purchase date, each Noteholder agrees
that it will, upon payment to it in the manner provided for in Section 2.04 from
the Owner Participant of an amount equal to the aggregate unpaid principal
amount of all Equipment Notes then held by such Noteholder (at par plus, solely
in the case of clause (z) above, the Make-Whole Amount), together with accrued
and unpaid interest thereon to the date of payment, plus all reasonable expenses
----
of the Indenture Trustee or such Noteholder associated therewith (and all other
sums then due and payable to such Noteholder hereunder, under such Equipment
Notes and the other Operative Agreements), forthwith sell, assign, transfer and
convey to the Owner Participant (without recourse, representation or warranty of
any kind except for its own acts), all of the right, title and interest of such
Noteholder in and to the Indenture Estate, this Indenture, all Equipment Notes
held by such Noteholder and the other Operative Agreements (excluding all right,
title and interest under any of the foregoing to the extent such right, title or
interest is with respect to an obligation not then due and payable or past due
(other than any claims in respect of past due interest or other amounts to the
extent included in the purchase price of the Equipment Notes), with respect to
any action or inaction or state of affairs occurring or existing prior to such
sale) and the Owner Participant shall assume all of such Noteholder's
obligations under the other Operative Agreements and this Indenture arising
subsequent to such purchase and sale. The Indenture Trustee shall not exercise
any remedies hereunder and, without the consent of the Owner Participant, under
the Lease, during the period from the time of receipt of such notice of such
election until the date on which such purchase is required to occur pursuant to
the terms of the preceding sentence. If the Owner Participant shall so request,
such Noteholder will comply with all the provisions of Section 2.07 (other than
those relating to Securities Act compliance and those obligations set out in the
last sentence of Section 2.07) to enable new Equipment Notes to be issued to the
Owner Participant in such denominations as the Owner Participant shall request.
In the case of any such purchase, upon the request of any Noteholder the Owner
Participant shall furnish to the Noteholders evidence that such transfer and
conveyance are exempt from registration under the Securities Act, and do not
violate any registration provision of any applicable state securities laws
(which evidence may include an opinion of counsel for the Owner Participant
satisfactory to the Noteholders). All charges and expenses required pursuant to
Section 2.09 in connection with the issuance of any such new Equipment Note
pursuant to this Section shall be borne by the Owner Participant.
SECTION 2.13. Equipment Notes in Respect of Replacement Aircraft. Upon
--------------------------------------------------
the execution and delivery of an Indenture Supplement covering a Replacement
Airframe and/or
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Replacement Engine, as provided in Section 5.06, each Equipment Note shall be
deemed to have been issued in connection with such Replacement Airframe and/or
Replacement Engine and each Equipment Note issued thereafter upon a transfer or
exchange of, or as a replacement for, an Equipment Note, shall be designated as
having been issued in connection with such Replacement Airframe and/or
Replacement Engine, but without any other change therein except as provided for
in this Article II.
SECTION 2.14. Increased Costs. (a) If the enactment, adoption or
---------------
promulgation, after the Delivery Date, of any applicable law or regulation or
any change, after the Delivery Date, in any applicable law, rule, regulation,
guidance or ruling or any exceptions thereto (or any applicable published
change, after the Delivery Date, in the interpretation thereof (whether or not
having force of law) or any compliance by a Noteholder with any request from
such authority (provided that the observance thereof is in accordance with the
reasonable practice of lenders in the country concerned)) of general
applicability by any governmental, fiscal, monetary or other authority charged
with the administration or application thereof (in each of the foregoing cases
which is binding upon such Noteholder, in any applicable jurisdiction for
purposes of funding or maintaining any Equipment Note or the participation by
such Noteholder in the transactions contemplated hereby and by the other
Operative Agreements), shall:
(i) impose, modify, or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding any such requirement with respect to which such
Noteholder is entitled to compensation during the relevant interest period
and excluding any regulatory change the effect of which is the
implementation of the Basle Accord as in effect on the date hereof) against
deposits with, or credit extended by, such Noteholder by reason of the
funding or maintaining of its Equipment Note;
(ii) impose, modify or deem applicable a capital adequacy
requirement which such Noteholder can establish has the effect of
increasing the amount of capital required to be maintained by such
Noteholder, but only to the extent that such increase is directly
attributable and allocable to such Noteholder's obligations to fund and
maintain its Equipment Note; or
(iii) impose, modify or deem applicable any tax (not excluded
from indemnification under Article 6 of the Participation Agreement), or
other governmental, monetary or other charge or other condition which in
each case is in the nature of such reserve, special deposit or similar
requirement;
and the result of any of the foregoing shall be to increase in the aggregate and
by a material amount the costs to such Noteholder, but only to the extent that
such increase is directly attributable and allocable to funding and maintaining
the Equipment Notes (any such reserve, special deposit, similar requirement, tax
or other governmental, monetary or other charge or condition or capital adequacy
cost hereinafter collectively referred to as an "Increased Cost") and provided,
that in assessing the
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<PAGE>
effect of such enactment, adoption or change or condition and determining such
Increased Cost, such Noteholder shall evaluate and apply the requirements in
respect of its Equipment Notes hereunder in a manner which is no less favorable
to the Lessee than, and shall not discriminate in such evaluation and
application in relation to, and with respect to clauses (i) or (iii) above, the
other deposits with or credit extended by the Noteholder involving any other
Persons, and with respect to clause (ii) above, comparable funding obligations
held by the Noteholder of the same type and category involving other Persons,
then the Noteholder shall promptly provide the Owner Trustee and the Lessee with
written notice of such event giving rise to such Increased Cost. Such notice
shall be accompanied by an Officer's Certificate describing in reasonable detail
(a) the events giving rise to such Increased Cost, (b) the basis for determining
and allocating such Increased Cost with respect to the Equipment Notes held by
such Noteholder and a statement to the effect that the determination for such
Increased Costs in connection with its obligations under this transaction has
been made in a manner that does not discriminate against the Owner Trustee or
the Lessee, and (c) a good faith estimate of the amount expected to be incurred
by the Noteholder (such estimate to set out in reasonable detail the basis on
which it has been prepared).
Within thirty (30) days of the receipt of an invoice for Increased Cost
incurred following (or accompanying such notice), the Owner Trustee shall remit
the amount due to such Noteholder.
Notwithstanding any of the provisions hereof, such Noteholder shall not be
entitled to serve notice to cause a payment of Increased Cost if (i) the
Noteholder (or any office, branch or affiliate thereof) incurred the relevant
Increased Cost as a result of the Noteholder's (or any office, branch or
affiliate thereof) having acted in a manner contrary to, or failed to act in a
manner required by, the Applicable Laws or (ii) the relevant Increased Cost was
imposed with respect to the period prior to receipt by the Owner Trustee and the
Lessee of the notice with respect thereto pursuant to the first paragraph of
this Section.
(b) Upon the receipt of any notice of Increased Cost, the Noteholder
and the Lessee shall consult in good faith and the Noteholder shall use its
reasonable best efforts to avoid or mitigate the amount of any Increased Cost,
including without limitation, by assigning the rights and obligations of the
Noteholder hereunder (if other than the Loan Participant) to another office,
branch, subsidiary or affiliate of the Noteholder or by selling or transferring
the rights, interests and obligations of the Noteholder hereunder or under any
other Operative Agreement to another bank, financial or lending institution,
subject to the terms hereof, that would not be subject to any such Increased
Cost, provided that the Noteholder shall not be required to take such action to
avoid or mitigate such Increased Cost hereunder if such action would result in
any economic, legal or regulatory disadvantage, or any adverse tax consequence
to the Noteholder (other than (i) economic disadvantage for which the Lessee
agrees to indemnify the Noteholder on an After Tax Basis and in a manner
reasonably acceptable to the Noteholder, or (ii) adverse tax consequences for
which the Lessee agrees to indemnify the Noteholder on an After Tax Basis and in
a manner reasonably acceptable to the Noteholder).
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(c) The Owner Trustee shall not be required to make payments under
this Section to any Noteholder if (i) a claim hereunder arises through
circumstances peculiar to such Noteholder and which do not affect commercial
lenders in the same jurisdiction generally, (ii) the claim arises out of a
voluntary relocation by such Noteholder of its lending office, (iii) such
Noteholder is not also seeking indemnification against similar increased costs,
to the extent it is entitled to do so, in transactions with substantial
borrowers (it being agreed that an Officer's Certificate to the contrary from
any such Noteholder shall constitute conclusive evidence of such fact), (iv) a
claim is directly attributable to any corresponding claim for Increased Cost
which is made on such Noteholder by any Person which has funded such
Noteholder's purchase of its Equipment Notes or (v) such Noteholder is the Loan
Participant.
ARTICLE III
RECEIPT, DISTRIBUTION AND APPLICATION OF
INCOME FROM THE INDENTURE ESTATE
SECTION 3.01. Basic Rent Distribution. (a) Except as otherwise
-----------------------
provided in Section 3.03, each installment of Basic Rent, any payment of
interest payable on any Payment Date or on overdue installments of Basic Rent
and any payment received by the Indenture Trustee as contemplated by Section
4.03 shall be promptly distributed in the following order of priority:
first, so much of such installment or payment as shall be required to
-----
pay in full the aggregate amount of the payment or payments of principal
and interest and other amounts (as well as any interest on overdue
principal and, to the extent permitted by law, on interest and other
amounts) then due on or in respect of the Equipment Notes shall be
distributed to the holders thereof ratably, without priority of any one
Equipment Note over any other Equipment Note, in the proportion that the
amount of such payment or payments then due under each Equipment Note bears
to the aggregate amount of the payments then due under all Equipment Notes;
second, the balance, if any, of such installment or payment remaining
------
thereafter shall be distributed to the Owner Trustee for distribution
pursuant to the Trust Agreement; provided, however, that if a Specified
-------- -------
Indenture Default or an Indenture Event of Default shall have occurred and
be continuing, then such balance shall not be distributed as provided in
this clause "second" but shall be held by the Indenture Trustee as part of
------
the Indenture Estate until whichever of the following shall first occur:
(i) all Specified Indenture Defaults and Indenture Events of Default shall
have been cured or waived, in which event such balance shall, to the extent
not theretofore distributed as provided herein, be distributed as provided
in this clause "second", or (ii) Section 3.02 or Section 3.03 shall be
------
applicable, in which event such balance shall be distributed in accordance
with the provisions of said Section 3.02 or Section 3.03, as the case may
be, or (iii) such installment or payment shall have been held for a period
in excess of 270 days (during which no Specified Indenture Default or
Indenture Event of Default which is not a, or arise out of a, Default or
Event of
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Default shall have occurred and be continuing and during which period the
Indenture Trustee and the Noteholders shall not have been stayed or
otherwise precluded by operation of law from taking action to accelerate
the Equipment Notes or to declare the Lease in default or to exercise
remedies hereunder and thereunder), in which event such balance shall, to
the extent not theretofore applied as provided herein, be distributed as
provided in this clause "second" disregarding this proviso.
------
(b) Except as otherwise provided in Section 3.03, if (i) as a result
of any failure by the Lessee to pay Basic Rent in full on any date when an
installment of Basic Rent is due, or (ii) for any other reason there shall not
have been distributed in full on any Basic Rent Payment Date the amounts
described in clause "first" of Section 3.01(a), the Indenture Trustee shall, if
-----
so requested by a Majority in Interest of Noteholders, distribute other payments
of the character referred to in Section 3.04(b) then held by it or thereafter
received by it, to the holders of all Equipment Notes to the extent necessary to
enable the Indenture Trustee to satisfy in full the amounts described in such
clause "first."
-----
SECTION 3.02. Lease Termination, Event of Loss and Replacement. (a)
------------------------------------------------
Except as otherwise provided in Section 3.03, any payment received by the
Indenture Trustee as a result of any payment or prepayment described in Section
2.10, shall be applied to prepayment of the Equipment Notes and to all other
amounts payable thereunder or hereunder or under the other Operative Agreements
as provided in Section 2.10 by applying such funds in the following order of
priority: first, so much of such payment as shall be necessary to reimburse the
-----
Indenture Trustee for any reasonable costs or expenses incurred in connection
with such prepayment shall be paid to the Indenture Trustee; second, so much of
------
such payment as shall be necessary to pay all amounts then due to the holders of
the Equipment Notes pursuant to Section 2.10 shall be distributed to such
holders, ratably, without priority of any one Equipment Note holder over any
other such holder; and third, the balance, if any of such payment remaining
-----
thereafter shall be distributed in the manner set forth in clause "sixth" of
-----
Section 3.03. With respect to any payment received as a result of the occurrence
of an Event of Loss with respect to the Airframe or any Engine, if a Replacement
Airframe or Replacement Engine shall be substituted for the Airframe or Engine
subject to such Event of Loss as provided in Section 8(a)(i) of the Lease and
Section 5.06, any proceeds of the Aircraft (or related insurance or requisition
proceeds or payment from any governmental authority) which result from such
Event of Loss and are paid to the Indenture Trustee shall be held by the
Indenture Trustee as part of the Indenture Estate as security for the
obligations of the Lessee under the Operative Agreements and invested in
accordance with the terms of Section 3.07, and, unless otherwise applied in
accordance with the terms hereof, such proceeds (and such investment earnings)
shall, to the extent payable to the Lessee under the Lease, be released to the
Lessee at the Owner Trustee's written request upon the release of such damaged
Airframe or Engine and the replacement thereof as herein provided.
(b) Except as otherwise provided in Section 3.03, any amounts received
directly or indirectly from any governmental authority, insurer or other party
pursuant to any provision of Section 8 or 9 of the Lease or otherwise as the
result of loss or damage not constituting such an
17
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Event of Loss with respect to the Airframe or any Engine, or as a result of such
loss or damage constituting such an Event of Loss if and to the extent that such
amounts would at the time be required to be paid to the Lessee pursuant to said
Section 8 or 9 but for the fact that a Specified Default or Event of Default
shall have occurred and be continuing, shall be held by the Indenture Trustee,
as security for the obligations of the Lessee under the Operative Agreements and
shall be invested in accordance with the terms of Section 3.07 and at such time
as the conditions for payment to the Lessee specified in said Section 8 or 9
shall be fulfilled and there shall not be continuing any Specified Default or
Event of Default, such amount, and the proceeds of any investment thereof,
shall, to the extent not applied to such obligations of the Lessee, be paid to
the Lessee to the extent provided in the Lease.
SECTION 3.03. Payment After Indenture Event of Default, etc. Except as
---------------------------------------------
otherwise provided in Sections 3.04(c) and 3.05(ii), all payments received and
amounts held or realized by the Indenture Trustee after an Indenture Event of
Default shall have occurred and so long as such Indenture Event of Default shall
be continuing and after either (i) the Indenture Trustee shall foreclose the
Lien of this Indenture or shall be pursuing remedies in respect thereof or (ii)
after the Equipment Notes shall have become due and payable as provided in
Section 4.04(b) or (c), as well as all payments or amounts then held by the
Indenture Trustee as part of the Indenture Estate, shall be promptly distributed
by the Indenture Trustee in the following order of priority:
first, so much of such payments or amounts as shall be required to
-----
reimburse the Indenture Trustee for any tax, fees, expense, charge or other
loss (including, without limitation, all amounts expended or incurred at
the expense of, or charged upon the tolls, rents, revenues, issues, income,
products and profits of, the property included in the Indenture Estate
pursuant to Section 4.05(b)) incurred by the Indenture Trustee (to the
extent reimbursable pursuant to the terms of this Indenture and not
previously reimbursed) (including, without limitation, the expenses of any
sale, taking or other proceeding, reasonable attorneys' fees and expenses,
court costs, and any other expenditures incurred or expenditures or
advances made by the Indenture Trustee in the protection, exercise or
enforcement of any right, power or remedy or any damages sustained by the
Indenture Trustee, liquidated or otherwise, upon such Indenture Event of
Default) shall be applied by the Indenture Trustee in reimbursement of such
expenses;
second, so much of such payments or amounts remaining as shall be
------
required to reimburse the holders of the Equipment Notes in full for
payments made pursuant to Section 5.03 (to the extent not previously
reimbursed) shall be distributed to such holders, and if the aggregate
amount remaining shall be insufficient to reimburse all such payments in
full, it shall be distributed ratably, without priority of any Equipment
Note over any other, in the proportion that the aggregate amount of the
unreimbursed payments made by each such holder of Equipment Notes pursuant
to Section 5.03 bears to the aggregate amount of the unreimbursed payments
made by all holders of Equipment Notes pursuant to Section 5.03;
18
<PAGE>
third, so much of such payments or amounts remaining as shall be
-----
required to pay in full to the holders of Equipment Notes all other amounts
payable pursuant to the indemnification provisions of Article 6 or 7 of the
Participation Agreement or pursuant to any other provision of any Operative
Agreement and secured hereunder (other than amounts payable pursuant to
clause "second", "fourth" or "fifth" of this Section 3.03) to the holders
------ ------ -----
of Equipment Notes and remaining unpaid shall be distributed to such
holders, and if the aggregate amount remaining shall be insufficient to pay
all such amounts in full, it shall be distributed ratably, without priority
of any Equipment Note over any other, in the proportion that the aggregate
amount due each holder of Equipment Notes under this clause "third" bears
-----
to the aggregate amount due all holders of Equipment Notes under this
clause "third";
-----
fourth, so much of such payments or amounts remaining as shall be
------
required to pay in full the aggregate amount of all accrued but unpaid
interest to the date of distribution on the Equipment Notes shall be
distributed to the holders of this Equipment Notes, and if the aggregate
amount remaining shall be insufficient to pay all such amounts in full, it
shall be distributed ratably, without priority of any one Equipment Note
over any other, in the proportion that the aggregate amount of all accrued
but unpaid interest to the date of distribution on each Equipment Note
bears to the aggregate amount of all accrued but unpaid interest to the
date of distribution on all Equipment Notes;
fifth, so much of such payments or amounts remaining as shall be
-----
required to pay in full the aggregate unpaid principal amount of all
Equipment Notes shall be distributed to the holders of the Equipment Notes,
and if the aggregate amount remaining shall be insufficient to pay all such
amounts in full, it shall be distributed ratably, without priority of any
one Equipment Note over any other, in the proportion that the aggregate
unpaid principal amount of each Equipment Note bears to the aggregate
unpaid principal amount of all Equipment Notes; and
sixth, the balance, if any, of such payments or amounts remaining
-----
thereafter shall be distributed to the Owner Trustee for distribution
pursuant to the Trust Agreement.
SECTION 3.04. Certain Payments. (a) Except as otherwise provided in
----------------
this Indenture, any payments received by the Indenture Trustee for which
provision as to the application thereof is made in the Lease or the
Participation Agreement shall be applied forthwith to the purpose for which such
payment was made in accordance with the terms thereof.
(b) Except as otherwise provided in Section 3.01(b), Section 3.02(a)
or Section 3.03, the Indenture Trustee will distribute, promptly upon receipt,
any indemnity payment or payment of damages received by it from the Owner
Trustee, the Trust Company, the Lessee or the Owner Participant in respect of
the Indenture Trustee in its individual capacity or any Noteholder either
pursuant to Article 6 or 7 of the Participation Agreement or as Supplemental
Rent or otherwise, directly to the Person entitled thereto.
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(c) Notwithstanding anything to the contrary contained in this
Indenture, any sums received by the Indenture Trustee which constitute Excluded
Payments shall be distributed promptly upon receipt by the Indenture Trustee
directly to the Person or Persons entitled thereto.
SECTION 3.05. Other Payments. Any payments received by the Indenture
--------------
Trustee whose purpose or intended payee is not identified shall be held by the
Indenture Trustee pending identification of the intended purpose of such
payment, and thereafter, such payments shall be made for the intended purpose or
to the intended payee or, if no provision as to the application thereof is made
in this Indenture, shall be distributed by the Indenture Trustee (i) to the
extent received or realized at any time prior to the payment in full of all
obligations to the Noteholders secured by the Lien of this Indenture, in the
order of priority specified in Section 3.01 subject to the proviso thereto, and
(ii) to the extent received or realized at any time after payment in full of all
Secured Obligations, in the following order of priority: first, in the manner
-----
provided in clause "first" of Section 3.03 and second, in the manner provided in
-----
clause "sixth" of Section 3.03.
-----
SECTION 3.06. Payments to Owner Trustee. Any amounts distributed
-------------------------
Whereunder by the Indenture Trustee to the Owner Trustee shall be paid to the
Owner Trustee by wire transfer of funds of the type received by the Indenture
Trustee at such office and to such account or accounts of such entity or
entities as shall be designated by notice from the Owner Trustee to the
Indenture Trustee from time to time. The Owner Trustee hereby notifies the
Indenture Trustee that unless and until the Indenture Trustee receives notice to
the contrary from the Owner Trustee, all amounts to be distributed to the Owner
Trustee pursuant to clause "second" of Section 3.01(a) or clause "sixth" of
------ -----
Section 3.03 shall be distributed by wire transfer of funds of the type received
by the Indenture Trustee to the account designated on Schedule II to the
Participant Agreement under the heading "Owner Participant" or to such other
account as the Owner Participant may specify from time to time by notice to the
Indenture Trustee.
SECTION 3.07. Investment of Amounts Held by Indenture Trustee. Any
-----------------------------------------------
amounts held by the Indenture Trustee pursuant to the proviso set forth in
clause "second" of Section 3.01(a), pursuant to Section 3.02, pursuant to the
------
second proviso to the fourth sentence of Section 4.03 or pursuant to any
provision of any other Operative Agreement providing for amounts to be held by
the Indenture Trustee shall be invested by the Indenture Trustee from time to
time in investments permitted pursuant to Section 15 of the Lease as directed in
writing by the Owner Trustee or, in the event the Owner Trustee shall not so
specify, as directed in writing by the Lessee. Unless otherwise expressly
provided in this Indenture, any income realized as a result of any such
investment, net of the Indenture Trustee's reasonable fees and expenses in
making such investment, shall be held and applied by the Indenture Trustee in
the same manner as the principal amount of such investment is to be applied and
any losses, net of earnings and such reasonable fees and expenses, shall be
charged against the principal amount invested. The Indenture Trustee shall not
be liable for any loss resulting from any investment required to be made by it
under this Indenture other than by reason of its willful misconduct or gross
negligence or any negligence in the handling or application of funds, and any
such investment may be sold (without regard to its maturity) by the Indenture
Trustee without
20
<PAGE>
instructions whenever the Indenture Trustee reasonably believes such sale is
necessary to make a distribution required by this Indenture.
SECTION 3.08. Taxes; Withholding. The Indenture Trustee agrees, to
------------------
the extent required by applicable law, to withhold from each payment due
hereunder or under any Equipment Note, United States withholding taxes at the
appropriate rate, and, on a timely basis, to deposit such amounts with an
authorized depository and make such filings and other reports in connection
therewith, and in the manner required under applicable law. The Indenture
Trustee shall promptly furnish to each Noteholder that is a Non-U.S. Person (as
defined below) (but in no event later than the date 30 days after the due date
thereof) a U.S. Treasury Form 1042S (or similar forms as at any relevant time in
effect), if applicable, indicating payment in full of any Taxes withheld from
any payments by the Indenture Trustee to such persons together with all such
other information and documents reasonably requested by the Noteholder and
necessary or appropriate to enable each Noteholder to substantiate a claim for
credit or deduction with respect thereto for income tax purposes of the country
where each Noteholder is located. In the case of a Noteholder that is a Non-U.S.
Person (as defined below), the Noteholder shall provide the Indenture Trustee
with such forms and other documentation (collectively, "Tax Forms") as may be
necessary or desirable to enable such Noteholder to claim an exemption from, or
reduced rate of, such taxes and provided that such Noteholder has furnished the
Indenture Trustee with the requested Tax Forms and has not notified the
Indenture Trustee of the withdrawal or inaccuracy of any Tax Forms prior to the
date of each interest payment, only the reduced amount (if any) required by
applicable law or treaty shall be withheld from payments under the Equipment
Notes held by such Noteholder. Provided that each Noteholder that is a Non-U.S.
Person has furnished to the Indenture Trustee either (x) a properly completed
and currently effective U.S. Treasury Form 1001 or U.S. Treasury Form W-8 (or
such successor forms as may be required by the United States Treasury Department
establishing a complete exemption from or a reduced rate of United States
federal withholding Taxes) during the calendar year in which the payment is made
or in either of the two preceding calendar years (or such longer or shorter
period as may be required by the United States Treasury Department), and has not
notified the Indenture Trustee of the withdrawal of such Form prior to the date
of each interest payment, or (y) a properly completed and currently effective
U.S. Treasury Form 4224 (or such successor form as may be required by the United
States Treasury Department) or other certificate or form establishing a complete
exemption from or a reduced rate of United States federal withholding Taxes
during each calendar year before the first payment for the year is made and has
not notified the Indenture Trustee of the withdrawal of such Form or certificate
prior to the date of each interest payment, then no amount or only one reduced
amount required by applicable law shall be withheld from payments under the
Equipment Notes held by such Noteholder in respect to United States federal
income tax. In the case of a Noteholder that is not a Non-U.S. Person that has
furnished to the Indenture Trustee a properly completed and currently effective
U.S. Treasury Form W-9, no amount shall be withheld from payments under the
Equipment Notes held by such Noteholder in respect of United States federal
income tax. If any Noteholder has notified the Indenture Trustee that any of the
foregoing forms or certificates is withdrawn or inaccurate, or if the Internal
Revenue Code or the regulations thereunder or the administrative interpretation
thereof are at any time after the date hereof amended to require such
withholding of United States federal
21
<PAGE>
income taxes from payments under the Equipment Notes held by such Noteholder, or
if such withholding is otherwise required, the Indenture Trustee agrees to
withhold from each payment due to the relevant Noteholder withholding taxes at
the appropriate rate under applicable law, and will, as more fully provided
above, on a timely basis, deposit such amounts with an authorized depository and
make such reports, filings and other reports in connection therewith, and in the
manner required under applicable law. For the purpose hereof, a "Non-U.S.
Person" is a person who is not a "United States Person" as such term is defined
in Section 7701(a)(30) of the Code.
ARTICLE IV
COVENANTS; EVENTS OF DEFAULT;
REMEDIES OF INDENTURE TRUSTEE
SECTION 4.01. Covenants of the Trust Company and the Owner Trustee.
----------------------------------------------------
The Owner Trustee hereby covenants and agrees (the covenants and agreements in
clause (a) below being made by the Owner Trustee in its individual capacity
only) as follows:
(a) in the event a Responsible Officer of the Owner Trustee shall
have actual knowledge of an Indenture Event of Default or an Event of Loss,
the Owner Trustee will give prompt written notice of such Indenture Event
of Default or Event of Loss to the Indenture Trustee, the Lessee, the Owner
Participant and each Noteholder;
(b) the Owner Trustee will furnish to the Indenture Trustee,
promptly upon receipt thereof, duplicates or copies of all reports,
notices, requests, demands, certificates, financial statements and other
instruments furnished to the Owner Trustee under the Lease, including,
without limitation, a copy of each report or notice received pursuant to
Section 9(g) of the Lease, to the extent that the Operative Agreements do
not provide that the same shall be furnished directly to such Noteholder or
the Indenture Trustee;
(c) the Owner Trustee will not (except as permitted herein)
assign or pledge or otherwise dispose of, so long as this Indenture shall
remain in effect and shall not have been terminated pursuant to Section
9.01, any of its right, title or interest hereby assigned to anyone other
than the Indenture Trustee, and, with respect to such right, title and
interest hereby assigned, will not, except in respect of Excluded Payments
or otherwise as provided in this Indenture or the Participation Agreement,
(1) accept any payment from the Lessee or any Permitted Sublessee, enter
into any agreement amending or supplementing any of the Indenture
Documents, execute any waiver or modification of, or consent under, the
terms of any of the Indenture Documents, (2) exercise any rights with
respect to the Indenture Estate, (3) settle or compromise any claim arising
under any of the Indenture Documents, or (4) submit or consent to the
submission of any dispute, difference or other matter arising under or in
respect of any of the Indenture Documents to arbitration thereunder; and
22
<PAGE>
(d) the Owner Trustee will not enter into any business or other
activity other than the business of owning the Aircraft, the leasing
thereof to the Lessee and the carrying out of the transactions contemplated
hereby and by the Lease, the Participation Agreement, the Trust Agreement
and the other Operative Agreements and, except as contemplated by the
Operative Agreements, will not contract for, create, incur or assume any
indebtedness or guarantee, endorse or otherwise become contingently liable
in connection with the indebtedness of any other person.
SECTION 4.02. Indenture Event of Default. "Indenture Event of
-------------------------- ------------------
Default" means any of the following events (whatever the reason for such
- -------
Indenture Event of Default and whether such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administration or governmental body) and each such
Indenture Event of Default shall continue so long as, but only so long as, it
shall not have been remedied:
(a) any Event of Default; or
(b) the failure (other than by reason of a Default or Event of
Default) of the Owner Trustee to pay to the Indenture Trustee when due any
payment of principal of, or interest on, any Equipment Note and such
failure shall have continued unremedied for 5 Business Days, or the failure
(other than by reason of a Default or Event of Default) of the Owner
Trustee to pay to the Indenture Trustee when due any other amount due and
payable by the Owner Trustee hereunder, under any Equipment Note or under
any other Operative Agreement, and such failure shall have continued
unremedied for 15 days after receipt by the Owner Trustee and the Owner
Participant of written notice thereof from the Indenture Trustee or the
Majority in Interest of Noteholders; or
(c) any Lessor's Lien required to be discharged by the Trust
Company pursuant to Section 5.03(b) of the Participation Agreement or
required to be discharged by the Owner Participant pursuant to Section
5.01(b) of the Participation Agreement shall remain undischarged for a
period of 30 days after a Responsible Officer of the Trust Company or the
Owner Participant, as the case may be, shall have actual knowledge of such
Lessor's Lien; or
(d) any representation or warranty made by the Owner Trustee or
the Owner Participant or the Trust Company herein or in the Participation
Agreement, or made by any Owner Participant Guarantor in its Owner
Participant Guaranty, shall prove to have been false or incorrect when made
in any material respect to the Noteholders and, but only if such
misrepresentation is capable of being corrected, shall remain uncured and
material for a period of 30 days after notice thereof from the Indenture
Trustee or the Majority in Interest of Noteholders to such Person; or
23
<PAGE>
(e) any failure by the Owner Trustee to observe any of its
covenants in Section 4.01(c) or (d) herein or any failure by the Owner
Participant to observe any of its covenants in Section 5.01(c) or 5.01(e)
of the Participation Agreement or any failure by the Owner Trustee or the
Owner Participant to observe any of its respective covenants in the first
and fourth sentences of Section 5.11 of the Participation Agreement; or
(f) except as provided in paragraph (e) above or paragraph (i) or
(j) of this Section 4.02, any failure by the Owner Trustee or the Trust
Company to observe or perform any other covenant or obligation of the Owner
Trustee or the Trust Company, as the case may be, contained in this
Indenture or in the Participation Agreement or any failure by the Owner
Participant to observe or perform any other covenant or obligation of the
Owner Participant contained in the Participation Agreement or any failure
by any Owner Participant Guarantor to perform any covenant or obligation of
such Owner Participant Guarantor under its Owner Participant Guaranty
which, in any case, is not remedied within a period of 30 calendar days
after notice thereof from the Indenture Trustee or Majority in Interest of
Noteholders has been given to the Owner Trustee, the Trust Company, the
Owner Participant or Owner Participant Guarantor, as the case may be,
provided, however, if there exists no material risk of sale, loss or
--------- -------
forfeiture of the Aircraft or any additional liability to the Indenture
Trustee or Loan Participant, and if the Owner Trustee, the Trust Company,
the Owner Participant or the Owner Participant Guarantor, as the case may
be, shall have undertaken to cure any such failure and, notwithstanding the
reasonable diligence of the Owner Trustee, the Trust Company, the Owner
Participant or the Owner Participant Guarantor, as the case may be, in
attempting to cure such failure, such failure is not cured within said 30-
day period but is curable with future due diligence, there shall exist no
Indenture Event of Default under this Section 4.02 so long as the Owner
Trustee, the Trust Company, the Owner Participant or the Owner Participant
Guarantor, as the case may be, is proceeding with due diligence to cure
such failure and such failure is in fact cured within 150 days; or
(g) either the Trust Estate or the Owner Trustee (and not in its
individual capacity) or the Owner Participant or any Owner Participant
Guarantor shall (i) be generally not paying its debts as they become due,
(ii) file, or consent by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition
in bankruptcy, for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, (iii) make an assignment for the
benefit of its creditors, (iv) consent to the appointment of a custodian,
receiver, trustee or other officer with similar powers of itself or of any
substantial part of its property, or (v) take corporate or comparable
action for the purpose of any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction
shall enter an order appointing, without consent by the Trust Estate or the
Owner Trustee (not in its individual capacity) or the Owner Participant or
any Owner Participant Guarantor, a custodian, receiver, trustee or other
officer with similar powers with respect to the Trust
24
<PAGE>
Estate or the Owner Trustee (not in its individual capacity) or the Owner
Participant or any such Owner Participant Guarantor, or with respect to any
substantial part of its property, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution, winding-up
or liquidation of the Trust Estate or the Owner Trustee (not in its
individual capacity) or the Owner Participant or any such Owner Participant
Guarantor, or if any petition for any such relief shall be filed against
the Trust Estate or the Owner Trustee (not in its individual capacity) or
the Owner Participant or any such Owner Participant Guarantor, and such
petition shall not be dismissed within, or the order shall be unstayed and
remain in effect for a period of, 60 days; or
(i) any failure by the Trust Company to give notice, or to
resign, if required by Section 5.02(b) of the Participation Agreement, or
(if the Trust Company shall have given such notice and resigned as required
by said Section 5.02(b)) a successor Owner Trustee shall not have been
appointed and qualified within 30 days after the Trust Company's ceasing to
be a "Citizen of the United States", unless such failure does not adversely
affect the Lien of this Indenture; or
(j) the Owner Trustee, the Trust Company or the Owner Participant
shall do or fail to do any act, or shall fail to meet any condition, and as
a result thereof the Lien of this Indenture shall cease to be a valid first
priority Lien on the Indenture Estate, unless such failure is caused by a
Default or Event of Default; or
(k) any disaffirmation or repudiation by any Owner Participant
Guarantor of its obligations under its Owner Participant Guaranty.
Notwithstanding any provision of Section 4.02(g) or (h) to the contrary, if the
bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of
debt, dissolution or liquidation of the Trust Company shall have caused an
Indenture Default under Section 4.02(g) or (h), then no such Indenture Default
shall be deemed to have occurred so long as the Owner Participant is diligently
seeking to, and does replace the Trust Company then serving as Owner Trustee
within forty-five days after the date of such Indenture Event of Default;
provided, however, the Owner Participant shall not be entitled to cure such an
- -------- -------
Indenture Event of Default by replacing the then existing Owner Trustee, if the
Indenture Trustee's rights in the Indenture Estate or any material portion
thereof, in the reasonable judgment of the Indenture Trustee or a Majority in
Interest of Noteholders, would be impaired either by such forty-five (45) day
delay (or any portion thereof) or by the Owner Participant's replacing the Owner
Trustee.
SECTION 4.03 Certain Cure Rights. Upon an Event of Default in payment
-------------------
of any installment of Basic Rent due under the Lease, the Owner Participant may,
but shall not be required to, within 10 Business Days after such Event of
Default, without the consent or concurrence of any Noteholder, pay, as provided
in Section 2.04, for application in accordance with Section 3.01 a sum equal to
the amount of all (but not less than all) principal and accrued interest
(including
25
<PAGE>
interest, if any, on overdue payments of principal and interest) then due on the
Equipment Notes and payable out of such overdue Basic Rent. In the event of any
default by the Lessee in any obligation under the Lease other than the payment
of Basic Rent, if such default can be remedied by the payment of money and the
Owner Participant shall furnish the Owner Trustee with all funds necessary for
remedying such default, the Owner Participant may, within thirty (30) days after
the expiry of the applicable grace period specified in the Lease with respect to
such default, without the consent or concurrence of any Noteholder, instruct the
Owner Trustee to exercise the Owner Trustee's rights under Section 18 of the
Lease to perform such obligation on behalf of the Lessee. Solely for the purpose
of determining whether there exists an Indenture Event of Default, (a) any
timely payment by the Owner Participant pursuant to, and in compliance with, the
first sentence of this Section 4.03 shall be deemed to remedy (but solely for
purposes of this Indenture) any default by the Lessee in the payment of
installments of Basic Rent theretofore due and payable and to remedy (but solely
for purposes of this Indenture) any default by the Owner Trustee in the payment
of any amount of principal and interest due and payable under the Equipment
Notes and (b) any timely performance by the Owner Trustee of any obligation of
the Lessee under the Lease pursuant to, and in compliance with, the second
sentence of this Section 4.03 shall be deemed to remedy (but solely for purposes
of this Indenture) any Event of Default to the same extent that like performance
by the Lessee itself would have remedied such Event of Default (but no such
remedy shall relieve the Lessee of its duty to pay all Rent and perform all of
its obligations pursuant to the Lease). If, on the basis specified in the
preceding sentence, any Events of Default shall have been remedied, then any
declaration pursuant to this Indenture that the Equipment Notes are due and
payable or that an Indenture Event of Default exists hereunder, based solely
upon such Events of Default, shall be deemed to be rescinded, and the Owner
Participant shall (to the extent of any such payments made by it) be subrogated
to the rights of the holders of the Equipment Notes under Section 3.01(a), to
receive from the Indenture Trustee such payment of overdue Rent (and the payment
of interest on account of such Rent being overdue) and shall be entitled, so
long as no other Indenture Event of Default or Indenture Default shall have
occurred and be continuing or would result therefrom, to receive, subject to the
provisions of this Indenture, such payment upon receipt thereof by the Indenture
Trustee; provided that the Owner Participant shall not otherwise attempt to
--------
recover any such amount paid by it on behalf of the Lessee pursuant to this
Section 4.03 except by demanding of the Lessee payment of such amount or, so
long as such action is not inconsistent with any remedy then being exercised
against Lessee under or pursuant to the Lease, by commencing an action at law
against the Lessee for the payment of such amount; provided, further, that at no
-------- -------
time while an Indenture Event of Default (other than an Indenture Event of
Default which is a, or arises out of a, Default or Event of Default) shall have
occurred and be continuing shall any such demand be made or shall any such
action be commenced (or continued) and such subrogation shall be subordinate to
the rights of the Indenture Trustee and the Noteholders in respect of such
payment, and during any such period any amounts nevertheless received by the
Owner Participant in respect thereof shall be held in trust for the benefit of,
and promptly paid to, the Indenture Trustee for distribution as provided in
Section 3.03; and further provided that:
------- --------
(x) this Section 4.03 shall not apply with respect to any default in
the payment of Basic Rent due under the Lease if the Lessee itself shall
have theretofore failed to pay
26
<PAGE>
Basic Rent in the manner required under the Lease (after giving effect to
any applicable grace period) on (i) each of the two Basic Rent Payment
Dates immediately preceding the date of such default, or (ii) a total of
five Basic Rent Payment Dates (including, solely for the purposes of this
paragraph (x), the Delivery Date as a Basic Rent Payment Date);
(y) the second sentence of this Section 4.03 shall cease to apply, and
no payment by the Owner Participant in respect of Supplemental Rent or
performance of any obligation of the Lessee under the Lease by the Owner
Trustee shall be deemed to remedy or to have remedied any Event of Default
for the purposes of this Indenture, if during the Term there shall have
been expended by the Owner Participant pursuant to the second sentence of
this Section 4.03 (and which shall have not been reimbursed by the Lessee
itself to the Owner Trustee for distribution to the Owner Participant) an
amount in the aggregate in excess of $1,000,000; and
(z) neither the Owner Trustee nor the Owner Participant shall have the
right to cure any Event of Default except as specified in this Section
4.03.
Except as hereinafter in this Section 4.03 provided during any period prior to
satisfaction of all Secured Obligations, the Owner Trustee shall not, as a
result of exercising the right to remedy any such Event of Default, obtain any
Lien on any of the property included in the Indenture Estate or any Rent payable
under the Lease for or on account of costs or expenses incurred in connection
with the exercise of such right, nor shall any claim of the Owner Trustee
against the Lessee or any other party for the repayment of such costs or
expenses impair the prior right and security interest of the Indenture Trustee
in and to any of the property in the Indenture Estate.
SECTION 4.04. Remedies. (a) If an Indenture Event of Default shall
--------
have occurred and be continuing and so long as the same shall be continuing
unremedied, then and in every such case, the Indenture Trustee may, consistent
with this Section 4.04(a), exercise any or all of the rights and powers and
pursue any and all of the remedies pursuant to this Article IV and shall have
and may exercise all of the rights and remedies of a secured party under the
Uniform Commercial Code and, in the event such Indenture Event of Default is an
Indenture Event of Default referred to in paragraph (a) of Section 4.02 and
Section 4.03 shall either not apply or shall have ceased to apply with respect
to the relevant Event of Default, any and all of the remedies pursuant to
Section 17 of the Lease and all of the rights and remedies of a lessor under
applicable law and may take possession of all or any part of the properties
covered or intended to be covered by the Lien and security interest created
hereby or pursuant hereto and may exclude the Owner Participant, the Owner
Trustee and the Lessee and all persons claiming under any of them wholly or
partly therefrom. The Indenture Trustee agrees to give the Owner Trustee at
least 10 days' written notice of the date fixed for any public sale of the
Indenture Estate or of the date on or after which will occur the execution of
any contract providing for any private sale of the Indenture Estate (which
notice the parties hereto agree shall constitute commercially reasonable notice
under applicable law). At any sale of the Indenture Estate or any part thereof,
the Owner Trustee or the Owner Participant may bid for and purchase such
property. Without limiting any of the foregoing, it is understood and
27
<PAGE>
agreed that the Indenture Trustee may exercise any right of sale of the Aircraft
available to it, even though it shall not have taken possession of the Aircraft
and shall not have possession thereof at the time of such sale. It is further
understood and agreed that if the Indenture Trustee shall proceed to foreclose
the Lien of this Indenture in respect of an Indenture Event of Default referred
to in paragraph (a) of Section 4.02, it shall, to the extent that it is then
entitled to do so hereunder and under the Lease, and is not then stayed or
prevented from doing so by operation of law or otherwise, proceed (to the extent
it has not already done so) to exercise one or more of the remedies referred to
in Section 17(a), (b), (c), (d) or (e) of the Lease (to the extent that any such
remedy referred to in Section 17(e)(ii) is comparable to any remedy referred to
in such Section 17(a), (b), (c), (d) or (e)(i) of the Lease) as it shall
determine in its sole good faith discretion or as it shall be directed by a
Majority in Interest of the Noteholders; provided that, if the Indenture Trustee
--------
is so stayed or prevented, it will not be entitled to proceed to foreclose the
Lien of this Indenture until the earlier of (x) actual repossession of the
Aircraft from the Lessee or the Owner Trustee, as the case may be, or (y) the
expiration of the Section 1110 Period (as hereafter defined); and for the
avoidance of doubt, it is expressly understood and agreed that, subject to the
immediately preceding proviso and to the immediately following proviso, the
above-described inability of the Indenture Trustee to exercise any right or
remedy under the Lease shall in no event and under no circumstance prevent the
Indenture Trustee from exercising all of its rights, powers and remedies under
this Indenture, including without limitation this Article IV; provided, further,
-------- --------
that the Indenture Trustee shall not foreclose upon or divest the Owner Trustee
of title to the Aircraft or the Lease in the event the Lessee (or the bankruptcy
trustee or debtor-in-possession) with the approval of the relevant court either
agrees to perform the Lease in accordance with Section 1110 of the Bankruptcy
Code or assumes the Lease in accordance with Section 365 of the Bankruptcy Code,
but only so long as the Lessee (or the bankruptcy trustee or debtor-in-
possession) is in compliance with the provisions of such agreement under Section
1110 of the Bankruptcy Code or of the Lease as so assumed, as the case may be,
in all respects. For purposes of this Section 4.04(a), the term "Section 1110
Period" means the longer of (1) the 60-day period from the date of the order for
relief under Chapter 11 of the Bankruptcy Code (or such longer period as then
may be in effect under Section 1110 of the Bankruptcy Code, including for this
purpose any extension of such period by the Indenture Trustee (as assignee of
the Owner Trustee) and the bankruptcy trustee or debtor-in-possession pursuant
to Section 1110(b) thereof) and (2) the period during which the applicability of
said Section 1110 to the Aircraft is being contested in good faith by the Lessee
(or the bankruptcy trustee or debtor-in-possession) in judicial proceedings.
(b) If an Indenture Event of Default referred to in clause (g) or (h)
of Section 4.02 shall have occurred, then and in every such case the unpaid
principal of all Equipment Notes then outstanding, together with interest
accrued but unpaid thereon, and all other amounts due to the holders of the
Equipment Notes thereunder (but not including any amounts in respect of Make-
Whole Amount), hereunder and under the other Operative Agreements, shall, unless
the Indenture Trustee acting upon the instructions of the Majority in Interest
of Noteholders shall otherwise direct, immediately and without further act
become due and payable, without presentment, demand, protest or notice, all of
which are hereby waived.
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(c) If any other Indenture Event of Default shall have occurred and be
continuing, then and in every such case, the Indenture Trustee may at any time,
by written notice or notices to the Owner Trustee, declare all the Equipment
Notes to be due and payable, whereupon the unpaid principal of all Equipment
Notes then outstanding, together with accrued but unpaid interest thereon, and
all other amounts due to the holders of the Equipment Notes thereunder (but not
including any amounts in respect of Make-Whole Amount), hereunder and under the
other Operative Agreements, shall immediately and without further act become due
and payable without presentment, demand, protest or other notice, all of which
are hereby waived.
(d) Each Noteholder shall be entitled, at any sale pursuant to Section
17(b) of the Lease or this Article IV, to credit against any purchase price bid
at such sale by such Noteholder all or any part of the unpaid obligations owing
to such Noteholder and secured by the Lien of this Indenture. The Indenture
Trustee and the Noteholders shall, upon any such purchase, acquire good title to
the property so purchased, to the extent permitted by applicable law, free of
all rights of redemption.
SECTION 4.05. Return of Aircraft, etc. (a) If an Indenture Event of
------------------------
Default shall have occurred and be continuing, subject to Section 4.03 and
Section 4.04(a), at the request of the Indenture Trustee the Owner Trustee
shall promptly execute and deliver to the Indenture Trustee such instruments of
title and other documents as the Indenture Trustee may deem necessary or
advisable to enable the Indenture Trustee or an agent or representative
designated by the Indenture Trustee, at such time or times and place or places
as the Indenture Trustee may specify, to obtain possession of all or any part of
the Indenture Estate to which the Indenture Trustee shall at the time be
entitled hereunder. If the Owner Trustee shall for any reason fail to execute
and deliver such instruments and documents after such request by the Indenture
Trustee, the Indenture Trustee may (i) obtain a judgment conferring on the
Indenture Trustee the right to immediate possession and requiring the Owner
Trustee to execute and deliver such instruments and documents to the Indenture
Trustee, to the entry of which judgment the Owner Trustee hereby specifically
consents, and (ii) pursue all or part of the Indenture Estate wherever such
Indenture Estate may be found and may enter any of the premises of the Lessee
wherever it may be or be supposed to be and search for and take possession of
and remove the same. All expenses of obtaining such judgment or of pursuing,
searching for and taking such property shall, until paid, be secured by the Lien
of this Indenture.
(b) Upon every such taking of possession and during the continuance of
an Indenture Event of Default, the Indenture Trustee may, from time to time, at
the expense of the Indenture Estate, make all such reasonable expenditures for
maintenance, insurance, repairs, replacements, alterations, additions and
improvements to and of the Indenture Estate, as it may deem proper. In each such
case, the Indenture Trustee shall have the right to maintain, use, operate,
store, lease, control or manage the Indenture Estate and to carry on the
business and, without limiting the express provisions of Section 5.09, to
exercise all rights and powers of the Owner Participant and the Owner Trustee
relating to the Indenture Estate, as the Indenture Trustee shall deem best,
including the right to enter into any and all such agreements with respect to
the maintenance, insurance, use, operation, storage, leasing, control,
management or disposition of the Indenture
29
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Estate or any part thereof as the Indenture Trustee may determine; and except
for Excluded Payments, the Indenture Trustee shall be entitled to collect and
receive directly all tolls, rents (including Rent), revenues, issues, income,
products and profits of the Indenture Estate and every part thereof. Such tolls,
rents (including Rent), revenues, issues, income, products and profits shall be
applied to pay the reasonable expenses of the use, operation, storage, leasing,
control, management or disposition of the Indenture Estate and of conducting the
business thereof, and of all maintenance, repairs, replacements, alterations,
additions and improvements, and to make all payments which the Indenture Trustee
may be required or may elect to make, if any, for taxes, assessments, insurance
or other proper charges upon the Indenture Estate or any part thereof (including
the employment of engineers and accountants to examine, inspect and make reports
upon the properties and books and records of the Owner Trustee), and all other
payments which the Indenture Trustee may be required or authorized to make under
any provision of this Indenture, as well as just and reasonable compensation for
the services of the Indenture Trustee, and of all persons properly engaged and
employed by the Indenture Trustee.
SECTION 4.06. Remedies Cumulative. Subject to Sections 4.03, 4.04(a),
-------------------
4.08 and 5.09, each and every right, power and remedy given to the Indenture
Trustee specifically or otherwise in this Indenture shall be cumulative and
shall be in addition to every other right, power and remedy herein specifically
given or now or hereafter existing at law, in equity or by statute, and each and
every right, power and remedy whether specifically herein given or otherwise
existing may be exercised from time to time and as often and in such order as
may be deemed expedient by the Indenture Trustee, and the exercise or the
beginning of the exercise of any power or remedy shall not be construed to be a
waiver of the right to exercise at the same time or thereafter any other right,
power or remedy. No delay or omission by the Indenture Trustee in the exercise
of any right, remedy or power or in the pursuit of any remedy shall impair any
such right, power or remedy or be construed to be a waiver of any default on the
part of the Owner Trustee or the Lessee or to be an acquiescence therein.
SECTION 4.07. Discontinuance of Proceedings. In case the Indenture
-----------------------------
Trustee shall have instituted any proceeding to enforce any right, power or
remedy under this Indenture by foreclosure, entry or otherwise, and such
proceedings shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the Indenture Trustee, then and in every such
case the Owner Trustee, the Indenture Trustee and the Lessee shall, subject to
any determination in such proceedings, be restored to their former positions and
rights hereunder with respect to the Indenture Estate, and all rights, remedies
and powers of the Indenture Trustee shall continue as if no such proceedings had
been instituted.
SECTION 4.08. Waiver of Past Defaults. Upon written instructions from
-----------------------
a Majority in Interest of Noteholders, the Indenture Trustee shall waive any
past Indenture Default or Indenture Event of Default hereunder and its
consequences and upon any such waiver such Default shall cease to exist and any
Indenture Event of Default arising therefrom shall be deemed to have been cured
for every purpose of this Indenture, but no such waiver shall extend to any
subsequent or other Indenture Default or Indenture Event of Default or impair
any right consequent thereon;
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provided, however, that in the absence of written instructions from all
- -------- -------
Noteholders, the Indenture Trustee shall not waive any Indenture Default (i) in
the payment of the principal of, or interest on, or other amounts due under, any
Equipment Note then outstanding, or (ii) in respect of a covenant or provision
hereof which, under the proviso to the first sentence of Section 8.01 or under
the last sentence of Section 8.01, cannot be waived without the consent of each
Noteholder.
ARTICLE V
DUTIES OF THE INDENTURE TRUSTEE
SECTION 5.01. Notices. (a) Notice of Indenture Event of Default. In
------- ------------------------------------
the event a Responsible Officer of the Indenture Trustee shall have actual
knowledge of an Indenture Event of Default or of an Indenture Default arising
from a failure to pay Basic Rent, the Indenture Trustee shall forthwith give
prompt written notice by telex or facsimile thereof to the Owner Trustee, the
Owner Participant, the Lessee and the Noteholders. Subject to the terms of
Sections 4.03, 4.04(a), 4.08, 5.03 and 5.09, the Indenture Trustee shall take
such action, or refrain from taking such action, with respect to any such
Indenture Event of Default (including with respect to the exercise of any rights
or remedies hereunder) as the Indenture Trustee shall be instructed in writing
by the Majority in Interest of Noteholders. Subject to the provisions of
Sections 4.03, 4.04(a), 4.08, 5.03 and 5.09, if the Indenture Trustee shall not
have received instructions as above provided within twenty (20) calendar days
after receipt of notice of such Indenture Event of Default by the Noteholders,
the Indenture Trustee may, subject to instructions thereafter received pursuant
to the preceding provisions of this Section 5.01, take such action, or refrain
from taking such action, but shall be under no duty to take or refrain from
taking any action, with respect to any such Indenture Event of Default as it
shall determine advisable in the best interests of the Noteholders and shall use
the same degree of care and skill in connection therewith as a prudent person
would use under the circumstances in the conduct of such person's own affairs;
provided that the Indenture Trustee may not sell the Airframe or any Engine
- --------
without the consent of the Majority in Interest of Noteholders. In the event the
Indenture Trustee shall at any time commence to foreclose or otherwise enforce
this Indenture, the Indenture Trustee shall forthwith notify the Noteholders,
the Owner Trustee, the Owner Participant and the Lessee. For all purposes of
this Indenture, in the absence of actual knowledge on the part of a Responsible
Officer in its Corporate Trust Department, in the case of the Indenture Trustee,
or its Corporate Trust Administration, in the case of the Owner Trustee, the
Indenture Trustee or the Owner Trustee, as the case may be, shall not be deemed
to have knowledge of any Indenture Default, any Default or any Event of Default
(except, in the case of the Indenture Trustee, the failure of the Lessee to pay
any installment of Basic Rent when due, which failure shall constitute knowledge
of an Indenture Default) unless notified in writing by the Lessee, the Owner
Trustee or one or more Noteholders. This Section 5.01, however, is subject to
the condition that, if at any time after the principal of the Equipment Notes
shall have become due and payable pursuant to Section 4.04(b) or (c) and before
any judgment or decree for the payment of the money so due, or any thereof,
shall be entered, all overdue payments of interest upon the Equipment Notes and
all other amounts payable under the Equipment Notes (except the principal of the
Equipment Notes which by such declaration shall have become payable) shall have
been duly paid, and every other
31
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Indenture Default and Indenture Event of Default with respect to any covenant or
provision of this Indenture shall have been cured, then and in every such case a
Majority in Interest of Noteholders may (but shall not be obligated to), by
written instrument filed with the Indenture Trustee, rescind and annul such
acceleration and its consequences; but no such rescission or annulment shall
extend to or affect any subsequent Indenture Default or Indenture Event of
Default or impair any right consequent thereon.
(b) Other Notices. The Indenture Trustee will furnish to each
-------------
Noteholder promptly upon receipt thereof, duplicates or copies of all reports,
notices, requests, demands, certificates, financial statements and other
instruments furnished to the Indenture Trustee under any Operative Agreement or
received from the Owner Trustee pursuant to Section 4.01(b) to the extent the
same shall not have been otherwise directly distributed to the Noteholders
pursuant to the express provision of any other Operative Agreement.
SECTION 5.02. Action Upon Instructions. (a) Subject to the terms of
------------------------
Sections 4.03, 4.04(a), 4.08, 5.01, 5.03 and 5.09, upon the written instructions
at any time and from time to time of a Majority in Interest of Noteholders, the
Indenture Trustee shall take such of the following actions as may be specified
in such instructions: (i) exercise such election or option, or make such
decision or determination, or give such notice, consent, waiver or approval or
exercise such right, remedy or power or take such other action hereunder or
under any other Operative Agreement or in respect of any part or all of the
Indenture Estate as shall be specified in such instructions; (ii) take such
action with respect to, or to preserve or protect, the Indenture Estate
(including the discharge of Liens) as shall be specified in such instructions
and as is consistent with this Indenture; and (iii) take such other action in
respect of the subject matter of this Indenture as is consistent with the terms
hereof and the other Indenture Documents. The Indenture Trustee will execute and
the Owner Trustee will file or cause to be filed such continuation statements
with respect to financing statements relating to the security interests created
hereunder in the Indenture Estate as may be specified from time to time in
written instructions of a Majority in Interest of Noteholders or Lessee (which
instructions may, by their terms, be operative only at a future date and which
shall be accompanied by the execution form of such continuation statement so to
be filed).
(b) Subject to Sections 4.03, 4.04(a), 4.08, 5.01, 5.03 and 5.09, if
any Event of Default shall have occurred and be continuing, on request of a
Majority in Interest of Noteholders, the Indenture Trustee shall declare the
Lease to be in default and exercise such remedies under Section 17 of the Lease
as shall be specified in such request. The Indenture Trustee agrees to provide
to the Noteholders, the Owner Trustee and the Owner Participant concurrently
with such declaration by the Indenture Trustee, notice of such declaration by
the Indenture Trustee; provided that the failure to give any such notice to such
--------
Noteholders, the Owner Trustee or the Owner Participant shall not affect the
validity of such declaration.
SECTION 5.03. Indemnification. The Indenture Trustee shall not be
---------------
required to take any action or refrain from taking any action under Section 5.01
(other than the first sentence thereof) or 5.02 or Article IV unless the
Indenture Trustee shall have been indemnified by the
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Noteholders against any liability, cost or expense (including reasonable counsel
fees) which may be incurred in connection therewith (except for the consequences
of the Indenture Trustee's gross negligence, willful misconduct and, in
receiving, handling or remitting funds only, its failure to use ordinary care).
The Indenture Trustee shall not be under any obligation to take any action under
this Indenture and nothing contained in this Indenture shall require the
Indenture Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or in the
exercise of any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it on the terms provided above. The
Indenture Trustee shall not be required to take any action under Section 5.01
(other than the first sentence thereof) or 5.02 or Article IV, nor shall any
other provision of this Indenture be deemed to impose a duty on the Indenture
Trustee to take any action, if the Indenture Trustee shall have been advised by
counsel that such action is contrary to the terms hereof or is otherwise
contrary to law.
SECTION 5.04. No Duties Except as Specified in Indenture or
---------------------------------------------
Instructions. The Indenture Trustee shall not have any duty or obligation to
- ------------
use, operate, store, lease, control, manage, sell, dispose of or otherwise deal
with the Aircraft or any other part of the Indenture Estate, or to otherwise
take or refrain from taking any action under, or in connection with, this
Indenture or any part of the Indenture Estate, except as expressly provided by
the terms of this Indenture or as expressly provided in written instructions
from the Noteholders as provided in this Indenture; and no implied duties or
obligations shall be read into this Indenture against the Indenture Trustee. The
Indenture Trustee agrees that it will, in its individual capacity and at its own
cost and expense promptly take such action as may be necessary to duly discharge
all Liens on any part of the Indenture Estate which result from claims against
it in its individual capacity not related to the mortgaging to it of the
Aircraft or the administration of the Indenture Estate or any other transaction
contemplated by or pursuant to the Participation Agreement or any document
included in the Indenture Estate.
SECTION 5.05. No Action Except Under Lease, Participation Agreement,
-----------------------------------------------------
Indenture or Instructions. The Owner Trustee and the Indenture Trustee agree
- -------------------------
that they will not use, operate, store, lease, control, manage, sell, dispose of
or otherwise deal with the Aircraft or any other part of the Indenture Estate
except (i) in accordance with the terms of the Lease or the Participation
Agreement, or (ii) in accordance with the powers granted or reserved to, or the
authority conferred upon, the Owner Trustee and the Indenture Trustee pursuant
to this Indenture and in accordance with the express terms hereof. Any breach of
this covenant resulting solely from an Event of Default shall not be an
Indenture Event of Default other than pursuant to Section 4.02(a).
SECTION 5.06. Replacement Airframes and Replacement Engines. At any
---------------------------------------------
time and from time to time, any Airframe or Engine which has been (or is to be
treated as if the same had been) subject to an Event of Loss and may be replaced
under Section 7(e) or 8(a) of the Lease by a Replacement Airframe or Replacement
Engine, as the case may be, shall be replaced in accordance with the provisions
of this Section 5.06 and the provisions of the applicable Section of the Lease,
and the Owner Trustee shall, from time to time, direct the Indenture Trustee to
execute and deliver
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to or as directed in writing by the Owner Trustee an appropriate instrument
releasing such Airframe and/or Engine, as appropriate, from the Lien of this
Indenture and the Indenture Trustee shall execute and deliver such instrument as
aforesaid, but only upon receipt by or deposit with the Indenture Trustee of the
following (modified as appropriate if the Airframe or Engines and/or the
Replacement Airframe or Replacement Engines shall not, if permitted pursuant to
the Participation Agreement, be registered in the United States):
(a) A written request from the Owner Trustee, requesting such release and
specifically describing the Airframe and/or Engine(s) so to be released.
(b) A certificate signed by a duly authorized officer of the Lessee
stating the following:
1. With respect to the replacement of any Airframe:
(i) a description of the Airframe which shall be identified by
manufacturer, model, FAA registration number and manufacturer's
serial number;
(ii) a description of the Replacement Airframe (including the
manufacturer, model, FAA registration number and manufacturer's serial
number) to be received as consideration for the Airframe to be
released;
(iii) that on the date of the Indenture Supplement relating to
the Replacement Airframe the Owner Trustee will be the legal owner of
such Replacement Airframe free and clear of all Liens except Permitted
Liens (excluding for this purpose Lessor's Liens), and that such
Replacement Airframe has been or, substantially concurrently with such
replacement, is in the process of being duly registered in the name of
the Owner Trustee under Chapter 441 of the Act and that an
airworthiness certificate has been duly issued under Chapter 447 of
the Act with respect to such Replacement Airframe, and that such
registration and certificate is in full force and effect, and that the
Lessee will have the full right and authority to use such Replacement
Airframe;
(iv) that the insurance required by Section 9 of the Lease is in
full force and effect with respect to such Replacement Airframe and
all premiums then due thereon have been paid in full;
(v) that no Specified Default or Event of Default has occurred
and is continuing or would result from the making and granting of the
request for release and the addition of such Replacement Airframe;
(vi) that the release of the Airframe so to be released will not
impair the security of the Indenture (except in respect of such
release) or be in contravention of any of the provisions of the Lease;
and
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<PAGE>
(vii) that each of the conditions specified in Section 8(d) of
the Lease with respect to such Replacement Airframe have been
satisfied.
2. With respect to the replacement of any Engine (in addition to the
items required in Section 5.06(b)(1) above):
(viii) a description of the Engine, which shall be identified by
manufacturer's name and serial number;
(ix) a description of the Replacement Engine (including the
manufacturer's name and serial number) to be received as consideration
for the Engine to be released;
(x) that on the date of the Indenture Supplement relating to
the Replacement Engine, the Owner Trustee will be the legal owner of
such Replacement Engine, free and clear of all Liens except Permitted
Liens (excluding for this purpose Lessor's Liens);
(xi) that the release of the Engine so to be released will not
impair the security of the Indenture (except in respect of such
release) or be in contravention of any of the provisions of the Lease;
and
(xii) that each of the conditions specified in Section 7(e) of
the Lease with respect to such Replacement Engine have been satisfied.
(c) The appropriate instruments (i) transferring to the Owner Trustee
title to the Replacement Airframe or Replacement Engine to be received as
consideration for the Airframe or Engine to be released and (ii) assigning
to the Owner Trustee the benefit of all manufacturer's and vendor's
warranties generally available with respect to such Replacement Airframe or
Replacement Engine, and an Indenture Supplement subjecting such Replacement
Airframe or Replacement Engine and any related warranty right to the Lien
of this Indenture.
(d) [Intentionally Omitted].
(e) The opinion of counsel to the Lessee, reasonably satisfactory to the
Indenture Trustee and the Owner Trustee, stating that:
(1) the certificates, opinions and other instruments and/or
property which have been or are therewith delivered to and deposited
with the Indenture Trustee conform to the requirements of this
Indenture and the Lease and, upon the basis of such application, the
property so sold or disposed of may be lawfully released from
35
<PAGE>
the Lien of this Indenture and all conditions precedent herein
provided for relating to such release have been complied with; and
(2) the Replacement Airframe or Replacement Engine has been
validly subjected to the Lien of this Indenture and covered by the
Lease, the instruments subjecting such Replacement Airframe or
Replacement Engine to the Lease and to the Lien of this Indenture, as
the case may be, have been duly filed for recordation pursuant to the
Act, and no further action, filing or recording of any document is
necessary or advisable in order to establish and perfect the title of
the Owner Trustee to and the Lien of this Indenture on such
Replacement Aircraft or Replacement Engine and, as to any such
Replacement Airframe and associated Replacement Engines, that the
Owner Trustee and the Indenture Trustee, as the assignee of the Owner
Trustee's rights under the Lease, shall be entitled to the benefits of
Section 1110 of the Bankruptcy Code with respect thereto to the same
extent as immediately prior to such replacement.
SECTION 5.07. Indenture Supplements for Replacements. In the event of
--------------------------------------
a Replacement Airframe or Replacement Engine being substituted as contemplated
by Section 7(e) or 8(a) of the Lease, the Owner Trustee and the Indenture
Trustee agree for the benefit of the Noteholders and the Lessee, subject to
fulfillment of the conditions precedent and compliance by the Lessee with its
obligations set forth in Section 7(e) or 8(a) of the Lease, to execute and
deliver an Indenture Supplement with respect thereto as contemplated by Section
5.06(c), and, provided no Indenture Default or Indenture Event of Default shall
have occurred and be continuing, to execute and deliver to the Lessee an
appropriate instrument releasing the Airframe or Engine being replaced from the
Lien of this Indenture.
SECTION 5.08. Effect of Replacement. In the event of the substitution
---------------------
of a Replacement Airframe as contemplated by Section 8(a) of the Lease or of a
Replacement Engine pursuant to Section 7(e) of the Lease and, in each case,
Section 5.06, all provisions of this Indenture relating to the Airframe or
Engine or Engines being replaced shall be applicable to such Replacement
Airframe or Replacement Engine or Engines with the same force and effect as if
such Replacement Airframe or Replacement Engine or Engines were the same
airframe or engine or engines, as the case may be, as the Airframe or Engine or
Engines being replaced but for the Event of Loss with respect to the Airframe or
Engine or Engines being replaced.
SECTION 5.09. Certain Rights of Owner Trustee and Owner Participant.
-----------------------------------------------------
Notwithstanding any other provision of this Indenture, including the Granting
Clause, or of any other Operative Agreement, the following rights shall be
reserved to the Owner Trustee or the Owner Participant, as the case may be, to
the extent described herein:
(a) to the exclusion of the Indenture Trustee, so long as no
Specified Indenture Default or Indenture Event of Default shall have
occurred and be continuing, (i) subject to and without affecting the
provisions of the Lease referred to in clauses (iv) and (v)
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<PAGE>
of the proviso of the first sentence of Section 8.01 hereof, to exercise
the rights, elections and options of the Owner Trustee to make any decision
or determination and to give any notice, consent, waiver or approval with
respect to any adjustments of Basic Rent, EBO Amount and Termination Value
under Section 3(d) of the Lease (but subject to Section 3(f) of the Lease)
and (ii) to exercise all rights as Owner Trustee with respect to any
determination of Fair Market Rental Value or Fair Market Sales Value under
Section 13 of the Lease and to exercise the rights of the Lessor (x) upon
the return of the Aircraft under Section 12 of the Lease and (y) under
Sections 13(a) and 13(b)(i)(B) or (C) of the Lease;
(b) the Owner Trustee shall have the right, together with the
Indenture Trustee, whether or not an Indenture Default or an Indenture
Event of Default shall have occurred and be continuing, to exercise all
rights of Owner Trustee under Sections 7(e) and 8 (with respect to
accepting any Replacement Aircraft or Replacement Engine), 18 (to the
extent permitted by Section 4.03) and 22 of the Lease;
(c) the Owner Trustee shall have the right, together with the
Indenture Trustee, whether or not an Indenture Default or an Indenture
Event of Default shall have occurred and be continuing, to exercise (i) the
rights of Owner Trustee under Section 9 (with respect to insurance coverage
and endorsements) of the Lease and to receive from the Lessee all notices,
financial statements, certificates, opinions of counsel, and other
documents and all information that the Lessee is permitted or required to
give or furnish to the Owner Trustee pursuant to the Lease and (ii)
inspection rights pursuant to Section 6 of the Lease;
(d) to the exclusion of the Indenture Trustee, whether or not an
Indenture Default or an Indenture Event of Default shall have occurred and
be continuing, (i) all rights of the Owner Trustee to exercise any
election or option or make any decision or determination or give or receive
any notice, consent, waiver, or approval in respect of, or demand, collect,
sue for, or otherwise obtain all amounts due from the Lessee or Guarantor
on account of, any Excluded Payments, (ii) the right of the Owner Trustee
to maintain separate insurance pursuant to Section 9(f) of the Lease, and
(iii) the right of the Owner Trustee to solicit bids or retain the Aircraft
pursuant to Section 14 of the Lease;
(e) the right, jointly (but not independently) with the Indenture
Trustee, (1) so long as no Specified Indenture Default or Indenture Event
of Default shall have occurred and be continuing, to consent to or approve
or enter into any amendment, modification, or supplement of, or to grant
any waiver in respect of, any of the Indenture Documents (other than any
amendment, modification, supplement or waiver relating solely to the Loan
Participant or its interest in the Indenture Estate) and (2) if a Specified
Indenture Default or an Indenture Event of Default shall have occurred and
be continuing, to consent to or approve or enter into any amendment,
modification, or supplement of, or grant any waiver in respect of (A) any
provision of the Lease if the effect thereof is to decrease the amount or
defer the payment of any Rent, including any amounts payable under Section
3, 8, 13(b) or 14(b) of the Lease, (B) Sections 5, 12 and 17 (but in each
case only in respect of
37
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return conditions) of the Lease, (C) Section 9 of the Lease in respect of
insurance policies and the proceeds thereof which by the terms of such
policies are payable to the Owner Participant or the Owner Trustee and not
to the Indenture Trustee or the Loan Participant, (D) Section 20(a) of the
Lease (but only in respect of any consent to assignment by the Lessee of
its rights or obligations under the Lease) and (E) any other provision of
the Lease if such amendment, modification, supplement or waiver would
impose any additional affirmative obligations upon the Owner Trustee or the
Owner Participant, provided, however, that the provisions of clauses (2)(A)
-------- -------
and (2)(B) of this Section 5.09(e) shall not affect the right of the
Indenture Trustee to approve or consent to any matter or accept any
modified performance under the Lease without the consent of the Owner
Trustee or the Owner Participant, so long as such consent, approval or
acceptance does not purport to bind the Owner Trustee vis-a-vis the Lessee
or purport to constitute, as between the Owner Trustee and the Lessee, a
waiver of the rights of the Owner Trustee under the Lease or an amendment
or modification of the obligations of the Lessee under the Lease;
(f) the Owner Trustee shall have the non-exclusive right, as
Lessor, to seek specific performance of the covenants of the Lessee under
the Lease relating to the protection, insurance, maintenance, possession
and use of the Aircraft; and
(g) so long as no Specified Indenture Default or Indenture Event
of Default shall have occurred and be continuing, the right, together with
the Indenture Trustee, to exercise all other rights, powers, privileges and
remedies under any Indenture Document (other than the Lease (other than
relating to Excluded Payments)) or consent to or approve any other matter
referred to in any Indenture Document (other than the Lease (other than
relating to Excluded Payments)) as requiring or being subject to the
consent or approval of the Owner Trustee.
Upon consummation of a foreclosure of the Lien and security interest of the
Indenture on the Indenture Estate, all rights of the Owner Trustee or the Owner
Participant (as the case may be) under this Section 5.09 shall terminate, except
insofar as such rights relate to Excluded Payments. Notwithstanding the
foregoing, and subject to the provisions of Sections 4.03 and 4.04(a), the
Indenture Trustee shall at all times have the right, to the exclusion of the
Owner Trustee and the Owner Participant to exercise the remedies set forth in
Section 17 of the Lease (other than in connection with Excluded Payments) and in
Article IV hereof.
ARTICLE VI
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
SECTION 6.01 Acceptance of Trusts and Duties. The Indenture Trustee
-------------------------------
accepts the duties hereby created and applicable to it and agrees to perform the
same but only upon the terms of this Indenture and agrees to receive and
disburse all monies constituting part of the Indenture Estate in accordance with
the terms hereof. The Trust Company and the Indenture Trustee, in their
38
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individual capacities, shall not be answerable or accountable under any
circumstances, except (a) for their own willful misconduct or gross negligence,
(b) in the case of the Indenture Trustee, as provided in the second sentence of
Section 2.04 or the last sentence of Section 5.04, (c) negligence in the
handling or distribution of funds and (d) for liabilities that may result, in
the case of the Trust Company, from the inaccuracy or non-performance of any
representation or warranty or covenant of the Trust Company expressly made in
its individual capacity in the Participation Agreement or any other Operative
Agreement or in Section 6.03 or, in the case of the Indenture Trustee, from the
inaccuracy of any representation or warranty or breach of any covenant of the
Indenture Trustee made in its individual capacity in the Participation Agreement
or any other Operative Agreement. None of the Owner Participant, the Trust
Company or the Indenture Trustee shall be liable for any action or inaction of
any other.
SECTION 6.02. Absence of Duties. In the case of the Indenture
-----------------
Trustee, except in accordance with written instructions furnished pursuant to
Section 5.01 or 5.02, and except as provided in, and without limiting the
generality of, Sections 5.03 and 5.04 and, in the case of the Owner Trustee,
except as provided in Section 4.01, the Indenture Trustee and the Owner Trustee
shall have no duty (i) to see to any registration of the Aircraft or any
recording or filing of the Lease or of this Indenture or any other document, or
to see to the maintenance of any such registration, recording or filing, (ii) to
see to any insurance, whether or not the Lessee shall be in default with respect
thereto, (iii) to see to the payment or discharge of any Lien of any kind
against any part of the Trust Estate or the Indenture Estate, (iv) to confirm,
verify or inquire into the failure to receive any financial statements of the
Lessee or (v) to inspect the Aircraft at any time or ascertain or inquire as to
the performance or observance of any of the Lessee's covenants under the Lease
with respect to the Aircraft. Except as expressly otherwise herein and in the
Participation Agreement provided, the Noteholders and the Owner Participant
shall not have any duty or responsibility hereunder or thereunder, including,
without limitation, any of the duties mentioned in clauses (i) through (v)
above.
SECTION 6.03. No Representations or Warranties as to Aircraft or
--------------------------------------------------
Documents. NONE OF THE INDENTURE TRUSTEE, THE OWNER TRUSTEE OR THE TRUST COMPANY
- ---------
MAKES OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO THE TITLE, AIRWORTHINESS, VALUE, COMPLIANCE WITH SPECIFICATIONS,
CONDITION, DESIGN, QUALITY, DURABILITY, OPERATION, MERCHANTABILITY,
CONSTRUCTION, PERFORMANCE OR FITNESS FOR USE OR PURPOSE OF THE AIRCRAFT OR ANY
PART THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR
COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT OR
AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT OR ANY PART
THEREOF OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE AIRCRAFT OR
ANY PART THEREOF WHATSOEVER, except that the Trust Company in its individual
capacity warrants that on the Delivery Date (i) the Owner Trustee shall have
received whatever title was conveyed to it on the Delivery Date, and (ii) the
Aircraft shall be free
39
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and clear of Lessor's Liens attributable to the Trust Company. Neither the Trust
Company nor the Indenture Trustee in its individual capacity makes or shall be
deemed to have made any representation or warranty as to the validity, legality
or enforceability of this Indenture, the Trust Agreement, the Equipment Notes or
any Indenture Document or as to the correctness of any statement contained in
any thereof, except for the representations and warranties of the Trust Company
and the Indenture Trustee made in their respective individual capacities under
this Indenture or in the Participation Agreement or in the Trust Agreement. The
Noteholders and the Owner Participant make no representation or warranty
hereunder whatsoever.
SECTION 6.04. No Segregation of Monies; No Interest. Any monies paid
-------------------------------------
to or retained by the Indenture Trustee pursuant to any provision hereof and not
then required to be distributed to any Noteholder, the Lessee or the Owner
Trustee as provided in Article III need not be segregated in any manner except
to the extent required by law, and may be deposited under such general
conditions as may be prescribed by law, and the Indenture Trustee shall not
(except as otherwise provided in Section 3.07) be liable for any interest
thereon; provided that any payments received or applied hereunder by the
--------
Indenture Trustee shall be accounted for by the Indenture Trustee so that any
portion thereof paid or applied pursuant hereto shall be identifiable as to the
source thereof.
SECTION 6.05. Reliance; Agents; Advice of Counsel. Neither the Owner
-----------------------------------
Trustee nor the Indenture Trustee shall incur liability to anyone in acting upon
any signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond or other document or paper believed by it to
be genuine and believed by it to be signed by the proper party or parties. The
Owner Trustee and the Indenture Trustee may accept a copy of a resolution of the
Board of Directors of any party to the Participation Agreement, certified by the
Secretary or an Assistant Secretary or other Responsible Officer thereof as duly
adopted and in full force and effect, as conclusive evidence that such
resolution has been duly adopted and that the same is in full force and effect.
As to the aggregate unpaid principal amount of Equipment Notes outstanding as of
any date, the Owner Trustee may for all purposes hereof rely on a certificate
signed by any Vice President or other authorized corporate trust officer of the
Indenture Trustee. As to any fact or matter relating to the Lessee the manner of
ascertainment of which is not specifically described herein, the Owner Trustee
and the Indenture Trustee may for all purposes hereof rely on a certificate,
signed by a duly authorized officer of the Lessee, as to such fact or matter,
and such certificate shall constitute full protection to the Owner Trustee and
the Indenture Trustee for any action taken or omitted to be taken by them in
good faith in reliance thereon. The Indenture Trustee shall assume, and shall be
fully protected in assuming, that the Owner Trustee is authorized by the Trust
Agreement to enter into this Indenture and to take all action to be taken by it
pursuant to the provisions hereof, and shall not inquire into the authorization
of the Owner Trustee with respect thereto. In the administration of the trusts
hereunder, the Owner Trustee and the Indenture Trustee each may execute any of
the trusts or powers hereof and perform its powers and duties hereunder directly
or through agents or attorneys and may, at the expense of the Indenture Estate,
advise with counsel, accountants and other skilled persons to be selected and
retained by it, and the Owner Trustee and the Indenture Trustee shall not
40
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be liable for anything done, suffered or omitted in good faith by them in
accordance with the written advice or written opinion of any such counsel,
accountants or other skilled persons.
SECTION 6.06. Capacity in Which Acting. Each of the Owner Trustee and
------------------------
the Indenture Trustee acts hereunder solely as trustee herein, and, in the case
of the Owner Trustee, as provided in the Trust Agreement, and not in its
individual capacity, except as otherwise expressly provided in the Operative
Agreements.
SECTION 6.07. Compensation. The Indenture Trustee shall be entitled
------------
to reasonable compensation, including expenses and disbursements, for all
services rendered hereunder and shall have a priority claim on the Indenture
Estate for the payment of such compensation, to the extent that such
compensation shall not be paid by the Lessee or others, as required under the
Indenture Documents, and shall have the right to use or apply any monies held by
it hereunder in the Indenture Estate toward such payments. The Indenture Trustee
agrees that it shall have no right against the Noteholders or (except as
provided in the Participation Agreement) the Owner Participant for any fee as
compensation for its services as trustee under this Indenture.
SECTION 6.08. May Become Noteholder. Each of the institutions acting
---------------------
as Owner Trustee and Indenture Trustee hereunder may become a Noteholder and
have all rights and benefits of a Noteholder to the same extent as if it were
not the institution acting as Owner Trustee or Indenture Trustee, as the case
may be.
SECTION 6.09. Further Assurances; Financing Statements. At any time
----------------------------------------
and from time to time, upon the request of the Indenture Trustee, the Owner
Trustee shall promptly and duly execute and deliver any and all such further
instruments and documents as may be specified in such request and as are
necessary or desirable to perfect, preserve or protect the mortgage, security
interests and assignments created or intended to be created hereby, or to obtain
for the Indenture Trustee the full benefit of the specific rights and powers
herein granted, including, without limitation, the execution and delivery of
Uniform Commercial Code financing statements and continuation statements with
respect thereto, or similar instruments relating to the perfection of the
mortgage, security interests or assignments created or intended to be created
hereby.
SECTION 6.10. Assumption of Equipment Notes upon Purchase of
----------------------------------------------
Aircraft. In the event that the Lessee elects to purchase the Aircraft pursuant
- --------
to Section 13(b)(ii) of the Lease and in connection therewith shall exercise its
right under Section 5.10 of the Participation Agreement to make such purchase,
in part, by assuming the obligations of the Owner Trustee under the Equipment
Notes, then upon satisfaction of all of the requirements of Section 5.10 of the
Participation Agreement (including the amendment of this Indenture), the rights
and obligations of the Owner Trustee under this Indenture shall be assumed by
the Lessee and, as of the time of such assumption, the Owner Trustee shall be
discharged therefrom (without affecting any liability of the Owner Trustee or
the Trust Company in respect of any obligation of the Owner Trustee or the Trust
Company arising out of or relating to the time before such assumption).
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ARTICLE VII
SUCCESSOR TRUSTEES; SEPARATE TRUSTEES
SECTION 7.01. Notice of Successor Owner Trustee. In the case of any
---------------------------------
appointment of a successor to the Owner Trustee pursuant to the Trust Agreement
or any merger, conversion, consolidation or sale of substantially all of the
corporate trust business of the Owner Trustee pursuant to the Trust Agreement,
the successor Owner Trustee shall give prompt written notice thereof to the
Indenture Trustee and to each Noteholder.
SECTION 7.02. Resignation of Indenture Trustee; Appointment of
------------------------------------------------
Successor. (a) The Indenture Trustee or any successor thereto may resign at any
- ---------
time without cause by giving at least thirty (30) calendar days, prior written
notice to the Owner Participant, the Lessee, the Owner Trustee and each
Noteholder, such resignation to be effective upon the acceptance of the
trusteeship by a successor Indenture Trustee. In addition, a Majority in
Interest of Noteholders may at any time remove the Indenture Trustee without
cause by an instrument in writing delivered to the Owner Participant, the Owner
Trustee, the Lessee and the Indenture Trustee, and the Owner Trustee shall
promptly notify each Noteholder thereof in writing, such removal to be effective
upon the acceptance of the trusteeship by a successor Indenture Trustee. In the
case of the resignation or removal of the Indenture Trustee, a majority in
Interest of Noteholders may appoint a successor Indenture Trustee by an
instrument signed by such Noteholders. If a successor Indenture Trustee shall
not have been appointed within thirty (30) calendar days after such notice of
resignation or removal, the Indenture Trustee, the Owner Trustee or any
Noteholder may apply to any court of competent jurisdiction to appoint a
successor Indenture Trustee to act until such time, if any, as a successor shall
have been appointed as above provided. The successor Indenture Trustee so
appointed by such court shall immediately and without further act be superseded
by any successor Indenture Trustee appointed as above provided within one year
from the date of the appointment by such court.
(b) Any successor Indenture Trustee, however appointed, shall execute
and deliver to the Owner Trustee and to the predecessor Indenture Trustee an
instrument accepting such appointment, and thereupon such successor Indenture
Trustee, without further act, shall become vested with all the estates,
properties, rights, powers and duties of the predecessor Indenture Trustee
hereunder in the trusts hereunder applicable to it with like effect as if
originally named the Indenture Trustee herein; provided that the rights of the
--------
predecessor Indenture Trustee to any compensation or indemnity relating to the
period prior to such transfer shall survive such transfer and the predecessor
Indenture Trustee shall retain any Lien which it may have on the Indenture
Estate securing such amounts; but nevertheless upon the written request of such
successor Indenture Trustee, such predecessor Indenture Trustee shall execute
and deliver an instrument transferring to such successor Indenture Trustee, upon
the trusts herein expressed applicable to it, all the estates, properties,
rights and powers of such predecessor Indenture Trustee, and such predecessor
Indenture Trustee shall duly assign, transfer, deliver and pay over to such
successor Indenture Trustee all monies or other property then held by such
predecessor Indenture Trustee hereunder, provided that such predecessor
--------
Indenture Trustee shall be entitled to deduct from any monies held by it
42
<PAGE>
constituting part of the Indenture Estate all compensation and indemnity then
due to it. Upon the successor Indenture Trustee accepting such appointment, the
predecessor Indenture Trustee shall be relieved of any further obligation and
liability hereunder and under the other Operative Agreements arising after the
time of such transfer.
(c) Any successor Indenture Trustee, however appointed, shall be a
Citizen of the United States and shall also be a bank or trust company having a
combined capital and surplus of at least $100,000,000, if there be such an
institution willing, able and legally qualified to perform the duties of the
Indenture Trustee hereunder upon reasonable or customary terms.
(d) Any corporation into which the Indenture Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Indenture Trustee
shall be a party, or any corporation to which substantially all the corporate
trust business of the Indenture Trustee (including this account) may be
transferred, shall, subject to the terms of paragraph (c) of this Section, be
the Indenture Trustee under this Indenture without further act.
SECTION 7.03. Appointment of Separate Trustees. (a) At any time or
--------------------------------
times, for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Indenture Estate may at the time be located or in which
any action of the Indenture Trustee may be required to be performed or taken or
if the Indenture Trustee shall be advised by counsel satisfactory to it that it
is so necessary or prudent in the interests of the Noteholders, or in the event
the Indenture Trustee shall have been requested to do so by a Majority in
Interest of Noteholders, the Indenture Trustee, by an instrument in writing
signed by it, and without the concurrence of the Owner Trustee, may appoint one
or more individuals or corporations to act as separate trustee or separate
trustees or co-trustee, acting jointly with the Indenture Trustee, or to act as
separate trustee or trustees of all or any part of the Indenture Estate with
such powers as may be provided in an agreement supplemental hereto.
(b) The Indenture Trustee and, at the request of the Indenture
Trustee, the Owner Trustee, shall execute, acknowledge and deliver all such
instruments as may be required by the legal requirements of any jurisdiction or
by any such separate trustee or separate trustees or co-trustee for the purpose
of more fully confirming such title, rights or duties to such separate trustee
or separate trustees or co-trustee and the Owner Trustee hereby makes,
constitutes and appoints the Indenture Trustee its agent and attorney- in- fact
for it and in its name, place and stead to execute, acknowledge and deliver the
same in the event that the Owner Trustee shall not itself execute and deliver
the same within twenty days after receipt by it of such request so to do. Upon
the acceptance in writing of such appointment by any such separate trustee or
separate trustees or co-trustee, it or they shall be vested with such title to
the Indenture Estate or any part thereof, and with such rights and duties, as
shall be specified in the instrument of appointment, jointly with the Indenture
Trustee (except insofar as local law makes it necessary for any such separate
trustee or separate trustees or co-trustee to act alone) subject to all the
terms of this Indenture. Any separate trustee or separate trustees or co-trustee
may, at any time by an instrument in writing, constitute the Indenture Trustee
its attorney-in-fact and
43
<PAGE>
agent with full power and authority to do all acts and things and to exercise
all discretion on its behalf and in its name. In case any such separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, the
title to the Indenture Estate and all assets, property, rights, powers, trusts,
obligations and duties of such separate trustee or co-trustee shall, so far as
permitted by law, vest in and be exercised by the Indenture Trustee, without the
appointment of a successor to such separate trustee or co-trustee unless and
until a successor is appointed.
(c) All provisions of this Indenture which are for the benefit of the
Indenture Trustee shall extend to and apply to each separate trustee or
co-trustee appointed pursuant to the foregoing provisions of this Section 7.03.
(d) Every separate trustee and co-trustee hereunder shall, to the
extent permitted by law, be appointed and act and the Indenture Trustee shall
act, subject to the following provisions and conditions:
(i) all powers, duties, obligations and rights conferred upon
the Indenture Trustee in respect of the receipt, custody, investment
and payment of monies shall be exercised solely by the Indenture
Trustee;
(ii) all other rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate trustee or separate trustees or co-trustee jointly except to
the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed, the Indenture Trustee
shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the
holding of title to the Indenture Estate in any such jurisdiction)
shall be exercised and performed by such separate trustee or separate
trustees or co-trustee;
(iii) no power hereby given to, or with respect to which it is
hereby provided may be exercised by, any such separate trustee or
separate trustees or co-trustee shall be exercised hereunder by such
Person except jointly with, or with the consent of, the Indenture
Trustee; and
(iv) no trustee hereunder shall be personally liable by reason of
any act or omission of any other trustee hereunder.
If at any time the Indenture Trustee shall deem it no longer necessary or
prudent in order to conform to any such law, or take any such action or shall be
advised by such counsel that it is no longer legally required or necessary or
prudent in the interest of the Noteholders or in the event the Indenture Trustee
shall have been requested to do so by a Majority in Interest of Noteholders, the
Indenture Trustee shall execute and deliver an indenture supplement hereto and
all other instruments and agreements necessary or proper to remove any separate
trustee or separate trustees or co-trustee.
44
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(e) Any request, approval or consent in writing by the Indenture
Trustee to any separate trustee or separate trustees or co-trustee shall be
sufficient warrant to such separate trustee or separate trustees or co-trustee,
as the case may be, to take such action as may be so requested, approved or
consented to.
(f) Notwithstanding any other provision of this Section 7.03, the
powers of any separate trustee or separate trustees or co-trustee appointed
pursuant to this Section 7.03 shall not in any case exceed those of the
Indenture Trustee hereunder.
ARTICLE VIII
SUPPLEMENTS AND AMENDMENTS TO
THIS INDENTURE AND OTHER DOCUMENTS
SECTION 8.01. Instructions of Majority; Limitations. At any time and
-------------------------------------
from time to time but subject to the terms and provisions of this Indenture, (i)
the Owner Trustee (but only on the written request of the Owner Participant) and
the Indenture Trustee (but only on the written request of a Majority in Interest
of Noteholders) shall execute a supplement hereto for the purpose of adding
provisions to, or changing or eliminating provisions of, this Indenture as
specified in such request, and (ii) the Owner Trustee may (but only with the
written consent of the Owner Participant and on the written request of a
Majority in Interest of Noteholders) enter into such written amendment of or
supplement to the Lease or any other Indenture Document to which it is party as
may be specified in such request; provided, however, that, without the consent
-------- -------
of each Noteholder, no such amendment of or supplement to any such document, or
waiver or modification of the terms of any thereof, shall (i) modify any of the
provisions of this Section 8.01 or the definitions of the terms "Default",
-------
"Event of Default", "Excluded Payments", "Indenture Default", "Indenture Event
---------------- ----------------- ----------------- ---------------
of Default", "Lessor's Cost", "Majority in Interest of Noteholders" or
- ---------- ------------- -----------------------------------
"Operative Agreements", contained herein or in any other Operative Agreement
--------------------
(except to change default definitions by providing for additional events of
default), (ii) increase the principal amount of any Equipment Note or reduce the
amount or extend the time of payment of any amount owing or payable under any
Equipment Note or (except as provided in this Indenture) increase or reduce the
Make-Whole Amount or interest payable on any Equipment Note (except that only
the consent of the applicable Noteholder shall be required for any decrease in
any amounts of or the rate of Make-Whole Amount or interest payable on Equipment
Note or any extension for the time of payment of any amount payable under such
Equipment Note), or alter or modify the provisions of Article III with respect
to the order of priorities in which distributions thereunder shall be made or
with respect to the amount or time of payment of any such distribution, (iii)
reduce, modify or amend any indemnities in favor of any Noteholder or in favor
of or to be paid by the Owner Participant or alter the definition of
"Indemnitee" to exclude any Noteholder (except as consented to by each Person
----------
adversely affected thereby), (iv) modify or amend Section 3(f) of the Lease or,
except as expressly contemplated by any provision of the Lease, reduce the
amount or extend the time of payment of Basic Rent or Termination Value (or
other amounts payable therewith) for the Aircraft as set forth
45
<PAGE>
in the Lease (except to the extent required to match any action consented to by
any Noteholder referred to in the parenthetical phrase in clause (ii) above), or
(v) modify, amend or supplement the Lease or consent to any assignment of the
Lease, in either case releasing the Lessee from its obligations in respect of
the payment of Basic Rent (except as above provided) or Termination Value (or
other amounts payable therewith) for the Aircraft or altering the absolute and
unconditional character of such obligations as set forth in Section 3(g) of the
Lease or change any of the circumstances under which Termination Value (or other
amounts payable therewith) are payable. This Section 8.01 shall not apply to any
indenture or indentures supplemental hereto permitted by, and complying with the
terms of, Section 5.07, Section 7.03 or Section 8.04. Notwithstanding the
foregoing, without the consent of each Noteholder, no such supplement to this
Indenture, or waiver or modification of the terms hereof or of any other
agreement or document shall expressly permit the creation of any Lien on the
Indenture Estate or any part thereof, except as expressly permitted herein or in
the Participation Agreement or the Lease, or deprive any Noteholder of the
benefit of the Lien of this Indenture on the Indenture Estate, except as
provided in Sections 5.01 and 5.02 or in connection with the exercise of
remedies under Article IV.
SECTION 8.02. Trustees Protected. If, in the opinion of the
------------------
institution acting as Owner Trustee under the Trust Agreement or the institution
acting as the Indenture Trustee hereunder any document required to be executed
pursuant to the terms of Section 8.01 affects any right, duty, immunity or
indemnity with respect to it under this Indenture, the Indenture Trustee and the
Owner Trustee may in their discretion decline to execute such document.
SECTION 8.03. Documents Mailed to Noteholders. Promptly after the
-------------------------------
execution by the Owner Trustee or the Indenture Trustee of any document entered
into pursuant to Section 8.01, the Owner Trustee shall mail, by certified mail,
postage prepaid, a conformed copy thereof to the Indenture Trustee and the
Indenture Trustee shall mail, by certified mail, postage prepaid, a conformed
copy thereof to each Noteholder at its address shown on the Register, but the
failure of the Owner Trustee or Indenture Trustee, as the case may be, to mail
such conformed copies shall not impair or affect the validity of such document.
SECTION 8.04. No Request Necessary for Lease Supplement or Indenture
------------------------------------------------------
Supplement. Notwithstanding anything contained in Section 8.01, no written
- ----------
request or consent of the Indenture Trustee, any Noteholder or the Owner
Participant pursuant to Section 8.01 shall be required to enable the Owner
Trustee to enter into any Lease Supplement with the Lessee pursuant to the terms
of the Lease to subject the Aircraft or other property thereto or to confirm a
Rent adjustment in accordance with Section 3(d) thereof or to execute and
deliver an Indenture Supplement to subject the Aircraft or other property hereto
pursuant to the terms hereof.
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<PAGE>
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Termination of Indenture. Upon (or at any time after)
------------------------
payment in full of the principal of and interest on and Make-Whole Amount, if
any, and all other Secured Obligations due under, or otherwise due to the
holders of, all Equipment Notes and provided that there shall then be no other
Secured Obligations due to the Noteholders and the Indenture Trustee hereunder
or under the Participation Agreement or the other Operative Agreements or
otherwise secured hereby, the Owner Trustee shall direct the Indenture Trustee
to execute and deliver to or as directed in writing by the Owner Trustee an
appropriate instrument releasing the Aircraft from the Lien of this Indenture
and releasing the Indenture Documents from the assignment and pledge thereof
hereunder, and the Indenture Trustee shall execute and deliver such instrument
as aforesaid and, at the Owner Trustee's expense, will execute and deliver such
other instruments or documents as may be reasonably requested by the Owner
Participant to give effect to such release; provided, however, that this
-------- -------
Indenture and the trusts created hereby shall earlier terminate and this
Indenture shall be of no further force or effect upon any sale or other final
disposition by the Indenture Trustee of all property constituting part of the
Indenture Estate and the final distribution by the Indenture Trustee of all
monies or other property or proceeds constituting part of the Indenture Estate
in accordance with the terms hereof. Except as aforesaid otherwise provided,
this Indenture and the trusts created hereby shall continue in full force and
effect in accordance with the terms hereof.
SECTION 9.02. No Legal Title to Indenture Estate in Noteholders. No
-------------------------------------------------
Noteholder shall have legal title to any part of the Indenture Estate. No
transfer, by operation of law or otherwise, of any Equipment Note or other
right, title and interest of any Noteholder in and to the Indenture Estate or
hereunder shall operate to terminate this Indenture or entitle such Noteholder
or any successor or transferee of such holder to an accounting or to the
transfer to it of legal title to any part of the Indenture Estate.
SECTION 9.03. Sale of Aircraft by Indenture Trustee is Binding. Any
------------------------------------------------
sale or other conveyance of any Aircraft by the Indenture Trustee made pursuant
to the terms of this Indenture or of the Lease shall bind the Noteholders and
shall be effective to transfer or convey all right, title and interest of the
Indenture Trustee, the Owner Trustee, the Owner Participant and the Noteholders
in and to such Aircraft. No purchaser or other grantee shall be required to
inquire as to the authorization, necessity, expediency or regularity of such
sale or conveyance or as to the application of any sale or other proceeds with
respect thereto by the Indenture Trustee.
SECTION 9.04. Indenture for Benefit of Owner Trustee, Indenture
-------------------------------------------------
Trustee, Owner Participant and Noteholders. Nothing in this Indenture, whether
- ------------------------------------------
express or implied, shall be construed to give to any person other than the
Trust Company, the Owner Trustee, the Indenture Trustee (in its individual and
trust capacities), the Owner Participant, the Lessee and the Noteholders any
legal or equitable right, remedy or claim under or in respect of this Indenture.
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SECTION 9.05. No Action Contrary to Lessee's Rights under the Lease.
-----------------------------------------------------
Notwithstanding any of the provisions of this Indenture or the Trust Agreement
to the contrary, so long as no Event of Default shall have occurred and be
continuing, neither the Indenture Trustee nor the Owner Trustee will take any
action in violation of the Lessee's rights under the Lease, including the right
to possession and use of the Aircraft in accordance with the terms of the Lease.
SECTION 9.06. Notices. Unless otherwise expressly specified or
-------
permitted by the terms hereof, all notices, requests, demands, authorizations,
directions, consents, waivers or documents provided or permitted by this
Indenture to be made, given, furnished or filed shall be in writing and
delivered in the manner and at the address provided in Section 12.01 of the
Participation Agreement.
SECTION 9.07. Severability. Any provision of this Indenture which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 9.08. No Oral Modifications or Continuing Waivers. No terms or
-------------------------------------------
provisions of this Indenture or the Equipment Notes may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party or other Person against whom enforcement of the change, waiver,
discharge or termination is sought and any other party or other Person whose
consent is required pursuant to this Indenture; and any waiver of the terms
hereof or of any Equipment Note shall be effective only in the specific instance
and for the specific purpose given.
SECTION 9.09. Successors and Assigns. All covenants and agreements
----------------------
contained herein shall be binding upon, and inure to the benefit of, each of the
parties hereto and the successors and assigns of each, all as herein provided.
Any request, notice, direction, consent, waiver or other instrument or action by
any Noteholder shall bind the successors and assigns of such Noteholder. This
Indenture and the Indenture Estate shall not be affected by any amendment or
supplement to the Trust Agreement or by any other action taken under or in
respect of the Trust Agreement, except that each reference in this Indenture to
the Trust Agreement shall mean the Trust Agreement as amended and supplemented
from time to time to the extent permitted hereby and thereby and by the
Participation Agreement.
SECTION 9.10. Headings. The headings of the various Articles and
--------
Sections herein and in the table of contents hereto are for the convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
SECTION 9.11 Governing Law. THIS INDENTURE SHALL IN ALL RESPECTS BE
-------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, INCLUDING ALL MATTERS OF CONSTRUCTION,
48
<PAGE>
VALIDITY AND PERFORMANCE. THIS INDENTURE IS BEING DELIVERED IN THE STATE OF NEW
YORK.
SECTION 9.12. Counterpart Form. This Indenture may be executed by the
----------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 9.13. Waiver of Jury Trial. EACH OF THE OWNER TRUSTEE AND THE
--------------------
INDENTURE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 9.14. Submission to Jurisdiction. Each of the Owner Trustee
--------------------------
and the Indenture Trustee agrees that any legal action or proceeding with
respect to this Indenture or any of the transactions contemplated hereby, or to
enforce any judgment obtained against it in respect of any of the foregoing (a
certified or exemplified copy of which judgment shall be conclusive evidence of
the fact and of the amount of any indebtedness therein described), may be
brought in the courts of the State of New York in the City and County of New
York and of the United States for the Southern District of New York and by the
execution and delivery of this Indenture, each such Person irrevocably consents
and submits to the nonexclusive jurisdiction of each such court, acknowledges
its competence and irrevocably agrees to be bound by a final judgment of such
court. Each such Person irrevocably waives, to the fullest extent permitted by
applicable law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum. Each of the Owner Trustee and the Indenture Trustee hereby generally
consents to service of process to the respective addresses set forth in Section
12.01 of the Participation Agreement in the manner specified in such Section
12.01 of the Participation Agreement. Nothing in this paragraph shall affect the
right of any party hereto or their successors or assigns to bring any action or
proceeding against any other party hereto or their property in the courts of
other jurisdictions.
SECTION 9.15. Payment in Dollars.
------------------
(i) If, for the purposes of obtaining judgment in, or enforcing the
judgment of, any court, it is necessary for any Person to convert a sum due
hereunder in Dollars into another currency (the "Judgment Currency"), the
-----------------
rate of exchange used shall be that at which in accordance with normal
banking procedures such Person could purchase Dollars with the Judgment
Currency on the Business Day preceding that on which final judgment is
given or the order of enforcement made.
(ii) The obligation of the Owner Trustee in respect of any sum due
from it to any Person hereunder shall, notwithstanding any judgment or
order of enforcement in such Judgment Currency, be discharged only to the
extent that on the Business Day following
49
<PAGE>
that on which final judgment is given or the order of enforcement made,
such Person may in accordance with normal banking procedures purchase
Dollars with the Judgment Currency; if the Dollars so purchased are less
than the sum originally due to such Person in Dollars, the Owner Trustee
agrees, as a separate obligation and notwithstanding any such judgment or
order of enforcement, to indemnify such Person against such loss
attributable to any of its obligations hereunder, and if the Dollars so
purchased exceed the sum originally due from the Owner Trustee, in Dollars,
such Person shall remit to the Owner Trustee such excess. Any additional
amount due from the Owner Trustee under this Section 9.15 will be due as a
separate debt and shall not be affected by judgment or order of enforcement
being obtained for any other sums due under or in respect of this Indenture
or any other Operative Agreement.
50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed by their respective officers thereunto duly authorized, as of
the day and year first above written, and this Indenture having become effective
only upon such execution and delivery.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
not in its individual capacity, except as
otherwise expressly provided in the Operative
Agreements, but solely as Owner Trustee
By: /s/ Stephen J. Kaba
-------------------
Name: Stephen J. Kaba
Title: Vice President
ALLFIRST BANK, not in its individual capacity,
except as expressly provided herein, but solely as
Indenture Trustee
By: /s/ Robert D. Brown
-------------------
Name: Robert D. Brown
Title: Vice President
51
<PAGE>
APPENDIX A
DEFINITIONS [N583ML]
GENERAL PROVISIONS
The following terms shall have the following meanings for all purposes
of the Operative Agreements (as defined below), unless otherwise defined in an
Operative Agreement or the context thereof shall otherwise require. In the case
of any conflict between the provisions of this Appendix and the provisions of
any Operative Agreement, the provisions of such Operative Agreement shall
control the construction of such Operative Agreement.
Unless the context otherwise requires, (i) references to agreements
shall be deemed to mean such agreements as amended and supplemented from time to
time, and any agreement, instrument or document entered into in substitution or
replacement therefor, and (ii) references to parties to agreements shall be
deemed to include the successors and permitted assigns of such parties.
"Additional Insureds" means the Owner Trustee (in its individual and
-------------------
trust capacities), the Owner Participant, the Indenture Trustee (in its
individual and trust capacities) and each of the Noteholders and each of the
respective successors and permitted assigns and respective directors, officers
and employees of the foregoing.
"Aeronautical Authority" means as of any time of determination, the
----------------------
FAA or other governmental airworthiness authority having jurisdiction over the
Aircraft or the Airframe and Engines or engines attached thereto under the laws
of the country in which the Airframe is then registered.
"Affiliate" means, with respect to any Person, any other Person
---------
directly or indirectly controlling 50% or more of any class of voting securities
of such Person or otherwise controlling, controlled by or under common control
with such Person. For the purposes of this definition, "control" (including
"controlled by" and "under common control with") shall mean the power, directly
or indirectly, to direct or cause the direction of the management and policies
of such Person whether through the ownership of voting securities or by contract
or otherwise.
"After Tax Basis" means a basis such that any payment to be received
---------------
or accrued or deemed to be received by a Person shall be supplemented by a
further payment or payments to such Person so that the sum of such payments,
after deduction of the net amount of all Taxes (taking into account any related
credits or deductions) actually payable to any taxing authority resulting from
the actual or constructive receipt or accrual of such payments, shall be equal
to the payment to be received.
<PAGE>
"Aircraft" means the Airframe together with the two Engines, whether
--------
or not any of the Engines may at the time of determination be installed on the
Airframe or installed on any other airframe or on any other aircraft.
"Airframe" means (i) the Canadair Regional Jet Model CL-600-2B19
--------
Series 200ER aircraft (excluding the Engines and any other engines which may
from time to time be installed thereon, but including any and all Parts which
may from time to time be incorporated in, installed on or attached to such
aircraft, and including any and all such Parts removed therefrom so long as
title to such removed Parts remains vested in the Lessor under the terms of
Section 7 of the Lease) originally delivered and leased under the Lease,
identified by national registration number and manufacturer's serial number in
the Lease Supplement executed and delivered on the Delivery Date, so long as a
Replacement Airframe shall not have been substituted therefor pursuant to
Section 8 of the Lease, and (ii) a Replacement Airframe, so long as another
Replacement Airframe shall not have been substituted therefor pursuant to
Section 8 of the Lease.
"Allfirst" means Allfirst Bank, a Maryland state-chartered commercial
--------
bank, and its successors and permitted assigns.
"Applicable Law" means all applicable laws, statutes, treaties, rules,
--------------
codes, ordinances, regulations, certificates, orders, interpretations, licenses
and permits of any Governmental Authority of competent jurisdiction and
judgments, decrees, injunctions, writs, orders or like action of any court,
arbitrator or other administrative, judicial or quasi-judicial tribunal or
agency of competent jurisdiction.
"Applicable Rate" has the meaning specified in Exhibit B to the
---------------
Lease.
"Average Life Date" means, for any Equipment Note, the date which
-----------------
follows the prepayment date by a period equal to the Remaining Weighted Average
Life of such Equipment Note.
"Bankruptcy Code" means Title 11 of the United States Code, as
---------------
amended, and any successor thereto.
"Basic Rent" means the rent payable on Basic Rent Payment Dates
----------
throughout the Basic Term for the Aircraft pursuant to Section 3(b) of the Lease
and rent payable during any Renewal Term pursuant to Section 13(a) of the Lease.
"Basic Rent Payment Date" means each date listed under the heading
-----------------------
"Basic Rent Payment Date" in Exhibit C to the Lease.
"Basic Term" means the period commencing at the beginning of the day
----------
on the Delivery Date and ending at end of the day on the Expiration Date, or
such earlier date on which the Lease shall be terminated as provided therein.
<PAGE>
"Beneficial Interest" means the interest of the Owner Participant
-------------------
under the Trust Agreement.
"Bills of Sale" means the FAA Bill of Sale and the Warranty Bill of
-------------
Sale.
"Business Day" means any day other than a Saturday or Sunday or other
------------
day on which commercial banks are authorized or required by law to close in New
York City, Morrisville, North Carolina (or in the event the Lessee changes the
location of its chief executive offices to a location other than Morrisville,
North Carolina such other location), Baltimore, Maryland (or in the event the
Indenture Trustee administers its corporate business in a location other than
Baltimore, Maryland such other location), and after the Lien of the Indenture is
discharged, Wilmington, Delaware.
"Citizen of the United States" means a citizen of the United States as
----------------------------
defined in (S)40102(a)(15) of the Transportation Code, or any analogous part of
any successor or substituted legislation or regulation at the time in effect.
"Code" means the United States Federal Internal Revenue Code of 1986,
----
as amended from time to time, or any similar legislation of the United States
enacted to supersede, amend, or supplement such Code (and any reference to a
provision of the Code shall refer to any successor provision(s), however
designated).
"Commitment" of a Loan Participant shall have the meaning given such
----------
term in Section 2.01(d) of the Participation Agreement; "Commitment" of the
----------
Owner Participant shall have the meaning given such term in Section 2.01(c) of
the Participation Agreement.
"CRAF Program" has the meaning specified in Section 5(b)(vii) of
------------
the Lease.
"Designated Maturity" means, with respect to any determination of a
-------------------
Treasury Rate, the maturity of the United States Treasury Notes designated
pursuant to the definition of "Make-Whole Amount" as being those to be used in
the calculation of such Treasury Rate.
"Default" means any event or condition which, with the lapse of time
-------
or the giving of notice, or both, would constitute an Event of Default.
"Deficiency Agreement" has the meaning given to such term in the
--------------------
recitals of the Participation Agreement.
"Deficiency Obligor" has the meaning given to such term in the
------------------
recitals of the Participation Agreement.
"Delivery Date" means the date on which the Aircraft is delivered and
-------------
sold to the Lessor and leased by the Lessor to the Lessee under the Lease, which
date shall be the date of the initial Lease Supplement.
<PAGE>
"Dollars", "Dollar" and "$" means the lawful currency of the United
------- ------ -
States of America.
"DOT" means the United States Department of Transportation and any
---
agency or instrumentality of the United States Government succeeding to its
functions.
"EBO Date" has the meaning given to such term in Exhibit B to the
--------
Lease.
"EBO Amount" has the meaning given to such term in Exhibit B to the
----------
Lease.
"Engine" means (A) each of the two General Electric CF34-3B1 Series
------
200 engines originally delivered and leased under the Lease, identified by
manufacturer's serial number in the Lease Supplement executed and delivered on
the Delivery Date, so long as a Replacement Engine shall not have been
substituted therefor pursuant to Section 7(e) of the Lease, and (B) a
Replacement Engine, so long as another Replacement Engine shall not have been
substituted therefor pursuant to Section 7(e) of the Lease, whether or not such
engine or Replacement Engine, as the case may be, is from time to time installed
on the Airframe or installed on any other aircraft, and including in each case
all Parts incorporated or installed in or attached thereto and any and all Parts
removed therefrom so long as title to such Parts remains vested in the Lessor
under the terms of Section 7 of the Lease. The term "Engines" means, as of any
-------
date of determination, the two engines each of which is an Engine on that date.
"Engine Manufacturer" means General Electric Company, a New York
-------------------
corporation, and its successors and permitted assigns.
"Engine Manufacturer's Consent" means the Engine Manufacturer's
-----------------------------
Consent and Agreement [N583ML], dated as of August 10, 1999, from the Engine
Manufacturer.
"Engine Warranty Assignment" means the Engine Warranty Assignment
--------------------------
[N583ML], dated as of August 10, 1999, between Lessee and Owner Trustee.
"Equipment Notes" means the Equipment Notes issued by the Owner
---------------
Trustee pursuant to the Indenture and any equipment note issued in exchange
therefor or replacement thereof pursuant to the Indenture, each substantially in
the form set forth in Exhibit B to the Indenture.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
-----
any regulations and rulings issued thereunder all as amended and in effect from
time to time.
"ERISA Plan" means, individually or collectively, an employee benefit
----------
plan, as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA
or any applicable regulation thereunder or a plan or individual retirement
account which is subject to Section 4975(c) of the Code;
<PAGE>
"Event of Default" has the meaning given to such term in Section 16
----------------
of the Lease.
"Event of Loss" means any of the following events with respect to
-------------
the Aircraft, the Airframe or any Engine:
(i) any theft, hijacking or disappearance of such property for a
period of 30 consecutive days (provided that, so long as Lessee shall be
diligently pursuing recovery of such property, such period shall be
extended to 60 consecutive days) or more or, if earlier for a period that
extends until the end of the Term;
(ii) destruction, damage beyond economic repair or rendition of such
property permanently unfit for normal use for any reason whatsoever;
(iii) any event which results in an insurance settlement with respect
to such property on the basis of an actual, constructive or compromised
total loss;
(iv) with respect to the Airframe only, requisition of use of such
property by any foreign government or purported government or any agency or
instrumentality thereof (other than the Government), for a period in excess
of 180 consecutive days (for countries listed in Exhibit E to the Lease) or
30 consecutive days (for any other country) or such shorter period ending
on the expiration of the Term;
(v) with respect to the Airframe only, requisition of use of such
property by the Government for a period extending beyond the Term;
(vi) condemnation, confiscation or seizure of, or requisition of title
of such property by any foreign government or purported government or any
agency or instrumentality thereof or by the Government, for a period in
excess of 10 consecutive days or such shorter period ending on the
expiration of the Term;
(vii) as a result of any law, rule, regulation, order or other action
by the Aeronautical Authority, the use of the Aircraft for the
transportation of passengers or Airframe in the normal course of air
transportation shall have been prohibited by virtue of a condition
affecting all Canadair Regional Jet Series 200ER aircraft equipped with
engines of the same make and model as the Engines for a period of 180
consecutive days (or beyond the end of the Term), unless the Lessee, prior
to the expiration of such 180-day period, shall be diligently carrying
forward all necessary and desirable steps to permit normal use of the
Aircraft and shall within 12 months have conformed at least one Canadair
Regional Jet Series 200ER aircraft (but not necessarily the Aircraft) to
the requirements of any such law, rule, regulation, order or action, and
shall be diligently pursuing conformance of the Aircraft in a non-
discriminatory manner provided that, notwithstanding the foregoing, if such
normal use of such property subject to the Lease shall be prohibited at the
end of the Term, an Event of Loss shall be deemed to have occurred; and
<PAGE>
(viii) with respect to an Engine only, the requisition or taking of
use thereof by any government, or instrumentality or agency thereof and any
divestiture of title or ownership deemed to be an Event of Loss with
respect to an Engine under Section 5(b)(iii) or 5(b)(vi) of the Lease.
The date of such Event of Loss shall be (aa) the 31st day following loss of such
property or its use due to theft or disappearance or the 61st day following such
loss if such period shall have been extended (or the end of the Term if
earlier); (bb) the date of any destruction, damage beyond economic repair or
rendition of such property permanently unfit for normal use; (cc) the date of
any insurance settlement on the basis of an actual, constructive or compromised
total loss; (dd) the 181st day (for countries listed in Exhibit E to the Lease)
or 31st day (for any other country) following requisition of use of such
property by a foreign government or other Governmental Authority referred to in
clause (iv) above, or the end of the Term if earlier than such 181st or 31st
day; (ee) the 11th day following condemnation, confiscation or seizure of, or
requisition of title of such property by a foreign government or other
Governmental Authority referred to in clause (vi) above or the Government or the
end of the Term if earlier than such 11th day; (ff) the last day of the Term in
the case of requisition of use of such property by the Government; and (gg) the
last day of the applicable period referred to in clause (vii) above (or if
earlier, the end of the Term). An Event of Loss with respect to the Aircraft
shall be deemed to have occurred if any Event of Loss occurs with respect to the
Airframe.
"Excluded Payments" means collectively, (i) indemnity, expense,
-----------------
reimbursement or other payments (including without limitation, Transaction
Costs) paid or payable by the Lessee in respect of the Owner Participant, the
Owner Trustee in its individual capacity or any of their respective successors,
permitted assigns, directors, officers, employees, servants and agents or
Affiliates (other than the Owner Trustee in its trust capacity), pursuant to the
Participation Agreement or any other Operative Agreement or any indemnity
hereafter granted to the Owner Participant or the Owner Trustee in its
individual capacity pursuant to the Lease or the Participation Agreement, (ii)
proceeds of public liability insurance (or government indemnities in lieu
thereof) in respect of the Aircraft payable as a result of insurance claims paid
for the benefit of, or losses suffered by, the Owner Trustee in its individual
capacity or by the Owner Participant, or their respective successors, permitted
assigns or Affiliates, (iii) proceeds of insurance maintained with respect to
the Aircraft by the Owner Participant or any Affiliate thereof (whether directly
or through the Owner Trustee) in accordance with Section 9(f) of the Lease, (iv)
payments by the Lessee in respect of any amounts payable under the Tax Indemnity
Agreement, (v) any purchase price paid to the Owner Participant for its interest
in the Trust Estate, (vi) any amounts paid or payable pursuant to the Deficiency
Agreement or the Residual Agreement, (vii) any payments in respect of interest
to the extent attributable to payments referred to in clauses (i) through (vi)
above, and (viii) any right to demand, collect or otherwise receive and enforce
the payment of any amount described in clauses (i) through (vii) above.
"Expenses" has the meaning given to such term in Section 7.01(a) of the
--------
Participation Agreement.
<PAGE>
"Expiration Date" means the date specified as such in the Lease Supplement
---------------
executed and delivered on the Delivery Date.
"FAA Bill of Sale" means (A) the bill of sale for the Airframe on AC Form
----------------
8050-2, or such other form as may be approved by the Aeronautical Authority,
executed by the Seller in favor of the Owner Trustee and to be dated the
Delivery Date, and (B) a bill of sale for a Replacement Airframe on AC Form
8050-2, or such other form as may be approved by the Aeronautical Authority,
executed by the seller thereof in favor of the Owner Trustee.
"Fair Market Rental Value" or "Fair Market Sales Value" of the Airframe or
------------------------ -----------------------
any Engine shall mean the value that would be obtained in an arms'-length
transaction between an informed and willing lessee-user or buyer-user (other
than a lessee currently in possession or a used equipment dealer) under no
compulsion to lease or buy, as the case may be, and an informed and willing
lessor or seller, as the case may be, under no compulsion to lease or sell, as
the same shall be specified by agreement between the Lessor and the Lessee or,
if not agreed to by the Lessor and the Lessee within a period of 15 days after
either party requests a determination, then as specified in an appraisal
prepared and delivered in New York City mutually agreed to by two recognized
independent aircraft appraisers, one of which shall be appointed by the Lessor
and the other of which shall be appointed by the Lessee, or, if such appraisers
cannot agree on such appraisal, an appraisal arrived at by a third independent
recognized appraiser chosen by the mutual consent of the two aircraft
appraisers. If either party should fail to appoint an appraiser within 15 days
of receiving notice of the appointment of an appraiser by the other party, then
such appraisal shall be made by the appraiser appointed by the first party. If
the two appraisers cannot agree on such appraisal and fail to appoint a third
independent recognized aircraft appraiser within 15 days after the appointment
of the second appraiser, then either party may apply to the American Arbitration
Association to make such appointment. The appraisal shall be completed within
30 days of the appointment of the last appraiser appointed. In determining Fair
Market Rental Value or Fair Market Sales Value by appraisal or otherwise, it
will be assumed that the Aircraft, Airframe or Engine is in the condition,
location and overhaul status in which it is required to be returned to the
Lessor pursuant to Section 12 of the Lease and that the Lessee has removed all
Parts which it is entitled to remove pursuant to Section 7 of the Lease and that
the Aircraft is not encumbered by the Lease. Except as otherwise expressly
provided in the Lease, all appraisal costs will be shared equally by the Lessor
and the Lessee; provided that if the Lessee elects not to renew the Lease or
--------
purchase the Aircraft following the conclusion of such appraisal, the Lessee
shall pay all appraisal costs. Notwithstanding the foregoing, for purposes of
Section 17 of the Lease, the "Fair Market Rental Value" or "Fair Market Sales
Value" of the Aircraft, the Airframe or any Engine, shall be determined on an
"as is, where is" basis and shall take into account customary brokerage and
other out-of-pocket fees and expenses which typically would be incurred in
connection with a re-lease or sale of the Aircraft, the Airframe or any Engine.
Any such determination pursuant to Section 17 of the Lease shall be made by a
recognized independent aircraft appraiser selected by Lessor and the costs and
expenses associated therewith shall be borne by Lessee, unless Lessor does not
obtain possession of the Aircraft, Airframe and Engines pursuant to Section 17
of the Lease, in which case an appraiser shall not be appointed and Fair Market
Rental Value and Fair Market Sales Value for purposes of Section 17 of the Lease
shall be zero.
<PAGE>
"Fair Market Value Renewal Term" has the meaning given to such term in
------------------------------
Section 13(a) of the Lease.
"Federal Aviation Administration" or "FAA" means the United States Federal
-------------------------------- ---
Aviation Administration, the Administrator thereof and any agency or
instrumentality of the United States government succeeding to their functions.
"Fixed Renewal Term" has the meaning given to such term in Section 13(a) of
------------------
the Lease.
"Government" means the United States of America or an agency or
----------
instrumentality thereof the obligations of which bear the full faith and credit
of the United States of America.
"Governmental Authority" means (a) any federal, state, county, provincial,
----------------------
municipal, foreign, international, regional or other governmental or regulatory
authority, agency, department, board, body, instrumentality, commission, court
or any political subdivision of any of the foregoing, and (b) each person who
shall, from time to time, be vested with the control and supervision of, or have
jurisdiction over, the registration, airworthiness, operation or other matters
relating to aviation including any competent airport authority, air traffic
control or navigation authority (including European Organization for the Safety
of Air Navigation (Eurocontrol) and the Federal Aviation Administration of the
United States of America or any person acting on its behalf).
"Indemnitee" means each of Trust Company, in its individual capacity and as
----------
Owner Trustee, the Owner Participant, the Indenture Trustee, in its individual
capacity and as trustee, the Loan Participant, each of the other Noteholders,
and each of their respective successors, transferees or assigns permitted under
the terms of the Operative Agreement, and each Affiliate, officer, director,
employee, agent, representative, servant and corporate shareholder of any of the
foregoing Persons.
"Indenture" means the Trust Indenture and Security Agreement [N583ML],
---------
dated as of August 10, 1999, between the Owner Trustee and the Indenture
Trustee.
"Indenture Default" means any event or condition which, with the lapse of
-----------------
time or the giving of notice, or both, would constitute an Indenture Event of
Default.
"Indenture Documents" has the meaning specified in the Granting Clause of
-------------------
the Indenture.
"Indenture Estate" means all estate, right, title and interest of the
----------------
Indenture Trustee in and to any of the property, rights, interest, and
privileges granted to the Indenture Trustee pursuant to the Granting Clause of
the Indenture, other than Excluded Payments and any and all other rights of the
Owner Trustee or the Owner Participant expressly reserved to the Owner Trustee
or the Owner Participant pursuant to the Indenture.
<PAGE>
"Indenture Event of Default" means each of the events specified in Section
--------------------------
4.02 of the Indenture.
"Indenture Supplement" means (a) the Trust Indenture and Security Agreement
--------------------
Supplement No. 1, substantially in the form of Exhibit A to the Indenture, which
shall describe with particularity the Aircraft included in the property of the
Owner Trustee covered by the Indenture by reference to the Lease Supplement, and
which creates a first priority purchase money equipment security interest in the
Aircraft and (b) any other supplement to the Indenture from time to time
executed and delivered in accordance with the Indenture.
"Indenture Trustee" means Allfirst Bank, a Maryland state-chartered
-----------------
commercial bank, as indenture trustee under the Operative Agreements on behalf
of the Noteholders, and its successors and permitted assigns.
"Indenture Trustee's Liens" means any Lien against, on or with respect to
-------------------------
the Aircraft, any Engine, the Lessor's Estate or the Indenture Estate or any
part thereof resulting from (i) claims against the Indenture Trustee or any
Affiliate thereof not related to the administration of the Indenture Estate or
any transactions contemplated by the Operative Agreements, (ii) any act or
omission of the Indenture Trustee or any Affiliate thereof which is not related
to the transactions contemplated by the Operative Agreements or is in violation
of any of the terms of the Operative Agreements, or (iii) Taxes imposed against
the Indenture Trustee or any Affiliate thereof in its individual capacity in
respect of which the Lessee has not indemnified (and is not obligated to
indemnify) the Indenture Trustee or any Affiliate thereof in such capacity.
"Lease" means the Lease Agreement [N583ML], dated as of August 10, 1999
-----
between the Lessor and the Lessee.
"Lease Supplement" means any Lease Supplement, substantially in the form of
----------------
Exhibit A to the Lease, entered into between the Lessor and the Lessee for the
purpose of leasing the Aircraft under and pursuant to the terms of the Lease,
including any amendment thereto entered into subsequent to the Delivery Date.
"Lessee" means Midway Airlines Corporation, a Delaware corporation, and its
------
successors and permitted assigns.
"Lessee Documents" means the Operative Agreements to which the Lessee is a
----------------
party.
"Lessor" means First Union Trust Company, National Association, a national
------
banking association, not in its individual capacity but solely as Owner Trustee
under the Trust Agreement, and its successors and permitted assigns.
"Lessor's Cost" has the meaning given to such term in Exhibit B of the
-------------
Lease.
"Lessor's Estate" means all estate, right, title and interest of the Owner
---------------
Trustee in and to the Aircraft, and Engines and the Operative Agreements (other
than the Tax Indemnity
<PAGE>
Agreement) including, without limitation, all amounts of Rent, insurance
proceeds and requisition, indemnity or other payments of any kind, but
specifically excluding any Excluded Payments.
"Lessor's Liens" means Liens against, on or with respect to the Aircraft,
--------------
any Engine, the Lessor's Estate or the Indenture Estate or any part thereof,
title thereto or any interest therein arising as a result of (i) claims against
or affecting the Trust Company or the Owner Participant, in each case not
related to the Operative Agreements or the transactions contemplated thereby,
(ii) acts or omissions of the Trust Company or of the Owner Participant not
contemplated or permitted under the terms of the Operative Agreements, (iii)
Taxes or Expenses imposed against the Trust Company, Owner Participant, Lessor's
Estate or the trust created by the Trust Agreement which are not required to be
indemnified against by the Lessee pursuant to Articles 6 or 7 of the
Participation Agreement (other than due to the exclusions contained in Section
6.01(b)(x) or 7.01(b)(vii)) and which are not required to be indemnified against
by the Lessee pursuant to the Tax Indemnity Agreement, or (iv) claims against
the Trust Company or the Owner Participant arising from the transfer by the
Lessor or the Owner Participant of its interests in the Aircraft or any Engine
other than a transfer of the Aircraft or any other portion of the Lessor's
Estate pursuant to Section 5(b), 7(b), 7(c), 7(d), 7(e), 8, 12(b), 13(b), 14(a)
or 17 of the Lease and other than a transfer pursuant to the exercise of the
remedies set forth in Section 17 of the Lease or any other transfer required by
the Operative Agreements.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
exercise of rights, security interest, claim, including any right of ownership
or other similar interest of any nature whatsoever.
"Loan Participant" means and includes each registered holder from time to
----------------
time of an Equipment Note issued under the Indenture including, so long as it
holds any Equipment Note issued under the Indenture, Canadian Regional Aircraft
Finance Transaction No. 1 Limited, a Jersey, Channel Islands company, and its
successors and permitted assigns.
"Majority in Interest of Noteholders" means, as of a particular date of
-----------------------------------
determination, the Noteholders of more than 66 2/3% of the aggregate unpaid
principal amount of all Equipment Notes Outstanding as of such date (excluding
any Equipment Notes owned or held by Owner Trustee, Lessee or the Owner
Participant or any Affiliate of any such party or any interests of Owner Trustee
or the Owner Participant therein by reason of subrogation pursuant to Section
2.12 of the Indenture (unless all Equipment Notes Outstanding shall be held by
Owner Trustee, Lessee, the Owner Participant or any Affiliate thereof)).
"Make-Whole Amount" means, with respect to the prepayment or repayment of
-----------------
any Equipment Note, an amount equal to the excess, if any, of (i) the present
value, as of the date of the relevant prepayment or repayment of such Equipment
Note, of the respective installments of principal of and interest on such
Equipment Note that, but for such prepayment or repayment, would have been
payable on each Payment Date after such prepayment or repayment over (ii) the
principal amount of such Equipment Note then being prepaid or repaid. Such
present value shall be determined by discounting the amounts of such
installments from their respective Payment
<PAGE>
Dates to the date of such prepaymentor repayment at a rate equal to the Treasury
Rate determined on the basis of a Designated Maturity equal to the then
Remaining Weighted Average Life of such Equipment Note plus 0.5% (or in the case
of any prepayment of such Equipment Note made within six months after the holder
of such Equipment Note has made demand for the payment of any Increased Cost or
of any amount pursuant to Article 6 of the Participation Agreement in respect of
withholding Taxes, the Treasury Rate determined on the basis of a Designated
Maturity equal to the then Remaining Weighted Average Life of such Equipment
Note plus 1.00%). Each holder of an Equipment Note will furnish to the Lessee
and the Indenture Trustee a certificate setting forth the calculation and amount
of the Make-Whole Amount with respect to its Equipment Note, which account shall
be conclusive absent manifest error.
"Manufacturer" means Bombardier Inc., a Canadian corporation, and its
------------
successors and permitted assigns.
"Material Adverse Change" means, with respect to any Person, any event,
-----------------------
condition or circumstance that materially and adversely affects such Person's
business or consolidated financial condition or its ability to perform its
obligations under the Operative Agreements.
"Minimum Liability Amount" has the meaning given to such term in Exhibit B
------------------------
to the Lease.
"Net Economic Return" means the Owner Participant's nominal after-tax book
-------------------
yield (utilizing the multiple investment sinking fund method of analysis),
aggregate net after-tax cash and periodic FASB 13 earnings (plus or minus 5%),
computed on the basis of the same methodology, constraints and assumptions as
were utilized by the initial Owner Participant in determining Basic Rent
percentages and Termination Value percentages as of the Delivery Date; provided,
--------
that, if the initial Owner Participant shall have transferred its interest, Net
Economic Return shall be calculated as if the initial Owner Participant had
retained its interest; provided, further, that, notwithstanding the preceding
-------- -------
proviso, solely for purposes of Article 13 of the Participation Agreement and
calculating any adjustments to Basic Rent percentages and Termination Values
percentages in connection with a refinancing pursuant to such Article 13 at a
time when the Owner Participant is a transferee (other than an Affiliate of the
initial Owner Participant), the after-tax yield (but not the after-tax cash)
component of Net Economic Return shall be calculated on the basis of the
methodology and assumptions utilized by the transferee Owner Participant as of
the date on which it acquired its interest.
"Non-U.S. Person" means any Person other than a U.S. Person.
---------------
"Noteholder" means and includes the Loan Participant and each subsequent
----------
registered holder from time to time of an Equipment Note issued under the
Indenture for so long as the Loan Participant or such subsequent holder shall
hold such Equipment Note.
"Noteholder Tax Indemnitee" means each Noteholder and all Affiliates,
-------------------------
directors, officers, agents, representatives, servants and corporate
shareholders thereof.
<PAGE>
"Officer's Certificate" means as to any company a certificate signed by a
---------------------
Responsible Officer of such company.
"Operative Agreements" means the Participation Agreement, the Trust
--------------------
Agreement, the Deficiency Agreement, the Residual Agreement, the Return
Condition Agreement, the FAA Bill of Sale, the Warranty Bill of Sale, the
Purchase Agreement, the Purchase Agreement Assignment, the Engine Warranty
Assignment, the PAA Consent, the Engine Manufacturer's Consent, the Lease, each
Lease Supplement, any Owner Participant Guaranty, the Equipment Notes
outstanding at the time of reference, the Indenture, each Indenture Supplement
and the Tax Indemnity Agreement.
"Opinion of Counsel" means when delivered pursuant to the Indenture, a
------------------
written opinion of legal counsel, who in the case of counsel (a) for the Lessee
may be (i) an attorney employed by the Lessee who is generally empowered to
deliver such written opinions, (ii) Fulbright & Jaworski L.L.P., or (iii) other
counsel designated by the Lessee and reasonably satisfactory to the Indenture
Trustee, and (b) for the Owner Trustee or the Indenture Trustee, an attorney
selected by such Person and reasonably satisfactory to the Lessee and, in the
case of the Owner Trustee, reasonably satisfactory to the Indenture Trustee.
"Outstanding" means, when used with respect to Equipment Notes, as of the
-----------
date of determination, all Equipment Notes theretofore executed and delivered
under the Indenture, with the exception of the following:
1) Equipment Notes theretofore canceled by the Indenture Trustee or
delivered to the Indenture Trustee for cancellation pursuant to the
Indenture or otherwise;
2) Equipment Notes for which prepayment money in the necessary amount has
been theretofore deposited with the Indenture Trustee in trust for the
holders of such Equipment Notes pursuant to Section 9.01 of the
Indenture; provided that if such Equipment Notes are to be prepaid,
-------- ----
notice of such prepayment has been duly given pursuant to the
Indenture or provision therefor satisfactory to the Indenture Trustee
has been made; and
3) Equipment Notes in exchange for or in lieu of which other Equipment
Notes have been executed and delivered pursuant to Article II of the
Indenture.
<PAGE>
"Owner Participant" means Polaris Holding Company, a Delaware corporation,
-----------------
and its successors and permitted transferees and assigns.
"Owner Participant Guarantor" means the provider of an Owner Participant
---------------------------
Guaranty.
"Owner Participant Guaranty" means any guaranty delivered or to be
--------------------------
delivered to support the obligations of the Owner Participant under the
Operative Agreements in connection with the transfer by the Owner Participant of
the Beneficial Interest.
"Owner Trustee" means the Trust Company, not in its individual capacity
-------------
except as otherwise expressly stated, but solely as trustee under the Trust
Agreement, and its successors and permitted assigns.
"PAA Consent" means the Aircraft Manufacturer's Consent and Agreement
-----------
[N583ML], dated as of August 10, 1999, from the Manufacturer.
"Participants" means, collectively, the Owner Participant and the Loan
------------
Participant; "Participant" means, individually, one of the Participants.
-----------
"Participation Agreement" means the Participation Agreement [N583ML], dated
-----------------------
as of August 10, 1999, among the Lessee, the Owner Trustee not in its individual
capacity except as otherwise expressly provided therein, but solely as owner
trustee, the Owner Participant, the Indenture Trustee and the Loan Participant.
"Parts" means any and all appliances, parts, instruments, components,
-----
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature (other than complete Engines or engines and temporary replacement parts
as provided in Section 8 of the Lease and cargo containers) which may from time
to time be incorporated or installed in or attached to any Airframe or any
Engine or which have been removed therefrom so long as title to such removed
Parts remains vested in Lessor under the terms of Section 7 of the Lease,
exclusive of any items leased by the Lessee from third parties and not required
to be installed on the Aircraft in accordance with the Lease or otherwise
required in the navigation or operation of the Aircraft.
"Past Due Rate" means a rate per annum equal to 2% plus the Applicable Rate
-------------
or, if the Equipment Notes have been paid in full, a rate per annum equal to the
TV Rate identified in Exhibit B to the Lease.
"Payment Date" means each June 1 and December 1 through and including June
------------
1, 2015, commencing on December 1, 1999.
"Permitted Air Carrier" means (a) any Section 1110 Person and (b) any
---------------------
foreign air carrier that is principally based in any foreign country listed on
Exhibit E to the Lease except those that do not maintain normal diplomatic
relations with the United States and, with respect to both
<PAGE>
clause (a) and (b) of this definition, which shall not then be subject to a
proceeding or final order under applicable bankruptcy, insolvency or
reorganization laws.
"Permitted Investments" means (a) direct obligations of the United States
---------------------
of America or any agency or instrumentality thereof, (b) obligations fully
guaranteed by the United States of America or any agency or instrumentality
thereof, (c) any mutual fund the portfolio of which is limited to obligations of
the type described in clauses (a) and (b), including any proprietary mutual fund
of Allfirst Bank for which such bank or an affiliate is investment advisor or to
which such bank provides other services to such mutual fund and receives
reasonable compensation for such services, (d) certificates of deposit issued
by, or bankers' acceptances of, or time deposits or a deposit account with, any
bank, trust company, or national banking association incorporated or doing
business under the laws of the United States of America or one of the states
thereof, having a combined capital and surplus of at least $100,000,000 and
having a short-term debt rating of "A1" by Standard & Poor's or "P1" by Moody's
Investors Service, Inc. (or, if neither such organization shall provide such
ratings at any time, a rating equal to the highest ratings assigned by any
nationally recognized rating organization in the United States of America) and
having a final maturity of one year or less from date of purchase thereof; (e)
commercial paper issued by companies in the United States which directly issue
their own commercial paper and which are doing business under the laws of the
United States of America or one of the states thereof and in each case having a
rating assigned to such commercial paper by a nationally recognized rating
organization in the United States of America equal to the highest short-term
debt rating assigned by such organization, or (f) obligations of the type
described in clauses (a) or (b) above, purchased from any bank, trust company,
or banking association referred to in clause (d) above pursuant to repurchase
agreements obligating such bank, trust company, or banking association to
repurchase any such obligation not later than 30 days after the purchase of any
such obligation. Unless otherwise specified in writing by the Indenture Trustee
(or after the Lien of the Indenture has been discharged, the Owner Trustee), all
such Permitted Investments shall mature not later than 30 days from the date of
purchase. If any of the above investments are unavailable, the entire amount to
be invested may be used to purchase Federal Funds overnight from an entity
described in (d) above.
"Permitted Lien" has the meaning given to such term in Section 10 of the
--------------
Lease.
"Permitted Sublessee" means (a) any Permitted Air Carrier, (b) any airframe
-------------------
or engine manufacturer, or Affiliate of such a manufacturer, who is domiciled in
the United States of America or a country listed on Exhibit E to the Lease or
(c) the United States of America or any instrumentality or agency thereof.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, entity or government (federal, state, local, foreign
or any agency, instrumentality, division or body thereof) or other entity of
whatever nature.
"Purchase Agreement" means Bombardier Regional Aircraft Division Purchase
------------------
Agreement No. PA-0393 dated September 17, 1997, as amended, between the Lessee
and the
<PAGE>
Manufacturer (including all exhibits thereto, together with all letter
agreements entered into that by their terms constitute part of such Purchase
Agreement).
"Purchase Agreement Assignment" means the Purchase Agreement Assignment
-----------------------------
[N583ML], dated as of August 10, 1999, between Lessee and Owner Trustee.
"Purchase Price" means an amount equal to Lessor's Cost.
--------------
"Reasonable Basis" means that a realistic possibility of success, within
----------------
the meaning of ABA Formal Opinion No. 85-352, exists for pursuing such contest.
"Recovery Period" means "Tax Attribute Period" as defined in the Tax
---------------
Indemnity Agreement.
"Refinancing" has the meaning given to such term in Section 13.01 of the
-----------
Participation Agreement.
"Register" has the meaning given to such term in Section 2.07 of the
--------
Indenture.
"Registrar" has the meaning given to such term in Section 2.07 of the
---------
Indenture.
"Regulation D" means Regulation D of the Board of Governors of the Federal
------------
Reserve System (or any successor), as the same may be modified and supplemented
and in effect from time to time.
"Related Tax Indemnitee" means any Affiliate of any Tax Indemnitee.
----------------------
"Remaining Weighted Average Life" means on a given date with respect to any
-------------------------------
Equipment Note the number of days equal to the quotient obtained by dividing (i)
the sum of each of the products obtained by multiplying (a) the amount of each
then remaining scheduled payment of principal of such Equipment Note by (b) the
number of days from and including such date to but excluding the dates on which
each such payment of principal is scheduled to be made; by (ii) the then
outstanding principal amount of such Equipment Note.
"Renewal Term" has the meaning given to such term in Section 13(a) of the
------------
Lease.
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"Rent Payment Date" means each Payment Date during the Term.
-----------------
"Replacement Aircraft" means any Aircraft of which a Replacement Airframe
--------------------
is part.
"Replacement Airframe" means a Canadair Regional Jet Series 200ER series
--------------------
aircraft or a comparable or improved model of such aircraft of the Manufacturer
(except Engines or engines
<PAGE>
from time to time installed thereon) which shall have become subject to the
Lease pursuant to Section 8 thereof.
"Replacement Closing Date" has the meaning given such term in Section 8(d)
------------------------
of the Lease.
"Replacement Engine" means a General Electric CF34-3B1 Series 200 engine
------------------
(or engine of the same manufacturer of a comparable or an improved model and
suitable for installation and use on the Airframe), which has a value, utility
and remaining useful life at least equal to, and which is in good operating
condition as, the Engine to be replaced thereby (assuming that such Engine being
replaced was in the condition required to be maintained in accordance with the
Lease), and which shall have become subject to the Lease pursuant to Section
7(e) thereof; provided that, such engine shall be compatible with the other
-------- ----
Engine, and shall be an engine of a type then being utilized by the Lessee on
other Canadair Regional Jet Series 200 aircraft operated by the Lessee.
"Residual Agreement" has the meaning given to such term in the recitals of
------------------
the Participation Agreement.
"Responsible Officer" means, with respect to the Owner Trustee or the
-------------------
Indenture Trustee, any officer in its Corporate Trust Administration, as the
case may be, designated by such Person to perform obligations under the
Operative Agreements, and with respect to any other party, any corporate officer
of a party who, in the normal performance of his or her operational
responsibilities, with respect to the subject matter of any covenant, agreement
or obligation of such party pursuant to any Operative Agreement, would have
responsibility for and knowledge of such matter and the requirements of any
Operative Agreement with respect thereto.
"Return Condition Agreement" means the Return Condition Agreement [N583ML],
--------------------------
dated as of August 10, 1999, between the Manufacturer and the Lessee.
"SEC" means the Securities and Exchange Commission of the United States and
---
any successor agencies or authorities.
"Section 1110" means 11 U.S.C. (S) 1110 or any successor or analogous
------------
section of the federal bankruptcy law in effect from time to time.
"Section 1110 Person" means a Citizen of the United States who is an air
-------------------
carrier holding a valid air carrier operating certificate issued pursuant to 49
U.S.C. ch. 447 for aircraft capable of carrying 10 or more individuals.
"Secured Obligations" has the meaning specified in the Granting Clause of
-------------------
the Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller" has the meaning given to such term in Exhibit B to the Lease.
------
<PAGE>
"Security Trustee" means NatWest Aerospace Trust Company Limited, as
----------------
Security Trustee under the Deed of Charge, Assignment and Priorities dated April
20, 1998, among, inter alia, the initial Loan Participant, as at any time
amended, modified, novated or replaced by any corresponding agreement or
agreements (the "Deed of Charge"), or any other person acting as Security
Trustee under the Deed of Charge as from time to time designated in writing to
the Lessee.
"Specified Default" means (a) an event or condition described in Section
-----------------
16(a), (b), (f), (g), (h), (k) or (l) of the Lease that, after the giving of
notice or lapse of time, or both, would become an Event of Default, or (b) any
Event of Default.
"Specified Indenture Default" means (a) any Specified Default, or (b) any
---------------------------
Indenture Default arising under Sections 4.02(b), 4.02(c), 4.02(h) or 4.02(i) of
the Indenture.
"Specified Lease" means, at any time of determination, any lease under
---------------
which an aircraft is leased to the Lessee, if the Owner Participant or an
Affiliate of the Owner Participant, or a trustee for the benefit of the Owner
Participant or an Affiliate of the Owner Participant, shall be the lessor under
such lease.
"Sublease" means any sublease agreement between the Lessee and a Permitted
--------
Sublessee as permitted by Section 5(b) of the Lease.
"Supplemental Rent" means (a) all amounts, liabilities, indemnities and
-----------------
obligations which the Lessee assumes or agrees to perform or pay under the Lease
or under the Participation Agreement or Tax Indemnity Agreement or any other
Operative Agreement to the Lessor, the Owner Participant, the Indenture Trustee,
any Noteholder or others, including payments of Termination Value, EBO Amount,
and amounts calculated by reference to Termination Value, any amounts of Make-
Whole Amount payable under the Indenture to the extent provided in Section 3(c)
or Section 14 of the Lease, all other amounts payable under Section 3(c) of the
Lease, and all amounts required to be paid by Lessee under the agreements,
covenants, and indemnities contained in the Lease or in the Participation
Agreement or the Tax Indemnity Agreement or any other Operative Agreement, but
excluding Basic Rent, and (b) all amounts that the Owner Trustee is obligated to
pay in accordance with Section 2.14 of the Indenture.
"Tax" or "Taxes" has the meaning set forth in Section 6.01(a) of the
--- -----
Participation Agreement.
"Tax Indemnitee" means each Indemnitee.
--------------
"Tax Indemnity Agreement" means the Tax Indemnity Agreement [N583ML], dated
-----------------------
as of August 10, 1999 between the Lessee and the Owner Participant.
"Term" has the meaning given to such term in Section 3(a) of the Lease.
----
<PAGE>
"Termination Date" means each date listed in the column entitled
----------------
"Termination Date" in Exhibit D to the Lease or, during a Renewal Term or
otherwise during any period following the last day of the Term, the second day
of each month.
"Termination Value" means (a) as of any Termination Date during the Basic
-----------------
Term, the amount determined as set forth in Exhibit D to the Lease for that
Termination Date, and (b) during any Renewal Term, the amount for the date
involved, determined in accordance with Section 13(a) of the Lease, in either
case adjusted as required by Section 3(d) of the Lease.
"Transaction Costs" means those costs and expenses set forth in Section
-----------------
8.01(a) of the Participation Agreement.
"Transportation Code" means Title 49 of the United States Code, subtitle
-------------------
VII, as amended and in effect on the date of the Lease or as subsequently
amended, or any successor or substituted legislation at the time in effect and
applicable, and the regulations promulgated pursuant thereto.
"Treasury Rate" means for any Designated Maturity, the average yield to
-------------
maturity of, and resulting from the bidding for, the most recently auctioned
United States Treasury Notes with maturities equal to such Designated Maturity
on the date three Business Days prior to the relevant calculation of Make-Whole
Amount; and if United States Treasury Notes with such a maturity are not then
auctioned and publicly traded, the weighted average yield to maturity of United
States Treasury Notes with maturities next above and below such Designated
Maturity (calculated as provided below); such yields in each case to be
determined by averaging (and rounding upward to the nearest whole multiple of
1/1000 of 1% per annum, if the average is not such a multiple) the yields of the
relevant United States Treasury Notes (rounded, if necessary, to the nearest
1/1000 of 1% with any figure of 1/2000 of 1% or above rounded upward) as
displayed on the applicable Telerate screen (page 7677), or if such screen is
not available, as quoted by two reputable dealers in United Stated Treasury
Notes selected by a Majority in Interest of Noteholders, in either case, at
approximately 11:00 a.m. New York time on the date, and notified to the Lessee,
the Indenture Trustee and the Noteholders; any weighted average yield of United
States Treasury Notes with two maturities is to be calculated in accordance with
the following formula:
(Y2-Y1)(DM-X1)
---------------
WAY=Y1+ (X2-X1)
<PAGE>
Where:
WAY = Weighted Average Yield
DM = relevant Designated Maturity
X1 = whole integer in years closest to and less than DM which equals
the maturity of a United States Treasury Note then publicly
traded.
X2 = whole integer in years closest to and greater than DM which
equals the maturity of a United States Treasury Note then
publicly traded.
Y1 = yield, determined as provided above, of United States Treasury
Notes then most recently auctioned with maturities equal to X1.
Y2 = yield, determined as provided above, of United States Treasury
Notes then most recently auctioned with maturities equal to X2.
"Trust Agreement" means the Trust Agreement [N583ML], dated as of August
---------------
10, 1999, between the Owner Participant and the Trust Company.
"Trust Company" means First Union Trust Company, National Association, a
-------------
national banking association, and its successors and permitted assigns.
"Trust Estate" means the Lessor's Estate.
------------
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
-------------------
"Uniform Commercial Code" means the Uniform Commercial Code as in effect
-----------------------
from time to time in any relevant jurisdiction.
"United States", "U.S." or "US" means the United States of America.
------------- ---- --
"U.S. Person" means a Person described in (S) 7701(a)(30) of the Code.
-----------
"Warranty Bill of Sale" means (A) the full warranty bill of sale covering
---------------------
the Aircraft (and specifically referring to each Engine) executed by the Seller
in favor of the Owner Trustee and to be dated the Delivery Date, and (B) a full
warranty bill of sale covering a Replacement Aircraft (and specifically
referring to each Engine) executed by the seller thereof in favor of the Owner
Trustee.
<PAGE>
EXHIBIT A
to Trust Indenture and Security Agreement
INDENTURE SUPPLEMENT
INDENTURE SUPPLEMENT No. ________ dated _____________________, 1999
(this "Indenture Supplement") of FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual capacity except as expressly provided in the
Operative Agreements, but solely as Owner Trustee under the Trust Agreement (in
such capacity, herein called the "Owner Trustee").
-------------
W I T N E S S E T H
WHEREAS, the Indenture provides for the execution and delivery of this
Indenture Supplement, which shall particularly describe the Aircraft and any
Replacement Airframe or Replacement Engine included in the property covered by
the Indenture.
WHEREAS, the Trust Indenture and Security Agreement [N583ML] dated as
of August 10, 1999 (herein called the "Indenture") between the Owner Trustee and
---------
Allfirst Bank, as Indenture Trustee (herein called the "Indenture Trustee"),
-----------------
provides for the execution and delivery of a supplement thereto substantially in
the form hereof which shall particularly describe the Aircraft (such term and
other defined terms in the Indenture being herein used with the same meanings)
and any Replacement Airframe or Replacement Engine included in the Indenture
Estate, and shall specifically mortgage such Aircraft, Replacement Airframe or
Replacement Engine, as the case may be, to the Indenture Trustee.
WHEREAS*, the Indenture relates to the Airframe and Engines
described below and a counterpart of the Indenture is attached hereto and made a
part hereof and this Indenture Supplement, together with such counterpart of the
Indenture, is being filed for recordation on the date hereof with the Federal
Aviation Administration as one document.
WHEREAS** the Indenture and Indenture Supplement dated _________,
1999 (the Indenture being attached to and made a part of such Indenture
Supplement and filed therewith) have been duly recorded pursuant to Chapter 441
of Title 49 of the United States Code, as amended on ___________, 1999, as one
document and have been assigned Conveyance No.__________.
_______________
* This recital is to be included only in the first Indenture Supplement.
** This recital not to be included in the first Indenture Supplement.
1
<PAGE>
NOW, THEREFORE, this Indenture Supplement witnesseth, that, to secure
the prompt payment of the principal of and Make-Whole Amount (if any) and
interest on, and all other amounts due with respect to, all Equipment Notes from
time to time outstanding under the Indenture and the performance and observance
by the Owner Trustee of all the agreements, covenants and provisions for the
benefit of the Noteholders in the Indenture and in the Participation Agreement
and the Equipment Notes, and the prompt payment of any and all amounts from time
to time owing under the Indenture or the Participation Agreement or the other
Operative Agreements by the Owner Trustee, the Owner Participant or the Lessee
to the Noteholders, and for the uses and purposes and subject to the terms and
provisions of the Indenture, and in consideration of the premises and of the
covenants contained in the Indenture, and of the acceptance of the Equipment
Notes by the Noteholders, and of the sum of $1 paid to the Owner Trustee by the
Indenture Trustee at or before the delivery hereof, the receipt whereof is
hereby acknowledged, the Owner Trustee has granted, bargained, sold, assigned,
transferred, conveyed, mortgaged, pledged and confirmed, and does hereby grant,
bargain, sell, assign, transfer, convey, mortgage, pledge and confirm, unto the
Indenture Trustee and its successors and assigns, for the security and benefit
of the Noteholders, in the trust created by the Indenture, a first priority
security interest in and first mortgage lien upon, all right, title and interest
of the Owner Trustee in, to and under the following described property:
AIRFRAME
one airframe identified as follows:
<TABLE>
<CAPTION>
FAA Registration Manufacturer' s Serial
Manufacturer Model Number Number
- ------------ ----- ------ ------
<S> <C> <C> <C>
Bombardier Inc. Canadair Regional Jet N583ML 7327
CL-600-2B19
</TABLE>
together with all Parts, appliances, equipment, instruments and accessories
(including, without limitation, radio and radar) from time to time thereto
belonging, owned by the Owner Trustee and installed in or appurtenant to said
aircraft and all records, logs, manuals and data, inspection, modification and
overhaul records and all other documents at any time maintained with respect to
the foregoing property.
AIRCRAFT ENGINES
(2) aircraft engines, each such engine
having 750 or more rated takeoff horsepower
or the equivalent thereof, identified as follows:
<TABLE>
<CAPTION>
Manufacturer's
Serial
Manufacturer Model Number
- ------------ ----- --------------
<S> <C> <C>
General Electric Company CF34-3B1 GE-E-872529
GE-E-872530
</TABLE>
2
<PAGE>
together with all Parts, equipment and accessories thereto belonging, by
whomsoever manufactured, owned by the Owner Trustee and installed in or
appurtenant to said aircraft engines and all records, logs, manuals and data,
inspection, modification and overhaul records and all other documents at any
time maintained with respect to the foregoing property.
Together with all substitutions, replacements and renewals of the
property above described, and all property which shall hereafter become
physically attached to or incorporated in the property above described, whether
the same are now owned by the Owner Trustee or shall hereafter be acquired by
it.
As further security for the obligations referred to above and secured
by the Indenture and hereby, the Owner Trustee has granted, bargained, sold,
assigned, transferred, conveyed, mortgaged, pledged and confirmed, and does
hereby grant, bargain, sell, assign, transfer, convey, mortgage, pledge and
confirm, unto the Indenture Trustee, its successors and assigns, for the
security and benefit of the Noteholders, in the trust created by the Indenture,
all of the right, title and interest of the Owner Trustee in, to and under Lease
Supplement No. _______of even date (other than Excluded Payments, if any)
covering the property described above.
TO HAVE AND TO HOLD all and singular the aforesaid property unto the
Indenture Trustee, its successors and assigns, for the benefit and security of
the Noteholders for the uses and purposes and subject to the terms and
provisions set forth in the Indenture.
This Indenture Supplement shall be construed as supplemental to the
Indenture and shall form a part thereof, and the Indenture is hereby
incorporated by reference herein and is hereby ratified, approved and confirmed.
AND, FURTHER, the Owner Trustee hereby acknowledges that the
Airframe/Engines referred to in this Indenture Supplement and the aforesaid
Lease Supplement have been delivered to the Owner Trustee and are included in
the property of the Owner Trustee and are covered by all the terms and
conditions of the Indenture and are subject to the Lien of the Indenture.
This Indenture Supplement is being delivered in the State of New York.
3
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee has caused this Indenture
Supplement to be duly executed by one of its officers thereunto authorized, this
_________day of _________, 1999.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
not in its individual
capacity except as otherwise
expressly provided in the
Operative Agreements, but
solely as Owner Trustee
By:
--------------------
Name:
Title:
4
<PAGE>
EXHIBIT B
to Trust Indenture and Security Agreement
[FORM OF EQUIPMENT NOTE]
THIS EQUIPMENT NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR OFFERED FOR SALE
UNLESS REGISTERED UNDER SAID ACT OR LAWS OR UNLESS AN EXEMPTION IS AVAILABLE
UNDER SAID ACT OR LAWS.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
not in its individual capacity except
as otherwise expressly provided in the
Operative Agreements, but solely as
Owner Trustee
EQUIPMENT NOTE
ISSUED IN CONNECTION WITH ONE AIRCRAFT INITIALLY BEARING
UNITED STATES FEDERAL AVIATION ADMINISTRATION REGISTRATION NO.
N5____ML AND TWO GENERAL ELECTRIC ENGINES
No. R-
$ ______________ ___, _______
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, not in its individual
capacity except as otherwise expressly provided in the Operative Agreements, but
solely as Owner Trustee (herein in such capacity called the "Owner Trustee")
-------------
under that certain Trust Agreement [N583ML] dated as of August 10, 1999, between
the Owner Participant named therein and the Owner Trustee (herein as such Trust
Agreement may be amended or supplemented from time to time in accordance with
the applicable provisions thereof called the "Trust Agreement"), hereby promises
---------------
to pay to _______________________________ __________________, or registered
transferees, the principal sum of _________________________________________
Dollars, in the number of installments set forth in Annex A hereto, and each
installment to be due and payable on a Payment Date and in an amount equal to
the amount set forth in Annex A hereto opposite such Payment Date, together with
interest on the unpaid principal amount hereof from time to time outstanding
from and including the date hereof until such principal amount is paid in full
at the Applicable Rate, payable in arrears on each Payment Date and on the date
this Equipment Note is paid in full. This Equipment Note shall bear interest at
the Past Due Rate on any principal hereof, and, to the extent permitted by
applicable law, interest and other amounts due hereunder, not paid
1
<PAGE>
when due (whether at stated maturity, by acceleration or otherwise), for any
period during which the same shall be overdue, payable on demand by the holder
hereof given through the Indenture Trustee.
Interest shall be calculated on the basis of a year of 360 days
consisting of twelve 30-day months; provided that interest on past-due amounts
--------
shall be calculated on the basis of a year of 360-days and actual days elapsed.
If any sum payable hereunder falls due on a day which is not a Business Day,
then such sum shall be payable on the next succeeding Business Day, without
additional interest as a result of such extension.
All payments of principal, Make-Whole Amount and interest and other
amounts to be made to the holder hereof or under the Trust Indenture and
Security Agreement [N5___ML] dated as of August 10, 1999 (as modified, amended
or supplemented from time to time in accordance with the provisions thereof,
herein called the "Indenture", the terms defined therein and not otherwise
---------
defined herein being used herein with the same meanings) between the Owner
Trustee and Allfirst Bank, as Indenture Trustee thereunder, shall be made only
from the income and proceeds from the Indenture Estate and only to the extent
that the Owner Trustee shall have sufficient income or proceeds from the
Indenture Estate to enable the Indenture Trustee to make such payments in
accordance with the terms of the Indenture. Each holder hereof, by its
acceptance of this Equipment Note, agrees that it will look solely to the income
and proceeds from the Indenture Estate to the extent available for distribution
to the holder hereof as above provided and that none of the Owner Participant,
the Trust Company or the Indenture Trustee is personally liable to the holder
hereof for any amounts payable or any liability under this Equipment Note or
under the Indenture, except, in the case of the Trust Company or the Indenture
Trustee, as expressly provided in the Indenture or the Participation Agreement.
Principal and interest and other amounts due hereon shall be payable
in Dollars in immediately available funds prior to 12:00 noon, New York time, on
the due date thereof, to the Indenture Trustee at its Corporate Trust Department
and the Indenture Trustee shall, subject to the terms and conditions of the
Indenture, remit all such amounts so received by it to the holder hereof in
accordance with the terms of the Indenture at such account or accounts at such
financial institution or institutions as the holder hereof shall have designated
to the Indenture Trustee in writing, in immediately available funds, such
payment to be made, in the case of any such designated account in New York, New
York, prior to 2:00 p.m., New York time, on the due date thereof. In the event
the Indenture Trustee, through negligence or willful misconduct, shall fail to
make any such payment as provided in the immediately foregoing sentence after
its receipt of funds at the place and prior to the time specified above, the
Indenture Trustee, in its individual capacity and not as trustee, agrees to
compensate the holder hereof for loss of use of funds in a commercially
reasonable manner. All such payments by the Owner Trustee and the Indenture
Trustee shall be made free and clear of and without reduction for or on account
of all wire or other like charges.
Each holder hereof, by its acceptance of this Equipment Note, agrees
that, except as otherwise expressly provided in the Indenture, each payment
received by it in respect hereof shall be applied, first, to the payment of any
-----
amount (other than the principal of or Make-Whole Amount or interest on this
Equipment Note) due in respect of this Equipment Note, second, to the
------
payment
2
<PAGE>
of Make-Whole Amount, if any, and interest hereon (as well as any interest on
overdue principal and, to the extent permitted by law, interest and other
amounts payable hereunder) due and payable hereunder, third, to the
-----
payment of the principal of this Equipment Note then due and fourth, the
------
balance, if any, remaining thereafter, to the payment of the principal of this
Equipment Note remaining unpaid, in the manner set forth in the last sentence of
Section 2.05 of the Indenture.
This Equipment Note is one of the Equipment Notes referred to in the
Indenture which have been or are to be issued by the Owner Trustee pursuant to
the terms of the Indenture. The Indenture Estate is held by the Indenture
Trustee as security, in part, for the Equipment Notes. Reference is hereby made
to the Indenture and the Participation Agreement referred to therein for a
statement of the rights and obligations of the holder hereof, and the nature and
extent of the security for this Equipment Note and of the rights and obligations
of the other Noteholders, and the nature and extent of the security for the
other Equipment Notes, as well as for a statement of the terms and conditions of
the trusts created by the Indenture, to all of which terms and conditions in the
Indenture and such Participation Agreement each holder hereof agrees by its
acceptance of this Equipment Note.
There shall be maintained a Register for the purpose of registering
transfers and exchanges of Equipment Notes at the Corporate Trust Department of
the Indenture Trustee or at the office of any successor indenture trustee in the
manner provided in Section 2.07 of the Indenture. As provided in the Indenture,
this Equipment Note or any interest herein may, subject to the next following
paragraph, be assigned or transferred, and the Equipment Notes are exchangeable
for a like aggregate original principal amount of Equipment Notes of any
authorized denomination, as requested by the Noteholder surrendering the same.
Prior to the due presentment for registration of transfer of this
Equipment Note, the Owner Trustee and the Indenture Trustee may deem and treat
the person in whose name this Equipment Note is registered on the Register as
the absolute owner of this Equipment Note and the Noteholder for the purpose of
receiving payment of all amounts payable with respect to this Equipment Note and
for all other purposes whether or not this Equipment Note is overdue, and
neither the owner Trustee nor the Indenture Trustee shall be affected by notice
to the contrary.
This Equipment Note is subject to prepayment only as permitted by
Sections 2.10, 2.11 and 2.14 of the Indenture and to purchase without consent of
the holder hereof only as provided in Section 2.12 of the Indenture, and the
holder hereof, by its acceptance of this Equipment Note, agrees to be bound by
said provisions.
This Equipment Note shall not be secured by or be entitled to any
benefit under the Indenture or be valid or obligatory for any purpose, unless
authenticated by the Indenture Trustee as evidenced by the manual signature of
one of its authorized signatories on the certificate of authentication below.
THIS EQUIPMENT NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK.
* * *
3
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee has caused this Equipment Note
to be executed in its corporate name by its officer thereunto duly authorized,
as of the date hereof.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION,
not in its individual
capacity, but solely as
Owner Trustee
By:--------------------
Name:
Title:
4
<PAGE>
[FORM OF INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Equipment Notes referred to in the within-mentioned
Indenture.
ALLFIRST BANK,
as Indenture Trustee
By:
-------------------------------------
Authorized Signatory
5
<PAGE>
Annex A to
Equipment Note
SCHEDULE OF PRINCIPAL PAYMENTS
The Applicable Rate equals 8.825%.
Principal
Amount to
Payment Date Be Paid
------------ ----------
Dec 1 1999 538,907.91
Jun 1 2000 0.00
Dec 1 2000 578,911.79
Jun 1 2001 0.00
Dec 1 2001 631,557.07
Jun 1 2002 0.00
Dec 1 2002 691,125.29
Jun 1 2003 0.00
Dec 1 2003 746,092.79
Jun 1 2004 0.00
Dec 1 2004 821,665.97
Jun 1 2005 0.00
Dec 1 2005 894,717.12
Jun 1 2006 0.00
Dec 1 2006 987,097.16
Jun 1 2007 14,853.77
Dec 1 2007 742,016.28
Jun 1 2008 0.00
Dec 1 2008 871,574.78
Jun 1 2009 0.00
Dec 1 2009 656,697.28
Jun 1 2010 201,311.64
Dec 1 2010 927,226.37
Jun 1 2011 0.00
Dec 1 2011 1,311,443.30
Jun 1 2012 0.00
Dec 1 2012 0.00
Jun 1 2013 1,007,043.38
Dec 1 2013 848,729.20
Jun 1 2014 477,393.27
Dec 1 2014 0.00
Jun 1 2015 341,257.47
<PAGE>
Note to Exhibit 10.3
The following Trust Indenture and Security Agreement is substantially identical
in all material respects to the Trust Indenture and Security Agreement filed
herewith except as follows:
Date Aircraft Tail No. Amortization
---- ----------------- ------------
August 10, 1999 N584ML *
September 10,1999 N585ML *
* As attached hereto
<PAGE>
Annex A to
Equipment Note
SCHEDULE OF PRINCIPAL PAYMENTS
The Applicable Rate equals 8.825%
Payment Date Amount
------------ ------
Dec 1 1999 538,907.91
Jun 1 2000 0.00
Dec 1 2000 578,911.79
Jun 1 2001 0.00
Dec 1 2001 631,557.07
Jun 1 2002 0.00
Dec 1 2002 691,125.29
Jun 1 2003 0.00
Dec 1 2003 746,092.79
Jun 1 2004 0.00
Dec 1 2004 821,665.97
Jun 1 2005 0.00
Dec 1 2005 894,717.12
Jun 1 2006 0.00
Dec 1 2006 987,097.16
Jun 1 2007 14,853.77
Dec 1 2007 742,016.28
Jun 1 2008 0.00
Dec 1 2008 871,574.78
Jun 1 2009 0.00
Dec 1 2009 656,697.28
Jun 1 2010 201,311.64
Dec 1 2010 927,226.37
Jun 1 2011 0.00
Dec 1 2011 1,311,443.30
Jun 1 2012 0.00
Dec 1 2012 0.00
Jun 1 2013 1,007,043.38
Dec 1 2013 848,729.20
Jun 1 2014 477,393.27
Dec 1 2014 0.00
Jun 1 2015 341,257.47
Dec 1 2015 0.00
N584ML
<PAGE>
Annex A to
Equipment Note
SCHEDULE OF PRINCIPAL PAYMENTS
The Applicable Rate equals 8.825%
Principal Amount to
-------------------
Payment Date Be Paid
------------ -------
Nov 1 1999 441,726.54
May 1 2000 0.00
Nov 1 2000 577,831.64
May 1 2001 3,426.97
Nov 1 2001 605,862.13
May 1 2002 0.00
Nov 1 2002 713,929.49
May 1 2003 0.00
Nov 1 2003 671,799,96
May 1 2004 0.00
Nov 1 2004 932,101.22
May 1 2005 0.00
Nov 1 2005 628,479.07
May 1 2006 285,153.56
Nov 1 2006 579,757.48
May 1 2007 318,263.35
Nov 1 2007 770,447.80
May 1 2008 0.00
Nov 1 2008 728,033.20
May 1 2009 200,544.28
Nov 1 2009 410,309.39
May 1 2010 331,150.22
Nov 1 2010 843,504.90
May 1 2011 0.00
Nov 1 2011 1,220,844.20
May 1 2012 252,685.54
Nov 1 2012 0.00
May 1 2013 1,135,610.43
Nov 1 2013 0.00
May 1 2014 904,698.88
Nov 1 2014 178,005.45
May 1 2015 363,117.26
Nov 1 2015 119,826.45
N584ML
<PAGE>
EXHIBIT 10.4
CONFORMED COPY
--------------
INDENTURE SUPPLEMENT [N583ML]
INDENTURE SUPPLEMENT NO. 1 [N583ML] dated August 16, 1999 (this
"Indenture Supplement") of FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, not
in its individual capacity except as expressly provided in the Operative
Agreements, but solely as Owner Trustee under the Trust Agreement (in such
capacity, herein called the "Owner Trustee").
-------------
W I T N E S S E T H
WHEREAS, the Indenture provides for the execution and delivery of this
Indenture Supplement, which shall particularly describe the Aircraft and any
Replacement Airframe or Replacement Engine included in the property covered by
the Indenture.
WHEREAS, the Trust Indenture and Security Agreement [N583ML] dated as
of August 10, 1999 (herein called the "Indenture") between the Owner Trustee and
---------
Allfirst Bank, as Indenture Trustee (herein called the "Indenture Trustee"),
-----------------
provides for the execution and delivery of a supplement thereto substantially in
the form hereof which shall particularly describe the Aircraft (such term and
other defined terms in the Indenture being herein used with the same meanings)
and any Replacement Airframe or Replacement Engine included in the Indenture
Estate, and shall specifically mortgage such Aircraft, Replacement Airframe or
Replacement Engine, as the case may be, to the Indenture Trustee.
WHEREAS, the Indenture relates to the Airframe and Engines described
below and a counterpart of the Indenture is attached hereto and made a part
hereof and this Indenture Supplement, together with such counterpart of the
Indenture, is being filed for recordation on the date hereof with the Federal
Aviation Administration as one document.
NOW, THEREFORE, this Indenture Supplement witnesseth, that, to secure
the prompt payment of the principal of and Make-Whole Amount (if any) and
interest on, and all other amounts due with respect to, all Equipment Notes from
time to time outstanding under the Indenture and the performance and observance
by the Owner Trustee of all the agreements, covenants and provisions for the
benefit of the Noteholders in the Indenture and in the Participation Agreement
and the Equipment Notes, and the prompt payment of any and all amounts from time
to time owing under the Indenture or the Participation Agreement or the other
Operative Agreements by the Owner Trustee, the Owner Participant or the Lessee
to the Noteholders, and for the uses and purposes and subject to the terms and
provisions of the Indenture, and in consideration of the premises and of the
covenants contained in the Indenture, and of the acceptance of the Equipment
Notes by the Noteholders, and of the sum of $1 paid to the Owner Trustee by the
Indenture Trustee at or before the delivery hereof, the receipt whereof is
hereby acknowledged, the Owner Trustee has granted,
<PAGE>
bargained, sold, assigned, transferred, conveyed, mortgaged, pledged and
confirmed, and does hereby grant, bargain, sell, assign, transfer, convey,
mortgage, pledge and confirm, unto the Indenture Trustee and its successors and
assigns, for the security and benefit of the Noteholders, in the trust created
by the Indenture, a first priority security interest in and first mortgage lien
upon, all right, title and interest of the Owner Trustee in, to and under the
following described property:
AIRFRAME
one airframe identified as follows:
<TABLE>
<CAPTION>
FAA Registration Manufacturer' s Serial
Manufacturer Model Number Number
- ------------ ----- ------ -----
<S> <C> <C> <C>
Bombardier Inc. Canadair Regional Jet N583ML 7327
CL-600-2B19
</TABLE>
together with all Parts, appliances, equipment, instruments and accessories
(including, without limitation, radio and radar) from time to time thereto
belonging, owned by the Owner Trustee and installed in or appurtenant to said
aircraft and all records, logs, manuals and data, inspection, modification and
overhaul records and all other documents at any time maintained with respect to
the foregoing property.
AIRCRAFT ENGINES
(2) aircraft engines, each such engine
having 750 or more rated takeoff horsepower
or the equivalent thereof, identified as follows:
Manufacturer Model Manufacturer's Serial
- ------------ ----- ----------------------
Numbers
-------
General Electric Company CF34-3B1 GE-E-872529
GE-E-872530
together with all Parts, equipment and accessories thereto belonging, by
whomsoever manufactured, owned by the Owner Trustee and installed in or
appurtenant to said aircraft engines and all records, logs, manuals and data,
inspection, modification and overhaul records and all other documents at any
time maintained with respect to the foregoing property.
Together with all substitutions, replacements and renewals of the
property above described, and all property which shall hereafter become
physically attached to or incorporated in the property above described, whether
the same are now owned by the Owner Trustee or shall hereafter be acquired by
it.
2
<PAGE>
As further security for the obligations referred to above and secured
by the Indenture and hereby, the Owner Trustee has granted, bargained, sold,
assigned, transferred, conveyed, mortgaged, pledged and confirmed, and does
hereby grant, bargain, sell, assign, transfer, convey, mortgage, pledge and
confirm, unto the Indenture Trustee, its successors and assigns, for the
security and benefit of the Noteholders, in the trust created by the Indenture,
all of the right, title and interest of the Owner Trustee in, to and under Lease
Supplement No. 1 of even date (other than Excluded Payments, if any) covering
the property described above.
TO HAVE AND TO HOLD all and singular the aforesaid property unto the
Indenture Trustee, its successors and assigns, for the benefit and security of
the Noteholders for the uses and purposes and subject to the terms and
provisions set forth in the Indenture.
This Indenture Supplement shall be construed as supplemental to the
Indenture and shall form a part thereof, and the Indenture is hereby
incorporated by reference herein and is hereby ratified, approved and confirmed.
AND, FURTHER, the Owner Trustee hereby acknowledges that the
Airframe/Engines referred to in this Indenture Supplement and the aforesaid
Lease Supplement have been delivered to the Owner Trustee and are included in
the property of the Owner Trustee and are covered by all the terms and
conditions of the Indenture and are subject to the Lien of the Indenture.
This Indenture Supplement is being delivered in the State of New York.
* * *
3
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee has caused this Indenture
Supplement to be duly executed by one of its officers thereunto authorized, this
16/th/ day of August, 1999.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION,
not in its individual capacity
except as otherwise expressly
provided in the Operative
Agreements, but solely as
Owner Trustee
By: /s/ Stephen J. Kaba
-------------------
Name: Stephen J. Kaba
Title: Vice President
4
<PAGE>
Note to Exhibit 10.4
The following Indenture Supplement is substantially identical in all material
respects to the Indenture Supplement filed herewith except as follows:
FAA Registration No. Aircraft Engine
or Manufacturer's Manufacturer's
Date Aircraft Tail No. Serial No. Serial Nos.
- ---- -------------------- -------------- --------------
August 10, 1999 N584ML 7330 GE-E-872547 and
GE-E-872546
September 10, 1999 585ML 7334 GE-E-872527 and
GE-E-872528
<PAGE>
CONFORMED COPY
--------------
EXHIBIT 10.5
________________________________________________________________________________
LEASE AGREEMENT [N583ML]
dated as of August 10, 1999
between
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
Owner Trustee,
Lessor,
and
MIDWAY AIRLINES CORPORATION
Lessee.
Covering One Canadair Regional
Jet Series 200 ER Aircraft
Registration Number N583ML
Manufacturer's Serial Number 7327
_______________________________________________________________________________
This Lease Agreement is subject to a security interest in favor of Allfirst
Bank, as Indenture Trustee, under the Trust Indenture and Security Agreement
[N583ML] dated as of August 10, 1999, for the benefit of the holders of the
Equipment Notes referred to in such Trust Indenture and Security Agreement. This
Lease Agreement has been executed in counterparts. To the extent, if any, that
this Lease Agreement constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any jurisdiction), no security interest
in this Lease Agreement may be created through the transfer or possession of any
counterpart other than the counterpart containing the receipt therefor executed
by Allfirst Bank, as Indenture Trustee, on the signature page thereof.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Interpretation.................................................................. 1
(a) Definitions..................................................................... 1
(b) References...................................................................... 1
(c) Headings........................................................................ 2
(d) Appendices, Schedules and Exhibits.............................................. 2
Section 2. Delivery and Leasing of the Aircraft............................................ 2
(a) Leasing of the Aircraft......................................................... 2
(b) Delivery and Acceptance of the Aircraft Under the Lease......................... 2
Section 3. Term and Rent................................................................... 2
(a) Term............................................................................ 2
(b) Basic Rent...................................................................... 2
(c) Supplemental Rent............................................................... 3
(d) Adjustments to Basic Rent and Termination Values................................ 3
(e) Manner of Payment............................................................... 5
(f) Minimum Rent.................................................................... 6
(g) Rent Obligations Unconditional.................................................. 6
Section 4. The Lessor's Representations and Warranties..................................... 7
Section 5. Possession, Operation and Use, Maintenance, Registration and Insignia........... 8
(a) General......................................................................... 8
(b) Possession...................................................................... 8
(c) Operation and Use............................................................... 15
(d) Maintenance..................................................................... 16
(e) Registration.................................................................... 16
Section 6. Inspection...................................................................... 17
Section 7. Replacement and Pooling of Parts; Alterations, Modifications
and Additions; Substitution of Engines.......................................... 18
(a) Replacement of Parts............................................................ 18
(b) Title to Parts.................................................................. 19
(c) Pooling or Parts Leasing........................................................ 19
(d) Alterations, Modifications and Additions........................................ 20
(e) Substitution of Engines......................................................... 21
Section 8. Loss, Destruction or Requisition................................................ 25
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(a) Event of Loss with Respect to the Airframe...................................... 25
(b) Effect of Replacement........................................................... 26
(c) Effect of Termination Value Payment............................................. 26
(d) Conditions to Airframe Replacement.............................................. 27
(e) Non-Insurance Payments Received on Account of an Event of Loss.................. 30
(f) Requisition for Use............................................................. 31
(g) Certain Payments to be Held As Security......................................... 32
(h) Notice of Damage................................................................ 32
Section 9. Insurance....................................................................... 32
(a) Public Liability and Property Damage Insurance.................................. 32
(b) Insurance Against Loss or Damage to the Aircraft and Engines.................... 33
(c) Additional Insureds; Loss Payment............................................... 34
(d) Deductibles and Self-Insurance.................................................. 35
(e) Application of Hull Insurance Proceeds.......................................... 36
(f) Insurance for Own Account....................................................... 36
(g) Reports, etc.................................................................... 37
(h) Right to Pay Premiums........................................................... 38
(i) Spares Physical Damage Insurance................................................ 38
Section 10. Liens........................................................................... 38
Section 11. Recordation and Further Assurances.............................................. 39
(a) Recordation of Lease............................................................ 39
(b) Further Assurances.............................................................. 39
(c) Markings........................................................................ 40
Section 12. Return of Aircraft and Records.................................................. 40
(a) Return of Aircraft.............................................................. 40
(b) Return of Other Engines......................................................... 41
(c) Fuel; Records................................................................... 41
(d) Condition of Aircraft........................................................... 41
(e) Failure to Return............................................................... 41
(f) Storage and Related Matters..................................................... 42
Section 13. Renewal Option and Purchase Options............................................. 42
(a) Renewal Terms................................................................... 42
(b) Lessee's Purchase Options....................................................... 43
(i) Rights to Purchase..................................................... 43
(ii) Option to Assume Equipment Notes....................................... 44
(iii) Notice of Exercise of Option........................................... 44
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 14. Voluntary Termination for Obsolescence.......................................... 44
(a) Termination by Sale of Aircraft................................................. 44
(b) Payments Due Upon Sale of Aircraft.............................................. 46
(c) Preemptive Election by Lessor................................................... 46
(d) Termination of Lease............................................................ 46
(e) Effect of No Sale or Preemptive Delivery to Lessor.............................. 47
(f) No Duty on Part of Lessor....................................................... 47
Section 15. Investment of Security Funds.................................................... 47
Section 16. Events of Default............................................................... 48
Section 17. Remedies........................................................................ 51
Section 18. Lessor's Right to Perform for the Lessee........................................ 53
Section 19. Bankruptcy...................................................................... 54
Section 20. Assignment: Benefit and Binding Effect.......................................... 54
(a) Assignment by the Lessee........................................................ 54
(b) Assignment by the Lessor........................................................ 54
(c) Benefit and Binding Effect...................................................... 55
(d) Sublessee's Performance and Rights.............................................. 55
Section 21. Owner Trustee's Limitation on Liability......................................... 55
Section 22. Certain Agreements of Lessee.................................................... 55
Section 23. Miscellaneous................................................................... 56
(a) Notices......................................................................... 56
(b) Counterparts.................................................................... 56
(c) Amendments...................................................................... 56
(d) Agreement to Lease.............................................................. 57
(e) Governing Law................................................................... 57
(f) Severability.................................................................... 58
(g) Survival........................................................................ 58
(h) Article 2A...................................................................... 58
Appendix A Definitions
Exhibit A Lease Supplement
Exhibit B Certain Economic Information
Exhibit C Basic Rent
</TABLE>
<PAGE>
Exhibit D Termination Values
Exhibit E List of Countries
Exhibit F Return Conditions
<PAGE>
THIS LEASE AGREEMENT [N583ML], dated as of August 10, 1999, between
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association,
not in its individual capacity but solely as Owner Trustee, the Lessor, and
MIDWAY AIRLINES CORPORATION, a Delaware corporation, the Lessee.
W I T N E S S E T H:
-------------------
WHEREAS, the Lessor intends to purchase the Aircraft pursuant to the
terms of the Participation Agreement;
WHEREAS, the Lessee desires to lease from the Lessor and the Lessor is
willing to lease to the Lessee the Aircraft upon and subject to the terms and
conditions of this Lease; and
WHEREAS, the parties intend this Lease to constitute a true lease and
not a security agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration the receipt and adequacy of
which is hereby acknowledged, and intending to be legally bound, the parties do
hereby agree as follows:
Section 1. Interpretation.
--------------
(a) Definitions.
-----------
Capitalized terms used herein and defined in Appendix A shall,
except as such definitions may be specifically modified in the body of this
Lease for the purposes of a particular section, paragraph or clause, have the
meanings given such terms in Appendix A and, unless otherwise specified, such
meanings shall be equally applicable to both the singular and the plural forms
of such terms.
(b) References.
----------
References in this Lease to sections, paragraphs, clauses,
appendices, schedules and exhibits are to sections, paragraphs, clauses,
appendices, schedules and exhibits in and to this Lease unless otherwise
specified. Paragraphs identified with a letter and clauses identified with a
number or letter within a section may be referred to either by section reference
(for example, this is Section l(b)) or by paragraph and clause reference (for
example, this is also paragraph (b) of Section 1) with the same meaning.
<PAGE>
(c) Headings.
--------
The headings of the various sections, paragraphs and clauses of
this Lease and the table of contents are for convenience of reference only and
shall not modify, define, expand or limit any of the terms or provisions hereof.
(d) Appendices, Schedules and Exhibits.
----------------------------------
The appendices, schedules and exhibits hereto are part of this
Lease.
Section 2. Delivery and Leasing of the Aircraft.
------------------------------------
(a) Leasing of the Aircraft.
-----------------------
Subject to the satisfaction or waiver of the conditions precedent
stated in the Participation Agreement, the Lessor agrees to lease to the Lessee,
and the Lessee agrees to lease from the Lessor, the Aircraft on the terms and
conditions set forth herein, such leasing to be evidenced by the execution and
delivery by the Lessor and the Lessee on the Delivery Date of a Lease
Supplement.
(b) Delivery and Acceptance of the Aircraft Under the Lease.
-------------------------------------------------------
The Lessor hereby authorizes one or more persons designated by
the Lessee as the authorized representative or representatives of the Lessor to
accept delivery of the Aircraft from the Seller. By executing and delivering
Lease Supplement No. 1, the Lessee confirms to the Lessor that the Lessee has
duly and irrevocably accepted delivery of the Aircraft for all purposes of this
Lease.
Section 3. Term and Rent.
-------------
(a) Term.
----
The Aircraft is leased for a Term which shall comprise the Basic
Term and, at the option of the Lessee exercised in accordance with Section
13(a), one or more Renewal Terms. The Basic Term shall commence on the Delivery
Date and continue through the Expiration Date; and each Renewal Term, if any,
shall be for the applicable period provided in Section 13(a), except that the
Term (including the Basic Term or any Renewal Term, as the case may be) shall
end upon any earlier termination of this Lease according to its terms.
(b) Basic Rent.
----------
The Lessee shall pay Basic Rent in consecutive semi-annual
installments on each Basic Rent Payment Date during the Basic Term, each such
installment to be in an amount
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determined by multiplying Lessor's Cost by the percentage set forth in Exhibit C
for the applicable Basic Rent Payment Date. The Lessee shall pay Basic Rent
during a Renewal Term in the amounts and at the times provided in Section 13(a)
for such Renewal Term.
(c) Supplemental Rent.
-----------------
The Lessee shall pay to the Lessor, or to whoever shall be entitled
thereto, any and all Supplemental Rent when the same shall become due and owing.
Without limiting the foregoing, the Lessee shall pay as Supplemental Rent:
(i) to the Lessor, on demand, interest at the Past Due
Rate on any part of any installment of Basic Rent not paid when
due for the period for which the same shall be overdue;
(ii) to whoever shall have been entitled to receive the
relevant payment of Supplemental Rent, on demand, interest at the
Past Due Rate on any payment of Supplemental Rent (other than
interest payable under this clause (ii)) not paid when due for
the period for which the same shall be overdue;
(iii) to the Lessor, an amount equal to any Make-Whole
Amount as and when such amount is due and payable by the Lessor
under the terms of the Indenture (except in the case of any
prepayment pursuant to Section 2.12 of the Indenture); and
(iv) to the Lessor, an amount equal to any Increased Cost
or other amount that the Lessor is obligated to pay pursuant to
Section 2.14 of the Indenture.
The obligations of the Lessee to pay Supplemental Rent provided for in
this Section 3(c) shall survive the expiration or other termination of this
Lease.
(d) Adjustments to Basic Rent and Termination Values.
------------------------------------------------
All installments of Basic Rent remaining to be paid during the Basic
Term shall be recalculated and adjusted, upwards or downwards as the case may be
(and corresponding adjustments shall be made to the EBO Amount and the
Termination Values applicable during the remaining Basic Term) to maintain the
Net Economic Return and, to the greatest extent consistent with such maintenance
of such Net Economic Return, to minimize the net present value (calculated at a
discount rate equal to the Applicable Rate or such other rate as may be
specified by the Lessee to the Owner Participant) of the remaining Basic Rent
payments (or, if the Lessee shall have so
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<PAGE>
specified to the Owner Participant, the remaining Basic Rent Payments to the EBO
Date together with the EBO Amount), if:
(i) the Delivery Date shall not be August 16, 1999;
(ii) there shall be a refinancing or refunding of the debt evidenced
by the Equipment Notes pursuant to Section 13.01 of the Participation
Agreement;
(iii) the Transaction Costs payable by the Owner Participant pursuant
to Section 8.01(a) of the Participation Agreement shall be greater or less
than the percentage of Lessor's Cost set forth on Exhibit B; or
(iv) there shall be an adjustment of Termination Values as provided
in Section 16 of the Tax Indemnity Agreement.
Adjustments to the installments of Basic Rent (expressed as percentages of
Lessor's Cost) set forth in Exhibit C and conforming adjustments to the EBO
Amount and the amounts of Termination Values (expressed as percentages of
Lessor's Cost) set forth in Exhibit D shall be calculated by the Owner
Participant in accordance with the terms of this Section 3(d), and the Owner
Participant shall deliver to the Lessee, the Lessor and the Indenture Trustee
schedules setting forth the revised EBO Amount and the revised percentages that
the Owner Participant proposes to include in Exhibits C and D, subject to review
by the Lessee and verification as provided herein. In the event of a dispute
regarding any such adjustment which is not resolved by agreement of the Lessee
and the Owner Participant, the adjustments, at the request of the Lessee
delivered to the Owner Participant within 30 days after receipt of the Owner
Participant's proposed adjustments, shall be subjected to verification by a
lease advisory firm or a nationally recognized firm of accountants to be
selected by the Owner Participant and reasonably acceptable to the Lessee. The
Owner Participant shall provide to such firm, but not, in any circumstances, to
Lessee or any representatives of Lessee, on a confidential basis such
information as such firm may reasonably require, including, without limitation,
a true copy of this Lease and a full description of the methodology and
assumptions employed by the Owner Participant in calculating the EBO Amount or
Basic Rent or Termination Value set forth in Exhibits C and D as in effect on
the Delivery Date and a true copy of the calculations of the same performed by
the Owner Participant at the time, to enable such firm to determine whether the
adjustments proposed by the Owner Participant are mathematically accurate, apply
the same methodology and assumptions (except to the extent changed by the events
giving rise to such recalculation) as were employed in the calculations of the
Basic Rent, EBO Amount and Termination Values in effect on the Delivery Date,
and are otherwise in conformity with the provisions of this Lease. The Lessee
and its financial advisors shall be entitled to submit such data and views as
the Lessee may elect to such firm concerning the proposed adjustments. The firm
shall be requested to deliver to each of the Owner Participant, the Lessee, the
Lessor and the Indenture Trustee within 30 days after its appointment its
determination as to the changes, if any, that are appropriate with respect to
the adjustments proposed by the Owner Participant. The adjustments
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<PAGE>
proposed by the Owner Participant, if not disputed by the Lessee as provided
above, or the determination of the firm as provided above, as the case may be,
shall be conclusive, final and binding upon the Lessor, the Lessee and the Owner
Participant, and the EBO Amount and Exhibits C and D shall be amended to reflect
them. No dispute concerning any adjustment shall release the Lessee from its
obligation to pay the EBO Amount or Basic Rent or Termination Value as then set
forth in Exhibits C and D. All reasonable fees and expenses payable to a firm
pursuant to this paragraph shall be paid by the Lessee except that such fees and
expenses shall be paid entirely by the Owner Participant if, as a result of
changes determined by the firm, the net present value, discounted at the
Applicable Rate or such other rate as the Lessee may have specified as provided
above in this paragraph, of Basic Rent remaining to be paid is ten basis points
(0.10%) or more lower than it would have been under the adjustments proposed by
the Owner Participant.
Any adjustments made pursuant to this Section 3(d) shall (i) be made so as to
avoid characterization of this Lease as a "disqualified leaseback or long-term
agreement" within the meaning of Section 467 of the Code and/or regulations
thereunder (or any successor or relevant Code provision or regulations) and (ii)
be in compliance with the requirements of Sections 4.02(5) and 4.07(l) of the
Revenue Procedure 75-28 (or any successor relevant procedure), except to the
extent that on the Delivery Date the Lease constituted such a "disqualified
leaseback or long-term agreement" or was not in compliance with the revenue
procedure referred to in clause (ii). In addition, notwithstanding any other
provisions herein, in no event shall the EBO Amount be adjusted to an amount
that is less than the greater of (A) the adjusted Termination Value as of the
applicable EBO Date, (B) the estimated fair market value of the Aircraft on the
applicable EBO Date (as set forth in the appraisal received pursuant to Section
3.01(b)(xiii) of the Participation Agreement), and (C) the present value as of
the applicable EBO Date of (x) the remaining scheduled Basic Rent through the
end of the Basic Term plus (y) Estimated Value (as identified on Exhibit B) (the
present value calculation described in this clause (C) shall utilize a semi-
annual compounded discount rate no lower than the rate per annum identified on
Exhibit B as the Compounded Discount Rate). All adjustments required pursuant to
this Section 3(d) shall be set forth in a Lease Supplement or in an amendment to
this Lease, and promptly after execution thereof by Lessor and Lessee, Lessee
shall give a copy thereof to the Indenture Trustee.
(e) Manner of Payment.
-----------------
All Rent payable by the Lessee to the Lessor hereunder shall be paid
to the Lessor at its principal office at One Rodney Square, 920 King Street,
Suite 102, Wilmington, Delaware, 19801, Attention: Corporate Trust
Administration, or to such other address as the Lessor shall specify in a notice
to the Lessee, in Dollars in immediately available funds, so that the Lessor
receives the full amount of each payment not later than 12:00 noon Eastern Time
on the due date thereof, except that so long as the Indenture shall not have
terminated pursuant to its terms, all Rent payable to the Lessor (other than
Excluded Payments) shall be paid to the Indenture Trustee, in the manner
provided above, at its principal office as specified in Section 12.01 of the
Participation Agreement, or as the Indenture Trustee may otherwise direct by a
notice delivered to the Lessee prior
-5-
<PAGE>
to the date of payment. If any Rent is due on a day that is not a Business Day,
such Rent shall be paid on the next succeeding Business Day with the same force
and effect as if paid on the scheduled date of payment and (if paid on such next
succeeding Business Day) no interest shall accrue on the amount of such payment
from and after such scheduled date to the time of payment on such next
succeeding Business Day. Whether or not the Indenture remains in effect, Rent
constituting Excluded Payments shall be paid directly to the Person entitled
thereto in the manner and at or before the time specified above.
(f) Minimum Rent.
------------
Anything herein to the contrary notwithstanding,
(i) each installment of Basic Rent, whether or not such
installment has been adjusted pursuant to Section 3(d), shall be
in an amount which is at least equal to the amount of any
principal of and interest on the Equipment Notes that falls due
and is payable by the Lessor pursuant to the terms of the
Indenture and the Equipment Notes (other than by reason of
acceleration of the Equipment Notes) on the date when such
installment of Basic Rent is due, and
(ii) Termination Value and EBO Amount, whether or not
Termination Value or EBO Amount has been adjusted pursuant to
Section 3(d), shall be in an amount which (when taken together
with any Basic Rent due and payable in connection therewith) is
at least equal to, as of the applicable date of payment, the
aggregate unpaid principal of and accrued interest on the
Equipment Notes (other than overdue amounts attributable to an
Indenture Event of Default not caused solely by an Event of
Default).
The preceding sentence is intended solely to provide for, and to allocate as
between the Lessor and the Lessee the risk of, the possibility of miscalculation
by the Lessor and the Lessee of amounts of Rent which it is contemplated will be
available to the Indenture Trustee, as the Lessor's security assignee under the
Indenture, for application to the payment of amounts payable by the Lessor on
the Equipment Notes. The Lessee does not guarantee, and nothing in this
paragraph (f) shall be construed to be a guarantee by the Lessee, that the
Lessor will repay any principal of or pay any premium or interest on any
Equipment Notes or that the Indenture Trustee will, or will be able to, apply
for such purposes any amount of Rent paid by the Lessee.
(g) Rent Obligations Unconditional.
------------------------------
This Lease is a net lease, and it is intended that Lessee shall pay
all costs and expenses of every character, whether seen or unforseen, ordinary
or extraordinary or structural or nonstructural, in connection with the use,
operation, maintenance, repair and reconstruction of the
-6-
<PAGE>
Airframe and the Engines by Lessee, including the costs and expenses
particularly set forth in this Lease. The Lessee's obligations to pay all Rent
due and owing under the terms hereof shall be absolute and unconditional and
shall not be affected by any circumstance whatsoever including, without
limitation, (i) any setoff, counterclaim, recoupment or other right which the
Lessee may have against the Lessor, the Owner Participant, the Indenture
Trustee, the holders of the Equipment Notes or anyone else for any reason
whatsoever, (ii) any defect in the title, airworthiness, condition, design,
operation or fitness for use of, or any damage to or loss or destruction of, the
Aircraft, or any interference, interruption or cessation in or prohibition of
the use or possession thereof by the Lessee for any reason whatsoever,
including, without limitation, any such interference, interruption, cessation or
prohibition resulting from the act of any governmental authority or any
violation by the Lessor of Section 4 hereof, (iii) any Liens, encumbrances or
rights of others with respect to the Aircraft, (iv) the invalidity or
unenforceability or lack of due authorization or other infirmity or
disaffirmance of this Lease or any provision hereof or any other Operative
Agreement or any lack of right, power or authority of the Lessor or the Lessee
to enter into this Lease or any other Operative Agreement, (v) any insolvency,
bankruptcy, reorganization or similar proceedings by or against the Lessee, or
any other Person, or (vi) any other cause whether similar or dissimilar to the
foregoing, any present or future law notwithstanding, it being the intention of
the parties that all Rent payable by the Lessee hereunder shall continue to be
payable in all events in the manner and at the times provided herein. Such Rent
shall not be subject to any abatement and the payments thereof shall not be
subject to any setoff or any reduction for any reason. To the extent permitted
by Applicable Law, the Lessee waives any rights which it may now have or which
may be conferred upon it by statute or otherwise to terminate, cancel, quit or
surrender this Lease except in accordance with the terms hereof. If for any
reason whatsoever this Lease shall be terminated in whole or in part by
operation of law or otherwise except as specifically provided in Sections 8, 13,
14 and 17, Lessee nonetheless agrees to pay to Lessor an amount equal to the
Rent payment at the time such payment would have become due and payable in
accordance with the terms hereof had this Lease not been terminated in whole or
in part. Subject to the following sentence, each payment of Rent made by Lessee
to Lessor shall be final as to Lessor and Lessee and Lessee will not seek to
recover all or any part of such payment of Rent for any reason whatsoever.
Nothing herein shall be construed as a waiver by the Lessee of any claim it may
have against any Person arising under any of the Operative Agreements or
otherwise, including, without limitation, any claim that Rent payments demanded
from or paid by the Lessee are or were not due, are or were erroneous or were
paid under mistake or protest, or be construed as a limitation on any rights of
the Lessee to assert any claim in any proceeding at law, in equity or otherwise
against the Lessor or any other Person and to pursue and obtain relief on such
claim in such manner as the Lessee shall deem appropriate other than by setoff
against Rent payments due under the terms hereof.
Section 4. The Lessor's Representations and Warranties.
-------------------------------------------
(a) THE LESSOR LEASES THE AIRCRAFT HEREUNDER "AS-IS", "WHERE IS"
AND NONE OF THE LESSOR, TRUST COMPANY INDIVIDUALLY, THE OWNER PARTICIPANT, THE
INDENTURE TRUSTEE OR THE LOAN PARTICIPANT SHALL
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<PAGE>
BE DEEMED TO HAVE MADE, AND HEREBY DISCLAIMS, ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION, VALUE, DESIGN,
OPERATION, MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS, CONSTRUCTION,
PERFORMANCE OR FITNESS FOR USE OR FOR ANY PURPOSE OF THE AIRCRAFT OR ANY PART
THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR
COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON LIABILITY IN TORT, STRICT
OR OTHERWISE, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE
AIRCRAFT OR ANY PART THEREOF OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, provided
that this Section 4(a) shall not derogate from the representations and
warranties of the Lessor, the Trust Company, the Owner Participant, the
Indenture Trustee and the Loan Participant contained in Article 5 of the
Participation Agreement.
(b) The Lessor covenants that during the Term, as long as no
Event of Default has occurred and is continuing, the Lessee's possession, use
and quiet enjoyment of the Aircraft leased hereunder shall not be interrupted by
the Lessor (or any Person lawfully claiming through the Lessor).
Section 5. Possession, Operation and Use,
Maintenance, Registration and Insignia.
--------------------------------------
(a) General.
-------
Except as otherwise expressly provided herein, the Lessee (and
any Permitted Sublessee) shall be entitled during the Term to operate, use,
locate, employ or otherwise utilize or not utilize the Airframe, Engines and
Parts leased hereunder in any lawful manner or place in accordance with the
Lessee's (or such Permitted Sublessee's) business judgment.
(b) Possession.
----------
The Lessee shall not sublease, or otherwise in any manner
deliver, relinquish or transfer possession of the Airframe or any Engine leased
hereunder to any Person or install any Engine, or permit any Engine to be
installed, on any airframe other than the Airframe, during the Term, without the
prior consent of the Lessor, which consent may be withheld in its sole
discretion, provided, however, that so long as (A) only in the case of clause
-------- -------
(x) below, no Specified Default shall have occurred and be continuing, (B) no
Event of Default shall have occurred and be continuing, (C) as long as the
Indenture is in effect, the action to be taken shall not deprive the Indenture
Trustee of the first priority Lien (subject to Permitted Liens) of the Indenture
on the Airframe or any Engine, (D) all approvals, consents or authorizations
required from the Aeronautical Authority in connection with any such sublease or
such delivery, transfer or relinquishment of
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<PAGE>
possession have been obtained and remain in full force and effect and (E) the
Lessee shall continue to comply or cause a Permitted Sublessee to comply with
all of the requirements of this Lease, the Lessee (or, except in the case of
clause (x) below, any Permitted Sublessee) may, without the prior consent of the
Lessor:
(i) enter into a charter or wet lease or other
similar arrangement under which the Lessee (or such Permitted
Sublessee) has operational control of the Airframe and any
Engines installed thereon in the ordinary course of the Lessee's
business (which shall not be considered a transfer of possession
hereunder), provided that (x) the Lessee's obligations under this
Lease and such Permitted Sublessee's obligations under the
relevant Sublease shall continue in full force and effect
notwithstanding any such charter or wet lease or other similar
arrangement and (y) the transferee's rights shall be expressly
subject and subordinate to the rights of the Lessor and the
Indenture Trustee under the Operative Agreements;
(ii) deliver possession of the Airframe or any Engine
or any Part to the manufacturer thereof or to any organization
for testing, service, repair, maintenance, overhaul work or other
similar purposes or for alterations or modifications or additions
required or permitted by the terms of this Lease;
(iii) subject the Airframe and any Engines installed
thereon to interchange agreements (provided that (w) such
interchange agreement is applicable to other similar property
owned by or leased to the Lessee and is customary in the airline
industry and entered into by the Lessee in the ordinary course of
its airline business, (x) any such interchange agreement with
respect to the Airframe shall not result in the Lessee (or a
Permitted Sublessee) being out of possession of the Airframe for
a period of more than two (2) consecutive days at any one time;
(y) such interchange agreement is entered into with a Permitted
Sublessee; and (z) the party to such interchange agreement is not
then subject to a proceeding or final order under applicable
bankruptcy, insolvency or reorganization laws on the date such
interchange agreement is entered into) or any Engine to
interchange or pooling agreements or arrangements which are
applicable to other similar property owned by or leased to the
Lessee (or such Permitted Sublessee) and are customary in the
airline industry and entered into by the Lessee (or such
Permitted Sublessee) in the ordinary course of its airline
business with any Permitted Sublessee, provided, that (A) no such
--------
agreement or arrangement shall under any circumstances result in,
contemplate or require the transfer of title to the Aircraft,
Airframe or any Engine or terminates or impairs the first
priority Lien of the Indenture on the Aircraft, Airframe or any
Engine and (B) if the Lessor's title to the Airframe or any
Engine shall nevertheless
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<PAGE>
be divested or the first priority Lien of the Indenture therein
shall be terminated or impaired under or by reason of any such
agreement or arrangement (in the case of clause (A) and (B), no
such termination or impairment being deemed to arise as a result
of the existence of any Permitted Lien), such divestiture shall
be deemed to be an Event of Loss with respect to the Airframe or
such Engine as the case may be and the Lessee shall comply with
Section 7(e) hereof in respect thereof;
(iv) install an Engine on an airframe owned by the Lessee
(or such Permitted Sublessee) free and clear of all Liens except
(A) Permitted Liens, (B) those which apply only to the engines
(other than the Engines), appliances, parts, instruments,
appurtenances, accessories, furnishings and other equipment
(other than Parts) installed on such airframe (but not to the
aircraft as an entirety), and (C) those created by the rights of
other air carriers under normal interchange or pooling agreements
or other arrangements customary in the airline industry which do
not contemplate, permit or require the transfer of title to such
airframe or engines installed thereon, provided that the first
--------
priority Lien of the Indenture on such Engine shall not be
terminated or impaired as a result thereof (no such termination
or impairment being deemed to arise as a result of the existence
of any Permitted Lien);
(v) install an Engine on an airframe, leased to the Lessee
(or such Permitted Sublessee) or purchased by the Lessee (or such
Permitted Sublessee) subject to a conditional sale or other
security agreement, but only if (A) such airframe is free and
clear of all Liens, except (i) the rights of the parties to such
lease, or any such secured financing arrangement, covering such
airframe and (ii) Liens of the type permitted by Section 5(b)(iv)
and (B) Lessee (or such Permitted Sublessee) shall have received
from the lessor, mortgagee, secured party or conditional seller,
in respect of such airframe, a written agreement (which may be a
copy of the lease, mortgage, security agreement, conditional sale
or other agreement covering such airframe), whereby such Person
agrees that it will not acquire or claim any right, title or
interest in, or Lien on, such Engine by reason of such Engine
being installed on such airframe at any time while such Engine is
subject to this Lease or is owned by Lessor, provided that the
--------
first priority Lien of the Indenture on such Engine shall not be
terminated or impaired as a result thereof (no such termination
or impairment being deemed to arise as a result of the existence
of any Permitted Lien);
(vi) install an Engine on an airframe, owned by the Lessee
(or such Permitted Sublessee), leased by the Lessee (or such
Permitted Sublessee) or purchased by the Lessee (or such
Permitted Sublessee) subject to a
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<PAGE>
conditional sale or other security agreement under circumstances where
neither clause (iv) nor clause (v) above is applicable, provided that any
--------
such installation (so long as the same shall be continuing) shall be deemed
an Event of Loss with respect to such Engine and the Lessee shall comply
with Section 7(e) hereof;
(vii) transfer possession of the Airframe or Engine to the
United States of America or any instrumentality thereof pursuant to the
Civil Reserve Air Fleet Program (as established and administered pursuant
to Executive Order 11490, as amended, as superseded by United States
Executive Order No. 12656) or any similar or substitute program ("CRAF
Program"), in which event Lessee (or such Permitted Sublessee) shall
promptly notify Lessor and Indenture Trustee 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 in writing of any such
transfer of possession and, in the case of any transfer pursuant to the
CRAF Program, in such notification shall identify by name, address and
telephone numbers the Contracting Office Representatives of the Military
Airlift Command of the United States Air Force to whom notices must be
given and to whom requests or claims must be made to the extent applicable
under the CRAF Program;
(viii) transfer possession of the Airframe or any Engine to
the United States of America, or to a foreign government, when required by
Applicable Law in the circumstances referred to in clause (iv) or (v) of
the definition of an Event of Loss (it being understood that nothing in
this clause (viii) shall relieve the Lessee from its obligations under
Section 8(a) if such transfer becomes an Event of Loss), in which event
Lessee shall promptly notify Lessor and Indenture Trustee in writing of any
such transfer of possession;
(ix) [Reserved];
(x) subject to the provisions of this Section 5(b), enter
into a sublease with respect to any Engine or the Aircraft or engines then
installed on the Airframe to any Permitted Sublessee if (A) Lessee shall
provide written notice to Lessor, Owner Participant and Indenture Trustee
at least 10 days prior to entering into any such sublease, (B) in any such
case, the sublessee under such sublease is not subject to a proceeding or
final order under applicable bankruptcy, insolvency or reorganization laws
on the date such sublease is entered into, (C) in the event that the
sublessee under such sublease is a foreign air carrier or Person based in a
country other than the
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<PAGE>
United States, the United States maintains normal diplomatic relations with
the country in which such proposed sublessee is principally based at the
time such sublease is entered into and (D) in the event that the sublessee
under such sublease is a foreign air carrier or Person based in a country
other than the United States, prior to the effectiveness of such sublease
Lessor shall have received an opinion (in form and substance reasonably
acceptable to Lessor) of counsel to Lessee (reasonably acceptable to
Lessor) to the effect that (I) the terms of the proposed sublease will be
legal, valid, binding and (subject to customary exceptions) enforceable
against the proposed sublessee in the country in which the proposed
sublessee is principally based, (II) there exist no possessory rights in
favor of the Lessee or the sublessee under such sublease under the laws of
such sublessee's country of domicile or any third party, including any
government or instrumentality thereof that would, upon bankruptcy or
insolvency of or other default by the Lessee and assuming that at such time
such sublessee or third party is not insolvent or bankrupt, prevent the
return or repossession of the Aircraft in accordance with and when
permitted by the terms of Section 17(a) upon the exercise by Lessor of its
remedies under Section 17(a), (III) the laws of such sublessee's country of
domicile require fair compensation by the government of such jurisdiction
payable in currency freely convertible into Dollars for the loss of use of
or title to such Engine or the Aircraft in the event of the requisition by
such government of such use or title (it being understood that in the event
such opinion cannot be given in a form reasonably satisfactory to the
Lessor and the Owner Participant, such opinion will be waived if insurance
reasonably satisfactory to the Lessor and the Owner Participant is provided
to cover such requisition), (IV) the laws of such sublessee's country of
domicile would give recognition to Lessor's title to such Engine or the
Aircraft, to the Lien of the Indenture Trustee in such Engine or the
Aircraft and to the registry of such Engine or the Airframe in the name of
Lessor (or Lessee, as "lessee", or the proposed sublessee, as appropriate),
(V) all filings, if any, required to be made and necessary actions, if any,
have been taken in such jurisdiction in connection with the execution of
such sublease in order to protect the first priority security interest
(subject to Permitted Liens) of the Indenture Trustee in and to the
Aircraft and interest of Lessor and the Indenture Trustee in such Engine or
the Aircraft have been made, (VI) it is not necessary for the Owner
Participant, Lessor, the Indenture Trustee or the Loan Participant to
register or qualify to do business in such jurisdiction, if not already so
registered or qualified, as a result, in whole or in part, of the proposed
sublease, (VII) the agreement of such Permitted Sublessee that its rights
under the sublease are subject and subordinate to all the terms of this
Lease is enforceable against such Permitted Sublessee under Applicable Law
of such country, and (VIII) there is no tort liability for owners not in
possession of aircraft in such
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<PAGE>
country more onerous than under the laws of the United States or
any state thereof (it being agreed that in the event such opinion
cannot be given in a form reasonably satisfactory to the Lessor
and the Owner Participant, such opinion will be waived if
insurance reasonably satisfactory to the Lessor and the Owner
Participant is provided to cover the risk of such tort
liability); provided that no such sublease shall be made to a
--------
Permitted Sublessee of the type described in clause (b) of
the definition thereof that is not domiciled in the United States
or of the type described in clause (b) of the definition of
Permitted Air Carrier or to any tax exempt entity within the
meaning of Section 168(h) of the Code prior to the end of the
Recovery Period, unless the Lessee prepays on a lump sum basis
any liability due under the Tax Indemnity Agreement as a result
of such sublease based upon the assumption that such sublease
will continue for the full term of such sublease;
provided that (1) the rights of any transferee who receives possession by reason
- --------
of a transfer permitted by this Section 5(b) (other than by a transfer of an
Engine which is deemed an Event of Loss) shall be subject and subordinate to all
the terms of this Lease; (2) the Lessee shall remain primarily liable hereunder
for the performance of all the terms and conditions of this Lease and all of the
terms and conditions of this Lease and the other applicable Operative Agreements
shall remain in effect; (3) no sublease or transfer of possession otherwise in
compliance with this Section 5(b) shall (A) result in any registration or re-
registration of the Aircraft except to the extent permitted by Section 5(e) or
the maintenance, operation or use thereof except in compliance with Sections
5(c) and 5(d), (B) permit any action not permitted to the Lessee hereunder, (C)
extend beyond the end of the Term (except to the extent that the Lessee shall
have irrevocably committed to exercise a purchase option in accordance with the
terms hereof) or (D) contain any purchase option exercisable at an earlier date
or at a lower price than such date or price, as the case may be, as permitted
under Section 13(b) hereof; (4) if any such sublease or transfer of possession
shall, in the reasonable opinion of any Participant, result in any risk of
adverse tax consequences, the Lessee shall, prior to entering into the same,
provide an indemnity satisfactory in form and substance to such Participant
against any such adverse tax consequences; (5) the Lessee shall provide evidence
reasonably satisfactory to Lessor and Owner Participant that the insurance
required by Section 9 remains in effect and for the purpose of Lessor's and
Owner Participant's review of such insurance requirements, the Lessee shall, at
least five (5) days prior to the date of any sublease permitted under this
Section 5(b), provide to Lessor and Owner Participant, forms of the broker's
report and insurance certificates required by Section 9(g); (6) all necessary
documents shall have been duly filed or recorded in applicable public offices
and all other necessary action shall be taken as may be required to preserve the
title of Lessor to the Airframe and Engines and to preserve and protect the
first priority Lien (subject to Permitted Liens) of the Indenture Trustee in the
Airframe and the Engines; and (7) Lessee shall reimburse Lessor, Owner
Participant, Loan Participant and Indenture Trustee, on an After Tax Basis, for
all of their reasonable out-of-pocket costs and expenses (including, without
limitation, reasonable counsel fees and disbursements) in connection with any
such sublease or transfer.
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<PAGE>
In the case of any sublease permitted under this Section 5(b), the
Lessee will include in such sublease appropriate provisions which (a) make such
sublease expressly subject and subordinate to all of the terms of this Lease and
the Indenture, including the rights of the Lessor and the Indenture Trustee to
avoid such sublease in the exercise of their rights to repossession of the
Airframe and Engines hereunder and thereunder; (b) expressly prohibit any
further subleasing of the Airframe and Engines; (c) require that the Airframe
and Engines be maintained in accordance with a maintenance program approved by
the Aeronautical Authority applicable thereto; (d) require the sublessee to
comply with the terms of Section 9 hereof; (e) limit the term of such sublease
(including renewal rights) to a period not beyond the end of the Term unless the
Lessee shall then have irrevocably committed to exercise a purchase option in
accordance with the terms hereof; (f) require that the Airframe and Engines be
used in accordance with the limitations applicable to the Lessee's possession
and use provided in this Lease; (g) provide that the Aircraft will not be
operated in any country with which the United States is then conducting ongoing
hostilities; (h) provide that any payments due under such sublease shall be paid
by the Permitted Sublessee directly to the Indenture Trustee (or, if the
Indenture shall have been discharged and satisfied in accordance with its terms,
the Owner Trustee) during the continuance of an Event of Default upon receipt of
written notice specifying such Event of Default (which shall have been copied to
the Lessee); (i) not contain any purchase option in favor of the Permitted
Sublessee or any other terms which would prohibit the Lessee from performing its
obligations hereunder or prohibit the Lessor from exercising its rights and
remedies hereunder and (j) shall include provisions for the maintenance,
operation, possession and inspection of the Aircraft that are the same in all
material respects as the applicable provisions of this Lease.
Subject to the Lessee's obligations in paragraph (x) above, the Lessee
shall (i) notify the Lessor at least 15 days prior to entering into any Sublease
stating the name of the proposed Permitted Sublessee and providing a copy of the
proposed Sublease, (ii) deliver a copy of the executed Sublease promptly (but no
later than 10 days) after execution thereof, (iii) obtain the consent of the
Permitted Sublessee to the assignment of its Sublease to the Lessor, and by the
Lessor to the Indenture Trustee pursuant to the Indenture, and (iv) cause a
sublease assignment and an Indenture Supplement and financing statements or
similar documents under the Applicable Laws of the country of the Permitted
Sublessee confirming the first priority security interest of the Lessor in such
Sublease (subject to Permitted Liens) (which security interest shall be assigned
by the Lessor to the Indenture Trustee pursuant to the Indenture), to be duly
executed and delivered and duly filed or recorded in all appropriate places.
The Lessor hereby agrees for the benefit of the lessor or secured
party of any engine (other than the Engines) or of any airframe (other than the
Airframe) leased to the Lessee or purchased by the Lessee subject to a
conditional sale or other security agreement, which lease or conditional sale or
other security agreement (in the case of any such airframe) also covers an
engine or engines (other than the 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, that the Lessor will not acquire
or claim, as against such lessor or secured party, any right, title or interest
-14-
<PAGE>
in any such engine as the result of such engine being installed on the Airframe
at any time while such engine is owned by such lessor or is subject to such
conditional sale or other security agreement or security interest in favor of
such secured party; provided, however, that such agreement of the Lessor shall
-------- -------
not be for the benefit of any lessor or secured party of any airframe leased to
the Lessee or owned or purchased by the Lessee subject to a conditional sale or
other security agreement or for the benefit of any mortgagee of or any other
holder of a security interest in an airframe owned by the Lessee, unless such
lessor, conditional vendor, other secured party or mortgagee has agreed (which
agreement may be contained in such lease, conditional sale or other security
agreement or mortgage and may consist of a paragraph similar to this paragraph)
that neither it nor its successors or assigns will acquire, as against the
Lessor, any right, title or interest in an Engine as a result of such Engine
being installed on such airframe.
(c) Operation and Use.
-----------------
The Lessee shall not (and will not permit any Permitted Sublessee)
operate, use or locate the Airframe or any Engine, or suffer such Airframe or
any Engine to be operated, used or located (i) in any area excluded from
coverage by any insurance required by the terms of Section 9 hereof, except in
the case of a requisition by the United States of America where the Lessee
obtains (and provides evidence of) indemnity from the Government for the benefit
of the Additional Insureds against substantially the same risks and for at least
the amounts of the insurance required by Section 9 hereof covering such area, or
(ii) outside the United States or Canada in any recognized or, in the Lessee's
reasonable judgment, threatened area of hostilities unless covered by war risk
insurance, or in either case unless the Airframe or such Engine is operated or
used under contract with the Government under which contract the Government
assumes liability for substantially the same risks in at least the same amounts
as would be covered by such insurance. The Lessee shall not permit the Airframe
or any Engine to be maintained, serviced, repaired, overhauled, used or operated
during the Term in violation of any Applicable Law or in violation of any
airworthiness certificate, rule, regulation, order, license or registration
relating to the Aircraft or such Engines issued by any competent governmental
authority, unless (i) the validity thereof is being contested in good faith and
by appropriate proceedings which do not involve a non-de minimis danger of the
sale, forfeiture or loss of the Airframe or such Engine or the interest of the
Lessor, the Owner Participant, the Indenture Trustee and the Noteholders therein
or any risk of criminal liability or any material risk of civil liability
against Lessor, the Owner Participant, the Indenture Trustee or any Noteholders,
or (ii) it is not possible for the Lessee (or a Permitted Sublessee) to comply
with the laws of a jurisdiction other than the United States (or other than any
jurisdiction in which the Aircraft is then registered) because of a conflict
with the applicable laws of the United States (or such jurisdiction in which the
Aircraft is then registered), provided, however, that actions taken under (i)
-------- -------
and (ii) above will not result in the violation of any requirements of insurance
pursuant to Section 9.
The Lessee shall not intentionally do or permit to be done anything
which will expose the Aircraft to penalty, forfeiture, impounding or detention,
appropriation, damage or destruction (other than any damage or destruction
arising in the ordinary course of operation of the Aircraft) or
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<PAGE>
(insofar as the same relates to the operation or use of the Aircraft) the
Lessor, the Owner Participant, the Indenture Trustee or any Noteholder to
criminal liability (and in the event of any forfeiture, impounding, detention or
appropriation of the Aircraft the Lessee shall take all such steps reasonably
open to it with a view to obtaining the immediate release of the Aircraft). The
Lessee shall not represent or hold out the Lessor, the Owner Participant, the
Indenture Trustee or any Noteholder as carrying goods or passengers on the
Aircraft or as being connected or associated with any operation of carriage
which may be undertaken by the Lessee or pledge the credit of the Lessor, the
Owner Participant, the Indenture Trustee or any Noteholder. So long as the
Indenture is in effect, the Lessee shall not on any occasion on which the
ownership of the Aircraft is relevant represent to third parties that title to
the Aircraft is held by the Lessor free of the Lien of the Indenture.
(d) Maintenance.
-----------
The Lessee, at its own cost and expense, shall during the Term
service, repair, maintain, overhaul and test the Aircraft, the Airframe and each
Engine (and each engine that is not an Engine but is installed on the Aircraft)
or cause the same to be done in accordance with (1)(i) a maintenance program
approved by the Aeronautical Authority and (ii) maintenance standards required
by, or substantially equivalent to those required by, the FAA or the central
civil aviation authority of Canada, France, Germany, Japan, The Netherlands or
the United Kingdom, and shall keep or cause to be kept the Aircraft, the
Airframe and each Engine (or engine) in as good operating condition as
originally delivered hereunder, ordinary wear and tear excepted, in accordance
with all applicable FAA regulations for the Aircraft (including all FAA
airworthiness directives applicable to the Aircraft), in accordance with all
mandatory service bulletins and as required to keep all Manufacturer's or Engine
Manufacturer's warranties in effect, in compliance with any requirements under
the policies of insurance required by Section 9, and shall keep or cause to be
kept the Aircraft, the Airframe and each Engine in such operating condition as
may be necessary to enable all certificates, licenses, permits and
authorizations required for the use and operation of the Aircraft and each
Engine in the appropriate category for the nature of the operations of the
Aircraft including the airworthiness certification of the Aircraft to be
maintained in good standing at all times under the applicable rules and
regulations of the Aeronautical Authority, except when aircraft of the same
type, model or series as the Airframe (powered by engines of the same type as
those with which the Airframe shall be equipped at the time of grounding)
registered in the same country have been grounded by the Aeronautical Authority
and (2) except during periods when a Sublease is in effect, the same standards
Lessee uses with respect to similar aircraft of similar size in its fleet
operated (whether owned or leased) by Lessee in similar circumstances and during
any period in which a Sublease is in effect, the same standards the Permitted
Sublessee uses with respect to similar aircraft of similar size in its fleet and
operated (whether owned or leased) by the Permitted Sublessee in similar
circumstances and without in any way discriminating against the Aircraft by
reason of its leased status. Nothing herein shall be deemed to prevent the
Lessee (or a Permitted Sublessee) from taking the Aircraft out of service for
maintenance or modifications permitted hereunder or storage in accordance with
applicable Aeronautical Authority requirements, the manufacturer's recommended
procedures and sound practice for such storage. The Lessee shall maintain or
cause
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<PAGE>
to be maintained all records, logs and other documents required by the
Aeronautical Authority to be maintained in respect of the Aircraft in English in
the manner as such Aeronautical Authority requires. Lessee further agrees that
the Aircraft, Airframe and Engines will be maintained, used, serviced, repaired,
overhauled or inspected in compliance with Applicable Law with respect to the
maintenance of the Aircraft and compliance with each applicable airworthiness
certificate, license and registration relating to the Aircraft, Airframe or any
Engine issued by the Aeronautical Authority.
(e) Registration
------------
Except as otherwise permitted by Section 4.02(b) of the Participation
Agreement, or as otherwise required by the Transportation Code or rules,
regulations, or orders promulgated thereunder, or to the extent that such
registration cannot be effected or continued due to the Lessor's or the Owner
Participant's failure to comply with the citizenship or other eligibility
requirements for registration of commercial aircraft under the Transportation
Code or any rule, regulation or order promulgated thereunder, the Aircraft shall
be duly registered in the name of the Lessor under the Transportation Code at
all times during the Term; provided that the Lessor shall execute and deliver
--------
all such documents as the Lessee may reasonably request for the purpose of
effecting, continuing or (as provided in this Section 5(e) hereof and Section
4.02(b) of the Participation Agreement) changing such registration.
Section 6. Inspection.
----------
At all times during the Term, but upon at least 15 days' prior notice
to the Lessee (unless an Event of Default shall have occurred and be continuing,
in which event a prior written notice of at least one (1) Business Day is
required) and at a time and place reasonably acceptable to the Lessee, the
Lessor, the Owner Participant, the Loan Participant and the Indenture Trustee or
their authorized representatives (which may include the Manufacturer) may at
their own expense (unless an Event of Default shall have occurred and be
continuing, in which event the Lessee shall bear such expense) and risk conduct
a visual walk-around inspection of the Aircraft (including on board inspection)
and any Engine and may include inspection of areas exposed by any open panels,
bays or the like, but shall not include opening any panels, bays or the like
without the express written consent of an authorized employee of the Lessee
(including a visual walk-around inspection of the Aircraft during any "C" check
or other heavy maintenance) and may inspect the books and records of the Lessee
relating to the operation and maintenance thereof and the Lessee shall provide
copies of such books and records to the inspecting party or their authorized
representatives at its or their reasonable request; provided that (a) any such
--------
inspection shall be subject to the safety, security and workplace rules
applicable at the location where such inspection is conducted and any applicable
governmental rules or regulations, and (b) in the case of an inspection during a
maintenance visit, such inspection shall not interfere with the normal conduct
of such maintenance visit or extend the time required for such maintenance visit
or, in any event, at any time interfere with the use or operation of the
Airframe or any Engine or with the normal conduct of the Lessee's or a Permitted
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<PAGE>
Sublessee's business. All information obtained in connection with any such
inspection shall be held confidential by the Lessor, the Indenture Trustee, the
Owner Participant and the Noteholders and shall not be furnished or disclosed by
them to anyone other than (i) each other, their bank examiners, auditors,
accountants, insurance advisors, agents and legal counsel, (ii) any prospective
and permitted transferees of the Lessor, the Indenture Trustee, the Owner
Participant or any Noteholder who agree to hold such information confidential,
(iii) to the Indenture Trustee and rating agencies, if applicable, (to the
extent necessary to obtain or maintain ratings and indicating whether such
inspection shows compliance or non-compliance by the Lessee with its obligations
under the Operative Agreements), (iv) any Person with whom any Participant is in
good faith conducting negotiations relating to the possible transfer and sale of
such Participant's interest in the Trust Estate, the Aircraft or the Equipment
Notes, if such Person shall have entered into an agreement similar to that
contained in this Section 6 whereby such Person agrees to hold such information
confidential, and (v) except as may be required by an order of any court or
administrative agency or by any statute, rule, regulation or order of any
governmental authority (or, in the case of any Noteholder, to any bank examiner
or other regulatory personnel) or as may be necessary to enforce the terms of
the Operative Agreements, provided, however, that the Lessor, the Owner
-------- -------
Participant or the Loan Participant may during any time it is offering the
Aircraft for sale make customary disclosures to prospective purchasers of the
Aircraft or the Equipment Notes as to the then current flight and maintenance
status of the Aircraft. The Lessor, the Owner Participant, the Indenture
Trustee and the Loan Participant 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.
In addition to any inspection as provided hereunder, upon each request
of Owner Participant to Lessee made not more than four times in a calendar year,
Lessee will make available to Owner Participant information with respect to the
cycles and hours of operation of the Airframe and Engines and the status of the
time controlled components of the Engines.
If requested by Lessor, Owner Participant, Indenture Trustee or any
Noteholder, Lessee shall provide, or shall cause any Permitted Sublessee to
provide, the date (if then scheduled) upon which the Airframe undergoes its next
scheduled major check and, with respect to any Engine, the next scheduled off
the Airframe maintenance, and shall advise Lessor, Owner Participant, Indenture
Trustee and the relevant Noteholder of the name and location (if then known) of
the relevant maintenance performer.
The Lessee shall furnish to the Lessor, the Owner Participant and the
Indenture Trustee such additional information concerning the location,
condition, use and operation of the Aircraft as the Lessor, the Owner
Participant or the Indenture Trustee may from time to time reasonably request.
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<PAGE>
Section 7. Replacement and Pooling of Parts; Alterations,
Modifications and Additions; Substitution of Engines.
----------------------------------------------------
(a) Replacement of Parts.
--------------------
Except as otherwise provided in the proviso to the third sentence
of Section 7(d) or if the Airframe or an Engine to which a Part relates has
suffered an Event of Loss, the Lessee, at its own cost and expense, will during
the Term promptly replace all Parts that may from time to time become worn out,
lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever. In addition, in
the ordinary course of maintenance, service, repair, overhaul or testing, the
Lessee (or a Permitted Sublessee), at its own cost and expense, may remove any
Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or permanently rendered unfit for use, provided that
--------
the Lessee (or such Permitted Sublessee), at its own cost and expense, shall,
except as otherwise provided in the proviso to the third sentence of
Section 7(d), replace such Parts as promptly as practicable with replacement
Parts or temporary replacement parts as provided in Section 7(c) hereof. All
replacement Parts shall be free and clear of all Liens except for Permitted
Liens and shall be in as good operating condition as, and shall have a value
and utility at least equal to, the Parts replaced assuming such replaced
Parts were in the condition and repair required to be maintained by the terms
hereof.
(b) Title to Parts.
--------------
Except as otherwise provided in the proviso to the third sentence
of Section 7(d), all Parts at any time removed from the Airframe or any Engine
shall remain the property of the Lessor and subject to this Lease, no matter
where located, until such time as such Parts shall be replaced by Parts that
have been incorporated or installed in or attached to such Airframe or Engine
and that meet the requirements for replacement Parts specified in Section 7(a).
Immediately upon any replacement Part becoming incorporated or installed in or
attached to an Airframe or Engine as provided in Section 7(a), without further
act, (i) title to the replaced Part shall thereupon vest in the Lessee (or the
relevant Permitted Sublessee), in "as-is, where-is" condition, free and clear of
all rights of the Lessor and the Indenture Trustee and any Lessor's Liens and
shall no longer be deemed a Part hereunder; (ii) title to such replacement Part
shall thereupon vest in the Lessor (subject only to Permitted Liens); and (iii)
such replacement Part shall become subject to this Lease and be deemed part of
such Airframe or Engine, as the case may be, for all purposes hereof to the same
extent as the Parts originally incorporated or installed in or attached to such
Airframe or Engine.
(c) Pooling or Parts Leasing.
------------------------
Any Part removed from the Airframe or from any Engine as provided
in Section 7(a) may be subjected by the Lessee (or a Permitted Sublessee) to a
pooling or parts leasing agreement or arrangement of a type customary in the
airline industry entered into in the ordinary course of the Lessee's (or such
Permitted Sublessee's) business (with respect to the landing gears however, only
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<PAGE>
with a Permitted Sublessee), provided that, the part replacing such removed Part
shall be incorporated or installed in or attached to such Airframe or Engine in
accordance with Sections 7(a) and 7(b) as promptly as practicable after the
removal of such removed Part. In addition, any temporary replacement part when
incorporated or installed in or attached to the Airframe or any Engine in
accordance with Section 7(a) may be owned by another airline or vendor as
customary in the United States airline industry, subject to a pooling or parts
leasing arrangement, provided that the Lessee (or a Permitted Sublessee), at its
--------
expense as promptly thereafter as reasonably practicable, either (i) causes
title to such temporary replacement part to vest in the Lessor in accordance
with Section 7(b) by the Lessee (or such Permitted Sublessee) acquiring title
thereto for the benefit of the Lessor free and clear of all Liens except
Permitted Liens, at which time such temporary replacement part shall become a
Part and become subject to this Lease or (ii) replaces such temporary
replacement part by incorporating or installing in or attaching to such Airframe
or Engine a further replacement Part owned by the Lessee (or such Permitted
Sublessee) free and clear of all Liens except Permitted Liens and which meets
the requirements of Section 7(a) and by causing title to such further
replacement Part to vest in the Lessor in accordance with Section 7(b).
(d) Alterations, Modifications and Additions.
----------------------------------------
The Lessee, at its own cost and expense, shall make (or cause to be
made) alterations and modifications in and additions to the Airframe and any
Engine as may be required to be made from time to time during the Term by
Applicable Law or in order to maintain the insurance required under Section 9
regardless of upon whom such requirements are, by their terms, nominally
imposed; provided, that the Lessee may, in good faith and by appropriate
--------
procedure, contest the validity or application of any such standard by
appropriate proceedings in any reasonable manner which does not materially
adversely affect the interests of the Lessor or the Lien of the Indenture and
does not involve any non-de minimis risk of sale, forfeiture or loss of the
Aircraft or the interest of any Participant therein or the first priority Lien
of the Indenture thereon, any material risk of civil penalty or any risk of
criminal liability being imposed on Lessor, Indenture Trustee or any
Participant. In addition, the Lessee (or a Permitted Sublessee), at its own
cost and expense, may from time to time make or cause to be made such
alterations and modifications in and additions to the Airframe and any Engine as
the Lessee (or such Permitted Sublessee) may deem desirable in the proper
conduct of its business including, without limitation, removal of Parts which
Lessee (or such Permitted Sublessee) deems are obsolete or no longer suitable or
appropriate for use in the Aircraft, Airframe or such Engine so long as the
aggregate value of such removed Parts (based on their value as of the Delivery
Date) does not exceed $200,000, provided further that no such alteration,
--------
modification, removal or addition (i) diminishes the value, utility, estimated
residual value (with respect to the Airframe only), condition, remaining useful
life or airworthiness of such Airframe or Engine below the value, utility,
estimated residual value, condition, remaining useful life or airworthiness
thereof immediately prior to such alteration, modification or addition, assuming
such Airframe or Engine was then in the condition required to be maintained by
the terms of this Lease or (ii) causes the Aircraft to be limited use property,
except that the value (but not the utility, estimated residual value, condition,
remaining useful life or airworthiness) of the Aircraft may be reduced by the
value of
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<PAGE>
Parts which the Lessee (or such Permitted Sublessee) has removed as permitted
above. Title to all Parts incorporated or installed in or attached or added to
the Airframe or any Engine as the result of any alteration, modification or
addition effected by the Lessee (or a Permitted Sublessee) shall, without
further act, vest in the Lessor free and clear of any Liens except Permitted
Liens and become subject to this Lease; provided that the Lessee (or such
--------
Permitted Sublessee) may, at any time during the Term, remove any such Part from
the Airframe or an Engine if (i) such Part is in addition to, and not in
replacement of or in substitution for, any Part originally incorporated or
installed in or attached to such Airframe or Engine at the time of delivery
thereof hereunder or any Part in replacement of, or in substitution for, any
such original Part, (ii) such Part is not required to be incorporated or
installed in or attached or added to such Airframe or Engine pursuant to the
terms of Section 5(d) or the first sentence of this Section 7(d) or pursuant to
the terms of any insurance policies required to be carried hereunder or under
any Applicable Law and (iii) such Part can be removed from such Airframe or
Engine without diminishing or impairing the value, condition, utility, estimated
residual value, remaining useful life or airworthiness which such Airframe or
Engine would have had at the time of removal had such alteration, modification
or addition not been effected by the Lessee (or such Permitted Sublessee)
assuming the Aircraft was otherwise maintained in the condition required by this
Lease. Upon the removal by the Lessee (or such Permitted Sublessee) of any such
Part as above provided, title thereto shall, without further act, vest in the
Lessee (or such Permitted Sublessee), in "as-is, where-is" condition, free and
clear of all rights of the Lessor and the Indenture Trustee and any Lessor's
Liens and such Part shall no longer be deemed a Part hereunder. Any Part not
removed by the Lessee (or a Permitted Sublessee) as above provided prior to the
return of the Airframe or respective Engine to the Lessor hereunder shall remain
the property of the Lessor; provided that nothing in this Section 7(d) shall
--------
prohibit the Lessee (or a Permitted Sublessee) from removing any seats from the
Aircraft (which seats while so removed shall remain in the possession of the
Lessee (or such Permitted Sublessee) and shall remain property of the Lessor
until such time as such seats shall be replaced in accordance with Section 7(a))
so long as the Aircraft when returned to the Lessor pursuant to Section 12
hereof shall be in the condition required thereby. Lessee will not permit the
Aircraft to be used other than primarily in passenger service and passenger
configuration.
(e) Substitution of Engines.
-----------------------
(i) So long as no Specified Default shall have occurred and be
continuing, the Lessee (or a Permitted Sublessee) shall have the right at its
option at any time, on at least 30 days' prior written notice to the Lessor, the
Owner Participant and the Indenture Trustee, to substitute, and (ii) if an Event
of Loss shall have occurred with respect to an Engine under circumstances in
which there has not occurred an Event of Loss with respect to the Airframe,
shall within 90 days of the occurrence of such Event of Loss and on at least
five days' prior written notice to the Lessor substitute, a Replacement Engine
for any Engine (or in the case of clause (ii), for the Engine suffering an Event
of Loss). In the case of a substitution for an Engine other than due to the
occurrence of an Event of Loss, the Engine replaced shall not then be installed
or held for use on the Airframe. In such event, immediately upon the fulfillment
of the conditions precedent described in
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this Section 7(e) on the date set forth in such notice and without further act,
(i) title to the Replacement Engine shall thereupon vest in the Lessor free and
clear of all Liens (other than Permitted Liens), (ii) title to the replaced
Engine shall thereupon vest in the Lessee (or its designee), in "as-is, where-
is" condition, free and clear of all rights of the Lessor and the Indenture
Trustee and any Lessor's Liens and shall no longer be deemed an Engine
hereunder, and (iii) such Replacement Engine shall become subject to this Lease
and be deemed part of the Aircraft for all purposes hereof to the same extent as
the Engine originally installed on or attached to the Airframe. Prior to the
substitution of a Replacement Engine, the following conditions shall be
satisfied at the Lessee's sole cost and expense and the parties agree to
reasonably cooperate with the Lessee to the extent necessary to enable it to
timely satisfy such conditions:
(i) the following documents shall be duly authorized,
executed and delivered by the respective party or parties
thereto, and an executed counterpart of each shall be delivered
to the Lessor, the Owner Participant and, if the Indenture is in
effect, the Indenture Trustee:
(A) a Lease Supplement covering the Replacement
Engine, which shall have been duly filed for recordation
with the FAA;
(B) so long as the Indenture shall not have been
satisfied and discharged in accordance with its terms, an
Indenture Supplement covering the Replacement Engine, which
shall have been duly filed for recordation with the FAA (or
such other Applicable Law of the country in which the
Aircraft may be registered in accordance with Section 5(e));
(C) a full warranty bill of sale (as to title), in
form and substance satisfactory to the Lessor and the Owner
Participant, covering the Replacement Engine, executed by
the owner thereof in favor of the Lessor;
(D) as long as the Indenture is in effect, such
documents as may be required under Section 5.06 of the
Indenture relating to the Replacement Engine;
(E) (i) so long as the Indenture shall not have been
satisfied and discharged in accordance with its terms, such
Uniform Commercial Code financing statements covering the
security interests created by the Indenture (or any similar
statements or other documents required to be filed or
delivered pursuant to the laws of the jurisdiction in which
the Replacement Engine may be registered in accordance with
Section 5(e)) to protect the first priority security
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<PAGE>
interest of the Indenture Trustee in the Replacement Engine,
and (ii) "precautionary" Uniform Commercial Code financing
statements as are deemed necessary or desirable by counsel
for any Participant or the Indenture Trustee to protect the
ownership interests of the Owner Trustee and the first
priority security interests of the Indenture Trustee in the
Replacement Engine;
(F) an Officer's Certificate of the Lessee certifying
that (i) in the case of a voluntary replacement only, no
Specified Default shall have occurred and be continuing and
(ii) (x) in the case of a voluntary replacement, the
Replacement Engine has at least the same number of hours or
cycles (whichever is applicable) of operation on such
Replacement Engine remaining until the next scheduled life
limited part replacement as the Engine it replaces, assuming
such Engine had been maintained in the condition required
hereunder; or (y) in the case of a mandatory replacement,
the Lessee has not discriminated in its selection of the
Replacement Engine (based on the leased status of the
Aircraft);
(G) an opinion of qualified FAA counsel, in form and
substance reasonably satisfactory to the recipients thereof,
as to the due recordation of the Lease Supplement, the
Indenture Supplement and all other documents or instruments
the recordation of which is necessary to perfect and protect
the rights of the Lessor and the Indenture Trustee in the
Replacement Engine and the Replacement Engine is free and
clear of all recorded Liens other than Permitted Liens;
(H) to the extent that an engine warranty in respect
of such Replacement Engine is available to the Lessee, an
engine warranty assignment covering such Replacement Engine,
in substantially the form of the Engine Warranty Assignment
or otherwise in such form and substance satisfactory to the
Lessor and the Owner Participant and a consent to such
engine warranty assignment, in substantially the form of the
Engine Warranty Assignment or otherwise in such form and
substance satisfactory to the Lessor and the Owner
Participant; and
(I) evidence that the insurance requirements of
Section 9 with respect to an Engine are satisfied and that
the insurance covering such Replacement Engine shall be of
the type usually carried by the Lessee (or, in the case of a
voluntary replacement, such Permitted
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<PAGE>
Sublessee) with respect to similar engines, and covering
risks of the kind customarily insured against by the Lessee
(or, in the case of a voluntary replacement, such Permitted
Sublessee);
(ii) the Lessee shall furnish (or cause to be furnished to)
the Lessor, the Owner Participant and the Indenture Trustee with
an opinion, reasonably satisfactory in form and substance to the
Lessor, the Owner Participant and the Indenture Trustee, of the
Lessee's counsel, which may be the Lessee's General Counsel or
Associate General Counsel, to the effect that (x) such bills of
sale or other documents reasonably requested by the Lessor, the
Owner Participant or the Indenture Trustee are sufficient to
convey title to such Replacement Engine to the Lessor and with
respect to the effectiveness of the interests in the Indenture
Estate which the Indenture purports to create; (y) the Lessor and
the Indenture Trustee (as assignee of Lessor under the
Indenture), are entitled to the benefits and protections of
Section 1110 with respect to the Replacement Engine to the same
extent as with respect to the replaced Engine immediately
preceding such replacement, provided that if the replaced Engine
--------
was subject to an Event of Loss, then such opinion regarding
Section 1110 shall be required only in the event that a
replacement engine that can so qualify is available in the
Lessee's fleet or is otherwise available to the Lessee (by
exchange or otherwise) without material cost to Lessee and (z)
the Lease Supplement, Indenture Supplement and Warranty Bill of
Sale have been duly authorized and delivered;
(iii) either (x) the Owner Participant shall have received
an opinion of independent tax counsel (selected by the Owner
Participant and reasonably acceptable to the Lessee), reasonably
satisfactory to the Owner Participant, to the effect that there
shall be no risk of adverse tax consequences resulting from such
replacement (and the Owner Participant shall use its best efforts
to cause a timely opinion to be delivered) or (y) the Lessee
shall have provided, or caused to be provided, an indemnity in
respect of any adverse tax consequences reasonably satisfactory
(or, in the case of any voluntary substitution, satisfactory) in
form and substance to the Owner Participant; and
(iv) as long as the Indenture is in effect, all conditions
specified in Section 5.06 of the Indenture shall be satisfied.
Upon satisfaction of all conditions to such substitution, (x) the
Lessor shall, at the expense of the Lessee, execute and deliver, and request the
Indenture Trustee to execute and deliver to the Lessee such bills of sale and
other documents and instruments as the Lessee shall reasonably request to
evidence the transfer to the Lessee and vesting of all right, title and interest
in and to the replaced Engine in the Lessee, in "as-is, where-is" condition,
free and clear of all right, title and
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<PAGE>
interest of the Lessor and the Indenture Trustee, and any Lessor's Liens; (y)
the Lessor shall, at the request and expense of the Lessee, assign to the Lessee
all claims it may have against any other Person relating to an Event of Loss
giving rise to such substitution (other than those in respect of insurance
maintained by the Owner Participant, the Indenture Trustee or the Noteholders
pursuant to Section 9(f)) and shall exercise such rights as it has to cause such
assignment to be free and clear of the Lien of the Indenture and (z) subject to
Section 8(g), the Lessee shall be entitled to receive all insurance proceeds
(other than those reserved to others under Section 9(f) hereof) and proceeds in
respect of any Event of Loss giving rise to such replacement to the extent not
previously applied to the purchase price of the Replacement Engine as provided
in Sections 9(e)(i) and 8(e)(ii). Should the Lessee replace any Engine as
provided herein, all the provisions of this Lease and the Indenture relating to
the Engine being replaced shall be applicable to the Replacement Engine with the
same force and effect.
Section 8. Loss, Destruction or Requisition.
--------------------------------
(a) Event of Loss with Respect to the Airframe.
------------------------------------------
Upon the occurrence of an Event of Loss with respect to the
Airframe or the Airframe and the Engines and/or engines then installed thereon,
the Lessee shall forthwith (and in any event within 15 days after such
occurrence) give the Lessor, the Owner Participant and the Indenture Trustee
notice of such Event of Loss. The Lessee shall, within 60 days after such
occurrence, give the Lessor, the Owner Participant and the Indenture Trustee
written notice of its election to perform one of the following options (it being
agreed that if the Lessee shall not have given the Lessor such notice of such
election, the Lessee shall be deemed to have elected to perform the option
identified in the following clause (ii)):
(i) subject to the satisfaction of the conditions
contained in Section 8(d), on a date not more than 180 days
after the occurrence of the Event of Loss (or, if earlier,
the last day of the Term), convey or cause to be conveyed to
the Lessor, and to be leased by the Lessee hereunder in
replacement of the Airframe and Engines with respect to
which the Event of Loss occurred, a Replacement Airframe
(together with the same number of Replacement Engines as the
number of Engines, if any, which were subject to such Event
of Loss), such Replacement Airframe and Replacement Engines
to be free and clear of all Liens except Permitted Liens and
to have a remaining useful life, estimated residual value,
value and utility at least equal to the Airframe and
Engines, if any, so replaced (assuming such Airframe and
Engines were in the condition and repair required by the
terms hereof) and to be an airframe that is the same model
and same or later vintage as the Airframe to be replaced
thereby, or an improved model; provided that, if the Lessee
-------- ----
shall not perform its obligation to effect such replacement
under this clause (i) during the 180-day period of time
provided herein (or, if
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earlier, the last day of the Term), it shall give the
Lessor, the Owner Participant and the Indenture Trustee
notice to such effect upon or before the expiration of such
period of time and shall promptly pay on the first
Termination Date next following the date of such notice to
the Lessor (or, if earlier, the last day of the Term), in
immediately available funds, the amount specified in clause
(ii) below; or
(ii) pay or cause to be paid to the Lessor in
immediately available funds, on a date specified at least 30
days in advance by the Lessee, which date shall be a
Termination Date not more than 150 days after the occurrence
of the Event of Loss or, if earlier, the first Termination
Date which occurs more than 3 Business Days following the
payment of insurance proceeds, an amount equal to (A) the
arrears portion, if any, of Basic Rent payable on such
Termination Date, together with all unpaid Basic Rent, if
any, payable before such Termination Date plus (B) all
unpaid Supplemental Rent (other than Termination Value) due
on or before such payment date, plus (C) the Termination
Value for the Aircraft determined as of such Termination
Date or, if such Termination Date is beyond the end of the
Term, the Termination Value as of the last Termination Date
of the Term plus (D) all reasonable out-of-pocket expenses
(including reasonable attorneys' fees) incurred by the
Lessor, the Owner Participant, the Indenture Trustee or the
Loan Participant in connection with such Event of Loss plus
(E) if such Termination Date is beyond the end of the Term,
interest on the amount of such payment, at a rate per annum
equal to the TV Rate identified on Exhibit B, for the period
from and including the last day of the Term to but excluding
such Termination Date.
(b) Effect of Replacement.
---------------------
Should the Lessee have provided a Replacement Aircraft as
provided for in Section 8(a)(i), (i) this Lease shall continue with respect to
such Replacement Aircraft as though no Event of Loss had occurred; (ii) the
Lessor shall, at the cost and expense of Lessee, convey "as-is, where-is",
without recourse or warranty except for a warranty against Lessor's Liens, to
the Lessee all right, title and interest of the Lessor, in and to the Airframe
and the Engine or Engines, if any, installed on the Airframe upon the occurrence
of the Event of Loss by executing and delivering to the Lessee such bills of
sale and other documents and instruments as the Lessee may reasonably request to
evidence such conveyance and shall request that the Indenture Trustee release
such Airframe and Engines and the Purchase Agreement Assignment with respect to
such Airframe and Engines from the Lien of the Indenture; (iii) the Lessor
shall, at the request and cost and expense of Lessee, assign to the Lessee all
claims it may have against any other Person arising from the Event of Loss
(except with respect to insurance obtained in accordance with Section 9(f)) and
(iv) the Lessee shall be entitled to receive all insurance proceeds (other than
those reserved to others under
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<PAGE>
Section 9(f)) and proceeds from any award in respect of condemnation,
confiscation, seizure or requisition, including any investment interest thereon,
to the extent not previously applied to the purchase price of the Replacement
Aircraft as provided in Sections 9(e)(iii) and 8(e)(i). Should the Lessee have
provided a Replacement Airframe, together with Replacement Engines, if any, all
provisions of this Lease and the Indenture relating to the Airframe and Engine
or Engines, if any, being replaced shall be applicable to the Replacement
Airframe and Replacement Engine or Replacement Engines with the same force and
effect.
(c) Effect of Termination Value Payment.
-----------------------------------
In the event of a payment in full of the Termination Value for the
Aircraft and other Rent payable as provided in Section 8(a)(ii), (i) this Lease
and the obligations of the Lessee to pay Rent (except for Supplemental Rent
obligations which expressly survive pursuant to the Operative Agreements
(including Section 3(c) hereof and Articles 6 and 7 of the Participation
Agreement or the Tax Indemnity Agreement) or which have accrued but have not
otherwise been paid as of the date of such payment) shall terminate and the Term
shall end, (ii) any remaining insurance proceeds (other than those reserved to
others under Section 9(f)), including any investment interest thereon, shall be
promptly paid over to the Lessee; and (iii) the Lessor, at the cost and expense
of Lessee, shall convey, "as-is, where-is" without recourse or warranty, except
for a warranty against Lessor's Liens attributable to Lessor and Owner
Participant, to the Lessee all right, title and interest of the Lessor in and to
the Airframe and Engines and shall execute and deliver to the Lessee such bills
of sale and other documents and instruments as the Lessee may reasonably request
to evidence such conveyance and shall request that the Indenture Trustee release
from the Lien of the Indenture, the Airframe and the Engines and the Purchase
Agreement Assignment with respect to such Airframe and Engines, all claims for
damage to such Airframe and Engines, if any, against third persons arising from
the Event of Loss and any interest of the Lessor in engines (which are not
Engines) installed on the Airframe.
(d) Conditions to Airframe Replacement.
----------------------------------
The Lessee's right to substitute a Replacement Aircraft as provided in
Section 8(a)(i) shall be subject to the fulfillment, at the Lessee's sole cost
and expense, in addition to the conditions contained in such Section 8(a)(i), of
the following conditions precedent:
(i) On the date when the Replacement Aircraft is delivered
to the Lessor (such date being referred to in this Section 8(d)
as the "Replacement Closing Date"), no Specified Default shall
have occurred and be continuing and the Lessor, the Owner
Participant and the Indenture Trustee shall have received an
Officer's Certificate so certifying;
(ii) On the Replacement Closing Date the following documents
shall have been duly authorized, executed and delivered by the
respective
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<PAGE>
party or parties thereto and shall be in full force and effect,
and an executed counterpart of each thereof (or, in the case of
the FAA Bills of Sale (or a comparable document, if any, of
another Aeronautical Authority, if applicable) referred to below,
a photocopy thereof) shall have been delivered to the Lessor, the
Owner Participant and the Indenture Trustee:
(A) a Lease Supplement covering the Replacement Aircraft, which
shall have been duly filed for recordation with the FAA;
(B) so long as the Indenture shall not have been discharged and
satisfied in accordance with its terms, an Indenture Supplement
covering the Replacement Aircraft, which shall have been duly filed
for recordation with the FAA (or such other Applicable Law as may be
in effect in the jurisdiction in which the Replacement Aircraft may be
registered in accordance with Section 5(e));
(C) an FAA Bill of Sale (or a comparable document, if any, of
another Aeronautical Authority, if applicable) covering the
Replacement Aircraft, executed by the owner thereof in favor of the
Lessor, and dated the Replacement Closing Date;
(D) a full warranty (as to title) bill of sale, in form and
substance satisfactory to the Indenture Trustee, the Owner Participant
and the Lessor, covering the Replacement Aircraft, executed by the
owner thereof in favor of the Lessor, dated the Replacement Closing
Date and guaranteed by the Lessee;
(E) as long as the Indenture is in effect, such documents as may
be required under Section 5.06 of the Indenture;
(F) (1) so long as the Indenture shall not have been discharged
in accordance with its terms, such Uniform Commercial Code financing
statements (or any similar statements or other documents required to
be filed or delivered pursuant to the laws of the jurisdiction in
which the Replacement Aircraft may be registered in accordance with
Section 5(e)) covering the security interests created by the Indenture
to protect the first priority security interest of the Indenture
Trustee in the Replacement Aircraft, and (2) such "precautionary"
Uniform Commercial Code financing statements as are deemed necessary
or desirable by counsel for any Participant or the Indenture Trustee
to protect the ownership interests of the Owner Trustee and the first
priority security interests of the Indenture Trustee in the
Replacement Aircraft; and
(G) an Officer's Certificate of the Lessee certifying that (i)
the Replacement Aircraft is a Canadair Regional Jet Series 200 ER
aircraft or a more advanced model, is in as good operating condition
as, and has a value, remaining
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<PAGE>
useful life, estimated residual value and utility at least equal to,
the Aircraft it replaces, assuming such Aircraft had been maintained
in the condition required hereunder and (ii) in the event the Event of
Loss occurs after the fifth anniversary of the Delivery Date, the
Replacement Airframe shall have no more than 105% of the total hours
of operation, as compared to the Airframe it replaces;
(iii) On or before the Replacement Closing Date, the
Lessor, the Owner Participant and the Indenture Trustee (acting
directly or by authorization to their respective special counsel)
shall have received such documents and evidence with respect to
the Lessee, the Lessor, the Owner Participant, the owner of such
Replacement Aircraft or the Indenture Trustee, as the Lessor, the
Owner Participant or the Indenture Trustee or their respective
special counsel may reasonably request in order to establish the
consummation of the transactions contemplated by Section 8(a)(i)
and this Section 8(d), the taking of all necessary corporate
action in connection therewith and compliance with the conditions
set forth in this Section 8(d), in each case in form and
substance reasonably satisfactory to the Lessor, the Owner
Participant and the Indenture Trustee;
(iv) The Lessor, the Owner Participant and the Indenture
Trustee (acting directly or by authorization to their respective
special counsel) shall each have received satisfactory evidence
as to the compliance with Section 9 hereof with respect to the
Replacement Aircraft;
(v) On the Replacement Closing Date, (A) the Lessor shall
receive good title to the Replacement Aircraft free and clear of
Liens (other than Permitted Liens), (B) the Lessee shall have
authority to operate the Replacement Aircraft and the Replacement
Aircraft shall have been duly certified by the Aeronautical
Authority as to type and airworthiness in accordance with the
terms of this Lease, and (C) application for registration of the
Replacement Aircraft in accordance with Section 5(e) shall have
been duly made with the Aeronautical Authority;
(vi) The Owner Participant shall have received an appraisal
reasonably satisfactory to it with respect to the Replacement
Aircraft and the Loan Participant shall have received a
certificate from such appraiser confirming that the value and
utility of such Replacement Aircraft complies with the
requirements of clause (G)(i) of this Section 8(d);
(vii) The Lessor, the Owner Participant, the Loan
Participant and the Indenture Trustee shall have received (acting
directly or by authorization to its special counsel) (A) an
opinion, satisfactory in form and substance to
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to the Lessor, the Owner Participant and the Indenture Trustee,
of counsel to the Lessee (which may be the Lessee's General
Counsel) reasonably satisfactory to the Owner Participant and the
Indenture Trustee to the effect that (x) the bill of sale
referred to in clause (ii)(D) above constitutes an effective
instrument for the conveyance of title to the Replacement
Airframe and Replacement Engines, if any, to the Lessor, (y) all
documents executed and delivered by the Lessee pursuant to this
Section 8(d) have been duly authorized, executed and delivered by
the Lessee and constitute legal, valid and binding obligations
of, and are enforceable against, the Lessee in accordance with
their respective terms, and (z) the Lessor and the Indenture
Trustee (as assignee of Lessor under the Indenture), are entitled
to the benefits of Section 1110 with respect to such Replacement
Aircraft to the same extent as with respect to the replaced
Aircraft immediately preceding such replacement; and (B) an
opinion of qualified FAA counsel (or counsel in such jurisdiction
outside of the United States where the Aircraft may be registered
in accordance with Section 5(e)), as to, in the case of FAA
counsel, the due recordation of the Lease Supplement, the
Indenture Supplement and all other documents or instruments the
recordation of which is necessary to perfect and protect the
rights of the Lessor and the Indenture Trustee in the Replacement
Aircraft or, in the case of counsel in another jurisdiction, the
taking of all action necessary in such jurisdiction for such
purposes and the Replacement Airframe and the Replacement
Engines, if any, are free and clear of all recorded Liens other
than Permitted Liens;
(viii) The Lessor and the Indenture Trustee (as assignee of
Lessor under the Indenture), shall be entitled to the benefits of
Section 1110 with respect to such Replacement Aircraft to the
same extent as with respect to the replaced Aircraft immediately
preceding such replacement;
(ix) Either (1) the Owner Participant shall have received
an opinion of independent tax counsel (selected by the Owner
Participant and reasonably acceptable to the Lessee), reasonably
satisfactory to the Owner Participant, to the effect that there
shall be no risk of adverse tax consequences resulting from such
replacement (and the Owner Participant shall use its best efforts
to cause a timely opinion to be delivered) or (2) the Lessee
shall have provided, or caused to be provided, an indemnity in
respect of any adverse tax consequences in form and substance
satisfactory to the Owner Participant; and
(x) As long as the Indenture is in effect, all conditions
specified in Section 5.06 of the Indenture shall be satisfied.
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<PAGE>
Lessee shall reimburse the Lessor, the Owner Participant, the Loan
Participant and the Indenture Trustee for all reasonable out-of-pocket costs
(including reasonable attorneys' fees) incurred by them in connection with any
substitution of a Replacement Aircraft pursuant to this Section 8.
(e) Non-Insurance Payments Received on Account of an Event of Loss.
--------------------------------------------------------------
As between the Lessor and the Lessee, any payments on account of an
Event of Loss (other than insurance proceeds or other payments the application
of which is provided for in this Section 8 or elsewhere in this Lease, as the
case may be, or payments in respect of damage to the business or property (other
than the Aircraft) of the Lessee) with respect to the Aircraft, an Engine or any
Part received at any time by the Lessor or by the Lessee or any other Person
from any governmental authority or other Person will be applied as follows:
(i) if such payments are received with respect to an Event
of Loss as to the Aircraft, and the Airframe or the Airframe and
the Engines or engines installed thereon are being replaced by
the Lessee pursuant to Section 8(a)(i), such payments shall be
paid over to, or retained by, the Lessee, provided that if the
--------
Lessee has not completed such replacement, such payments shall be
paid over to, or retained by, the Lessor as security, and upon
completion of, or in connection with a closing for, such
replacement, be paid over to or retained by the Lessee;
(ii) if such payments are received with respect to an Event
of Loss to an Engine that has been or is being replaced by the
Lessee pursuant to the terms hereof, such payments shall be paid
over to, or retained by, the Lessee, provided that if the Lessee
--------
has not completed such replacement, such payments shall be paid
over to, or retained by, the Lessor as security, and upon
completion of, or in connection with a closing for, such
replacement, be paid over to or retained by the Lessee; and
(iii) if such payments are received with respect to an Event
of Loss as to the Aircraft, and if the Airframe or the Airframe
and the Engines or engines installed thereon have not been and
will not be replaced as contemplated by Section 8(a), (x) such
payments shall be applied in reduction of the Lessee's obligation
to pay the Termination Value and other amounts required to be
paid by the Lessee pursuant to Section 8(a)(ii), to the extent
not already paid by the Lessee, and, after the Termination Value
and all amounts required to be paid to the Lessor pursuant to
Section 8(a)(ii) shall be paid in full, shall be applied to
reimburse the Lessee for such Termination Value up to the full
amount thereof, and (y) the balance, if any, of such payment
remaining thereafter shall be applied to reimburse the Lessee,
the
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Owner Participant, the Loan Participant, the Indenture Trustee
and the Lessor for their reasonable costs (including attorney's
fees), if any, of procuring such payments, and (z) the balance
remaining, if any, shall then be distributed between the Lessor
and the Lessee as their interests may appear.
(f) Requisition for Use.
-------------------
In the event of a requisition for use by any government during the
Term of the Airframe and the Engines, if any, or engines installed on the
Airframe (including the Government pursuant to the CRAF Program), the Lessee
shall promptly notify the Lessor, the Owner Participant and the Indenture
Trustee of such requisition and, if the same does not constitute an Event of
Loss, all of the Lessee's obligations under this Lease shall continue to the
same extent as if such requisition had not occurred except to the extent that
the performance or observance of any obligation by the Lessee shall have been
prevented or delayed by such requisition, provided that the Lessee's obligations
--------
for the payment of money and under Section 9 (except, in the case of Section 9,
while an assumption of liability by the government of the United States of the
scope referred to in Section 5(c) is in effect) and Section 12 shall not be
reduced, delayed or affected by such requisition. Any payments received by the
Lessor or the Lessee from such government with respect to the use of such
Airframe or Engines during the Term shall be paid over to, or retained by, the
Lessee and any payments received by the Lessor or Lessee from such government
with respect to the use of the Airframe or Engines after the Term shall be paid
over to, or retained by, Lessor. In the event of an Event of Loss of an Engine
resulting from the requisition for use by a government of such Engine (but not
the Airframe), the Lessee will replace such Engine hereunder by complying with
the terms of Section 7(e) and any payments received by the Lessor or the Lessee
from such government with respect to such requisition shall be paid in
accordance with Section 8(e).
(g) Certain Payments to be Held As Security.
---------------------------------------
Any amount referred to in this Section 8 or Section 9 hereof which is
payable to the Lessee shall not be paid to the Lessee, or, if it has been
previously paid directly to the Lessee, shall not be retained by the Lessee (and
pending delivery to the Lessor, shall be held in trust by the Lessee for the
benefit of the Lessor), if at the time of such payment a Specified Default shall
have occurred and be continuing, but shall be paid to and held by the Lessor as
security for the obligations of the Lessee under this Lease, unless and until
applied by Lessor to Lessee's obligations and at such time as there shall not be
continuing any such Specified Default, such amount and any gain realized as a
result of Permitted Investments required to be made pursuant to Section 15 or
Section 3.07 of the Indenture shall to the extent not so applied be paid over to
the Lessee.
(h) Notice of Damage.
----------------
The Lessee shall notify the Lessor, the Owner Participant and the
Indenture Trustee as soon as practicable after the Lessee becomes aware of any
loss, theft, damage or destruction of
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<PAGE>
the Aircraft or any part thereof not constituting an Event of Loss if the
estimated cost of repair or replacement exceeds $1,000,000.
Section 9. Insurance.
---------
(a) Public Liability and Property Damage Insurance.
----------------------------------------------
Subject to the rights of the Lessee under Section 9(d), the Lessee
shall, without expense to the Lessor, the Indenture Trustee or the Participants,
maintain or cause to be maintained in effect at all times during the Term, with
insurers of nationally or internationally recognized reputation and
responsibility which normally participate in airline insurance programs,
comprehensive airline public liability insurance (including, without limitation,
aircraft third party liability, baggage and mail and aviation general third
party liability, contractual liability, passenger legal liability, cargo
liability, property damage liability, general third party legal liability and
product liability coverage but excluding manufacturer's product liability
coverage) with respect to the Aircraft in an amount not less than the greater of
(i) the amount which Lessee may carry from time to time on other similar
aircraft in its fleet (whether owned or leased) and (ii) the Minimum Liability
Amount; provided that an agreement of the Government for the benefit of the
--------
Additional Insureds to insure against or indemnify for substantially the same
risks to at least the same amount shall satisfy the requirements of this Section
9(a), provided that on or prior to the date of such agreement, the Lessee shall
--------
provide an Officer's Certificate of the Lessee certifying that any such
insurance or indemnity provides protection no less favorable than insurance
coverage that would comply with this Section 9. Such insurance shall be of the
same type and covering the same risks usually carried by the Lessee with respect
to similar aircraft and engines and shall provide coverage that is in
substantially similar form, of such types and having limits within the range of
limits (but no less than the Minimum Liability Amount) as are customarily
obtained by similarly situated United States carriers operating similar aircraft
on similar routes.
During any period that the Aircraft is grounded and not in operation
for any reason, the Lessee may modify the insurance required by this Section
9(a) to modify the amounts of public liability and property damage insurance,
the scope of the risks covered and the type of insurance, in all circumstances
to conform to such insurance customary in the United States airlines industry
for regional air carriers similarly situated with the Lessee in respect of
similar aircraft which are grounded, not in operation, and stored or hangared,
except that in all instances, the amounts of coverage and scope of risk covered
and the type of insurance shall be at a minimum no less favorable than the
insurance as from time to time applicable to aircraft owned or leased by Lessee
on the ground, not in operation, and stored or hangared.
(b) Insurance Against Loss or Damage to the Aircraft and Engines.
------------------------------------------------------------
Subject to the rights of the Lessee under Section 9(d), the Lessee
shall, without expense to the Lessor, the Indenture Trustee or the Participants,
maintain or cause to be maintained
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<PAGE>
in effect at all times during the Term with insurers of nationally recognized
responsibility which normally participate in airline insurance programs (i) all
risk (including U.S. limited form of war risk insurance covering (but not
limited to) hijacking, strikes, civil commotion, terrorist acts and acts of
sabotage while the Aircraft is operated in the U.S. and Canada), agreed value,
ground, taxiing and flight hull insurance, which may, except as expressly
provided in this Section 9(b), exclude war risks and allied perils, covering the
Aircraft for an amount at all times (even when the Aircraft is grounded or in
storage) not less than the Termination Value from time to time; provided that,
-------------
neither the Lessee nor any Permitted Sublessee shall be required to maintain
all-risk flight aircraft hull insurance with respect to any period in which the
Aircraft is grounded and properly stored or hangared. Such insurance shall not
provide insurers with a right to replace the Airframe or any Engine with another
airframe or Engine. Such hull insurance or other personal property insurance of
the Lessee (or a Permitted Sublessee) shall cover Engines or engines and Parts
temporarily removed from the Airframe, pending replacement by installation of
the same or similar Engines, engines or Parts on the Airframe. Such insurance
shall be on a replacement cost basis in respect of damage not constituting an
Event of Loss and on an agreed value basis in respect of an Event of Loss and
shall be of the same type and covering the same risks usually carried by the
Lessee with respect to similar aircraft and engines and shall provide coverage
that is in substantially similar form, of such types and having limits within
the range of limits (but no less than Termination Value from time to time) as
are customarily obtained by similarly situated United States carriers operating
similar aircraft on similar routes. If and to the extent that the Lessee or a
Permitted Sublessee operates the Aircraft (A) on routes where it maintains war
risk, hijacking or allied perils insurance in effect with respect to other
similar owned or leased aircraft in its fleet, (B) on routes where the custom in
the industry is to carry war risk, hijacking or allied perils insurance or (C)
in any area of recognized hostilities, the Lessee or such Permitted Sublessee
shall maintain or cause to be maintained such insurance in effect with respect
to the Aircraft in the amount at least equal to Termination Value from time to
time. An agreement by the Government to insure against or indemnify for
substantially the same risks to at least the same amount will satisfy any of the
requirements of this Section 9(b). Notwithstanding the foregoing, the Lessee
shall not be required to maintain war risk insurance (except the U.S. limited
form of war risk insurance noted above) so long as the Aircraft is operated only
within the United States and Canada.
During any period that the Aircraft is on the ground and not in
operation, the Lessee may carry or cause to be carried, in lieu of the insurance
required by this Section 9(b), insurance otherwise conforming with the
provisions of this Section 9(b) except that the scope of the risks and the type
of insurance shall be in substantially similar form, of such types and having
limits within the range of limits (but no less than Termination Value from time
to time) as are customarily obtained by similarly situated United States
carriers in respect of similar aircraft which are grounded, not in operation,
and stored or hangared, provided that the scope of the risks and the type of
--------
insurance shall be the same as from time to time applicable to aircraft owned by
the Lessee of the same type similarly on the ground and not in operation,
provided further that the Lessee shall maintain insurance against risk of loss
- -------- -------
or damage to the Aircraft in an amount equal to the
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<PAGE>
Termination Value from time to time during such period that the Aircraft is on
the ground and not in operation.
(c) Additional Insureds; Loss Payment.
---------------------------------
The Lessee shall cause all policies of insurance carried in accordance
with this Section 9 to name the Additional Insureds as their respective
interests may appear as additional insureds. Such policies shall provide with
respect to such Additional Insureds that (i) none of their respective interests
in such policies shall be invalidated by any act or omission or breach of
warranty or condition contained in such policies by the Lessee or any other
Person (other than such Additional Insured) or, in the case of any particular
Additional Insured, any other Additional Insured and shall insure the respective
interests of the Additional Insureds regardless of any breach or violation of
any warranty, declaration or condition contained in such policies by the Lessee
or any Permitted Sublessee; (ii) in the case of any particular Additional
Insured, no cancellation or lapse of coverage for nonpayment of premium or
otherwise, and no substantial change of coverage which adversely affects the
interests of any such Additional Insured, shall be effective as to such
Additional Insured until thirty (30) days (or such lesser period as may be
applicable in the case of any war risk coverage) after receipt by such
Additional Insured of written notice from the insurers of such cancellation,
lapse or change; (iii) they shall have no liability for premiums, commissions,
calls, assessments or advances with respect to such policies; (iv) such policies
will be primary without any right of contribution from any other insurance
carried by such Additional Insureds; (v) the insurers waive any rights of set-
off (including for unpaid premiums), counterclaim, deduction or subrogation
whether by attachment or otherwise, against such Additional Insureds; (vi) such
policies shall apply worldwide and have no territorial restrictions or
limitations (except, in the case of war, hijacking or related perils insurance,
as otherwise permitted hereunder); (vii) shall contain a 50/50% Clause per
Lloyd's Aviation Underwriter's Association Standard Policy Form AVS 103; and
(viii) losses shall be adjusted with the Lessee (or, if an Event of Default
shall have occurred and be continuing, with the loss payee referred to in the
last sentence of this Section 9(c)); provided, that, in the case of an Event of
--------
Loss, no adjustment (other than hull deductibles) shall reduce the amount
payable under such policy to less than the agreed value required by Section
9(b). Each liability policy shall provide that all the provisions thereof,
except the limits of liability, shall operate in the same manner as if there
were a separate policy covering each insured and each hull policy shall provide
that the exercise by the insurer of rights of subrogation derived from rights
retained by the Lessee will not delay payment of any claim that would otherwise
be payable but for such rights of subrogation. Each hull policy shall name the
Indenture Trustee as loss payee as long as the Indenture shall remain in effect
and thereafter shall name the Lessor as loss payee; provided that, so long as
-------- ----
the insurers shall not have received written notice that an Event of Default has
occurred and is continuing, if insurance proceeds under a hull policy in the
aggregate equal $1,000,000 or less, then such proceeds shall be payable to the
Lessee and, notwithstanding the foregoing, any amounts (i) of any proceeds which
in the aggregate exceed $1,000,000, (ii) of any proceeds in respect of a total
loss or an Event of Loss or (iii) if the insurers shall have received written
notice that an Event of Default has occurred and is continuing, any proceeds
with respect to any single loss, shall be payable to such loss payee.
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<PAGE>
(d) Deductibles and Self-Insurance.
------------------------------
The Lessee may from time to time self-insure, by way of deductible or
premium adjustment provisions in insurance policies or otherwise, the risks
required to be insured against pursuant to this Section 9 under a program
applicable to all aircraft in the Lessee's fleet in such amounts as are then
self-insured with respect to similar owned or leased aircraft in the Lessee's
fleet but in no case shall such self-insurance in the aggregate exceed, in
addition to the Lessee's normal deductible per occurrence relating to damage
(but not total loss) to aircraft for each aircraft in the Lessee's fleet (which
normal deductible amount shall not exceed $500,000 in respect of the Aircraft),
an amount equal to 3% of the Lessee's tangible net worth (but in no event to
exceed $15,000,000 (including, for purposes of calculating the amount of
$15,000,000, the amount of such normal deductible applicable to the Aircraft
(but not any other aircraft in the Lessee's fleet))), calculated as at the end
of the Lessee's immediately preceding fiscal year.
(e) Application of Hull Insurance Proceeds.
--------------------------------------
Subject to Section 8(g), as between the Lessor and the Lessee, any
payments received under policies of hull or other property insurance required to
be maintained by the Lessee pursuant to Section 9(b), shall be applied as
follows:
(i) if such payments are received with respect to loss or
damage (including an Event of Loss with respect to an Engine) not
constituting an Event of Loss with respect to the Airframe,
payments in the aggregate of $1,000,000 or less shall be paid
over to or retained by the Lessee and any payments which in the
aggregate are greater than $1,000,000 shall be paid over to or
retained by the Lessor for payment to the Lessee only upon
performance of its repair or replacement obligation;
(ii) if such payments are received with respect to an Event
of Loss with respect to the Airframe and the Airframe is not
being replaced by the Lessee pursuant to Section 8(a)(i), so much
of such payments as shall not exceed the Termination Value and
other amounts required to be paid by the Lessee pursuant to
Section 8(a)(ii) shall be applied in reduction of the Lessee's
obligation to pay such amounts if not already paid by the Lessee,
and to reimburse the Lessee if such amounts shall have been paid,
and the balance, if any, of such payments shall be promptly paid
over to or retained by the Lessee; and
(iii) if such payments are received with respect to the
Airframe or the Airframe and Engines or engines installed thereon
and the Airframe is being replaced by the Lessee pursuant to
Section 8(a)(i), such payments shall be paid over to, or retained
by the Lessee, provided that if the Lessee has not
--------
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<PAGE>
completed such replacement and the performance of all other
obligations under Section 8(d), such payments shall be paid over
to, or retained by, the Lessor as security, and upon completion
of, or in connection with a closing for, such replacement, be
paid over to or retained by the Lessee.
(f) Insurance for Own Account.
-------------------------
Nothing in this Section 9 shall prohibit the Lessor, the Owner
Participant, the Lessee, the Indenture Trustee or the Noteholders or any
Additional Insured from obtaining insurance with respect to the Aircraft for its
own account (including, without limitation, in the case of the Lessee, hull
insurance under the same policies maintained pursuant to this Section 9 in
amounts in excess of those required to be maintained pursuant to this Section 9)
and any proceeds payable thereunder shall be payable as provided in the
insurance policy relating thereto, provided that no such insurance may be
--------
obtained which would limit or otherwise adversely affect the availability of
coverage or payment of any insurance required to be obtained or maintained
pursuant to this Section 9, it being understood that all salvage rights to the
Airframe or the Engines shall remain with the Lessee's insurers at all times.
(g) Reports, etc.
------------
Lessee will furnish, or cause to be furnished, to the Lessor, the
Owner Participant and the Indenture Trustee (A) on or prior to the Delivery
Date, insurance certificates describing in reasonable detail the insurance
maintained by Lessee as required pursuant to this Section 9, (B) prior to the
cancellation, lapse or expiration of the insurance policies required pursuant to
this Section 9, evidence of renewal of such insurance policies, and (C) on or
prior to the Delivery Date and on or before the renewal dates of the insurance
policies carried by the Lessee pursuant to this Section 9, a report signed by a
firm of recognized aircraft insurance brokers of good reputation, not affiliated
with the Lessee, which brokers may be regularly retained by the Lessee and
reasonably satisfactory to the Lessor, stating the opinion of such firm that (i)
all premiums in connection with the insurance then due have been paid, (ii) the
insurance then carried and maintained on the Aircraft complies with the terms
hereof and, in the case of renewal insurance, that such renewal insurance will
on and after the effective date thereof so comply with the terms hereof and
(iii) to the best of such firm's knowledge, such insurance provides coverage
that is in substantially similar form, of such types and having limits within
the range of limits as are customarily obtained by similarly situated United
States carriers operating similar aircraft on similar routes, provided that all
--------
information contained in such report shall be held confidential by the Lessor,
the Indenture Trustee and the Owner Participant, and shall not be furnished or
disclosed by them to any Person except (A) their legal counsel, independent
certified public accountants, insurance brokers or advisors or other agents who
agree to hold such information confidential, (B) to any Noteholder or to bona
fide prospective and permitted transferees of any Participant and their
respective agents (provided that each such transferee shall agree for the
--------
benefit of the Lessee to hold all such information similarly confidential), (C)
as may be required by Applicable Law or by any court or administrative order or
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<PAGE>
decree or governmental ruling or regulation (or, in the case of any Noteholder,
to any bank examiner or other regulatory personnel), (D) as may be necessary for
purposes of enforcement of Operative Agreements or (E) to the Security Trustee
or rating agencies. The Lessee will instruct such firm to give prompt written
advice to the Lessor, the Owner Participant and the Indenture Trustee of any
default in the payment of any premium and of any other act or omission on the
part of the Lessee (or any Permitted Sublessee) of which it has knowledge and
which would in such firm's opinion invalidate or render unenforceable, in whole
or in any material part, any insurance on the Aircraft. The Lessee will also
instruct such firm to advise the Lessor, the Owner Participant and the Indenture
Trustee in writing at least thirty (30) days prior to the termination or
cancellation of, or material adverse change in, such insurance carried and
maintained on the Aircraft pursuant to this Section 9 (or such lesser period as
may be applicable in the case of war risk coverage), provided, that in respect
--------
of war risk or allied perils coverage, if the notice period specified above is
not obtainable, the insurance broker shall provide for as long a period of prior
notice as shall then be obtainable.
(h) Right to Pay Premiums.
---------------------
The Additional Insureds shall have the rights but not the obligations
of an additional named insured. None of Lessor, Owner Participant, Indenture
Trustee and the other Additional Insureds shall have any obligation to pay any
premium, commission, assessment or call due on any such insurance (including
reinsurance). Notwithstanding the foregoing, in the event of cancellation of any
insurance due to the nonpayment of premiums, each of Lessor, Owner Participant,
Indenture Trustee and the other Additional Insureds shall have the option, in
its sole discretion, to pay any such premium in respect of the Aircraft that is
due in respect of the coverage pursuant to this Lease and to maintain such
coverage, as Lessor, Owner Participant, Indenture Trustee or the other
Additional Insureds may require, until the scheduled expiry date of such
insurance and, in such event, Lessee shall, upon demand, reimburse Lessor, Owner
Participant, Indenture Trustee and the other Additional Insureds for amounts so
paid by them.
(i) Spares Physical Damage Insurance.
--------------------------------
During any period that an Engine is not attached to the Airframe or
any other airframe and not otherwise subject to coverage by a hull policy
maintained by the Lessee (or a Permitted Sublessee), the Lessee shall maintain
or cause to be maintained spares physical damage insurance covering such Engine
in an aggregate amount not less than the amount commercially available in
aviation insurance markets except that the scope of the risks and the type of
insurance shall be in substantially similar form, of such types and having
limits within the range of limits as are customarily obtained by similarly
situated United States carriers operating similar engines not attached to any
airframe, provided that the scope of the risks and the type of insurance shall
--------
be the same as from time to time applicable to engines owned or leased by the
Lessee of the same type and similarly not attached to any airframe.
Section 10. Liens.
-----
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<PAGE>
The Lessee shall not during the Term directly or indirectly
create, incur, assume or suffer to exist any Lien on or with respect to the
Aircraft, Airframe, any Engine or any Part or title thereto or any interest
therein or in this Lease except (a) the respective rights of the Lessor and the
Lessee as provided herein, the Lien of the Indenture and the rights of the
parties to the other Operative Agreements; (b) the rights of others under
agreements or arrangements to the extent expressly permitted in Sections 5(b)
and 7(c); (c) Liens for Taxes of the Lessee either not yet due or being
contested in good faith by appropriate proceedings (and for which adequate
reserves have been provided in accordance with generally accepted accounting
principles) so long as such proceedings do not involve any non-de minimis risk
of the sale, forfeiture or loss of the Aircraft, Airframe or an Engine or the
interest of any Participant therein or any risk of criminal liability or any
material risk of civil penalty against Lessor, Indenture Trustee or any
Participant; (d) Liens of suppliers, mechanics, workers, repairers, employees,
airport operators, air traffic control authorities or other like Liens arising
in the ordinary course of business and for amounts the payment of which is
either not yet delinquent or is being contested in good faith (and for the
payment of which adequate reserves have been provided in accordance with
generally accepted accounting principles) by appropriate proceedings, so long as
such proceedings do not involve a non-de minimis risk of the sale, forfeiture or
loss of the Airframe or an Engine or the interest of any Participant therein or
any risk of criminal liability or any material risk of civil penalty against
Lessor or any Participant; (e) Liens arising out of judgments or awards against
the Lessee with respect to which an appeal or proceeding for review is being
prosecuted in good faith and with respect to which at the time there shall have
been secured a stay of execution, so long as such proceedings do not involve a
non-de minimis risk of the sale, forfeiture or loss of the Aircraft, Airframe or
an Engine or the interest of any Participant therein; (f) Lessor's Liens and
Indenture Trustee's Liens; (g) salvage and similar rights of insurers under
policies of insurance maintained with respect to the Aircraft and (h) Liens with
respect to which the Lessee (or any sublessee) has provided a bond or other
security adequate in the good faith opinion of the Lessor, the Owner Participant
and the Indenture Trustee. Liens described in clauses (a) through (h) above are
referred to herein as "Permitted Liens." The Lessee shall promptly, at its own
expense, take such action as may be necessary to duly discharge (by bonding or
otherwise) any Lien other than a Permitted Lien arising at any time during the
Term.
Section 11. Recordation and Further Assurances.
----------------------------------
(a) Recordation of Lease.
--------------------
The Lessee shall cause this Lease, any Lease Supplements, 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, refiled and re-
recorded at all times during the Term with the FAA or other Aeronautical
Authority to the extent required to perfect and preserve the Lessor's interest
in the Aircraft and the Lien (subject to Permitted Liens) of the Indenture
Trustee on the Indenture Estate.
(b) Further Assurances.
------------------
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<PAGE>
The Lessee and the Lessor will each promptly and duly execute and
deliver to the other such further documents and assurances and take such further
action as the other may from time to time reasonably request in order to more
effectively carry out the intent and purpose of this Lease and to establish and
protect the rights and remedies created or intended to be created in favor of
the Lessor and the Lessee hereunder, including, without limitation, if requested
by the Lessor or the Lessee, the execution and delivery of supplements or
amendments hereto, in recordable form, subjecting any replacement or substituted
aircraft or engine to this Lease and the recording or filing of counterparts
hereof, or of financing statements with respect hereto.
(c) Markings.
--------
On or reasonably promptly after the Delivery Date, Lessee will cause
to be affixed to, and maintained in, the cockpit of the Airframe and on each
Engine, in a clearly visible location (it being understood that the location of
such placard, as identified to the Owner Participant and the Loan Participant
prior to the Delivery Date, shall be deemed to be in compliance with this
requirement), a placard of a reasonable size and shape bearing the legend, in
English, set forth below:
Leased from
First Union Trust Company, National Association,
not in its individual capacity
but solely as Owner Trustee, Owner and Lessor
and Mortgaged to
Allfirst Bank,
not in its individual capacity
but solely as Indenture Trustee
Such placard to be replaced, if necessary, with a placard reflecting the name of
any successor Owner Trustee or Indenture Trustee, as the case may be, as
permitted under the Operative Agreements. Such placard may be removed
temporarily, if necessary, in the course of maintenance of the Airframe. If
such placard is damaged or becomes illegible, Lessee shall promptly replace it
with a placard complying with the requirements of this Section 11(c).
Except as above provided, neither the Lessee nor any Permitted Sublessee will
permit the name of any person to be placed on the Airframe or any Engine in a
manner that may be interpreted as a claim of ownership of, or Lien on, the
Airframe or any Engine; provided, however, that nothing herein contained shall
-------- -------
prohibit the Lessee (or any Permitted Sublessee) from placing its customary
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<PAGE>
colors and insignia on the Airframe or any Engine or from otherwise operating
the Aircraft in its livery.
Section 12. Return of Aircraft and Records.
------------------------------
(a) Return of Aircraft.
------------------
Upon the termination of this Lease at the expiration of the Term
or upon the earlier termination of this Lease pursuant to the terms hereof,
unless the Lessee shall purchase the Aircraft or there shall have been an Event
of Loss with respect to the Aircraft, the Lessee, at its own expense, shall,
except as otherwise expressly provided herein, return the Airframe by delivering
the same to the Lessor in the continental United States of America at a location
on the Lessee's domestic route system chosen by the Lessee and reasonably
acceptable to the Lessor, fully equipped with two Engines or other General
Electric CF34-3B1 Series 200 engines (or engines of the same manufacturer of a
comparable or an improved model and suitable for installation and use on the
Airframe and owned by the Lessee) duly installed thereon.
(b) Return of Other Engines.
-----------------------
In the event any engine not owned by the Lessor shall be returned
with the Airframe, such engine shall satisfy the requirements for a Replacement
Engine, shall be free and clear of all Liens other than Lessor's Liens and shall
have a value, remaining useful life, utility and condition at least as great as
the Engine replaced (assuming such Engine was maintained in accordance with the
terms hereof) and the Lessee shall, at its own expense and concurrently with
such return, furnish the Lessor with (i) a full warranty bill of sale guaranteed
by Lessee, in form and substance reasonably satisfactory to the Lessor and the
Owner Participant, (ii) an Officer's Certificate as described in Section
7(e)(i)(F), and (iii) an opinion of counsel to the Lessee as described in
Section 7(e)(ii), with respect to each such engine and shall take such other
action as required by Section 7(e) to cause such engine to be a Replacement
Engine or as the Lessor may reasonably request in order that such engine shall
be duly and properly titled in the Lessor free and clear of all Liens other than
Lessor's Liens. Upon passage of title such engine shall be deemed to be an
Engine for all purposes hereof and thereupon the Lessor will transfer to the
Lessee, in "as-is, where is" condition, without recourse or warranty except a
warranty against Lessor's Liens, all right, title and interest of the Lessor or
any Affiliate in and to an Engine not installed on the Airframe at the time of
the return thereof and, if the Indenture has not been discharged, shall request
that the Indenture Trustee release such Engine from the Lien of the Indenture.
(c) Fuel; Records.
-------------
Upon the return of the Aircraft, (i) the Lessor shall have no
obligation with respect to the amount of fuel or oil contained in the Airframe
and (ii) the Lessee shall deliver to the Lessor all logs, manuals, certificates
and inspection, modification and overhaul records which are required to be
maintained with respect thereto under applicable rules and regulations of the
FAA and DOT.
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<PAGE>
(d) Condition of Aircraft.
---------------------
The Aircraft when returned to the Lessor shall be in the
operating condition required by Exhibit F hereto.
(e) Failure to Return. If Lessee shall, for any reason
-----------------
whatsoever, fail to return the Aircraft and the documents referred to in Section
12(c)(ii) at the time and place and in the condition specified herein, all
obligations of Lessee under this Lease shall continue in effect with respect to
the Aircraft until the Aircraft is so returned to Lessor and Lessee shall pay to
Lessor an amount equal to the average daily Basic Rent payable by Lessee during
the Term for each day after the end of the Term to but excluding the day of such
return; provided, however, that this Section 12(e) shall not be construed as
-------- -------
permitting Lessee to fail to meet its obligations to return the Aircraft or the
documents referred to in Section 12(c)(ii) in accordance with the requirements
hereof or constitute, or be deemed to constitute, a waiver of any Event of
Default resulting from Lessee's failure to return the Aircraft or such documents
or otherwise; and provided, further, that Lessee shall not be responsible for
-------- -------
Lessor's failure to accept return of the Aircraft and the documents referred to
in Section 12(c)(ii) in accordance with the requirements hereof in a timely
manner or for any rent with respect to periods after Lessee has tendered the
Aircraft and the documents referred to in Section 12(c)(ii) for return in
accordance with this Lease, provided however that if Lessor's inspection of the
-------- -------
Aircraft and the documents referred to in Section 12(c)(ii), which inspection
shall be conducted in good faith and timely manner, reveals any discrepancy from
the condition required by the provisions of this Section 12, Lessee shall
continue to pay rent in accordance with this Section 12(e) until the Aircraft
and the documents referred to in Section 12(c)(ii) are returned to the Lessor in
accordance with this Lease. Any rent owed to Lessor pursuant to this Section
12(e) shall be payable upon acceptance of the Aircraft and the documents
referred to in Section 12(c)(ii) by Lessor.
(f) Storage and Related Matters.
---------------------------
If Lessor gives written notice to Lessee not less than 60 days
nor more than 180 days prior to the end of the Term requesting storage of the
Aircraft upon its return hereunder, Lessee will provide Lessor, or cause Lessor
to be provided, with outdoor parking facilities for the Aircraft for a period up
to 60 days, commencing on the date of such return, at such storage facility in
the 48 contiguous states of the United States as Lessee may select. Lessee
shall, at Lessor's written request, maintain insurance (if available) for the
Aircraft during such storage period, provided that Lessor shall reimburse Lessee
--------
for Lessee's out-of-pocket cost of providing such insurance. Such storage shall
be at Lessor's risk, and Lessor shall pay all applicable storage fees, except
that Lessee shall pay the parking fees for the initial 60 day storage period;
provided that Lessee's obligation to provide parking shall be subject to Lessee
- --------
and Lessor entering into an agreement prior to the commencement of the storage
period with the storage facility providing, among other things, that Lessee
shall pay only the parking fees for the initial storage period of up to 60 days
and that Lessor shall bear all maintenance charges and other costs incurred
relating to such storage.
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<PAGE>
Section 13. Renewal Option and Purchase Options.
-----------------------------------
(a) Renewal Terms.
-------------
Subject to the final sentence of this Section 13(a), upon
expiration of the Basic Term, the Lessee shall have the right to extend this
Lease for successive periods of one or two years each (each a "Fixed Renewal
Term"), but for not more than an aggregate of three years. Subject to the final
sentence of this Section 13(a), upon expiration of the Basic Term or at the end
of any Fixed Renewal Term, the Lessee shall have the right to extend this Lease
for any number of successive periods of one year each (each a "Fair Market Value
Renewal Term"; each Fixed Renewal Term and each Fair Market Value Renewal Term,
being hereinafter sometimes called a "Renewal Term") provided that the aggregate
term of all Renewal Terms shall not exceed six years. A Fixed Renewal Term will
commence at the end of the Basic Term or the preceding Fixed Renewal Term, as
the case may be and a Fair Market Value Renewal Term will commence at the end of
the Basic Term or the preceding Renewal Term, as the case may be. Such right to
extend this Lease shall be exercised upon notice to the Lessor, specifying the
nature and duration of the Renewal Term, not less than 210 days nor more than
365 days before the expiration of the Basic Term or the preceding Renewal Term,
as the case may be. Such notice shall be irrevocable except that in the event
the Lessee gives such notice to the Lessor 240 or more days before the end of
the Basic Term or the Renewal Term then in effect, as the case may be, the
Lessee may revoke its election to extend this Lease within 15 days following the
determination of the Fair Market Rental Value of the Aircraft but in no event
later than 210 days prior to the end of the Basic Term or the preceding Renewal
Term, as the case may be. If the Lessee requests a determination of Fair Market
Rental Value at least 240 days before the expiration of the Basic Term or a
Renewal Term, as the case may be, the Lessor and the Lessee shall comply in a
timely manner with their respective obligations under the definition of "Fair
Market Rental Value" to allow any appraisal of Fair Market Rental Value to be
completed in sufficient time to permit the Lessee to exercise the revocation
right provided above. If no Specified Default shall have occurred and be
continuing on the date of such notice or on the date of the commencement of any
Renewal Term, then this Lease shall be extended for the additional period of
such Renewal Term as specified in such notice on the same conditions as provided
for herein. The Basic Rent payable per annum during any Fixed Renewal Term shall
be the lesser of (i) the then Fair Market Rental Value for the Aircraft and (ii)
Renewal Rental Rate identified on Exhibit B. The rental payable per annum during
any Fair Market Value Renewal Term shall be the then Fair Market Rental Value
for the Aircraft. Such rental during each Renewal Term shall be payable semi-
annually in arrears. The Termination Value of the Aircraft during each Renewal
Term shall be the Fair Market Sales Value for the Aircraft at the beginning of
such Renewal Term declining on a straight line basis to the projected Fair
Market Sales Value for the Aircraft at the end of such Renewal Term, but in both
cases determined prior to the commencement of such Renewal Term. Lessee's right
to renew this Lease at the end of the Basic Term is subject to the condition
precedent that the Owner Participant shall have agreed in writing with Lessee
not to demand payment of the Payment Amount (as defined in the Residual
Agreement) pursuant to Section 4(a) of the Residual Agreement within the period
specified therein (unless an Event of Default shall thereafter occur and be
continuing).
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(b) Lessee's Purchase Options.
-------------------------
(i) Rights to Purchase.
------------------
The Lessee shall have the right upon notice as provided herein to
purchase the Aircraft (A) on the EBO Date for a price equal to the EBO Amount;
(B) upon the termination of the Basic Term a price equal to the then Fair Market
Sales Value of the Aircraft; or (C) at the end of any Renewal Term for a price
equal to the then Fair Market Sales Value of the Aircraft in each case as long
as no Event of Default of the type referred to in Section 16(f), (g) or (h)
hereof shall have occurred and be continuing on the date of purchase. Upon the
payment by the Lessee of the purchase price for the Aircraft and the Basic Rent,
if any, payable in arrears on the date of purchase, together with all unpaid
Basic Rent, if any, payable before such date and all Supplemental Rent then due
and payable hereunder (including any Supplemental Rent payable in respect of
Make-Whole Amount), the Term shall end and the obligations of the Lessee to pay
Rent hereunder (except for Supplemental Rent obligations surviving pursuant to
Section 3(c), Articles 6 and 7 of the Participation Agreement or the Tax
Indemnity Agreement or which have otherwise accrued but not been paid as of the
date of such payment) shall cease, and the Lessor shall convey to the Lessee all
right, title and interest of the Lessor in and to the Aircraft on an "as-is,
where is" basis, without recourse or warranty except a warranty against Lessor's
Liens.
(ii) Option to Assume Equipment Notes.
--------------------------------
In the event the Lessee elects to purchase the Aircraft pursuant to
clause (A) of Section 13(b)(i), the Lessee may, at its election, assume the
payment obligations of the Lessor with respect to such Equipment Notes as
contemplated by Section 5.10 of the Participation Agreement, in which case the
purchase price to be paid by the Lessee shall be reduced by an amount equal to
the principal of the Equipment Notes so assumed by the Lessee.
(iii) Notice of Exercise of Option.
----------------------------
The Lessee's right to purchase provided for in clause (B) or (C) of
Section 13(b)(i) shall be exercised upon written notice to the Lessor not less
than 180 days nor more than 365 days before the applicable date of purchase
provided in such clause (B) or (C) as the case may be. Such notice shall be
irrevocable, except that where the purchase price is or may be measured by the
Fair Market Sales Value of the Aircraft the Lessee may revoke its exercise of an
option to purchase the Aircraft within 15 days following the determination of
such Fair Market Sales Value, but in no event later than 180 days prior to the
applicable date of purchase provided in such clause (B) or (C), as the case may
be. The Lessee's right to purchase provided for in clause (A) of Section
13(b)(i) shall be exercised upon written notice to the Lessor not less than 90
days nor more than 365 days before the EBO Date and shall be irrevocable when
given.
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Section 14. Voluntary Termination for Obsolescence.
--------------------------------------
(a) Termination by Sale of Aircraft.
-------------------------------
So long as no Specified Default shall have occurred and be
continuing, the Lessee shall have the right at its option five years or more
after commencement of the Basic Term on at least 180 days', but not more than
365 days, prior written notice (which notice shall be irrevocable, except as
provided below) to the Lessor and the Indenture Trustee, specifying a proposed
date of termination which shall be a Termination Date, to terminate this Lease
if the chief financial officer of the Lessee shall have certified in writing to
the Lessor that the Aircraft shall have become obsolete or shall be surplus to
the Lessee's equipment requirements. Subject to the Lessor's preemptive election
under Section 14(c), during the period following the giving of such notice of
termination until the Termination Date, the Lessee, as agent for the Lessor,
shall endeavor to sell the Aircraft "as is", without any warranty by the Lessor
or the Lessee except as to the Lessor's title, on behalf of the Lessor. If
Lessee receives any bid, it shall at least 10 Business Days prior to the
proposed day of sale, certify to Lessor in writing the amount and terms of such
bid, such proposed date of sale and the name and address of the potential buyer
(which shall not be Lessee or any Affiliate or any Person with whom Lessee or
any Affiliate has any arrangement or understanding for the future purchase,
lease, operation or use of the Aircraft). Lessor may also solicit bids directly
or through agents other than Lessee. So long as the Lessor has not exercised its
preemptive election under Section 14(c), the Lessee may, by notice to the Lessor
and the Indenture Trustee, withdraw its notice of termination at any time on or
before the date 10 days prior to the proposed Termination Date (unless such
withdrawal is due to the cancellation of the proposed purchase of the Aircraft
by the potential buyer in which event such notice may be given at any time on or
prior to the proposed Termination Date), and thereupon this Lease shall continue
in full force and effect. Withdrawal of notice of termination shall not exhaust
the Lessee's right to give a further notice of termination as provided herein;
provided that Lessee shall not be entitled to give more than two such notices
(excluding one notice of termination which has been withdrawn due to the
cancellation of the proposed purchase of the Aircraft by the potential buyer).
Unless the Lessee shall withdraw its notice of termination as stated above or
the Lessor shall have made a preemptive election to take possession of the
Aircraft in accordance with Section 14(c), on the Termination Date, or such
other date of sale as shall be consented to in writing by the Lessor and the
Lessee, which date shall thereafter be deemed the Termination Date, the Lessee
shall, upon payment in full of the amounts described in Section 14(b), deliver
the Airframe and Engines or engines installed thereon to the party which shall
have prior to such date submitted the highest bona fide cash bid to close such
sale and purchase of the same, in the same manner as if delivery were being made
to the Lessor pursuant to Section 12, and shall duly transfer to such party
title to any engines which are not Engines delivered with the Airframe in
accordance with the terms of Section 12. The Lessor shall, in "as-is, where-is"
condition, without recourse or warranty (except a warranty as to the absence of
Lessor's Liens), simultaneously therewith sell and convey title to the Airframe
and the Engines or engines conveyed to the Lessor as provided in Section 12 for
cash to such party and request that the Indenture Trustee release the Aircraft
from the Lien of the Indenture. Upon the sale of the Airframe and the Engines or
engines
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conveyed to the Lessor as provided in Section 12 pursuant to this Section 14 and
receipt by the Lessor of all amounts referred to in Section 14(b), the Lessor
will transfer to the Lessee, in "as-is, where-is" condition, without recourse or
warranty (except a warranty as to the absence of Lessor's Liens), all right,
title and interest of the Lessor in and to any Engines constituting part of the
Aircraft but which were not delivered to the purchaser with the Airframe. The
Lessee shall pay all out of pocket expenses of the Lessor, Owner Participant,
Indenture Trustee and each Noteholder in connection with any termination or
proposed termination of this Lease except that Lessee shall not be responsible
for such expenses of the Lessor or the Owner Participant in the event the Lessor
exercises its preemptive election under Section 14(c) and thereafter fails to
perform its obligations under such Section.
(b) Payments Due Upon Sale of Aircraft.
----------------------------------
The total selling price realized at any sale of the Airframe and
Engines or engines installed thereon in accordance with this Section 14 shall be
retained by the Lessor and, in addition, on the Termination Date, the Lessee
shall pay to the Lessor or, in the case of Supplemental Rent, to the Persons
entitled thereto, in immediately available funds, an amount equal to the sum of
(A) the excess, if any, of (x) the Termination Value as of the Termination Date,
over (y) the net proceeds of the sale of the Aircraft, plus (B) all unpaid
Supplemental Rent due on or before the Termination Date (including Make-Whole
Amount), plus (C) the arrears portion, if any, of Basic Rent payable on such
Termination Date, together with all unpaid Basic Rent, if any, payable before
the Termination Date, plus (D) the reasonable fees and expenses of the
Participants, the Indenture Trustee and Lessor in connection therewith, plus (E)
any sales, transfer or similar Taxes incurred on such sale.
(c) Preemptive Election by Lessor.
-----------------------------
Notwithstanding the foregoing provisions of this Section 14, the
Lessor may, not later than 90 days prior to the proposed Termination Date,
notify the Lessee of its preemptive election to take possession of the Aircraft,
which notice shall be accompanied by an irrevocable undertaking by the Lessor to
pay to the Indenture Trustee the amount required to pay in full (after giving
effect to any installment of Basic Rent due and payable on such date) the
aggregate unpaid principal amount of the outstanding Equipment Notes, together
with all accrued interest thereon and Make-Whole Amount, if any (without
releasing Lessee from its obligations under clause (B) of Section 14(b) in
respect of the payment of such amount). Upon payment by the Lessor of such
amount to the Indenture Trustee, and payment by the Lessee of all amounts
specified in this Section 14(c) to be paid by the Lessee on the Termination
Date, the Lessee shall have no obligation to pay Termination Value. On the
Termination Date, if the Lessor shall have paid such amount to the Indenture
Trustee, the Lessee shall deliver the Airframe and Engines or engines installed
thereon to the Lessor in accordance with Section 12 and shall pay all unpaid
Basic Rent, if any, payable before the Termination Date, together with the
arrears portion, if any, of Basic Rent due on such Termination Date, all unpaid
Supplemental Rent due on or before or after the Termination Date
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<PAGE>
(including Make-Whole Amount), and the Lessor shall transfer to the Lessee title
to any Engines constituting part of the Airframes but which were not then
installed on the Aircraft as provided in Section 12(b). If the Lessor, having
given notice of a preemptive election, shall fail to perform any of its
obligations pursuant to this Section 14(c) and as a result thereof this Lease
shall not be terminated on a proposed Termination Date, the Lessee may at its
option at any time thereafter submit a new termination notice but the Lessor may
only be entitled to exercise on one additional occasion its preemptive election
to retain the Aircraft upon a subsequent termination pursuant to this Section
14.
(d) Termination of Lease.
--------------------
Upon delivery by the Lessee of the Airframe and Engines or engines
installed thereon and payment by the Lessee of all amounts payable by the Lessee
under either Section 14(b) or 14(c), as the case may be, the obligations of the
Lessee to pay Rent (except for Supplemental Rent obligations surviving pursuant
to Section 3(c) and Articles 6 and 7 of the Participation Agreement or the Tax
Indemnity Agreement or which have otherwise accrued but not paid as of the
Termination Date) shall cease and the Term shall end.
(e) Effect of No Sale or Preemptive Delivery to Lessor.
--------------------------------------------------
If on the Termination Date no sale of the Aircraft shall have occurred
and the Lessee has not delivered the Aircraft to the Lessor pursuant to Section
14(c) or the Lessor shall fail to pay the amounts specified in Section 14(c)
upon exercise of its preemptive election, the Lessee's notice given pursuant to
Section 14(a) shall be deemed to be withdrawn as of such date and this Lease
shall continue in full force and effect, without prejudice, however, to any
claims the Lessee may have against any Person under the Participation Agreement
or otherwise if a failure to deliver the Aircraft to the Lessor pursuant to
Section 14(c) shall have been due to a failure of the Lessor to make the payment
by the Lessor provided for in such Section.
(f) No Duty on Part of Lessor.
-------------------------
Lessor shall be under no duty to solicit bids, to inquire into the
efforts of Lessee to obtain bids or otherwise to take any action in connection
with any such sale other than to cooperate with such efforts as Lessee may
reasonably request and to make the transfers described in Section 14(a).
Section 15. Investment of Security Funds.
----------------------------
Any monies paid to or retained by the Lessor which are required to be
paid to the Lessee or applied for the benefit of the Lessee (including, without
limitation, amounts payable to the Lessee under Sections 8 and 9), but which the
Lessor is entitled to hold under the terms hereof pending the occurrence of some
event or the performance of some act (including, without limitation,
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<PAGE>
the remedying of an Event of Default), shall, until paid to the Lessee or
applied as provided herein, be invested by the Lessor (or, if the Indenture
shall not have been discharged, the Indenture Trustee) from time to time at the
direction, risk and expense of the Lessee in Permitted Investments, subject, in
the case of investments by the Indenture Trustee to the terms of Section 3.07 of
the Indenture. There shall be promptly remitted to the Lessee any gain
(including interest received) realized as the result of any such investment (net
of any fees, commissions and other expenses, if any, incurred in connection with
such investment) unless a Specified Default shall have occurred and be
continuing, in which case such gains shall be held or applied in accordance with
the preceding sentence. The Lessee will promptly pay to the Indenture Trustee or
the Lessor, as the case may be, on demand, the amount of any loss realized as
the result of any such investment (together with any fees, commissions and other
expenses, if any, incurred in connection with such investment).
Section 16. Events of Default.
-----------------
The following events shall constitute Events of Default (whether any
such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body) and each such Event of Default shall be deemed to exist and
continue so long as, but only so long as, it shall not have been remedied:
(a) The Lessee shall fail to make any payment of (i) Basic Rent,
Termination Value or a payment required by clause (iii) of the second
sentence of Section 3(c) when due and such failure shall continue for a
period of ten (10) days or (ii) Supplemental Rent (other than Termination
Value or the payment required by clause (iii) of the second sentence of
Section 3(c)) within fifteen (15) days after receipt by the Lessee of a
written demand therefor from the Lessor, the Indenture Trustee or a
Majority in Interest of Noteholders, provided, that in the case of
--------
Supplemental Rent which constitutes an Excluded Payment, such demand shall
only be effective for purposes of this paragraph (a) if sent by the Owner
Participant or the Lessor and such failure shall not become an Event of
Default until the Owner Participant shall have notified the Indenture
Trustee that it has elected to treat such failure as an Event of Default;
(b) The Lessee shall fail to procure and maintain insurance required
pursuant to Section 9 or such insurance shall be cancelled or lapse;
provided that such lapse or cancellation shall not constitute an Event of
--------
Default until the earlier of (i) thirty (30) days after receipt by the
Lessor or the Indenture Trustee of notice of such lapse or cancellation (or
seven (7) days or such shorter time as may be standard in the industry with
respect to war-risk coverage) or (ii) the date that such lapse or
cancellation is effective as to the Lessor, the Owner Participant, the
Indenture Trustee or any Noteholder;
(c) The Lessee shall operate the Aircraft after having received
notice that the public liability insurance required by Section 9(a) has
lapsed or has been cancelled;
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<PAGE>
(d) The Lessee shall fail to perform or observe any other covenant or
condition to be performed or observed by it hereunder or under any other
Operative Agreement (other than the Tax Indemnity Agreement), and such
failure shall continue unremedied for a period of thirty (30) days after
delivery of notice of such failure from the Lessor, the Indenture Trustee
or a Majority in Interest of Noteholders to the Lessee, unless such failure
is curable and the Lessee shall, after the delivery of such notice, be
diligently proceeding to correct such failure and shall in fact correct
such failure within 150 days after delivery of such notice;
(e) Any representation or warranty made by the Lessee herein or in
any Operative Agreement or in any document or certificate required to be
delivered by the Lessee pursuant thereto (other than the Tax Indemnity
Agreement) shall prove to have been incorrect in any material respect when
made and shall remain material at the time in question and shall not be
remedied within thirty (30) days after notice thereof has been given to the
Lessee by the Lessor or the Indenture Trustee or a Majority in Interest of
Noteholders, unless such incorrectness is curable and Lessee shall, after
delivery of such notice, be diligently proceeding to correct such failure
and shall in fact correct such failure within 150 days after the delivery
of such notice;
(f) The Lessee shall consent to the appointment of or taking
possession by a receiver, assignee, custodian, sequestrator, trustee or
liquidator (or other similar official) of itself or of a substantial part
of its property, or the Lessee shall fail or shall admit in writing its
inability to pay its debts generally as they come due (as provided in 11
U.S.C. (S) 303(h)(1)), or shall make a general assignment for the benefit
of its creditors, or the Lessee shall file a voluntary petition in
bankruptcy or a voluntary petition or answer seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any applicable bankruptcy or insolvency or similar laws, as now or
hereafter constituted or any other applicable Federal or State bankruptcy,
insolvency or other similar law or shall consent to the entry of an order
for relief in an involuntary case under any such law or the Lessee shall
file an answer admitting the material allegations of a petition filed
against the Lessee in any such proceeding, or otherwise seek relief under
the provisions of any now existing or future Federal or State bankruptcy,
insolvency or other similar law providing for the reorganization or
winding-up of corporations, or providing for an agreement, composition,
extension or adjustment with its creditors;
(g) An order, judgment or decree shall be entered in any proceeding
by any court of competent jurisdiction appointing, without the consent of
the Lessee, a receiver, trustee or liquidator of the Lessee or of any
substantial part of its property, or any substantial part of the property
of the Lessee shall be sequestered, and any such order, judgment, decree,
appointment or sequestration shall remain in force undismissed, unstayed or
unvacated for a period of sixty (60) days after the date of entry thereof;
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(h) A petition against the Lessee in a proceeding under any
applicable bankruptcy laws or other insolvency or similar laws as now or
hereafter in effect shall be filed and shall not be withdrawn or dismissed
within sixty (60) days thereafter, or, in the case the approval of such
petition by a court of competent jurisdiction is required, the petition as
filed or amended shall be approved by such a court as property filed and
such approval shall not be withdrawn or the proceeding dismissed within
sixty (60) days thereafter, or a decree or order for relief in respect of
the Lessee shall be entered by a court of competent jurisdiction in an
involuntary case under such bankruptcy, insolvency or similar laws, as now
or hereafter constituted and such decree or order shall remain unstayed in
effect for a period of sixty (60) days, or if, under the provisions of any
law providing for reorganization or winding-up of corporations which may
apply to the Lessee, any court of competent jurisdiction shall assume
jurisdiction, custody or control of the Lessee or of any substantial part
of its property and such jurisdiction, custody or control shall remain in
force unrelinquished, unstayed or unterminated for a period of sixty (60)
days;
(i) So long as the Indenture is in effect or, after foreclosure of
the Lien of the Indenture, so long as the Indenture Trustee or its nominee
holds title to the Aircraft, final judgment or judgments for the payment of
money in excess of $5,000,000 (which is not covered by insurance) shall be
outstanding against the Lessee for more than thirty (30) days from the date
of its entry and has not been satisfied or discharged in full, vacated,
bonded (in a manner sufficient to stay enforcement) or stayed, provided
--------
that, so long as neither the Lessee nor an Affiliate of the Lessee is the
Owner Participant, the event described in this Section 16(i) shall only
constitute an Event of Default if the Owner Participant shall have notified
the Indenture Trustee in writing that it agrees to treat such event as an
Event of Default;
(j) So long as the Indenture is in effect or, after foreclosure of
the Lien of the Indenture, so long as the Indenture Trustee or its nominee
holds title to the Aircraft, the Lessee shall default in the observance or
performance of any agreement or condition relating to any Indebtedness (as
hereinafter defined) or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition
being that any outstanding Indebtedness in excess of $5,000,000 (or the
equivalent in any foreign currency) has become payable prior to its stated
maturity or due date (and such acceleration is not (i) promptly waived by
the holders of such Indebtedness, (ii) being contested in good faith by
appropriate proceedings or otherwise disputed in good faith or (iii) in the
case of any Indebtedness of the type described in clause (C) below,
satisfied by the Lessee promptly upon the same becoming due); it being
understood and agreed for purposes of this Section 16(j) that
"Indebtedness" means the Lessee's obligations for (A) borrowed money, (B)
under any lease, or (C) under any agreement whereby the Lessee guarantees
the obligations of any other Person for borrowed money or under a lease by
such Person, provided that, so long as neither the Lessee
--------
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nor an Affiliate of the Lessee is the Owner Participant, the event
described in this Section 16(j) shall only constitute an Event of Default
if the Owner Participant shall have notified the Indenture Trustee in
writing that it agrees to treat such event as an Event of Default;
(k) Except if the Indenture is terminated in accordance with its
terms, the Lien of the Indenture shall cease to be a valid first priority
Lien (other than as a result of any Permitted Lien or as a result of any
Indenture Default or Indenture Event of Default of the type referred to in
Section 4.02(j) of the Indenture) on (i) the Indenture Estate (other than
the Aircraft) and such condition shall continue for a period of ten (10)
days after a Responsible Officer of the Lessee has actual knowledge of such
condition or (ii) the Aircraft;
(l) The Lessee shall cease to be a Certificated Air Carrier and such
circumstance results in either (i) the inability of the Lessee to operate
aircraft in revenue service or (ii) the Owner Trustee (or the Indenture
Trustee as assignee of the Owner Trustee) no longer being entitled to the
benefits of Section 1110 of the Bankruptcy Code, and in either case such
condition shall continue for a period of thirty (30) days; or
(m) If, at any time after the Lien of the Indenture (and any other
indenture or security agreement entered into in connection with a
refinancing pursuant to Article 13 of the Participation Agreement) has been
discharged in accordance with its terms or the Owner Participant has
purchased the Equipment Notes (or the evidences of indebtedness under any
such other indenture or security agreement), any "Event of Default" as
defined in any Specified Lease shall occur and be continuing;
provided that, notwithstanding anything to the contrary contained in this Lease,
- --------
any failure of the Lessee to perform or observe any covenant, condition, or
agreement herein shall not constitute an Event of Default under clause (d) above
if such failure is caused solely by reason of an event referred to in the
definition of "Event of Loss" so long as the Lessee is continuing to comply with
-------------
the applicable terms of Section 8.
Section 17. Remedies.
--------
Upon the occurrence of any Event of Default and at any time thereafter
so long as the same shall be continuing, the Lessor may, at its option, declare
this Lease to be in default by a notice to the Lessee (provided that this Lease
--------
shall be deemed to have been declared in default without the necessity of such
notice upon the occurrence of any Event of Default described in paragraph (f),
(g) or (h) of Section 16); and at any time thereafter so long as the Lessee
shall not have remedied all outstanding Events of Default, the Lessor may do,
and the Lessee shall comply with, one or more of the following with respect to
the Airframe and all or any part of the Engines, as the Lessor in its sole
discretion shall elect, to the extent permitted by, and subject to compliance
with any mandatory requirements of, Applicable Law then in effect; provided that
--------
during any period the Aircraft is subject to the Civil Reserve Air Fleet Program
in accordance with the provisions of Section 5(b) and
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in the possession of the United States government or an instrumentality or
agency thereof, the Lessor shall not, on account of any Event of Default, be
entitled to do any of the following in such manner as to limit the Lessee's
control under this Lease (or any sublessee's control under any sublease
permitted by the terms of this Lease) of any Airframe or any Engines, unless at
least 60 days' (or such lesser period, if any, as may then be applicable under
the Military Airlift Command Program of the United States Government) prior
notice of default hereunder shall have been given by the Lessor by registered or
certified mail to the Lessee (or any sublessee) with a copy addressed to the
Contracting Office Representative for the Military Airlift Command of the United
States Air Force under any contract with Lessee (or any sublessee) relating to
the Aircraft:
(a) Cause the Lessee, upon the written demand of the Lessor and at the
Lessee's expense to, and the Lessee shall, promptly return the Airframe and
all or such part of the Engines as the Lessor may demand to the Lessor in
the manner and condition required by, and otherwise in accordance with all
of the provisions of, Section 12 as if the Airframe and such Engines were
being returned at the end of the Term; or the Lessor, at its option, may
cause public officials acting pursuant to judicial order obtained in
summary proceedings or otherwise to enter upon the premises where the
Airframe or any or all Engines are located or reasonably believed to be
located and take immediate possession of and remove such Airframe or
Engines, and the Lessee shall comply therewith, all without liability to
the Lessor, the Indenture Trustee or the Noteholders for or by reason of
such entry or taking possession or removal, whether for the restoration of
damage to property caused by such taking possession or removal; or
otherwise; and the Lessee shall promptly execute and deliver to the Lessor
such instruments of title or other documents as the Lessor may deem
necessary or advisable to enable the Lessor or its agent to obtain
possession of the Airframe or the Engines, provided that if the Lessee
--------
shall for any reason fail to execute and deliver such instruments and
documents after such request, the Lessor shall be entitled to a judgment
for specific performance, conferring the right to immediate possession upon
the Lessor and requiring the Lessee to execute and deliver such instruments
and documents to the Lessor;
(b) Sell or otherwise dispose of all or any part of the Aircraft, at
public or private sale, whether or not the Lessor shall at the time have
possession thereof, as the Lessor may determine, or hold, use, operate,
lease to others or keep idle all or any part of the Aircraft, Airframe or
any Engine as the Lessor, in its sole discretion, may determine, in any
such case free and clear of any rights or claims of whatsoever kind of the
Lessee except as hereinafter set forth in this Section 17 and without any
duty to account to the Lessee with respect to such action or inaction or
for any proceeds with respect thereto except to the extent required by
paragraph (d) below in the event the Lessor elects to exercise its rights
under said paragraph in lieu of its rights under paragraph (c) below;
(c) Whether or not the Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a) or
paragraph (b) above with respect to the Aircraft, the Lessor, by written
notice to the Lessee specifying a payment date (which shall
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<PAGE>
be a Termination Date) not earlier than 10 days from the date of such
notice, may require the Lessee to pay to the Lessor, and the Lessee shall
pay to the Lessor, on the payment date specified in such notice, as
liquidated damages for loss of a bargain and not as a penalty, any
installment of Basic Rent due on or before such payment date plus an amount
equal to the excess, if any, of (i) Termination Value for the Aircraft,
determined as of such payment date over (ii) the Fair Market Sales Value
for the Aircraft, computed as of such payment date, together with interest,
to the extent permitted by Applicable Law, at the Past Due Rate on the
amount of such excess, if any, from such payment date, to the date of
actual payment of such amount; provided that, in any such instance in which
-------------
the Lessor is unable to repossess the Aircraft due to circumstances not
relating to or caused by any Lessee Person and the Fair Market Sales Value
thereof is deemed to be zero, upon receipt of any such payment under this
clause (c) and all other amounts due hereunder, the Lessor shall convey,
as-is, where-is, without recourse or warranty, other than a warranty
against Lessor's Liens, to the Lessee all right, title and interest of the
Lessor in and to the Airframe and Engines, and execute and deliver to the
Lessee such bills of sale and other documents and instruments as the Lessee
may reasonably request to evidence such conveyance;
(d) In the event the Lessor, pursuant to paragraph (b) above, shall
have sold the Aircraft upon reasonable notice to the Lessee, the Lessor in
lieu of exercising its rights under paragraph (c) above with respect to the
Aircraft, may, if it shall so elect, require the Lessee to pay the Lessor,
and the Lessee shall pay to the Lessor, on the date of such sale, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of
the Basic Rent due after the date on which such sale occurs but in addition
to any installment of Basic Rent due on or up to the date on which such
sale occurs), the amount of any deficiency of the net proceeds of such sale
below the Termination Value of the Aircraft, determined as of the
Termination Date immediately preceding the date of such sale, together with
interest, to the extent permitted by Applicable Law, at the Past Due Rate
on the amount of such deficiency from such Termination Date to the date of
actual payment; and
(e) (i) Rescind, cancel or terminate this Lease or (ii) exercise any
other right or remedy which may be available under Applicable Law or
proceed by appropriate court action to enforce the terms hereof or to
recover damages (but in all events consistent with the liquidation of
damages agreement set forth herein) for the breach hereof.
In addition, the Lessee shall be liable for any unpaid Supplemental Rent due
hereunder before or after any termination hereof (which obligations shall
survive following such termination), including all reasonable costs and expenses
including attorney's fees and disbursements incurred by the Lessor, the Owner
Participant, the Indenture Trustee or the Loan Participant by reason of the
occurrence of any Event of Default or the exercise of the Lessor's remedies with
respect thereto including without limitation all costs and expenses incurred in
connection with the return of the Airframe or any Engine in accordance with, and
in the condition required by, the terms of Section 12 or any appraisal of the
Aircraft required for purposes of this Section 17. At any sale of the
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<PAGE>
Aircraft, the Airframe or any Engine, or portion thereof pursuant to this
Section 17, the Lessor or the Owner Participant may bid for and purchase such
property. Except as otherwise expressly provided above, no remedy referred to in
this Section 17 is intended to be exclusive (but the liquidation of damages
provided in this Section 17 shall, to the extent required by Applicable Law, be
the exclusive liquidated damages remedy), but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available to the
Lessor for the Event of Default at law or in equity; and the exercise or
beginning of exercise by the Lessor of any one or more of such remedies shall
not preclude the simultaneous or later exercise by the Lessor of any or all such
other remedies. No express or implied waiver by the Lessor of any Event of
Default hereunder shall in any way be, or be construed to be, a waiver of any
future or subsequent Event of Default.
Section 18. Lessor's Right to Perform for the Lessee.
----------------------------------------
If the Lessee fails to make any payment of Rent required to be made by
it hereunder or fails to perform or comply with any of its agreements contained
herein the Lessor may, upon prior notice to the Lessee, itself make such payment
or perform or comply with such agreement, and the amount of such payment and the
amount of the reasonable expenses of the Lessor incurred in connection with such
payment or the performance of or compliance with such agreement, as the case may
be, together with interest thereon at the Past Due Rate, shall be deemed
Supplemental Rent, payable by the Lessee upon demand; provided that no such
--------
payment or performance by the Lessor shall be deemed to cure any Default or
Event of Default under this Lease or relieve the Lessee of any of its
obligations hereunder; provided further that nothing in this Section 18 shall be
--------
deemed to permit the Lessor to exercise any control over the operation or
maintenance of the Aircraft or any part thereof while it is being utilized in
the air transportation services of the Lessee or any Permitted Sublessee
without the consent of the Lessee; provided further that the provisions of this
--------
Section 18 shall not affect Lessor's right to exercise its remedies under
Section 17 upon the occurrence and continuance of an Event of Default.
Section 19. Bankruptcy.
----------
It is the intention of the parties that the Lessor (and the Indenture
Trustee as assignee of the Lessor under the Indenture) shall be entitled to the
benefits of 11 U.S.C. (S) 1110 with respect to the right to repossess the
Airframe, Engines and Parts as provided herein, and in any circumstances where
more than one construction of the terms and conditions of this Lease is
possible, a construction which would preserve such benefits shall control over
any construction which would not preserve such benefits or would render them
doubtful. To the extent consistent with the provisions of 11 U.S.C. (S) 1110 or
any analogous section of the Federal bankruptcy laws, as amended from time to
time, it is hereby expressly agreed and provided that, notwithstanding any other
provisions of the Federal bankruptcy laws, as amended from time to time, any
right of the Lessor to take possession of the Aircraft in compliance with the
provisions of this Lease shall not be affected by the provisions of 11 U.S.C.
(S) 362 or 363, as amended from time to time, or any
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<PAGE>
analogous provisions of any superseding statute or any power of the bankruptcy
court to enjoin such taking of possession.
Section 20. Assignment: Benefit and Binding Effect.
--------------------------------------
(a) Assignment by the Lessee.
------------------------
The Lessee may not, without the prior written consent of the Lessor
and the Owner Participant, assign any of its rights hereunder except as
otherwise expressly provided herein.
(b) Assignment by the Lessor.
------------------------
The Lessor's interest in this Lease has been assigned as security to
the Indenture Trustee pursuant to the Indenture (which Lessee acknowledges
receipt of an executed copy thereof) for the benefit of the holders from time to
time of the Equipment Notes, and the Lessee acknowledges due notice of, and
consents to, such security assignment and the mortgage of the Aircraft in favor
of the Indenture Trustee. The Lessor may not, without the prior consent of the
Lessee, otherwise assign any of its rights under or interest in this Lease
except to a successor Owner Trustee or additional trustee referred to in Section
9.01 of the Participation Agreement and Section 9.01 of the Trust Agreement or
as otherwise expressly provided herein.
(c) Benefit and Binding Effect.
--------------------------
The terms and provisions of this Lease shall be binding upon and,
subject to the limitations on assignment of rights hereunder, inure to the
benefit of the Lessor and the Lessee and their respective successors and
permitted assigns. Nothing herein shall be construed as creating rights in any
other Person except, to the extent provided herein, the Owner Participant, the
Indenture Trustee, the Loan Participant and the Noteholders.
(d) Sublessee's Performance and Rights.
----------------------------------
Any obligation imposed on the Lessee in this Lease shall require only
that the Lessee perform or cause to be performed such obligation, even if stated
herein as a direct obligation, and the performance of any such obligation by any
sublessee or transferee of the Airframe or any Engine or Part permitted by the
terms hereof under a sublease or transfer agreement then in effect shall
constitute performance by the Lessee and to the extent of such performance
discharges such obligation by the Lessee.
Section 21. Owner Trustee's Limitation on Liability.
---------------------------------------
Trust Company is entering into this Lease solely as Owner Trustee
under the Trust Agreement and not in its individual capacity, except as
otherwise expressly provided herein and
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<PAGE>
neither Trust Company nor any entity acting as successor Owner Trustee or
additional Owner Trustee under the Trust Agreement shall be personally liable
for, or for any loss in respect of, any of the statements, representations,
warranties, agreements or obligations stated to be those of the Lessor
hereunder, as to which all interested parties shall look solely to the Trust
Estate, except to the extent expressly provided otherwise in any other Operative
Agreement, provided, however, that nothing in this Section 21 shall be construed
-------- -------
to limit in scope or substance the liability of Trust Company or any entity
acting as successor Owner Trustee or additional Owner Trustee under the Trust
Agreement in its individual capacity for the consequences of its own willful
misconduct or gross negligence or (in receiving, handling or remitting funds)
its simple negligence, or the inaccuracy or breach of its representations,
warranties or covenants made in such capacity in any other Operative Agreement.
Section 22. Certain Agreements of Lessee.
----------------------------
The Lessee will take, or cause to be taken, at the Lessee's cost and
expense, such action with respect to the recording, filing, re-recording and re-
filing of this Lease, each Lease Supplement, the Trust Agreement, the Indenture,
each Indenture Supplement and any financing statements or other instruments as
are necessary or requested by the Owner Participant or the Indenture Trustee and
appropriate, to maintain, so long as the Indenture or this Lease is in effect,
the perfection of the security interest created by the Indenture and any
security interest that may be claimed to have been created by this Lease and the
ownership interest of the Owner Trustee in the Aircraft, and will furnish to the
Owner Trustee, the Indenture Trustee and the Owner Participant timely notice of
the necessity of such action, together with such instruments, in execution form,
and such other information as may be required to enable them to take such
action.
Section 23. Miscellaneous.
-------------
(a) Notices.
-------
Except as otherwise specifically provided herein, all notices,
requests, approvals or consents required or permitted by the terms hereof shall
be in writing (it being understood that the specification of a writing in
certain instances and not in others does not imply an intention that a writing
is not required as to the latter). Any notice shall be effective when received.
Any notice shall either be mailed, certified or registered mail, return receipt
requested with proper first class postage prepaid, or sent in the form of a
telecopy or by overnight courier, provided that there is receipt of such notice
--------
the next Business Day from an overnight courier service, or by overnight
delivery service or delivered by hand. Any notice shall be directed to the
Lessee, the Lessor, the Indenture Trustee or any other party to the
Participation Agreement to the respective addresses set forth in Section 12.01
to the Participation Agreement or to such other address or telecopy number as
any such party may designate pursuant to Section 12.01 of the Participation
Agreement.
(b) Counterparts.
------------
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<PAGE>
This Lease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall, subject to the
next sentence and the legends appearing on the cover and signature page hereof,
be an original, but all such counterparts shall together constitute but one and
the same instrument. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL
PAPER (AS THE TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY
APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED
THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL
COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE INDENTURE TRUSTEE ON
THE SIGNATURE PAGE THEREOF.
(c) Amendments.
----------
Neither this Lease nor any of the terms hereof may be terminated,
amended, supplemented, waived or modified orally, but only by an instrument in
writing signed by the Lessor and the Lessee provided, however, that unless and
-------- -------
until the Indenture has been discharged, except as otherwise provided in the
Indenture, no termination, amendment, supplement, waiver or modification of, or
waiver by or consent of the Lessor in respect of, any of the provisions of this
Lease shall be effective unless the Indenture Trustee shall have joined in such
amendment, modification, waiver or consent or shall have given its prior consent
thereto.
(d) Agreement to Lease.
------------------
It is the intent of the parties to this Lease that for all purposes
(including, without limitation, U.S. Federal income tax purposes) this Lease
will be a true lease, and that this Lease conveys to the Lessee no right, title
or interest in the Aircraft except as a lessee.
(e) Governing Law.
-------------
(i) THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF
THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE. THIS LEASE HAS BEEN DELIVERED IN THE STATE OF NEW YORK.
(ii) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
IRREVOCABLY AGREES, ACCEPTS AND SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY AND COUNTY OF NEW YORK AND OF
THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN CONNECTION WITH ANY
LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO ANY MATTER RELATING TO OR
ARISING OUT OF OR IN CONNECTION WITH THIS LEASE.
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<PAGE>
(iii) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
HEREBY IRREVOCABLY CONSENTS AND AGREES THAT THE SERVICE OF ANY AND ALL LEGAL
PROCESS, SUMMONS, NOTICES AND DOCUMENTS OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY MAILING COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT THE ADDRESS SET FORTH PURSUANT
TO SECTION 12.01 OF THE PARTICIPATION AGREEMENT. EACH PARTY HERETO AGREES THAT
SERVICE UPON IT, OR ANY OF ITS AGENTS, IN EACH CASE IN ACCORDANCE WITH THIS
SECTION 23(e)(iii), SHALL CONSTITUTE VALID AND EFFECTIVE PERSONAL SERVICE UPON
SUCH PARTY, AND EACH PARTY HERETO HEREBY AGREES THAT THE FAILURE OF ANY OF ITS
AGENTS TO GIVE ANY NOTICE OF SUCH SERVICE TO ANY SUCH PARTY SHALL NOT IMPAIR OR
AFFECT IN ANY WAY THE VALIDITY OF SUCH SERVICE ON SUCH PARTY OR ANY JUDGMENT
RENDERED IN ANY ACTION OR PROCEEDING BASED THEREON.
(iv) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A
DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR PROCEEDING BROUGHT HEREUNDER IN
ANY OF THE ABOVE-NAMED COURTS, THAT SUCH ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT VENUE FOR THE ACTION OR PROCEEDING IS IMPROPER OR THAT
THIS LEASE OR ANY OTHER OPERATIVE AGREEMENT MAY NOT BE ENFORCED IN OR BY SUCH
COURTS.
(v) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF OR RELATING
TO THIS LEASE.
(f) Severability.
------------
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, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
(g) Survival.
--------
The representations, warranties, indemnities and covenants set forth
herein shall survive the delivery of the Aircraft, the transfer of any interest
of Owner Participant in this Lease, the other Operative Agreements, the Trust
Estate and the Trust Agreement and the transfer of any interest by any
Noteholder of its Equipment Notes.
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<PAGE>
(h) Article 2A.
----------
The Lessor and the Lessee agree that this Lease is a "finance lease"
for purposes of Article 2A of, and as defined in Section 2-A-103 of the Uniform
Commercial Code. The Lessee agrees that no right or remedy granted solely by
reason of Article 2A of the Uniform Commercial Code shall be available to the
Lessee as against the Lessor unless expressly provided in this Lease.
* * *
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<PAGE>
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease to be duly executed by their authorized officers as of the day and year
first above written.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
not in its individual capacity,
but solely as Owner Trustee
By: /s/ Stephen J. Kaba
-------------------
Name: Stephen J. Kaba
Title: Vice President
MIDWAY AIRLINES CORPORATION
By: /s/ Jonathan S. Waller
----------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
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<PAGE>
THE LESSOR HAS ASSIGNED THIS LEASE AGREEMENT TO THE INDENTURE TRUSTEE AS
SECURITY. TO THE EXTENT, IF ANY, THAT THIS LEASE AGREEMENT CONSTITUTES CHATTEL
PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN
ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE AGREEMENT MAY
BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART HEREOF OTHER
THAN THE ORIGINAL COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE
INDENTURE TRUSTEE IMMEDIATELY FOLLOWING THIS LEGEND.
Receipt of this original counterpart of the foregoing Lease Agreement is
hereby acknowledged on this _____ day of August, 1999.
ALLFIRST BANK, as Indenture Trustee
By: ____________________________________
Name:
Title:
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<PAGE>
APPENDIX A
DEFINITIONS [N583ML]
GENERAL PROVISIONS
The following terms shall have the following meanings for all purposes
of the Operative Agreements (as defined below), unless otherwise defined in an
Operative Agreement or the context thereof shall otherwise require. In the case
of any conflict between the provisions of this Appendix and the provisions of
any Operative Agreement, the provisions of such Operative Agreement shall
control the construction of such Operative Agreement.
Unless the context otherwise requires, (i) references to agreements
shall be deemed to mean such agreements as amended and supplemented from time to
time, and any agreement, instrument or document entered into in substitution or
replacement therefor, and (ii) references to parties to agreements shall be
deemed to include the successors and permitted assigns of such parties.
"Additional Insureds" means the Owner Trustee (in its individual and trust
-------------------
capacities), the Owner Participant, the Indenture Trustee (in its individual and
trust capacities) and each of the Noteholders and each of the respective
successors and permitted assigns and respective directors, officers and
employees of the foregoing.
"Aeronautical Authority" means as of any time of determination, the FAA or
----------------------
other governmental airworthiness authority having jurisdiction over the Aircraft
or the Airframe and Engines or engines attached thereto under the laws of the
country in which the Airframe is then registered.
"Affiliate" means, with respect to any Person, any other Person directly or
---------
indirectly controlling 50% or more of any class of voting securities of such
Person or otherwise controlling, controlled by or under common control with such
Person. For the purposes of this definition, "control" (including "controlled
by" and "under common control with") shall mean the power, directly or
indirectly, to direct or cause the direction of the management and policies of
such Person whether through the ownership of voting securities or by contract or
otherwise.
"After Tax Basis" means a basis such that any payment to be received or
---------------
accrued or deemed to be received by a Person shall be supplemented by a further
payment or payments to such Person so that the sum of such payments, after
deduction of the net amount of all Taxes (taking into account any related
credits or deductions) actually payable to any taxing authority resulting from
the actual or constructive receipt or accrual of such payments, shall be equal
to the payment to be received.
<PAGE>
"Aircraft" means the Airframe together with the two Engines, whether or not
--------
any of the Engines may at the time of determination be installed on the Airframe
or installed on any other airframe or on any other aircraft.
"Airframe" means (i) the Canadair Regional Jet Model CL-600-2B19 Series
--------
200ER aircraft (excluding the Engines and any other engines which may from time
to time be installed thereon, but including any and all Parts which may from
time to time be incorporated in, installed on or attached to such aircraft, and
including any and all such Parts removed therefrom so long as title to such
removed Parts remains vested in the Lessor under the terms of Section 7 of the
Lease) originally delivered and leased under the Lease, identified by national
registration number and manufacturer's serial number in the Lease Supplement
executed and delivered on the Delivery Date, so long as a Replacement Airframe
shall not have been substituted therefor pursuant to Section 8 of the Lease, and
(ii) a Replacement Airframe, so long as another Replacement Airframe shall not
have been substituted therefor pursuant to Section 8 of the Lease.
"Allfirst" means Allfirst Bank, a Maryland state-chartered commercial bank,
--------
and its successors and permitted assigns.
"Applicable Law" means all applicable laws, statutes, treaties, rules,
--------------
codes, ordinances, regulations, certificates, orders, interpretations, licenses
and permits of any Governmental Authority of competent jurisdiction and
judgments, decrees, injunctions, writs, orders or like action of any court,
arbitrator or other administrative, judicial or quasi-judicial tribunal or
agency of competent jurisdiction.
"Applicable Rate" has the meaning specified in Exhibit B to the Lease.
---------------
"Average Life Date" means, for any Equipment Note, the date which follows
-----------------
the prepayment date by a period equal to the Remaining Weighted Average Life of
such Equipment Note.
"Bankruptcy Code" means Title 11 of the United States Code, as amended, and
---------------
any successor thereto.
"Basic Rent" means the rent payable on Basic Rent Payment Dates throughout
----------
the Basic Term for the Aircraft pursuant to Section 3(b) of the Lease and rent
payable during any Renewal Term pursuant to Section 13(a) of the Lease.
"Basic Rent Payment Date" means each date listed under the heading "Basic
-----------------------
Rent Payment Date" in Exhibit C to the Lease.
"Basic Term" means the period commencing at the beginning of the day on the
----------
Delivery Date and ending at end of the day on the Expiration Date, or such
earlier date on which the Lease shall be terminated as provided therein.
<PAGE>
"Beneficial Interest" means the interest of the Owner Participant under the
-------------------
Trust Agreement.
"Bills of Sale" means the FAA Bill of Sale and the Warranty Bill of Sale.
-------------
"Business Day" means any day other than a Saturday or Sunday or other day
------------
on which commercial banks are authorized or required by law to close in New York
City, Morrisville, North Carolina (or in the event the Lessee changes the
location of its chief executive offices to a location other than Morrisville,
North Carolina such other location), Baltimore, Maryland (or in the event the
Indenture Trustee administers its corporate business in a location other than
Baltimore, Maryland such other location), and after the Lien of the Indenture is
discharged, Wilmington, Delaware.
"Citizen of the United States" means a citizen of the United States as
----------------------------
defined in (S)40102(a)(15) of the Transportation Code, or any analogous part of
any successor or substituted legislation or regulation at the time in effect.
"Code" means the United States Federal Internal Revenue Code of 1986, as
----
amended from time to time, or any similar legislation of the United States
enacted to supersede, amend, or supplement such Code (and any reference to a
provision of the Code shall refer to any successor provision(s), however
designated).
"Commitment" of a Loan Participant shall have the meaning given such term
----------
in Section 2.01(d) of the Participation Agreement; "Commitment" of the Owner
----------
Participant shall have the meaning given such term in Section 2.01(c) of the
Participation Agreement.
"CRAF Program" has the meaning specified in Section 5(b)(vii) of the Lease.
------------
"Designated Maturity" means, with respect to any determination of a
-------------------
Treasury Rate, the maturity of the United States Treasury Notes designated
pursuant to the definition of "Make-Whole Amount" as being those to be used in
the calculation of such Treasury Rate.
"Default" means any event or condition which, with the lapse of time or the
-------
giving of notice, or both, would constitute an Event of Default.
"Deficiency Agreement" has the meaning given to such term in the recitals
--------------------
of the Participation Agreement.
"Deficiency Obligor" has the meaning given to such term in the recitals of
------------------
the Participation Agreement.
"Delivery Date" means the date on which the Aircraft is delivered and sold
-------------
to the Lessor and leased by the Lessor to the Lessee under the Lease, which date
shall be the date of the initial Lease Supplement.
<PAGE>
"Dollars", "Dollar" and "$" means the lawful currency of the United States
------- ------ -
of America.
"DOT" means the United States Department of Transportation and any agency
---
or instrumentality of the United States Government succeeding to its functions.
"EBO Date" has the meaning given to such term in Exhibit B to the Lease.
--------
"EBO Amount" has the meaning given to such term in Exhibit B to the Lease.
----------
"Engine" means (A) each of the two General Electric CF34-3B1 Series 200
------
engines originally delivered and leased under the Lease, identified by
manufacturer's serial number in the Lease Supplement executed and delivered on
the Delivery Date, so long as a Replacement Engine shall not have been
substituted therefor pursuant to Section 7(e) of the Lease, and (B) a
Replacement Engine, so long as another Replacement Engine shall not have been
substituted therefor pursuant to Section 7(e) of the Lease, whether or not such
engine or Replacement Engine, as the case may be, is from time to time installed
on the Airframe or installed on any other aircraft, and including in each case
all Parts incorporated or installed in or attached thereto and any and all Parts
removed therefrom so long as title to such Parts remains vested in the Lessor
under the terms of Section 7 of the Lease. The term "Engines" means, as of any
-------
date of determination, the two engines each of which is an Engine on that date.
"Engine Manufacturer" means General Electric Company, a New York
-------------------
corporation, and its successors and permitted assigns.
"Engine Manufacturer's Consent" means the Engine Manufacturer's Consent and
-----------------------------
Agreement [N583ML], dated as of August 10, 1999, from the Engine Manufacturer.
"Engine Warranty Assignment" means the Engine Warranty Assignment [N583ML],
--------------------------
dated as of August 10, 1999, between Lessee and Owner Trustee.
"Equipment Notes" means the Equipment Notes issued by the Owner Trustee
---------------
pursuant to the Indenture and any equipment note issued in exchange therefor or
replacement thereof pursuant to the Indenture, each substantially in the form
set forth in Exhibit B to the Indenture.
"ERISA" means the Employee Retirement Income Security Act of 1974 and any
-----
regulations and rulings issued thereunder all as amended and in effect from time
to time.
"ERISA Plan" means, individually or collectively, an employee benefit plan,
----------
as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA or any
applicable regulation thereunder or a plan or individual retirement account
which is subject to Section 4975(c) of the Code;
"Event of Default" has the meaning given to such term in Section 16 of the
----------------
Lease.
<PAGE>
"Event of Loss" means any of the following events with respect to the
-------------
Aircraft, the Airframe or any Engine:
(i) any theft, hijacking or disappearance of such property for a
period of 30 consecutive days (provided that, so long as Lessee shall be
diligently pursuing recovery of such property, such period shall be
extended to 60 consecutive days) or more or, if earlier for a period that
extends until the end of the Term;
(ii) destruction, damage beyond economic repair or rendition of such
property permanently unfit for normal use for any reason whatsoever;
(iii) any event which results in an insurance settlement with respect
to such property on the basis of an actual, constructive or compromised
total loss;
(iv) with respect to the Airframe only, requisition of use of such
property by any foreign government or purported government or any agency or
instrumentality thereof (other than the Government), for a period in excess
of 180 consecutive days (for countries listed in Exhibit E to the Lease) or
30 consecutive days (for any other country) or such shorter period ending
on the expiration of the Term;
(v) with respect to the Airframe only, requisition of use of such
property by the Government for a period extending beyond the Term;
(vi) condemnation, confiscation or seizure of, or requisition of title
of such property by any foreign government or purported government or any
agency or instrumentality thereof or by the Government, for a period in
excess of 10 consecutive days or such shorter period ending on the
expiration of the Term;
(vii) as a result of any law, rule, regulation, order or other action
by the Aeronautical Authority, the use of the Aircraft for the
transportation of passengers or Airframe in the normal course of air
transportation shall have been prohibited by virtue of a condition
affecting all Canadair Regional Jet Series 200ER aircraft equipped with
engines of the same make and model as the Engines for a period of 180
consecutive days (or beyond the end of the Term), unless the Lessee, prior
to the expiration of such 180-day period, shall be diligently carrying
forward all necessary and desirable steps to permit normal use of the
Aircraft and shall within 12 months have conformed at least one Canadair
Regional Jet Series 200ER aircraft (but not necessarily the Aircraft) to
the requirements of any such law, rule, regulation, order or action, and
shall be diligently pursuing conformance of the Aircraft in a non-
discriminatory manner provided that, notwithstanding the foregoing, if such
normal use of such property subject to the Lease shall be prohibited at the
end of the Term, an Event of Loss shall be deemed to have occurred; and
<PAGE>
(viii) with respect to an Engine only, the requisition or taking of
use thereof by any government, or instrumentality or agency thereof and any
divestiture of title or ownership deemed to be an Event of Loss with
respect to an Engine under Section 5(b)(iii) or 5(b)(vi) of the Lease.
The date of such Event of Loss shall be (aa) the 31st day following loss of such
property or its use due to theft or disappearance or the 61st day following such
loss if such period shall have been extended (or the end of the Term if
earlier); (bb) the date of any destruction, damage beyond economic repair or
rendition of such property permanently unfit for normal use; (cc) the date of
any insurance settlement on the basis of an actual, constructive or compromised
total loss; (dd) the 181st day (for countries listed in Exhibit E to the Lease)
or 31st day (for any other country) following requisition of use of such
property by a foreign government or other Governmental Authority referred to in
clause (iv) above, or the end of the Term if earlier than such 181st or 31st
day; (ee) the 11th day following condemnation, confiscation or seizure of, or
requisition of title of such property by a foreign government or other
Governmental Authority referred to in clause (vi) above or the Government or the
end of the Term if earlier than such 11th day; (ff) the last day of the Term in
the case of requisition of use of such property by the Government; and (gg) the
last day of the applicable period referred to in clause (vii) above (or if
earlier, the end of the Term). An Event of Loss with respect to the Aircraft
shall be deemed to have occurred if any Event of Loss occurs with respect to the
Airframe.
"Excluded Payments" means collectively, (i) indemnity, expense,
-----------------
reimbursement or other payments (including without limitation, Transaction
Costs) paid or payable by the Lessee in respect of the Owner Participant, the
Owner Trustee in its individual capacity or any of their respective successors,
permitted assigns, directors, officers, employees, servants and agents or
Affiliates (other than the Owner Trustee in its trust capacity), pursuant to the
Participation Agreement or any other Operative Agreement or any indemnity
hereafter granted to the Owner Participant or the Owner Trustee in its
individual capacity pursuant to the Lease or the Participation Agreement, (ii)
proceeds of public liability insurance (or government indemnities in lieu
thereof) in respect of the Aircraft payable as a result of insurance claims paid
for the benefit of, or losses suffered by, the Owner Trustee in its individual
capacity or by the Owner Participant, or their respective successors, permitted
assigns or Affiliates, (iii) proceeds of insurance maintained with respect to
the Aircraft by the Owner Participant or any Affiliate thereof (whether directly
or through the Owner Trustee) in accordance with Section 9(f) of the Lease, (iv)
payments by the Lessee in respect of any amounts payable under the Tax Indemnity
Agreement, (v) any purchase price paid to the Owner Participant for its interest
in the Trust Estate, (vi) any amounts paid or payable pursuant to the Deficiency
Agreement or the Residual Agreement, (vii) any payments in respect of interest
to the extent attributable to payments referred to in clauses (i) through (vi)
above, and (viii) any right to demand, collect or otherwise receive and enforce
the payment of any amount described in clauses (i) through (vii) above.
<PAGE>
"Expenses" has the meaning given to such term in Section 7.01(a) of the
--------
Participation Agreement.
"Expiration Date" means the date specified as such in the Lease Supplement
---------------
executed and delivered on the Delivery Date.
"FAA Bill of Sale" means (A) the bill of sale for the Airframe on AC Form
----------------
8050-2, or such other form as may be approved by the Aeronautical Authority,
executed by the Seller in favor of the Owner Trustee and to be dated the
Delivery Date, and (B) a bill of sale for a Replacement Airframe on AC Form
8050-2, or such other form as may be approved by the Aeronautical Authority,
executed by the seller thereof in favor of the Owner Trustee.
"Fair Market Rental Value" or "Fair Market Sales Value" of the Airframe or
------------------------ -----------------------
any Engine shall mean the value that would be obtained in an arms'-length
transaction between an informed and willing lessee-user or buyer-user (other
than a lessee currently in possession or a used equipment dealer) under no
compulsion to lease or buy, as the case may be, and an informed and willing
lessor or seller, as the case may be, under no compulsion to lease or sell, as
the same shall be specified by agreement between the Lessor and the Lessee or,
if not agreed to by the Lessor and the Lessee within a period of 15 days after
either party requests a determination, then as specified in an appraisal
prepared and delivered in New York City mutually agreed to by two recognized
independent aircraft appraisers, one of which shall be appointed by the Lessor
and the other of which shall be appointed by the Lessee, or, if such appraisers
cannot agree on such appraisal, an appraisal arrived at by a third independent
recognized appraiser chosen by the mutual consent of the two aircraft
appraisers. If either party should fail to appoint an appraiser within 15 days
of receiving notice of the appointment of an appraiser by the other party, then
such appraisal shall be made by the appraiser appointed by the first party. If
the two appraisers cannot agree on such appraisal and fail to appoint a third
independent recognized aircraft appraiser within 15 days after the appointment
of the second appraiser, then either party may apply to the American Arbitration
Association to make such appointment. The appraisal shall be completed within
30 days of the appointment of the last appraiser appointed. In determining Fair
Market Rental Value or Fair Market Sales Value by appraisal or otherwise, it
will be assumed that the Aircraft, Airframe or Engine is in the condition,
location and overhaul status in which it is required to be returned to the
Lessor pursuant to Section 12 of the Lease and that the Lessee has removed all
Parts which it is entitled to remove pursuant to Section 7 of the Lease and that
the Aircraft is not encumbered by the Lease. Except as otherwise expressly
provided in the Lease, all appraisal costs will be shared equally by the Lessor
and the Lessee; provided that if the Lessee elects not to renew the Lease or
--------
purchase the Aircraft following the conclusion of such appraisal, the Lessee
shall pay all appraisal costs. Notwithstanding the foregoing, for purposes of
Section 17 of the Lease, the "Fair Market Rental Value" or "Fair Market Sales
Value" of the Aircraft, the Airframe or any Engine, shall be determined on an
"as is, where is" basis and shall take into account customary brokerage and
other out-of-pocket fees and expenses which typically would be incurred in
connection with a re-lease or sale of the Aircraft, the Airframe or any Engine.
Any such determination pursuant to Section 17 of the Lease shall be made
<PAGE>
by a recognized independent aircraft appraiser selected by Lessor and the costs
and expenses associated therewith shall be borne by Lessee, unless Lessor does
not obtain possession of the Aircraft, Airframe and Engines pursuant to Section
17 of the Lease, in which case an appraiser shall not be appointed and Fair
Market Rental Value and Fair Market Sales Value for purposes of Section 17 of
the Lease shall be zero.
"Fair Market Value Renewal Term" has the meaning given to such term in
------------------------------
Section 13(a) of the Lease.
"Federal Aviation Administration" or "FAA" means the United States Federal
-------------------------------- ---
Aviation Administration, the Administrator thereof and any agency or
instrumentality of the United States government succeeding to their functions.
"Fixed Renewal Term" has the meaning given to such term in Section 13(a) of
------------------
the Lease.
"Government" means the United States of America or an agency or
----------
instrumentality thereof the obligations of which bear the full faith and credit
of the United States of America.
"Governmental Authority" means (a) any federal, state, county, provincial,
----------------------
municipal, foreign, international, regional or other governmental or regulatory
authority, agency, department, board, body, instrumentality, commission, court
or any political subdivision of any of the foregoing, and (b) each person who
shall, from time to time, be vested with the control and supervision of, or have
jurisdiction over, the registration, airworthiness, operation or other matters
relating to aviation including any competent airport authority, air traffic
control or navigation authority (including European Organization for the Safety
of Air Navigation (Eurocontrol) and the Federal Aviation Administration of the
United States of America or any person acting on its behalf).
"Indemnitee" means each of Trust Company, in its individual capacity and as
----------
Owner Trustee, the Owner Participant, the Indenture Trustee, in its individual
capacity and as trustee, the Loan Participant, each of the other Noteholders,
and each of their respective successors, transferees or assigns permitted under
the terms of the Operative Agreement, and each Affiliate, officer, director,
employee, agent, representative, servant and corporate shareholder of any of the
foregoing Persons.
"Indenture" means the Trust Indenture and Security Agreement [N583ML],
---------
dated as of August 10, 1999, between the Owner Trustee and the Indenture
Trustee.
"Indenture Default" means any event or condition which, with the lapse of
-----------------
time or the giving of notice, or both, would constitute an Indenture Event of
Default.
"Indenture Documents" has the meaning specified in the Granting Clause of
-------------------
the Indenture.
<PAGE>
"Indenture Estate" means all estate, right, title and interest of the
----------------
Indenture Trustee in and to any of the property, rights, interest, and
privileges granted to the Indenture Trustee pursuant to the Granting Clause of
the Indenture, other than Excluded Payments and any and all other rights of the
Owner Trustee or the Owner Participant expressly reserved to the Owner Trustee
or the Owner Participant pursuant to the Indenture.
"Indenture Event of Default" means each of the events specified in Section
--------------------------
4.02 of the Indenture.
"Indenture Supplement" means (a) the Trust Indenture and Security Agreement
--------------------
Supplement No. 1, substantially in the form of Exhibit A to the Indenture, which
shall describe with particularity the Aircraft included in the property of the
Owner Trustee covered by the Indenture by reference to the Lease Supplement, and
which creates a first priority purchase money equipment security interest in the
Aircraft and (b) any other supplement to the Indenture from time to time
executed and delivered in accordance with the Indenture.
"Indenture Trustee" means Allfirst Bank, a Maryland state-chartered
-----------------
commercial bank, as indenture trustee under the Operative Agreements on behalf
of the Noteholders, and its successors and permitted assigns.
"Indenture Trustee's Liens" means any Lien against, on or with respect to
-------------------------
the Aircraft, any Engine, the Lessor's Estate or the Indenture Estate or any
part thereof resulting from (i) claims against the Indenture Trustee or any
Affiliate thereof not related to the administration of the Indenture Estate or
any transactions contemplated by the Operative Agreements, (ii) any act or
omission of the Indenture Trustee or any Affiliate thereof which is not related
to the transactions contemplated by the Operative Agreements or is in violation
of any of the terms of the Operative Agreements, or (iii) Taxes imposed against
the Indenture Trustee or any Affiliate thereof in its individual capacity in
respect of which the Lessee has not indemnified (and is not obligated to
indemnify) the Indenture Trustee or any Affiliate thereof in such capacity.
"Lease" means the Lease Agreement [N583ML], dated as of August 10, 1999
-----
between the Lessor and the Lessee.
"Lease Supplement" means any Lease Supplement, substantially in the form of
----------------
Exhibit A to the Lease, entered into between the Lessor and the Lessee for the
purpose of leasing the Aircraft under and pursuant to the terms of the Lease,
including any amendment thereto entered into subsequent to the Delivery Date.
"Lessee" means Midway Airlines Corporation, a Delaware corporation, and its
------
successors and permitted assigns.
"Lessee Documents" means the Operative Agreements to which the Lessee is a
----------------
party.
<PAGE>
"Lessor" means First Union Trust Company, National Association, a national
------
banking association, not in its individual capacity but solely as Owner Trustee
under the Trust Agreement, and its successors and permitted assigns.
"Lessor's Cost" has the meaning given to such term in Exhibit B of the
-------------
Lease.
"Lessor's Estate" means all estate, right, title and interest of the Owner
---------------
Trustee in and to the Aircraft, and Engines and the Operative Agreements (other
than the Tax Indemnity Agreement) including, without limitation, all amounts of
Rent, insurance proceeds and requisition, indemnity or other payments of any
kind, but specifically excluding any Excluded Payments.
"Lessor's Liens" means Liens against, on or with respect to the Aircraft,
--------------
any Engine, the Lessor's Estate or the Indenture Estate or any part thereof,
title thereto or any interest therein arising as a result of (i) claims against
or affecting the Trust Company or the Owner Participant, in each case not
related to the Operative Agreements or the transactions contemplated thereby,
(ii) acts or omissions of the Trust Company or of the Owner Participant not
contemplated or permitted under the terms of the Operative Agreements, (iii)
Taxes or Expenses imposed against the Trust Company, Owner Participant, Lessor's
Estate or the trust created by the Trust Agreement which are not required to be
indemnified against by the Lessee pursuant to Articles 6 or 7 of the
Participation Agreement (other than due to the exclusions contained in Section
6.01(b)(x) or 7.01(b)(vii)) and which are not required to be indemnified against
by the Lessee pursuant to the Tax Indemnity Agreement, or (iv) claims against
the Trust Company or the Owner Participant arising from the transfer by the
Lessor or the Owner Participant of its interests in the Aircraft or any Engine
other than a transfer of the Aircraft or any other portion of the Lessor's
Estate pursuant to Section 5(b), 7(b), 7(c), 7(d), 7(e), 8, 12(b), 13(b), 14(a)
or 17 of the Lease and other than a transfer pursuant to the exercise of the
remedies set forth in Section 17 of the Lease or any other transfer required by
the Operative Agreements.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
exercise of rights, security interest, claim, including any right of ownership
or other similar interest of any nature whatsoever.
"Loan Participant" means and includes each registered holder from time to
----------------
time of an Equipment Note issued under the Indenture including, so long as it
holds any Equipment Note issued under the Indenture, Canadian Regional Aircraft
Finance Transaction No. 1 Limited, a Jersey, Channel Islands company, and its
successors and permitted assigns.
<PAGE>
"Majority in Interest of Noteholders" means, as of a particular date of
-----------------------------------
determination, the Noteholders of more than 66 2/3% of the aggregate unpaid
principal amount of all Equipment Notes Outstanding as of such date (excluding
any Equipment Notes owned or held by Owner Trustee, Lessee or the Owner
Participant or any Affiliate of any such party or any interests of Owner Trustee
or the Owner Participant therein by reason of subrogation pursuant to Section
2.12 of the Indenture (unless all Equipment Notes Outstanding shall be held by
Owner Trustee, Lessee, the Owner Participant or any Affiliate thereof)).
"Make-Whole Amount" means, with respect to the prepayment or repayment of
-----------------
any Equipment Note, an amount equal to the excess, if any, of (i) the present
value, as of the date of the relevant prepayment or repayment of such Equipment
Note, of the respective installments of principal of and interest on such
Equipment Note that, but for such prepayment or repayment, would have been
payable on each Payment Date after such prepayment or repayment over (ii) the
principal amount of such Equipment Note then being prepaid or repaid. Such
present value shall be determined by discounting the amounts of such
installments from their respective Payment Dates to the date of such prepayment
or repayment at a rate equal to the Treasury Rate determined on the basis of a
Designated Maturity equal to the then Remaining Weighted Average Life of such
Equipment Note plus 0.5% (or in the case of any prepayment of such Equipment
Note made within six months after the holder of such Equipment Note has made
demand for the payment of any Increased Cost or of any amount pursuant to
Article 6 of the Participation Agreement in respect of withholding Taxes, the
Treasury Rate determined on the basis of a Designated Maturity equal to the then
Remaining Weighted Average Life of such Equipment Note plus 1.00%). Each holder
of an Equipment Note will furnish to the Lessee and the Indenture Trustee a
certificate setting forth the calculation and amount of the Make-Whole Amount
with respect to its Equipment Note, which account shall be conclusive absent
manifest error.
"Manufacturer" means Bombardier Inc., a Canadian corporation, and its
------------
successors and permitted assigns.
"Material Adverse Change" means, with respect to any Person, any event,
-----------------------
condition or circumstance that materially and adversely affects such Person's
business or consolidated financial condition or its ability to perform its
obligations under the Operative Agreements.
"Minimum Liability Amount" has the meaning given to such term in Exhibit B
------------------------
to the Lease.
"Net Economic Return" means the Owner Participant's nominal after-tax book
-------------------
yield (utilizing the multiple investment sinking fund method of analysis),
aggregate net after-tax cash and periodic FASB 13 earnings (plus or minus 5%),
computed on the basis of the same methodology, constraints and assumptions as
were utilized by the initial Owner Participant in determining Basic Rent
percentages and Termination Value percentages as of the Delivery Date; provided,
--------
that, if the initial Owner Participant shall have transferred its interest, Net
Economic Return shall be calculated as if the initial Owner Participant had
retained its interest; provided, further, that, notwithstanding
-------- -------
<PAGE>
the preceding proviso, solely for purposes of Article 13 of the Participation
Agreement and calculating any adjustments to Basic Rent percentages and
Termination Values percentages in connection with a refinancing pursuant to such
Article 13 at a time when the Owner Participant is a transferee (other than an
Affiliate of the initial Owner Participant), the after-tax yield (but not the
after-tax cash) component of Net Economic Return shall be calculated on the
basis of the methodology and assumptions utilized by the transferee Owner
Participant as of the date on which it acquired its interest.
"Non-U.S. Person" means any Person other than a U.S. Person.
---------------
"Noteholder" means and includes the Loan Participant and each subsequent
----------
registered holder from time to time of an Equipment Note issued under the
Indenture for so long as the Loan Participant or such subsequent holder shall
hold such Equipment Note.
"Noteholder Tax Indemnitee" means each Noteholder and all Affiliates,
-------------------------
directors, officers, agents, representatives, servants and corporate
shareholders thereof.
"Officer's Certificate" means as to any company a certificate signed by a
---------------------
Responsible Officer of such company.
"Operative Agreements" means the Participation Agreement, the Trust
--------------------
Agreement, the Deficiency Agreement, the Residual Agreement, the Return
Condition Agreement, the FAA Bill of Sale, the Warranty Bill of Sale, the
Purchase Agreement, the Purchase Agreement Assignment, the Engine Warranty
Assignment, the PAA Consent, the Engine Manufacturer's Consent, the Lease, each
Lease Supplement, any Owner Participant Guaranty, the Equipment Notes
outstanding at the time of reference, the Indenture, each Indenture Supplement
and the Tax Indemnity Agreement.
"Opinion of Counsel" means when delivered pursuant to the Indenture, a
------------------
written opinion of legal counsel, who in the case of counsel (a) for the Lessee
may be (i) an attorney employed by the Lessee who is generally empowered to
deliver such written opinions, (ii) Fulbright & Jaworski L.L.P., or (iii) other
counsel designated by the Lessee and reasonably satisfactory to the Indenture
Trustee, and (b) for the Owner Trustee or the Indenture Trustee, an attorney
selected by such Person and reasonably satisfactory to the Lessee and, in the
case of the Owner Trustee, reasonably satisfactory to the Indenture Trustee.
"Outstanding" means, when used with respect to Equipment Notes, as of the
-----------
date of determination, all Equipment Notes theretofore executed and delivered
under the Indenture, with the exception of the following:
(i) Equipment Notes theretofore canceled by the Indenture Trustee or
delivered to the Indenture Trustee for cancellation pursuant to the
Indenture or otherwise;
<PAGE>
(ii) Equipment Notes for which prepayment money in the necessary
amount has been theretofore deposited with the Indenture Trustee in
trust for the holders of such Equipment Notes pursuant to Section 9.01
of the Indenture; provided that if such Equipment Notes are to be
-------- ----
prepaid, notice of such prepayment has been duly given pursuant to the
Indenture or provision therefor satisfactory to the Indenture Trustee
has been made; and
(iii) Equipment Notes in exchange for or in lieu of which other
Equipment Notes have been executed and delivered pursuant to Article
II of the Indenture.
"Owner Participant" means Polaris Holding Company, a Delaware corporation,
-----------------
and its successors and permitted transferees and assigns.
"Owner Participant Guarantor" means the provider of an Owner Participant
---------------------------
Guaranty.
"Owner Participant Guaranty" means any guaranty delivered or to be
--------------------------
delivered to support the obligations of the Owner Participant under the
Operative Agreements in connection with the transfer by the Owner Participant of
the Beneficial Interest.
"Owner Trustee" means the Trust Company, not in its individual capacity
-------------
except as otherwise expressly stated, but solely as trustee under the Trust
Agreement, and its successors and permitted assigns.
"PAA Consent" means the Aircraft Manufacturer's Consent and Agreement
-----------
[N583ML], dated as of August 10, 1999, from the Manufacturer.
"Participants" means, collectively, the Owner Participant and the Loan
------------
Participant; "Participant" means, individually, one of the Participants.
-----------
"Participation Agreement" means the Participation Agreement [N583ML], dated
-----------------------
as of August 10, 1999, among the Lessee, the Owner Trustee not in its individual
capacity except as otherwise expressly provided therein, but solely as owner
trustee, the Owner Participant, the Indenture Trustee and the Loan Participant.
"Parts" means any and all appliances, parts, instruments, components,
-----
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature (other than complete Engines or engines and temporary replacement parts
as provided in Section 8 of the Lease and cargo containers) which may from time
to time be incorporated or installed in or attached to any Airframe or any
Engine or which have been removed therefrom so long as title to such removed
Parts remains vested in Lessor under the terms of Section 7 of the Lease,
exclusive of any items leased by the Lessee from third parties and not required
to be installed on the Aircraft in accordance with the Lease or otherwise
required in the navigation or operation of the Aircraft.
<PAGE>
"Past Due Rate" means a rate per annum equal to 2% plus the Applicable Rate
-------------
or, if the Equipment Notes have been paid in full, a rate per annum equal to the
TV Rate identified in Exhibit B to the Lease.
"Payment Date" means each June 1 and December 1 through and including June
------------
1, 2015, commencing on December 1, 1999.
"Permitted Air Carrier" means (a) any Section 1110 Person and (b) any
---------------------
foreign air carrier that is principally based in any foreign country listed on
Exhibit E to the Lease except those that do not maintain normal diplomatic
relations with the United States and, with respect to both clause (a) and (b) of
this definition, which shall not then be subject to a proceeding or final order
under applicable bankruptcy, insolvency or reorganization laws.
"Permitted Investments" means (a) direct obligations of the United States
---------------------
of America or any agency or instrumentality thereof, (b) obligations fully
guaranteed by the United States of America or any agency or instrumentality
thereof, (c) any mutual fund the portfolio of which is limited to obligations of
the type described in clauses (a) and (b), including any proprietary mutual fund
of Allfirst Bank for which such bank or an affiliate is investment advisor or to
which such bank provides other services to such mutual fund and receives
reasonable compensation for such services, (d) certificates of deposit issued
by, or bankers' acceptances of, or time deposits or a deposit account with, any
bank, trust company, or national banking association incorporated or doing
business under the laws of the United States of America or one of the states
thereof, having a combined capital and surplus of at least $100,000,000 and
having a short-term debt rating of "A1" by Standard & Poor's or "P1" by Moody's
Investors Service, Inc. (or, if neither such organization shall provide such
ratings at any time, a rating equal to the highest ratings assigned by any
nationally recognized rating organization in the United States of America) and
having a final maturity of one year or less from date of purchase thereof; (e)
commercial paper issued by companies in the United States which directly issue
their own commercial paper and which are doing business under the laws of the
United States of America or one of the states thereof and in each case having a
rating assigned to such commercial paper by a nationally recognized rating
organization in the United States of America equal to the highest short-term
debt rating assigned by such organization, or (f) obligations of the type
described in clauses (a) or (b) above, purchased from any bank, trust company,
or banking association referred to in clause (d) above pursuant to repurchase
agreements obligating such bank, trust company, or banking association to
repurchase any such obligation not later than 30 days after the purchase of any
such obligation. Unless otherwise specified in writing by the Indenture Trustee
(or after the Lien of the Indenture has been discharged, the Owner Trustee), all
such Permitted Investments shall mature not later than 30 days from the date of
purchase. If any of the above investments are unavailable, the entire amount to
be invested may be used to purchase Federal Funds overnight from an entity
described in (d) above.
"Permitted Lien" has the meaning given to such term in Section 10 of the
--------------
Lease.
<PAGE>
"Permitted Sublessee" means (a) any Permitted Air Carrier, (b) any airframe
-------------------
or engine manufacturer, or Affiliate of such a manufacturer, who is domiciled in
the United States of America or a country listed on Exhibit E to the Lease or
(c) the United States of America or any instrumentality or agency thereof.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, entity or government (federal, state, local, foreign
or any agency, instrumentality, division or body thereof) or other entity of
whatever nature.
"Purchase Agreement" means Bombardier Regional Aircraft Division Purchase
------------------
Agreement No. PA-0393 dated September 17, 1997, as amended, between the Lessee
and the Manufacturer (including all exhibits thereto, together with all letter
agreements entered into that by their terms constitute part of such Purchase
Agreement).
"Purchase Agreement Assignment" means the Purchase Agreement Assignment
-----------------------------
[N583ML], dated as of August 10, 1999, between Lessee and Owner Trustee.
"Purchase Price" means an amount equal to Lessor's Cost.
--------------
"Reasonable Basis" means that a realistic possibility of success, within
----------------
the meaning of ABA Formal Opinion No. 85-352, exists for pursuing such contest.
"Recovery Period" means "Tax Attribute Period" as defined in the Tax
---------------
Indemnity Agreement.
"Refinancing" has the meaning given to such term in Section 13.01 of the
-----------
Participation Agreement.
"Register" has the meaning given to such term in Section 2.07 of the
--------
Indenture.
"Registrar" has the meaning given to such term in Section 2.07 of the
---------
Indenture.
"Regulation D" means Regulation D of the Board of Governors of the Federal
------------
Reserve System (or any successor), as the same may be modified and supplemented
and in effect from time to time.
"Related Tax Indemnitee" means any Affiliate of any Tax Indemnitee.
----------------------
"Remaining Weighted Average Life" means on a given date with respect to any
-------------------------------
Equipment Note the number of days equal to the quotient obtained by dividing (i)
the sum of each of the products obtained by multiplying (a) the amount of each
then remaining scheduled payment of
<PAGE>
principal of such Equipment Note by (b) the number of days from and including
such date to but excluding the dates on which each such payment of principal is
scheduled to be made; by (ii) the then outstanding principal amount of such
Equipment Note.
"Renewal Term" has the meaning given to such term in Section 13(a) of the
------------
Lease.
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"Rent Payment Date" means each Payment Date during the Term.
-----------------
"Replacement Aircraft" means any Aircraft of which a Replacement Airframe
--------------------
is part.
"Replacement Airframe" means a Canadair Regional Jet Series 200ER series
--------------------
aircraft or a comparable or improved model of such aircraft of the Manufacturer
(except Engines or engines from time to time installed thereon) which shall have
become subject to the Lease pursuant to Section 8 thereof.
"Replacement Closing Date" has the meaning given such term in Section 8(d)
------------------------
of the Lease.
"Replacement Engine" means a General Electric CF34-3B1 Series 200 engine
------------------
(or engine of the same manufacturer of a comparable or an improved model and
suitable for installation and use on the Airframe), which has a value, utility
and remaining useful life at least equal to, and which is in good operating
condition as, the Engine to be replaced thereby (assuming that such Engine being
replaced was in the condition required to be maintained in accordance with the
Lease), and which shall have become subject to the Lease pursuant to Section
7(e) thereof; provided that, such engine shall be compatible with the other
-------- ----
Engine, and shall be an engine of a type then being utilized by the Lessee on
other Canadair Regional Jet Series 200 aircraft operated by the Lessee.
"Residual Agreement" has the meaning given to such term in the recitals of
------------------
the Participation Agreement.
"Responsible Officer" means, with respect to the Owner Trustee or the
-------------------
Indenture Trustee, any officer in its Corporate Trust Administration, as the
case may be, designated by such Person to perform obligations under the
Operative Agreements, and with respect to any other party, any corporate officer
of a party who, in the normal performance of his or her operational
responsibilities, with respect to the subject matter of any covenant, agreement
or obligation of such party pursuant to any Operative Agreement, would have
responsibility for and knowledge of such matter and the requirements of any
Operative Agreement with respect thereto.
"Return Condition Agreement" means the Return Condition Agreement [N583ML],
--------------------------
dated as of August 10, 1999, between the Manufacturer and the Lessee.
<PAGE>
"SEC" means the Securities and Exchange Commission of the United States and
---
any successor agencies or authorities.
"Section 1110" means 11 U.S.C. (S) 1110 or any successor or analogous
------------
section of the federal bankruptcy law in effect from time to time.
"Section 1110 Person" means a Citizen of the United States who is an air
-------------------
carrier holding a valid air carrier operating certificate issued pursuant to 49
U.S.C. ch. 447 for aircraft capable of carrying 10 or more individuals.
"Secured Obligations" has the meaning specified in the Granting Clause of
-------------------
the Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller" has the meaning given to such term in Exhibit B to the Lease.
------
"Security Trustee" means NatWest Aerospace Trust Company Limited, as
----------------
Security Trustee under the Deed of Charge, Assignment and Priorities dated April
20, 1998, among, inter alia, the initial Loan Participant, as at any time
amended, modified, novated or replaced by any corresponding agreement or
agreements (the "Deed of Charge"), or any other person acting as Security
Trustee under the Deed of Charge as from time to time designated in writing to
the Lessee.
"Specified Default" means (a) an event or condition described in Section
-----------------
16(a), (b), (f), (g), (h), (k) or (l) of the Lease that, after the giving of
notice or lapse of time, or both, would become an Event of Default, or (b) any
Event of Default.
"Specified Indenture Default" means (a) any Specified Default, or (b) any
---------------------------
Indenture Default arising under Sections 4.02(b), 4.02(c), 4.02(h) or 4.02(i) of
the Indenture.
"Specified Lease" means, at any time of determination, any lease under
---------------
which an aircraft is leased to the Lessee, if the Owner Participant or an
Affiliate of the Owner Participant, or a trustee for the benefit of the Owner
Participant or an Affiliate of the Owner Participant, shall be the lessor under
such lease.
"Sublease" means any sublease agreement between the Lessee and a Permitted
--------
Sublessee as permitted by Section 5(b) of the Lease.
"Supplemental Rent" means (a) all amounts, liabilities, indemnities and
-----------------
obligations which the Lessee assumes or agrees to perform or pay under the Lease
or under the Participation Agreement or Tax Indemnity Agreement or any other
Operative Agreement to the Lessor, the Owner Participant, the Indenture Trustee,
any Noteholder or others, including payments of Termination Value, EBO Amount,
and amounts calculated by reference to Termination Value, any amounts of
<PAGE>
Make-Whole Amount payable under the Indenture to the extent provided in Section
3(c) or Section 14 of the Lease, all other amounts payable under Section 3(c) of
the Lease, and all amounts required to be paid by Lessee under the agreements,
covenants, and indemnities contained in the Lease or in the Participation
Agreement or the Tax Indemnity Agreement or any other Operative Agreement, but
excluding Basic Rent, and (b) all amounts that the Owner Trustee is obligated to
pay in accordance with Section 2.14 of the Indenture.
"Tax" or "Taxes" has the meaning set forth in Section 6.01(a) of the
--- -----
Participation Agreement.
"Tax Indemnitee" means each Indemnitee.
--------------
"Tax Indemnity Agreement" means the Tax Indemnity Agreement [N583ML], dated
-----------------------
as of August 10, 1999 between the Lessee and the Owner Participant.
"Term" has the meaning given to such term in Section 3(a) of the Lease.
----
"Termination Date" means each date listed in the column entitled
----------------
"Termination Date" in Exhibit D to the Lease or, during a Renewal Term or
otherwise during any period following the last day of the Term, the second day
of each month.
"Termination Value" means (a) as of any Termination Date during the Basic
-----------------
Term, the amount determined as set forth in Exhibit D to the Lease for that
Termination Date, and (b) during any Renewal Term, the amount for the date
involved, determined in accordance with Section 13(a) of the Lease, in either
case adjusted as required by Section 3(d) of the Lease.
"Transaction Costs" means those costs and expenses set forth in Section
-----------------
8.01(a) of the Participation Agreement.
"Transportation Code" means Title 49 of the United States Code, subtitle
-------------------
VII, as amended and in effect on the date of the Lease or as subsequently
amended, or any successor or substituted legislation at the time in effect and
applicable, and the regulations promulgated pursuant thereto.
"Treasury Rate" means for any Designated Maturity, the average yield to
-------------
maturity of, and resulting from the bidding for, the most recently auctioned
United States Treasury Notes with maturities equal to such Designated Maturity
on the date three Business Days prior to the relevant calculation of Make-Whole
Amount; and if United States Treasury Notes with such a maturity are not then
auctioned and publicly traded, the weighted average yield to maturity of United
States Treasury Notes with maturities next above and below such Designated
Maturity (calculated as provided below); such yields in each case to be
determined by averaging (and rounding upward to the nearest whole multiple of
1/1000 of 1% per annum, if the average is not such a multiple) the yields of the
relevant United States Treasury Notes (rounded, if necessary, to the nearest
1/1000 of
<PAGE>
1% with any figure of 1/2000 of 1% or above rounded upward) as displayed on the
applicable Telerate screen (page 7677), or if such screen is not available, as
quoted by two reputable dealers in United Stated Treasury Notes selected by a
Majority in Interest of Noteholders, in either case, at approximately 11:00 a.m.
New York time on the date, and notified to the Lessee, the Indenture Trustee and
the Noteholders; any weighted average yield of United States Treasury Notes with
two maturities is to be calculated in accordance with the following formula:
(Y2-Y1)(DM-X1)
-------------------
WAY=Y1+ (X2-X1)
Where:
WAY = Weighted Average Yield
DM = relevant Designated Maturity
X1 = whole integer in years closest to and less than DM which equals
the maturity of a United States Treasury Note then publicly
traded.
X2 = whole integer in years closest to and greater than DM which equals
the maturity of a United States Treasury Note then publicly
traded.
Y1 = yield, determined as provided above, of United States Treasury
Notes then most recently auctioned with maturities equal to X1.
Y2 = yield, determined as provided above, of United States Treasury
Notes then most recently auctioned with maturities equal to X2.
"Trust Agreement" means the Trust Agreement [N583ML], dated as of August
---------------
10, 1999, between the Owner Participant and the Trust Company.
"Trust Company" means First Union Trust Company, National Association, a
-------------
national banking association, and its successors and permitted assigns.
"Trust Estate" means the Lessor's Estate.
------------
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
-------------------
"Uniform Commercial Code" means the Uniform Commercial Code as in effect
-----------------------
from time to time in any relevant jurisdiction.
"United States", "U.S." or "US" means the United States of America.
------------- ---- --
<PAGE>
"U.S. Person" means a Person described in (S) 7701(a)(30) of the Code.
-----------
"Warranty Bill of Sale" means (A) the full warranty bill of sale covering
---------------------
the Aircraft (and specifically referring to each Engine) executed by the Seller
in favor of the Owner Trustee and to be dated the Delivery Date, and (B) a full
warranty bill of sale covering a Replacement Aircraft (and specifically
referring to each Engine) executed by the seller thereof in favor of the Owner
Trustee.
<PAGE>
Exhibit A
to Lease Agreement
LEASE SUPPLEMENT NO. 1 [N583ML]
-------------------------------
THIS LEASE SUPPLEMENT NO. 1 [N583ML] dated August _____, 1999, between
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, not in its individual capacity,
but solely as Owner Trustee, except as otherwise provided herein, the Lessor,
and MIDWAY AIRLINES CORPORATION, a Delaware corporation, the Lessee;
W I T N E S S E T H :
WHEREAS, the Lessor and the Lessee have heretofore entered into that
certain Lease Agreement [N583ML], dated as of August 10, 1999 (the "Lease", the
terms defined therein being herein used with the same meaning), which Lease
provides, among other things, for the execution and delivery of Lease
Supplements in substantially the form hereof for the purpose of leasing a
specific Aircraft under the Lease when delivered by the Lessor to the Lessee in
accordance with the terms thereof;
WHEREAS, the Lease, a counterpart of which is attached hereto and made
a part hereof, relates to the Aircraft and Engines described in Schedule I
hereto and this Lease Supplement, together with such attachment, is being filed
for recordation on the date hereof with the FAA as one document;
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, and pursuant to Section 2 of the Lease, the Lessor and
the Lessee hereby agree as follows:
1. The Lessor hereby delivers and leases to the Lessee, and the
Lessee hereby accepts and leases from the Lessor, under the Lease as herein
supplemented, the Aircraft, described in Schedule I hereto.
2. The Delivery Date is the date of this Lease Supplement set
forth in the opening paragraph hereof.
3. The Basic Term shall commence on the Delivery Date and continue
through February __, 2016 (the "Expiration Date"), unless terminated earlier as
provided in the Lease.
4. Lessee hereby confirms to Lessor that Lessee has duly and
irrevocably accepted the Aircraft under and for all purposes hereof, of the
Lease and of the other Lessee Documents.
<PAGE>
5 All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
6. This Lease Supplement may be executed by the parties hereto in
separate counterparts and all such counterparts shall together constitute but
one and the same instrument. To the extent, if any, that this Lease Supplement
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no security interest in this
Lease Supplement or the Lease may be created through the transfer or possession
of any counterpart other than the original counterpart of each thereof
containing the receipt therefor executed by the Indenture Trustee on the
signature page of each thereof.
7. THIS LEASE SUPPLEMENT HAS BEEN DELIVERED IN THE STATE OF NEW
YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease Supplement to be duly executed by their authorized officers as of the day
and year first above written.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
not in its individual capacity,
but solely as Owner Trustee
By:_____________________________
Name:
Title:
MIDWAY AIRLINES CORPORATION
By:_____________________________
Name:
Title:
<PAGE>
THE LESSOR HAS ASSIGNED THIS LEASE SUPPLEMENT TO THE INDENTURE TRUSTEE
AS SECURITY. TO THE EXTENT, IF ANY, THAT THIS LEASE SUPPLEMENT CONSTITUTES
CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN
EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE
SUPPLEMENT MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART
HEREOF OTHER THAN THE ORIGINAL COUNTERPART CONTAINING THE RECEIPT THEREFOR
EXECUTED BY THE INDENTURE TRUSTEE IMMEDIATELY FOLLOWING THIS LEGEND.
Receipt of this original counterpart of the foregoing Lease Supplement
is hereby acknowledged on this _____ day of August, 1999.
ALLFIRST BANK, as Indenture Trustee
By: ______________________________
Name:
Title:
<PAGE>
SCHEDULE I
TO LEASE SUPPLEMENT
DESCRIPTION OF AIRFRAME AND ENGINES
-----------------------------------
AIRFRAME
Manufacturer's FAA Registration Manufacturer's
Manufacturer Model No. Serial No.
- ------------ -------------- ---------------- --------------
Bombardier Inc. CL-600-2B19 N583ML 7327
ENGINES
Manufacturer's Manufacturer's
Manufacturer Model Serial Nos.
- ------------ -------------- --------------
General Electric Company CF34-3B1 GE-E-872529
GE-E-872530
Each Engine is of 750 or more "rated take-off horsepower" or the
equivalent of such horsepower.
<PAGE>
SCHEDULE I
TO EXHIBIT A
DESCRIPTION OF AIRFRAME AND ENGINES
-----------------------------------
<PAGE>
Exhibit B
Certain Economic Information
----------------------------
"EBO Amount" shall mean $ *.
----------
"EBO Date" shall mean December 1, 2013.
--------
"Lessor's Cost" shall mean $ *.
-------------
"Minimum Liability Amount" shall mean $200,000,000.
------------------------
"Transaction Costs" shall mean * % of Lessor's Cost.
-----------------
"Seller" shall mean Bombardier Capital Inc.
------
"Estimated Value" shall mean $ *.
---------------
"Compounded Discounted Rate" shall mean 14% per annum.
--------------------------
"TV Rate" shall mean a rate equal to the rate per annum announced from time to
-------
time by Citibank, N.A. as its prime rate plus two percent (2%) per annum.
"Renewal Rental Rate" shall mean $ * per annum.
-------------------
"Applicable Rate" shall mean * % per annum.
---------------
* Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
<PAGE>
Exhibit C
Basic Rent
----------
Basic Rent Payment Date Amount
- ----------------------- ------
Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
<PAGE>
Exhibit D
Termination Values
------------------
Termination Date Termination Value
- ---------------- -----------------
Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
<PAGE>
Exhibit E
List of Countries - Permitted for Re-Registration and Subleasing
------------------------------------------------------------------
Australia Italy
Austria Japan
Belgium Luxembourg
Canada Netherlands
Denmark New Zealand
Finland Norway *
France Portugal *
Germany Sweden
Iceland Switzerland
Ireland United Kingdom
* only for Subleasing
<PAGE>
Exhibit F
RETURN CONDITIONS
-----------------
The portion of this Exhibit appearing below this text is intentionally deleted
from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.
A. General Conditions Upon Return. Unless purchased by Lessee
------------------------------
pursuant to Section 13 of the Lease, at the time of return of the Airframe upon
the termination of the Lease at the end of the Basic Term or any Renewal Term
or pursuant to Section 14(c) or 17 of the Lease: (i) the Aircraft shall be
registered with the FAA in the name of the Lessor (except for a failure caused
by the Lessor being ineligible to be the registered owner of an aircraft
registered with the FAA), (ii the Aircraft shall have and be in compliance with
a currently valid standard certificate of airworthiness issued by the FAA and be
in compliance with Part 121 of the FAA Regulations (or successor regulations),
(ii the Aircraft shall be free and clear of all Liens (other than Lessor's
Liens) and rights of persons not party to any Operative Agreement under pooling,
interchange, overhaul, repair or similar agreements or arrangements, (iv the
Aircraft shall be in as good operating condition as when originally delivered to
Lessee, ordinary wear and tear excepted, and be fully equipped with two Engines
or other engines meeting the requirements of Replacement Engines, (v) the
Aircraft shall have all Lessee's and any Permitted Sublessee's exterior markings
removed or painted over and the areas where such markings were removed or
painted over refurbished as necessary to blend with adjacent areas, (vi the
Aircraft shall be in regular U.S. passenger configuration and with the same
number of seats as when delivered and the interior of the Aircraft shall be
clean in accordance with Lessee's customary standard for a "between flights"
cleaning, (vi the Aircraft will be in compliance with the maintenance provisions
of the Lease, and (vi the Aircraft shall have no outstanding airworthiness
directives issued by the FAA requiring terminating action by the date of return.
In the event the FAA shall issue any directive which would require improvements
to the Aircraft in order for the airworthiness certificate of the Aircraft to be
maintained in good standing, Lessee shall not apply for an extension of the date
of compliance with the directive as to the Aircraft to a date after the date of
return of the Aircraft pursuant to Section 12 of the Lease, unless it shall
previously or concurrently have applied for such an extension with respect to
all Canadair Regional Jet Series 200 ER aircraft in its fleet affected by such
directive.
B. Hours of Operation. Unless purchased by Lessee pursuant to
------------------
Section 13 of the Lease, at the time of return of the Airframe upon the
termination of the Lease at the end of the Basic Term or any Renewal Term or
pursuant to Section 14(c) or 17 of the Lease: (A) the Airframe shall have
remaining 25% of the hours or cycles of operation (whichever shall be
applicable) remaining until the Aircraft's next structural inspection (which
under the maintenance program in effect on the Delivery Date is the "C4"), all
as determined in accordance with the Lessee's (or any Permitted Sublessee's) FAA
approved maintenance program and (B) the number of hours or cycles of operation
(whichever shall be applicable under the maintenance program then in use with
respect to such Engine or engine) on each Engine or engine remaining until the
next scheduled life limited
<PAGE>
parts replacement, including hot section refurbishment, shall be at least 25% of
the hours or cycles (whichever shall be applicable) between such life limited
parts replacement, including hot section refurbishment, allowed under the
maintenance program then in use with respect to such Engine or engine which
shall have been approved by all necessary governmental approvals of the country
under the laws of which the Aircraft shall have then been registered.
If (A) the Airframe does not meet the conditions specified in said
clause (A) above, Lessee shall pay or cause to be paid to Lessor a Dollar amount
computed by multiplying (I) the cost of performing the next structural
inspection of the type referred to in such clause (A) at a rate then charged by
an outside maintenance provider to Lessee for performing such work (where such
rate would also be available to Lessor) by (II) a fraction of which (x) the
numerator shall be the excess of (A) 25% of the hours of operation allowable for
the Airframe between such structural inspection over (B) the number of hours of
operation remaining on the Airframe to the next such structural inspection and
(y) the denominator shall be the number of hours of operation allowable between
such structural inspection.
If any Engine or engine does not meet the conditions specified in
clause (B) above, Lessee shall pay or cause to be paid to Lessor, with respect
to any such Engine or engine, a Dollar amount computed by multiplying (aa) the
cost of performing the scheduled life limited parts replacement, including hot
section refurbishment, under the maintenance program then used by Lessee or any
Permitted Sublessee for an engine of the same model as such Engine at a rate
then charged by an outside maintenance provider to Lessee or such Permitted
Sublessee for performing such work (where such rate would also be available to
Lessor) by (cc) a fraction of which (x) the numerator shall be the excess of 25%
of the hours or cycles of operation (whichever is applicable) between life
limited part replacement allowable for an engine under the maintenance program
then in use with respect to such Engine or engine over the actual average number
of hours or cycles of operation on such Engine or engine remaining until the
next such scheduled life limited parts replacement, including hot section
refurbishment, and (y) the denominator shall be the number of hours or cycles
allowable between such scheduled life limited parts replacement, including hot
section refurbishment.
<PAGE>
Note to Exhibit 10.5
The following Lease Agreement is substantially identical in all material
respects to the Lease Agreement filed herewith except as follows:
Aircraft
Aircraft Rental and Manufacturer's
Date Expiration Date Tail No. Related Terms Serial No.
- ---- --------------- -------- ------------- --------------
August 10, 1999 February 16, 2016 N584ML * 7330
September 10, 1999 March 17, 2016 N585ML * 7334
* Confidential Treatment Requested
<PAGE>
EXHIBIT 10.6
CONFORMED COPY
--------------
LEASE SUPPLEMENT NO. 1 [N583ML]
-------------------------------
THIS LEASE SUPPLEMENT NO. 1 [N583ML] dated August 16, 1999, between
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, not in its individual capacity,
but solely as Owner Trustee, except as otherwise provided herein, the Lessor,
and MIDWAY AIRLINES CORPORATION, a Delaware corporation, the Lessee;
W I T N E S S E T H :
WHEREAS, the Lessor and the Lessee have heretofore entered into that
certain Lease Agreement [N583ML], dated as of August 10, 1999 (the "Lease", the
terms defined therein being herein used with the same meaning), which Lease
provides, among other things, for the execution and delivery of Lease
Supplements in substantially the form hereof for the purpose of leasing a
specific Aircraft under the Lease when delivered by the Lessor to the Lessee in
accordance with the terms thereof;
WHEREAS, the Lease, a counterpart of which is attached hereto and made
a part hereof, relates to the Aircraft and Engines described in Schedule I
hereto and this Lease Supplement, together with such attachment, is being filed
for recordation on the date hereof with the FAA as one document;
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, and pursuant to Section 2 of the Lease, the Lessor and
the Lessee hereby agree as follows:
1. The Lessor hereby delivers and leases to the Lessee, and the
Lessee hereby accepts and leases from the Lessor, under the Lease as herein
supplemented, the Aircraft, described in Schedule I hereto.
2. The Delivery Date is the date of this Lease Supplement set forth
in the opening paragraph hereof.
3. The Basic Term shall commence on the Delivery Date and continue
through February 16, 2016 (the "Expiration Date"), unless terminated earlier as
provided in the Lease.
4. Lessee hereby confirms to Lessor that Lessee has duly and
irrevocably accepted the Aircraft under and for all purposes hereof, of the
Lease and of the other Lessee Documents.
<PAGE>
5. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
6. This Lease Supplement may be executed by the parties hereto in
separate counterparts and all such counterparts shall together constitute but
one and the same instrument. To the extent, if any, that this Lease Supplement
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no security interest in this
Lease Supplement or the Lease may be created through the transfer or possession
of any counterpart other than the original counterpart of each thereof
containing the receipt therefor executed by the Indenture Trustee on the
signature page of each thereof.
7. THIS LEASE SUPPLEMENT HAS BEEN DELIVERED IN THE STATE OF NEW YORK
AND SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
* * *
2
<PAGE>
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease Supplement to be duly executed by their authorized officers as of the day
and year first above written.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
not in its individual capacity,
but solely as Owner Trustee
By: /s/ Stephen J. Kaba
-------------------
Name: Stephen J. Kaba
Title: Vice President
MIDWAY AIRLINES CORPORATION
By: /s/ Jonathan S. Waller
----------------------
Name: Jonathan S. Waller
Title: Senior Vice President
3
<PAGE>
SCHEDULE I
TO LEASE SUPPLEMENT
DESCRIPTION OF AIRFRAME AND ENGINES
-----------------------------------
AIRFRAME
Manufacturer's FAA Registration Manufacturer's
Manufacturer Model No. Serial No.
- ----------- -------------- ---------------- --------------
Bombardier Inc. CL-600-2B19 N583ML 7327
ENGINES
Manufacturer's Manufacturer's
Manufacturer Model Serial Nos.
- ------------ -------------- ---------------
General Electric Company CF34-3B1 GE-E-872529
GE-E-872530
Each Engine is of 750 or more "rated take-off horsepower" or the
equivalent of such horsepower.
<PAGE>
Note to Exhibit 10.6
The following Lease Supplement No. 1 is substantially identical in all material
respects to the Lease Supplement No. 1 filed herewith except as follows:
FAA Reg.
No. or Aircraft Engine
Aircraft Manufacturer's Manufacturer's
Date Expiration Date Tail No. Serial No. Serial Nos.
- ---- --------------- -------- -------------- --------------
August 10, 1999 February 16, 2016 N584ML 7330 GE-E-872547 &
GE-E-872546
September 10, 1999 March 17, 2015 N585ML 7334 GE-E-872527 &
GE-E-872528
<PAGE>
EXHIBIT 10.7
CONFORMED COPY
--------------
PURCHASE AGREEMENT ASSIGNMENT [N583ML], dated as of August 10, 1999,
between MIDWAY AIRLINES CORPORATION, a Delaware corporation (herein called the
"Assignor") and FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national
banking association, not in its individual capacity but solely as Owner Trustee
(herein called the "Assignee").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Assignor and Manufacturer are parties to the Purchase
Agreement, providing, among other things, for the manufacture by the
Manufacturer and the sale by the Manufacturer to the Assignor of certain
aircraft, engines and related equipment, including the Aircraft; and
WHEREAS, the Assignee wishes to acquire the Aircraft from Bombardier
Capital Inc. (the "Seller") and the Assignor, on the terms and conditions
hereinafter set forth, wishes to assign to the Assignee certain of the
Assignor's rights and interests under the Purchase Agreement and the Assignee is
willing to accept such assignment, as hereinafter set forth; and
WHEREAS, the Assignee intends to lease to the Assignor, and the
Assignor intends to lease from the Assignee, the Aircraft pursuant to the lease
agreement dated as of August 10, 1999 as the same may be amended, modified or
supplemented, between the Assignee, as lessor, and the Assignor, as lessee,
providing for the lease of the Aircraft (the "Lease").
NOW, THEREFORE, in consideration of mutual covenants and agreements
herein contained and for other valuable consideration, receipt of which is
hereby acknowledged by the Assignor, the parties hereto agree as follows:
1. For all purposes of this Assignment, except as otherwise
expressly provided or unless the context otherwise requires, all terms used
herein in capitalized form and not otherwise defined herein, shall have the
meanings set forth in Appendix A to the Lease.
2. Subject to the terms and conditions of this Assignment, Assignor
does hereby sell, assign and convey to Assignee, its successors and permitted
assigns all of Assignor's rights in and to the Purchase Agreement as and to the
extent that the same relate to the Aircraft and the purchase and operation
thereof (except to the extent reserved below), including, without
<PAGE>
limitation, all warranty and indemnity provisions in the Purchase Agreement with
respect to the Aircraft and all claims thereunder in respect of the Aircraft,
and any and all rights of the Assignor to compel performance of the terms of the
Purchase Agreement in respect of the Aircraft, reserving to Assignor, however,
--------- -- -------- -------
(i) all the Assignor's rights and interests in and to the Purchase Agreement to
the extent that each relates to aircraft other than the Aircraft and the
purchase and operation of such aircraft and to the extent that each relates to
any other matters not directly pertaining to the Aircraft, (ii) so long as the
Aircraft shall be subject to the Lease and no Event of Default shall have
occurred and be continuing and the Assignee or the Indenture Trustee (as
assignee of the Assignee) has not commenced the exercise remedies set forth in
Section 17 of the Lease, all rights of the Assignor to obtain services,
training, product support, promotional support, publications or demonstrations
and test flights pursuant to the Purchase Agreement, and (iii) with respect to
the Aircraft, all of Assignor's rights with respect to payments made by Assignor
pursuant to the Purchase Agreement (including without limitation any post-
delivery adjustments to the purchase price or amounts credited or to be credited
by the Manufacturer to Assignor). The foregoing assignment is subject to the
conditions that (i) concurrently with its execution, Assignee shall lease the
Aircraft to Assignor under the Lease and (ii) the written consent of the
Manufacturer to such assignment (the "Consent and Agreement") be provided in the
form of the Annex hereto.
Unless an Event of Default shall have occurred and be continuing and
the Assignee or the Indenture Trustee (as assignee of the Assignee) shall have
commenced the exercise of remedies set forth in Section 17 of the Lease, and
subject to the provisions hereof, the Assignee shall and it does hereby
authorize the Assignor during the Term as Lessee under the Lease, to the
exclusion of the Assignee, to exercise in the Assignor's name, all rights and
powers of the "Buyer" under the Purchase Agreement and any warranty with respect
to the Aircraft made by the Manufacturer or any subcontractor or supplier, and
any other claims against the Manufacturer or any such subcontractor or supplier
with respect to the Aircraft, except that the Assignor may not enter into any
change, order or other amendment, modification or supplement to the Purchase
Agreement insofar as it relates to the Aircraft without the written consent of
the Assignee if such change, order, amendment, modification or supplement would
result in any recission, cancellation or termination of the Purchase Agreement
in respect to the Aircraft or otherwise materially adversely affect Assignee's
rights assigned hereunder. Any recovery or benefit resulting from enforcement of
any warranty, indemnity or claim shall be applied to remedy any defect in
respect of the Aircraft (or to reimburse the Assignor for its remedying of any
such defect) and the balance to be paid to the Assignor or the Assignee, as
their interests may appear. Assignee hereby accepts the foregoing assignment
subject to the terms hereof.
3. It is expressly agreed that, anything herein contained to the
contrary notwithstanding: (a) the Assignor shall at all times remain liable to
the Manufacturer under the Purchase Agreement to perform all the duties and
obligations of the "Buyer" thereunder to the
2
<PAGE>
same extent as if this Assignment had not been executed; (b) the exercise by the
Assignee of any of the rights assigned hereunder shall not release the Assignor
from any of its duties or obligations to the Manufacturer under the Purchase
Agreement except to the extent that such exercise by the Assignee shall
constitute performance of such duties and obligations; and (c) except as
provided herein, the Assignee, the Indenture Trustee, the Owner Participant, the
Noteholders or the Trust Company shall not have any obligation or liability
under the Purchase Agreement by reason of, or arising out of, this Assignment or
be obligated to perform any of the obligations or duties of the Assignor under
the Purchase Agreement or to make any payment or to make any inquiry as to the
sufficiency of any payment received by it or to present or file any claim or to
take any other action to collect or enforce any claim for any payment assignment
hereunder.
Without in any way releasing the Assignor from any of its duties or
obligations under the Purchase Agreement, the Assignee confirms for the benefit
of the Manufacturer that, insofar as the provisions of the Purchase Agreement
relate to the Aircraft, in exercising any rights under the Purchase Agreement,
or in making any claim with respect to the Aircraft or other things (including
data, documents, training and services) delivered or to be delivered pursuant to
the Purchase Agreement, the terms and conditions of the Purchase Agreement shall
apply to, and be binding upon, the Assignee to the same extent as the Assignor.
Nothing contained herein shall subject the Manufacturer to any
liability to which it would not otherwise be subject under the Purchase
Agreement or modify in any respect the contract rights of the Manufacturer under
the Purchase Agreement.
At any time after an Event of Default shall have occurred and be
continuing and the Assignee shall have commenced the exercise of remedies set
forth in Section 17 of the Lease, the Assignee or the Indenture Trustee (as
assignee of the Assignee) and its successors and permitted assigns shall, to the
exclusion of the Assignor, be entitled to assert and enforce all rights and
claims of the "Buyer" under the Purchase Agreement assigned hereunder (including
the right to receive payments), and the Assignor agrees to cooperate with the
Assignee in asserting such rights and claims, and the Assignor does hereby
constitute, effective at any time after an Event of Default shall have occurred
and be continuing and the Assignee or the Indenture Trustee (as assignee of the
Assignee) shall have commenced the exercise of remedies set forth in Section 17
of the Lease, the Assignee, its successors and assigns, the Assignor's true and
lawful attorney, irrevocably, with full power (in the name of the Assignor or
otherwise) to ask, require, demand, receive, compound and give acquittance for
any and all monies and claims for monies due or to become due under, or arising
out of, the Purchase Agreement in respect of the Aircraft, to the extent that
the same have been expressly assigned by this Assignment and for such period as
the Assignee may exercise rights with respect thereto under this Assignment, to
endorse any checks or other instruments or orders in connection therewith and to
file any claims or take any action or
3
<PAGE>
institute (or, if previously commenced, assume control of) any proceedings and
to obtain any recovery in connection therewith that the Assignee may deem to be
necessary or advisable with respect to such monies and claims for monies.
For all purposes of this Assignment, the Manufacturer shall not be
deemed to have knowledge of and need not recognize nor take any action with
respect to the occurrence of any Event of Default, the declaration of an Event
of Default, or the exercise of remedies set forth in Section 17 of the Lease by
the Assignee, the discontinuance of any Event of Default or the Aircraft's
becoming no longer subject to the Lease or the Assignor's no longer being
entitled to possession of the Aircraft unless and until the Manufacturer shall
have received from the Assignee written notice thereof and the Manufacturer may
act with acquittance and conclusively rely upon any such notice.
4. The Assignor agrees that at any time and from time to time, upon
the written request of the Assignee, the Assignor, at its own cost and expense,
will promptly and duly execute and deliver any and all such further instruments
and documents and take such further action as the Assignee may reasonably
request in order to obtain the full benefits of this Assignment and of the
rights and powers herein granted.
5. The Assignor does hereby represent and warrant that the Purchase
Agreement is in full force and effect as to the Assignor and is enforceable
against the Assignor in accordance with its terms. The Assignor further
represents and warrants that it has, with the authorized execution of the
Consent and Agreement, received all necessary consents to the assignment and
transfer contemplated herein.
6. The Assignor does hereby represent and warrant that it has not
assigned or pledged, and hereby covenants that it will not assign or pledge, so
long as this Assignment shall remain in effect, the whole or any part of the
rights hereby assigned or any of its rights with respect to the Aircraft under
the Purchase Agreement not assigned hereby, to anyone other than the Assignee.
The Assignor agrees that it will not enter into any agreement with the
Manufacturer that would materially and adversely affect the rights of the
parties under the Purchase Agreement insofar as it relates to the Aircraft or
waive any rights thereunder.
7. So long as the Aircraft is leased to the Assignor under the Lease
and unless an Event of Default shall have occurred and be continuing and the
Assignee or the Indenture Trustee (as assignee of the Assignee) shall have
commenced the exercise of remedies under Section 17 of the Lease, the Assignee
agrees that it will not enter into any agreement with the Manufacturer that
would amend, modify, rescind, cancel or terminate the Purchase Agreement insofar
as it relates to the Aircraft or waive any rights of Assignor thereunder without
the prior written consent of the Assignor.
4
<PAGE>
8. This Assignment is executed by the Assignor and the Assignee
concurrently with the execution and delivery of the Lease.
9. This Assignment shall be binding upon and shall inure to the
benefit of the Assignor, the Assignee and their respective successors and
permitted assigns.
10. Neither this Assignment nor any of the terms hereof may be
terminated, amended, supplemented, waived or modified orally, but only by an
instrument in writing signed by the parties hereto and consented to by the
Manufacturer.
11. This Assignment may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original
but all such counterparts shall together constitute but one and the same
instrument.
12. This Assignment shall in all respects be governed by, and
construed in accordance with, the laws of the State of New York, including all
matters of construction, validity and performance. This Assignment is being
delivered in the State of New York.
13. Except as otherwise expressly provided herein, notice hereunder
may be given, and shall be deemed to have been given, as provided in Section
12.01 of the Participation Agreement.
14. First Union Trust Company, National Association is entering into
this Assignment solely as Owner Trustee under the Trust Agreement and not in its
individual capacity and neither First Union Trust Company, National Association
nor any entity acting as successor Owner Trustee or additional Owner Trustee
under the Trust Agreement shall be personally liable for, or for any loss in
respect of, any of the statements, representations, warranties, agreements or
obligations stated to be those of the Assignee hereunder, as to which all
interested parties shall look solely to the Trust Estate, except to the extent
expressly provided otherwise in the other Operative Agreements, provided
--------
however, that nothing in this Section 14 shall be construed to limit in scope or
- -------
substance the liability of First Union Trust Company, National Association or
any entity acting as successor Owner Trustee or additional Owner Trustee under
the Trust Agreement in its individual capacity for the consequences of its own
willful misconduct or gross negligence or (in receiving, handling or remitting
funds) its simple negligence, or the inaccuracy or breach of its
representations, warranties or covenants made in such capacity in any other
Operative Agreements.
15. Pursuant to the Indenture, the Assignee has assigned and pledged
with the Indenture Trustee, as security for the Equipment Notes to be issued
thereunder, all of the
5
<PAGE>
Assignee's right, title and interest in and to the Purchase Agreement under this
Assignment. The Assignor acknowledges and consents to such assignment.
* * *
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to
be duly executed as of the day and year above written.
MIDWAY AIRLINES CORPORATION,
as Assignor
By: /s/ Jonathan S. Waller
----------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
not in its individual capacity but solely as Owner
Trustee,
as Assignee
By: /s/ Stephen J. Kaba
-------------------
Name: Stephen J. Kaba
Title: Vice President
7
<PAGE>
ANNEX
BOMBARDIER INC.
AIRCRAFT MANUFACTURER'S CONSENT AND AGREEMENT [N583ML]
------------------------------------------------------
The undersigned, Bombardier Inc. ("Manufacturer"), hereby acknowledges
notice of and consents to the terms of the foregoing Purchase Agreement
Assignment [N583ML] (the "Assignment") dated as of August 10, 1999, between
MIDWAY AIRLINES CORPORATION, a Delaware corporation (the "Assignor") and FIRST
UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, not
in its individual capacity but solely as Owner Trustee (the "Assignee"). The
capitalized terms used hereinafter being defined as such terms are defined in
the Assignment. The Manufacturer hereby confirms to Assignor and Assignee that
(i) the Assignee shall not be liable for any of the obligations or duties of the
Assignor under the Purchase Agreement, nor shall the Assignment give rise to any
duties or obligations whatsoever on the part of the Assignee owing to the
Manufacturer except for the Assignee's agreement in the Assignment to the effect
that in exercising any rights under the Purchase Agreement with respect to the
Aircraft, or in making any claim with respect to the Aircraft or other things
(including data, documents, training and services) delivered or to be delivered
pursuant to the Purchase Agreement, the terms and conditions of the Purchase
Agreement shall apply to and be binding upon the Assignee to the same extent as
the Assignor; (ii) the Manufacturer consents to sale of the Aircraft by the
Seller to the Assignee; (iii) the Manufacturer consents to the lease of the
Aircraft by the Assignee to the Assignor under the Lease; (iv) the Manufacturer
consents to the mortgage of, and grant of a security interest in, all of the
Assignee's right, title and interest in and to the Aircraft and this Assignment
by the Assignee pursuant to the Indenture; (v) pursuant to and in accordance
with the provisions of the Purchase Agreement, the Manufacturer consents to the
assignment of Assignor's interest in the Purchase Agreement as it relates to the
Aircraft to Assignee pursuant to the Assignment; (vi) all representations,
warranties, indemnities and agreements of Manufacturer under the Purchase
Agreement with respect to the Aircraft shall inure to the benefit of Assignee to
the same extent as if originally named the "Buyer" therein, except as otherwise
provided in the Assignment; and (vii) during the Term the Manufacturer will
continue to pay all amounts and provide all goods and services to Assignor which
it may be required to pay or provide in respect of the Aircraft under the
Purchase Agreement unless and until the Manufacturer shall have then received
written notice in the manner specified in Section 3 of the Assignment from
Assignee that an Event of Default has occurred and is continuing and the
Assignee or the Indenture Trustee (as assignee of the Assignee) has commenced
the exercise of remedies set forth in Section 17 of the Lease, whereupon the
Manufacturer will pay such amounts or provide such goods and services directly
1
<PAGE>
to the Assignee unless and until the Manufacturer shall have then received
written notice in the manner specified in Section 3 of the Assignment from
Assignee that no such Event of Default is continuing and remains unremedied,
whereupon the Manufacturer will pay such amounts or provide such goods and
services to Assignor. Any notice to be delivered to the Manufacturer as
contemplated by the preceding sentence shall be addressed to the Manufacturer as
follows:
Bombardier Aerospace
Regional Aircraft
123 Garratt Boulevard
Downsview Ontario M3K 1Y5
Attention: Director, Contracts Americas
The Manufacturer hereby represents and warrants that: (i) the
Manufacturer is a corporation duly organized and existing in good standing under
the laws of Canada; (ii) the making and performance of the Purchase Agreement
and this Consent and Agreement have been duly authorized by all necessary
corporate action on the part of the Manufacturer, do not require any stockholder
or other approval, and do not contravene the Manufacturer's Certificate of
Incorporation or By-Laws or any indenture, credit agreement or other contractual
agreement to which the Manufacturer is a party or by which it is bound, and the
making of the Purchase Agreement and this Consent and Agreement does not
contravene, and to the best of the Manufacturer's knowledge, the Manufacturer's
performance of the Purchase Agreement and this Consent and Agreement does not
contravene any law binding on the Manufacturer; and (iii) each of the Purchase
Agreement and this Consent and Agreement constitutes a legal, valid and binding
obligation of the Manufacturer enforceable against the Manufacturer in
accordance with its respective terms, except that the enforceability of each may
be (a) limited by applicable bankruptcy, reorganization, insolvency, moratorium
or other similar laws affecting the enforceability of creditors' rights
generally and (b) subject to the application of equitable principles and the
availability of equitable remedies.
The Manufacturer's consent to the Assignment is subject to and
conditional upon the agreement of Assignor and Assignee that nothing in the
Assignment shall vary or modify the rights and obligations of the Manufacturer
under the Purchase Agreement and that all limitations or exclusions on liability
provisions under the Purchase Agreement for the benefit of the Manufacturer and
its Affiliates shall apply to Assignee and to the Assignor as if the Assignor
remained the Buyer under the Purchase Agreement.
This Consent and Agreement shall be governed by, and construed in
accordance with, the law of the State of New York, U.S.A.
* * *
2
<PAGE>
IN WITNESS WHEREOF, the Manufacturer has caused this Aircraft
Manufacturer's Consent and Agreement to be duly executed as of August 10, 1999.
BOMBARDIER INC.
By: ____________________________________
Name:
Title:
By: ____________________________________
Name:
Title:
3
<PAGE>
CONFORMED COPY
--------------
BOMBARDIER INC.
AIRCRAFT MANUFACTURER'S CONSENT AND AGREEMENT [N583ML]
------------------------------------------------------
The undersigned, Bombardier Inc. ("Manufacturer"), hereby acknowledges
notice of and consents to the terms of the foregoing Purchase Agreement
Assignment [N583ML] (the "Assignment") dated as of August 10, 1999, between
MIDWAY AIRLINES CORPORATION, a Delaware corporation (the "Assignor") and FIRST
UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, not
in its individual capacity but solely as Owner Trustee (the "Assignee"). The
capitalized terms used hereinafter being defined as such terms are defined in
the Assignment. The Manufacturer hereby confirms to Assignor and Assignee that
(i) the Assignee shall not be liable for any of the obligations or duties of the
Assignor under the Purchase Agreement, nor shall the Assignment give rise to any
duties or obligations whatsoever on the part of the Assignee owing to the
Manufacturer except for the Assignee's agreement in the Assignment to the effect
that in exercising any rights under the Purchase Agreement with respect to the
Aircraft, or in making any claim with respect to the Aircraft or other things
(including data, documents, training and services) delivered or to be delivered
pursuant to the Purchase Agreement, the terms and conditions of the Purchase
Agreement shall apply to and be binding upon the Assignee to the same extent as
the Assignor; (ii) the Manufacturer consents to sale of the Aircraft by the
Seller to the Assignee; (iii) the Manufacturer consents to the lease of the
Aircraft by the Assignee to the Assignor under the Lease; (iv) the Manufacturer
consents to the mortgage of, and grant of a security interest in, all of the
Assignee's right, title and interest in and to the Aircraft and this Assignment
by the Assignee pursuant to the Indenture; (v) pursuant to and in accordance
with the provisions of the Purchase Agreement, the Manufacturer consents to the
assignment of Assignor's interest in the Purchase Agreement as it relates to the
Aircraft to Assignee pursuant to the Assignment; (vi) all representations,
warranties, indemnities and agreements of Manufacturer under the Purchase
Agreement with respect to the Aircraft shall inure to the benefit of Assignee to
the same extent as if originally named the "Buyer" therein, except as otherwise
provided in the Assignment; and (vii) during the Term the Manufacturer will
continue to pay all amounts and provide all goods and services to Assignor which
it may be required to pay or provide in respect of the Aircraft under the
Purchase Agreement unless and until the Manufacturer shall have then received
written notice in the manner specified in Section 3 of the Assignment from
Assignee that an Event of Default has occurred and is continuing and the
Assignee or the Indenture Trustee (as assignee of the Assignee) has commenced
the exercise of remedies set forth in Section 17 of the Lease, whereupon the
Manufacturer will pay such amounts or provide such goods and services directly
to the Assignee unless and until the Manufacturer shall have then received
written notice in the manner specified in Section 3 of the Assignment from
Assignee that no such Event of Default is continuing and remains unremedied,
whereupon the Manufacturer will pay such amounts or provide such goods and
services to Assignor. Any notice to be delivered to the Manufacturer as
contemplated by the preceding sentence shall be addressed to the Manufacturer as
follows:
<PAGE>
Bombardier Aerospace
Regional Aircraft
123 Garratt Boulevard
Downsview Ontario M3K 1Y5
Attention: Director, Contracts Americas
The Manufacturer hereby represents and warrants that: (i) the
Manufacturer is a corporation duly organized and existing in good standing under
the laws of Canada; (ii) the making and performance of the Purchase Agreement
and this Consent and Agreement have been duly authorized by all necessary
corporate action on the part of the Manufacturer, do not require any stockholder
or other approval, and do not contravene the Manufacturer's Certificate of
Incorporation or By-Laws or any indenture, credit agreement or other contractual
agreement to which the Manufacturer is a party or by which it is bound, and the
making of the Purchase Agreement and this Consent and Agreement does not
contravene, and to the best of the Manufacturer's knowledge, the Manufacturer's
performance of the Purchase Agreement and this Consent and Agreement does not
contravene any law binding on the Manufacturer; and (iii) each of the Purchase
Agreement and this Consent and Agreement constitutes a legal, valid and binding
obligation of the Manufacturer enforceable against the Manufacturer in
accordance with its respective terms, except that the enforceability of each may
be (a) limited by applicable bankruptcy, reorganization, insolvency, moratorium
or other similar laws affecting the enforceability of creditors' rights
generally and (b) subject to the application of equitable principles and the
availability of equitable remedies.
The Manufacturer's consent to the Assignment is subject to and
conditional upon the agreement of Assignor and Assignee that nothing in the
Assignment shall vary or modify the rights and obligations of the Manufacturer
under the Purchase Agreement and that all limitations or exclusions on liability
provisions under the Purchase Agreement for the benefit of the Manufacturer and
its Affiliates shall apply to Assignee and to the Assignor as if the Assignor
remained the Buyer under the Purchase Agreement.
This Consent and Agreement shall be governed by, and construed in
accordance with, the law of the State of New York, U.S.A.
* * *
<PAGE>
IN WITNESS WHEREOF, the Manufacturer has caused this Aircraft
Manufacturer's Consent and Agreement to be duly executed as of August 10, 1999.
BOMBARDIER INC.
By: /s/ Daniel Desjardins
---------------------
Name: Daniel Desjardins
Title: Vice President, Legal Services
By: /s/ Francois Lemarchand
-----------------------
Name: Francois Lemarchand
Title: Vice President and Treasurer
<PAGE>
Note to Exhibit 10.7
The following Purchase Agreement Assignment is substantially identical in all
material respects to the Purchase Agreement Assignment filed herewith except as
follows:
Date Aircraft Tail No.
---- -----------------
August 10, 1999 N584ML
September 10, 1999 N585ML
<PAGE>
EXHIBIT 10.8
CONFORMED COPY
--------------
ENGINE WARRANTY ASSIGNMENT
[N583ML]
between
MIDWAY AIRLINES CORPORATION
and
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
not in its individual capacity
but solely as Owner Trustee
and
GENERAL ELECTRIC COMPANY
ENGINE MANUFACTURER'S CONSENT AND AGREEMENT
<PAGE>
THIS ENGINE WARRANTY ASSIGNMENT [N583ML] is made this 10th day of
August, 1999 between MIDWAY AIRLINES CORPORATION, a Delaware corporation (the
"Assignor") and FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national
banking association, not in its individual capacity but solely as Owner Trustee
(the "Assignee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Assignor and General Electric Company (the "Engine
Manufacturer") are parties to the General Terms Agreement, providing, among
other things, for product support, including warranties for the support, of the
Engines covered thereby and related equipment given to the Assignor by the
Engine Manufacturer;
WHEREAS, the Assignee wishes to acquire certain rights and interests
in and to warranties relating to the Engines and the Assignor, on the terms and
conditions hereinafter set forth, is willing to assign to the Assignee such
rights and interests of the Assignor in and to such warranties, and the Assignee
is willing to accept such assignment, as hereinafter set forth; and
WHEREAS, the Engine Manufacturer is willing to execute and deliver to
the Assignee an Engine Manufacturer's Consent and Agreement (the "Engine
Manufacturer's Consent and Agreement") to the provisions hereof in substantially
the form of the Annex hereto.
IT IS HEREBY AGREED as follows:
In consideration of the mutual covenants herein contained and of the
Assignee's agreement in the Purchase Agreement Assignment to pay the purchase
price for the Aircraft on the terms and conditions therein stated, the parties
hereto agree as follows:
1. Definitions
-----------
1.1 For all purposes of this Assignment, except as otherwise
expressly provided or unless the context otherwise requires, the following terms
shall have the following meanings:
"Aircraft" means One Canadair Regional Jet Aircraft Model CL-600-2B19
--------
bearing manufacturer's serial number 7327 including two General Electric CF34-
3B1 turbofan engines bearing manufacturer's serial numbers GE-E-872529 and GE-E-
872530 respectively (collectively the "Engines"), installed on such aircraft at
the time of delivery.
"Aircraft Purchase Agreement" means the Bombardier Regional Aircraft
---------------------------
Division Purchase Agreement No. PA-0393 dated September 17, 1997, as amended,
between the Assignor
2
<PAGE>
and the Manufacturer (including all exhibits thereto, together with all letter
agreements entered into that by their terms constitute part of any such Aircraft
Purchase Agreement) whereby, inter alia, the Manufacturer has agreed to sell and
the Assignor has agreed to purchase the Aircraft.
"CF34 Warranty" means the CF34 Turbofan Engine Airline Operator
-------------
Warranty from the Engine Manufacturer, dated May 22, 1990, as contained in
Exhibit B of the General Terms Agreement.
"Engine Manufacturer" means General Electric Company, a New York
-------------------
corporation, and its successors and assigns.
"Event of Default" has the meaning given to such term in Section 16 of
----------------
the Lease.
"General Terms Agreement" means the General Terms Agreement No. CF34-
-----------------------
0897-065 entered into as of 25 May 1998 between the Engine Manufacturer and the
Assignor, including Article XIV (Limitation of Liability), but excluding any and
all letter agreements attached thereto.
"Lease" means the lease agreement [N583ML] dated as of August 10, 1999
-----
as the same may be amended, modified or supplemented, between the Assignee, as
lessor, and the As signor, as lessee, providing for the lease of the Aircraft.
"Manufacturer" means with respect to the Aircraft or Airframe,
------------
Bombardier Inc., a Canadian corporation represented by its Bombardier Regional
Aircraft Division, and its successor and assigns.
"Purchase Agreement Assignment" means the Purchase Agreement
-----------------------------
Assignment [N583ML] dated as of August 10, 1999, between the Assignor and
Assignee as the same may be amended, modified or supplemented from time to time,
together with the Consent and Agreement thereto executed by the Manufacturer.
"Warranties" means all warranties or assurances of any kind whatsoever
----------
relating to the Engines and related equipment manufactured by the Engine
Manufacturer contained in the CF34 Warranty and as limited by the applicable
terms of the General Terms Agreement.
1.2 All other capitalized terms used and not otherwise defined herein
shall have the respective meanings set forth in Appendix A to the Lease
(including definitions incorporated therein by reference to another document).
3
<PAGE>
2. Assignment and Authorization of Assignor
----------------------------------------
2.1. The Assignor does hereby sell, assign, transfer and set over
unto the Assignee, its successors and permitted assigns, all of the Assignor's
rights and interests in and to the Warranties as and to the extent that the same
relate to the Engines and the operation thereof, except as and to the extent
expressly reserved below, including, without limitation, in such assignment, (a)
all claims for damages in respect of any Engine arising as a result of any
default by the Engine Manufacturer in respect of the Warranties under the CF34
Warranty and/or the General Terms Agreement, and (b) any and all rights of the
Assignor to compel performance of the terms of the CF34 Warranty and/or the
General Terms Agreement in respect of the Warranties; reserving exclusively to
the Assignor, however, (i) all of the Assignor's rights and interests in and to
the CF34 Warranty and/or the General Terms Agreement as and to the extent that
the same relate to engines other than the Engines and the purchase and operation
of such engines, (ii) any and all letter agreements, "concessions" and/or
"special guarantees" (as defined in the General Terms Agreement). The Assignee
hereby accepts such assignment.
2.2. Notwithstanding the foregoing, unless an Event of Default shall
have occurred and be continuing and the Assignee or the Indenture Trustee (as
assignee of the Assignee) shall have commenced the exercise of remedies set
forth in Section 17 of the Lease, the Assignee hereby authorizes the Assignor,
to exercise in the Assignor's name all rights in respect of the Warranties,
except that: the Assignor may not enter into any change order or other
amendment, modification or supplement to the CF34 Warranty and/or the General
Terms Agreement in respect of any Warranties without the prior written consent
or countersignature of the Assignee if such change, order, amendment,
modification or supplement would result in any rescission, cancellation or
termination of the CF34 Warranty and/or the General Terms Agreement (to the
extent it relates to any applicable Warranties) or otherwise materially
adversely affect Assignee's rights assigned hereunder.
2.3. For all purposes of this Assignment, the Engine Manufacturer
shall not be deemed to have knowledge of and need not recognize the occurrence,
the continuance or the discontinuance of any Event of Default under the Lease,
or the exercise of remedies set forth in Section 17 of the Lease by the Assignee
or the Indenture Trustee (as assignee of the Assignee), unless and until the
Engine Manufacturer shall have received from the Assignee written notice thereof
addressed to the Engine Manufacturer's Manager of Small Commercial Engine
Contracts, G.E. Aircraft Engines, 1000 Western Avenue, Lynn, Massachusetts,
01910, U.S.A., and, in acting in acquittance with the CF34 Warranty, the General
Terms Agreement and this Assignment, the Engine Manufacturer may conclusively
rely on such notice. Until such time as notice shall have been given by the
Assignee to the Engine Manufacturer that an Event of Default has occurred and is
continuing and the Assignee or the Indenture Trustee (as assignee of the
Assignee) has commenced the exercise of remedies set forth in Section 17 of the
Lease, the Engine Manufacturer shall with respect to the Warranties deal solely
and exclusively with the Assignor. The Assignee
4
<PAGE>
shall promptly after all such Events of Default shall have been remedied, give
written notice of the same to the Engine Manufacturer's Manager of Small
Commercial Engine Contracts as provided above, with a copy to the Assignor at
its address for notices set forth in Section 23(a) of the Lease, and upon the
Engine Manufacturer's receipt of such notice, the Engine Manufacturer shall, in
the absence of a notice from the Assignee to the Engine Manufacturer that an
Event of Default has occurred and is continuing and the Assignee or the
Indenture Trustee (as assignee of the Assignee) has commenced the exercise of
remedies set forth in Section 17 of the Lease, resume the sole and exclusive
dealings with the Assignor authorized by this Clause 2 and by the Engine
Manufacturer's Consent and Agreement.
2.4 The Assignment contained herein shall apply only to the Engines
(as installed on the Aircraft at the time of delivery) and shall not extend to
any replacement or substitute engine, unless and until the Engine Manufacturer
has received written notice thereof. The Engine Manufacturer shall not be
deemed to have knowledge of the replacement or substitution of an Engine due to
a Failure (as such term is defined in the CF34 Warranty, excluding normal wear,
tear and deterioration which can be restored by overhaul or repair), damage or
loss, until notified of such Failure, damage or loss. Notice shall be sent to:
Engine Manufacturer's Manager of Small Commercial Engine Contracts. Such notice
shall contain the serial number of the replaced or substituted Engine, the
serial number of the new engine and confirmation that such new engine shall be
subject to the terms and conditions of this Assignment.
3. Assignor's Continuing Obligations
---------------------------------
3.1 It is expressly agreed that, anything herein contained to the
contrary notwithstanding: (a) on or prior to the Delivery Date for the Aircraft
under the Purchase Agreement Assignment, the Assignor will perform its
obligations with respect to the Engines to be performed by it on or before such
Delivery Date, (b) the Assignor shall at all times remain liable to the Engine
Manufacturer under the terms and conditions of the General Terms Agreement to
perform all duties and obligations of the Assignor thereunder to the same extent
as if this Assignment had not been executed, (c) the exercise by the Assignee of
any of the rights assigned hereunder shall not release the Assignor from any of
its duties or obligations to the Engine Manufacturer under the General Terms
Agreement, except to the extent that such exercise by the Assignee shall
constitute performance of such duties and obligations, (d) after the Delivery
Date for the Aircraft, the Assignor will exercise its rights and perform its
obligations under the General Terms Agreement in respect of the Engines to the
extent that such rights and obligations have not been assigned hereunder, and
(e) except as specifically provided in Clause 3.2 with respect to the Assignee,
the Assignee shall not have any obligation or liability under the General Terms
Agreement by reason of or arising out of this Assignment or be obligated to
perform any of the obligations or duties of the Assignor under the General Terms
Agreement or to make any payment or to make any inquiry as to the sufficiency of
any payment received by it or to present or file any claim or to take any other
action to collect or enforce any claim for any payment assigned hereunder.
5
<PAGE>
3.2. Anything contained in this Assignment to the contrary
notwithstanding (but without in any way releasing the Assignor from any of its
duties or obligations under the General Terms Agreement), the Assignee confirms
expressly for the benefit of the Engine Manufacturer that, in exercising any
rights in and to the Warranties, or in making any claim with respect thereto,
the applicable terms and conditions of the General Terms Agreement, including
Article XIV (Limitation of Liability) and the Warranties shall apply to, and be
binding upon, the Assignee to the same extent as the Assignor. Nothing
contained herein shall in any way diminish or limit the provisions of the
Assignor's indemnities in the Lease and the Participation Agreement and in the
Aircraft Purchase Agreement with respect to any liability of the Assignee to the
Manufacturer in any way relating to or arising out of the Purchase Agreement
Assignment.
3.3. Nothing contained herein shall subject the Engine Manufacturer
to any obligation or liability to which it would not otherwise be subject under
the General Terms Agreement or modify in any respect the contract rights of the
Engine Manufacturer thereunder or subject the Engine Manufacturer to any
multiple or duplicative obligation or liability under the General Terms
Agreement or limit any rights of set-off the Engine Manufacturer may have
against the Assignor under applicable law. No further assignment of any
remaining Warranties, including but not limited to assignments for security
purposes, are permitted without the express prior written consent of the Engine
Manufacturer.
3.4. Effective at any time after an Event of Default shall have
occurred and be continuing and the Assignee or the Indenture Trustee (as
assignee of the Assignee) shall have commenced the exercise of remedies set
forth in Section 17 of the Lease, the Assignor does hereby constitute the
Assignee, its successors and permitted assigns, the Assignor's true and lawful
attorney, irrevocably, with full power (in the name of the Assignor or
otherwise) to ask, require, demand, receive, compound and give acquittance for
any and all monies and claims for monies due or to become due under, or arising
out of, the General Terms Agreement in respect of such Engine, but only to the
extent that the same have been expressly assigned by this Assignment and, for
such period as the Assignee may exercise rights with respect thereto under this
Assignment, to endorse any checks or other instruments or orders in connection
therewith and to file any claims or take any action or institute (or, if
previously commenced, assume control of) any proceedings and to obtain any
recovery in connection therewith that the Assignee may deem to be necessary or
advisable with respect to such monies and claims for monies.
3.5. So long as the Engine Manufacturer acts in good faith in
accordance with this Assignment, the Engine Manufacturer may rely conclusively
on any notice given by the Assignee hereunder without inquiring as to the
accuracy of, or the entitlement of the Assignee to give, such notice.
4. Further Assurance
-----------------
6
<PAGE>
4.1. The Assignor agrees that at any time and from time to time, upon
the written request of the Assignee, the Assignor, at its own cost and expense,
will promptly and duly execute and deliver any and all such further instruments
and documents and take such further action as the Assignee may reasonably
request in order to obtain the full benefits of this Assignment and of the
rights and powers herein granted.
5. Representations, Warranties and Covenants
-----------------------------------------
5.1 The Assignor does hereby represent and warrant that the General
Terms Agreement and the CF34 Warranty are in full force and effect as to the
Assignor and are enforceable against the Assignor in accordance with their
respective terms. The Assignor further represents and warrants that it has,
with the authorized execution of the Engine Manufacturer's Consent and
Agreement, received all necessary consents to the assignment and transfer
contemplated herein.
5.2. The Assignor does hereby represent and warrant that it has not
assigned or pledged, and hereby covenants that it will not assign or pledge, so
long as this Assignment shall remain in effect, the whole or any part of the
Warranties hereby assigned to anyone other than the Assignee.
5.3. The Assignee agrees that it will not enter into any agreement
with the Engine Manufacturer that would amend, modify, rescind, cancel or
terminate the General Terms Agreement and/or the CF34 Warranty in respect of the
Warranties or take other action to amend, modify, rescind, cancel or terminate
any of the Assignor's rights in respect of the Warranties, without the prior
written consent of the Assignor, except if the Engine Manufacturer shall have
been notified in writing by the Assignee that an Event of Default has occurred
and is continuing and the Assignee has commenced the exercise of remedies set
forth in Section 17 of the Lease.
5.4. Each of the Assignor, the Assignee and the Engine Manufacturer
agrees that neither this Assignment or the attached and incorporated Engine
Manufacturer's Consent and Agreement, nor any of the terms or provisions of this
Assignment or the Engine Manufacturer's Consent and Agreement, may be amended,
extended, modified, supplemented, terminated or waived orally. Any and all
amendments, extensions, modifications, supplements, terminations or waivers must
be presented to each of the other parties in writing, and be signed by the party
against whom the enforcement of such amendment, modification, supplement,
termination or waiver is sought to be charged.
6. Confidentiality
---------------
6.1. The Assignee agrees, that it will not, without the prior written
consent of the Engine Manufacturer, disclose, directly or indirectly, to any
third party any terms of the CF34 Warranty disclosed to it in writing by the
Engine Manufacturer; provided that (a) the Assignee may
7
<PAGE>
use, retain and disclose any such information to its special counsel and public
accountants and to bank examiners and auditors, each of whom shall be obligated
to not further disclose such terms, (b) the Assignee may disclose any such
information as required by applicable laws or governmental regulations, provided
that the Assignee shall first, to the extent practicable, have given the Engine
Manufacturer reasonable opportunity, at the Engine Manufacturer's cost and
expense, to obtain a protective order or other reasonably satisfactory assurance
of confidential treatment for the information required to be disclosed, (c) to
the extent that the Assignee may have received a subpoena or other written
demand under color of legal right for such information, the Assignee may
disclose such information, but it shall first, as soon as practicable upon
receipt of such demand and to the extent permitted by applicable laws, furnish a
copy thereof to the Assignor and to the Engine Manufacturer, and the Assignee
shall afford the Assignor and the Engine Manufacturer reasonable opportunity, at
the moving person's cost and expense, to obtain a protective order or other
reasonably satisfactory assurance of confidential treatment for the information
required to be disclosed, and (d) the Assignee may disclose any such information
to any potential purchaser of the Aircraft and/or the Engine (subject to
execution by such prospective purchaser of a written confidentiality statement
setting forth the same or substantially similar terms as those referred to in
this paragraph).
7. Miscellaneous
-------------
7.1. This Assignment may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute but one and the same
instrument.
7.2. This Assignment shall in all respects be governed by, and
construed in accordance with, the laws of the State of New York, including all
matters of construction, validity and performance. This Assignment is being
delivered in the State of New York.
7.3 First Union Trust Company, National Association is entering into
this Assignment solely as Owner Trustee under the Trust Agreement and not in its
individual capacity and neither First Union Trust Company, National Association
nor any entity acting as successor Owner Trustee or additional Owner Trustee
under the Trust Agreement shall be personally liable for, or for any loss in
respect of, any of the statements, representations, warranties, agreements or
obligations stated to be those of the Assignee hereunder, as to which all
interested parties shall look solely to the Trust Estate, except to the extent
expressly provided otherwise in the other Operative Agreements, provided
--------
however, that nothing in this Section 7.3 shall be construed to limit in scope
- -------
or substance the liability of First Union Trust Company, National Association or
any entity acting as successor Owner Trustee or additional Owner Trustee under
the Trust Agreement in its individual capacity for the consequences of its own
willful misconduct or gross negligence or (in receiving, handling or remitting
funds) its simple negligence, or the inaccuracy or breach of its
representations, warranties or covenants made in such capacity in any other
Operative Agreements.
8
<PAGE>
7.4 Pursuant to the Indenture, dated as of August 10, 1999 between
Assignee and Allfirst Bank, as Indenture Trustee (the "Indenture Trustee"), the
Assignee has assigned and pledged with the Indenture Trustee, as security for
the Equipment Notes to be issued thereunder with respect to the Aircraft, all of
the Assignee's right, title and interest in and to the Warranties under this
Assignment. The Assignor acknowledges and consents to such assignment.
* * *
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Engine
Warranty Assignment to be duly executed as of the day and year first above
written.
MIDWAY AIRLINES CORPORATION,
as Assignor
By: /s/ Jonathan S. Waller
----------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual capacity
but solely as Owner Trustee,
as Assignee
By: /s/ Stephen J. Kaba
-------------------
Name: Stephen J. Kaba
Title: Vice President
10
<PAGE>
ANNEX
GENERAL ELECTRIC COMPANY
ENGINE MANUFACTURER'S CONSENT AND AGREEMENT [N583ML]
----------------------------------------------------
The undersigned, GENERAL ELECTRIC COMPANY, a New York corporation (the
"Engine Manufacturer"), hereby acknowledges notice of and consents to all of the
terms of the Engine Warranty Assignment [N583ML] (herein called the
"Assignment", the defined terms therein being hereinafter used with the same
meaning), dated as of August 10, 1999, between MIDWAY AIRLINES CORPORATION, a
Delaware corporation, as Assignor and FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, a national banking association, not in its individual capacity but
solely as Owner Trustee, as Assignee, relating to the assignment by the Assignor
of, its rights and interests in the Warranties, and hereby confirms to the
Assignee that: (i) all the Warranties given by the Engine Manufacturer under
the CF34 Warranty and/or the General Terms Agreement with respect to the Engines
shall, subject to the terms and conditions thereof and of the Assignment inure
to the benefit of the Assignee to the same extent as if the Assignee had
originally been a party thereto except as provided by Clause 2 of the
Assignment; (ii) the Assignee shall not be liable for any of the obligations or
duties of the Assignor under the General Terms Agreement in respect of the
Engines, and the Assignment shall not give rise to any duties or obligations
whatsoever on the part of the Assignee owing to the Engine Manufacturer, except
for the Assignee's agreement in the Assignment with respect to the Engines to
the effect that, in exercising any right in and to the Warranties, or in making
any claim with respect thereto, the applicable terms and conditions of the
General Terms Agreement including Article XIV (Limitation of Liability) shall
apply to, and be binding upon, the Assignee to the same extent as the Assignor,
and with respect to such agreement the Engine Manufacturer agrees that, anything
contained in the General Terms Agreement or the As signment to the contrary
notwithstanding, the Assignee shall have no liability to the Engine Manufacturer
for failure to comply with any of the terms of the General Terms Agreement with
respect to the Warranties while under the Lease to the Assignor so long as the
Assignee acts upon the written instructions of the Assignor (to which
instructions the undersigned understands that it shall have access on request);
provided, that no person other than the Engine Manufacturer or any assignee of
the Engine Manufacturer as permitted under the General Terms Agreement shall
have any rights against the Assignee with respect to the undertaking and
agreement set forth in this clause (ii); (iii) the Engine Manufacturer consents
to the execution of the Lease; (iv) the Engine Manufacturer consents to the
mortgage of, and grant of a security interest in, all of the Assignee's right,
title and interest in and to the Warranties and the Assignment by the Assignee
pursuant to the Indenture; (v) the Engine Manufacturer agrees that the
Assignment constitutes an agreement permitted by the General Terms Agreement and
pursuant to and in accordance with the provisions of the General Terms
Agreement, the Engine Manufacturer consents to the assignment of Assignor's
interest in and to the Warranties as and to the extent that the same relate to
the Engines
1
<PAGE>
and the operation thereof to Assignee pursuant to the Assignment; and (vi) the
Engine Manufacturer will continue to pay to the Assignor all payments which the
Engine Manufacturer may be required to make under the General Terms Agreement in
respect of the Warranties unless and until the Engine Manufacturer shall have
received written notice from the Assignee addressed to the Engine Manufacturer's
Manager of Small Commercial Engine Contracts, G.E. Aircraft Engines, 1000
Western Avenue, Lynn, Massachusetts, 01910, U.S.A., that an Event of Default has
occurred and is continuing and the Assignee has commenced the exercise of
remedies set forth in Section 17 of the Lease (which such notice shall be
conclusive proof thereof between the Engine Manufacturer and the Assignor),
whereupon the Engine Manufacturer will, until the Assignee shall have notified
the Engine Manufacturer in writing that no such Event of Default is continuing
and remains unremedied, make any and all payments and take all actions which it
may be required thereafter to make or take under CF34 Warranty and/or the
General Terms Agreement in respect of the Warranties and the right to receive
which has been assigned to the Assignee under the Assignment directly to the
Assignee at its address as from time to time notified to the Engine Manufacturer
in writing.
The Engine Manufacturer hereby represents and warrants (a) the Engine
Manufacturer is a corporation organized and existing in good standing under the
law of the State of New York, (b) the making and performance in accordance with
the respective terms of the General Terms Agreement, the CF34 Warranty and this
Engine Manufacturer's Consent and Agreement have been duly authorized by all
necessary corporate action on the part of the Engine Manufacturer, do not
require any stockholder approval, contravene the Engine Manufacturer's
certificate of incorporation or by-laws or any indenture, credit agreement or
other contractual agreement to which the Engine Manufacturer is a party or by
which it is bound and do not, as to the making thereof, contravene any law
binding on the Engine Manufacturer, and, as to the best knowledge of the Engine
Manufacturer, do not, to the performance thereof, contravene any law binding on
the Engine Manufacturer, (c) to the best of the Engine Manufacturer's knowledge,
all applicable provisions of the General Terms Agreement and the CF34 Warranty
have been compiled with to effect the assignment to the Assignee of the
Warranties contemplated by the Assignment, and (d) the General Terms Agreement
and the CF34 Warranty constituted, as of the date thereof and at all times
thereafter to and including the date of this Engine Manufacturer's Consent and
Agreement the legal, valid and binding obligations of the Engine Manufacturer
enforceable against the Engine Manufacturer in accordance with their respective
terms, and this Engine Manufacturer's Consent and Agreement is the legal, valid
and binding obligation of the Engine Manufacturer, enforceable against the
Engine Manufacturer in accordance with its terms subject to: (i) the
limitations of applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or similar laws affecting the rights of creditors generally,
and (ii) general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law), which principles do not make
the remedies available at law or in equity with respect to the General Terms
Agreement or this Engine Manufacturer's Consent and Agreement inadequate for the
practical realization of the benefits intended to be provided thereby.
Notwithstanding any provision to the contrary in this Engine Manufacturer's
Consent and Agreement or the Assignment, nothing contained in this Engine
Manufacturer's
2
<PAGE>
Consent and Agreement or the Assignment shall subject the Engine
Manufacturer to any obligation or liability to which it would not otherwise be
subject under the General Terms Agreement or modify in any respect the Engine
Manufacturer's contract rights thereunder or subject the Engine Manufacturer to
any multiple or duplicative obligation or liability under the General Terms
Agreement.
It is understood that the execution by the Engine Manufacturer, and
validity, of this Engine Manufacturer's Consent and Agreement is subject to the
condition that, upon the delivery of the Aircraft (including the Engines) by the
Assignor to the Assignee and the acceptance thereof by the Assignee pursuant to
the Purchase Agreement Assignment, the Assignee shall lease such Aircraft
(including the Engines) to the Assignor under the Lease.
This Engine Manufacturer's Consent and Agreement shall be governed by,
and construed in accordance with, the law of the State of New York, U.S.A.
* * *
3
<PAGE>
IN WITNESS WHEREOF, the Engine Manufacturer has caused this Engine
Manufacturer's Consent and Agreement to be duly executed as of August 10, 1999.
GENERAL ELECTRIC COMPANY
By: ____________________________________
Name:
Title:
4
<PAGE>
EXHIBIT 10.8 CONFORMED COPY
- ------------ --------------
GENERAL ELECTRIC COMPANY
ENGINE MANUFACTURER'S CONSENT AND AGREEMENT [N583ML]
----------------------------------------------------
The undersigned, GENERAL ELECTRIC COMPANY, a New York corporation (the
"Engine Manufacturer"), hereby acknowledges notice of and consents to all of the
terms of the Engine Warranty Assignment [N583ML] (herein called the
"Assignment", the defined terms therein being hereinafter used with the same
meaning), dated as of August 10, 1999, between MIDWAY AIRLINES CORPORATION, a
Delaware corporation, as Assignor and FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, a national banking association, not in its individual capacity but
solely as Owner Trustee, as Assignee, relating to the assignment by the Assignor
of, its rights and interests in the Warranties, and hereby confirms to the
Assignee that: (i) all the Warranties given by the Engine Manufacturer under
the CF34 Warranty and/or the General Terms Agreement with respect to the Engines
shall, subject to the terms and conditions thereof and of the Assignment inure
to the benefit of the Assignee to the same extent as if the Assignee had
originally been a party thereto except as provided by Clause 2 of the
Assignment; (ii) the Assignee shall not be liable for any of the obligations or
duties of the Assignor under the General Terms Agreement in respect of the
Engines, and the Assignment shall not give rise to any duties or obligations
whatsoever on the part of the Assignee owing to the Engine Manufacturer, except
for the Assignee's agreement in the Assignment with respect to the Engines to
the effect that, in exercising any right in and to the Warranties, or in making
any claim with respect thereto, the applicable terms and conditions of the
General Terms Agreement including Article XIV (Limitation of Liability) shall
apply to, and be binding upon, the Assignee to the same extent as the Assignor,
and with respect to such agreement the Engine Manufacturer agrees that, anything
contained in the General Terms Agreement or the Assignment to the contrary
notwithstanding, the Assignee shall have no liability to the Engine Manufacturer
for failure to comply with any of the terms of the General Terms Agreement with
respect to the Warranties while under the Lease to the Assignor so long as the
Assignee acts upon the written instructions of the Assignor (to which
instructions the undersigned understands that it shall have access on request);
provided, that no person other than the Engine Manufacturer or any assignee of
the Engine Manufacturer as permitted under the General Terms Agreement shall
have any rights against the Assignee with respect to the undertaking and
agreement set forth in this clause (ii); (iii) the Engine Manufacturer consents
to the execution of the Lease; (iv) the Engine Manufacturer consents to the
mortgage of, and grant of a security interest in, all of the Assignee's right,
title and interest in and to the Warranties and the Assignment by the Assignee
pursuant to the Indenture; (v) the Engine Manufacturer agrees that the
Assignment constitutes an agreement permitted by the General Terms Agreement and
pursuant to and in accordance with the provisions of the General Terms
Agreement, the Engine Manufacturer consents to the assignment of Assignor's
interest in and to the Warranties as and to the extent that the same relate to
the Engines and the operation thereof to Assignee pursuant to the Assignment;
and (vi) the Engine Manufacturer will continue to pay to the Assignor all
payments which the Engine
<PAGE>
Manufacturer may be required to make under the General Terms Agreement in
respect of the Warranties unless and until the Engine Manufacturer shall have
received written notice from the Assignee addressed to the Engine Manufacturer's
Manager of Small Commercial Engine Contracts, G.E. Aircraft Engines, 1000
Western Avenue, Lynn, Massachusetts, 01910, U.S.A., that an Event of Default has
occurred and is continuing and the Assignee has commenced the exercise of
remedies set forth in Section 17 of the Lease (which such notice shall be
conclusive proof thereof between the Engine Manufacturer and the Assignor),
whereupon the Engine Manufacturer will, until the Assignee shall have notified
the Engine Manufacturer in writing that no such Event of Default is continuing
and remains unremedied, make any and all payments and take all actions which it
may be required thereafter to make or take under CF34 Warranty and/or the
General Terms Agreement in respect of the Warranties and the right to receive
which has been assigned to the Assignee under the Assignment directly to the
Assignee at its address as from time to time notified to the Engine Manufacturer
in writing.
The Engine Manufacturer hereby represents and warrants (a) the Engine
Manufacturer is a corporation organized and existing in good standing under the
law of the State of New York, (b) the making and performance in accordance with
the respective terms of the General Terms Agreement, the CF34 Warranty and this
Engine Manufacturer's Consent and Agreement have been duly authorized by all
necessary corporate action on the part of the Engine Manufacturer, do not
require any stockholder approval, contravene the Engine Manufacturer's
certificate of incorporation or by-laws or any indenture, credit agreement or
other contractual agreement to which the Engine Manufacturer is a party or by
which it is bound and do not, as to the making thereof, contravene any law
binding on the Engine Manufacturer, and, as to the best knowledge of the Engine
Manufacturer, do not, to the performance thereof, contravene any law binding on
the Engine Manufacturer, (c) to the best of the Engine Manufacturer's knowledge,
all applicable provisions of the General Terms Agreement and the CF34 Warranty
have been compiled with to effect the assignment to the Assignee of the
Warranties contemplated by the Assignment, and (d) the General Terms Agreement
and the CF34 Warranty constituted, as of the date thereof and at all times
thereafter to and including the date of this Engine Manufacturer's Consent and
Agreement the legal, valid and binding obligations of the Engine Manufacturer
enforceable against the Engine Manufacturer in accordance with their respective
terms, and this Engine Manufacturer's Consent and Agreement is the legal, valid
and binding obligation of the Engine Manufacturer, enforceable against the
Engine Manufacturer in accordance with its terms subject to: (i) the
limitations of applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or similar laws affecting the rights of creditors generally,
and (ii) general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law), which principles do not make
the remedies available at law or in equity with respect to the General Terms
Agreement or this Engine Manufacturer's Consent and Agreement inadequate for the
practical realization of the benefits intended to be provided thereby.
Notwithstanding any provision to the contrary in this Engine Manufacturer's
Consent and Agreement or the Assignment, nothing contained in this Engine
Manufacturer's Consent and Agreement or the Assignment shall subject the Engine
Manufacturer to any obligation or liability to which it would not otherwise be
subject under the General Terms Agreement or modify in any respect the Engine
Manufacturer's contract rights thereunder or subject the Engine Manufacturer to
any multiple or duplicative obligation or liability under the General Terms
Agreement.
<PAGE>
It is understood that the execution by the Engine Manufacturer, and
validity, of this Engine Manufacturer's Consent and Agreement is subject to the
condition that, upon the delivery of the Aircraft (including the Engines) by the
Assignor to the Assignee and the acceptance thereof by the Assignee pursuant to
the Purchase Agreement Assignment, the Assignee shall lease such Aircraft
(including the Engines) to the Assignor under the Lease.
This Engine Manufacturer's Consent and Agreement shall be governed by,
and construed in accordance with, the law of the State of New York, U.S.A.
* * *
<PAGE>
IN WITNESS WHEREOF, the Engine Manufacturer has caused this Engine
Manufacturer's Consent and Agreement to be duly executed as of August 10, 1999.
GENERAL ELECTRIC COMPANY
By: /s/ Patricia A. Bowles
----------------------
Name: Patricia A. Bowles
Title: Contracts Manager,
Attorney-In-Fact
<PAGE>
Note to Exhibit 10.8
The following Engine Warranty Assignment and Engine Manufacturer's Consent is
substantially identical in all material respects to the Engine Warranty
Assignment and Engine Manufacturer's Consent filed herewith except as follows:
Aircraft Engine
Manufacturer's Manufacturer's
Date Aircraft Tail No. Serial No. Serial Nos.
- ---- ----------------- -------------- --------------
August 10, 1999 N584ML 7330 6E-E-872547 &
6E-E-872546
September 10, 1999 N585ML 7334 6E-E-872527 &
6E-E-872528
<PAGE>
EXHIBIT 10.9
GENERAL TERMS AGREEMENT NO. 6-13593
Table of Contents
-----------------
<TABLE>
<CAPTION>
o Agreement
---------
<S> <C>
ARTICLE I - PRODUCTS
ARTICLE II - PRICES
ARTICLE III - ORDER PLACEMENT
ARTICLE IV - DELIVERY
ARTICLE V - PAYMENT
ARTICLE VI - TAXES
ARTICLE VII - CFM56 PRODUCT SUPPORT PLAN
ARTICLE VIII - EXCUSABLE DELAY
ARTICLE IX - PATENTS
ARTICLE X - INFORMATION AND DATA
ARTICLE XI - FAA AND DGAC CERTIFICATION REQUIREMENTS
ARTICLE XII - TERMINATION FOR INSOLVENCY
ARTICLE XIII - LIMITATION OF LIABILITY
ARTICLE XIV - EXPORT SHIPMENT
ARTICLE XV - WAIVER OF IMMUNITY
ARTICLE XVI - GOVERNMENTAL AUTHORIZATION
ARTICLE XVII - NOTICES
ARTICLE XVIII - MISCELLANEOUS
o Exhibit A - Products
--------------------
o Exhibit B - CFM56 Product Support Plan
--------------------------------------
SECTION I - DEFINITIONS
SECTION II - WARRANTIES
SECTION III - SPARE PARTS PROVISIONING
SECTION IV - TECHNICAL DATA
SECTION V - TECHNICAL TRAINING
SECTION VI - CUSTOMER FACTORY AND FIELD SUPPORT
SECTION VII - PRODUCT SUPPORT ENGINEERING
SECTION VIII - OPERATIONS ENGINEERING
SECTION IX - GROUND SUPPORT EQUIPMENT
SECTION X - GENERAL CONDITIONS - CFM56 PRODUCT
SUPPORT PLAN
</TABLE>
o Exhibit C - Escalation
----------------------
o Exhibit D - Payment
-------------------
o Exhibit E - Technical Data
--------------------------
<PAGE>
THIS GENERAL TERMS AGREEMENT NO. 6-13593 (hereinafter referred to as this
"Agreement"), dated as of the 11th day of June , 1999, by and between CFM
---------
International, Inc. (hereinafter referred to as "CFM"), a Delaware corporation
---
jointly owned by General Electric Company (hereinafter referred to as "GE"), a
--
New York corporation and Societe Nationale D'Etude et de Construction de Moteurs
d'Aviation (hereinafter referred to as "SNECMA"), a French Company, and Midway
------
Airlines Corporation, a corporation organized under the law of Delaware
(hereinafter referred to as "Airline").
-------
WITNESSETH
WHEREAS, Airline has acquired certain aircraft equipped with CFM installed
engines, and
WHEREAS, the parties hereto desire to enter into this Agreement for the sale and
support by CFM and the purchase by Airline from CFM of spare engines, related
equipment and spare parts therefor.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
ARTICLE I - PRODUCTS
- --------------------
CFM shall sell and Airline may purchase, under the terms and subject to the
conditions hereinafter set forth, the equipment identified as Products in the
attached Exhibit A, and hereinafter referred to as "Product(s)". CFM agrees to
----------
sell the Products and to provide the related services for as long as the
Agreement remains in effect (according to the terms of paragraph F of Article
XVIII).
ARTICLE II - PRICES
- -------------------
A. The selling prices of Products, including certain Spare Parts, shall be the
prices as quoted by CFM and as set forth in each Airline purchase order
accepted by CFM. The selling prices of Engines and related equipment
therefor shall be quoted by CFM as base prices subject to an adjustment for
escalation. The escalation provisions currently in effect are set forth in
attached Exhibit C and CFM will advise Airline in writing ninety (90) days in
advance of any change thereto.
-1-
<PAGE>
B. The selling price of Spare Parts, except for those which may be quoted by CFM
to Airline, shall be those prices set forth in CFM's then current CFM56
Engine Spare Parts Price Catalog ("Spare Parts Catalog") or in Procurement
-------------------
Data issued by CFM in accordance with Airline Transport Association of
America (ATA) Specification (Spec) 200. The price of a new Spare Part which
is first listed by CFM in Procurement Data, may be changed by CFM in
subsequent Procurement Data revisions until such time as the Part is included
in CFM's Spare Parts Catalog as from time to time revised by CFM.
C. At the time of execution of this Agreement, CFM agrees to provide spare parts
pricing to Airline that is no less favorable than that which it has agreed to
provide to other US airlines as of the date of execution of this Agreement,
when this Agreement is considered in its entirety.
D. CFM will advise Airline in writing ninety (90) days in advance of any changes
in prices affecting a significant portion of the prices in CFM's Spare Parts
Catalog. During such ninety (90) day period, CFM shall not be obligated to
accept Airline purchase orders for quantities of Spare Parts in excess of up
to ninety (90) days normal usage beyond the effective date of the announced
price change.
E. The selling prices of all Products shall be expressed in U.S. Dollars.
ARTICLE III - ORDER PLACEMENT
- -----------------------------
A. This Agreement shall constitute the terms and conditions applicable to all
purchase orders which may hereafter be placed by Airline and accepted by CFM
for Products in lieu of all printed terms and conditions appearing on
Airline's purchase orders, except that the description of Products, price,
quantity, delivery dates and shipping instructions shall be as set forth on
each purchase order accepted by CFM.
B. Airline shall place purchase orders for Products at prices quoted by CFM, in
accordance with CFM's price quotation for said Products.
C. Airline may place purchase orders for Spare Parts using one of the following
methods: telephone, telegram, facsimile transmission, ARINC or SITA
utilizing ATA Spec 200 (Chapter 6 format) or Spec 2000 (Chapter 3 format) or
Airline purchase order as prescribed in Spare Parts Catalog or CFM's
quotation.
D. Airline may place purchase orders for initial provisioning quantities of
Spare Parts as provided in the attached Exhibit B within one hundred eighty
days (180) following receipt from CFM of Initial Provisioning Data relating
thereto.
-2-
<PAGE>
E. CFM's acknowledgment of each purchase order shall constitute acceptance
thereof and CFM agrees to reasonably and promptly acknowledge purchase orders
in compliance with this Agreement.
ARTICLE IV - DELIVERY
- ---------------------
A. Except as otherwise provided under Section III.G. of Exhibit B herein, CFM
shall deliver Products under each purchase order placed by Airline and
accepted by CFM, and, unless otherwise agreed, will be upon a schedule
consistent with CFM's lead times as published in the CFM Spare Parts Catalog
or as quoted by CFM and set forth in each such purchase order. Delivery
dates are subject to (1) prompt receipt by CFM of all information necessary
to permit CFM to proceed with work immediately and without interruption, and
(2) Airline's compliance with the payment terms set forth herein.
B. Delivery of all Products shall be: (1) to the common carrier designated by
Airline, Ex Works point of manufacture, or (2) to storage, in the event
shipment cannot be made due to any cause within the control of Airline.
Title to and risk of loss or damage shall pass to Airline upon delivery.
C. If any Product cannot be delivered when ready due to any cause within the
control of Airline, CFM may make delivery by placing such Product in storage.
In such event, (1) all expenses incurred by CFM for activities such as, but
not limited to, preparation for and placement into storage and handling,
storage, inspection, preservation and insurance shall be paid by Airline upon
presentation of CFM's invoices, and (2) CFM shall assist and cooperate with
Airline in any reasonable manner with respect to the removal of any such
Product from storage.
D. Unless otherwise instructed by Airline, CFM shall deliver each Product,
except for Spare Parts, packaged in accordance with CFM's normal standards
for domestic shipment or export shipment. Any special boxing or preparation
for shipment specified by Airline shall be for Airline's account and
responsibility. The cost of any re-usable shipping stand or container is not
included in the price of engines or of equipment and will be paid by Airline
upon presentation of CFM's invoice. CFM will, however, allow credit to
Airline for each such stand or container upon its return by Airline, Ex Works
the original point of shipment, in re-usable condition within ninety (90)
days after shipment. CFM may, at its option, use non-reusable shipping
stands or containers at no charge to Airline.
E. CFM shall deliver Spare Parts packaged and labeled in accordance with ATA
Spec 300, Revision No. 4, or to a revision mutually agreed in writing between
-3-
<PAGE>
CFM and Airline. CFM shall notify Airline, when applicable, that certain
Spare Parts are packed in unit package quantities (UPQ's), or multiples
thereof.
ARTICLE V - PAYMENT
- -------------------
Airline shall pay CFM with respect to Products purchased hereunder as set forth
in the attached Exhibit D.
ARTICLE VI - TAXES
- ------------------
1. The selling prices include and CFM shall be responsible for the payment of
any imposts, duties, fees, taxes, dues or any charges whatsoever imposed or
levied in connection with Products prior to their delivery.
2. Upon delivery, Airline shall be responsible for the payment of all other
imposts, duties, taxes, dues or any other charges whatsoever imposed or
levied in connection with such Products and Airline shall pay to CFM, upon
demand, or furnish to CFM evidence of exemption therefrom, any taxes
(including without limitation, sales, use, excise, turnover or value added
tax) duties, fees, charges or assessments of any nature (but excluding any
taxes in the nature of income taxes), legally assessed or levied by any
governmental authority against CFM or its employees, its subsidiaries or
their employees as a result of any sale, delivery, transfer, use, export,
import or possession of such Product, or otherwise in connection with this
Agreement. If claim is made against CFM for any such duties, fees, charges,
or assessments, CFM shall immediately notify Airline and, if requested by
Airline, CFM shall not pay except under protest, and if payment be made,
shall use all reasonable effort to obtain a refund thereof. If all or any
part of any such taxes, duties, fees, charges or assessments be refunded, CFM
shall repay to Airline such part thereof as Airline shall have paid. Airline
shall pay to CFM, upon demand, all expenses (including penalties and
interest) incurred by CFM in protesting payment and in endeavoring to obtain
such refund.
ARTICLE VII - CFM56 PRODUCT SUPPORT PLAN
- ----------------------------------------
The CFM56 Product Support Plan for Airline's operation of Products, either
purchased by Airline from CFM or installed on Airline's aircraft as original
equipment, is set forth in the attached Exhibit B.
ARTICLE VIII - EXCUSABLE DELAY
- ------------------------------
CFM shall not be liable for delays in delivery or failure to perform due to (1)
causes beyond its reasonable control, or (2) acts of God, acts of Airline, acts
of civil or military authority, fires, strikes, floods, epidemics, war, civil
disorder, riot, delays in
-4-
<PAGE>
transportation, or (3) inability due to causes beyond its reasonable control to
obtain necessary labor, material, or components. As used herein, the term "CFM"
---
shall be deemed to mean CFM, GE and SNECMA. In the event of any such delay, the
date of delivery shall be extended for a period equal to the time lost by reason
of the delay. This provision shall not, however, relieve CFM from using
reasonable efforts to continue performance whenever such causes are removed. CFM
shall promptly notify Airline when such delays occur or impending delays are
likely to occur and shall continue to advise it of new shipping schedules and/or
changes thereto. In the event an excusable delay continues for a period of six
months or more beyond the scheduled delivery date, Airline or CFM may, upon
thirty days written notice to the other, cancel the part of any purchase order
so delayed and CFM shall return to Airline all payments relative to the canceled
part of the order and Airline shall pay CFM its reasonable cancellation charges.
ARTICLE IX - PATENTS
- --------------------
A. CFM shall handle all claims and defend any suit or proceeding brought against
Airline insofar as based on a claim that without further combination, any
Product furnished under this Agreement constitutes an infringement of any
patent of the United States or of any patent of any other country that is
signatory to Article 27 of the Convention on International Civil Aviation
signed by the United States at Chicago on December 7, 1944, in which Airline
is authorized to operate or in which another airline pursuant to lawful
interchange, lease or similar arrangement, operates aircraft of Airline.
This paragraph shall apply only to any Product manufactured to CFM's design.
B. Airline shall promptly notify CFM in writing and give CFM authority,
information and assistance (at CFM's expense) for the defense of any suit or
proceeding. In case such Product is held in such suit or proceeding to
constitute infringement and the use of said Product is enjoined, CFM shall
expeditiously, at its own expense and at its option, either (1) procure for
Airline the right to continue using said Product; (2) replace same with
satisfactory and noninfringing Product; or (3) modify same so it becomes
satisfactory and noninfringing. CFM shall not be responsible to Airline or
to said other airline, for incidental or consequential damages, including,
but not limited to, costs, expenses, liabilities and/or loss of profits
resulting from loss of use under this Article IX.
The foregoing shall constitute the sole remedy of Airline and the sole liability
of CFM for patent infringement.
ARTICLE X - INFORMATION AND DATA
- --------------------------------
-5-
<PAGE>
A. All information and data (including, but not limited to, designs, drawings,
blueprints, tracings, plans, models, layouts, specifications, and memoranda)
which may be furnished or made available to Airline directly or indirectly as
the result of this Agreement shall remain the property of CFM, GE or SNECMA
as the case may be. This information and data is proprietary to CFM and shall
neither be used by Airline nor furnished by Airline to any other person, firm
or corporation for the design or manufacture of any Product nor permitted out
of Airline's possession nor divulged to any other person, firm or
corporation, except as required by law or as otherwise agreed in writing.
[*] Airline shall take all steps necessary to insure compliance by its
employees, and agents with this Article X.
CFM agrees to negotiate, in good faith, the necessary agreements to permit
Airline to repair third party engines, pursuant to CFM's then current policy.
B. Except as provided in paragraph A above, nothing in this Agreement shall
convey to Airline the right to reproduce or cause the reproduction of any
Product of a design identical or similar to that of the Product purchased
hereunder or give to Airline a license under any patents or rights owned or
controlled by CFM, GE or SNECMA.
C. If computer software is provided by CFM to Airline under this Agreement, it
is understood that only CFM owns and/or has the right to license such
software product(s) to third parties and that Airline shall have the limited
right to use such software in its operation and maintenance of its Engines.
ARTICLE XI - FAA AND DGAC CERTIFICATION REQUIREMENTS
- ----------------------------------------------------
A. All Products, when required by the U.S. and/or French Governments, shall, at
time of delivery:
1. Conform to a Type Certificate issued by the FAA and DGAC;
2. Conform to applicable regulations issued by the FAA and DGAC, provided
such regulations are promulgated prior to the date of Airline's purchase
order issued under this Agreement for such Products .
B. If, subsequent to the date of acceptance of the purchase order for such
Products but prior to their delivery by CFM to Airline, the FAA and/or DGAC
issue
[*] CONFIDENTIAL TREATMENT REQUESTED
-6-
<PAGE>
changes in regulations covering Products sold under this Agreement and such
changes in regulations first become known to CFM after the date of Airline
purchase orders for such Products, then all costs associated with any Product
modifications necessitated thereby will be shared equally by CFM and Airline;
provided however, that costs associated with any modifications to the
airframe required by such Product modifications shall not be borne by CFM.
C. Any delay occasioned by complying with such regulations set forth in
Paragraph B above shall be deemed an Excusable Delay under Article VIII
hereof.
D. CFM shall make the required adjustments to the Engine specifications set
forth between CFM and the airframe manufacturer and to the special guarantees
set forth in paragraph J. of Section II of Exhibit B as applicable.
ARTICLE XII - TERMINATION FOR INSOLVENCY
- ----------------------------------------
A. Upon the commencement of any bankruptcy or reorganization proceeding by or
against either party hereto (which in the case of an involuntary proceeding,
is not dismissed within sixty (60) days of the commencement date) (the
"Defaulting Party"), the other party hereto may, upon written notice to the
----------------
Defaulting Party, cease to perform any and all of its obligations under this
Agreement and the purchase orders hereunder (including, without limitation,
continuing work in progress and making deliveries or progress payments or
downpayments) unless the Defaulting Party shall provide adequate assurance,
in the opinion of the other party hereto, that the Defaulting Party will
continue to perform all of its obligations under this Agreement and the
purchase orders hereunder in accordance with the terms hereof, and will
promptly compensate the other party hereto for any actual pecuniary loss
resulting from the Defaulting Party being unable to perform in full its
obligations hereunder and under the purchase orders. If the Defaulting Party
or the trustee thereof shall fail to promptly provide such adequate
assurance, upon notice to the Defaulting Party by the other party hereto,
this Agreement and all purchase orders hereunder shall be canceled.
B. Either party, at its option, may cancel this Agreement or any purchase order
hereunder with respect to any or all of the Products to be furnished
hereunder which are undelivered or not furnished on the effective date of
such cancellation by giving the other party written notice, as hereinafter
provided, at any time after a receiver of the other's assets is appointed on
account of insolvency, or the other makes a general assignment for the
benefit of its creditors and such appointment of a receiver shall remain in
force undismissed, unvacated or unstayed for a period of sixty days
thereafter. Such notice of cancellation shall be given thirty days prior to
the effective date of cancellation, except that, in the case of a
-7-
<PAGE>
voluntary general assignment for the benefit of creditors, such notice need
not precede the effective date of cancellation.
ARTICLE XIII - LIMITATION OF LIABILITY
- --------------------------------------
The liability of CFM to Airline arising out of, connected with, or resulting
from the manufacture, sale, possession, use or handling of any Product
(including Engines installed on Airline's aircraft as original equipment)
whether in contract, tort (including negligence) or otherwise, shall be as set
forth in the Product Support Plan included in Exhibit B hereof, and shall not in
any event exceed the purchase price of the Product giving rise to Airline's
claim. The foregoing shall constitute the sole remedy of Airline and the sole
liability of CFM. In no event shall CFM be liable for special or consequential
damages. As used herein, the term "CFM" shall be deemed to include GE, SNECMA
---
and CFM. THE WARRANTIES AND GUARANTEES SET FORTH IN THE PRODUCT SUPPORT PLAN
ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES AND GUARANTEES WHETHER
WRITTEN, STATUTORY, ORAL, OR IMPLIED (INCLUDING WITHOUT LIMITATION ANY WARRANTY
OF MERCHANTABILITY OR FITNESS FOR PURPOSE).
ARTICLE XIV - EXPORT SHIPMENT
- -----------------------------
If CFM agrees in writing upon Airline's written request, to assist Airline to
arrange for export shipment of Products, Airline shall pay CFM for all fees and
expenses including, but not limited to, those covering preparation of consular
invoices, freight, storage, and Warehouse to Warehouse (including war risk)
insurance, upon submission of CFM's invoices. In such event, CFM will assist
Airline in applying for any required Export License and in preparing consular
documents according to Airline's instructions or in the absence thereof,
according to its best judgment but without liability for error or incorrect
declarations including, but not limited to, liability for fines or other
charges.
ARTICLE XV - WAIVER OF IMMUNITY
- -------------------------------
To the extent that Airline or any of its property is or becomes entitled at any
time to any immunity on the grounds of sovereignty or otherwise from any legal
action, suit or proceeding, from set-off or counterclaim, from the jurisdiction
of any competent court, from service of process, from attachment prior to
judgment, from attachment in aid of execution, or from execution prior to
judgment, or other legal process in any jurisdiction, Airline for itself and its
property does hereby irrevocably and unconditionally waive, and agree not to
plead or claim, any such immunity with respect to its obligations, liabilities
or any other matter under or arising out of or in connection with this Agreement
or the subject matter hereof. Such agreement shall be
-8-
<PAGE>
irrevocable and not subject to withdrawal in any and all jurisdictions
including, without limitation, under the Foreign Sovereign Immunities Act of
1976 of the United States of America.
ARTICLE XVI - GOVERNMENTAL AUTHORIZATION
- ----------------------------------------
Airline shall be responsible for obtaining any required authorization such as an
Export License, Import License, Exchange Permit or any other required
governmental authorization relating to the import and export of the Products.
Airline shall restrict disclosure of all information and data furnished thereto
under this Agreement and shall ship the direct product of such information and
data to only those destinations which are authorized by the U.S. and/or French
Governments. At the request of Airline, CFM will provide Airline with a list of
such authorized destinations. CFM shall not be liable if any authorization is
delayed, denied, revoked, restricted or not renewed and Airline shall not be
relieved of its obligation to pay CFM.
ARTICLE XVII - NOTICES
- ----------------------
Any notices under this Agreement shall become effective upon receipt and shall
be in writing and be delivered or sent by mail or electronic transmission to the
respective parties at the following addresses, which may be changed by written
notice:
To: Midway Airlines Corp. To: CFM International, Inc.
2801 Slater Road, Suite 200 P.O. Box 15514
Morrisville, NC 27560 Cincinnati, Ohio 45215-0514
Attention: General Counsel Attention: Director, Commercial Contracts
Fax: 919-595-1705 Fax: 513-243-9762
ARTICLE XVIII - MISCELLANEOUS
- -----------------------------
A. Except as provided in Exhibit B, paragraph E of Section II, this Agreement
may not be assigned, in whole or in part, by either party without the prior
written consent of the other party, except that Airline's consent shall not
be required for the substitution of any other company jointly owned by GE and
SNECMA in place of CFM as the contracting party (provided that GE and SNECMA
shall remain primarily liable for the performance of this Agreement) and the
recipient of any or all payments and/or for the assignment of CFM's payment
rights to CFM's suppliers.
-9-
<PAGE>
B. The rights herein granted and this Agreement are for the benefit of the
parties hereto and are not for the benefit of any third person, firm or
corporation, except as expressly provided herein with respect to GE and
SNECMA, and nothing herein contained shall be construed to create any rights
in any third parties under, as the result of, or in connection with this
Agreement.
C. This Agreement contains information specifically for Airline and CFM and
nothing herein contained shall be divulged by Airline or CFM to any third
person, firm or corporation, without the prior written consent of the other
party which consent shall not be unreasonably withheld except that CFM's
consent shall not be required for disclosure to Airline's agents, attorneys,
financial advisors and permitted assignees, or as otherwise required by law.
D. This Agreement shall be construed, interpreted and applied in accordance with
the law of the State of New York. The United Nations Conference on contracts
for the International Sale of Goods shall not apply to this Agreement.
E. This Agreement and all Letter Agreements relating hereto contain the entire
and only agreement between the parties, and it supersedes all pre-existing
agreements between such parties, respecting the subject matter hereof; and
any representation, promise or condition in connection therewith not
incorporated herein shall not be binding upon either party. No modification,
renewal, extension, waiver, or termination of this Agreement or any of the
provisions herein contained shall be binding upon the party against whom
enforcement of such modification, renewal, extension, waiver or termination
(except as provided in Article XII hereof) is sought, unless it is made in
writing and signed on behalf of CFM and Airline by duly authorized
executives.
F. This Agreement shall remain in full force and effect until (1) Airline ceases
to operate at least one aircraft powered by Products set forth herein, (2)
less than five aircraft powered by such Products are in commercial airline
service, (3) this Agreement is terminated in whole or in part under either
the provisions of Excusable Delay or Termination for Insolvency herein, or
(4) by mutual consent of the parties, whichever occurs first.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and the year first above written.
MIDWAY AIRLINES CFM INTERNATIONAL, INC.
CORPORATION
By: ___________________________ By: __________________________
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<PAGE>
Typed Name: ___________________ Typed Name: __________________
Title: ________________________ Title: _______________________
Date: ________________________ Date: ________________________
-11-
<PAGE>
EXHIBIT B
---------
CFM56 PRODUCT SUPPORT PLAN
--------------------------
SECTION I - DEFINITIONS
- -----------------------
These definitions shall apply for all purposes of this Agreement unless the
context otherwise requires.
1. "Aircraft" means the aircraft on which the CFM Engine listed in Exhibit A to
--------
the Agreement is installed.
2. "Agreement" means the General Terms Agreement between CFM and Airline to
---------
which this Exhibit B is attached.
3. "Control and Accessories Vendors" means those third party vendors that sell
-------------------------------
to CFM or Airline Engine controls and accessories.
4. "Engine" means the Engines described in Exhibit A which are purchased and/or
------
leased by Airline.
5. "Expendable Parts" means those Parts which must routinely be replaced during
----------------
Inspection, repair, or maintenance, whether or not such Parts have been
damaged, and other Parts which are customarily replaced at each such
Inspection and maintenance period such as filter inserts and other short-
lived items which are not dependent on wear out but replaced at predetermined
intervals.
6. "Failed Parts" [*]
------------
7. "Failure" [*]
-------
[*] CONFIDENTIAL TREATMENT REQUESTED
B-1
<PAGE>
8. "Flight Cycle" means the complete running of an Engine from start through
------------
any condition of flight and ending at Engine shutdown. A "touch and go
------------
landing" used during pilot training shall be considered as a "Flight Cycle."
------- ------------
9. "Flight Hours" means the cumulative number of airborne hours in operation of
------------
each Engine computed from the time an aircraft leaves the ground until it
touches the ground at the end of a flight.
10. "Foreign Object Damage" means any damage to the Engine caused by objects
---------------------
which are not part of the Engine and Engine Optional Equipment.
11. "Inspection" means the observation of an Engine or Parts thereof, through
----------
disassembly or other means, for the purpose of determining serviceability.
12. "Labor Allowance" [*]
---------------
13. "Module" means the Engine Modules described in Exhibit A.
------
14. "Part" means only those Engine and Engine module parts which have been sold
----
originally by CFM to Airline or to the airframe manufacturer as part of the
aircraft sold by the airframe manufacturer to Airline. The term excludes
parts which were furnished on new Engines and Modules but are procured
directly from vendors as such parts are covered by the vendor
warranty and the CFM "Vendor Warranty Back Up." Also excluded are
-----------------------
Expendable Parts and customary short-lived items such as igniters and filter
inserts.
15. "Parts Credit Allowance" [*]
----------------------
16. "Part Cycles" means the total number of Flight Cycles accumulated by a Part.
-----------
[*] CONFIDENTIAL TREATMENT REQUESTED
B-2
<PAGE>
17. "Parts Repair" means the CFM recommended rework or restoration of Failed
------------
Parts to a serviceable condition, excluding repair of normal wear and tear
and deterioration.
18. "Part Time" means the total number of Flight Hours flown by a Part.
---------
19. "Scheduled Inspection" means the inspection of an Engine conducted when an
--------------------
Engine has approximately completed a planned operating interval.
20. "Scrapped Parts" means those Parts determined to be unserviceable and not
--------------
repairable by virtue of reliability, performance or repair costs. Such
Parts shall be considered as scrapped if they bear a scrap tag duly
countersigned by a CFM representative. Such Parts shall be disposed of by
Airline unless requested by CFM for engineering analysis, in which event any
handling and shipping shall be at CFM's expense.
21. "Ultimate Life" of a Part means the approved limitation on use of a Part, in
-------------
cumulative Flight Hours or Flight Cycles, which either CFM or a U.S. and/or
French Government authority establish as the maximum period of allowed
operational time for such Parts in Airline service, with periodic repair and
restoration. The term does not include individual Failure from wear and
tear or other cause not related to the total usage capability of all such
Parts in Airline service.
SECTION II - WARRANTIES
- -----------------------
A. Engine Warranty
---------------
1. CFM warrants each Engine and Module against Failure for the initial
[*] Flight Hours as follows:
a. Parts Credit Allowance will be granted for any Failed Parts.
b. Labor Allowance for disassembly, reassembly, test and Parts
repair of any new Engine Part will be granted for replacement of
Failed Parts.
c. Such Parts Credit Allowance, test and Labor Allowance will be:
100% from new to [*] Flight Hours and decreasing pro rata from
100% at [*] Flight Hours to zero percent at [*] Flight Hours.
2. As an alternative to the above allowances, CFM shall, upon request of
Airline:
[*] CONFIDENTIAL TREATMENT REQUESTED
B-3
<PAGE>
a. Arrange to have the failed Engines and Modules repaired, as
appropriate, at a facility designated by CFM, at no charge to
Airline for the first [*] Flight Hours and at a charge to
Airline increasing pro rata from zero percent of CFM's repair costs
at [*] Flight Hours to 100% of such CFM repair costs at
[*] Flight Hours.
b. CFM56-7B20 Engine Thrust Extended Warranty
------------------------------------------
Prior to delivery of the first leased or purchased Aircraft, Airline
shall notify CFM in writing of Airline's intent to purchase the
Extended Engine Warranty for the Airline's fleet. In the event
Airline fails to provide such prior notice, the option to purchase
this Extended Engine Warranty shall expire upon the delivery of the
first leased or purchased Aircraft. In addition, CFM shall invoice
Airline for the Extended Engine Warranty purchased by the Airline
concurrent with each Aircraft delivery in accordance with the
following prices, which shall be subject to escalation from May 1999
to Aircraft delivery.
. 100% Parts Credit Allowance and Labor Allowance for the first
[*] Engine Flight Hours ("EFH"), decreasing pro rata to 0%
Parts Credit Allowance and Labor Allowance at [*] EFH - $ [*]
(price per engine); or
. 100% Parts Credit Allowance and Labor Allowance for the first
[*] Engine Flight Hours ("EFH"), decreasing pro rata to 0%
Parts Credit Allowance and Labor Allowance at [*] EFH - $ [*]
(price per engine); or
. 100% Parts Credit Allowance and Labor Allowance for the first
[*] EFH, decreasing pro rata to 0% Parts Credit Allowance
and Labor Allowance at [*] Engine Flight Hours ("EFH") -
$ [*] (price per engine).
B. Parts Warranty
--------------
In addition to the warranty granted for Engines and Modules, CFM warrants
Engine and Module Parts as follows:
1. During the first [*] Flight Hours for such Parts and Expendable
Parts, CFM will grant 100% Parts Credit Allowance or Labor Allowance for
repair labor for Failed Parts.
2. CFM will grant a pro rata Parts Credit Allowance for Scrapped Parts
decreasing from 100% at [*] Flight Hours Part Time to zero percent
at the applicable hours designated in Table 1.
[*] CONFIDENTIAL TREATMENT REQUESTED
B-4
<PAGE>
C. Ultimate Life Warranty
----------------------
1. CFM warrants Ultimate Life limits on the following Parts:
a. [*]
b. [*]
c. [*]
d. [*]
e. [*]
f. [*]
g. [*]
h. [*]
i. [*]
j. [*]
2. CFM will grant a pro rata Parts Credit Allowance decreasing from 100%
when new to zero percent at [*] Flight Hours or [*] Flight Cycles,
whichever comes earlier. Credit will be granted only when such Parts are
permanently removed from service by a CFM or a U.S. and/or French
Government imposed Ultimate Life limitation of less than [*] Flight Hours
or [*] Flight Cycles.
D. Campaign Change Warranty
------------------------
1. [*]
Engines and Modules
-------------------
(i) 100% for Parts in inventory or removed from service when new or with
[*] Flight Hours or less total Part Time.
(ii) 50% for Parts in inventory or removed from service with over
[*] Flight Hours since new, regardless of warranty status.
[*] CONFIDENTIAL TREATMENT REQUESTED
B-5
<PAGE>
2. Labor Allowance - CFM will grant [*] Labor Allowance for [*] of CFM
supplied Engines, Modules, or Parts therefor when such action is required
to comply with a mandatory time compliance CFM Service Bulletin or FAA
Airworthiness Directive. A Labor Allowance will be granted by CFM for
other CFM issued Service Bulletins if so specified in such Service
Bulletins.
3. Life Controlled Rotating Parts retired by Ultimate Life limits including
FAA and/or DGAC Airworthiness Directive, are excluded from Campaign
Change Warranty.
NOTE: The cost of shipping the Parts set forth in the warranties above
(paragraphs A-D) shall be shared by CFM and Airline according to the pro-
rata sharing set forth therein.
E. Warranty Pass-On
----------------
If requested by Airline, CFM will extend warranty support for Engines sold by
Airline to an entity not in material default under an agreement with CFM. CFM
will provide Airline with notice if there exists such a material default.
Such warranty support will be limited to the unexpired portion of the Engine
Warranty, Parts Warranty, Ultimate Life Warranty and Campaign Change Warranty
and will require such operator(s) to agree, in writing, to be bound by, and
comply with, all the terms and conditions, including the limitations,
applicable to such warranties as set forth in this Agreement. It agreed by
Airline that Airline will reimburse CFM for the cost incurred by CFM in
producing any legal opinions associated with CFM's consent to the above
Warranties.
F. Vendor Warranty Back-Up
-----------------------
1. CFM Controls and Accessories Vendors provide a warranty on their products
used on CFM Engines. This warranty applies to controls and accessories
sold to CFM for delivery on installed or spare Engines, and controls and
accessories sold by the Vendor to the Airline on a direct purchase basis.
In the event the controls and accessories suffer a Failure during the
vendors warranty period, the Airline will submit a claim directly to the
vendor in accordance with the terms and conditions of the Vendor's
warranty.
2. In the event a Controls and Accessories Vendor fails to provide a warranty
at least as favorable as the CFM engine warranty (for complete controls
and accessories) or parts warranty (for components thereof), or if
provided, rejects a proper claim from the Airline, CFM will intercede on
behalf of the Airline to
[*] CONFIDENTIAL TREATMENT REQUESTED
B-6
<PAGE>
resolve the claim with the vendor. In the event CFM is unable to resolve a
proper claim with the vendor, CFM will honor a claim from the Airline
under the provisions and limitations of CFM's Engine or Parts warranty, as
applicable. Settlements under vendor back-up warranty will exclude credits
for resultant damage to or from Controls and Accessories procured directly
by Airline from Vendors.
G. Vendor Interface Warranty
-------------------------
Should any CFM control or accessory, for which CFM is responsible, develop a
problem due to its environment or interface with other controls and
accessories or with the Engine, or any Part thereof, reverser, or equipment
supplied by the aircraft manufacturer, CFM will be responsible for initiating
corrective action. If the vendor disclaims warranty responsibility for parts
requiring replacement, CFM will apply the provisions of its parts warranty
to such part whether it was purchased originally from CFM or directly from
the vendor.
H. Condition Monitoring Warranty
-----------------------------
1. CFM warrants CFM56 condition monitoring equipment, installed on Engines,
in accordance with the provisions of its engine warranty as heretofore
set forth, except that no Labor Allowance will be granted for [*] and
[*] of any new Engine component due soley to data received from
inoperative or malfunctioning condition monitoring equipment.
2. CFM warrants CFM56 condition monitoring equipment, purchased as Spare
Parts, in accordance with the provisions of its Parts warranty as set
forth in paragraph B of Section II hereof.
I. Special Tools and Test Equipment Warranty
-----------------------------------------
1. CFM warrants to Airline that special tools and test equipment sold
hereunder will, at the time of delivery, be free from defects in
material, workmanship, and title.
2. If it appears within [*] from the date of shipment by CFM that any
special tool or test equipment delivered hereunder does not meet the
warranties specified in Paragraph 1. above and the Airline so notifies
CFM in writing prior to the expiration of 30 days after the end of that
[*], CFM shall, at its option, upon Airline's satisfactory
demonstration that the special tools or test equipment was defective at
the time of delivery, correct any such defects either by repairing the
defective item or by making available a repair or replacement
[*] CONFIDENTIAL TREATMENT REQUESTED
B-7
<PAGE>
item, Ex Works. At the request of CFM, Airline, at its expense, shall
ship the defective item to a location on the Airline's system designated
by CFM.
3. CFM reserves the right to make changes in design and add improvements
without incurring any obligation (except as may exist under paragraph 1
above) to make, at CFM's expense, the same on other special tools or test
equipment previously sold by CFM.
4. This warranty is applicable only if the special tools and test equipment
are operated, handled, used, maintained and repaired in accordance with
CFM's then-current recommendations as stated in its manuals, bulletins or
other written recommendations.
J. SPECIAL GUARANTEES
------------------
CFM offers the following special guarantees to provide Airline with
assurance of effective performance retention, high reliability, and
economical operation of CFM56-7B engines in Airline's 737 aircraft.
These guarantees have been tailored to the fleet average flight
conditions of Airline. The basis for these guarantees is described in
Attachment A.
1. Shop Visit Rate Guarantee
-------------------------
[*]
[*]
[*]
2. In-Flight Shutdown ("IFSD") Guarantee
-------------------------------------
[*]
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED
B-8
<PAGE>
[*]
[*]
3. Delay and Cancellation Rate Guarantee
-------------------------------------
[*]
[*]
[*]
4. Exhaust Gas Temperature (EGT) Guarantee
---------------------------------------
[*]
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED
B-9
<PAGE>
[*]
[*]
[*]
5. Performance Retention Guarantee
-------------------------------
A. [*]
[*]
6. Maintenance Material Cost Guarantee
-----------------------------------
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED
B-10
<PAGE>
[*]
[*]
K. THE WARRANTIES AND GUARANTEES SET FORTH IN THIS PRODUCT SUPPORT PLAN ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES AND GUARANTEES, WHETHER
WRITTEN, STATUTORY, ORAL, OR IMPLIED (INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR PURPOSE).
SECTION III - SPARE PARTS PROVISIONING
- --------------------------------------
A. Provisioning Data
-----------------
1. In connection with Airline's initial provisioning of Spare Parts, CFM
shall furnish Airline with data in accordance with ATA 200 Specification
using a revision mutually agreed to in writing by CFM and Airline.
2. It is the intention of the parties hereto to comply with the requirements
of the ATA 200 Specification and any future changes thereto, except that
neither party shall deny the other the right to negotiate reasonable
changes in the procedures or requirements of the Specification which
procedures or requirements, if complied with exactly, would result in an
undue operating burden or unnecessary economic penalty.
The data to be provided by CFM to Airline shall encompass all Parts
listed in CFM's Illustrated Parts Catalogs. CFM further agrees to become
total supplier of initial provisioning data for all vendor spare parts in
accordance with Paragraph 1. above.
[*] CONFIDENTIAL TREATMENT REQUESTED
B-11
<PAGE>
3. Beginning on a date no earlier than eighteen (18) months and no later
than twelve (12) months prior to delivery of Airline's first Aircraft, or
as mutually agreed, CFM shall provide to Airline a complete set of
initial provisioning data and shall progressively revise this data until
ninety (90) days after delivery of the last spare Engine specified in its
initial purchase order or as mutually agreed. A status report will be
issued periodically. Provisioning data will be reinstituted for
subsequent spare Engines reflecting the latest modification status. CFM
will make available a list of major suppliers as requested by Airline.
CFM will provide, or cause to be provided on behalf of its vendors, the
same service detailed in this clause.
B. Pre-Provisioning Conference
---------------------------
A pre-provisioning conference, attended by CFM and Airline personnel directly
responsible for initial provisioning of Spare Parts hereunder, will be held
at a mutually agreed time and place prior to the placing by Airline of
initial provisioning purchase orders. The purpose of this conference is to
discuss systems, procedures and documents available to the Airline for the
initial provisioning cycle of the Products.
C. Changes
-------
CFM shall have the right to make corrections and changes in the Initial
Provisioning Data in accordance with Chapter 2 (Initial Provisioning) of ATA
200 Specification or Chapter 1 of ATA 2000 Specification using a revision
mutually agreed to in writing by CFM and Airline. [*], CFM will progressively
revise Airline's Procurement Data tape in accordance with Chapter 3 (Order
Administration) of ATA 200 Specification or Chapter 2 of ATA 2000
Specification entitled "Integrated Data Processing Supply" using a revision
mutually agreed to in writing by CFM and Airline.
D. Return Of Parts
---------------
Airline shall have the right to return to CFM, [*], any new or unused Part
which has been shipped in excess of the quantity ordered or which is not the
part number ordered or which is in a discrepant condition except for damage
in transit.
E. Parts Buy-Back
--------------
* CONFIDENTIAL TREATMENT REQUESTED
B-12
<PAGE>
[*]
F. Parts of Modified Design
------------------------
1. CFM shall have the right to make modifications to design or changes in
the Spare Parts sold to Airline hereunder.
2. CFM will from time to time inform Airline in accordance with the means
set forth in ATA 200 Specification, when such Spare Parts of modified
design become available for shipment hereunder.
3. Spare Parts of the modified design will be supplied unless Airline
advises CFM in writing of its contrary desire within ninety (90) days of
the issuance of the Service Bulletin specifying the change to the
modified Parts. In such event, Airline may negotiate for the continued
supply of Spare Parts of the premodified design at a rate of delivery and
price to be agreed upon.
G. Spare Parts Availability
------------------------
1. CFM will ship reasonable quantities (defined as three (3) months normal
usage) of spare Parts which are included in CFM's Engine Spare Parts
Catalog within a thirty (30) day lead time following receipt of an
acceptable purchase order from Airline.
Spare Parts and other CFM furnished material which are not included in
the CFM56 Engine Spare Parts Price Catalog and for which lead time has
not been quoted will be shipped as quoted by CFM.
2. CFM will maintain a stock of spare Parts to cover Airline's emergency
needs. For purposes of this Paragraph, emergency is understood by CFM
and Airline to mean the occurrence of any one of the following
conditions:
* CONFIDENTIAL TREATMENT REQUESTED
B-13
<PAGE>
AOG - Aircraft on Ground
Critical - Imminent AOG or Work Stoppage
Expedite - Less than Normal Lead Time
Airline will order spare Parts according to lead time as provided in
Paragraph 1. above, but should Airline's spare Parts requirements arise
as a result of an emergency, Airline can draw such spare Parts from CFM's
stock. A 24-hour telephone service is available to Airline for this
purpose. If an emergency does exist, CFM will ship required spare
Part(s) within the time period set forth below following receipt of an
acceptable purchase order from Airline.
AOG - [*]
Critical - [*]
Expedite - [*]
SECTION IV - TECHNICAL DATA
- ---------------------------
A. CFM shall make available to Airline the technical data, including revisions
thereof, at no charge, in the quantities as specified in Exhibit E and at a
time and to a location as mutually agreed.
Such technical data shall be prepared by CFM in accordance with the
applicable provisions of ATA 100 or 2100 Specification (including necessary
deviations) as the same may be revised from time to time.
If Airline requires CFM to furnish the technical data in a form different
from that normally furnished by CFM pursuant to ATA 100 or 2100
Specification, or in quantities greater than those specified in Exhibit E,
CFM will, upon written request from Airline, furnish Airline with a written
quotation for furnishing such technical data.
Revisions to the above technical data shall be furnished by CFM to Airline at
no charge for quantities equivalent to the quantities specified in Exhibit E
for as long as Airline operates one (1) CFM56 powered aircraft and there is a
total of five (5) CFM56 powered aircraft in commercial airline service. Such
quantities of revisions may be mutually modified in order to reflect any
change in Airline's CFM56 operation.
CFM shall incorporate in the Engine Illustrated Parts Catalog and Engine Shop
Manual all appropriate CFM service bulletins for as long as Airline receives
revisions to technical data. Premodified and postmodified configurations
shall be
* CONFIDENTIAL TREATMENT REQUESTED
B-14
<PAGE>
included by CFM unless Airline informs CFM that a configuration is no longer
required.
CFM shall incorporate in the Engine Illustrated Parts Catalog and the Engine
Manual all appropriate CFM Service Bulletins for as long as Airline receives
revisions to technical information or data. Premodified and postmodified
configurations shall be included by CFM unless Airline informs CFM that a
configuration is no longer required.
B. CFM will require each vendor to furnish technical data consisting of copies
of a component maintenance manual and service bulletins. Such vendor
publications shall be furnished by CFM to Airline in accordance with and
subject to the same provisions as those set forth in Paragraph A. above.
C. CFM will also require its ground support equipment vendors, where
appropriate, to furnish to Airline, at no charge, technical data determined
by CFM to be necessary for Airline to maintain, overhaul and calibrate
special tools and test equipment. Such vendor-furnished technical data shall
be furnished in accordance with and subject to the same provisions as those
set forth in Paragraph A. above, except that the technical data shall be
prepared in accordance with the applicable provisions of ATA 101
Specification, as the same may be revised from time to time.
D. The following technical data, not covered by ATA Specifications, shall be
furnished by CFM to Airline in the quantities and at a time and to a location
as mutually agreed:
. Installation Manual (if required)
. General Facility Study
. Parts serialization records
E. Where applicable, technical data as described in the above Paragraphs A., B.
and D., furnished by CFM or by CFM vendors to Airline hereunder, shall be
printed in the simplified English language as defined by AECMA (Association
Europeenne des Constructeurs de Material Aerospatial).
F. All technical data furnished herein by CFM to Airline shall be subject to the
provisions of Article X, "Information and Data", of this Agreement.
SECTION V - TECHNICAL TRAINING
- ------------------------------
1. General
-------
B-15
<PAGE>
This part describes the current maintenance training to be provided by CFM at
CFM's training facility in Springdale, Ohio. CFM will provide at no charge to
Airline, except as otherwise provided herein, a number of student days* for
maintenance training as defined hereunder:
- [*]
- [*]
These days will be selected from the list given in (3), "Standard Maintenance
Training Program" on the next page. [*] CFM and Airline shall establish a
mutually agreeable schedule for use of the maintenance training days.
All instruction, examinations and materials shall be prepared and presented
in the English language and in the units of measure used by CFM. Airline will
provide interpreters, if required, for Airline's personnel.
Buyer will be responsible for the living and medical expenses of Airline's
personnel during maintenance training. For maintenance training provided at
Springdale, Ohio, CFM will assist Airline's personnel in making arrangements
for hotels and transportation between selected lodging and the training
facility.
2. Maintenance Training Conference
-------------------------------
As soon as reasonably practical prior to delivery of Airline's first
aircraft, CFM and Buyer will conduct a maintenance training conference call
in order to schedule and discuss the maintenance training or, the Airline is
welcome to visit CFM's training facilities and discuss training. During the
maintenance training conference call or visit, the Airline will indicate the
courses selected and arrange a mutually acceptable schedule.
* Student days = # of students X # of class days
3. Standard Maintenance Training
-----------------------------
Standard Maintenance Training will consist of computer based training or
classroom presentations supported by training materials and, when applicable,
hands-on practice. Training material will be based on ATA104 guidelines.
ATA104 - Level I - General Familiarization
ATA104 - Level II - Ramp and Transit
ATA104 - Level III - Line and Base Maintenance
[*] CONFIDENTIAL TREATMENT REQUESTED
B-16
<PAGE>
ATA104 - Level IV - Specialized Training
Major Module Replacement
Module Replacement
Fan Trim Balance
Borescope Inspection
4. Optional Maintenance Training
-----------------------------
Non-standard maintenance training courses are described in the current CFM
Training Course Syllabus and CFM will provide a quote upon request.
5. Training at a Facility Other Than CFM's
---------------------------------------
If requested prior to the conclusion of the maintenance training planning
conference call or visit, CFM will conduct the classroom training described
in (3), "Standard Maintenance Training" at a mutually acceptable alternate
training site, subject to the following conditions.
5.1 Airline will be responsible for providing acceptable classroom space
and training equipment required to present the CFM courseware.
5.2 Airline will pay CFM's travel and living charges for each CFM
instructor for each day, or fraction thereof, such instructor is away
from Springdale, Ohio.
5.3 Airline will reimburse CFM for round-trip transportation for CFM's
instructors and training materials between Springdale, Ohio, and such
alternate training site.
5.4 Those portions of the training that require the use of CFM's training
devices shall be conducted at CFM designated facilities.
6. Supplier Training
-----------------
The standard maintenance training includes sufficient information on the
location, operation and servicing of engine equipment, accessories and
parts provided by suppliers to support line maintenance functions.
If Airline requires additional maintenance training with respect to any
supplier-provided equipment, accessories or parts, Airline will schedule such
training directly with the supplier.
B-17
<PAGE>
7. Student Training Material
-------------------------
7.1 Manuals
When required, CFM will provide, at the beginning of each maintenance
training course, one set of training manuals, or equivalent, for each
student attending such course.
7.2 Other Training Material
CFM will provide one set of the following training material, per
course, as applicable.
Video Tapes - CFM will lend a set of video tapes on 3/4 inch U-
matic or 1/2 inch VHS cassettes in NTSC, PAL or SECAM standard,
as selected by the Airline.
SECTION VI - CUSTOMER SERVICE
- ------------------------------
A. CFM shall assign to Airline [*], a Customer Support Manager located at
CFM's factory to provide and coordinate appropriate liaison between the
Airline and CFM's factory personnel.
B. CFM shall also make available to Airline [*], a Field Service Representative
as CFM's representative at Airline's maintenance base plus a Shop Specialist
to be assigned by CFM to the engine shop facility selected by Airline. These
specialists will assist Airline in areas of unscheduled maintenance action
and scrap approval and will provide rapid communication between Airline's
maintenance base and CFM's factory personnel.
SECTION VII - PRODUCT SUPPORT ENGINEERING
- -----------------------------------------
Factory based [*] to Airline engineers who are specialized in powerplant
engineering problems are available, at no charge to Airline, to make visits to
Airline as mutually agreed when problems are encountered. These engineers will
coordinate with the CFM56 design engineers and Airline's powerplant engineering
group. Where specific design problems require a better understanding of
Airline's experience, design engineers will work directly with Airline's
powerplant engineering personnel to solve the problem.
SECTION VIII - OPERATIONS ENGINEERING
- -------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
B-18
<PAGE>
Operations Engineering survey teams are available, [*] to Airline, to make
surveys as mutually agreed by Airline maintenance and operating procedures.
These survey teams will be able to provide service to all Airlines operating
CFM56 Engines. This group will include experienced operations engineers who
will be available for flying jump-seat on CFM56-powered aircraft, and discussing
operating procedures with the crews.
SECTION IX - GROUND SUPPORT EQUIPMENT
- -------------------------------------
Engine maintenance tooling, lifting devices, transportation devices, and
accessory or component stands will be offered for sale to Airline by CFM. If
Airline elects not to purchase this equipment directly from CFM, such equipment
can be procured from CFM licensed vendors.
SECTION X - GENERAL CONDITIONS - CFM56 PRODUCT SUPPORT PLAN
- -----------------------------------------------------------
A. Airline will maintain adequate operational and maintenance records and make
these available for CFM inspection.
B. The warranty and guarantee provisions of this CFM56 Product Support Plan will
not apply to any Product if it has been reasonably determined by CFM that the
Engine or any Parts thereof:
o [*]
o [*]
o [*]
o [*]
o [*]
o [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
B-19
<PAGE>
o [*]
o [*]
C. The express provisions of this CFM56 Product Support Plan set forth the
maximum liability of CFM with respect to claims of any kind, including
negligence, arising out of manufacture, sale, possession, use or handling of
the Products or Parts thereof or [*]. In no event shall CFM be liable for
incidental or consequential damages. As used herein the term "CFM" shall be
---
deemed to include GE, SNECMA and CFM.
D. Except as provided in the Vendor Warranty Back-up provisions in Paragraph F.
of Section II hereof, no Parts Credit Allowance will be granted and no claim
for loss or liability will be recognized by CFM for Parts of the Engine
whether original, repair, replacement, or otherwise, unless sold originally
by CFM to Airline for commercial use.
E. Airline shall apprise CFM of any Failure subject to the conditions of this
CFM56 Product Support Plan within sixty (60) days after the discovery of such
Failure. Any Part for which a Parts Credit Allowance is requested by Airline
shall be returned to CFM upon specific request by CFM. Upon return to CFM,
such Part shall become the property of CFM unless CFM directs otherwise.
Transportation expenses shall be borne by CFM.
F. The warranty applicable to a replacement Part provided under the terms of the
New Engine Warranty or New Parts Warranty shall be the same as the warranty
on the original Part. The unexpired portion of the applicable warranty will
apply to Parts repaired under the terms of such warranty.
G. Airline will cooperate with CFM in the development of Engine operating
practices, repair procedures, and the like with the objective of improving
Engine operating costs.
H. Except as provided in the Warranty Pass-On provisions in Paragraph E. of
Section II hereof, this Product Support Plan applies only to the original
purchaser of the CFM56 Engine, except that installed Engines supplied to
Airline through the aircraft manufacturer shall be considered as original
Airline purchases covered by this Product Support Plan.
[*] CONFIDENTIAL TREATMENT REQUESTED
B-20
<PAGE>
I. Airline will provide CFM a report identifying serialized rotating parts which
have been scrapped by Airline. Format and frequency of reporting will be
mutually agreed to by Airline and CFM.
B-21
<PAGE>
TABLE 1
-------
CFM56 WARRANTY PARTS LIST
-------------------------
------------------------------------------------
ENGINE FLIGHT HOURS
------------------------------------------------
[*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
Fan Rotor/Booster
-----------------------------------------------------------------------------
Blades [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Disk, Drum [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Spinner [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
Fan Frame
- --------------------------------------------------------------------------------
Casing [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Hub & Struts [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Fairings [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Splitter (Mid Ring) [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Vanes [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Engine Mount [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
#1 & #2 Bearing Support
- --------------------------------------------------------------------------------
Bearings [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Shaft [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Support (Case) [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
Inlet Gearbox & #3 Bearing
- --------------------------------------------------------------------------------
Bearings [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Gear [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Case [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
Compressor Rotor
- --------------------------------------------------------------------------------
Blades [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Disk & Drums [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Shaft [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
Compressor Stator
- --------------------------------------------------------------------------------
Casing [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Shrouds [*] [*] [*] [*] [*]
-----------------------------------------------------------------------------
Vanes [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
Variable Stator
Actuating Rings [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
B-22
<PAGE>
TABLE 1
-------
CFM56 WARRANTY PARTS LIST
-------------------------
continued
--------------------------------------------
ENGINE FLIGHT HOURS
--------------------------------------------
[*] [*] [*] [*] [*]
- -------------------------------------------------------------------------------
Combustor Diffuser Nozzle (CDN)
----------------------------------------------------------------------------
Casings [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Combustor Liners [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Fuel Atomizer [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
HPT Nozzle [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
HPT Nozzle Support [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
HPT Shroud [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------------
HPT Rotor
- -------------------------------------------------------------------------------
Blades [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Disks [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Shafts [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Retaining Ring [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------------
LP Turbine
- -------------------------------------------------------------------------------
Casing [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Vane Assemblies [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Interstage Seals [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Shrouds [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Disks [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Shaft [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Bearings [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Blades [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------------
Turbine Frame
- -------------------------------------------------------------------------------
Casing & Struts [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Hub [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Sump [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------------
Accessory & Transfer Gearboxes
- -------------------------------------------------------------------------------
Case [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Shafts [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Gears [*] [*] [*] [*] [*]
----------------------------------------------------------------------------
Bearings [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------------
Air-Oil Seals [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------------
Controls & Accessories
- -------------------------------------------------------------------------------
Engine [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------------
Condition Monitoring Equipment [*] [*] [*] [*] [*]
- -------------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
B-23
<PAGE>
ATTACHMENT A
------------
BASIS AND CONDITIONS FOR SPECIAL GUARANTEES
-------------------------------------------
A. General Conditions
------------------
The special guarantees offered under Exhibit B, Section II.J. above, have
been developed specifically for Airline's new installed and spare
Engines. The values set forth in each Special guarantee are based upon a
fleet of at least [*] new CFM56-7B20 powered 737 aircraft (the
"Aircraft") to be delivered by December 31,2003 as more particularly
described in Attachment A to Letter Agreement No. 1 and are based upon:
1. Airline procuring [*] spare Engines per the delivery schedule
set forth in Attachment A to Letter Agreement No. 1;
2. Airline's Engines being identified and maintained separately from
other operators' engines at the repair agency;
3. Airline's compliance with CFM's reasonably required warranty and
guarantee administration procedures;
4. Airline operating the Aircraft (i) an average flight leg of [*]
hours or greater, (ii) an average takeoff thrust derate of [*]
percent or greater, and (iii) an average Aircraft utilization of
[*] hours per year maximum.
5. Airline's compliance with CFM's recommended workscope guide and/or
applicable engine manuals;
6. Written on-wing maintenance and performance restoration procedures
which are recommended by the manufacturer and are used to avoid
unnecessary shop visits; and
7. Service bulletins agreed to between Airline and CFM are incorporated
in a timely manner.
Change in Aircraft or Engine quantity, Aircraft or Engine model, or
Aircraft delivery schedule from that described above, or [*].
[*] CONFIDENTIAL TREATMENT REQUESTED
A-1
<PAGE>
ATTACHMENT A
------------
BASIS AND CONDITIONS FOR SPECIAL GUARANTEES
-------------------------------------------
(continued)
B. Exclusions
----------
The guarantees shall not apply to repairs that are due to negligence,
accidents, improper operation, improper maintenance performed by a
facility other than one owned by CFM or one of it's affiliated companies,
or if the Engines are employed in power-back Aircraft operation.
C. Administration
--------------
Unless otherwise stated these guarantees commence with delivery of
Airline's first CFM56-7B powered 737 Aircraft and end [*] thereafter. The
guarantees are not transferable without the written consent of CFM.
[*]. If compensation becomes available to Airline under more than one
specific guarantee, warranty or other engine program consideration,
Airline will not receive duplicate compensation but will receive the
compensation most beneficial to Airline under a single guarantee, warranty
or other program consideration. Unless otherwise stated, the guarantee
compensation will be in the form of credits for the purchase of spare
Engines, Parts, and/or services from CFM, as elected by Airline.
D. Miscellaneous
-------------
The Guarantees exclude Foreign Object Damage (FOD).
The General Conditions described in Exhibit B of the CFM56 Product Support
Plan included in the General Terms Agreement apply to these guarantees.
[*] CONFIDENTIAL TREATMENT REQUESTED
A-2
<PAGE>
ATTACHMENT B
------------
SHOP VISIT RATE GUARANTEE - QUALIFYING SHOP VISITS
--------------------------------------------------
Engine shop visits will qualify under the Shop Visit Rate Guarantee if the shop
visit meets any of the following criteria:
1. [*]
2. [*]
3. [*]
4. [*]
5. [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
B-3
<PAGE>
ATTACHMENT C
------------
DELAY AND CANCELLATION DEFINITIONS FOR GUARANTEE
------------------------------------------------
Delay
- -----
[*]
[*]
[*]
[*]
Note:
- -----
[*]
Cancellation
- ------------
[*]
Note:
- -----
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED
C-1
<PAGE>
ATTACHMENT D
------------
PERFORMANCE RETENTION GUARANTEE -
----------------------------------
METHOD OF MEASUREMENT
---------------------
1. [*]
2. [*]
3. [*]
4. [*]
5. [*]
6. [*]
7. [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
D-1
<PAGE>
EXHIBIT C
---------
revised 10/98
CFM56-7 SPARE ENGINE & MAJOR MODULE
-----------------------------------
PRICE ESCALATION FORMULA
------------------------
EFFECTIVE OCTOBER 15, 1998
--------------------------
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED
C-1
<PAGE>
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED
C-2
<PAGE>
[*]
<TABLE>
<CAPTION>
[*] [*] [*]
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[*] [*] [*] [*]
- -------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- -------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- -------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- -------------------------------------------------------------------------------------------
</TABLE>
[*]
[*]
[*]
[*]
[*]
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED
C-3
<PAGE>
[*]
[*]
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED
C-4
<PAGE>
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED
C-5
<PAGE>
EXHIBIT D
---------
PAYMENT TERMS
-------------
A. Airline shall pay CFM with respect to each purchase order hereunder, in
United States Dollars as follows:
1. For Engines, Engine Modules and related additional equipment therefor:
a. [*] of the total purchase order base price (unescalated) shall be
paid at [*]; and,
b. [*] of the purchase order base price (unescalated) of each item shall
be paid [*] prior to scheduled delivery date thereof; and
c. Payment of the balance, including amount for price escalation to the
month of scheduled delivery, shall be [*] each item.
Any payment following the first payment in paragraph a) above which
becomes due prior to or at the time of purchase order placement, shall
be paid concurrently therewith.
2. For spare Parts, payment of the selling price shall be made [*] after
delivery thereof.
3. For special tools and test equipment, payment of the selling price shall
be made [*] after delivery thereof.
B. If delivery hereunder is delayed by Airline, payment shall be made based on
the delivery schedule set forth in the purchase order as accepted by CFM.
C. All payments in excess of $ [*] dollars shall be made by credit transfer to
the CFM bank account as specified in CFM invoices.
D. [*]
E. In the event Airline is not paying a material amount of the CFM invoices
(per the terms set forth above) when due and without just cause, CFM shall
have the right to establish new payment terms.
[*] CONFIDENTIAL TREATMENT REQUESTED
D-1
<PAGE>
EXHIBIT E
---------
TECHNICAL DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM NAME FORMAT STANDARD QTY MAX. QTY
(Free of Charge) (Free of Charge)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Engine Illustrated Parts Catalog Printed 2 sides [*] [*]
OR
--
--------------------------------------------------
One Side Copy [*] [*]
Microfilm (16mm) [*] [*]
OR
--
--------------------------------------------------
Microfilm (Silver Halide) [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------
2 Engine Shop Manual Printed 2 sides
OR
-- [*] [*]
--------------------------------------------------
One Side Copy [*] [*]
Microfilm (16 mm) [*] [*]
OR
--
--------------------------------------------------
Microfilm (Silver Halide) [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------
3 Component Maintenance Manuals Printed 2 sides [*] [*]
Microfilm (16 mm) [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------
4 Illustrated Tool and Equipment Manual Printed 2 sides [*] [*]
Microfilm (16 mm)
- ------------------------------------------------------------------------------------------------------------------------------
5 Ground Support Equipment Printed 2 sides [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------
6 Non Destructive Testing Manuals Printed 2 sides [*] [*]
Microfilm (16 mm) [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------
7 Specific Operating Instruction Printed 2 sides [*] [*]
Microfilm (16 mm) [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------
8 Service Bulletins Printed 2 sides [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[*] CONFIDENTIAL TREATMENT REQUESTED
E-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
[*]
Microfilm (16 mm) Initial
Dot. & yearly revision only [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------
9 Service Bulletins Index Printed 2 sides [*] [*]
Microfilm (16 mm) Initial
Dot. & yearly revision only [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------
10 Standard Practices Manual Printed 2 sides [*] [*]
Microfilm (16 mm) [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------
11 Consumable Products Manual Printed 2 sides [*] [*]
Microfilm (16 mm) [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------
12 Technical Manual Index Printed 2 sides [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------
13 I.P.C., E.S.M., I.T.E.M., N.D.T.M, CD-ROM [*] [*]
S.B., C.P.M.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[*] CONFIDENTIAL TREATMENT REQUESTED
E-2
<PAGE>
[LETTERHEAD OF CFM INTERNATIONAL]
LETTER AGREEMENT NO. 1
Midway Airlines Corporation
Gentlemen:
WHEREAS, CFM International, Inc. ("CFM") and Midway Airlines Corporation
("Airline") have entered into General Terms Agreement No. 6-13593, dated
__________________, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof (hereinafter
referred to as the " Agreement"); and
WHEREAS, the Agreement contains the applicable terms and conditions governing
the sale by CFM and the purchase by Airline of spare Engines, related equipment
and spare parts therefor in support of Airline's CFM56 powered aircraft fleet;
and
WHEREAS, Airline has entered into a purchase agreement with The Boeing Company
("TBC") for the acquisition of [*] "Aircraft" (as defined below) and intends to
enter into an Agreement for the lease of two (2) Aircraft from General Electric
Capital Corporation, equipped with CFM56-7B installed Engines for delivery
between [*] (the "Delivery Period"), all such Aircraft as more particularly
described in Attachment A hereto, such Aircraft individually or collectively
referred to as "Aircraft".
NOW, THEREFORE, in consideration of the mutual promises described herein and for
other consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows. Capitalized terms used in this
Letter Agreement No. 1 that are otherwise undefined shall have the meanings
ascribed to such terms in the Agreement.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
I. DELIVERY AND ACCEPTANCE OF FIRM AIRCRAFT
-----------------------------------------
The [*] set forth in [*] and the [*] set forth in paragraph II below are
based upon a fleet of at least [*] new CFM56-7B20 powered 737 Aircraft to
be delivered to Airline by [*]. In the event Airline fails to accept
delivery of all of the fifteen (15) Aircraft described above in breach of
its obligations under the agreement with Boeing or acquires aircraft which
are equipped with engines other than CFM56 engines, and are in lieu of any
of the fifteen (15) Aircraft described above, by [*] [*] set forth [*] of
Exhibit B and the [*] set forth in [*] below become null and void. However,
the remainder of the Agreement will remain in effect.
II BASE PRICES FOR SPARE CFM56-7B SPARE ENGINES, MODULES AND OPTIONAL
------------------------------------------------------------------
EQUIPMENT
---------
Base prices for CFM56-7B spare engines, modules and optional equipment
ordered by Airline for delivery by [*], are as set forth in Attachment B
hereto. These base prices are subject to adjustment for escalation per the
provisions of Exhibit C to the Agreement.
The obligations set forth in this Letter Agreement No. 1 are in addition to and
form part of the obligations set forth in the Agreement.
Please indicate your agreement with the foregoing provisions by executing two
(2) originals in the space provided below.
Very truly yours,
MIDWAY AIRLINES CORP. CFM INTERNATIONAL, INC.
By: _____________________________ By: _____________________________
Typed Name: _____________________ Typed Name: _____________________
Title: ___________________________ Title: __________________________
Date: ____________________________ Date: ___________________________
[*] CONFIDENTIAL TREATMENT REQUESTED
Page 2
<PAGE>
ATTACHMENT A
------------
- -------------------------------------------------------------------------------
--------------------------------------------------------------------------
AIRCRAFT DELIVERY SCHEDULE
--------------------------
--------------------------------------------------------------------------
Aircraft Engine Leased Aircraft Purchased Aircraft
Model 737-700 737-700
--------------------------------------------------------------------------
737-700 CFM56-7B20 [*] [*]
----------------------------------------------
(20,600 lbs.) [*] [*]
==============================================
[*]
----------------------------------------------
[*]
----------------------------------------------
[*]
----------------------------------------------
[*]
----------------------------------------------
[*]
----------------------------------------------
[*]
----------------------------------------------
[*]
----------------------------------------------
[*]
----------------------------------------------
[*]
----------------------------------------------
[*]
--------------------------------------------------------------------------
===============================================================================
- ---------------------------------------------------------------------------
CFM 56-7B20 SPARE ENGINE DELIVERY SCHEDULE
------------------------------------------
- ---------------------------------------------------------------------------
Month Year Quantity
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
January [*] [*]
- ---------------------------------------------------------------------------
January [*] [*]
- ---------------------------------------------------------------------------
January [*] [*]
- ---------------------------------------------------------------------------
January [*] [*]
- ---------------------------------------------------------------------------
Note: [*]
- ---------------------------------------------------------------------------
[*] CONFIDENTIAL TREATMENT REQUESTED
Page 3
<PAGE>
ATTACHMENT B
------------
- --------------------------------------------------------------------------------
BASE PRICES FOR SPARE ENGINES,
------------------------------
OPTIONAL EQUIPMENT AND MODULES
------------------------------
CFM56-7B20
----------
- --------------------------------------------------------------------------------
----------------------------------------------------------------
Base Price
Item July 1998 US Dollars
[*]
[*]
----------------------------------------------------------------
1. Basic Engine
CFM56- 7B20 [*]
2. Modules
Low Pressure Turbine [*]
Accessory Gearbox [*]
Core Engine with SAC [*]
Core Engine with DAC [*]
3. ECM Software
(GEM Fortran) [*]
(Other Language) [*]
----------------------------------------------------------------
- --------------------------------------------------------------------------------
A. Base prices are effective for firm orders received by CFM within quoted
lead time for basic spare Engines (including associated equipment and
maximum climb thrust increase), Optional Equipment and Modules for
delivery to Airline by CFM on or before [*] The base prices are Ex Works,
Evendale, Ohio, or point of manufacture, subject to adjustment for
escalation and Airline shall be responsible, upon delivery, for the
payment of all taxes, duties, fees or other similar charges.
B. The selling price of CFM56-7B20 basic spare Engines, Optional Equipment
and Modules ordered for delivery after the period set forth in Paragraph A
above shall be the base price then in effect and as set forth in each
purchase order as accepted by CFM, which base price shall be subject to
adjustment for escalation in accordance with CFM's then-current escalation
provisions.
================================================================================
[*] CONFIDENTIAL TREATMENT REQUESTED
Page 4
<PAGE>
ATTACHMENT C
------------
CONDITIONS FOR DELAY/CANCELLATION
---------------------------------
1. Cancellation of Installed or Spare Engines
------------------------------------------
A. Cancellation Charge
-------------------
[*]
[*]
[*]
2. Delay Charge for Installed or Spare Engines
-------------------------------------------
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED
Page 5
<PAGE>
EXHIBIT 10.10
Execution Copy
______________________________________
AIRCRAFT LEASE
COMMON TERMS AGREEMENT
______________________________________
DATED AS OF SEPTEMBER 10, 1999
BETWEEN
GENERAL ELECTRIC CAPITAL CORPORATION
and
MIDWAY AIRLINES CORPORATION
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C>
1. INTERPRETATION................................................ 1
2. REPRESENTATIONS AND WARRANTIES................................ 2
3. CONDITIONS PRECEDENT.......................................... 2
4. COMMENCEMENT.................................................. 3
5. PAYMENTS...................................................... 4
6. MANUFACTURER'S WARRANTIES..................................... 18
7. LESSOR'S COVENANTS............................................ 18
8. LESSEE'S COVENANTS............................................ 20
9. INSURANCE..................................................... 33
10. INDEMNITY..................................................... 35
11. EVENTS OF LOSS................................................ 36
12. RETURN OF AIRCRAFT............................................ 37
13. DEFAULT....................................................... 39
14. TRANSFER...................................................... 45
15. MISCELLANEOUS................................................. 46
16. DISCLAIMERS AND WAIVERS....................................... 51
17. BROKERS AND OTHER THIRD PARTIES............................... 53
</TABLE>
<PAGE>
COMMON TERMS AGREEMENT
THIS COMMON TERMS AGREEMENT (this "CTA") is made as of September 10, 1999
BETWEEN:
(1) GENERAL ELECTRIC CAPITAL CORPORATION; and
(2) MIDWAY AIRLINES CORPORATION
WHEREAS:
(A) Midway Airlines Corporation desires to lease two (2) commercial aircraft
(specifically the aircraft bearing serial numbers 30051 and 28613) from
General Electric Capital Corporation or one of its Affiliates, and General
Electric Capital Corporation or one of its Affiliates desires to lease such
aircraft to Midway Airlines Corporation;
(B) Each party hereto wishes to provide in one document for certain common
terms and conditions, as hereinafter provided in this CTA, that will be
applicable to each lease referred to in Recital (A) but only to the extent
that the lease specifically incorporates the terms of the CTA; and
(C) Each such lease transaction will be concluded only on the terms of an
agreement entitled "Aircraft Lease Agreement," which together with this CTA
(which will be incorporated into and become part of such Aircraft Lease
Agreement), will constitute the lease for the applicable aircraft as
identified therein;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. INTERPRETATION
1.1 Definitions
All references herein to "Lease" mean the integrated agreement consisting
of the various documents comprising the Lease as defined in Schedule 1. In
the Lease, capitalized words and expressions have the meanings set out for
them in Schedule 1 and in the Aircraft Lease Agreement.
1.2 Construction
(a) In the Lease, unless otherwise stated, a reference to:
<PAGE>
(i) "Lessor," "Lessee," "GECAS," or any other Person includes any
of their successors and assignees;
(ii) plural concepts shall include the singular and vice versa;
(iii) any document (except this CTA unless Lessor and Lessee
otherwise expressly agree) shall include any changes to that
document and any replacement for it;
(iv) a Section or a Schedule is a reference to a section of or a
schedule to this CTA, unless otherwise indicated;
(v) any Regulation shall include any changes to that Regulation and
any replacement for it;
(vi) an obligation of a Person refers to any obligation that Person
has under or in relation to the Lease; and
(vii) "includes," "including", "include" or similar terms shall not
be construed as limiting and shall mean "including, without
limitation."
(b) Headings to Sections and Schedules in the Lease are not intended to
affect their meaning.
2. REPRESENTATIONS AND WARRANTIES
2.1 Lessee's Representations and Warranties
Lessee hereby makes the representations and warranties set out in Section
1.1 of Schedule 2 as of the date of execution of the Aircraft Lease
Agreement and as of the Delivery Date, and Lessee understands that these
statements must be true, both when the Aircraft Lease Agreement is executed
and on the Delivery Date.
2.2 Lessor's Representations and Warranties
Lessor hereby makes the representations and warranties set out in Section
1.2 of Schedule 2 as of the date of execution of the Aircraft Lease
Agreement and as of the Delivery Date, and Lessor understands that these
statements must be true, both when the Aircraft Lease Agreement is executed
and on the Delivery Date.
3. CONDITIONS PRECEDENT
3.1 Conditions Precedent
Lessor need not deliver and start the leasing of the Aircraft under the
Lease unless each of the Conditions Precedent listed in Schedule 3 is
satisfied. Lessee need not accept and begin the
2
<PAGE>
leasing of the Aircraft under the Lease unless the conditions set forth in
Section 4.3 have been satisfied.
4. COMMENCEMENT
4.1 Leasing
(a) Lessor shall notify Lessee as soon as possible, but no later than at
least thirty (30) days prior to the Scheduled Delivery Month, of the
Scheduled Delivery Week and Lessor shall notify Lessee as soon as
possible, but no later than at least one (1) week prior to the
Scheduled Delivery Week, of the Scheduled Delivery Date. Subject to
Section 4.4, Lessor will lease the Aircraft to Lessee and Lessee will
take the Aircraft on lease for the Term, which shall commence on the
Delivery Date, and which shall be evidenced by Lessee's execution of
Lease Supplement No. 1 and the Certificate of Technical Acceptance.
(b) If (i) Lessee is unwilling or unable to accept delivery of the
Aircraft on the date on which Lessor tenders the Aircraft for Delivery
to Lessee under and in accordance with Section 4.3(a), or Lessee fails
to fulfil any Condition Precedent [(other than (x) a Condition
Precedent requested by Lessor pursuant to Section 1.1(g) or 1.2(a)(xi)
of Schedule 3 or (y) the Condition Precedent pursuant to Section
1.2(b) of Schedule 3 but only to the extent the Lessee is unable to
make the representations set forth in Sections 1.1(f) or (m) of
Schedule 2 (the "Special Conditions"))] on or before such date and
such Condition Precedent is not waived by Lessor, and (ii) the
Aircraft meets the Delivery Condition Requirements, then the Rent
Commencement Date for the Aircraft shall be deemed to have occurred on
the date on which it is tendered by Lessor for Delivery in accordance
with subclause (ii) of this Section 4.1(b), and Lessee shall be
obligated to pay Rent for the Aircraft on and from such date
regardless of whether the Delivery Date occurs or whether Lessee
executes Lease Supplement No. 1 and the Certificate of Technical
Acceptance, but Lessor shall have no obligation to deliver, and Lessee
shall have no lease interest in the Aircraft or other right to
possession of the Aircraft, unless and until Lessee fulfils all
Conditions Precedent (which have not been waived by Lessor) and Lessee
accepts delivery of the Aircraft as evidenced by its execution of
Lease Supplement No. 1 and the Certificate of Technical Acceptance. In
the event that any of the Special Conditions are not satisfied by
Lessee or waived by the Lessor, neither the Delivery Date nor the Rent
Commencement Date shall occur and (A) Lessee shall not be in breach of
its obligation to accept the Aircraft hereunder and (B) Lessor shall
have the right to terminate the Lease and shall not have any
obligation to deliver the Aircraft and Lessee shall have no obligation
to accept delivery of the Aircraft; provided, however, that if the
Lease is terminated pursuant to clause (B) above due to the Lessee's
inability to make the representations set forth in Section
3
<PAGE>
1.1(f) or (m) of Schedule 2, Lessee will on demand pay and indemnify
Lessor for the Termination Costs.
(c) Lessee will be responsible for all risks associated with any loss of
or damage to the Aircraft from the Delivery Date until the Return
Occasion.
4.2 Procedure before Delivery
Lessor and Lessee will follow the Pre-Delivery Procedure.
4.3 Delivery and Acceptance
After the Pre-Delivery Procedure has been carried out and so long (x) as
the Aircraft meets the Delivery Condition Requirements; (y) the
representations and warranties of Lessor are correct in all material
respects on such date and (z) the Warranty Agreements as defined in
Schedule 1 hereto shall have been simultaneously executed and delivered by
the parties thereto in connection with the acceptance of the Aircraft by
Lessee:
(a) Lessor will offer to deliver the Aircraft to Lessee at the Delivery
Location.
(b) Lessee will accept the Aircraft. Lessee shall provide evidence of its
acceptance by signing Lease Supplement No. 1 and the Certificate of
Technical Acceptance for the Aircraft and delivering each such
document to Lessor.
(c) Lessee's acceptance of the Aircraft shall be regarded as absolute,
unconditional and irrevocable.
4.4 Delayed Delivery
If an Unforeseen Event happens and, as a result, Delivery takes place after
the Scheduled Delivery Date or does not happen:
(a) Lessor will not be responsible for any Losses that Lessee suffers
resulting from such delay or non-delivery of the Aircraft;
(b) Lessee will not, except in the circumstances described in Section
4.4(c), be entitled to terminate the Lease or to reject the Aircraft
when it is offered for Delivery because of the delay.
(c) If the Aircraft has not been tendered for Delivery, in accordance with
Section 4.3, by the Final Delivery Date, the Lessee may terminate the
Lease by delivering notice to the other party within ten (10) days of
such Final Delivery Date (and if such notice is not delivered within
such ten (10) day period the Final Delivery Date will be deemed
extended for one additional period of forty-five (45) days). Upon the
delivery of any such notice or automatically on the expiration of such
forty-five (45) day period if no
4
<PAGE>
such notice has been delivered, all obligations of each party under
the Lease will end on the date of such notice or the date of the
expiration of such period, as the case may be, except that Lessor will
repay to Lessee the Deposit (if any) or return to Lessee or cancel any
Letter of Credit and Lessee will remain obligated under its indemnity
set forth in Section 3 of Schedule 4.
(d) Lessee hereby agrees that its only right or remedy for a delay in
delivery of the Aircraft as a result of an Unforeseen Event is the
remedy set forth in Section 4.4(c) above and Lessee hereby waives any
rights it may have under Section 2A-406 of the UCC or otherwise for
any delay in delivery resulting from an Unforeseen Event.
5. PAYMENTS
5.1 Deposit
Lessee shall pay Lessor any Deposit that is specified in Section 3 of the
Aircraft Lease Agreement.
5.2 Rental Periods
The first Rental Period will start on the Rent Commencement Date and each
subsequent Rental Period will start on the date immediately following the
last day of the previous Rental Period. Each Rental Period will end on the
date immediately before the numerically corresponding day in the next
month, except that:
(a) if there is no numerically corresponding day in that month, it will
end on the last day of that month; and
(b) if a Rental Period would otherwise overrun the Expiry Date, it will
end on the Expiry Date.
5.3 Rent
(a) Time of Payment: Lessee will pay to Lessor or its order Rent in
advance on each Rent Date. Lessor must receive value for the payment
on each Rent Date. If a Rental Period begins on a day which is not a
Business Day, the Rent payable in respect of that Rental Period shall
be paid on the Business Day immediately after that day, without
interest.
(b) Amount: The Rent payable during the Term shall be calculated in
accordance with Schedule B of the Aircraft Lease Agreement.
5
<PAGE>
5.4 Supplemental Rent and Maintenance Adjustment
(a) Amount: If, under the Aircraft Lease Agreement, Lessee is required to
pay Supplemental Rent or any Maintenance Adjustment, Lessee will pay
(i) that Supplemental Rent, at the rates referred to in Section 3 of
the Aircraft Lease Agreement, to Lessor in relation to each calendar
month (or part of a month) of the Term, on the fifteenth (15th) day
following the end of that calendar month (except that the last payment
of Supplemental Rent during the Term shall be paid on the Expiry Date)
or (ii) any Maintenance Adjustment in the amounts and at the time
specified in Section 3.3 of the Aircraft Lease Agreement.
(b) Adjustment: The Supplemental Rent rates shall be adjusted after the
Delivery Date not more frequently than annually (with any such
adjustment having retrospective application as appropriate to reflect
the provisions of paragraphs (ii) and (iii) below) based on the
following:
(i) Annual Supplemental Rent Adjustment: by the Annual Supplemental
Rent Adjustment, compounded annually commencing on the first
anniversary of the Delivery Date, by way of agreed inflation
adjustment as set forth in Schedule B of the Aircraft Lease
Agreement under the definition of Annual Supplemental Rent
Adjustment.
(ii) Hour to Cycle Ratio Adjustment: Lessor and Lessee acknowledge
that the Engine Supplemental Rent Rate, Engine LLP Supplemental
Rent Rate and Landing Gear Supplemental Rent Rate are based upon
the assumption that the Aircraft will operate on an Assumed
Ratio. If that assumption proves to be incorrect at any time
during the Term based upon Lessee's actual operating experience
during the previous twelve (12) months (on an aggregate twelve
(12) month basis), and the hour to cycle ratio differs from the
Assumed Ratio by more than 10% during such twelve (12) month
period, Lessor shall have the right, upon written notice to
Lessee, to adjust the Engine Supplemental Rent Rate, Engine LLP
Supplemental Rent Rate and Landing Gear Supplemental Rent Rate
(in the case of a decrease in the ratio below the Assumed Ratio)
and Lessor, upon written request from Lessee, will make that
adjustment (in the case of an increase in the ratio above the
Assumed Ratio). Any adjustment shall be based on a table
contained in the Aircraft Lease Agreement. Actual hour to cycle
ratios may fall outside (either above or below) the ratios
identified in that table. In that case, the actual values shall
be determined by extrapolating the closest observed intervals in
the table.
6
<PAGE>
(iii) Assumed Utilization Adjustment: Lessor and Lessee
acknowledge that any amounts of Airframe Supplemental Rent
and APU Supplemental Rent payable by Lessee are based upon
the assumption that the Aircraft will operate on an
Assumed Utilization. If that assumption proves to be
incorrect at any time during the Term based upon Lessee's
actual operating experience during the previous twelve
(12) months (on an aggregate twelve (12) month basis) such
that (A) the Assumed Utilization is 110% or greater than
Lessee's actual utilization of the Aircraft or (B) the
Assumed Utilization is 90% or less than Lessee's actual
utilization of the Aircraft. In the case of Clause (A) of
above, Lessor may make, and notify Lessee of, and in the
case of Clause (B) above, Lessor, upon written notice from
Lessee will make, such adjustment as Lessor determines is
necessary in its reasonable discretion to maintain the
rates of Airframe Supplemental Rent and APU Supplemental
Rent at levels which accurately reflect the costs
associated with obtaining relevant maintenance services at
prevailing industry rates.
(iv) Material Revision to Maintenance Program: If the Lessee's
Maintenance Program is materially revised, Lessor may
make, and notify Lessee of, such adjustment as Lessor
determines is necessary in its reasonable discretion to
maintain the Supplemental Rent at levels which accurately
reflect the costs associated with obtaining relevant
maintenance services at prevailing industry rates. Each
notice shall specify the revised Supplemental Rent rates
and the effective date of such revision and, absent
reasonable objection by Lessee, Lessee shall be bound by
it.
(c) Lessee acknowledges and agrees that Supplemental Rent is additional
rent for the leasing of the Aircraft and not cash collateral or other
collateral security for Lessee's maintenance obligations under the
Lease. Once paid all Supplemental Rent is the property of Lessor, it
is not refundable to Lessee under any circumstances whatsoever and
Lessee has no interest therein whatsoever.
5.5 Payments
All payments by Lessee to Lessor under the Lease will be made for value on
the due date (or if the due date is not a Business Day then the on the
following Business Day) in Dollars and in immediately available funds by
wire transfer to the Lessor's bank account as specified in Section 3 of the
Aircraft Lease Agreement.
7
<PAGE>
5.6 Withholding and Tax Credit
(a) Withholding: Lessee must not deduct any amount from any of its
payments under the Lease, for or on account of any Taxes, unless it is
required by law to do so, in which case Lessee must:
(i) deduct the minimum amount necessary to comply with the Law;
(ii) provided that the Lessor is a U.S. Person (as defined in
Section 7701 of the Internal Revenue Code) and Lessor has
provided to the Lessee, upon a request from Lessee and as
required by applicable law, any forms evidencing such status as
reasonably needed by Lessee to not withhold U.S. federal income
taxes, pay Lessor an extra amount so that Lessor receives a net
amount on the relevant payment date, that is equal to the
amount that it would have received if the reduction had not
been made. The amount of any such payment to Lessor must take
into account the tax treatment of that payment to Lessor
applying the principles of Section 5.10 such that Lessor shall
be in no worse position than it would have been if the
deduction had not applied in the first place;
(iii) pay the Tax to the relevant taxing authority according to the
relevant Law; and
(iv) obtain a receipt (if one is available) from the relevant taxing
authority and give it to Lessor.
(b) Tax Credit: If Lessor, in good faith, determines that it has realized
a tax benefit (by way of deduction, credit or otherwise) as a result
of any payment for which Lessee is liable under Section 5.6(a) Lessor
shall pay to Lessee as soon as practicable after the tax benefit has
been realized (but not before Lessee has made all payments and
indemnities to Lessor required under this Section), an amount which
will ensure that (after taking account of the payment itself) Lessor
is in no better and no worse position than it would have been if the
deduction had not applied.
Nothing in this Section 5.6(b) shall:
(i) interfere with the right of Lessor to arrange its tax affairs
in whatever manner it thinks fit; or
(ii) oblige Lessor to disclose any information relating to its Tax
affairs or any Tax computations; provided, that, if there is a
need for Lessee to verify any Tax computations hereunder,
Lessor will disclose such information to a nationally
recognized independent accounting firm selected by Lessee after
execution of
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an appropriate confidentiality agreement restricting the
disclosure of such information.
5.7 Tax Indemnity
(a) General:
(i) Except as provided in Section 5.7(c), Lessee will on demand pay
and indemnify each Tax Indemnitee against any and all Taxes
levied or imposed against or upon or payable by such Tax
Indemnitee or Lessee and arising from the use or operation of
the Aircraft, the execution of the Lease or the payments made
under the Lease, including all Taxes relating or attributable
to Lessee, the Lease or the Aircraft, directly or indirectly,
in connection with the importation (only to the extent that the
importation arises out of the Lessee's use of the Aircraft),
exportation (only to the extent that the exportation arises out
of the Lessee's use of the Aircraft), registration, ownership
(but only to the extent relating to or attributable to or
arising as a result of the possession, operation, use or
maintenance of the Aircraft by Lessee), leasing, sub-leasing,
purchase, delivery, possession, use, operation, repair,
maintenance, overhaul, transportation, landing, storage,
presence or redelivery of the Aircraft or any part thereof or
any rent, receipts, insurance proceeds, income, indemnification
payment or other amounts arising therefrom, or the making of
any Equipment Change or the permanent replacement of any
Engine.
(ii) All Taxes indemnified pursuant to this Section 5.7(a) shall be
paid by Lessee directly to the appropriate taxing authority (to
the extent permitted by applicable Law) at or before the time
prescribed by applicable Law. After any payment by Lessee of
any Tax directly to a taxing authority, Lessee shall furnish to
Lessor, on request, a copy of a receipt for Lessee's payment of
such Tax (including a certified copy if required by Lessor) or
such other evidence of payment of such Tax as is reasonably
obtainable by Lessee and reasonably acceptable to Lessor.
(iii) Any amount payable by Lessee to a Tax Indemnitee pursuant to
Section 5.7(a) shall be paid within thirty (30) days (but in no
event later than the date that the indemnified Tax is due)
after receipt of a written demand therefor from the relevant
Tax Indemnitee accompanied by a written statement describing in
reasonable detail the basis for such indemnity and the
computation of the amount so payable, provided that if an
amount of any indemnified Tax is being contested in accordance
with Section 5.9 and Lessee shall have duly performed (and
shall continue to perform) all its obligations under Section
5.9 with
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respect to such contest, then payment of the indemnity with
respect to such Tax under Section 5.7(a) shall, at Lessee's
election, be deferred until the date the contest has been
completed.
(b) Sales and Use Taxes:
(i) Except as provided in Section 5.7(c) below, without limiting
Section 5.7(a) above and without duplication, Lessee shall pay
to Lessor (or, if permitted by applicable Law and if requested
by Lessor, Lessee shall pay to the relevant tax authority for
the account of Lessor):
(y) all sales, use, rental, value added, goods and services
and similar taxes ("Sales Taxes") required to be paid to
the tax authority of the jurisdiction in which the
Delivery Location is situated or to the jurisdiction of
the Habitual Base or the State of Incorporation with
respect to the lease of the Aircraft to Lessee pursuant to
the Lease unless Lessee delivers to Lessor on or prior to
the Delivery Date such exemption certificate or other
document as may be required by applicable Law to evidence
Lessee's entitlement to exemption from all Sales Taxes
imposed by such jurisdiction with respect to the lease of
the Aircraft pursuant to the Lease; and
(z) all Sales Taxes required to be paid to the tax authority
of any jurisdiction in which the Aircraft may be used,
operated or otherwise located from time to time unless
Lessee delivers to Lessor such exemption certificates or
other documents as may be required by applicable Law to
evidence Lessee's entitlement to exemption from all Sales
Taxes imposed by each such jurisdiction with respect to
the lease of the Aircraft pursuant to the Lease.
(ii) The parties will cooperate with each other in connection with
the preparation and filing of any exemption application or
similar document that is reasonably necessary or desirable
under applicable Law to avoid the imposition of any Sales Taxes
with respect to the transactions contemplated by the Lease.
(iii) The specific obligations with respect to sales and use taxes
set forth in this Section 5.7(b) are in addition to, and are
not in substitution for, Lessee's obligation to indemnify for
sales and use taxes pursuant to Section 5.7(a).
(c) Lessee is not required to indemnify Lessor under Section 5.7(a), (b)
or (d) to the extent that the Tax arises because of:
(i) the willful misconduct or gross negligence of Lessor;
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(ii) a Tax liability Lessor has which would have arisen even if the
Lease had not been entered into; or
(iii) a Tax liability charged on Lessor's gross or net income,
profits or gains by any Government Entity in the United States;
but excluding any Tax that is a Sales Tax or a Tax in the
nature of a Sales Tax; or
(iv) a Tax liability charged with respect to the period, or an event
occurring, (x) prior to the Delivery Date or (y) after the
Expiry.
(d) Lessee will also indemnify each Tax Indemnitee, on an After-Tax Basis,
as set forth in that Part of Schedule B of the Aircraft Lease
Agreement entitled "Special Tax Indemnity" and the provisions of
Section 5.9 (Tax Contest and Information) shall apply thereto.
5.8 [INTENTIONALLY DELETED]
5.9 Tax Contest and Information
(a) If any Tax Indemnitee receives a written claim for any Tax for which
Lessee would be required to pay an indemnity pursuant to Section 5.7,
Lessor shall notify Lessee promptly of such claim, provided that any
failure to provide such notice will not relieve Lessee of any
indemnification obligation pursuant to Section 5.7. If requested by
Lessee in writing promptly after receipt of Lessor's notice, Lessor
shall, upon receipt of indemnity satisfactory to it and at the expense
of Lessee (including, without limitation, all costs, expenses, legal
and accountants' fees and disbursements, and penalties, interest and
additions to tax incurred in contesting such claim) in good faith
contest or (if permitted by applicable Law) permit Lessee to contest
such claim by (i) resisting payment thereof if practicable and
appropriate, (ii) not paying the same except under protest if protest
is necessary and proper, or (iii) if payment is made, using reasonable
efforts to obtain a refund of such Taxes in appropriate administrative
and judicial proceedings. Lessor shall determine the method of any
contest conducted by Lessor except for any contest involving only
taxes (other than income taxes) of the Tax Indemnitee for which the
Tax Indemnitee is indemnified under this Agreement ("Severable Taxes")
and (in good faith consultation with Lessee) control the conduct
thereof. Lessee shall determine the method of any contest conducted
by Lessee and any contest involving Severable Taxes and (in good faith
consultation with Lessor) control the conduct thereof. Lessee shall
pay in full all payments of Rent and other amounts payable pursuant to
the Lease, without reduction for or on account of any Tax, while such
contest is continuing. Lessor shall not be required to contest, or to
continue to contest, a claim for Taxes under this Section 5.9 if (x)
such contest would result in a risk of criminal penalties or a
material risk of a sale, forfeiture or loss of (including loss of
use), or the imposition of a Lien (other than a Permitted Lien) on,
the Aircraft, or (y)
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Lessee shall not have furnished an opinion of independent tax counsel
selected by Lessor and reasonably satisfactory to Lessee, that a
reasonable basis exists for such contest, or (z) a Default shall be
continuing (unless Lessee shall have provided security reasonably
satisfactory to Lessor securing Lessee's performance of its
obligations under this Section 5.9). If Lessor contests any claim for
Taxes by making a payment and seeking a refund thereof, then Lessee
shall advance to Lessor, on an interest-free basis, an amount equal to
the Taxes to be paid by Lessor in connection with the contest and
shall indemnify Lessor on an After-Tax Basis for any adverse tax
consequences to Lessor of such interest-free advance. Upon the final
determination of any contest pursuant to this Section 5.9 in respect
of any Taxes for which Lessee shall have made an advance to Lessor in
accordance with the immediately preceding sentence, the amount of
Lessee's obligation shall be determined as if such advance had not
been made; any indemnity obligation of Lessee to Lessor under this
Section 5.9 and Lessor's obligation to repay the advance will be
satisfied first by setoff against each other, and any difference owing
by either party shall be paid within ten days after such final
determination.
(b) If Lessor obtains a refund or reimbursement of all or any part of any
Taxes for which a full indemnity was paid by Lessee, Lessor shall pay
Lessee the amount of such refund or reimbursement, reduced by any
Taxes imposed on Lessor on receipt or accrual of such refund or
reimbursement and increased by any Taxes saved by Lessor by reason of
the deductibility of such payment by Lessor. If, in addition to such
refund or reimbursement, Lessor receives an amount of interest on such
refund or reimbursement, Lessor shall pay to Lessee the portion of
such interest which is fairly attributable to such refund, reduced by
any Taxes imposed on Lessor on receipt or accrual of such interest and
increased by any Taxes saved by reason of the deductibility of such
payment by Lessor. Lessor shall not be required to make any payment
to Lessee pursuant to this Section 5.9 while a Default shall have
occurred and be continuing.
(c) Lessor in its sole discretion (by written notice to Lessee) may waive
its rights to indemnification pursuant to Section 5.7 with respect to
any claim for any Tax and may refrain from contesting or continuing
the contest of such claim, in which event Lessee shall have no
obligation to indemnify Lessor for the Taxes that are the subject of
such claim. If Lessor agrees to a settlement of any contest conducted
pursuant to this Section 5.9 without the prior written consent of
Lessee, which consent shall not be unreasonably withheld, then Lessor
shall be deemed to have waived its rights to the indemnification
provided for in Section 5.7 with respect to the Tax liability accepted
in such settlement.
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(d) Information:
(i) If Lessee is required by any applicable Law, or by any third
party, to deliver any report or return in connection with any
Taxes for which Lessee would be obligated to indemnify Lessor
or any other Tax Indemnitee under the Lease, Lessee will
complete the same and, on request, supply a copy of the report
or return to Lessor.
(ii) If any report, return or statement is required to be made by
Lessor or any other Tax Indemnitee with respect to any Tax for
which there is an indemnity obligation of Lessee under the
Lease, Lessee will use reasonable efforts, to the extent that
Lessee has actual knowledge thereof, to promptly notify Lessor
of the requirement, and will:
(y) if permitted by applicable Law, make and timely file such
report, return or statement (except for any report, return
or statement that Lessor has notified Lessee that Lessor
or any other Tax Indemnitee intends to prepare and file),
prepare such return in such manner as will show Lessor as
lessor of the Aircraft and the ownership of the Aircraft
in Lessor if required or appropriate, and provide Lessor
upon request a copy of each such report, return or
statement filed by Lessee, or
(z) if Lessee is not permitted by applicable Law to file any
such report, return or statement, Lessee will prepare and
deliver to Lessor a proposed form of such report, return
or statement within a reasonable time prior to the time
such report, return or statement is to be filed.
(iii) Lessee will provide such information and documents as Lessor
may reasonably request to enable Lessor or any other Tax
Indemnitee to comply with its tax filing, audit and litigation
obligations.
5.10 Indemnity Payments - After-Tax Basis
The amount of any payment made under Section 5.7 (Tax Indemnity)
(including Section 5.7(d)), Section 5.21 (Expenses) or Section 10
(Indemnity) to or for the benefit of any Indemnitee, shall include such
amount as may be necessary to hold such Indemnitee harmless on an After-
Tax Basis from all Taxes required to be paid by such Indemnitee with
respect to such payment or indemnity (including any payments pursuant to
this Section 5.10, determined based on the assumption that at the time
each such payment or indemnity is accrued by the relevant Indemnitee, such
payment or indemnity will be subject to (i) United States Federal income
tax, (ii) United States state and local income tax and (iii) income taxes
(if any) imposed by countries outside the United States at the actual
rates imposed on the relevant Indemnitee on the payments and determined
after taking into account the deductibility by such Indemnitee of
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(or other Tax benefit accruing to such Indemnitee) any such Tax (plus
interest and penalties) or Expense, each at the rates assumed above.
5.11 Lessor Obligations Following Expiry Date
Within 91 days after or, if Lessor is reasonably satisfied that there is no
material risk that any payment made by Lessee pursuant to the Lease could
be avoided as a preference, promptly after:
(a) redelivery of the Aircraft to Lessor in accordance with and in the
condition required by the Lease; or
(b) payment to Lessor of the Agreed Value following an Event of Loss after
the Delivery Date;
or in each case such later time as Lessor is reasonably satisfied that
Lessee has irrevocably paid to Lessor all amounts which may then be
outstanding under the Lease and the Other Agreement:
(i) Lessor will pay to Lessee the balance of the Deposit (if any)
including any interest accrued thereon in accordance with the
provisions of this Agreement and the Aircraft Lease Agreement;
(ii) Lessor will pay to Lessee the amount of any Rent received in
respect of any period falling after the date of redelivery of
the Aircraft or payment of the Agreed Value, as the case may
be; and
(iii) Lessor will return to Lessee or cancel any Letter of Credit.
5.12 Net Lease
The Lease is a net lease. The Lessee's obligation to pay Rent and to perform
all of its other obligations under the Lease is absolute and unconditional no
matter what happens and no matter how fundamental or unforeseen the event,
including any of the following: (a) any right of set-off, counterclaim,
recoupment, defense or other right which either party to the Lease may have
against the other (including any right of reimbursement) or which Lessee may
have against the Manufacturer, any manufacturer or seller of or any Person
providing services with respect to the Aircraft, any Engine or any Part or any
other Person, for any reason whatsoever; (b) any unavailability of the Aircraft
for any reason, including a requisition of the Aircraft or any prohibition or
interruption of or interference with or other restriction against Lessee's use,
operation or possession of the Aircraft (whether or not the same would, but for
this provision, result in the termination of the Lease by operation of law); (c)
any lack or invalidity of title or any other defect in title, airworthiness,
merchantability, fitness for any purpose, condition, design, or operation of any
kind or nature of the Aircraft for any particular use or
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trade, or for registration or documentation under the Laws of any relevant
jurisdiction, or any Event of Loss in respect of or any damage to the Aircraft;
(d) any insolvency, bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceedings by or against Lessor,
Lessee or any other Person; (e) any invalidity or unenforceability or lack of
due authorization of, or other defect in, the Lease; (f) any Security Interests
or Taxes; and/or (g) any other cause or circumstance which but for this
provision would or might otherwise have the effect of terminating or in any way
affecting any obligation of Lessee under the Lease. Lessee acknowledges and
agrees that it has used its own judgement in selecting the Aircraft, and has not
relied on Lessor or on any information supplied by Lessor, that Lessor is not a
manufacturer of or dealer in aircraft and that Lessor has all of the rights and
benefits of a lessor under a lease to which Section 2A-407 of the UCC applies as
provided in such Section 2A-407.
Except as expressly set forth elsewhere in the Lease, Lessee hereby waives, to
the extent permitted by applicable Law, any and all right which it may now have
or which at any time hereafter may be conferred upon it, by statute or
otherwise, to terminate, abate, cancel, quit, reduce, defer, suspend or
surrender the Lease or the Aircraft or any obligation imposed upon Lessee under
the Lease (including payment of Rent or Supplemental Rent).
Each payment of Rent or Supplemental Rent made by Lessee shall be final. Lessee
will not seek to recover all or any part of any payment of Rent or Supplemental
Rent for any reason whatsoever except manifest error, in which case Lessor shall
promptly make payment to Lessee.
If for any reason whatsoever the Lease shall be terminated in whole or in part
by operation of Law, except as specifically provided in the Lease, to the extent
permitted by applicable Law Lessee waives all rights (if any) to any termination
or diminution in its Rent or Supplemental Rent obligations hereunder and
nonetheless agrees to pay to Lessor an amount equal to each Rent and
Supplemental Rent payment at the time such payments would have become due and
payable in accordance with the terms thereof had the Lease not been terminated
in whole or in part and so long as such payments are made and all other terms
and conditions hereof are complied with by Lessee, Lessor and Lessee will deem
the Lease to remain in full force and effect.
Nothing in this Section 5.12 will be construed to limit Lessee's right to
institute separate legal proceedings against Lessor in the event of Lessor's
breach of the Lease subject to Sections 7.1 and 16.3 of this CTA, or to limit
Lessee's rights and remedies against any other person.
5.13 Further Provisions regarding Deposit
(a) If, under the Lease, Lessee is required to pay a Deposit, Lessee
hereby grants a security interest in the Deposit to Lessor and the
remaining provisions of this Section shall apply. Lessee agrees that
Lessor shall be entitled to commingle the Deposit with Lessor's
general or other funds, Lessor will have no obligation to pay any
interest thereon (except as Lessor may otherwise specifically agree)
and Lessor will not hold
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any such funds as agent or in trust for Lessee or in any similar
fiduciary capacity. In this regard, Lessee acknowledges and agrees
that it is not located in the State of New York within the meaning of
Section 7-101 1-c. (b) of the New York General Obligations Law and,
therefore, the requirements of Section 7-101 of the New York General
Obligations Law to the effect that Lessor hold the Deposit in a
separate, interest bearing account do not apply.
(b) If an Event of Default shall have occurred and be continuing under the
Lease or the Other Agreement, in addition to all rights and remedies
accorded to Lessor elsewhere in the Lease or under Law in respect of
the Deposit, Lessor may immediately or at any time thereafter, without
prior notice to Lessee, apply all or part of the Deposit in or towards
the payment or discharge of any matured obligation owed by Lessee or
any Affiliate of Lessee under the Lease or the Other Agreement, in
such order as Lessor sees fit, and/or exercise any of the rights of
set-off described in Section 5.20 against all or part of the Deposit.
(c) If Lessor exercises the rights described in Section 5.13(b) above,
Lessee shall, following a demand in writing from Lessor, immediately
restore the Deposit to the level at which it stood immediately prior
to such exercise.
5.14 Letter of Credit
(a) If, under the Lease, Lessee is required or elects to provide Lessor
with a Letter of Credit, the provisions of this Section shall apply.
Any Letter of Credit provided by Lessee to Lessor will be issued and
payable by Wachovia Bank N.A. or another bank acceptable to Lessor in
its sole and absolute discretion and in form and substance acceptable
to Lessor in its sole and absolute discretion and will be issued as
security for all payment obligations of Lessee to Lessor under the
Lease and each Other Agreement (including any and all Losses suffered
or incurred by Lessor), which shall remain in full force and effect
and may be drawn down by Lessor upon demand at any time or times
following the occurrence of an Event of Default until the Required LC
Expiry Date.
(b) With the prior written consent of Lessor, the Letter of Credit may
have a validity period or periods ending prior to the Required LC
Expiry Date, provided that (i) the Letter of Credit shall, in each
case, be renewed and delivered to Lessor not later than thirty (30)
days prior to its expiry; and (ii) a Letter of Credit shall remain in
force at all times up to the Required LC Expiry Date.
(c) If at any time during the Term, Lessor determines in its sole and
absolute discretion that the current issuing or confirming bank for
the Letter of Credit is no longer an acceptable issuing or confirming
bank (whether by virtue of a material adverse change in its financial
condition or for any other reason) Lessee shall promptly procure that
the Letter of Credit is replaced by a Letter of Credit issued by
another bank acceptable to Lessor in
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its sole and absolute discretion and (if requested by Lessor in its
sole and absolute discretion) that such replacement Letter of Credit
is confirmed by another bank acceptable to Lessor in its sole and
absolute discretion.
(d) If Lessor makes a drawing under the Letter of Credit, Lessee shall,
following a demand in writing by Lessor, immediately procure that the
maximum amount available for drawing under the Letter of Credit is
restored to the level at which it stood immediately prior to such
drawing.
5.15 [INTENTIONALLY OMITTED]
5.16 Late Payment Interest
(a) If Lessee fails to pay any amount payable under the Lease on the due
date, Lessee will pay on demand from time to time to Lessor interest
(both before and after judgement) on that amount, from the due date to
the date of payment in full by Lessee to Lessor, at the Interest Rate.
All such interest will be compounded monthly and calculated on the
basis of the actual number of days elapsed in the month, assuming a 30
day month and a 360 day year.
5.17 Currency
(a) Except for Losses and expenses suffered or incurred by Lessor, which
shall be payable by Lessee to Lessor in the currency and in the amount
in which such Loss is suffered or incurred, all amounts payable to
Lessor under the Lease shall be payable in Dollars in New York and
payment in Dollars in New York is of the essence. Lessee must
indemnify Lessor against any Loss Lessor suffers if:
(i) Lessor receives an amount relating to Lessee's obligations in a
different currency from that in which payments should be made
under the Lease; or
(ii) Lessee pays a judgment or claim in a different currency from that
in which payments should be made under the Lease.
(b) Lessee relinquishes any right to pay any amount under the Lease in a
currency which is different from the currency provided in the Lease.
Notwithstanding any such receipt, judgment or claim described in
Section 5.17(a), Lessee shall have a separate obligation to pay, and
Lessor shall have a separate claim against Lessee for, amounts to be
indemnified by Lessee under this Section 5.17.
5.18 Certificates
Except where expressly provided in the Lease, any certificate or
determination by Lessor as to any rate of interest or as to any other
amount payable under the Lease will, in the absence of manifest error, be
presumed to be correct.
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5.19 Appropriation
If any sum paid or recovered by Lessor in respect of the liabilities of
Lessee under the Lease is less than the amount then due, Lessor may apply
that sum to amounts due under the Lease in such proportions and order and
generally in such manner as Lessor may determine in its sole discretion.
5.20 Set-off
(a) In this sub-clause, references to Lessee will also include Lessee's
Subsidiaries.
(b) Lessor may, without notice, set-off any obligations owed by Lessee
under the Lease or the Other Agreement against any obligation Lessor
or any Affiliate owes Lessee under the Lease or the Other Agreement,
regardless of the place of payment or currency.
If the obligations are in different currencies, Lessor may convert either
obligation at the market rate of exchange available in New York. If the
amount of an obligation is unknown, Lessor may estimate the amount. Any
difference between the estimated obligation and the actual obligation will
be paid by either Lessor or Lessee, as appropriate, when the amount becomes
known. Lessee shall not set-off any obligations owed by Lessor against any
obligation Lessee owes Lessor under the Lease or the Other Agreement.
5.21 Expenses
Whether or not the Aircraft is delivered to Lessee (unless delivery does
not occur due to a breach by Lessor or due to Lessee's exercise of its
rights under Section 4.4(c)), Lessee will pay to Lessor on demand all
reasonable expenses (including all legal fees and expenses and the fees and
expenses of other professional advisers) that the Lessor has to pay:
(a) to deal with any amendments, extensions, consents or waivers that are
requested by Lessee (specifically excluding any expenses incurred by
Lessor or any Affiliate in connection with any change in the ownership
or financing of the Aircraft, including as contemplated by Section
14.2) or to deal with any replacement of any Engine or Part;
(b) for FAA counsel and for assistance in perfecting the Lease in the
State of Registry and the State of Incorporation (and any other
appropriate place); and
(c) in connection with, the enforcement or preservation of any of Lessor's
rights under the Lease (including under Section 10) or in respect of
the repossession of any Aircraft.
All amounts payable pursuant to this Section 5.21 will be paid in the
currency in which they are incurred by Lessor.
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6. MANUFACTURER'S WARRANTIES
(a) So long as no Significant Default has occurred which is continuing,
Lessor shall make available to Lessee during the Term the benefit of
all manufacturer's warranties in relation to the repair or remedy of
any defect in the Aircraft (including compensation for loss of use of
the Aircraft) to the extent that it is permitted to do so. Lessee
will give Lessor prompt written notice of any warranty claim which is
settled with Lessee on the basis of a cash payment.
(b) If a Significant Default has occurred and is continuing Lessor may
immediately recover from Lessee the proceeds of any warranty claims
previously paid to Lessee to the extent that such claims relate to any
defect in the Aircraft not fully and completely rectified by Lessee
before such Significant Default and Lessor may (so long as such
Significant Default is continuing):
(i) if Lessor has commenced the exercise of its remedies under
Section 13.2 or the Aircraft has been returned pursuant to
Section 12, retain for its own account any such proceeds
previously paid to Lessor which would have been remitted to
Lessee under this Section 6 in the absence of such Significant
Default; and
(ii) cause any proceeds of any pending claims to be paid to Lessor,
rather than Lessee.
(c) Lessee will take all steps as are reasonably requested by Lessor at
the end of the Term to ensure that the benefit of any warranties
relating to the Aircraft which have not expired is vested in Lessor.
(d) To the extent that any of the provisions of Section 6(a), 6(b) or 6(c)
above is inconsistent with the assignment of warranties contained in
any of the Warranty Agreements, such agreements shall be controlling.
7. LESSOR'S COVENANTS
7.1 Quiet Enjoyment
So long as no Event of Default has occurred and is continuing, Lessor will
not interfere with Lessee's right to quiet use and possession of the
Aircraft during the Term. Exercise by Lessor of its rights of inspection
or other rights provided to it under the Lease in the absence of an Event
of Default shall not be considered to be a breach of the foregoing
covenant. Lessee agrees that its only right with respect to a default by
Lessor under the Lease is to make a claim against Lessor for actual damages
resulting directly therefrom and in any event subject to Section 16.3
hereof, and Lessee hereby waives any and all other rights or remedies it
may
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have solely by reason of Section 2A-211 of the UCC (without limiting
however the obligation of the Lessor under the first sentence of this
paragraph) or Sections 2A-508 through 2A-522 of the UCC or otherwise.
During the Term, Lessor will take such action as may be necessary to
discharge any Lessor Lien of the type referred to in clause (ii) of the
definition of "Lessor Lien" which would result in a breach of this Section
7.1; provided that Lessor will not be required to discharge any such Lessor
Lien which arises from a claim being contested by Lessor (or its successors
or assigns) in good faith and by appropriate proceedings so long as such
proceedings do not involve any material risk of the sale, forfeiture or
loss (including loss of use) of the Aircraft.
7.2 Maintenance Contributions
If, under the Aircraft Lease Agreement for the Aircraft, Lessee is required
to pay Supplemental Rent, then provided no Event of Default has occurred
and is continuing, Lessor will pay (as a separate and independent
obligation and not as a return of Supplemental Rent) the following amounts
to Lessee by way of contribution to the cost of maintenance of the
Aircraft, UPON RECEIPT BY LESSOR, WITHIN NINE (9) MONTHS AFTER COMPLETION
OF SUCH MAINTENANCE AND IN ANY EVENT NO LATER THAN NINE (9) MONTHS AFTER
THE EXPIRY DATE, of an invoice and supporting documentation reasonably
satisfactory to Lessor evidencing performance of the following work by the
Maintenance Performer:
(i) Airframe: With respect to the Airframe, the completion, in
accordance with Section 8.10, of the Airframe Structural Check,
the lesser of (aa) the amount of that invoice and (bb) an amount
equal to the aggregate amount of the Airframe Supplemental Rent
paid under the Lease at the date such work starts less the
aggregate amount previously paid by Lessor under this sub-
clause;
(ii) Engine Life-Limited Parts: With respect to life-limited Parts
within any Engine, the performance, in accordance with Section
8.10, of any replacement or repair of those Parts ("Engine LLP
Replacement"), the lesser of (x) the amount of that invoice and
(y) an amount equal to the aggregate amount of the Engine LLP
Supplemental Rent paid in respect of that Engine under the Lease
at the date such work starts less the aggregate amount
previously paid in respect of that Engine by Lessor under this
sub-clause;
(iii) Engine Refurbishment: With respect to any Engine, the
performance, in accordance with Section 8.10, of Engine
Refurbishment in respect of that Engine the lesser of (x) the
amount of that invoice and (y) an amount equal to the aggregate
amount of the Engine Supplemental Rent paid under the Lease in
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respect of that Engine at the date such work starts less the
aggregate amount previously paid in respect of that Engine by
Lessor under this sub-clause;
(iv) APU: With respect to the APU, the performance, in accordance
with Section 8.10, of all shop visits requiring APU removal and
disassembly, the lesser of (x) the amount of that invoice and
(y) an amount equal to the aggregate amount of the APU
Supplemental Rent paid under the Lease in respect of the APU at
the date such work starts less the aggregate amount previously
paid in respect of the APU by Lessor under this sub-clause;
provided, however, that Lessee shall receive a credit at the end
of the Term for APU Supplemental Rent accrued from the first day
of the month in which maintenance work commences to the date of
commencement of such maintenance work and which has been paid by
Lessee in accordance with the terms of this Agreement but which
has not been credited by Lessor to the cost of such maintenance
work; and
(v) Landing Gear: With respect to the Landing Gear, the performance
in accordance with Section 8.10, of all work on the landing gear
in the nature of overhaul and requiring removal and disassembly,
the lesser of (x) the amount of that invoice and (y) an amount
equal to the aggregate amount of the Landing Gear Supplemental
Rent paid under the Lease at the date such work starts less the
aggregate amount previously paid by Lessor under this sub-clause.
PROVIDED THAT Lessor will not pay any such contribution:
(a) in respect of paragraphs (i)-(v) above, for repairs arising as a
result of accidents or incidents (whether or not eligible for
recovery under Lessee's insurance), operational or maintenance
mishandling or airworthiness directive work (except as otherwise
agreed by Lessor); nor
(b) in respect of paragraphs (ii) and (iii) above, for repairs
arising as a result of foreign object damage, the removal,
installation, maintenance and repair of QEC (Quick Engine Change
Kits) and/or, unless approved by Lessor, any elective parts
replacement.
8. LESSEE'S COVENANTS
8.1 Duration
(a) All undertakings and covenants of the Lessee in the Lease shall,
except where expressly otherwise stated, be performed at the expense
of Lessee.
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8.2 Information
Lessee will:
(a) provide Lessor with a Technical Report for the Aircraft within fifteen
(15) days after the end of each calendar month throughout the Term;
(b) provide Lessor with the Financial Information;
(c) notify Lessor, promptly, of any Event of Loss or of any event which is
likely to result in an insurance claim in excess of the Damage
Notification Threshold and details of any negotiations with insurers
or insurance brokers relating to such claim;
(d) promptly notify Lessor after Lessee knows or has reason to know of the
occurrence of a Default;
(e) provide Lessor, upon request, with evidence that all Taxes and charges
incurred by Lessee in connection with the Aircraft, its location and
its operations, including those invoiced by airports and air traffic
control authorities, have been paid in full;
(f) provide Lessor with such other information concerning the location,
condition, use and operation of the Aircraft, as Lessor may from time
to time reasonably request;
(g) give Lessor prior written notice as to the time and location of the
next Major Check (such notice to be given prior to the induction of
the Aircraft into such Major Check); provided that, the failure to do
so will not constitute a Default or an Event of Default; and
(h) notify Lessor of the imminent removal of any Engine for the purpose of
Engine Refurbishment; provided that, the failure to do so will not
constitute a Default or an Event of Default.
8.3 Lawful and Safe Operation
Lessee will operate the Aircraft for commercial purposes from the Delivery
Date until the Return Occasion from a base within the State of Registry or
from such other base outside the State of Registry pursuant to a sub-lease
or a wet-lease complying with Section 8.4(a), provided, always that Lessee
must not use or operate Aircraft or suffer or permit the Aircraft to be
used or operated:
(a) in violation of any applicable Regulations, unless and solely to the
extent the validity of such Regulations are being contested in good
faith by appropriate proceedings so long as neither such proceedings
nor such violation involves any material risk of the sale, forfeiture
or loss (including loss of use) of the Aircraft, any risk of criminal
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liability on the part of any Indemnitee, or any violation of any term
of any of the Insurances;
(b) for any purpose for which the Aircraft was not designed or which is
illegal;
(c) to carry cargo which could reasonably be expected to damage the
Aircraft;
(d) in any circumstances or place where the Aircraft is not covered by the
Insurances; or
(e) for purposes of training, qualifying or re-confirming the status of
cockpit personnel except for the benefit of Lessee's cockpit
personnel, and then only if the use of the Aircraft for such purpose
is not disproportionate to the use for such purpose of other aircraft
of the same type operated by Lessee.
8.4 Subleasing
(a) AT NO TIME PRIOR TO THE RETURN OCCASION WILL LESSEE SUB-LEASE, WET-
LEASE, CHARTER OR GIVE POSSESSION OF THE AIRCRAFT OR ANY ENGINE TO, OR
OTHERWISE PERMIT THE AIRCRAFT OR ANY ENGINE TO BE IN THE POSSESSION
OF, ANY PERSON EXCEPT:
(i) when the prior written consent of Lessor has been obtained; or
(ii) where the Aircraft or Engine is delivered to a manufacturer or
maintenance facility for work to be done on it as required or
permitted under the Lease; or
(iii) to a Certificated Air Carrier listed on Schedule 13 or to
another sub-lessee to which Lessor consents in writing (in
either case a "Permitted Sub-Lessee") pursuant to a sub-lease
(a "Permitted Sub-Lease") which complies with the conditions
set out in Section 8.4(b) and provided that no Significant
Default shall have occurred and be continuing;
(iv) on a wet-lease or charter which complies with Section 8.4(c);
or
(v) with respect to an Engine, as permitted under Section 8.11.
(b) In addition to any consent required in this Section 8.4 (in connection
with the identity of a Permitted Sub-Lessee other than a Certificated
Air Carrier listed on Schedule 13), each of the following conditions
shall be required to be satisfied in relation to any Permitted Sub-
Lease prior to any sub-leasing pursuant to this Section:
(i) Notification: at least thirty (30) days prior to entering into
any Permitted Sub-Lease, Lessee shall give Lessor written
notice, specifying the identity of the Permitted Sub-Lessee,
the term of the Permitted Sub-Lease, the delivery date
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under the Permitted Sub-Lease and the habitual base of the
Permitted Sub-Lessee;
(ii) Term: the term of the Permitted Sub-Lease shall not be capable
of extending beyond two (2) months before the Scheduled Expiry
Date;
(iii) Form: a Permitted Sub-Lease shall:
(aa) not contain provisions inconsistent with the provisions of
the Lease (but may impose additional or more stringent
obligations on any Permitted Sub-Lessee than are imposed
on Lessee under the Lease);
(bb) provide that no further subleases of the Aircraft by such
Permitted Sub-Lessee are permitted; and
(cc) include provisions substantially identical to or having
substantially the same effect as Sections 2.1, 5.6, 5.7,
5.10, 5.12, 5.16, 5.17, 8, 9, 10, 11, 13 (only those
provisions providing for Lessor's rights of repossession,
termination and general damages), 15.1, 15.8 and 16 and
Schedules 2 (Section 1.1), and 9 of the Lease (but the
Permitted Sub-Lease may impose additional or more
stringent obligations on any Permitted Sub-Lessee than are
imposed on Lessee under the Lease);
(iv) Subordination and Assignment: the Permitted Sub-Lease shall
provide that (aa) the Permitted Sub-Lease is subject and
subordinate to the Lease in all respects and the rights of the
Permitted Sub-Lessee under the Permitted Sub-Lease are subject
and subordinate in all respects to the rights of Lessor under the
Lease; and (bb) prior to delivery of the Aircraft to the
Permitted Sub-Lessee (as a condition precedent thereof), the
Permitted Sub-Lessee shall provide an acknowledgement to Lessor
in a form reasonably satisfactory to Lessor, confirming its
agreement to this provision and confirming that its rights to
possession of the Aircraft under the Permitted Sub-Lease will
terminate immediately upon the termination of the Lease, and that
it will redeliver the Aircraft to Lessor, upon notification from
Lessor that an Event of Default has occurred and that it has, as
a result thereof, terminated Lessee's right to possession of the
Aircraft under the Lease (the "Subordination Acknowledgement")
and (cc) Lessee may terminate such Permitted Sub-Lease following
the occurrence of an Event of Default under the Lease where
Lessor has terminated the leasing of the Aircraft under the Lease
as a result thereof. The Permitted Sub-Lease shall be assigned to
Lessor pursuant to an agreement reasonably acceptable to Lessor
(the "Sub-Lease Assignment");
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(v) Quiet Enjoyment: the Permitted Sub-Lease shall provide that the
Permitted Sub-Lessee shall have the right to quiet enjoyment of
the Aircraft for so long as no Event of Default has occurred
under the Lease and/or no event of default or termination event
(howsoever described) has occurred under the Permitted Sub-
Lease;
(vi) Obligations of Lessee: Lessee shall remain primarily liable
under the Lease for the performance and observance of all its
obligations to the same extent as if no Permitted Sub-Lease had
been entered into. To the extent that the Permitted Sub-Lessee
properly performs an obligation under the Permitted Sub-Lease,
Lessor agrees that such performance shall also be regarded as
discharging (to such extent) Lessee's corresponding obligation;
(vii) Insurances: all insurance requirements herein shall be complied
with either by Lessee or by the Permitted Sub-Lessee as if
references in the insurance provisions of the Lease to "Lessee"
were references to "the Permitted Sub-Lessee", and Lessee shall
cause the Permitted Sub-Lessee to provide the insurance
certificate and brokers' letter of undertaking referred to in
Section 9.3(c)(iii) at least five (5) Business Days prior to
the commencement of the Permitted Sub-Lease;
(viii) Registration: there shall be no change in the registration of
the Aircraft from its State of Registry;
(ix) Repossession Insurance: if reasonably required by Lessor,
repossession insurance shall be obtained by Lessor at Lessee's
cost, provided that repossession insurance will not be required
if the Permitted Sub-Lessee meets the requirements of Sections
8.7(a)(iv). If repossession insurance is required, the
Permitted Sub-Lease must provide that, if any such repossession
insurance cannot be obtained or renewed, a termination event
will occur upon notice by Lessor to Lessee or the Permitted
Sub-Lessee of an inability to procure repossession insurance;
(x) Legal Opinions: as a condition precedent to the effectiveness
of the Permitted Sub-Lease, Lessee shall provide to Lessor the
following legal opinions (at Lessee's or Permitted Sub-Lessee's
expense) addressed to Lessor from counsel acceptable to Lessor;
(aa) a legal opinion in relation to the Permitted Sub-Lease
in form and substance reasonably satisfactory to, and
containing such other matters set out in Schedule 8
requested by, Lessor and confirming further that each
of the Subordination
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Acknowledgement, the Permitted Sub-Lease and the Sub-
Lease Assignment is valid, binding and (except as
limited by any equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' or lessors' rights
generally) enforceable against Permitted Sub-Lessee
and, in the case of the Sub-Lease Assignment, properly
perfected as against Lessee; and
(bb) one or more legal opinions in a form and from counsel
reasonably acceptable to Lessor in the State of
Registry, the State of Incorporation for each of
Lessee and the Permitted Sub-Lessee and, if not in the
United States, State of the Habitual Base to the
effect, inter alia, that Lessor's interests in the
Aircraft will be recognized under the laws of such
country or countries.
The foregoing opinion or opinions (x) shall be
forwarded promptly to Lessor at least five (5)
Business Days prior to the effective date of the
Permitted Sub-Lease, and (y) may, if different
opinions are required hereunder, be made by a single
counsel qualified to render opinions in each such
country;
(xi) Filings: Lessee shall co-operate with Lessor (at no cost to
Lessor) in connection with the execution and filing of any
documents reasonably required by Lessor to be executed and
filed from time to time with any registry or authority in the
Habitual Base, the State of Registry and State of Incorporation
(of each of Lessee and the Permitted Sub-Lessee) in order to
protect the interests of Lessor in and to the Aircraft, the
Lease or the Permitted Sub-Lease and/or to ensure the
validity, enforcement or priority thereof;
(xii) Expenses: Lessee will pay to Lessor on demand all reasonable
out of pocket expenses (including legal, survey and other
costs) and Taxes payable or incurred by Lessor in connection
with the review and approval of the documentation required
pursuant to this Section or otherwise incurred in connection
with any requested sub-lease or the sub-leasing of the Aircraft
thereunder, and will pay any Sublease Fee specified in the
Aircraft Lease Agreement for such Aircraft;
(xiii) Permitted Sub-Lease: Promptly after its execution, Lessee shall
provide Lessor with a copy of the signed Permitted Sub-Lease;
(xiv) [Intentionally Deleted]; and
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(xv) Financing Restrictions and Requirements: If Lessee requests
Lessor's consent to a sub-lease, it will not be unreasonable
for Lessor to decline its consent to such sub-lease if such
sub-lease would result in a breach by Lessor of the
restrictions contained in Lessor's financing agreements or
would result in a reduction in the security value(s) of
aircraft financed under such financing agreements or would
result in the Aircraft no longer being capable of being
financed under such financing.
(c) Notwithstanding Section 8.4 (a) Lessee shall be permitted to wet lease
or charter the Aircraft provided such wet lease or charter constitutes
an arrangement whereby Lessee agrees to furnish the Aircraft to a
third party pursuant to which the Aircraft (i) shall be operated
solely by regular employees of Lessee possessing all current
certificates and licenses that are required by applicable Regulations,
including by the State of Registry, and shall remain in the
operational control and possession of Lessee, (ii) shall be subject to
insurance coverage approved by Lessor, (iii) shall be used and
operated in accordance with the Lease and shall be maintained by
Lessee in accordance with Lessee's Maintenance Program and Lessee's
normal maintenance practices, and (iv) shall not be subject to any
change in its State of Registry; and provided always that such
arrangement is expressly subordinated to the Lease and the rights of
Lessor thereunder and to the Aircraft.
(d) A Permitted Sub-Lessee shall be entitled during the term of the
Permitted Sub-lease to operate, use, locate and employ the Airframe,
Engines and Parts in any lawful manner not in contravention with the
Lease.
8.5 Inspection
(a) Lessee will permit Lessor's representative to inspect the Aircraft at
any time; provided that, unless (i) a Default has occurred and is
continuing or (ii) Lessee fails to comply with Section 8.2(g) or (h),
any such inspection shall be conducted no more than once annually.
Lessor will give Lessee reasonable notice of inspection. Unless an
Event of Default has occurred and is continuing, Lessor will ensure
that such inspection will not result in a disruption to the scheduled
operation or maintenance of the Aircraft. Lessee shall comply with
the reasonable requests of Lessor's representative during the course
of an inspection but shall not be obligated to open any bays and
panels; provided that, during an inspection conducted by Lessor
pursuant to clause (ii) above, if such inspection occurs after the
failure of Lessee to comply with Section 8.2(g) Lessee shall be
obligated to open or remove all bays and panels which would have been
opened or removed during the inspection contemplated by Section 8.2(g)
and in the event Lessee fails to comply with Section 8.2(h), Lessee
shall permit the
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performance of a complete video borescope inspection of the applicable
Engine for which Lessee failed to comply with Section 8.2(h).
(b) The cost of conducting an inspection shall be borne by Lessor unless
(i) at the time of inspection an Event of Default has occurred and is
in existence or (ii) Lessee has failed to comply with Section 8.2(g)
or (h), in either such case the cost shall be borne by Lessee.
(c) No liability or obligation will be incurred by Lessor by reason of
non-exercise by it of the inspection rights referred to in this
Section.
8.6 Ownership; Property Interests; Related Matters
(a) Lessee will maintain Nameplates containing the Nameplate Inscription
in a prominent position in the cockpit or cabin of the Aircraft and on each
Engine; and
(b) Lessee will not:
(i) represent that it is the owner of the Aircraft or that it has
an economic interest (equivalent to ownership) in the Aircraft
for Tax treatment or other purposes;
(ii) take any action or fail to take any action if it could put
Lessor's rights or interests at risk;
(iii) represent to others that Lessor is associated with or
responsible for the business activities and/or flight
operations of Lessee;
(iv) allow the Aircraft or Lessor's interest in it or the Lease to
become or remain subject to any Security Interest (other than a
Permitted Lien); or
(v) allow the name of any Person to be placed on the Aircraft or any
Engine as a designation that could reasonably be interpreted as
a claim of ownership or as a Security Interest; provided, that
Lessee may place thereon, or allow a Permitted Sub-Lessee to
place thereon, its customary insignia and colors.
8.7 General
(a) Lessee will:
(i) (x) maintain its business as a commercial passenger airline, will
preserve its corporate existence (other than as permitted in
Section 8.7(a)(vii) below) and (y) maintain all rights,
privileges, licenses and franchises material thereto or material
to performing its obligations under the Lease;
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(ii) not operate the Aircraft in a manner which discriminates
against the Aircraft based on its leased status, when compared
with the manner in which Lessee operates similar aircraft,
engines or parts in Lessee's fleet;
(iii) not change the location of its chief executive office from that
described in the heading of the Aircraft Lease Agreement or
otherwise be located (as defined in Section 9-103(3)(d) of the
UCC) at any place in the United States other than the location
described the heading of the Aircraft Lease Agreement, except
upon thirty (30) days prior written notice thereof to Lessor;
(iv) remain a Certificated Air Carrier;
(v) [Intentionally Deleted];
(vi) not liquidate or dissolve (except in accordance with Section
8.7(a)(vii) below); and
(vii) not consolidate with or merge into or with any other
corporation or other Person, and not convey, transfer, lease or
otherwise dispose of all or substantially all of its property
and other assets to, or acquire all or any substantial part of
the property or other assets or capital stock of (if such
acquisition is analogous in either purpose or effect to a
consolidation or merger), any corporation or other Person,
unless:
(x) the Person formed by or surviving such consolidation or
merger or the Person which acquires by conveyance,
transfer, lease or other disposition all or substantially
all of such property and other assets or stock (the
"Successor Entity"): (A) shall be a solvent corporation
organized and existing under the laws of the United States
or any State thereof or the District of Columbia; (B)
immediately after giving effect to such transaction, shall
have acquired or succeeded to all or substantially all of
the property and other assets of Lessee (if such assets
are being transferred) as an entirety, shall have a
tangible net worth (determined in accordance with GAAP) at
least equal to the lesser of (1) Fifty Million Dollars
($50,000,000) and (2) 75% of Lessee's tangible net worth
(determined in accordance with GAAP) immediately prior to
such transaction; provided, however, Lessor shall waive
such requirement if, in its reasonable credit judgement,
the ability of the Successor Entity or Lessee, if Lessee
is the Successor Entity, to perform its obligations under
this Lease shall not be materially adversely affected by
such transaction; and provided, further, that in the
exercise of such credit judgement, Lessor shall have
access to full information; (C) shall be a "citizen of the
United States" of America as defined in Section
40102(a)(15)(c) of Title 49 of the U.S.C. and Certificated
Air Carrier; and (D) unless Lessee is
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acquiring the assets or capital stock of another Person,
Lessee shall execute and deliver to Lessor (X) such
recordations and filings with any Governmental Entity and
such other documents as Lessor determines shall be
reasonably necessary or advisable to evidence, such
consolidation, merger, sale, lease, transfer or other
disposition and (Y) an agreement, in form and substance
reasonably satisfactory to Lessor, which is a legal,
valid, binding and enforceable assumption by such
Successor Entity of the due and punctual performance and
observance of each covenant and condition of the Lease and
the other related documents to which Lessee is a party,
and shall provide an officer's certificate to such effect
and to the effect that the other requirements of this
Section have been satisfied, and a legal opinion from
counsel to such effect and otherwise in such reasonably
satisfactory to Lessor; and
(y) immediately prior to and after giving effect to such
transaction, no Event of Default or Payment Default shall
have occurred and be continuing.
8.8 Records
Lessee will keep all Aircraft Documents and Records:
(a) in English;
(b) in a manner consistent with Lessee's existing record keeping
practices; and
(c) so they meet the requirements of applicable Regulations (including FAR
91.417) and Lessee's Maintenance Program.
8.9 Protection
Lessee will:
(a) take all actions that are within its control to keep the Aircraft
registered with the Air Authority in the name of Lessor; and
(b) upon the request of Lessor, make any and all filings required to be
made with the Air Authority registry that are within its control and
take all other actions within its control that are necessary or
advisable to reflect on the Air Authority registry any change in (i)
the ownership of the Aircraft, or (ii) in the interests of Lessor in
the Lease or the Aircraft, or (iii) any modification to the Aircraft
(such as the permanent replacement of any Engine in accordance with
the Lease) or (iv) any applicable Regulation. Lessor will bear any
costs incurred as a consequence of a change in ownership of the
Aircraft or in the identity of Lessor and Lessee will bear any other
costs incurred in complying with this Section, including in connection
with the replacement of any Engine.
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8.10 Maintenance and Repair
Lessee will maintain, overhaul and repair the Aircraft (or arrange for the
Aircraft to be maintained, overhauled and repaired), so that:
(a) the Aircraft is kept in as good operating condition and repair as the
condition of the Aircraft as at Delivery and after giving effect to
any post-Delivery modifications, repairs or maintenance paid for or
otherwise provided by or on behalf of Lessor, except for ordinary wear
and tear;
(b) the Lessee has a current certificate of airworthiness (issued by the
Air Authority in the appropriate public transport category) for the
Aircraft in good standing at all times;
(c) the Aircraft complies with (i) all applicable Regulations including
the standard stipulated by FAR Part 121 Subpart L and any other rules
and regulations of the FAA and in at least the same manner and with at
least the same care, including maintenance scheduling, modification
status and technical condition, as is the case with respect to similar
aircraft owned or otherwise operated by Lessee and as if Lessee were
to retain and continue operating the Aircraft in its fleet after the
Expiry Date, including all maintenance to the Airframe, any Engine or
any Part required to maintain all warranties, performance guaranties
or service life policies in full force and effect; provided that,
without in any way limiting Lessee's obligations under the Lease,
nothing herein shall prevent Lessee, in determining whether to perform
Optional Maintenance on the Airframe or any Engine, from taking into
account that the Lessee shall be redelivering the Aircraft on the
Scheduled Expiry Date, and Lessee may therefore elect not to perform
such Optional Maintenance; and (ii) the requirements of all
Airworthiness Directives and all service bulletins designated by the
State of Design or State of Registry as "mandatory," and to be carried
out before the Scheduled Expiry Date; and
(d) all maintenance is carried out according to Lessee's Maintenance
Program in at least the same manner and with at least the same care,
including maintenance scheduling, modification status and technical
condition, as is the case with respect to similar aircraft owned or
otherwise operated by Lessee; provided that, without in any way
limiting Lessee's obligations under the Lease, nothing herein shall
prevent Lessee, in determining whether to perform Optional Maintenance
on the Airframe or any Engine, from taking into account that the
Lessee shall be redelivering the Aircraft on the Scheduled Expiry
Date, and Lessee may therefore elect not to perform such Optional
Maintenance.
8.11 Removal of Engines and Parts
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(a) General: Lessee must replace, within ninety (90) days thereof (or in
the event Lessee does not have such an engine available, such longer
time as Lessor and Lessee acting reasonably mutually agree is
necessary to obtain such an engine), any Engine that has suffered an
Engine Event of Loss in accordance with Section 8.11(b). Any Engine
which otherwise is lost, stolen, destroyed, seized, obsolete,
confiscated, damaged beyond repair or permanently rendered unfit for
any reason, must be replaced in accordance with Section 8.11(b). Any
Engine may be installed on another aircraft Lessee owns or leases in
accordance with Section 8.11(c). Lessee may install an engine (other
than an Engine) on the Aircraft in accordance with Section 8.11(d).
For so long as a GE Entity is the owner of the Aircraft and the Other
Aircraft (at the time of installation), Lessee may install any of the
Other Engines on the Aircraft on a permanent basis in accordance with
Section 8.11(b). Lessee shall obtain from any person to whom
permanent possession of an Engine is given (an "Engine Possession"),
and from the lessor and/or owner of any airframe on which an Engine is
installed and from any holder of a Security Interest in any airframe
on which an Engine is installed, an agreement in writing (which
agreement, in the case of a lease or Security Interest, may be
contained in the applicable lease or security interest agreement
covering such airframe) to Lessor, that such Person will not seek to
acquire, claim or exercise as against Lessor any rights, title or
interest with respect to such Engine as a result of such Engine being
installed on such Airframe or, in the case of an Engine Possession,
while such Person is otherwise in the permanent possession of the
Engine. In the event Lessee shall have received from a lessor of or
secured party holding a Security Interest in any airframe leased to
Lessee or owned by Lessee a written agreement pursuant to the
foregoing sentence and the lease or Security Interest covering such
airframe (such lease or security agreement being referred to as an
"Aircraft Agreement") also covers an engine or engines owned by the
lessor under such lease or subject to such Security Interest in favor
of the secured party under such Security Interest, Lessor hereby
agrees for the benefit of such lessor or secured party (and hereby
agrees for the benefit of any lessor or secured party with respect to
a spare engine not subject to an Aircraft Agreement) that Lessor will
not seek to acquire, claim or exercise as against such lessor or
secured party, any right, title or interest in relation to 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 Security
Interest and owned by such lessor or subject to a Security Interest in
favor of such secured party.
(b) Permanent Replacement of Engines: If Lessee permanently replaces an
Engine:
(i) the replacement engine (except if such replacement is one of
the Other Engines) must be of the same manufacturer and model,
or at Lessee's option an engine of an improved model, and have
equivalent or better remaining useful life, modification
status, time elapsed since hot section refurbishment, cold
section refurbishment, reduction gear overhaul, life limited
part utility,
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serviceability and equivalent remaining warranty status as the
Engine it replaces, and is otherwise of an equivalent or better
value and utility and suitable for installation and use on the
Airframe without impairing the value or utility of the Airframe
and compatible with the remaining installed Engine(s); provided
that, if Lessee is unable to obtain a replacement engine which
meets the above requirements, Lessor agrees to discuss in good
faith with Lessee alternative requirements for a replacement
engine;
(ii) [Intentionally Deleted];
(iii) the replacement engine must have become and remain, until
replaced in accordance with this Section, the property of
Lessor free from Security Interests (other than Permitted
Liens); and
(iv) Lessee must have history and maintenance records of the
replacement engine.
(c) Other Aircraft: An Engine may be installed on an aircraft which
Lessee owns or leases if:
(i) no Significant Default has occurred and is continuing;
(ii) Lessee has operational control over the aircraft;
(iii) Lessor keeps the ownership of the Engine concerned until
replaced in accordance with this Section;
(iv) the Engine does not become subject to a Security Interest and
the applicable airframe is not subject to any Security Interest
except a Permitted Lien or a lease or Security Interest
described in Section 8.11(a) above; and
(v) unless replaced pursuant to Section 8.11(b), the Engine is
removed from the aircraft as soon as practicable but not later
than the Expiry Date.
(d) Temporary Replacement: Lessee may install any engine or part on the
Aircraft as a temporary replacement if:
(i) only with respect to the installation of any such engine, no
Significant Default has occurred and is continuing;
(ii) there is not then available on terms reasonably acceptable to
Lessee an engine or part complying with the requirements of the
Lease for a replacement Engine or Part;
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(iii) it would result in an unreasonable disruption of the operation
of the Aircraft or the business of Lessee to have the Aircraft
grounded until such time as an engine or part complying with
the requirements of the Lease for a replacement Engine or Part
becomes available for installation;
(iv) as soon as practicable after an engine or part is installed on
the Aircraft, but before the earlier of ninety (90) days after
such temporary replacement (unless such temporary replacement
engine is one of the Other Engines) and in all cases (including
if the engine is one of the Other Engines) the Expiry Date,
Lessee removes that engine or part and replaces it with the
original Engine or Part (or, in the case of a Part, by a part
which is allowed by Section 8.11(e)); and
(v) the Insurances for the Aircraft are not affected.
(e) Permanent Replacement of Parts: Except if the Airframe or an Engine to
which a Part relates has suffered an Event of Loss, the Lessee, at its
sole cost and expense, will promptly replace all Parts that may from
time to time become worn out, lost, stolen, destroyed, seized,
obsolete, confiscated, damaged beyond repair or permanently rendered
unfit for any reason whatsoever. In addition, in the ordinary course
of maintenance, service, repair, overhaul or testing, the Lessee, at
its sole cost and expense, may remove any Parts provided, that the
Lessee, at its sole cost and expense, replace such Parts promptly with
replacement parts or temporary replacement parts in accordance with
Section 8.11(d). All replacement parts must be free from Security
Interests (other than Permitted Liens), in good operating condition,
have a value and utility the same or better than the Part it is
replacing, have as much useful life available until the next scheduled
maintenance procedure (if applicable), be of the same or more advanced
make or model and of the same interchangeable modification status as
the Part it is replacing. Lessee must have full details of the source
and maintenance records of the replacement part and in the case of
serialized rotable parts, also have a complete history. All Parts at
any time removed from the Airframe or Engine shall remain the property
of the Lessor and subject to this Lease, no matter where located,
until such time as such Parts shall be replaced by replacement parts
that have been incorporated or installed in or attached to such
Airframe or Engine and that meet the requirements for replacement
parts set forth in this Section 8.11(e). Immediately upon any
replacement part (other than temporary replacement parts) meeting the
requirements of this Section 8.11(e) becomes incorporated or installed
in or attached to an Airframe or Engine, without further act, (i)
title to the replaced part shall thereupon vest in the Lessee in AS-IS
WHERE-IS condition, free from Security Interests of the Lessor and
shall no longer be considered a Part hereunder; (ii) title to such
replacement part shall thereupon vest in the Lessor; and (iii) such
replacement part shall become subject to the Lease and be deemed part
of such Airframe or Engine, as the case may be, for all purposes
hereof to
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the same extent as the Parts originally incorporated or installed in
or attached to such Airframe or Engine
(f) Pooling/Interchange: Lessee shall not subject any Engine or Part to
any pooling, interchange, lease or similar arrangement unless (i)
Lessee obtains Lessor's prior written consent thereto or (ii) such
pooling arrangement provides that title to a replacement part
incorporated or installed in or attached to an Airframe or Engine
pursuant to Section 8.11(e) shall vest in Lessor as provided in
Section 8.11(e)(ii) and (iii).
8.12 Equipment Changes
Lessee will not make any modification or addition to the Aircraft (each an
"Equipment Change"), except for an Equipment Change which:
(i) is expressly permitted or required by the Lease; or
(ii) has the prior written approval of Lessor not to be unreasonably
withheld and does not diminish the condition, utility,
airworthiness or value of the Aircraft;
(iii) is required to be made by any applicable Law; or
(iv) is required to be made in order to maintain the Insurances.
So long as no Event of Default has occurred and is continuing, Lessee may
remove any Equipment Change provided that (x) the Equipment Change is not
required pursuant to the terms of the Lease or to maintain the Insurances and
(y) such removal will not diminish the value, utility, airworthiness or
condition of the Aircraft below that which would have been otherwise required
under the Lease had such Equipment Change not been made. Furthermore, Lessor
may require Lessee to remove any Equipment Change made pursuant to clause
8.12(ii) above on the Expiry Date and to restore the Aircraft to its condition
prior to that Equipment Change; provided, however, that Lessor shall advise
Lessee of its request to remove any Equipment Change no later than sixty (60)
days prior to the commencement of the applicable re-delivery C-check. Any
Equipment Change not so removed becomes the property of Lessor.
8.13 Title on an Equipment Change
Title to any equipment that becomes a Part or an Engine after the Delivery
Date shall vest in Lessor solely by virtue of its attachment to the
Airframe or an Engine and it shall then be subject to the Lease as if it
were attached to the Aircraft at Delivery. If so requested by Lessor, with
respect to an Engine, Lessee will provide a properly executed bill of sale
or similar instrument to evidence the vesting of title to any such
equipment in Lessor. After Lessor has determined that Lessee has
permanently replaced an Engine in accordance with
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Section 8.11(b) and this Section 8.13, Lessor will without recourse or
warranty (except as to the absence of Lessor's Liens), transfer to Lessee
all of Lessor's rights to the engine that has been replaced, on an AS-IS,
WHERE-IS basis, and will at Lessee's expense provide a bill of sale or
similar instrument as Lessee may reasonably request to evidence such
transfer. Lessee shall indemnify, on an After-Tax Basis, Lessor and each
other Tax Indemnitee for all fees, expenses and Taxes incurred by Lessor or
any other Tax Indemnitee in connection with any such transfer.
9. INSURANCE
(a) Public Liability and Property Damage Insurance.
(i) Subject to the rights of the Lessee under Section 9(d), the
Lessee shall, without expense to the Lessor maintain or cause to be
maintained in effect at all times during the Term, with insurers of
nationally or internationally recognized reputation and responsibility
which normally participate in airline insurance programs,
comprehensive airline public liability insurance (including, without
limitation, aircraft third party liability, baggage and mail and
aviation general third party liability, contractual liability,
passenger legal liability, cargo liability, property damage liability,
general third party legal liability and product liability coverage but
excluding manufacturer's product liability coverage) with respect to
the Aircraft in an amount not less than the greater of (x) the amount
which Lessee may carry from time to time on other similar aircraft in
its fleet (whether owned or leased) and (y) the Minimum Liability
Amount; provided that an agreement of the Government for the benefit
--------
of the Additional Insureds to insure against or indemnify for
substantially the same risks to at least the same amount shall satisfy
the requirements of this Section 9(a), provided that on or prior to
--------
the date of such agreement, the Lessee shall provide an Officer's
Certificate of the Lessee certifying that any such insurance or
indemnity provides protection no less favorable than insurance
coverage that would comply with this Section 9. Such insurance shall
be of the same type and covering the same risks usually carried by the
Lessee with respect to similar aircraft and engines and shall provide
coverage that is in substantially similar form, of such types and
having limits within the range of limits (but no less than the Minimum
Liability Coverage) as are customarily obtained by similarly situated
United States carriers operating similar aircraft on similar routes.
(ii) During any period that the Aircraft is grounded and not in
operation for any reason, the Lessee may modify the insurance required
by this Section 9(a) to modify the amounts of public liability and
property damage insurance, the scope of the risks covered and the type
of insurance, in all circumstances to conform to such insurance
customary in the United States airlines industry for regional air
carriers similarly situated with the Lessee in respect of similar
aircraft which are grounded, not in
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operation, and stored or hangared, except that in all instances, the
amounts of coverage and scope of risk covered and the type of
insurance shall be at a minimum no less favorable than the insurance
as from time to time applicable to aircraft owned or leased by Lessee
on the ground, not in operation, and stored or hangared.
(b) Insurance Against Loss or Damage to the Aircraft and Engines.
(i) Subject to the rights of the Lessee under Section 9(d), the
Lessee shall, without expense to the Lessor, maintain or cause to be
maintained in effect at all times during the Term with insurers of
nationally recognized responsibility which normally participate in
airline insurance programs (i) all risk (including U.S. limited form
of war risk insurance covering (but not limited to) hijacking,
strikes, civil commotion, terrorist acts and acts of sabotage while
the Aircraft is operated in the U.S. and Canada), agreed value,
ground, taxiing and flight hull insurance, which may, except as
expressly provided in this Section 9(b), exclude war risks and allied
perils, covering the Aircraft for an amount at all times (even when
the Aircraft is grounded or in storage) not less than the Agreed Value
from time to time; provided that, neither the Lessee nor any Permitted
-------- ----
Sub-Lessee shall be required to maintain all-risk flight aircraft hull
insurance with respect to any period in which the Aircraft is grounded
and properly stored or hangared. Such insurance shall not provide
insurers with a right to replace the Airframe or any Engine with
another airframe or engine. Such hull insurance or other personal
property insurance of the Lessee (or a Permitted Sub-Lessee) shall
cover Engines or engines and Parts temporarily removed from the
Airframe, pending replacement by installation of the same or similar
Engines, engines or Parts on the Airframe. Such insurance shall be on
a replacement cost basis in respect of damage not constituting an
Event of Loss and on an agreed value basis in respect of an Event of
Loss and shall be of the same type and covering the same risks usually
carried by the Lessee with respect to similar aircraft and engines and
shall provide coverage that is in substantially similar form, of such
types and having limits within the range of limits (but no less than
Agreed Value from time to time) as are customarily obtained by
similarly situated United States carriers operating similar aircraft
on similar routes. If and to the extent that the Lessee or a Permitted
Sub-Lessee operates the Aircraft (A) on routes where it maintains war
risk, hijacking or allied perils insurance in effect with respect to
other similar owned or leased aircraft in its fleet, (B) on routes
where the custom in the industry is to carry war risk, hijacking or
allied perils insurance or (C) in any area of recognized hostilities,
the Lessee or such Permitted Sub-Lessee shall maintain or cause to be
maintained such insurance in effect with respect to the Aircraft in
the amount at least equal to the Agreed Value from time to time. An
agreement by the Government to insure against or indemnify for
substantially the same risks to at least the same amount will satisfy
any of the
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requirements of this Section 9(b). Notwithstanding the
foregoing, the Lessee shall not be required to maintain war risk
insurance (except the U.S. limited form of war risk insurance noted
above) so long as the Aircraft is operated only within the United
States and Canada.
(ii) During any period that the Aircraft is on the ground and not in
operation, the Lessee may carry or cause to be carried, in lieu
of the insurance required by this Section 9(b), insurance
otherwise conforming with the provisions of this Section 9(b)
except that the scope of the risks and the type of insurance
shall be in substantially similar form, of such types and
having limits within the range of limits (but no less than
Agreed Value from time to time) as are customarily obtained by
similarly situated United States carriers in respect of similar
aircraft which are grounded, not in operation, and stored or
hangared, provided that the scope of the risks and the type of
--------
insurance shall be the same as from time to time applicable to
aircraft owned by the Lessee of the same type similarly on the
ground and not in operation, provided further that the Lessee
-------- -------
shall maintain Insurance against risk of loss or damage to the
Aircraft in an amount equal to the Agreed Value from time to
time during such period that the Aircraft is on the ground and
not in operation.
(c) Additional Insureds; Loss Payment. The Lessee shall cause all policies
of insurance carried in accordance with this Section 9 to name the
Indemnitees as additional insureds as their respective interests may appear
as additional insureds. Such policies shall provide with respect to such
Indemnitees that (i) none of their respective interests in such policies
shall be invalidated by any act or omission or breach of warranty or
condition contained in such policies by the Lessee or any other Person
(other than such Additional Insured) or, in the case of any particular
Indemnitee, any other Indemnitee and shall insure the respective interests
of the Indemnitees regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by the Lessee or any
Permitted Sub-Lessee; (ii) in the case of any particular Indemnitee, no
cancellation or lapse of coverage for nonpayment of premium or otherwise,
and no substantial change of coverage which adversely affects the interests
of any such Indemnitee, shall be effective as to such Indemnitee until
thirty (30) days (or such lesser period as may be applicable in the case of
any war risk coverage) after receipt by such Indemnitee of written notice
from the insurers of such cancellation, lapse or change; (iii) they shall
have no liability for premiums, commissions, calls, assessments or advances
with respect to such policies; (iv) such policies will be primary without
any right of contribution from any other insurance carried by such
Indemnitees; (v) the insurers waive any rights of set-off (including for
unpaid premiums), counterclaim, deduction or subrogation whether by
attachment or otherwise, against such Indemnitees; (vi) such policies shall
apply worldwide and have no territorial restrictions or limitations
(except, in the case of war, hijacking or
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related perils insurance, as otherwise permitted hereunder); (vii) shall
contain a 50/50% Clause per Lloyd's Aviation Underwriter's Association
Standard Policy Form AVS 103; and (viii) losses shall be adjusted with the
Lessee (or, if an Event of Default shall have occurred and be continuing,
with the loss payee referred to in the last sentence of this Section 9(c));
provided, that, in the case of an Event of Loss, no adjustment (other than
--------
hull deductibles) shall reduce the amount payable under such policy to less
than the agreed value required by Section 9(b). Each liability policy shall
provide that all the provisions thereof, except the limits of liability,
shall operate in the same manner as if there were a separate policy
covering each insured and each hull policy shall provide that the exercise
by the insurer of rights of subrogation derived from rights retained by the
Lessee will not delay payment of any claim that would otherwise be payable
but for such rights of subrogation. Each hull policy shall name the Lessor
as loss payee; provided that, so long as the insurers shall not have
-------- ----
received written notice that an Event of Default has occurred and is
continuing, if insurance proceeds under a hull policy in the aggregate
equal $1,000,000 or less, then such proceeds shall be payable to the Lessee
and, notwithstanding the foregoing, any amounts (i) of any proceeds which
in the aggregate exceed $1,000,000, (ii) of any proceeds in respect of a
total loss or an Event of Loss or (iii) if the insurers shall have received
written notice that an Event of Default has occurred and is continuing, any
proceeds with respect to any single loss, shall be payable to such loss
payee.
(d) Deductibles and Self-Insurance. The Lessee may from time to time
self-insure, by way of deductible or premium adjustment provisions in
insurance policies or otherwise, the risks required to be insured against
pursuant to this Section 9 under a program applicable to all aircraft in
the Lessee's fleet in such amounts as are then self-insured with respect to
similar owned or leased aircraft in the Lessee's fleet but in no case shall
such self-insurance in the aggregate exceed, in addition to the Lessee's
normal deductible per occurrence relating to damage (but not total loss) to
aircraft for each aircraft in the Lessee's fleet (which normal deductible
amount shall not to exceed the Deductible Amount in respect of the
Aircraft), an amount equal to 3% of the Lessee's tangible net worth (but in
no event exceed $15,000,000 (including, for purposes of calculating the
amount of $15,000,000, the amount of such normal deductible applicable to
the Aircraft (but not any other aircraft in the Lessee's fleet))),
calculated as at the end of the Lessee's immediately preceding fiscal year.
(e) Application of Hull Insurance Proceeds. As between the Lessor and the
Lessee, any payments received under policies of hull or other property
insurance required to be maintained by the Lessee pursuant to Section 9(b),
shall be applied as follows:
(i) if such payments are received with respect to loss or
damage (including an Event of Loss with respect to an Engine) not
constituting an
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Event of Loss with respect to the Airframe, payments in the
aggregate of $1,000,000 or less shall be paid over to or retained
by the Lessee and any payments which in the aggregate are greater
than $1,000,000 shall be paid over to or retained by the Lessor
for payment to the Lessee only upon performance of its repair or
replacement obligation; and
(ii) if such payments are received with respect to an Event of
Loss with respect to the Airframe so much of such payments as
shall not exceed the Agreed Value and other amounts required to
be paid by the Lessee shall be applied in reduction of the
Lessee's obligation to pay such amounts if not already paid by
the Lessee, and to reimburse the Lessee if such amounts shall
have been paid, and the balance, if any, of such payments shall
be promptly paid over to or retained by the Lessee.
(f) Insurance for Own Account. Nothing in this Section 9 shall prohibit
the Lessor, the Lessee or any Indemnitee from obtaining insurance with
respect to the Aircraft for its own account (including, without limitation,
in the case of the Lessee, hull insurance under the same policies
maintained pursuant to this Section 9 in amounts in excess of those
required to be maintained pursuant to this Section 9) and any proceeds
payable thereunder shall be payable as provided in the insurance policy
relating thereto, provided that no such insurance may be obtained which
--------
would limit or otherwise adversely affect the availability of coverage or
payment of any insurance required to be obtained or maintained pursuant to
this Section 9, it being understood that all salvage rights to the Airframe
or the Engines shall remain with the Lessee's insurers at all times.
(g) Reports, etc. Lessee will furnish, or cause to be furnished,
to the Lessor (A) on or prior to the Delivery Date, insurance certificates
describing in reasonable detail the insurance maintained by Lessee as
required pursuant to this Section 9, (B) prior to the cancellation, lapse
or expiration of the insurance policies required pursuant to this Section
9, evidence of renewal of such insurance policies, and (C) on or prior to
the Delivery Date and on or before the renewal dates of the insurance
policies carried by the Lessee pursuant to this Section 9, a report signed
by a firm of recognized aircraft insurance brokers of good reputation, not
affiliated with the Lessee, which brokers may be regularly retained by the
Lessee and reasonably satisfactory to the Lessor, stating the opinion of
such firm that (i) all premiums in connection with the insurance then due
have been paid, (ii) the insurance then carried and maintained on the
Aircraft complies with the terms hereof and, in the case of renewal
insurance, that such renewal insurance will on and after the effective date
thereof so comply with the terms hereof and (iii) to the best of such
firm's knowledge, such insurance provides coverage that is in substantially
similar form, of such types and having limits within the range of limits as
are customarily obtained by similarly situated United States carriers
operating similar aircraft on similar routes, provided that all information
--------
contained in such
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<PAGE>
report shall be held confidential by the Lessor and shall not be furnished
or disclosed by it to any Person except (A) its legal counsel, independent
certified public accountants, insurance brokers or advisors or other agents
who agree to hold such information confidential, (B) to any bona fide
prospective and permitted transferees of Lessor and their respective agents
(provided that each such transferee shall agree for the benefit of the
--------
Lessee to hold all such information similarly confidential), (C) as may be
required by applicable Law or by any court or administrative order or
decree or governmental ruling or (D) as may be necessary for purposes of
enforcement of Lease or (E) to rating agencies. The Lessee will instruct
such firm to give prompt written advice to the Lessor of any default in the
payment of any premium and of any other act or omission on the part of the
Lessee (or any Permitted Sub-Lessee) of which it has knowledge and which
would in such firm's opinion invalidate or render unenforceable, in whole
or in any material part, any insurance on the Aircraft. The Lessee will
also instruct such firm to advise the Lessor in writing at least thirty
(30) days prior to the termination or cancellation of, or material adverse
change in, such insurance carried and maintained on the Aircraft pursuant
to this Section 9 (or such lesser period as may be applicable in the case
of war risk coverage), provided, that in respect of war risk or allied
--------
perils coverage, if the notice period specified above is not obtainable,
the insurance broker shall provide for as long a period of prior notice as
shall then be obtainable.
(h) Right to Pay Premiums. The Indemnitees shall have the rights but not
the obligations of an additional named insured. None of Lessor and the
other Indemnitees shall have any obligation to pay any premium, commission,
assessment or call due on any such insurance (including reinsurance).
Notwithstanding the foregoing, in the event of cancellation of any
insurance due to the nonpayment of premiums, each of Lessor and the other
Indemnitees shall have the option, in its sole discretion, to pay any such
premium in respect of the Aircraft that is due in respect of the coverage
pursuant to this Lease and to maintain such coverage, as Lessor or the
other Indemnitees may require, until the scheduled expiry date of such
insurance and, in such event, Lessee shall, upon demand, reimburse Lessor
and the other Indemnitees for amounts so paid by them.
(i) Spares Physical Damage Insurance. During any period that an Engine is
not attached to the Airframe or any other airframe and not otherwise
subject to coverage by a hull policy maintained by the Lessee (or a
Permitted Sub-Lessee), the Lessee shall maintain or cause to be maintained
spares physical damage insurance covering such Engine in an aggregate
amount not less than the amount commercially available in aviation
insurance markets except that the scope of the risks and the type of
insurance shall be in substantially similar form, of such types and having
limits within the range of limits as are customarily obtained by similarly
situated United States carriers operating similar engines not attached to
any airframe, provided that the scope of the risks and the type of
--------
insurance shall be the same as from time to time
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<PAGE>
applicable to engines owned or leased by the Lessee of the same type and
similarly not attached to any airframe.
10. INDEMNITY
(a) Except as provided in Section 10(b) below, Lessee agrees to assume
liability for and to indemnify each of the Indemnitees against and
agrees to pay on demand any and all Losses which an Indemnitee may at
any time suffer or incur at any time, whether directly or indirectly,
arising out of, related to or in any way connected with:
(i) the ownership, maintenance, overhaul, service, repair,
delivery, possession, transfer of possession, registration,
control, storage, modification, leasing, insurance, inspection,
testing, design, date processing, sub-leasing, use, condition,
redelivery or other matters relating to the Aircraft, any
Engine or any Part (regardless of whether in the air or on the
ground, and regardless of whether such Losses are based on
strict liability in tort, any act or omission, including the
negligence, of any Indemnitee, or otherwise); or
(ii) any breach by the Lessee of any of its obligations under the
Lease; or
(iii) the design, testing or use of or any article or material in,
the Aircraft, any Engine or any Part or its use or operation,
including any defect in design and regardless of whether it is
discoverable, and any infringement of patent, copyright,
trademark, design or other proprietary right claimed by any
Person or a breach of any obligation of confidentiality claimed
to be owed to any Person.
For the avoidance of doubt, the reference to "ownership" in
clause (i) shall not require Lessee to indemnify Lessor in
respect of (y) any defect in Lessor's title to the Aircraft or
(z) any decline in residual value of the Aircraft.
(b) Lessee is not required to indemnify any particular Indemnitee under
this Section, to the extent a particular Loss is:
(i) caused by the willful misconduct of that Indemnitee or gross
negligence of that Indemnitee, other than gross negligence
imputed to that Indemnitee by reason of its interest in the
Aircraft or the Lease;
(ii) caused by Lessor's breach of the Lease which does not result
from a Default;
(iii) related to any Taxes (but without prejudice to any Indemnitee's
rights under any other provision of this Lease relating to
Taxes);
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(iv) caused solely by an event which occurs before the commencement
of the Term (except where the Loss is suffered during the Term
as a result of a pre-Delivery defect in or otherwise arises out
of or relates to or is any way connected with the manufacture,
design, maintenance, repair, rebuilding, overhaul or
modification of the Aircraft);
(v) caused by an event which occurs after the proper redelivery of
the Aircraft to Lessor in compliance with the Lease and is not
attributable to any act, omission, event or circumstance
occurring prior to such redelivery;
(vi) caused as a result of any sale, assignment, financing,
securitization, transfer or other disposition (whether
voluntary or involuntary) by such Indemnitee of the Aircraft or
any interest therein or in the Lease, unless such sale,
transfer or other disposition has resulted from or occurred
following an Event of Default;
(vii) consists of normal administrative costs and expenses of such
Indemnitee (but excluding any such costs or expenses resulting
from the occurrence of any Event of Default); or
(viii) consists of costs or expenses for which Lessor has expressly
agreed to be responsible under any other provision of the
Lease.
11. EVENTS OF LOSS
11.1 Events of Loss
(a) If an Event of Loss occurs prior to Delivery of the Aircraft, the
Lease will immediately terminate and except as expressly stated in the
Lease neither party will have any further obligation except that
Lessor will return the Deposit (if any) to Lessee and return to Lessee
or cancel any Letter of Credit.
(b) If an Event of Loss occurs after Delivery, Lessee will pay or cause to
be paid the Agreed Value to Lessor on or prior to the earlier of (i)
ninety (90) days after the Event of Loss and (ii) the date of receipt
of insurance proceeds in respect of that Event of Loss.
(c) Subject to the rights of any insurers and reinsurers or other third
party, upon irrevocable payment in full to Lessor of the Agreed Value
and all other amounts which may be or become payable to Lessor under
the Lease, Lessor will without recourse or warranty (except as to the
absence of Lessor's Liens) transfer to Lessee all of Lessor's rights
to the Aircraft, on an AS-IS, WHERE-IS basis, and will at Lessee's
expense, execute and deliver such bills of sale and other documents
and instruments as Lessee may reasonably request to evidence (on the
public record or otherwise) such
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transfer, free and clear of all rights of Lessor and Lessor Liens.
Lessee shall indemnify, on an After-Tax Basis, Lessor and each other
Tax Indemnitee for all fees, expenses and Taxes incurred by Lessor or
any other Tax Indemnitee in connection with any such transfer.
11.2 Requisition
During any requisition for use or hire of the Aircraft or any Engine which does
not constitute an Event of Loss:
(a) the Rent and other charges payable under the Lease will not be
suspended or abated either in whole or in part, and Lessee will not be
released from any of its other obligations (other than operational
obligations with which Lessee is unable to comply solely by virtue of
the requisition); and
(b) so long as no Event of Default has occurred and is continuing, Lessee
will be entitled to any compensation paid by the requisitioning
authority in respect of such authority's use of the Aircraft or such
Engine during the Term. Lessee will, as soon as practicable after the
end of any such requisition, cause the Aircraft to be put into the
condition required by the Lease. Lessor will be entitled to all
compensation payable by the requisitioning authority in respect of any
change in the structure, state or condition of the Aircraft arising
during the period of requisition, and Lessor will apply such
compensation in promptly reimbursing Lessee for the cost of complying
with its obligations under the Lease in respect of any such change,
but, if any Event of Default has occurred and is continuing, Lessor
may apply the compensation in or towards settlement of any amounts
owing by Lessee under the Lease or the Other Agreement.
12. RETURN OF AIRCRAFT
12.1 Return
On the Expiry Date or redelivery of the Aircraft pursuant to Section 13.2
or termination of the leasing of the Aircraft under the Lease, Lessee will,
unless an Event of Loss has occurred, redeliver the Aircraft and the
Aircraft Documents and Records at Lessee's expense to Lessor at the
Redelivery Location, in accordance with the procedures and in compliance
with the conditions set forth in Schedule 6, free and clear of all Security
Interests (other than Lessor Liens) and in a condition qualifying for and
having a valid and fully effective certification of airworthiness under FAR
Part 121.
12.2 Non-Compliance
If at the time of Final Inspection Lessee has not fully complied with any
of its obligations under the Lease (including Schedule 6), or Lessee fails
to make the Aircraft available to
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Lessor on a timely basis for inspection and redelivery pursuant to Section
12.1 and Schedule 6 (whether such failure is due to any act or omission of
Lessee or any other circumstance whatsoever), the Term shall be extended
until the time when the Aircraft has been redelivered to Lessor in full
compliance with the Lease, for the sole purpose of enabling such non-
compliance or failure to be promptly rectified, and during such extension
period:
(a) Lessee shall not use the Aircraft in flight operations except those
related directly to the redelivery of the Aircraft to Lessor or the
performance of Lessee's obligations in connection therewith;
(b) all Lessee's obligations and covenants under the Lease will remain in
full force until Lessee so redelivers the Aircraft; and
(c) Lessee shall pay Rent to Lessor at a rate per month equal to the
amount of Rent payable in respect of the last scheduled Rental Period
plus interest at the Interest Rate (unless during such extension
period work is being performed upon the Aircraft or an Engine to
repair unforeseen damage or defect not capable of discovery in the
normal course and first discovered during the performance of non-
routine inspections or checks timely arranged as necessary to meet the
Re-Delivery Conditions set forth in Schedule 6 herein, in which case
such interest shall not accrue until 45 days after the scheduled re-
delivery date of the Aircraft as set forth above), calculated on a per
diem basis and compounded monthly.
Any such extension shall not prejudice Lessor's right to treat such non-
compliance or failure as an Event of Default at any time, and to enforce
such rights and remedies as may be available to Lessor in respect thereof
under the terms of the Lease or applicable Law. Without limiting the
generality of the foregoing, Lessee's Rent obligation under paragraph (c)
above shall be without prejudice to Lessor's rights to terminate the
letting of the Aircraft and to indemnification pursuant to Section 13.2.
Lessor may elect (either on first tender of the Aircraft by Lessee or at
any time during the said extension period) to accept redelivery of the
Aircraft notwithstanding non-compliance with Section 12.1 or Schedule 6 in
respect of the cost to Lessor of putting the Aircraft into the condition
required by the Lease.
12.3 Redelivery
Upon redelivery Lessee will provide to Lessor, upon reasonable advance
notice by Lessor made prior to the Expiry Date, and at Lessor's expense,
all documents necessary to export the Aircraft from the United States
(including a valid and subsisting export license and export certificate of
airworthiness for the Aircraft) or required in relation to the
deregistration of the Aircraft with the Air Authority.
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12.4 Acknowledgement
Provided Lessee has complied with its obligations under Section 12 and
Schedule 6 of this CTA, following redelivery of the Aircraft by Lessee to
Lessor at the Redelivery Location, Lessor will deliver to Lessee an
acknowledgement confirming that Lessee has redelivered the Aircraft to
Lessor in accordance with the Lease which acknowledgement shall be, except
as may be otherwise set forth therein, without prejudice to Lessor's
accrued and continuing rights under the Lease or the Other Agreement.
12.5 Storage
If Lessor so requests, upon sixty (60) days prior notice, Lessee shall
provide up to thirty (30) days storage for the Aircraft following the last
day of the Term at Lessor's risk and expense at a location selected by
Lessee. Lessor shall promptly pay to Lessee all costs of storing the
Aircraft.
13. DEFAULT
13.1 Events
The occurrence of any of the Events of Default will constitute a
repudiation (but not a termination) of the Lease by Lessee (whether the
occurrence of any such Event of Default is voluntary or involuntary or
occurs by operation of Law or pursuant to or in compliance with any
judgement, decree or order of any court or any order, rule or regulation of
any Government Entity).
13.2 Rights and Remedies
If an Event of Default occurs, Lessor may at its option (and without
prejudice to any of its other rights under the Lease), at any time
thereafter and so long as the same continues (without notice to Lessee
except as required under applicable Law):
(a) accept such repudiation and by notice to Lessee and with immediate
effect cancel the leasing of the Aircraft (but without prejudice to
the continuing obligations of Lessee under the Lease), whereupon all
rights of Lessee under the Lease shall cease; and/or
(b) proceed by appropriate court action or actions to enforce performance
of the Lease including the payment of all Rent and all other amounts
payable to Lessor or any Indemnitee pursuant to the terms of the
Lease; and/or
(c) proceed by appropriate court action or actions to recover damages for
the breach of the Lease which shall include:
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(i) all Rent and other amounts which are or become due and payable
hereunder prior to the earlier to occur of the date Lessor
sells or re-leases the Aircraft or receives payment of the
amount calculated pursuant to clause (ii) below;
(ii) an amount equaling the aggregate Rent for the remainder of the
Term (determined without reference to any right of Lessor to
cancel the leasing of the Aircraft, whether or not such right
is exercised), discounted periodically (equal to installment
frequency) to present worth at the Discount Rate to the date of
payment by Lessee to Lessor, less the amount, if any, of the
Mitigation Credit (calculated as provided below in Section
13.4);
(iii) all costs associated with Lessor's exercise of its remedies
hereunder or otherwise incurred by Lessor as a result of an
Event of Default, including repossession costs, legal fees,
Aircraft storage, maintenance and insurance costs, Aircraft re-
lease or sale costs (including any costs incurred to put the
Aircraft in the condition required by Section 12), all such
costs and incidental damages being referred to herein
collectively as "Enforcement and Remarketing Costs";
(iv) any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding
any financial instrument relating in whole or in part to
Lessor's financing of the Aircraft, all such amounts being
referred to herein collectively as "Unwind Expenses";
(v) any loss, cost, expense or liability, or damage to Lessor's
residual interest in the Aircraft, sustained by Lessor due to
Lessee's failure to maintain the Aircraft in accordance with
the terms of this Agreement or Lessee's failure to redeliver
the Aircraft in the condition required by this Agreement,
including any consequential loss of revenues while the Aircraft
is modified to conform to the condition required by this
Agreement, all such amounts being referred to herein
collectively as "Aircraft Condition Damages"; and
(vi) such additional amount, if any, as may be necessary to place
Lessor in the same economic position, on an After-Tax Basis, as
Lessor would have been in if Lessee had timely performed each
of its obligations under this Agreement; and/or
(d) either:
(i) 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
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(and/or any engine which is not an Engine but which is
installed on the Airframe, subject to the rights of the lessor
or secured party thereof), 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, conversion
or otherwise, caused by such entry or taking, except damages
caused by gross negligence or willful misconduct; or
(ii) by delivering notice to Lessee, require Lessee to redeliver the
Aircraft to Lessor at such location as Lessor may require on
the Lessee's route system in the United States on the date
specified in such notice and in all respects in the condition
required by the Lease upon the Return Occasion (it being
understood that Lessee shall not delay any such return for the
purpose of placing the Aircraft in such condition, but shall
nevertheless be liable to Lessor for the failure of the
Aircraft to be in such condition); and/or
(e) 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;
and/or
(f) by written notice to Lessee specifying a payment date (which shall be
a date not earlier than five (5) Business Days following the date of
such notice), Lessor may demand that Lessee pay to Lessor, and Lessee
shall pay to Lessor on the payment date specified in such notice (in
lieu of the Rent due for the period commencing after the date
specified for payment in such notice) the sum of the following
amounts:
(i) all Rent and other amounts which are or are expected to become
due and payable hereunder prior to the payment date specified
by Lessor;
(ii) an amount equaling the aggregate Rent for the remainder of the
Term (determined without reference to any right of Lessor to
cancel the leasing of the Aircraft, whether or not such right
is exercised), discounted periodically (equal to installment
frequency) to present worth at the Discount Rate to the payment
date specified by Lessee to Lessor, less the amount, if any, of
the Mitigation Credit (calculated as provided in Section 13.4
below);
(iii) an amount equaling Lessor's Enforcement and Remarketing Costs,
Unwind Expenses and Aircraft Condition Damages; and
(iv) such additional amount, if any, as may be necessary to place
Lessor in the same economic position, on an After-Tax Basis, as
Lessor would have been in if Lessee had timely performed each
of its obligations under this Agreement;
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it being understood that, to the extent that any of the foregoing
amounts represents an estimate by Lessor of losses, damages, costs or
expenses which Lessor expects to incur, (y) Lessor shall adjust the
amount thereof as needed to reflect the actual amount of such losses,
damages, costs or expenses incurred by Lessor when substantially all
of such amounts become known to Lessor, but Lessee shall nevertheless
be obligated to pay the amount demanded by Lessor (subject to such
subsequent adjustment), and (z) notwithstanding the amount specified
in such demand, Lessor shall be entitled to claim such other (and
greater) amount in any action against Lessee hereunder; and/or
(g) by written notice to Lessee specifying a payment date (which shall be
a date not earlier than five (5) Business Days following the date of
such notice), Lessor may demand that Lessee pay to Lessor, and Lessee
shall pay to Lessor on the payment date specified in such notice (in
lieu of the Rent due for the period commencing after the date
specified for payment in such notice), any unpaid Rent for the
Aircraft and other amounts payable under the Lease (prorated in the
case of Rent on a daily basis) to and including the payment date
specified in such notice, plus an amount equaling the aggregate Rent
for the remainder of the Term, discounted periodically (equal to
installment frequency) to present worth at the Discount Rate, it being
understood that upon payment of such amount, Lessee shall be deemed to
have cured the then pending Event of Default, and in the absence of a
further Event of Default, Lessee shall be entitled to retain
possession of the Aircraft for the remainder of the Term; and/or;
(h) draw upon the Deposit or the Letter of Credit and apply such amounts
to any amounts owing to Lessor hereunder for any or all of the
foregoing.
In addition to the foregoing, Lessor shall be entitled to exercise such
other rights and remedies as may be available under applicable Law and
Lessee shall be liable on an After-Tax Basis for, and shall pay Lessor on
demand: (i) interest on all unpaid amounts at the Interest Rate, from the
due date until the date of payment in full; (ii) all reasonable legal fees
and other reasonable costs and expenses incurred by Lessor by reason of the
occurrence of any Event of Default or the exercise of Lessor's remedies
with respect thereto; and (iii) all reasonable expenses, disbursements,
costs and fees incurred in (A) repossessing, storing, preserving, shipping,
maintaining, repairing and refurbishing the Aircraft, the Airframe, any
Engine or Part to the condition required by Section 12 hereof and (B)
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, but shall have no obligation,
to make any 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 12 hereof (it being understood
that Lessee shall be liable for all such expenditures).
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Lessee hereby agrees that, in the event of the return to or repossession by
Lessor of the Aircraft, the Airframe, an Engine or Part, any rights in any
warranty (express or implied) previously assigned to Lessee or otherwise
held by Lessee shall without further act, notice or writing be assigned or
reassigned to Lessor, if assignable.
Except as otherwise expressly provided herein, no remedy referred to in
this Section 13 is intended to be exclusive, but, to the extent permissible
under the Lease 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; provided, however, that nothing in this Section 13 shall be
construed to permit Lessor to obtain a duplicate recovery of any element of
damages to which Lessor is entitled. 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.
13.3 Power of Attorney: Lessee hereby appoints Lessor as the attorney-in-fact of
Lessee, with full authority in the place and stead of Lessee and in the
name of Lessee or otherwise, for the purpose of carrying out the provisions
of the Lease and taking any action and executing any instrument that Lessor
may deem necessary or advisable to accomplish the purposes hereof;
provided, however, that Lessor may only take action or execute instruments
under this Section 13 after an Event of Default has occurred and is
continuing. Lessee hereby declares that the foregoing powers are granted
for valuable consideration, constitute powers granted as security for the
performance of the obligations of Lessee hereunder and are coupled with an
interest and shall be irrevocable. Without limiting the generality of the
foregoing or any other rights of Lessor under the Lease, upon the
occurrence and during the continuation of an Event of Default, Lessor shall
have the sole and exclusive right and power to (i) settle, compromise,
compound, adjust or defend any actions, suits or proceedings relating to or
pertaining to the Aircraft, Airframe or any Engine, or the Lease and (ii)
make proof of loss, appear in and prosecute any action arising from any
policy or policies of insurance maintained pursuant to the Lease, and
settle, adjust or compromise any claims for loss, damage or destruction
under, or take any other action in respect of, any such policy or policies.
13.4 Mitigation Credit: Lessee shall be entitled to have a Mitigation Credit
deducted from any recovery by Lessor from Lessee of Rent for the unexpired
portion of the Term. Such "Mitigation Credit" shall be in one of the
following amounts, with Lessor to select the amount which in its reasonable
judgment will place Lessor in the same economic position, on an After-Tax
Basis, as Lessor would have been in if Lessee had timely performed each of
its obligations under the Lease:
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(a) in the event that Lessor has re-let the Aircraft on terms (other than
rental payment terms) which, taken as a whole, Lessor reasonably
regards as being substantially similar to the terms of the Lease, an
amount equaling the aggregate basic rental payments under such
reletting to become due for the period coinciding with the remainder
of the Term (determined without reference to any right of Lessor to
cancel the leasing of the Aircraft, whether or not such right is
exercised), discounted periodically (equal to installment frequency)
to present worth at the Discount Rate to the date of payment by
Lessee; or
(b) in the event that Lessor has not re-let the Aircraft or has re-let the
Aircraft on terms (other than rental payment terms) which, taken as a
whole, Lessor does not reasonably regard as being substantially
similar to the terms of the Lease, an amount equaling the fair market
rental value (determined pursuant to the Appraisal Procedure) of the
Aircraft for the period commencing with the date that Lessor
reasonably anticipates that the Aircraft could be re-let at such
rental rate and ending with the date that the Term was scheduled to
expire (determined without reference to any right of Lessor to cancel
the leasing of the Aircraft, whether or not such right is exercised),
discounted periodically (equal to installment frequency) to present
worth at the Discount Rate to the date of payment by Lessee; or
(c) in the event that Lessor has not recovered possession of the Aircraft,
or Lessor has recovered possession of the Aircraft but Lessee's breach
of the Lease has resulted in a reduction in the volume of Lessor's
business, the amount of expense, if any, avoided by Lessor as a result
of being relieved of its obligations to Lessee under the Lease prior
to the date that the Term was scheduled to expire (determined without
reference to any right of Lessor to cancel the leasing of the
Aircraft, whether or not such right is exercised).
13.5 Sale or Re-Lease
If an Event of Default occurs, Lessor may sell or re-lease or otherwise
deal with the Aircraft at such time and in such manner and on such terms as
Lessor considers appropriate in its absolute discretion, free and clear of
any interest of Lessee, as if the Lease had never been entered into.
Without limiting Lessee's rights under Section 13.4, Lessor shall have no
duty or obligation to sell the Aircraft, and Lessor shall be obligated to
attempt to re-lease the Aircraft only to the extent, if any, that it is
required to do so under Article 2A of the UCC, and Lessee hereby disclaims
any right to compel Lessor to sell or otherwise re-lease the Aircraft.
13.6 Removal of Lease from FAA Registry
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If an Event of Default occurs, Lessee will at the request of Lessor
immediately take all steps necessary to enable the Aircraft to be
redelivered to Lessor in accordance with and free and clear of the Lease
and Lessee hereby irrevocably and by way of security for its obligations
under the Lease appoints (which appointment is coupled with an interest)
Lessor as its attorney-in-fact to execute and deliver any documentation and
to do any act or thing required in connection with the foregoing. Without
limiting the foregoing, Lessor may file with the FAA the Lease Termination
provided to Lessor under the Lease.
14. TRANSFER
14.1 Lessee
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 8.6(b)(iv) LESSEE WILL
NOT ASSIGN, DELEGATE OR OTHERWISE TRANSFER (VOLUNTARILY, INVOLUNTARILY, BY
OPERATION OF LAW OR OTHERWISE) ANY OF ITS RIGHTS OR OBLIGATIONS UNDER THE
LEASE (INCLUDING THE AIRCRAFT LEASE AGREEMENT OR THIS CTA), OR CREATE OR
PERMIT TO EXIST ANY SECURITY INTEREST OVER ANY OF ITS RIGHTS UNDER THE
LEASE (INCLUDING THE AIRCRAFT LEASE AGREEMENT OR THIS CTA), AND ANY ATTEMPT
TO DO SO SHALL BE NULL AND VOID. NOTHING IN THIS SECTION 14.1 IS INTENDED
TO LIMIT LESSEE'S RIGHTS UNDER SECTIONS 8.4.AND 8.7(a)(vii).
14.2 Lessor
Lessor may, without the consent of Lessee, transfer all or any of its
rights or obligations under the Lease or all or any of its right, title or
interest in and to the Aircraft (each a "Transfer"), including pursuant to:
(a) a sale and leaseback; or
(b) a novation or assignment of the Lease and/or a sale of the Aircraft
(including to a special purpose or securitization or monetization
trust, fund, limited liability company, corporation, partnership or
other vehicle or in connection with any other direct or indirect
raising of capital); or
(c) a secured loan financing.
Provided that:
(i) if at the time of any such Transfer the Lessee has any actual or
contingent obligation to make a payment to the Lessor or the
transferee which Lessee would not have been obliged to pay, or which
exceeds the amount which Lessee would have been obliged to pay to
Lessor if no such Transfer had taken place, then Lessee shall not be
obliged to pay the amount, or such excess as the case may be (provided
further that
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Lessee shall not be obligated under Sections 5.6 or 5.7 to pay any
withholding tax payments under the Lease due with respect to a
transferee that is not a United States Person (as defined in the
Internal Revenue Code); and
(ii) such Transfer may be made without the prior written consent of
the Lessee if (x) the transferee has a tangible net worth greater than
or equal to, on the basis of its most recent audited accounts,
twenty-five million US Dollars (US$25,000,000) or the transferee's
obligations under the Lease are absolutely and unconditionally
guaranteed by a Person with such a net worth or (y) the transferee has
investment grade rated debt obligations and any obligations owed to
Lessee under the Lease shall rank at least pari passu with such
investment grade debt obligations.
Lessor will promptly notify Lessee of any Transfer and Lessee agrees
promptly to execute and deliver in connection with any Transfer such
documents and to take such further action as Lessor may reasonably request
to establish or protect the rights and remedies created or intended to be
created in favor of the transferee in connection with any Transfer. After
any Transfer, the transferee shall be entitled to be an Indemnitee and to
such other rights under the Lease as Lessor shall specify. Upon an
assignment or novation described in clause (b), Lessor shall be released
from all obligations and liabilities under the Lease to the extent such
obligations and liabilities are assumed by such transferee, and the Lease,
including this CTA as in effect at that time and as incorporated in the
Aircraft Lease Agreement, shall be deemed applicable as between Lessee and
the transferee of the Lease and may be amended, supplemented or otherwise
modified without the consent of the transferor (if this CTA is applicable
to the Other Agreements not so transferred, it shall remain in full force
and effect and may be amended, supplemented or otherwise modified without
the consent of the transferee). Notwithstanding any such assignment or
novation, Lessor and each other Indemnitee shall continue to be entitled to
indemnification under Section 10, and shall continue to be named as an
additional insured under all Insurances referred to in Section 9 for a
period of not less than two years after such Transfer. The agreements,
covenants, obligations and liabilities contained in the Lease, including
all obligations to pay Rent and indemnify each Indemnitee, are made for the
benefit of Lessor (and, in the case of Section 10, each other Indemnitee)
and its or their respective successors and assigns, notwithstanding the
possibility that any such Person was not originally a party to the Lease or
may, at the time such enforcement is sought, not be a party to the Lease.
The Lessor will not Transfer its interests in the Lease or the Aircraft in
a transaction which fails to satisfy the requirements of this Section 14.2
and Section 14.3.
14.3 Conditions
In connection with any such Transfer by Lessor:
(a) Quiet Enjoyment: as a condition precedent to such Transfer becoming
effective, Lessor will procure that the transferee or any new owner of
the Aircraft (except where
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such new owner is also the "Lessor" hereunder) or any new holder of a
Security Interest in the Aircraft or any holder of an interest in the
Aircraft or the Lease (by way of security or otherwise), as the case
may be, shall execute and deliver to Lessee a letter of quiet
enjoyment in respect of Lessee's use and possession of the Aircraft in
a form substantially similar to Section 7.1 hereof and any new owner
will acknowledge receipt of any unused Deposit and the aggregate
amount of Supplemental Rent paid by Lessee under the Lease minus all
amounts paid by Lessor under Section 7.2(a) of this CTA; and
(b) Costs: upon receipt by Lessor of a detailed invoice, Lessor shall
reimburse to Lessee its reasonable out-of-pocket expenses (including
reasonable legal fees and expenses) actually incurred in connection
with co-operating with Lessor in relation to any such Transfer
referred to in this Section 14.
15. MISCELLANEOUS
15.1 Survival
Lessee's obligations under Section 3 of Schedule 4, under Sections 5.6,
5.7, 5.8, 5.10, 5.21, 9.5, 10, 12.2, 13.2 and 17.2 and under any other
provision of the Lease providing for an obligation on the part of the
Lessee to indemnify Lessor or any other Indemnitee shall survive the
expiration or any termination of the Lease and continue in full force and
effect. Lessor's obligations under 5.11, 7.2, 12.3 and 12.5 shall likewise
survive such expiration or termination.
15.2 Waivers, Remedies Cumulative
The rights of Lessor under the Lease may be exercised as often as
necessary, are cumulative and not exclusive of its rights under any Law;
and may be waived only in writing and specifically. Delay by Lessor in
exercising, or non-exercise of, any such right will not constitute a waiver
of that right.
15.3 [INTENTIONALLY LEFT BLANK]
15.4 Severability
If a provision of the Lease is or becomes illegal, invalid or unenforceable
in any jurisdiction, that will not affect:
(a) the legality, validity or enforceability in that jurisdiction of any
other provision of the Lease; or
(b) the legality, validity or enforceability in any other jurisdiction of
that or any other provision of the Lease.
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15.5 Remedy
If Lessee fails to comply with any provision of the Lease, Lessor may,
subject to Section 7.1 of this CTA, after notice to the Lessee, if
reasonable under the circumstances and without prejudice to Lessor, without
being in any way obliged to do so or responsible for so doing and without
prejudice to the ability of Lessor to treat such non-compliance as a
Default, effect compliance on behalf of Lessee, whereupon Lessee shall
become liable to pay immediately any sums expended by Lessor together with
all costs and expenses (including reasonable legal fees and expenses) in
connection with the non-compliance.
15.6 Time of Essence
The time stipulated in the Lease for all payments payable by Lessee and the
prompt, punctual performance of Lessee's other obligations under the Lease
are of the essence of the Lease.
15.7 Notices
All notices under, or in connection with, the Lease will, unless otherwise
stated, be given in writing by letter or facsimile. Any such notice is
deemed effectively to be given as follows:
(i) if by letter, on the date received; and
(ii) if by facsimile, when transmitted and full transmission has been
separately notified by telephone by the transmitting party.
The addresses and facsimile and telephone numbers of Lessee and Lessor are
as set forth in the Aircraft Lease Agreement.
15.8 Governing Law; Jurisdiction; WAIVER OF JURY TRIAL
(a) PURSUANT TO AND IN ACCORDANCE WITH SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW, THE PARTIES HERETO AGREE THAT THE LEASE IN
ALL RESPECTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, UNITED STATES, AS APPLIED TO
CONTRACTS TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK
(EXCLUSIVE OF SECTION 7-101 OF THE NEW YORK GENERAL OBLIGATIONS LAW
WHICH IS INAPPLICABLE TO THE LEASE). THE PARTIES AGREE THAT THE LEASE
WAS EXECUTED AND DELIVERED IN THE STATE OF NEW YORK.
(b) Pursuant to and in accordance with Section 5-1402 of the New York
General Obligations Law, Lessee and Lessor each agree that the United
States District Court for the Southern District of New York and any
New York state court sitting in The City of New York, New York, and
all related appellate courts, are to have non-
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exclusive jurisdiction to settle any disputes arising out of or
relating to the Lease and submits itself and its property to the
non-exclusive jurisdiction of the foregoing courts with respect to
such disputes.
(c) Without prejudice to any other mode of service, Lessee:
(i) has agreed to be served at its offices at LaGuardia Airport,
New York New York or any other location in New York where
Lessee may have an office for any proceedings before the New
York courts in connection with the Lease and agrees to maintain
the office at Laguardia Airport, New York, New York until such
time as Lessee notifies Lessor of the appointment of an agent
for service of process in New York, New York;
(ii) agrees that failure by such office to notify Lessee of the
process shall not invalidate the proceedings concerned;
(iii) consents to the service of process relating to any such
proceedings by prepaid mailing of a copy of the process to
Lessee's agent at the location identified in paragraph (i) or
by prepaid mailing by air mail, certified or registered mail of
a copy of the process to Lessee at the address set forth in the
Aircraft Lease Agreement.
(d) Lessee:
(i) waives to the fullest extent permitted by Law any objection
which Lessee may now or hereafter have to the courts referred
to in Section 15.8(b) above on grounds of inconvenient forum or
otherwise as regards proceedings in connection with the Lease;
(ii) waives to the fullest extent permitted by Law any objection
which Lessee may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to
the Lease brought in the courts referred to in Section 15.8(b);
and
(iii) agrees that a judgment or order of any court referred to in
Section 15.8(b) in connection with the Lease is conclusive and
binding on it and may be enforced against it in the courts of
any other jurisdiction.
(e) Nothing in this Section 15.8 limits the right of Lessor to bring
proceedings against Lessee in connection with the Lease:
(i) in any other court of competent jurisdiction; or
(ii) concurrently in more than one jurisdiction.
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(f) Lessee irrevocably and unconditionally:
(i) agrees that if Lessor brings legal proceedings against it or
its assets in relation to the Lease no sovereign or other
immunity from such legal proceedings (which will be deemed to
include suit, court jurisdiction, attachment prior to
judgement, attachment in aid of execution of a judgement, other
attachment, the obtaining of judgement, execution of a
judgement or other enforcement or legal process or remedy) will
be claimed by or on behalf of itself or with respect to its
assets;
(ii) waives any such right of immunity which it or its assets now
has or may in the future acquire and agrees that the foregoing
waiver shall have the fullest extent permitted under the
Foreign Sovereign Immunities Act of 1976 of the United States
and is intended to be irrevocable for the purposes of such Act;
and
(iii) consents generally in respect of any such proceedings to the
giving of any relief or the issue of any process in connection
with such proceedings including, without limitation, the
making, enforcement or execution against any property
whatsoever (irrespective of its use or intended use) of any
order or judgement which may be made or given in such
proceedings.
(g) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF LESSEE AND LESSOR
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS TO A
JURY TRIAL IN RESPECT OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THE LEASE OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
LESSOR/LESSEE RELATIONSHIP BEING ESTABLISHED, including, without
limitation, contract claims, tort claims, breach of duty claims and
other common law and statutory claims. Each of Lessor and Lessee
represents and warrants that each has reviewed and voluntarily waives
its jury trial rights following consultation with its legal counsel.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THIS WAIVER IS IRREVOCABLE,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THE LEASE. In the event of
litigation, this Section may be filed as a written consent to a trial
by the court.
15.9 Sole and Entire Agreement; True Lease; Section 1110
(a) Entire Agreement: The Lease is the sole and entire agreement between
Lessor and Lessee in relation to the leasing of the Aircraft, and
supersedes all previous
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agreements in relation to that leasing. Any amendments to the Lease
must be made in writing and signed on behalf of Lessor and Lessee.
(b) True Lease: The parties intend and agree that the Lease:
(i) constitutes a "true lease", and not a "security interest" as
defined in Section 1-201(37) of the UCC;
(ii) constitutes a "true lease" for United States Federal income tax
purposes; and
(iii) confers only a leasehold interest on Lessee in and to the
Aircraft on and subject to the terms of the Lease, and no
ownership or other interest with respect to the Aircraft is
provided to Lessee under the Lease.
Lessee shall not file a tax return that is inconsistent with the
provisions of this Section 15.9(b).
(c) Section 1110: Lessee acknowledges that Lessor would not have entered
into the Lease unless it had available to it the benefits of a lessor
under Section 1110 of Title 11 of the U.S.C. Lessee covenants and
agrees with Lessor that to better ensure the availability of such
benefits, Lessee shall support any motion, petition or application
filed by Lessor with any bankruptcy court having jurisdiction over
Lessee whereby Lessor seeks recovery of possession of the Aircraft
under said Section 1110 and shall not in any way oppose such action by
Lessor unless Lessee shall have complied with the requirements of said
Section 1110 to be fulfilled in order to entitle Lessee to continued
use and possession of the Aircraft hereunder. In the event said
Section 1110 is amended, or if it is repealed and another statute is
enacted in lieu thereof, such event shall not be the sole basis for a
Default or an Event of Default; provided, however, that Lessor and
Lessee agree to amend the Lease and take such other action not
inconsistent with the Lease as Lessor reasonably deems necessary so as
to afford to Lessor the rights and benefits as such amended or
substituted statute confers upon owners and lessors of aircraft
similarly situated to Lessor.
15.10 Indemnitees
All rights expressed to be granted to each Indemnitee (other than Lessor)
under the Lease are given to Lessor on behalf of that Indemnitee, and each
Indemnitee is an express third party beneficiary thereof.
15.11 Counterparts
The Lease (including the Aircraft Lease Agreement and this CTA) may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall
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constitute one and the same instrument. To the extent, if any, that the
Lease constitutes chattel paper (as such term is defined in the UCC as in
effect in any applicable jurisdiction), no security interest in the Lease
may be created through the transfer or possession of any counterpart other
than the original counterpart, which shall be identified as the
counterpart designated as the "original" on the signature page of the
Aircraft Lease Agreement by GE Capital Aviation Services.
15.12 Language
All notices to be given under the Lease will be in English. All documents
delivered to Lessor pursuant to the Lease (including any documents to be
delivered pursuant to the Conditions Precedent) will be in English.
16. DISCLAIMERS AND WAIVERS
LESSOR AND LESSEE AGREE THAT THE DISCLAIMERS, WAIVERS AND CONFIRMATIONS
SET FORTH IN SECTIONS 16.1 TO 16.4 BELOW SHALL APPLY AT ALL TIMES DURING
THE TERM. LESSEE'S ACCEPTANCE OF THE AIRCRAFT IN ACCORDANCE WITH SECTION
4.3 SHALL BE CONCLUSIVE EVIDENCE THAT LESSEE HAS FULLY INSPECTED THE
AIRCRAFT AND EVERY PART THEREOF AND THAT THE AIRCRAFT, THE ENGINES, THE
PARTS AND THE AIRCRAFT DOCUMENTS AND RECORDS ARE TECHNICALLY ACCEPTABLE TO
LESSEE AND, EXCEPT AS EXPRESSLY SET FORTH IN THE CERTIFICATE OF TECHNICAL
ACCEPTANCE, SATISFY THE DELIVERY CONDITION REQUIREMENTS AND ARE IN
SUITABLE CONDITION FOR DELIVERY TO AND ACCEPTANCE BY LESSEE.
16.1 Exclusion
THE AIRCRAFT IS LEASED AND DELIVERED UNDER THE LEASE "AS-IS, WHERE- IS,"
----- ---------
AND LESSEE AGREES AND ACKNOWLEDGES, IN RESPECT THEREOF, THAT:
(A) LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR HAS NOT AND
WILL NOT BE DEEMED TO HAVE ACCEPTED, MADE OR GIVEN (WHETHER BY VIRTUE
OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED
TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THE LEASE OR
OTHERWISE), ANY CONDITIONS, WARRANTIES OR REPRESENTATIONS, EXPRESS OR
IMPLIED, WITH RESPECT TO, THE AIRCRAFT OR ANY ENGINE OR PART OR ANY
SERVICES PROVIDED BY LESSOR UNDER THE LEASE, INCLUDING (BUT NOT
LIMITED TO) THE TITLE, DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH
SPECIFICATIONS, OPERATION, MERCHANTABILITY, QUALITY, FREEDOM FROM
INFRINGEMENT OF PATENT, COPYRIGHT,
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TRADEMARK OR OTHER PROPRIETARY RIGHTS, FITNESS FOR ANY PARTICULAR USE
OR PURPOSE, VALUE, DURABILITY, DATE PROCESSING, CONDITION, OR DESIGN,
OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP, THE ABSENCE OF
LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY
OTHER MATTER WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED
WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF
TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY PART OR ANY
SERVICES PROVIDED BY LESSOR UNDER THE LEASE; AND
(B) LESSOR SHALL NOT HAVE ANY OBLIGATION OR LIABILITY WHATSOEVER TO
LESSEE (WHETHER ARISING IN CONTRACT OR IN TORT, AND WHETHER ARISING
BY REFERENCE TO NEGLIGENCE, MISREPRESENTATION OR STRICT LIABILITY OF
LESSOR OR OTHERWISE) FOR:
(i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED
DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY
INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY
OTHER CIRCUMSTANCE IN CONNECTION THEREWITH;
(ii) THE USE, OPERATION OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS
RELATING THERETO;
(iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED
PROFITS OR ANY OTHER INDIRECT OR CONSEQUENTIAL LOSS OR DAMAGES;
OR
(iv) THE DELIVERY OF THE AIRCRAFT PURSUANT TO SECTION 4, OPERATION,
SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF
THE AIRCRAFT, ANY ENGINE OR ANY PART.
16.2 Waiver
LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND LESSOR, ALL ITS RIGHTS IN
RESPECT OF ANY CONDITION, WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER AND WHENEVER
ARISING AT ANY TIME IN RESPECT OF OR OUT OF ANY OF THE MATTERS REFERRED TO
IN SECTION 16.1.
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16.3 Disclaimer of Consequential Damages
LESSEE AGREES THAT IT SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY
DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY OTHERWISE HAVE TO RECOVER, LOST
PROFITS OR REVENUES OR CONSEQUENTIAL DAMAGES (AS DEFINED IN SECTION 2A-520
OF THE UCC OR OTHERWISE) AS A RESULT OF ANY BREACH OR ALLEGED BREACH BY
LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR WARRANTIES OF LESSOR
CONTAINED IN THE LEASE.
16.4 Confirmation
LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF THIS SECTION 16
AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS PAYABLE UNDER THE LEASE HAVE
BEEN CALCULATED BASED ON ITS PROVISIONS.
17. BROKERS AND OTHER THIRD PARTIES
17.1 No Brokers
Lessor hereby represents and warrants to Lessee that it has not paid,
agreed to pay or caused to be paid directly or indirectly in any form, any
commission, percentage, contingent fee, brokerage or other similar payments
of any kind (collectively, "Broker Fees"), in connection with the
establishment or operation of the Lease, to any Person (other than fees
payable to legal advisers or portfolio services). Lessee hereby represents
and warrants to Lessor that, except for The Seabury Group LLC, it has not
paid, agreed to pay or caused to be paid directly or indirectly in any
form, any Broker Fees in connection with the establishment or operation of
the Lease, to any Person (other than fees payable to legal advisers or
portfolio services).
17.2 Indemnity
Each party agrees to indemnify and hold the other harmless from and against
any and all claims, suits, damages, costs and expenses (including,
reasonable legal fees and expenses) asserted by any agent, broker or other
third party for any commission or compensation of any nature whatsoever
based upon the Lease or the Aircraft, if such claim, suit, damage, cost or
expense arises out of any breach by the indemnifying party, its employees
or agents of Section 17.1. Lessee agrees that all Broker Fees, costs and
expenses of The Seabury Group LLC shall be its sole obligation and Lessor
shall have no obligation to pay any such Broker Fees, costs or expenses.
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IN WITNESS WHEREOF the parties hereto have executed the Common Terms Agreement
on the date shown at the beginning of the document.
GENERAL ELECTRIC CAPITAL CORPORATION
By: ___________________________
Name: _________________________
Title: ________________________
MIDWAY AIRLINES CORPORATION
By: ___________________________
Name: _________________________
Title: ________________________
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SCHEDULE 1
Definitions
The following words and expressions have the respective meanings set forth
below:
Act means the Federal Aviation Act of 1958, as amended, and as recodified in
Title 49 of the U.S.C. pursuant to Public Law 103-272, or any similar
legislation of the United States enacted in substitution or replacement thereof.
Administrator means the FAA administrator as defined in FAR Part 1.
Affiliate means as to any Person, any other Person that, directly or indirectly,
is in control of, is controlled by, or is under common control with, such
Person. For purposes of this definition, "control" of a Person means the power,
directly or indirectly, to direct or cause the direction of the management and
policies of such person, whether by contract or otherwise.
After-Tax Basis means in the case of any amount payable on an "After-Tax Basis"
to or for the benefit of any Person (including any amount payable pursuant to
this definition), after deduction of the net amount of all Taxes required to be
paid by such Person with respect to the receipt or accrual by it of such amount
(and assuming that such Person is subject to (i) United States Federal income
tax, (ii) United States state and local income taxes, and (iii) income taxes (if
any) imposed by countries outside the United States at the actual rates imposed
on such Person).
Agreed Value has the meaning given in Schedule B of the Aircraft Lease
Agreement.
Air Authority means the FAA.
Aircraft has the meaning given in the Aircraft Lease Agreement.
Aircraft Lease Agreement means the specific aircraft lease agreement for the
Aircraft entered or to be entered into between the parties hereto or Affiliates
thereof.
Aircraft Documents and Records means the documents, data and records identified
in the list attached to the Certificate of Technical Acceptance, and any other
documents and records required in connection with Lessee's obligations under
Section 8.8, and all additions, renewals, revisions and replacements from time
to time made to any of the foregoing in accordance with the Lease.
Airframe means the Aircraft, excluding the Engines and Aircraft Documents and
Records.
Airframe Structural Check has the meaning given in the Aircraft Lease Agreement.
Airframe Supplemental Rent has the meaning given in Schedule B of the Aircraft
Lease Agreement.
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Airframe Supplemental Rent Rate has the meaning given in Schedule B of the
Aircraft Lease Agreement.
Airworthiness Directive means an airworthiness directive issued by the State of
Design or the State of Registry.
Annual Supplemental Rent Adjustment has the meaning given in Schedule B of the
Aircraft Lease Agreement.
Appraisal Procedure means the following procedure for determining the "fair
market rental value" of the Aircraft pursuant to Sections 13.2 and 13.4 of the
CTA: (a) Lessor shall select an independent nationally recognized aircraft
appraiser in its sole and absolute discretion who shall make a determination of
"fair market rental value" of the Aircraft; and (b) the fees and expenses of the
appraiser shall be paid by Lessee. "Fair market rental value" shall mean the
value determined by an appraisal completed on an "as-is" and "where-is" basis.
APU means the auxiliary power unit installed on the Aircraft on the Delivery
Date and any replacement auxiliary power unit installed on the Aircraft and
title to which is transferred to Lessor in accordance with the Lease.
APU Supplemental Rent has the meaning given in Schedule B of the Aircraft Lease
Agreement.
APU Supplemental Rent Rate has the meaning given in Schedule B of the Aircraft
Lease Agreement.
Assumed Ratio has the meaning given in Schedule B of the Aircraft Lease
Agreement.
Assumed Utilization has the meaning given in Schedule B of the Aircraft Lease
Agreement.
Business Day means any day other than a Saturday, Sunday or other day on which
banking institutions in New York, New York are authorized or required by Law to
be closed.
"C" Check means a "C" check in accordance with the Lessee's Maintenance Program
in effect on the relevant date.
Certificate of Technical Acceptance means a certificate of technical acceptance
in the form of Part 1 or Part 2, as applicable, of Schedule 5.
Certificated Air Carrier means any Person (except the United States Government)
that is a "citizen of the United States of America" (as defined in Section 40102
of Title 49 of the U.S.C.) and holding a Certificate of Public Convenience and
Necessity issued under Section 41102 of Title 49 of U.S.C. by the Department of
Transportation or any predecessor or successor agency thereto, or, in the event
such certificates shall no longer be issued, any Person (except the United
States Government) that is a citizen of the United States (as defined in Section
40102 of Title 49 of the U.S.C.) and legally engaged in the business of
transporting for hire passengers or cargo by air predominantly to, from or
between
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points within the United States of America, and, in either event, operating
commercial jet aircraft capable of carrying ten (10) or more individuals or
6,000 pounds or more of cargo, which also is certificated so as to entitle
Lessor, as a lessor, to the benefits of Section 1110 of Title 11 of the U.S.C.
(or any successor or analogous statute) with respect to the Aircraft.
Conditions Precedent means the conditions specified in Schedule 3.
Cycle means one take-off and landing of the Aircraft.
Damage Notification Threshold has the meaning given in Schedule B of the
Aircraft Lease Agreement.
Deductible Amount has the meaning given in Schedule B of the Aircraft Lease
Agreement.
Default means any Event of Default or any event or circumstance which, with the
giving of notice and/or lapse of time and/or determination of materiality and/or
fulfillment of any other condition, would constitute an Event of Default.
Defect means any defect or non-conformity with the Delivery Condition
Requirements notified by Lessee to Lessor during the Pre-Delivery Procedure.
Delivery means delivery of the Aircraft by Lessor to Lessee under the Lease.
Delivery Condition Requirements has the meaning given in the Aircraft Lease
Agreement.
Delivery Date means the date on which Delivery occurs.
Delivery Location has the meaning given in the Aircraft Lease Agreement.
Deposit has the meaning given in the Aircraft Lease Agreement.
Discount Rate has the meaning given in Schedule B of the Aircraft Lease
Agreement.
Dollars and $ means the lawful currency of the United States.
Engine means, whether or not installed on the Aircraft:
(a) each engine of the manufacture and model specified in the Aircraft
Lease Agreement for the Aircraft which Lessor offers to Lessee for
delivery with the Airframe on the Delivery Date, such engines being
described as to serial numbers on the Certificate of Technical
Acceptance; and
(b) any Replacement Engine, with effect from the time when title thereto
has passed to Lessor in accordance with the Lease;
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and in each case includes all modules and Parts from time to time belonging to
or installed in that engine but excludes any properly replaced engine title to
which should have passed to Lessee pursuant to the Lease.
Engine Cycle means operation of an engine on an aircraft from and including a
take-off to and including the landing of that aircraft.
Engine Cycles Restriction has the meaning given in Schedule B of the Aircraft
Lease Agreement.
Engine Event of Loss means the occurrence, with respect to the Engine only,
whether or not installed on the Airframe, of any of those events described in
the definition of Event of Loss.
Engine Flight Hour means each hour or part thereof an Engine is operated,
elapsing from the moment the wheels of an aircraft on which such Engine is
installed leave the ground until the wheels of such aircraft next touch the
ground.
Engine Flight Hours Restriction has the meaning given in the Aircraft Lease
Agreement.
Engine LLP Replacement has the meaning given in Section 7.2(ii);
Engine LLP Supplemental Rent has the meaning given in Schedule B of the Aircraft
Lease Agreement.
Engine LLP Supplemental Rent Rate has the meaning given in Schedule B of the
Aircraft Lease Agreement.
Engine Refurbishment means all scheduled and unscheduled off the wing Engine
maintenance and repair accomplished for each module in accordance with the
performance restoration or full overhaul sections of the Manufacturer's
workscope planning guide.
Engine Supplemental Rent has the meaning given in Schedule B of the Aircraft
Lease Agreement.
Engine Supplemental Rent Rate has the meaning given in Schedule B of the
Aircraft Lease Agreement.
Equipment Change has the meaning given in Section 8.12.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Event of Default means any event or condition specified in Schedule 9.
Event of Loss means with respect to the Aircraft (including for the purposes of
this definition the Airframe):
(a) the actual or constructive, compromised, arranged or agreed total loss
of the Aircraft; or
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(b) the Aircraft being destroyed, damaged beyond economic repair or
permanently rendered unfit for normal use by Lessee for any reason
whatsoever; or
(d) the Aircraft being condemned, confiscated or requisitioned for title,
or title to the Aircraft being otherwise compulsorily acquired by the
government of the State of Registry or any other Government Entity; or
(e) the Aircraft being hijacked, stolen, confiscated, detained, seized,
condemned or requisitioned for use or hire for the lesser of (i) a
period of more than fifteen (15) days (or 180 days in the case of
requisition for use or hire by the United States government) or (ii) a
period equal to or exceeding the remaining balance of the Term; or
(f) as a result of any rule, regulation, order or other action by the FAA
the use of the Aircraft by Lessee or any Permitted Sub-Lessee shall
have been prohibited for a period of twelve (12) consecutive months.
Expiry Date means the Scheduled Expiry Date or, if earlier (i) the date when
Lessor acting in accordance with the provisions of the Lease, terminates the
leasing of the Aircraft to Lessee under the Lease, or (ii) subject to the
provisions of Section 11.1 and 11.2, the date when Lessor receives the Agreed
Value together with any other amounts then due and unpaid under the Lease and
the Other Agreements following an Event of Loss; provided, that if the Term is
extended pursuant to Section 12.2, the Expiry Date shall be extended to the date
when the Aircraft has been redelivered to Lessor in full compliance with the
Lease;
FAA means the Federal Aviation Administration of the United States and any
successor thereof.
FAR means the Federal Aviation Regulations set forth in Title 14 of the U.S.C.
of Federal Regulations, as amended and modified from time to time.
Final Delivery Date has the meaning given in the Aircraft Lease Agreement.
Final Inspection has the meaning given in Section 1.1 of Schedule 6.
Financial Information means:
(i) no later than 60 days after the last day of each fiscal quarter
of Lessee, the consolidated financial statements of Lessee
(consisting of a balance sheet and statements of operations and
of retained earnings and cash flows) prepared for the most recent
previous fiscal quarter certified by a qualified financial
officer of Lessee as being true and correct (provided that the
Form 10Q filed by Lessee with the Securities and Exchange
Commission shall satisfy this requirement); and
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(ii) no later than 120 days after the last day of each fiscal year of
Lessee, the audited consolidated financial statements of Lessee
(consisting of a balance sheet and statements of operations and
of retained earnings and cash flows), prepared for the fiscal
year then most recently ended certified by the independent
auditors of Lessee without qualification (provided that the Form
10K filed by Lessee with the Securities and Exchange Commission
shall satisfy this requirement);.
Financing Parties (if applicable) means the Person or Persons from time to time
notified by Lessor to Lessee as providing finance to Lessor in respect of its
acquisition, ownership or leasing of the Aircraft, whether by way of a head
lease, loan or otherwise.
Financing Statements means UCC Financing Statements in respect of the Lease and
the Aircraft and Engines leased thereunder prepared in a form acceptable for
filing with the applicable Government Entities in the state in which Lessee's
chief executive office is located (as the term "chief executive office" is
defined in Article 9 of the Uniform Commercial Code as in effect in such state)
and such other jurisdictions as Lessor shall reasonably require.
Flight Hour means each hour or part thereof elapsing from the moment the wheels
of the Aircraft leave the ground on take off until the wheels of the Aircraft
next touch the ground.
GAAP means generally accepted accounting principles in the United States.
GE Capital means General Electric Capital Corporation.
GECAS means either or both of GE Capital Aviation Services, Limited and GE
Capital Aviation Services, Inc.
GECC Leases means any other aircraft lease agreement, indenture, participation
agreement or other similar agreement (relating to an aircraft) from time to time
entered into between a GE Entity, on the one hand, and Lessee (or any direct or
indirect Subsidiary or Affiliate of Lessee), on the other hand, but only for so
long as a GE Entity is a party to such agreement.
GE Entity means GE Capital, GECAS or Polaris Holding Company (or any direct or
indirect Subsidiary or Affiliate of GE Capital, GECAS or Polaris Holding
Company) or any other Person which any of the foregoing entities acts as the
manager on the date hereof or any securitization vehicle managed by any of the
foregoing entities.
Government means the United States of America or an agency or instrumentality
thereof the obligations of which bear the full faith and credit of the United
States of America.
Government Entity means:
(a) national government, political subdivision thereof, or local
jurisdiction therein;
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(b) any instrumentality, board, commission, court, or agency of any of the
above, however constituted; and
(c) any association, organization, or institution of which any of the
above is a member or to whose jurisdiction any thereof is subject or
in whose activities any of the above is a participant.
Habitual Base means the United States and the state thereof in which Lessee's
primary aircraft operations center is located.
Indemnitee has the meaning given in the Aircraft Lease Agreement.
Insurances means insurances in respect of the Aircraft which includes without
amendment and is otherwise consistent with the provisions for any insurances and
reinsurances required by Section 9.
Interest Rate has the meaning given in Schedule B of the Aircraft Lease
Agreement.
Internal Revenue Code means the Internal Revenue Code of 1986, as amended from
time to time.
Landing Gear means the landing gear assembly of the Aircraft excluding any
rotable components.
Landing Gear Supplemental Rent has the meaning given in Schedule B of the
Aircraft Lease Agreement.
Landing Gear Supplemental Rent Rate has the meaning given in Schedule B of the
Aircraft Lease Agreement.
Law means and includes (a) any statute, decree, constitution, regulation, order,
judgement or other directive of any Government Entity; (b) any treaty, pact,
compact or other agreement to which any Government Entity is a signatory or
party; (c) any judicial or administrative interpretation or application of any
Law described in (a) or (b) above; and (d) any amendment or revision of any Law
described in (a), (b) or (c) above.
LC Amount (if applicable) has the meaning given in the Aircraft Lease Agreement.
Lease means the Aircraft Lease Agreement for the Aircraft (of which this CTA
forms a part), any schedules or documents executed pursuant to the Schedules
hereto or pursuant to the Aircraft Lease Agreement, any Lease Supplement to the
Lease (including Lease Supplement No. 1), and any side letters related to the
Lease.
Lease Supplement means any Lease Supplement executed and delivered with respect
to the Lease.
Lease Supplement No. 1 means a Lease Supplement No. 1 substantially in the form
of Schedule 12.
Lessee means the Person named as Lessee in the applicable Aircraft Lease
Agreement.
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Lessee Affiliate means any Subsidiary or other Affiliate for the time being of
Lessee.
Lessee's Maintenance Program means the Manufacturer's Maintenance Planning
Document until Lessee has replaced the Manufacturer's Maintenance Planning
Document with a maintenance program specifically approved by the Air Authority
for Lessee's maintenance of the Aircraft, as the same may be varied from time to
time.
Lessor means the Person named as Lessor in the applicable Aircraft Lease
Agreement.
Lessor Lien means (i) any Security Interest whatsoever from time to time created
by Lessor in connection with the financing of the Aircraft as not prohibited by
Section 14.2 and (ii) any other Security Interest in the Aircraft which results
from acts of or claims against Lessor (or any Person lawfully claiming through
Lessor) not related to the transactions contemplated by or permitted under the
Lease.
Lessor Tax Jurisdiction has the meaning given in Schedule B of the Aircraft
Lease Agreement.
Letter of Credit means any letter of credit issued in relation to the Lease
pursuant to Section 5.14 and any replacement or renewal of that letter of
credit.
Losses means any and all cost, expense (including any and all legal fees and
expenses and the fees and expenses of other professional advisers), claims,
proceedings, losses, liabilities, obligations, damages (whether direct,
indirect, special, incidental or consequential), suits, judgements, fees,
penalties or fines (whether criminal or civil) of any kind or nature whatsoever,
including any of the foregoing arising or imposed with or without any
Indemnitee's fault or negligence, whether passive or active or under the
doctrine of strict liability.
Maintenance Adjustment means all the amounts payable by Lessee pursuant to
Clause 5.4 of this Agreement and Section 3 of each Aircraft Lease Agreement.
Maintenance Contributions means, as and if applicable, all amounts payable by
Lessor pursuant to Section 7.2.
Maintenance Performer means such Person as is approved by the Air Authority to
perform maintenance and/or modification services on commercial aircraft and/or
commercial aircraft engines, which Person shall have recognized standing and
experience and suitable equipment to perform such services on aircraft and/or
engines of the same or improved model as the Aircraft or, in the case of
engines, the Engines.
Maintenance Program means an Air Authority approved maintenance program for the
Aircraft in accordance with the Manufacturer's specifications, service
bulletins, planning documents, maintenance manuals and documents and
encompassing scheduled maintenance (including block maintenance), condition-
monitored maintenance, and/or on-condition maintenance of Airframe, Engines and
Parts,
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including servicing, testing, preventive maintenance, repairs, structural
inspections, system checks, overhauls, approved modifications, mandatory service
bulletins, engineering orders, airworthiness directives, corrosion control,
inspections and treatments.
Major Checks means any C-check, multiple C-check or heavier check (including
structural inspections and CPCP) suggested for commercial aircraft of the same
model as the Aircraft by its manufacturer (however denominated) as set out in
the Lessee's Maintenance Program.
Manufacturer has the meaning given in the Aircraft Lease Agreement.
Manufacturer's Maintenance Planning Document means the recommended maintenance
program for the Aircraft issued by the Manufacturer as in effect at the time of
any applicable determination.
Minimum Airframe Life Limited Component Cycles has the meaning given in Schedule
B of the Aircraft Lease Agreement.
Minimum Airframe Life Limited Component Flight Hours has the meaning given in
Schedule B of the Aircraft Lease Agreement.
Minimum APU Limit has the meaning given in Schedule B of the Aircraft Lease
Agreement.
Minimum Component Calendar Life has the meaning given in Schedule B of the
Aircraft Lease Agreement.
Minimum Engine Cycles has the meaning given in Schedule B of the Aircraft Lease
Agreement.
Minimum Engine Flight Hours has the meaning given in Schedule B of the Aircraft
Lease Agreement.
Minimum Hard Time Component Cycles has the meaning given in Schedule B of the
Aircraft Lease Agreement.
Minimum Hard Time Component Flight Hours has the meaning given in Schedule B of
the Aircraft Lease Agreement.
Minimum Landing Gear Calendar Time has the meaning given in the Aircraft Lease
Agreement.
Minimum Landing Gear Cycles has the meaning given in Schedule B of the Aircraft
Lease Agreement.
Minimum Landing Gear Flight Hours has the meaning given in Schedule B of the
Aircraft Lease Agreement.
Minimum Liability Coverage has the meaning given in Schedule B of the Aircraft
Lease Agreement.
Minimum Measurable Fuel Requirement has the meaning given in the Aircraft Lease
Agreement.
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Mitigation Credit has the meaning given in Section 13.4.
Nameplate Inscription means the inscription to be included on the Nameplates as
requested by Lessor from time to time.
Nameplates means the fireproof plates to be installed on the Aircraft in
accordance with Section 8.6(a).
Optional Maintenance means any maintenance which is not required either by
applicable Regulations or Lessee's Maintenance Program (so long as Lessee's
Maintenance Program does not differentiate or otherwise discriminate between
aircraft of the same type).
Other Agreement has the meaning given in the Aircraft Lease Agreement..
Other Aircraft has the meaning given in the Aircraft Lease Agreement.
Other Engines has the meaning given in the Aircraft Lease Agreement.
Part means, whether or not installed on the Aircraft:
(a) any component, part, furnishing or equipment (other than a complete
Engine or engine) incorporated or installed in or attached to or
furnished with the Aircraft (including any Engine) on the Delivery
Date or thereafter if paid for or otherwise provided by or on behalf
of Lessor or so long as title to such Parts shall remain vested in
Lessor in accordance with Section 8 hereof after removal from the
Airframe or any Engine; and
(b) any other component, part, furnishing or equipment (other than a
complete Engine or engine and a temporary replacement part as provided
for in Section 8.11(d)), with effect from the time when title thereto
has passed to Lessor pursuant to the Lease;
but excludes any such items title to which should have passed to Lessee pursuant
to the Lease.
Part 36 or FAR Part 36 means Part 36 of the FAR, as amended or modified from
time to time.
Part 121 or FAR Part 121 means Part 121 of the FAR, as amended or modified from
time to time.
Payment Default means the failure by Lessee to pay any amount of Rent on the
Rent Date or Supplemental Rent on the date specified in Section 5.4.
Permitted Lien means:
(a) any lien for Taxes not assessed or, if assessed, not yet due and
payable, or being diligently contested in good faith by appropriate
proceedings;
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(b) any lien of a repairer, mechanic, hangar-keeper or other similar
lien arising by operation of Law in respect of obligations which are not
overdue or are being diligently contested in good faith by appropriate
proceedings;
(c) any Lessor Lien;
(d) the rights of others under any sub-lease or arrangements to the
extent expressly permitted under Section 8.4; and
(e) liens arising out of judgments or awards against the Lessee so
long as (i) such lien has been adequately bonded in the reasonable opinion
of Lessor (without any claim against the Aircraft) or a stay of execution
is effect and (ii) such lien does not involve a material risk of the sale,
forfeiture or loss of (including loss of use) the Airframe or any Engine or
an interest therein.
but only if (in the case of both (a) and (b)) (i) adequate reserves (as required
by GAAP) have been provided by Lessee for the payment of such Taxes or
obligations; and (ii) such proceedings, or the continued existence of the lien,
do not give rise to any material danger of the sale, forfeiture or other loss of
(including loss of use) the Aircraft or any interest therein or of criminal
liability on Lessor.
Permitted Sub-Lease means any sub-lease of the Aircraft to a Permitted Sub-
Lessee as provided for in Section 8.4(a).
Permitted Sub-Lessee means any Certificated Air Carrier listed on Schedule 13 or
any sub-lessee of the Aircraft to which Lessor has consented as provided in
Section 8.4(a).
Person means any individual person, any form of corporate or business
association, trust, Government Entity, or organization or association of which
any of the above is a member or a participant.
Pre-Delivery Procedure means the procedure leading to Delivery as specified in
Schedule 4.
Redelivery "C" Check has the meaning given in Schedule B of the Aircraft Lease
Agreement.
Redelivery Location has the meaning given in the Aircraft Lease Agreement.
Regulations means any Law or regulation, official directive or mandatory
requirement, or airworthiness requirements or limitations, in any such case
issued by a Government Entity of competent jurisdiction, which applies to Lessee
or the Aircraft and any Law or regulation, official directive or recommendation
or mandatory requirement which applies to Lessor, as lessor or owner of the
Aircraft, and it is within the Lessee's ability to comply.
Rent means all amounts payable pursuant to Section 5.3.
Rental Period means each period ascertained in accordance with Section 5.2.
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Rent Commencement Date has the meaning given in the Aircraft Lease Agreement.
Rent Date means the first day of each Rental Period.
Replacement Engine means an "Engine" that has duly replaced an "Engine" in
accordance with the requirements of Section 8.11(b).
Required LC Expiry Date means the date being 91 days after the Expiry Date.
Return Occasion means the date on which the Aircraft is redelivered to Lessor in
accordance with Section 12.
Scheduled Delivery Date has the meaning given in the Aircraft Lease Agreement.
Scheduled Delivery Month has the meaning given in the Aircraft Lease Agreement.
Scheduled Delivery Week has the meaning given in the Aircraft Lease Agreement.
Scheduled Expiry Date has the meaning given in the Aircraft Lease Agreement.
Security Interest means any mortgage, chattel mortgage, security interest,
charge, pledge, lien, conditional sale agreement, title retention agreement,
equipment trust agreement, encumbrance, assignment, hypothecation, right of
detention, right of set-off or any other agreement or arrangement having the
effect of conferring security.
Significant Default means:
(a) any Payment Default; or
(b) any Default specified in paragraphs (b), (e), (g), or (h) of Schedule
9; or
(c) the Lessee shall be materially in default of its maintenance and repair
obligations under Section 8.10; or
(d) a Default specified in Section 8.3(a); or
(e) the Lessee shall have assigned, delegated or transferred any of its
rights or obligations in respect of the Lease contrary to Section 14.1
or be subleasing the Aircraft to a sublessee which is not a sublessee,
or pursuant to a sublease which is not (in any such case), permitted
under the terms of the Lease; or
(f) any Event of Default.
Special Default means the failure by Lessee (or any direct or indirect
Subsidiary, Affiliate or successor of Lessee) to pay any amount of rent
(including supplemental rent substantially consistent
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with, except for specific amounts, the definition for Supplemental Rent as
defined herein) due and payable to a GE Entity under the GECC Leases after the
expiration of any applicable cure period.
State of Design means the state having jurisdiction over the Person responsible
for the type design of the Aircraft or any Engine or Part.
State of Incorporation means the United States and the state of organization of
Lessee as identified in the heading of the Aircraft Lease Agreement.
State of Registry has the meaning given in the Aircraft Lease Agreement.
Sublease Fee has the meaning given in the Aircraft Lease Agreement.
Subsidiary means:
(a) in relation to any reference to accounts, any company whose accounts
are consolidated with the accounts of Lessee in accordance with
accounting principles generally accepted under accounting standards of
the State of Incorporation;
(b) for any other purpose, an entity from time to time:
(i) of which another has direct or indirect control or owns directly
or indirectly more than 50 percent of the voting share capital;
or
(ii) which is a direct or indirect subsidiary of another under the
Laws of the jurisdiction of its incorporation.
Supplemental Rent means, as and if applicable, all amounts payable under the
Lease in respect of each of Airframe Supplemental Rent, Engine Supplemental
Rent, Engine LLP Supplemental Rent, APU Supplemental Rent and Landing Gear
Supplemental Rent.
Taxes means any and all present and future taxes, duties, withholdings, levies,
assessments, imposts, fees and other governmental charges of all kinds
(including any value added or similar tax and any stamp, documentary, license,
registration or similar fees or tax), together with any penalties, fines,
surcharges and interest thereon and any additions thereto.
Tax Indemnitee has the meaning given in the Aircraft Lease Agreement.
Technical Report means a monthly report of the Flight Hours, Cycles, Engine
Flight Hours and Engine Cycles operated by the Airframe and Engines in respect
of each calendar month in the form required by Lessor.
Term means the period commencing on the Delivery Date and ending on the Expiry
Date.
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Termination Costs means any and all reasonable fees, costs and expenses incurred
by Lessor for the purchase of non-GECC specification modifications requested by
Lessee (which modifications, if removed, shall be delivered to and be the
property of, the Lessee; provided, however, that Lessee shall pay to Lessor all
costs associated with such removal and delivery), re-marketing of the Aircraft
(including an amount equal to monthly Rent pro-rated for each day the Aircraft
is not subject to a lease agreement with the next succeeding lessee),
modifications to conform the Aircraft to the GECC specifications and Aircraft
storage (but only storage relating to the above activities); provided however,
----------------
no amounts shall be included in respect of rent or other costs relating to any
periods following the commencement of such next lease.
UCC means the Uniform Commercial Code as in effect in the State of New York.
Unforeseen Event means, with respect to delivery or redelivery of the Aircraft:
(a) civil disturbance or act of any Government Entity;
(b) natural disaster or any other act of God;
(c) Law of, or any allocation or other action by, a Government Entity
or any unexpected shortage of labor, materials or facilities affecting the
Aircraft;
(d) any damage or Defect;
(e) labor disputes;
(f) breach of contract by any Person, or other failure to deliver or
redeliver the Aircraft by any Person (whether or not a breach) with
possession or control of the Aircraft (other than by Lessor, if it has
possession and control of the Aircraft), or any "excusable" or
"inexcusable" delay under any purchase agreement for the Aircraft, or any
purchase agreement for the Aircraft terminating prior to Delivery
(including due to Lessor or an Affiliate of Lessor voluntarily terminating
such agreement);
(g) delays in obtaining the Aircraft or any equipment or services for
the Aircraft;
(h) any delay due to Air Authority certifications; or
(i) any other cause beyond the control of Lessor (in the case of
delivery) or Lessee (in the case of redelivery) or not occasioned by
Lessor's (in the case of delivery) or Lessee's (in the case of redelivery)
gross negligence or willful misconduct;
provided, that, Clauses (d), (f) and (g) above shall only apply with
respect to the delivery of the Aircraft by Lessor.
United States means the United States of America.
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U.S.C. means the United States Code.
Warranty Agreements means each of the Assignment of Warranties of each of the
manufacturer of the Airframe and Engines, respectively, substantially in the
form as agreed between Lessee and Lessor (prior to the execution and delivery of
the Lease) and delivered by Lessor to Lessee upon the Delivery of each Aircraft
and shall include an aircraft warranty assignment agreement, an engine
assignment of warranties, if applicable, and an aircraft customer support
agreement.
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SCHEDULE 2
Representations And Warranties
1.1 Lessee's Representations and Warranties
Lessee's representations and warranties to Lessor are as follows on the date
hereof and on the Delivery Date:
(a) Status: It is duly organized, validly existing and in good standing
in its State of Incorporation.
(b) Non-Conflict: Execution, delivery and performance of the Lease by
Lessee do not contravene or breach any Regulation applicable to
Lessee.
(c) Power and Authority: It has all corporate and other power and
authority to execute, deliver and perform the Lease, and the Lease has
been duly authorized, executed and delivered by Lessee.
(d) Legal Validity: The Lease is its legal, valid and binding obligation,
enforceable against Lessee in accordance with its terms except to the
extent that the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law).
(e) No Event of Default: No Event of Default has occurred and is
continuing or would occur because of Delivery.
(f) Litigation: Except as set forth in its filings with the Securities
and Exchange Commission or as otherwise disclosed by Lessee to Lessor
prior to the date hereof, it is not involved in any litigation or
other dispute which may reasonably be expected to materially and
adversely affect its financial condition or its ability to perform its
obligations under the Lease.
(g) Financial Information: The audited financial statements included in
its most recent Form 10K filed with the Securities and Exchange
Commission delivered to Lessor:
(i) have been prepared in accordance with GAAP; and
(ii) present fairly the financial condition and results of operations
of Lessee as at the date thereof and for the period then ending.
(h) Full Disclosure: Neither its audited financial statements referred to
in paragraph (g) or any other document filed with the Securities and
Exchange Commission since December
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31, 1998 contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements
therein not misleading.
(i) Location: Lessee's chief executive office (as that term is defined in
Article 9 of the UCC) is located at the address set forth in the
heading of the Aircraft Lease Agreement; and the records of the Lessee
concerning the Aircraft are maintained at such chief executive office.
(j) Certificated Air Carrier: Lessee is a Certificated Air Carrier and
Lessor, as lessor of the Aircraft to Lessee, is entitled to the
benefits of Section 1110 of Title 11 of the U.S.C. with respect to the
Aircraft.
(k) Citizen of the United States: Lessee is a "citizen of the United
States" as defined in Section 40102 of Title 49 of the U.S.C.
(l) ERISA: No "employee benefit plan" as defined in Section 3(3) of ERISA
maintained by the Lessee or any entity required to be aggregated with
the Lessee under Section 414(b) or (c) of the Internal Revenue Code
(an "ERISA Affiliate") had an "accumulated funding deficiency", as
defined in Section 302 of ERISA, as of the last day of the most recent
fiscal year of the employee benefit plan ending on or prior to the
Delivery Date, and neither the Lessee nor any ERISA Affiliate has
incurred any material liability to the Pensions Benefit Guaranty
Corporation that has not been satisfied (other than for the payment of
premiums pursuant to Section 4007 of ERISA).
(m) Material Adverse Change: there has been no material adverse change in
the financial condition or operations of Lessee or in the ability of
Lessee to comply with its obligations under the Lease since the date
of the financial statements most recently provided to Lessor on or
prior to the date hereof.
1.2 Lessor's Representations and Warranties
Lessor's representations and warranties to Lessee are as follows:
(a) Status: It is duly organized, validly existing and in good standing
in its State of Incorporation.
(b) Non-Conflict: Execution, delivery and performance of the Lease do not
contravene or breach any Regulation applicable to Lessor.
(c) Power and Authority: It has all corporate and other power and
authority to execute, deliver and perform the Lease, and the Lease has
been duly authorized, executed and delivered by Lessor.
(d) Legal Validity: The Lease is its legal, valid and binding obligation,
enforceable against Lessor in accordance with its terms.
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(e) Citizen of the United States: Lessor is a "citizen of the United
States" as defined in Section 40102 of Title 49 of the U.S.C.
(f) Liens: Except for any Security Interest created pursuant to Section
14.2, there are no Lessor's Liens on the Aircraft.
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SCHEDULE 3
Conditions Precedent
The conditions precedent to Lessor's obligation to deliver and to commence the
leasing of the Aircraft are as follows. All documents delivered to Lessor
pursuant to this Schedule 3 will be in English:
1.1. Preliminary Conditions
Lessor will receive from Lessee, not later than two (2) Business Days prior to
the Scheduled Delivery Date, each of the following, reasonably satisfactory in
form and substance to Lessor:
(a) Opinion(s): evidence that an opinion(s) in the form of Schedule 8
will be issued on the Delivery Date by Fulbright & Jaworski L.L.P.,
Jonathan Waller, Esq., or such other legal counsel(s) reasonably
acceptable to Lessor in the State of New York and the United States;
(b) Approvals: evidence of the issue of each approval, license and
consent which may be required in relation to, or in connection with
the performance by Lessee of any of its obligations under the Lease,
if any excluding, however, any such approvals, licenses and consents
normally obtained by Lessee in the ordinary course of its business;
(c) [Intentionally Deleted.]
(d) Licenses: copies of Lessee's air transport license, air operator's
certificates including an FAR Part 121 operator's certificate,
certificate of airworthiness, and a Certificate of Public Convenience
and Necessity issued under Section 40102 of Title 49 of the U.S.C.;
(e) UCC: Financing Statements with respect to the Lease and the Aircraft
in a form acceptable to Lessor shall have been executed and delivered
by Lessee and duly filed in each jurisdiction reasonably requested by
Lessor;
(f) Letter of Credit (if applicable): the form of the Letter of Credit;
(g) General: such other documents as Lessor may reasonably request in a
timely manner prior to Delivery; and
(h) Lessee's Maintenance Program: such information and documents relating
to the Lessee's Maintenance Program as Lessor may require and request
in a timely manner prior to Delivery.
1.2. Final Conditions
(a) Final Documents: Lessor shall receive on or before the Delivery Date
each of the following:
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(i) Certificate of Technical Acceptance and Lease Supplement No. 1:
each of the Certificate of Technical Acceptance and Lease
Supplement No. 1, dated and fully completed, and executed by
Lessor and Lessee, and, in the case of Lease Supplement No. 1,
filed for recording at the FAA;
(ii) Opinions: a signed original of each of the opinions referred to
in Section 1.1(a) of this Schedule, dated the Delivery Date;
(ii) Payments: all sums due to Lessor under the Lease on or before the
Delivery Date, including the first payment of Rent and, if
applicable, the balance of the Deposit;
(iv) Insurances: certificates of insurance and an opinion and
undertaking from Lessee's insurance broker fully complying with
the provisions of the Agreement as to Insurances required by
Section 9 of the Agreement with effect on and after the Delivery
Date;
(v) Financial Information: the latest Financial Information of Lessee
as requested by Lessor;
(vi) Letter of Credit (if applicable): the Letter of Credit;
(vii) [Intentionally Deleted].
(viii) Filings: evidence that on the Delivery Date all filings,
registrations, recordings and other actions have been or will be
taken which are necessary or advisable to ensure the validity,
effectiveness and enforceability of the Lease and to protect the
interests of Lessor in the Aircraft, any Engine or any Part and
in the Lease;
(ix) FAA Opinion: evidence that there will be issued an opinion of
Crowe & Dunlevy P.C. or other counsel acceptable to Lessor who
are recognized specialists with regard to FAA registration
matters substantially in the form of Schedule 14 as to the due
filing for recordation of the Lease (the costs for which shall be
paid by Lessee);
(x) Certificate of Lease Termination: a certificate of lease
termination executed by a duly authorized officer of Lessee
substantially in the form of Schedule 11 acknowledging that the
Lease is no longer in effect with respect to the Aircraft and
Engines, which certificate Lessor will hold in escrow to be filed
at the FAA upon the expiration or other termination of the Lease;
and
(xi) General: such other documents as Lessor may reasonably request;
(b) Representations/Warranties: the representations and warranties of Lessee in
Schedule 2 shall be correct, and would be correct in all material respects
if repeated on Delivery (provided that if any of the representations or
warranties of Lessee in Schedule 2 would be incorrect on the Delivery Date
as if repeated on the Delivery Date, then Lessee shall
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give prior written notice to Lessor that such representation or warranty is
incorrect, such representation or warranty shall not be deemed repeated and
this Condition Precedent shall not have been fulfilled); and
(c) No Default: no Default shall have occurred and be continuing on Delivery or
could reasonably be expected to result from the leasing of the Aircraft to
Lessee under the Lease.
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SCHEDULE 4
Pre-Delivery Procedures and Delivery Condition
Requirements - Part 1 (New Aircraft)
1. Licenses
(a) It is the responsibility of Lessee to obtain all licenses, permits or
approvals necessary to export or transport the Aircraft from the
Delivery Location.
(b) Lessor will provide Lessee with any required data and information for
the purposes of obtaining any such licenses, permits or approvals.
2. Inspection
(a) Subject to any applicable purchase agreement, Lessee may inspect the
Aircraft and the Related Aircraft Records at the Delivery Location
(including such rights as Lessor has to be present and inspect, on an
ongoing basis, the manufacture of the Aircraft and including a
demonstration flight with up to two (2) representatives of Lessee on
the Aircraft as observers) to determine whether the Aircraft fulfils
the Delivery Condition Requirements.
(b) If Lessee's inspection of the Aircraft shows that the Aircraft does
not fulfil the Delivery Condition Requirements, Lessor will correct
any defects and make the Aircraft available for re-inspection by
Lessee provided that, in Lessor's reasonable opinion, it is not
impracticable or prohibitively expensive to correct the defect.
(c) If Lessor notifies Lessee that it does not intend to correct the
defect, either party may terminate the Lease.
3. Indemnity
Lessee is responsible for and will indemnify each Indemnitee against all Losses
arising from death or injury to any observer engaged by Lessee or any employee
of Lessee in connection with the inspection of the Aircraft.
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SCHEDULE 5
Certificate Of Technical Acceptance - Part 1 (New Aircraft)
This Certificate of Technical Acceptance is delivered, on the date set out below
by ________ ("Lessee") to ________ ("Lessor") pursuant to the Aircraft Lease
Agreement dated ________ between Lessor and Lessee (the "Lease"). The
capitalized terms used in this Certificate shall have the meaning given to such
terms in the Lease.
DETAILS OF ACCEPTANCE
Lessee hereby confirms to Lessor that Lessee has at [ ] o'clock on this ________
day of ________, at ________ , technically accepted the following, in accordance
with the provisions of the Lease:
________ Aircraft, Manufacturer's Serial Number ________;
________ Engines:
Engine Number Manufacturer's Serial Number
1 ________ ; and
2 ________ ;
(each of which has 750 or more rated take off horsepower or the equivalent of
such horsepower)
Fuel Status: Kilos/lbs ________ ; and
Loose Equipment Check List: in accordance with the list signed by Lessor and
Lessee and attached hereto.
Aircraft Documents and Records: in accordance with the list signed by Lessor and
Lessee and attached hereto.
LOPA drawing attached.
HOURS AND CYCLES DATA (as of Delivery Date)
Airframe:
Time Since New:--------------- Cycles Since New:--------------
Landing Gear (Main and Nose)
Time Since New:--------------- Cycles Since New:--------------
Engines
Position Left Hand s/no. Time Since New: ---------------
Cycles Since New: -------------
Position Right Hand s/no. Time Since New: ---------------
Cycles Since New: -------------
Auxiliary Power Unit:
Number of Flight Hours/APU Hours
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(as applicable) since New: --------------------
ACCEPTANCE:
Lessee hereby confirms that the Aircraft, Engines, Parts and Aircraft Documents
and Records are technically acceptable to it, satisfy all of the Delivery
Condition Requirements and are in the condition for delivery and acceptance as
required under the Lease.
IN WITNESS WHEREOF, Lessee and Lessor have, by their duly authorized
representative, executed this Certificate of Technical Acceptance on the date in
paragraph 1 above.
LESSEE: _____________________
By: _________________________
Title: ______________________
LESSOR: _____________________
By: _________________________
Title: ______________________
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SCHEDULE 6
Procedures And Operating Condition At Redelivery
On the Return Occasion the Aircraft, subject to fair ordinary wear and tear of a
kind and to an extent consistent with similar aircraft engaged in commercial
airline operations, will be redelivered to Lessor by Lessee in accordance with
the procedures and in any event in the condition set out below. For the
avoidance of doubt, any damage assessment and/or rectification criteria used in
assessing the redelivery condition shall be as prescribed in the Manufacturer's
structural repair manual ("SRM") and/or the Manufacturer's maintenance manual,
as appropriate. Any damage outside the scope of the SRM shall require the
Manufacturer's approval or approval acceptable to the Administrator on an FAA
form 8110-3 certification.
1.1 FINAL INSPECTION
Immediately prior to the Return Occasion, Lessee will make the Aircraft
available to Lessor for inspection ("Final Inspection") in order to verify
that the condition of the Aircraft complies with the Lease. The Final
Inspection will include, and be long enough to permit Lessor to:
(a) inspect all Aircraft Documents and Records, including the Aircraft
Documents and Records set forth in Section 1.13 of this Schedule 6;
(b) inspect the Aircraft (including an examination of all compartments and
bays, with Lessee to open or remove panels as reasonably required by
Lessor), uninstalled Parts and the APU (including a complete video
borescope inspection of the APU);
(c) inspect the Engines, including (i) a complete video borescope
inspection of (A) the low pressure and high pressure compressors and
(B) turbine area and (ii) engine condition runs (including full take-
off power engine run-up performed in accordance with the performance
test in the Manufacturer's maintenance manual, and the Engines shall
not exceed corrected limits for all parameters using temperature
corrected charts), and power assurance runs; and
(d) observe a two (2) hour demonstration flight at Lessee's cost (with up
to three (3) of Lessor's representatives as on-board observers).
Furthermore, Lessee acknowledges that a purchaser or the next operator of
the Aircraft will need to inspect the Aircraft, the Engines and the
Aircraft Documents and Records prior to redelivery and Lessee hereby agrees
to cooperate at all times during the Term with Lessor and/or such purchaser
or such next operator upon advance notice to make the Aircraft,
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Engines and the Aircraft Documents and Records available for inspection in
order to coordinate, assist and grant access for the above inspections
and/or meetings as necessary.
Lessor is responsible for and will indemnify Lessee against all Losses
arising from the death or injury to any observer or any employee of Lessor
in connection with the inspection of the Aircraft under this Section 1.1.
1.2 GENERAL CONDITION
The Aircraft will:
(a) be in the same configuration as at Delivery after giving effect to any
post-Delivery modifications, repairs or maintenance to the Aircraft
paid for or otherwise provided by or on behalf of Lessor (or as
otherwise mutually agreed), be in as good operating condition and
appearance as when delivered to Lessee (after giving effect to any
post-Delivery modifications, repairs or maintenance paid for or
otherwise provided by or on behalf of Lessor), except for ordinary
wear and tear and alterations and modifications authorized or required
under the Lease and paid for by Lessee or a Sub-Lessee, and be deep
cleaned according to Lessee's cleaning program as defined in the
Lessee's station manual and all structural damage shall have been
repaired to a permanent standard if available, or as otherwise
reasonably requested by Lessor;
(b) have installed the full complement of equipment, parts, accessories,
furnishings and loose equipment as when originally delivered to Lessee
(and after giving effect to any post-Delivery modifications, repairs
or maintenance paid for or otherwise provided by or on behalf of
Lessor) (including the Aircraft Documents and Records) shall be in a
condition suitable for continued FAR 121 service for a new operator,
without waiver or restriction; and if any of the engines or parts
tendered for redelivery with the Aircraft is not (i) one of the
Engines referred to in the Certificate of Technical Acceptance or (ii)
a Replacement Engine installed pursuant to Section 8.11(b) following
an Engine Event of Loss or (iii) if GECC is the owner of the Aircraft
and the Other Aircraft on the Expiry Date, one of the Other Engines,
or (iv) a Part in accordance with Section 8.11(e) Lessor shall have no
obligation to accept such engine or part unless Lessee furnishes to
Lessor all the documents and evidence in respect of such engine or
part in accordance with Sections 8.11(b) or 8.11(e), as if such engine
were a Replacement Engine or replacement part as applicable, and
otherwise complies with such Sections 8.11(b) or Section 8.11(e), as
applicable, with respect thereto;
(c) have in existence a valid and effective certificate of airworthiness
(and if required by Lessor upon reasonable notice, a valid and
effective export certificate of airworthiness) with respect to the
Aircraft issued by the Air Authority (in the case of an export
certificate of airworthiness no earlier than thirty (30) days prior to
the redelivery);
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(d) comply with the manufacturer's original specifications as at the
Delivery as set forth in Schedule A of the Lease, except as modified
by the modifications described in the Modification Side Letter or as
otherwise modified during the Term in accordance with the
Manufacturer's service bulletins or letters, Airworthiness Directives,
Air Authority approved data or otherwise as permitted by the Lease;
(e) have undergone, immediately prior to redelivery, a Redelivery "C"
Check;
(f) have had accomplished all outstanding Airworthiness Directives
affecting that model of Aircraft issued by the FAA requiring action
during the Term on the Expiry Date; for this purpose, compliance shall
be by terminating action if:
(i) Lessee has complied by terminating action for other aircraft
of the same model and series then operated by Lessee; or
(ii) the latest date permitted by such Airworthiness Directive
for compliance by terminating action on the Expiry Date.
In no event shall there be any non-transferable time
extensions, waivers, deviations or alternative means of
compliance with any Airworthiness Directions or other
regulations.
(g) have installed all applicable vendor's and manufacturer's service
bulletin kits received free of charge by Lessee during the Term that
are appropriate for the Aircraft and to the extent not installed,
those kits will be furnished free of charge to Lessor;
(h) Lessee will have their logos painted out/removed using a matching
paint color so as to give the Aircraft a uniform appearance;
(i) Lessee will pay Lessor the cost to strip (or sand if only three (3) or
less coats of paint) and repaint, re-placard the fuselage, empennage,
wings and pylons, cowlings, and flight controls, including the cost of
any required rebalancing of flight controls and required re-weighing
or recalculation of the Aircraft or the Aircraft weight;
(j) have all signs and decals clean, secure and legible;
(k) have no open, deferred, continued, carry over or placarded maintenance
items or watch items or placarded log book items, and all other log
book discrepancies shall be cleared;
(l) all discrepancies discovered during the inspections described above
which exceed the Manufacturer's maintenance manual allowable limits
for in-service aircraft shall have been repaired in accordance with
FAA-approved procedures;
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(m) all repairs of a temporary or interim nature, requiring repetitive
inspections or future upgrading, including external doublers with
blind fasteners, shall be upgraded to permanent repair where possible
in accordance with the Manufacturer's maintenance manual, structural
repair manual or component maintenance manual; and
(n) all systems shall be fully operational for their intended functions in
accordance with the Manufacturer's maintenance manual specifications.
1.3 COMPONENTS
(a) Each Flight Hour and Cycle controlled Hard Time Component (other than
the APU) shall have not less than the Minimum Hard Time Component
Flight Hours and the Minimum Hard Time Component Cycles of life
remaining to the next scheduled removal, in accordance with the
Lessee's Maintenance Program and shall be supported by appropriate FAA
form 8130-1 certification unless same has not previously been removed
from the Aircraft. Each Hard Time Component shall include
documentation indicating TSN, CSN, TSO, CSO, and time remaining; for
this purpose, "Hard Time Component" means any component which has a
limited on-wing life in accordance with the Manufacturer's Maintenance
Planning Document and which can have life fully restored through
appropriate maintenance;
(b) Each calendar-limited component including emergency/safety equipment
will have not less than its Minimum Component Calendar Life remaining
to the next scheduled removal in accordance with the Lessee's
Maintenance Program;
(c) Each "on-condition" and "condition-monitored" components will be
serviceable and include FAA certification (form 8130-1) and these
components if serialized will have documentation indicating TSN, CSN,
TSO, and CSO;
(d) [Intentionally Deleted];
(e) Each Airframe Life-Limited Component will have not less than the
Minimum Airframe Life Limited Component Flight Hours and the Minimum
Airframe Life Limited Component Cycles remaining to next scheduled
removal and will be supported by certification documentation necessary
to demonstrate back-to-birth traceability; for this purpose "Airframe-
Life Limited Component" means a component with an ultimate life which
cannot be restored through appropriate maintenance.
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1.4 ENGINES
Each Engine will be installed on the Aircraft and comply with the
following:
(a) Each Engine will have not less than the Minimum Engine Flight Hours
expected life remaining to the next removal. The expected life
remaining will be determined by mutual agreement between Lessee and
Lessor which shall in any event take into account the following:
(i) Borescope inspections;
(ii) Analysis of SAGE data;
(iii) OATL (Outside Air Temperature Limitation) assessment or if not
available an assessment of, at a minimum, the last ten (10)
flight hours of SAGE data;
(iv) Ground runs;
(v) Technical log analysis; and
(vi) Previous shop visit assessment (if applicable).
In the Event that Lessee and Lessor shall fail to agree on such
expected life remaining, such determination shall be made by an
independent technical advisor mutually acceptable to Lessee and
Lessor.
(b) Each Engine shall have just completed at the location for Lessor's
acceptance on the Return Occasion a hot (including combustion chamber)
and cold section video borescope inspection, which inspection shall be
performed at Lessor's expense, and a power assurance run performed at
Lessee's expense in accordance with the Lessee's Maintenance Program
or Manufacturer's maintenance manual and any defects discovered in
such inspections which exceed the Engine manufacturer's in-service
limits shall be corrected at Lessee's expense. Lessee shall cause
such borescope inspections to be performed and to be recorded on
videotape by an agency selected by Lessor and acceptable to Lessee
and shall provide Lessor with a copy of such videotape on the Return
Occasion. Each Engine shall have a minimum of 25 degrees EGT margin at
take off power on a 30 Celsius day. No Engine shall be on "watch" for
any reason requiring any special or out of sequence inspection. Each
Engine shall comply with the operations specification of Lessee
without waiver or exceptions. All items beyond the Engine
manufacturer's in-service limits shall be repaired;
(c) Each Engine Life-Limited Component will have not less than the Minimum
Engine Cycles remaining per the manufacturer's then current
limitations for the part number in question, and will be supported by
certification documentation necessary to demonstrate back-to-birth
traceability; for this purpose "Life Limited Component" means a
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component with an ultimate life which cannot be restored through
appropriate maintenance; and
(d) Each Engine will have no defect which places less than the Engine
Flight Hours Restriction and the Engine Cycles Restriction of
remaining life pursuant to Manufacturer's or airworthiness
requirements until scheduled removal.
1.5 FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions in excess of
the limits specified in Manufacturer's maintenance manual or
structural repair manual, loose or pulled or missing rivets and all
structural repairs shall be permanent repairs where possible;
(b) Windows will be free of delamination, blemishes, crazing, in excess of
the limits specified in the Manufacturer's maintenance manual or
structural repair manual and will be properly sealed;
(c) Doors will be free moving and be fitted with serviceable seals; and
(d) Lessee will supply a dent and scratch survey with specific locations
at redelivery that encompasses all previous repairs and damage that is
within the Manufacturer's limits on the Aircraft.
1.6 WINGS AND EMPENNAGE
(a) Leading edges will be free from damage in excess of the limits
specified in the Manufacturer's maintenance manual or structural
repair manual; and
(b) Unpainted surfaces will be polished.
1.7 INTERIOR
(a) Carpet will be in good condition and freshly cleaned prior to
redelivery. Carpet will be free from stains, frays and tears and will
meet all existing FAR fire resistance regulations;
(b) Sidewalls, ceilings, floor coverings, overhead bins and bulkhead
coverings will be in good condition and no frays and tears and will
meet all existing FAR fire resistance regulations; and
(c) All seats will be in good working order and all seat covers will be
freshly cleaned prior to redelivery. Seat covers will be in good
condition and free from stains, frays and tears and will meet all
existing FAR fire resistance regulations. All seat plastics will be
in good condition and free from cracks and tears. Seat belts will be
of matching color and be free from stains, frays and tears and have
TSO tags attached.
1.8 COCKPIT
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(a) Flooring will be in good condition and freshly cleaned and painted
prior to redelivery;
(b) Sidewalls and ceilings will be in good condition and no frays and
tears and will meet all existing FAR fire resistance regulations;
(c) Cockpit seats will be in good working order and all seat covers will
be in good condition and freshly cleaned prior to redelivery. Seat
covers will be free from stains, frays and tears and will meet all
existing FAR fire resistance regulations. All seat plastics will be
in good condition and free from cracks and tears. Seat belts will be
of matching color and be free from stains, frays and tears and have
TSO tags attached;
(d) All cockpit placards will be in good condition and legible; and
(e) All light overlays will be free from cracks and light bleed through.
1.9 LANDING GEAR; WHEELS AND BRAKES
(a) The Landing Gear and wheel wells will be clean, free of leaks and
repaired as necessary;
(b) Each installed Landing Gear shall have no more Cycles accumulated than
the Airframe and in any event not less than the Minimum Landing Gear
Flight Hours and the Minimum Landing Gear Cycles and the minimum
Landing Gear Calendar Time to the next scheduled overhaul or removal,
as the case may be, in accordance with the then current Manufacturer's
Maintenance Planning Document and Lessee's Maintenance Program and
records for the Landing Gear life limited Parts including TSO, CSO,
time/cycles remaining to overhaul and/or replacement; and
(c) The wheels and brakes will have not less than half of their useful
life remaining.
1.10 RETURN OF AUXILIARY POWER UNIT (APU)
The APU shall have just completed a borescope inspection and shall meet all
air outputs and temperature limitations under load in accordance with the
Lessee's Maintenance Program and the Manufacturer's maintenance manual, and
any defects discovered in such inspection, which exceed the APU
manufacturer's in-service limits, shall be corrected at Lessee's expense.
[The APU shall have not more than the Minimum APU Limit since the last gas
path refurbishment.]
1.11 CORROSION
(a) The Aircraft shall be in compliance with the Manufacturer's corrosion
prevention and control program (CPCP) requirements. All CPCP
inspections which would normally be accomplished while access is
provided during structural inspection in accordance with the Lessee's
Maintenance Program during the Term shall have been accomplished;
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(b) The entire fuselage will be substantially free from corrosion and will
be adequately treated in accordance with Lessee's corrosion prevention
program and the Manufacturer's Maintenance Planning Document; and
(c) Fuel tanks will be free from contamination and corrosion.
1.12 FUEL
At redelivery, the Aircraft fuel tanks shall contain the Minimum
Measurable Fuel Requirement.
1.13 MAINTENANCE PROGRAM
(a) Prior to the Return Occasion and upon Lessor's request, Lessee will
provide Lessor or its agent reasonable access to the Lessee's
Maintenance Program and the Aircraft Documents and Records in order to
facilitate the Aircraft's integration into any subsequent operator's
fleet and cross reference documentation if available to support
operator generated tasks which comply with the Manufacturer's
Maintenance Planning Document requirements (i.e. operator number to
Manufacturer's Maintenance Planning Document number); and
(b) Lessee will, if requested by Lessor to do so, provide sufficient
access to Lessee's Maintenance Program in order to integrate the
Aircraft to the next operator's maintenance program. Lessor agrees
that it will not disclose the contents of the Lessee's Maintenance
Program to any Person except to the extent necessary to monitor
Lessee's compliance with the Lease and/or to bridge the maintenance
program for the Aircraft from the Lessee's Maintenance Program to
another program after the Return Occasion.
1.14 AIRCRAFT DOCUMENTS AND RECORDS
At redelivery Lessee will deliver to Lessor all current and complete historical
records required to be maintained relevant to the Aircraft, including documents,
manuals, data, overhaul records, life limited part traceability to "zero time
since new", log books, original delivery documents serviceable parts tags, FAA
forms, modification records and inspection records, and including each of the
following Aircraft Documents and Records:
A. Certificates
A001 Certificate of Airworthiness
A002 Current Aircraft Registration
A003 C of A for Export (if applicable)
A004 Noise Limitation Certificate (AFM page)
A005 Radio Station License
A007 Aircraft deregistration confirmation (if applicable)
A008 Aircraft re-registration confirmation (if applicable)
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<PAGE>
A009 Burn Certificates - Cabin Interiors - as follows:
Certification of compliance with the fire blocking requirements as outlined
in JAR Part 25 to the extent same has been changed including:
- Seat cushions*
- Back rest cushions*
- Dress covers*
- Carpets
- Curtains
- Interior Surfaces (if refurbished)
* Including "in combination" burn certification
B. Aircraft Maintenance Status Summaries
B001 Lessee Certified current Time in Service (Hours & Cycles) and maintenance
status
B002 Lessee Certified status of Airworthiness Directives including method of
compliance
B003 Lessee Certified status of Service Bulletin Status
B004 Lessee Certified status of SSI
B005 Lessee Certified status of CPCP (if applicable)
B006 Lessee Certified inventory of Hard Time Components (Fitted listing)
B007 Lessee Certified inventory of OC/CM Components (Fitted listing)
B008 Lessee Certified status of all non-SB and Major Modifications/STC's
including acceptable State of Manufacture Certification
B009 Lessee Certified status of Check/Inspection History & Current Status of
Checks
B010 List of Deferred Maintenance Items
B011 List of Out of Phase Checks, Special Requirements, Time Limited Repairs
(if any).
B012 Aircraft Accident & Incident Report.
B013 Structural repairs and damage (including Dent & Buckle Chart).
C. Aircraft Maintenance Records
C001 Technical Logs (Minimum of 2 years)
C002 A Checks
Last complete cycle of A Checks (or equivalent)
C003 C Checks
Last Complete cycle of C Checks (or equivalent)
C004 All Major Checks
C005 CPCP Tasks (if applicable)
C006 Tasks performed outside of an "A" Checks or "C" Checks
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C007 Original Compliance Document Certification - AD's
C008 Original Compliance Document Certification - SB's
C009 Original Compliance Document Certification - All other modification
C010 Last Weight Report including Schedule
C011 Compass Swing Report
C012 Last Test Flight Report
C013 Lessee Certified ETOPS compliance report (if applicable)
C014 Original Compliance Document Certification - All Structural
repairs/structural damage
C015 Details of State of Manufacture certification basis - A non-SRM Structural
repair
C016 Aircraft Log Book(s) if applicable
C017 FAR status for Transponder, Altimeter and Pitot Static Leak Check
D. Configuration Status
D001 Approved LOPA
D002 Galley Drawings/Component OHM
D003 Emergency Equipment Drawing/Listing
D004 Loose Equipment Inventory
D005 Inventory Listing of Avonic installed Units.
E. Aircraft Historical Records
E001 C of A (Export) from State of Manufacture
E002 Manufacturer's AD Report
E003 Manufacturer's Inspection Report, Initial Equipment list
E004 Manufacturer's repair/alteration report
E005 Manufacturer's SB Report
E006 Service Difficulty Reports (if any)
E008 Last Flight Data Recorder Read-Out & Corrections
F. Engine Records
F001 Lessee Certified Statement of Status of Each Engine to include engine T/T
and T/C
F002 AD Compliance Report and Compliance Documents
F003 Manufacturer's Modifications & SB Status
F004 In-house Modifications (if applicable)
F005 Lessee Certified LLP Listing
F006 Lessee Certified listing of installed units
F007 Engine Manufacturer Delivery Document
F008 Complete copies of all historical engine/module Shop Visit Reports
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<PAGE>
F009 State of Manufacture LLP Traceability back to birth
F010 Conditioning Monitoring Report
F011 Lessee Certified Engine Log Book/Master Records of Installation/Removals
to include installed aircraft, position, date of installation, T/C, T/T
and reason for removal
F012 Last Borescope Report, including video if available
F013 Test Cell Run Report
F014 Last On-Wing Ground Run
F015 Lessee Certified Statement that Engines were not involved in an Accident
F016 Approved Release to Service Certification for installed rotables
F017 Approved ETOPS compliance report (if applicable)
G. APU
G001 Lessee Certified Statement on Status of APU (if applicable)
G002 Lessee Certified SB Compliance Report/AD Status Report
G003 Approved Release to Service Certification for installed units
G004 APU Log Book/Master Record of Installation/Removals
G005 Complete copies of all APU Shop Visit Reports & Reason for Removal
G006 Statement of APU Hours to Aircraft Flying Hours
G007 LLP Status and Full Traceability to birth
G008 APU Borescope Report
G009 Last On-Wing/Health Check Data sheets (if applicable)
G010 Last Test Cell Run
G011 Approved ETOPS compliance report
H. Component Records
H001 Approved Release to Service Certification for Hard Time Components
(serviceable tags)
H002 Approved Release to Service Certification for OC/CM Components
I. Landing Gears
I001 Approved Release to Service Certification for major assemblies on each
Gear
I002 Approved LLP Listings for each Gear (with FULL Traceability to Birth)
I003 Last Shop Visit Report (OH)
J. Manuals
All Manufacturer's Manuals delivered with the Aircraft under the Lease updated
to the latest revision standard (applicable as at the Return Occasion) as may be
reasonably requested by Lessor (see delivery inventory for return requirements)
Microfilm:
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J005 Engine M/M, IPC, CMM, Power Plant Build-up Manual
J006 WDM
J007 IPC
J008 Maintenance Manual
J009 Schematics
J010 Hook Up Listing and wire list
K. Miscellaneous
K005 AFM, Ops Manuals, Weigh Manual, Emergency Checklist, Quick Reference
Handbook, Fueling Manual, De-fueling Manual, Weight & Balance, Control and
Loading Manual, MEL, CDL
K007 Reference Material for Interpretation of Status Summaries, or cross-
reference for Part Numbers
6-12
<PAGE>
SCHEDULE 7
[INTENTIONALLY OMITTED]
7-1
<PAGE>
SCHEDULE 8
Form of Legal Opinion
[FORM OF MIDWAY/FULBRIGHT OPINION TO BE SENT BY E-MAIL
FOR INCLUSION HEREIN]
8-1
<PAGE>
SCHEDULE 9
Events Of Default
Each of the following events or conditions constitutes an Event of Default:
(a) Non-payment: Lessee fails to make any payment of Rent or Supplemental
Rent on the due date and such failure shall continue for five (5) days
or Lessee fails to make any other payment under the Lease on the due
date and such failure shall continue for ten (10) days after demand
for payment if demand is provided for herein and if demand is not
provided for herein after notice from Lessor to Lessee; or
(b) Insurance: Any insurance required to be maintained under Section 9 of
the Agreement is not maintained or is cancelled or terminated, or a
notice of cancellation is given in respect of any such insurance and
such notice is not rescinded within three (3) Business Days prior to
such cancellation taking effect; or
(c) Breach:
(i) Lessee fails to comply with Section 8.7(a)(i)(y), 8.7(a)(ii),
8.8(c), 8.10 (excluding clause (b)), 8.11 or 8.12 and, if such failure
is capable of cure, such failure continues for thirty (30) days after
notice from Lessor to Lessee unless such failure requires more than
thirty (30) days to cure in which case Lessee shall have an additional
ninety (90) days to cure such failure so long as Lessee is at all
times diligently proceeding to cure such failure and Lessor shall not
at any time be materially prejudiced by such extended period;
provided, that in no event shall the period to cure any such failure
exceed 120 days after notice from Lessor to Lessee; or
(ii) Lessee fails to comply with any other provision of the Lease not
otherwise addressed in this Schedule 9 and, if such failure is capable
of cure, (A) such failure continues for thirty (30) days after notice
from Lessor to Lessee or (B) Lessee shall not at any time be
diligently proceeding to correct such failure; or
(d) Representation: any representation or warranty made (or deemed to be
repeated) by Lessee in or pursuant to the Lease or in any document or
certificate delivered pursuant to the Lease is or proves to have been
incorrect in any material respect when made or deemed to be repeated
and, if such incorrectness is curable, shall continue uncured for a
period of thirty (30) days after an officer of Lessee has actual
knowledge or has reason to know of such failure; or
9-1
<PAGE>
(e) Cross-Default:
(i) any event of default or termination event, howsoever described,
occurs under the Other Agreement; or
(ii) a Special Default occurs; or
(f) Approvals:
Any of:
(i) the Aircraft's certificate of airworthiness; or
(ii) Lessee's Part 121 operator's certificate, Lessee's Certificate of
Public Convenience and Necessity or Lessee's air carrier
operating certificate;
is modified in a manner unacceptable to Lessor (using its reasonable
judgment) or is withheld, or is revoked, suspended, cancelled,
withdrawn, terminated or not renewed, or otherwise ceases to be in
full force and shall continue uncured for a period of fifteen (15)
days, except in the case of clause (i) during any period when the Air
Authority shall have withdrawn or suspended such certificate for
reasons not attributable to Lessee, in which case Lessee shall
promptly comply with all directions of the Air Authority in connection
with such suspension or withdrawal; or
(g) Insolvency:
(i) Lessee suspends making payments on all or any class of its debts
or announces an intention to do so, or a moratorium is declared
in respect of any of its indebtedness; or
(ii) Lessee consents to the appointment of a custodian, receiver,
trustee or liquidator of itself or all or any material part of
its property or its consolidated property, or Lessee admits in
writing its inability to, or is unable to, or does not, 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 or insolvency
Laws (as now or hereafter in effect) or any answer admitting the
material allegations of a petition filed against in any such
proceeding, or Lessee by voluntary petition, answer or consent
seeks relief under the provisions of any other bankruptcy,
insolvency or other similar Law providing for the reorganization
or winding-up of Persons, or provides for an agreement,
composition, extension or adjustment with its creditors, or any
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<PAGE>
corporate action (including any board of directors or
shareholder action) is taken by Lessee in furtherance of any of
the foregoing, whether or not the same is fully effected or
accomplished; or
(iii) an order, judgment or decree is entered by any court appointing,
without the consent of Lessee, a custodian, receiver, trustee or
liquidator of Lessee, or of all or any material part of its
property or its consolidated property is sequestered, and any
such order, judgment or decree of appointment or sequestration
remains in effect, undismissed, unstayed or unvacated for a
period of sixty (60) days after the date of entry thereof or at
any time an order for relief is granted; or
(ix) an involuntary petition against Lessee in a proceeding under the
United States Federal Bankruptcy Laws or other insolvency Laws
(as now or hereafter in effect) is filed and is not withdrawn or
dismissed within sixty (60) days thereafter or at any time an
order for relief is granted in such proceeding, or if, under the
provisions of any Law providing for reorganization or winding-up
of corporations which may apply to Lessee, any court of
competent jurisdiction assumes jurisdiction over, or custody or
control of, or of all or any material part of its property, or
its consolidated property and such jurisdiction, custody or
control remains in effect, unrelinquished, unstayed or
unterminated for a period of sixty (60) days or at any time an
order for relief is granted in any such proceeding; or
(h) Change in Status: Lessee fails to comply with Section 8.7(a)(iv) or
8.7(a)(vii); or
(i) Rights and Remedies: Lessee or any other Person claiming by or through
Lessee challenges the existence, validity, enforceability or priority
of the Lease or the rights of Lessor as lessor or owner in respect of
the Aircraft; or
(j) [Intentionally Deleted];
(k) Delivery: Lessee fails to comply with its obligation under Section 4
to accept delivery of the Aircraft (and such failure continues for
five (5) days); or
(l) [Intentionally Deleted];
(m) Letter of Credit:
(i) the issuer of the Letter of Credit (if any) fails to make
any payment under that Letter of Credit when due; or
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<PAGE>
(ii) any such Letter of Credit is not in full force or, for any
reason ceases to constitute the legal, valid and binding
obligation of the issuer; or
(iii) any of the events listed in paragraph (f)(i) above, with
respect to the performance by the issuer of its
obligations under any Letter of Credit, or paragraph (g)
above applies to such issuer (references in those sub-
paragraphs to Lessee being deemed to be to the issuer); or
(iv) where applicable, any Letter of Credit is not renewed
within the time required by Section 5.14;
and each reference in this paragraph (m) to "the issuer" shall
include a reference to any confirming bank for the Letter of
Credit.
(n) Redelivery: Lessee fails to return the Aircraft to Lessor on the
Expiry Date in accordance with Section 12; or
(o) Litigation: a judgment for the payment of money not covered by
insurance in excess of the lesser of (i) Five Million Dollars
($5,000,000) or (ii) 2% of tangible net worth, (or the equivalent
thereof in other currencies) shall be rendered against Lessee and the
same shall remain undischarged for a period of thirty (30) days,
unless during such period, execution of such judgment shall have been
effectively stayed by agreement of the parties involved or by court
order or such judgment shall have been adequately bonded.
9-4
<PAGE>
SCHEDULE 10
[INTENTIONALLY DELETED]
10-1
<PAGE>
SCHEDULE 11
FORM OF LEASE TERMINATION CERTIFICATE
The undersigned hereby certify that the Aircraft Lease Agreement dated as of
_________, ____ between the undersigned Lessor and undersigned Lessee, and as
further described in the Appendix attached hereto, has terminated (except as
described in Section 15.1 thereof) and the aircraft and aircraft engines covered
thereby are no longer subject to the terms thereof. This certificate may be
executed in one or more counterparts each of which when taken together shall
constitute one and the same instrument.
DATED this __________ day of ____________________, __________
LESSOR LESSEE
[ INSERT LESSOR'S NAME ] [ INSERT LESSEE'S NAME ]
-------------------------- --------------------------
By:______________________________ By:_____________________________
Title:___________________________ Title:__________________________
11-1
<PAGE>
SCHEDULE 12
LEASE SUPPLEMENT NO. 1
LEASE SUPPLEMENT NO. 1, dated ___________, ______, between _________________
____________________________________________, [a corporation organized under the
laws of ______________] [, not in its individual capacity, but solely as owner
trustee] ("Lessor"), and ___________________________________, a corporation
organized under the laws of the ____________________("Lessee").
Lessor and Lessee have previously entered into that certain Aircraft Lease
Agreement dated as of _____________________, including the Common Terms
Agreement as defined therein (collectively, herein referred to as the "Lease"
and the defined terms therein being hereinafter used with the same meaning). The
Lease provides for the execution and delivery from time to time of a Lease
Supplement substantially in the form hereof for the purpose of leasing the
aircraft described below under the Lease as and when delivered by Lessor to
Lessee in accordance with the terms thereof.
The Lease and this Lease Supplement relate to the Aircraft, Engines and
Parts as more precisely described below and in the Certificate of Technical
Acceptance. A counterpart of the Lease is attached hereto and this Lease
Supplement and the Agreement shall form one document.
In consideration of the premises and other good and sufficient
consideration, Lessor and Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee under the Lease and Lessee
hereby accepts, acknowledges receipt of possession and leases from Lessor under
the Lease, that certain ______________ aircraft, and the ________ (___)
_____________________ Engines (each of which Engines has 750 or more rated
takeoff horsepower or the equivalent of such horsepower) described in Schedule 1
hereto, together with the Aircraft Documents and Records described in the Lease
(the "Delivered Aircraft").
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. The Term for the Delivered Aircraft shall commence on the Delivery Date and
shall end on the Expiry Date, which shall be [insert date].
4. The amount of Rent for the Delivered Aircraft is set forth in Schedule B to
the Aircraft Lease Agreement.
5. Lessee hereby confirms to Lessor that (i) the Delivered Aircraft and each
delivered Engine have been duly marked in accordance with the terms of Section
8.6(a) of the Common Terms
12-1
<PAGE>
Agreement, (ii) the Aircraft is insured as required by the Lease, (iii) the
representations and warranties of Lessee referred to in Section 2.1 of the
Common Terms Agreement are hereby repeated with effect as of the date first
above written, (iv) having inspected the Delivered Aircraft, Lessee acknowledges
that the Delivered Aircraft satisfies all conditions required for Lessee's
acceptance of delivery as set forth in the Lease or as otherwise expressly set
forth in the Certificate of Technical Acceptance, and (v) the execution and
delivery of this Lease Supplement signifies absolute and irrevocable acceptance
by Lessee of the Delivered Aircraft for all purposes hereof and of the Lease.
6. All of the terms and provisions of the Lease are hereby incorporated by
reference in this Lease Supplement to the same extent as if fully set forth
herein.
7. This Lease Supplement may be executed in any number of counterparts; each of
such counterparts, shall for all purposes be deemed to be an original; and all
such counterparts shall together constitute but one and the same Lease
Supplement.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement
No. 1 to be duly executed as of the day and year first above written.
LESSOR, LESSEE,
[INSERT LESSOR'S NAME] [INSERT LESSEE'S NAME]
By:____________________________ By:_____________________________
Name:__________________________ Name:___________________________
Title:_________________________ Title:__________________________
12-2
<PAGE>
SCHEDULE 13
LIST OF PERMITTED SUB-LESSEES
Alaska Airlines
Aloha Airlines
America West Airlines
American Airlines
Continental Airlines
Delta Airlines
Frontier Airlines
Southwest Airlines
United Airlines
US Airways
Vanguard Airlines
13-1
<PAGE>
SCHEDULE 14
FORM OF FAA OPINION
[Delivery Date]
General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06927
Midway Airlines Corporation
2801 Slater Road, Suite 200
Morrisville, NC 27560
Re: Boeing model 737-700 aircraft with manufacturer's serial number 30051 and
United States nationality and registration marks (the "Aircraft")
-------------------------------------------------------------------------
Ladies and Gentlemen:
This letter confirms that we filed with the Federal Aviation Administration
(the "FAA") today at [__:__ ], the Aircraft Lease Agreement dated as of
September [__], 1999 (the "Lease") between General Electric Capital Corporation
as lessor (the "Lessor") and Midway Airlines Corporation as lessee, to which was
attached Lease Supplement No. 1 dated [__________], [____] (the "Lease
Supplement") covering the Aircraft and the General Electric model CFM56-7B24
aircraft engines with manufacturer's serial numbers [_______] and [________]
(the "Engines").
Based upon our examination of the above described Instruments and of such
records of the FAA as we deemed necessary to render this opinion and as were
made available to us by the FAA, it is our opinion that:
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(a) the Lease with the Lease Supplement attached is in due form for
recordation by and has been duly filed for recordation with the FAA
pursuant to and in accordance with the provisions of Section 44107
of Title 49 of the United States Code;
(b) legal title to the Aircraft is vested in the Lessor and the Aircraft
is duly registered in the name of the Lessor pursuant to and in
accordance with the provisions of Section 44102 and 44103 of Title
49 of the United States Code; and
(c) the Aircraft and the Engines are free and clear of all liens, security
interests and encumbrances of record with the FAA other than such as
are created by the Lease, as supplemented by the Lease Supplement.
No opinion is herein expressed as to laws other than the federal laws of
the United States. Since our examination was limited to records maintained by
the FAA Aircraft Registry, our opinion does not cover liens which are perfected
without the filing of notice thereof with the FAA, such as federal tax liens,
liens arising under Section 1368(a) of Title 29 of the United States Code and
possessory artisans' liens, and was subject to the accuracy of FAA personnel in
the filing, indexing and recording of instruments filed with the FAA and in the
search for encumbrance cross-reference index cards for the Engines.
Very truly yours,
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EXHIBIT 10.11
TO THE EXTENT THAT THIS AIRCRAFT LEASE AGREEMENT CONSTITUTES CHATTEL PAPER
(AS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST IN THIS AIRCRAFT LEASE AGREEMENT MAY BE
CREATED THROUGH TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE
ORIGINAL COUNTERPART, WHICH SHALL BE IDENTIFIED AS THE COUNTERPART
DESIGNATED AS THE ORIGINAL ON THE SIGNATURE PAGE OF THIS AGREEMENT BY
LESSOR (AS TERM IS DEFINED HEREIN).
AIRCRAFT LEASE AGREEMENT
Dated as of September 10, 1999
between
GENERAL ELECTRIC CAPITAL CORPORATION
as Lessor
and
MIDWAY AIRLINES CORPORATION
as Lessee
in respect of Aircraft: Boeing 737-700
Serial No: 28613
_________________________________
incorporating the provisions of that certain
COMMON TERMS AGREEMENT
(as defined herein)
______________________________
<PAGE>
AIRCRAFT LEASE AGREEMENT
THIS AIRCRAFT LEASE AGREEMENT is made as of September 10, 1999, and is BETWEEN:
(1) GENERAL ELECTRIC CAPITAL CORPORATION, a company incorporated under the laws
of the State of New York, having its principal place of business and chief
executive office at 260 Long Ridge Road, Stamford, CT 06927 ("Lessor"); and
(2) MIDWAY AIRLINES CORPORATION, a company incorporated under the laws of the
State of Delaware, having its principal place of business and chief
executive office at 2801 Slater Road, Suite 200, Morrisville, NC 27560
("Lessee").
WHEREAS:
(A) Lessee wishes to lease the Aircraft (as defined below) from Lessor, and
Lessor wishes to lease the Aircraft to Lessee, on the terms and subject to
the conditions provided herein;
(B) Lessor and Lessee have entered into the Common Terms Agreement (as defined
below); and
(C) Lessor and Lessee wish to incorporate by reference such Common Terms
Agreement, as well as Schedules A and B attached hereto, into this Aircraft
Lease Agreement for the Aircraft;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. INTERPRETATION
1.1 Definitions: In this Aircraft Lease Agreement, the following capitalized
words and expressions have the respective meanings set forth below and the
meanings set forth in Schedules A and B:
Aircraft means the Airframe and Engines described on Part I of Schedule A
and includes the Aircraft Documents and Records.
Airframe Maintenance Adjustment shall have the meaning as set forth in
Schedule B, Part VI hereof.
Airframe Structural Check means a heavy maintenance visit which shall
include but not be limited to accomplishment of a block C6 Systems and
Structural Check (equivalent to a "D" check), all lesser checks, and
interior refurbishment (including lavatories and galley) consistent with
average industry standards for the first C6 Systems and Structural check
for the Airframe type. Where relevant, the workscope and intervals
(calendar and/or hourly) shall not be less than those prescribed by the
Lessee's Maintenance Program. If the Lessee's Maintenance Program is not a
block program then the Lessee shall perform those tasks required to bridge
the Aircraft to the
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<PAGE>
block program as set forth in Appendix J of the Manufacturer's Maintenance
Planning Document.
Common Terms Agreement means the "Aircraft Lease Common Terms Agreement"
dated as of September 10, 1999 executed by General Electric Capital
Corporation and Midway Airlines Corporation (as in effect on the date
hereof without, unless Lessor and Lessee otherwise expressly agree, giving
any effect to any subsequent amendment, supplement, waiver or other
modification thereto), and which forms part of this Aircraft Lease
Agreement.
Delivery Condition Requirements means the requirements specified in Section
1 of Part III of Schedule A.
Delivery Location means a location in the United States mutually acceptable
to Lessor and Lessee.
Deposit means all amounts payable pursuant to Section 3.1 hereof.
Engine Refurbishment Maintenance Adjustment shall have the meaning as set
forth in Schedule B, Part VI hereof.
Final Delivery Date means the date that is two (2) months after the
Scheduled Delivery Date.
Indemnitee means each of Lessor, GECAS, and each of their respective
shareholders, subsidiaries, Affiliates, partners, servants, contractors,
directors, officers, agents and employees.
LC Amount is not applicable.
Lessee Modification Costs shall have the meaning as defined in the
Modification Side Letter.
Lessee Modification Fee means an amount equal to 1.98% of the Lessee
Modification Costs.
Maintenance Adjustment means collectively the Airframe Maintenance
Adjustment and the Engine Refurbishment Maintenance Adjustment as the
amounts payable by Lessee pursuant to Section 5.4 of the Common Terms
Agreement, Section 3 of this Agreement and Schedule B, Part VI of this
Agreement.
Manufacturer means the manufacturer of the Airframe or an Engine, as the
case may be, as set forth on Part I of Schedule A hereto.
Minimum Measurable Fuel Requirement means 2,000 U.S. gallons.
Modification Side Letter means a side letter agreement between Lessee and
Lessor substantially in the form attached hereto as Schedule C relating to
post-delivery modifications.
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Other Agreement means the Aircraft Lease Agreement dated as of September
10 1999 entered into between Lessor, on the one hand, and Lessee on the
other hand with respect to the Aircraft bearing serial number 28613, but
only so long as a GE Entity is the lessor thereunder.
Other Aircraft means the Boeing 737-700 aircraft bearing serial number
28613 subject to the Other Agreement.
Other Engines means the two General Electric CFM56-7B24 engines to be
delivered to Lessee with the Other Aircraft and bearing the serial numbers
set forth in Lease Supplement No.2.
Owner means Lessor.
Redelivery Location means (i) such location in the continental United
States as Lessor may elect, or (ii) such other location as may be agreed in
writing by Lessor and Lessee.
Rent means all amounts payable pursuant to Section 3.2 hereof.
Rent Commencement Date means the date on which Lessor tenders the Aircraft
for Delivery to Lessee under Section 4.3(a) of the Common Terms Agreement.
Scheduled Delivery Date means a date notified by Lessor to Lessee in
accordance with Section 4.1(a) of the Common Terms Agreement in January
2000.
Scheduled Delivery Month means January, 2000.
Scheduled Delivery Week is not applicable.
Scheduled Expiry Date means the date falling sixty-one (61) months after
the Rent Commencement Date.
State of Registry means the United States of America.
Sublease Fee means the fee amount set forth in Part VII of Schedule B
hereof.
Supplemental Rent means all amounts payable pursuant to Section 3.3 hereof.
Tax Indemnitee means Lessor and each Financing Party, if any, and each
member of the consolidated group of which Lessor is a member for United
States Federal Income Tax purposes.
Term shall have the meaning as set forth for such word in Section 2.2
herein.
1.2 Interpretation: Unless otherwise defined herein, words and expressions
defined in the Common Terms Agreement have the same respective meanings for
the purposes of this Aircraft Lease Agreement. The construction provisions
of Section 1.2 of the Common Terms Agreement shall apply to this Aircraft
Lease Agreement.
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2. LEASING
2.1 Agreement to Lease: Subject to the terms and conditions of the Lease,
Lessor will lease the Aircraft to Lessee and Lessee will take delivery of
and lease the Aircraft from Lessor in accordance with the Lease for the
duration of the Term.
2.2 Term: Subject to Sections 4.1 through 4.4 of the Common Terms Agreement,
Delivery of the Aircraft will occur at the Delivery Location, whereupon
Lessee shall accept the Aircraft hereunder and evidence such Delivery and
acceptance by executing and delivering a Certificate of Technical
Acceptance and Lease Supplement No. 1 as provided in Section 4.3 of the
Common Terms Agreement. The Term will commence on the Delivery Date, which
Delivery Date is scheduled to occur on the Scheduled Delivery Date, and
will expire on the Scheduled Expiry Date unless terminated earlier in
accordance with the provisions of the Lease.
3. PAYMENTS
3.1 Deposit: Lessee shall pay to Lessor the Deposit in cash (to which Deposit
Section 5.13 of the Common Terms Agreement shall apply), in the amounts and
at the times provided in Part II of Schedule B hereto.
3.2 Rent: Lessee shall pay Rent to Lessor on each Rent Date during the Term in
the amount provided in Part III of Schedule B hereto and as provided in
Sections 5.2 and 5.3 of the Common Terms Agreement. The first instalment of
Rent shall be due and payable on the Rent Commencement Date as defined
herein. Provided no Default has occurred and is continuing, during the
first Rental Period of this Agreement, Lessor shall grant Lessee a credit
in an amount equal to fifty percent (50%) of the Rent otherwise due and
payable by Lessee hereunder, calculated on a per diem basis for the actual
number of days elapsed, for a period commencing on the Delivery Date to a
date not to exceed thirty (30) days after the Delivery Date during which
the Aircraft is undergoing post-Delivery modifications. Such credit shall
be applied against the Rent then due and payable for the second Rental
Period following the Delivery Date or in such other manner as Lessor and
Lessee may agree.
3.3 Supplemental Rent and Maintenance Adjustment: Lessee shall pay (a)
Supplemental Rent to Lessor on each applicable date during the Term in
accordance with Section 5.4 of the Common Terms Agreement and in the
amounts provided in Schedule B hereto; and (b) the Maintenance Adjustments
to Lessor on the Return Occasion in the amounts provided in Schedule B
hereto and as provided in Section 5.4 of the Common Terms Agreement. Lessor
shall retain all Supplemental Rent and Maintenance Adjustments, subject to
Section 3.4 below.
3.4 Lessor's Maintenance Contribution: Lessor shall make Maintenance
Contributions payments as and to the extent provided in Section 7.2 of the
Common Terms Agreement.
3.5 Lessor's Bank Account: For the purposes of Section 5.5 of the Common Terms
Agreement, Lessor's bank account and wire transfer particulars, to which
all payments to Lessor shall be made, are at the date hereof Bankers Trust
Company, ABA number
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021 001 033 for the account of GECC T&I Air Depository Account, Account No.
50 255 888.
4. Condition of the aircraft at delivery
4.1 On the Delivery Date, as a condition to Lessee's obligation to accept
delivery thereof, the Aircraft shall be in the condition provided in Part
III of Schedule A; provided, however, Lessee shall have no obligation to
-------- -------
pay Rent until the Rent Commencement Date.
5. CONDITION OF THE AIRCRAFT AT REDELIVERY
5.1 On the Return Occasion, Lessee shall redeliver the Aircraft to Lessor at
the Redelivery Location and at such redelivery the Aircraft shall be in the
condition provided herein and in the Common Terms Agreement, including
Schedule 6 of the Common Terms Agreement.
6. ADDRESSES FOR NOTICES
The addresses and facsimile and telephone numbers of Lessor and Lessee are
as follows:
Lessor: General Electric Capital Corporation
Address: c/o GE Capital Aviation Services
201 High Ridge Road
Stamford, CT 06927
Attention: Contracts Leader
Facsimile: (203) 357-4585
Telephone: (203) 357-3201
Lessee: Midway Airlines Corporation
Address: 2801 Slater Road, Suite 200
Morrisville, NC 27560
Attention: General Counsel
Facsimile: (919) 595-1705
Telephone: (919) 595-6009
7. SCHEDULES AND COMMON TERMS AGREEMENT
All the provisions of Schedule A, Schedule B hereto and the Common Terms
Agreement (including the schedules thereto) are incorporated by reference
herein and are part of this Aircraft Lease Agreement as if they were set
out in full herein. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BY
ITS SIGNATURE BELOW, THE LESSEE ACKNOWLEDGES AND AGREES THAT THE LEASE OF
THE AIRCRAFT HEREUNDER IS ON AN "AS-IS, WHERE-IS" BASIS AND THAT THE
----- --------
DISCLAIMERS, EXCULPATIONS AND LIMITATIONS OF LIABILITY, INDEMNITIES, THE
CHOICE OF NEW YORK LAW AS THE GOVERNING LAW, THE LESSEE'S SUBMISSION TO
PERSONAL JURISDICTION IN NEW YORK, AND THE WAIVER OF ANY RIGHT TO A TRIAL
BY JURY PROVIDED FOR IN THE COMMON TERMS AGREEMENT
5
<PAGE>
ARE INCORPORATED HEREIN BY SUCH REFERENCE AND ARE PART OF THIS AGREEMENT AS
IF THE SAME WERE SET OUT IN FULL HEREIN.
8. No amendment except in writing
No provision of this Lease, including any provision of Schedule A, Schedule
B or the Common Terms Agreement (including any provision of the schedules
thereto), may be amended, rescinded, changed, waived, discharged,
terminated or otherwise modified in any way whatsoever, except by a writing
signed by the party to be charged. Lessor and Lessee acknowledge their
agreement to the provisions of this Section 8 by their initials below:
Lessor:________ Lessee:_________
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Aircraft
Lease Agreement, each by their duly authorized representative(s), as
of the date shown at the beginning of this Aircraft Lease Agreement.
LESSOR:
GENERAL ELECTRIC CAPITAL CORPORATION
By: __________________________
Name: __________________________
Title: __________________________
LESSEE:
MIDWAY AIRLINES CORPORATION
By: __________________________
Name: __________________________
Title: __________________________
7
<PAGE>
SCHEDULE A
PART I-AIRFRAME AND ENGINES DESCRIPTION
AIRCRAFT
Manufacturer: Boeing
Model: 737-700
Serial Number: 28613
ENGINES (each of which has 750 or more rated takeoff horsepower or the
equivalent of such horsepower)
Manufacturer General Electric
Engine Type: CFM56-7B24
Serial Nos: To be determined and set forth in Lease
Supplement No.2
PART II-AIRCRAFT DOCUMENTS AND RECORDS
A. CERTIFICATES
1. FAA Certificate of Airworthiness (on board aircraft)
2. Current Aircraft Registration Certificate (on board aircraft)
B. AIRCRAFT RECORDS
At delivery the Aircraft will be accompanied by the standard
compliment of manuals and records furnished by the Aircraft and Engine
manufacturers with a new Aircraft for a customer entitled to Customer
Support at the Boeing Level Code 3.
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<PAGE>
SCHEDULE A
PART III-DELIVERY CONDITION REQUIREMENTS
Set forth below is a description of the condition in which the Aircraft
must be in order for Lessee to be obligated to accept the Aircraft under
the Lease. It is solely a description of such condition precedent and shall
not be construed as a representation, warranty or agreement of any kind
whatsoever, express or implied, by Lessor with respect to the Aircraft or
its condition, all of which have been disclaimed by Lessor and waived by
Lessee as set forth in the Lease, including in the Common Terms Agreement.
On delivery, the Aircraft shall be new, ex factory and painted in Lessee's
external livery. The Aircraft will be in the condition required for
delivery pursuant to the Purchase Agreement No. 1905 dated as of April 25,
1996 between the Manufacturer (the "Purchase Agreement") and the Aircraft
Specification D6-38808-34 except as amended by change orders initiated by
Lessor under the terms of the Purchase Agreement. The Aircraft shall be
configured in preparation for the configuration modifications as set forth
in the Modification Side Letter.
A-2
<PAGE>
SCHEDULE B
COMMERCIAL TERMS
Lessor and Lessee hereby agree that the definitions and other commercial
and financial terms set forth in this Schedule B shall apply to the leasing of
the Aircraft under the Lease.
In addition, Lessor and Lessee understand and agree that the commercial and
financial information contained in this Schedule B are considered by Lessor and
Lessee as proprietary and confidential. Lessor and Lessee each hereby agree,
and any of their assignees, upon becoming such shall agree, that it will treat
this Schedule B as proprietary and confidential and will not, without the prior
written consent of the other, disclose or cause to be disclosed, the terms
hereof or thereof to any Person, except to its agents, representatives,
advisors, employees, counsel, underwriters and auditors as necessary or
appropriate for the leasing transaction which is the subject hereof, or except
(a) as may be required by applicable Law or pursuant to an order, or a valid and
binding request, issued by any court or other Government Entity having
jurisdiction over Lessor, Lessee or the assignee of either of them, as the case
may be, or (b) as necessary to enable Lessor or its assignee to make transfers,
assignments or other dispositions to potential transferees, assignees or
participants of its interest in and to the Lease.
In connection with any such disclosure or any filing of the information
contained herein or therein pursuant to any such applicable Law, Lessor, Lessee
or the assignee of either of them, as the case may be, shall request and use its
best reasonable efforts to obtain confidential treatment of this Schedule B and
the other party will cooperate in making and supporting any such request for
confidential treatment.
PART I CASUALTY OCCURRENCE DEFINITIONS
Agreed Value means [*]
Damage Notification Threshold means [*]
Deductible Amount means [*] or such higher amount as requested by
Lessee and consented to by Lessor in writing (which consent may not be
unreasonably withheld upon receipt of an opinion from an internationally
recognized, independent insurance broker to the effect that such higher
amount is the deductible amount then being maintained by major United
States air carriers with respect to aircraft similar to the Aircraft).
Minimum Liability Coverage means [*]
PART II DEPOSIT; [*]
[*]
* CONFIDENTIAL TREATMENT REQUESTED
B-1
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[*] Lessee acknowledges and agrees that it is not located in the
State of New York within the meaning of Section 7-101 1-c(b) of the New
York General Obligations Law, and therefore the requirements of Section
7-101 of the New York General Obligations Law do not apply to the Deposit.
[*]
Interest Rate: The Interest Rate shall be the "prime rate" as quoted in
the Wall Street Journal from time to time during the applicable period
-------------------
[*] per annum, but not to exceed the maximum amount permitted by Law.
PART III RENT
The Rent payable in respect of each Rental Period during the Term will be
[*], per month, which shall be due and payable in advance on each Rent Date
and be based on the yield on U.S. Treasuries with a maturity equal to the
Term (rounded to the nearest whole year) [*] ("Cost of Funds"). Rent will
be adjusted for changes from the assumed Cost of Funds two (2) days prior
to the Scheduled Delivery Date. [*]
PART IV TAX DEFINITIONS; SPECIAL TAX INDEMNITY
TAX DEFINITIONS:
Lessor/Owner Tax Jurisdiction means the United States.
MACRS Deductions means cost recovery deductions for 100% of the cost of the
Aircraft pursuant to Section 168(b) of the Internal Revenue Code of 1986,
as amended (the "Code"), commencing in 1999, computed (a) on the basis that
the Aircraft is "7-year property" within the meaning of Section 168(e) of
the Code), (b) by using the 200% declining balance method over a seven (7)
year recovery period, switching to the straight-line method for the first
taxable year of the Indemnitee during the term for
* CONFIDENTIAL TREATMENT REQUESTED
B-2
<PAGE>
which such method yields a larger allowance, (c) assuming salvage value is
zero, and (d) using a half-year convention.
SPECIAL TAX INDEMNITY:
MACRS Deductions Indemnity
Lessee will on demand pay and indemnify each Tax Indemnitee for any loss,
disallowance, or deferral of, or delay in claiming the MACRS Deductions
resulting from Lessee's using the Aircraft in such a manner as to cause the
Aircraft to be treated as "used predominantly outside the United States"
within the meaning of Section 168(g) of the Code (hereinafter referred to
as a "MACRS Loss"). In determining the indemnity required in connection
with a MACRS Loss to the Tax Indemnitee under this Clause, the Tax
Indemnitees shall be assumed to be subject to a combined U.S. and state
income tax rate of (after giving effect to the deductibility of such state
income taxes for U.S. income tax purposes) 38% in 1999 and in each year
thereafter (the "Assumed Tax Rate"), and the Tax Indemnitee will have
sufficient taxable income to be taxed at the Assumed Tax Rate after full
utilization of the MACRS Deductions. The amount payable under this
indemnity shall be the amounts required from time to time, which, after
deduction by the Tax Indemnitee of the amount of all additional U.S.,
state, local, and foreign taxes required to be paid by Tax Indemnitee in
respect of the receipt or accrual of such amount, will equal the increase
in income taxes payable by (or not refundable to) Tax Indemnitee as the
result of such MACRS Loss, plus the amount of any actual interest,
penalties, and additions to tax payable by Tax Indemnitee with respect to
such MACRS Loss.
If, as the result of a MACRS Loss, the amount of the U.S. income taxes
payable by an Tax Indemnitee for any taxable year shall be less than the
amount of such taxes that would have been payable by the Tax Indemnitee had
such MACRS Loss not occurred (or as the result thereof, an Tax Indemnitee
shall receive a refund of U.S. income taxes payable that shall be greater
than the amount of such refund , if any, that the Tax Indemnitee would have
received had such MACRS Loss not occurred), then such Tax Indemnitee shall
pay to the Lessee the amount of such increased reduction in taxes (or
refund, including any actual interest (net of any taxes payable with
respect to such interest) received thereon), plus any net additional U.S.,
state, local, or foreign tax benefits actually realized by the Tax
Indemnitee as the result of any payment made pursuant to this sentence
(such reduction in, or increased refund of, income taxes to be determined
on a hypothetical basis, i.e., assuming the Tax Indemnitee can utilize any
additional tax benefits resulting from the MACRS Loss at the Assumed Tax
Rate); provided, however, that the amount payable by the Tax Indemnitee
pursuant to this sentence shall not exceed the sum of the amounts
previously paid by the Lessee to the Tax Indemnitee pursuant to the
preceding paragraph with respect to such MACRS Loss to the extent not
previously taken into account under this sentence.
PART V SUPPLEMENTAL RENT
The Supplemental Rent payable will be determined with reference to the
following:
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Airframe Supplemental Rent means all Supplemental Rent payable by Lessee
pursuant to Clause (a) below.
Annual Supplemental Rent Adjustment means [*]
APU Supplemental Rent means all Supplemental Rent payable pursuant to
Clause (d) below;
Assumed Ratio Adjustment: For the purposes of Section 5.4 of the Common
Terms Agreement, Assumed Ratio means [*] and any adjustment pursuant to
Clause 5.4 shall be based on the following table:
[*]
Assumed Utilization means an annual utilization of [*] hours.
Engine LLP Supplemental Rent means all Supplemental Rent payable by Lessee
pursuant to Clause (b) below.
Engine Supplemental Rent means all Supplemental Rent payable by Lessee
pursuant to Clause (c) below.
Landing Gear Supplemental Rent means all Supplemental Rent payable by
Lessee pursuant to Clause (e) below.
Supplemental Rent equals each of the following amounts:
(a) Airframe: in respect of the Airframe, [*] ("Airframe Supplemental
---------------------
Rent Rate") for each Flight Hour operated by the Aircraft during the
---------
calendar month ("Airframe Supplemental Rent");
--------------------------
(b) Engine Life-Limited Parts: in respect of the life-limited Parts for
each Engine, [*] ("Engine LLP Supplemental Rent Rate") for each Flight
---------------------------------
Hour operated by that Engine during that calendar month ("Engine LLP
----------
Supplemental Rent");
-----------------
(c) Engines: in respect of each Engine, [*] ("Engine Supplemental Rent
------------------------
Rate") for each Engine Flight Hour (or fraction thereof) operated by
that Engine during that calendar month ("Engine Supplemental Rent");
------------------------
(d) APU: in respect of the APU, [*] ("APU Supplemental Rent Rate") for
--------------------------
each Flight Hour operated by the APU during that calendar month ("APU
---
Supplemental Rent"); and
-----------------
* CONFIDENTIAL TREATMENT REQUESTED
B-4
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(e) Landing Gear: in respect of the Landing Gear, [*] ("Landing Gear
------------
Supplemental Rent Rate") for each Flight Hour operated by the Landing
----------------------
Gear during that calendar month ("Landing Gear Supplemental Rent").
------------------------------
PART VI MAINTENANCE AND RETURN CONDITION DEFINITIONS; MAINTENANCE PAYMENTS
AT REDELIVERY
DEFINITIONS:
Engine Cycles Restriction means [*] Engine Cycles.
Engine Flight Hours Restriction means [*] Engine Flight Hours.
[*]
* CONFIDENTIAL TREATMENT REQUESTED
B-5
<PAGE>
[*]
Minimum Airframe Life Limited Component Cycles means [*] Cycles.
Minimum Airframe Life Limited Component Flight Hours means [*] Flight
Hours.
Minimum APU Limit means [*] Flight Hours.
* CONFIDENTIAL TREATMENT REQUESTED
B-6
<PAGE>
Minimum Component Calendar Life means [*]
Minimum Engine Cycles means [*] Cycles.
Minimum Engine Flight Hours means [*] Flight Hours.
Minimum Hard Time Component Cycles means [*] Cycles.
Minimum Hard Time Component Flight Hours means [*] Flight Hours
Minimum Landing Gear Calendar Time means [*] months.
Minimum Landing Gear Cycles means [*] Cycles.
Minimum Landing Gear Flight Hours means [*] Flight Hours.
[*]
MAINTENANCE ADJUSTMENTS:
Maintenance Adjustment: In respect of each calendar month (or part thereof)
during the Term, Lessee will pay to Lessor at the end of the Term in accordance
with Section 5.4 of the Common Terms Agreement and Section 3.3 of this Agreement
the following Maintenance Adjustments:
[*]
* CONFIDENTIAL TREATMENT REQUESTED
B-7
<PAGE>
[*]
PART VII SUBLEASE FEE
Sublease Fee means a non-refundable fee of [*] which shall be payable
by Lessee to Lessor upon receipt of an invoice for such amount to cover
Lessor's cost of evaluating the proposed subleasing arrangement, which
amount shall remain non-refundable whether or not Lessor consents to such
arrangement.
PART VIII
[*]
* CONFIDENTIAL TREATMENT REQUESTED
B-8
<PAGE>
[*]
[*]
* CONFIDENTIAL TREATMENT REQUESTED
B-9
<PAGE>
SCHEDULE C
Form of Modification Side Letter
September 10, 1999
Midway Airlines Corporation
2801 Slater Road, Suite 2000
Morrisville, North Carolina 27560
Re: Modification Services to be performed by BF Goodrich, on behalf of Midway
Airlines Corporation ("Lessee"), for two Boeing 737-700 aircraft bearing
Manufacturer's Serial Number 30051 and 28613, respectively (together the
"Aircraft" and each an "Aircraft") being purchased by General Electric
Capital Corporation ("Lessor") and leased by Lessor to Lessee
Ladies and Gentlemen:
We refer to two Aircraft Lease Agreements, and one Common Terms Agreement
(collectively, the "Leases" and each a "Lease") each dated September 10, 1999
between Lessor as lessor, and Lessee, as lessee, relating to the Aircraft.
Capitalised terms used herein but not defined shall have the meanings ascribed
thereto in the Leases. This is the Modification Side Letter as defined in the
Leases.
Following Delivery of the Aircraft to Lessee, Lessee shall, with the assistance
of the Manufacturer and the Lessor, deliver the Aircraft to BF Goodrich in the
State of Washington (the "Location") for post-delivery modifications described
in Annex A hereto (the "Modifications") pursuant to an agreement between GE
Capital Aviation Services, Inc., as agent for Lessor ("GECAS"), and BF Goodrich
(the "Modification Agreement"). The Modifications to be performed by BF
Goodrich under the Modification Agreement have been ordered or procured by GECAS
solely at the request of Lessee.
For good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
[*]
2. Lessee shall ensure that its representative is available to accept the
satisfactory completion of the Modifications and/or any other relevant
services and/or works as and when required by the terms of the Modification
Agreement.
[*]
* CONFIDENTIAL TREATMENT REQUESTED
B-10
<PAGE>
[*]
(c)Payments pursuant to this paragraph 3 shall be made to Lessor's account.
Lessor shall provide Lessee with invoices for such payments at least 5 days
prior to the due date for the relevant payment.
[*]
5. Nothing in this Side Letter shall be construed to modify the Lease.
[*]
7. GECAS shall be responsible for any breach of its obligations set forth
herein.
8. GECAS is authorized to designate any person or persons to carry out its
obligations under this Side Letter.
This letter shall be governed by and construed in accordance with New York law
and shall be incorporated by reference into each of the Leases.
* CONFIDENTIAL TREATMENT REQUESTED
B-11
<PAGE>
Please confirm your agreement and acceptance of the terms of this letter by
countersigning below.
Yours faithfully
GE CAPITAL AVIATION SERVICES, INC.
as agent for Lessor
By: _________________________
Name: _________________________
Title: _________________________
Date: __ September , 1999
We hereby confirm and agree to be bound by the terms of this letter.
MIDWAY AIRLINES CORPORATION
By: _________________________
Name: _________________________
Title: _________________________
B-12
<PAGE>
ANNEX A
-------
[*]
* CONFIDENTIAL TREATMENT REQUESTED
B-13
<PAGE>
EXHIBIT 10.12
TO THE EXTENT THAT THIS AIRCRAFT LEASE AGREEMENT CONSTITUTES CHATTEL PAPER
(AS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST IN THIS AIRCRAFT LEASE AGREEMENT MAY BE
CREATED THROUGH TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE
ORIGINAL COUNTERPART, WHICH SHALL BE IDENTIFIED AS THE COUNTERPART
DESIGNATED AS THE ORIGINAL ON THE SIGNATURE PAGE OF THIS AGREEMENT BY
LESSOR (AS TERM IS DEFINED HEREIN).
AIRCRAFT LEASE AGREEMENT
Dated as of September 10, 1999
between
GENERAL ELECTRIC CAPITAL CORPORATION
as Lessor
and
MIDWAY AIRLINES CORPORATION
as Lessee
in respect of Aircraft: Boeing 737-700
Serial No: 30051
_________________________________
incorporating the provisions of that certain
COMMON TERMS AGREEMENT
(as defined herein)
______________________________
<PAGE>
AIRCRAFT LEASE AGREEMENT
THIS AIRCRAFT LEASE AGREEMENT is made as of September 10, 1999, and is BETWEEN:
(1) GENERAL ELECTRIC CAPITAL CORPORATION, a company incorporated under the laws
of the State of New York, having its principal place of business and chief
executive office at 260 Long Ridge Road, Stamford, CT 06927 ("Lessor"); and
(2) MIDWAY AIRLINES CORPORATION, a company incorporated under the laws of the
State of Delaware, having its principal place of business and chief
executive office at 2801 Slater Road, Suite 200, Morrisville, NC 27560
("Lessee").
WHEREAS:
(A) Lessee wishes to lease the Aircraft (as defined below) from Lessor, and
Lessor wishes to lease the Aircraft to Lessee, on the terms and subject to
the conditions provided herein;
(B) Lessor and Lessee have entered into the Common Terms Agreement (as defined
below); and
(C) Lessor and Lessee wish to incorporate by reference such Common Terms
Agreement, as well as Schedules A and B attached hereto, into this Aircraft
Lease Agreement for the Aircraft;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. INTERPRETATION
1.1 Definitions: In this Aircraft Lease Agreement, the following capitalized
words and expressions have the respective meanings set forth below and the
meanings set forth in Schedules A and B:
Aircraft means the Airframe and Engines described on Part I of Schedule A
and includes the Aircraft Documents and Records.
Airframe Maintenance Adjustment shall have the meaning as set forth in
Schedule B, Part VI hereof.
Airframe Structural Check means a heavy maintenance visit which shall
include but not be limited to accomplishment of a block C6 Systems and
Structural Check (equivalent to a "D" check), all lesser checks, and
interior refurbishment (including lavatories and galley) consistent with
average industry standards for the first C6 Systems and Structural check
for the Airframe type. Where relevant, the workscope and intervals
(calendar and/or hourly) shall not be less than those prescribed by the
Lessee's Maintenance Program. If the Lessee's Maintenance Program is not a
block program then the Lessee shall perform those tasks required to bridge
the Aircraft to the
1
<PAGE>
block program as set forth in Appendix J of the Manufacturer's Maintenance
Planning Document.
Common Terms Agreement means the "Aircraft Lease Common Terms Agreement"
dated as of September 10, 1999 executed by General Electric Capital
Corporation and Midway Airlines Corporation (as in effect on the date
hereof without, unless Lessor and Lessee otherwise expressly agree, giving
any effect to any subsequent amendment, supplement, waiver or other
modification thereto), and which forms part of this Aircraft Lease
Agreement.
Delivery Condition Requirements means the requirements specified in Section
1 of Part III of Schedule A.
Delivery Location means a location in the United States mutually acceptable
to Lessor and Lessee.
Deposit means all amounts payable pursuant to Section 3.1 hereof.
Engine Refurbishment Maintenance Adjustment shall have the meaning as set
forth in Schedule B, Part VI hereof.
Final Delivery Date means the date that is two (2) months after the
Scheduled Delivery Date.
Indemnitee means each of Lessor, GECAS, and each of their respective
shareholders, subsidiaries, Affiliates, partners, servants, contractors,
directors, officers, agents and employees.
LC Amount is not applicable.
Lessee Modification Costs shall have the meaning as defined in the
Modification Side Letter.
Lessee Modification Fee means an amount equal to 1.98% of the Lessee
Modification Costs.
Maintenance Adjustment means collectively the Airframe Maintenance
Adjustment and the Engine Refurbishment Maintenance Adjustment as the
amounts payable by Lessee pursuant to Section 5.4 of the Common Terms
Agreement, Section 3 of this Agreement and Schedule B, Part VI of this
Agreement.
Manufacturer means the manufacturer of the Airframe or an Engine, as the
case may be, as set forth on Part I of Schedule A hereto.
Minimum Measurable Fuel Requirement means 2,000 U.S. gallons.
Modification Side Letter means a side letter agreement between Lessee and
Lessor substantially in the form attached hereto as Schedule C relating to
post-delivery modifications.
2
<PAGE>
Other Agreement means the Aircraft Lease Agreement dated as of September
101999 entered into between Lessor, on the one hand, and Lessee on the
other hand with respect to the Aircraft bearing serial number 28613, but
only so long as a GE Entity is the lessor thereunder.
Other Aircraft means the Boeing 737-700 aircraft bearing serial number
28613 subject to the Other Agreement.
Other Engines means the two General Electric CFM56-7B24 engines to be
delivered to Lessee with the Other Aircraft and bearing the serial numbers
set forth in Lease Supplement No.2.
Owner means Lessor.
Redelivery Location means (i) such location in the continental United
States as Lessor may elect, or (ii) such other location as may be agreed in
writing by Lessor and Lessee.
Rent means all amounts payable pursuant to Section 3.2 hereof.
Rent Commencement Date means the date on which Lessor tenders the Aircraft
for Delivery to Lessee under Section 4.3(a) of the Common Terms Agreement.
Scheduled Delivery Date means a date notified by Lessor to Lessee in
accordance with Section 4.1(a) of the Common Terms Agreement in December
1999.
Scheduled Delivery Month means December, 1999.
Scheduled Delivery Week is not applicable.
Scheduled Expiry Date means the date falling sixty-one (61) months after
the Rent Commencement Date.
State of Registry means the United States of America.
Sublease Fee means the fee amount set forth in Part VII of Schedule B
hereof.
Supplemental Rent means all amounts payable pursuant to Section 3.3 hereof.
Tax Indemnitee means Lessor and each Financing Party, if any, and each
member of the consolidated group of which Lessor is a member for United
States Federal Income Tax purposes.
Term shall have the meaning as set forth for such word in Section 2.2
herein.
1.2 Interpretation: Unless otherwise defined herein, words and expressions
defined in the Common Terms Agreement have the same respective meanings for
the purposes of this Aircraft Lease Agreement. The construction provisions
of Section 1.2 of the Common Terms Agreement shall apply to this Aircraft
Lease Agreement.
3
<PAGE>
2. LEASING
2.1 Agreement to Lease: Subject to the terms and conditions of the Lease,
Lessor will lease the Aircraft to Lessee and Lessee will take delivery of
and lease the Aircraft from Lessor in accordance with the Lease for the
duration of the Term.
2.2 Term: Subject to Sections 4.1 through 4.4 of the Common Terms Agreement,
Delivery of the Aircraft will occur at the Delivery Location, whereupon
Lessee shall accept the Aircraft hereunder and evidence such Delivery and
acceptance by executing and delivering a Certificate of Technical
Acceptance and Lease Supplement No. 1 as provided in Section 4.3 of the
Common Terms Agreement. The Term will commence on the Delivery Date, which
Delivery Date is scheduled to occur on the Scheduled Delivery Date, and
will expire on the Scheduled Expiry Date unless terminated earlier in
accordance with the provisions of the Lease.
3. PAYMENTS
3.1 Deposit: Lessee shall pay to Lessor the Deposit in cash (to which Deposit
Section 5.13 of the Common Terms Agreement shall apply), in the amounts and
at the times provided in Part II of Schedule B hereto.
3.2 Rent: Lessee shall pay Rent to Lessor on each Rent Date during the Term in
the amount provided in Part III of Schedule B hereto and as provided in
Sections 5.2 and 5.3 of the Common Terms Agreement. The first instalment of
Rent shall be due and payable on the Rent Commencement Date as defined
herein. Provided no Default has occurred and is continuing, during the
first Rental Period of this Agreement, Lessor shall grant Lessee a credit
in an amount equal to fifty percent (50%) of the Rent otherwise due and
payable by Lessee hereunder, calculated on a per diem basis for the actual
number of days elapsed, for a period commencing on the Delivery Date to a
date not to exceed thirty (30) days after the Delivery Date during which
the Aircraft is undergoing post-Delivery modifications. Such credit shall
be applied against the Rent then due and payable for the second Rental
Period following the Delivery Date or in such other manner as Lessor and
Lessee may agree.
3.3 Supplemental Rent and Maintenance Adjustment: Lessee shall pay (a)
Supplemental Rent to Lessor on each applicable date during the Term in
accordance with Section 5.4 of the Common Terms Agreement and in the
amounts provided in Schedule B hereto; and (b) the Maintenance Adjustments
to Lessor on the Return Occasion in the amounts provided in Schedule B
hereto and as provided in Section 5.4 of the Common Terms Agreement. Lessor
shall retain all Supplemental Rent and Maintenance Adjustments, subject to
Section 3.4 below.
3.4 Lessor's Maintenance Contribution: Lessor shall make Maintenance
Contributions payments as and to the extent provided in Section 7.2 of the
Common Terms Agreement.
3.5 Lessor's Bank Account: For the purposes of Section 5.5 of the Common Terms
Agreement, Lessor's bank account and wire transfer particulars, to which
all payments to Lessor shall be made, are at the date hereof Bankers Trust
Company, ABA number
4
<PAGE>
021 001 033 for the account of GECC T&I Air Depository Account, Account No.
50 255 888.
4. CONDITION OF THE AIRCRAFT AT DELIVERY
4.1 On the Delivery Date, as a condition to Lessee's obligation to accept
delivery thereof, the Aircraft shall be in the condition provided in Part
III of Schedule A; provided, however, Lessee shall have no obligation to
-------- -------
pay Rent until the Rent Commencement Date.
5. CONDITION OF THE AIRCRAFT AT REDELIVERY
5.1 On the Return Occasion, Lessee shall redeliver the Aircraft to Lessor at
the Redelivery Location and at such redelivery the Aircraft shall be in the
condition provided herein and in the Common Terms Agreement, including
Schedule 6 of the Common Terms Agreement.
6. ADDRESSES FOR NOTICES
The addresses and facsimile and telephone numbers of Lessor and Lessee are
as follows:
Lessor: General Electric Capital Corporation
Address: c/o GE Capital Aviation Services
201 High Ridge Road
Stamford, CT 06927
Attention: Contracts Leader
Facsimile: (203) 357-4585
Telephone: (203) 357-3201
Lessee: Midway Airlines Corporation
Address: 2801 Slater Road, Suite 200
Morrisville, NC 27560
Attention: General Counsel
Facsimile: (919) 595-1705
Telephone: (919) 595-6009
7. SCHEDULES AND COMMON TERMS AGREEMENT
All the provisions of Schedule A, Schedule B hereto and the Common Terms
Agreement (including the schedules thereto) are incorporated by reference
herein and are part of this Aircraft Lease Agreement as if they were set
out in full herein. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BY
ITS SIGNATURE BELOW, THE LESSEE ACKNOWLEDGES AND AGREES THAT THE LEASE OF
THE AIRCRAFT HEREUNDER IS ON AN "AS-IS, WHERE-IS" BASIS AND THAT THE
----- --------
DISCLAIMERS, EXCULPATIONS AND LIMITATIONS OF LIABILITY, INDEMNITIES, THE
CHOICE OF NEW YORK LAW AS THE GOVERNING LAW, THE LESSEE'S SUBMISSION TO
PERSONAL JURISDICTION IN NEW YORK, AND THE WAIVER OF ANY RIGHT TO A TRIAL
BY JURY PROVIDED FOR IN THE COMMON TERMS AGREEMENT
5
<PAGE>
ARE INCORPORATED HEREIN BY SUCH REFERENCE AND ARE PART OF THIS AGREEMENT AS
IF THE SAME WERE SET OUT IN FULL HEREIN.
8. NO AMENDMENT EXCEPT IN WRITING
No provision of this Lease, including any provision of Schedule A, Schedule
B or the Common Terms Agreement (including any provision of the schedules
thereto), may be amended, rescinded, changed, waived, discharged,
terminated or otherwise modified in any way whatsoever, except by a writing
signed by the party to be charged. Lessor and Lessee acknowledge their
agreement to the provisions of this Section 8 by their initials below:
Lessor: _____ Lessee:
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Aircraft
Lease Agreement, each by their duly authorized representative(s), as
of the date shown at the beginning of this Aircraft Lease Agreement.
LESSOR:
GENERAL ELECTRIC CAPITAL CORPORATION
By: __________________________
Name: __________________________
Title: __________________________
LESSEE:
MIDWAY AIRLINES CORPORATION
By: __________________________
Name: __________________________
Title: __________________________
7
<PAGE>
SCHEDULE A
PART I-AIRFRAME AND ENGINES DESCRIPTION
AIRCRAFT
Manufacturer: Boeing
Model: 737-700
Serial Number: 30051
ENGINES (each of which has 750 or more rated takeoff horsepower or the
equivalent of such horsepower )
Manufacturer General Electric
Engine Type: CFM56-7B24
Serial Nos: To be determined and set forth in Lease Supplement
No. 2
PART II-AIRCRAFT DOCUMENTS AND RECORDS
A. CERTIFICATES
1. FAA Certificate of Airworthiness (on board aircraft)
2. Current Aircraft Registration Certificate (on board aircraft)
B. AIRCRAFT RECORDS
At delivery the Aircraft will be accompanied by the standard compliment of
manuals and records furnished by the Aircraft and Engine manufacturers with
a new Aircraft for a customer entitled to Customer Support at the Boeing
Level Code 3.
A-1
<PAGE>
SCHEDULE A
PART III-DELIVERY CONDITION REQUIREMENTS
Set forth below is a description of the condition in which the Aircraft
must be in order for Lessee to be obligated to accept the Aircraft under
the Lease. It is solely a description of such condition precedent and shall
not be construed as a representation, warranty or agreement of any kind
whatsoever, express or implied, by Lessor with respect to the Aircraft or
its condition, all of which have been disclaimed by Lessor and waived by
Lessee as set forth in the Lease, including in the Common Terms Agreement.
On delivery, the Aircraft shall be new, ex factory and painted in Lessee's
external livery. The Aircraft will be in the condition required for
delivery pursuant to the Purchase Agreement No. 1905 dated as of April 25,
1996 between the Manufacturer (the "Purchase Agreement") and the Aircraft
Specification D6-38808-34 except as amended by change orders initiated by
Lessor under the terms of the Purchase Agreement. The Aircraft shall be
configured in preparation for the configuration modifications as set forth
in the Modification Side Letter.
A-2
<PAGE>
SCHEDULE B
COMMERCIAL TERMS
Lessor and Lessee hereby agree that the definitions and other commercial
and financial terms set forth in this Schedule B shall apply to the leasing of
the Aircraft under the Lease.
In addition, Lessor and Lessee understand and agree that the commercial and
financial information contained in this Schedule B are considered by Lessor and
Lessee as proprietary and confidential. Lessor and Lessee each hereby agree,
and any of their assignees, upon becoming such shall agree, that it will treat
this Schedule B as proprietary and confidential and will not, without the prior
written consent of the other, disclose or cause to be disclosed, the terms
hereof or thereof to any Person, except to its agents, representatives,
advisors, employees, counsel, underwriters and auditors as necessary or
appropriate for the leasing transaction which is the subject hereof, or except
(a) as may be required by applicable Law or pursuant to an order, or a valid and
binding request, issued by any court or other Government Entity having
jurisdiction over Lessor, Lessee or the assignee of either of them, as the case
may be, or (b) as necessary to enable Lessor or its assignee to make transfers,
assignments or other dispositions to potential transferees, assignees or
participants of its interest in and to the Lease.
In connection with any such disclosure or any filing of the information
contained herein or therein pursuant to any such applicable Law, Lessor, Lessee
or the assignee of either of them, as the case may be, shall request and use its
best reasonable efforts to obtain confidential treatment of this Schedule B and
the other party will cooperate in making and supporting any such request for
confidential treatment.
PART I CASUALTY OCCURRENCE DEFINITIONS
Agreed Value means [*]
Damage Notification Threshold means [*]
Deductible Amount means [*] or such higher amount as requested by
Lessee and consented to by Lessor in writing (which consent may not be
unreasonably withheld upon receipt of an opinion from an internationally
recognized, independent insurance broker to the effect that such higher
amount is the deductible amount then being maintained by major United
States air carriers with respect to aircraft similar to the Aircraft).
Minimum Liability Coverage means [*]
PART II DEPOSIT; [*]
[*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
[*] Lessee acknowledges and agrees that it is not located in the
State of New York within the meaning of Section 7-101 1-c(b) of the New
York General Obligations Law, and therefore the requirements of Section
7-101 of the New York General Obligations Law do not apply to the Deposit.
[*]
Interest Rate: The Interest Rate shall be the "prime rate" as quoted in
the Wall Street Journal from time to time during the applicable period [*]
-------------------
per annum, but not to exceed the maximum amount permitted by Law.
PART III RENT
The Rent payable in respect of each Rental Period during the Term will be
[*], per month, which shall be due and payable in advance on each Rent Date
and be based on the yield on U.S. Treasuries with a maturity equal to the
Term (rounded to the nearest whole year) of [*] ("Cost of Funds"). Rent
will be adjusted for changes from the assumed Cost of Funds two (2) days
prior to the Scheduled Delivery Date. [*]
PART IV TAX DEFINITIONS; SPECIAL TAX INDEMNITY
TAX DEFINITIONS:
Lessor/Owner Tax Jurisdiction means the United States.
MACRS Deductions means cost recovery deductions for 100% of the cost of the
Aircraft pursuant to Section 168(b) of the Internal Revenue Code of 1986,
as amended (the "Code"), commencing in 1999, computed (a) on the basis that
the Aircraft is "7-year property" within the meaning of Section 168(e) of
the Code), (b) by using the 200% declining balance method over a seven (7)
year recovery period, switching to the straight-line method for the first
taxable year of the Indemnitee during the term for
* CONFIDENTIAL TREATMENT REQUESTED
B-2
<PAGE>
which such method yields a larger allowance, (c) assuming salvage value is
zero, and (d) using a half-year convention.
SPECIAL TAX INDEMNITY:
MACRS Deductions Indemnity
Lessee will on demand pay and indemnify each Tax Indemnitee for any loss,
disallowance, or deferral of, or delay in claiming the MACRS Deductions
resulting from Lessee's using the Aircraft in such a manner as to cause the
Aircraft to be treated as "used predominantly outside the United States"
within the meaning of Section 168(g) of the Code (hereinafter referred to
as a "MACRS Loss"). In determining the indemnity required in connection
with a MACRS Loss to the Tax Indemnitee under this Clause, the Tax
Indemnitees shall be assumed to be subject to a combined U.S. and state
income tax rate of (after giving effect to the deductibility of such state
income taxes for U.S. income tax purposes) 38% in 1999 and in each year
thereafter (the "Assumed Tax Rate"), and the Tax Indemnitee will have
sufficient taxable income to be taxed at the Assumed Tax Rate after full
utilization of the MACRS Deductions. The amount payable under this
indemnity shall be the amounts required from time to time, which, after
deduction by the Tax Indemnitee of the amount of all additional U.S.,
state, local, and foreign taxes required to be paid by Tax Indemnitee in
respect of the receipt or accrual of such amount, will equal the increase
in income taxes payable by (or not refundable to) Tax Indemnitee as the
result of such MACRS Loss, plus the amount of any actual interest,
penalties, and additions to tax payable by Tax Indemnitee with respect to
such MACRS Loss.
If, as the result of a MACRS Loss, the amount of the U.S. income taxes
payable by an Tax Indemnitee for any taxable year shall be less than the
amount of such taxes that would have been payable by the Tax Indemnitee had
such MACRS Loss not occurred (or as the result thereof, an Tax Indemnitee
shall receive a refund of U.S. income taxes payable that shall be greater
than the amount of such refund , if any, that the Tax Indemnitee would have
received had such MACRS Loss not occurred), then such Tax Indemnitee shall
pay to the Lessee the amount of such increased reduction in taxes (or
refund, including any actual interest (net of any taxes payable with
respect to such interest) received thereon), plus any net additional U.S.,
state, local, or foreign tax benefits actually realized by the Tax
Indemnitee as the result of any payment made pursuant to this sentence
(such reduction in, or increased refund of, income taxes to be determined
on a hypothetical basis, i.e., assuming the Tax Indemnitee can utilize any
additional tax benefits resulting from the MACRS Loss at the Assumed Tax
Rate); provided, however, that the amount payable by the Tax Indemnitee
pursuant to this sentence shall not exceed the sum of the amounts
previously paid by the Lessee to the Tax Indemnitee pursuant to the
preceding paragraph with respect to such MACRS Loss to the extent not
previously taken into account under this sentence.
PART V SUPPLEMENTAL RENT
The Supplemental Rent payable will be determined with reference to the
following:
B-3
<PAGE>
Airframe Supplemental Rent means all Supplemental Rent payable by Lessee
pursuant to Clause (a) below.
Annual Supplemental Rent Adjustment means [*]
APU Supplemental Rent means all Supplemental Rent payable pursuant to
Clause (d) below;
Assumed Ratio Adjustment: For the purposes of Section 5.4 of the Common
Terms Agreement, Assumed Ratio means a [*] and any adjustment pursuant to
Clause 5.4 shall be based on the following table:
[*]
Assumed Utilization means an annual utilization of [*] hours.
Engine LLP Supplemental Rent means all Supplemental Rent payable by Lessee
pursuant to Clause (b) below.
Engine Supplemental Rent means all Supplemental Rent payable by Lessee
pursuant to Clause (c) below.
Landing Gear Supplemental Rent means all Supplemental Rent payable by
Lessee pursuant to Clause (e) below.
Supplemental Rent equals each of the following amounts:
(a) Airframe: in respect of the Airframe, [*] ("Airframe Supplemental
---------------------
Rent Rate") for each Flight Hour operated by the Aircraft during the
---------
calendar month ("Airframe Supplemental Rent");
--------------------------
(b) Engine Life-Limited Parts: in respect of the life-limited Parts for
each Engine, [*] ("Engine LLP Supplemental Rent Rate") for each
---------------------------------
Flight Hour operated by that Engine during that calendar month
("Engine LLP Supplemental Rent");
----------------------------
(c) Engines: in respect of each Engine, [*] ("Engine Supplemental Rent
------------------------
Rate") for each Engine Flight Hour (or fraction thereof) operated by
----
that Engine during that calendar month ("Engine Supplemental Rent");
------------------------
(d) APU: in respect of the APU, [*] ("APU Supplemental Rent Rate") for
--------------------------
each Flight Hour operated by the APU during that calendar month
("APU Supplemental Rent"); and
---------------------
* CONFIDENTIAL TREATMENT REQUESTED
B-4
<PAGE>
(e) Landing Gear: in respect of the Landing Gear, [*] ("Landing Gear
------------
Supplemental Rent Rate") for each Flight Hour operated by the Landing
----------------------
Gear during that calendar month ("Landing Gear Supplemental Rent").
------------------------------
PART VI MAINTENANCE AND RETURN CONDITION DEFINITIONS; MAINTENANCE PAYMENTS
AT REDELIVERY
DEFINITIONS:
Engine Cycles Restriction means [*] Engine Cycles.
Engine Flight Hours Restriction means [*] Engine Flight Hours.
[*]
* CONFIDENTIAL TREATMENT REQUESTED
B-5
<PAGE>
[*]
Minimum Airframe Life Limited Component Cycles means [*] Cycles.
Minimum Airframe Life Limited Component Flight Hours means [*] Flight
Hours.
Minimum APU Limit means [*] Flight Hours.
* CONFIDENTIAL TRATMENT REQUESTED
B-6
<PAGE>
Minimum Component Calendar Life means [*] months.
Minimum Engine Cycles means [*] Cycles.
Minimum Engine Flight Hours means [*] Flight Hours.
Minimum Hard Time Component Cycles means [*] Cycles.
Minimum Hard Time Component Flight Hours means [*] Flight Hours
Minimum Landing Gear Calendar Time means [*] months.
Minimum Landing Gear Cycles means [*] Cycles.
Minimum Landing Gear Flight Hours means [*] Flight Hours.
[*]
MAINTENANCE ADJUSTMENTS:
Maintenance Adjustment: In respect of each calendar month (or part thereof)
during the Term, Lessee will pay to Lessor at the end of the Term in accordance
with Section 5.4 of the Common Terms Agreement and Section 3.3 of this Agreement
the following Maintenance Adjustments:
[*]
* CONFIDENTIAL TREATMENT REQUESTED
B-7
<PAGE>
[*]
PART VII SUBLEASE FEE
Sublease Fee means a non-refundable fee of [*], which shall be payable
by Lessee to Lessor upon receipt of an invoice for such amount to cover
Lessor's cost of evaluating the proposed subleasing arrangement, which
amount shall remain non-refundable whether or not Lessor consents to such
arrangement.
PART VIII [*]
[*]
* CONFIDENTIAL TREATMENT REQUESTED
B-8
<PAGE>
[*]
* CONFIDENTIAL TREATMENT REQUESTED
B-9
<PAGE>
SCHEDULE C
Form of Modification Side Letter
September 10, 1999
Midway Airlines Corporation
2801 Slater Road, Suite 2000
Morrisville, North Carolina 27560
Re: Modification Services to be performed by BF Goodrich, on behalf of Midway
Airlines Corporation ("Lessee"), for two Boeing 737-700 aircraft bearing
Manufacturer's Serial Number 30051 and 28613, respectively (together the
"Aircraft" and each an "Aircraft") being purchased by General Electric
Capital Corporation ("Lessor") and leased by Lessor to Lessee
Ladies and Gentlemen:
We refer to two Aircraft Lease Agreements, and one Common Terms Agreement
(collectively, the "Leases" and each a "Lease") each dated September 10, 1999
between Lessor as lessor, and Lessee, as lessee, relating to the Aircraft.
Capitalised terms used herein but not defined shall have the meanings ascribed
thereto in the Leases. This is the Modification Side Letter as defined in the
Leases.
Following Delivery of the Aircraft to Lessee, Lessee shall, with the assistance
of the Manufacturer and the Lessor, deliver the Aircraft to BF Goodrich in the
State of Washington (the "Location") for post-delivery modifications described
in Annex A hereto (the "Modifications") pursuant to an agreement between GE
Capital Aviation Services, Inc., as agent for Lessor ("GECAS"), and BF Goodrich
(the "Modification Agreement"). The Modifications to be performed by BF
Goodrich under the Modification Agreement have been ordered or procured by GECAS
solely at the request of Lessee.
For good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
[*]
2. Lessee shall ensure that its representative is available to accept the
satisfactory completion of the Modifications and/or any other relevant
services and/or works as and when required by the terms of the Modification
Agreement.
[*]
* CONFIDENTIAL TRATMENT REQUESTED
B-10
<PAGE>
[*]
(c) Payments pursuant to this paragraph 3 shall be made to Lessor's
account. Lessor shall provide Lessee with invoices for such payments at
least 5 days prior to the due date for the relevant payment.
[*]
5. Nothing in this Side Letter shall be construed to modify the Lease.
[*]
7. GECAS shall be responsible for any breach of its obligations set forth
herein.
8. GECAS is authorized to designate any person or persons to carry out its
obligations under this Side Letter.
This letter shall be governed by and construed in accordance with New York law
and shall be incorporated by reference into each of the Leases.
* CONFIDENTIAL TREATMENT REQUESTED
B-11
<PAGE>
Please confirm your agreement and acceptance of the terms of this letter by
countersigning below.
Yours faithfully
GE CAPITAL AVIATION SERVICES, INC.
as agent for Lessor
By: _________________________
Name: _________________________
Title: _________________________
Date: __ September, 1999
We hereby confirm and agree to be bound by the terms of this letter.
MIDWAY AIRLINES CORPORATION
By: _________________________
Name: _________________________
Title: _________________________
B-12
<PAGE>
ANNEX A
-------
[*]
* CONFIDENTIAL TREATMENT REQUESTED
B-13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,839
<SECURITIES> 4,770
<RECEIVABLES> 11,414
<ALLOWANCES> (1,613)
<INVENTORY> 3,401
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<PP&E> 126,023
<DEPRECIATION> (13,992)
<TOTAL-ASSETS> 222,433
<CURRENT-LIABILITIES> 61,700
<BONDS> 75,002
0
0
<COMMON> 86
<OTHER-SE> 78,623
<TOTAL-LIABILITY-AND-EQUITY> 222,433
<SALES> 160,046
<TOTAL-REVENUES> 160,046
<CGS> 0
<TOTAL-COSTS> 144,849
<OTHER-EXPENSES> 1,850
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,302
<INCOME-TAX> 5,055
<INCOME-CONTINUING> 8,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,247
<EPS-BASIC> 0.96
<EPS-DILUTED> 0.86
</TABLE>
