Exhibit 10.26
EXECUTION VERSION
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LEASE AGREEMENT [N296SK]
dated as of December 20, 2001
between
XXXXX FARGO BANK NORTHWEST, NATIONAL ASSOCIATION
Owner Trustee,
Lessor,
and
CHAUTAUQUA AIRLINES, INC.
Lessee.
Covering One Embraer Model EMB-145LR Aircraft
Registration Number N296SK
Manufacturer's Serial Number 145514
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THIS IS ORIGINAL COUNTERPART NO. 1.
TO THE EXTENT, IF ANY, THAT THIS LEASE AGREEMENT [N296SK] CONSTITUTES CHATTEL
PAPER (AS THE TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY
APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE AGREEMENT [N296SK]
MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN
THE ORIGINAL COUNTERPART MARKED COUNTERPART NO.1
THIS LEASE AGREEMENT [N296SK], dated as of December 20, 2001, between
XXXXX FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, a national banking
association, not in its individual capacity but solely as Owner Trustee, the
Lessor, and CHAUTAUQUA AIRLINES, INC., a New York corporation, the Lessee.
W I T N E S S E T H:
WHEREAS, the Lessor intends to purchase the Aircraft pursuant to the
terms of the Participation Agreement;
WHEREAS, the Lessee desires to lease from the Lessor and the Lessor is
willing to lease to the Lessee the Aircraft upon and subject to the terms and
conditions of this Lease; and
WHEREAS, the parties intend this Lease to constitute a true lease and
not a security agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration the receipt and adequacy of
which is hereby acknowledged, and intending to be legally bound, the parties do
hereby agree as follows:
Section 1. INTERPRETATION.
(a) DEFINITIONS.
Capitalized terms used herein and defined in Appendix A shall, except
as such definitions may be specifically modified in the body of this Lease for
the purposes of a particular section, paragraph or clause, have the meanings
given such terms in Appendix A and, unless otherwise specified, such meanings
shall be equally applicable to both the singular and the plural forms of such
terms.
(b) REFERENCES.
References in this Lease to sections, paragraphs, clauses, appendices,
schedules and exhibits are to sections, paragraphs, clauses, appendices,
schedules and exhibits in and to this Lease unless otherwise specified.
Paragraphs identified with a letter and clauses identified with a number or
letter within a section may be referred to either by section reference (for
example, this is Section l(b)) or by paragraph and clause reference (for
example, this is also paragraph (b) of Section 1) with the same meaning.
(c) HEADINGS.
The headings of the various sections, paragraphs and clauses of this
Lease and the table of contents are for convenience of reference only and shall
not modify, define, expand or limit any of the terms or provisions hereof.
(d) APPENDICES, SCHEDULES AND EXHIBITS.
The appendices, schedules and exhibits hereto are part of this Lease.
Section 2. DELIVERY AND LEASING OF THE AIRCRAFT.
(a) LEASING OF THE AIRCRAFT.
Subject to the satisfaction or waiver of the conditions precedent
stated in the Participation Agreement, the Lessor agrees to lease to the Lessee,
and the Lessee agrees to lease from the Lessor, the Aircraft on the terms and
conditions set forth herein, such leasing to be evidenced by the execution and
delivery by the Lessor and the Lessee on the Delivery Date of a Lease
Supplement.
(b) DELIVERY AND ACCEPTANCE OF THE AIRCRAFT UNDER THE LEASE.
The Lessor hereby authorizes one or more persons designated by the
Lessee as the authorized representative or representatives of the Lessor to
accept delivery of the Aircraft from the Seller. By executing and delivering
Lease Supplement No. 1, the Lessee confirms to the Lessor that the Lessee has
duly and irrevocably accepted delivery of the Aircraft for all purposes of this
Lease.
Section 3. TERM AND RENT.
(a) TERM.
The Aircraft is leased for a Term which shall comprise the Basic Term
and, at the option of the Lessee exercised in accordance with Section 13(a), one
or more Renewal Terms. The Basic Term shall commence on the Delivery Date and
continue through the Expiration Date; and each Renewal Term, if any, shall be
for the applicable period provided in Section 13(a), except that the Term
(including the Basic Term or any Renewal Term, as the case may be) shall end
upon any earlier termination of this Lease according to its terms.
(b) BASIC RENT.
The Lessee shall pay Basic Rent in consecutive monthly installments on
each Basic Rent Payment Date during the Basic Term, each such installment to be
in an amount determined by multiplying Lessor's Cost by the percentage set forth
in Exhibit C-1 for the applicable Basic Rent Payment Date. The Lessee shall pay
Basic Rent during a Renewal Term in the amounts and at the times provided in
Section 13(a) for such Renewal Term. For the avoidance of doubt, and
notwithstanding any provision to the contrary in this Lease, the amount of Basic
Rent that the Lessee is required to pay to the Lessor for the use of the
Aircraft for each Basic Rent Period listed in column (1) of Exhibit C-2 hereof
shall be the amount determined by multiplying Lessor's Cost by the percentage
set forth in column (2) of Exhibit C-2 beside such Basic Rent Period. "Basic
Rent Period" means each of (x) the period commencing on and including the
Delivery Date and ending on but excluding the first Basic Rent Payment Date
following the Delivery Date, and (y) each period commencing on and including a
Basic Rent Payment Date and ending on but excluding the next subsequent Basic
Rent Payment Date.
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(c) SUPPLEMENTAL RENT.
The Lessee shall pay to the Lessor, or to whoever shall be entitled
thereto, any and all Supplemental Rent when the same shall become due and owing.
Without limiting the foregoing, the Lessee shall pay as Supplemental Rent:
(i) to the Lessor, on demand, interest at the Past Due Rate on
any part of any installment of Basic Rent not paid when due for the
period for which the same shall be overdue; and
(ii) to whoever shall have been entitled to receive the relevant
payment of Supplemental Rent, on demand, interest at the Past Due Rate
on any payment of Supplemental Rent (other than interest payable under
this clause (ii)) not paid when due for the period for which the same
shall be overdue.
The obligations of the Lessee to pay Supplemental Rent provided for in
this Section 3(c) shall survive the expiration or other termination of this
Lease.
(d) ADJUSTMENTS TO BASIC RENT AND TERMINATION VALUES.
All installments of Basic Rent remaining to be paid during the Basic
Term and the Basic Rent allocations set forth in Exhibit C-2 shall be
recalculated and adjusted, upwards or downwards as the case may be (and
corresponding adjustments shall be made to the EBO Amount and the Termination
Values applicable during the remaining Basic Term) to maintain the Net Economic
Return through the EBO Date as well as the end of the Basic Term and, to the
greatest extent consistent with such maintenance of such Net Economic Return, to
minimize the net present value (calculated at a discount rate equal to the
Applicable Rate or such other rate as may be specified by the Lessee to the
Owner Participant) of the remaining Basic Rent payments (or, if the Lessee shall
have so specified to the Owner Participant, the remaining Basic Rent Payments to
the EBO Date together with the EBO Amount), if:
(i) the Delivery Date shall not be December 20, 2001;
(ii) [Reserved]; or
(iii) there shall be an adjustment of Termination Values as
provided in Section 16 of the Tax Indemnity Agreement.
Adjustments to the installments of Basic Rent (expressed as percentages of
Lessor's Cost) set forth in Exhibit C-1 and to the Basic Rent allocations set
forth in Exhibit C-2 and conforming adjustments to the EBO Amount and the
amounts of Termination Values (expressed as percentages of Lessor's Cost) set
forth in Exhibit D shall be calculated by the Owner Participant in accordance
with the terms of this Section 3(d), and the Owner Participant shall deliver to
the Lessee and the Lessor schedules setting forth the revised EBO Amount and the
revised percentages that the Owner Participant proposes to include in Exhibits
C-1, C-2 and D, subject to review by the Lessee and verification as provided
herein. In the event of a dispute regarding any such adjustment which is not
resolved by agreement of the Lessee and the Owner Participant, the adjustments,
at the request of the Lessee delivered to the Owner Participant within 30 days
after
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receipt of the Owner Participant's proposed adjustments, shall be subjected to
verification by a lease advisory firm or a nationally recognized firm of
accountants in each case to be selected by the Owner Participant and reasonably
acceptable to the Lessee. The Owner Participant shall provide to such firm, but
not, in any circumstances, to Lessee or any representatives of Lessee, on a
confidential basis such information as such firm may reasonably require,
including, without limitation, a true copy of this Lease and a full description
of the methodology and assumptions employed by the Owner Participant in
calculating the EBO Amount or Basic Rent payments and allocations or Termination
Value set forth in Exhibits C-1, C-2 and D as in effect on the Delivery Date and
a true copy of the calculations of the same performed by the Owner Participant
at the time, to enable such firm to determine whether the adjustments proposed
by the Owner Participant are mathematically accurate, apply the same methodology
and assumptions (except to the extent changed by the events giving rise to such
recalculation or any prior recalculation pursuant to this Section 3(d)) as were
employed in the calculations of the Basic Rent payments and allocations, EBO
Amount and Termination Values in effect on the Delivery Date, and are otherwise
in conformity with the provisions of this Lease. The Lessee and its financial
advisors shall be entitled to submit such data and views as the Lessee may elect
to such firm concerning the proposed adjustments. The firm shall be requested to
deliver to each of the Owner Participant, the Lessee and the Lessor within 30
days after its appointment its determination as to the changes, if any, that are
appropriate with respect to the adjustments proposed by the Owner Participant.
The adjustments proposed by the Owner Participant, if not disputed by the Lessee
as provided above, or the determination of the firm as provided above, as the
case may be, shall be conclusive, final and binding upon the Lessor, the Lessee
and the Owner Participant, and the EBO Amount and Exhibits C-1, C-2 and D shall
be amended to reflect them. No dispute concerning any adjustment shall release
the Lessee from its obligation to pay the EBO Amount or Basic Rent or
Termination Value as then set forth in Exhibits C-1 and D. All reasonable fees
and expenses payable to a firm pursuant to this paragraph shall be paid by the
Lessee except that such fees and expenses shall be paid entirely by the Owner
Participant if, as a result of changes determined by the firm, the net present
value, discounted at the Applicable Rate or such other rate as the Lessee may
have specified as provided above in this paragraph, of Basic Rent remaining to
be paid is ten basis points (0.10%) or more lower than it would have been under
the adjustments proposed by the Owner Participant.
Any adjustments made pursuant to this Section 3(d) shall (i) be made so as to
avoid characterization of this Lease as a "disqualified leaseback or long-term
agreement" within the meaning of Section 467 of the Code and/or regulations
thereunder (or any successor or relevant Code provision or regulations) and (ii)
be in compliance with the requirements of Sections 4.02(5) and 4.07(l) of the
Revenue Procedure 2001-29 (or any successor revenue procedure), except to the
extent that on the Delivery Date the Lease constituted such a "disqualified
leaseback or long-term agreement" or was not in compliance with the revenue
procedure referred to in clause (ii). In addition, notwithstanding any other
provisions herein, in no event shall the EBO Amount be adjusted to an amount
that is less than the greater of (A) the adjusted Termination Value as of the
applicable EBO Date, (B) the estimated fair market value of the Aircraft on the
applicable EBO Date (as set forth in the appraisal received pursuant to Section
3.01(b)(xiii) of the Participation Agreement), and (C) the present value as of
the applicable EBO Date of (x) the remaining scheduled Basic Rent through the
end of the Basic Term plus (y) Estimated Value (as identified on Exhibit B) (the
present value calculation described in this clause (C) shall utilize a monthly
compounded discount rate no lower than the rate per annum
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identified on Exhibit B as the Compounded Discount Rate). All adjustments
required pursuant to this Section 3(d) shall be set forth in a Lease Supplement
or in an amendment to this Lease. In connection with any such adjustment to
Basic Rent payments pursuant to this Section 3(d), appropriate corresponding
adjustments shall be made to the percentages set forth in Exhibit D in the
columns with the headings "Deferred Basic Rent Amount" or "Prepaid Basic Rent
Amount", as the case may be, and such corresponding adjustments shall also be
set forth in such Lease Supplement or amendment to this Lease.
(e) MANNER OF PAYMENT.
All Rent payable by the Lessee to the Lessor hereunder shall be paid
to the Lessor at the following account or at such other account as the Lessor
shall specify in a notice to the Lessee, in Dollars in immediately available
funds, so that the Lessor receives the full amount of each payment not later
than 12:00 noon Eastern Time on the due date thereof:
Bank: Bankers Trust Company
ABA No.: 021 001 033
Account no.: 50 255 888
Account Name: GECC T&I Air Depository Account
Ref: Chautauqua N296SK Rent Payment
If any Rent is due on a day that is not a Business Day, such Rent shall be paid
on the next succeeding Business Day with the same force and effect as if paid on
the scheduled date of payment and (if paid on such next succeeding Business Day)
no interest shall accrue on the amount of such payment from and after such
scheduled date to the time of payment on such next succeeding Business Day.
(f) RENT OBLIGATIONS UNCONDITIONAL.
The Lessee's obligations to pay all Rent due and owing under the terms
hereof shall be absolute and unconditional and shall not be affected by any
circumstance whatsoever including, without limitation, (i) any setoff,
counterclaim, recoupment or other right which the Lessee may have against the
Lessor, the Owner Participant, or anyone else for any reason whatsoever, (ii)
any defect in the title, airworthiness, condition, design, operation or fitness
for use of, or any damage to or loss or destruction of, the Aircraft, or any
interference, interruption or cessation in or prohibition of the use or
possession thereof by the Lessee for any reason whatsoever, including, without
limitation, any such interference, interruption, cessation or prohibition
resulting from the act of any governmental authority or any violation by the
Lessor of Section 4 hereof, (iii) any Liens, encumbrances or rights of others
with respect to the Aircraft, (iv) the invalidity or unenforceability or lack of
due authorization or other infirmity or disaffirmance of this Lease or any
provision hereof or any other Operative Agreement or any lack of right, power or
authority of the Lessor or the Lessee to enter into this Lease or any other
Operative Agreement, (v) any insolvency, bankruptcy, reorganization or similar
proceedings by or against the Lessee, or any other Person, or (vi) any other
cause whether similar or dissimilar to the foregoing, any present or future law
notwithstanding, it being the intention of the parties that all Rent payable by
the Lessee hereunder shall continue to be payable in all events in the manner
and at the times provided herein. Such Rent shall not be subject to any
abatement and the
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payments thereof shall not be subject to any setoff or any reduction for any
reason other than manifest error in the calculation thereof or the documentation
of this Lease. To the extent permitted by Applicable Law, the Lessee waives any
rights which it may now have or which may be conferred upon it by statute or
otherwise to terminate, cancel, quit or surrender this Lease except in
accordance with the terms hereof. If for any reason whatsoever this Lease shall
be terminated in whole or in part by operation of law or otherwise except as
specifically provided in Sections 8, 13, 14 and 17, Lessee nonetheless agrees to
pay to Lessor an amount equal to the Rent payment at the time such payment would
have become due and payable in accordance with the terms hereof had this Lease
not been terminated in whole or in part. Subject to the following sentence, each
payment of Rent made by Lessee to Lessor shall be final as to Lessor and Lessee
and Lessee will not seek to recover all or any part of such payment of Rent for
any reason whatsoever. Nothing herein shall be construed as a waiver by the
Lessee of any claim it may have against any Person arising under any of the
Operative Agreements or otherwise, including, without limitation, any claim that
Rent payments demanded from or paid by the Lessee are or were not due, are or
were erroneous or were paid under mistake or protest, or be construed as a
limitation on any rights of the Lessee to assert any claim in any proceeding at
law, in equity or otherwise against the Lessor or any other Person and to pursue
and obtain relief on such claim in such manner as the Lessee shall deem
appropriate other than by setoff against Rent payments due under the terms
hereof.
Section 4. THE LESSOR'S REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATION AND WARRANTIES. THE LESSOR LEASES THE AIRCRAFT
HEREUNDER "AS-IS", "WHERE IS" AND NEITHER THE LESSOR, TRUST COMPANY INDIVIDUALLY
NOR THE OWNER PARTICIPANT SHALL BE DEEMED TO HAVE MADE, AND HEREBY DISCLAIMS,
ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE,
AIRWORTHINESS, CONDITION, VALUE, DESIGN, OPERATION, MERCHANTABILITY, COMPLIANCE
WITH SPECIFICATIONS, CONSTRUCTION, PERFORMANCE OR FITNESS FOR USE OR FOR ANY
PURPOSE OF THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON LIABILITY IN TORT, STRICT OR OTHERWISE, AS TO FREEDOM FROM
INTERFERENCE IN POSSESSION OR USE, OR AS TO THE QUALITY OF THE MATERIAL OR
WORKMANSHIP OF THE AIRCRAFT OR ANY PART THEREOF OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY
PART THEREOF, except that the Lessor warrants that on the Delivery Date the
Lessor shall have received whatever title was conveyed to it by the Seller and
the Lessor warrants that the Aircraft shall be free of Lessor's Liens (other
than Liens arising as a result of a Permitted Security Interest) during the
Term.
(b) QUIET ENJOYMENT. The Lessor covenants that during the Term, as
long as no Event of Default has occurred and is continuing, the Lessee's
possession, use and quiet enjoyment of the Aircraft leased hereunder shall not
be interrupted by the Lessor (or any Person lawfully claiming through the
Lessor).
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(c) MANUFACTURER'S WARRANTIES. Lessor hereby assigns to Lessee all
rights Lessor has under any warranty, express or implied, with respect to the
Aircraft and the Engines or any Parts thereof made by the Manufacturer, the
Engine Manufacturer, or any other Person, and all proceeds thereof and
recoveries thereunder under the Embraer Purchase Agreement, Embraer Purchase
Agreement Assignment, Airframe Warranty Assignment and Consent, Engine Warranty
Agreement and Engine Warranty Assignment and Consent and otherwise, to the
extent that such warranties exist or may be assigned or otherwise made available
to Lessee; provided, however, that upon the occurrence of an Event of Default
and any termination of this Lease under Section 17 hereof, all such rights
shall, without further action or notice, immediately revert to Lessor including
all claims thereunder whether or not perfected. In the event any such warranties
are not assignable to Lessee, Lessor shall use commercially reasonable efforts
at Lessee's expense to enforce such warranties on Lessee's behalf.
Section 5. Possession, Operation and Use,
MAINTENANCE, REGISTRATION AND INSIGNIA.
(a) GENERAL.
Except as otherwise expressly provided herein, the Lessee (and any
Permitted Sublessee) shall be entitled during the Term to operate, use, locate,
employ or otherwise utilize or not utilize the Airframe, Engines and Parts
leased hereunder in any lawful manner or place in accordance with the Lessee's
(or such Permitted Sublessee's) business judgment.
(b) POSSESSION.
The Lessee shall not sublease, or otherwise in any manner deliver,
relinquish or transfer possession of the Airframe or any Engine leased hereunder
to any Person or install any Engine, or permit any Engine to be installed, on
any airframe other than the Airframe, during the Term, without the prior consent
of the Lessor, which consent may be withheld in its sole discretion, PROVIDED,
HOWEVER, that so long as (A) only in the case of clause (x) below, no Default of
the type referred to in Section 16(a), (b), (f), (g) or (h) hereof shall have
occurred and be continuing, (B) no Event of Default shall have occurred and be
continuing, and (C) all approvals, consents or authorizations required from the
Aeronautical Authority in connection with any such sublease or such delivery,
transfer or relinquishment of possession have been obtained and remain in full
force and effect, the Lessee (or, except in the case of clause (x) below, any
Permitted Sublessee) may, without the prior consent of the Lessor:
(i) enter into a charter or wet lease or other similar
arrangement under which the Lessee (or such Permitted Sublessee) has
operational control of the Airframe and any Engines installed thereon
in the course of the Lessee's business (which shall not be considered
a transfer of possession hereunder), provided that the Lessee's
obligations under this Lease and such Permitted Sublessee's
obligations under the relevant Sublease shall continue in full force
and effect notwithstanding any such charter or wet lease or other
similar arrangement;
(ii) deliver possession of the Airframe or any Engine or any Part
to the manufacturer thereof or to any organization for testing,
service, repair,
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maintenance, overhaul work or other similar purposes or for
alterations or modifications or additions required or permitted by the
terms of this Lease;
(iii) subject the Airframe and any Engines installed thereon to
interchange agreements (provided that (x) any such interchange
agreement with respect to the Airframe shall not result in the Lessee
(or a Permitted Sublessee) being out of possession of the Airframe for
a period of more than two (2) consecutive days at any one time; (y)
such interchange agreement is entered into with a Permitted Sublessee;
and (z) the party to such interchange agreement is not then subject to
a proceeding or final order under applicable bankruptcy, insolvency or
reorganization laws on the date such interchange agreement is entered
into) or any Engine to interchange or pooling agreements or
arrangements which are applicable to other similar property owned by
or leased to the Lessee (or such Permitted Sublessee) and are entered
into by the Lessee (or such Permitted Sublessee) in the course of its
airline business with any air carrier, provided, that (A) no such
agreement or arrangement shall under any circumstances result in,
contemplate or require the transfer of title to the Aircraft, Airframe
or any Engine and (B) if the Lessor's title to any Engine shall
nevertheless be divested under any such agreement or arrangement, such
divestiture shall be deemed to be an Event of Loss with respect to
such Engine and the Lessee shall comply with Section 7(e) hereof in
respect thereof;
(iv) install an Engine on an airframe owned by the Lessee (or
such Permitted Sublessee) free and clear of all Liens except (A)
Permitted Liens, (B) those which apply only to the engines (other than
the Engines), appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment (other than Parts)
installed on such airframe, and (C) those created by the rights of
other air carriers under interchange or pooling agreements or other
arrangements customary in the airline industry which do not
contemplate, permit or require the transfer of title to such airframe
or engines installed thereon;
(v) install an Engine on an airframe, leased to the Lessee (or
such Permitted Sublessee) or purchased by the Lessee (or such
Permitted Sublessee) subject to a conditional sale or other security
agreement, but only if (A) such airframe is free and clear of all
Liens, except (i) the rights of the parties to such lease, or any such
secured financing arrangement, covering such airframe and (ii) Liens
of the type permitted by Section 5(b)(iv) and (B) Lessee (or such
Permitted Sublessee) shall have received from the lessor, mortgagee,
secured party or conditional seller, in respect of such airframe, a
written agreement (which may be a copy of the lease, mortgage,
security agreement, conditional sale or other agreement covering such
airframe), whereby such Person agrees that it will not acquire or
claim any right, title or interest in, or Lien on, such Engine by
reason of such Engine being installed on such airframe at any time
while such Engine is subject to this Lease (or, in the case of such
Permitted Sublessee, the relevant Sublease) or is owned by Lessor;
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(vi) install an Engine on an airframe, owned by the Lessee (or
such Permitted Sublessee), leased by the Lessee (or such Permitted
Sublessee) or purchased by the Lessee (or such Permitted Sublessee)
subject to a conditional sale or other security agreement under
circumstances where neither clause (iv) nor clause (v) above is
applicable, provided that any such installation (so long as the same
shall be continuing) shall be deemed an Event of Loss with respect to
such Engine and the Lessee shall comply with Section 7(e) hereof;
(vii) transfer possession of the Airframe or Engine to the United
States of America or any instrumentality thereof pursuant to the Civil
Reserve Air Fleet Program (as established and administered pursuant to
Executive Order 11490, as amended, as superseded by United States
Executive Order No. 12656) or any similar or substitute program ("CRAF
Program"), in which event Lessee (or such Permitted Sublessee) shall
promptly notify Lessor in writing of any such transfer of possession
and, in the case of any transfer pursuant to the CRAF Program, in such
notification shall identify by name, address and telephone numbers the
Contracting Office Representatives of the Military Airlift Command of
the United States Air Force to whom notices must be given and to whom
requests or claims must be made to the extent applicable under the
CRAF Program;
(viii) transfer possession of the Airframe or any Engine to the
United States of America, or to a foreign government, when required by
Applicable Law (it being understood that nothing in this clause (viii)
shall relieve the Lessee from its obligations under Section 8(a) if
such transfer becomes an Event of Loss), in which event Lessee shall
promptly notify Lessor in writing of any such transfer of possession;
(ix) [Reserved];
(x) subject to the provisions of this Section 5(b), enter into a
sublease with respect to any Engine or the Airframe and Engines or
engines then installed on the Airframe to any Permitted Sublessee if
(A) Lessee shall provide written notice to Lessor and Owner
Participant at least 10 days prior to entering into any such sublease,
(B) in any such case, the sublessee under such sublease is not subject
to a proceeding or final order under applicable bankruptcy, insolvency
or reorganization laws on the date such sublease is entered into, (C)
in the event that the sublessee under such sublease is a foreign air
carrier or Person based in a country other than the United States, the
United States maintains normal diplomatic relations with the country
in which such proposed sublessee is principally based at the time such
sublease is entered into and (D) in the event that the sublessee under
such sublease is a foreign air carrier or Person based in a country
other than the United States, prior to the effectiveness of such
sublease Lessor shall have received an opinion (in form and substance
reasonably acceptable to Lessor) of counsel to Lessee (reasonably
acceptable to Lessor) to the effect that (I) the terms of the proposed
sublease will be legal, valid, binding and (subject to customary
exceptions) enforceable against the proposed sublessee in the country
in which the proposed sublessee is principally based, (II) there exist
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no possessory rights in favor of the sublessee under such sublease
under the laws of such sublessee's country of domicile that would,
upon bankruptcy or insolvency of or other default by the Lessee and
assuming that at such time such sublessee is not insolvent or
bankrupt, prevent the return or repossession of the Aircraft in
accordance with and when permitted by the terms of Section 17(a) upon
the exercise by Lessor of its remedies under Section 17(a), (III) the
laws of such sublessee's country of domicile require fair compensation
by the government of such jurisdiction payable in currency freely
convertible into Dollars for the loss of use of or title to such
Engine or the Airframe in the event of the requisition by such
government of such use or title (it being understood that in the event
such opinion cannot be given in a form reasonably satisfactory to the
Owner Participant, such opinion will be waived if insurance reasonably
satisfactory to the Owner Participant is provided to cover such
requisition), (IV) the laws of such sublessee's country of domicile
would give recognition to Lessor's title to such Engine or the
Airframe, to the registry of such Engine or the Airframe in the name
of Lessor (or Lessee, as "lessee", or the proposed sublessee, as
appropriate), (V) all filings, if any, required to be made in such
jurisdiction in connection with the execution of such sublease in
order to protect the interest of Lessor in such Engine or the Airframe
have been made, (VI) it is not necessary for the Owner Participant or
Lessor to register or qualify to do business in such jurisdiction, if
not already so registered or qualified, as a result, in whole or in
part, of the proposed sublease, (VII) the agreement of such Permitted
Sublessee that its rights under the sublease are subject and
subordinate to all the terms of this Lease is enforceable against such
Permitted Sublessee under Applicable Law of such country, and (VIII)
there is no tort liability for owners not in possession of aircraft in
such country more onerous than under the laws of the United States or
any state thereof (it being agreed that in the event such opinion
cannot be given in a form reasonably satisfactory to the Owner
Participant, such opinion will be waived if insurance reasonably
satisfactory to the Owner Participant is provided to cover the risk of
such tort liability); provided that no such sublease shall be made to
a Permitted Sublessee of the type described in clause (b) of the
definition thereof that is not domiciled in the United States or of
the type described in clause (b) of the definition of Permitted Air
Carrier or to any tax exempt entity within the meaning of Section
168(h) of the Code prior to the end of the Recovery Period, unless the
Lessee prepays on a lump sum basis any liability due under the Tax
Indemnity Agreement as a result of such sublease based upon the
assumption that such sublease will continue for the full term of such
sublease;
PROVIDED that (1) the rights of any transferee who receives possession by reason
of a transfer permitted by this Section 5(b) (other than by a transfer of an
Engine which is deemed an Event of Loss) shall be subject and subordinate to all
the terms of this Lease; (2) the Lessee shall remain primarily liable hereunder
for the performance of all the terms and conditions of this Lease and all of the
terms and conditions of this Lease and the other applicable Operative Agreements
shall remain in effect; (3) no sublease or transfer of possession otherwise in
compliance with this Section 5(b) shall (A) result in any registration or
re-registration of the Aircraft except to the extent permitted by Section 5(e)
or the maintenance, operation or use thereof except in compliance with Sections
5(c) and 5(d), (B) permit any action not permitted to the Lessee
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hereunder, (C) extend beyond the end of the Term (except to the extent that the
Lessee shall have irrevocably committed to exercise a purchase option in
accordance with the terms hereof) or (D) contain any purchase option exercisable
at an earlier date or at a lower price than such date or price, as the case may
be, as permitted under Section 13(b) hereof; (4) if any such sublease or
transfer of possession shall, in the reasonable opinion of the Owner
Participant, result in any risk of adverse tax consequences, the Lessee shall,
prior to entering into the same, provide an indemnity satisfactory in form and
substance to the Owner Participant against any such adverse tax consequences;
(5) the Lessee shall provide evidence reasonably satisfactory to Lessor and
Owner Participant that the insurance required by Section 9 remains in effect and
for the purpose of Lessor's and Owner Participant's review of such insurance
requirements, the Lessee shall, at least five (5) days prior to the date of any
sublease permitted under this Section 5(b), provide to Lessor and Owner
Participant, forms of the broker's report and insurance certificates required by
Section 9(g); (6) all necessary documents shall have been duly filed or recorded
in applicable public offices as may be required to preserve the title of Lessor
to the Airframe and Engines; and (7) Lessee shall reimburse Lessor and Owner
Participant, on an After Tax Basis, for all of their reasonable out-of-pocket
expenses (including fees and disbursements of counsel) in connection with any
such sublease or transfer.
In the case of any sublease permitted under this Section 5(b), the
Lessee will include in such sublease appropriate provisions which (a) make such
sublease expressly subject and subordinate to all of the terms of this Lease,
including the rights of the Lessor to avoid such sublease in the exercise of its
rights to repossession of the Airframe and Engines hereunder and thereunder; (b)
expressly prohibit any further subleasing of the Airframe and Engines; (c)
require that the Airframe and Engines be maintained in accordance with a
maintenance program approved by the Aeronautical Authority applicable thereto;
(d) require the sublessee to comply with the terms of Section 9 hereof; (e)
limit the term of such sublease (including renewal rights) to a period not
beyond the end of the Term unless the Lessee shall then have irrevocably
committed to exercise a purchase option in accordance with the terms hereof; (f)
require that the Airframe and Engines be used in accordance with the limitations
applicable to the Lessee's possession and use provided in this Lease and (g)
shall include provisions for the maintenance, operation, possession and
inspection of the Aircraft that are the same in all material respects as the
applicable provisions of this Lease.
The Lessor hereby agrees for the benefit of the lessor or secured
party of any engine or of any airframe (other than the Airframe) leased to the
Lessee or purchased by the Lessee subject to a conditional sale or other
security agreement, which lease or conditional sale or other security agreement
(in the case of any such airframe) also covers an engine or engines owned by the
lessor under such lease or subject to a security interest in favor of the
secured party under such conditional sale or other security agreement, that the
Lessor will not acquire or claim, as against such lessor or secured party, any
right, title or interest in any such engine as the result of such engine being
installed on the Airframe at any time while such engine is owned by such lessor
or is subject to such conditional sale or other security agreement or security
interest in favor of such secured party.
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(c) OPERATION AND USE.
The Lessee shall not operate, use or locate the Airframe or any
Engine, or suffer such Airframe or any Engine to be operated, used or located
(i) in any area excluded from coverage by any insurance required by the terms of
Section 9 hereof, except in the case of a requisition by the United States of
America where the Lessee obtains (and provides evidence of) indemnity from the
Government for the benefit of the Additional Insureds against substantially the
same risks and for at least the amounts of the insurance required by Section 9
hereof covering such area, or (ii) outside the United States or Canada in any
recognized or, in the Lessee's reasonable judgment, threatened area of
hostilities unless covered by war risk insurance, or in either case unless the
Airframe or such Engine is operated or used under contract with the Government
under which contract the Government assumes liability for substantially the same
risks in at least the same amounts as would be covered by such insurance. The
Lessee shall not permit the Airframe or any Engine to be used or operated during
the Term in violation of any Applicable Law or in violation of any airworthiness
certificate, license or registration relating to the Aircraft or such Engines
issued by any competent governmental authority, unless (i) the validity thereof
is being contested in good faith and by appropriate proceedings which do not
involve a non-de minimis danger of the sale, forfeiture or loss of the Airframe
or such Engine or the interest of Owner Participant therein, any risk of
criminal liability or any material risk of civil liability against Lessor or
Owner Participant, or (ii) it is not possible for the Lessee (or a Permitted
Sublessee) to comply with the laws of a jurisdiction other than the United
States (or other than any jurisdiction in which the Aircraft is then registered)
because of a conflict with the applicable laws of the United States (or such
jurisdiction in which the Aircraft is then registered).
(d) MAINTENANCE.
The Lessee, at its own cost and expense, shall during the Term
service, repair, maintain, overhaul and test the Aircraft, the Airframe and each
Engine or cause the same to be done in accordance with (1)(i) a maintenance
program approved by the Aeronautical Authority and (ii) maintenance standards
required by, or substantially equivalent to those required by, the FAA or the
central civil aviation authority of Canada, France, Germany, Japan, The
Netherlands or the United Kingdom, and shall keep or cause to be kept the
Aircraft, the Airframe and each Engine in as good operating condition as
originally delivered hereunder, ordinary wear and tear excepted, and shall keep
or cause to be kept the Aircraft, the Airframe and each Engine in such operating
condition as may be necessary to enable the airworthiness certification of the
Aircraft to be maintained in good standing at all times under the applicable
rules and regulations of the Aeronautical Authority, except when aircraft of the
same type, model or series as the Airframe (powered by engines of the same type
as those with which the Airframe shall be equipped at the time of grounding)
registered in the same country have been grounded by the Aeronautical Authority,
PROVIDED, HOWEVER, that if the airworthiness certificate of the Aircraft shall
be withdrawn, then, subject to Section 8 hereof, so long as the Lessee (or a
Permitted Sublessee) is taking or causing to be taken all necessary action to
promptly correct the condition which caused such withdrawal, no Event of Default
shall arise from such withdrawal and (2) except during periods when a Sublease
is in effect, the same standards Lessee uses with respect to similar aircraft of
similar size in its fleet operated
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(whether owned or leased) by Lessee in similar circumstances and during any
period in which a Sublease is in effect, the same standards the Permitted
Sublessee uses with respect to similar aircraft of similar size in its fleet and
operated (whether owned or leased) by the Permitted Sublessee in similar
circumstances. Nothing herein shall be deemed to prevent the Lessee (or a
Permitted Sublessee) from taking the Aircraft out of service for maintenance or
modifications permitted hereunder or storage in accordance with applicable
Aeronautical Authority requirements and sound practice for such storage. The
Lessee shall maintain or cause to be maintained all records, logs and other
documents required by the Aeronautical Authority to be maintained in respect of
the Aircraft in English. Lessee further agrees that the Aircraft, Airframe and
Engines will be maintained, used, serviced, repaired, overhauled or inspected in
compliance with Applicable Law with respect to the maintenance of the Aircraft
and compliance with each applicable airworthiness certificate, license and
registration relating to the Aircraft, Airframe or any Engine issued by the
Aeronautical Authority.
(e) REGISTRATION.
Except as otherwise permitted by Section 4.02(b) of the Participation
Agreement, or as otherwise required by the Transportation Code or rules,
regulations, or orders promulgated thereunder, or to the extent that such
registration cannot be effected or continued due to the Lessor's or the Owner
Participant's failure to comply with the citizenship or other eligibility
requirements for registration of commercial aircraft under the Transportation
Code or any rule, regulation or order promulgated thereunder, the Aircraft shall
be duly registered in the name of the Lessor under the Transportation Code at
all times during the Term; provided that the Lessor shall execute and deliver
all such documents as the Lessee may reasonably request for the purpose of
effecting, continuing or (as provided in this Section 5(e) hereof and Section
4.02(b) of the Participation Agreement) changing such registration.
Section 6. INSPECTION.
At all reasonable times during the Term, but upon at least 15 days'
prior notice to the Lessee (unless an Event of Default shall have occurred and
be continuing, in which event a prior written notice of at least one (1)
Business Day is required) and at a time and place reasonably acceptable to the
Lessee, the Lessor and the Owner Participant or their authorized representatives
(which may include the Manufacturer) may at their own expense (unless an Event
of Default shall have occurred and be continuing, in which event the Lessee
shall bear such expense) and risk conduct a visual walk-around inspection of the
Aircraft and any Engine (including a visual walk-around inspection of the
Aircraft during any "C" check or other heavy maintenance) and may inspect the
books and records of the Lessee relating to the operation and maintenance
thereof and the Lessee shall provide copies of such books and records to the
Lessor and the Owner Participant or their authorized representatives at its or
their reasonable request; provided that (a) such representatives shall be fully
insured to the reasonable satisfaction of the Lessee by the Lessor or the Owner
Participant with respect to any risks incurred in connection with any such
inspection, (b) any such inspection shall be subject to the safety, security and
workplace rules applicable at the location where such inspection is conducted
and any applicable governmental rules or regulations, (c) in the case of an
inspection during a maintenance visit, such inspection shall not interfere with
the normal conduct of such maintenance visit or extend the time required for
such maintenance visit or, in any event, at any time interfere with the use or
operation of the Airframe or any Engine or with the normal conduct of the
Lessee's or a Permitted Sublessee's business, and (d) the Lessee shall not be
required to undertake or incur any
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additional liabilities in connection with any such inspection. All information
obtained in connection with any such inspection shall be held confidential by
the Lessor and the Owner Participant and shall not be furnished or disclosed by
them to anyone other than each other, their bank examiners, auditors,
accountants, agents and legal counsel and any Person with whom the Owner
Participant is in good faith conducting negotiations relating to the possible
transfer and sale of the Owner Participant's interest in the Trust Estate or the
Aircraft, if such Person shall have entered into an agreement similar to that
contained in this Section 6 whereby such Person agrees to hold such information
confidential, and except as may be required by an order of any court or
administrative agency or by any statute, rule, regulation or order of any
governmental authority or as may be necessary to enforce the terms of this
Lease, provided, however, that the Lessor or the Owner Participant may during
any time it is offering the Aircraft for sale make customary disclosures to
prospective purchasers of the Aircraft as to the then current flight and
maintenance status of the Aircraft. The Lessor and the Owner Participant shall
have no duty to make any such inspection and shall not incur any liability or
obligation by reason of not making any such inspection.
In addition to any inspection as provided hereunder, upon each request
of Owner Participant to Lessee made not more than four times in a calendar year,
Lessee will make available to Owner Participant information with respect to the
cycles and hours of operation of the Airframe and Engines and the status of the
time controlled components of the Engines.
If requested by Lessor or Owner Participant, Lessee shall provide, or
shall cause any Permitted Sublessee to provide, the date (if then scheduled)
upon which the Airframe undergoes its next scheduled major check and, with
respect to any Engine, the next scheduled off the Airframe maintenance, and
shall advise Lessor and Owner Participant of the name and location (if then
known) of the relevant maintenance performer.
Section 7. Replacement and Pooling of Parts; Alterations,
MODIFICATIONS AND ADDITIONS; SUBSTITUTION OF ENGINES.
(a) REPLACEMENT OF PARTS.
Except as otherwise provided in the proviso to the third sentence of
Section 7(d) or if the Airframe or an Engine to which a Part relates has
suffered an Event of Loss, the Lessee, at its own cost and expense, will during
the Term promptly replace all Parts that may from time to time become worn out,
lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever. In addition, in
the ordinary course of maintenance, service, repair, overhaul or testing, the
Lessee (or a Permitted Sublessee), at its own cost and expense, may remove any
Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or permanently rendered unfit for use, provided that the
Lessee (or such Permitted Sublessee), at its own cost and expense, shall, except
as otherwise provided in the proviso to the third sentence of Section 7(d),
replace such Parts as promptly as practicable with replacement Parts or
temporary replacement parts as provided in Section 7(c) hereof. All replacement
Parts shall be free and clear of all Liens except for pooling arrangements to
the extent permitted by Section 7(c) and Permitted Liens and shall be in as good
operating condition as, and shall have a value and utility at least equal to,
the Parts replaced
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assuming such replaced Parts were in the condition and repair required to be
maintained by the terms hereof.
(b) TITLE TO PARTS.
Except in respect of any Part as to which title vests in Lessee upon
removal as provided in the proviso to the third sentence of Section 7(d) and the
fourth sentence of Section 7(d), all Parts at any time removed from the Airframe
or any Engine shall remain the property of the Lessor and subject to this Lease,
no matter where located, until such time as such Parts shall be replaced by
Parts that have been incorporated or installed in or attached to such Airframe
or Engine and that meet the requirements for replacement Parts specified in
Section 7(a). Immediately upon any replacement Part becoming incorporated or
installed in or attached to an Airframe or Engine as provided in Section 7(a),
without further act, (i) title to the replaced Part shall thereupon vest in the
Lessee (or the relevant Permitted Sublessee), in "as-is, where-is" condition,
free and clear of all rights of the Lessor and any Lessor's Liens and shall no
longer be deemed a Part hereunder; (ii) title to such replacement Part shall
thereupon vest in the Lessor (subject only to Permitted Liens); and (iii) such
replacement Part shall become subject to this Lease and be deemed part of such
Airframe or Engine, as the case may be, for all purposes hereof to the same
extent as the Parts originally incorporated or installed in or attached to such
Airframe or Engine.
(c) POOLING OR PARTS LEASING.
Any Part removed from the Airframe or from any Engine as provided in
Section 7(a) may be subjected by the Lessee (or a Permitted Sublessee) to a
pooling or parts leasing agreement or arrangement of a type customary in the
airline industry entered into in the ordinary course of the Lessee's (or such
Permitted Sublessee's) business, provided the part replacing such removed Part
shall be incorporated or installed in or attached to such Airframe or Engine in
accordance with Sections 7(a) and 7(b) as promptly as practicable after the
removal of such removed Part. In addition, any replacement part when
incorporated or installed in or attached to the Airframe or any Engine in
accordance with Section 7(a) may be owned by another airline or vendor as
customary in the airline industry, subject to a pooling or parts leasing
arrangement, PROVIDED that the Lessee (or a Permitted Sublessee), at its expense
as promptly thereafter as reasonably practicable, either (i) causes title to
such temporary replacement part to vest in the Lessor in accordance with Section
7(b) by the Lessee (or such Permitted Sublessee) acquiring title thereto for the
benefit of the Lessor free and clear of all Liens except Permitted Liens, at
which time such temporary replacement part shall become a Part and become
subject to this Lease or (ii) replaces such temporary replacement part by
incorporating or installing in or attaching to such Airframe or Engine a further
replacement Part owned by the Lessee (or such Permitted Sublessee) free and
clear of all Liens except Permitted Liens and by causing title to such further
replacement Part to vest in the Lessor in accordance with Section 7(b).
(d) ALTERATIONS, MODIFICATIONS AND ADDITIONS.
The Lessee, at its own expense, shall make (or cause to be made)
alterations and modifications in and additions to the Airframe and any Engine as
may be required to be made from time to time during the Term by Applicable Law
or in order to maintain the insurance
-15-
required under Section 9 regardless of upon whom such requirements are, by their
terms, nominally imposed; PROVIDED, that the Lessee may, in good faith and by
appropriate procedure, contest the validity or application of any such standard
in any reasonable manner which does not materially adversely affect the
interests of the Lessor and does not involve any non-de minimis risk of sale,
forfeiture or loss of the Aircraft or the interest of Owner Participant therein,
any material risk of civil penalty or any risk of criminal liability being
imposed on Lessor or Owner Participant. In addition, the Lessee (or a Permitted
Sublessee), at its own expense, may from time to time make or cause to be made
such alterations and modifications in and additions to the Airframe and any
Engine as the Lessee (or such Permitted Sublessee) may deem desirable in the
proper conduct of its business including, without limitation, removal of Parts
which Lessee (or such Permitted Sublessee) deems are obsolete or no longer
suitable or appropriate for use in the Aircraft, Airframe or such Engine so long
as the aggregate value of such removed Parts (based on their value as of the
Delivery Date) does not exceed $200,000, PROVIDED further that no such
alteration, modification or addition (i) diminishes the value, utility,
estimated residual value (with respect to the Airframe only), condition,
remaining useful life or airworthiness of such Airframe or Engine below the
value, utility, estimated residual value, condition, remaining useful life or
airworthiness thereof immediately prior to such alteration, modification or
addition, assuming such Airframe or Engine was then in the condition required to
be maintained by the terms of this Lease or (ii) causes the Aircraft to be
limited use property, except that the value (but not the utility, estimated
residual value, condition, remaining useful life or airworthiness) of the
Aircraft may be reduced by the value of Parts which the Lessee (or such
Permitted Sublessee) has removed as permitted above. Title to all Parts
incorporated or installed in or attached or added to the Airframe or any Engine
as the result of any alteration, modification or addition effected by the Lessee
(or a Permitted Sublessee) shall, without further act, vest in the Lessor free
and clear of any Liens except Permitted Liens and become subject to this Lease;
provided that the Lessee (or such Permitted Sublessee) may, at any time during
the Term, remove any such Part from the Airframe or an Engine if (i) such Part
is in addition to, and not in replacement of or in substitution for, any Part
originally incorporated or installed in or attached to such Airframe or Engine
at the time of delivery thereof hereunder or any Part in replacement of, or in
substitution for, any such original Part, (ii) such Part is not required to be
incorporated or installed in or attached or added to such Airframe or Engine
pursuant to the terms of Section 5(d) or the first sentence of this Section 7(d)
or pursuant to the terms of any insurance policies required to be carried
hereunder or under any Applicable Law and (iii) such Part can be removed from
such Airframe or Engine without diminishing or impairing the value, condition,
utility, estimated residual value, remaining useful life or airworthiness which
such Airframe or Engine would have had at the time of removal had such
alteration, modification or addition not been effected by the Lessee (or such
Permitted Sublessee) assuming the Aircraft was otherwise maintained in the
condition required by this Lease. Upon the removal by the Lessee (or such
Permitted Sublessee) of any such Part as above provided, title thereto shall,
without further act, vest in the Lessee (or such Permitted Sublessee), in
"as-is, where-is" condition, free and clear of all rights of the Lessor and any
Lessor's Liens and such Part shall no longer be deemed a Part hereunder. Any
Part not removed by the Lessee (or a Permitted Sublessee) as above provided
prior to the return of the Airframe or respective Engine to the Lessor hereunder
shall remain the property of the Lessor; provided that nothing in this Section
7(d) shall prohibit the Lessee (or a Permitted Sublessee) from removing any
seats from the Aircraft (which seats while so removed shall remain in the
possession of the Lessee (or such Permitted Sublessee)) so long as the
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Aircraft when returned to the Lessor pursuant to Section 12 hereof shall be in
the condition required thereby.
(e) SUBSTITUTION OF ENGINES.
So long as no Specified Default shall have occurred and be continuing,
the Lessee (or a Permitted Sublessee) shall have the right at its option at any
time, on at least 30 days' prior notice to the Lessor and the Owner Participant,
to substitute, and if an Event of Loss shall have occurred with respect to an
Engine under circumstances in which there has not occurred an Event of Loss with
respect to the Airframe, shall within 90 days of the occurrence of such Event of
Loss and on at least five days' prior notice to the Lessor substitute, a
Replacement Engine for any Engine not then installed or held for use on the
Airframe. In such event, immediately upon the effectiveness of such substitution
on the date set forth in such notice and without further act, (i) title to the
Replacement Engine shall thereupon vest in the Lessor free and clear of all
Liens (other than Permitted Liens), (ii) title to the replaced Engine shall
thereupon vest in the Lessee (or its designee), in "as-is, where-is" condition,
free and clear of all rights of the Lessor and any Lessor's Liens and shall no
longer be deemed an Engine hereunder, and (iii) such Replacement Engine shall
become subject to this Lease and be deemed part of the Aircraft for all purposes
hereof to the same extent as the Engine originally installed on or attached to
the Airframe. Upon the substitution of a Replacement Engine, the following
conditions shall be satisfied at the Lessee's sole cost and expense and the
parties agree to cooperate with the Lessee to the extent necessary to enable it
to timely satisfy such conditions:
(i) the following documents shall be duly authorized, executed
and delivered by the respective party or parties thereto, and an
executed counterpart of each shall be delivered to the Lessor and the
Owner Participant:
(A) a Lease Supplement covering the Replacement Engine,
which shall have been duly filed for recordation with the FAA;
(B) a full warranty xxxx of sale (as to title), in form and
substance satisfactory to the Lessor and the Owner Participant,
covering the Replacement Engine, executed by the owner thereof in
favor of the Lessor;
(C) "precautionary" Uniform Commercial Code financing
statements as are deemed necessary or desirable by counsel for
the Owner Participant to protect the ownership interests of the
Owner Trustee in the Replacement Engine;
(D) an Officer's Certificate of the Lessee certifying that
(i) in the case of a voluntary replacement only, no Specified
Default shall have occurred and be continuing and (ii) (x) in the
case of a voluntary replacement, the Replacement Engine has at
least the same number of hours or cycles (whichever is
applicable) of operation on such Replacement Engine remaining
until the next scheduled life limited part replacement as the
Engine it replaces, assuming such Engine had been
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maintained in the condition required hereunder; or (y) in the
case of a mandatory replacement, the Lessee has not discriminated
in its selection of the Replacement Engine (based on the leased
status of the Aircraft);
(E) an opinion of qualified FAA counsel as to the due
recordation of the Lease Supplement and all other documents or
instruments the recordation of which is necessary to perfect and
protect the rights of the Lessor in the Replacement Engine;
(F) to the extent that an engine warranty in respect of such
Replacement Engine is available to the Lessee, an engine warranty
assignment covering such Replacement Engine and a consent to such
engine warranty assignment, in substantially the form of the
Engine Warranty Assignment and Consent or otherwise in such form
and substance satisfactory to the Lessor and the Owner
Participant; and
(G) evidence that the insurance requirements of Section 9
with respect to an Engine are satisfied and that the insurance
covering such Replacement Engine shall be of the type usually
carried by the Lessee (or, in the case of a voluntary
replacement, such Permitted Sublessee) with respect to similar
engines, and covering risks of the kind customarily insured
against by the Lessee (or, in the case of a voluntary
replacement, such Permitted Sublessee);
(ii) the Lessee shall furnish (or cause to be furnished to) the
Lessor and the Owner Participant with an opinion, reasonably
satisfactory in form and substance to the Lessor and the Owner
Participant, of the Lessee's counsel, which may be the Lessee's
General Counsel or Associate General Counsel, to the effect that (x)
such bills of sale or other documents reasonably requested by the
Lessor or the Owner Participant are sufficient to convey title to such
Replacement Engine to the Lessor and, (y) the Lessor is entitled to
the benefits of Section 1110 with respect to such Replacement Engine
to the same extent as with respect to the replaced Engine immediately
preceding such replacement; and
(iii) either (x) the Owner Participant shall have received an
opinion of independent tax counsel (selected by the Owner Participant
and reasonably acceptable to the Lessee), reasonably satisfactory to
the Owner Participant, to the effect that there shall be no risk of
adverse tax consequences resulting from such replacement (and the
Owner Participant shall use its best efforts to cause a timely opinion
to be delivered) or (y) the Lessee shall have provided, or caused to
be provided, an indemnity in respect of any adverse tax consequences
reasonably satisfactory (or, in the case of any voluntary
substitution, satisfactory) in form and substance to the Owner
Participant.
Upon satisfaction of all conditions to such substitution, (x) the
Lessor shall, at the expense of the Lessee, execute and deliver to the Lessee
such bills of sale and other documents and instruments as the Lessee shall
reasonably request to evidence the transfer to the Lessee and
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vesting of all right, title and interest in and to the replaced Engine in the
Lessee, in "as-is, where-is" condition, free and clear of all right, title and
interest of the Lessor and any Lessor's Liens; (y) the Lessor shall, at the
request and expense of the Lessee, assign to the Lessee all claims it may have
against any other Person relating to an Event of Loss giving rise to such
substitution (other than those in respect of insurance maintained by the Owner
Participant pursuant to Section 9(f)) and (z) the Lessee shall be entitled to
receive all insurance proceeds (other than those reserved to others under
Section 9(f) hereof) and proceeds in respect of any Event of Loss giving rise to
such replacement to the extent not previously applied to the purchase price of
the Replacement Engine as provided in Sections 9(e)(i) and 8(e)(ii).
Section 8. LOSS, DESTRUCTION OR REQUISITION.
(a) EVENT OF LOSS WITH RESPECT TO THE AIRFRAME.
Upon the occurrence of an Event of Loss with respect to the Airframe,
the Lessee shall forthwith (and in any event within 15 days after such
occurrence) give the Lessor and the Owner Participant notice of such Event of
Loss. The Lessee shall, within 60 days after such occurrence, give the Lessor
and the Owner Participant written notice of its election to perform one of the
following options (it being agreed that if the Lessee shall not have given the
Lessor such notice of such election, the Lessee shall be deemed to have elected
to perform the option identified in the following clause (ii)):
(i) subject to the satisfaction of the conditions contained in
Section 8(d), on a date not more than 150 days after the occurrence of
the Event of Loss (or, if earlier, the last day of the Term), convey
or cause to be conveyed to the Lessor, and to be leased by the Lessee
hereunder in replacement of the Airframe and Engines with respect to
which the Event of Loss occurred, a Replacement Airframe (together
with the same number of Replacement Engines as the number of Engines,
if any, which were subject to such Event of Loss), such Replacement
Airframe and Replacement Engines to be free and clear of all Liens
except Permitted Liens and to have a remaining useful life, estimated
residual value, value and utility at least equal to the Airframe and
Engines, if any, so replaced (assuming such Airframe and Engines were
in the condition and repair required by the terms hereof) and to be an
airframe that is the same model and same or later vintage as the
Airframe to be replaced thereby, or an improved model; PROVIDED THAT,
if the Lessee shall not perform its obligation to effect such
replacement under this clause (i) during the 150-day period of time
provided herein (or, if earlier, the last day of the Term), it shall
give the Lessor and the Owner Participant notice to such effect upon
or before the expiration of such period of time and shall promptly pay
on the first Termination Date next following the thirtieth (30th) day
after the date of such notice to the Lessor (or, if earlier, the last
day of the Term), in immediately available funds, the amount specified
in clause (ii) below; or
(ii) pay or cause to be paid to the Lessor in immediately
available funds, on a date specified at least 30 days in advance by
the Lessee, which date shall be a Termination Date not later than the
earlier to occur of 150 days after the
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occurrence of the Event of Loss or 3 days following receipt of
insurance proceeds in respect of such Event of Loss, an amount equal
to (A) the Basic Rent, if any, payable on such Termination Date,
together with all unpaid Basic Rent, if any, payable before such
Termination Date plus (B) all unpaid Supplemental Rent (other than
Termination Value) due on or before such Termination Date plus (C) the
Termination Value for the Aircraft determined as of such Termination
Date or, if such Termination Date is beyond the end of the Term, the
Termination Value as of the last Termination Date of the Term plus (D)
the amount, if any, set forth opposite such Termination Date in
Exhibit D in the column with the heading "Deferred Basic Rent Amount"
or, if such Termination Date is beyond the end of the Term, the
amount, if any, set forth opposite the last Termination Date of the
Term in Exhibit D in the column with the heading "Deferred Basic Rent
Amount" less (E) the amount, if any, set forth opposite such
Termination Date in Exhibit D in the column with the heading "Prepaid
Basic Rent Amount" or, if such Termination Date is beyond the end of
the Term, the amount, if any, set forth opposite the last Termination
Date of the Term in Exhibit D in the column with the heading "Prepaid
Basic Rent Amount" plus (F) all reasonable out-of-pocket expenses
(including reasonable attorneys' fees) incurred by the Lessor or the
Owner Participant in connection with such Event of Loss plus (G) if
such Termination Date is beyond the end of the Term, interest on the
amount of such payment, at a rate per annum equal to the Past Due Rate
identified on Exhibit B, for the period from and including the last
day of the Term to but excluding such Termination Date.
(b) EFFECT OF REPLACEMENT.
Should the Lessee have provided a Replacement Aircraft as provided for
in Section 8(a)(i), (i) this Lease shall continue with respect to such
Replacement Aircraft as though no Event of Loss had occurred; (ii) the Lessor
shall, at the expense of Lessee, convey "as-is, where-is", without recourse or
warranty except for a warranty against Lessor's Liens, to the Lessee all right,
title and interest of the Lessor, in and to the Airframe and the Engine or
Engines, if any, installed on the Airframe upon the occurrence of the Event of
Loss by executing and delivering to the Lessee such bills of sale and other
documents and instruments as the Lessee may reasonably request to evidence such
conveyance; (iii) the Lessor shall, at the request and expense of Lessee, assign
to the Lessee all claims it may have against any other Person arising from the
Event of Loss (except with respect to insurance obtained in accordance with
Section 9(f)) and (iv) the Lessee shall be entitled to receive all insurance
proceeds (other than those reserved to others under Section 9(f)) and proceeds
from any award in respect of condemnation, confiscation, seizure or requisition,
including any investment interest thereon, to the extent not previously applied
to the purchase price of the Replacement Aircraft as provided in Sections
9(e)(iii) and 8(e)(i).
(c) EFFECT OF TERMINATION VALUE PAYMENT.
In the event of a payment in full of the Termination Value for the
Aircraft and other Rent payable as provided in Section 8(a)(ii), (i) this Lease
and the obligations of the Lessee to pay Rent (except for Supplemental Rent
obligations which survive pursuant to Section 3(c)
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and Articles 6 and 7 of the Participation Agreement or the Tax Indemnity
Agreement or which have accrued but have not otherwise been paid as of the date
of such payment) shall terminate and the Term shall end, (ii) any remaining
insurance proceeds (other than those reserved to others under Section 9(f)),
including any investment interest thereon, shall be promptly paid over to the
Lessee; and (iii) the Lessor, at the expense of Lessee, shall convey, "as-is,
where-is" without recourse or warranty, except for a warranty against Lessor's
Liens attributable to Lessor and Owner Participant, to the Lessee all right,
title and interest of the Lessor in and to the Airframe and Engines and shall
execute and deliver to the Lessee such bills of sale and other documents and
instruments as the Lessee may reasonably request to evidence such conveyance.
(d) CONDITIONS TO AIRFRAME REPLACEMENT.
The Lessee's right to substitute a Replacement Aircraft as provided in
Section 8(a)(i) shall be subject to the fulfillment, at the Lessee's sole cost
and expense, in addition to the conditions contained in such Section 8(a)(i), of
the following conditions precedent:
(i) On the date when the Replacement Aircraft is delivered to the
Lessor (such date being referred to in this Section 8(d) as the
"Replacement Closing Date"), no Specified Default shall have occurred
and be continuing and the Lessor and the Owner Participant shall have
received an Officer's Certificate so certifying;
(ii) On the Replacement Closing Date the following documents
shall have been duly authorized, executed and delivered by the
respective party or parties thereto and shall be in full force and
effect, and an executed counterpart of each thereof (or, in the case
of the FAA Bills of Sale (or a comparable document, if any, of another
Aeronautical Authority, if applicable) referred to below, a photocopy
thereof) shall have been delivered to the Lessor and the Owner
Participant:
(A) a Lease Supplement covering the Replacement Aircraft,
which shall have been duly filed for recordation with the FAA;
(B) an FAA Xxxx of Sale (or a comparable document, if any,
of another Aeronautical Authority, if applicable) covering the
Replacement Aircraft, executed by the owner thereof in favor of
the Lessor, and dated the Replacement Closing Date;
(C) a full warranty (as to title) xxxx of sale, in form and
substance satisfactory to the Owner Participant and the Lessor,
covering the Replacement Aircraft, executed by the owner thereof
in favor of the Lessor, dated the Replacement Closing Date and
guaranteed by the Lessee;
(D) such "precautionary" Uniform Commercial Code financing
statements as are deemed necessary or desirable by counsel for
the Owner Participant to protect the ownership interests of the
Owner Trustee in the Replacement Aircraft; and
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(E) an Officer's Certificate of the Lessee certifying that
(i) the Replacement Aircraft is an Embraer model EMB-145LR
aircraft of a more advanced model, is in as good operating
condition as, and has a value, remaining useful life, estimated
residual value and utility at least equal to, the Aircraft it
replaces, assuming such Aircraft had been maintained in the
condition required hereunder and (ii) in the event the Event of
Loss occurs after the fifth anniversary of the Delivery Date, the
Replacement Airframe shall have no more than 105% of the total
hours of operation, as compared to the Airframe it replaces;
(iii) On or before the Replacement Closing Date, the Lessor and
the Owner Participant (acting directly or by authorization to their
respective special counsel) shall have received such documents and
evidence with respect to the Lessee, the Lessor, the Owner Participant
or the owner of such Replacement Aircraft, as the Lessor or its
special counsel may reasonably request in order to establish the
consummation of the transactions contemplated by Section 8(a)(i) and
this Section 8(d), the taking of all necessary corporate action in
connection therewith and compliance with the conditions set forth in
this Section 8(d), in each case in form and substance reasonably
satisfactory to the Lessor and the Owner Participant;
(iv) The Lessor and the Owner Participant (acting directly or by
authorization to their respective special counsel) shall each have
received satisfactory evidence as to the compliance with Section 9
hereof with respect to the Replacement Aircraft;
(v) On the Replacement Closing Date, (A) the Lessor shall receive
good title to the Replacement Aircraft free and clear of Liens (other
than Permitted Liens), (B) the Replacement Aircraft shall have been
duly certified by the Aeronautical Authority as to type and
airworthiness in accordance with the terms of this Lease, and (C)
application for registration of the Replacement Aircraft in accordance
with Section 5(e) shall have been duly made with the Aeronautical
Authority;
(vi) The Owner Participant shall have received an appraisal
reasonably satisfactory to it with respect to the Replacement
Aircraft;
(vii) The Lessor and the Owner Participant shall have received
(acting directly or by authorization to its special counsel) (A) an
opinion, satisfactory in form and substance to the Lessor and the
Owner Participant, of counsel to the Lessee (which may be the Lessee's
General Counsel) to the effect that (x) the xxxx of sale referred to
in clause (ii)(D) above constitutes an effective instrument for the
conveyance of title to the Replacement Airframe and Replacement
Engines, if any, to the Lessor, (y) all documents executed and
delivered by the Lessee pursuant to this Section 8(d) have been duly
authorized, executed and delivered by the Lessee and constitute legal,
valid and binding obligations of, and are enforceable against, the
Lessee in accordance with their respective terms, and (z)
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the Lessor is entitled to the benefits of Section 1110 with respect to
such Replacement Aircraft to the same extent as with respect to the
replaced Aircraft immediately preceding such replacement; and (B) an
opinion of qualified FAA counsel (or counsel in such jurisdiction
outside of the United States where the Aircraft may be registered in
accordance with Section 5(e)), as to, in the case of FAA counsel, the
due recordation of the Lease Supplement and all other documents or
instruments the recordation of which is necessary to perfect and
protect the rights of the Lessor in the Replacement Aircraft or, in
the case of counsel in another jurisdiction, the taking of all action
necessary in such jurisdiction for such purposes;
(viii) the Lessor shall be entitled to the benefits of Section
1110 with respect to such Replacement Aircraft to the same extent as
with respect to the replaced Aircraft immediately preceding such
replacement; and
(ix) Either (1) the Owner Participant shall have received an
opinion of independent tax counsel (selected by the Owner Participant
and reasonably acceptable to the Lessee), reasonably satisfactory to
the Owner Participant, to the effect that there shall be no risk of
adverse tax consequences resulting from such replacement (and the
Owner Participant shall use its best efforts to cause a timely opinion
to be delivered) or (2) the Lessee shall have provided, or caused to
be provided, an indemnity in respect of any adverse tax consequences
in form and substance satisfactory to the Owner Participant.
Lessee shall reimburse the Lessor and the Owner Participant for all
reasonable out-of-pocket costs (including reasonable attorneys' fees) incurred
by them in connection with any substitution of a Replacement Aircraft pursuant
to this Section 8.
(e) NON-INSURANCE PAYMENTS RECEIVED ON ACCOUNT OF AN EVENT OF LOSS.
As between the Lessor and the Lessee, any payments on account of an
Event of Loss (other than insurance proceeds or other payments the application
of which is provided for in this Section 8 or elsewhere in this Lease, as the
case may be, or payments in respect of damage to the business or property of the
Lessee) with respect to the Aircraft, an Engine or any Part received at any time
by the Lessor or by the Lessee from any governmental authority or other Person
will be applied as follows:
(i) if such payments are received with respect to an Event of
Loss as to the Aircraft, and the Airframe or the Airframe and the
Engines or engines installed thereon are being replaced by the Lessee
pursuant to Section 8(a)(i), such payments shall be paid over to, or
retained by, the Lessee, PROVIDED that if the Lessee has not completed
such replacement, such payments shall be paid over to, or retained by,
the Lessor as security, and upon completion of, or in connection with
a closing for, such replacement, be paid over to or retained by the
Lessee;
(ii) if such payments are received with respect to an Event of
Loss to an Engine that has been or is being replaced by the Lessee
pursuant to the terms
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hereof, such payments shall be paid over to, or retained by, the
Lessee, PROVIDED that if the Lessee has not completed such
replacement, such payments shall be paid over to, or retained by, the
Lessor as security, and upon completion of, or in connection with a
closing for, such replacement, be paid over to or retained by the
Lessee; and
(iii) if such payments are received with respect to an Event of
Loss as to the Aircraft, and if the Airframe or the Airframe and the
Engines or engines installed thereon have not been and will not be
replaced as contemplated by Section 8(a), (x) so much of such payments
as shall not exceed the amounts required to be paid by the Lessee
pursuant to Section 8(a) hereof shall be applied in reduction of the
Lessee's obligation to pay such amounts, to the extent not already
paid by the Lessee, and, after such amounts required to be paid to the
Lessor pursuant to Section 8(a)(ii) above shall be paid in full, shall
be applied to reimburse the Lessee for such amounts up to the full
amount thereof, and (y) the balance, if any, of such payment remaining
thereafter shall be applied to reimburse the Lessee, the Owner
Participant and the Lessor for their reasonable costs (including
attorney's fees), if any, of procuring such payments, and (z) the
balance remaining, if any, shall then be distributed between the
Lessor and the Lessee as their interests may appear.
(f) REQUISITION FOR USE.
In the event of a requisition for use by any government during the
Term of the Airframe and the Engines, if any, or engines installed on the
Airframe (including the Government pursuant to the CRAF Program), the Lessee
shall promptly notify the Lessor and the Owner Participant of such requisition
and, if the same does not constitute an Event of Loss, all of the Lessee's
obligations under this Lease shall continue to the same extent as if such
requisition had not occurred except to the extent that the performance or
observance of any obligation by the Lessee shall have been prevented or delayed
by such requisition, provided that the Lessee's obligations for the payment of
money and under Section 9 (except, in the case of Section 9, while an assumption
of liability by the government of the United States of the scope referred to in
Section 5(c) is in effect) and Section 12 shall not be reduced, delayed or
affected by such requisition. Any payments received by the Lessor or the Lessee
from such government with respect to the use of such Airframe or Engines during
the Term shall be paid over to, or retained by, the Lessee and any payments
received by the Lessor or Lessee from such government with respect to the use of
the Airframe or Engines after the Term shall be paid over to, or retained by,
Lessor. In the event of an Event of Loss of an Engine resulting from the
requisition for use by a government of such Engine (but not the Airframe), the
Lessee will replace such Engine hereunder by complying with the terms of Section
7(e) and any payments received by the Lessor or the Lessee from such government
with respect to such requisition shall be paid over to, or retained by, the
Lessee.
(g) CERTAIN PAYMENTS TO BE HELD AS SECURITY.
Any amount referred to in this Section 8 or Section 9 hereof which is
payable to the Lessee shall not be paid to the Lessee, or, if it has been
previously paid directly to the Lessee,
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shall not be retained by the Lessee, if at the time of such payment a Specified
Default shall have occurred and be continuing, but shall be paid to and held by
the Lessor as security for the obligations of the Lessee under this Lease,
unless and until applied by Lessor to Lessee's obligations and at such time as
there shall not be continuing any such Specified Default, such amount and any
gain realized as a result of Permitted Investments required to be made pursuant
to Section 15 shall to the extent not so applied be paid over to the Lessee.
Section 9. INSURANCE.
(a) PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE.
Subject to the rights of the Lessee under Section 9(d), the Lessee
shall, without expense to the Lessor, maintain or cause to be maintained in
effect at all times during the Term with independent insurers of internationally
recognized reputation and responsibility public liability insurance (including,
without limitation, aircraft third party, passenger legal liability, property
damage, general third party legal liability and product liability coverage but
excluding manufacturer's product liability coverage) with respect to the
Aircraft in an amount not less than the greater of (i) the amount which Lessee
may carry from time to time on other similar aircraft in its fleet (whether
owned or leased) and (ii) the Minimum Liability Amount; provided that an
agreement of the Government for the benefit of the Additional Insureds to insure
against or indemnify for substantially the same risks to at least the same
amount shall satisfy the requirements of this Section 9(a), PROVIDED that on or
prior to the date of such agreement, the Lessee shall provide an Officer's
Certificate of the Lessee certifying that any such insurance or indemnity
provides protection no less favorable than insurance coverage that would comply
with this Section 9. Such insurance shall be of the type usually carried by the
Lessee with respect to similar aircraft and engines, and covering risks of the
kind customarily insured against by the Lessee. In addition, without limitation
of the requirements of the preceding sentence (and notwithstanding anything to
the contrary contained in the preceding sentence), the Lessee shall in all
events maintain in effect, at all times during the Term, war risk and allied
perils liability insurance in accordance with the London form AVN52C (as in
effect on September 1, 2001) or its equivalent form reasonably acceptable to
Lessor (or an agreement of the Government to insure against or indemnify for
substantially the same risks), from time to time, with respect to the Aircraft,
(I) in an amount not less than the greater of (x) the amount of war risk and
allied perils liability insurance from time to time applicable to similar
aircraft owned or operated by the Lessee and (y) $350,000,000 per occurrence,
and (II) maintained with independent insurers of internationally recognized
reputation and responsibility.
During any period that the Aircraft is grounded and not in operation,
the Lessee may, so long as the Lessee takes reasonable measures to protect the
Aircraft, modify the insurance required by this Section 9(a) to modify the
amounts of public liability and property damage insurance, the scope of the
risks covered and the type of insurance, in all circumstances to conform to such
insurance as is customary in the United States airlines industry for regional
air carriers similarly situated with the Lessee in respect of similar aircraft
which are grounded, not in operation, and stored or hangared, provided that in
all instances, the amounts of coverage and scope of risk covered and the type of
insurance shall be at a minimum no less favorable than the insurance as from
time to time applicable to aircraft owned or leased by Lessee on the ground, not
in operation, and stored or hangared.
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(b) INSURANCE AGAINST LOSS OR DAMAGE TO THE AIRCRAFT AND ENGINES.
Subject to the rights of the Lessee under Section 9(d), the Lessee
shall, without expense to the Lessor or the Owner Participant, maintain or cause
to be maintained in effect at all times during the Term with insurers of
nationally recognized responsibility (i) all risk, agreed value, ground and
flight hull insurance covering the Aircraft for an amount at all times (even
when the Aircraft is grounded or in storage) not less than the Termination Value
from time to time; PROVIDED THAT, neither the Lessee nor any Permitted Sublessee
shall be required to maintain all-risk flight aircraft hull insurance with
respect to any period in which the Aircraft is grounded and properly stored or
hangared. Such insurance shall not provide insurers with a right to replace the
Airframe or any Engine with another airframe or Engine. Such hull insurance or
other personal property insurance of the Lessee (or a Permitted Sublessee) shall
cover Engines or engines and Parts while not installed on the Airframe. Such
insurance shall be of the type usually carried by the Lessee with respect to
similar aircraft and engines, and covering risks of the kind customarily insured
against by the Lessee. An agreement by the Government for the benefit of the
Additional Insureds to insure against or indemnify for substantially the same
risks to at least the same amount will satisfy any of the requirements of this
Section 9(b), PROVIDED that on or prior to the date of such agreement, the
Lessee shall provide an Officer's Certificate of the Lessee certifying that any
such insurance or indemnity provides protection no less favorable than insurance
coverage that would comply with this Section 9(b). Lessee (or any Permitted
Sublessee) shall in any event maintain at all times during the Term, with
independent insurers of internationally recognized reputation and responsibility
hull war risks and allied perils insurance in accordance with the London form
LSW555B or its equivalent form reasonably acceptable to the Lessor (or an
agreement of the Government to insure against or indemnify for substantially the
same risks) from time to time covering the Aircraft in an amount not less than
the Termination Value from time to time.
(c) ADDITIONAL INSUREDS; LOSS PAYMENT.
The Lessee shall cause all policies of insurance carried in accordance
with this Section 9 to name the Additional Insureds as their respective
interests may appear as additional insureds. Such policies shall provide with
respect to such Additional Insureds that (i) none of their respective interests
in such policies shall be invalidated by any act or omission or breach of
warranty or condition contained in such policies by the Lessee or, in the case
of any particular Additional Insured, any other Additional Insured; (ii) no
cancellation or lapse of coverage for nonpayment of premium or otherwise, and no
substantial change of coverage which adversely affects the interests of any such
Additional Insured, shall be effective as to such Additional Insured until 30
days (or such lesser period as may be applicable in the case of any war risk
coverage) after receipt by such Additional Insured of written notice from the
insurers of such cancellation, lapse or change; (iii) they shall have no
liability for premiums, commissions, calls, assessments or advances with respect
to such policies; (iv) such policies will be primary without any right of
contribution from any other insurance carried by such Additional Insureds; (v)
the insurers waive any rights of set-off, counterclaim, deduction or subrogation
against such Additional Insureds; (vi) shall apply worldwide and have only such
territorial restrictions or limitations as may be reasonably acceptable to
Lessor; and (vii) shall contain a 50/50% Clause per Lloyd's Aviation
Underwriter's Association Standard Policy Form AVS 103. Each liability policy
shall provide that all the provisions thereof, except the limits of liability,
shall operate in
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the same manner as if there were a separate policy covering each insured and
provide that the exercise by the insurer of rights of subrogation derived from
rights retained by the Lessee will not delay payment of any claim that would
otherwise be payable but for such rights of subrogation. Each hull policy shall
name the Lessor as loss payee; provided that, so long as the insurers shall not
have received written notice that a Specified Default has occurred and is
continuing, if insurance proceeds in the aggregate equal $1,250,000 or less
become payable, then such proceeds shall be payable to the Lessee and,
notwithstanding the foregoing, any amounts up to Termination Value (i) of any
proceeds which in the aggregate exceed $1,250,000, (ii) of any proceeds in
respect of an Event of Loss or (iii) if the insurers shall have received written
notice that an Event of Default has occurred and is continuing, any proceeds
with respect to any single loss, shall be payable to such loss payee.
(d) DEDUCTIBLES AND SELF-INSURANCE.
Beginning five (5) years after the Delivery Date, the Lessee may from
time to time self-insure, by way of deductible or premium adjustment provisions
in insurance policies or otherwise, the risks required to be insured against
pursuant to this Section 9 in such amounts as are then self-insured with respect
to similar owned or leased aircraft in the Lessee's fleet but in no case shall
such self-insurance in the aggregate exceed, on a per occurrence or on fleetwide
basis, an amount equal to 5% of the Lessee's tangible net worth, calculated as
at the end of the Lessee's immediately preceding fiscal year (but in no event to
exceed $10,000,000). A deductible per occurrence that is not in excess of the
prevailing standard market deductible for similar aircraft shall be permitted,
for each aircraft in the Lessee's fleet, in addition to such self-insurance.
(e) APPLICATION OF HULL INSURANCE PROCEEDS.
Subject to Section 8(g), as between the Lessor and the Lessee, any
payments received under policies of hull or other property insurance required to
be maintained by the Lessee pursuant to Section 9(b), shall be applied as
follows:
(i) if such payments are received with respect to loss or damage
(including an Event of Loss with respect to an Engine) not
constituting an Event of Loss with respect to the Airframe, payments
in the aggregate of $1,250,000 or less shall be paid over to or
retained by the Lessee and, subject to Section 9(c), any payments
which in the aggregate are greater than $1,250,000 shall be paid over
to or retained by the Lessor for payment to the Lessee only upon
performance of its repair or replacement obligation;
(ii) if such payments are received with respect to an Event of
Loss with respect to the Airframe and the Airframe is not being
replaced by the Lessee pursuant to Section 8(a)(i), so much of such
payments as shall not exceed the Termination Value and other amounts
required to be paid by the Lessee pursuant to Section 8(a)(ii) shall
be applied in reduction of the Lessee's obligation to pay such amounts
if not already paid by the Lessee, and to reimburse the Lessee if such
amounts shall have been paid, and the balance, if any, of such
payments shall be promptly paid over to or retained by the Lessee; and
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(iii) if such payments are received with respect to the Airframe
or the Airframe and Engines or engines installed thereon and the
Airframe is being replaced by the Lessee pursuant to Section 8(a)(i),
such payments shall be paid over to, or retained by the Lessee,
provided that if the Lessee has not completed such replacement and the
performance of all other obligations under Section 8(d), such payments
shall be paid over to, or retained by, the Lessor as security, and
upon completion of, or in connection with a closing for, such
replacement, be paid over to or retained by the Lessee.
(f) INSURANCE FOR OWN ACCOUNT.
Nothing in this Section 9 shall prohibit the Lessor, the Owner
Participant, the Lessee or any Additional Insured from obtaining insurance with
respect to the Aircraft for its own account (including, without limitation, in
the case of the Lessee, hull insurance under the same policies maintained
pursuant to this Section 9 in amounts in excess of those required to be
maintained pursuant to this Section 9) and any proceeds payable thereunder shall
be payable as provided in the insurance policy relating thereto, provided that
no such insurance may be obtained which would limit or otherwise adversely
affect the availability of coverage or payment of any insurance required to be
obtained or maintained pursuant to this Section 9, it being understood that all
salvage rights to the Airframe or the Engines shall remain with the Lessee's
insurers at all times.
(g) REPORTS, ETC.
Lessee will furnish to the Lessor and the Owner Participant (A) on or
prior to the Delivery Date, insurance certificates describing in reasonable
detail the insurance maintained by Lessee as required pursuant to this Section
9, (B) prior to the cancellation, lapse or expiration of the insurance policies
required pursuant to this Section 9, evidence of renewal of such insurance
policies, and (C) on or prior to the Delivery Date and on or before the renewal
dates of the insurance policies carried by the Lessee pursuant to this Section
9, a report signed by a firm of aircraft insurance brokers, not affiliated with
the Lessee, appointed by the Lessee and reasonably satisfactory to the Lessor,
stating the opinion of such firm that all premiums in connection with the
insurance then due have been paid and the insurance then carried and maintained
on the Aircraft complies with the terms hereof and, in the case of renewal
insurance, that such renewal insurance will on and after the effective date
thereof so comply with the terms hereof, PROVIDED that all information contained
in such report shall be held confidential by the Lessor and the Owner
Participant, and shall not be furnished or disclosed by them to anyone except
their legal counsel, insurance brokers or advisors, bona fide prospective
transferees of the Owner Participant and their respective agents (PROVIDED that
they shall agree for the benefit of the Lessee to hold all such information
similarly confidential) or as may be required by Applicable Law. The Lessee will
instruct such firm to give prompt written advice to the Lessor and the Owner
Participant (X) if such firm ceases to be the insurance broker to Lessee, (Y) of
any default in the payment of any premium and (Z) of any other act or omission
on the part of the Lessee of which it has knowledge and which would in such
firm's opinion invalidate or render unenforceable, in whole or in any material
part, any insurance on the Aircraft. The Lessee will also instruct such firm to
advise the Lessor and the Owner Participant in writing at least 30 days prior to
the termination or cancellation of, or material adverse change in, such
insurance carried
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and maintained on the Aircraft pursuant to this Section 9 (or such lesser period
as may be applicable in the case of war risk coverage).
(h) RIGHT TO PAY PREMIUMS.
The Additional Insureds shall have the rights but not the obligations
of an additional named insured. None of Lessor, Owner Participant and the other
Additional Insureds shall have any obligation to pay any premium, commission,
assessment or call due on any such insurance (including reinsurance).
Notwithstanding the foregoing, in the event of cancellation of any insurance due
to the nonpayment of premiums, each of Lessor, Owner Participant and the other
Additional Insureds shall have the option, in its sole discretion, to pay any
such premium in respect of the Aircraft that is due in respect of the coverage
pursuant to this Lease and to maintain such coverage, as Lessor, Owner
Participant or the other Additional Insureds may require, until the scheduled
expiry date of such insurance and, in such event, Lessee shall, upon demand,
reimburse Lessor, Owner Participant and the other Additional Insureds for
amounts so paid by them.
Section 10. LIENS.
The Lessee shall not during the Term directly or indirectly create,
incur, assume or suffer to exist any Lien on or with respect to the Aircraft,
Airframe, any Engine or any Part or title thereto or any interest therein or in
this Lease except (a) the respective rights of the Lessor and the Lessee as
provided herein and the rights of the parties to the other Operative Agreements;
(b) the rights of others under agreements or arrangements to the extent
expressly permitted in Sections 5(b) and 7(c); (c) Liens for Taxes either not
yet due or being contested in good faith by appropriate proceedings so long as
such proceedings do not involve any non-de minimis risk of the sale, forfeiture
or loss of the Aircraft, Airframe or an Engine or the interest of Owner
Participant therein or any risk of criminal liability or any material risk of
civil penalty against Lessor or Owner Participant; (d) Liens of suppliers,
mechanics, workers, repairers, employees, airport operators, air traffic control
authorities or other like Liens arising in the ordinary course of business and
for amounts the payment of which is either not yet delinquent or is being
contested in good faith (and for the payment of which adequate reserves have
been provided) by appropriate proceedings, so long as such proceedings do not
involve a non-de minimis risk of the sale, forfeiture or loss of the Airframe or
an Engine or the interest of Owner Participant therein or any risk of criminal
liability or any material risk of civil penalty against Lessor or Owner
Participant; (e) Liens arising out of judgments or awards against the Lessee so
long as there shall be in effect with respect to which a stay of execution; (f)
Lessor's Liens; (g) salvage and similar rights of insurers under policies of
insurance maintained with respect to the Aircraft; (h) Liens with respect to
which the Lessee (or any sublessee) has provided a bond or other security
adequate in the good faith opinion of the Lessor and the Owner Participant; and
(i) a Permitted Security Interest. Liens described in clauses (a) through (i)
above are referred to herein as "Permitted Liens." The Lessee shall promptly, at
its own expense, take such action as may be necessary to duly discharge (by
bonding or otherwise) any Lien other than a Permitted Lien arising at any time
during the Term.
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Section 11. RECORDATION AND FURTHER ASSURANCES.
(a) RECORDATION OF LEASE.
The Lessee shall cause this Lease, any Lease Supplements, and any and
all additional instruments which shall be executed pursuant to the terms hereof
to be kept, filed and recorded and to be re-executed, refiled and re-recorded at
all times during the Term with the FAA or other Aeronautical Authority to the
extent required to perfect and preserve the Lessor's interest in the Aircraft.
(b) FURTHER ASSURANCES.
The Lessee and the Lessor will each promptly and duly execute and
deliver to the other such further documents and assurances and take such further
action as the other may from time to time reasonably request in order to more
effectively carry out the intent and purpose of this Lease and to establish and
protect the rights and remedies created or intended to be created in favor of
the Lessor and the Lessee hereunder, including, without limitation, if requested
by the Lessor or the Lessee, the execution and delivery of supplements or
amendments hereto, in recordable form, subjecting any replacement or substituted
aircraft or engine to this Lease and the recording or filing of counterparts
hereof, or of financing statements with respect hereto.
(c) MARKINGS.
If permitted by Applicable Law, on or reasonably promptly after the
Delivery Date, Lessee will cause to be affixed to, and maintained in, the
cockpit of the Airframe, in a clearly visible location (it being understood that
the location of such placard, as identified to the Owner Participant prior to
the Delivery Date, shall be deemed to be in compliance with this requirement), a
placard of a reasonable size and shape bearing the legend, in English, set forth
below:
Leased from
Xxxxx Fargo Bank Northwest, National Association,
not in its individual capacity
but solely as Owner Trustee, Owner and Lessor
Such placard may be removed temporarily, if necessary, in the course
of maintenance of the Airframe. If such placard is damaged or becomes illegible,
Lessee shall promptly replace it with a placard complying with the requirements
of this Section 11(c).
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Section 12. RETURN OF AIRCRAFT AND RECORDS.
(a) RETURN OF AIRCRAFT.
Upon the termination of this Lease at the expiration of the Term or
upon the earlier termination of this Lease pursuant to the terms hereof, unless
the Lessee shall purchase the Aircraft or there shall have been an Event of Loss
with respect to the Aircraft, the Lessee, at its own expense, shall, except as
otherwise expressly provided herein, return the Airframe by delivering the same
to the Lessor in the continental United States of America at a location on the
Lessee's jet route system chosen by the Lessor, and otherwise in compliance with
conditions required by the provisions of this Section 12, fully equipped with
two Engines or other engine meeting the requirements of Replacement Engines duly
installed thereon.
(b) RETURN OF OTHER ENGINES.
In the event any engine not owned by the Lessor shall be returned with
the Airframe, such engine shall satisfy the requirements for a Replacement
Engine (and, in any event, the two engines returned shall be of the same model),
shall be free and clear of all Liens other than Lessor's Liens and any Permitted
Security Interest and shall have a value, remaining useful life, utility and
condition at least as great as the Engine replaced (assuming such Engine was
maintained in accordance with the terms hereof) and the Lessee shall, at its own
expense and concurrently with such return, furnish the Lessor with (i) a full
warranty xxxx of sale guaranteed by Lessee, in form and substance reasonably
satisfactory to the Lessor and the Owner Participant, (ii) an Officer's
Certificate as described in Section 7(e)(i)(D), and (iii) an opinion of counsel
to the Lessee as described in Section 7(e)(ii), with respect to each such engine
and shall take such other action as required by Section 7(e) to cause such
engine to be a Replacement Engine or as the Lessor may reasonably request in
order that such engine shall be duly and properly titled in the Lessor free and
clear of all Liens other than Lessor's Liens and any Permitted Security
Interest. Upon passage of title such engine shall be deemed to be an Engine for
all purposes hereof and thereupon the Lessor will transfer to the Lessee, in
"as-is, where is" condition, without recourse or warranty except a warranty
against Lessor's Liens, all right, title and interest of the Lessor or any
Affiliate in and to an Engine not installed on the Airframe at the time of the
return thereof.
(c) FUEL; RECORDS.
Upon the return of the Aircraft, (i) the Lessor shall have no
obligation with respect to the amount of fuel or oil contained in the Airframe
and (ii) the Lessee shall deliver to the Lessor all logs, manuals, certificates
and inspection, modification and overhaul records which are required to be
maintained with respect thereto under applicable rules and regulations of the
FAA and DOT.
(d) CONDITION OF AIRCRAFT.
The Aircraft when returned to the Lessor shall be in the operating
condition required by Exhibit F-1 or F-2, as applicable.
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(e) FAILURE TO RETURN. If Lessee shall, for any reason whatsoever,
fail to return the Aircraft and the documents referred to in Section 12(c)(ii)
at the time and place and in the condition specified herein, all obligations of
Lessee under this Lease shall continue in effect with respect to the Aircraft
until the Aircraft is so returned to Lessor and Lessee shall pay to Lessor an
amount equal to the average daily Basic Rent payable by Lessee during the Term
for each day after the end of the Term to but excluding the day of such return;
PROVIDED, HOWEVER, that this Section 12(e) shall not be construed as permitting
Lessee to fail to meet its obligations to return the Aircraft or the documents
referred to in Section 12(c)(ii) in accordance with the requirements hereof or
constitute, or be deemed to constitute, a waiver of any Event of Default
resulting from Lessee's failure to return the Aircraft or such documents or
otherwise; and PROVIDED, FURTHER, that Lessee shall not be responsible for
Lessor's failure to accept return of the Aircraft and the documents referred to
in Section 12(c)(ii) in accordance with the requirements hereof in a timely
manner or for any rent with respect to periods after Lessee has tendered the
Aircraft and the documents referred to in Section 12(c)(ii) for return in
accordance with this Lease, provided however that if Lessor's inspection of the
Aircraft and the documents referred to in Section 12(c)(ii), which inspection
shall be conducted in good faith and timely manner, reveals any discrepancy from
the condition required by the provisions of this Section 12, Lessee shall
continue to pay rent in accordance with this Section 12(e) until the Aircraft
and the documents referred to in Section 12(c)(ii) are returned to the Lessor in
accordance with this Lease. Any rent owed to Lessor pursuant to this Section
12(e) shall be payable upon acceptance of the Aircraft and the documents
referred to in Section 12(c)(ii) by Lessor.
(f) STORAGE AND RELATED MATTERS.
If Lessor gives written notice to Lessee not less than 60 days nor
more than 180 days prior to the end of the Term requesting storage of the
Aircraft upon its return hereunder, Lessee will provide Lessor, or cause Lessor
to be provided, with outdoor parking facilities for the Aircraft at the airport
where the Aircraft is returned for a period up to 60 days, commencing on the
date of such return at Lessor's expense; provided, that if such termination
occurs as a result of an Event of Default, such storage shall be at the Lessee's
expense. Lessee shall maintain in effect during such storage period insurance
covering the Aircraft to the extent such insurance is available at reasonable
commercial rates, and in such amounts and against such risks as would be
customarily carried in similar circumstances by a reasonably prudent lessor,
with such insurance being paid for by the Lessor; provided, that if such
termination occurs as a result of an Event of Default, the Lessee will cooperate
with the Lessor in obtaining such insurance at the Lessee's expense.
Section 13. RENEWAL OPTION AND PURCHASE OPTIONS.
(a) RENEWAL TERMS.
Subject to the final sentence of this Section 13(a), upon expiration
of the Basic Term, the Lessee shall have the right to extend this Lease for
successive periods of one year each (each a "Fixed Renewal Term"), but for not
more than an aggregate of two years. Subject to the final sentence of this
Section 13(a), at the end of the second Fixed Renewal Term (provided that the
Lessee shall have elected to extend this Lease for such Fixed Renewal Term), the
Lessee shall have the right to extend this Lease for up to two successive
periods of one year each (each a
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"Fair Market Value Renewal Term"; each Fixed Renewal Term and each Fair Market
Value Renewal Term, being hereinafter sometimes called a "Renewal Term")
provided that the aggregate term of all Renewal Terms shall not exceed four
years. A Fixed Renewal Term will commence at the end of the Basic Term or the
preceding Fixed Renewal Term, as the case may be and a Fair Market Value Renewal
Term will commence at the end of the second Fixed Renewal Term (provided that
the Lessee shall have elected to extend this Lease for such Fixed Renewal Term)
or at the end of the first Fair Market Value Renewal Term, as the case may be.
Such right to extend this Lease shall be exercised upon notice to the Lessor,
specifying the nature of the Renewal Term, not less than 210 days nor more than
365 days before the expiration of the Basic Term or the preceding Renewal Term,
as the case may be. Such notice shall be irrevocable except that in the event
the Lessee gives such notice to the Lessor 240 or more days before the end of
the Basic Term or the Renewal Term then in effect, as the case may be, the
Lessee may revoke its election to extend this Lease within 15 days following the
determination of the Fair Market Rental Value of the Aircraft but in no event
later than 210 days prior to the end of the Basic Term or the preceding Renewal
Term, as the case may be. If the Lessee requests a determination of Fair Market
Rental Value at least 240 days before the expiration of the Basic Term or a
Renewal Term, as the case may be, the Lessor and the Lessee shall comply in a
timely manner with their respective obligations under the definition of "Fair
Market Rental Value" to allow any appraisal of Fair Market Rental Value to be
completed in sufficient time to permit the Lessee to exercise the revocation
right provided above. If no Specified Default shall have occurred and be
continuing on the date of such notice or on the date of the commencement of any
Renewal Term, then this Lease shall be extended for the additional period of
such Renewal Term as specified in such notice on the same conditions as provided
for herein. The Basic Rent payable per annum during any Fixed Renewal Term shall
be the Renewal Rental Rate identified on Exhibit B. The rental payable per annum
during any Fair Market Value Renewal Term shall be the then Fair Market Rental
Value for the Aircraft. Such rental during each Renewal Term shall be payable
monthly. The Termination Value of the Aircraft during each Renewal Term shall be
the Fair Market Sales Value for the Aircraft at the beginning of such Renewal
Term declining on a straight line basis to the projected Fair Market Sales Value
for the Aircraft at the end of such Renewal Term, but in both cases determined
prior to the commencement of such Renewal Term. If Lessee gives notice to Lessor
that it will exercise its right to renew this Lease at the end of the Basic
Term, notwithstanding such notice Lessee may not exercise such right if, not
later than 150 days prior to the end of the Basic Term, Owner Participant
notifies Lessee that it is demanding payment of a deficiency amount under the
Residual Value Guarantee Agreement and certifies to Lessee the appraised fair
market sales value of the Aircraft as determined under the Residual Value
Guarantee Agreement that is the basis for such claim and the amount of the
deficiency so claimed.
(b) LESSEE'S PURCHASE OPTIONS.
(i) RIGHTS TO PURCHASE.
The Lessee shall have the right upon notice as provided herein to
purchase the Aircraft (A) on the EBO Date for a price equal to the EBO Amount;
(B) upon the termination of the Basic Term for a price equal to the then Fair
Market Sales Value of the Aircraft; or (C) at the end of any Renewal Term for a
price equal to the then Fair Market Sales Value of the Aircraft in each case as
long as no Event of Default of the type referred to in Section 16(f), (g) or (h)
hereof
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shall have occurred and be continuing on the date of purchase. In the event the
Lessee elects to purchase the Aircraft pursuant to clause (A) of this Section
13(b)(i), then upon the payment by the Lessee of (I) the EBO Amount plus (II)
the amount, if any, set forth opposite the EBO Date in Exhibit D in the column
with the heading "Deferred Basic Rent Amount" plus (III) the Basic Rent, if any,
payable on the EBO Date plus (IV) all unpaid Basic Rent, if any, payable before
the EBO Date plus (V) all Supplemental Rent then due and payable hereunder
(including any Supplemental Rent then due and payable hereunder) less (VI) the
amount, if any, set forth opposite the EBO Date in Exhibit D in the column with
the heading "Prepaid Basic Rent Amount", the Term shall end and the obligations
of the Lessee to pay Rent hereunder (except for Supplemental Rent obligations
surviving pursuant to Section 3(c), Articles 6 and 7 of the Participation
Agreement or the Tax Indemnity Agreement or which have otherwise accrued but not
been paid as of the date of such payment) shall cease, and the Lessor shall
convey to the Lessee all right, title and interest of the Lessor in and to the
Aircraft on an "as-is, where is" basis, without recourse or warranty except a
warranty against Lessor's Liens. In the event the Lessee elects to purchase the
Aircraft pursuant to clause (B) or (C) of this Section 13(b)(i), then upon the
payment by the Lessee of the purchase price for the Aircraft and the Basic Rent,
if any, payable on the date of purchase, together with all unpaid Basic Rent, if
any, payable before such date and all Supplemental Rent then due and payable
hereunder, the Term shall end and the obligations of the Lessee to pay Rent
hereunder (except for Supplemental Rent obligations surviving pursuant to
Section 3(c), Articles 6 and 7 of the Participation Agreement or the Tax
Indemnity Agreement or which have otherwise accrued but not been paid as of the
date of such payment) shall cease, and the Lessor shall convey to the Lessee all
right, title and interest of the Lessor in and to the Aircraft on an "as-is,
where is" basis, without recourse or warranty except a warranty against Lessor's
Liens.
(ii) NOTICE OF EXERCISE OF OPTION.
The Lessee's right to purchase provided for in clause (B) or (C) of
Section 13(b)(i) shall be exercised upon written notice to the Lessor not more
than 365 days before the applicable date of purchase provided in such clause (B)
or (C) as the case may be and not less than 210 days before the applicable date
of purchase in the case of clause (B) and 180 days before the applicable date of
purchase in the case of clause (C). Such notice shall be irrevocable, except
that where the purchase price is or may be measured by the Fair Market Sales
Value of the Aircraft the Lessee may revoke its exercise of an option to
purchase the Aircraft as provided in Section 13(b)(iii) in the case of such
clause (B) or within 15 days following the determination of such Fair Market
Sales Value but in no event later than 180 days prior to the applicable date of
purchase in the case of such clause (C). The Lessee's right to purchase provided
for in clause (A) of Section 13(b)(i) shall be exercised upon written notice to
the Lessor not less than 120 days nor more than 365 days before the EBO Date and
shall be irrevocable when given.
(iii) APPRAISAL PROCEDURE.
If Lessee provides notice of its right to purchase provided for in
clause (B) of Section 13(b)(i), then not later than 180 days prior to the end of
the Basic Term, the Owner Participant shall notify Lessee (such notice, a
"Residual Notice") if it has notified the Manufacturer that it will require an
appraised value of the Aircraft to be determined under the Residual Value
Guarantee Agreement. If the Owner Participant provides a Residual Notice, Fair
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Market Sales Value shall be determined pursuant to the Appraisal Procedure.
Otherwise, Fair Market Sales Value shall be determined as provided in the
definition thereof. If Fair Market Sales Value is determined pursuant to the
Appraisal Procedure (x) and is less than the Guaranteed Amount, the Manufacturer
shall notify Lessee and Owner Participant within 30 days after the determination
of Fair Market Sales Value but in no event later than 120 days prior to the end
of the Basic Term whether it will exercise its Fair Market Sales Value purchase
option under the Residual Value Guarantee Agreement, in which case Lessee's
purchase option will be revoked and (y) unless the Lessee's purchase option is
revoked under the preceding clause (x), Lessee shall have the option of revoking
its purchase option within 45 days after the determination of Fair Market Sales
Value but in no event later than 105 days prior to the end of the Basic Term. If
Fair Market Sales Value is not determined in accordance with the Appraisal
Procedure, Lessee may revoke its exercise of an option to purchase the Aircraft
within 15 days following the determination of Fair Market Sales Value but in any
event not later than 105 days prior to the end of the Basic Term.
Section 14. VOLUNTARY TERMINATION FOR OBSOLESCENCE.
(a) TERMINATION BY SALE OF AIRCRAFT.
So long as no Specified Default shall have occurred and be continuing,
the Lessee shall have the right at its option five years or more after
commencement of the Basic Term on at least 180 days', but not more than 365
days, prior written notice (which notice shall be irrevocable, except as
provided below) to the Lessor, specifying a proposed date of termination which
shall be a Termination Date, to terminate this Lease if the chief financial
officer of the Lessee shall have certified in writing to the Lessor that the
Aircraft shall have become obsolete or shall be surplus to the Lessee's
equipment requirements. Subject to the Lessor's preemptive election under
Section 14(c), during the period following the giving of such notice of
termination until the Termination Date, the Lessee, as agent for the Lessor,
shall endeavor to sell the Aircraft "as is", without any warranty by the Lessor
or the Lessee except as to the Lessor's title, on behalf of the Lessor. If
Lessee receives any bid, it shall at least 10 Business Days prior to the
proposed day of sale, certify to Lessor in writing the amount and terms of such
bid, such proposed date of sale and the name and address of the potential buyer
(which shall not be Lessee or any Affiliate or any Person with whom Lessee or
any Affiliate has any arrangement or understanding for the future purchase,
lease, operation or use of the Aircraft). Lessor may also solicit bids directly
or through agents other than Lessee. So long as the Lessor has not exercised its
preemptive election under Section 14(c), the Lessee may, by notice to the
Lessor, withdraw its notice of termination at any time on or before the date 10
days prior to the proposed Termination Date (unless such withdrawal is due to
the cancellation of the proposed purchase of the Aircraft by the potential buyer
in which event such notice may be given at any time on or prior to the proposed
Termination Date), and thereupon this Lease shall continue in full force and
effect. Withdrawal of notice of termination shall not exhaust the Lessee's right
to give a further notice of termination as provided herein; provided that Lessee
shall not be entitled to give more than two such notices (excluding one notice
of termination which has been withdrawn due to the cancellation of the proposed
purchase of the Aircraft by the potential buyer). Unless the Lessee shall
withdraw its notice of termination as stated above or the Lessor shall have made
a preemptive election to take possession of the Aircraft in accordance with
Section 14(c), on the Termination Date, or such other date of sale as shall be
consented to in writing by the Lessor and
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the Lessee, which date shall thereafter be deemed the Termination Date, the
Lessee shall, upon payment in full of the amounts described in Section 14(b),
deliver the Airframe and Engines or engines installed thereon to the party which
shall have prior to such date submitted the highest bona fide cash bid to close
such sale and purchase of the same, in the same manner as if delivery were being
made to the Lessor pursuant to Section 12, and shall duly transfer to such party
title to any engines which are not Engines delivered with the Airframe in
accordance with the terms of Section 12. The Lessor shall, in "as-is, where-is"
condition, without recourse or warranty (except a warranty as to the absence of
Lessor's Liens), simultaneously therewith sell and convey title to the Airframe
and the Engines or engines conveyed to the Lessor as provided in Section 12 for
cash to such party. Upon the sale of the Airframe and the Engines or engines
conveyed to the Lessor as provided in Section 12 pursuant to this Section 14 and
receipt by the Lessor of all amounts referred to in Section 14(b), the Lessor
will transfer to the Lessee, in "as-is, where-is" condition, without recourse or
warranty (except a warranty as to the absence of Lessor's Liens), all right,
title and interest of the Lessor in and to any Engines constituting part of the
Aircraft but which were not delivered to the purchaser with the Airframe. The
Lessee shall pay all out of pocket expenses of the Lessor and Owner Participant
in connection with any termination or proposed termination of this Lease except
that Lessee shall not be responsible for such expenses of the Lessor or the
Owner Participant in the event the Lessor exercises its preemptive election
under Section 14(c) and thereafter fails to perform its obligations under such
Section.
(b) PAYMENTS DUE UPON SALE OF AIRCRAFT.
The total selling price realized at any sale of the Airframe and
Engines or engines installed thereon in accordance with this Section 14 shall be
retained by the Lessor and, in addition, on the Termination Date, (1) the Lessee
shall pay to the Lessor or, in the case of Supplemental Rent, to the Persons
entitled thereto, in immediately available funds, an amount equal to the sum of
(A) the excess, if any, of (x) the Termination Value as of the Termination Date,
over (y) the net proceeds of the sale of the Aircraft, plus (B) all unpaid
Supplemental Rent due on or before the Termination Date, plus (C) an amount
equal to the Basic Rent, if any, payable on the Termination Date, plus (D) the
amount, if any, set forth opposite the Termination Date in Exhibit D in the
column with the heading "Deferred Basic Rent Amount", plus (E) all unpaid Basic
Rent, if any, payable before the Termination Date, plus (F) the reasonable fees
and expenses of the Owner Participant and Lessor in connection therewith, plus
(G) any sales, transfer or similar Taxes incurred on such sale, and (2) the
Lessor shall pay to the Lessee the amount of prepaid Basic Rent, if any, as of
such Termination Date as set forth in Exhibit D in the column with the heading
"Prepaid Basic Rent Amount". In the event of any sale of the Aircraft by the
Lessor pursuant to Section 14(a), the Lessee shall be entitled to offset amounts
payable by the Lessee under clause (1) of this Section 14(b) against any amounts
owed to it by Lessor under clause (2) of this Section 14(b).
(c) PREEMPTIVE ELECTION BY LESSOR.
Notwithstanding the foregoing provisions of this Section 14, the
Lessor may, not later than 90 days prior to the proposed Termination Date,
notify the Lessee of its preemptive election to take possession of the Aircraft
and following delivery of such notice, the Lessee shall have no obligation to
pay Termination Value or any amount with respect to Termination Value
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under this Section 14. On the Termination Date, if the Lessor shall have
exercised its preemptive election to retain the Aircraft in accordance with the
terms of this Section 14(c), (1) the Lessee shall deliver the Airframe and
Engines or engines installed thereon to the Lessor in accordance with Section 12
and shall pay the Lessor or, in the case of Supplemental Rent, to the Persons
entitled thereto, (A) all unpaid Basic Rent, if any, payable on or before the
Termination Date, plus (B) an amount equal to the Basic Rent, if any, payable on
the Termination Date, plus (C) the amount, if any, set forth opposite the
Termination Date in Exhibit D in the column with the heading "Deferred Basic
Rent Amount", plus (D) all unpaid Supplemental Rent due on or before or after
the Termination Date, and (2) the Lessor shall transfer to the Lessee title to
any Engines constituting part of the Airframes but which were not then installed
on the Aircraft as provided in Section 12(b) and pay to the Lessee the amount of
prepaid Basic Rent, if any, as of such Termination Date as set forth in Exhibit
D in the column with the heading "Prepaid Basic Rent Amount". In the event the
Lessee delivers the Aircraft to the Lessor on the Termination Date pursuant to
this Section 14(c), the Lessee shall be entitled to offset amounts payable by
the Lessee under clause (1) of this Section 14(c) against any amounts owed to it
by Lessor under clause (2) of this Section 14(c).
(d) TERMINATION OF LEASE.
Upon delivery by the Lessee of the Airframe and Engines or engines
installed thereon and payment by the Lessee of all amounts payable by the Lessee
under either Section 14(b) or 14(c), as the case may be, the obligations of the
Lessee to pay Rent (except for Supplemental Rent obligations surviving pursuant
to Section 3(c) and Articles 6 and 7 of the Participation Agreement or the Tax
Indemnity Agreement or which have otherwise accrued but not paid as of the
Termination Date) shall cease and the Term shall end.
(e) EFFECT OF NO SALE OR PREEMPTIVE DELIVERY TO LESSOR.
If on the Termination Date no sale of the Aircraft shall have occurred
and the Lessee has not delivered the Aircraft to the Lessor pursuant to Section
14(c), the Lessee's notice given pursuant to Section 14(a) shall be deemed to be
withdrawn as of such date and this Lease shall continue in full force and
effect.
(f) NO DUTY ON PART OF LESSOR.
Lessor shall be under no duty to solicit bids, to inquire into the
efforts of Lessee to obtain bids or otherwise to take any action in connection
with any such sale other than to cooperate with such efforts as Lessee may
reasonably request and to make the transfers described in Section 14(a).
Section 15. INVESTMENT OF SECURITY FUNDS.
Any monies paid to or retained by the Lessor which are required to be
paid to the Lessee or applied for the benefit of the Lessee (including, without
limitation, amounts payable to the Lessee under Sections 8 and 9), but which the
Lessor is entitled to hold under the terms hereof pending the occurrence of some
event or the performance of some act (including, without limitation, the
remedying of an Event of Default), shall, until paid to the Lessee or applied as
provided herein, be invested by the Lessor from time to time at the direction,
risk and expense of
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the Lessee in Permitted Investments. There shall be promptly remitted to the
Lessee any gain (including interest received) realized as the result of any such
investment (net of any fees, commissions and other expenses, if any, incurred in
connection with such investment) unless a Specified Default shall have occurred
and be continuing, in which case such gains shall be held or applied in
accordance with the preceding sentence. The Lessee will promptly pay to the
Lessor, on demand, the amount of any loss realized as the result of any such
investment (together with any fees, commissions and other expenses, if any,
incurred in connection with such investment).
Section 16. EVENTS OF DEFAULT.
The following events shall constitute Events of Default and each such
Event of Default shall be deemed to exist and continue so long as, but only so
long as, it shall not have been remedied:
(a) The Lessee shall fail to make any payment of (i) Basic Rent or
Termination Value when due and such failure shall continue for a period of
10 days or (ii) Supplemental Rent (other than Termination Value) within 30
days after receipt by the Lessee of a written demand therefor from the
Lessor;
(b) The Lessee shall fail to procure and maintain insurance required
pursuant to Section 9 or such insurance shall be cancelled or lapse;
PROVIDED that such lapse or cancellation shall not constitute an Event of
Default until the earlier of 30 days after receipt by the Lessor of notice
of such lapse or cancellation or the date that the lapse or cancellation is
effective as to the Lessor or the Owner Participant;
(c) The Lessee shall operate the Aircraft after having received notice
that the public liability insurance required by Section 9(a) has lapsed or
has been cancelled;
(d) The Lessee shall fail to perform or observe any other covenant or
condition to be performed or observed by it hereunder or under any other
Operative Agreement (other than the Tax Indemnity Agreement), and such
failure shall continue unremedied for a period of 30 days after delivery of
notice of such failure from the Lessor to the Lessee, unless such failure
is curable and the Lessee shall, after the delivery of such notice, be
diligently proceeding to correct such failure and shall in fact correct
such failure 120 days after delivery of such notice;
(e) Any representation or warranty made by the Lessee herein or in any
Operative Agreement or in any certificate required to be delivered by the
Lessee pursuant thereto (other than the Tax Indemnity Agreement) shall
prove to have been incorrect in any material respect when made and shall
remain material at the time in question and shall not be remedied within 30
days after notice thereof has been given to the Lessee by the Lessor,
unless such incorrectness is curable and Lessee shall, after delivery of
such notice, be diligently proceeding to correct such failure and shall in
fact correct such failure 120 days after the delivery of such notice;
(f) The Lessee shall consent to the appointment of or taking
possession by a receiver, assignee, custodian, sequestrator, trustee or
liquidator (or other similar official)
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of itself or of a substantial part of its property, or the Lessee shall
admit in writing its inability to pay its debts generally as they come due
(as provided in 11 U.S.C.Section303(h)(1)), or shall make a general
assignment for the benefit of its creditors, or the Lessee shall file a
voluntary petition in bankruptcy or a voluntary petition or answer seeking
liquidation, reorganization or other relief with respect to itself or its
debts under the Federal bankruptcy laws, as now or hereafter constituted or
any other applicable Federal or State bankruptcy, insolvency or other
similar law or shall consent to the entry of an order for relief in an
involuntary case under any such law or the Lessee shall file an answer
admitting the material allegations of a petition filed against the Lessee
in any such proceeding, or otherwise seek relief under the provisions of
any now existing or future Federal or State bankruptcy, insolvency or other
similar law providing for the reorganization or winding-up of corporations,
or providing for an agreement, composition, extension or adjustment with
its creditors;
(g) An order, judgment or decree shall be entered in any proceedings
by any court of competent jurisdiction appointing, without the consent of
the Lessee, a receiver, trustee or liquidator of the Lessee or of any
substantial part of its property, or any substantial part of the property
of the Lessee shall be sequestered, and any such order, judgment of decree
of appointment or sequestration shall remain in force undismissed, unstayed
or unvacated for a period of 90 days after the date of entry thereof;
(h) A petition against the Lessee in a proceeding under the Federal
bankruptcy laws or other insolvency laws as now or hereafter in effect
shall be filed and shall not be withdrawn or dismissed within 90 days
thereafter, or, under the provisions of any law providing for
reorganization or winding-up of corporations which may apply to the Lessee,
any court of competent jurisdiction shall assume jurisdiction, custody or
control of the Lessee or of any substantial part of its property and such
jurisdiction, custody or control shall remain in force unrelinquished,
unstayed or unterminated for a period of 90 days;
(i) So long as GECC or an Affiliate of GECC (including, for the
avoidance of doubt, Silvermine) is the Owner Participant, any "event of
default" occurs under a Related Lease;
(j) Lessee shall receive notice of default or exercise of remedies
with respect to the payment or performance of any indebtedness or other
obligation to any third party and any such default or exercise of remedies
results in an acceleration of such indebtedness or obligation; provided,
however, that the aggregate amount of any such indebtedness or obligation
is in excess of $5,000,000 (determined in the case of borrowed money by the
amount outstanding under the agreement pursuant to which such borrowed
money was borrowed, in the case of a deferred purchase price by the
remaining balance and in the case of a lease by the present value of the
remaining rent payable thereunder); or
(k) The Lessee shall cease to be a Certificated Air Carrier and such
circumstance results in the Owner Trustee no longer being entitled to the
benefits of Section 1110 of the Bankruptcy Code,
-39-
PROVIDED that, notwithstanding anything to the contrary contained in this Lease,
any failure of the Lessee to perform or observe any covenant, condition, or
agreement herein shall not constitute an Event of Default under clause (d) above
if such failure is caused solely by reason of an event referred to in the
definition of "EVENT OF LOSS" so long as the Lessee is continuing to comply with
the applicable terms of Section 8.
Section 17. REMEDIES.
Upon the occurrence of any Event of Default and at any time thereafter
so long as the same shall be continuing, the Lessor may, at its option, declare
this Lease to be in default by a notice to the Lessee (PROVIDED that this Lease
shall be deemed to have been declared in default without the necessity of such
notice upon the occurrence of any Event of Default described in paragraph (f),
(g) or (h) of Section 16 hereof); and at any time thereafter so long as the
Lessee shall not have remedied all outstanding Events of Default, the Lessor may
do, and the Lessee shall comply with, one or more of the following with respect
to the Airframe and all or any part of the Engines, as the Lessor in its sole
discretion shall elect, to the extent permitted by, and subject to compliance
with any mandatory requirements of, Applicable Law then in effect; PROVIDED that
during any period the Aircraft is subject to the Civil Reserve Air Fleet Program
in accordance with the provisions of Section 5(b) and in the possession of the
United States government or an instrumentality or agency thereof, the Lessor
shall not, on account of any Event of Default, be entitled to do any of the
following in such manner as to limit the Lessee's control under this Lease (or
any sublessee's control under any Sublease permitted by the terms of this Lease)
of any Airframe or any Engines, unless at least 60 days' (or such lesser period,
if any, as may then be applicable under the Military Airlift Command Program of
the United States Government) prior notice of default hereunder shall have been
given by the Lessor by registered or certified mail to the Lessee (or any
sublessee) with a copy addressed to the Contracting Office Representative for
the Military Airlift Command of the United States Air Force under any contract
with Lessee (or any sublessee) relating to the Aircraft:
(a) Cause the Lessee, upon the written demand of the Lessor and at the
Lessee's expense to, and the Lessee shall, promptly return the Airframe and
all or such part of the Engines as the Lessor may demand to the Lessor in
the manner and condition required by, and otherwise in accordance with all
of the provisions of, Section 12 as if the Airframe and such Engines were
being returned at the end of the Term; or the Lessor, at its option, may
cause public officials acting pursuant to judicial order obtained in
summary proceedings or otherwise to enter upon the premises where the
Airframe or any or all Engines are located or reasonably believed to be
located and take immediate possession of and remove such Airframe or
Engines, and the Lessee shall comply therewith, all without liability to
the Lessor for or by reason of such entry or taking possession, whether for
the restoration of damage to property caused by such taking or otherwise;
and the Lessee shall promptly execute and deliver to the Lessor such
instruments of title or other documents as the Lessor may deem necessary or
advisable to enable the Lessor or its agent to obtain possession of the
Airframe or the Engines, provided that if the Lessee shall for any reason
fail to execute and deliver such instruments and documents after such
request, the Lessor shall be entitled, in a proceeding to which the Lessee
shall be a necessary party, to a judgment for specific
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performance, conferring the right to immediate possession upon the Lessor
and requiring the Lessee to execute and deliver such instruments and
documents to the Lessor;
(b) Sell or otherwise dispose of all or any part of the Aircraft, at
public or private sale, as the Lessor may determine, or hold, use, operate,
lease to others or keep idle all or any part of the Aircraft, Airframe or
any Engine as the Lessor, in its sole discretion, may determine, in any
such case free and clear of any rights of the Lessee except as hereinafter
set forth in this Section 17 and without any duty to account to the Lessee
with respect to such action or inaction or for any proceeds with respect
thereto except to the extent required by paragraph (d) below in the event
the Lessor elects to exercise its rights under said paragraph in lieu of
its rights under paragraph (c) below;
(c) Whether or not the Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a) or
paragraph (b) above with respect to the Aircraft, the Lessor, by written
notice to the Lessee specifying a payment date (which shall be a
Termination Date) not earlier than 10 days from the date of such notice,
may require the Lessee to pay to the Lessor, and the Lessee shall pay to
the Lessor, on the payment date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty, (i) any installment of
Basic Rent due before such payment date, plus (ii) an amount equal to the
sum of (A) the amount, if any, set forth opposite such payment date in
Exhibit D in the column with the heading "Deferred Basic Rent Amount" plus
(B) if such payment date is a Basic Rent Payment Date, the Basic Rent, if
any, payable on such Basic Rent Payment Date, plus (iii) an amount equal to
the excess, if any, of (A) Termination Value for the Aircraft, determined
as of such payment date over (B) the Fair Market Sales Value for the
Aircraft, computed as of such payment date, together with interest, to the
extent permitted by Applicable Law, at the Past Due Rate on the amounts
specified in the foregoing clauses (i), (ii) and (iii) of this paragraph
(c), from such payment date, to the date of actual payment of such amounts;
PROVIDED THAT, in any such instance in which the Lessor is unable to
repossess the Aircraft due to circumstances not relating to or caused by
any Lessee Person and the Fair Market Sales Value thereof is deemed to be
zero, upon receipt of any such payment under this paragraph (c) and all
other amounts due hereunder, the Lessor shall convey, as-is, where-is,
without recourse or warranty, other than a warranty against Lessor's Liens,
to the Lessee all right, title and interest of the Lessor in and to the
Airframe and Engines, and execute and deliver to the Lessee such bills of
sale and other documents and instruments as the Lessee may reasonably
request to evidence such conveyance;
(d) In the event the Lessor, pursuant to paragraph (b) above, shall
have sold the Aircraft upon reasonable notice to the Lessee, the Lessor in
lieu of exercising its rights under paragraph (c) above with respect to the
Aircraft, may, if it shall so elect, require the Lessee to pay the Lessor,
and the Lessee shall pay to the Lessor, on the date of such sale, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of
the Basic Rent due after the date on which such sale occurs but in addition
to any installment of Basic Rent due up to the date on which such sale
occurs, (i) the amount of any deficiency of the net proceeds of such sale
below the Termination Value of the Aircraft, determined as of the
Termination Date immediately preceding the date of such sale (or the
Termination Date coinciding with the date of such sale if the date of such
sale is a
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Termination Date), together with interest, to the extent permitted by
Applicable Law, at the Past Due Rate on the amount of such deficiency from
such Termination Date to the date of actual payment, plus (ii) an amount
equal to the sum of (A) the amount, if any, set forth opposite such
Termination Date in Exhibit D in the column with the heading "Deferred
Basic Rent Amount" plus (B) if such Termination Date is a Basic Rent
Payment Date, the Basic Rent, if any, payable on such Basic Rent Payment
Date, together with interest, to the extent permitted by Applicable Law, at
the Past Due Rate on the amount specified in the foregoing clause (ii) of
this paragraph (d) from such Termination Date to the date of actual
payment; and
(e) Rescind, cancel or terminate this Lease or exercise any other
right or remedy which may be available under Applicable Law or proceed by
appropriate court action to enforce the terms hereof or to recover damages
for the breach hereof.
In addition, the Lessee shall be liable for any unpaid Supplemental Rent due
hereunder before or after any termination hereof, including all reasonable costs
and expenses including attorney's fees and disbursements incurred by the Lessor
or the Owner Participant by reason of the occurrence of any Event of Default or
the exercise of the Lessor's remedies with respect thereto including without
limitation all costs and expenses incurred in connection with the return of the
Airframe or any Engine in accordance with, and in the condition required by, the
terms of Section 12 or any appraisal of the Aircraft required for purposes of
this Section 17. At any sale of the Aircraft, the Airframe or any Engine, or
portion thereof pursuant to this Section 17, the Lessor or the Owner Participant
may bid for and purchase such property. Except as otherwise expressly provided
above, no remedy referred to in this Section 17 is intended to be exclusive (but
the liquidation of damages provided in this Section 17 shall be exclusive to the
extent permitted by Applicable Law), but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available to the
Lessor for the Event of Default at law or in equity; and the exercise or
beginning of exercise by the Lessor of any one or more of such remedies shall
not preclude the simultaneous or later exercise by the Lessor of any or all such
other remedies. No express or implied waiver by the Lessor of any Event of
Default hereunder shall in any way be, or be construed to be, a waiver of any
future or subsequent Event of Default.
If the Lessor by written notice specifies a payment date under Section
17(c), then subject to Section 23(j) hereof, upon payment by the Lessee on such
payment date of all amounts specified in Section 17(c) to be paid by the Lessee,
the Lessor shall pay to the Lessee the amount, if any, set forth in Exhibit D
beside the Termination Date specified in the Lessor's written notice in the
column with the heading "Prepaid Basic Rent Amount".
If the Lessor shall have sold the Aircraft and shall exercise its
rights under Section 17(d), then subject to Section 23(j) hereof, upon payment
by the Lessee on the date of such sale of all amounts specified therein to be
paid by the Lessee, the Lessor shall pay to the Lessee the amount, if any, set
forth in Exhibit D beside the Termination Date specified in Section 17(d) in the
column with the heading "Prepaid Basic Rent Amount".
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Section 18. LESSOR'S RIGHT TO PERFORM FOR THE LESSEE.
If the Lessee fails to make any payment of Rent required to be made by
it hereunder or fails to perform or comply with any of its agreements contained
herein the Lessor may, upon prior notice to the Lessee, itself make such payment
or perform or comply with such agreement, and the amount of such payment and the
amount of the reasonable expenses of the Lessor incurred in connection with such
payment or the performance of or compliance with such agreement, as the case may
be, together with interest thereon at the Past Due Rate, shall be deemed
Supplemental Rent, payable by the Lessee upon demand; PROVIDED that no such
payment or performance by the Lessor shall be deemed to cure any Default or
Event of Default under this Lease or relieve the Lessee of any of its
obligations hereunder; PROVIDED further that nothing in this Section 18 shall be
deemed to permit the Lessor to exercise any control over the operation or
maintenance of the Aircraft or any part thereof while it is being utilized in
the air transportation services of the Lessee or any Permitted Sublessee without
the consent of the Lessee; PROVIDED further that the provisions of this Section
18 shall not affect Lessor's right to exercise its remedies under Section 17
upon the occurrence and continuance of an Event of Default.
Section 19. BANKRUPTCY.
It is the intention of the parties that the Lessor shall be entitled
to the benefits of 11 U.S.C. Section 1110 with respect to the right to repossess
the Airframe, Engines and Parts as provided herein, and in any circumstances
where more than one construction of the terms and conditions of this Lease is
possible, a construction which would preserve such benefits shall control over
any construction which would not preserve such benefits or would render them
doubtful. To the extent consistent with the provisions of 11 U.S.C. Section 1110
or any analogous section of the Federal bankruptcy laws, as amended from time to
time, it is hereby expressly agreed and provided that, notwithstanding any other
provisions of the Federal bankruptcy laws, as amended from time to time, any
right of the Lessor to take possession of the Aircraft in compliance with the
provisions of this Lease shall not be affected by the provisions of 11 U.S.C.
Section 362 or 363, as amended from time to time, or any analogous provisions of
any superseding statute or any power of the bankruptcy court to enjoin such
taking of possession.
Section 20. ASSIGNMENT; BENEFIT AND BINDING EFFECT.
(a) ASSIGNMENT BY THE LESSEE.
The Lessee may not, without the prior written consent of the Lessor
and the Owner Participant, assign any of its rights hereunder except as
otherwise expressly provided herein.
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(b) ASSIGNMENT BY THE LESSOR.
The Lessor may not, without the prior consent of the Lessee, assign
any of its rights under or interest in this Lease except to a successor Owner
Trustee or additional trustee referred to in Section 9.01 of the Participation
Agreement and Section 8.01 of the Trust Agreement and except as set forth in
Section 13.09 of the Participation Agreement or as otherwise expressly provided
herein.
(c) BENEFIT AND BINDING EFFECT.
The terms and provisions of this Lease shall be binding upon and,
subject to the limitations on assignment of rights hereunder, inure to the
benefit of the Lessor and the Lessee and their respective successors and
permitted assigns. Nothing herein shall be construed as creating rights in any
other Person except, to the extent provided herein, the Owner Participant.
(d) SUBLESSEE'S PERFORMANCE AND RIGHTS.
Any obligation imposed on the Lessee in this Lease shall require only
that the Lessee perform or cause to be performed such obligation, even if stated
herein as a direct obligation, and the performance of any such obligation by any
sublessee or transferee of the Airframe or any Engine or Part permitted by the
terms hereof under a sublease or transfer agreement then in effect shall
constitute performance by the Lessee and to the extent of such performance
discharges such obligation by the Lessee.
Section 21. OWNER TRUSTEE'S LIMITATION ON LIABILITY.
Trust Company is entering into this Lease solely as Owner Trustee
under the Trust Agreement and not in its individual capacity and neither Trust
Company nor any entity acting as successor Owner Trustee or additional Owner
Trustee under the Trust Agreement shall be personally liable for, or for any
loss in respect of, any of the statements, representations, warranties,
agreements or obligations stated to be those of the Lessor hereunder, as to
which all interested parties shall look solely to the Trust Estate, except to
the extent expressly provided otherwise in any other Operative Agreement,
PROVIDED, HOWEVER, that nothing in this Section 21 shall be construed to limit
in scope or substance the liability of Trust Company or any entity acting as
successor Owner Trustee or additional Owner Trustee under the Trust Agreement in
its individual capacity for the consequences of its own willful misconduct or
gross negligence or (in receiving, handling or remitting funds) its simple
negligence, or the inaccuracy or breach of its representations, warranties or
covenants made in such capacity in any other Operative Agreement.
Section 22. CERTAIN AGREEMENTS OF LESSEE.
The Lessee will take, or cause to be taken, at the Lessee's cost and
expense, such action with respect to the recording, filing, re-recording and
re-filing of this Lease, each Lease Supplement, the Trust Agreement and any
financing statements or other instruments as are necessary or requested by the
Owner Participant and appropriate, to maintain any security interest that may be
claimed to have been created by this Lease and the ownership interest of the
Owner Trustee in the Aircraft, and will furnish to the Owner Trustee and the
Owner Participant
-44-
timely notice of the necessity of such action, together with such instruments,
in execution form, and such other information as may be required to enable them
to take such action.
Section 23. MISCELLANEOUS.
(a) NOTICES.
Except as otherwise specifically provided herein, all notices,
requests, approvals or consents required or permitted by the terms hereof shall
be in writing (it being understood that the specification of a writing in
certain instances and not in others does not imply an intention that a writing
is not required as to the latter). Any notice shall be effective when received.
Any notice shall either be sent by overnight courier service or overnight
delivery service or by hand, or sent in the form of a telecopy, provided that
there is receipt of such notice the next Business Day from an overnight courier
service, or by overnight delivery service or delivered by hand. Any notice shall
be directed to the Lessee, the Lessor or any other party to the Participation
Agreement to the respective addresses set forth in Section 12.01 to the
Participation Agreement or to such other address or telecopy number as any such
party may designate pursuant to Section 12.01 of the Participation Agreement.
(b) COUNTERPARTS.
This Lease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall, subject to the
next sentence and the legend appearing on the cover hereof, be an original, but
all such counterparts shall together constitute but one and the same instrument.
TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS THE TERM IS
DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE
TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL COUNTERPART
MARKED COUNTERPART NO. 1.
(c) AMENDMENTS.
Neither this Lease nor any of the terms hereof may be terminated,
amended, supplemented, waived or modified orally, but only by an instrument in
writing signed by the Lessor and the Lessee.
(d) AGREEMENT TO LEASE.
It is the intent of the parties to this Lease that for all purposes
(including, without limitation, U.S. Federal income tax purposes) this Lease
will be a true lease, and that this Lease conveys to the Lessee no right, title
or interest in the Aircraft except as a lessee.
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(e) GOVERNING LAW.
(i) THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF
THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE. THIS LEASE HAS BEEN DELIVERED IN THE STATE OF NEW YORK.
(ii) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
IRREVOCABLY AGREES, ACCEPTS AND SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY AND COUNTY OF NEW YORK AND OF
THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN CONNECTION WITH ANY
LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO ANY MATTER RELATING TO OR
ARISING OUT OF OR IN CONNECTION WITH THIS LEASE.
(iii) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO HEREBY IRREVOCABLY CONSENTS AND AGREES THAT THE SERVICE OF ANY AND ALL
LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY MAILING COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT THE ADDRESS SET
FORTH PURSUANT TO SECTION 12.01 OF THE PARTICIPATION AGREEMENT. EACH PARTY
HERETO AGREES THAT SERVICE UPON IT, OR ANY OF ITS AGENTS, IN EACH CASE IN
ACCORDANCE WITH THIS SECTION 23(e)(iii), SHALL CONSTITUTE VALID AND EFFECTIVE
PERSONAL SERVICE UPON SUCH PARTY, AND EACH PARTY HERETO HEREBY AGREES THAT THE
FAILURE OF ANY OF ITS AGENTS TO GIVE ANY NOTICE OF SUCH SERVICE TO ANY SUCH
PARTY SHALL NOT IMPAIR OR AFFECT IN ANY WAY THE VALIDITY OF SUCH SERVICE ON SUCH
PARTY OR ANY JUDGMENT RENDERED IN ANY ACTION OR PROCEEDING BASED THEREON.
(iv) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A
DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR PROCEEDING BROUGHT HEREUNDER IN
ANY OF THE ABOVE-NAMED COURTS, THAT SUCH ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT VENUE FOR THE ACTION OR PROCEEDING IS IMPROPER OR THAT
THIS LEASE OR ANY OTHER OPERATIVE AGREEMENT MAY NOT BE ENFORCED IN OR BY SUCH
COURTS.
(v) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF OR RELATING
TO THIS LEASE.
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(f) SEVERABILITY.
Any provision of this Lease which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
(g) SURVIVAL.
The representations, warranties, indemnities and covenants set forth
herein shall survive the delivery of the Aircraft, the transfer of any interest
of Owner Participant in this Lease, the other Operative Agreements, the Trust
Estate and the Trust Agreement.
(h) ARTICLE 2A.
The Lessor and the Lessee agree that this Lease is a "finance lease"
for purposes of Article 2A of, and as defined in Section 2-A-103 of the Uniform
Commercial Code. The Lessee agrees that no right or remedy granted solely by
reason of Article 2A of the Uniform Commercial Code shall be available to the
Lessee as against the Lessor unless expressly provided in this Lease.
(i) EXHIBIT D.
When the provisions of the Participation Agreement or this Lease refer
to an amount, if any, set forth opposite a date in Exhibit D in the column with
the heading "Deferred Basic Rent Amount" or "Prepaid Basic Rent Amount", as the
case may be, such amount shall be equal to Lessor's Cost multiplied by the
percentage, if any, set forth opposite such date in Exhibit D under the column
with the heading "Deferred Basic Rent Amount" or "Prepaid Basic Rent Amount", as
the case may be.
(j) LESSOR'S RIGHTS.
The Lessor shall be entitled to set off or withhold from any sum or
sums expressed in this Lease or the Participation Agreement to be due and
payable by the Lessor to the Lessee any amounts due or expressed to be due and
payable by the Lessee to the Lessor in this Lease or any of the other Operative
Agreements.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease to be duly executed by their authorized officers as of the day and year
first above written.
XXXXX FARGO BANK NORTHWEST,
NATIONAL ASSOCIATION
not in its individual capacity, but solely
as Owner Trustee
By: /s/ Xxxxx X. Xxxx
--------------------------------------
Name: Xxxxx X. Xxxx
Title: Vice President
CHAUTAUQUA AIRLINES, INC.
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
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Exhibit A
TO LEASE AGREEMENT
LEASE SUPPLEMENT NO. 1 [N296SK]
THIS LEASE SUPPLEMENT NO. 1 [N296SK] dated __________, 2001, between
XXXXX FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual
capacity, but solely as Owner Trustee, except as otherwise provided herein, the
Lessor, and CHAUTAUQUA AIRLINES, INC., a New York corporation, the Lessee;
W I T N E S S E T H :
WHEREAS, the Lessor and the Lessee have heretofore entered into that
certain Lease Agreement [N296SK], dated as of December 20, 2001 (the "Lease",
the terms defined therein being herein used with the same meaning), which Lease
provides, among other things, for the execution and delivery of Lease
Supplements in substantially the form hereof for the purpose of leasing a
specific Aircraft under the Lease when delivered by the Lessor to the Lessee in
accordance with the terms thereof;
WHEREAS, the Lease, a counterpart of which is attached hereto and made
a part hereof, relates to the Aircraft and Engines described in Schedule I
hereto and this Lease Supplement, together with such attachment, is being filed
for recordation on the date hereof with the FAA as one document;
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, and pursuant to Section 2 of the Lease, the Lessor and
the Lessee hereby agree as follows:
1. The Lessor hereby delivers and leases to the Lessee, and the Lessee
hereby accepts and leases from the Lessor, under the Lease as herein
supplemented, the Aircraft, described in Schedule I hereto.
2. The Delivery Date is the date of this Lease Supplement set forth in
the opening paragraph hereof.
3. The Basic Term shall commence on the Delivery Date and continue
through __________, ____ (the "Expiration Date"), unless terminated earlier as
provided in the Lease.
4. Lessee hereby confirms to Lessor that Lessee has duly and
irrevocably accepted the Aircraft under and for all purposes hereof, of the
Lease and of the other Lessee Documents.
5. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
6. This Lease Supplement may be executed by the parties hereto in
separate counterparts and all such counterparts shall together constitute but
one and the same instrument.
To the extent, if any, that this Lease Supplement constitutes chattel paper (as
such term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction), no security interest in this Lease Supplement or the
Lease may be created through the transfer or possession of any counterpart other
than the original counterpart of each thereof marked Counterpart No. 1.
7. THIS LEASE SUPPLEMENT HAS BEEN DELIVERED IN THE STATE OF NEW YORK
AND SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease Supplement to be duly executed by their authorized officers as of the day
and year first above written.
XXXXX FARGO BANK NORTHWEST,
NATIONAL ASSOCIATION
not in its individual capacity, but solely
as Owner Trustee
By: /s/ Xxxxx X. Xxxx
--------------------------------------
Name: Xxxxx X. Xxxx
Title: Vice President
CHAUTAUQUA AIRLINES, INC.
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
SCHEDULE I
TO EXHIBIT A
DESCRIPTION OF AIRFRAME AND ENGINES
AIRFRAME
Manufacturer's FAA Registration Manufacturer's
Manufacturer Model No. Serial No.
-------------------- ---------------------- --------------------- -----------------------
Embraer EMB-145LR N296SK 145514
ENGINES
Manufacturer's Manufacturer's
Manufacturer Model Serial No.
----------------------- --------------------------- ----------------------
Rolls Royce AE 3007A1P CAE 311970
CAE 311958
Each Engine is of 750 or more "rated take-off horsepower" or the
equivalent of such horsepower.
SCHEDULE I
TO EXHIBIT A
DESCRIPTION OF AIRFRAME AND ENGINES
Exhibit B
CERTAIN ECONOMIC INFORMATION
[*]
--------
* Confidential
Exhibit C-1
BASIC RENT PAYMENT SCHEDULE
[*]
---------
* Confidential
Exhibit C-2
BASIC RENT ALLOCATION SCHEDULE
Allocation of Basic
Rent (expressed as a
From (but not including) Through percentage of Lessor's Cost)
------------------------ ------- ----------------------------
[*] [*]
---------
* Confidential
Exhibit D
TERMINATION VALUES
Termination Value Deferred Basic Rent Prepaid Basic Rent
(expressed as a Amount (expressed as Amount (expressed as
percentage of a percentage of a percentage of
Termination Date Lessor's Cost) Lessor's Cost) Lessor's Cost)
---------------- -------------- -------------- --------------
[*] [*] [*] [*]
Exhibit E
LISTS OF COUNTRIES - PERMITTED FOR RE-REGISTRATION AND SUBLEASING
Australia Italy
Austria Japan
Belgium Luxembourg
Canada Netherlands
Denmark New Zealand
Finland Norway
France Portugal
Germany Sweden
Iceland Switzerland
Ireland United Kingdom
TABLE OF CONTENTS
PAGE
----
Section 1. Interpretation............................................................................1
(a) Definitions...............................................................................1
(b) References................................................................................1
(c) Headings..................................................................................1
(d) Appendices, Schedules and Exhibits........................................................1
Section 2. Delivery and Leasing of the Aircraft......................................................2
(a) Leasing of the Aircraft...................................................................2
(b) Delivery and Acceptance of the Aircraft Under the Lease...................................2
Section 3. Term and Rent.............................................................................2
(a) Term......................................................................................2
(b) Basic Rent................................................................................2
(c) Supplemental Rent.........................................................................3
(d) Adjustments to Basic Rent and Termination Values..........................................3
(e) Manner of Payment.........................................................................5
(f) Rent Obligations Unconditional............................................................5
Section 4. The Lessor's Representations and Warranties...............................................6
(a) Representation and Warranties.............................................................6
(b) Quiet Enjoyment...........................................................................6
(c) Manufacturer's Warranties.................................................................7
Section 5. Possession, Operation and Use, Maintenance, Registration and Insignia.....................7
(a) General...................................................................................7
(b) Possession................................................................................7
(c) Operation and Use........................................................................12
(d) Maintenance..............................................................................12
(e) Registration.............................................................................13
Section 6. Inspection...............................................................................13
Section 7. Replacement and Pooling of Parts; Alterations, Modifications and
Additions; Substitution of Engines.......................................................14
(a) Replacement of Parts.....................................................................14
(b) Title to Parts...........................................................................15
(c) Pooling or Parts Leasing.................................................................15
(d) Alterations, Modifications and Additions.................................................15
(e) Substitution of Engines..................................................................17
Section 8. Loss, Destruction or Requisition.........................................................19
(a) Event of Loss with Respect to the Airframe...............................................19
-i-
(b) Effect of Replacement....................................................................20
(c) Effect of Termination Value Payment......................................................20
(d) Conditions to Airframe Replacement.......................................................21
(e) Non-Insurance Payments Received on Account of an Event of Loss...........................23
(f) Requisition for Use......................................................................24
(g) Certain Payments to be Held As Security..................................................24
Section 9. Insurance................................................................................25
(a) Public Liability and Property Damage Insurance...........................................25
(b) Insurance Against Loss or Damage to the Aircraft and Engines.............................26
(c) Additional Insureds; Loss Payment........................................................26
(d) Deductibles and Self-Insurance...........................................................27
(e) Application of Hull Insurance Proceeds...................................................27
(f) Insurance for Own Account................................................................28
(g) Reports, etc.............................................................................28
(h) Right to Pay Premiums....................................................................29
Section 10. Liens....................................................................................29
Section 11. Recordation and Further Assurances.......................................................30
(a) Recordation of Lease.....................................................................30
(b) Further Assurances.......................................................................30
(c) Markings.................................................................................30
Section 12. Return of Aircraft and Records...........................................................31
(a) Return of Aircraft.......................................................................31
(b) Return of Other Engines..................................................................31
(c) Fuel; Records............................................................................31
(d) Condition of Aircraft....................................................................31
(e) Failure to Return........................................................................32
(f) Storage and Related Matters..............................................................32
Section 13. Renewal Option and Purchase Options......................................................32
(a) Renewal Terms............................................................................32
(b) Lessee's Purchase Options................................................................33
Section 14. Voluntary Termination for Obsolescence...................................................35
(a) Termination by Sale of Aircraft..........................................................35
(b) Payments Due Upon Sale of Aircraft.......................................................36
(c) Preemptive Election by Lessor............................................................36
(d) Termination of Lease.....................................................................37
(e) Effect of No Sale or Preemptive Delivery to Lessor.......................................37
(f) No Duty on Part of Lessor................................................................37
Section 15. Investment of Security Funds.............................................................37
Section 16. Events of Default........................................................................38
Section 17. Remedies.................................................................................40
Section 18. Lessor's Right to Perform for the Lessee.................................................43
Section 19. Bankruptcy...............................................................................43
Section 20. Assignment: Benefit and Binding Effect...................................................43
(a) Assignment by the Lessee.................................................................43
(b) Assignment by the Lessor.................................................................44
(c) Benefit and Binding Effect...............................................................44
(d) Sublessee's Performance and Rights.......................................................44
Section 21. Owner Trustee's Limitation on Liability..................................................44
Section 22. Certain Agreements of Lessee.............................................................44
Section 23. Miscellaneous............................................................................45
(a) Notices..................................................................................45
(b) Counterparts.............................................................................45
(c) Amendments...............................................................................45
(d) Agreement to Lease.......................................................................45
(e) Governing Law............................................................................46
(f) Severability.............................................................................47
(g) Survival.................................................................................47
(h) Article 2A...............................................................................47
(i) Exhibit D................................................................................46
(j) Lessor's Rights..........................................................................46
Appendix A Definitions
Exhibit A Form of Lease Supplement
Exhibit B Certain Economic Information
Exhibit C-1 Basic Rent Payment Schedule
Exhibit C-2 Basic Rent Allocation Schedule
Exhibit D Termination Values
Exhibit E List of Countries
Exhibit F-1 Return Conditions
Exhibit F-2 Return Conditions
LEASE SUPPLEMENT NO. 1 [N296SK]
THIS LEASE SUPPLEMENT NO. 1 [N296SK] dated December 20, 2001, between
XXXXX FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual
capacity, but solely as Owner Trustee, except as otherwise provided herein, the
Lessor, and CHAUTAUQUA AIRLINES, INC., a New York corporation, the Lessee;
W I T N E S S E T H :
WHEREAS, the Lessor and the Lessee have heretofore entered into that
certain
Lease Agreement [N296SK], dated as of December 20, 2001 (the "Lease",
the terms defined therein being herein used with the same meaning), which Lease
provides, among other things, for the execution and delivery of Lease
Supplements in substantially the form hereof for the purpose of leasing a
specific Aircraft under the Lease when delivered by the Lessor to the Lessee in
accordance with the terms thereof;
WHEREAS, the Lease, a counterpart of which is attached hereto and made
a part hereof, relates to the Aircraft and Engines described in Schedule I
hereto and this Lease Supplement, together with such attachment, is being filed
for recordation on the date hereof with the FAA as one document;
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, and pursuant to Section 2 of the Lease, the Lessor and
the Lessee hereby agree as follows:
1. The Lessor hereby delivers and leases to the Lessee, and the Lessee
hereby accepts and leases from the Lessor, under the Lease as herein
supplemented, the Aircraft, described in Schedule I hereto.
2. The Delivery Date is the date of this Lease Supplement set forth in
the opening paragraph hereof.
3. The Basic Term shall commence on the Delivery Date and continue
through June 20, 2018 (the "Expiration Date"), unless terminated earlier as
provided in the Lease.
4. Lessee hereby confirms to Lessor that Lessee has duly and
irrevocably accepted the Aircraft under and for all purposes hereof, of the
Lease and of the other Lessee Documents.
5. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
6. This Lease Supplement may be executed by the parties hereto in
separate counterparts and all such counterparts shall together constitute but
one and the same instrument.
To the extent, if any, that this Lease Supplement constitutes chattel paper (as
such term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction), no security interest in this Lease Supplement or the
Lease may be created through the transfer or possession of any counterpart other
than the original counterpart of each thereof marked Counterpart No. 1.
7. THIS LEASE SUPPLEMENT HAS BEEN DELIVERED IN THE STATE OF NEW YORK
AND SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
[The remainder of this page is intentionally left blank.]
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease Supplement to be duly executed by their authorized officers as of the day
and year first above written.
XXXXX FARGO BANK NORTHWEST,
NATIONAL ASSOCIATION
not in its individual capacity, but solely
as Owner Trustee
By:
---------------------------------------
Name:
Title:
CHAUTAUQUA AIRLINES, INC.
By:
---------------------------------------
Name:
Title:
SCHEDULE I
TO LEASE SUPPLEMENT
DESCRIPTION OF AIRFRAME AND ENGINES
AIRFRAME
Manufacturer Manufacturer's FAA Registration Manufacturer's
Model Number Serial No.
Embraer EMB-145LR N296SK 145514
ENGINES
Manufacturer Manufacturer's Manufacturer's
Xxxxx Xxxxxx Xx.
Xxxxx Xxxxx XX 0000X0X CAE 311970
CAE 311958
Each Engine is of 750 or more "rated take-off horsepower" or the
equivalent of such horsepower.
APPENDIX A
DEFINITIONS [N296SK]
GENERAL PROVISIONS
The following terms shall have the following meanings for all purposes
of the Operative Agreements (as defined below), unless otherwise defined in an
Operative Agreement or the context thereof shall otherwise require. In the case
of any conflict between the provisions of this Appendix and the provisions of
any Operative Agreement, the provisions of such Operative Agreement shall
control the construction of such Operative Agreement.
Unless the context otherwise requires, (i) references to agreements
shall be deemed to mean such agreements as amended and supplemented from time to
time, and any agreement, instrument or document entered into in substitution or
replacement therefor, and (ii) references to parties to agreements shall be
deemed to include the successors and permitted assigns of such parties.
"ADDITIONAL INSUREDS" means the Owner Trustee (in its individual and
trust capacities) and the Owner Participant.
"AERONAUTICAL AUTHORITY" means as of any time of determination, the
FAA or other governmental airworthiness authority having jurisdiction over the
Aircraft or the Airframe and Engines or engines attached thereto under the laws
of the country in which the Airframe is then registered.
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling 50% or more of any class of voting securities
of such Person or otherwise controlling, controlled by or under common control
with such Person. For the purposes of this definition, "control" (including
"controlled by" and "under common control with") shall mean the power, directly
or indirectly, to direct or cause the direction of the management and policies
of such Person whether through the ownership of voting securities or by contract
or otherwise.
"AFTER TAX BASIS" means a basis such that any payment to be received
or deemed to be received by a Person shall be supplemented by a payment to such
Person so that the sum of such payments, after deduction of all Taxes (taking
into account any related credits or deductions) resulting from the actual or
constructive receipt or accrual of such payments, shall be equal to the payment
to be received.
"AIRCRAFT" means the Airframe together with the Engines, whether or
not any of the Engines may at the time of determination be installed on the
Airframe or installed on any other airframe or on any other aircraft.
"AIRFRAME" means (i) the Embraer model EMB-145LR aircraft (excluding
the Engines and any other engines which may from time to time be installed
thereon, but including any and all Parts which may from time to time be
incorporated in, installed on or attached to such aircraft, and including any
and all such Parts removed therefrom so long as title to such removed
Parts remains vested in the Lessor under the terms of Section 7 of the Lease)
originally delivered and leased under the Lease, identified by national
registration number and manufacturer's serial number in the Lease Supplement
executed and delivered on the Delivery Date, so long as a Replacement Airframe
shall not have been substituted therefor pursuant to Section 8 of the Lease, and
(ii) a Replacement Airframe, so long as another Replacement Airframe shall not
have been substituted therefor pursuant to Section 8 of the Lease.
"APPRAISAL PROCEDURE" has the meaning specified in Exhibit F-2 to the
Lease.
"APPLICABLE LAW" means all applicable laws, treaties, judgments,
decrees, injunctions, writs and orders of any court, governmental agency or
authority and rules, regulations, orders, directives, licenses and permits of
any governmental body, instrumentality, agency or authority.
"APPLICABLE RATE" has the meaning specified in Exhibit B to the Lease.
"ASSIGNED WARRANTIES" means all warranty rights arising under the
Embraer Purchase Agreement in respect of the Aircraft.
"ASSUMED TRANSACTION COSTS" has the meaning specified in Exhibit B to
the Lease.
"BANKRUPTCY CODE" means Title 11 of the United States Code, as
amended, and any successor thereto.
"BASIC RENT" means the rent payable on Basic Rent Payment Dates
throughout the Basic Term for the Aircraft pursuant to Section 3(b) of the Lease
and rent payable during any Renewal Term pursuant to Section 13(a) of the Lease.
"BASIC RENT PAYMENT DATE" means each date listed under the heading
"Basic Rent Payment Date" in Exhibit C-1 to the Lease or, during a Renewal Term,
such dates as are provided for in Section 13(a) of the Lease.
"BASIC TERM" means the period commencing at the beginning of the day
on the Delivery Date and ending at end of the day on the Expiration Date, or
such earlier date on which the Lease shall be terminated as provided therein.
"BENEFICIAL INTEREST" means the interest of the Owner Participant
under the Trust Agreement.
"BILLS OF SALE" means the FAA Xxxx of Sale and the Warranty Xxxx of
Sale.
"BUSINESS DAY" means any day other than a Saturday or Sunday or other
day on which commercial banks are authorized or required by law to close in New
York City, New York, Indianapolis, Indiana and Salt Lake City, Utah.
"CERTIFICATED AIR CARRIER" means an "air carrier" within the meaning
of the Transportation Code and a "citizen of the United States" within the
meaning of Section 40102(a)(15) (or any successor provision) of the
Transportation Code holding an "air carrier operating certificate" issued under
Chapter 447 (or any successor provision) of the Transportation Code for aircraft
2
capable of carrying ten or more individuals or 6,000 pounds or more of cargo,
with each such certificate in full force and effect.
"CITIZEN OF THE UNITED STATES" means a citizen of the United States as
defined in Section. 40102(a)(15) of the Transportation Code, or any analogous
part of any successor or substituted legislation or regulation at the time in
effect.
"CODE" means the United States Federal Internal Revenue Code of 1986,
as amended from time to time, or any similar legislation of the United States
enacted to supersede, amend, or supplement such Code (and any reference to a
provision of the Code shall refer to any successor provision(s), however
designated).
"COMMITMENT" shall have the meaning given such term in Section 2.01(c)
of the Participation Agreement.
"CRAF PROGRAM" has the meaning specified in Section 5(b)(vii) of the
Lease.
"DEFAULT" means any event or condition which, with the lapse of time
or the giving of notice, or both, would constitute an Event of Default.
"DELIVERY DATE" means the date on which the Aircraft is delivered and
sold to the Lessor and leased by the Lessor to the Lessee under the Lease, which
date shall be the date of the initial Lease Supplement.
"DOLLARS", "DOLLAR" and "$" means dollars in lawful currency of the
United States.
"DOT" means the United States Department of Transportation or any
successor thereto.
"EBO DATE" has the meaning given to such term in Exhibit B to the
Lease.
"EBO AMOUNT" has the meaning given to such term in Exhibit B to the
Lease.
"EMBRAER PURCHASE AGREEMENT" means the EMB-145 Purchase Agreement
Number GCT-025/98 dated June 17, 1998, between the Manufacturer and Solitair, as
amended and supplemented from time to time.
"EMBRAER ASSIGNMENT DOCUMENTS" means (i) that certain Purchase
Agreement Assignment No. 1 [N296SK] dated as of the Delivery Date, between
Solitair, as assignor, and Seller, as assignee, (ii) the Consent and Agreement
No. 1 [N296SK] dated as of the Delivery Date, relating thereto executed by the
Manufacturer, and (iii) the Warranty Xxxx of Sale dated the Delivery Date from
the Manufacturer to the Seller.
"ENGINE" means (A) each of the two Rolls Royce model AE3007A1P engines
originally delivered and leased under the Lease, identified by manufacturer's
serial number in the Lease Supplement executed and delivered on the Delivery
Date, so long as a Replacement Engine shall not have been substituted therefor
pursuant to Section 7(e) of the Lease, and (B) a Replacement Engine, so long as
another Replacement Engine shall not have been substituted therefor pursuant to
Section 7(e) of the Lease, whether or not such engine or Replacement Engine, as
the case may
3
be, is from time to time installed on the Airframe or installed on any other
aircraft, and including in each case all Parts incorporated or installed in or
attached thereto and any and all Parts removed therefrom so long as title to
such Parts remains vested in the Lessor under the terms of Section 7 of the
Lease. The term "ENGINES" means, as of any date of determination, the two
engines each of which is an Engine on that date.
"ENGINE MANUFACTURER" means Rolls-Royce Corporation, a Delaware
corporation, and its successors and permitted assigns.
"ENGINE WARRANTIES" has the meaning specified in the Engine Warranty
Assignment and Consent.
"ENGINE WARRANTY AGREEMENT" means the Rolls-Royce AE3007A Series
Engine Warranty Agreement made effective as of April 30, 1999, among the Engine
Manufacturer, Solitair and the Lessee, as amended and supplemented from time to
time.
"ENGINE WARRANTY ASSIGNMENT AND CONSENT" means the Engine Warranty
Assignment Agreement and Consent [N296SK], dated as of the Delivery Date,
between Solitair and Owner Trustee and consented to by the Engine Manufacturer.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
any regulations and rulings issued thereunder all as amended and in effect from
time to time.
"ERISA PLAN" means, individually or collectively, an employee benefit
plan, as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA
or any applicable regulation thereunder or a plan or individual retirement
account which is subject to Section 4975(c) of the Code;
"EVENT OF DEFAULT" has the meaning given to such term in Section 16 of
the Lease.
"EVENT OF LOSS" means any of the following events with respect to the
Aircraft, the Airframe or any Engine:
(i) any theft, hijacking or disappearance of such property for a
period of 60 consecutive days or more or, if earlier for a period that
extends until the end of the Term;
(ii) destruction, damage beyond economic repair or rendition of
such property permanently unfit for normal use for any reason
whatsoever;
(iii) any event which results in an insurance settlement with
respect to such property on the basis of an actual, constructive or
compromised total loss;
(iv) condemnation, confiscation or seizure of, or requisition of
title to or use of such property by any foreign government or
purported government (or in the case of any such requisition of title,
by the Government) or any agency or instrumentality thereof, for a
period in excess of (A) in the case of any requisition of use, 180
consecutive days (for countries listed in Exhibit E to the Lease) or
30 consecutive days (for any other country) or (B) in the case of any
condemnation, confiscation or seizure of, or requisition of title,
4
10 consecutive days, or, in any of the cases in this clause (iv), such
shorter period ending on the expiration of the Term;
(v) condemnation, confiscation or seizure of, or requisition of
use of such property by the Government for a period extending beyond
the Term;
(vi) as a result of any law, rule, regulation, order or other
action by the Aeronautical Authority, the use of the Aircraft or
Airframe in the normal course of air transportation shall have been
prohibited by virtue of a condition affecting all Embraer model
EMB-145LR aircraft equipped with engines of the same make and model as
the Engines for a period of 180 consecutive days (or beyond the end of
the Term), unless the Lessee, prior to the expiration of such 180-day
period, shall be diligently carrying forward all necessary and
desirable steps to permit normal use of the Aircraft and shall within
12 months have conformed at least one Embraer model EMB-145LR aircraft
(but not necessarily the Aircraft) to the requirements of any such
law, rule, regulation, order or action, and shall be diligently
pursuing conformance of the Aircraft in a non-discriminatory manner
provided that, notwithstanding the foregoing, if such normal use of
such property subject to the Lease shall be prohibited at the end of
the Term, or if such normal use of such property shall be prohibited
for a period of eighteen (18) consecutive months, an Event of Loss
shall be deemed to have occurred; and
(vii) with respect to an Engine only, the requisition or taking
of use thereof by any government, and any divestiture of title or
ownership deemed to be an Event of Loss with respect to an Engine
under Section 5(b)(iii) or 5(b)(vi) of the Lease.
The date of such Event of Loss shall be (aa) the 61st day following loss of such
property or its use due to theft or disappearance or the end of the Term if
earlier; (bb) the date of any destruction, damage beyond economic repair or
rendition of such property permanently unfit for normal use; (cc) the date of
any insurance settlement on the basis of an actual, constructive or compromised
total loss; (dd) the 181st day (for countries listed in Exhibit E to the Lease)
or 31st day (for any other country) following condemnation, confiscation,
seizure or requisition of title to such property by a foreign government
referred to in clause (iv) above (or the 11th day in the case of appropriation
of title), or the end of the Term if earlier than such 181st, 31st or 11th day;
(ee) the last day of the Term in the case of requisition of title to or use of
such property by the Government; and (ff) the last day of the applicable period
referred to in clause (vi) above (or if earlier, the end of the Term without the
Lessee's having conformed at least one Embraer model EMB-145LR aircraft to the
applicable requirements). An Event of Loss with respect to the Aircraft shall be
deemed to have occurred if any Event of Loss occurs with respect to the
Airframe.
"EXPENSES" has the meaning given to such term in Section 7.01(a) of
the Participation Agreement.
"EXPIRATION DATE" means the date specified as such in the Lease
Supplement executed and delivered on the Delivery Date.
5
"FAA XXXX OF SALE" means (A) the xxxx of sale for the Airframe on AC
Form 8050-2, or such other form as may be approved by the Aeronautical
Authority, executed by the Seller in favor of the Owner Trustee and to be dated
the Delivery Date, and (B) a xxxx of sale for a Replacement Airframe on AC Form
8050-2, or such other form as may be approved by the Aeronautical Authority,
executed by the seller thereof in favor of the Owner Trustee.
"FAIR MARKETRENTAL VALUE" or "FAIR MARKET SALES VALUE" of the Airframe
or any Engine shall mean the value that would be obtained in an arms'-length
transaction between an informed and willing lessee-user or buyer-user (other
than a lessee currently in possession or a used equipment dealer) under no
compulsion to lease or buy, as the case may be, and an informed and willing
lessor or seller, as the case may be, under no compulsion to lease or sell, as
the same shall be specified by agreement between the Lessor and the Lessee or,
if not agreed to by the Lessor and the Lessee within a period of 15 days after
either party requests a determination, then as specified in an appraisal
prepared and delivered in New York City mutually agreed to by two recognized
independent aircraft appraisers, one of which shall be appointed by the Lessor
and the other of which shall be appointed by the Lessee, or, if such appraisers
cannot agree on such appraisal, an appraisal arrived at by a third independent
recognized appraiser chosen by the mutual consent of the two aircraft
appraisers. If either party should fail to appoint an appraiser within 15 days
of receiving notice of the appointment of an appraiser by the other party, then
such appraisal shall be made by the appraiser appointed by the first party. If
the two appraisers cannot agree on such appraisal and fail to appoint a third
independent recognized aircraft appraiser within 15 days after the appointment
of the second appraiser, then either party may apply to the American Arbitration
Association to make such appointment. The appraisal shall be completed within 30
days of the appointment of the last appraiser appointed. In determining Fair
Market Rental Value or Fair Market Sales Value by appraisal or otherwise, it
will be assumed that the Aircraft, Airframe or Engine is in the condition,
location and overhaul status in which it is required to be returned to the
Lessor pursuant to Section 12 of the Lease and that the Lessee has removed all
Parts which it is entitled to remove pursuant to Section 7 of the Lease and that
the Aircraft is not encumbered by the Lease. Except as otherwise expressly
provided in the Lease, all appraisal costs will be shared equally by the Lessor
and the Lessee; PROVIDED that if the Lessee elects not to renew the Lease or
purchase the Aircraft following the conclusion of such appraisal, the Lessee
shall pay all appraisal costs. Notwithstanding the foregoing, for purposes of
Section 17 of the Lease, the "Fair Market Rental Value" or "Fair Market Sales
Value" of the Aircraft, the Airframe or any Engine, shall be determined on an
"as is, where is" basis and shall take into account customary brokerage and
other out-of-pocket fees and expenses which typically would be incurred in
connection with a re-lease or sale of the Aircraft, the Airframe or any Engine.
Any such determination pursuant to Section 17 of the Lease shall be made by a
recognized independent aircraft appraiser selected by Lessor and the costs and
expenses associated therewith shall be borne by Lessee, unless Lessor does not
obtain possession of the Aircraft, Airframe and Engines pursuant to Section 17
of the Lease, in which case an appraiser shall not be appointed and Fair Market
Rental Value and Fair Market Sales Value for purposes of Section 17 of the Lease
shall be zero. If the Owner Participant provides a Residual Notice pursuant to
Section 13(b)(iii) of the Lease, Fair Market Sales Value will be determined as
provided in the definition of Appraisal Procedure.
"FAIR MARKET VALUE RENEWAL TERM" has the meaning given to such term in
Section 13(a) of the Lease.
6
"FEDERAL AVIATION ADMINISTRATION" or "FAA" means the United States
Federal Aviation Administration and any successor agency or agencies thereto.
"FIXED RENEWAL TERM" has the meaning given to such term in
Section 13(a) of the Lease.
"GECC" means General Electric Capital Corporation, a Delaware
corporation, the successor to General Electric Capital Corporation, a New York
corporation.
"GOVERNMENT" means the United States of America or an agency or
instrumentality thereof the obligations of which bear the full faith and credit
of the United States of America.
"GUARANTEE AGREEMENT" has the meaning given to such term in the
recitals of the Participation Agreement.
"GUARANTEED AMOUNT" has the meaning specified in Exhibit B to the
Lease.
"INDEMNITEE" means each of Trust Company, in its individual capacity
and as Owner Trustee, the Owner Participant, and each Affiliate, officer,
director, employee, agent, servant, successor and permitted assigns of any of
the foregoing Persons.
"LEASE" means the
Lease Agreement [N296SK], dated as of the Delivery
Date between the Owner Trustee and the Lessee.
"LEASE SUPPLEMENT" means any Lease Supplement, substantially in the
form of Exhibit A to the Lease, entered into between the Lessor and the Lessee
for the purpose of leasing the Aircraft under and pursuant to the terms of the
Lease, including any amendment thereto entered into subsequent to the Delivery
Date.
"LESSEE" means Chautauqua Airlines, Inc., a New York corporation, and
its successors and permitted assigns.
"LESSEE DOCUMENTS" means the Operative Agreements to which the Lessee
is a party.
"LESSOR" means Xxxxx Fargo Bank Northwest, National Association, a
national banking association, not in its individual capacity but solely as Owner
Trustee under the Trust Agreement, and its successors and permitted assigns.
"LESSOR'S COST" has the meaning given to such term in Exhibit B of the
Lease.
"LESSOR'S ESTATE" means all estate, right, title and interest of the
Owner Trustee in and to the Aircraft, and Engines and the Operative Agreements
(other than the Tax Indemnity Agreement) including, without limitation, all
amounts of Rent, insurance proceeds and requisition, indemnity or other payments
of any kind.
"LESSOR'S LENDER" has the meaning given to such term in Section 13.09
of the Participation Agreement.
7
"LESSOR'S LIENS" means Liens against, on or with respect to the
Aircraft, any Engine, the Lessor's Estate or any part thereof, title thereto or
any interest therein arising as a result of (i) claims against or affecting the
Lessor, in its individual capacity or as Owner Trustee, or the Owner
Participant, in each case not related to the Operative Agreements or the
transactions contemplated thereby, (ii) acts or omissions of the Lessor in its
individual capacity or as Owner Trustee, or of the Owner Participant not
contemplated or permitted under the terms of the Operative Agreements, (iii)
Taxes or Expenses imposed against the Lessor, in its individual capacity or as
Owner Trustee, Owner Participant, Lessor's Estate or the trust created by the
Trust Agreement which are not required to be indemnified against by the Lessee
pursuant to Articles 6 or 7 of the Participation Agreement and which are not
required to be indemnified against by the Lessee pursuant to the Tax Indemnity
Agreement, or (iv) claims against the Lessor, in its individual capacity or as
Owner Trustee, or the Owner Participant arising from the transfer by the Lessor
or the Owner Participant of its interests in the Aircraft or any Engine other
than a transfer of the Aircraft or any other portion of the Lessor's Estate
pursuant to Section 5(b), 7(b), 7(c), 7(d), 7(e), 8, 12(b), 13(b), 14(a) or 17
of the Lease and other than a transfer pursuant to the exercise of the remedies
set forth in Section 17 of the Lease; PROVIDED that any Lien that is
attributable solely to Owner Participant or Lessor, in its individual capacity
or as Owner Trustee, and would otherwise be included as part of Lessor's Liens
hereunder shall not constitute part of Lessor's Liens hereunder, so long as (A)
the existence of such Lien poses no material risk of the sale, forfeiture or
loss of the Aircraft, Airframe, any Engine, the Lessor's Estate or any interest
of Lessee or any other Person therein or interference with any of Lessee's
rights under any Operative Agreement, (B) the existence of such Lien does not
constitute a default by Owner Participant or Lessor, in its individual capacity
or as Owner Trustee, of its respective obligations under the Lease, and (C)
Owner Participant or Lessor, in its individual capacity or as Owner Trustee, is
diligently contesting such Lien by appropriate proceedings.
"LIEN" means any mortgage, pledge, lien, charge, encumbrance, lease,
security interest, claim, or other similar interest of any nature whatsoever.
"MANUFACTURER" means EMBRAER - Empresa Brasileira de Aeronautica S.A.,
a Brazilian corporation, and its successors and permitted assigns.
"MATERIAL ADVERSE CHANGE" means, with respect to any Person, any
event, condition or circumstance that materially and adversely affects such
Person's business or consolidated financial condition.
"MINIMUM LIABILITY AMOUNT" has the meaning given to such term in
Exhibit B to the Lease.
"NET ECONOMIC RETURN" means the Owner Participant's nominal after-tax
book yield (utilizing the multiple investment sinking fund method of analysis),
computed through the EBO Date and the Expiration Date on the basis of the same
methodology, constraints and assumptions as were utilized by the initial Owner
Participant in determining Basic Rent percentages and Termination Value
percentages as of the Delivery Date; PROVIDED, that, if the initial Owner
Participant shall have transferred its interest, Net Economic Return shall be
calculated as if the initial Owner Participant had retained its interest.
8
"NON-U.S. PERSON" means any Person other than a U.S. Person.
"OFFICER'S CERTIFICATE" means as to any company a certificate signed
by a Responsible Officer of such company.
"OPERATIVE AGREEMENTS" means the Participation Agreement, the Trust
Agreement, the FAA Xxxx of Sale, the Warranty Xxxx of Sale, the Embraer
Assignment Documents, the Seller Assignment Documents, the Engine Warranty
Assignment and Consent, the Lease, each Lease Supplement, any Owner Participant
Guaranty and the Tax Indemnity Agreement.
"OWNER PARTICIPANT" means Silvermine River Finance Two, Inc., a
Delaware corporation and its successors and permitted transferees and assigns.
"OWNER PARTICIPANT GUARANTOR" means the provider of an Owner
Participant Guaranty.
"OWNER PARTICIPANT GUARANTY" means any guaranty delivered or to be
delivered to support the obligations of the Owner Participant under the
Operative Agreements in connection with the transfer by the Owner Participant of
the Beneficial Interest.
"OWNER TRUSTEE" means the Trust Company, not in its individual
capacity except as otherwise expressly stated, but solely as trustee under the
Trust Agreement, and its successors and permitted assigns.
"PARTICIPATION AGREEMENT" means the Participation Agreement [N296SK],
dated as of the Delivery Date, among the Lessee, the Owner Trustee not in its
individual capacity except as otherwise expressly provided therein, but solely
as owner trustee and the Owner Participant.
"PARTS" means any and all appliances, parts, instruments, components,
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature (other than complete Engines or engines and temporary replacement parts
as provided in Section 8 of the Lease and cargo containers) which may from time
to time be incorporated or installed in or attached to any Airframe or any
Engine, exclusive of any items leased by the Lessee from third parties and not
required in the navigation of the Aircraft.
"PAST DUE RATE" means a rate per annum identified in Exhibit B to the
Lease.
"PERMITTED AIR CARRIER" means (a) any Section 1110 Person and (b) any
foreign air carrier that is principally based in any foreign country listed on
Exhibit E to the Lease, except those that do not maintain normal diplomatic
relations with the United States.
"PERMITTED INVESTMENTS" means (a) direct obligations of the United
States of America or any agency or instrumentality thereof, (b) obligations
fully guaranteed by the United States of America or any agency or
instrumentality thereof, (c) any mutual fund the portfolio of which is limited
to obligations of the type described in clauses (a) and (b), (d) certificates of
deposit issued by, or bankers' acceptances of, or time deposits or a deposit
account with, any bank, trust company, or national banking association
incorporated or doing business under the laws of the United States of America or
one of the states thereof, having a combined capital and surplus of at least
$100,000,000 and having a rating of "A" or better from the Xxxxx Bank Watch
Service, (c)
9
commercial paper issued by companies in the United States which directly issue
their own commercial paper and which are doing business under the laws of the
United States of America or one of the states thereof and in each case having a
rating assigned to such commercial paper by a nationally recognized rating
organization in the United States of America equal to the highest rating
assigned by such organization, or (f) obligations of the type described in
clause (a), (b), (d), or (e) above, purchased from any bank, trust company, or
banking association referred to in clause (d) above pursuant to repurchase
agreements obligating such bank, trust company, or banking association to
repurchase any such obligation not later than 30 days after the purchase of any
such obligation. Unless otherwise specified in writing by the Owner Trustee, all
such Permitted Investments shall mature not later than 30 days from the date of
purchase.
"PERMITTED LIEN" has the meaning given to such term in Section 10 of
the Lease.
"PERMITTED SECURITY INTEREST" has the meaning given to such term in
Section 13.09 of the Participation Agreement.
"PERMITTED SUBLESSEE" means (a) any Permitted Air Carrier, (b) any
airframe or engine manufacturer, or Affiliate of such a manufacturer, who is
domiciled in the United States of America or a country listed on Exhibit E to
the Lease or (c) the United States of America or any instrumentality or agency
thereof.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, limited liability company or government (federal,
state, local, foreign or any agency, instrumentality, division or body thereof)
or other entity of whatever nature.
"PURCHASE PRICE" means an amount equal to Lessor's Cost.
"REASONABLE BASIS" means that a realistic possibility of success,
within the meaning of ABA Formal Opinion No. 85-352, exists for pursuing such
contest.
"RECOVERY PERIOD" means "Tax Attribute Period" as defined in the Tax
Indemnity Agreement.
"RELATED LEASE" means the twenty nine (29) aircraft
lease agreements
of Embraer model EMB-145LR or Xxxxxxx XXX-000, Xxxxx XXX-000 XX Version (a/k/a
EMB 135 KL Version) aircraft that have been or shall be entered into in years
2000 and 2001 between the Trust Company (or its predecessor, First Security
Bank, National Association) as trustee of a trust the beneficiary of which is
GECC or an Affiliate of GECC (including, for the avoidance of doubt,
Silvermine), as lessor, and the Lessee, as lessee, in substantially the form of
the Lease, each when executed and delivered by such parties.
"RELATED TAX INDEMNITEE" means any Affiliate of any Tax Indemnitee.
"RENEWAL TERM" has the meaning given to such term in Section 13(a) of
the Lease.
"RENT" means Basic Rent and Supplemental Rent, collectively.
10
"REPLACEMENT AIRCRAFT" means any Aircraft of which a Replacement
Airframe is part.
"REPLACEMENT AIRFRAME" means an Embraer model EMB-145LR aircraft or a
comparable or improved model of such aircraft of the Manufacturer (except
Engines or engines from time to time installed thereon) which shall have become
subject to the Lease pursuant to Section 8 thereof.
"REPLACEMENT CLOSING DATE" has the meaning given such term in
Section 8(d) of the Lease.
"REPLACEMENT ENGINE" means an Rolls Royce model AE3007A1P engine (or
engine of the same manufacturer of a comparable or an improved model and
suitable for installation and use on the Airframe), which has a value, utility
and remaining useful life at least equal to, and which is in good operating
condition as, the Engine to be replaced thereby (assuming that such Engine being
replaced was in the condition required to be maintained in accordance with the
Lease), and which shall have become subject to the Lease pursuant to
Section 7(e) thereof.
"RESIDUAL VALUE GUARANTEE AGREEMENT" has the meaning given to such
term in the recitals of the Participation Agreement.
"RESPONSIBLE OFFICER" means, with respect to the Owner Trustee, any
officer in its Corporate Trust Administration, as the case may be, designated by
such Person to perform obligations under the Operative Agreements, and with
respect to any other party, any corporate officer of a party who, in the normal
performance of his or her operational responsibilities, with respect to the
subject matter of any covenant, agreement or obligation of such party pursuant
to any Operative Agreement, would have responsibility for and knowledge of such
matter and the requirements of any Operative Agreement with respect thereto.
"SEC" means the Securities and Exchange Commission of the United
States and any successor agencies or authorities.
"SECTION 1110" means 11 U.S.C. Section. 1110 or any successor or
analogous section of the federal bankruptcy law in effect from time to time.
"SECTION 1110 PERSON" means a Citizen of the United States who is an
air carrier holding a valid air carrier operating certificate issued pursuant to
49 U.S.C. ch. 447 for aircraft capable of carrying 10 or more individuals or
6,000 pounds or more of cargo.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" means Aero Ltd, a Cayman Islands corporation, and its
successors and permitted assigns.
"SELLER ASSIGNMENT DOCUMENTS" means (i) that certain Purchase
Agreement Assignment No. 2 [N296SK] dated as of the Delivery Date between
Seller, as assignor, and Lessor, as assignee, and (ii) the Consent and Agreement
No. 2 [N296SK] dated as of the Delivery Date related thereto executed by the
Manufacturer.
11
"SELLER GUARANTY" means the guarantee dated as of the Delivery Date
executed and delivered by the Manufacturer in favor of Lessor, Lessee and
Solitair of Seller's obligations under the Embraer Assignment Documents and the
Seller Assignment Documents to which Seller is a party.
"SILVERMINE" means Silvermine River Finance Two, Inc., a Delaware
corporation.
"SOLITAIR" means Solitair Corp., a Delaware corporation, and its
successors and permitted assigns.
"SPECIFIED DEFAULT" means (a) an event or condition described in
Section 16(a), (f), (g) or (h) of the Lease that, after the giving of notice or
lapse of time, or both, would become an Event of Default, or (b) any Event of
Default.
"SUBLEASE" means any sub
lease agreement between the Lessee and a
Permitted Sublessee as permitted by Section 5(b) of the Lease.
"SUPPLEMENTAL RENT" means all amounts, liabilities, indemnities and
obligations which the Lessee assumes or agrees to perform or pay under the Lease
or under the Participation Agreement or Tax Indemnity Agreement or any other
Operative Agreement to the Lessor, the Owner Participant, or others, including
payments of Termination Value, EBO Amount, and amounts calculated by reference
to Termination Value, all other amounts payable under Section 3(c) of the Lease,
and all amounts required to be paid by Lessee under the agreements, covenants,
and indemnities contained in the Lease or in the Participation Agreement or the
Tax Indemnity Agreement or any other Operative Agreement, but excluding Basic
Rent.
"TAX" or "TAXES" has the meaning set forth in Section 6.01(a) of the
Participation Agreement.
"TAX INDEMNITEE" means each of Trust Company, individually and as
Owner Trustee, the Owner Participant and any Affiliate thereof.
"TAX INDEMNITY AGREEMENT" means the Tax Indemnity Agreement [N296SK],
dated as of the Delivery Date between the Lessee and the Owner Participant.
"TERM" has the meaning given to such term in Section 3(a) of the
Lease.
"TERMINATION DATE" means (i) each date listed in the column entitled
"Termination Date" in Exhibit D to the Lease, (ii) during any period following
the last day of the Basic Term (other than any period during or following a
Renewal Term), the first day of each calendar month, and (iii) during any
Renewal Term or any period following the last day of a Renewal Term, each day
during each calendar month occurring in whole or in part during or following
such Renewal Term which numerically corresponds to the day of the month on which
the Expiration Date occurs, unless there is no such corresponding day in such
calendar month, in which case the Termination Date during such calendar month
shall be the last day of such calendar month.
"TERMINATION VALUE" means (a) as of any Termination Date during the
Basic Term, the amount determined as set forth in Exhibit D to the Lease for
that Termination Date, and (b)
12
during any Renewal Term, the amount for the date involved, determined in
accordance with Section 13(a) of the Lease, in either case adjusted as required
by Section 3(d) of the Lease.
"TRANSACTION COSTS" means those costs and expenses set forth in
Section 8.01(a) of the Participation Agreement.
"TRANSPORTATION CODE" means Title 49 of the United States Code,
subtitle VII, as amended and in effect on the date of the Lease or as
subsequently amended, or any successor or substituted legislation at the time in
effect and applicable, and the regulations promulgated pursuant thereto.
"TRUST AGREEMENT" means the Trust Agreement [N296SK], dated as of the
Delivery Date, between the Owner Participant and the Trust Company.
"TRUST COMPANY" means Xxxxx Fargo Bank Northwest, National
Association, a national banking association, and its successors and permitted
assigns.
"TRUST ESTATE" means the Lessor's Estate.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code as in
effect from time to time in any relevant jurisdiction.
"UNITED STATES", "U.S." or "US" means the United States of America.
"U.S. PERSON" means a Person described in Section. 7701(a)(30) of the
Code.
"WARRANTY XXXX OF SALE" means (A) the full warranty xxxx of sale
covering the Aircraft (and specifically referring to each Engine) executed by
the Seller in favor of the Owner Trustee and to be dated the Delivery Date, and
(B) a full warranty xxxx of sale covering a Replacement Aircraft (and
specifically referring to each Engine) executed by the seller thereof in favor
of the Owner Trustee.
13
Exhibit F-1
RETURN CONDITIONS
This Exhibit F-1 shall apply unless Exhibit F-2 applies in accordance
with its terms, in which case Exhibit F-2 shall supercede this Exhibit F-1.
Section 1. General Conditions.
At the time of return, the Aircraft shall (i) be in compliance
with the Maintenance Program and (ii) meet the following
requirements:
(a) Operating Condition - The Aircraft shall be in good operating
condition, ordinary wear and tear excepted, with all of the
Aircraft equipment, components, and systems functioning in
accordance with their intended use. All replacement equipment,
parts, components or items installed on the Aircraft shall be
manufactured by the original manufacturer approved by the
Manufacturer or a manufacturer holding requisite authority of
the FAA, and in case of used, rotable parts, have an
FAA-approved serviceable tag.
(b) Configuration - The Aircraft shall be in the same passenger
configuration with all equipment installed therein as the
Aircraft was when delivered under the Embraer Purchase
Agreement, ordinary wear and tear excepted, including
replacements and substitute parts and equipment. The Aircraft
shall not suffer any modification or alteration (hereinafter
"Modifications") after the Delivery Date provided however that
Lessee may make Modifications to the Aircraft as long as they
are included as factory-installed features in EMB-145 aircraft
delivered to the Lessee subsequent to the delivery of the
Aircraft or otherwise in accordance with Section 7(d) of the
Lease. The term Modifications shall be deemed to include, but
not be limited to (i) changes to the Aircraft structure,
performance, weight and balance, (ii) changes which materially
adversely affect the Aircraft's flight qualities, operational
characteristics, operational safety, ease or cost of
maintenance, spare parts interchangeability or replaceability,
and (iii) substitution of different types of equipment or
accessories which are not equivalent in cost value and/or
operation capability to the equipment or accessories being
replaced, and shall exclude (x) changes pursuant to service
bulletins issued by the Manufacturer or the OEMs, and (y)
mandatory changes required to be accomplished by Lessee
hereunder. All permitted Modifications made to the Aircraft
shall be in accordance with FAA-approved data, and Lessee
shall provide complete data and documentation to substantiate
their certification, approval, and methods of compliance
(including, without limitation, a copy of the Aircraft
Illustrated Parts Catalog and a copy of the Aircraft Interior
Configuration document). A complete listing of all
modifications and repairs performed shall be supplied together
with the Aircraft. Modifications, other than permitted ones,
shall be removed and the appropriate repairs to the Aircraft
made prior to the day of return of the Aircraft.
Page 1
(c) Certification - The Aircraft shall have, a valid and effective
Certificate of Airworthiness of the type "Transport, Category
(Passengers)" issued by the FAA, and shall be in full
compliance with, and capable of registration under, the
provisions of Part 121 of the U.S. Federal Aviation
Regulations (or any successor legislation) and other US
regulations applicable to the Aircraft's operation and
continued airworthiness, without any restrictions,
corrections, repairs, limitations, modifications or
alterations or overhauls having to be performed to meet such
standards.
(d) General Appearance - The Aircraft shall be clean by commercial
passenger airline standards, cosmetically acceptable, interior
complete, and prepared to be placed into scheduled revenue
airline operations. Interior items which may be broken shall
be repaired or replaced. All decals, signs and placards shall
be clean, secure and legible in the English language. The
Aircraft shall meet the following minimum requirements:
(i) Fuselage, Wings and Empennage - The fuselage shall be
within Maintenance Program approved limits regarding
dents and abrasions and loose or pulled rivets; all
leading edges shall be within Maintenance Program
approved limits regarding damage occurring since
delivery; the airframe, Engines and wings shall be
free of fuel, oil and hydraulic leaks so as to allow
unrestricted operation; all leading edges and
fuselage areas which are aerodynamically critical
shall be free of any scab patches other than those
required by the Manufacturer and shall be repaired
with repairs which are permanent in nature in
accordance with the SRM, or are made in accordance
with the Manufacturer's approval.
(ii) Interior - Ceilings, sidewalls, bulkhead panels shall
be clean, free of cracks and within Maintenance
Program approved limits regarding dents; all carpets
and seat covers shall be in good condition and clean
and meet FAR fire resistance regulations; all seats
shall be serviceable and in good condition. All
safety equipment shall be installed at the correct
stations, a loose equipment check list and location
drawings shall accompany the Aircraft and a loose
equipment inventory shall be drawn up on the Delivery
Date and checked on the day of return of the
Aircraft.
(iii) Cockpit - All fairing panels shall be free of cracks
and shall be clean; all floor coverings shall be
clean and effectively sealed and secured, all seat
covers and cushions shall be in good condition and
clean and shall, as applicable, conform to FAA fire
resistance regulations. All seats shall be fully
serviceable and in good condition. All instruments
and light panels shall be clean, secure and legible,
function in accordance with their intended purpose
and have all lighting operating properly.
(iv) Landing, Gear and Wheel Xxxxx - The landing gear and
all wheel xxxxx shall be clean, free of leaks, and
repaired as necessary. The main and nose
Page 2
landing gear components and their associated
actuators and parts shall be in a good operating
condition.
(v) Cargo Compartment, Galleys and Toilets - All cargo
compartment panels shall be installed and be in good
condition so as to comply with extended range
operations requirements. The cargo compartments,
galleys and toilet of the Aircraft shall be in a
clean and presentable condition and all cargo
securing system components shall be serviceable; all
galley inserts (to the extent delivered with the
Aircraft) shall be redelivered with the Aircraft.
(vi) Windows - Any delamination, and crazing of the
windshields and cabin windows of the Aircraft shall
be within approved limits of the Maintenance Program
and shall be properly sealed.
(vii) Doors - All the doors of the Aircraft shall be free
moving, correctly rigged and properly sealed and all
door assist mechanisms shall be charged in accordance
with the AMM.
(e) Airworthiness Directives and Service Bulletins - All FAA
Airworthiness Directives and amendments or changes to Aviation
Regulations issued by the FAA and applicable to the Aircraft
which require compliance within a period of six (6) months
following the day of return of the Aircraft (or the equivalent
hours or cycles, based on the Lessee's or Permitted
Sublessee's EMB-145 last four (4) years of operation average
monthly utilization) shall have been accomplished on a
Terminating Action basis and in compliance with the issuing
agency's and the manufacturer's associated service bulletins,
regardless of any operator-specific waiver, deferral, or
deviation from such directive or regulation. The Aircraft
shall have installed on it all Manufacturer and OEM service
bulletin kits requested by Lessee and actually received by
Lessee in respect of the Aircraft, and if not installed,
Lessee shall deliver them together with the Aircraft at no
charge.
(f) Deferred Maintenance - The Aircraft shall be free of all
deferred or carried over maintenance items, including without
limitation, any pilot log book reports, maintenance reports,
and the Aircraft's Central Maintenance Computer reports. Any
such deferred or carried over maintenance shall be promptly
accomplished in a terminating manner prior to the return of
the Aircraft at the end of the term of the Lease.
(g) Corrosion - The Maintenance Program shall include a corrosion
control program based on the corrosion prevention, treatment
and correction criteria recommended by the Manufacturer in the
CPCP. The Aircraft shall be free from corrosion or shall have
been adequately treated in compliance with the Maintenance
Program. Complete details of the corrosion control program, as
well as a summary of specific corrosion correction, of the
Aircraft in accordance with the Maintenance Program shall be
available for delivery together with the Aircraft. This
summary shall include Lessee's identifying the Manufacturer's
task identifier and cross referencing, Lessee's identifier
indicating status of accomplishment and findings
Page 3
and incorporation status relative to all recommended
corrective and preventative actions. The hydraulic system and
fuel tanks shall be free from contamination as demonstrated by
a laboratory report to be performed after the Aircraft is
removed from service and delivered together with the Aircraft.
(h) Leased Components - The Aircraft shall be free and clear of
all Liens other than any Lessor's Liens or any Permitted
Security Interest and at return shall not have installed
thereon any equipment, components and/or parts which are
leased or loaned or otherwise owned by a third party.
(i) Records - The Aircraft shall be accompanied by all Aircraft
Documents (as defined below). The Aircraft Documents shall be
provided in English, and be in good condition, readable and
capable of being reproduced.
(i) "Aircraft Document" shall mean, all technical data,
manuals, log books and weight and balance sheets, and
all inspection, modification and overhaul records and
other service, repair, maintenance, and technical
records that are maintained with respect to the
Aircraft, Airframe, Engines, APU, landing gears or
parts (including, without limitation, all additions,
renewals, revisions, and replacements of any such
materials from time to time made, or required to be
made, in accordance with the Maintenance Program
and/or FAA regulations, and in each case in whatever
form and by whatever means or medium such materials
may be maintained or retained by or on behalf of
Lessee (provided however that all such material shall
be maintained in the English language).
(ii) All Parts, components and assemblies identified with
safe-life, hard time or condition monitored limits
(to the extent that such condition monitored items
are to be tracked in accordance with the Maintenance
Program) shall be provided with part number, serial
number, their service histories, accumulated cycles
and flight hours, safe-life, hard time or condition
monitored limits and remaining service lives on a
separate listing and where practicable, be physically
verified as installed and have hard copy
documentation (i.e., appropriate overhaul or
serviceable vendor tags and work orders) to verify
their service histories.
(iii) All components and assemblies which are identified on
the maintenance records by part numbers and/or serial
numbers other than the Manufacturer's or other
manufacturer's shall be provided with two-way
cross-reference listing necessary to establish
complete traceability.
(iv) All documentation, flight records, and maintenance
records as specified herein and as specified by
Federal Aviation Regulations Sections 121.380, and,
as applicable, Section 91.417 and 91.419 (or FAR's as
amended), and which normally accompany the transfer
of an aircraft or engine shall be delivered together
with the Aircraft. In the event of missing or
incomplete records, the tasks necessary to produce
such complete records shall be
Page 4
accomplished in accordance with the Maintenance
Program prior to return of the Aircraft.
(v) All documentation and records shall be in English and
shall be made available for inspection in the
location they are normally kept which location shall
permit direct access to the Aircraft, at least 14
Business Days before the day of return of the
Aircraft.
(vi) Any and all documentation, data, drawings, records
and manuals as required to be maintained by the FAA
and SMRD, shall be provided, regardless of whether
such information is considered proprietary.
(vii) Hard Landing inspection reports, Lightning Strike
inspection reports or High Intensity Radiated Field
(HIRF) check reports as may be required should
Aircraft records show evidence of any occurrence
indicating such inspections or checks to be
necessary.
(viii) Corrosion Prevention & Control Program (CPCP)
inspection findings and correction reports, as
required by the Maintenance Program.
The head of Lessee's quality control department shall sign a
statement certifying that the data and information contained
in the documentation and records are true and correct.
(j) Exterior Markings - At time of return of the Aircraft, Lessee
shall, at its cost remove from the exterior and interior of
the Aircraft Lessee's operator specific exterior and interior
markings. The area where such markings were removed or painted
over shall be refurbished by Lessee as necessary to blend in
with the surrounding surface in a good and workmanlike manner.
(k) Overhaul and Repair - All components, rotables, and assemblies
(including the Engines, APU, and landing gears) shall be
documented with work orders, vendor serviceable tags, 8130
tags, form 337, etc. to have been repaired or overhauled by
FAA-certified repair stations in such manner so that such
components, rotables, assemblies, Engines, APU, and landing
gears are approved by the FAA for use on United
States-registered and certified aircraft. All overhaul and
repair procedures shall have met all FAA requirements
necessary to transfer to a new operator under Part 121 of the
U.S. Federal Aviation Regulations.
(l) Structural Repairs - All repairs that were performed since the
Delivery Date and that then exist on the Aircraft shall
conform to the SRM and the AMM and shall have FAA approval if
required, including without limitation repairs related to
impact damage to the Aircraft caused by ground handling
equipment or foreign objects. All repairs not covered by the
SRM or the AMM shall have been made in accordance with the
Manufacturer's approval if required, which approval shall not
be unreasonably be withheld and shall be provided with
complete data and documentation to verify and substantiate
their certification and methods of
Page 5
compliance. A complete listing of all repairs performed shall
be supplied together with the Aircraft.
Section 2. Condition of Airframe.
Upon its return the Aircraft shall comply with the following
conditions:
(a) C Check Inspection - The Airframe shall have completed, within
100 flight hours of return, the next sequential "C" check or
any multiple thereof. If the Aircraft has logged more than 100
flight hours since the last "C" check or any multiple thereof,
then Lessee shall perform the next scheduled "C" check or any
multiple thereof, as applicable. All observed defects observed
during such C check shall be rectified at Lessee's expense, in
accordance with the Maintenance Program;
(b) Structural and other scheduled Inspections - The Airframe
shall have at least twelve (12) months, or two thousand
(2,000) flight hours or cycles, whichever is applicable,
remaining before any scheduled structural tasks or maintenance
inspections which are not included in (a) above. In the event
that a structural task or maintenance inspection interval is
less than the above, Lessee shall, at its expense, perform all
such tasks immediately prior to return of the Aircraft;
(c) Landing Gear Life - The main Landing Gear and the nose Landing
Gear shall have at least fifty percent (50%) of the cycles
remaining prior to removal for overhaul in accordance with the
Maintenance Program, and the landing gear total cycles since
new ("TCSN") shall be no more than ten percent (10%) greater
than the airframe TCSN;
(d) Brakes - The brakes shall be serviceable.
Section 3. Condition of Controlled Components.
Aircraft and Engine hour or cycle controlled components or parts, at
time of return to Lessor, shall have remaining, as a minimum, one half
life and/or fifty percent (50%) of the Lessee's approved hour or cycle
limit, whichever is applicable, before any scheduled removals for
overhaul, test, disassembly or replacement. All components or parts
controlled on a calendar basis shall have at least twelve (12) months
or fifty percent (50%) of its total approved life in hours or cycles,
if greater remaining before scheduled removal for testing, overhaul or
replacement.
However, if a component or part has a life, overhaul or check interval
limit that is less than the above, Lessee shall, at its expense,
perform all such tasks immediately prior to return. All such hour/cycle
or calendar controlled components or parts are defined as those
components or parts controlled under the Maintenance Program.
Page 6
Section 4. Condition of Installed Engines and APU.
At time of return, each Engine shall be capable of certificated, full
rated performance and its life limited parts ("LLP") will have at least
fifty percent (50%) of cycles remaining before replacement.
(a) Time remaining - Each Engine shall have completed no more than
two thousand five hundred (2,500) flight hours since new or
since its last full performance restoration shop visit at
which it was subject to a full engine management program
rework, based on the reliability goals set out in Rolls-Xxxxx
Xxxxxx workscope guide, which currently state that the
workscope is designed to give 30 degrees centigrade of exhaust
gas temperature margin and 5,000 flight hours of on-wing life.
To the extent that the shop workscope guide is amended in the
future to include different reliability goals then the engine
shall have at least fifty percent (50%) of the on-wing hours
remaining in accordance with such amended shop workscope
guide.
(b) Borescope Inspection - On each installed Engine an external
visual inspection, accessory inventory check and video-taped
borescope inspection in accordance with the requirements of
the Maintenance Program shall be performed by Lessee or a
designated representative as mutually agreed between Lessee
and Lessor during the ground inspection per Section 7(a) of
this Exhibit F-1 accompanied by a written report on the
findings of such inspection herein and satisfactory evidence
shall be provided to Lessor reflecting the correction of any
discrepancies found during such inspection.
(c) Adverse Trend Data - Complete engine records, including but
not limited to (i) Group A (Lifed) components (as listed in
Engine Manufacturer's Time Limits Manual) as approved by the
FAA and (ii) in flight performance data and (iii) shop visit
reports from all shop visits, shall be made available to
Lessor for review and evaluation. If the Aircraft and/or
engine historical and maintenance records and/or trend
monitoring indicate a rate of acceleration in performance
deterioration or oil consumption on any installed engine
beyond the limits of the Maintenance Program, the causes of
such conditions shall have been corrected prior to the return
date.
(d) Oil spectrum analysis - an oil spectrum analysis shall be made
on the installed Engines after the Aircraft is removed from
service and a written report shall be made available together
with the Aircraft. Any discrepancy found in the engine's
lubrication system shall have been corrected prior to the
return date.
(e) APU Life - The installed APU shall have remaining at least
fifty percent (50%) of the expected mean time before removal
as evidenced by the Lessee's demonstrated on-wing last two
years average for APU hours, before scheduled removal for
overhaul, heavy maintenance, or replacement of hour limited or
LCF parts at the time of return. The APU shall have a video
taped borescope inspection
Page 7
and magnetic plug inspection during the ground inspection per
Section 7(a) of this Exhibit F-1.
Section 5. Provision for "Power-By-The Hour Agreements".
If the Engines, APU, or any other hour or cycle controlled components
on the day of return are maintained under valid PBH Agreements (as
defined below) (and either have been maintained throughout the Term
under PBH Agreements, or Lessee has made payments to the maintenance
provider to cover the period in which such components where not under
such PBH Agreements), under which the Lessee is current on all payments
and otherwise in good standing, then, in lieu of the relevant
requirements in Sections 2(c), 2(d), 3, 4(a) or 4(e) of this Exhibit
F-1, the Lessee shall return each such component in such condition as
shall make it eligible for continued maintenance under PBH Agreements,
without additional costs, start-up charges, or overhaul requirements.
For the purposes hereof, a "PBH Agreement" shall mean a
"power-by-the-hour" maintenance program, provided by the Engines, APU
or component manufacturer or its successor or designee, providing full
maintenance (other than routine day-to-day maintenance; provided, that
foreign-object damage and abuse may be excluded or separately charged)
for the Engines, APU or such components at no cost other than standard
per-cycle rates (i.e., excluding charges based on the current
maintenance status of such component), all benefits of which program,
including but not limited to the payments made by Lessee under such PBH
Agreements while operating the Aircraft, shall be assignable or
otherwise transferable to any other carrier without restrictions of any
kind.
Section 6. Return Condition Adjustment.
(a) If the Lessee does not meet the conditions set forth for an
item referred to in Sections 2, 3, the first two lines of
Section 4 and in Section 4(a) and 4(e) (each such item, an
"Adjustable Item" and each such section, an "Adjustable Return
Condition") then Lessee shall pay to Lessor (for deficient
condition) an equivalency payment (the "Equivalency Payment")
in accordance with the following formula:
[*]
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[*]
The components of the formula above shall be as agreed between Lessor
and Lessee. If Lessor and Lessee fail to reach agreement on any
components of the above formula, such amount will be determined as the
average price that would be charged by a third party to restore the
Aircraft to the conditions required under the Lease and this Exhibit
F-1, based on one quotation obtained by Lessor and one quotation
obtained by Lessee, both from a reputable, FAA and
Manufacturer-approved EMB-145 repair station in the United States. If
the prices of such quotations differ by more than ten percent (10%),
Lessor and Lessee shall obtain a third quotation from another
reputable, FAA and Manufacturer-approved EMB-145 repair station in the
United States, the quotation which is farthest from the average of all
three quotations shall be disregarded and the average of the two
remaining quotations shall be binding upon Lessor and Lessee as the
components of the formula.
(b) The Equivalency Payment for each return condition of each
Adjustable Item in the relevant Section referred to in the
first paragraph of this Section 6, whether positive or
negative, shall be aggregated in order to determine the total
Equivalency Payment due from Lessee. For clarification, items
in more than the required condition shall be netted against
items in less than the required condition when determining the
amount of the total payment due, provided however that such
netting is only applicable to the following major components:
Engines, APU and landing gear. If the cumulative Equivalency
Payment after such netting is negative, it shall be deemed to
be zero.
Section 7. Inspection Upon Return
Lessor shall have the right to inspect the Aircraft upon return, and
the following conditions shall apply:
(a) Ground Inspection - The Aircraft including the Aircraft
Documents shall be made available to Lessor for ground
inspection by Lessor or its designee at Lessee's facilities.
Such inspection shall commence no later than fourteen (14)
Business Days prior to the date of return of the Aircraft.
Lessee shall remove the Aircraft from scheduled service and
open the areas of the Aircraft as required to perform the
necessary checks as specified in Section 2 of this Exhibit
F-1. In addition, Lessee shall allow Lessor to accomplish its
inspection to determine that the Aircraft, including the
Aircraft Documents are in the condition set forth in Sections
1, 2, 3 and 4 of this Exhibit F-1. During such checks,
Lessor's personnel shall have the right to reasonably request
that adjacent additional panels or areas be opened in order to
allow further inspection by Lessor's personnel.
(b) Operational Ground Check - Lessee shall conduct an operations
ground check on the Aircraft in accordance with the
Maintenance Program manual criteria for the
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purpose of demonstrating to Lessor the satisfactory operation
of the systems, including a full fuel tank leak check, pilot
and static systems check and hydraulic system internal leak
check.
(c) Operational Test Flight - The Aircraft shall be test flown by
Lessee, using qualified flight test personnel, for the amount
of time necessary to satisfactorily demonstrate the
airworthiness of the Aircraft and the proper functioning of
all systems and components in accordance with the agreed check
flight procedures. During such test flight command, care,
custody and control of the Aircraft shall remain at all times
with Lessee. Up to five (5) of Lessor's designated
representatives (or more if mutually agreed) may participate
in such flight as observers. Upon completion of such
operational flight-testing, the representatives of Lessee and
Lessor participating in such testing shall agree in writing
upon any discrepancies required to be corrected by Lessee in
order to comply with the conditions required hereunder.
(d) Discrepancies - If requested by Lessor in writing, all
discrepancies which are noted during the inspection and
acceptance flight(s) shall be corrected at Lessee's expense.
If such discrepancies are substantiated by the Maintenance
Program and Lessor determines that repairs, modifications or
other work items are required to cause the Aircraft to comply
with the requirements provided herein, including, without
limitation, any maintenance required so that the Engines will
meet all Engine parameters and trends specified by the
Maintenance Program, Lessee shall cause such repairs and other
work items to be commenced and completed prior to return.
Section 8. Definitions.
For the purpose of this Exhibit F-1, the following terms have the
following meanings:
APU shall mean the auxiliary power unit installed on the Airframe on
the Delivery Date, and any substitute APU which may from time to time
be substituted therefor pursuant to the terms of the Lease.
MAINTENANCE PROGRAM: means the Lessee's maintenance program as
originally agreed between the Manufacturer and Lessee, as such program
may be from time to time amended and supplemented by Lessee and which
(i) shall have been approved by the FAA, (ii) shall fully comply with
the requirements of the FAA for the EMB-145 and Rolls-Xxxxx Xxxxxxx
AE3007A1P aero engines (or an improved model, as the case may be)
installed thereon, and (iii) shall incorporate the requirements of the
EMB-145 Scheduled Maintenance Requirements Document Part 1 ("SMRD"),
the Aircraft Maintenance Manual ("AMM"), the Structural Repair Manual
("SRM"), the Corrosion Prevention and Correction Program ("CPCP") and
the Original Equipment Manufacturers' ("OEMs") maintenance manuals,
(all of the foregoing as from time to time amended or supplemented),
the Service Newsletters and the service bulletins issued by the
Manufacturer and all OEMs.
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CALENDAR CONTROLLED COMPONENTS OR PARTS: those components or parts
identified in the MRB Report which have maintenance tasks at specific
calendar-time intervals.
CYCLE-CONTROLLED COMPONENTS OR PARTS: those components or parts
identified in the MRB Report which have maintenance tasks at specific
flight-cycle intervals.
HOUR-CONTROLLED COMPONENTS OR PARTS: those components or parts
identified in the MRB Report which have maintenance tasks at specific
flight-hour intervals.
LIFE CYCLE FATIGUE ("LCF") PARTS: those rotating parts which have
specific cycle limits as specified by the manufacturer to preclude
cycle fatigue failures.
MAINTENANCE REVIEW BOARD REPORT ("MRB REPORT"): the report published by
the maintenance review board detailing the intervals and description of
the maintenance tasks and, where applicable, the life limits required
for continued airworthiness of the Aircraft. Where the intervals
specified in the MRB Report differ from the limit specified by the
component manufacturer, the MRB Report shall take precedence.
TERMINATING ACTION: the alteration or modification of the Aircraft in
accordance with mandatory service bulletins, orders, airworthiness
directives, and instructions required to eliminate repetitive
inspections or maintenance action.
Page 11
Exhibit F-2
RETURN CONDITIONS
This Exhibit F-2 shall apply only if Owner Participant notifies Lessee not later
than 150 days prior to the end of the Basic Term that it is demanding payment of
a deficiency amount under the Residual Value Guarantee Agreement and certifies
to Lessee the appraised fair market sales value of the Aircraft as determined
under the Residual Value Guarantee Agreement that is the basis for such claim
and the amount of the deficiency so claimed except that this Exhibit F-2 shall
be assumed to apply for the purposes stated in the definition of "Appraisal
Procedure".
Section 1. General Conditions.
At the time of return, the Aircraft shall (i) have been continuously
and currently maintained in accordance with the Maintenance Program as
authorized by the FAA, as if the Aircraft were to be kept in further
commercial passenger service by Lessee and (ii) meet the following
requirements:
(a) Operating Condition - The Aircraft shall be in good
operating condition, ordinary wear and tear excepted,
with all of the Aircraft equipment, components, and
systems functioning in accordance with their intended
use irrespective of variations or deviations
authorized by the Minimum Equipment List or
Configuration Deviation List. All replacement
equipment, parts, components or items installed on
the Aircraft shall be manufactured by the original
manufacturer approved by the Manufacturer or a
manufacturer holding requisite authority of the FAA,
and in case of used, rotable parts, have an
FAA-approved serviceable tag.
(b) Configuration - The Aircraft shall be in the same
passenger configuration with all equipment installed
therein as the Aircraft was when delivered under the
Embraer Purchase Agreement, ordinary wear and tear
excepted, including replacements and substitute parts
and equipment. The Aircraft shall not suffer any
modification or alteration (hereinafter
"Modifications") after the Delivery Date provided
however that Lessee may make Modifications to the
Aircraft as long as they are included as
factory-installed features in EMB-145 aircraft
delivered to the Lessee subsequent to the delivery of
the Aircraft. The term Modifications shall be deemed
to include, but not be limited to (i) changes to the
Aircraft structure, performance, weight and balance,
(ii) changes which materially adversely affect the
Aircraft's flight qualities, operational
characteristics, operational safety, ease or cost of
maintenance, spare parts interchangeability or
replaceability, and (iii) substitution of different
types of equipment or accessories which are not
equivalent in cost value and/or operation capability
to the equipment or accessories being replaced, and
shall exclude (x) changes pursuant to service
bulletins issued by the Manufacturer or the OEMs, and
(y) mandatory changes required to be
Page 1
accomplished by Lessee hereunder. All permitted
Modifications made to the Aircraft shall be in
accordance with FAA-approved data, and Lessee shall
provide complete data and documentation to
substantiate their certification, approval, and
methods of compliance (including, without limitation,
a copy of the Aircraft Illustrated Parts Catalog and
a copy of the Aircraft Interior Configuration
document). A complete listing of all modifications
and repairs performed shall be supplied together with
the Aircraft. Modifications, other than permitted
ones, shall be removed and the appropriate repairs to
the Aircraft made prior to the day of return of the
Aircraft.
(c) Certification - The Aircraft shall have, a valid and
effective Certificate of Airworthiness of the type
"Transport, Category (Passengers)" issued by the FAA,
and shall be in full compliance with, and capable of
registration under, the provisions of Part 121 of the
U.S. Federal Aviation Regulations (or any successor
legislation) and other US regulations applicable to
the Aircraft's operation and continued airworthiness,
without any restrictions, corrections, repairs,
limitations, modifications or alterations or
overhauls having to be performed to meet such
standards.
(d) General Appearance - The Aircraft shall be clean by
commercial passenger airline standards, cosmetically
acceptable, interior complete, and prepared to be
placed into scheduled revenue airline operations.
Interior items which may be broken shall be repaired
or replaced. All decals, signs and placards shall be
clean, secure and legible in the English language.
The Aircraft shall meet the following minimum
requirements:
(i) Fuselage, Wings and Empennage - The fuselage
shall be within Maintenance Program approved
limits regarding dents and abrasions and
loose or pulled rivets; all leading edges
shall be within Maintenance Program approved
limits regarding damage occurring since
delivery; the airframe, Engines and wings
shall be free of fuel, oil and hydraulic
leaks so as to allow unrestricted operation;
all leading edges and fuselage areas which
are aerodynamically critical shall be free
of any scab patches other than those
required by the Manufacturer and shall be
repaired with repairs which are permanent in
nature in accordance with the SRM, or are
made in accordance with the Manufacturer's
approval.
(ii) Interior - Ceilings, sidewalls, bulkhead
panels shall be clean, free of cracks and
within Maintenance Program approved limits
regarding dents; all carpets and seat covers
shall be in good condition and clean and
meet FAR fire resistance regulations; all
seats shall be serviceable and in good
condition. All safety equipment shall be
installed at the correct stations, a loose
Page 2
equipment check list and location drawings
shall accompany the Aircraft and a loose
equipment inventory shall be drawn up on the
Delivery Date and checked on the day of
return of the Aircraft.
(iii) Cockpit - All fairing panels shall be free
of cracks and shall be clean; all floor
coverings shall be clean and effectively
sealed and secured, all seat covers and
cushions shall be in good condition and
clean and shall, as applicable, conform to
FAA fire resistance regulations. All seats
shall be fully serviceable and in good
condition. All instruments and light panels
shall be clean, secure and legible, function
in accordance with their intended purpose
and have all lighting operating properly.
(iv) Landing, Gear and Wheel Xxxxx - The landing
gear and all wheel xxxxx shall be clean,
free of leaks, and repaired as necessary.
The main and nose landing gear components
and their associated actuators and parts
shall be in a good operating condition.
(v) Cargo Compartment, Galleys and Toilets - All
cargo compartment panels shall be installed
and be in good condition so as to comply
with extended range operations requirements.
The cargo compartments, galleys and toilet
of the Aircraft shall be in a clean and
presentable condition and all cargo securing
system components shall be serviceable; all
galley inserts (to the extent delivered with
the Aircraft) shall be redelivered with the
Aircraft.
(vi) Windows - Any delamination, and crazing of
the windshields and cabin windows of the
Aircraft shall be within approved limits of
the Maintenance Program and shall be
properly sealed.
(vii) Doors - All the doors of the Aircraft shall
be free moving, correctly rigged and
properly sealed and all door assist
mechanisms shall be charged in accordance
with the AMM.
(e) Airworthiness Directives and Service Bulletins - All
FAA Airworthiness Directives and amendments or
changes to Aviation Regulations issued by the FAA and
applicable to the Aircraft which require compliance
within a period of six (6) months following the day
of return of the Aircraft (or the equivalent hours or
cycles, based on the Lessee's EMB-145 last four (4)
years of operation average monthly utilization) shall
have been accomplished on a Terminating Action basis
and in compliance with the issuing agency's and the
manufacturer's associated service bulletins,
regardless of any operator-specific waiver, deferral,
or deviation from such directive or regulation. The
Aircraft shall have installed on it all Manufacturer
and OEM service bulletin kits requested by Lessee and
Page 3
actually received by Lessee in respect of the
Aircraft, and if not installed, Lessee shall deliver
them together with the Aircraft at no charge.
(f) Deferred Maintenance - The Aircraft shall be free of
all deferred or carried over maintenance items,
including without limitation, any pilot log book
reports, maintenance reports, and the Aircraft's
Central Maintenance Computer reports. Any such
deferred or carried over maintenance shall be
promptly accomplished in a terminating manner prior
to the return of the Aircraft at the end of the term
of the Lease.
(g) Corrosion - The Maintenance Program shall include a
corrosion control program based on the corrosion
prevention, treatment and correction criteria
recommended by the Manufacturer in the CPCP. The
Aircraft shall be free from corrosion or shall have
been adequately treated in compliance with the
Maintenance Program. Complete details of the
corrosion control program, as well as a summary of
specific corrosion correction, of the Aircraft in
accordance with the Maintenance Program shall be
available for delivery together with the Aircraft.
This summary shall include Lessee's identifying the
Manufacturer's task identifier and cross referencing,
Lessee's identifier indicating status of
accomplishment and findings and incorporation status
relative to all recommended corrective and
preventative actions. The hydraulic system and fuel
tanks shall be free from contamination as
demonstrated by a laboratory report to be performed
after the Aircraft is removed from service and
delivered together with the Aircraft.
(h) Leased Components - The Aircraft shall be free and
clear of all Liens other than any Lessor's Liens or
any Permitted Security Interest and at return shall
not have installed thereon any equipment, components
and/or parts which are leased or loaned or otherwise
owned by a third party.
(i) Records - The Aircraft shall be accompanied by all
Aircraft Documents. The Aircraft Documents shall be
provided in English, and be in good condition,
readable and capable of being reproduced.
(i) "Aircraft Document" shall mean, all
technical data, manuals, log books and
weight and balance sheets, and all
inspection, modification and overhaul
records and other service, repair,
maintenance, and technical records that are
maintained with respect to the Aircraft,
Airframe, Engines, APU, landing gears or
parts (including, without limitation, all
additions, renewals, revisions, and
replacements of any such materials from time
to time made, or required to be made, in
accordance with the Maintenance Program
and/or FAA regulations, and in each case in
whatever form and by whatever means or
medium such materials may be maintained or
retained by or on behalf of Lessee (provided
Page 4
however that all such material shall be
maintained in the English language).
(ii) All Parts, components and assemblies
identified with safe-life, hard time or
condition monitored limits (to the extent
that such condition monitored items are to
be tracked in accordance with the approved
Maintenance Program) shall be provided with
part number, serial number, their service
histories, accumulated cycles and flight
hours, safe-life, hard time or condition
monitored limits and remaining service lives
on a separate listing and where practicable,
be physically verified as installed and have
hard copy documentation (i.e., appropriate
overhaul or serviceable vendor tags and work
orders) to verify their service histories.
(iii) All components and assemblies, which are,
identified on the maintenance records by
part numbers and/or serial numbers other
than the Manufacturer's or other
manufacturer's shall be provided with
two-way cross-reference listing necessary to
establish complete traceability.
(iv) All documentation, flight records, and
maintenance records as specified herein and
as specified by Federal Aviation Regulations
Sections 121.380, and, as applicable,
Section 91.417 and 91.419 (or FAR's as
amended), and which normally accompany the
transfer of an aircraft or engine shall be
delivered together with the Aircraft. In the
event of missing or incomplete records, the
tasks necessary to produce such complete
records shall be accomplished in accordance
with the Maintenance Program prior to return
of the Aircraft.
(v) All documentation and records shall be in
English and shall be made available for
inspection in the location they are normally
kept which location shall permit direct
access to the Aircraft, at least 14 Business
Days before the day of return of the
Aircraft.
(vi) Any and all documentation, data, drawings,
records and manuals as required to be
maintained by the FAA and SMRD, shall be
provided, regardless of whether such
information is considered proprietary.
(vii) Hard Landing inspection reports, Lightning
Strike inspection reports or High Intensity
Radiated Field (HIRF) check reports as may
be required should Aircraft records show
evidence of any occurrence indicating such
inspections or checks to be necessary.
Page 5
(viii) Corrosion Prevention & Control Program
(CPCP) inspection findings and correction
reports, as required by the Maintenance
Program.
The head of Lessee's quality control department shall sign a
statement certifying that the data and information contained
in the documentation and records are true and correct.
(j) Exterior Markings - At time of return of the
Aircraft, Lessee shall, at its cost remove from the
exterior and interior of the Aircraft Lessee's
operator specific exterior and interior markings. The
area where such markings were removed or painted over
shall be refurbished by Lessee as necessary to blend
in with the surrounding surface in a good and
workmanlike manner.
(k) Overhaul and Repair - All components, rotables, and
assemblies (including the Engines, APU, and landing
gears) shall be documented with work orders, vendor
serviceable tags, 8130 tags, form 337, etc. to have
been repaired or overhauled by FAA-certified repair
stations in such manner so that such components,
rotables, assemblies, Engines, APU, and landing gears
are approved by the FAA for use on United
States-registered and certified aircraft. All
overhaul and repair procedures shall have met all FAA
requirements necessary to transfer to a new operator
under Part 121 of the U.S. Federal Aviation
Regulations.
(l) Structural Repairs - All repairs that were performed
since the Delivery Date and that then exist on the
Aircraft shall conform to the SRM and the AMM and
shall have FAA approval if required, including
without limitation repairs related to impact damage
to the Aircraft caused by ground handling equipment
or foreign objects. All repairs not covered by the
SRM or the AMM shall have been made in accordance
with the Manufacturer's approval if required, which
approval shall not be unreasonably be withheld and
shall be provided with complete data and
documentation to verify and substantiate their
certification and methods of compliance. A complete
listing of all repairs performed shall be supplied
together with the Aircraft.
Section 2. Condition of Airframe.
On the day of return, the Aircraft shall be as follows:
(a) C Check Inspection - The Airframe shall have
completed, within 100 flight hours of return, the
next sequential "C" check or any multiple thereof. If
the Aircraft has logged more than 100 flight hours
since the last "C" check or any multiple thereof,
then Lessee shall perform the next scheduled "C"
check or any multiple thereof, as applicable. All
observed
Page 6
defects observed during such C check shall be
rectified at Lessee's expense, in accordance with the
Maintenance Program;
(b) Structural and other scheduled Inspections - The
Airframe shall have at least twelve (12) months, or
two thousand (2,000) flight hours or cycles,
whichever is applicable or most limiting, remaining
before any scheduled structural tasks or maintenance
inspections which are not included in (a) above. In
the event that a structural task or maintenance
inspection interval is less than the above, Lessee
shall, at its expense, perform all such tasks
immediately prior to return of the Aircraft;
(c) Landing Gear Life - The main Landing Gear and the
nose Landing Gear shall have at least fifty percent
(50%) of the cycles remaining prior to removal for
overhaul in accordance with the Maintenance Program,
and the landing gear total cycles since new ("TCSN")
shall be no more than ten percent (10%) greater than
the airframe TCSN;
(d) Brakes - The brakes shall have no less than the C
check brake wear limits with the brakes set at normal
parking break pressure. The tires shall have a
remaining useful life of at least fifty percent
(50%).
Section 3. Condition of Controlled Components.
Aircraft and Engine hour or cycle controlled components or parts, at
time of return to Lessor, shall have remaining, as a minimum, one half
life and/or fifty percent (50%) of the Lessee's approved hour or cycle
limit, whichever is applicable or most limiting, before any scheduled
removals for overhaul, test, disassembly or replacement. All components
or parts controlled on a calendar basis shall have at least twelve (12)
months or fifty percent (50%) of its total approved life in hours or
cycles, if greater remaining before scheduled removal for testing,
overhaul or replacement.
However, if a component or part has a life, overhaul or check interval
limit that is less than the above, Lessee shall, at its expense,
perform all such tasks immediately prior to return. All such hour/cycle
or calendar controlled components or parts are defined as those
components or parts controlled under the Maintenance Program.
Section 4. Condition of Installed Engines and APU.
At time of return, each Engine shall be capable of certificated, full
rated performance and its life limited parts ("LLP") will have at least
fifty percent (50%) of cycles remaining before replacement.
(a) Time remaining - Each Engine shall have completed no
more than two thousand five hundred (2,500) flight
hours since new or since its last full performance
restoration shop visit at which it was subject to a
full engine management program rework, based on the
reliability goals set out in Rolls-Xxxxx Xxxxxx
workscope guide, which currently state that the
Page 7
workscope is designed to give 30 degrees centigrade
of exhaust gas temperature margin and 5,000 flight
hours of on-wing life. To the extent that the shop
workscope guide is amended in the future to include
different reliability goals then the engine shall
have at least fifty percent (50%) of the on-wing
hours remaining in accordance with such amended shop
workscope guide.
(b) Borescope Inspection - On each installed Engine an
external visual inspection, accessory inventory check
and video-taped borescope inspection in accordance
with the requirements of the Maintenance Program
shall be performed by Lessee or a designated
representative as mutually agreed between Lessee and
Lessor during the ground inspection per Section 7(a)
of this Exhibit F-2 accompanied by a written report
on the findings of such inspection herein and
satisfactory evidence shall be provided to Lessor
reflecting the correction of any discrepancies found
during such inspection.
(c) Adverse Trend Data - Complete engine records,
including but not limited to (i) Group A (Lifed)
components (as listed in Engine Manufacturer's Time
Limits Manual) as approved by the FAA and (ii) in
flight performance data and (iii) shop visit reports
from all shop visits, shall be made available to
Lessor for review and evaluation. If the Aircraft
and/or engine historical and maintenance records
and/or trend monitoring indicate a rate of
acceleration in performance deterioration or oil
consumption on any installed engine beyond the limits
of the Maintenance Program, the causes of such
conditions shall have been corrected prior to the
return date.
(d) Oil spectrum analysis - an oil spectrum analysis
shall be made on the installed Engines after the
Aircraft is removed from service and a written report
shall be made available together with the Aircraft.
Any discrepancy found in the engine's lubrication
system shall have been corrected prior to the return
date.
(e) APU Life -The installed APU shall have remaining at
least fifty percent (50%) of the expected mean time
before removal as evidenced by the Lessee's
demonstrated on-wing last two years average for APU
hours, before scheduled removal for overhaul, heavy
maintenance, or replacement of hour limited or LCF
parts at the time of return. The APU shall have a
video taped borescope inspection and magnetic plug
inspection during the ground inspection per Section
7(a) of this Exhibit F-2.
Page 8
Section 5. Provision for "Power-By-The Hour Agreements".
If the Engines, APU, or any other hour or cycle controlled components
on the day of return are maintained under valid PBH Agreements (as
defined below) (and either have been maintained throughout the Term
under PBH Agreements, or Lessee has made payments to the maintenance
provider to cover the period in which such components where not under
such PBH Agreements), under which the Lessee is current on all payments
and otherwise in good standing, then, in lieu of the relevant
requirements in Sections 2(c), 2(d), 3, 4(a) or 4(e) of this Exhibit
F-2, the Lessee shall return each such component in such condition as
shall make it eligible for continued maintenance under PBH Agreements,
without additional costs, start-up charges, or overhaul requirements.
For the purposes hereof, a "PBH Agreement" shall mean a
"power-by-the-hour" maintenance program, provided by the Engines, APU
or component manufacturer or its successor or designee, providing full
maintenance (other than routine day-to-day maintenance; provided, that
foreign-object damage and abuse may be excluded or separately charged)
for the Engines, APU or such components at no cost other than standard
per-cycle rates (i.e., excluding charges based on the current
maintenance status of such component), all benefits of which program,
including but not limited to the payments made by Lessee under such PBH
Agreements while operating the Aircraft, shall be assignable or
otherwise transferable to any other carrier without restrictions of any
kind.
Section 6. Return Condition Adjustment.
(a) Each item referred to in Sections 2(c), 2(d), 3, the
first two lines of Section 4 and in Section 4(a) and
4(e) (each such item, an "Adjustable Item" and each
such section, an "Adjustable Return Condition") may
be returned with less than the required limits,
subject, however, to the minimum requirements set
forth in item (e) below.
(b) If the Lessee does not meet the conditions set forth
for an Adjustable Item in the relevant Adjustable
Return Condition then Lessee shall pay to the Lessor
(for deficient condition) an Equivalency Payment in
accordance with the following formula:
[*]
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* Confidential
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[*]
The components of the formula above shall be as agreed between
Lessor and the Lessee. If Lessor and the Lessee fail to reach
agreement on any components of the above formula, such amount
will be determined as the average price that would be charged
by a third party to restore the Aircraft to the conditions
required under the Lease and this Exhibit F-2, based on one
quotation obtained by Lessor and one quotation obtained by
Lessee, both from a reputable, FAA and Manufacturer-approved
EMB-145 repair station in the United States. If the prices of
such quotations differ by more than ten percent (10%), Lessor
and Lessee shall obtain a third quotation from another
reputable, FAA and Manufacturer-approved EMB-145 repair
station in the United States, the quotation which is farthest
from the average of all three quotations shall be disregarded
and the average of the two remaining quotations shall be
binding upon Lessor and Lessee as the components of the
formula.
(c) The Equivalency Payment for each return condition of
each Adjustable Item in the relevant Section referred
to in the first paragraph of this Section 6, whether
positive or negative, shall be aggregated in order to
determine the total Equivalency Payment due from
Lessee. (For clarification, items in more than the
required condition shall be netted against items in
less than the required condition when determining the
amount of the total payment due, provided however
that such netting is only applicable to the following
major components: Engines, APU and landing gear). If
the cumulative Equivalency Payment after such netting
is negative, it shall be deemed to be zero.
(d) In no event shall the Equivalency Payment due from
the Lessee to the Manufacturer exceed the aggregate
amount of any payment and expenses that the
Manufacturer may make under the Residual Value
Guarantee Agreement.
(e) Notwithstanding the equivalency charges that may be
otherwise payable or available under this Section 6,
if:
(i) Any installed Engine has completed more than
3,750 flight hours since new or since its
last full performance restoration shop visit
at which it was subject to a full engine
management program rework
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* Confidential
Page 10
(or less than twenty-five percent (25%) of
the on-wing hours remaining in accordance
with an amended XX Xxxxxxx shop workscope
guide),
(ii) Any Engine life limited part has a remaining
useful life until the next scheduled
replacement of less than twenty five percent
(25%),
(iii) The APU has remaining less than twenty five
(25%) of the expected mean time before
removal,
(iv) The main landing gear or the nose landing
gear has less than twenty five percent (25%)
of the cycles remaining prior to removal for
overhaul, or the cycles exceed one hundred
and ten percent (110%) of the airframe, or
(v) The brakes have less than the C check brake
wear limits with the brakes set at normal
parking break pressure, or the tires have a
remaining useful life of less than twenty
five percent (25%),
then, in any such case, Lessee shall, at its own cost and
expense, overhaul, refurbish and/or replace each non-complying
item so that it meets the applicable level specified in items
(i) through (v) above.
Section 7. Inspection Upon Return
Lessor shall have the right to inspect the Aircraft upon return, and
the following conditions shall apply:
(a) Ground Inspection - The Aircraft including the
Aircraft Documents shall be made available to Lessor
for ground inspection by Lessor or its designee at
Lessee's facilities. Such inspection shall commence
no later than fourteen (14) Business Days prior to
the date of return of the Aircraft. Lessee shall
remove the Aircraft from scheduled service and open
the areas of the Aircraft as required to perform the
necessary checks as specified in Section 2 of this
Exhibit F-2. In addition, Lessee shall allow Lessor
to accomplish its inspection to determine that the
Aircraft, including the Aircraft Documents are in the
condition set forth in Sections 1, 2, 3 and 4 of this
Exhibit F-2. During such checks, Lessor's personnel
shall have the right to reasonably request that
adjacent additional panels or areas be opened in
order to allow further inspection by Lessor's
personnel.
(b) Operational Ground Check - Lessee shall conduct an
operations ground check on the Aircraft in accordance
with the Maintenance Program manual criteria for the
purpose of demonstrating to Lessor the satisfactory
operation of the systems, including a full fuel tank
leak check, pilot and static systems check and
hydraulic system internal leak check.
Page 11
(c) Operational Test Flight - The Aircraft shall be test
flown by Lessee, using qualified flight test
personnel, for the amount of time necessary to
satisfactorily demonstrate the airworthiness of the
Aircraft and the proper functioning of all systems
and components in accordance with the agreed check
flight procedures. During such test flight command,
care, custody and control of the Aircraft shall
remain at all times with Lessee. Up to five (5) of
Lessor's designated representatives (or more if
mutually agreed) may participate in such flight as
observers. Upon completion of such operational
flight-testing, the representatives of Lessee and
Lessor participating in such testing shall agree in
writing upon any discrepancies required to be
corrected by Lessee in order to comply with the
conditions required hereunder.
(d) Discrepancies - If requested by Lessor in writing,
all discrepancies, which are noted during the
inspection and acceptance flight(s), shall be
corrected at Lessee's expense. If such discrepancies
are substantiated by the Maintenance Program and
Lessor determines that repairs, modifications or
other work items are required to cause the Aircraft
to comply with the requirements provided herein,
including, without limitation, any maintenance
required so that the Engines will meet all Engine
parameters and trends specified by the Maintenance
Program, Lessee shall cause such repairs and other
work items to be commenced and completed prior to
return.
Section 8. Definitions.
For the purpose of this Exhibit F-2, the following terms have the
following meanings:
APPRAISAL PROCEDURE: this procedure shall apply only if Owner
Participant provides a Residual Notice pursuant to Section 13(b)(iii)
of the Lease and shall be used in such case to determine the Fair
Market Sales Value of the Aircraft as herein provided. Manufacturer,
Owner Participant and Lessee shall, within thirty (30) calendar days
after Owner Participant has delivered a Residual Notice, each obtain
appraisal values from a recognized independent appraiser (one to be
selected by Manufacturer, one by Owner Participant, and one by Lessee),
and the average value as determined by the appraisers shall be binding
on Manufacturer, Owner Participant and Lessee; provided that if the
value or values determined by one or more of the appraisers differs
from the average of the values determined by all three appraisers by
more than five percent (5%) of such average, the value which differs
the most from such average shall be excluded, and the average of the
values determined by the other two appraisers shall be binding on
Manufacturer, Owner Participant and Lessee. Manufacturer, Owner
Participant and Lessee shall each pay its own appraiser. Each appraiser
must be associated with a professional organization of aircraft
appraisers and each appraisal shall be conducted pursuant to ISTAT 1994
(or any successor) appraisal methods, definitions and assumptions. Fair
Market Sales Value as determined hereunder shall mean the value that
would be obtained in an arms'-length transaction between an informed
and willing buyer-
Page 12
user (other than a lessee currently in possession or a used equipment
dealer) under no compulsion to buy and an informed and willing seller
under no compulsion to sell. In determining Fair Market Sales Value, it
will be assumed that the Aircraft is in the condition, location and
overhaul status in which it is required to be returned to the Lessor
pursuant to Section 12 of the Lease, that Exhibit F-2 of the Lease will
apply, that the Lessee has removed all Parts which it is entitled to
remove pursuant to Section 7 of the Lease and that the Aircraft is not
encumbered by the Lease or any Lien.
APU shall mean the auxiliary power unit installed on the Airframe on
the Delivery Date, and any substitute APU which may from time to time
be substituted therefor pursuant to the terms of the Lease.
MAINTENANCE PROGRAM: means the Lessee's maintenance program as
originally agreed between the Manufacturer and Lessee, as such program
may be from time to time amended and supplemented by Lessee and which
(i) shall have been approved by the FAA, (ii) shall fully comply with
the requirements of the FAA for the EMB-145 and Rolls-Xxxxx Xxxxxxx
AE3007A1 aero engines (or an improved model, as the case may be)
installed thereon, and (iii) shall incorporate the requirements of the
EMB-145 Scheduled Maintenance Requirements Document Part 1 ("SMRD"),
the Aircraft Maintenance Manual ("AMM"), the Structural Repair Manual
("SRM"), the Corrosion Prevention and Correction Program ("CPCP") and
the Original Equipment Manufacturers' ("OEMs") maintenance manuals,
(all of the foregoing as from time to time amended or supplemented),
the Service Newsletters and the service bulletins issued by the
Manufacturer and all OEMs.
CALENDAR CONTROLLED COMPONENTS OR PARTS: those components or parts,
which are identified in the MRB Report which have maintenance tasks at
specific calendar-time intervals.
CYCLE-CONTROLLED COMPONENTS OR PARTS: those components or parts, which
are identified in the MRB Report which have maintenance tasks at
specific flight-cycle intervals.
HOUR-CONTROLLED COMPONENTS OR PARTS: those components or parts, which
are identified in the MRB Report which have maintenance tasks at
specific flight-hour intervals.
LIFE CYCLE FATIGUE ("LCF") PARTS: those rotating parts which have
specific cycle limits as specified by the manufacturer to preclude
cycle fatigue failures.
MAINTENANCE REVIEW BOARD REPORT ("MRB REPORT"): the report published by
the maintenance review board detailing the intervals and description of
the maintenance tasks and, where applicable, the life limits required
for continued airworthiness of the Aircraft. Where the intervals
specified in the MRB Report differ from the limit specified by the
component manufacturer, the MRB Report shall take precedence.
Page 13
TERMINATING ACTION: the alteration or modification of the Aircraft in
accordance with mandatory service bulletins, orders, airworthiness
directives, and instructions required to eliminate repetitive
inspections or maintenance action.
Page 14
NOTE TO EXHIBIT 10.26
The 12 additional Lease Agreements are substantially identical in all material
respects to the filed Lease Agreement except as follows:
------------------------------------- ----------------------------------- -----------------------------------
TAIL NUMBER CLOSING DATE OWNER-PARTICIPANT
------------------------------------- ----------------------------------- -----------------------------------
N289SK July, 2001 General Electric Capital Corp.
------------------------------------- ----------------------------------- -----------------------------------
N290SK July, 2001 General Electric Capital Corp.
------------------------------------- ----------------------------------- -----------------------------------
N291SK August, 2001 General Electric Capital Corp.
------------------------------------- ----------------------------------- -----------------------------------
N292SK August, 2001 General Electric Capital Corp.
------------------------------------- ----------------------------------- -----------------------------------
N293SK September, 2001 General Electric Capital Corp.
------------------------------------- ----------------------------------- -----------------------------------
N294SK September, 2001 General Electric Capital Corp.
------------------------------------- ----------------------------------- -----------------------------------
N295SK November, 2001 Silvermine River Finance Two, Inc.
------------------------------------- ----------------------------------- -----------------------------------
N297SK November, 2001 Silvermine River Finance Two, Inc.
------------------------------------- ----------------------------------- -----------------------------------
N298SK October, 2001 Silvermine River Finance Two, Inc.
------------------------------------- ----------------------------------- -----------------------------------
N299SK November, 2001 Silvermine River Finance Two, Inc.
------------------------------------- ----------------------------------- -----------------------------------
N370SK November, 2001 Silvermine River Finance Two, Inc.
------------------------------------- ----------------------------------- -----------------------------------
N371SK November, 2001 Silvermine River Finance Two, Inc.
------------------------------------- ----------------------------------- -----------------------------------
------------------------------------- ----------------------------------- -----------------------------------
------------------------------------- ----------------------------------- -----------------------------------
------------------------------------- ----------------------------------- -----------------------------------
------------------------------------- ----------------------------------- -----------------------------------
------------------------------------- ----------------------------------- -----------------------------------
