<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to___________________
Commission file number: 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, NORTH CAROLINA 27560
(Address of principal executive offices)
(Zip Code)
919-595-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par
value $0.01
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ____X___ No ________
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __
Aggregate approximate market value of voting stock held by non-affiliates as of
March 21, 2000 (based on the closing sale price for such shares as reported by
NASDAQ): $28.9 MILLION
As of March 21, 2000 there were 8,613,595 shares of Common Stock, $.01 par
value, of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated Part of Form 10-K
- --------------------- -----------------
Proxy Statement for 2000 Annual Meeting of Shareholders Part III, Items 10-13
<PAGE>
MIDWAY AIRLINES CORPORATION
FORM 10-K
For the year ended December 31, 1999
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TABLE OF CONTENTS Page #
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PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data F-1
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SCHEDULE I - VALUATION AND QUALIFYING ACCOUNTS
SIGNATURES
EXHIBIT INDEX
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<PAGE>
PART I
Item 1. Business
Midway Airlines Corporation ("Midway" or the "Company") was incorporated under
the laws of the State of Delaware in 1983 as Jet Express Inc. and renamed Midway
Airlines Corporation in November 1993 in connection with its commencement of jet
operations. The Company is an all jet aircraft operator serving 21 destinations
in 13 states and the District of Columbia from its hub at Raleigh-Durham
International Airport ("RDU") in North Carolina, where it currently carries more
passengers and operates more flights than any other airline. The Company
organizes its business to attract and retain business travelers by providing
frequent non-stop service from RDU to major business destinations, maintaining a
high level of service and offering American Airlines Inc. ("American")
AAdvantage(R) frequent flyer miles.
As of March 27, 2000, the Company operates one of the youngest all jet fleets in
the United States with eight 98-seat Fokker F-100s ("F100s"), 20 50-seat
Canadair Regional Jets ("CRJs") and two 128-seat Boeing 737-700s ("737s"). The
Company has firm orders for six additional CRJs to be delivered by December 2001
and fifteen 737s to be delivered by October 2002. The additional aircraft will
be utilized to replace some or all of the F100s, to serve existing Midway
destinations with greater frequency, and to enter new routes, providing Midway's
customers with more non-stop jet destinations. The Company has options to
acquire 14 additional CRJs and 10 additional 737 aircraft. On February 29,
2000, the Company exercised its option to terminate four F100 leases prior to
their scheduled termination dates. The Company will return these four aircraft
in the first half of 2001 at a pre-tax cost of $2.1 million per aircraft.
RDU has been the Company's base of operations since March 1995, when it
relocated from Chicago following American's reduction in service in the Raleigh-
Durham market. RDU offers modern facilities with room for the Company to grow.
The Company leases 19 of the 26 gates at one of RDU's two terminals, Terminal C.
The remaining seven gates in Terminal C are used or controlled by American.
Substantially all of the gates at RDU's other terminal are occupied.
The Company supplements its service pattern and supports its hub at RDU with
feeder service provided through a code share agreement with Corporate Flight
Management, Inc. d/b/a Corporate Airlines ("Corporate Airlines"). Corporate
Airlines began providing code share services using Midway's code in May 1997,
and now provides these services to seven cities using turboprop aircraft. The
Company's agreement with Corporate Airlines is scheduled to run through March
2005 and covers eight aircraft.
The Company maintains a significant relationship with American. Part of this
relationship includes contractual arrangements with American that allow Midway
to offer AAdvantage(R) miles to, and accept AAirpass(R) tickets, American first
class upgrades and AAdvantage(R) reward travel from its passengers. Midway also
contracts with American for other services, including yield management and
ground handling.
In 1997, the Company completed both a Recapitalization (the "Recapitalization")
and an initial public offering. The Recapitalization resulted in expense
reductions in aircraft rent, facility rentals, and other expenses. In December
1997, the Company completed an initial public offering of its common stock at
$15.50 per share. Of the 4,830,000 shares of common stock sold, 2,699,320
shares were sold by the Company and the remaining 2,130,680 shares were sold by
selling stockholders. Proceeds to the Company, net of underwriters' discount
and offering expenses, were approximately $37.7 million.
OPERATING STRATEGY
The principal elements of the Company's operating strategy are:
. ATTRACT HIGH-YIELDING LOCAL BUSINESS TRAVELERS. Based on 1999 data, the
Company's yields were higher than the yields of many other jet operators.
To attract high-yielding passengers, the Company has designed its
operations to serve the needs of business travelers flying to and from
Raleigh-Durham. The Company has developed relationships with major
corporations located in the Raleigh-Durham area, and offers these business
travelers frequent non-stop jet service, as well as an attractive, high
quality in-flight product and AAdvantage(R) frequent flyer miles. The
Company believes this focus on the needs of business travelers has produced
a loyal customer base and a higher percentage of business travelers than
other carriers.
<PAGE>
. MAINTAIN HIGH QUALITY OPERATIONS. Because the Company's business customers
require consistent, dependable performance, Midway is committed to meeting
the highest operational standards. The Company believes its completion
factor and on-time performance levels are higher than those of the major
carriers. The Company achieved these performance measures by (i) operating
one of the youngest all jet fleets in the United States, with an average
age of 2.3 years as of March 27, 2000, (ii) maintaining spare aircraft to
ensure a high completion factor, and (iii) using high quality maintenance
providers such as affiliates of Bombardier Inc. and Rolls-Royce.
. PROVIDE QUALITY CUSTOMER SERVICE. The Company seeks to generate a high
degree of loyalty and customer preference by providing high quality in-
flight amenities and customer service. The Company emphasizes customer
service from reservation to destination and offers tangible amenities such
as greater leg room, leather seating, hot towel and mint service, gourmet
coffee, quality snacks, and a quiet, modern all-jet fleet.
. CONTINUE TO REDUCE OPERATING COSTS. Because of its focus on business
travelers and premium service, its small aircraft and its relatively short
average stage length, the Company operates with yields and a cost per
available seat mile that are higher than industry averages. The Company is
committed to maintaining a competitive cost structure and continuously
seeks cost reduction opportunities. In addition to the cost savings
resulting from the Recapitalization, the Company has entered into new
maintenance contracts, reduced dependence on third-party vendors for
reservation call handling, reduced the cost of credit card processing,
reduced certain insurance costs, lowered its average commission expenses,
and implemented an automated voice-response flight information system. The
Company further expects that its unit costs will be reduced with the
introduction of the 737s into its fleet. The Company believes that the 737s
have approximately the same cost per trip as the F100s they replace, but,
with approximately 30 more seats per departure, they have 30% lower unit
costs than the F100s.
GROWTH STRATEGY
The Company continues to believe that RDU remains relatively under-served with
respect to non-stop flights. The Company also believes that its RDU hub can
serve as a convenient connecting point for East Coast leisure and some business
travelers. To address these needs and to better serve its core business
customers, since December 1997, the Company has placed in service a net of 17
additional aircraft and has orders for 21 more aircraft.
The principal elements of the Company's growth strategy are:
. INCREASE FREQUENCIES TO CURRENT MARKETS. The Company's market share and
route profitability are greatest on routes where it offers the same or
higher frequency and better timing of flights compared to its competitors.
The Company's core customers are business travelers who generally pay
higher fares and select an airline primarily based on convenience of
schedule. Introduction of the CRJs and 737s has enabled the Company to
increase frequency and offer more convenient scheduling to current markets,
while selectively increasing capacity in markets. With the delivery of the
CRJs and 737s, the Company has increased its scheduled flights from
typically three flights per day per market to typically five flights per
day per market.
. INCREASE NUMBER OF MARKETS SERVED. The Company has identified a number of
additional new market opportunities that it believes can support non-stop
service from Raleigh-Durham. In addition, the Company believes that
existing demand on a number of routes currently served with 19-seat
turboprop aircraft by Midway's code sharing commuter partner, Corporate
Airlines, can support 50-seat CRJ service. The Company believes that some
customers have a strong preference for jet service, and will pay a premium
or choose a connecting flight to avoid flying on turboprop aircraft. The
Company has introduced CRJ jet service in several of these markets. Since
the introduction of CRJs in late 1997, jet service has been initiated to
Charleston, South Carolina; Columbus, Ohio; Indianapolis, Indiana;
Jacksonville,Florida; Myrtle Beach, South Carolina; New Orleans,
Louisiana; Louisville, Kentucky; Rochester, New York; and Wilmington, North
Carolina. In some markets, the jet service supplements turboprop service.
. MAXIMIZE CONNECTING OPPORTUNITIES. The Company's growth at its RDU hub has
resulted in, and will continue to result in, the addition of new markets
and an increase of frequencies in current markets. As the hub expands and
the Company's average seats per departure grows, the Company believes it
can attract a larger share of passengers connecting over RDU.
Opening new markets requires the commitment of a substantial amount of
resources, both before the new services commence and throughout the early phases
of the new operation. There can be no assurance that the Company will be able to
identify and successfully establish new markets.
<PAGE>
RALEIGH-DURHAM MARKET
The Company believes that it is well positioned to benefit from the rapidly
expanding Raleigh-Durham area. Raleigh-Durham's metropolitan population is
approximately 1.4 million.
The Company currently carries more passengers and operates more flights at RDU
than any other airline. Air travel at RDU has grown by an average of 11% per
year from 1995 to 1999, compared to 5% for the United States as a whole. The
Company believes that the area's growing business community offers opportunities
for the Company's expansion at RDU with regional jets and the larger 737s. The
Company's growth has focused and will likely continue to focus on adding flights
to and from its Raleigh-Durham base of operations. Because all of Midway's
current flights have Raleigh-Durham as the origin or destination, it remains
highly dependent upon the Raleigh-Durham market. Thus a reduction in the
Company's share of the Raleigh-Durham market, reduced fares, or reduced
passenger traffic to or from Raleigh-Durham could have a material adverse effect
on the Company's financial condition and results of operations. In addition,
Midway's dependence on a single hub and on a route network operating largely on
the East Coast makes the Company more susceptible to adverse weather conditions
along the East Coast than some of its competitors that may be better able to
spread weather-related risks over larger route systems.
SERVICES
ROUTES AND SCHEDULE
The Company currently provides non-stop service from RDU to the following 21
cities: Atlanta, Georgia; Boston, Massachusetts; Charleston, South Carolina;
Columbus, Ohio; Ft. Lauderdale, Florida; Hartford, Connecticut; Indianapolis,
Indiana; Jacksonville, Florida; Louisville, Kentucky; Myrtle Beach, South
Carolina; Newark, New Jersey; New Orleans, Louisiana; New York/LaGuardia, New
York; Orlando, Florida; Philadelphia, Pennsylvania; Rochester, New York;
Stewart/Newburgh, New York; Tampa, Florida; Washington, D.C.; West Palm Beach,
Florida; and Wilmington, North Carolina. The Company believes that business
travelers select an airline primarily based on convenience of schedule, with a
strong preference for frequent, non-stop service. Midway believes that three
flights per day is the minimum service pattern necessary to successfully serve
its core business customers, and therefore currently offers between three and
six flights per business day in most of its jet markets. The introduction of the
CRJs has allowed the Company to increase frequency in several markets without
necessarily increasing overall capacity in these markets. The introduction of
the 737s has allowed the Company to increase frequency and capacity in several
markets at peak times of travel, maximizing the Company's revenue at times of
high demand.
The Company's commuter partner, Corporate Airlines, provides non-stop turboprop
aircraft service to the following seven cities from RDU: Charleston, Columbia,
Greenville-Spartanburg, and Myrtle Beach, South Carolina; New Bern and
Wilmington, North Carolina; and Norfolk, Virginia.
HIGH QUALITY CUSTOMER SERVICE
The Company has consistently promoted, and been recognized by its customers
for quality customer service that distinguishes Midway from other airlines.
Midway believes it has attained its superior level of customer service through
the efforts of its professional and personable employees and the provision of
amenities such as greater leg room, leather seating, gourmet coffee, quality
snacks, and a quiet, modern all jet fleet. Although the Company is not required
by regulation to report on-time statistics and baggage delivery performance, it
consistently ranks high relative to the nation's ten largest airlines that do
report these statistics to the U.S Department of Transportation ("DOT"). For
example, for the 12 months ended December 31, 1999, using DOT statistics and
statistics compiled from its own reports, Midway's on-time performance and
baggage delivery performance ranked among the best in the industry.
MAINTENANCE AND SUPPORT
The Company is dedicated to providing the highest level of maintenance quality
and reliability. The Company's emphasis on high quality maintenance is evidenced
by its experienced maintenance management, extensive and recurrent mechanic
training and selection of high quality maintenance providers. The Company
performs all low level checks (below "C" Check) and non-routine maintenance at
RDU or at a maintenance facility in Orlando, Florida. Major inspections and
overhauls of the airframes and engines are conducted by contract vendors whose
work and procedures are closely monitored by Midway maintenance management
personnel. The principal contract vendors currently engaged by the Company to
perform major inspections of the airframe and to perform engine overhauls
include affiliates of Bombardier Inc. and Rolls-Royce.
Eight of Midway's current 30 aircraft are Fokker F100s. Fokker Aircraft B.V., a
Dutch corporation, has ceased operations. As a result, the Fokker F100 is no
longer being manufactured. Further, the Company's cost to maintain F100 aircraft
generally exceeds the cost of similar aircraft that are presently in production.
Vendors and suppliers of key parts are generally fewer in number and their
products more expensive, and engineering is not as readily available.
<PAGE>
SALES AND MARKETING
PRICING AND YIELD MANAGEMENT
The Company's strategy is designed to result in premium yields. The Company
believes its efforts to identify favorable markets and provide premium non-stop
service enables it to generate a high degree of loyalty among its passengers and
to attract a large percentage of business travelers on its flights. Pursuant to
an agreement, American provides yield management services to the Company. The
services have enabled the Company to significantly enhance its ability to
maximize revenues. The Company's contract for the services currently extends
through August 2001, and may be extended thereafter at market terms.
DISTRIBUTION
Midway sells approximately 65% of its tickets through travel agents. Travel
agents receive commissions from airlines based on the price of the tickets they
sell. In 1995, many airlines began limiting or capping the amount of commissions
they would pay to agents for certain higher priced tickets. In October 1999,
several major carriers lowered their base commission rate from 8% to 5%. The
Company announced on February 25, 2000 that it would restructure its travel
agency commission rate to a 5% base with no cap.
Midway pays additional commissions, referred to as "overrides", to some travel
agents in connection with special revenue programs. The Company believes these
override programs result in incremental revenue to the Company. Special
distribution services offered by the Company include Midway's full-time staffing
of the "Carolina Desk" within its sales department to answer travel agent
questions or otherwise attend to the needs of these and other important
customers. The Company believes that the combination of higher available
commissions, the development of relationships between these travel agents and
senior management, and the devotion of resources to meet the needs of these
agencies has resulted in strong support of Midway by travel agencies.
CORPORATE RELATIONSHIPS
The Company believes that it receives a substantial share of travel from the
local Raleigh-Durham business community on the routes that it serves. The
Company believes that this success is in part a result of its significant
efforts to meet the demands of its core business customers, its established
relationships with many local, national and international corporations in the
Raleigh-Durham area, and the support it receives as the "hometown" airline.
Discounts are offered to a limited number of corporations in exchange for a
premium share of their travel. Employees of some of these corporations may also
be offered discounts for leisure weekend travel on flights that would otherwise
operate with empty seats. This program, called "Midway Weekend Madness", has
helped build loyalty in the Raleigh-Durham market. Midway sales agents visit
customers on a regular basis to solicit their input and to answer questions.
Each sales manager is supported by a help desk staffed full time by employees
trained to meet these customers' needs.
AMERICAN RELATIONSHIP
The Company maintains a significant relationship with American. Part of this
relationship includes contractual arrangements with American that allow Midway
to participate in the AAdvantage(R) frequent flyer program and accept
AAirpass(R) tickets and American first class upgrades from its passengers.
Midway leases from American the RDU facility and purchases a number of important
services, including yield management and ground handling.
American may terminate Midway's participation in the AAdvantage(R) program under
several circumstances, including (i) the Company's commencement of a new
frequent flyer program or its participation in another frequent flyer program,
(ii) any person or group becoming the owner of 20% or more of the Company's
outstanding voting securities or any "Disqualified Investor" becoming the owner
of 10% or more of the Company's outstanding voting securities, (iii) the making
of a significant acquisition by the Company or (iv) the Company entering into
any marketing-oriented collaborative agreement with another airline which
American reasonably believes would likely materially adversely affect American's
interests or objectives under any of its or its affiliates' agreements with the
Company. A "Disqualified Investor" is defined as (i) any other airline or
airline-related services company, (ii) any person or entity offering a frequent
traveler program or (iii) any person or entity that American believes would
likely, by virtue of its affiliation with the Company, materially adversely
affect American's interests or objectives under any of its or its affiliates'
agreements with the Company. In addition, American may terminate the Company's
lease of the RDU facility and one other service agreement that the Company has
with American if any person or group acquires 30% or more of the Company's
voting securities. Finally, if the Company pays any dividends or makes any other
cash or asset distribution to its stockholders without American's consent at any
time prior to the Company's payment in full of a certain promissory note to
American, then American may terminate the RDU facility lease, the Company's
right to offer AAdvantage(R) frequent flyer benefits, the Company's license of
the yield management system and one other service agreement.
<PAGE>
FREQUENT FLYER PROGRAM
Midway has been a partner in American's AAdvantage(R) frequent flyer program
since March 1995. Upon its arrival at RDU, Midway's participation in this
program quickly facilitated its access to a large and loyal group of
AAdvantage(R) members in the Raleigh-Durham area and along the East Coast. For
payment of a per-mile fee, the Company is able to offer its passengers the
ability to obtain award mileage on most current flights (other than those to and
from Columbus, Ohio; Indianapolis, Indiana; and Louisville, Kentucky).
AAdvantage(R) award certificates can be redeemed for travel on Midway, American
or other AAdvantage(R) partners. Midway's contract with American extends through
April 30, 2001, and gives the Company the ability to offer AAdvantage(R) miles
on several additional routes, though the Company may add new routes without
having the ability to offer AAdvantage(R) miles. The ability to offer
AAdvantage(R) miles on additional routes and the extension of the term of the
agreement are the subject of ongoing discussions between the Company and
American. The Company believes its participation in the AAdvantage(R) program
gives it access to a flexible and extremely powerful marketing tool. However,
due to the potential limitations of the agreement (including the number of
additional markets and the term of the agreement), the Company may in the future
choose or be obligated to develop its own frequent flyer program or participate
in an alternate program.
MARKETING
The Company markets its services through listings in global distribution systems
and the Official Airline Guide; through advertising and promotions in
newspapers, magazines, billboards and radio; and through direct contact with
travel agencies, corporate travel departments, wholesalers and consolidators.
The Company maintains a nationwide toll-free telephone number for use by
passengers to make reservations and purchase tickets and has sales
representatives assigned to all regions where Midway operates. The service mark
"Feel Like Flying Again" was adopted in 1995 when the Company began RDU
operations to communicate a level of service that is reminiscent of flying when
airlines generally provided higher quality service than is perceived today.
SEASONALITY
As is common in its industry, the Company experiences seasonal factors during
certain periods of the year that have combined in the past to reduce the
Company's traffic, profitability and cash generation in certain periods as
compared to the remainder of the year. The highest levels of traffic and revenue
are generally realized in the second quarter and the lowest levels of traffic
and revenue are generally realized in the third quarter. Given the Company's
high proportion of fixed costs, such seasonality affects the Company's
profitability from quarter to quarter. In addition, many of the Company's areas
of operations experience adverse weather during the winter, causing a greater
percentage of the Company's flights to be canceled and/or delayed than in other
quarters.
During January 2000, due to severe weather, the Company effectively lost five
business days of operations which will have an material impact on the first
quarter 2000 results.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1999, the Company had the number of full time equivalent
employees in the categories listed below:
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Flight Operations 328
Inflight 198
Passenger Services 390
Maintenance 81
Reservations & Marketing 212
Accounting & Finance 31
Administrative 63
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Total 1,303
=====
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The Railway Labor Act ("RLA") governs the labor relations of employers and
employees engaged in the airline industry. Comprehensive provisions are set
forth in the RLA establishing the right of airline employees to organize and
bargain collectively along craft or class lines and imposing a duty upon air
carriers and their employees to exert every reasonable effort to make and
maintain collective bargaining agreements. The RLA contains detailed procedures
which must be exhausted before a lawful work stoppage can occur.
<PAGE>
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 dates, none of the Company's employees
were represented by a union. The Company's pilots recently ratified a collective
bargaining agreement with the Company which will become effective on April 1,
2000. With respect to the fleet service employees, a contract proposal was
agreed upon by the IAM and the Company, and such agreement was submitted to the
employees for ratification on October 28, 1999; 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. In
February 2000, with the assistance of an NMB-appointed mediator, the Company
reached agreement with the IAM and members of the fleet service agent
negotiating committee on a collective bargaining agreement. The agreement was
then submitted to the fleet service agents for ratification. On March 20, 2000,
the company was informally advised that the fleet service agents voted not to
approve the agreement. The Company believes that a request for further mediation
will be made in this matter, but it has not yet received any information from
either the IAM or the NMB in this respect. Negotiations with the AFA have not
yet concluded.
The Company believes its management and employees have a good relationship.
Management, including the Company's President and Chief Executive Officer, meet
with pilots, flight attendants, customer service agents, and other employees on
a periodic basis to discuss Company objectives as well as more specific labor
related issues such as scheduling, compensation, and work rules. Management
believes it has addressed concerns in a timely and responsive manner.
GOVERNMENT REGULATION
GENERAL
The Company is subject to the jurisdiction of and regulation by the DOT, the
Federal Aviation Administration ("FAA") and certain other governmental agencies.
The DOT principally regulates economic issues affecting air service such as air
carrier certification and fitness, insurance, authorization of proposed
scheduled and charter operations, consumer protection and competitive practices.
In 1993, the Company was granted a Certificate of Public Convenience and
Necessity pursuant to Section 401 of the Federal Aviation Act authorizing it to
engage in air transportation. The DOT has authority to investigate and institute
proceedings to enforce its economic regulations and may in certain circumstances
assess civil penalties, revoke operating authority and seek criminal sanctions.
The FAA primarily regulates flight operations, in particular matters affecting
air safety, such as airworthiness requirements for aircraft, and pilot and
flight attendant certification. The FAA requires each carrier to obtain an
operating certificate and operations specifications authorizing the carrier to
operate to specific airports using specified equipment. All of the Company's
aircraft must have and maintain certificates of airworthiness issued by the FAA.
The Company holds an FAA air carrier operating certificate under Part 121 of the
Federal Aviation Regulations. The FAA has the authority to modify, suspend
temporarily or revoke permanently the authority of the Company or its licensed
personnel, after notice and a hearing, for failure to comply with regulations
promulgated by the FAA, and to assess civil penalties for such failures.
The FAA also has authority to issue maintenance directives and other mandatory
orders relating to, among other things, inspection of aircraft and engines, fire
retardant and smoke detection devices, increased security precautions, collision
and windshear avoidance systems, noise abatement and the mandatory removal and
replacement of aircraft parts that have failed or may fail in the future.
The Company is regulated by the Environmental Protection Agency and state and
local agencies with respect to the protection of the environment and to the
discharge of materials into the environment. At its aircraft line maintenance
facilities, the Company uses materials that are regulated as hazardous
substances under federal and state law. The Company maintains programs to
protect the safety of its employees who use these materials and to manage and
dispose of any waste generated by the use of these materials, and believes that
it is in substantial compliance with all applicable laws and regulations.
In addition, the Immigration and Naturalization Service, the U.S. Customs
Service, and the Animal and Plant Health Inspection Service of the Department of
Agriculture have jurisdiction over inspection of the Company's aircraft,
passengers and cargo to ensure the Company's compliance with U.S. immigration,
customs and import laws.
The Company is also subject to other federal and state laws and regulations
relating to protection of the environment, radio communications, labor
relations, equal employment opportunity and other matters.
<PAGE>
SAFETY
The Company has never had an accident, and is dedicated to ensuring its
customers' safety. The FAA monitors the Company's compliance with maintenance,
flight operations and safety regulations, maintains representatives on-site and
performs frequent spot inspections, and the Company believes it has a strong and
open relationship with its regional FAA office. The Company believes it is in
compliance with all requirements necessary to maintain in good standing its
operating authority granted by the DOT and its air carrier operating certificate
issued by the FAA. A modification, suspension or revocation of any of the
Company's DOT or FAA authorizations or certificates could have a material
adverse effect upon the Company.
SLOTS
The FAA's regulations currently limit the availability of, and permit the
buying, selling, trading, and leasing of, certain airline slots at Chicago's
O'Hare, New York's LaGuardia and Kennedy International, and Ronald Reagan
Washington National airports. A slot is an authorization to take off or land at
the designated airport within a specified time window.
The Company leases seven of its ten slots at New York's LaGuardia Airport and
ten of its twelve slots at Ronald Reagan Washington National Airport from other
airlines. The lease for two of the Company's slots at New York's LaGuardia
Airport is scheduled to expire in May 2000 and it may not be renewed. The
Company's inability to operate flights during these two slot times could have an
adverse impact on its financial results. However, the DOT has the authority to
grant slot exemptions to airlines if certain conditions are met. The Company
has filed an application for nine slot exemptions at LaGuardia Airport which, if
granted, would allow the Company to add a sixth round trip in the market and to
terminate its practice of leasing slots at LaGuardia Airport from other
airlines. The Company believes that the DOT will issue its findings on the
Company's application in April 2000. The leases for the remaining five leased
slots at LaGuardia Airport and the six leased slots at Ronald Reagan Washington
National Airport are scheduled to expire April 1, 2001. The lease for the
remaining four leased slots at Ronald Reagan Washington National Airport expires
in October 2000. The Company believes it will be able to renew these leases on
terms which will be acceptable to the Company.
The DOT's slot regulations require the use of each slot at least 80% of the
time, measured on a bimonthly basis. Failure to meet this utilization threshold
without a waiver from the DOT, which is granted only under exceptional
circumstances, subjects the slot to recall by the DOT. In addition, the slot
regulations provide that slots may be withdrawn by the DOT at any time without
compensation to the carrier holding or operating the slot to meet the DOT's
operational needs, such as providing slots for international carriers or
essential air transportation.
FOREIGN OWNERSHIP
Pursuant to law and the regulations of the DOT, the Company must be effectively
controlled by United States citizens. In this regard, the Company's President
and at least two-thirds of the Company's Board of Directors must be United
States citizens and not more than 25% of the Company's voting stock may be owned
by foreign nationals (although subject to DOT approval the percent of foreign
economic ownership may be as high as 49%).
FUEL
The cost of fuel is a significant operating expense, constituting approximately
12.6%, 10.5% and 11.2% of total expenses for the years ended December 31, 1997,
1998, and 1999, respectively. The Company's fuel costs increased approximately
115% for the quarter ending March 31, 2000, from the quarter ending March 31,
1999. This increase in the cost of fuel will adversely impact the Company's
results of operations in 2000 compared to 1999. Historically, jet fuel costs
have been subject to wide price fluctuations. Jet fuel availability is also
subject to periods of market surplus and shortage. Because of the effect of such
events on price and availability of oil, the cost and future availability of jet
fuel cannot be predicted with any degree of certainty.
The Company's fuel requirements are met by approximately a dozen different
suppliers. The Company contracts with these suppliers as fuel is needed, and the
terms vary as to price and quantity. The Company has not entered into any
agreement that fixes the price of fuel over any period of time.
COMPETITION
The airline industry is highly competitive and the Company competes with other
air carriers either directly or indirectly on all of its routes. Nearly all of
these carriers have greater financial resources than the Company, and most of
them have lower unit costs than the Company. Furthermore, the introduction of
service or discounted fares by a major U.S. airline or one of its low cost
affiliates in markets served by the Company could have an adverse impact upon
its business, financial condition and results of
<PAGE>
operation. Since late 1997, the Company has experienced, and likely will
continue to experience, increased competition in the Raleigh-Durham market.
In 1999, both Southwest Airlines and MetroJet, the low-fare division of US
Airways, initiated service at RDU. Southwest began service to five cities from
RDU with 12 daily flights and will, by April 2000, operate service to six cities
with 16 daily flights. Although MetroJet announced plans to serve six cities
from RDU with 17 daily flights, the Company anticipates that MetroJet will have
withdrawn all of its services from RDU by the end of the second quarter of 2000.
INSURANCE
The Company maintains insurance policies of types customary in the industry and
in amounts management believes are adequate to meet DOT requirements and to
protect the Company and its property against material loss. The policies
principally provide coverage for public liability, passenger liability, baggage
and cargo liability, property damage, including coverage for loss or damage to
its flight equipment, and worker's compensation insurance. There can be no
assurance, however, that the amount of insurance carried by the Company will be
sufficient to protect it from material loss.
CONTROL BY EXISTING SHAREHOLDERS
James H. Goodnight, Ph.D., and John P. Sall currently own approximately 31.9%
and 15.5%, respectively, of the Company's outstanding shares of Common Stock,
without giving effect to the shares that may be issued upon the exercise of
outstanding warrants and stock options. Although the Company is not aware of any
arrangement or understanding, contractual or otherwise, that obligates Dr.
Goodnight and Mr. Sall to act in concert with respect to the Company, such level
of stock ownership by Dr. Goodnight and Mr. Sall may allow them to elect all of
their designees to the Board of Directors and to control the outcome of
virtually all matters submitted for a vote of stockholders. The combined equity
interests of Dr. Goodnight and Mr. Sall in Midway may have the effect of making
certain transactions more difficult or of delaying, deferring or preventing a
change in control of the Company.
In November 1999, Dr. Goodnight and Mr. Sall submitted to the Company a proposal
to merge the Company with a company owned by Mssrs. Goodnight and Sall. In the
merger proposal, all of the shares of the Company not owned by Messrs. Goodnight
and Sall would have been exchanged for cash at $8.00 per share. A Special
Committee comprised of independent members of the Board of Directors was
appointed to review the proposal. In December 1999, the Company announced that
the Special Committee and Messrs. Goodnight and Sall were unable to reach an
agreement with respect to the value of the Company's common stock, and that the
merger proposal had been withdrawn by Messrs. Goodnight and Sall.
In March 2000, the Company entered into a commitment letter relating to a $30
million revolving loan (the "Credit Facility") to be provided by Reedy Creek
Investments, L.L.C., an entity which is wholly owned by Messrs. Goodnight and
Sall.
Proceeds from the Credit Facility will be used to fund the payment of certain
pre-aircraft delivery deposit obligations, for capital expenditures and for
general working capital purposes. Outstanding loans made under the Credit
Facility, if any, will be prepaid and the remaining available loan commitment
will be reduced on pre-aircraft delivery to not more than $10 million on the
earlier of September 30, 2000 and the date on which the Company completes the
rights offering of securities described below.
Pursuant to the Credit Facility commitment letter, the Company is obligated to
undertake a rights offering of securities on the following terms:
. a right ("Right") to purchase a share of common stock in the Company
will be issued to each holder of common stock in the Company on a
share for share basis. The Rights will be issued to holders of common
stock on the date which is 10 days after the filing of the
registration statement covering such Rights (the "Record Date"). The
Record Date may be postponed pending the effectiveness of the
registration statement covering such Rights. The Rights will be
issued immediately following the effectiveness of the registration
statement covering such Rights (the "Issuance Date").
. each Right shall entitle the holder thereof to purchase one share of
common stock in the Company for $5.20 per common share (the
"Subscription Price").
. Rights to purchase shares of common stock in the Company will not be
listed on NASDAQ or any other exchange and will not be transferable
or assignable.
. Rights will be exercisable for 30 days from the Issuance Date.
. Messrs. Goodnight and Sall have each agreed to exercise their
respective Rights.
. Messrs. Goodnight and Sall have also each agreed to purchase, and all
other holders of common stock on the Record Date who have timely
exercised all of their Rights will also have the right to purchase at
the Subscription Price, such shares of common stock subject to Rights
issued on the Issuance Date which have not been timely exercised
multiplied by their percentage ownership interests in the Company's
common stock on the Record Date.
Item 2. Properties
FLIGHT EQUIPMENT
As of March 27, 2000, Midway operates a fleet of eight F100s, twenty CRJs and
two 737s, with an average age of 2.3 years. The F100s are configured with eight
first class seats and 90 coach seats, the CRJs are configured with 50 single
class coach seats, and the 737s are configured with eight first class seats and
120 coach seats. All of the aircraft meet Stage 3 noise requirements imposed by
federal law. The Company believes that its young all-jet fleet gives it a
significant advantage in attracting and retaining business travelers and
improves its reliability statistics. However, the limited number of aircraft
operated by the Company involves financial risks not present for larger carriers
that are able to spread their operating costs over more equipment and routes.
The age of the Company's fleet and those aircraft owned and leased, at March 30,
2000, was as follows:
<TABLE>
<CAPTION>
OWNED LEASED TOTAL AVERAGE AGE
<S> <C> <C> <C> <C>
737s -- 2 2 0.2 years
CRJs 5 15 20 1.1 years
F100s -- 8 8 5.7 years
</TABLE>
The Company has firm orders for six additional newly manufactured CRJ aircraft,
all of which are scheduled to be delivered by December 2001. The Company also
has options to acquire up to 14 additional CRJs with delivery dates for the
first seven of these aircraft extending over a one year period beginning in
2002. The Company has firm orders to purchase fifteen additional 737 aircraft
with deliveries scheduled to begin in September 2000 and end in October 2002,
however, this delivery schedule could be impacted by a recently ended strike of
The Boeing Company's engineers. The Company has options to acquire 10
additional 737 aircraft. To support its operations, the Company acquired two
spare Rolls Royce Tay 650-15 engines in 1998 for the F100 fleet, and two General
Electric CF34-3B1 spare engines to support the CRJ fleet. The Company intends
to acquire up to four CFM 56-7B spare engines to support the operation of the
737-700 fleet.
<PAGE>
The mix of Midway's fleet between 98-seat F100s, 50-seat CRJs, and 128-seat
737s should allow the Company to meet expected passenger volumes while
maintaining a competitive cost structure, and should enhance the Company's
ability to more efficiently match its aircraft to its route network
requirements.
<PAGE>
The Company currently leases eight F100s. In December 1999, the Company
settled a pending lawsuit with the lessor of four F100 aircraft previously
operated by the Company. As a result of this settlement, the Company recorded a
pre-tax charge of approximately $700,000 during the fourth quarter of 1999 and
obtained an option to terminate leases on four other F100s. On February 29,
2000, the Company exercised this option to terminate the leases on these four
F100s prior to their scheduled expirations in 2003 and 2004, resulting in a
revised scheduled return date of these aircraft in the first half of 2001. The
Company is required to pay the lessor $2,125,000 upon the termination of each of
these four leases. In addition, the Company is required to perform certain
maintenance tasks on these aircraft prior to their return.
Pursuant to a March 1995 purchase agreement, Midway is obligated to purchase
four Airbus A320 aircraft with deliveries in 2005 and 2006. To support the
operation of the four A320 aircraft, the Company also agreed to purchase one IAE
V2527-A5 spare engine scheduled for delivery in November 2005 from International
Aero Engines AG ("IAE"). The purchase of the A320s and the associated spare
engine no longer fit with the Company's current strategy. The Company is
considering several alternatives with respect to the A320s, including
restructuring its agreement with Airbus or selling its positions.
FACILITIES
Of the 26 gates at the newer of RDU's two terminals, Terminal C, the Company
currently leases 19 gates through February 2013. The Company's corporate
headquarters and reservations facility are located in Morrisville, NC, where it
leases approximately 32,000 square feet of space. The Morrisville facility lease
expires in 2008. The Company also occupies space in Orlando, Florida, where it
performs aircraft maintenance.
At most airports other than RDU, Midway obtains the use of gates as part of
third party ground handling contracts.
The Company currently has a sufficient number of leased gates and other airport
facilities, but operations of the Company may be constrained at certain airports
by insufficient availability of gates on attractive terms or other factors.
<PAGE>
Item 3. Legal Proceedings
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. 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 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 is involved in various legal proceedings that are incidental to the
conduct of its business. 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.
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE>
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is traded on The Nasdaq Stock Market under the symbol
"MDWY". Trading began in December 1997 upon the completion of Midway's initial
public offering of common stock, and the following table sets forth the reported
high and low closing sale prices of the common stock for the periods indicated:
<TABLE>
<CAPTION>
1998 High Low
- ---- ---- ---
<S> <C> <C>
First Quarter $21.750 $16.125
Second Quarter 21.063 17.750
Third Quarter 21.750 9.875
Fourth Quarter 14.875 9.688
1999 High Low
- ---- ---- ---
First Quarter $17.125 $11.000
Second Quarter 12.625 9.000
Third Quarter 9.875 6.125
Fourth Quarter 7.375 6.125
</TABLE>
As of March 21, 2000, there were 8,613,595 shares outstanding and approximately
5,150 beneficial shareholders of record.
The Company has not paid cash dividends since its formation and does not
anticipate that cash dividends will be paid in the foreseeable future, since the
Company intends to retain any future earnings to finance the expansion and
continuing development of its business. In addition, one of the Company's debt
instruments prohibits the payment of dividends until such debt has been repaid
and certain aircraft leases prohibit the payment of dividends to insiders until
other debt has been repaid. The declaration and payment in the future of any
cash dividends will be at the election of the Company's Board of Directors and
will depend upon the earnings, capital requirements and financial position of
the Company, future loan covenants, general economic conditions and other
pertinent factors.
<PAGE>
Item 6. Selected Financial Data
The following selected financial data are derived from the audited financial
statements of the Company. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and notes thereto included elsewhere in
this document.
<TABLE>
<CAPTION>
Year ended
December 31,
<S> <C> <C> <C> <C> <C>
1995 1996(1) 1997(1) 1998(1) 1999
---- ------- ------- ------- ----
(dollars in thousands except per share amounts)
Statement of Operations Data:
Operating revenues:
Passenger $118,568 $173,541 $179,000 $205,566 $213,018
Other 4,034 6,493 7,275 5,873 4,928
-------- -------- -------- -------- --------
Total operating revenues 122,602 180,034 186,275 211,439 217,946
Operating expenses:
Wages, salaries and related costs 19,874 24,619 25,757 31,822 38,875
Aircraft fuel 16,782 27,300 21,499 19,623 22,738
Aircraft and engine rentals 30,889 34,113 30,495 29,927 31,429
Commissions 9,382 13,728 13,978 15,071 14,229
Maintenance, materials and repairs 13,551 17,930 17,006 17,103 13,388
Other rentals and landing fees 11,924 12,711 9,812 9,646 10,098
Depreciation and amortization 2,056 1,346 1,999 6,162 7,938
Other operating expenses 43,769 54,603 49,862 53,541 59,773
Restructuring (2) 6,004 - - - -
Impairment of long-lived assets (3) - 16,941 - - -
Equipment retirement charges (4) - - - 2,413 2,765
Recapitalization (5) - - 750 - -
-------- -------- -------- -------- --------
Total operating expenses 154,231 203,291 171,158 185,308 201,233
-------- -------- -------- -------- --------
Operating income (loss) (31,629) (23,257) 15,117 26,131 16,713
Interest income (expense), net (413) (1,841) 114 (1,972) (1,621)
Other income (expense) (222) 834 - - -
-------- -------- -------- -------- --------
Total other income (expense) (635) (1,007) 114 (1,972) (1,621)
-------- -------- -------- -------- --------
Income (loss) before income taxes and extraordinary gain (32,264) (24,264) 15,231 24,159 15,092
Income tax expense - - 6,306 9,178 5,736
Income (loss) before extraordinary gain (32,264) (24,264) 8,925 14,981 9,356
Extraordinary gain (6) - - 15,969 - -
-------- -------- -------- -------- --------
Net income (loss) (32,264) (24,264) 24,894 14,981 9,356
Preferred dividends (1,440) - - - -
-------- -------- -------- -------- --------
Net income (loss) available for common stockholders $(33,704) $(24,264) $ 24,894 $ 14,981 $ 9,356
======== ======== ======== ======== ========
Per Share Amounts (7):
Basic earnings per share:
Income before extraordinary gain $ 1.47 $ 1.75 $ 1.09
Extraordinary gain 2.64 - -
----- ----- -----
Net income $ 4.11 $ 1.75 $ 1.09
===== ===== =====
Weighted average shares used in computing basic
earnings per share 6,059,051 8,574,972 8,602,395
========= ========= =========
Diluted earnings per share:
Income before extraordinary gain $ 1.24 $ 1.54 $ 0.98
Extraordinary gain 2.22 - -
--------- --------- --------
Net income $ 3.46 $ 1.54 $ 0.98
========= ========= ========
Weighted average shares used in computing
diluted earnings per share 7,193,794 9,731,527 9,507,175
========= ========= =========
Other Financial Data:
Cash flows provided by (used in):
Operating activities $ (805) $5,784 $10,283 $22,257 $21,979
Investing activities (6,876) (2,614) (25,219) (9,681) (51,345)
Financing activities 3,571 4,836 58,640 (18,349) 7,981
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1995 1996 (1) 1997 1998 1999
---- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected Operating Statistics (8):
Available seat miles (000s) 1,387,921 1,758,560 1,387,864 1,544,945 1,565,781
Revenue passenger miles (000s) 692,681 998,959 875,752 1,008,567 1,031,583
Load factor 49.9% 56.8% 63.1% 65.3% 65.9%
Break-even load factor (9) 60.8% 59.2% 57.5% 56.8% 60.4%
Departures 24,403 29,192 26,898 35,990 46,751
Block hours 38,933 48,682 42,867 55,783 71,705
Passenger revenue per ASM (cents) 8.54 9.87 12.90 13.31 13.60
Yield (cents) 17.12 17.37 20.44 20.38 20.65
Average fare $ 89 $ 99 $ 108 $ 103 $ 103
Operating Cost per available seat mile (cents) (10) 10.68 10.60 12.28 11.84 12.68
Onboard passengers 1,338,438 1,742,957 1,660,140 1,995,117 2,063,192
Average seats per departure 108 104 101 88 68
Average stage length (miles) 532 571 524 475 471
Aircraft (average during period) 11.0 13.7 13.0 18.1 22.8
Aircraft utilization (hours per day) 9.9 9.8 9.0 8.4 8.6
Fuel price per gallon (cents) 69.0 80.6 73.4 57.3 61.7
as of December 31,
------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(dollars in thousands)
Balance Sheet Data
Cash, cash equivalents, restricted cash and short-term investments $ 2,799 $ 12,805 $ 58,071 $ 58,248 $ 38,564
Working capital (41,117) (42,198) 20,826 32,880 4,414
Equipment and property, net 9,258 6,669 46,574 103,007 120,405
Equipment purchase deposits, net 7,749 1,846 17,133 18,103 61,824
Total assets 56,010 38,384 139,810 203,581 256,689
Long-term debt and capital lease obligations (net of current
maturities) 7,307 11,704 39,187 78,764 103,349
Stockholders' equity (18,385) (40,569) 48,486 70,463 83,136
</TABLE>
(1) The Company reclassified certain balances to reflect classifications in
1997, 1998 and 1999 financial statements.
(2) The Company recorded restructuring charges in 1995 of $6.0 million related
to the return of four A320 aircraft and other related one-time charges.
(3) The Company recorded an impairment loss of $16.9 million from certain long-
lived assets, primarily intangible assets, that were determined by Company
management to be impaired in accordance with SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
(4) The Company recorded equipment retirement charges related to the return of
four Fokker and one Airbus aircraft to their lessors. (See Note 2 of Notes to
Financial Statements)
(5) The Company recorded a one-time charge of $0.75 million in 1997 related to
the Recapitalization. (See Note 12 of Notes to Financial Statements)
(6) Extraordinary gain consists of one-time gains recognized in connection with
the Recapitalization. (See Note 12 of Notes to Financial Statements)
(7) Since the Company was recapitalized in February 1997 and all prior capital
stock was canceled at that time, per share amounts prior to 1997 are not
meaningful and thus are not presented.
(8) For definitions of the airline operating terms used in this table, see
"Glossary" below.
(9) "Break-even load factor" as represented above excludes restructuring,
impairment of long-lived assets, equipment retirement charges and
recapitalization expenses divided by the product of available seat miles and
yield. Had restructuring, impairment of long-lived assets, equipment retirement
charges and recapitalization expenses been included for the years ended December
31, 1995, 1996, 1997, 1998 and 1999 the break-even load factor would have been
63.3%, 64.6%, 57.8%, 57.6% and 61.2%, respectively.
(10) "Operating cost per available seat mile" as represented above equals total
operating costs less restructuring, impairment of long-lived assets, equipment
retirement charges and recapitalization expenses, divided by available seat
miles. Had restructuring, impairment of long-lived assets, equipment retirement
charges and recapitalization expenses been included for the years ended December
31, 1995, 1996, 1997, 1998 and 1999 cost per available seat mile would have been
11.11 cents, 11.56 cents, 12.33 cents, and 11.99 cents and 12.85 cents,
respectively.
<PAGE>
Glossary
Certain terms included in this document have the meanings indicated below:
<TABLE>
<S> <C>
Aircraft (average during period) The average number of aircraft operated
during the period.
Aircraft utilization The average number of block hours
operated in scheduled service per day per
aircraft for the total fleet of aircraft.
Available seat miles (ASMs) The number of seats available for
scheduled passengers multiplied by the
number of miles those seats were flown.
Average fare The average fare paid by a revenue
passenger.
Average seats per departure The average number of available seats per
departing aircraft.
Average stage length The average number of miles flown per
flight.
Block hour The total time an aircraft is in motion
from brake release at the origination to
brake application at the destination.
Break-even load factor The load factor at which scheduled
passenger revenues would have been equal
to operating plus non-operating
expenses/(income) (holding yield
constant).
Cost per available seat mile (CASM) Operating expenses plus non-operating
expenses/(income) divided by ASMs.
Departure A scheduled aircraft flight.
Fuel price per gallon The average price per gallon of jet fuel
for the fleet (excluding into plane fees)
Load factor RPMs divided by ASMs.
Onboard passengers The number of revenue passengers carried.
Revenue passenger miles (RPMs) The number of miles flown by revenue
passengers.
Passenger revenue per available
seat mile (PRASM) Passenger revenues divided by ASMs.
Yield The average scheduled passenger fare paid
for each mile a scheduled revenue
passenger is carried.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS, THE NOTES THERETO AND THE OTHER FINANCIAL DATA INCLUDED
ELSEWHERE IN THIS REPORT.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
OVERVIEW
Results of Operations
For the year ended December 31, 1999 the Company's net income was $9.4 million.
Excluding the unusual items discussed below, net income was $11.0 million, down
33% from the net income of $16.5 million for the year ended December 31, 1998.
Excluding the unusual items, operating income declined 32% in 1999 to $19.5
million from $28.5 million in 1998. Revenue for 1999 was up 3% over 1998 to
$217.9 million. Excluding the unusual items, the Company's operating margin
decreased to 8.9% in 1999 from 13.5% in 1998. Earnings per diluted share for the
year ended December 31, 1999 amounted to $0.98 ($1.16 excluding unusual items)
compared to $1.54 ($1.69 excluding unusual items) for the year ended December
31, 1998.
Unusual Items
Year Ended December 31, 1999
. $2.8 million ($1.7 million after taxes) equipment retirement charge related
to the retirement of three aircraft during the first half of 1999 and $0.7
million ($0.4 million after taxes) related to settlement of litigation with
an aircraft lessor.
Year Ended December 31, 1998
. $2.4 million ($1.5 million after taxes) equipment retirement charge related
to the retirement of five aircraft, two of which were returned at the end
of their lease terms in 1998 and three of which were returned at the end of
their lease terms in the first half of 1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Capacity. In 1999, the Company produced 1.566 billion ASMs, an increase of 20.8
million or 1.3% from 1998. The increase in ASM production was attributable to
29.9% more departures (to 46,751), offset somewhat by a 0.8% shorter average
stage length (to 471 miles) and 22.7% fewer seats per departure (to 68 seats).
These changes resulted from the change in the Company's fleet (see below) and
changes in schedules and routes during the year.
<TABLE>
<CAPTION>
As of December 31,
Aircraft 1999 1998
-------- ---- ----
<S> <C> <C>
F100 (98 seats) 8 10
A320 (148 seats) 0 1
CRJ (50 seats) 18 10
Boeing (128 seats) 1 0
-- --
27 21
</TABLE>
Operating Revenues. The Company's operating revenues increased 3.1% to $217.9
million for the year ended December 31, 1999 from $211.4 million for the year
ended December 31, 1998. The increase is attributable to a 3.4% increase in the
number of passengers boarded to 2.063 million from 1.995 million with a stable
average fare. Passenger revenue per ASM increased 2.2% to 13.6 cents per ASM
due to a 0.6 percentage point increase in load factor to 65.9% and a 1.3%
increase in passenger yield (revenue per RPM) to 20.7 cents. Cargo revenue
decreased 9.9% to $1.9 million for the year ended December 31, 1999 from $2.1
million for the year ended December 31, 1998. The decrease is due to a 36%
decrease in mail partially offset by a 16.5% increase in non-mail cargo carried
during 1999. Other revenue decreased 19.6% to $3.0 million for the year ended
December 31, 1999 from $3.8 million for the year ended December 31, 1998, due
primarily to the decrease in charters, an increase in revenue shared from the
revenue sharing agreement with the Company's commuter affiliate, and decreases
in other miscellaneous revenues.
Operating Expenses. The Company's operating expenses increased 8.6% to $201.2
million for the year ended December 31, 1999
<PAGE>
from $185.3 million for the year ended December 31, 1998. Total expenses
increased primarily due to increases in number of employees, wages, fuel,
depreciation expense, and the recording of $2.8 million of equipment retirement
charges in 1999 partially offset by reduction in maintenance costs and
commissions in 1999. Total operating expense per ASM increased 7.1% to 12.85
cents from 12.00 cents. Excluding the one-time equipment retirement charges in
1999 and 1998, operating expense per ASM increased 7.1% to 12.68 cents from
11.84 cents. This increase is attributable to higher fuel prices, increases in
wages and salaries and related costs, and depreciation and amortization
expenses.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1999
---- ----
Percent of Cost per Percent of Cost per
Total Expenses ASM (cents) Total Expenses ASM (Cents)
-------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Wages, salaries and related costs 17.0% 2.06 19.1% 2.48
Aircraft fuel 10.5 1.27 11.2 1.45
Aircraft and engine rentals 16.0 1.94 15.5 2.01
Commissions 8.0 0.98 7.0 0.91
Maintenance, materials and repairs 9.1 1.11 6.6 0.86
Other rentals and landing fees 5.1 0.62 5.0 0.64
Depreciation and amortization 3.3 0.40 3.9 0.51
Other operating expenses 28.6 3.46 29.5 3.82
----- ---- ----- -----
Sub-total operating expenses before
equipment retirement charge 97.6 11.84 97.8 12.68
----- ---- ----- -----
Equipment retirement charges 1.3 0.16 1.4 0.18
Total operating expenses 98.9 12.00 99.2 12.86
----- ----- ----- -----
Other (income) expenses 1.1 0.13 0.8 0.10
----- ---- ----- -----
Total expenses 100.0% 12.13 100.0% 12.96
===== ===== ===== =====
</TABLE>
Wages, salaries and related costs increased $7.1 million or 22.2% to $38.9
million for the year ended December 31, 1999 from $31.8 million for the year
ended December 31, 1998. The increase is attributable to increased staffing
associated with the addition of new aircraft throughout the year, annual wage
increases for all personnel and general hiring to fill specific needs within the
Company throughout 1999 and 1998. Included in the 1999 expense are discretionary
bonuses amounting to $1.2 million versus $2.4 million in 1998. Wages, salaries
and related cost per ASM increased 0.42 cents or 20.4% to 2.48 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 15.9% to $22.7 million for the year ended
December 31, 1999 from $19.6 million for the year ended December 31, 1998. The
increase was due to a 7.7% increase in the average fuel price per gallon to 61.7
cents from 57.3 cents, and a 6.2% increase in gallons of fuel consumed due to
the increased number of flights, partially offset by a shift to more fuel
efficient aircraft. Aircraft fuel expense per ASM increased 14.2% to 1.45 cents
because of the fuel price increase and the 4.8% increase in fuel consumed due to
the changes in the Company's fleet mix.
Aircraft and engine rental expense increased 5.0% to $31.4 million for the year
ended December 31, 1999 from $29.9 million for the year ended December 31, 1998.
The increase in expense is attributable to the rent expense on additional leased
CRJs and a partial month of rent for the 737-700, offset by return of four F-
100s in late 1998 and the first half of 1999, the return of the A320 in 1999,
and the reduced use of leased spare engines. Aircraft and engine rentals expense
per ASM increased 3.6% to 2.01 cents from 1.94 cents. The increase in cost per
ASM primarily resulted from the increase in the number of leased CRJ aircraft in
1999, partially offset by the return of the four F100 and one A320 aircraft in
late 1998 and the first half of 1999.
Commission expense decreased 5.6% to $14.2 million for the year ended December
31, 1999 from $15.1 million for the year ended December 31, 1998. This was due
to an 8.9% reduction in average commission paid partially offset by the 3.6%
increase in passenger revenues. Commission expense per ASM decreased 7.2% to
0.91 cents from 0.98 cents, primarily driven by the reduction in commission rate
paid and the decrease of travel agency revenues as a percent of passenger
revenue, partially offset by the 2.2% increase in passenger revenue per ASM.
Maintenance, materials and repairs expense decreased 21.7% to $13.4 million for
the year ended December 31, 1999 from $17.1 million in the year ended December
31, 1998. The expense decrease is largely attributable to the return of the five
leased aircraft partially offset by the 28.5% increase in block hours flown by
new, lower maintenance CRJs. Maintenance, materials and repairs expense per ASM
decreased 22.6% to 0.86 cents from 1.11 cents.
Other rentals and landing fees expense increased 4.7% to $10.1 million for the
year ended December 31, 1999 from $9.6 million for the year ended December 31,
1998. Other rentals and landing fees expense per ASM increased 3.2% to 0.64
cents from 0.62 cents, due to increased rents at certain facilities and a 3.2%
increase in landing weight partially offset by a 17.4% decline in landing fee
rates at RDU.
Depreciation and amortization expense increased 28.8% to $7.9 million for the
year ended December 31, 1999 from $6.2 million for the year ended December 31,
1998. Depreciation and amortization expense per ASM increased 27.5% to 0.51
cents from 0.40 cents in the year ended December 31, 1998. During 1999 the
Company increased its investment in fixed assets by 19.8%.
<PAGE>
Acquisitions included an engine for the CRJ fleet, parts for the 737-700 fleet,
F100 fleet, and CRJ fleet, ground service equipment, computer equipment, and the
new corporate headquarters.
Other operating expense increased 11.6% to $59.8 million for the year ended
December 31, 1999 from $53.5 million for the year ended December 31, 1998.
Other operating expenses consist primarily of reservations, ground handling,
advertising, general and administrative expense and insurance. The increase in
expense is attributable to the 29.9% increase in departures and 3.4% increase in
passengers, partially offset by savings in insurance and efficiencies created by
growth. Other operating expense per ASM increased 10.4% to 3.82 cents from 3.46
cents in 1998.
Interest income decreased $1.1 million to $2.2 million for the year ending
December 31, 1999 due to lower average cash balances due to predelivery deposits
for the CRJ and Boeing fleets. Interest expense decreased $1.5 million to $3.8
million due to the offset of interest expense by the capitalized interest on
aircraft deposits. Interest expense per ASM for year ending December 31, 1999
was 0.10 cents compared to interest expense per ASM of 0.13 cents in the
comparable prior period.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
OVERVIEW
Results of Operations
For the year ended December 31, 1998 the Company's net income was $15.0 million.
Excluding the unusual items discussed below, net income was $16.5 million, up
75% from the net income of $9.4 million for the year ended December 31, 1997.
Operating income, excluding the unusual items, rose 80% in 1998 to $28.5 million
from $15.9 million in 1997. Revenue for 1998 was up 14% over 1997 to $211.4
million. Excluding the equipment retirement and special recapitalization
charges, the Company's operating margin increased to 13.5% in 1998 from 8.5% in
1997. Earnings per diluted share for the year ended December 31, 1998 amounted
to $1.54 ($1.69 excluding unusual items) compared to $3.46 ($1.34 excluding
unusual items) for the year ended December 31, 1997.
Unusual Items
Year Ended December 31, 1998
. $2.4 million ($1.5 million after taxes) equipment retirement charge related
to the retirement of five aircraft, two of which left the fleet in 1998.
Year Ended December 31, 1997
. Extraordinary gain of $16.0 million and a special recapitalization charge
of $0.75 million ($0.45 million after taxes), both related to the February
1997 recapitalization of the Company.
Capacity. In 1998, the Company produced 1.545 billion ASMs, an increase of 157
million or 11.3% from 1997. The increase in ASM production was attributable to
33.8% more departures (to 35,990), offset somewhat by a 9.4% shorter average
stage length (to 475 miles) and 12.9% fewer seats per departure (to 88 seats).
These changes resulted from the addition throughout 1998 of ten, 50-seat CRJs,
which added frequency to shorter routes and began flying new shorter haul
routes, as well as the Company's cancellation of service on certain longer haul
routes.
Operating Revenues. The Company's operating revenues increased 13.5% to $211.4
million for the year ended December 31, 1998 from $186.3 million for the year
ended December 31, 1997. The increase is attributable to a 20.2% increase in the
number of passengers boarded to 1.995 million from 1.660 million offset by a
4.6% decrease in average fare paid to $103 from $108. Passenger revenue per ASM
increased 3.2% to 13.3 cents per ASM due to a 2.2 percentage point increase in
load factor to 65.3% partially offset by a 0.3% decrease in yield (revenue per
RPM) to 20.4 cents. Cargo revenue increased 9.5% to $2.1 million for the year
ended December 31, 1998 from $1.9 million for the year ended December 31, 1997.
The increase is due to increased mail and other cargo carried during 1998. Other
revenue decreased 29.7% to $3.8 million for the year ended December 31, 1998
from $5.3 million for the year ended December 31, 1997, due primarily to the
revenue sharing agreement with the Company's commuter affiliate.
Operating Expenses. The Company's operating expenses increased 8.3% to $185.3
million for the year ended December 31, 1998
<PAGE>
from $171.2 million for the year ended December 31, 1997. Total expenses
increased primarily due to increases in number of employees, wages, commissions,
depreciation expense, ground handling, and the recording of $2.4 million of
equipment retirement charges in 1998 partially offset by reduction in fuel
prices in 1998 and the absence of the special recapitalization charge which was
reflected in 1997. Total operating expense per ASM decreased 2.8% to 12.00 cents
from 12.34 cents. Excluding the one-time charges for the Recapitalization in
1997 and the equipment retirement charges in 1998, operating expense per ASM
decreased 3.7% to 11.84 cents from 12.29 cents. This decrease is attributable to
the reduction in fuel prices and the spreading of the Company's fixed costs over
the larger, more cost-efficient ASM base discussed above in "Capacity", offset
by increases in wages and salaries and related costs, including profit sharing,
and depreciation expenses.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998
---- ----
Percent of Cost per Percent of Cost per
Total Expenses ASM (cents) Total Expenses ASM (Cents)
--------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Wages, salaries and related costs 15.1% 1.86 17.0% 2.06
Aircraft fuel 12.6 1.55 10.5 1.27
Aircraft and engine rentals 17.8 2.20 16.0 1.94
Commissions 8.2 1.01 8.0 0.98
Maintenance, materials and repairs 9.9 1.23 9.1 1.11
Other rentals and landing fees 5.7 0.71 5.1 0.62
Depreciation and amortization 1.2 0.14 3.3 0.40
Other operating expenses 29.2 3.59 28.6 3.46
----- ----- ----- -----
Sub-total operating expenses before recapitalization
charge and equipment retirement charge 99.7 12.29 97.6 11.84
----- ----- ----- -----
Equipment retirement charges 0.0 0.00 1.3 0.16
Recapitalization charge 0.4 0.05 0.0 0.00
----- ----- ----- -----
Total operating expenses 100.1 12.34 98.9 12.00
----- ----- ----- -----
Other (income) expenses (0.1) (0.01) 1.1 0.13
----- ----- ----- -----
Total expenses 100.0% 12.33 100.0% 12.13
===== ===== ===== =====
</TABLE>
Wages, salaries and related costs increased $6.1 million or 23.5% to $31.8
million for the year ended December 31, 1998 from $25.8 million for the year
ended December 31, 1997. The increase is attributable to increased staffing
associated with the addition of new aircraft throughout the year, annual wage
increases for all personnel and general hiring to fill specific needs within the
Company throughout 1997 and 1998. Included in the 1998 expense are discretionary
bonuses amounting to $2.4 million versus $1.2 million in 1997. Wages, salaries
and related cost per ASM increased 0.20 cents or 10.8% to 2.06 cents. The
increase in unit costs is attributable to the items noted above as well as the
changes noted in "Capacity".
Aircraft fuel expense decreased 8.7% to $19.6 million for the year ended
December 31, 1998 from $21.5 million for the year ended December 31, 1997. The
decrease was due to a 21.9% decrease in the average fuel price per gallon to
57.3 cents from 73.4 cents, partially offset by the 16.8% increase in gallons of
fuel consumed. Aircraft fuel expense per ASM decreased 18.1% to 1.27 cents
because of the fuel price reduction.
Aircraft and engine rental expense decreased 1.9% to $29.9 million for the year
ended December 31, 1998 from $30.5 million for the year ended December 31, 1997.
The decrease in expense is attributable to the lower lease rates for the F100s
after the Recapitalization in February 1997, the return of two F100s in late
1998, and the reduced use of leased spare engines, offset by rent expense on
five new, leased CRJs. Aircraft and engine rentals expense per ASM decreased
11.8% to 1.94 cents from 2.20 cents. The decrease in cost per ASM primarily
resulted from the 11.3% increase in ASMs discussed above in "Capacity", largely
flown on five owned CRJs which did not incur lease expense.
Commission expense increased 7.8% to $15.1 million for the year ended December
31, 1998 from $14.0 million for the year ended December 31, 1997. This was due
to the 14.8% increase in passenger revenues partially offset by a decrease of
travel agency revenues as a percent of passenger revenue to 65.7% from 69.2% and
a reduction in commission rate paid from 10% to 8%. Commission expense per ASM
decreased 3.0% to 0.98 cents from 1.01 cents, primarily driven by the decrease
of travel agency revenues as a percent of passenger revenue and the reduction in
commission rate paid offset somewhat by the 3.2% increase in passenger revenue
per available seat mile to 13.3 cents from 12.9 cents.
Maintenance, materials and repairs expense increased 0.6% to $17.1 million for
the year ended December 31, 1998 from $17.0 million in the year ended December
31, 1997. The expense increase is largely attributable to the 30.1% increase in
block hours by the new, lower maintenance CRJs offset by reductions in Fokker
maintenance rates and the disposition of two Fokkers at the end of their lease
terms in 1998. Maintenance, materials and repairs expense per ASM decreased 9.8%
to 1.11 cents from 1.23 cents.
Other rentals and landing fees expense decreased 1.7% to $9.6 million for the
year ended December 31, 1998 from $9.8 million for the year ended December 31,
1997. Other rentals and landing fees expense per ASM decreased 12.7% to 0.62
cents from 0.71 cents, due to decreased rents at certain facilities, lower
landing fees for the relatively lighter CRJ aircraft and lower landing fees at
RDU, partially offset by increased landings.
Depreciation and amortization expense increased 208.3% to $6.2 million for the
year ended December 31, 1998 from $2.0 million for the year ended December 31,
1997. Depreciation and amortization expense per ASM increased 185.7% to 0.40
cents from 0.14
<PAGE>
cents in the year ended December 31, 1997. During 1998 the Company increased its
investment in fixed assets by $62.6 million, including the acquisition of five
owned CRJs, the acquisition of an inventory of F100 parts, two newly acquired
F100 spare engines, and CRJ parts to provision the new fleet type.
Other operating expense increased 7.4% to $53.5 million for the year ended
December 31, 1998 from $49.9 million for the year ended December 31, 1997. Other
operating expenses consist primarily of facility rentals, reservations, ground
handling, advertising, general and administrative expense and insurance. The
increase in expense is attributable to the 33.8% increase in departures and
20.2% increase in passengers, partially offset by savings in insurance,
marketing expenses and efficiencies created by growth. Other operating expense
per ASM decreased 3.6% to 3.46 cents from 3.59 cents in 1997.
Interest income increased $1.6 million to $3.3 million for the year ending
December 31, 1998 due to higher average cash balances throughout the year.
Interest expense increased $3.6 million to $5.3 million due to the debt service
on the five owned CRJs and the Fokker spare engine loans. Interest expense per
ASM for the year ending December 31, 1998 was 0.13 cents compared to interest
income per ASM of 0.01 cents in the comparable prior period.
<PAGE>
In the last quarter of 1997, the Company fully reserved a receivable of $1.6
million due from a business partner. The Company made certain other adjustments
in the last quarter of 1997 related to physical inventory adjustments, changes
in estimates related to the special recapitalization charges and the
extraordinary gain. The net increase (decrease) of the adjustments resulted in a
decrease in income before extraordinary gain of $0.4 million and an increase in
net income of $0.5 million.
SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS
As is common in its industry, the Company experiences seasonal factors during
certain periods of the year that have combined in the past to reduce the
Company's traffic, profitability and cash generation in certain periods as
compared to the remainder of the year. The highest levels of traffic and revenue
are generally realized in the second quarter and the lowest levels of traffic
and revenue are generally realized in the third quarter. Given the Company's
high proportion of fixed costs, such seasonality affects the Company's
profitability from quarter to quarter. In addition, many of the Company's areas
of operations experience adverse weather during the winter, causing a greater
percentage of the Company's flights to be canceled and/or delayed than in other
quarters.
<TABLE>
<CAPTION>
1998 1999
--------------------------------------------- ---------------------------------------------
(dollars in thousands) March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
- ---------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues (000s) $ 50,521 $ 55,708 $ 49,471 $ 55,739 $ 54,986 $ 55,551 $ 49,508 $ 57,901
Operating income (000s) (1) $ 6,566 $ 9,440 $ 3,962 $ 8,576 $ 8,248 $ 8,112 $ 797 $ 2,321
Net income (000s) $ 3,855 $ 5,298 $ 2,375 $ 3,453 $ 4,006 $ 4,010 $ 229 $ 1,111
ASMs (000s) 373,166 387,752 389,544 394,483 375,649 375,476 381,540 433,116
RPMs (000s) 232,067 261,474 256,411 258,615 238,624 251,675 252,243 289,041
Load factor 62.2% 67.4% 65.8% 65.6% 63.5% 67.0% 66.1% 66.7%
Break-even load factor (1) 54.0% 56.4% 61.3% 55.9% 54.8% 57.7% 65.5% 63.0%
Passenger Yield (cents) 21.15 20.73 18.78 20.93 23.04 21.61 19.08 20.65
PRASM (cents) 13.15 13.98 12.36 13.72 14.64 14.48 12.71 13.60
CASM (cents) (1) 11.82 12.09 11.84 12.11 12.67 12.78 12.88 12.78
Aircraft (average during period) 15.1 17.2 18.5 21.0 21.5 20.9 22.7 25.8
Net income per share, basic 0.45 0.62 0.28 0.40 0.47 0.47 0.03 0.13
Net income per share, diluted 0.39 0.54 0.24 0.36 0.42 0.42 0.02 0.12
</TABLE>
(1) Excludes equipment retirement charges.
During January 2000, due to severe weather, the Company effectively lost five
business days of operations which will have an material impact on the first
quarter 2000 results.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's working capital decreased during the year ended December 31, 1999
compared to the year ended December 31, 1998. As of December 31, 1999, the
Company had cash, restricted cash, and short-term investments of $38.6 million
and working capital of $4.4 million compared to $58.2 million and $32.9 million
respectively as of December 31, 1998. During the year ended December 31, 1999,
cash, restricted cash, and short-term investments decreased $19.7 million,
reflecting net cash provided by operating activities of $23.1 million (excluding
changes in restricted cash), net cash used in investing activities of $50.8
million (excluding purchases and sales of short-term investments), and net cash
provided by financing activities of $8.0 million. During the year ended
December 31, 1999, net cash provided by operating activities was primarily due
to net income and depreciation and amortization; net cash used in investing
activities was due to purchases of equipment and property and equipment purchase
deposits; and net cash provided by financing activities was due to proceeds from
issuance of long-term debt.
The Company's working capital increased during the year ended December 31, 1998
compared to the year ended December 31, 1997. As of December 31, 1998, the
Company had cash, restricted cash, and short-term investments of $58.2 million
and working capital of $32.9 million compared to $58.1 million and $20.8
million, respectively, as of December 31, 1997. During the year ended December
31, 1998, cash, restricted cash and short-term investments increased $0.2
million from December 31, 1997, reflecting net cash provided by operating
activities of $29.0 million (excluding changes in restricted cash), net cash
used in investing activities of $10.4 million (excluding purchases and sales of
short-term investments), and net cash used in financing activities of $18.3
million. During the year ended December 31, 1998, net cash provided by operating
activities was primarily due to net income; net cash used in investing
activities was due to purchases of equipment and property and equipment purchase
deposits; and net cash used in financing activities reflects repayment of long-
term debt.
During the year ended December 31, 1997, cash, restricted cash, and short-term
investments increased $45.3 million, reflecting net cash provided by operating
activities of $11.1 million (net of changes in restricted cash), net cash used
in investing activities of $24.5 million (excluding purchases and sales of
short-term investments), and net cash provided by financing activities of $58.6
<PAGE>
million. During the year ended December 31, 1997, net cash provided by
operating activities was primarily due to net income partially offset by
increases in operating assets; net cash used in investing activities was due to
purchases of equipment and aircraft purchase deposits; and net cash provided by
financing activities was due to the proceeds from the Recapitalization and the
Initial Public Offering.
CAPITAL RESOURCES
The Company's aircraft purchase obligations amount to approximately $625 million
as of December 31, 1999. The Company's remaining pre-delivery deposit
obligations amount to approximately $36 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. Additionally, the Company has entered into a
commitment letter relating to a $30 million revolving credit facility to be
provided by an entity owned by James H. Goodnight, Ph.D. and John P. Sall.
Pursuant to this commitment letter, the Company is obligated to undertake a
rights offering of common stock. Messrs. Goodnight and Sall have agreed to
exercise their rights to purchase shares of Common Stock in the Company and to
purchase additional shares of common stock in the offering. Accordingly, the
rights offering is expected to raise a minimum of approximately $32 million. The
Company continues to pursue external financing for remaining unfinanced
obligations and capital expenditures including aircraft purchase obligations,
pre-delivery deposit obligations and anticipated capital expenditures, although
no assurances can be given that such financing will be available on a timely
basis. See "Control By Exiting Shareholders."
CAPITAL EXPENDITURES
The Company's cash outflows for capital expenditures in the year ended December
31, 1999 and 1998 were $23.9 million and $8.1 million, respectively, excluding
financed purchases. Debt financed purchases in the year ended December 31, 1999
and 1998 were $1.5 million and $53.8 million, respectively.
As of March 27, 2000, the Company has in place firm orders to purchase six
additional newly manufactured CRJ-200ER Canadair Regional Jet aircraft, all of
which are scheduled to be delivered by December 2001. The Company also has
options to acquire up to fourteen additional CRJs. The Company expects to
arrange a combination of third party debt and leveraged lease financing, but
will use available standby lease financing in the event that it is unable to
arrange more attractive financing from third party sources. For each aircraft
that is purchased (as opposed to leased), the Company anticipates an initial
cash outlay of approximately $4 million.
The Company has placed firm orders to purchase fifteen 737 aircraft, and has
leased two additional 737s. Deliveries of the two leased 737 aircraft occurred
in December 1999 and January 2000, and delivery for the other fifteen 737
aircraft are scheduled to begin in September 2000 and end in October 2002. The
Company has options to acquire ten additional 737s. The Company expects to
arrange a combination of third party debt and leveraged lease financing, but
will use available standby lease financing in the event that it is unable to
arrange more attractive financing from third party sources. The Company intends
to purchase up to four CFM 56-7B spare engines to support the operation of its
737 aircraft.
In August 1998, the Company completed an offering of $109,722,000 of 1998-1 Pass
Through Trust Certificates. The Certificates are not direct obligations of, or
guaranteed by, the Company and therefore are not included in the Company's
financial statements. The cash proceeds from the sale of the Certificates
enabled the Company to finance (through either leveraged leases or secured debt
financings) the debt portion of eight CRJ aircraft.
OTHER FINANCING
The Company has significant lease obligations for aircraft that are classified
as operating leases and therefore are not reflected as liabilities on the
Company's balance sheet. The remaining terms of such leases range from less than
one year to approximately seventeen years. The Company's total rent expense for
the year ended December 31, 1999 and 1998 under all non-cancelable aircraft
operating leases was approximately $31.2 million and $29.3 million,
respectively.
CONTINGENCIES
SUBSEQUENT EVENTS
On February 29, 2000, the Company exercised an option to terminate the leases on
four of the F100s prior to their scheduled expirations in 2003 and 2004,
resulting in a revised scheduled return date of these aircraft in the first half
of 2001. The Company
In March 2000, the Company entered into a commitment letter relating to a $30
million revolving loan (the "Credit Facility") to be provided by Reedy Creek
Investments, L.L.C., an entity which is wholly owned by Messrs. Goodnight and
Sall.
Proceeds from the Credit Facility will be used to fund the payment of certain
pre-aircraft delivery deposit obligations, for capital expenditures and for
general working capital purposes. Outstanding loans made under the Credit
Facility, if any, will be prepaid and the remaining available loan commitment
will be reduced on pre-aircraft delivery to not more than $10 million on the
earlier of September 30, 2000 and the date on which the Company completes the
rights offering of securities described below.
Pursuant to the Credit Facility commitment letter, the Company is obligated to
undertake a rights offering of securities on the following terms:
. a right ("Right") to purchase a share of common stock in the Company
will be issued to each holder of common stock in the Company on a
share for share basis. The Rights will be issued to holders of common
stock on the date which is 10 days after the filing of the
registration statement covering such Rights (the "Record Date"). The
Record Date may be postponed pending the effectiveness of the
registration statement covering such Rights. The Rights will be
issued immediately following the effectiveness of the registration
statement covering such Rights (the "Issuance Date").
. each Right shall entitle the holder thereof to purchase one share of
common stock in the Company for $5.20 per common share (the
"Subscription Price").
. Rights to purchase shares of common stock in the Company will not be
listed on NASDAQ or any other exchange and will not be transferable
or assignable.
. Rights will be exercisable for 30 days from the Issuance Date.
. Messrs. Goodnight and Sall have each agreed to exercise their
respective Rights.
. Messrs. Goodnight and Sall have also each agreed to purchase, and all
other holders of common stock on the Record Date who have timely
exercised all of their Rights will also have the right to purchase at
the Subscription Price, such shares of common stock subject to Rights
issued on the Issuance Date which have not been timely exercised
multiplied by their percentage ownership interests in the Company's
common stock on the Record Date.
<PAGE>
is required to pay the lessor $2,125,000 upon the termination of each of these
four leases. In addition, the Company is required to perform certain maintenance
tasks on these aircraft prior to their return.
YEAR 2000
The Company experienced no significant problems with the changeover from 1999 to
2000. Total expense related to the Company's Year 2000 project was less than
$100,000.
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 and/or sufficient financing to
support capital expansion plans and general operating activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Seasonality and Quarterly Results of Operations, Liquidity and
Capital Resources".
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 Ronald Reagan Washington National airports. See "Business -
Maintenance and Support, Slots, Fuel, Flight Equipment, Employees and Labor
Relations".
Unexpected delays in the delivery of new aircraft now scheduled for delivery in
2000, 2001, and 2002. See "Properties - Flight Equipment".
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. See "Business - Growth Strategy".
The effectiveness of and availability of resources to support advertising,
marketing and promotional programs. See "Business - American Relationship".
The uncertainties of litigation and/or administrative proceedings. See "Business
- - Government Regulation, Employees and Labor Relations" and "Legal Proceedings".
Adverse weather conditions, which could effect the Company's ability to operate.
See "Business - Raleigh-Durham Market".
The Company's significant dependence on the Raleigh-Durham Market. See "Business
- - Raleigh-Durham Market".
Control by existing stockholders. See "Business - Control by Existing
Shareholders".
The Company's indebtedness (including capital lease obligations). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Sensitive Instruments and Positions
The Company is subject to certain market risks, including commodity price risk
(i.e., aircraft fuel prices) and interest rate risk. The adverse effects of
potential changes in these market risks are discussed below. The sensitivity
analyses presented do not consider the effects that such adverse changes may
have on overall economic activity nor do they consider additional actions
management may take to mitigate the Company's exposure to such changes. Actual
results may differ. See the notes to the financial statements for a description
of the Company's accounting policies and other information related to financial
instruments.
Aircraft Fuel. The Company's results of operations are significantly impacted
by changes in the price of aircraft fuel. During 1999, 1998 and 1997, aircraft
fuel accounted for 11.5%, 10.7%, and 12.6% , respectively, of the Company's
operating expenses (excluding equipment retirement charges). The Company
estimates that at December 31, 1999, a ten percent increase in the price per
gallon of aircraft fuel would increase the total operating expenses of the
Company (excluding equipment retirement charges) by 1.1%.
Interest Rates. The Company's results of operations are not signficantly
affected by fluctuations in interest rates (e.g., interest expense on debt and
interest income on short-term investments). The Company is exposed to market
risk from changes in interest rates for the financing of the pre-delivery
deposits. Such changes in interest rates impact interest cost on the Company's
interest rate sensitive liabilities. Interest rate sensitive liabilities are
assumed to be those for which the stated interest rate is not contractually
fixed for the next 12-month period. Thus, liabilities which have a market-based
index, such as the prime rate, are rate sensitive. As of December 31, 1999, the
only interest rate sensitive liabilities of the Company relate to the
pre-delivery deposit financing. Assuming a hypothetical, immediate 100 basis
point increase in the interest rate, the Company's capitalized interest for the
deposits financed at December 31, 1999 over the following 12-month period would
be increased by approximately $431,000. The hypothetical model assumes that the
balance of interest rate sensitive liabilities at fiscal year-end will remain
constant over the next 12-month period. Thus, this model represents a static
analysis, which cannot adequately portray how the Company would respond to
significant changes in market conditions. Furthermore, the analysis does not
necessarily reflect the Company's expectations regarding the movement of
interest rates in the near term, including the likelihood of an immediate 100
basis point change in the interest rates nor the actual effect on interest cost
if such a rate change were to occur. The Company does not use financial
instruments to hedge interest rate exposure, does not use financial instruments
for trading purposes, and is not a party to any leveraged derivatives.
<PAGE>
Midway Airlines Corporation
Audited Financial Statements
Years ended December 31, 1999, 1998 and 1997
Contents
Report of Independent Auditors........................................... F-2
Audited Financial Statements
Balance Sheets........................................................... F-3
Statements of Income..................................................... F-5
Statement of Stockholders' Equity........................................ F-7
Statements of Cash Flows................................................. F-8
Notes to Financial Statements............................................ F-9
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Midway Airlines Corporation
We have audited the accompanying balance sheets of Midway Airlines Corporation
as of December 31, 1999 and 1998 and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Midway Airlines Corporation as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Raleigh, North Carolina
February 1, 2000, except for the last
paragraph of Note 3 and Note 13,
as to which the date is February 29, 2000
F-2
<PAGE>
Midway Airlines Corporation
Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31
1999 1998
---------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 27,351 $ 48,736
Restricted cash 10,668 9,512
Short-term investments 545 -
Accounts receivable:
Credit cards and travel agencies 4,311 4,702
Other (net) 2,719 1,946
Inventories 3,638 2,916
Deferred income tax asset 1,172 457
Prepaids and other 9,878 10,886
---------------------------
Total current assets 60,282 79,155
Equipment and property:
Flight 124,808 107,143
Other 11,485 6,657
Less accumulated depreciation and
amortization (15,888) (10,793)
---------------------------
Total equipment and property, net 120,405 103,007
Other noncurrent assets:
Equipment and aircraft purchase deposits 61,824 18,103
Aircraft lease deposits and other 9,306 3,316
Deferred income tax asset 4,872 -
---------------------------
Total other noncurrent assets 76,002 21,419
---------------------------
Total assets $256,689 $203,581
===========================
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 11,574 $ 7,327
Accrued expenses 6,385 5,732
Accrued income and excise taxes 2,267 581
Advance ticket sales 25,486 21,483
Other current liabilities 2,686 5,803
Current maturities of long-term debt and
capital lease obligations 7,470 5,349
--------------------------
Total current liabilities 55,868 46,275
Noncurrent liabilities:
Long-term debt and capital lease obligations 103,349 78,764
Deferred income tax liability 14,336 7,022
Other - 1,057
--------------------------
Total noncurrent liabilities 117,685 86,843
--------------------------
Total liabilities 173,553 133,118
Stockholders' equity:
Preferred stock, $0.01 par value; 12
million shares authorized; none issued and
outstanding - -
Common stock, $0.01 par value; 25 million
shares authorized; 8,602,395 shares issued
and outstanding at December 31, 1999 and
1998 86 86
Additional paid-in-capital 54,349 51,032
Retained earnings ($51.1 million of
accumulated deficit eliminated in the
quasi-reorganization as of June 30, 1997)
(Note 1) 28,701 19,345
--------------------------
Total stockholders' equity 83,136 70,463
--------------------------
Total liabilities and stockholders' equity $256,689 $203,581
==========================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Midway Airlines Corporation
Statements of Income
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Operating revenues:
Passenger $213,018 $205,566 $179,000
Cargo 1,912 2,121 1,936
Contract and other 3,016 3,752 5,339
-----------------------------------------
Total revenues 217,946 211,439 186,275
Operating expenses:
Wages, salaries and related costs 38,875 31,822 25,757
Aircraft fuel 22,738 19,623 21,499
Aircraft and engine rentals 31,429 29,927 30,495
Commissions 14,229 15,071 13,978
Maintenance, materials and
repairs 13,388 17,103 17,006
Other rentals and landing fees 10,098 9,646 9,812
Depreciation and amortization 7,938 6,162 1,999
Other 59,773 53,541 49,862
Equipment retirement charges 2,765 2,413 -
Special recapitalization charges - - 750
-----------------------------------------
Total operating expenses 201,233 185,308 171,158
-----------------------------------------
Operating income 16,713 26,131 15,117
Other income (expense):
Interest income 2,201 3,342 1,783
Interest expense (3,822) (5,314) (1,669)
-----------------------------------------
Total other income (expense) (1,621) (1,972) 114
-----------------------------------------
Income before income taxes and
extraordinary gain 15,092 24,159 15,231
Income tax expense 5,736 9,178 6,306
-----------------------------------------
Income before extraordinary gain 9,356 14,981 8,925
Extraordinary gain - - 15,969
-----------------------------------------
Net income $ 9,356 $ 14,981 $ 24,894
=========================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Midway Airlines Corporation
Statements of Income (continued)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Basic earnings per share:
Income before extraordinary gain $ 1.09 $ 1.75 $ 1.47
Extraordinary gain - - 2.64
------------------------------------------
Net income $ 1.09 $ 1.75 $ 4.11
==========================================
Weighted average shares used in
computing basic earnings per share 8,602,395 8,574,972 6,059,051
==========================================
Diluted earnings per share:
Income before extraordinary gain $ 0.98 $ 1.54 $ 1.24
Extraordinary gain - - 2.22
------------------------------------------
Net income $ 0.98 $ 1.54 $ 3.46
==========================================
Weighted average shares used in
computing diluted earnings per
share 9,507,175 9,731,527 7,193,794
==========================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
Midway Airlines Corporation
Statement of Stockholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Retained
Preferred Stock Common Stock Additional Earnings
---------------------------------------------- Paid-in (Accumulated
Shares Amount Shares Amount Capital Deficit) Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,080,000 $ 11 10,000,000 $ 100 $ 30,989 $(71,669) $(40,569)
Cancellation of prior stock in connection
with recapitalization (1,080,000) (11) (10,000,000) (100) 111 - -
Issuance of preferred stock 3,728,693 37 - - 14,963 - 15,000
Issuance of common stock - - 2,130,682 21 8,551 - 8,572
Issuance of common stock warrants in
connection with debt restructuring - - - - 1,571 - 1,571
Contributed capital - - - - 1,314 - 1,314
Reclassification of accumulated deficit
pursuant to quasi-reorganization - - - - (51,139) 51,139 -
Conversion of preferred stock (3,728,693) (37) 3,728,693 37 - - -
Issuance of common stock in connection
with initial public offering - - 2,699,320 27 37,677 - 37,704
Net income - - - - - 24,894 24,894
-----------------------------------------------------------------------------------
Balance at December 31, 1997 - - 8,558,695 85 44,037 4,364 48,486
Issuance of common stock - - 43,700 1 176 - 177
Net operating loss carryforward utilization
credited to additional paid-in capital (Note
8) - - - - 6,819 - 6,819
Net income - - - - - 14,981 14,981
-----------------------------------------------------------------------------------
Balance at December 31, 1998 - - 8,602,395 86 51,032 19,345 70,463
Net operating loss carryforward utilization
credited to additional paid-in capital (Note
8) - - - - 3,317 - 3,317
Net income - - - - - 9,356 9,356
-----------------------------------------------------------------------------------
Balance at December 31, 1999 - $ - 8,602,395 $ 86 $ 54,349 $ 28,701 $ 83,136
===================================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE>
Midway Airlines Corporation
Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 9,356 $ 14,981 $ 24,894
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,938 6,162 1,999
Special recapitalization charges - - 750
Extraordinary gain - - (15,969)
Deferred income taxes 5,736 6,565 -
Loss on disposal of assets 97 21 -
Accreted interest and amortization of discount on debt 448 554 1,518
Changes in operating assets and liabilities:
Restricted cash (1,156) (6,701) (811)
Accounts receivable (382) (896) (1,760)
Inventories (722) (807) (1,714)
Prepaids and other 859 (1,267) (226)
Aircraft lease deposits and other (6,046) 959 (462)
Accounts payable and accrued expenses 4,900 1,958 897
Accrued excise and income taxes 994 (714) (1,505)
Advance ticket sales 4,003 599 2,708
Other current liabilities (2,989) 94 243
Other noncurrent liabilities (1,057) 749 (279)
-----------------------------------------------
Net cash provided by operating activities 21,979 22,257 10,283
Investing activities
Purchase of short-term investments (7,820) - (78,278)
Sale of short-term investments 7,275 751 77,527
Purchase of equipment and property (23,945) (8,141) (7,335)
Proceeds from sale of equipment and property 357 - -
Aircraft and equipment purchase deposits (41,648) (19,752) (17,133)
Refund of aircraft and equipment purchase deposits 14,436 17,461 -
-----------------------------------------------
Net cash used in investing activities (51,345) (9,681) (25,219)
Financing activities
Issuance of common and preferred stock - 177 60,257
Proceeds from issuance of long-term debt 14,095 1,800 -
Repayment of long-term debt and capital lease obligations (6,114) (20,326) (1,617)
-----------------------------------------------
Net cash provided by (used in) financing activities 7,981 (18,349) 58,640
-----------------------------------------------
(Decrease) increase in cash and cash equivalents (21,385) (5,773) 43,704
Cash and cash equivalents at beginning of year 48,736 54,509 10,805
-----------------------------------------------
Cash and cash equivalents at end of year $ 27,351 $ 48,736 $ 54,509
===============================================
Supplemental cash flow information
Interest paid $ 6,131 $ 3,812 $ 125
===============================================
Income taxes paid $ 2,191 $ 6,610 $ 2,600
===============================================
Schedule of non-cash activities
Issuance of debt and capital leases for equipment purchases $ 1,529 $ 53,824 $ 34,531
===============================================
Debt issued for aircraft purchase deposits $ 16,845 $ - $ -
===============================================
</TABLE>
See accompanying notes.
F-8
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements
December 31, 1999
1. Business and Basis of Presentation
Midway Airlines Corporation ("Midway" or the "Company"), a Delaware corporation,
is an air carrier providing primarily passenger service and to a lesser extent,
cargo and mail services. The Company began operations in November 1993 and flies
primarily to East Coast and Midwest locations from its hub at the Raleigh-Durham
International Airport ("Raleigh-Durham"), utilizing eight Fokker F-100 aircraft,
eighteen Canadair Regional Jets ("CRJs"), and one Boeing 737-700 aircraft as of
December 31, 1999. As of December 31, 1999, the Company has purchase commitments
for eight additional CRJ's and fifteen Boeing 737-700 aircraft and options to
acquire up to fourteen additional CRJs and ten additional Boeing 737-700
aircraft.
On February 11, 1997, the Company was recapitalized. Through the
recapitalization, debt was either extinguished or restructured, all of the
existing stock was canceled and new stock was issued, new terms for aircraft
leases and rent reductions for facilities were implemented, and agreements
reflecting revised maintenance arrangements were negotiated (see Note 12).
On December 4, 1997, the Company completed an initial public offering of its
common stock at a price of $15.50 per common share. Proceeds to the Company, net
of underwriters discount and offering expenses, were $37.7 million (see Note 5).
Quasi-Reorganization
As a result of the February 11, 1997 recapitalization, debt restructurings,
retention of a new chief executive officer, and new Board of Directors, the
Board of Directors approved a corporate readjustment of the accounts in the form
of a quasi-reorganization, which was effected on June 30, 1997.
A quasi-reorganization is an accounting procedure which results in eliminating
the accumulated deficit in retained earnings. This accounting procedure is
limited to a reclassification of accumulated deficit as a reduction of paid-in
capital. The Company believes the quasi-reorganization was appropriate because
on completion of the recapitalization, the debt restructurings, and the
installation of a new chief executive officer and Board of Directors, the
Company had substantially reduced its outstanding indebtedness, had formulated
revised operating plans and as a result thereof would be able to devote its
resources to its continuing operations. Because assets had been stated at
approximate fair values, the quasi-reorganization had no effect on recorded
assets.
F-9
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
2. Significant Accounting Policies and Other Matters
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during that reporting period.
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. In addition, as
of December 31, 1999 and 1998, approximately $10.7 million and $9.5 million,
respectively, of cash was restricted as to withdrawal; these funds serve as
collateral to support letters of credits and a credit card holdback, and are
classified as restricted cash in the balance sheets.
Short-Term Investments
Short-term investments consist of certificates of deposits which mature between
three months and one year of the original investment date or can be redeemed
without penalty within one year or less. These investments are carried at cost,
which approximates market value.
Concentrations
Midway's accounts receivable are primarily receivables from major credit card
issuing companies, travel agencies, and other air carriers related to ticket
sales for passenger transportation. The Company does not believe it is subject
to any significant concentration of credit risk. The Company establishes an
allowance for doubtful accounts based upon factors surrounding credit risk. At
December 31, 1999 and 1998, the allowance for doubtful accounts was
approximately $1,613,000 and $1,624,000, respectively.
Amounts charged by a related party vendor accounted for approximately 7.5%,
12.3% and 15.6% of operating expenses for the years ended December 31, 1999,
1998 and 1997, respectively. This vendor provided services related primarily to
maintenance, passenger services and leasing of its Raleigh-Durham airport
facilities and certain aircraft landing slots.
F-10
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
2. Significant Accounting Policies and Other Matters (continued)
Concentrations (continued)
The Company does not believe, however, that there is a significant risk
associated with this vendor for the services provided, as alternative sources
are generally available at commercially reasonable prices. Facilities are leased
from this vendor pursuant to lease agreements covering various time periods (see
Note 4). The Company also has a note payable with this vendor with an
outstanding balance of $6.6 million at December 31, 1999 (Note 3). If the
Company pays any dividends or makes any other cash or asset distribution to its
stockholders without this vendor's consent at any time prior to the Company's
payment in full of its note payable to the vendor, then the vendor may terminate
the Raleigh-Durham facility lease, the Company's right to offer AAdvantage(R)
frequent flyer benefits, and certain other service agreements. In addition,
this vendor may terminate the Company's lease of the Raleigh-Durham facility and
one other service agreement that the Company has with this vendor if any person
or group acquires 30% or more of the Company's voting securities.
The Company maintains certain cash balances and investments with banks in excess
of insured limits. The Company does not believe that the risk of loss is
significant.
The Company purchases aircraft, rotable parts and expendable inventory, as well
as services, including heavy maintenance checks and training, from aircraft
manufacturers. One of these manufacturers maintains certain consignment
inventory at the Company's facilities in Raleigh-Durham. Deposits are held by
the aircraft manufacturers for ordered aircraft until the delivery and payment
for the aircraft, at which time the Company is refunded the deposits in full.
Management does not believe that there is a significant concentration of risk
associated with these vendors, due to the vendors' excellent credit ratings.
Inventories
The Company's inventories are carried at the lower of cost or market using the
first-in, first-out method. Inventories, which consist primarily of fuel,
consumable spare parts, materials and supplies relating to flight equipment, are
expensed as used. Allowances for obsolescence are provided over the estimated
useful life of the related aircraft and engines for spare parts expected to be
on hand at the date the aircraft are retired from service.
F-11
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
2. Significant Accounting Policies and Other Matters (continued)
Equipment and Property
Equipment and property are stated at cost and consist primarily of CRJ aircraft,
rotable spare parts for aircraft, leasehold improvements, and miscellaneous
equipment used in aircraft operations. Equipment and property are depreciated to
estimated residual values using the straight-line method over estimated useful
lives of 16.5 years for CRJ aircraft, 5 to 16.5 years for flight equipment and 3
to 5 years for other equipment. Depreciation expense charged to operations was
approximately $7.5 million, $5.5 million, and $1.8 million for the years ended
December 31, 1999, 1998 and 1997, respectively. Equipment and property also
includes office equipment financed by capital leases (see Note 4).
The Company monitors the recoverability of the carrying value of its long-lived
assets. Under the provisions of Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS 121), the Company recognizes an "impairment
charge" when the expected net undiscounted future cash flows from an asset's use
(including any proceeds from disposition) are less than the asset's carrying
value and the asset's carrying value exceeds its fair value.
Capitalized Interest
Interest on aircraft purchase deposits was capitalized at an amount
approximating the Company's incremental borrowing rate for similar type assets
throughout 1999 and 1998. All capitalized amounts are amortized over the term of
the respective service life of the related equipment. Capitalized interest
totaled $3,952,000, $809,000 and $0 for the years ended December 31, 1999, 1998
and 1997, respectively.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, debt and other liabilities approximate fair value at December 31, 1999
and 1998. At December 31, 1996, debt, other liabilities and warrants were
reflected at historical value. In connection with the February 11, 1997
recapitalization (Note 12), debt, other liabilities and warrants with an
aggregate carrying value of $16.5 million were settled for approximately $1.5
million.
F-12
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
2. Significant Accounting Policies and Other Matters (continued)
Derivatives
The Company is not a party to leveraged derivatives and does not hold or issue
financial instruments for speculative purposes. The Company does not hedge
fuel.
During December 1997, the Company entered into four Treasury Lock transactions
("Treasury Locks") with Bombardier, Inc., based on a 10 year US Treasury
Benchmark (the "Treasury rate"), to substantially eliminate the Company's
exposure to interest rate fluctuations on long-term financing in connection with
the purchase of five CRJ aircraft that were placed into service during the first
six months of 1998. The effect of such arrangements was that the Company
essentially agreed to borrow at fixed rates over periods extending to 16.5
years. When the Treasury rate declined, the Company was obligated to settle with
the counterparty at the expiration of the Treasury Lock arrangement. The net
cash amounts paid or received on the agreements are recorded and recognized as
an adjustment of interest expense over the life of the related loans. During
1998, the Company settled the aforementioned Treasury Locks for approximately
$1.2 million.
Aircraft and Engine Maintenance and Repairs
Routine maintenance and repair costs for aircraft are charged to expense when
incurred, except for major airframe and engine maintenance. Depending on the
particular maintenance contract, these latter costs are either (i) expensed on
the basis of the number of hours flown or cycles flown or operated at
contractual rates or (ii) capitalized when incurred and amortized on a straight-
line basis over the period of time between overhauls.
Revenue Recognition and Advance Ticket Sales
Passenger revenues are recognized when transportation services are provided,
rather than when a ticket is sold. The amount of ticket sales not yet recognized
as revenue is reflected as a liability in the accompanying balance sheets as
"advance ticket sales". Travel agency commissions are recognized as expense when
transportation is provided and the related revenue is recognized. The amount of
commissions related to advance ticket sales is included in "Prepaids and other"
in the accompanying balance sheets.
F-13
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
2. Significant Accounting Policies and Other Matters (continued)
Frequent Flyer Program
The Company participates in the American Airlines AAdvantage(R) frequent flyer
program, which allows members to earn mileage credits and redeem awards at
participating AAdvantage(R) companies. Midway is billed monthly for
AAdvantage(R) miles earned by its passengers participating in the program who
fly on Midway. The Company does not accrue any liability for award travel it may
be required to provide because the incremental cost of redemptions has not been,
and is not expected to be, material.
Advertising Expense
The Company expenses advertising costs as incurred. The Company recognized
advertising expense of $4.0 million, $4.0 million, and $5.1 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
Income Taxes
The Company accounts for income taxes using the liability method. Under the
liability method, deferred income tax assets and liabilities are determined
based on differences between the financial reporting and tax basis of assets and
liabilities.
Earnings Per Share
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share.
In accordance with SFAS 128, basic earnings per share is computed using the
weighted average number of shares of common stock outstanding and diluted
earnings per share is computed using the weighted average number of shares of
common stock and the dilutive effect of options and warrants outstanding, using
the "treasury stock" method.
F-14
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
2. Significant Accounting Policies and Other Matters (continued)
Stock-Based Compensation
The Company accounts for stock options in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Under the provisions of APB 25, no compensation expense is recognized for stock
or stock options issued at fair value.
SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS 123") provides an
alternative to APB 25 in accounting for stock-based compensation issued to
employees. SFAS 123 provides for a fair value based method of accounting for
employee stock options and similar equity instruments. However, for companies
that continue to account for stock-based compensation arrangements using APB 25,
SFAS 123 requires disclosure of the pro forma effect on net income and earnings
per share as if the fair value based method provided by SFAS 123 had been
applied. The Company accounts for stock-based compensation arrangements using
APB 25 and has adopted the pro forma disclosure requirements of SFAS 123 (see
Note 6).
Equipment Retirement Charges
Exit costs are estimated at the time a decision to return aircraft is made, and
to the extent the costs are not in the normal maintenance cycle, an exit cost is
recorded in the period the decision is made. Leases expired on five of the
aircraft utilized by the Company in 1998 and 1999. During the years ended
December 31, 1999 and 1998, the Company recorded $2.8 million and $2.4 million
in equipment retirement charges.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Investments and Hedging Activities," ("SFAS 133"), as amended, which establishes
a new model for accounting for derivatives and hedging activities and supersedes
several existing standards. SFAS 133, as amended by SFAS 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not expect that the adoption of SFAS 133 will have a material impact on its
financial statements.
F-15
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
2. Significant Accounting Policies and Other Matters (continued)
Segment Reporting
As of January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company has determined that it does not have any separately
reportable operating segments as of December 31, 1999.
Reclassifications
Certain 1998 and 1997 amounts in the accompanying financial statements have been
reclassified to conform to the 1999 presentation. These reclassifications had no
effect on previously reported net income or stockholders' equity.
F-16
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
3. Long-Term Debt
The Company's long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31
1999 1998
----------------------------------
<S> <C> <C>
6.9% to 7% secured notes payable, principal and interest payable
semi-annually beginning in 1998-1999 through 2014-2015 (a) $ 65,777 $68,186
8% secured note payable, principal and interest payments
commencing February 1998 through January 2004 (net of debt
discount of $921, and $1,146 at December 31, 1999 and December
31, 1998, respectively) (b) 6,558 7,824
8% unsecured notes payable, principal payments commencing
February 1998 through January 2004 (net of debt discount of
$921, and $1,146 at December 31, 1999 and December 31, 1998,
respectively) (c) 3,396 4,032
6.9% lease purchase obligation, principal and interest payable
monthly commencing April 1998 through March 2005 1,932 2,227
8.4% secured note payable, principal payments commencing
September 1998, due August 2001 1,000 1,600
Variable rate secured note payable, principal due on delivery of
aircraft commencing September 2000 (d) 28,875 -
9.2% secured note payable, principal payments commencing January
2000, due December 2006 2,065 -
----------------------------------
109,603 83,869
Less amounts due within one year 7,048 5,206
----------------------------------
$102,555 $78,663
==================================
</TABLE>
(a) These notes are related to the purchase of CRJ aircraft. Each note is
collateralized by the related aircraft.
(b) As a part of the recapitalization on February 11, 1997, a note payable of
$9 million, plus accrued interest of $450,000 was converted into a note
payable, collateralized by first and second security interests in most of
the Company's assets. The note accreted interest until February 1998, when
principal and interest payments began.
F-17
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
3. Long-Term Debt (continued)
(c) As a part of the recapitalization on February 11, 1997, the notes payable
were restructured into long-term notes payable, accreting interest until
February 1998 when principal and interest payments began. These notes
payable contain certain default provisions whereby the Company is
prohibited from making any prepayments on or otherwise amending an existing
note payable (b) which would provide more favorable terms to the lender. In
the event of such default, every liability of the Company to the lenders of
these notes shall become payable in full.
(d) In conjunction with the acquisition of four Boeing 737-700 aircraft, the
Company entered into interim short-term financing arrangements ("interim
note") for the pre-delivery deposits related to those four aircraft. Under
the terms of the interim note, the Company can borrow up to $45.3 million
for the required pre-delivery deposits for these aircraft. The interim note
will be replaced, upon delivery of the aircraft, with long-term operating
leases. Therefore, the principal due at December 31, 1999 of $28.9 million
is included in long-term debt on the balance sheets. Interest for the
interim note is payable monthly.
Certain of the Company's debt instruments prohibit the payment of dividends
until such debt has been repaid.
The aggregate principal maturities of long-term debt at December 31 are as
follows (in thousands):
2000 $ 7,048
2001 5,722
2002 5,706
2003 6,169
2004 4,319
Thereafter 80,639
------------
Principal balance $109,603
============
Interest charged to expense, net of capitalized interest, was $3.8 million, $5.3
million and $1.7 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-18
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
3. Long-Term Debt (continued)
During December 1999, the Company entered into an Option Agreement with the
lessor of four of its F100 aircraft and lender of a note payable with an
outstanding balance of $2.0 million as of December 31, 1999. Under the terms of
the Option Agreement, a receivable for prepaid maintenance on returned aircraft
has been recorded for $1.3 million at December 31, 1999, which will be applied
against principal as of March 1, 2000. The Option Agreement also resulted in a
$2 million payment to the lessor for settlement of litigation between the
companies and the option to early terminate the leases for four of its F100
aircraft. The amount to be settled in March 2000 is reflected in current
maturities of long-term debt (Note 13).
4. Leases
As of December 31, 1999, the Company has eight Fokker F-100 aircraft, thirteen
CRJ aircraft, and one Boeing 737-700 aircraft under operating leases with
remaining terms ranging from 4 to 16.5 years.
The Company leases gates at various airports, including a lease for 19 gates at
Raleigh-Durham International Airport ("RDU"), which expire in 2013. The Company
leases 70% of its slots at New York's LaGuardia Airport and 83% of its slots at
Washington, D.C.'s Reagan National Airport from certain airlines. Two of the
Company's slots at New York's LaGuardia Airport are scheduled to expire in May
2000, and the Company has received notification that those slot leases at
LaGuardia will not be renewed. The remainder of all its leased slots at
LaGuardia Airport and six slots at Reagan National Airport are scheduled to
expire April 1, 2001. The remaining four leased slots at Reagan National Airport
expire in October 2000.
The Company leases its corporate headquarters and reservation facility in
Morrisville, North Carolina under an operating lease agreement. The lease
includes escalating rent payments and a ten year term which expires December 31,
2008.
The Company leases certain office equipment under capital lease agreements that
expire through 2004. Amortization expense under these leases of $253,000,
$213,000 and $149,000 is included in depreciation and amortization expense in
the statements of income for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-19
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
4. Leases (continued)
Equipment and property includes the following amounts for capital leases (in
thousands):
December 31
1999 1998
---------------------------
Office equipment $1,833 $ 669
Less accumulated amortization (427) (523)
---------------------------
$1,406 $ 146
===========================
At December 31, 1999, the future minimum lease payments required under capital
leases and operating leases that have initial or remaining noncancelable lease
terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
Operating
--------------------------------
Capital Aircraft Other Total
-----------------------------------------------------------
<S> <C> <C> <C> <C>
2000 $ 519 $ 43,978 $ 4,501 $ 48,998
2001 480 44,843 3,156 48,479
2002 227 43,850 2,933 47,010
2003 142 41,459 2,950 44,551
2004 59 35,907 2,967 38,933
Thereafter - 265,975 21,009 286,984
-----------------------------------------------------------
Total minimum lease payments 1,427 $476,012 $37,516 $514,955
================================================
Amounts representing interest (211)
-----------
Present value of future minimum
lease payments 1,216
Less current portion (422)
-----------
Long-term portion $ 794
===========
</TABLE>
Rent expense is recorded on a straight-line basis over the term of the leases.
Lease and rent expense charged to operations was approximately $39.5 million,
$36.6 million, and $36.7 million for the years ended December 31, 1999, 1998 and
1997, respectively.
F-20
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
4. Leases (continued)
Under the terms of certain aircraft leases, the Company had security deposits on
each related aircraft, which totaled approximately $1.5 million at December 31,
1999 and 1998. Certain aircraft leases also require the Company to make payments
for maintenance based upon accumulated block hours and/or cycles. The Company
incurred expenses of $3.9 million, $6.5 million and $4.2 million related to
these obligations for the years ended December 31, 1999, 1998 and 1997,
respectively.
The Company currently leases eight Fokker F-100 aircraft. On February 29, 2000,
the Company exercised an option to terminate four leases prior to their
scheduled expirations in 2003 and 2004, resulting in a revised scheduled return
date of these aircraft in the first half of 2001 (see Note 13).
5. Stockholders' Equity
Initial Public Offering
On December 4, 1997, the Company completed an initial public offering of
4,830,000 shares of common stock (the "Offering"). Of the 4,830,000 shares,
2,699,320 shares were sold by the Company and 2,130,680 shares were sold by
certain selling shareholders. The offering price was $15.50 per common share
resulting in gross offering proceeds of $74.9 million. Proceeds to the Company,
net of underwriting discounts, offering expenses and amounts to selling
shareholders, were $37.7 million. Two shareholders holding all the Company's
outstanding preferred stock exercised their right to convert those shares into
an equivalent number of common shares.
Recapitalization
Effective with the recapitalization on February 11, 1997, the following equity
structure was established:
Up to 12 million shares of $.01 par value senior convertible preferred stock
with a $4.02 stated liquidation value per share were authorized, of which
3,728,693 shares were issued. Senior convertible preferred stockholders
("preferred stockholders") were entitled to dividends if any dividends were
declared or paid upon the common stock. Preferred stockholders were entitled to
70% of all votes in the aggregate. The senior convertible preferred stock was
convertible at
F-21
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
Recapitalization (continued)
any time at the election of the stockholder, on a basis of one share of senior
convertible preferred stock for one share of common stock. All issued preferred
shares were converted into an equal number of common shares during 1997 and 12
million shares of preferred stock remain authorized.
Up to 25 million shares of $.01 par value common stock are authorized. Common
stockholders are entitled to one vote per share of stock held. Common
stockholders' rights are subordinate to those of preferred stockholders.
Warrants were issued for the purchase of 390,625 shares of $.01 par value common
stock for $0.0015 per share. The warrants were valued at $4.02 per share, or
$1.57 million, and expire on February 11, 2002. The warrants may be exercised in
whole or in part at any time prior to expiration. The Company has reserved
390,625 shares of Common Stock for the possible exercise of these warrants. None
of the warrants have been exercised as of December 31, 1999.
6. Stock Options
During 1997, the Company granted stock options to acquire 1,340,590 shares of
common stock to employees of the Company at prices not less than the fair value
at the date of grant. The options granted have seven to ten year terms with some
options vesting fifty percent immediately and twenty-five percent per year over
the two years subsequent to the grant date and others vesting twenty percent per
year over five years.
F-22
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
6. Stock Options (continued)
The following table summarizes common stock options granted at $4.02 and $15.50
per share in connection with the Company's 1997 option plan:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise
Available Options Price
for Grant Outstanding Exercisable Per Share
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares reserved for grant 1,562,500 - - $ -
Granted (1,340,590) 1,340,590 - 6.89
Became exercisable - - 390,625 4.02
------------------------------------------------------
Balance at December 31, 1997 221,910 1,340,590 390,625 6.89
Became exercisable - - 293,703 6.11
Exercised - (43,700) (43,700) 4.02
Canceled - (91,224) - 12.68
------------------------------------------------------
Balance at December 31, 1998 221,910 1,205,666 640,628 6.56
Became exercisable - - 279,980 5.88
Canceled - (56,427) - 12.08
------------------------------------------------------
Balance at December 31, 1999 221,910 1,149,239 920,608 $ 6.29
======================================================
</TABLE>
The following summarizes information about the exercise prices of the Company's
stock options outstanding:
<TABLE>
<CAPTION>
December 31
Exercise Price 1999 1998 1997
---------------------------------------------------------------------
<S> <C> <C> <C>
$ 4.02 922,346 939,146 1,005,245
$15.50 226,893 266,520 335,345
---------------------------------------------
1,149,239 1,205,666 1,340,590
=============================================
</TABLE>
F-23
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
6. Stock Options (continued)
Pro forma information regarding net income and earnings per share is required by
SFAS 123 (see Note 2), and has been determined as if the Company had accounted
for its employee stock options using the fair value method provided by that
Statement. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for 1997:
Risk free interest rate 6%
Expected dividend yield 0%
Expected volatility 55.1%
Average expected life of options 5 yrs.
The contractual weighted-average life of the options at December 31, 1999 and
1998 was 4.69 and 5.75 years, respectively. The weighted average grant date fair
value of options granted during 1997 was $5.0 million. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the vesting period of the options.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Net income as reported $9,356,000 $14,981,000 $24,894,000
Pro forma net income 8,812,000 14,164,000 23,701,000
Basic earnings per share:
As reported $1.09 $1.75 $4.11
Pro forma 1.02 1.65 3.91
Diluted earnings per share:
As reported $0.98 $1.54 $3.46
Pro forma 0.93 1.46 3.29
</TABLE>
F-24
<PAGE>
7. Earnings Per Share of Common Stock
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Year ended December 31
1999 (1) 1998 1997(1)
-------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income (2) $9,356,000 $14,981,000 $24,894,000
Denominator:
Denominator for basic earnings per
share--weighted average shares 8,602,395 8,574,972 6,059,051
Effect of dilutive securities (3):
Employee stock options 514,232 765,965 744,155
Warrants 390,548 390,590 390,588
-------------------------------------------
Dilutive common shares 904,780 1,156,555 1,134,743
Denominator for diluted earnings
per share--weighted average shares 9,507,175 9,731,527 7,193,794
===========================================
Basic earnings per share $ 1.09 $ 1.75 $ 4.11
===========================================
Diluted earnings per share $ 0.98 $ 1.54 $ 3.46
===========================================
</TABLE>
(1) Options to purchase 226,893 and 335,345 shares of common stock at $15.50
per share were outstanding during 1999 and 1997, respectively, which were
not included in the computation of diluted earnings per share for the years
ended December 31, 1999 and 1997 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 128.
F-25
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
8. Income Taxes
The components of the Company's taxes on income are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $ - $2,391 $6,096
Deferred 5,228 6,008 -
---------------------------------------
Total federal income taxes 5,228 8,399 6,096
---------------------------------------
State income taxes:
Current - 222 210
Deferred 508 557 -
---------------------------------------
Total state income taxes 508 779 210
---------------------------------------
Total provision for income
taxes $5,736 $9,178 $6,306
=======================================
</TABLE>
Differences between reported tax expense computed by applying the statutory
federal income tax rate to income before income taxes and reported tax expense
are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------
$ % $ % $ %
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed tax expense $5,283 35.0% $8,456 35.0% $5,331 35.0%
State taxes, net of federal benefit 513 3.4 785 3.3 184 1.2
Permanent items and other (60) (0.4) (63) (0.3) 64 .4
Valuation allowance for deferred tax
assets - - - - 727 4.8
----------------------------------------------------------------------------
Reported tax expense $5,736 38.0% $9,178 38.0% $6,306 41.4%
============================================================================
</TABLE>
F-26
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
8. Income Taxes (continued)
Income taxes are calculated using the liability method, which requires the
recognition of deferred income tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. Deferred income taxes arise from temporary
differences between the income tax basis and financial reporting basis of assets
and liabilities. The components of the Company's deferred income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31
1999 1998
-----------------------------
<S> <C> <C>
Deferred income tax assets-current:
Accrued liabilities and other
miscellaneous $ 1,172 $ 457
Deferred income tax asset-noncurrent:
Operating loss carryforwards 13,368 11.440
Accrued liabilities and other 1,381 2,977
Equipment and property 228 -
Alternative minimum tax credit
carryforwards 995 -
Valuation allowance (11,100) (14,417)
-----------------------------
Net deferred income tax assets 6,044 457
-----------------------------
Deferred income tax liability-current:
Prepaid commissions (589) -
Deferred income tax
liabilities-noncurrent:
Depreciation and amortization (14,336) (7,022)
-----------------------------
Net deferred income tax liabilities (14,925) (7,022)
-----------------------------
Net deferred income taxes $ (8,881) $ (6,565)
=============================
</TABLE>
As of December 31, 1999 and 1998, the Company had approximately $35.2 million
and $30.1 million, respectively, of available net operating loss carryforwards
(NOLs) to offset future taxable income of the Company. The NOLs expire by 2019
if not used. Under Section 382 of the Internal Revenue Code, as amended, the
Company's ability to utilize such loss carryforwards in any one year, which were
generated prior to a change in ownership may be limited or eliminated as a
result of the February 11, 1997 recapitalization. Of the $35.2 million of NOLs
as of December 31, 1999, $25.6 million were generated prior to the
recapitalization.
F-27
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
8. Income Taxes (continued)
The valuation allowance of $11.1 million and $14.4 million at December 31, 1999
and 1998, respectively, was provided because, in the Company's assessment, it is
uncertain whether certain net deferred tax assets will be realized due to the
1997 ownership changes.
Net operating loss carryforward tax benefits which originated prior to the
quasi-reorganization are credited to additional paid-in capital, when utilized,
in accordance with the provisions of SFAS No. 109, "Accounting for Income
Taxes".
9. Commitments and Contingencies
Purchase Commitments
As of December 31, 1999, the Company had firm orders to purchase eight newly
manufactured CRJ-200ER Canadair Regional Jet (CRJ) aircraft, all of which are
scheduled to be delivered by December 2001. The Company's remaining obligation
for pre-delivery deposits for these aircraft is approximately $1.2 million.
Midway also has options to acquire up to 14 additional CRJ aircraft.
The Company has placed firm orders to purchase 15 Boeing 737-700 aircraft, and
has agreed to lease a total of two Boeing 737-700s. The two leased Boeing 737-
700 aircraft were delivered in 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
737-700 aircraft. The Company intends to purchase up to 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 assuming
financing of the aircraft is obtained as the aircraft are delivered. The
aircraft manufacturer has agreed to defer a portion of this deposit obligation
with interest at the three-month LIBOR plus 3%. The total amount of deferred
deposits was $14.2 million as of December 31, 1999. Interest on these deferred
deposits totaling $1.1 million has been capitalized in flight equipment and will
be amortized over the useful life of the related assets. Midway has secured
financing for the pre-delivery deposits for the first four aircraft. Midway's
unfinanced obligation for the pre-delivery deposits on the remaining aircraft
will peak at about $55.0 million in January of 2001. As of December 31, 1999,
Midway had paid $19.1 million of the pre-delivery deposits and its net remaining
obligation is approximately $35.9 million. This obligation is due in monthly
installments.
F-28
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
9. Commitments and Contingencies (continued)
Purchase Commitments (continued)
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 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. A loss
contingency has been estimated at December 31, 1999 and is included in other
current liabilities on the balance sheet.
Other Contingencies
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. 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.
F-29
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
9. Commitments and Contingencies (continued)
Other Contingencies (continued)
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 agreed upon by the IAM and the Company,
and such agreement was submitted to the covered employees for ratification on
October 28, 1999; 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. A further agreement was reached with
the IAM in late February by the IAM, the Company, and representatives of the
ramp agents. It will be voted upon by the ramp agents in March 2000.
10. Benefit Plans
Effective October 1995, the Company established a savings plan (the "Plan")
pursuant to Section 401(k) of the Internal Revenue Code. All employees were
eligible for enrollment in the 401(k) Plan after six months of employment.
Effective April 1999, all employees who are not covered by a collective
bargaining agreement are eligible for enrollment in the 401(k) Plan after three
months of employment. The Company, at its discretion, may match up to 50% of
employee contributions up to a maximum of $1,000 in any given calendar year. The
Company made no contributions to the Plan for the years ended December 31, 1999,
1998 and 1997.
In January 1998, the Company announced its intention to distribute a portion of
its profits to employees. The Company expensed $1.2 million and $2.4 million for
such distributions during years ended December 31, 1999 and 1998.
F-30
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
11. Transactions with Related Parties
The Company incurred legal expenses from a related party law firm totaling
approximately $617,000, $362,000, and $445,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
12. Recapitalization
On February 11, 1997, the Company was recapitalized. Through the
recapitalization, debt was either extinguished or restructured; all of the
existing stock was canceled and new stock was issued; new terms for aircraft
leases and rent reductions for facilities were implemented; and agreements
reflecting revised maintenance arrangements were negotiated. As a result of the
foregoing items and other related transactions, for the year ended December 31,
1997 the Company recorded an extraordinary gain of approximately $16.0 million
after tax and recapitalization charges of approximately $750,000 before tax.
The following transactions were recorded as a result of the recapitalization:
(a) All existing shares of capital stock were canceled. New shares of capital
stock were issued (a) to James H. Goodnight, Ph.D, for consideration of
$10.1 million in cash, (b) to John P. Sall for consideration of $4.9
million in cash and (c) to Zell/Chilmark for consideration of $7.0 million
in cash. Additional shares of common stock and a warrant to purchase common
stock with an aggregate value of $3.1 million were issued to certain key
vendors. Additionally, current assets were reduced to settle various
liabilities for amounts substantially less than the carrying value at
February 11, 1997.
(b) Agreements were negotiated to allow for approximately $3.4 million in
aircraft lease deposits to be offset against amounts owed to the holders of
those deposits. Equipment purchase deposits of $1.8 million were offset
against related current liabilities.
(c) Current debt, accrued lease expense, accrued prior restructuring costs and
related accrued interest totaling approximately $6.7 million were settled
for amounts substantially less than the carrying value at December 31,
1996. Additionally, $750,000 of expenses were incurred in connection with
the recapitalization.
(d) Long-term debt and related interest of approximately $10.9 million were
forgiven and current maturities of approximately $14.9 million were
restructured to long-term debt.
F-31
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements (continued)
13. Subsequent Events
On February 29, 2000, the Company exercised its option to terminate four F100
leases prior to their scheduled lease termination dates under the terms of a
settlement and option agreement. The Company is required to pay the lessor
$2,125,000 for each aircraft to be returned under the agreement. In addition,
the Company is required to perform certain maintenance tasks on these aircraft
prior to their return.
F-32
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
The information required in this PART III (Items 10, 11, 12 and 13) is hereby
incorporated by reference from the Company's definitive proxy statement which is
expected to be filed pursuant to Regulation 14A of the Securities and Exchange
Act of 1934 not later than 120 days after the end of the fiscal year covered by
this report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements:
See Item 8 for audited financial statements.
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
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Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at end of
of Period Expenses Reserves Period
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for doubtful accounts $1,624 $ 147 $158 $1,613
Year ended December 31, 1998
Allowance for doubtful accounts 1,673 26 75 1,624
Year ended December 31, 1997
Allowance for doubtful accounts 58 2,254 639 1,673
</TABLE>
Other schedules have been omitted because they are inapplicable, immaterial, or
not required, or the information is included in the audited financial statements
or notes thereto.
(b) Reports on Form 8-K:
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Date Subject
---- -------
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March 15, 2000 Early Lease Termination of Four F100 Leases
February 14, 2000 Winter Storms
January 6, 2000 Law Suit Settlement and Option Agreement
</TABLE>
(c) Exhibits:
The Exhibits filed or incorporated by reference herewith are as specified in the
Exhibit Index.
<PAGE>
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
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
March 30, 2000 By /s/ STEVEN WESTBERG
Steven Westberg
Executive Vice President and General Manager
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 30, 2000.
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Signature Capacity
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/s/ ROBERT R. FERGUSON, III* Chairman of the Board of Directors,
- ---------------------------- President and Chief Executive Officer
Robert R. Ferguson, III (Principal Executive Officer)
/s/ STEVEN WESTBERG* Executive Vice President and General Manager
- -------------------- (Principal Financial and Accounting Officer)
Steven Westberg
/s/ GREGORY HARDING-BROWN* Director
- --------------------------
Gregory Harding-Brown
/s/ W. GREYSON QUARLES* Director
- -----------------------
W. Greyson Quarles
/s/ GREGORY J. ROBITAILLE* Director
- --------------------------
Gregory J. Robitaille
/s/ TIM SMITH* Director
- --------------
Timothy Smith
</TABLE>
*Steven Westberg hereby signs on behalf of each of the indicated persons for
whom he is attorney-in-fact pursuant to a Power of Attorney filed herewith.
<PAGE>
EXHIBIT INDEX
MIDWAY AIRLINES CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
EXHIBIT INDEX
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NO. DESCRIPTION
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3.1+ Amended and Restated Certificate of Incorporation.
3.2+ Amended and Restated By-laws.
4.1+ Form of Common Stock Certificate.
4.2+ See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Certificate of Incorporation and Amended and Restated By-laws of
Midway defining the rights of the holders of Common Stock.
4.3+++ Form of Trust Indenture and Security Agreement between Midway
Airlines Corporation and The First National Bank of Maryland as
Indenture Trustee.
4.4+++ Form of Promissory Note from Midway Airlines Corporation to Canadian
Regional Aircraft Finance Transaction No. 1 Limited.
4.5+ Stockholders Agreement dated February 11, 1997.
4.6++ Pass Through Trust Agreement, (1A-S), dated as of August 13, 1998,
between Midway Airlines Corporation and The First National Bank of
Maryland, as Trustee, made with respect to the formation of Midway
Airlines Pass Through Trust, Series 1998-1 (1A-S) and the issuance of
7.14% Midway Airlines Corporation Pass Through Trust, Series 1998-1
(1A-S) Pass Through Certificate representing fractional undivided
interests in the Trust (including form of Class A Certificate).
4.7++ Pass Through Trust Agreement, (1A-O), dated as of August 13, 1998,
between Midway Airlines Corporation and The First National Bank of
Maryland, as Trustee, made with respect to the formation of Midway
Airlines Pass Through Trust, Series 1998-1 (1A-O) and the issuance of
7.14% Midway Airlines Corporation Pass Through Trust, Series 1998-1
(1A-O) Pass Through Certificate representing fractional undivided
interests in the Trust (including form of Class A Certificate).
4.8++ Pass Through Trust Agreement, (1B-S), dated as of August 13, 1998,
between Midway Airlines Corporation and The First National Bank of
Maryland, as Trustee, made with respect to the formation of Midway
Airlines Pass Through Trust, Series 1998-1 (1B-S) and the issuance of
8.14% Midway Airlines Corporation Pass Through Trust, Series 1998-1
(1B-S) Pass Through Certificate representing fractional undivided
interests in the Trust (including form of Class B Certificate).
4.9++ Pass Through Trust Agreement, (1B-O), dated as of August 13, 1998,
between Midway Airlines Corporation and The First National Bank of
Maryland, as Trustee, made with respect to the formation of Midway
Airlines Pass Through Trust, Series 1998-1 (1B-O) and the issuance of
8.14% Midway Airlines Corporation Pass Through Trust, Series 1998-1
(1B-O) Pass Through Certificate representing fractional undivided
interests in the Trust (including form of Class B Certificate).
4.10++ Pass Through Trust Agreement, (1C-S), dated as of August 13, 1998,
between Midway Airlines Corporation and The First National Bank of
Maryland, as Trustee, made with respect to the formation of Midway
Airlines Pass Through Trust, Series 1998-1 (1C-S) and the issuance of
8.92% Midway Airlines Corporation Pass Through Trust, Series 1998-1
(1C-S) Pass Through Certificate representing fractional undivided
interests in the Trust (including form of Class C Certificate).
4.11++ Pass Through Trust Agreement, (1C-O), dated as of August 13, 1998,
between Midway Airlines Corporation and The First National Bank of
Maryland, as Trustee, made with respect to the formation of Midway
Airlines Pass Through Trust, Series 1998-1 (1C-O) and the issuance of
8.92% Midway Airlines Corporation Pass Through Trust, Series 1998-1
(1C-O) Pass Through Certificate representing fractional undivided
interests in the
</TABLE>
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<TABLE>
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Trust (including form of Class C Certificate).
4.12++ Pass Through Trust Agreement, (1D-S), dated as of August 13, 1998,
between Midway Airlines Corporation and The First National Bank of
Maryland, as Trustee, made with respect to the formation of Midway
Airlines Pass Through Trust, Series 1998-1 (1D-S) and the issuance of
8.86% Midway Airlines Corporation Pass Through Trust, Series 1998-1
(1D-S) Pass Through Certificate representing fractional undivided
interests in the Trust (including form of Class D Certificate).
4.13++ Pass Through Trust Agreement, (1D-O), dated as of August 13, 1998,
between Midway Airlines Corporation and The First National Bank of
Maryland, as Trustee, made with respect to the formation of Midway
Airlines Pass Through Trust, Series 1998-1 (1D-O) and the issuance of
8.86% Midway Airlines Corporation Pass Through Trust, Series 1998-1
(1D-O) Pass Through Certificate representing fractional undivided
interests in the Trust (including form of Class D Certificate).
4.14++ Note Purchase Agreement, dated as of August 13, 1998, between Midway
Airlines Corporation and The First Bank of Maryland, as Trustee, The
First National Bank of Maryland, as Pass Through Trustee under each of
the Pass Through Trust Agreements, The First National Bank of
Maryland, as Subordination Agent, First Union Trust Company, National
Association, as Escrow Agent and The First National Bank of Maryland,
as Paying Agent.
4.15++ Deposit Agreement, (Class A), dated as of August 13, 1998, between
First Union Trust Company, National Association as Escrow Agent and
First Union National Bank as Depositary.
4.16++ Deposit Agreement, (Class B), dated as of August 13, 1998, between
First Union Trust Company, National Association as Escrow Agent and
First Union National Bank as Depositary.
4.17++ Deposit Agreement, (Class C), dated as of August 13, 1998, between
First Union Trust Company, National Association as Escrow Agent and
First Union National Bank as Depositary.
4.18++ Deposit Agreement, (Class D), dated as of August 13, 1998, between
First Union Trust Company, National Association as Escrow Agent and
First Union National Bank as Depositary.
4.19++ Irrevocable Revolving Credit Agreement, (Class-A Certificates), dated
as of August 13, 1998, between The First National Bank of Maryland,
not in its individual capacity but solely as Subordination Agent, as
agent and trustee for the Midway Airlines 1998-1A Pass Through Trust,
as Borrower and ABN AMRO Bank N.V., Chicago Branch as Liquidity
Provider.
4.20++ Irrevocable Revolving Credit Agreement, (Class-B Certificates), dated
as of August 13, 1998, between The First National Bank of Maryland,
not in its individual capacity but solely as Subordination Agent, as
agent and trustee for the Midway Airlines 1998-1B Pass Through Trust,
as Borrower and ABN AMRO Bank N.V., Chicago Branch as Liquidity
Provider.
4.21++ Irrevocable Revolving Credit Agreement, (Class-C Certificates), dated
as of August 13, 1998, between The First National Bank of Maryland,
not in its individual capacity but solely as Subordination Agent, as
agent and trustee for the Midway Airlines 1998-1C Pass Through Trust,
a Borrower and ABN AMRO Bank N.V., Chicago Branch as Liquidity
Provider.
4.22++ Intercreditor Agreement, dated as of August 13, 1998 among The First
National Bank of Maryland, not in its individual capacity but solely
as Trustee under the Midway Airlines Pass Through Trust 1998-1A,
Midway Airlines Pass Through Trust 1998-1B, Midway Airlines Pass
Through 1998-1C and Midway Airlines Pass Through Trust 1998-1D, ABN
AMRO Bank, N.V. Chicago Branch as Class A Liquidity Provider, Class B
Liquidity Provider and Class C Liquidity Provider and The First
National Bank of Maryland not in its individual capacity except as
expressly set forth herein but solely as Subordination Agent and
trustee thereunder.
4.23++ Escrow and Paying Agent Agreement, (Class A), dated as of August 13,
1998 among First Union Trust Company, National Association as Escrow
Agent, Morgan Stanley & Co. Incorporated and Credit Suisse First
Boston Corporation as Initial Purchasers, The First National Bank of
Maryland not in its individual capacity, but solely as Pass Through
Trustee for and on behalf of Midway Airlines Pass Through Trust 1998-
Paying Agent.
4.24++ Escrow and Paying Agent Agreement, (Class B), dated as of August 13,
1998 among First Union Trust Company, National Association as Escrow
Agent, Morgan Stanley & Co. Incorporated and Credit Suisse First
</TABLE>
<PAGE>
<TABLE>
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Boston Corporation as Initial Purchasers, The First National Bank of
Maryland not in its individual capacity, but solely as Pass Through
Trustee for and on behalf of Midway Airlines Pass Through Trust 1998-
1B-O as Pass Through Trustee and The First National Bank of Maryland
as Paying Agent.
4.25++ Escrow and Paying Agent Agreement, (Class C), dated as of August 13,
1998 among First Union Trust Company, National Association as Escrow
Agent, Morgan Stanley & Co. Incorporated and Credit Suisse First
Boston Corporation as Initial Purchasers, The First National Bank of
Maryland not in its individual capacity, but solely as Pass Through
Trustee for and on behalf of Midway Airlines Pass Through Trust 1998-
1C-O as Pass Through Trustee and The First National Bank of Maryland
as Paying Agent.
4.26++ Escrow and Paying Agent Agreement, (Class D), dated as of August 13,
1998 among First Union Trust Company, National Association as Escrow
Agent, Morgan Stanley & Co. Incorporated and Credit Suisse First
Boston Corporation as Initial Purchasers, The First National Bank of
Maryland not in its individual capacity, but solely as Pass Through
Trustee for and on behalf of Midway Airlines Pass Through Trust 1998-
1D-O as Pass Through Trustee and The First National Bank of Maryland
as Paying Agent.
4.27++ Registration Rights Agreement, dated as of August 13, 1998, among
Midway Airlines Corporation, a Delaware corporation, The First
National Bank of Maryland, as Trustee under each of the Trust
Agreements, Morgan Stanley & Co. Incorporated and Credit Suisse First
Boston Corporation.
10.1++ See Exhibits 4.3 and 4.4 for Form of Promissory Note and Form of Trust
Indenture and Security Agreement.
10.2+++ Midway Airlines Corporation 1997 Stock Option Plan and Form of Stock
Option Agreement related thereto.
10.3*+ Aircraft Operating Lease Agreement No. AOLAF-111 dated as of November
11, 1993 between First Security Bank of Utah, N.A. ("FSBU") and
Midway, with amendments attached thereto.
10.4*+ Aircraft Operating Lease Agreement No. AOLAF-112 dated as of November
11, 1993 between FSBU and Midway, with amendments attached thereto.
10.5*+ Aircraft Operating Lease Agreement No. AOLAF-113 dated as of November
11, 1993 between FSBU and Midway, with amendments attached thereto.
10.6*+ Aircraft Operating Lease Agreement No. AOLAF-114 dated as of November
11, 1993 between FSBU and Midway, with amendments attached thereto.
10.7*+ Aircraft Operating Lease Agreement No. AOLAF-115-A dated as of July
10, 1995 between Wings Aircraft Finance, Inc. ("Wings") and Midway,
with amendments attached thereto.
10.8*+ Aircraft Operating Lease Agreement No. AOLAF-116-A dated as of July
10, 1995 between Wings and Midway, with amendments attached thereto.
10.9*+ Aircraft Operating Lease Agreement No. AOLAF-117-A dated as of July
10, 1995 between Wings and Midway, with amendments attached thereto.
10.10*+ Aircraft Operating Lease Agreement No. AOLAF-118-A dated as July 10,
1995 between Wings and Midway, with amendments attached thereto.
10.11*+ Aircraft Operating Lease Agreement No. AOLAF-135 dated as of July 20,
1995 between FSBU and Midway, with amendments thereto.
10.12*+ Aircraft Operating Lease Agreement No. AOLAF-524 dated as August 1,
1995 between FSBU and Midway, with amendments thereto.
10.13*+ Aircraft Operating Lease Agreement No. AOLAF-525 dated as of October
15, 1995 between FSBU and Midway, with attached thereto.
10.14*+ Aircraft Operating Lease Agreement No. AOLAF-136 dated as of December
15, 1995 between FSBU and Midway, with amendments attached thereto.
10.15*+ Aircraft Lease Agreement dated as of May 24, 1995 between Wilmington
Trust Company and Midway.
</TABLE>
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10.16*+ Airbus A-320-200 Purchase Agreement dated as of March 17, 1995 between
AVSA. S.A.R.L. ("AVSA") and Midway with Amendment Nos. 1 through 6
thereto. Letter Agreement No. 2 Re: Purchase Incentives and
Miscellaneous Matters, as amended Letter Agreement No. 3 Re: Option
Aircraft, as amended Letter Agreement Re: Financial Matters with
Amendment No. 4 thereto.
10.17*+ Agreement of Sublease dated as of January 18, 1995 between American
Airlines, Inc. ("AA") and Midway, with amendments attached thereto.
10.18*+ AAdvantage(R) Participating Carrier Agreement dated as of January
18, 1995 between AA and Midway, with amendments attached thereto.
10.19*+ Secured Promissory Note dated February 7, 1997 from Midway to AA.
10.20*+ February 10, 1997 Letter Agreement between American Airlines, Inc. and
Midway with Exhibits A and C through I thereto.
10.21*+ Agreement Relating to Repair and Overhaul of Rolls Royce Engines
dated as of May 10, 1996 between Rolls Royce Aero Engine Services
Limited and Midway.
10.22*+ Purchase Agreement between Bombardier Inc. and Midway dated September
17, 1997 with Letter Agreements 001 through 011.
10.23*+ Services and Licenses Agreement between Midway and Airline Management
Services, Inc. dated as of December 7, 1995 with Annex A thereto.
10.24*+ Letter Agreement dated as of July 1, 1996 between Fokker Services,
Inc. and Midway.
10.25 [Intentionally Omitted.]
10.26+ Warrant to Purchase Shares of Common Stock of Midway Airlines
Corporation dated February 11, 1997 issued by Midway in favor of AMR
Corporation.
10.27 [Intentionally Omitted.]
10.28*+ General Terms of Sale between IAE International Aero Engines AG and
Midway dated May 17, 1995 with Side Letter Number 1 and Side Letter
Number 2 thereto.
10.29*+ Promissory Note dated February 11, 1997 made by Midway to debis
AirFinance B.V.
10.30*+ Promissory Note dated February 11, 1997 made by Midway to Daimler Benz
Aerospace A.G.
10.31+ Severance Agreement and Other Matters made as of February 11, 1997
between Robert R. Ferguson III and Midway.
10.32+ Employment Agreement dated as of July 15, 1996 between Steven Westberg
and Midway, with amendments attached thereto.
10.33+ Employment Agreement dated as of July 15, 1996 between Jonathan S.
Waller and Midway, with amendments attached thereto.
10.34 [Intentionally Omitted.]
10.35 [Intentionally Omitted.]
10.36+ Option to Purchase Shares of Common Stock of Midway Airlines
Corporation dated as of February 11, 1997 issued by Midway in favor of
Robert R. Ferguson III.
10.37+ Agreement and Plan of Merger dated as of January 17, 1997 by and among
Midway, GoodAero, Inc., James H. Goodnight, Ph.D, John P. Sall and the
Zell/Chilmark Fund L.P., with amendments attached thereto.
</TABLE>
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10.38 [Intentionally Omitted.]
10.39*+ Sublease dated June 30, 1995 between Peoples Security Life Insurance
Company and Midway.
10.40 [Intentionally Omitted.]
10.41*+ AAirpass Agreement dated as of March 2, 1995 between American
Airlines Inc. and Midway.
10.42*+ Engine Lease Agreement dated September 11, 1997 between RRPF Engine
Leasing Limited and Midway.
10.43+ Option to Purchase Shares of Common Stock of Midway Airlines
Corporation dated as of February 11, 1997 issued by Midway in favor of
Steven Westberg.
10.44+ Option to Purchase Shares of Common Stock of Midway Airlines
Corporation dated as of February 11, 1997 issued by Midway in favor of
Jonathan S. Waller.
10.45 [Intentionally Omitted.]
10.46+ Option to Purchase Shares of Common Stock of Midway Airlines
Corporation dated as of February 11, 1997 issued by Midway in favor of
Thomas Duffy, Jr.
10.47+ Option to Purchase Shares of Common Stock of Midway Airlines
Corporation dated as of February 11, 1997 issued by Midway in favor of
David Vance.
10.48*+ Agreement, executed September and November 1997, between Rolls-Royce
Canada Limited and Midway.
10.49++ Purchase Agreement, dated as of August 6, 1998, by and among Midway
Airlines Corporation, Morgan Stanley & Co. Incorporated and Credit
Suisse First Boston Corporation.
10.50*+@ Participation Agreement dated as of September 10, 1998 among Midway
Airlines Corporation as Lessee, NCC Charlie 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, The First National Bank of
Maryland as Indenture Trustee, The First National Bank of Maryland as
Pass-Through Trustee and The First National Bank of Maryland as
Subordination Agent. Midway Airlines Corporation is a party to seven
additional Participation Agreements which are substantially identical
in all material respects except as indicated on the exhibit.
10.51++@ Trust Agreement dated as of September 10, 1998 between NCC Charlie
Company as Owner Participant and First Union Trust Company, National
Association as Owner Trustee. There are seven additional Trust
Agreements which are substantially identical in all material respects
except as indicated on the exhibit.
10.52++@ Trust Indenture and Security Agreement dated as of September 10, 1998
between First Union Trust Company, National Association not in its
individual capacity except as expressly provided herein but solely as
Owner Trustee and The First National Bank of Maryland as Indenture
Trustee. There are seven additional Trust Indenture and Security
Agreements which are substantially identical in all material respects
except as indicated on the exhibit.
10.53++@ Indenture Supplement No. 1 dated as of September 30, 1998 of First
Union Trust Company, National Association, a national banking
association, not in its individual capacity but solely as Owner
Trustee. There are seven additional Indenture Supplements No. 1 which
are substantially identical in all material respects except as
indicated on the exhibit.
10.54*+@ Lease Agreement dated as of September 10, 1998 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 seven additional Leases which are substantially identical
in all material respects except as indicated on the exhibit.
10.55++@ Lease Supplement No. 1 dated as of September 10, 1998 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 seven additional
</TABLE>
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Lease Supplements No. 1 which are substantially identical in all
material respects except as indicated on the exhibit.
10.56++@ Purchase Agreement Assignment and Aircraft Manufacturer's Consent
dated as of September 10, 1998 between Midway Airlines Corporation as
Assignor and First Union Trust Company, National Association as
Assignee. Midway Airlines Corporation is a party to seven additional
Purchase Agreement Assignment and Aircraft Manufacturer's Consents
which are substantially identical in all material respects except as
indicated on the exhibit.
10.57++@ Engine Warranty Assignment and Engine Manufacturer's Consent dated as
of September 10, 1998 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 seven additional Engine Warranty Assignment
and Engine Manufacturer's Consents which are substantially identical
in all material respects except as indicated on the exhibit.
10.58++ General Terms Agreement between General Electric Company and Midway
Airlines Corporation.
10.59++ Concourse Lakeside Lease Agreement by and between Concourse Lakeside
I, LLC, as Landlord, and Midway Airlines Corporation, as Tenant.
10.60 Participation Agreement [N586ML] dated as of December 10, 1999 among
Midway Airlines Corporation, as Lessee, ICX Corporation, as Owner
Participant and First Union Trust Company, National Association, not
in its individual capacity (except as otherwise expressly set forth
herein) but solely as Owner Trustee.
10.61 Trust Agreement [N586ML] dated as of December 10, 1999 between ICX
Corporation, as Owner Participant and First Union Trust Company, as
Owner Trustee.
10.62* Lease Agreement [N586ML] dated as of December 10, 1999 between First
Union Trust Company, National Association, as Owner Trustee and
Lessor and Midway Airlines Corporation, as Lessee.
10.63 Lease Supplement No. 1 [N586ML] dated as of December 15, 1999 between
First Union Trust Company, National Association, not in its individual
capacity (except as otherwise expressly set forth herein) but solely
as Owner Trustee, the Lessor and Midway Airlines Corporation, as
Lessee.
10.64 Purchase Agreement Assignment and Aircraft Manufacturer's Consent and
Agreement [N586ML] dated as of December 10, 1999 between Midway
Airlines Corporation, as Assignor and First Union Trust Company,
National Association, not in its individual capacity by solely as
owner Trustee, as Assignee.
10.65 Engine Warranty Assignment and Engine Manufacturer's Consent and
Agreement [N586ML] between Midway Airlines Corporation, as Assignor
and First Union Trust Company, National Association, not in its
individual capacity but solely as Owner Trustee, as Assignee.
10.66* Lease Agreement [N587ML] dated as of December 30, 1999 between Fleet
National Bank, as Lessor and Midway Airlines Corporation, as Lessee.
10.67 Lease Supplement No. 1 [N587ML] dated as of December 30, 1999 between
Fleet National Bank.
10.68 Supplemental Agreement [N587ML] dated as of December 30, 1999 between
Midway Airlines Corporation, as Lessee and Fleet National Bank, as
Lessor.
10.69 Purchase Agreement Assignment and Aircraft Manufacturer's Consent and
Agreement [N587ML] dated as of December 30, 1999 between Midway
Airlines Corporation, as Assignor and Fleet National Bank, as
Assignee.
10.70 Engine Warranty Assignment and Engine Manufacturer's Consent and
Agreement [N587ML] dated as of December 30, 1999 between Midway
Airlines Corporation, as Assignor and Fleet National Bank, as
Assignee.
10.71* Loan Agreement dated as of December 30, 1999 between Midway Airlines
Corporation, as Borrower and Fleet Capital Corporation, as Lender.
10.72 Engine Security Agreement dated as of December 30, 1999 between Midway
Airlines Corporation, as Borrower and Fleet Capital Corporation, as
Lender.
</TABLE>
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10.73 Engine Security Agreement Supplement dated as of January 25, 2000
between Midway Airlines Corporation as Borrower and Fleet Capital
Corporation, as Lender.
10.74* Loan Agreement dated as of December 22, 1999 between Midway Airlines
Corporation, as Borrower and General Electric Capital Corporation, as
Lender.
10.75* Consent and Agreement dated as of December 22, 1999 among Midway
Airlines Corporation, General Electric Capital Corporation, as
Assignee and The Boeing Company, as Manufacturer.
10.76* Security Agreement and Collateral Assignment of Purchase Agreement
dated as of December 22, 1999 between Midway Airlines Corporation, as
Assignor and General Electric Capital Corporation, as Assignee.
10.77* Return Compensation Agreement dated as of December 6, 1999 between
First Security Bank, N.A. not in its individual capacity , but solely
as Owner Trustee, as Lessor, Midway Airlines Corporation, as Lessee
and debis AirFinance B.V., as Beneficial Owner.
10.78* Option Agreement dated as of December 6, 1999 between First Security
Bank, N.A. not in its individual capacity, but solely as Owner
Trustee, as Lessor, Midway Airlines Corporation, as Lessee, and debis
AirFinance B.V. as Beneficial Owner.
10.79* Lease Termination and Compensation Agreement between First Security
Bank, N.A. not in its individual capacity but solely as Owner Trustee,
as Lessor, Midway Airlines Corporation, as Lessee, and debis
AirFinance B.V. as Beneficial Owner.
10.80* Letter Agreement No. 6-1162-CPJ-385 dated as of December 15, 1999
between The Boeing Company and Midway Airlines Corporation.
10.81 Fifth Amendment of Agreement of Sublease between American Airlines,
Inc. and Midway Airlines Corporation, as Lessee.
10.82* Contract Change orders No. 1, No. 3, No. 4, No. 5, No. 6, No. 7, No. 8
and No. 9 between Bombardier Inc. and Midway Airlines Corporation.
10.83* Secured Promissory Note dated December 30, 1999 from Midway Airlines
Corporation to Fleet Capital Corporation.
10.84* Secured Promissory Note dated January 25, 2000 from Midway Airlines
Corporation to Fleet Capital Corporation.
10.85# 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.
10.86# 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.
10.87# 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.
10.88# 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.
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10.89*# 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.
10.90# 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.
10.91# 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.
10.92# 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.
10.93*# General Terms Agreement No. 6-13593 dated as of June 11, 1999 by and
between CFM International, Inc. and Midway Airlines Corporation.
10.94# Aircraft Lease Common Terms Agreement dated as of September 10, 1999
between General Electric Capital Corporation and Midway Airlines
Corporation.
10.95*# 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.
10.96*# 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.
23.1 Consent of Independent Auditors
24.1 Powers of Attorney of Certain Officers and Directors of the Company.
27 Financial Data Schedule.
* Portions have been omitted pursuant to a request for confidential
treatment. The confidential portions have been separately filed with
the Securities and Exchange Commission.
+ Filed as Exhibit to Form S-1, Registration No. 333-37375, effective
December 4, 1997, incorporated herein by reference.
++ Filed as Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998.
+++ Filed as Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
@ Exhibit containing differences filed as Exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
# Filed as Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999.
</TABLE>
<PAGE>
CONFORMED COPY
--------------
================================================================================
PARTICIPATION AGREEMENT [N586ML]
Dated as of December 10, 1999
among
MIDWAY AIRLINES CORPORATION,
as Lessee
ICX CORPORATION,
as Owner Participant,
and
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
not in its individual capacity (except as otherwise
expressly set forth herein) but solely
as Owner Trustee
================================================================================
COVERING ONE CANADAIR REGIONAL JET SERIES 200ER
AIRCRAFT BEARING U.S. REGISTRATION NO. N586ML
AND MANUFACTURER'S SERIAL NUMBER 7341
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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 AND LEASING TRANSACTIONS............................................... 2
Section 2.01. Participation............................................. 2
(a) Sale and Purchase......................................... 2
(b) Leasing................................................... 2
(c) Owner Participant's Equity Investment..................... 3
(d) Delivery Date............................................. 3
Section 2.02. Closing Procedure......................................... 3
(a) Time and Place............................................ 3
(b) Actions of the Owner Trustee.............................. 3
(c) Actions of the Lessee..................................... 4
ARTICLE 3. CONDITIONS PRECEDENT........................................................ 5
Section 3.01. Conditions Precedent to Obligations of Owner Participant.. 5
(a) Notice.................................................... 5
(b) Delivery of Documents..................................... 5
(c) Airworthiness............................................. 7
(d) Violation of Law.......................................... 7
(e) No Event of Default....................................... 8
(f) No Event of Loss.......................................... 8
(g) Title..................................................... 8
(h) Certification............................................. 8
(i) Section 1110.............................................. 8
(j) Filings................................................... 8
(k) Precautionary Financing Statements........................ 8
(l) No Proceedings............................................ 8
(m) Governmental Action....................................... 9
(n) Representations and Warranties............................ 9
(o) Reserved.................................................. 9
(p) Lessee Advisor Letter..................................... 9
(q) Other Documents........................................... 9
Section 3.02. Conditions Precedent to Obligations of Lessee............. 9
(a) Documents................................................. 9
(b) Corporate Documents....................................... 9
</TABLE>
i
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<TABLE>
<S> <C>
(c) Officer's Certificate..................................... 10
(d) Other Conditions Precedent................................ 10
Section 3.03. Post-Registration Opinion................................. 10
ARTICLE 4. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS.......................... 10
Section 4.01. Lessee's Representations and Warranties................... 10
Section 4.02. Certain Covenants of Lessee............................... 13
(a) Filings and Recordings.................................... 13
(b) Registration.............................................. 14
(c) Information............................................... 16
(d) Privileges and Franchises................................. 17
(e) Merger and Consolidation.................................. 17
(f) Change of Location........................................ 18
(g) Financial Statements...................................... 18
(h) Filing of Documents....................................... 18
Section 4.03. Survival of Representations and Warranties................ 19
ARTICLE 5. OTHER PARTIES' REPRESENTATIONS, WARRANTIES AND
COVENANTS................................................................... 19
Section 5.01. Representations, Warranties and Covenants of Owner
Participant............................................... 19
(a) Representations and Warranties............................ 19
(b) Lessor's Liens............................................ 21
(c) Assignment of Interests of Owner Participant.............. 21
(d) Actions with Respect to Lessor's Estate, Etc.............. 22
(e) Citizenship............................................... 22
Section 5.02. Citizenship............................................... 23
(a) Generally................................................. 23
(b) Owner Trustee............................................. 23
Section 5.03. Representations, Warranties and Covenants of Trust
Company and the Owner Trustee............................. 24
(a) Representations and Warranties............................ 24
(b) Lessor's Liens............................................ 26
(c) Indemnity for Lessor's Liens.............................. 26
(d) Securities Act............................................ 26
(e) Actions With Respect to Lessor's Estate, Etc.............. 26
(f) Other Business............................................ 26
(g) Performance of Agreements................................. 26
Section 5.04. The Lessee's Right of Quiet Enjoyment..................... 27
Section 5.05. Survival of Representations, Warranties and
Covenants................................................. 27
Section 5.06. Compliance with Trust Agreement, Etc...................... 27
ARTICLE 6. TAXES....................................................................... 27
Section 6.01. Lessee's Obligation to Pay Taxes.......................... 27
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
(a) Generally................................................ 27
(b) Exceptions............................................... 28
Section 6.02. After Tax Basis.......................................... 31
Section 6.03. Time of Payment.......................................... 31
Section 6.04. Contests................................................. 32
(a) Notice of Claim.......................................... 32
(b) Request for Contest...................................... 32
(c) Declining to Contest; Settlement......................... 33
(d) Claims Barred............................................ 34
Section 6.05. Refunds.................................................. 34
Section 6.06. Reports.................................................. 34
Section 6.07. Survival of Obligations.................................. 35
Section 6.08. Payment of Taxes......................................... 35
Section 6.09. Reimbursements by Indemnitees Generally.................. 35
Section 6.10. Forms.................................................... 35
Section 6.11. Verification............................................. 35
Section 6.12. Non-Parties.............................................. 36
ARTICLE 7. GENERAL INDEMNITY.......................................................... 36
Section 7.01. Generally................................................ 36
(a) Indemnity................................................ 36
(b) Exceptions............................................... 37
(c) Non-Parties.............................................. 39
Section 7.02. Notice and Payment....................................... 39
Section 7.03. Defense of Claims........................................ 39
Section 7.04. Insured Claims........................................... 40
Section 7.05. Subrogation.............................................. 40
Section 7.06. Information.............................................. 40
Section 7.07. Survival of Obligations.................................. 40
Section 7.08. Effect of Other Indemnities.............................. 40
Section 7.09. Waiver of Certain Claims................................. 41
Section 7.10. Certain Limitations...................................... 41
ARTICLE 8. TRANSACTION COSTS.......................................................... 41
Section 8.01. Transaction Costs and Other Costs........................ 41
(a) Transaction Costs........................................ 41
(b) Continuing Expenses...................................... 41
(c) Amendments and Supplements............................... 41
ARTICLE 9. SUCCESSOR OWNER TRUSTEE.................................................... 42
Section 9.01. Appointment of Successor Owner Trustee................... 42
(a) Resignation and Removal.................................. 42
(b) Conditions to Appointment................................ 42
ARTICLE 10. LIABILITIES OF THE OWNER PARTICIPANT....................................... 43
</TABLE>
iii
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<CAPTION>
<S> <C>
Section 10.01. Liabilities of the Owner Participant..................... 43
ARTICLE 11. OTHER DOCUMENTS............................................................ 43
Section 11.01. Consent of Lessee to Other Documents..................... 43
ARTICLE 12. NOTICES.................................................................... 43
Section 12.01. Notices.................................................. 43
ARTICLE 13. FINANCING.................................................................. 44
Section 13.01. Financing................................................ 44
ARTICLE 14. MISCELLANEOUS.............................................................. 45
Section 14.01. Counterparts............................................. 45
Section 14.02. No Oral Modifications.................................... 45
Section 14.03. Captions................................................. 45
Section 14.04. Successors and Assigns................................... 45
Section 14.05. Concerning the Owner Trustee............................. 45
Section 14.06. Severability............................................. 46
Section 14.07. GOVERNING LAW............................................ 46
Section 14.08. Section 1110 Compliance.................................. 47
</TABLE>
Exhibit A Form of Owner Participant Guaranty
Exhibit B Form of Opinion of Counsel to the Owner Participant
in respect of the Assignment and Assumption Agreement
iv
<PAGE>
PARTICIPATION AGREEMENT [N586ML] dated as of December 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"), and ICX CORPORATION, an Ohio corporation (together with its
successors and permitted assigns, the "Owner Participant").
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, 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 [N586ML], dated as of December 10, 1999 (the "Residual Agreement")
with the Owner Participant and to undertake the obligations provided therein;
and
<PAGE>
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 [N586ML], dated December 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.
ARTICLE 2.
SALE AND LEASING TRANSACTIONS
Section 2.01. Participation. Subject to all of the terms and
-------------
conditions of this Agreement, the parties agree to participate in the sale and
leasing transactions with respect to the Aircraft provided for in this Article
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.
2
<PAGE>
(c) Owner Participant's Equity Investment. The Owner Participant
-------------------------------------
agrees to provide immediately available funds in the amount equal to the
Lessor's Cost (the "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.
(d) Delivery Date. The "Delivery Date" shall be the date fixed by
-------------
the Lessee in accordance with this Section 2.01(d) for the closing of the sale
and leasing 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
Business Days' notice to each other party hereto of the Delivery Date, which
notice shall also specify the amount of the 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
the Owner Participant shall have provided the amount of the Commitment to the
Owner Trustee prior to such a postponement, the Owner Trustee shall return such
amount to the Owner Participant by 2:00 p.m. on the scheduled Delivery Date
unless the Owner Participant shall have agreed otherwise in writing. Absent such
an agreement, in the event that the 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 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 the
Commitment at the closing shall be deemed a waiver of notice of the Delivery
Date by the Owner Participant and the Owner 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 together with instructions (which may be oral) from
the Owner Participant or its
3
<PAGE>
special counsel that the applicable conditions precedent set forth in Section
3.01 have been satisfied or waived by the Owner Participant, the Owner Trustee
on the Delivery Date shall purchase the Aircraft from the Seller and lease the
Aircraft to the Lessee. 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 Lessee (or directly to the Seller at Lessee's direction)
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 deliver the Lease
and the Lease Supplement No. 1; (v) deliver the Aircraft to the Lessee pursuant
to the Lease; and (vi) 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.
(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) cause the Seller to execute and deliver the Bills of Sale;
(ii) execute and deliver the Lease and the Lease Supplement No.
1;
(iii) execute and deliver the Purchase Agreement Assignment and
the Engine Warranty Assignment;
(iv) 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
(v) 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.
4
<PAGE>
ARTICLE 3.
CONDITIONS PRECEDENT
Section 3.01. Conditions Precedent to Obligations of Owner
--------------------------------------------
Participant. The obligation of the Owner Participant to make the Commitment
- -----------
available for payment as directed by the Owner Trustee on the Delivery Date is
subject to satisfaction or waiver by the Owner 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 the
- --------
Owner Participant that any document be produced or action taken that is to be
produced or taken by the Owner Participant or by a Person within the Owner
Participant's control:
(a) Notice. The Owner Participant shall have received the notice of
------
the Delivery Date as provided in Section 2.01(d), or shall have waived such
notice.
(b) Delivery of Documents. The Owner Trustee and Owner Participant
---------------------
shall, except as noted below, have received executed original 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 the Owner Participant and (c) shall be in full force and
effect:
(i) this Agreement;
(ii) the Lease and Lease Supplement No. 1, provided that, the
chattel paper originals thereof shall be delivered to and maintained by the
Owner Trustee;
(iii) the Tax Indemnity Agreement;
(iv) the Trust Agreement;
(v) the Deficiency Agreement;
(vi) the Residual Agreement;
(vii) the Return Condition Agreement;
(viii) the Purchase Agreement, the Warranties (as defined in the
Engine Warranty Assignment), the Purchase Agreement Assignment and the
Engine Warranty Assignment;
(ix) the PAA Consent and the Engine Manufacturer's Consent;
(x) the Bills of Sale;
5
<PAGE>
(xi) the broker's report and insurance certificates required by
Section 9 of the Lease;
(xii) an appraisal or appraisals from BK Associates, which
appraisal or appraisals shall be satisfactory in form and substance to
Owner Participant;
(xiii) (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
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 Trust Company, certified as of the Delivery
Date by the Secretary or an Assistant Secretary of Trust Company, which
authorize the execution, delivery and performance by Trust Company of each
of the Operative Agreements to which it is a party, together with such
other documents and evidence with respect to it as Owner 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;
(xiv) an Officer's Certificate of Lessee, 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);
(xv) 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 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) the following opinions of counsel, in each case dated the
Delivery Date:
(A) Jonathan Waller, Senior Vice President and General Counsel
of the Lessee, in a form reasonably acceptable to the Owner Participant and
addressed to the Owner Participant and the Owner Trustee.
6
<PAGE>
(B) Fulbright & Jaworski, L.L.P. special counsel for the
Lessee, in a form reasonably acceptable to the Owner Participant and
addressed to the Lessee, the Owner Participant and the Owner Trustee;
(C) Morris, James, Hitchens & Williams LLP, special counsel
for the Owner Trustee, in a form reasonably acceptable to the Owner
Participant and the Lessee and addressed to the Lessee, the Owner
Participant and the Owner Trustee;
(D) Crowe & Dunlevy P.C., special aviation counsel, in a form
reasonably acceptable to the Lessee, the Owner Participant and the Owner
Trustee and addressed to the Lessee, the Owner Participant and the Owner
Trustee;
(E) Morgan, Lewis & Bockius LLP, special counsel for the
Manufacturer, the Deficiency Obligor and the Seller, in a form reasonably
acceptable to the Lessee, the Owner Participant and the Owner Trustee and
addressed to the Lessee, the Owner Participant and the Owner Trustee;
(F) counsel for the Engine Manufacturer, in a form reasonably
acceptable to the Lessee, the Owner Participant and the Owner Trustee and
addressed to the Lessee, the Owner Participant and the Owner Trustee;
(G) in the case of the Owner Participant only, Levett
Rockwood P.C., tax counsel to the Owner Participant, addressed to the Owner
Participant, with respect to tax matters;
(H) Levett Rockwood P.C., special counsel for the Owner
Participant, and the Counsel to the Owner Participant, in forms reasonably
acceptable to the Lessee and the Owner Trustee and addressed to the Lessee,
the Owner Participant and the Owner Trustee;
(I) counsel for the Deficiency Obligor, in a form reasonably
acceptable to the Lessee, the Owner Participant and the Owner Trustee and
addressed to the Lessee, the Owner Participant and the Owner Trustee; and
(J) counsel for the Seller, in a form reasonably acceptable to
the Lessee, the Owner Participant and the Owner Trustee and addressed to
the Lessee, the Owner Participant and the Owner Trustee.
(c) Airworthiness. Owner Participant shall receive a copy of a
-------------
current, valid Standard Certificate of Airworthiness for the Aircraft duly
issued by the FAA.
(d) 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, Owner Participant,
7
<PAGE>
or Owner Trustee to execute, deliver and perform the Operative Agreements to
which any of them is a party or (b) Owner Participant to make the Commitment
available.
(e) 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 or Event of Default.
(f) 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.
(g) Title. Owner Trustee shall have good and marketable 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.
(h) Certification. The Aircraft shall have been duly certificated by
-------------
the FAA as to type and airworthiness as required by the terms of the Lease.
(i) Section 1110. Owner Trustee, as lessor under the Lease, 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.
(j) 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 Trust Agreement, Lease, Lease Supplement No. 1 and the FAA Bill of Sale
shall have been duly filed for recordation (or shall be in the process of being
so duly filed for recordation) with the FAA in accordance with the
Transportation Code.
(k) 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 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 shall
have been duly filed in all places necessary or desirable within the State of
North Carolina.
(l) 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.
8
<PAGE>
(m) 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.
(n) 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.
(o) Reserved.
--------
(p) Lessee Advisor Letter. Letter from the Lessee Advisor (as
---------------------
defined in Section 8.01(a)) confirming the truth and accuracy of the
representations and warranties of the Lessee contained in Section 4.01(r).
(q) Other Documents. The Owner Participant receives such other
---------------
document, certificates and opinions in connection with the transactions
contemplated hereby as it shall reasonably request.
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 original counterparts of the agreements,
---------
instruments, certificates, documents and opinions described in Section
3.01(b)(i)-(xi), (xiii) (with respect to the Trust Company), (xv) and (xvi)
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) Corporate Documents. (A) An incumbency certificate of Owner
-------------------
Participant as to the person or persons authorized to execute and deliver the
relevant Operative Agreements on behalf of Owner Participant; and (B) 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, certified as of the Delivery Date by the
Secretary or an Assistant Secretary of Owner Participant which authorize the
execution, delivery and performance by Owner Participant
9
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of each of the Operative Agreements to which it is a party, together with such
other documents and evidence with respect to it as Lessee 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;
(c) Officer's Certificate. 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);
(d) Other Conditions Precedent. Each of the conditions set forth in
--------------------------
Sections 3.01(c) (as to the Owner Participant), (f), (g), (h), (i), (j), (k) and
(l) 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.
Section 3.03. Post-Registration Opinion. Promptly upon the
-------------------------
registration of the Aircraft and the recordation of the documents referenced in
Section 3.01(j)(ii), Lessee will direct Crowe & Dunlevy P.C., special counsel in
Oklahoma City, Oklahoma, to deliver to Lessee, Owner Participant and Owner
Trustee a favorable opinion or opinions addressed to each of them with respect
to such registration and recordation.
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 the State 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 material adverse
effect on its business or would impair its ability to perform its 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
10
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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)(xvi)(D) and the filings referred to in
Section 3.01(j)(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 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(o) or as otherwise disclosed in writing to the Owner
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,
11
<PAGE>
tribunal or other administrative agency which, (A) may reasonably be expected to
have a material adverse effect on the Lessee's consolidated financial condition,
business, or operations, or (B) would 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) 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
Trust Agreement and the Lease (including Lease Supplement No. 1) and (C) the
filing of the financing statement or statements referred to in Section 3.01(k),
no further action, including any filing or recording of any document, is
necessary or advisable in order 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;
(j) the Owner Trustee has received good and marketable title to the
Aircraft, free and clear of all Liens, except Permitted Liens;
(k) no Default or Event of Default exists and no Event of Loss, or
event which with the passage of time would constitute an Event of Loss, exists;
(l) 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;
(m) 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;
(n) 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 Lessee Advisor (as defined in Section
8.01(a)) referred to in Article 8 hereof;
(o) the unaudited consolidated balance sheet of Lessee as of June 30,
1999 and the related consolidated statements of operations and cash flows for
the six-month 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 as of such date and the
results of its operations and cash flows for such period, and since June 30,
1999, there has been no material adverse change in such financial condition or
operations of Lessee, except for matters disclosed in (a) 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 (b) otherwise disclosed by Lessee to
the Owner Participant;
12
<PAGE>
(p) assuming the truth and accuracy of the representations and
warranties contained in Section 5.01(a)(vii) made by the Owner 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;
(q) no part of the funds used or to be used by the Lessee to satisfy
its obligations under the Operative Agreements constitute or will constitute
assets (within the meaning of ERISA and any applicable rules and regulations) of
an ERISA Plan;
(r) neither Lessee nor anyone acting 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, for sale to, or solicited any offer to acquire any of the same from,
anyone other than the Owner Participant; and not more than 50 institutions
believed capable of evaluating and bearing the risks of investment in the
transactions contemplated hereby;
(s) none of the proceeds from the acquisition by the Owner
Participant of its beneficial interest in the Trust Estate will be used directly
or indirectly by the Lessee to purchase or carry any "margin security" as such
term is defined in Regulation G or U of the Board of Governors of the Federal
Reserve System;
(t) the Aircraft is fully equipped to operate in commercial service,
does not require any modifications, additions, or improvements for its intended
use by the Lessee, and complies with all governmental requirements governing the
service in which the Aircraft is being used and is anticipated to be used by the
Lessee. The Aircraft is in the same condition as when delivered to the Lessee by
the Seller, ordinary wear and tear excepted, and is in the condition required by
the Lease, and the Lessee is unaware of any material mechanical or structural
defects or material damage to the Aircraft;
(u) the conveyance of the Aircraft to the Owner Trustee is not void
or voidable under any applicable state or federal law;
(v) Owner Trustee, as lessor under the Lease, is entitled to the
benefits of Section 1110 of the Bankruptcy Code (as currently in effect) with
respect to the Aircraft;
(w) the Lessee is not in default (after any applicable grace periods)
in the performance of any material term or condition of the Purchase Agreement;
(x) to the best of Lessee's knowledge, 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.
13
<PAGE>
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 or 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 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 Lease (including each supplement thereto), and any financing
statements or other instruments as may be reasonably requested by the Owner
Trustee and appropriate, to maintain 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 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 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:
--------
(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 (including the
reasonable fees and expenses of local counsel in such country) relating to
such re-registration;
(iii) the Lessee shall, at its cost, cause the interest of the
Owner Trustee as owner of the Aircraft 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 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;
14
<PAGE>
(iv) the obligations of the Lessee (and of the Permitted
Sublessee under a Sublease) and the rights and remedies of the Lessor and
the Owner Participant under the Operative Agreements shall remain or be, as
the case may be, legal, valid, binding and enforceable in 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
and the Owner 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 and the Owner
Trustee and Owner Participant shall receive evidence reasonably
satisfactory to them of the same;
(vii) it shall not be necessary by reason of such re-
registration or for purposes of enforcing remedies contained in the Lease
or Sublease for the Owner Participant or Owner Trustee to register or
qualify to do business in such country (other than in respect of
administrative matters to be performed in the ordinary course of business
which shall not unduly delay or frustrate Owner Trustee's or Owner
Participant's right to exercise its remedies under any of the Operative
Agreements);
(viii) no Liens (except Permitted Liens) shall arise by reason of
such re-registration;
(ix) none of the Owner Trustee and the Owner Participant 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, it being
agreed that the Lessee shall be responsible for the cost thereof;
(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 the Owner Participant, such opinion shall be waived if
insurance reasonably satisfactory to the Owner Participant is provided to
cover such risk);
15
<PAGE>
(xii) unless Lessee shall have agreed to provide insurance
reasonably satisfactory to the Owner Participant 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 Owner
Participant) 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;
(xiv) such re-registration may not be affected until after 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 re-registration;
(xv) if necessary, the Aircraft has been duly certified as to
type and airworthiness by the Aeronautical Authority of such country;
(xvi) there exist no possessory rights in favor of the Lessee
(or any Permitted Sublessee) which would, upon bankruptcy or insolvency of
or other default by the Lessee, 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 of its remedies under
Section 17(a) of the Lease and there is no adverse effect under the laws of
such country of re-registration to the enforceability (other than
immaterial differences in procedures of enforcement) of the material rights
and remedies of the Owner Trustee provided for in the Lease;
(xvii) the Owner Participant and the Owner Trustee 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) (with respect to the obligations of the Lessee
under the Lease), (vii), (ix), (x), (xi), (xii), (xiii), (xv), and (xvi) of
this Section 4.02(b);
(xviii) 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;
(xix) Lessee shall deliver such request to Lessor and Owner
Participant in writing at least 10 days in advance of the date of any such
proposed change in registration; and
16
<PAGE>
(xx) 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 and the Owner Trustee 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) Privileges and Franchises. The Lessee shall at all times maintain
-------------------------
its corporate existence, except as permitted by Section 4.02(e) hereof and all
of its rights, privileges and franchises necessary in the normal conduct of its
business, except for any right, privilege or franchise that it determines 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 the
surviving 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 Person 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) is
a Section 1110 Person, so long as such status is a condition to the availability
of Section 1110, (iv) immediately after giving effect to such transaction,
unless otherwise consented to by Owner Participant which consent shall not be
unreasonably withheld, shall have a tangible net worth (determined in accordance
with generally accepted accounting principles) at least equal to the lesser of
(1) Sixty Five Million Dollars ($65,000,000) and (2) 75% of Lessee's tangible
net worth (determined in accordance with generally accepted accounting
principles) immediately prior to such transaction; (v) if not the Lessee,
executes a duly authorized, legal, valid, binding, and enforceable agreement,
reasonably satisfactory in form and substance to Owner Trustee and Owner
Participant, containing an effective assumption of all of the Lessee's, as
applicable, obligations hereunder and under the other Operative Agreements, and
each other document contemplated hereby or thereby and delivers such instrument
to the Owner Participant and the Owner Trustee, (vi) provides an opinion from
counsel (which counsel may be the Lessee's General Counsel) delivered to the
Owner Trustee and the Owner Participant, which opinion shall be reasonably
satisfactory to the Owner Participant, 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 (v) above comply with this Section 4.02(e), that such
instrument 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 (vii)
such survivor or Person makes such filings and recordings with the FAA as may be
required pursuant to
17
<PAGE>
part A of subtitle VII or Title 49, United States Code to evidence such merger
or consolidation; provided that, (x) the Deficiency Agreement and the Residual
-------- ----
Agreement shall remain in full force and effect and (y) no such merger,
consolidation or conveyance, transfer or lease shall be permitted if,
immediately after giving effect to such consolidation, merger, purchase,
conveyance, transfer, lease or other disposition, a Specified Default shall have
occurred and be continuing.
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 must perform every obligation 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
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 and the Owner 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.
(g) Financial Statements. The Lessee agrees to furnish to the Owner
--------------------
Participant 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, 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;
(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,
18
<PAGE>
shareholder's equity and cash flows of the Lessee 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; and
(iii) from time to time, such other non-confidential financial
information as the Lessor or the Owner Participant may reasonably request.
(h) Filing of Documents. Lessee, at its sole cost and expense, will
-------------------
cause the documents filed with the FAA pursuant to Section 3.01(j), the
financing statements required pursuant to Section 3.01(k) 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, 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).
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 Ohio 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;
19
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(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, under 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 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; and
20
<PAGE>
(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.
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.
(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 and the Owner 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). The Owner Participant agrees to indemnify and hold harmless
the Lessee and the Owner Trustee from and against any loss, cost, expense
(including, without limitation, legal fees) or damage which may be suffered by
the Lessee or the Owner Trustee as a result of the failure of Owner Participant
to discharge and satisfy any Lessor's Liens attributable to it, as described in
this Section 5.01(b).
(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 institutional investor or an Affiliate of an institutional
investor all (but not less than all) of the Beneficial Interest, provided that
--------
(i) the Owner Participant gives the Lessee 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 in form and substance reasonably
satisfactory to Lessee and such transferee 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)
the transferee shall make a representation to the effect that the funds to be
used by the transferee to acquire the Beneficial Interest do not constitute the
assets of an ERISA Plan, (v) 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 (or otherwise in form and substance reasonably
satisfactory to Lessee) (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
21
<PAGE>
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, and (vi) the Lessee shall have received an opinion from counsel
selected by Owner Participant and reasonably acceptable to Lessee that no
withholding tax will be imposed by the U.S. on Basic Rent, assuming that the
Lessee is a U.S. Person. Any such transferee shall (a) be (i) a bank, finance
company or leasing company acting for its own account having a combined capital
and surplus (or, if applicable, consolidated 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) support for the obligations assumed by such
transferee subsidiary reasonably satisfactory to the Lessee and the Owner
Trustee or (B) a guaranty of such transferee subsidiary's obligations
substantially in the form attached hereto as Exhibit A (or otherwise in form and
substance reasonably satisfactory to Lessee and Owner Trustee), or (iii) an
Affiliate of the transferring Owner Participant, so long as such Affiliate has a
combined capital and surplus (or, if applicable, consolidated 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 this Agreement and (c) provide representations, warranties,
and covenants substantially similar to those contained in clauses (a) and (c) of
this Section 5.01; provided that so long as no Event of Default has occurred and
--------
is continuing, 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; and
provided further that so long as no Event of Default has occurred and is
- -------- -------
continuing, 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 a Citizen of the United States or has established a voting
trust, voting powers or other arrangement reasonably satisfactory to the Owner
Trustee and the Lessee to permit the Owner Trustee to be the 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. So long as no Event of Default has
occurred and is continuing, no assignment, conveyance or transfer by the Owner
Participant of the Beneficial Interest shall increase the amount of the
liability of the Lessee
22
<PAGE>
under Article 6 hereof or under the Tax Indemnity Agreement over the amount of
liability the Lessee would have incurred had such assignment, conveyance or
transfer not occurred. The Owner Participant shall pay all costs and expenses
(including the Lessee's costs and expenses) in connection with any such
assignment, conveyance or transfer.
(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 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 and
the Owner Trustee and shall (at its own expense and without 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 and this Agreement, 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). If the Owner Participant fails to comply with clause (x), (y) or
(z), then the Owner Participant shall reimburse Lessee, Permitted Sublessee or
Owner Trustee for added costs and expenses or loss of income that it incurs with
respect to the Aircraft due to such change in citizenship of the Owner
Participant. 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.
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
Lessee hereby agree that no Default shall be deemed to exist due to non-
23
<PAGE>
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
informed in writing by the Lessee or any Owner Participant that such lack of
United States citizenship would have any adverse effect on the Lessee or any
Owner 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 the State of
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 or other
constitutional documents; 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
24
<PAGE>
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 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 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
and the Owner Participant at least 30 days' prior written notice in the
event of any change in its chief executive office or name;
(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 governmental authority or agency governing its banking or trust
powers;
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<PAGE>
(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;
(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, Lessee, Owner Participant or Owner 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, 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. The Owner
Trustee, in its trust capacity, and at the cost and expense of the Lessee,
covenants that it will in its trust capacity promptly, and in any event within
30 days after the same shall first become known to it, take such action as may
be necessary to discharge duly any Lessor's Liens attributable to it in its
trust capacity. 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 Owner
Participant and the Owner Trustee from and against any loss, cost, expense or
damage which may be suffered by the Lessee, the Owner Participant 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) hereof.
(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
26
<PAGE>
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.
(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. The Lessee's Right of Quiet Enjoyment. Notwithstanding
-------------------------------------
any other provision of any of the Operative Agreements, each other party to this
Agreement agrees that such party or any Person claiming by, through or under
such party will not, so long as no Event of Default shall have occurred and be
continuing and the Lessor has not commenced the exercise remedies set forth in
Section 17 of the Lease, take or cause to be taken any action contrary to the
Lessee's rights under the Lease, including, without limitation, its rights to
possession, use and quiet enjoyment of the Aircraft during the Term, provided
--------
that nothing contained herein shall affect any of the rights of the Lessor under
Section 17 of the Lease upon the occurrence and during the continuance of an
Event of Default.
Section 5.05. Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Representations, warranties and covenants of the Owner Participant and the Owner
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 5.06. Compliance with Trust Agreement, Etc. Each of the Owner
------------------------------------
Participant, Trust Company, and the Owner Trustee agrees with the Lessee that so
long as this Agreement 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 materially 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
materially adversely affect any such party without the prior written consent of
such party. The Owner Trustee confirms for the benefit of the Lessee 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.
27
<PAGE>
ARTICLE
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, 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 construction, mortgaging, financing, refinancing,
purchase, charter, rental, assignment, 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;
(iii) the Aircraft, or the income or other proceeds (y) received
with respect to the Aircraft attributable to the transactions contemplated
by the Operative Agreements or (z) held by the Owner Trustee under the
Trust Agreement or after an Event of Default under the Lease;
(iv) on or with respect to any Operative Agreement, any interest
therein or by reason of the transactions described in or contemplated by
the Operative Agreements.
(b) Exceptions. The indemnity provided for in Section 6.01(a) shall
----------
not extend to any of the following:
(i) 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
28
<PAGE>
income, items of tax preference or minimum tax or excess profits, business
profits, alternative minimum taxes, receipts, capital, franchise, state
value-added net worth (whether, denominated income, excise, capital stock,
business and occupation or doing business taxes) or other similarly-based
taxes (other than taxes that are in the nature of license, sales, use,
foreign 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 without regard to the transactions contemplated by the
Operative Agreement, provided, however, that this clause shall not exclude
-------- -------
from the indemnity 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 other than
following an Event of Default, (B) the expiration of the Term of the Lease
and return of the Aircraft to Owner Trustee provided no Event of Default is
continuing 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;
(iv) With respect to any Tax Indemnitee, Taxes resulting from
the willful misconduct or gross negligence of such Tax Indemnitee or a
Related Tax Indemnitee or the breach by any Tax Indemnitee other than with
respect to the Owner Trustee or Owner Participant, of any representation,
warranty or covenant contained in the Operative Agreements or any document
delivered in connection therewith (unless attributable to a breach of
representation, warranty or covenant of the Lessee);
29
<PAGE>
(v) Taxes imposed on the Owner Trustee or the Owner
Participant or any successor, assign or Affiliate thereof 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 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 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, or (D) a transfer to Lessee pursuant to Section 13(b) of the Lease;
the parties agree to cooperate to minimize any such Taxes covered by this
provision;
(vi) Taxes subject to indemnification by the Lessee pursuant to
the Tax Indemnity Agreement;
(vii) Taxes imposed on a successor, assign or other transferee
of any interest of such Tax Indemnitee (including, without limitation, a
transferee which is a new lending office of an original Tax Indemnitee) to
the extent that such Taxes would not have been imposed on the original Tax
Indemnitee or exceed the amount of Taxes that would have been imposed and
would have been indemnifiable pursuant to Section 6.01(a) hereof had there
not been a succession, assignment or other transfer by such original Tax
Indemnitee of any such interest of such Tax Indemnitee in the Aircraft or
any Part, any interest in or under any Operative Agreement, or any proceeds
thereunder unless such sale, assignment, transfer or disposition occurs in
connection with the exercise of Lease remedies;
(viii) Taxes imposed by any jurisdiction that would not have been
imposed on the Owner Trustee or the Owner Participant but for the
activities or the status of the Owner Trustee or the Owner Participant in
such jurisdiction unrelated to the transactions contemplated by the
Operative Agreements;
(ix) Any Taxes which have been properly included in the
Purchase Price;
(x) Any Taxes imposed on the Owner Trustee or Owner
Participant which would not have been imposed but for a Lessor's Lien;
(xi) 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
30
<PAGE>
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);
(xii) Other than with respect to the Owner Trustee or the Owner
Participant, Taxes other than Income Taxes that would not have been imposed
but for the existence or status of any trust used to hold title to the
Aircraft;
(xiii) Other than with respect to the Owner Trustee or the Owner
Participant, taxes in the nature of an intangible or similar Tax imposed on
or with respect to the Trust Estate or the Trust Agreement;
(xiv) Taxes that are being contested in accordance with the
provisions hereof; or
(xv) United States withholding Taxes imposed on the Owner
Participant as a result of the Owner Participant not being a U.S. Person.
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, 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 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
31
<PAGE>
on an After Tax Basis such Tax Indemnitee (subject to Section 6.01(b), but only
insofar as subsections (iv), (vi), (vii), (x), (xi), (xii), (xiii), (xiv) and
(xv) 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 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 five Business Days prior to
the due date for Tax in issue.
Section 6.04. Contests.
--------
(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
15 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) 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, 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, then the
32
<PAGE>
Lessee shall be permitted, at its expense and in its own name, or in the name of
such Tax Indemnitee, to contest the imposition of such Tax; provided, however,
-------- -------
that the 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,
(B) 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), (C) 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, and (D) if such contest shall be conducted in a manner requiring the
payment of the claim, the Lessee shall have paid the amount required.
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.
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.
If the taxing jurisdiction requires payment of the claim in advance of
contest, such Tax Indemnitee may make a timely request upon Lessee and 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) Provided no Event of
--------------------------------
Default is continuing (unless the Lessee has bonded or otherwise provided to the
Tax Indemnitee collateral in respect of the Tax subject to such contest, such
bond or collateral to be reasonably satisfactory to such Tax Indemnitee in form
and substance), 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 (including such amount payable as interest,
penalties or addition to tax) and such Tax Indemnitee shall reimburse the Lessee
for all amounts previously advanced by the Lessee in connection with such
contest (other than costs and expenses of such contest).
(ii) Provided no Event of Default is continuing (unless the
Lessee has bonded or otherwise provided to the Tax Indemnitee collateral in
respect of the Tax subject to such contest, such bond or collateral to be
reasonably satisfactory to such Tax Indemnitee
33
<PAGE>
in form and substance), 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 other than if an Event
of Default is continuing (unless the Lessee has bonded or otherwise
provided to the Tax Indemnitee collateral in respect of the Tax subject to
such contest, such bond or collateral to be reasonably satisfactory to such
Tax Indemnitee in form and substance), then the Lessee shall not be
obligated to indemnify such Tax Indemnitee for such Tax (including such
amount payable as interest, penalties or addition to tax) and the Tax
Indemnitee shall reimburse the Lessee for all amounts previously advanced
with respect to 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 fees and expenses (including reasonable
attorney's and accountant's fees) which such Tax Indemnitee may incur as a
result of contesting such Taxes.
(d) 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 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
34
<PAGE>
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), (vii), (x), (xi), (xii), (xiii), (xiv) and (xv) 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 Indemnitees 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 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.
35
<PAGE>
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, 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, and (y) Lessee has provided such Tax
Indemnitee with any information necessary to complete such form not otherwise
reasonably available to such Tax Indemnitee.
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, 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.
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.
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, obligations, losses, damages, settlements, penalties, claims,
actions, 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
36
<PAGE>
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) the Aircraft or any Operative Agreement or any transaction
contemplated thereby;
(ii) 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-
delivery, control, condition, alteration, modification, addition,
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 laws,
rules or regulations, including, without limitation, environmental control,
noise and pollution laws, rules or regulation 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)); and
37
<PAGE>
(vi) interest in the Lessor's Estate or the Trust Agreement or
any similar interest.
(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 Aircraft is no longer part of
the Lessor's Estate or, if the Aircraft remains a part of the Lessor's
Estate, after the expiration of the Term (unless the Aircraft is being
returned at such time, in which case after return of physical possession;
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 shall be exercising remedies under such Section 17), or
to acts or events which occur after return of possession of the Aircraft by
the Lessee in accordance with the provisions of the Lease (subject to the
foregoing proviso if the Lessor has terminated the Lease pursuant to
Section 17 of the Lease);
(iii) other than as expressly provided herein or in the other
Operative Agreements, 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
this Agreement or any other Operative Agreement and for which the Lessee is
not otherwise obligated to reimburse such Indemnitee, directly or
indirectly pursuant to the terms of this Agreement or such other Operative
Agreement;
(v) is attributable to the incorrectness or breach by such
Indemnitee of its representations or warranties, under any of the Operative
Agreements;
(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
38
<PAGE>
attributable to the Owner Trustee; in the case of Trust Company, Lessor's
Liens to the extent attributable to Trust Company;
(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 pursuant to the
exercise of remedies under Section 17 of the Lease;
(ix) 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;
(x) is attributable to any amendment to any of the Operative
Agreements which is not requested, or consented to, by the Lessee or is not
required or made pursuant to the terms of any of the Operative Agreements;
and
(xi) constitutes the loss of future profits of such Indemnitee
or losses attributable to such Indemnitee's overhead.
(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 a Responsible 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, otherwise increases the amount the
Lessee would have been liable for in the absence of such failure to provide such
notice or adversely affects the ability of Lessee's insurers to defend such
claim.
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 and each Indemnitee shall cooperate with 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 Specified 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
39
<PAGE>
counsel or if such proceeding 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 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; and such participation shall not constitute a
waiver of the indemnification provided in this Section 7.03. No Indemnitee shall
enter into any settlement or other compromise with respect to any claim
described in this Section 7.03 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. 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, it shall be a condition of such indemnity with respect to any
particular Indemnitee that such Indemnitee shall reasonably 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 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 of the Trust Company or
the Owner Trustee and remedies against the Owner Participant under the Trust
Agreement). Should an Indemnitee receive any refund, 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.
40
<PAGE>
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 with respect to
the residual value of the Aircraft or any part thereof.
ARTICLE 8.
TRANSACTION COSTS
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 reasonable fees and expenses
of counsel for Owner Participant; (ii) the reasonable fees and expenses of the
respective counsel for the
41
<PAGE>
Lessee, the Owner Trustee, the Manufacturer, the Engine Manufacturer, the Seller
and the Deficiency Obligor; (iii) the reasonable fees and expenses of special
aviation counsel; (iv) the initial fees and expenses of the Owner Trustee; (v)
the fees and expenses of The Seabury Group LLC (the "Lessee Advisor"); (vi) any
amounts paid in connection with any appraisal report prepared for the Owner
Participant; and (vii) any other amounts approved by the Lessee and the Owner
Participant.
(b) Continuing Expenses. The Lessee agrees to pay, as Supplemental
-------------------
Rent, 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.
(c) Amendments and Supplements. Without limitation of the foregoing,
--------------------------
the Lessee agrees to pay, as Supplemental Rent, to the Owner Trustee and
Owner Participant 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 requested by the Lessee or necessitated by the
action or inaction of the Lessee; provided, however, that the Lessee shall not
-------- -------
be responsible for fees or expenses incurred in connection with the voluntary
offer, sale or other transfer (whether pursuant to Section 5.01(c) hereof or
otherwise) by the Owner Participant or the Owner Trustee of any interest in the
Aircraft, the Lessor's Estate, the Beneficial Interest or the Trust Agreement or
any similar interest (and the offeror, seller, or transferor shall be
responsible for all such fees and expenses), unless such offer, sale or transfer
shall occur (A) pursuant to the exercise of remedies under Section 17 of the
Lease, or (B) in connection with the termination of the Lease or action or
direction of the Lessee pursuant to Section 8, 13 or 14 of the Lease.
ARTICLE 9.
SUCCESSOR OWNER TRUSTEE
Section 9.01. Appointment of Successor Owner Trustee.
--------------------------------------
(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 8.01 of the Trust Agreement and the provisions of
paragraph (b) of this Section 9.01. All reasonable fees and expenses of a
successor Owner Trustee appointed in accordance with Section 8.01 of the Trust
Agreement and the provisions of paragraph (b) of this Section 9.01 and a co-
trustee or separate trustee appointed in accordance with Section 8.02 of the
Trust Agreement shall be at Lessee's sole cost and expense.
42
<PAGE>
(b) Conditions to Appointment. The appointment in any manner of a
-------------------------
successor Owner Trustee pursuant to Section 8.01 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
and the Owner Participant 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 valid and continued registration of the Aircraft in
accordance with the Transportation Code.
ARTICLE 10
LIABILITIES OF THE OWNER PARTICIPANT
Section 10.01. Liabilities of the Owner Participant. The Owner
------------------------------------
Participant shall not have any obligation or duty to the Lessee with respect to
the transactions contemplated by this Agreement, except those obligations or
duties expressly set forth in this Agreement 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.
43
<PAGE>
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 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 Owner Participant 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 and any Owner 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 address as the Lessor shall from time to time
designate in writing to the Lessee, with a copy to the Owner Participant;
(c) if to the Owner Participant to its office at 3 Summit Park
Drive, Suite 200, Cleveland, Ohio 44131, Attention: General Counsel, telephone
(216) 328-8711 facsimile (216) 328-8710; or to such other address as the Owner
Participant shall from time to time designate in writing to the Lessee and the
Owner Trustee;
44
<PAGE>
ARTICLE 13.
FINANCING
Section 13.01. Financing. At any time after the Delivery Date, the
---------
Owner Participant may cause the Owner Trustee to assign all or any part of its
interest in the Aircraft and/or the Trust Estate to any lender(s) and/or an
indenture trustee, acting on behalf of one or more lenders, and Lessee hereby
agrees, in connection with any such assignment or contemplated assignment, to
execute and deliver a consent and agreement relating thereto containing
customary covenants, representations and warranties and all such other documents
and instruments (including, without limitation, opinions of counsel and other
ancillary documents), and to cooperate generally and in such other ways, as the
Owner Participant may reasonably request; provided that (i) such lender(s) and
such indenture trustee are reasonably acceptable to Lessee, (ii) such financing
documents include a covenant by such lender(s) and indenture trustee, if any,
pursuant to which such lender(s) and indenture trustee agree on a full recourse
basis that as long as no Event of Default has occurred and is continuing,
Lessee's possession and use of the Aircraft shall not be interrupted by such
lender or indenture trustee or by any Person claiming through or under such
lender(s) or indenture trustee; (iii) no such assignment shall impair the rights
and benefits, or increase the burdens or obligations, of Lessee hereunder or
under the Lease, including, without limitation, obligations with respect to the
payment of Rent or under Section 6.01 or 7.01 hereof; (iv) such financing
documents (including opinions of counsel and other ancillary documents) shall
otherwise be reasonably satisfactory to Lessee; and (v) all out-of-pocket
expenses (including reasonable legal fees and expenses) incurred by Lessee in
connection with such assignment shall be reimbursed by the Owner Participant.
ARTICLE 14.
MISCELLANEOUS
Section 14.01. 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 14.02. 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. 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. A copy of each such termination,
amendment, supplement, waiver or modification shall also be delivered to each
other party to this Agreement.
Section 14.03. 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.
45
<PAGE>
Section 14.04. 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 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.
Section 14.05. Concerning the Owner Trustee. Trust Company is entering
----------------------------
into this Agreement (except to the extent otherwise expressly indicated), not in
its individual capacity but solely as Owner Trustee under the Trust Agreement,
and except as otherwise expressly provided in this Agreement or in the Lease or
the Trust Agreement, Trust Company shall not be personally liable for or on
account of its statements, representations, warranties, covenants or obligations
under this Agreement; provided, however, that Trust Company accepts the benefits
-------- -------
running to it under this Agreement, and 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) the failure to use ordinary care in receiving, handling and
disbursing funds, (d) Lessor's Liens attributable to it in its individual
capacity, and (e) 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 14.06. 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 14.07. GOVERNING LAW. 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 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
HEREBY IRREVOCABLY CONSENTS AND AGREES THAT THE SERVICE OF
46
<PAGE>
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 AGREES THAT
SERVICE UPON IT, OR ANY OF ITS AGENTS, IN EACH CASE IN ACCORDANCE WITH THIS
SECTION 14.07(c), 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.
(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 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 AGREEMENT.
Section 14.08. 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.
* * *
47
<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
ICX CORPORATION,
as Owner Participant
By: /s/ James T. Lovins
--------------------------------
Name: James T. Lovins
Title: Senior Vice President
And Treasurer
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual
capacity, except as otherwise expressly
provided herein but solely as Owner
Trustee
By: /s/ Sterling C. Correia
--------------------------------
Name: Sterling C. Correia
Title: Vice President
48
<PAGE>
APPENDIX A
DEFINITIONS [N586ML]
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) and the Owner Participant and the directors, officers,
members, employees and agents of each of the foregoing.
"Aeronautical Authority" means as of any time of determination, the
----------------------
FAA or other governmental airworthiness authority or such other Person who shall
be vested with the supervision of or having jurisdiction over the Aircraft or
the Airframe and Engines or engines attached thereto and the registration,
operation or other matters relating to aviation with respect thereto under the
laws of the country in which the Airframe is then registered.
"Affiliate" means, with respect to any specified 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 on a basis such that any payment to be
---------------
received or deemed to be received or receivable by a Person shall be
supplemented by a payment or further payments to such Person so that the sum of
such payments, after deduction of all Taxes (taking into account any related
credits or deductions) resulting from the actual or constructive receipt or
accrual of such payments, shall be equal to the payment to be received,
utilizing, for this purpose, the highest marginal rate for each such Tax at
which the recipient is paying tax for such year.
<PAGE>
"Aircraft" means the Airframe together with the two (2) 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.
"Applicable Law" means all applicable laws, treaties, judgments,
--------------
decrees, injunctions, writs and orders of any court, governmental agency or
authority and rules, regulations, orders, directives, licenses and permits of
any governmental body, instrumentality, agency or authority.
"Applicable Rate" has the meaning specified in Exhibit B to the Lease.
---------------
"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.
"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, Charlotte, North Carolina and Wilmington, Delaware.
<PAGE>
"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" 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.
"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 dollars in lawful currency of the
------- ------ -
United States.
"DOT" means the United States Department of Transportation or any
---
successor thereto.
"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
<PAGE>
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.
"Engine Manufacturer's Consent" means the Engine Manufacturer's
-----------------------------
Consent and Agreement [N586ML], dated as of December 10, 1999, from the Engine
Manufacturer.
"Engine Warranty Assignment" means the Engine Warranty Assignment
--------------------------
[N586ML], dated as of December 10, 1999, between Lessee and Owner Trustee.
"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:
(i) any theft, hijacking or disappearance of such property for a
period of 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 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 60 consecutive days or such shorter period ending on the
expiration of the Term;
<PAGE>
(vii) as a result of any law, rule, regulation, order or other action
by the Aeronautical Authority, the use of the Aircraft 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 6 consecutive months (or beyond the end of the Term), unless the
Lessee, prior to the expiration of such 6-month period, shall be diligently
carrying forward all necessary and desirable steps to permit normal use of
the Aircraft and shall within such 6-month period 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
for a period more than 12 consecutive months or, if earlier, 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, 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 61st day following loss of such
property or its use due to theft or disappearance (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 following requisition of use of such property by
any foreign government or purported government or any agency or instrumentality
thereof referred to in clause (iv) above, or the end of the Term if earlier than
such 181/st/ day; (ee) the 61st day following 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 referred to in
clause (vi) above or the Government or the end of the Term if earlier than such
61st 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. An Event of Loss with
respect to an Engine shall not be an Event of Loss in respect of the Airframe.
"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
<PAGE>
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.
"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 and any successor agency or agencies thereto.
<PAGE>
"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.
"Indemnitee" means each of Trust Company, in its individual capacity and as
----------
Owner Trustee, the Owner Participant, and each Affiliate, officer, director,
employee, agent, servant, successor and permitted assigns of any of the
foregoing Persons.
"Lease" means the Lease Agreement [N586ML], dated as of December 10, 1999
-----
between the Owner Trustee 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.
"Lessor's Liens" means Liens against, on or with respect to the Aircraft,
--------------
any Engine, the Lessor's Estate or any part thereof, title thereto or any
interest therein arising as a result of (i) claims against or affecting the
Lessor, in its individual capacity or as Owner Trustee, or the Owner
Participant, in each case not related to the Operative Agreements or the
transactions contemplated thereby, (ii) acts or omissions of the Lessor in its
individual capacity or as Owner Trustee, or of the Owner Participant not
permitted under the terms of the Operative Agreements, (iii) Taxes or Expenses
imposed against the Lessor, in its individual capacity or as Owner Trustee,
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 pursuant to 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 Lessor, in its individual capacity or as Owner Trustee, or the Owner
Participant arising from the transfer by the Lessor or the Owner Participant of
its interests in the
<PAGE>
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.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
security interest, claim, or other similar interest of any nature whatsoever.
"Manuals and Technical Records" has the meaning set forth in Section 5(d)
-----------------------------
of the Lease.
"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.
"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),
computed through the EBO Date and the Expiration Date 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.
"Non-U.S. Person" means any Person other than a U.S. Person.
---------------
"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 and the Tax Indemnity
Agreement.
"Owner Participant" means ICX Corporation, an Ohio corporation and its
-----------------
successors and permitted transferees and assigns.
"Owner Participant Guarantor" means the provider of an Owner Participant
---------------------------
Guaranty.
<PAGE>
"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
-----------
[N586ML], dated as of December 10, 1999, from the Manufacturer.
"Participation Agreement" means the Participation Agreement [N586ML], dated
-----------------------
as of December 10, 1999, among the Lessee, the Owner Trustee not in its
individual capacity except as otherwise expressly provided therein, but solely
as owner trustee and the Owner 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, exclusive of any items leased by the Lessee from third parties and not
required in the navigation of the Aircraft.
"Past Due Rate" means a rate per annum identified in Exhibit B to the
-------------
Lease.
"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, are involved in internal or external war or
military conflict or is a country with which it would constitute a breach of
applicable U.S. law for the Lessor or Owner Participant to engage directly or
indirectly in business, and provided that in each case, such Person is not the
subject of bankruptcy or similar proceedings.
"Permitted Investments" means (a) direct obligations of the Government, (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), (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
$500,000,000 and having a rating of "A" or better from the Keefe Bank Watch
Service, (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 rating assigned by such organization, or (f) obligations of the type
described in clauses (a), (b), (d), or (e) above, purchased from any bank, trust
company, or banking association referred to in clause (d) above pursuant to
repurchase agreements
<PAGE>
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 Owner Trustee, all such
Permitted Investments shall mature not later than 30 days from the date of
purchase.
"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 Government.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, limited liability company 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
-----------------------------
[N586ML], dated as of December 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.
"Related Tax Indemnitee" means any Affiliate of any Tax Indemnitee.
----------------------
"Renewal Term" has the meaning given to such term in Section 13(a) of the
------------
Lease.
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"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 in accordance with and pursuant to Section 8
thereof.
<PAGE>
"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 as 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.
"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, 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, the President or the Chief Financial Officer or 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 [N586ML],
--------------------------
dated as of December 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.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller" has the meaning given to such term in Exhibit B to the Lease.
------
"Specified Default" means (a) an event or condition described in Section
-----------------
16(a), (f), (g) or (h) 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.
"Sublease" means any sublease agreement between the Lessee and a Permitted
--------
Sublessee as permitted by Section 5(b) of the Lease.
<PAGE>
"Supplemental Rent" means 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, or others, including
payments of Termination Value, EBO Amount, and amounts calculated by reference
to Termination Value, 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.
"Tax" or "Taxes" has the meaning set forth in Section 6.01(a) of the
--- -----
Participation Agreement.
"Tax Indemnitee" means each of Trust Company, individually and as Owner
--------------
Trustee, the Owner Participant and any Affiliate thereof.
"Tax Indemnity Agreement" means the Tax Indemnity Agreement [N586ML], dated
-----------------------
as of December 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.
"Trust Agreement" means the Trust Agreement [N586ML], dated as of December
---------------
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.
------------
<PAGE>
"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
the Participation Agreement
---------------------------
FORM OF GUARANTY AGREEMENT
[DATE]
Re: Midway Airlines Corporation - One Canadian Regional Jet Series 200 ER
Aircraft Bearing Registration No. [N586ML]
---------------------------------------------------------------------
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 [N586ML] (the "Participation Agreement"), dated
-----------------------
as of December 10, 1999 among (a) Midway Airlines Corporation, a Delaware
corporation ("Lessee"); (b) ICX Corporation, an Ohio corporation ("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 ("Owner Trustee"); (each of the
-------------
Lessee and the Owner Trustee, 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 the Guarantor and do not
contravene 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 14.07 of
the Participation Agreement, which are incorporated herein by reference as if
fully set forth herein.
4. Undertakings.
------------
<PAGE>
(a)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.
(b)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.
(c)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.
(d)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.
(e)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) 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
the Assignee against any Guaranteed Party, or (iii) any other instances
whatsoever (with or without notice to or knowledge of the 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,
<PAGE>
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. The Guarantor may assign, convey or otherwise transfer its
---------
obligations hereunder to any other Person (hereinafter referred to as the
"Transferee Guarantor"), provided that (a) the Transferee Guarantor enters into
- ---------------------
an agreement substantially in the form of this Guaranty Agreement and (b) 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 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 the Assignee in respect of payments made by Guarantor
hereunder, until all amounts and performance owing to the Guaranteed Parties by
Assignee on account of the Obligations are paid and performed in full.
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
<PAGE>
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:
_______________________________________________, Attention:____________________,
telephone (___) __________] facsimile [(___)__________].
IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly
executed this ______ day of _________________________.
[GUARANTOR]
By: ___________________________________
Name:
Title:
<PAGE>
Exhibit B to
the Participation Agreement
---------------------------
FORM OF OPINION
[Date]
To Each of the Persons Named
on the Attached Schedule I:
- ---------------------------
Re: Midway Airlines Corporation - One Canadian Regional Jet Series 200 ER
Aircraft Bearing Registration No. [N586ML]
---------------------------------------------------------------------
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 the Assignment Agreement has been duly authorized, executed, authenticated
and delivered by Assignor and constitutes the legal, valid and binding
obligation of Assignor, enforceable against Assignor in accordance with its
terms, Assignor has the requisite power, authority and legal right to enter into
and perform its respective obligations under the Assignment Agreement and 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.
A. Based upon the foregoing and subject to the limitations expressed in
paragraph B below, I am of the opinion that:
<PAGE>
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 A. the [Certificate]
[Articles] of Incorporation or By-laws of the Assignee, B. to the best of my
knowledge, any order, writ, injunction or decree of any court or governmental
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 may 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 or 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 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
<PAGE>
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 matters stated herein, and no opinion
is implied or may be inferred beyond the matters expressly stated herein.
Very truly yours,
<PAGE>
SCHEDULE I
----------
Midway Airlines Corporation
ICX Corporation
First Union Trust Company, National Association, as Owner Trustee
<PAGE>
CONFORMED COPY
--------------
================================================================================
TRUST AGREEMENT [N586ML]
Dated as of December 10, 1999
between
ICX CORPORATION,
as Owner Participant
and
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
as Owner Trustee
-------------------
One Canadair Regional Jet Series 200 ER Aircraft
N586ML
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<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; LEASE OF AIRCRAFT; REPLACEMENT... 2
Section 3.01. Authorization.................................................... 2
Section 3.02. Conditions Precedent............................................. 3
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 APPLICATION OF INCOME FROM THE TRUST ESTATE. 5
Section 4.01. Distribution of Payments......................................... 5
Section 4.02. Method of Payments............................................... 5
ARTICLE V DUTIES OF THE OWNER TRUSTEE........................................... 6
Section 5.01. Notice of Event of Loss and Event of Default..................... 6
Section 5.02. Action Upon Instructions......................................... 7
Section 5.03. Indemnification.................................................. 7
Section 5.04. No Duties Except as Specified in Trust Agreement or Instructions. 7
Section 5.05. No Action Except Under Specified Documents or Instructions....... 8
ARTICLE VI THE OWNER TRUSTEE..................................................... 8
Section 6.01. Acceptance of Trusts and Duties.................................. 8
Section 6.02. Absence of Certain Duties........................................ 9
Section 6.03. No Representations or Warranties as to Certain Matters........... 9
Section 6.04. No Segregation of Monies Required; Investment Thereof............ 10
Section 6.05. Reliance Upon Certificates, Counsel and Agents................... 10
Section 6.06. Not Acting in Individual Capacity................................ 11
Section 6.07. Fees; Compensation............................................... 11
Section 6.08. Tax Returns...................................................... 11
Section 6.09. Fixed Investment Trust........................................... 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VII INDEMNIFICATION OF THE OWNER TRUSTEE BY THE OWNER PARTICIPANT......... 12
Section 7.01. The Owner Participant to Indemnify the Owner Trustee............. 12
ARTICLE VIII SUCCESSOR OWNER TRUSTEES; CO-TRUSTEES................................. 13
Section 8.01. Resignation of the Owner Trustee; Appointment of Successor....... 13
Section 8.02. Co-Trustees and Separate Trustees................................ 14
ARTICLE IX SUPPLEMENTS AND AMENDMENTS TO TRUST AGREEMENT AND OTHER DOCUMENTS..... 16
Section 9.01. Supplements and Amendments....................................... 16
Section 9.02. Discretion as to Execution of Documents.......................... 16
Section 9.03. Absence of Requirements as to Form............................... 16
Section 9.04. Distribution of Documents........................................ 17
ARTICLE X MISCELLANEOUS......................................................... 17
Section 10.01. Termination of Trust Agreement................................... 17
Section 10.02. The Owner Participant Has No Legal Title in Trust Estate......... 18
Section 10.03. Assignment, Sale, etc., of Aircraft.............................. 18
Section 10.04. Trust Agreement for Benefit of Certain Parties Only.............. 18
Section 10.05. Notices.......................................................... 18
Section 10.06. Severability..................................................... 18
Section 10.07. Waivers, etc..................................................... 18
Section 10.08. Counterparts..................................................... 18
Section 10.09. Binding Effect, etc.............................................. 19
Section 10.10. Headings; References............................................. 19
Section 10.11. GOVERNING LAW.................................................... 19
Section 10.12. Administration of Trust.......................................... 20
</TABLE>
ii
<PAGE>
TRUST AGREEMENT [N586ML]
This TRUST AGREEMENT [N586ML], dated as of December 10, 1999 between ICX
CORPORATION, an Ohio 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:
"First Union" means First Union Trust Company, National Association, a
-----------
national banking association.
"Lease" means Lease Agreement [N586ML] dated as of December 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.
"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 [N586ML], dated as
-----------------------
of December 10, 1999, among the Lessee, the Owner Participant and the Lessor, as
the same may be amended, modified or supplemented from time to time.
<PAGE>
"Trust Agreement" means this Trust Agreement [N586ML] dated as of December
---------------
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 to do the following, and the
Owner Trustee agrees for the benefit of the Owner Participant that it will do
the following (i) to execute and deliver the Participation Agreement, the Lease,
the Lease Supplement covering the Aircraft, the Purchase Agreement Assignment,
the Engine Warranty Assignment, 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 accepts the trust
--------------------
created hereby and declares that it will hold the Trust Estate upon the trusts
hereinafter set forth for the use and benefit of the Owner Participant.
ARTICLE III
ACCEPTANCE AND DELIVERY OF AIRCRAFT;
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 and the Bills of Sale
pursuant to the Participation Agreement;
(ii) execute and deliver each of the Operative Agreements to
which the Owner Trustee is to be a party;
2
<PAGE>
(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) make application to the FAA for registration of
the Aircraft in the name of the Owner Trustee by filing or
causing to be filed with the FAA (i) the FAA Bill of Sale, (ii)
the FAA Aircraft Registration Application in the name of the
Owner Trustee (including, without limitation, an affidavit from
the Owner Trustee stating that it is a "citizen of the United
States" within the meaning of Section 40102(a)(15) of the
Transportation Code), and (iii) this Trust Agreement;
(vi) take such other action as may reasonably be
required of the Owner Trustee hereunder or under the
Participation Agreement or the Lease to effectuate the
transactions contemplated thereby; and
(vii) 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.
(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 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 the
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
3
<PAGE>
full amount of the 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 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;
(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 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; and
(f) take such further action as may be contemplated by Sections
8(d) or 7(e) of the Lease, as the case may be.
4
<PAGE>
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
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; and
(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).
ARTICLE IV
RECEIPT, DISTRIBUTION AND APPLICATION
OF INCOME FROM THE TRUST ESTATE
Section 4.01. Distribution of Payments. All Basic Rent,
------------------------
Supplemental Rent, insurance proceeds and requisition, indemnity or other
payments of any kind included in the Trust Estate 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 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 and which
are actually due and owing shall be retained by the Owner Trustee; and second,
------
the balance, if any, shall be paid to the Owner Participant.
Section 4.02. Method of Payments. The Owner Trustee shall
------------------
make distributions or cause distributions to be made to the Owner Participant
pursuant to this Article IV by transferring by wire transfer in immediately
available funds the amount to be distributed to such 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
5
<PAGE>
succeeding Business Day); 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, 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 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 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.
ARTICLE V
DUTIES OF THE OWNER TRUSTEE
Section 5.01. Notice of Event of Loss and Event of Default. If
--------------------------------------------
the Owner Trustee shall have knowledge of an Event of Loss or a Default or an
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 written notice in accordance with Section 12.01 of the
Participation Agreement. 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 Event of Loss, Default or 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 an Event of Loss, a Default or an Event of Default unless notified in writing
thereof in the manner and at the address set forth in Section 10.05 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 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
6
<PAGE>
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.
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 Lessee or the Owner Participant, as
appropriate, 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. 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 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) its
obligations under Section 5.03(b) of the Participation Agreement, (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, 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
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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, operate, lease, use,
sell, dispose of or otherwise deal with the Aircraft or any other part of the
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.
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, and (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; 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,
3.04, 5.04 and 5.05 and the last sentence of Section 8.01(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, 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
8
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upon written request furnished by Lessee or Owner Participant 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 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 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. NEITHER THE OWNER PARTICIPANT NOR THE OWNER TRUSTEE IN ITS INDIVIDUAL
- -------
CAPACITY OR AS THE OWNER TRUSTEE MAKES, NOR SHALL IT 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 OR ANY OTHER PART THEREOF
WHATSOEVER, except that the Owner Trustee in its individual capacity warrants to
the Owner Participant that on the Delivery Date the Owner Trustee shall have
received and shall hold whatever title to the Aircraft that 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
9
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(or at the time of execution and delivery of any such instrument 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.
----------------------------------------------
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 or
Lessee 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 a Responsible Officer of the Owner
Participant or Lessee, as the case may be. The Owner Trustee may accept a copy
of a resolution of the Board of Directors of Lessee or the Owner Participant, as
the case may be, certified by the Secretary or an Assistant Secretary of Lessee
or the Owner Participant, 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 a Responsible Officer of Lessee
or the Owner Participant, 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 prudence and
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 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;
provided, the Owner Trustee agrees that it shall endeavor to give the Owner
Participant notice that
10
<PAGE>
it is or will be consulting with counsel, accountant and other skilled persons
(as permitted above) and shall endeavor to provide that the Owner Participant
may rely on such advice or opinion, as appropriate to such context.
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 or the Participation Agreement, 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, the
other Operative Agreements or any agreement contemplated hereby. The Owner
Trustee shall be responsible for causing to be prepared and timely filed, at
Lessee's expense, the federal fiduciary tax return required to be filed with
respect to the trust created hereby and such other tax returns 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
11
<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 8.02 hereof, 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 from Lessee pursuant to Section 6.01 or 7.01 of the
Participation Agreement or any other Operative Agreement and second, shall seek
reimbursement from the Trust Estate (but, in either case, 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 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.
ARTICLE VIII
SUCCESSOR OWNER TRUSTEES; CO-TRUSTEES
Section 8.01. Resignation of the Owner Trustee; Appointment of
------------------------------------------------
Successor. 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
12
<PAGE>
at any time without cause by giving at least 60 days prior written notice to the
Owner Participant and Lessee, such resignation to be effective upon the
acceptance of appointment by the successor Owner Trustee under Section 8.01(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 and Lessee.
Any such removal shall be effective upon the acceptance of appointment by the
successor Owner Trustee under Section 8.01(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 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. All reasonable fees and expenses of a
successor Owner Trustee appointed in accordance with this Section 8.01 and the
provisions of paragraph (b) of Section 9.01 of the Participation Agreement shall
be at Lessee's sole cost and expense.
(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 and Lessee, 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. 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.
13
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(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 8.01(c), be the Owner Trustee hereunder without further
act.
Section 8.02. 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 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, the Owner
Trustee may act under the foregoing provisions of this Section 8.02 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 8.02 in either of such contingencies. All
reasonable fees and expenses of a co-trustee or separate trustee appointed in
accordance with this Section 8.02 shall be at Lessee's sole cost and expense.
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:
(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
14
<PAGE>
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; and
(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.
In case any separate trustee under this Section 8.02 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.
ARTICLE IX
SUPPLEMENTS AND AMENDMENTS TO TRUST AGREEMENT
AND OTHER DOCUMENTS
Section 9.01. 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 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 10.11) as
specified in such request, and (ii) the Owner Trustee shall enter into such
written amendment of or supplement to any other Operative Agreement to which the
Owner Trustee is a party as 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 may agree to
and as may be specified in such request.
Section 9.02. Discretion as to Execution of Documents. If in the
---------------------------------------
reasonable opinion of the Owner Trustee any document required to be executed
pursuant to the terms of Section 9.01
15
<PAGE>
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 9.03. Absence of Requirements as to Form. It shall not be
----------------------------------
necessary for any written request furnished pursuant to Section 9.01 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.
Section 9.04. Distribution of Documents. Promptly after the execution
-------------------------
by the Owner Trustee of any document entered into pursuant to Section 9.01, the
Owner Trustee shall hand deliver, send by nationally recognized overnight
courier or 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 X
MISCELLANEOUS
Section 10.01. 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 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.
16
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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 Lease shall no longer be in effect.
Section 10.02. 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 10.03. 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 10.04. Trust Agreement for Benefit of Certain Parties Only.
---------------------------------------------------
Nothing herein, whether express or implied, shall be construed to give any
Person other than the Owner Trustee, First Union, the Lessee 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, First Union, the Lessee and the
Owner Participant.
Section 10.05. 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 10.06. 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.
17
<PAGE>
Section 10.07. 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 IX hereof; and any
waiver of the terms hereof shall be effective only in the specified instance and
for the specific purpose given.
Section 10.08. 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.
Section 10.09. 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 or Owner Trustee
shall bind their respective successors and permitted assigns.
Section 10.10. 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 10.11. 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 10.05. EACH PARTY HERETO HEREBY AGREES THAT SERVICE UPON IT IN
ACCORDANCE WITH THIS SECTION 10.11(c) SHALL CONSTITUTE VALID AND EFFECTIVE
PERSONAL SERVICE UPON SUCH PARTY.
18
<PAGE>
(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 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 10.12. Administration of Trust. The principal place of
-----------------------
administration of the trust created by this Trust Agreement shall be in the
State of Delaware.
* * *
19
<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.
ICX CORPORATION
By: /s/ James T. Lovins
-------------------
Name: James T. Lovins
Title: Senior Vice President
And Treasurer
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
By: /s/ Sterling C. Correia
-----------------------
Name: Sterling C. Correia
Title: Vice President
20
<PAGE>
CONFORMED COPY
--------------
- --------------------------------------------------------------------------------
LEASE AGREEMENT [N586ML]
dated as of December 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 N586ML
Manufacturer's Serial Number 7341
- --------------------------------------------------------------------------------
THIS IS ORIGINAL COUNTERPART NO. 1.
TO THE EXTENT, IF ANY, THAT THIS LEASE AGREEMENT [N586ML] 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 AGREEMENT [N586ML]
MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN
THE ORIGINAL COUNTERPART MARKED COUNTERPART NO. 1.
<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..................................................... 3
(c) Supplemental Rent.............................................. 3
(d) Adjustments to Basic Rent and Termination Values............... 3
(e) Manner of Payment.............................................. 5
(f) Rent Obligations Unconditional................................. 5
Section 4. Lessor/Lessee Representations and Warranties................... 6
Section 5. Possession, Operation and Use,
Maintenance, Registration and Insignia......................... 7
(a) General........................................................ 7
(b) Possession..................................................... 7
(c) Operation and Use.............................................. 12
(d) Maintenance.................................................... 13
(e) Registration................................................... 14
Section 6. Inspection..................................................... 14
Section 7. Replacement and Pooling of Parts; Alterations,
Modifications and Additions; Substitution of Engines........... 15
(a) Replacement of Parts........................................... 15
(b) Title to Parts................................................. 16
(c) Pooling or Parts Leasing....................................... 16
(d) Alterations, Modifications and Additions....................... 16
(e) Substitution of Engines........................................ 18
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 8. Loss, Destruction or Requisition............................... 20
(a) Event of Loss with Respect to the Airframe..................... 20
(b) Effect of Replacement.......................................... 21
(c) Effect of Termination Value Payment............................ 21
(d) Conditions to Airframe Replacement............................. 22
(e) Non-Insurance Payments Received on Account of an Event of
Loss........................................................... 24
(f) Requisition for Use............................................ 25
(g) Certain Payments to be Held As Security........................ 26
Section 9. Insurance...................................................... 26
(a) Public Liability and Property Damage Insurance................. 26
(b) Insurance Against Loss or Damage to the Aircraft and Engines... 27
(c) Additional Insureds; Loss Payment.............................. 28
(d) Deductibles and Self-Insurance................................. 28
(e) Application of Hull Insurance Proceeds......................... 29
(f) Insurance for Own Account...................................... 30
(g) Reports, etc................................................... 30
(h) Right to Pay Premiums.......................................... 31
Section 10. Liens.......................................................... 31
Section 11. Recordation and Further Assurances............................. 32
(a) Recordation of Lease........................................... 32
(b) Further Assurances............................................. 32
Section 12. Return of Aircraft and Records................................. 32
(a) Return of Aircraft............................................. 32
(b) Return of Other Engines........................................ 32
(c) Fuel; Records.................................................. 33
(d) Condition of Aircraft.......................................... 33
(e) Storage and Related Matters.................................... 33
(f) Pre-Return Inspections......................................... 34
Section 13. Renewal Option and Purchase Options............................ 34
(a) Renewal Terms.................................................. 34
(b) Lessee's Purchase Options...................................... 35
(i) Rights to Purchase....................................... 35
(ii) Notice of Exercise of Option............................. 36
Section 14. Voluntary Termination for Obsolescence......................... 36
(a) Termination by Sale of Aircraft................................ 36
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(b) Payments Due Upon Sale of Aircraft............................. 37
(c) Preemptive Election by Lessor.................................. 38
(d) Termination of Lease........................................... 38
(e) Effect of No Sale or Preemptive Delivery to Lessor............. 38
(f) No Duty on Part of Lessor...................................... 39
Section 15. Investment of Security Funds................................... 39
Section 16. Events of Default.............................................. 39
Section 17. Remedies....................................................... 41
Section 18. Lessor's Right to Perform for the Lessee....................... 44
Section 19. Bankruptcy..................................................... 44
Section 20. Assignment: Benefit and Binding Effect......................... 45
(a) Assignment by the Lessee....................................... 45
(b) Assignment by the Lessor....................................... 45
(c) Benefit and Binding Effect..................................... 45
(d) Sublessee's Performance and Rights............................. 45
Section 21. Owner Trustee's Limitation on Liability........................ 45
Section 22. Certain Agreements of Lessee................................... 46
Section 23. Miscellaneous.................................................. 46
(a) Notices........................................................ 46
(b) Counterparts................................................... 46
(c) Amendments..................................................... 47
(d) Agreement to Lease............................................. 47
(e) Governing Law.................................................. 47
(f) Severability................................................... 48
(g) Survival....................................................... 48
(h) Article 2A..................................................... 48
</TABLE>
<PAGE>
Appendix A Definitions
Exhibit A Lease Supplement
Exhibit B Certain Economic Information
Exhibit C Basic Rent
Exhibit D Termination Values
Exhibit E List of Countries - Permitted for Re-Registration and Subleasing
Exhibit F Return Conditions
<PAGE>
THIS LEASE AGREEMENT [N586ML], dated as of December 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 1(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 and the other Operative Agreements.
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.
2
<PAGE>
(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 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; and
(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.
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 through the EBO Date as well as the end of the Basic Term
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 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 December 15, 1999;
3
<PAGE>
(ii) 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
(iii) 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 and the Lessor 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 in each case 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 and the Lessor 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 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
4
<PAGE>
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(1) 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 (A) the adjusted Termination Value as of the applicable EBO
Date or (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)(xii) of the Participation Agreement). All adjustments required pursuant
to this Section 3(d) shall be set forth in a Lease Supplement or in an amendment
to this Lease.
(e) Manner of Payment.
-----------------
All Rent payable by the Lessee to the Lessor hereunder shall be
paid to the Lessor at the following account or at such other account 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:
Bank: First Union Bank of Delaware
ABA No.: 031100869
Account no.: 5000000016439
F/F/C to: First Union Trust Company
Attn: CT/3236, Sterling Correia
Ref: Midway N586ML Rent 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.
(f) Rent Obligations Unconditional.
-------------------------------
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,
5
<PAGE>
without limitation, (i) any setoff, counterclaim, recoupment or other right
which the Lessee may have against the Lessor, the Owner Participant, 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 other than manifest error
in the calculation thereof or the documentation of this Lease. 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.
Section 4. Lessor/Lessee Representations and Warranties.
--------------------------------------------
(a) THE LESSOR LEASES THE AIRCRAFT HEREUNDER "AS-IS", "WHERE IS"
AND NEITHER THE LESSOR, TRUST COMPANY INDIVIDUALLY NOR THE OWNER PARTICIPANT
SHALL 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
6
<PAGE>
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, except that the Lessor warrants
that on the Delivery Date the Lessor shall have received whatever title was
conveyed to it by the Seller and the Lessor warrants that the Aircraft shall be
free of Lessor's Liens during the Term.
(b) The Lessor covenants that during the Term, so long as no Event
of Default shall have occurred and be continuing and the Lessor has not
commenced the exercise of remedies set forth in Section 17, Lessor or any Person
claiming by, through or under Lessor will not take or cause to be taken any
action contrary to the Lessee's rights hereunder, including, without limitation,
its rights to possession, use and quiet enjoyment of the Aircraft during the
Term, provided that nothing contained herein shall affect any of the rights of
--------
the Lessor under Section 17 upon the occurrence and during the continuance of an
Event of Default.
(c) Lessee has not asked for, been given or relied upon any
statements, representations, guaranties or warranties of Lessor other than those
set forth herein and in the other Operative Agreements; Lessor is not in the
business of manufacturing or assembling aircraft or otherwise in the business of
being a vendor or supplier. Lessor's agreement to enter into this Lease is in
reliance upon the freedom from liability or responsibility for the matters
waived and disclaimed herein. None of the provisions of this Section 4 or any
other provision of this Lease shall be deemed to amend, modify, or otherwise
affect the representations, warranties or other obligations (expressed or
implied) of Manufacturer or Engine Manufacturer or any subcontractor thereof or
supplier thereto with respect to the Airframe, Engines or any Parts, or to
release Manufacturer or Engine Manufacturer or any such subcontractor or
supplier from such representation, warranty or obligation. Neither Lessor nor
the Owner Participant is responsible or liable for any direct, indirect,
incidental or consequential damage to or losses resulting from the delivery,
operation or use of the Aircraft.
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.
7
<PAGE>
(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 Event of
- -------
Default shall have occurred and be continuing, and (B) all approvals, consents
or authorizations required from the Aeronautical Authority in connection with
any such sublease or such delivery, transfer or relinquishment of possession
have been obtained and remain in full force and effect, 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 course of the Lessee's business (which shall not be considered a
transfer of possession hereunder), provided that 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;
(ii) deliver possession of the Airframe or any Engine 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 or any Engine to interchange or pooling
agreements or arrangements which are customary in the commercial airline
industry, applicable to other similar property owned by or leased to the
Lessee (or such Permitted Sublessee) and are entered into by the Lessee (or
such Permitted Sublessee) in the course of its airline business with any
air carrier, 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 and (B) if the Lessor's title
to any Engine shall nevertheless be divested under any such agreement or
arrangement, such divestiture shall be deemed to be an Event of Loss with
respect to such Engine and the Lessee shall comply with Section 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,
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<PAGE>
instruments, appurtenances, accessories, furnishings and other equipment
(other than Parts) installed on such airframe and otherwise not encumbering
the Engines, and (C) those created by the rights of other air carriers
under 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 and
otherwise not encumbering the Engines;
(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;
(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 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 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;
9
<PAGE>
(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 (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 in writing of any such transfer of possession;
(ix) transfer possession of the Airframe or any Engine to the
Government pursuant to a sublease, contract or other instrument;
(x) subject to the provisions of this Section 5(b), enter
into a sublease with respect to any Engine or the Airframe and Engines or
engines then installed on the Airframe to any Permitted Sublessee if (A)
Lessee shall provide written notice to Lessor and Owner Participant 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 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 there is no
declared war within or involving such country 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 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 sublessee under such sublease under the
laws of such sublessee's country of domicile that would, upon bankruptcy or
insolvency of or other default by the Lessee, prevent or unreasonably delay
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 Airframe 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 Owner
Participant, such opinion will be waived if insurance reasonably
satisfactory to 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 Airframe, (V) all
filings, if any,
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<PAGE>
required to be made in such jurisdiction in connection with the execution
of such sublease in order to protect the interest of Lessor in such Engine
or the Airframe have been made, (VI) it is not necessary for the Owner
Participant or Lessor to register or qualify to do business in such
jurisdiction, if not already so registered or qualified, as a result of the
proposed sublease, and (VII) there is no tort liability for owners not in
possession of aircraft in such 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 Owner
Participant, such opinion will be waived if insurance reasonably
satisfactory to 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 expressly 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 (B) 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); (4) if any such
sublease or transfer of possession shall, in the reasonable opinion of the Owner
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 the Owner 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 as may be required to preserve the title of Lessor
to the Airframe and Engines; and (7) Lessee shall reimburse Lessor and Owner
Participant, on an After Tax Basis, for all of their reasonable out-of-pocket
expenses (including fees and disbursements of counsel) in connection with any
such sublease or transfer.
11
<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,
including the rights of the Lessor to avoid such sublease in the exercise of its
rights to repossession of the Airframe and Engines hereunder and thereunder; (b)
expressly prohibit any further subleasing of the Airframe and Engines; (c) 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; and (d) 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.
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
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 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 (x) 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
12
<PAGE>
be covered by such insurance, or (y) except to the extent attributable to causes
beyond the reasonable control of the Lessee or any Permitted Sublessee or to
circumstances involving an isolated occurrence or series of events not in the
ordinary course of the regular operations of the Lessee or any Permitted
Sublessee, and the Lessee or Permitted Sublessee is diligently trying to rectify
the situation and rectifies such situation within ninety (90) days of the
occurrence thereof. The Lessee shall not permit the Airframe or any Engine to be
used or operated during the Term in violation of any Applicable Law or in
violation of any airworthiness certificate, license or registration relating to
the Aircraft or such Engines issued by Aeronautical 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 Owner Participant therein, any
risk of criminal liability or any material risk of civil liability against
Lessor or Owner Participant, or (ii) it is for minor, unanticipated, or non-
recurring violations that the Lessee is diligently trying to rectify which do
not render the Aircraft liable to any risk of condemnation, destruction, seizure
or confiscation by any Person.
(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 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 no less stringent than 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 in such operating condition as may be necessary to
enable 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, provided, however,
-------- -------
that if the airworthiness certificate of the Aircraft shall be withdrawn, then,
subject to Section 8 hereof, so long as the Lessee (or a Permitted Sublessee) is
taking or causing to be taken all necessary action to promptly correct the
condition which caused such withdrawal, no Event of Default shall arise from
such withdrawal 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. 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 and sound practice for such storage, except
for the purpose of avoiding compliance with any FAA airworthiness directive
otherwise required to be complied with by the Lessee pursuant to the terms of
this Lease
13
<PAGE>
prior to the end of the Term. The Lessee shall maintain or cause to be
maintained all records, logs, manuals, certificates, data and inspection,
modification, repair, overhaul records and other documents required by the
Aeronautical Authority to be maintained in respect of the Aircraft in English
(collectively, the "Manuals and Technical Records"). 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 reasonable 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 three (3)
Business Day is required) and at a time and place reasonably acceptable to the
Lessee, the Lessor and the Owner Participant or their authorized representatives
(which may include the Manufacturer) may at their own expense and risk conduct a
visual walk-around inspection of the Aircraft and any Engine (including a visual
walk-around inspection of the Aircraft during any "C" check or other heavy
maintenance) and 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 Lessor and the Owner Participant 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, (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
Sublessee's business, and (c) the Lessee shall not be required to undertake or
incur any additional liabilities in connection with any such inspection. All
information obtained
14
<PAGE>
in connection with any such inspection shall be held confidential by the Lessor
and the Owner Participant and shall not be furnished or disclosed by them to
anyone other than each other, their bank examiners, auditors, accountants,
agents and legal counsel and any Person with whom the Owner Participant is in
good faith conducting negotiations relating to the possible transfer and sale of
the Owner Participant's interest in the Trust Estate or the Aircraft, 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
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 as
may be necessary to enforce the terms of this Lease. The Lessor and the Owner
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.
If requested by Lessor or Owner Participant, 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 and Owner Participant of the name and location (if then
known) of the relevant maintenance performer.
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 pooling arrangements to
the extent permitted by Section 7(c) and 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.
15
<PAGE>
(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 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, provided 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 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 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 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 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
16
<PAGE>
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 in any reasonable manner which does not materially adversely
affect the interests of the Lessor and does not involve any non-de minimis risk
of sale, forfeiture or loss of the Aircraft or the interest of Owner Participant
therein, any material risk of civil penalty or any risk of criminal liability
being imposed on Lessor or Owner Participant. In addition, the Lessee (or a
Permitted Sublessee), at its own 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 or addition diminishes, in the Lessee's reasonable
judgment, the value, utility, condition or airworthiness of such Airframe or
Engine below the value, utility, condition 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, except that the value (but not the utility, condition or airworthiness)
of the Aircraft may be reduced by the value of 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)
and (iii) such Part can be removed from such Airframe or Engine without
diminishing or impairing the value, condition, utility or airworthiness which
such Airframe or Engine would have had at the time of removal had such
alteration, modification or addition not been effected by 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 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.
17
<PAGE>
(e) Substitution of Engines.
-----------------------
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 notice to the Lessor and the Owner Participant,
to substitute, and 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 120 days of the occurrence of such Event
of Loss and on at least five days' prior notice to the Lessor substitute, a
Replacement Engine for any Engine not then installed or held for use on the
Airframe. In such event, immediately upon the effectiveness of such substitution
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 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. Upon 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 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 and the
Owner Participant:
(A) a Lease Supplement covering the Replacement Engine,
which shall have been duly filed for recordation with the FAA;
(B) 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;
(C) "precautionary" Uniform Commercial Code financing
statements as are deemed necessary or desirable by counsel for
the Owner Participant to protect the ownership interests of the
Owner Trustee in the Replacement Engine;
(D) an Officer's Certificate of the Lessee certifying that
the Replacement Engine is of at least equal value, remaining
useful life and utility, and in as good operating condition, as
the Engine it replaces assuming such Engine had been maintained
in the condition required hereunder;
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<PAGE>
(E) an opinion of qualified FAA counsel as to the due
recordation of the Lease Supplement and all other documents or
instruments the recordation of which is necessary to perfect and
protect the rights of the Lessor in the Replacement Engine;
(F) 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;
(G) evidence of compliance with the insurance provisions of
Section 9 with respect to such Replacement Engine; and
(H) the Deficiency Agreement and the Residual Agreement
shall remain in full force and effect;
(ii) the Lessee shall furnish (or cause to be furnished to) the
Lessor and the Owner Participant with an opinion, reasonably
satisfactory in form and substance to the Lessor and the Owner
Participant, of the Lessee's counsel, which may be the Lessee's
General Counsel, to the effect that such bills of sale or other
documents reasonably requested by the Lessor or the Owner Participant
are sufficient to convey title to such Replacement Engine to the
Lessor; and
(ii) 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.
Upon satisfaction of all conditions to such substitution, (x) the
Lessor shall, at the expense of the Lessee, 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"
19
<PAGE>
condition, free and clear of all right, title and interest of the Lessor 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 pursuant to Section 9(f)) and
(z) 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).
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, the Lessee shall forthwith (and in any event within 15 days after such
occurrence) give the Lessor and the Owner Participant notice of such Event of
Loss. The Lessee shall, within 45 days after such occurrence, give the Lessor
and the Owner Participant 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
earlier, the last day of the Term), it shall give the Lessor and
the Owner Participant 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 thirtieth (30th) day
after 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
20
<PAGE>
(ii) pay or cause to be paid to the Lessor in immediately
available funds, on a Termination Date falling on the earlier of
120 days after the occurrence of the Event of Loss and 3 Business
Days after receipt of insurance proceeds in an amount equal to
the Termination Value for the Aircraft determined as of such
Termination Date, 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 or
the Owner Participant in connection with such Event of Loss.
(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 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; (iii) the Lessor shall, at the request 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 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).
(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 survive pursuant to Section 3(c) 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
expense of Lessee, shall convey, "as-is, where-is" without recourse or warranty,
except
21
<PAGE>
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.
(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 Event of Default shall
have occurred and be continuing and the Lessor and the Owner
Participant 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 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 and the Owner Participant:
(A) a Lease Supplement covering the Replacement
Aircraft, which shall have been duly filed for recordation
with the FAA;
(B) 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;
(C) a full warranty (as to title) bill of sale, in
form and substance satisfactory to 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;
(D) such "precautionary" Uniform Commercial Code
financing statements as are deemed necessary or desirable by
counsel for the Owner Participant to protect the ownership
interests of the Owner Trustee in the Replacement Aircraft;
22
<PAGE>
(E) an Officer's Certificate of the Lessee certifying
that the Replacement Aircraft is a Canadair Regional Jet
Series 200 ER aircraft of a more advanced model, is in as
good operating condition as, and has a value, remaining
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;
(F) a residual value agreement which is (x) the
Residual Agreement, (y) a renewal of the Residual Agreement,
or (z) a residual value agreement that is substantially
identical to the Residual Agreement, covering the
Replacement Aircraft; and
(G) a deficiency agreement which is either (x) the
Deficiency Agreement, (y) a renewal of the Deficiency
Agreement, or (z) a deficiency agreement that is
substantially identical to the Deficiency Agreement,
covering the Replacement Aircraft;
(iii) On or before the Replacement Closing Date, the
Lessor and the Owner Participant (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 or the owner of such
Replacement Aircraft, as the Lessor or its 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 and the Owner Participant;
(iv) The Lessor and the Owner Participant (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 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;
23
<PAGE>
(vii) The Lessor and the Owner Participant shall have
received (acting directly or by authorization to its special
counsel) (A) an opinion, satisfactory in form and substance to
the Lessor and the Owner Participant, of counsel to the Lessee
(which may be the Lessee's General Counsel) 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 is 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
and all other documents or instruments the recordation of which
is necessary to perfect and protect the rights of the Lessor 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;
(viii) 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.
Lessee shall reimburse the Lessor and the Owner Participant 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 of the Lessee) with respect to the Aircraft, an Engine or any Part
received at any time by the Lessor or by the Lessee from any governmental
authority or other Person will be applied as follows:
24
<PAGE>
(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) so much of such payments as shall not exceed the Termination
Value required to be paid by the Lessee pursuant to Section 8(a)
hereof shall be applied in reduction of the Lessee's obligation
to pay such Termination Value and other amounts, 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) above 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 Owner Participant 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 and the Owner Participant 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)
25
<PAGE>
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 over to, or retained by, the Lessee.
(g) Certain Payments to be Held As Security.
---------------------------------------
Notwithstanding the foregoing, 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, if at the time of such payment an Event of
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 Event of Default, such amount and any
gain realized as a result of Permitted Investments required to be made pursuant
to Section 15 shall to the extent not so applied be paid over to the Lessee.
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, maintain or cause to be maintained
in effect at all times during the Term with insurers of nationally or
internationally recognized responsibility public liability insurance (including,
without limitation, aircraft third party, passenger legal liability, property
damage, 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 type 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 as are
26
<PAGE>
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, 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 or the Owner Participant, maintain
or cause to be maintained in effect at all times during the Term with insurers
of nationally recognized responsibility (i) all risk, agreed value, ground and
flight hull insurance, which may, except as provided below, 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 but shall provide all-risk ground insurance otherwise conforming with
the provisions of this Section 9(b) except that the scope of the risks and the
type of insurance shall 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. 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 of the type 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 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 (other than routes within the United States and Canada) where the
custom in the industry is to carry war risk 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
27
<PAGE>
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).
(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, in the case of any particular Additional Insured, any other
Additional Insured; (ii) 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 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, counterclaim, deduction or subrogation against such Additional Insureds;
(vi) 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); and (vii) shall contain a 50/50% Clause per Lloyd's
Aviation Underwriter's Association Standard Policy Form AVS 103. 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 shall not have received written notice that an
- -------- ----
Event of Default has occurred and is continuing, if insurance proceeds in the
aggregate equal $2,000,000 or less, then such proceeds shall be payable to the
Lessee and, notwithstanding the foregoing, any amounts up to Termination Value
(i) of any proceeds which in the aggregate exceed $2,000,000, (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 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
28
<PAGE>
during any policy year, on a per occurrence or on fleetwide basis, an amount
equal to the lesser of (a) $15,000,000 or (b) 1.5% of the average aggregate
insurable value of all aircraft on which Lessee carries insurance. A deductible
per occurrence that is not in excess of the prevailing standard market
deductible for similar aircraft shall be permitted, for each aircraft in the
Lessee's fleet, in addition to such self-insurance.
(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 $2,000,000 or less shall be paid
over to or retained by the Lessee and, subject to Section 9(c),
any payments which in the aggregate are greater than $2,000,000
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 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.
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(f) Insurance for Own Account.
-------------------------
Nothing in this Section 9 shall prohibit the Lessor, the Owner
Participant, the Lessee 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 to the Lessor and the Owner Participant (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 (but no less frequently than annually), a report
signed by a firm of aircraft insurance brokers, not affiliated with the Lessee,
appointed 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 and (ii) the insurance then carried and maintained on the
Aircraft complies with the terms hereof and is in full force and effect 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, provided that all
--------
information contained in such report shall be held confidential by the Lessor
and the Owner Participant, and shall not be furnished or disclosed by them to
anyone except their legal counsel, insurance brokers or advisors, bona fide
prospective transferees of the Owner Participant and their respective agents
(provided that they shall agree for the benefit of the Lessee to hold all such
--------
information similarly confidential) or as may be required by Applicable Law. The
Lessee will instruct such firm to give prompt written advice to the Lessor and
the Owner Participant of any default in the payment of any premium and of any
other act or omission on the part of the 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 and the Owner Participant in writing at
least 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).
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<PAGE>
(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
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
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 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 and the other Additional Insureds for
amounts so paid by them.
Section 10. Liens.
-----
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 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 either not
yet due or being contested in good faith by appropriate proceedings 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 Owner
Participant therein or any risk of criminal liability or any material risk of
civil penalty against Lessor or Owner 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 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 Owner Participant therein or any risk
of criminal liability or any material risk of civil penalty against Lessor or
Owner Participant; (e) Liens arising out of judgments or awards against the
Lessee so long as there shall be in effect with respect to which a stay of
execution; (f) Lessor'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 and the Owner
Participant. 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.
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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.
(b) Further Assurances.
------------------
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.
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 like 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 and satisfying all the requirements for a Replacement
Engine) 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 the
Lessee shall, at its own expense and concurrently with such
32
<PAGE>
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)(D), 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.
(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 Manuals and Technical
Records which are required to be maintained with respect thereto under
applicable rules and regulations of the FAA and DOT.
(d) Condition of Aircraft.
---------------------
The Aircraft when returned to the Lessor shall be in the operating
condition required by Exhibit F hereto.
(e) 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 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 and normally used
for the storage of commercial aircraft. 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 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 60 days and that Lessor shall
bear all maintenance and insurance charges and other costs incurred relating to
such storage.
33
<PAGE>
(f) Pre-Return Inspections.
----------------------
The Lessor (or Persons designated by the Lessor) shall be permitted
to perform a physical inspection of the Aircraft and Manual and Technical
Records at its expense during the three-day period before its return (including
for this purpose any engines that are not Engines to be returned). During any
such inspection, the Lessor (or Persons designated by the Lessor) shall be
permitted to open bays or panels on the Aircraft or to make similar inspections,
including those which require the removal of equipment if the Lessor has an
objective reason (based on the Manuals and Technical Records, Aircraft
performance, or other physical evidence) to believe that opening such bays or
panels will demonstrate that the Aircraft is not in the condition required by
Exhibit F; and all resulting costs shall be borne by the Lessee if the Lessor's
belief is correct and by the Lessor if the Lessor's belief is incorrect. The
Lessee shall provide for an acceptance test flight (plus additional test flights
as necessary to demonstrate that any deficiencies discovered on the prior test
flight(s) have been corrected) to demonstrate the airworthiness of the Aircraft
(including for this purpose any engines which are not Engines to be returned)
and the proper functioning of all systems and components in accordance with the
manufacturer's flight functional procedures. The Lessor shall pay for any costs
associated with such flights, including costs for fuel, oil, airport fees,
insurance, takeoff/landing fees, airway communication fees, ground handling
fees, customs duties, and any other costs incurred by the Lessor; provided, that
if additional flight(s) are necessary to demonstrate that deficiencies have been
corrected, the Lessee shall pay for any costs associated with one such
additional flight. The Lessee shall permit the Lessor's representatives on board
during any flight tests as direct observers of the functional tests.
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 two years each (each a "Fixed Renewal Term"),
but for not more than an aggregate of four 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 180 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
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<PAGE>
such notice to the Lessor 210 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 180 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 210 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
Event of 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
pursuant to this Section 13(a) is subject to the condition precedent that either
(i) 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); or (ii)
the Owner Participant shall have received a residual value agreement which is
either (x) a renewal of the Residual Agreement, or (y) a residual value
agreement that is substantially identical to the Residual Agreement or otherwise
fully acceptable to the Owner Participant from or guaranteed by an institution,
the senior unsecured debt obligations of which are rated "A/A2" or better by
Standard & Poor's Ratings Group or Moody's Investors Service, Inc. and which (as
to clauses (x) and (y)) is in an amount which protects the Owner Participant's
Net Economic Return through the end of the Renewal Term, and providing residual
value protection as provided in Exhibit B.
(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 (unless the
35
<PAGE>
Lessee shall have obtained and provided to the Lessor a final order of a court
of competent jurisdiction confirming that the payment of the purchase price for
the Aircraft would not be subject to recapture by the Lessee (or any trustee of
the Lessee)) 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, 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) 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 120 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 120 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 before the EBO
Date and shall be irrevocable when given.
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 120 days' prior written notice
(which notice shall be irrevocable, except as provided below) to the Lessor,
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 use commercially reasonably efforts 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
36
<PAGE>
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, 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 notices of termination (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. Upon the sale of the Airframe and the Engines or engines 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 and Owner Participant 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
37
<PAGE>
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, 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 Owner Participants 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.
Upon payment of any Basic Rent due on such Termination Date, the Lessee shall
have no obligation to pay Termination Value. On the Termination Date, if the
Lessor shall have exercised its preemptive election to retain the Aircraft in
accordance with the terms of this Section 14(c), 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 all Basic Rent (if payable in arrears) due on
such Termination Date, all unpaid Supplemental Rent due on or before or after
the Termination Date, 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), the Lessee's notice given pursuant to Section 14(a) shall be
deemed to be withdrawn as of such date and this Lease shall
38
<PAGE>
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, the remedying of an Event of Default), shall, until paid to the
Lessee or applied as provided herein, be invested by the Lessor from time to
time at the direction, full and complete risk and expense of the Lessee in
Permitted Investments. 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 Lessor, on demand,
the amount of any loss realized as the result of any such investment (together
with any fees, commissions and other expenses, if any, incurred in connection
with such investment).
Section 16. Events of Default.
-----------------
The following events shall constitute Events of Default 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 or
Termination Value when due and such failure shall continue for a period of
5 Business Days or (ii) Supplemental Rent (other than Termination Value)
within 20 days after receipt by the Lessee of a written demand therefor
from the Lessor;
39
<PAGE>
(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 30 days (or 7 days in the case of war
risk insurance) after receipt by the Lessor of notice of such lapse or
cancellation or the date that the lapse or cancellation is effective as to
the Lessor or the Owner Participant;
(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;
(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 except any
failure to make payments under the Tax Indemnity Agreement), and such
failure shall continue unremedied for a period of 30 days after delivery of
notice of such failure from the Lessor 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 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 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 30
days after notice thereof has been given to the Lessee by the Lessor,
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 150 days after the delivery of such notice,
provided that it is hereby agreed that any material incorrectness of the
representations contained in Section 4.01(o) of the Participation Agreement
shall not be subject to cure);
(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 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 the Federal bankruptcy
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
40
<PAGE>
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
proceedings 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
of decree of appointment or sequestration shall remain in force
undismissed, unstayed or unvacated for a period of 90 days after the date
of entry thereof; or
(h) A petition against the Lessee in a proceeding under the Federal
bankruptcy laws or other insolvency laws as now or hereafter in effect
shall be filed and shall not be withdrawn or dismissed within 90 days
thereafter, or, 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 90 days;
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 hereof); 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
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
41
<PAGE>
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 lawfully and non-negligently 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 for or
by reason of such entry or taking possession, whether for the restoration
of damage to property caused by such taking 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, in a proceeding to which the Lessee shall be a necessary
party, 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) With or without taking possession, sell or otherwise dispose of
all or any part of the Aircraft, at public or private sale, 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 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 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
42
<PAGE>
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 the payment date specified pursuant to this paragraph (c),
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
specified pursuant to this paragraph (c), 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) Rescind, cancel or terminate this Lease or exercise any other
right or remedy which may be available under Applicable Law or proceed by
appropriate court action to enforce the terms hereof or to recover damages
for the breach hereof.
In addition, the Lessee shall be liable for any unpaid Supplemental Rent due
hereunder before or after any termination hereof, including all reasonable costs
and expenses including attorney's fees and disbursements incurred by the Lessor
or the Owner 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 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 be exclusive to the
extent permitted by Applicable Law), but each shall be
43
<PAGE>
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 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 analogous provisions
of any superseding statute or any power of the bankruptcy court to enjoin such
taking of possession.
44
<PAGE>
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 may not, without the prior consent of the Lessee, 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 8.01 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.
(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 of the Airframe or any Engine or Part permitted by the terms
hereof under a sublease agreement permitted by the terms hereof then in effect
shall constitute performance by the Lessee to the extent of such performance.
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 and 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
45
<PAGE>
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 and any
financing statements or other instruments as are necessary or requested by the
Owner Participant and appropriate, to maintain 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 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, 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 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.
------------
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 legend appearing on the cover 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
MARKED COUNTERPART NO. 1.
46
<PAGE>
(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.
(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.
(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.
47
<PAGE>
(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.
(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.
* * *
48
<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/ Sterling C. Correia
-----------------------
Name: Sterling C. Correia
Title: Vice President
MIDWAY AIRLINES CORPORATION
By: /s/ Jonathan S. Waller
----------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
49
<PAGE>
APPENDIX A
DEFINITIONS [N586ML]
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) and the Owner Participant and the directors, officers, members,
employees and agents of each of the foregoing.
"Aeronautical Authority" means as of any time of determination, the FAA or
----------------------
other governmental airworthiness authority or such other Person who shall be
vested with the supervision of or having jurisdiction over the Aircraft or the
Airframe and Engines or engines attached thereto and the registration, operation
or other matters relating to aviation with respect thereto under the laws of the
country in which the Airframe is then registered.
"Affiliate" means, with respect to any specified 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 on a basis such that any payment to be received or
---------------
deemed to be received or receivable by a Person shall be supplemented by a
payment or further payments to such Person so that the sum of such payments,
after deduction of all Taxes (taking into account any related credits or
deductions) resulting from the actual or constructive receipt or accrual of such
<PAGE>
payments, shall be equal to the payment to be received, utilizing, for this
purpose, the highest marginal rate for each such Tax at which the recipient is
paying tax for such year.
"Aircraft" means the Airframe together with the two (2) 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.
"Applicable Law" means all applicable laws, treaties, judgments, decrees,
--------------
injunctions, writs and orders of any court, governmental agency or authority and
rules, regulations, orders, directives, licenses and permits of any governmental
body, instrumentality, agency or authority.
"Applicable Rate" has the meaning specified in Exhibit B to the Lease.
---------------
"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, Charlotte, North Carolina and 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" 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.
-------------
"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 dollars in lawful currency of the United
------- ------ -
States.
"DOT" means the United States Department of Transportation or any successor
---
thereto.
"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
<PAGE>
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.
"Engine Manufacturer's Consent" means the Engine Manufacturer's Consent and
-----------------------------
Agreement [N586ML], dated as of December 10, 1999, from the Engine Manufacturer.
"Engine Warranty Assignment" means the Engine Warranty Assignment [N586ML],
--------------------------
dated as of December 10, 1999, between Lessee and Owner Trustee.
"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:
(i) any theft, hijacking or disappearance of such property for a
period of 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
<PAGE>
than the Government), for a period in excess of 180 consecutive days 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 60 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 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 6 consecutive months (or beyond the end of the Term), unless the
Lessee, prior to the expiration of such 6-month period, shall be diligently
carrying forward all necessary and desirable steps to permit normal use of
the Aircraft and shall within such 6-month period 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
for a period more than 12 consecutive months or, if earlier, 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, 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 61st day following loss of such
property or its use due to theft or disappearance (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 following requisition of use of such property by
any foreign government or purported government or any agency or instrumentality
thereof referred to in clause (iv) above, or the end of the Term if earlier than
such 181/st/ day; (ee) the 61st day following 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 referred to in
clause (vi) above or the Government or the end of the Term if earlier than such
61st 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
<PAGE>
Loss with respect to the Aircraft shall be deemed to have occurred if any Event
of Loss occurs with respect to the Airframe. An Event of Loss with respect to an
Engine shall not be an Event of Loss in respect of the Airframe.
"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
<PAGE>
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.
"Federal Aviation Administration" or "FAA" means the United States Federal
-------------------------------- ---
Aviation Administration and any successor agency or agencies thereto.
"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.
"Indemnitee" means each of Trust Company, in its individual capacity and as
----------
Owner Trustee, the Owner Participant, and each Affiliate, officer, director,
employee, agent, servant, successor and permitted assigns of any of the
foregoing Persons.
"Lease" means the Lease Agreement [N586ML], dated as of December 10, 1999
-----
between the Owner Trustee 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.
"Lessor's Liens" means Liens against, on or with respect to the Aircraft,
--------------
any Engine, the Lessor's Estate or any part thereof, title thereto or any
interest therein arising as a result of (i) claims against or affecting the
Lessor, in its individual capacity or as Owner Trustee, or the Owner
Participant, in each case not related to the Operative Agreements or the
transactions contemplated thereby, (ii) acts or omissions of the Lessor in its
individual capacity or as Owner Trustee, or of the Owner Participant not
permitted under the terms of the Operative Agreements, (iii) Taxes or Expenses
imposed against the Lessor, in its individual capacity or as Owner Trustee,
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 pursuant to 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 Lessor, in its individual capacity or as Owner Trustee, 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.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
security interest, claim, or other similar interest of any nature whatsoever.
"Manuals and Technical Records" has the meaning set forth in Section 5(d)
-----------------------------
of the Lease.
"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.
"Minimum Liability Amount" has the meaning given to such term in Exhibit B
------------------------
to the Lease.
<PAGE>
"Net Economic Return" means the Owner Participant's nominal after-tax book
-------------------
yield (utilizing the multiple investment sinking fund method of analysis),
computed through the EBO Date and the Expiration Date 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.
"Non-U.S. Person" means any Person other than a U.S. Person.
---------------
"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 and the Tax Indemnity
Agreement.
"Owner Participant" means ICX Corporation, an Ohio 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
-----------
[N586ML], dated as of December 10, 1999, from the Manufacturer.
"Participation Agreement" means the Participation Agreement [N586ML], dated
-----------------------
as of December 10, 1999, among the Lessee, the Owner Trustee not in its
individual capacity except as otherwise expressly provided therein, but solely
as owner trustee and the Owner Participant.
"Parts" means any and all appliances, parts, instruments, components,
-----
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature (other than complete Engines
<PAGE>
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, exclusive of any items leased by
the Lessee from third parties and not required in the navigation of the
Aircraft.
"Past Due Rate" means a rate per annum identified in Exhibit B to the
-------------
Lease.
"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, are involved in internal or external war or
military conflict or is a country with which it would constitute a breach of
applicable U.S. law for the Lessor or Owner Participant to engage directly or
indirectly in business, and provided that in each case, such Person is not the
subject of bankruptcy or similar proceedings.
"Permitted Investments" means (a) direct obligations of the Government, (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), (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
$500,000,000 and having a rating of "A" or better from the Keefe Bank Watch
Service, (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 rating assigned by such organization, or (f) obligations of the type
described in clauses (a), (b), (d), or (e) 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
Owner Trustee, all such Permitted Investments shall mature not later than 30
days from the date of purchase.
"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 Government.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, limited liability
<PAGE>
company 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
-----------------------------
[N586ML], dated as of December 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.
"Related Tax Indemnitee" means any Affiliate of any Tax Indemnitee.
----------------------
"Renewal Term" has the meaning given to such term in Section 13(a) of the
------------
Lease.
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"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 in accordance with and 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 as 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.
<PAGE>
"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, 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, the President or the Chief Financial Officer or 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 [N586ML],
--------------------------
dated as of December 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.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller" has the meaning given to such term in Exhibit B to the Lease.
------
"Specified Default" means (a) an event or condition described in Section
-----------------
16(a), (f), (g) or (h) 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.
"Sublease" means any sublease agreement between the Lessee and a Permitted
--------
Sublessee as permitted by Section 5(b) of the Lease.
"Supplemental Rent" means 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, or others, including
payments of Termination Value, EBO Amount, and amounts calculated by reference
to Termination Value, 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
<PAGE>
in the Lease or in the Participation Agreement or the Tax Indemnity Agreement or
any other Operative Agreement, but excluding Basic Rent.
"Tax" or "Taxes" has the meaning set forth in Section 6.01(a) of the
--- -----
Participation Agreement.
"Tax Indemnitee" means each of Trust Company, individually and as Owner
--------------
Trustee, the Owner Participant and any Affiliate thereof.
"Tax Indemnity Agreement" means the Tax Indemnity Agreement [N586ML], dated
-----------------------
as of December 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.
"Trust Agreement" means the Trust Agreement [N586ML], dated as of December
---------------
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.
------------
"Uniform Commercial Code" means the Uniform Commercial Code as in effect
-----------------------
from time to time in any relevant jurisdiction.
<PAGE>
"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 Lease Agreement
------------------
LEASE SUPPLEMENT NO. 1 [N586ML]
-------------------------------
THIS LEASE SUPPLEMENT NO. 1 [N586ML] dated ____________, 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 [N586ML], dated as of December 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 June 15, 2016 (the "Expiration Date"), unless terminated earlier as
provided in the Lease.
<PAGE>
4. Lessee hereby confirms to Lessor that Lessee has duly and
irrevocably accepted the Aircraft under and for all purposes hereof, the Lease
and the other Lessee Documents.
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 marked
Counterpart No. 1.
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>
SCHEDULE I
TO EXHIBIT A
DESCRIPTION OF AIRFRAME AND ENGINES
-----------------------------------
AIRFRAME
Manufacturer's FAA Registration Manufacturer's
Manufacturer Model No. Serial No.
- ----------- -------------- ---------------- --------------
Bombardier Inc. CL-600-2B19 N586ML 7341
ENGINES
Manufacturer's Manufacturer's
Manufacturer Model Serial Nos.
- ------------------------ -------------- --------------
General Electric Company CF34-3B1 GE-E-872580
GE-E-872581
Each Engine is of 750 or more "rated take-off horsepower" or the
equivalent of such horsepower.
<PAGE>
Exhibit B
Certain Economic Information
----------------------------
"EBO Amount" shall mean $*.
----------
"EBO Date" shall mean June 15, 2014.
--------
"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.
------
"Past Due 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 one percent (1%) per
annum.
"Renewal Rental Rate" shall mean $* per annum.
-------------------
"Applicable Rate" shall mean *% per annum.
---------------
"Residual Value Protection": the residual value support referred to in Section
-------------------------
13(a) shall protect, as of the end of any Renewal Term, against shortfalls in
value of the Aircraft below the residual value as of the end of the Basic Term,
less the amount of such residual value amortized by Basic Rent received during
such Renewal Term, provided that the amount of such residual value support shall
not exceed 15/40 of the amount of such amortized residual value as of the end of
such Renewal Term.
* 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
* Requires Lessor's consent in the case of Re-Registration.
<PAGE>
Exhibit F
RETURN CONDITIONS
-----------------
[*]
* Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
<PAGE>
CONFORMED COPY
--------------
LEASE SUPPLEMENT NO. 1 [N586ML]
-------------------------------
THIS LEASE SUPPLEMENT NO. 1 [N586ML] dated December 15, 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 [N586ML], dated as of December 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 June 15, 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 marked
Counterpart No. 1.
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.
* * *
<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/ Sterling C. Correia
-----------------------
Name: Sterling C. Correia
Title: Vice President
MIDWAY AIRLINES CORPORATION
By: /s/ Jonathan S. Waller
----------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
<PAGE>
SCHEDULE I
DESCRIPTION OF AIRFRAME AND ENGINES
-----------------------------------
AIRFRAME
Manufacturer's FAA Registration Manufacturer's
Manufacturer Model No. Serial No.
- ------------ ----- -- ---------
Bombardier Inc. CL-600-2B19 N586ML 7341
ENGINES
Manufacturer's Manufacturer's
Manufacturer Model Serial Nos.
- ------------ ----- ----------
General Electric Company CF34-3B1 GE-E-872580
GE-E-872581
Each Engine is of 750 or more "rated take-off horsepower" or the
equivalent of such horsepower.
<PAGE>
CONFORMED COPY
--------------
PURCHASE AGREEMENT ASSIGNMENT [N586ML], dated as of December 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 Bombardier, Inc. (the "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 Manufacturer has transferred the Purchase Agreement to
Bombardier Capital Inc. (the "Seller"), the Assignee wishes to acquire the
Aircraft from 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 December 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
<PAGE>
purchase and operation thereof (except to the extent reserved below), including,
without 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 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 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 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
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 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
2
<PAGE>
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 Owner
Participant 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, and 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.
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 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 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 institute (or, if previously commenced, assume
control of) any
3
<PAGE>
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 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 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.
8. This Assignment is executed by the Assignor and the Assignee
concurrently with the execution and delivery of the Lease.
4
<PAGE>
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.
* * *
5
<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/ Sterling C. Correia
-----------------------
Name: Sterling C. Correia
Title: Vice President
6
<PAGE>
ANNEX
BOMBARDIER INC.
AIRCRAFT MANUFACTURER'S CONSENT AND AGREEMENT [N586ML]
------------------------------------------------------
The undersigned, Bombardier Inc. ("Manufacturer"), hereby acknowledges
notice of and consents to the terms of the foregoing Purchase Agreement
Assignment [N586ML] (the "Assignment") dated as of December 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 As signee; (iii) the Manufacturer consents to the lease of the
Aircraft by the Assignee to the Assignor under the Lease; (iv) 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; (v) 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 (vi) 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 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
1
<PAGE>
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 the
agreement of Assignor and Assignee, as set forth in the Assignment, 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 December 10,
1999.
BOMBARDIER INC.
By: ____________________________________
Name:
Title:
By: ____________________________________
Name:
Title:
3
<PAGE>
BOMBARDIER INC.
AIRCRAFT MANUFACTURER'S CONSENT AND AGREEMENT [N586ML]
------------------------------------------------------
The undersigned, Bombardier Inc. ("Manufacturer"), hereby acknowledges
notice of and consents to the terms of the foregoing Purchase Agreement
Assignment [N586ML] (the "Assignment") dated as of December 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) 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; (v) 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 (vi) 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 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 the
agreement of Assignor and Assignee, as set forth in the Assignment, 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 December 15,
1999.
BOMBARDIER INC.
By: /s/ Daniel Desjardins
---------------------
Name: Daniel Desjardins
Title: Vice President, Legal Services
By: /s/ Louis Morin
---------------
Name: Louis Morin
Title: Vice President, Finance
<PAGE>
CONFORMED COPY
--------------
ENGINE WARRANTY ASSIGNMENT
[N586ML]
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 [N586ML] is made as of this 10/th/ day
of December, 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 7341 including two General Electric CF34-
3B1 turbofan engines bearing manufacturer's serial numbers GE-E-872580 and GE-E-
872581 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 [N586ML] dated as of December 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.
"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 dated as of December 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, and (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 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 reduction in the scope
of the Warranties, 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 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, 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 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 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
4
<PAGE>
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 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.
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
5
<PAGE>
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 the
Warranties, including but not limited to assignments for security purposes, are
permitted without the express prior written consent of the Engine Manufacturer,
other than an assignment to ICX Corporation as the Owner Participant whereby
such consent is not required.
3.4 Effective 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 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
-----------------
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
6
<PAGE>
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 nor 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 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)
7
<PAGE>
the Assignee may disclose any such information to the Owner Participant and its
attorneys and accountants, each of whom shall be obligated to not further
disclose such terms, (c) 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, (d) 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 (e) 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 All notices hereunder shall be given in the manner set forth in
Section 12.01 of the Participation Agreement.
* * *
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/ Sterling C. Correia
-----------------------
Name: Sterling C. Correia
Title: Vice President
10
<PAGE>
ANNEX
GENERAL ELECTRIC COMPANY
ENGINE MANUFACTURER'S CONSENT AND AGREEMENT [N586ML]
----------------------------------------------------
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 [N586ML] (herein called the
"Assignment", the defined terms therein being hereinafter used with the same
meaning), dated as of December 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 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 (v) the Engine Manufacturer will continue to pay to the Assignor all
payments which the Engine Manufacturer may be required to make under the
1
<PAGE>
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
2
<PAGE>
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 December 10,
1999.
GENERAL ELECTRIC COMPANY
By: ____________________________________
Name:
Title:
4
<PAGE>
GENERAL ELECTRIC COMPANY
ENGINE MANUFACTURER'S CONSENT AND AGREEMENT [N586ML]
----------------------------------------------------
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 [N586ML] (herein called the
"Assignment", the defined terms therein being hereinafter used with the same
meaning), dated as of December 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 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 (v) 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
<PAGE>
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
<PAGE>
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.
* * *
<PAGE>
IN WITNESS WHEREOF, the Engine Manufacturer has caused this Engine
Manufacturer's Consent and Agreement to be duly executed as of December 15,
1999.
GENERAL ELECTRIC COMPANY
By: /s/ Patricia A. Bowles
----------------------
Name: Patricia A. Bowles
Title: Contracts Manager,
Attorney-In-Fact
<PAGE>
CONFORMED COPY
--------------
- --------------------------------------------------------------------------------
LEASE AGREEMENT [N587ML]
dated as of December 30, 1999
between
FLEET NATIONAL BANK
Lessor,
and
MIDWAY AIRLINES CORPORATION
Lessee.
Covering One Canadair Regional
Jet Series 200 ER Aircraft
Registration Number N587ML
Manufacturer's Serial Number 7346
- --------------------------------------------------------------------------------
THIS IS ORIGINAL COUNTERPART NO. 1.
TO THE EXTENT, IF ANY, THAT THIS LEASE AGREEMENT [N587ML] 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 AGREEMENT [N587ML]
MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN
THE ORIGINAL COUNTERPART MARKED COUNTERPART NO. 1.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
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<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................................................................................... 3
(c) Supplemental Rent............................................................................ 3
(d) Adjustments to Basic Rent and Termination Values............................................. 3
(e) Manner of Payment............................................................................ 5
(f) Rent Obligations Unconditional............................................................... 5
Section 4. The Lessor's Representations and Warranties.................................................. 6
Section 5. Possession, Operation and Use, Maintenance, Registration and Insignia........................ 8
(a) General...................................................................................... 8
(b) Possession................................................................................... 8
(c) Operation and Use............................................................................ 12
(d) Maintenance.................................................................................. 13
(e) Registration................................................................................. 13
Section 6. Inspection................................................................................... 14
Section 7. Replacement and Pooling of Parts; Alterations, Modifications and
Additions; Substitution of Engines........................................................... 15
(a) Replacement of Parts......................................................................... 15
(b) Title to Parts............................................................................... 15
(c) Pooling or Parts Leasing..................................................................... 15
(d) Alterations, Modifications and Additions..................................................... 16
(e) Substitution of Engines...................................................................... 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Section 8. Loss, Destruction or Requisition............................................................. 19
(a) Event of Loss with Respect to the Airframe................................................... 19
(b) Effect of Replacement........................................................................ 21
(c) Effect of Termination Value Payment.......................................................... 21
(d) Conditions to Airframe Replacement........................................................... 21
(e) Non-Insurance Payments Received on Account of an Event of Loss............................... 24
(f) Requisition for Use.......................................................................... 25
(g) Certain Payments to be Held As Security...................................................... 25
Section 9. Insurance.................................................................................... 26
(a) Public Liability and Property Damage Insurance............................................... 26
(b) Insurance Against Loss or Damage to the Aircraft and Engines................................. 26
(c) Additional Insureds; Loss Payment............................................................ 27
(d) Deductibles and Self-Insurance............................................................... 28
(e) Application of Hull Insurance Proceeds....................................................... 28
(f) Insurance for Own Account.................................................................... 29
(g) Reports, etc................................................................................. 29
(h) Right to Pay Premiums........................................................................ 30
Section 10. Liens........................................................................................ 30
Section 11. Recordation and Further Assurances........................................................... 31
(a) Recordation of Lease......................................................................... 31
(b) Further Assurances........................................................................... 31
Section 12. Return of Aircraft and Records............................................................... 31
(a) Return of Aircraft........................................................................... 31
(b) Return of Other Engines...................................................................... 32
(c) Fuel; Records................................................................................ 32
(d) Condition of Aircraft........................................................................ 32
(e) Storage and Related Matters.................................................................. 32
Section 13. Renewal Option and Purchase Options.......................................................... 33
(a) Renewal Terms................................................................................ 33
(b) Lessee's Purchase Options.................................................................... 34
(i) Rights to Purchase.................................................................. 34
(ii) Notice of Exercise of Option........................................................ 34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Section 14. Voluntary Termination for Obsolescence....................................................... 35
(a) Termination by Sale of Aircraft.............................................................. 35
(b) Payments Due Upon Sale of Aircraft........................................................... 36
(c) Preemptive Election by Lessor................................................................ 36
(d) Termination of Lease......................................................................... 37
(e) Effect of No Sale or Preemptive Delivery to Lessor........................................... 37
(f) No Duty on Part of Lessor.................................................................... 37
Section 15. Investment of Security Funds................................................................. 37
Section 16. Events of Default............................................................................ 38
Section 17. Remedies..................................................................................... 40
Section 18. Lessor's Right to Perform for the Lessee..................................................... 43
Section 19. Bankruptcy................................................................................... 44
Section 20. Assignment: Benefit and Binding Effect....................................................... 44
(a) Assignment by the Lessee..................................................................... 44
(b) Assignment by the Lessor..................................................................... 44
(c) Benefit and Binding Effect................................................................... 44
(d) Sublessee's Performance and Rights........................................................... 45
Section 21. Certain Agreements of Lessee................................................................. 45
Section 22. Miscellaneous................................................................................ 45
(a) Notices...................................................................................... 45
(b) Counterparts................................................................................. 45
(c) Amendments................................................................................... 46
(d) Agreement to Lease........................................................................... 46
(e) Governing Law................................................................................ 46
(f) Severability................................................................................. 47
(g) Survival..................................................................................... 48
(h) Article 2A................................................................................... 48
(i) Security Interest............................................................................ 48
</TABLE>
<PAGE>
Appendix A Definitions
Exhibit A Form of Lease Supplement
Exhibit B Certain Economic Information
Exhibit C Basic Rent
Exhibit D Termination Values
Exhibit E List of Countries
Exhibit F Return Conditions
<PAGE>
THIS LEASE AGREEMENT [N587ML], dated as of December 30, 1999, between
FLEET NATIONAL BANK, a national banking association established under the laws
of the United States of America, 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 Supplemental 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 Supplemental 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 for the
sole and limited purpose of accepting delivery of the Aircraft from the Seller.
The execution by Lessee of Lease Supplement No. 1 shall evidence that the
Aircraft is leased under, and is subject to all of the terms, provisions and
conditions of, this Lease and shall constitute Lessee's unconditional and
irrevocable acceptance of the Aircraft for all purposes of this Lease. Except as
may be expressly set forth herein, this Lease is non-cancelable and non-
terminable by Lessee.
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.
2
<PAGE>
(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 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; and
(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.
The obligations of the Lessee to pay Supplemental Rent provided for
in this Section 3(c) shall not terminate for any reason and shall survive the
expiration, cancellation 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 Lessor) of the remaining Basic Rent payments (or,
if the Lessee shall have so specified to the Lessor, the remaining Basic Rent
Payments to the EBO Date together with the EBO Amount), if there shall be an
adjustment of Termination Values as provided in Section 16 of the Tax Indemnity
Agreement.
3
<PAGE>
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 Lessor in
accordance with the terms of this Section 3(d), and the Lessor shall deliver to
the Lessee schedules setting forth the revised EBO Amount and the revised
percentages that the Lessor 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 Lessor, the adjustments, at the request of the Lessee delivered
to the Lessor within 30 days after receipt of the Lessor'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 Lessor and reasonably
acceptable to the Lessee. The Lessor 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 Lessor 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
Lessor at the time, to enable such firm to determine whether the adjustments
proposed by the Lessor 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 Lessee and the Lessor 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 Lessor. The adjustments proposed
by the Lessor, 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 and the Lessee, 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 Lessor 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 Lessor.
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
4
<PAGE>
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 (A) the
adjusted Termination Value as of the applicable EBO Date or (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)(xii) of the Supplemental
Agreement). All adjustments required pursuant to this Section 3(d) shall be set
forth in a Lease Supplement or in an amendment to this Lease.
(e) Manner of Payment.
-----------------
All Rent payable by the Lessee to the Lessor hereunder shall be paid
to the Lessor at the following account or at such other account 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:
Bank: Fleet National Bank
ABA No. 01150010
For the account of Fleet Capital Leasing, account no. 015-
5527767-01
Re: Midway Airlines Corp., customer no. 33136
Upon receipt contact Leslie Tordorff at (401) 278-3152
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.
(f) Rent Obligations Unconditional.
-------------------------------
This Lease is a net lease, and Lessee acknowledges and agrees that
Lessee's obligation to pay all Rent hereunder and the rights of Lessor in and to
such Rent, shall be absolute, irrevocable and unconditional and shall not be
subject to cancellation, termination, modification or repudiation by Lessee or
any abatement, reduction, setoff, defense, counterclaim or recoupment for any
reason or under any circumstance whatsoever, including, without limitation, (i)
any setoff, counterclaim, recoupment or other right which the Lessee may have
against the Lessor 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
5
<PAGE>
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. 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 (unless adjusted in
accordance with the terms of this Lease or another Operative Agreement) 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) LESSEE EXPRESSLY ACKNOWLEDGES THAT IT HAS SELECTED THE AIRCRAFT
WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES AND LESSEE EXPRESSLY
AGREES THAT IT IS LEASING THE AIRCRAFT FROM LESSOR IN AN "AS IS", "WHERE IS" AND
"WITH ALL FAULTS" CONDITION. LESSEE FURTHER ACKNOWLEDGES THAT THE LESSOR HAS NOT
MANUFACTURED OR SUPPLIED THE AIRCRAFT AND THAT THE LESSOR ACQUIRED OR WILL
ACQUIRE THE AIRCRAFT AND/OR THE RIGHT TO POSSESSION THERETO IN CONNECTION WITH
THIS LEASE. LESSOR SHALL NOT BE DEEMED TO HAVE MADE, AND LESSOR HEREBY EXPRESSLY
DISCLAIMS, ANY REPRESENTATION OR WARRANTY (EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED HEREIN OR IN THE SUPPLEMENTAL AGREEMENT), EITHER EXPRESS OR IMPLIED, AS
TO THE AIRCRAFT, ANY PART THEREOF, ANY RECORDS, OR ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE DESIGN, CONDITION, CAPACITY OR DURABILITY OF
THE AIRCRAFT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, USE
OR OPERATION, THE QUALITY OF THE MATERIALS OR WORKMANSHIP OF THE
6
<PAGE>
AIRCRAFT, ITS VALUE OR AIRWORTHINESS, TITLE, SAFETY, THE ABSENCE OF ANY PATENT,
TRADEMARK OR COPYRIGHT INFRINGEMENT OR LATENT DEFECT (WHETHER OR NOT
DISCOVERABLE BY LESSEE), COMPLIANCE OF THE AIRCRAFT WITH THE REQUIREMENTS OF ANY
LAW, RULE, REGULATION OR STANDARD PERTAINING THERETO, OR THE CONFORMITY OF THE
AIRCRAFT TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE OR OTHER DOCUMENT
RELATING THERETO OR ANY INTERFERENCE OR ANY COURSE OF PERFORMANCE, COURSE OF
DEALING OR USAGE OF TRADE, NOR SHALL LESSOR BE LIABLE, REGARDLESS OF ANY ACTUAL
OR ALLEGED NEGLIGENCE OF LESSOR, FOR ANY DEFECTS, EITHER PATENT OR LATENT
(WHETHER OR NOT DISCOVERABLE BY LESSEE), IN THE AIRCRAFT OR ANY PART THEREOF OR
ANY DIRECT OR INDIRECT DAMAGE TO PERSONS OR PROPERTY OR FOR ANY DIRECT,
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OR FOR STRICT OR ABSOLUTE
LIABILITY IN TORT, IN ANY SUCH CASE RESULTING THEREFROM. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, LESSEE HEREBY WAIVES ANY CLAIM (INCLUDING ANY CLAIM
BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT OR INFRINGEMENT) IT MIGHT HAVE
AGAINST LESSOR FOR ANY LOSS, DAMAGE OR EXPENSE (INCLUDING, WITHOUT LIMITATION,
DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGE, ANY LOSS OF
BUSINESS OR PROFITS OR ANY INTERRUPTION OR LOSS OF SERVICE OR USE THEREOF)
CAUSED BY THE AIRCRAFT OR BY LESSEE'S LOSS OF USE THEREOF FOR ANY REASON
WHATSOEVER (EXCEPT IN THE CASE OF BREACH BY THE LESSOR OF ITS EXPRESS
OBLIGATIONS UNDER THIS LEASE AND THE SUPPLEMENTAL AGREEMENT).
If the Aircraft does not operate as warranted, becomes obsolete, or
is unsatisfactory for any reason whatsoever, Lessee shall make all claims on
account thereof solely against the Manufacturer or any other supplier and not
against Lessor, and Lessee shall nevertheless pay all Rent and other sums
payable hereunder. Lessee acknowledges that neither the Manufacturer or any
other supplier nor any sales representative or agent thereof, is an agent of
Lessor, and no agreement or representation as to the Aircraft or any other
matter by any such sales representative or agent of the Manufacturer or any
other supplier shall in any way affect Lessee's obligations hereunder.
To the extent permitted by Applicable Law, Lessee waives any and all
rights and remedies conferred upon a lessee by Section 2A-508 to 2A-522
(inclusive) of the Uniform Commercial Code; provided however, nothing herein or
-------- -------
in the other Operative Agreement shall in any way limit (x) the obligations of
the Lessor under Section 4(b) hereof or Sections 5.01(b), 5.01(c) and 5.01(d) of
the Supplemental Agreement or (y) the rights or any claims of the Lessee against
the Lessor in the event of any breach by the Lessor of any such obligations.
(b) The Lessor covenants that during the Term, so long as no Event
of Default shall have occurred and be continuing and the Lessor has not
commenced the exercise of remedies
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set forth in Section 17, Lessor or any Person claiming by, through or under
Lessor will not take or cause to be taken any action contrary to the Lessee's
rights hereunder, including, without limitation, its rights to possession, use
and quiet enjoyment of the Aircraft during the Term, provided that nothing
--------
contained herein shall affect any of the rights of the Lessor under Section 17
upon the occurrence and during the continuance of an Event of Default.
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, provided, however, that so long as (A) only in the case of clause
-------- -------
(x) below, no Event of Default shall have occurred and be continuing, and (B)
all approvals, consents or authorizations required from the Aeronautical
Authority in connection with any such sublease or such delivery, transfer or
relinquishment of possession have been obtained and remain in full force and
effect, 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 course of the Lessee's business (which shall not be
considered a transfer of possession hereunder), provided that 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;
(ii) deliver possession of the Airframe or any Engine 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;
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<PAGE>
(iii) subject the Airframe and any Engines installed thereon to
interchange agreements 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 entered into by
the Lessee (or such Permitted Sublessee) in the course of its airline
business with any air carrier, 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 and (B) if
the Lessor's title to any Engine shall nevertheless be divested under any
such agreement or arrangement, such divestiture shall be deemed to be an
Event of Loss with respect to such Engine and the Lessee shall comply with
Section 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, and (C)
those created by the rights of other air carriers under 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;
(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 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);
(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 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
9
<PAGE>
Sublessee) shall promptly notify Lessor 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 (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 in writing of any such transfer of possession;
(ix) transfer possession of the Airframe or any Engine to the
United States of America or any instrumentality or agency thereof pursuant
to a sublease, contract or other instrument;
(x) subject to the provisions of this Section 5(b), enter into
a sublease with respect to any Engine or the Airframe and Engines or
engines then installed on the Airframe to any Permitted Sublessee if (A)
Lessee shall provide written notice to Lessor 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 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 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 sublessee under such sublease under the
laws of such sublessee's country of domicile that would, upon bankruptcy or
insolvency of or other default by the Lessee and assuming that at such time
such sublessee is not insolvent or bankrupt, prevent or unreasonably delay
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 would give recognition
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<PAGE>
to Lessor's title to such Engine or the Airframe, (IV) all filings, if any,
required to be made in such jurisdiction in connection with the execution
of such sublease in order to protect the interest of Lessor in such Engine
or the Airframe have been made, (V) it is not necessary for the Lessor to
register or qualify to do business in such jurisdiction, if not already so
registered or qualified, as a result of the proposed sublease, and (VI)
there is no tort liability for owners not in possession of aircraft in such
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, such opinion will be waived
if insurance reasonably satisfactory to the Lessor 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) no pooling agreement, sublease or other
relinquishment of possession of the Airframe or any Engine shall discharge or
diminish any of Lessee's obligations to Lessor under this Lease or any other
Operative Agreements or constitute a waiver of Lessor's rights or remedies
thereunder, and 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
(B) 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); (4) if any such sublease or transfer of possession
shall, in the reasonable opinion of the Lessor, 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 the Lessor against any such
adverse tax consequences; (5) the Lessee shall provide evidence reasonably
satisfactory to Lessor that the insurance required by Section 9 remains in
effect; (6) all necessary documents shall have been duly filed or recorded in
applicable public offices as may be required to preserve the title of Lessor to
the Airframe and Engines; and (7) Lessee shall reimburse Lessor, on an After Tax
Basis, for all of their reasonable out-of-pocket expenses (including fees and
disbursements of counsel) in connection with any such sublease or transfer.
11
<PAGE>
In the case of any sublease permitted under this Section 5(b), (i) the
Lessee will include in such sublease appropriate provisions which (x) make such
sublease expressly subject and subordinate to all of the terms of this Lease,
including the rights of the Lessor to avoid such sublease in the exercise of its
rights to repossession of the Airframe and Engines hereunder and thereunder; (y)
expressly prohibit any further subleasing of the Airframe and Engines; and (z)
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; and
(ii) if the term of such sublease exceeds two (2) years, the Lessee shall assign
its rights thereunder to Lessor as collateral for its obligations hereunder,
such assignment to be effected pursuant to an agreement in form and substance
reasonably satisfactory to Lessor and duly filed or recorded in all applicable
jurisdictions; provided that, such collateral assignment shall provide that
-------- -----
payments due under such sublease shall only be paid by the Permitted Sublessee
to the Lessor during the continuance of a Specified Default.
The Lessor hereby agrees for the benefit of the lessor or secured
party of any engine 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 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 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.
(c) Operation and Use.
-----------------
The Lessee shall not 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 (x) 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, or (y) except to the extent attributable primarily to causes
beyond the reasonable control of the Lessee or any Permitted Sublessee or
primarily to circumstances involving an isolated occurrence or series of events
not in the ordinary course of the regular operations of the Lessee or any
Permitted Sublessee, and the Lessee or Permitted Sublessee is diligently trying
to rectify the situation. The Lessee shall not permit the Airframe or any
Engine to be used or operated
12
<PAGE>
during the Term in violation of any Applicable Law or in violation of any
airworthiness certificate, 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 Lessor therein, any risk of
criminal liability or any material risk of civil liability against Lessor, (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), or (iii) it is for minor, unanticipated, or non-
recurring violations that the Lessee is diligently trying to rectify which do
not render the Aircraft liable to any risk of condemnation, destruction, seizure
or confiscation by any authority
(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 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 no less stringent than 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 in such operating condition as may be necessary to
enable 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, provided, however,
-------- -------
that if the airworthiness certificate of the Aircraft shall be withdrawn, then,
subject to Section 8 hereof, so long as the Lessee (or a Permitted Sublessee) is
taking or causing to be taken all necessary action to promptly correct the
condition which caused such withdrawal, no Event of Default shall arise from
such withdrawal 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. 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 and sound practice for such storage
(provided that, without the consent of the Lessor, which consent shall not be
unreasonably withheld, no such period of storage shall exceed twelve consecutive
months). The Lessee shall maintain or cause to be maintained all records, logs
and other documents required by the Aeronautical Authority to be maintained in
respect of the Aircraft in English. Lessee further
13
<PAGE>
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
Supplemental 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 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 Supplemental
Agreement) changing such registration.
Section 6. Inspection.
----------
At all reasonable times during the Term, but upon at least 5
Business Days' prior notice to the Lessee (unless an Event of Default shall have
occurred and be continuing, in which event no prior notice of any kind is
required) and at a time and place reasonably acceptable to the Lessee, the
Lessor or its authorized representatives (which may include the Manufacturer)
may at its own expense and risk conduct a visual walk-around inspection of the
Aircraft and any Engine (including a visual walk-around inspection of the
Aircraft during any "C" check or other heavy maintenance) and 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
Lessor or its authorized representatives at its 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, (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 Sublessee's business, and (c) the Lessee shall not be
required to undertake or incur any additional liabilities in connection with any
such inspection. All information obtained in connection with any such inspection
shall be held confidential by the Lessor and shall not be furnished or disclosed
by it to anyone other than its bank examiners, auditors, accountants, agents and
legal counsel and any Person with whom the Lessor is conducting negotiations
relating to the possible transfer and sale of Lessor's Estate, 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 except as
may be required by an order of any court or administrative agency or by
14
<PAGE>
any statute, rule, regulation or order of any governmental authority or as may
be necessary to enforce the terms of this Lease. The Lessor shall have no duty
to make any such inspection and shall not incur any liability or obligation by
reason of not making any such inspection.
If requested by Lessor, 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
of the name and location (if then known) of the relevant maintenance performer.
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 re ndered 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 pooling arrangements to
the extent permitted by Section 7(c) and 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 without any
representation or warranty by, or recourse to, Lessor, free and clear of all
rights of the Lessor and any Lessor's Liens
15
<PAGE>
and shall no longer be deemed a Part hereunder; (ii) title to such replacement
Part shall thereupon vest in the Lessor, free and clear of all Liens (other than
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, provided 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 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 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 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 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 with due diligence and by appropriate
procedure, contest the validity or application of any such standard in any
reasonable manner which does not materially adversely affect the interests of
the Lessor and does not involve any non-de minimis risk of sale, forfeiture or
loss of the Aircraft or the interest of Lessor therein, any non-de minimis risk
of civil penalty, or any risk of criminal liability, being imposed on Lessor.
In addition, the Lessee (or a Permitted Sublessee), at its own 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
16
<PAGE>
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 or addition diminishes
- --------
the value, utility, condition or airworthiness of such Airframe or Engine below
the value, utility, condition 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, except
that the value (but not the utility, condition or airworthiness) of the Aircraft
may be reduced by the value of 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) and (iii) such
Part can be removed from such Airframe or Engine without diminishing or
impairing the value, condition, utility or airworthiness which such Airframe or
Engine would have had at the time of removal had such alteration, modification
or addition not been effected by 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 and the installation of a Replacement Part as provided
herein (if applicable), title to such replaced Part shall, without further act,
vest in the Lessee (or such Permitted Sublessee), in "as-is, where-is" condition
without any representation or warranty by, or recourse to, Lessor, free and
clear of all rights of the Lessor 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. Lessee shall repair all damage to the Aircraft resulting from any
such installation and/or removal of additions so as to restore the Aircraft to
its condition prior to installation, ordinary wear and tear excepted assuming
the Aircraft was in the condition and repair then required to be maintained by
the terms hereof.
(e) Substitution of Engines.
-----------------------
So long as no Specified Default shall have occurred and be continuing
at the time of notice or completion of the substitution of a Replacement Engine,
the Lessee (or a Permitted Sublessee) shall have the right at its option at any
time, on at least 30 days' prior notice to the Lessor, to substitute, and if an
Event of Loss shall have occurred with respect to an Engine under
17
<PAGE>
circumstances in which there has not occurred an Event of Loss with respect to
the Airframe, shall within 120 days of the occurrence of such Event of Loss and
on at least five days' prior notice to the Lessor substitute, a Replacement
Engine for any Engine not then installed or held for use on the Airframe. In
such event, immediately upon the effectiveness of such substitution 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 without any
representation or warranty by, or recourse to, Lessor, free and clear of all
rights of the Lessor 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. At the
time of 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, at
the reasonable request of the Lessee, 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 counte rpart of each shall be delivered to the Lessor:
(A) a Lease Supplement covering the Replacement
Engine, which shall have been duly filed for recordation
with the FAA;
(B) a full warranty bill of sale (as to title and
Liens), in form and substance satisfactory to the Lessor,
covering the Replacement Engine, executed by the owner
thereof in favor of the Lessor;
(C) "precautionary" Uniform Commercial Code financing
statements as are deemed necessary or desirable by counsel
for the Lessor to protect the ownership interests of the
Lessor in the Replacement Engine;
(D) an Officer's Certificate of the Lessee certifying
that the Replacement Engine is of at least equal value,
remaining useful life and utility, and in as good operating
condition, as the Engine it replaces assuming such Engine
had been maintained in the condition required hereunder;
(E) an opinion of qualified FAA counsel as to the due
recordation of the Lease Supplement and all other documents
or instruments the recordation of which is necessary to
perfect and protect the rights of the Lessor in the
Replacement Engine;
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<PAGE>
(F) 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 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;
(G) evidence of compliance with the insurance provisions of
Section 9 with respect to such Replacement Engine; and
(H) if requested by Lessor, Lessor shall have received an
appraisal satisfactory to it confirming that the Replacement Engine
satisfies the conditions set forth in the definition thereof;
(ii) the Lessee shall furnish (or cause to be furnished to) the
Lessor with an opinion, reasonably satisfactory in form and substance to
the Lessor, of the Lessee's counsel, which may be the Lessee's General
Counsel or Associate General Counsel, to the effect that such bills of sale
or other documents reasonably requested by the Lessor are sufficient to
convey good and marketable title to such Replacement Engine to the Lessor;
and
(iii) at Lessor's option (x) the Lessor shall have received an
opinion of independent tax counsel (selected by the Lessor and reasonably
acceptable to the Lessee), reasonably satisfactory to the Lessor, to the
effect that there shall be no risk of adverse tax consequences resulting
from such replacement (and the Lessor shall use its reasonable 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 in form and substance to the
Lessor.
Upon satisfaction of all conditions to such substitution, (x) the Lessor
shall, at the expense of the Lessee, 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 without any representation or warranty by, or recourse to, Lessor,
free and clear of all right, title and interest of the Lessor 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 Lessor pursuant to Section 9(f)) and (z) the Lessee
shall be entitled to receive all insurance proceeds (other than those reserved
to others under Section 9(f) hereof) and proceeds in
19
<PAGE>
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).
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, the Lessee shall forthwith (and in any event within 5 Business Days
after such occurrence) give the Lessor notice of such Event of Loss. The Lessee
shall, within 60 days after such occurrence, give the Lessor 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 vint age 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
earlier, the last day of the Term), it shall give the Lessor
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 thirtieth (30th) day after 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; and provided further, that in the event the
-------- -------
Lessor is not, prior to the 90/th/ day following such Event of
Loss, holding the proceeds of insurance paid to the Lessor (as
loss payee) as a result of such Event of Loss in an amount at
least equal to the applicable Termination Value, the Lessee shall
provide collateral (in a form reasonably acceptable to the
Lessor) in such amount (or if such insurance proceeds are being
so held at such time by the Lessor but are in an amount less than
Termination Value, in the amount of such deficiency) to the
Lessor, which collateral shall be released to the Lessee upon the
earlier of (x) performance by the Lessee of
20
<PAGE>
its obligations under this Section 8(a) or (y) the proceeds of such
insurance in such required amount being paid to Lessor (as loss payee
pursuant to Section 9); or
(ii) pay or cause to be paid to the Lessor in immediately
available funds, on a date which shall be a Termination Date not more
than 180 days after the occurrence of the Event of Loss, 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 out-of-pocket expenses (including reasonable
attorneys' fees) incurred by the Lessor in connection with such Event
of Loss.
(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 expense of Lessee, convey "as-is, where-is", without
representation, 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; (iii) the Lessor shall, at the request 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
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).
(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 survive pursuant to Section 3(c) and Articles 6 and 7 of the
Supplemental 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
21
<PAGE>
Lessor, at the expense of Lessee, shall convey, "as-is, where-is" without
representation, recourse or warranty, except for a warranty against Lessor's
Liens attributable to Lessor, 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.
(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 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 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:
(i) a Lease Supplement covering the Replacement Aircraft,
which shall have been duly filed for recordation with the FAA;
(ii) 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;
(iii) a full warranty (as to title and Liens) bill of sale,
in form and substance satisfactory to 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;
(iv) such "precautionary" Uniform Commercial Code
financing statements as are deemed necessary or desirable by
counsel for the Lessor to protect the ownership interests of the
Lessor in the Replacement Aircraft;
22
<PAGE>
(v) an Officer's Certificate of the Lessee certifying that
the Replacement Aircraft is a Canadair Regional Jet Series 200 ER
aircraft of a more advanced model, is in as good operating
condition as, and has a value, remaining 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;
(vi) a residual value agreement which is either (x) a
renewal of the Residual Agreement, or (y) a residual value
agreement that is substantially identical to the Residual
Agreement, covering the Replacement Aircraft; and
(vii) a deficiency agreement which is either (x) a renewal
of the Deficiency Agreement, or (y) a deficiency agreement that
is substantially identical to the Deficiency Agreement, covering
the Replacement Aircraft;
(iii) On or before the Replacement Closing Date, the Lessor
(acting directly or by authorization to its special counsel) shall have
received such documents and evidence with respect to the Lessee or the
owner of such Replacement Aircraft, as the Lessor or its 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;
(iv) The Lessor (acting directly or by authorization to its
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 and marketable title to the Replacement Aircraft free and
clear of Liens (other than Permitted Liens), (B) 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 Lessor shall have received an appraisal satisfactory
to it with respect to the Replacement Aircraft;
(vi) The Lessor shall have received (acting directly or by
authorization to its special counsel) (A) an opinion, satisfactory in form
and substance to the Lessor,
23
<PAGE>
of counsel to the Lessee (which may be the Lessee's General Counsel) to the
effect that (x) the bill of sale referred to in clause (ii)(D) above
constitutes an effective instrument for the conveyance of good and
marketable 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 is 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 and all other
documents or instruments the recordation of which is necessary to perfect
and protect the rights of the Lessor 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;
(viii) (1) The Lessor shall have received an opinion of independent
tax counsel (selected by the Lessor and reasonably acceptable to the
Lessee), reasonably satisfactory to the Lessor, to the effect that there
shall be no risk of adverse tax consequences resulting from such
replacement (and the Lessor shall use its reasonable efforts to cause a
timely opinion to be delivered) and (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 Lessor.
Lessee shall promptly reimburse the Lessor for all out-of-pocket costs
(including reasonable attorneys' fees) incurred by it 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 of the
Lessee) with respect to the Aircraft, an Engine or any Part received at any time
by the Lessor or by the Lessee 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
24
<PAGE>
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 pursuant to the terms of
this Lease, 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
--------
pursuant to the terms of this Lease, 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) so much of such payments as shall not
exceed the Termination Value required to be paid by the Lessee pursuant to
Section 8(a) hereof shall be applied in reduction of the Lessee's
obligation to pay such Termination Value and other amounts, 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)
above 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 and the Lessor for their out-of-pocket costs (including
reasonable attorney's fees), if any, of procuring such payments, and (z)
the balance remaining, if any, (i) if attributable to Lessor's loss of its
residual value in the Aircraft, shall then be paid over to or retained by
the Lessor, and (ii) if attributable to Lessee's loss of use of the
Aircraft for the remainder of the Term, shall then be paid over to or
retained by the Lessee.
(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 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
25
<PAGE>
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) 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. 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 over to, or retained by, the Lessee.
(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, if at the time of such payment or at any applicable time thereafter, 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 at any time
that an Event of Default shall have occurred and be continuing, and at such time
as there shall not be continuing any Specified Default, to the extent such
amounts have not been so applied, such amount and any gain realized as a result
of Permitted Investments required to be made pursuant to Section 15 shall be
paid over to the Lessee.
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, maintain or cause to be maintained
in effect at all times during the Term with insurers of nationally or
internationally recognized responsibility public liability insurance (including,
without limitation, aircraft third party, passenger legal liability, property
damage, 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 type usually carried
26
<PAGE>
by the Lessee with respect to similar aircraft and engines, and covering risks
of the kind customarily insured against by the Lessee.
During any period that the Aircraft is grounded and not in operation,
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, maintain or cause to be maintained in
effect at all times during the Term with insurers of nationally recognized
responsibility (i) all risk, agreed value, ground and flight hull insurance,
which may, except as provided below, 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 of the type usually carried by the Lessee
with respect to similar aircraft and engines, and covering risks of the kind
customarily insured against by the Lessee. 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 (other than routes
within the United States, Canada, Mexico, Bermuda and islands other than Cuba in
the Caribbean Basin) where the custom in the industry is to carry war risk
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).
27
<PAGE>
(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, in the case
of any particular Additional Insured, any other Additional Insured; (ii) 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 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, counterclaim, deduction or subrogation
against such Additional Insureds; (vi) 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); and (vii) shall
contain a 50/50% Clause per Lloyd's Aviation Underwriter's Association Standard
Policy Form AVS 103. 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 in the aggregate equal
$2,000,000 or less, then such proceeds shall be payable to the Lessee and,
notwithstanding the foregoing, any amounts up to Termination Value (i) of any
proceeds which in the aggregate exceed $2,000,000, (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 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
on an annual basis, on a per occurrence or on fleetwide basis, an amount equal
to 4% of the Lessee's tangible net worth, calculated as at the end of the
Lessee's immediately preceding fiscal year (but in no event to exceed
$15,000,000). A deductible per occurrence that is not in excess of the
28
<PAGE>
prevailing standard market deductible for similar aircraft shall be permitted,
for each aircraft in the Lessee's fleet, in addition to such self-insurance.
(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
$2,000,000 or less shall be paid over to or retained by the Lessee and,
subject to Section 9(c), any payments which in the aggregate are greater
than $2,000,000 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 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 Lessee 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
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<PAGE>
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 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 aircraft insurance brokers, not affiliated with the Lessee, appointed by
the Lessee and reasonably satisfactory to the Lessor, stating the opinion of
such firm that all premiums in connection with the insurance then due have been
paid and 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, provided that all information contained in such report shall be held
--------
confidential by the Lessor, and shall not be furnished or disclosed by it to
anyone except its legal counsel, insurance brokers or advisors, bona fide
prospective transferees of the Lessor and their respective agents (provided that
--------
they shall agree for the benefit of the Lessee to hold all such information
similarly confidential) or as may be required by Applicable Law. 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 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 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).
(h) Right to Pay Premiums.
---------------------
The Additional Insureds shall have the rights but not the obligations
of an additional named insured. None of Lessor 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 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 or the other Additional Insureds may
30
<PAGE>
require, until the scheduled expiry date of such insurance and, in such event,
Lessee shall, upon demand, reimburse Lessor and the other Additional Insureds
for amounts so paid by them.
Section 10. Liens.
-----
The Lessee shall not during the Term directly or indirectly
voluntarily or involuntarily 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 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 either not yet due or being contested in good
faith by appropriate proceedings (and for which adequate reserves have been
provided if required 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 Lessor therein or any risk of criminal liability or any material
risk of civil penalty against Lessor; (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 if required 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 Lessor therein or any risk of criminal liability or
any material risk of civil penalty against Lessor; (e) Liens arising out of
judgments or awards against the Lessee so long as there shall be in effect with
respect to which a stay of execution; (f) Lessor'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. 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/or as Lessor shall reasonably request.
31
<PAGE>
(b) Further Assurances.
------------------
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; provided, however, the
-------- -------
Lessor will not be required to take any action under this Section 11 to the
extent such action would be inconsistent with the terms of this Lease or impose
any additional liability on Lessor hereunder or under any other Operative
Agreement.
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, (ii) an
Officer's Certificate as described in Section 7(e)(i)(D), 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
32
<PAGE>
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.
(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.
(d) Condition of Aircraft.
---------------------
The Aircraft when returned to the Lessor shall be in the
operating condition required by Exhibit F hereto. The obligations of the Lessee
under this Section 12 shall survive the physical return of the of the Aircraft
by the Lessee to the Lessor.
(e) 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 90 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. 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 90 day storage period;
provided that Lessee shall pay only the parking fees for the initia storage
- --------
period of 90 days and Lessor shall bear all maintenance and insurance charges
and other costs incurred relating to such storage.
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")
33
<PAGE>
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
pursuant to this Section 13(a) is subject to the condition precedent that either
(i) the Lessor 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 a
Specified Default shall thereafter occur and be continuing); or (ii) the Lessor
shall have received a residual value agreement which is either (x) a renewal of
the Residual Agreement through the end of the applicable Renewal Term, or (y) a
residual value agreement that is substantially identical to the Residual
Agreement or otherwise fully acceptable to the Lessor from or guaranteed by an
institution, the senior unsecured debt obligations of which are rated "A/A2" or
better by Standard & Poor's Ratings Group or Moody's Investors Service, Inc. and
which (as to clauses (x) and (y)) is in an amount which protects the Lessor's
Net Economic Return through the end of the Renewal Term, and providing residual
value protection as provided in Exhibit B.
34
<PAGE>
(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 Specified Default 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 together with all sales,
transfer or similar Taxes due or payable in connection with any such purchase,
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 Supplemental 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 representation, recourse or warranty except a warranty against Lessor's
Liens.
(ii) 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.
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, specifying a proposed date of termination which
shall be a
35
<PAGE>
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 and at no cost or expense to Lessor,
shall endeavor to sell the Aircraft "as is", without any recourse to or
representation or 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, 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 representation, 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. Upon the sale of the Airframe and the Engines or engines 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 representation, 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 in connection with any
termination or proposed termination of this Lease except that Lessee shall not
36
<PAGE>
be responsible for such expenses of the Lessor 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, 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, 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 fees and expenses of the 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.
In any such case, upon payment of any Basic Rent due on such Termination Date
and any other amounts due under this Lease, the Lessee shall have no obligation
to pay Termination Value. On the Termination Date, if the Lessor shall have
exercised its preemptive election to retain the Aircraft in accordance with the
terms of this Section 14(c), 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 all Basic Rent (if payable in arrears) due on such Termination
Date, all unpaid Supplemental Rent due on or before or after the Termination
Date, 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 and shall continue in full force and effect, the
Lessee may at its option at any time thereafter submit a new termination notice
(and in connection with any such notice, Lessor shall be entitled to exercise
its preemptive election pursuant to this Section 14(c)).
(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 or any other party under Section 14(a), 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
37
<PAGE>
Supplemental 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), 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.
(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) so long as any such request by Lessee is not inconsistent with the terms
of this Lease.
Section 15. Investment of Security Funds.
----------------------------
Any insurance proceeds and other payments in respect of an Event
of Loss (including amounts held by the Lessor pursuant to the second proviso to
Section 8(a)(i), paid to or retained by the Lessor which are required to be paid
to the Lessee or applied for the benefit of the Lessee, 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, the remedying of an
Event of Default), shall, until paid to the Lessee or applied as provided
herein, be held by the Lessor in a segregated account and invested by the Lessor
from time to time at the direction, risk and expense of the Lessee in Permitted
Investments. 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 Lessor, on demand, the amount of
any loss realized as the result of any such investment (together with any fees,
commissions and other expenses, if any, incurred in connection with such
investment). Any other 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, 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, the remedying of an Event of Default), may, until paid to the Lessee
or applied as provided herein, be held by the Lessor in the manner of its
discretion and the Lessor shall have no obligation to hold such monies in a
separate account and may commingle such monies with its general or other funds.
38
<PAGE>
Section 16. Events of Default.
-----------------
The following events shall constitute Events of Default 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
or Termination Value when due and such failure shall continue for a period
of 10 days or (ii) Supplemental Rent (other than Termination Value) within
20 days after receipt by the Lessee of a written demand therefor from the
Lessor;
(b) The Lessee shall fail to procure and maintain any 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 30 days after receipt by the Lessor
of notice of such lapse or cancellation or the date that the lapse or
cancellation is effective as to the Lessor;
(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 (For the avoidance of doubt, the event
specified in this Section 16(c) is an additional event constituting an
Event of Default hereunder and is separate and independent from any event
specified in Section 16(b) above.);
(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 30 days after
delivery of notice of such failure from the Lessor 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 135 days after delivery of such notice; provided that,
-------- ----
such additional 135 days period shall not apply to any such failure under
Section 5(b)(x), 5(e) or 10 of this Lease or Section 4.02(b) or 4.02(e) of
the Supplemental Agreement;
(e) Any representation or warranty made by the Lessee herein or
in any Operative Agreement or in any 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 30 days after notice thereof has been given to the Lessee by the
Lessor, unless such incorrectness is curable and Lessee shall, after
delivery of such notice, be
39
<PAGE>
diligently proceeding to correct such failure and shall in fact correct
such failure 135 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 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 the Federal bankruptcy
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
proceedings 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
of decree of appointment or sequestration shall remain in force
undismissed, unstayed or unvacated for a period of 60 days after the date
of entry thereof;
(h) A petition against the Lessee in a proceeding under the
Federal bankruptcy laws or other insolvency laws as now or hereafter in
effect shall be filed and shall not be withdrawn or dismissed within 60
days thereafter, or, 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 60 days;
(i) So long as Fleet Capital Corporation (or an Affiliate
thereof) remains as the lender under the Engine Loan Agreement, any "Event
of Default" shall occur under the Engine Loan Agreement;
(j) Lessee shall receive notice of default or exercise of
remedies with respect to the payment or performance of any indebtedness or
other obligation to any third party (other than the "Lender" under the
Engine Loan Agreement) and any such default or exercise of
40
<PAGE>
remedies results in an acceleration of such indebtedness or obligation;
provided, however, that the aggregate amount of any such indebtedness or
obligation is in excess of $5,000,000; or
(k) the Lessee shall fail to physically return the Aircraft to
the Lessor at the end of the Basic Term or any Renewal Term; provided
--------
however, without in any way limiting Lessor's claims or remedies against
-------
Lessee for any non-compliance by Lessee with its obligations under Section
12 hereof, Lessee in no instance shall be deemed to have so failed to
return the Aircraft to the extent such physical return has occurred,
notwithstanding that the Lessee and Lessor do not agree as to whether the
conditions of Section 12 has otherwise been complied with by Lessee.
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) and
(k) 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 hereof, and provided further that no
-------- -------
such declaration shall be a condition to any suit against Lessee or any
Permitted Sublessee for specific performance of a defaulted covenant); and at
any time thereafter, unless the Lessee shall have remedied all outstanding
Events of Default prior to the Lessor (x) having terminated this Lease pursuant
to Section 17(e), (y) taken any action to physically repossess the Aircraft, or
(z) incurred any obligation or commitment to a third party or otherwise
irreversibly changed its position in reliance upon the occurrence and
continuation of such Event of Default, the Lessor may do, and the Lessee shall
comply with, one or more of the following, 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 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) 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
41
<PAGE>
Command of the United States Air Force under any contract with Lessee (or any
sublessee) relating to the Aircraft:
(a) By notice, terminate this Lease, whereupon all rights of Lessee
(and any Permitted Sublessee) to the use of the Aircraft or any part
thereof shall absolutely cease and terminate but Lessee shall remain liable
as hereinafter provided; and thereupon 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 at such place in the continental United
States of America as Lessor shall designate and 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 (and in connection therewith, Lessee shall comply with
Section 12(c)); or the Lessor, at its option, may 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, by self-help, summary proceedings or otherwise and the Lessee
shall comply therewith, all without liability to the Lessor for or by
reason of such entry or taking possession, whether for the restoration of
damage to property caused by such taking or otherwise and Lessee hereby
waives any cause of action relating to the forgoing other than in respect
of any wilful misconduct or gross negligence of the Lessor; 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, in a proceeding to which the Lessee shall be a necessary
party, 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, 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 (and in
connection therewith, Lessor may use Lessee's premises for storage pending
lease or sale or for holding a sale without liability for rent or costs or
any other matter whatsoever for a period not to exceed sixty (60) days
following the date that the Lessor takes actual possession of the Aircraft
after the occurrence of an Event of Default), in any such case free and
clear of any rights of the Lessee or any Permitted Sublessee except as
hereinafter set forth in this Section 17 and without any duty to account to
the Lessee and any Permitted Sublessee with respect to such action or
inaction or for any proceeds with respect thereto except, as to the Lessee
only, to the extent expressly 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;
42
<PAGE>
(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 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 (if payable in arrears) 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) either (as the
Lessor may elect in its sole discretion) (x) the Fair Market Sales Value
for the Aircraft, computed as of the payment date specified pursuant to
this paragraph (c), or (y) the aggregate Fair Market Rental Value of such
Aircraft for the remainder of the Term, after discounting such aggregate
Fair Market Rental Value to present value as of the payment date specified
in this paragraph (c) at an annual rate of 12.5%, together with, in either
such case, 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
specified pursuant to this paragraph (c), to the date of actual payment of
such amount, and any unpaid Supplemental Rent due hereunder on the payment
date specified in such notice; 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
and Fair Market Rental 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, warranty or
representation, 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 five (5) Business Days notice to the Lessee,
the Lessor, in its sole discretion, 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 (if payable in arrears) or up to the date on which such sale
occurs), the amount of any deficiency of the net proceeds of such sale
(after deducting all costs, charges and expenses, including the cost of
discharging all Liens, on the Aircraft and all legal fees and disbursements
incurred by Lessor as a result of the Event of Default and/or the exercise
of its remedies with respect thereto) 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 any unpaid
Supplemental Rent due hereunder on the date of such sale;
43
<PAGE>
(e) Rescind, cancel or terminate this Lease or exercise any other
right or remedy which may be available under Applicable Law or proceed by
appropriate court action to enforce the terms hereof;
(f) Lessor may apply any amounts then held thereby pursuant to
Section 15, or otherwise pursuant to the Operative Agreements, toward the
payment of the Lessee's obligations hereunder; and
In addition, the Lessee shall be liable for any unpaid Supplemental Rent due
hereunder before or after any termination hereof, including all reasonable costs
and expenses including attorney's fees and disbursements incurred by the Lessor
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 Aircraft, the Airframe or any Engine, or portion
thereof pursuant to this Section 17, the Lessor 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 be exclusive to the extent required by
Applicable Law), 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. The failure or delay of Lessor in exercising any rights granted to it
hereunder upon the occurrence of any of the contingencies set forth herein shall
not constitute a waiver of any such right upon the continuation or reoccurrence
of any such contingencies or similar contingencies, and any single or partial
exercise of any particular right by Lessor shall not exhaust the same or
constitute a waiver of any other right provided for or otherwise referred to
herein. All remedies set forth herein shall survive the expiration or other
termination of this Lease for any reason whatsoever.
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 out-of-pocket 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 be deemed to cure any
- --------
Default or Event of Default under this Lease or relieve the Lessee of any
44
<PAGE>
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 or otherwise allow any action precluded by Section
4(b) hereof.
Section 19. Bankruptcy.
----------
It is the intention of the parties that the Lessor 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 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, assign any of its rights hereunder except as otherwise expressly
provided herein.
(b) Assignment by the Lessor.
------------------------
The Lessor may not, without the prior consent of the Lessee,
assign any of its rights under or interest in this Lease except as expressly
provided herein or in the Supplemental Agreement.
(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.
45
<PAGE>
(d) Sublessee's Performance and Rights.
----------------------------------
Subject to the terms of Section 5(b)(x), 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.
(e) Security Interest.
-----------------
Notwithstanding anything to contrary contained herein or
otherwise, should a court of competent jurisdiction determine that this
Agreement is one intended as security then solely in that event and for the
expressly limited purposes thereof, Lessee shall be deemed to have hereby
granted and conveyed, and for such express purposes Lessee hereby grants and
conveys to Lessor, a security interest and lien in the Aircraft (and any records
referenced in Section 12(c)) to secure the prompt and full payment and
performance as and when due of any and all obligations and indebtedness of
Lessee to Lessor, now existing or hereafter created of any kind whatsoever.
Section 21. 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 and any financing statements or
other instruments as are necessary or requested by the Lessor and appropriate,
to maintain any security interest that may be claimed to have been created by
this Lease and the ownership interest of the Lessor in the Aircraft, and will
furnish to the Lessor 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 22. 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, 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 or
any other party to the Supplemental
46
<PAGE>
Agreement to the respective addresses set forth in Section 9.01 to the
Supplemental Agreement or to such other address or telecopy number as any such
party may designate pursuant to Section 9.01 of the Supplemental Agreement.
(b) Counterparts.
------------
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 MARKED COUNTERPART NO. 1.
(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.
Initials: Lessor _______ Lessee ________
(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 as provided in this Lease.
(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
47
<PAGE>
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; PROVIDED, HOWEVER, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT
-------- -------
NOTHING IN THIS LEASE SHALL BE DEEMED OR OPERATE TO PRECLUDE LESSOR FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION IN ORDER TO
REALIZE ON THE AIRCRAFT OR ANY OTHER COLLATERAL OR ANY OTHER SECURITY, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LESSOR, AND LESSEE EXPRESSLY
WAIVES ANY OBJECTIONS THAT IT MAY HAVE TO THE VENUE OF SUCH COURTS.
(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 9.01 OF THE SUPPLEMENTAL AGREEMENT. EACH PARTY HERETO AGREES THAT
SERVICE UPON IT, OR ANY OF ITS AGENTS, IN EACH CASE IN ACCORDANCE WITH THIS
SECTION 22(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.
48
<PAGE>
(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 and the transfer of Lessor's
Estate pursuant to Section 5.01(c) of the Supplemental Agreement.
(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.
* * *
49
<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.
FLEET NATIONAL BANK,
as Lessor
By: /s/ Edward W. O'Brien
---------------------------
Name: Edward W. O'Brien
Title: Banking Officer
MIDWAY AIRLINES CORPORATION,
as Lessee
By: /s/ Jonathan S. Waller
---------------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Councel
50
<PAGE>
APPENDIX A
DEFINITIONS [N587ML]
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 Lessor.
-------------------
"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
---------------
deemed to be received by a Person shall be supplemented by a payment to such
Person so that the sum of such payments, after deduction of all Taxes (taking
into account any related credits or deductions) 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 (2) 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.
"Applicable Law" means all applicable laws, treaties, judgments, decrees,
--------------
injunctions, writs and orders of any court, governmental agency or authority and
rules, regulations, orders, directives, licenses and permits of any governmental
body, instrumentality, agency or authority.
"Applicable Rate" has the meaning specified in Exhibit B to the Lease.
---------------
"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.
"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, Charlotte, North Carolina or Providence, Rhode Island.
<PAGE>
"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" shall have the meaning given such term in Section 2.01(b) of
----------
the Supplemental Agreement.
"CRAF Program" has the meaning specified in Section 5(b)(vii) of the Lease.
-------------
"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 Supplemental Agreement.
"Deficiency Obligor" has the meaning given to such term in the recitals of
------------------
the Supplemental 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 dollars in lawful currency of the United
------- ------ -
States.
"DOT" means the United States Department of Transportation or any successor
---
thereto.
"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,
<PAGE>
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 Loan Agreement" means the Loan Agreement between Fleet Capital
---------------------
Corporation, as lender and Lessee, as borrower in respect of the financing of
two General Electric CF34-3B1 Series 200 engines.
"Engine Manufacturer" means General Electric Company, a New York
-------------------
corporation.
"Engine Manufacturer's Consent" means the Engine Manufacturer's Consent and
-----------------------------
Agreement [N587ML], dated as of December 30, 1999, from the Engine Manufacturer.
"Engine Warranty Assignment" means the Engine Warranty Assignment [N587ML],
--------------------------
dated as of December 30, 1999, between Lessee and Lessor.
"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:
(i) any theft, hijacking or disappearance of such property for a
period of 15 consecutive days (provided that, so long as Lessee shall be
diligently pursuing recovery of such property, such period shall be
extended to 45 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;
<PAGE>
(iv) condemnation, confiscation or seizure of, or requisition of
title to or use of such property by any foreign government or purported
government (or in the case of any such condemnation, confiscation, seizure
or requisition of title, by the Government) or any agency or
instrumentality thereof, for a period in excess of (A) in the case of any
condemnation, confiscation, seizure or requisition of use, 180 consecutive
days or (B) in the case of any condemnation, confiscation or seizure of, or
requisition of title, 15 consecutive days, or, in any of the cases in this
clause (iv), such shorter period ending on the expiration of the Term;
(v) condemnation, confiscation or seizure of, or requisition of use
of such property by the Government for a period extending beyond the Term;
(vi) as a result of any law, rule, regulation, order or other action
by the Aeronautical Authority, the use of the Aircraft 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
(vii) with respect to an Engine only, the requisition or taking of
use thereof by any government, 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 16/th/ day following loss of
such property or its use due to theft or disappearance or the 46/th/ 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 181/st/ day following condemnation,
confiscation, seizure or requisition of title to such property by a foreign
government referred to in clause (iv) above (or the 16/th/ day in the case of
appropriation of title), or the end of the Term if earlier than such 181/st/ or
16/th/ day; (ee) the last day of the Term in the case of requisition of title to
or use of such property by the Government; and (ff) the last day of the
applicable period referred to in clause (vi) above (or if earlier, the end of
the Term without the Lessee's having conformed at least one Canadair Regional
Jet Series 200ER aircraft to the
<PAGE>
applicable requirements). 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.
"Expenses" has the meaning given to such term in Section 7.01(a) of the
--------
Supplemental 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 Lessor 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 Lessor.
"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 and 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 and there shall be no deduction for
any costs of removal of the Aircraft from its then location. Except as
otherwise expressly provided in the Lease, all appraisal costs will be paid by
the Lessee. 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
<PAGE>
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.
"Federal Aviation Administration" or "FAA" means the United States Federal
-------------------------------- ---
Aviation Administration and any successor agency or agencies thereto.
"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.
"Indemnitee" means Lessor and each Affiliate, officer, director, employee,
----------
agent, servant, successor and permitted assigns of Lessor.
"Lease" means the Lease Agreement [N587ML], dated as of December 30, 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 Fleet National Bank, a national banking association
------
established under the laws of the United States of America, and its successors
and permitted assigns.
"Lessor's Cost" has the meaning given to such term in Exhibit B of the
-------------
Lease.
<PAGE>
"Lessor's Estate" means all estate, right, title and interest of the Lessor
---------------
in and to the Aircraft, and Engines and the Operative Agreements including,
without limitation, all amounts of Rent, insurance proceeds and requisition,
indemnity or other payments of any kind.
"Lessor's Liens" means Liens against, on or with respect to the Aircraft,
--------------
any Engine, the Lessor's Estate or any part thereof, title thereto or any
interest therein arising as a result of (i) claims against or affecting the
Lessor not related to the Operative Agreements or the transactions contemplated
thereby, (ii) acts or omissions of the Lessor not contemplated or permitted
under the terms of the Operative Agreements, (iii) Taxes or Expenses imposed
against the Lessor or Lessor's Estate which are not required to be indemnified
against by the Lessee pursuant to Articles 6 or 7 of the Supplemental Agreement
(other than pursuant to 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 Lessor arising from the transfer by the
Lessor 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.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
security interest, claim, or other similar interest of any nature whatsoever.
"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.
"Minimum Liability Amount" has the meaning given to such term in Exhibit B
------------------------
to the Lease.
"Net Economic Return" means the Lessor's nominal after-tax book yield
-------------------
(utilizing the multiple investment sinking fund method of analysis), computed
through the Expiration Date on the basis of the same methodology, constraints
and assumptions as were utilized by the Lessor in determining Basic Rent
percentages and Termination Value percentages as of the Delivery Date; provided,
--------
that, if the Lessor shall have transferred its interest, Net Economic Return
shall be calculated as if the Lessor had retained its interest.
"Non-U.S. Person" means any Person other than a U.S. Person.
---------------
"Officer's Certificate" means as to any company a certificate signed by a
---------------------
Responsible Officer of such company.
<PAGE>
"Operative Agreements" means the Supplemental 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 and the Tax
Indemnity Agreement.
"PAA Consent" means the Aircraft Manufacturer's Consent and Agreement
-----------
[N587ML], dated as of December 30, 1999, from the Manufacturer.
"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, exclusive of any items leased by the Lessee from third parties and not
required in the navigation of the Aircraft.
"Past Due Rate" means a rate per annum identified in Exhibit B to the
-------------
Lease.
"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.
"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), (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 rating of "A" or better from the Keefe Bank Watch Service. Unless
otherwise specified in writing by the Lessor, all such Permitted Investments
shall mature not later than 30 days from the date of purchase.
"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.
<PAGE>
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, limited liability company 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), but only to the extent the same relates to the Aircraft.
"Purchase Agreement Assignment" means the Purchase Agreement Assignment
-----------------------------
[N587ML], dated as of December 30, 1999, between Lessee and Lessor.
"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.
"Related Tax Indemnitee" means any Affiliate of any Tax Indemnitee.
----------------------
"Renewal Term" has the meaning given to such term in Section 13(a) of the
------------
Lease.
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"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
<PAGE>
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.
"Residual Agreement" has the meaning given to such term in the recitals of
------------------
the Supplemental Agreement.
"Responsible Officer" means, with respect to any party, any Vice President
-------------------
or other 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 [N587ML],
--------------------------
dated as of December 30, 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.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller" has the meaning given to such term in Exhibit B to the Lease.
------
"Specified Default" means (a) an event or condition described in Section
-----------------
16(a), (f), (g) or (h) 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.
"Sublease" means any sublease agreement between the Lessee and a Permitted
--------
Sublessee as permitted by Section 5(b) of the Lease.
"Supplemental Agreement" means the Supplemental Agreement [N587ML], dated
----------------------
as of December 30, 1999, between the Lessee and the Lessor.
"Supplemental Rent" means all amounts, liabilities, indemnities and
-----------------
obligations which the Lessee assumes or agrees to perform or pay under the Lease
or under the Supplemental Agreement
<PAGE>
or Tax Indemnity Agreement or any other Operative Agreement to the Lessor or
others, including payments of Termination Value, EBO Amount, and amounts
calculated by reference to Termination Value, 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
Supplemental Agreement or the Tax Indemnity Agreement or any other Operative
Agreement, but excluding Basic Rent.
"Tax" or "Taxes" has the meaning set forth in Section 6.01(a) of the
--- -----
Supplemental Agreement.
"Tax Indemnitee" means each of Lessor and any Affiliate thereof.
--------------
"Tax Indemnity Agreement" means the Tax Indemnity Agreement [N587ML], dated
-----------------------
as of December 30, 1999 between the Lessee and the Lessor.
"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 by multiplying Lessor's Cost by the percentage 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 Supplemental 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.
"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.
-----------
<PAGE>
"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 Lessor 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 Lessor.
<PAGE>
Exhibit A
to Lease Agreement
------------------
LEASE SUPPLEMENT NO. 1 [N587ML]
-------------------------------
THIS LEASE SUPPLEMENT NO. 1 [N587ML] dated ____________, 1999, between
FLEET NATIONAL BANK, a national banking association established under the laws
of the United States of America, 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 [N587ML], dated as of December 30, 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. Lessee hereby acknowledges, agrees and certifies that the
Aircraft is in Lessee's possession, has been inspected by Lessee to its complete
satisfaction, has been found to be in good working order, repair and condition
(ordinary wear and tear excepted) and fully equipped to operate as required
under Applicable Law for its purpose, is of a size, design, capacity and
manufacture selected by Lessee, and is, as of the date set forth below,
unconditionally, irrevocably and fully accepted by Lessee for lease under the
Lease. Lessee hereby further reaffirms its acknowledgments and agreements in the
Lease.
<PAGE>
3. Lessee hereby represents and warrants to Lessor that on the date
hereof:
(i) The representations and warranties of Lessee set forth in the
Supplemental Agreement and all certificates delivered in connection therewith
are true and correct in all material respects (with the same force and effect as
if the same had been made on this date), or, to the extent that any such
representation and warranty relates to an earlier date, is true and correct in
all material respects as of such earlier date.
(ii) No Default or Event of Default under the Lease has occurred and
is continuing.
(iii) Lessee has obtained, and there are in full force and effect,
such insurance policies with respect to the Aircraft as are required to be
obtained under the terms of the Lease.
4. The Delivery Date is the date of this Lease Supplement set forth
in the opening paragraph hereof.
5. The Basic Term shall commence on the Delivery Date and continue
through June ___, 2016 (the "Expiration Date"), unless terminated earlier as
provided in the Lease.
6. 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.
7. 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.
8. 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 marked
Counterpart No. 1.
9. 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.
<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.
FLEET NATIONAL BANK,
as Lessor
By: ____________________________________
Name:
Title:
MIDWAY AIRLINES CORPORATION,
as Lessee
By: ____________________________________
Name:
Title:
<PAGE>
SCHEDULE I
TO EXHIBIT A
DESCRIPTION OF AIRFRAME AND ENGINES
-----------------------------------
AIRFRAME
Manufacturer's FAA Registration Manufacturer's
Manufacturer Model No. Serial No.
- ------------ -------------- ---------------- --------------
Bombardier Inc. CL-600-2B19 N587ML 7346
ENGINES
Manufacturer's Manufacturer's
Manufacturer Model Serial Nos.
- ------------ -------------- --------------
General Electric Company CF34-3B1 GE-E-872593
GE-E-872592
Each Engine is of 750 or more "rated take-off horsepower" or the
equivalent of such horsepower.
<PAGE>
Exhibit B
Certain Economic Information
----------------------------
"EBO Amount" shall mean $*.
----------
"EBO Date" shall mean June 30, 2014.
--------
"Lessor's Cost" shall mean $*.
-------------
"Minimum Liability Amount" shall mean $300,000,000.
------------------------
"Transaction Costs" shall mean *% of Lessor's Cost.
-----------------
"Seller" shall mean Bombardier Capital Inc.
------
"Past Due 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 three percent (3%) per
annum.
"Renewal Rental Rate" shall mean $* per annum.
-------------------
"Applicable Rate" shall mean *% per annum.
---------------
"Residual Value Protection": the residual value support referred to in Section
-------------------------
13(a) shall protect, as of the end of any Renewal Term, against shortfalls in
value of the Aircraft below the residual value as of the end of the Basic Term,
less the amount of such residual value amortized by Basic Rent received during
such Renewal Term, provided that the amount of such residual value support shall
not exceed 15/40 of the amount of such amortized residual value as of the end of
such Renewal Term.
* 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
----------------------------------------------------------------
Argentina Italy
Australia Japan
Austria Luxembourg
Belgium Mexico
Canada Netherlands
Denmark New Zealand
Finland Norway
France Portugal
Germany Spain
Iceland Sweden
Ireland Switzerland
United Kingdom
<PAGE>
Exhibit F
RETURN CONDITIONS
-----------------
* Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
<PAGE>
CONFORMED COPY
--------------
LEASE SUPPLEMENT NO. 1 [N587ML]
-------------------------------
THIS LEASE SUPPLEMENT NO. 1 [N587ML] dated December 30, 1999 between
FLEET NATIONAL BANK, a national banking association established under the laws
of the United States of America, 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 [N587ML], dated as of December 30, 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. Lessee hereby acknowledges, agrees and certifies that the
Aircraft is in Lessee's possession, has been inspected by Lessee to its complete
satisfaction, has been found to be in good working order, repair and condition
(ordinary wear and tear excepted) and fully equipped to operate as required
under Applicable Law for its purpose, is of a size, design, capacity and
manufacture selected by Lessee, and is, as of the date set forth below,
unconditionally, irrevocably and fully accepted by Lessee for lease under the
Lease. Lessee hereby further reaffirms its acknowledgments and agreements in the
Lease.
3. Lessee hereby represents and warrants to Lessor that on the date
hereof:
(i) The representations and warranties of Lessee set forth in the
Supplemental Agreement and all certificates delivered in connection therewith
are true and correct in all material
<PAGE>
respects (with the same force and effect as if the same had been made on this
date), or, to the extent that any such representation and warranty relates to an
earlier date, is true and correct in all material respects as of such earlier
date.
(ii) No Default or Event of Default under the Lease has occurred and
is continuing.
(iii) Lessee has obtained, and there are in full force and effect,
such insurance policies with respect to the Aircraft as are required to be
obtained under the terms of the Lease.
4. The Delivery Date is the date of this Lease Supplement set forth
in the opening paragraph hereof.
5. The Basic Term shall commence on the Delivery Date and continue
through June 30, 2016 (the "Expiration Date"), unless terminated earlier as
provided in the Lease.
6. 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.
7. 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.
8. 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 marked
Counterpart No. 1.
9. 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.
* * *
<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.
FLEET NATIONAL BANK,
as Lessor
By: /s/ Edward W. O'Brien
---------------------
Name: Edward W. O'Brien
Title: Banking Officer
MIDWAY AIRLINES CORPORATION,
as Lessee
By: /s/ Jonathan S. Waller
----------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
<PAGE>
SCHEDULE I
DESCRIPTION OF AIRFRAME AND ENGINES
-----------------------------------
AIRFRAME
Manufacturer's FAA Registration Manufacturer's
Manufacturer Model No. Serial No.
- ------------ -------------- ---------------- --------------
Bombardier Inc. CL-600-2B19 N587ML 7346
ENGINES
Manufacturer's Manufacturer's
Manufacturer Model Serial Nos.
- ------------ -------------- --------------
General Electric Company CF34-3B1 GE-E-872593
GE-E-872592
Each Engine is of 750 or more "rated take-off horsepower" or the
equivalent of such horsepower.
<PAGE>
CONFORMED COPY
--------------
=========================================================================
SUPPLEMENTAL AGREEMENT [N587ML]
Dated as of December 30, 1999
among
MIDWAY AIRLINES CORPORATION,
as Lessee
and
FLEET NATIONAL BANK,
as Lessor
=========================================================================
COVERING ONE CANADAIR REGIONAL JET SERIES 200ER
AIRCRAFT BEARING U.S. REGISTRATION NO. N587ML
AND MANUFACTURER'S SERIAL NUMBER 7346
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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..................... 2
Section 2.01. Participation................................... 2
(a) Sale and Purchase......................... 2
(b) Payment of Lessor's Cost.................. 2
(c) Leasing................................... 2
(d) Delivery Date............................. 2
Section 2.02. Closing Procedure............................... 3
(a) Time and Place............................ 3
(b) Actions of the Lessor..................... 3
(c) Actions of the Lessee..................... 4
ARTICLE 3. CONDITIONS PRECEDENT............................................ 4
Section 3.01. Conditions Precedent to Obligations of Lessor... 4
(a) Notice.................................... 4
(b) Delivery of Documents..................... 4
(c) Airworthiness............................. 6
(d) Violation of Law.......................... 6
(e) No Event of Default....................... 6
(f) No Event of Loss.......................... 6
(g) Title..................................... 7
(h) Certification............................. 7
(i) Section 1110.............................. 7
(j) Filings................................... 7
(k) Precautionary Financing Statements........ 7
(l) No Proceedings............................ 7
(m) Governmental Action....................... 7
(n) Representations and Warranties............ 7
(o) Other Documents........................... 8
Section 3.02. Conditions Precedent to Obligations of Lessee... 8
(a) Documents................................. 8
(b) Incumbency Certificate.................... 8
(c) Other Conditions Precedent................ 8
Section 3.03. Post-Registration Opinion....................... 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 4. LESSEE'S REPRESENTATIONS, WARRANTIES AND
COVENANTS...................................................... 8
Section 4.01. Lessee's Representations and Warranties........ 8
Section 4.02. Certain Covenants of Lessee.................... 11
(a) Filings and Recordings................... 11
(b) Registration............................. 11
(c) Information.............................. 14
(d) Privileges and Franchises................ 14
(e) Merger and Consolidation................. 14
(f) Change of Location....................... 15
(g) Financial Statements..................... 15
(h) Filing of Documents...................... 16
Section 4.03. Survival of Representations and Warranties..... 16
ARTICLE 5. LESSOR'S REPRESENTATIONS, WARRANTIES AND
COVENANTS...................................................... 16
Section 5.01. Representations, Warranties and Covenants of
Lessor......................................... 16
(a) Representations and Warranties........... 16
(b) Lessor's Liens........................... 18
(c) Assignment of Lessor's Estate............ 18
(d) Citizenship.............................. 20
Section 5.02. Survival of Representations, Warranties and
Covenants...................................... 20
ARTICLE 6. TAXES.......................................................... 21
Section 6.01. Lessee's Obligation to Pay Taxes............... 21
(a) Generally................................ 21
(b) Exceptions............................... 21
Section 6.02. After Tax Basis................................ 24
Section 6.03. Time of Payment................................ 25
Section 6.04. Contests....................................... 25
(a) Notice of Claim.......................... 25
(b) Request for Contest...................... 25
(c) Declining to Contest; Settlement......... 26
(d) Claims Barred............................ 27
Section 6.05. Refunds........................................ 27
Section 6.06. Reports........................................ 28
Section 6.07. Survival of Obligations........................ 28
Section 6.08. Payment of Taxes............................... 28
Section 6.09. Reimbursements by Indemnitees Generally........ 28
Section 6.10. Forms.......................................... 29
Section 6.11. Verification................................... 29
Section 6.12. Non-Parties.................................... 29
ARTICLE 7. GENERAL INDEMNITY.............................................. 29
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 7.01. Generally...................................... 29
(a) Indemnity................................ 29
(b) Exceptions............................... 30
(c) Non-Parties.............................. 32
Section 7.02. Notice and Payment............................. 32
Section 7.03. Defense of Claims.............................. 32
Section 7.04. Insured Claims................................. 33
Section 7.05. Subrogation.................................... 33
Section 7.06. Information.................................... 33
Section 7.07. Survival of Obligations........................ 34
Section 7.08. Effect of Other Indemnities.................... 34
Section 7.09. Waiver of Certain Claims....................... 34
Section 7.10. Certain Limitations............................ 34
ARTICLE 8. TRANSACTION COSTS.............................................. 34
Section 8.01. Transaction Costs and Other Costs.............. 34
(a) Transaction Costs........................ 34
(b) Amendments and Supplements............... 35
ARTICLE 9. NOTICES........................................................ 35
Section 9.01. Notices........................................ 35
ARTICLE 10. MISCELLANEOUS.................................................. 36
Section 10.01. Counterparts................................... 36
Section 10.02. No Oral Modifications.......................... 36
Section 10.03. Captions....................................... 36
Section 10.04. Successors and Assigns......................... 36
Section 10.05. Severability................................... 36
Section 10.06. Limitations of Liability....................... 36
Section 10.07. GOVERNING LAW.................................. 36
Section 10.08. Section 1110 Compliance........................ 36
Section 10.09. Reinstatement.................................. 38
Section 10.10. Deficiency Agreement and Residual Agreement.... 38
</TABLE>
Appendix A Definitions
iii
<PAGE>
SUPPLEMENTAL AGREEMENT [N587ML] dated as of December 30, 1999 (this
"Agreement") between MIDWAY AIRLINES CORPORATION, a Delaware corporation
(herein, together with its successors and permitted assigns, the "Lessee") and
FLEET NATIONAL BANK, a national banking association established under the laws
of United States of America (together with its successors and permitted assigns,
the "Lessor").
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, subject to the terms and conditions of this Agreement, the
Lessor 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, the
Lessee has agreed to assign to the Lessor, 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 Lessor to purchase the Aircraft from the
Seller, the Manufacturer has agreed to enter into the Residual Agreement
[N587ML], dated as of December 30, 1999 (the "Residual Agreement") with the
Lessor and to undertake the obligations provided therein; and
WHEREAS, to induce the Lessor to purchase the Aircraft and to enter
into the Lease, Bombardier Inc. (the "Deficiency Obligor") has agreed to enter
into the Deficiency Agreement [N587ML], dated as of December 30, 1999 (the
"Deficiency Agreement") with the Lessor 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:
<PAGE>
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.
ARTICLE 2.
SALE AND LEASING TRANSACTIONS
Section 2.01. Participation. Subject to all of the terms and
-------------
conditions of this Agreement, the parties agree to participate in the sale and
leasing transactions with respect to the Aircraft provided for in this Article
2.
(a) Sale and Purchase. The Lessor agrees to purchase the Aircraft from
-----------------
the Seller on the Delivery Date for a purchase price equal to Lessor's Cost.
(b) Payment of Lessor's Cost. The Lessor agrees to provide immediately
------------------------
available funds in the amount equal to the Lessor's Cost (the "Commitment") by
paying such amount at the time of the closing on the Delivery Date to the
account of the Lessee (or the Seller at Lessee's direction) specified by the
Lessee prior to the closing to be applied toward the payment of Lessor's Cost.
(c) Leasing. The Lessor agrees to lease to the Lessee, and the Lessee
-------
agrees to lease from the Lessor, the Aircraft pursuant to the Lease, such
leasing to take place concurrently with the purchase of the Aircraft by the
Lessor on the Delivery Date.
(d) Delivery Date. The "Delivery Date" shall be the date fixed by the
-------------
Lessee and acceptable to Lessor in accordance with this Section 2.01(d) for the
closing of the sale and leasing transactions with respect to the Aircraft
contemplated hereby, provided, however, that in no event
-------- -------
2
<PAGE>
shall such date be later than December 30, 1999, 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 Business Days' notice to
each other party hereto of the Delivery Date, which notice shall also specify
the amount of the Commitment (which amount shall be subject to the approval of
Lessor in its sole discretion). 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 so long as any such date is not later
than December 30, 1999.
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 and the Lessor, 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 Lessor. Upon satisfaction or waiver by the Lessor
---------------------
of the conditions precedent set forth in Section 3.01, the Lessor on the
Delivery Date shall purchase the Aircraft from the Seller and lease the Aircraft
to the Lessee. To accomplish such transactions, the Lessor 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 Lessee (or directly to the Seller at Lessee's direction) 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
Lessor, solely to accept delivery of the Aircraft pursuant to this
Agreement;
(iii) accept the Bills of Sale for the Aircraft;
(iv) execute and deliver the Lease and the Lease Supplement;
(v) deliver the Aircraft to the Lessee pursuant to the Lease;
3
<PAGE>
(vi) execute and deliver all other documents or certificates and
take such other actions as may be required of the Lessor on or before the
Delivery Date pursuant to any Operative Agreement; and
(vi) take such actions as may be reasonably requested by the
Lessee to effect the due registration of the Aircraft with the FAA in the
name of the Lessor.
(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 cause the Aircraft to be sold to the Lessor, lease the Aircraft
from the Lessor pursuant to the Lease, assign to the Lessor pursuant to the
Purchase Agreement Assignment certain of the Lessee's rights and interests in
and to the Purchase Agreement and assign to the Lessor 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 Lessor 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)), solely to accept delivery of the Aircraft
from the Lessor 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 or any reasonable request
of Lessor.
ARTICLE 3.
CONDITIONS PRECEDENT
Section 3.01. Conditions Precedent to Obligations of Lessor. The
---------------------------------------------
obligation of the Lessor to make the Commitment available on the Delivery Date
is subject to satisfaction or waiver by the Lessor, 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 the
- --------
Lessor that any document be produced or action taken that is to be produced or
taken by the Lessor:
(a) Notice. The Lessor shall have received the notice of the Delivery
------
Date as provided in Section 2.01(d), or shall have waived such notice.
(b) Delivery of Documents. The Lessor 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
4
<PAGE>
party or parties thereto, (b) shall be reasonably satisfactory in form and
substance to the Lessor and (c) shall be in full force and effect:
(i) the Lease;
(ii) Lease Supplement No. 1;
(iii) the Tax Indemnity Agreement;
(iv) the Deficiency Agreement;
(v) the Residual Agreement;
(vi) the Purchase Agreement Assignment;
(vii) the Engine Warranty Assignment;
(viii) the PAA Consent;
(ix) the Engine Manufacturer's Consent;
(x) the Bills of Sale;
(xi) the broker's report and insurance certificates required by
Section 9 of the Lease;
(xii) copies of the Purchase Agreement and the Warranties (as
defined in the Engine Warranty Assignment);
(xiii) (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; and (B) an incumbency certificate of
Lessee as to the person or persons authorized to execute and deliver the
relevant Operative Agreements on behalf of Lessee; together with such other
documents and evidence with respect to it as Lessor 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;
(xiv) an Officer's Certificate of Lessee, dated as of the
Delivery Date, stating that its representations and warranties set forth in
this Agreement are true and correct
5
<PAGE>
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);
(xv) the following opinions of counsel, in each case dated the
Delivery Date:
(A) Jonathan Waller, Senior Vice President and General Counsel
of the Lessee, substantially in the form reasonably acceptable to the
Lessor.
(B) Fulbright & Jaworski, L.L.P. special counsel for the
Lessee, substantially in the form reasonably acceptable to the Lessee and
the Lessor;
(C) Crowe & Dunlevy P.C., special aviation counsel,
substantially in the form reasonably acceptable to the Lessee and the
Lessor;
(D) Morgan, Lewis & Bockius LLP, special counsel for the
Manufacturer, the Deficiency Obligor and the Seller, substantially in the
form reasonably acceptable to the Lessor and the Lessee;
(E) counsel for the Engine Manufacturer, substantially in the
form reasonably acceptable to the Lessor and the Lessee;
(F) counsel for the Deficiency Obligor, substantially in the
form reasonably acceptable to the Lessor and the Lessee; and
(G) counsel for the Seller, substantially in the form
reasonably acceptable to the Lessor and the Lessee.
(c) Airworthiness. Lessor shall receive a copy of a current, valid
-------------
Standard Certificate of Airworthiness for the Aircraft duly issued by the FAA.
(d) 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 or Lessor to execute, deliver and perform the Operative Agreements to
which either of them is a party or (b) Lessor to make the Commitment available.
(e) 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 or Event of Default.
(f) 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
6
<PAGE>
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.
(g) Title. Lessor shall have good and marketable 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 of the type referred to in
clause (b) and (d) of the definition thereof.
(h) Certification. The Aircraft shall have been duly certificated by
-------------
the FAA as to type and airworthiness as required by the terms of the Lease.
(i) Section 1110. Lessor, as lessor under the Lease, 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.
(j) Filings. On the Delivery Date (i) application for registration of
-------
the Aircraft in the name of the Lessor shall have been duly made with the FAA in
compliance with the provisions of the Transportation Code; and (ii) 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.
(k) 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 Lessor which may be
created thereby, shall have been executed and delivered by the Lessee and the
Lessor (naming the Lessor as Lessor and secured party), and shall have been duly
filed in all places necessary or desirable within the State of North Carolina or
any other applicable jurisdiction.
(l) 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.
(m) 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.
(n) 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
7
<PAGE>
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.
(o) Other Documents. The Lessor receives such other documents,
---------------
certificates and opinions, and evidence of such other matters, in connection
with the transactions contemplated hereby as Lessor may reasonably request.
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) Incumbency Certificate. An incumbency certificate of Lessor as to
----------------------
the person or persons authorized to execute and deliver the relevant Operative
Agreements on behalf of Lessor.
(c) Other Conditions Precedent. Each of the conditions set forth in
--------------------------
Sections 3.01(c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m) and (n) shall
have been satisfied or waived by Lessee and Lessor, unless the failure of any
such condition to be satisfied is the result of any action or inaction by
Lessee.
Section 3.03. Post-Registration Opinion. Promptly upon the
-------------------------
registration of the Aircraft and the recordation of the documents referenced in
Section 3.01(j)(ii), Lessee will direct Crowe & Dunlevy P.C., special counsel in
Oklahoma City, Oklahoma, to deliver to Lessee and Lessor a favorable opinion or
opinions addressed to each of them with respect to such registration and
recordation.
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 State of Delaware, has its principal
place of business and chief executive
8
<PAGE>
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 9.01(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 perform its 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)(xv)(F) and the filings referred to in
Section 3.01(j)(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
9
<PAGE>
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 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 Annual Report on Form 10-K, 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 as otherwise disclosed in writing to the
Lessor, 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) may reasonably be
expected to have a materially adverse effect on the Lessee's consolidated
financial condition, business, or operations, or (B) would 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) except for (A) the registration in the Lessor'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
Lease (including Lease Supplement No. 1) and (C) the filing of the financing
statement or statements referred to in Section 3.01(k), no further action,
including any filing or recording of any document, is necessary or advisable in
order to establish the Lessor's title to and interest in the Aircraft and the
Lessor's Estate as against the Lessee and any third parties;
(j) the Lessor has received good and marketable title to the Aircraft,
free and clear of all Liens, except Permitted Liens of the type referred to in
clause (b) and (d) of the definition thereof;
(k) no Default or Event of Default exists and no Event of Loss, or
event which with the passage of time would constitute an Event of Loss, exists;
(l) 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; and all records in respect of the Aircraft required by the
Aeronautical Authority have been maintained in accordance in all material
respects with the requirements of the Aeronautical Authority;
10
<PAGE>
(m) 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;
(n) 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 Lessee Advisor (as defined in Section
8.01(a)) referred to in Article 8 hereof;
(o) the Lessee is not in default (after any applicable grace periods)
in the performance of any material term or condition of the Purchase Agreement;
and
(p) to the best of Lessee's knowledge, 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.
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 Lessor shall reasonably require
for accomplishing the purposes of the Operative Agreements. Without limiting
the generality of this Section 4.02(a), the Lessee 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 Lease (including each
supplement thereto), and any financing statements or other instruments as may be
reasonably requested by the Lessor and appropriate, to maintain the Lessor'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 Lessor 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 it 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 Lessor (provided, that the Lessor shall be and
--------
remain a Citizen of the United States), under the Transportation Code, and shall
furnish to the Lessor such information as may be required to enable the Lessor
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:
- --------
(i) at the time of re-registration, no Specified Default exists
or would occur as a result of such re-registration;
11
<PAGE>
(ii) the Lessee shall pay all fees and expenses (including the
reasonable fees and expenses of local counsel in such country) relating to
such re-registration;
(iii) the Lessee shall, at its cost, cause the interest of the
Lessor as owner of the Aircraft 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 if
reasonably requested by Lessor, advisable in order to create, preserve and
protect such interest in the Aircraft as against the Lessee or any third
parties in such jurisdiction, and the laws of such country would give
effect to the Lessor's title to and ownership interest in the Aircraft;
(iv) the obligations of the Lessee (and of the Permitted
Sublessee under a Sublease) and the rights and remedies of the Lessor under
the Operative Agreements shall remain or be, as the case may be, legal,
valid, binding and enforceable in 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 Lessor 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;
(vii) it shall not be necessary by reason of such re-
registration or for purposes of enforcing remedies contained in the Lease
or Sublease for the Lessor to register or qualify to do business in such
country (other than in respect of administrative matters to be performed in
the ordinary course of business which shall not unduly delay or frustrate
Lessor's right to exercise its remedies under any of the Operative
Agreements);
(viii) no Liens (except Permitted Liens) shall arise by reason
of such re-registration;
(ix) the Lessor shall not 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 the Lessor in a manner
satisfactory in form and substance to the Lessor;
(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
12
<PAGE>
normal course without material delay, it being agreed that the Lessee shall
be responsible for the cost thereof;
(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 the Lessor, such opinion shall be waived if insurance
reasonably satisfactory to the Lessor is provided to cover such risk);
(xii) unless Lessee shall have agreed to provide insurance
reasonably satisfactory to the Lessor 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) (which
insurance shall be provided by the Lessee if the same is requested by the
Lessor and it is at the time customary in the industry to obtain such
insurance when registering an aircraft in such jurisdiction), 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 Lessor) 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;
(xiv) such re-registration may not be affected until after 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 re-registration;
(xv) the Lessor shall have received opinions in scope, form
and substance reasonably satisfactory to it, of counsel, expert in the laws
of such country, to the effect set forth in clauses (iii), (iv) (with
respect to the obligations of the Lessee under the Lease), (vii), (ix),
(x), (xi), (xii) and (xiii) of this Section 4.02(b)
(xvi) 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;
(xvii) Lessee shall deliver such request to Lessor in writing at
least 45 days in advance of the date of any such proposed change in
registration; and
(xviii) the Deficiency Agreement and the Residual Agreement shall
remain in full force and effect.
13
<PAGE>
Lessee agrees to pay on an After Tax Basis all out-of-pocket costs and expenses
(including, without limitation, reasonable counsel fees and disbursements) of
the Lessor in connection with any re-registration pursuant to this Section.
(c) Information. The Lessee shall promptly furnish to the Lessor such
-----------
information as may be required to enable the Lessor timely to file any reports
required to be filed by the Lessor as the Lessor under the Lease with any
governmental authority as a result of the Lessor's ownership interest in the
Aircraft.
(d) Privileges and Franchises. The Lessee shall at all times maintain
-------------------------
its corporate existence, except as permitted by Section 4.02(e) hereof and all
of its rights, privileges and franchises necessary in the normal conduct of its
business, except for any right, privilege or franchise that it determines is no
longer necessary or desirable in the conduct of its business; provided that,
-------- ----
nothing in this Section 4.02(d) shall in any way otherwise diminish the
obligations of the Lessee under the Lease.
(e) Merger and Consolidation. The Lessee shall not, during the Term,
------------------------
enter into any merger with or into or consolidation with (which shall include a
reorganization which involves the Lessee and another Person), 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 the
surviving 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 Person 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) is
a Section 1110 Person, so long as such status is a condition to the availability
of Section 1110, (iv) immediately after giving effect to such transaction,
unless otherwise consented to by Lessor which consent shall not be unreasonably
withheld, shall have a tangible net worth (determined in accordance with
generally accepted accounting principles) 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 generally accepted accounting principles)
immediately prior to such transaction; (v) if not the Lessee, executes a duly
authorized, legal, valid, binding, and enforceable agreement, reasonably
satisfactory in form and substance to Lessor, containing an effective assumption
of all of the Lessee's, as applicable, obligations hereunder and under the other
Operative Agreements, and each other document contemplated hereby or thereby and
delivers such instrument to the Lessor, (vi) provides an opinion from counsel
(which counsel may be the Lessee's General Counsel) delivered to the Lessor,
which opinion shall be reasonably satisfactory to the Lessor, 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 (v) above comply with this
Section 4.02(e), that such instrument 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 (vii) 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; provided that,
-------- ----
14
<PAGE>
no such merger, consolidation or conveyance, transfer or lease shall be
permitted if an Event of Default shall arise as a result of such transaction.
Upon any permitted consolidation or merger, or any permitted
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 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 prior
------------------
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 Lessor 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.
(g) Financial Statements. The Lessee agrees to furnish to the Lessor
--------------------
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, 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;
(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 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
15
<PAGE>
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; and
(iii) from time to time, such other non-confidential financial
information as the Lessor may reasonably request.
(h) Filing of Documents. Lessee, at its sole cost and expense, will
-------------------
cause the documents filed with the FAA pursuant to Section 3.01(j), the
financing statements required pursuant to Section 3.01(k) 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 Lessor, 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).
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.
LESSOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 5.01 Representations, Warranties and Covenants of Lessor.
---------------------------------------------------
(a) Representations and Warranties. The Lessor 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 Lessor
represents and warrants as of such earlier date):
(i) it is a national banking association duly established
under the laws United States of America 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 carry out the
transactions contemplated by this Agreement and the other Operative
Agreements to which it is a party;
(ii) the execution, delivery and performance by it of this
Agreement and the other Operative Agreements to which it is a party have
been duly authorized by all necessary corporate action on its part;
16
<PAGE>
(iii) neither the execution, delivery or performance by the
Lessor 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, under any law, governmental rule or
regulation applicable to the Lessor or the charter documents, as amended,
or bylaws, as amended, of the Lessor or any order, writ, injunction or
decree of any court or governmental authority against the Lessor 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 Lessor is a party or
by which it or any of its properties is bound, or constitutes or will
constitute a default thereunder, except for any such conflict, breach or
default which would not have a material adverse effect on the Lessor 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 Lessor and constitute the legal, valid
and binding obligations of the Lessor 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) the Lessor holds whatever title to the Aircraft as was
conveyed to it by the Seller;
(vi) the funds to be used by the Lessor to acquire the Aircraft
pursuant to the terms hereof do not constitute assets (within the meaning
of ERISA and any applicable rules and regulations) of an ERISA Plan; and
(vii) the Lessor is a bank, trust company, insurance company,
financial institution or corporation with a combined capital and surplus or
net worth of at least $50,000,000.
NOTWITHSTANDING THE FOREGOING OR ANYTHING ELSE CONTAINED IN THIS
AGREEMENT, THE LESSOR SHALL NOT BE DEEMED TO HAVE MADE, AND LESSOR HEREBY
EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY (EXCEPT AS EXPRESSLY SET
FORTH IN THIS AGREEMENT OR THE LEASE), EITHER EXPRESS OR IMPLIED, AS TO THE
AIRCRAFT, ANY PART THEREOF, ANY RECORDS, ANY LAWS, RULES OR REGULATIONS RELATING
THERETO, INCLUDING, WITHOUT LIMITATION, IN RESPECT OF THE DESIGN, CONDITION,
CAPACITY OR DURABILITY OF THE AIRCRAFT, ITS MERCHANTABILITY OR ITS FITNESS FOR
ANY PARTICULAR PURPOSE, USE OR OPERATION, THE QUALITY OF THE MATERIALS OR
WORKMANSHIP OF THE AIRCRAFT, ITS VALUE OR AIRWORTHINESS, TITLE, SAFETY, THE
ABSENCE OF ANY PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT OR LATENT DEFECT
(WHETHER OR NOT DISCOVERABLE BY LESSEE), COMPLIANCE OF THE AIRCRAFT WITH THE
REQUIREMENTS OF ANY LAW, RULE, REGULATION OR
17
<PAGE>
STANDARD PERTAINING THERETO, OR THE CONFORMITY OF THE AIRCRAFT TO THE PROVISIONS
AND SPECIFICATIONS OF ANY PURCHASE DOCUMENT RELATING THERETO OR ANY INTERFERENCE
OR ANY COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, NOR SHALL
LESSOR BE LIABLE, REGARDLESS OF ANY ACTUAL OR ALLEGED NEGLIGENCE OF LESSOR, FOR
ANY DEFECTS, EITHER PATENT OR LATENT (WHETHER OR NOT DISCOVERABLE BY LESSEE), IN
THE AIRCRAFT OR ANY PART THEREOF OR ANY DIRECT OR INDIRECT DAMAGE TO PERSONS OR
PROPERTY RESULTING THEREFROM.
(b) Lessor's Liens. The Lessor represents, warrants and covenants
--------------
that on the Delivery Date there are no Lessor's Liens attributable to it (or an
Affiliate thereof). The Lessor agrees with and for the benefit of the Lessee
that the Lessor 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 Lessor, any Lessor's Lien attributable to the Lessor (or an
Affiliate thereof); provided, however, that any Lien which would otherwise
-------- -------
constitute a Lessor's Lien hereunder shall not constitute a Lessor's Lien so
long as the existence of such Lien (1) poses no non-de minimis risk to the
Lessee of the sale, forfeiture or loss (or loss of use) of the Airframe or any
Engine or any interest therein, and (2) does not interfere in any way with the
use or operation of the Aircraft by Lessee and Lessor is diligently contesting
such Lien by appropriate proceedings. The Lessor agrees to indemnify and hold
harmless the Lessee from and against any loss, cost, expense or damage
(including reasonable attorney's fees) which may be suffered by the Lessee as a
result of the failure of Lessor to discharge and satisfy any Lessor's Liens
attributable to it, as described in this Section 5.01(b).
(c) Assignment of Lessor's Estate. At any time after the Delivery
-----------------------------
Date and subject to satisfaction of the conditions set forth in this Section
5.01(c), the Lessor may assign, convey or otherwise transfer to any Affiliate of
Lessor or to a single institutional investor or an Affiliate of an institutional
investor all (but not less than all) of the Lessor's Estate, provided that (i)
--------
the Lessor gives the Lessee at least 10 days' notice of such assignment,
conveyance or other transfer, (ii) the Lessor and any guarantor of the Lessor
shall remain liable for all obligations of the Lessor under the Operative
Agreements to which the Lessor 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 (to be prepared by the Lessor and
delivered to Lessee) to assume liability for, and undertake performance of, all
obligations of the Lessor under the Operative Agreements to which such Lessor is
a party relating to the period after the date of transfer, and (iv) the
transferee shall make a representation to the effect that the funds to be used
by the transferee to acquire the Lessor's Estate do not constitute the assets of
an ERISA Plan. Any such transferee shall (a) be (i) a bank, finance company or
leasing company acting for its own account having a combined capital and surplus
(or, if applicable, consolidated 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 in form
and substance reasonably satisfactory to Lessee, or (iii) an Affiliate of the
transferring Lessor, so long as such Affiliate has a combined capital and
surplus (or, if applicable, consolidated net worth or its equivalent) of not
less than $50,000,000 (unless the
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Lessor remains primarily liable for the obligations of such Affiliate under the
Operative Agreements, in which case there shall be no such net worth
requirement), (b) assume all obligations of the Lessor hereunder and under the
other Operative Agreements to which the Lessor is a party pursuant to an
agreement which shall be prepared by Lessor and delivered to Lessee 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 in the business of air transportation or an
Affiliate of any thereof; 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 (y) be
attempting a hostile takeover of the Lessee. A transferee hereunder shall be a
Citizen of the United States or has established a voting trust, voting powers or
other arrangement so as to permit the continue registration of the Aircraft
under the Transportation Code, without in any way restricting the Lessee's use
and operation of the Aircraft. The Lessee 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 Lessor to a transferee
as above provided, the transferee shall be deemed the "Lessor" 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 "Lessor" shall thereafter be deemed a reference to such
transferee and the transferring Lessor shall be released from all of its
obligations under the Operative Agreements to the extent such obligations are
assumed by such transferee. No assignment, conveyance or transfer by the Lessor
of the Lessor's Estate shall increase the amount of the liability of the Lessee
under Article 6 hereof or under the Tax Indemnity Agreement over the amount of
liability the Lessee would have incurred had such assignment, conveyance or
transfer not occurred. The Lessee hereby agrees that nothing in this Section
5.01(c) (or otherwise in the Operative Agreements) shall restrict the ability of
the Lessor to, and the Lessee hereby agrees that the Lessor may, merge or
consolidate with any Person; provided, that, in the event of a consolidation or
-------- ----
merger of the Lessor with any Person (the survivor of such merger or
consolidation being referred to as the "Survivor"), in connection with such
merger or consolidation (i) the Lessor shall give Lessee notice thereof as soon
as is reasonably practicable following the occurrence of such transaction (but
in any event within 90 days of such occurrence) and (ii) the Survivor, if other
than the Lessor, shall (A) agree (which may be by operation of law) for the
benefit of the Lessee to be bound by all terms of the Operative Agreements
pursuant to an agreement prepared by Lessor and delivered to Lessee and (B)
undertake all of the obligations of the "Lessor" thereunder. Nothing in the
foregoing sentence shall limit the obligations of the Lessor (or any Survivor)
under Section 5.01(d). The Lessor shall have no right to assign, convey or
otherwise transfer any of its right, title or interest in the Lessor's Estate
except as provided above, and any other purported assignment, conveyance or
transfer shall be without effect as to the Lessee.
Notwithstanding anything to the contrary contained herein or
otherwise, the Lessee acknowledges and agrees that, to the extent agreed to by
any transferee of the Lessor's Estate (a) the Lessor shall retain all of the
rights, remedies and/or benefits set forth in this Agreement and the other
Operative Agreements (all of such rights, remedies and/or benefits collectively,
the "Retained
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Rights") as the same may relate to any claims, cause of action or other matter
relating to the period prior to the effective date of any transfer of the
Lessor's interest in Lessor's Estate (the "Effective Date"), and (b) the Lessor
shall be entitled to (i) exercise any rights, remedies or benefits available to
it against the Lessee or any other Person in connection with any such Retained
Rights relating to the period prior to the Effective Date, and/or (ii) any
amounts to the extent due the Lessor in connection with any such Retained Rights
relating to the period prior to the Effective Date. Any such Retained Rights
that are retained by the Lessor relating to the period prior to the Effective
Date shall not be transferable to any transferee under this Section 5.01(c).
(d) Citizenship. The Lessor represents and warrants that it is and on
-----------
the Delivery Date will be a Citizen of the United States. If the Lessor does
not comply with the requirements of this Section 5.01(d), the Lessor and the
Lessee 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 Lessor.
The Lessor agrees, solely for the benefit of the Lessee, 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 Lessor
shall cease to be, or an event which has been publicly disclosed has occurred of
which the Lessor has knowledge and which will cause the Lessor 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 Lessor 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
Lessor shall give notice thereof to the Lessee and shall (at its own expense and
without any reimbursement or indemnification from the Lessee) immediately (and
in any event within a period of 30 days) promptly (x) effect a voting trust or
other similar arrangement, (y) transfer in accordance with the terms of this
Agreement all its rights, title and interest in and to the Lessor's Estate and
this Agreement, 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).
Lessee agrees, upon the request and at the sole expense of the Lessor, to
cooperate with the Lessor in complying with its obligations under the provisions
of the first sentence of this Section 5.01(f), 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.
Section 5.02 Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Representations, warranties and covenants of the Lessor provided for in this
Article 5, and its 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.
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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, 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 construction, mortgaging, financing, refinancing,
purchase, charter, rental, assignment, 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;
(iii) the Aircraft, or the income or other proceeds (y) received
with respect to the Aircraft attributable to the transactions contemplated
by the Operative Agreements or (z) held by the Lessor after the occurrence
of an Event of Default under the Lease;
(iv) with respect to any Operative Agreement, any interest
therein or by reason of the transactions described in or contemplated by
the Operative Agreements.
(b) Exceptions. The indemnity provided for in Section 6.01(a) shall
----------
not extend to any of the following:
(i) 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, business profits,
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alternative minimum taxes, receipts, capital, franchise, state value-added,
net worth (whether, denominated income, excise, capital stock, business and
occupation or doing business taxes) or other similarly-based taxes (other
than taxes that are in the nature of license, sales, use, foreign 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 without
regard to the transactions contemplated by the Operative Agreement,
provided, however, that this clause shall not exclude from the indemnity
-------- -------
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 status
of the Lessee or any Affiliate thereof or any Permitted Sublessee as a
foreign entity or as an entity owned in whole or in part by foreign
persons, or (II) the Lessee or any Affiliate thereof or any Permitted
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, (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) [Reserved];
(iv) With respect to any Tax Indemnitee, Taxes resulting from
the willful misconduct or gross negligence of such Tax Indemnitee or a
Related Tax Indemnitee or the breach by any Tax Indemnitee other than with
respect to the Lessor, of any representation, warranty or covenant
contained in the Operative Agreements or any document delivered in
connection therewith (unless attributable to a breach of representation,
warranty or covenant of the Lessee);
(v) Taxes imposed on the Lessor or any successor, assign or
Affiliate thereof which became payable by reason of any voluntary transfer
or disposition by such Tax Indemnitee subsequent to the Delivery Date 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 Lessor or a disposition in connection
with a bankruptcy or similar proceedings involving the Lessor or a transfer
or disposition of shares or other interests in the Lessor in each case
other than (A) transfers resulting from a loss, substitution or
modification of the Aircraft, Engines or any Part, (B) transfers in
connection with 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
22
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14 of the Lease, or (D) a transfer to Lessee pursuant to Section 13(b) of
the Lease; the parties agree to cooperate to minimize any such Taxes
indemnified by this provision;
(vi) Taxes subject to indemnification by the Lessee pursuant to
the Tax Indemnity Agreement;
(vii) Taxes imposed on a successor, assign or other transferee
of any interest of such Tax Indemnitee (including, without limitation, a
transferee which is a new lending office of an original Tax Indemnitee) to
the extent that such Taxes would not have been imposed on the original Tax
Indemnitee or exceed the amount of Taxes that would have been imposed and
would have been indemnifiable pursuant to Section 6.01(a) hereof had there
not been a succession, assignment or other transfer by such original Tax
Indemnitee of any such interest of such Tax Indemnitee in the Aircraft or
any Part, any interest in or under any Operative Agreement, or any proceeds
thereunder unless such sale, assignment, transfer or disposition occurs in
connection with the exercise of Lease remedies;
(viii) Taxes imposed by any jurisdiction that would not have been
imposed on the Lessor but for the activities or the status of the Lessor in
such jurisdiction unrelated to the transactions contemplated by the
Operative Agreements;
(ix) Any Taxes which have been properly included in the
Purchase Price;
(x) Any Taxes imposed on the Lessor which would not have been
imposed but for a Lessor's Lien;
(xi) In the case of the Lessor, 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 Lessor's Estate or in the case of any
transferee of the Lessor referred to in Section 5.01(c), to purchase the
Lessor's Estate pursuant to Section 5.01(c);
(xii) Other than with respect to the Lessor, Taxes other than
Income Taxes that would not have been imposed but for the existence or
status of any trust used to hold title to the Aircraft;
(xiii) Taxes that are being contested in accordance with the
provisions hereof;
(xiv) [Reserved]; or
(xv) United States withholding Taxes imposed on the Lessor as a
result of the Lessor not being a U.S. Person.
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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, and with respect to Lessor, the Lessor has not
determined in good faith that claiming such benefit would have a material
adverse impact on the Lessor or an Affiliate thereof, by reason of the 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), (vii), (x), (xi), (xii), (xiii), (xiv) and
(xv) 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 Agreement) that is similar to the indemnification provision in
this Article 6.
Notwithstanding the foregoing, any amount payable by the Lessor
pursuant to this Section 6.02 shall not exceed the sum of the amounts previously
paid by the Lessee to the Lessor
24
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pursuant to this Article 6, less the aggregate amount of all prior payments by
the Lessor to the Lessee under this Section 6.02, with any excess amount
otherwise payable being carried forward and available to reduce pro tanto any
--- -----
subsequent obligation of Lessee to Lessor pursuant to 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 Days prior to the due date for Tax in
issue.
Section 6.04 Contests.
--------
(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
20 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) 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, 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, then the
Lessee shall be permitted, at its expense and in its own name, or, so long as no
Event of Default has occurred and is continuing (or if an Event of Default is
continuing, if the Lessee has posted a bond or otherwise provided to the Tax
Indemnitee reasonably satisfactory to the Tax Indemnitee in form and substance
an amount sufficient to satisfy the Tax being contested), in the name of such
Tax Indemnitee, to contest the imposition of such Tax; provided, however, that
-------- -------
the Lessee shall not be permitted or entitled to contest any Tax (A) unless such
contest will not result in the risk of an imposition of criminal penalties, (B)
unless the Lessee shall have agreed in writing following notice by such Tax
Indemnitee 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,
25
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disbursements, or penalties, interest and addition to tax), (C) if such contest
shall be conducted in a manner requiring the payment of the claim in advance,
unless the Lessee shall have advanced sufficient funds, on an interest free
basis, to the Tax Indemnitee 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, and (D) if such
contest shall be conducted in a manner requiring the payment of the claim,
unless the Lessee shall have timely paid the amount required.
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 so long as Lessee fully complies with all the
terms of the proviso set forth in the first paragraph of this Section 6.04(b)
and so long as no Event of Default has occurred and is continuing (or if an
Event of Default is continuing, if the Lessee has posted a bond or otherwise
provided to the Tax Indemnitee reasonably satisfactory to the Tax Indemnitee in
form and substance an amount sufficient to satisfy the Tax being contested).
If requested by the Lessee, the Tax Indemnitee shall appeal any
adverse administrative or judicial decision so long as Lessee fully complies
with all the terms of the proviso set forth in the first paragraph of this
Section 6.04(b) and so long as no Event of Default has occurred and is
continuing (or if an Event of Default is continuing, if the Lessee has posted a
bond or otherwise provided to the Tax Indemnitee reasonably satisfactory to the
Tax Indemnitee in form and substance an amount sufficient to satisfy the Tax
being contested), except that the Tax Indemnitee shall not be required to pursue
any appeals to the United States Supreme Court.
If the taxing jurisdiction requires payment of the claim in advance of
contest, such Tax Indemnitee may make a timely request upon Lessee and Lessee
shall timely 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 (including such
amount payable as interest, penalties or addition to tax) and such Tax
Indemnitee shall reimburse 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
26
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withheld or delayed, 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 (including such amount payable
as interest, penalties or addition to 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 fees and
expenses (including reasonable attorney's and accountant's fees) on demand
which such Tax Indemnitee may incur as a result of contesting such Taxes.
(d) 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
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 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 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
27
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Section 6.01(b) but only insofar as subsections (iv), (vi), (vii), (x), (xi),
(xii), (xiii), (xiv) and (xv) 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 Indemnitees 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 Lessor and shall send a copy of the applicable portions of such report or
return to the Tax Indemnitee and the Lessor 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 Lessor. 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 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 Lessor 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 Lessor.
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, and Lessor's receipt of all information
reasonably
28
<PAGE>
requested by Lessor relating thereto, 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
reasonable request, such duly executed and properly completed forms as may be
reasonably 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 and such Tax
Indemnitee, in its reasonable judgment, agrees with any such reduction or
exemption, and (y) Lessee has provided such Tax Indemnitee with any information
necessary to complete such form not otherwise reasonably available to such Tax
Indemnitee.
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, 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.
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.
ARTICLE 7.
GENERAL INDEMNITY
Section 7.01 Generally.
---------
(a) Indemnity. The Lessee agrees to assume liability for, and also
---------
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, obligations, losses,
damages, settlements, penalties, claims, actions, 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:
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(i) any Operative Agreement or any transaction contemplated
thereby;
(ii) 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-
delivery, control, condition, alteration, modification, addition,
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 laws,
rules or regulations, including, without limitation, environmental control,
noise and pollution laws, rules or regulation 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, pooling, 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
or absolute 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; and
(v) the enforcement of the terms of the Operative Agreements
(including this Section 7.01(a)).
(b) Exceptions. The indemnity provided for in Section 7.01(a) shall
----------
not extend to any Expense to the extent it:
30
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(i) is attributable to the willful misconduct or gross
negligence of any 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) is, except to the extent fairly attributable to acts or
events occurring prior thereto, 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 Aircraft is no longer part of
the Lessor's Estate or, if the Aircraft remains a part of the Lessor's
Estate, after the expiration of the Term (unless the Aircraft is being
returned at such time, in which case after return of physical possession;
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 shall be exercising remedies under such Section 17), or
to acts or events which occur after return of possession of the Aircraft by
the Lessee in accordance with the provisions of the Lease (subject to the
foregoing proviso if the Lessor has terminated the Lease pursuant to
Section 17 of the Lease);
(iii) is, other than as expressly provided herein or in the
other Operative Agreements, 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 an
Indemnitee or its permitted transferees (and not by the Lessee) pursuant to
this Agreement or any other Operative Agreement and for which the Lessee is
not otherwise obligated to reimburse an Indemnitee pursuant to the terms of
this Agreement or such other Operative Agreement;
(v) is attributable to the incorrectness or breach by an
Indemnitee of its representations or warranties, under any of the Operative
Agreements;
(vi) is attributable to the failure by an 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 attributable to a Lessor's Lien;
(viii) is, in the case of the Lessor, attributable to the offer
or sale by an Indemnitee of any interest in the Aircraft or the Lessor's
Estate or any similar interest (including an offer or sale resulting from
bankruptcy or other proceedings for the relief of debtors in which an
Indemnitee is the debtor), unless in each case such offer or sale shall
occur pursuant to the exercise of remedies under Section 17 of the Lease;
31
<PAGE>
(ix) 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; and
(x) constitutes an Indemnitee's overhead.
(c) Non-Parties. If an Indemnitee is not a party to this Agreement,
-----------
in order to be entitled to the benefit of this Article 7, such Indemnitee shall
comply with the terms of this Article 7 in connection with its making any claim
for indemnification hereunder.
Section 7.02 Notice and Payment. Each Indemnitee shall give prompt
------------------
written notice to the Lessee of any liability as to which a Responsible 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, otherwise increases the amount the
Lessee would have been liable for in the absence of such failure to provide such
notice or adversely affects the ability of Lessee's insurers to defend such
claim.
Section 7.03 Defense of Claims. Pursuant to the terms hereof, 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 and each
Indemnitee shall reasonably cooperate with the Lessee and its insurers with
respect thereto, provided that, such right of the Lessee shall be subject to
-------- ----
Lessee having acknowledged in writing its obligation to indemnify the Indemnitee
in respect of such claim if the defense of such claim is unsuccessful (unless
and to the extent it is determined in good faith during any related proceedings
that any of the exclusions set forth in Section 7.01(b) are applicable to such
claim); provided further 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 proceeding involves the potential
imposition of criminal (or any non-de minimis risk of civil) liability on such
Indemnitee (and in any such instance, Lessee shall pay the reasonable fees and
expenses of Lessor's counsel) 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 (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; provided, that,
-------- ----
32
<PAGE>
subject to the rights of Lessee's insurers to assume and control the defense of
or to compromise (as provided herein), any such claim, any counsel selected by
Lessee in connection with any defense shall be reasonably acceptable to the
Lessor. 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;
and such participation shall not constitute a waiver of the indemnification
provided in this Section 7.03. No Indemnitee shall enter into any settlement or
other compromise with respect to any claim described in this Section 7.03
without the prior written consent of the Lessee (which consent shall not be
unreasonably withheld or delayed) and its insurers, unless such Indemnitee
waives its right to be indemnified under this Article 7 with respect to such
claim. Subject to the rights of Lessee's insurers to assume and control the
defense of or to compromise, any such claim, the Lessee shall not enter into any
settlement or compromise relating to any claims against the Lessor (or any
Indemnitee) without consent of Lessor, or such Indemnitee (which consent shall
not be unreasonably withheld or delayed); provided that, Lessee's insurers may
-------- ----
not enter into any such settlement or compromise without Lessor's (or such
Indemnitee's) consent unless a release of all related claims against the Lessor
(and any other Indemnitee) shall be obtained in connection with such settlement
or compromise.
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, it shall be a condition of such indemnity with respect to any
particular Indemnitee that such Indemnitee shall reasonably 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 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). So long as no Event of Default has occurred and
is continuing, should an Indemnitee receive any refund, 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.
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
33
<PAGE>
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 and the other Operative Agreements.
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 or by any
other Person and regardless of any other rights that Lessee may have against
such Indemnitee pursuant to any Operative Agreement or otherwise, 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 with respect to
the residual value of the Aircraft or any part thereof; provided, however, that
-------- -------
the foregoing shall not adversely affect any of the Lessor's rights or remedies
under the Lease or any other Operative Agreements, including without limitation
any rights or remedies under Section 17 of the Lease.
ARTICLE 8.
TRANSACTION COSTS
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 Lessor shall pay to
the Lessee an amount equal to the Transaction Costs set forth on Exhibit B to
the Lease (minus the amount referred to in clause (i) below) and the Lessee
shall utilize such funds to pay all fees and expenses of the following persons
relating to the transactions contemplated hereby, following receipt by the
Lessor of appropriate invoices with respect thereto: (i) the reasonable fees and
expenses of counsel for Lessor
34
<PAGE>
(unless paid directly by Lessor); (ii) the reasonable fees and expenses of the
respective counsel for the Lessee, the Manufacturer, the Engine Manufacturer,
the Seller and the Deficiency Obligor; (iii) the reasonable fees and expenses of
special aviation counsel; (iv) the fees and expenses of The Seabury Group LLC
(the "Lessee Advisor"); and (v) any other amounts approved by the Lessee and the
Lessor. Upon payment of the foregoing amount by Lessor to Lessee, Lessor shall
have no further obligations in respect of the payment of the foregoing amounts;
provided that no such payments by the Lessor shall exceed in the aggregate, the
Transaction Costs.
(b) Amendments and Supplements. Without limitation of the foregoing,
--------------------------
the Lessee agrees to pay, as Supplemental Rent, to the Lessor 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 requested
by the Lessee or necessitated by the action or inaction of the Lessee; provided,
--------
however, that the Lessee shall not be responsible for fees or expenses incurred
- -------
in connection with the offer, sale or other transfer (whether pursuant to
Section 5.01(c) hereof or otherwise) by the Lessor of any interest in the
Aircraft or the Lessor's Estate (and the offeror, seller, or transferor shall be
responsible for all such fees and expenses), unless such offer, sale or transfer
shall occur (A) pursuant to the exercise of any remedies under Section 17 of the
Lease, or (B) in connection with the termination of the Lease or action or
direction of the Lessee or other Person pursuant to Section 8, 13 or 14 of the
Lease.
ARTICLE 9.
NOTICES
Section 9.01 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 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 9.01:
(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; and
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(b) if to the Lessor, to its office at c/o Fleet Capital Corporation,
50 Kennedy Plaza, 5/th/ Floor, Providence, Rhode Island 02903-2305, Attention:
Chief Credit Officer, telephone (401) 278-6392, facsimile (401) 278-3139; or to
such other address as the Lessor shall from time to time designate in writing to
the Lessee.
ARTICLE 10.
MISCELLANEOUS
Section 10.01 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 10.02 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. No such written termination, amendment, supplement,
waiver or modification shall be effective unless a signed copy shall have been
delivered to and executed by each party hereto.
Section 10.03 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 10.04 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, and the Lessor and its successors and
permitted assigns.
Section 10.05 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 10.06 Limitations of Liability. Lessor shall not have any
------------------------
obligation or duty to Lessee or any other Person with respect to the
transactions contemplated hereby, except those obligations or duties of the
Lessor expressly set forth in this Agreement and the other Operative Agreements.
Section 10.07 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
36
<PAGE>
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 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; PROVIDED, HOWEVER, TO THE
-------- -------
EXTENT PERMITTED BY APPLICABLE LAW, THAT NOTHING IN THIS AGREEMENT OR ANY OTHER
OPERATIVE AGREEMENTS SHALL BE DEEMED OR OPERATE TO PRECLUDE LESSOR FROM BRINGING
SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION IN ORDER TO REALIZE
ON THE AIRCRAFT OR ANY OTHER COLLATERAL OR ANY OTHER SECURITY, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LESSOR, AND LESSEE EXPRESSLY WAIVES
ANY OBJECTIONS THAT IT MAY HAVE TO THE VENUE OF SUCH COURTS.
(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 SET FORTH PURSUANT
TO SECTION 9.01. EACH PARTY HERETO AGREES THAT SERVICE UPON IT, OR ANY OF ITS
AGENTS, IN EACH CASE IN ACCORDANCE WITH THIS SECTION 10.07(c), 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.
(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 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
37
<PAGE>
OR CAUSE OF ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF
OR RELATING TO THIS AGREEMENT.
Section 10.08 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 10.09 Reinstatement. If any payment, in whole or in part, of
-------------
any of the amounts due to the Lessor pursuant to the terms of any Operative
Agreement is rescinded or must otherwise be restored or returned upon the
bankruptcy, insolvency, reorganization, arrangement, adjustment, composition,
dissolution, liquidation, or the like, of the Lessee, the Lessee's obligations
in respect of such returned payment (or portion thereof) shall be continue to be
effective and shall be reinstated, all as though such payment had not been made,
notwithstanding any termination of this Agreement or any other Operative
Agreement.
Section 10.10 Deficiency Agreement and Residual Agreement.
-------------------------------------------
Notwithstanding anything to the contrary contained in the Lease, to the extent
that as a result of any actions of the Lessor the last sentence of Section 12 of
the Deficiency Agreement or the last sentence of Section 7 of the Residual
Agreement are no longer effective, the Lessee shall not be required to satisfy
the conditions set forth in Clauses (vi) and (vii) of Section 8(d)(ii) of the
Lease in the event Lessee exercises its right to substitute a Replacement
Aircraft as provided in Section 8(a)(i) of the Lease.
* * *
38
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Supplemental 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
FLEET NATIONAL BANK,
as Lessor
By: /s/ Edward W. O'Brien
---------------------
Name: Edward W. O'Brien
Title: Banking Officer
39
<PAGE>
APPENDIX A
DEFINITIONS [N587ML]
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 Lessor.
-------------------
"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 deemed to be received by a Person shall be supplemented by a payment to such
Person so that the sum of such payments, after deduction of all Taxes (taking
into account any related credits or deductions) 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 (2) 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
<PAGE>
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.
"Applicable Law" means all applicable laws, treaties, judgments,
--------------
decrees, injunctions, writs and orders of any court, governmental agency or
authority and rules, regulations, orders, directives, licenses and permits of
any governmental body, instrumentality, agency or authority.
"Applicable Rate" has the meaning specified in Exhibit B to the Lease.
---------------
"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.
"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, Charlotte, North Carolina or Providence, Rhode Island.
"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).
<PAGE>
"Commitment" shall have the meaning given such term in Section 2.01(b)
----------
of the Supplemental Agreement.
"CRAF Program" has the meaning specified in Section 5(b)(vii) of the
-------------
Lease.
"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 Supplemental Agreement.
"Deficiency Obligor" has the meaning given to such term in the
------------------
recitals of the Supplemental 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 dollars in lawful currency of the
------- ------ -
United States.
"DOT" means the United States Department of Transportation or any
---
successor thereto.
"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 Loan Agreement" means the Loan Agreement between Fleet Capital
---------------------
Corporation, as lender and Lessee, as borrower in respect of the financing of
two General Electric CF34-3B1 Series 200 engines.
"Engine Manufacturer" means General Electric Company, a New York
-------------------
corporation.
<PAGE>
"Engine Manufacturer's Consent" means the Engine Manufacturer's
-----------------------------
Consent and Agreement [N587ML], dated as of December 30, 1999, from the Engine
Manufacturer.
"Engine Warranty Assignment" means the Engine Warranty Assignment
--------------------------
[N587ML], dated as of December 30, 1999, between Lessee and Lessor.
"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:
(i) any theft, hijacking or disappearance of such property
for a period of 15 consecutive days (provided that, so long as Lessee
shall be diligently pursuing recovery of such property, such period
shall be extended to 45 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) condemnation, confiscation or seizure of, or
requisition of title to or use of such property by any foreign
government or purported government (or in the case of any such
condemnation, confiscation, seizure or requisition of title, by the
Government) or any agency or instrumentality thereof, for a period in
excess of (A) in the case of any condemnation, confiscation, seizure
or requisition of use, 180 consecutive days or (B) in the case of any
condemnation, confiscation or seizure of, or requisition of title, 15
consecutive days, or, in any of the cases in this clause (iv), such
shorter period ending on the expiration of the Term;
(v) condemnation, confiscation or seizure of, or
requisition of use of such property by the Government for a period
extending beyond the Term;
<PAGE>
(vi) as a result of any law, rule, regulation, order or
other action by the Aeronautical Authority, the use of the Aircraft 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
(vii) with respect to an Engine only, the requisition or
taking of use thereof by any government, 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 16/th/ day following loss of
such property or its use due to theft or disappearance or the 46/th/ 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 181/st/ day following condemnation,
confiscation, seizure or requisition of title to such property by a foreign
government referred to in clause (iv) above (or the 16/th/ day in the case of
appropriation of title), or the end of the Term if earlier than such 181/st/ or
16/th/ day; (ee) the last day of the Term in the case of requisition of title to
or use of such property by the Government; and (ff) the last day of the
applicable period referred to in clause (vi) above (or if earlier, the end of
the Term without the Lessee's having conformed at least one Canadair Regional
Jet Series 200ER aircraft to the applicable requirements). 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.
"Expenses" has the meaning given to such term in Section 7.01(a) of
--------
the Supplemental 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 Lessor 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 Lessor.
<PAGE>
"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 and 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 and there shall be no deduction for
any costs of removal of the Aircraft from its then location. Except as
otherwise expressly provided in the Lease, all appraisal costs will be paid by
the Lessee. 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.
"Federal Aviation Administration" or "FAA" means the United States
-------------------------------- ---
Federal Aviation Administration and any successor agency or agencies thereto.
"Fixed Renewal Term" has the meaning given to such term in Section
------------------
13(a) of the Lease.
<PAGE>
"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.
"Indemnitee" means Lessor and each Affiliate, officer, director,
----------
employee, agent, servant, successor and permitted assigns of Lessor.
"Lease" means the Lease Agreement [N587ML], dated as of December 30,
-----
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 Fleet National Bank, a national banking association
------
established under the laws of the United States of America, 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
---------------
Lessor in and to the Aircraft, and Engines and the Operative Agreements
including, without limitation, all amounts of Rent, insurance proceeds and
requisition, indemnity or other payments of any kind.
"Lessor's Liens" means Liens against, on or with respect to the
--------------
Aircraft, any Engine, the Lessor's Estate or any part thereof, title thereto or
any interest therein arising as a result of (i) claims against or affecting the
Lessor not related to the Operative Agreements or the transactions contemplated
thereby, (ii) acts or omissions of the Lessor not contemplated or permitted
under the terms of the Operative Agreements, (iii) Taxes or Expenses imposed
against the Lessor or Lessor's Estate which are not required to be indemnified
against by the Lessee pursuant to Articles 6 or 7 of the Supplemental Agreement
(other than pursuant to 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 Lessor arising from the transfer by the
Lessor 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.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
security interest, claim, or other similar interest of any nature whatsoever.
<PAGE>
"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.
"Minimum Liability Amount" has the meaning given to such term in
------------------------
Exhibit B to the Lease.
"Net Economic Return" means the Lessor's nominal after-tax book yield
-------------------
(utilizing the multiple investment sinking fund method of analysis), computed
through the Expiration Date on the basis of the same methodology, constraints
and assumptions as were utilized by the Lessor in determining Basic Rent
percentages and Termination Value percentages as of the Delivery Date; provided,
--------
that, if the Lessor shall have transferred its interest, Net Economic Return
shall be calculated as if the Lessor had retained its interest.
"Non-U.S. Person" means any Person other than a U.S. Person.
---------------
"Officer's Certificate" means as to any company a certificate signed
---------------------
by a Responsible Officer of such company.
"Operative Agreements" means the Supplemental 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 and the Tax
Indemnity Agreement.
"PAA Consent" means the Aircraft Manufacturer's Consent and Agreement
-----------
[N587ML], dated as of December 30, 1999, from the Manufacturer.
"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, exclusive of any items leased by the Lessee from third parties and not
required in the navigation of the Aircraft.
"Past Due Rate" means a rate per annum identified in Exhibit B to the
-------------
Lease.
"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.
<PAGE>
"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), (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 rating of "A" or better from the Keefe Bank Watch
Service. Unless otherwise specified in writing by the Lessor, all such
Permitted Investments shall mature not later than 30 days from the date of
purchase.
"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, limited liability company 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), but only to the extent the same relates to the Aircraft.
"Purchase Agreement Assignment" means the Purchase Agreement
-----------------------------
Assignment [N587ML], dated as of December 30, 1999, between Lessee and Lessor.
"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.
"Related Tax Indemnitee" means any Affiliate of any Tax Indemnitee.
----------------------
"Renewal Term" has the meaning given to such term in Section 13(a) of
------------
the Lease.
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
<PAGE>
"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.
"Residual Agreement" has the meaning given to such term in the
------------------
recitals of the Supplemental Agreement.
"Responsible Officer" means, with respect to any party, any Vice
-------------------
President or other 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
--------------------------
[N587ML], dated as of December 30, 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.
"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>
"Specified Default" means (a) an event or condition described in
-----------------
Section 16(a), (f), (g) or (h) 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.
"Sublease" means any sublease agreement between the Lessee and a
--------
Permitted Sublessee as permitted by Section 5(b) of the Lease.
"Supplemental Agreement" means the Supplemental Agreement [N587ML],
----------------------
dated as of December 30, 1999, between the Lessee and the Lessor.
"Supplemental Rent" means all amounts, liabilities, indemnities and
-----------------
obligations which the Lessee assumes or agrees to perform or pay under the Lease
or under the Supplemental Agreement or Tax Indemnity Agreement or any other
Operative Agreement to the Lessor or others, including payments of Termination
Value, EBO Amount, and amounts calculated by reference to Termination Value, 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 Supplemental Agreement or the Tax Indemnity Agreement or
any other Operative Agreement, but excluding Basic Rent.
"Tax" or "Taxes" has the meaning set forth in Section 6.01(a) of the
--- -----
Supplemental Agreement.
"Tax Indemnitee" means each of Lessor and any Affiliate thereof.
--------------
"Tax Indemnity Agreement" means the Tax Indemnity Agreement [N587ML],
-----------------------
dated as of December 30, 1999 between the Lessee and the Lessor.
"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 by multiplying Lessor's Cost by the percentage
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 Supplemental 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.
<PAGE>
"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 Lessor 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 Lessor.
<PAGE>
CONFORMED COPY
--------------
PURCHASE AGREEMENT ASSIGNMENT [N587ML], dated as of December 30, 1999,
between MIDWAY AIRLINES CORPORATION, a Delaware corporation (herein called the
"Assignor") and FLEET NATIONAL BANK, a national banking association established
under the laws of the United States of America (herein called the "Assignee").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Assignor and Bombardier, Inc. (the "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 Manufacturer has transferred the Purchase Agreement to
Bombardier Capital Inc. (the "Seller"), the Assignee wishes to acquire the
Aircraft from 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 December 30, 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 limitation,
<PAGE>
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 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 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. Without
limiting the rights of the Assignor to exercise, in its own name, its rights in
respect of the Purchase Agreement, Assignor shall not attempt to enforce any
performance in the name of Assignee without Assignee's prior written approval.
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,
provided, however, that upon the occurrence of any Event of Default, all such
- -------- -------
recoveries or benefits, other than those used to remedy any defect in respect of
the Aircraft (or to reimburse the Assignor for its remedying of any such
defect), shall be paid directly to Assignee to be held by the Assignee for so
long as an Event of Default is continuing. Assignee hereby accepts the
foregoing assignment subject to the terms hereof.
2
<PAGE>
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 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 expressly provided herein, the
Assignee shall not have any obligation or liability under the Purchase Agreement
or otherwise 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 otherwise 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, and 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.
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 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 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
3
<PAGE>
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 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 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
4
<PAGE>
Purchase Agreement insofar as it relates to the Aircraft or waive any rights of
Assignor thereunder without the prior written consent of the Assignor.
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
9.01 of the Supplemental Agreement.
* * *
5
<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
FLEET NATIONAL BANK,
as Assignee
By: /s/ Edward W. O'Brien
---------------------
Name: Edward W. O'Brien
Title: Banking Officer
6
<PAGE>
ANNEX
BOMBARDIER INC.
AIRCRAFT MANUFACTURER'S CONSENT AND AGREEMENT [N587ML]
------------------------------------------------------
The undersigned, Bombardier Inc. ("Manufacturer"), hereby acknowledges
notice of and consents to the terms of the foregoing Purchase Agreement
Assignment [N587ML] (the "Assignment") dated as of December 30, 1999, between
MIDWAY AIRLINES CORPORATION, a Delaware corporation (the "Assignor") and FLEET
NATIONAL BANK, a national banking association established under the laws of the
United States of America (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) 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; (v) 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 (vi) 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 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 unless Manufacturer receives any other written
notice in the manner specified in Section 3 of the
1
<PAGE>
Assignment from 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. 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 December 30,
1999.
BOMBARDIER INC.
By: ____________________________________
Name:
Title:
By: ____________________________________
Name:
Title:
3
<PAGE>
BOMBARDIER INC.
AIRCRAFT MANUFACTURER'S CONSENT AND AGREEMENT [N587ML]
------------------------------------------------------
The undersigned, Bombardier Inc. ("Manufacturer"), hereby acknowledges
notice of and consents to the terms of the foregoing Purchase Agreement
Assignment [N587ML] (the "Assignment") dated as of December 30, 1999, between
MIDWAY AIRLINES CORPORATION, a Delaware corporation (the "Assignor") and FLEET
NATIONAL BANK, a national banking association established under the laws of the
United States of America (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) 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; (v) 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 (vi) 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 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 unless Manufacturer receives any other 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 has
commenced the exercise of remedies set forth in Section 17 of the Lease. 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 December 30,
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>
CONFORMED COPY
--------------
ENGINE WARRANTY ASSIGNMENT
[N587ML]
between
MIDWAY AIRLINES CORPORATION
and
FLEET NATIONAL BANK
and
GENERAL ELECTRIC COMPANY
ENGINE MANUFACTURER'S CONSENT AND AGREEMENT
<PAGE>
THIS ENGINE WARRANTY ASSIGNMENT [N587ML] is made as of this 30th day of
December, 1999 between MIDWAY AIRLINES CORPORATION, a Delaware corporation(the
"Assignor") and FLEET NATIONAL BANK, a national banking association established
under the laws of the United States of America (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 7346 including two General Electric
CF34-3B1 turbofan engines bearing manufacturer's serial numbers GE-E-872593 and
GE-E-872592 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, but only to the extent the
same relates to 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, but only to the extent the same relates
to the Engines.
"Lease" means the lease agreement [N587ML] dated as of December 30, 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.
"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
-----------------------------
dated as of December 30, 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, but only to the extent the same relates to
the Engines.
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 therin 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), including without
limitation, those found in Exhibit D of 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 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 recission,
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. Without
limiting the rights of the Assignor to exercise, in its own name, its rights in
respect of the Warranties, Assignor shall not attempt to enforce any performance
in the name of Assignee without Assignee's prior written approval.
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, 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 has commenced the
exercise of remedies set forth in Section 17 of the Lease, the Engine
Manufacturer shall with respect
4
<PAGE>
to the Warranties deal solely and exclusively with the Assignor. The Assignee
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 9.01 of the Supplemental Agreement,
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 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 otherwise 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 Supplemental 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. Except as expressly provided in this Assignment (including this
Section 3.2), the Assignee shall have no obligations, duties or liabilities to
Engine Manufacturer.
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 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
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, each of whom shall
be obligated to not further disclose such information.
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.
* * *
8
<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
FLEET NATIONAL BANK,
as Assignee
By: /s/ Edward W. O'Brien
----------------------------
Name: Edward W. O'Brien
Title: Banking Officer
9
<PAGE>
ANNEX
GENERAL ELECTRIC COMPANY
ENGINE MANUFACTURER'S CONSENT AND AGREEMENT [N586ML]
----------------------------------------------------
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 [N586ML] (herein called the
"Assignment", the defined terms therein being hereinafter used with the same
meaning), dated as of December 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 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 (v) the Engine Manufacturer will continue to pay to the Assignor all
payments which the Engine Manufacturer may be required to
1
<PAGE>
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
2
<PAGE>
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 (but that said Lease may
be terminated by its terms thereafter).
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 December 30,
1999.
GENERAL ELECTRIC COMPANY
By: ____________________________________
Name:
Title:
4
<PAGE>
GENERAL ELECTRIC COMPANY
ENGINE MANUFACTURER'S CONSENT AND AGREEMENT [N587ML]
----------------------------------------------------
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 [N587ML] (herein called the
"Assignment", the defined terms therein being hereinafter used with the same
meaning), dated as of December 30, 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 War ranties 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 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 (v) 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
<PAGE>
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
<PAGE>
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 (but that said Lease may
be terminated by its terms thereafter).
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 December 30,
1999.
GENERAL ELECTRIC COMPANY
By: /s/ Patricia A. Bowles
----------------------
Name: Patricia A. Bowles
Title: Contracts Manager,
Attorney-In-Fact
<PAGE>
CONFORMED COPY
--------------
================================================================================
LOAN AGREEMENT
Dated as of December 30, 1999
between
MIDWAY AIRLINES CORPORATION,
as Borrower
and
FLEET CAPITAL CORPORATION,
as Lender
================================================================================
COVERING
TWO (2) GENERAL ELECTRIC MODEL CF34-3B1 AIRCRAFT ENGINES
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. INTERPRETATION.................................................................. 1
Section 1.01. Definitions................................................... 1
Section 1.02. References.................................................... 1
Section 1.03. Headings...................................................... 1
Section 1.04. Appendices Schedules and Exhibits............................. 2
ARTICLE 2. THE LOANS....................................................................... 2
Section 2.01. The Loans and Closing......................................... 2
(a) The Loans................................................ 2
(i) Loan A.............................................. 2
(ii) Loan B.............................................. 2
(c) Funding Dates............................................ 2
(d) Closing Procedure........................................ 2
(i) Time and Place..................................... 2
(ii) Making of the Loans................................ 2
Section 2.02. Notes Evidencing the Loans.................................... 3
Section 2.03. Interest and Principal........................................ 4
Section 2.04. Prepayments................................................... 4
Section 2.05. Manner of Payments............................................ 4
Section 2.06. Application of Payments....................................... 5
ARTICLE 3. CONDITIONS PRECEDENT............................................................ 5
Section 3.01. Conditions Precedent to Making of Loan A...................... 5
(a) Delivery of Documents.................................... 6
(b) Violation of Law......................................... 7
(c) No Event of Default...................................... 7
(d) No Event of Loss......................................... 7
(e) Title.................................................... 8
(f) Filings.................................................. 8
(g) Financing Statements..................................... 8
(h) No Proceedings........................................... 8
(i) Governmental Action...................................... 8
(j) Invoice.................................................. 8
(k) Other Documents.......................................... 8
Section 3.02. Conditions Precedent to Making of Loan B...................... 5
(a) Delivery of Documents.................................... 6
(b) Violation of Law......................................... 7
</TABLE>
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<TABLE>
<S> <C>
(c) No Event of Default..................................... 7
(d) No Event of Loss........................................ 7
(e) Title................................................... 8
(f) Filings................................................. 8
(g) Financing Statements.................................... 8
(h) No Proceedings.......................................... 8
(i) Governmental Action..................................... 8
(j) Other Documents......................................... 8
Section 3.03. Post-Recordation Opinion..................................... 9
ARTICLE 4. BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 9
Section 4.01. Borrower's Representations and Warranties.................... 9
Section 4.02. Certain Covenants of Borrower................................ 11
(a) Filings and Recordings.................................. 11
(b) Privileges and Franchises............................... 12
(c) Merger and Consolidation................................ 12
(d) Change of Location...................................... 13
(e) Financial Statements.................................... 13
(f) Filing of Documents..................................... 13
Section 4.03. Survival of Representations and Warranties................... 14
ARTICLE 5. LENDER'S REPRESENTATIONS, WARRANTIES AND COVENANTS............................. 14
Section 5.01. Representations, Warranties and Covenants of Lender.......... 14
(a) Representations and Warranties.......................... 14
(b) Assignment of Loan...................................... 15
Section 5.02. The Borrower's Right of Quiet Enjoyment...................... 17
Section 5.03. Survival of Representations, Warranties and Covenants........ 17
ARTICLE 6. [INTENTIONALLY OMITTED]........................................................ 25
ARTICLE 7. GENERAL INDEMNITY.............................................................. 25
Section 7.01. Generally.................................................... 25
(a) Indemnity............................................... 25
(b) Exceptions.............................................. 27
(c) Non-Parties............................................. 28
Section 7.02. Notice and Payment........................................... 28
Section 7.03. Defense of Claims............................................ 28
Section 7.04. Insured Claims............................................... 29
Section 7.05. Subrogation.................................................. 29
Section 7.06. Information.................................................. 29
Section 7.07. Survival of Obligations...................................... 29
</TABLE>
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<TABLE>
<S> <C>
Section 7.08. Effect of Other Indemnities................... 30
Section 7.09. Waiver of Certain Claims...................... 30
ARTICLE 8. EVENTS OF DEFAULT............................................ 30
Section 8.01. Events of Default............................. 30
ARTICLE 9. REMEDIES..................................................... 32
Section 9.01. Remedies...................................... 32
ARTICLE 10. TRANSACTION COSTS............................................ 33
Section 10.01. Transaction Costs and Other Costs............. 33
(a) Transaction Costs......................... 33
(b) Amendments and Supplements................ 33
ARTICLE 11. NOTICES...................................................... 33
Section 11.01. Notices....................................... 33
ARTICLE 12. MISCELLANEOUS................................................ 34
Section 12.01. Counterparts.................................. 34
Section 12.02. No Oral Modifications......................... 34
Section 12.03. Captions...................................... 34
Section 12.04. Successors and Assigns........................ 34
Section 12.05. Severability.................................. 34
Section 12.06. Limitations of Liability...................... 35
Section 12.07. GOVERNING LAW................................. 35
Section 12.08. Section 1110 Compliance....................... 36
Section 12.09. Maximum Interest Rate......................... 36
Section 12.10. Term of Agreement; Release of Liens........... 36
</TABLE>
Appendix A Definitions
iii
<PAGE>
LOAN AGREEMENT dated as of December 30, 1999 (this "Agreement") between
MIDWAY AIRLINES CORPORATION, a Delaware corporation (herein, together with its
successors and permitted assigns, the "Borrower") and FLEET CAPITAL CORPORATION,
a Rhode Island corporation (together with its successors and permitted assigns,
the "Lender").
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, subject to the terms and conditions of this Agreement, Lender
will make the Loan to Borrower and the Loan shall be evidenced by the Note and
secured by the Security Agreement;
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.
<PAGE>
ARTICLE 2.
THE LOANS
Section 2.01 The Loans and Closing. Subject to all the terms and
---------------------
conditions of this Agreement, the Borrower and the Lender agree to enter into
the financing transaction with respect to the Engines provided for in this
Article 2.
(a) The Loans.
---------
(i) Loan A. Subject to satisfaction of the applicable conditions
------
set forth in Section 3.01 hereof, on the first Funding Date, Lender will
lend to Borrower and Borrower will borrow from Lender the amount of *
("Loan A"), upon the terms and subject to the conditions of this Agreement.
(ii) Loan B. Subject to satisfaction of the applicable conditions
------
set forth in Section 3.02 hereof, on the second Funding Date, Lender will
lend to Borrower and Borrower will borrow from Lender an amount not to
exceed * ("Loan B", and together with Loan A, the "Loans"), upon the terms
and subject to the conditions of this Agreement; provided that the Lender
shall not be obligated to lend to Borrower Loan B if the second Funding
Date does not occur by March 31, 2000.
(b) Funding Dates. Each "Funding Date" shall be the date fixed by the
-------------
Borrower in a notice which, in the case of the second Funding Date, shall be
given to the Lender at least five (5) Business Days prior to each Funding Date.
(c) Closing Procedure.
-----------------
(i) Time and Place. The closing with respect to each Funding
--------------
Date shall take place at 11:00 a.m. New York City local time on such
Funding 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. Such closing shall be preceded by a pre-closing at the same
place, the time for which shall be fixed by the Borrower and the Lender, 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.
(ii) Making of the Loans. Upon satisfaction or waiver by the
-------------------
Lender of the applicable conditions precedent set forth in Section 3.01 or
3.02, as the case may be, the Lender shall on the relevant Funding Date
make the applicable Loan to the Borrower at such account as specified by
the Borrower prior to the relevant Funding Date.
* Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
2
<PAGE>
Section 2.02 Notes Evidencing the Loans. Each Loan shall be
--------------------------
evidenced by a Note. Each Note shall be made by Borrower payable to the order of
Lender in the amount of the lesser of (i) the face amount of such Note or (ii)
the principal amount of the relevant Loan outstanding from time to time, and
shall be dated the relevant Funding Date of such Loan and shall finally mature
on the Maturity Date with respect to such Loan. Each Note shall be executed and
delivered in New York.
Section 2.03 Interest and Principal.
----------------------
(a) Borrower shall pay to Lender interest monthly in arrears on the
unpaid principal amount of each Loan for the period commencing on the relevant
Funding Date of such Loan until such Loan shall be paid in full, at the
following rates per annum:
(i) a rate per annum equal to the Applicable Rate (which, in the
case of Loan A, shall equal *% per annum, computed on the basis of a year
consisting of twelve 30 day months);
(ii) if all or any portion of the principal of or interest on the
Loans or any other amount due hereunder or under the Notes or any other
Operative Agreement shall not be paid when due, such past due principal or
interest or other amount shall bear interest at the Past Due Rate.
(b) Borrower shall repay each Loan to the Lender in monthly
installments on each Payment Date (x) with respect to Loan A, as specified in
Annex A to the Note relating to such Loan and (y) with respect to Loan B,
pursuant to a schedule to be agreed upon by the Lender and the Borrower after
the Applicable Rate for such Loan has been established, which schedule shall
provide for equal monthly payments of principal and interest over a term of 84
months, provided that on the Maturity Date for each Loan, Borrower shall pay all
remaining principal and outstanding accrued interest (and all other amounts)
then due and payable to Lender in respect of such Loan.
Section 2.04 Prepayments.
-----------
(a) Upon the occurrence of an Event of Loss with respect to an Engine
and if the Borrower elects not to replace such Engine with a Replacement Engine
pursuant to clause (ii) of Section 4.03(e) of the Security Agreement, Borrower
shall prepay the Loan relating to such Engine on the date specified in Section
4.03(e) of the Security Agreement. Such prepayment shall include an amount
equal to all unpaid interest then accrued with respect to such Loan, plus the
Make-Whole Premium, if any, and all other amounts due hereunder or under any
other Operative Agreement relating to the Loan being prepaid.
(b) Borrower may prepay, without penalty, all of the principal of
either Loan provided that together with such prepayment it pays all then accrued
interest with respect to such
* Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
3
<PAGE>
Loan, plus the Make-Whole Premium, if any, and all other amounts due hereunder
or under any other Operative Agreement relating to the Loan being prepaid.
Section 2.05 Manner of Payment. All payments and prepayments
-----------------
payable by the Borrower to the Lender hereunder shall be paid to the Lender at
the following account or at such other account as the Lender shall specify in a
notice to the Borrower, in Dollars in immediately available funds, so that the
Lender receives the full amount of each payment not later than 12:00 noon
Eastern Time on the due date thereof:
Bank: Fleet National Bank
ABA No. 01150010
For the account of Fleet Capital Leasing, account no. 015-5527767-02
Re: Midway Airlines Corp., customer no. 33136
Upon receipt contact Leslie Tordorff at (401) 278-3152
If any payment is due on a day that is not a Business Day, such payment 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.
Section 2.06 Application of Payments. Each amount received or
-----------------------
realized by Lender on or with respect to a Loan or any part thereof shall be
applied by Lender as follows: first, to all accrued but unpaid interest on such
-----
Loan; second, to pay in full the principal then outstanding on such Loan; and
------
third, to pay any the Make-Whole Premium, if any, then due in respect of such
- -----
Loan.
ARTICLE 3.
CONDITIONS PRECEDENT
Section 3.01 Conditions Precedent to Making of Loan A. The
----------------------------------------
obligation of the Lender to make Loan A on the relevant Funding Date is subject
to satisfaction or waiver by the Lender, on or prior to such Funding Date, of
the conditions precedent set forth below in this Section 3.01:
(a) Delivery of Documents. The Lender shall have received executed
---------------------
counterparts of the following agreements, instruments, certificates or
documents, and such counterparts (x) shall have been duly authorized, executed
and delivered by the respective party or parties thereto, (y) shall be
reasonably satisfactory in form and substance to the Lender and (z) shall be in
full force and effect:
(i) this Agreement;
4
<PAGE>
(ii) the Note relating to Loan A;
(iii) the Security Agreement and the Security Agreement
Supplement relating to Loan A Engine;
(iv) the broker's report and insurance certificates required by
Section 4.05(g) of the Security Agreement;
(v) (A) a copy of the Certificate of Incorporation and By-Laws
of Borrower and resolutions of the board of directors of Borrower, in each
case certified as of such Funding Date, by the Secretary or an Assistant
Secretary of Borrower, duly authorizing the execution, delivery and
performance by Borrower of the Operative Agreements required to be executed
and delivered by Borrower in accordance with the provisions hereof and
thereof; and (B) an incumbency certificate of Borrower as to the person or
persons authorized to execute and deliver the relevant Operative Agreements
on behalf of Borrower; together with such other documents and evidence with
respect to it as Lender 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;
(vi) an Officer's Certificate of Borrower, dated as of such
Funding Date, stating that its representations and warranties set forth in
this Agreement are true and correct as of such Funding 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);
(vii) the following opinions of counsel, in each case dated such
Funding Date:
(A) Jonathan Waller, Senior Vice President and General Counsel
of the Borrower, substantially in the form reasonably acceptable to the
Lender.
(B) Fulbright & Jaworski, L.L.P. special counsel for the
Borrower, substantially in the form reasonably acceptable to the Lender and
the Borrower; and
(C) Crowe & Dunlevy P.C., special aviation counsel,
substantially in the form reasonably acceptable to the Lender and the
Borrower.
(b) 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)
Lender or Borrower to execute, deliver and perform the Operative Agreements to
which either of them is a party or (b) Lender to make Loan A to the Borrower.
5
<PAGE>
(c) No Event of Default. On such Funding Date, no event shall have
-------------------
occurred and be continuing, or would result from the making of Loan A, which
constitutes a Default or Event of Default.
(d) No Event of Loss. No Event of Loss with respect to the applicable
----------------
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 such Engine shall have occurred.
(e) Title. Borrower shall have good and marketable title to the Loan
-----
A Engine, free and clear of Liens, except Permitted Liens of the type referred
to in clause (c), (d) and (i) of the definition thereof.
(f) Filings. On such Funding Date the Security Agreement and the
-------
Security Agreement Supplement relating to Loan A Engine shall have been duly
filed for recordation with the FAA in accordance with the Transportation Code.
(g) Financing Statements. A Uniform Commercial Code financing
--------------------
statement or statements covering the security interest contemplated by the
Security Agreement as supplemented by the Security Agreement Supplement relating
to Loan A Engine shall have been executed and delivered by the Borrower as
debtor and by the Lender as secured party, and such financing statement or
statements shall have been duly filed in all places necessary or desirable
within the State of North Carolina or any other applicable jurisdiction.
(h) 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.
(i) Governmental Action. All appropriate action required to have been
-------------------
taken prior to such Funding 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 such Funding Date in connection with the
transactions contemplated by this Agreement shall have been issued.
(j) Other Documents. The Lender receives such other documents,
---------------
certificates and opinions, and evidence of such other matters, in connection
with the transactions contemplated hereby as Lender may reasonably request.
Section 3.02 Conditions Precedent to Making of Loan B. The
----------------------------------------
obligation of the Lender to make Loan B on the relevant Funding Date is subject
to satisfaction or waiver by the
6
<PAGE>
Lender, on or prior to such Funding Date, of the conditions precedent set forth
below in this Section 3.02:
(a) Delivery of Documents. The Lender shall have received executed
---------------------
counterparts of the following agreements, instruments, certificates or
documents, and such counterparts (x) shall have been duly authorized, executed
and delivered by the respective party or parties thereto, (y) shall be
reasonably satisfactory in form and substance to the Lender and (z) shall be in
full force and effect:
(i) the Note relating to Loan B;
(ii) the Security Agreement Supplement relating to Loan B
Engine;
(iii) the broker's report and insurance certificates required by
Section 4.05(g) of the Security Agreement;
(iv) an Officer's Certificate of Borrower, dated as of such
Funding Date, stating that its representations and warranties set forth in
this Agreement are true and correct as of such Funding 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);
(v) the following opinions of counsel, in each case dated such
Funding Date:
(A) Jonathan Waller, Senior Vice President and General Counsel
of the Borrower, in substantially the same form of opinion issued under
Section 3.01(a)(vii)(A).
(B) Fulbright & Jaworski, L.L.P. special counsel for the
Borrower, in substantially the same form of opinion issued under Section
3.01(a)(vii)(B); and
(C) Crowe & Dunlevy P.C., special aviation counsel, in
substantially the same form of opinion issued under Section
3.01(a)(vii)(C).
(b) 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)
Lender or Borrower to execute, deliver and perform the Operative Agreements to
which either of them is a party or (b) Lender to make Loan B to the Borrower.
(c) No Event of Default. On such Funding Date, no event shall have
-------------------
occurred and be continuing, or would result from the making of Loan B, which
constitutes a Default or Event of Default.
7
<PAGE>
(d) No Event of Loss. No Event of Loss with respect to the applicable
----------------
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 such Engine shall have occurred.
(e) Title. Borrower shall have good title to the Loan B Engine, free
-----
and clear of Liens, except Permitted Liens of the type referred to in clause (c)
and (d) of the definition thereof.
(f) Filings. On such Funding Date, the Security Agreement Supplement
-------
relating to Loan B Engine shall have been duly filed for recordation with the
FAA in accordance with the Transportation Code.
(g) Financing Statements. A Uniform Commercial Code financing
--------------------
statement or statements covering the security interest contemplated by the
Security Agreement as supplemented by the Security Agreement Supplement relating
to Loan B Engine shall have been executed and delivered by the Borrower as
debtor and by the Lender as secured party, and such financing statement or
statements shall have been duly filed in all places necessary or desirable
within the State of North Carolina or any other applicable jurisdiction.
(h) 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.
(i) Governmental Action. All appropriate action required to have been
-------------------
taken prior to such Funding 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 such Funding Date in connection with the
transactions contemplated by this Agreement shall have been issued.
(j) Material Advance Change. Since the first Funding Date, there has
-----------------------
been no material adverse change in the financial condition of the Borrower, and
a Senior Vice President of the Borrower shall so represent to the Lender.
(k) Invoice. The Lender shall have received a copy of the
-------
Manufacturer's invoice with respect to the Loan B Engine.
(l) Other Documents. The Lender receives such other documents,
---------------
certificates and opinions, and evidence of such other matters, in connection
with the transactions contemplated hereby as Lender may reasonably request.
8
<PAGE>
Section 3.03 Post-Recordation Opinion. Promptly upon the
------------------------
recordation of the documents referenced in Section 3.01(f) and 3.02(f), Borrower
will direct Crowe & Dunlevy P.C., special counsel in Oklahoma City, Oklahoma, to
deliver to Borrower and Lender a favorable opinion or opinions addressed to each
of them with respect to such registration and recordation.
ARTICLE 4.
BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 4.01 Borrower's Representations and Warranties. The
-----------------------------------------
Borrower represents and warrants that, as of each Funding Date (unless any such
representation and warranty is specifically made as of an earlier date, in which
case the Borrower represents and warrants as of such earlier date):
(a) the Borrower is a corporation duly organized and validly existing
and is in good standing under the laws of State 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 11.01(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 perform its obligations under the
Borrower Documents;
(b) the Borrower 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
Borrower Documents;
(c) the Borrower 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 Borrower possesses all necessary certificates, franchises,
licenses, permits, rights and concessions and consents (collectively "permits")
which are necessary to 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 Borrower or its ability to perform its obligations under the
Borrower Documents;
(e) except as provided in Section 4.07(c) of the Security Agreement,
the execution, delivery and performance of the Borrower Documents have been duly
authorized by all necessary corporate action on the part of the Borrower and do
not require any stockholder approval, or approval or consent of any trustee or
holder of any indebtedness or obligations of the Borrower,
9
<PAGE>
and each such Borrower Documents has been duly executed and delivered and
constitutes the legal, valid and binding obligations of the Borrower 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 Borrower of the Borrower 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(a)(vii)(C) and the filings
referred to in Sections 3.01(f) and 3.02(f);
(g) except as provided in Section 4.07(c) of the Security Agreement,
neither the execution, delivery or performance by the Borrower of the Borrower
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 or approval under, any Applicable Law or the charter documents, as
amended, or bylaws, as amended, of the Borrower or any order, writ, injunction
or decree of any court or governmental authority against the Borrower 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 Borrower 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 imposition of any Lien upon
the Engines 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 Borrower or its ability to perform its obligations under the
Borrower Documents;
(h) except as disclosed in any Annual Report on Form 10-K, Quarterly
Report on Form 10-Q or Current Report on Form 8-K filed by Borrower with the SEC
on or prior to the date hereof or as otherwise disclosed in writing to the
Lender, there are no pending or, to the knowledge of the Borrower, threatened
actions, suits, investigations or proceedings against or affecting the Borrower
or any of its properties before or by any court, governmental agency,
arbitration board, tribunal or other administrative agency which, (A) may
reasonably be expected to have a materially adverse effect on the Borrower's
consolidated financial condition, business, or operations, or (B) would
materially adversely affect the ability of the Borrower to consummate the
transactions contemplated by the Operative Agreements or perform its obligations
under the Borrower Documents;
(i) except for (A) the filing with and, where appropriate, recordation
by the FAA pursuant to the Transportation Code of the Security Agreement and the
Security Agreement Supplement relating to each Engine and (B) the filing of the
financing statements referred to in Sections 3.01(g) and 3.02(g), no further
action, including any filing or recording of any document, is necessary or
advisable in order to establish the Lender's security interest in the Engines as
against the Borrower and any third parties;
10
<PAGE>
(j) the Borrower has received good and marketable title to the
relevant Engine as of the relevant Funding Date, free and clear of all Liens,
except Permitted Liens of the type referred to in clause (c), (d) and (i) of the
definition thereof;
(k) no Default or Event of Default exists and no Event of Loss, or
event which with the passage of time would constitute an Event of Loss, exists;
(l) neither the Borrower nor any subsidiary of the Borrower is an
"investment company" or a company "controlled by an investment company" within
the meaning of the Investment Company Act of 1940, as amended; and
Section 4.0 Certain Covenants of Borrower. The Borrower covenants
-----------------------------
and agrees as follows:
(a) Filings and Recordings. The Borrower will cause to be done,
----------------------
executed, acknowledged and delivered at the Borrower's cost and expense all such
further acts, conveyances and assurances as the Lender shall reasonably require
for accomplishing the purposes of the Operative Agreements. Without limiting
the generality of this Section 4.02(a), the Borrower will promptly take, or
cause to be taken, at the Borrower's cost and expense, such action with respect
to the recording, filing, re-recording and re-filing of the Security Agreement
(including each supplement thereto), and any financing statements or other
instruments as may be reasonably requested by the Lender and appropriate, to
maintain the Lender's security interest in the Engines, as against the Borrower
and any third parties, or if the Borrower cannot itself take, or cause to be
taken, such action, will furnish to the Lender 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 the Lender to take such action at the
Borrower's cost and expense in a timely manner.
(b) Privileges and Franchises. The Borrower shall at all times
-------------------------
maintain its corporate existence, except as permitted by Section 4.02(c) hereof
and all of its rights, privileges and franchises necessary in the normal conduct
of its business, except for any right, privilege or franchise that it determines
is no longer necessary or desirable in the conduct of its business; provided
--------
that, nothing in this Section 4.02(b) shall in any way otherwise diminish the
- ----
obligations of the Borrower under the Security Agreement.
(c) Merger and Consolidation. The Borrower shall not, at any time
------------------------
while any Obligations are outstanding, enter into any merger with or into or
consolidation with (which shall include a reorganization which involves the
Borrower and another Person), 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 the surviving Person which acquires
by purchase, conveyance, transfer or lease all or substantially all of the
assets of the Borrower as an entirety (i) is a domestic Person 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) is a Section 1110 Person, so long
as such status is a
11
<PAGE>
condition to the availability of Section 1110, (iv) immediately after giving
effect to such transaction, unless otherwise consented to by Lender which
consent shall not be unreasonably withheld, shall have a tangible net worth
(determined in accordance with generally accepted accounting principles) at
least equal to the lesser of (1) Fifty Million Dollars ($50,000,000) and (2) 75%
of Borrower's tangible net worth (determined in accordance with generally
accepted accounting principles) immediately prior to such transaction; (v) if
not the Borrower, executes a duly authorized, legal, valid, binding, and
enforceable agreement, reasonably satisfactory in form and substance to Lender,
containing an effective assumption of all of the Borrower's, as applicable,
obligations hereunder and under the other Operative Agreements, and each other
document contemplated hereby or thereby and delivers such instrument to the
Lender, (vi) provides an opinion from counsel (which counsel may be the
Borrower's General Counsel) delivered to the Lender, which opinion shall be
reasonably satisfactory to the Lender, 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 (v) above comply with this Section 4.02(c), that such
instrument 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 (vii)
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.
Upon any permitted consolidation or merger, or any permitted
conveyance, transfer or lease of all or substantially all of the assets of the
Borrower and the satisfaction of the conditions specified in this Section
4.02(c), the successor corporation formed by such consolidation or into which
the Borrower 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 Borrower under this Agreement and each other Operative
Agreement and any other document contemplated hereby and thereby to which the
Borrower is a party with the same effect as if such successor corporation had
been named as the Borrower herein and therein. No such consolidation or merger,
or sale, conveyance, transfer or lease of all or substantially all of the assets
of the Borrower as an entirety shall have the effect of releasing the Borrower
or any successor corporation which shall theretofore have become the Borrower
hereunder in the manner prescribed in this Section 4.02(c) 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 Engines except in compliance with the applicable provisions of
this Agreement and the Security Agreement.
(d) Change of Location. The Borrower agrees to give prompt prior
------------------
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 Lender 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.
12
<PAGE>
(e) Financial Statements. The Borrower agrees to furnish to the
--------------------
Lender during the Term:
(i) within 60 days after the end of each of the first three
fiscal quarters in each fiscal year of the Borrower, unaudited consolidated
balance sheets of the Borrower 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 Borrower 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, provided that so long as the
--------
Borrower is subject to the reporting provisions of the Securities Exchange
Act of 1934, a copy of the Borrower's quarterly report on Form 10-Q will
satisfy this requirement;
(ii) within 120 days after the end of each fiscal year of the
Borrower, a copy of the annual report for such year for the Borrower or the
affiliated group of which the Borrower is a member (on a consolidated
basis, if applicable) and a balance sheet of the Borrower 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 Borrower
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 Borrower is subject to the reporting provisions of the Securities
Exchange Act of 1934, a copy of the Borrower's annual report on Form 10-K
will satisfy this requirement; and
(iii) from time to time, such other non-confidential financial
information as the Lender may reasonably request.
(f) Filing of Documents. Borrower, at its sole cost and expense, will
-------------------
cause the documents filed with the FAA pursuant to Sections 3.01(f) and 3.02(f),
the financing statements required pursuant to Sections 3.01(g) and 3.02(g) and
all continuation statements (and any amendments necessitated by any combination,
consolidation or merger pursuant to Section 4.02(c), 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 Lender, 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).
Section 4.03 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties of the Borrower provided in Section 4.01 and in
any other Operative Agreement shall survive the making and repayment of each
Loan and the expiration or other termination of this Agreement and the other
Operative Agreements.
13
<PAGE>
ARTICLE 5.
LENDER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 5.01 Representations, Warranties and Covenants of Lender.
---------------------------------------------------
(a) Representations and Warranties. The Lender represents and
------------------------------
warrants that, as of each Funding Date (unless any such representation and
warranty is specifically made as of an earlier date, in which case the Lender
represents and warrants as of such earlier date):
(i) it is a corporation duly organized and validly existing
and is in good standing under the laws of State of Rhode Island 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 carry out the transactions contemplated by this Agreement and the other
Operative Agreements to which it is a party;
(ii) the Operative Agreements to which it is party have been
duly executed and delivered by the Lender and constitute the legal, valid
and binding obligations of the Lender 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; and
(iii) the funds to be used by the Lender to fund each Loan to
the Borrower pursuant to the terms hereof do not constitute assets (within
the meaning of ERISA and any applicable rules and regulations) of an ERISA
Plan.
(b) Assignment of Loan. At any time after the Funding Date of Loan
------------------
B and subject to satisfaction of the conditions set forth in this Section
5.01(b), the Lender may assign, convey or otherwise transfer to any Affiliate of
Lender or to a single institutional investor or an Affiliate of an institutional
investor all (but not less than all) of the Loan, provided that (i) the Lender
--------
gives the Borrower at least 10 days' notice of such assignment, conveyance or
other transfer, and (ii) the transferee shall make a representation to the
effect that the funds to be used by the transferee to acquire the Loan do not
constitute the assets of an ERISA Plan. No assignment, conveyance or transfer
by the Lender of the Loan shall increase the amount of the liability of the
Borrower hereunder or under any other Operative Agreements over the amount of
liability the Borrower would have incurred had such assignment, conveyance or
transfer not occurred.
Section 5.02 The Borrower's Right of Quiet Enjoyment.
---------------------------------------
Notwithstanding any other provision of any of the Operative Agreements, Lender
covenants that at any time while any Obligations are outstanding, so long as no
Event of Default shall have occurred and be continuing and the Lender has not
commenced the exercise of remedies set forth in Section 9.01 and Section 5.02 of
the Security Agreement, Lender or any Person claiming by, through or under
Lender will not take or cause to be taken any action contrary to the Borrower's
rights hereunder, including, without limitation, its rights to possession, use
and quiet enjoyment of the Engines, provided that
--------
14
<PAGE>
nothing contained herein shall affect any of the rights of the Lender under
Section 9.01 or 5.02 of the Security Agreement upon the occurrence and during
the continuance of an Event of Default.
Section 5.03 Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Representations, warranties and covenants of the Lender provided for in this
Article 5, and its obligations under any and all of them, shall survive the
making and repayment of each Loan and the expiration or other termination of
this Agreement and the other Operative Agreements.
ARTICLE 6.
[INTENTIONALLY OMITTED]
ARTICLE 7.
GENERAL INDEMNITY
Section 7.01 Generally.
---------
(a) Indemnity. The Borrower agrees to assume liability for, and also
---------
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, obligations, losses,
damages, settlements, penalties, claims, actions, 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 either Funding 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 or any transaction contemplated
thereby;
(ii) the operation, possession, use, non-use, maintenance,
storage, overhaul, delivery, non-delivery, control, condition, alteration,
modification, addition, improvement, replacement, substitution, return,
abandonment, redelivery or other disposition, repair or testing of the
Engines or any Part thereof by the Borrower, any Permitted Lessee or any
other Person whatsoever, whether or not such operation, possession, use,
non-use, maintenance, storage, overhaul, delivery, non-delivery, control,
condition, alteration, modification, addition, improvement, replacement,
substitution, return, abandonment, redelivery or other disposition, repair
or testing is in compliance with the terms hereof and of the Security
Agreement, 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 laws, rules or
regulations, including, without limitation,
15
<PAGE>
environmental control, noise and pollution laws, rules or regulation and
any Liens in respect of the Engines or any Part;
(iii) the manufacture, design, sale, return, purchase,
acceptance, nonacceptance, rejection, delivery, non-delivery, condition,
repair, modification, servicing, rebuilding, registration, reregistration,
deregistration, ownership, financing, import, export, performance, non-
performance, pooling, lease, sublease, transfer, merchantability, fitness
for use, alteration, substitution or replacement of any Engine, or Part or
other transfer of use or possession, or other disposition of the Engines 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 or absolute 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 Borrower under any of the Operative
Agreements, or the falsity or inaccuracy of any representation or warranty
of the Borrower in any of the Operative Agreements or the occurrence of any
Default or Event of Default; and
(v) the enforcement of the terms of the Operative Agreements
(including this Section 7.01(a)).
(b) Exceptions. The indemnity provided for in Section 7.01(a) shall
----------
not extend to any Expense to the extent it:
(i) is attributable to the willful misconduct or gross
negligence of any Indemnitee (other than gross negligence or willful
misconduct imputed to such person by reason of its interest in the Engines
or any Part or any transaction documents);
(ii) is, except to the extent fairly attributable to acts or
events occurring prior thereto, attributable to acts or events (other than
the performance by Borrower of its obligations pursuant to the terms of the
Operative Agreements) which occur after full repayment of the Loan by the
Borrower;
(iii) is, other than as expressly provided herein or in the
other Operative Agreements, a Tax or loss of a Tax benefit;
(iv) is a cost or expense expressly required to be paid by an
Indemnitee or its permitted transferees (and not by the Borrower) pursuant
to this Agreement or any other Operative Agreement and for which the
Borrower is not otherwise obligated to reimburse an Indemnitee pursuant to
the terms of this Agreement or such other Operative Agreement;
16
<PAGE>
(v) is attributable to the incorrectness or breach by an
Indemnitee of its representations or warranties, under any of the Operative
Agreements;
(vi) is attributable to the failure by an 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 Borrower of any
representation or warranty or by any failure of Borrower to perform any
obligation under an Operative Agreement;
(vii) is attributable to the offer or sale of any interest in
the Aircraft or the Loan or any similar interest (including an offer or
sale resulting from bankruptcy or other proceedings for the relief of
debtors in which an Indemnitee is the debtor), unless in each case such
offer or sale shall occur pursuant to the exercise of remedies hereunder
and under any other Operative Agreement;
(viii) 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; and
(ix) constitutes an Indemnitee's overhead.
(c) Non-Parties. If an Indemnitee is not a party to this Agreement,
-----------
in order to be entitled to the benefit of this Article 7, such Indemnitee shall
comply with the terms of this Article 7 in connection with its making any claim
for indemnification hereunder.
Section 7.02 Notice and Payment. Each Indemnitee shall give prompt
------------------
written notice to the Borrower of any liability as to which a Responsible
Officer of such Indemnitee has actual knowledge, for which the Borrower 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 Borrower from any of its obligations to
indemnify such Indemnitee hereunder, except to the extent that such failure
adversely affects any applicable defense or counterclaim, otherwise increases
the amount the Borrower would have been liable for in the absence of such
failure to provide such notice or adversely affects the ability of Borrower's
insurers to defend such claim.
Section 7.03 Defense of Claims. Pursuant to the terms hereof, the
-----------------
Borrower or its insurers shall have the right (in each such case at the
Borrower's sole expense) to investigate, defend (and control the defense of) any
such claim for which indemnification is sought pursuant to this Article 7 and
each Indemnitee shall reasonably cooperate with the Borrower and its insurers
with respect thereto, provided that, such right of the Borrower shall be subject
-------- ----
to Borrower having acknowledged in writing its obligation to indemnify the
Indemnitee in respect of such claim if the defense of such claim is unsuccessful
(unless and to the extent it is determined during any related proceedings that
any of the exclusions set forth in Section 7.01(b) are applicable to such
claim); provided further that, without limiting the right of the Borrower's
-------- ------- ----
insurers to assume and control the
17
<PAGE>
defense of or to compromise, any such claim, the Borrower 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 proceeding involves the potential imposition of criminal (or any non-de
minimis risk of civil) liability on such Indemnitee (and, in any such instance,
Borrower shall pay the reasonable fees and expenses of Lender's counsel) 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
Engines (unless the Borrower 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 Borrower or the insurers under a policy of insurance
maintained by the Borrower 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 Borrower or
such insurers; provided, that, subject to the rights of Borrower's insurers to
-------- ----
assume and control the defense of or to compromise (as provided herein), any
such claim, any counsel selected by Borrower in connection with any defense
shall be reasonably acceptable to the Lender. 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 Borrower 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 Borrower or its insurers to conduct such proceedings, interfere
with the defense of such claim; and such participation shall not constitute a
waiver of the indemnification provided in this Section 7.03. No Indemnitee shall
enter into any settlement or other compromise with respect to any claim
described in this Section 7.03 without the prior written consent of the Borrower
(which consent shall not be unreasonably withheld or delayed) and its insurers,
unless such Indemnitee waives its right to be indemnified under this Article 7
with respect to such claim. Subject to the rights of Borrower's insurers to
assume and control the defense of or to compromise, any such claim, the Borrower
shall not enter into any settlement or compromise relating to any claims against
the Lessor without consent of Lender (which consent shall not be unreasonably
withheld or delayed); provided that, Borrower's insurers may not enter into any
-------------
such settlement or compromise without Lender's consent unless a release of all
related claims against the Lender (and any other Indemnitee) shall be obtained
in connection with such settlement or compromise.
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
Borrower hereunder which is covered by a policy of insurance maintained by the
Borrower (or a Permitted Lessee) pursuant to Section 4.05 of the Security
Agreement or otherwise, it shall be a condition of such indemnity with respect
to any particular Indemnitee that such Indemnitee shall reasonably 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.
18
<PAGE>
Section 7.05 Subrogation. To the extent that an Expense indemnified
-----------
by the Borrower under this Article 7 is in fact paid in full by the Borrower
and/or an insurer under a policy of insurance maintained by the Borrower, the
Borrower and/or such insurer as the case may be shall 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). So long as no Event of Default has
occurred and is continuing, should an Indemnitee receive any refund, in whole or
in part, with respect to any Expense paid in full by the Borrower hereunder, it
shall promptly pay over the amount refunded (but not an amount in excess of the
amount Borrower and/or such insurer has paid to such Indemnitee in respect of
such Expense) to the Borrower.
Section 7.06 Information. Subject to Section 7.04, Borrower will
-----------
provide the relevant Indemnitee with such information, not within the control of
such Indemnitee, as is in Borrower's control or is reasonably available to
Borrower, 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 Borrower
with such information, not within the control of Borrower, as is in such
Indemnitee's control or is reasonably available to such Indemnitee, which
Borrower 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 Borrower provided for in this Article 7 shall survive the
expiration or other termination of this Agreement and the other Operative
Agreements.
Section 7.08 Effect of Other Indemnities. The Borrower'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 or
by any other Person and regardless of any other rights that Borrower may have
against such Indemnitee pursuant to any Operative Agreement or otherwise, and
the Person seeking indemnification from the Borrower pursuant to any provision
of this Agreement may proceed directly against the Borrower without first
seeking to enforce any other right of indemnification.
Section 7.09 Waiver of Certain Claims. The Borrower hereby waives
------------------------
and releases any Expense now or hereafter existing against any Indemnitee
arising out of death or personal injury to personnel of the Borrower, loss or
damage to property of the Borrower, or the loss of use of any property of the
Borrower, which results from or arises out of the condition, use or operation of
the Engines, including, without limitation, any latent or patent defect whether
or not discoverable.
19
<PAGE>
ARTICLE 8.
EVENTS OF DEFAULT
Section 8.01 Events of Default. The following events shall
-----------------
constitute Events of Default 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) Borrower shall fail to make any payment of (i) principal of or
interest on the Loan, whether by acceleration or otherwise, when due and such
failure shall continue for a period of ten (10) days; or (ii) any other amount
required to be paid to Lender pursuant to any of the Borrower Documents within
20 days after receipt by the Borrower of a written demand therefor from the
Lender;
(b) The Borrower shall fail to procure and maintain any insurance
required pursuant to Section 4.05 of the Security Agreement 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 30 days after receipt by the
Lender of notice of such lapse or cancellation or the date that the lapse or
cancellation is effective as to the Lender;
(c) The Borrower shall use the Engines after having received notice
that the public liability insurance required by Section 4.05(a) of the Security
Agreement has lapsed or has been cancelled (For the avoidance of doubt, the
event specified in this Section 8.01(c) is an additional event constituting an
Event of Default hereunder and is separate and independent from the event
specified in Section 8.01(b) above.);
(d) The Borrower 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, and such failure shall continue unremedied for a period of
30 days after delivery of notice of such failure from the Lender to the
Borrower, unless such failure is curable and the Borrower shall, after the
delivery of such notice, be diligently proceeding to correct such failure and
shall in fact correct such failure 135 days after delivery of such notice;
provided that, such additional 105 period shall not apply to any such failure
- -------- ----
under Section 4.01(b)(x) or 4.06 of the Security Agreement or Section 4.02(c)
hereof;
(e) Any representation or warranty made by the Borrower herein or in
any other Operative Agreement or in any certificate required to be delivered by
the Borrower pursuant thereto 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 30 days after notice thereof has been given to the
Borrower by the Lender, unless such incorrectness is curable and Borrower shall,
after delivery of such notice, be diligently proceeding to correct such failure
and shall in fact correct such failure 135 days after the delivery of such
notice;
20
<PAGE>
(f) The Borrower 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 Borrower 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 Borrower
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 the Federal bankruptcy 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 Borrower shall file an answer admitting the material
allegations of a petition filed against the Borrower 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 proceedings
by any court of competent jurisdiction appointing, without the consent of the
Borrower, a receiver, trustee or liquidator of the Borrower or of any
substantial part of its property, or any substantial part of the property of the
Borrower shall be sequestered, and any such order, judgment of decree of
appointment or sequestration shall remain in force undismissed, unstayed or
unvacated for a period of 60 days after the date of entry thereof;
(h) A petition against the Borrower in a proceeding under the Federal
bankruptcy laws or other insolvency laws as now or hereafter in effect shall be
filed and shall not be withdrawn or dismissed within 60 days thereafter, or,
under the provisions of any law providing for reorganization or winding-up of
corporations which may apply to the Borrower, any court of competent
jurisdiction shall assume jurisdiction, custody or control of the Borrower 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
60 days;
(i) So long as Fleet National Bank (or any Affiliate thereof) remains
as the Lessor under the Lease Agreement [N587ML], any "Event of Default" shall
occur under the Lease Agreement [N587ML]; or
(j) Borrower shall receive notice of default or exercise of remedies
with respect to the payment or performance of any indebtedness or other
obligation to any third party (other than the "Lessor" under the Lease Agreement
[N587ML]) and any such default or exercise of remedies results in an
acceleration of such indebtedness or obligation; provided, however, that the
aggregate amount of any such indebtedness or obligation is in excess of
$5,000,000;
provided that, notwithstanding anything to the contrary contained herein or in
- --------
any other Operative Agreement, any failure of the Borrower to perform or observe
any covenant, condition, or agreement herein or in any other Operative Agreement
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
21
<PAGE>
Loss" so long as the Borrower is continuing to comply with the applicable terms
of Section 4.03(e) of the Security Agreement.
ARTICLE 9.
REMEDIES
Section 9.0 Remedies.
--------
(a) Upon the occurrence of any Event of Default described in Sections
8.01(f), 8.01(g) and 8.01(h) at any time thereafter so long as the same shall be
continuing, the outstanding principal of the Loan, the accrued interest thereon
and all other obligations of Borrower to Lender under this Agreement and any
other Operative Agreement (including the Make Whole Amount, if any) shall
automatically be immediately due and payable, without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
anything in this Agreement or in the Note or Security Agreement to the contrary
notwithstanding.
(b) Upon the occurrence and during the continuation of any other
Event of Default at any time thereafter so long as the same shall be continuing,
Lender may, in addition to exercising any and all other remedies it may have in
the Security Agreement and any other Operative Agreement, declare the
outstanding principal of the Loan, the accrued interest thereon and all other
obligations of Borrower to Lender under the Operative Agreement (including the
Make Whole Amount, if any) to be forthwith due and payable, whereupon the Loan,
all accrued interest thereon and all such obligations shall immediately become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived, anything in this Agreement or in
the Note or Security Agreement to the contrary notwithstanding.
(c) Upon the occurrence and during the continuation of any Event of
Default at any time thereafter so long as the same shall be continuing,
Borrower, in addition to its other obligations pursuant to this Section 9.01,
shall indemnify Lender against all reasonable out-of-pocket costs and expenses
incurred by Lender as a consequence thereof or in connection with any related
exercise of remedies hereunder, under the Security Agreement or any other
Operative Agreement. All such costs, expenses and damages shall be payable by
Borrower upon demand by notice hereunder.
(d) All payments received or amounts realized by Lender at any time
and from time to time from any source after the Loan shall have become due and
payable or been declared due and payable as a result of an Event of Default
shall be applied by Lender as follows: first, in payment of all amounts owed to
-----
the Lender pursuant to Section 9.01(c), second, to pay any accrued and unpaid
------
interest then due in respect of such Loan; third, to pay in full the principal
-----
amount then outstanding on such Loan; fourth, to pay all other amounts then due
------
owing to the Lender hereunder or under the Operative Agreements (including the
Make Whole Amount, if any) and fifth, the balance, if any, to the Borrower or as
-----
a court of competent jurisdiction may otherwise direct.
22
<PAGE>
ARTICLE 10.
TRANSACTION COSTS
Section 10.01. Transaction Costs and Other Costs.
---------------------------------
(a) Transaction Costs. If the transactions contemplated by this
-----------------
Agreement to occur on each Funding Date are consummated, the Borrower shall pay
(or reimburse the Lender if the Lender shall have previously made such payment)
all of the following fees and expenses relating to the transactions contemplated
hereby, following receipt by the Borrower of appropriate invoices with respect
thereto: (i) the reasonable fees and expenses of counsel for Lender; and (ii)
the reasonable fees and expenses of special aviation counsel.
(b) Amendments and Supplements. Without limitation of the foregoing,
--------------------------
the Borrower agrees to pay to the Lender 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 or is requested
by the Borrower or necessitated by the action or inaction of the Borrower;
provided, however, that the Borrower shall not be responsible for fees or
- -------- -------
expenses incurred in connection with the offer, sale or other transfer (whether
pursuant to Section 5.01(b) hereof or otherwise) by the Lender of any interest
in the Loan.
ARTICLE 11.
NOTICES
Section 11.01. 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 Borrower, the Lender
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 11.01:
(a) if to the Borrower, 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 Borrower
shall from time to time designate in writing to the Lender; and
23
<PAGE>
(b) if to the Lender, to its office at c/o Fleet Capital Corporation,
50 Kennedy Plaza, 5/th/ Floor, Providence, Rhode Island 02903-2305, Attention:
Chief Credit Officer, telephone (401) 278-6392, facsimile (401) 278-3139; or to
such other address as the Lender shall from time to time designate in writing to
the Borrower.
ARTICLE 12.
MISCELLANEOUS
Section 12.01. 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 12.02. 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. No such written termination, amendment, supplement,
waiver or modification shall be effective unless a signed copy shall have been
delivered to and executed by each party hereto.
Section 12.03 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 12.04 Successors and Assigns. The terms of this Agreement
----------------------
shall be binding upon, and shall inure to the benefit of, the Borrower and its
successors and permitted assigns, and the Lender and its successors and
permitted assigns.
Section 12.05 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 12.06 Limitations of Liability. Lender shall not have any
------------------------
obligation or duty to Borrower or any other Person with respect to the
transactions contemplated hereby, except those obligations or duties of the
Lender expressly set forth in this Agreement and the other Operative Agreements.
Section 12.07 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
24
<PAGE>
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 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; PROVIDED, HOWEVER, TO THE
-------- -------
EXTENT PERMITTED BY APPLICABLE LAW, THAT NOTHING IN THIS AGREEMENT OR ANY OTHER
OPERATIVE AGREEMENTS SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING
SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION IN ORDER TO REALIZE
ON THE ENGINES OR ANY OTHER COLLATERAL OR ANY OTHER SECURITY, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER, AND BORROWER EXPRESSLY WAIVES
ANY OBJECTIONS THAT IT MAY HAVE TO THE VENUE OF SUCH COURTS.
(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 SET FORTH PURSUANT
TO SECTION 11.01. EACH PARTY HERETO AGREES THAT SERVICE UPON IT, OR ANY OF ITS
AGENTS, IN EACH CASE IN ACCORDANCE WITH THIS SECTION 12.07(c), 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.
(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 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
25
<PAGE>
OR CAUSE OF ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF
OR RELATING TO THIS AGREEMENT.
Section 12.08 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 12.10 Maximum Interest Rate. Notwithstanding anything that
---------------------
may be to the contrary in any of the Operative Agreements, no amount of interest
due under any of the Operative Agreements shall in any event exceed the maximum
rate permitted by law.
Section 12.11 Term of Agreement; Release of Liens. This Agreement
-----------------------------------
and all covenants, agreements, representations and warranties made herein shall
survive the making and repayment of each Loan and the execution and delivery to
Lender of the Note and shall continue in full force and effect until the payment
in full of the Loan and all of the Obligations. Following payment to Lender in
full of the Loan and all Obligations under the Operative Agreement, Lender, at
Borrower's request and expense, shall execute such release of the Liens of the
Security Agreement as Borrower may reasonably request.
Section 12.11 Reinstatement. If any payment, in whole or in part, of
-------------
any of the amounts due to the Lender pursuant to the terms of any Operative
Agreement is rescinded or must otherwise be restored or returned upon the
bankruptcy, insolvency, reorganization, arrangement, adjustment, composition,
dissolution, liquidation, or the like, of the Borrower, the Borrower's
obligations in respect of such returned payment (or portion thereof) shall be
continue to be effective and shall be reinstated, all as though such payment had
not been made, notwithstanding any termination of this Agreement or any other
Operative Agreement.
* * *
26
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be
executed by their respective, duly authorized officers as of the day and year
first written above.
MIDWAY AIRLINES CORPORATION,
as Borrower
By: /s/ Jonathan S. Waller
----------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
FLEET CAPITAL CORPORATION,
as Lender
By: /s/ Edward W. O'Brien
---------------------
Name: Edward W. O'Brien
Title: Vice President
27
<PAGE>
APPENDIX A
DEFINITIONS
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 Lender.
-------------------
"Aeronautical Authority" means as of any time of determination, the FAA or
----------------------
other governmental authority having jurisdiction over the Engines under the laws
of the country in which the airframe (on which an Engine is installed) 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
---------------
deemed to be received by a Person shall be supplemented by a payment to such
Person so that the sum of such payments, after deduction of all taxes (taking
into account any related credits or deductions) resulting from the actual or
constructive receipt or accrual of such payments, shall be equal to the payment
to be received.
"Applicable Law" means all applicable laws, treaties, judgments, decrees
--------------
injunctions, writs and orders of any court, governmental agency or authority and
rules, regulations, orders, directives, licenses and permits of any governmental
body, instrumentality, agency or authority.
<PAGE>
"Applicable Rate" shall mean, (i) with respect to Loan A the rate per
---------------
annum set forth in Section 2.03(a)(i) of the Loan Agreement; and (ii) with
respect to Loan B, the rate established one (1) Business Day prior to the second
Funding Date, equal to the sum of (x), the four (4) year U.S. Treasury Constant
Maturities as shown in the Federal Reserve Statistical Release H.15 as of such
date plus (y) *%.
"Average Life Date" means, for either Note, the date which follows the
-----------------
prepayment date by a period equal to the Remaining Weighted Average Life of such
Note.
"Bankruptcy Code" means Title 11 of the United States Code, as amended,
---------------
and any successor thereto.
"Borrower" means Midway Airlines Corporation, a Delaware corporation, and
--------
its successors and permitted assigns.
"Borrower Documents" means the Operative Agreements to which the Borrower
------------------
is a party.
"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, Charlotte, North Carolina or Providence, Rhode Island.
"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).
"Collateral" means all property which at the time of any determination
----------
is subject to a Lien in favor of Lender granted by Borrower under the Security
Agreement or under any other Operative Agreements, including, but not limited
to, the Engines.
"CRAF Program" has the meaning specified in Section 4.01(b)(vii) of the
------------
Security Agreement.
"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.
"Dollars", "Dollar" and "$" means dollars in lawful currency of the United
------- ------ -
States.
- ----------
* Confidential treatment has been requested for omitted information. Omitted
information has been filed separately with the Commission.
<PAGE>
"Engine" means (A) each of the two General Electric CF34-3B1 Series
------
200 aircraft engines, identified by manufacturer's serial number in such
Security Agreement Supplements executed and delivered from time to time pursuant
to the Security Agreement, so long as a Replacement Engine shall not have been
substituted therefor pursuant to Section 4.03(e) of the Security Agreement, and
(B) a Replacement Engine, so long as another Replacement Engine shall not have
been substituted therefor pursuant to Section 4.03(e) of the Security Agreement,
whether or not such engine or Replacement Engine, as the case may be, is from
time to time installed on any 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 subject to the Lien of the
Security Agreement under the terms of Section 4.03 of the Security Agreement.
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.
"Engine Manufacturer's Consent" means the Consent and Agreement of the
-----------------------------
Engine Manufacturer to the assignment of portions of the Engine Warranty
pursuant to Section 2.01 of the Security Agreement.
"Engine Warranty" means the General Terms Agreement No. CF34-0897-065
---------------
in respect of the Engines provided to the Borrower by the Engine Manufacturer.
"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 8.01
----------------
of the Loan Agreement.
"Event of Loss" means any of the following events with respect to an
-------------
Engine:
(i) any theft, hijacking or disappearance of such
property for a period of 15 consecutive days (provided that, so long
as Borrower shall be diligently pursuing recovery of such property,
such period shall be extended to 45 consecutive days) or more;
<PAGE>
(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) condemnation, confiscation or seizure of, or requisition of
title to or use of such property by the Government or any foreign
government or purported government (or in the case of any such
condemnation, confiscation, seizure or requisition of title, by the
Government) or any agency or instrumentality thereof, for a period in
excess of (A) in the case of any condemnation, confiscation, seizure
or requisition of use, 180 consecutive days or (B) in the case of any
condemnation, confiscation or seizure of, or requisition of title, 15
consecutive days;
(v) as a result of any law, rule, regulation, order or other
action by the Aeronautical Authority, the use of the Engines in the
normal course of air transportation shall have been prohibited by
virtue of a condition affecting all General Electric CF34-3B1 Series
200 aircraft engines for a period of 180 consecutive days, unless the
Borrower, 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 Engines and shall within 12 months have
conformed at least one General Electric CF34-3B1 Series 200 aircraft
engine (but not necessarily an Engine) to the requirements of any such
law, rule, regulation, order or action, and shall be diligently
pursuing conformance of the Engines in a non-discriminatory manner;
and
(vi) the requisition or taking of use thereof by any government,
and any divestiture of title or ownership deemed to be an Event of
Loss with respect to an Engine under Section 4.01(b)(iii) or
4.01(b)(vi) of the Security Agreement.
The date of such Event of Loss shall be (aa) the 16/th/ day following loss of
such property or its use due to theft or disappearance or the 46/th/ day
following such loss if such period shall have been extended; (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 181/st/
day following condemnation, confiscation, seizure or requisition of title to
such property by the Government or a foreign government referred to in clause
(iv) above (or the 16/th/ day in the case of appropriation of title); and (ee)
the last day of the applicable period referred to in clause (v) above.
<PAGE>
"Expenses" has the meaning given to such term in Section 7.01(a) of
--------
the Loan Agreement.
"Federal Aviation Administration" or "FAA" means the United States
-------------------------------- ---
Federal Aviation Administration and any successor agency or agencies thereto.
"Funding Date" means, in respect of each Loan, the Business Day on
------------
which the relevant Loan is, or is to be, advanced by the Lender to the Borrower;
"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.
"Indemnitee" means Lender and each Affiliate, officer, director,
----------
employee, agent, servant, successor and permitted assigns of Lender.
"Lease Agreement [N587ML]" means the Lease Agreement [N587ML] dated as
------------------------
of December 30, 1999, between Fleet National Bank, as Lessor and the Borrower,
as Lessee.
"Lender" means Fleet Capital Corporation, a Rhode Island corporation,
------
and its successors and permitted assigns.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
security interest, claim, or other similar interest of any nature whatsoever.
"Loan" means the aggregate unpaid principal balance at any time of the
----
amounts advanced by the Lender to the Borrower pursuant to the Loan Agreement,
whether as Loan A or Loan B.
"Loan A" has the meaning specified in Section 2.01(a)(i) of the Loan
------
Agreement.
"Loan A Engine" means the Engine to be financed by the proceeds of
-------------
Loan A.
"Loan Agreement" means the Loan Agreement, dated as of December 30,
--------------
1999, between the Borrower and the Lender.
"Loan B" has the meaning specified in Section 2.01(a)(ii) of the Loan
------
Agreement.
"Loan B Engine" means the Engine to be financed by the proceeds of
-------------
Loan B.
"Make-Whole Premium" means with respect to the prepayment of any Note
------------------
(x) except in the case of any prepayment pursuant to Section 2.04(a) of the Loan
Agreement, until the
<PAGE>
first anniversary of the date thereof, an amount equal to 3% of the amount of
the principal being prepaid and (y) otherwise, the then current rate for United
States treasury securities (United States Treasury Bills on a discounted basis
shall be converted to a bond equivalent) with a maturity date closest to the
applicable Average Life Date (the "Treasury Rate"), plus 295 basis points, shall
be subtracted from the sum of: (1) the United States Treasury securities rate
which was used by the Lender in calculating the Applicable Rate at Note
commencement, plus (2) 295 basis points. If the result is zero or a negative
number, the Make-Whole Premium shall be zero. If the result is a positive
number, then the remaining payments due under such Note at the time of
prepayment shall be discounted to present value over the remaining term of such
Note, utilizing the then current Treasury Rate plus 295 basis points. The
remaining principal balance under such Note shall be subtracted from the result
of the present value calculation. The resulting amount of such subtraction
calculation shall be the Make-Whole Premium due Lender from Borrower. Lender and
Borrower agree that any Make-Whole Premium required to be paid in connection
with a Note does not constitute a penalty, but rather a reasonable calculation
of the investment loss that could be sustained by Lender resulting from a
prepayment of such Note. For purposes hereof, the Treasury Rate shall be the
"Bid Yield" calculated by reference to the "Treasury Bonds, Notes and Bills"
figures published in The Wall Street Journal on or next preceding the
-----------------------
termination date. In the event that The Wall Street Journal is not published or
-----------------------
does not publish "Treasury Bonds, Notes and Bills" figures for four consecutive
business days, a comparable reference shall be selected by Lender in its
reasonable discretion.)
"Maturity Date" means the earlier of (i) with respect to each Loan,
-------------
the date falling eighty-four (84) months after the relevant Funding Date of such
Loan or (ii) the date upon which all amounts due to Lender under the Loan
Agreement, the Notes and the other Operative Agreements shall have been paid or
shall be payable in full in accordance with the terms thereof.
"Minimum Liability Amount" shall mean $300,000,000.
------------------------
"Note" or "Notes" means each of the secured promissory notes issued by
---- -----
the Borrower to the Lender from time to time pursuant to the Loan Agreement.
"Obligations" means all indebtedness, liabilities, fees, indemnities
-----------
and obligations of Borrower and any other Person to Lender arising under or
relating to the Operative Agreements, including, but not limited to, repayment
of the principal of the Loan and payment of interest thereon.
"Officer's Certificate" means as to any company a certificate signed
---------------------
by a Responsible Officer of such company.
"Operative Agreements" means the Loan Agreement, the Notes, the
--------------------
Security Agreement and the Security Agreement Supplements.
<PAGE>
"Parts" means any and all appliances, parts, instruments, components,
-----
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature (other than complete Engines and temporary replacement parts as provided
in Section 4.03(a) of the Security Agreement) which may from time to time be
incorporated or installed in or attached to any Engine, exclusive of any items
leased by the Borrower from third parties and not required in the operation of
any Engine.
"Past Due Rate" means a rate equal to the rate per annum announced
-------------
from time to time by Citibank, N.A. as its prime rate plus three percent (3%)
per annum.
"Payment Date" means, with respect to each Loan, each date listed
------------
under the heading "Payment Date" in Schedule I to the relevant Note.
"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 B to the Security Agreement, except those that do not maintain normal
diplomatic relations with the United States.
"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), (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 rating of "A" or better from the Keefe Bank Watch
Service. Unless otherwise specified in writing by the Lender, all such
Permitted Investments shall mature not later than 30 days from the date of
purchase.
"Permitted Lease" means any lease agreement between the Borrower and a
---------------
Permitted Lessee as permitted by Section 4.01(b) of the Security Agreement.
"Permitted Lessee" 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 B to
the Security Agreement or (c) the United States of America or any
instrumentality or agency thereof.
"Permitted Lien" has the meaning given to such term in Section 4.06 of
--------------
the Security Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, limited liability company or government (federal,
state, local, foreign or any agency, instrumentality, division or body thereof)
or other entity of whatever nature.
<PAGE>
"Remaining Weighted Average Life" means on a given date with respect
-------------------------------
to any 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 Note by (b) the number of
days from and including such prepayment 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 Note.
"Replacement Engine" means a General Electric CF34-3B1 Series 200
------------------
engine (or engine of the same manufacturer of a comparable or an improved model)
which replaces an Engine pursuant to Section 4.03(e) of the Security Agreement
and which shall have become subject to the Lien of the Security Agreement
pursuant to Section 4.03(e) thereof.
"Responsible Officer" means, with respect to any party, any Vice
-------------------
President or other 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.
"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.
"Security Agreement" means the Engine Security Agreement, dated as of
------------------
December 30, 1999, between the Borrower and the Lender.
"Security Agreement Supplement" means any supplement to the Security
-----------------------------
Agreement, substantially in the form of Exhibit A to the Security Agreement,
entered into between the Borrower and the Lender for the purpose of identifying
the Engines (or a Replacement Engine) by manufacturer's serial numbers and
subjecting the Engines (or a Replacement Engine) to the Lien of the Security
Agreement, including any amendment thereto entered into subsequent to the first
Funding Date.
"Specified Default" means (a) an event or condition described in
-----------------
Section 8.01(a), (f), (g) or (h) of the Loan Agreement that, after the giving of
notice or lapse of time, or both, would become an Event of Default, or (b) any
Event of Default.
"Tax" or "Taxes" means 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,
-- -------
<PAGE>
imposts, recording duties, duties, charges, assessments or withholdings of any
nature whatsoever, together with any assessments, penalties, fines, additions to
tax or interest thereon.
"Transaction Costs" means those costs and expenses set forth in
-----------------
Section 10.01(a) of the Loan Agreement.
"Transportation Code" means Title 49 of the United States Code,
-------------------
subtitle VII, as amended and in effect on the date of the Loan Agreement or as
subsequently amended, or any successor or substituted legislation at the time in
effect and applicable, and the regulations promulgated pursuant thereto.
"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>
CONFORMED COPY
--------------
- --------------------------------------------------------------------------------
ENGINE SECURITY AGREEMENT
Dated as of December 30, 1999
Between
MIDWAY AIRLINES CORPORATION,
as Borrower
and
FLEET CAPITAL CORPORATION,
as Lender
relating to
TWO (2) GENERAL ELECTRIC MODEL CF34-3B1 AIRCRAFT ENGINES
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. INTERPRETATION.................................................. 1
Section 1.01 Definitions.............................................. 1
Section 1.02 References............................................... 1
Section 1.03 Headings................................................. 1
ARTICLE 2. SECURITY INTEREST............................................... 1
Section 2.01 Security Interest........................................ 1
ARTICLE 3. INVESTMENT OF SECURITY FUNDS.................................... 3
Section 3.01 Investment of Security Funds............................. 3
ARTICLE 4. COVENANTS....................................................... 3
Section 4.01 Possession; Operation and Use; Maintenance; Title........ 3
(a) General.................................................. 3
(b) Possession............................................... 3
(c) Operation and Use........................................ 6
(d) Maintenance.............................................. 7
Section 4.02 Inspection............................................... 8
Section 4.03 Replacement and Pooling of Parts; Alterations,
Modification and Additions; Event of Loss................ 8
(a) Replacement of Parts..................................... 8
(b) Title to Parts........................................... 9
(c) Pooling of Parts Leasing................................. 9
(d) Alterations, Modifications and Additions................. 9
(e) Event of Loss with Respect to an Engine.................. 10
Section 4.04 Requisition for Use...................................... 12
Section 4.05 Insurance................................................ 13
(a) Public Liability and Property Damage Insurance........... 13
(b) Insurance Against Loss or Damage to the Engines.......... 14
(c) Additional Insureds; Loss Payment........................ 14
(d) Deductibles and Self-Insurance........................... 14
(e) Application of Insurance Proceeds........................ 15
(f) Insurance for Own Account................................ 15
(g) Reports, etc............................................. 16
(h) Right to Pay Premiums.................................... 16
(i) Certain Payments Held as Security........................ 16
Section 4.06 Liens.................................................... 17
Section 4.07 Recordation and Further Assurances....................... 17
(a) Recordation of this Agreement............................ 17
(b) Further Assurances....................................... 17
(c) Engine Warranty.......................................... 18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 5. EVENTS OF DEFAULT; REMEDIES..................................... 18
Section 5.01 Events of Default........................................ 18
Section 5.02 Remedies................................................. 18
Section 5.03 Application of Proceeds.................................. 20
Section 5.04 Lender May Purchase...................................... 20
ARTICLE 6. MISCELLANEOUS................................................... 21
Section 6.01 Notices.................................................. 21
Section 6.02 Waiver................................................... 21
Section 6.03 Amendments............................................... 21
Section 6.04 Successors and Assigns................................... 21
Section 6.05 Survival of Representations, Warranties and Covenants.... 21
Section 6.06 Severability............................................. 21
Section 6.07 Counterparts............................................. 21
Section 6.08 Setoff................................................... 22
Section 6.09 GOVERNING LAW............................................ 22
</TABLE>
Schedule I Description of Engines
Appendix A Definitions
Exhibit A Security Agreement Supplement
Exhibit B List of Countries .
<PAGE>
ENGINE SECURITY AGREEMENT
-------------------------
This ENGINE SECURITY AGREEMENT, dated as of December 30, 1999 (this
"Agreement"), is between MIDWAY AIRLINES CORPORATION, a Delaware corporation
(herein, together with its successors and permitted assigns, the "Borrower") and
FLEET CAPITAL CORPORATION, a Rhode Island corporation (together with its
successors and permitted assigns, the "Lender").
WHEREAS, the Lender has agreed to make the Loan to the Borrower under
the Loan Agreement dated as of December 30, 1999 (the "Loan Agreement") between
the Borrower and the Lender, upon and subject to the terms and conditions
therein contained;
WHEREAS, it is a condition precedent to the Lender's obligations to
the Borrower under the Loan Agreement to make the Loan that the Borrower
executes and delivers this Agreement.
NOW, THEREFORE, the parties hereto 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. Unless the
context otherwise requires, (i) all definitions of documents shall refer to such
documents as they may now or later be amended or supplemented, and (ii) all
definitions of parties shall be deemed to include the successors and permitted
assigns of such parties.
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 captions and 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.
ARTICLE 2.
SECURITY INTEREST
Section 2.01 Security Interest. As security for the payment and
-----------------
performance of the Obligations (whether as scheduled, upon acceleration or
otherwise, including, without limitation,
1
<PAGE>
all indebtedness, liabilities, fees, indemnities and obligations of Borrower to
Lender arising under or relating to the Operative Agreements, including, but not
limited to, repayment of the principal of the Loan and payment of interest
thereon, and of all costs of collection and enforcement of the Obligations, the
Borrower hereby mortgages, pledges and assigns to the Lender, and hereby creates
in and grants to the Lender a continuing security interest in, but none of its
obligations or liabilities respecting, all of the Borrower's right, title and
interest in and to the following, whether now owned or hereafter acquired
(collectively, the "Collateral"):
(a) the aircraft engines listed on Schedule I hereto or as otherwise
identified in any Security Agreement Supplement hereto (each hereinafter
referred to, so long as the same shall not have been released from the Lien of
this Security Agreement pursuant to the terms hereof, as an "Engine", and
------
collectively, the "Engines"), which terms shall also include any Replacement
-------
Engine which becomes subject to the Lien of this Security Agreement pursuant to
the terms hereof from and after the time such Replacement Engine becomes subject
to such Lien, unless and until thereafter released from such Lien pursuant to
the terms hereof; together, with all appliances, equipment and accessories
thereto, by whomsoever manufactured, in which the Borrower now has or in the
future acquires rights, and installed in or appurtenant to said Engines.
(b) subject to Section 4.07(c), the Engine Warranty to the extent the
same relates to the continuing rights of the Borrower in respect of any
warranty, express or implied, as to title, materials, workmanship, design or
patent infringement with respect to the Engines and to any service life policy,
engine performance guarantee and indemnity provisions with respect to the
Engines together with all rights, powers, privileges, options and other benefits
of the Borrower thereunder with respect to the Engines; reserving to the
----------------
Borrower, however, (i) all of the Borrower's rights and interests in and to the
- -----------------
Engine Warranty as and to the extent that the same relate to engines other than
the Engines, (ii) so long as the Engine Manufacturer shall not have received
notice that the Lender has declared the Loan Agreement to be in default and has
commenced the exercise of remedies thereunder, the right to demand, accept and
retain all rights in and to all property, data and services which the Engine
Manufacturer is obligated to provide or does provide pursuant to the Engine
Warranty, as the case may be, and the right to take all other actions and enjoy
all other benefits of the "Airline" or the "Operator" thereunder and (iii) all
of the Borrower's rights under any and all letter agreements, "concessions" and
or "special guarantees" (as defined in the General Terms Agreement), including
without limitation, those found in Exhibit D of the General Terms Agreement;
(c) all substitutions, replacements and renewals of all property
covered by the Lien hereof and all property which shall hereafter become
physically attached or incorporated in all property covered by the Lien hereof,
in each case to the extent the Borrower now has or in the future acquires rights
in the same; and
(d) insurance proceeds to the extend the Borrower is a loss payee with
respect to such proceeds pursuant to Section 4.05(c) hereof.
2
<PAGE>
TO HAVE AND TO HOLD all and singular of the aforesaid property unto
the Lender, and its successors and assigns, as security as aforesaid.
IT IS HEREBY COVENANTED AND DECLARED by and between the parties hereto
and their respective successors and assigns that the terms upon which the
Collateral shall be held, used and operated are as set forth in the following
provisions of this Agreement.
ARTICLE 3.
INVESTMENT OF SECURITY FUNDS
Section 3.01 Investment of Security Funds. Any insurance proceeds
----------------------------
and other payments in respect of an Event of Loss paid to or retained by the
Lender which are required to be paid to the Borrower or applied for the benefit
of the Borrower, but which the Lender is entitled to hold under the terms hereof
pending the occurrence of some event or the performance of some act (including,
without limitation, the remedying of an Event of Default), shall, until paid to
the Borrower or applied as provided herein, be held by the Lender in a
segregated account and invested by the Lender from time to time at the
direction, risk and expense of the Borrower in Permitted Investments. There
shall be promptly remitted to the Borrower 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 Borrower will promptly pay to the Lender, 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). Any other monies paid to or retained by the Lender which are
required to be paid to the Borrower or applied for the benefit of the Borrower,
but which the Lender is entitled to hold under the terms hereof pending the
occurrence of some event or the performance of some act (including, without
limitation, the remedying of an Event of Default), may, until paid to the
Borrower or applied as provided herein, be held by the Lender in the manner of
its discretion and the Lender shall have no obligation to hold such monies in a
separate account and may commingle such monies with its general or other funds.
ARTICLE 4.
COVENANTS
Section 4.01 Possession; Operation and Use; Maintenance; Title.
-------------------------------------------------
(a) General. Except as otherwise expressly provided herein,
-------
the Borrower (and any Permitted Lessee) shall be entitled to operate, use,
locate, employ or otherwise utilize or not utilize the Engines in any lawful
manner or place in accordance with the Borrower's (or such Permitted Lessee's)
business judgment.
3
<PAGE>
(b) Possession. The Borrower shall not lease, or otherwise
----------
in any manner deliver, relinquish or transfer possession of any Engine to any
Person or install any Engine, or permit any Engine to be installed, on any
airframe without the prior consent of the Lender, provided, however, that so
-------- -------
long as (A) only in the case of clause (x) below, no Event of Default shall have
occurred and be continuing, and (B) all approvals, consents or authorizations
required from the Aeronautical Authority in connection with any such lease or
such delivery, transfer or relinquishment of possession have been obtained and
remain in full force and effect, the Borrower (or, except in the case of clause
(x) below, any Permitted Lessee) may, without the prior consent of the Lender:
(i) enter into a charter or wet lease or other similar
arrangement under which the Borrower (or such Permitted Lessee) has operational
control of an airframe and the Engine installed thereon in the course of the
Borrower's business (which shall not be considered a transfer of possession
hereunder), provided that the Borrower's obligations hereunder and under the
other Operative Agreements shall continue in full force and effect
notwithstanding any such charter or wet lease or other similar arrangement;
(ii) deliver possession of an Engine 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 hereof;
(iii) subject an Engine to interchange or pooling agreements
or arrangements which are applicable to other similar property owned by or
leased to the Borrower (or such Permitted Lessee) and are entered into by the
Borrower (or such Permitted Lessee) in the course of its airline business with
any air carrier, provided, that (A) no such agreement or arrangement shall under
--------
any circumstances result in, contemplate or require the transfer of title to any
Engine and (B) if the Borrower's title to any Engine shall nevertheless be
divested under any such agreement or arrangement, such divestiture shall be
deemed to be an Event of Loss with respect to such Engine and the Borrower shall
comply with Section 4.03(e) hereof in respect thereof;
(iv) install an Engine on an airframe owned by the Borrower
(or such Permitted Lessee) 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, and (C) those
created by the rights of other air carriers under 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;
(v) install an Engine on an airframe leased to the
Borrower (or such Permitted Lessee) or purchased by the Borrower (or such
Permitted Lessee) subject to a conditional sale or other security agreement, but
only if 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 4.01(b)(iv);
4
<PAGE>
(vi) install an Engine on an airframe owned by the
Borrower (or such Permitted Lessee), leased by the Borrower (or such Permitted
Lessee) or purchased by the Borrower (or such Permitted Lessee) subject to a
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 t o such Engine and the Borrower shall comply with Section
4.03(e) hereof;
(vii) transfer possession of an Engine while installed on
an aircraft which is subject to the CRAF Program (as defined below) 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
Borrower (or such Permitted Lessee) shall promptly notify Lender 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 an Engine to the United States
of America, or to a foreign government, when required by Applicable Law (it
being understood that nothing in this clause (viii) shall relieve the Borrower
from its obligations under Section 4.03(e) if such transfer becomes an Event of
Loss), in which event Borrower shall promptly notify Lender in writing of any
such transfer of possession;
(ix) transfer possession of an Engine to the United States
of America or any instrumentality or agency thereof pursuant to a lease,
contract or other instrument;
(x) subject to the provisions of this Section 4.01(b),
enter into a lease with respect to any Engine to any Permitted Lessee if (A)
Borrower shall provide written notice to Lender at least 10 days prior to
entering into any such lease, (B) in any such case, the lessee under such lease
is not subject to a proceeding or final order under applicable bankruptcy,
insolvency or reorganization laws on the date such lease is entered into, (C) in
the event that the lessee under such lease is a foreign air carrier or Person
based in a country other than the United States, the United States maintains
normal diplomatic relations with the country in which such proposed lessee is
principally based at the time such lease is entered into and (D) in the event
that the lessee under such lease is a foreign air carrier or Person based in a
country other than the United States, prior to the effectiveness of such lease
Lender shall have received an opinion of counsel to Borrower (reasonably
acceptable to Lender) to the effect that (I) the terms of the proposed lease
will be legal, valid, binding and (subject to customary exceptions) enforceable
against the proposed lessee in the country in which the proposed lessee is
principally based, (II) there exist no possessory rights in favor of the lessee
under such lease under the laws of such lessee's country of domicile that would,
upon bankruptcy or insolvency of or other default by the Borrower and assuming
that at such time such
5
<PAGE>
lessee is not insolvent or bankrupt, prevent or unreasonably delay the return or
repossession of the Engines in accordance with and when permitted by the terms
of Section 5.02(a) upon the exercise by Lender of its remedies under Section
5.02(a), (III) the laws of such lessee's country of domicile would give
recognition to Borrower's title to such Engine, (IV) all filings, if any,
required to be made in such jurisdiction in connection with the execution of
such lease in order to protect the interest of Lender in such Engine have been
made, (V) it is not necessary for the Lender to register or qualify to do
business in such jurisdiction, if not already so registered or qualified, as a
result of the proposed lease, and (VI) there is no tort liability for owners not
in possession of aircraft in such 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 Lender, such
opinion will be waived if insurance reasonably satisfactory to the Lender is
provided to cover the risk of such tort liability);
provided that (1) the rights of any transferee who receives possession by reason
- --------
of a transfer permitted by this Section 4.01(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 hereof; (2) no pooling agreement, sublease or other relinquishment of
possession of any Engine shall discharge or diminish any of Borrower's
obligations to Lender hereunder or under any other Operative Agreements or
constitute a waiver of Lender's rights or remedies thereunder, and the Borrower
shall remain primarily liable hereunder for the performance of all the terms and
conditions of this Agreement and all of the terms and conditions of this
Agreement and the other applicable Operative Agreements shall remain in effect;
(3) the Borrower shall provide evidence reasonably satisfactory to Lender that
the insurance required by Section 4.05 remains in effect; (4) all necessary
documents shall have been duly filed or recorded in applicable public offices as
may be required to preserve the first priority security interest of Lender in
the Engines; and (5) Borrower shall reimburse Lender, on an After Tax Basis, for
all of their reasonable out-of-pocket expenses (including fees and disbursements
of counsel) in connection with any such lease or transfer.
In the case of any lease permitted under this Section 4.01(b), (i) the
Borrower will include in such lease appropriate provisions which (a) make such
lease expressly subject and subordinate to all of the terms of this Agreement,
including the rights of the Lender to avoid such lease in the exercise of its
rights to repossession of the Engines hereunder and thereunder; and (b)
expressly prohibit any further subleasing of the Engines. Except as otherwise
provided herein and without in any way relieving the Borrower from its primary
obligation for the performance of its obligations under this Agreement, the
Borrower may in its sole discretion permit a Permitted Lessee to exercise any or
all rights which the Borrower would be entitled to exercise under this
Agreement, and may cause a Permitted Lessee to perform any or all of the
Borrower's obligations under this Agreement, and the Lender agrees that full
performance by a Permitted Lessee of the obligations of the Borrower hereunder
shall constitute performance by the Borrower.
(c) Operation and Use. The Borrower shall not operate, use or locate
-----------------
any Engine, or suffer any Engine to be operated, used or located (i) in any area
excluded from coverage by any insurance required by the terms of Section 4.05
hereof, except in the case of a requisition by the
6
<PAGE>
United States of America where the Borrower 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 4.05 hereof covering such area, or (ii) outside the United
States or Canada in any recognized or, in the Borrower's reasonable judgment,
threatened area of hostilities unless covered by war risk insurance, or in
either case (x) unless 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, or (y) except to the extent attributable primarily to causes
beyond the reasonable control of the Borrower or any Permitted Lessee or
primarily to circumstances involving an isolated occurrence or series of events
not in the ordinary course of the regular operations of the Borrower or any
Permitted Lessee, and the Borrower or Permitted Lessee is diligently trying to
rectify the situation. The Borrower shall not permit any Engine to be used or
operated in violation of any Applicable Law or in violation of any certificate,
license or registration relating to 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 such Engine or the first priority Lien
of this Agreement, any risk of criminal liability or any material risk of civil
liability against Lender, (ii) it is not possible for the Borrower (or a
Permitted Lessee) to comply with the laws of a jurisdiction other than the
United States (or other than any jurisdiction in which the aircraft (on which
such Engine is installed) is then registered) because of a conflict with the
applicable laws of the United States (or such jurisdiction in which the aircraft
(on which such Engine is installed) is then registered), or (iii) it is for
minor, unanticipated, or non-recurring violations that the Borrower is
diligently trying to rectify which do not render such Engine liable to any risk
of condemnation, destruction, seizure or confiscation by any authority.
(d) Maintenance. The Borrower, at its own cost and expense, shall
-----------
service, repair, maintain, overhaul and test each Engine 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 no less
stringent than 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 each Engine in such operating
condition as may be necessary to enable the applicable certificate, license and
registration relating to such Engine to be maintained in good standing at all
times under the applicable rules and regulations of the Aeronautical Authority,
except when the applicable certificate, license or registration relating to
engines of the same type as such Engines has been withdrawn by the Aeronautical
Authority, provided, however, that in the event of such withdrawal, subject to
-------- -------
Section 4.05 hereof, so long as the Borrower (or a Permitted Lessee) is taking
or causing to be taken all necessary action to promptly correct the condition
which caused such withdrawal, no Event of Default shall arise from such
withdrawal and (2) except during periods when a Permitted Lease is in effect,
the same standards Borrower uses with respect to similar engines of similar
powers in its fleet and operated (whether owned or leased) by Borrower in
similar circumstances and during any period in which a Permitted Lease is in
effect, the same standards the Permitted Lessee uses with respect to similar
engines of similar powers in its fleet and operated (whether owned or leased) by
the Permitted Lessee in similar circumstances. Nothing herein shall
7
<PAGE>
be deemed to prevent the Borrower (or a Permitted Lessee) from taking such
Engine out of service for maintenance or modifications permitted hereunder or
storage in accordance with applicable Aeronautical Authority requirements and
sound practice for such storage. The Borrower shall maintain or cause to be
maintained all records, logs and other documents required by the Aeronautical
Authority to be maintained in respect of such Engine in English. Borrower
further agrees that the Engines will be maintained, used, serviced, repaired,
overhauled or inspected in compliance with Applicable Law with respect to the
maintenance of the Engines and compliance with each applicable certificate,
license and registration relating to any Engine issued by the Aeronautical
Authority.
Section 4.02 Inspection.
----------
(a) At all reasonable times, but upon at least 5 Business Days' prior
notice to the Borrower (unless an Event of Default shall have occurred and be
continuing, in which event no prior notice of any kind is required) and at a
time and place reasonably acceptable to the Borrower, the Lender or its
authorized representatives (which may include the Engine Manufacturer) may at
its own expense and risk conduct a visual walk-around inspection of any Engine
and may inspect the books and records of the Borrower relating to the operation
and maintenance thereof and the Borrower shall provide copies of such books and
records to the Lender or its authorized representatives at its 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, (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 any Engine or with the normal conduct of the Borrower's or a
Permitted Lessee's business, and (c) the Borrower shall not be required to
undertake or incur any additional liabilities in connection with any such
inspection. All information obtained in connection with any such inspection
shall be held confidential by the Lender and shall not be furnished or disclosed
by it to anyone other than its bank examiners, auditors, accountants, agents and
legal counsel and any Person with whom the Lender is in good faith conducting
negotiations relating to the possible transfer and sale of the Loan, if such
Person shall have entered into an agreement similar to that contained in this
Section 4.02 whereby such Person agrees to hold such information confidential,
and 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 as
may be necessary to enforce the terms of this Agreement. The Lender 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.
(b) If requested by Lender, Borrower shall provide, or shall cause
any Permitted Lessee to provide, with respect to any Engine, the date (if then
scheduled) upon which the next scheduled off the airframe maintenance, and shall
advise Lender of the name and location (if then known) of the relevant
maintenance performer.
8
<PAGE>
Section 4.03 Replacement and Pooling of Parts; Alterations,
----------------------------------------------
Modification and Additions; Event of Loss.
- -----------------------------------------
(a) Replacement of Parts. Except as otherwise provided in the
--------------------
proviso to the third sentence of Section 4.03(d) or if an Engine to which a Part
relates has suffered an Event of Loss, the Borrower, at its own cost and
expense, will 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
Borrower (or a Permitted Lessee), 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
--------
Borrower (or such Permitted Lessee), at its own cost and expense, shall, except
as otherwise provided in the proviso to the third sentence of Section 4.03(d),
replace such Parts as promptly as practicable with replacement Parts or
temporary replacement parts as provided in Section 4.03(c) hereof. All
replacement Parts shall be free and clear of all Liens except for pooling
arrangements to the extent permitted by Section 4.03(c) and 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 4.03(d), all Parts at any time removed from any
Engine shall remain subject to the Lien of this Agreement, 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 Engine and that meet the
requirements for replacement Parts specified in Section 4.03(a). Immediately
upon any replacement Part becoming incorporated or installed in or attached to
an Engine as provided in Section 4.03(a), without further act, (i) title to the
replaced Part shall thereupon be free and clear of all rights of the Lender and
shall no longer be deemed a Part hereunder; (ii) title to such replacement Part
shall thereupon become subject to the Lien of this Agreement and be deemed part
of such Engine for all purposes hereof to the same extent as the Parts
originally incorporated or installed in or attached to such Engine.
(c) Pooling of Parts Leasing. Any Part removed from any Engine as
------------------------
provided in Section 4.03(a) may be subjected by the Borrower (or a Permitted
Lessee) 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
Borrower's (or such Permitted Lessee's) business, provided the part replacing
such removed Part shall be incorporated or installed in or attached to such
Engine in accordance with Sections 4.03(a) and 4.03(b) as promptly as
practicable after the removal of such removed Part. In addition, any
replacement part when incorporated or installed in or attached to any Engine in
accordance with Section 4.03(a) may be owned by another airline or vendor as
customary in the airline industry, subject to a pooling or parts leasing
arrangement, provided that the Borrower (or a Permitted Lessee), at its expense
--------
as promptly thereafter as reasonably practicable, either (i) causes title to
such temporary replacement part to become subject to the Lien of this Agreement,
free and clear of all Liens except Permitted Liens, at which time such temporary
replacement part shall
9
<PAGE>
become a Part or (ii) replaces such temporary replacement part by incorporating
or installing in or attaching to such Engine a further replacement Part owned by
the Borrower (or such Permitted Lessee) free and clear of all Liens except
Permitted Liens and which meets the requirements of Section 4.03(a) and which
shall become subject to the Lien of this Agreement in accordance with Section
4.03(b).
(d) Alterations, Modifications and Additions. The Borrower, at its
----------------------------------------
own expense, shall make (or cause to be made) alterations and modifications in
and additions to any Engine as may be required to be made from time to time by
Applicable Law or in order to maintain the insurance required under Section 4.05
regardless of upon whom such requirements are, by their terms, nominally
imposed; provided, that the Borrower may, in good faith and with due diligence
--------
and by appropriate procedure, contest the validity or application of any such
standard in any reasonable manner which does not adversely affect in a non de
minimis way the first priority Lien of this Agreement and does not involve any
non-de minimis risk of sale, forfeiture or loss of any Engine or the first
priority Lien of this Agreement, any in a non de minimis way risk of civil
penalty or any risk of criminal liability being imposed on Lender. In addition,
the Borrower (or a Permitted Lessee), at its own expense, may from time to time
make or cause to be made such alterations and modifications in and additions to
any Engine as the Borrower (or such Permitted Lessee) may deem desirable in the
proper conduct of its business, provided further that no such alteration,
--------
modification or addition diminishes, the value, utility or condition of such
Engine below the value, utility or condition thereof immediately prior to such
alteration, modification or addition, assuming such Engine was then in the
condition required to be maintained by the terms of this Agreement. Title to
all Parts incorporated or installed in or attached or added to any Engine as the
result of any alteration, modification or addition effected by the Borrower (or
a Permitted Lessee) shall, without further act, become subject to the Lien of
this Agreement; provided that the Borrower (or such Permitted Lessee) may, at
--------
any time remove any such Part from 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 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 Engine pursuant to the terms of
Section 4.01(d) or the first sentence of this Section 4.03(d) and (iii) such
Part can be removed from such Engine without diminishing or impairing the value,
condition or utility which such Engine would have had at the time of removal had
such alteration, modification or addition not been effected by the Borrower (or
such Permitted Lessee) assuming such Engine was otherwise maintained in the
condition required by this Agreement. Upon the removal by the Borrower (or such
Permitted Lessee) of any such Part as above provided and the installation of a
Replacement Part as provided herein (if applicable), title thereto shall,
without further act, be free and clear of all rights of the Lender and such Part
shall no longer be deemed a Part hereunder. Borrower shall repair all damage to
an Engine resulting from any such installation and/or removal of additions so as
to restore such Engine to its condition prior to installation, ordinary wear and
tear excepted assuming such Engine was in the condition and repair then required
to be maintained by the terms hereof.
10
<PAGE>
(e) Event of Loss with Respect to an Engine. Upon the occurrence of
---------------------------------------
an Event of Loss with respect to an Engine, Borrower shall forthwith (and in any
event within five (5) Business Days after such occurrence) give the Lender
written notice of such Event of Loss and within thirty (30) days of such Event
of Loss, Borrower shall give Lender written notice and of its election to
perform one of the following options (it being agreed that if the Borrower shall
not have given the Lender such notice of such election, the Borrower shall be
deemed to have elected to perform the option identified in clause (i) below):
(i) on a date specified by the Borrower in such notice, which
date shall be a date not later than forty-five (45) days after the occurrence of
such Event of Loss, prepay in whole the Loan made in respect of such Engine
pursuant to Section 2.04(a) of the Loan Agreement and immediately upon such
prepayment and without further act, such Engine shall thereupon be released from
the Lien of this Agreement and no longer be deemed an Engine hereunder; provided
that if the Borrower shall elect to perform the option referred to in clause
(ii) below and shall fail for any reason to make the replacement in accordance
with such clause (ii) on or prior to the date of replacement specified therein,
the Borrower, shall, on the next succeeding Business Day following the date of
replacement specified therein, prepay in whole the Loan made in respect of such
Engine pursuant to Section 2.04(a) of the Loan Agreement; or
(ii) so long as no Specified Default has occurred and is
continuing at the time notice is given or at the time of replacement, on a date
specified by the Borrower in such notice, which date shall be a date not later
than forty-five (45) days after the occurrence of such Event of Loss, substitute
a Replacement Engine for such Engine and in such event, immediately upon the
effectiveness of such substitution on the date set forth in such notice and
without further act, (x) the Replacement Engine shall thereupon be deemed an
Engine hereunder for all purposes hereof and become subject to the Lien of this
Agreement, and (y) the replaced Engine shall thereupon be released from the Lien
of this Agreement and no longer be deemed an Engine hereunder; provided that,
upon the substitution of a Replacement Engine, the following conditions shall be
satisfied at the Borrower's sole cost and expense and the Lender agrees to
reasonably cooperate with the Borrower to the extent necessary to enable it to
timely satisfy such conditions:
(a) 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 Lender:
(1) a Security Agreement Supplement covering the
Replacement Engine, which shall have been duly filed for recordation with
the FAA;
(2) a full warranty bill of sale (as to title) covering
the Replacement Engine, executed by the owner thereof in favor of the
Borrower;
(3) Uniform Commercial Code financing statements
covering the interest created by this Agreement as are deemed necessary or
desirable
11
<PAGE>
by counsel for the Lender to protect the first priority security interest
of the Lender in the Replacement Engine;
(4) an opinion of qualified FAA counsel as to the due
recordation of the Security Agreement Supplement and all other documents or
instruments the recordation of which is necessary to perfect and protect
the first priority security interest of the Lender in the Replacement
Engine; and
(5) evidence of compliance with the insurance
provisions of Section 4.05 with respect to such Replacement Engine;
(b) the Borrower shall furnish (or cause to be furnished
to) the Lender with an opinion, reasonably satisfactory in form and substance to
the Lender, of the Borrower's counsel, which may be the Borrower's General
Counsel, to the effect that such bills of sale or other documents reasonably
requested by the Lender are sufficient to convey title to such Replacement
Engine to the Borrower; and
(c) the Replacement Engine, in Lender's reasonable
judgment, shall be of at least equal value, remaining useful life and utility,
and in as good operating condition, as the Engine it replaces assuming such
Engine had been maintained in the condition required hereunder (but in any such
case, without regard to hours or cycles remaining to such Engine's next expected
removal)and the Borrower shall furnish an Officer's Certificate to the Lender to
such effect;
Upon prepayment by the Borrower as set forth in clause (i) above, (x)
the Lender shall, at the expense of the Borrower, execute and deliver to the
Borrower such documents and instruments as the Borrower shall reasonably request
to evidence (on public record or otherwise) the release of the Lender's security
interest in and to the Engine subject to an Event of Loss; (y) the Lender shall,
at the request and expense of the Borrower, assign to the Borrower all claims it
may have against any other Person relating to an Event of Loss giving rise to
such prepayment (other than those in respect of insurance maintained by the
Lender pursuant to Section 4.05(f)) and (z) the Borrower shall be entitled to
receive all insurance proceeds (other than those reserved to others under
Section 4.05(f) hereof) and proceeds in respect of any Event of Loss giving rise
to such prepayment to the extent not previously applied to the reduction of the
Borrower's prepayment obligation under clause (i) above.
Upon satisfaction of all conditions to the substitution of the
replaced Engine as set forth in clause (ii) above, (x) the Lender shall, at the
expense of the Borrower, execute and deliver to the Borrower such documents and
instruments as the Borrower shall reasonably request to evidence (on public
record or otherwise) the release of the Lender's security interest in and to the
replaced Engine; (y) the Lender shall, at the request and expense of the
Borrower, assign to the Borrower 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 Lender pursuant to
12
<PAGE>
Section 4.05(f)) and (z) the Borrower shall be entitled to receive all insurance
proceeds (other than those reserved to others under Section 4.05(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 4.05(e)(i) and 4.04.
Section 4.04 Requisition for Use. In the event of a requisition for
-------------------
use by any government of an Engine (including the Government pursuant to the
CRAF Program), the Borrower shall promptly notify the Lender of such requisition
and, if the same does not constitute an Event of Loss, all of the Borrower's
obligations under this Agreement 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 Borrower shall have been prevented or
delayed by such requisition, provided that the Borrower's obligations for the
--------
payment of money and under Section 4.05 (except, in the case of Section 4.05,
while an assumption of liability by the government of the United States of the
scope referred to in Section 4.01(c) is in effect) shall not be reduced, delayed
or affected by such requisition. Any payments received by the Lender or the
Borrower from such government with respect to the use of such Engine shall be
paid over to, or retained by, the Borrower. In the event of an Event of Loss of
an Engine resulting from the requisition for use by a government of such Engine,
the Borrower will comply with the terms of Section 4.03(e).
Section 4.05 Insurance.
---------
(a) Public Liability and Property Damage Insurance. Subject to the
----------------------------------------------
rights of the Borrower under Section 4.05(d), the Borrower shall, without
expense to the Lender, maintain or cause to be maintained in effect at all times
with insurers of nationally or internationally recognized responsibility public
liability insurance (including, without limitation, aircraft third party,
passenger legal liability, property damage, general third party legal liability
and product liability coverage but excluding manufacturer's product liability
coverage) with respect to the Engines in an amount not less than the greater of
(i) the amount which Borrower may carry from time to time on other similar
engines in its fleet and operated by Borrower (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 4.05(a), provided that on or prior to the date of
--------
such agreement, the Borrower shall provide an Officer's Certificate of the
Borrower certifying that any such insurance or indemnity provides protection no
less favorable than insurance coverage that would comply with this Section 4.05.
Such insurance shall be of the type usually carried by the Borrower with respect
to similar engines, and covering risks of the kind customarily insured against
by the Borrower.
During any period that an Engine is not used or in operation , the
Borrower may modify the insurance required by this Section 4.05(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 Borrower in respect of similar engines
which are not
13
<PAGE>
used or 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 similar engines owned or leased by Borrower not used, not in
operation, and stored or hangared.
(b) Insurance Against Loss or Damage to the Engines. Subject to the
-----------------------------------------------
rights of the Borrower under Section 4.05(d), the Borrower shall, without
expense to the Lender, maintain or cause to be maintained in effect at all times
with insurers of nationally recognized responsibility either (x) all risk,
agreed value, ground and flight hull insurance, which may, except as provided
below, exclude war risks and allied perils, or (y) other personal property
insurance, in any such case, covering the Engines for an amount at all times
(even when an Engine is not used and operated or in storage), with respect to
each Engine, not less than (A) in the case of clause (x), such amounts as are
customarily carried by Borrower under its hull insurance policies for similar
aircraft and (B) in the case of clause (y), at any time, 110% of the principal
amount of the related Loan then outstanding. Such insurance shall be of the type
usually carried by the Borrower with respect to similar engines, and covering
risks of the kind customarily insured against by the Borrower. If and to the
extent that the Borrower or a Permitted Lessee installs an Engine on an aircraft
which is being operated (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 (other than routes within the United
States, Canada, Mexico, Bermuda and islands other than Cuba in the Caribbean
Basin) where the custom in the industry is to carry war risk insurance or (C) in
any area of recognized hostilities, the Borrower or such Permitted Lessee shall
maintain or cause to be maintained such insurance in effect with respect to such
Engine which is installed on such aircraft in the amount at least equal to
replacement 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 4.05(b).
(c) Additional Insureds; Loss Payment. The Borrower shall cause all
---------------------------------
policies of insurance carried in accordance with Section 4.05(a) 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 Borrower or, in the case of any particular Additional
Insured, any other Additional Insured; (ii) 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 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, counterclaim, deduction or subrogation against such Additional Insureds;
(vi) 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);
14
<PAGE>
and (vii) shall contain a 50/50% Clause per Lloyd's Aviation Underwriter's
Association Standard Policy Form AVS 103. 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 Borrower will not delay payment
of any claim that would otherwise be payable but for such rights of subrogation.
Each policy of insurance (except in the case of any hull policy maintained by
the Borrower in respect of an aircraft to which the Engine is attached or has
been removed but not yet replaced) shall name the Lender 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 in the
aggregate equal $2,000,000 or less, then such proceeds shall be payable to the
Borrower and, notwithstanding the foregoing, any amounts up to the aggregate
amount of principal of and interest accrued on the Loan outstanding from time to
time (i) of any proceeds which in the aggregate exceed $2,000,000, (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 Borrower 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 4.05 in such amounts as are then self-insured with
respect to similar owned or leased engines in the Borrower's fleet but in no
case shall such self-insurance in the aggregate exceed on an annual basis, on a
per occurrence or on fleetwide basis, an amount equal to 4% of the Borrower's
tangible net worth, calculated as at the end of the Borrower's immediately
preceding fiscal year (but in no event to exceed $15,000,000). A deductible per
occurrence that is not in excess of the prevailing standard market deductible
for similar aircraft and engines shall be permitted, for each aircraft and
engine in the Borrower's fleet, in addition to such self-insurance.
(e) Application of Insurance Proceeds. As between the Lender and the
---------------------------------
Borrower, any payments received under policies of property insurance required to
be maintained under Section 4.05(b) (except in the case of any hull policy
maintained by the Borrower in respect of an aircraft to which the Engine is
attached or has been removed but not yet replaced), shall be applied as follows:
(i) if such payments are received with respect to loss or
damage not constituting an Event of Loss with respect to an Engine, payments in
the aggregate of $2,000,000 or less shall be paid over to or retained by the
Borrower and, subject to Section 4.05(c), any payments which in the aggregate
are greater than $2,000,000 shall be paid over to or retained by the Lender for
payment to the Borrower 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 an Engine and the Engine is not being replaced pursuant to
Section 4.03(e), so much of
15
<PAGE>
such payments as shall not exceed the amount required to be prepaid by the
Borrower pursuant to Section 2.04(a) of the Loan Agreement shall, if not already
paid by the Borrower, be applied in reduction of the Borrower's prepayment
obligation and if such amounts shall have been paid, to reimburse the Borrower,
and the balance, if any, of such payments shall be promptly paid over to or
retained by the Borrower; and
(iii) if such payments are received with respect to an Event of
Loss with respect to the an Engine and the Engine is being replaced by the
Borrower pursuant to clause (i) of Section 4.03(e), such payments shall be paid
over to, or retained by the Borrower, provided that if the Borrower has not
--------
completed such replacement, such payments shall be paid over to, or retained by,
the Lender as security, and upon completion of such replacement, be paid over to
or retained by the Borrower.
(f) Insurance for Own Account. Nothing in this Section 4.05 shall
-------------------------
prohibit the Lender, the Borrower or any Additional Insured from obtaining
insurance with respect to the Engines for its own account (including, without
limitation, in the case of the Borrower, hull insurance under the same policies
maintained pursuant to this Section 4.05 in amounts in excess of those required
to be maintained pursuant to this Section 4.05) 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 4.05,
it being understood that all salvage rights to the Engines shall remain with the
Borrower's insurers at all times.
(g) Reports, etc. Borrower will furnish to the Lender (A) on or
------------
prior each Funding Date, insurance certificates describing in reasonable detail
the insurance maintained by Borrower as required pursuant to this Section 4.05,
(B) prior to the cancellation, lapse or expiration of the insurance policies
required pursuant to this Section 4.05, evidence of renewal of such insurance
policies, and (C) on or prior to each Funding Date and on or before the renewal
dates of the insurance policies carried by the Borrower pursuant to this Section
4.05, a report signed by a firm of aircraft insurance brokers, not affiliated
with the Borrower, appointed by the Borrower and reasonably satisfactory to the
Lender, stating the opinion of such firm that all premiums in connection with
the insurance then due have been paid and the insurance then carried and
maintained on the Engines 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, provided that all information
--------
contained in such report shall be held confidential by the Lender, and shall not
be furnished or disclosed by it to anyone except its legal counsel, insurance
brokers or advisors, bona fide prospective transferees of the Lender and their
respective agents (provided that they shall agree for the benefit of the
--------
Borrower to hold all such information similarly confidential) or as may be
required by Applicable Law. The Borrower will instruct such firm to give prompt
written advice to the Lender of any default in the payment of any premium and of
any other act or omission on the part of the Borrower 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 Engines. The Borrower will
also instruct such firm to advise the Lender in writing at least 30 days
16
<PAGE>
prior to the termination or cancellation of, or material adverse change in, such
insurance carried and maintained on the Engines pursuant to this Section 4.05
(or such lesser period as may be applicable in the case of war risk coverage).
(h) Right to Pay Premiums. The Additional Insureds shall have the
---------------------
rights but not the obligations of an additional named insured. None of Lender
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 Lender and the other
Additional Insureds shall have the option, in its sole discretion, to pay any
such premium in respect of the Engines that is due in respect of the coverage
pursuant to this Agreement and to maintain such coverage, as Lender or the other
Additional Insureds may require, until the scheduled expiry date of such
insurance and, in such event, Borrower shall, upon demand, reimburse Lender and
the other Additional Insureds for amounts so paid by them.
(i) Certain Payments Held as Security. Any amount referred to in
---------------------------------
this Section 4.05 which is payable to the Borrower shall not be paid to the
Borrower, or, if it has been previously paid directly to the Borrower, shall not
be retained by the Borrower, 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
Lender as security for the Obligations, unless and until applied by Lender to
Lender's obligations and at such time as there shall not be continuing any such
Specified Default, to the extent such amounts have not been so applied, such
amount and any gain realized as a result of Permitted Investments required to be
made pursuant to Section 3.01 shall be paid over to the Lender.
Section 4.06 Liens. The Borrower shall not directly or indirectly
-----
voluntarily or involuntarily create, incur, assume or suffer to exist any Lien
on or with respect to any Engine or title thereto or any interest therein or in
this Agreement except (a) the respective rights of the Lender and the Borrower
as provided herein 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 4.01(b) and 4.03(c); (c) Liens for taxes
either not yet due or being contested in good faith by appropriate proceedings
(and for which adequate reserves have been provided if required 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 an Engine
or the Lien of this Agreement or any risk of criminal liability or any material
risk of civil penalty against Lender; (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 which adequate reserves have been provided if
required 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 an Engine or the first priority
Lien of this Agreement or any risk of criminal liability or any material risk of
civil penalty against Lender; (e) Liens arising out of judgments or awards
against the Borrower so long as there shall be in effect with respect to which a
stay of execution; (f) salvage and similar rights of insurers under policies of
insurance maintained with
17
<PAGE>
respect to the Engines; (h) Liens with respect to which the Borrower (or any
Permitted Lessee) has provided a bond or other security adequate in the good
faith opinion of the Lender; and (i) any Lien which may be created pursuant to
the Chattel Mortgage and Security Agreement between the Borrower and American
Airlines, Inc. dated as of April 25, 1996, provided any such Lien shall only
constitute a "Permitted Lien" to the extent it is waived by the American
Airlines, Inc. on or prior to January 31, 2000. Liens described in clauses (a)
through (i) above are referred to herein as "Permitted Liens." The Borrower
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.
Section 4.07 Recordation and Further Assurances.
----------------------------------
(a) Recordation of this Agreement. The Borrower shall cause this
-----------------------------
Agreement, any Security Agreement 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
with the FAA or other Aeronautical Authority to the extent required to perfect
and preserve the first priority security interest of the Lender in the Engines
and/or as Lender shall reasonably request.
(b) Further Assurances. The Borrower and the Lender 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 Agreement and to establish and protect the rights and remedies created
or intended to be created in favor of the Lender and the Borrower hereunder,
including, without limitation, if requested by the Lender or the Borrower, the
execution and delivery of supplements or amendments hereto, in recordable form,
subjecting any replacement or substituted engine to this Agreement and the
recording or filing of counterparts hereof, or of financing statements with
respect hereto; provided, however, the Lender will not be required to take any
-------- -------
action under this Section 4.07(b) to the extent such action would be
inconsistent with the terms of this Agreement or impose any additional liability
on Lender hereunder or under any other Operative Agreement.
(c) Engine Warranty. The Borrower shall use commercially reasonable
---------------
efforts to obtain the consent of the Engine Manufacturer to the collateral
assignment of the Borrower's right, title and interest in, to and under the
Engine Warranty to the Lender pursuant to the Granting Clauses hereof. If such
consent is obtained, the Borrower shall send an executed original of such
consent to the Lender promptly after execution thereof.
ARTICLE 5.
EVENTS OF DEFAULT; REMEDIES
Section 5.01 Events of Default. The occurrence of any Event of
-----------------
Default under the Loan Agreement shall constitute an Event of Default hereunder.
18
<PAGE>
Section 5.02 Remedies. Upon the occurrence of any Event of Default
--------
and at any time thereafter so long as the same shall be continuing, the Lender
may, at its option, declare this Agreement to be in default by a notice to the
Borrower (provided that this Agreement 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 8.01 of the Loan
Agreement); and at any time thereafter unless the Borrower shall have remedied
all outstanding Events of Default prior to the Lender having (w) accelerated the
Loans pursuant to Section 9.01 of the Loan Agreement, (x) taken any action to
physically repossess the Engines, or (y) incurred any obligation or commitment
to a third party or otherwise irreversibly changed its position in reliance upon
the occurrence and continuation of such Event of Default, the Lender may do, and
the Borrower shall comply with, one or more of the following with respect to all
or any part of the Engines, as the Lender 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 and without any way affecting any
rights which the Borrower may have under Applicable Law (except as otherwise
waived or limited (to extent permitted by Applicable Law) hereunder or under any
other Operative Agreement); provided that during any period an Engine is
--------
installed on an aircraft which is subject to the Civil Reserve Air Fleet Program
in accordance with the provisions of Section 4.01(b) and in the possession of
the United States government or an instrumentality or agency thereof, the Lender
shall not, on account of any Event of Default, be entitled to do any of the
following in such manner as to limit the Borrower's control under this Agreement
(or any Permitted Lessee's control under any Permitted Lease permitted by the
terms of this Agreement) of any of the 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) notice of default hereunder
shall have been given by the Lender by registered or certified mail to the
Borrower (or any Permitted Lessee) with a copy addressed to the Contracting
Office Representative for the Military Airlift Command of the United States Air
Force under any contract with Borrower (or any Permitted Lessee) relating to the
aircraft on which an Engine is then installed:
(a) cause the Borrower, upon the written demand of the Lender, at
the Borrower's expense, to deliver promptly, and the Borrower shall deliver
promptly, all or such part of the Engines (together with all records, logs,
manuals, data, and inspection, modification and overhaul records and other
documents maintained with respect thereto or pertaining thereto, but only to the
extent any such records and other items are required to be maintained by
Applicable Law ("Required Records")) as the Lender may so demand to the Borrower
or its order, or the Lender, at its option, may enter upon the premises where
all or any part of the Engines (or any such Required Records) is located and
take immediate possession (to the exclusion of the Borrower and all Persons
claiming under or through the Borrower) of and remove any and all Engines, all
without liability accruing to the Lender for or by reason of such entry or
taking of possession or removal, whether for the restoration of damage to
property caused by such taking or otherwise;
(b) sell all or any part of the Engines at public or private sale,
whether or not the Lender shall at the time have possession thereof, as the
Lender may determine, or otherwise dispose of, hold, use, operate, lease to
others or keep idle all or any part of the Engines as the Lender, in its
19
<PAGE>
sole discretion, may determine (and in connection therewith, Lender may use
Borrower's premises for storage pending lease or sale or for holding a sale
without liability for rent or costs or any other matter whatsoever for a period
not to exceed sixty (60) days following the date that the Lender takes actual
possession of the Engines after the occurrence of an Event of Default), all free
and clear of any rights or claims of whatsoever kind of the Borrower;
(c) apply to any court having jurisdiction to appoint a receiver or
receivers for the Engines, such receivers to have all the powers and rights of
the Lender as provided herein and by applicable law and all the normal power and
rights of receivers in like circumstances (including the right to sell, lease,
dispose of, repair, improve or modify any of the Engines) until the sale of all
the Engines or sooner termination of any such receivership; or
(d) exercise any or all of the rights and powers and pursue any and
all remedies of a secured party under the Uniform Commercial Code of the State
of New York (whether or not in effect in the jurisdiction where the Engine is
located) and under any other applicable law.
Upon every taking of possession of any part of the Engines under this
Section 4.02, to the extent permitted by Applicable Law, the Lender may, from
time to time, at the expense of the Borrower, make all such expenditures for
maintenance, insurance, repairs, replacements, alterations, additions and
improvements to and of any of the Engines, as it may reasonably deem proper. In
each such case, the Lender shall have the right to maintain, use, operate,
store, lease, control or manage all or any part of the Engines and to exercise
all rights and powers of the Borrower in relation to any part of the Engines in
connection therewith, as the Lender 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 any and all of the Engines as the Lender may determine; and the Lender shall
be entitled to collect and receive directly all tolls, rents, revenues, income,
and profits of all or any part of the Engines, without prejudice, however, to
the right of the Lender under any provision of this Agreement to collect and
receive all cash held by, or required to be deposited with, the Agreement
hereunder. Such tolls, rents, revenues, income, and profits may be applied to
pay the expenses of use, operation, storage, leasing, control, management or
disposition of all or any part of the Engines, and of all maintenance, repairs,
replacements, alterations, additions and improvements, and to make all payments
which the Lender may be required or may elect to make, if any, for taxes,
assessments, insurance or other proper charges upon any or all of the Engines
(including the employment of engineers and accountants to examine, inspect and
make reports upon the properties and books and records of the Borrower), and all
other payments which the Lender may be required or authorized to make under any
provision of this Agreement, as well as just and reasonable compensation for the
services of all Persons (other than the Lender's employees) properly engaged and
employed by the Lender.
In addition, the Borrower shall be liable for all reasonable legal
fees and other costs and expenses incurred by reason of the occurrence of any
Event of Default or the exercise of the Lender's remedies with respect thereto,
including all costs and expenses incurred in connection with the retaking or
return of the Engines (or any Required Records) in accordance with the terms
hereof
20
<PAGE>
and under the Uniform Commercial Code of the State of New York, which amounts
shall, until paid, be secured by the Lien of this Agreement.
If an Event of Default shall have occurred and be continuing, at the
request of the Lender, the Borrower shall promptly execute and deliver to the
Lender such instruments of title and other documents as the Lender may deem
necessary or advisable to enable the Lender or an agent or representative
designated by the Lender, at such time or times and place or places as the
Lender may specify, to obtain possession of any or all of the Engines. If the
Borrower shall for any reason fail to execute and deliver such instruments and
documents after such request by the Lender, the Lender may obtain a judgment
conferring on the Lender the right to immediate possession and requiring the
Borrower to execute and deliver such instruments and documents to the Lender, to
the entry of which judgment the Borrower hereby specifically consents to the
fullest extent it may lawfully do so.
The Lender shall give the Borrower at least five (5) Business Days
prior written notice of any public sale or of the date on or after which any
private sale will be held, which notice the Borrower hereby agrees is reasonable
notice.
Section 5.03 Application of Proceeds. Except as may otherwise be
-----------------------
required by Applicable Law, any moneys or property actually received by the
Lender pursuant to the exercise of any rights or remedies referred to in this
Article 5 shall (subject to the determination of the Lender as to use of such
moneys and property in connection with the exercise of such rights or remedies
and as to the manner of such exercise) be applied in accordance with Section
9.01(d) of the Loan Agreement.
Section 5.04 Lender May Purchase. At any public sale under this
-------------------
Article 5, the Lender or its nominee may bid for and purchase the property
offered for sale, and, upon compliance with the terms of sale, may hold, retain
and dispose of such property without further accountability therefor, except as
otherwise required by Applicable Law. The Lender need not be present at such
sale. For the purpose of making payment for the Subject Collateral or any part
thereof so purchased, any claim for any amounts owing under the Note, the Loan
Agreement or hereunder or under any other Obligation owed by the Borrower to the
Lender may be used by the Lender as a credit against the purchase price.
ARTICLE 6.
MISCELLANEOUS
Section 6.01 Notices. All notices or other communications pursuant
-------
hereto shall be in writing and shall be given as provided in Section 11.01 of
the Loan Agreement.
Section 6.02 Waiver. To the extent permitted by Applicable Law, no
------
failure on the part of the Lender to exercise and no delay in exercising, and no
course of dealing with respect to, any right, remedy, power or privilege under
this Agreement shall operate as a waiver of such right,
21
<PAGE>
remedy, power or privilege, nor shall any single or partial exercise of any
right, remedy, power or privilege under this Agreement preclude any other or
further exercise of any such right, remedy, power or privilege or the exercise
of any other right, remedy, power or privilege. The rights, remedies, powers and
privileges provided in this Agreement are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
Section 6.03 Amendments. Neither this Agreement 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 Lender and the Borrower.
Section 6.04 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the Borrower, the Lender and their respective
successors and permitted assigns. The Borrower shall not assign or transfer its
rights under this Agreement without the prior written consent of the Borrower.
Section 6.05 Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
All representations, warranties and covenants made in this Agreement or in any
certificate or other document delivered pursuant to or in connection with this
Agreement shall survive the execution and delivery of this Agreement or such
certificate or other document (as the case may be) or any deemed repetition of
any such representation or warranty.
Section 6.06 Severability. To the extent permitted by Applicable
------------
Law, any provision of this 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 of this Agreement, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
Section 6.07 Counterparts. This Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties to this Agreement may execute this
Agreement by signing any such counterpart.
Section 6.08 Setoff. Whenever an Event of Default shall have
------
occurred and be continuing, Borrower hereby irrevocably authorizes Lender to set
off the Obligations under this Agreement and the other Operative Agreements or
otherwise owed to Lender against all deposits and credits of Borrower with, and
any and all claims of Borrower against, Lender (excluding any amounts held by
the Lender (or held by the any Affiliate thereof) pursuant to Lease Agreement
[587ML]).
Section 6.09 GOVERNING LAW.
-------------
(a) THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF
THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF
22
<PAGE>
CONSTRUCTION, VALIDITY AND PERFORMANCE. THIS AGREEMENT HAS BEEN DELIVERED IN THE
STATE OF NEW YORK.
(b) 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 AGREEMENT; PROVIDED, HOWEVER, TO THE
-------- -------
EXTENT PERMITTED BY APPLICABLE LAW, NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN
ANY OTHER JURISDICTION IN ORDER TO REALIZE ON THE ENGINES OR ANY OTHER
COLLATERAL OR ANY OTHER SECURITY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
IN FAVOR OF LENDER, AND BORROWER EXPRESSLY WAIVES ANY OBJECTIONS THAT IT MAY
HAVE TO THE VENUE OF SUCH COURTS.
(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 SET FORTH PURSUANT
TO SECTION 11.01 OF THE LOAN AGREEMENT. EACH PARTY HERETO AGREES THAT SERVICE
UPON IT, OR ANY OF ITS AGENTS, IN EACH CASE IN ACCORDANCE WITH THIS SECTION
6.09(c), 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.
(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 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
23
<PAGE>
OR CAUSE OF ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF
OR RELATING TO THIS AGREEMENT.
24
<PAGE>
IN WITNESS WHEREOF, the Lender and the Borrower have each caused this
Agreement to be duly executed by their authorized officers as of the day and
year first above written.
MIDWAY AIRLINES CORPORATION, as Borrower
By: /s/ Jonathan S. Waller
----------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
: FLEET CAPITAL CORPORATION, as Lender
By: /s/ Edward W. O'Brien
---------------------
Name: Edward W. O'Brien
Title: Vice President
25
<PAGE>
Schedule I to
Engine Security Agreement
-------------------------
Each aircraft engine listed below shall constitute an "Engine"
as such term is defined in the Security Agreement:
ENGINES
-------
Manufacturer Manufacturer's Model Manufacturer's Serial No.
------------ -------------------- -------------------------
General Electric Company CF34-3B1 GE-E-872554
Each Engine is of 750 or more "rated take-off horsepower" or the equivalent of
such horsepower.
<PAGE>
APPENDIX A
DEFINITIONS
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 Lender.
-------------------
"Aeronautical Authority" means as of any time of determination, the FAA or
----------------------
other governmental authority having jurisdiction over the Engines under the laws
of the country in which the airframe (on which an Engine is installed) 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
---------------
deemed to be received by a Person shall be supplemented by a payment to such
Person so that the sum of such payments, after deduction of all taxes (taking
into account any related credits or deductions) resulting from the actual or
constructive receipt or accrual of such payments, shall be equal to the payment
to be received.
"Applicable Law" means all applicable laws, treaties, judgments, decrees,
--------------
injunctions, writs and orders of any court, governmental agency or authority and
rules, regulations, orders, directives, licenses and permits of any governmental
body, instrumentality, agency or authority.
"Applicable Rate" shall mean, (i) with respect to Loan A the rate per annum
---------------
set forth in Section 2.03(a)(i) of the Loan Agreement; and (ii) with respect to
Loan B, the rate established one (1) Business Day prior to the second Funding
Date, equal to the sum of (x), the four (4) year U.S.
<PAGE>
Treasury Constant Maturities as shown in the Federal Reserve Statistical Release
H.15 as of such date plus (y) 2.95%.
"Average Life Date" means, for either Note, the date which follows the
-----------------
prepayment date by a period equal to the Remaining Weighted Average Life of such
Note.
"Bankruptcy Code" means Title 11 of the United States Code, as amended, and
---------------
any successor thereto.
"Borrower" means Midway Airlines Corporation, a Delaware corporation, and
--------
its successors and permitted assigns.
"Borrower Documents" means the Operative Agreements to which the Borrower
------------------
is a party.
"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, Charlotte, North Carolina or Providence, Rhode Island.
"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).
"Collateral" means all property which at the time of any determination is
----------
subject to a Lien in favor of Lender granted by Borrower under the Security
Agreement or under any other Operative Agreements, including, but not limited
to, the Engines.
"CRAF Program" has the meaning specified in Section 4.01(b)(vii) of the
------------
Security Agreement.
"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.
"Dollars", "Dollar" and "$" means dollars in lawful currency of the United
------- ------ -
States.
"Engine" means (A) each of the two General Electric CF34-3B1 Series 200
------
aircraft engines, identified by manufacturer's serial number in such Security
Agreement Supplements executed and delivered from time to time pursuant to the
Security Agreement, so long as a Replacement Engine shall not have been
substituted therefor pursuant to Section 4.03(e) of the Security Agreement, and
(B) a Replacement Engine, so long as another Replacement Engine shall not have
been substituted therefor pursuant to Section 4.03(e) of the Security Agreement,
whether or not such engine or
<PAGE>
Replacement Engine, as the case may be, is from time to time installed on any
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 subject to the Lien of the Security Agreement under the terms
of Section 4.03 of the Security Agreement. 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.
"Engine Manufacturer's Consent" means the Consent and Agreement of the
-----------------------------
Engine Manufacturer to the assignment of portions of the Engine Warranty
pursuant to Section 2.01 of the Security Agreement.
"Engine Warranty" means the General Terms Agreement No. CF34-0897-065 in
---------------
respect of the Engines provided to the Borrower by the Engine Manufacturer.
"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 8.01 of
----------------
the Loan Agreement.
"Event of Loss" means any of the following events with respect to an
-------------
Engine:
(i) any theft, hijacking or disappearance of such property for a
period of 15 consecutive days (provided that, so long as Borrower shall be
diligently pursuing recovery of such property, such period shall be
extended to 45 consecutive days) or more;
(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) condemnation, confiscation or seizure of, or requisition of
title to or use of such property by the Government or any foreign
government or purported government (or in the case of any such
condemnation, confiscation, seizure or requisition of title, by the
Government) or any agency or instrumentality thereof, for a period in
excess of (A) in the case of any condemnation, confiscation, seizure or
requisition of use, 180 consecutive days or (B) in the case of any
condemnation, confiscation or seizure of, or requisition of title, 15
consecutive days;
<PAGE>
(v) as a result of any law, rule, regulation, order or other action
by the Aeronautical Authority, the use of the Engines in the normal course
of air transportation shall have been prohibited by virtue of a condition
affecting all General Electric CF34-3B1 Series 200 aircraft engines for a
period of 180 consecutive days, unless the Borrower, 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 Engines and shall
within 12 months have conformed at least one General Electric CF34-3B1
Series 200 aircraft engine (but not necessarily an Engine) to the
requirements of any such law, rule, regulation, order or action, and shall
be diligently pursuing conformance of the Engines in a non-discriminatory
manner; and
(vi) the requisition or taking of use thereof by any government, and
any divestiture of title or ownership deemed to be an Event of Loss with
respect to an Engine under Section 4.01(b)(iii) or 4.01(b)(vi) of the
Security Agreement.
The date of such Event of Loss shall be (aa) the 16/th/ day following loss of
such property or its use due to theft or disappearance or the 46/th/ day
following such loss if such period shall have been extended; (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 181/st/
day following condemnation, confiscation, seizure or requisition of title to
such property by the Government or a foreign government referred to in clause
(iv) above (or the 16/th/ day in the case of appropriation of title); and (ee)
the last day of the applicable period referred to in clause (v) above.
"Expenses" has the meaning given to such term in Section 7.01(a) of the
--------
Loan Agreement.
"Federal Aviation Administration" or "FAA" means the United States Federal
-------------------------------- ---
Aviation Administration and any successor agency or agencies thereto.
"Funding Date" means, in respect of each Loan, the Business Day on which
------------
the relevant Loan is, or is to be, advanced by the Lender to the Borrower;
"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.
"Indemnitee" means Lender and each Affiliate, officer, director, employee,
----------
agent, servant, successor and permitted assigns of Lender.
"Lease Agreement [N587ML]" means the Lease Agreement [N587ML] dated as of
------------------------
December 30, 1999, between Fleet National Bank, as Lessor and the Borrower, as
Lessee.
"Lender" means Fleet Capital Corporation, a Rhode Island corporation, and
------
its successors and permitted assigns.
<PAGE>
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
security interest, claim, or other similar interest of any nature whatsoever.
"Loan" means the aggregate unpaid principal balance at any time of the
----
amounts advanced by the Lender to the Borrower pursuant to the Loan Agreement,
whether as Loan A or Loan B.
"Loan A" has the meaning specified in Section 2.01(a)(i) of the Loan
------
Agreement.
"Loan A Engine" means the Engine to be financed by the proceeds of Loan A.
-------------
"Loan Agreement" means the Loan Agreement, dated as of December 30, 1999,
--------------
between the Borrower and the Lender.
"Loan B" has the meaning specified in Section 2.01(a)(ii) of the Loan
------
Agreement.
"Loan B Engine" means the Engine to be financed by the proceeds of Loan B.
-------------
"Make-Whole Premium" means with respect to the prepayment of any Note (x)
------------------
except in the case of any prepayment pursuant to Section 2.04(a) of the Loan
Agreement, until the first anniversary of the date thereof, an amount equal to
3% of the amount of the principal being prepaid and (y) otherwise, the then
current rate for United States treasury securities (United States Treasury Bills
on a discounted basis shall be converted to a bond equivalent) with a maturity
date closest to the applicable Average Life Date (the "Treasury Rate"), plus 295
basis points, shall be subtracted from the sum of: (1) the United States
Treasury securities rate which was used by the Lender in calculating the
Applicable Rate at Note commencement, plus (2) 295 basis points. If the result
is zero or a negative number, the Make-Whole Premium shall be zero. If the
result is a positive number, then the remaining payments due under such Note at
the time of prepayment shall be discounted to present value over the remaining
term of such Note, utilizing the then current Treasury Rate plus 295 basis
points. The remaining principal balance under such Note shall be subtracted
from the result of the present value calculation. The resulting amount of such
subtraction calculation shall be the Make-Whole Premium due Lender from
Borrower. Lender and Borrower agree that any Make-Whole Premium required to be
paid in connection with a Note does not constitute a penalty, but rather a
reasonable calculation of the investment loss that could be sustained by Lender
resulting from a prepayment of such Note. For purposes hereof, the Treasury
Rate shall be the "Bid Yield" calculated by reference to the "Treasury Bonds,
Notes and Bills" figures published in The Wall Street Journal on or next
-----------------------
preceding the termination date. In the event that The Wall Street Journal is
-----------------------
not published or does not publish "Treasury Bonds, Notes and Bills" figures for
four consecutive business days, a comparable reference shall be selected by
Lender in its reasonable discretion.)
"Maturity Date" means the earlier of (i) with respect to each Loan, the
-------------
date falling eighty-four (84) months after the relevant Funding Date of such
Loan or (ii) the date upon which all amounts due to Lender under the Loan
Agreement, the Notes and the other Operative Agreements shall have been paid or
shall be payable in full in accordance with the terms thereof.
"Minimum Liability Amount" shall mean $300,000,000.
------------------------
<PAGE>
"Note" or "Notes" means each of the secured promissory notes issued by the
---- -----
Borrower to the Lender from time to time pursuant to the Loan Agreement.
"Obligations" means all indebtedness, liabilities, fees, indemnities and
-----------
obligations of Borrower and any other Person to Lender arising under or relating
to the Operative Agreements, including, but not limited to, repayment of the
principal of the Loan and payment of interest thereon.
"Officer's Certificate" means as to any company a certificate signed by a
---------------------
Responsible Officer of such company.
"Operative Agreements" means the Loan Agreement, the Notes, the Security
--------------------
Agreement and the Security Agreement Supplements.
"Parts" means any and all appliances, parts, instruments, components,
-----
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature (other than complete Engines and temporary replacement parts as provided
in Section 4.03(a) of the Security Agreement) which may from time to time be
incorporated or installed in or attached to any Engine, exclusive of any items
leased by the Borrower from third parties and not required in the operation of
any Engine.
"Past Due Rate" means a rate equal to the rate per annum announced from
-------------
time to time by Citibank, N.A. as its prime rate plus three percent (3%) per
annum.
"Payment Date" means, with respect to each Loan, each date listed under the
------------
heading "Payment Date" in Schedule I to the relevant Note.
"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 B to the Security Agreement, except those that do not maintain normal
diplomatic relations with the United States.
"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), (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 rating of "A" or better from the Keefe Bank Watch Service. Unless
otherwise specified in writing by the Lender, all such Permitted Investments
shall mature not later than 30 days from the date of purchase.
"Permitted Lease" means any lease agreement between the Borrower and a
---------------
Permitted Lessee as permitted by Section 4.01(b) of the Security Agreement.
"Permitted Lessee" 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
<PAGE>
or a country listed on Exhibit B to the Security Agreement or (c) the United
States of America or any instrumentality or agency thereof.
"Permitted Lien" has the meaning given to such term in Section 4.06 of the
--------------
Security Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, limited liability company or government (federal,
state, local, foreign or any agency, instrumentality, division or body thereof)
or other entity of whatever nature.
"Remaining Weighted Average Life" means on a given date with respect to any
-------------------------------
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 Note by (b) the number of days
from and including such prepayment 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 Note.
"Replacement Engine" means a General Electric CF34-3B1 Series 200 engine
------------------
(or engine of the same manufacturer of a comparable or an improved model) which
replaces an Engine pursuant to Section 4.03(e) of the Security Agreement and
which shall have become subject to the Lien of the Security Agreement pursuant
to Section 4.03(e) thereof.
"Responsible Officer" means, with respect to any party, any Vice President
-------------------
or other 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.
"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.
"Security Agreement" means the Engine Security Agreement, dated as of
------------------
December 30, 1999, between the Borrower and the Lender.
"Security Agreement Supplement" means any supplement to the Security
-----------------------------
Agreement, substantially in the form of Exhibit A to the Security Agreement,
entered into between the Borrower and the Lender for the purpose of identifying
the Engines (or a Replacement Engine) by manufacturer's serial numbers and
subjecting the Engines (or a Replacement Engine) to the Lien of the Security
Agreement, including any amendment thereto entered into subsequent to the first
Funding Date.
<PAGE>
"Specified Default" means (a) an event or condition described in Section
-----------------
8.01(a), (f), (g) or (h) of the Loan Agreement that, after the giving of notice
or lapse of time, or both, would become an Event of Default, or (b) any Event of
Default.
"Tax" or "Taxes" means 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.
"Transaction Costs" means those costs and expenses set forth in Section
-----------------
10.01(a) of the Loan Agreement.
"Transportation Code" means Title 49 of the United States Code, subtitle
-------------------
VII, as amended and in effect on the date of the Loan Agreement or as
subsequently amended, or any successor or substituted legislation at the time in
effect and applicable, and the regulations promulgated pursuant thereto.
"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>
Exhibit A to
Engine Security Agreement
-------------------------
ENGINE SECURITY AGREEMENT SUPPLEMENT
------------------------------------
This ENGINE SECURITY AGREEMENT SUPPLEMENT, dated as of December ___,
1999 (this "Security Agreement Supplement"), is between MIDWAY AIRLINES
CORPORATION, a Delaware corporation (herein, together with its successors and
permitted assigns, the "Borrower") and FLEET CAPITAL CORPORATION, a Rhode Island
corporation (together with its successors and permitted assigns, the "Lender").
WHEREAS, the Borrower and the Lender have entered into the Engine
Security Agreement dated as of December 30, 1999 (the "Security Agreement"),
covering two (2) General Electric model CF34-3B1 aircraft engines bearing
manufacturer's serial numbers GE-E-_____ and GE-E-_____, each of which is of
750 or more "rated take-off horsepower" or the equivalent of such horsepower
(collectively, the "Engines") (terms used in this Security Agreement Supplement
having the meanings assigned thereto in the Security Agreement).
WHEREAS, the Security Agreement has been duly recorded with the FAA
on _______________, as Conveyance Number ________________ pursuant to the
Transportation Code;
WHEREAS, this Security Agreement Supplement relates to the engine(s)
and/or lease(s) described in Schedule I hereto; and
WHEREAS, the Security Agreement provides for the execution and
delivery from time to time of Security Agreement Supplements, each substantially
in the form hereof, for the purpose of subjecting an aircraft engine to the Lien
of the Security Agreement.
NOW, THEREFORE, as security for the payment and performance of the
Obligations (whether as scheduled, upon acceleration or otherwise, including,
without limitation, all indebtedness, liabilities, fees, indemnities and
obligations of Borrower and any other Person to Lender arising under or relating
to the Operative Agreements, including, but not limited to, repayment of the
principal of the Loan and payment of interest thereon and of all costs of
collection and enforcement of the Obligations, the Borrower hereby mortgages,
pledges and assigns to the Lender, and hereby creates in and grants to the
Lender a continuing security interest in, but none of its obligations or
liabilities respecting, all of the Borrower's right, title and interest in and
to the property described in Schedule I to this Security Agreement Supplement.
This Security Agreement Supplement shall be construed as supplemental
to the Security Agreement and shall form a part thereof; and the Security
Agreement is hereby incorporated by reference herein to the same extent as if
fully set forth herein and is hereby ratified, approved and confirmed in all
respects.
<PAGE>
IN WITNESS WHEREOF, the Lender and the Borrower have each caused this
Security Agreement Supplement to be duly executed by their authorized officers
as of the day and year first above written.
MIDWAY AIRLINE CORPORATION, as Borrower
By: __________________________________________
Name:
Title:
FLEET CAPITAL CORPORATION, as Lender
By: __________________________________________
Name:
Title:
<PAGE>
Exhibit B to
Engine Security Agreement
-------------------------
List of Countries - Permitted for Re-Registration and Subleasing
----------------------------------------------------------------
Argentina Italy
Australia Japan
Austria Luxembourg
Belgium Mexico
Canada Netherlands
Denmark New Zealand
Finland Norway
France Portugal
Germany Spain
Iceland Sweden
Ireland Switzerland
United Kingdom
<PAGE>
EXHIBIT 10.72 CONFORMED COPY
----- --------------
ENGINE SECURITY AGREEMENT SUPPLEMENT
------------------------------------
This ENGINE SECURITY AGREEMENT SUPPLEMENT, dated as of January 25,
2000 (this "Security Agreement Supplement"), is between MIDWAY AIRLINES
CORPORATION, a Delaware corporation (herein, together with its successors and
permitted assigns, the "Borrower") and FLEET CAPITAL CORPORATION, a Rhode Island
corporation (together with its successors and permitted assigns, the "Lender").
WHEREAS, the Borrower and the Lender have entered into the Engine
Security Agreement dated as of December 30, 1999 (the "Security Agreement"),
covering one (1) General Electric model CF34-3B1 aircraft engine, which is of
750 or more "rated take-off horsepower" or the equivalent of such horsepower
(the "Loan A Engine") (terms used in this Security Agreement Supplement having
the meanings assigned thereto in the Security Agreement).
WHEREAS, the Security Agreement has been duly recorded with the FAA
on January 7, 2000, as Conveyance Number SS013550 pursuant to the Transportation
Code;
WHEREAS, this Security Agreement Supplement relates to the Engine
described in Schedule I hereto (the "Loan B Engine"); and
WHEREAS, the Security Agreement provides for the execution and
delivery of the Security Agreement Supplement for the purpose of subjecting the
Loan B Engine described in Schedule I hereto to the Lien of the Security
Agreement.
NOW, THEREFORE, as security for the payment and performance of the
Obligations (whether as scheduled, upon acceleration or otherwise), including,
without limitation, all indebtedness, liabilities, fees, indemnities and
obligations of Borrower and any other Person to Lender arising under or relating
to the Operative Agreements, including, but not limited to, repayment of the
principal of the Loan and payment of interest thereon and of all costs of
collection and enforcement of the Obligations, the Borrower hereby mortgages,
pledges and assigns to the Lender, and hereby creates in and grants to the
Lender a continuing security interest in, but none of its obligations or
liabilities respecting, all of the Borrower's right, title and interest in and
to the property described in Schedule I to this Security Agreement Supplement.
This Security Agreement Supplement shall be construed as supplemental
to the Security Agreement and shall form a part thereof; and the Security
Agreement is hereby incorporated by reference herein to the same extent as if
fully set forth herein and is hereby ratified, approved and confirmed in all
respects.
<PAGE>
IN WITNESS WHEREOF, the Lender and the Borrower have each caused this
Security Agreement Supplement to be duly executed by their authorized officers
as of the day and year first above written.
MIDWAY AIRLINE CORPORATION, as Borrower
By: /s/ Jonathan S. Waller
-------------------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
FLEET CAPITAL CORPORATION, as Lender
By: /s/ Edward W. O'Brien
-------------------------------
Name: Edward W. O'Brien
Title: Vice President
<PAGE>
Schedule I
The aircraft engine listed below shall constitute an "Engine"
as such term is defined in the Security Agreement:
<TABLE>
<CAPTION>
ENGINE
------
<S> <C> <C>
Manufacturer Manufacturer's Model Manufacturer's Serial No.
------------ -------------------- -------------------------
General Electric Company CF34-3B1 GE-E-872555
</TABLE>
The Engine is of 750 or more "rated take-off horsepower" or the equivalent of
such horsepower.
<PAGE>
CONFORMED COPY
--------------
LOAN AGREEMENT
by and between
MIDWAY AIRLINES CORPORATION,
as BORROWER
AND
GENERAL ELECTRIC CAPITAL CORPORATION,
as LENDER
Dated as of December 22, 1999
COVERING FOUR BOEING 737-7BX AIRCRAFT (EXPECTED TO BEAR
MANUFACTURER'S SERIAL NUMBERS 30736, 30737, 30738 AND 30739)
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of December 22, 1999, is made by and
between Midway Airlines Corporation, as Borrower, and General Electric Capital
Corporation, as Lender. Capitalized terms used herein shall have the meanings
set forth for such terms in Section 1.1.
WHEREAS, the Lender is willing to provide the Borrower a term loan
facility to fund pre-delivery deposit payments by the Borrower under the
Purchase Agreement in respect of up to four Boeing 737-7BX aircraft on the terms
and subject to the conditions hereof;
NOW, THEREFORE, the Borrower and the Lender agree as follows:
ARTICLE I.
DEFINITIONS
-----------
SECTION 1.1. Defined Terms. As used in this Agreement, the
--------------
following terms shall have the meanings specified below:
"Affiliate" means, when used with respect to a specified Person,
---------
another Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the Person
specified. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, and "controlling" and "controlled" shall
have meanings correlative thereto.
"Agreement" means this Loan Agreement, as it may be amended, restated,
---------
supplemented or otherwise modified from time to time in accordance with the
terms hereof.
"Agreement Date" means the date as of which this Agreement is dated.
--------------
"Aircraft" means each of the first four Boeing 737-7BX aircraft
--------
delivered under the Purchase Agreement, expected to bear Manufacturer's serial
numbers 30736, 30737, 30738 and 30739, with a current specification for MTOW of
133,000 lbs. to be manufactured by the Manufacturer and delivered to the
Borrower on the terms and in the condition set forth in the Purchase Agreement,
in each case together with two (2) installed CFM56-7B20 engines to be
manufactured by CFM International and any and all buyer furnished equipment.
"Aircraft Sale" has the meaning specified in Section 6.1.
-------------
<PAGE>
"Applicable Margin" means *%.
-----------------
"Availability Period" means, with respect to an Aircraft, the period
-------------------
from and including the Effective Date to and including the earliest of (i) the
actual date the final Deposit Payment becomes due and payable with respect to
such Aircraft, (ii) last scheduled Deposit Payment date set forth on Schedule I
hereto with respect to such Aircraft (as such scheduled date may be adjusted in
accordance with the terms of the Purchase Agreement and Section 6.1 hereof) and
(iii) April 30, 2001.
"Borrower" means Midway Airlines Corporation, a Delaware corporation.
--------
"Borrowing" has the meaning specified in Section 2.2.
---------
"Borrowing Date" means, with respect to any Loan, any Business Day
--------------
specified by the Borrower pursuant to Section 2.2 as a date on which the
Borrower requests the Lender to make such Loan.
"Business Day" means a day on which commercial banks in New York City
------------
or Charlotte, North Carolina are not authorized or required by law to close.
"Certificated Air Carrier" means an "air carrier" within the meaning
------------------------
of the Transportation Code that is a "citizen of the United States" within the
meaning of the Transportation Code and holds both a certificate under Section
41102(a)(1) of the Transportation Code and an air carrier operating certificate
issued pursuant to Chapter 447 under the Transportation Code for aircraft
capable of carrying ten or more individuals or 6,000 pounds or more of cargo.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral" has the meaning specified for such term in the Security
----------
Agreement.
"Commonly Controlled Entity" means an entity, whether or not
--------------------------
incorporated, which is under common control with the Borrower within the meaning
of Section 4001(a) of ERISA or is part of a group which includes the Borrower
and which is treated as a single employer under Section 414(b), (c), (m) or (o)
of the Code.
"Consent and Agreement" means the Consent and Agreement to the
---------------------
Collateral Assignment of the Purchase Agreement executed by the Borrower, the
Manufacturer and the Lender with respect to the Aircraft.
"Contractual Obligation" means, as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default" means (i) any Event of Default and (ii) any event or
-------
condition which upon notice, lapse of time, or both, would constitute an Event
of Default.
- ----------
* Confidential treatment has been requested for omitted information. Omitted
information has been filed separately with the Commission.
2
<PAGE>
"Delivery Date" means, with respect to any Aircraft, the date such
-------------
Aircraft is delivered by the Manufacturer to or at the direction of the Borrower
pursuant to the Purchase Agreement.
"Deposit Payment" means, with respect to any Aircraft, each of seven
---------------
predelivery deposit payments due on such Aircraft pursuant to the Purchase
Agreement in an amount equal to (i) 1% of the Escalation Estimate Advance
Payment Base of such Aircraft (as set forth on Schedule I) payable at the time
of the execution of the Purchase Agreement, (ii) 4% of the Escalation Estimate
Advance Payment Base of such Aircraft payable 24 months prior to the Scheduled
Delivery Date of such Aircraft and (iii) 5% of the Escalation Estimate Advance
Payment Base of such Aircraft payable 21, 18, 12, 9 and 6 months prior to the
Scheduled Delivery Date of such Aircraft.
"Dollars" or "$" or "U.S. Dollars" means lawful money of the United
------- - ------------
States of America.
"Effective Date" means the date on which (i) the Borrower and the
--------------
Lender shall have executed and delivered a counterpart hereof and (ii) the
conditions set forth in Section 4.1 are satisfied by the Borrower or waived by
the Lender.
"Environmental Laws" means any and all foreign, federal, state, local
------------------
or municipal, laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
regulating, relating to or imposing liability or standards of conduct concerning
protection of human health or the environment, as now or at any time hereafter
in effect.
"Environmental Permits" means any and all permits, licenses,
---------------------
approvals, registrations, notifications, exemptions and other authorization
required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Event of Default" has the meaning specified in Section 8.1.
----------------
"Federal Reserve Board" means the Board of Governors of the Federal
---------------------
Reserve System of the United States (or any successor thereto).
"GAAP" means generally accepted accounting principles as in effect
----
from time to time in the United States of America.
"GECC Agreements" means any 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 the
Borrower (or any direct or indirect Subsidiary or Affiliate of the Borrower), on
the other hand, but only for so long as a GE Entity is a party to such
agreement.
3
<PAGE>
"GE Entity" means General Electric Capital Corporation, GE Capital
---------
Aviation Services, Limited, GE Capital Aviation Services, Inc. or Polaris
Holding Company (or any direct or indirect Subsidiary or Affiliate of any of the
foregoing entities) 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.
"Governmental Authority" means any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty Obligation" means, as to any Person, any obligation of (a)
-------------------
the guaranteeing Person or (b) another Person (including, without limitation,
any bank under any letter of credit) to induce the creation of which the
guaranteeing Person has issued a reimbursement, counterindemnity or similar
obligation, in either case if such obligation is guaranteeing or in effect
guaranteeing any Indebtedness, or leases, dividends or other obligations which
are substitutes for or equivalents of Indebtedness (the "primary obligations")
of any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of the guaranteeing
Person, whether or not contingent, (1) to purchase any such primary obligation
or any property constituting direct or indirect security therefor, (2) to
advance or supply funds (A) for the purchase or payment of any such primary
obligation or (B) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor or to enable the primary obligor to pay any of its Indebtedness, (3) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (4) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof. The amount of any Guaranty Obligation of any guaranteeing person shall
be deemed to be the lower of (x) an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Guaranty Obligation is
made and (y) the maximum amount for which such guaranteeing Person may be liable
pursuant to the terms of the instrument embodying such Guaranty Obligation,
unless such primary obligation and the maximum amount for which such
guaranteeing Person may be liable are not stated or determinable, in which case
the amount of such Guaranty Obligation shall be such guaranteeing Person's
maximum reasonably anticipated liability in respect thereof.
"Hazardous Materials" means any gasoline or petroleum (including crude
-------------------
oil or any fraction thereof) or petroleum products, asbestos, polychlorinated
biphenyls, formaldehyde insulation, and any hazardous toxic substances,
materials or wastes, defined or regulated as such in or under or that could
result in liability under any Environmental Law applicable in the relevant
jurisdiction.
"Hedging Agreement" means any interest rate currency or commodity
-----------------
swap, future, option, cap or collar agreement or other similar agreement.
4
<PAGE>
"Indebtedness" means, as to any Person, without duplication, (i) all
------------
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (iii) all
obligations of such Person under conditional sale or other title retention
agreements relating to property or assets purchased by such Person (other than
customary reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business), (iv) all obligations of such
Person to pay the deferred purchase price of property or services (other than
trade debt incurred in the ordinary course of business), (v) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (vi) all Capital Lease obligations of such Person, (vii) all net
obligations of such Person in respect of Hedging Agreements, (viii) all
obligations (contingent or otherwise) of such Person as an account party in
respect of letters of credit and bankers' acceptances and (ix) all Guaranty
Obligations of such Person in respect of Indebtedness of other Persons.
"Indemnified Liabilities" has the meaning specified in Section 9.5.
-----------------------
"Insolvency" means, with respect to any Multiemployer Plan, the
----------
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.
"Insolvent" means pertaining to a condition of Insolvency.
---------
"Interest Payment Date" with respect to any Loan means the first day
---------------------
of each calendar month commencing with the first such day occurring after the
borrowing of such Loan and ending with the last such day occurring on or before
the Maturity Date of such Loan.
"Lender" means General Electric Capital Corporation, a New York
------
corporation.
"Libor Rate" means, for each day during any particular calendar month,
----------
the rate appearing on Page 3750 of the Telerate Service (or on any successor or
substitute page of such service, or any successor to or substitute for such
service, providing comparable rate quotations, as may be nominated by the
British Bankers' Association for purposes of providing quotations of interest
rates applicable to Dollar deposits in the London interbank market) as of 11:00
A.M. (London time) two London Banking Days prior to the first day of such
calendar month, as the rate for Dollar deposits with a term of one month. In
the event that such rate is not so available at such time for any reason, then
the "Libor Rate" for such calendar month shall be the interest rate (rounded
upward, if necessary, to the next higher 1/16 of 1%) at which deposits in
Dollars are offered to The Chase Manhattan Bank in the London interbank market
at approximately 11:00 A.M. (London time) two London Banking Days before the
first day of such calendar month in an amount approximately equal to the unpaid
principal balance of the Loans at such time and for a period of one month.
5
<PAGE>
"Lien" means (i) any judgment lien or execution, attachment, levy,
----
distraint or similar legal process and (ii) any mortgage, pledge, hypothecation,
assignment, lien (statutory or other), charge, encumbrance or other security
interest of any kind or nature whatsoever (including, without limitation, the
interest of the lessor under any capital lease and the interest of the seller
under any conditional sale or other title retention agreement).
"Loan" has the meaning specified in Section 2.1.
----
"Loan Documents" means this Agreement, the Security Agreement, the
--------------
Consent and Agreement and the Notes.
"London Banking Day" means a day on which on which dealings are
------------------
carried on in the London interbank market.
"Manufacturer" means The Boeing Company.
------------
"Manufacturer's Event" means any of the following events or
--------------------
occurrences:
(1) any representation or warranty made or deemed made by the
Manufacturer in the Consent and Agreement shall be untrue or
inaccurate in any material respect on or as of the date made or deemed
made;
(2) the Manufacturer shall default, in any material respect, in
the observance or performance of or fail to comply with any covenant,
agreement or other term contained in the Consent and Agreement; or
(3) (i) the Manufacturer shall commence any case, proceeding or
other action (a) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (b) seeking appointment of
a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or the
Manufacturer shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Manufacturer
any case, proceeding or other action of a nature referred to in clause
(i) above which (a) results in the entry of an order for relief or any
such adjudication or appointment or (b) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall
be commenced against the Manufacturer any case, proceeding or other
action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv) the
6
<PAGE>
Manufacturer shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii) or (iii) above; or (v) the Manufacturer
shall generally not, or shall be unable to, or shall admit in writing
its inability to, pay its respective debts as they become due; or
(4) the Consent and Agreement shall fail to remain in full force
and effect for any reason or the Manufacturer shall so assert in
writing.
"Margin Stock" has the meaning assigned to that term in Regulation T,
------------
U or X of the Federal Reserve Board as in effect from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
-----------------------
financial condition of the Borrower and its Subsidiaries on a consolidated basis
or (ii) the ability of the Borrower to perform its obligations under this
Agreement, any other Loan Document or the Purchase Agreement.
"Maturity Date" means, with respect to any Loan, the earliest of (i)
-------------
the Delivery Date of the Aircraft to which such Loan relates, (ii) the thirtieth
day (30) after the receipt of notice by the Borrower of the occurrence of any
Manufacturer's Event (provided that such Manufacturer's Event is continuing as
of such 30th day), (iii) September 30, 2001 or, if a labor strike or similar
event occurs at the Manufacturer prior to September 30, 2001 and such strike or
event causes the date of delivery under the Purchase Agreement in respect of any
of the Aircraft to be delayed, the date which follows September 30, 2001 by the
number of days that such strike or event has continued in effect and (iv)
December 31, 2001.
"Maximum Available Amount" means, with respect to an Aircraft, the
------------------------
amount set forth on Schedule I hereto as the Maximum Available amount for such
Aircraft.
"Multiemployer Plan" means a Plan which is a multiemployer plan as
------------------
defined in Section 4001(a)(3) of ERISA.
"Non-Excluded Taxes" has the meaning specified in Section 2.11.1.
------------------
"Note" has the meaning specified in Section 2.3.4.
----
"Notice of Borrowing" has the meaning specified in Section 2.2.
-------------------
"Obligations" means collectively, the unpaid principal of and interest
-----------
on the Loans and all other obligations and liabilities of the Borrower under
this Agreement and the other Loan Documents (including interest accruing after
the maturity of the Loans and interest accruing after the filing of any petition
in bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter
7
<PAGE>
incurred, which may arise under, out of, or in connection with, this Agreement,
any other Loan Document or any other document made, delivered or given in
connection herewith or therewith, whether on account of principal, interest,
fees, indemnities, costs, expenses (including all fees, charges and
disbursements of counsel to the Lender that are required to be paid or
reimbursed by the Borrower pursuant hereto or any other Loan Document) or
otherwise.
"Officer's Certificate" means a certificate signed by a Responsible
---------------------
Officer of the Borrower.
"Other Taxes" means any and all present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation established
----
pursuant to Subtitle A of Title 10 of ERISA (or any successor).
"Person" means any natural person, corporation, business trust, joint
------
venture, association, company, limited liability company and partnership and any
government (including any agency or political subdivision thereof).
"Permitted Liens" has the meaning given to such term in the Security
---------------
Agreement.
"Plan" means at a particular time, any "employee pension plan" (within
----
the meaning of Section 3 of ERISA) which is covered by ERISA and in respect of
which the Borrower or a Commonly Controlled Entity is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to be) an
"employer" as defined in Section 3(5) of ERISA.
"Prime Rate" means the prime commercial lending rate of The Chase
----------
Manhattan Bank in New York, New York, as publicly announced to be in effect from
time to time, such rate to be adjusted automatically, without notice, on the
effective date of any change in such rate.
"Purchase Agreement" means the Purchase Agreement No. 2235, dated June
------------------
11, 1999, between the Borrower and the Manufacturer (including all exhibits,
schedules and annexes thereto) together with all letter and other agreements
entered into that by their terms constitute part of such Purchase Agreement,
amend, modify or supplement any term thereof relating to any Aircraft or
otherwise relate to any Aircraft, in each case as amended in accordance with the
terms thereof and hereof, excluding, however, for all purposes of this Agreement
and the other Loan Documents, letter agreements 6-1162-CPJ-308 and 6-1162-CPJ-
311.
8
<PAGE>
"Release" means any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration of
Hazardous Materials into the indoor or outdoor environment, including, without
limitation, the movement of Hazardous Materials through ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata.
"Reorganization" means with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.
"Reportable Event" means any reportable event as defined in Section
----------------
4043(c) of ERISA or the regulations issued thereunder with respect to a Plan
(other than a Plan maintained by a Commonly Controlled Entity which is
considered a Commonly Controlled Entity only pursuant to subsection (m) or (o)
of Section 414 of the Code).
"Requirement of Law" means any law, treaty, rule or regulation or
------------------
determination of an arbitrator or a court or other Governmental Authority.
"Responsible Officer" means any corporate officer of the Borrower who,
-------------------
in the normal performance of his or her operational responsibilities, with
respect to the subject matter of any covenant, agreement or obligation of the
Borrower pursuant to any Loan Document or the Purchase Agreement, would have
responsibility for and knowledge of such matter and the requirements of any Loan
Document or the Purchase Agreement with respect thereto.
"Scheduled Delivery Date" means, with respect to any Aircraft, the
-----------------------
scheduled delivery date set forth on Schedule I hereto with respect to such
Aircraft (as such scheduled delivery date may be adjusted in accordance with the
terms of the Purchase Agreement and Section 6.1 hereof).
"SEC" means the Securities and Exchange Commission of the United
---
States and any successor agencies or authorities.
"Security Agreement" means that certain Security Agreement and
------------------
Collateral Assignment of Purchase Agreement dated as of the Agreement Date
between the Borrower and the Lender.
"Single Employer Plan" means any Plan which is covered by Title IV of
--------------------
ERISA, but which is not a Multiemployer Plan.
"Special Default" means failure by the Borrower (or any direct or
---------------
indirect Subsidiary, Affiliate or successor of the Borrower) to pay any amount
of any rent (including supplemental rent substantially consistent with, except
for specific amounts, the definition for Supplemental Rent as defined herein) or
other amounts due and payable to a GE Entity under any of the GECC Agreements
after the expiration of any applicable cure period.
9
<PAGE>
"Subsidiary" means, as to any Person, a corporation, partnership,
----------
limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power to elect a majority of the
Board of Directors or other managers of such corporation, partnership or other
entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person.
"Transportation Code" means Subtitle VII of Title 49 of the United
-------------------
States Code, as in effect on the Agreement Date and as modified or amended
thereafter, or any successor or substituted legislation at the time in effect
and applicable.
"Underfunding" means an excess of all accrued benefits under a Plan
------------
(based on the assumptions used to fund such Plan), determined as of the most
recent valuation date, over the value of the assets of such Plan allowable to
such accrued benefits.
"Year 2000 Compliance" has the meaning specified in Section 3.17.
--------------------
SECTION 1.2. Other Definitional Provisions.
-----------------------------
1.2.1. Accounting Terms. As used herein and in the other Loan
----------------
Documents, and any certificate or other document made or delivered pursuant
hereto to thereto, accounting terms not defined in Section 1.1 shall have the
respective meanings given to them under GAAP.
1.2.2. Miscellaneous. The words "hereof", "herein" and "hereunder"
-------------
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
Section, Schedule and Exhibit references are to this Agreement unless otherwise
specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms. The meanings
given to terms defined herein shall be equally applicable to both the singular
and plural forms of such terms. All references to statutes and related
regulations shall include any amendments of the same and any successor statutes
and regulations. All references to any instruments or agreements (including the
Loan Documents) shall include any and all amendments, supplements and
modifications thereto.
ARTICLE II.
AMOUNT AND TERMS OF LOANS
-------------------------
SECTION 2.1. Loans. Subject to the terms and conditions of
------
this Agreement, with respect to each Aircraft, the Lender agrees to make a term
loan or loans (each, a "Loan" and, together with Loans relating to any Aircraft,
----
collectively, the "Loans") to the Borrower from time to time during the
-----
Availability Period for such Aircraft in an aggregate principal amount not
exceeding the Maximum Available Amount for such Aircraft; provided that the
--------
Lender shall not be obligated to make any Loan if, after giving
10
<PAGE>
effect to the making of such Loan, the aggregate principal amount of all Loans
extended on or prior to such time would exceed $*. Amounts borrowed
under this Agreement and subsequently repaid or prepaid may not be reborrowed.
SECTION 2.2. Procedure for Borrowing. Subject to the terms and
-----------------------
conditions of this Agreement, the Borrower may borrow Loans during the
applicable Availability Period on any Business Day; provided that the Lender
--------
shall have received from the Borrower a notice of borrowing (the "Notice of
---------
Borrowing") substantially in the form of Exhibit A, requesting such borrowing
- ---------
(each, a "Borrowing"). The Borrower may borrow Loans on the same Business Day
---------
for different Aircraft. Each such Notice of Borrowing shall constitute the
Borrower's irrevocable commitment to make the Borrowing requested therein and
shall specify (i) the Aircraft to which such proposed Borrowing relates, (ii)
the amount of the proposed Borrowing (which amount shall equal the then
aggregate amount of the Deposit Payments then due and owing (including
previously deferred amounts) to the Manufacturer under the Purchase Agreement
for such Aircraft plus, in the case of the initial Borrowing hereunder the
aggregate amount of Deposit Payments previously advanced by the Borrower to the
Manufacturer under the Purchase Agreement with respect to such Aircraft (less
$1,000,000 per Aircraft)), (iii) the proposed Borrowing Date (which shall be a
Business Day and which shall not be earlier than the date such amounts are due
under the Purchase Agreement) and (iv) disbursement instructions (which
disbursements shall be made by the Lender directly to the Manufacturer other
than, with respect the initial Borrowing hereunder, amounts disbursed to the
Borrower in reimbursement of previously funded Deposit Payments). In addition,
to be effective, each such Notice of Borrowing (other than with respect to the
initial Borrowing hereunder) must be received by the Lender prior to 12:00 Noon,
New York City time, three (3) Business Days prior to the requested Borrowing
Date. The Lender shall cause the proceeds of each Loan to be available in
immediately available funds for the account of the Borrower (or on its behalf)
prior to 12:30 p.m., New York City time, on the Borrowing Date requested by the
Borrower. The Lender shall cause such proceeds to be made available hereunder
to the Manufacturer or the Borrower in connection with each Borrowing in the
manner specified in the Notice of Borrowing by the Borrower. The Borrower
agrees that the actual transfer of the proceeds of a Loan to the bank designated
by the Borrower for credit to the Manufacturer's or the Borrower's account (as
applicable) maintained at such bank shall constitute conclusive evidence that
the Loan was made, and neither the failure of the Lender to endorse on the
schedule attached to any Note the amount of such Loan, nor any failure of the
bank designated by the Borrower to credit proceeds of a Loan to the
Manufacturer's or the Borrower's account (as applicable) maintained at such
bank, nor any failure of the Manufacturer to credit proceeds of a Loan to the
account of the Borrower maintain on the books and records of the Manufacturer,
shall affect the Borrower's obligations hereunder.
SECTION 2.3. Repayment of Loans; Evidence of Debt.
------------------------------------
- ----------
* Confidential treatment has been requested for omitted information. Omitted
information has been filed separately with the Commission.
11
<PAGE>
2.3.1. Maturity Date of Loans. The Borrower hereby unconditionally
----------------------
promises to pay to the Lender the then outstanding principal amount of each Loan
on the Maturity Date applicable to such Loan.
2.3.2. Maintenance of Account(s). The Lender shall maintain in
-------------------------
accordance with its usual practice an account or accounts evidencing
indebtedness of the Borrower to the Lender resulting from each Loan from time to
time, including the Aircraft to which such Loan relates and the amounts of
principal and interest payable thereon and paid to the Lender from time to time.
2.3.3. Evidence of Obligations. The accounts of the Lender
-----------------------
maintained pursuant to Section 2.3.2 shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded and the Aircraft to which such Loan
relates; provided that the failure of the Lender to maintain any such account,
--------
or any error therein, shall not in any manner affect the obligation of the
Borrower to repay (with applicable interest) the Loans made to the Borrower by
the Lender in accordance with the terms of this Agreement.
2.3.4. Notes. The Borrower agrees that, upon the request by the
-----
Lender, the Borrower shall execute and deliver to the Lender one or more
promissory notes of the Borrower (in the principal amounts requested by the
Lender) further evidencing the Loans, substantially in the form of Exhibit B
with appropriate insertions as to date and principal amount (each, a "Note").
----
The Lender is hereby authorized to record the date and amount of each Loan made
by the Lender and the date and amount of each payment or prepayment of principal
thereof, on the schedule (or continuation of the schedule) annexed to or
constituting a part of such Note, and any such recordation shall, to the extent
permitted by applicable law, be prima facie evidence of the accuracy of the
information so recorded; provided that the failure of the Lender to make any
--------
such recordation (or error therein) shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
the Borrower by the Lender in accordance with the terms of this Agreement.
SECTION 2.4. Use of Proceeds. The proceeds of each Loan shall
---------------
be used by the Borrower solely to make Deposit Payments due to the Manufacturer
under the Purchase Agreement in respect of the Aircraft to which such Loan
relates (or, in the case of the initial Borrowing, to reimburse the Borrower for
such Deposit Payments previously made by the Borrower).
SECTION 2.5. Optional and Mandatory Prepayments.
----------------------------------
2.5.1. Optional Prepayment. The Borrower may at any time and from
-------------------
time to time prepay Loans, in whole or in part, upon at least three Business
Day's irrevocable notice to the Lender, specifying the date and amount of
prepayment and the Aircraft to which such prepayment relates. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date specified therein. For purposes hereof, prepayments of any Loans which
do not prepay in full all Loans then outstanding with
12
<PAGE>
respect to an Aircraft shall be deemed a partial prepayment of such Loans.
Partial prepayments of Loans shall be in an aggregate principal amount of
$500,000 or a whole multiple of $50,000 in excess thereof.
2.5.2. Mandatory Prepayments.
---------------------
(i) Upon the consummation of any Aircraft Sale, the aggregate
outstanding principal amount of the Loans relating to such Aircraft shall become
immediately due and payable.
(ii) Upon the termination of the Purchase Agreement with respect to
any Aircraft for any reason whatsoever, the aggregate outstanding principal
amount of the Loans relating to such Aircraft shall become immediately due and
payable.
(iii) In the event that the Manufacturer refunds any amounts under
the Purchase Agreement relating to payments made thereunder for which proceeds
of any Borrowing were used to pay (or to reimburse the Borrower) or otherwise
relating to any Aircraft, a principal amount of the Loans relating to such
Aircraft equal to such refund shall become immediately due and payable.
2.5.3. Unpaid Interest Upon Prepayment. Each prepayment of Loans
-------------------------------
pursuant to this Section 2.5 shall be accompanied by the Borrower's payment of
unpaid interest on the amount prepaid, accrued to the date of prepayment.
SECTION 2.6. Interest Rates and Payment Dates.
--------------------------------
2.6.1. Loans. The Borrower hereby agrees to pay interest on the
-----
unpaid principal amount of the Loans from time to time outstanding from the date
the proceeds thereof are made available to (or on behalf of) the Borrower until
payment in full thereof at the rates per annum, and on the dates, set forth in
this Section 2.6. Subject to Section 2.6.2, each Loan shall bear interest for
each day that it is outstanding at a rate per annum equal to the Libor Rate for
the applicable period plus the Applicable Margin.
----
2.6.2. Default. Notwithstanding the foregoing, if all or a portion of
-------
(i) the principal amount of any Loan, (ii) any interest payable thereon or (iii)
any other amount payable hereunder or under any other Loan Document shall not be
paid when due (whether at the stated maturity, by acceleration or otherwise),
such overdue amount shall bear interest for each from the date of such non-
payment until such amount is paid in full (after as well as before judgment) at
a rate per annum equal to the Libor Rate determined for such day plus the
Applicable Margin plus three percent (3%).
2.6.3. Interest Payment Dates. Interest on each Loan shall be payable
----------------------
in arrears on each Interest Payment Date, upon any prepayment of such Loan (to
the extent accrued on the amount being prepaid) and at maturity; provided that
--------
interest accruing pursuant to Section 2.6.2 shall be payable from time to time
on demand.
13
<PAGE>
SECTION 2.7. Computation of Interest.
-----------------------
2.7.1. Calculation of Interest. Interest shall be calculated on the
-----------------------
basis of a 360-day year for the actual days elapsed. The Lender shall as soon as
practicable notify the Borrower of each determination of the Libor Rate.
2.7.2. Determination by Lender Binding. Each determination of the
-------------------------------
Libor Rate by the Lender pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower in the absence of manifest error. The
Lender shall deliver to the Borrower a statement showing in reasonable detail
the quotations and calculations used by the Lender in determining any Libor Rate
at least five Business Days prior to each Interest Payment Date; provided that
any failure of the Lender to deliver such statement shall not alter the
Borrower's obligations hereunder (including without limitation to pay such
interest on such Interest Payment Date).
SECTION 2.8. Inability to Determine Libor Rate; Illegality. If the
---------------------------------------------
Lender at any time makes a determination (which determination shall be
conclusive and binding upon the Borrower) with respect to any interest period
that (i) by reason of circumstances affecting the relevant market generally,
adequate and reasonable means do not exist for ascertaining the Libor Rate for
such interest period as provided herein or (ii) any change in any Requirement of
Law or in the interpretation or application thereof shall make it unlawful for
the Lender to make or maintain any Loans based on the Libor Rate as contemplated
by this Agreement, the Lender shall give notice of such determination to the
Borrower, whereupon the Borrower and the Lender shall enter into negotiations in
good faith with a view to establishing a satisfactory alternative basis for
computing interest on the Loans. If the Borrower and the Lender agree upon such
an alternative basis on or before the tenth day after that notice is given to
the Borrower, interest shall accrue on the Loans in accordance with that
alternative basis. If the Borrower and the Lender fail to agree on such an
alternative basis on or before the date specified above in this Section, for so
long as clause (i) or (ii) remains applicable, interest shall accrue on the
Loans at the rate of the Prime Rate plus one percent (1%).
SECTION 2.9. Payments.
--------
2.9.1. Payments in Immediately Available Funds. All payments
---------------------------------------
(including prepayments) to be made by the Borrower hereunder, whether on
account of principal, interest or otherwise, shall be made without set-off,
defense or counterclaim and shall be made prior to 12:30 p.m., New York City
time, in Dollars in immediately available funds on the due date thereof to the
Lender at its account at Bankers Trust Company, New York, New York (ABA No. 021-
001-033), for credit to the GECC T&I Depository Account, Account No. 50-255-888,
Reference: Midway, or to such other account as the Lender shall specify in a
notice to the Borrower.
2.9.2. Payment Due on Non-Business Day. If any payment on a Loan
-------------------------------
becomes due and payable on a day other than a Business Day, the maturity of such
payment shall be extended to the next succeeding Business Day (and, with respect
to
14
<PAGE>
payments of principal, interest thereon shall be payable at the then applicable
rate during such extension).
15
<PAGE>
SECTION 2.10. Requirements of Law.
-------------------
2.10.1. Compensation for Increased Costs. If the adoption of or any
--------------------------------
change in any Requirement of Law or in the interpretation or application thereof
or compliance by the Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority, made
subsequent to the date hereof:
(i) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, the
Lender which is not otherwise included in the determination of the Libor
Rate hereunder; or
(ii) imposes any other condition on the Lender or its obligations
hereunder;
and the result of any of the foregoing is to increase the cost to the Lender, by
an amount which the Lender deems to be material, of making or maintaining the
Loans, or to reduce any amount receivable hereunder in respect thereof, then, in
any such case, after submission by the Lender to the Borrower of a written
request therefor (which writing shall also state that such request is consistent
with the Lender's treatment of similar borrowers of the Lender having similar
provisions generally in their agreements with the Lender), the Borrower shall
promptly pay to the Lender such additional amount or amounts on an after-tax
basis as shall compensate the Lender for such increased cost or reduced amount
receivable.
2.10.2. Capital Adequacy. If the Lender shall have determined that
----------------
the adoption of or any change in any Requirement of Law regarding capital
adequacy or in the interpretation or application thereof or compliance by the
Lender or any corporation controlling the Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) from any
Governmental Authority made subsequent to the date hereof shall have the effect
of reducing the rate of return on the Lender's or such corporation's capital as
a consequence of its obligations hereunder to a level below that which the
Lender or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration the Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by the Lender to
be material, then from time to time, after submission by the Lender to the
Borrower of a written request therefor (which writing shall also state that such
request is consistent with the Lender's treatment of similar borrowers of the
Lender having similar provisions generally in their agreements with the Lender),
the Borrower shall promptly pay to the Lender such additional amount or amounts
on an after-tax basis as shall compensate such Lender for the reduction.
2.10.3. Calculations; Survival. A certificate as to any additional
----------------------
amounts payable pursuant to this Section 2.10 submitted by the Lender to the
Borrower shall be
16
<PAGE>
conclusive in the absence of manifest error. The obligations under this Section
2.10 shall survive the termination of this Agreement and the payment of the
Loans and all other amounts payable hereunder.
2.10.4. Mitigation. In the event that the Lender becomes entitled to
----------
compensation pursuant to this Section, the Lender will take reasonable steps to
eliminate or minimize such increased cost or capital expense and designate a
different lending office if, in the sole opinion of the Lender, such steps or
designation will avoid the need for, or reduce the amount of, such compensation
and will not be otherwise disadvantageous to the Lender.
SECTION 2.11. Taxes.
-----
2.11.1. Payments. All payments made by the Borrower under this
--------
Agreement and the other Loan Documents shall be made free and clear of, and
without deduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions
or withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority ("Taxes"), excluding net income taxes
(including branch profits and minimum taxes) and franchise taxes but only those
that are in the nature of net income taxes imposed on the Lender as the result
of a present or former connection between the Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein ("Non-Excluded Taxes"). If any such Non-Excluded
------------------
Taxes or Other Taxes are required to be withheld from any amounts payable to the
Lender hereunder, the amounts so payable to the Lender shall be increased to the
extent necessary so that after making all required withholdings, the Lender
receives on an after-tax basis, amounts equal to the amounts payable hereunder
at the rates or in the amounts specified in this Agreement had no such
withholdings been made.
2.11.2. Other Taxes and Non-Excluded Taxes. In addition, the
----------------------------------
Borrower shall pay any Other Taxes to the relevant Governmental Authority in
accordance with applicable law and indemnify and hold the Lender harmless on an
after-tax basis from and against Other Taxes and Non-Excluded Taxes.
2.11.3. Receipt for Payment of Taxes; Survival. Whenever any Non-
--------------------------------------
Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as
possible thereafter, the Borrower shall send to the Lender a certified copy of
an original official receipt received by the Borrower showing payment thereof.
If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to
the appropriate taxing authority or fails to remit to the Lender the required
receipts or other required documentary evidence, the Borrower shall indemnify
the Lender on an after-tax basis for any Taxes, interest or penalties that may
become payable by the Lender as a result of any such failure and any reasonable
costs and expenses related thereto. The obligations under this Section 2.11
shall survive the termination of this Agreement and the payment of the Loans and
all other amounts payable hereunder. If the Lender receives a refund in respect
of any Non-
17
<PAGE>
excluded Taxes or Other Taxes for which the Lender has received payment from the
Borrower under this Section, it shall promptly notify the Borrower of such
refund and shall, within 30 days after receipt of a request by the Borrower,
repay such refund to the Borrower, net of all related expenses, costs or other
charges of the Lender, provided that the Borrower, upon the request of the
Lender agrees to and shall promptly return such refund (plus penalties, interest
or other charges and any related expenses) to the Lender in the event the Lender
is required to repay such refund.
SECTION 2.12. Indemnity. The Borrower agrees to indemnify the
---------
Lender, its affiliates and their respective directors, officers, agents,
employees and attorneys-in-fact (each, an "Indemnitee") and hold each Indemnitee
----------
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) relating to or arising out
of this Agreement, the other Loan Documents, the Purchase Agreement or any
Aircraft, the transactions contemplated hereby or thereby or any actual or
proposed use of proceeds of Loans hereunder. No Indemnitee shall have the right
to be indemnified hereunder for such Indemnitee's own gross negligence or
willful misconduct as determined by a court of competent jurisdiction. The
obligations under this Section 2.12 shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
SECTION 2.13. Funding Losses. In the event that (i) the Borrower
--------------
makes any prepayment of any Loan (whether voluntary or mandatory) other than a
prepayment made on any Interest Payment Date which is made after proper notice
thereof is given in accordance with the terms hereof (it being understood and
agreed that payments of principal which become due and payable on a Maturity
Date are not prepayments hereunder), (ii) the Borrower fails to make a borrowing
after giving a notice requesting the same, or (iii) the Borrower fails to repay
any Loan on the due date thereof or to prepay any Loan after notice has been
given to the Lender thereof, the Borrower shall reimburse the Lender promptly
after demand for any resulting loss or expense incurred by the Lender (or its
affiliates), any loss incurred in obtaining, liquidating or employing deposits
from third parties, but excluding loss of margin for the period after any such
payment or failure to borrow or prepay. Such loss shall include an amount equal
to the excess, if any, of (i) the amount of interest that would have accrued on
the amount so prepaid, or not so borrowed, for the period from the date of such
prepayment or of such failure to borrow to the last day of such Interest Period
(or, in the case of a failure to borrow, the Interest Period that would have
commenced on the date of such failure) in each case at the applicable rate of
interest for such Loans provided for herein (excluding, however, the Applicable
Margin included therein, if any) over (ii) the amount of interest (as reasonably
----
determined by the Lender) that would have accrued to the Lender on such amount
by placing such amount on deposit for a comparable period with leading banks in
the interbank eurodollar market. A certificate of the Lender delivered to the
Borrower setting forth in reasonable detail the calculation of the amount of
such loss or expense shall be conclusive in the absence of
18
<PAGE>
manifest error. The obligations under this Section 2.13 shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Lender to enter into this Agreement and to make the
Loans, the Borrower represents and warrants to the Lender that:
SECTION 3.1. Financial Condition. (i) The audited consolidated
-------------------
balance sheet of the Borrower with respect to the Borrower's most recent fiscal
year included in the Borrower's most recent Annual Report on Form 10-K, as
amended, filed by the Borrower 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 the Borrower 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 the Borrower, 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 the Borrower with the
SEC on or prior to the date hereof, or (c) otherwise disclosed in writing by the
Borrower to the Lender or otherwise disclosed in a press release prior to the
date hereof; and (ii) the financial statements of the Borrower as of September
30, 1999 fairly represent the financial condition of the Borrower for the fiscal
period then ended in accordance with generally accepted accounting principles in
the United States consistently applied (except as otherwise stated in the notes
thereto).
SECTION 3.2. No Adverse Change. Except (a) for matters disclosed in
-----------------
the financial statements referred to in Section 3.1 above, (b) for matters
disclosed in any subsequent Quarterly Report on Form 10-Q or Current Report on
Form 8-K filed by the Borrower with the SEC on or prior to the date hereof or
(c) otherwise disclosed in writing by the Borrower to the Lender prior to the
date hereof or otherwise disclosed in a press release prior to the date hereof,
since December 31, 1998, there has been no development or event which has had a
Material Adverse Effect.
SECTION 3.3. Corporate Existence; Compliance with Law. Each of the
----------------------------------------
Borrower and its Subsidiaries (i) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (ii) has
the corporate or other power and authority, and the legal right, to own and
operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently engaged, (iii) is duly qualified as a
foreign corporation or other entity and is in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification, except to the extent that
the failure to qualify or be in good standing could not reasonably be expected
to result in a Material Adverse Effect, (iv)
19
<PAGE>
is in compliance with all Requirements of Law, except to the extent that the
failure to comply therewith could not reasonably be expected to result in a
Material Adverse Effect and (v) is in compliance with its certificate of
incorporation, by-laws and other organizational documents. The Borrower 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 9.2.
SECTION 3.4. Corporate Power; Authorization; Enforceable Obligations.
-------------------------------------------------------
The Borrower has the corporate and all other power and authority, and the legal
right, to execute, deliver and perform the Loan Documents and the Purchase
Agreement and to consummate the transactions contemplated thereby. The Borrower
has taken all necessary corporate and other action to authorize the execution,
delivery and performance of the Loan Documents, the Purchase Agreement and the
Borrowings hereunder. No consent or authorization of, filing with, notice to,
or other act by or in respect of, any Governmental Authority or any other Person
is required with respect to the Borrower or any of its Subsidiaries in
connection with the transactions contemplated by, or the execution, delivery,
performance, validity or enforceability of, the Loan Documents or the Purchase
Agreement, except for consents, filings, notices, authorizations or approvals
which have been obtained and are in full force and effect. This Agreement has
been, and each other Loan Document has been or when executed pursuant hereto
shall be, duly executed and delivered on behalf of the Borrower. This Agreement
and each other Loan Document constitute, or when executed pursuant hereto shall
constitute, a legal, valid and binding obligation of the Borrower enforceable
against it in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
SECTION 3.5. Violation. The execution, delivery and performance of
---------
the Loan Documents and the Purchase Agreement, the Borrowings hereunder and the
use of the proceeds thereof (i) do not and will not (a) violate any material
Requirement of Law applicable to, or material Contractual Obligation of, the
Borrower, or any of its Subsidiaries or (b) the respective certificate of
incorporation, by-laws or other organizational documents of the Borrower or any
of its Subsidiaries, and (ii) will not result in, or require, the creation or
imposition of any Lien on any of their respective properties or revenues
pursuant to any such Requirement of Law or Contractual Obligation (other than
the security interest created by the Security Agreement).
SECTION 3.6. No Material Litigation. No litigation, investigation or
----------------------
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower, threatened by or against the Borrower, or any
of its Subsidiaries or against any of their respective properties or revenues
(i) with respect to any of the Loan Documents or the Purchase Agreement or any
of the transactions contemplated hereby or thereby or (ii) except for matters
disclosed in (a) the financial statements referred to in Section 3.1 above, (b)
any subsequent Quarterly Report on Form 10-Q or Current
20
<PAGE>
Report on Form 8-K filed by the Borrower with the SEC on or prior to the date
hereof or (c) otherwise disclosed in writing by the Borrower to the Lender prior
to the date hereof, which could reasonably be expected to result in a Material
Adverse Effect.
SECTION 3.7. No Default. Neither the Borrower nor any of its
----------
Subsidiaries is in default under, or with respect to, any of their respective
Contractual Obligations in any respect which could reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.8. Ownership of Property; Liens. Each of the Borrower
----------------------------
and its Subsidiaries has good record and marketable title in fee simple to, or a
valid leasehold interest in, all of its material real property, and good title
to, or a valid leasehold interest in, all its other material property.
SECTION 3.9. Purchase Agreement. (i) The Purchase Agreement has
------------------
been duly authorized, executed and delivered by the Borrower and constitutes a
legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law), (ii) the Purchase Agreement is in full force and effect, (iii) neither
the Borrower nor, to the best knowledge of the Borrower, any other party thereto
is in default in the performance of any term or condition of the Purchase
Agreement, (iv) Schedule I hereto sets forth in full and accurate detail, with
respect to each Aircraft, (a) the aggregate amount of pre-delivery deposit
payments made by the Borrower prior to the date hereof (net of any and all
refunds and credits received from the Manufacturer prior to the date hereof)
with respect to such Aircraft, (b) the scheduled dates and amounts of each
Deposit Payment due with respect to such Aircraft after the date hereof, (c) the
scheduled delivery date for such Aircraft and (d) the aggregate purchase price
of such Aircraft, in each case as provided for in the Purchase Agreement as in
effect on the date hereof (without giving effect to any Deposit Payments), and
(v) assuming that each Aircraft is delivered on its Delivery Date in the
condition required by the terms of the Purchase Agreement, each of the Aircraft
shall be in such condition as is necessary to be certified by the FAA as to type
and airworthiness and to meet the requirements necessary to obtain an
airworthiness certificate under the Transportation Code.
SECTION 3.10. Taxes. Each of the Borrower and its Subsidiaries has
-----
filed or caused to be filed all U.S. (federal, state and local) tax returns and
all other tax returns which are required to be filed and has paid all taxes
shown to be due and payable on said returns or on any assessments made against
it or any of its property and all other taxes, fees or other charges imposed on
it or any of its respective property by any Governmental Authority (other than
any amount the validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP have been provided on the books of the Borrower), except where the failure
to file and pay any such taxes, fees or other charges, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect. There
21
<PAGE>
is no ongoing audit or, to the knowledge of the Borrower, other investigation by
any Government Authority of the tax liability of the Borrower or any of its
Subsidiaries and there is no unresolved claim by a taxing authority concerning
the Borrower'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 Borrower
which could reasonably be expected to have a Material Adverse Effect.
SECTION 3.11. Federal Margin Regulations. Neither the Borrower nor
--------------------------
any of its Subsidiaries owns or is engaged principally, or as one its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any Margin Stock. No part of the proceeds of any Loans shall be used
for purchasing or carrying any Margin Stock for any purpose which violates the
provisions of the Regulations of the Federal Reserve Board or any similar rule
of any other Governmental Authority.
SECTION 3.12. Labor Matters. There are no strikes or other labor
-------------
disputes against the Borrower or any of its Subsidiaries pending or, to the
knowledge of the Borrower, threatened that, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Effect.
SECTION 3.13. ERISA. Neither a Reportable Event nor an accumulated
-----
funding deficiency (within the meaning of Section 412 of the Code or Section 302
of ERISA) has occurred with respect to any Plan, and each Plan has complied in
all material respects with the applicable provisions of ERISA and the Code. No
termination of a Single Employer Plan has occurred and no Lien in favor of PBGC
or a Plan has arisen. The present value of all accrued benefits under each
Single Employer Plan (based on those assumptions used to fund such Plans) did
not, as of the most recent annual valuation date, exceed the value of the assets
of such Plan allocable to such accrued benefits by a material amount. Neither
the Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan which could reasonably be expected to
result in a material liability under ERISA. Neither the Borrower nor any
Commonly Controlled Entity would become subject to any material liability under
ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw
completely from all Multiemployer Plans as of the most recent annual valuation
date. No such Multiemployer Plan is in Reorganization or is Insolvent.
SECTION 3.14. Investment Company Act; Other Regulations. The
-----------------------------------------
Borrower is not an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended. The Borrower is not subject to any other law or regulation which
limits its ability to incur the Indebtedness incurred or to be incurred by it
under the Loan Documents.
SECTION 3.15. Environmental Matters. Except with regard to any of the
---------------------
following that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect:
22
<PAGE>
(i) the Borrower and each of its Subsidiaries has obtained all permits,
licenses and other authorizations required under all applicable
Environmental Laws to carry on its business as now being or as
proposed to be conducted;
(ii) each of such permits, licenses and authorizations is in full force
and effect, and the Borrower and each of its Subsidiaries is in
compliance with the terms and conditions thereof and is also in
compliance with all other limitations, restrictions conditions,
standards, prohibitions, requirements, obligations, schedules and
timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice
or demand letter issued, entered, promulgated or approved thereunder;
and
(iii) no notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending
or (to the knowledge of the Borrower) threatened by any governmental
or other entity with respect to any alleged failure by the Borrower
or any of its Subsidiaries to have any permit, license or other
authorization required under any applicable Environmental Law, or to
be in compliance with any Environmental Law, in connection with the
conduct of the business of the Borrower or any of its Subsidiaries or
with respect to any generation, treatment, storage, recycling,
transportation, discharge or disposal, or any Release of any
Hazardous Materials generated by the Borrower or any of its
Subsidiaries.
SECTION 3.16. Year 2000 Compliance. Any reprogramming required to
--------------------
permit the proper functioning, in and following the year 2000, of (i) the
Borrower's computer systems and (ii) equipment containing embedded microchips
(including systems and equipment supplied by others or with which the Borrower's
systems interface), and the successful testing of all such systems and
equipment, as so reprogrammed ("Year 2000 Compliance"), if necessary, has been
completed, except to the extent failure to do so could not reasonably be
expected to result in a Material Adverse Effect. The cost to the Borrower of
Year 2000 Compliance and of the reasonably foreseeable consequences to the
Borrower of the effect of the year 2000 on computer systems and equipment
containing embedded microchips (including, without limitation, possible
reprogramming errors and the failure of others' computer systems or equipment)
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.17. Certificated Air Carrier; Route Permits. (i) The
---------------------------------------
Borrower is a Certificated Air Carrier (and each certificate necessary therefor
is in full force and effect) and (ii) the Borrower 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
23
<PAGE>
for any such permits the failure to have or maintain which could not reasonably
be expected to have a Material Adverse Effect.
SECTION 3.18. Security Agreement. The representations and warranties of
------------------
the Borrower in the Security Agreement are true and correct in all material
respects.
SECTION 3.19. Manufacturer's Event. To the best knowledge of the
--------------------
Borrower, no event or action has occurred which constitutes, or with the passage
of time would constitute, a Manufacturer's Event.
SECTION 3.20. Repetition of Representations and Warranties. Each of the
--------------------------------------------
representations and warranties set forth in this Article III and each of the
statements contained in any certificate or other instrument delivered by or on
behalf of the Borrower pursuant to or in connection with this Agreement or any
of the other Loan Documents shall constitute representations under this
Agreement. Each of the representations and warranties made under this Agreement
shall be made or deemed to be made at and as of the Agreement Date, at and as of
the Effective Date and at and as of the time of disbursement of each Loan,
except that representations and warranties which, by their terms are applicable
only to warranties made or deemed to be made only to one such date shall be
deemed to be made at and as of such date.
ARTICLE IV.
CONDITIONS
----------
SECTION 4.1. Conditions to Effective Date. The obligation of the Lender
----------------------------
to make Loans hereunder are subject to the satisfaction of, or waiver by the
Lender of, the following conditions precedent set forth in this Section 4.1:
4.1.1. Loan Agreement, etc. The Lender shall have received (i) this
-------------------
Agreement executed and delivered by a duly authorized office of the Borrower and
(ii) if so requested by the Lender, it shall have received a Note executed on
behalf of the Borrower payable to the order of the Lender, dated as of the date
of this Agreement in an amount equal to the aggregate amount of its commitment
hereunder.
4.1.2. Corporate Proceedings. The Lender shall have received a copy of
---------------------
the resolutions, in form and substance satisfactory to the Lender, of the Board
of Directors of the Borrower, authorizing the execution, delivery and
performance by the Borrower of this Agreement, the other Loan Documents and the
Purchase Agreement, certified by the Secretary or an Assistant Secretary of the
Borrower as of the Effective Date, which certificate shall be in form and
substance satisfactory to the Lender and shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded.
24
<PAGE>
4.1.3. Good Standing Certificate. The Lender shall have received to the
-------------------------
extent generally available in the relevant jurisdiction, a copy of a certificate
or certificates of the Secretary of State (or other appropriate public official)
of the jurisdiction of its incorporation, each dated reasonably near the
Effective Date, (i) listing the charter of the Borrower and each amendment
thereto on file in this office and certifying that such amendments are the only
amendments to the Borrower's charter on file in this office, (ii) the Borrower
has paid all franchise taxes to the date of such certificate and (iii) stating
that the Borrower is duly incorporated and in good standing under the laws of
the jurisdiction of its incorporation.
4.1.4. Responsible Officer's Certificate. The Lender shall have
---------------------------------
received a certificate of the Borrower, signed on behalf of the Borrower by a
Responsible Officer, dated the Effective Date, certifying as to (i) the absence
of any amendments to the charter of the Borrower, since the date of the
certificate referred to in Section 4.1.3, (ii) a true and correct copy of the
bylaws of the Borrower as in effect on the Effective Date, (iii) the due
incorporation and good standing of the Borrower as a corporation under the laws
of the jurisdiction of its organization, and the absence of any proceeding for
the dissolution of liquidation of the Borrower, (iv) the truth in all material
respect of the representations and warranties contained in the Loan Documents as
though made on and as of the Effective Date and (iv) the absence of any event
occurring and continuing that constitutes a Default.
4.1.5. Incumbency Certificate. The Lender shall have received a
----------------------
certificate of the Borrower, dated the Effective Date, as to the incumbency and
signature of the officers of the Borrower executing any Loan Document on or
prior to the Effective Date or the Purchase Agreement, satisfactory in form and
substance to the Lender, executed by a Responsible Officer of the Borrower.
4.1.6. Approvals. All governmental and third party approvals (if any)
---------
necessary in connection with the transactions contemplated hereby shall have
been obtained and be in full force and effect. The Lender shall have received a
certificate of a Responsible Officer of the Borrower to the foregoing effect, to
which shall be attached copies of any such approvals.
4.1.7. Legal Opinion. The Lender shall have received a written opinion
-------------
or opinions of counsel to the Borrower, in form and substance satisfactory to
the Lender, with respect to the Loan Documents and the Purchase Agreement and
the transactions contemplated hereby and thereby.
4.1.8. Purchase Agreement. The Lender shall have received a copy of the
------------------
Purchase Agreement certified by the duly authorized officer of the Borrower as
of the Effective Date, which certificate shall be in form and substance
satisfactory to the Lender and shall state that such copy is a full, correct and
complete copy of the Purchase Agreement as in effect on the Effective Date and
that any term or provision redacted or otherwise omitted in no way relates to
any of the Aircraft (except as agreed to by the Lender).
25
<PAGE>
4.1.9. Security Agreement. The Lender shall have received (i) the
------------------
Security Agreement duly executed and delivered by a duly authorized officer of
the Borrower and substantially in the form of Exhibit C hereto, (ii) copies of
Financing Statements (Form UCC-1) duly executed and delivered by the Borrower
appropriate for filing under the Uniform Commercial Code of all jurisdictions as
may be necessary or, in the opinion of the Lender, desirable to perfect the
security interest created by the Security Agreement, together with evidence that
such Financing Statements have been filed (or arrangements satisfactory to the
Lender shall have been made for such filings) and (iii) evidence that all other
actions necessary or, in the opinion of the Lender, desirable to enable the
Lender to perfect and protect the Liens created by the Security Agreement,
having the priority specified in the Security Agreement, have been taken (or
arrangements satisfactory to the Lender shall have been made for such actions to
be taken).
4.1.10. Consent and Agreement. The Lender shall have received the Consent
---------------------
and Agreement duly executed and delivered by duly authorized officers of the
Borrower and the Manufacturer and substantially in the form of Exhibit D hereto.
4.1.11. Lien Searches. The Lender shall have received such lien searches
-------------
releases of liens as the Lender deems necessary to establish that all of the
right, title and interest of the Borrower in, to and under the Purchase
Agreement and the Aircraft is held by the Borrower free and clear of any Liens.
4.1.12. No Default. No Default shall have occurred and be continuing on
----------
such date.
SECTION 4.2. Conditions to Each Loan. The obligation of the Lender to
-----------------------
make any Loan requested to be made by it on any date is subject to the
satisfaction of the following conditions precedent:
4.2.1. Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Borrower in or pursuant to the Loan Documents shall be
true and correct in all material respects as of the date of such Loan, before
and after giving effect to such Loan and the application of the proceeds of such
Loan, other than representations and warranties that expressly refer to another
date.
4.2.2. No Default. No Default shall have occurred and be continuing on
----------
such date or would result from the Loan requested to be made on such date and
application of the proceeds of such Loan.
4.2.3. Notice of Borrowing. The Lender shall have received, in
-------------------
accordance with the provisions of Section 2.2, a Notice of Borrowing
substantially in the form of Exhibit A.
4.2.4. Notes. If so requested by the Lender, on or before the date of
-----
such Loan hereunder, the Lender shall have received a Note executed on behalf of
the Borrower
26
<PAGE>
payable to the order of the Lender, with appropriate insertions as to date and
principal amount.
Each borrowing of Loans by the Borrower shall constitute a representation and
warranty by the Borrower as of the date of such Loan that the conditions
contained in this Section 4.2 have been satisfied.
ARTICLE V.
AFFIRMATIVE COVENANTS
---------------------
So long as any Available Period remains in effect, any Loan remains
outstanding or any other amount is owing to the Lender hereunder, the Borrower
shall and shall cause each of its Subsidiaries to:
SECTION 5.1. Financial Statements. Furnish to the Lender:
--------------------
(a) within 60 days after the end of each of the first three fiscal
quarters in each fiscal year of the Borrower, unaudited consolidated balance
sheets of the Borrower 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 Borrower 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 Borrower is subject to the reporting provisions of the Securities Exchange
Act of 1934, a copy of the Borrower'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 (a));
(b) within 120 days after the end of each fiscal year of the Borrower,
a copy of the annual report for such year for the Borrower or the affiliated
group of which the Borrower is a member (on a consolidated basis, if applicable)
and a balance sheet of the Borrower 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 Borrower 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 Borrower is subject to the reporting
provisions of the Securities Exchange Act of 1934, a copy of the Borrower'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 (b));
(c) within 120 days after the end of each fiscal year of the Borrower,
an Officer's Certificate of the Borrower, to the effect that the signer is
familiar with or has reviewed the relevant terms of this Agreement and has made,
or caused to be made under his supervision, a review of the transactions and
conditions of the Borrower during the
27
<PAGE>
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, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action the
Borrower has taken or is taking or proposes to take with respect thereof; and
(d) 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 Borrower sends to its stockholders and copies of
all regular, periodic and current reports, which, in the case of any of the
foregoing, the Borrower files with the SEC or any governmental authority which
may be substituted therefor or with any national securities exchange.
SECTION 5.2. Certificates; Other Information. Furnish to the
-------------------------------
Lender:
(i) promptly after any Responsible Officer of the Borrower has
actual knowledge thereof, notice of any Default and the action that the Borrower
proposes to take with respect thereto (provided that the Borrower shall be
deemed to have cured any Default arising under this clause (i) to the extent it
shall have cured the Default to which such notice requirement relates); and
(ii) promptly, such additional information relating to the
transactions contemplated hereby, and such additional non-confidential financial
and other information, as the Lender may from time to time reasonably request.
SECTION 5.3. Conduct of Business and Maintenance of Existence. (i)
------------------------------------------------
Continue to engage in business of the same general type as conducted by the
Borrower and its Subsidiaries on the Agreement Date and (ii) except as expressly
permitted by Section 6.2, preserve, renew and keep in full force and effect its
respective corporate existence and take all reasonable action to maintain all
rights, privileges and franchises necessary or desirable in the normal conduct
of business of the Borrower and any of its Subsidiaries; provided that the
--------
Borrower shall not be required to maintain, and shall not be required to cause
any of its Subsidiaries to maintain, any such rights, privileges or franchises,
if the failure to do so could not reasonably be expected to result in a Material
Adverse Effect; comply with all Contractual Obligations and Requirements of Law,
except to the extent that failure to comply therewith could not reasonably be
expected to result in a Material Adverse Effect; and comply with the provisions
of their respective certificates of incorporation, by-laws and other
organizational documents.
SECTION 5.4. Maintenance of Property; Insurance. Keep all property
----------------------------------
useful and necessary in the respective businesses of the Borrower and its
Subsidiaries in good working order and condition, normal wear and tear excepted;
maintain with financially sound and reputable insurance companies insurance on
all property material to the business of the Borrower and its Subsidiaries in at
least such amounts and against at least such risks (but including in any event
public liability and product liability) as are
28
<PAGE>
usually insured against in the same general area by companies engaged in the
same or a similar business; and furnish to the Lender, upon written request,
information in reasonable detail as to the insurance carried, together with
copies of certificates of insurance and other evidence of such insurance, if
any.
SECTION 5.5. Inspection of Property; Books and Records; Discussions.
------------------------------------------------------
Keep proper books of records and account in which full, complete and correct
entries in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to the Borrower's and its Subsidiaries'
respective business and activities; and permit representatives of the Lender to
visit and inspect any of the Borrower's properties and examine and, to the
extent reasonable, make abstracts from any of the Borrower's books and records
and to discuss the business, operations, properties and financial and other
condition of the Borrower and its Subsidiaries with officers and employees of
the Borrower and with its independent certified public accountants, in each case
at any reasonable time during normal business hours, upon reasonable notice to a
Responsible Officer of the Borrower, and as often as may reasonably be desired
at reasonable intervals.
SECTION 5.6. Notices. Promptly give prompt written notice to the
-------
Lender of:
(i) any material default under the Purchase Agreement of which a
Responsible Officer of the Borrower has actual knowledge; and
(ii) 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 Purchase Agreement are located (which
notice shall be given in any event within 30 days prior to the expiration of the
period of time specified under Applicable Law to prevent lapse of perfection).
Each notice delivered under this Section 5.6 shall be accompanied by a statement
of a Responsible Officer of the Borrower setting forth the details of the event
or development requiring such notice and any action taken or proposed to be
taken with respect thereto.
SECTION 5.7. Year 2000. Maintain and cause the Borrower to
---------
maintain, Year 2000 Compliance with respect to its computer systems and
equipment.
SECTION 5.8. Certificated Air Carrier. Maintain its status at all
------------------------
times as a Certificated Air Carrier.
SECTION 5.9. Purchase Agreement. (i) To the extent the same
------------------
relates, directly or indirectly, to any of the Aircraft (including without
limitation the construction, design or delivery of any of the Aircraft), (a)
maintain in full force and effect the Purchase Agreement, (b) perform and comply
with all of its obligations under the Purchase Agreement, (c) preserve and
enforce its rights and benefits under the Purchase Agreement,
29
<PAGE>
and (d) give the Lender prompt written notice of any material change order,
notice, modification or amendment with respect to the Purchase Agreement and
(ii) at sole expense of the Borrower, perform any and all acts and execute any
and all financing statements and other documents and instruments which are
necessary in order to maintain in favor of the Lender a valid and perfected
first priority Lien on the Collateral. Nothing in this Agreement shall adversely
affect the rights of the Borrower under the Purchase Agreement to the extent
relating solely to aircraft other than any of the Aircraft.
SECTION 5.10. Further Assurances. At its expense, promptly execute,
------------------
acknowledge and deliver such further documents and do such other acts and things
as the Lender may from time to time reasonably request in order to more
effectively carry out the purposes of the Loan Documents and provide for the
payment of the Obligations in accordance with the terms of the Loan Documents.
ARTICLE VI.
NEGATIVE COVENANTS
------------------
So long as any Availability Period remains in effect, any Loan remains
outstanding or any other amount is owing to the Lender hereunder, the Borrower
shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly:
SECTION 6.1. Limitation with Respect to Purchase Agreement. (i)
---------------------------------------------
Except for Permitted Liens or as otherwise contemplated by the Security
Agreement, create, assume, incur or suffer to exist any Lien on any of its
right, title or interest in any of the Collateral, whether now owned or
hereafter acquired, (ii) to the extent the same relates, directly or indirectly,
to any of the Aircraft (including without limitation the construction, design or
delivery of any of the Aircraft), amend, supplement or otherwise modify the
Purchase Agreement or consent to the waiver of any provision thereof, except in
each case as expressly permitted by the Security Agreement, (iii) consent to
extensions of (or any amendments which would have the effect of extending) any
Scheduled Delivery Date for an aggregate period of more than 90 days plus, with
the prior written consent of the Lender (which consent shall not be unreasonably
withheld or delayed), up to an additional 90 days, or (iv) convey, sell, lease,
assign, transfer or otherwise dispose of any of its right, title or interest in
any of the Collateral (an "Aircraft Sale") unless, in the case of any of the
foregoing clauses (i) through (iv), simultaneously therewith, the Borrower
prepays the Loans in full relating to the Aircraft affected thereby in
accordance with Section 2.5.2(i).
SECTION 6.2. Limitation on Fundamental Changes. (i) Not liquidate
---------------------------------
or dissolve (except in accordance with this Section 6.2) and (ii) 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:
30
<PAGE>
(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 the Borrower (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 the
Borrower's tangible net worth (determined in accordance with
GAAP) immediately prior to such transaction; provided, however,
the Lender shall waive such requirement if, in its reasonable
credit judgement, the ability of the Successor Entity or the
Borrower, if the Borrower is the Successor Entity, to perform its
obligations under this Agreement, the other Loan Documents and
the Purchase Agreement shall not be materially adversely affected
by such transaction; and provided, further, that in the exercise
of such credit judgement, the Lender 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 the Borrower
is acquiring the assets or capital stock of another Person, the
Borrower shall execute and deliver to the Lender (X) such
recordations and filings with any Governmental Authority and such
other documents as the Lender 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 the Lender,
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 this Agreement, the
other Loan Documents, the Purchase Agreement and the other
related documents to which the Borrower 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 the Lender; and
(y) immediately prior to and after giving effect to such transaction,
no Default under Section 8.1.1 or Event of Default shall have
occurred and be continuing.
31
<PAGE>
SECTION 6.3. Affiliates. Enter into any transaction with any of
----------
its Affiliates, including the purchase of any property from, or the sale of
any property, the rendering of any service or the payment of any management,
advisory or similar fees to, any of its Affiliates unless such transaction is in
furtherance of the reasonable requirements of the Borrower's or such
Subsidiary's business, as the case may be, and upon fair and reasonable terms no
less favorable to the Borrower or such Subsidiary, as the case may be, than it
would obtain in a comparable arm's-length transaction.
ARTICLE VII.
[Reserved]
----------
ARTICLE VIII.
EVENTS OF DEFAULT
-----------------
SECTION 8.1. Events of Default. If any of the following events
-----------------
(each, an "Event of Default") shall occur and be continuing, the Lender shall be
entitled to the remedies set forth in Section 8:
8.1.1. Failure to Pay Principal or Interest. (i) The Borrower shall
------------------------------------
fail to pay any principal of any Loan when due; or (ii) the Borrower shall fail
to pay any interest on any Loans or any other amount payable under this
Agreement or any other Loan Document, within three Business Days after any such
interest or other amount becomes due; or
8.1.2. Inaccuracy of Representation or Warranty. Any representation
----------------------------------------
or warranty made or deemed made by the Borrower herein or in any other Loan
Document shall be untrue or inaccurate in any material respect on or as of the
date made or deemed made and, if such incorrectness is curable, shall continue
uncured for a period of thirty (30) days after an officer of the Borrower has
actual knowledge or has reason to know of such failure; or
8.1.3. Observance or Performance of Certain Covenants. The
----------------------------------------------
Borrower shall default in the observance or performance of or fail to comply
with any covenant, agreement or other term contained in Section 5.8, 6.1 (other
than 6.1(i)) or 6.2 of this Agreement; or
8.1.4. Observance or Performance of Other Covenants. (i) The
--------------------------------------------
Borrower shall fail to comply with Section 5.3(ii) and, if such failure is
capable of cure, such failure continues for thirty (30) days after notice from
the Lender to the Borrower unless such failure requires more than thirty (30)
days to cure in which case the Borrower shall have an additional ninety (90)
days to cure such failure so long as the Borrower is at all times
32
<PAGE>
diligently proceeding to cure such failure and the Lender 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 the
Lender to the Borrower; or (ii) the Borrower shall fail to comply with any other
covenant, agreement or other term contained in this Agreement or the other Loan
Documents not otherwise addressed in this Section 8 and, if such failure is
capable of cure, (A) such failure continues for thirty (30) days after notice
from the Lender to the Borrower or (B) the Borrower shall not at any time be
diligently proceeding to correct such failure; or
8.1.5. Cross Acceleration. The Borrower or any of its Subsidiaries
------------------
shall (i) default in making any payment of any principal or interest on any
Indebtedness beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness was created if the amount of the
Indebtedness in respect of which such default or defaults shall have occurred is
at least $2,500,000 (or its equivalent in another currency); or (ii) default in
the observance or performance of any other covenant or agreement relating to any
such Indebtedness, the effect of which default in either clause (i) or (ii) is
to cause, or to permit the holder or beneficiary of such Indebtedness (or a
trustee or agent on behalf of such holder or beneficiary) to cause and such
holder or beneficiary shall have caused, such Indebtedness to become due prior
to its stated maturity or, in the case of any such Indebtedness constituting a
Guaranty Obligation, to become payable; or
8.1.6. Commencement of Bankruptcy or Other Proceedings. (i) The
-----------------------------------------------
Borrower or any of its Subsidiaries shall commence any case, proceeding or other
action (a) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (b) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for it or
for all or any substantial part of its assets, or the Borrower or any of its
Subsidiaries shall make a general assignment for the benefit of its creditors;
or (ii) there shall be commenced against the Borrower or any of its Subsidiaries
any case, proceeding or other action of a nature referred to in clause (i) above
which (a) results in the entry of an order for relief or any such adjudication
or appointment or (b) remains undismissed, undischarged or unbonded for a period
of 60 days; or (iii) there shall be commenced against the Borrower or any of its
Subsidiaries any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv) the Borrower or
any of its Subsidiaries shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii) or (iii) above; or (v) the Borrower or any of its Subsidiaries
shall generally not, or shall be unable to, or shall admit in writing its
inability to, pay its respective debts as they become due; or
33
<PAGE>
8.1.7. Defaults with Respect to Plan. (i) Any Person shall engage
-----------------------------
in any non-exempt "prohibited transaction" (as defined in Section 4.06 of ERISA
or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall
exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall
arise on the assets of the Borrower or any Commonly Controlled Entity, (iii) a
Reportable Event shall occur with respect to, or proceedings shall commence to
have a trustee appointed, or a trustee shall be appointed, to administer or to
terminate, any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is likely to result in the termination
of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan
shall terminate for purposes of Title IV of ERISA or (v) the Borrower or any
Commonly Controlled Entity shall incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan;
and in any such case described in clauses (i) through (vi) above, such event or
condition could reasonably be expected to result in a Material Adverse Effect;
or
8.1.8. Entry of Judgment. One or more judgments or decrees shall
-----------------
be entered against the Borrower or any of its Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance (taking into
account any deductibles)) of $2,500,000 or more, and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending appeal
within 30 days from the entry thereof; or
8.1.9. Maintenance of Lien. The Lender shall fail to have a valid
-------------------
and perfected first priority security interest in the Collateral purported to be
covered by the Security Agreement and such failure (except to the extent
relating to Collateral identified in Section 2(a) of the Security Agreement)
remains uncured for ten days after the earlier of notice of such failure from
the Lender to the Borrower or the Borrower has actual knowledge of such failure;
or
8.1.10. GECC Agreements. Any Special Default shall have occurred.
---------------
SECTION 8.2. Default Remedies. In any Event of Default shall have
-----------------
occurred and be continuing, then (1) if such Event of Default is an Event of
Default specified in clause (i) or (ii) of Section 8.1.6 above with respect to
the Borrower, automatically the Availability Period for all Loans shall
immediately terminate and the Loans hereunder (with accrued interest thereon)
and all other amounts owing under this Agreement and the other Loan Documents
shall immediately become due and payable, and (2) if such Event if Default is
any other Event of Default, any or all of the following actions may be taken:
(x) the Lender may, by notice to the Borrower, declare the Availability Period
for all Loans to be terminated forthwith, whereupon the Availability Periods
shall immediately terminate; and (y) the Lender may, by notice to the Borrower,
declare the Loans (with accrued interest thereon) and all other amounts owing
under this Agreement and the other Loan Documents to be due and payable
forthwith, whereupon the same shall immediately become due and payable. Except
as expressly provided above in
34
<PAGE>
this Section 8.2, presentment, demand, protest and all other notices of any kind
are hereby expressly waived by the Borrower.
ARTICLE IX.
MISCELLANEOUS
-------------
SECTION 9.1. Amendments and Waivers. Neither this Agreement nor any
----------------------
other Loan Document, nor any terms hereof or thereof may be amended,
supplemented, waived or modified except in a writing signed by the Lender and
the Borrower.
SECTION 9.2. Notices. All notices, requests and demands to or upon
-------
the respective parties hereto to be effective shall be in writing (including by
telecopy) and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or, in the case of mail,
when received, or, in the case of telecopy notice, when received, or, in the
case of delivery by a nationally recognized overnight courier, when received,
addressed as follows in the case of the Borrower and the Lender, or to such
other address as may be hereafter notified by the respective parties hereto:
The Borrower: Midway Airlines Corporation
2801 Slater Road, Suite 2000
Morrisville, N.C. 27560
Attention: General Counsel
Telecopy: (919) 595-1705
The Lender: General Electric Capital Corporation
c/o GE Capital Aviation Services, Inc.
201 High Ridge Road
Stamford, CT 06927
Attention: Contracts Leader
Telephone: 203-357-3201
Telecopy: 203-357-4585
SECTION 9.3. No Waiver; Cumulative Remedies. No failure to exercise
------------------------------
and no delay in exercising, on the part of the Lender, any right, remedy, power
or privilege hereunder or under the other Loan Documents shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
SECTION 9.4. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made hereunder and in the other Loan Documents
and in any certificate delivered pursuant hereto or such other Loan Document
shall survive the
35
<PAGE>
execution and delivery of this Agreement and the other Loan Documents and the
making of the Loans hereunder.
SECTION 9.5. Payment of Expenses and Taxes. The Borrower agrees, on
-----------------------------
an after-tax basis, (i) to pay or reimburse the Lender all of its reasonable
out-of-pocket costs and expenses incurred in connection with the development,
preparation, execution and delivery of, and any amendment, supplement, waiver or
modification to, this Agreement and the other Loan Documents and any other
documents prepared in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and thereby, including,
without limitation, the reasonable fees and disbursements of counsel (including
any special or local counsel) to the Lender, (ii) to pay or reimburse the Lender
for all its costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Loan Documents and
any such other documents, including, without limitation, the reasonable fees and
disbursements of counsel (including any special or local counsel) to the Lender
(including the allocated fees and expenses of in-house counsel), (iii) to pay,
indemnify, and hold the Lender harmless from, any and all recording and filing
fees and any and all liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other similar taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the other Loan Documents and any such other
documents, and (iv) to pay, indemnify, and hold the Lender and its Affiliates
(and their respective directors, officers, employees, agents, affiliates and
successors) harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever (whether or not
caused by such Person's own negligence and including, without limitation, the
reasonable fees and disbursements of counsel) with respect to the execution,
delivery, enforcement, performance and administration of this Agreement, the
other Loan Documents and any such other documents (regardless of whether the
Lender is a party to the litigation or other proceeding giving rise thereto) and
any of the transactions contemplated hereby or thereby, including, without
limitation, any of the foregoing relating to the use of proceeds of the Loans or
the violation of, noncompliance with or liability under, any Environmental Laws
or any orders, requirements or demands of Governmental Authorities related
thereto applicable to the operations of the Borrower or any of its properties
(all the foregoing in this clause (iv), collectively, the "Indemnified
-----------
Liabilities"); provided that the Borrower shall have no obligation hereunder to
- ----------- --------
the Lender with respect to Indemnified Liabilities arising from the gross
negligence or willful misconduct of the Lender (or any of its respective
directors, officers, employees, agents, successors and assigns). To the extent
permitted by applicable law, the Borrower agrees not to assert, and hereby
waives all rights for contribution or any other rights of recovery with respect
to all claims, demands, penalties, fines, liabilities, settlements, damages,
costs and expenses of whatever kind or nature, under or related to Environmental
Laws, that it might have by statute or otherwise against any indemnitee except
where the basis for the rights of recovery involves the gross negligence or
willful misconduct of the indemnitee against
36
<PAGE>
whom recovery is sought. The Borrower further agrees not to assert any claim
against the Lender, any of its Affiliates, or any of their respective directors,
officers, employees, attorneys, agents, and advisors, on any theory of
liability, for special, indirect, consequential, or punitive damages arising out
of or otherwise relating to the Loan Documents, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the Loans.
The obligations under this Section 9.5 shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
SECTION 9.6. Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the Borrower, the Lender and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Lender.
SECTION 9.7. Set-Off. In addition to any rights and remedies of the
-------
Lender provided by law, the Lender shall have the right, without prior notice to
the Borrower, any such notice being expressly waived by the Borrower to the
extent permitted by applicable law, upon any amount becoming due and payable
hereunder (whether at the stated maturity thereof, by acceleration or otherwise)
to set off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by the Lender or any branch, agency or Affiliate thereof to or for
the credit or the account of the Borrower. The Lender agrees promptly to notify
the Borrower after any such set-off and application made by the Lender; provided
--------
that the failure to give such notice shall not affect the validity of such set-
off and application.
SECTION 9.8. Counterparts. This Agreement may be executed by one or
------------
more of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
SECTION 9.9. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 9.10. Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of the Borrower and the Lender with respect to the
subject matter hereof, and there are no promises, undertakings, representations
or warranties by the Borrower or the Lender relative to the subject matter
hereof not expressly set forth or referred to herein or in the other Loan
Documents.
SECTION 9.11. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
-------------
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT
37
<PAGE>
AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAWS THEREOF.
SECTION 9.12. Submission to Jurisdiction; Waivers.
-----------------------------------
9.12.1. Submission to Jurisdiction. The Borrower hereby irrevocably
--------------------------
and unconditionally: (i) submits for itself and its property in any legal action
or proceeding relating to this Agreement or any of the other Loan Documents, or
for recognition and enforcement of any judgment in respect thereof, to the non-
exclusive general jurisdiction of the Courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts and waives any objection that it may
now or hereafter have to the venue of any such action or proceeding in any such
court, or that such action or proceeding was brought in an inconvenient forum
and agrees not to plead or claim the same; (iii) agrees that service of process
in any such action or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the Borrower, at the address specified in Section 9.2, or at
such other address of which the Lender shall have been notified pursuant
thereto; (iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and (v) waives, to the maximum extent not
prohibited by law, any right it may have to claim or recover in any legal action
or proceeding referred to in this Section 9.12 any special, exemplary, punitive
or consequential damages.
SECTION 9.13. Acknowledgements. The Borrower hereby acknowledges
----------------
that: (i) the Lender does not have any fiduciary relationship with or duty to
the Borrower arising out of or in connection with this Agreement or any of the
other Loan Documents, and the relationship between the Lender, on the one hand,
and the Borrower on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and (ii) no joint venture is created hereby
or by the other Loan Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Borrower and the Lender.
SECTION 9.14. WAIVERS OF JURY TRIAL. THE BORROWER AND THE LENDER
---------------------
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY NOTES OR ANY OTHER LOAN DOCUMENT
AND FOR ANY COUNTERCLAIM THEREIN.
SECTION 9.15. Confidentiality. The Lender agrees to keep confidential
---------------
the terms of the Purchase Agreement and all non-public information provided to
it by the Borrower pursuant to this Agreement; provided that nothing herein
--------
shall prevent the Lender from disclosing any such information (i) to any
Affiliate of the Lender,
38
<PAGE>
(ii) to the employees, directors, agents, attorneys, accountants and other
professional advisors of the Lender or its affiliates, (iii) upon the request or
demand of any Governmental Authority having jurisdiction over the Lender, (iv)
in response to any order of any court or other Governmental Authority or as may
otherwise be required pursuant to applicable law or regulation, (v) which has
been publicly disclosed other than in breach by the Lender of this Section 9.15
or becomes available to the Lender from a source other than the Borrower or (vi)
in connection with the exercise of any remedy hereunder or under any other Loan
Document.
39
<PAGE>
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
MIDWAY AIRLINES CORPORATION
By: /s/ Jonathan S. Waller
-------------------------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Norman Liu
-------------------------------------
Name: Norman Liu
Title: Executive Vice President
[Loan Agreement Signature Page]
<PAGE>
EXHIBIT A
NOTICE OF BORROWING
[Date]
General Electric Capital Corporation
c/o GE Capital Aviation Services, Inc.
201 High Ridge Road
Stamford, CT 06927
Attention: _____________
Re: Midway Airlines Corporation Loan Agreement
------------------------------------------
Ladies and Gentlemen:
Pursuant to Section 2.2 of the Loan Agreement dated as of December 22,
1999 (as the same may be amended, restated, modified or supplemented from time
to time, the "Loan Agreement"; terms used and not otherwise defined herein shall
have the respective meanings assigned to them in the Loan Agreement), between
Midway Airlines Corporation (the "Borrower") and General Electric Capital
Corporation (the "Lender"), we hereby give you irrevocable notice that we
request a Borrowing under the Loan Agreement as follows:
1. Date of Borrowing: __________
2. Amount of Borrowing: $ *
----------
3. Aircraft to which Borrowing relates: *
-----------
4. **[Borrower's account for the proceeds of the Borrowing to be
disbursed to: __________________]
[Manufacturer's account for the proceeds of the Borrowing to be
disbursed to: __________________]
We hereby confirm that all conditions to such Borrowing set forth in
the Loan Agreement will be satisfied on the date of such Borrowing.
IN WITNESS WHEREOF, the undersigned has caused this Notice of
Borrowing to be executed and delivered by its duly authorized officer this __
day of __________, ____.
MIDWAY AIRLINES CORPORATION
By:________________________________
Name:
Title:
*Specify allocation among Aircraft, if applicable.
**Only for the initial Borrowing under the Loan Agreement.
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$_________ [Insert Date]
FOR VALUE RECEIVED, the undersigned, MIDWAY AIRLINES CORPORATION, a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
GENERAL ELECTRIC CAPITAL CORPORATION (the "Lender"):
(i) the principal amount of ____________ Dollars ($______) or, if
less, the aggregate unpaid principal amount of all Loans (as defined below)
made by the Lender to the Borrower pursuant to the Loan Agreement dated as
of December 22, 1999 (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Loan Agreement"; all terms used
--------------
and not otherwise defined herein shall have the respective meanings
assigned to them in the Loan Agreement) between the Lender and the
Borrower, in each case in the amounts and on the dates specified in the
Loan Agreement; and
(ii) interest on the unpaid principal amount of the Loans outstanding
from time to time, at such interest rates, and payable at such times, as
are specified in the Loan Agreement.
Both principal and interest are payable in lawful money of the United
States of America by payment to the Lender by wire transfer of immediately
available funds, in the manner and to the account specified for such purpose in
or pursuant to the Loan Agreement.
The Lender is hereby authorized to record the date and amount of each
Loan made by the Lender and the date and amount of each payment or prepayment of
principal thereof, on the schedule (or continuation of the schedule) annexed to
or constituting a part of this Promissory Note, and any such recordation shall,
to the extent permitted by applicable law, be prima facie evidence of the
accuracy of the information so recorded; provided that the failure of the Lender
--------
to make any such recordation (or error therein) shall not in any manner affect
the obligation of the Borrower to repay (with applicable interest) the Loans
made to the Borrower by the Lender in accordance with the terms of the Loan
Agreement.
This Promissory Note (i) is one of the Notes referred to in, and is
entitled to the benefits of, the Loan Agreement, (ii) is subject to the
provisions and entitled to the benefits of the Loan Agreement, (iii) is subject
to optional and mandatory prepayment in whole or in part as provided in the Loan
Agreement and (iv) is secured as provided in, and entitled to the benefits of,
the Security Agreement.
1
<PAGE>
Upon the occurrence of one or more Events of Default, all amounts then
remaining unpaid on this Promissory Note shall become, or may be declared to be,
immediately due and payable, all as provided in the Loan Agreement.
The Borrower hereby waives presentment, demand, protest and all other
notices of any kind.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
MIDWAY AIRLINES CORPORATION
By:_____________________________________
Name:
Title:
2
<PAGE>
Schedule of Loans
-----------------
Amount of Unpaid
Date of Amount Principal of Loan Principal Notation
Loan of Loan Repaid or Prepaid Balance of Loan Made By
- ---- ------- ----------------- --------------- -------
<PAGE>
EXHIBIT C
SECURITY AGREEMENT AND
COLLATERAL ASSIGNMENT OF PURCHASE AGREEMENT
-------------------------------------------
THIS SECURITY AGREEMENT AND COLLATERAL ASSIGNMENT OF PURCHASE AGREEMENT (as
the same may be amended, supplemented or otherwise modified from time to time,
this "Agreement") is entered into as of December 22, 1999, between Midway
---------
Airlines Corporation ("Assignor"), and General Electric Capital Corporation
--------
("Assignee"). Unless otherwise defined herein, capitalized terms used herein
--------
shall have the meaning set forth in Section 1 hereof.
RECITALS:
A. Assignor and The Boeing Company ("Manufacturer"), entered into the
------------
Purchase Agreement (as defined below), relating to the acquisition by Assignor
of certain Boeing Model 737-7BX aircraft from Manufacturer, including the
Aircraft (as defined herein).
B. As security for its obligations under the Loan Agreement (as defined
herein), Assignor is willing to grant to Assignee a security interest in, and to
assign to Assignee, Assignor's rights, interests, duties and obligations under
the Purchase Agreement and Assignee is willing to accept such security interest
and assignment, on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties agree as follows:
1. For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the following terms shall
have the following meanings:
Aircraft - the first four Boeing Model 737-700 aircraft delivered under
--------
the Purchase Agreement which, as currently scheduled for delivery,
bear manufacturer's serial numbers 30736, 30737, 30738 and 30739,
including the aircraft engines installed in such aircraft on the date
of delivery thereof pursuant to the Purchase Agreement.
Loan Agreement - shall mean the Loan Agreement dated as of December
--------------
22, 1999 by and between Assignor and Assignee, as the same may be
amended, supplemented or otherwise modified from time to time.
Collateral - shall have the meaning assigned to such term in Section
----------
2.
<PAGE>
Event of Default - shall have the meaning assigned to such term in the
----------------
Loan Agreement.
Permitted Lien - means (x) with respect to any Collateral identified
--------------
in clause (b) of the Section 2, all rights of Manufacturer and (y)
with respect to any Collateral identified in clause (c) of Section 2,
all rights of the applicable vendor and any similar rights existing
under applicable law.
Purchase Agreement - the Purchase Agreement No. 2235 dated as of June
------------------
11, 1999, between Manufacturer and Assignor as heretofore amended,
modified or supplemented, providing, among other things for the
manufacture and sale by Manufacturer of certain Boeing Model 737-700
aircraft including the Aircraft, as the same may hereafter be amended,
modified or supplemented to the extent permitted by the terms of the
Purchase Agreement and this Agreement, but excluding letter agreements
6-1162-CPJ-308 and 6-1162-CPJ-311 and paragraphs 9 and 10 of letter
agreement 6-1162-CPJ-316. The Purchase Agreement incorporates by
reference the Aircraft General Terms Agreement AGTA-MID ("AGTA").
Secured Obligations - collective reference to the unpaid principal of
-------------------
and interest on the Loans (as defined in the Loan Agreement) (and all
other obligations and liabilities (including, without limitation,
interest accruing at the then applicable rate provided in the Loan
Agreement after the maturity of the Loans and interest accruing at the
then applicable rate provided in the Loan Agreement after the filing
of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to Assignor, whether or
not a claim for post-filing or post-petition interest is allowed in
such proceeding), of Assignor to Assignee whether direct or indirect,
absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection
with, the Loan Agreement, this Agreement, the Notes (as defined in the
Loan Agreement), or any other document made, delivered or given in
connection therewith insofar as they relate to the Aircraft, in each
case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel
to Assignee that are required to be paid by Assignor pursuant to the
terms of the Loan Agreement, this Agreement or any other Loan Document
(as defined in the Loan Agreement)).
2. As collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Secured Obligations, Assignor hereby grants to Assignee a
security interest in, and
<PAGE>
assigns to Assignee, all of the following property (whether Assignor's right,
title or interest therein is now owned or hereafter acquired) (collectively, the
"Collateral"):
(a) the Purchase Agreement as and to the extent that the same relates to
the Aircraft and the purchase and operation thereof, including, without
limitation, (i) the right upon valid tender by Manufacturer to purchase the
Aircraft (including the right to accept delivery of the Aircraft, such
acceptance to be exercised by a person designated by Assignee, and acting as
authorized representative of Assignee) and the right to take title to the
Aircraft and to be named the "Buyer" in the bill of sale to be delivered by
Manufacturer for the Aircraft pursuant to the Purchase Agreement, (ii) any and
all predelivery payment refunds or other monies owing by Manufacturer to
Assignor in the case of an Event of Default, (iii) all claims for damages in
respect of the Aircraft arising as a result of any default by Manufacturer under
the Purchase Agreement, including, without limitation, all warranty and
indemnity provisions contained in the Purchase Agreement, and all claims arising
thereunder, in respect of the Aircraft, (iv) all of the Assignor's rights and
interests in or arising out of any deposits and advance payments made in respect
of the Aircraft under the Purchase Agreement and any other payments made by the
Assignor in respect of the Aircraft or amounts credited or to be credited by
Manufacturer to the Assignor under the Purchase Agreement, (v) any and all
rights of the Assignor to compel performance of the terms of the Purchase
Agreement in respect of the Aircraft, (vi) the rights to demand, accept and
retain all rights in and all property (other than the Aircraft), data and
service which Manufacturer is obligated to provide or does provide pursuant to
the Purchase Agreement in respect of the Aircraft; and (vii) the right to obtain
data and demonstration and test flights pursuant to the Purchase Agreement;
reserving for the Assignor, however, all duties and obligations of a "Customer"
under the Purchase Agreement (Assignee hereby accepts the foregoing assignment
subject to the terms hereof);
(b) to the extent of Assignor's right or interest therein (whether now
existing or hereafter acquired), each of the Aircraft (including the airframe
and the engines installed thereon) after delivery thereof by Manufacturer;
(c) all buyer furnished equipment (whether now owned or hereafter acquired)
attached to the Aircraft furnished by or on behalf of Assignor to the
Manufacturer to be attached to the Aircraft; and
(d) all "proceeds," as defined in Section 9-306(1) of the Uniform
Commercial Code as effect in the State of New York, of any of the foregoing,
together with, whether or not constituting proceeds under such Section, (i) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable with
respect to any of the foregoing, (ii) any and all other amounts paid or payable
upon the sale, exchange, or other disposition of any of the foregoing and (iii)
any and all substitutes for, additions to, and products and replacements for any
of the foregoing.
<PAGE>
3. (a) Notwithstanding the foregoing, if and so long as no Event of
Default shall have occurred and be continuing, Assignee hereby authorizes
Assignor, on behalf and to the exclusion of Assignee, to exercise in Assignee's
name all rights and powers of the "Customer" under the Purchase Agreement,
including such rights as Assignee may have with respect to the Aircraft under
any warranty, indemnity or guarantee or other provision of the Purchase
Agreement, and to receive any recovery or benefit resulting from the enforcement
of any warranty, guarantee or indemnity under the Purchase Agreement in respect
of the Aircraft (any such recovery or benefit being referred to herein as a
"Manufacturer's Payment or Service"); provided, however, that, subject to
Section 11 hereof, Assignor may not (x) exercise any right (i) to purchase any
Aircraft, (ii) to accept delivery of any Aircraft, or (iii) to take title to any
Aircraft or to be named the "Buyer" in the bill of sale therefor or (y) enter
into any change order or other amendment modification or supplement to the
Purchase Agreement without the written consent or countersignature of Assignee
if such change order, amendment, modification or supplement (i) would result in
any rescission, cancellation or termination of the Purchase Agreement with
respect to any or all of the Aircraft, (ii) would have the effect of changing
the model of any or all of the Aircraft (except as contemplated by the Purchase
Agreement), or (iii) would have the effect of increasing the purchase price of
any of the Aircraft by more than $500,000 or (iv) would have the effect of
changing the delivery date of any of the Aircraft by more than, in the
aggregate, 90 days plus, with the prior written consent of Assignee (which
consent shall not be unreasonably withheld or delayed), up to an additional 90
days; provided that Manufacturer shall not be responsible for any delay in the
manufacture or delivery of any of the Aircraft or other things delivered or to
be delivered under the Purchase Agreement that result from or arise, out of the
requirement for Assignee's written consent or countersignature.
(b) Unless and until Manufacturer shall have received written notice
from Assignee, addressed as set forth herein, that an Event of Default shall
have occurred and is continuing, each Manufacturer's Payment or Service shall be
payable or rendered to Assignor. Upon receipt by Manufacturer of written notice
from Assignee, addressed as set forth herein, that an Event of Default shall
have occurred and is continuing, each Manufacturer's Payment or Service shall be
payable or rendered to Assignee until such time as Manufacturer shall have
received written notice from Assignee that all such Events of Default have been
cured or waived. For the avoidance of doubt, any claim for a Manufacturer's
Payment or Service made by Assignor prior to receipt by Manufacturer of notice
from Assignee of an Event of Default described above, shall remain subject to
any right of set-off Manufacturer may have against Assignor with respect to
obligations of Assignor to Manufacturer.
(c) If Assignee has notified Manufacturer of an Event of Default by
written notice thereof as described above, Assignee will also give prompt
written notice to Manufacturer if and when such Event of Default has been cured
or waived.
(d) Assignor and Assignee agree, expressly for the benefit of
Manufacturer, that for all purposes of this Agreement, Manufacturer shall not be
deemed
<PAGE>
to have knowledge of, and need not recognize any event, condition, right, remedy
or dispute affecting the interests of Assignor or Assignee hereunder or under
any other document or agreement unless and until Manufacturer shall have
received from Assignee written notice thereof addressed to its Vice President-
Contracts, Boeing Commercial Airplane Group, if by mail, at P.O. Box 3707, Mail
Code 21-34, Seattle, Washington 98124 or to 34-9430 Answerback BOEINGREN RNTN if
by telex, and in acting in accordance with the Purchase Agreement and this
Agreement Manufacturer may conclusively rely upon such notice.
4. (a) At any time after the happening of an Event of Default and for so
long as the same shall be continuing, Assignee shall be entitled (but not
obliged) without further demand, to exercise all the rights of Assignor under
the Purchase Agreement assigned herein, but only after providing notice to
Manufacturer as set forth above.
(b) As between Assignor and Assignee, Assignee may exercise, in
addition to all other rights and remedies granted to it in this Agreement and in
any other instrument or agreement securing, evidencing or relating to the
Secured Obligations, all rights and remedies of a secured party under the
Uniform Commercial Code. Without limiting the generality of the foregoing, the
Assignee, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon Assignor or any other Person except Manufacturer (all and
each of which demands, defenses, advertisements and notices are hereby waived to
the extent permitted by applicable law), may in such circumstances forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may, subject to Manufacturer's consent as provided in the
Purchase Agreement, forthwith sell, lease, assign, give option or options to
purchase, or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, at any exchange, broker's board or office of Assignee or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. Assignee shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such private
sale or sales, to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption in Assignor, which right or equity is
hereby waived or released. Assignor further agrees, at Assignee's request, to
assemble the Collateral and make it available to Assignee, at places which
Assignee shall reasonably select, whether at Assignor's premises or elsewhere.
To the extent permitted by applicable law, Assignor waives all claims, damages
and demands it may acquire against Assignee arising out of the exercise by them
of any rights hereunder. If any notice of a proposed sale or other disposition
of Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least 10 days before such sale or other disposition.
(c) Assignor hereby irrevocably constitutes and appoints Assignee and
any officer or agent of Assignee upon the occurrence and during the continuance
of an
<PAGE>
Event of Default, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Assignor and in the name of Assignor or in its own name, for the
purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement, and,
without limiting the generality of the foregoing, Assignor hereby gives
Assignee, the power and right, on behalf of Assignor, without notice to or
assent by Assignor, to do any or all of the following: (i) at any time when an
Event of Default has occurred and is continuing in the name of Assignor or its
own name, or otherwise, take possession of and indorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of moneys due
under or with respect to any Collateral and file any claim or take any other
action or proceeding in any court of law or equity or otherwise deemed
appropriate by Assignee for the purpose of collecting any and all such moneys
due under or with respect to any Collateral whenever payable; (ii) to the extent
Assignor fails to do so upon the reasonable request of Assignee, pay or
discharge taxes and Liens levied or placed on or threatened against the
Collateral, effect any repairs or any insurance called for by the terms of this
Agreement and pay all or any part of the premiums therefor and the costs
thereof; (iii) execute, in connection with any sale provided for herein, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral; and (iv) at any time when an Event of Default has
occurred and is continuing (1) direct any party liable for any payment under any
of the Collateral to make payment of any and all moneys due or to become due
thereunder directly to Assignee or as Assignee shall direct; (2) ask or demand
for, collect, receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising out of
any Collateral; (3) sign and indorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with any
of the Collateral; (4) commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect the
Collateral or any thereof and to enforce any other right in respect of any
Collateral; (5) defend any suit, action or proceeding brought against Assignor
with respect to any Collateral; (6) settle, compromise or adjust any such suit,
action or proceeding and, in connection therewith, to give such discharges or
releases as Assignee may deem appropriate; and (7) generally, sell, transfer,
pledge and make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though Assignee were the absolute owner
thereof for all purposes, and do, at Assignee's option and Assignor's expense,
at any time, or from time to time, all acts and things which Assignee deems
necessary to protect, preserve or realize upon the Collateral and Assignee's
security interest therein and to effect the intent of this Agreement, all as
fully and effectively as Assignor might do.
(d) The expenses of Assignee incurred in connection with actions
undertaken as provided in this Clause (4), together with interest thereon at a
rate equal to the rate per annum at which interest would then be payable on past
due amounts under Section 2.6.2 of the Credit Agreement, from the date of
payment by Assignee, to the date
<PAGE>
reimbursed by Assignor, shall be payable by Assignor to Assignee on demand.
Assignor hereby ratifies all that said attorneys shall lawfully do or cause to
be done by virtue hereof in accordance with the terms of this Agreement. All
powers, authorizations and agencies contained in this Agreement are coupled with
an interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released. The powers conferred on Assignee
hereunder are solely to protect Assignor's interests in the Collateral and shall
not impose any duty upon Assignee to exercise any such powers. Assignee shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to Assignor for any act or failure to
act hereunder, except for its own gross negligence or willful misconduct.
<PAGE>
5. Assignor hereby agrees, expressly for the benefit of Manufacturer,
that notwithstanding anything contained herein to the contrary: (i) the Assignor
shall at all times remain liable to Manufacturer under the Purchase Agreement to
perform all obligations of "Customer" thereunder to the same extent as if this
Agreement had not been executed; and (ii) the exercise by Assignee of any of the
rights assigned hereunder shall not release the Assignor from any of its duties
or obligations to Manufacturer under the Purchase Agreement except to the extent
that such exercise by Assignee shall constitute performance of such duties and
obligations. Assignor hereby agrees to indemnify and hold harmless Assignee
from and against any and all liability for Assignor's performance (or failure to
perform) under the Purchase Agreement.
6. Assignee hereby agrees, expressly for the benefit of Manufacturer,
that, notwithstanding anything contained herein to the contrary (and without in
any way releasing the Assignor from any of its duties or obligations under the
Purchase Agreement), insofar as the provisions of the Purchase Agreement relate
to any or all of the Aircraft, in exercising any rights under the Purchase
Agreement, or in making any claim with respect to any or all of the Aircraft or
other things (including, without limitation, data, documents, training and
services) delivered or to be delivered pursuant to the Purchase Agreement, the
terms and conditions of the Purchase Agreement including, without limitation,
the DISCLAIMER AND RELEASE and EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES in
Article 11 of Part 2 of Exhibit C to the AGTA which was incorporated by
reference into the Purchase Agreement and the insurance and indemnity provisions
in Article 8.2 of the AGTA which were incorporated by reference into the
Purchase Agreement, shall apply to, and be binding upon, Assignee to the same
extent as if Assignee had been the original "Customer" thereunder. Assignee
further agrees, expressly for the benefit of Manufacturer, that at any time and
from time to time upon written request of Manufacturer, Assignee shall promptly
and duly execute and deliver any and all such further assurances, instruments
and documents and take all such further action as Manufacturer may reasonably
request in order to obtain the full benefits of Assignee's agreements set forth
in this paragraph.
7. Assignor and Assignee agree expressly for the benefit of Manufacturer,
that, subject to the terms of the Consent, nothing contained herein shall
subject Manufacturer to any liability to which it would not otherwise be subject
under the Purchase Agreement or modify in any respect Manufacturer's contract
rights thereunder or require Manufacturer to divest itself of title to or
possession of the Aircraft until delivery thereof and payment therefor as
provided in the Purchase Agreement or to take any action with respect to the
Purchase Agreement or the Aircraft in any manner inconsistent with applicable
law (including, without limitation, any bankruptcy or other court order, ruling
or finding).
<PAGE>
8. At any time and from time to time upon the written request of
Assignee, the Assignor will promptly and duly execute and deliver any and all
such further instruments and documents and take such further action as Assignee
may reasonably request in order to obtain the full benefits of this Agreement
and of the rights and powers herein granted.
9. Assignor does hereby represent and warrant to Assignee that: (i) it
has good and valid rights in the Collateral described in Section 2(a) hereof
with respect to which it has purported to grant a security interest hereunder
and has full power and authority to grant to Assignee the security interest in
all of its right, title and interest (whether now existing or hereafter
acquired) in the Collateral pursuant hereto and to execute, deliver and perform
its obligations in accordance with the terms of this Agreement, without the
consent or approval of any other person other than any consent or approval which
has been obtained; (ii) as to Assignor, the Purchase Agreement is in full force
and effect and is enforceable in accordance with its terms; (iii) except to the
extent then cured or waived by Manufacturer, Assignor is not in default under
the Purchase Agreement and, as such, has not failed to perform or observe any
material term and is not entitled to make any material reduction in payment
thereunder; (iv) the copy of the Purchase Agreement previously provided to
Assignee is a true, correct and complete copy of such agreement as of December
22, 1999; (v) Assignor has not assigned or pledged to any third party the whole
or any part of the rights and interests assigned pursuant to Section 2; (vi) the
Collateral is free and clear of any lien (other than the lien of this Agreement
and Permitted Liens); (vii) there is no effective financing statement or
analogous document under the Uniform Commercial Code or any other applicable
laws covering any Collateral; and (viii) the security interests granted pursuant
to this Agreement (a) constitute perfected security interests in the Collateral
(to the extent of Assignor's interest therein) in favor of the Lender, as
collateral security for the Secured Obligations and (b) are prior to all other
Liens (other than Permitted Liens) on the Collateral in existence on the date
hereof.
10. Assignor hereby covenants to Assignee that as long as this Agreement
shall remain in effect: (i) it will not assign or pledge the whole or any part
of the rights assigned as provided in paragraph 2 hereof, nor will it cause the
creation of liens on, or otherwise dispose of, the Collateral; (ii) it will, at
its own cost and expense, take any and all actions necessary to defend its right
and, if applicable, title to the Collateral against all persons and to defend
the security interest of the Assignee in the Collateral and the priority thereof
against any lien; and (iii) it will, at its own expense, execute, acknowledge,
deliver and cause to be duly filed all such further instruments and document and
take all such actions as the Assignee may from time to time request to better
assure, preserve, protect and perfect the security interest granted herein and
the rights and remedies created hereby, including the payment of any fees and
taxes required in connection with the execution and delivery of this Agreement,
the granting of the
<PAGE>
security interest and the filing of any financing statements or other documents
in connection herewith or therewith.
11. So long as no Default then exists, Assignee agree that upon Assignor's
payment in full of the principal of and accrued interest on Loans relating to
any Aircraft, Assignee will execute such documents and take such other actions,
in each case at Assignor's expense, as Assignor may reasonably request in order
to release the lien of this Agreement to the extent applicable to such Aircraft.
12. This Agreement shall in all respects be governed by, and construed in
accordance with, the laws of the State of New York, except to the extent where
those laws are governed by the federal laws of the United States, including all
matters of construction, validity, and performance.
13. 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, each pursuant to due
authority, have each caused this Security Agreement and Collateral Agreement of
Purchase Agreement to be executed by their duly authorized officers as of the
date and year first above written.
ASSIGNOR: MIDWAY AIRLINES CORPORATION
By:______________________________
Name:
Title:
ASSIGNEE: GENERAL ELECTRIC CAPITAL
CORPORATION
By:______________________________
Name:
Title:
<PAGE>
SCHEDULE 1
----------
Midway Airlines Corporation
Aircraft Delivery Dates, Price Escalation and Maximum Aircraft Amount
*Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
<PAGE>
EXHIBIT D
CONSENT AND AGREEMENT
to the Security Agreement and
Collateral Assignment of the Purchase Agreement
-----------------------------------------------
THIS CONSENT AND AGREEMENT ("Consent") is entered into as of December
22, 1999 by and among Midway Airlines Corporation ("Midway"), General Electric
Capital Corporation ("Assignee") and The Boeing Company ("Manufacturer").
RECITALS
--------
A. Midway and Assignee have heretofore entered into that certain Loan
Agreement, pursuant to which Assignee and the members of the syndicate
identified therein (if applicable) have agreed to make certain funds available
to Midway in order to enable Midway to meet its deposit and advance payment
obligations in respect of the Aircraft (as defined in the Collateral Assignment,
defined below) under the Purchase Agreement.
B. Midway and Assignee have entered into that certain Security Agreement
and Collateral Assignment of Purchase Agreement dated as of December 22, 1999
("Collateral Assignment"), pursuant to which, among other things, Midway has
granted to Assignee a security interest in all of Midway's right and interest in
and to the Purchase Agreement in order to secure performance of Midway under and
in respect of the Loan Agreement.
C. Midway and Assignee wish to obtain Manufacturer's consent to the
Collateral Assignment and Manufacturer is willing to grant such consent, all
subject to and upon the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Definitions.
-----------
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Collateral Assignment.
2. Consent of Manufacturer.
-----------------------
(a) Manufacturer hereby acknowledges notice of the Collateral Assignment
and consents, subject to the terms and conditions of this Consent, to assignment
to Assignee of all of Midway's right and interest in and to the Purchase
Agreement pursuant to the Collateral Assignment.
D-1
<PAGE>
(b) Manufacturer agrees that this Consent constitutes the consent of
Manufacturer as required by the Purchase Agreement.
3. Assignee's Rights under the Collateral Assignment.
-------------------------------------------------
(a) Event of Default. Manufacturer acknowledges that, subject to the
----------------
provisions of Paragraph 4 hereof, upon and after notice to Manufacturer by
Assignee that an Event of Default under the Collateral Assignment has occurred
and is continuing and that it is exercising its rights and remedies under the
Collateral Assignment (and until Manufacturer receives a further written notice
from Assignee to the effect that Midway may again exercise the rights of
"Customer" under the Purchase Agreement), Assignee shall be entitled to make all
demands, give all notices, take all actions and exercise all rights of
"Customer" under and subject to the Purchase Agreement and Midway shall not be
entitled to do so.
(b) Termination of Purchase Agreement by Manufacturer. Manufacturer agrees
-------------------------------------------------
that upon termination of the Purchase Agreement with respect to the rights
related to any one or more of the Aircraft, (i) it shall give Assignee written
notice of such termination; and (ii) Assignee shall have the right, within ten
(10) business days of receipt of such notice, subject to the provisions of
Paragraph 4 of this Consent, to give Manufacturer written notice of its
irrevocable decision to assume all of the obligations of "Customer" under the
terminated Purchase Agreement insofar as it relates to any or all of the
Aircraft by entering into a substitute purchase agreement with Manufacturer,
relating to such Aircraft on terms and conditions substantially equivalent to
those set out in the Purchase Agreement. If Assignee does so notify Manufacturer
and enter into a substitute purchase agreement, then, subject to the terms of
the Collateral Assignment and Paragraphs 4 and 7 of this Consent, Assignee shall
be entitled to make all demands, give all notices, take all actions and exercise
all rights of Customer under and subject to the substitute purchase agreement.
If no notice from Assignee is timely received, Midway and Assignee will be
deemed to have waived all rights thereto. In such case, Manufacturer shall be
entitled but not obliged to purchase from Assignee or Midway, as applicable, all
buyer furnished equipment related to the terminated Aircraft under the Purchase
Agreement, in which Assignee or Midway, as appropriate, has title or an
uncontested right to title.
4. Manufacturer's Purchase Option.
------------------------------
Prior to the exercise of its rights and remedies under Section 4 of the
Collateral Assignment as a result of the occurrence of an Event of Default
thereunder, Assignee shall notify Manufacturer in writing. Manufacturer shall
have the option (the "Manufacturer's Option"), exercisable at any time within
ten (10) Business Days following receipt by Manufacturer of such notice, to
purchase Assignee's interest in the Purchase Agreement (without recourse,
representation or warranty of any kind) insofar as it relates to all of the
Aircraft not yet delivered thereunder at the time of exercise of Manufacturer's
Option. In the event that Manufacturer notifies Assignee that it intends to
exercise Manufacturer's Option, Manufacturer shall purchase Assignee's interest
in the Purchase Agreement (without recourse, representation or warranty of any
kind) insofar as it relates to all, but not less than all, of the Aircraft not
yet delivered thereunder at the time of exercise of Manufacturer's Option by
paying
D-2
<PAGE>
to Assignee within five (5) Business Days following the date of its notice to
Assignee, an amount equaling the aggregate amount of deposits and advances made
under the Purchase Agreement with respect to all of the Aircraft not yet
delivered thereunder up to the time of exercise of Manufacturer's Option. If
Manufacturer fails to exercise Manufacturer's Option during such ten (10)
Business Day period, Assignee may exercise its rights under the Collateral
Assignments.
5. Midway's Waiver and Indemnity; No Release from Obligations.
----------------------------------------------------------
(a) Midway hereby waives any rights which it may have pursuant to contract
or law or otherwise against Manufacturer arising out of, or resulting from, the
exercise by Assignee of its rights and remedies under the Collateral Assignment
or this Consent and agrees to indemnify and hold harmless Manufacturer, its
successors and assigns, and their respective officers, directors and employees
from and against any and all claims, losses or liabilities (including reasonable
attorneys' fees) resulting therefrom, provided, however, that Midway will not
-------- -------
indemnify and hold harmless such parties in the event that such parties are
determined, by a final judgment of a court of competent jurisdiction, to have
acted with gross negligence with regard to the matter for which indemnification
is sought.
(b) Midway hereby agrees, expressly for the benefit of Manufacturer, that
notwithstanding anything contained in the Collateral Assignment to the contrary:
(i) Midway shall at all times remain liable to Manufacturer under the Purchase
Agreement to perform all duties and obligations of the "Customer" thereunder in
respect of the Aircraft to the same extent as if the Collateral Assignment and
this Consent had not been executed, and (ii) the exercise by Assignee of any
rights assigned under the Collateral Assignment shall not release Midway from
any of its duties or obligations to Manufacturer under the Purchase Agreement
except to the extent that such exercise by Assignee shall constitute performance
of such duties or obligations.
6. Notices.
-------
(a) Midway and Assignee agree, expressly for the benefit of Manufacturer,
that for all purposes of the Collateral Assignment, Manufacturer shall not be
deemed to have knowledge of and need not recognize any event, condition, right,
remedy or dispute affecting the interests of Midway or Assignee under the
Collateral Assignment unless and until Manufacturer shall have received written
notice thereof from Assignee addressed to its Vice President-Contracts, Boeing
Commercial Airplane Group, if by mail, at P.O. Box 3707, Mail Code 21-34,
Seattle, Washington 98124 or to 32-9430 Answerback BOEINGREN RNTN, if by telex.
In acting in accordance with the Purchase Agreement and this Consent,
Manufacturer may rely conclusively upon any such notice.
(b) Manufacturer shall be entitled to rely conclusively upon any notice or
instruction received by it from Assignee pursuant to the Collateral Assignment
or this Consent, and Manufacturer shall have no obligation to inquire as to the
accuracy of such notice or instruction or as to the relative priority of rights
of any person asserting rights in and to the Purchase Agreement and the
Aircraft.
D-3
<PAGE>
(c) Except as provided in Paragraph 3 of this Consent, unless and until
Assignee shall have notified Manufacturer that it is exercising its rights and
remedies under the Collateral Assignment, Midway shall have all rights and
obligations of "Customer" under the Purchase Agreement and Manufacturer shall
have no duty to consult with or otherwise deal with Assignee concerning the
Purchase Agreement or the Aircraft. Without limiting the generality of the
foregoing, prior to the receipt of Assignee's written notice that it is
exercising its remedies under the Collateral Assignment, as provided in
Paragraph 3(a) hereof, Manufacturer shall have no obligation to inquire as to
whether Midway has complied with the provisions of the Collateral Assignment and
shall be entitled to rely upon any notice, consent, waiver or other action taken
by Midway in connection with the Purchase Agreement.
(d) Notice to Assignee hereunder shall be given by hand, by first class,
certified or registered mail, by a recognized overnight courier service or by
telecopier (confirmed by mail or overnight courier) at General Electric Capital
Corporation, c/o GE Capital Aviation Services, Inc., 201 High Ridge Road,
Stamford, Connecticut 06927, Attention Contracts Leader, Telecopy: (203) 357-
3201.
7. Rights Subject to the Purchase Agreement.
----------------------------------------
(a) Assignee for itself and each of the members of the syndicate (if
applicable) hereby agrees, expressly for the benefit of Manufacturer, that,
notwithstanding anything contained in the Collateral Assignment to the contrary
(and without in any way releasing Midway from any of its duties or obligations
under the Purchase Agreement), 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, without limitation, data, documents, training and services)
delivered or to be delivered pursuant to the Purchase Agreement, the terms and
conditions of the Purchase Agreement, including, without limitation, the
DISCLAIMER AND RELEASE and EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES in
- ---------------------- ---------------------------------------------
Article 11 of Part 2 of Exhibit C to the AGTA which was incorporated by
reference into the Purchase Agreement and the insurance provisions in Article
8.2 of the AGTA which was incorporated by reference into the Purchase Agreement,
shall apply to and be binding upon Assignee to the same extent as if Assignee
had been the original "Customer" thereunder. Assignee for itself and each of the
members of the syndicate (if applicable) further agrees, expressly for the
benefit of Manufacturer, that at any time and from time to time upon the written
request of Manufacturer, it shall promptly and duly execute and deliver any and
all such further assurances, instruments and documents and take all such further
action as Manufacturer may reasonably request in order to obtain the full
benefits of its agreements set forth in this paragraph.
(b) Except as otherwise expressly provided in this Consent, the execution
and delivery by Manufacturer of this Consent and the performance by Manufacturer
of its obligations hereunder shall not be regarded as having created or imposed
upon Manufacturer any increased or additional obligations or undertakings or any
increased or additional limitations to the rights and duties on its part than
are contained in the Purchase Agreement as a result of entering into this
Consent. Manufacturer shall not be required to divest itself of title to or
D-4
<PAGE>
possession of the Aircraft or any other thing to be delivered under the Purchase
Agreement until delivery and transfer thereof and payment therefor, as provided
in the Purchase Agreement, or to take any action with respect to the Purchase
Agreement or the Aircraft in any manner inconsistent with applicable law
(including, without limitation, any bankruptcy or other court order, ruling or
finding).
8. Application of Deposits and Advance Payments.
--------------------------------------------
The parties hereto acknowledge and agree that in the event Assignee
exercises its rights under the Collateral Assignment and purchases one or more
of the Aircraft, the deposits and advance payments made under the Purchase
Agreement with respect to the Aircraft shall be applied toward the purchase
price of such Aircraft.
9. Indemnification of Manufacturer by the Assignee and the Members of the
----------------------------------------------------------------------
Syndicate (if applicable).
- -------------------------
Assignee agrees to indemnify, defend and hold harmless Manufacturer,
its successors and assigns, and their respective officers, directors and
employees (collectively, the "Indemnitees" and each an "Indemnitee") from and
against any and all claims, losses obligations, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements and liabilities of any kind
whatsoever (including the reasonable fees and disbursements of counsel for such
Indemnitees) which may be imposed on, incurred by, or asserted against such
Indemnitees in any manner resulting from or arising out of the exercise by
Assignee of its rights or remedies under the Collateral Assignment or this
Consent and Agreement, if and only if it is determined by the final judgment of
a court of competent jurisdiction that Assignee was not entitled to exercise
such rights or remedies or that such rights or remedies were exercised contrary
to the provisions of this Consent, the Collateral Assignment or applicable law.
Notwithstanding the previous sentence, Assignee will not indemnify any
Indemnitee who has been determined by the final judgment of a court of competent
jurisdiction to have acted with gross negligence with regard to the matter for
which indemnification is sought. If any Indemnitee hereunder has knowledge of
any liability hereby indemnified against, it shall give prompt written notice
thereof to Assignee. Assignee shall have the right to investigate, defend or
compromise any claim for which indemnification is sought and each Indemnitee
hereunder shall cooperate with the reasonable requests of Assignee with respect
thereto.
10. Manufacturer's Representations and Warranties.
---------------------------------------------
Manufacturer hereby represents and warrants to Midway and Assignee that:
(a) Manufacturer is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and is duly qualified
to do business as a foreign corporation in the State of Washington.
(b) Manufacturer has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Consent and Agreement
and the execution, delivery and
D-5
<PAGE>
performance of this Consent and Agreement have been duly authorized by all
necessary corporate action on the part of Manufacturer.
(c) Each of the Purchase Agreement and this Consent and Agreement has been
duly executed and delivered by Manufacturer and constitutes the legally valid
and binding obligation of Manufacturer, enforceable against Manufacturer in
accordance with its terms except as enforceability may be limited by applicable
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and general principles of equity
(regardless of whether such enforceability is at issue in the proceeding in
equity or at law).
(d) Set forth on Schedule I hereto, with respect to each Aircraft, is (1)
the current Scheduled Delivery Date of such Aircraft, (2) the aggregate amount
of Deposit Payments received by the Manufacturer prior to the date hereof with
respect to such Aircraft, (3) the remaining scheduled dates and amounts of
Deposit Payments with respect to such Aircraft due after the date hereof and (4)
the estimated purchase price as of the currently Scheduled Delivery Date for
such Aircraft.
11. Manufacturer's Covenants:
------------------------
Manufacturer hereby covenants to Midway and Assignee that:
(a) Manufacturer will remain liable to observe and perform all the
conditions and obligations to be observed and performed by it under the Purchase
Agreement in accordance with the terms and conditions thereof and, subject to
the terms of the Purchase Agreement and the Collateral Assignment, all of
Manufacturer's obligations under the Purchase Agreement will inure to the
benefit of Assignee as though Assignee were named "Customer" thereunder; and
(b) Manufacturer will not assert any lien or claim against any Aircraft
after payment in full for that Aircraft under and in accordance with the
Purchase Agreement.
12. GOVERNING LAW
THIS CONSENT WILL BE INTERPRETED UNDER AND GOVERNED BY THE LAWS OF THE
STATE OF WASHINGTON, U.S.A., EXCEPT THAT WASHINGTON'S CHOICE OF LAW RULES SHALL
NOT BE INVOKED FOR THE PURPOSE OF APPLYING THE LAW OF ANOTHER JURISDICTION.
13. Counterparts.
------------
This Consent 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.
D-6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent to be
executed by their respective officers or agents as of the date first above
written.
MIDWAY: MIDWAY AIRLINES CORPORATION
By:_________________________
Its:________________________
ASSIGNEE: GENERAL ELECTRIC CAPITAL
CORPORATION
On behalf of itself and the members of the syndicate
(if applicable)
By:_________________________
Its:________________________
MANUFACTURER: THE BOEING COMPANY
By:_________________________
Its:________________________
D-7
<PAGE>
CONFORMED COPY
--------------
CONSENT AND AGREEMENT
to the Security Agreement and
Collateral Assignment of the Purchase Agreement
-----------------------------------------------
THIS CONSENT AND AGREEMENT ("Consent") is entered into as of December
22, 1999 by and among Midway Airlines Corporation ("Midway"), General Electric
Capital Corporation ("Assignee") and The Boeing Company ("Manufacturer").
RECITALS
--------
A. Midway and Assignee have heretofore entered into that certain Loan
Agreement, pursuant to which Assignee and the members of the syndicate
identified therein (if applicable) have agreed to make certain funds available
to Midway in order to enable Midway to meet its deposit and advance payment
obligations in respect of the Aircraft (as defined in the Collateral Assignment,
defined below) under the Purchase Agreement.
B. Midway and Assignee have entered into that certain Security Agreement
and Collateral Assignment of Purchase Agreement dated as of December 22, 1999
("Collateral Assignment"), pursuant to which, among other things, Midway has
granted to Assignee a security interest in all of Midway's right and interest in
and to the Purchase Agreement in order to secure performance of Midway under and
in respect of the Loan Agreement.
C. Midway and Assignee wish to obtain Manufacturer's consent to the
Collateral Assignment and Manufacturer is willing to grant such consent, all
subject to and upon the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Definitions.
-----------
Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to such terms in the Collateral Assignment.
2. Consent of Manufacturer.
-----------------------
(a) Manufacturer hereby acknowledges notice of the Collateral Assignment
and consents, subject to the terms and conditions of this Consent, to assignment
to
1
<PAGE>
Assignee of all of Midway's right and interest in and to the Purchase Agreement
pursuant to the Collateral Assignment.
(b) Manufacturer agrees that this Consent constitutes the consent of
Manufacturer as required by the Purchase Agreement.
3. Assignee's Rights under the Collateral Assignment.
-------------------------------------------------
(a) Event of Default. Manufacturer acknowledges that, subject to the
----------------
provisions of Paragraph 4 hereof, upon and after notice to Manufacturer by
Assignee that an Event of Default under the Collateral Assignment has occurred
and is continuing and that it is exercising its rights and remedies under the
Collateral Assignment (and until Manufacturer receives a further written notice
from Assignee to the effect that Midway may again exercise the rights of
"Customer" under the Purchase Agreement), Assignee shall be entitled to make all
demands, give all notices, take all actions and exercise all rights of
"Customer" under and subject to the Purchase Agreement and Midway shall not be
entitled to do so.
(b) Termination of Purchase Agreement by Manufacturer. Manufacturer
-------------------------------------------------
agrees that upon termination of the Purchase Agreement with respect to the
rights related to any one or more of the Aircraft, (i) it shall give Assignee
written notice of such termination; and (ii) Assignee shall have the right,
within ten (10) business days of receipt of such notice, subject to the
provisions of Paragraph 4 of this Consent, to give Manufacturer written notice
of its irrevocable decision to assume all of the obligations of "Customer" under
the terminated Purchase Agreement insofar as it relates to any or all of the
Aircraft by entering into a substitute purchase agreement with Manufacturer,
relating to such Aircraft on terms and conditions substantially equivalent to
those set out in the Purchase Agreement. If Assignee does so notify Manufacturer
and enter into a substitute purchase agreement, then, subject to the terms of
the Collateral Assignment and Paragraphs 4 and 7 of this Consent, Assignee shall
be entitled to make all demands, give all notices, take all actions and exercise
all rights of Customer under and subject to the substitute purchase agreement.
If no notice from Assignee is timely received, Midway and Assignee will be
deemed to have waived all rights thereto. In such case, Manufacturer shall be
entitled but not obliged to purchase from Assignee or Midway, as applicable, all
buyer furnished equipment related to the terminated Aircraft under the Purchase
Agreement, in which Assignee or Midway, as appropriate, has title or an
uncontested right to title.
4. Manufacturer's Purchase Option.
------------------------------
Prior to the exercise of its rights and remedies under Section 4 of the
Collateral Assignment as a result of the occurrence of an Event of Default
thereunder, Assignee shall notify Manufacturer in writing. Manufacturer shall
have the option (the "Manufacturer's Option"), exercisable at any time within
ten (10) Business Days
2
<PAGE>
following receipt by Manufacturer of such notice, to purchase Assignee's
interest in the Purchase Agreement (without recourse, representation or warranty
of any kind) insofar as it relates to all of the Aircraft not yet delivered
thereunder at the time of exercise of Manufacturer's Option. In the event that
Manufacturer notifies Assignee that it intends to exercise Manufacturer's
Option, Manufacturer shall purchase Assignee's interest in the Purchase
Agreement (without recourse, representation or warranty of any kind) insofar as
it relates to all, but not less than all, of the Aircraft not yet delivered
thereunder at the time of exercise of Manufacturer's Option by paying to
Assignee within five (5) Business Days following the date of its notice to
Assignee, an amount equaling the aggregate amount of deposits and advances made
under the Purchase Agreement with respect to all of the Aircraft not yet
delivered thereunder up to the time of exercise of Manufacturer's Option. If
Manufacturer fails to exercise Manufacturer's Option during such ten (10)
Business Day period, Assignee may exercise its rights under the Collateral
Assignments.
5. Midway's Waiver and Indemnity; No Release from Obligations.
----------------------------------------------------------
(a) Midway hereby waives any rights which it may have pursuant to contract
or law or otherwise against Manufacturer arising out of, or resulting from, the
exercise by Assignee of its rights and remedies under the Collateral Assignment
or this Consent and agrees to indemnify and hold harmless Manufacturer, its
successors and assigns, and their respective officers, directors and employees
from and against any and all claims, losses or liabilities (including reasonable
attorneys' fees) resulting therefrom, provided, however, that Midway will not
-------- -------
indemnify and hold harmless such parties in the event that such parties are
determined, by a final judgment of a court of competent jurisdiction, to have
acted with gross negligence with regard to the matter for which indemnification
is sought.
(b) Midway hereby agrees, expressly for the benefit of Manufacturer, that
notwithstanding anything contained in the Collateral Assignment to the contrary:
(i) Midway shall at all times remain liable to Manufacturer under the Purchase
Agreement to perform all duties and obligations of the "Customer" thereunder in
respect of the Aircraft to the same extent as if the Collateral Assignment and
this Consent had not been executed, and (ii) the exercise by Assignee of any
rights assigned under the Collateral Assignment shall not release Midway from
any of its duties or obligations to Manufacturer under the Purchase Agreement
except to the extent that such exercise by Assignee shall constitute performance
of such duties or obligations.
6. Notices.
-------
(a) Midway and Assignee agree, expressly for the benefit of Manufacturer,
that for all purposes of the Collateral Assignment, Manufacturer shall not be
deemed to have knowledge of and need not recognize any event, condition, right,
remedy or dispute affecting the interests of Midway or Assignee under the
Collateral Assignment
3
<PAGE>
unless and until Manufacturer shall have received written notice thereof from
Assignee addressed to its Vice President-Contracts, Boeing Commercial Airplane
Group, if by mail, at P.O. Box 3707, Mail Code 21-34, Seattle, Washington 98124
or to 32-9430 Answerback BOEINGREN RNTN, if by telex. In acting in accordance
with the Purchase Agreement and this Consent, Manufacturer may rely conclusively
upon any such notice.
(b) Manufacturer shall be entitled to rely conclusively upon any notice or
instruction received by it from Assignee pursuant to the Collateral Assignment
or this Consent, and Manufacturer shall have no obligation to inquire as to the
accuracy of such notice or instruction or as to the relative priority of rights
of any person asserting rights in and to the Purchase Agreement and the
Aircraft.
(c) Except as provided in Paragraph 3 of this Consent, unless and until
Assignee shall have notified Manufacturer that it is exercising its rights and
remedies under the Collateral Assignment, Midway shall have all rights and
obligations of "Customer" under the Purchase Agreement and Manufacturer shall
have no duty to consult with or otherwise deal with Assignee concerning the
Purchase Agreement or the Aircraft. Without limiting the generality of the
foregoing, prior to the receipt of Assignee's written notice that it is
exercising its remedies under the Collateral Assignment, as provided in
Paragraph 3(a) hereof, Manufacturer shall have no obligation to inquire as to
whether Midway has complied with the provisions of the Collateral Assignment and
shall be entitled to rely upon any notice, consent, waiver or other action taken
by Midway in connection with the Purchase Agreement.
(d) Notice to Assignee hereunder shall be given by hand, by first class,
certified or registered mail, by a recognized overnight courier service or by
telecopier (confirmed by mail or overnight courier) at General Electric Capital
Corporation, c/o GE Capital Aviation Services, Inc., 201 High Ridge Road,
Stamford, Connecticut 06927, Attention Contracts Leader, Telecopy: (203) 357-
3201.
7. Rights Subject to the Purchase Agreement.
----------------------------------------
(a) Assignee for itself and each of the members of the syndicate (if
applicable) hereby agrees, expressly for the benefit of Manufacturer, that,
notwithstanding anything contained in the Collateral Assignment to the contrary
(and without in any way releasing Midway from any of its duties or obligations
under the Purchase Agreement), 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, without limitation, data, documents, training and services)
delivered or to be delivered pursuant to the Purchase Agreement, the terms and
conditions of the Purchase Agreement, including, without limitation, the
DISCLAIMER AND RELEASE and EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES in
- ---------------------- ---------------------------------------------
Article 11 of Part 2 of Exhibit C to
4
<PAGE>
the AGTA which was incorporated by reference into the Purchase Agreement and the
insurance provisions in Article 8.2 of the AGTA which was incorporated by
reference into the Purchase Agreement, shall apply to and be binding upon
Assignee to the same extent as if Assignee had been the original "Customer"
thereunder. Assignee for itself and each of the members of the syndicate (if
applicable) further agrees, expressly for the benefit of Manufacturer, that at
any time and from time to time upon the written request of Manufacturer, it
shall promptly and duly execute and deliver any and all such further assurances,
instruments and documents and take all such further action as Manufacturer may
reasonably request in order to obtain the full benefits of its agreements set
forth in this paragraph.
(b) Except as otherwise expressly provided in this Consent, the execution
and delivery by Manufacturer of this Consent and the performance by Manufacturer
of its obligations hereunder shall not be regarded as having created or imposed
upon Manufacturer any increased or additional obligations or undertakings or any
increased or additional limitations to the rights and duties on its part than
are contained in the Purchase Agreement as a result of entering into this
Consent. Manufacturer shall not be required to divest itself of title to or
possession of the Aircraft or any other thing to be delivered under the Purchase
Agreement until delivery and transfer thereof and payment therefor, as provided
in the Purchase Agreement, or to take any action with respect to the Purchase
Agreement or the Aircraft in any manner inconsistent with applicable law
(including, without limitation, any bankruptcy or other court order, ruling or
finding).
8. Application of Deposits and Advance Payments.
--------------------------------------------
The parties hereto acknowledge and agree that in the event Assignee
exercises its rights under the Collateral Assignment and purchases one or more
of the Aircraft, the deposits and advance payments made under the Purchase
Agreement with respect to the Aircraft shall be applied toward the purchase
price of such Aircraft.
9. Indemnification of Manufacturer by the Assignee and the Members of the
----------------------------------------------------------------------
Syndicate (if applicable).
- -------------------------
Assignee agrees to indemnify, defend and hold harmless Manufacturer, its
successors and assigns, and their respective officers, directors and employees
(collectively, the "Indemnitees" and each an "Indemnitee") from and against any
and all claims, losses obligations, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements and liabilities of any kind whatsoever
(including the reasonable fees and disbursements of counsel for such
Indemnitees) which may be imposed on, incurred by, or asserted against such
Indemnitees in any manner resulting from or arising out of the exercise by
Assignee of its rights or remedies under the Collateral Assignment or this
Consent and Agreement, if and only if it is determined by the final judgment of
a court of competent jurisdiction that Assignee was not entitled to exercise
such rights or remedies or that such rights or remedies were exercised contrary
to the provisions of this
5
<PAGE>
Consent, the Collateral Assignment or applicable law. Notwithstanding the
previous sentence, Assignee will not indemnify any Indemnitee who has been
determined by the final judgment of a court of competent jurisdiction to have
acted with gross negligence with regard to the matter for which indemnification
is sought. If any Indemnitee hereunder has knowledge of any liability hereby
indemnified against, it shall give prompt written notice thereof to Assignee.
Assignee shall have the right to investigate, defend or compromise any claim for
which indemnification is sought and each Indemnitee hereunder shall cooperate
with the reasonable requests of Assignee with respect thereto.
10. Manufacturer's Representations and Warranties.
---------------------------------------------
Manufacturer hereby represents and warrants to Midway and Assignee that:
(a) Manufacturer is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and is duly qualified
to do business as a foreign corporation in the State of Washington.
(b) Manufacturer has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Consent and Agreement
and the execution, delivery and performance of this Consent and Agreement have
been duly authorized by all necessary corporate action on the part of
Manufacturer.
(c) Each of the Purchase Agreement and this Consent and Agreement has been
duly executed and delivered by Manufacturer and constitutes the legally valid
and binding obligation of Manufacturer, enforceable against Manufacturer in
accordance with its terms except as enforceability may be limited by applicable
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and general principles of equity
(regardless of whether such enforceability is at issue in the proceeding in
equity or at law).
(d) Set forth on Schedule I hereto, with respect to each Aircraft, is (1)
the current Scheduled Delivery Date of such Aircraft, (2) the aggregate amount
of Deposit Payments received by the Manufacturer prior to the date hereof with
respect to such Aircraft, (3) the remaining scheduled dates and amounts of
Deposit Payments with respect to such Aircraft due after the date hereof and (4)
the estimated purchase price as of the currently Scheduled Delivery Date for
such Aircraft.
11. Manufacturer's Covenants:
------------------------
Manufacturer hereby covenants to Midway and Assignee that:
6
<PAGE>
(a) Manufacturer will remain liable to observe and perform all the
conditions and obligations to be observed and performed by it under the Purchase
Agreement in accordance with the terms and conditions thereof and, subject to
the terms of the Purchase Agreement and the Collateral Assignment, all of
Manufacturer's obligations under the Purchase Agreement will inure to the
benefit of Assignee as though Assignee were named "Customer" thereunder; and
(b) Manufacturer will not assert any lien or claim against any Aircraft
after payment in full for that Aircraft under and in accordance with the
Purchase Agreement.
12. GOVERNING LAW
-------------
THIS CONSENT WILL BE INTERPRETED UNDER AND GOVERNED BY THE LAWS OF THE
STATE OF WASHINGTON, U.S.A., EXCEPT THAT WASHINGTON'S CHOICE OF LAW RULES SHALL
NOT BE INVOKED FOR THE PURPOSE OF APPLYING THE LAW OF ANOTHER JURISDICTION.
13. Counterparts.
------------
This Consent 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.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent to be
executed by their respective officers or agents as of the date first above
written.
MIDWAY: MIDWAY AIRLINES CORPORATION
By: /s/ Jonathan S. Waller
----------------------
Its: Jonathan S. Waller
Senior Vice President
General Counsel
ASSIGNEE: GENERAL ELECTRIC CAPITAL CORPORATION
On behalf of itself and the members of the
syndicate (if applicable)
By: /s/ Norman Liu
--------------
Its: Norman Liu
Vice President
MANUFACTURER: THE BOEING COMPANY
By: /s/ Christopher P. Jellen
-------------------------
Its: Christopher P. Jellen
Attorney-in-fact
8
<PAGE>
SCHEDULE 1
----------
Midway Airlines Corporation
Aircraft Delivery Dates, Price Escalation and Maximum Aircraft Amount
* Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
<PAGE>
CONFORMED COPY
--------------
SECURITY AGREEMENT AND
COLLATERAL ASSIGNMENT OF PURCHASE AGREEMENT
-------------------------------------------
THIS SECURITY AGREEMENT AND COLLATERAL ASSIGNMENT OF
PURCHASE AGREEMENT (as the same may be amended, supplemented
or otherwise modified from time to time, this "Agreement")
---------
is entered into as of December 22, 1999, between Midway
Airlines Corporation ("Assignor"), and General Electric
--------
Capital Corporation ("Assignee"). Unless otherwise defined
--------
herein, capitalized terms used herein shall have the meaning
set forth in Section 1 hereof.
RECITALS:
A. Assignor and The Boeing Company ("Manufacturer"), entered into the
------------
Purchase Agreement (as defined below), relating to the acquisition by Assignor
of certain Boeing Model 737-7BX aircraft from Manufacturer, including the
Aircraft (as defined herein).
B. As security for its obligations under the Loan Agreement (as defined
herein), Assignor is willing to grant to Assignee a security interest in, and to
assign to Assignee, Assignor's rights, interests, duties and obligations under
the Purchase Agreement and Assignee is willing to accept such security interest
and assignment, on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties agree as follows:
1. For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the following terms shall
have the following meanings:
Aircraft -the first four Boeing Model 737-700 aircraft delivered under
--------
the Purchase Agreement which, as currently scheduled for delivery,
bear manufacturer's serial numbers 30736, 30737, 30738 and 30739,
including the aircraft engines installed in such aircraft on the date
of delivery thereof pursuant to the Purchase Agreement.
Loan Agreement - shall mean the Loan Agreement dated as of December
--------------
22, 1999 by and between Assignor and Assignee, as the same may be
amended, supplemented or otherwise modified from time to time.
Collateral - shall have the meaning assigned to such term in Section
----------
2.
Event of Default - shall have the meaning assigned to such term in the
----------------
Loan Agreement.
<PAGE>
Permitted Lien - means (x) with respect to any Collateral identified
--------------
in clause (b) of the Section 2, all rights of Manufacturer and (y)
with respect to any Collateral identified in clause (c) of Section 2,
all rights of the applicable vendor and any similar rights existing
under applicable law.
Purchase Agreement - the Purchase Agreement No. 2235 dated as of June
------------------
11, 1999, between Manufacturer and Assignor as heretofore amended,
modified or supplemented, providing, among other things for the
manufacture and sale by Manufacturer of certain Boeing Model 737-700
aircraft including the Aircraft, as the same may hereafter be amended,
modified or supplemented to the extent permitted by the terms of the
Purchase Agreement and this Agreement, but excluding letter agreements
6-1162-CPJ-308 and 6-1162-CPJ-311 and paragraphs 9 and 10 of letter
agreement 6-1162-CPJ-316. The Purchase Agreement incorporates by
reference the Aircraft General Terms Agreement AGTA-MID ("AGTA").
Secured Obligations - collective reference to the unpaid principal of
-------------------
and interest on the Loans (as defined in the Loan Agreement) (and all
other obligations and liabilities (including, without limitation,
interest accruing at the then applicable rate provided in the Loan
Agreement after the maturity of the Loans and interest accruing at the
then applicable rate provided in the Loan Agreement after the filing
of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to Assignor, whether or
not a claim for post-filing or post-petition interest is allowed in
such proceeding), of Assignor to Assignee whether direct or indirect,
absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection
with, the Loan Agreement, this Agreement, the Notes (as defined in the
Loan Agreement), or any other document made, delivered or given in
connection therewith insofar as they relate to the Aircraft, in each
case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel
to Assignee that are required to be paid by Assignor pursuant to the
terms of the Loan Agreement, this Agreement or any other Loan Document
(as defined in the Loan Agreement)).
2. As collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Secured Obligations, Assignor hereby grants to Assignee a
security interest in, and assigns to Assignee, all of the following property
(whether Assignor's right, title or interest therein is now owned or hereafter
acquired) (collectively, the "Collateral"):
----------
(a) the Purchase Agreement as and to the extent that the same relates
to the Aircraft and the purchase and operation thereof, including, without
2
<PAGE>
limitation, (i) the right upon valid tender by Manufacturer to purchase the
Aircraft (including the right to accept delivery of the Aircraft, such
acceptance to be exercised by a person designated by Assignee, and acting
as authorized representative of Assignee) and the right to take title to
the Aircraft and to be named the "Buyer" in the bill of sale to be
delivered by Manufacturer for the Aircraft pursuant to the Purchase
Agreement, (ii) any and all predelivery payment refunds or other monies
owing by Manufacturer to Assignor in the case of an Event of Default, (iii)
all claims for damages in respect of the Aircraft arising as a result of
any default by Manufacturer under the Purchase Agreement, including,
without limitation, all warranty and indemnity provisions contained in the
Purchase Agreement, and all claims arising thereunder, in respect of the
Aircraft, (iv) all of the Assignor's rights and interests in or arising out
of any deposits and advance payments made in respect of the Aircraft under
the Purchase Agreement and any other payments made by the Assignor in
respect of the Aircraft or amounts credited or to be credited by
Manufacturer to the Assignor under the Purchase Agreement, (v) any and all
rights of the Assignor to compel performance of the terms of the Purchase
Agreement in respect of the Aircraft, (vi) the rights to demand, accept and
retain all rights in and all property (other than the Aircraft), data and
service which Manufacturer is obligated to provide or does provide pursuant
to the Purchase Agreement in respect of the Aircraft; and (vii) the right
to obtain data and demonstration and test flights pursuant to the Purchase
Agreement; reserving for the Assignor, however, all duties and obligations
of a "Customer" under the Purchase Agreement (Assignee hereby accepts the
foregoing assignment subject to the terms hereof);
(b) to the extent of Assignor's right or interest therein (whether
now existing or hereafter acquired), each of the Aircraft (including the
airframe and the engines installed thereon) after delivery thereof by
Manufacturer;
(c) all buyer furnished equipment (whether now owned or hereafter
acquired) attached to the Aircraft furnished by or on behalf of Assignor to
the Manufacturer to be attached to the Aircraft; and
(d) all "proceeds," as defined in Section 9-306(1) of the Uniform
Commercial Code as effect in the State of New York, of any of the
foregoing, together with, whether or not constituting proceeds under such
Section, (i) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable with respect to any of the foregoing, (ii) any and all
other amounts paid or payable upon the sale, exchange, or other disposition
of any of the foregoing and (iii) any and all substitutes for, additions
to, and products and replacements for any of the foregoing.
3. (a) Notwithstanding the foregoing, if and so long as no Event of
Default shall have occurred and be continuing, Assignee hereby authorizes
Assignor, on behalf and to the exclusion of Assignee, to exercise in Assignee's
name all rights and powers of the "Customer" under the Purchase Agreement,
including such rights as Assignee may have with respect to the Aircraft under
any warranty, indemnity or
3
<PAGE>
guarantee or other provision of the Purchase Agreement, and to receive any
recovery or benefit resulting from the enforcement of any warranty, guarantee or
indemnity under the Purchase Agreement in respect of the Aircraft (any such
recovery or benefit being referred to herein as a "Manufacturer's Payment or
Service"); provided, however, that, subject to Section 11 hereof, Assignor may
-------- -------
not (x) exercise any right (i) to purchase any Aircraft, (ii) to accept delivery
of any Aircraft, or (iii) to take title to any Aircraft or to be named the
"Buyer" in the bill of sale therefor or (y) enter into any change order or other
amendment modification or supplement to the Purchase Agreement without the
written consent or countersignature of Assignee if such change order, amendment,
modification or supplement (i) would result in any rescission, cancellation or
termination of the Purchase Agreement with respect to any or all of the
Aircraft, (ii) would have the effect of changing the model of any or all of the
Aircraft (except as contemplated by the Purchase Agreement), or (iii) would have
the effect of increasing the purchase price of any of the Aircraft by more than
$500,000 or (iv) would have the effect of changing the delivery date of any of
the Aircraft by more than, in the aggregate, 90 days plus, with the prior
written consent of Assignee (which consent shall not be unreasonably withheld or
delayed), up to an additional 90 days; provided that Manufacturer shall not be
--------
responsible for any delay in the manufacture or delivery of any of the Aircraft
or other things delivered or to be delivered under the Purchase Agreement that
result from or arise, out of the requirement for Assignee's written consent or
countersignature.
(b) Unless and until Manufacturer shall have received written notice
from Assignee, addressed as set forth herein, that an Event of Default shall
have occurred and is continuing, each Manufacturer's Payment or Service shall be
payable or rendered to Assignor. Upon receipt by Manufacturer of written notice
from Assignee, addressed as set forth herein, that an Event of Default shall
have occurred and is continuing, each Manufacturer's Payment or Service shall be
payable or rendered to Assignee until such time as Manufacturer shall have
received written notice from Assignee that all such Events of Default have been
cured or waived. For the avoidance of doubt, any claim for a Manufacturer's
Payment or Service made by Assignor prior to receipt by Manufacturer of notice
from Assignee of an Event of Default described above, shall remain subject to
any right of set-off Manufacturer may have against Assignor with respect to
obligations of Assignor to Manufacturer.
(c) If Assignee has notified Manufacturer of an Event of Default by
written notice thereof as described above, Assignee will also give prompt
written notice to Manufacturer if and when such Event of Default has been cured
or waived.
(d) Assignor and Assignee agree, expressly for the benefit of
Manufacturer, that for all purposes of this Agreement, Manufacturer shall not be
deemed to have knowledge of, and need not recognize any event, condition, right,
remedy or dispute affecting the interests of Assignor or Assignee hereunder or
under any other document or agreement unless and until Manufacturer shall have
received from Assignee written notice thereof addressed to its Vice President-
Contracts, Boeing Commercial Airplane Group, if by mail, at P.O. Box 3707, Mail
Code 21-34, Seattle, Washington 98124 or to 34-9430 Answerback BOEINGREN RNTN if
by telex, and in acting in
4
<PAGE>
accordance with the Purchase Agreement and this Agreement Manufacturer may
conclusively rely upon such notice.
4. (a) At any time after the happening of an Event of Default and for so
long as the same shall be continuing, Assignee shall be entitled (but not
obliged) without further demand, to exercise all the rights of Assignor under
the Purchase Agreement assigned herein, but only after providing notice to
Manufacturer as set forth above.
(b) As between Assignor and Assignee, Assignee may exercise, in
addition to all other rights and remedies granted to it in this Agreement and in
any other instrument or agreement securing, evidencing or relating to the
Secured Obligations, all rights and remedies of a secured party under the
Uniform Commercial Code. Without limiting the generality of the foregoing, the
Assignee, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon Assignor or any other Person except Manufacturer (all and
each of which demands, defenses, advertisements and notices are hereby waived to
the extent permitted by applicable law), may in such circumstances forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may, subject to Manufacturer's consent as provided in the
Purchase Agreement, forthwith sell, lease, assign, give option or options to
purchase, or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, at any exchange, broker's board or office of Assignee or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. Assignee shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such private
sale or sales, to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption in Assignor, which right or equity is
hereby waived or released. Assignor further agrees, at Assignee's request, to
assemble the Collateral and make it available to Assignee, at places which
Assignee shall reasonably select, whether at Assignor's premises or elsewhere.
To the extent permitted by applicable law, Assignor waives all claims, damages
and demands it may acquire against Assignee arising out of the exercise by them
of any rights hereunder. If any notice of a proposed sale or other disposition
of Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least 10 days before such sale or other disposition.
(c) Assignor hereby irrevocably constitutes and appoints Assignee and
any officer or agent of Assignee upon the occurrence and during the continuance
of an Event of Default, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Assignor and in the name of Assignor or in its own name, for the
purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement, and,
without limiting the generality of the foregoing, Assignor hereby gives
Assignee, the power and right, on behalf of Assignor, without notice to or
assent by Assignor, to do any or all of the following: (i) at any time when an
Event of Default has
5
<PAGE>
occurred and is continuing in the name of Assignor or its own name, or
otherwise, take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under or with
respect to any Collateral and file any claim or take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by
Assignee for the purpose of collecting any and all such moneys due under or with
respect to any Collateral whenever payable; (ii) to the extent Assignor fails to
do so upon the reasonable request of Assignee, pay or discharge taxes and Liens
levied or placed on or threatened against the Collateral, effect any repairs or
any insurance called for by the terms of this Agreement and pay all or any part
of the premiums therefor and the costs thereof; (iii) execute, in connection
with any sale provided for herein, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral; and (iv)
at any time when an Event of Default has occurred and is continuing (1) direct
any party liable for any payment under any of the Collateral to make payment of
any and all moneys due or to become due thereunder directly to Assignee or as
Assignee shall direct; (2) ask or demand for, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to become due
at any time in respect of or arising out of any Collateral; (3) sign and indorse
any invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices and other
documents in connection with any of the Collateral; (4) commence and prosecute
any suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any thereof and to enforce any other
right in respect of any Collateral; (5) defend any suit, action or proceeding
brought against Assignor with respect to any Collateral; (6) settle, compromise
or adjust any such suit, action or proceeding and, in connection therewith, to
give such discharges or releases as Assignee may deem appropriate; and (7)
generally, sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
Assignee were the absolute owner thereof for all purposes, and do, at Assignee's
option and Assignor's expense, at any time, or from time to time, all acts and
things which Assignee deems necessary to protect, preserve or realize upon the
Collateral and Assignee's security interest therein and to effect the intent of
this Agreement, all as fully and effectively as Assignor might do.
(d) The expenses of Assignee incurred in connection with actions
undertaken as provided in this Clause (4), together with interest thereon at a
rate equal to the rate per annum at which interest would then be payable on past
due amounts under Section 2.6.2 of the Credit Agreement, from the date of
payment by Assignee, to the date reimbursed by Assignor, shall be payable by
Assignor to Assignee on demand. Assignor hereby ratifies all that said
attorneys shall lawfully do or cause to be done by virtue hereof in accordance
with the terms of this Agreement. All powers, authorizations and agencies
contained in this Agreement are coupled with an interest and are irrevocable
until this Agreement is terminated and the security interests created hereby are
released. The powers conferred on Assignee hereunder are solely to protect
Assignor's interests in the Collateral and shall not impose any duty upon
Assignee to exercise any such powers. Assignee shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither it nor any of its officers, directors, employees or
6
<PAGE>
agents shall be responsible to Assignor for any act or failure to act hereunder,
except for its own gross negligence or willful misconduct.
5. Assignor hereby agrees, expressly for the benefit of Manufacturer,
that notwithstanding anything contained herein to the contrary: (i) the Assignor
shall at all times remain liable to Manufacturer under the Purchase Agreement to
perform all obligations of "Customer" thereunder to the same extent as if this
Agreement had not been executed; and (ii) the exercise by Assignee of any of the
rights assigned hereunder shall not release the Assignor from any of its duties
or obligations to Manufacturer under the Purchase Agreement except to the extent
that such exercise by Assignee shall constitute performance of such duties and
obligations. Assignor hereby agrees to indemnify and hold harmless Assignee
from and against any and all liability for Assignor's performance (or failure to
perform) under the Purchase Agreement.
6. Assignee hereby agrees, expressly for the benefit of Manufacturer,
that, notwithstanding anything contained herein to the contrary (and without in
any way releasing the Assignor from any of its duties or obligations under the
Purchase Agreement), insofar as the provisions of the Purchase Agreement relate
to any or all of the Aircraft, in exercising any rights under the Purchase
Agreement, or in making any claim with respect to any or all of the Aircraft or
other things (including, without limitation, data, documents, training and
services) delivered or to be delivered pursuant to the Purchase Agreement, the
terms and conditions of the Purchase Agreement including, without limitation,
the DISCLAIMER AND RELEASE and EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES in
---------------------- --------------------------------------------
Article 11 of Part 2 of Exhibit C to the AGTA which was incorporated by
reference into the Purchase Agreement and the insurance and indemnity provisions
in Article 8.2 of the AGTA which were incorporated by reference into the
Purchase Agreement, shall apply to, and be binding upon, Assignee to the same
extent as if Assignee had been the original "Customer" thereunder. Assignee
further agrees, expressly for the benefit of Manufacturer, that at any time and
from time to time upon written request of Manufacturer, Assignee shall promptly
and duly execute and deliver any and all such further assurances, instruments
and documents and take all such further action as Manufacturer may reasonably
request in order to obtain the full benefits of Assignee's agreements set forth
in this paragraph.
7. Assignor and Assignee agree expressly for the benefit of Manufacturer,
that, subject to the terms of the Consent, nothing contained herein shall
subject Manufacturer to any liability to which it would not otherwise be subject
under the Purchase Agreement or modify in any respect Manufacturer's contract
rights thereunder or require Manufacturer to divest itself of title to or
possession of the Aircraft until delivery thereof and payment therefor as
provided in the Purchase Agreement or to take any action with respect to the
Purchase Agreement or the Aircraft in any manner inconsistent with applicable
law (including, without limitation, any bankruptcy or other court order, ruling
or finding).
8. At any time and from time to time upon the written request of
Assignee, the Assignor will promptly and duly execute and deliver any and all
such further
7
<PAGE>
instruments and documents and take such further action as Assignee may
reasonably request in order to obtain the full benefits of this Agreement and of
the rights and powers herein granted.
9. Assignor does hereby represent and warrant to Assignee that: (i) it
has good and valid rights in the Collateral described in Section 2(a) hereof
with respect to which it has purported to grant a security interest hereunder
and has full power and authority to grant to Assignee the security interest in
all of its right, title and interest (whether now existing or hereafter
acquired) in the Collateral pursuant hereto and to execute, deliver and perform
its obligations in accordance with the terms of this Agreement, without the
consent or approval of any other person other than any consent or approval which
has been obtained; (ii) as to Assignor, the Purchase Agreement is in full force
and effect and is enforceable in accordance with its terms; (iii) except to the
extent then cured or waived by Manufacturer, Assignor is not in default under
the Purchase Agreement and, as such, has not failed to perform or observe any
material term and is not entitled to make any material reduction in payment
thereunder; (iv) the copy of the Purchase Agreement previously provided to
Assignee is a true, correct and complete copy of such agreement as of December
22, 1999; (v) Assignor has not assigned or pledged to any third party the whole
or any part of the rights and interests assigned pursuant to Section 2; (vi) the
Collateral is free and clear of any lien (other than the lien of this Agreement
and Permitted Liens); (vii) there is no effective financing statement or
analogous document under the Uniform Commercial Code or any other applicable
laws covering any Collateral; and (viii) the security interests granted pursuant
to this Agreement (a) constitute perfected security interests in the Collateral
(to the extent of Assignor's interest therein) in favor of the Lender, as
collateral security for the Secured Obligations and (b) are prior to all other
Liens (other than Permitted Liens) on the Collateral in existence on the date
hereof.
10. Assignor hereby covenants to Assignee that as long as this Agreement
shall remain in effect: (i) it will not assign or pledge the whole or any part
of the rights assigned as provided in paragraph 2 hereof, nor will it cause the
creation of liens on, or otherwise dispose of, the Collateral; (ii) it will, at
its own cost and expense, take any and all actions necessary to defend its right
and, if applicable, title to the Collateral against all persons and to defend
the security interest of the Assignee in the Collateral and the priority thereof
against any lien; and (iii) it will, at its own expense, execute, acknowledge,
deliver and cause to be duly filed all such further instruments and document and
take all such actions as the Assignee may from time to time request to better
assure, preserve, protect and perfect the security interest granted herein and
the rights and remedies created hereby, including the payment of any fees and
taxes required in connection with the execution and delivery of this Agreement,
the granting of the security interest and the filing of any financing statements
or other documents in connection herewith or therewith.
11. So long as no Default then exists, Assignee agree that upon Assignor's
payment in full of the principal of and accrued interest on Loans relating to
any Aircraft, Assignee will execute such documents and take such other actions,
in each case at
8
<PAGE>
Assignor's expense, as Assignor may reasonably request in order to release the
lien of this Agreement to the extent applicable to such Aircraft.
12. This Agreement shall in all respects be governed by, and construed in
accordance with, the laws of the State of New York, except to the extent where
those laws are governed by the federal laws of the United States, including all
matters of construction, validity, and performance.
13. 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.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto, each pursuant to due
authority, have each caused this Security Agreement and Collateral Agreement of
Purchase Agreement to be executed by their duly authorized officers as of the
date and year first above written.
ASSIGNOR: MIDWAY AIRLINES CORPORATION
By: /s/ Jonathan S. Waller
----------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General counsel
ASSIGNEE: GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Norman Liu
--------------
Name: Norman Liu
Title: Vice President
10
<PAGE>
CONSENT AND AGREEMENT
to the Security Agreement and
Collateral Assignment of the Purchase Agreement
-----------------------------------------------
THIS CONSENT AND AGREEMENT ("Consent") is entered into as of December
22, 1999 by and among Midway Airlines Corporation ("Midway"), General Electric
Capital Corporation ("Assignee") and The Boeing Company ("Manufacturer").
RECITALS
--------
A. Midway and Assignee have heretofore entered into that certain Loan
Agreement, pursuant to which Assignee and the members of the syndicate
identified therein (if applicable) have agreed to make certain funds available
to Midway in order to enable Midway to meet its deposit and advance payment
obligations in respect of the Aircraft (as defined in the Collateral Assignment,
defined below) under the Purchase Agreement.
B. Midway and Assignee have entered into that certain Security Agreement
and Collateral Assignment of Purchase Agreement dated as of December 22, 1999
("Collateral Assignment"), pursuant to which, among other things, Midway has
granted to Assignee a security interest in all of Midway's right and interest in
and to the Purchase Agreement in order to secure performance of Midway under and
in respect of the Loan Agreement.
C. Midway and Assignee wish to obtain Manufacturer's consent to the
Collateral Assignment and Manufacturer is willing to grant such consent, all
subject to and upon the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Definitions.
-----------
Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to such terms in the Collateral Assignment.
2. Consent of Manufacturer.
-----------------------
(a) Manufacturer hereby acknowledges notice of the Collateral Assignment
and consents, subject to the terms and conditions of this Consent, to assignment
to Assignee of all of Midway's right and interest in and to the Purchase
Agreement pursuant to the Collateral Assignment.
A-1
<PAGE>
(b) Manufacturer agrees that this Consent constitutes the consent of
Manufacturer as required by the Purchase Agreement.
3. Assignee's Rights under the Collateral Assignment.
-------------------------------------------------
(a) Event of Default. Manufacturer acknowledges that, subject to the
----------------
provisions of Paragraph 4 hereof, upon and after notice to Manufacturer by
Assignee that an Event of Default under the Collateral Assignment has occurred
and is continuing and that it is exercising its rights and remedies under the
Collateral Assignment (and until Manufacturer receives a further written notice
from Assignee to the effect that Midway may again exercise the rights of
"Customer" under the Purchase Agreement), Assignee shall be entitled to make all
demands, give all notices, take all actions and exercise all rights of
"Customer" under and subject to the Purchase Agreement and Midway shall not be
entitled to do so.
(b) Termination of Purchase Agreement by Manufacturer. Manufacturer agrees
-------------------------------------------------
that upon termination of the Purchase Agreement with respect to the rights
related to any one or more of the Aircraft, (i) it shall give Assignee written
notice of such termination; and (ii) Assignee shall have the right, within ten
(10) business days of receipt of such notice, subject to the provisions of
Paragraph 4 of this Consent, to give Manufacturer written notice of its
irrevocable decision to assume all of the obligations of "Customer" under the
terminated Purchase Agreement insofar as it relates to any or all of the
Aircraft by entering into a substitute purchase agreement with Manufacturer,
relating to such Aircraft on terms and conditions substantially equivalent to
those set out in the Purchase Agreement. If Assignee does so notify
Manufacturer and enter into a substitute purchase agreement, then, subject to
the terms of the Collateral Assignment and Paragraphs 4 and 7 of this Consent,
Assignee shall be entitled to make all demands, give all notices, take all
actions and exercise all rights of Customer under and subject to the substitute
purchase agreement. If no notice from Assignee is timely received, Midway and
Assignee will be deemed to have waived all rights thereto. In such case,
Manufacturer shall be entitled but not obliged to purchase from Assignee or
Midway, as applicable, all buyer furnished equipment related to the terminated
Aircraft under the Purchase Agreement, in which Assignee or Midway, as
appropriate, has title or an uncontested right to title.
4. Manufacturer's Purchase Option.
------------------------------
Prior to the exercise of its rights and remedies under Section 4 of the
Collateral Assignment as a result of the occurrence of an Event of Default
thereunder, Assignee shall notify Manufacturer in writing. Manufacturer shall
have the option (the "Manufacturer's Option"), exercisable at any time within
ten (10) Business Days following receipt by Manufacturer of such notice, to
purchase Assignee's interest in the Purchase Agreement (without recourse,
representation or warranty of any kind) insofar as it relates to all of the
Aircraft not yet delivered thereunder at the time of exercise of Manufacturer's
Option. In the event that Manufacturer notifies Assignee that it intends
A-2
<PAGE>
to exercise Manufacturer's Option, Manufacturer shall purchase Assignee's
interest in the Purchase Agreement (without recourse, representation or warranty
of any kind) insofar as it relates to all, but not less than all, of the
Aircraft not yet delivered thereunder at the time of exercise of Manufacturer's
Option by paying to Assignee within five (5) Business Days following the date of
its notice to Assignee, an amount equaling the aggregate amount of deposits and
advances made under the Purchase Agreement with respect to all of the Aircraft
not yet delivered thereunder up to the time of exercise of Manufacturer's
Option. If Manufacturer fails to exercise Manufacturer's Option during such ten
(10) Business Day period, Assignee may exercise its rights under the Collateral
Assignments.
5. Midway's Waiver and Indemnity; No Release from Obligations.
----------------------------------------------------------
(a) Midway hereby waives any rights which it may have pursuant to contract
or law or otherwise against Manufacturer arising out of, or resulting from, the
exercise by Assignee of its rights and remedies under the Collateral Assignment
or this Consent and agrees to indemnify and hold harmless Manufacturer, its
successors and assigns, and their respective officers, directors and employees
from and against any and all claims, losses or liabilities (including reasonable
attorneys' fees) resulting therefrom, provided, however, that Midway will not
-------- -------
indemnify and hold harmless such parties in the event that such parties are
determined, by a final judgment of a court of competent jurisdiction, to have
acted with gross negligence with regard to the matter for which indemnification
is sought.
(b) Midway hereby agrees, expressly for the benefit of Manufacturer, that
notwithstanding anything contained in the Collateral Assignment to the contrary:
(i) Midway shall at all times remain liable to Manufacturer under the Purchase
Agreement to perform all duties and obligations of the "Customer" thereunder in
respect of the Aircraft to the same extent as if the Collateral Assignment and
this Consent had not been executed, and (ii) the exercise by Assignee of any
rights assigned under the Collateral Assignment shall not release Midway from
any of its duties or obligations to Manufacturer under the Purchase Agreement
except to the extent that such exercise by Assignee shall constitute performance
of such duties or obligations.
6. Notices.
-------
(a) Midway and Assignee agree, expressly for the benefit of Manufacturer,
that for all purposes of the Collateral Assignment, Manufacturer shall not be
deemed to have knowledge of and need not recognize any event, condition, right,
remedy or dispute affecting the interests of Midway or Assignee under the
Collateral Assignment unless and until Manufacturer shall have received written
notice thereof from Assignee addressed to its Vice President-Contracts, Boeing
Commercial Airplane Group, if by mail, at P.O. Box 3707, Mail Code 21-34,
Seattle, Washington 98124 or to 32-9430 Answerback BOEINGREN RNTN, if by telex.
In acting in accordance with the
A-3
<PAGE>
Purchase Agreement and this Consent, Manufacturer may rely conclusively upon any
such notice.
(b) Manufacturer shall be entitled to rely conclusively upon any notice or
instruction received by it from Assignee pursuant to the Collateral Assignment
or this Consent, and Manufacturer shall have no obligation to inquire as to the
accuracy of such notice or instruction or as to the relative priority of rights
of any person asserting rights in and to the Purchase Agreement and the
Aircraft.
(c) Except as provided in Paragraph 3 of this Consent, unless and until
Assignee shall have notified Manufacturer that it is exercising its rights and
remedies under the Collateral Assignment, Midway shall have all rights and
obligations of "Customer" under the Purchase Agreement and Manufacturer shall
have no duty to consult with or otherwise deal with Assignee concerning the
Purchase Agreement or the Aircraft. Without limiting the generality of the
foregoing, prior to the receipt of Assignee's written notice that it is
exercising its remedies under the Collateral Assignment, as provided in
Paragraph 3(a) hereof, Manufacturer shall have no obligation to inquire as to
whether Midway has complied with the provisions of the Collateral Assignment and
shall be entitled to rely upon any notice, consent, waiver or other action taken
by Midway in connection with the Purchase Agreement.
(d) Notice to Assignee hereunder shall be given by hand, by first class,
certified or registered mail, by a recognized overnight courier service or by
telecopier (confirmed by mail or overnight courier) at General Electric Capital
Corporation, c/o GE Capital Aviation Services, Inc., 201 High Ridge Road,
Stamford, Connecticut 06927, Attention Contracts Leader, Telecopy: (203) 357-
3201.
7. Rights Subject to the Purchase Agreement.
----------------------------------------
(a) Assignee for itself and each of the members of the syndicate (if
applicable) hereby agrees, expressly for the benefit of Manufacturer, that,
notwithstanding anything contained in the Collateral Assignment to the contrary
(and without in any way releasing Midway from any of its duties or obligations
under the Purchase Agreement), 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, without limitation, data, documents, training and services)
delivered or to be delivered pursuant to the Purchase Agreement, the terms and
conditions of the Purchase Agreement, including, without limitation, the
ISCLAIMER AND RELEASE and EXCLUSION OF CONSEQUENTIAL AND OTHER DAMAGES in
- ---------------------- ---------------------------------------------
Article 11 of Part 2 of Exhibit C to the AGTA which was incorporated by
reference into the Purchase Agreement and the insurance provisions in Article
8.2 of the AGTA which was incorporated by reference into the Purchase Agreement,
shall apply to and be binding upon Assignee to the same extent as if Assignee
had been the original "Customer" thereunder. Assignee for itself and each of
the members of the syndicate (if applicable) further agrees, expressly for
A-4
<PAGE>
the benefit of Manufacturer, that at any time and from time to time upon the
written request of Manufacturer, it shall promptly and duly execute and deliver
any and all such further assurances, instruments and documents and take all such
further action as Manufacturer may reasonably request in order to obtain the
full benefits of its agreements set forth in this paragraph.
(b) Except as otherwise expressly provided in this Consent, the execution
and delivery by Manufacturer of this Consent and the performance by Manufacturer
of its obligations hereunder shall not be regarded as having created or imposed
upon Manufacturer any increased or additional obligations or undertakings or any
increased or additional limitations to the rights and duties on its part than
are contained in the Purchase Agreement as a result of entering into this
Consent. Manufacturer shall not be required to divest itself of title to or
possession of the Aircraft or any other thing to be delivered under the Purchase
Agreement until delivery and transfer thereof and payment therefor, as provided
in the Purchase Agreement, or to take any action with respect to the Purchase
Agreement or the Aircraft in any manner inconsistent with applicable law
(including, without limitation, any bankruptcy or other court order, ruling or
finding).
8. Application of Deposits and Advance Payments.
--------------------------------------------
The parties hereto acknowledge and agree that in the event Assignee
exercises its rights under the Collateral Assignment and purchases one or more
of the Aircraft, the deposits and advance payments made under the Purchase
Agreement with respect to the Aircraft shall be applied toward the purchase
price of such Aircraft.
9. Indemnification of Manufacturer by the Assignee and the Members of the
----------------------------------------------------------------------
Syndicate (if applicable).
- -------------------------
Assignee agrees to indemnify, defend and hold harmless Manufacturer, its
successors and assigns, and their respective officers, directors and employees
(collectively, the "Indemnitees" and each an "Indemnitee") from and against any
and all claims, losses obligations, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements and liabilities of any kind whatsoever
(including the reasonable fees and disbursements of counsel for such
Indemnitees) which may be imposed on, incurred by, or asserted against such
Indemnitees in any manner resulting from or arising out of the exercise by
Assignee of its rights or remedies under the Collateral Assignment or this
Consent and Agreement, if and only if it is determined by the final judgment of
a court of competent jurisdiction that Assignee was not entitled to exercise
such rights or remedies or that such rights or remedies were exercised contrary
to the provisions of this Consent, the Collateral Assignment or applicable law.
Notwithstanding the previous sentence, Assignee will not indemnify any
Indemnitee who has been determined by the final judgment of a court of competent
jurisdiction to have acted with gross negligence with regard to the matter for
which indemnification is sought. If any Indemnitee hereunder has knowledge of
any liability hereby indemnified against, it shall give prompt written notice
thereof to Assignee. Assignee shall have the right to
A-5
<PAGE>
investigate, defend or compromise any claim for which indemnification is sought
and each Indemnitee hereunder shall cooperate with the reasonable requests of
Assignee with respect thereto.
10. Manufacturer's Representations and Warranties.
---------------------------------------------
Manufacturer hereby represents and warrants to Midway and Assignee that:
(a) Manufacturer is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and is duly qualified
to do business as a foreign corporation in the State of Washington.
(b) Manufacturer has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Consent and Agreement
and the execution, delivery and performance of this Consent and Agreement have
been duly authorized by all necessary corporate action on the part of
Manufacturer.
(c) Each of the Purchase Agreement and this Consent and Agreement has been
duly executed and delivered by Manufacturer and constitutes the legally valid
and binding obligation of Manufacturer, enforceable against Manufacturer in
accordance with its terms except as enforceability may be limited by applicable
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and general principles of equity
(regardless of whether such enforceability is at issue in the proceeding in
equity or at law).
(d) Set forth on Schedule I hereto, with respect to each Aircraft, is (1)
the current Scheduled Delivery Date of such Aircraft, (2) the aggregate amount
of Deposit Payments received by the Manufacturer prior to the date hereof with
respect to such Aircraft, (3) the remaining scheduled dates and amounts of
Deposit Payments with respect to such Aircraft due after the date hereof and (4)
the estimated purchase price as of the currently Scheduled Delivery Date for
such Aircraft.
11. Manufacturer's Covenants:
------------------------
Manufacturer hereby covenants to Midway and Assignee that:
(a) Manufacturer will remain liable to observe and perform all the
conditions and obligations to be observed and performed by it under the Purchase
Agreement in accordance with the terms and conditions thereof and, subject to
the terms of the Purchase Agreement and the Collateral Assignment, all of
Manufacturer's obligations under the Purchase Agreement will inure to the
benefit of Assignee as though Assignee were named "Customer" thereunder; and
(b) Manufacturer will not assert any lien or claim against any Aircraft
after payment in full for that Aircraft under and in accordance with the
Purchase Agreement.
A-6
<PAGE>
12. GOVERNING LAW
-------------
THIS CONSENT WILL BE INTERPRETED UNDER AND GOVERNED BY THE LAWS OF THE
STATE OF WASHINGTON, U.S.A., EXCEPT THAT WASHINGTON'S CHOICE OF LAW RULES SHALL
NOT BE INVOKED FOR THE PURPOSE OF APPLYING THE LAW OF ANOTHER JURISDICTION.
13. Counterparts.
------------
This Consent 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.
A-7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent to be
executed by their respective officers or agents as of the date first above
written.
MIDWAY: MIDWAY AIRLINES CORPORATION
By: ______________________
Its: ______________________
ASSIGNEE: GENERAL ELECTRIC CAPITAL
CORPORATION
On behalf of itself and the members of the syndicate
(if applicable),
By: ______________________
Its: ______________________
MANUFACTURER: THE BOEING COMPANY
By: _______________________
Its:_______________________
A-8
<PAGE>
SCHEDULE 1
----------
Midway Airlines Corporation
Aircraft Delivery Dates, Price Escalation and Maximum Aircraft Amount
[*] Confidential treatment requested for omitted information. Omitted
information has been filed separately with the Commission.
<PAGE>
EXHIBIT 10.77
RETURN COMPENSATION AGREEMENT
dated as of December 6, 1999
in respect of
AIRCRAFT OPERATING LEASE AGREEMENTS
NO. 524, NO. 525, NO. 135 and NO. 136
between
FIRST SECURITY BANK, N.A., formerly known as
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity
but solely as owner trustee, as
Lessor
and
MIDWAY AIRLINES CORPORATION, as
Lessee
and
DEBIS AIRFINANCE B.V., as
Beneficial Owner.
Aircraft: Fokker 100 (F28 Mk 0100)
Serial Nos. 11321, 11323, 11329 and 11330
<PAGE>
Return Compensation Agreement (this "Agreement"), dated as of December 6, 1999,
by and between:
(1) debis AirFinance B.V., a company incorporated under the laws of The
Netherlands, having its principal place of business at Evert van de
Beekstraat 22, 1118 CL Schiphol Airport, The Netherlands ("debis AF");
(2) Midway Airlines Corporation, a company incorporated under the laws of the
State of Delaware, having its principal place of business at 2801 Slater
Road, Suite 200, Morrisville, North Carolina 27560 ("Midway" or "Lessee");
and
(3) First Security Bank, N.A., formerly known as First Security Bank of Utah,
N.A., a national banking association existing pursuant to the laws of the
United States, having its principal place of business at 79 South Main
Street, Salt Lake City, Utah 84130-0007, not in its individual capacity
(except as expressly set forth in the Leases) but solely as Owner Trustee
under the Trust Agreement ("Trustee" or "Lessor").
WHEREAS, debis AF is the beneficial owner of each of the four (4) aircraft
identified in Exhibit A attached hereto (each, a "300-Series Aircraft" and
collectively, the "300-Series Aircraft"), by virtue of its ownership of all the
outstanding and issued shares of the special purpose companies which are the
owners of the Aircraft identified by Serial Numbers 11321, 11323, 11329 and
11330; and
WHEREAS, the Trustee and Midway are parties to those certain Aircraft Operating
Lease Agreements No. 524, No. 525, No. 135 and No. 136, each covering one of the
Aircraft (as amended from time to time, each, a "Lease" and collectively, the
"Leases");
WHEREAS, on behalf of debis AF, the Trustee has commenced an action against
Midway entitled First Security Bank, N.A. v. Midway Airlines, Inc. 99 CIV.3248
(SAS)(RLE) now pending in the United States District Court for the Southern
District of New York (the "Action") which claims, inter alia, that Midway owes
the Lessor certain moneys in connection with the return of the 300-Series
Aircraft; and
WHEREAS, Midway has asserted a claim against the Lessor and debis AF with
respect to certain excess Maintenance Funds to which it claims to be entitled;
and
WHEREAS, Midway, debis AF and the Trustee desire to settle the Action on the
terms and conditions set forth herein:
NOW THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto agree as follows:
1. Definitions
Terms which are capitalized but not defined herein shall have the
meaning ascribed to such terms in the Leases.
2. Payment for Settlement of the Action and other Claims
In full settlement of all claims of whatever nature which Lessor
and/or debis AF may have against Midway and Midway may have against
Lessor and/or debis AF arising out of the Leases, Lessor and/or debis
AF agrees to pay to Midway the sum of *** ************ ******* ******
******* *** ******* ***** ******* ******** ******** ***** ******* ***
************ ******* *** ****** ****** which shall be on March 1, 2000
by the reduction in such amount of the outstanding principal balance
under that certain Promissory Note originally dated as of January 31,
1997 and amended and restated as of March 30, 1998 payable by Midway
to debis AF. Except for the reduction in principal amount set forth
* redacted
2
<PAGE>
herein, all other terms of the Promissory Note shall remain unchanged.
3. Release of Claims
The Lessor's and debis AF's payment hereunder, and the other promises,
payments and agreements set forth herein shall be in full and final
settlement of, and the release and discharge of, (i) all of Lessor's
and/or debis AF's claims with respect to the payment of any amounts
due under any of the Leases whether now existing or hereafter arising;
(ii) all other claims, however described, asserted in the Action; and
(iii) all claims of Midway under any of the Leases, in each case
whether now existing or hereafter arising.
4. Dismissal of Litigation
The parties hereto agree to instruct their respective attorneys to
enter into and file in the United States District Court for the
Southern District of New York an appropriate stipulation providing for
the dismissal with prejudice of the Action.
5. Governing Law
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York and without regard to any
conflict of law rules. This Agreement is being delivered in the State
of New York.
6. Entire Agreement
This Agreement is the sole and entire agreement between the parties
hereto with respect to the Leases and the Aircraft, and supersedes all
previous agreements in relation to such Leases and Aircraft. The
terms and conditions of this Agreement shall not be varied otherwise
than by an instrument in writing executed by or on behalf of the
parties hereto.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the day and year
first above written.
SIGNED on behalf of
FIRST SECURITY BANK, N.A. (formerly known as First Security Bank of Utah; N.A.),
not in its individual capacity but solely as owner trustee
By: /s/ Greg A. Hawley
Name: Greg A. Hawley
Title: Vice President
SIGNED on behalf of
MIDWAY AIRLINES CORPORATION
By: /s/ Jonathan S. Waller
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
SIGNED on behalf of
debis AirFinance B.V.
By: /s/ Frank Haspel
Name: Frank Haspel
Title: Managing Director (CEO)
By: /s/ John McMahon
Name: John McMahon
Title: Senior Vice President - Commercial
4
<PAGE>
Exhibit A
- --------------------------------------------------------------------------------
Aircraft Aircraft Beneficial Owner
Manufacturer's Operation Lease
Serial Number Agreement Number
- --------------------------------------------------------------------------------
11321 525 Stockholm Aircraft
Finance II B.V.
11323 524 Stockholm Aircraft
Finance III B.V.
11329 135 Stockholm Aircraft
Finance V B.V.
11330 136 Stockholm Aircraft
Finance V B.V.
- --------------------------------------------------------------------------------
5
<PAGE>
EXHIBIT 10.78
OPTION AGREEMENT
dated as of December 6, 1999
in respect of
AIRCRAFT OPERATING LEASE AGREEMENTS
NO. 111, NO. 112, NO. 113 and NO. 114
each dated as of November 11, 1993
between
FIRST SECURITY BANK, N.A., formerly known as
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity
but solely as owner trustee, as
Lessor
and
MIDWAY AIRLINES CORPORATION, as
Lessee
and
DEBIS AIRFINANCE B.V., as
Beneficial Owner.
Aircraft: Fokker 100 (F28 Mk 0100)
Serial Nos./RN: 11444/N103ML
(respectively) 11445/N104ML
11475/N105ML
11477/N106ML
<PAGE>
Option Agreement (this "Agreement"), dated as of December 6, 1999, by and
between:
(1) debis AirFinance B.V., a company incorporated under the laws of The
Netherlands, having its principal place of business at Evert van de
Beekstraat 22, 1118 CL Schiphol Airport, The Netherlands ("debis AF");
(2) Midway Airlines Corporation, a company incorporated under the laws of the
State of Delaware, having its principal place of business at 2801 Slater
Road, Suite 200, Morrisville, North Carolina 27560 ("Midway" or "Lessee");
and
(3) First Security Bank, N.A., formerly known as First Security Bank of Utah,
N.A., a national banking association existing pursuant to the laws of the
United States, having its principal place of business at 79 South Main
Street, Salt Lake City, Utah 84130-0007, not in its individual capacity
(except as expressly set forth in the Leases) but solely as Owner Trustee
under the Trust Agreement ("Trustee" or "Lessor").
WHEREAS, debis AF is the beneficial owner of each of the four (4) aircraft
identified in Exhibit A attached hereto (each, an "Aircraft" and collectively,
the "Aircraft"), by virtue of its ownership of all the outstanding and issued
shares of the special purpose companies which are the owners of the Aircraft
identified by Serial Numbers 11445 and 11475 and otherwise by virtue of its
direct beneficial ownership of the Aircraft identified by Serial Numbers 11444
and 11477; and
WHEREAS, the Trustee and Midway are parties to those certain Aircraft Operating
Lease Agreements No. 111, No. 112, No. 113 and No. 114, each covering one of the
Aircraft and each dated as of November 11, 1993 (as amended from time to time,
each, a "Lease" and collectively, the "Leases"); and
WHEREAS, Midway wishes to purchase an option to terminate the Leases prior to
the current termination dates as provided in Exhibit B hereto;
NOW THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto agree as follows:
1. Definitions
Terms which are capitalized but not defined herein shall have the
meaning ascribed to such terms in the Leases.
2. Payment for Option
In consideration of the irrevocable payment by Midway of the sum of
*** ******* ******* *************** receipt of which is hereby
acknowledged, and other good and valuable consideration, the Lessor
and debis AF hereby grant to Midway an irrevocable option to terminate
the Leases pursuant to the terms of the Lease Termination and
Compensation Agreement annexed hereto as Exhibit C (the "Termination
Agreement").
3. Exercise of Option
Midway may exercise this option at any time prior to March 1, 2000 by
signing and returning the Termination Agreement so that it is received
by debis AF no later than
* redacted
2
<PAGE>
March 1, 2000. Upon such execution and receipt, debis AF and Lessor
shall execute and return the same to Midway and the Termination
Agreement shall become a binding agreement between the parties
thereto.
4. Termination of Option
In the event that the option is not exercised as provided in Section 3
above, this Agreement shall become void and of no effect at midnight,
Eastern Standard Time (New York City) on March 1, 2000. In such
event, Lessor and/or debis AF may retain the Payment and shall have no
further obligations to Midway with respect to this Agreement or the
Payment.
5. Governing Law
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York and without regard to any
conflict of law rules. This Agreement is being delivered in the State
of New York.
6. Entire Agreement
This Agreement is the sole and entire agreement between the parties
hereto with respect to subject mater, supersedes all previous
agreements and shall not be varied otherwise than by an instrument in
writing executed by or on behalf of the parties hereto.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the day and year
first above written.
SIGNED on behalf of
FIRST SECURITY BANK, N.A. (formerly known as First Security Bank of Utah; N.A.),
not in its individual capacity but solely as owner trustee
By: /s/ Greg A. Hawley
Name: Greg A. Hawley
Title: Vice President
SIGNED on behalf of
MIDWAY AIRLINES CORPORATION
By: /s/ Jonathan S. Waller
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
SIGNED on behalf of
debis AirFinance B.V.
By: /s/ Frank Haspel
Name: Frank Haspel
Title: Managing Director (CEO)
By: /s/ John McMahon
Name: John McMahon
Title: Senior Vice President - Commercial
4
<PAGE>
Draft - 12/1/99
Exhibit A
- --------------------------------------------------------------------------------
Aircraft Aircraft Beneficial Owner
Manufacturer's Operation Lease
Serial Number Agreement Number
- --------------------------------------------------------------------------------
11444 111 debis AirFinance B.V.
11445 112 American Aircraft
Finance I B.V.
11475 113 American Aircraft
Finance II B.V.
11477 114 debis AirFinance B.V.
- --------------------------------------------------------------------------------
5
<PAGE>
Exhibit B
Revised Expiry Dates
February 1, 2001
March 1, 2001
May 1, 2001
June 1, 2001
6
<PAGE>
EXHIBIT 10.79
LEASE TERMINATION AND COMPENSATION AGREEMENT
in respect of
AIRCRAFT OPERATING LEASE AGREEMENTS
NO. 111, NO. 112, NO. 113 and NO. 114
each dated as of November 11, 1993
between
FIRST SECURITY BANK, N.A., formerly known as
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity
but solely as owner trustee, as
Lessor
and
MIDWAY AIRLINES CORPORATION, as
Lessee
and
DEBIS AIRFINANCE B.V., as
Beneficial Owner.
Aircraft: Fokker 100 (F28 Mk 0100)
Serial Nos./RN: 11444/N103ML
(respectively) 11445/N104ML
11475/N105ML
11477/N106ML
<PAGE>
Lease Termination and Compensation Agreement (this "Agreement") by and between:
(1) debis AirFinance B.V., a company incorporated under the laws of The
Netherlands, having its principal place of business at Evert van de
Beekstraat 22, 1118 CL Schiphol Airport, The Netherlands ("debis AF");
(2) Midway Airlines Corporation, a company incorporated under the laws of the
State of Delaware, having its principal place of business at 2801 Slater
Road, Suite 200, Morrisville, North Carolina 27560 ("Midway" or "Lessee");
and
(3) First Security Bank, N.A., formerly known as First Security Bank of Utah,
N.A., a national banking association existing pursuant to the laws of the
United States, having its principal place of business at 79 South Main
Street, Salt Lake City, Utah 84130-0007, not in its individual capacity
(except as expressly set forth in the Leases) but solely as Owner Trustee
under the Trust Agreement ("Trustee" or "Lessor").
WHEREAS, debis AF is the beneficial owner of each of the four (4) aircraft
identified in Exhibit A attached hereto (each, an "Aircraft" and collectively,
the "Aircraft"), by virtue of its ownership of all the outstanding and issued
shares of the special purpose companies which are the owners of the Aircraft
identified by Serial Numbers 11445 and 11475 and otherwise by virtue of its
direct beneficial ownership of the Aircraft identified by Serial Numbers 11444
and 11477; and
WHEREAS, the Trustee and Midway are parties to those certain Aircraft Operating
Lease Agreements No. 111, No. 112, No. 113 and No. 114 , each covering one of
the Aircraft and each dated as of November 11, 1993 (as amended from time to
time, each, a "Lease" and collectively, the "Leases"); and
WHEREAS, Midway, debis AF and the Trustee desire to enter into certain
agreements with respect to and/or modifications of the Leases and with respect
to certain other matters, subject to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto agree as follows:
1. Definitions
Terms which are capitalized but not defined herein shall have the meaning
ascribed to such terms in the Leases.
2. Revised Expiry Dates; Return of Aircraft
(a) Notwithstanding anything to the contrary contained in any Leases,
Section 1.27 of each Lease is amended so that the Expiry Date shall be
any of February 1, 2001, March 1, 2001, May 1, 2001 or June 1, 2001
(provided, however, that each Lease shall have a different Expiry
Date) which such Expiry Date with respect to each Lease shall be
provided by Midway to Lessor no later than January 1, 2001.
(b) Each Lease is amended by deleting Section 16.1 thereof in its entirety
and substituting therefor:
16.1 (a) On the Expiry Date or upon earlier termination of the Term
(unless a Casualty Occurrence shall have occurred with respect to the
Aircraft), Lessee shall, at its own expense, redeliver the Aircraft to
Lessor at the Redelivery Location or such other airport as is mutually
acceptable to the parties, free and clear of all liens and
encumbrances (including Permitted Liens other than Lessor Liens) and
thereupon cause the Aircraft to
2
<PAGE>
be removed from the Register of Civil Aircraft in the State of
Registration and Lessee shall return the Aircraft to Lessor together
with the Aircraft Documents and all equipment and records supplied
pursuant to this Agreement when the Aircraft was delivered to Lessee
hereunder.
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(g) At least six months prior to the redelivery of each one of the
Aircraft, Midway shall give debis AF notice of which Aircraft and
which engines will be returned on that particular redelivery date.
3. Payment for Early Termination of the Leases; Settlements and Releases
(a) Midway agrees to pay to debis AF the amount of US$8,500,000.00 (United
States Dollars Eight Million Five Hundred Thousand) as consideration
for the early termination of the Leases *** ** **** ************ **
*** *********** ** *** **** ** ****** ** ****** ** *** *** ******* **
*** ***** ** ******* ** *** ****** ** ********* ** *** ******
*********** **** ** ******** ** ******** ** ******* *** ** **** *****
***** ** *** ********* ******* ** **** ********* (the "Early
Termination Fee"), to be paid as follows: pro rata at re-delivery of
each of the Aircraft on the scheduled Expiry Date of the Lease
relating to such Aircraft (US$2,125,000 (United States Dollars Two
Million One Hundred Twenty-Five Thousand) per Aircraft).
(b) (i) In the event of a Casualty Occurrence with respect to an Aircraft
or Airframe and following Midway's compliance with Section 17.2 of the
relevant Lease, the amount payable with respect to the affected
Aircraft or Airframe pursuant to Section 3(a) above, US $2,125,000
(United States Dollars Two Million One Hundred Twenty-five Thousand,
shall be waived by Lessor and Midway shall be released from any
payment obligation with respect thereto.
(ii) In the event of a Casualty Occurrence with respect to an Engine,
Midway's obligation to debis AF under Section 3(a) above shall be
reduced by an amount equal to the
* redacted
5
<PAGE>
"Condition Overage" which shall be calculated by multiplying ******
times (x) any differential between the total number of elapsed cycles
on the "Original Engine" (which shall mean the Engine which was the
subject of the Casualty Occurrence) minus the total number of elapsed
cycles on the "Replacement Engine" (which shall mean the Engine which
has been substituted as the replacement engine in accordance with
Section 5.1.2(a) of the relevant Lease).
4. Maintenance Reserves
(a) Upon the execution of this document, Lessor and/or debis AF shall pay
to Midway by way of setoff against the Promissory Note as described in
Section 5 hereof, the sum of $202,569.39 in full and final settlement
of all of Midway's claims with respect to APU Maintenance Fund
overpayments and reimbursements due to Midway as of November 30, 1999
with respect to the non-Engine Maintenance Funds.
(b) All funds paid by Midway pursuant to Appendix D, Section 3.1(b) of
each Lease constituting Engine Maintenance Accruals shall be applied
in accordance with the provisions of each Lease during the term
thereof. Upon the termination of each Lease, any remaining Engine
Maintenance Accruals shall be the property of Lessor and shall not be
payable to Midway.
5. Promissory Note
That certain Promissory Note originally dated as of January 31, 1997
as amended and restated as of March 30, 1998 payable by Midway to
debis AF is hereby amended ** ****** *** ********* ****** **
*********** on the date of execution of this Agreement pursuant to the
provisions of Section 4(a) hereof. The Note shall continue to bear
interest at 8% per annum and shall continue to be repaid at its
current monthly amount until March 1, 2001 at which time any unpaid
principal, accrued interest and any other amounts shall be due and
payable
* redacted
6
<PAGE>
6. Rolls Royce Agreement.
At the request of either debis AF or Midway, the other shall use its
best efforts to cause Rolls Royce Canada Limitee ("RR") to continue
the Agreement relating to the repair of the Rolls Royce Tay Engines
currently in place with respect to the Aircraft with respect to a new
lessee, provided, however, that such best efforts shall not require
debis AF or Lessor to act in any manner which may adversely affect a
potential new lease of any of the Aircraft nor shall it require Lessee
to pay any amounts to RR or to amend such Agreement in any manner
which may adversely affect Midway.
7. Governing Law
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York and without regard to any
conflict of law rules. This Agreement is being delivered in the State
of New York.
8. Miscellaneous
(a) Except as specifically amended or supplemented by this Agreement, the
Leases are hereby ratified, approved, confirmed and continued in all
respects and all provisions of the Leases as heretofore amended shall
remain in full force and effect. The parties hereto acknowledge and
confirm that the Leases are intended to be true leases and not a
financing arrangement. This Agreement may be executed in any number of
counterparts, and all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
(b) Any disputes arising with respect to this Agreement shall be subject
to the provisions of, inter alia, Article 18 of each Lease.
9. No Course of Dealing
Execution of this Agreement shall in no way create a course of dealing
between the parties hereto. Midway expressly acknowledges that neither
debis AF nor the Trustee shall in any way be obligated to extend
additional concessions except to the extent agreed to in this
Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the day and year
first above written.
SIGNED on behalf of
FIRST SECURITY BANK, N.A. (formerly known as First Security Bank of Utah; N.A.),
not in its individual capacity but solely as owner trustee
By: /s/ Greg A. Hawley
Name: Greg A. Hawley
Title: Vice President
Date: ______________________________
SIGNED on behalf of
MIDWAY AIRLINES CORPORATION
By: /s/ Jonathan S. Waller
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
Date:_______________________________
SIGNED on behalf of
debis AirFinance B.V.
By: /s/ Frank Haspel
Name: Frank Haspel
Title: Managing Director (CEO)
Date:_______________________________
By: /s/ John McMahon
Name: John McMahon
Title: Senior Vice President - Commercial
Date:_______________________________
8
<PAGE>
Exhibit A
- --------------------------------------------------------------------------------
Aircraft Aircraft Beneficial Owner
Manufacturer's Operation Lease
Serial Number Agreement Number
- --------------------------------------------------------------------------------
11444 111 debis AirFinance B.V.
11445 112 American Aircraft
Finance I B.V.
11475 113 American Aircraft
Finance II B.V.
11477 114 debis AirFinance B.V.
- --------------------------------------------------------------------------------
9
<PAGE>
Exhibit B
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<PAGE>
6-1162-CPJ-385
Midway Airlines Corporation
2801 Slater Road, Suite 200
Morrisville, NC 27560
Subject: ******* ******* ******** *** *********** ** ******* ********
Reference: (a) Boeing Letter No. 6-1162-CPJ-375, November 1, 1999 Advance
Payment Deferral
(b) Letter Agreement No. 6-1162-CPJ-316 to Purchase Agreement
No. 2235
(c) Purchase Agreement No. 2235 (the Purchase Agreement)
between The Boeing Company (Boeing) and Midway Airlines
Corporation (Customer) relating to Model 737-7BX aircraft
(Aircraft)
This Letter Agreement amends, supplements, and is part of the Purchase
Agreement. All terms used but not defined in this Letter Agreement have the
same meaning as in the Purchase Agreement.
1. ******** ******* ********
------------------------
Boeing's reference (a) correspondence deferred Customer's November 1, 1999,
******* ******* ** ************* ** ******** ** ***** **** ******** ******* **
***** * ***** ** ********** **** ********* ** ** ********* *** ****** *********.
2. ******* ******* **********
-------------------------
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********** ******** ** *** ******** **** ******* ******* *** ******** ** ***
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<PAGE>
Midway Airlines Corporation
6-1162-CPJ-385
Page 2
3. ******* *** ** ******** ** *****
*******************************
** * ****** ** ********* * *** * ********* *** ********* ******* ********
*** ******** *** *** ** ******** ** ***** ** ******** ** *** ***** ********
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******** ** **** ******* ******* *************
********************************
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********************************
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4. Cross-Default and Utilization of Advance Payments.
-------------------------------------------------
Customer is required to make certain advance payments under the Purchase
Agreement, as supplemented and amended. In the event of a default by Customer
with respect to any Aircraft under the Purchase Agreement, Customer agrees that
(i) such default will be a default with respect to all Aircraft under the
Purchase Agreement; and (ii) Boeing may apply any or all of the advance payments
held by Boeing against any and all obligations of Customer under the Purchase
Agreement. Advance payments made with respect to any undelivered Aircraft need
not be applied to amounts owed on such undelivered Aircraft, but may be applied
as determined by Boeing at its sole discretion to any amounts owed by Customer
under the Purchase Agreement.
* redacted
<PAGE>
Midway Airlines Corporation
6-1162-CPJ-385
Page 3
5. Confidential Treatment.
----------------------
Customer understands that certain commercial and financial information
contained in this Letter Agreement are considered by Boeing as confidential.
Customer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity. Notwithstanding the provisions of Article 9 of
AGTA-MID, this Letter Agreement is not assignable in whole or in part.
Very truly yours,
THE BOEING COMPANY
By /s/ Scott S. Massey
----------------------
Its Attorney-In-Fact
------ -----------------
ACCEPTED AND AGREED TO this
Date: December 15, 1999
MIDWAY AIRLINES CORPORATION
By /s/ Jonathan S. Waller
---------------------------
Its Senior Vice President
-------------------------
General Counsel
---------------
<PAGE>
2.2 Unless expressly provided for in this Agreement, the terms and
conditions of the Agreement shall apply mutatis mutandis to the
Option Aircraft, with the exception Annex A Technical Support as
specified in Article 1.2 (Field Service Representative, except as
noted in Article 2.0 of this Letter Agreement), Annex A training
courses as specified in Article 3.2.4 (flight attendant), Article
3.2.5 (flight dispatch), Article 3.3.1 (customized maintenance
course), Article 3.3.2 (engine run-up) ); the Technical Data
identified in Article 4 Attachment A (except for Aircraft specific
manuals only), and the courses specified in the following Articles
of Letter Agreement No. 005: Article 1.1.2 (flight attendant),
Article 1.3 (training materials), Article 1.4 (dispatcher training)
and Article 2.0 (start up support).
Furthermore, the following Letter Agreements are also not applicable
to the Option Aircraft and are hereby excluded:
Letter Agreement No. 002 (Shadow Option Aircraft)
*** Letter Agreement No. 006 (Spares)
Letter Agreement No. 010 (Performance)
Letter Agreement No. 011 (Configuration)
Furthermore, Letter Agreement No. 003 (Financing), Letter Agreement
No 004 (Deposit), and Letter Agreement No. 008 (Maintenance Cost)
and Letter Agreement No. 009 (Dispatch Reliability) are applicable
as set out therein.
*** BRAD will issue to Buyer the spares credit memorandum identified in
Paragraph 1.0 in Letter Agreement No. 006 in conjunction with the
delivery of the Fourteenth (14th) through Twentieth (20th) Firm
Aircraft.
3.0 In the event of the termination of the Agreement, this Letter
Agreement shall become automatically null and void.
4.0 Upon exercise of Buyer's rights to purchase in accordance with this
Letter Agreement, the parties shall amend the Agreement or enter
into an additional purchase agreement in order to give effect to the
purchase of Option Aircraft in accordance with the terms and
conditions thereof.
5.0 The provisions of this Letter Agreement are personal to Buyer and
shall not be assigned or otherwise disposed of by Buyer without the
prior written consent of BRAD.
4
<PAGE>
FIFTH AMENDMENT OF AGREEMENT OF SUBLEASE
----------------------------------------
This Fifth Amendment of Agreement of Sublease ("Fifth Agreement"), dated as of
the date set forth below, is entered into by and between American Airlines,
Inc., a Delaware corporation ("American") and Midway Airlines Corporation, a
Delaware corporation (the "Sublessee"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the
Sublease referred to below.
WITNESSETH:
-----------
WHEREAS, pursuant to that certain Raleigh-Durham Airport Facilities Lease and
Use Agreement dated as of November 1, 1985, between the Raleigh-Durham Airport
Authority, a municipal corporation of the State of North Carolina ("Landlord")
and American (together with all amendments, the "Base Lease"), American leases
from Landlord certain premises (the "Base Lease Premises") at Raleigh-Durham
Airport; and
WHEREAS, American also leases from Landlord the improvements located on the real
property described in the Base Lease, which improvements are commonly referred
to as Terminal C (the "Improvements"); and
WHEREAS, American has subleased to Sublessee a portion of each of the Base Lease
Premises and the Improvements pursuant to that certain Agreement of Sublease
dated January 18, 1995 (the "Sublease"), amended pursuant to a First Amendment
of Agreement of Sublease dated on or about February 6, 1996 (the "First
Amendment"), and amendment to American Airlines' agreements dated April 25, 1996
(the "Second Amendment"), and a Third Amendment to Agreement of Sublease dated
February 10, 1997 (the "Third Amendment"); and a Fourth Amendment to Agreement
of Sublease dated July 29, 1997 (the "Fourth Amendment");and
WHEREAS, Sublessee desires to make certain additions and deletions to option
space and exercise certain option space; and
WHEREAS, Exhibit B-2A, B-3A and B-4A attached hereto replace Exhibits B-2, B-3,
---------------------------
and B-4 of the First Amendment.
NOW, THEREFORE, in consideration of the mutual promises contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, American and Sublessee hereby agree as follows:
1. Addition/Deletion of Option Space. As of August 1, 1998, the parties agreed
---------------------------------
to: delete the option for four ticket counter positions from space identified
as 3-Q23 and add four ticket counter positions identified as 3-Q19 as set
forth in Exhibit B-2A; and add 3-P21, P20 and P23 as sublease optional office
space as set forth in Exhibit B-2A; delete space 4-N28 as sublease option
space as set forth on Exhibit B-2 and add as sublease option space 4-B29 as
set forth on Exhibit B-2A; and delete 407.29 sq.ft. from office space 1-A13
space as set forth on Exhibit B-4A.
2. Leasing of Option Space; Rent Commencement
--------------------------------------------
-1-
<PAGE>
A. Effective as of August 1, 1998, American hereby subleases to Sublessee and
Sublessee hereby subleases from American as part of the Demised Premises, the
following space:
(i) office space identified as 3-P21, 3-P20 and 3-P23 as set forth in
Exhibit B-2A attached hereto
(ii) Gates C22 and C23 and related holdroom space identified as 2-C55 in
Exhibit B-3A attached hereto
(iii) office space within area identified as space 1-A15 as set forth in
Exhibit B-4A attached hereto
(iv) baggage makeup pier Number 5 identified as space 1-F26 in Exhibit
B-4A attached hereto
(v) four ticket counter positions identified as 3-Q19 in Exhibit B-2A
B. Rent for the space subleased under clause A. above commenced or will be
deemed to have commenced as follows:
(i) on August 1, 1998 with respect to Gate C22 and related holdroom
space totaling 1,450 sq.ft.;
(ii) on August 1, 1998 with respect to one-half of the ticket counter
space 3-Q19 totaling 303.38 sq.ft.
(iii) on August 1, 1998 with respect to office space 3-P21 totaling
486.35 sq.ft.
(iv) on October 1, 1998 with respect to Gate C23 and related holdroom
totaling 482.37 sq.ft.
(v) on October 1, 1998 with respect to the office space 1-A15 totaling
4,194.98 sq.ft.
(vi) on October 1, 1998 with respect to baggage makeup pier 1-F26
totaling 2,800 sq.ft.
(vii) on November 1, 1998 with respect to office space 3-P23 totaling
317.03 sq.ft. and 3-P20 totaling 231.68 sq. ft.
C. Effective as of May 15, 1999, American hereby subleases to Sublessee and
Sublessee hereby subleases from American as part of the Demised Premises
and rent will begin to accrue with respect to the following space:
(i) Gates C21 and C24 and related holdroom space totaling 950.64 sq.ft.
identified as 2-C55 and 948.27 sq. ft. identified as 2-C50 in
Exhibit B-3A.
(ii) One-half of the ticket counter space totaling 303.38 identified as
3-Q19 in Exhibit B-2A attached hereto.
D. Effective as of December 1, 1999, American hereby subleases to Sublessee
and Sublessee hereby subleases from American as part of the Demised
Premises, the following space:
(i) Option office space as follows:
a. 1-B52 totaling 386.51 sq. ft. identified on Exhibit B-4A
b. 1-C52 totaling 1,632.16 sq. ft. identified on Exhibit B-4A
c. 1-A54 totaling 1,958.53 sq. ft. identified on Exhibit B-4A
d. 1-B36 totaling 339.21 sq. ft. identified on Exhibit B-4A
e. 1-B36-5 totaling 105.95 sq. ft. identified on Exhibit B-4A
-2-
<PAGE>
f. 1-A13 totaling 1,843.97 sq. ft. identified on Exhibit B-4A
g. 1-C13 totaling 337.55 sq. ft. identified on Exhibit B-4A
h. 1-A18 totaling 2,200.99 sq. ft. identified on Exhibit B-4A
i. 2-C46 totaling 920.86 sq. ft. identified on Exhibit B-3A
j. 1-B39 totaling 531.10 sq. ft. identified on Exhibit B-4A
k. 3-N20 totaling 50.02 sq. ft. identified on Exhibit B-2A
l. 3-N22 totaling 155.62 sq. ft. identified on Exhibit B-2A
m. 4-B29 totaling 1,002.35 sq. ft. identified on Exhibit B-2A
(ii) Option bag make-up area as follows:
a. 1-E26 totaling 2,800 sq.ft. identified on Exhibit B-4A
(iii) Option gate and hold room space as follows:
a. 2-A46 totaling 2,897.29 sq.ft. identified on Exhibit B-3A
b. 2-A54 totaling 473.79 sq.ft. identified on Exhibit B-3A
c. 2-A55 totaling 500.08 sq.ft. identified on Exhibit B-3A
d. 2-C50 totaling 2,867.58 sq.ft. identified on Exhibit B-3A
e. 1-B37 totaling 3,851.52 sq.ft. identified on Exhibit B-4A
(iv) Option ticket counter space as follows:
a. 3-Q23 totaling 217.52 sq. ft. identified on Exhibit B-2A
b. 3-Q24 totaling 217.52 sq. ft. identified on Exhibit B-2A
3. Surplus Space. Notwithstanding anything to the contrary contained in this
-------------
Fifth Amendment or the Sublease, American and Sublessee agree that the
office spaces identified as 1-A8, 1-C8, 1-A11 and 1-C11 in Exhibit B4-A
attached hereto are also together known as the "Surplus Space" under the
Fourth Amendment; and that should American elect to terminate the
subleasing of such Surplus Space in accordance with the terms of the Fourth
Amendment, then Sublessee shall thereafter have the option to sublease such
Surplus Space on the terms applicable to Option Space subleasing except
that the option to sublease such Surplus Space may be exercised by
Sublessee at any time within ninety (90) days following its receipt of
American's notice to terminate the subleasing of the Surplus Space under
the Fourth Amendment.
4. Miscellaneous. This Fifth Amendment, together with the Sublease,
-------------
constitutes the entire agreement of the parties with respect to its subject
matter and supersedes all prior agreements or understandings, whether
written or oral, if any, concerning such subject matter. The Sublease, as
specifically modified by this Amendment, is hereby ratified and shall
remain in full force and effect in accordance with its terms.
WITNESS the signatures of the parties as of this _____ day of ________, 2000.
By: _____________________________________
Gary F. Kennedy
Its: Vice President- Corporate Real Estate
-------------------------------------
-3-
<PAGE>
ATTEST:
Charles D. MarLett
Corporate Secretary
(Corporate Seal)
STATE OF TEXAS
COUNTY OF TARRANT
I, a Notary Public of the County and State aforesaid, do hereby certify that
Charles D. MarLett personally came before me this day and acknowledged that he
is Corporate Secretary of American Airlines, Inc., a Delaware corporation, and
that by authority duly given and as the act of the corporation, the foregoing
instrument was signed in its name by its _____________ President, sealed with
its corporate seal and attested by himself as its Corporate Secretary.
Witness my hand and official stamp or seal, this the ______ day of __________,
19____.
________________________
Notary Public
My Commission Expires: __________________
(Seal)
-4-
<PAGE>
MIDWAY AIRLINES CORPORATION
By: __________________________________
Its: President
----------------------------------
ATTEST:
Secretary
(Corporate Seal)
STATE OF ILLINOIS
I, a Notary Public of the County and State aforesaid, do hereby certify that
_____________________________ personally came before me this day and
acknowledged that (he/she) is Corporate Secretary of Midway Airlines
Corporation, a Delaware corporation, and that by authority duly given and as the
act of the corporation, the foregoing instrument was signed in its name by its
President, sealed with its corporate seal and attested by himself as its
Corporate Secretary.
Witness my hand and official stamp or seal, this the ______ day of __________,
1997.
________________________
Notary Public
My Commission Expires: __________________
(Seal)
APPROVED and CONSENTED TO:
RALEIGH-DURHAM AIRPORT AUTHORITY
By: __________________________________
Name: __________________________________
Title: __________________________________
-5-
<PAGE>
================================================================================
CONTRACT CHANGE ORDER
================================================================================
PURCHASER: MIDWAY AIRLINES CORPORATION
PURCHASE AGREEMENT NO.: PA-0393 AIRCRAFT TYPE: CRJ
C.C.O. NO.: 1 DATED: March 31, 1998
PAGES AFFECTED: See below PAGE 1 of 2
REASON FOR CHANGE: Exercise of ***** ***** of Option Aircraft
================================================================================
DESCRIPTION OF CHANGE:
1. The ***** ***** of Option Aircraft *********** ** *** ***** ***** ***
****** ********* are hereby converted to Firm Aircraft eleven (11) through
thirteen (13) pursuant to letter agreement B97-7701-RJTL-CRJ393-001 to
Purchase Agreement PA-0393 dated September 17, 1997.
PAGES TO BE SUBSTITUTED NEW/REVISED PAGES
----------------------- -----------------
Page 49 Attachment 1 to CCO #1 dated March 31, 1998
CHANGES TO THE AFFECTED PAGES ARE AS FOLLOWS:
All references to ten (10) Aircraft shall be deemed to refer to
thirteen (13) Aircraft in pages 1, 4, and 7.
Page 49 The Delivery Schedule hereby incorporates the delivery dates for Firm
Aircraft ten (10) through thirteen (13).
================================================================================
ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT WILL REMAIN UNCHANGED
================================================================================
FOR AND ON BEHALF OF: FOR AND ON BEHALF OF:
BOMBARDIER INC. MIDWAY AIRLINES CORPORATION
Signed: /s/ Tony Prezioso Signed: /s/ Jon Waller
-------------------------- ---------------------------
Date: March 31, 1998 Date: March 31, 1998
---------------------------- -----------------------------
================================================================================
* redacted
<PAGE>
APPENDIX II
DELIVERY SCHEDULE
Aircraft Scheduled Delivery Date
First Aircraft ******** ****
Second Aircraft ******** ****
Third Aircraft ******** ******
Fourth Aircraft ***** ****
Fifth Aircraft **** ****
Sixth Aircraft ********* ****
Seventh Aircraft ********* ****
Eighth Aircraft ******** ****
Ninth Aircraft ******** ****
Tenth Aircraft ******** ****
Eleventh Aircraft ******* ****
Twelfth Aircraft ***** ****
Thirteenth Aircraft **** ****
** This Aircraft shall have a grace period of 15 days
* redacted
49
<PAGE>
================================================================================
CONTRACT CHANGE ORDER
PURCHASER: MIDWAY AIRLINES CORPORATION
PURCHASE AGREEMENT NO.: PA-0393 AIRCRAFT TYPE: CRJ
C.C.O. NO.: 3 DATED: Sept. 3, 1998
PAGES AFFECTED: See below PAGE 1 of 5
REASON FOR CHANGE: Exercise of ****** *** ***** ***** ** ******
Aircraft
DESCRIPTION OF CHANGE:
1. The ****** *** ***** ***** ** Option Aircraft *********** ** ***** *** ***
**** *** ****** ********* are hereby converted to Firm Aircraft fourteen
(14) through twenty (20) pursuant to letter agreement B97-7701-RJTL-CRJ393-
001 to Purchase Agreement PA-0393 dated September 17, 1997. In
consideration of the above, Bombardier will: *** ****** *** ****** ******
********** ** ***** ****** ******** ********* ** **** **** *** **** *******
* *** ***** **** ********** ********* *** ** ** **** ** *** **********
****** ******* ********* ****** **** *********
PAGES TO BE SUBSTITUTED
-----------------------
NEW/REVISED PAGES
-----------------
Page 49 Attachment 1 to CCO #3 dated Sept. 1, 1998
Page 4 to letter agreement 001 Attachment 2 to CCO
#3 dated Sept. 1, 1998
Letter Agreement B98-7701-RL-2399L
CHANGES TO THE AFFECTED PAGES ARE AS FOLLOWS:
All references to thirteen (13) Aircraft shall be deemed to refer to
twenty (20) Aircraft in pages 1, 4, and 7.
Page 49 The Delivery Schedule hereby incorporates the delivery dates for Firm
Aircraft fourteen (14) through twenty (20).
Letter agreement B98-7701-RL-2399L is hereby incorporated into the
Agreement.
Page 4 of B97-7701-RJTL-CRJ0393-001
*** ****** ********* ** ******* ** ******* *** *** ***** ** ********
****** ****** ********** **** ******** ** *** ********** ******
******* ** *** ********* ****** *********
================================================================================
ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT WILL REMAIN UNCHANGED
================================================================================
FOR AND ON BEHALF OF: FOR AND ON BEHALF OF:
BOMBARDIER INC. MIDWAY AIRLINES CORPORATION
Signed: _______________________ Signed: _________________________
Date: _________________________ Date: ___________________________
================================================================================
* redacted
<PAGE>
APPENDIX II
DELIVERY SCHEDULE
Aircraft Scheduled Delivery Date
First Aircraft ******** ****
Second Aircraft ******** ****
Third Aircraft ******** ******
Fourth Aircraft ***** ****
Fifth Aircraft **** ****
Sixth Aircraft ********* ****
Seventh Aircraft ********* ****
Eighth Aircraft ******** ****
Ninth Aircraft ******** ****
Tenth Aircraft ******** ****
Eleventh Aircraft ******* ****
Twelfth Aircraft ***** ****
Thirteenth Aircraft **** ****
Fourteenth Aircraft **** ****
Fifteenth Aircraft ****** ****
Sixteenth Aircraft ********* ****
Seventeenth Aircraft ******* ****
Eighteenth Aircraft ******* ****
Nineteenth Aircraft ******** ****
Twentieth Aircraft ******** ****
** This Aircraft shall have a grace period of 15 days
* redacted
49
<PAGE>
2.2 Unless expressly provided for in this Agreement, the terms and
conditions of the Agreement shall apply mutatis mutandis to the Option
Aircraft, with the exception ***** * ********* ******* ** ********* **
******* *** ****** ******* *************** ****** ** ***** ** *******
*** ** **** ****** *********** ***** * ******** ******* ** *********
** ******* ***** ******* *********** ******* ***** ******* **********
******* ***** *********** *********** ******** ******* ***** *******
******* ** *** ********* **** ********** ** ******* * ********** *
******* *** ******** ******** ******* ****** *** *** ******* *********
** *** ********* ******** ** ****** ********* *** **** ******* *****
******* *********** ******* *** ********* *********** ******* ***
*********** ********* *** ******* *** ****** ** *********
************ *** ********* ****** ********** *** **** *** **********
** *** ****** ******** *** *** ****** *********
****** ********* *** *** ******* ****** *********
*** ****** ********* *** *** ********
****** ********* *** *** *************
****** ********* *** *** ***************
************ ****** ********* *** *** ************ ****** ********* **
*** ********** *** ****** ********* *** *** ************ ***** ***
****** ********* *** *** ********* ************ *** ********** ** ***
*** ********
*** **** **** ***** ** ***** *** ****** ****** ********** ********** **
********* *** ** ****** ********* *** *** ** *********** **** ***
******** ** *** ********** ****** ******* ********* ****** ****
*********
3.0 In the event of the termination of the Agreement, this Letter
Agreement shall become automatically null and void.
4.0 Upon exercise of Buyer's rights to purchase in accordance with this
Letter Agreement, the parties shall amend the Agreement or enter into
an additional purchase agreement in order to give effect to the
purchase of Option Aircraft in accordance with the terms and
conditions thereof.
5.0 The provisions of this Letter Agreement are personal to Buyer and
shall not be assigned or otherwise disposed of by Buyer without the
prior written consent of BRAD.
* redacted
4
<PAGE>
September 1, 1998
Our Ref: B98-7701-RL-2399L
Midway Airlines Corporation
300 West Morgan Street, Suite 1200
Durham, NC 27701
USA
Attention: Mr. Robert Ferguson, Chairman, President & CEO
Gentlemen,
Reference is made to Purchase Agreement No. PA-0393 (the "Agreement")
between Bombardier Inc., represented by its Bombardier Regional Aircraft
Division ("Bombardier") and Midway Airlines Corporation ("Buyer") for the
sale of twenty (20) Canadair Regional Jet Aircraft (the "Aircraft") as
amended by Contract Change Order #1 dated March 31, 1998.
This letter, when accepted and agreed to by Buyer contemporaneously with
execution of Contract Change Order No. 3 ("CCO #3"), will become part of
the Agreement and will evidence our further agreement with respect to the
matters set forth below.
All terms used herein and in the Agreement not defined herein, shall have
the same meaning as in the Agreement.
Subject: ****** *******
1.0 In consideration of Buyer exercising CCO #3, Bombardier shall provide
in support of Buyer's arrangement of lease financing *** ** ** ****
*** of the fourteenth (14th) through twentieth (20th) Firm Aircraft, *
***** **** ********** ********* ******* **** *********** ** ***
******** ********* ** ***** ** ******* ***** **** ***** ********** **
** * ******* ** *** ** *** *** ******** ******** ***** **** *******
********** *** ********** ********* **** ** ** **** *** *********
********** ** ********** *** ********** ********** ** ******
1.1 ** ***** ****** *** ** ******* *** ****** ******* ** *** *****
********* ** *** **** *** ********* *** ****** ****** ******* *** **
********* ** ******* *** ***** ********* ** *** ** **** ** ***
********* **** *** ***** *********** ******** **** ** ** **** **** ***
***** ****** ******* ** *** ****** ***** ******** ******** ****** ****
* redacted
1
<PAGE>
2.0 In the event of the termination of the Agreement, this Letter
Agreement shall become automatically null and void, except that the
provisions of this letter agreement shall survive with respect to
delivered and financed Aircraft.
3.0 The provisions of this Letter Agreement are personal to Buyer and
shall not be assigned or otherwise disposed of by Buyer without the
prior written consent of Bombardier.
Should there be any inconsistency between this Letter Agreement and the
Agreement with respect to the subject matter covered by the terms hereof,
then this Letter Agreement shall prevail.
Yours truly
BOMBARDIER INC.
By: ____________________________________
Title: ____________________________________
ACCEPTED AND AGREED TO:
this day of September, 1998
Midway Airlines Corporation
By: ____________________________________
Title: ____________________________________
2
<PAGE>
================================================================================
CONTRACT CHANGE ORDER
PURCHASER: MIDWAY AIRLINES CORPORATION
PURCHASE AGREEMENT NO.: PA-0393 AIRCRAFT TYPE: CRJ
C.C.O. NO.: 4 DATED: Dec. 1, 1998
PAGES AFFECTED: See below PAGE 1 of 2
REASON FOR CHANGE: Exercise of *** ***** ***** of Shadow Option
Aircraft
DESCRIPTION OF CHANGE:
1. The ***** ***** of Shadow Option Aircraft *********** ***** *** ******
****** ********* are hereby converted to Firm Aircraft Twenty-one (21)
through Twenty-three (23) pursuant to letter agreement B97-7701-RJTL-
CRJ393-002 to Purchase Agreement PA-0393 dated September 17, 1997.
PAGES TO BE SUBSTITUTED
-----------------------
NEW/REVISED PAGES
-----------------
Page 49 Attachment 1 to CCO #4 dated Dec.
1, 1998
CHANGES TO THE AFFECTED PAGES ARE AS FOLLOWS:
All references to twenty (20) Aircraft shall be deemed to refer to
twenty-three (23) Aircraft in pages 1, 4, and 7.
Page 49 The Delivery Schedule hereby incorporates the delivery dates for Firm
Aircraft twenty-one (21) through twenty-three (23).
================================================================================
ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT WILL REMAIN UNCHANGED
================================================================================
FOR AND ON BEHALF OF: FOR AND ON BEHALF OF:
BOMBARDIER INC. MIDWAY AIRLINES CORPORATION
Signed: /s/ Richard Libby Signed: /s/ J. Waller
--------------------------- ---------------------------
Date: December 1, 1998 Date: December 1, 1998
---------------------------- -----------------------------
================================================================================
* redacted
<PAGE>
APPENDIX II
DELIVERY SCHEDULE
Aircraft Scheduled Delivery Date
First Aircraft ******** ****
Second Aircraft ******** ****
Third Aircraft ******** ******
Fourth Aircraft ***** ****
Fifth Aircraft **** ****
Sixth Aircraft ********* ****
Seventh Aircraft ********* ****
Eighth Aircraft ******** ****
Ninth Aircraft ******** ****
Tenth Aircraft ******** ****
Eleventh Aircraft ******* ****
Twelfth Aircraft ***** ****
Thirteenth Aircraft **** ****
Fourteenth Aircraft **** ****
Fifteenth Aircraft ****** ****
Sixteenth Aircraft ********* ****
Seventeenth Aircraft ******* ****
Eighteenth Aircraft ******* ****
Nineteenth Aircraft ******** ****
Twentieth Aircraft ******** ****
Twenty-first Aircraft ******** ****
Twenty-second Aircraft ******** ****
Twenty-third Aircraft ***** ****
** This Aircraft shall have a grace period of 15 days
* redacted
2
<PAGE>
================================================================================
CONTRACT CHANGE ORDER
PURCHASER: MIDWAY AIRLINES CORPORATION
PURCHASE AGREEMENT NO.: PA-0393 AIRCRAFT TYPE: CRJ
C.C.O. NO.: 5 DATED: Feb. 5, 1999
PAGES AFFECTED: See below PAGE 1
REASON FOR CHANGE: Additional Shadow Option Aircraft
DESCRIPTION OF CHANGE:
1. Bombardier has granted Buyer certain rights with respect to the purchase of
an additional *** **** shadow option aircraft in accordance with letter
agreement B99-7701-RL-CRJ0393-012.
PAGES TO BE SUBSTITUTED
-----------------------
NEW/REVISED PAGES
-----------------
Letter Agreement B99-7701-RL-
CRJ0393-012 is hereby incorporated
into the Agreement.
CHANGES TO THE AFFECTED PAGES ARE AS FOLLOWS:
================================================================================
ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT WILL REMAIN UNCHANGED
================================================================================
FOR AND ON BEHALF OF: FOR AND ON BEHALF OF:
BOMBARDIER INC. MIDWAY AIRLINES CORPORATION
Signed: ________________________ Signed: _______________________
Date: February 5, 1999 Date: February 5, 1999 _____
================================================================================
* redacted
<PAGE>
January 29, 1999
Our Ref: B99-7701-RL-CRJ0393-012
Midway Airlines Corporation
300 West Morgan Street, Suite 1200
Durham, NC 27701
USA
Attention: Mr. Robert Ferguson, Chairman, President & CEO
Gentlemen,
Re: Letter Agreement No. 012 (Re: Additional Shadow Option Aircraft)
Reference is made to Purchase Agreement No. PA-0393 (the "Agreement") between
Bombardier Inc., ("Bombardier") and Midway Airlines Corporation ("Buyer") for
the sale of ten (10) Canadair Regional Jet Aircraft (the "Aircraft") as amended.
This letter, when accepted and agreed to by Buyer contemporaneously with
execution of Contract Change Order No. 5 ("CCO #5"), will become part of the
Agreement and will evidence our further agreement with respect to the matters
set forth below.
All terms which are capitalized herein but not defined herein, shall have the
same meaning as in the Agreement.
Subject: Additional Shadow Option Aircraft
1.0 ** ************* ** ***** ****** ******* **** *** ***** **********
********* *** ****** ********* *** ***** ** ********* *** *** ****
****** ******** ***** ****** ********* **** *** **** ***** ***
****** ****** ******** ***** ****** ********* *** *** ****** ***
***** ***** ** ****** ****** ********** *** **** ****** ******
***** ***** **** **** ** *** ********* ********* ** ******
********** ****** ***** *** ***** ** ********* ** *** ***** ***
***** ******* * ************* ****** ** ******** ** * *** *** ***
***** **** *********** ****** ****** ***********
1.1 The Additional Shadow Option Aircraft will be as described in
Article 2 of the Agreement.
* redacted
2
<PAGE>
1.2 *** **** ***** **** ***** ******* *** **** ** *** **********
****** ****** ******** ********* *** ***** ******** ********
******** ****** ** ******** ** ** *** ********** ** *****
********** ***** ************ ********** ** ********* ****** *****
** ********* ******* ***** ******* ******** ****** ****** *******
************ *** ********* ** ******** ** **** ******** **** ****
***** **** *** ******* *** ****** *** ** ******* ** ********** **
********** **** *** ******** ********** ******* ******** **
******** * ** *** ********* *** *** ****** **** ******** ** ****
** *** **** ** ******** ** **** ********** ****** ****** ********
************ ****** ****** ******** ******** ********
1.3 Upon receipt of the Additional Shadow Option Deposit referred
to in paragraph 1.4 below, Bombardier agrees to reserve the
delivery positions of the Block 1 Additional Shadow Option
Aircraft as set forth in paragraph 2.1.
*** ***** * *** ***** * ********** ****** ****** ******** ***
******* ** ***** ***** ********** ** ***** *********** ***** **
******** ** *** ***** * *** ***** * ****** ****** ********* ****
******** ** *** ***** * *** ***** * ****** ****** ********* ***
********* ******** ***** ** *** ***** * *** ***** * **********
****** ****** ******** *** ***** ** ********* *** **** **
********* ****** *** ** *** ***** * *** ***** * ********** ******
****** ******** ********* ******** ***** *** ** ********* ** ***
**** ** ******** ** *** ************* ****** ****** ********
****** ********** ***** ***** ** ***** *** **** ********* ********
******** *** **** ******** **** *** ******* ********* ********
***** ***** *** ** ******** **** *** ****** ******* ** ***** **
*** ***** **** ***** *** ** ********* ******** ***** ** ** ***
********* *** ****** ******* ** ***** ********** **** ****** ***
********** ********** ****** ****** ******* ******** ** **
********* *** ****** *** ******* * ****** ********** ** ****** ***
*** ******** ** ***** *** ******** ******** **** *********** ** **
****** ********** ** **** *** ******* *** ***** ** *** **********
******** **** *** **** ** ********* ** *** ** ** *** **** ***
********** ******* ** ******** ** ******
1.4 As consideration for the rights obtained with respect to the
purchase of the Additional Shadow Option Aircraft, Buyer shall
make or cause to make payment to Bombardier a refundable deposit
of ****** **** ******** ****** ****** ******* ******** *** ***
********** ******
3
* redacted
<PAGE>
****** ******** **** *********** ****** ****** ********** ********
*** ******* *** ***** ******** ****** ****** ******* ********* ***
within ten (10) business days of the date of the full execution of
CCO #5.
2.0 The Additional Shadow Option Aircraft may be exercised in *** ***
****** ** ***** **** *** *** *** ***** ** **** *** ******** ****
*********** ****** ****** ******** ** *** **** ** ** ******* ****
****** ***** ** *** ********* ******** **** ** *** *****
********** ****** ****** ******** ** **** ******
2.1 The Scheduled Delivery Dates of the Additional Shadow Option
Aircraft are as follows:
***** *
***** ********** ****** ****** ******** ***** ****
****** ********** ****** ****** ******** ***** ****
***** ********** ****** ****** ******** *** ****
***** *
****** ********** ****** ****** ******** **** ****
***** ********** ****** ****** ******** **** ****
***** ********** ****** ****** ******** ****** ****
***** *
******* ********** ****** ****** ******** ********* ****
****** ********** ****** ****** ******** ******* ****
***** ********** ****** ****** ******** ******** ****
***** ********** ****** ****** ******** ******** ****
2.2 Upon exercise of ** ********** ****** ****** ****** Buyer will
make or cause to be made *** ********* ******** ******** ** * ***
******** ****** ** **** ** ***** ********* ** ******* * ** ***
**********
*** ** ** *** ********* ******** ****** **** *** *******
********** ******** ******** ** ********* *** ****** **
***** **** ******* **** ****** ***** ** ***
* redacted
4
<PAGE>
********* ******** *****
*** ** ** *** ********* ******** ***** ** ***** **** ******
**** ****** ***** ** *** ********* ******** ***** ***
*** ** ** *** ********* ******** ***** ** ***** **** **** ***
****** ***** ** *** ********* ******** *****
*** *** ******** ******** ****** **** ******** ******** **
** ************* **** *** *** *** ****** ** ** ******
*** ******** **** ** **** ******** ** ******
3.0 CUSTOMER SERVICES
Upon exercise of **** ********** ****** ****** ********, Bombardier will
provide the following:
3.1 ****** **** ********
** ******** ** *** ******** ******** ** ***** ** ***** * ******** ****** **
*** ********** ********** **** ******** ** ** ********** ******* ***
**** ******** *** ** ********** *** *** ****** ***** ***** *** *******
*** ********** ****** ****** *********
3.2 *********** ********
********* *********** ******** *** ********** ******** *** * ***** ** *****
*** ** ******* ********* *** ********** ****** ****** ********* *****
***** ** * *********** ** *********** *********** *** *******
************
3.3 ***** ******* **************
** ******** ** *** ****** ** ******** *** ***** ** *** ********** *** ****
********** ****** ****** ********* ********** **** ****** *** ********
** * ***** ******* ************** *** ** ********** ****** ** *** ***
******
* redacted
5
<PAGE>
3.4 To the extent that the training and services detailed in paragraphs
3.1 through 3.3 have been provided to ***** ** ******* ** ***
************* ******** ********, Buyer shall remain responsible for
all costs relating to the training and services provided in the event
that the Aircraft is not delivered to Buyer as a result of a Default
by Buyer under the Purchase Agreement.
4.0 Unless expressly provided for in this Letter Agreement, the terms and
conditions of the Agreement shall apply mutatis mutandis to the
Additional Shadow Option Aircraft, with the exception of: *** ******
********** *** ******* **** **** ***** * ********* ******* **
********* ** ******* *** ****** ******* **************** ***** ***** *
******** ******* ** ********* ** ******* ***** ******* ***********
**** ******* ***** ******* ********** *** ******* ***** ***********
*********** ******** **** ******* ***** ******* ******** *** ***** ***
********* **** ********** ** ******* * ********** * ******* ***
******** ******** ******* ******
5.0 In the event of the termination of the Agreement, this Letter
Agreement shall become automatically null and void.
6.0 Should Buyer elect to exercise its options as described herein,
Bombardier and Buyer will amend the Agreement by Contract Change Order
to give effect to the purchase of Additional Shadow Option Aircraft.
7.0 The provisions of this Letter Agreement are personal to Buyer and
shall not be assigned or otherwise disposed of by Buyer without the
prior written consent of Bombardier.
Should there be any inconsistency between this Letter Agreement and the
Agreement with respect to the subject matter covered by the terms hereof, then
this Letter Agreement shall prevail.
Yours truly
BOMBARDIER INC.
Bombardier Aerospace
* redacted
6
<PAGE>
___________________________________
Richard J. T. Libby
Senior Account Executive, Contracts
Regional Aircraft
ACCEPTED AND AGREED TO:
this 5th day of February, 1999
Midway Airlines Corporation
By: ___________________________________
Title: ____________________________________
7
<PAGE>
================================================================================
CONTRACT CHANGE ORDER
PURCHASER: MIDWAY AIRLINES CORPORATION
PURCHASE AGREEMENT NO.: PA-0393 AIRCRAFT TYPE: CRJ
C.C.O. NO.: 6 DATED: March 31, 1999
PAGES AFFECTED: See below PAGE 1 of 3
REASON FOR CHANGE: Exercise ** *** ****** ***** of Shadow Option Aircraft
DESCRIPTION OF CHANGE:
1. The ****** ***** ** Shadow Option Aircraft *********** ***** *** ******
****** ********* are hereby converted to Firm Aircraft Twenty-four (24)
through Twenty-six (26) pursuant to letter agreement B97-7701-RJTL-CRJ393-
002 to Purchase Agreement PA-0393 dated September 17, 1997.
2. Paragraph 1.3 of Letter Agreement B99-7701-RL-CRJ0393-012 is amended such
that: *** **** ******** ** *** ***** * ****** ****** ********* *** ***** *
********** ****** ****** ******** ********* ******** ***** **** ** *********
*** **** **** ******** ** *** ***** * ****** ****** ********* *** ***** *
********** ****** ****** ********* ******** ***** **** ** *********
PAGES TO BE SUBSTITUTED
-----------------------
NEW/REVISED PAGES
-----------------
Page 49 Attachment 1 to CCO #6 dated
March 31, 1999
Page 3 of letter agreement
B99-7701-RL-CRJ0393-012 Attachment 2 to
CCO #6 dated March 31, 1999
CHANGES TO THE AFFECTED PAGES ARE AS FOLLOWS:
All references to twenty-three (23) Aircraft shall be deemed to refer
to twenty-six (26) Aircraft in pages 1, 4, and 7.
Page 49 The Delivery Schedule hereby incorporates the delivery dates for
Firm Aircraft twenty-four (24) through twenty-six (26).
Page 3 Revises the conditions precedent to ********* *** ***** * ***
***** * Additional Shadow Option Aircraft Scheduled Delivery Dates
================================================================================
ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT WILL REMAIN UNCHANGED
================================================================================
FOR AND ON BEHALF OF: FOR AND ON BEHALF OF:
BOMBARDIER INC. MIDWAY AIRLINES CORPORATION
Signed: ______________________ Signed: ________________________
Date: _______ _____________ Date: ________ _____________
================================================================================
* redacted
<PAGE>
APPENDIX II
DELIVERY SCHEDULE
Aircraft Scheduled Delivery Date
First Aircraft ******** ****
Second Aircraft ******** ****
Third Aircraft ******** ******
Fourth Aircraft ***** ****
Fifth Aircraft **** ****
Sixth Aircraft ********* ****
Seventh Aircraft ********* ****
Eighth Aircraft ******** ****
Ninth Aircraft ******** ****
Tenth Aircraft ******** ****
Eleventh Aircraft ******* ****
Twelfth Aircraft ***** ****
Thirteenth Aircraft **** ****
Fourteenth Aircraft **** ****
Fifteenth Aircraft ****** ****
Sixteenth Aircraft ********* ****
Seventeenth Aircraft ******* ****
Eighteenth Aircraft ******* ****
Nineteenth Aircraft ******** ****
Twentieth Aircraft ******** ****
Twenty-first Aircraft ******** ****
Twenty-second Aircraft ******** ****
Twenty-third Aircraft ***** ****
Twenty-fourth Aircraft ***** ****
Twenty-fifth Aircraft *** ****
Twenty-sixth Aircraft **** ****
** This Aircraft shall have a grace period of 15 days
* redacted
2
<PAGE>
1.1 The Additional Shadow Option Aircraft will be as described in Article 2 of
the Agreement.
1.2 *** **** ***** **** ***** ******* *** **** ** *** ********** ****** ******
******** ********* *** ***** ******** ******** ******** ****** ** ********
** ** *** ********** ** ***** ********** ***** ************ ********** **
********* ****** ***** ** ********* ******* ***** ******* ******** ******
****** ******* ************ *** ********* ** ******** ** **** ********
**** **** ***** **** *** ******* *** ****** *** ** ******* ** **********
** ********** **** *** ******** ********** ******* ******** ** ******** *
** *** ********* *** *** ****** **** ******** ** **** ** *** **** **
******** ** **** ********** ****** ****** ******** ************ ******
****** ******** ******** ********
1.3 Upon receipt of the Additional Shadow Option Deposit referred to in
paragraph 1.4 below, Bombardier agrees to reserve the delivery positions
of the Block 1 Additional Shadow Option Aircraft as set forth in paragraph
2.1.
*** ***** * *** ***** * ********** ****** ****** ******** ***
******* ** ***** ***** ********** ** ***** *********** ***** ** ********
** *** ***** * *** ***** * ****** ****** ******** ************* ****
******** ** *** ***** * ****** ****** ********* *** ********* ********
***** ** *** ***** * ********** ****** ****** ******** *** ***** **
********* *** **** ** ********* **** ******** ** *** ***** * ****** ******
********* *** ********* ******** ***** ** *** ***** * ********** ******
****** ******** *** ***** ** ********* *** **** ** ********* ****** *** **
*** ***** * ** ***** * ********** ****** ****** ******** *********
******** ***** *** ** ********* ** *** **** ** ******** ** ***
************* ****** ****** ******** ****** ********** ***** ***** **
***** *** **** ********* ******** ******** *** **** ******** **** ***
******* ********* ******** ***** ***** *** ** ******** **** *** ******
******* ** ***** ** *** ***** **** ***** *** ** ********* ******** *****
** ** *** ********* *** ****** ******* ** ***** ********** **** ****** ***
********** ********** ****** ****** ******* ******** ** ** ********* ***
****** *** ******* * ****** ********** ** ****** *** *** ******** ** *****
*** ******** ******** **** *********** ** ** ****** ********** ** **** ***
******* *** ***** ** *** ********** ******** **** *** **** ** ********* **
*** ** ** *** **** *** ********** ******* ** ******** ** ******
3
* redacted
<PAGE>
CONTRACT CHANGE ORDER
PURCHASER: MIDWAY AIRLINES CORPORATION
PURCHASE AGREEMENT NO.: PA-0393 AIRCRAFT TYPE: CRJ
C.C.O. NO.: 7 DATED: July 9, 1999
PAGES AFFECTED: See below PAGE 1 of 13
REASON FOR CHANGE: Amend the scheduled delivery dates for the Firm
Aircraft ***** * Shadow Option aircraft and Additional
Shadow Option Aircraft.
DESCRIPTION OF CHANGE:
1. The scheduled delivery dates of the Firm Aircraft are amended pursuant to
Attachment 1 hereto.
2. The scheduled delivery dates of the ***** * Shadow Option Aircraft are
amended and restated as shown in Letter Agreement No. B97-7701-RL-CRJ0393-
002 Rev. 1 attached hereto as Attachment 2.
3. The scheduled delivery dates of the Additional Shadow Option Aircraft are
amended and restated as shown in Letter Agreement No. B99-7701-RL-CRJ0393-
012 Rev. 1 attached hereto as Attachment 3.
4. Bombardier and Buyer agree that, notwithstanding the changes to the
scheduled delivery dates contained herein, (i) *** ******** ******** **** **
***** ******* *** **** ******** ***** **** **** *********** **** ** **** **
********** ** ******* *** **** *** ****** ***** ** *** ********* ********
**** ** **** **** ********* ***** **** **** ** ********** ******* **
********** **** **** ***** **** **** **** *** ** *** ********* ********
***** ** *** ******** ** *********** and (ii) the first ten (10) Firm
Aircraft will be deemed to have been the original Firm Aircraft, the
eleventh (11th) through twentieth (20th) Firm Aircraft will be deemed to
have been the original Option Aircraft, and the twenty-first (21st) through
twenty-sixth (26th) Firm Aircraft will be deemed to have been the Block 1
and Block 2 Shadow Option Aircraft, all as shown on Attachments 1 and 2
hereto.
5. Bombardier and Buyer agree that the deferral ** *** ***** ***** of Shadow
Option Aircraft will result in a suspension of the FSR services from the
time of expiration of the current entitlement of FSR services until exercise
of the ***** * Shadow Option Aircraft.
PAGES TO BE SUBSTITUTED
-----------------------
NEW/REVISED PAGES
-----------------
Letter Agreement
B97-7701-RL-CRJ0393-002 Attachment 2 to CCO
#7 dated July 9, 1999
B99-7701-RL-CRJ0393-012 Attachment 3 to CCO
#7 dated July 9, 1999
CHANGES TO THE AFFECTED PAGES ARE AS FOLLOWS:
================================================================================
ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT WILL REMAIN UNCHANGED
================================================================================
FOR AND ON BEHALF OF: FOR AND ON BEHALF OF:
BOMBARDIER INC. MIDWAY AIRLINES CORPORATION
================================================================================
* redacted
<PAGE>
Signed: _______________________ Signed: ___________________________
Date: July 9, 1999 Date: July 9, 1999
<PAGE>
APPENDIX II
DELIVERY SCHEDULE
Aircraft Scheduled Delivery Date
First Aircraft November 1997 ******** ****
Second Aircraft December 1997 ******** ****
Third Aircraft February 1998** ******** ****
Fourth Aircraft March 1998 ******** ****
Fifth Aircraft June 1998 ******** ****
Sixth Aircraft September 1998 ******** ****
Seventh Aircraft September 1998 ******** ****
Eighth Aircraft November 1998 ******** ****
Ninth Aircraft November 1998 ******** ****
Tenth Aircraft December 1998 ******** ****
Eleventh Aircraft January 1999 ******** ***** * ******
Twelfth Aircraft April 1999 ******** ***** * ******
Thirteenth Aircraft June 1999 ******** ***** * ******
Fourteenth Aircraft July 1999 ******** ***** * ******
Fifteenth Aircraft July 1999 ******** ***** * ******
Sixteenth Aircraft September 1999 ******** ***** * ******
Seventeenth Aircraft October 1999 ******** ***** * ******
Eighteenth Aircraft October 1999 ******** ***** * ******
Nineteenth Aircraft February 2000 ******** ***** * ******
Twentieth Aircraft March 2000 ******** ***** * ******
Twenty-first Aircraft April 2000 ******** ***** * ****** ******
Twenty-second Aircraft May 2000 ******** ***** * ****** ******
Twenty-third Aircraft July 2000 ******** ***** * ****** ******
Twenty-fourth Aircraft January 2001 ******** ***** * ****** ******
Twenty-fifth Aircraft September 2001 ******** ***** * ****** ******
Twenty-sixth Aircraft December 2001 ******** ***** * ****** ******
** This Aircraft shall have a grace period of 15 days
* redacted
2
<PAGE>
July 9, 1999
Our Ref: B97-7701-RJTL-CRJ0393-002 Rev. 1
Midway Airlines Corporation
300 West Morgan Street, Suite 1200
Durham, NC 27701
USA
Attention: Mr. Robert Ferguson, Chairman, President & CEO
Gentlemen,
Re: Amended and Restated Letter Agreement No. 002 (Re: Shadow Option Aircraft)
Reference is made to Purchase Agreement No. PA-0393 (the "Agreement") between
Bombardier Inc., represented by its Bombardier Regional Aircraft Division
("BRAD") and Midway Airlines Corporation ("Buyer") for the sale of ten (10)
Canadair Regional Jet Aircraft (the "Aircraft").
This letter, when accepted and agreed to by Buyer contemporaneously with
execution of the Agreement, will become part of the Agreement and will evidence
our further agreement with respect to the matters set forth below. This letter
supercedes and replaces Letter Agreement No. 002 (Re: Shadow Option Aircraft)
dated September 17, 1997.
All terms used herein and in the Agreement not defined herein, shall have the
same meaning as in the Agreement.
Subject: Shadow Option Aircraft
4
<PAGE>
1.0 ** ************* ** ***** ****** ******* **** *** ***** **********
********* *** ****** ********* *** ***** ** ****** ******** *****
****** ********* *** **** *** **** ********* ****** ****** **** ****
***** ****** * ************* ****** ** ********** ****** ********* **
* *** *** *** ***** **** ******* ****** ***********
1.1 The Shadow Option Aircraft will be as described in Article 2 of the
Agreement.
1.2 *** **** ***** **** ***** ******* *** **** ** *** ****** ******
******** ********* *** ***** ******** ******** ******** ****** **
******** ** ** *** ********** ** ***** ********** ***** ******
********** ** ********* ****** ***** ** ********* ******* *** *******
*** ***** **** ****** ****** ******* ************* ********* **
******** ** **** ******** **** **** ***** **** *** ******* *** ******
*** ** ******* ** ********** ** ********** **** *** ********
********** ******* ******** ** ******** * ** *** ********* *** ***
****** **** ******** ** **** ** *** **** ** ******** ** **** ******
****** ******** ******** ****** ******** ******** ********
1.3 *** ****** ****** ******** *** ** ********* ** *** *** ****** ** *****
*** ****** ****** ******** *** *** *** ***** ** **** *** ****** ******
******** **** ******* ****** ******** ****** **** ****** ***** ** ***
********* ******** **** ** *** ***** ****** ****** ******** ** ****
****** ******** **** ***** ***** **** *********** ****** ** ***
********* ** ******** *** ****** ****** ***** ******* **** ******
***** ** *** ********* ******** **** ** *** ***** ****** ******
******** ** **** ****** ** ***** **** *** ***** **** **** ****** ***
*** ******** ***** * ********* ******** ******** ****** ******
******** ** ******** ** *** ******** ******** ** ** ********* *** ***
* ***** ** ********** ****** ****** ******* *** ****** ****** ********
***** ***** **** ****** *************** *** **** **** *** ***** ****
***** ** *** ******** ***** ** *** ********** ****** ****** *********
Should Buyer choose to exercise the right to purchase * ***** **
****** ****** ********, Buyer and BRAD agree to make all reasonable
efforts to execute a definitive agreement within twenty-one (21) days
of notice having been given.
* redacted
5
<PAGE>
1.4 The Scheduled Delivery Dates of the Shadow Option Aircraft are as
follows:
***** * ***** ****** ****** ******** *** ******* **** **** **** ******** ***
****** ****** ****** ******** *** ******* **** **** **** ******** ***
***** ****** ****** ******** *** ******* **** **** **** ******** ***
***** * ****** ****** ****** ******** *** ******* **** **** **** ******** ***
***** ****** ****** ******** *** ******* **** **** **** ******** ***
***** ****** ****** ******** *** ******* **** **** **** ******** ***
***** * ******* ****** ****** ******** ***** ****
****** ****** ****** ******** ***** ****
***** ****** ****** ******** *** ****
***** ****** ****** ******** **** ****
1.5 As consideration for this ******, Buyer shall make or cause to make
payment to BRAD a refundable deposit of **** ******** ****** ******
******* ***** ******* *** ****** ****** ******** **** ******* ******
********* ******** ***** ******** ****** ****** ******* ***** ********
upon execution of the Agreement. Upon receipt of the Shadow Option
Deposit, BRAD agrees to ******* *** ******** ********* set forth in
paragraph 1.4 pending receipt of Buyers conditional notice of
intention to ******** ******* **** ****** ***** ** ******** ** ***
***** ****** ****** ******** ** *** ********** ****** ****** *****, as
set forth in paragraph 1.3.
1.6 Upon exercise of a ****** ****** *****, Buyer will make or cause to
make the ******** ******** specified in Article 5 of the Agreement
within ten (10) business days of the ******** ** *** ******.
2.0 Upon exercise of ** ****** *****, and provided Buyer continues to
operate a minimum of ten (10) Canadair Regional Jet aircraft, ****
**** ****** *** **** ** *** *** *** *** *** ***** *** ****** ******
******** ********** *** **** ******* *** ************* ******** ** ***
**** *** ****** *** ******** *** ******* ***********
* redacted
6
<PAGE>
2.1 **** *** ******** ** * ****** ****** ****** **** **** **** *******
********* *********** ******** *** ********** ******** *** * ***** **
**** *** ** ******* ********* *** ****** ****** ******** **********
***** ***** ** * *********** ** *********** *********** *** *******
************
2.2 Unless expressly provided for in this Agreement, the terms and
conditions of the Agreement shall apply mutatis mutandis to the Shadow
Option Aircraft, with the exception ***** * ********* ******* **
********* ** ******* *** ****** ******* *************** ****** **
***** ** ******* *** ** **** ****** *********** ***** * ********
******* ** ********* ** ******* ***** ******* *********** *******
***** ******* ********** ******* ***** *********** ***********
******** ******* ***** ******* ******** *** ********* **** **********
** ******* * ********** * ******* *** ******** ******** ******* *****
*** *** ******* ********* ** *** ********* ******** ** ******
********* *** **** ******* ***** ******* *********** ******* ***
********* *********** ******* *** *********** ********* *** *******
*** ****** ** *********
************ *** ********* ****** ********** *** **** *** ********** ** ***
****** ****** ******** *** *** ****** *********
****** ********* *** *** ******* *********
****** ********* *** *** ********
****** ********* *** *** *************
****** ********* *** *** ***************
************ ****** ********* *** *** ************ ****** ********* ** ***
********** *** ****** ********* *** *** ************ ***** *** ******
********* *** *** ********* ************ *** ********** ** *** ***
********
3.0 In the event of the termination of the Agreement, this Letter
Agreement shall become automatically null and void.
4.0 Upon exercise of Buyer's rights to purchase in accordance with this
Letter Agreement, the parties shall amend the Agreement or enter into
an additional purchase agreement in order to give effect to the
purchase of Shadow Option Aircraft in accordance with the terms and
conditions thereof.
* redacted
7
<PAGE>
5.0 The provisions of this Letter Agreement are personal to Buyer and
shall not be assigned or otherwise disposed of by Buyer without the
prior written consent of BRAD.
Should there be any inconsistency between this Letter Agreement and the
Agreement with respect to the subject matter covered by the terms hereof, then
this Letter Agreement shall prevail.
Yours truly
BOMBARDIER INC.
By: ___________________________________
Title: ___________________________________
ACCEPTED AND AGREED TO:
this 9th day of July, 1999
Midway Airlines Corporation
By: ___________________________________
Title: ___________________________________
8
<PAGE>
July 9, 1999
Our Ref: B99-7701-RL-CRJ0393-012 Rev.1
Midway Airlines Corporation
300 West Morgan Street, Suite 1200
Durham, NC 27701
USA
Attention: Mr. Robert Ferguson, Chairman, President & CEO
Gentlemen,
Re: Amended and Restated Letter Agreement No. 012 (Re: Additional Shadow Option
Aircraft)
Reference is made to Purchase Agreement No. PA-0393 (the "Agreement") between
Bombardier Inc., ("Bombardier") and Midway Airlines Corporation ("Buyer") for
the sale of ten (10) Canadair Regional Jet Aircraft (the "Aircraft") as amended.
This letter, when accepted and agreed to by Buyer contemporaneously with
execution of Contract Change Order No. 5 ("CCO #5"), will become part of the
Agreement and will evidence our further agreement with respect to the matters
set forth below. This letter supercedes and replaces Letter Agreement No. 012
(Re: Additional Shadow Option Aircraft) dated February 5, 1999.
All terms which are capitalized herein but not defined herein, shall have the
same meaning as in the Agreement.
Subject: Additional Shadow Option Aircraft
1.0 ** ************* ** ***** ****** ******* **** *** ***** **********
********* *** ****** ********* *** ***** ** ********* *** *** ****
****** ******** ***** ****** ********* **** *** **** ***** *** ******
****** ******** ***** ****** ********* *** *** ****** *** ***** *****
** ****** ****** ********** *** **** ****** ****** ***** ***** ****
**** ** *** ********* ********* ** ****** ********** ****** ***** ***
***** ** ********* ** *** ***** *** ***** ******* * *************
****** ** ******** ** * *** *** *** ***** **** *********** ******
****** ***********
* redacted
9
<PAGE>
1.1 The Additional Shadow Option Aircraft will be as described in Article
2 of the Agreement.
1.2 *** **** ***** **** ***** ******* *** **** ** *** ********** ******
****** ******** ********* *** ***** ******** ******** ******** ******
** ******** ** ** *** ********** ** ***** ********** *****
************ ********** ** ********* ****** ***** ** ********* *******
***** ******* ******** ****** ****** ******* ************ ***
********* ** ******** ** **** ******** **** **** ***** **** ***
******* *** ****** *** ** ******* ** ********** ** ********** **** ***
******** ********** ******* ******** ** ******** * ** *** *********
*** *** ****** **** ******** ** **** ** *** **** ** ******** ** ****
********** ****** ****** ******** ************ ****** ****** ********
******** ********
1.3 Upon receipt of the Additional Shadow Option Deposit referred to
in paragraph 1.4 below, Bombardier agrees to reserve the delivery
positions of the ***** * Additional Shadow Option Aircraft as set
forth in paragraph 2.1.
*** ***** * *** ***** * ********** ****** ****** ******** ***
******* ** ***** ***** ********** ** ***** *********** ***** **
******** ** *** ***** * *** ***** * ****** ****** ********* ****
******** ** *** ***** * *** ***** * ****** ****** ********* ***
********* ******** ***** ** *** ***** * *** ***** * ********** ******
****** ******** *** ***** ** ********* *** **** ** ********* ******
*** ** *** ***** * *** ***** * ********** ****** ****** ********
********* ******** ***** *** ** ********* ** *** **** ** ******** **
*** ************* ****** ****** ******** ****** ********** ***** *****
** ***** *** **** ********* ******** ******** *** **** ******** ****
*** ******* ********* ******** ***** ***** *** ** ******** **** ***
****** ******* ** ***** ** *** ***** **** ***** *** ** *********
******** ***** ** ** *** ********* *** ****** ******* ** *****
********** **** ****** *** ********** ********** ****** ****** *******
******** ** ** ********* *** ****** *** ******* * ****** ********** **
****** *** *** ******** ** ***** *** ******** ******** ****
*********** ** ** ****** ********** ** **** *** ******* *** ***** **
*** ********** ******** **** *** **** ** ********* ** *** ** ** ***
**** *** ********** ******* ** ******** ** ******
* redacted
10
<PAGE>
1.4 As consideration for the rights obtained with respect to the
purchase of the Additional Shadow Option Aircraft, Buyer shall make or
cause to make payment to Bombardier a refundable deposit of ******
**** ******** ****** ****** ******* ******** *** *** ********** ******
****** ******** **** *********** ****** ****** ********** ******** ***
******* *** ***** ******** ****** ****** ******* ********* *** within
ten (10) business days of the date of the full execution of CCO #5.
2.0 The Additional Shadow Option Aircraft may be exercised ** *** ***
****** ** ***** **** *** *** *** ***** ** **** *** ******** ****
*********** ****** ****** ******** ** *** **** ** ** ******* ****
****** ***** ** *** ********* ******** **** ** *** ***** **********
****** ****** ******** ** **** ******
2.1 The Scheduled Delivery Dates of the Additional Shadow Option Aircraft
are as follows:
***** *
***** ********** ****** ****** ******** ***** ****
****** ********** ****** ****** ******** **** ****
***** ********** ****** ****** ******** **** ****
***** *
****** ********** ****** ****** ******** ****** ****
***** ********** ****** ****** ******** ********* ****
***** ********** ****** ****** ******** ********* ****
***** *
******* ********** ****** ****** ******** ******* ****
****** ********** ****** ****** ******** ******** ****
***** ********** ****** ****** ******** ******** ****
***** ********** ****** ****** ******** ******** ****
2.2 Upon exercise of an ********** ****** ****** *****, Buyer will make or
cause to be made the ********* ******** ******** ** * *** ********
****** ** **** ** ***** ********* ** ******* * ** *** **********
* redacted
11
<PAGE>
*** ** ** *** ********* ******** ****** **** *** ******* **********
******** ******** ** ********* *** ****** ** ***** ****
******* **** ****** ***** ** *** ********* ******** *****
*** ** ** *** ********* ******** ***** ** ***** **** ****** ****
****** ***** ** *** ********* ******** ***** ***
*** ** ** *** ********* ******** ***** ** ***** **** **** ***
****** ***** ** *** ********* ******** *****
*** *** ******** ******** ****** **** ******** ******** ** **
************* **** *** *** *** ****** ** ** ****** ***
******** **** ** **** ******** ** ******
3.0 CUSTOMER SERVICES
Upon exercise of **** ********** ****** ****** ********, Bombardier will
provide the following:
3.1 ****** **** ********
** ******** ** *** ******** ******** ** ***** ** ***** * ******** ****** **
*** ********** ********** **** ******** ** ** ********** ******* ***
**** ******** *** ** ********** *** *** ****** ***** ***** *** *******
*** ********** ****** ****** *********
3.2 *********** ********
********* *********** ******** *** ********** ******** *** * ***** ** *****
*** ** ******* ********* *** ********** ****** ****** ********* *****
***** ** * *********** ** *********** *********** *** *******
************
3.3 ***** ******* **************
** ******** ** *** ****** ** ******** *** ***** ** *** ********** *** ****
********** ****** ****** ********* ********** **** ****** *** ********
** * ***** ******* ************** *** ** ********** ****** ** *** ***
* redacted
12
<PAGE>
*****.
3.4 To the extent that the training and services detailed in paragraphs
3.1 through 3.3 have been provided to Buyer ** ******* ** ***
************* ******** ********, Buyer shall remain responsible for
all costs relating to the training and services provided in the event
that the Aircraft is not delivered to Buyer as a result of a Default
by Buyer under the Purchase Agreement.
4.0 Unless expressly provided for in this Letter Agreement, the terms and
conditions of the Agreement shall apply mutatis mutandis to the
Additional Shadow Option Aircraft, with the exception of: *** ******
********** *** ******* **** **** ***** * ********* ******* **
********* ** ******* *** ****** ******* **************** ***** ***** *
******** ******* ** ********* ** ******* ***** ******* ***********
**** ******* ***** ******* ********** *** ******* ***** ***********
*********** ******** **** ******* ***** ******* ******** *** ***** ***
********* **** ********** ** ******* * ********** * ******* ***
******** ******** ******* ******
5.0 In the event of the termination of the Agreement, this Letter
Agreement shall become automatically null and void.
6.0 Should Buyer elect to exercise its options as described herein,
Bombardier and Buyer will amend the Agreement by Contract Change Order
to give effect to the purchase of Additional Shadow Option Aircraft.
7.0 The provisions of this Letter Agreement are personal to Buyer and
shall not be assigned or otherwise disposed of by Buyer without the
prior written consent of Bombardier.
Should there be any inconsistency between this Letter Agreement and the
Agreement with respect to the subject matter covered by the terms hereof, then
this Letter Agreement shall prevail.
Yours truly
BOMBARDIER INC.
* redacted
13
<PAGE>
Bombardier Aerospace
___________________________________
Richard J. T. Libby
Senior Account Executive, Contracts
Regional Aircraft
ACCEPTED AND AGREED TO:
this 9th day of July, 1999
Midway Airlines Corporation
By: ___________________________________
Title: ___________________________________
14
<PAGE>
================================================================================
CONTRACT CHANGE ORDER
PURCHASER: MIDWAY AIRLINES CORPORATION
PURCHASE AGREEMENT NO.: PA-0393 AIRCRAFT TYPE: CRJ
C.C.O. NO.: 8 DATED: January 12, 2000
PAGES AFFECTED: See below PAGE 1 of 7
REASON FOR CHANGE: To amend the Purchase Agreement to (i) add EICAS 2000,
DFDR and EGPWS to the list of Buyer Selected Optional
Features for the twenty-third and subsequent Aircraft
and, (ii) amend the pricing resulting from the
aforementioned additions.
DESCRIPTION OF CHANGE:
1. P.A., Page 9 and 9(a) - Article 4 (Price)
Article 4.1 is renamed Article 4.1.1 and is amended by reflecting that the
base price for the Buyer Selected Optional Features set forth therein is
applicable for the first through twenty-second Aircraft. Article 4.1.2 is
added to provide the base price for the Buyer Selected Optional Features for
the twenty-third and subsequent Aircraft.
2. P.A., Pages 51, 52, 52(a) and 52(b) - Appendix IV (Buyer Selected Optional
Features)
The Buyer Selected Optional Features list for the Aircraft is amended by
adding EICAS 2000 as a standard feature and, DFDR and EGPWS as features for
the twenty-third and subsequent Aircraft.
<TABLE>
PAGES TO BE SUBSTITUTED/ADDED
-----------------------------
NEW/REVISED PAGES
-----------------
<S> <C>
Purchase Agreement pages 9 and 9(a) Attachment No. 1 to CCO No. 8
Purchase Agreement pages 51, 52, 52(a), and 52(b) Attachment No. 2 to CCO No. 8
</TABLE>
CHANGES TO THE AFFECTED PAGES ARE AS FOLLOWS:
================================================================================
ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT WILL REMAIN UNCHANGED
================================================================================
FOR AND ON BEHALF OF: FOR AND ON BEHALF OF:
BOMBARDIER INC. MIDWAY AIRLINES CORPORATION
Signed: _______________________ Signed: ____________________
Date: _______________________ Date: ____________________
<PAGE>
ARTICLE 4 - PRICE
*** ***** *** **** ***** *** **** ** *** ***** ***** ** *** ****** ******
****** ******** ********** *** ***** ******** ******** ********
****** ** ******** ** *** ********* *** ***** ********* ********
********* ** ***** ********** ***** ****** ********** **
********* ******* **** ***** ******* ** ********* ******* ***
******* *** ********** ******** ****** ****** *******
***************** ********* ** ******** **** ********
**** ***** *** **** ***** *** **** ** *** ****** ***** ****** *** **********
******** ********** *** ***** ******** ******** ******** ******
** ******** ** *** ********* *** ***** ********* ********
********* ** ***** ********** ***** ****** ********** **
********* ******* **** ***** ******* ** ********* ******* *****
******* *** *********** ******** ***** ******* *** *********
****** ****** ******* ***************** ********* ** ********
**** ********
4.2 The price of the Aircraft shall be the Base Price adjusted for
changes made pursuant to Article 11 and any Regulatory Changes
pursuant to Article 8.4, and further adjusted to the Delivery
Date to reflect economic fluctuations during the period from
November 1, 1997 to the Delivery Date of each Aircraft ("Aircraft
Purchase Price"). Such adjustments shall be based on the economic
adjustment formula attached as Appendix I ("Economic Adjustment
Formula").
4.3 The Aircraft Purchase Price does not include any taxes, fees or
duties including, but not limited to, sales, use, value added
(including the Canadian Goods and Services Tax), personal
property, gross receipts, franchise, excise taxes, assessments or
duties ("Taxes") which are or may be imposed by law upon BRAD,
any affiliate of BRAD, Buyer or the Aircraft whether or not there
is an obligation for BRAD to collect same from Buyer, by any
taxing authority or jurisdiction occasioned by, relating to or as
a result of the execution of this Agreement or the sale, lease,
delivery, storage, use or other consumption of any Aircraft, BFE
or any other matter, good or service provided under or in
connection with this Agreement. According to current legislation,
Canadian taxes, duties and Goods and Services Tax are not
applicable to aircraft sold and immediately exported from Canada.
If changes to Canadian tax legislation result in taxes being
imposed on Buyer, BRAD will cooperate with Buyer to mitigate the
effect of such taxes on Buyer, at Buyer's expense
* redacted
9
<PAGE>
4.4 Notwithstanding any of the above, if any Taxes (other than
Canadian income taxes charged on the income of BRAD) are imposed
upon Buyer or become due or are to be collected from BRAD by any
taxing authority, BRAD shall notify Buyer and Buyer shall
promptly, but no later than ten (10) working days after receiving
such notice, pay such Taxes directly to the taxing authority, or
reimburse BRAD for such Taxes, as the case may be, including
interest and penalties, so long as such interest or penalties are
not attributable to the gross negligence or willful misconduct of
BRAD. Buyer retains the right to contest, at Buyer's expense and
by appropriate lawful proceedings, the imposition of such Taxes.
4.5 Upon BRAD's request, Buyer shall execute and deliver to BRAD any
documents that BRAD reasonably deems necessary or desirable in
connection with any exemption from or reduction of or the
contestation of or the defense against any imposition of Taxes.
9(a)
<PAGE>
*** APPENDIX IV (A)
---------------
**** AIRCRAFT ONE THROUGH TWENTY-TWO
-------------------------------
BUYER SELECTED OPTIONAL FEATURES
--------------------------------
<TABLE>
<CAPTION>
*****
*** **** **
CR No. Description ****
** **
<S> <C>
00-008 Extended Range Version (51,000 lb MTOW) - ER ****
00-009 Centre Wing Fuel Tank ****
00-012 Take-off Flap Setting (8 deg) ******
00-013 FAA Collins Strapping ***
21-009 Ground Air Conditioning Connection ******
23-005 Single SELCAL System ******
23-012 Third VHF Comm. Radio - Full Provisions ******
25-093 Customized Cabin Interior - Midway Airlines ******
- 50 pax with FAA Type III exit
- G1 Galley - Cold Snack, Hot beverage, two (2) Coffeemakers and
two (2) Carafes, provisions for two half size carts and five (5)
standard containers
- - life vest pouches under seat
25-083 Exterior Paint - Midway Airlines ******
25-099 Reclining Seats ******
</TABLE>
* redacted
51
<PAGE>
25-108 Leather Seat Covers ******
25-350 Structure for Universal provisions ****
25-351 Second Flight Attendant position ******
30-001 Red anti ice warning light (FAA) ***
33-002 Logo Lights ******
33-003 Red Strobe Lights ******
33-004 Cargo Door Light ******
34-013 Collins FMS - provisions only ****
34-019 On Board Data Loader ******
34-026 Ground Proximity Warning System audio Call-out ****
34-027 Altimeter Reset Auto Flash ***
34-035 Single Collins FMS 4200 *******
34-035 Single Collins GPS 4000 - not certified until 3Q 1997 ******
35-004 EROS Magic Mask - installation only ******
35-XXX Additional oxygen mask on LHS ****
72-002 General Electric CF34-3B1 Engine Series 200 ***
Total Technical Features *******
All prices listed above are expressed in July 1, 1995 US dollars, and are
subject to economic adjustment to the date of aircraft delivery. This list
and all prices are subject to change without notice
* redacted
52
<PAGE>
*** APPENDIX IV (B)
---------------
**** AIRCRAFT TWENTY-THREE AND SUBSEQUENT
------------------------------------
BUYER SELECTED OPTIONAL FEATURES
--------------------------------
<TABLE>
*** **** **
CR No. Description ****
** **
<S> <C>
00-008 Extended Range Version (51,000 lb MTOW) - ER ****
00-009 Centre Wing Fuel Tank ****
00-012 Take-off Flap Setting (8 deg) ******
00-013 FAA Collins Strapping ***
21-009 Ground Air Conditioning Connection ******
23-005 Single SELCAL System ******
23-012 Third VHF Comm. Radio - Full Provisions ******
25-093 Customized Cabin Interior - Midway Airlines ******
- 50 pax with FAA Type III exit
- G1 Galley - Cold Snack, Hot beverage, two (2) Coffeemakers and
two (2) Carafes, provisions for two half size carts and five (5)
standard containers
- - life vest pouches under seat
25-083 Exterior Paint - Midway Airlines ******
25-099 Reclining Seats ******
</TABLE>
* redacted
52(a)
<PAGE>
25-108 Leather Seat Covers ******
25-350 Structure for Universal provisions ****
25-351 Second Flight Attendant position ******
30-001 Red anti ice warning light (FAA) ***
33-002 Logo Lights ******
33-003 Red Strobe Lights ******
33-004 Cargo Door Light ******
34-013 Collins FMS - provisions only ****
34-019 On Board Data Loader ******
**
34-027 Altimeter Reset Auto Flash ***
34-035 Single Collins FMS 4200 *******
34-035 Single Collins GPS 4000 - not certified until 3Q 1997 ******
35-004 EROS Magic Mask - installation only ******
35-XXX Additional oxygen mask on LHS ****
72-002 General Electric CF34-3B1 Engine Series 200 ***
**** EICAS 2000 ***
31-340 **** Data Recorder - 88 Parameter DFDR (128 wps) ******
34-328 **** EGPWS - Enhanced Ground Proximity Warning System ******
Total Technical Features *******
All prices listed above are expressed in July 1, 1995 US dollars, and are
subject to economic adjustment to the date of aircraft delivery. This list and
all prices are subject to change without notice
* redacted
52(b)
<PAGE>
================================================================================
CONTRACT CHANGE ORDER
PURCHASER: MIDWAY AIRLINES CORPORATION
PURCHASE AGREEMENT NO.: PA-0393 AIRCRAFT TYPE: CRJ
C.C.O. NO.: 9 DATED: January 26, 2000
PAGES AFFECTED: See below PAGE 1 of 2
REASON FOR CHANGE: To amend the Purchase Agreement to to increase the
number of instructor provided simulator training
missions included in the Pilot Simulator Training
course from ***** *** ** **** ***.
DESCRIPTION OF CHANGE:
1. P.A., Page C-23 -- Article 3.2.2 (Pilot Simulator Training)
Article 3.2.2 is amended to increase the number of simulator training
missions for which BRAD shall provide a simulator instructor from ***** ***
** **** *** ********. This change shall be deemed effective retroactively
from September 17, 1997.
PAGES TO BE SUBSTITUTED/ADDED
-----------------------------
NEW/REVISED PAGES
-----------------
Purchase Agreement page C-23 Attachment No. 1 to CCO No. 9,
effective retroactively from
September 17, 1997.
CHANGES TO THE AFFECTED PAGES ARE AS FOLLOWS:
================================================================================
ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT WILL REMAIN UNCHANGED
================================================================================
FOR AND ON BEHALF OF: FOR AND ON BEHALF OF:
BOMBARDIER INC. MIDWAY AIRLINES CORPORATION
Signed: ____________________________ Signed: ___________________________
Date: January 26, 2000 Date: ___________________________
---------------------------
================================================================================
* redacted
<PAGE>
*** 3.2.2 Pilot Simulator Training
BRAD shall provide access to a TC or FAA approved flight simulator
for the crew trained under Annex A Article 3.2.1. BRAD shall provide
a simulator instructor for **** *** missions for the crew trained on
BRAD's designated simulator in Montreal; each mission shall consist
of **** *** hours in the simulator and required briefing/debriefing
sessions.
3.2.3 In-flight Training
Should Buyer require aircraft flight training, such training shall
be conducted in Buyer's Aircraft after the Delivery Date for up to a
maximum of **** *** of Buyer's pilots. BRAD shall provide an
instructor pilot at no additional charge; Buyer shall be responsible
for the cost of fuel, oil, landing fees, taxes, insurance,
maintenance, and other associated operating expenses required for
the Aircraft during such training.
3.2.4 Flight Attendant Course
A familiarization course for up to *** *** of Buyer's flight
attendant personnel shall be conducted. Each course shall be for a
maximum of **** *** working days duration. This course shall present
general information on the Aircraft and detailed information on the
operation of the passenger safety equipment and emergency equipment.
BRAD shall furnish for each participant in this course *** *** copy
of the Flight Attendant Training Guide which shall not be revised.
Buyer shall assist BRAD in the development of the Flight Attendant
Training Guide to incorporate Buyer's specific equipment and
procedures.
3.2.5 Flight Dispatcher Course
A course for up to *** *** of Buyer's flight dispatch personnel
shall be conducted. Each course shall be for a maximum of **** ***
working days
* redacted
C-23
<PAGE>
duration. The course shall consist of classroom instruction covering
general Aircraft familiarization, coverage of performance, flight
planning, weight and balance and the Minimum Equipment List. BRAD
shall furnish for each participant in this course *** *** copy of
the Flight Crew Operating Manual which shall not be revised.
* redacted
C-23
<PAGE>
EXHIBIT ___ CONFORMED COPY
SECURED PROMISSORY NOTE
-----------------------
US$* December 30, 1999
FOR VALUE RECEIVED, the undersigned MIDWAY AIRLINES CORPORATION, a Delaware
corporation ("Borrower") hereby promises to pay to the order of FLEET CAPITAL
CORPORATION, a Rhode Island Corporation (the "Lender"):
(a) the principal sum of US$*, 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;
(b) interest on the unpaid principal amount hereof from time to
time outstanding from and including the date hereof until such principal
amount if paid in full at the Applicable Rate, payable in arrears on each
Payment Date and on the date this Note is paid in full; and
(c) 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 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 Lender.
All capitalized terms used in this Note and not otherwise defined herein
shall have the same meanings herein as in the Loan Agreement. This Note
evidences a borrowing under and has been issued by the Borrower in accordance
with the terms of the Load Agreement. Each of the Lender and any transferee of
the Lender under Section 5.01(b) of the Loan Agreement is entitled to the
benefits of the Loan Agreement, the Security Agreement and the other Operative
Agreements.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole of the principal of this
Note on the terms and conditions specified in the Loan Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Loan Agreement.
* Confidential treatment has been requested for omitted information. Omitted
information has been filed separately with the Commission.
<PAGE>
No delay or omission on the part of the Lender in exercising any right
hereunder shall operate as waiver of such right or of any other rights of the
Lender, nor shall any delay, omission or waiver on any one occasion be deemed a
bar or waiver of the same or any other right on any further occasion.
The Borrower hereby waives to the extent permitted by law, presentment,
demand, notice protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note, and
assents to any extension or postponement of the time of payment or any other
indulgence, to any release of collateral and to the addition or release of any
other party or person primarily or secondarily liable.
THIS NOTE IS BEING DELIVERED IN THE STATE OF NEW YORK, AND THIS NOTE AND
THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL BE GOVERNED BY AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
by its duly authorized officer as of the day and year first written above.
MIDWAY AIRLINES CORPORATION
as Borrower
By: /s/ Jonathan S. Waller
-----------------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
3
<PAGE>
Annex A to Secured
Promissory Note
Amortization Schedule
---------------------
Payment Date Amount
------------ ------
* *
* Confidential treatment has been requested for omitted information. Omitted
information has been filed separately with the Commission.
<PAGE>
EXHIBIT 10.84
CONFORMED COPY
--------------
SECURED PROMISSORY NOTE
-----------------------
US$* January 25, 2000
FOR VALUE RECEIVED, the undersigned MIDWAY AIRLINES CORPORATION , a
Delaware corporation ("Borrower") hereby promises to pay to the order of FLEET
CAPITAL CORPORATION, a Rhode Island Corporation (the "Lender"):
(a) the principal sum of US$*, 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;
(b) 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 Note is paid in full; and
(c) 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 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 Lender.
All capitalized terms used in this Note and not otherwise defined herein
shall have the same meanings herein as in the Loan Agreement. This Note
evidences a borrowing under and has been issued by the Borrower in accordance
with the terms of the Loan Agreement. Each of the Lender and any transferee of
the Lender under Section 5.01(b) of the Loan Agreement is entitled to the
benefits of the Loan Agreement, the Security Agreement and the other Operative
Agreements.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole of the principal of this
Note on the terms and conditions specified in the Loan Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Loan Agreement.
* Confidential treatment has been requested for omitted information. Omitted
information has been filed separately with the Commission.
<PAGE>
No delay or omission on the part of the Lender in exercising any right
hereunder shall operate as a waiver of such right or of any other rights of the
Lender, nor shall any delay, omission or waiver on any one occasion be deemed a
bar or waiver of the same or any other right on any further occasion.
The Borrower hereby waives to the extent permitted by law, presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note, and
assents to any extension or postponement of the time of payment or any other
indulgence, to any release of collateral and to the addition or release of any
other party or person primarily or secondarily liable.
THIS NOTE IS BEING DELIVERED IN THE STATE OF NEW YORK, AND THIS NOTE AND
THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by
its duly authorized officer as of the day and year first written above.
MIDWAY AIRLINES CORPORATION,
as Borrower
By: /s/ Jonathan S. Waller
------------------------
Name: Jonathan S. Waller
Title: Senior Vice President
General Counsel
3
<PAGE>
Annex A to Secured
Promissory Note
Amortization Schedule
---------------------
Payment Date Amount
------------ ------
* *
* Confidential treatment has been requested for omitted information. Omitted
information has been filed separately with the Commission.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the Midway Airlines Corporation Executive Officers Stock
Option Agreements and the Midway Airlines Corporation 1997 Stock Option Plan, of
our report dated February 2, 2000, except for the last paragraph of Note 3 and
Note 13, as to which the date is February 29, 2000, with respect to the
financial statements and schedule of Midway Airlines Corporation included in its
Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Raleigh, North Carolina
March 29, 2000
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
undersigned officers and/or directors of Midway Airlines Corporation (the
"Company"), hereby appoint each of Jonathan S. Waller and Steven Westberg as
attorney-in-fact with full power of substitution and resubstitution to sign for
the undersigned and in the name of the undersigned in any and all capacities
with respect to the filing on Form 10-K of the Company's Annual Report for the
annual period ended December 31, 1999 (the "Annual Report") with the Securities
and Exchange Commission (the "Commission"), and to sign any and all amendments
thereto and any and all applications or other documents to be filed with the
Commission pertaining to the Annual Report, and to grant unto the attorney-in-
fact and agent the full power and authority to do and perform each and every act
required to be done, as fully to all intents and purposes as the undersigned
could do if personally present. The undersigned hereby ratifies and confirms all
that the attorney-in-fact and agent or its substitutes may lawfully do or cause
to be done by virtue thereof.
Signature Title Date
- --------- ----- ----
Chairman of the Board, President March 30, 2000
- --------------------------- and Chief Executive Officer
Robert R. Ferguson, III (Principal Executive Officer)
- --------------------------- Director March 30, 2000
W. Greyson Quarles
- --------------------------- Director March 30, 2000
Gregory J. Robitaille
- --------------------------- Director March 30, 2000
Tim Smith
- --------------------------- Director March 30, 2000
Gregory Harding-Brown
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 38,019
<SECURITIES> 545
<RECEIVABLES> 8,643
<ALLOWANCES> (1,613)
<INVENTORY> 3,638
<CURRENT-ASSETS> 60,282
<PP&E> 136,293
<DEPRECIATION> (15,888)
<TOTAL-ASSETS> 256,689
<CURRENT-LIABILITIES> 55,868
<BONDS> 103,349
0
0
<COMMON> 86
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 256,689
<SALES> 217,946
<TOTAL-REVENUES> 217,946
<CGS> 0
<TOTAL-COSTS> 201,233
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,822
<INCOME-PRETAX> 15,092
<INCOME-TAX> 5,736
<INCOME-CONTINUING> 9,356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,356
<EPS-BASIC> 1.09
<EPS-DILUTED> 0.98
</TABLE>
