KING & SPALDING
DRAFT: 2/28/96
All right, title and interest in and to this Lease Agreement and the
Aircraft covered hereby on the part of Wilmington Trust Company, as Owner
Trustee, has been assigned to and is subject to a security interest in favor of
The Bank of New York, as Indenture Trustee, under the Trust Indenture and
Security Agreement (Delta 1994-1) dated as of April 1, 1994, as amended and
restated as of March 1, 1996 (with the exceptions specified therein and as
amended or supplemented as permitted thereby), for the benefit of the holders of
the Certificates referred to in such Trust Indenture and Security Agreement.
This Lease Agreement has been executed in several counterparts. The sole
executed original counterpart containing the receipt therefor executed by The
Bank of New York, as Indenture Trustee, on the signature pages thereof is the
only original counterpart for purposes of applying Article 9 of the Uniform
Commercial Code, and no security interest herein may be perfected by delivery
and possession of any counterpart other than such original counterpart.
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LEASE AGREEMENT
(DELTA 1994-1)
dated as of April 1, 1994
Amended and Restated
as of
March 1, 1996
BETWEEN
WILMINGTON TRUST COMPANY,
as Owner Trustee,
LESSOR
AND
DELTA AIR LINES, INC.,
LESSEE
One McDonnell Douglas MD-11
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TABLE OF CONTENTS
Page
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SECTION 1. Definitions............................................... 1
SECTION 2. Acceptance Under Participation Agreement
and Lease................................................. 13
SECTION 3. Term, Rent and Rent Adjustment............................ 13
SECTION 4. Covenants, Representations and Warranties;
Lessor's Disclaimer of Warranties; Lessor's
Representations and Warranties............................ 16
SECTION 5. Renewal Options; Purchase Options;
Return of Aircraft........................................ 17
SECTION 6. Mortgages, Liens.......................................... 24
SECTION 7. Maintenance, Operation, Registration and
Insignia; Possession...................................... 24
SECTION 8. Replacement and Addition of Parts......................... 32
SECTION 9. Voluntary Termination..................................... 34
SECTION 10. Loss, Destruction, Requisition, etc....................... 37
SECTION 11. Insurance................................................. 44
SECTION 12. Inspection................................................ 48
SECTION 13. Assignment, Citizenship, etc.............................. 49
SECTION 14. Events of Default......................................... 49
SECTION 15. Remedies.................................................. 51
SECTION 16. Lessor's Right to Perform for Lessee...................... 54
SECTION 17. Covenant of Quiet Enjoyment............................... 55
SECTION 18. Further Assurances........................................ 55
SECTION 19. Notices................................................... 55
SECTION 20. No Set-Off, Counterclaim, etc............................. 56
SECTION 21. Successor Trustees and Rights of Trustees
as Lessor................................................. 56
SECTION 22. Miscellaneous............................................. 57
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Page
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SECTION 23. Trust Estate as Security for Lessor's
Obligations to Holders.................................... 57
SECTION 24. Investment of Security Funds.............................. 58
SECTION 25. Separate Counterparts..................................... 59
SECTION 26. Incorporation by Reference................................ 60
ANNEX I - Description of Trust Indenture and Security Agreement
and Lease Agreement As Previously Entered Into
EXHIBIT A - Termination Value and Stipulated Loss Value Tables
EXHIBIT B - List of Foreign Air Carriers
EXHIBIT C - Basic Rent Table
EXHIBIT D - Redelivery Certificate
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The interest of Lessor under this Lease Agreement
is subject to a security interest.
LEASE AGREEMENT
(DELTA 1994-1)
This LEASE AGREEMENT (DELTA 1994-1) dated as of April 1, 1994, as
amended and restated as of March 1, 1996, between WILMINGTON TRUST COMPANY, a
Delaware banking corporation, with its principal place of business at Rodney
Square North, Wilmington, Delaware, not in its individual capacity, except as
otherwise expressly set forth herein, but solely as Owner Trustee under the
Trust Agreement referred to in Section 1 hereof (herein called "Lessor"), and
DELTA AIR LINES, INC., a Delaware corporation, with its principal place of
business at Hartsfield Atlanta International Airport, Atlanta, Georgia (herein
called "Lessee").
WHEREAS, capitalized terms used herein but not otherwise defined have the
respective meanings set forth or referred to in Section 1 hereof;
WHEREAS, Lessor and Lessee have heretofore entered into the Original Lease,
as more fully described in Annex I hereto;
WHEREAS, the Interim Refinancing Loan Participant participated in the
payment of Lessor's Cost by providing an interim loan as evidenced by the
Interim Refinancing Loan Certificate issued to it;
WHEREAS, pursuant to Section 20 of the Original Participation Agreement,
Lessee, the Owner Participant, the Indenture Trustee and Lessor desire that the
Interim Refinancing Loan Certificate be prepaid with the proceeds from the
Certificates to be issued under the Indenture; and
WHEREAS, in connection with such refunding, Lessee, the Owner Participant,
Lessor and the Indenture Trustee desire that the Original Lease be amended and
restated as provided herein.
NOW THEREFORE, in consideration of the premises and the mutual agreements
contained herein and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree
that the Original Lease be and the same is hereby amended and restated in its
entirety as follows:
W I T N E S S E T H :
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SECTION 1. Definitions. The following terms have the following
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meanings for all purposes of this Lease Agreement, such
definitions to be equally applicable both to the singular and plural forms of
the terms herein defined:
"Act" means Subtitle VII of Title 49 of the United States Code.
---
"Affiliate" means, with respect to any person, any other person
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directly or indirectly 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") means 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.
"Aircraft" means the Airframe together with the three Engines
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described in the Lease Supplement, or any engine transferred to Lessor in
substitution for any of said Engines pursuant to Section 5(c), 9(b), 10(a)
or 10(b), whether or not any of such initial or substituted Engines may
from time to time be installed on the Airframe or on any other airframe.
"Airframe" means and includes: (i) the McDonnell Douglas MD-11
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airframe (excluding the Engines or engines from time to time installed
thereon) to be sold by Lessee to Lessor pursuant to the Participation
Agreement and leased by Lessor to Lessee hereunder and under the Lease
Supplement pursuant to Section 2 of the Original Lease and having the
United States FAA Registration Number and Manufacturer's serial number
specified in such Lease Supplement; (ii) any replacement airframe
substituted for the Airframe pursuant to Section 10; and (iii) except as
otherwise provided in Section 8, any and all Parts from time to time
incorporated in, installed on or attached to the Airframe, or removed
therefrom so long as title thereto remains vested in Lessor in accordance
with the terms of Section 8 after removal from the Airframe. Except as
otherwise set forth herein, when a replacement airframe is so substituted
and the Airframe is released from the Lien of the Indenture, the replaced
Airframe shall cease to be the Airframe.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended
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from time to time.
"Bankruptcy Default" means any event specified in Section 14(f), 14(g)
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or 14(h) which with the giving of notice or lapse of time or both would
constitute an Event of Default.
"Basic Rent" means the rent payable throughout the Term for the
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Aircraft pursuant to Sections 3(a) with respect to the Basic Term, as
adjusted pursuant to the provisions of Section 3(c), and any rent payable
pursuant to Section 5(a) with respect to the Renewal Term, if any.
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"Basic Term" has the meaning specified in Section 3(a).
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"Basic Term Commencement Date" means October 11, 1994.
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"Business Day" means any day other than a Saturday, Sunday or other
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day on which commercial banks in the States of New York, Georgia or
Delaware are authorized or required by law to close.
"Certificate" or "Certificates" has the meaning specified in the
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Indenture.
"Citizen of the United States" has the meaning set forth in 49 U.S.C.
----------------------------
Section 40102(a)(15) (and the regulations thereunder) or any analogous part
of any successor or superseding regulation or statute.
"Closing Date" has the meaning specified in the Participation
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Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
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to time, except as otherwise provided herein.
"Consent and Agreement" means the Consent and Agreement (Delta 1994-1)
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dated as of April 1, 1994 executed by the Manufacturer, as the same may be
amended, modified or supplemented from time to time.
"CRAF" means the Civil Reserve Air Fleet Program established pursuant
----
to 10 U.S.C. (S)(S) 9511-13 or any similar substitute program.
"Debt Rate" has the meaning specified in the Participation Agreement.
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"Default" means any event which with the giving of notice or lapse of
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time or both would constitute an Event of Default.
"Delivery Date" means April 12, 1994.
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"EBO Date" has the meaning specified in Schedule A to the
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Participation Agreement.
"EBO Percentage" has the meaning specified in Schedule A to the
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Participation Agreement.
An "Engine" means and includes: (i) each of the three Pratt & Whitney
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PW4460 engines listed by manufacturer's serial numbers in the Lease
Supplement, whether or not from time to time installed on the Airframe or
any other airframe, and (ii) any replacement engine substituted, pursuant
to Section 5(c), 9(b), 10(a) or 10(b), for any Engine; together in each
case with any and all Parts from time to time incorporated in,
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installed on or attached thereto, or removed therefrom as long as title
thereto remains vested in Lessor in accordance with Section 8 after removal
from such Engine. Except as otherwise set forth herein, when a replacement
engine is so substituted and the Engine for which the substitution is made
is released from the Lien of the Indenture, such replaced Engine shall
cease to be an Engine. The term "Engines" means, as of any date of
determination, the three Engines then leased hereunder.
"Engine Consent and Agreement" means the Engine Consent and Agreement
----------------------------
(Delta 1994-1) dated as of April 1, 1994 and executed by the Engine
Manufacturer, as the same may be amended, modified or supplemented from
time to time.
"Engine Manufacturer" means United Technologies Corporation, a
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Delaware corporation, and its successors and assigns.
"Event of Default" means each of the events specified in Section 14.
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"Event of Loss" means any of the following events which occur during
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the Term with respect to the Aircraft, the Airframe or any Engine: (i) loss
of such property or the use thereof due to theft or disappearance of such
property for a period of 120 days, or such longer period not to exceed one
year (or 180 days if Lessee's senior unsecured long-term debt is not rated
Investment Grade) from the time such loss initially occurred, but only so
long as the location of such property is known and Lessee is diligently
pursuing the recovery of such property (unless such loss constitutes an
Event of Loss under clause (ii) or clause (iii) below), or in any event if
such loss is continuing on the last day of the Term; (ii) loss of such
property due to destruction, damage beyond repair or rendition of such
property permanently unfit for normal use by Lessee for any reason
whatsoever; (iii) any damage to such property or other event which results
in an insurance settlement with respect to such property on the basis of a
total loss or constructive or compromised total loss; (iv) any seizure,
condemnation, confiscation or taking of, or requisition of title to or use
of, such property by any governmental authority or purported governmental
authority, but, in any case involving loss of use but not of title, only if
such loss of use continues for a period of twelve months or until the last
day of the Term, whichever occurs first, provided that if such loss of use
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results from action by the United States or any agency thereof, the
obligations of which have the full faith and credit of the United States,
only if such loss of use continues beyond the last day of the Term; (v) as
a result of any law, rule, regulation, order, or other action by the FAA,
the United States Department of Transportation or any other governmental
body (including any court) having jurisdiction, the use of such property in
the
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normal course of Lessee's business shall have been prohibited for a period
of six consecutive months, unless Lessee, prior to the expiration of such
six-month period, shall have undertaken and shall be diligently carrying
forward all steps which are necessary or desirable to permit the normal use
of such property by Lessee, but in any event if such prohibition is
continuing on the last day of the Term; or (vi) Lessee ceases to be a
"certificated air carrier" within the meaning of Section 1110 of the
Bankruptcy Code and, as a result thereof, the benefits of Section 1110 of
the Bankruptcy Code have, in the reasonable opinion of counsel chosen by
the Owner Participant or the Indenture Trustee, ceased to be available to
Lessor and the Indenture Trustee with respect to the Aircraft.
An Event of Loss with respect to the Aircraft shall be deemed to have
occurred if an Event of Loss occurs with respect to the Airframe. The date
of any Event of Loss shall be the date of such loss, damage, insurance
settlement, seizure, condemnation, confiscation, taking or requisition of
title or use or prohibition, except that for the purposes of clauses (i),
(iv) and (v) above, no Event of Loss shall be deemed to have occurred until
the expiration of all applicable periods referred to therein.
Notwithstanding the foregoing, (a) at the election of Lessee, any loss of
use described in clause (iv) above resulting from action by the United
States or any agency thereof continuing for a period of twelve months shall
be an Event of Loss upon the giving of notice by Lessee to Lessor within 30
days following the end of such twelve-month period and (b) if an Event of
Loss described in any of clauses (i), (iv) or (v) above shall have occurred
(including by reason of the foregoing clause (a)), Lessor may elect, on or
within 30 days following the date upon which such Event of Loss is deemed
to have occurred, that no Event of Loss has occurred, in which case the
Owner Participant shall be deemed to have elected irrevocably to terminate
this Lease pursuant to the fourth paragraph of Section 9(a).
"Excepted Payments" has the meaning specified in the Indenture.
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"FAA" means the Federal Aviation Administration, or its successors.
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"Fair Market Rent" has the meaning specified in Section 5(a)(ii).
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"Fair Market Value" has the meaning specified in Section 5(b)(ii).
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"FSC" means Larkspur International Sales, Inc., a Virgin Islands
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foreign sales corporation.
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"GTA" has the meaning specified in the Purchase Agreement Assignment.
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"Holder" has the meaning specified in the Indenture.
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"Indemnity Agreement" means the Indemnity Agreement (Delta 1994-1)
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dated as of April 1, 1994, as amended and restated as of March 28, 1995,
and as further amended and restated as of March 1, 1996, between Lessee and
the Owner Participant, as amended or supplemented from time to time.
"Indenture" means the Trust Indenture and Security Agreement (Delta
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1994-1) dated as of April 1, 1994, as amended and restated as of March 1,
1996, between Lessor (not in its individual capacity, except as expressly
provided therein, but solely as Owner Trustee) and the Indenture Trustee
(not in its individual capacity, except as expressly provided therein, but
solely as Indenture Trustee) relating to the Aircraft, as supplemented or
amended from time to time, including as supplemented by the Trust Agreement
and Trust Indenture Supplement.
"Indenture Estate" has the meaning specified in the Indenture.
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"Indenture Trustee" means The Bank of New York, a New York banking
-----------------
corporation, not in its individual capacity but solely in its capacity as
indenture trustee under the Indenture, and its permitted successors and
assigns as trustee thereunder.
"Indenture Trustee's Lien" means any Lien on the Indenture Estate
------------------------
resulting from (i) claims against the Indenture Trustee or The Bank of New
York in its individual capacity not related to the administration of the
Indenture Estate or any transactions contemplated by the Indenture or any
other Operative Document, (ii) any act or omission of the Indenture Trustee
or The Bank of New York in its individual capacity which is not related to
the transactions contemplated by the Operative Documents or is in violation
(to the extent any violation by The Bank of New York in its individual
capacity results from its negligence or negligent or willful misconduct) of
any of the terms of the Operative Documents or (iii) taxes or other claims
against the Indenture Trustee or The Bank of New York in its individual
capacity, not indemnified by Lessee under the Participation Agreement or
the Indemnity Agreement.
"Initial Indemnity Agreement" means the Indemnity Agreement (Delta
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1994-1) dated as of April 1, 1994 between the Lessee and the Owner
Participant.
"Interim Refinancing Loan Certificate" means the Loan Certificate in
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the initial outstanding principal amount of
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$79,600,000 issued on March 28, 1995 to the Interim Refinancing Loan
Participant pursuant to the Original Indenture.
"Interim Refinancing Loan Participant" means The Mitsubishi Trust and
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Banking Corporation, New York Branch, its successors and permitted assigns.
"Interim Term" has the meaning specified in Section 3(a).
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"Investment Grade" means a combination of any two of the following
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ratings: (i) a Moody's Investors Service, Inc. rating of Baa3 or better,
(ii) a Standard & Poor's Corporation rating of BBB- or better and (iii) a
Duff & Phelps rating of BBB- or better, each as defined on the date hereof.
If any of the foregoing rating organizations withdraws from the business of
rating corporate debt obligations, another nationally recognized
statistical rating organization making a rating on the relevant corporate
debt obligations may be substituted for the withdrawn rating organization
for the purpose of giving effect to the foregoing sentence, in which event
the rating of such other rating organization that is the equivalent of the
ratings specified in the foregoing sentence shall be used as the
appropriate standard.
"Lease Agreement", "this Lease Agreement", "this Lease", "this
--------------- -------------------- ---------- ----
Agreement", "herein", "hereunder" or other like words means and includes
--------- ------ ---------
this Lease Agreement (Delta 1994-1) and the Lease Supplement and any
amendment or supplement hereto or thereto entered into from time to time.
"Lease Supplement" means the Lease Supplement (Delta 1994-1) No. 1
----------------
dated the Delivery Date, including any amendments or supplements thereto
(including, without limitation, Lease Supplement No. 2 dated October 10,
1994).
"Lessor's Cost" means the amount set forth in Item 4 of Schedule A to
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the Participation Agreement.
"Lessor's Lien" means any Lien on the Indenture Estate or the Trust
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Estate resulting from (i) claims against Lessor, in its individual capacity
or as Owner Trustee, not related to Lessor's ownership of the Aircraft or
the administration of the Trust Estate or the Indenture Estate or any
transactions contemplated by the Trust Agreement, the Indenture or any
other Operative Document, (ii) any act or omission of Lessor, in its
individual capacity or as Owner Trustee, which is not related to the
transactions contemplated by the Operative Documents or is in violation (to
the extent any violation by the Owner Trustee in its individual capacity
results from its negligence or negligent or willful misconduct) of any of
the terms of the Operative Documents or (iii) taxes or other claims against
Lessor, in its individual capacity or as Owner
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Trustee, not indemnified by Lessee under the Participation Agreement or the
Indemnity Agreement.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease or
----
security interest.
"Manufacturer" means McDonnell Douglas Corporation, a Maryland
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corporation, and its successors and assigns.
"Net Economic Return" means the Owner Participant's anticipated after-
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tax yield, utilizing the multiple investment sinking fund method of
analysis, aggregate after-tax cash flow and no less than 85% of the amount
of annual FASB 13 earnings, in each case computed on the basis of the same
methodology and assumptions as were utilized by the Owner Participant in
determining Basic Rent, Stipulated Loss Value and Termination Value
percentages and the EBO Percentage in the schedules hereto and to the
Participation Agreement as of the Refunding Date, as such assumptions may
be adjusted for events which have been the basis of adjustments to Rent
pursuant to Section 3(c).
"Net Present Value of Rents" as of any date means the net present cost
--------------------------
to Lessee, discounted at [9.054%] per annum (computed on the basis of a
360-day year composed of twelve 30-day months and assuming that Basic Rent
due on a day which is not a Business Day is payable on the next succeeding
Business Day (without further accrual of interest)) compounded semi-
annually to such date, and expressed as a percentage of Lessor's Cost of
all unpaid Basic Rent payments during the Basic Term, as set forth in
Exhibit C, as amended from time to time.
"Operative Documents" means the following documents:
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(i) this Lease;
(ii) the Lease Supplement;
(iii) the Participation Agreement;
(iv) the Trust Agreement;
(v) the Indenture and the Certificates issued thereunder;
(vi) the Trust Agreement and Trust Indenture Supplement;
(vii) an AC Form 8050-2 Bill of Sale for the Aircraft (the "FAA
Bill of Sale"), executed by Lessee in favor of Lessor and
dated the Delivery Date;
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(viii) an additional full warranty bill of sale for the Aircraft
(together with the FAA Bill of Sale referred to in clause
(vii) above collectively called "Bills of Sale"), executed
by Lessee in favor of Lessor, dated the Delivery Date and
specifically referring to each Engine and the Airframe
constituting such Aircraft;
(ix) the Indemnity Agreement;
(x) the Purchase Agreement;
(xi) the Purchase Agreement Assignment;
(xii) the Consent and Agreement;
(xiii) the Engine Consent and Agreement; and
(xiv) the Pass Through Agreement.
"Original Documents" means the documents and instruments executed or
------------------
delivered on or prior to the Delivery Date in connection with the
transactions contemplated by the Original Participation Agreement,
including, without limitation, the Original Indenture, the Original Lease,
the Original Loan Certificate, the Interim Refunding Loan Certificate, the
Original Participation Agreement, the Original Trust Agreement, the Initial
Indemnity Agreement, and the Original Indemnity Agreement.
"Original Indenture" means the Trust Indenture and Security Agreement
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(Delta 1994-1) between the Owner Trustee and the Original Indenture
Trustee, as it was originally executed as of April 1, 1994 and delivered by
the parties thereto, as amended and supplemented as described in Annex I
hereto.
"Original Indenture Trustee" means NationsBank of Georgia, National
--------------------------
Association.
"Original Lease" means the Lease Agreement (Delta 1994-1) between
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Lessor and Lessee, as it was originally executed as of April 1, 1994 and
delivered by the parties thereto, as amended and supplemented as described
in Annex I hereto.
"Original Loan Certificate" means the Loan Certificate issued to the
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Original Loan Participant pursuant to the Original Participation Agreement
and the Original Indenture on the Delivery Date.
"Original Loan Participant" means The Sumitomo Bank, Limited, Atlanta
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Agency.
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"Original Participation Agreement" has the meaning specified in the
--------------------------------
Participation Agreement.
"Original Trust Agreement" means the Trust Agreement (Delta 1994-1) as
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it was originally executed as of April 1, 1994, between the Owner
Participant and Lessor in its individual capacity, as supplemented by the
Trust Agreement and Trust Indenture Supplement.
"Owner Participant" means the entity executing the Participation
-----------------
Agreement as the Owner Participant and each permitted successor and assign
thereof pursuant to Section 9.01 of the Trust Agreement and Section 16 of
the Participation Agreement.
"Owner Participant's Lien" means any Lien on the Indenture Estate or
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the Trust Estate resulting from (i) claims against the Owner Participant
not related to the Owner Participant's beneficial interest in the Aircraft
or any transactions contemplated by any of the Operative Documents, (ii)
any act or omission of the Owner Participant which is not related to the
transactions contemplated by the Operative Documents or is in violation of
any of the terms of the Operative Documents or (iii) taxes or other claims
against the Owner Participant or the Trust Estate not indemnified by Lessee
under the Participation Agreement or the Indemnity Agreement.
"Owner Trustee" has the meaning specified in the Participation
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Agreement.
"Part" or "Parts" means all appliances, instruments, accessories,
---- -----
seats or other equipment or parts of whatever nature, except Engines or
engines, which are from time to time a part of or installed on or attached
to the Airframe or any Engine.
"Participation Agreement" means the Participation Agreement (Delta
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1994-1) dated as of April 1, 1994, as amended and restated as of March 1,
1996, among Lessee, Lessor (not in its individual capacity, except as
expressly provided therein, but solely as Owner Trustee), the Owner
Participant, the Original Loan Participant, the Pass Through Trustee and
the Indenture Trustee (not in its individual capacity, except as expressly
provided therein, but solely as Indenture Trustee), as amended or
supplemented from time to time.
"Pass Through Agreement" has the meaning specified in the
----------------------
Participation Agreement.
"Pass Through Trustee" has the meaning specified in the Participation
--------------------
Agreement.
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"Past Due Rate" means a fluctuating rate of interest per annum equal
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to the rate of interest announced publicly by Citibank, N.A. in New York,
New York from time to time as such bank's base rate plus 2%, each change in
such fluctuating rate to take effect simultaneously with the corresponding
change in such rate (in each case, calculated on the basis of a 365 or 366
day year, as the case may be, and the actual number of days elapsed).
"Payment Date" has the meaning specified in Section 3(a).
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"Payment Default" means any event specified in Section 14(a) or 14(b)
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which with the giving of notice or lapse of time or both would constitute
an Event of Default.
"Permitted Air Carrier" has the meaning specified in Section 7(b)(A).
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"Permitted Lien" means any Lien to the extent excepted from the
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Lessee's obligation to remove Liens pursuant to Section 6.
"Permitted Sublessee" means any sublessee or transferee under any
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sublease or transfer permitted pursuant to Section 7(b).
"Purchase Agreement" has the meaning specified in the Purchase
------------------
Agreement Assignment.
"Purchase Agreement Assignment" means the Purchase Agreement
-----------------------------
Assignment (Delta 1994-1) dated as of April 1, 1994 between Lessee and
Lessor, as amended or supplemented from time to time.
"Recapture Period" means the period beginning on the Delivery Date and
----------------
ending on September 30, 2001 or such longer period over which the Owner
Participant may be required to claim depreciation deductions for federal
income tax purposes as a result of a "Loss" (as defined in the Indemnity
Agreement).
"Refunding Date" has the meaning specified in the Participation
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Agreement.
"Renewal Term" means the extension of the term of this Lease provided
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for in Section 5(a).
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"Requisitioning Government" means any governmental agency or
-------------------------
instrumentality that requisitions the Airframe or any Engine during the
Term.
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"Responsible Officer" has the meaning specified in the Participation
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Agreement.
"Seller" has the meaning specified in the Participation Agreement.
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"Stipulated Loss Value" for the Aircraft as of any particular date of
---------------------
computation means the greater of (x) the amount determined for such date in
accordance with Section 10, as increased or reduced in accordance with the
terms of Section 3(c), and (y) an amount at least sufficient to pay in
full, as of the date of payment thereof, the aggregate unpaid principal
amount of the Certificates outstanding on such date of payment, together
with the accrued and unpaid interest thereon. It is understood and agreed
that the amounts set forth on Exhibit A, for dates other than Payment
Dates, fully reflect appropriate Basic Rent accruals and credits of
unearned Basic Rent and accordingly no further accrual or credit shall be
required whenever Stipulated Loss Value is calculated with reference to any
such date. To the extent that an event giving rise to an obligation to pay
Stipulated Loss Value occurs and the actual date on which the loss of tax
benefits resulting from such event occurs shall be earlier or later than
the date assumed in calculating the United States federal income tax
consequences reflected in the applicable Stipulated Loss Value, such
Stipulated Loss Value shall be appropriately adjusted upwards or downwards
to reflect the actual date of such loss of tax benefits but shall be
otherwise based on the original assumptions used in determining such
Stipulated Loss Value; provided, however, that in no event shall an
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adjustment hereunder or contemplated by Section 3(c) result in a Stipulated
Loss Value lower than as provided by clause (y) above. During the Renewal
Term, if any, "Stipulated Loss Value" means the amount determined pursuant
to Section 5.
"Supplemental Rent" means any and all amounts liabilities and
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obligations (other than Basic Rent) which Lessee assumes, becomes obligated
to or agrees to pay hereunder, under the Participation Agreement, under the
Indemnity Agreement and under any other Operative Document to Lessor or
others including, without limitation, Termination Value and Stipulated Loss
Value payments, indemnity payments, any premium payable pursuant to the
Indenture, and any amount payable by the Owner Trustee in respect of the
Certificates or the Indenture (excluding principal and interest) and the
Trust Agreement.
"Term" means and includes the Interim Term, the Basic Term and the
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Renewal Term, if any, for the Aircraft.
"Termination Date" has the meaning set forth in Section 9(a).
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"Termination Value" for the Aircraft as of any particular date of
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computation means the greater of (x) the amount determined for such date in
accordance with Section 9, as increased or reduced in accordance with the
terms of Section 3(c), and (y) an amount at least sufficient to pay in
full, as of the date of payment thereof, the aggregate unpaid principal
amount of the Certificates outstanding on such date of payment, together
with the accrued and unpaid interest thereon. It is understood and agreed
that the amounts set forth on Exhibit A, for dates other than Payment
Dates, fully reflect appropriate Basic Rent accruals and credits of
unearned Basic Rent and accordingly no further accrual or credit shall be
required whenever Termination Value is calculated with reference to any
such date. To the extent that an event giving rise to an obligation to pay
Termination Value occurs and the actual date on which the loss of tax
benefits resulting from such event occurs shall be earlier or later than
the date assumed in calculating the United States federal income tax
consequences reflected in the applicable Termination Value, such
Termination Value shall be appropriately adjusted upwards or downwards to
reflect the actual date of such loss of tax benefits but shall be otherwise
based on the original assumptions used in determining such Termination
Value; provided, however, that in no event shall such an adjustment or any
-------- -------
adjustment contemplated by Section 3(c) result in a Termination Value lower
than as provided by clause (y) above. During the Re-newal Term, if any,
"Termination Value" means the amount specified pursuant to Section 5.
"Trust Agreement" means the Trust Agreement (Delta 1994-1) dated as of
---------------
April 1, 1994, as amended and restated as of March 1, 1996, between the
Owner Participant and Lessor in its individual capacity (receipt of an
executed counterpart of which is hereby acknowledged by Lessee), as
supplemented or amended from time to time, including as supplemented by the
Trust Agreement and Trust Indenture Supplement.
"Trust Agreement and Indenture Supplement" means the Trust Agreement
----------------------------------------
and Trust Indenture Supplement (Delta 1994-1) dated as of the Delivery
Date.
"Trust Estate" has the meaning specified in the Trust Agreement.
------------
SECTION 2. Affirmation of Acceptance and Lease. Each of Lessor, having
-----------------------------------
accepted delivery of the Aircraft from Lessee on the Delivery Date and having
simultaneously leased the Aircraft to Lessee, and Lessee, having leased the
Aircraft from Lessor on the Delivery Date, as evidenced by the execution by
Lessor and Lessee of the Lease Supplement (which is incorporated by reference
herein), hereby affirms the terms and conditions of the Original Lease as herein
amended and restated and of the Purchase Agreement Assignment.
- 13 -
SECTION 3. Term, Rent and Rent Adjustment. (a) Term and Basic Rent. The
------------------------------ -------------------
Interim Term commenced on the Delivery Date and ended at 12:01 a.m. EST or EDT,
as the case may be, on the Basic Term Commencement Date. The Basic Term shall
commence upon the expiration of the Interim Term and shall end at 11:59 pm. EST
or EDT, as the case may be, on the twenty-third anniversary of the Basic Term
Commencement Date, or such earlier date on which this Lease is terminated as
provided herein.
Throughout the Basic Term on each semi-annual date that corresponds to
the Basic Term Commencement Date (each such date and, if Lessee exercises its
option to renew this Lease pursuant to Section 5(a), the corresponding dates in
April and October during the Renewal Term, if any, being referred to herein as a
"Payment Date"), Lessee shall pay to Lessor in immediately available funds Basic
Rent in the amount specified in Exhibit C for such date as such amount may be
adjusted pursuant to Section 3(c). Anything herein or in the Participation
Agreement to the contrary notwithstanding, on each Payment Date, Lessee shall
pay as Basic Rent that amount which, under the circumstances and in any event,
is at least sufficient to pay in full, as of such Payment Date, the aggregate
principal amount of due and unpaid installments on the Certificates outstanding
on such Payment Date, together with the accrued and unpaid interest thereon.
(b) Supplemental Rent. Lessee also shall pay any and all Supplemental
-----------------
Rent promptly as it shall become due and owing (such payment to be made to the
party entitled thereto or, if the payee is not specified, then to Lessor). If
Lessee fails to pay any Supplemental Rent, Lessor, or any other party to the
Operative Documents entitled to payment thereunder, shall have the same rights,
powers and remedies provided for herein or by law or equity or otherwise as in
the case of nonpayment of Basic Rent. Lessee shall also pay as and when due as
Supplemental Rent any premium payable by Lessor upon a prepayment or purchase of
the Certificates pursuant to the Indenture. Lessee will also pay interest on
demand as Supplemental Rent, to the extent permitted by applicable law, as
follows: (i) with respect to payments of Supplemental Rent to, or to be received
by, any Holder, and with respect to the portion of a Basic Rent payment
scheduled to be applied to Lessor's payments of principal and interest on the
Certificates, at a rate per annum equal to (and computed on the same basis as)
the rate applicable to the Certificates during the relevant period or overdue
period, as the case may be, and (ii) with respect to all other payments of
Supplemental Rent and with respect to the portion of a Basic Rent payment not
scheduled to be applied to Lessor's payments of principal and interest on the
Certificates, at the Past Due Rate, on any part of any installment of Basic Rent
not paid when due for the period during which the same is overdue and on any
payment of Supplemental Rent payable but not paid when due or demanded by the
recipient entitled thereto for the period until the same is paid.
(c) Adjustments. The amounts of Basic Rent set forth in Exhibit C
-----------
hereto and the percentages for Stipulated Loss Value and
- 14 -
Termination Value set forth in Exhibit A hereto and the EBO Percentage shall be
adjusted from time to time (upward or downward) in the manner set forth in
Section 3(e) to reflect (i) any refunding of the Certificates pursuant to
Section 20 of the Participation Agreement, and (ii) [intentionally omitted]. Any
such adjustment shall be set forth in an amendment or supplement complying with
the last sentence of Section 3(a); provided, however, that the execution and
-------- -------
delivery of such an amendment or supplement shall not be a condition to the
effectiveness of any adjustment required by the terms hereof.
(d) Manner of Making Payments; Payment to Indenture Trustee. All
-------------------------------------------------------
payments pursuant to this Lease shall be received by 12:00 noon Eastern Standard
(or Daylight) Time on the date payment is due in U.S. dollars and in immediately
available funds. If any Payment Date is not a Business Day, then payment shall
be due on the next succeeding Business Day without interest or penalty. All
payments of Rent and all other amounts payable by Lessee hereunder (other than
Excepted Payments, which shall be paid to the person entitled thereto), shall be
paid by Lessee to Lessor at its office at 1100 North Market Street, Rodney
Square North, Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration, or as Lessor may otherwise specify by notice. So long as the
Indenture has not been discharged pursuant to Section 14.01 thereof, Lessor
hereby directs, and Lessee agrees, that all payments of Rent and all other
amounts payable by Lessee hereunder (other than Excepted Payments, which shall
be paid to the person entitled thereto) shall be paid directly to the Indenture
Trustee at its office at 100 Ashford Center North, Suite 520, Atlanta, Georgia
30338, Attention: Corporate Trust Lease Administration, or as the Indenture
Trustee may otherwise specify by notice, at such time so as to be received by
the Indenture Trustee prior to 12:00 noon Eastern Standard Time or Eastern
Daylight Time on the date of payment.
(e) Manner of Making Adjustments. All adjustments pursuant to Section
----------------------------
3(c) shall be made as promptly as practicable after either the Owner Participant
or Lessee gives written notice to the other that an event has occurred which
might require an adjustment. All adjustments shall be made in a manner which (A)
maintains the Owner Participant's Net Economic Return, (B) to the extent
possible consistent with clause (A), minimizes the Net Present Value of Rents
and (C) complies with the requirements of the last sentence of Section 3(a);
provided, however, that the EBO Percentage will in all cases be adjusted to the
percentage which, when multiplied by Lessor's Cost, is the greatest of (i) the
Termination Value as of the EBO Date, (ii) [$__________] and (iii) the present
value as of the EBO Date of (A) the remaining Basic Rent plus (B) [$__________]
(using a 14.55% discount rate assuming semi-annual payments). Any recalculation
of Basic Rent, Stipulated Loss Value percentages and Termination Value
percentages and the EBO Percentage shall be calculated by the Owner Participant,
subject to verification by Lessee and Babcock & Brown Financial Corporation, on
the basis of the same methodology and assumptions
- 15 -
used by the Owner Participant in determining the Basic Rent, Stipulated Loss
Value percentages and Termination Value percentages and the EBO Percentage as of
the Refunding Date (including compliance with Revenue Procedures 75-21 and 75-28
and Section 467 of the Code), except as such assumptions have been modified
hereunder. All adjustments (i) shall be made so as to avoid characterization of
the Lease as a "disqualified leaseback or long-term agreement" within the
meaning of Section 467 of the Code (to the extent of compliance with Section 467
of the Code as in effect on the Delivery Date, it being understood that, to the
extent that the schedule of Basic Rent complies on the Delivery Date with any
grandfather or similar provisions in any regulations under Section 467 or other
administrative pronouncement interpreting Section 467 promulgated or issued
after the Delivery Date, such structure shall be deemed to be in compliance with
Section 467 on the Delivery Date) and to avoid any additional risk of such
characterization and (ii) shall be in compliance with the requirements of
Revenue Procedure 75-21 and Sections 4.02(5), 4.07(1), 4.07(2) and, on a
prospective basis, 4.08(1) of Rev. Proc. 75-28. If Lessee believes that such
calculations by the Owner Participant are in error and after consultation Lessee
and Owner Participant are unable to agree on the proper adjustment, then a
nationally recognized firm of accountants selected by the Owner Participant and
reasonably acceptable to Lessee shall verify the Owner Participant's final
calculations. The Owner Participant will make available to such firm the
methodology and assumptions referred to above and any changes thereto made
hereunder (subject to the execution by such firm of a confidentiality agreement
reasonably acceptable to the Owner Participant prohibiting disclosure of such
methodology and assumptions to any third party including Lessee). The
determination by such firm of accountants shall be final. The Owner Participant
will pay the reasonable costs and expenses of the verification if it results in
a decrease in Basic Rent which decreases the Net Present Value of Rents by more
than ten basis points from the Net Present Value of Rents as recalculated by the
Owner Participant. In all other cases, Lessee will pay such costs and expenses.
(f) Obligations at Lessee's Expense. All obligations of Lessee or any
-------------------------------
sublessee or transferee in this Lease shall be done, performed or complied with
at Lessee's cost and expense, unless otherwise expressly stated.
SECTION 4. Covenants, Representations and Warranties; Lessor's Disclaimer
--------------------------------------------------------------
of Warranties; Lessor's Representations and Warranties. NONE OF LESSOR (IN ITS
- ------------------------------------------------------
INDIVIDUAL CAPACITY OR AS OWNER TRUSTEE), THE OWNER PARTICIPANT, ANY HOLDER OR
THE INDENTURE TRUSTEE MAKES, HAS MADE OR SHALL BE DEEMED TO MAKE OR HAVE MADE,
AND EACH HAS AND WILL BE DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, VALUE,
CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS OR SUITABILITY FOR
PARTICULAR USE OR PURPOSE OF THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE
OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF
ANY
- 16 -
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF ANY
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY
PART THEREOF, except that Lessor, in its individual capacity, hereby represents
and warrants that (i) on the Delivery Date it received whatever title was
conveyed to it by Lessee, (ii) on the Delivery Date and the Refunding Date, the
Aircraft was and is free of Lessor's Liens attributable to Lessor in its
individual capacity, and (iii) on the date of any transfer of Lessor's right,
title and interest in the Airframe or in an Engine or the Engines or in the
Aircraft pursuant to Section 5, 9 or 10, the Aircraft, Airframe, or the Engine
or Engines, as the case may be, shall be free of Lessor's Liens attributable to
Lessor in its individual capacity. None of the provisions of this Section 4 or
any other provision of this Agreement shall amend, modify or otherwise affect
the representations, warranties or other obligations (express or implied) of the
Manufacturer or the Engine Manufacturer or any subcontractor or supplier of the
Manufacturer or the Engine Manufacturer with respect to the Airframe, the
Engines, or any Parts or release the Manufacturer or the Engine Manufacturer or
any such subcontractor or supplier from any such representation, warranty or
obligation. Unless an Event of Default shall have occurred and be continuing,
Lessor shall assign or otherwise make available to Lessee such rights as Lessor
may have under any representation, warranty or other obligation with respect to
the Aircraft made by the Manufacturer or any of its subcontractors or suppliers
or any other claims against the Manufacturer or any such subcontractor or
supplier with respect to the Aircraft; provided that any proceeds held while any
--------
Event of Default or Payment Default shall have occurred and be continuing shall
be held pursuant to Section 24 hereof as security for Lessee's obligations
hereunder and under the Participation Agreement and the Indemnity Agreement.
Lessor represents and warrants in its individual capacity that it is a Citizen
of the United States.
SECTION 5. Renewal Options; Purchase Options; Return of Aircraft.
-----------------------------------------------------
(a) Renewal Option. (i) Not more than 540 days nor less than 180 days prior to
--------------
the last day of the Basic Term, Lessee may provide irrevocable written notice (a
"Preliminary Notice") to Lessor that it shall exercise either the option to
renew this Lease under this Section 5(a) or the option to purchase the Aircraft
at the end of the Basic Term under Section 5(b). If such Preliminary Notice is
given by Lessee, then at least 30 days prior to the end of the Basic Term Lessee
shall provide a further notice (a "Definitive Notice") specifying which option
it intends to elect. A Definitive Notice may be given only if no Event of
Default or Payment Default has occurred and is continuing at the time such
Definitive Notice is given, and provided that this Lease has not otherwise
--------
expired or terminated. Lessee may elect in such Definitive Notice to extend the
term of this Lease for a Renewal Term, if any, under all the terms, provisions
and conditions of this Lease, for a period selected by Lessee of not less than
one year nor more than three years, commencing on the expiration of the
- 17 -
Basic Term. The Basic Rent for the Aircraft during the Renewal Term, if any,
shall be payable semi-annually in advance on each Payment Date during the
Renewal Term, if any, and shall be the Fair Market Rent. The Stipulated Loss
Value as of any date during the Renewal Term, if any, shall be equal to the Fair
Market Value of the Aircraft, as defined in paragraph (b)(ii) of this Section 5,
determined as of the commencement date of the Renewal Term, if any, minus, if
such date is not a Payment Date, the pro rata amount of Basic Rent paid on the
preceding Payment Date and attributable to the period from such date to the next
Payment Date (or the last day of the Renewal Term, as the case may be). If no
Preliminary Notice is delivered by Lessee to Lessor pursuant to this Section
5(a) on or before the day specified therefor, Lessee shall be deemed to have
waived any right to renew this Lease. If after having given a Preliminary Notice
Lessee fails to deliver a Definitive Notice pursuant to this Section 5(a) or
Section 5(b), and on the last date on which a Definitive Notice could have been
given pursuant to this Section 5(a) or 5(b) no Event of Default or Payment
Default has occurred and is continuing, Lessee shall be deemed to have elected
to renew the Lease under this Section 5(a) for a period of one year.
(ii) The term "Fair Market Rent" means an amount determined in
accordance with the provisions of Section 5(d) on the basis of, and equal in
amount to, the rent which would be obtained in an arm's-length net lease
transaction between an informed and willing lessee and an informed and willing
lessor, neither being under any compulsion to lease. In such determination, it
shall be assumed that the Aircraft is in (and registered in) the United States
and is in the better of its actual condition or the condition required under
this Lease in the case of return of the Aircraft pursuant to Section 5(c). Such
determination shall also reflect the fact that Basic Rent during the Renewal
Term, if any, is payable semi-annually in advance.
(b) Purchase Options. (i) If this Lease has not otherwise expired or
----------------
terminated, Lessee may elect (A) by notice delivered to Lessor not more than 180
or less than 90 days prior to the EBO Date, to purchase the Aircraft on the EBO
Date, (B) in the Definitive Notice referred to in Section 5(a), to purchase the
Aircraft at the end of the Basic Term or (C) if no Event of Default or Payment
Default has occurred and is continuing on the date of such notice, by
irrevocable written notice given at least 180 days prior to the end of the
Renewal Term, if any, to purchase the Aircraft at the end of the Renewal Term,
if any. The purchase price on the EBO Date shall be an amount equal to Lessor's
Cost multiplied by the EBO Percentage. The purchase price at the end of the
Basic Term and at the end of the Renewal Term, if any, shall be Fair Market
Value (calculated as at the end of the Basic Term or the Renewal Term, as the
case may be). On any such purchase date, and as a condition to the sale of the
Aircraft on such date, Lessee shall also pay all other amounts, whether past due
Basic Rent, Supplemental Rent (including premium, if any), or otherwise, owing
by Lessee to Lessor or any other Person under the Operative
- 18 -
Documents on such purchase date, including the installment of Basic Rent due on
the EBO Date if such installment is designated on Exhibit C as payable in
arrears. In the case of any purchase pursuant to clause (A) above on the EBO
Date, if Lessee shall have caused the indebtedness represented by the
Certificates to be a direct and full recourse obligation of Lessee in accordance
with clause (B) of Section 16(c) of the Participation Agreement, the principal
amount of, and accrued interest on, the Certificates outstanding on the EBO Date
shall be credited against the purchase price payable on the EBO Date. If Lessee
fails to deliver to Lessor the Preliminary Notice pursuant to Section 5(a) or
the notice referred to in either clause (A) or (C) of this Section 5(b), in any
such case on or before the day specified therefor, Lessee shall be deemed to
have waived the applicable right to purchase the Aircraft hereunder.
(ii) The term "Fair Market Value" means an amount determined in
accordance with the provisions of Section 5(d) on the basis of, and equal in
amount to, the value which would be obtained in an arm's-length transaction
between an informed and willing purchaser under no compulsion to buy and an
informed and willing seller under no compulsion to sell. In such determination,
it shall be assumed that the Aircraft is in (and registered in) the United
States and is in the better of its actual condition or the condition required
under this Lease in the case of return of the Aircraft pursuant to Section 5(c)
except that for purposes of Section 15(c), Fair Market Value shall be determined
on an "as is, where-is" basis, and if Lessor does not obtain possession of the
Aircraft pursuant to Section 15(a), Fair Market Value for purposes of Section
15(c) shall be deemed to be zero.
(iii) If Lessee elects to purchase the Aircraft, upon timely payment
to Lessor of an amount equal to the purchase price for the Aircraft and all
other amounts owing by Lessee to Lessor and the other parties to the
Participation Agreement (whether as Supplemental Rent or otherwise) hereunder,
under the Participation Agreement or under the Indemnity Agreement, Lessor will
transfer to Lessee, without recourse or warranty, except as set forth in Section
4, all of Lessor's right, title and interest in and to the Aircraft. In
connection with such transfer, Lessee shall prepare and Lessor shall execute or
forward to the Indenture Trustee for execution, as the case may be, all in
recordable form, a bill of sale evidencing such transfer, a termination of this
Lease, a release of the Indenture and such other documents (including Uniform
Commercial Code termination statements and opinions of counsel) as Lessee may
reasonably request.
(c) Return of Aircraft. Unless the Aircraft is purchased by Lessee,
------------------
upon the termination or expiration of this Lease (including termination as a
result of a rejection hereof pursuant to any provision of the Bankruptcy Code or
upon demand for the Aircraft pursuant to Section 15), Lessee will return the
Aircraft by delivering it to Lessor on the last day of the Term (including the
date specified in any court order authorizing such a
- 19 -
rejection) or on the Termination Date, or on the date specified under Section
15(c), as the case may be, at Hartsfield Atlanta International Airport or at one
of Lessee's domestic United States McDonnell Douglas MD-11 maintenance
facilities having the capability to maintain avionics equipment as selected by
Lessor at least 30 days, or 10 days in the case of a return pursuant to Section
15 or in connection with such a rejection, prior to such return. Upon such
return, the Aircraft (i) shall be in good operating condition and shall possess
a valid certificate of airworthiness for commercial passenger operation issued
by the FAA, (ii) shall be clean by airline standards and in the condition
required to be maintained hereunder, (iii) shall, unless otherwise requested by
Lessor to retain the then existing registration of the Aircraft, be duly
registered with the FAA in the name of Lessor or its designee, (iv) shall be in
a passenger configuration generally used by Lessee in scheduled international
commercial service, (v) shall be free and clear of all Liens (except Owner
Participant's Liens and Lessor's Liens) including any rights of third parties
under pooling, interchange, overhaul, repair or similar agreements or
arrangements and (vi) shall be in compliance with Sections 7 and 8 hereof and
with all laws, rules, regulations and orders (including airworthiness
directives) of any government or governmental authority having jurisdiction
(domestic or foreign) over the Aircraft. For purposes of clause (vi) above, the
Aircraft shall not be considered to be in compliance with an airworthiness
directive if the maintenance or alteration prescribed in such directive has not
been accomplished and would have been required to be accomplished on or prior to
the end of the Term or the Termination Date, as the case may be, pursuant to the
provisions of clause (ii) of the first sentence, and pursuant to the second and
third sentences, of Section 7(a). Upon such return, the Aircraft shall be fully
equipped and have installed thereon the Engines or the same number of engines
owned by Lessee of the same make and model as the Engines which were described
in the Lease Supplement (or other engines of the same or another manufacturer
suitable for installation and use on the Airframe, provided that replacement
--------
engines shall be of identical make and model (and if one replacement engine is
being returned, such engine shall be of the make and model identical to that of
the Engines being returned together therewith and any engines of a different
manufacturer than the original Engines shall be then commonly used in the
commercial passenger aviation industry on MD-11 series airframes) and be in at
least as good operating condition and have at least the same value and utility
as the Engines being replaced, assuming such Engines were in the condition
required hereunder) free and clear of all Liens (other than Lessor's Liens and
Owner Participant's Liens) including any rights of third parties under pooling,
interchange, overhaul, repair or similar agreements or arrangements. Lessee will
provide no storage for the Aircraft following the last day of the Term or the
Termination Date.
In connection with any return of the Aircraft pursuant to the
preceding paragraph, Lessee will comply with any request made by Lessor at least
10 Business Days prior to such return to the
- 20 -
effect that, subsequent to compliance with (or waiver by Lessor of) the
preceding paragraph, Lessee will fly the Aircraft (on a route determined by
Lessee) to a location either inside or outside the United States reasonably
selected by Lessor at which physical possession will be turned over to Lessor.
Lessee shall not be required to commence any such flight until Lessor shall have
executed and delivered to Lessee a certificate in the form of Exhibit D. The
costs of insurance, landing fees, fuel and crew for such flight shall be borne
(i) by Lessee, if the final destination of such flight is a location within the
48 contiguous states of the United States and (ii) by Lessor if the final
destination of such flight is any other location. All other costs and expenses
shall be for Lessor's account. Lessee shall not be required to begin or continue
any such flight if doing so would in Lessee's opinion require any further
maintenance, modifications, repairs or other activities by Lessee not required
upon delivery of the Aircraft pursuant to the preceding paragraph or if doing so
would require any export certificate of airworthiness or governmental approval
(domestic or foreign) which has not been obtained by Lessor at Lessor's expense.
Lessee represents that it has adopted a time-related maintenance visit
program with respect to the Airframe and a condition monitoring program with
respect to the Engines. On return, (i) the Airframe shall have at least 1,400
hours of operation remaining to each of the next scheduled letter check (or if,
under Lessee's FAA approved maintenance program the maximum number of hours of
operation permitted between letter checks is less then 1,400, Lessee shall
perform the next required letter check on the Airframe) and the next scheduled
heavy maintenance visit, and (ii) the cycles of operation remaining on the
lowest life limited Part on each Engine shall be not less than 700 cycles per
Engine and 2,800 cycles in the aggregate. If Lessee adopts a maintenance program
other than a time-related maintenance program with respect to the Airframe or a
condition monitoring program with respect to the Engines, Lessee promptly shall
notify Lessor of the adoption of such maintenance program, and Lessee and Lessor
in good faith shall negotiate provisions with respect to such maintenance
program substantially equivalent to the return conditions set forth in this
Section 5(c). It is understood and agreed that a letter check shall have the
same work content as a "C" check and that a heavy maintenance visit shall have
the same work content as a "4C" check.
If any engines not owned by Lessor are returned with the Airframe,
Lessee will, at its own expense and concurrently with such delivery, (i) furnish
Lessor with a full warranty bill of sale, in form and substance satisfactory to
Lessor and the Indenture Trustee, if the Lien of the Indenture is still in
effect, covering each such engine and with evidence of Lessee's title to such
engine (including an opinion of counsel for Lessee, reasonably satisfactory to
Lessor, which may rely on an attached opinion of counsel for any Permitted
Sublessee with respect to any engine previously owned by such Permitted
Sublessee, as to such title and
- 21 -
the absence of all Liens) and (ii) take such other action as Lessor reasonably
requests in order that title to such engine shall be duly and properly vested in
Lessor free and clear of all Liens (other than Lessor's Liens) and otherwise
comply with Section 10(b) hereof. Upon full compliance with the terms of this
Section 5(c), Lessor will transfer to Lessee, without recourse or warranty,
except as set forth in Section 4, all Lessor's right, title and interest in and
to the Engines not returned with the Airframe.
Upon any return of the Aircraft (i) all letters, paint or marks on
such Aircraft identifying the interest of Lessee or any Permitted Sublessee
shall have been removed or painted over in a workmanlike manner with areas
thereof refinished to match adjacent areas; and (ii) Lessee shall deliver to
Lessor all relevant original (or photocopied or microfilmed copies thereof) logs
and all original (or photocopied or microfilmed copies thereof) inspection,
modification and maintenance records required to be maintained or actually
maintained with respect to such Aircraft under Lessee's or any Permitted
Sublessee's FAA approved maintenance program and, to the extent such records are
necessary for the purpose of reregistration of the Aircraft with the FAA upon
return, all original (or photocopied or microfilmed copies thereof) records
maintained with respect to the Aircraft under the maintenance program approved
by the aeronautical authority of any other country of registry of the Aircraft.
Lessee shall invoice Lessor, and Lessor shall pay to Lessee, provided no Event
of Default, Payment Default or Bankruptcy Default shall have occurred and be
continuing, the amount of Lessee's cost for any fuel and oil on board the
Aircraft when returned.
During the last twelve months of the Term (unless Lessee shall have
irrevocably elected to purchase the Aircraft or renew this Lease in accordance
with the terms of this Lease), with reasonable notice, Lessee will cooperate,
and cause any Permitted Sublessee to cooperate, at Lessor's sole cost, in all
reasonable respects with the efforts of Lessor to (1) sell or lease the
Aircraft, including without limitation, permitting prospective purchasers or
lessees to inspect the Aircraft and any original (or photocopied or microfilmed
copies thereof) logs and inspection, modification and maintenance records
relating to the Aircraft then required to be retained by the FAA or by the
comparable government agency of the country in which the Aircraft is registered,
all in accordance with Section 12 hereof and (2) preserve Owner Participant's
ability to have income realized from the remarketing of the Aircraft qualify as
"exempt foreign trade income" under Section 923 of the Code or as income
eligible for exemption or exclusion pursuant to any successor or other provision
of the Code; provided that any such cooperation shall not interfere with the
--------
normal operation or maintenance of the Aircraft by, or the business of, Lessee
or any Permitted Sublessee.
(d) Appraisal. Whenever Fair Market Rent or Fair Market Value of the
---------
Aircraft is required to be determined (except under Section 15(c)), they shall
be determined promptly by the mutual
- 22 -
agreement of the Owner Participant and Lessee in accordance with the definitions
of such terms in subparagraph 5 (a) (ii) and (b)(ii), respectively, of this
Section 5. Lessee may, by written notice delivered to the Owner Participant not
more than 540 days, nor less than 270 days before the end of the Basic Term or
the Renewal Term, if any, require that such determination be made. If Lessee and
the Owner Participant cannot agree within 20 days after Lessee's request for a
determination, such amount shall be determined by a qualified independent
appraiser mutually satisfactory to Lessee and the Owner Participant. If Lessee
and the Owner Participant fail to agree upon a satisfactory independent
appraiser within 8 days following the end of the 20-day period referred to
above, Lessee and the Owner Participant shall each appoint a qualified
independent appraiser within the next succeeding 8 days and such appraisers
shall jointly determine such amount. If either Lessee or the Owner Participant
fails to appoint an appraiser within such 8-day period, the determination of the
single appraiser appointed shall be final. If two appraisers are appointed and
within 20 days after the appointment of the latter of such two appraisers, such
two appraisers cannot agree upon such amount, such two appraisers shall, within
8 days after such 20-day period, appoint a third appraiser and such amount shall
be determined by such three appraisers, who shall make their separate appraisals
within 10 days following the appointment of the third appraiser, and any
determination so made shall be conclusive and binding upon the Owner Participant
and Lessee, as determined below. If no such third appraiser is appointed within
the 8 days specified therefor, either Lessee or the Owner Participant may apply
to the American Arbitration Association to make such appointment, and both
parties shall be bound by such appointment. Each of Lessee and the Owner
Participant may submit to the appraisers (and also to each other) any bids from
third parties and the appraisers shall accord such bids the weight such
appraisers deem such bids to merit. If three appraisers are appointed and the
difference between the determination which is farther from the middle
determination and the middle determination is more than 125% of the difference
between the middle determination and the third determination, then such farther
determination shall be excluded, the remaining two determinations shall be
averaged and such average shall be final and binding upon the Owner Participant
and Lessee. Otherwise, the average of all three determinations shall be final
and binding upon the Owner Participant and Lessee. The expenses of the appraisal
procedure shall be borne equally by Lessee and the Owner Participant, except (i)
Lessee and the Owner Participant shall each bear any fees, costs and expenses of
its respective attorneys and experts (including its appraiser) and (ii) as
otherwise provided in this Lease.
If Fair Market Value is required to be determined under Section 15(c),
such determination shall be made by a qualified independent appraiser selected
by Lessor and the costs and expenses of the appraisal shall be borne by Lessee,
unless Lessor does not obtain possession of the Aircraft pursuant to Section
15(a), in
- 23 -
which case an appraiser shall not be appointed and the Fair Market Value for
purposes of Section 15(a) shall be deemed to be zero.
SECTION 6. Mortgages, Liens. Lessee will not directly or indirectly
----------------
create, incur, assume or suffer to exist any Lien on or with respect to the
Airframe or any Engine, Lessor's title thereto or any interest therein or in, to
or under this Lease or any other Operative Document or any interest of Lessor in
any Rent, except (a)(i) the respective rights of Lessor and Lessee as provided
herein and (ii) the rights of the Indenture Trustee under the Indenture, (b) the
rights of others to the extent expressly permitted by Section 7(b), (c) Lessor's
Liens, Owner Participant's Liens or Indenture Trustee's Liens, (d) Liens for
taxes either not yet due or being contested in good faith and by appropriate
proceedings, so long as such proceedings do not involve any material danger of
the sale, forfeiture or loss (or loss of use) of the Aircraft, the Airframe or
any Engine, or any interest therein or any risk of the assertion of criminal
charges against Owner Participant or Lessor, (e) materialmen's, mechanics',
workmen's, repairmen's, employees' or other like Liens arising in the ordinary
course of business for amounts the payment of which either is not yet delinquent
or is being contested in good faith by appropriate proceedings so long as there
is not, and such proceedings do not involve, any material danger of the sale,
forfeiture or loss (or loss of use) of the Aircraft, the Airframe or any Engine,
or any interest therein or any risk of the assertion of criminal charges against
Owner Participant or Lessor, and (f) Liens arising out of judgments or awards so
long as (i) an appeal or proceeding for review is timely initiated (and in any
event within 60 days after entry of such judgment or award) and is being
prosecuted in good faith by appropriate proceedings and enforcement of such
judgment or award has been stayed pending such review and (ii) there is not, and
such proceedings do not involve, any material danger of the sale, forfeiture,
loss or loss of use of the Aircraft, Airframe and any Engine, or any interests
therein. Lessee will promptly, at its own expense, take or cause to be taken
such action as may be necessary to discharge any Lien not excepted above when
such Lien arises and shall promptly furnish evidence of such discharge to
Lessor.
SECTION 7. Maintenance, Operation, Registration and Insignia;
--------------------------------------------------
Possession. (a) Maintenance, Etc. Lessee shall (i) forthwith upon delivery
- ---------- ----------------
thereof to Lessor, cause the Aircraft to be and to remain duly registered under
the laws of the United States or such other country of registry as permitted
under Section 19 of the Participation Agreement at all times in the name of
Lessor as owner and cause the Indenture to be duly recorded and maintained of
record as a first mortgage on the Aircraft; (ii) inspect, modify, test, service,
repair, operate and maintain the Aircraft, (A) while the Aircraft is registered
in the United States, in compliance with the applicable regulations of the FAA
and with Lessee's written FAA-approved maintenance program or, while the
Aircraft is registered in another country, in compliance with the applicable
requirements of the aeronautical authority of such country and
- 24 -
Lessee's (or the Permitted Sublessee's) written maintenance program approved by
the aeronautical authority of such country, (B) so as to keep the Aircraft in
good operating condition, (C) as may be necessary to enable the airworthiness
certification of the Aircraft to be maintained in good standing at all times
under the Act (or under the applicable requirements of the aeronautical
authority of another country of registry), except when the Aircraft is being
maintained, serviced, repaired, tested or modified as permitted or required by
this Lease or when the Aircraft has been grounded by the FAA or any other
governmental authority having jurisdiction (otherwise than by reason of a breach
by Lessee of its obligations hereunder) prior to the expiration or termination
of this Lease, subject, however, to compliance with Section 5(c) hereof, at the
end of the Term and (D) so as to keep the Aircraft maintained in the same manner
and with the same care and diligence and to the same standards as used by Lessee
with respect to other similar aircraft owned or operated by Lessee; and (iii)
maintain all records, logs and other materials required by Lessee's FAA-approved
maintenance program or, while the Aircraft is registered in another country, by
applicable requirements of the aeronautical authority of such country of
registry, in respect of the Aircraft, all such records, logs and other materials
to be maintained in the English language. Lessee will not discriminate against
the Aircraft (as compared to other similar aircraft owned or operated by Lessee)
with respect to its use, operation or maintenance in contemplation of the
expiration or termination of this Lease other than withdrawal of the Aircraft
from use and operation as is necessary to prepare the Aircraft for return to
Lessor upon such expiration or termination and except that Lessee may, to the
extent permitted by Section 8, replace Parts installed on the Aircraft prior to
such expiration or termination with Parts equivalent to those installed on the
Aircraft as of the Delivery Date. Without limiting the generality of the
preceding sentence, if an airworthiness directive by its terms is not required
to be accomplished prior to the Aircraft's return pursuant to Section 5(c),
Lessee shall nevertheless accomplish such directive if prior to such return, (x)
Lessee is generally accomplishing such directive with respect to other McDonnell
Douglas MD-11 series aircraft affected by such directive and operated by the
Lessee and (y) the Aircraft is, in accordance with Lessee's McDonnell Douglas
MD-11 series maintenance program, subjected to the maintenance check at the
point in time at which such directive would be accomplished. Lessee will not
permit the Aircraft to be maintained, used or operated in violation of any law
or any rule, regulation or order (including airworthiness directives) of any
government or governmental authority having jurisdiction (domestic or foreign),
or in violation of any airworthiness certificate, license or registration
relating to the Aircraft issued by any such authority. If such laws, rules,
regulations or orders require alteration of the Aircraft, Lessee will conform
thereto or obtain conformance therewith at no expense to Lessor and will
maintain or cause the same to be maintained in proper operating condition under
such laws, rules, regulations and orders. Subject to the provisions of Section
5(c), Lessee may in good faith contest the validity or application of any such
law,
- 25 -
rule, regulation or order in any reasonable manner that does not adversely
affect Lessor's title or interest in the Aircraft, Owner Participant's interest
in the Aircraft or the Lien of the Indenture or incur a risk of the assertion of
criminal charges against Lessor, Owner Participant or Indenture Trustee or any
danger of material civil liability against the Indenture Trustee or the Owner
Participant. Lessee shall promptly furnish or cause to be furnished to Lessor or
the Indenture Trustee such information as may be required to enable Lessor or
the Indenture Trustee to file any reports required to be filed by Lessor or the
Indenture Trustee with any governmental authority because of Lessor's ownership
of the Aircraft or Owner Participant's interest in the Aircraft or required (or
appropriate) to be filed by the Indenture Trustee to establish or maintain the
Lien of the Indenture with respect to the Aircraft.
Subject to compliance by Lessee with the terms of Section 19 of the
Participation Agreement, Lessor shall at the request and expense of Lessee
cooperate with Lessee and take all actions requested by Lessee to change the
registration of the Aircraft to another country.
Lessee will not fly or locate the Airframe or any Engine, or suffer
the Airframe or any Engine to be flown or located in any area excluded from
coverage by any insurance policy in effect with respect to the Airframe or
Engine required by the terms of Section 11, unless Lessee has obtained, prior to
the operation or location of the Airframe or any Engine in such area,
indemnification from the United States government, or other insurance, against
the risks and in the amounts required by, and in compliance with, Section 11
covering such area (except, in the case of a requisition for use by the United
States government, to the extent that Lessee certifies that such insurance is
unobtainable after diligent effort by Lessee or is obtainable only at
unreasonably high rates or on unduly burdensome terms and conditions) (and
naming Lessor, or so long as this Lease is assigned to the Indenture Trustee,
the Indenture Trustee, as loss payee in respect of indemnification or insurance
payable in respect of casualties to the Aircraft) or unless the Aircraft is only
temporarily located in such area as a result of an emergency or other similar
unforeseen circumstances and Lessee is using its good faith efforts to remove
the Aircraft from such area.
On or prior to the Delivery Date or as soon thereafter as practicable,
Lessee will cause to be affixed to, and maintained in, the cockpit of the
Airframe and on each Engine in a clearly visible location a plate of a
reasonable size and shape bearing the following legend:
"Wilmington Trust Company,
as Owner Trustee, Owner and Lessor."
and while the Lien of the Indenture is in effect the plate shall bear the
following additional legend:
- 26 -
The Bank of New York,
as Indenture Trustee, Mortgagee."
During the Term, Lessee may letter, paint or mark the Aircraft with the name and
logo of Lessee or any permitted sublessee or transferee pursuant to Section 7(b)
and may cause the Aircraft to bear insignia plates or other markings identifying
the supplier or manufacturer of the Airframe or the Engines or any Parts
thereof. Except as provided above, Lessee will not allow the name of any person,
corporation or association to be placed on the Airframe or on any Engine as a
designation that might be interpreted as a claim of ownership.
(b) Possession and Subleasing. Lessee will not, without the prior
-------------------------
written consent of Lessor, sublease or otherwise in any manner deliver, transfer
or relinquish possession of the Aircraft, the Airframe or any Engine or install
any Engine, or permit any Engine to be installed, on any airframe other than the
Airframe; provided that, so long as no Event of Default (and in the case of
--------
subparagraphs (C), (F), (G) and (H) below, no Payment Default or Bankruptcy
Default) shall have occurred and be continuing and, so long as such action does
not deprive the Indenture Trustee of the perfected Lien of the Indenture on the
Airframe or, subject to the penultimate sentence of subparagraph (A) below, any
Engine, Lessee may, without the prior written consent of Lessor, do anything set
forth in the following subparagraphs (A) through (H):
(A) Subject the Airframe or permit the Airframe to be subjected to
normal interchange agreements, or subject any Engine or permit any Engine
to be subjected to normal interchange or pooling agreements or
arrangements, in each case entered into by Lessee (or any permitted
sublessee or transferee pursuant to this Section 7(b) under a sublease or
transfer then in effect) in the ordinary course of its business with a
vendor domiciled in the United States or in a country with which the United
States then maintains "normal" diplomatic relations or, so long as such
carrier is not the subject of any bankruptcy, liquidation or similar
proceeding and is not insolvent (by reference to such carrier's most
recently available financial statements), (x) with any United States air
carrier certificated under Section 41101 of the Act or any successor
provision or (y) with any "foreign air carrier" (as such term is defined in
the Act) listed in Exhibit B hereto organized in a country with which the
United States then maintains "normal" diplomatic relations and which is
either a party to the Convention on the International Recognition of Rights
in Aircraft or otherwise provides equivalent protection to owners, lessors
and mortgagees of aircraft (any such certificated United States air carrier
and any such foreign air carrier being hereinafter called a "Permitted Air
Carrier") and which are customary in the airline industry. No such
agreement or arrangement may contemplate, require or result in transfer of
title or registration to the Airframe or any Engine. If Lessor's title
- 27 -
to any such Engine is divested under any such agreement or arrangement,
such divestiture shall be deemed to be an Event of Loss with respect to
such Engine and Lessee shall comply with Section 10(b) in respect thereof.
If Lessee's senior unsecured debt is not Investment Grade at the time of
the commencement of any such agreement or arrangement with a foreign air
carrier, Lessee shall furnish to Lessor and the Indenture Trustee the
opinion described in clause (G) below.
(B) Deliver or permit the delivery of possession of the Airframe or
any Engine to the manufacturer thereof for testing or other similar
purposes or to any organization for service, repair or maintenance work on
the Airframe or Engine or any Part or for alterations or modifications in
or additions to the Airframe or Engine to the extent required or permitted
by the terms of Section 8.
(C) Subject the Airframe or any Engine, or permit the Airframe or any
Engine to be subjected, to CRAF and transfer or permit the transfer of
possession of the Airframe or any Engine to the United States of America or
any instrumentality thereof pursuant to CRAF. Such transfer of possession
shall not continue beyond the end of the Term. Lessee (or any Permitted
Sublessee) shall promptly notify Lessor upon such transfer of possession
and provide Lessor with the name and address of the Contracting Office
Representative for the Military Airlift Command of the United States Air
Force to whom notices must be given.
(D) Install or permit the installation of an Engine on an airframe
which is owned by Lessee or any Permitted Sublessee free and clear of all
Liens except (x) those permitted under paragraphs (d), (e) and (f) of
Section 6 or those which do not apply to such Engine or to substantially
all of such airframe, (y) the rights of other Permitted Air Carriers under
normal interchange agreements which are customary in the airline industry
and which do not result in the transfer of title to such airframe or the
Engines installed thereon and (z) the Lien of any mortgage which expressly
and effectively provides that each Engine leased to Lessee hereby shall not
become subject to the Lien thereof, notwithstanding the installation
thereof on an airframe subject to the Lien of such mortgage, unless Lessee
or such Permitted Sublessee, as the case may be, shall become the owner of
such Engine.
(E) Install or permit the installation of an Engine on an airframe
leased to, or purchased by, Lessee or any Permitted Sublessee, which
airframe may or may not be subject to a conditional sale or other security
agreement. Such airframe must be free and clear of all Liens except the
rights of the parties to the lease or conditional sale or other security
agreement and their purchasers and mortgagees covering such airframe and
except Liens permitted by clauses (x) and (y) of subparagraph (D) above,
and Lessee or such Permitted
- 28 -
Sublessee, as the case may be, must have received from the lessor,
conditional vendor or secured party of such airframe a written agreement
(which may be the lease or conditional sale agreement covering such
airframe), whereby such lessor, conditional vendor or secured party
expressly and effectively agrees that neither it nor its successors and
assigns will acquire or claim any right, title or interest in any Engine by
reason of such Engine being installed on such airframe.
(F) Install or permit the installation of an Engine on an airframe
owned by, leased to, or purchased by, Lessee or any Permitted Sublessee
subject to a conditional sale agreement in any such case under
circumstances where neither subparagraph (D) nor (E) above is applicable,
provided such installation shall be deemed an Event of Loss with respect to
--------
such Engine and Lessee shall comply with Section 10(b) in respect thereof.
Until Section 10(b) has been fully complied with, Lessor's interest in such
Engine shall continue in full force and effect.
(G) So long as the proposed sublessee is not the subject of any
bankruptcy, liquidation or similar proceeding and is not insolvent (by
reference to such proposed sublessee's most recently available financial
statement), sublease the Airframe or any Engine to any certificated United
States air carrier or, after the end of the Recapture Period, to any
Permitted Air Carrier, provided that Lessee shall notify Lessor, the
--------
Indenture Trustee and the Owner Participant of any such sublease as
provided below. Any such sublease (1) shall include provisions for the
maintenance, operation and insurance of the subleased equipment which are
substantially the same as, or (from a lessor's perspective) better than,
the provisions of Sections 7(a), 7(b), 11 and 12, (2) shall provide that
the sublessee may not further sublease the subleased equipment and (3)
shall not be for a period greater than the remaining Term. In the case of
any sublease to a foreign Permitted Air Carrier, (i) all necessary
governmental approvals required for the subleased equipment, the Airframe
or any Engine, as the case may be, to be imported and, to the extent
reasonably obtainable, exported from the applicable country of domicile
upon repossession of such subleased equipment by the Lessor (and Lessee as
sublessor) shall have been obtained prior to commencement of any such
sublease and any exchange permits necessary to allow all rent and other
payments provided for under any sublease assigned to Lessor hereunder shall
be in full force and effect; (ii) Lessee shall have furnished Lessor and
the Indenture Trustee (if the Indenture is then in effect) a favorable
opinion of counsel in the country of domicile of such foreign air carrier
reasonably satisfactory to Lessor and the Indenture Trustee (if the
Indenture is then in effect), that (a) the terms of the Lease and the
Indenture are the legal, valid and binding obligations of the parties
thereto enforceable under the laws of such jurisdiction, (b) it is not
necessary for the Owner
- 29 -
Participant, the Lessor or the Indenture Trustee to register or qualify to
do business in such jurisdiction solely as a result of the proposed
sublease (based solely upon a review of the Operative Documents, and the
other agreements, instruments and documents delivered in connection
therewith, and written statements of the Owner Participant, the Lessor and
the Indenture Trustee describing the presence and activity of each of those
parties in such jurisdiction of domicile, and such other factual matters as
such counsel may reasonably request), (c) the Lessor's title to the
subleased equipment and the Indenture Trustee's Lien on the subleased
equipment will be recognized, (d) the laws of such jurisdiction of domicile
require fair compensation by the government of such jurisdiction payable in
a currency freely convertible into United States dollars for the loss of
use or of the title to the subleased equipment in the event of the
requisition by such government of such use or title (unless Lessee shall
provide insurance covering the requisition of use of or title to the
subleased equipment, as the case may be, by the government of such
jurisdiction so long as the subleased equipment is subject to such
sublease) and (e) the required agreement of such foreign air carrier that
its rights under the sublease are subject and subordinate to all the terms
of this Lease is enforceable against such foreign air carrier under
applicable law (subject only to customary exceptions to enforceability);
and (iii) Lessee shall furnish to Lessor evidence reasonably satisfactory
to Lessor that the insurance required by Section 11 remains in effect. No
sublease pursuant to this subparagraph (G) may be entered into unless
Lessor and the Indenture Trustee (if the Indenture is then in effect) shall
have received assurances reasonably satisfactory to them that all necessary
action shall have been taken to continue the perfection of Lessor's title
to and interest in the subleased equipment, Airframe and any Engine, the
Indenture Trustee's first priority perfected security interest therein,
Lessor's and the Indenture Trustee's rights under this Lease and all other
necessary documents shall have been duly filed, registered or recorded in
such public offices as may be required fully to preserve the title of, and
the priority of the interest of, Lessor and the Indenture Trustee in the
subleased equipment, Airframe and Engines. Any sublease entered into by
Lessee and having a term longer than 18 months shall be assigned by Lessee
to Lessor as security for the performance of all Lessee's obligations under
this Lease (and Lessee acknowledges that, if the Indenture is then in
effect, any such sublease has been assigned by Lessor to the Indenture
Trustee as security for the performance of all the Owner Trustee's
obligations under the Indenture); provided that except during the
--------
continuance of an Event of Default neither (x) the rentals payable
thereunder shall be required to be paid to Lessor or to the Indenture
Trustee, as the case may be, nor (y) the rights as lessor under any such
sublease shall vest (to the exclusion of Lessee as lessor thereunder) in
Lessor or the Indenture Trustee, as the case may be.
- 30 -
(H) Transfer or permit the transfer of possession of the Airframe or
any Engine to the United States of America (directly or acting through any
instrumentality or agency thereof whose obligations bear the full faith and
credit thereof) pursuant to a sublease, a copy of which shall be promptly
furnished to Lessor and the Indenture Trustee. Any such sublease shall
comply with the requirements of the second sentence of subparagraph (G)
above (in the case of clause (2) thereof, to the extent not prohibited by
applicable law).
No interchange agreement, transfer, sublease or other relinquishment of
possession permitted hereunder shall affect the registration of the Aircraft,
except to the extent permitted by Section 19 of the Participation Agreement. By
request of Lessee or Lessor and with the consent of the other (such consent not
to be unreasonably withheld after the requesting party provides any information
regarding such foreign air carrier or its domicile reasonably requested by the
other), any foreign air carrier may be added to or deleted from Exhibit B
hereto. The rights of any Permitted Sublessee (other than a transferee of an
Engine in a situation which is deemed an Event of Loss, once Lessee complies
with Section 10(b) in respect thereof) shall be subject and subordinate to all
the terms of this Lease. Any sublease permitted by subparagraph (G) or (H) of
this paragraph (b) shall be made expressly subject and subordinate to all the
restrictions and other terms of this Lease and, while the Indenture is in
effect, the Indenture, including, without limitation, in each instance the
covenants contained in Section 7(a) and Lessor's rights to repossession pursuant
to Section 15 and to avoid such sublease upon repossession and the Indenture
Trustee's rights to possession under the Indenture and hereunder (as Lessor's
assignee). No sublease or other transfer contemplated by this Section 7(b) shall
in any way affect Lessee's liabilities and obligations hereunder or under the
Participation Agreement or the Indemnity Agreement and, as between Lessor and
Lessee, Lessee shall continue to be primarily liable on all such obligations, as
if no such sublease or other transfer had occurred. No interchange agreement,
sublease or other relinquishment of possession of the Airframe or any Engine
permitted by this Section 7(b) shall in any way discharge or diminish any of
Lessee's obligations to Lessor hereunder or under the Participation Agreement or
the Indemnity Agreement or constitute a waiver of any of Lessor's rights and
remedies hereunder or thereunder. Lessee shall notify Lessor, Owner Participant
and Indenture Trustee of any sublease of the Airframe at least 30 days before
the execution and delivery thereof. Lessee shall provide Lessor and, so long as
the Indenture is in effect, the Indenture Trustee with a copy of any sublease of
the Aircraft having a term (including any renewal terms) of one year or more
within 15 days after execution and delivery thereof and of any other sublease
within 15 days after a request by Lessor.
If Lessee or any Permitted Sublessee receives from the lessor or
secured party of any airframe leased to, or purchased by, Lessee or any such
sublessee or transferee, which airframe may or
- 31 -
may not be subject to a conditional sale or other security agreement, a written
agreement complying with the last sentence of subparagraph (E) of this Section
7(b), and the lease or conditional sale or other security agreement covering
such airframe also covers an engine or engines owned or leased 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, Lessor agrees for the
benefit of such lessor or secured party that neither Lessor nor the Indenture
Trustee, respectively, nor their respective successors and assigns will 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 subject to such lease or conditional sale or
other security agreement and owned or leased by such lessor or subject to a
security interest in favor of such secured party.
This paragraph (b) shall not apply to a merger, consolidation, sale or
assignment permitted by Section 13.
SECTION 8. Replacement and Addition of Parts. (a) Replacement of
--------------------------------- --------------
Parts. Except as otherwise provided in paragraph (c) of this Section 8, Lessee
- -----
will replace or cause to be replaced as promptly as practicable all Parts which
may from time to time become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use for any
reason whatsoever. In addition, Lessee or any Permitted Sublessee may remove in
the ordinary course of maintenance, service, repair or testing, any Parts,
whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use, provided that except as
--------
otherwise provided in Section 8(c) Lessee or such Permitted Sublessee shall
replace such Parts or cause them to be promptly replaced. All such replacement
parts shall be free and clear of all Liens (except in the case of replacement
parts temporarily installed and except for pooling arrangements permitted by
paragraph (b) of this Section 8 and Permitted Liens) and shall be in at least as
good operating condition and have at least the same value and utility as either
the Part being replaced or the equivalent Part originally included on the
Aircraft as of the Delivery Date (assuming the replaced Part was in at least as
good condition as required to be maintained hereunder). All such replacement
parts (except in the case of replacement parts temporarily installed and except
for parts subject to pooling arrangements permitted by paragraph (b) of this
Section 8) shall become the property of Lessor, shall constitute Parts hereunder
and shall immediately become subject to this Lease and shall be deemed part of
the Airframe or an Engine, as the case may be, for all purposes hereof to the
same extent as the Parts originally comprising, or installed on, such Airframe
or such Engine. The Parts replaced thereby shall become Lessee's property.
(b) Title to Parts. Any Part removed from the Airframe or any Engine
--------------
as provided in paragraph (a) of this Section 8 may be
- 32 -
subjected by Lessee or any Permitted Sublessee to normal pooling arrangements
customary in the airline industry entered into in the ordinary course of the
business of Lessee or such Permitted Sublessee with vendors or with other air
carriers. The Part replacing such removed Part shall be incorporated or
installed in or attached to the Airframe or Engine in accordance with paragraph
(a) of this Section 8 promptly 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 paragraph (a) of this Section 8
may be owned by another air carrier subject to such a normal pooling
arrangement; provided that Lessee or such Permitted Sublessee shall, promptly
thereafter, either (i) cause title to such replacement Part to vest in Lessor in
accordance with said paragraph (a) by Lessee or such Permitted Sublessee
acquiring title thereto for the benefit of Lessor free and clear of all Liens
except Permitted Liens or (ii) replace such replacement Part by incorporating or
installing in or attaching to the Airframe or Engine a further replacement Part
owned by Lessee or such Permitted Sublessee free and clear of all Liens except
Permitted Liens and shall cause title to such further replacement Part to vest
in Lessor in accordance with paragraph (a) of this Section 8.
(c) Alterations and Modifications. Lessee shall make or cause to be
-----------------------------
made such alterations and modifications in and additions to the Airframe and
each Engine as may be required from time to time to meet applicable requirements
of the FAA and any other governmental authority with jurisdiction (domestic or
foreign) over the Aircraft. Lessee or any Permitted Sublessee may in good faith
contest the validity or application of any such requirements in any reasonable
manner which does not adversely affect Lessor's title or interest in the
Aircraft or the Lien of the Indenture or incur a risk of the assertion of
criminal charges against Owner Participant or Lessor. In addition, Lessee or,
with Lessee's approval, any such Permitted Sublessee, at its own expense, may
from time to time make such alterations and modifications, including removal
(without replacement) of Parts which Lessee or such Permitted Sublessee deems
obsolete or no longer appropriate or suitable for use in the Airframe or such
Engine, and additions to the Airframe and each Engine as Lessee or such
Permitted Sublessee may in its reasonable judgment deem desirable in the proper
conduct of its business so long as such alterations, modifications, removals or
additions do not materially decrease the value, utility or remaining useful life
of the Aircraft or cause the Aircraft to become limited use property within the
meaning of Revenue Procedure 76-30 except that Lessee may in any event remove
any Part from the Aircraft, so long as it replaces such removed Part with a Part
equivalent to the corresponding Part installed on the Aircraft as of the
Delivery Date. Lessee shall monitor the removal of Parts in a manner sufficient
to comply with the foregoing. Title to each Part incorporated or installed in or
attached or added to the Airframe or such Engine as the result of such
alteration, modification, removal or addition shall remain in Lessee or such
Permitted
- 33 -
Sublessee, as the case may be, and may be removed at any time during the Term;
provided that (i) such Part is in addition to, and not in replacement of or
- --------
substitution for, any Part originally incorporated or installed in or attached
or added to the Airframe or such Engine at the time of the delivery thereof
hereunder or any Part in replacement of, or substitution for, any such Part,
(ii) such Part is not required to be incorporated or installed in or attached to
the Airframe or such Engine pursuant to the terms of Section 7 or the first
sentence of this paragraph (c), (iii) such Part can be removed from the Airframe
or such Engine without diminishing the value, remaining useful life or utility
of the Airframe or the value or utility of such Engine and without impairing the
airworthiness which the Airframe would have had at such time had such
alteration, modification, removal or addition not occurred, assuming the
Aircraft or such Engine was otherwise maintained in the condition required by
the terms of this Lease, (iv) the cost of such Part was not paid by Lessor and
(v) no Event of Default shall have occurred and be continuing. Title to all
other such Parts shall, without further act, vest in Lessor. Upon the removal of
any Part title to which is retained by Lessee or any Permitted Sublessee, Lessee
shall promptly repair any damage to the Airframe or Engine from which it was
removed which resulted from such removal and such Part shall no longer be deemed
part of the Airframe or such Engine from which it was removed. Any Part not
removed as provided above prior to the return to Lessor (including pursuant to
the exercise of remedies under Section 15) of the Airframe or such Engine
including such Part shall, without further act, become the property of Lessor
free and clear of all Liens except Permitted Liens. Title to any auxiliary fuel
tanks installed on the Airframe at the time of delivery of the Airframe from the
Manufacturer to Seller shall, whether or not such tanks are from time to time
installed on the Airframe, be vested in Lessor until such time, if any, as such
tanks (1) become unnecessary to operate the Aircraft at the range specified by
the Manufacturer in the Purchase Agreement and (2) are not otherwise required
modifications under this Section 8.
SECTION 9. Voluntary Termination. (a) Obsolete or Surplus Aircraft.
--------------------- ----------------------------
At any time after the end of the Recapture Period, so long as no Event of
Default or Payment Default shall have occurred and be continuing, Lessee may at
its option, on at least 90 days' prior written notice to Lessor, the Owner
Participant and the Indenture Trustee, terminate this Lease with respect to the
Aircraft on the date in any month specified in Exhibit A or, if not a Business
Day, the next succeeding Business Day (the "Termination Date"); provided that
--------
the Chief Financial Officer or Treasurer of Lessee certifies that the Aircraft
has become obsolete or surplus with respect to Lessee's requirements. Lessee
shall not revoke a notice of termination more than three times during the Basic
Term. A notice of termination shall not be treated as revoked if (i) Lessee
receives no bids for the cash purchase of the Aircraft on the Termination Date,
(ii) the only such bids are received from the Owner Participant, any Affiliate
thereof or any Person acting for the Owner Participant or such
- 34 -
Affiliate and are less than Termination Value or (iii) no sale occurs on the
Termination Date by reason of default by the potential purchaser.
Unless Lessee receives notice from the Owner Participant pursuant to
the next to last paragraph of this Section 9(a), Lessee, as non-exclusive broker
for Lessor, shall use reasonable efforts to obtain bids for the cash purchase of
the Aircraft on the Termination Date. Lessor may also independently obtain bids
for such purchase and certify to Lessee the terms and amounts of each such bid
and the name and address of the person submitting the bid. Neither Lessee nor
any of its Affiliates may submit a bid, nor may Lessee accept a bid from any
person acting for or affiliated with Lessee or having any arrangement regarding
Lessee's or any of its Affiliates purchase or continued use of the Aircraft.
Lessee shall promptly certify to Lessor the terms and amount of each bid
received by Lessee and the name and address of the person submitting the bid;
provided that Lessee shall not be obligated to provide such a certification, nor
- --------
shall the Owner Participant inspect the bids received by Lessee with respect to
the Aircraft, unless the Owner Participant has given to Lessee binding and
irrevocable notice that neither the Owner Participant nor any of its Affiliates
nor any Person acting for the Owner Participant or such Affiliate will submit a
bid for the purchase of the Aircraft. Lessee may reject each bid (i) which is in
an amount less than the sum of the Termination Value computed as of the
Termination Date specified in Exhibit A plus all expenses incurred by Lessor,
the Owner Participant and the Indenture Trustee in connection with the sale and
(ii) which is from a purchaser unwilling or unable to use the Aircraft
(including use outside the United States) in a manner that will enable
Termination Value to be determined by reference to Schedule 1 to the Indemnity
Agreement.
Subject to the foregoing, on the Termination Date, Lessor shall sell
the Aircraft for cash to whomever shall have submitted the highest bid. The
total sales price realized at such sale, net of all expenses of the sale
(including commissions and any sales or transfer taxes) (the "Net Sales Price")
shall be retained by Lessor. In addition, on the date of such sale Lessee shall
pay to Lessor, or, in the case of Supplemental Rent, to the person entitled
thereto (subject in each case to Section 3(d) hereof), the sum of: (A) the
amount, if any, by which the Termination Value computed as of the Termination
Date exceeds the Net Sales Price, (B) the installment of Basic Rent (if
designated as payable in arrears, but not if payable in advance), if any, due on
the Termination Date if such Termination Date is a Payment Date, and (C) all
other amounts, whether Basic Rent, Supplemental Rent (including an amount equal
to the premium, if any, owing by Lessor in respect of the Certificates) or
otherwise, owing by Lessee to Lessor, the Owner Participant, the Indenture
Trustee and the Holders hereunder, under the Participation Agreement and the
Indemnity Agreement other than any installment of Basic Rent due after the
Termination Date. Upon such payment by Lessee and Lessor's payment in full of
the aggregate unpaid principal amount
- 35 -
of all Certificates then outstanding, together with accrued interest thereon to
the date of payment, plus such premium, if any, thereon and all other sums due
and payable on such date to the Indenture Trustee and the Holders hereunder or
under the Indenture, the Participation Agreement or the Certificates and
compliance by Lessor with the provisions of this Section 9(a) and Section 14.01
of the Indenture, this Lease shall terminate and Lessor will transfer without
recourse or warranty, except as set forth in Section 4, to the purchaser
thereof, all of Lessor's right, title and interest in and to the Airframe and
such Engines as are then installed thereon and to Lessee, all of Lessor's right,
title and interest in any Engines not then installed on the Airframe. Except as
provided above, if no sale occurs on the Termination Date and the Owner
Participant does not notify Lessee pursuant to the next to last paragraph of
this Section 9(a), this Lease shall continue in full force and effect as to the
Aircraft and Lessee shall pay the expenses incurred by Lessee, Lessor, the Owner
Participant and the Indenture Trustee in connection with the proposed sale.
Lessor and the Owner Participant may, but shall be under no duty to, solicit
bids, inquire into the efforts of Lessee to obtain bids or otherwise take action
in connection with any such sale other than, with respect to Lessor, to transfer
to the purchaser named in the highest cash bid certified by Lessee to Lessor
against payment therefor, without recourse or warranty (except that Lessor shall
make the same warranty to such purchaser as is set forth in Section 4 with
respect to title and Liens, as of the date of delivery of the Aircraft to such
purchaser), all Lessor's right, title and interest in and to such Aircraft.
The Owner Participant may, at any time within 45 days after it has
received a termination notice from Lessee, give written notice to Lessee and the
Indenture Trustee that the Owner Participant elects irrevocably to terminate
this Lease with respect to the Aircraft. On the Termination Date the Owner
Participant shall pay to the Indenture Trustee sufficient funds to enable it to
pay in full the aggregate unpaid principal amount of all Certificates then
outstanding, together with accrued interest thereon to such Termination Date.
Effective on full payment to the Indenture Trustee of all the foregoing amounts
and on Lessee's full payment of the installment of Basic Rent, if any, due on
such Termination Date (if designated as payable in arrears but not if payable in
advance) plus all other amounts of Rent (including an amount equal to the
premium, if any, owing by Lessor in respect of the Certificates) and other
amounts payable by Lessee hereunder or under the Participation Agreement due on
or prior to such Termination Date other than any installment of Basic Rent due
after the Termination Date, this Lease shall terminate with respect to the
Aircraft; provided that this Lease shall continue in full force and effect
--------
unless such amounts are paid in full. If after giving an irrevocable notice the
Owner Participant fails to make the required payment on the Termination Date,
Lessee may complete the pending termination procedure hereunder by giving at
least 30 days prior written notice to Lessor of a new Termination Date (without
- 36 -
regard to the 90-day limitation and without regard to Owner Participant's right
to terminate under this paragraph).
If this Lease terminates pursuant to this Section 9(a), Lessee shall
deliver the Airframe and the Engines or engines to or at the direction of Lessor
in the same condition and manner as if return were being made to Lessor pursuant
to Section 5(c), and shall duly transfer to Lessor title to any such engines
installed on the Airframe on the Termination Date not owned by Lessor, all in
accordance with the terms of said Section 5(c), and Lessor shall, subject to
Lessee's compliance with the provisions of this Section 9(a), duly transfer to
Lessee title to any Engines not installed on the Airframe on the Termination
Date.
(b) Replacement Engines. So long as no Event of Default shall have
-------------------
occurred and be continuing, Lessee may at any time, on at least 30 days' prior
written notice to Lessor, terminate this Lease with respect to any Engine not
then installed or held for use on the Airframe by replacing such Engine in
accordance with the terms of paragraph (b) of Section 10 to the same extent as
if an Event of Loss had occurred with respect to such Engine.
SECTION 10. Loss, Destruction, Requisition, etc. (a) Event of Loss
----------------------------------- -------------
with Respect to the Airframe. Lessee shall notify Lessor promptly and in any
- ----------------------------
event within 15 days of the occurrence of an Event of Loss with respect to the
Airframe or with respect to the Airframe and the Engines or engines then
installed on the Airframe. By written notice to Lessor, the Indenture Trustee
and the Owner Participant given within 60 days after the occurrence of such
Event of Loss, Lessee shall elect one of the following two alternatives (failure
by Lessee to make such election within said 60 days being deemed an election of
alternative (i)):
(i) pay to Lessor on a date as provided in the last paragraph of this
Section 10(a), (A) the Stipulated Loss Value for the Aircraft, computed as
of the date specified in Exhibit A coinciding with or next preceding the
date of payment, plus interest at the Debt Rate from such date specified in
Exhibit A to the date of payment, (B) the Basic Rent installment payment,
if any, due on such date of payment (if payable in arrears but not if
payable in advance), plus any other amounts of Basic Rent which shall be
due and unpaid other than any installment of Basic Rent due after such
date, (C) all other amounts, whether Supplemental Rent (including an amount
equal to the premium, if any, owing by Lessor in respect of the
Certificates) or otherwise, owing by Lessee to Lessor, the Owner
Participant, the Indenture Trustee and the Holders hereunder, under the
Participation Agreement, the Indenture, the Certificates or the Indemnity
Agreement and (D) any reasonable out-of-pocket costs or expenses incurred
in connection with such Event of Loss and the related prepayment of the
Certificates by Lessor, the Owner Participant, the Holders or the Indenture
Trustee. Upon payment in full of such amounts, (x) this Lease, including
the obligation of
- 37 -
Lessee hereunder to pay all succeeding installments of Basic Rent, shall
terminate and (y) provided that no Event of Default has occurred and is
--------
continuing, Lessor shall transfer to Lessee (subject to any insurer's
salvage rights and in accordance with the provisions of Section 9.08 of the
Indenture), without recourse or warranty, except as set forth in Section 4,
all of Lessor's right, title and interest, if any, in and to the Aircraft.
In connection with such transfer, Lessee shall prepare and Lessor shall
execute or forward to the Indenture Trustee for execution, as the case may
be, all in recordable form, a bill of sale evidencing such transfer, a
termination of this Lease, a release of the Indenture and such other
documents (including Uniform Commercial Code termination statements) as
Lessee reasonably requests, or
(ii) provided that no Event of Default or Payment or Bankruptcy
--------
Default shall have occurred and be continuing and that Lessee shall have
reimbursed the reasonable expenses of all parties entitled thereto pursuant
to this clause (ii), Lessee shall cause to be duly conveyed to Lessor, as
replacement for the Airframe and Engines with respect to which such Event
of Loss occurred, title to a McDonnell Douglas MD-11 airframe which was
delivered initially by the Manufacturer no earlier than 1993 and having at
least the equivalent value, utility and remaining useful life as the
Airframe being replaced had immediately prior to the occurrence of such
Event of Loss (assuming the Airframe had been maintained in accordance with
this Lease), and title to a number of engines equal to the number of
Engines with respect to which such Event of Loss has occurred of the same
make and model (or engines of another manufacturer suitable for
installation and use on the Airframe, provided that all three replacement
--------
engines shall be of identical make and model and any replacement engines of
a different manufacturer than the original Engines shall be then commonly
used in the commercial passenger aviation industry on MD-11 series
airframes) and in at least as good operating condition and having at least
the same value and utility as the Engine being replaced had immediately
before such Event of Loss occurred, assuming such Engine is in at least as
good condition as required to be maintained hereunder, in each case to be
owned by Lessee free and clear of all Liens whatsoever (other than
Permitted Liens), in passenger configuration, duly certified as an
airworthy aircraft by the FAA and being in good operating condition, but in
all events in at least as good operating condition and repair as required
by the terms hereof, in each such case, immediately prior to the occurrence
of such Event of Loss. In such case Lessee will promptly (A) furnish Lessor
with bills of sale, in form and substance satisfactory to Lessor, covering
such replacement airframe, engine or engines, as the case may be, (B) cause
such replacement airframe to be duly registered in the name of Lessor
pursuant to the Act or the laws of such other jurisdiction in which
registration is
- 38 -
permitted pursuant to Section 19 of the Participation Agreement, (C) cause
supplements hereto and to the Trust Agreement and the Indenture, in form
and substance satisfactory to Lessor, covering such replacement airframe,
engine or engines, as the case may be, under this Lease, to be, in the case
of the supplement to this Lease, duly executed by Lessee and, in the case
of each such supplement, recorded pursuant to the Act or such laws, (D)
furnish Lessor with such evidence (which shall be in the form of an
appraisal or other report, as the case may be, from a qualified independent
expert or experts reasonably satisfactory to Lessor) of the value and
utility of, and good title to, such replacement airframe, engine or
engines, and airworthiness, residual value and remaining useful life of
such replacement airframe and the airworthiness after replacement of the
Aircraft, and of compliance with the insurance provisions of Section 11
with respect to such replacement airframe, engine or engines, as the case
may be, as Lessor reasonably requests, (E) furnish Lessor with all
documents, certificates and opinions necessary to enable Lessor to comply
with the requirements of Section 9.08 of the Indenture, (F) furnish Lessor
and the Owner Participant with an opinion in form and substance
satisfactory to the Owner Participant of tax counsel chosen by the Owner
Participant and reasonably acceptable to the Lessee as to the absence of
any risk of adverse tax consequences to Lessor and the Owner Participant of
such replacement or if such opinion cannot be given, an indemnity in form
and substance satisfactory to the Owner Participant against such adverse
tax consequences, (G) assign to Lessor all manufacturer's and vendor's
warranties with respect to such replacement, (H) furnish Lessor, the
Indenture Trustee and the Owner Participant with an opinion addressed to
each of them, of counsel reasonably acceptable to them to the effect that
the benefits of Section 1110 of the Bankruptcy Code would be available to
Lessor and Indenture Trustee with respect to such replacement airframe,
engine or engines and (I) take such other action as Lessor reasonably
requests in order that title to such replacement airframe, engine or
engines, as the case may be, is duly and properly vested in Lessor, leased
hereunder and subjected to the Lien of the Indenture to the same extent as
the Airframe, Engine or Engines replaced thereby.
Upon full compliance by Lessee with the terms of this subparagraph (a)
(ii), Lessor will transfer to Lessee (subject to any insurer's salvage
rights and in accordance with the provisions of Section 9.08 of the
Indenture), without recourse or warranty, except as set forth in Section 4,
all of Lessor's right, title and interest, if any, in and to the Airframe,
Engine or Engines with respect to which such Event of Loss occurred. In
connection with such transfer, Lessee shall prepare and Lessor shall
execute or forward to the Indenture Trustee for execution, as the case may
be, all in recordable form, a bill of sale evidencing such transfer, a
release of
- 39 -
the Airframe and Engines with respect to which such Event of Loss occurred
from the Indenture and such other documents (including Uniform Commercial
Code amending statements) as Lessee reasonably requests. Any Engine not
installed on the Airframe when such Event of Loss occurred shall continue
to be the property of Lessor and leased hereunder as part of the
replacement aircraft. For all purposes hereof, the replacement airframe and
each replacement engine shall be deemed part of the property leased
hereunder; the replacement airframe shall be deemed an "Airframe" as
defined herein; each replacement engine shall be deemed an "Engine" as
defined herein; and the replacement airframe and each replacement engine
shall be deemed part of the Aircraft to the same extent as was the Airframe
or Engine, as the case may be, replaced thereby. Nothing contained in this
subparagraph (a) (ii) shall change Basic Rent, Stipulated Loss Values or
Termination Values, other than any adjustments made pursuant to the
Indemnity Agreement. Any such adjustment shall be subject to clause (y) of
the definitions of "Stipulated Loss Value" and "Termination Value."
If alternative (i) above is elected or deemed to be elected by Lessee,
Lessee shall fully perform the same not later than the earlier of (x) 120 days
following the occurrence of such Event of Loss and (y) 15 days following the
date of receipt of insurance proceeds with respect to such occurrence. If
alternative (ii) above is elected by Lessee and Lessee has not fully performed
the same within 120 days of the occurrence of such Event of Loss, in the event
that any amounts held by Lessor (or, so long as the Indenture shall be in
effect, the Indenture Trustee) in respect of such Event of Loss are less than
the Stipulated Loss Value thereof, Lessee will deposit with Lessor or the
Indenture Trustee, as the case may be, the amount of any deficiency as security
on such 120th day; provided, however, that if Lessee has not fully performed
-------- -------
alternative (ii) above within 180 days following the occurrence of such Event of
Loss, Lessee shall be deemed to have elected alternative (i) and shall
immediately perform its obligations thereunder, and the Indenture Trustee, or
Lessor if the Indenture shall have been discharged, shall apply the aforesaid
amounts held by it as a credit against such obligations.
(b) Event of Loss with Respect to an Engine. Upon the occurrence of
---------------------------------------
an Event of Loss with respect to an Engine in any case where the provisions of
paragraph (a) of this Section 10 are not applicable, Lessee shall give Lessor
prompt written notice thereof and shall, within 60 days after the occurrence of
such Event of Loss, duly convey to Lessor, as replacement for the Engine with
respect to which such Event of Loss occurred, title to another engine of the
same make and model (or engines of another manufacturer suitable for
installation and use on the Airframe) having at least the same value and utility
as the respective Engine being replaced had immediately prior to the occurrence
of such Event of Loss (assuming such Engine had been maintained in accordance
with the terms of this Lease), owned by Lessee free and
- 40 -
clear of all Liens whatsoever and in at least as good operating condition as the
Engine with respect to which such Event of Loss occurred, but in all events in
at least as good condition and repair as required by the terms hereof
immediately prior to the occurrence of such Event of Loss, provided that after
--------
any replacement all three Engines shall be of identical make and model and any
replacement engines of a different manufacturer than the original Engines shall
be then commonly in use in the commercial passenger aviation industry on MD-11
series airframes. In such case, Lessee, at its own expense, will promptly (i)
furnish Lessor with a bill of sale, in form and substance satisfactory to Lessor
with respect to such replacement engine, (ii) cause supplements hereto and to
the Trust Agreement and the Indenture, in form and substance satisfactory to
Lessor, subjecting such replacement engine to this Lease, in the case of the
supplement to this Lease, to be duly executed by Lessee and, in the case of each
such supplement, recorded pursuant to the Act, (iii) furnish Lessor with such
evidence of compliance with the insurance provisions of Section 11 with respect
to such replacement engine as Lessor reasonably requests and furnish Lessor with
such evidence of Lessee's title to such replacement engine, (iv) furnish Lessor
with all documents, certificates and opinions necessary to enable Lessor to
comply with the requirements of Section 9.08 of the Indenture, (v) furnish
Lessor and the Owner Participant with an opinion in form and substance
satisfactory to Owner Participant of tax counsel chosen by the Owner
Participant, and reasonably acceptable to Lessee, as to the absence of any risk
of adverse tax consequences to Lessor and the Owner Participant of such
replacement, or if such opinion cannot be given, an indemnity satisfactory to
the Owner Participant for such tax consequences, (vi) furnish Lessor with an
officer's certificate certifying that such replacement engine has the value and
utility required by this Section 10(b), (vii) assign to Lessor the benefit of
all manufacturer's and vendor's warranties with respect to such replacement
engine and (viii) take such other action as Lessor reasonably requests in order
that title to such replacement engine be duly and properly vested in Lessor,
leased hereunder and subjected to the Lien of the Indenture to the same extent
as the Engine replaced thereby. Upon full compliance by Lessee with the terms of
this paragraph (b), Lessor will, provided no Event of Default has occurred and
is continuing, transfer to Lessee (subject to any insurer's salvage rights and
in accordance with the provisions of Section 9.08 of the Indenture), without
recourse or warranty except as set forth in Section 4, all of Lessor's right,
title and interest, if any, in and to the Engine with respect to which such
Event of Loss occurred. In connection with such transfer, Lessee shall prepare
and Lessor shall execute or forward to the Indenture Trustee for execution, as
the case may be, all in recordable form, a bill of sale evidencing such
transfer, a release of the Engine with respect to which such Event of Loss
occurred from the Indenture and such other documents (including Uniform
Commercial Code amending statements) as Lessee reasonably requests, all at
Lessee's sole cost and expense. For all purposes hereof, each such replacement
engine shall be deemed part of the property leased hereunder, shall be deemed an
"Engine"
- 41 -
as defined herein and shall be deemed part of the Aircraft to the same extent as
was the Engine replaced thereby. An Event of Loss covered by this paragraph (b)
shall not result in any change in Basic Rent, Stipulated Loss Value, Termination
Value or the EBO Percentage, other than any adjustments made pursuant to the
Indem-nity Agreement, and any such adjustment shall be subject to clause (y) of
the definitions of "Stipulated Loss Value" and "Termination Value".
(c) Application of Payments from Governmental Authorities or Others.
---------------------------------------------------------------
Any payments received at any time by Lessor or by Lessee from any governmental
authority or other party with respect to an Event of Loss resulting from the
condemnation, confiscation, conversion, theft or seizure of, or requisition of
title to or use of, the Airframe or any Engine will be applied as follows:
(i) If such payments are received with respect to the Airframe or
with respect to the Airframe and the Engines or engines then installed on
the Airframe and alternative (i) in paragraph (a) of this Section 10 is the
alternative performed or to be performed by Lessee, so much of such
payments (net of any and all unreimbursed costs, losses and expenses
incurred by Lessor, the Owner Participant and the Indenture Trustee) as
shall not exceed the Stipulated Loss Value required to be paid by Lessee
pursuant to said paragraph (a) shall be paid to Lessor in reduction of
Lessee's obligation to pay such Stipulated Loss Value if not already paid
in full by Lessee, or, if already paid by Lessee, shall, provided neither
--------
an Event of Default nor a Payment Default has occurred and is continuing
(otherwise such proceeds shall be held pursuant to Section 24 as security
for Lessee's obligations hereunder and under the other Operative
Documents), be applied to reimburse Lessee for its payment of such
Stipulated Loss Value and the balance, if any, remaining after such
application shall be divided between Lessee and Lessor as the respective
interests of Lessee and Lessor may appear relative to the values of
Lessee's leasehold interest in the Aircraft and Lessor's ownership of the
Aircraft subject to this Lease; and
(ii) If such payments are received with respect to the Airframe or
with respect to the Airframe and the Engines then installed on the Airframe
and alternative (ii) in paragraph (a) of this Section 10 is the alternative
performed or to be performed by Lessee, or if such payment is received with
respect to an Engine not then installed on the Airframe under the
circumstances contemplated by paragraph (b) of this Section 10, all such
payments (net of any and all unreimbursed costs, losses and expenses
incurred by Lessor, the Owner Participant and the Indenture Trustee) shall
be paid over to, or retained by, Lessee, provided that Lessee shall have
--------
fully performed the terms of this Section 10 with respect to the Event of
Loss for which such payments are made, and provided further that neither an
-------- -------
Event of Default nor a Payment Default
- 42 -
shall have occurred and be continuing (otherwise such proceeds shall be
held pursuant to Section 24 as security for Lessee's obligations hereunder
and under the other Operative Documents).
(d) Requisition for Use with Respect to the Airframe and Engines
------------------------------------------------------------
Installed Thereon. If the Airframe or the Airframe and the Engines or engines
- -----------------
then installed on the Airframe is requisitioned for use by a Requisitioning
Government, Lessee shall promptly notify Lessor of such requisition and all
Lessee's obligations under this Lease with respect to the Aircraft shall
continue to the same extent as if such requisition had not occurred, except to
the extent that any failure or delay in repairing or maintaining the Aircraft
shall have been caused by such requisition. All payments received by Lessor,
Lessee or any Permitted Sublessee in connection with any such requisition for
use (other than any such requisition which constitutes an Event of Loss, as to
which the provisions of Section 10(c) shall govern) or pursuant to Section 7(b)
under a sublease or transfer then in effect from a Requisitioning Government for
the use of the Airframe and Engines or engines during the Term shall be paid
over to, or retained by, Lessee and/ or such Permitted Sublessee, provided that
--------
neither an Event of Default nor Payment or Bankruptcy Default shall have
occurred and be continuing (otherwise such proceeds shall be held pursuant to
Section 24 as security for Lessee's obligations hereunder and under the
Participation Agreement). All payments received by Lessor, Lessee or any such
Permitted Sublessee from a Requisitioning Government for the use of the Airframe
and Engines after the Term shall be paid over to, or retained by, Lessor (or
Lessee if it shall have purchased Lessor's interest therein). Lessee shall
promptly notify Lessor or cause Lessor to be notified in writing of such
requisition. In the event of any such requisition for use, Lessee agrees to use
its best efforts to obtain reimbursement from the United States government or
any agency or instrumentality thereof to Lessor and the Owner Participant for
damages suffered by Lessor and the Owner Participant as a result of such
requisition for use. Lessee agrees to notify Lessor or cause Lessor to be
notified promptly in writing in advance of the time when any negotiations
between Lessee and or any such Permitted Sublessee and a Requisitioning
Government with respect to any such requisition shall commence and will consult
with Lessor regarding methods or procedures that are appropriate to effect
recovery from such Requisitioning Government for any damages suffered by Lessor
and the Owner Participant by reason of such requisition for use.
(e) Requisition for Use by a Requisitioning Government of an Engine
---------------------------------------------------------------
Not Installed on the Airframe. If an Engine not then installed on the Airframe
- -----------------------------
is requisitioned for use by a Requisitioning Government, Lessee shall replace
such engine or cause it to be replaced by complying with the terms of Section
10(b) to the same extent as if an Event of Loss had occurred with respect to
such Engine as of the date of such requisition. Any payments received by Lessor,
Lessee or any Permitted Sublessee from a Requisitioning Government with respect
to such requisition shall
- 43 -
be paid over to, or retained by, Lessee and/or such assignee, sublessee or
transferee, provided that neither an Event of Default nor a Payment Default
--------
shall have occurred and be continuing (otherwise such proceeds shall be held
pursuant to Section 24 as security for Lessee's obligations hereunder and under
the other Operative Documents).
SECTION 11. Insurance. Lessee will at all times during the Term
---------
cause insurance to be carried and maintained with insurers of recognized
responsibility on or with respect to the Aircraft, at its own cost and expense,
against such risks (including, without limitation, all-risk hull, public
liability, property damage, bodily injury, passenger liability and contractual
liability insurance), in such amounts, with such deductibles or self-insurance
amounts as Lessee customarily maintains with respect to similar aircraft owned
or operated by Lessee operating on similar routes in similar geographic
locations.
Notwithstanding the foregoing, if Lessee's senior unsecured long-term
debt is rated Investment Grade (or, if Lessee has no rated unsecured long-term
debt, Lessee has an equivalent credit standing), Lessee may self-insure in any
amount (by means of a deductible, self-insured retentions or otherwise) with
respect to hull insurance and maintain a deductible in any amount with respect
to all other insurance, including liability insurance, required to be carried
and maintained hereunder. If Lessee's senior unsecured long-term debt is rated
below Investment Grade (or, if Lessee has no rated unsecured long-term debt,
Lessee has an equivalent credit standing), Lessee may self-insure with respect
to all insurance, including liability insurance, in amounts conforming to the
then existing average standard for United States passenger airlines of similar
size and standing as determined by an independent aircraft insurance expert
designated by Lessee and reasonably satisfactory to Lessor and the Owner
Participant. The foregoing sentence shall take effect as from the next scheduled
renewal of Lessee's relevant insurance coverage following the time when Lessee's
senior unsecured long term debt is downgraded to below Investment Grade. The
foregoing shall not permit Lessee to discriminate as between insurance coverage
on the Aircraft and insurance which Lessee maintains with respect to similar
aircraft owned or operated by Lessee operating on similar routes in similar
geographic locations. Unless Lessor and the Owner Participant, in their sole
discretion, give their written consent to the contrary, Lessee shall maintain
hull insurance in an amount not less than Stipulated Loss Value from time to
time and liability insurance in an amount not less than the amount per
occurrence set forth on the insurance certificate delivered by Lessee pursuant
to Section 3(f) of the Participation Agreement. While Lessee's senior unsecured
long-term debt is rated below Investment Grade (or, if Lessee has no rated
senior unsecured long-term debt, Lessee has an equivalent credit standing),
Lessee may carry and maintain insurance with respect to the Aircraft with
Captive Insurance Companies (as hereinafter defined) only to the extent that the
sum of (1) the amount which Lessee carries and maintains with Captive Insurance
Companies and
- 44 -
(2) the amount which Lessee otherwise self insures with respect to the Aircraft
(whether by means of a deductible, self-insured retention or otherwise) does not
exceed the amount of self insurance permitted by the foregoing provisions of
this Section. "Captive Insurance Company" means any insurance company which is
an Affiliate of Lessee; provided that a Captive Insurance Company shall not
include any such insurance company (i) which is itself an insurance company of
recognized responsibility or (ii) which fully reinsures (pursuant to contracts
of reinsurance which include a cut-through clause in favor of Lessor) all risks
with respect to the Aircraft with an insurance company of recognized
responsibility.
During any period of (i) the requisition for use by the United States
government or any agency or instrumentality thereof whose obligations bear the
full faith and credit of the United States or (ii) any transfer of possession to
the United States of America or any agency or instrumentality thereof pursuant
to Section 7(b)(C) or Section 7(b)(H) of the Airframe or the Airframe and the
Engines or engines then installed on the Airframe during the Basic Term or the
Renewal Term, if any, Lessee shall carry and maintain or cause to be carried and
maintained the same insurance required pursuant to this Section 11 (except to
the extent that Lessee certifies that such insurance shall be unobtainable after
diligent effort by Lessee or shall be obtainable only at unreasonably high rates
or on unduly burdensome terms and conditions); provided that Lessor, the Owner
--------
Participant and the Indenture Trustee shall accept, in lieu of such insurance
coverage, written indemnification or insurance from the United States of America
which is substantially the same as otherwise required hereunder and is
acceptable to Lessor and the Owner Participant.
All insurance policies required to be carried and maintained hereunder
shall name Lessee and any Permitted Sublessee as the case may be, as named
insured, and shall name Lessor (including in its individual capacity with
respect to liability policies only), the Indenture Trustee, and the Owner
Participant, as additional insureds (collectively the "Additional Insureds") and
shall afford each thereof the rights but not the obligations of a co-insured or
additional insured (including any obligation in respect of premiums). All
insurance policies required hereunder shall contain a "breach of warranty"
clause satisfactory to Lessor, the Indenture Trustee and the Owner Participant
providing that in respect of the respective interests of the Additional Insureds
in such policies the insurance shall not be invalidated by any action or
inaction of Lessee or any such Permitted Sublessee, as the case may be, or
others and shall insure the Additional Insureds as their interests may appear,
regardless of any breach or violation by Lessee or any such Permitted Sublessee
or other person, as the case may be, of any condition, declaration, warranty or
provision of any such policies. Each liability policy and hull policy shall be
primary without right of contribution from any Additional Insured or any other
insurance which is carried by any Additional Insured with respect to its
interest as such in the Aircraft. Each such
- 45 -
policy shall waive any right of subrogation of the insurers against the
Additional Insureds and shall waive any right of the insurers to any set-off or
counterclaim or any other deduction, whether by attachment or otherwise, in
respect of any liability of the Additional Insureds or Lessee. Each such policy
shall provide that, if such insurance lapses for nonpayment of any premium or
installment when due, or if such insurance is canceled or terminated for any
reason whatsoever, or if the scope of coverage or the limits of liability are
reduced or any other materially adverse change is made in or to the rights of
the Additional Insureds, the insurers will promptly notify Lessee, Lessor, the
Indenture Trustee and the Owner Participant in writing and any such lapse,
cancellation, termination or change shall not be effective as to Lessor, the
Indenture Trustee or the Owner Participant or any other Additional Insured for
30 days after receipt of such notice, and that appropriate certification shall
be made to Lessor, the Owner Participant and the Indenture Trustee by each
insurer with respect thereto. Each liability policy shall expressly provide that
all of the provisions thereof shall operate in the same manner as if there were
a separate policy covering each insured; provided that such policies shall not
--------
operate to increase the insurer's limit of liability.
All policies required hereunder covering loss or damage to the
Aircraft shall provide that all losses thereunder (but not in excess of
Stipulated Loss Value) shall be payable solely to Lessor (or to the Indenture
Trustee, so long as this Lease is assigned to the Indenture Trustee) as sole
loss payee. All insurance proceeds under such policies received as the result of
the occurrence of an Event of Loss with respect to the Airframe or an Engine
will be applied as follows:
(a) if such proceeds are received with respect to the Airframe or
with respect to the Airframe and the Engines or engines then installed on
the Airframe and alternative (i) in Section 10(a) is the alternative
performed or to be performed by Lessee, so much of such proceeds as shall
not exceed the Stipulated Loss Value and Rent required to be paid by Lessee
pursuant to alternative (i) of Section 10(a) shall be applied in reduction
of Lessee's obligation to pay such Stipulated Loss Value and Rent if not
already paid by Lessee, or, if already paid by Lessee, shall be applied to
reimburse Lessee for its payment of such Stipulated Loss Value and Rent,
provided that neither an Event of Default nor a Payment Default or
--------
Bankruptcy Default shall have occurred and be continuing, and the balance,
if any, of such proceeds remaining thereafter will be paid to the order of
Lessee; if and so long as the foregoing proviso is not satisfied, such
proceeds shall be held pursuant to Section 24 as security for Lessee's
obligations hereunder and under the other Operative Documents; and
(b) if such proceeds are received with respect to the Airframe or the
Airframe and the Engines or engines then
- 46 -
installed on the Airframe and alternative (ii) in Section 10(a) is the
alternative to be performed by Lessee, or if such proceeds are received
with respect to an Engine not then installed on the Airframe under the
circumstances contemplated by Section 10(b), all such proceeds (minus the
net amount, if any, payable by Lessee with respect to such proceeds or such
substitution under Section 5 of the Indemnity Agreement) shall be paid to
the order of Lessee or any Permitted Sublessee designated by Lessee,
provided that Lessee shall have fully performed or caused to be performed
--------
the terms of Section 10(a) or (b) with respect to the Event of Loss for
which such proceeds are paid and provided further that neither an Event of
-------- -------
Default nor a Payment Default or Bankruptcy Default shall have occurred and
be continuing; if and so long as the immediately preceding proviso is not
satisfied, such proceeds shall be held pursuant to Section 24 as security
for Lessee's obligations hereunder and under the other Operative Documents.
The proceeds of any property damage loss not constituting an Event of Loss with
respect to the Airframe or any Engine will be applied in payment for repairs or
for replacement property in accordance with the terms of Sections 7 and 8, if
not already paid for by, or to reimburse, Lessee or any Permitted Sublessee (in
either case, upon receipt by Indenture Trustee of related invoices) and any
balance remaining after compliance with said Sections 7 and 8 with respect to
such loss shall be paid to the order of Lessee or any such Permitted Sublessee
designated by Lessee, provided that neither an Event of Default nor a Payment
--------
Default shall have occurred and be continuing; if and so long as the foregoing
proviso is not satisfied, such proceeds shall be held pursuant to Section 24 as
security for Lessee's obligations hereunder and under the other Operative
Documents.
In the first quarter of each calendar year beginning in 1995 and
thereafter during the Basic Term and the Renewal Term, if any, a detailed report
signed by an aviation insurance broker of nationally recognized standing
retained by Lessee or by any Permitted Sublessee shall be furnished to Lessor,
the Owner Participant and the Indenture Trustee. Such report shall describe in
reasonable detail all insurance carried on or with respect to the Aircraft as
required by this Lease, shall state that such insurance is in full force and
effect and state that, in the opinion of such insurance broker, the insurance
then carried and maintained on or with respect to the Aircraft complies with the
terms hereof. Lessee will cause such aviation insurance broker to advise Lessor
and the Indenture Trustee in writing of any default in the payment of any
premium and of any other act or omission on the part of Lessee or any such
Permitted Sublessee, as the case may be, of which such aviation insurance broker
has knowledge and which might invalidate or render unenforceable, in whole or in
part, any insurance on or with respect to the Aircraft promptly upon the
occurrence thereof or at such later time as such broker shall have knowledge
thereof. All insurance policies required hereunder shall provide that Lessor and
the Indenture Trustee be advised in writing
- 47 -
of the reduction or termination of coverage at least 30 days prior to the
expiration date or termination of any insurance carried and maintained on or
with respect to the Aircraft.
If any party required to be named as an additional insured under any
insurance policies required to be carried and maintained hereunder becomes
subject to a claim covered by such insurance, Lessee shall make available any
information required by such party in connection with such claims.
In the event that Lessee or any Permitted Sublessee shall fail to
maintain or cause to be maintained insurance as herein provided, Lessor may, but
is under no duty to, at its option obtain such insurance (giving Lessee prompt
written notice thereof) and, in such event, Lessee shall, upon demand, reimburse
Lessor, as Supplemental Rent, for the cost to Lessor of such insurance, together
with interest thereon at the Past Due Rate for the period commencing with the
date such cost was paid to the date of reimbursement.
Lessee, any Permitted Sublessee, Lessor and the Owner Participant
shall each have the right to carry hull and liability insurance on the Aircraft
for its own benefit, as its respective interests may appear, in amounts over and
above the amounts required by the foregoing provisions, provided that no
--------
insurance carried by Lessor or the Owner Participant may effectively limit the
amount or type of insurance carried by Lessee.
SECTION 12. Inspection. At all reasonable times and upon reasonable
----------
notice, Lessor, the Owner Participant, and the Indenture Trustee or their
respective authorized representatives, may inspect the Aircraft and the books
and records of Lessee or a Permitted Sublessee relating thereto from time to
time and may make copies of those parts of such books and records not reasonably
deemed confidential by Lessee. Such inspection of the Aircraft shall be a
visual, walk-around inspection which may include going on board the Aircraft but
shall not include opening any panels, bays, or other components of the Aircraft
(except to the extent any such inspection takes place when any such panels, bays
or other components are open) and shall be conducted so as not to unreasonably
interfere with Lessee's operation and maintenance of the Aircraft. No Inspecting
Party shall have any duty to make any such inspection or incur any liability or
obligation by making or not making any such inspection, unless by making such
inspection such Inspecting Party wrongfully interferes with Lessee's operation
and maintenance of the Aircraft. Any inspection made pursuant to this Section 12
shall be at the sole expense and risk of the relevant Inspecting Party. Lessee
shall make any permitted sublease or transfer permitted under Section 7(b)
expressly subject to inspection rights consistent with this Section 12. Any
inspection made pursuant to this Section 12 shall be made by no more than two
authorized representatives of each Inspecting Party. Lessee agrees to respond in
a timely fashion to any Inspecting
- 48 -
Party's inquiries regarding the scheduling of any letter check or heavy
maintenance visit with respect to the Aircraft.
SECTION 13. Assignment, Citizenship, etc. (a) Merger, etc. Lessee may
----------------------------- ------------
not sell or convey substantially all its property and assets, or consolidate
with or merge into, any other corporation, or otherwise assign any of its rights
or obligations hereunder without the prior written consent of Lessor, except as
provided in Section 12(d) of the Participation Agreement. Lessee will at all
times be a duly certificated air carrier under the Act (or, if either the Act or
the certification requirements thereunder are superseded, will at all times be
authorized under the laws of the United States to be a common carrier of persons
by air).
(b) Assignment. Except as otherwise provided herein or as expressly
----------
permitted by and subject to the provisions of the Trust Agreement, the Indenture
or the Participation Agreement, Lessor will not assign or convey all or any
portion of its right, title and interest in and to this Lease and the Aircraft.
Any permitted transferee shall be a Citizen of the United States and shall
expressly assume in writing all of the obligations of Lessor under this Lease.
(c) Successors and Assigns. The terms and provisions of this Lease
----------------------
shall be binding upon and inure to the benefit of Lessor and Lessee and shall
inure, to the extent expressly provided herein, to the direct benefit of, and in
accordance with the provisions of the Indenture and the Participation Agreement
shall be enforceable by, the Indenture Trustee and the Owner Participant, and
their respective successors and assigns.
SECTION 14. Events of Default. Each of the following events shall
-----------------
constitute an Event of Default (whether any such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(a) Lessee shall fail to make any payment of Basic Rent, Stipulated
Loss Value or Termination Value within ten Business Days after the same
shall have become due; or
(b) Lessee shall fail to make any payment of any other Supplemental
Rent (other than payments of Stipulated Loss Value and Termination Value)
within ten Business Days after Lessee has received written demand therefor
from the person entitled to receive such payment; provided that if such
--------
payment is an Excepted Payment such failure shall not constitute an Event
of Default until the Owner Participant shall so declare it by notice in
writing to Lessee; or
(c) any representation, warranty, certification or statement made by
Lessee hereunder or under the Participation Agreement or any other
Operative Document or made pursuant
- 49 -
hereto or thereto (other than Lessee's representations made under the
Indemnity Agreement) shall prove to have been inaccurate in any material
respect when made; provided that if the representation, warranty,
--------
certification or statement was originally given by Lessee in good faith, an
Event of Default shall not be deemed to exist unless the inaccurate
representation, warranty, certification or statement remains material to
Lessor at the time discovered and remains uncured for a period of 30 days
after receipt by Lessee of a written notice from Lessor advising Lessee of
such inaccuracy; or
(d) Lessee shall fail to carry and maintain (or cause to be carried
and maintained) insurance on or in respect of the Aircraft in accordance
with the provisions of Section 11, provided that failure to maintain such
--------
insurance for up to 30 days shall not constitute an Event of Default if,
during such period, the Aircraft is not operated and appropriate insurance
for the Aircraft on the ground is maintained; or
(e) Lessee shall fail in any material respect to perform or observe
any other covenant, condition or agreement to be performed or observed by
it hereunder or under the Participation Agreement or any other Operative
Document and, in each case, such failure shall continue unremedied for a
period of 30 days after Lessee shall have received written notice of such
failure; provided that no such failure shall constitute an Event of Default
--------
so long as (i) such failure is capable of being remedied, (ii) Lessee is
diligently proceeding to remedy such failure and (iii) such failure does
not result in a material risk of loss, sale or forfeiture of the Aircraft,
or incur the risk of criminal charges, but in no event shall such failure
continue unremedied for more than (i) 180 days after receipt of such
written notice or (ii) the end of the Term, whichever is the first to
occur; or
(f) Lessee shall consent to the appointment of a receiver, trustee or
liquidator of itself or of a material part of its property, or Lessee shall
admit in writing its inability to pay its debts generally as they come due,
or shall make a general assignment for the benefit of creditors, or Lessee
shall file or the Board of Directors of Lessee shall authorize Lessee to
file, or grant one or more persons authority (at their discretion) to file,
a voluntary petition in bankruptcy or a voluntary petition or an answer
seeking reorganization in a case under any bankruptcy laws or other
insolvency laws (as in effect at such time) or an answer admitting the
material allegations of a petition filed against Lessee in any such case,
or Lessee shall or the Board of Directors of Lessee shall authorize Lessee
to, or grant one or more persons authority (at their discretion) to, seek
relief by voluntary petition, answer or consent, under the provisions of
any other bankruptcy or other similar law providing for the reorganization
or winding-up of corporations (as in effect at
- 50 -
such time) or providing for agreement, composition, extension or adjustment
with creditors; or
(g) an order, judgment or decree shall be entered by any court of
competent jurisdiction appointing, without the consent of Lessee, a
receiver, trustee or liquidator of Lessee or of any substantial part of its
property, or any substantial part of the property of Lessee shall be
sequestered, or granting any other relief in respect of Lessee under any
bankruptcy laws or other insolvency laws (as in effect at such time), and
any such order, judgment or decree of appointment or sequestration shall
remain in force undismissed, unstayed or unvacated for a period of 60 days
after the date of entry thereof; or
(h) a petition against Lessee in a case under any bankruptcy laws or
other insolvency laws (as in effect at such time) shall be filed and shall
not be withdrawn or dismissed within 60 days thereafter, or if, under the
provisions of any law providing for reorganization or winding-up of
corporations which may apply to Lessee, any court of competent jurisdiction
shall assume jurisdiction, custody or control of Lessee or of any
substantial part of its property and such jurisdiction, custody or control
shall remain in force unrelinquished, unstayed or unterminated for a period
of 60 days; or
(i) the Lien of the Indenture shall cease, at any time prior to the
discharge of the Lien of the Indenture, to be a valid first priority
perfected Lien on the Indenture Estate in any jurisdiction (other than the
United States) in which Lessee has reregistered the Aircraft pursuant to
Section 19 of the Participation Agreement; provided that no such failure
shall constitute an Event of Default so long as (i) the Aircraft is
accessible to Lessee, (ii) Lessee is diligently proceeding to transfer the
Aircraft to the United States and (iii) the Aircraft is reregistered in the
United States within a period of thirty days after a Responsible Officer of
Lessee has received actual knowledge of such failure.
SECTION 15. Remedies. Upon the occurrence of any Event of Default and
--------
at any time thereafter so long as the same shall be continuing, Lessor may
(unless, prior to the acceleration of any outstanding Certificates, Lessee shall
have remedied all outstanding Events of Default) do, and Lessee shall comply
with, one or more of the following with respect to all or any part of the
Airframe and the Engines, as Lessor in its sole discretion shall elect, subject
always to any mandatory requirements of law; provided that during any period
--------
that the Airframe or any Engine is subject to CRAF in accordance with the
provisions of Section 7(b)(C) Lessor shall not, on account of any Event of
Default, exercise its remedies hereunder in such manner as to limit Lessee's
control under this Lease (or the control under any sublease of any Permitted
Sublessee) of the Airframe or such Engine, unless at least thirty (30) days' (or
such other longer or shorter period as
- 51 -
may be applicable under CRAF) written notice of default hereunder shall have
been given by Lessor by registered or certified air mail to Lessee (and any
Permitted Sublessee) with a copy to the Contracting Officer Representative for
the Military Airlift Command of the United States Air Force or any successor to
whom notices must be given under the contract governing Lessee's participation
(or that of any Permitted Sublessee) in CRAF:
(a) demand in writing that Lessee shall, and upon such written demand
Lessee shall, at Lessee's expense, return promptly to Lessor all or such
part of the Airframe or the Engines as Lessor may demand in accordance with
all of the provisions of Section 5 as if the Airframe or such Engines were
being returned at the end of the Term; or Lessor, at its option, may enter
upon the premises where the Airframe or any Engine or Engines are located
or believed to be located and take immediate possession of and remove the
Airframe or Engines without the necessity for first instituting
proceedings, or by summary proceedings or otherwise, and Lessee shall
comply therewith, all without liability to 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; or
(b) with or without taking possession thereof, sell or otherwise
dispose of the Aircraft or any part thereof (including any Engine), at
public or private sale and with or without notice to Lessee or
advertisement, as Lessor may determine, and Lessor may hold Lessee liable
for any installment of Basic Rent due on (if payable in arrears but not if
payable in advance) or before the date of such sale, including any accrued
but unpaid Basic Rent on a pro-rata basis from the preceding Payment Date
to the date of such sale, or hold, use, operate, lease to others or keep
idle all or any part of the Airframe or any Engine as Lessor, in its sole
discretion, may determine, in any such case free and clear of any rights of
Lessee except as set forth below in this Section 15 and without any duty to
account to Lessee with respect to such action or inaction or for any
proceeds with respect thereto (except to the extent required by paragraph
(d) below if Lessor elects to exercise its rights under said paragraph in
lieu of its rights under paragraph (c) below); or
(c) whether or not Lessor shall have exercised, or shall thereafter
at any time exercise, any of its rights under paragraph (a) or (b) above
with respect to the Aircraft, Lessor by written notice to Lessee specifying
a payment date not earlier than 10 days from the date of such notice, may
terminate this Lease with respect to the Aircraft and demand that Lessee
pay to Lessor, and Lessee shall pay to Lessor on the payment date specified
in such notice, as liquidated damages for loss of a bargain and not as a
penalty, any installment of Basic Rent with respect to the Aircraft due on
(if payable in arrears but not if payable in advance) or
- 52 -
before such payment date plus an amount equal to the excess, if any, of (i)
the Stipulated Loss Value for the Aircraft computed as of the date
specified in Exhibit A coinciding with or next preceding the payment date
specified pursuant to this paragraph (c), over (ii) the Fair Market Value
for the Aircraft, computed as of the payment date specified pursuant to
this paragraph (c) (and calculated assuming that the Aircraft will be in
storage for a period of twelve months unless Lessor has arranged for a sale
or a new lease of the Aircraft scheduled to be completed or to commence
within such twelve month period, in which case such sale or new lease shall
be taken into account in determining such Fair Market Value), together with
interest, to the extent permitted by applicable law, at the Past Due Rate
on the amount of such Stipulated Loss Value, from the date as of which such
Stipulated Loss Value is computed to the date of actual payment of such
amount; or
(d) if Lessor, pursuant to paragraph (b) above, shall have sold the
Aircraft, Lessor in lieu of exercising its rights under paragraph (c) above
with respect to the Aircraft, may demand that Lessee pay Lessor, and Lessee
shall pay to 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 for the
Aircraft due after the date on which such sale occurs and in addition to
any installment of Basic Rent for the Aircraft due up to and including (if
payable in arrears but not if payable in advance) the date on which such
sale occurs, an amount equal to the excess, if any, of (i) the Stipulated
Loss Value for the Aircraft computed as of the date specified in Exhibit A
coinciding with or next preceding the date of such sale, over (ii) the net
proceeds of such sale (after deduction of all expenses of such sale,
including any sales or transfer taxes; provided, however, that Lessor shall
-------- -------
use reasonable efforts to minimize any such taxes with respect to such sale
consistent with Lessor's right to maximize the proceeds of such sale),
together with interest, to the extent permitted by applicable law, at the
Past Due Rate on the amount of such Stipulated Loss Value from the date as
of which such Stipulated Loss Value is computed to the date of actual
payment; or
(e) so long as the Aircraft has not been sold pursuant to paragraph
(b) above, by notice to Lessee, require Lessee to pay on demand to Lessor,
and Lessee shall pay to Lessor, as liquidated damages for loss of a bargain
and not as a penalty (in lieu of Basic Rent for the Aircraft for any period
commencing on (if payable in advance) or after the date of such notice) any
unpaid Basic Rent for the Aircraft for any period prior to and including
(if payable in arrears but not if payable in advance) the date of such
notice, plus an amount equal to Stipulated Loss Value for the Aircraft
computed as of the date specified in Exhibit A coinciding with or next
preceding the date of such notice, together with interest, to
- 53 -
the extent permitted by applicable law, at the Past Due Rate on the amount
of such Stipulated Loss Value, from the date as of which such Stipulated
Loss Value is computed to the actual payment of such amount; and upon
Lessee's payment of liquidated damages and the payment of all other Rent
then due hereunder, Lessor shall, if requested by the Owner Participant,
return the Aircraft to Lessee, and otherwise shall exercise reasonable
efforts promptly to sell the Airframe and each Engine and shall pay over to
Lessee the net proceeds of such sale (after deducting from such proceeds,
all costs and expenses incurred by Lessor in connection therewith,
including any sales or transfer taxes; provided, however, that Lessor shall
-------- -------
use reasonable efforts to minimize any such taxes with respect to such sale
and all other amounts which may become payable to Lessor or the Owner
Participant consistent with Lessor's right to maximize the proceeds of such
sale) up to the amount of Stipulated Loss Value actually paid; or
(f) terminate this Lease as to the Airframe or any Engine; or
(g) 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, Lessee shall be liable for any and all Supplemental Rent due
hereunder and all amounts payable by Lessee under the Participation Agreement
before or after any termination hereof, including all costs and expenses
(including, to the extent permitted by applicable law, reasonable attorneys'
fees and disbursements) incurred as a result of the occurrence of any Event of
Default and the exercise of Lessor's remedies with respect thereto, including
all costs and expenses incurred in connection with the return of the Airframe or
any Engine in accordance with the terms of Section 5. Except as otherwise
expressly provided above, no remedy referred to in this Section 15 is intended
to be exclusive, but each shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Lessor at law or in equity.
The exercise or beginning of exercise by Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by Lessor of any
other remedies. No express or implied waiver by Lessor of any Event of Default
hereunder shall constitute a waiver of any future or subsequent Event of
Default. Lessor's access to the Aircraft is of the essence of the remedies
hereunder and shall not be impaired.
SECTION 16. Lessor's Right to Perform for Lessee. If Lessee fails to
------------------------------------
make any payment of Rent or fails to perform or comply with any of its
agreements herein, Lessor or the Owner Participant may, but is under no duty to,
make such payments or perform or comply with such agreement. The amount of such
payment and the amount of the reasonable expenses of Lessor or the Owner
Participant, as the case may be, incurred in connection with such
- 54 -
payment or the performance of or compliance with such agreement, as the case may
be, together with interest thereon at the Past Due Rate (to the extent permitted
by applicable law), from the date of the making of such payment or the incurring
of such expenses to the date of payment of such Rent by Lessee, shall be deemed
Rent payable by Lessee upon demand. No such payment or performance by Lessor or
the Owner Participant shall be deemed to waive any Default or Event of Default
or relieve Lessee of its obligations hereunder.
SECTION 17. Covenant of Quiet Enjoyment. So long as no Event of
---------------------------
Default shall have occurred and be continuing and notwithstanding any default by
Lessor, the Owner Participant or the Indenture Trustee under the Participation
Agreement, the Trust Agreement or the Indenture, Lessee shall have the right to
the quiet enjoyment of, and the continued possession, use and operation of, the
Aircraft during the Term, and this Lease shall not be terminated except as
expressly provided herein. The foregoing does not modify in any respect Lessee's
obligations pursuant to Section 20, which obligations are absolute and
unconditional.
SECTION 18. Further Assurances. Lessee will cause this Lease, the
------------------
Trust Agreement and the Indenture to be duly filed and recorded, in each case in
accordance with the Act. In addition, Lessee will promptly and duly execute and
deliver to Lessor and to such other persons as Lessor shall reasonably designate
such further documents and assurances and take such further action as Lessor may
from time to time reasonably request in order to carry out more effectively the
intent and purpose of this Lease and to establish and protect the rights and
remedies created or intended to be created in favor of Lessor hereunder, and in
favor of the Indenture Trustee under the Indenture including, without
limitation, if requested by Lessor, the execution and delivery of supplements or
amendments hereto, in recordable form, subjecting to this Lease any replacement
airframe or engine and the recording or filing of counterparts hereof or
thereof, or of financing and continuation statements with respect hereto, in
accordance with the laws of such jurisdictions as Lessor may from time to time
deem advisable. The foregoing sentence does not impose upon Lessor any
additional liabilities not otherwise contemplated by this Lease.
SECTION 19. Notices. All notices required hereunder shall be in
-------
writing and delivered personally or mailed by first class registered or
certified mail, postage prepaid, or, if promptly confirmed by mail as provided
above, dispatched by telecopy, telegram, telex or other written
telecommunication, addressed (a) if to Lessee, at Hartsfield Atlanta
International Airport, Atlanta, Georgia 30320, Attention: Chief Financial
Officer, with a copy to the General Counsel at the same address, or, in each
case, at such other address as Lessee may from time to time designate by notice
to Lessor, (b) if to Lessor, at the address set forth on Annex II of the
Participation Agreement, or at such other address as Lessor may from time to
time designate by notice to Lessee, with copies to (i) the Indenture Trustee at
the
- 55 -
address referred to in clause (d) below and (ii) the Owner Partici-pant, at the
address referred to in clause (c) below, (c) if to the Owner Participant, at
such address as is set forth on Annex II to the Participation Agreement, or at
such other address as the Owner Participant may from time to time designate by
notice to Lessee and Lessor, or (d) if to the Indenture Trustee, at the address
set forth on Annex II of the Participation Agreement, or at such other address
as the Indenture Trustee may from time to time designate by notice to Lessee and
Lessor. All notices delivered, mailed or dispatched pursuant to this Section 19
shall become effective when received. In the case of a telex, an answerback and,
in the case of mail, a return receipt, will be conclusive evidence of receipt.
SECTION 20. No Set-Off, Counterclaim, etc. This Lease is a net lease,
------------------------------
and Lessee's obligations to pay all Rent (including, but not limited to, amounts
payable as Supplemental Rent) payable hereunder and all amounts payable by
Lessee under the Participation Agreement shall be absolute and unconditional and
shall not be affected by any circumstance whatsoever, including, without
limitation, (a) any set-off, counterclaim, recoupment, defense or other right
which Lessee may have against Lessor, the Owner Participant, the Indenture
Trustee, any Holder, the Manufacturer or anyone else for any reason (whether in
connection with this transaction or any other transaction), (b) any defect in
the title, airworthiness, eligibility for registration under the Act (and the
regulations thereunder) or under any of the laws or regulations of any other
country of registry of the Aircraft, condition, design, operation, or fitness
for use of, suitability for a particular purpose of, or any damage to or loss or
destruction of, the Aircraft, or any interruption or cessation in the use or
possession thereof by Lessee for any reason, including, without limitation, by
reason of governmental action, (c) any insolvency, bankruptcy, reorganization or
similar proceedings by or against Lessee, Lessor, the Owner Participant, the
Owner Trustee, the Indenture Trustee or any other person, or (d) any other
circumstances, whether or not unforeseen or similar to any of the foregoing.
Lessee hereby waives, to the extent permitted by applicable law, any and all
rights which it may now have or which at any time hereafter may be conferred
upon it, by statute or otherwise, to terminate, cancel, quit or surrender this
Lease except in accordance with the express terms hereof. If for any reason this
Lease shall be terminated in whole or in part by operation of law or otherwise
except as specifically provided herein, Lessee nonetheless shall pay to the
party entitled to such payment pursuant to the provisions hereof an amount equal
to each Rent payment at the time such payment would have become due and payable
in accordance with the terms hereof had this Lease not been so terminated.
SECTION 21. Successor Trustees and Rights of Trustees as Lessor. If
---------------------------------------------------
any successor trustee is appointed pursuant to the terms of the Trust Agreement,
such successor trustee shall, upon written notice by such successor trustee to
Lessee, succeed to all the rights, powers and title of Lessor hereunder and
shall be Lessor and the owner of the Aircraft for all purposes hereof,
- 56 -
without the necessity of any consent or approval by Lessee and without in any
way altering the terms of this Lease or Lessee's obligations hereunder.
SECTION 22. Miscellaneous. 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 enforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not render such provision
unenforceable or invalid in any other jurisdiction. To the extent permitted by
applicable law, Lessee hereby waives any provision of law which renders any
provision hereof prohibited or unenforceable in any respect. No term or
provision of this Lease may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the party against which the
enforcement of the change, waiver, discharge or termination is sought; provided,
--------
however, that so long as the Indenture remains in effect, no such change,
- -------
waiver, discharge or termination shall be made without the prior written consent
of the Indenture Trustee, except as expressly provided herein or in the
Indenture. This Lease constitutes an agreement of lease and does not convey to
Lessee any right, title or interest in the Aircraft except as a lessee. The
captions in this Lease are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof. THIS LEASE IS BEING
DELIVERED IN NEW YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE BUT WITHOUT GIVING EFFECT TO PRINCIPLES
OF CONFLICTS OF LAWS.
Wilmington Trust Company (the "Bank") is entering into this Lease
solely as Owner Trustee under the Trust Agreement and not in its individual
capacity, and the Bank shall not be personally liable for, or for any loss in
respect of, any of the statements, representations, warranties, agreements or
obligations of the Owner Trustee hereunder, as to all of which Lessee may
proceed only against the Trust Estate; provided, however, that the Bank shall be
-------- -------
liable hereunder for its own negligence or negligent or willful misconduct or
for a breach of its representations and warranties made in its individual
capacity in Section 4 hereof or as otherwise provided in the Participation
Agreement. The Bank accepts the benefits of the indemnification granted, and
representations and warranties made, to it hereunder.
SECTION 23. Trust Estate as Security for Lessor's Obligations to
----------------------------------------------------
Holders. In order to secure the indebtedness evidenced by the Certificates,
- -------
Lessor provides in the Indenture, among other things, for the assignment by
Lessor to the Indenture Trustee of this Lease Agreement and the Lease Supplement
and for the creation of a first mortgage and security interest in favor of the
Indenture Trustee on the Airframe and the Engines. Lessee acknowledges the
existence of, and consents to, such assignment and the receipt of a copy of the
Indenture. Lessee also acknowledges that, so long as
- 57 -
any Certificates are outstanding, all rights of Lessor under this Lessee shall
be exercised only by the Indenture Trustee, as assignee of Lessor's rights under
this Lease pursuant to the Indenture, subject, however, to Section 8.01 of the
Indenture. Notwithstanding any other provision of this Lease or the
Participation Agreement to the contrary, Stipulated Loss Value and Termination
Value shall not be adjusted to be below the amounts required to pay in full, as
of the date of payment thereof, the aggregate unpaid principal amount of the
Certificates outstanding on such date of payment, together with the accrued and
unpaid interest thereon.
SECTION 24. Investment of Security Funds. Any amounts not payable to
----------------------------
Lessee or any Permitted Sublessee as the case may be (which amounts shall be
paid to or retained by Lessor (or, so long as the Indenture shall be in effect,
the Indenture Trustee)), (a) pursuant to any provision of Section 10 or 11 or
this Section 24 solely because an Event of Default or a Payment or Bankruptcy
Default shall have occurred and be continuing or because Lessee shall not have
performed in full its obligations under Section 10 or (b) pursuant to the second
to the last sentence of Section 4 solely because an Event of Default shall have
occurred and be continuing, shall, in each case, be held by Lessor (or, so long
as the Indenture shall be in effect, the Indenture Trustee) as security for the
obligations of Lessee under this Lease and the other Operative Documents. At
such time as no Event of Default, Payment or Bankruptcy Default or failure to
perform shall be continuing, such amounts, net of any amounts previously applied
to Lessee's obligations hereunder or under the Participation Agreement, shall be
paid to Lessee or such sublessee or transferee, as the case may be. Any such
amounts which are held by Lessor (or, so long as the Indenture shall be in
effect, the Indenture Trustee) pending payment to Lessee or such sublessee or
transferee, as the case may be, shall, until paid to Lessee or such sublessee or
transferee, as the case may be, as provided hereunder or, as long as the
Indenture is in effect, until applied against Lessee's obligations herein and
under the Participation Agreement and distributed as provided in the Indenture
or (after the Indenture is no longer in effect) in connection with any exercise
of remedies hereunder, be invested by Lessor as directed from time to time in
writing by Lessee and at the expense and risk of Lessee, in the following
securities (which securities shall mature within 30 days of the date of purchase
thereof):
(a) direct obligations of the United States of America, or
(b) obligations fully guaranteed by the United States of America, or
(c) 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
- 58 -
States of America or one of the states thereof (which may include
Wilmington Trust Company, the Indenture Trustee or any of their respective
Affiliates), having a combined capital and surplus of at least $100,000,000
and a rating of "B" or better from Thomson BankWatch or IBCA Ltd., or
(d) commercial paper issued by companies (which may include
Wilmington Trust Company, the Indenture Trustee or any of their respective
Affiliates) 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 having a rating assigned to such
commercial paper by a nationally recognized statistical rating organization
in the United States of America equal to the highest rating assigned by
such organization, or
(e) obligations of the type described in clauses (a) through (d)
above, purchased from any bank, trust company or banking association
referred to in clause (c) above (which may include the Bank, the Indenture
Trustee or any of their respective Affiliates) pursuant to fully
collateralized repurchase agreements obligating such bank, trust company or
banking association to repurchase any such obligation not later than 90
days after the purchase of any such obligation, or
(f) overnight federal funds.
Any gain (including interest received) realized as the result of any such
investment (net of any fees, taxes, commissions and other expenses, if any,
incurred in connection with such investment) shall be applied in the same manner
as the principal invested. Lessee will promptly pay to Lessor (or, so long as
the Indenture shall be in effect, the Indenture Trustee), on demand, the amount
of any loss realized as the result of any such investment (together with any
fees, taxes, commissions and other expenses, if any, incurred in connection with
such investment).
SECTION 25. Separate Counterparts. This Lease may be executed by the
---------------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument. To the extent that this Lease
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 may be perfected through the transfer or possession of any counterpart
other than the counterpart marked as the "Original" and containing the receipt
therefor executed by the Indenture Trustee on the signature page thereof.
SECTION 26. Incorporation by Reference. The provisions of Section 6(b)
--------------------------
and 6(c) of the Participation Agreement and the provisions of the Indemnity
Agreement are incorporated herein by
- 59 -
reference (but solely for the benefit of the Owner Participant) with the same
effect as if set forth herein in their entirety.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Agreement to be
duly executed as of the day and year first written above.
LESSOR
WILMINGTON TRUST COMPANY,
not in its individual
capacity, except as
otherwise expressly provided
herein, but solely as Owner
Trustee
By:____________________________
Title:
LESSEE
DELTA AIR LINES, INC.
By:____________________________
Title:
- 60 -
EXHIBIT A to
Lease Agreement
(DELTA 1994-1)
TERMINATION VALUES AND
----------------------
STIPULATED LOSS VALUES
----------------------
[Intentionally omitted as containing
confidential financial information]
A-1
EXHIBIT B to
Lease Agreement
(Delta 1994-1)
LIST OF FOREIGN AIR CARRIERS
----------------------------
(Subject to revision in accordance
with Section 7(b) of the Lease)
Air Lingus Japan Air Lines
Air Canada Japan Air System
Air France KLM
Air Inter Linjeflyg
Air New Zeland Lufthansa
Alitalia Luxair
All Nippon Airways LTU
ALM Maersk Air
Ansett Malaysian Airline System
Australian Airlines Martinair
Austrian Airlines Monarch
Braathens S.A.F.E. QANTAS
Brittannia Airways Sabena
British Airways SAS
British Midland Singapore Airlines
Canadian Airlines International Swissair
Cathay Pacific Airways TAP Air Portugal
Condor Flugdienst Thai Airways
Finnair UTA
Iberia
Icelandair
B-1
EXHIBIT C to
Lease Agreement
(DELTA 1994-1)
BASIC RENT
----------
[Intentionally omitted as containing
confidential financial information]
C-1
EXHIBIT D to
Lease Agreement
(DELTA 1994-1)
REDELIVERY CERTIFICATE
----------------------
ACKNOWLEDGMENT
- --------------
Wilmington Trust Company, as Owner Trustee (the "Lessor"), hereby
acknowledges and certifies to Delta Air Lines, Inc. (the "Lessee") that the
condition of the McDonnell Douglas MD-11 airframe, FAA Registration No. N811DE,
equipped with three Pratt & Whitney PW4460 jet engines (collectively, the
"Aircraft") fully complies with the terms and provisions of the Lease Agreement,
dated as of April 1, 1994 (the "Lease"), as amended and restated as of March 1,
1996, between Lessor and Lessee, and does hereby further acknowledge that such
Aircraft satisfies the terms and conditions for redelivery under the Lease,
including, without limitation, Sections 5 and 7 thereof.
Acknowledged this ____ day of _______________.
[OWNER PARTICIPANT] WILMINGTON TRUST COMPANY,
as Owner Trustee
By:___________________ By:___________________
Its:__________________ Its:__________________
********************************************************************************
RECEIPT
- -------
Wilmington Trust Company, as Owner Trustee (the "Lessor"), hereby
acknowledges delivery to and receipt by it of one McDonnell Douglas MD-11
airframe, FAA Registration No. N811DE, equipped with three Pratt & Whitney
PW4460 jet engines, from Delta Air Lines, Inc. (Lessee) at
___________________________________, on _____________________________.
[OWNER PARTICIPANT] WILMINGTON TRUST COMPANY,
as Owner Trustee
By:___________________ By:___________________
Its:__________________ Its:__________________
D-1