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Exhibit 10.36
EXECUTION VERSION
MASTER ENGINE LEASE AGREEMENT
DATED AS OF DECEMBER 18, 2001
BETWEEN
AVIATION FINANCIAL SERVICES INC.
AS LESSOR
AND
CHAUTAUQUA AIRLINES, INC.
AS LESSEE
relating to
FOUR NEW AND FIVE USED AIRCRAFT ENGINES:
NEW: AE3007A1P ESN CAE312071
AE3007A1P ESN CAE312096
AE3007A1P ESN TBD X TWO
USED: AE3007A1P ESN CAE311434
AE3007A1P ESN CAE311206
AE3007A1P ESN CAE311635
AE3007A1P ESN CAE311794
AE3007A1P ESN CAE311908
---------------------------------
INCORPORATING THE PROVISIONS OF AN
ENGINE LEASE
COMMON TERMS AGREEMENT
DATED DECEMBER 18, 2001
---------------------------------
TO THE EXTENT THAT THIS ENGINE LEASE AGREEMENT CONSTITUTES CHATTEL
PAPER (AS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY
APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS ENGINE LEASE
AGREEMENT MAY BE CREATED THROUGH TRANSFER OR POSSESSION OF ANY
COUNTERPART OTHER THAN THE ORIGINAL COUNTERPART, WHICH SHALL BE
IDENTIFIED AS THE COUNTERPART DESIGNATED AS THE ORIGINAL ON THE
SIGNATURE PAGE OF THIS AGREEMENT BY AVIATION FINANCIAL SERVICES INC.
ENGINE LEASE AGREEMENT
CHAUTAUQUA AIRLINES
- ------------
Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933. The
omitted materials have been filed separately with the Securities and Exchange
Commission.
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MASTER ENGINE LEASE AGREEMENT
THIS ENGINE LEASE AGREEMENT is made on December 18, 2001, (this "Lease"),
BETWEEN:
(1) AVIATION FINANCIAL SERVICES INC., a corporation incorporated under the
Laws of Delaware having its principal place of business and chief executive
office at c/o GE Engine Leasing, GE Capital Aviation Services, Inc., 201 High
Ridge Road, Stamford, Connecticut 06927 ("LESSOR"); and
(2) CHAUTAUQUA AIRLINES, INC., a corporation incorporated under the Laws of
NEW YORK with its principal place of business and chief executive office at 2500
S. HIGH SCHOOL ROAD, INDIANAPOLIS, INDIANA 46241 ("LESSEE").
WHEREAS:
(A) Lessee wishes to lease each Engine (as defined below) from Lessor, and
Lessor wishes to lease each such Engine to Lessee, on the terms and
subject to the conditions provided herein;
(B) General Electric Capital Corporation ("GECC") and Lessee have entered
into the CTA (as defined below) in respect of commercial aircraft
engines and related equipment that may be leased from time to time by
Lessee or one of its Affiliates from Lessor or one of its Affiliates;
and
(C) Lessor and Lessee wish to incorporate by reference such CTA into this
Lease.
IT IS AGREED as follows:
1. INTERPRETATION
1.1 DEFINITIONS; INTERPRETATION. Unless otherwise defined herein, words and
expressions defined in the CTA have the same respective meanings for
the purposes of this Lease. The construction provisions of Section 1.2
of the CTA shall apply to this Lease. In this Lease, the following
capitalized words and expressions shall have the following meanings:
AD COMPLIANCE PERIOD is defined in Schedule B, Part VI hereto.
AGREED VALUE shall have the meaning specified in Schedule B, Part I
hereto.
ANNUAL SUPPLEMENTAL RENT ADJUSTMENT and ASSUMED RATIO have the meanings
specified in SCHEDULE B, PART V HERETO.
CTA means the Engine Lease Common Terms Agreement, dated as of December
18, 2001 executed by GECC and Lessee (as in effect on the date hereof
without, unless Lessor and Lessee otherwise expressly agree, giving any
effect to any subsequent amendment, supplement, waiver or other
modification thereto), and which forms part of this Lease, a true and
complete copy of which is attached as SCHEDULE C hereto.
ENGINE LEASE AGREEMENT
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DAMAGE NOTIFICATION THRESHOLD shall have the meaning specified in
Schedule B, Part I hereto.
DEDUCTIBLE AMOUNT shall have the meaning specified in Schedule B, Part
I hereto.
DELIVERY CONDITION REQUIREMENTS means the requirements specified in
Part II of SCHEDULE A hereto.
DELIVERY LOCATION means Indianapolis, Indiana, or such other location
as Lessor and Lessee mutually agree.
DEPOSIT means all amounts payable pursuant to Section 3.1(DEPOSIT)
hereof.
DISCOUNT RATE shall have the meaning specified in Schedule B, Part II
hereto.
ENGINE means whether or not installed on any airframe, each engine of
the manufacturer and model specified in Part I of SCHEDULE A which
Lessor tenders to Lessee on the Delivery Date, together in each case
with the QEC, LRU, accessories and the Engine Documents and Records as
described in Part I of SCHEDULE A hereto and tendered for Delivery by
Lessor to Lessee relating to such Engine and otherwise subject to the
terms and conditions of this Lease. The term "ENGINE" includes, as of
any date of determination, all the foregoing equipment then leased
hereunder and includes all modules and other Parts from time to time
belonging to or installed in that Engine but excludes any properly
replaced Part, title to which has passed to Lessee pursuant to this
Lease.
ENGINE CYCLES RESTRICTION shall have the meaning specified in Schedule
B, Part VI hereto.
ENGINE FLIGHT HOURS RESTRICTION shall have the meaning specified in
Schedule B, Part VI hereto.
ENGINE LLP SUPPLEMENTAL RENT is defined in SCHEDULE B hereto.
ENGINE SUPPLEMENTAL RENT is defined in SCHEDULE B hereto.
ENGINE SUPPLEMENTAL RENT FHA TERMINATION AMOUNT is defined in Schedule
B hereto.
GUARANTOR is not applicable.
FLEET HOUR AGREEMENT means the AE 3007A/1 Series Engine Fleet Hour
Agreement dated March 23, 2001 between the Manufacturer and the Lessee
relating to the provision of rework and maintenance support for the
Engines, as further amended and supplemented from time to time as
permitted hereunder or as replaced with another Fleet Hour Agreement as
permitted hereunder.
FHA ASSIGNMENT AGREEMENT means that certain Agreement Regarding
Assignment of the Fleet Hour Agreement between and among the Lessee,
Lessor and the Manufacturer, dated the date hereof relating to the
Engines.
ENGINE LEASE AGREEMENT
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INDEMNITEE means each of Lessor, Owner, General Electric Capital
Corporation and GECAS and their respective successors and permitted
assigns, and each of their respective shareholders, Affiliates,
partners, contractors, directors, officers, representatives, agents and
employees.
INTEREST RATE is defined in Schedule B, Part II hereto.
LESSOR'S ACCOUNT is defined in Section 3.3 herein.
LRU means line replaceable units.
MANUFACTURER means the manufacturer of each Engine or any separate item
of equipment, as the case may be, as set forth on SCHEDULE A hereto.
MINIMUM COMPONENT CALENDAR LIFE is defined in Schedule B, Part VI.
MINIMUM ENGINE CYCLES is defined in Schedule B, Part VI.
MINIMUM ENGINE FLIGHT HOURS is defined in Schedule B, Part VI.
MINIMUM LIABILITY COVERAGE is defined in Schedule B, Part I.
NOTICE is defined in Section 3.5(a) herein.
OWNER means AVIATION FINANCIAL SERVICES INC.
PRE-APPROVED BANK means any bank organized under the laws of the United
States or any State thereof, or the New York branch of a major
international bank, in each case for only so long as its long-term
Dollar denominated unsecured debt (or if it does not have long-term
unsecured Dollar denominated debt, its parent corporation's long-term
unsecured Dollar denominated debt) carries a rating from Standard &
Poor's of A+ or better.
PURCHASE AGREEMENT means the Engine Purchase Agreement, dated as of
December 18, 2001, between Lessee as seller and Lessor as buyer
relating to the purchase of the Engines
PURCHASE PRICE is defined in Schedule B, Part VII.
REDELIVERY LOCATION means such location within the United States of
America on the Lessee's jet route system as designated by Lessor.
RENT IS DEFINED in Schedule B, Part II.
RENT COMMENCEMENT DATE means with respect to each Engine, the date on
which Lessor tenders and the Lessee accepts such Engine under Section
4.3.(a)(DELIVERY AND ACCEPTANCE) of the CTA.
RETURN CONDITION SECURITY AMOUNT is defined in Schedule B, Part II.
RIGHT is defined in Section 3.5(a) herein.
SCHEDULED DELIVERY DATE means for each Engine a date in the Scheduled
Delivery Month as notified by Lessee to Lessor pursuant to the Purchase
Agreement.
ENGINE LEASE AGREEMENT
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SCHEDULED DELIVERY MONTH means the date for the expected delivery of
each Engine as set forth in Part IV of Schedule A attached hereto.
SCHEDULED EXPIRY DATE means the date immediately preceding the last day
the 15th anniversary of the second Rent Date for each Engine (or in the
event that such date is a day that is not a Business Day, the
immediately preceding Business Day), which date shall be specifically
set forth in the Certificate of Acceptance.
SERVICE CREDIT AMOUNT is defined in Schedule B hereto.
SPARES DEDUCTIBLE AMOUNT is defined in Schedule B, Part I.
TAX INDEMNITEE means each of Owner, Lessor, and each member of the
consolidated group of which Lessor or Owner is a member for United
States Federal income tax purposes, and their successors and permitted
assigns.
2. LEASING
2.1 TERM. Subject to the terms and conditions of the Lease, Lessor will
lease each Engine to Lessee and Lessee will take delivery of and lease
each Engine from Lessor in accordance with the Lease for the duration
of the Term for such Engine.
3. PAYMENTS
3.1 DEPOSIT; RENT; SUPPLEMENTAL RENT; Lessee shall pay to Lessor the
Deposit, Rent and Supplemental Rent (except as otherwise provided in
this Section 3.1) as provided in the CTA and as set forth in Schedule
B, Part II (Deposit), Part III (Rent) and Part V (Supplemental Rent),
respectively. Notwithstanding the foregoing, for so long as the Fleet
Hour Agreement and the FHA Assignment Agreement shall be in effect
Lessee shall not be obligated to pay Engine Supplemental Rent with
respect to any calendar month if Lessee has either (a) paid in full
when due all amounts owed to the Manufacturer under the Fleet Hour
Agreement in respect of such calendar month or (b) has provided Lessor
with evidence satisfactory to Lessor that Lessee has otherwise cured or
satisfied in full its payment obligations to the Manufacturer for such
month and that such cure or satisfaction does not at that time and will
not in the future result in an increase in the amount of the Cure
Payment. If Lessee makes a payment of Engine Supplemental Rent to
Lessor and subsequently either (i) pays in full all amounts payable
under the Fleet Hour Agreement in respect of the corresponding calendar
month, or (ii) otherwise satisfies or cures its payment obligations for
such month as provided in clause (b) of the preceding sentence,
provided that no Event of Default shall have occurred and then be
continuing, Lessor shall pay the Lessee the amount of Engine
Supplemental Rent received from Lessee for such calendar month promptly
following written request from Lessee and such evidence of payment in
full to the Manufacturer as Lessor may reasonably request. Lessee shall
pay to Lessor an amount equaling the Engine Supplemental Rent FHA
Termination Amount (a) in the event that the Manufacturer issues a
notice to Lessor under the FHA Assignment Agreement stating that the
Manufacturer intends to terminate the Fleet Hour Agreement and such
notice is not rescinded within ten (10) days following receipt by
Lessor, on the eleventh (11th) day following such receipt, or (b) on
the date that is thirty (30) days prior to the date that the Fleet Hour
Agreement is scheduled to expire if such scheduled expiry date would
occur prior to the Scheduled Expiry Date for this Lease. Lessee shall
notify Lessor in writing not less than fifteen (15) days prior to any
proposed amendment or modification of the
ENGINE LEASE AGREEMENT
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Fleet Hour Agreement during the Term. In addition to the Events of
Default set forth in Schedule 9 of the CTA, it shall be an Event of
Default if Lessee amends, supplements, extends or replaces the Fleet
Hour Agreement during the Term without first obtaining Lessor's written
consent and in Lessor's reasonable judgement such amendment,
supplement, extension or replacement is adverse to the interests of
Lessor in any material respect.
3.2 LESSOR'S MAINTENANCE CONTRIBUTION: Lessor shall pay to Lessee Lessor's
Maintenance Contribution in accordance with Section 7.2 of the CTA.
3.3 LESSOR'S BANK ACCOUNT: For the purposes of Section 5.5(PAYMENTS) of the
CTA, Lessor's bank account and wire transfer particulars, to which all
payments to Lessor shall be made by Lessee, are at the date hereof
("Lessor's Account"): Bankers Trust Company, ABA Number 021 001 033 for
the account of GECC T & I Air Depository Account, Account Number
50-255-888.
3.4 MACRS BENEFITS: The provisions of Section(s) (a) of Schedule B, Part IV
and Section 5.7 (c) of the CTA shall apply under this Lease.
3.5 PURCHASE OPTION:
(a) RIGHT: Lessor hereby grants to Lessee a right to purchase the Engine on
the last day of the Term (the "Right") for an amount equal to the Fair
Market Value of the Engine (the "Purchase Price") provided that Lessor
shall have received prior written notice not less than 180 days before
the last day of the Term (the "Notice") of Lessee's intention to
exercise the Right.
For the purposes of this Clause 3.5 "Fair Market Value" shall mean such
amount as is agreed between Lessor and Lessee (such amount shall be
determined not more than 180 days prior to the last day of the Term) as
the expected fair market value of the Engine on the last day of the
Term or failing agreement as to such expected fair market value, such
amount as shall be determined in Dollars by an independent expert
appointed by Lessor and an independent expert appointed by Lessee. If
either party shall not have indicated in writing to the other within
fourteen (14) days after the failure by the parties to agree upon the
expected fair market value of the Engine of the appointment of its
independent expert, the expected fair market value shall be the amount
determined by the independent expert whose appointment has been
notified in writing to the other party. If the independent experts
appointed by the parties fail to agree upon the expected fair market
value of the Engine within fourteen (14) days of their appointment, the
independent experts shall jointly appoint a third independent expert
who shall determine the expected fair market value of the Engine within
14 days of his appointment and whose decision shall be final and
binding upon all the parties. If the independent experts are unable to
agree upon the third independent expert within 10 days of the expiry of
such 14 day period, such third independent expert shall be selected by
the American Arbitration Association. The expected fair market value of
the Engine on the last day of the Term shall be determined on the basis
that:
ENGINE LEASE AGREEMENT
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(i) it is free of all Security Interests of whatsoever
nature;
(ii) it is in a condition complying with all requirements
that would have been applicable to the Engine on the
Return Occasion if Lessee had redelivered the Engine to
Lessor and that it individually has no fewer than 3,200
Engine Flight Hours remaining to the next expected
Engine Refurbishment and that each Life Limited Part
has 50% of its total Engine Cycle life remaining to
replacement;
(iii) it is sold on an arms length basis between a willing
seller and a willing buyer;
(ii) the value of any additional equipment incorporated into
the Engine at Lessee's expense as additional equipment
and not as a replacement or substitution pursuant to
the Lease shall be excluded; and
(iii) the value shall not take into account any Taxes
payable by, or the effect of any Tax on, the seller or
buyer.
The costs of any such valuations shall be paid equally by the parties
except where Lessee fails to exercise the Right to purchase the Engine
in which event such costs shall be for the account of Lessee. For a
period of ten (10) Business Days following the date that the Fair
Market Value is determined, Lessee shall be entitled by written notice
to Lessor to revoke its exercise of the Right, after which time
Lessee's Notice of exercise of the Right shall be deemed irrevocable.
(b) RIGHT EXERCISED : In the event of the Notice having been duly given by
Lessee of its exercise of the Right, on the applicable purchase date
for such Engine, upon full and final payment by Lessee of (i) the
applicable purchase price for the Engine, (ii) all unpaid Rent due and
payable through and including the purchase date and (iii) all other
amounts due and payable by Lessee under this Lease, Lessor will
transfer to Lessee all of its right, title and interest in the Engine
and any assignable warranties in respect of the Engine on an "AS-IS,
WHERE-IS" basis without recourse or warranty, the Term with respect to
such Engine shall end, Lessee's obligation to pay Rent under this Lease
with respect to such Engine shall cease, and provided no Event of
Default or Special Default has occurred and is continuing, Lessor will
pay to Lessee the portion of Engine LLP Supplemental Rent received by
Lessor in respect of such Engine and remaining in the Engine LLP
Supplemental Rent account as provided in Section 7.2(c) of the CTA. In
the event that Engine Supplemental Rent is paid in respect of the
Engine, Lessor and Lessee agree to negotiate in good faith, following
Lessee's issuance of a Notice, whether the amount (if any) that remains
in the Engine Supplemental Rent account for such Engine shall be paid
over to Lessee, retained by Lessor or shared by Lessor and Lessee
following satisfaction of the conditions set forth in the preceding
sentence. Notwithstanding the foregoing, (x)
ENGINE LEASE AGREEMENT
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the Indemnitees shall continue to have the benefit of all the
indemnities set forth in the Lease with respect to such Engine; (y)
Lessee shall indemnify Lessor for all Taxes (other than Excluded Taxes)
in connection with such transfer; and (z) Lessee shall cause the
Indemnitees to be named as additional insureds on Lessee's liability
insurance policies in respect of the Engine for a period of 2 years
from the purchase date.
(c) RIGHT CANCELLED : In the event
(i) that Lessee does not exercise the Right in accordance with
Section 3.5(a); or
(ii) of termination of the Lease prior to the last day of the Term due
to the happening of an Event of Loss or an Event of Default,
the Right shall forthwith be cancelled without liability of any kind to
Lessor or Lessee under this Section 3.5 and in the event notice of the
exercise of the Right shall have been given prior to such cancellation,
the sale of the Engine pursuant to such exercise shall likewise
forthwith be cancelled.
(d) RETURN CONDITIONS: If the Right is exercised and fully performed by
Lessee in accordance with Section 3.5 hereof, Lessee shall have no
obligation on the last day of the Term to satisfy the conditions set
forth in Schedule 6 of the CTA (Procedures and Operating Conditions at
Redelivery) and Lessor shall make the payments required by Clause 5.11
of the CTA as and when required thereby.
4. CONDITION OF THE ENGINE AT DELIVERY
On the Delivery Date for each Engine, as a condition to Lessee's
obligation to accept delivery thereof, such Engine shall be in the
condition provided in Part II of SCHEDULE A hereto. Lessor shall
coordinate with Lessee, in anticipation of delivery of each Engine, in
the exercise of Lessor's inspection rights under the Purchase Agreement
respecting the Engine to be purchased.
5. CONDITION OF THE EQUIPMENT AT REDELIVERY
On the Return Occasion, Lessee shall redeliver each Engine to Lessor at
the Redelivery Location and at such redelivery the Engine shall be in
the condition provided in the CTA, including SCHEDULE 6(PROCEDURE AND
OPERATING CONDITION AT REDELIVERY), of the CTA. On or within thirty
(30) days following the twelfth (12) anniversary of the first Rent
Commencement Date to occur under the Lease, Lessee shall deliver to
Lessor a written statement describing with respect to each Engine the
current maintenance status, expected annual utilization through
redelivery, and projected maintenance status at redelivery and further
detailing the contractual arrangements made by Lessee to ensure that
each Engine will comply with all applicable return conditions on the
Return Occasion (without giving
ENGINE LEASE AGREEMENT
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effect to any Engine purchase rights or obligations or Engine
substitution rights or obligations). In the event that (a) such written
statement, together with such supplemental and supporting information
as Lessor may request, does not demonstrate to Lessor's reasonable
satisfaction that Lessee will redeliver the Engines on the Return
Occasion in compliance with all applicable return condition
requirements (without giving effect to any Engine purchase rights or
obligations or Engine substitution rights or obligations), and (b) at
the time of such written statement or at any time thereafter during the
remainder of the Term Lessee fails to meet the Applicable Financial
Test, Lessee shall within fifteen (15) days following demand by Lessor
increase the amount the Security Deposit by the Return Condition
Security Amount.
6. NAMEPLATE INSCRIPTION
Lessee shall install a Nameplate on each Engine to read:
"THIS ENGINE IS OWNED BY AVIATION FINANCIAL SERVICES INC., AS OWNER AND
IS LEASED TO CHAUTAUQUA AIRLINES, INC. AND MAY NOT BE OR REMAIN IN THE
POSSESSION OF OR BE OPERATED BY, ANY OTHER PERSON WITHOUT THE PRIOR
WRITTEN CONSENT OF AVIATION FINANCIAL SERVICES INC."
7. ADDRESSES FOR NOTICES
The addresses and facsimile and telephone numbers of Lessor and Lessee
are as follows:
LESSOR:
c/o: GE Engine Leasing
GE Capital Aviation Services, Inc.
201 High Ridge Road
Stamford, CT 06927
Attention: Contracts Leader
Facsimile: (203) 357-3201
Telephone: (203) 357-4482
LESSEE:
2500 S. High School Road
Indianapolis, Indiana 46241
Attention: President
Facsimile: (317) 484-6060
Telephone: (317) 484-6047
WITH A COPY TO:
c/o Wexford Capital, LLC
411 West Putnam Avenue
Greenwich, Connecticut 06830
Attention: Jay Maymudes and Arthur Amron
Facsimile: (203) 862-7350 (Jay Maymudes) and (203) 862-7312 (Arthur
Amron)
Telephone: (203) 862-7050 (Jay Maymudes) and (203) 862-7012 (Arthur
Amron)
8. THE SCHEDULES AND CTA
ALL THE PROVISIONS OF SCHEDULES A AND B HERETO, AND THE CTA, ARE
INCORPORATED BY REFERENCE HEREIN AND ARE PART OF THIS LEASE AS IF THEY
WERE SET OUT IN FULL HEREIN. WITHOUT LIMITING
ENGINE LEASE AGREEMENT
8
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THE GENERALITY OF THE FOREGOING, BY ITS SIGNATURE BELOW, EACH OF LESSOR
AND LESSEE ACKNOWLEDGES AND AGREES THAT THE LEASE OF THE ENGINE
HEREUNDER IS ON AN "AS IS, WHERE IS" BASIS AND THAT THE DISCLAIMERS,
EXCULPATIONS AND LIMITATIONS OF LIABILITY, INDEMNITIES, THE CHOICE OF
CALIFORNIA LAW AS THE GOVERNING LAW, THE LESSEE'S SUBMISSION TO
PERSONAL JURISDICTION IN CALIFORNIA, AND THE WAIVER OF ANY RIGHT TO A
TRIAL BY JURY PROVIDED FOR IN THE CTA ARE INCORPORATED HEREIN BY SUCH
REFERENCE AND ARE PART OF THIS LEASE AS IF THE SAME WERE SET OUT IN
FULL HEREIN.
9. NO AMENDMENT EXCEPT IN WRITING
No provision of this Lease, including any provision of SCHEDULE A,
SCHEDULE B or the CTA, may be amended, rescinded, changed, waived,
discharged, terminated or otherwise modified in any way whatsoever,
except in writing signed by both parties.
ENGINE LEASE AGREEMENT
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Master Engine Lease Agreement, on the date shown at the beginning of this Lease.
LESSOR:
AVIATION FINANCIAL SERVICES INC.
By: /s/ Charles H. Meyer
--------------------------
Name: Charles H. Meyer
--------------------------
Title: Vice President
--------------------------
LESSEE:
CHAUTAUQUA AIRLINES, INC.
By: /s/ Robert H. Cooper
--------------------------
Name: Robert H. Cooper
--------------------------
Title: Vice President
--------------------------
ENGINE LEASE AGREEMENT
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SCHEDULE A
PART I-ENGINE AND RELATED EQUIPMENT DESCRIPTION
ENGINE
<Table>
<Caption>
ENGINE MANUFACTURER AND MODEL EXPECTED DELIVERY DATE ENGINE SERIAL NUMBER
Rolls Royce AE3007AIP December, 2001 MSN CAE311434
Rolls Royce AE3007AIP December 2001 MSN CAE311206
Rolls Royce AE3007AIP December 2001 MSN CAE311635
Rolls Royce AE3007AIP December 2001 MSN CAE312096
Rolls Royce AE3007AIP December 2001 MSN CAE311794
Rolls Royce AE3007AIP December 2001 MSN CAE311908
Rolls Royce AE3007AIP December 2001 MSN CAE312071
Rolls Royce AE3007AIP December 2003 (or such earlier MSN
date as Lessor and Lessee
agree)
Rolls Royce AE3007AIP December 2003 (or such earlier MSN
date as Lessor and Lessee
agree)
</Table>
QEC MANUFACTURER: N/A
NOSE COWL MANUFACTURER: N/A
ENGINE STAND SERIAL NUMBER: per serial number on the
Certificate of Acceptance
QEC: N/A
LRU: [LIST TO BE PROVIDED] see list attached to the
Certificate of Acceptance
OTHER ACCESSORIES: [LIST TO BE PROVIDED]
ENGINE DOCUMENTS AND RECORDS: Listed Part 2 below.
Each Engine has 750 or more rated takeoff horsepower or the equivalent.
ENGINE LEASE AGREEMENT [MSN]
A-1
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ENGINE DOCUMENTS AND RECORDS
1. Engine Records
- Engine time and cycle records
- last shop visit, restoration and repair documents
- AD compliance report (terminated and repetitive)
- SB status report
- list of time controlled components with remaining Engine
Flight Hours and Engine Cycles
- modification status report
- engine disc sheets
2. Manuals
- illustrated parts catalog (CD-ROM)
- Engine Maintenance Manual (CD-ROM) and any approved
engineering changes, as applicable
PART II-DELIVERY CONDITION REQUIREMENTS
Set forth below is a description of the condition in which each Engine must be
in order for Lessee to be obligated to accept such Engine under the Lease. It is
solely a description of such condition precedent and shall not be construed as a
representation, warranty or agreement of any kind whatsoever, express or
implied, by Lessor with respect to the Engine or its condition, all of which
have been disclaimed by Lessor and waived by Lessee as set forth in the Lease,
including in the CTA.
DELIVERY CONDITION REQUIREMENTS:
Used Engines: ESN CAE311434; CAE311206; CAE311635; CAE311794; CAE311908; "as is,
where is" pursuant to the terms of the Purchase Agreement.
New Engines: two engines ESN CAE312096 and CAE312071, and two engines ESN to be
determined shall be new, bare, ex-factory certificated for operation at 7,400
pounds with engine stand, engine cover, LRU, other accessories and Engine
Documents and Records as listed herein
ENGINE LEASE AGREEMENT
A-2
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SCHEDULE A
PART III- RETURN CONDITION REQUIREMENTS
In addition to and supplementing Lessee's obligations set forth in Clause 12 and
Schedule 6 of the Common Terms Agreement, Lessee shall redeliver the Engine to
Lessor on the Return Occasion meeting the following requirements:
Lessee shall redeliver the Engines with on average no fewer than 3,200 Engine
Flight Hours remaining to the next expected Engine Refurbishment and on average
no fewer than 3,200 Engine Cycles remaining on the Life Limited Parts to the
next limiter, and with no one Engine having fewer than 1,600 Engine Flight Hours
to the next expected Engine Refurbishment and with each Engine having a minimum
of 1,600 Engine Cycles life remaining on Life Limited Parts to the next limiter.
For avoidance of doubt, the foregoing average and minimum condition standards
shall be calculated without reference to any Engine as to which Lessee has
exercised its Right to purchase in accordance with Section 3.5 hereof and has
performed its purchase obligation with respect thereto. In the event that any
Engine fails, or the Engines as a group fail by 10% or more, to satisfy the
return condition requirements, Lessee shall be obligated to purchase the
deficient Engine, or in the case of the group of Engines failing, such number of
the most deficient Engines as is necessary for the remaining Engines to satisfy
the return conditions; provided, however, that in lieu of purchasing up to two
such deficient Engines Lessee may elect to provide up to two Suitable Substitute
Engines (as herein defined) as replacements for such deficient Engines. If
Lessee is required to purchase one or more of the Engines pursuant hereto, the
purchase price shall be determined in the same manner as provided in Section 3.5
and the sale shall be made on the same basis as provided in Section 3.5. If
Lessee elects to provided a Suitable Substitute Engine, Lessor will convey the
Engine that such Suitable Substitute Engine replaces to Lessee on the same basis
as provided in Section 3.5 (excluding the payment of a purchase price) and
Lessee shall convey such Suitable Substitute Engine pursuant to a full warranty
bill of sale in form reasonably acceptable to Lessor. As used herein, "Suitable
Substitute Engine" means an engine that complies with all the terms and
conditions of this Lease (including, without limitation, compliance with all
return conditions), and that is in substantially the same or a better condition
that the Engine it will replace as to (i) maintenance status in relation to the
number of Flight Hours of operation since its last Engine Refurbishment, (ii)
LLP value profile, (iii) modification status, and (iv) expected life remaining
to the next Engine Refurbishment.
ENGINE LEASE AGREEMENT
A-3
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SCHEDULE B
COMMERCIAL TERMS
The definitions and other commercial and financial terms set forth in this
SCHEDULE B shall apply to the leasing of the Engines under the Lease.
The commercial and financial information contained in this SCHEDULE B are
considered by Lessor and Lessee as proprietary and confidential. Lessor and
Lessee shall, and any of their assignees, upon becoming such shall agree that
they shall, treat this SCHEDULE B as proprietary and confidential and will not,
without the prior written consent of the other (which consent shall not be
unreasonably withheld), disclose or cause to be disclosed, the terms hereof or
thereof to any Person, except to its agents, representatives, advisors,
employees, counsel, underwriters, auditors, investors, financing parties, head
lessors and sublessees as necessary or appropriate for the leasing transaction
which is the subject hereof, or except (a) as may be required by applicable Law
or pursuant to an order, or a valid and binding request, issued by any court or
other Government Entity having jurisdiction over Lessor, Lessee or the assignee
of either of them, as the case may be, or (b) as necessary to enable Lessor or
its assignee to make transfers, assignments or other dispositions to potential
transferees, assignees or participants of its interest in and to the Lease. In
the event that Lessee elects to make an offering of debt or equity securities,
Lessor shall grant its consent to disclosure of the terms hereof provided that
the following conditions are fulfilled: (1) such disclosure shall be limited to
the information that is required by applicable Law; (2) prior to such disclosure
being made by Lessee, the form of the proposed disclosure shall be presented to
Lessor for review and comment; (3) to the extent permissible under applicable
Law, the information disclosed shall be presented in a manner that preserves the
confidentiality of the rental rates and similar economic terms hereof; (4)
Lessee shall exercise commercially reasonable efforts to preserve the
confidentiality of the information disclosed to the fullest extent consistent
with compliance with applicable Law; and (5) Lessee shall pay the reasonable
costs and expenses of Lessor's counsel in reviewing and evaluating any
disclosure request made by Lessee pursuant hereto.
In connection with any such disclosure or any filing of the information
contained herein or therein pursuant to any such applicable Law, Lessor, Lessee
or the assignee of either of them, as the case may be, shall request and use its
best reasonable efforts to obtain confidential treatment of this SCHEDULE B and
the other party will cooperate in making and supporting any such request for
confidential treatment.
PART I PART I-CASUALTY OCCURRENCE DEFINITIONS
AGREED VALUE (i) for each Used Engine [*] and (ii) for each New Engine [*]
DAMAGE NOTIFICATION THRESHOLD means [*]
DEDUCTIBLE AMOUNT means a deductible per occurrence that is not in excess of the
prevailing standard market deductible for similar engines.
MINIMUM LIABILITY COVERAGE means [*]
SPARES DEDUCTIBLE AMOUNT means a deductible per occurrence that is not in excess
of the prevailing standard market deductible for similar spare engines.
ENGINE LEASE AGREEMENT
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PART II DEPOSIT; DISCOUNT RATE; LC AMOUNT; INTEREST RATE
DEPOSIT: The amount of the Deposit for each Engine required by Section 3.1
hereof shall be payable in cash on the Delivery Date of such Engine and in the
amount equal to one month Rent for such Engine, calculated in accordance with
the formulas set forth in PART III below.
DISCOUNT RATE means [*]
INTEREST RATE: The Interest Rate shall be the "prime rate" as quoted in the WALL
STREET JOURNAL from time to time during the applicable period plus [*] but not
to exceed the maximum amount permitted by Law.
RETURN CONDITION SECURITY AMOUNT means the sum of [*]
PART III RENT
[*]
ENGINE LEASE AGREEMENT
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[*]
PART IV TAX DEFINITIONS; SPECIAL TAX INDEMNITY
MACRS DEDUCTIONS means cost recovery deductions available to Lessor for
100% of the cost of the Engine pursuant to Section 168(b) of the
Internal Revenue Code of 1986, as amended (the CODE), commencing in the
calendar year in which the Engine is delivered, computed (a) on the
basis that the Engine is "7-year property" within the meaning of
Section 168(e) of the Code, (b) by using the 200% declining balance
method over a seven year recovery period, switching to the
straight-line method for the first taxable year of the Indemnitee
during the term for which such method yields a larger allowance, (c)
assuming salvage value is zero, and (d) using a half-year convention.
LESSOR/OWNER TAX JURISDICTION means United States.
FSC BENEFITS are not applicable.
FSC BENEFIT INDEMNITY is not applicable
FSC EQUIPMENT CHANGE AMOUNT is not applicable.
FSC INDEMNITY MAXIMUM AMOUNT is not applicable.
ENGINE LEASE AGREEMENT
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SPECIAL TAX INDEMNITY
MACRS DEDUCTIONS INDEMNITY
(i) Lessee will on demand pay and indemnify Owner for any loss,
disallowance, or deferral of, or delay in claiming the MACRS Deductions
resulting from Lessee's using the Engine in such a manner as to cause
the Engine to be treated as "used predominantly outside the United
States" within the meaning of Section 168(g) of the Code as in effect
on the date of this Lease (hereinafter referred to as a "MACRS Loss").
In determining the indemnity required in connection with a MACRS Loss
to Owner under this Clause, Owner shall be assumed to be subject to a
combined U. S. and state income tax rate of (after giving effect to the
deductibility of such state income taxes for U. S. income tax purposes)
38% in 2001 and in each year thereafter (the "ASSUMED TAX RATE"), and
the Owner will be assumed to have sufficient taxable income to be taxed
at the Assumed Tax Rate after full utilization of the MACRS Deductions.
The amount payable under this indemnity shall be the amounts required
from time to time, which, after deduction by Owner of the amount of all
additional U. S., state, local, and foreign taxes required to be paid
by Owner in respect of the receipt or accrual of such amount, will
equal the increase in income taxes payable by (or not refundable to)
Owner as the result of such MACRS Loss, plus the amount of any actual
interest, penalties, and additions to tax payable by Tax Indemnitee
with respect to such MACRS Loss.
(ii) If, as the result of a MACRS Loss, the amount of the U. S. income taxes
payable by Owner for any taxable year shall be less than the amount of
such taxes that would have been payable by Owner had such MACRS Loss
not occurred (or as the result thereof, Owner shall receive a refund of
U. S. income taxes payable that shall be greater than the amount of
such refund , if any, that Owner would have received had such MACRS
Loss not occurred), then Owner shall pay to the Lessee the amount of
such increased reduction in taxes (or refund, including any actual
interest (net of any taxes payable with respect to such interest)
received thereon), plus any net additional U. S., state, local, or
foreign tax benefits actually realized by Owner as the result of any
payment made pursuant to this sentence (such reduction in, or increased
refund of, income taxes to be determined on a hypothetical basis, I.E.,
assuming Owner can utilize any additional tax benefits resulting from
the MACRS Loss at the Assumed Tax Rate); provided, however, that the
amount payable by Owner pursuant to this sentence shall not exceed the
sum of the amounts previously paid by the Lessee to Owner pursuant to
the preceding paragraph with respect to such MACRS Loss to the extent
not previously taken into account under this sentence.
PART V SUPPLEMENTAL RENT
The Supplemental Rent payable will be determined with reference to the
following:
ENGINE LEASE AGREEMENT
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ANNUAL SUPPLEMENTAL RENT ADJUSTMENT means an annual escalation of [*]
ASSUMED RATIO means a one hour to one cycle ratio (1:1).
ASSUMED RATIO ADJUSTMENT: For the purposes of Section 5.4(SUPPLEMENTAL RENT) of
the CTA, any adjustment from the Assumed Ratio shall be based upon the following
table:
<Table>
HOUR/CYCLE RATIO: [*] [*] [*]
SUPPLEMENTAL RENT AMOUNT: [*] [*] [*]
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ENGINE LLP SUPPLEMENTAL RENT means in respect of the LLP for each Engine [*]
for each Engine Cycle operated by that Engine during that calendar month or any
part of such calendar month during the Term.
ENGINE SUPPLEMENTAL RENT means in respect of each Engine, [*] for each Engine
Flight Hour (or fraction thereof) operated by that Engine during that calendar
month or any part of such calendar month during the Term.
PART VI MAINTENANCE AND RETURN CONDITION DEFINITIONS;
MAINTENANCE PAYMENTS AT REDELIVERY;
AD COMPLIANCE PERIOD means the 180 days following redelivery of the Engine in
compliance with Section 12 (RETURN OF ENGINES) of the CTA.
APPLICABLE FINANCIAL TEST means (a) a minimum tangible net worth determined in
accordance with GAAP of not less than Fifty Million Dollars (US$50,000,000.00),
and (b) aggregate cash and cash equivalents balances as reflected on the
Financial Information for the applicable quarter of not less than Twenty Million
Dollars (US$20,000,000.00).
EGT MARGIN means 15 degrees centigrade.
ENGINE CYCLES RESTRICTION means 1,600 Engine Cycles of life remaining to the
next scheduled removal for each Engine.
ENGINE FLIGHT HOURS RESTRICTION is not applicable.
MINIMUM COMPONENT CALENDAR LIFE is not applicable.
MINIMUM ENGINE CYCLES is not applicable.
MINIMUM ENGINE FLIGHT HOURS means 1,600 Engine Flight Hours of expected life
remaining to the next removal.
MINIMUM HARD TIME COMPONENT CYCLES is not applicable.
MINIMUM HARD TIME COMPONENT FLIGHT HOURS is not applicable.
ENGINE SUPPLEMENTAL RENT FHA TERMINATION AMOUNT with respect to an Engine means
the product of the number of Engine Flight Hours of operation on such Engine
since its last Engine Refurbishment and then applicable rate for payments of
Engine Supplemental Rent, less the
ENGINE LEASE AGREEMENT
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Service Credit Amount (if any) to which Lessor is entitled under the FHA
Assignment Agreement.
SERVICE CREDIT AMOUNT with respect to an Engine is the amount (if any) of the
Allocable Paid-In Base and LRU Charge (as defined in the FHA Assignment
Agreement) that is available to Lessor as a credit against maintenance service
from or on behalf of the Manufacturer under the FHA Assignment Agreement.
PART VII CHANGE OF CONTROL
For so long as the Lessor under this Lease is Aviation Financial Services Inc.
or any Affiliate of Aviation Financial Services Inc., Lessee agrees that it
shall comply with the terms of that certain Letter Agreement dated the date
hereof between Chautauqua Airlines, Inc. and Aviation Financial Services Inc.
ENGINE LEASE AGREEMENT
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SCHEDULE C
ENGINE LEASE
COMMON TERMS AGREEMENT
[ATTACH]
SF1 #88922 v7
ENGINE LEASE AGREEMENT [MSN]
C-1