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ENGINE LEASE AGREEMENT
dated as of May 21, 1996
and
AMENDED AND RESTATED
as of July 7, 1997
between
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity
(except as otherwise specified)
but solely as Owner Trustee under the 1997 Trust Agreement
as Lessor,
and
WESTERN PACIFIC AIRLINES, INC.
as Lessee
One Used CFM International, Inc. Model CFM 56-3B2 Engine
Manufacturer's Serial No. 721150
ONLY THE ORIGINAL COUNTERPART CONTAINS THE RECEIPT THEREFOR
EXECUTED BY FIRST SECURITY BANK, NATIONAL ASSOCIATION, AS OWNER
TRUSTEE, AS LESSOR ON THE SIGNATURE PAGE THEREOF
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TABLE OF CONTENTS
Page
Section 1. Definitions.................................................... 1
Section 2. Lease; Lease Term; Delivery of Engine.......................... 5
(a) Lease; Lease Term........................................ 5
(b) Condition of Engine at Delivery.......................... 5
Section 3. Security Deposit and Other Payments............................ 5
(a) Security Deposit......................................... 5
(b) Basic Rent............................................... 6
(c) [Intentionally left blank.].............................. 6
(d) Supplemental Rent........................................ 6
(e) Manner of Payment........................................ 6
(f) Late Payments............................................ 6
(g) No Setoff, Counterclaim, etc............................. 6
Section 4. Conditions Precedent and Other Requirements.................... 7
(i)
(a) Execution and Delivery of Documents...................... 7
(b) Representations, Warranties, No Default.................. 8
(c) Resolutions, etc......................................... 8
(d) Security Deposit and Basic Rent.......................... 8
(e) Insurance Certificate.................................... 8
(f) Filings; Financing Statements. .......................... 8
(g) Opinions of Counsel...................................... 8
(h) No Event of Loss......................................... 8
(i) Acceptance by Process Agent.............................. 8
(ii) 8
(a) Delivery of Assignments of Warranties.................... 8
(b) Resolutions, etc......................................... 8
(c) Representations, Warranties; No Default.................. 9
(d) Acceptance by Process Agent.............................. 9
(e) Credit Deposit for Reserves.............................. 9
Section 5. Disclaimer; Manufacturer and Vendor Warranties................. 9
(a) Disclaimer by Lessor..................................... 9
(b) Lessor's Representations, Warranties and
Covenants............................................... 10
(c) Manufacturer and Vendor Warranties...................... 10
Section 6. Maintenance; Replacement and Pooling of Parts; Alterations,
Modifications and Additions................................... 11
(a) Maintenance............................................. 11
(b) Engine Reserves......................................... 12
(c) Replacement of Parts.................................... 13
(d) Pooling of Parts........................................ 14
(e) Alterations, Modifications and Additions................ 14
Section 7. Title and Registration; Liens; Possession..................... 15
(a) Title................................................... 15
(b) Liens................................................... 15
(c) Operation............................................... 15
(d) Possession.............................................. 16
(e) Identification Plate.................................... 18
(f) Reporting Requirements.................................. 18
(g) Inspections............................................. 18
Section 8. Loss, Destruction, Requisition, etc........................... 18
(a) Event of Loss........................................... 18
(b) Application of Payments from Governmental
Authorities............................................. 19
(c) Requisition for Use of the Engine....................... 19
(d) Quiet Enjoyment......................................... 19
Section 9. Insurance..................................................... 20
(a) Liability............................................... 20
(b) Property Damage Insurance............................... 20
(c) Terms of Insurance...................................... 20
(d) Application of Insurance................................ 22
(e) Reports................................................. 22
(f) Failure to Insure....................................... 22
(g) Additional Insurance.................................... 23
(h) Notice of Claims........................................ 23
Section 10. Return of Engine............................................ 23
(a) Redelivery upon Termination............................. 23
(b) Condition of Engine..................................... 23
(c) Condition of Controlled Components...................... 23
(d) Engine Documentation.................................... 24
(e) Service Bulletin Kits................................... 24
(f) Non U.S. Manufactured Items............................. 24
(g) Lessee's Continuing Obligations......................... 24
Section 11. Representations, Warranties and Covenants of Lessee........... 25
Section 12. Indemnification............................................... 27
(a) General Indemnity and Expenses.......................... 27
(b) General Tax Indemnity................................... 28
(c) Calculation of Tax Indemnity Payments................... 30
(d) Contest; Reports........................................ 31
(e) Payment................................................. 32
(f) Survival................................................ 33
Section 13. Assignment; Lease Subject and Subordinate..................... 33
(a) Sublease by Lessee...................................... 33
(b) Assignments by Lessor................................... 33
Section 14. Events of Default; Remedies................................... 33
(a) Events of Default....................................... 33
(b) Remedies................................................ 35
Section 15. Notices....................................................... 37
Section 16. Governing Law and Jurisdiction................................ 38
(a) Governing Law........................................... 38
(b) Jurisdiction; Service of Process........................ 38
(c) Waiver of Immunity...................................... 38
Section 17. Miscellaneous................................................. 38
(a) Entire Agreement........................................ 38
(b) English Language........................................ 39
(c) Lessor's Right to Perform for Lessee.................... 39
(d) Application of Payments During Existence of
Default................................................. 39
(e) Expenses................................................ 39
(f) Further Assurances...................................... 39
(g) Judgment Currency....................................... 39
(h) Invalidity of Any Provision............................. 40
(i) Changes in Law.......................................... 40
(j) Headings................................................ 40
(k) Consent................................................. 40
(l) Third Party Beneficiaries............................... 40
(m) Counterparts............................................ 40
EXHIBIT A ENGINE DESCRIPTION
EXHIBIT B FORM OF ACCEPTANCE CERTIFICATE
EXHIBIT C FORM OF RETURN ACCEPTANCE RECEIPT
EXHIBIT D FORM OF MONTHLY REPORT
EXHIBIT E MAINTENANCE RESERVES ADJUSTMENT FORMULA
This LEASE AGREEMENT, dated as of May 21, 1996, and AMENDED AND RESTATED
as of July 7, 1997, between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a
national banking association with its principal place of business in Salt Lake
City, Utah, not in its individual capacity but solely as trustee under the 1997
Trust Agreement, except as otherwise expressly provided herein, and its
successors and assigns (in such capacity, "Lessor"; and in its individual
capacity, "FSB"), and WESTERN PACIFIC AIRLINES, INC., a corporation organized
and existing under the laws of Delaware with its principal place of business in
Colorado Springs, Colorado ("Lessee").
RECITALS
WHEREAS, TACA, as lessor, and Lessee, as lessee, have executed this Engine
Lease Agreement dated as of May 21, 1996 (as supplemented and amended, the
"Lease") for the lease of the Engine from TACA, which was recorded by the FAA on
July 31, 1996 and assigned Conveyance No. BB24108; and
WHEREAS, the rights and obligations of TACA under the Lease have been
novated to Lessor pursuant to the Engine Lease Novation dated July __, 1997 (the
"Closing Date"), which was filed with the FAA on the date thereof, but not yet
recorded; and
WHEREAS, Lessor has assumed the rights and obligations of TACA under the
Lease, and Lessor and Lessee desire to amend and restate the Lease as this
Amended and Restated Lease Agreement with effect from and after the Closing Date
as set forth herein; and
WHEREAS, Lessee desires to lease the Engine from Lessor and Lessor is
willing to lease the Engine to Lessee upon and subject to the terms, conditions
and covenants herein set forth;
In consideration of and subject to the mutual covenants, terms and
conditions contained in this Lease, Lessor and Lessee agree as follows:
Section 1. DEFINITIONS. Unless the context otherwise requires the
following terms shall have the following meanings for all purposes of this Lease
and shall be equally applicable both to the singular and plural forms of the
terms defined. Any agreement defined below shall include each amendment,
modification and supplement thereto and waiver thereof in effect from time to
time.
"ACCEPTANCE CERTIFICATE" shall mean the Acceptance Certificate, dated the
Commencement Date, in the form of Exhibit B hereto.
"ADDITIONAL INSURANCE" shall have the meaning ascribed to it in Section
9(g) hereof.
"ADDITIONAL INSUREDS" shall have the meaning ascribed to it in Section
9(c) hereof.
"APPROVED REPAIR FACILITY" shall have the meaning ascribed to it in
Section 6(a)(ii).
"BASIC RENT" shall have the meaning ascribed to it in Section 3(b)
hereof.
"COMMENCEMENT DATE" shall mean June 11, 1996, the date upon which the
Engine was tendered to Lessee in conformity with this Lease and the Acceptance
Certificate was executed and delivered.
"CYCLE" shall mean any flight of any airframe to which the Engine is
attached, consisting of one take-off and one landing regardless of time elapsed
between take-off and landing and distance flown.
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"DEBT" shall mean, with respect to any Person, (a) all obligations of such
Person for borrowed money or with respect to deposits and advances of any kind,
whether evidenced by bonds, debentures, notes or other instruments, (b) all
obligations of such Person upon which interest charges are customarily paid, (c)
all obligations of such Person under conditional sale or other title retention
agreements relating to property purchased by such Person, (d) all obligations of
such Person issued or assumed as the deferred purchase price of property or
services, (e) any lease obligation that, in accordance with generally accepted
accounting principles has been or should be capitalized on the books of such
Person, and (f) all guarantees of such Person of the debts or obligations for
borrowed money of any other Person, whether direct or indirect, absolute,
contingent or otherwise.
"DEFAULT" shall mean any event that, with the passage of time or the
giving of notice or both, would become an Event of Default.
"DOLLARS" and "US$" shall mean lawful currency of the United States of
America.
"ENGINE" shall mean the CFM International Inc. Model CFM 56-3B2 jet
aircraft engine bearing manufacturer's serial number 721150, whether or not from
time to time installed on an airframe, and (ii) any Replacement Engine that may
from time to time be substituted as contemplated by Section 8(a) for the Engine
leased hereunder; together in each case with any and all Parts incorporated or
installed in or attached thereto or any and all Parts removed therefrom so long
as title thereto shall remain vested in Lessor in accordance with the terms of
Section 6(c) after removal from such Engine. Except as otherwise set forth
herein, at such time as a Replacement Engine shall be so substituted, such
replaced Engine shall cease to be an Engine hereunder. The term "Engine" means,
as of any date the Engine then leased hereunder. The Engine has and any
Replacement Engine hereunder will have not less than 750 rated takeoff
horsepower.
"ENGINE LEASE NOVATION" shall mean the Engine Lease Novation Agreement
dated the Closing Date by and among TACA, Lessor and Lessee.
"ENGINE LOSS VALUE" shall mean [ ]* United States Dollars(US$[ ]*).
"ENGINE RESERVES" shall have the meaning ascribed to it in Section 6(b)
hereof.
"ENGINE STAND" shall mean that certain PF Industries, Inc. model PF71-169
engine stand bearing serial number 0001B.
"EVENT OF DEFAULT" shall have the meaning ascribed to it in Section
14(a) hereof.
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"EVENT OF LOSS" with respect to the Engine shall mean any of the following
events, whether or not the same shall constitute and Event of Loss with respect
to any airframe to which the Engine is, at any time attached, and whether or not
the Engine is attached to an airframe: (i) loss of the Engine or the use thereof
due to theft, disappearance, destruction, damage beyond repair or rendition of
such property permanently unfit for normal use for any reason whatsoever; (ii)
any damage to the Engine that results in the receipt of insurance proceeds with
respect to the Engine on the basis of a total loss; (iii) the condemnation,
confiscation or seizure of, or requisition of title to, such Engine by any
authority, or a requisition for use of such property by any authority other than
a Government Entity of the United States of America; (iv) as a result of any
rule, regulation, order or other action by the FAA, or other governmental body
having jurisdiction thereof, or any other occurrence, the use of the Engine in
the normal course of air transportation of persons shall have been prohibited
for a period of three consecutive months unless Lessee, prior to the expiration
of such three-month period, shall have undertaken and shall be diligently
carrying forward all steps that are necessary or desirable to permit the normal
use of the Engine by Lessee or, in any event, if such use shall have been
prohibited for a period of six consecutive months; (v) the inability for any
reason of Lessor to obtain possession of the Engine within 30 days after this
Lease shall have been declared to be in default pursuant to Section 14, free and
clear of all liens (other than Lessor's Liens); and (vi) as described in clause
(iv) of Section 7(d).
"FAA" shall mean the United States Federal Aviation Administration and any
successor agency thereto.
"FEDERAL AVIATION ACT" shall mean the United States Federal Aviation Act
of 1958 as amended, and the regulations promulgated thereunder.
"FLIGHT HOUR" shall mean each hour or part thereof elapsing from the
moment the wheels of the airframe on which the Engine is then installed leave
the ground on takeoff until the wheels of such airframe touch the ground on
landing following such flight. For purposes of all calculations under this Lease
measured in Flight Hours, such hours, including fractions thereof, shall be
measured to two decimal places.
"GOVERNMENT ENTITY" means (i) any national, state or local government of
the United States of America or any other country where an airframe upon which
the Engine is attached may be flown and operated by Lessee, (ii) any board,
commission, department, division, instrumentality, court, agency or political
subdivision of any entity described in (i) above, however constituted, and (iii)
any association, organization or institution of which any entity described in
(i) or (ii) above is a member or to whose jurisdiction any thereof is subject.
"INDEMNITEE" shall have the meaning ascribed to it in Section 12a hereof.
"KGAL" shall mean KG Aircraft Leasing Co., Limited, a corporation
organized and existing under the laws of Ireland.
"LEASE," "this Lease Agreement," "this Lease," "this Agreement," "herein,"
"hereunder," "hereby," or other like words shall mean this Lease as originally
executed or as modified, amended or supplemented pursuant to the applicable
provisions hereof.
"LEASE TERM" shall have the meaning ascribed to it in Section 2(a) hereof.
"LESSOR LIEN" shall mean any Lien arising as a result of (i) claims
against Lessor not related to the transactions contemplated by this Lease, (ii)
Taxes imposed against Lessor that are not indemnified against by Lessee pursuant
to Section 12(b), (iii) claims against Lessor arising out of the transfer by
Lessor of all or any part of its interest in the Engine, other than by reason of
the occurrence of an Event of Loss or following an Event of Default.
"LIEN" shall mean any mortgage, pledge, lien, charge, encumbrance, lease,
exercise of rights, security interest or claim of any nature whatsoever.
"MAINTENANCE PROGRAM" shall have the meaning ascribed to it in Section
6(a) hereof.
"MANUFACTURER" shall mean CFM International, Inc., a Delaware
corporation.
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"PARTS" shall mean any and all appliances, parts, attachments, accessions,
appurtenances, accessories and other equipment of whatever nature attached to or
incorporated in the Engine.
"PAYMENT DATE" shall mean the fifteenth (15) day of each consecutive
calendar month commencing with the calendar month immediately following the
Commencement Date and each consecutive calendar month thereafter during the
Lease Term; provided however that Lessee, on or prior to the Commencement Date,
shall pay Basic Rent in respect of the Engine corresponding to the first month
of the Lease Term.
"PERMITTED LIEN" shall have the meaning ascribed to it in Section 7(b)
hereof.
"PERSON" shall mean an individual, corporation, partnership, joint
venture, trust, unincorporated organization or any other juridical entity, or a
Government Entity.
"POST-DEFAULT RATE" shall mean a rate per annum equal to three percent
(3%) above the rate publicly announced from time to time by Citibank, N.A., New
York, New York (or any successor institution) as its "prime rate" (or, if no
such rate exists, any comparable reference rate established by such institution)
on the basis of the actual number of days elapsed over a 360-day year.
"PROCESS AGENT" shall have the meaning ascribed to it in Section 16(b)
hereof.
"RENT" shall mean Basic Rent and Supplemental Rent.
"REPLACEMENT ENGINE" shall mean a CFM International, Inc. CFM 56-3B2 jet
aircraft engine (or engine of the same manufacturer of the same or an improved
model) approved by Lessor, that has a value, utility and thrust at least equal
to those of the Engine, together with all Parts relating to such engine.
"SECURITY DEPOSIT" shall have the meaning ascribed to it in Section
3(a) hereof.
"SUPPLEMENTAL RENT" shall mean all amounts, sums, monies, indebtedness,
liabilities and obligations (other than Basic Rent) that Lessee assumes, agrees
or otherwise becomes liable to pay to Lessor or others hereunder or under any
other document or agreement entered into by Lessee and Lessor in connection
herewith or with the transactions contemplated hereby and thereby including,
without limitation, payments of Engine Reserves, Engine Loss Value and any
interest payable with respect to payments pursuant to Section 3(f).
"TACA" shall mean TACA International Airlines, S.A., a corporation
organized and existing under the laws of El Salvador.
"TAX" or "TAXES" shall mean any and all fees (including, without
limitation, license and registration fees), taxes (including, without
limitation, gross receipts, income, sales, rental, use, turnover, value added,
property (tangible or intangible), excise and stamp taxes, levies, imposts,
duties, charges, assessments or withholdings of any nature whatsoever, together
with any and all penalties, fines, additions to tax and interest thereon or
computed by reference thereto.
"TAXING AUTHORITY" shall have the meaning ascribed to it in Section
12(b) hereof.
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"1997 TRUST AGREEMENT" shall mean the Trust Agreement dated as of June 15,
1997 between FSB and KGAL, as originally executed or as modified, amended or
supplemented pursuant to the applicable provisions thereof.
Section 2. LEASE; LEASE TERM; DELIVERY OF ENGINE
a) LEASE; LEASE TERM. Lessor hereby Leases to Lessee the Engine and the
Engine Stand, for a period (the "Lease Term") commencing from the Commencement
Date and ending, unless earlier terminated pursuant to the provisions of this
Lease, on such date as shall fall 120 consecutive calendar months following the
Commencement Date (the "Expiration Date").
(b) CONDITION OF ENGINE AT DELIVERY. Lessee acknowledges that on the
Commencement Date, the Engine was delivered to Lessee in Dallas, Texas, and was
in conformity with the description thereof set forth in Exhibit A hereto. On
June 11, 1996, Lessee delivered to Lessor an Acceptance Certificate, which is
conclusive proof as between Lessor and Lessee that Lessee has examined the
Engine, that the Engine and the Engine Documentation are satisfactory to Lessee
and that Lessee has accepted the Engine for lease hereunder without any
reservations whatsoever (except as noted therein).
Section 3. SECURITY DEPOSIT AND OTHER PAYMENTS
(a) SECURITY DEPOSIT. Lessor acknowledges receipt from or for the account
of Lessee of a security deposit (the "Security Deposit") in the total amount of
[ ]* Dollars (US$[ ]*) (the "Security Deposit Amount"). The Security Deposit
shall be held by Lessor during the Lease Term as security for the full and
punctual performance by Lessee of all of its obligations hereunder. During the
Lease Term, the Security Deposit may be commingled by Lessor with other funds.
Interest, if any, earned on the Security Deposit shall be for Lessor's sole
account. Lessor may, but shall not be obligated to, apply the Security Deposit,
in whole or in part for the payment of any Basic Rent owing hereunder or any
other amount owing from time to time by Lessee hereunder, or utilize the
Security Deposit in whole or in part to perform any of Lessee's obligations
hereunder or otherwise remedy any Event of Default, without prejudice to any
other remedy of Lessor. Lessee shall not attempt to subject the Security Deposit
to any Lien or to assign any interest therein to any Person and, to the extent
of its interest therein, Lessee hereby grants to Lessor a Lien on the Security
Deposit and assigns and transfers to Lessor any and all of Lessee's right, title
and interest therein, as security as provided above, and Lessor shall be
entitled to the remedy of offset against and application of the Security
Deposit, without any prior notice to or demand against Lessee (except to the
extent otherwise required by applicable law), all of which are hereby waived. If
Lessor uses or applies all or a portion of the Security Deposit, such
application shall not be deemed a cure of any Event of Default, until and unless
Lessee shall have replenished the amount applied hereunder within the time
period provided herein. Lessee shall replenish any portion or all of the
Security Deposit applied by Lessor to satisfy, in whole or in part, any Event of
Default by depositing with Lessor in immediately available funds an amount
sufficient to restore the Security Deposit to the Security Deposit Amount within
three (3) Business Days after Lessor's demand therefor. Within fifteen (15) days
after redelivery of the Engine to Lessor by Lessee, and provided the Engine is
delivered in full conformity with the return conditions set forth in Section 10
hereof, and that Lessee has paid, in full, all amounts owing by Lessee hereunder
and performed all of its obligations hereunder, Lessor will return to Lessee the
Security Deposit, without interest, less any amounts applied by Lessor and not
replenished by Lessee.
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(b) BASIC RENT. Lessee agrees to pay Lessor rent with respect to the
Engine, monthly, in advance on each Payment Date, in the amount of [ ]* Dollars
(US$[ ]*) per month ("Basic Rent").
(c) [Intentionally left blank.]
(d) SUPPLEMENTAL RENT. Lessee agrees promptly to pay to Lessor any and all
Supplemental Rent, as the same shall become due and owing, and in the event of
any failure on the part of Lessee to pay any Supplemental Rent, Lessor shall
have the same rights, powers and remedies provided for herein or by law or
equity or otherwise as in the case of nonpayment of Basic Rent.
(e) MANNER OF PAYMENT. All payments of Rent shall be paid directly to
Lessor to:
The Bank of Tokyo-Mitsubishi, Ltd., New York
Chips UID: 076 886 ABA No. 026 009632
A/C The Bank of Tokyo-Mitsubishi, Ltd.,
London Branch
00-00 Xxxxxxxx Xxxxxx
Xxxxxx XX0X 0XX
Xxxxxxx
Tel: 00 000 000 0000
Fax: 00 000 000 0000
F/O KG Aircraft Leasing Co., Ltd.
Number 245662 Current Account
or such other bank accounts as Lessor shall specify by written notice to Lessee.
All payments of Rent shall be made in immediately available funds in Dollars by
2:00 p.m. New York City time, on the date when due; provided, however, that in
the event that any payment should be due on a day that is not a Business Day
then such payment shall be made on the Business Day next succeeding such day
without any penalty for late payment.
(f) LATE PAYMENTS. As to any (i) amount due under this Lease that is not
paid when due as herein provided, or (ii) advance made by Lessor of any amount
required to be paid by Lessee as herein provided and not so paid by Lessee,
Lessee shall pay to Lessor at the time of payment thereof, as Supplemental Rent,
interest thereon at the Post-Default Rate, from either the due date thereof (as
to amounts referred to in clause (i)) or the date of the advance by Lessor (as
to amounts referred to in clause (ii)), as the case may be, to the date such
late payment is paid in full.
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(g) NO SETOFF, COUNTERCLAIM, ETC. Notwithstanding anything to the
contrary herein and except as otherwise set forth in this Section 3(g), Lessee's
obligations and liabilities to pay all amounts payable hereunder shall be
absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, (i) any setoff, counterclaim, recoupment, defense
or other right that Lessee may have against Lessor or any other Person for any
reason whatsoever, (ii) any defect in the title caused directly by an act or
omission of Lessee, airworthiness, condition, design, operation or fitness for
use of or any damage to or loss or destruction of, the Engine, any Engine or any
Part thereof or of any airframe upon which the same is installed or any
interruption or cessation in the use or possession thereof by Lessee for any
reason whatsoever, (iii) any insolvency, bankruptcy, reorganization or similar
proceedings by or against Lessee, (iv) the disaffirmance or rejection of this
Lease by Lessor or any trustee in bankruptcy (or similar party) provided that
there shall have been no change materially adverse to the Lessee in any of the
terms or conditions of this Lease in connection with applicable bankruptcy
proceedings, (v) claims against the Manufacturer or manufacturer of any airframe
upon which the Engine is installed, (vi) enforceability or lack of
enforceability of any of the terms or conditions of this Lease, (vii) breach by
Lessor of any warranty, express or implied, with regard to the Engine or any
Part thereof, including, without limitation, merchantability or fitness for any
purpose or use relating to or otherwise made or alleged to be made by Lessor to
Lessee or any of its agents, representatives or employees with regard to the
Engine or any Part thereof, (viii) any right, claim, demand, xxxx, action or
suit whatsoever by or against or on the part of Lessee against Lessor,
including, without limitation, whether arising out of legal action or otherwise
(x) at law or in equity, (y) whether affirmative, negative or defensive in
nature for or on account of the legality, enforceability, validity or other
infirmity as to (A) any of the terms or conditions of this Lease, (B) any
express or implied warranty as to the Engine or any Part thereof or (C) arising
out of or as a result of any contract, agreement, assignment or transaction
between Lessor and Lessee whether direct or indirect, written or oral, (ix) any
interruption or cessation in the use or possession of the Engine by or
availability of the Engine to Lessee for any reason whatsoever whether arising
out of relating to an act or omission of Lessee; or (x) any other circumstances,
happening or event whatsoever, whether or not similar to any of the foregoing
which but for this provision might have the effect of terminating this Lease, it
being the intention of the Lessor and Lessee that all Rent and other amounts
payable by Lessee hereunder shall be payable in all events unless the obligation
to pay the same shall be terminated pursuant to the express provisions of this
Lease. Lessee hereby waives, to the fullest extent permitted by applicable law
any and all rights it may now have or that at any time hereafter may be
conferred upon it, by statute or otherwise, to terminate, cancel, quit or
surrender this Lease except in accordance with the express terms hereof.
Notwithstanding anything contained in this Section 3(g), in the event that as a
result of a breach by Lessor or anyone claiming by, through or under Lessor of
its covenant of quiet enjoyment (including any defect in title not caused by an
act or omission of Lessee), Lessee shall be deprived of possession or use of the
Engine under and in accordance with this Lease, Lessee shall not be required to
pay Basic Rent and Maintenance Reserves in respect of such period of
non-possession of or inability to use the Engine. Each payment of Rent made by
Lessee shall be final as to Lessor and Lessee, and Lessee will not seek to
recover all or any part of any such payment of Rent from Lessor or its
successors or assigns for any reason whatsoever.
Nothing in this Section 3(g) or elsewhere in this Lease shall be construed
to limit Lessee's right to seek a recovery of any payment of Rent or any other
amount which is not due and payable hereunder, or to limit Lessee's rights and
remedies to pursue, in a court of law or otherwise, any claim it may have
against Lessor on account of any failure of Lessor to perform its obligations
hereunder or in connection herewith.
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Section 4. CONDITIONS PRECEDENT AND OTHER REQUIREMENTS.
(i) The obligation of Lessor to lease the Engine to Lessee on the terms
and conditions herein set forth was subject to the satisfaction, on or before
the Commencement Date, of each of the following conditions (which the parties
hereto agree were satisfied or waived on or before the Commencement Date):
(a) EXECUTION AND DELIVERY OF DOCUMENTS. Lessee shall have duly executed
and delivered to Lessor (i) this Lease, and (ii) the Acceptance Certificate.
(b) REPRESENTATIONS, WARRANTIES, NO DEFAULT. (i) All of the
representations and warranties of Lessee contained in this Lease shall be true
and correct on and as of the Commencement Date as though made on such date or,
if they relate solely to an earlier date, as of such date and (ii) no Default or
Event of Default shall have occurred and be continuing or would result from
Lessee's execution, delivery and performance of this Lease, and Lessor shall
have received an Officer's Certificate in form and substance satisfactory to it,
to the effect of each of the foregoing.
(c) RESOLUTIONS, ETC. Lessor shall have received, in form and substance
satisfactory to it, a certificate of the Secretary or an Assistant Secretary of
Lessee with respect to the resolutions of the Board of Directors of Lessee
authorizing the execution, delivery and performance by Lessee of this Lease and
all other documents and certificates contemplated hereby to be executed on
behalf of Lessee, and the authority and signatures of the persons authorized to
execute and deliver such documents on behalf of Lessee.
(d) SECURITY DEPOSIT AND BASIC RENT. On or before the Commencement Date
Lessor shall have received immediately available funds in the amount of the
balance of the Security Deposit Amount and the first Basic Rent payment.
(e) INSURANCE CERTIFICATE. Lessor shall have received, on or prior to the
Commencement Date, in form and substance satisfactory to it, an insurer's or
broker's certificate as to the due compliance by Lessee with the insurance
provisions of Section 9.
(f) FILINGS; FINANCING STATEMENTS. Lessor shall have received evidence
satisfactory to it that this Lease shall have been duly filed for recordation
with the FAA pursuant to the Federal Aviation Act. If requested by Lessor,
Lessee shall have executed (as debtor) and delivered to Lessor one or more
precautionary Uniform Commercial Code financing statements for filing in such
places in the United States as, in the Lessor's opinion, are necessary or
desirable.
(g) OPINIONS OF COUNSEL. Lessor shall have received favorable opinions
addressed to Lessor from Winthrop, Stimson, Xxxxxx & Xxxxxxx and Sparks, Dix,
P.C., counsel for Lessee, dated as of the Commencement Date.
(h) NO EVENT OF LOSS. No Event of Loss shall have occurred with respect to
the Engine.
(i) ACCEPTANCE BY PROCESS AGENT. CT Corporation System shall have accepted
its appointment as Process Agent on behalf of Lessee by one or more instruments
in writing delivered to Lessor.
(ii) The obligation of Lessee to Lease the Engine from Lessor pursuant
hereto was subject to the satisfaction, on or before the Commencement Date, of
each of the following conditions (which the parties hereto agree were satisfied
or waived on or before the Commencement Date):
8
(a) DELIVERY OF ASSIGNMENTS OF WARRANTIES. Lessee shall have received from
Lessor an Assignment of Warranties in form and substance reasonably acceptable
to Lessee, duly accepted by the Manufacturer.
(b) RESOLUTIONS, ETC. Lessee shall have received, in form and substance
reasonably satisfactory to it, a certificate of the Secretary or an Assistant
Secretary of Lessor with respect to the resolutions of the Board of Directors of
Lessor authorizing the execution, delivery and performance by Lessor of this
Lease and all other documents and certificates contemplated hereby to be
executed on behalf of Lessor, and the authority and signatures of the persons
authorized to execute and deliver such documents on behalf of Lessor.
(c) REPRESENTATIONS, WARRANTIES; NO DEFAULT. (i) All of the representations
and warranties of Lessor contained in this Lease shall be true and correct on
and as of the Commencement Date as though made on such date or, if they relate
solely to an earlier date, as of such date and (ii) no default or event of
default under any credit agreement, mortgage, lease or other agreement binding
on Lessor or any of its assets shall have occurred and be continuing or would
result from Lessor's execution, delivery and performance of this Lease, and
Lessee shall have received an Officer's Certificate in form and substance
satisfactory to it, to the effect of each of the foregoing, and (iii) Lessor
shall have received and furnished to Lessee the consent of ING Aviation Lease,
B.V. ("ING") and First Security Bank of Utah, National Association ("FSBU") to
the release of the Engine, Engine records and related Engine Reserves from the
Sublease Agreement dated as of March 18, 1996 between TACA and Lessee (the
"Sublease") and from the related Assignment of Sublease between TACA and FSBU
and the Assignment of Security Document between FSBU and ING, both dated as of
even date therewith, as the case may be.
(d) ACCEPTANCE BY PROCESS AGENT. Xxxxxxxxx, Traurig xx.xx. shall have
accepted its appointment as Process Agent on behalf of Lessor.
(e) CREDIT DEPOSIT FOR RESERVES. Lessor shall, on the Commencement Date,
credit Lessee with the full amount of Engine Reserves actually received by
Lessor under the Sublease prior to the Commencement Date, including all amounts
received in respect of the Shop Visit Portion and the LLP Portion of said Engine
Reserves which amounts shall be credited as appropriate to the Shop Visit
Portion and the LLP Portion of Engine Reserves payable pursuant to Section 6(b)
hereof. The amount so credited shall constitute Engine Reserves available to be
reimbursed to Lessee as provided in Section 6(b)(ii) below.
Section 5. DISCLAIMER; MANUFACTURER AND VENDOR WARRANTIES
a) DISCLAIMER BY LESSOR. TO THE EXECUTION OF THIS LEASE, LESSEE HAS
SELECTED THE TYPE OF ENGINE AND PARTS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
SECTION 5(b) BELOW, NEITHER LESSOR NOR ANY SUCCESSOR IN INTEREST TO LESSOR HAS
MADE NOR SHALL BE DEEMED TO HAVE MADE AND ACCORDINGLY MAKES NO WARRANTY, EXPRESS
OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE ENGINE
AND PARTS, ITS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND LESSOR
EXPRESSLY DISCLAIMS THE SAME AND AS RESPECTS LESSOR, LESSEE LEASES THE ENGINE
AND PARTS "AS IS" AND "WHERE IS". EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
SECTION 5(b) BELOW, LESSOR HEREBY EXPRESSLY DISCLAIMS ANY WARRANTY EITHER
EXPRESS OR IMPLIED (WHETHER STATUTORY OR OTHERWISE) RELATING TO THE CAPACITY,
AGE, QUALITY, DESCRIPTION, STATE, CONDITION, DESIGN, CONSTRUCTION, USE,
OPERATION, OR PERFORMANCE OF THE ENGINE OR THE SUITABILITY OF THE ENGINE OR ITS
FITNESS FOR ANY PARTICULAR PURPOSE OR AS TO ITS AIRWORTHINESS. LESSOR SHALL HAVE
NO LIABILITY TO LESSEE FOR ANY CLAIM, LOSS OR DAMAGE WHATSOEVER INCLUDING, BUT
NOT LIMITED TO, INCIDENTAL OR CONSEQUENTIAL DAMAGES, CAUSED OR ALLEGED TO BE
CAUSED DIRECTLY OR INDIRECTLY BY THE ENGINE OR PARTS, OR BY ANY INADEQUACY
THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY INCIDENT WHATSOEVER IN
9
CONNECTION THEREWITH ARISING IN STRICT LIABILITY, NEGLIGENCE OR OTHERWISE, OR IN
ANY ACTION RELATED TO OR ARISING OUT OF THIS LEASE OR ANY OTHER DOCUMENT AND
WHETHER INVOLVING PERSONAL INJURY, PROPERTY DAMAGE OR OTHERWISE. EXCEPT AS
EXPRESSLY PROVIDED IN SECTION 5(b) BELOW, LESSEE HEREBY WAIVES AS BETWEEN ITSELF
AND LESSOR AND ANY PERSON CLAIMING BY, THROUGH OR UNDER LESSOR, ALL ITS RIGHTS,
EXPRESS OR IMPLIED (WHETHER STATUTORY OR OTHERWISE), AGAINST LESSOR IN AND TO
THE ENGINE RELATING TO THE CAPACITY, AGE, QUALITY, DESCRIPTION, STATE,
CONDITION, DESIGN, CONSTRUCTION, USE, OPERATION OR PERFORMANCE OF THE ENGINE AND
THE LEASING THEREOF BY LESSOR TO LESSEE, OR TO THE MERCHANTABILITY OR
SUITABILITY OF THE ENGINE OR ITS FITNESS FOR ANY PARTICULAR PURPOSE OR AS TO ITS
AIRWORTHINESS. In particular and without prejudice to the generality of the
foregoing, Lessor shall not be under any liability whatsoever and howsoever
arising, whether in contract or tort or both, in respect of any loss, liability,
damage or delay of or to or in connection with the Engine or any Person or
property whatsoever, whether or not the Engine is attached to an airframe and
irrespective of whether such loss, damage or delay shall arise (x) from the
unairworthiness of the Engine, or (y) from any action or omission of Lessor
(other than any action or omission that constitutes willful misconduct or gross
negligence of Lessor).
(b) LESSOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding
and as the sole exception to Section 5(a), (i) FSB represents and warrants that
it is a national banking association duly organized, validly existing and in
good standing under the laws of the United States and has all requisite
corporate power, authority and legal right to enter into and to perform its
obligations under the 1997 Trust Agreement, (ii) Lessor represents and warrants
that (A) unless a Default or an Event of Default shall have occurred and be
continuing neither Lessor nor anyone claiming by, under or through Lessor shall
take any actions inconsistent with Lessee's right of quiet enjoyment; (B) FSB
holds all material licenses, certificates and permits necessary for the conduct
of its business as now conducted; (C) the execution, delivery and performance of
this Lease has been duly authorized by all necessary corporate action of Lessor,
and does not and will not (1) result in the violation of the provisions of the
charter documents or bylaws of Lessor as in effect on the date hereof, (2)
require stockholder approval or approval or consent of any trustee or holders of
any indebtedness of Lessor, except such approvals which have been obtained and
are in full force and effect, (3) contravene any law, rule or regulation or any
order of any Government Entity binding on Lessor, nor (4) conflict with or
result in a breach of any terms or provisions of or constitute a default under,
or result in or require the creation or imposition of any Lien upon any material
property or assets of Lessor under, any indenture, mortgage or other agreement
or instrument as in effect on the date hereof to which Lessor is a party or by
which it or any of its property is bound, or any applicable law, rule or
regulation, judgment, order or decree of any Government Entity or court having
jurisdiction over Lessor or any of its properties; and (D) this Lease
constitutes the legal, valid and binding obligation of Lessor, enforceable
against Lessor in accordance with its terms except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and, to the extent that certain
remedies require or may require enforcement by a court of equity, by such
principles of equity (regardless of whether such enforceability is considered in
a proceeding at law or in equity) as a court having jurisdiction may impose.
10
(c) MANUFACTURER AND VENDOR WARRANTIES. Lessor hereby assigns to Lessee for
the duration of the Lease Term (so long as no Event of Default shall have
occurred and be continuing) all assignable warranties, if any, given by the
Manufacturer and other vendors with respect to the Engine and shall obtain
Manufacturer's consent to such assignment. Lessee will diligently and promptly
pursue any valid claims it may have under such warranties and will provide
notice of the same to Lessor. To the extent that any warranty given by the
Manufacturer or others with respect to the Engine are not assignable or
otherwise made available to Lessee, Lessor agrees, at its option, either (i) to
authorize Lessee to take such action to enforce such warranty in the name of
Lessor as Lessee sees fit or (ii) to exert reasonable efforts at Lessee's
request and expense (and subject to Lessee making adequate provision to the
satisfaction of Lessor with respect to such expense) to enforce any such
warranties for the benefit of Lessee. Effective on the return of the Engine or
the termination of this Lease, whichever is earlier, Lessee hereby assigns any
remaining warranties, and any claims thereunder, to Lessor or its designee. Upon
the exercise by Lessor of any remedies in respect of an Event of Default, and at
the latest, upon expiration of the Lease Term, the benefit of all warranties
referred to herein shall immediately revert and be deemed to have been
reassigned by Lessee to Lessor.
Section 6. MAINTENANCE; REPLACEMENT AND POOLING OF PARTS; ALTERATIONS,
MODIFICATIONS AND ADDITIONS.
a) MAINTENANCE
(i) So long as Lessor has not committed a breach of its covenant of
quiet enjoyment which shall have the effect of depriving Lessee of the use
or possession of the Engine during the Lease Term and until the Engine is
returned to Lessor, Lessee shall, at its sole cost and expense, service,
inspect, test, maintain, overhaul and repair the Engine and all of the
Parts in accordance with the Lessee's FAA approved airworthiness
maintenance and inspection program, a copy of which has been or will be
delivered to Lessor on or prior to the Commencement Date (the "Maintenance
Program") and in conformity with the rules and regulations of the FAA, (A)
so as to keep the Engine in as good condition (operating and otherwise)
and repair as when delivered to Lessee hereunder, ordinary wear and tear
excepted and otherwise so as not to adversely effect the airworthiness
thereof, and (B) in the same manner and with the same care as used by
Lessee with respect to similar engines owned or operated by Lessee (it
being the intention of the parties hereto that Lessee shall not
discriminate against the Engine in respect of any maintenance matters).
Lessee shall be authorized to amend its Maintenance Program; provided,
however, that not withstanding such amendment, the Maintenance Program
shall, at all times during the Term, be in full conformity with the
requirements set forth above and, further provided, that Lessee shall have
obtained Lessor's prior written consent to any material amendment or
change in or to the Maintenance Program. All service, inspection,
maintenance, modification, repair and overhaul shall be performed or
caused to be performed by Lessee in accordance with all applicable FAA
requirements and under the Maintenance Program, and shall be accomplished
in accordance with all applicable service, inspection, maintenance,
modification, repair and overhaul manuals and bulletins published by the
Manufacturer. Without limiting the generality of the foregoing or the
obligations of Lessee hereunder, Lessee agrees that such maintenance and
repairs will include but will not be limited to each of the following:
(A) to perform in accordance with the Maintenance
Program all routine and non-routine maintenance work;
(B) to comply on a terminating basis with all outstanding
mandatory orders, and airworthiness directives issued by the FAA
during the Lease Term affecting the Engine that have an effective
date for compliance prior to, or sooner than one hundred (180) days
after, the return date of the Engine;
11
(C) to incorporate in the Engine all mandatory service
bulletins of the Manufacturer and other vendors issued during the
Lease Term which Lessee schedules to incorporate during the Lease
Term on engines in its Boeing 737 fleet; and
(D) to maintain, in the English language (1) the Engine
Documentation and (2) any other records, logs or other documents,
information or materials relating to the service, inspection,
testing, maintenance, modification, overhaul and repair of the
Engine, any Engine and any Part which are required by the FAA or by
applicable law, all of which shall at all times be kept current and
up-to-date, shall conform with the laws of any Government Entity
having jurisdiction and with normal practices of commercial air
carriers, shall disclose the location of the Engine and shall be
made available for review by Lessor on reasonable notice.
(ii) Lessee shall have designated persons in its employment
authorized by the FAA to perform service, inspection, modifications repair
and alterations of the Engine, or shall have the same performed on its
behalf by an FAA approved repair and overhaul station in conformity with
FAR 145 ("Approved Repair Facility"). In the event Lessee has a third
party accomplish, on a continuous basis, some or all of the maintenance
requirements under the Maintenance Program such maintenance by said third
party must be accomplished in accordance with the provisions of this
Section 6(a). Lessor shall be entitled and Lessee shall ensure that Lessor
is permitted to visit the facilities of any such third party maintenance
performer to inspect the maintenance work performed and the maintenance
record of the Engine.
(iii) Any repair to the Engine that is not covered by the
Manufacturer's repair manual instructions shall be subject to Lessor's
prior written approval and shall be made under an FAA approved program.
(b) ENGINE RESERVES
(i) Lessee shall pay Lessor, as a Supplemental Rent for the use of
the Engine during the Lease Term, within fifteen (15) days following the
last day of each calendar month during the Lease Term and on the
redelivery date, with respect to the Engine, the sum (the "Engine
Reserves") of (x) the amount determined by multiplying the number of
Flight Hours of operation of such Engine during the immediately preceding
month by [ ]* Dollars (US$[ ]*) which amount shall be applied toward
restoration shop visits (the "Shop Visit Portion") and (y) the amount
determined by multiplying the number of Cycles of operation of the Engine
during the immediately preceding month by [ ] Dollars (US$[ ]*) which
amount shall be applied toward the cost of life-limited parts (the "LLP
Portion"). It is the intent of the parties hereto that the Engine be
operated during the Lease Term at an average Flight Hour/Cycle ratio (the
"Ratio") of one and seven-tenths Flight Hours to one Cycle 1.7:1. During
any calendar year during the Lease Term, the total Engine Flight Hours for
the Engine recorded in respect of the previous twelve months shall be
compared with the Cycles flown for the Engine and the Ratio computed. The
rate payable by way of maintenance reserve in respect of each complete
Flight Hour (pro rata for part thereof) for the Engine applicable with
respect to the Shop Visit Portion of the Engine Reserves due from Lessee
after such annual Ratio computation and prior to the next annual Ratio
computation shall be as provided in Exhibit E hereof for such Ratio. Any
excess Engine Reserves remaining at the expiration of the Lease Term or
earlier termination of this Lease shall be retained by Lessor.
12
(ii) Lessee shall be entitled to reimbursement from the Shop Visit
Portion of the Engine Reserves for Lessee's actual costs (without xxxx-up)
incurred with respect to restoration shop visits of the Engine, excluding
any costs associated with replacement of life limited parts and the cost
of any repairs or maintenance required due to accidents, abuse, misuse,
mishandling, faulty maintenance, foreign object damage, elective part
replacement or any insured event. Such reimbursement shall be made within
ten (10) Business Days after presentation to Lessor of appropriate written
evidence of such expenses (which shall include a copy of an invoice from
an FAA-approved maintenance facility indicating that the maintenance has
been completed and identifying those engine maintenance tasks accomplished
and the labor and material breakdown thereof, and a receipt from the
maintenance facility for payment of the invoice, or at least such amount
thereof as shall exceed the portion of the Engine Reserves available to
Lessee hereunder); provided, that (A) the amount reimbursed to Lessee
shall not exceed the amount of the Engine Reserves paid by Lessee (and not
previously disbursed) allocable to the Shop Visit Portion of the Engine
Reserves, and (B) in no event shall Lessee be entitled to reimbursement
for any expenses related to removal or installation of the Engine for
maintenance or any other shipping or transportation expenses. To the
extent that any amount reimbursable hereunder has not been paid by Lessee,
such amount shall be paid directly to the maintenance facility which
performed the services for which reimbursement is sought.
(iii) Lessee shall be entitled to reimbursement from the LLP Portion
of the Engine Reserves (i) for the full replacement cost of life limited
parts having a remaining life of up to and including one thousand two
hundred fifty (1250) Cycles. Upon reimbursement of such replacement costs,
Lessee shall deliver the removed life limited parts to Lessor at the
overhaul facility and cause title thereto to vest in Lessor free and clear
of all Liens other than Lessor Liens, and (ii) of such portion of the
replacement cost of life limited parts having a remaining life in excess
of one thousand two hundred fifty (1250) Cycles as corresponds to the
utilized (non-remaining) portion of the life of such life limited parts as
compared to the total life thereof when new, as expressed in Cycles. With
respect to such life limited parts having a remaining life in excess of
one thousand two hundred fifty (1250) Cycles, title to such life limited
parts shall be deemed to vest in Lessee upon installation of replacement
parts on an Engine. Such reimbursement shall be made within ten (10)
Business Days after presentation to Lessor of appropriate written evidence
of such costs (which shall include a copy of an invoice from an
FAA-approved supplier of such life limited parts, identifying those
purchased and receipt of payment therefor or at least payment for such
portion as shall exceed the LLP Portion of the Engine Reserves available
to Lessee hereunder and of the Approved Repair Facility indicating that
such life limited parts have been installed on an Engine; provided, that
(A) the amount reimbursed to Lessee shall not exceed the amount of the
Maintenance Reserves paid by Lessee (and not previously disbursed)
allocable to the LLP Portion of the Engine Reserves and (B) in no event
shall Lessee be entitled to reimbursement for any expenses related to
removal, shipping or transportation expenses. To the extent that any
amount reimbursable hereunder has not been paid by Lessee, such amount
shall be paid directly to the supplier of the life limited part(s) for
which reimbursement is sought.
(c) REPLACEMENT OF PARTS. Lessee, at its own cost and expense, will
promptly replace all Parts that may from time to time be incorporated or
installed in or attached to the Engine and that may from time to time become
worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever. In addition,
Lessee may, at its own cost and expense, remove in the ordinary course of
maintenance, service, repair, overhaul or testing, any Parts, whether or not
worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use; provided that Lessee will, at its own cost
13
and expense, replace such Parts as promptly as possible. All replacement Parts
shall be free and clear of all Liens (except Permitted Liens and pooling
arrangements permitted by Section 6(d)) and shall be in as good operating
condition as, and shall have a value and utility at least equal to, the Parts
replaced (assuming such replaced Parts were in the condition and repair required
to be maintained by the terms hereof). All Parts at any time removed from the
Engine shall remain subject to this Lease, no matter where located, until such
time as such Parts shall be replaced by Parts that have been incorporated or
installed in or attached to the Engine and that meet the requirements for
replaced Parts specified above. Immediately upon any replacement Part becoming
incorporated or installed in or attached to the Engine as above provided,
without further act, (i) title to the replaced Part shall there upon vest in
Lessee, free and clear of Lessor's Liens and all rights of Lessor and shall no
longer be deemed a Part hereunder provided, however, that in the case of any
Part that is replaced by a replacement Part subject to a pooling arrangement,
title to such replaced Part shall not vest in Lessee until Lessee has complied
with Section 6(d), (ii) title to such replacement Part shall vest in Lessor and
such replacement Part shall thereupon become subject to this Lease (subject only
to a pooling arrangement to the extent permitted by Section 6(d)) and (iii) such
replacement Part shall be deemed part of the Engine for all purposes hereof to
the same extent as the Parts originally incorporated or installed in or attached
to the Engine.
Notwithstanding the provisions of this Section 6(c), provided that no
Event of Default has occurred and is continuing, Lessee may install any part on
the Engine by way of temporary replacement if: (i) there is not available to
Lessee at the time and in the place that a part is required to be installed on
the Engine, a Replacement Part complying with the requirements of Section 6(c);
(ii) it would result in an unreasonable disruption of the operation of the
Engine and/or the business of Lessee to ground the Engine until a Part complying
with Section 6(c) becomes available for installation on the Engine; and (iii) as
soon as practicable after installation of the same on the Engine but, in any
event, no later than the date of the next restoration shop visit (except as such
time may be extended pursuant to Section 8(a)), Lessee removes any such part and
replaces it with a part complying with Section 6(c).
(d) POOLING OF PARTS. Any part removed from the Engine as provided in
Section 6(c) may be subjected by Lessee to a normal pooling arrangement
customary in the airline industry entered into in the ordinary course of
Lessee's business with financially and operationally responsible air carriers;
provided, that the Part replacing such removed Part shall be incorporated or
installed in or attached to the Engine in accordance with Section 6(c) as
promptly as possible after the removal of such removed Part. In addition, any
replacement Part when incorporated or installed in or attached to the Engine in
accordance with Section 6(c) may be owned by a financially and operationally
responsible air carrier subject to such a normal pooling arrangement; provided
that Lessee, at its expense as promptly thereafter as possible, either (i)
causes such replacement Part to become subject to this Lease in accordance with
Section 6(c) by Lessee acquiring title thereto for the benefit of Lessor free
and clear of all Liens other than Permitted Liens or (ii) replaces such
replacement Part by incorporating or installing in or attaching to the Engine a
further replacement Part owned by Lessee free and clear of all Liens other than
Permitted Liens and by causing such further replacement Part to become subject
hereto in accordance with Section 6(c).
(e) ALTERATIONS, MODIFICATIONS AND ADDITIONS. EXCEPT FOR SUCH ALTERATIONS
AND MODIFICATIONS TO THE ENGINE AS MAY BE REQUIRED FROM TIME TO TIME TO MEET THE
STANDARDS OF THE FAA OR OTHER GOVERNMENTAL ENTITY HAVING JURISDICTION AND AS
REQUIRED TO CONFORM TO MANUFACTURERS' MANDATORY SERVICE BULLETINS, LESSEE SHALL
MAKE NO ALTERATIONS, MODIFICATIONS OR ADDITIONS TO THE ENGINE WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR. Lessee, at its own expense, will make such
alterations and modifications to the Engine as may be required from time to time
to meet the standards of the FAA or other Governmental Entity having
14
jurisdiction and as required to conform to Manufacturers' mandatory service
bulletins, and shall notify Lessor of the nature and schedule for making such
changes and, upon submission of the Monthly Report for the month during which
completion of the same shall have occurred, of completion thereof. Unless
expressly required by the FAA or Manufacturer's mandatory service bulletins, no
alteration, modification or addition shall diminish the value or utility of the
Engine, or impair the condition or airworthiness thereof, below the value,
utility, condition and airworthiness thereof immediately prior to such
alteration, modification or addition (assuming the Engine was then of the value
or utility and in the condition and airworthiness required to be maintained by
the terms of this Lease). All parts incorporated or installed in or attached or
added to the Engine as the result of such alteration, modification or addition
shall, without further act, become subject to this Lease. Notwithstanding the
foregoing sentence of this Section 6(e), so long as no Default or Event of
Default shall have occurred and be continuing, Lessee may remove any Part;
provided that (i) such Part is in addition to, and not in replacement of or
substitution for, any Part originally incorporated or installed in or attached
to the Engine at the time of delivery thereof hereunder or any Part in
replacement of, or substitution for any such Part, (ii) such Part is not
required to be incorporated or installed in or attached or added to the Engine
pursuant to the terms of this Section 6(e) and (iii) such Part can be removed
from the Engine without diminishing or impairing the value, utility, condition
or airworthiness required to be maintained by the terms of this Lease that the
Engine would have had at such time had such removal not occurred. Upon the
removal by Lessee of any Part as above provided, title thereto shall, without
further act, vest in Lessee and such Part shall no longer be deemed part of the
Engine from which it was removed. Any Part removed by Lessee in any manner other
than as above provided prior to the return of the Engine to Lessor hereunder
shall remain the property of Lessor.
Section 7. TITLE AND REGISTRATION; LIENS; POSSESSION.
(a) TITLE. Lessee acknowledges and agrees that as between Lessor and
Lessee title to the Engine shall at all times be and remain solely and
exclusively vested in Lessor, and Lessee shall have no right, title or interest
in the Engine except the right to use the Engine as provided herein. Lessee
shall from time to time do or cause to be done all acts and things then required
by law or by practice, custom or understanding or as Lessor may reasonably
request to protect, preserve and perfect Lessor's rights, title and interest in
the Engine and this Agreement in such other jurisdictions where Lessee may
operate the Engine or to the laws of which Lessee or the Engine is or may become
subject.
(b) LIENS. Lessee will not directly or indirectly create, incur, assume or
suffer to exist any Lien on or with respect to the Engine, title thereto or any
Part or interest therein or in this Lease except (i) the respective rights of
Lessor and Lessee as herein provided, (ii) the rights of others under agreements
or arrangements to the extent expressly permitted by the terms of Section 6(d),
(iii) Lessor Liens, (iv) Liens for Taxes either not yet due or being contested
in good faith (and, in respect of such contest, for the payment of which
adequate reserves have been provided) by appropriate proceedings diligently
pursued so long as such proceedings do not involve any danger of the sale,
forfeiture or loss of the Engine or any Part or interest therein and (v)
materialmen's, mechanics', workmen's, repairmen's, employees' or other like
Liens arising in the ordinary course of business for amounts the payment of
which is either not yet delinquent or is being contested in good faith (and, in
respect of such contest, for the payment of which adequate reserves or other
adequate provisions for payment by way of security or otherwise have been
provided) by appropriate proceedings diligently pursued so long as such
proceedings do not involve any danger of the sale, forfeiture or loss of the
Engine or any Part or interest therein (each of the Liens referred to in clauses
(i) to (v) being herein referred to as "Permitted Liens"). Lessee will, at its
own expense, take such action as may be necessary duly to discharge any such
Lien not excepted above if the same shall arise at any time. Lessee hereby
further agrees that no mechanics' or similar Lien for any labor, services or
materials supplied directly by Lessee shall attach to or otherwise affect the
Engine or any Part and Lessee hereby irrevocably waives disclaims and releases
any such Lien.
15
(c) OPERATION. Lessee shall not operate or locate the Engine, or suffer
the Engine to be operated or located, (i) in violation of any applicable law,
(ii) in any area excluded from coverage by any insurance required by the terms
of Section 9, except in the case of a requisition by a Government Entity of the
United States where Lessee obtains indemnity in lieu of such insurance from such
Government Entity against the risks and in the amounts required by Section 9
covering such areas or (iii) in any recognized or threatened area of hostility
without Lessor's written consent and unless fully covered to Lessor's
satisfaction by war risk, confiscation and hijacking insurance, or unless the
Engine is operated or used under contract with a Government Entity of the United
States under which contract such Government Entity assumes direct liability to
Lessor for any damage, loss, destruction or failure to return possession of the
Engine at the end of the term of such contract and for injury to Persons or
damage to property of others. Except as otherwise provided herein, Lessee shall
not install or permit the Engine to be installed on any airframe not owned or
leased by Lessee or on any airframe owned or leased by Lessee unless and for so
long as no Lien will attach to the Engine by virtue or otherwise as a result of
such installation, without Lessor's prior written consent. Provided no Default
or Event of Default shall occur and be continuing, Lessor shall not take or
cause or permit to be taken any action inconsistent with Lessee's right of quiet
enjoyment of, or otherwise in any way interfere with or interrupt the continuing
use, operation and possession of the Engine by Lessee.
(d) POSSESSION. Except as otherwise provided in this Section 7(d), Lessee
shall have no right to sublease the Engine to any Person without having obtained
the prior written consent of Lessor, which shall not be unreasonably withheld.
In addition, Lessee will not in any manner without Lessor's prior written
consent deliver, transfer or relinquish possession of the Engine; provided,
that, so long as no Default or Event of Default is continuing, and so long as
the action to be taken shall not deprive Lessor of its interest in the Engine,
Lessee may, from time to time, take any of the following actions:
(i) deliver possession of the Engine to the Manufacturer or to any
organization for testing, service, repair, maintenance or overhaul work or
for alterations or modifications in or additions to the Engine to the
extent required or permitted by the terms of Section 6(e).
(ii) install the Engine on any airframe owned or leased by Lessee;
provided that, no Lien shall attach to any such Engine by virtue of or in
connection with such installation, and the owner, lessor, or any party
having a security interest in any such airframe grants reciprocal rights
to Lessor; and further provided that, Lessee shall maintain any and all
insurance required to be maintained upon or in respect of the Engine
hereunder at all times during the Lease Term and until redelivery of the
same in the condition required in Section 10 hereof.
(iii) transfer possession of the Engine to any Government Entity of
the United States pursuant to a sublease, a copy of which shall be
promptly furnished to Lessor, provided that such sublease shall (A) not
extend beyond the end of the Lease Term and (B) Lessee shall have
delivered to Lessor signed copies of a notice of assignment of such
sublease in favor of Lessor under the Assignment of Claims Act of 1940, as
amended (31 U.S.C. Section 3727, 41 U.S.C. Section 15) or any superseding
or successor provisions thereto, and in compliance with the applicable
provisions of 32 C.F.R. Section 7-103 and 41 C.F.R. Section 1-30.7, or
superseding or successor laws and regulations, and Lessor may at any time
when a Default or Event of Default shall have occurred and then be
continuing, file such sublease and an original and three copies of such
notice of assignment with the proper contracting and disbursing officers
and otherwise comply with all applicable provisions of 32 C.F.R. Section
7-103.8 or any superseding or successor provisions thereto; or
16
(iv) with Lessor's prior written consent, which consent shall not be
unreasonably withheld, Sublease the Engine, for a term (including all
extensions and renewals) which shall not extend beyond the end of the
Lease Term, to any United States air carrier certificated under Section
41101 of the Federal Aviation or any foreign air carrier certificated
under Section 41302 of the Federal Aviation Act. If Lessee is unable to
obtain possession of the Aircraft within thirty (30) days after such
sublease shall have been declared to be in default, free and clear of all
Liens other than Lessor Liens, or the Engine shall be deemed to have been
subject to an Event of Loss, the same shall be deemed to constitute an
Event of Loss hereunder.
Lessee shall give at least ten (10) days' prior written notice to
the Lessor of any proposed sublease under clause (iv) of this Section 7(d)
and shall provide Lessor with a copy of the proposed Sublease Agreement
and other proposed documents to be executed in connection with such
sublease. Such notice shall specify the sublessee, term of such sublease
and the domicile of the sublessee. Such notice shall also confirm that the
proposed sublease (a) requires the return of the Engine to Lessee in the
United States promptly (but in no case more than five (5) days after the
expiration of the term of the sublease and in no event later than the
expiration of the Lease Term, (B) in the case of a proposed sublease to an
air carrier other than a U.S. certificated air carrier, contains an
express waiver by such sublease of the defense of sovereign immunity (x)
in any suit, act in or proceeding arising out of or relating to such
sublease and (y) of such sublessee's property from execution or
attachment, and (C) provides that is shall terminate immediately if
insurance shall not be maintained at all times in accordance with this
Lease.
Any sublease permitted under this Section 7(d) shall (a) include terms
substantially similar to those contained in Section 12 and appropriate
provisions:
(1) requiring maintenance, insurance and operation of the
Engine to be in accordance with the relevant provisions of this
Sublease,
(2) requiring the sublessee to keep the Engine free and clear
of Liens other than Permitted Liens, and
(3) prohibiting further transfer of the Engine to or
possession thereof by any third Person (except for temporary
possession thereof to an authorized maintenance performer for
purposes of performing maintenance, testing or repairs);
(b) expressly prohibit any further sublease of the Engine by such sublessee; and
(c) be made expressly subject and subordinate to all the terms of this Lease
including, without limitation, the covenants contained in this Section 7 and
Lessor's rights to repossession pursuant to Section 14 and to avoid such
sublease upon a default thereunder or an Event of Default hereunder.
In connection with any sublease to an air carrier other than a U.S.
certificated air carrier pursuant to clause (iv) of this Section 7(d), Lessee
shall obtain, as a condition to the delivery to the proposed sublessee of the
Engine, an opinion from reputable counsel in the country of such sublessee's
domicile (or, if Lessee determined during the term of the sublease that the
Engine will be based or primarily used in a country other than the country of
such sublessee's domicile, an additional opinion or opinions of reputable
counsel in such other country) to the effect that Lessor's interest in the
Engine will be recognized, the proposed sublease is valid, binding and (except
17
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' or lessors' rights generally) enforceable
against such sublessee, under the laws of such country or countries
(notwithstanding any claim or defense by sublessee or any other Person of
sovereign immunity), copies of such opinion or opinions (x) to be forwarded
promptly to Lessor, (y) may, if different opinions are required hereunder, be
made by a single counsel qualified to render opinions in each such country and
(z) to be in form and substance reasonably satisfactory to Lessee and Lessor.
No transfer or relinquishment of possession of the Engine permitted under
this Section 7(d) shall in any way discharge or diminish any of Lessee's
obligations hereunder, or constitute a waiver of any of Lessor's rights and
remedies hereunder. Notwithstanding any transfer or relinquishment of possession
permitted under this Section 7(d), Lessee shall remain primarily liable
hereunder for the performance of all of the terms of this Lease to the same
extent as if any such transfer or relinquishment of possession had not occurred.
(e) IDENTIFICATION PLATE. Lessee shall maintain on the Engine the
identification plate installed thereon by Lessor. Lessee shall promptly replace
any such nameplate that becomes illegible, lost, damaged or destroyed for any
reason.
(f) REPORTING REQUIREMENTS. Commencing with a report furnished fifteen
(15) days after the end of the calendar month of the Commencement Date, Lessee
will furnish to Lessor a Monthly Report in the form attached hereto as Exhibit
D.
(g) INSPECTIONS. During the Lease Term, Lessee shall furnish Lessor such
information concerning the location, condition, use and operation of the Engine
as Lessor may reasonably request. Lessee shall give Lessor reasonable prior
notice of the anticipated date of any shop visits, in order to enable Lessor to
inspect the Engine (should it choose to do so) at the time and place such shop
visits occur. Lessor shall be entitled to have its technical representatives
present during any shop visits. On reasonable notice, Lessor and/or its
authorized agents or representatives shall have the right to inspect the Engine
and Engine documentation (whether in connection with shop visits or otherwise)
and/or make copies of the Engine documentation; provided, that such inspections
do not unreasonably disrupt Lessee's use and operation of the Engine. Lessor
shall have no duty to make any such inspection and shall not incur any liability
or obligation by reason of making or not making any such inspection or by reason
of any reports it receives or any reviews it may make of the Engine records.
Section 8. LOSS, DESTRUCTION, REQUISITION, ETC.
(a) EVENT OF LOSS. Except as otherwise set forth herein, during the Lease
Term, Lessee shall bear the entire risk of loss of or damage to the Engine. Upon
the occurrence of an Event of Loss with respect to the Engine, Lessee shall give
Lessor prompt written notice thereof and shall, as soon as practical but in any
event within one hundred twenty (120) days after the occurrence of such Event of
Loss, at Lessee's option either (A) convey or cause to be conveyed to Lessor, as
replacement for the Engine, title to a Replacement Engine free and clear of all
Liens, other than Permitted Liens, and having a value, utility, mod status at
least equal to, and of the same or improved model, service bulletin status, and
maintenance status (i.e. total time, hours/cycles remaining until next
inspection, overhaul or scheduled removal) and in at least as good operating
condition as the Engine, assuming the Engine was of the value, utility and
remaining life and in the condition and repair required by the terms hereof
immediately prior to the occurrence of such Event of Loss. Prior to or at the
time of any such conveyance, Lessee, at its own expense, will promptly (i)
furnish Lessor with a xxxx of sale, in form and substance satisfactory to
Lessor, with respect to such Replacement Engine; (ii) cause a supplement hereto,
18
in form and substance reasonably satisfactory to Lessor, subjecting such
Replacement Engine to this Lease, to be duly executed by Lessee, and recorded
pursuant to the Federal Aviation Act; (iii) furnish Lessor, with such evidence
of title to such Replacement Engine and of compliance with the insurance
provisions of Section 9 with respect to such Replacement Engine as Lessor may
reasonably request; (iv) furnish Lessor with an opinion of Lessee's counsel to
the effect that title to such Replacement Engine has been duly conveyed to
Lessor free and clear of all Liens, encumbrances and rights of others (except
Permitted Liens) and is duly leased hereunder; (v) furnish Lessor with a
certificate signed by a duly authorized financial officer or executive of Lessee
certifying that Lessee's representations and warranties set forth in Section 11
are true and accurate on and as of said date as though made on and as of said
date and that upon consummation of such replacement, no Default or Event of
Default will exist hereunder; (vi) furnish Lessor with such documents and
evidence with respect to Lessee as Lessor may reasonably request in order to
establish the consummation of the transactions contemplated by this Section
8(a), the taking of all corporate proceedings in connection therewith and
compliance with the conditions set forth in this Section 8(a), in each case in
form and substance satisfactory to Lessor; (vii) furnish Lessor with a
certificate of a duly authorized officer of Lessee to the effect that no Event
of Default has occurred and is continuing; and (viii) furnish Lessor with
Uniform Commercial Code financing statements covering such Replacement Engine,
or (B) pay to Lessor in immediately available funds the Engine Loss Value,
whereupon this Lease shall terminate, Lessee shall be relieved of all further
obligations hereunder except such as are expressly stated to survive the
termination of this Lease and Lessor shall return the Security Deposit to Lessee
as provided in Section 3. Upon full compliance by Lessee with the terms of this
subparagraph (a), the Engine shall no longer be subject to the terms of this
Lease and Lessor will cause Lessor to transfer to Lessee title to the Engine,
without recourse or warranty (except that the Engine is free and clear of Lessor
Liens).
(b) APPLICATION OF PAYMENTS FROM GOVERNMENTAL AUTHORITIES. Any payments
(other than insurance proceeds the application of which is provided for in
Section 9) received at any time by Lessor or Lessee from any Government Entity
or other Person with respect to an Event of Loss resulting from the
condemnation, confiscation, theft or seizure of, or requisition of title to or
use of, the Engine, other than a requisition for use by a Government Entity of
the United States not constituting an Event of Loss, will be applied as follows:
such payments shall be held by the Lessor until (A) replacement of the Engine by
Lessee by a Replacement Engine at which time said payments shall be paid to
Lessee; (B) if Lessee shall have elected not to provide a Replacement Engine as
provided in Section 8(a) said payments shall be applied in reduction of Lessee's
obligation to pay the Engine Loss Value, if not already paid by Lessee; or if
already paid by Lessee, shall be paid to Lessee and applied to reimburse Lessee
for its payment of such Engine Loss Value; and, (C) the balance, if any, of such
payment remaining thereafter to Lessee.
(c) REQUISITION FOR USE OF THE ENGINE. In the event of the requisition of
the Engine for use by a Government Entity of the United States during the Term
under circumstances not constituting an Event of Loss, Lessee shall notify
Lessor of such requisition and all of Lessee's obligations including the
obligation to pay Rent, shall continue to the same extent as if such requisition
had not occurred. Provided that no Event of Default has occurred and is
continuing, all payments received by Lessor or Lessee from such Government
Entity for the use of the Engine shall be paid over to, or retained by, Lessee.
All amounts received by Lessor during the continuance of an Event of Default
shall be held by Lessor as security for and may be applied to the obligations of
Lessee under this Lease and, at such time as there shall not be continuing an
Event of Default, such amounts not previously applied shall be paid to Lessee.
(d) QUIET ENJOYMENT. Notwithstanding the provisions of this Section 8, if
(i) Lessee has been deprived of both use and possession of the Engine thereof
solely as a result of the breach by Lessor of its covenant of quiet enjoyment
19
set forth herein and (ii) Lessee shall have provided Lessor written notice to
the effect that Lessee has been deprived of such use and possession and that
Lessee intends to cancel its insurance with respect to the Engine on a date
specified in such notice (which date shall not be earlier than thirty (30) days
after the date of Lessor's receipt of such notice), then, from and after the
date so specified, but only during the period that Lessee shall continue to be
deprived of both use and possession of the Engine (the "Suspension Period"), (A)
Lessor shall bear the entire risk of loss or damage thereof (other than loss or
damage caused by an act or omission of Lessee during the Suspension Period), and
(B) Lessee shall be relieved of its obligation to maintain insurance, as set
forth in Section 9 hereof, with respect thereto. In the event of an Event of
Loss of the Engine during any such period, the Lease shall terminate and, upon
such termination (i) the Engine shall be deemed to have been redelivered to
Lessor in the condition required as of the date on which such deprivation of use
or possession first occurred, (ii) Lessee shall be relieved of all further
obligations hereunder except such as are expressly stated to survive the
termination of this Lease and (iii) Lessor shall return the Security Deposit to
Lessee as provided in Section 3.
Section 9. INSURANCE. Except as otherwise set forth in Section 8(d) hereof
in respect of any Suspension Period, Lessee, at its sole cost and expense, shall
maintain or cause to be maintained throughout the Lease Term and until the
return of the Engine to Lessor in such condition as is required under Section 10
hereof with insurers of recognized responsibility and good repute and under
policies reasonably satisfactory to Lessor all such insurance as is required to
be procured and maintained pursuant to this Section 9. Such insurance shall
include:
(a) LIABILITY. Lessee, at its sole cost and expense, shall maintain or
cause to be maintained throughout the Term and until the return of the Engine to
Lessor in such condition as is required under Section 10 hereof, public
liability (including, without limitation, aircraft third-party, baggage, cargo,
contractual and passenger legal liability including war risks), property damage
liability insurance with respect to any aircraft on which the Engine is
installed and general airline third party legal liability (including products
liability insurance) with insurers of recognized responsibility and good repute
specializing in aviation insurance in the leading international markets, in form
and in amounts satisfactory to Lessor at least equal to the greater of (a) [ ]*
Dollars (US$[ ]*) per occurrence subject to no deductible except deductibles as
to baggage and cargo that are standard in the airline industry in respect of
carriers operating in the countries in which Lessee operates and (b) the amount
of such insurance carried by Lessee applicable to other aircraft of similar type
in Lessee's fleet.
(b) PROPERTY DAMAGE INSURANCE. Lessee, at its own expense, shall maintain
or cause to be maintained throughout the Lease Term all-risk (including, without
limitation, fire, transit and extended coverage) insurance and war-risk
insurance (to the extent available), with respect to the Engine, whether or not
installed on an airframe in an amount not less than the Engine Loss Value; and
such other insurance with respect to the Engine as is carried by Lessee in
respect of other engines of similar make and model in its fleet.
Notwithstanding anything in the foregoing or in the Lease to the contrary,
no property damage policies shall have a deductible in excess of $[ ]*.
20
(c) TERMS OF INSURANCE
(i) Any policies carried in accordance with Section 9(a) hereof
covering the Engine and any policies taken out in substitution or
replacement for any such policies shall:
(A) insure the interests of each Indemnitee (the "Additional
Insureds") and provide that none of the Additional Insureds bear
liability for the payment of premiums;
(B) provide that if there is any material adverse alteration
or cancellation (whether by Lessee or any other Person and for
whatever reason) of the insurance, such alteration or cancellation
shall not be effective as to any Additional Insured for thirty (30)
days (with respect to war risk insurance seven (7) days or the
maximum short or longer period available in the market) after notice
is given by the underwriters of the insurance;
(C) provide that in respect of the interest of Lessor and each
other Additional Insured in such policies, such insurance shall not
be invalidated by any action or inaction of Lessee or any other
Person and shall insure Lessor's and the Additional Insureds'
interests, regardless of any breach or violation by Lessee or any
other Person of any warranties, declarations or conditions contained
in such policies;
(D) contain a waiver by the insurers of (x) all rights of
subrogation against any Additional Insured and (y) any rights of
set-off, counterclaim or any other deduction, whether by attachment
or otherwise, which they may have against any Additional Insured;
(E) shall be primary and without right of contribution from
any of the Additional Insureds; and
(ii) Any policies carried in accordance with Section 9(b) covering
the Engine and any policies taken out in substitution or replacement for
any such policies shall:
(A) insure the interests of, and name as additional insureds,
each Additional Insured and provide that the Additional Insureds
shall bear no liability for the payment of premiums;
(B) be made payable in the United States to the extent of the
Engine Loss Value to KGAL as sole "loss payee" (except that proceeds
with respect to loss or damage of less than $[ ]* shall be payable
to Lessee subject to the last sentence of Section 9(d));
(C) provide that if there is any material adverse alteration
or cancellation (whether by Lessee or any other Person and for
whatever reason) of the insurance, such alteration or cancellation
shall not be effective as to the Additional Insureds for thirty (30)
days (with respect to war risk insurance seven (7) days or the
maximum shorter or longer period customarily available in the
market) after notice is given by the underwriters of the insurance;
(D) provide that in respect of the interest of Lessor and each
other Additional Insured in such policies, such insurance shall not
be invalidated by any action or inaction of Lessee or any other
Person and shall insure Lessor's and the Additional Insureds'
interests, regardless of any breach or violation by Lessee or any
other Person of any warranties, declarations or conditions contained
in such policies; and
21
(iii) All amounts payable under policies carried in accordance with
this Section 9 shall be paid in immediately available Dollars in the
United States. In the case of a lease or contract with the United States
or any Government Entity thereof in respect of the Engine, a valid
agreement duly assigned to Lessor to indemnify Lessee against the same
risks that Lessee is required under Section 9 to insure against by the
United States or such Government Entity in an amount at least equal to the
Engine Loss Value shall be considered adequate insurance with respect to
the Engine to the extent of the risks and in the amounts that are the
subject of any such agreement to indemnify.
(iv) All insurance maintained pursuant to this Section 9 shall be
(A) maintained with recognized aircraft and aviation insurance companies
in the United States or international markets that normally participate in
aviation insurance or (B) supported by 99% reinsurance issued by
recognized aircraft and aviation insurance companies in the international
markets that normally participate in aviation insurance. Any such
reinsurance shall be with insurers, in form and in amounts reasonably
satisfactory to Lessor and shall be subject to "cut through" endorsements
or other endorsements or agreements satisfactory in form and substance to
Lessor which shall provide that all payments under such reinsurance in
respect of losses shall be paid (x) in the case of insurance maintained
pursuant to Section 9(a) hereof, to the applicable Additional Insured or
(y) in the case of insurance maintained pursuant to Section 9(b) hereof,
to KGAL as sole "loss payee" (except as provided in Section 9(c)(ii)(B))
and not to any such primary insurance company.
(d) APPLICATION OF INSURANCE. All insurance or indemnity payments received
as the result of an Event of Loss with respect to the Engine will be applied as
follows: such payments shall be held by the insurer until (A) replacement of the
Engine by Lessee by a Replacement Engine at which time said payments shall be
paid to Lessee; (B) if Lessee shall have elected not to provide a Replacement
Engine as provided in Section 8(a) said payments shall be paid to Lessor to be
applied in reduction of Lessee's obligation to pay the Engine Loss Value, if not
already paid by Lessee, or if already paid by Lessee, shall be paid to Lessee
and applied to reimburse Lessee for its payment of such Engine Loss Value; and
(C) the balance of such payment, if any, to Lessee. The insurance payments with
respect to any property damage or loss not constituting an Event of Loss with
respect to the Engine will be paid to Lessor and applied by Lessor in payment
(or to reimburse Lessee) for repairs to or replacement of property in accordance
with the terms of Section 6(c) against evidence satisfactory to Lessor that such
repairs and replacement have been made, or to Lessee if such repairs or
replacement have already been paid for by Lessee, to reimburse Lessee therefor,
and any balance remaining after compliance with such Section with respect to
such loss shall be paid to Lessee.
Any amount referred to in this Section 9(d) that is payable to Lessee shall not
be paid to Lessee if at the time of such payment an Event of Default or Default
shall have occurred and be continuing, but shall be held by Lessor as security
for and may be applied to the obligations of Lessee under this Lease and, at
such time as there shall not be continuing any such Default or Event of Default,
such amount not previously so applied shall be paid to Lessee.
22
(e) REPORTS. On or before the Commencement Date, Lessee will arrange for
appropriate certification of the insurance required hereunder to be made by
Lessee's independent aviation insurance broker and furnish or cause to be
furnished to Lessor a report signed by such firm stating the opinion of such
firm that the insurance then carried and maintained on the Engine complies with
the terms hereof. Lessee will cause such firm to advise Lessor and each other
Additional Insured in writing promptly of any default in the payment of any
premium, of any other act or omission on the part of Lessee of which such firm
has knowledge that might invalidate or render unenforceable, in whole or in
part, any insurance on the Engine and of each claim made by Lessee in respect of
the Engine. Prior to the expiration or on or prior to the termination date of
any insurance required hereunder, Lessee will provide Lessor with telex or fax
confirmation from Lessee's independent aviation insurance broker that renewed
certificates of insurance evidencing the renewal or replacement of such
insurance and complying with the provisions of this Lease will be issued on the
termination date of the prior certificate. Within seven (7) days after such
renewal, Lessee will furnish brokers' certificates of insurance to Lessor.
(f) FAILURE TO INSURE. In the event that Lessee shall fail to maintain or
cause to be maintained insurance as herein provided, Lessor may, at its option,
but without liability to Lessee for failure to do so, provide such insurance
and, in such event, Lessee shall, upon written demand, reimburse Lessor for the
cost thereof as Supplemental Rent. At any time while such failure is continuing,
Lessor may require the Engine to remain at any airport until such failure is
remedied to Lessor's satisfaction.
(g) ADDITIONAL INSURANCE. Nothing contained in this Lease shall prevent
Lessor or Lessee, each at its own expense and for its exclusive benefit, from
carrying insurance covering the Engine in addition to the insurance required
under this Section 9 (any such additional insurance, "Additional Insurance");
provided that such Additional Insurance shall be excess and noncontributory and
shall not adversely affect coverages under such insurance policies as are
required hereunder. The insurance payments for any property damage loss covered
by Additional Insurance shall be paid directly to the party carrying such
Additional Insurance.
(h) NOTICE OF CLAIMS. Lessee shall give Lessor notice in writing of any
claim or request for payment of an amount in excess of $[ ]* under any physical
damage insurance policy required to be maintained hereunder promptly (but in any
event within five (5) days) of the filing of such claim or request for payment.
Section 10. RETURN OF ENGINE. The provisions of this Section 10 shall
apply to any return of the Engine to Lessor upon termination of this Lease
(including, without limitation, such return resulting from an Event of Default);
provided, that if this Lease is terminated pursuant to Section 14 and the Engine
is repossessed by Lessor, any action that is required to be taken by Lessee
pursuant to this Section 10 prior to the return of the Engine shall be taken
immediately after the return of such Engine.
(a) REDELIVERY UPON TERMINATION. On the date of termination of this Lease
(except as otherwise provided pursuant to Section 8(d)) hereof, Lessee shall at
its sole cost and expense, return the Engine to Lessor, at the Lessee's
facilities in Colorado Springs, Colorado [or at those of its FAA approved
maintenance provider performing the pre-redelivery "C" check] (provided that if
this Lease shall be terminated as a result of a default by Lessee under the
Lease the Engine shall be returned to a point in the United States reasonably
requested by Lessor). At the time of return of the Engine to Lessor, Lessor and
Lessee shall execute a Return Acceptance Receipt in the form of Exhibit C
hereto.
(b) CONDITION OF ENGINE. (i) The Engine at the time of return to Lessor
shall have been maintained on an "on-condition" program.
23
(ii) Each Engine shall have no more cycles or hours since the last
shop visit for full performance restoration, as described in the CFM
International, Inc. workscope definitions, than such Engine had when
delivered.
(iii) Lessee shall perform a full and complete video borescope on
each Engine and its modules in accordance with the Engine manufacturer's
maintenance manual, with Lessor or its representatives entitled to be
present. Lessee will provide evidence to Lessor's satisfaction that such
inspection does not reveal any condition which would cause the Engine or
any module to be unserviceable, beyond serviceable limits, or serviceable
with limitations under the Engine manufacturer's maintenance manual.
Lessee will correct any discrepancies (which may be discovered during such
inspection) in accordance with the guidelines set out by the Engine
manufacturer.
(iv) The Engine shall have an exhaust gas temperature margin
remaining of 15 degrees or higher and shall, at a minimum, meet all the
requirements of the maximum power assurance run criteria for CFM 56-3B2
engines.
(c) CONDITION OF CONTROLLED COMPONENTS. Each life-limited part or
component and hour and/or cycle controlled components of the Engine at the time
of redelivery of the Engine to Lessor shall have remaining at least 3,000 hours
and/or 3,000 cycles, whichever is more limiting, between scheduled removals for
overhaul, testing, or disassembly. All components controlled on a calendar basis
shall have remaining at least 12 months before scheduled removal for testing or
overhaul. Such hour/cycle or calendar controlled components are defined as those
components controlled under the Maintenance Program. However, if the component
or part has a check interval limit that is less than the above stated hours,
cycles or calendar time limit requirement, the check interval limit shall
prevail.
(d) ENGINE DOCUMENTATION. Lessee shall return to Lessor at the time the
Engine is returned to Lessor, all of the Engine records documents, manuals and
data provided to Lessee by Lessor prior to, on or after the Delivery Date,
updated and maintained by Lessee through the date of return of the Engine. In
addition, Lessee shall also provide Lessor at the time the Engine is returned to
Lessor with all records, documents, manuals authorizations, drawings and data,
in each case in the English language, that were developed or caused to be
developed by Lessee and/or required by the appropriate governmental agency
having jurisdiction updated and maintained by Lessee for the Engine through the
date of return of the Engine. Any such Engine Documentation not already owned by
Lessor, when delivered to Lessor pursuant to this Section 10(l), shall thereupon
become the property of Lessor. In the event Lessor requires copies of any of
such Engine Documentation prior to the return of the Engine to Lessor to enable
Lessor to plan or accomplish modifications, recertification, sale, lease or
other disposition of or utilization of the Engine upon such return, Lessee
shall, immediately upon receipt of each such Lessor request, provide to Lessor a
reasonable number of copies of such Engine Documentation requested by Lessor at
Lessor's sole cost and expense.
(e) SERVICE BULLETIN KITS. All vendor and manufacturer provided mandatory
service bulletin kits ordered and received by Lessee for the Engine but not
installed therein shall be returned with the Engine. Title to such kits shall
pass to Lessor concurrently with the delivery of the Engine to Lessor.
(f) NON-U.S. MANUFACTURED ITEMS. Lessee shall provide to Lessor at the
time of the return of the Engine a complete list, describing by Part number and
name, of all non-United States manufactured equipment, components and parts, if
any, installed on the Engine by Lessee during the Lease Term. Such list shall
include quantity, the acquisition price and the manufacturer's name and country
in respect of each such item.
24
(g) LESSEE'S CONTINUING OBLIGATIONS. In the event that Lessee does not
return the Engine to Lessor upon termination of this Lease (including, without
limitation, any termination resulting from an Event of Default by Lessee) and in
the condition required herein for any reason, the obligations of Lessee under
this Lease shall continue; provided, however, that such failure to return the
Engine to Lessor in such condition shall not be the result of a breach by Lessor
of its covenant of quiet enjoyment which has resulted in Lessee having been
deprived of use and possession of the Engine immediately prior to such
termination, in which case the Engine shall be returned in its then condition
provided that, immediately prior to such breach by Lessor of its covenant of
quiet enjoyment such Engine shall have been in such condition as to meet the
requirements of Section 8 hereof but for such breach. Such continuation of
Lessee's obligations shall not be considered a renewal of the terms of this
Lease or of Lessee's rights to use the Engine, an extension of the Lease Term or
a waiver of any Default or Event of Default or any right of Lessor hereunder.
Until such time as the Engine is redelivered to Lessor as required herein,
Lessee agrees, during the first thirty (30) days following the termination
hereof, to pay Basic Rent with interest at the Post-Default Rate and thereafter
to pay twice the amount of Basic Rent for each day from such thirtieth (30th)
day after the termination hereof until redelivery of the Engine in the condition
required hereunder (the monthly Basic Rent payable being prorated based on the
actual number of days in the applicable month).
Section 11. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.
Lessee represents and warrants to, and covenants with Lessor as follows:
(a) Lessee (i) has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, (ii) has
full corporate power and authority and legal right to own its properties and to
carry on its business as presently conducted and to perform its obligations
under this Lease, (iii) is the holder of an air carrier certificate duly issued
pursuant to the Federal Aviation Act and such certificate is in full force and
effect, and (iv) holds all material licenses, certificates and permits from all
Government Entities of the United States and other jurisdictions necessary for
the conduct of its business as now conducted and for the operation of the
Engine.
(b) The execution, delivery and performance of this Lease has been duly
authorized by all necessary corporate action of Lessee, and does not and will
not (i) result in the violation of the provisions of the charter documents or
bylaws of Lessee as in effect on the date hereof, (ii) require stockholder
approval or approval or consent of any trustee or holders of any indebtedness of
Lessee, except such approvals which have been obtained and are in full force and
effect, (iii) contravene any law, rule or regulation or any order of any
Government Entity binding on Lessee, and (iv) conflict with or result in a
breach of any terms or provisions of or constitute a default under, or result in
or require the creation or imposition of any Lien upon any material property or
assets of Lessee under, any material indenture, mortgage or other agreement or
instrument as in effect on the date hereof to which Lessee is a party or by
which it or any of its property is bound, or any applicable law, rule or
regulation, judgment, order or decree of any Government Entity or court having
jurisdiction over Lessee or any of its properties.
(c) No authorization, approval, consent, license or order of, or
registration with, or the giving of notice to, or the taking of any other action
in respect of, any Government Entity is required for the valid authorization,
execution, delivery and performance by Lessee of this Lease or the consummation
of any of the transactions contemplated hereby.
(d) Except for (i) the filing and recording pursuant to the Federal
Aviation Act of this Lease, (ii) the filing of duly executed financing
statements naming Lessee as debtor and Lessor as secured party (and continuation
statements with respect to such financing statements) with the Secretary of
State of the State of Colorado and (iii) the retention by Lessor of the original
counterpart of the Lease to the extent, if any, that the Lease constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no further action, including any filing
25
or recording of any document (including any financing statement in respect
thereof under Article 9 of the Uniform Commercial Code of any applicable
jurisdiction), is necessary in order to establish and perfect Lessor's title to
the Engine against Lessee and any third parties in any applicable jurisdictions
in the United States.
(e) This Lease constitutes the legal, valid and binding obligation of
Lessee, enforceable against Lessee in accordance with its terms except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and, to the extent that
certain remedies require or may require enforcement by a court of equity, by
such principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity) as a court having jurisdiction
may impose.
(f) There are no suits or proceedings pending or, to Lessee's knowledge,
threatened in any court or before any Government Entity against or affecting
Lessee that would, if adversely determined, (i) prevent or adversely affect
Lessee's ability to perform its obligations under this Lease or (ii) materially
adversely affect the financial condition or operations of Lessee and its
consolidated subsidiaries, taken as a whole.
(g) The chief executive office (as such term is used in Article 9 of the
Uniform Commercial Code) of Lessee and the office where Lessee will keep its
corporate records concerning the Engine is located in El Paso County, Colorado.
Lessee will notify Lessor thirty (30) days in advance of moving either such
office to another location.
(h) There is no Tax, levy, impost, deduction, charge or withholding
imposed by the State of Colorado or any Taxing Authority thereof or therein
either (i) on or by virtue of the execution or delivery of this Lease or (ii) on
any payment made or to be made by Lessee under this Lease.
(i) The obligations of Lessee under this Lease rank at least pari passu in
right of payment with all other unsecured obligations of Lessee, with the
exception of such obligations as are mandatorily preferred by law.
(j) Lessee will give notice to Lessor promptly upon obtaining actual
knowledge of any Default or Event of Default; and
(k) Lessee acknowledges that it is the intention of Lessor that Lessor
shall be entitled to the benefits of Title 11 U.S.C. S-1110 and any similar or
analogous provisions of any successor statute ("Section 1110") with respect to
the Engine and this Lease, and Lessee shall not oppose any motion, petition or
application filed by Lessor with any bankruptcy court having jurisdiction over
Lessee whereby Lessor seeks recovery of possession of the Engine under Section
1110 unless Lessee shall have complied with the requirements of Section 1110 to
be fulfilled in order to entitle Lessee to continue use and possession of the
Engine hereunder.
(l) Without having obtained the prior written consent of Lessor, Lessee
will not consolidate with or merge into, or sell or lease in one transaction or
a series of transactions all or substantially all of its assets to, another
corporation or other entity unless such other corporation or entity is engaged
in the airline business, the net worth of the corporation resulting from such
merger or consolidation or corporation or other entity to which such sale or
lease is made would be at least equal to the net worth of Lessee at the date
hereof, such corporation or other entity assumes all of Lessee's obligations
under this Lease in a manner and by documents and agreements satisfactory to
Lessor in its sole discretion, such corporation or other entity immediately
subsequent to such merger, consolidation, lease or sale is not in default
hereunder and Lessor receives an opinion satisfactory to it, of counsel
satisfactory to it, as to such assumption and documentation.
26
(m) Lessee shall, within fifteen (15) days of the end of each and every
calendar month during the Term, deliver to Lessor a monthly report, in such form
and containing such information as set forth in Exhibit D hereof.
(n) Lessee shall, at the end of each calendar quarter, have a long term
debt to equity ratio of not more than 4:1 as determined in accordance with
generally accepted accounting principles consistently applied. For purposes
hereof, debt shall exclude all off balance sheet financing and operating leases.
(o) Lessee shall, at the end of each calendar quarter, have a ratio of
current assets to current liabilities of not less than 1:1 as determined in
accordance with generally accepted accounting principles consistently applied.
Section 12. INDEMNIFICATION.
(a) GENERAL INDEMNITY AND EXPENSES. Lessee hereby assumes liability for,
and hereby agrees to, indemnify, protect, save and keep harmless Lessor, KGAL
and their respective affiliates, agents, officers, directors and employees (the
"Indemnitees"), and any reference herein to the Indemnitee shall include its
affiliates, agents, officers, directors, employees, successors and permitted
assigns) from and against, and on written demand to pay, or to reimburse
Indemnitee for the payment of, as the case may be, any and all liabilities,
obligations, losses, damages, penalties, claims (including, without limitation,
claims arising out of negligence or involving strict liability in tort), suits,
actions, costs, expenses and disbursements, including without limitation legal
fees and expenses, of whatsoever kind and nature imposed on, incurred by or
asserted against Indemnitees relating to or arising out of (A) this Lease, any
payments made pursuant hereto or the exercise of rights or remedies hereunder,
(B) the preparation, negotiation, execution and delivery of any amendments,
modifications or waivers required by this Lease or requested by Lessee (or
resulting from any requests of Lessee) hereunder, (C) the Engine and any Part
thereof, whether or not arising out of the airworthiness, delivery, nondelivery,
lease, presence, storage, modification, substitution, replacement, alteration,
maintenance, inspection, failure to inspect, repair, release, possession,
repossession after an Event of Default, use, operation, condition, condition
upon return, return, exportation, importation, transfer or other application or
disposition thereof (including, in each case and without limitation, latent or
other defects, whether or not discoverable), any claim for patent, trademark or
copyright infringement arising as a result of or in connection with Lessee's
patents, trademarks, copyrights, servicemarks or logos or those of Lessee's
advertisers, sponsors, and others whose designs and/or logos appear on the
Engine or any airframe upon which the Engine is installed at any time, any claim
based on strict or absolute liability, statutory liability or tort and any
liability for any injury to or death of any person or loss of or damage to any
property including, without limitation, any such arising out of any test flight,
demonstration flight or ferry flight of any aircraft on which the Engine is
installed or performed by Lessee or any entity to which Lessee may have further
subleased the Engine pursuant to Section 7 hereof and (D) any breach of,
noncompliance with or misrepresentation made or deemed made in, under or in
connection with this Lease or any agreement to which Lessee is a party
concerning the Engine or any warranty, certificate or agreement made or
delivered in, under or in connection therewith made or deemed to have been made
by Lessee or anyone claiming by, through or under Lessee; provided, that Lessee
shall not be required to indemnify any Indemnitee hereunder (w) for any
liability attributable to acts or events which occur prior to the Commencement
Date or after the Lease Term or the return of the Engine to Lessor in the
27
condition required hereunder whichever shall occur later, (x) for liability
resulting solely and directly from acts of gross negligence or misconduct of the
Indemnitee (other than gross negligence or willful misconduct attributed to the
Indemnitee solely by reason of its interest in the Engine or any Part), (y) for
any Taxes that Lessee has not agreed to indemnify against pursuant to the
provisions of Section 12(b) or (z) for any liability imposed on the Indemnitee
arising as a result of a disposition of all or any part of Indemnitee's interest
in the Engine, other than by reason of the occurrence of a Default or an Event
of Default and further provided that no indemnification hereunder shall be paid
by Lessee to Indemnitee in respect of any claim arising during any period during
which Lessee is deprived of use and possession of the Engine as a result of a
breach by Lessor of its covenant of quiet enjoyment.
If any Indemnitee shall have knowledge of any claim or liability required
to be indemnified against under this Section 12(a), the Indemnitee shall give
prompt written notice thereof to Lessee, but the failure of the Indemnitee so to
notify Lessee shall not relieve Lessee from any liability that it would
otherwise have to the Indemnitee hereunder except to the extent that Lessee's
rights respecting any defense thereto are irrevocably and materially impaired
directly and solely as a result of such failure.
Lessee shall be obligated to the Indemnitee under this Section 12(a)
irrespective of whether the Indemnitee shall also be indemnified with respect to
the same matter under any other agreement, and the Indemnitee may proceed
directly against Lessee under this Section 12(a) without first resorting to any
such other rights of indemnification.
Any payment or indemnity pursuant to this Section 12(a) shall include the
amount, if any, necessary to hold the Indemnitee harmless on a net after-tax
basis from all Taxes required to be paid by such recipient with respect to such
payment or indemnity under laws, rules or regulations of any Government Entity
or Taxing Authority. If the Indemnitee is entitled to a permanent tax benefit
(whether by way of deduction, credit or otherwise) not taken into account
pursuant to the preceding sentence as a result of the matter indemnified against
under this Section 12(a), the Indemnitee shall promptly pay to Lessee, after
such permanent tax benefit is realized but not before Lessee shall have made all
payments theretofore due to the Indemnitee under this Lease and any other
agreement in respect of the Engine an amount that, after subtraction of any
further tax savings to which the Indemnitee is entitled as a result of the
payment thereof, is equal to the amount of such permanent tax benefit; provided,
however, that the Indemnitee shall not be obligated to make any payment to
Lessee pursuant to this sentence so long as a Default or Event of Default shall
have occurred and be continuing or any Rent or Supplemental Rent then due and
owing shall not have been paid.
Upon the indefeasible payment in full of any indemnities due and owing
under this Section 12(a), Lessee shall be subrogated to any right of the
Indemnitee in respect of the matter against which such indemnity has been given.
(b) GENERAL TAX INDEMNITY
(i) Lessee agrees that each payment of Rent or any amount payable
hereunder shall be free of all withholdings of any nature whatsoever, and in the
event that any withholding is required, Lessee shall pay an additional amount of
Rent such that after the deduction of all amounts required to be withheld, the
net amount of Rent that is actually received by Lessor, will equal the amount of
Rent or any such amount payable hereunder or such other amount, as the case may
be, that would be due absent such withholding,
28
(ii) Lessee hereby agrees to indemnify and hold harmless from and
against, and on written demand, to pay or reimburse each Indemnitee for the
payment of, as the case may be, any and all Taxes imposed upon or asserted
against the Indemnitee or the Engine, or any Part thereof or interest therein,
or this Lease, or the rentals received under this Lease, by any federal, state
or local government or other taxing authority in the United States, in any
territory or possession thereof or by any foreign government or any political
subdivision or taxing authority thereof or therein (the foregoing being referred
to herein individually as a "Taxing Authority" and collectively as "Taxing
Authorities") upon or with respect to (a) the acceptance, rejection, delivery,
transport, insuring, registration, deregistration, reregistration, assembly,
possession, repossession, operation, use, presence, condition, maintenance,
repair, return, abandonment, preparation, installation, storage, redelivery,
subleasing, modification, rebuilding, or importation of, or the imposition of
any Lien (other than a Lessor Lien) (or the incurrence of any liability to
refund or pay over any amount as a result of any Lien (other than a Lessor
Lien)) on the Engine or any Part thereof or interest therein, (b) payments of
Basic Rent or Supplemental Rent, (c) the Engine, or any Part thereof or any
interest therein or the applicability of this Lease to the Engine, or any Part
thereof or any interest therein, (d) any or all of the documents and agreements
relating to the Engine contemplated hereby and amendments or supplements hereto
and thereto, or the execution, delivery, filing or recording thereof, or (e)
otherwise with respect to or in connection with the transactions effected under
this Lease and the documents and agreements contemplated hereby including the
exercise of remedies hereunder.
(iii) The provisions of Section 12(b)(i) and (ii) shall not apply
to, and Lessee shall have no liability to Lessor or any other person thereunder
with respect to Taxes to the extent excluded under any of the following
provisions or any combination thereof:
(A) Taxes imposed by any country, taxing authority or
governmental subdivision thereof or therein or any international
authority except to the extent that such Taxes would not have been
due (whether or not from the same person on whom they are actually
imposed) but for the transactions contemplated by this Agreement,
provided that the presence or activities of any person other than
Lessor in any jurisdiction shall not be imputed for purposes of this
subparagraph (A);
(B) Taxes (I) imposed as a result of a sale, assignment,
transfer or other disposition (whether voluntary or involuntary) (a
"Transfer") (x) by Lessor or any other person (other than Lessee or
any affiliate or transferee of or successor to Lessee) of any legal
or beneficial interest in the Engine or in or arising under this
Agreement or (y) of any direct or indirect interest in Lessor or any
such other person having any such legal or beneficial interest (any
event described in (x) or (y) being a "Lessor Transfer") or (II) to
the extent such Taxes exceed the amount of Taxes that would have
been imposed and indemnified against by Lessee had there not been a
Lessor Transfer, provided that the exclusion set forth in this
subparagraph (B) shall not apply to a Transfer (other than a sale of
the Engine or any interest therein) resulting from the exercise of
any remedies provided for in this Agreement in connection with an
Event of Default or an Event of Loss;
(C) Taxes incurred in respect of any period after the
occurrence of any of the following events: (I) the sale or return of
the Engine or any part thereof or interest therein to the extent the
Taxes relate solely to such part or interest) in accordance with the
terms of this Agreement; (II) the termination of this Agreement and
the return of the Engine or (III) the sale or other transfer of the
Engine and the return of the Engine (or any part thereof or interest
therein to the extent the Taxes relate solely to such part or
interest) following a Total Loss with respect to the Engine,
29
provided that the exclusion set forth in this subparagraph (C) shall
not apply to Taxes to the extent such Taxes relate to periods prior
to, or events occurring or matters arising prior to or
simultaneously with, such event;
(D) Taxes to the extent imposed as a result of (I) the willful
misconduct or gross negligence of Lessor, (II) the breach by Lessor
of any of its representations, warranties or covenants contained in
this Agreement or (III) Lessor's Liens;
(E) Taxes either not yet due or being contested in accordance
with the provisions of Section 12(d);
(F) Taxes on, based on, measured by or with respect to the net
or gross income, or net or gross receipts, including any capital
gains Taxes, minimum Taxes, Taxes on or measured by any items of tax
preference and withholding Taxes, including Taxes imposed under
Subtitle A of the Internal Revenue Code of 1986, as amended (the
"Code") or Section 3406 of the Code or any successor provisions
required to be withheld from any payment under this Agreement),
capital, net worth, franchise, or conduct of business of Lessor or
any other person (other than Taxes in the nature of sales, use,
rental, property, or value-added Taxes) imposed by any federal,
state or local government or taxing authority in the United States;
(G) Taxes on, based on, measured by or with respect to the net
or gross income or net or gross receipts (including any capital
gains Taxes, minimum Taxes, Taxes on or measured by any items of tax
preference and withholding Taxes), capital, net worth, franchise, or
conduct of business of Lessor or any other person (other than Taxes
in the nature of sales, use, rental, property, or value-added Taxes)
imposed by any foreign government, foreign government subdivision or
other foreign taxing authority or by any territory or possession of
the United States, or by any international authority, provided that
the exclusion set forth in this subparagraph (G) shall not exclude
such Taxes if and to the extent that such Taxes (i) would not have
been imposed but for the operation, presence or registration in such
jurisdiction of the Engine or any part thereof, or (ii) would have
been imposed solely as a result of (x) the presence in such
jurisdiction of a permanent establishment or fixed place of business
of Lessee, or any user or person in possession of the Engine or any
part thereof, (y) the residence, nationality or place of management
and control of Lessee or any user or person in possession of the
Engine or any part thereof, (z) the payment from such jurisdiction
by Lessee or any user or person in possession of the Engine or any
part thereof of any amount due under the Lease, or (iii) any
combination of clauses (i) and (ii);
(H) Taxes that would not have been imposed but for any failure
of Lessor to (x) file proper and timely reports or returns or to pay
any Taxes when due, or (y) comply with any certification,
information, documentation, reporting or other similar requirements
concerning the nationality, residence, identity or connection with
the jurisdiction imposing such Taxes, if such compliance is required
to obtain or establish relief or exemption from or reduction in such
Taxes and Lessor was eligible to comply with such requirement.
(I) Taxes imposed under Section 887 of the Code.
30
(c) CALCULATION OF TAX INDEMNITY PAYMENTS
(i) Any payment that Lessee shall be required to make to or for the
account of the Indemnitee with respect to any Tax that is subject to
indemnification under Section 12(b) shall include the amount necessary to hold
the Indemnitee harmless on a net after-tax basis from the net amount of all
Taxes required to be paid by the Indemnitee as the result of such payment
pursuant to the laws of any Taxing Authority.
(ii) If Lessor shall realize a Tax benefit as a result of or with
respect to any Taxes paid or indemnified against by Lessee under this Section 12
(whether by way of deduction, credit or otherwise), Lessor shall pay to Lessee,
promptly after realization of such Tax benefit, an amount that, prior to the
application of any withholding tax to that payment but after subtraction of any
further Tax savings Lessor realizes as a benefit, provided that if any such Tax
benefit is subsequently disallowed, lost or reduced, Lessee shall, upon written
notice from Lessor, promptly repay the amounts paid to the Lessee with respect
to such Tax benefit, provided further that Lessor shall not be obligated under
this Section 12(c)(ii) to pay Lessee any amounts with respect to Tax benefits
realized as a result of any Taxes not paid or indemnified against by Lessee.
Notwithstanding anything to the contrary in this Section 12, if, at the time any
payments would otherwise be due to Lessee pursuant to this Section 12(c)(ii), an
Event of Default shall have occurred and be continuing, Lessor shall hold the
amount of such payment as security for the obligations of the Lessee to Lessor
under the Lease and at such time as there shall not be continuing any such Event
of Default, shall pay such amount to Lessee. Lessor shall use reasonable efforts
in good faith in filing its Tax returns and in dealing with taxing authorities
to seek and to claim any such Tax benefit or savings and to minimize the Taxes
payable or indemnifiable by Lessee hereunder.
(iii) At Lessee's request, the computation by Lessor of any amount
payable by Lessee pursuant to this Section 12 shall be verified by an
independent accounting firm of national reputation selected by Lessor. The fees
of such accountants shall be paid by Lessee unless such accountants determine
that the amount payable to Lessee is at least 25% more, or the amount payable by
Lessee is at least 25% less, than the amount computed by Lessor, in which case
such fees shall be payable by Lessor.
(d) CONTEST; REPORTS
(i) If a claim is made in writing against Lessor (whether on audit
or otherwise) for any Taxes that Lessee is required to pay or indemnify against
pursuant to Section 12(b), Lessor shall notify Lessee in writing within 30
Business Days of the receipt of such claim, provided that a failure to so notify
will not diminish or relieve Lessee of any obligations under Section 12(b),
except to the extent Lessee is entitled to contest or to cause Lessor to contest
such Taxes and Lessee's or Lessor's successful defense of such claim is
materially prejudiced or precluded thereby. If the amount of the claim exceeds
$[ ]* and if requested by Lessee in accordance with this Section 12(d) and in
writing within 30 Business Days after receipt by Lessee of the notice described
in the preceding sentence, Lessor shall in good faith and with due diligence
contest (including pursuing all administrative and judicial appeals) in the name
of Lessor or, if permitted by law and requested by Lessee in the name of Lessee,
the validity, applicability or amount of such Taxes in appropriate
administrative or judicial proceedings to be determined by Lessor, provided that
(1) prior to taking such action, Lessee shall have agreed to pay Lessor all
out-of-pocket costs and expenses that Lessor may incur in connection with
contesting such claim, including, without limitation, all reasonable legal and
accountant's fees and disbursements and costs of administrative and judicial
proceedings, and the amount of any interest or penalties that may be
attributable to and payable as a result of contesting such claim (or, at
31
Lessor's request, Lessee shall advance to Lessor funds with which to pay the
foregoing amounts, and Lessor's obligation to contest any Tax shall be suspended
during any period Lessee does not advance sufficient funds to pay such amounts
as they accrue or become payable), (2) if such contest is to be initiated by the
payment of, and the claiming of a refund for such Taxes (and any interest and
penalties that also must be paid), Lessee shall have advanced Lessor sufficient
funds (on an interest-free basis) to make such payment, (3) no Event of Default
has occurred and is continuing, (4) the action to be taken will not result in a
material risk of sale, forfeiture or loss of Lessor's title to the Engine
(unless Lessee provides a bond or other security satisfactory to Lessor), and
(5) at Lessor's request, Lessee shall provide to Lessor a written opinion in
form and substance satisfactory to Lessor of independent legal counsel
satisfactory to Lessor that there is a reasonable basis for such contest.
Notwithstanding that the conditions set forth in clauses (1), (2), (3), (4) and
(5) above may have been satisfied, Lessor, after consulting in good faith with
Lessee, may elect not to pursue any contest or proceeding pursuant to the
preceding sentence or elect to discontinue (by settlement or otherwise) any such
contest or proceeding commenced pursuant to the preceding sentence, but such
election shall constitute a waiver by Lessor of any right to payment or
indemnification pursuant to Section 12(b) with respect to the adjustment that
was the subject of such proposed contest or proceeding (and any other adjustment
the contest of which is precluded by such failure to contest) and, if Lessee has
theretofore paid or provided Lessor with funds to pay any amount with respect to
such adjustment, Lessor shall promptly repay such amount to Lessee. If Lessor
shall obtain a refund in whatever form of all or any part of any Taxes that
Lessee shall have paid or reimbursed to Lessor hereunder, Lessor shall, provided
that no Event of Default shall have occurred and be continuing, pay to Lessee an
amount that is equal to the sum of the amount of such refund or credit, plus any
interest received on such refund fairly attributable to any Taxes paid by or
with funds provided by Lessee prior to receipt of such refund, reduced by any
Taxes incurred by Lessor by reason of the receipt or accrual of such refund and
interest and net of any expenses described in clause (1) of the second sentence
of this Section 12(d) that have not been previously reimbursed, and increased by
any Tax benefit realized by Lessor as a result of any payment by Lessor made
pursuant to this sentence, provided further that, if, at the time of such
payment an Event of Default shall have occurred and be continuing, Lessor shall
hold the amount of such payment as security for the obligations of Lessee to
Lessor under the Lease, and at such time as there shall not be continuing any
such Event of Default, shall pay such amount to the Lessee. Lessor hereby agrees
that it will inform Lessee of the time and place of, and Lessor will not object
to Lessee's presence at, any proceeding conducted pursuant to this Section
12(d), provided that Lessee's presence also must be allowed by applicable law
and provided further that the conditions set forth in clauses (1), (2), (3), (4)
and (5) above shall have been, and shall continue to be, satisfied.
(ii) Lessee shall provide Lessor with such information in the
possession of Lessee or otherwise reasonably available to it as Lessor may
reasonably require to enable Lessor to fulfill its tax filing obligations under
this Section 12 and any audit information request arising in connection with the
Taxes subject to this Section 12. Lessor shall provide Lessee with such
information in the possession of Lessor or otherwise reasonably available to it
as Lessee may reasonably request to fulfill its tax filing requirements under
this Section 12 and any audit information request arising in connection with the
Taxes subject to this Section 12. If any report or return is required to be made
with respect to any obligation of Lessee under this Section 12, Lessee will make
such report or return, provided that Lessee shall have no obligation to file any
such return or report if (A) Lessor, after Lessee's written request therefor,
shall have failed to furnish Lessee with such information as is peculiarly
within the control of, or reasonably available to Lessor and is necessary for
the filing of such report or return, or (B) such return or report would or
should have been filed by Lessor even if it had not entered into the Lease.
(iii) Lessor shall furnish from time to time to Lessee or to such
other person as Lessee may designate, such returns, statements or other
documentation ("Tax Forms") (including, without limitation, if then required,
information as to the ultimate beneficial owners of Lessor and the stock
interests in Lessee held actually and constructively by Lessor, if not otherwise
known to Lessee) in such form and with such substance as are necessary or
32
appropriate to enable Lessor or Lessee, to claim an available reduction of or
exemption from Taxes which Lessee may be required to pay or indemnify against
hereunder, provided that Lessee shall have provided Lessor with any information
within the Lessee's control or reasonably available to Lessee that is necessary
to prepare such return, statement or other documentation. Any such Tax Forms
shall be provided promptly after receipt of a written request therefor from the
Lessee.
(e) PAYMENT. Unless otherwise requested by the appropriate Indemnitee,
Lessee shall pay when due any Tax for which it is liable pursuant to Section
12(b) directly to the appropriate Taxing Authority, or, upon written demand,
shall reimburse the appropriate Indemnitee for the payment of any such Tax made
by the Indemnitee. Within 30 days after the date of each payment by Lessee of
any Tax referred to in the preceding sentence, Lessee shall furnish the
Indemnitee evidence of payment of such Tax acceptable to the Indemnitee. Lessee
shall also cause to be furnished, promptly upon request, such data as the
Indemnitee may reasonably require from Lessee to enable the Indemnitee to comply
with the requirements of any Taxing Authority in respect of any Tax referred to
in Section 12(b).
(f) SURVIVAL. The obligations contained in this Section 12 shall survive
the termination of this Lease, to the extent they have accrued, or relate to
events that have occurred, on or before the date of such termination; provided
that obligations arising as a result of the occurrence of a Default or an Event
of Default shall in any event, without limiting the foregoing, survive until
payment in full and performance of all obligations owing to the Indemnitee under
the foregoing agreements and all other agreements referred to herein or
contemplated hereby. The obligations of Lessee in respect of all such
indemnities, obligations, adjustments and payments are expressly made for the
benefit of, and shall be enforceable by, the Indemnitee entitled thereto at the
option of the Indemnitee without declaring this Lease to be in default or taking
any other action hereunder.
Section 13. ASSIGNMENT; LEASE SUBJECT AND SUBORDINATE.
(a) SUBLEASE BY LESSEE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN,
LESSEE SHALL NOT, WITHOUT HAVING FIRST OBTAINED THE WRITTEN CONSENT OF LESSOR,
WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD, ASSIGN OR OTHERWISE TRANSFER
IN ANY MANNER ANY OF ITS RIGHTS OR INTERESTS WITH RESPECT TO THIS LEASE, THE
ENGINE, OR ANY PART THEREOF.
(b) ASSIGNMENTS BY LESSOR. Subject to Lessee's rights hereunder, Lessor
may at any time and without Lessee's consent sell, assign or transfer its rights
and interests hereunder or with respect to the Engine to a third party and/or
xxxxx x Xxxx over the Engine and the benefit of this Lease to any Person as
security for Lessor's obligations to such Person (each such transferee, assignee
or other Person, an "Assignee"). On request by Lessor, Lessee will execute all
such documents as Lessor may reasonably require to confirm Lessee's obligations
under this Lease. No sale, assignment or transfer of Lessor's interest or
creation of any Lien by Lessor shall adversely affect Lessee's rights hereunder
or increase Lessee's duties, expenses or the liabilities of Lessee in respect of
any Tax or under any of its indemnification obligations or otherwise. Lessee
will provide all other reasonable assistance and cooperation to Lessor and any
Assignee in connection with any such sale or assignment or the perfection and
maintenance of any Lien granted in connection therewith, including, at Lessor's
cost, making all necessary filings and registrations. Wherever the term "Lessor"
is used in this Lease in relation to any of the provisions relating to
disclaimer, title and registration, indemnity and insurance, such terms shall be
construed to include each Assignee, as applicable.
33
Section 14. EVENTS OF DEFAULT; REMEDIES.
(a) EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" (whether any such event shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) and
each such Event of Default shall be deemed to exist and continue so long as it
shall not have been remedied:
(i) Lessee shall fail to make any payment of Basic Rent, Engine
Reserves, Engine Loss Value or Supplemental Rent hereunder within five (5)
Business Days after the same shall have become due and payable;
(ii) Lessee shall fail to carry and maintain insurance on or with
respect to the Engine in accordance with the provisions of Section 9
hereof or Lessee shall fail to provide an insurer's certificate evidencing
the renewal or replacement of such policy, upon the renewal or replacement
thereof, in accordance with the terms hereof;
(iii) any document required to be filed or recorded by Lessee
pursuant hereto is not duly filed and recorded by Lessee as required to
perfect and continue the perfection of the interests of Lessor in the
Engine or the filings and recordings provided for herein are not made by
the time required; or Lessee shall fail to perform or observe any other
covenant, term, condition or agreement to be performed or observed by it
hereunder or under any instrument, document or agreement furnished by
Lessee to Lessor, in connection with the transactions referred to herein
or contemplated hereby, and such failure shall continue unremedied for a
period of thirty (30) days after written notice thereof to Lessee or
thirty (30) days after Lessee, assuming exercise of reasonable diligence,
should have known of such failure; provided, however, such failure to
observe any covenant, term, condition or agreement does not pose a
material danger to the respective rights and interests of Lessor, Lessor
in the Engine and the same is of such a nature that it can be cured; and,
further provided that Lessee shall have commenced and shall diligently
pursue such cure, Lessee shall have an additional thirty (30) day period
within which to cure the same;
(iv) any representation or warranty made by Lessee herein or in any
document, or certificate furnished by Lessee in connection herewith shall
at any time prove to have been false or incorrect in any material respect
at the time made;
(v) Lessee shall (A) voluntarily commence any proceeding or file any
petition seeking relief under any applicable bankruptcy, insolvency,
liquidation or similar law now or hereafter in effect, (B) consent to the
institution of, or fail to contravene in a timely and appropriate manner,
any such proceeding or the filing of any such petition, (C) apply for or
consent to the appointment of a receiver, trustee, custodian sequestrator
or similar official for itself or for a substantial part of its property
or assets, (D) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (E) make a general
assignment for the benefit of creditors, (F) become unable, admit in
writing its inability or fail generally to pay its debts as they become
due or (G) take corporate action for the purpose of effecting any of the
foregoing;
(vi) an involuntary proceeding shall be commenced or for involuntary
petition shall be filed in a court of competent jurisdiction seeking (A)
relief in respect of Lessee, or of a substantial part of the property or
assets of Lessee under any applicable bankruptcy, insolvency, receivership
or similar law, (B) the appointment of a receiver, trustee, custodian,
sequestrator or similar official for Lessee or for a substantial part of
34
the property of Lessee or (C) the winding-up or liquidation of Lessee; and
such proceeding or petition shall continue undismissed, unstayed or
unbonded for sixty (60) days or an order or decree approving or ordering
any of the foregoing shall continue unstayed and in effect for thirty (30)
days;
(vii) Lessee or any subsidiary thereof, the debt of which has been
guaranteed by Lessee thereof shall fail to pay, in accordance with its
terms and when due and payable, the principal of or interest on any Debt
the principal amount of which exceeds $[ ]* and the maturity of any such
Debt, in accordance with the provisions of any such Debt or any contract
evidencing, providing for the creation of or concerning such Debt shall
have been accelerated or any event shall have occurred and be continuing
that would permit any holder or holders of such Debt, any trustee or agent
acting on behalf of such holder or holders or any other Persons so to
accelerate such maturity;
(viii) final judgment for the payment of money in excess of $[ ]*
not fully covered by insurance (or the equivalent in another currency)
shall be rendered against Lessee and the same shall remain undischarged
for a period of thirty (30) days during which execution of such judgment
shall not be effectively stayed or bonded in a manner satisfactory to
Lessor;
(ix) Lessee shall fail to remain a "certificated air carrier" within
the meaning of the Federal Aviation Act;
(x) Lessee shall voluntarily suspend all or substantially all of its
commercial airline operations, or the franchises, concessions, permits,
rights or privileges acquired for the conduct of the business and
operations of Lessee shall be revoked canceled or otherwise terminated or
the free and continued use and exercise thereof curtailed or prevented;
(xi) except as otherwise permitted pursuant to Section 11(l) hereof,
Lessee shall merge with or into or consolidate with or into or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in
a series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to any Person or fifty-one percent (51%)
or more of the capital stock of Lessee shall be acquired in a single
transaction or series of transactions, directly or indirectly by any
Person and/or its affiliates not a shareholder of Lessee on the
Commencement Date;
(xii) possession of the Engine shall be transferred to another
Person, other than in accordance with the express provisions of Section
7(d); and/or
(b) REMEDIES. Upon the occurrence of any Event of Default and at any time
thereafter so long as the same shall be continuing, Lessor may, at its option,
declare this Lease to be in default by notice to Lessee; and at any time
thereafter, so long as Lessee shall not have remedied all outstanding Events of
Default before Lessor shall have commenced to exercise its rights or remedies
hereunder, Lessor may exercise one or more of the following rights and remedies
with respect to all or any part of the Engine as Lessor in its sole discretion
shall elect, to the extent permitted by, and subject to compliance with any
mandatory requirements of, applicable law then in effect:
(i) cause Lessee, upon the written demand of Lessor and at Lessee's
expense, to return promptly, and Lessee shall return promptly (and in no
event later than two days after such demand), all or such part of the
Engine as Lessor may demand, to Lessor or its order in the manner and
condition required by, and otherwise in accordance with all the provisions
of, Section 10 as if the Engine were being returned at the end of the
Term, or Lessor, at its option, may enter upon the premises where all or
any part of the Engine located and take immediate possession of and remove
the same;
35
(ii) hold, use, operate, keep idle or lease to others all or any
part of the Engine, with or without taking possession thereof as Lessor in
its sole discretion may determine, free and clear of any rights of Lessee
and without any duty to account to Lessee with respect to such action or
inaction or for any proceeds with respect thereto, except that Lessee's
obligation to pay Basic Rent for any periods in respect of the Engine or
part thereof accruing after Lessee shall have been deprived of possession
of such Engine or part thereof pursuant to this Section 14 shall be
reduced by the net proceeds, if any, received by Lessor from leasing the
Engine or part thereof to any Person other than Lessee for the same
periods or any portions thereof;
(iii) Lessor may exercise any other right or remedy that may be
available to it under applicable law or proceed by appropriate court
action to enforce the terms hereof or to recover damages for the breach or
to rescind this Lease;
(iv) Lessor may terminate this Lease; and/or
(v) whether or not Lessor shall have exercised, or shall thereafter
at any time exercise, any of its rights under clauses (i), (ii), (iii) or
(iv) above, Lessor, by written notice to Lessee specifying a payment date
not earlier than five (5) Business Days after the date of such notice, may
terminate this Lease and demand that Lessee pay to Lessor and Lessee shall
pay to Lessor, on the payment date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty, the sum of: (A) any
unpaid Basic Rent due under this Agreement for periods ending on or prior
to the payment date specified in such notice and any unpaid Supplemental
Rent due on or prior to such payment date, plus (B), an amount equal to
the aggregate unpaid Basic Rent which would otherwise have accrued
hereunder over the remainder of the Lease Term but for the Event of
Default, discounted to present value as of the date specified for payment
in such notice, less (C), if applicable, for any period until the
expiration of the Lease Term that Lessor has not been able to Lease the
Engine but has been able, in the normal course of its operations to use
the Engine, the Basic Rent payable by Lessee to Lessor for the lease of
the Engine during any such period of use discounted to present value as of
the date specified for payment in such notice. The amounts specified in
such notice shall bear interest at the Post-Default Rate from the payment
date specified in such notice until payment is made. In calculating
Lessor's damages hereunder upon an Event of Default, all Basic Rent which
would have become due during the remainder of the Lease Term if an Event
of Default had not occurred will be calculated on a present value basis
using a discounting rate equal to the rate of interest on United States
Treasury Bills having a maturity which will most closely approximate the
period equal to the remainder of the Lease Term, as quoted in the Wall
Street Journal on the date of Lessor's notice.
In addition, Lessee shall be liable, except as otherwise provided above,
for any and all unpaid Basic Rent and Supplemental Rent then due hereunder
before or during or after the exercise of any of the foregoing remedies and for
all legal fees and other costs and expenses incurred by Lessor by reason of the
occurrence of any Event of Default or the exercise of Lessor's remedies with
respect thereto, including all costs and expenses incurred in connection with
the return of all the Engine in accordance with Section 10 or this Section 14 or
in storing or maintaining the Engine or any part thereof or placing the same in
the condition required by Section 10.
36
Except as otherwise expressly provided above, no remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to herein or otherwise available to Lessor at law or in
equity, and the exercise or beginning of exercise by Lessor of any one or more
of such remedies shall not preclude the simultaneous or later exercise by Lessor
of any or all such other remedies; provided, that Lessor may recover only once
from each element of damages sustained and, provided further, that the preceding
proviso shall not be deemed to require proof of damages actually sustained in
the case of liquidated damages provided for herein. No express or implied waiver
by Lessor of any Default or Event of Default shall in any way be, or be
construed to be, a waiver of any future or subsequent Default or Event of
Default. To the extent permitted by law, Lessee hereby waives any rights now or
hereafter conferred by statute or otherwise (A) that may confer any right to
prior notice or judicial hearing in connection with Lessor's taking possession
or disposing of the Engine including, without limitation, any and all prior
notice and hearing for any prejudgment remedy or remedies and any such right
that Lessee might otherwise have under applicable law, (B) except as provided in
this Section 14, that impose any requirements as to the time, place or terms of
lease other disposition or other requirements with respect to the enforcement of
Lessor's rights and remedies hereunder, (C) all rights of redemption,
appraisement, valuation, stay, extension or moratorium now or hereafter in
effect under applicable law that may have the effect of delaying the enforcement
of this Lease or the absolute lease or other disposition of the Engine, or (D)
except as otherwise provided herein, that may otherwise limit or modify any of
Lessor's rights or remedies hereunder. The failure or delay of Lessor in
exercising any right or remedy granted it hereunder upon any occurrence of any
of the contingencies set forth herein shall not constitute a waiver of any such
right or remedy upon the continuation or recurrence of any such contingencies or
similar contingencies and any single or partial exercise hereunder of any
particular right or remedy of Lessor shall not exhaust the same or constitute a
waiver of any other right provided herein.
Notwithstanding anything contained in this Section 14 to the contrary,
Lessor shall use reasonable efforts to mitigate damages.
Section 15. NOTICES. All notices required or permitted hereunder shall be
in writing and shall be delivered in person or sent by telecopier, international
courier service or letter (mailed certified and return receipt requested),
addressed to the parties as follows:
if to Lessor: First Security Bank, National Association
00 Xxxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Corporate Trust Department
Telecopier: 000-000-0000
with copies to: KG Aircraft Leasing Co., Limited
0 Xxxxxxxx Xxxxx, Xxxxxxxx Xxxx
Xxxxxx 0, Xxxxxxx
Attention: Managing Director
Telecopier: 353-1-475-7378
Winthrop, Stimson, Xxxxxx & Xxxxxxx
Xxx Xxxxxxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: C. Xxxxxx Xxxxxxx, Esq.
Telecopier: 000-000-0000
37
if to Lessee: Western Pacific Airlines, Inc.
0000 X. Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx Xxxxxx, President & CEO
Telecopier: (000) 000-0000
with a copy to: Xxxxx, Xxxxxxxx & Xxxxxxx
0000 Xxxxxxxxx Xxxxxx XX, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxxxx Xxxxxx, Esq.
Telecopier: 404-815-3509
or at such other address as Lessee or Lessor shall from time to time designate
in writing to the other. In the case of a notice delivered in person or sent by
telecopier or international courier, notice will be deemed received upon actual
receipt. In the case of a mailed letter, notice will be deemed received on the
tenth (10th) Business Day after deposit in the mail, with proper postage for
registered or certified first-class mail prepaid. All notices required or
permitted under the Lease shall be given in the manner set forth in Section 18
of the Lease.
Section 16. GOVERNING LAW AND JURISDICTION.
(a) GOVERNING LAW. This Lease shall in all respects be governed by, and
construed in accordance with, the internal laws of the State of New York,
inclusive of all matters of construction, validity and performance.
(b) JURISDICTION; SERVICE OF PROCESS. Lessee and Lessor hereby irrevocably
submit to the jurisdiction of any New York State or federal court sitting in New
York City in any action or proceeding arising out of or relating to this Lease,
and hereby irrevocably agree that all claims in respect of such action or
proceeding may be heard and determined in such New York State court or, to the
extent permitted by law, in such federal court. Lessee and Lessor hereby
irrevocably waive, to the fullest extent they may effectively do so, the defense
of an inconvenient forum to the maintenance of such action or proceeding. Lessee
hereby irrevocably appoints CT Corporation System, with an office on the date
hereof at 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, and Lessor hereby irrevocably
appoints CT Corporation System, with an office on the date hereof at 0000
Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Process Agent"), as their respective
agents to receive on their behalf and in respect of their proper service of
copies of the summons and complaint and any other process that may be served in
any such action or proceeding. Such service may be made by mailing or delivering
a copy of such process to Lessee or Lessor, as the case may be, in care of their
respective Process Agents at such Process Agent's above address, and Lessee and
Lessor hereby irrevocably authorize and direct their respective Process Agents
to accept such service on their behalf. As an alternative method of service,
Lessee and Lessor also irrevocably consent to the service of any and all process
in any such action or proceeding by the mailing of copies of such process to the
address specified in Section 15. Lessee and Lessor agree that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing in this Section 16(b) shall affect the right of any Person
(including Lessor) to serve legal process in any other manner permitted by law
or affect the right of any other party to bring any action or proceeding against
Lessee or Lessor, or their respective properties in the courts of other
jurisdictions. Lessee AND Lessor HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER ARISING OUT OF OR RELATING TO THIS LEASE.
38
(c) WAIVER OF IMMUNITY. To the extent that Lessor or Lessee has or
hereafter may acquire any sovereign immunity, Lessor and Lessee hereby
irrevocably waive such immunity in respect of their respective obligations under
this Lease and all other documents and agreements relating to the Engine and the
transactions referred to or contemplated herein.
Section 17. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Lease constitutes the entire agreement between
the parties concerning the subject matter hereof, and supersedes all previous
proposals, agreements, understandings, negotiations and other written and oral
communications in relation hereto. NO TERM OR PROVISION OF THIS LEASE MAY BE
CHANGED, WAIVED, DISCHARGED OR TERMINATED, EXCEPT (i) WITH THE PRIOR WRITTEN
CONSENT OF LESSOR AND (ii) BY AN INSTRUMENT IN WRITING SIGNED BY A DULY
AUTHORIZED REPRESENTATIVE OF THE PARTY AGAINST WHICH THE ENFORCEMENT OF THE
CHANGE, WAIVER, DISCHARGE OR TERMINATION IS SOUGHT. Nothing herein shall be
construed as conveying to Lessee any right, title or interest in the Engine or
any Part except as Lessee under this Lease.
(b) ENGLISH LANGUAGE. All notices, communications, reports, opinions and
other documents given under this Lease shall be in the English language.
(c) LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to make any
payment of Rent or Supplemental Rent required to be made by it hereunder or
fails to perform or comply with any of its agreements contained herein, Lessor
may itself make such payment or perform or comply with such agreement, and the
amount of such payment and the amount of any expenses of Lessor incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, shall be deemed Supplemental Rent payable by
Lessee upon demand; provided, however, that no such payment, performance or
compliance by Lessor shall (i) be deemed to have satisfied the obligation of
Lessee to make such payment or to perform or comply with such agreement, as the
case may be, unless and until Lessee shall have paid all such Supplemental Rent
payable pursuant to this section by reason of such failure or (ii) be deemed a
waiver of Lessor's rights and remedies against Lessee hereunder.
(d) APPLICATION OF PAYMENTS DURING EXISTENCE OF DEFAULT. Any amount
referred to herein that is payable to Lessee shall not be paid to Lessee, or if
it has been previously paid directly to Lessee, shall not be retained by Lessee,
if at the time of such payment a Default or Event of Default shall have occurred
and be continuing, but shall be paid to and held by Lessor as security for and
may be applied to the obligations of Lessee under this Lease and, at such time
as Lessor shall receive evidence in form and substance satisfactory to it that
there is not continuing any such Default or Event of Default, all such amounts
in excess of amounts so paid on obligations of Lessee shall be paid to Lessee.
(e) EXPENSES. Lessee agrees to reimburse Lessor, for its out-of-pocket
costs and expenses, including attorney's fees, incurred in connection with any
amendments, modifications or waivers required by this Lease or requested by
Lessee (or resulting from any requests of Lessee) hereunder.
39
(f) FURTHER ASSURANCES. Lessee will promptly and duly execute and deliver
to Lessor such further documents and assurances and take such further action as
Lessor may from time to time reasonably request in order to more effectively
carry out the intent and purpose of this Lease and to establish and protect the
rights and remedies created or intended to be created in favor of Lessor
hereunder, including, without limitation, if requested by Lessor, at the expense
of Lessee, the execution and delivery of supplements or amendments hereto, in
recordable form, subjecting to this Lease any Replacement Engine and the
recording or filing of counterparts hereof, and all such other documents and
instruments, in accordance with the laws of such jurisdictions as Lessor may
from time to time deem advisable.
(g) JUDGMENT CURRENCY. The obligations of Lessee in respect of any sum
due from it to Lessor hereunder shall, notwithstanding any judgment in a
currency other than Dollars, be discharged only to the extent that Lessor may in
accordance with normal banking procedures purchase, or cause to be purchased for
its account Dollars with such other currency; if the Dollars so purchased are
less than the sum originally due in Dollars, Lessee agrees to indemnify Lessor
against such loss, and if the Dollars so purchased exceed the sum originally due
to Lessor in Dollars, Lessor agrees to remit to Lessee such excess.
(h) INVALIDITY OF ANY PROVISION. Any provision of this Lease that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the fullest extent
permitted by applicable law, Lessee hereby waives any provision of law that
renders any provision hereof prohibited or unenforceable in any respect.
(i) CHANGES IN LAW. If there shall be any change (or such change shall be
enacted or made by notice or otherwise and shall be scheduled to become
thereafter effective) in the laws or treaties of the United States that has a
material adverse effect on the validity, legality, perfection or enforceability
of Lessor's rights or interest in the Engine or this Lease or the validity,
legality, perfection or enforceability of this Lease, Lessor may terminate this
Agreement, whereupon Lessee shall promptly return the Engine to Lessor or its
designee in the condition required hereunder.
(j) HEADINGS. All section and paragraph headings and captions are purely
for convenience of reference only and shall not modify, define, expand, limit or
otherwise affect any of the terms or provisions hereof and all references herein
to numbered sections, unless otherwise indicated, are to sections of this Lease.
(k) CONSENT. Whenever in this Lease, the consent (whether or not, in
writing) of either Lessor or Lessee is required, such consent shall not be
unreasonably withheld or delayed.
(l) THIRD PARTY BENEFICIARIES. Lessee recognizes that this Lease confers
certain rights and interests on the Indemnitees. Notwithstanding that the
Indemnitees are not parties to this Lease, the Indemnitees are intended third
party beneficiaries of such rights and interests and Lessor hereby acknowledges
that the Indemnitees may enforce such rights and interests directly, as if they
were parties to this Lease.
(m) COUNTERPARTS. This Lease may be executed in any number of identical
counterparts, all of which together will be deemed to be one and the same
instrument. Delivery of an executed counterpart of this Lease by facsimile will
be deemed effective as delivery of an originally executed counterpart. Any party
delivering an executed counterpart of this Lease by facsimile will also deliver
an originally executed counterpart; provided the failure of any party to deliver
an originally executed counterpart of this Lease will not affect the validity or
effectiveness of this Lease.
40
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Amended and
Restated Engine Lease to be duly executed as of the day and year first above
written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity, except as otherwise
expressly provided, but solely as Owner Trustee
under the 1997 Trust Agreement, as Lessor
By:
Name:
Title:
WESTERN PACIFIC AIRLINES, INC.,
as Lessee
RECEIPT OF THE ORIGINAL COUNTERPART OF THE FOREGOING LEASE IS HEREBY
ACKNOWLEDGED ON THIS ____ DAY OF ________, 1997.
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity, except as otherwise
expressly provided, but solely as Owner Trustee
under the 1997 Trust Agreement, as Lessor
By:
Name:
Title:
EXHIBIT A
ENGINE DESCRIPTION
One General Electric Model CFM56-3B2 Airframe Engine
bearing Manufacturer's Serial No. 721150 with one PF
Industries, Inc. Model PF71-169 Engine Stand bearing
serial number 001B.
ENGINE:
Time to Next
Total Replacement of
Engine Total Time Since Lowest Life
Cycles Time Overhaul Limited Part
-------------- ----------- ---------------- --------------------
ENGINE STAND:
-------------------
*as of March __, 1996
EXHIBIT B
ACCEPTANCE CERTIFICATE
WESTERN PACIFIC AIRLINES, INC., a corporation organized and existing under
the laws of the State of Delaware with its principal place of business in
Colorado Springs, Colorado ("Lessee") does hereby represent, acknowledge,
warrant and agree as follows:
(a) Lessee and TACA INTERNATIONAL AIRLINES, S.A. ("Lessor") have entered
into a Lease Agreement dated as of May 21, 1996 (hereinafter referred to as the
"Lease"). Capitalized words used herein and not otherwise defined will have the
meanings set forth in the Lease.
(b) Lessee has this __ day of June, 1996 (Time: ____ ____________), at
Dallas, Texas, received from Lessor possession of:
(i) One (1) General Electric Model CFM56-3B2 Engine bearing
Manufacturer's Serial No. 721150 (the "Engine");
(ii) The manuals, logbooks, flight records and historical
information regarding the Engine listed in Attachment 1 hereto (the
"Engine Documentation"); and
(iii) One (1) PF Industries, Inc. model PF71-169 engine stand
bearing serial number 0001B.
(c) Except as noted on Attachment 2 hereto, Lessee hereby confirms and
agrees that the above described Engine and Engine Documentation have been duly
accepted by Lessee pursuant to the terms and provisions of the Lease.
(d) As of the date hereof, the Engine had the following hours/cycles:
Time to Next
Total Replacement of
Engine Total Time Since Lowest Life
Cycles Time Overhaul Limited Part
------------ --------- --------------- ------------------
721150
IN WITNESS WHEREOF, Lessee has caused this Acceptance Certificate to be
executed by its duly authorized representative as of the day and year set forth
above.
WESTERN PACIFIC AIRLINES, INC.
By:
Name:
Title:
ATTACHMENTS: 1. List of Engine Documentation
2. List of Discrepancies
ATTACHMENT 1
TO ACCEPTANCE CERTIFICATE
ENGINE DOCUMENTATION
Engine Log Book (current and file copies)
Engine Data Submittal
Engine previous maintenance visit record including the last inspection
performed
Airworthiness Directive Compliance Summary
ADs requiring continuous surveillance
Service Bulletin terminated accomplishment status
Service Bulletin requiring continuous surveillance summary and maintenance
control action
FAA Form 337 for repair/overhaul certification of last shop visit
Engine time summary sheet including life limited items
Receipt of the foregoing documents, except as noted, is hereby acknowledged.
ATTACHMENT 2
TO ACCEPTANCE CERTIFICATE
DISCREPANCIES
EXHIBIT C
FORM OF RETURN ACCEPTANCE RECEIPT
WESTERN PACIFIC AIRLINES, INC. ("Lessee") and FIRST SECURITY BANK,
NATIONAL ASSOCIATION, not in its individual capacity (except as otherwise
specified) but solely as trustee ("Lessor") have entered into an Engine Lease
Agreement dated as of May 21, 1996 and Amended and Restated as of July 7, 1997
(as supplemented and amended, hereinafter referred to as the "Agreement").
Capitalized words used herein and not otherwise defined will have the meanings
set forth in the Agreement.
(a) Lessor has this ___ day of _____________, _____, at
______________________, received from Lessee possession of:
(i) One (1) General Electric Model CFM56-3B2 jet aircraft
engine, Manufacturer's Serial No. 721150 (the "Engine");
(ii) The manuals, records and historical information regarding the
Engine and Parts listed in Attachment 1 hereto (the "Engine
Documentation") and
(iii) One (1) PF Industries, Inc. model PF71-169 engine stand
bearing serial number 0001B.
(b) Except as noted on Attachment 2 hereto, the above specified Engine and
Engine Documentation are hereby accepted by Lessor pursuant to the terms and
provisions of the Lease.
(c) As of the date hereof, the Engine had the following hours/cycles:
Time to Next
Total Total Time Since Replacement of Lowest
Engine Cycles Time Overhaul Life Limited Part
---------------- ------------- --------------- ----------------------
721150
IN WITNESS WHEREOF, Lessee and Lessor has caused this Return Acceptance
Receipt to be executed by their duly authorized representatives as of the day
and year set forth above.
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as
trustee
By:
Name:
Title:
WESTERN PACIFIC AIRLINES, INC.
By:
Name:
Title:
ATTACHMENTS: 1. List of Engine Documentation
2. List of Discrepancies
ATTACHMENT 1
TO RETURN ACCEPTANCE RECEIPT
ENGINE DOCUMENTATION
Engine Log Book (current and file copies)
Engine Data Submittal
Engine previous maintenance visit record including the last inspection
performed
Airworthiness Directive Compliance Summary
ADs requiring continuous surveillance
Service Bulletin terminated accomplishment status
Service Bulletin requiring continuous surveillance summary and maintenance
control action
FAA Form 337 for repair/overhaul certification of last shop visit
Engine time summary sheet including life limited items
Receipt of the foregoing documents, except as noted, is hereby acknowledged.
ATTACHMENT 2
TO RETURN ACCEPTANCE RECEIPT
DISCREPANCIES
EXHIBIT D
FORM OF MONTHLY REPORT
MONTHLY ENGINE UTILIZATION AND STATUS REPORT
To: FIRST SECURITY BANK,
NATIONAL ASSOCIATION
as Owner Trustee ("Lessor")
00 Xxxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Corporate Trust Department
with a copy to:
KG Aircraft Leasing Co., Ltd.
0 Xxxxxxxx Xxxxx, Xxxxxxxx Xxxx
Xxxxxx 0, Xxxxxxx
Attention: Managing Director
From: WESTERN PACIFIC AIRLINES, INC. ("Lessee")
0000 X. Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Re: ENGINE TYPE: GENERAL ELECTRIC CFM56-3B2
REGISTRATION:
SERIAL NUMBER: 721150
MONTH OF 19
===============================================================================
Engine TOTAL TIME SINCE NEW HRS:
===============================================================================
Engine TOTAL CYCLES SINCE NEW CYCLES:
===============================================================================
HOURS DURING MONTH HRS:
===============================================================================
BLOCK HOURS DURING MONTH HRS:
===============================================================================
CYCLES/LANDING DURING MONTH CYCLES:
===============================================================================
TIME REMAINING TO NEXT OVERHAUL
===============================================================================
NOTE: IF LESSOR OWNED ENGINE IS REMOVED FROM AN AIRFRAME AND/OR INSTALLED ON
AN AIRFRAME IT MUST BE REPORTED MONTHLY ON THIS FORM.
SERVICE BULLETINS, AIRWORTHINESS DIRECTIVES, ENGINEERING MODIFICATIONS OR
CHANGES SCHEDULED OR COMPLETED (INDICATE DATE SCHEDULED FOR COMPLETION OR
DATE OF COMPLETION, AS APPLICABLE):
WARRANTY CLAIMS MADE OR SETTLED SINCE LAST REPORT (INDICATE NATURE OF CLAIM AND
SETTLEMENT, AS APPLICABLE:
The undersigned, a duly elected officer of Lessee, hereby certifies to
Lessor that all airport landing fees and other charges related to or incurred in
connection with any airframe on which the Engine is installed and all other
aircraft in Lessee's fleet, have been paid and are current.
WESTERN PACIFIC AIRLINES, INC.
By:
Its:
EXHIBIT E
MAINTENANCE RESERVES ADJUSTMENT FORMULA
Flight Hour/
Cycle Ratio Rates
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EXHIBIT A ENGINE DESCRIPTION
EXHIBIT B FORM OF ACCEPTANCE CERTIFICATE
EXHIBIT C FORM OF RETURN ACCEPTANCE RECEIPT
EXHIBIT D FORM OF MONTHLY REPORT
