Doc. No. 1.02
Aircraft N777UA
- --------------------------------------------------------------------------------
LEASE AGREEMENT
(1995 777 A)
Dated as of May 1, 1995
Between
STATE STREET BANK AND TRUST COMPANY,
Not in its Individual Capacity,
except as expressly
provided herein, but solely as
Owner Trustee,
Lessor
and
UNITED AIR LINES, INC.,
Lessee
----------------------------
United Air Lines, Inc.
1995 777 A Equipment Trust
One Boeing 777-222 Aircraft
----------------------------
- --------------------------------------------------------------------------------
As set forth in Section 20 hereof, Lessor has assigned to the Indenture
Trustee (as defined herein) certain of its right, title and interest in and to
this Lease. To the extent, if any, 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 created
through the transfer or possession of any counterpart other than the original
executed counterpart, which shall be identified as the counterpart containing
the receipt therefor executed by the Indenture Trustee on the signature page
thereof.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PAGE
----
SECTION 1. Definitions................................. 1
SECTION 2. Acceptance and Lease........................ 17
SECTION 3. Term and Rent............................... 17
(a) Interim Term and Basic Term......... 17
(b) Basic Rent.......................... 17
(c) Adjustments to Basic Rent,
Excess Amount, Stipulated Loss
Values, Termination Values,
Special Termination Value
Percentages and the EBO
Percentage.......................... 17
(d) Supplemental Rent................... 20
(e) Payments in General................. 20
(f) [Intentionally Reserved for
Potential Future Use]............... 21
(g) Prepayments of Certain Rent
Payments............................ 21
SECTION 4. Lessor's Representations and
Warranties............................... 22
SECTION 5. Return of the Aircraft...................... 23
(a) Condition Upon Return............... 23
(b) Return of Other Engines............. 27
(c) Fuel and Manuals.................... 28
(d) Storage Upon Return................. 28
(e) Purchase of Engine.................. 29
(f) Severable Parts..................... 29
(g) Special Redelivery Provision........ 29
SECTION 6. Liens....................................... 30
SECTION 7. Registration, Maintenance and
Operation; Possession and
Subleases; Insignia...................... 30
(a) (1) Registration and
Maintenance........................ 31
(2) Operation...................... 32
(3) Reregistration................. 33
(4) Operating Certificates......... 33
(b) Possession and Subleases............ 33
(c) Insignia............................ 39
SECTION 8. Replacement and Pooling of Parts;
Alterations, Modifications and Additions................ 40
(a) Replacement of Parts................ 40
i
(b) Pooling of Parts.................... 41
(c) Alterations, Modifications and
Additions........................... 41
SECTION 9. Early Termination........................... 43
(a) [Intentionally reserved for
potential future use]............... 43
(b) Termination for
Obsolescence/Surplus................ 43
(c) Sale of the Aircraft................ 43
(d) Termination as to Engines........... 46
SECTION 10. Loss, Destruction, Requisition, etc........ 46
(a) Event of Loss with Respect to
the Aircraft........................ 46
(b) Event of Loss with Respect to
an Engine........................... 50
(c) Application of Payments from
Governmental Authorities for
Requisition of Title, etc........... 52
(d) Requisition for Use of the
Aircraft by the United States
Government or Government of
Registry of the Aircraft............ 53
(e) Requisition for Use of an
Engine by the United States
Government or the Government
of Registry of the Aircraft......... 54
(f) Application of Payments During
Existence of Events of
Default............................. 54
SECTION 11. Insurance.................................. 55
(a) Public Liability and Property
Damage Insurance.................... 55
(b) Insurance Against Loss or
Damage to the Aircraft.............. 55
(c) Reports, etc........................ 57
(d) Self-Insurance...................... 59
(e) Additional Insurance by Lessor
and Lessee.......................... 59
(f) Indemnification by Government
in Lieu of Insurance................ 60
(g) Application of Payments During
Existence of Default................ 60
(h) Terms of Insurance Policies......... 60
SECTION 12. Inspection................................. 61
SECTION 13. Assignment................................. 63
SECTION 14. Events of Default.......................... 63
ii
SECTION 15. Remedies................................... 65
SECTION 16. Lessee's Cooperation Concerning
Certain Matters.......................... 69
SECTION 17. Notices.................................... 71
SECTION 18. Net Lease; No Set-Off, Counterclaim,
Etc...................................... 72
SECTION 19. Renewal Options; Purchase Options;
Valuation................................ 74
(a) Renewal Options..................... 74
(1) Fixed Renewal Terms............. 74
(2) Fair Market Renewal Term........ 75
(3) Waiver.......................... 75
(4) Conditions Precedent,
Payment of Basic Rent........... 75
(5) Termination Value;
Stipulated Loss Value........... 76
(b) Purchase Options.................... 76
(c) Valuation........................... 77
SECTION 20. Security for Lessor's Obligation to
Certificate Holders...................... 78
SECTION 21. Lessor's Right to Perform for Lessee....... 79
SECTION 22. Investment of Security Funds;
Liability of Lessor Limited.............. 80
(a) Investment of Security Funds........ 80
(b) Liability of Lessor Limited......... 81
SECTION 23. Miscellaneous.............................. 81
SECTION 24. Successor Trustee.......................... 81
SECTION 25. Bankruptcy................................. 82
iii
EXHIBITS
EXHIBIT A Form of Lease Supplement
EXHIBIT B Basic Rent and Excess Amount Schedule
EXHIBIT C Stipulated Loss Value Schedule
EXHIBIT D Termination Value Schedule
EXHIBIT E Rent Recalculation and Indemnification Verification
EXHIBIT F Schedule of Countries Authorized for Domicile of Permitted
Sublessees
EXHIBIT G Schedule of Countries Authorized for Aircraft Registration
EXHIBIT H Lessor's Cost, Engine Cost, Commencement Date, Lease Expiry Date,
Stipulated Loss Value Date, EBO Date, EBO Percentage, Special
Purchase Option Dates and Special Termination Value Percentages
iv
LEASE AGREEMENT (1995 777 A)
This LEASE AGREEMENT (1995 777 A), dated as of May 1, 1995, between
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, not in its
individual capacity, except as expressly provided herein, but solely as Owner
Trustee under the Trust Agreement (as defined in Section 1 hereof) (in such
capacity, "Lessor"), and UNITED AIR LINES, INC., a corporation organized and
existing pursuant to the laws of the State of Delaware ("Lessee").
WITNESSETH:
SECTION 1. Definitions. Unless the context otherwise requires, the
-----------
following terms shall have the following meanings for all purposes of this Lease
Agreement and shall be equally applicable to both the singular and the plural
forms of the terms herein defined:
"Acceptable Alternate Engine" means a Pratt & Whitney Model PW4084
engine or an engine of the same or another manufacturer of equivalent or greater
value and utility, and suitable for installation and use on the Airframe;
provided that such engine shall be of the same make, model and manufacturer as
the other engine installed on the Airframe and shall be an engine of a type then
being utilized by Lessee on other Boeing 777-222 aircraft operated by Lessee and
shall have been maintained, serviced, repaired and overhauled in substantially
the same manner as Lessee maintains, services, repairs and overhauls similar
engines utilized by Lessee and without in any way discriminating against such
engine.
"Actual Knowledge" means, (i) as it applies to the Owner Trustee or
Indenture Trustee, as the case may be, actual knowledge of a responsible officer
in the Trust Office, and (ii) as it applies to the Owner Participant, actual
knowledge of a Vice President or more senior officer of the Owner Participant or
other officer of the Owner Participant in each case having responsibility for
the transactions contemplated by the Operative Documents; provided that each of
the Owner Trustee, the Indenture Trustee and the Owner Participant shall be
deemed to have "Actual Knowledge" of any matter as to which it has been given
notice by any of Lessee, the Owner Participant, any Certificate Holder, the
Owner Trustee or the Indenture Trustee, such notice having been given pursuant
to and in accordance with Section 13(a) of the Participation Agreement.
"Additional Insured" means Lessor, in its individual capacity and as
owner of the Aircraft, the Indenture Trustee, the
Owner Participant, Lessee in its capacity as sublessor under any Sublease, and,
so long as the Pass Through Trustees are Certificate Holders, each Pass Through
Trustee and each of their respective Affiliates, successors and permitted
assigns; and the respective directors, officers and employees of each of the
foregoing.
"Affiliate" means a Person (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under a common
control with, another Person, (ii) which beneficially owns or holds 10% or more
(by number of votes) of any class of voting securities of such other Person or
(iii) 10% or more (by number of votes) of the voting securities (or in the case
of a Person which is not a corporation, 10% or more of the equity interest) of
which is beneficially owned or held by such other Person or a Subsidiary. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Aircraft" means the Airframe together with the two Engines whether or
not such Engines are installed on the Airframe or any other airframe.
"Airframe" means: (i) The Boeing Company Model 777-222 aircraft
(excluding Engines or engines from time to time installed thereon) specified by
United States Registration Number and Manufacturer's serial number in the Lease
Supplement; (ii) any and all Parts which are from time to time incorporated or
installed in or attached thereto or which have been removed therefrom, but where
title to which remains vested in Lessor in accordance herewith; and (iii) any
replacement airframe which may from time to time be substituted pursuant to
Section 10(a)(ii) hereof.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended
from time to time.
"Base Rate" means the rate of interest announced from time to time by
The First National Bank of Chicago at its principal office in Chicago, Illinois
as its "corporate base rate" (or its equivalent successor rate if the corporate
base rate is no longer used).
"Basic Rent" means, for the Basic Term, the rent payable for the
Aircraft pursuant to Section 3(b) hereof, as adjusted as provided in Section
3(c) and, for a Renewal Term, Basic Rent determined pursuant to Section 19.
2
"Basic Term" means the term for which the Aircraft is leased hereunder
pursuant to Section 3(a) hereof beginning on the Commencement Date and ending on
the Lease Expiry Date or such earlier date as this Lease may be terminated in
accordance with the terms hereof.
"Business Day" means any day other than a Saturday or Sunday or a day
on which commercial banks are required or authorized to close in the City of
Chicago, Illinois; New York City, New York; the city and state in which the
principal place of business of the Owner Trustee is located; and, so long as any
Loan Certificate is outstanding, the city and state in which the Indenture
Trustee has its principal place of business and the city and state in which the
Indenture Trustee receives and disburses funds.
"Certificate Holder" has the meaning assigned to the term "Holder" in
the Trust Indenture.
"Certificated Air Carrier" means a Citizen of the United States
holding an air carrier operating certificate issued by the Secretary of
Transportation pursuant to Chapter 447 of Title 49 of the United States Code,
for aircraft capable of carrying ten or more individuals or 6,000 pounds or more
of cargo or that otherwise is certified or registered to the extent required to
fall within the purview of 11 U.S.C. Section 1110 or any analogous successor
provision of the Bankruptcy Code.
"Citizen of the United States" has the meaning given such term in
Section 40102(a)(15) of Title 49 of the United States Code.
"Civil Reserve Air Fleet Program" means the Civil Reserve Air Fleet
Program administered by the United States Government pursuant to Executive Order
No. 11490, as amended, or any substantially similar program.
"Code" means the Internal Revenue Code of 1986, as amended through the
Delivery Date.
"Commencement Date" means the date specified as such in Exhibit H
hereto.
"Commitments" means the respective commitments of the Pass Through
Trustees and the Owner Participant to finance the Owner Trustee's payment of
Lessor's Cost for the Aircraft and "Commitment" means any one of the
Commitments.
"Consent and Agreement" means the Consent and Agreement (1995 777 A),
dated as of the date hereof, executed by the
3
Manufacturer, as the same may be amended, modified or supplemented from time to
time in accordance with the applicable provisions thereof.
"Debt Rate" means the weighted average interest rate borne by the Loan
Certificates then outstanding.
"Default" means any event which with the giving of notice or the lapse
of time or both would become an Event of Default.
"Delivery Date" means the date of the initial Lease Supplement for the
Aircraft, which date shall be the date the Aircraft is leased by Lessor to
Lessee and accepted by Lessee hereunder.
"Dollars" and "$" mean the lawful currency of the United States of
America.
"EBO Date" means the date specified as such in Exhibit H hereto.
"EBO Percentage" means the percentage specified as such in Exhibit H
hereto.
"EBO Price" has the meaning set forth in Section 19(b)(2) hereof.
"Engine" means (i) each of the two Pratt & Whitney Model PW4084
engines listed by manufacturer's serial numbers in the initial Lease Supplement
and installed on the Airframe at the time of the Manufacturer's delivery to
Lessee of such Airframe, and whether or not from time to time thereafter
installed on such Airframe or any other airframe; (ii) any Acceptable Alternate
Engine which may from time to time be substituted for any of such two engines
pursuant to the terms hereof; and (iii) in either case, any and all Parts which
are from time to time incorporated or installed in or attached to any such
engine and any and all parts removed therefrom so long as title thereto remains
vested in Lessor in accordance herewith. The term "Engines" means, as of any
date of determination, all Engines then leased hereunder.
"Engine Cost" means the amount specified as Engine Cost in Exhibit H
hereto.
"Event of Default" has the meaning specified in Section 14
hereof.
4
"Event of Loss" with respect to the Aircraft, Airframe or any Engine
means any of the following events with respect to such property: (i) the loss
of such property or of the use thereof due to the destruction of or damage to
such property which renders repair uneconomic or which renders such property
permanently unfit for normal use by Lessee for any reason whatsoever; (ii) any
damage to such property which results in an insurance settlement with respect to
such property on the basis of a total loss, or a constructive or compromised
total loss; (iii) the theft or disappearance of such property, or the
confiscation, condemnation, or seizure of, or requisition of title to, or use
of, such property by any governmental or purported governmental authority (other
than a requisition for use by the United States Government or any government of
registry of the Aircraft or any agency or instrumentality thereof), which in the
case of any event referred to in this clause (iii) shall have resulted in the
loss of title or possession of such property by Lessee for a period in excess of
90 consecutive days or, if earlier, until the end of the Term; (iv) as a result
of any law, rule, regulation, order or other action by the FAA or other
governmental body of the government of registry of the Aircraft having
jurisdiction, use of such property in the normal course of the business of air
transportation shall have been prohibited for a period in excess of 180
consecutive days, unless (A) such grounding is applicable to all Boeing 777-222
aircraft registered in such country, (B) Lessee, prior to the expiration of such
180 day period, shall have undertaken and shall be diligently carrying forward,
in a manner that does not discriminate against the Aircraft, all steps which are
necessary or desirable to permit the normal use of such property by Lessee, and
(C) Lessee, within one year from the time of grounding shall have conformed at
least one such aircraft in its fleet to the requirements of any such law, rule,
regulation, order or other action and commenced regular commercial use of the
same in such jurisdiction, provided that no such grounding shall extend beyond
the expiration of the Term; (v) the requisition for use by the United States
Government or any government of registry of the Aircraft or any instrumentality
or agency thereof, which shall have occurred during the Basic Term (or the
Interim Term or any Renewal Term) and shall have, in the case of any government
of registry of the Aircraft (other than the United States Government or any
agency or instrumentality thereof) or any agency or instrumentality thereof,
continued for more than two years (or if earlier, until the end of the Term),
and in the case of the United States Government or any agency or instrumentality
thereof shall have continued for a period that extends beyond the Term and
Lessor shall not have furnished the written notice specified in Section 10(d)
hereof; (vi) the operation of or location of the Aircraft, while under
requisition for use by any government, in any area excluded from coverage by any
insurance policy in effect
5
with respect to the Aircraft required by the terms of Section 11, unless in the
case of a requisition by the government of the United States or any agency or
instrumentality thereof, Lessee shall have obtained an indemnity in lieu thereof
from such government; and (vii) any divestiture of title to an Engine treated as
an Event of Loss pursuant to Section 7(b) hereof. 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.
"Excess Amount" for the Commencement Date means the amount determined
by multiplying Lessor's Cost by the percentage specified in Exhibit B hereto
opposite the Commencement Date (as such Exhibit B may be adjusted from time to
time as provided in Section 3(c) hereof).
"Excluded Payments" has the meaning set forth in the Trust Indenture.
"Expenses" means any and all liabilities, obligations, losses,
damages, penalties, claims (including, but not limited to, negligence, strict or
absolute liability, liability in tort and liabilities arising out of violation
of laws or regulatory requirements of any kind), actions, suits, costs, expenses
and disbursements (including reasonable legal fees and expenses and, to the
extent not required to be paid by the Owner Trustee pursuant to Section 16 of
the Participation Agreement, Transaction Expenses, and all costs and expenses
relating to amendments, supplements, waivers and consents to and under the
Operative Documents, any amounts that would be included in Premium, but
excluding internal costs and expenses such as salaries, and overhead of
whatsoever kind and nature).
"Fair Market Rental Value" means the fair market rental value
determined as provided in Section 19(c) hereof.
"Fair Market Sales Value" means the fair market sales value determined
as provided in Sections 19(a) and 19(c) hereof.
"Federal Aviation Act" means the sections of Title 49 of the
United States Code relating to aviation, as amended.
"Federal Aviation Administration" and "FAA" mean the United States
Federal Aviation Administration and any successor agency or agencies thereto.
"Indemnitees" means the Owner Participant, the Owner Trustee, in its
individual capacity and as trustee under the Trust Agreement, the Trust Estate,
the Trust Indenture Estate, the Indenture Trustee, in its individual capacity
and as trustee
6
under the Trust Indenture, each Pass Through Trustee (so long as the Pass
Through Trustees are Certificate Holders), and each of their respective
Affiliates, successors, permitted assigns, directors, officers, employees,
servants and agents.
"Indenture Trustee" has the meaning set forth in the Trust Indenture.
"Indenture Trustee Documents" means the Participation Agreement, the
Trust Indenture, each Pass Through Trust Agreement, each Pass Through Trust
Supplement, each Loan Certificate and each Pass Through Certificate and any
other document executed by the Indenture Trustee or the Pass Through Trustee in
connection with the transactions contemplated by the Operative Documents.
"Interim Term" means the period commencing on the Delivery Date and
ending on and including the day immediately preceding the Commencement Date,
unless earlier terminated in accordance with the provisions hereof.
"Lease Agreement", "this Lease Agreement", "this Lease", "this
Agreement", "herein", "hereof", "hereunder", "hereby", or other like words mean
this Lease Agreement as originally executed or as modified, amended or
supplemented in accordance with the applicable provisions hereof and the terms
of the Trust Indenture, including, without limitation, supplementation hereof by
any Lease Supplement entered into in accordance with the applicable provisions
hereof and the terms of the Trust Indenture.
"Lease Expiry Date" means the date specified as such in Exhibit H.
"Lease Period" means each of the consecutive semi-annual periods
throughout the Basic Term and any Renewal Term ending on a Lease Period Date,
the first such period commencing on and including the Commencement Date.
"Lease Period Date" means April 19, 1996 and each succeeding semi-
annual anniversary thereof to and including the last such date in the Term.
"Lease Supplement" means a Lease Supplement (1995 777 A),
substantially in the form of Exhibit A hereto, to be entered into between Lessor
and Lessee on the Delivery Date for the purpose of leasing the Aircraft under
and pursuant to the terms of this Lease Agreement, and any subsequent Lease
Supplement entered into in accordance with the terms hereof and the terms of the
Trust Indenture.
7
"Lessee Documents" means the Participation Agreement, the Lease, any
Lease Supplement, the Purchase Agreement, the Owner Trustee's Purchase
Agreement, the Owner Trustee's FAA Bill of Sale, the Owner Trustee's Bill of
Sale, the Tax Indemnity Agreement, each Pass Through Trust Agreement, each Pass
Through Trust Agreement Supplement and any other document executed by Lessee in
connection with the transactions contemplated by the Operative Documents.
"Lessor Liens" means any Lien on, or disposition of title to, the
Aircraft or the Trust Estate arising as a result of (i) claims against Lessor,
State Street Bank and Trust Company, in its individual capacity, or the Owner
Participant not related to the transactions contemplated by the Operative
Documents, (ii) any act or omission of the Owner Participant, Lessor, or State
Street Bank and Trust Company, in its individual capacity, 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, (iii) claims against the Owner
Participant, Lessor, or State Street Bank and Trust Company, in its individual
capacity, with respect to Taxes or Expenses against which Lessee is not required
to indemnify the Owner Participant, Lessor or State Street Bank and Trust
Company, in its individual capacity or (iv) claims against Lessor or the Owner
Participant arising out of any transfer by Lessor or the Owner Participant of
all or any portion of the respective interests of Lessor or the Owner
Participant in the Aircraft, the Trust Estate or the Operative Documents (other
than a transfer of possession of the Aircraft by Lessor pursuant to this
Agreement, a transfer pursuant to the Trust Indenture (other than a transfer
pursuant to Article 8 of the Trust Indenture not attributable to a Lease Event
of Default) or a transfer pursuant to Section 7, 8, 9, 10 or 19 hereof, pursuant
to Section 17 of the Participation Agreement or pursuant to the exercise of the
remedies set forth in Section 15 hereof); provided, however, that any Lien which
is attributable solely to State Street Bank and Trust Company or the Owner
Participant and would otherwise constitute a Lessor Lien hereunder shall not
constitute a Lessor Lien hereunder so long as (1) the existence of such Lien
poses no material risk of the sale, forfeiture or loss of the Airframe or any
Engine or any interest therein, (2) the existence of such Lien does not
interfere in any way with the use or operation of the Aircraft by Lessee (or any
Sublessee), (3) the existence of such Lien does not affect the priority or
perfection of, or otherwise jeopardize, the Lien of the Trust Indenture, (4)
State Street Bank and Trust Company or the Owner Participant, as the case may
be, is diligently contesting such Lien by appropriate proceeding and (5) the
existence of such Lien does not result in actual interruption in the payment of
Rent assigned to the Indenture Trustee for the benefit of the Certificate
Holders.
8
"Lessor's Cost" for the Aircraft means the amount specified as
Lessor's Cost in Exhibit H hereto; provided, however, Lessor's Cost shall be
reduced by Engine Cost for each Engine for which Lessee has paid Stipulated Loss
Value pursuant to the terms of Section 10(b) hereof and has otherwise paid all
other amounts due and payable under said Section 10(b).
"Lien" means any mortgage, pledge, lien, charge, claim, encumbrance,
lease or security interest.
"Loan Certificate" has the meaning assigned to the term "Certificate"
in the Trust Indenture.
"Loss Payment Date" has the meaning set forth in Section 10(a) hereof.
"Manufacturer" means The Boeing Company, a Delaware corporation, and
its subsidiaries, successors and assigns.
"Manufacturer Documents" means the Purchase Agreement, the Consent and
Agreement and any other document executed by the Manufacturer in connection with
the transactions contemplated by the Operative Documents.
"Net Economic Return" means the Owner Participant's net after-tax book
yield, aggregate after-tax cash flow and, with respect to any adjustments
required to maintain the Owner Participant's Net Economic Return, periodic FASB
13 earnings plus or minus 5% for any annual period, utilizing the multiple
investment sinking fund method of analysis, computed on the basis of the same
methodology and assumptions as were utilized by the Owner Participant in
determining Basic Rent, Stipulated Loss Value percentages, Special Termination
Value Percentages, EBO Percentage and Termination Value percentages as of the
Delivery Date, as such assumptions may be revised from time to time for events
which have been the basis for adjustments to Rent pursuant to Section 3(c)
hereof, provided that under no circumstances shall there be a reduction in Owner
Participant's 1995 FASB 13 earnings.
"Net Present Value of Rents" means the net present value, as of the
Delivery Date, of Basic Rent set forth in Exhibit B hereto, discounted at a rate
per Lease Period equal to (a) 11% per annum divided by (b) the number of Lease
Periods per year.
"Operative Documents" means the Lease (including any Lease
Supplement); the Participation Agreement; the Tax Indemnity Agreement; the Trust
Agreement; any Trust Supplement; the Purchase Agreement; the Owner Trustee's
Bill of Sale; the Owner
9
Trustee's FAA Bill of Sale; the Owner Trustee's Purchase Agreement; an
acceptance certificate covering the Aircraft in the form agreed to by the
Participants and Lessee (the "Acceptance Certificate"); the Trust Indenture; the
Loan Certificates outstanding at the time of reference; and the Consent and
Agreement.
"Original Amount", with respect to a Loan Certificate, means at any
time prior to the Commencement Date, the Original Issue Price (as defined in the
Trust Indenture) of such Loan Certificate, or, at any time on or after the
Commencement Date, the stated original principal amount of such Loan
Certificate, and with respect to all Loan Certificates means, at any time prior
to the Commencement Date, the aggregate Original Issue Prices for such Loan
Certificates or, at any time on or after the Commencement Date, the aggregate
stated original principal amounts of such Loan Certificates.
"Owner Participant" means the Person executing the Participation
Agreement as the Owner Participant and any Person to which such Person transfers
all or any portion of its right, title and interest in and to the Trust
Agreement, the Trust Estate and the Participation Agreement, to the extent
permitted thereby.
"Owner Participant Documents" means the Participation Agreement, the
Trust Agreement, the Tax Indemnity Agreement and any other document executed by
the Owner Participant in connection with the transactions contemplated by the
Operative Documents.
"Owner Participant Parent" means ____________________, a Delaware
corporation.
"Owner Participant Parent Guaranty" means the guaranty, dated the
Delivery Date, by the Owner Participant Parent in favor of Lessee, the Pass
Through Trustees, and certain other parties, of certain obligations of the Owner
Participant, as the same may be amended or modified in compliance with the
provisions thereof.
"Owner Trustee" means the Person executing the Participation Agreement
as Owner Trustee and any Person appointed as successor Owner Trustee in each
case not in its individual capacity but solely as Owner Trustee under the Trust
Agreement, except as otherwise expressly stated.
"Owner Trustee Documents" means the Participation Agreement, the Trust
Agreement, this Lease, any Lease Supplement, the Owner Trustee's Purchase
Agreement, the Trust Indenture, any Trust Supplement, the Loan Certificates and
any other document
10
executed by the Owner Trustee in connection with the transactions contemplated
by the Operative Documents.
"Owner Trustee's Bill of Sale" means a bill of sale for the Aircraft,
dated the Delivery Date, executed by Lessee in favor of Lessor in form and
substance satisfactory to Lessor.
"Owner Trustee's FAA Bill of Sale" means a bill of sale for the
Aircraft on AC Form 8050-2 or such other form as may be approved by the FAA on
the Delivery Date executed by Lessee in favor of Lessor in form and substance
satisfactory to Lessor.
"Owner Trustee's Purchase Agreement" means the Owner Trustee's
Purchase Agreement and Assignment (1995 777 A), dated as of the date hereof,
between Lessee and the Owner Trustee, as the same may be amended, modified or
supplemented from time to time in accordance with the applicable provisions
thereof and the terms of the Trust Indenture.
"Participants" means and includes the Pass Through Trustees and the
Owner Participant.
"Participation Agreement" means that certain Participation Agreement
(1995 777 A), dated as of the date hereof, among Lessee, the Indenture Trustee,
the Owner Participant, the Pass Through Trustees and the Owner Trustee, as such
Participation Agreement may be amended or supplemented from time to time
pursuant to the applicable provisions thereof.
"Parts" means all appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature other than
complete Engines or engines, which are from time to time incorporated or
installed in or attached to an Airframe or any Engine or which have been removed
therefrom, but where title to which remains vested in Lessor in accordance with
Section 8 hereof.
"Pass Through Certificates" has the meaning set forth in the Trust
Indenture.
"Pass Through Trust Agreements" means the Pass Through Trust Agreement
dated as of February 1, 1992, as amended and restated as of May 1, 1995, in each
case between the Lessee and State Street Bank and Trust Company of Connecticut,
National Association, as supplemented by each of the two Pass Through Trust
Supplements, in each case between the Lessee and the Pass Through Trustee, and
as the same may be further modified, amended or supplemented pursuant to the
applicable provisions thereof and the Participation Agreement.
11
"Pass Through Trustee" shall mean First Security Bank of Utah,
National Association, a national banking association, in its capacity as Trustee
under each Pass Through Trust Agreement, and each other Person which may from
time to time be acting as successor trustee under any such Pass Through Trust
Agreement.
"Pass Through Trust Supplement" means each of the two separate Trust
Supplements Nos. 1995-A1 and 1995-A2, in each case dated as of May __, 1995
between Lessee and the Pass Through Trustee.
"Past Due Rate" means (i) with respect to the portion of any payment
of Rent that may be required by the Trust Indenture to be paid by the Indenture
Trustee to any Certificate Holder, the "Past Due Rate" as defined in the Trust
Indenture and (ii) with respect to the remaining portion of any payment of Rent
(and the entire amount of any payment of Rent after the satisfaction and
discharge of the Trust Indenture), a fluctuating rate per annum equal to 2% over
the Debt Rate.
"Permitted Lien" means any Lien referred to in clauses (i) through
(vi) of Section 6 hereof.
"Permitted Sublessee" means any air carrier domiciled in a country
listed in Exhibit F hereto as in effect from time to time.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Premium" has the meaning assigned to the term in Section 6.01(b) of
the Trust Indenture.
"Prepaid Rent" has the meaning set forth in Section 3(g) hereof.
"Purchase Agreement" means the agreement between Lessee and the
Manufacturer relating to the purchase by Lessee of the Aircraft, as originally
executed or as modified, amended or supplemented in accordance with the terms
thereof, but only insofar as the foregoing relates to the Aircraft.
"Redemption Date" has the meaning set forth in the Trust Indenture.
"Reimbursement Amount" has the meaning set forth in Section 3(g)
hereof.
12
"Renewal Term" means the Fair Market Renewal Term or a Fixed Renewal
Term as those terms are defined in Section 19 hereof.
"Rent" means Basic Rent and Supplemental Rent, collectively.
"Replacement Airframe" means any airframe substituted for an airframe
in accordance with Sections 10(a) of the Lease.
"Replacement Engine" means any engine substituted for an Engine in
accordance with Sections 9(d), 10(a) or 10(b) of the Lease.
"Restricted Country" has the meaning set forth on Exhibits F and G
hereto.
"Restricted Period" means the period ending on the last open day of
the calendar year in which there occurs the seventh anniversary of the Delivery
Date.
"Special Purchase Option Dates" means each of the dates specified as
such on Exhibit H hereto.
"Special Termination Value", with respect to any Special Purchase
Option Date, has the meaning set forth in Section 19(b)(1) hereof.
"Special Termination Value Percentage" means, with respect to any
Special Purchase Option Date, the percentage set forth opposite such Date on
Exhibit H hereto.
"Stipulated Loss Value" with respect to the Aircraft as of any date
through and including the last day of the Basic Term, means the amount
determined by multiplying Lessor's Cost for the Aircraft by the percentage
specified in Exhibit C hereto opposite the Stipulated Loss Value Date with
respect to which the amount of Stipulated Loss Value is determined (as such
Exhibit C may be adjusted from time to time as provided in Section 3(c) hereof
and in Section 8 of the Tax Indemnity Agreement). "Stipulated Loss Value" with
respect to the Aircraft, as of any date during any Renewal Term, shall be the
amount determined as provided in Section 19 hereof. To the extent that an event
giving rise to an obligation to pay any Stipulated Loss Value occurs (with
respect to the Airframe or either Engine), 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
13
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.
"Stipulated Loss Value Date" has the meaning specified therefore in
Exhibit H hereto.
"Sublease" means any sublease permitted by the terms of Section
7(b)(viii) hereof.
"Sublessee" means any Person for so long, but only so long, as such
Person is in possession of the Airframe and or any Engine pursuant to the terms
of a Sublease which is then in effect pursuant to Section 7(b)(viii) hereof.
"Subsidiary" means, with respect to any Person that is a corporation,
any other corporation a majority of the voting securities of which are owned by
such person, whether directly or indirectly.
"Supplemental Rent" means all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay to Lessor or
others hereunder or under any of the other Operative Documents, including
payments of Stipulated Loss Value and Termination Value and amounts calculated
by reference thereto, an amount equal to the Premium, if any, payable in
accordance with Section 3(d) hereof and indemnity payments. The parties
acknowledge that Supplemental Rent is a general category and, accordingly, agree
that any provision of any Operative Document which calls for the payment of
Supplemental Rent and also calls for the payment of specific items which are
includable in Supplemental Rent is not to be interpreted as requiring any double
payment.
"Tax Indemnity Agreement" means that certain Tax Indemnity Agreement
(1995 777 A), dated as of the date hereof, between the Owner Participant and
Lessee, as originally executed or as modified, amended or supplemented pursuant
to the applicable provisions thereof.
"Taxes" means any and all fees (including, without limitation,
license, documentation and registration fees), taxes (including, without
limitation, income, gross receipts, sales, rental, use, turnover, value added,
property (tangible and intangible), excise and stamp taxes), licenses, levies,
imposts, duties, recording charges or fees, charges, assessments, or
withholdings of any nature whatsoever, together with any assessments, penalties,
fines, additions to tax and interest thereon (each, individually, a "Tax").
14
"Term" means the Interim Term, Basic Term and, if actually entered
into, any Renewal Term.
"Termination Date" has the meaning set forth in Section 9(b) hereof.
"Termination Value" with respect to the Aircraft as of any date
through and including the last day of the Basic Term means the amount determined
by multiplying Lessor's Cost for the Aircraft by the percentage specified in
Exhibit D hereto opposite the Termination Date with respect to which the amount
of Termination Value is determined (as such Exhibit D may be adjusted from time
to time as provided in Section 3(c) hereof and in Section 8 of the Tax Indemnity
Agreement). To the extent that an event giving rise to an obligation to pay any
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.
"Transaction Expenses" means (i) the reasonable and actual fees,
expenses and disbursements of (1) Ray, Quinney & Nebeker, special counsel for
the Indenture Trustee and the Pass Through Trustee, (2) Bingham, Dana & Gould,
counsel for the Owner Trustee, (3) Crowe & Dunlevy, P.C., special counsel in
Oklahoma City, Oklahoma, (4) Shearman & Sterling, special counsel for the
underwriters (to the extent not payable by the underwriters), (5) Vedder, Price,
Kaufman & Kammholz, special counsel for Lessee, and (6) Dewey Ballantine,
special counsel for the Owner Participant, (ii) all fees, taxes and other
charges payable in connection with the recording or filing of instruments and
financing statements, (iii) the initial fee and reasonable and actual
disbursements of the Owner Trustee under the Trust Agreement, (iv) the initial
fee and reasonable and actual disbursements of the Indenture Trustee under the
Trust Indenture, (v) the fee of BK Associates (or of such other appraiser as
shall be selected by the Owner Participant) with respect to the appraisal of the
Aircraft required on or before the Delivery Date pursuant to Section 4(a) of the
Participation Agreement, (vi) the fees, commissions and expenses of Capstar
Partners, Inc., (vii) the reasonable out-of-pocket expenses of the Owner
Participant relating to the transactions contemplated by the Participation
Agreement including, without limitation, the expenses related to the
organization of the foreign sales corporation, as well as those transactions
relating to the investment by the Owner Participant in the second quarter of
1995 in one Boeing 777-222
15
aircraft to be operated by the Lessee up to an aggregate of $25,000 (but
excluding from Transaction Expenses airfare charges incurred for travel on an
airline other than United Air Lines, unless such travel is necessitated by the
foreign sales corporation structure to the extent that United Air Lines does not
offer regularly scheduled flights directly from New York to such foreign
location where negotiations with respect to the transactions will be conducted
for purposes of the foreign sales corporation nature of the transactions) plus
airfare charges incurred for travel on United Air Lines, (viii) the placement or
underwriting fees, commissions and expenses, if any, in placing the debt
contemplated by the Participation Agreement and all costs and expenses
associated with the public offering pursuant thereto and the actual expenses of
each Pass Through Trustee under its respective Pass Through Trust Agreement and
(ix) printing and distribution costs.
"Trust Agreement" means that certain Trust Agreement (1995 777 A),
dated as of the date hereof, between the Owner Participant and State Street Bank
and Trust Company, in its individual capacity, as originally executed or as
modified, amended or supplemented in accordance with the applicable provisions
thereof and the terms of the Trust Indenture, including, without limitation, any
Trust Supplement entered into pursuant to the applicable provisions thereof.
"Trust Estate" has the meaning set forth in the Trust Agreement.
"Trust Indenture" means that certain Trust Indenture and Mortgage
(1995 777 A), dated as of the date hereof, between Lessor and the Indenture
Trustee, as originally executed or as modified, amended or supplemented in
accordance with the provisions thereof and the terms of the Participation
Agreement, including, without limitation, any Trust Supplement entered into
pursuant to the applicable provisions thereof.
"Trust Indenture Estate" has the meaning assigned to the term
"Indenture Estate" in the Trust Indenture.
"Trust Office" has the meaning set forth in the Trust Indenture.
"Trust Supplement" means a supplement to the Trust Agreement and the
Trust Indenture, substantially in the form of Exhibit A to the Trust Agreement.
"U.S. Air Carrier" means any United States air carrier as to which
there is in force a certificate issued pursuant to Section 44102 of the Federal
Aviation Act, and as to which there
16
is in force an air carrier operating certificate issued pursuant to Part 121 of
the regulations under such Act, or which may operate as an air carrier by
certification or otherwise under any successor or substitute provisions therefor
or in the absence thereof.
"Wet Lease" means any arrangement whereby Lessee agrees to furnish the
Airframe and Engines or engines installed thereon to a third party pursuant to
which such Airframe and Engines or engines (i) shall be operated solely by
regular employees of Lessee possessing all current certificates and licenses
that would be required under the Federal Aviation Act (or if the Aircraft is not
registered in the United States, all certificates and licenses required by the
laws of the jurisdiction of registry) for the performance by such employees of
similar functions within the United States of America (or such jurisdiction of
registry) (it is understood that cabin attendants need not be employees of
Lessee) and (ii) shall be maintained by Lessee in accordance with its normal
maintenance practices.
SECTION 2. Acceptance and Lease. Lessor hereby agrees to accept from
--------------------
the Lessee the transfer of title to and simultaneously to lease to Lessee
hereunder, and Lessee hereby agrees to lease on the Delivery Date from Lessor
hereunder, the Aircraft as evidenced by the execution by Lessor and Lessee of a
Lease Supplement leasing the Aircraft hereunder. Lessee agrees that Lessor will
authorize one or more employees of Lessee, designated by Lessee in writing, as
the authorized representative or representatives of Lessor to accept delivery of
the Aircraft. Lessee hereby agrees that in the event delivery of the Aircraft
shall be accepted by an employee or employees of Lessee pursuant to such
authorization by Lessor, such acceptance of delivery by such employee or
employees on behalf of Lessor shall, without further act, irrevocably constitute
acceptance by Lessee of the Aircraft for all purposes of this Lease.
SECTION 3. Term and Rent. (a) Interim Term and Basic Term. The
------------- ---------------------------
Interim Term shall commence on the Delivery Date and end on and include the day
immediately preceding the Commencement Date unless earlier terminated pursuant
to the provisions hereof. The Basic Term shall commence on the Commencement
Date and end on the Lease Expiry Date or such earlier date as this Lease may be
terminated in accordance with the provisions hereof.
(b) Basic Rent. Lessee shall pay Basic Rent in Dollars with respect
----------
to each Lease Period during the Basic Term on each Lease Period Date during the
Basic Term, in the respective amounts for each Lease Period Date determined in
accordance with Exhibit B hereto.
17
(c) Adjustments to Basic Rent, Excess Amount, Stipulated Loss Values,
-----------------------------------------------------------------
Termination Values, Special Termination Value Percentages and the EBO
- ---------------------------------------------------------------------
Percentage.
- -----------
(i) In the event that (A) Transaction Expenses paid by Lessor are
determined to be other than __% of Lessor's Cost, (B) there shall be an
optional redemption or a refinancing or a refunding of the Loan
Certificates in accordance with Section 17 of the Participation Agreement,
(C) the Delivery Date occurs other than on May 15, 1995, or (D) there is an
optimization in accordance with Section 18 of the Participation Agreement;
then in each case the Basic Rent and Excess Amount set forth in Exhibit B,
the Stipulated Loss Value percentages set forth in Exhibit C, the
Termination Value percentages set forth in Exhibit D, and the EBO
Percentage and the Special Termination Value Percentages set forth in
Exhibit H shall be adjusted (upwards or downwards as the case may be) using
the same methods and assumptions (as modified on account of the occurrence
of any of the events referred to in clauses (A)-(D)) used to calculate the
Basic Rent and Excess Amount, the Stipulated Loss Value percentages, the
Termination Value percentages and the EBO Percentage and the Special
Termination Value Percentages set forth in Exhibits B, C, D and H,
respectively, in each case in compliance with clauses (iv) and (v) of this
paragraph (c) and in order to: (1) maintain the Owner Participant's Net
Economic Return and (2) minimize the Net Present Value of Rents to Lessee
to the extent possible consistent with clause (1) hereof; provided,
--------
however, in no event will the EBO Price be adjusted below the greatest of
-------
(i) the Termination Value for the Aircraft as of the EBO Date, (ii) __% of
Lessor's Cost (i.e., the fair market value of the Aircraft as of the EBO
Date as the same was determined on the Delivery Date) and (iii) __%
multiplied by the present value as of the EBO Date of (x) the remaining
Basic Rent plus (y) __% of Lessor's Cost (i.e., the fair market value of
the Aircraft as of the end of the Term as the same was determined on the
Delivery Date) (the present value calculation described in this clause
(iii) shall utilize a semi-annual discount rate that on a compound basis is
equal to ___% per annum).
(ii) [Intentionally reserved for potential future use.]
(iii) Any recalculation of Basic Rent and Excess Amount,
Stipulated Loss Value percentages, Termination Value percentages, EBO
Percentage and Special Termination Value Percentages pursuant to this
Section 3(c) (or pursuant to the definition of Stipulated Loss Value or
Termination
18
Value) shall be determined by the Owner Participant and shall be subject to
the verification procedures set forth in Exhibit E hereto. Such
recalculated Basic Rent and Excess Amount, Stipulated Loss Value
percentages, Termination Value percentages, EBO Percentage and Special
Termination Value Percentages shall be set forth in an amendment hereto.
(iv) Anything contained in the Participation Agreement or this
Lease to the contrary notwithstanding, each installment of Basic Rent
payable hereunder, whether or not adjusted in accordance with this Section
3(c), together with the amount of Excess Amount and Supplemental Rent, if
any, in respect of the date on which such installment is payable, and each
payment of Termination Value, Stipulated Loss Value, EBO Price and Special
Termination Value whether or not adjusted in accordance with this Section
3(c) or Section 8 of the Tax Indemnity Agreement, and all other amounts
(excluding Excluded Payments payable simultaneously by Lessee pursuant to
this Lease), in each case, on the date on which such payment is due, shall
be in an amount at least sufficient to pay in full, and shall be available
to be applied by Lessor in payment on account of, any payments then
required to be made on account of the principal amount (and Premium, if
any) of and interest on the Loan Certificates then outstanding. It is
agreed that no installment of Basic Rent or payment of Excess Amount,
Termination Value, Stipulated Loss Value, Special Termination Value or EBO
Price, shall be increased or adjusted by reason of (A) any attachment or
diversion of Rent on account of (x) Lessor Liens (including for this
purpose Liens that would be Lessor Liens but for the proviso to the
definition of Lessor Liens) or (y) any other Lien on or against the Trust
Estate, any part thereof or the Operative Documents arising as a result of
claims against the Indenture Trustee or a Certificate Holder, not related
to the transactions contemplated by the Operative Documents, (B) any
modification of the payment terms of the Loan Certificates made without the
prior written consent of Lessee, or (C) the acceleration of any Loan
Certificate due to the occurrence of an "Event of Default" (as defined in
the Trust Indenture) which does not constitute an Event of Default
hereunder.
(v) All adjustments to Basic Rent under this Section 3(c) shall
be consistent with the requirements of Sections 4.02(5), 4.07(1) and (2)
and Section 4.08(1) of Rev. Proc. 75-28 (provided that the requirements of
Section 4.08(1) shall apply on a prospective basis), as modified and in
effect on the Delivery Date, and shall not cause the Lease to be a
"disqualified leaseback or long-term
19
agreement" within the meaning of Section 467 of the Code as then in effect
and any final, temporary or proposed regulations thereunder or any
administrative or judicial interpretation thereof in effect on the date of
such adjustment (a "Section 467 Agreement") (it being understood that any
such adjustment shall not be treated as causing the Lease to be a Section
467 Agreement to the extent the Lease would have been a Section 467
Agreement if no such adjustment to Basic Rent had occurred).
(d) Supplemental Rent. Lessee shall pay (or cause to be paid)
-----------------
promptly to Lessor, or to whomsoever shall be entitled thereto, any and all
Supplemental Rent constituting Stipulated Loss Value, Termination Value, EBO
Price and Special Termination Values as the same shall become due and owing and
all other amounts of Supplemental Rent within five Business Days after demand or
on such date, or within such other relevant period, as may be provided in any
Operative Document, and in the event of any failure on the part of Lessee to pay
any Supplemental Rent when due, Lessor shall have all rights, powers and
remedies provided for herein or in any other Operative Document or by law or
equity or otherwise in the case of nonpayment of Basic Rent. Lessee shall also
pay on behalf of Lessor as Supplemental Rent an amount equal to any amount
payable by Lessor as Premium as and when any such Premium shall be due and
payable; provided, however, that Lessee shall have no obligation to pay on
behalf of Lessor any Premium payable under Section 6.01 or 6.02 of the Trust
Indenture due to the occurrence of an "Event of Default" (as defined in the
Trust Indenture) which does not constitute an Event of Default hereunder.
Lessee also will pay to Lessor, or on behalf of Lessor to whomsoever shall be
entitled thereto, on demand, as Supplemental Rent, to the extent permitted by
applicable law, interest at the Past Due Rate with respect to any part of any
installment of Basic Rent not paid prior to 11:00 a.m., New York City time, on
the date when due for any period for which the same shall be overdue and on any
payment of Supplemental Rent not paid prior to 11:00 a.m., New York City time,
on the date when due for the period until the same shall be paid.
(e) Payments in General. All payments of Rent other than Excluded
-------------------
Payments payable to Lessor shall be made directly by Lessee by wire transfer of
immediately available funds prior to 11:00 a.m., New York time, on the date of
payment in Dollars, to Lessor at its office at 225 Franklin Street, Boston,
Massachusetts 02110, Attention: _________________________ (or such other office
of Lessor in the continental United States or such other account as Lessor shall
direct in a notice to Lessee at least 10 Business Days prior to the date such
payment of Rent is due); provided, that so long as the Trust Indenture shall not
20
have been fully discharged, Lessor hereby directs and Lessee agrees, that all
Basic Rent shall be paid directly to the Indenture Trustee at the times and in
funds specified in this Section 3(e) at the offices of the Indenture Trustee at
Two International Place, Boston, MA 02110, Attention: Corporate Trust Department
(or such other office of Indenture Trustee in the continental United States or
such other account as Indenture Trustee shall direct in a notice to Lessee at
least 10 Business Days prior to the date such payment of Basic Rent is due).
Excluded Payments shall be paid in Dollars in immediately available funds to the
Person to whom payable at the address of such Person specified in Schedule I of
the Participation Agreement.
Notwithstanding anything to the contrary contained herein, if any date
on which a payment of Rent becomes due and payable is not a Business Day then
such payment shall be made on the next succeeding Business Day and no interest
shall accrue on the amount of such payment, if such payment is made on such next
succeeding Business Day.
(f) [Intentionally Reserved for Potential Future Use].
-----------------------------------------------
(g) Prepayments of Certain Rent Payments. Lessor agrees to pay, on
------------------------------------
behalf of the Owner Participant, to the Indenture Trustee for the account of the
Certificate Holders on the Commencement Date an amount equal to the Excess
Amount. To the extent, if any, that there shall not have been received by the
Indenture Trustee at the account of the Indenture Trustee referred to in Section
3(e) by 11:00 a.m., New York City time, on the Commencement Date from Lessor, an
amount equal to the Excess Amount payable for such date, Lessee shall advance to
Lessor, as Prepaid Rent, by paying to the Indenture Trustee on behalf of Lessor
on the Commencement Date an amount equal to the Excess Amount not so paid (such
amount being herein called "Prepaid Rent"); provided that Lessee will also pay
to the Indenture Trustee, on demand, as Supplemental Rent, to the extent
permitted by applicable law, interest at the Debt Rate on any Prepaid Rent not
paid when due for any period for which the same shall be overdue. Lessor agrees
to reimburse Lessee in the manner and subject to the conditions provided in the
following sentence for (x) the Prepaid Rent so paid by Lessee determined as of
the date such payment was made, plus (y) the Supplemental Rent so paid by Lessee
pursuant to this Section 3(g), plus (z) accrued interest on the unreimbursed
portion thereof at a rate per annum equal to the greater of the Base Rate plus
2% or the Debt Rate plus 2% from the date such amount is paid by Lessee to but
not including the date of each such reimbursement (such amounts to be reimbursed
being herein called the "Reimbursement Amount"). So long as no Default or Event
of Default has occurred and is
21
continuing, Lessee may with written notice to the Owner Participant and
Indenture Trustee offset (without duplication) against each succeeding payment
(other than as limited by the proviso to this sentence) due from Lessee to
Lessor in respect of Basic Rent, Stipulated Loss Value, Termination Value or any
other amount due hereunder to Lessor, until Lessee has been fully reimbursed for
the Reimbursement Amount; provided, however, that in the case of any payment due
from Lessee which is distributable under the terms of the Trust Indenture,
Lessee's right of offset shall be limited to amounts distributable to Lessor or
the Owner Participant thereunder. No such offset or aggregate combined effect
of separate offsets shall reduce the amount of any installment of Basic Rent to
an amount insufficient, together with all other amounts payable simultaneously
by Lessee, to pay in full the payments then required to be made on account of
the principal amount (and Premium, if any) of and interest on the Loan
Certificates then outstanding.
SECTION 4. Lessor's Representations and Warranties. LESSOR LEASES
---------------------------------------
AND LESSEE TAKES THE AIRCRAFT "AS-IS, WHERE-IS." LESSEE ACKNOWLEDGES AND AGREES
THAT AS BETWEEN LESSOR, ANY PARTICIPANT, THE INDENTURE TRUSTEE, AND LESSEE (A)
THE AIRFRAME AND EACH ENGINE IS OF SIZE, DESIGN, CAPACITY AND MANUFACTURE
SELECTED BY AND ACCEPTABLE TO LESSEE, (B) LESSEE IS SATISFIED THAT THE AIRFRAME
AND EACH ENGINE IS SUITABLE FOR ITS PURPOSES, (C) NEITHER LESSOR NOR OWNER
PARTICIPANT IS A MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND, AND (D)
NEITHER LESSOR, IN ITS INDIVIDUAL CAPACITY OR AS OWNER TRUSTEE, THE INDENTURE
TRUSTEE NOR THE OWNER PARTICIPANT MAKES, HAS MADE OR SHALL BE DEEMED TO HAVE
MADE, AND EACH WILL BE DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION,
DESIGN, OPERATION, VALUE, MERCHANTABILITY OR FITNESS FOR USE FOR A PARTICULAR
PURPOSE OF THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY
PART THEREOF, except as set forth in Sections 8(f)(vi) and 8(p)(ii) of the
Participation Agreement as to Lessor Liens and except that State Street Bank and
Trust Company, in its individual capacity, (i) represents and warrants that on
the Delivery Date, Lessor shall have received whatever title to the Aircraft was
conveyed to it by Lessee, (ii) represents and warrants that on the Delivery Date
the Aircraft shall be free of Lessor Liens (including for this purpose Liens
that would be Lessor Liens but for the proviso to the definition of Lessor
Liens) attributable to it in its individual capacity, (iii) covenants that it
will not, through its own actions or inactions, in such capacity, interfere in
Lessee's or any
22
Sublessee's quiet enjoyment, use, operation or possession of the Aircraft unless
this Lease shall have been declared in default pursuant to Section 15 hereof,
(iv) agrees that it will not directly or indirectly create, incur, assume or
suffer to exist any Lessor Lien attributable to it in its individual capacity on
or with respect to the Airframe or any Engine or any portion of the Trust Estate
and (v) represents and warrants that it is a Citizen of the United States and
agrees that if at any time it shall cease to be a Citizen of the United States,
it will promptly resign as Owner Trustee (if and so long as such citizenship is
necessary under the Federal Aviation Act as in effect at such time or, if it is
not necessary, if and so long as the Owner Trustee's citizenship would have any
adverse effect on the Owner Participant, the Certificate Holders or Lessee),
effective upon the appointment of a successor Owner Trustee in accordance with
the provisions of the Trust Agreement. None of the provisions of this Section 4
or any other provision of this Agreement shall be deemed to amend, modify or
otherwise affect the representations, warranties or other obligations (express
or implied) of the Manufacturer, any subcontractor or supplier of the
Manufacturer with respect to the Airframe, Engines, or any Parts, or to release
the Manufacturer, or any such subcontractor or supplier from any such
representation, warranty or obligation. Unless a Section 14(a), 14(b), 14(f) or
14(g) Default or any Event of Default shall have occurred and be continuing,
Lessor agrees to make available to Lessee such rights as Lessor may have under
any warranty with respect to the Aircraft made by the Manufacturer or any of its
subcontractors or suppliers and any other claims against the Manufacturer or any
such subcontractor or supplier with respect to the Aircraft, all pursuant to and
in accordance with the terms of the Owner Trustee's Purchase Agreement.
SECTION 5. Return of the Aircraft. (a) Condition Upon Return.
---------------------- ---------------------
Unless purchased by Lessee pursuant to Section 19(b) hereof, upon the
termination of this Lease at the end of the Basic Term or any Renewal Term or
pursuant to Section 9(b) or 15 hereof, Lessee will at its expense return the
Aircraft to Lessor at Lessee's maintenance base located at San Francisco
International Airport (or any principal maintenance base established by Lessee
in the continental United States subsequent to the date hereof), provided that
upon the request of the Lessor given to Lessee at least ten (10) days prior to
the date of such return, Lessee shall return the Airframe to Lessor at a
location on Lessee's route system in the continental United States selected by
Lessor, provided that such location is served on a normal basis by Boeing Model
777-222 aircraft operated by Lessee, and Lessor shall reimburse Lessee on a net
after-tax basis for Lessee's out-of-pocket Expenses (including for this purpose
salary costs for Lessee's personnel) resulting from Lessee's
23
return of the Aircraft to such alternate return location to the extent such out-
of-pocket Expenses exceed the out-of-pocket Expenses (including, for this
purpose, salary costs for Lessee's personnel) Lessee would have incurred in
returning the Aircraft to its principal maintenance base at San Francisco
International Airport, provided, further, however, that if Lessor shall have
made the request for storage pursuant to Section 5(d) hereof, Lessee shall at
its expense return the Aircraft at the site of storage. At the time of such
return, (A) Lessee will, at its own cost and expense, unless otherwise requested
by Lessor to retain the existing registration of the Aircraft, cause the
Aircraft, if it is not then so registered, to be registered under the laws of
the United States with the FAA in the name of Lessor or its designee, provided
that Lessee shall be relieved of its obligations under this sentence if such
registration is prohibited by reason of the failure of Lessor, the Owner
Participant or Lessor's designee to be eligible on such date to own an aircraft
registered with the Federal Aviation Administration, and (B) subject to Section
5(e) hereof, the Airframe will be fully equipped with the Engines (or Acceptable
Alternate Engines) installed thereon. Also, at the time of such return, Lessor
shall have good title to such Airframe and Engines or Acceptable Alternate
Engines, and such Airframe and Engines or Acceptable Alternate Engines (i) shall
be certified (or, if not then registered under the Federal Aviation Act by
reason of the proviso to clause (A) in the preceding sentence or because Lessor
has so requested that the Aircraft not be so registered, shall hold a valid
certificate of airworthiness issued by the country of registry and be eligible
for certification by the FAA) as an airworthy aircraft by the Federal Aviation
Administration, (ii) shall be free and clear of all Liens (other than Lessor
Liens (including for this purpose Liens that would be Lessor Liens but for the
proviso to the definition of Lessor Liens)) and rights of third parties under
pooling, interchange, overhaul, repair or other similar agreements or
arrangements, (iii) shall be in a regular passenger configuration, and in as
good a condition as when delivered by Lessee to Lessor, ordinary wear and tear
excepted and otherwise in the condition required to be maintained under the
Lease and under Lessee's FAA-approved maintenance plan (notwithstanding any
Sublease theretofore in effect) and shall be in compliance with all mandatory
environmental, noise, air pollution and other standards prescribed by the
federal government of the United States and applicable to the Aircraft
including, without limitation, standards relating to corrosion and structural
integrity and all other applicable manufacturer's mandatory service bulletins
(except for standards, laws, regulations, directives and bulletins that permit
compliance at a later time and would not, in the normal course of Lessee's
maintenance plan, be complied with by the date of return without discriminating
on the basis of the status of the Aircraft as a
24
leased aircraft), (iv) in the event that Lessee shall not then be using a
continuous maintenance program with respect to the Airframe immediately prior to
such return but instead shall have been using a block overhaul program with
respect to the Airframe, then (A) such block overhaul program shall have been
approved by the government of registry of the Aircraft and (B) the Airframe
shall have remaining until the next scheduled block overhaul at least 25% of the
allowable hours between block overhauls permitted under the block overhaul
program then used by Lessee, (v) in the event that Lessee during the period of
operation of the Aircraft immediately prior to such return shall not have been
using an on-condition maintenance program with respect to the Engines (or
Acceptable Alternate Engines), Lessee agrees that the average number of hours or
cycles of operation (whichever shall be applicable under the maintenance program
then in use with respect to such Engines (or Acceptable Alternate Engines)) on
such Engines (or Acceptable Alternate Engines) remaining until the next
scheduled engine heavy maintenance shall be at least 25% of the hours or cycles
(whichever shall be applicable) between engine heavy maintenance allowed under
the maintenance program then in use with respect to such Engines (or Acceptable
Alternate Engines), (vi) shall have all Lessee's and any Sublessee's exterior
marking removed or painted over with areas thereof refinished to match adjacent
areas, and (vii) shall be in a state of cleanliness suitable under Lessee's
normal service standards for operation in Lessee's revenue passenger service and
in all such cases the Aircraft shall not have been discriminated against whether
by reason of its leased status or otherwise in maintenance, use, operation or in
any other manner whatsoever.
In addition, the following conditions shall be complied with at the
time of the return of the Aircraft: (i) Lessee shall deliver to Lessor any "no
cost" modification kits designated for the Aircraft that Lessee has in its
possession and that have not been incorporated at the time of the return of the
Aircraft, (ii) Lessor may purchase from Lessee at Lessee's cost any service
bulletin kits purchased or manufactured by Lessee for the Aircraft (provided
that Lessee shall not be obligated to sell to Lessor any service bulletin kit
manufactured by Lessee to the extent Lessee, in its reasonable judgment,
considers the same proprietary) and (iii) without limiting the obligations of
the Lessee set forth in the preceding paragraph, in the event the FAA shall
issue any directive which requires termination thereof prior to the return date,
then such directive shall be terminated prior to the return date, and if Lessee
shall have not been required to terminate such directive in the normal course of
its operations without discriminating against the Aircraft by reason of its
leased status or otherwise prior to the return of the Aircraft but such
directive must be terminated on or before six
25
months following such return, then Lessee shall, at the sole cost and expense of
Lessor, comply with such directive but only if (x) at least 540 days prior to
the return of the Aircraft Lessee receives from Lessor a written request to
comply with such directive at Lessor's sole cost and expense (determined on the
basis of what a third party would charge for comparable services) and (y) after
receipt by Lessee of such request, the Aircraft is subject to a maintenance
check of the type at which such modification is made, in accordance with
Lessee's general maintenance program, and Lessee has, or can obtain using
commercial reasonable efforts taking into account the 540 day prior notice
received by Lessee, the personnel, parts, facilities and other resources
available to accomplish the modification and the modification can be made
without materially disrupting the operations of Lessee's maintenance facility or
Lessee's operations.
For purposes of this Section 5(a), any maintenance program used by
Lessee for airframes (including the Airframe) substantially similar to the
maintenance program described in the excerpts from ["United Air Lines 777
Maintenance Program"] furnished to Lessor and the Owner Participant prior to the
Delivery Date (a copy of which was attached to the certificate of the Assistant
Secretary of the Lessee delivered pursuant to Section 4(a)(vii)(6) of the
Participation Agreement) shall be considered a continuous maintenance program
(and not a block maintenance program) and any engine maintenance program used by
Lessee for engines (including the Engines) substantially similar to the
maintenance program described in "United Air Lines 777 Maintenance Program"
shall be considered an on-condition maintenance program.
In the event that the provisions of the preceding paragraph are
inapplicable and upon a return of the Aircraft pursuant to this Section 5,
Lessee and Lessor cannot agree as to whether Lessee, during the period of
operation of the Aircraft immediately prior to such return, shall have been
using a continuous maintenance program or a block overhaul program with respect
to the Airframe (including, without limitation, a dispute as to whether Lessee's
program is substantially similar to the program described in the excerpts to the
["United Air Lines 777 Maintenance Program"] furnished to Lessor as set forth in
the preceding paragraph), then Lessee and Lessor shall mutually appoint an
independent third party, satisfactory to both Lessee and Lessor, who shall make
such a determination, which determination shall be conclusive and final. Lessee
will provide, on a confidential basis, such independent third party with the
maintenance program and records applicable to the Aircraft necessary to make
such determination. The fee of such third party shall be paid equally by Lessor
and Lessee.
26
If clause (iv) of the first paragraph of this Section 5(a) shall be
applicable but the Airframe does not meet the conditions specified in said
clause (iv), Lessee shall pay or cause to be paid to Lessor, concurrently with
the return thereof, a Dollar amount computed by multiplying (i) the fair market
cost of obtaining an airframe block overhaul of the type referred to in such
clause (iv) at a location in the United States that has been approved by the FAA
for such work by (ii) a fraction of which (x) the numerator shall be the excess
of 25% of the hours of operation allowable between such block overhauls over the
actual number of hours of operation remaining on the Airframe to the next such
block overhaul and (y) the denominator shall be the number of hours of operation
allowable between such block overhauls in accordance with such block overhaul
program.
If clause (v) of the first paragraph of this Section 5(a) shall be
applicable but the Engines (or Acceptable Alternate Engines) do not meet the
conditions specified in said clause (v), Lessee shall pay or cause to be paid to
Lessor, concurrently with the return thereof, a Dollar amount computed by
multiplying (i) the fair market cost of obtaining the scheduled engine heavy
maintenance under the maintenance program then used by Lessee for engines of the
same model as the Engines (or Acceptable Alternate Engines) at a location in the
United States that has been approved by the FAA for such work by (ii) a fraction
which (x) the numerator shall be the excess of 25% of the hours or cycles
(whichever is applicable) of operation of one Engine between engine heavy
maintenance allowable under the maintenance program then in use with respect to
such Engines (or Acceptable Alternate Engines) over the actual average number of
hours or cycles of operation of such Engines (or Acceptable Alternate Engines)
remaining until the next such scheduled engine heavy maintenance and (y) the
denominator shall be the number of hours or cycles allowable between such
scheduled engine heavy maintenance.
During the last six 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 Sublessee to cooperate, at Lessor's sole cost, in all reasonable
respects with the efforts of Lessor to sell or lease the Aircraft, including,
without limitation, permitting prospective purchasers or lessees to inspect the
Aircraft, any 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,
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 Sublessee.
27
(b) Return of Other Engines. In the event that an Acceptable
-----------------------
Alternate Engine shall be delivered with the returned Airframe as set forth in
paragraph (a) of this Section 5, Lessee, concurrently with such delivery, will,
at no cost to Lessor, furnish, or cause to be furnished, to Lessor a full
warranty (as to title) bill of sale with respect to each such Acceptable
Alternate Engine, in form and substance reasonably satisfactory to Lessor
(together with an opinion of counsel (which may be Lessee's General Counsel) to
the effect that such full warranty bill of sale has been duly authorized and
delivered and is enforceable in accordance with its terms and that each such
Acceptable Alternate Engine is free and clear of all Liens other than Lessor
Liens (including for this purpose Liens that would be Lessor Liens but for the
proviso to the definition of Lessor Liens)) and will, to the extent applicable,
comply with the provisions of Section 9(d) as if Lessee had irrevocably elected,
in accordance with Section 9(d) hereof, to terminate the Lease with respect to
the Engine in replacement for which such Acceptable Alternate Engine is being
delivered and Lessor will provide a bill of sale, at Lessee's expense,
evidencing the transfer, without recourse or warranty (except as to the absence
of Lessor Liens (including for this purpose Liens that would be Lessor Liens but
for the proviso to the definition of Lessor Liens)) by Lessor to Lessee or its
designee of all of Lessor's right, title and interest in and to any Engine not
installed on the Airframe at the time of the return of the Airframe.
(c) Fuel and Manuals. Upon the return of the Airframe upon any
----------------
termination of this Lease in accordance with paragraph (a) of this Section 5,
(i) Lessee shall invoice Lessor, and Lessor shall pay to Lessee the amount of
Lessee's cost for any fuel or oil contained in the fuel or oil tanks on the
Airframe, and (ii) Lessee shall deliver or cause to be delivered to Lessor all
logs, manuals and data and inspection, modification and overhaul records in the
English language (or an English translation of the same), (A) required to be
maintained with respect to the Airframe, the Engines or any part thereof in
accordance with Section 7(a) hereof, (B) created since the Airframe's or
Engine's or Acceptable Alternate Engine's (whichever is applicable) last heavy
maintenance visit and (C) required to lawfully operate the Aircraft in the
United States under a United States Certificate of Airworthiness without
performing additional maintenance.
(d) Storage Upon Return. If, at any time at least 30 days prior to
-------------------
the end of the Basic Term or any Renewal Term or pursuant to Section 9(c) or
Section 15, Lessee receives from Lessor a written request for storage of the
Aircraft upon its return hereunder, Lessee will provide Lessor, or cause Lessor
to be provided, with storage facilities for the Aircraft (at
28
Lessor's risk and at Lessor's cost for insurance, maintenance and Lessee's
reasonable out-of-pocket expenses other than storage fees) for a period not
exceeding forty-five (45) days (and upon prior written notice from Lessor to
Lessee given at least 10 days prior to the end of such 45 day period, at
Lessor's risk and at Lessor's cost for insurance, maintenance and Lessee's
reasonable out-of-pocket expenses including storage fees, for an additional
period not exceeding 45 days) commencing on the date of such termination, at a
location in the forty-eight contiguous states of the United States selected by
Lessee and used as a location for the storage of aircraft. Lessee shall, at
Lessor's written request, maintain insurance (if available) for the Aircraft
during such period and shall be reimbursed by Lessor for the premiums thereon.
(e) Purchase of Engine. In the event that Lessee shall have paid the
------------------
Stipulated Loss Value for any Engine pursuant to Section 10(b) hereof and all
other amounts due and owing under said Section 10(b), then, notwithstanding
anything contained in this Section 5, Lessee shall, subject to the proviso
below, be under no obligation to return any engine installed on the Airframe in
replacement for such Engine to Lessor upon the termination of this Lease;
provided, however, that in such event Lessor shall have the right upon
termination of this Lease (unless Lessee shall have exercised any of its options
to purchase the Aircraft pursuant to Section 19), at its sole option, to
purchase from Lessee an engine or engines suitable for use on the Airframe and
compatible with the other Engine (if any) or the other engine purchased under
this Section 5(e) for such engine's then Fair Market Sales Value and any such
engine shall be installed at no cost to Lessor on the Airframe on the return
thereof.
(f) Severable Parts. At any time after Lessee has advised Lessor that
---------------
it has determined not to renew this Lease or purchase the Aircraft, or the
Aircraft is otherwise to be returned to Lessor, Lessee shall, at Lessor's
request, advise Lessor of the nature and condition of all severable Parts owned
by Lessee which have been used by Lessee during the prior six months and which
Lessee has or intends to remove from the Aircraft as permitted by Section 8
hereof. Lessor may, at its option, upon 30 days written notice to Lessee,
purchase any or all of such Parts from Lessee upon the expiration of the Term at
their then fair market value.
(g) Special Redelivery Provision. Not less than 30 days prior to (A)
----------------------------
the date of redelivery of the Aircraft by Lessee to Lessor in accordance with
this Section 5, (B) the date of redelivery to Lessor or a purchaser pursuant to
Section 9(c) or Section 15 hereof, or (C) a purchase of the Aircraft by Lessee
29
pursuant to Section 19(b), Lessor may provide Lessee with a proposal regarding
the arranging of delivery of the Aircraft so as to enable Lessor to realize
"foreign trade income" (as defined in Section 923(b) of the Code or any
successor provision thereto) from the sale or re-lease of the Aircraft, and
Lessee shall (i) arrange delivery at Lessor's cost (unless the delivery site is
as provided in Section 5(a) hereof) either inside or outside the United States,
as specified in Lessor's proposal, and (ii) otherwise comply with such proposal
to the extent Lessee can do so without incurring any cost, expense or liability
not indemnified against by Lessor in a manner in form and substance reasonably
satisfactory to Lessee.
SECTION 6. Liens. Lessee will not directly or indirectly create,
-----
incur, assume or suffer to exist any Lien on or with respect to the Aircraft,
title thereto or any interest therein or in this Lease, except (i) the
respective rights of Lessor as owner of the Aircraft and Lessee as herein
provided (including any Sublease permitted pursuant to Section 7(b)), the Lien
of the Trust Indenture, and any other rights existing pursuant to the Operative
Documents, (ii) Lessor Liens (including for this purpose Liens that would be
Lessor Liens but for the proviso to the definition of Lessor Liens), (iii) Liens
for Taxes of Lessee (or any Sublessee) either not yet due or being contested in
good faith by appropriate proceeding so long as such proceedings do not involve
any material risk of the sale, forfeiture or loss of the Airframe or any Engine
or any interest thereon, (iv) materialmen's, mechanics', workmen's, repairmen's,
employees' or other like liens arising in the ordinary course of Lessee's or any
Sublessee's business securing obligations that are not overdue for a period of
more than 30 days or are being contested in good faith by appropriate
proceedings so long as during such 30 day period there is not, or such
proceedings do not involve, any material risk of the sale, forfeiture or loss of
the Airframe or any Engine or any interest therein, (v) Liens arising out of any
judgment or award against Lessee (or any Sublessee), unless there exists a
material risk of the sale, forfeiture or loss of the Airframe or any Engine or
any interest therein or unless the judgment secured shall not, within 45 days
after the entry thereof, have been discharged, vacated, reversed or execution
thereof stayed pending appeal or shall not have been discharged, vacated or
reversed within 45 days after the expiration of such stay, and (vi) any other
Lien with respect to which Lessee (or any Sublessee) shall have provided a bond
or other security in an amount and under terms reasonably satisfactory to
Lessor. Lessee will promptly, at its own expense, take (or cause to be taken)
such actions as may be necessary duly to discharge any such Lien not excepted
above if the same shall arise at any time.
30
SECTION 7. Registration, Maintenance and Operation; Possession and
--------------------------------------- --------------
Subleases; Insignia. (a) (1) Registration and Maintenance. Lessee, at its
- ------------------- ----------------------------
own cost and expense, shall (or shall cause any Sublessee to): (i) upon
delivery of the Aircraft, cause the Aircraft to be duly registered in the name
of Lessor, and, subject to subparagraph (3) of this Section 7(a), to remain duly
registered in the name of Lessor under the Federal Aviation Act (except to the
extent that such registration cannot be effected because of Lessor's or the
Owner Participant's failure to comply with the citizenship requirements for
registration of aircraft under such Act), provided that Lessor and the Owner
Participant shall execute and deliver all such documents as Lessee (or any
Sublessee) may reasonably request for the purpose of effecting and continuing
such registration, and Lessee shall cause the Trust Indenture to be duly
recorded and maintained of record as a first mortgage on the Aircraft; (ii)
maintain, service, repair, and overhaul (or cause to be maintained, serviced,
repaired, and overhauled) the Aircraft (and any engine which is not an Engine
but which is installed on the Aircraft) (x) so as (p) at all times to keep the
Aircraft in as good an operating condition as when delivered by Manufacturer to
Lessee, ordinary wear and tear excepted, and (q) to keep the Aircraft in such
condition as may be necessary to enable the airworthiness certification for the
Aircraft to be maintained in good standing at all times (other than during
temporary periods of storage in accordance with applicable regulations) under
(I) the Federal Aviation Act, except when all of Lessee's Boeing Model 777-222
aircraft (powered by engines of the same type as those with which the Airframe
shall be equipped at the time of such grounding) registered in the United States
have been grounded by the FAA unless such grounding was caused by the failure of
Lessee to maintain, service, repair or overhaul the Aircraft in accordance with
this Lease, or (II) the applicable laws of any other jurisdiction in which the
Aircraft may then be registered from time to time, except when all of Lessee's
Boeing Model 777-222 aircraft (powered by engines of the same type as those with
which the Airframe shall be equipped at the time of such grounding) registered
in such jurisdiction have been grounded by the aeronautical authority of such
jurisdiction unless such grounding was caused by the failure of Lessee to
maintain, service, repair or overhaul the Aircraft in accordance with this Lease
and (y) in substantially the same manner as Lessee (or any Sublessee) maintains,
services, repairs or overhauls similar aircraft operated by Lessee (or such
Sublessee) in similar circumstances and without in any way discriminating
against the Aircraft, whether by reason of its leased status or otherwise,
including, without limitation, in regard to the termination of airworthiness
directives; or such other manner as shall have been approved in writing by the
Owner Participant; (iii) maintain or cause to be maintained in the English
language
31
(or with appropriate English translation) all records, logs and other materials
required to be maintained in respect of the Aircraft by the FAA or the
applicable regulatory agency or body of any other jurisdiction in which the
Aircraft may then be registered (which records, logs and other materials, as
between Lessor and Lessee and all parties claiming through Lessee, shall be the
property of Lessor but shall be maintained by Lessee during the Term of this
Lease and shall become the property of Lessee upon Lessee's purchase of the
Aircraft pursuant to the terms of this Lease or upon the occurrence of an Event
of Loss and Lessee's compliance with Section 10); and (iv) promptly furnish or
cause to be furnished to Lessor or the Owner Participant such information as may
be reasonably required to enable Lessor or the Owner Participant to file any
reports required to be filed by Lessor or the Owner Participant with any
governmental authority because of Lessor's ownership of the Aircraft.
(2) Operation. Lessee will not (or permit any Sublessee to) maintain,
---------
use, service, repair, overhaul or operate the Aircraft in violation of any law
or any rule, regulation, treaty, order or certificate of any government or
governmental authority (domestic or foreign) having jurisdiction, or in
violation of any airworthiness certificate, license or registration relating to
the Aircraft issued by any such authority, except that, after Lessee shall have
provided Lessor and, so long as the Lien of the Trust Indenture shall not have
been released, the Indenture Trustee with a certificate of its President, any
Vice President, the Treasurer or any Assistant Treasurer stating all relevant
facts pertaining thereto, Lessee or any Sublessee may contest in good faith the
validity or application of any such law, rule, regulation, order, certificate,
license, registration or violation in any reasonable manner which does not
jeopardize the right, title and interest of the Lessor or the Owner Participant
in and to the Airframe and/or the Engines or otherwise materially adversely
affect Lessor, the Indenture Trustee or the Owner Participant but only so long
as such proceedings do not involve any risk of criminal liability or any
unindemnified material risk of civil liability to Lessor or the Owner
Participant for which the Lessee is not then willing to indemnify Lessor or the
Owner Participant in a manner reasonably satisfactory to such Person. If the
indemnities or insurance specified in Section 11(f), or some combination thereof
in amounts equal to amounts required by Section 11(f), have not been obtained,
Lessee will not operate the Aircraft, or permit any Sublessee to operate the
Aircraft, in or to any area excluded from coverage by any insurance required to
be maintained by the terms of Section 11, provided, however, that the failure of
Lessee to comply with the provisions of this sentence shall not give rise to an
Event of Default hereunder where such failure is
32
attributable to a hijacking, medical emergency, equipment malfunction, weather
conditions, navigational error or other isolated extraordinary event beyond the
control of Lessee and Lessee is taking all reasonable steps to remedy such
failure as soon as is reasonably practicable.
(3) Reregistration. At any time after the Restricted Period, Lessor
--------------
shall, at the request and sole expense of Lessee, cooperate with Lessee and take
all actions required to change the country of registration of the Aircraft in
compliance with and subject to the terms and conditions of Section 8(e) of the
Participation Agreement.
(4) Operating Certificates. Lessor hereby authorizes Lessee, at
----------------------
Lessee's sole cost, expense and risk, to act as its agent for the purpose (but
only for the purpose) of obtaining any required replacement operating
certificates from the FAA; provided, however, that in the event that Lessee
shall have received from Lessor written notice that an Event of Default shall
have occurred and be continuing, this authority shall not apply for a period
from the date of receipt of such notice to such time as such Event of Default
shall have been cured by Lessee or waived by Lessor. This authority includes
(without expanding in any way the nature of the limited authority granted
pursuant to the first sentence of this Section 7(a)(4)), but is not limited to,
obtaining registration certificates, airworthiness certificates, certificates of
sanitary construction and ferry permits. In particular, this authority includes
the ability to make use of Exemption No. 5318 issued by the FAA. This authority
will allow duly authorized personnel of Lessee to sign any application forms
required in the process of obtaining such operating certificates, and this
authority will also allow such personnel, where necessary and appropriate, to
sign certificates as the attorney-in-fact for Lessor. Lessee hereby agrees that
it will promptly notify Lessor of any action that it has taken in accordance
with this Section 7(a)(4) as agent for the Lessor. Nothing in this Section
7(a)(4) shall permit the Lessee to change the country of registry of the
Aircraft except as provided in Section 7(a)(3) above.
(b) Possession and Subleases. Lessee will not, without the prior
------------------------
written consent of Lessor, sublease or otherwise in any manner deliver, transfer
or relinquish possession of the Airframe or any Engine or install or permit any
Engine to be installed on any airframe other than the Airframe; provided that,
so long as no Section 14(a), (b), (f) or (g) Default or, in the case of
paragraph (viii) of this Section 7(b), no Section 14(d) (solely with respect to
Lessee's obligations under Section 7(a) or (b)(viii) hereof or Section 8 hereof)
Default, or any Event of Default shall have occurred and be
33
continuing at the time of such sublease, delivery, transfer or relinquishment of
possession or installation, and so long as the action to be taken shall not
deprive the Indenture Trustee of the Lien of the Trust Indenture on the Airframe
or any Engine and Lessee and any Sublessee shall continue to comply with the
provisions of Sections 7(a) and 11, Lessee may, without the prior written
consent of Lessor:
(i) subject the Airframe and the Engines or engines then
installed thereon to normal interchange agreements or any Engine to normal
pooling or similar arrangements, in each case customary in the airline
industry and entered into by Lessee (or any Sublessee) in the ordinary
course of its business and, in the case of the Airframe, (x) with a U.S.
Air Carrier not in bankruptcy or a Permitted Sublessee or (y) any other air
carrier approved by Lessor; provided, that (A) no such agreement or
arrangement contemplates or requires the transfer of title to the Airframe,
and (B) if Lessor's title to any Engine shall be divested under any such
agreement or arrangement, Lessee shall be deemed to have irrevocably
elected, in accordance with Section 9(d) hereof, to terminate the Lease
with respect to such Engine on the Business Day next following the 44th day
following such divestiture and Lessee shall (or shall cause any Sublessee
to) comply with Section 9(d) hereof in respect thereof;
(ii) deliver possession of the Airframe or any Engine to the
manufacturer thereof or to any other Person for testing, service, repair,
maintenance or overhaul work on the Airframe or Engine or any Part of any
thereof or for alterations or modifications in or additions to such
Airframe or Engine to the extent required or permitted by the terms of
Section 8(c) hereof;
(iii) install an Engine on an airframe owned by Lessee (or any
Sublessee) which airframe is free and clear of all Liens, except: (A)
Permitted Liens and those which apply only to the engines (other than
Engines), appliances, parts, instruments, appurtenances, accessories,
furnishings and other equipment (other than Parts) installed on such
airframe (but not to the airframe as an entirety), (B) the rights of third
parties under interchange agreements which would be permitted under clause
(i) above, provided that Lessor's title to such Engine shall not be
divested as a result thereof and (C) mortgage Liens or other security
interests, provided, that (as regards this clause (C)), such mortgage Liens
or other security interests effectively provide that such Engine shall not
become subject to the
34
lien of such mortgage or security interest, notwithstanding the
installation thereof on such airframe;
(iv) install an Engine on an airframe leased to Lessee (or any
Sublessee) or purchased by Lessee (or any Sublessee) subject to a
conditional sale or other security agreement, provided that (x) such
airframe is free and clear of all Liens, except: (A) the rights of the
parties to the lease or conditional sale or other security agreement
covering such airframe, or their assignees, and (B) Liens of the type
permitted by subparagraph (iii) of this paragraph (b) and (y) such lease,
conditional sale or other security agreement effectively provides that such
Engine shall not become subject to the lien of such lease, conditional sale
or other security agreement, notwithstanding the installation thereof on
such airframe;
(v) install an Engine on an airframe owned by Lessee (or any
Sublessee), leased to Lessee (or any Sublessee) or purchased by Lessee (or
any Sublessee) subject to a conditional sale or other security agreement
under circumstances where neither subparagraph (iii) nor subparagraph (iv)
of this paragraph (b) is applicable, provided that in the event of such
installation, Lessee shall be deemed to have irrevocably elected, in
accordance with Section 9(d) hereof, to terminate the Lease with respect to
such Engine on the Business Day next following the 44th day following such
installation and Lessee shall (or shall cause any Sublessee to) comply with
Section 9(d) hereof in respect thereof, Lessor not intending hereby to
waive any right or interest it may have to or in such Engine under
applicable law until compliance by Lessee with such Section 9(d);
(vi) transfer (or permit any Sublessee to transfer) possession of
the Airframe or any Engine to the United States of America or any
instrumentality or agency thereof pursuant to the Civil Reserve Air Fleet
Program for a period, including all permissible renewal periods (so long as
such renewal options have been irrevocably exercised by Lessee), that does
not extend beyond the end of the Term so long as Lessee (or any Sublessee)
shall promptly notify Lessor (x) upon transferring possession of the
Airframe or any Engine to the United States of America or any agency or
instrumentality thereof pursuant to the Civil Reserve Air Fleet Program and
(y) of the name and the address of the Contracting Office Representative
for the Military Airlift Command of the United States Air Force to whom
notice must be given pursuant to Section 15 hereof;
35
(vii) transfer possession of the Airframe or any Engine to the
United States of America or any instrumentality or agency thereof pursuant
to a contract, a copy of which shall be provided to Lessor provided that
the term of such contract, including all permissible renewal periods (so
long as such renewal options have been irrevocably exercised by Lessee),
shall not continue beyond the end of the Term; or
(viii) So long as the Sublessee is not subject to a proceeding or
final order under applicable bankruptcy, insolvency or reorganization laws
on the date the Sublease is entered into, Lessee may, at any time, enter
into a sublease with (1) a U.S. Air Carrier, (2) after the Restricted
Period any Permitted Sublessee, provided that in the event such Permitted
Sublessee is domiciled in a country listed on Exhibit F hereto and
designated therein as a "Restricted Country" such Sublessee shall be deemed
a Permitted Sublessee only if its country of domicile at the time of such
subleasing imposes and enforces aircraft maintenance standards not
materially less stringent than those of the FAA or the central aviation
authority of any of Canada, France, Germany, Japan or the United Kingdom,
or (3) after the Restricted Period any other Person approved in writing by
the Owner Participant, which approval shall not be unreasonably withheld if
in regard to this subclause (3) (x) the proposed sublessee's country of
domicile imposes maintenance standards not materially less stringent than
those of the FAA or the central aviation authority of any of Canada,
France, Japan, Germany, or the United Kingdom and (y) Lessor, Owner
Participant and the Indenture Trustee receive an opinion of counsel
reasonably acceptable to Lessor, in its individual capacity, and Owner
Participant that the terms of the sublease and other Operative Documents
will be valid in the country where Sublessee is domiciled; that no
Participant is required to register to do business in the Sublessee's
country of domicile; that there is no tort liability for owners not in
possession that is more extensive than under United States law or any state
law (it being understood that if such opinion cannot be given in a form
reasonably satisfactory to the Owner Participant such opinion will be
waived if insurance reasonably satisfactory to the Owner Participant and
the Lessor, in its individual capacity, is provided at Lessee's expense to
cover such risk); that fair compensation in a currency freely convertible
into Dollars is mandated if there is a requisition of use or title of the
Aircraft by the country in which the Sublessee is domiciled (it being
understood that if such opinion cannot be given in a form reasonably
satisfactory to the Owner Participant such opinion will be
36
waived if insurance reasonably satisfactory to the Owner Participant, is
provided at Lessee's expense to cover such risk); that there exist no
possessory rights in favor of the Sublessee which upon Lessee's bankruptcy
or other Default hereunder (assuming the Sublessee is not then bankrupt)
would prevent the return of the Aircraft in accordance with the terms
hereof or inhibit the Lessor's rights therein; and as to such other matters
as Lessor, in its individual capacity, and the Owner Participant may
reasonably request, provided, however, (A) that no sublease, including all
permissible renewal periods, shall extend beyond the Basic Term or any
Renewal Term then in effect, unless Lessee shall have irrevocably committed
to purchase the Aircraft or renew the Lease in accordance with the terms
thereof at the end of the Basic Term or Renewal Term, as the case may be,
to a date beyond the latest permissible expiration date of such sublease,
(B) that, on the date of such sublease, the United States and the country
in which sublessee is domiciled and principally located maintain diplomatic
relations, (C) that on or prior to entering into such sublease, Lessee
shall provide to the Lessor, the Owner Participant and, so long as the Lien
of the Trust Indenture shall not have been released, the Indenture Trustee
assurances reasonably satisfactory to Lessor, in its individual capacity,
and Owner Participant to the effect that the provisions of Section 11
hereof have been complied with after giving effect to such sublease and (D)
that, in the case of a sublease to a sublessee described in (3) above, if
the country of domicile of the proposed sublessee at the time of such
subleasing has not unqualifiedly ratified the Geneva Convention for
International Recognition of Rights in Aircraft, the Lessee shall provide
Lessor to the Lessor and, so long as the Lien of the Trust Indenture shall
not have been released, the Indenture Trustee an opinion of counsel, which
counsel and opinion shall be reasonably satisfactory to the Owner
Participant, to the effect that the country in which such sublessee has its
principal office and domicile would give effect to (i) the title of Lessor
in and to the Aircraft, (ii) the registry of the Aircraft in the name of
Lessor (or Lessee or Sublessee, as "lessee" or "sublessee" as appropriate)
and (iii) the priority and validity of the Lien of the Trust Indenture.
The rights of any Sublessee or other transferee (other than a
transferee where the transfer is of an Engine which is deemed a termination
under Section 9(d)) shall be subject and subordinate to, all the terms of the
Lease (and any Sublease shall expressly state that it is so subject and
subordinate), including, without limitation, the covenants contained in Section
7(a) hereof, the inspection rights contained in
37
Section 12 hereof and Lessor's (and, so long as the Trust Indenture is in
effect, the Indenture Trustee's (as Lessor's assignee)) rights to repossess the
Aircraft and to void any Sublease upon such repossession, and Lessee shall
remain primarily liable for the performance of all of the terms of the Lease,
and the terms of any such Sublease shall not permit any Sublessee to take any
action not permitted to be taken by Lessee in the Lease with respect to the
Aircraft. No pooling agreement, Sublease or other relinquishment of possession
of the Airframe or any Engine shall in any way discharge or diminish any of
Lessee's obligations to Lessor under this Lease or constitute a waiver of
Lessor's rights or remedies hereunder. Lessor agrees, for the benefit of Lessee
(and any Sublessee) and for the benefit of any mortgagee or other holder of a
security interest in any engine owned by Lessee (or any Sublessee), any lessor
of any engine other than an Engine leased to Lessee (or any Sublessee) and any
conditional vendor of any engine other than an Engine purchased by Lessee (or
any Sublessee) subject to a conditional sale agreement or any other security
agreement, that no interest shall be created under the Lease in any engine so
owned, leased or purchased and that neither Lessor nor its successors or assigns
will acquire or claim, as against Lessee (or any Sublessee) or any such
mortgagee, lessor or conditional vendor or other holder of a security interest
or any successor or assignee of any thereof, any right, title or interest in
such engine as the result of such engine being installed on the Airframe;
provided, however, that such agreement of Lessor shall not be for the benefit of
any lessor or secured party of an airframe leased to Lessee (or any Sublessee)
or purchased by Lessee (or any Sublessee) subject to a conditional sale or other
security agreement or for the benefit of any mortgagee or any other holder of a
security interest in an airframe owned by Lessee (or any Sublessee), on which
airframe Lessee (or any Sublessee) then proposes to install an Engine, unless
such lessor, conditional vendor, other secured party or mortgagee has expressly
agreed (which agreement may be contained in such lease, conditional sale or
other security agreement or mortgage) that neither it nor its successors or
assigns will acquire, as against Lessor, any right title or interest in an
Engine as a result of such Engine being installed on such airframe. Lessee
shall provide the Owner Participant and the Indenture Trustee (A) written notice
(which notice shall be given (i) no later than thirty (30) days prior to
entering into any Sublease with a term of more than one (1) year or (ii) at any
time prior to (to the extent that the giving of prior notice is reasonably
possible) or promptly after entering into any Sublease with a term of one (1)
year or less) of any Sublease and (B) a copy of any Sublease which has a term of
more than one (1) year.
38
Lessee shall assign any Sublease to Lessor as security for its
obligations hereunder pursuant to an assignment instrument reasonably
satisfactory to Lessor; provided, however, that any such assignment instrument
shall provide that the assignment of the Sublease shall only be effective,
without any further action, immediately upon the occurrence of a Section 14(a),
14(b), 14(f) or 14(g) Default or any Event of Default (and such effectiveness
shall terminate upon the curing or waiver of the aforesaid Defaults or Events of
Default). In addition, any Sublease entered into by Lessee shall provide that
all payments due under such Sublease shall be paid by the Sublessee to Lessor
during the continuance of a Section 14(a), 14(b), 14(f) or 14(g) Default or an
Event of Default.
In the event that during the term of a Sublease the Aircraft shall
have been maintained under a block-overhaul program, Lessee shall at its option
either (i) cause the Aircraft to be returned to the Lessee by the Sublessee no
later than three months prior to the end of the Term and Lessee shall upon such
return incorporate the Aircraft into Lessee's continuous maintenance program for
aircraft of the same make and model and in active commercial service or (ii)
upon return of the Aircraft to Lessor pursuant to Section 5(a), Lessee shall
comply with those return conditions set forth in such Section 5(a) applicable in
the event Lessee had adopted a block-overhaul program.
Any Wet Lease or similar arrangement under which Lessee maintains
operational control of the Aircraft shall not constitute a delivery, transfer or
relinquishment of possession for purposes of this section. Lessor acknowledges
that any consolidation or merger of Lessee or conveyance, transfer or lease of
all or substantially all of Lessee's assets permitted by the Operative Documents
shall not be prohibited by this Section.
No Sublease permitted pursuant to this Section shall permit any
further sub-subleasing of the Aircraft.
(c) Insignia. On or prior to the Delivery Date, or as soon thereafter
--------
as practicable, Lessee agrees to affix and maintain (or cause to be affixed and
maintained) in the cockpit of the Airframe adjacent to the registration
certificate therein and on each Engine a nameplate bearing the inscription:
Leased From
State Street Bank and Trust Company, not in its individual capacity
but solely as Owner Trustee, Owner and Lessor
39
and, for so long as the Airframe and each Engine shall be subject to the Lien of
the Trust Indenture, bearing the following additional inscription:
Mortgaged To
First Security Bank of Utah, National Association, as Indenture
Trustee
(such nameplate to be replaced, if necessary, with a nameplate reflecting the
name of any successor Lessor or successor Indenture Trustee, in each case as
permitted under the Operative Documents).
Except as above provided, Lessee will not allow the name of any
person, association or corporation to be placed on the Airframe or on any Engine
as a designation that might be interpreted as a claim of ownership; provided,
that nothing herein contained shall prohibit Lessee (or any Sublessee) from
placing its customary colors and insignia on the Airframe or any Engine.
SECTION 8. Replacement and Pooling of Parts;
---------------------------------
Alterations, Modifications and Additions.
- ----------------------------------------
(a) Replacement of Parts. Lessee, at its own cost and expense, will
--------------------
promptly replace or cause to be replaced 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, except
as otherwise provided in Section 8(c). All replacement Parts shall be owned by
Lessee free and clear of all Liens (except Permitted Liens, pooling arrangements
permitted by Section 8(b) hereof and replacement Parts temporarily installed on
an emergency basis) and shall be in as good operating condition as, and shall
have a value and utility substantially equal to, the Parts replaced assuming
such replaced Parts were in the condition and repair required to be maintained
by the terms hereof. All Parts at any time removed from the Airframe or any
Engine shall remain the property of Lessor, no matter where located, until such
time as such Parts shall be replaced by Parts which meet the requirements for
replacement Parts specified above. Immediately upon any replacement Part
becoming incorporated or installed in or attached to the Airframe or any Engine,
without further act (subject only to Permitted Liens and any pooling arrangement
permitted by Section 8(b) hereof and except replacement Parts temporarily
installed on an emergency basis), (i) title shall vest in and such replacement
Part shall become the property of Lessor and shall become subject to this Lease
and be deemed a Part for all purposes hereof to the same
40
extent as the Parts originally incorporated or installed in or attached to the
Airframe or such Engine and (ii) the replaced Part shall no longer be the
property of Lessor and shall no longer be deemed a Part hereunder.
(b) Pooling of Parts. Any Part removed from the Airframe or any
----------------
Engine as provided in Section 8(a) hereof may be subjected by Lessee (or any
Sublessee) to a pooling arrangement of the type which is permitted by Section
7(b)(i) hereof; provided, that the Part replacing such removed Part shall be
incorporated or installed in or attached to such Airframe or Engine in
accordance with Section 8(a) as promptly as practicable after the removal of
such removed Part. In addition, any replacement Part when incorporated or
installed in or attached to the Airframe or an Engine in accordance with such
Sections may be owned by any third party subject to such a pooling arrangement,
provided, that Lessee (or any Sublessee), at its expense, as promptly thereafter
as practicable, and in any event within 90 days, either (i) causes such
replacement Part to become the property of Lessor free and clear of all Liens
other than Permitted Liens or (ii) replaces such replacement Part with a further
replacement Part owned by Lessee (or any Sublessee) which shall become the
property of Lessor, free and clear of all Liens other than Permitted Liens.
(c) Alterations, Modifications and Additions. Lessee, at its own
----------------------------------------
expense, will make (or cause to be made) such alterations and modifications in
and additions to the Airframe and Engines as may be required from time to time
to be made during the Term so as to comply with any law, rule, regulation or
order of any regulatory agency or body of any jurisdiction in which the Aircraft
may then be registered; provided, however, that, after Lessee shall have
provided Lessor and, so long as the Lien of the Trust Indenture shall not have
been released, the Indenture Trustee, with a certificate of its President, any
Vice President, the Treasurer or any Assistant Treasurer stating all relevant
facts pertaining thereto, Lessee or any Sublessee may, in good faith, and by
appropriate proceedings contest the validity or application of any such law,
rule, regulation or order in any reasonable manner which does not jeopardize the
right, title and interest of the Lessor or the Owner Participant in and to the
Airframe and/or the Engines, or otherwise materially adversely affect Lessor,
the Owner Participant or the Indenture Trustee but only so long as such
proceedings do not involve any risk of criminal liability or any unindemnified
material risk of civil liability to Lessor or the Owner Participant for which
the Lessee is not then willing to indemnify Lessor or the Owner Participant in a
manner reasonably satisfactory to such Person. In addition, Lessee (or any
Sublessee), at its own expense, may from time to time make such
41
alterations and modifications in and additions to the Airframe or any Engine as
Lessee (or any Sublessee) may deem desirable in the proper conduct of its
business, including removal of Parts which Lessee (or any Sublessee) deems to be
obsolete or no longer suitable or appropriate for use on the Airframe or such
Engine (such parts, "Obsolete Parts"); provided that no such alteration,
modification, removal or addition impairs the condition or airworthiness of the
Airframe or such Engine, or decreases the value or the utility (or, in regard to
the Airframe, remaining useful life) of the Airframe or such Engine below the
value or utility (or, in regard to the Airframe, remaining useful life) thereof
immediately prior to such alteration, modification, removal or addition assuming
the Airframe or such Engine was then in the condition required to be maintained
by the terms of this Lease. In addition, the value (but not the utility,
condition, airworthiness or, in the case of the Airframe, remaining economic
useful life) of the Airframe or any Engine may be reduced by the value, if any,
of Obsolete Parts which shall have been removed so long as the aggregate
original cost of all Obsolete Parts which shall have been removed and not
replaced shall not exceed $900,000. All Parts incorporated or installed in or
attached or added to the Airframe or an Engine as the result of such alteration,
modification or addition (except those parts which Lessee has leased from others
and which may be removed by Lessee pursuant to the next sentence) (the
"Additional Parts") shall, without further act, become the property of, and
title to such Parts shall vest in, Lessor. Notwithstanding the foregoing
sentence, Lessee (or any Sublessee), subject to Lessor's rights under Section
5(f) hereof, may, at its own expense, at any time during the Term, so long as no
Default under Section 14(a), (b), (d) (solely with respect to Lessee's
obligations under Section 7(a) or (b)(viii) or Section 8 hereof), (f) or (g) or
an Event of Default shall have occurred and be continuing, remove or suffer to
be removed any Additional Part, provided that such Additional Part (i) is in
addition to, and not in replacement of or substitution for, any Part originally
incorporated or installed in or attached to such Airframe or any Engine at the
time of delivery thereof hereunder or any Part in replacement of or substitution
for any such Part, (ii) is not required to be incorporated or installed in or
attached or added to the Airframe or any Engine pursuant to the terms of Section
7 hereof or the first sentence of this paragraph (c) and (iii) can be removed
from the Airframe or such Engine without impairing the condition or
airworthiness or diminishing the value or utility (or, in regard to the
Airframe, remaining useful life) of the Airframe or such Engine which the
Airframe or such Engine would have had at such time had such alteration,
modification or addition not occurred. Upon the removal thereof as provided
above, such Additional Part shall no longer be deemed the property of Lessor or
part of the Airframe or Engine from which it was removed. Any
42
Additional Part not removed as above provided prior to the return of the
Airframe or Engine to Lessor hereunder shall remain the property of Lessor.
SECTION 9. Early Termination.
-----------------
(a) [Intentionally reserved for potential future use].
-------------------------------------------------
(b) Termination for Obsolescence/Surplus. So long as no Section
------------------------------------
14(a), (b), (d) (solely with respect to Lessee's obligations under Section 7(a)
or (b)(viii) or Section 8 hereof), (f) or (g) Default or any Event of Default
shall have occurred and be continuing, Lessee shall have the right to terminate
this Lease on the third Business Day prior to any Lease Period Date occurring on
or after the Restricted Period if Lessee shall have made a good faith
determination, which shall be evidenced by a certificate of any financial
officer of Lessee, who is the Treasurer or more senior officer, that the
Aircraft is surplus to Lessee's requirements or economically obsolete to Lessee.
Lessee shall give to Lessor and Indenture Trustee at least one hundred
and eighty (180) days revocable (except as provided below) advance written
notice of Lessee's intention to so terminate this Lease (any such notice, a
"Termination Notice") specifying (i) the date on which Lessee intends to
terminate this Lease in accordance with this Section 9(b) (such specified date,
a "Termination Date") and (ii) that Lessee has determined that the Aircraft is
surplus to its requirements or economically obsolete to Lessee. Lessee shall
exercise this option by arranging for the sale of the Aircraft pursuant to
Section 9(c), provided, however, that Lessee may not withdraw its notice if
Lessor has elected to retain the Aircraft pursuant to Section 9(c) or if the
highest bid obtained by Lessee pursuant to Section 9(c) is greater than the then
applicable Termination Value; provided, further, that if no sale of the Aircraft
shall have occurred on or prior to the Termination Date and if Lessor shall not
have elected to retain the Aircraft, Lessee's Termination Notice shall be deemed
withdrawn. The Termination Notice shall become irrevocable twenty-five (25)
days prior to the Termination Date.
(c) Sale of the Aircraft. In the event that Lessee shall have
--------------------
proposed to terminate this Lease under Section 9(b), then during the period
commencing with the date of the Termination Notice until the proposed
Termination Date Lessee, as non-exclusive agent for Lessor and at no expense to
Lessor, shall use reasonable efforts to obtain bids in Dollars for the purchase
of the Aircraft and, in the event it receives any bid, Lessee shall, within five
Business Days after receipt thereof and at least ten Business Days prior to the
proposed Termination Date,
43
advise Lessor in writing of the amount and terms of such bid, and the name and
address of the party or parties (who shall not be Lessee or any Affiliate of
Lessee or any person with whom Lessee or any such Affiliate has an arrangement
or understanding regarding the future use of the Aircraft by Lessee or any such
Affiliate but who may be the Owner Participant, any Affiliate thereof or any
person contacted by the Owner Participant) submitting such bid. After Lessee
shall have advised Lessor of all bids received, the Owner Participant, any
Affiliate thereof or any Person contacted by the Owner Participant may submit a
further bid or bids to Lessee not later than five Business Days prior to the
Termination Date proposed by Lessee (unless Lessee shall have revoked the
Termination Notice specifying such proposed Termination Date). Subject to the
next succeeding sentence, on or before the Termination Date, subject to the
release of all mortgage and security interests with respect to the Aircraft
under the Trust Indenture: (1) Lessee shall deliver the Aircraft, or cause the
Aircraft to be delivered to the highest bidder as determined below, in the same
manner and in the same condition and otherwise in accordance with all the terms
of this Lease as if delivery were made to Lessor pursuant to Section 5, and
Lessee shall duly transfer to Lessor title to any engine installed on the
Airframe and not owned by Lessor, all in accordance with the terms of Section 5
(but subject to the provisions of Section 5(e) hereof), (2) Lessor shall comply
with the terms of the Trust Indenture and shall, without recourse or warranty
(except as to the absence of Lessor Liens (including for this purpose Liens that
would be Lessor Liens but for the proviso to the definition of Lessor Liens)),
subject to prior or concurrent payment by Lessee of all amounts due under clause
(3) of this sentence, sell the Aircraft for cash in Dollars to the entity, if
any, which shall have submitted the highest bona fide bid (evaluated on a net
---- ----
cash basis) therefor, the total selling price realized at such sale to be
retained by Lessor, and (3) Lessee shall simultaneously pay or cause to be paid
to Lessor in the manner provided in Section 3(e), (A) if the proceeds of the
sale of the Aircraft so sold, net of reasonable out-of-pocket costs and expenses
incurred by Lessor and the Owner Participant in connection therewith, including,
without limitation, applicable sales or transfer taxes and legal fees, are less
than the Termination Value for the Aircraft computed as of the Redemption Date,
the difference in Dollars, (B) all unpaid Basic Rent due on or prior to the
applicable Redemption Date (other than Basic Rent payable in advance on the
Redemption Date, if any) and all unpaid Supplemental Rent with respect to the
Aircraft due on or prior to such Redemption Date, and (C) Premium, if any, due
on the Loan Certificates and upon receiving all such payments referred to in
clauses (2) and (3) above Lessor simultaneously will transfer to Lessee, without
recourse or warranty (except as to the absence of Lessor Liens (including for
44
this purpose Liens that would be Lessor Liens but for the proviso to the
definition of Lessor Liens)), all of Lessor's right, title and interest in and
to any Engines constituting part of the Aircraft which were not sold with the
Aircraft. Notwithstanding the preceding sentence, Lessor may, if Lessee has not
already revoked the Termination Notice, elect to retain title to the Aircraft.
If Lessor so elects, Lessor shall give to Lessee written notice of such election
at least ten Business Days prior to the Termination Date accompanied by an
irrevocable undertaking by the Owner Participant to make available to Lessor for
payment to the Indenture Trustee on the Termination Date the amount required to
pay in full the unpaid Original Amount of the Loan Certificates outstanding on
the applicable Redemption Date together with all other amounts due on such
Redemption Date thereunder less amounts to be paid by Lessee as a result of the
payment thereof as set forth in the second following sentence. Upon receipt of
notice of such an election by Lessor and the accompanying undertaking by the
Owner Participant, Lessee shall cease its efforts to obtain bids as provided
above and shall reject all bids theretofore or thereafter received. On the
Termination Date, Lessor shall (subject to the payment by Lessee of all Rent due
on or prior to the Redemption Date as set forth below) pay in full the unpaid
Original Amount of the Loan Certificates outstanding on the Redemption Date,
plus interest accrued to, or to accrue thereon to but excluding the applicable
Redemption Date, together with all other amounts due thereunder less any amounts
to be paid by Lessee as a result of the payment thereof and, provided that the
Loan Certificates are paid as aforesaid, Lessee shall deliver the Airframe and
Engines or engines to Lessor in accordance with Section 5 and shall pay all
Basic Rent due on or prior to the Redemption Date (other than Basic Rent payable
in advance on the Redemption Date, if any) and all unpaid Supplemental Rent due
on or prior to such Redemption Date, and Premium, if any, on the Loan
Certificates. If no sale shall have occurred on the Termination Date for any
reason (including, without limitation, by reason of Lessee's revocation of its
Termination Notice) or Lessor has not, after making its election referred to
above, made the payment contemplated by the preceding sentence and thereby
caused this Lease to terminate, this Lease shall continue in full force and
effect as to the Aircraft, Lessee shall be entitled to keep any deposits or
other advances received from the proposed purchaser(s) of the Aircraft (without
in any way limiting any other rights or remedies against such proposed
purchaser(s) available to Lessor or Lessee), Lessee shall pay the reasonable
out-of-pocket costs and expenses, including legal fees, incurred by the Owner
Participant, Indenture Trustee and Lessor (unless such failure to terminate this
Lease is a consequence of the failure of Lessor or the Owner Participant without
due cause to make, or cause to be made, the payment referred to in the
immediately preceding sentence), if
45
any, in connection with preparation for such sale and Lessee may give one or
more additional Termination Notices, provided no more than three such notices
may be given during the Term and only one such notice may be given during any
365 day period (not counting, in either case, any Termination Notice for a
Termination Date on which this Lease does not terminate as a consequence of the
failure of Lessor or the Owner Participant without due cause to make or cause to
be made the payment referred to in the immediately preceding sentence). In the
event of any such sale or such retention of the Aircraft by Lessor and upon
compliance by Lessee with the provisions of this paragraph, the obligation of
Lessee to pay Basic Rent or any other amounts hereunder shall cease to accrue.
Upon payment of all amounts that may then be due hereunder, this Lease shall
terminate. Lessor may, but shall be under no duty to, solicit bids, inquire
into the efforts of Lessee to obtain bids or otherwise take any action in
connection with any such sale other than to transfer (in accordance with the
foregoing provisions) to the purchaser named in the highest bid certified by
Lessee to Lessor all of Lessor's right, title and interest in the Aircraft,
against receipt of the payments provided herein.
(d) Termination as to Engines. Upon compliance with the terms of the
-------------------------
Tax Indemnity Agreement, Lessee shall have the right at its option at any time
during the Term, on at least 30 days' prior written notice, to terminate this
Lease with respect to any Engine. In such event, and prior to the date of such
termination, Lessee shall replace such Engine hereunder 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 (provided that Lessee shall have no right to pay
Stipulated Loss Value with respect to such Engine), and Lessor shall transfer
title to the replaced Engine as provided in Section 5(b). No termination of
this Lease with respect to any Engine as contemplated by this Section 9(d) shall
result in any reduction of Basic Rent.
SECTION 10. Loss, Destruction, Requisition, etc. (a) Event of Loss
------------------------------------ -------------
with Respect to the Aircraft. Upon the occurrence of an Event of Loss with
- ----------------------------
respect to the Airframe or the Airframe and the Engines and/or engines then
installed thereon, Lessee shall (1) forthwith (and in any event, within fifteen
days after such occurrence) give Lessor written notice of such Event of Loss and
(2) within 60 days after such occurrence, give Lessor written notice of its
election to perform one of the following options (it being understood that the
failure to give such notice shall be deemed to be an election of the option set
forth in clause (i) below):
46
(i) Not later than the earlier of (x) the Business Day next
succeeding the 100th day following the occurrence of such Event of Loss or
(y) the third Business Day following receipt by the loss payee of the
insurance proceeds in respect to such Event of Loss (but not earlier than
the first Business Day next succeeding the 65th day following the
occurrence of such Event of Loss) (the applicable day being the "Loss
Payment Date"), Lessee shall, to the extent not paid to Lessor or Indenture
Trustee, as the case may be, as insurance proceeds, pay or cause to be paid
to Lessor as specified in Section 3(e) hereof, (A) the Stipulated Loss
Value of the Aircraft computed as of the Stipulated Loss Value Date
occurring on or immediately following the date of such Event of Loss, plus
(B) if such Stipulated Loss Value Date is a Lease Period Date, Basic Rent
due on such Lease Period Date (excluding Basic Rent payable in advance on
such Lease Period Date), plus (C) unpaid Supplemental Rent with respect to
the Aircraft due on or prior to the date of payment, plus (D) interest on
such Stipulated Loss Value at the Debt Rate from and including such
Stipulated Loss Value Date to, but not including, the date of any advance
payment in respect of Stipulated Loss Value as provided below, and
thereafter on the unpaid balance of such Stipulated Loss Value from and
including the date of such advance payment to, but excluding, the date such
Stipulated Loss Value is paid in full; provided, however, that if a Lease
Period Date shall occur after the Stipulated Loss Value Date with respect
to which Stipulated Loss Value is determined but prior to the date of such
payment of the sum of the amounts specified in clauses (A), (B), (C) and
(D) above or if Basic Rent is payable in advance on the Stipulated Loss
Value Date, Lessee shall pay on such Lease Period Date an amount equal to
the Basic Rent that would have been due on such Lease Period Date if such
Event of Loss had not occurred, which amount shall be credited as an
advance against the amounts payable pursuant to clauses (A), (B), (C) and
(D) above, or
(ii) Not later than the Business Day next succeeding the 100th day
following the occurrence of such Event of Loss, Lessee shall, provided that
no Section 14(a), (b), (f) or (g) Default or any Event of Default shall
have occurred and be continuing, substitute an aircraft or an airframe or
an airframe and one or more engines, as the case may be in accordance with
the terms hereof, provided that if Lessee shall have elected to make a
substitution under this clause (ii) and shall fail for any reason to make
such substitution in accordance with the terms hereof, Lessee shall make
the payments required by clause (i) above as and when due thereunder.
47
At such time as Lessor shall have received the sum of the amounts
specified in clauses (A), (B), (C) and (D) of subparagraph (i) above, together
with all other amounts that then may be due hereunder (including, without
limitation, all Basic Rent due on or before the date of such payment (other than
Basic Rent payable in advance, if any, on such date)), under the Participation
Agreement and under the Tax Indemnity Agreement, (1) the obligation of Lessee to
pay the installments of Basic Rent, Supplemental Rent, Stipulated Loss Value,
Termination Value or any other amount shall cease to accrue, (2) this Lease
shall terminate, (3) Lessor will comply with the terms of the Trust Indenture
and transfer to or at the direction of Lessee, without recourse or warranty
(except as to the absence of Lessor Liens (including for this purpose Liens that
would be Lessor Liens but for the proviso to the definition of Lessor Liens)),
all Lessor's right, title and interest in and to the Airframe and the Engines
"as-is, where-is" and furnish to or at the direction of Lessee, at Lessee's
expense, a bill of sale in form and substance reasonably satisfactory to Lessee
(or any Sublessee), evidencing such transfer, and (4) Lessee will be subrogated
to all claims of Lessor if any against third parties (other than Lessor's or the
Owner Participant's insurers under policies independently maintained at its own
cost and expense in accordance with Section 11(e) hereof), but only to the
extent the same relate to physical damage to or loss of the Airframe and any
Engines which were subject to such Event of Loss.
In the event Lessee shall elect to substitute an aircraft (or an
airframe or an airframe and one or more engines, as the case may be) Lessee
shall (A) convey or cause to be conveyed to Lessor an aircraft (or an airframe
or an airframe and an engine which, together with the Engines or Engine
constituting a part of the Aircraft but not installed thereon at the time of
such Event of Loss, constitute the Aircraft) free and clear of all Liens (other
than Permitted Liens) and having at least the fair market value, utility and
remaining useful life and being in as good an operating condition as, the
Aircraft subject to such Event of Loss assuming that the Aircraft had been
maintained in accordance with this Lease; provided that any aircraft or airframe
so substituted hereunder shall be of the same make and model or improved model
as those initially leased hereunder and any engine substituted hereunder shall
be an Acceptable Alternate Engine and (B) prior to or at the time of any such
substitution, Lessee (or any Sublessee), at its own expense, will (1) furnish
Lessor with a full warranty bill of sale and a FAA bill of sale, in form and
substance reasonably satisfactory to the Owner Participant, evidencing such
transfer of title, (2) cause a Lease Supplement and a Trust Supplement to be
duly executed by Lessee and filed for recording pursuant to the Federal Aviation
Act, or the applicable laws, rules and regulations of any other
48
jurisdiction in which the Airframe may then be registered, and cause a financing
statement or statements or other requisite documents of a similar nature
(including precautionary filings) to be filed in such place or places as
necessary in order to perfect the security interests therein created by or
pursuant to the Trust Indenture (and, with regard to precautionary filings, this
Lease), (3) furnish the Owner Participant with such evidence of Lessor's title
to such replacement aircraft and of compliance with the insurance provisions of
Section 11 with respect to such substituted property as Lessor, in its
individual capacity, and the Owner Participant may reasonably request, (4)
provide Owner Participant an opinion of outside tax counsel, which opinion and
counsel shall be satisfactory to Owner Participant, to the effect that such
substitution will not result in any adverse tax consequences (including under
Section 861 of the Code as then in effect) to Lessor and/or the Owner
Participant (it being understood that if such opinion cannot be given Lessee may
indemnify Owner Participant for such adverse tax consequences in lieu of such
opinion in a manner satisfactory in form and substance to the Owner
Participant), (5) provide Lessor, Owner Participant and the Indenture Trustee an
opinion of counsel, which counsel and opinion shall be reasonably acceptable to
Lessor, in its individual capacity, and the Owner Participant, to the effect
that Lessor and the Indenture Trustee (as assignee of all right, title and
interest of Lessor under the Lease) shall be entitled to the benefits and
protections of Section 1110 of the Bankruptcy Code with respect to the aircraft
substituted hereunder, (6) provide an opinion of counsel to Lessor and the
Indenture Trustee, which opinion and counsel shall be reasonably acceptable to
the Lessor, in its individual capacity, and the Owner Participant, to the effect
that title to such replacement aircraft has been duly conveyed to Lessor free
and clear of all Liens except Permitted Liens and that such replacement aircraft
is duly subjected to the Lien of the Trust Indenture and (7) provide Lessor,
Owner Participant and Indenture Trustee all the documentation required (or,
following the termination of the Trust Indenture, all the documentation that
prior to such termination would have been required) to be provided by it
pursuant to Section 5.01(b) of the Trust Indenture, and Lessor simultaneously
will comply with the terms of the Trust Indenture and transfer to or at the
direction of Lessee, without recourse or warranty (except as to the absence of
Lessor Liens (including for this purpose Liens that would be Lessor Liens but
for the proviso to the definition of Lessor Liens)), all of Lessor's right,
title and interest, if any, in and to the Aircraft or the Airframe and one or
more Engines, as the case may be, "as-is, where-is" with respect to which such
Event of Loss occurred and furnish to or at the direction of Lessee, at Lessee's
expense, a bill of sale in form and substance reasonably satisfactory to Lessee,
evidencing such transfer. Lessee will be subrogated to
49
all claims of Lessor, if any, against third parties (other than Lessor's or the
Owner Participant's insurers under policies independently maintained at their
own cost and expense in accordance with Section 11(e) hereof) but only to the
extent the same relate to physical damage to or loss of the Airframe and any
Engine which were subject to such Event of Loss. For all purposes hereof, the
property so substituted shall after such transfer be deemed part of the property
leased hereunder and shall be deemed an "Aircraft," "Airframe" and "Engine," as
the case may be, as defined herein. No Event of Loss with respect to the
Airframe or the Airframe and the Engines or engines then installed thereon for
which substitution has been elected pursuant to Section 10(a)(ii) hereof shall
result in any reduction in Basic Rent.
(b) Event of Loss with Respect to an Engine. Upon the occurrence of
---------------------------------------
an Event of Loss with respect to an Engine under circumstances in which there
has not occurred an Event of Loss with respect to the Airframe, Lessee shall
forthwith (and in any event, within fifteen days after such occurrence) give
Lessor written notice thereof and shall, within forty-five (45) days after the
occurrence of such Event of Loss, convey or cause to be conveyed to Lessor, as
replacement for the Engine with respect to which such Event of Loss occurred,
title to an Acceptable Alternate Engine free and clear of all Liens (other than
Permitted Liens, which engine may upon its transfer to Lessor become subject to
any and all Permitted Liens) and having a value and utility at least equal to,
and being in as good an operating condition as and having been maintained in the
same manner as, the Engine subject to such Event of Loss (assuming that such
Engine had been maintained in accordance with this Lease); provided, however,
upon written notice to Lessee given within 20 days after Lessor has received
notice of such Event of Loss, the Lessor may require Lessee to pay with respect
to the Engine subject to such Event of Loss within 45 days after the occurrence
of such Event of Loss (provided that in no event shall such payment be required
to be made prior to the Commencement Date) an amount equal to (A) Engine Cost
multiplied by the percentage specified in Exhibit C hereto opposite the
Stipulated Loss Value Date occurring on or immediately following the date of
such Event of Loss, plus (B) interest on the amount determined pursuant to
clause (A) above at the Debt Rate from and including such Stipulated Loss Value
Date to, but excluding, the date such amount is paid in full; and provided,
further, if Lessee pays such Stipulated Loss Value and interest, then, subject
to Section 5(e), Lessee shall only be obligated to return the Aircraft to Lessor
with any Engine attached thereto with respect to which Lessee has not paid
Stipulated Loss Value pursuant to this Section 10(b) at any time that Lessee is
required to return the Aircraft to Lessor pursuant to the terms hereof; provided
50
further, however, that, in lieu of paying such Stipulated Loss Value and
interest, Lessee may replace the Engine in accordance with this Section 10(b) if
Lessee provides to the Owner Participant either: (x) an opinion of outside tax
counsel, which opinion and counsel shall be satisfactory to the Owner
Participant, to the effect that such substitution will not result in any adverse
tax consequences to the Owner Participant, or (y) an indemnity, satisfactory in
form and substance to the Owner Participant, for any adverse tax consequences
resulting from such substitution. Prior to or at the time of any such
conveyance, Lessee, at its own expense, will (i) furnish Lessor with a warranty
(as to title) bill of sale, in form and substance reasonably satisfactory to
Lessor, with respect to such replacement engine, (ii) cause a Lease Supplement
and Trust Supplement to be duly executed by Lessee and to be filed for recording
pursuant to the Federal Aviation Act, or the applicable laws, rules and
regulations of any other jurisdiction in which the Airframe may then be
registered, and cause a financing statement or statements or other requisite
documents of a similar nature (including precautionary filings) to be filed in
such place or places as necessary in order to perfect the security interests
therein created by or pursuant to the Trust Indenture (and, with regard to
precautionary filings, this Lease), (iii) furnish Lessor with such evidence of
Lessor's title to such Acceptable Alternate Engine and of compliance with the
insurance provisions of Section 11 hereof with respect to such replacement
engine as Lessor, in its individual capacity, or the Owner Participant may
reasonably request, (iv) provide Lessor and the Indenture Trustee an opinion of
Lessee's counsel which counsel and opinion shall be reasonably satisfactory to
Lessor, in its individual capacity, or the Owner Participant to the effect that
title to such Acceptable Alternate Engine has been duly conveyed to Lessor free
and clear of all Liens except Permitted Liens and that such Acceptable Alternate
Engine is duly subjected to the Lien of the Trust Indenture, and (v) provide
Lessor, Owner Participant and Indenture Trustee all the documentation required
(or, following the termination of the Trust Indenture, all the documentation
that prior to such termination would have been required) to be provided by it
pursuant to Section 5.01(b) of the Trust Indenture, and Lessor will comply with
the terms of the Trust Indenture and transfer to or at the direction of Lessee
without recourse or warranty (except as to absence of Lessor Liens (including
for this purpose Liens that would be Lessor Liens but for the proviso to the
definition of Lessor Liens)) all of Lessor's right, title and interest, if any,
in and to (1) the Engine with respect to which such Event of Loss occurred and
furnish to or at the direction of Lessee, and at Lessee's expense, a bill of
sale in form and substance reasonably satisfactory to Lessee, evidencing such
transfer and (2) all claims, if any, against third parties (other than Lessor's
or the
51
Owner Participant's insurers under policies independently maintained at their
own cost and expense in accordance with Section 11(e) hereof), for damage to or
loss of the Engine subject to such Event of Loss, and such Engine shall
thereupon cease to be an Engine leased hereunder. For all purposes hereof, each
such replacement engine shall, after such conveyance, be deemed part of the
property leased hereunder, and shall be deemed an "Engine." Except to the
extent Lessor's Cost is reduced pursuant to the definition thereof, no Event of
Loss with respect to an Engine under the circumstances contemplated by the terms
of this paragraph (b) shall result in any reduction in Basic Rent.
(c) Application of Payments from Governmental Authorities for
---------------------------------------------------------
Requisition of Title, etc. Any payments (other than insurance proceeds the
- --------------------------
application of which is provided for in Section 11) received at any time by
Lessor or by Lessee from any governmental authority or other Person with respect
to an Event of Loss, other than a requisition for use by the United States
Government or other government of registry of the Aircraft or any
instrumentality or agency of any thereof not constituting an Event of Loss, will
be applied as follows:
(i) if payments are received with respect to the Airframe (or the
Airframe and any Engine or engines then installed thereon), (A) unless the
same are replaced pursuant to the last paragraph of Section 10(a), after
reimbursement of Lessor (as provided in Section 7.01 of the Trust
Agreement) and the Owner Participant for reasonable costs and expenses, so
much of such payments remaining as shall not exceed the Stipulated Loss
Value and the other amounts payable under Section 10(a) hereof required to
be paid by Lessee pursuant to Section 10(a), shall be applied in reduction
of Lessee's obligation to pay Stipulated Loss Value and the other amounts
payable under Section 10(a) hereof, if not already paid by Lessee, or, if
already paid by Lessee, shall be applied to reimburse Lessee for its
payment of Stipulated Loss Value and such other amounts, and following the
foregoing application, the balance, if any, of such payments shall be
distributed between Lessee and Lessor as their respective interests may
appear; or (B) if such property is replaced pursuant to the last paragraph
of Section 10(a), such payments shall be paid over to or retained by,
Lessee; provided, that Lessee shall have fully performed or, concurrently
therewith, will fully perform the terms of the last paragraph of Section
10(a) with respect to the Event of Loss for which such payments are made;
and
(ii) if such payments are received with respect to an Engine under
circumstances contemplated by Section 10(b) hereof, (A) unless the same is
replaced pursuant to the
52
terms of Section 10(b), after reimbursement of Lessor (as provided for in
Section 7.01 of the Trust Agreement) and the Owner Participant for
reasonable costs and expenses, so much of such payments remaining as shall
not exceed the amounts payable under Section 10(b) hereof by Lessee, shall
be applied in reduction of Lessee's obligation to pay the same, if not
already paid by Lessee, or if already paid by Lessee, shall be applied to
reimburse Lessee for its payment of such amounts and following the
foregoing application, the balance, if any, shall be paid to Lessee; or (B)
if such property is replaced pursuant to Section 10(b), such payments shall
be paid over to, or retained by, Lessee, provided that Lessee shall have
fully performed, or concurrently therewith will perform, the terms of
Section 10(b) with respect to the Event of Loss for which such payments are
made.
(d) Requisition for Use of the Aircraft by the United States
--------------------------------------------------------
Government or Government of Registry of the Aircraft. In the event of the
- ----------------------------------------------------
requisition for use of the Airframe and the Engines or engines installed on the
Airframe during the Term by the United States Government or any other government
of registry of the Aircraft or any instrumentality or agency of any thereof,
Lessee shall promptly notify Lessor of such requisition, and all of Lessee's
obligations under this Lease Agreement with respect to the Aircraft shall
continue to the same extent as if such requisition had not occurred (unless
deemed prior to the end of the Term an Event of Loss in which case the foregoing
provisions of this Section 10 shall be applicable). If Lessee shall fail to
return the Aircraft (i) on or before the end of the Term, in the case of a
requisition by the United States government or any agency or instrumentality
thereof or (ii) within the earlier of the end of the Term or two years after
such requisition in the case of a requisition for use by the government of
registry of the Aircraft or any agency or instrumentality thereof (other than
the United States government or any agency or instrumentality thereof), such
failure shall constitute an Event of Loss which shall be deemed to have occurred
in the case of clause (i) on the last day of the Term, and in the case of clause
(ii), on the earlier of the last day of the Term or the expiration of such two-
year period, provided, however, that Lessor may notify Lessee in writing on or
before the twentieth day prior to the last day of the Term that, in the event
Lessee shall fail by reason of such requisition to return the Airframe and such
Engines or engines on or before the end of the Term, such failure shall not be
deemed an Event of Loss. Upon the giving of such notice and such failure to
return by the end of the Term, Lessee shall be relieved of all of its
obligations pursuant to the provisions of Section 5 (but not under any other
Section), except that if any engine not owned by Lessor shall then be installed
on the
53
Airframe, Lessee will, at no cost to Lessor, furnish, or cause to be furnished,
to Lessor a full warranty (as to title) bill of sale with respect to each such
engine, in form and substance reasonably satisfactory to Lessor, in its
individual capacity, and the Owner Participant (together with an opinion of
counsel (which may be Lessee's General Counsel) to the effect that such full
warranty bill of sale has been duly authorized and delivered and is enforceable
in accordance with its terms and that such engines are free and clear of Liens
other than Lessor Liens (including for this purpose Liens that would be Lessor
Liens but for the proviso to the definition of Lessor Liens), against receipt
from Lessor, at Lessee's expense, of a bill of sale evidencing the transfer,
without recourse or warranty (except as to the absence of Lessor Liens
(including for this purpose Liens that would be Lessor Liens but for the proviso
to the definition of Lessor Liens)), by Lessor to Lessee or its designee of all
of Lessor's right, title and interest in and to any Engine constituting part of
the Aircraft but not then installed on the Airframe. All payments received by
Lessor or Lessee from such government for the use of such Airframe and Engines
or engines during the Term shall be paid over to, or retained by, Lessee (or, if
directed by Lessee, any Sublessee); and all payments received by Lessor or
Lessee from such government for the use of such Airframe and Engines or engines
after the end of the Term shall be paid over to, or retained by, Lessor unless
Lessee shall have exercised its purchase option hereunder, or there is a deemed
Event of Loss hereunder, in which case such payments shall be made to Lessee.
(e) Requisition for Use of an Engine by the United States Government
----------------------------------------------------------------
or the Government of Registry of the Aircraft. In the event of the requisition
- ---------------------------------------------
for use of an Engine during the Term by the United States Government or any
other government of registry of the Aircraft or any agency or instrumentality of
any thereof (other than in the circumstances contemplated by subsection (d))
which shall have continued for more than 180 days or, if earlier, until the end
of the Term, Lessee shall replace (or cause any Sublessee to replace) such
Engine hereunder and Lessor and Lessee (or Sublessee as the case may be) shall
comply with the terms of Section 10(b) to the same extent as if an Event of Loss
had occurred with respect to such Engine. Upon compliance with Section 10(b)
hereof, any payments received by Lessor or Lessee from such government with
respect to such requisition shall be paid over to, or retained by Lessee.
(f) Application of Payments During Existence of Events of Default.
-------------------------------------------------------------
Any amount referred to in this Section 10 which is payable to or retainable by
Lessee (or any Sublessee) shall not be paid to or retained by Lessee (or any
Sublessee) if at the time of such payment or retention a Default or an Event of
54
Default shall have occurred and be continuing, but shall be held by or paid over
to Lessor as security for the obligations of Lessee (or such Sublessee) under
this Lease and applied against Lessee's obligations hereunder as and when due.
At such time as there shall not be continuing any such Default or Event of
Default, such amount shall be paid to Lessee to the extent not previously
applied in accordance with the preceding sentence.
SECTION 11. Insurance. (a) Public Liability and Property Damage
--------- ------------------------------------
Insurance. (1) Except as provided in clause (2) of this Section 11(a), and
- ---------
subject to self-insurance to the extent permitted by Section 11(d) hereof,
Lessee will carry or cause to be carried with respect to the Aircraft at its or
any Sublessee's expense (i) comprehensive airline liability (including, without
limitation, passenger, contractual, bodily injury, and property damage
liability) insurance (exclusive of manufacturer's product liability insurance)
and (ii) cargo liability insurance, (A) in an amount not less than the greater
of (x) the amounts of comprehensive airline liability insurance from time to
time applicable to aircraft owned or leased, and operated by Lessee of the same
type as the Aircraft and (y) $450,000,000 per occurrence, (B) of the type and
covering the same risks as from time to time are applicable to aircraft owned or
leased, and operated by Lessee of the same type as the Aircraft, and (C) which
is maintained in effect with insurers of recognized reputation and
responsibility; provided, however, that Lessee need not maintain cargo liability
insurance, or may maintain such insurance in an amount less than $450,000,000
per occurrence, as long as the amount of cargo liability insurance, if any,
maintained with respect to the Aircraft is the same as the cargo liability
insurance, if any, maintained for other Boeing Model 777-222 aircraft owned or
leased, and operated by Lessee.
(2) During any period that the Airframe or an Engine, as the case may
be, is on the ground and not in operation, Lessee may carry or cause to be
carried as to such non-operating property, in lieu of the insurance required by
clause (1) above, and subject to the self-insurance to the extent permitted by
Section 11(d) hereof, insurance by insurers of recognized reputation and
responsibility otherwise conforming with the provisions of clause (1) except
that (A) the amounts of coverage shall not be required to exceed the amounts of
comprehensive airline liability insurance from time to time applicable to
property owned or leased by Lessee of the same type as such non-operating
property and which is on the ground and not in operation; and (B) the scope of
the risks covered and the type of insurance shall be the same as from time to
time shall be applicable to property owned or leased by Lessee of the same type
55
as such non-operating property and which is on the ground and not in operation.
(b) Insurance Against Loss or Damage to the Aircraft. (1) Except as
------------------------------------------------
provided in clause (2) of this Section 11(b), and subject to the provisions of
Section 11(d) hereof permitting self-insurance, Lessee shall maintain or cause
to be maintained in effect, at its or any Sublessee's expense, with insurers of
recognized reputation and responsibility, all-risk aircraft hull insurance
covering the Aircraft and fire and extended coverage and all-risk aircraft hull
insurance covering Engines and Parts while temporarily removed from the Aircraft
and not replaced by similar components (including, without limitation, aircraft
war risk and governmental confiscation and expropriation (other than by the
government of registry of the Aircraft) and hijacking insurance, if and to the
extent the same is maintained by Lessee (or any Sublessee) with respect to other
aircraft owned or leased, and operated by Lessee (or such Sublessee) on the same
routes); provided, that such insurance shall at all times while the Aircraft is
subject to this Lease be for an amount (taking into account self-insurance to
the extent permitted by Section 11(d) hereof) not less than the Stipulated Loss
Value for the Aircraft; and provided further, that subject to compliance with
Section 11(d) hereof, such all-risk property damage insurance covering Engines
and Parts while temporarily removed from the Airframe or an airframe of (in the
case of Parts) an Engine need be obtained only to the extent available at
reasonable cost (as reasonably determined by Lessee). In the case of a loss
with respect to an engine (other than an Engine) installed on the Airframe in
circumstances which do not constitute an Event of Loss with respect to the
Airframe, Lessor shall promptly remit any payment made to it of any insurance
proceeds in respect of such loss to Lessee or any other third party that is
entitled to receive such proceeds.
Except during a period when a Section 14(a), (b), (f) or (g) Default
or an Event of Default has occurred and is continuing, all losses will be
adjusted by Lessee with the insurers giving due regard to Lessor's interest. As
between Lessor and Lessee, it is agreed that all proceeds of insurance
maintained in compliance with the preceding paragraph and received as the result
of the occurrence of an Event of Loss will be applied as follows:
(x) if such payments are received with respect to the Airframe
(or the Airframe and the Engines installed thereon), (i) unless such
property is replaced pursuant to the last paragraph of Section 10(a)
hereof, so much of such payments remaining, after reimbursement of Lessor
(as provided in Section 7.01 of the Trust Agreement) and the
56
Owner Participant for reasonable costs and expenses, as shall not exceed
the Stipulated Loss Value and the other amounts payable under Section 10(a)
hereof required to be paid by Lessee pursuant to Section 10(a) hereof shall
be applied in reduction of Lessee's obligation to pay such Stipulated Loss
Value and the other amounts payable under Section 10(a) hereof, 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 the
other amounts payable under Section 10(a) hereof, and the balance, if any,
of such payments remaining thereafter will be paid over to, or retained by,
Lessee (or if directed by Lessee, any Sublessee); or (ii) if such property
is replaced pursuant to the last paragraph of Section 10(a) hereof, such
payments shall be paid over to, or retained by, Lessee (or if directed by
Lessee, any Sublessee), provided that Lessee shall have fully performed or,
concurrently therewith, will fully perform the terms of the last paragraph
of Section 10(a) hereof with respect to the Event of Loss for which such
payments are made; and
(y) if such payments are received with respect to an Engine under
the circumstances contemplated by Section 10(b) hereof, so much of such
payments remaining after reimbursement of Lessor and the Owner Participant
for reasonable costs and expenses shall be paid over to, or retained by,
Lessee (or if directed by Lessee, any Sublessee), provided that Lessee
shall have fully performed or, concurrently therewith, will fully perform
the terms of Section 10(b) hereof with respect to the Event of Loss for
which such payments are made.
(2) During any period that the Aircraft is on the ground and not in
operation, Lessee may carry or cause to be carried, in lieu of the insurance
required by clause (1) above, and subject to the self-insurance to the extent
permitted by Section 11(d) hereof, insurance otherwise conforming with the
provisions of said clause (1) except that the scope of the risks and the type of
insurance shall be the same as from time to time applicable to aircraft owned or
leased by Lessee of the same type as the Aircraft similarly on the ground and
not in operation, provided that, subject to the self-insurance to the extent
permitted by Section 11(d) hereof, Lessee shall maintain insurance against risk
of loss or damage to the Aircraft in an amount at least equal to the Stipulated
Loss Value of the Aircraft during such period that the Aircraft is on the ground
and not in operation.
(c) Reports, etc. Lessee will furnish, or cause to be furnished, to
------------
Lessor, the Indenture Trustee, the Owner
57
Participant and, so long as the Pass Through Trustees are the Certificate
Holders, each Pass Through Trustee, on or before the Delivery Date, and each
annual anniversary of the Delivery Date during the Term, a report, signed by
Rollins Hudig Hall of Illinois, Inc. or any other independent firm of insurance
brokers reasonably acceptable to Lessor which brokers may be in the regular
employ of Lessee (the "Insurance Brokers"), describing in reasonable detail the
hull and liability insurance (and property insurance for detached engines and
parts) then carried and maintained with respect to the Aircraft and stating the
opinion of such firm that (a) such insurance complies with the terms hereof and
(b) that such insurance together with any self-insurance permitted hereby
provides coverage that are in substantially similar forms, are of such types and
have limits within the range of limits as are customarily carried by U.S.
carriers; provided, however, that the opinion set forth in clause (b) shall not
be required if the Insurance Broker then generally does not provide such an
opinion or will provide such an opinion for material additional cost; and
provided further that all information contained in the foregoing report shall
not be made available by Lessor, the Indenture Trustee, the Pass Through
Trustees or the Owner Participant to anyone except (A) to prospective and
permitted transferees of Lessor's, the Owner Participant's, any Pass Through
Trustee's or the Indenture Trustee's interest or their respective counsel,
independent certified public accountants, independent insurance brokers or other
agents, who agree to hold such information confidential, (B) to Lessor's, Owner
Participant's, any Pass Through Trustee's or the Indenture Trustee's counsel or
independent certified public accountants, independent insurance brokers or other
agents who agree to hold such information confidential, (C) as may be required
by any statute, court or administrative order or decree or governmental ruling
or regulation, or (D) as may be necessary for purposes of protecting the
interest of any such Person or for enforcement of this Lease by Lessor or the
Indenture Trustee; provided, however, that any and all disclosures permitted by
clauses (C) or (D) above shall be made only to the extent necessary to meet the
specific requirements or needs of the Persons to whom such disclosures are
hereby permitted. Lessee will cause such Insurance Broker to agree to advise
Lessor, the Indenture Trustee, the Owner Participant and, so long as the Pass
Through Trustees are the Certificate Holders, each Pass Through Trustee in
writing of any act or omission on the part of Lessee of which it has knowledge
and which might invalidate or render unenforceable, in whole or in part, any
insurance on the Aircraft and to advise such Persons in writing at least 30 days
(7 days in the case of war risk and allied perils coverage) prior to the
cancellation or material adverse change of any insurance maintained pursuant to
this Section 11, provided that if the notice period specified above is not
reasonably obtainable, the
58
Insurance Broker shall provide for as long a period of prior notice as shall
then be reasonably obtainable. In addition, Lessee will also cause such
Insurance Broker to deliver to Lessor, the Indenture Trustee, the Owner
Participant and, so long as the Pass Through Trustees are the Certificate
Holders, each Pass Through Trustee, on or prior to the date of expiration of any
insurance policy referenced in a previously delivered certificate of insurance,
a new certificate of insurance, substantially in the same form as delivered by
Lessee to such parties on the Delivery Date except for the changes in the report
or the coverage consistent with the terms hereof. In the event that Lessee or
any Sublessee shall fail to maintain or cause to be maintained insurance as
herein provided, Lessor, the Indenture Trustee or, so long as the Pass Through
Trustees are the Certificate Holders, each Pass Through Trustee may at its sole
option, but shall be under no duty to, provide such insurance and, in such
event, Lessee shall, upon demand, reimburse Lessor, the Indenture Trustee or
such Pass Through Trustee, as Supplemental Rent, for the cost thereof to Lessor,
such Pass Through Trustee or the Indenture Trustee, as the case may be;
provided, however, that no exercise by Lessor, a Pass Through Trustee or the
Indenture Trustee, as the case may be, of said option shall affect the
provisions of this Lease, including the provisions that failure by Lessee to
maintain the prescribed insurance shall constitute an Event of Default.
(d) Self-Insurance. Lessee may self-insure the risks required to be
--------------
insured against pursuant to this Section 11 under a program applicable to all
aircraft (whether owned or leased) in Lessee's fleet, but in no case shall the
aggregate amount of such self-insurance in regard to Sections 11(a) and 11(b)
hereof exceed for any calendar year, with respect to all of the aircraft
(whether owned or leased) in Lessee's fleet (including, without limitation, the
Aircraft) the lesser of (A) 50% of the highest replacement value of any single
aircraft in Lessee's fleet or (B) 1-1/2% of the average aggregate insurable
value (during the preceding calendar year) of all aircraft (including, without
limitation, the Aircraft) on which Lessee carries insurance. In addition to the
foregoing right to self-insure, Lessee (and any Sublessee) may self-insure to
the extent of any applicable mandatory minimum per aircraft (or, if applicable,
per annum or other period) hull or liability insurance deductible imposed by the
aircraft hull or liability insurer.
(e) Additional Insurance by Lessor and Lessee. Lessee (and any
-----------------------------------------
Sublessee) may at its own expense carry insurance with respect to its interest
in the Aircraft in amounts in excess of that required to be maintained by this
Section 11. The Owner Participant or Lessor may carry for its own account at
its sole cost and expense insurance with respect to its interest in the
59
Aircraft, provided that such insurance does not prevent Lessee (or any
Sublessee) from carrying the insurance required or permitted by this Section 11
or adversely affect such insurance or materially increase the cost thereof.
(f) Indemnification by Government in Lieu of Insurance.
--------------------------------------------------
Notwithstanding any provisions of this Section 11 requiring insurance, Lessor
agrees to accept, in lieu of insurance against any risk with respect to the
Aircraft, indemnification from, or insurance provided by, the United States
Government or any agency or instrumentality thereof, the obligations of which
are supported by the full faith and credit of the federal government of the
United States, against such risk in an amount which, when added to the amount of
insurance against such risk maintained by Lessee (or any Sublessee) shall be at
least equal to the amount of insurance against such risk otherwise required by
this Section 11 (taking into account self-insurance permitted by Section 11(d)
hereof).
(g) Application of Payments During Existence of Default. Any amount
---------------------------------------------------
referred to in this Section 11 which is payable to or retainable by Lessee (or
any Sublessee) shall not be paid to or retained by Lessee (or any Sublessee) if
at the time of such payment or retention a Default or an Event of Default shall
have occurred and be continuing, but shall be held by or paid over to Lessor as
security for the obligations of Lessee under this Lease and, if such a Default
or an Event of Default shall have occurred and be continuing, applied against
Lessee's obligations hereunder as and when due. At such time as there shall not
be continuing any such Default or Event of Default, such amount shall be paid to
Lessee to the extent not previously applied in accordance with the preceding
sentence.
(h) Terms of Insurance Policies. Any policies carried in accordance
---------------------------
with Sections 11(a) and 11(b) hereof covering the Aircraft, and any policies
taken out in substitution or replacement for any such policies, (A) shall name
the Additional Insureds as additional insureds, or, if appropriate, loss payees,
as their respective interests may appear (but without imposing on any such party
liability to pay premiums with respect to such insurance), (B) may provide for
self-insurance to the extent permitted in Section 11(d) hereof, (C) shall
provide that if the insurers cancel such insurance for any reason whatever, or
if the same is allowed to lapse for non-payment of premium or if any material
change is made in the insurance which adversely affects the interest of any
Additional Insured, such lapse, cancellation or change shall not be effective as
to any Additional Insured for thirty days (ten days in the case of lapse for
nonpayment of premium and seven days in the case of war risk and allied perils
coverage) after receipt by such Additional Insured of written
60
notice by such insurers of such lapse, cancellation or change; provided,
however, that if any notice period specified above is not reasonably obtainable,
such policies shall provide for as long a period of prior notice as shall then
be reasonably obtainable, (D) shall provide that in respect of the respective
interests of each Additional Insured in such policies the insurance shall not be
invalidated by any action or inaction of Lessee (or any Sublessee) or any other
Person and shall insure the respective interests of the Additional Insureds, as
they appear, regardless of any breach or violation of any warranty, declaration
or condition contained in such policies by Lessee (or any Sublessee) or by any
other Person, (E) shall be primary without any right of contribution from any
other insurance which is carried by any Additional Insured, (F) shall expressly
provide that all of the provisions thereof, except the limits of liability,
shall operate in the same manner as if there were a separate policy covering
each insured, (G) shall waive any right of the insurers to set-off or
counterclaim or any other deduction, whether by attachment or otherwise, in
respect of any liability of any Additional Insured, and (H) shall provide that
(i) in the event of a loss involving the Aircraft, Airframe, or an Engine for
which proceeds are in excess of $5,000,000 ($2,500,000 if the Aircraft is under
sublease), the proceeds in respect of such loss up to the amount of Stipulated
Loss Value for the Aircraft shall be payable to Lessor (or, so long as the Trust
Indenture shall be in effect, the Indenture Trustee), it being understood and
agreed that in the case of any payment to Lessor (or the Indenture Trustee)
otherwise than in respect of an Event of Loss, Lessor (or the Indenture Trustee)
shall, upon receipt of evidence reasonably satisfactory to it that the damages
giving rise to such payment shall have been repaired or that such payment shall
then be required to pay for repairs then being made, pay the amount of such
payment, and any interest or income earned thereon in accordance with Section 22
hereof, to Lessee or its order, and (ii) the entire amount of any such loss for
which proceeds are $5,000,000 ($2,500,000 if the Aircraft is under sublease) or
less or the amount of any proceeds of any such loss in excess of Stipulated Loss
Value for the Aircraft shall be paid to Lessee or its order unless a Default or
an Event of Default shall have occurred and be continuing and the insurers have
been notified thereof by Lessor or the Indenture Trustee.
SECTION 12. Inspection. At reasonable times, and upon at least 10
----------
days (or one day if a Section 14(a), 14(b), 14(d) (solely with respect to
Lessee's obligations under Section 7(a) or (b)(viii) or Section 8 hereof), 14(f)
or 14(g) Default or any Event of Default shall have occurred and be continuing)
prior written notice, the Owner Participant or the Indenture Trustee, or their
respective authorized representatives, may inspect the Aircraft (provided,
however, that such inspections by the Owner
61
Participant and its authorized representatives or the Indenture Trustee and its
authorized representative shall, in regard to each of the Owner Participant and
the Indenture Trustee, be limited to one inspection of the Aircraft during any
consecutive twelve-month period except during the continuance of a Default or an
Event of Default when such inspection right shall not be so limited) and inspect
and make copies of the books and records of Lessee and any Sublessee required to
be maintained by the FAA or the regulatory agency or body of another
jurisdiction in which the Aircraft is then registered relating to the
maintenance of the Aircraft (at the Owner Participant's or the Indenture
Trustee's risk and expense (unless a Section 14(a), 14(b), 14(f) or 14(g)
Default or any Event of Default shall have occurred and be continuing in which
case such inspection shall be at Lessee's expense), as the case may be) and
shall keep any information or copies obtained thereby confidential and shall not
disclose the same to any Person, except (A) to Lessor and the Pass Through
Trustees and to prospective and permitted transferees of Lessor's, the Owner
Participant's, any Pass Through Trustee's or the Indenture Trustee's interest
(and such prospective and permitted transferee's counsel, independent insurance
advisors or other agents) who agree to hold such information confidential, (B)
to Lessor's, the Owner Participant's, any Pass Through Trustee's or the
Indenture Trustee's counsel, independent insurance advisors or other agents who
agree to hold such information confidential, (C) as may be required by any
statute, court or administrative order or decree or governmental ruling or
regulation, (D) as may be necessary for purposes of protecting the interest of
any such Person or for enforcement of this Lease by Lessor or the Indenture
Trustee; provided, however, that any and all disclosures permitted by clauses
(C) and (D) above shall be made only to the extent necessary to meet the
specific requirements or needs of Persons for whom such disclosures are hereby
permitted. Any such inspection of the Aircraft shall be subject to Lessee's
safety and security rules applicable at the location of the Aircraft, shall be a
visual, walk-around inspection of the interior and exterior of the Aircraft and
shall not include opening any panels, bays or the like without the express
consent of Lessee (except in connection with a heavy maintenance visit when a
panel, bay or the like is scheduled or required to be open), which consent
Lessee may in its sole discretion withhold; provided that no exercise of such
inspection right shall interfere with the normal operation or maintenance of the
Aircraft by, or the business of, Lessee (or any Sublessee). Upon receipt by
Lessee of a written request from the Owner Participant specifying that the Owner
Participant desires to have an authorized representative observe the last
scheduled heavy maintenance visit to be performed on the Aircraft (or
substantially equivalent successor type of maintenance work) during the Term,
Lessee shall cooperate with the Owner
62
Participant to enable the Owner Participant's representative to observe such
last scheduled heavy maintenance visit to be performed on the Aircraft during
the Term, including reasonable advance notification to the Owner Participant of
the time and place of such scheduled heavy maintenance visit; provided that the
Owner Participant's authorized representative shall merely observe such
scheduled heavy maintenance visit, shall not interfere with or extend in any
manner the normal conduct or duration of the scheduled heavy maintenance visit,
and shall not be entitled to direct any of the work performed in connection with
such scheduled heavy maintenance visit. Neither the Owner Participant nor the
Indenture Trustee shall have any duty to make any such inspection nor shall any
of them incur any liability or obligations by reason of not making any such
inspection.
SECTION 13. Assignment. Except as otherwise provided in the
----------
Operative Documents, Lessee will not, without the prior written consent of
Lessor, assign any of its rights hereunder. Lessor agrees that it will not
assign or convey its right, title and interest in and to this Lease or the
Aircraft except as provided in the Operative Documents. Subject to the
foregoing, the terms and provisions of this Lease shall be binding upon and
inure to the benefit of Lessor and Lessee and their respective successors and
permitted 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) and each such Event of
Default shall continue so long as, but only as long as, it shall not have been
remedied:
(a) Lessee shall not have made a payment of Basic Rent, Stipulated
Loss Value, Termination Value, EBO Price, Special Termination Value or Premium
within ten (10) days after the same shall have become due; or
(b) Lessee shall have failed to make a payment of Supplemental Rent
(other than Supplemental Rent referred to in paragraph (a) of this Section 14)
after the same shall have become due and such failure shall continue for fifteen
(15) days after Lessee's receipt of written demand therefor by the party
entitled thereto (provided that any failure to pay any amount owed by Lessee
under the Tax Indemnity Agreement or any failure of Lessee to pay to Lessor or
the Owner Participant when due any Excluded Payments shall not constitute an
Event of Default unless written notice is given by the Owner Participant to
Lessee and
63
the Indenture Trustee that such failure shall constitute an Event of Default);
or
(c) Lessee shall fail to carry and maintain on or with respect to the
Aircraft (or cause to be carried and maintained) insurance required to be
maintained in accordance with the provisions of Section 11 hereof; or
(d) Lessee shall have failed to perform or observe (or caused to be
performed and observed) any other covenant or agreement to be performed or
observed by it under any Operative Document, and such failure shall continue
unremedied for a period of thirty days after written notice thereof by Lessor or
the Indenture Trustee; provided, however, that if Lessee shall have undertaken
to cure any such failure and, notwithstanding the reasonable diligence of Lessee
in attempting to cure such failure, such failure is not cured within said thirty
day period but is curable with future due diligence, there shall exist no Event
of Default under this Section 14 so long as Lessee is proceeding with due
diligence to cure such failure and such failure is in fact cured within 180
days); or
(e) any representation or warranty made by Lessee herein or in the
Participation Agreement or any document or certificate furnished by Lessee in
connection herewith or therewith or pursuant hereto or thereto (except the
representations and warranties set forth in Section 4 of the Tax Indemnity
Agreement) shall prove to have been incorrect in any material respect at the
time made and shall remain material at the time in question; provided, however,
such incorrectness shall constitute a default hereunder only if such
incorrectness shall continue uncured for a period of thirty (30) days after the
receipt by Lessee of a written notice from Lessor or the Indenture Trustee
advising Lessee of the existence of such incorrectness; or
(f) the commencement of an involuntary case or other proceeding in
respect of Lessee in an involuntary case under the federal bankruptcy laws, as
now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law in the United States or seeking the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of Lessee or for all or substantially all of
its property, or seeking the winding-up or liquidation of its affairs and the
continuation of any such case or other proceeding undismissed or unstayed for a
period of ninety (90) consecutive days or an order for relief under Chapter 11
of the Bankruptcy Code with respect to Lessee as debtor or any other order,
judgment or decree shall be entered in any proceeding by any court of competent
jurisdiction appointing, without the consent
64
of Lessee, a receiver, trustee or liquidator of Lessee, or for all or
substantially all of its property, or sequestering of all or substantially all
of the property of Lessee and any such order, judgment or decree or appointment
or sequestration shall be final or shall remain in force undismissed, unstayed
or unvacated for a period of ninety (90) days after the date of entry thereof;
or
(g) the commencement by Lessee of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law in the
United States, or the consent by Lessee to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator
(or other similar official) of Lessee or for all or substantially all of its
property, or the making by Lessee of any assignment for the benefit of creditors
or Lessee shall take any corporate action to authorize any of the foregoing; or
(h) Lessee shall not be a Certificated Air Carrier;
provided, however, that, notwithstanding anything to the contrary contained in
this Section 14, any failure of Lessee to perform or observe any covenant,
condition, agreement or any error in a representation or warranty shall not
constitute an Event of Default if such failure or error is caused solely by
reason of any event that constitutes an Event of Loss so long as Lessee is
continuing to comply with all of the terms of Section 10 hereof.
SECTION 15. Remedies. Upon the occurrence of any Event of Default
--------
and at any time thereafter so long as any such Event of Default shall not have
been remedied, Lessor may, at its option, declare by written notice to Lessee
this Lease Agreement to be in default; and at any time thereafter, so long as
such Event of Default shall be continuing, Lessor may do one or more of the
following with respect to all or any part of the Airframe and any or all of the
Engines as Lessor in its sole discretion shall elect, to the extent permitted
by, and subject to compliance with any mandatory requirements of, applicable law
then in effect; provided, however, that during any period the Aircraft is
subject to the Civil Reserve Air Fleet Program in accordance with the provisions
of Section 7(b) hereof and in the possession of the United States Government or
an instrumentality or agency thereof, Lessor shall not, on account of any Event
of Default, be entitled to do any of the following in such manner as to limit
Lessee's control under this Lease (or any Sublessee's control under any
Sublease) of any Airframe or any Engines, unless at least 60 days' (or such
lesser period as may then be applicable under the Military Airlift Command
program of the
65
United States Government) prior written notice of default hereunder shall have
been given by Lessor by registered or certified mail to Lessee (and any
Sublessee) with a copy addressed to the Contracting Office Representative for
the Military Airlift Command of the United States Air Force under any contract
with Lessee (or any Sublessee) relating to the Aircraft:
(a) upon the written demand of Lessor and at Lessee's expense,
cause Lessee to return promptly, and Lessee shall return promptly, the
Airframe or any Engine as Lessor may so demand to Lessor or its order in
the manner and condition required by, and otherwise in accordance with all
the provisions of, Section 5 as if such Airframe or Engine were being
returned at the end of the Term, or Lessor, at its option, may enter upon
the premises where all or any part of the Airframe or any Engine is located
and take immediate possession of and remove the same by summary proceedings
or otherwise, (and, at Lessor's option, store the same at Lessee's
premises until disposal thereof by Lessor), all without liability accruing
to Lessor for or by reason of such entry or taking of possession or
removing whether for the restoration of damage to property caused by such
action or otherwise;
(b) sell the Aircraft, the Airframe or any Engine at public or
private sale, as Lessor may determine, or otherwise dispose of, hold, use,
operate, lease to others or keep idle the Aircraft as Lessor, in its sole
discretion, may determine, all free and clear of any rights of Lessee,
except as hereinafter set forth in this Section 15;
(c) Lessor may hold, keep idle or lease to others the Aircraft,
the Airframe or any Engine or any Part thereof, as Lessor in its sole
discretion may determine, free and clear of any rights of Lessee and
without any duty to account to Lessee with respect thereto, except that
Lessee's obligation to pay Basic Rent with respect to the Aircraft on Lease
Period Dates subsequent to the date upon which Lessee shall have been
deprived of use of the Aircraft pursuant to this Section 15 shall be
reduced by the net proceeds, if any, received by Lessor from leasing the
Aircraft, the Airframe or any Engine to any Person other than Lessee;
(d) whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a), (b)
or (c) above with respect to the Aircraft, Lessor, by written notice to
Lessee specifying a payment date which shall be the Lease Period Date not
earlier than ten days from the date of such notice, may
66
demand that Lessee pay to Lessor, and Lessee shall pay Lessor, on the
payment date so specified, as liquidated damages for loss of a bargain and
not as a penalty (in lieu of the installments of Basic Rent for the
Aircraft due for Lease Periods commencing on or after the Commencement Date
or the Lease Period Date, as the case may be, specified as the payment date
in such notice), any unpaid Basic Rent due on Lease Period Dates on or
prior to the payment date so specified plus whichever of the following
amounts Lessor, in its sole discretion, shall specify in such notice (with
interest thereon at the Past Due Rate from such specified payment date
until the date of actual payment of such amount): (i) an amount equal to
the excess, if any, of the Stipulated Loss Value for the Aircraft, computed
as of the Lease Period Date specified as the payment date in such notice
over the aggregate fair market rental value (computed as hereafter in this
Section 15 provided) of such Aircraft for the remainder of the Term, after
discounting such aggregate fair market rental value to present value as of
the Lease Period Date specified as the payment date in such notice at an
annual rate equal to the Past Due Rate; or (ii) an amount equal to the
excess, if any, of the Stipulated Loss Value for such Aircraft, computed as
of the Lease Period Date specified as the payment date in such notice, over
the fair market sales value of such Aircraft (computed as hereafter in this
Section provided) as of the Lease Period Date specified as the payment date
in such notice;
(e) in the event Lessor pursuant to paragraph (b) above, shall
have sold the Aircraft, Lessor, in lieu of exercising its rights under
paragraph (d) above with respect to such Aircraft, may, if it shall so
elect, 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, any unpaid Basic Rent with respect to the Aircraft due on or
prior to such date plus the amount of any deficiency between the net
proceeds of such sale (after deduction of all reasonable costs of sale) and
the Stipulated Loss Value of such Aircraft, computed as of the Stipulated
Loss Value date on or immediately following the date of such sale, together
with interest, if any, on the amount of such deficiency, at the Past Due
Rate, from the date of such sale to the date of actual payment of such
amount; and/or
(f) Lessor may rescind or terminate this Lease Agreement, and/or
may exercise any other right or remedy which may be available to it under
applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for breach hereof.
67
For the purposes of paragraph (c) above, the "fair market rental
value" or the "fair market sales value" of the Aircraft shall be the rental
value or sales value, as the case may be, which would be obtained in an arm's-
length transaction between an informed and willing lessee or purchaser, as the
case may be, under no compulsion to lease or purchase, as the case may be, and
an informed and willing lessor or seller in possession, as the case may be, in
each case based upon the actual condition and location of the Aircraft, which
value shall be determined by mutual agreement or, in the absence of mutual
written agreement, pursuant to an appraisal prepared and delivered by a
nationally recognized firm of independent aircraft appraisers nominated by
Lessor, and Lessor shall promptly notify Lessee of such nomination. Any
appraisal obtained pursuant to this Section 15 shall take into account then
prevailing market conditions for aircraft of the same type as the Aircraft. The
cost of such appraisal or appointment shall be borne by Lessee.
In addition, Lessee shall be liable, except as otherwise provided
above, without duplication of amounts payable hereunder, for any and all unpaid
Rent due hereunder before, after or during the exercise of any of the foregoing
remedies, for the payment of Premium, if any, and for all reasonable and actual
legal fees and other costs and expenses incurred by Lessor, the Indenture
Trustee, the Certificate Holders and the Owner Participant in connection with
any default or the exercise of remedies hereunder including the return of the
Airframe or any Engine in accordance with the terms of Section 5 or in placing
such Airframe or Engine in the condition and airworthiness required by such
Section.
At any sale of the Aircraft or any part thereof pursuant to this
Section 15, Lessor, the Indenture Trustee, a Certificate Holder or the Owner
Participant may bid for and purchase such property. Lessor agrees to give
Lessee at least 10 days' written notice of the date fixed for any public sale of
any Airframe or Engine or of the date on or after which will occur the execution
of any contract providing for any private sale. 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; and the
exercise or beginning of exercise by Lessor of any one or more of such remedies
shall not preclude the simultaneous or later exercise by Lessor of any or all of
such other remedies. No waiver by Lessor of any Default or Event of Default
shall in any way be, or be construed to be, a waiver of any future or subsequent
Default or Event of Default. To the extent permitted by applicable law, Lessee
hereby waives any right now or hereafter conferred by statute or otherwise which
may require
68
Lessor to sell, lease, or otherwise use the Aircraft or Parts thereof in
mitigation of Lessor's damages as set forth in this Section 15 or which may
otherwise limit or modify any of Lessor's rights and remedies in this Section
15.
SECTION 16. Lessee's Cooperation Concerning Certain Matters. (a)
-----------------------------------------------
Forthwith upon the execution and delivery of each Lease Supplement and Trust
Supplement from time to time required by the terms hereof and upon the execution
and delivery of any amendment to this Lease or to the Trust Agreement or Trust
Indenture, Lessee at its expense will cause such Lease Supplement, Trust
Supplement (and, in the case of the initial Lease Supplement and Trust
Supplement, this Lease, the Trust Agreement and the Trust Indenture as well) or
amendment to be duly filed and recorded, and maintained of record, in accordance
with the applicable laws of the government of registry of the Aircraft. In
addition, Lessee at its expense will promptly and duly execute and deliver to
Lessor such further documents and take such further action as Lessor may from
time to time reasonably request in order more effectively to carry out the
intent and purpose of this Lease and to establish and protect the rights and
remedies created or intended to be created in favor of Lessor and the Indenture
Trustee hereunder, including, without limitation, if requested by Lessor, at the
expense of Lessee, the execution and delivery of supplements or amendments
hereto, each in recordable form, subjecting to this Lease and the Trust
Indenture, any airframe or engine substituted for the Airframe or any Engine
pursuant to the terms thereof and the recording or filing of counterparts
thereof, in accordance with the laws of such jurisdictions as Lessor may from
time to time reasonably request.
(b) Lessee will furnish to Lessor, the Indenture Trustee, the Owner
Participant and, so long as the Pass Through Trustees are the Certificate
Holders, the Pass Through Trustees:
(i) Quarterly Statements - As soon as practicable after the end
--------------------
of the first, second, and third quarterly fiscal periods in each fiscal
year of Lessee, and in any event within 60 days thereafter, duplicate
copies of:
(1) a consolidated balance sheet of Lessee as at the end of
such quarter setting forth in comparative form the amount for the end
of the corresponding period of the preceding fiscal year,
(2) consolidated statements of income and retained earnings
of Lessee for such quarterly period, setting forth in comparative form
the amount for the corresponding period of the preceding fiscal year,
and
69
(3) consolidated statements of cash flow of Lessee for the
portion of the fiscal year ending with said quarter, setting forth in
comparative form the amount for the corresponding period of the
preceding fiscal year;
(ii) Annual Statements - As soon as practicable after the end of
-----------------
each fiscal year, and in any event within 120 days thereafter, duplicate
copies of:
(1) a consolidated balance sheet of Lessee as at the end of
such year, and
(2) consolidated statements of income and retained earnings
and of cash flow of Lessee for such year,
prepared in accordance with generally accepted accounting principles and
setting forth in each case in comparative form the figures for the previous
fiscal year and accompanied by an auditor's report of a firm of independent
certified public accountants of recognized national standing (which report
may be adverse, qualified or disclaim an opinion);
(iii) SEC Reports - Promptly upon their becoming available, one
-----------
copy of each financial statement, report, or proxy statement sent by UAL
Corporation to its shareholders generally, and of each regular or periodic
report and any prospectus (in the form in which it becomes effective) filed
by Lessee or UAL Corporation with the Securities and Exchange Commission or
any successor agency; and
(iv) Notice of Default or Claimed Default -Immediately upon an
------------------------------------
officer of Lessee becoming aware of the existence of a Default or an Event
of Default (or that Lessor has given notice or taken any other action with
respect to an Event of Default or a claimed default under this Lease), a
written notice specifying the nature of the Default, Event of Default, or
claimed default and any such notice given or action taken by Lessor and
what action Lessee is taking or proposes to take with respect thereto.
(c) Commencing in 1996, on or before April 30 of each year during the
Term, Lessee will deliver to Lessor and the Indenture Trustee a certificate of
Lessee, signed by the President, a Vice President, the Chief Financial Officer
or the principal accounting officer of Lessee to the effect that the signer is
familiar with or has reviewed the relevant terms of this Lease and the signer
does not have knowledge of the
70
existence, as of the date of such certificate, of any condition or event which
constitutes a Default or an Event of Default.
SECTION 17. Notices. All notices required under the terms and
-------
provisions hereof shall be in writing (including telex, telecopier or similar
writing) and shall be effective (a) if given by telecopier when transmitted and
the appropriate confirmation received; provided, that any such notice is
confirmed by certified mail, (b) if given by certified mail, three Business Days
after being deposited in the mails, (c) if given by telex, upon receipt by the
party transmitting the telex of such party's callback code at the end of such
telex (receipt of confirmation in writing not being necessary to the
effectiveness of any telex) and (d) if given by other means, when received or
personally delivered, addressed:
(i) if to Lessee, at P. O. Box 66100, Chicago, Illinois 60666(or,
if given by overnight delivery service, 1200 East Algonquin Road, Elk Grove
Township, Illinois 60007) Attention: Vice President and Treasurer,
telecopier number (708) 952-7117, or to such other address or telecopier
number as Lessee shall from time to time designate in writing to Lessor;
(ii) if to Lessor, at 225 Franklin Street, Boston, Massachusetts
02110 (or, if given by overnight delivery service) Two International Place,
Boston, Massachusetts 02110) Attention: _____________________, telecopier
number (617) 664-5367 or to such other address or telecopier number as
Lessor shall from time to time designate in writing to Lessee;
(iii) if to the Indenture Trustee, the Owner Participant or any
Pass Through Trustee, addressed to the Indenture Trustee, the Owner
Participant or such Pass Through Trustee at such address or telecopier
number as the Indenture Trustee, the Owner Participant or such Pass Through
Trustee shall have furnished by notice to Lessor and to Lessee, and, until
an address is so furnished, addressed to the Indenture Trustee, the Owner
Participant or such Pass Through Trustee at its address or telecopier
number set forth in Schedule I to the Participation Agreement; and
(iv) If to a Certificate Holder which is not a Pass Through
Trustee, addressed to such Certificate Holder at its address stated in the
Loan Certificate Register maintained pursuant to the Trust Indenture.
A copy of each notice to Lessor shall be given by the sender thereof to the
Owner Participant.
71
SECTION 18. Net Lease; No Set-Off, Counterclaim, Etc.
----------------------------------------
(a) This Lease is a net lease, and it is intended that the Lessee
shall pay all costs and expenses of every character, whether seen or unforeseen,
ordinary or extraordinary or structural or non-structural, in connection with
the use, operation, maintenance, repair and reconstruction of the Airframe and
each Engine by the Lessee, including the costs and expenses particularly set
forth in this Lease. Except as set forth in this Section 18(a), the Rent which
Lessee is obligated to pay shall be paid without the necessity of notice or
demand and without set-off, counterclaim, abatement, suspension, deduction or
defense. If at any time that Lessee is required (a) to make a payment of
Termination Value or Fair Market Sales Value pursuant to Section 9 or Stipulated
Loss Value pursuant to Section 10, or (b) to pay the purchase price of the
Aircraft pursuant to Section 19(b), there shall exist a Lessor Lien with respect
to the Aircraft (including for this purpose Liens that would be Lessor Liens but
for the proviso to the definition of Lessor Liens) relating to the Owner
Participant (or Lessee shall have previously incurred a charge to discharge such
a Lessor Lien), then Lessee shall be entitled to deduct from the portion
required to be paid to the Owner Participant of such payment of Termination
Value or Fair Market Sales Value, or such payment of the purchase price, or any
combination thereof, as the case may be, an amount sufficient to so reimburse
Lessee or to reimburse Lessee for the cost of discharging such Lessor Lien, as
the case may be. Notwithstanding anything contained in this Section 18(a) to
the contrary, any payments of Fair Market Sales Value, Termination Value,
Stipulated Loss Value, Special Termination Value or EBO Price made to the
Indenture Trustee shall be in an amount which, together with any other amounts
payable hereunder, is at least sufficient to pay in full, as of the date of
payment thereof, the amount of principal of, and any accrued and unpaid interest
on, the outstanding Loan Certificates, together with Premium, if any, thereon
and amounts due the Certificate Holders under the Trust Indenture, if any, and,
to such extent, shall not be subject to set-off hereunder.
(b) Except as otherwise expressly provided, this Lease shall not
terminate nor shall the Lessee have any right to terminate this Lease or be
entitled to abatement, suspension, deferment or reduction of any Rent which the
Lessee is obligated to pay hereunder, nor shall the obligations hereunder of the
Lessee be affected, by reason of (A) any damage to or the destruction or loss of
all or any portion of the Airframe or any Engine from whatever cause, (B) the
loss or theft of any portion of the Airframe or any Engine, (C) the taking of
the Airframe or any Engine or any portion thereof by condemnation, confiscation,
requisition or otherwise, (D) the prohibition, limitation or
72
restriction of the Lessee's use of all or any part of the Airframe or any
Engine, or the interference with such use by any Person, (E) the inadequacy or
incorrectness of the description of any portion of the Airframe or any Engine or
the failure of this Lease to demise to the Lessee the Airframe or any Engine or
any portion thereof, (F) the Lessee's acquisition or ownership of all or any
part of the Airframe or any Engine otherwise than pursuant to an express
provision of this Lease, (G) any defect in compliance with specifications,
condition, merchantability, design, airworthiness, quality, durability,
operation or fitness for use for any purpose of the Airframe or any Engine or
any portion thereof, (H) any defect in the title to, or registration of or the
existence of any Liens or rights of others whatsoever with respect to, the
Airframe or any Engine or any portion thereof, (I) any insolvency, bankruptcy,
reorganization or similar proceedings by or against any Sublessee or any Person
(J) any breach, default or misrepresentation by the Lessor, any Participant or
the Indenture Trustee under this Lease or any other Operative Document or any of
the documents referred to herein or therein or (K) any invalidity or
unenforceability, in whole or in part, of this Lease or any other Operative
Document or any of the documents referred to herein or therein, or any other
infirmity herein or therein, or any lack of power or authority of any party to
this Lease or any other Operative Document or any such documents to enter into
the same, or (L) any other circumstance, happening or act whatsoever, whether or
not unforeseen or similar to any of the foregoing, it being the intention of the
parties hereto that the obligations of the Lessee shall be absolute and
unconditional and shall be separate and independent covenants and agreements and
shall continue unaffected unless and until this Lease shall have terminated in
accordance with its terms upon payment by Lessee of all sums payable by Lessee
hereunder and performance by Lessee of all obligations required to be performed
by Lessee hereunder.
The Lessee covenants that it will remain obligated under this Lease in
accordance with its terms and will take no action to terminate, rescind or avoid
this lease, notwithstanding the bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding-up or other
proceeding affecting the Lessor or the Owner Participant or any assignee of the
Lessor the Owner Participant or any other action with respect to this Lease
which may be taken in any such proceeding by any trustee or receiver of the
Lessor or the Owner Participant or of any assignee of the Lessor or the Owner
Participant or by any court or any of the foregoing actions which may be taken
by or against any of the Lessor's predecessors in interest in the Airframe or
any Engine.
73
If for any reason whatsoever this Lease shall be terminated in whole
or in part by operation of law or otherwise except as specifically provided
herein, Lessee nonetheless agrees, without limitation of the other rights and
remedies of Lessor hereunder, to pay to Lessor 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 terminated in whole or in part.
Except as expressly provided herein, the Lessee waives all rights now
or hereafter conferred by law (x) to quit, terminate, rescind or surrender this
Lease or the Airframe or any Engine or any part thereof, or (y) to any
abatement, suspension, deferment, return or reduction of the Rent.
SECTION 19. Renewal Options; Purchase Options; Valuation. (a)
--------------------------------------------
Renewal Options.
- ---------------
(1) Fixed Renewal Terms. Not less than 180 days nor more than
-------------------
365 days before the end of the Basic Term or any Fixed Renewal Term, Lessee
may, so long as no Section 14(a), (b), (d) (solely with respect to Lessee's
obligations under Section 7(a) or (b)(viii) hereof or Section 8 hereof),
(f) or (g) Default or any Event of Default has occurred and is continuing,
deliver to Lessor an irrevocable written notice (which at the option of
Lessee made at any time prior to 90 days prior to the end of the Basic Term
or such Fixed Renewal Term may be deemed a notice to exercise the
applicable purchase option in Section 19(b)) electing to renew this Lease
for a term or terms having a duration and at a Basic Rent as determined
below (each such term being herein referred to as a "Fixed Renewal Term").
At least 180 days, before the end of the Basic Term Lessee shall, as a
condition to its exercise of any option set forth in this Section 19(a)(1),
notify Lessor of its demand for an appraisal pursuant to the appraisal
procedures of Section 19(c) hereof. The appraiser(s) so appointed shall
determine the total useful life, the remaining useful life and the future
residual value of the Aircraft on the expiration date for a Fixed Renewal
Term as may be set by reason of the maximum period therefor in accordance
with the constraints set forth in the following two sentences. The
duration of each Fixed Renewal Term shall be a period specified by Lessee
before the end of the Basic Term (or the preceding Fixed Renewal Term, as
the case may be) which is not less than one year and not more than three
years (in integral multiples of six months). Notwithstanding the
foregoing, the aggregate term of all Fixed Renewal Terms shall not exceed
the lesser of (a) three years and (b) the longest period of time (i) which
would cause the Term, after giving
74
effect to all such Fixed Renewal Terms, to be equal to at least 80% of the
then estimated useful life of the Aircraft as determined by the
appraiser(s) and (ii) at the expiration of which the residual value of the
Aircraft, as estimated by the appraiser(s), would be at least equal to 20%
of Lessor's Cost (without taking into account inflation or deflation during
the Term). The annual Basic Rent payable during each Fixed Renewal Term
shall be equal to one-half of the average annual Basic Rent payments for
the Aircraft over the Basic Term.
(2) Fair Market Renewal Term. So long as no Section 14(a), (b),
------------------------
(d) (solely with respect to Lessee's obligations under Section 7(a) or
(b)(viii) hereof or Section 8 hereof), (f) or (g) Default or any Event of
Default has occurred and is continuing, Lessee shall have the right to
renew this Lease for additional periods of at least one year commencing at
the end of the Basic Term, any Fixed Renewal Term or any prior Fair Market
Renewal Term for a Basic Rent equal to the Fair Market Rental Value of the
Aircraft for such period (each such renewal term, a "Fair Market Renewal
Term"); provided, however, each Fair Market Renewal Term shall be an
integral multiple of six months. Notwithstanding the foregoing, the
aggregate term for all Fair Market Renewal Terms shall not exceed three
years. Each such option to renew shall be exercised upon delivery by
Lessee to Lessor of irrevocable written notice of Lessee's intent to renew
the Lease at least 180 days (but not more than 365 days) prior to the
commencement of such Fair Market Renewal Term (which at the option of the
Lessee made at any time prior to 90 days prior to the anticipated
commencement of such Fair Market Renewal Term may be deemed a notice to
exercise the applicable purchase option in Section 19(b)).
(3) Waiver. If no written notice is delivered by Lessee to
------
Lessor pursuant to Section 19(a)(1) or (2) on or before the day specified
therefore, Lessee shall be deemed to have waived any right to renew this
Lease.
(4) Conditions Precedent, Payment of Basic Rent. At the end of
-------------------------------------------
the Basic Term or any Renewal Term, if Lessee has elected to renew this
Lease as aforesaid, and provided that there shall not then have occurred
and be continuing a Default or an Event of Default and that all necessary
governmental authorizations and approvals shall have been received and that
Basic Rent for the Renewal Term has already been determined as above
provided, (i) this Lease shall continue in full force and effect during the
Renewal Term, and (ii) Basic Rent for such Renewal Term shall be
75
payable in semi-annual installments in advance or arrears as was the basis
of the Basic Rent being paid immediately prior to such Renewal Term, each
such installment being due and payable on each Lease Period Date occurring
during the Renewal Term.
(5) Termination Value; Stipulated Loss Value. The amounts which
----------------------------------------
are payable during any Renewal Term in respect of Termination Value as used
in Section 15 and Stipulated Loss Value with respect to the Aircraft shall
be determined on the basis of the Fair Market Sales Value of the Aircraft
as of the commencement of such Renewal Term, amortized on a straight-line
basis over such Renewal Term to the projected Fair Market Sales Value of
the Aircraft as of the expiration of such Renewal Term, as such Fair Market
Sales Value in each case is determined prior to the commencement of such
Renewal Term. In determining Fair Market Sales Value for purposes of
calculating Stipulated Loss Value and Termination Value for any Renewal
Term effect shall be given to the encumbrance on the Aircraft of any Fixed
Renewal Term available or in force.
(b) Purchase Options. Lessee shall have the option, so long as no
----------------
Section 14(a), (b), (f) or (g) Default or any Event of Default exists on the
date notice of exercise may be given, (i) with respect to subsections (1) and
(2) below, upon not more than 365 days and not less than 90 days irrevocable
prior written notice to Lessor and (ii) with respect to subsections (3) and (4)
below, upon not more than 365 days and not less than 180 days irrevocable prior
written notice to Lessor (which at the option of the Lessee made at any time
prior to 90 days prior to the relevant purchase date may be deemed a notice of
the applicable renewal option pursuant to Section 19(a)(1) or 19(a)(2) as the
Lessee may designate) (each a "Purchase Option Date"), to terminate this Lease
and to purchase the Aircraft:
(1) on any Special Purchase Option Date for a purchase price
equal to the greater of (x) the Fair Market Sales Value of the Aircraft on
such date or (y) the amount determined by multiplying Lessor's Cost by the
Special Termination Value Percentage with respect to such Date (with
respect to any such Date, the "Special Termination Value");
(2) on the EBO Date for a purchase price equal to the amount
determined by multiplying Lessor's Cost by the EBO Percentage payable on
the EBO Date or as otherwise provided in, and subject to the conditions set
forth in, Exhibit H hereto (the "EBO Price");
76
(3) on the last Business Day of the Basic Term for a purchase
price equal to the Fair Market Sales Value of the Aircraft on such date;
and
(4) on the last Business Day of any Renewal Term for a purchase
price equal to the Fair Market Sales Value of the Aircraft on such date.
Notwithstanding the foregoing but subject to the provisions of Section 8(r) of
the Participation Agreement, the purchase price on any Purchase Option Date
shall be sufficient, together with all other amounts payable simultaneously by
Lessee, to pay in full the payments then required to be made on account of the
principal amount (and Premium, if any) of and interest on the Loan Certificates
then outstanding. Upon payment to Lessor in immediately available funds of the
full amount of the purchase price (less the principal amount of the Loan
Certificates assumed by the Lessee in accordance with Section 8(r) of the
Participation Agreement) plus all Basic Rent due on or prior to such purchase
date (unless denominated "advance" rental), all Supplemental Rent due on or
prior to such purchase date (including amounts equal to Premium, if any) and
payment of any other amounts then due hereunder (including all reasonable costs
or expenses of Lessor (including any applicable sales or transfer taxes) and the
Owner Participant in connection with such purchase), Lessor will transfer to
Lessee, without recourse or warranty (except as to the absence of Lessor Liens
(including for this purpose Liens that would be Lessor Liens but for the proviso
to the definition of Lessor Liens)), all of Lessor's right, title and interest
in and to the Aircraft.
(c) Valuation. At any time not earlier than 365 days prior to the
---------
date on which Lessee may purchase an Aircraft pursuant to Section 19(b) hereof
or renew this Lease pursuant to Section 19(a) hereof, Lessee may deliver to
Lessor a revocable notice of its intent to exercise its renewal option or
purchase option. For all purposes of this Section 19, including the appraisal
referred to in this Section 19(c), in determining Fair Market Rental Value or
Fair Market Sales Value, the Aircraft shall be valued (i) as if in the condition
and otherwise in compliance with the terms of Section 5 (but subject to Section
5(e)) upon a return of the Aircraft in the United States and as if it had been
maintained at all times as required in accordance with Section 7(a)(1) and (2)
and Section 8, (ii) on the basis of the value which would obtain in an arm's-
length transaction between an informed and willing buyer or user or lessee
(other than a lessee or an Affiliate of a lessee currently in possession or a
used equipment scrap dealer) under no compulsion to buy or lease and an informed
and willing seller or lessor unaffiliated with such buyer-user or lessee and
under no compulsion to sell or
77
lease, and (iii) in the case of such valuation for determining Fair Market
Rental Value, assuming such lessee would have substantially the same obligations
during the Fair Market Renewal Term as provided hereunder including without
limitation the obligations of Lessee to carry and maintain the insurance
required by Section 11 hereof. Upon receipt of such notice Lessor and Lessee
shall confer in good faith with a view to reaching agreement on the Fair Market
Rental Value or Fair Market Sales Value of the Aircraft. If the parties have
not so agreed by 240 days prior to the end of the Basic Term or the Renewal Term
in question, then the question shall be determined by an appraisal mutually
agreed to by two recognized independent aircraft appraisers, one of which
appraisers shall be chosen by Lessor and one by Lessee within five Business Days
after Lessor or Lessee shall have received written notice from the other party
of a demand that such an appraisal be made, which notice shall specify the
appraiser chosen by the party giving the notice or, if such appraisers cannot
agree on the amount of such appraisal within five Business Days after the end of
such five-day period, each shall render its own appraisal and shall by mutual
consent choose another appraiser within five Business Days after the end of such
five-day period. If, within such five-day period, such two appraisers fail to
appoint a third appraiser, then either Lessor or Lessee, on behalf of both, may
apply to the American Arbitration Association (or any successor organization
thereto) in Chicago, Illinois for the appointment of such third appraiser. The
decision of the third appraiser so appointed shall be given within ten Business
Days after the appointment of such third appraiser. As soon as the third
appraiser has delivered his appraisal, that appraisal shall be compared with the
appraisals given by the other two appraisers. If the determination of one
appraiser is more disparate from the average of all three determinations than
each of the other two determinations, then the determination of such appraiser
shall be excluded, the remaining two determinations shall be averaged and such
average shall be final and binding upon the parties hereto; otherwise the
average of all three determinations shall be final and binding upon the parties
thereto. Lessee and Lessor shall equally bear all expenses relating to such
appraisal procedure (other than an appraisal procedure related to Lessee's
purchase option under Section 19(b)(1), the costs of which Lessee shall in all
events bear), provided, that if such transaction is not consummated (other than
as the result of the fault of Lessor) Lessee shall bear all expenses relating to
such appraisal procedure.
SECTION 20. Security for Lessor's Obligation to Certificate Holders.
-------------------------------------------------------
In order to secure the indebtedness evidenced by the Loan Certificates, Lessor
has agreed in the Trust Indenture, among other things, to assign to the
Indenture Trustee this Lease and to mortgage the Aircraft in favor of the
78
Indenture Trustee, subject to the reservations and conditions therein set forth.
To the extent, if any, 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 created through the
transfer or possession of any counterpart other than the original counterpart,
which shall be identified as the counterpart containing the receipt therefor
executed by the Indenture Trustee as indenture trustee under the Trust Indenture
on the signature page thereof. Lessee hereby accepts and consents to the
assignment of all Lessor's right, title and interest in and to this Lease
pursuant to the terms of the Trust Indenture. Lessee agrees to pay directly to
the Indenture Trustee (or, after receipt by Lessee of notice from the Indenture
Trustee of the discharge of the Trust Indenture, to Lessor), all amounts of Rent
(other than Excluded Payments) due or to become due hereunder and assigned to
the Indenture Trustee and Lessee agrees that the Indenture Trustee's right to
such payments hereunder shall be absolute and unconditional and shall not be
affected by any circumstance. Notwithstanding the foregoing assignment of this
Lease, the obligations of Lessor to Lessee to perform the terms and conditions
of this Lease shall remain in full force and effect. Lessee further
acknowledges that the Trust Indenture provides that so long as the Loan
Certificates are outstanding Lessor may not consent to any amendment,
modification or waiver to this Lease without the prior consent of the Indenture
Trustee (except as provided in Section 11.06 of the Trust Indenture) and Lessee
agrees to provide to the Indenture Trustee a copy of all notices, consents,
certificates or other information provided hereunder to Lessor.
SECTION 21. Lessor's Right to Perform for Lessee. If Lessee fails to
------------------------------------
make any payment of Rent required to be made by it hereunder or fails to perform
or comply with any of its agreements contained herein, then (but in each case,
except in the case of failure to pay Rent or in the case of failure to maintain
insurance as required hereunder, no earlier than five Business Days after notice
as to the occurrence of such failure, whether or not it shall yet constitute an
Event of Default hereunder) Lessor may itself make such payment or perform or
comply with such agreement but shall not be obligated hereunder to do so, and
the amount of such payment and the amount of the reasonable expenses of Lessor
incurred in connection with such payment or the performance of or compliance
with such agreement, as the case may be, together with interest thereon at the
Past Due Rate, shall be deemed Supplemental Rent, payable by Lessee upon demand.
SECTION 22. Investment of Security Funds; Liability of Lessor
-------------------------------------------------
Limited. (a) Investment of Security Funds. Any moneys
----------------------------
79
held by Lessor as security hereunder for future payments to Lessee shall, until
paid to Lessee, be invested by Lessor or, if the Trust Indenture shall not have
been discharged, by the Indenture Trustee, as the case may be, as Lessee (or in
the event a Default under Section 14(a), (b), (f) or (g) or an Event of Default
has occurred and is continuing, Lessor) may from time to time direct in writing
(and in absence of a written direction by Lessee, there shall be no obligation
to invest such moneys) in (i) obligations of, or guaranteed by, the United
States Government or agencies thereof, (ii) open market commercial paper of any
corporation incorporated under the laws of the United States of America or any
State thereof rated at least P-1 or its equivalent by Moody's Investors Service,
Inc. or at least A-1 or its equivalent by Standard & Poor's Corporation, (iii)
certificates of deposit issued by commercial banks organized under the laws of
the United States or of any political subdivision thereof having a combined
capital and surplus in excess of $200,000,000 which banks or their holding
companies have a rating of A or its equivalent by Moody's Investors Service,
Inc. or Standard & Poor's Corporation; provided, however, that the aggregate
amount at any one time so invested in certificates of deposit issued by any one
bank shall not exceed 5% of such bank's capital and surplus, (iv) U.S. dollar
denominated offshore certificates of deposit issued by, or offshore time
deposits with, any commercial bank described in (iii) or any subsidiary thereof
and (v) repurchase agreements with any financial institution having combined
capital and surplus of at least $200,000,000 with any of the obligations
described in clause (i) through (iv) as collateral. There shall be promptly
remitted to Lessee or its order (but no more frequently than monthly) any gain
(including interest received) realized as a result of any such investment (net
of any fees, taxes, commissions and other expenses, if any, incurred in
connection with such investment) unless a Section 14(a), (b), (d) (solely with
respect to Lessee's obligations under Section 7(a) or (b)(viii) or Section 8
hereof), (f) or (g) Default or an Event of Default shall have occurred and be
continuing. If a Default under Section 14(a), (b), (d) (solely with respect to
Lessee's obligations under Section 7(a) or (b)(viii) or Section 8 hereof), (f)
or (g) or an Event of Default shall have occurred and be continuing, Lessor or
if the Trust Indenture shall not have been discharged, the Indenture Trustee as
assignee of Lessor, shall hold any such gain as security for the obligations of
Lessee under this Lease and apply it against such obligations as and when due,
and once all such Defaults and Events of Default have been remedied any gain not
so applied shall be remitted to Lessee. Lessee shall be responsible for any net
loss realized as a result of any such investment and shall reimburse Lessor (or
the Indenture Trustee, as the case may be) therefor on demand.
80
(b) Liability of Lessor Limited. It is expressly agreed and
---------------------------
understood that all representations, warranties and undertakings of Lessor
hereunder shall be binding upon Lessor only in its capacity as trustee under the
Trust Agreement, and the institution acting as Lessor shall not be liable in its
individual capacity for any breach thereof except for its gross negligence or
willful misconduct or for breach of its covenants, representations and
warranties contained herein, to the extent covenanted or made in its individual
capacity.
SECTION 23. 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 unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. No term or provision of
this Lease may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by Lessor, Lessee and any assignee of Lessor's
rights hereunder. This Lease shall constitute an agreement of lease, and
nothing contained herein shall be construed as conveying to Lessee any right,
title or interest in the Aircraft except as a lessee only. The section and
paragraph headings in this Lease and the table of contents are for convenience
of reference only and shall not modify, define, expand or limit any of the terms
or provisions hereof and all references herein to numbered sections, unless
otherwise indicated, are to sections of this Lease. THIS LEASE HAS BEEN
DELIVERED IN THE STATE OF ILLINOIS AND SHALL IN ALL RESPECTS BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 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.
SECTION 24. Successor Trustee. Lessee agrees that in the case of the
-----------------
appointment of any successor Owner Trustee pursuant to the terms of the Trust
Agreement, such successor Owner Trustee shall, upon written notice by such
successor Owner Trustee, succeed to all the rights, powers and title of Lessor
hereunder and shall be deemed to be Lessor and the owner of the Aircraft for all
purposes hereof without in any way altering the terms of this Lease or Lessee's
obligations hereunder. One such appointment and designation of a successor
Owner Trustee shall not exhaust the right to appoint and designate further
successor Owner Trustees pursuant to the Trust Agreement, but such right may be
executed repeatedly as long as this Lease shall be in effect.
81
SECTION 25. Bankruptcy. Lessee hereby acknowledges that Lessor and
----------
the Indenture Trustee are entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to the Aircraft and that this Lease is a "lease"
within the meaning of said Section 1110, including that it is to be treated as a
lease for federal tax purposes. Lessee agrees not to take any position in
connection with any bankruptcy proceedings involving it that is inconsistent
with a lessor's rights under Section 1110 of the Bankruptcy Code or any
comparable or successor provision affording protection to lessors of aircraft.
* * *
82
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to
be duly executed as of the day and year first above written.
STATE STREET BANK AND TRUST COMPANY, not in its
individual capacity, except as expressly
provided in Section 4 hereof, but solely as
Owner Trustee,
Lessor
By_________________________________
Vice President
UNITED AIR LINES, INC.,
Lessee
By_________________________________
Vice President and Treasurer
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged on this _____ day of May, 1995./1/
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION
Indenture Trustee
By_________________________________
Authorized Officer
/1/This language contained in the original counterpart only.
83
EXHIBIT A
LEASE SUPPLEMENT NO. 1 (1995 777 A)
-----------------------------------
LEASE SUPPLEMENT No. 1 (1995 777 A), dated May __, 1995, between STATE
STREET BANK AND TRUST COMPANY, not in its individual capacity, but solely as
Owner Trustee under the Trust Agreement (1995 777 A), dated as of May 1, 1995,
between such Owner Trustee and the Owner Participant referred to therein (such
Owner Trustee, in its capacity as such Owner Trustee being herein called
"Lessor"), and UNITED AIR LINES, INC. ("Lessee").
Lessor and Lessee have heretofore entered into that certain Lease
Agreement (1995 777 A), dated as of May 1, 1995, relating to one Boeing 777-222
aircraft (herein called the "Lease" and the defined terms therein being
hereinafter used with the same meanings). The Lease provides for the execution
and delivery from time to time of Lease Supplements for the purpose of leasing
the Airframe and Engines under the Lease as and when delivered by Lessor to
Lessee in accordance with the terms thereof.
The Lease relates to the Airframe and Engines described below, and a
counterpart of the Lease is attached hereto, and made a part hereof, and this
Lease Supplement together with such attachment, is being filed for recordation
on the date hereof with the Federal Aviation Administration as one document./2/
The Lease relates to the Airframe and Engines described below, and a
counterpart of the Lease, attached and made a part of Lease Supplement No. 1
(1995 777 A) dated May __, 1995, has been recorded by the Federal Aviation
Administration on ___________ __, 1995, as one document and assigned Conveyance
No. __________./3/
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee under the Lease
and Lessee hereby accepts and leases from Lessor under the Lease the
following described Boeing Model 777-222 aircraft (the "Aircraft"), which
Aircraft as of the date hereof consists of the following components:
- -----------------------
/2/This language for Lease Supplement No. 1.
/3/This language for other Lease Supplements.
(i) Airframe: U.S. Registration No. N777UA and
manufacturer's serial no. 26916; and
(ii) Engines: two (2) Pratt & Whitney Model PW4084 engines
bearing, respectively, manufacturer's serial nos. _______ and _______
(each of which engines has 750 or more rated takeoff horsepower or the
equivalent of such horsepower).
2. The Delivery Date of the Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof. Except as otherwise
provided in the Lease, the Term for the Aircraft shall commence on the
Delivery Date and end on the Lease Expiry Date.
3. Lessee hereby confirms its agreement to pay Lessor Basic Rent
for the Aircraft throughout the Term therefor in accordance with Section 3
of the Lease.
4. Lessee hereby confirms to Lessor that Lessee has accepted the
Aircraft for all purposes hereof and of the Lease as being airworthy, in
good working order and repair and without defect or inherent vice in title,
condition, design, operation or fitness for use; provided, however, that
nothing contained herein or in the Lease shall in any way diminish or
otherwise affect any right Lessee or Lessor may have with respect to the
Aircraft against The Boeing Company, or any subcontractor or supplier of
The Boeing Company, under the Purchase Agreement or otherwise.
5. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
6. This Lease Supplement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute
but one and the same instrument.
* * *
A-2
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to
be duly executed on the day and year first above written.
STATE STREET BANK AND TRUST COMPANY, not in its
individual capacity, but solely as Owner
Trustee,
Lessor
By:________________________________
Title:_____________________________
UNITED AIR LINES, INC.,
Lessee
By:________________________________
Vice President and Treasurer
Receipt of this original counterpart of the foregoing Lease Supplement is
hereby acknowledged on this _____ day of May, 1995./4/
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION
Indenture Trustee
By_________________________________
Authorized Officer
- ----------------------
/4/This language contained in the original counterpart only.
A-3
EXHIBIT B
BASIC RENT AND EXCESS AMOUNT SCHEDULE
-------------------------------------
ARREARS RENT ADVANCE RENT EXCESS AMOUNT
AS A PERCENTAGE AS A PERCENTAGE AS A PERCENTAGE
DATE OF LESSOR'S COST OF LESSOR'S COST OF LESSOR'S COST
- ------ ---------------- ---------------- ----------------
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT B TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.
EXHIBIT C
STIPULATED LOSS VALUE SCHEDULE
------------------------------
STIPULATED LOSS VALUE
DATE (as a percentage of Lessor's Cost)
---- ----------------------------------
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT C TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.
EXHIBIT D
TERMINATION VALUE SCHEDULE
--------------------------
TERMINATION VALUE
DATE (as a percentage of Lessor's Cost)
---- ----------------------------------
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT D TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.
EXHIBIT E
RENT RECALCULATION AND
INDEMNIFICATION VERIFICATION
----------------------------
Any recalculation of Basic Rent, Stipulated Loss Value percentages,
Termination Value percentages, Special Termination Value percentages and EBO
Percentage pursuant to the Lease and any calculation of any payment to the Owner
Participant or Lessee under the Tax Indemnity Agreement or Section 7(b) of the
Participation Agreement shall be determined by the Owner Participant, computed
on the basis of the same methodology and assumptions used by the Owner
Participant in determining the Basic Rent, Stipulated Loss Value percentages,
Termination Value percentages, Special Termination Value percentages and EBO
Percentage as of the Delivery Date except as such assumptions have been modified
pursuant to Section 3 of the Lease; provided, however, Lessee may request (A)
Capstar Partners, Inc., or any other financial advisor to Lessee to verify such
calculations but without any requirement that the Owner Participant disclose to
such advisor such methodology and assumptions and (B) if Lessee believes that
such calculations by the Owner Participant are in error then a nationally
recognized firm of accountants selected by the Owner Participant and reasonably
acceptable to Lessee (which may be the Owner Participant's independent public
accountants) shall be permitted to verify such calculations and the Owner
Participant will make available to such firm (subject to the execution by such
firm of a confidentiality agreement reasonably acceptable to the Owner
Participant) such methodology and assumptions and any changes made therein
pursuant to Section 3 of the Lease and any other information reasonably
necessary for such verification requested by such firm. In the event of a
verification under clause (B) of this Exhibit E the determination by such firm
of accountants shall be final. Lessee will pay the reasonable costs and
expenses of the verification under clause (B) of this Exhibit E; provided,
however, if as a result of such verification process the Basic Rent is adjusted
and such adjustment causes the Net Present Value of Rents to decline by 10 or
more basis points or there is a material error in the computation of the
Stipulated Loss Value percentages, Termination Value percentages, Special
Termination Value percentages or EBO Percentage in the Owner Participant's
original statement in the Owner Participant's favor, or indemnity payment is
reduced by $10,000 or more, the Owner Participant shall pay the reasonable costs
and expenses of such verification process. Such recalculated Basic Rent,
Stipulated Loss Value percentages, Termination Value percentages, Special
Termination Value percentages and EBO Percentage shall be set forth in an
amendment to the Lease.
EXHIBIT F
SCHEDULE OF COUNTRIES AUTHORIZED
FOR DOMICILE OF PERMITTED SUBLESSEES
------------------------------------
Australia Luxembourg
Austria *Malaysia
Belgium Netherlands
*Brazil New Zealand
Canada Norway
Denmark *Portugal
Finland Singapore
France *South Korea
Germany *Spain
*Greece Sweden
*Iceland Switzerland
Ireland *Thailand
Italy United Kingdom
Japan *Venezuela
_______________________
* Designates "Restricted Country".
EXHIBIT G
SCHEDULE OF COUNTRIES AUTHORIZED
FOR AIRCRAFT REGISTRATION
--------------------------------
Australia Luxembourg
Austria *Malaysia
Belgium Netherlands
*Brazil New Zealand
Canada Norway
Denmark *Portugal
Finland Singapore
France *South Korea
Germany *Spain
*Greece Sweden
*Iceland Switzerland
Ireland *Thailand
Italy United Kingdom
Japan *Venezuela
_______________________
* Designates "Restricted Country".
EXHIBIT H
LESSOR'S COST, ENGINE COST, COMMENCEMENT DATE,
LEASE EXPIRY DATE, STIPULATED LOSS VALUE DATE,
EBO DATE, EBO PERCENTAGE, SPECIAL PURCHASE
OPTION DATES AND SPECIAL TERMINATION VALUE PERCENTAGES
(EBO Percentage, EBO Installment Percentages and
Special Termination Value Percentages expressed
as a percentage of Lessor's Cost)
------------------------------------------------------
Lessor's Cost: $________
Engine Cost: $_________
Commencement Date: October 19, 1995
Lease Expiry Date: October 19, 2019
Stipulated Loss Value Date: the 19th day of each
calendar month during the
Interim Term, the Basic
Term and any Renewal Term
EBO Date: ______, 2012
EBO Percentage: ______%/1/
Special Purchase Special Termination
- -------------------
/1/ Alternatively, Lessee may elect to purchase the Aircraft in accordance with
Section 19(b)(2) of the Lease by paying the installment amounts on the dates
given below:
EBO Installment Percentages
EBO Installment (expressed as a percentage
Dates of Lessor's Cost)
--------------- ---------------------------
______, 2012 %
______, 2012 %
______, 2012 %
______, 2012 %
In the event that Lessee shall so elect and, so long as no payment or bankruptcy
Default, or Event of Default, shall be continuing, Lessee shall as of the EBO
Date purchase the Aircraft and receive title to the Aircraft and shall be
deemed, as of the EBO Date, to mortgage in favor of Lessor all of its right,
title and interest, on and after such date, in the Aircraft to secure the loan
and punctual payment of all EBO installment amounts payable under this Exhibit
H. On the EBO Date, Lessee shall execute and deliver such instruments, in due
form for filing or recording, as may be reasonably requested by the Owner
Participant, to grant, confirm and perfect the mortgage and security interest
deemed to be created by this Exhibit H and to confirm Lessee's obligations to
make the installment payments payable under this Exhibit H.
Option Dates: Value Percentages:
---------------- -------------------
_______________ _____%
_______________ _____%
_______________ _____%
EXHIBIT H
LESSOR'S COST, ENGINE COST, COMMENCEMENT DATE,
LEASE EXPIRY DATE, STIPULATED LOSS VALUE DATE,
EBO DATE, EBO PERCENTAGE, SPECIAL PURCHASE
OPTION DATES AND SPECIAL TERMINATION VALUE PERCENTAGES
(EBO Percentage, EBO Installment Percentages and
Special Termination Value Percentages expressed
as a percentage of Lessor's Cost)
------------------------------------------------------
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT H TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.
Doc. No. 1.02
Aircraft N766UA
- --------------------------------------------------------------------------------
LEASE AGREEMENT
(1995 777 B)
Dated as of May 1, 1995
Between
STATE STREET BANK AND TRUST COMPANY,
Not in its Individual Capacity,
except as expressly
provided herein, but solely as
Owner Trustee,
Lessor
and
UNITED AIR LINES, INC.,
Lessee
----------------------------
United Air Lines, Inc.
1995 777 B Equipment Trust
One Boeing 777-222 Aircraft
----------------------------
- --------------------------------------------------------------------------------
As set forth in Section 20 hereof, Lessor has assigned to the Indenture
Trustee (as defined herein) certain of its right, title and interest in and to
this Lease. To the extent, if any, 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 created
through the transfer or possession of any counterpart other than the original
executed counterpart, which shall be identified as the counterpart containing
the receipt therefor executed by the Indenture Trustee on the signature page
thereof.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PAGE
----
SECTION 1. Definitions................................................... 1
SECTION 2. Acceptance and Lease.......................................... 17
SECTION 3. Term and Rent................................................. 17
(a) Interim Term and Basic Term........................... 17
(b) Basic Rent............................................ 17
(c) Adjustments to Basic Rent, Excess Amount, Stipulated
Loss Values, Termination Values, Special Termination
Value Percentages and the EBO Percentage.............. 17
(d) Supplemental Rent..................................... 20
(e) Payments in General................................... 20
(f) [Intentionally Reserved for Potential Future Use]..... 21
(g) Prepayments of Certain Rent Payments.................. 21
SECTION 4. Lessor's Representations and Warranties....................... 22
SECTION 5. Return of the Aircraft........................................ 23
(a) Condition Upon Return................................. 23
(b) Return of Other Engines............................... 27
(c) Fuel and Manuals...................................... 28
(d) Storage Upon Return................................... 28
(e) Purchase of Engine.................................... 29
(f) Severable Parts....................................... 29
(g) Special Redelivery Provision.......................... 29
SECTION 6. Liens......................................................... 30
SECTION 7. Registration, Maintenance and Operation; Possession and
Subleases; Insignia......................................... 30
(a) (1) Registration and Maintenance..................... 31
(2) Operation........................................ 32
(3) Reregistration................................... 33
(4) Operating Certificates........................... 33
(b) Possession and Subleases.............................. 33
(c) Insignia.............................................. 39
SECTION 8. Replacement and Pooling of Parts; Alterations, Modifications
and Additions............................................... 40
(a) Replacement of Parts.................................. 40
i
(b) Pooling of Parts...................................... 41
(c) Alterations, Modifications and Additions.............. 41
SECTION 9. Early Termination............................................. 43
(a) [Intentionally reserved for potential future use]..... 43
(b) Termination for Obsolescence/Surplus.................. 43
(c) Sale of the Aircraft.................................. 43
(d) Termination as to Engines............................. 46
SECTION 10. Loss, Destruction, Requisition, etc. ........................ 46
(a) Event of Loss with Respect to the Aircraft............ 46
(b) Event of Loss with Respect to an Engine............... 50
(c) Application of Payments from Governmental Authorities
for Requisition of Title, etc. ....................... 52
(d) Requisition for Use of the Aircraft by the United
States Government or Government of Registry of the
Aircraft.............................................. 53
(e) Requisition for Use of an Engine by the United States
Government or the Government of Registry of the
Aircraft.............................................. 54
(f) Application of Payments During Existence of Events of
Default............................................... 54
SECTION 11. Insurance.................................................... 55
(a) Public Liability and Property Damage Insurance........ 55
(b) Insurance Against Loss or Damage to the Aircraft...... 55
(c) Reports, etc.......................................... 57
(d) Self-Insurance........................................ 59
(e) Additional Insurance by Lessor and Lessee............. 59
(f) Indemnification by Government in Lieu of Insurance.... 60
(g) Application of Payments During Existence of Default... 60
(h) Terms of Insurance Policies........................... 60
SECTION 12. Inspection................................................... 61
SECTION 13. Assignment................................................... 63
SECTION 14. Events of Default............................................ 63
ii
SECTION 15. Remedies..................................................... 65
SECTION 16. Lessee's Cooperation Concerning Certain Matters.............. 69
SECTION 17. Notices...................................................... 71
SECTION 18. Net Lease; No Set-Off, Counterclaim, Etc..................... 72
SECTION 19. Renewal Options; Purchase Options; Valuation................. 74
(a) Renewal Options....................................... 74
(1) Fixed Renewal Terms.............................. 74
(2) Fair Market Renewal Term......................... 75
(3) Waiver........................................... 75
(4) Conditions Precedent, Payment of Basic Rent...... 75
(5) Termination Value; Stipulated Loss Value......... 76
(b) Purchase Options...................................... 76
(c) Valuation............................................. 77
SECTION 20. Security for Lessor's Obligation to Certificate Holders...... 78
SECTION 21. Lessor's Right to Perform for Lessee......................... 79
SECTION 22. Investment of Security Funds; Liability of Lessor Limited.... 80
(a) Investment of Security Funds.......................... 80
(b) Liability of Lessor Limited........................... 81
SECTION 23. Miscellaneous................................................ 81
SECTION 24. Successor Trustee............................................ 81
SECTION 25. Bankruptcy................................................... 82
iii
EXHIBITS
EXHIBIT A Form of Lease Supplement
EXHIBIT B Basic Rent and Excess Amount Schedule
EXHIBIT C Stipulated Loss Value Schedule
EXHIBIT D Termination Value Schedule
EXHIBIT E Rent Recalculation and Indemnification Verification
EXHIBIT F Schedule of Countries Authorized for Domicile of Permitted
Sublessees
EXHIBIT G Schedule of Countries Authorized for Aircraft Registration
EXHIBIT H Lessor's Cost, Engine Cost, Commencement Date, Lease Expiry
Date, Stipulated Loss Value Date, EBO Date, EBO Percentage,
Special Purchase Option Dates and Special Termination Value
Percentages
iv
LEASE AGREEMENT (1995 777 B)
This LEASE AGREEMENT (1995 777 B), dated as of May 1, 1995, between
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, not in its
individual capacity, except as expressly provided herein, but solely as Owner
Trustee under the Trust Agreement (as defined in Section 1 hereof) (in such
capacity, "Lessor"), and UNITED AIR LINES, INC., a corporation organized and
existing pursuant to the laws of the State of Delaware ("Lessee").
WITNESSETH:
SECTION 1. Definitions. Unless the context otherwise requires, the
following terms shall have the following meanings for all purposes of this Lease
Agreement and shall be equally applicable to both the singular and the plural
forms of the terms herein defined:
"Acceptable Alternate Engine" means a Pratt & Whitney Model PW4084
engine or an engine of the same or another manufacturer of equivalent or greater
value and utility, and suitable for installation and use on the Airframe;
provided that such engine shall be of the same make, model and manufacturer as
the other engine installed on the Airframe and shall be an engine of a type then
being utilized by Lessee on other Boeing 777-222 aircraft operated by Lessee and
shall have been maintained, serviced, repaired and overhauled in substantially
the same manner as Lessee maintains, services, repairs and overhauls similar
engines utilized by Lessee and without in any way discriminating against such
engine.
"Actual Knowledge" means, (i) as it applies to the Owner Trustee or
Indenture Trustee, as the case may be, actual knowledge of a responsible officer
in the Trust Office, and (ii) as it applies to the Owner Participant, actual
knowledge of a Vice President or more senior officer of the Owner Participant or
other officer of the Owner Participant in each case having responsibility for
the transactions contemplated by the Operative Documents; provided that each of
the Owner Trustee, the Indenture Trustee and the Owner Participant shall be
deemed to have "Actual Knowledge" of any matter as to which it has been given
notice by any of Lessee, the Owner Participant, any Certificate Holder, the
Owner Trustee or the Indenture Trustee, such notice having been given pursuant
to and in accordance with Section 13(a) of the Participation Agreement.
"Additional Insured" means Lessor, in its individual capacity and as
owner of the Aircraft, the Indenture Trustee, the
[Lease Agreement (1995 777 B)]
Owner Participant, Lessee in its capacity as sublessor under any Sublease, and,
so long as the Pass Through Trustees are Certificate Holders, each Pass Through
Trustee and each of their respective Affiliates, successors and permitted
assigns; and the respective directors, officers and employees of each of the
foregoing.
"Affiliate" means a Person (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under a common
control with, another Person, (ii) which beneficially owns or holds 10% or more
(by number of votes) of any class of voting securities of such other Person or
(iii) 10% or more (by number of votes) of the voting securities (or in the case
of a Person which is not a corporation, 10% or more of the equity interest) of
which is beneficially owned or held by such other Person or a Subsidiary. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Aircraft" means the Airframe together with the two Engines whether or
not such Engines are installed on the Airframe or any other airframe.
"Airframe" means: (i) The Boeing Company Model 777-222 aircraft
(excluding Engines or engines from time to time installed thereon) specified by
United States Registration Number and Manufacturer's serial number in the Lease
Supplement; (ii) any and all Parts which are from time to time incorporated or
installed in or attached thereto or which have been removed therefrom, but where
title to which remains vested in Lessor in accordance herewith; and (iii) any
replacement airframe which may from time to time be substituted pursuant to
Section 10(a)(ii) hereof.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended from
time to time.
"Base Rate" means the rate of interest announced from time to time by
The First National Bank of Chicago at its principal office in Chicago, Illinois
as its "corporate base rate" (or its equivalent successor rate if the corporate
base rate is no longer used).
"Basic Rent" means, for the Basic Term, the rent payable for the
Aircraft pursuant to Section 3(b) hereof, as adjusted as provided in Section
3(c) and, for a Renewal Term, Basic Rent determined pursuant to Section 19.
2
[Lease Agreement (1995 777 B)]
"Basic Term" means the term for which the Aircraft is leased hereunder
pursuant to Section 3(a) hereof beginning on the Commencement Date and ending on
the Lease Expiry Date or such earlier date as this Lease may be terminated in
accordance with the terms hereof.
"Business Day" means any day other than a Saturday or Sunday or a day
on which commercial banks are required or authorized to close in the City of
Chicago, Illinois; New York City, New York; the city and state in which the
principal place of business of the Owner Trustee is located; and, so long as any
Loan Certificate is outstanding, the city and state in which the Indenture
Trustee has its principal place of business and the city and state in which the
Indenture Trustee receives and disburses funds.
"Certificate Holder" has the meaning assigned to the term "Holder" in the
Trust Indenture.
"Certificated Air Carrier" means a Citizen of the United States
holding an air carrier operating certificate issued by the Secretary of
Transportation pursuant to Chapter 447 of Title 49 of the United States Code,
for aircraft capable of carrying ten or more individuals or 6,000 pounds or more
of cargo or that otherwise is certified or registered to the extent required to
fall within the purview of 11 U.S.C. Section 1110 or any analogous successor
provision of the Bankruptcy Code.
"Citizen of the United States" has the meaning given such term in
Section 40102(a)(15) of Title 49 of the United States Code.
"Civil Reserve Air Fleet Program" means the Civil Reserve Air Fleet
Program administered by the United States Government pursuant to Executive Order
No. 11490, as amended, or any substantially similar program.
"Code" means the Internal Revenue Code of 1986, as amended through the
Delivery Date.
"Commencement Date" means the date specified as such in Exhibit H hereto.
"Commitments" means the respective commitments of the Pass Through
Trustees and the Owner Participant to finance the Owner Trustee's payment of
Lessor's Cost for the Aircraft and "Commitment" means any one of the
Commitments.
"Consent and Agreement" means the Consent and Agreement (1995 777 B),
dated as of the date hereof, executed by the
3
[Lease Agreement (1995 777 B)]
Manufacturer, as the same may be amended, modified or supplemented from time to
time in accordance with the applicable provisions thereof.
"Debt Rate" means the weighted average interest rate borne by the Loan
Certificates then outstanding.
"Default" means any event which with the giving of notice or the lapse of
time or both would become an Event of Default.
"Delivery Date" means the date of the initial Lease Supplement for the
Aircraft, which date shall be the date the Aircraft is leased by Lessor to
Lessee and accepted by Lessee hereunder.
"Dollars" and "$" mean the lawful currency of the United States of America.
"EBO Date" means the date specified as such in Exhibit H hereto.
"EBO Percentage" means the percentage specified as such in Exhibit H
hereto.
"EBO Price" has the meaning set forth in Section 19(b)(2) hereof.
"Engine" means (i) each of the two Pratt & Whitney Model PW4084 engines
listed by manufacturer's serial numbers in the initial Lease Supplement and
installed on the Airframe at the time of the Manufacturer's delivery to Lessee
of such Airframe, and whether or not from time to time thereafter installed on
such Airframe or any other airframe; (ii) any Acceptable Alternate Engine which
may from time to time be substituted for any of such two engines pursuant to the
terms hereof; and (iii) in either case, any and all Parts which are from time to
time incorporated or installed in or attached to any such engine and any and all
parts removed therefrom so long as title thereto remains vested in Lessor in
accordance herewith. The term "Engines" means, as of any date of determination,
all Engines then leased hereunder.
"Engine Cost" means the amount specified as Engine Cost in Exhibit H
hereto.
"Event of Default" has the meaning specified in Section 14 hereof.
4
[Lease Agreement (1995 777 B)]
"Event of Loss" with respect to the Aircraft, Airframe or any Engine means
any of the following events with respect to such property: (i) the loss of such
property or of the use thereof due to the destruction of or damage to such
property which renders repair uneconomic or which renders such property
permanently unfit for normal use by Lessee for any reason whatsoever; (ii) any
damage to such property which results in an insurance settlement with respect to
such property on the basis of a total loss, or a constructive or compromised
total loss; (iii) the theft or disappearance of such property, or the
confiscation, condemnation, or seizure of, or requisition of title to, or use
of, such property by any governmental or purported governmental authority (other
than a requisition for use by the United States Government or any government of
registry of the Aircraft or any agency or instrumentality thereof), which in the
case of any event referred to in this clause (iii) shall have resulted in the
loss of title or possession of such property by Lessee for a period in excess of
90 consecutive days or, if earlier, until the end of the Term; (iv) as a result
of any law, rule, regulation, order or other action by the FAA or other
governmental body of the government of registry of the Aircraft having
jurisdiction, use of such property in the normal course of the business of air
transportation shall have been prohibited for a period in excess of 180
consecutive days, unless (A) such grounding is applicable to all Boeing 777-222
aircraft registered in such country, (B) Lessee, prior to the expiration of such
180 day period, shall have undertaken and shall be diligently carrying forward,
in a manner that does not discriminate against the Aircraft, all steps which are
necessary or desirable to permit the normal use of such property by Lessee, and
(C) Lessee, within one year from the time of grounding shall have conformed at
least one such aircraft in its fleet to the requirements of any such law, rule,
regulation, order or other action and commenced regular commercial use of the
same in such jurisdiction, provided that no such grounding shall extend beyond
the expiration of the Term; (v) the requisition for use by the United States
Government or any government of registry of the Aircraft or any instrumentality
or agency thereof, which shall have occurred during the Basic Term (or the
Interim Term or any Renewal Term) and shall have, in the case of any government
of registry of the Aircraft (other than the United States Government or any
agency or instrumentality thereof) or any agency or instrumentality thereof,
continued for more than two years (or if earlier, until the end of the Term),
and in the case of the United States Government or any agency or instrumentality
thereof shall have continued for a period that extends beyond the Term and
Lessor shall not have furnished the written notice specified in Section 10(d)
hereof; (vi) the operation of or location of the Aircraft, while under
requisition for use by any government, in any area excluded from coverage by any
insurance policy in effect
5
[Lease Agreement (1995 777 B)]
with respect to the Aircraft required by the terms of Section 11, unless in the
case of a requisition by the government of the United States or any agency or
instrumentality thereof, Lessee shall have obtained an indemnity in lieu thereof
from such government; and (vii) any divestiture of title to an Engine treated as
an Event of Loss pursuant to Section 7(b) hereof. 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.
"Excess Amount" for the Commencement Date means the amount determined
by multiplying Lessor's Cost by the percentage specified in Exhibit B hereto
opposite the Commencement Date (as such Exhibit B may be adjusted from time to
time as provided in Section 3(c) hereof).
"Excluded Payments" has the meaning set forth in the Trust Indenture.
"Expenses" means any and all liabilities, obligations, losses, damages,
penalties, claims (including, but not limited to, negligence, strict or absolute
liability, liability in tort and liabilities arising out of violation of laws or
regulatory requirements of any kind), actions, suits, costs, expenses and
disbursements (including reasonable legal fees and expenses and, to the extent
not required to be paid by the Owner Trustee pursuant to Section 16 of the
Participation Agreement, Transaction Expenses, and all costs and expenses
relating to amendments, supplements, waivers and consents to and under the
Operative Documents, any amounts that would be included in Premium, but
excluding internal costs and expenses such as salaries, and overhead of
whatsoever kind and nature).
"Fair Market Rental Value" means the fair market rental value determined as
provided in Section 19(c) hereof.
"Fair Market Sales Value" means the fair market sales value determined as
provided in Sections 19(a) and 19(c) hereof.
"Federal Aviation Act" means the sections of Title 49 of the United States
Code relating to aviation, as amended.
"Federal Aviation Administration" and "FAA" mean the United States
Federal Aviation Administration and any successor agency or agencies thereto.
"Indemnitees" means the Owner Participant, the Owner Trustee, in its
individual capacity and as trustee under the Trust Agreement, the Trust Estate,
the Trust Indenture Estate, the Indenture Trustee, in its individual capacity
and as trustee
6
[Lease Agreement (1995 777 B)]
under the Trust Indenture, each Pass Through Trustee (so long as the Pass
Through Trustees are Certificate Holders), and each of their respective
Affiliates, successors, permitted assigns, directors, officers, employees,
servants and agents.
"Indenture Trustee" has the meaning set forth in the Trust Indenture.
"Indenture Trustee Documents" means the Participation Agreement, the
Trust Indenture, each Pass Through Trust Agreement, each Pass Through Trust
Supplement, each Loan Certificate and each Pass Through Certificate and any
other document executed by the Indenture Trustee or the Pass Through Trustee in
connection with the transactions contemplated by the Operative Documents.
"Interim Term" means the period commencing on the Delivery Date and
ending on and including the day immediately preceding the Commencement Date,
unless earlier terminated in accordance with the provisions hereof.
"Lease Agreement", "this Lease Agreement", "this Lease", "this
Agreement", "herein", "hereof", "hereunder", "hereby", or other like words mean
this Lease Agreement as originally executed or as modified, amended or
supplemented in accordance with the applicable provisions hereof and the terms
of the Trust Indenture, including, without limitation, supplementation hereof by
any Lease Supplement entered into in accordance with the applicable provisions
hereof and the terms of the Trust Indenture.
"Lease Expiry Date" means the date specified as such in Exhibit H.
"Lease Period" means each of the consecutive semi-annual periods
throughout the Basic Term and any Renewal Term ending on a Lease Period Date,
the first such period commencing on and including the Commencement Date.
"Lease Period Date" means April 19, 1996 and each succeeding semi-
annual anniversary thereof to and including the last such date in the Term.
"Lease Supplement" means a Lease Supplement (1995 777 B), substantially in
the form of Exhibit A hereto, to be entered into between Lessor and Lessee on
the Delivery Date for the purpose of leasing the Aircraft under and pursuant to
the terms of this Lease Agreement, and any subsequent Lease Supplement entered
into in accordance with the terms hereof and the terms of the Trust Indenture.
7
[Lease Agreement (1995 777 B)]
"Lessee Documents" means the Participation Agreement, the Lease, any
Lease Supplement, the Purchase Agreement, the Owner Trustee's Purchase
Agreement, the Owner Trustee's FAA Bill of Sale, the Owner Trustee's Bill of
Sale, the Tax Indemnity Agreement, each Pass Through Trust Agreement, each Pass
Through Trust Agreement Supplement and any other document executed by Lessee in
connection with the transactions contemplated by the Operative Documents.
"Lessor Liens" means any Lien on, or disposition of title to, the Aircraft
or the Trust Estate arising as a result of (i) claims against Lessor, State
Street Bank and Trust Company, in its individual capacity, or the Owner
Participant not related to the transactions contemplated by the Operative
Documents, (ii) any act or omission of the Owner Participant, Lessor, or State
Street Bank and Trust Company, in its individual capacity, 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, (iii) claims against the Owner
Participant, Lessor, or State Street Bank and Trust Company, in its individual
capacity, with respect to Taxes or Expenses against which Lessee is not required
to indemnify the Owner Participant, Lessor or State Street Bank and Trust
Company, in its individual capacity or (iv) claims against Lessor or the Owner
Participant arising out of any transfer by Lessor or the Owner Participant of
all or any portion of the respective interests of Lessor or the Owner
Participant in the Aircraft, the Trust Estate or the Operative Documents (other
than a transfer of possession of the Aircraft by Lessor pursuant to this
Agreement, a transfer pursuant to the Trust Indenture (other than a transfer
pursuant to Article 8 of the Trust Indenture not attributable to a Lease Event
of Default) or a transfer pursuant to Section 7, 8, 9, 10 or 19 hereof, pursuant
to Section 17 of the Participation Agreement or pursuant to the exercise of the
remedies set forth in Section 15 hereof); provided, however, that any Lien which
is attributable solely to State Street Bank and Trust Company or the Owner
Participant and would otherwise constitute a Lessor Lien hereunder shall not
constitute a Lessor Lien hereunder so long as (1) the existence of such Lien
poses no material risk of the sale, forfeiture or loss of the Airframe or any
Engine or any interest therein, (2) the existence of such Lien does not
interfere in any way with the use or operation of the Aircraft by Lessee (or any
Sublessee), (3) the existence of such Lien does not affect the priority or
perfection of, or otherwise jeopardize, the Lien of the Trust Indenture, (4)
State Street Bank and Trust Company or the Owner Participant, as the case may
be, is diligently contesting such Lien by appropriate proceeding and (5) the
existence of such Lien does not result in actual interruption in the payment of
Rent assigned to the Indenture Trustee for the benefit of the Certificate
Holders.
8
[Lease Agreement (1995 777 B)]
"Lessor's Cost" for the Aircraft means the amount specified as Lessor's
Cost in Exhibit H hereto; provided, however, Lessor's Cost shall be reduced by
Engine Cost for each Engine for which Lessee has paid Stipulated Loss Value
pursuant to the terms of Section 10(b) hereof and has otherwise paid all other
amounts due and payable under said Section 10(b).
"Lien" means any mortgage, pledge, lien, charge, claim, encumbrance, lease
or security interest.
"Loan Certificate" has the meaning assigned to the term "Certificate" in
the Trust Indenture.
"Loss Payment Date" has the meaning set forth in Section 10(a) hereof.
"Manufacturer" means The Boeing Company, a Delaware corporation, and its
subsidiaries, successors and assigns.
"Manufacturer Documents" means the Purchase Agreement, the Consent and
Agreement and any other document executed by the Manufacturer in connection with
the transactions contemplated by the Operative Documents.
"Net Economic Return" means the Owner Participant's net after-tax book
yield, aggregate after-tax cash flow and, with respect to any adjustments
required to maintain the Owner Participant's Net Economic Return, periodic FASB
13 earnings plus or minus 5% for any annual period, utilizing the multiple
investment sinking fund method of analysis, computed on the basis of the same
methodology and assumptions as were utilized by the Owner Participant in
determining Basic Rent, Stipulated Loss Value percentages, Special Termination
Value Percentages, EBO Percentage and Termination Value percentages as of the
Delivery Date, as such assumptions may be revised from time to time for events
which have been the basis for adjustments to Rent pursuant to Section 3(c)
hereof, provided that under no circumstances shall there be a reduction in Owner
Participant's 1995 FASB 13 earnings.
"Net Present Value of Rents" means the net present value, as of the
Delivery Date, of Basic Rent set forth in Exhibit B hereto, discounted at a rate
per Lease Period equal to (a) 11% per annum divided by (b) the number of Lease
Periods per year.
"Operative Documents" means the Lease (including any Lease Supplement); the
Participation Agreement; the Tax Indemnity Agreement; the Trust Agreement; any
Trust Supplement; the Purchase Agreement; the Owner Trustee's Bill of Sale; the
Owner
9
[Lease Agreement (1995 777 B)]
Trustee's FAA Bill of Sale; the Owner Trustee's Purchase Agreement; an
acceptance certificate covering the Aircraft in the form agreed to by the
Participants and Lessee (the "Acceptance Certificate"); the Trust Indenture; the
Loan Certificates outstanding at the time of reference; and the Consent and
Agreement.
"Original Amount", with respect to a Loan Certificate, means at any
time prior to the Commencement Date, the Original Issue Price (as defined in the
Trust Indenture) of such Loan Certificate, or, at any time on or after the
Commencement Date, the stated original principal amount of such Loan
Certificate, and with respect to all Loan Certificates means, at any time prior
to the Commencement Date, the aggregate Original Issue Prices for such Loan
Certificates or, at any time on or after the Commencement Date, the aggregate
stated original principal amounts of such Loan Certificates.
"Owner Participant" means the Person executing the Participation
Agreement as the Owner Participant and any Person to which such Person transfers
all or any portion of its right, title and interest in and to the Trust
Agreement, the Trust Estate and the Participation Agreement, to the extent
permitted thereby.
"Owner Participant Documents" means the Participation Agreement, the
Trust Agreement, the Tax Indemnity Agreement and any other document executed by
the Owner Participant in connection with the transactions contemplated by the
Operative Documents.
"Owner Participant Parent" means _________________, a Delaware corporation.
"Owner Participant Parent Guaranty" means the guaranty, dated the
Delivery Date, by the Owner Participant Parent in favor of Lessee, the Pass
Through Trustees, and certain other parties, of certain obligations of the Owner
Participant, as the same may be amended or modified in compliance with the
provisions thereof.
"Owner Trustee" means the Person executing the Participation Agreement
as Owner Trustee and any Person appointed as successor Owner Trustee in each
case not in its individual capacity but solely as Owner Trustee under the Trust
Agreement, except as otherwise expressly stated.
"Owner Trustee Documents" means the Participation Agreement, the Trust
Agreement, this Lease, any Lease Supplement, the Owner Trustee's Purchase
Agreement, the Trust Indenture, any Trust Supplement, the Loan Certificates and
any other document
10
[Lease Agreement (1995 777 B)]
executed by the Owner Trustee in connection with the transactions contemplated
by the Operative Documents.
"Owner Trustee's Bill of Sale" means a bill of sale for the Aircraft,
dated the Delivery Date, executed by Lessee in favor of Lessor in form and
substance satisfactory to Lessor.
"Owner Trustee's FAA Bill of Sale" means a bill of sale for the Aircraft on
AC Form 8050-2 or such other form as may be approved by the FAA on the Delivery
Date executed by Lessee in favor of Lessor in form and substance satisfactory to
Lessor.
"Owner Trustee's Purchase Agreement" means the Owner Trustee's
Purchase Agreement and Assignment (1995 777 B), dated as of the date hereof,
between Lessee and the Owner Trustee, as the same may be amended, modified or
supplemented from time to time in accordance with the applicable provisions
thereof and the terms of the Trust Indenture.
"Participants" means and includes the Pass Through Trustees and the Owner
Participant.
"Participation Agreement" means that certain Participation Agreement
(1995 777 B), dated as of the date hereof, among Lessee, the Indenture Trustee,
the Owner Participant, the Pass Through Trustees and the Owner Trustee, as such
Participation Agreement may be amended or supplemented from time to time
pursuant to the applicable provisions thereof.
"Parts" means all appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature other than
complete Engines or engines, which are from time to time incorporated or
installed in or attached to an Airframe or any Engine or which have been removed
therefrom, but where title to which remains vested in Lessor in accordance with
Section 8 hereof.
"Pass Through Certificates" has the meaning set forth in the Trust
Indenture.
"Pass Through Trust Agreements" means the Pass Through Trust Agreement
dated as of February 1, 1992, as amended and restated as of May 1, 1995, in each
case between the Lessee and State Street Bank and Trust Company of Connecticut,
National Association, as supplemented by each of the two Pass Through Trust
Supplements, in each case between the Lessee and the Pass Through Trustee, and
as the same may be further modified, amended or supplemented pursuant to the
applicable provisions thereof and the Participation Agreement.
11
[Lease Agreement (1995 777 B)]
"Pass Through Trustee" shall mean First Security Bank of Utah, National
Association, a national banking association, in its capacity as Trustee under
each Pass Through Trust Agreement, and each other Person which may from time to
time be acting as successor trustee under any such Pass Through Trust Agreement.
"Pass Through Trust Supplement" means each of the two separate Trust
Supplements Nos. 1995-A1 and 1995-A2, in each case dated as of May __, 1995
between Lessee and the Pass Through Trustee.
"Past Due Rate" means (i) with respect to the portion of any payment of
Rent that may be required by the Trust Indenture to be paid by the Indenture
Trustee to any Certificate Holder, the "Past Due Rate" as defined in the Trust
Indenture and (ii) with respect to the remaining portion of any payment of Rent
(and the entire amount of any payment of Rent after the satisfaction and
discharge of the Trust Indenture), a fluctuating rate per annum equal to 2% over
the Debt Rate.
"Permitted Lien" means any Lien referred to in clauses (i) through (vi) of
Section 6 hereof.
"Permitted Sublessee" means any air carrier domiciled in a country listed
in Exhibit F hereto as in effect from time to time.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Premium" has the meaning assigned to the term in Section 6.01(b) of the
Trust Indenture.
"Prepaid Rent" has the meaning set forth in Section 3(g) hereof.
"Purchase Agreement" means the agreement between Lessee and the
Manufacturer relating to the purchase by Lessee of the Aircraft, as originally
executed or as modified, amended or supplemented in accordance with the terms
thereof, but only insofar as the foregoing relates to the Aircraft.
"Redemption Date" has the meaning set forth in the Trust Indenture.
"Reimbursement Amount" has the meaning set forth in Section 3(g) hereof.
12
[Lease Agreement (1995 777 B)]
"Renewal Term" means the Fair Market Renewal Term or a Fixed Renewal Term
as those terms are defined in Section 19 hereof.
"Rent" means Basic Rent and Supplemental Rent, collectively.
"Replacement Airframe" means any airframe substituted for an airframe in
accordance with Sections 10(a) of the Lease.
"Replacement Engine" means any engine substituted for an Engine in
accordance with Sections 9(d), 10(a) or 10(b) of the Lease.
"Restricted Country" has the meaning set forth on Exhibits F and G hereto.
"Restricted Period" means the period ending on the last open day of the
calendar year in which there occurs the seventh anniversary of the Delivery
Date.
"Special Purchase Option Dates" means each of the dates specified as such
on Exhibit H hereto.
"Special Termination Value", with respect to any Special Purchase Option
Date, has the meaning set forth in Section 19(b)(1) hereof.
"Special Termination Value Percentage" means, with respect to any Special
Purchase Option Date, the percentage set forth opposite such Date on Exhibit H
hereto.
"Stipulated Loss Value" with respect to the Aircraft as of any date through
and including the last day of the Basic Term, means the amount determined by
multiplying Lessor's Cost for the Aircraft by the percentage specified in
Exhibit C hereto opposite the Stipulated Loss Value Date with respect to which
the amount of Stipulated Loss Value is determined (as such Exhibit C may be
adjusted from time to time as provided in Section 3(c) hereof and in Section 8
of the Tax Indemnity Agreement). "Stipulated Loss Value" with respect to the
Aircraft, as of any date during any Renewal Term, shall be the amount determined
as provided in Section 19 hereof. To the extent that an event giving rise to an
obligation to pay any Stipulated Loss Value occurs (with respect to the Airframe
or either Engine), 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
13
[Lease Agreement (1995 777 B)]
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.
"Stipulated Loss Value Date" has the meaning specified therefore in Exhibit
H hereto.
"Sublease" means any sublease permitted by the terms of Section 7(b)(viii)
hereof.
"Sublessee" means any Person for so long, but only so long, as such Person
is in possession of the Airframe and or any Engine pursuant to the terms of a
Sublease which is then in effect pursuant to Section 7(b)(viii) hereof.
"Subsidiary" means, with respect to any Person that is a corporation, any
other corporation a majority of the voting securities of which are owned by such
person, whether directly or indirectly.
"Supplemental Rent" means all amounts, liabilities and obligations (other
than Basic Rent) which Lessee assumes or agrees to pay to Lessor or others
hereunder or under any of the other Operative Documents, including payments of
Stipulated Loss Value and Termination Value and amounts calculated by reference
thereto, an amount equal to the Premium, if any, payable in accordance with
Section 3(d) hereof and indemnity payments. The parties acknowledge that
Supplemental Rent is a general category and, accordingly, agree that any
provision of any Operative Document which calls for the payment of Supplemental
Rent and also calls for the payment of specific items which are includable in
Supplemental Rent is not to be interpreted as requiring any double payment.
"Tax Indemnity Agreement" means that certain Tax Indemnity Agreement (1995
777 B), dated as of the date hereof, between the Owner Participant and Lessee,
as originally executed or as modified, amended or supplemented pursuant to the
applicable provisions thereof.
"Taxes" means any and all fees (including, without limitation, license,
documentation and registration fees), taxes (including, without limitation,
income, gross receipts, sales, rental, use, turnover, value added, property
(tangible and intangible), excise and stamp taxes), licenses, levies, imposts,
duties, recording charges or fees, charges, assessments, or withholdings of any
nature whatsoever, together with any assessments, penalties, fines, additions to
tax and interest thereon (each, individually, a "Tax").
14
[Lease Agreement (1995 777 B)]
"Term" means the Interim Term, Basic Term and, if actually entered into,
any Renewal Term.
"Termination Date" has the meaning set forth in Section 9(b) hereof.
"Termination Value" with respect to the Aircraft as of any date through and
including the last day of the Basic Term means the amount determined by
multiplying Lessor's Cost for the Aircraft by the percentage specified in
Exhibit D hereto opposite the Termination Date with respect to which the amount
of Termination Value is determined (as such Exhibit D may be adjusted from time
to time as provided in Section 3(c) hereof and in Section 8 of the Tax Indemnity
Agreement). To the extent that an event giving rise to an obligation to pay any
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.
"Transaction Expenses" means (i) the reasonable and actual fees, expenses
and disbursements of (1) Ray, Quinney & Nebeker, special counsel for the
Indenture Trustee and the Pass Through Trustee, (2) Bingham, Dana & Gould,
counsel for the Owner Trustee, (3) Crowe & Dunlevy, P.C., special counsel in
Oklahoma City, Oklahoma, (4) Shearman & Sterling, special counsel for the
underwriters (to the extent not payable by the underwriters), (5) Vedder, Price,
Kaufman & Kammholz, special counsel for Lessee, and (6) Dewey Ballantine,
special counsel for the Owner Participant, (ii) all fees, taxes and other
charges payable in connection with the recording or filing of instruments and
financing statements, (iii) the initial fee and reasonable and actual
disbursements of the Owner Trustee under the Trust Agreement, (iv) the initial
fee and reasonable and actual disbursements of the Indenture Trustee under the
Trust Indenture, (v) the fee of BK Associates (or of such other appraiser as
shall be selected by the Owner Participant) with respect to the appraisal of the
Aircraft required on or before the Delivery Date pursuant to Section 4(a) of the
Participation Agreement, (vi) the fees, commissions and expenses of Capstar
Partners, Inc., (vii) the reasonable out-of-pocket expenses of the Owner
Participant relating to the transactions contemplated by the Participation
Agreement including, without limitation, the expenses related to the
organization of the foreign sales corporation, as well as those transactions
relating to the investment by the Owner Participant in the second quarter of
1995 in one Boeing 777-222
15
[Lease Agreement (1995 777 B)]
aircraft to be operated by the Lessee up to an aggregate of $25,000 (but
excluding from Transaction Expenses airfare charges incurred for travel on an
airline other than United Air Lines, unless such travel is necessitated by the
foreign sales corporation structure to the extent that United Air Lines does not
offer regularly scheduled flights directly from New York to such foreign
location where negotiations with respect to the transactions will be conducted
for purposes of the foreign sales corporation nature of the transactions) plus
airfare charges incurred for travel on United Air Lines, (viii) the placement or
underwriting fees, commissions and expenses, if any, in placing the debt
contemplated by the Participation Agreement and all costs and expenses
associated with the public offering pursuant thereto and the actual expenses of
each Pass Through Trustee under its respective Pass Through Trust Agreement and
(ix) printing and distribution costs.
"Trust Agreement" means that certain Trust Agreement (1995 777 B), dated as
of the date hereof, between the Owner Participant and State Street Bank and
Trust Company, in its individual capacity, as originally executed or as
modified, amended or supplemented in accordance with the applicable provisions
thereof and the terms of the Trust Indenture, including, without limitation, any
Trust Supplement entered into pursuant to the applicable provisions thereof.
"Trust Estate" has the meaning set forth in the Trust Agreement.
"Trust Indenture" means that certain Trust Indenture and Mortgage (1995 777
B), dated as of the date hereof, between Lessor and the Indenture Trustee, as
originally executed or as modified, amended or supplemented in accordance with
the provisions thereof and the terms of the Participation Agreement, including,
without limitation, any Trust Supplement entered into pursuant to the applicable
provisions thereof.
"Trust Indenture Estate" has the meaning assigned to the term "Indenture
Estate" in the Trust Indenture.
"Trust Office" has the meaning set forth in the Trust Indenture.
"Trust Supplement" means a supplement to the Trust Agreement and the Trust
Indenture, substantially in the form of Exhibit A to the Trust Agreement.
"U.S. Air Carrier" means any United States air carrier as to which there is
in force a certificate issued pursuant to Section 44102 of the Federal Aviation
Act, and as to which there
16
[Lease Agreement (1995 777 B)]
is in force an air carrier operating certificate issued pursuant to Part 121 of
the regulations under such Act, or which may operate as an air carrier by
certification or otherwise under any successor or substitute provisions therefor
or in the absence thereof.
"Wet Lease" means any arrangement whereby Lessee agrees to furnish the
Airframe and Engines or engines installed thereon to a third party pursuant to
which such Airframe and Engines or engines (i) shall be operated solely by
regular employees of Lessee possessing all current certificates and licenses
that would be required under the Federal Aviation Act (or if the Aircraft is not
registered in the United States, all certificates and licenses required by the
laws of the jurisdiction of registry) for the performance by such employees of
similar functions within the United States of America (or such jurisdiction of
registry) (it is understood that cabin attendants need not be employees of
Lessee) and (ii) shall be maintained by Lessee in accordance with its normal
maintenance practices.
SECTION 2. Acceptance and Lease. Lessor hereby agrees to accept from
the Lessee the transfer of title to and simultaneously to lease to Lessee
hereunder, and Lessee hereby agrees to lease on the Delivery Date from Lessor
hereunder, the Aircraft as evidenced by the execution by Lessor and Lessee of a
Lease Supplement leasing the Aircraft hereunder. Lessee agrees that Lessor will
authorize one or more employees of Lessee, designated by Lessee in writing, as
the authorized representative or representatives of Lessor to accept delivery of
the Aircraft. Lessee hereby agrees that in the event delivery of the Aircraft
shall be accepted by an employee or employees of Lessee pursuant to such
authorization by Lessor, such acceptance of delivery by such employee or
employees on behalf of Lessor shall, without further act, irrevocably constitute
acceptance by Lessee of the Aircraft for all purposes of this Lease.
SECTION 3. Term and Rent. (a) Interim Term and Basic Term. The
Interim Term shall commence on the Delivery Date and end on and include the day
immediately preceding the Commencement Date unless earlier terminated pursuant
to the provisions hereof. The Basic Term shall commence on the Commencement
Date and end on the Lease Expiry Date or such earlier date as this Lease may be
terminated in accordance with the provisions hereof.
(b) Basic Rent. Lessee shall pay Basic Rent in Dollars with respect
to each Lease Period during the Basic Term on each Lease Period Date during the
Basic Term, in the respective amounts for each Lease Period Date determined in
accordance with Exhibit B hereto.
17
[Lease Agreement (1995 777 B)]
(c) Adjustments to Basic Rent, Excess Amount, Stipulated Loss Values,
Termination Values, Special Termination Value Percentages and the EBO
Percentage.
(i) In the event that (A) Transaction Expenses paid by Lessor are
determined to be other than __% of Lessor's Cost, (B) there shall be an
optional redemption or a refinancing or a refunding of the Loan
Certificates in accordance with Section 17 of the Participation Agreement,
(C) the Delivery Date occurs other than on May 15, 1995, or (D) there is an
optimization in accordance with Section 18 of the Participation Agreement;
then in each case the Basic Rent and Excess Amount set forth in Exhibit B,
the Stipulated Loss Value percentages set forth in Exhibit C, the
Termination Value percentages set forth in Exhibit D, and the EBO
Percentage and the Special Termination Value Percentages set forth in
Exhibit H shall be adjusted (upwards or downwards as the case may be) using
the same methods and assumptions (as modified on account of the occurrence
of any of the events referred to in clauses (A)-(D)) used to calculate the
Basic Rent and Excess Amount, the Stipulated Loss Value percentages, the
Termination Value percentages and the EBO Percentage and the Special
Termination Value Percentages set forth in Exhibits B, C, D and H,
respectively, in each case in compliance with clauses (iv) and (v) of this
paragraph (c) and in order to: (1) maintain the Owner Participant's Net
Economic Return and (2) minimize the Net Present Value of Rents to Lessee
to the extent possible consistent with clause (1) hereof; provided,
however, in no event will the EBO Price be adjusted below the greatest of
(i) the Termination Value for the Aircraft as of the EBO Date, (ii) __% of
Lessor's Cost (i.e., the fair market value of the Aircraft as of the EBO
Date as the same was determined on the Delivery Date) and (iii) __%
multiplied by the present value as of the EBO Date of (x) the remaining
Basic Rent plus (y) __% of Lessor's Cost (i.e., the fair market value of
the Aircraft as of the end of the Term as the same was determined on the
Delivery Date) (the present value calculation described in this clause
(iii) shall utilize a semi-annual discount rate that on a compound basis is
equal to ___% per annum).
(ii) [Intentionally reserved for potential future use.]
(iii) Any recalculation of Basic Rent and Excess Amount,
Stipulated Loss Value percentages, Termination Value percentages, EBO
Percentage and Special Termination Value Percentages pursuant to this
Section 3(c) (or pursuant to the definition of Stipulated Loss Value or
Termination
18
[Lease Agreement (1995 777 B)]
Value) shall be determined by the Owner Participant and shall be subject to
the verification procedures set forth in Exhibit E hereto. Such
recalculated Basic Rent and Excess Amount, Stipulated Loss Value
percentages, Termination Value percentages, EBO Percentage and Special
Termination Value Percentages shall be set forth in an amendment hereto.
(iv) Anything contained in the Participation Agreement or this
Lease to the contrary notwithstanding, each installment of Basic Rent
payable hereunder, whether or not adjusted in accordance with this Section
3(c), together with the amount of Excess Amount and Supplemental Rent, if
any, in respect of the date on which such installment is payable, and each
payment of Termination Value, Stipulated Loss Value, EBO Price and Special
Termination Value whether or not adjusted in accordance with this Section
3(c) or Section 8 of the Tax Indemnity Agreement, and all other amounts
(excluding Excluded Payments payable simultaneously by Lessee pursuant to
this Lease), in each case, on the date on which such payment is due, shall
be in an amount at least sufficient to pay in full, and shall be available
to be applied by Lessor in payment on account of, any payments then
required to be made on account of the principal amount (and Premium, if
any) of and interest on the Loan Certificates then outstanding. It is
agreed that no installment of Basic Rent or payment of Excess Amount,
Termination Value, Stipulated Loss Value, Special Termination Value or EBO
Price, shall be increased or adjusted by reason of (A) any attachment or
diversion of Rent on account of (x) Lessor Liens (including for this
purpose Liens that would be Lessor Liens but for the proviso to the
definition of Lessor Liens) or (y) any other Lien on or against the Trust
Estate, any part thereof or the Operative Documents arising as a result of
claims against the Indenture Trustee or a Certificate Holder, not related
to the transactions contemplated by the Operative Documents, (B) any
modification of the payment terms of the Loan Certificates made without the
prior written consent of Lessee, or (C) the acceleration of any Loan
Certificate due to the occurrence of an "Event of Default" (as defined in
the Trust Indenture) which does not constitute an Event of Default
hereunder.
(v) All adjustments to Basic Rent under this Section 3(c) shall
be consistent with the requirements of Sections 4.02(5), 4.07(1) and (2)
and Section 4.08(1) of Rev. Proc. 75-28 (provided that the requirements of
Section 4.08(1) shall apply on a prospective basis), as modified and in
effect on the Delivery Date, and shall not cause the Lease to be a
"disqualified leaseback or long-term
19
[Lease Agreement (1995 777 B)]
agreement" within the meaning of Section 467 of the Code as then in effect
and any final, temporary or proposed regulations thereunder or any
administrative or judicial interpretation thereof in effect on the date of
such adjustment (a "Section 467 Agreement") (it being understood that any
such adjustment shall not be treated as causing the Lease to be a Section
467 Agreement to the extent the Lease would have been a Section 467
Agreement if no such adjustment to Basic Rent had occurred).
(d) Supplemental Rent. Lessee shall pay (or cause to be paid) promptly to
Lessor, or to whomsoever shall be entitled thereto, any and all Supplemental
Rent constituting Stipulated Loss Value, Termination Value, EBO Price and
Special Termination Values as the same shall become due and owing and all other
amounts of Supplemental Rent within five Business Days after demand or on such
date, or within such other relevant period, as may be provided in any Operative
Document, and in the event of any failure on the part of Lessee to pay any
Supplemental Rent when due, Lessor shall have all rights, powers and remedies
provided for herein or in any other Operative Document or by law or equity or
otherwise in the case of nonpayment of Basic Rent. Lessee shall also pay on
behalf of Lessor as Supplemental Rent an amount equal to any amount payable by
Lessor as Premium as and when any such Premium shall be due and payable;
provided, however, that Lessee shall have no obligation to pay on behalf of
Lessor any Premium payable under Section 6.01 or 6.02 of the Trust Indenture due
to the occurrence of an "Event of Default" (as defined in the Trust Indenture)
which does not constitute an Event of Default hereunder. Lessee also will pay to
Lessor, or on behalf of Lessor to whomsoever shall be entitled thereto, on
demand, as Supplemental Rent, to the extent permitted by applicable law,
interest at the Past Due Rate with respect to any part of any installment of
Basic Rent not paid prior to 11:00 a.m., New York City time, on the date when
due for any period for which the same shall be overdue and on any payment of
Supplemental Rent not paid prior to 11:00 a.m., New York City time, on the date
when due for the period until the same shall be paid.
(e) Payments in General. All payments of Rent other than Excluded
Payments payable to Lessor shall be made directly by Lessee by wire transfer of
immediately available funds prior to 11:00 a.m., New York time, on the date of
payment in Dollars, to Lessor at its office at 225 Franklin Street, Boston,
Massachusetts 02110, Attention: _________________________ (or such other office
of Lessor in the continental United States or such other account as Lessor shall
direct in a notice to Lessee at least 10 Business Days prior to the date such
payment of Rent is due); provided, that so long as the Trust Indenture shall not
20
[Lease Agreement (1995 777 B)]
have been fully discharged, Lessor hereby directs and Lessee agrees, that all
Basic Rent shall be paid directly to the Indenture Trustee at the times and in
funds specified in this Section 3(e) at the offices of the Indenture Trustee at
Two International Place, Boston, MA 02110, Attention: Corporate Trust Department
(or such other office of Indenture Trustee in the continental United States or
such other account as Indenture Trustee shall direct in a notice to Lessee at
least 10 Business Days prior to the date such payment of Basic Rent is due).
Excluded Payments shall be paid in Dollars in immediately available funds to the
Person to whom payable at the address of such Person specified in Schedule I of
the Participation Agreement.
Notwithstanding anything to the contrary contained herein, if any date
on which a payment of Rent becomes due and payable is not a Business Day then
such payment shall be made on the next succeeding Business Day and no interest
shall accrue on the amount of such payment, if such payment is made on such next
succeeding Business Day.
(f) [Intentionally Reserved for Potential Future Use].
-----------------------------------------------
(g) Prepayments of Certain Rent Payments. Lessor agrees to pay, on
behalf of the Owner Participant, to the Indenture Trustee for the account of the
Certificate Holders on the Commencement Date an amount equal to the Excess
Amount. To the extent, if any, that there shall not have been received by the
Indenture Trustee at the account of the Indenture Trustee referred to in Section
3(e) by 11:00 a.m., New York City time, on the Commencement Date from Lessor, an
amount equal to the Excess Amount payable for such date, Lessee shall advance to
Lessor, as Prepaid Rent, by paying to the Indenture Trustee on behalf of Lessor
on the Commencement Date an amount equal to the Excess Amount not so paid (such
amount being herein called "Prepaid Rent"); provided that Lessee will also pay
to the Indenture Trustee, on demand, as Supplemental Rent, to the extent
permitted by applicable law, interest at the Debt Rate on any Prepaid Rent not
paid when due for any period for which the same shall be overdue. Lessor agrees
to reimburse Lessee in the manner and subject to the conditions provided in the
following sentence for (x) the Prepaid Rent so paid by Lessee determined as of
the date such payment was made, plus (y) the Supplemental Rent so paid by Lessee
pursuant to this Section 3(g), plus (z) accrued interest on the unreimbursed
portion thereof at a rate per annum equal to the greater of the Base Rate plus
2% or the Debt Rate plus 2% from the date such amount is paid by Lessee to but
not including the date of each such reimbursement (such amounts to be reimbursed
being herein called the "Reimbursement Amount"). So
21
[Lease Agreement (1995 777 B)]
long as no Default or Event of Default has occurred and is continuing, Lessee
may with written notice to the Owner Participant and Indenture Trustee offset
(without duplication) against each succeeding payment (other than as limited by
the proviso to this sentence) due from Lessee to Lessor in respect of Basic
Rent, Stipulated Loss Value, Termination Value or any other amount due hereunder
to Lessor, until Lessee has been fully reimbursed for the Reimbursement Amount;
provided, however, that in the case of any payment due from Lessee which is
distributable under the terms of the Trust Indenture, Lessee's right of offset
shall be limited to amounts distributable to Lessor or the Owner Participant
thereunder. No such offset or aggregate combined effect of separate offsets
shall reduce the amount of any installment of Basic Rent to an amount
insufficient, together with all other amounts payable simultaneously by Lessee,
to pay in full the payments then required to be made on account of the principal
amount (and Premium, if any) of and interest on the Loan Certificates then
outstanding.
SECTION 4. Lessor's Representations and Warranties. LESSOR LEASES AND
LESSEE TAKES THE AIRCRAFT "AS-IS, WHERE-IS." LESSEE ACKNOWLEDGES AND AGREES THAT
AS BETWEEN LESSOR, ANY PARTICIPANT, THE INDENTURE TRUSTEE, AND LESSEE (A) THE
AIRFRAME AND EACH ENGINE IS OF SIZE, DESIGN, CAPACITY AND MANUFACTURE SELECTED
BY AND ACCEPTABLE TO LESSEE, (B) LESSEE IS SATISFIED THAT THE AIRFRAME AND EACH
ENGINE IS SUITABLE FOR ITS PURPOSES, (C) NEITHER LESSOR NOR OWNER PARTICIPANT IS
A MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND, AND (D) NEITHER LESSOR, IN
ITS INDIVIDUAL CAPACITY OR AS OWNER TRUSTEE, THE INDENTURE TRUSTEE NOR THE OWNER
PARTICIPANT MAKES, HAS MADE OR SHALL BE DEEMED TO HAVE MADE, AND EACH WILL BE
DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION, DESIGN, OPERATION, VALUE,
MERCHANTABILITY OR FITNESS FOR USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT OR
ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR
COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT,
OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, except as set forth in Sections
8(f)(vi) and 8(p)(ii) of the Participation Agreement as to Lessor Liens and
except that State Street Bank and Trust Company, in its individual capacity, (i)
represents and warrants that on the Delivery Date, Lessor shall have received
whatever title to the Aircraft was conveyed to it by Lessee, (ii) represents and
warrants that on the Delivery Date the Aircraft shall be free of Lessor Liens
(including for this purpose Liens that would be Lessor Liens but for the proviso
to the definition of Lessor Liens) attributable to it in its individual
capacity, (iii) covenants that it will not, through its own actions or
22
[Lease Agreement (1995 777 B)]
inactions, in such capacity, interfere in Lessee's or any Sublessee's quiet
enjoyment, use, operation or possession of the Aircraft unless this Lease shall
have been declared in default pursuant to Section 15 hereof, (iv) agrees that it
will not directly or indirectly create, incur, assume or suffer to exist any
Lessor Lien attributable to it in its individual capacity on or with respect to
the Airframe or any Engine or any portion of the Trust Estate and (v) represents
and warrants that it is a Citizen of the United States and agrees that if at any
time it shall cease to be a Citizen of the United States, it will promptly
resign as Owner Trustee (if and so long as such citizenship is necessary under
the Federal Aviation Act as in effect at such time or, if it is not necessary,
if and so long as the Owner Trustee's citizenship would have any adverse effect
on the Owner Participant, the Certificate Holders or Lessee), effective upon the
appointment of a successor Owner Trustee in accordance with the provisions of
the Trust Agreement. None of the provisions of this Section 4 or any other
provision of this Agreement shall be deemed to amend, modify or otherwise affect
the representations, warranties or other obligations (express or implied) of the
Manufacturer, any subcontractor or supplier of the Manufacturer with respect to
the Airframe, Engines, or any Parts, or to release the Manufacturer, or any such
subcontractor or supplier from any such representation, warranty or obligation.
Unless a Section 14(a), 14(b), 14(f) or 14(g) Default or any Event of Default
shall have occurred and be continuing, Lessor agrees to make available to Lessee
such rights as Lessor may have under any warranty with respect to the Aircraft
made by the Manufacturer or any of its subcontractors or suppliers and any other
claims against the Manufacturer or any such subcontractor or supplier with
respect to the Aircraft, all pursuant to and in accordance with the terms of the
Owner Trustee's Purchase Agreement.
SECTION 5. Return of the Aircraft. (a) Condition Upon Return. Unless
purchased by Lessee pursuant to Section 19(b) hereof, upon the termination of
this Lease at the end of the Basic Term or any Renewal Term or pursuant to
Section 9(b) or 15 hereof, Lessee will at its expense return the Aircraft to
Lessor at Lessee's maintenance base located at San Francisco International
Airport (or any principal maintenance base established by Lessee in the
continental United States subsequent to the date hereof), provided that upon the
request of the Lessor given to Lessee at least ten (10) days prior to the date
of such return, Lessee shall return the Airframe to Lessor at a location on
Lessee's route system in the continental United States selected by Lessor,
provided that such location is served on a normal basis by Boeing Model 777-222
aircraft operated by Lessee, and Lessor shall reimburse Lessee on a net after-
tax basis for Lessee's out-of-pocket Expenses (including for this purpose
23
[Lease Agreement (1995 777 B)]
salary costs for Lessee's personnel) resulting from Lessee's return of the
Aircraft to such alternate return location to the extent such out-of-pocket
Expenses exceed the out-of-pocket Expenses (including, for this purpose, salary
costs for Lessee's personnel) Lessee would have incurred in returning the
Aircraft to its principal maintenance base at San Francisco International
Airport, provided, further, however, that if Lessor shall have made the request
for storage pursuant to Section 5(d) hereof, Lessee shall at its expense return
the Aircraft at the site of storage. At the time of such return, (A) Lessee
will, at its own cost and expense, unless otherwise requested by Lessor to
retain the existing registration of the Aircraft, cause the Aircraft, if it is
not then so registered, to be registered under the laws of the United States
with the FAA in the name of Lessor or its designee, provided that Lessee shall
be relieved of its obligations under this sentence if such registration is
prohibited by reason of the failure of Lessor, the Owner Participant or Lessor's
designee to be eligible on such date to own an aircraft registered with the
Federal Aviation Administration, and (B) subject to Section 5(e) hereof, the
Airframe will be fully equipped with the Engines (or Acceptable Alternate
Engines) installed thereon. Also, at the time of such return, Lessor shall have
good title to such Airframe and Engines or Acceptable Alternate Engines, and
such Airframe and Engines or Acceptable Alternate Engines (i) shall be certified
(or, if not then registered under the Federal Aviation Act by reason of the
proviso to clause (A) in the preceding sentence or because Lessor has so
requested that the Aircraft not be so registered, shall hold a valid certificate
of airworthiness issued by the country of registry and be eligible for
certification by the FAA) as an airworthy aircraft by the Federal Aviation
Administration, (ii) shall be free and clear of all Liens (other than Lessor
Liens (including for this purpose Liens that would be Lessor Liens but for the
proviso to the definition of Lessor Liens)) and rights of third parties under
pooling, interchange, overhaul, repair or other similar agreements or
arrangements, (iii) shall be in a regular passenger configuration, and in as
good a condition as when delivered by Lessee to Lessor, ordinary wear and tear
excepted and otherwise in the condition required to be maintained under the
Lease and under Lessee's FAA-approved maintenance plan (notwithstanding any
Sublease theretofore in effect) and shall be in compliance with all mandatory
environmental, noise, air pollution and other standards prescribed by the
federal government of the United States and applicable to the Aircraft
including, without limitation, standards relating to corrosion and structural
integrity and all other applicable manufacturer's mandatory service bulletins
(except for standards, laws, regulations, directives and bulletins that permit
compliance at a later time and would not, in the normal course of Lessee's
maintenance plan, be complied with by the date of return without
24
[Lease Agreement (1995 777 B)]
discriminating on the basis of the status of the Aircraft as a leased aircraft),
(iv) in the event that Lessee shall not then be using a continuous maintenance
program with respect to the Airframe immediately prior to such return but
instead shall have been using a block overhaul program with respect to the
Airframe, then (A) such block overhaul program shall have been approved by the
government of registry of the Aircraft and (B) the Airframe shall have remaining
until the next scheduled block overhaul at least 25% of the allowable hours
between block overhauls permitted under the block overhaul program then used by
Lessee, (v) in the event that Lessee during the period of operation of the
Aircraft immediately prior to such return shall not have been using an on-
condition maintenance program with respect to the Engines (or Acceptable
Alternate Engines), Lessee agrees that the average number of hours or cycles of
operation (whichever shall be applicable under the maintenance program then in
use with respect to such Engines (or Acceptable Alternate Engines)) on such
Engines (or Acceptable Alternate Engines) remaining until the next scheduled
engine heavy maintenance shall be at least 25% of the hours or cycles (whichever
shall be applicable) between engine heavy maintenance allowed under the
maintenance program then in use with respect to such Engines (or Acceptable
Alternate Engines), (vi) shall have all Lessee's and any Sublessee's exterior
marking removed or painted over with areas thereof refinished to match adjacent
areas, and (vii) shall be in a state of cleanliness suitable under Lessee's
normal service standards for operation in Lessee's revenue passenger service and
in all such cases the Aircraft shall not have been discriminated against whether
by reason of its leased status or otherwise in maintenance, use, operation or in
any other manner whatsoever.
In addition, the following conditions shall be complied with at the
time of the return of the Aircraft: (i) Lessee shall deliver to Lessor any "no
cost" modification kits designated for the Aircraft that Lessee has in its
possession and that have not been incorporated at the time of the return of the
Aircraft, (ii) Lessor may purchase from Lessee at Lessee's cost any service
bulletin kits purchased or manufactured by Lessee for the Aircraft (provided
that Lessee shall not be obligated to sell to Lessor any service bulletin kit
manufactured by Lessee to the extent Lessee, in its reasonable judgment,
considers the same proprietary) and (iii) without limiting the obligations of
the Lessee set forth in the preceding paragraph, in the event the FAA shall
issue any directive which requires termination thereof prior to the return date,
then such directive shall be terminated prior to the return date, and if Lessee
shall have not been required to terminate such directive in the normal course of
its operations without discriminating against the Aircraft by reason of its
leased status or otherwise prior to the return of the
25
[Lease Agreement (1995 777 B)]
Aircraft but such directive must be terminated on or before six months following
such return, then Lessee shall, at the sole cost and expense of Lessor, comply
with such directive but only if (x) at least 540 days prior to the return of the
Aircraft Lessee receives from Lessor a written request to comply with such
directive at Lessor's sole cost and expense (determined on the basis of what a
third party would charge for comparable services) and (y) after receipt by
Lessee of such request, the Aircraft is subject to a maintenance check of the
type at which such modification is made, in accordance with Lessee's general
maintenance program, and Lessee has, or can obtain using commercial reasonable
efforts taking into account the 540 day prior notice received by Lessee, the
personnel, parts, facilities and other resources available to accomplish the
modification and the modification can be made without materially disrupting the
operations of Lessee's maintenance facility or Lessee's operations.
For purposes of this Section 5(a), any maintenance program used by
Lessee for airframes (including the Airframe) substantially similar to the
maintenance program described in the excerpts from ["United Air Lines 777
Maintenance Program"] furnished to Lessor and the Owner Participant prior to the
Delivery Date (a copy of which was attached to the certificate of the Assistant
Secretary of the Lessee delivered pursuant to Section 4(a)(vii)(6) of the
Participation Agreement) shall be considered a continuous maintenance program
(and not a block maintenance program) and any engine maintenance program used by
Lessee for engines (including the Engines) substantially similar to the
maintenance program described in "United Air Lines 777 Maintenance Program"
shall be considered an on-condition maintenance program.
In the event that the provisions of the preceding paragraph are
inapplicable and upon a return of the Aircraft pursuant to this Section 5,
Lessee and Lessor cannot agree as to whether Lessee, during the period of
operation of the Aircraft immediately prior to such return, shall have been
using a continuous maintenance program or a block overhaul program with respect
to the Airframe (including, without limitation, a dispute as to whether Lessee's
program is substantially similar to the program described in the excerpts to the
["United Air Lines 777 Maintenance Program"] furnished to Lessor as set forth in
the preceding paragraph), then Lessee and Lessor shall mutually appoint an
independent third party, satisfactory to both Lessee and Lessor, who shall make
such a determination, which determination shall be conclusive and final. Lessee
will provide, on a confidential basis, such independent third party with the
maintenance program and records applicable to the
26
[Lease Agreement (1995 777 B)]
Aircraft necessary to make such determination. The fee of such third party shall
be paid equally by Lessor and Lessee.
If clause (iv) of the first paragraph of this Section 5(a) shall be
applicable but the Airframe does not meet the conditions specified in said
clause (iv), Lessee shall pay or cause to be paid to Lessor, concurrently with
the return thereof, a Dollar amount computed by multiplying (i) the fair market
cost of obtaining an airframe block overhaul of the type referred to in such
clause (iv) at a location in the United States that has been approved by the FAA
for such work by (ii) a fraction of which (x) the numerator shall be the excess
of 25% of the hours of operation allowable between such block overhauls over the
actual number of hours of operation remaining on the Airframe to the next such
block overhaul and (y) the denominator shall be the number of hours of operation
allowable between such block overhauls in accordance with such block overhaul
program.
If clause (v) of the first paragraph of this Section 5(a) shall be
applicable but the Engines (or Acceptable Alternate Engines) do not meet the
conditions specified in said clause (v), Lessee shall pay or cause to be paid to
Lessor, concurrently with the return thereof, a Dollar amount computed by
multiplying (i) the fair market cost of obtaining the scheduled engine heavy
maintenance under the maintenance program then used by Lessee for engines of the
same model as the Engines (or Acceptable Alternate Engines) at a location in the
United States that has been approved by the FAA for such work by (ii) a fraction
which (x) the numerator shall be the excess of 25% of the hours or cycles
(whichever is applicable) of operation of one Engine between engine heavy
maintenance allowable under the maintenance program then in use with respect to
such Engines (or Acceptable Alternate Engines) over the actual average number of
hours or cycles of operation of such Engines (or Acceptable Alternate Engines)
remaining until the next such scheduled engine heavy maintenance and (y) the
denominator shall be the number of hours or cycles allowable between such
scheduled engine heavy maintenance.
During the last six 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 Sublessee to cooperate, at Lessor's sole cost, in all reasonable
respects with the efforts of Lessor to sell or lease the Aircraft, including,
without limitation, permitting prospective purchasers or lessees to inspect the
Aircraft, any 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,
provided that any such cooperation shall not interfere
27
[Lease Agreement (1995 777 B)]
with the normal operation or maintenance of the Aircraft by, or the business of,
Lessee or any Sublessee.
(b) Return of Other Engines. In the event that an Acceptable Alternate
Engine shall be delivered with the returned Airframe as set forth in paragraph
(a) of this Section 5, Lessee, concurrently with such delivery, will, at no cost
to Lessor, furnish, or cause to be furnished, to Lessor a full warranty (as to
title) bill of sale with respect to each such Acceptable Alternate Engine, in
form and substance reasonably satisfactory to Lessor (together with an opinion
of counsel (which may be Lessee's General Counsel) to the effect that such full
warranty bill of sale has been duly authorized and delivered and is enforceable
in accordance with its terms and that each such Acceptable Alternate Engine is
free and clear of all Liens other than Lessor Liens (including for this purpose
Liens that would be Lessor Liens but for the proviso to the definition of Lessor
Liens)) and will, to the extent applicable, comply with the provisions of
Section 9(d) as if Lessee had irrevocably elected, in accordance with Section
9(d) hereof, to terminate the Lease with respect to the Engine in replacement
for which such Acceptable Alternate Engine is being delivered and Lessor will
provide a bill of sale, at Lessee's expense, evidencing the transfer, without
recourse or warranty (except as to the absence of Lessor Liens (including for
this purpose Liens that would be Lessor Liens but for the proviso to the
definition of Lessor Liens)) by Lessor to Lessee or its designee of all of
Lessor's right, title and interest in and to any Engine not installed on the
Airframe at the time of the return of the Airframe.
(c) Fuel and Manuals. Upon the return of the Airframe upon any
termination of this Lease in accordance with paragraph (a) of this Section 5,
(i) Lessee shall invoice Lessor, and Lessor shall pay to Lessee the amount of
Lessee's cost for any fuel or oil contained in the fuel or oil tanks on the
Airframe, and (ii) Lessee shall deliver or cause to be delivered to Lessor all
logs, manuals and data and inspection, modification and overhaul records in the
English language (or an English translation of the same), (A) required to be
maintained with respect to the Airframe, the Engines or any part thereof in
accordance with Section 7(a) hereof, (B) created since the Airframe's or
Engine's or Acceptable Alternate Engine's (whichever is applicable) last heavy
maintenance visit and (C) required to lawfully operate the Aircraft in the
United States under a United States Certificate of Airworthiness without
performing additional maintenance.
(d) Storage Upon Return. If, at any time at least 30 days prior to the
end of the Basic Term or any Renewal Term or pursuant to Section 9(c) or Section
15, Lessee receives from
28
[Lease Agreement (1995 777 B)]
Lessor a written request for storage of the Aircraft upon its return hereunder,
Lessee will provide Lessor, or cause Lessor to be provided, with storage
facilities for the Aircraft (at Lessor's risk and at Lessor's cost for
insurance, maintenance and Lessee's reasonable out-of-pocket expenses other than
storage fees) for a period not exceeding forty-five (45) days (and upon prior
written notice from Lessor to Lessee given at least 10 days prior to the end of
such 45 day period, at Lessor's risk and at Lessor's cost for insurance,
maintenance and Lessee's reasonable out-of-pocket expenses including storage
fees, for an additional period not exceeding 45 days) commencing on the date of
such termination, at a location in the forty-eight contiguous states of the
United States selected by Lessee and used as a location for the storage of
aircraft. Lessee shall, at Lessor's written request, maintain insurance (if
available) for the Aircraft during such period and shall be reimbursed by Lessor
for the premiums thereon.
(e) Purchase of Engine. In the event that Lessee shall have paid the
Stipulated Loss Value for any Engine pursuant to Section 10(b) hereof and all
other amounts due and owing under said Section 10(b), then, notwithstanding
anything contained in this Section 5, Lessee shall, subject to the proviso
below, be under no obligation to return any engine installed on the Airframe in
replacement for such Engine to Lessor upon the termination of this Lease;
provided, however, that in such event Lessor shall have the right upon
termination of this Lease (unless Lessee shall have exercised any of its options
to purchase the Aircraft pursuant to Section 19), at its sole option, to
purchase from Lessee an engine or engines suitable for use on the Airframe and
compatible with the other Engine (if any) or the other engine purchased under
this Section 5(e) for such engine's then Fair Market Sales Value and any such
engine shall be installed at no cost to Lessor on the Airframe on the return
thereof.
(f) Severable Parts. At any time after Lessee has advised Lessor that
it has determined not to renew this Lease or purchase the Aircraft, or the
Aircraft is otherwise to be returned to Lessor, Lessee shall, at Lessor's
request, advise Lessor of the nature and condition of all severable Parts owned
by Lessee which have been used by Lessee during the prior six months and which
Lessee has or intends to remove from the Aircraft as permitted by Section 8
hereof. Lessor may, at its option, upon 30 days written notice to Lessee,
purchase any or all of such Parts from Lessee upon the expiration of the Term at
their then fair market value.
(g) Special Redelivery Provision. Not less than 30 days prior to (A)
the date of redelivery of the Aircraft by
29
[Lease Agreement (1995 777 B)]
Lessee to Lessor in accordance with this Section 5, (B) the date of redelivery
to Lessor or a purchaser pursuant to Section 9(c) or Section 15 hereof, or (C) a
purchase of the Aircraft by Lessee pursuant to Section 19(b), Lessor may provide
Lessee with a proposal regarding the arranging of delivery of the Aircraft so as
to enable Lessor to realize "foreign trade income" (as defined in Section 923(b)
of the Code or any successor provision thereto) from the sale or re-lease of the
Aircraft, and Lessee shall (i) arrange delivery at Lessor's cost (unless the
delivery site is as provided in Section 5(a) hereof) either inside or outside
the United States, as specified in Lessor's proposal, and (ii) otherwise comply
with such proposal to the extent Lessee can do so without incurring any cost,
expense or liability not indemnified against by Lessor in a manner in form and
substance reasonably satisfactory to Lessee.
SECTION 6. Liens. Lessee will not directly or indirectly create,
incur, assume or suffer to exist any Lien on or with respect to the Aircraft,
title thereto or any interest therein or in this Lease, except (i) the
respective rights of Lessor as owner of the Aircraft and Lessee as herein
provided (including any Sublease permitted pursuant to Section 7(b)), the Lien
of the Trust Indenture, and any other rights existing pursuant to the Operative
Documents, (ii) Lessor Liens (including for this purpose Liens that would be
Lessor Liens but for the proviso to the definition of Lessor Liens), (iii) Liens
for Taxes of Lessee (or any Sublessee) either not yet due or being contested in
good faith by appropriate proceeding so long as such proceedings do not involve
any material risk of the sale, forfeiture or loss of the Airframe or any Engine
or any interest thereon, (iv) materialmen's, mechanics', workmen's, repairmen's,
employees' or other like liens arising in the ordinary course of Lessee's or any
Sublessee's business securing obligations that are not overdue for a period of
more than 30 days or are being contested in good faith by appropriate
proceedings so long as during such 30 day period there is not, or such
proceedings do not involve, any material risk of the sale, forfeiture or loss of
the Airframe or any Engine or any interest therein, (v) Liens arising out of any
judgment or award against Lessee (or any Sublessee), unless there exists a
material risk of the sale, forfeiture or loss of the Airframe or any Engine or
any interest therein or unless the judgment secured shall not, within 45 days
after the entry thereof, have been discharged, vacated, reversed or execution
thereof stayed pending appeal or shall not have been discharged, vacated or
reversed within 45 days after the expiration of such stay, and (vi) any other
Lien with respect to which Lessee (or any Sublessee) shall have provided a bond
or other security in an amount and under terms reasonably satisfactory to
Lessor. Lessee will promptly, at its own expense, take (or cause to be taken)
such actions as may be
30
[Lease Agreement (1995 777 B)]
necessary duly to discharge any such Lien not excepted above if the same shall
arise at any time.
SECTION 7. Registration, Maintenance and Operation; Possession and
Subleases; Insignia. (a) (1) Registration and Maintenance. Lessee, at its
own cost and expense, shall (or shall cause any Sublessee to): (i) upon
delivery of the Aircraft, cause the Aircraft to be duly registered in the name
of Lessor, and, subject to subparagraph (3) of this Section 7(a), to remain duly
registered in the name of Lessor under the Federal Aviation Act (except to the
extent that such registration cannot be effected because of Lessor's or the
Owner Participant's failure to comply with the citizenship requirements for
registration of aircraft under such Act), provided that Lessor and the Owner
Participant shall execute and deliver all such documents as Lessee (or any
Sublessee) may reasonably request for the purpose of effecting and continuing
such registration, and Lessee shall cause the Trust Indenture to be duly
recorded and maintained of record as a first mortgage on the Aircraft; (ii)
maintain, service, repair, and overhaul (or cause to be maintained, serviced,
repaired, and overhauled) the Aircraft (and any engine which is not an Engine
but which is installed on the Aircraft) (x) so as (p) at all times to keep the
Aircraft in as good an operating condition as when delivered by Manufacturer to
Lessee, ordinary wear and tear excepted, and (q) to keep the Aircraft in such
condition as may be necessary to enable the airworthiness certification for the
Aircraft to be maintained in good standing at all times (other than during
temporary periods of storage in accordance with applicable regulations) under
(I) the Federal Aviation Act, except when all of Lessee's Boeing Model 777-222
aircraft (powered by engines of the same type as those with which the Airframe
shall be equipped at the time of such grounding) registered in the United States
have been grounded by the FAA unless such grounding was caused by the failure of
Lessee to maintain, service, repair or overhaul the Aircraft in accordance with
this Lease, or (II) the applicable laws of any other jurisdiction in which the
Aircraft may then be registered from time to time, except when all of Lessee's
Boeing Model 777-222 aircraft (powered by engines of the same type as those with
which the Airframe shall be equipped at the time of such grounding) registered
in such jurisdiction have been grounded by the aeronautical authority of such
jurisdiction unless such grounding was caused by the failure of Lessee to
maintain, service, repair or overhaul the Aircraft in accordance with this Lease
and (y) in substantially the same manner as Lessee (or any Sublessee) maintains,
services, repairs or overhauls similar aircraft operated by Lessee (or such
Sublessee) in similar circumstances and without in any way discriminating
against the Aircraft, whether by reason of its leased status or otherwise,
including, without limitation, in regard to the
31
[Lease Agreement (1995 777 B)]
termination of airworthiness directives; or such other manner as shall have been
approved in writing by the Owner Participant; (iii) maintain or cause to be
maintained in the English language (or with appropriate English translation) all
records, logs and other materials required to be maintained in respect of the
Aircraft by the FAA or the applicable regulatory agency or body of any other
jurisdiction in which the Aircraft may then be registered (which records, logs
and other materials, as between Lessor and Lessee and all parties claiming
through Lessee, shall be the property of Lessor but shall be maintained by
Lessee during the Term of this Lease and shall become the property of Lessee
upon Lessee's purchase of the Aircraft pursuant to the terms of this Lease or
upon the occurrence of an Event of Loss and Lessee's compliance with Section
10); and (iv) promptly furnish or cause to be furnished to Lessor or the Owner
Participant such information as may be reasonably required to enable Lessor or
the Owner Participant to file any reports required to be filed by Lessor or the
Owner Participant with any governmental authority because of Lessor's ownership
of the Aircraft.
(2) Operation. Lessee will not (or permit any Sublessee to) maintain,
use, service, repair, overhaul or operate the Aircraft in violation of any law
or any rule, regulation, treaty, order or certificate of any government or
governmental authority (domestic or foreign) having jurisdiction, or in
violation of any airworthiness certificate, license or registration relating to
the Aircraft issued by any such authority, except that, after Lessee shall have
provided Lessor and, so long as the Lien of the Trust Indenture shall not have
been released, the Indenture Trustee with a certificate of its President, any
Vice President, the Treasurer or any Assistant Treasurer stating all relevant
facts pertaining thereto, Lessee or any Sublessee may contest in good faith the
validity or application of any such law, rule, regulation, order, certificate,
license, registration or violation in any reasonable manner which does not
jeopardize the right, title and interest of the Lessor or the Owner Participant
in and to the Airframe and/or the Engines or otherwise materially adversely
affect Lessor, the Indenture Trustee or the Owner Participant but only so long
as such proceedings do not involve any risk of criminal liability or any
unindemnified material risk of civil liability to Lessor or the Owner
Participant for which the Lessee is not then willing to indemnify Lessor or the
Owner Participant in a manner reasonably satisfactory to such Person. If the
indemnities or insurance specified in Section 11(f), or some combination thereof
in amounts equal to amounts required by Section 11(f), have not been obtained,
Lessee will not operate the Aircraft, or permit any Sublessee to operate the
Aircraft, in or to any area excluded from coverage by any insurance required to
be maintained by the
32
[Lease Agreement (1995 777 B)]
terms of Section 11, provided, however, that the failure of Lessee to comply
with the provisions of this sentence shall not give rise to an Event of Default
hereunder where such failure is attributable to a hijacking, medical emergency,
equipment malfunction, weather conditions, navigational error or other isolated
extraordinary event beyond the control of Lessee and Lessee is taking all
reasonable steps to remedy such failure as soon as is reasonably practicable.
(3) Reregistration. At any time after the Restricted Period, Lessor
shall, at the request and sole expense of Lessee, cooperate with Lessee and take
all actions required to change the country of registration of the Aircraft in
compliance with and subject to the terms and conditions of Section 8(e) of the
Participation Agreement.
(4) Operating Certificates. Lessor hereby authorizes Lessee, at
Lessee's sole cost, expense and risk, to act as its agent for the purpose (but
only for the purpose) of obtaining any required replacement operating
certificates from the FAA; provided, however, that in the event that Lessee
shall have received from Lessor written notice that an Event of Default shall
have occurred and be continuing, this authority shall not apply for a period
from the date of receipt of such notice to such time as such Event of Default
shall have been cured by Lessee or waived by Lessor. This authority includes
(without expanding in any way the nature of the limited authority granted
pursuant to the first sentence of this Section 7(a)(4)), but is not limited to,
obtaining registration certificates, airworthiness certificates, certificates of
sanitary construction and ferry permits. In particular, this authority includes
the ability to make use of Exemption No. 5318 issued by the FAA. This authority
will allow duly authorized personnel of Lessee to sign any application forms
required in the process of obtaining such operating certificates, and this
authority will also allow such personnel, where necessary and appropriate, to
sign certificates as the attorney-in-fact for Lessor. Lessee hereby agrees that
it will promptly notify Lessor of any action that it has taken in accordance
with this Section 7(a)(4) as agent for the Lessor. Nothing in this Section
7(a)(4) shall permit the Lessee to change the country of registry of the
Aircraft except as provided in Section 7(a)(3) above.
(b) Possession and Subleases. Lessee will not, without the prior
written consent of Lessor, sublease or otherwise in any manner deliver, transfer
or relinquish possession of the Airframe or any Engine or install or permit any
Engine to be installed on any airframe other than the Airframe; provided that,
so long as no Section 14(a), (b), (f) or (g) Default or, in the case of
paragraph (viii) of this Section 7(b),
33
[Lease Agreement (1995 777 B)]
no Section 14(d) (solely with respect to Lessee's obligations under Section 7(a)
or (b)(viii) hereof or Section 8 hereof) Default, or any Event of Default shall
have occurred and be continuing at the time of such sublease, delivery, transfer
or relinquishment of possession or installation, and so long as the action to be
taken shall not deprive the Indenture Trustee of the Lien of the Trust Indenture
on the Airframe or any Engine and Lessee and any Sublessee shall continue to
comply with the provisions of Sections 7(a) and 11, Lessee may, without the
prior written consent of Lessor:
(i) subject the Airframe and the Engines or engines then
installed thereon to normal interchange agreements or any Engine to normal
pooling or similar arrangements, in each case customary in the airline
industry and entered into by Lessee (or any Sublessee) in the ordinary
course of its business and, in the case of the Airframe, (x) with a U.S.
Air Carrier not in bankruptcy or a Permitted Sublessee or (y) any other air
carrier approved by Lessor; provided, that (A) no such agreement or
arrangement contemplates or requires the transfer of title to the Airframe,
and (B) if Lessor's title to any Engine shall be divested under any such
agreement or arrangement, Lessee shall be deemed to have irrevocably
elected, in accordance with Section 9(d) hereof, to terminate the Lease
with respect to such Engine on the Business Day next following the 44th day
following such divestiture and Lessee shall (or shall cause any Sublessee
to) comply with Section 9(d) hereof in respect thereof;
(ii) deliver possession of the Airframe or any Engine to the
manufacturer thereof or to any other Person for testing, service, repair,
maintenance or overhaul work on the Airframe or Engine or any Part of any
thereof or for alterations or modifications in or additions to such
Airframe or Engine to the extent required or permitted by the terms of
Section 8(c) hereof;
(iii) install an Engine on an airframe owned by Lessee (or any
Sublessee) which airframe is free and clear of all Liens, except: (A)
Permitted Liens and those which apply only to the engines (other than
Engines), appliances, parts, instruments, appurtenances, accessories,
furnishings and other equipment (other than Parts) installed on such
airframe (but not to the airframe as an entirety), (B) the rights of third
parties under interchange agreements which would be permitted under clause
(i) above, provided that Lessor's title to such Engine shall not be
divested as a result thereof and (C) mortgage Liens or other security
interests, provided, that (as regards this clause (C)), such
34
[Lease Agreement (1995 777 B)]
mortgage Liens or other security interests effectively provide that such
Engine shall not become subject to the lien of such mortgage or security
interest, notwithstanding the installation thereof on such airframe;
(iv) install an Engine on an airframe leased to Lessee (or any
Sublessee) or purchased by Lessee (or any Sublessee) subject to a
conditional sale or other security agreement, provided that (x) such
airframe is free and clear of all Liens, except: (A) the rights of the
parties to the lease or conditional sale or other security agreement
covering such airframe, or their assignees, and (B) Liens of the type
permitted by subparagraph (iii) of this paragraph (b) and (y) such lease,
conditional sale or other security agreement effectively provides that such
Engine shall not become subject to the lien of such lease, conditional sale
or other security agreement, notwithstanding the installation thereof on
such airframe;
(v) install an Engine on an airframe owned by Lessee (or any
Sublessee), leased to Lessee (or any Sublessee) or purchased by Lessee (or
any Sublessee) subject to a conditional sale or other security agreement
under circumstances where neither subparagraph (iii) nor subparagraph (iv)
of this paragraph (b) is applicable, provided that in the event of such
installation, Lessee shall be deemed to have irrevocably elected, in
accordance with Section 9(d) hereof, to terminate the Lease with respect to
such Engine on the Business Day next following the 44th day following such
installation and Lessee shall (or shall cause any Sublessee to) comply with
Section 9(d) hereof in respect thereof, Lessor not intending hereby to
waive any right or interest it may have to or in such Engine under
applicable law until compliance by Lessee with such Section 9(d);
(vi) transfer (or permit any Sublessee to transfer) possession of
the Airframe or any Engine to the United States of America or any
instrumentality or agency thereof pursuant to the Civil Reserve Air Fleet
Program for a period, including all permissible renewal periods (so long as
such renewal options have been irrevocably exercised by Lessee), that does
not extend beyond the end of the Term so long as Lessee (or any Sublessee)
shall promptly notify Lessor (x) upon transferring possession of the
Airframe or any Engine to the United States of America or any agency or
instrumentality thereof pursuant to the Civil Reserve Air Fleet Program and
(y) of the name and the address of the Contracting Office Representative
for the Military Airlift
35
[Lease Agreement (1995 777 B)]
Command of the United States Air Force to whom notice must be given
pursuant to Section 15 hereof;
(vii) transfer possession of the Airframe or any Engine to the
United States of America or any instrumentality or agency thereof pursuant
to a contract, a copy of which shall be provided to Lessor provided that
the term of such contract, including all permissible renewal periods (so
long as such renewal options have been irrevocably exercised by Lessee),
shall not continue beyond the end of the Term; or
(viii) So long as the Sublessee is not subject to a proceeding or
final order under applicable bankruptcy, insolvency or reorganization laws
on the date the Sublease is entered into, Lessee may, at any time, enter
into a sublease with (1) a U.S. Air Carrier, (2) after the Restricted
Period any Permitted Sublessee, provided that in the event such Permitted
Sublessee is domiciled in a country listed on Exhibit F hereto and
designated therein as a "Restricted Country" such Sublessee shall be deemed
a Permitted Sublessee only if its country of domicile at the time of such
subleasing imposes and enforces aircraft maintenance standards not
materially less stringent than those of the FAA or the central aviation
authority of any of Canada, France, Germany, Japan or the United Kingdom,
or (3) after the Restricted Period any other Person approved in writing by
the Owner Participant, which approval shall not be unreasonably withheld if
in regard to this subclause (3) (x) the proposed sublessee's country of
domicile imposes maintenance standards not materially less stringent than
those of the FAA or the central aviation authority of any of Canada,
France, Japan, Germany, or the United Kingdom and (y) Lessor, Owner
Participant and the Indenture Trustee receive an opinion of counsel
reasonably acceptable to Lessor, in its individual capacity, and Owner
Participant that the terms of the sublease and other Operative Documents
will be valid in the country where Sublessee is domiciled; that no
Participant is required to register to do business in the Sublessee's
country of domicile; that there is no tort liability for owners not in
possession that is more extensive than under United States law or any state
law (it being understood that if such opinion cannot be given in a form
reasonably satisfactory to the Owner Participant such opinion will be
waived if insurance reasonably satisfactory to the Owner Participant and
the Lessor, in its individual capacity, is provided at Lessee's expense to
cover such risk); that fair compensation in a currency freely convertible
into Dollars is mandated if there is a requisition of use or title of the
Aircraft by the country
36
[Lease Agreement (1995 777 B)]
in which the Sublessee is domiciled (it being understood that if such
opinion cannot be given in a form reasonably satisfactory to the Owner
Participant such opinion will be waived if insurance reasonably
satisfactory to the Owner Participant, is provided at Lessee's expense to
cover such risk); that there exist no possessory rights in favor of the
Sublessee which upon Lessee's bankruptcy or other Default hereunder
(assuming the Sublessee is not then bankrupt) would prevent the return of
the Aircraft in accordance with the terms hereof or inhibit the Lessor's
rights therein; and as to such other matters as Lessor, in its individual
capacity, and the Owner Participant may reasonably request, provided,
however, (A) that no sublease, including all permissible renewal periods,
shall extend beyond the Basic Term or any Renewal Term then in effect,
unless Lessee shall have irrevocably committed to purchase the Aircraft or
renew the Lease in accordance with the terms thereof at the end of the
Basic Term or Renewal Term, as the case may be, to a date beyond the latest
permissible expiration date of such sublease, (B) that, on the date of such
sublease, the United States and the country in which sublessee is domiciled
and principally located maintain diplomatic relations, (C) that on or prior
to entering into such sublease, Lessee shall provide to the Lessor, the
Owner Participant and, so long as the Lien of the Trust Indenture shall not
have been released, the Indenture Trustee assurances reasonably
satisfactory to Lessor, in its individual capacity, and Owner Participant
to the effect that the provisions of Section 11 hereof have been complied
with after giving effect to such sublease and (D) that, in the case of a
sublease to a sublessee described in (3) above, if the country of domicile
of the proposed sublessee at the time of such subleasing has not
unqualifiedly ratified the Geneva Convention for International Recognition
of Rights in Aircraft, the Lessee shall provide Lessor to the Lessor and,
so long as the Lien of the Trust Indenture shall not have been released,
the Indenture Trustee an opinion of counsel, which counsel and opinion
shall be reasonably satisfactory to the Owner Participant, to the effect
that the country in which such sublessee has its principal office and
domicile would give effect to (i) the title of Lessor in and to the
Aircraft, (ii) the registry of the Aircraft in the name of Lessor (or
Lessee or Sublessee, as "lessee" or "sublessee" as appropriate) and (iii)
the priority and validity of the Lien of the Trust Indenture.
The rights of any Sublessee or other transferee (other than a
transferee where the transfer is of an Engine which is deemed a termination
under Section 9(d)) shall be subject and subordinate to, all the terms of the
Lease (and any Sublease
37
[Lease Agreement (1995 777 B)]
shall expressly state that it is so subject and subordinate), including, without
limitation, the covenants contained in Section 7(a) hereof, the inspection
rights contained in Section 12 hereof and Lessor's (and, so long as the Trust
Indenture is in effect, the Indenture Trustee's (as Lessor's assignee)) rights
to repossess the Aircraft and to void any Sublease upon such repossession, and
Lessee shall remain primarily liable for the performance of all of the terms of
the Lease, and the terms of any such Sublease shall not permit any Sublessee to
take any action not permitted to be taken by Lessee in the Lease with respect to
the Aircraft. No pooling agreement, Sublease or other relinquishment of
possession of the Airframe or any Engine shall in any way discharge or diminish
any of Lessee's obligations to Lessor under this Lease or constitute a waiver of
Lessor's rights or remedies hereunder. Lessor agrees, for the benefit of Lessee
(and any Sublessee) and for the benefit of any mortgagee or other holder of a
security interest in any engine owned by Lessee (or any Sublessee), any lessor
of any engine other than an Engine leased to Lessee (or any Sublessee) and any
conditional vendor of any engine other than an Engine purchased by Lessee (or
any Sublessee) subject to a conditional sale agreement or any other security
agreement, that no interest shall be created under the Lease in any engine so
owned, leased or purchased and that neither Lessor nor its successors or assigns
will acquire or claim, as against Lessee (or any Sublessee) or any such
mortgagee, lessor or conditional vendor or other holder of a security interest
or any successor or assignee of any thereof, any right, title or interest in
such engine as the result of such engine being installed on the Airframe;
provided, however, that such agreement of Lessor shall not be for the benefit of
any lessor or secured party of an airframe leased to Lessee (or any Sublessee)
or purchased by Lessee (or any Sublessee) subject to a conditional sale or other
security agreement or for the benefit of any mortgagee or any other holder of a
security interest in an airframe owned by Lessee (or any Sublessee), on which
airframe Lessee (or any Sublessee) then proposes to install an Engine, unless
such lessor, conditional vendor, other secured party or mortgagee has expressly
agreed (which agreement may be contained in such lease, conditional sale or
other security agreement or mortgage) that neither it nor its successors or
assigns will acquire, as against Lessor, any right title or interest in an
Engine as a result of such Engine being installed on such airframe. Lessee
shall provide the Owner Participant and the Indenture Trustee (A) written notice
(which notice shall be given (i) no later than thirty (30) days prior to
entering into any Sublease with a term of more than one (1) year or (ii) at any
time prior to (to the extent that the giving of prior notice is reasonably
possible) or promptly after entering into any Sublease with a term of one (1)
year or less) of any
38
[Lease Agreement (1995 777 B)]
Sublease and (B) a copy of any Sublease which has a term of more than one (1)
year.
Lessee shall assign any Sublease to Lessor as security for its
obligations hereunder pursuant to an assignment instrument reasonably
satisfactory to Lessor; provided, however, that any such assignment instrument
shall provide that the assignment of the Sublease shall only be effective,
without any further action, immediately upon the occurrence of a Section 14(a),
14(b), 14(f) or 14(g) Default or any Event of Default (and such effectiveness
shall terminate upon the curing or waiver of the aforesaid Defaults or Events of
Default). In addition, any Sublease entered into by Lessee shall provide that
all payments due under such Sublease shall be paid by the Sublessee to Lessor
during the continuance of a Section 14(a), 14(b), 14(f) or 14(g) Default or an
Event of Default.
In the event that during the term of a Sublease the Aircraft shall
have been maintained under a block-overhaul program, Lessee shall at its option
either (i) cause the Aircraft to be returned to the Lessee by the Sublessee no
later than three months prior to the end of the Term and Lessee shall upon such
return incorporate the Aircraft into Lessee's continuous maintenance program for
aircraft of the same make and model and in active commercial service or (ii)
upon return of the Aircraft to Lessor pursuant to Section 5(a), Lessee shall
comply with those return conditions set forth in such Section 5(a) applicable in
the event Lessee had adopted a block-overhaul program.
Any Wet Lease or similar arrangement under which Lessee maintains
operational control of the Aircraft shall not constitute a delivery, transfer or
relinquishment of possession for purposes of this section. Lessor acknowledges
that any consolidation or merger of Lessee or conveyance, transfer or lease of
all or substantially all of Lessee's assets permitted by the Operative Documents
shall not be prohibited by this Section.
No Sublease permitted pursuant to this Section shall permit any
further sub-subleasing of the Aircraft.
(c) Insignia. On or prior to the Delivery Date, or as soon thereafter
as practicable, Lessee agrees to affix and maintain (or cause to be affixed and
maintained) in the cockpit of the Airframe adjacent to the registration
certificate therein and on each Engine a nameplate bearing the inscription:
39
[Lease Agreement (1995 777 B)]
Leased From
State Street Bank and Trust Company, not in its individual capacity
but solely as Owner Trustee, Owner and Lessor
and, for so long as the Airframe and each Engine shall be subject to the Lien of
the Trust Indenture, bearing the following additional inscription:
Mortgaged To
First Security Bank of Utah, National Association, as Indenture
Trustee
(such nameplate to be replaced, if necessary, with a nameplate reflecting the
name of any successor Lessor or successor Indenture Trustee, in each case as
permitted under the Operative Documents).
Except as above provided, Lessee will not allow the name of any
person, association or corporation to be placed on the Airframe or on any Engine
as a designation that might be interpreted as a claim of ownership; provided,
that nothing herein contained shall prohibit Lessee (or any Sublessee) from
placing its customary colors and insignia on the Airframe or any Engine.
SECTION 8. Replacement and Pooling of Parts; Alterations,
Modifications and Additions.
(a) Replacement of Parts. Lessee, at its own cost and expense, will
promptly replace or cause to be replaced 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, except
as otherwise provided in Section 8(c). All replacement Parts shall be owned by
Lessee free and clear of all Liens (except Permitted Liens, pooling arrangements
permitted by Section 8(b) hereof and replacement Parts temporarily installed on
an emergency basis) and shall be in as good operating condition as, and shall
have a value and utility substantially equal to, the Parts replaced assuming
such replaced Parts were in the condition and repair required to be maintained
by the terms hereof. All Parts at any time removed from the Airframe or any
Engine shall remain the property of Lessor, no matter where located, until such
time as such Parts shall be replaced by Parts which meet the requirements for
replacement Parts specified above. Immediately upon any replacement Part
becoming incorporated or installed in or attached to the Airframe or any
40
[Lease Agreement (1995 777 B)]
Engine, without further act (subject only to Permitted Liens and any pooling
arrangement permitted by Section 8(b) hereof and except replacement Parts
temporarily installed on an emergency basis), (i) title shall vest in and such
replacement Part shall become the property of Lessor and shall become subject to
this Lease and be deemed a Part for all purposes hereof to the same extent as
the Parts originally incorporated or installed in or attached to the Airframe or
such Engine and (ii) the replaced Part shall no longer be the property of Lessor
and shall no longer be deemed a Part hereunder.
(b) Pooling of Parts. Any Part removed from the Airframe or any
Engine as provided in Section 8(a) hereof may be subjected by Lessee (or any
Sublessee) to a pooling arrangement of the type which is permitted by Section
7(b)(i) hereof; provided, that the Part replacing such removed Part shall be
incorporated or installed in or attached to such Airframe or Engine in
accordance with Section 8(a) as promptly as practicable after the removal of
such removed Part. In addition, any replacement Part when incorporated or
installed in or attached to the Airframe or an Engine in accordance with such
Sections may be owned by any third party subject to such a pooling arrangement,
provided, that Lessee (or any Sublessee), at its expense, as promptly thereafter
as practicable, and in any event within 90 days, either (i) causes such
replacement Part to become the property of Lessor free and clear of all Liens
other than Permitted Liens or (ii) replaces such replacement Part with a further
replacement Part owned by Lessee (or any Sublessee) which shall become the
property of Lessor, free and clear of all Liens other than Permitted Liens.
(c) Alterations, Modifications and Additions. Lessee, at its own
expense, will make (or cause to be made) such alterations and modifications in
and additions to the Airframe and Engines as may be required from time to time
to be made during the Term so as to comply with any law, rule, regulation or
order of any regulatory agency or body of any jurisdiction in which the Aircraft
may then be registered; provided, however, that, after Lessee shall have
provided Lessor and, so long as the Lien of the Trust Indenture shall not have
been released, the Indenture Trustee, with a certificate of its President, any
Vice President, the Treasurer or any Assistant Treasurer stating all relevant
facts pertaining thereto, Lessee or any Sublessee may, in good faith, and by
appropriate proceedings contest the validity or application of any such law,
rule, regulation or order in any reasonable manner which does not jeopardize the
right, title and interest of the Lessor or the Owner Participant in and to the
Airframe and/or the Engines, or otherwise materially adversely affect Lessor,
the Owner Participant or the Indenture Trustee but only so long as such
proceedings do not
41
[Lease Agreement (1995 777 B)]
involve any risk of criminal liability or any unindemnified material risk of
civil liability to Lessor or the Owner Participant for which the Lessee is not
then willing to indemnify Lessor or the Owner Participant in a manner reasonably
satisfactory to such Person. In addition, Lessee (or any Sublessee), at its own
expense, may from time to time make such alterations and modifications in and
additions to the Airframe or any Engine as Lessee (or any Sublessee) may deem
desirable in the proper conduct of its business, including removal of Parts
which Lessee (or any Sublessee) deems to be obsolete or no longer suitable or
appropriate for use on the Airframe or such Engine (such parts, "Obsolete
Parts"); provided that no such alteration, modification, removal or addition
impairs the condition or airworthiness of the Airframe or such Engine, or
decreases the value or the utility (or, in regard to the Airframe, remaining
useful life) of the Airframe or such Engine below the value or utility (or, in
regard to the Airframe, remaining useful life) thereof immediately prior to such
alteration, modification, removal or addition assuming the Airframe or such
Engine was then in the condition required to be maintained by the terms of this
Lease. In addition, the value (but not the utility, condition, airworthiness
or, in the case of the Airframe, remaining economic useful life) of the Airframe
or any Engine may be reduced by the value, if any, of Obsolete Parts which shall
have been removed so long as the aggregate original cost of all Obsolete Parts
which shall have been removed and not replaced shall not exceed $900,000. All
Parts incorporated or installed in or attached or added to the Airframe or an
Engine as the result of such alteration, modification or addition (except those
parts which Lessee has leased from others and which may be removed by Lessee
pursuant to the next sentence) (the "Additional Parts") shall, without further
act, become the property of, and title to such Parts shall vest in, Lessor.
Notwithstanding the foregoing sentence, Lessee (or any Sublessee), subject to
Lessor's rights under Section 5(f) hereof, may, at its own expense, at any time
during the Term, so long as no Default under Section 14(a), (b), (d) (solely
with respect to Lessee's obligations under Section 7(a) or (b)(viii) or Section
8 hereof), (f) or (g) or an Event of Default shall have occurred and be
continuing, remove or suffer to be removed any Additional Part, provided that
such Additional Part (i) is in addition to, and not in replacement of or
substitution for, any Part originally incorporated or installed in or attached
to such Airframe or any Engine at the time of delivery thereof hereunder or any
Part in replacement of or substitution for any such Part, (ii) is not required
to be incorporated or installed in or attached or added to the Airframe or any
Engine pursuant to the terms of Section 7 hereof or the first sentence of this
paragraph (c) and (iii) can be removed from the Airframe or such Engine without
impairing the condition or airworthiness or diminishing the value or utility
(or, in
42
[Lease Agreement (1995 777 B)]
regard to the Airframe, remaining useful life) of the Airframe or such Engine
which the Airframe or such Engine would have had at such time had such
alteration, modification or addition not occurred. Upon the removal thereof as
provided above, such Additional Part shall no longer be deemed the property of
Lessor or part of the Airframe or Engine from which it was removed. Any
Additional Part not removed as above provided prior to the return of the
Airframe or Engine to Lessor hereunder shall remain the property of Lessor.
SECTION 9. Early Termination.
(a) [Intentionally reserved for potential future use].
(b) Termination for Obsolescence/Surplus. So long as no Section
14(a), (b), (d) (solely with respect to Lessee's obligations under Section 7(a)
or (b)(viii) or Section 8 hereof), (f) or (g) Default or any Event of Default
shall have occurred and be continuing, Lessee shall have the right to terminate
this Lease on the third Business Day prior to any Lease Period Date occurring
on or after the Restricted Period if Lessee shall have made a good faith
determination, which shall be evidenced by a certificate of any financial
officer of Lessee, who is the Treasurer or more senior officer, that the
Aircraft is surplus to Lessee's requirements or economically obsolete to Lessee.
Lessee shall give to Lessor and Indenture Trustee at least one hundred
and eighty (180) days revocable (except as provided below) advance written
notice of Lessee's intention to so terminate this Lease (any such notice, a
"Termination Notice") specifying (i) the date on which Lessee intends to
terminate this Lease in accordance with this Section 9(b) (such specified date,
a "Termination Date") and (ii) that Lessee has determined that the Aircraft is
surplus to its requirements or economically obsolete to Lessee. Lessee shall
exercise this option by arranging for the sale of the Aircraft pursuant to
Section 9(c), provided, however, that Lessee may not withdraw its notice if
Lessor has elected to retain the Aircraft pursuant to Section 9(c) or if the
highest bid obtained by Lessee pursuant to Section 9(c) is greater than the then
applicable Termination Value; provided, further, that if no sale of the Aircraft
shall have occurred on or prior to the Termination Date and if Lessor shall not
have elected to retain the Aircraft, Lessee's Termination Notice shall be deemed
withdrawn. The Termination Notice shall become irrevocable twenty-five (25)
days prior to the Termination Date.
(c) Sale of the Aircraft. In the event that Lessee shall have
proposed to terminate this Lease under Section 9(b),
then during the period commencing with the date of the
43
[Lease Agreement (1995 777 B)]
Termination Notice until the proposed Termination Date Lessee, as non-exclusive
agent for Lessor and at no expense to Lessor, shall use reasonable efforts to
obtain bids in Dollars for the purchase of the Aircraft and, in the event it
receives any bid, Lessee shall, within five Business Days after receipt thereof
and at least ten Business Days prior to the proposed Termination Date, advise
Lessor in writing of the amount and terms of such bid, and the name and address
of the party or parties (who shall not be Lessee or any Affiliate of Lessee or
any person with whom Lessee or any such Affiliate has an arrangement or
understanding regarding the future use of the Aircraft by Lessee or any such
Affiliate but who may be the Owner Participant, any Affiliate thereof or any
person contacted by the Owner Participant) submitting such bid. After Lessee
shall have advised Lessor of all bids received, the Owner Participant, any
Affiliate thereof or any Person contacted by the Owner Participant may submit a
further bid or bids to Lessee not later than five Business Days prior to the
Termination Date proposed by Lessee (unless Lessee shall have revoked the
Termination Notice specifying such proposed Termination Date). Subject to the
next succeeding sentence, on or before the Termination Date, subject to the
release of all mortgage and security interests with respect to the Aircraft
under the Trust Indenture: (1) Lessee shall deliver the Aircraft, or cause the
Aircraft to be delivered to the highest bidder as determined below, in the same
manner and in the same condition and otherwise in accordance with all the terms
of this Lease as if delivery were made to Lessor pursuant to Section 5, and
Lessee shall duly transfer to Lessor title to any engine installed on the
Airframe and not owned by Lessor, all in accordance with the terms of Section 5
(but subject to the provisions of Section 5(e) hereof), (2) Lessor shall comply
with the terms of the Trust Indenture and shall, without recourse or warranty
(except as to the absence of Lessor Liens (including for this purpose Liens that
would be Lessor Liens but for the proviso to the definition of Lessor Liens)),
subject to prior or concurrent payment by Lessee of all amounts due under clause
(3) of this sentence, sell the Aircraft for cash in Dollars to the entity, if
any, which shall have submitted the highest bona fide bid (evaluated on a net
cash basis) therefor, the total selling price realized at such sale to be
retained by Lessor, and (3) Lessee shall simultaneously pay or cause to be paid
to Lessor in the manner provided in Section 3(e), (A) if the proceeds of the
sale of the Aircraft so sold, net of reasonable out-of-pocket costs and expenses
incurred by Lessor and the Owner Participant in connection therewith, including,
without limitation, applicable sales or transfer taxes and legal fees, are less
than the Termination Value for the Aircraft computed as of the Redemption Date,
the difference in Dollars, (B) all unpaid Basic Rent due on or prior to the
applicable Redemption Date (other than Basic Rent payable in advance on the
Redemption Date, if
44
[Lease Agreement (1995 777 B)]
any) and all unpaid Supplemental Rent with respect to the Aircraft due on or
prior to such Redemption Date, and (C) Premium, if any, due on the Loan
Certificates and upon receiving all such payments referred to in clauses (2) and
(3) above Lessor simultaneously will transfer to Lessee, without recourse or
warranty (except as to the absence of Lessor Liens (including for this purpose
Liens that would be Lessor Liens but for the proviso to the definition of Lessor
Liens)), all of Lessor's right, title and interest in and to any Engines
constituting part of the Aircraft which were not sold with the Aircraft.
Notwithstanding the preceding sentence, Lessor may, if Lessee has not already
revoked the Termination Notice, elect to retain title to the Aircraft. If
Lessor so elects, Lessor shall give to Lessee written notice of such election at
least ten Business Days prior to the Termination Date accompanied by an
irrevocable undertaking by the Owner Participant to make available to Lessor for
payment to the Indenture Trustee on the Termination Date the amount required to
pay in full the unpaid Original Amount of the Loan Certificates outstanding on
the applicable Redemption Date together with all other amounts due on such
Redemption Date thereunder less amounts to be paid by Lessee as a result of the
payment thereof as set forth in the second following sentence. Upon receipt of
notice of such an election by Lessor and the accompanying undertaking by the
Owner Participant, Lessee shall cease its efforts to obtain bids as provided
above and shall reject all bids theretofore or thereafter received. On the
Termination Date, Lessor shall (subject to the payment by Lessee of all Rent due
on or prior to the Redemption Date as set forth below) pay in full the unpaid
Original Amount of the Loan Certificates outstanding on the Redemption Date,
plus interest accrued to, or to accrue thereon to but excluding the applicable
Redemption Date, together with all other amounts due thereunder less any amounts
to be paid by Lessee as a result of the payment thereof and, provided that the
Loan Certificates are paid as aforesaid, Lessee shall deliver the Airframe and
Engines or engines to Lessor in accordance with Section 5 and shall pay all
Basic Rent due on or prior to the Redemption Date (other than Basic Rent payable
in advance on the Redemption Date, if any) and all unpaid Supplemental Rent due
on or prior to such Redemption Date, and Premium, if any, on the Loan
Certificates. If no sale shall have occurred on the Termination Date for any
reason (including, without limitation, by reason of Lessee's revocation of its
Termination Notice) or Lessor has not, after making its election referred to
above, made the payment contemplated by the preceding sentence and thereby
caused this Lease to terminate, this Lease shall continue in full force and
effect as to the Aircraft, Lessee shall be entitled to keep any deposits or
other advances received from the proposed purchaser(s) of the Aircraft (without
in any way limiting any other rights or remedies against such proposed
purchaser(s) available to Lessor or Lessee), Lessee
45
[Lease Agreement (1995 777 B)]
shall pay the reasonable out-of-pocket costs and expenses, including legal fees,
incurred by the Owner Participant, Indenture Trustee and Lessor (unless such
failure to terminate this Lease is a consequence of the failure of Lessor or the
Owner Participant without due cause to make, or cause to be made, the payment
referred to in the immediately preceding sentence), if any, in connection with
preparation for such sale and Lessee may give one or more additional Termination
Notices, provided no more than three such notices may be given during the Term
and only one such notice may be given during any 365 day period (not counting,
in either case, any Termination Notice for a Termination Date on which this
Lease does not terminate as a consequence of the failure of Lessor or the Owner
Participant without due cause to make or cause to be made the payment referred
to in the immediately preceding sentence). In the event of any such sale or
such retention of the Aircraft by Lessor and upon compliance by Lessee with the
provisions of this paragraph, the obligation of Lessee to pay Basic Rent or any
other amounts hereunder shall cease to accrue. Upon payment of all amounts that
may then be due hereunder, this Lease shall terminate. Lessor may, but shall be
under no duty to, solicit bids, inquire into the efforts of Lessee to obtain
bids or otherwise take any action in connection with any such sale other than to
transfer (in accordance with the foregoing provisions) to the purchaser named in
the highest bid certified by Lessee to Lessor all of Lessor's right, title and
interest in the Aircraft, against receipt of the payments provided herein.
(d) Termination as to Engines. Upon compliance with the terms of the
Tax Indemnity Agreement, Lessee shall have the right at its option at any time
during the Term, on at least 30 days' prior written notice, to terminate this
Lease with respect to any Engine. In such event, and prior to the date of such
termination, Lessee shall replace such Engine hereunder 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 (provided that Lessee shall have no right to pay
Stipulated Loss Value with respect to such Engine), and Lessor shall transfer
title to the replaced Engine as provided in Section 5(b). No termination of
this Lease with respect to any Engine as contemplated by this Section 9(d) shall
result in any reduction of Basic Rent.
SECTION 10. Loss, Destruction, Requisition, etc. (a) Event of Loss
with Respect to the Aircraft. Upon the occurrence of an Event of Loss with
respect to the Airframe or the Airframe and the Engines and/or engines then
installed thereon, Lessee shall (1) forthwith (and in any event, within fifteen
days after such occurrence) give Lessor written notice of such Event of Loss and
(2) within 60 days after such occurrence,
46
[Lease Agreement (1995 777 B)]
give Lessor written notice of its election to perform one of the following
options (it being understood that the failure to give such notice shall be
deemed to be an election of the option set forth in clause (i) below):
(i) Not later than the earlier of (x) the Business Day next
succeeding the 100th day following the occurrence of such Event of Loss or
(y) the third Business Day following receipt by the loss payee of the
insurance proceeds in respect to such Event of Loss (but not earlier than
the first Business Day next succeeding the 65th day following the
occurrence of such Event of Loss) (the applicable day being the "Loss
Payment Date"), Lessee shall, to the extent not paid to Lessor or Indenture
Trustee, as the case may be, as insurance proceeds, pay or cause to be paid
to Lessor as specified in Section 3(e) hereof, (A) the Stipulated Loss
Value of the Aircraft computed as of the Stipulated Loss Value Date
occurring on or immediately following the date of such Event of Loss, plus
(B) if such Stipulated Loss Value Date is a Lease Period Date, Basic Rent
due on such Lease Period Date (excluding Basic Rent payable in advance on
such Lease Period Date), plus (C) unpaid Supplemental Rent with respect to
the Aircraft due on or prior to the date of payment, plus (D) interest on
such Stipulated Loss Value at the Debt Rate from and including such
Stipulated Loss Value Date to, but not including, the date of any advance
payment in respect of Stipulated Loss Value as provided below, and
thereafter on the unpaid balance of such Stipulated Loss Value from and
including the date of such advance payment to, but excluding, the date such
Stipulated Loss Value is paid in full; provided, however, that if a Lease
Period Date shall occur after the Stipulated Loss Value Date with respect
to which Stipulated Loss Value is determined but prior to the date of such
payment of the sum of the amounts specified in clauses (A), (B), (C) and
(D) above or if Basic Rent is payable in advance on the Stipulated Loss
Value Date, Lessee shall pay on such Lease Period Date an amount equal to
the Basic Rent that would have been due on such Lease Period Date if such
Event of Loss had not occurred, which amount shall be credited as an
advance against the amounts payable pursuant to clauses (A), (B), (C) and
(D) above, or
(ii) Not later than the Business Day next succeeding the 100th day
following the occurrence of such Event of Loss, Lessee shall, provided that
no Section 14(a), (b), (f) or (g) Default or any Event of Default shall
have occurred and be continuing, substitute an aircraft or an airframe or
an airframe and one or more engines, as the case
may be in accordance with the terms hereof, provided that if
47
[Lease Agreement (1995 777 B)]
Lessee shall have elected to make a substitution under this clause (ii) and
shall fail for any reason to make such substitution in accordance with the
terms hereof, Lessee shall make the payments required by clause (i) above
as and when due thereunder.
At such time as Lessor shall have received the sum of the amounts
specified in clauses (A), (B), (C) and (D) of subparagraph (i) above, together
with all other amounts that then may be due hereunder (including, without
limitation, all Basic Rent due on or before the date of such payment (other than
Basic Rent payable in advance, if any, on such date)), under the Participation
Agreement and under the Tax Indemnity Agreement, (1) the obligation of Lessee to
pay the installments of Basic Rent, Supplemental Rent, Stipulated Loss Value,
Termination Value or any other amount shall cease to accrue, (2) this Lease
shall terminate, (3) Lessor will comply with the terms of the Trust Indenture
and transfer to or at the direction of Lessee, without recourse or warranty
(except as to the absence of Lessor Liens (including for this purpose Liens that
would be Lessor Liens but for the proviso to the definition of Lessor Liens)),
all Lessor's right, title and interest in and to the Airframe and the Engines
"as-is, where-is" and furnish to or at the direction of Lessee, at Lessee's
expense, a bill of sale in form and substance reasonably satisfactory to Lessee
(or any Sublessee), evidencing such transfer, and (4) Lessee will be subrogated
to all claims of Lessor if any against third parties (other than Lessor's or the
Owner Participant's insurers under policies independently maintained at its own
cost and expense in accordance with Section 11(e) hereof), but only to the
extent the same relate to physical damage to or loss of the Airframe and any
Engines which were subject to such Event of Loss.
In the event Lessee shall elect to substitute an aircraft (or an
airframe or an airframe and one or more engines, as the case may be) Lessee
shall (A) convey or cause to be conveyed to Lessor an aircraft (or an airframe
or an airframe and an engine which, together with the Engines or Engine
constituting a part of the Aircraft but not installed thereon at the time of
such Event of Loss, constitute the Aircraft) free and clear of all Liens (other
than Permitted Liens) and having at least the fair market value, utility and
remaining useful life and being in as good an operating condition as, the
Aircraft subject to such Event of Loss assuming that the Aircraft had been
maintained in accordance with this Lease; provided that any aircraft or airframe
so substituted hereunder shall be of the same make and model or improved model
as those initially leased hereunder and any engine substituted hereunder shall
be an Acceptable Alternate Engine and (B) prior to or at the time of any such
substitution, Lessee (or any Sublessee), at its own expense, will (1) furnish
48
[Lease Agreement (1995 777 B)]
Lessor with a full warranty bill of sale and a FAA bill of sale, in form and
substance reasonably satisfactory to the Owner Participant, evidencing such
transfer of title, (2) cause a Lease Supplement and a Trust Supplement to be
duly executed by Lessee and filed for recording pursuant to the Federal Aviation
Act, or the applicable laws, rules and regulations of any other jurisdiction in
which the Airframe may then be registered, and cause a financing statement or
statements or other requisite documents of a similar nature (including
precautionary filings) to be filed in such place or places as necessary in order
to perfect the security interests therein created by or pursuant to the Trust
Indenture (and, with regard to precautionary filings, this Lease), (3) furnish
the Owner Participant with such evidence of Lessor's title to such replacement
aircraft and of compliance with the insurance provisions of Section 11 with
respect to such substituted property as Lessor, in its individual capacity, and
the Owner Participant may reasonably request, (4) provide Owner Participant an
opinion of outside tax counsel, which opinion and counsel shall be satisfactory
to Owner Participant, to the effect that such substitution will not result in
any adverse tax consequences (including under Section 861 of the Code as then in
effect) to Lessor and/or the Owner Participant (it being understood that if such
opinion cannot be given Lessee may indemnify Owner Participant for such adverse
tax consequences in lieu of such opinion in a manner satisfactory in form and
substance to the Owner Participant), (5) provide Lessor, Owner Participant and
the Indenture Trustee an opinion of counsel, which counsel and opinion shall be
reasonably acceptable to Lessor, in its individual capacity, and the Owner
Participant, to the effect that Lessor and the Indenture Trustee (as assignee of
all right, title and interest of Lessor under the Lease) shall be entitled to
the benefits and protections of Section 1110 of the Bankruptcy Code with respect
to the aircraft substituted hereunder, (6) provide an opinion of counsel to
Lessor and the Indenture Trustee, which opinion and counsel shall be reasonably
acceptable to the Lessor, in its individual capacity, and the Owner Participant,
to the effect that title to such replacement aircraft has been duly conveyed to
Lessor free and clear of all Liens except Permitted Liens and that such
replacement aircraft is duly subjected to the Lien of the Trust Indenture and
(7) provide Lessor, Owner Participant and Indenture Trustee all the
documentation required (or, following the termination of the Trust Indenture,
all the documentation that prior to such termination would have been required)
to be provided by it pursuant to Section 5.01(b) of the Trust Indenture, and
Lessor simultaneously will comply with the terms of the Trust Indenture and
transfer to or at the direction of Lessee, without recourse or warranty (except
as to the absence of Lessor Liens (including for this purpose Liens that would
be Lessor Liens but for the proviso to the definition of Lessor Liens)), all of
Lessor's
49
[Lease Agreement (1995 777 B)]
right, title and interest, if any, in and to the Aircraft or the Airframe and
one or more Engines, as the case may be, "as-is, where-is" with respect to which
such Event of Loss occurred and furnish to or at the direction of Lessee, at
Lessee's expense, a bill of sale in form and substance reasonably satisfactory
to Lessee, evidencing such transfer. Lessee will be subrogated to all claims
of Lessor, if any, against third parties (other than Lessor's or the Owner
Participant's insurers under policies independently maintained at their own cost
and expense in accordance with Section 11(e) hereof) but only to the extent the
same relate to physical damage to or loss of the Airframe and any Engine which
were subject to such Event of Loss. For all purposes hereof, the property so
substituted shall after such transfer be deemed part of the property leased
hereunder and shall be deemed an "Aircraft," "Airframe" and "Engine," as the
case may be, as defined herein. No Event of Loss with respect to the Airframe
or the Airframe and the Engines or engines then installed thereon for which
substitution has been elected pursuant to Section 10(a)(ii) hereof shall result
in any reduction in Basic Rent.
(b) Event of Loss with Respect to an Engine. Upon the occurrence of
an Event of Loss with respect to an Engine under circumstances in which there
has not occurred an Event of Loss with respect to the Airframe, Lessee shall
forthwith (and in any event, within fifteen days after such occurrence) give
Lessor written notice thereof and shall, within forty-five (45) days after the
occurrence of such Event of Loss, convey or cause to be conveyed to Lessor, as
replacement for the Engine with respect to which such Event of Loss occurred,
title to an Acceptable Alternate Engine free and clear of all Liens (other than
Permitted Liens, which engine may upon its transfer to Lessor become subject to
any and all Permitted Liens) and having a value and utility at least equal to,
and being in as good an operating condition as and having been maintained in the
same manner as, the Engine subject to such Event of Loss (assuming that such
Engine had been maintained in accordance with this Lease); provided, however,
upon written notice to Lessee given within 20 days after Lessor has received
notice of such Event of Loss, the Lessor may require Lessee to pay with respect
to the Engine subject to such Event of Loss within 45 days after the occurrence
of such Event of Loss (provided that in no event shall such payment be required
to be made prior to the Commencement Date) an amount equal to (A) Engine Cost
multiplied by the percentage specified in Exhibit C hereto opposite the
Stipulated Loss Value Date occurring on or immediately following the date of
such Event of Loss, plus (B) interest on the amount determined pursuant to
clause (A) above at the Debt Rate from and including such Stipulated Loss Value
Date to, but excluding, the date such amount is paid in full; and provided,
further, if Lessee pays
50
[Lease Agreement (1995 777 B)]
such Stipulated Loss Value and interest, then, subject to Section 5(e), Lessee
shall only be obligated to return the Aircraft to Lessor with any Engine
attached thereto with respect to which Lessee has not paid Stipulated Loss Value
pursuant to this Section 10(b) at any time that Lessee is required to return the
Aircraft to Lessor pursuant to the terms hereof; provided further, however,
that, in lieu of paying such Stipulated Loss Value and interest, Lessee may
replace the Engine in accordance with this Section 10(b) if Lessee provides to
the Owner Participant either: (x) an opinion of outside tax counsel, which
opinion and counsel shall be satisfactory to the Owner Participant, to the
effect that such substitution will not result in any adverse tax consequences to
the Owner Participant, or (y) an indemnity, satisfactory in form and substance
to the Owner Participant, for any adverse tax consequences resulting from such
substitution. Prior to or at the time of any such conveyance, Lessee, at its
own expense, will (i) furnish Lessor with a warranty (as to title) bill of sale,
in form and substance reasonably satisfactory to Lessor, with respect to such
replacement engine, (ii) cause a Lease Supplement and Trust Supplement to be
duly executed by Lessee and to be filed for recording pursuant to the Federal
Aviation Act, or the applicable laws, rules and regulations of any other
jurisdiction in which the Airframe may then be registered, and cause a financing
statement or statements or other requisite documents of a similar nature
(including precautionary filings) to be filed in such place or places as
necessary in order to perfect the security interests therein created by or
pursuant to the Trust Indenture (and, with regard to precautionary filings, this
Lease), (iii) furnish Lessor with such evidence of Lessor's title to such
Acceptable Alternate Engine and of compliance with the insurance provisions of
Section 11 hereof with respect to such replacement engine as Lessor, in its
individual capacity, or the Owner Participant may reasonably request, (iv)
provide Lessor and the Indenture Trustee an opinion of Lessee's counsel which
counsel and opinion shall be reasonably satisfactory to Lessor, in its
individual capacity, or the Owner Participant to the effect that title to such
Acceptable Alternate Engine has been duly conveyed to Lessor free and clear of
all Liens except Permitted Liens and that such Acceptable Alternate Engine is
duly subjected to the Lien of the Trust Indenture, and (v) provide Lessor, Owner
Participant and Indenture Trustee all the documentation required (or, following
the termination of the Trust Indenture, all the documentation that prior to such
termination would have been required) to be provided by it pursuant to Section
5.01(b) of the Trust Indenture, and Lessor will comply with the terms of the
Trust Indenture and transfer to or at the direction of Lessee without recourse
or warranty (except as to absence of Lessor Liens (including for this purpose
Liens that would be Lessor Liens but for the proviso to the definition of Lessor
Liens)) all
51
[Lease Agreement (1995 777 B)]
of Lessor's right, title and interest, if any, in and to (1) the Engine with
respect to which such Event of Loss occurred and furnish to or at the direction
of Lessee, and at Lessee's expense, a bill of sale in form and substance
reasonably satisfactory to Lessee, evidencing such transfer and (2) all claims,
if any, against third parties (other than Lessor's or the Owner Participant's
insurers under policies independently maintained at their own cost and expense
in accordance with Section 11(e) hereof), for damage to or loss of the Engine
subject to such Event of Loss, and such Engine shall thereupon cease to be an
Engine leased hereunder. For all purposes hereof, each such replacement engine
shall, after such conveyance, be deemed part of the property leased hereunder,
and shall be deemed an "Engine." Except to the extent Lessor's Cost is reduced
pursuant to the definition thereof, no Event of Loss with respect to an Engine
under the circumstances contemplated by the terms of this paragraph (b) shall
result in any reduction in Basic Rent.
(c) Application of Payments from Governmental Authorities for
Requisition of Title, etc. Any payments (other than insurance proceeds the
application of which is provided for in Section 11) received at any time by
Lessor or by Lessee from any governmental authority or other Person with respect
to an Event of Loss, other than a requisition for use by the United States
Government or other government of registry of the Aircraft or any
instrumentality or agency of any thereof not constituting an Event of Loss, will
be applied as follows:
(i) if payments are received with respect to the Airframe (or the
Airframe and any Engine or engines then installed thereon), (A) unless the
same are replaced pursuant to the last paragraph of Section 10(a), after
reimbursement of Lessor (as provided in Section 7.01 of the Trust
Agreement) and the Owner Participant for reasonable costs and expenses, so
much of such payments remaining as shall not exceed the Stipulated Loss
Value and the other amounts payable under Section 10(a) hereof required to
be paid by Lessee pursuant to Section 10(a), shall be applied in reduction
of Lessee's obligation to pay Stipulated Loss Value and the other amounts
payable under Section 10(a) hereof, if not already paid by Lessee, or, if
already paid by Lessee, shall be applied to reimburse Lessee for its
payment of Stipulated Loss Value and such other amounts, and following the
foregoing application, the balance, if any, of such payments shall be
distributed between Lessee and Lessor as their respective interests may
appear; or (B) if such property is replaced pursuant to the last paragraph
of Section 10(a), such payments shall be paid over to or retained by,
Lessee; provided, that Lessee shall have fully
performed or, concurrently therewith, will fully perform the
52
[Lease Agreement (1995 777 B)]
terms of the last paragraph of Section 10(a) with respect to the Event of
Loss for which such payments are made; and
(ii) if such payments are received with respect to an Engine under
circumstances contemplated by Section 10(b) hereof, (A) unless the same is
replaced pursuant to the terms of Section 10(b), after reimbursement of
Lessor (as provided for in Section 7.01 of the Trust Agreement) and the
Owner Participant for reasonable costs and expenses, so much of such
payments remaining as shall not exceed the amounts payable under Section
10(b) hereof by Lessee, shall be applied in reduction of Lessee's
obligation to pay the same, if not already paid by Lessee, or if already
paid by Lessee, shall be applied to reimburse Lessee for its payment of
such amounts and following the foregoing application, the balance, if any,
shall be paid to Lessee; or (B) if such property is replaced pursuant to
Section 10(b), such payments shall be paid over to, or retained by, Lessee,
provided that Lessee shall have fully performed, or concurrently therewith
will perform, the terms of Section 10(b) with respect to the Event of Loss
for which such payments are made.
(d) Requisition for Use of the Aircraft by the United States
Government or Government of Registry of the Aircraft. In the event of the
requisition for use of the Airframe and the Engines or engines installed on the
Airframe during the Term by the United States Government or any other government
of registry of the Aircraft or any instrumentality or agency of any thereof,
Lessee shall promptly notify Lessor of such requisition, and all of Lessee's
obligations under this Lease Agreement with respect to the Aircraft shall
continue to the same extent as if such requisition had not occurred (unless
deemed prior to the end of the Term an Event of Loss in which case the foregoing
provisions of this Section 10 shall be applicable). If Lessee shall fail to
return the Aircraft (i) on or before the end of the Term, in the case of a
requisition by the United States government or any agency or instrumentality
thereof or (ii) within the earlier of the end of the Term or two years after
such requisition in the case of a requisition for use by the government of
registry of the Aircraft or any agency or instrumentality thereof (other than
the United States government or any agency or instrumentality thereof), such
failure shall constitute an Event of Loss which shall be deemed to have occurred
in the case of clause (i) on the last day of the Term, and in the case of clause
(ii), on the earlier of the last day of the Term or the expiration of such two-
year period, provided, however, that Lessor may notify Lessee in writing on or
before the twentieth day prior to the last day of the Term that, in the event
Lessee shall fail by reason of such requisition to return the Airframe and such
Engines or
53
[Lease Agreement (1995 777 B)]
engines on or before the end of the Term, such failure shall not be deemed an
Event of Loss. Upon the giving of such notice and such failure to return by the
end of the Term, Lessee shall be relieved of all of its obligations pursuant to
the provisions of Section 5 (but not under any other Section), except that if
any engine not owned by Lessor shall then be installed on the Airframe, Lessee
will, at no cost to Lessor, furnish, or cause to be furnished, to Lessor a full
warranty (as to title) bill of sale with respect to each such engine, in form
and substance reasonably satisfactory to Lessor, in its individual capacity, and
the Owner Participant (together with an opinion of counsel (which may be
Lessee's General Counsel) to the effect that such full warranty bill of sale has
been duly authorized and delivered and is enforceable in accordance with its
terms and that such engines are free and clear of Liens other than Lessor Liens
(including for this purpose Liens that would be Lessor Liens but for the proviso
to the definition of Lessor Liens), against receipt from Lessor, at Lessee's
expense, of a bill of sale evidencing the transfer, without recourse or warranty
(except as to the absence of Lessor Liens (including for this purpose Liens that
would be Lessor Liens but for the proviso to the definition of Lessor Liens)),
by Lessor to Lessee or its designee of all of Lessor's right, title and interest
in and to any Engine constituting part of the Aircraft but not then installed on
the Airframe. All payments received by Lessor or Lessee from such government for
the use of such Airframe and Engines or engines during the Term shall be paid
over to, or retained by, Lessee (or, if directed by Lessee, any Sublessee); and
all payments received by Lessor or Lessee from such government for the use of
such Airframe and Engines or engines after the end of the Term shall be paid
over to, or retained by, Lessor unless Lessee shall have exercised its purchase
option hereunder, or there is a deemed Event of Loss hereunder, in which case
such payments shall be made to Lessee.
(e) Requisition for Use of an Engine by the United States Government
or the Government of Registry of the Aircraft. In the event of the requisition
for use of an Engine during the Term by the United States Government or any
other government of registry of the Aircraft or any agency or instrumentality of
any thereof (other than in the circumstances contemplated by subsection (d))
which shall have continued for more than 180 days or, if earlier, until the end
of the Term, Lessee shall replace (or cause any Sublessee to replace) such
Engine hereunder and Lessor and Lessee (or Sublessee as the case may be) shall
comply with the terms of Section 10(b) to the same extent as if an Event of Loss
had occurred with respect to such Engine. Upon compliance with Section 10(b)
hereof, any payments received by Lessor or Lessee from such government with
respect to such requisition shall be paid over to, or retained by Lessee.
54
[Lease Agreement (1995 777 B)]
(f) Application of Payments During Existence of Events of Default.
Any amount referred to in this Section 10 which is payable to or retainable by
Lessee (or any Sublessee) shall not be paid to or retained by Lessee (or any
Sublessee) if at the time of such payment or retention a Default or an Event of
Default shall have occurred and be continuing, but shall be held by or paid over
to Lessor as security for the obligations of Lessee (or such Sublessee) under
this Lease and applied against Lessee's obligations hereunder as and when due.
At such time as there shall not be continuing any such Default or Event of
Default, such amount shall be paid to Lessee to the extent not previously
applied in accordance with the preceding sentence.
SECTION 11. Insurance. (a) Public Liability and Property Damage
Insurance. (1) Except as provided in clause (2) of this Section 11(a), and
subject to self-insurance to the extent permitted by Section 11(d) hereof,
Lessee will carry or cause to be carried with respect to the Aircraft at its or
any Sublessee's expense (i) comprehensive airline liability (including, without
limitation, passenger, contractual, bodily injury, and property damage
liability) insurance (exclusive of manufacturer's product liability insurance)
and (ii) cargo liability insurance, (A) in an amount not less than the greater
of (x) the amounts of comprehensive airline liability insurance from time to
time applicable to aircraft owned or leased, and operated by Lessee of the same
type as the Aircraft and (y) $450,000,000 per occurrence, (B) of the type and
covering the same risks as from time to time are applicable to aircraft owned or
leased, and operated by Lessee of the same type as the Aircraft, and (C) which
is maintained in effect with insurers of recognized reputation and
responsibility; provided, however, that Lessee need not maintain cargo liability
insurance, or may maintain such insurance in an amount less than $450,000,000
per occurrence, as long as the amount of cargo liability insurance, if any,
maintained with respect to the Aircraft is the same as the cargo liability
insurance, if any, maintained for other Boeing Model 777-222 aircraft owned or
leased, and operated by Lessee.
(2) During any period that the Airframe or an Engine, as the case may
be, is on the ground and not in operation, Lessee may carry or cause to be
carried as to such non-operating property, in lieu of the insurance required by
clause (1) above, and subject to the self-insurance to the extent permitted by
Section 11(d) hereof, insurance by insurers of recognized reputation and
responsibility otherwise conforming with the provisions of clause (1) except
that (A) the amounts of coverage shall not be required to exceed the amounts of
comprehensive airline liability insurance from time to time applicable to
property owned or leased by Lessee of the same type as such non-
55
[Lease Agreement (1995 777 B)]
operating property and which is on the ground and not in operation; and (B) the
scope of the risks covered and the type of insurance shall be the same as from
time to time shall be applicable to property owned or leased by Lessee of the
same type as such non-operating property and which is on the ground and not in
operation.
(b) Insurance Against Loss or Damage to the Aircraft. (1) Except as
provided in clause (2) of this Section 11(b), and subject to the provisions of
Section 11(d) hereof permitting self-insurance, Lessee shall maintain or cause
to be maintained in effect, at its or any Sublessee's expense, with insurers of
recognized reputation and responsibility, all-risk aircraft hull insurance
covering the Aircraft and fire and extended coverage and all-risk aircraft hull
insurance covering Engines and Parts while temporarily removed from the Aircraft
and not replaced by similar components (including, without limitation, aircraft
war risk and governmental confiscation and expropriation (other than by the
government of registry of the Aircraft) and hijacking insurance, if and to the
extent the same is maintained by Lessee (or any Sublessee) with respect to other
aircraft owned or leased, and operated by Lessee (or such Sublessee) on the same
routes); provided, that such insurance shall at all times while the Aircraft is
subject to this Lease be for an amount (taking into account self-insurance to
the extent permitted by Section 11(d) hereof) not less than the Stipulated Loss
Value for the Aircraft; and provided further, that subject to compliance with
Section 11(d) hereof, such all-risk property damage insurance covering Engines
and Parts while temporarily removed from the Airframe or an airframe of (in the
case of Parts) an Engine need be obtained only to the extent available at
reasonable cost (as reasonably determined by Lessee). In the case of a loss
with respect to an engine (other than an Engine) installed on the Airframe in
circumstances which do not constitute an Event of Loss with respect to the
Airframe, Lessor shall promptly remit any payment made to it of any insurance
proceeds in respect of such loss to Lessee or any other third party that is
entitled to receive such proceeds.
Except during a period when a Section 14(a), (b), (f) or (g) Default
or an Event of Default has occurred and is continuing, all losses will be
adjusted by Lessee with the insurers giving due regard to Lessor's interest. As
between Lessor and Lessee, it is agreed that all proceeds of insurance
maintained in compliance with the preceding paragraph and received as the result
of the occurrence of an Event of Loss will be applied as follows:
(x) if such payments are received with respect to the Airframe (or the
Airframe and the Engines installed
56
[Lease Agreement (1995 777 B)]
thereon), (i) unless such property is replaced pursuant to the last
paragraph of Section 10(a) hereof, so much of such payments remaining,
after reimbursement of Lessor (as provided in Section 7.01 of the Trust
Agreement) and the Owner Participant for reasonable costs and expenses, as
shall not exceed the Stipulated Loss Value and the other amounts payable
under Section 10(a) hereof required to be paid by Lessee pursuant to
Section 10(a) hereof shall be applied in reduction of Lessee's obligation
to pay such Stipulated Loss Value and the other amounts payable under
Section 10(a) hereof, 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 the other amounts payable under Section 10(a)
hereof, and the balance, if any, of such payments remaining thereafter will
be paid over to, or retained by, Lessee (or if directed by Lessee, any
Sublessee); or (ii) if such property is replaced pursuant to the last
paragraph of Section 10(a) hereof, such payments shall be paid over to, or
retained by, Lessee (or if directed by Lessee, any Sublessee), provided
that Lessee shall have fully performed or, concurrently therewith, will
fully perform the terms of the last paragraph of Section 10(a) hereof with
respect to the Event of Loss for which such payments are made; and
(y) if such payments are received with respect to an Engine under
the circumstances contemplated by Section 10(b) hereof, so much of such
payments remaining after reimbursement of Lessor and the Owner Participant
for reasonable costs and expenses shall be paid over to, or retained by,
Lessee (or if directed by Lessee, any Sublessee), provided that Lessee
shall have fully performed or, concurrently therewith, will fully perform
the terms of Section 10(b) hereof with respect to the Event of Loss for
which such payments are made.
(2) During any period that the Aircraft is on the ground and not in
operation, Lessee may carry or cause to be carried, in lieu of the insurance
required by clause (1) above, and subject to the self-insurance to the extent
permitted by Section 11(d) hereof, insurance otherwise conforming with the
provisions of said clause (1) except that the scope of the risks and the type of
insurance shall be the same as from time to time applicable to aircraft owned or
leased by Lessee of the same type as the Aircraft similarly on the ground and
not in operation, provided that, subject to the self-insurance to the extent
permitted by Section 11(d) hereof, Lessee shall maintain insurance against risk
of loss or damage to the Aircraft in an amount at least equal to the Stipulated
Loss Value of the
57
[Lease Agreement (1995 777 B)]
Aircraft during such period that the Aircraft is on the ground and not in
operation.
(c) Reports, etc. Lessee will furnish, or cause to be furnished, to
Lessor, the Indenture Trustee, the Owner Participant and, so long as the Pass
Through Trustees are the Certificate Holders, each Pass Through Trustee, on or
before the Delivery Date, and each annual anniversary of the Delivery Date
during the Term, a report, signed by Rollins Hudig Hall of Illinois, Inc. or any
other independent firm of insurance brokers reasonably acceptable to Lessor
which brokers may be in the regular employ of Lessee (the "Insurance Brokers"),
describing in reasonable detail the hull and liability insurance (and property
insurance for detached engines and parts) then carried and maintained with
respect to the Aircraft and stating the opinion of such firm that (a) such
insurance complies with the terms hereof and (b) that such insurance together
with any self-insurance permitted hereby provides coverage that are in
substantially similar forms, are of such types and have limits within the range
of limits as are customarily carried by U.S. carriers; provided, however, that
the opinion set forth in clause (b) shall not be required if the Insurance
Broker then generally does not provide such an opinion or will provide such an
opinion for material additional cost; and provided further that all information
contained in the foregoing report shall not be made available by Lessor, the
Indenture Trustee, the Pass Through Trustees or the Owner Participant to anyone
except (A) to prospective and permitted transferees of Lessor's, the Owner
Participant's, any Pass Through Trustee's or the Indenture Trustee's interest or
their respective counsel, independent certified public accountants, independent
insurance brokers or other agents, who agree to hold such information
confidential, (B) to Lessor's, Owner Participant's, any Pass Through Trustee's
or the Indenture Trustee's counsel or independent certified public accountants,
independent insurance brokers or other agents who agree to hold such information
confidential, (C) as may be required by any statute, court or administrative
order or decree or governmental ruling or regulation, or (D) as may be necessary
for purposes of protecting the interest of any such Person or for enforcement of
this Lease by Lessor or the Indenture Trustee; provided, however, that any and
all disclosures permitted by clauses (C) or (D) above shall be made only to the
extent necessary to meet the specific requirements or needs of the Persons to
whom such disclosures are hereby permitted. Lessee will cause such Insurance
Broker to agree to advise Lessor, the Indenture Trustee, the Owner Participant
and, so long as the Pass Through Trustees are the Certificate Holders, each Pass
Through Trustee in writing of any act or omission on the part of Lessee of which
it has knowledge and which might invalidate or render unenforceable, in whole or
in part, any insurance on the Aircraft
58
[Lease Agreement (1995 777 B)]
and to advise such Persons in writing at least 30 days (7 days in the case of
war risk and allied perils coverage) prior to the cancellation or material
adverse change of any insurance maintained pursuant to this Section 11, provided
that if the notice period specified above is not reasonably obtainable, the
Insurance Broker shall provide for as long a period of prior notice as shall
then be reasonably obtainable. In addition, Lessee will also cause such
Insurance Broker to deliver to Lessor, the Indenture Trustee, the Owner
Participant and, so long as the Pass Through Trustees are the Certificate
Holders, each Pass Through Trustee, on or prior to the date of expiration of any
insurance policy referenced in a previously delivered certificate of insurance,
a new certificate of insurance, substantially in the same form as delivered by
Lessee to such parties on the Delivery Date except for the changes in the report
or the coverage consistent with the terms hereof. In the event that Lessee or
any Sublessee shall fail to maintain or cause to be maintained insurance as
herein provided, Lessor, the Indenture Trustee or, so long as the Pass Through
Trustees are the Certificate Holders, each Pass Through Trustee may at its sole
option, but shall be under no duty to, provide such insurance and, in such
event, Lessee shall, upon demand, reimburse Lessor, the Indenture Trustee or
such Pass Through Trustee, as Supplemental Rent, for the cost thereof to Lessor,
such Pass Through Trustee or the Indenture Trustee, as the case may be;
provided, however, that no exercise by Lessor, a Pass Through Trustee or the
Indenture Trustee, as the case may be, of said option shall affect the
provisions of this Lease, including the provisions that failure by Lessee to
maintain the prescribed insurance shall constitute an Event of Default.
(d) Self-Insurance. Lessee may self-insure the risks required to be
insured against pursuant to this Section 11 under a program applicable to all
aircraft (whether owned or leased) in Lessee's fleet, but in no case shall the
aggregate amount of such self-insurance in regard to Sections 11(a) and 11(b)
hereof exceed for any calendar year, with respect to all of the aircraft
(whether owned or leased) in Lessee's fleet (including, without limitation, the
Aircraft) the lesser of (A) 50% of the highest replacement value of any single
aircraft in Lessee's fleet or (B) 1-1/2% of the average aggregate insurable
value (during the preceding calendar year) of all aircraft (including, without
limitation, the Aircraft) on which Lessee carries insurance. In addition to the
foregoing right to self-insure, Lessee (and any Sublessee) may self-insure to
the extent of any applicable mandatory minimum per aircraft (or, if applicable,
per annum or other period) hull or liability insurance deductible imposed by the
aircraft hull or liability insurer.
59
[Lease Agreement (1995 777 B)]
(e) Additional Insurance by Lessor and Lessee. Lessee (and any
Sublessee) may at its own expense carry insurance with respect to its interest
in the Aircraft in amounts in excess of that required to be maintained by this
Section 11. The Owner Participant or Lessor may carry for its own account at
its sole cost and expense insurance with respect to its interest in the
Aircraft, provided that such insurance does not prevent Lessee (or any
Sublessee) from carrying the insurance required or permitted by this Section 11
or adversely affect such insurance or materially increase the cost thereof.
(f) Indemnification by Government in Lieu of Insurance.
Notwithstanding any provisions of this Section 11 requiring insurance, Lessor
agrees to accept, in lieu of insurance against any risk with respect to the
Aircraft, indemnification from, or insurance provided by, the United States
Government or any agency or instrumentality thereof, the obligations of which
are supported by the full faith and credit of the federal government of the
United States, against such risk in an amount which, when added to the amount of
insurance against such risk maintained by Lessee (or any Sublessee) shall be at
least equal to the amount of insurance against such risk otherwise required by
this Section 11 (taking into account self-insurance permitted by Section 11(d)
hereof).
(g) Application of Payments During Existence of Default. Any amount
referred to in this Section 11 which is payable to or retainable by Lessee (or
any Sublessee) shall not be paid to or retained by Lessee (or any Sublessee) if
at the time of such payment or retention a Default or an Event of Default shall
have occurred and be continuing, but shall be held by or paid over to Lessor as
security for the obligations of Lessee under this Lease and, if such a Default
or an Event of Default shall have occurred and be continuing, applied against
Lessee's obligations hereunder as and when due. At such time as there shall not
be continuing any such Default or Event of Default, such amount shall be paid to
Lessee to the extent not previously applied in accordance with the preceding
sentence.
(h) Terms of Insurance Policies. Any policies carried in accordance
with Sections 11(a) and 11(b) hereof covering the Aircraft, and any policies
taken out in substitution or replacement for any such policies, (A) shall name
the Additional Insureds as additional insureds, or, if appropriate, loss payees,
as their respective interests may appear (but without imposing on any such party
liability to pay premiums with respect to such insurance), (B) may provide for
self-insurance to the extent permitted in Section 11(d) hereof, (C) shall
provide that if the insurers cancel such insurance for any reason whatever, or
if the same is allowed to lapse for non-payment of premium or if any
60
[Lease Agreement (1995 777 B)]
material change is made in the insurance which adversely affects the interest of
any Additional Insured, such lapse, cancellation or change shall not be
effective as to any Additional Insured for thirty days (ten days in the case of
lapse for nonpayment of premium and seven days in the case of war risk and
allied perils coverage) after receipt by such Additional Insured of written
notice by such insurers of such lapse, cancellation or change; provided,
however, that if any notice period specified above is not reasonably obtainable,
such policies shall provide for as long a period of prior notice as shall then
be reasonably obtainable, (D) shall provide that in respect of the respective
interests of each Additional Insured in such policies the insurance shall not be
invalidated by any action or inaction of Lessee (or any Sublessee) or any other
Person and shall insure the respective interests of the Additional Insureds, as
they appear, regardless of any breach or violation of any warranty, declaration
or condition contained in such policies by Lessee (or any Sublessee) or by any
other Person, (E) shall be primary without any right of contribution from any
other insurance which is carried by any Additional Insured, (F) shall expressly
provide that all of the provisions thereof, except the limits of liability,
shall operate in the same manner as if there were a separate policy covering
each insured, (G) shall waive any right of the insurers to set-off or
counterclaim or any other deduction, whether by attachment or otherwise, in
respect of any liability of any Additional Insured, and (H) shall provide that
(i) in the event of a loss involving the Aircraft, Airframe, or an Engine for
which proceeds are in excess of $5,000,000 ($2,500,000 if the Aircraft is under
sublease), the proceeds in respect of such loss up to the amount of Stipulated
Loss Value for the Aircraft shall be payable to Lessor (or, so long as the Trust
Indenture shall be in effect, the Indenture Trustee), it being understood and
agreed that in the case of any payment to Lessor (or the Indenture Trustee)
otherwise than in respect of an Event of Loss, Lessor (or the Indenture Trustee)
shall, upon receipt of evidence reasonably satisfactory to it that the damages
giving rise to such payment shall have been repaired or that such payment shall
then be required to pay for repairs then being made, pay the amount of such
payment, and any interest or income earned thereon in accordance with Section 22
hereof, to Lessee or its order, and (ii) the entire amount of any such loss for
which proceeds are $5,000,000 ($2,500,000 if the Aircraft is under sublease) or
less or the amount of any proceeds of any such loss in excess of Stipulated Loss
Value for the Aircraft shall be paid to Lessee or its order unless a Default or
an Event of Default shall have occurred and be continuing and the insurers have
been notified thereof by Lessor or the Indenture Trustee.
SECTION 12. Inspection. At reasonable times, and upon at least 10
days (or one day if a Section 14(a), 14(b), 14(d)
61
[Lease Agreement (1995 777 B)]
(solely with respect to Lessee's obligations under Section 7(a) or (b)(viii) or
Section 8 hereof), 14(f) or 14(g) Default or any Event of Default shall have
occurred and be continuing) prior written notice, the Owner Participant or the
Indenture Trustee, or their respective authorized representatives, may inspect
the Aircraft (provided, however, that such inspections by the Owner Participant
and its authorized representatives or the Indenture Trustee and its authorized
representative shall, in regard to each of the Owner Participant and the
Indenture Trustee, be limited to one inspection of the Aircraft during any
consecutive twelve-month period except during the continuance of a Default or an
Event of Default when such inspection right shall not be so limited) and inspect
and make copies of the books and records of Lessee and any Sublessee required to
be maintained by the FAA or the regulatory agency or body of another
jurisdiction in which the Aircraft is then registered relating to the
maintenance of the Aircraft (at the Owner Participant's or the Indenture
Trustee's risk and expense (unless a Section 14(a), 14(b), 14(f) or 14(g)
Default or any Event of Default shall have occurred and be continuing in which
case such inspection shall be at Lessee's expense), as the case may be) and
shall keep any information or copies obtained thereby confidential and shall not
disclose the same to any Person, except (A) to Lessor and the Pass Through
Trustees and to prospective and permitted transferees of Lessor's, the Owner
Participant's, any Pass Through Trustee's or the Indenture Trustee's interest
(and such prospective and permitted transferee's counsel, independent insurance
advisors or other agents) who agree to hold such information confidential, (B)
to Lessor's, the Owner Participant's, any Pass Through Trustee's or the
Indenture Trustee's counsel, independent insurance advisors or other agents who
agree to hold such information confidential, (C) as may be required by any
statute, court or administrative order or decree or governmental ruling or
regulation, (D) as may be necessary for purposes of protecting the interest of
any such Person or for enforcement of this Lease by Lessor or the Indenture
Trustee; provided, however, that any and all disclosures permitted by clauses
(C) and (D) above shall be made only to the extent necessary to meet the
specific requirements or needs of Persons for whom such disclosures are hereby
permitted. Any such inspection of the Aircraft shall be subject to Lessee's
safety and security rules applicable at the location of the Aircraft, shall be a
visual, walk-around inspection of the interior and exterior of the Aircraft and
shall not include opening any panels, bays or the like without the express
consent of Lessee (except in connection with a heavy maintenance visit when a
panel, bay or the like is scheduled or required to be open), which consent
Lessee may in its sole discretion withhold; provided that no exercise of such
inspection right shall interfere with the normal operation or maintenance of the
Aircraft by, or the business of, Lessee (or any Sublessee).
62
[Lease Agreement (1995 777 B)]
Upon receipt by Lessee of a written request from the Owner Participant
specifying that the Owner Participant desires to have an authorized
representative observe the last scheduled heavy maintenance visit to be
performed on the Aircraft (or substantially equivalent successor type of
maintenance work) during the Term, Lessee shall cooperate with the Owner
Participant to enable the Owner Participant's representative to observe such
last scheduled heavy maintenance visit to be performed on the Aircraft during
the Term, including reasonable advance notification to the Owner Participant of
the time and place of such scheduled heavy maintenance visit; provided that the
Owner Participant's authorized representative shall merely observe such
scheduled heavy maintenance visit, shall not interfere with or extend in any
manner the normal conduct or duration of the scheduled heavy maintenance visit,
and shall not be entitled to direct any of the work performed in connection with
such scheduled heavy maintenance visit. Neither the Owner Participant nor the
Indenture Trustee shall have any duty to make any such inspection nor shall any
of them incur any liability or obligations by reason of not making any such
inspection.
SECTION 13. Assignment. Except as otherwise provided in the
Operative Documents, Lessee will not, without the prior written consent of
Lessor, assign any of its rights hereunder. Lessor agrees that it will not
assign or convey its right, title and interest in and to this Lease or the
Aircraft except as provided in the Operative Documents. Subject to the
foregoing, the terms and provisions of this Lease shall be binding upon and
inure to the benefit of Lessor and Lessee and their respective successors and
permitted 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) and each such Event of
Default shall continue so long as, but only as long as, it shall not have been
remedied:
(a) Lessee shall not have made a payment of Basic Rent, Stipulated
Loss Value, Termination Value, EBO Price, Special Termination Value or Premium
within ten (10) days after the same shall have become due; or
(b) Lessee shall have failed to make a payment of Supplemental Rent
(other than Supplemental Rent referred to in paragraph (a) of this Section 14)
after the same shall have become due and such failure shall continue for fifteen
(15) days after Lessee's receipt of written demand therefor by the party
63
[Lease Agreement (1995 777 B)]
entitled thereto (provided that any failure to pay any amount owed by Lessee
under the Tax Indemnity Agreement or any failure of Lessee to pay to Lessor or
the Owner Participant when due any Excluded Payments shall not constitute an
Event of Default unless written notice is given by the Owner Participant to
Lessee and the Indenture Trustee that such failure shall constitute an Event of
Default); or
(c) Lessee shall fail to carry and maintain on or with respect to the
Aircraft (or cause to be carried and maintained) insurance required to be
maintained in accordance with the provisions of Section 11 hereof; or
(d) Lessee shall have failed to perform or observe (or caused to be
performed and observed) any other covenant or agreement to be performed or
observed by it under any Operative Document, and such failure shall continue
unremedied for a period of thirty days after written notice thereof by Lessor or
the Indenture Trustee; provided, however, that if Lessee shall have undertaken
to cure any such failure and, notwithstanding the reasonable diligence of Lessee
in attempting to cure such failure, such failure is not cured within said thirty
day period but is curable with future due diligence, there shall exist no Event
of Default under this Section 14 so long as Lessee is proceeding with due
diligence to cure such failure and such failure is in fact cured within 180
days); or
(e) any representation or warranty made by Lessee herein or in the
Participation Agreement or any document or certificate furnished by Lessee in
connection herewith or therewith or pursuant hereto or thereto (except the
representations and warranties set forth in Section 4 of the Tax Indemnity
Agreement) shall prove to have been incorrect in any material respect at the
time made and shall remain material at the time in question; provided, however,
such incorrectness shall constitute a default hereunder only if such
incorrectness shall continue uncured for a period of thirty (30) days after the
receipt by Lessee of a written notice from Lessor or the Indenture Trustee
advising Lessee of the existence of such incorrectness; or
(f) the commencement of an involuntary case or other proceeding in
respect of Lessee in an involuntary case under the federal bankruptcy laws, as
now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law in the United States or seeking the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of Lessee or for all or substantially all of
its property, or seeking the winding-up or liquidation of its affairs and the
continuation of any such case or other proceeding
64
[Lease Agreement (1995 777 B)]
undismissed or unstayed for a period of ninety (90) consecutive days or an order
for relief under Chapter 11 of the Bankruptcy Code with respect to Lessee as
debtor or any other order, judgment or decree shall be entered in any proceeding
by any court of competent jurisdiction appointing, without the consent of
Lessee, a receiver, trustee or liquidator of Lessee, or for all or substantially
all of its property, or sequestering of all or substantially all of the property
of Lessee and any such order, judgment or decree or appointment or sequestration
shall be final or shall remain in force undismissed, unstayed or unvacated for a
period of ninety (90) days after the date of entry thereof; or
(g) the commencement by Lessee of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law in the
United States, or the consent by Lessee to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator
(or other similar official) of Lessee or for all or substantially all of its
property, or the making by Lessee of any assignment for the benefit of creditors
or Lessee shall take any corporate action to authorize any of the foregoing; or
(h) Lessee shall not be a Certificated Air Carrier;
provided, however, that, notwithstanding anything to the contrary contained in
this Section 14, any failure of Lessee to perform or observe any covenant,
condition, agreement or any error in a representation or warranty shall not
constitute an Event of Default if such failure or error is caused solely by
reason of any event that constitutes an Event of Loss so long as Lessee is
continuing to comply with all of the terms of Section 10 hereof.
SECTION 15. Remedies. Upon the occurrence of any Event of Default
and at any time thereafter so long as any such Event of Default shall not have
been remedied, Lessor may, at its option, declare by written notice to Lessee
this Lease Agreement to be in default; and at any time thereafter, so long as
such Event of Default shall be continuing, Lessor may do one or more of the
following with respect to all or any part of the Airframe and any or all of the
Engines as Lessor in its sole discretion shall elect, to the extent permitted
by, and subject to compliance with any mandatory requirements of, applicable law
then in effect; provided, however, that during any period the Aircraft is
subject to the Civil Reserve Air Fleet Program in accordance with the provisions
of Section 7(b) hereof and in the possession of the United States Government or
an instrumentality or agency thereof, Lessor shall not, on account of any Event
of
65
[Lease Agreement (1995 777 B)]
Default, be entitled to do any of the following in such manner as to limit
Lessee's control under this Lease (or any Sublessee's control under any
Sublease) of any Airframe or any Engines, unless at least 60 days' (or such
lesser period as may then be applicable under the Military Airlift Command
program of the United States Government) prior written notice of default
hereunder shall have been given by Lessor by registered or certified mail to
Lessee (and any Sublessee) with a copy addressed to the Contracting Office
Representative for the Military Airlift Command of the United States Air Force
under any contract with Lessee (or any Sublessee) relating to the Aircraft:
(a) upon the written demand of Lessor and at Lessee's expense,
cause Lessee to return promptly, and Lessee shall return promptly, the
Airframe or any Engine as Lessor may so demand to Lessor or its order in
the manner and condition required by, and otherwise in accordance with all
the provisions of, Section 5 as if such Airframe or Engine were being
returned at the end of the Term, or Lessor, at its option, may enter upon
the premises where all or any part of the Airframe or any Engine is located
and take immediate possession of and remove the same by summary proceedings
or otherwise, (and, at Lessor's option, store the same at Lessee's
premises until disposal thereof by Lessor), all without liability accruing
to Lessor for or by reason of such entry or taking of possession or
removing whether for the restoration of damage to property caused by such
action or otherwise;
(b) sell the Aircraft, the Airframe or any Engine at public or
private sale, as Lessor may determine, or otherwise dispose of, hold, use,
operate, lease to others or keep idle the Aircraft as Lessor, in its sole
discretion, may determine, all free and clear of any rights of Lessee,
except as hereinafter set forth in this Section 15;
(c) Lessor may hold, keep idle or lease to others the Aircraft,
the Airframe or any Engine or any Part thereof, as Lessor in its sole
discretion may determine, free and clear of any rights of Lessee and
without any duty to account to Lessee with respect thereto, except that
Lessee's obligation to pay Basic Rent with respect to the Aircraft on Lease
Period Dates subsequent to the date upon which Lessee shall have been
deprived of use of the Aircraft pursuant to this Section 15 shall be
reduced by the net proceeds, if any, received by Lessor from leasing the
Aircraft, the Airframe or any Engine to any Person other than Lessee;
66
[Lease Agreement (1995 777 B)]
(d) whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a), (b)
or (c) above with respect to the Aircraft, Lessor, by written notice to
Lessee specifying a payment date which shall be the Lease Period Date not
earlier than ten days from the date of such notice, may demand that Lessee
pay to Lessor, and Lessee shall pay Lessor, on the payment date so
specified, as liquidated damages for loss of a bargain and not as a penalty
(in lieu of the installments of Basic Rent for the Aircraft due for Lease
Periods commencing on or after the Commencement Date or the Lease Period
Date, as the case may be, specified as the payment date in such notice),
any unpaid Basic Rent due on Lease Period Dates on or prior to the payment
date so specified plus whichever of the following amounts Lessor, in its
sole discretion, shall specify in such notice (with interest thereon at the
Past Due Rate from such specified payment date until the date of actual
payment of such amount): (i) an amount equal to the excess, if any, of the
Stipulated Loss Value for the Aircraft, computed as of the Lease Period
Date specified as the payment date in such notice over the aggregate fair
market rental value (computed as hereafter in this Section 15 provided) of
such Aircraft for the remainder of the Term, after discounting such
aggregate fair market rental value to present value as of the Lease Period
Date specified as the payment date in such notice at an annual rate equal
to the Past Due Rate; or (ii) an amount equal to the excess, if any, of the
Stipulated Loss Value for such Aircraft, computed as of the Lease Period
Date specified as the payment date in such notice, over the fair market
sales value of such Aircraft (computed as hereafter in this Section
provided) as of the Lease Period Date specified as the payment date in such
notice;
(e) in the event Lessor pursuant to paragraph (b) above, shall
have sold the Aircraft, Lessor, in lieu of exercising its rights under
paragraph (d) above with respect to such Aircraft, may, if it shall so
elect, 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, any unpaid Basic Rent with respect to the Aircraft due on or
prior to such date plus the amount of any deficiency between the net
proceeds of such sale (after deduction of all reasonable costs of sale) and
the Stipulated Loss Value of such Aircraft, computed as of the Stipulated
Loss Value date on or immediately following the date of such sale, together
with interest, if any, on the amount of such deficiency, at the Past Due
Rate, from the date of such sale to the date of actual payment of such
amount; and/or
67
[Lease Agreement (1995 777 B)]
(f) Lessor may rescind or terminate this Lease Agreement, and/or may
exercise any other right or remedy which may be available to it under
applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for breach hereof.
For the purposes of paragraph (c) above, the "fair market rental
value" or the "fair market sales value" of the Aircraft shall be the rental
value or sales value, as the case may be, which would be obtained in an arm's-
length transaction between an informed and willing lessee or purchaser, as the
case may be, under no compulsion to lease or purchase, as the case may be, and
an informed and willing lessor or seller in possession, as the case may be, in
each case based upon the actual condition and location of the Aircraft, which
value shall be determined by mutual agreement or, in the absence of mutual
written agreement, pursuant to an appraisal prepared and delivered by a
nationally recognized firm of independent aircraft appraisers nominated by
Lessor, and Lessor shall promptly notify Lessee of such nomination. Any
appraisal obtained pursuant to this Section 15 shall take into account then
prevailing market conditions for aircraft of the same type as the Aircraft. The
cost of such appraisal or appointment shall be borne by Lessee.
In addition, Lessee shall be liable, except as otherwise provided
above, without duplication of amounts payable hereunder, for any and all unpaid
Rent due hereunder before, after or during the exercise of any of the foregoing
remedies, for the payment of Premium, if any, and for all reasonable and actual
legal fees and other costs and expenses incurred by Lessor, the Indenture
Trustee, the Certificate Holders and the Owner Participant in connection with
any default or the exercise of remedies hereunder including the return of the
Airframe or any Engine in accordance with the terms of Section 5 or in placing
such Airframe or Engine in the condition and airworthiness required by such
Section.
At any sale of the Aircraft or any part thereof pursuant to this
Section 15, Lessor, the Indenture Trustee, a Certificate Holder or the Owner
Participant may bid for and purchase such property. Lessor agrees to give
Lessee at least 10 days' written notice of the date fixed for any public sale of
any Airframe or Engine or of the date on or after which will occur the execution
of any contract providing for any private sale. 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; and the
exercise or beginning of exercise by Lessor of any one or more of such remedies
shall not preclude the simultaneous or
68
[Lease Agreement (1995 777 B)]
later exercise by Lessor of any or all of such other remedies. No waiver by
Lessor of any Default or Event of Default shall in any way be, or be construed
to be, a waiver of any future or subsequent Default or Event of Default. To the
extent permitted by applicable law, Lessee hereby waives any right now or
hereafter conferred by statute or otherwise which may require Lessor to sell,
lease, or otherwise use the Aircraft or Parts thereof in mitigation of Lessor's
damages as set forth in this Section 15 or which may otherwise limit or modify
any of Lessor's rights and remedies in this Section 15.
SECTION 16. Lessee's Cooperation Concerning Certain Matters. (a)
Forthwith upon the execution and delivery of each Lease Supplement and Trust
Supplement from time to time required by the terms hereof and upon the execution
and delivery of any amendment to this Lease or to the Trust Agreement or Trust
Indenture, Lessee at its expense will cause such Lease Supplement, Trust
Supplement (and, in the case of the initial Lease Supplement and Trust
Supplement, this Lease, the Trust Agreement and the Trust Indenture as well) or
amendment to be duly filed and recorded, and maintained of record, in accordance
with the applicable laws of the government of registry of the Aircraft. In
addition, Lessee at its expense will promptly and duly execute and deliver to
Lessor such further documents and take such further action as Lessor may from
time to time reasonably request in order more effectively to carry out the
intent and purpose of this Lease and to establish and protect the rights and
remedies created or intended to be created in favor of Lessor and the Indenture
Trustee hereunder, including, without limitation, if requested by Lessor, at the
expense of Lessee, the execution and delivery of supplements or amendments
hereto, each in recordable form, subjecting to this Lease and the Trust
Indenture, any airframe or engine substituted for the Airframe or any Engine
pursuant to the terms thereof and the recording or filing of counterparts
thereof, in accordance with the laws of such jurisdictions as Lessor may from
time to time reasonably request.
(b) Lessee will furnish to Lessor, the Indenture Trustee, the Owner
Participant and, so long as the Pass Through Trustees are the Certificate
Holders, the Pass Through Trustees:
(i) Quarterly Statements - As soon as practicable after the end
of the first, second, and third quarterly fiscal periods in each fiscal
year of Lessee, and in any event within 60 days thereafter, duplicate
copies of:
(1) a consolidated balance sheet of Lessee as at the end of
such quarter setting forth in
69
[Lease Agreement (1995 777 B)]
comparative form the amount for the end of the corresponding period of
the preceding fiscal year,
(2) consolidated statements of income and retained earnings
of Lessee for such quarterly period, setting forth in comparative form
the amount for the corresponding period of the preceding fiscal year,
and
(3) consolidated statements of cash flow of Lessee for the
portion of the fiscal year ending with said quarter, setting forth in
comparative form the amount for the corresponding period of the
preceding fiscal year;
(ii) Annual Statements - As soon as practicable after the end of
each fiscal year, and in any event within 120 days thereafter, duplicate
copies of:
(1) a consolidated balance sheet of Lessee as at the end of
such year, and
(2) consolidated statements of income and retained earnings
and of cash flow of Lessee for such year,
prepared in accordance with generally accepted accounting principles and
setting forth in each case in comparative form the figures for the previous
fiscal year and accompanied by an auditor's report of a firm of independent
certified public accountants of recognized national standing (which report
may be adverse, qualified or disclaim an opinion);
(iii) SEC Reports - Promptly upon their becoming available, one
copy of each financial statement, report, or proxy statement sent by UAL
Corporation to its shareholders generally, and of each regular or periodic
report and any prospectus (in the form in which it becomes effective) filed
by Lessee or UAL Corporation with the Securities and Exchange Commission or
any successor agency; and
(iv) Notice of Default or Claimed Default -Immediately upon an
officer of Lessee becoming aware of the existence of a Default or an Event
of Default (or that Lessor has given notice or taken any other action with
respect to an Event of Default or a claimed default under this Lease), a
written notice specifying the nature of the Default, Event of Default, or
claimed default and any such notice given or action taken by Lessor and
what action Lessee is taking or proposes to take with respect thereto.
70
[Lease Agreement (1995 777 B)]
(c) Commencing in 1996, on or before April 30 of each year during the
Term, Lessee will deliver to Lessor and the Indenture Trustee a certificate of
Lessee, signed by the President, a Vice President, the Chief Financial Officer
or the principal accounting officer of Lessee to the effect that the signer is
familiar with or has reviewed the relevant terms of this Lease and the signer
does not have knowledge of the existence, as of the date of such certificate, of
any condition or event which constitutes a Default or an Event of Default.
SECTION 17. Notices. All notices required under the terms and
provisions hereof shall be in writing (including telex, telecopier or similar
writing) and shall be effective (a) if given by telecopier when transmitted and
the appropriate confirmation received; provided, that any such notice is
confirmed by certified mail, (b) if given by certified mail, three Business Days
after being deposited in the mails, (c) if given by telex, upon receipt by the
party transmitting the telex of such party's callback code at the end of such
telex (receipt of confirmation in writing not being necessary to the
effectiveness of any telex) and (d) if given by other means, when received or
personally delivered, addressed:
(i) if to Lessee, at P. O. Box 66100, Chicago, Illinois 60666(or,
if given by overnight delivery service, 1200 East Algonquin Road, Elk Grove
Township, Illinois 60007) Attention: Vice President and Treasurer,
telecopier number (708) 952-7117, or to such other address or telecopier
number as Lessee shall from time to time designate in writing to Lessor;
(ii) if to Lessor, at 225 Franklin Street, Boston, Massachusetts
02110 (or, if given by overnight delivery service) Two International Place,
Boston, Massachusetts 02110) Attention: _____________________, telecopier
number (617) 664-5367 or to such other address or telecopier number as
Lessor shall from time to time designate in writing to Lessee;
(iii) if to the Indenture Trustee, the Owner Participant or any
Pass Through Trustee, addressed to the Indenture Trustee, the Owner
Participant or such Pass Through Trustee at such address or telecopier
number as the Indenture Trustee, the Owner Participant or such Pass Through
Trustee shall have furnished by notice to Lessor and to Lessee, and, until
an address is so furnished, addressed to the Indenture Trustee, the Owner
Participant or such Pass Through Trustee at its address or telecopier
number set forth in Schedule I to the Participation Agreement; and
71
[Lease Agreement (1995 777 B)]
(iv) If to a Certificate Holder which is not a Pass Through
Trustee, addressed to such Certificate Holder at its address stated in the
Loan Certificate Register maintained pursuant to the Trust Indenture.
A copy of each notice to Lessor shall be given by the sender thereof to the
Owner Participant.
SECTION 18. Net Lease; No Set-Off, Counterclaim, Etc.
(a) This Lease is a net lease, and it is intended that the Lessee
shall pay all costs and expenses of every character, whether seen or unforeseen,
ordinary or extraordinary or structural or non-structural, in connection with
the use, operation, maintenance, repair and reconstruction of the Airframe and
each Engine by the Lessee, including the costs and expenses particularly set
forth in this Lease. Except as set forth in this Section 18(a), the Rent which
Lessee is obligated to pay shall be paid without the necessity of notice or
demand and without set-off, counterclaim, abatement, suspension, deduction or
defense. If at any time that Lessee is required (a) to make a payment of
Termination Value or Fair Market Sales Value pursuant to Section 9 or Stipulated
Loss Value pursuant to Section 10, or (b) to pay the purchase price of the
Aircraft pursuant to Section 19(b), there shall exist a Lessor Lien with respect
to the Aircraft (including for this purpose Liens that would be Lessor Liens but
for the proviso to the definition of Lessor Liens) relating to the Owner
Participant (or Lessee shall have previously incurred a charge to discharge such
a Lessor Lien), then Lessee shall be entitled to deduct from the portion
required to be paid to the Owner Participant of such payment of Termination
Value or Fair Market Sales Value, or such payment of the purchase price, or any
combination thereof, as the case may be, an amount sufficient to so reimburse
Lessee or to reimburse Lessee for the cost of discharging such Lessor Lien, as
the case may be. Notwithstanding anything contained in this Section 18(a) to
the contrary, any payments of Fair Market Sales Value, Termination Value,
Stipulated Loss Value, Special Termination Value or EBO Price made to the
Indenture Trustee shall be in an amount which, together with any other amounts
payable hereunder, is at least sufficient to pay in full, as of the date of
payment thereof, the amount of principal of, and any accrued and unpaid interest
on, the outstanding Loan Certificates, together with Premium, if any, thereon
and amounts due the Certificate Holders under the Trust Indenture, if any, and,
to such extent, shall not be subject to set-off hereunder.
(b) Except as otherwise expressly provided, this Lease shall not
terminate nor shall the Lessee have any right to terminate this Lease or be
entitled to abatement, suspension,
72
[Lease Agreement (1995 777 B)]
deferment or reduction of any Rent which the Lessee is obligated to pay
hereunder, nor shall the obligations hereunder of the Lessee be affected, by
reason of (A) any damage to or the destruction or loss of all or any portion of
the Airframe or any Engine from whatever cause, (B) the loss or theft of any
portion of the Airframe or any Engine, (C) the taking of the Airframe or any
Engine or any portion thereof by condemnation, confiscation, requisition or
otherwise, (D) the prohibition, limitation or restriction of the Lessee's use of
all or any part of the Airframe or any Engine, or the interference with such use
by any Person, (E) the inadequacy or incorrectness of the description of any
portion of the Airframe or any Engine or the failure of this Lease to demise to
the Lessee the Airframe or any Engine or any portion thereof, (F) the Lessee's
acquisition or ownership of all or any part of the Airframe or any Engine
otherwise than pursuant to an express provision of this Lease, (G) any defect in
compliance with specifications, condition, merchantability, design,
airworthiness, quality, durability, operation or fitness for use for any purpose
of the Airframe or any Engine or any portion thereof, (H) any defect in the
title to, or registration of or the existence of any Liens or rights of others
whatsoever with respect to, the Airframe or any Engine or any portion thereof,
(I) any insolvency, bankruptcy, reorganization or similar proceedings by or
against any Sublessee or any Person (J) any breach, default or misrepresentation
by the Lessor, any Participant or the Indenture Trustee under this Lease or any
other Operative Document or any of the documents referred to herein or therein
or (K) any invalidity or unenforceability, in whole or in part, of this Lease or
any other Operative Document or any of the documents referred to herein or
therein, or any other infirmity herein or therein, or any lack of power or
authority of any party to this Lease or any other Operative Document or any such
documents to enter into the same, or (L) any other circumstance, happening or
act whatsoever, whether or not unforeseen or similar to any of the foregoing, it
being the intention of the parties hereto that the obligations of the Lessee
shall be absolute and unconditional and shall be separate and independent
covenants and agreements and shall continue unaffected unless and until this
Lease shall have terminated in accordance with its terms upon payment by Lessee
of all sums payable by Lessee hereunder and performance by Lessee of all
obligations required to be performed by Lessee hereunder.
The Lessee covenants that it will remain obligated under this Lease in
accordance with its terms and will take no action to terminate, rescind or avoid
this lease, notwithstanding the bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding-up or other
proceeding affecting the Lessor or the Owner Participant or any assignee of the
Lessor the Owner Participant or any other action
73
[Lease Agreement (1995 777 B)]
with respect to this Lease which may be taken in any such proceeding by any
trustee or receiver of the Lessor or the Owner Participant or of any assignee of
the Lessor or the Owner Participant or by any court or any of the foregoing
actions which may be taken by or against any of the Lessor's predecessors in
interest in the Airframe or any Engine.
If for any reason whatsoever this Lease shall be terminated in whole
or in part by operation of law or otherwise except as specifically provided
herein, Lessee nonetheless agrees, without limitation of the other rights and
remedies of Lessor hereunder, to pay to Lessor 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 terminated in whole or in part.
Except as expressly provided herein, the Lessee waives all rights now
or hereafter conferred by law (x) to quit, terminate, rescind or surrender this
Lease or the Airframe or any Engine or any part thereof, or (y) to any
abatement, suspension, deferment, return or reduction of the Rent.
SECTION 19. Renewal Options; Purchase Options; Valuation. (a)
Renewal Options.
(1) Fixed Renewal Terms. Not less than 180 days nor more than
365 days before the end of the Basic Term or any Fixed Renewal Term, Lessee
may, so long as no Section 14(a), (b), (d) (solely with respect to Lessee's
obligations under Section 7(a) or (b)(viii) hereof or Section 8 hereof),
(f) or (g) Default or any Event of Default has occurred and is continuing,
deliver to Lessor an irrevocable written notice (which at the option of
Lessee made at any time prior to 90 days prior to the end of the Basic Term
or such Fixed Renewal Term may be deemed a notice to exercise the
applicable purchase option in Section 19(b)) electing to renew this Lease
for a term or terms having a duration and at a Basic Rent as determined
below (each such term being herein referred to as a "Fixed Renewal Term").
At least 180 days, before the end of the Basic Term Lessee shall, as a
condition to its exercise of any option set forth in this Section 19(a)(1),
notify Lessor of its demand for an appraisal pursuant to the appraisal
procedures of Section 19(c) hereof. The appraiser(s) so appointed shall
determine the total useful life, the remaining useful life and the future
residual value of the Aircraft on the expiration date for a Fixed Renewal
Term as may be set by reason of the maximum period therefor in accordance
with the constraints set forth in the following two sentences. The
duration of each Fixed Renewal Term shall be a period specified by
74
[Lease Agreement (1995 777 B)]
Lessee before the end of the Basic Term (or the preceding Fixed Renewal
Term, as the case may be) which is not less than one year and not more than
three years (in integral multiples of six months). Notwithstanding the
foregoing, the aggregate term of all Fixed Renewal Terms shall not exceed
the lesser of (a) three years and (b) the longest period of time (i) which
would cause the Term, after giving effect to all such Fixed Renewal Terms,
to be equal to at least 80% of the then estimated useful life of the
Aircraft as determined by the appraiser(s) and (ii) at the expiration of
which the residual value of the Aircraft, as estimated by the appraiser(s),
would be at least equal to 20% of Lessor's Cost (without taking into
account inflation or deflation during the Term). The annual Basic Rent
payable during each Fixed Renewal Term shall be equal to one-half of the
average annual Basic Rent payments for the Aircraft over the Basic Term.
(2) Fair Market Renewal Term. So long as no Section 14(a), (b),
(d) (solely with respect to Lessee's obligations under Section 7(a) or
(b)(viii) hereof or Section 8 hereof), (f) or (g) Default or any Event of
Default has occurred and is continuing, Lessee shall have the right to
renew this Lease for additional periods of at least one year commencing at
the end of the Basic Term, any Fixed Renewal Term or any prior Fair Market
Renewal Term for a Basic Rent equal to the Fair Market Rental Value of the
Aircraft for such period (each such renewal term, a "Fair Market Renewal
Term"); provided, however, each Fair Market Renewal Term shall be an
integral multiple of six months. Notwithstanding the foregoing, the
aggregate term for all Fair Market Renewal Terms shall not exceed three
years. Each such option to renew shall be exercised upon delivery by
Lessee to Lessor of irrevocable written notice of Lessee's intent to renew
the Lease at least 180 days (but not more than 365 days) prior to the
commencement of such Fair Market Renewal Term (which at the option of the
Lessee made at any time prior to 90 days prior to the anticipated
commencement of such Fair Market Renewal Term may be deemed a notice to
exercise the applicable purchase option in Section 19(b)).
(3) Waiver. If no written notice is delivered by Lessee to
Lessor pursuant to Section 19(a)(1) or (2) on or before the day specified
therefore, Lessee shall be deemed to have waived any right to renew this
Lease.
(4) Conditions Precedent, Payment of Basic Rent. At the end of
the Basic Term or any Renewal Term, if Lessee has elected to renew this
Lease as aforesaid, and provided
75
[Lease Agreement (1995 777 B)]
that there shall not then have occurred and be continuing a Default or an
Event of Default and that all necessary governmental authorizations and
approvals shall have been received and that Basic Rent for the Renewal Term
has already been determined as above provided, (i) this Lease shall
continue in full force and effect during the Renewal Term, and (ii) Basic
Rent for such Renewal Term shall be payable in semi-annual installments in
advance or arrears as was the basis of the Basic Rent being paid
immediately prior to such Renewal Term, each such installment being due and
payable on each Lease Period Date occurring during the Renewal Term.
(5) Termination Value; Stipulated Loss Value. The amounts which
are payable during any Renewal Term in respect of Termination Value as used
in Section 15 and Stipulated Loss Value with respect to the Aircraft shall
be determined on the basis of the Fair Market Sales Value of the Aircraft
as of the commencement of such Renewal Term, amortized on a straight-line
basis over such Renewal Term to the projected Fair Market Sales Value of
the Aircraft as of the expiration of such Renewal Term, as such Fair Market
Sales Value in each case is determined prior to the commencement of such
Renewal Term. In determining Fair Market Sales Value for purposes of
calculating Stipulated Loss Value and Termination Value for any Renewal
Term effect shall be given to the encumbrance on the Aircraft of any Fixed
Renewal Term available or in force.
(b) Purchase Options. Lessee shall have the option, so long as no
Section 14(a), (b), (f) or (g) Default or any Event of Default exists on the
date notice of exercise may be given, (i) with respect to subsections (1) and
(2) below, upon not more than 365 days and not less than 90 days irrevocable
prior written notice to Lessor and (ii) with respect to subsections (3) and (4)
below, upon not more than 365 days and not less than 180 days irrevocable prior
written notice to Lessor (which at the option of the Lessee made at any time
prior to 90 days prior to the relevant purchase date may be deemed a notice of
the applicable renewal option pursuant to Section 19(a)(1) or 19(a)(2) as the
Lessee may designate) (each a "Purchase Option Date"), to terminate this Lease
and to purchase the Aircraft:
(1) on any Special Purchase Option Date for a purchase price
equal to the greater of (x) the Fair Market Sales Value of the Aircraft on
such date or (y) the amount determined by multiplying Lessor's Cost by the
Special Termination Value Percentage with respect to such Date (with
respect to any such Date, the "Special Termination Value");
76
[Lease Agreement (1995 777 B)]
(2) on the EBO Date for a purchase price equal to the amount
determined by multiplying Lessor's Cost by the EBO Percentage payable on
the EBO Date or as otherwise provided in, and subject to the conditions set
forth in, Exhibit H hereto (the "EBO Price");
(3) on the last Business Day of the Basic Term for a purchase
price equal to the Fair Market Sales Value of the Aircraft on such date;
and
(4) on the last Business Day of any Renewal Term for a purchase
price equal to the Fair Market Sales Value of the Aircraft on such date.
Notwithstanding the foregoing but subject to the provisions of Section 8(r) of
the Participation Agreement, the purchase price on any Purchase Option Date
shall be sufficient, together with all other amounts payable simultaneously by
Lessee, to pay in full the payments then required to be made on account of the
principal amount (and Premium, if any) of and interest on the Loan Certificates
then outstanding. Upon payment to Lessor in immediately available funds of the
full amount of the purchase price (less the principal amount of the Loan
Certificates assumed by the Lessee in accordance with Section 8(r) of the
Participation Agreement) plus all Basic Rent due on or prior to such purchase
date (unless denominated "advance" rental), all Supplemental Rent due on or
prior to such purchase date (including amounts equal to Premium, if any) and
payment of any other amounts then due hereunder (including all reasonable costs
or expenses of Lessor (including any applicable sales or transfer taxes) and the
Owner Participant in connection with such purchase), Lessor will transfer to
Lessee, without recourse or warranty (except as to the absence of Lessor Liens
(including for this purpose Liens that would be Lessor Liens but for the proviso
to the definition of Lessor Liens)), all of Lessor's right, title and interest
in and to the Aircraft.
(c) Valuation. At any time not earlier than 365 days prior to the
date on which Lessee may purchase an Aircraft pursuant to Section 19(b) hereof
or renew this Lease pursuant to Section 19(a) hereof, Lessee may deliver to
Lessor a revocable notice of its intent to exercise its renewal option or
purchase option. For all purposes of this Section 19, including the appraisal
referred to in this Section 19(c), in determining Fair Market Rental Value or
Fair Market Sales Value, the Aircraft shall be valued (i) as if in the condition
and otherwise in compliance with the terms of Section 5 (but subject to Section
5(e)) upon a return of the Aircraft in the United States and as if it had been
maintained at all times as required in accordance with Section 7(a)(1) and (2)
and Section 8, (ii) on the basis of
77
[Lease Agreement (1995 777 B)]
the value which would obtain in an arm's-length transaction between an informed
and willing buyer or user or lessee (other than a lessee or an Affiliate of a
lessee currently in possession or a used equipment scrap dealer) under no
compulsion to buy or lease and an informed and willing seller or lessor
unaffiliated with such buyer-user or lessee and under no compulsion to sell or
lease, and (iii) in the case of such valuation for determining Fair Market
Rental Value, assuming such lessee would have substantially the same obligations
during the Fair Market Renewal Term as provided hereunder including without
limitation the obligations of Lessee to carry and maintain the insurance
required by Section 11 hereof. Upon receipt of such notice Lessor and Lessee
shall confer in good faith with a view to reaching agreement on the Fair Market
Rental Value or Fair Market Sales Value of the Aircraft. If the parties have
not so agreed by 240 days prior to the end of the Basic Term or the Renewal Term
in question, then the question shall be determined by an appraisal mutually
agreed to by two recognized independent aircraft appraisers, one of which
appraisers shall be chosen by Lessor and one by Lessee within five Business Days
after Lessor or Lessee shall have received written notice from the other party
of a demand that such an appraisal be made, which notice shall specify the
appraiser chosen by the party giving the notice or, if such appraisers cannot
agree on the amount of such appraisal within five Business Days after the end of
such five-day period, each shall render its own appraisal and shall by mutual
consent choose another appraiser within five Business Days after the end of such
five-day period. If, within such five-day period, such two appraisers fail to
appoint a third appraiser, then either Lessor or Lessee, on behalf of both, may
apply to the American Arbitration Association (or any successor organization
thereto) in Chicago, Illinois for the appointment of such third appraiser. The
decision of the third appraiser so appointed shall be given within ten Business
Days after the appointment of such third appraiser. As soon as the third
appraiser has delivered his appraisal, that appraisal shall be compared with the
appraisals given by the other two appraisers. If the determination of one
appraiser is more disparate from the average of all three determinations than
each of the other two determinations, then the determination of such appraiser
shall be excluded, the remaining two determinations shall be averaged and such
average shall be final and binding upon the parties hereto; otherwise the
average of all three determinations shall be final and binding upon the parties
thereto. Lessee and Lessor shall equally bear all expenses relating to such
appraisal procedure (other than an appraisal procedure related to Lessee's
purchase option under Section 19(b)(1), the costs of which Lessee shall in all
events bear), provided, that if such transaction is not consummated (other than
as the result of the fault of Lessor) Lessee shall bear all expenses relating to
such appraisal procedure.
78
[Lease Agreement (1995 777 B)]
SECTION 20. Security for Lessor's Obligation to Certificate Holders.
In order to secure the indebtedness evidenced by the Loan Certificates, Lessor
has agreed in the Trust Indenture, among other things, to assign to the
Indenture Trustee this Lease and to mortgage the Aircraft in favor of the
Indenture Trustee, subject to the reservations and conditions therein set forth.
To the extent, if any, 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 created through the
transfer or possession of any counterpart other than the original counterpart,
which shall be identified as the counterpart containing the receipt therefor
executed by the Indenture Trustee as indenture trustee under the Trust Indenture
on the signature page thereof. Lessee hereby accepts and consents to the
assignment of all Lessor's right, title and interest in and to this Lease
pursuant to the terms of the Trust Indenture. Lessee agrees to pay directly to
the Indenture Trustee (or, after receipt by Lessee of notice from the Indenture
Trustee of the discharge of the Trust Indenture, to Lessor), all amounts of Rent
(other than Excluded Payments) due or to become due hereunder and assigned to
the Indenture Trustee and Lessee agrees that the Indenture Trustee's right to
such payments hereunder shall be absolute and unconditional and shall not be
affected by any circumstance. Notwithstanding the foregoing assignment of this
Lease, the obligations of Lessor to Lessee to perform the terms and conditions
of this Lease shall remain in full force and effect. Lessee further
acknowledges that the Trust Indenture provides that so long as the Loan
Certificates are outstanding Lessor may not consent to any amendment,
modification or waiver to this Lease without the prior consent of the Indenture
Trustee (except as provided in Section 11.06 of the Trust Indenture) and Lessee
agrees to provide to the Indenture Trustee a copy of all notices, consents,
certificates or other information provided hereunder to Lessor.
SECTION 21. Lessor's Right to Perform for Lessee. If Lessee fails to
make any payment of Rent required to be made by it hereunder or fails to perform
or comply with any of its agreements contained herein, then (but in each case,
except in the case of failure to pay Rent or in the case of failure to maintain
insurance as required hereunder, no earlier than five Business Days after notice
as to the occurrence of such failure, whether or not it shall yet constitute an
Event of Default hereunder) Lessor may itself make such payment or perform or
comply with such agreement but shall not be obligated hereunder to do so, and
the amount of such payment and the amount of the reasonable expenses of Lessor
incurred in connection with such payment or the performance of or compliance
with such agreement, as the case may be, together with interest thereon at the
Past
79
[Lease Agreement (1995 777 B)]
Due Rate, shall be deemed Supplemental Rent, payable by Lessee upon demand.
SECTION 22. Investment of Security Funds; Liability of Lessor
Limited. (a) Investment of Security Funds. Any moneys held by Lessor as
security hereunder for future payments to Lessee shall, until paid to Lessee, be
invested by Lessor or, if the Trust Indenture shall not have been discharged, by
the Indenture Trustee, as the case may be, as Lessee (or in the event a Default
under Section 14(a), (b), (f) or (g) or an Event of Default has occurred and is
continuing, Lessor) may from time to time direct in writing (and in absence of a
written direction by Lessee, there shall be no obligation to invest such moneys)
in (i) obligations of, or guaranteed by, the United States Government or
agencies thereof, (ii) open market commercial paper of any corporation
incorporated under the laws of the United States of America or any State thereof
rated at least P-1 or its equivalent by Moody's Investors Service, Inc. or at
least A-1 or its equivalent by Standard & Poor's Corporation, (iii) certificates
of deposit issued by commercial banks organized under the laws of the United
States or of any political subdivision thereof having a combined capital and
surplus in excess of $200,000,000 which banks or their holding companies have a
rating of A or its equivalent by Moody's Investors Service, Inc. or Standard & Poor's Corporation; provided, however, that the aggregate amount at any one time
so invested in certificates of deposit issued by any one bank shall not exceed
5% of such bank's capital and surplus, (iv) U.S. dollar denominated offshore
certificates of deposit issued by, or offshore time deposits with, any
commercial bank described in (iii) or any subsidiary thereof and (v) repurchase
agreements with any financial institution having combined capital and surplus of
at least $200,000,000 with any of the obligations described in clause (i)
through (iv) as collateral. There shall be promptly remitted to Lessee or its
order (but no more frequently than monthly) any gain (including interest
received) realized as a result of any such investment (net of any fees, taxes,
commissions and other expenses, if any, incurred in connection with such
investment) unless a Section 14(a), (b), (d) (solely with respect to Lessee's
obligations under Section 7(a) or (b)(viii) or Section 8 hereof), (f) or (g)
Default or an Event of Default shall have occurred and be continuing. If a
Default under Section 14(a), (b), (d) (solely with respect to Lessee's
obligations under Section 7(a) or (b)(viii) or Section 8 hereof), (f) or (g) or
an Event of Default shall have occurred and be continuing, Lessor or if the
Trust Indenture shall not have been discharged, the Indenture Trustee as
assignee of Lessor, shall hold any such gain as security for the obligations of
Lessee under this Lease and apply it against such obligations as and when due,
and once all such Defaults and Events of Default have
80
[Lease Agreement (1995 777 B)]
been remedied any gain not so applied shall be remitted to Lessee. Lessee shall
be responsible for any net loss realized as a result of any such investment and
shall reimburse Lessor (or the Indenture Trustee, as the case may be) therefor
on demand.
(b) Liability of Lessor Limited. It is expressly agreed and
understood that all representations, warranties and undertakings of Lessor
hereunder shall be binding upon Lessor only in its capacity as trustee under the
Trust Agreement, and the institution acting as Lessor shall not be liable in its
individual capacity for any breach thereof except for its gross negligence or
willful misconduct or for breach of its covenants, representations and
warranties contained herein, to the extent covenanted or made in its individual
capacity.
SECTION 23. 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 unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. No term or provision of
this Lease may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by Lessor, Lessee and any assignee of Lessor's
rights hereunder. This Lease shall constitute an agreement of lease, and
nothing contained herein shall be construed as conveying to Lessee any right,
title or interest in the Aircraft except as a lessee only. The section and
paragraph headings in this Lease and the table of contents are for convenience
of reference only and shall not modify, define, expand or limit any of the terms
or provisions hereof and all references herein to numbered sections, unless
otherwise indicated, are to sections of this Lease. THIS LEASE HAS BEEN
DELIVERED IN THE STATE OF ILLINOIS AND SHALL IN ALL RESPECTS BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 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.
SECTION 24. Successor Trustee. Lessee agrees that in the case of the
appointment of any successor Owner Trustee pursuant to the terms of the Trust
Agreement, such successor Owner Trustee shall, upon written notice by such
successor Owner Trustee, succeed to all the rights, powers and title of Lessor
hereunder and shall be deemed to be Lessor and the owner of the Aircraft for all
purposes hereof without in any way altering the terms of this Lease or Lessee's
obligations hereunder. One such
81
[Lease Agreement (1995 777 B)]
appointment and designation of a successor Owner Trustee shall not exhaust the
right to appoint and designate further successor Owner Trustees pursuant to the
Trust Agreement, but such right may be executed repeatedly as long as this Lease
shall be in effect.
SECTION 25. Bankruptcy. Lessee hereby acknowledges that Lessor and
the Indenture Trustee are entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to the Aircraft and that this Lease is a "lease"
within the meaning of said Section 1110, including that it is to be treated as a
lease for federal tax purposes. Lessee agrees not to take any position in
connection with any bankruptcy proceedings involving it that is inconsistent
with a lessor's rights under Section 1110 of the Bankruptcy Code or any
comparable or successor provision affording protection to lessors of aircraft.
* * *
82
[Lease Agreement (1995 777 B)]
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to
be duly executed as of the day and year first above written.
STATE STREET BANK AND TRUST COMPANY, not in its
individual capacity, except as expressly
provided in Section 4 hereof, but solely as
Owner Trustee,
Lessor
By____________________________________________
Vice President
UNITED AIR LINES, INC.,
Lessee
By____________________________________________
Vice President and Treasurer
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged on this _____ day of May, 1995./1/
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION
Indenture Trustee
By____________________________________________
Authorized Officer
- -----------------------
/1/This language contained in the original counterpart only.
83
[Lease Agreement (1995 777 B)]
EXHIBIT A
LEASE SUPPLEMENT NO. 1 (1995 777 B)
-----------------------------------
LEASE SUPPLEMENT No. 1 (1995 777 B), dated May __, 1995, between STATE
STREET BANK AND TRUST COMPANY, not in its individual capacity, but solely as
Owner Trustee under the Trust Agreement (1995 777 B), dated as of May 1, 1995,
between such Owner Trustee and the Owner Participant referred to therein (such
Owner Trustee, in its capacity as such Owner Trustee being herein called
"Lessor"), and UNITED AIR LINES, INC. ("Lessee").
Lessor and Lessee have heretofore entered into that certain Lease
Agreement (1995 777 B), dated as of May 1, 1995, relating to one Boeing 777-222
aircraft (herein called the "Lease" and the defined terms therein being
hereinafter used with the same meanings). The Lease provides for the execution
and delivery from time to time of Lease Supplements for the purpose of leasing
the Airframe and Engines under the Lease as and when delivered by Lessor to
Lessee in accordance with the terms thereof.
The Lease relates to the Airframe and Engines described below, and a
counterpart of the Lease is attached hereto, and made a part hereof, and this
Lease Supplement together with such attachment, is being filed for recordation
on the date hereof with the Federal Aviation Administration as one document./2/
The Lease relates to the Airframe and Engines described below, and a
counterpart of the Lease, attached and made a part of Lease Supplement No. 1
(1995 777 B) dated May __, 1995, has been recorded by the Federal Aviation
Administration on ___________ __, 1995, as one document and assigned Conveyance
No. __________./3/
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee under the Lease
and Lessee hereby accepts and leases from Lessor under the Lease the
following described Boeing Model 777-222 aircraft (the "Aircraft"), which
Aircraft as of the date hereof consists of the following components:
- ---------------------
/2/This language for Lease Supplement No. 1.
/3/This language for other Lease Supplements.
[Lease Agreement (1995 777 B)]
(i) Airframe: U.S. Registration No. N766UA and
manufacturer's serial no. 26917; and
(ii) Engines: two (2) Pratt & Whitney Model PW4084 engines
bearing, respectively, manufacturer's serial nos. _______ and _______
(each of which engines has 750 or more rated takeoff horsepower or the
equivalent of such horsepower).
2. The Delivery Date of the Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof. Except as otherwise
provided in the Lease, the Term for the Aircraft shall commence on the
Delivery Date and end on the Lease Expiry Date.
3. Lessee hereby confirms its agreement to pay Lessor Basic Rent
for the Aircraft throughout the Term therefor in accordance with Section 3
of the Lease.
4. Lessee hereby confirms to Lessor that Lessee has accepted the
Aircraft for all purposes hereof and of the Lease as being airworthy, in
good working order and repair and without defect or inherent vice in title,
condition, design, operation or fitness for use; provided, however, that
nothing contained herein or in the Lease shall in any way diminish or
otherwise affect any right Lessee or Lessor may have with respect to the
Aircraft against The Boeing Company, or any subcontractor or supplier of
The Boeing Company, under the Purchase Agreement or otherwise.
5. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
6. This Lease Supplement may be executed by the parties hereto
in separate counterparts, 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.
* * *
[Lease Agreement (1995 777 B)]
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to
be duly executed on the day and year first above written.
STATE STREET BANK AND TRUST COMPANY, not in its
individual capacity, but solely as Owner
Trustee,
Lessor
By:________________________________
Title:_____________________________
UNITED AIR LINES, INC.,
Lessee
By:________________________________
Vice President and Treasurer
Receipt of this original counterpart of the foregoing Lease Supplement is
hereby acknowledged on this _____ day of May, 1995./4/
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION
Indenture Trustee
By_________________________________
Authorized Officer
- ---------------------------
/4/This language contained in the original counterpart only.
[Lease Agreement (1995 777 B)]
EXHIBIT B
BASIC RENT AND EXCESS AMOUNT SCHEDULE
-------------------------------------
ARREARS RENT ADVANCE RENT EXCESS AMOUNT
AS A PERCENTAGE AS A PERCENTAGE AS A PERCENTAGE
DATE OF LESSOR'S COST OF LESSOR'S COST OF LESSOR'S COST
- ------ ---------------- ---------------- ----------------
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT B TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.
[Lease Agreement (1995 777 B)]
EXHIBIT C
STIPULATED LOSS VALUE SCHEDULE
------------------------------
STIPULATED LOSS VALUE
DATE (as a percentage of Lessor's Cost)
---- ----------------------------------
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT C TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.
[Lease Agreement (1995 777 B)]
EXHIBIT D
TERMINATION VALUE SCHEDULE
--------------------------
TERMINATION VALUE
DATE (as a percentage of Lessor's Cost)
---- ----------------------------------
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT D TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.
[Lease Agreement (1995 777 B)]
EXHIBIT E
RENT RECALCULATION AND
INDEMNIFICATION VERIFICATION
----------------------------
Any recalculation of Basic Rent, Stipulated Loss Value percentages,
Termination Value percentages, Special Termination Value percentages and EBO
Percentage pursuant to the Lease and any calculation of any payment to the Owner
Participant or Lessee under the Tax Indemnity Agreement or Section 7(b) of the
Participation Agreement shall be determined by the Owner Participant, computed
on the basis of the same methodology and assumptions used by the Owner
Participant in determining the Basic Rent, Stipulated Loss Value percentages,
Termination Value percentages, Special Termination Value percentages and EBO
Percentage as of the Delivery Date except as such assumptions have been modified
pursuant to Section 3 of the Lease; provided, however, Lessee may request (A)
Capstar Partners, Inc., or any other financial advisor to Lessee to verify such
calculations but without any requirement that the Owner Participant disclose to
such advisor such methodology and assumptions and (B) if Lessee believes that
such calculations by the Owner Participant are in error then a nationally
recognized firm of accountants selected by the Owner Participant and reasonably
acceptable to Lessee (which may be the Owner Participant's independent public
accountants) shall be permitted to verify such calculations and the Owner
Participant will make available to such firm (subject to the execution by such
firm of a confidentiality agreement reasonably acceptable to the Owner
Participant) such methodology and assumptions and any changes made therein
pursuant to Section 3 of the Lease and any other information reasonably
necessary for such verification requested by such firm. In the event of a
verification under clause (B) of this Exhibit E the determination by such firm
of accountants shall be final. Lessee will pay the reasonable costs and
expenses of the verification under clause (B) of this Exhibit E; provided,
however, if as a result of such verification process the Basic Rent is adjusted
and such adjustment causes the Net Present Value of Rents to decline by 10 or
more basis points or there is a material error in the computation of the
Stipulated Loss Value percentages, Termination Value percentages, Special
Termination Value percentages or EBO Percentage in the Owner Participant's
original statement in the Owner Participant's favor, or indemnity payment is
reduced by $10,000 or more, the Owner Participant shall pay the reasonable costs
and expenses of such verification process. Such recalculated Basic Rent,
Stipulated Loss Value percentages, Termination Value percentages, Special
Termination Value percentages and EBO Percentage shall be set forth in an
amendment to the Lease.
[Lease Agreement (1995 777 B)]
EXHIBIT F
SCHEDULE OF COUNTRIES AUTHORIZED
FOR DOMICILE OF PERMITTED SUBLESSEES
------------------------------------
Australia Luxembourg
Austria *Malaysia
Belgium Netherlands
*Brazil New Zealand
Canada Norway
Denmark *Portugal
Finland Singapore
France *South Korea
Germany *Spain
*Greece Sweden
*Iceland Switzerland
Ireland *Thailand
Italy United Kingdom
Japan *Venezuela
_______________________
* Designates "Restricted Country".
[Lease Agreement (1995 777 B)]
EXHIBIT G
SCHEDULE OF COUNTRIES AUTHORIZED
FOR AIRCRAFT REGISTRATION
--------------------------------
Australia Luxembourg
Austria *Malaysia
Belgium Netherlands
*Brazil New Zealand
Canada Norway
Denmark *Portugal
Finland Singapore
France *South Korea
Germany *Spain
*Greece Sweden
*Iceland Switzerland
Ireland *Thailand
Italy United Kingdom
Japan *Venezuela
_______________________
* Designates "Restricted Country".
[Lease Agreement (1995 777 B)]
EXHIBIT H
LESSOR'S COST, ENGINE COST, COMMENCEMENT DATE,
LEASE EXPIRY DATE, STIPULATED LOSS VALUE DATE,
EBO DATE, EBO PERCENTAGE, SPECIAL PURCHASE
OPTION DATES AND SPECIAL TERMINATION VALUE PERCENTAGES
(EBO Percentage, EBO Installment Percentages and
Special Termination Value Percentages expressed
as a percentage of Lessor's Cost)
------------------------------------------------------
Lessor's Cost: $________
Engine Cost: $_________
Commencement Date: October 19, 1995
Lease Expiry Date: October 19, 2019
Stipulated Loss Value Date: the 19th day of each calendar month
during the Interim Term, the Basic Term
and any Renewal Term
EBO Date: ______, 2012
EBO Percentage: _____%/1/
/1/ Alternatively, Lessee may elect to purchase the Aircraft in accordance
with Section 19(b)(2) of the Lease by paying the installment amounts on the
dates given below:
EBO Installment Percentages
EBO Installment (expressed as a percentage
Dates of Lessor's Cost)
--------------- ---------------------------
______, 2012 %
______, 2012 %
______, 2012 %
______, 2012 %
In the event that Lessee shall so elect and, so long as no payment or bankruptcy
Default, or Event of Default, shall be continuing, Lessee shall as of the EBO
Date purchase the Aircraft and receive title to the Aircraft and shall be
deemed, as of the EBO Date, to mortgage in favor of Lessor all of its right,
title and interest, on and after such date, in the Aircraft to secure the loan
and punctual payment of all EBO installment amounts payable under this Exhibit
H. On the EBO Date, Lessee shall execute and deliver such instruments, in due
form for filing or recording, as may be reasonably requested by the Owner
Participant, to grant, confirm and perfect the mortgage and security interest
deemed to be created by this Exhibit H and to confirm Lessee's obligations to
make the installment payments payable under this Exhibit H.
[Lease Agreement (1995 777 B)]
Special Purchase Special Termination
Option Dates: Value Percentages:
---------------- -------------------
_______________ _____%
_______________ _____%
_______________ _____%
[Lease Agreement (1995 777 B)]
EXHIBIT H
LESSOR'S COST, ENGINE COST, COMMENCEMENT DATE,
LEASE EXPIRY DATE, STIPULATED LOSS VALUE DATE,
EBO DATE, EBO PERCENTAGE, SPECIAL PURCHASE
OPTION DATES AND SPECIAL TERMINATION VALUE PERCENTAGES
(EBO Percentage, EBO Installment Percentages and
Special Termination Value Percentages expressed
as a percentage of Lessor's Cost)
------------------------------------------------------
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT H TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.
Doc. No. 1.02
Aircraft N189UA
- --------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED LEASE AGREEMENT
(1993 747 A)
Dated as of May 1, 1995
Between
STATE STREET BANK AND TRUST COMPANY,
Not in its Individual Capacity,
except as expressly
provided herein, but solely as
Owner Trustee,
Lessor
and
UNITED AIR LINES, INC.,
Lessee
----------------------------
United Air Lines, Inc.
1993 747 A Equipment Trust
One Boeing 747-422 Aircraft
----------------------------
- --------------------------------------------------------------------------------
As set forth in Section 20 hereof, Lessor has assigned to the
Indenture Trustee (as defined herein) certain of its right, title and interest
in and to this Second Amended and Restated Lease Agreement. To the extent, if
any, that this Second Amended and Restated Lease Agreement 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 created
through the transfer or possession of any counterpart other than the original
executed counterpart, which shall be identified as the counterpart containing
the receipt therefor executed by the Indenture Trustee on the signature page
thereof.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PAGE
SECTION 1. Definitions............................................... 2
SECTION 2. Acceptance and Lease...................................... 20
SECTION 3. Term and Rent............................................. 20
(a) Interim Term and Basic Term................................. 20
(b) Basic Rent.................................................. 20
(c) Adjustments to Basic Rent, Excess Amount,
Stipulated Loss Values, Termination Values,
Special Termination Value Percentages and the EBO
Percentage.................................................. 20
(d) Supplemental Rent........................................... 23
(e) Payments in General......................................... 23
(f) [Intentionally Reserved for Potential Future Use]........... 24
(g) [Intentionally Reserved for Potential Future Use]........... 24
SECTION 4. Lessor's Representations and Warranties................... 24
SECTION 5. Return of the Aircraft.................................... 25
(a) Condition Upon Return....................................... 25
(b) Return of Other Engines..................................... 30
(c) Fuel and Manuals............................................ 30
(d) Storage Upon Return......................................... 31
(e) Purchase of Engine.......................................... 31
(f) Severable Parts............................................. 31
(g) Special Redelivery Provision................................ 32
SECTION 6. Liens..................................................... 32
SECTION 7. Registration, Maintenance and Operation;
Possession and Subleases; Insignia............................... 33
(a) (1) Registration and Maintenance........................... 33
(2) Operation.............................................. 34
(3) Reregistration......................................... 35
(4) Operating Certificates................................. 35
(b) Possession and Subleases.................................... 36
(c) Insignia.................................................... 42
SECTION 8. Replacement and Pooling of Parts;
Alterations, Modifications and Additions.............................. 42
(a) Replacement of Parts........................................ 42
(b) Pooling of Parts............................................ 43
(c) Alterations, Modifications and Additions.................... 43
SECTION 9. Early Termination......................................... 45
(a) [Intentionally reserved for potential future use]........... 45
(b) Termination for Obsolescence/Surplus........................ 45
(c) Sale of the Aircraft........................................ 46
i
(d) Termination as to Engines................................... 48
SECTION 10. Loss, Destruction, Requisition, etc....................... 49
(a) Event of Loss with Respect to the Aircraft.................. 49
(b) Event of Loss with Respect to an Engine..................... 52
(c) Application of Payments from Governmental
Authorities for Requisition of Title, etc................... 54
(d) Requisition for Use of the Aircraft by the United
States Government or Government of Registry of the
Aircraft.................................................... 56
(e) Requisition for Use of an Engine by the United
States Government or the Government of Registry of
the Aircraft................................................ 57
(f) Application of Payments During Existence of Events
of Default.................................................. 57
SECTION 11. Insurance................................................. 57
(a) Public Liability and Property Damage Insurance.............. 57
(b) Insurance Against Loss or Damage to the Aircraft............ 58
(c) Reports, etc................................................ 60
(d) Self-Insurance.............................................. 62
(e) Additional Insurance by Lessor and Lessee................... 62
(f) Indemnification by Government in Lieu of
Insurance................................................... 62
(g) Application of Payments During Existence of
Default..................................................... 63
(h) Terms of Insurance Policies................................. 63
SECTION 12. Inspection................................................ 64
SECTION 13. Assignment................................................ 66
SECTION 14. Events of Default......................................... 66
SECTION 15. Remedies.................................................. 68
SECTION 16. Lessee's Cooperation Concerning Certain
Matters.......................................................... 72
SECTION 17. Notices................................................... 74
SECTION 18. Net Lease; No Set-Off, Counterclaim, Etc. ................ 75
SECTION 19. Renewal Options; Purchase Options; Valuation.............. 77
(a) Renewal Options............................................. 77
(1) Fixed Renewal Terms.................................... 77
(2) Fair Market Renewal Term............................... 78
(3) Waiver................................................. 78
(4) Conditions Precedent, Payment of Basic Rent............ 78
(5) Termination Value; Stipulated Loss Value............... 79
(b) Purchase Options............................................ 79
(c) Valuation................................................... 80
ii
SECTION 20. Security for Lessor's Obligation to Certificate
Holders.......................................................... 82
SECTION 21. Lessor's Right to Perform for Lessee...................... 82
SECTION 22. Investment of Security Funds; Liability of
Lessor Limited................................................... 83
(a) Investment of Security Funds................................ 83
(b) Liability of Lessor Limited................................. 84
SECTION 23. Miscellaneous............................................. 84
SECTION 24. Successor Trustee......................................... 84
SECTION 25. Bankruptcy................................................ 85
iii
EXHIBITS
EXHIBIT A Form of Lease Supplement
EXHIBIT B Basic Rent and Excess Amount Schedule
EXHIBIT C Stipulated Loss Value Schedule
EXHIBIT D Termination Value Schedule
EXHIBIT E Rent Recalculation and Indemnification Verification
EXHIBIT F Schedule of Countries Authorized for Domicile of Permitted Sublessees
EXHIBIT G Schedule of Countries Authorized for Aircraft Registration
EXHIBIT H Lessor's Cost, Engine Cost, Commencement Date, Lease Expiry Date,
Stipulated Loss Value Date, EBO Date, EBO Percentage, Special Purchase
Option Dates and Special Termination Value Percentages
SECOND AMENDED AND RESTATED LEASE AGREEMENT (1993 747 A)
This SECOND AMENDED AND RESTATED LEASE AGREEMENT (1993 747 A), dated
as of May 1, 1995, between STATE STREET BANK AND TRUST COMPANY, a Massachusetts
trust company, not in its individual capacity, except as expressly provided
herein, but solely as Owner Trustee under the Trust Agreement (as defined in
Section 1 hereof) (in such capacity, "Lessor") as successor to Wilmington Trust
Company ("Original Lessor"), and UNITED AIR LINES, INC., a corporation organized
and existing pursuant to the laws of the State of Delaware ("Lessee").
WITNESSETH:
WHEREAS, capitalized terms used herein and not otherwise defined shall
have the meaning provided thereto in Section 1 of this Lease;
WHEREAS, the Original Lease (as defined below) was amended and
restated pursuant to that certain First Amended and Restated Lease Agreement
(1993 747 A) dated as of April 1, 1993 (the "Original Restated Lease") between
the Original Lessor and Lessee and the Original Restated Lease has been amended
by (i) that certain First Amendment to First Amended and Restated Lease
Agreement (1993 747 A) dated April 19, 1994 ("First Amendment") between the
Original Lessor and Lessee, (ii) that certain Second Amendment to First Amended
and Restated Lease Agreement (1993 747 A) dated as of July 1, 1994 ("Second
Amendment") between the Original Lessor and Lessee, and (iii) that certain Third
Amendment to First Amended and Restated Lease Agreement (1993 747 A) dated July
22, 1994 ("Third Amendment") between the Original Lessor and Lessee (the
Original Restated Lease as amended by the First Amendment, the Second Amendment
and the Third Amendment being herein referred to as the "Restated Lease");
WHEREAS, the Original Restated Lease amended and restated that certain
Lease Agreement (1993 747 A) dated as of April 1, 1993 (the "Original Lease")
between Lessee and Original Lessor (as supplemented by Lease Supplement No. 1
(1993 747 A) dated April 20, 1993 ("Lease Supplement No. 1") between Original
Lessor and Lessee);
WHEREAS, pursuant to the Original Lease, Lessee has leased from Lessor
the Aircraft, being one (1) Boeing 747-422 aircraft which consists of the
following components: (i) Airframe: U.S. Registration No. N189UA, manufacturer's
serial no. 26878 and (ii) Engines: four (4) Pratt & Whitney model PW4056
aircraft engines bearing, respectively, manufacturer's serial numbers P727301,
P727302, P727303 and P727304;
[Second Amended and Restated
Lease Agreement (1993 747 A)]
WHEREAS, a counterpart of the Original Lease, to which was attached
and made a part thereof a counterpart of Lease Supplement No. 1, was recorded by
the Federal Aviation Administration on April 21, 1993 and assigned Conveyance
No. FF08936;
WHEREAS, a counterpart of the Original Restated Lease was recorded by
the Federal Aviation Administration on May 6, 1993 and assigned Conveyance No.
VV003011; and
WHEREAS, a counterpart of the First Amendment was recorded by the
Federal Aviation Administration on June 15, 1994 and assigned Conveyance No.
HK002085;
WHEREAS, a counterpart of the Second Amendment was recorded by the
Federal Aviation Administration on August 10, 1994 and assigned Conveyance No.
FF006618;
WHEREAS, a counterpart of the Third Amendment was recorded by the
Federal Aviation Administration on August 10, 1994 and assigned Conveyance No.
FF06619; and
WHEREAS, in connection with the refinancing of the interim debt with
permanent debt as contemplated by Section 20 of the Original Participation
Agreement, Lessor and Lessee desire to amend and restate the Restated Lease in
its entirety and Lessor and Lessee desire and intend that the terms, provisions
and agreements herein set forth shall have the same force and effect as though
originally executed and delivered in the place of the Restated Lease.
SECTION 1. Definitions. Unless the context otherwise requires, the
following terms shall have the following meanings for all purposes of this Lease
Agreement and shall be equally applicable to both the singular and the plural
forms of the terms herein defined:
"Acceptable Alternate Engine" means a Pratt & Whitney Model PW4056
engine or an engine of the same or another manufacturer of equivalent or greater
value and utility, and suitable for installation and use on the Airframe;
provided that such engine shall be of the same make, model and manufacturer as
the other three engine types installed on the Airframe and shall be an engine of
a type then being utilized by Lessee on other Boeing 747-422 aircraft operated
by Lessee and shall have been maintained, serviced, repaired and overhauled in
substantially the same manner as Lessee maintains, services, repairs and
overhauls similar engines utilized by Lessee and without in any way
discriminating against such engine.
2
[Second Amended and Restated
Lease Agreement (1993 747 A)]
"Actual Knowledge" means, (i) as it applies to the Owner Trustee or
Indenture Trustee, as the case may be, actual knowledge of a responsible officer
in the Trust Office, and (ii) as it applies to the Owner Participant, actual
knowledge of a Vice President or more senior officer of the Owner Participant or
other officer of the Owner Participant in each case having responsibility for
the transactions contemplated by the Operative Documents; provided that each of
the Owner Trustee, the Indenture Trustee and the Owner Participant shall be
deemed to have "Actual Knowledge" of any matter as to which it has been given
notice by any of Lessee, the Owner Participant, any Certificate Holder, the
Owner Trustee or the Indenture Trustee, such notice having been given pursuant
to and in accordance with Section 13(a) of the Participation Agreement.
"Additional Insured" means Lessor, in its individual capacity and as
owner of the Aircraft, the Indenture Trustee, the Owner Participant, Lessee in
its capacity as sublessor under any Sublease, and, so long as the Pass Through
Trustees are Certificate Holders, each Pass Through Trustee and each of their
respective Affiliates, successors and permitted assigns; and the respective
directors, officers and employees of each of the foregoing.
"Affiliate" means a Person (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under a common
control with, another Person, (ii) which beneficially owns or holds 10% or more
(by number of votes) of any class of voting securities of such other Person or
(iii) 10% or more (by number of votes) of the voting securities (or in the case
of a Person which is not a corporation, 10% or more of the equity interest) of
which is beneficially owned or held by such other Person or a Subsidiary. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Aircraft" means the Airframe together with the four Engines whether
or not such Engines are installed on the Airframe or any other airframe.
"Airframe" means: (i) The Boeing Company Model 747-422 aircraft
(excluding Engines or engines from time to time installed thereon) specified by
United States Registration Number and Manufacturer's serial number in the Lease
Supplement; (ii) any and all Parts which are from time to time incorporated or
installed in or attached thereto or which have been removed therefrom, but where
title to which remains vested in Lessor in
3
[Second Amended and Restated
Lease Agreement (1993 747 A)]
accordance herewith; and (iii) any replacement airframe which may from time to
time be substituted pursuant to Section 10(a)(ii) hereof.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended
from time to time.
"Base Rate" means the rate of interest announced from time to time by
The First National Bank of Chicago at its principal office in Chicago, Illinois
as its "corporate base rate" (or its equivalent successor rate if the corporate
base rate is no longer used).
"Basic Rent" means, for the Basic Term, the rent payable for the
Aircraft pursuant to Section 3(b) hereof, as adjusted as provided in Section
3(c) and, for a Renewal Term, Basic Rent determined pursuant to Section 19.
"Basic Term" means the term for which the Aircraft is leased hereunder
pursuant to Section 3(a) hereof beginning on the Commencement Date and ending on
the Lease Expiry Date or such earlier date as this Lease may be terminated in
accordance with the terms hereof.
"Business Day" means any day other than a Saturday or Sunday or a day
on which commercial banks are required or authorized to close in the City of
Chicago, Illinois; New York City, New York; the city and state in which the
principal place of business of the Owner Trustee is located; and, so long as any
Loan Certificate is outstanding, the city and state in which the Indenture
Trustee has its principal place of business and the city and state in which the
Indenture Trustee receives and disburses funds.
"Certificate Holder" has the meaning assigned to the term "Holder" in
the Trust Indenture.
"Certificated Air Carrier" means a Citizen of the United States
holding an air carrier operating certificate issued by the Secretary of
Transportation pursuant to Chapter 447 of Title 49 of the United States Code,
for aircraft capable of carrying ten or more individuals or 6,000 pounds or more
of cargo or that otherwise is certified or registered to the extent required to
fall within the purview of 11 U.S.C. Section 1110 or any analogous successor
provision of the Bankruptcy Code.
"Citizen of the United States" has the meaning given such term in
Section 40102(a)(15) of Title 49 of the United States Code.
4
[Second Amended and Restated
Lease Agreement (1993 747 A)]
"Civil Reserve Air Fleet Program" means the Civil Reserve Air Fleet
Program administered by the United States Government pursuant to Executive Order
No. 11490, as amended, or any substantially similar program.
"Code" means the Internal Revenue Code of 1986, as amended through the
Delivery Date.
"Commencement Date" means the date specified as such in Exhibit H
hereto.
"Commitments" means the respective commitments of the Original Loan
Participant or of the Owner Participant to finance the Owner Trustee's payment
of Lessor's Cost for the Aircraft and "Commitment" means any one of the
Commitments.
"Consent and Agreement" means the Consent and Agreement (1993 747 A),
dated April 20, 1993, executed by the Manufacturer, as the same may be amended,
modified or supplemented from time to time in accordance with the applicable
provisions thereof.
"Debt Rate" means the weighted average interest rate borne by the Loan
Certificates then outstanding.
"Default" means any event which with the giving of notice or the lapse
of time or both would become an Event of Default.
"Delivery Date" means April 20, 1993.
"Dollars" and "$" mean the lawful currency of the United States of
America.
"EBO Date" means the date specified as such in Exhibit H hereto.
"EBO Percentage" means the percentage specified as such in Exhibit H
hereto.
"EBO Price" has the meaning set forth in Section 19(b)(2) hereof.
"Engine" means (i) each of the four Pratt & Whitney Model PW4056
engines listed by manufacturer's serial numbers in the initial Lease Supplement
and installed on the Airframe at the time of the Manufacturer's delivery to
Lessee of such Airframe, and whether or not from time to time thereafter
installed on such Airframe or any other airframe; (ii) any Acceptable Alternate
Engine which may from time to time be substituted for
5
[Second Amended and Restated
Lease Agreement (1993 747 A)]
any of such four engines pursuant to the terms hereof; and (iii) in either case,
any and all Parts which are from time to time incorporated or installed in or
attached to any such engine and any and all parts removed therefrom so long as
title thereto remains vested in Lessor in accordance herewith. The term
"Engines" means, as of any date of determination, all Engines then leased
hereunder.
"Engine Cost" means the amount specified as Engine Cost in Exhibit H
hereto.
"Event of Default" has the meaning specified in Section 14 hereof.
"Event of Loss" with respect to the Aircraft, Airframe or any Engine
means any of the following events with respect to such property: (i) the loss
of such property or of the use thereof due to the destruction of or damage to
such property which renders repair uneconomic or which renders such property
permanently unfit for normal use by Lessee for any reason whatsoever; (ii) any
damage to such property which results in an insurance settlement with respect to
such property on the basis of a total loss, or a constructive or compromised
total loss; (iii) the theft or disappearance of such property, or the
confiscation, condemnation, or seizure of, or requisition of title to, or use
of, such property by any governmental or purported governmental authority (other
than a requisition for use by the United States Government or any government of
registry of the Aircraft or any agency or instrumentality thereof), which in the
case of any event referred to in this clause (iii) shall have resulted in the
loss of title or possession of such property by Lessee for a period in excess of
90 consecutive days or, if earlier, until the end of the Term; (iv) as a result
of any law, rule, regulation, order or other action by the FAA or other
governmental body of the government of registry of the Aircraft having
jurisdiction, use of such property in the normal course of the business of air
transportation shall have been prohibited for a period in excess of 180
consecutive days, unless (A) such grounding is applicable to all Boeing 747-422
aircraft registered in such country, (B) Lessee, prior to the expiration of such
180 day period, shall have undertaken and shall be diligently carrying forward,
in a manner that does not discriminate against the Aircraft, all steps which are
necessary or desirable to permit the normal use of such property by Lessee, and
(C) Lessee, within one year from the time of grounding shall have conformed at
least one such aircraft in its fleet to the requirements of any such law, rule,
regulation, order or other action and commenced regular commercial use of the
same in such jurisdiction, provided that no such grounding shall extend beyond
6
[Second Amended and Restated
Lease Agreement (1993 747 A)]
the expiration of the Term; (v) the requisition for use by the United States
Government or any government of registry of the Aircraft or any instrumentality
or agency thereof, which shall have occurred during the Basic Term (or the
Interim Term or any Renewal Term) and shall have, in the case of any government
of registry of the Aircraft (other than the United States Government or any
agency or instrumentality thereof) or any agency or instrumentality thereof,
continued for more than two years (or if earlier, until the end of the Term),
and in the case of the United States Government or any agency or instrumentality
thereof shall have continued for a period that extends beyond the Term and
Lessor shall not have furnished the written notice specified in Section 10(d)
hereof; (vi) the operation of or location of the Aircraft, while under
requisition for use by any government, in any area excluded from coverage by any
insurance policy in effect with respect to the Aircraft required by the terms of
Section 11, unless in the case of a requisition by the government of the United
States or any agency or instrumentality thereof, Lessee shall have obtained an
indemnity in lieu thereof from such government; and (vii) any divestiture of
title to an Engine treated as an Event of Loss pursuant to Section 7(b) hereof.
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.
"Excess Amount" for the Commencement Date means the amount determined
by multiplying Lessor's Cost by the percentage specified in Exhibit B hereto
opposite the Commencement Date (as such Exhibit B may be adjusted from time to
time as provided in Section 3(c) hereof).
"Excluded Payments" has the meaning set forth in the Trust Indenture.
"Expenses" means any and all liabilities, obligations, losses,
damages, penalties, claims (including, but not limited to, negligence, strict or
absolute liability, liability in tort and liabilities arising out of violation
of laws or regulatory requirements of any kind), actions, suits, costs, expenses
and disbursements (including reasonable legal fees and expenses and, to the
extent not required to be paid by the Owner Trustee pursuant to Section 16 of
the Participation Agreement, Transaction Expenses, and all costs and expenses
relating to amendments, supplements, waivers and consents to and under the
Operative Documents, any amounts that would be included in Premium, but
excluding internal costs and expenses such as salaries, and overhead of
whatsoever kind and nature).
7
[Second Amended and Restated
Lease Agreement (1993 747 A)]
"Fair Market Rental Value" means the fair market rental value
determined as provided in Section 19(c) hereof.
"Fair Market Sales Value" means the fair market sales value determined
as provided in Sections 19(a) and 19(c) hereof.
"Federal Aviation Act" means the sections of Title 49 of the United
States Code relating to aviation, as amended.
"Federal Aviation Administration" and "FAA" mean the United States
Federal Aviation Administration and any successor agency or agencies thereto.
"Indemnitees" means the Owner Participant, the Owner Trustee, in its
individual capacity and as trustee under the Trust Agreement, the Trust Estate,
the Trust Indenture Estate, the Indenture Trustee, in its individual capacity
and as trustee under the Trust Indenture, each Pass Through Trustee (so long as
the Pass Through Trustees are Certificate Holders), and each of their respective
Affiliates, successors, permitted assigns, directors, officers, employees,
servants and agents.
"Indenture Trustee" has the meaning set forth in the Trust Indenture.
"Indenture Trustee Documents" means the Participation Agreement, the
Trust Indenture, each Pass Through Trust Agreement, each Pass Through Trust
Supplement, each Loan Certificate and each Pass Through Certificate and any
other document executed by the Indenture Trustee or the Pass Through Trustee in
connection with the transactions contemplated by the Operative Documents.
"Interim Term" means the period commencing on the Delivery Date and
ending on and including the day immediately preceding the Commencement Date,
unless earlier terminated in accordance with the provisions hereof.
"Lease Agreement", "this Lease Agreement", "this Lease", "this
Agreement", "herein", "hereof", "hereunder", "hereby", or other like words mean
this Second Amended and Restated Lease Agreement as originally executed or as
modified, amended or supplemented in accordance with the applicable provisions
hereof and the terms of the Trust Indenture, including, without limitation,
supplementation hereof by any Lease Supplement entered into in accordance with
the applicable provisions hereof and the terms of the Trust Indenture.
8
[Second Amended and Restated
Lease Agreement (1993 747 A)]
"Lease Expiry Date" means the date specified as such in Exhibit H.
"Lease Period" means each of the consecutive semi-annual periods
throughout the Basic Term and any Renewal Term ending on a Lease Period Date,
the first such period commencing on and including the Commencement Date.
"Lease Period Date" means April 19, 1994 and each succeeding semi-
annual anniversary thereof to and including the last such date in the Term.
"Lease Supplement" means Lease Supplement No. 1 and each other Lease
Supplement, substantially in the form of Exhibit A hereto, to be entered into
between Lessor and Lessee on the Delivery Date for the purpose of leasing the
Aircraft under and pursuant to the terms of this Lease Agreement, and any
subsequent Lease Supplement entered into in accordance with the terms hereof and
the terms of the Trust Indenture.
"Lessee Documents" means the Participation Agreement, the Lease, any
Lease Supplement, the Purchase Agreement, the Owner Trustee's Purchase
Agreement, the Owner Trustee's FAA Bill of Sale, the Owner Trustee's Bill of
Sale, the Tax Indemnity Agreement, each Pass Through Trust Agreement, each Pass
Through Trust Agreement Supplement and any other document executed by Lessee in
connection with the transactions contemplated by the Operative Documents.
"Lessor Liens" means any Lien on, or disposition of title to, the
Aircraft or the Trust Estate arising as a result of (i) claims against Lessor,
State Street Bank and Trust Company, in its individual capacity, or the Owner
Participant not related to the transactions contemplated by the Operative
Documents, (ii) any act or omission of the Owner Participant, Lessor, or State
Street Bank and Trust Company, in its individual capacity, 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, (iii) claims against the Owner
Participant, Lessor, or State Street Bank and Trust Company, in its individual
capacity, with respect to Taxes or Expenses against which Lessee is not required
to indemnify the Owner Participant, Lessor or State Street Bank and Trust
Company, in its individual capacity or (iv) claims against Lessor or the Owner
Participant arising out of any transfer by Lessor or the Owner Participant of
all or any portion of the respective interests of Lessor or the Owner
Participant in the Aircraft, the Trust Estate or the Operative Documents (other
than a transfer of possession of the Aircraft by Lessor pursuant to this
Agreement, a transfer pursuant to the Trust Indenture
9
[Second Amended and Restated
Lease Agreement (1993 747 A)]
(other than a transfer pursuant to Article 8 of the Trust Indenture not
attributable to a Lease Event of Default) or a transfer pursuant to Section 7,
8, 9, 10 or 19 hereof, pursuant to Section 17 of the Participation Agreement or
pursuant to the exercise of the remedies set forth in Section 15 hereof);
provided, however, that any Lien which is attributable solely to State Street
Bank and Trust Company or the Owner Participant and would otherwise constitute a
Lessor Lien hereunder shall not constitute a Lessor Lien hereunder so long as
(1) the existence of such Lien poses no material risk of the sale, forfeiture or
loss of the Airframe or any Engine or any interest therein, (2) the existence of
such Lien does not interfere in any way with the use or operation of the
Aircraft by Lessee (or any Sublessee), (3) the existence of such Lien does not
affect the priority or perfection of, or otherwise jeopardize, the Lien of the
Trust Indenture, (4) State Street Bank and Trust Company or the Owner
Participant, as the case may be, is diligently contesting such Lien by
appropriate proceeding and (5) the existence of such Lien does not result in
actual interruption in the payment of Rent assigned to the Indenture Trustee for
the benefit of the Certificate Holders.
"Lessor's Cost" for the Aircraft means the amount specified as
Lessor's Cost in Exhibit H hereto; provided, however, Lessor's Cost shall be
reduced by Engine Cost for each Engine for which Lessee has paid Stipulated Loss
Value pursuant to the terms of Section 10(b) hereof and has otherwise paid all
other amounts due and payable under said Section 10(b).
"Lien" means any mortgage, pledge, lien, charge, claim, encumbrance,
lease or security interest.
"Loan Certificate" has the meaning assigned to the term "Certificate"
in the Trust Indenture.
"Loss Payment Date" has the meaning set forth in Section 10(a) hereof.
"Manufacturer" means The Boeing Company, a Delaware corporation, and
its subsidiaries, successors and assigns.
"Manufacturer Documents" means the Purchase Agreement, the Consent and
Agreement and any other document executed by the Manufacturer in connection with
the transactions contemplated by the Operative Documents.
"Net Economic Return" means the Owner Participant's net after-tax book
yield, aggregate after-tax cash flow and, with respect to any adjustments
required to maintain the Owner
10
[Second Amended and Restated
Lease Agreement (1993 747 A)]
Participant's Net Economic Return, periodic FASB 13 earnings plus or minus 5%
for any annual period, utilizing the multiple investment sinking fund method of
analysis, computed on the basis of the same methodology and assumptions as were
utilized by the Owner Participant in determining Basic Rent, Stipulated Loss
Value percentages, Special Termination Value Percentages, EBO Percentage and
Termination Value percentages as of the Delivery Date, as such assumptions may
be revised from time to time for events which have been the basis for
adjustments to Rent pursuant to Section 3(c) hereof, provided that under no
circumstances shall there be a reduction in Owner Participant's [1993] FASB 13
earnings.
"Net Present Value of Rents" means the net present value, as of the
Delivery Date, of Basic Rent set forth in Exhibit B hereto, discounted at a rate
per Lease Period equal to (a) 11% per annum divided by (b) the number of Lease
Periods per year.
"Operative Documents" means the Lease (including any Lease
Supplement); the Participation Agreement; the Tax Indemnity Agreement; the Trust
Agreement; any Trust Supplement; the Purchase Agreement; the Owner Trustee's
Bill of Sale; the Owner Trustee's FAA Bill of Sale; the Owner Trustee's Purchase
Agreement; an acceptance certificate covering the Aircraft in the form agreed to
by the Participants and Lessee (the "Acceptance Certificate"); the Trust
Indenture; the Loan Certificates outstanding at the time of reference; the
Redemption and Refinancing Agreement; and the Consent and Agreement.
"Original Amount", with respect to a Loan Certificate, means at any
time prior to the Commencement Date, the Original Issue Price (as defined in the
Trust Indenture) of such Loan Certificate, or, at any time on or after the
Commencement Date, the stated original principal amount of such Loan
Certificate, and with respect to all Loan Certificates means, at any time prior
to the Commencement Date, the aggregate Original Issue Prices for such Loan
Certificates or, at any time on or after the Commencement Date, the aggregate
stated original principal amounts of such Loan Certificates.
"Original Participation Agreement" means that certain Participation
Agreement (1993 747 A) dated as of April 1, 1993 among Lessee, the Owner
Participant, Wilmington Trust Company, not in its individual capacity except as
expressly provided therein (the "Original Owner Trustee"), State Street Bank and
Trust Company of Connecticut, National Association, as Indenture Trustee (the
"Original Indenture Trustee") and The Chase Manhattan Bank, N.A., as an Original
Loan Participant, as amended
11
[Second Amended and Restated
Lease Agreement (1993 747 A)]
by (i) that certain First Amendment to Participation Agreement (1993 747 A)
dated as of December 1, 1993 among Lessee, the Owner Participant, the Original
Owner Trustee, the Original Indenture Trustee and The Chase Manhattan Bank.
N.A., Berliner Handels Und Frankfurter Bank and NBD Bank, N.A., as Original Loan
Participants (collectively, the "Original Loan Participants"), as further
amended by and (ii) that certain Second Amendment to Participation Agreement
(1993 747 A) dated as of July 1, 1994 among Lessee, the Owner Participant, the
Original Owner Trustee, the Original Indenture Trustee and The Mitsubishi Trust
and Banking Corporation, New York Branch (the "Successor Original Loan
Participant").
"Owner Participant" means the Person executing the Participation
Agreement as the Owner Participant and any Person to which such Person transfers
all or any portion of its right, title and interest in and to the Trust
Agreement, the Trust Estate and the Participation Agreement, to the extent
permitted thereby.
"Owner Participant Documents" means the Participation Agreement, the
Trust Agreement, the Tax Indemnity Agreement and any other document executed by
the Owner Participant in connection with the transactions contemplated by the
Operative Documents.
"Owner Trustee" means the Person executing the Participation Agreement
as Owner Trustee and any Person appointed as successor Owner Trustee in each
case not in its individual capacity but solely as Owner Trustee under the Trust
Agreement, except as otherwise expressly stated.
"Owner Trustee Documents" means the Participation Agreement, the Trust
Agreement, this Lease, any Lease Supplement, the Owner Trustee's Purchase
Agreement, the Trust Indenture, any Trust Supplement, the Loan Certificates and
any other document executed by the Owner Trustee in connection with the
transactions contemplated by the Operative Documents.
"Owner Trustee's Bill of Sale" means a bill of sale for the Aircraft,
dated the Delivery Date, executed by Lessee in favor of Lessor in form and
substance satisfactory to Lessor.
"Owner Trustee's FAA Bill of Sale" means a bill of sale for the
Aircraft on AC Form 8050-2 or such other form as may be approved by the FAA on
the Delivery Date executed by Lessee in favor of Lessor in form and substance
satisfactory to Lessor.
12
[Second Amended and Restated
Lease Agreement (1993 747 A)]
"Owner Trustee's Purchase Agreement" means the Owner Trustee's
Purchase Agreement and Assignment (1993 747 A), dated as of April 1, 1993,
between Lessee and the Owner Trustee, as the same may be amended, modified or
supplemented from time to time in accordance with the applicable provisions
thereof and the terms of the Trust Indenture.
"Participants" means and includes the Pass Through Trustees and the
Owner Participant.
"Participation Agreement" means that certain First Amended and
Restated Participation Agreement (1993 747 A), dated as of the date hereof,
among Lessee, the Indenture Trustee, the Owner Participant, the Pass Through
Trustees and the Owner Trustee, as such Participation Agreement may be amended
or supplemented from time to time pursuant to the applicable provisions thereof.
"Parts" means all appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature (other than (i)
complete Engines or engines and (ii) any appliances, parts, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
which Lessee is entitled to use pursuant to a lease, license or similar
arrangement with a third party (other than Lessor hereunder), in each case not
necessary to the operation or navigation of the Aircraft or to maintain its
airworthiness certification), which are from time to time incorporated or
installed in or attached to an Airframe or any Engine or which have been removed
therefrom, but where title to which remains vested in Lessor in accordance with
Section 8 hereof.
"Pass Through Certificates" has the meaning set forth in the Trust
Indenture.
"Pass Through Trust Agreements" means the Pass Through Trust Agreement
dated as of February 1, 1992, as amended and restated as of May 1, 1995, in each
case between the Lessee and State Street Bank and Trust Company of Connecticut,
National Association, as supplemented by each of the two Pass Through Trust
Supplements, in each case between the Lessee and the Pass Through Trustee, and
as the same may be further modified, amended or supplemented pursuant to the
applicable provisions thereof and the Participation Agreement.
"Pass Through Trustee" shall mean First Security Bank of Utah,
National Association, a national banking association, in its capacity as Trustee
under each Pass Through Trust Agreement,
13
[Second Amended and Restated
Lease Agreement (1993 747 A)]
and each other Person which may from time to time be acting as successor trustee
under any such Pass Through Trust Agreement.
"Pass Through Trust Supplement" means each of the two separate Trust
Supplements Nos. 1995-A1 and 1995-A2, in each case dated as of May __, 1995
between Lessee and the Pass Through Trustee.
"Past Due Rate" means (i) with respect to the portion of any payment
of Rent that may be required by the Trust Indenture to be paid by the Indenture
Trustee to any Certificate Holder, the "Past Due Rate" as defined in the Trust
Indenture and (ii) with respect to the remaining portion of any payment of Rent
(and the entire amount of any payment of Rent after the satisfaction and
discharge of the Trust Indenture), a fluctuating rate per annum equal to 2% over
the Debt Rate.
"Permitted Lien" means any Lien referred to in clauses (i) through
(vi) of Section 6 hereof.
"Permitted Sublessee" means any air carrier domiciled in a country
listed in Exhibit F hereto as in effect from time to time.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Premium" has the meaning assigned to the term in Section 6.01(b) of
the Trust Indenture.
"Prepaid Rent" has the meaning set forth in Section 3(g) hereof.
"Purchase Agreement" means the agreement between Lessee and the
Manufacturer relating to the purchase by Lessee of the Aircraft, as originally
executed or as modified, amended or supplemented in accordance with the terms
thereof, but only insofar as the foregoing relates to the Aircraft.
"Purchase Option Date" has the meaning set forth in Section 19 hereof.
"Redemption and Refinancing Agreement" means that certain Redemption
and Refinancing Agreement (1993 747 A) dated as of May 1, 1995 by and among
Lessee, the Owner Participant, The Mitsubishi Trust and Banking Corporation, New
York Branch, the Owner Trustee, the Indenture Trustee and each Pass Through
14
[Second Amended and Restated
Lease Agreement (1993 747 A)]
Trustee, as the same may be modified, amended or supplemented from time to time
in accordance with the applicable provisions thereof.
"Redemption Date" has the meaning set forth in the Trust Indenture.
"Reimbursement Amount" has the meaning set forth in Section 3(g)
hereof.
"Renewal Term" means the Fair Market Renewal Term or a Fixed Renewal
Term as those terms are defined in Section 19 hereof.
"Rent" means Basic Rent and Supplemental Rent, collectively.
"Replacement Airframe" means any airframe substituted for an airframe
in accordance with Sections 10(a) of the Lease.
"Replacement Engine" means any engine substituted for an Engine in
accordance with Sections 9(d), 10(a) or 10(b) of the Lease.
"Restricted Country" has the meaning set forth on Exhibits F and G
hereto.
"Restricted Period" means the period ending on the last open day of
the calendar year in which there occurs the seventh anniversary of the Delivery
Date.
"Special Purchase Option Dates" means each of the dates specified as
such on Exhibit H hereto.
"Special Termination Value", with respect to any Special Purchase
Option Date, has the meaning set forth in Section 19(b)(1) hereof.
"Special Termination Value Percentage" means, with respect to any
Special Purchase Option Date, the percentage set forth opposite such Date on
Exhibit H hereto.
"Stipulated Loss Value" with respect to the Aircraft as of any date
through and including the last day of the Basic Term, means the amount
determined by multiplying Lessor's Cost for the Aircraft by the percentage
specified in Exhibit C hereto opposite the Stipulated Loss Value Date with
respect to which the amount of Stipulated Loss Value is determined (as such
Exhibit C may be adjusted from time to time as provided in Section 3(c) hereof
and
15
[Second Amended and Restated
Lease Agreement (1993 747 A)]
in Section 8 of the Tax Indemnity Agreement). "Stipulated Loss Value" with
respect to the Aircraft, as of any date during any Renewal Term, shall be the
amount determined as provided in Section 19 hereof. To the extent that an event
giving rise to an obligation to pay any Stipulated Loss Value occurs (with
respect to the Airframe or either Engine), 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.
"Stipulated Loss Value Date" has the meaning specified therefore in
Exhibit H hereto.
"Sublease" means any sublease permitted by the terms of Section
7(b)(viii) hereof.
"Sublessee" means any Person for so long, but only so long, as such
Person is in possession of the Airframe and or any Engine pursuant to the terms
of a Sublease which is then in effect pursuant to Section 7(b)(viii) hereof.
"Subsidiary" means, with respect to any Person that is a corporation,
any other corporation a majority of the voting securities of which are owned by
such person, whether directly or indirectly.
"Supplemental Rent" means all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay to Lessor or
others hereunder or under any of the other Operative Documents, including
payments of Stipulated Loss Value and Termination Value and amounts calculated
by reference thereto, an amount equal to the Premium, if any, payable in
accordance with Section 3(d) hereof and indemnity payments. The parties
acknowledge that Supplemental Rent is a general category and, accordingly, agree
that any provision of any Operative Document which calls for the payment of
Supplemental Rent and also calls for the payment of specific items which are
includable in Supplemental Rent is not to be interpreted as requiring any double
payment.
"Tax Indemnity Agreement" means that certain Tax Indemnity Agreement
(1993 747 A), dated as of April 1, 1993, as amended and restated as of May 1,
1995, between the Owner Participant and Lessee, as originally executed or as
modified,
16
[Second Amended and Restated
Lease Agreement (1993 747 A)]
amended or supplemented pursuant to the applicable provisions thereof.
"Taxes" means any and all fees (including, without limitation,
license, documentation and registration fees), taxes (including, without
limitation, income, gross receipts, sales, rental, use, turnover, value added,
property (tangible and intangible), excise and stamp taxes), licenses, levies,
imposts, duties, recording charges or fees, charges, assessments, or
withholdings of any nature whatsoever, together with any assessments, penalties,
fines, additions to tax and interest thereon (each, individually, a "Tax").
"Term" means the Interim Term, Basic Term and, if actually entered
into, any Renewal Term.
"Termination Date" has the meaning set forth in Section 9(b) hereof.
"Termination Value" with respect to the Aircraft as of any date
through and including the last day of the Basic Term means the amount determined
by multiplying Lessor's Cost for the Aircraft by the percentage specified in
Exhibit D hereto opposite the Termination Date with respect to which the amount
of Termination Value is determined (as such Exhibit D may be adjusted from time
to time as provided in Section 3(c) hereof and in Section 8 of the Tax Indemnity
Agreement). To the extent that an event giving rise to an obligation to pay any
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.
"Transaction Expenses" means (A) with respect to the closing on the
Delivery Date (i) the reasonable and actual fees, expenses and disbursements of
(1) Day, Berry & Howard, special counsel for the Original Indenture Trustee, (2)
Richards, Layton & Finger, counsel for the Original Owner Trustee, (3) Crowe & Dunlevy, P.C., special counsel in Oklahoma City, Oklahoma, (4) White & Case,
special counsel for the Original Loan Participant, (5) Vedder, Price, Kaufman & Kammholz, special counsel for Lessee, and (6) Dewey Ballantine, special counsel
for the Owner Participant, (ii) all fees, taxes and other charges payable in
connection with the recording or filing of instruments and financing statements,
(iii) the initial fee and reasonable
17
[Second Amended and Restated
Lease Agreement (1993 747 A)]
and actual disbursements of the Original Owner Trustee under the Trust
Agreement, (iv) the initial fee and reasonable and actual disbursements of the
Indenture Trustee under the Trust Indenture, (v) the fee of Aeroeconomics, Inc.
(or of such other appraiser as shall be selected by the Owner Participant) with
respect to the appraisal of the Aircraft required on or before the Delivery Date
pursuant to Section 4(a) of the Participation Agreement, (vi) the fees,
commissions and expenses of Capstar Partners, Inc., (vii) the reasonable out-of-
pocket expenses of the Original Loan Participant, (viii) the reasonable out-of-
pocket expenses of the Owner Participant relating to the transactions
contemplated by the Participation Agreement including, without limitation, the
expenses related to the organization of the foreign sales corporation, up to an
aggregate of $25,000 (but excluding from Transaction Expenses airfare charges
incurred for travel on an airline other than United Air Lines, unless such
travel is necessitated by the foreign sales corporation structure to the extent
that United Air Lines does not offer regularly scheduled flights directly from
New York to such foreign location where negotiations with respect to the
transactions will be conducted for purposes of the foreign sales corporation
nature of the transactions) plus airfare charges incurred for travel on United
Air Lines, and (ix) the initial fees, if any, of the Original Loan Participant
and the Succesor Original Loan Participant, and (B) with respect to the
subsequent placement of the permanent debt pursuant to the Redemption and
Refinancing Agreement (i) the reasonable and actual fees, expenses and
disbursements of (1) Ray, Quinney & Nebeker, special counsel for the Indenture
Trustee and the Pass Through Trustee, (2) Bingham, Dana & Gould, counsel for the
Owner Trustee, (3) Crowe & Dunlevy, P.C., special counsel in Oklahoma City,
Oklahoma, (4) Shearman & Sterling, special counsel for the Underwriters (to the
extent not payable by the Underwriters), (5) Vedder, Price, Kaufman & Kammholz,
special counsel for Lessee, and (6) Dewey Ballantine, special counsel for the
Owner Participant, (ii) all fees, taxes and other charges payable in connection
with the recording or filing of instruments and financing statements, (iii) the
initial fee and reasonable and actual disbursements of the Owner Trustee under
the Trust Agreement, (iv) the initial fee and reasonable and actual
disbursements of the Indenture Trustee under the Trust Indenture, (v) the fees,
commissions and expenses of Capstar Partners, Inc., (vi) the reasonable out-of-
pocket expenses of the Owner Participant relating to the transactions
contemplated by the Redemption and Refinancing Agreement, (vii) the placement or
underwriting fees, commissions and expenses, if any, in placing the permanent
debt pursuant to the Redemption and Refinancing Agreement and all costs and
expenses associated with the public offering pursuant thereto and the actual
expenses of each Pass
18
[Second Amended and Restated
Lease Agreement (1993 747 A)]
Through Trustee under its respective Pass Through Trust Agreement and (viii)
printing and distribution costs.
"Trust Agreement" means that certain First Amended and Restated Trust
Agreement (1993 747 A), dated as of the date hereof, between the Owner
Participant and State Street Bank and Trust Company, in its individual capacity,
as originally executed or as modified, amended or supplemented in accordance
with the applicable provisions thereof and the terms of the Trust Indenture,
including, without limitation, any Trust Supplement entered into pursuant to the
applicable provisions thereof.
"Trust Estate" has the meaning set forth in the Trust Agreement.
"Trust Indenture" means that certain Second Amended and Restated Trust
Indenture and Mortgage (1993 747 A), dated as of the date hereof, between Lessor
and the Indenture Trustee, as originally executed or as modified, amended or
supplemented in accordance with the provisions thereof and the terms of the
Participation Agreement, including, without limitation, any Trust Supplement
entered into pursuant to the applicable provisions thereof.
"Trust Indenture Estate" has the meaning assigned to the term
"Indenture Estate" in the Trust Indenture.
"Trust Office" has the meaning set forth in the Trust Indenture.
"Trust Supplement" means a supplement to the Trust Agreement and the
Trust Indenture, substantially in the form of Exhibit A to the Trust Agreement.
"U.S. Air Carrier" means any United States air carrier as to which
there is in force a certificate issued pursuant to Section 401 of the Federal
Aviation Act, and as to which there is in force an air carrier operating
certificate issued pursuant to Part 121 of the regulations under such Act, or
which may operate as an air carrier by certification or otherwise under any
successor or substitute provisions therefor or in the absence thereof.
"Underwriters" has the meaning specified therefor in Section ______ of
the Participation Agreement.
"Wet Lease" means any arrangement whereby Lessee agrees to furnish the
Airframe and Engines or engines installed thereon to a third party pursuant to
which such Airframe and Engines or
19
[Second Amended and Restated
Lease Agreement (1993 747 A)]
engines (i) shall be operated solely by regular employees of Lessee possessing
all current certificates and licenses that would be required under the Federal
Aviation Act (or if the Aircraft is not registered in the United States, all
certificates and licenses required by the laws of the jurisdiction of registry)
for the performance by such employees of similar functions within the United
States of America (or such jurisdiction of registry) (it is understood that
cabin attendants need not be employees of Lessee) and (ii) shall be maintained
by Lessee in accordance with its normal maintenance practices.
SECTION 2. Acceptance and Lease. Lessor hereby agrees to accept from
the Lessee the transfer of title to and simultaneously to lease to Lessee
hereunder, and Lessee hereby agrees to lease on the Delivery Date from Lessor
hereunder, the Aircraft as evidenced by the execution by Lessor and Lessee of a
Lease Supplement leasing the Aircraft hereunder. Lessee agrees that Lessor will
authorize one or more employees of Lessee, designated by Lessee in writing, as
the authorized representative or representatives of Lessor to accept delivery of
the Aircraft. Lessee hereby agrees that in the event delivery of the Aircraft
shall be accepted by an employee or employees of Lessee pursuant to such
authorization by Lessor, such acceptance of delivery by such employee or
employees on behalf of Lessor shall, without further act, irrevocably constitute
acceptance by Lessee of the Aircraft for all purposes of this Lease.
SECTION 3. Term and Rent. (a) Interim Term and Basic Term. The
Interim Term shall commence on the Delivery Date and end on and include the day
immediately preceding the Commencement Date unless earlier terminated pursuant
to the provisions hereof. The Basic Term shall commence on the Commencement
Date and end on the Lease Expiry Date or such earlier date as this Lease may be
terminated in accordance with the provisions hereof.
(b) Basic Rent. Lessee shall pay Basic Rent in Dollars with respect
to each Lease Period during the Basic Term on each Lease Period Date during the
Basic Term, in the respective amounts for each Lease Period Date determined in
accordance with Exhibit B hereto.
(c) Adjustments to Basic Rent, Excess Amount, Stipulated Loss Values,
Termination Values, Special Termination Value Percentages and the EBO
Percentage.
(i) In the event that (A) Transaction Expenses paid by Lessor are
determined to be other than __% of Lessor's Cost, (B) there shall be an
optional redemption or a refinancing or a refunding of the Loan
Certificates in
20
[Second Amended and Restated
Lease Agreement (1993 747 A)]
accordance with Section 17 of the Participation Agreement, (C)
[Intentionally Omitted], or (D) there is an optimization in accordance with
Section 18 of the Participation Agreement; then in each case the Basic Rent
and Excess Amount set forth in Exhibit B, the Stipulated Loss Value
percentages set forth in Exhibit C, the Termination Value percentages set
forth in Exhibit D, and the EBO Percentage and the Special Termination
Value Percentages set forth in Exhibit H shall be adjusted (upwards or
downwards as the case may be) using the same methods and assumptions (as
modified on account of the occurrence of any of the events referred to in
clauses (A)-(D)) used to calculate the Basic Rent and Excess Amount, the
Stipulated Loss Value percentages, the Termination Value percentages and
the EBO Percentage and the Special Termination Value Percentages set forth
in Exhibits B, C, D and H, respectively, in each case in compliance with
clauses (iv) and (v) of this paragraph (c) and in order to: (1) maintain
the Owner Participant's Net Economic Return and (2) minimize the Net
Present Value of Rents to Lessee to the extent possible consistent with
clause (1) hereof; provided, however, in no event will the EBO Price be
adjusted below the greatest of (i) the Termination Value for the Aircraft
as of the EBO Date, (ii) __% of Lessor's Cost (i.e., the fair market value
of the Aircraft as of the EBO Date as the same was determined on the
Delivery Date) and (iii) __% multiplied by the present value as of the EBO
Date of (x) the remaining Basic Rent plus (y) __% of Lessor's Cost (i.e.,
the fair market value of the Aircraft as of the end of the Term as the same
was determined on the Delivery Date) (if the computation described in this
clause (iii) was done on the Delivery Date with all the Exhibits hereto on
the Delivery Date, such present value would equal the EBO Percentage a the
same was determined on the Delivery Date) (the present value calculation
described in this clause (iii) shall utilize a semi-annual discount rate
that on a compound basis is equal to 13.5% per annum).
(ii) [Intentionally reserved for potential future use.]
(iii) Any recalculation of Basic Rent and Excess Amount,
Stipulated Loss Value percentages, Termination Value percentages, EBO
Percentage and Special Termination Value Percentages pursuant to this
Section 3(c) (or pursuant to the definition of Stipulated Loss Value or
Termination Value) shall be determined by the Owner Participant and shall
be subject to the verification procedures set forth in Exhibit E hereto.
Such recalculated Basic Rent and Excess
21
[Second Amended and Restated
Lease Agreement (1993 747 A)]
Amount, Stipulated Loss Value percentages, Termination Value percentages,
EBO Percentage and Special Termination Value Percentages shall be set forth
in an amendment hereto.
(iv) Anything contained in the Participation Agreement or this
Lease to the contrary notwithstanding, each installment of Basic Rent
payable hereunder, whether or not adjusted in accordance with this Section
3(c), together with the amount of Excess Amount and Supplemental Rent, if
any, in respect of the date on which such installment is payable, and each
payment of Termination Value, Stipulated Loss Value, EBO Price and Special
Termination Value whether or not adjusted in accordance with this Section
3(c) or Section 8 of the Tax Indemnity Agreement, and all other amounts
(excluding Excluded Payments payable simultaneously by Lessee pursuant to
this Lease), in each case, on the date on which such payment is due, shall
be in an amount at least sufficient to pay in full, and shall be available
to be applied by Lessor in payment on account of, any payments then
required to be made on account of the principal amount (and Premium, if
any) of and interest on the Loan Certificates then outstanding. It is
agreed that no installment of Basic Rent or payment of Excess Amount,
Termination Value, Stipulated Loss Value, Special Termination Value or EBO
Price, shall be increased or adjusted by reason of (A) any attachment or
diversion of Rent on account of (x) Lessor Liens (including for this
purpose Liens that would be Lessor Liens but for the proviso to the
definition of Lessor Liens) or (y) any other Lien on or against the Trust
Estate, any part thereof or the Operative Documents arising as a result of
claims against the Indenture Trustee or a Certificate Holder, not related
to the transactions contemplated by the Operative Documents, (B) any
modification of the payment terms of the Loan Certificates made without the
prior written consent of Lessee, or (C) the acceleration of any Loan
Certificate due to the occurrence of an "Event of Default" (as defined in
the Trust Indenture) which does not constitute an Event of Default
hereunder.
(v) All adjustments to Basic Rent under this Section 3(c) shall
be consistent with the requirements of Sections 4.02(5), 4.07(1) and (2)
and Section 4.08(1) of Rev. Proc. 75-28 (provided that the requirements of
Section 4.08(1) shall apply on a prospective basis), as modified and in
effect on the Delivery Date, and shall not cause the Lease to be a
"disqualified leaseback or long-term agreement" within the meaning of
Section 467 of the Code as then in effect and any final, temporary or
proposed
22
[Second Amended and Restated
Lease Agreement (1993 747 A)]
regulations thereunder or any administrative or judicial interpretation
thereof in effect on the date of such adjustment (a "Section 467
Agreement") (it being understood that any such adjustment shall not be
treated as causing the Lease to be a Section 467 Agreement to the extent
the Lease would have been a Section 467 Agreement if no such adjustment to
Basic Rent had occurred).
(d) Supplemental Rent. Lessee shall pay (or cause to be paid)
promptly to Lessor, or to whomsoever shall be entitled thereto, any and all
Supplemental Rent constituting Stipulated Loss Value, Termination Value, EBO
Price and Special Termination Values as the same shall become due and owing and
all other amounts of Supplemental Rent within five Business Days after demand or
on such date, or within such other relevant period, as may be provided in any
Operative Document, and in the event of any failure on the part of Lessee to pay
any Supplemental Rent when due, Lessor shall have all rights, powers and
remedies provided for herein or in any other Operative Document or by law or
equity or otherwise in the case of nonpayment of Basic Rent. Lessee shall also
pay on behalf of Lessor as Supplemental Rent an amount equal to any amount
payable by Lessor as Premium as and when any such Premium shall be due and
payable; provided, however, that Lessee shall have no obligation to pay on
behalf of Lessor any Premium payable under Section 6.01 or 6.02 of the Trust
Indenture due to the occurrence of an "Event of Default" (as defined in the
Trust Indenture) which does not constitute an Event of Default hereunder.
Lessee also will pay to Lessor, or on behalf of Lessor to whomsoever shall be
entitled thereto, on demand, as Supplemental Rent, to the extent permitted by
applicable law, interest at the Past Due Rate with respect to any part of any
installment of Basic Rent not paid prior to 11:00 a.m., New York City time, on
the date when due for any period for which the same shall be overdue and on any
payment of Supplemental Rent not paid prior to 11:00 a.m., New York City time,
on the date when due for the period until the same shall be paid.
(e) Payments in General. All payments of Rent other than Excluded
Payments payable to Lessor shall be made directly by Lessee by wire transfer of
immediately available funds prior to 11:00 a.m., New York time, on the date of
payment in Dollars, to Lessor at its office at 225 Franklin Street, Boston,
Massachusetts 02110, Attention: _________________________ (or such other office
of Lessor in the continental United States or such other account as Lessor shall
direct in a notice to Lessee at least 10 Business Days prior to the date such
payment of Rent is due); provided, that so long as the Trust Indenture shall not
have been fully discharged, Lessor hereby directs and Lessee
23
[Second Amended and Restated
Lease Agreement (1993 747 A)]
agrees, that all Basic Rent shall be paid directly to the Indenture Trustee at
the times and in funds specified in this Section 3(e) at the offices of the
Indenture Trustee at Two International Place, Boston, MA 02110, Attention:
Corporate Trust Department (or such other office of Indenture Trustee in the
continental United States or such other account as Indenture Trustee shall
direct in a notice to Lessee at least 10 Business Days prior to the date such
payment of Basic Rent is due). Excluded Payments shall be paid in Dollars in
immediately available funds to the Person to whom payable at the address of such
Person specified in Schedule I of the Participation Agreement.
Notwithstanding anything to the contrary contained herein, if any date
on which a payment of Rent becomes due and payable is not a Business Day then
such payment shall be made on the next succeeding Business Day and no interest
shall accrue on the amount of such payment, if such payment is made on such next
succeeding Business Day.
(f) [Intentionally Reserved for Potential Future Use].
(g) [Intentionally Reserved for Potential Future Use].
SECTION 4. Lessor's Representations and Warranties. LESSOR LEASES
AND LESSEE TAKES THE AIRCRAFT "AS-IS, WHERE-IS." LESSEE ACKNOWLEDGES AND AGREES
THAT AS BETWEEN LESSOR, ANY PARTICIPANT, THE INDENTURE TRUSTEE, AND LESSEE (A)
THE AIRFRAME AND EACH ENGINE IS OF SIZE, DESIGN, CAPACITY AND MANUFACTURE
SELECTED BY AND ACCEPTABLE TO LESSEE, (B) LESSEE IS SATISFIED THAT THE AIRFRAME
AND EACH ENGINE IS SUITABLE FOR ITS PURPOSES, (C) NEITHER LESSOR NOR OWNER
PARTICIPANT IS A MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND, AND (D)
NEITHER LESSOR, IN ITS INDIVIDUAL CAPACITY OR AS OWNER TRUSTEE, THE INDENTURE
TRUSTEE NOR THE OWNER PARTICIPANT MAKES, HAS MADE OR SHALL BE DEEMED TO HAVE
MADE, AND EACH WILL BE DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION,
DESIGN, OPERATION, VALUE, MERCHANTABILITY OR FITNESS FOR USE FOR A PARTICULAR
PURPOSE OF THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY
PART THEREOF, except as set forth in Sections 8(f)(vi) and 8(p)(ii) of the
Participation Agreement as to Lessor Liens and except that State Street Bank and
Trust Company, in its individual capacity, (i) represents and warrants that on
the Delivery Date, Lessor shall have received
24
[Second Amended and Restated
Lease Agreement (1993 747 A)]
whatever title to the Aircraft was conveyed to it by Lessee, (ii) represents and
warrants that on the Delivery Date the Aircraft shall be free of Lessor Liens
(including for this purpose Liens that would be Lessor Liens but for the proviso
to the definition of Lessor Liens) attributable to it in its individual
capacity, (iii) covenants that it will not, through its own actions or
inactions, in such capacity, interfere in Lessee's or any Sublessee's quiet
enjoyment, use, operation or possession of the Aircraft unless this Lease shall
have been declared in default pursuant to Section 15 hereof, (iv) agrees that it
will not directly or indirectly create, incur, assume or suffer to exist any
Lessor Lien attributable to it in its individual capacity on or with respect to
the Airframe or any Engine or any portion of the Trust Estate and (v) represents
and warrants that it is a Citizen of the United States and agrees that if at any
time it shall cease to be a Citizen of the United States, it will promptly
resign as Owner Trustee (if and so long as such citizenship is necessary under
the Federal Aviation Act as in effect at such time or, if it is not necessary,
if and so long as the Owner Trustee's citizenship would have any adverse effect
on the Owner Participant, the Certificate Holders or Lessee), effective upon the
appointment of a successor Owner Trustee in accordance with the provisions of
the Trust Agreement. None of the provisions of this Section 4 or any other
provision of this Agreement shall be deemed to amend, modify or otherwise affect
the representations, warranties or other obligations (express or implied) of the
Manufacturer, any subcontractor or supplier of the Manufacturer with respect to
the Airframe, Engines, or any Parts, or to release the Manufacturer, or any such
subcontractor or supplier from any such representation, warranty or obligation.
Unless a Section 14(a), 14(b), 14(f) or 14(g) Default or any Event of Default
shall have occurred and be continuing, Lessor agrees to make available to Lessee
such rights as Lessor may have under any warranty with respect to the Aircraft
made by the Manufacturer or any of its subcontractors or suppliers and any other
claims against the Manufacturer or any such subcontractor or supplier with
respect to the Aircraft, all pursuant to and in accordance with the terms of the
Owner Trustee's Purchase Agreement.
SECTION 5. Return of the Aircraft. (a) Condition Upon Return.
Unless purchased by Lessee pursuant to Section 19(b) hereof, upon the
termination of this Lease at the end of the Basic Term or any Renewal Term or
pursuant to Section 9(b) or 15 hereof, Lessee will at its expense return the
Aircraft to Lessor at Lessee's maintenance base located at San Francisco
International Airport (or any principal maintenance base established by Lessee
in the continental United States subsequent to the date hereof), provided that
upon the request of the Lessor
25
[Second Amended and Restated
Lease Agreement (1993 747 A)]
given to Lessee at least ten (10) days prior to the date of such return, Lessee
shall return the Airframe to Lessor at a location on Lessee's route system in
the continental United States selected by Lessor, provided that such location is
served on a normal basis by Boeing Model 747-422 aircraft operated by Lessee,
and Lessor shall reimburse Lessee on a net after-tax basis for Lessee's out-of-
pocket Expenses (including for this purpose salary costs for Lessee's personnel)
resulting from Lessee's return of the Aircraft to such alternate return location
to the extent such out-of-pocket Expenses exceed the out-of-pocket Expenses
(including, for this purpose, salary costs for Lessee's personnel) Lessee would
have incurred in returning the Aircraft to its principal maintenance base at San
Francisco International Airport, provided, further, however, that if Lessor
shall have made the request for storage pursuant to Section 5(d) hereof, Lessee
shall at its expense return the Aircraft at the site of storage. At the time of
such return, (A) Lessee will, at its own cost and expense, unless otherwise
requested by Lessor to retain the existing registration of the Aircraft, cause
the Aircraft, if it is not then so registered, to be registered under the laws
of the United States with the FAA in the name of Lessor or its designee,
provided that Lessee shall be relieved of its obligations under this sentence if
such registration is prohibited by reason of the failure of Lessor, the Owner
Participant or Lessor's designee to be eligible on such date to own an aircraft
registered with the Federal Aviation Administration, and (B) subject to Section
5(e) hereof, the Airframe will be fully equipped with the Engines (or Acceptable
Alternate Engines) installed thereon. Also, at the time of such return, Lessor
shall have good title to such Airframe and Engines or Acceptable Alternate
Engines, and such Airframe and Engines or Acceptable Alternate Engines (i) shall
be certified (or, if not then registered under the Federal Aviation Act by
reason of the proviso to clause (A) in the preceding sentence or because Lessor
has so requested that the Aircraft not be so registered, shall hold a valid
certificate of airworthiness issued by the country of registry and be eligible
for certification by the FAA) as an airworthy aircraft by the Federal Aviation
Administration, (ii) shall be free and clear of all Liens (other than Lessor
Liens (including for this purpose Liens that would be Lessor Liens but for the
proviso to the definition of Lessor Liens)) and rights of third parties under
pooling, interchange, overhaul, repair or other similar agreements or
arrangements, (iii) shall be in a regular passenger configuration, and in as
good a condition as when delivered by Lessee to Lessor, ordinary wear and tear
excepted and otherwise in the condition required to be maintained under the
Lease and under Lessee's FAA-approved maintenance plan (notwithstanding any
Sublease theretofore in effect) and shall be in compliance with all mandatory
environmental, noise, air
26
[Second Amended and Restated
Lease Agreement (1993 747 A)]
pollution and other standards prescribed by the federal government of the United
States and applicable to the Aircraft including, without limitation, standards
relating to corrosion and structural integrity and all other applicable
manufacturer's mandatory service bulletins (except for standards, laws,
regulations, directives and bulletins that permit compliance at a later time and
would not, in the normal course of Lessee's maintenance plan, be complied with
by the date of return without discriminating on the basis of the status of the
Aircraft as a leased aircraft), (iv) in the event that Lessee shall not then be
using a continuous maintenance program with respect to the Airframe immediately
prior to such return but instead shall have been using a block overhaul program
with respect to the Airframe, then (A) such block overhaul program shall have
been approved by the government of registry of the Aircraft and (B) the Airframe
shall have remaining until the next scheduled block overhaul at least 25% of the
allowable hours between block overhauls permitted under the block overhaul
program then used by Lessee, (v) in the event that Lessee during the period of
operation of the Aircraft immediately prior to such return shall not have been
using an on-condition maintenance program with respect to the Engines (or
Acceptable Alternate Engines), Lessee agrees that the average number of hours or
cycles of operation (whichever shall be applicable under the maintenance program
then in use with respect to such Engines (or Acceptable Alternate Engines)) on
such Engines (or Acceptable Alternate Engines) remaining until the next
scheduled engine heavy maintenance shall be at least 25% of the hours or cycles
(whichever shall be applicable) between engine heavy maintenance allowed under
the maintenance program then in use with respect to such Engines (or Acceptable
Alternate Engines), (vi) shall have all Lessee's and any Sublessee's exterior
marking removed or painted over with areas thereof refinished to match adjacent
areas, and (vii) shall be in a state of cleanliness suitable under Lessee's
normal service standards for operation in Lessee's revenue passenger service and
in all such cases the Aircraft shall not have been discriminated against whether
by reason of its leased status or otherwise in maintenance, use, operation or in
any other manner whatsoever.
In addition, the following conditions shall be complied with at the
time of the return of the Aircraft: (i) Lessee shall deliver to Lessor any "no
cost" modification kits designated for the Aircraft that Lessee has in its
possession and that have not been incorporated at the time of the return of the
Aircraft, (ii) Lessor may purchase from Lessee at Lessee's cost any service
bulletin kits purchased or manufactured by Lessee for the Aircraft (provided
that Lessee shall not be obligated to sell to Lessor any service bulletin kit
manufactured by Lessee to the
27
[Second Amended and Restated
Lease Agreement (1993 747 A)]
extent Lessee, in its reasonable judgment, considers the same proprietary) and
(iii) without limiting the obligations of the Lessee set forth in the preceding
paragraph, in the event the FAA shall issue any directive which requires
termination thereof prior to the return date, then such directive shall be
terminated prior to the return date, and if Lessee shall have not been required
to terminate such directive in the normal course of its operations without
discriminating against the Aircraft by reason of its leased status or otherwise
prior to the return of the Aircraft but such directive must be terminated on or
before six months following such return, then Lessee shall, at the sole cost and
expense of Lessor, comply with such directive but only if (x) at least 540 days
prior to the return of the Aircraft Lessee receives from Lessor a written
request to comply with such directive at Lessor's sole cost and expense
(determined on the basis of what a third party would charge for comparable
services) and (y) after receipt by Lessee of such request, the Aircraft is
subject to a maintenance check of the type at which such modification is made,
in accordance with Lessee's general maintenance program, and Lessee has, or can
obtain using commercial reasonable efforts taking into account the 540 day prior
notice received by Lessee, the personnel, parts, facilities and other resources
available to accomplish the modification and the modification can be made
without materially disrupting the operations of Lessee's maintenance facility or
Lessee's operations.
For purposes of this Section 5(a), any maintenance program used by
Lessee for airframes (including the Airframe) substantially similar to the
maintenance program described in the excerpts from "United Air Lines 747
Maintenance Program" furnished to Lessor and the Owner Participant prior to the
Delivery Date (a copy of which was attached to the certificate of the Assistant
Secretary of the Lessee delivered pursuant to Section 4(a)(vii)(6) of the
Original Participation Agreement) shall be considered a continuous maintenance
program (and not a block maintenance program) and any engine maintenance program
used by Lessee for engines (including the Engines) substantially similar to the
maintenance program described in ["United Air Lines 747 Maintenance Program"]
shall be considered an on-condition maintenance program.
In the event that the provisions of the preceding paragraph are
inapplicable and upon a return of the Aircraft pursuant to this Section 5,
Lessee and Lessor cannot agree as to whether Lessee, during the period of
operation of the Aircraft immediately prior to such return, shall have been
using a continuous maintenance program or a block overhaul program with respect
to the Airframe (including, without limitation, a dispute
28
[Second Amended and Restated
Lease Agreement (1993 747 A)]
as to whether Lessee's program is substantially similar to the program described
in the excerpts to the "United Air Lines 747 Maintenance Program" furnished to
Lessor as set forth in the preceding paragraph), then Lessee and Lessor shall
mutually appoint an independent third party, satisfactory to both Lessee and
Lessor, who shall make such a determination, which determination shall be
conclusive and final. Lessee will provide, on a confidential basis, such
independent third party with the maintenance program and records applicable to
the Aircraft necessary to make such determination. The fee of such third party
shall be paid equally by Lessor and Lessee.
If clause (iv) of the first paragraph of this Section 5(a) shall be
applicable but the Airframe does not meet the conditions specified in said
clause (iv), Lessee shall pay or cause to be paid to Lessor, concurrently with
the return thereof, a Dollar amount computed by multiplying (i) the fair market
cost of obtaining an airframe block overhaul of the type referred to in such
clause (iv) at a location in the United States that has been approved by the FAA
for such work by (ii) a fraction of which (x) the numerator shall be the excess
of 25% of the hours of operation allowable between such block overhauls over the
actual number of hours of operation remaining on the Airframe to the next such
block overhaul and (y) the denominator shall be the number of hours of operation
allowable between such block overhauls in accordance with such block overhaul
program.
If clause (v) of the first paragraph of this Section 5(a) shall be
applicable but the Engines (or Acceptable Alternate Engines) do not meet the
conditions specified in said clause (v), Lessee shall pay or cause to be paid to
Lessor, concurrently with the return thereof, a Dollar amount computed by
multiplying (i) the fair market cost of obtaining the scheduled engine heavy
maintenance under the maintenance program then used by Lessee for engines of the
same model as the Engines (or Acceptable Alternate Engines) at a location in the
United States that has been approved by the FAA for such work by (ii) a fraction
which (x) the numerator shall be the excess of 25% of the hours or cycles
(whichever is applicable) of operation of one Engine between engine heavy
maintenance allowable under the maintenance program then in use with respect to
such Engines (or Acceptable Alternate Engines) over the actual average number of
hours or cycles of operation of such Engines (or Acceptable Alternate Engines)
remaining until the next such scheduled engine heavy maintenance and (y) the
denominator shall be the number of hours or cycles allowable between such
scheduled engine heavy maintenance.
During the last six months of the Term (unless Lessee shall have
irrevocably elected to purchase the Aircraft or renew
29
[Second Amended and Restated
Lease Agreement (1993 747 A)]
this Lease in accordance with the terms of this Lease), with reasonable notice,
Lessee will cooperate, and cause any Sublessee to cooperate, at Lessor's sole
cost, in all reasonable respects with the efforts of Lessor to sell or lease the
Aircraft, including, without limitation, permitting prospective purchasers or
lessees to inspect the Aircraft, any 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, 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 Sublessee.
(b) Return of Other Engines. In the event that an Acceptable
Alternate Engine shall be delivered with the returned Airframe as set forth in
paragraph (a) of this Section 5, Lessee, concurrently with such delivery, will,
at no cost to Lessor, furnish, or cause to be furnished, to Lessor a full
warranty (as to title) bill of sale with respect to each such Acceptable
Alternate Engine, in form and substance reasonably satisfactory to Lessor
(together with an opinion of counsel (which may be Lessee's General Counsel) to
the effect that such full warranty bill of sale has been duly authorized and
delivered and is enforceable in accordance with its terms and that each such
Acceptable Alternate Engine is free and clear of all Liens other than Lessor
Liens (including for this purpose Liens that would be Lessor Liens but for the
proviso to the definition of Lessor Liens)) and will, to the extent applicable,
comply with the provisions of Section 9(d) as if Lessee had irrevocably elected,
in accordance with Section 9(d) hereof, to terminate the Lease with respect to
the Engine in replacement for which such Acceptable Alternate Engine is being
delivered and Lessor will provide a bill of sale, at Lessee's expense,
evidencing the transfer, without recourse or warranty (except as to the absence
of Lessor Liens (including for this purpose Liens that would be Lessor Liens but
for the proviso to the definition of Lessor Liens)) by Lessor to Lessee or its
designee of all of Lessor's right, title and interest in and to any Engine not
installed on the Airframe at the time of the return of the Airframe.
(c) Fuel and Manuals. Upon the return of the Airframe upon any
termination of this Lease in accordance with paragraph (a) of this Section 5,
(i) Lessee shall invoice Lessor, and Lessor shall pay to Lessee the amount of
Lessee's cost for any fuel or oil contained in the fuel or oil tanks on the
Airframe, and (ii) Lessee shall deliver or cause to be delivered to Lessor all
logs, manuals and data and inspection, modification and overhaul records in the
English language (or an English translation of the same), (A) required to be
maintained with
30
[Second Amended and Restated
Lease Agreement (1993 747 A)]
respect to the Airframe, the Engines or any part thereof in accordance with
Section 7(a) hereof, (B) created since the Airframe's or Engine's or Acceptable
Alternate Engine's (whichever is applicable) last heavy maintenance visit and
(C) required to lawfully operate the Aircraft in the United States under a
United States Certificate of Airworthiness without performing additional
maintenance.
(d) Storage Upon Return. If, at any time at least 30 days prior to
the end of the Basic Term or any Renewal Term or pursuant to Section 9(c) or
Section 15, Lessee receives from Lessor a written request for storage of the
Aircraft upon its return hereunder, Lessee will provide Lessor, or cause Lessor
to be provided, with storage facilities for the Aircraft (at Lessor's risk and
at Lessor's cost for insurance, maintenance and Lessee's reasonable out-of-
pocket expenses other than storage fees) for a period not exceeding forty-five
(45) days (and upon prior written notice from Lessor to Lessee given at least 10
days prior to the end of such 45 day period, at Lessor's risk and at Lessor's
cost for insurance, maintenance and Lessee's reasonable out-of-pocket expenses
including storage fees, for an additional period not exceeding 45 days)
commencing on the date of such termination, at a location in the forty-eight
contiguous states of the United States selected by Lessee and used as a location
for the storage of aircraft. Lessee shall, at Lessor's written request,
maintain insurance (if available) for the Aircraft during such period and shall
be reimbursed by Lessor for the premiums thereon.
(e) Purchase of Engine. In the event that Lessee shall have paid the
Stipulated Loss Value for any Engine pursuant to Section 10(b) hereof and all
other amounts due and owing under said Section 10(b), then, notwithstanding
anything contained in this Section 5, Lessee shall, subject to the proviso
below, be under no obligation to return any engine installed on the Airframe in
replacement for such Engine to Lessor upon the termination of this Lease;
provided, however, that in such event Lessor shall have the right upon
termination of this Lease (unless Lessee shall have exercised any of its options
to purchase the Aircraft pursuant to Section 19), at its sole option, to
purchase from Lessee an engine or engines suitable for use on the Airframe and
compatible with the other Engine (if any) or the other engine purchased under
this Section 5(e) for such engine's then Fair Market Sales Value and any such
engine shall be installed at no cost to Lessor on the Airframe on the return
thereof.
(f) Severable Parts. At any time after Lessee has advised Lessor that
it has determined not to renew this Lease or
31
[Second Amended and Restated
Lease Agreement (1993 747 A)]
purchase the Aircraft, or the Aircraft is otherwise to be returned to Lessor,
Lessee shall, at Lessor's request, advise Lessor of the nature and condition of
all severable Parts owned by Lessee which have been used by Lessee during the
prior six months and which Lessee has or intends to remove from the Aircraft as
permitted by Section 8 hereof. Lessor may, at its option, upon 30 days written
notice to Lessee, purchase any or all of such Parts from Lessee upon the
expiration of the Term at their then fair market value.
(g) Special Redelivery Provision. Not less than 30 days prior to (A)
the date of redelivery of the Aircraft by Lessee to Lessor in accordance with
this Section 5, (B) the date of redelivery to Lessor or a purchaser pursuant to
Section 9(c) or Section 15 hereof, or (C) a purchase of the Aircraft by Lessee
pursuant to Section 19(b), Lessor may provide Lessee with a proposal regarding
the arranging of delivery of the Aircraft so as to enable Lessor to realize
"foreign trade income" (as defined in Section 923(b) of the Code or any
successor provision thereto) from the sale or re-lease of the Aircraft, and
Lessee shall (i) arrange delivery at Lessor's cost (unless the delivery site is
as provided in Section 5(a) hereof) either inside or outside the United States,
as specified in Lessor's proposal, and (ii) otherwise comply with such proposal
to the extent Lessee can do so without incurring any cost, expense or liability
not indemnified against by Lessor in a manner in form and substance reasonably
satisfactory to Lessee.
SECTION 6. Liens. Lessee will not directly or indirectly create,
incur, assume or suffer to exist any Lien on or with respect to the Aircraft,
title thereto or any interest therein or in this Lease, except (i) the
respective rights of Lessor as owner of the Aircraft and Lessee as herein
provided (including any Sublease permitted pursuant to Section 7(b)), the Lien
of the Trust Indenture, and any other rights existing pursuant to the Operative
Documents, (ii) Lessor Liens (including for this purpose Liens that would be
Lessor Liens but for the proviso to the definition of Lessor Liens), (iii) Liens
for Taxes of Lessee (or any Sublessee) either not yet due or being contested in
good faith by appropriate proceeding so long as such proceedings do not involve
any material risk of the sale, forfeiture or loss of the Airframe or any Engine
or any interest thereon, (iv) materialmen's, mechanics', workmen's, repairmen's,
employees' or other like liens arising in the ordinary course of Lessee's or any
Sublessee's business securing obligations that are not overdue for a period of
more than 30 days or are being contested in good faith by appropriate
proceedings so long as during such 30 day period there is not, or such
proceedings do not involve, any material risk of the sale, forfeiture or loss of
32
[Second Amended and Restated
Lease Agreement (1993 747 A)]
the Airframe or any Engine or any interest therein, (v) Liens arising out of any
judgment or award against Lessee (or any Sublessee), unless there exists a
material risk of the sale, forfeiture or loss of the Airframe or any Engine or
any interest therein or unless the judgment secured shall not, within 45 days
after the entry thereof, have been discharged, vacated, reversed or execution
thereof stayed pending appeal or shall not have been discharged, vacated or
reversed within 45 days after the expiration of such stay, and (vi) any other
Lien with respect to which Lessee (or any Sublessee) shall have provided a bond
or other security in an amount and under terms reasonably satisfactory to
Lessor. Lessee will promptly, at its own expense, take (or cause to be taken)
such actions as may be necessary duly to discharge any such Lien not excepted
above if the same shall arise at any time.
SECTION 7. Registration, Maintenance and Operation; Possession and
Subleases; Insignia. (a) (1) Registration and Maintenance. Lessee, at its
own cost and expense, shall (or shall cause any Sublessee to): (i) upon
delivery of the Aircraft, cause the Aircraft to be duly registered in the name
of Lessor, and, subject to subparagraph (3) of this Section 7(a), to remain duly
registered in the name of Lessor under the Federal Aviation Act (except to the
extent that such registration cannot be effected because of Lessor's or the
Owner Participant's failure to comply with the citizenship requirements for
registration of aircraft under such Act), provided that Lessor and the Owner
Participant shall execute and deliver all such documents as Lessee (or any
Sublessee) may reasonably request for the purpose of effecting and continuing
such registration, and Lessee shall cause the Trust Indenture to be duly
recorded and maintained of record as a first mortgage on the Aircraft; (ii)
maintain, service, repair, and overhaul (or cause to be maintained, serviced,
repaired, and overhauled) the Aircraft (and any engine which is not an Engine
but which is installed on the Aircraft) (x) so as (p) at all times to keep the
Aircraft in as good an operating condition as when delivered by Manufacturer to
Lessee, ordinary wear and tear excepted, and (q) to keep the Aircraft in such
condition as may be necessary to enable the airworthiness certification for the
Aircraft to be maintained in good standing at all times (other than during
temporary periods of storage in accordance with applicable regulations) under
(I) the Federal Aviation Act, except when all of Lessee's Boeing Model 747-422
aircraft (powered by engines of the same type as those with which the Airframe
shall be equipped at the time of such grounding) registered in the United States
have been grounded by the FAA unless such grounding was caused by the failure of
Lessee to maintain, service, repair or overhaul the Aircraft in accordance with
this Lease, or (II) the applicable
33
[Second Amended and Restated
Lease Agreement (1993 747 A)]
laws of any other jurisdiction in which the Aircraft may then be registered from
time to time, except when all of Lessee's Boeing Model 747-422 aircraft (powered
by engines of the same type as those with which the Airframe shall be equipped
at the time of such grounding) registered in such jurisdiction have been
grounded by the aeronautical authority of such jurisdiction unless such
grounding was caused by the failure of Lessee to maintain, service, repair or
overhaul the Aircraft in accordance with this Lease and (y) in substantially the
same manner as Lessee (or any Sublessee) maintains, services, repairs or
overhauls similar aircraft operated by Lessee (or such Sublessee) in similar
circumstances and without in any way discriminating against the Aircraft,
whether by reason of its leased status or otherwise, including, without
limitation, in regard to the termination of airworthiness directives; or such
other manner as shall have been approved in writing by the Owner Participant;
(iii) maintain or cause to be maintained in the English language (or with
appropriate English translation) all records, logs and other materials required
to be maintained in respect of the Aircraft by the FAA or the applicable
regulatory agency or body of any other jurisdiction in which the Aircraft may
then be registered (which records, logs and other materials, as between Lessor
and Lessee and all parties claiming through Lessee, shall be the property of
Lessor but shall be maintained by Lessee during the Term of this Lease and shall
become the property of Lessee upon Lessee's purchase of the Aircraft pursuant to
the terms of this Lease or upon the occurrence of an Event of Loss and Lessee's
compliance with Section 10); and (iv) promptly furnish or cause to be furnished
to Lessor or the Owner Participant such information as may be reasonably
required to enable Lessor or the Owner Participant to file any reports required
to be filed by Lessor or the Owner Participant with any governmental authority
because of Lessor's ownership of the Aircraft.
(2) Operation. Lessee will not (or permit any Sublessee to) maintain,
use, service, repair, overhaul or operate the Aircraft in violation of any law
or any rule, regulation, treaty, order or certificate of any government or
governmental authority (domestic or foreign) having jurisdiction, or in
violation of any airworthiness certificate, license or registration relating to
the Aircraft issued by any such authority, except that, after Lessee shall have
provided Lessor and, so long as the Lien of the Trust Indenture shall not have
been released, the Indenture Trustee with a certificate of its President, any
Vice President, the Treasurer or any Assistant Treasurer stating all relevant
facts pertaining thereto, Lessee or any Sublessee may contest in good faith the
validity or application of any such law, rule, regulation, order,
34
[Second Amended and Restated
Lease Agreement (1993 747 A)]
certificate, license, registration or violation in any reasonable manner which
does not jeopardize the right, title and interest of the Lessor or the Owner
Participant in and to the Airframe and/or the Engines or otherwise materially
adversely affect Lessor, the Indenture Trustee or the Owner Participant but only
so long as such proceedings do not involve any risk of criminal liability or any
unindemnified material risk of civil liability to Lessor or the Owner
Participant for which the Lessee is not then willing to indemnify Lessor or the
Owner Participant in a manner reasonably satisfactory to such Person. If the
indemnities or insurance specified in Section 11(f), or some combination thereof
in amounts equal to amounts required by Section 11(f), have not been obtained,
Lessee will not operate the Aircraft, or permit any Sublessee to operate the
Aircraft, in or to any area excluded from coverage by any insurance required to
be maintained by the terms of Section 11, provided, however, that the failure of
Lessee to comply with the provisions of this sentence shall not give rise to an
Event of Default hereunder where such failure is attributable to a hijacking,
medical emergency, equipment malfunction, weather conditions, navigational error
or other isolated extraordinary event beyond the control of Lessee and Lessee is
taking all reasonable steps to remedy such failure as soon as is reasonably
practicable.
(3) Reregistration. At any time after the Restricted Period, Lessor
shall, at the request and sole expense of Lessee, cooperate with Lessee and take
all actions required to change the country of registration of the Aircraft in
compliance with and subject to the terms and conditions of Section 8(e) of the
Participation Agreement.
(4) Operating Certificates. Lessor hereby authorizes Lessee, at
Lessee's sole cost, expense and risk, to act as its agent for the purpose (but
only for the purpose) of obtaining any required replacement operating
certificates from the FAA; provided, however, that in the event that Lessee
shall have received from Lessor written notice that an Event of Default shall
have occurred and be continuing, this authority shall not apply for a period
from the date of receipt of such notice to such time as such Event of Default
shall have been cured by Lessee or waived by Lessor. This authority includes
(without expanding in any way the nature of the limited authority granted
pursuant to the first sentence of this Section 7(a)(4)), but is not limited to,
obtaining registration certificates, airworthiness certificates, certificates of
sanitary construction and ferry permits. In particular, this authority includes
the ability to make use of Exemption No. 5318 issued by the FAA. This authority
will allow duly authorized personnel of Lessee to sign any application forms
required in the process of obtaining
35
[Second Amended and Restated
Lease Agreement (1993 747 A)]
such operating certificates, and this authority will also allow such personnel,
where necessary and appropriate, to sign certificates as the attorney-in-fact
for Lessor. Lessee hereby agrees that it will promptly notify Lessor of any
action that it has taken in accordance with this Section 7(a)(4) as agent for
the Lessor. Nothing in this Section 7(a)(4) shall permit the Lessee to change
the country of registry of the Aircraft except as provided in Section 7(a)(3)
above.
(b) Possession and Subleases. Lessee will not, without the prior
written consent of Lessor, sublease or otherwise in any manner deliver, transfer
or relinquish possession of the Airframe or any Engine or install or permit any
Engine to be installed on any airframe other than the Airframe; provided that,
so long as no Section 14(a), (b), (f) or (g) Default or, in the case of
paragraph (viii) of this Section 7(b), no Section 14(d) (solely with respect to
Lessee's obligations under Section 7(a) or (b)(viii) hereof or Section 8 hereof)
Default, or any Event of Default shall have occurred and be continuing at the
time of such sublease, delivery, transfer or relinquishment of possession or
installation, and so long as the action to be taken shall not deprive the
Indenture Trustee of the Lien of the Trust Indenture on the Airframe or any
Engine and Lessee and any Sublessee shall continue to comply with the provisions
of Sections 7(a) and 11, Lessee may, without the prior written consent of
Lessor:
(i) subject the Airframe and the Engines or engines then
installed thereon to normal interchange agreements or any Engine to normal
pooling or similar arrangements, in each case customary in the airline
industry and entered into by Lessee (or any Sublessee) in the ordinary
course of its business and, in the case of the Airframe, (x) with a U.S.
Air Carrier not in bankruptcy or a Permitted Sublessee or (y) any other air
carrier approved by Lessor; provided, that (A) no such agreement or
arrangement contemplates or requires the transfer of title to the Airframe,
and (B) if Lessor's title to any Engine shall be divested under any such
agreement or arrangement, Lessee shall be deemed to have irrevocably
elected, in accordance with Section 9(d) hereof, to terminate the Lease
with respect to such Engine on the Business Day next following the 44th day
following such divestiture and Lessee shall (or shall cause any Sublessee
to) comply with Section 9(d) hereof in respect thereof;
(ii) deliver possession of the Airframe or any Engine to the
manufacturer thereof or to any other Person for testing, service, repair,
maintenance or overhaul work
36
[Second Amended and Restated
Lease Agreement (1993 747 A)]
on the Airframe or Engine or any Part of any thereof or for alterations or
modifications in or additions to such Airframe or Engine to the extent
required or permitted by the terms of Section 8(c) hereof;
(iii) install an Engine on an airframe owned by Lessee (or any
Sublessee) which airframe is free and clear of all Liens, except: (A)
Permitted Liens and those which apply only to the engines (other than
Engines), appliances, parts, instruments, appurtenances, accessories,
furnishings and other equipment (other than Parts) installed on such
airframe (but not to the airframe as an entirety), (B) the rights of third
parties under interchange agreements which would be permitted under clause
(i) above, provided that Lessor's title to such Engine shall not be
divested as a result thereof and (C) mortgage Liens or other security
interests, provided, that (as regards this clause (C)), such mortgage Liens
or other security interests effectively provide that such Engine shall not
become subject to the lien of such mortgage or security interest,
notwithstanding the installation thereof on such airframe;
(iv) install an Engine on an airframe leased to Lessee (or any
Sublessee) or purchased by Lessee (or any Sublessee) subject to a
conditional sale or other security agreement, provided that (x) such
airframe is free and clear of all Liens, except: (A) the rights of the
parties to the lease or conditional sale or other security agreement
covering such airframe, or their assignees, and (B) Liens of the type
permitted by subparagraph (iii) of this paragraph (b) and (y) such lease,
conditional sale or other security agreement effectively provides that such
Engine shall not become subject to the lien of such lease, conditional sale
or other security agreement, notwithstanding the installation thereof on
such airframe;
(v) install an Engine on an airframe owned by Lessee (or any
Sublessee), leased to Lessee (or any Sublessee) or purchased by Lessee (or
any Sublessee) subject to a conditional sale or other security agreement
under circumstances where neither subparagraph (iii) nor subparagraph (iv)
of this paragraph (b) is applicable, provided that in the event of such
installation, Lessee shall be deemed to have irrevocably elected, in
accordance with Section 9(d) hereof, to terminate the Lease with respect to
such Engine on the Business Day next following the 44th day following such
installation and Lessee shall (or shall cause any Sublessee to) comply with
Section 9(d) hereof in respect thereof, Lessor not intending hereby to
37
[Second Amended and Restated
Lease Agreement (1993 747 A)]
waive any right or interest it may have to or in such Engine under
applicable law until compliance by Lessee with such Section 9(d);
(vi) transfer (or permit any Sublessee to transfer) possession of
the Airframe or any Engine to the United States of America or any
instrumentality or agency thereof pursuant to the Civil Reserve Air Fleet
Program for a period, including all permissible renewal periods (so long as
such renewal options have been irrevocably exercised by Lessee), that does
not extend beyond the end of the Term so long as Lessee (or any Sublessee)
shall promptly notify Lessor (x) upon transferring possession of the
Airframe or any Engine to the United States of America or any agency or
instrumentality thereof pursuant to the Civil Reserve Air Fleet Program and
(y) of the name and the address of the Contracting Office Representative
for the Military Airlift Command of the United States Air Force to whom
notice must be given pursuant to Section 15 hereof;
(vii) transfer possession of the Airframe or any Engine to the
United States of America or any instrumentality or agency thereof pursuant
to a contract, a copy of which shall be provided to Lessor provided that
the term of such contract, including all permissible renewal periods (so
long as such renewal options have been irrevocably exercised by Lessee),
shall not continue beyond the end of the Term; or
(viii) So long as the Sublessee is not subject to a proceeding or
final order under applicable bankruptcy, insolvency or reorganization laws
on the date the Sublease is entered into, Lessee may, at any time, enter
into a sublease with (1) a U.S. Air Carrier, (2) after the Restricted
Period any Permitted Sublessee, provided that in the event such Permitted
Sublessee is domiciled in a country listed on Exhibit F hereto and
designated therein as a "Restricted Country" such Sublessee shall be deemed
a Permitted Sublessee only if its country of domicile at the time of such
subleasing imposes and enforces aircraft maintenance standards not
materially less stringent than those of the FAA or the central aviation
authority of any of Canada, France, Germany, Japan or the United Kingdom,
or (3) after the Restricted Period any other Person approved in writing by
the Owner Participant, which approval shall not be unreasonably withheld if
in regard to this subclause (3) (x) the proposed sublessee's country of
domicile imposes maintenance standards not materially less stringent than
those of the FAA or the central aviation authority of any of
38
[Second Amended and Restated
Lease Agreement (1993 747 A)]
Canada, France, Japan, Germany, or the United Kingdom and (y) Lessor, Owner
Participant and the Indenture Trustee receive an opinion of counsel
reasonably acceptable to Lessor, in its individual capacity, and Owner
Participant that the terms of the sublease and other Operative Documents
will be valid in the country where Sublessee is domiciled; that no
Participant is required to register to do business in the Sublessee's
country of domicile; that there is no tort liability for owners not in
possession that is more extensive than under United States law or any state
law (it being understood that if such opinion cannot be given in a form
reasonably satisfactory to the Owner Participant such opinion will be
waived if insurance reasonably satisfactory to the Owner Participant and
the Lessor, in its individual capacity, is provided at Lessee's expense to
cover such risk); that fair compensation in a currency freely convertible
into Dollars is mandated if there is a requisition of use or title of the
Aircraft by the country in which the Sublessee is domiciled (it being
understood that if such opinion cannot be given in a form reasonably
satisfactory to the Owner Participant such opinion will be waived if
insurance reasonably satisfactory to the Owner Participant, is provided at
Lessee's expense to cover such risk); that there exist no possessory rights
in favor of the Sublessee which upon Lessee's bankruptcy or other Default
hereunder (assuming the Sublessee is not then bankrupt) would prevent the
return of the Aircraft in accordance with the terms hereof or inhibit the
Lessor's rights therein; and as to such other matters as Lessor, in its
individual capacity, and the Owner Participant may reasonably request,
provided, however, (A) that no sublease, including all permissible renewal
periods, shall extend beyond the Basic Term or any Renewal Term then in
effect, unless Lessee shall have irrevocably committed to purchase the
Aircraft or renew the Lease in accordance with the terms thereof at the end
of the Basic Term or Renewal Term, as the case may be, to a date beyond the
latest permissible expiration date of such sublease, (B) that, on the date
of such sublease, the United States and the country in which sublessee is
domiciled and principally located maintain diplomatic relations, (C) that
on or prior to entering into such sublease, Lessee shall provide to the
Lessor and, so long as the Lien of the Trust Indenture shall not have been
released, the Indenture Trustee assurances reasonably satisfactory to
Lessor, in its individual capacity, and Owner Participant to the effect
that the provisions of Section 11 hereof have been complied with after
giving effect to such sublease and (D) that, in the case of a sublease to a
sublessee described in (3) above, if the country of domicile of the
proposed sublessee
39
[Second Amended and Restated
Lease Agreement (1993 747 A)]
at the time of such subleasing has not unqualifiedly ratified the Geneva
Convention for International Recognition of Rights in Aircraft, the Lessee
shall provide Lessor to the Lessor and, so long as the Lien of the Trust
Indenture shall not have been released, the Indenture Trustee an opinion of
counsel, which counsel and opinion shall be reasonably satisfactory to the
Owner Participant, to the effect that the country in which such sublessee
has its principal office and domicile would give effect to (i) the title of
Lessor in and to the Aircraft, (ii) the registry of the Aircraft in the
name of Lessor (or Lessee or Sublessee, as "lessee" or "sublessee" as
appropriate) and (iii) the priority and validity of the Lien of the Trust
Indenture.
The rights of any Sublessee or other transferee (other than a
transferee where the transfer is of an Engine which is deemed a termination
under Section 9(d)) shall be subject and subordinate to, all the terms of the
Lease (and any Sublease shall expressly state that it is so subject and
subordinate), including, without limitation, the covenants contained in Section
7(a) hereof, the inspection rights contained in Section 12 hereof and Lessor's
(and, so long as the Trust Indenture is in effect, the Indenture Trustee's (as
Lessor's assignee)) rights to repossess the Aircraft and to void any Sublease
upon such repossession, and Lessee shall remain primarily liable for the
performance of all of the terms of the Lease, and the terms of any such Sublease
shall not permit any Sublessee to take any action not permitted to be taken by
Lessee in the Lease with respect to the Aircraft. No pooling agreement,
Sublease or other relinquishment of possession of the Airframe or any Engine
shall in any way discharge or diminish any of Lessee's obligations to Lessor
under this Lease or constitute a waiver of Lessor's rights or remedies
hereunder. Lessor agrees, for the benefit of Lessee (and any Sublessee) and for
the benefit of any mortgagee or other holder of a security interest in any
engine owned by Lessee (or any Sublessee), any lessor of any engine other than
an Engine leased to Lessee (or any Sublessee) and any conditional vendor of any
engine other than an Engine purchased by Lessee (or any Sublessee) subject to a
conditional sale agreement or any other security agreement, that no interest
shall be created under the Lease in any engine so owned, leased or purchased and
that neither Lessor nor its successors or assigns will acquire or claim, as
against Lessee (or any Sublessee) or any such mortgagee, lessor or conditional
vendor or other holder of a security interest or any successor or assignee of
any thereof, any right, title or interest in such engine as the result of such
engine being installed on the Airframe; provided, however, that such agreement
of Lessor shall not be for the benefit of any lessor or secured party of an
airframe leased to
40
[Second Amended and Restated
Lease Agreement (1993 747 A)]
Lessee (or any Sublessee) or purchased by Lessee (or any Sublessee) subject to a
conditional sale or other security agreement or for the benefit of any mortgagee
or any other holder of a security interest in an airframe owned by Lessee (or
any Sublessee), on which airframe Lessee (or any Sublessee) then proposes to
install an Engine, unless such lessor, conditional vendor, other secured party
or mortgagee has expressly agreed (which agreement may be contained in such
lease, conditional sale or other security agreement or mortgage) that neither it
nor its successors or assigns will acquire, as against Lessor, any right title
or interest in an Engine as a result of such Engine being installed on such
airframe. Lessee shall provide the Owner Participant and the Indenture Trustee
(A) written notice (which notice shall be given (i) no later than thirty (30)
days prior to entering into any Sublease with a term of more than one (1) year
or (ii) at any time prior to (to the extent that the giving of prior notice is
reasonably possible) or promptly after entering into any Sublease with a term of
one (1) year or less) of any Sublease and (B) a copy of any Sublease which has a
term of more than one (1) year.
Lessee shall assign any Sublease to Lessor as security for its
obligations hereunder pursuant to an assignment instrument reasonably
satisfactory to Lessor; provided, however, that any such assignment instrument
shall provide that the assignment of the Sublease shall only be effective,
without any further action, immediately upon the occurrence of a Section 14(a),
14(b), 14(f) or 14(g) Default or any Event of Default (and such effectiveness
shall terminate upon the curing or waiver of the aforesaid Defaults or Events of
Default). In addition, any Sublease entered into by Lessee shall provide that
all payments due under such Sublease shall be paid by the Sublessee to Lessor
during the continuance of a Section 14(a), 14(b), 14(f) or 14(g) Default or an
Event of Default.
In the event that during the term of a Sublease the Aircraft shall
have been maintained under a block-overhaul program, Lessee shall at its option
either (i) cause the Aircraft to be returned to the Lessee by the Sublessee no
later than three months prior to the end of the Term and Lessee shall upon such
return incorporate the Aircraft into Lessee's continuous maintenance program for
aircraft of the same make and model and in active commercial service or (ii)
upon return of the Aircraft to Lessor pursuant to Section 5(a), Lessee shall
comply with those return conditions set forth in such Section 5(a) applicable in
the event Lessee had adopted a block-overhaul program.
Any Wet Lease or similar arrangement under which Lessee maintains
operational control of the Aircraft shall not
41
[Second Amended and Restated
Lease Agreement (1993 747 A)]
constitute a delivery, transfer or relinquishment of possession for purposes of
this section. Lessor acknowledges that any consolidation or merger of Lessee or
conveyance, transfer or lease of all or substantially all of Lessee's assets
permitted by the Operative Documents shall not be prohibited by this Section.
No Sublease permitted pursuant to this Section shall permit any
further sub-subleasing of the Aircraft.
(c) Insignia. On or prior to the Delivery Date, or as soon thereafter
as practicable, Lessee agrees to affix and maintain (or cause to be affixed and
maintained) in the cockpit of the Airframe adjacent to the registration
certificate therein and on each Engine a nameplate bearing the inscription:
Leased From
State Street Bank and Trust Company, not in its individual capacity
but solely as Owner Trustee, Owner and Lessor
and, for so long as the Airframe and each Engine shall be subject to the Lien of
the Trust Indenture, bearing the following additional inscription:
Mortgaged To
First Security Bank of Utah, National Association, as Indenture
Trustee
(such nameplate to be replaced, if necessary, with a nameplate reflecting the
name of any successor Lessor or successor Indenture Trustee, in each case as
permitted under the Operative Documents).
Except as above provided, Lessee will not allow the name of any
person, association or corporation to be placed on the Airframe or on any Engine
as a designation that might be interpreted as a claim of ownership; provided,
that nothing herein contained shall prohibit Lessee (or any Sublessee) from
placing its customary colors and insignia on the Airframe or any Engine.
SECTION 8. Replacement and Pooling of Parts; Alterations,
Modifications and Additions.
(a) Replacement of Parts. Lessee, at its own cost and expense, will
promptly replace or cause to be replaced all Parts which may from time to time
become worn out, lost, stolen,
42
[Second Amended and Restated
Lease Agreement (1993 747 A)]
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use for any reason whatsoever, except as otherwise provided in Section
8(c). All replacement Parts shall be owned by Lessee free and clear of all
Liens (except Permitted Liens, pooling arrangements permitted by Section 8(b)
hereof and replacement Parts temporarily installed on an emergency basis) and
shall be in as good operating condition as, and shall have a value and utility
substantially equal to, the Parts replaced assuming such replaced Parts were in
the condition and repair required to be maintained by the terms hereof. All
Parts at any time removed from the Airframe or any Engine shall remain the
property of Lessor, no matter where located, until such time as such Parts shall
be replaced by Parts which meet the requirements for replacement Parts specified
above. Immediately upon any replacement Part becoming incorporated or installed
in or attached to the Airframe or any Engine, without further act (subject only
to Permitted Liens and any pooling arrangement permitted by Section 8(b) hereof
and except replacement Parts temporarily installed on an emergency basis), (i)
title shall vest in and such replacement Part shall become the property of
Lessor and shall become subject to this Lease and be deemed a Part for all
purposes hereof to the same extent as the Parts originally incorporated or
installed in or attached to the Airframe or such Engine and (ii) the replaced
Part shall no longer be the property of Lessor and shall no longer be deemed a
Part hereunder.
(b) Pooling of Parts. Any Part removed from the Airframe or any
Engine as provided in Section 8(a) hereof may be subjected by Lessee (or any
Sublessee) to a pooling arrangement of the type which is permitted by Section
7(b)(i) hereof; provided, that the Part replacing such removed Part shall be
incorporated or installed in or attached to such Airframe or Engine in
accordance with Section 8(a) as promptly as practicable after the removal of
such removed Part. In addition, any replacement Part when incorporated or
installed in or attached to the Airframe or an Engine in accordance with such
Sections may be owned by any third party subject to such a pooling arrangement,
provided, that Lessee (or any Sublessee), at its expense, as promptly thereafter
as practicable, and in any event within 90 days, either (i) causes such
replacement Part to become the property of Lessor free and clear of all Liens
other than Permitted Liens or (ii) replaces such replacement Part with a further
replacement Part owned by Lessee (or any Sublessee) which shall become the
property of Lessor, free and clear of all Liens other than Permitted Liens.
(c) Alterations, Modifications and Additions. Lessee, at its own
expense, will make (or cause to be made) such
43
[Second Amended and Restated
Lease Agreement (1993 747 A)]
alterations and modifications in and additions to the Airframe and Engines as
may be required from time to time to be made during the Term so as to comply
with any law, rule, regulation or order of any regulatory agency or body of any
jurisdiction in which the Aircraft may then be registered; provided, however,
that, after Lessee shall have provided Lessor and, so long as the Lien of the
Trust Indenture shall not have been released, the Indenture Trustee, with a
certificate of its President, any Vice President, the Treasurer or any Assistant
Treasurer stating all relevant facts pertaining thereto, Lessee or any Sublessee
may, in good faith, and by appropriate proceedings contest the validity or
application of any such law, rule, regulation or order in any reasonable manner
which does not jeopardize the right, title and interest of the Lessor or the
Owner Participant in and to the Airframe and/or the Engines, or otherwise
materially adversely affect Lessor, the Owner Participant or the Indenture
Trustee but only so long as such proceedings do not involve any risk of criminal
liability or any unindemnified material risk of civil liability to Lessor or the
Owner Participant for which the Lessee is not then willing to indemnify Lessor
or the Owner Participant in a manner reasonably satisfactory to such Person. In
addition, Lessee (or any Sublessee), at its own expense, may from time to time
make such alterations and modifications in and additions to the Airframe or any
Engine as Lessee (or any Sublessee) may deem desirable in the proper conduct of
its business, including removal of Parts which Lessee (or any Sublessee) deems
to be obsolete or no longer suitable or appropriate for use on the Airframe or
such Engine (such parts, "Obsolete Parts"); provided that no such alteration,
modification, removal or addition impairs the condition or airworthiness of the
Airframe or such Engine, or decreases the value or the utility (or, in regard to
the Airframe, remaining useful life) of the Airframe or such Engine below the
value or utility (or, in regard to the Airframe, remaining useful life) thereof
immediately prior to such alteration, modification, removal or addition assuming
the Airframe or such Engine was then in the condition required to be maintained
by the terms of this Lease. In addition, the value (but not the utility,
condition, airworthiness or, in the case of the Airframe, remaining economic
useful life) of the Airframe or any Engine may be reduced by the value, if any,
of Obsolete Parts which shall have been removed so long as the aggregate
original cost of all Obsolete Parts which shall have been removed and not
replaced shall not exceed $900,000. All Parts incorporated or installed in or
attached or added to the Airframe or an Engine as the result of such alteration,
modification or addition (except those parts which Lessee has leased from others
and which may be removed by Lessee pursuant to the next sentence) (the
"Additional Parts") shall, without further act, become the property of, and
title to such
44
[Second Amended and Restated
Lease Agreement (1993 747 A)]
Parts shall vest in, Lessor. Notwithstanding the foregoing sentence, Lessee (or
any Sublessee), subject to Lessor's rights under Section 5(f) hereof, may, at
its own expense, at any time during the Term, so long as no Default under
Section 14(a), (b), (d) (solely with respect to Lessee's obligations under
Section 7(a) or (b)(viii) or Section 8 hereof), (f) or (g) or an Event of
Default shall have occurred and be continuing, remove or suffer to be removed
any Additional Part, provided that such Additional Part (i) is in addition to,
and not in replacement of or substitution for, any Part originally incorporated
or installed in or attached to such Airframe or any Engine at the time of
delivery thereof hereunder or any Part in replacement of or substitution for any
such Part, (ii) is not required to be incorporated or installed in or attached
or added to the Airframe or any Engine pursuant to the terms of Section 7 hereof
or the first sentence of this paragraph (c) and (iii) can be removed from the
Airframe or such Engine without impairing the condition or airworthiness or
diminishing the value or utility (or, in regard to the Airframe, remaining
useful life) of the Airframe or such Engine which the Airframe or such Engine
would have had at such time had such alteration, modification or addition not
occurred. Upon the removal thereof as provided above, such Additional Part
shall no longer be deemed the property of Lessor or part of the Airframe or
Engine from which it was removed. Any Additional Part not removed as above
provided prior to the return of the Airframe or Engine to Lessor hereunder shall
remain the property of Lessor.
SECTION 9. Early Termination.
(a) [Intentionally reserved for potential future use].
(b) Termination for Obsolescence/Surplus. So long as no Section
14(a), (b), (d) (solely with respect to Lessee's obligations under Section 7(a)
or (b)(viii) or Section 8 hereof), (f) or (g) Default or any Event of Default
shall have occurred and be continuing, Lessee shall have the right to terminate
this Lease on the third Business Day prior to any Lease Period Date occurring on
or after the Restricted Period if Lessee shall have made a good faith
determination, which shall be evidenced by a certificate of any financial
officer of Lessee, who is the Treasurer or more senior officer, that the
Aircraft is surplus to Lessee's requirements or economically obsolete to Lessee.
Lessee shall give to Lessor and Indenture Trustee at least one hundred
and eighty (180) days revocable (except as provided below) advance written
notice of Lessee's intention to so terminate this Lease (any such notice, a
"Termination Notice") specifying (i) the date on which Lessee intends to
terminate this
45
[Second Amended and Restated
Lease Agreement (1993 747 A)]
Lease in accordance with this Section 9(b) (such specified date, a "Termination
Date") and (ii) that Lessee has determined that the Aircraft is surplus to its
requirements or economically obsolete to Lessee. Lessee shall exercise this
option by arranging for the sale of the Aircraft pursuant to Section 9(c),
provided, however, that Lessee may not withdraw its notice if Lessor has elected
to retain the Aircraft pursuant to Section 9(c) or if the highest bid obtained
by Lessee pursuant to Section 9(c) is greater than the then applicable
Termination Value; provided, further, that if no sale of the Aircraft shall have
occurred on or prior to the Termination Date and if Lessor shall not have
elected to retain the Aircraft, Lessee's Termination Notice shall be deemed
withdrawn. The Termination Notice shall become irrevocable twenty-five (25)
days prior to the Termination Date.
(c) Sale of the Aircraft. In the event that Lessee shall have
proposed to terminate this Lease under Section 9(b), then during the period
commencing with the date of the Termination Notice until the proposed
Termination Date Lessee, as non-exclusive agent for Lessor and at no expense to
Lessor, shall use reasonable efforts to obtain bids in Dollars for the purchase
of the Aircraft and, in the event it receives any bid, Lessee shall, within five
Business Days after receipt thereof and at least ten Business Days prior to the
proposed Termination Date, advise Lessor in writing of the amount and terms of
such bid, and the name and address of the party or parties (who shall not be
Lessee or any Affiliate of Lessee or any person with whom Lessee or any such
Affiliate has an arrangement or understanding regarding the future use of the
Aircraft by Lessee or any such Affiliate but who may be the Owner Participant,
any Affiliate thereof or any person contacted by the Owner Participant)
submitting such bid. After Lessee shall have advised Lessor of all bids
received, the Owner Participant, any Affiliate thereof or any Person contacted
by the Owner Participant may submit a further bid or bids to Lessee not later
than five Business Days prior to the Termination Date proposed by Lessee (unless
Lessee shall have revoked the Termination Notice specifying such proposed
Termination Date). Subject to the next succeeding sentence, on or before the
Termination Date, subject to the release of all mortgage and security interests
with respect to the Aircraft under the Trust Indenture: (1) Lessee shall
deliver the Aircraft, or cause the Aircraft to be delivered to the highest
bidder as determined below, in the same manner and in the same condition and
otherwise in accordance with all the terms of this Lease as if delivery were
made to Lessor pursuant to Section 5, and Lessee shall duly transfer to Lessor
title to any engine installed on the Airframe and not owned by Lessor, all in
accordance with the terms of Section 5 (but subject to the
46
[Second Amended and Restated
Lease Agreement (1993 747 A)]
provisions of Section 5(e) hereof), (2) Lessor shall comply with the terms of
the Trust Indenture and shall, without recourse or warranty (except as to the
absence of Lessor Liens (including for this purpose Liens that would be Lessor
Liens but for the proviso to the definition of Lessor Liens)), subject to prior
or concurrent payment by Lessee of all amounts due under clause (3) of this
sentence, sell the Aircraft for cash in Dollars to the entity, if any, which
shall have submitted the highest bona fide bid (evaluated on a net cash basis)
therefor, the total selling price realized at such sale to be retained by
Lessor, and (3) Lessee shall simultaneously pay or cause to be paid to Lessor in
the manner provided in Section 3(e), (A) if the proceeds of the sale of the
Aircraft so sold, net of reasonable out-of-pocket costs and expenses incurred by
Lessor and the Owner Participant in connection therewith, including, without
limitation, applicable sales or transfer taxes and legal fees, are less than the
Termination Value for the Aircraft computed as of the Redemption Date, the
difference in Dollars, (B) all unpaid Basic Rent due on or prior to the
applicable Redemption Date (other than Basic Rent payable in advance on the
Redemption Date, if any) and all unpaid Supplemental Rent with respect to the
Aircraft due on or prior to such Redemption Date, and (C) Premium, if any, due
on the Loan Certificates and upon receiving all such payments referred to in
clauses (2) and (3) above Lessor simultaneously will transfer to Lessee, without
recourse or warranty (except as to the absence of Lessor Liens (including for
this purpose Liens that would be Lessor Liens but for the proviso to the
definition of Lessor Liens)), all of Lessor's right, title and interest in and
to any Engines constituting part of the Aircraft which were not sold with the
Aircraft. Notwithstanding the preceding sentence, Lessor may, if Lessee has not
already revoked the Termination Notice, elect to retain title to the Aircraft.
If Lessor so elects, Lessor shall give to Lessee written notice of such election
at least ten Business Days prior to the Termination Date accompanied by an
irrevocable undertaking by the Owner Participant to make available to Lessor for
payment to the Indenture Trustee on the Termination Date the amount required to
pay in full the unpaid Original Amount of the Loan Certificates outstanding on
the applicable Redemption Date together with all other amounts due on such
Redemption Date thereunder less amounts to be paid by Lessee as a result of the
payment thereof as set forth in the second following sentence. Upon receipt of
notice of such an election by Lessor and the accompanying undertaking by the
Owner Participant, Lessee shall cease its efforts to obtain bids as provided
above and shall reject all bids theretofore or thereafter received. On the
Termination Date, Lessor shall (subject to the payment by Lessee of all Rent due
on or prior to the Redemption Date as set forth below) pay in full the unpaid
Original Amount of the Loan
47
[Second Amended and Restated
Lease Agreement (1993 747 A)]
Certificates outstanding on the Redemption Date, plus interest accrued to, or to
accrue thereon to but excluding the applicable Redemption Date, together with
all other amounts due thereunder less any amounts to be paid by Lessee as a
result of the payment thereof and, provided that the Loan Certificates are paid
as aforesaid, Lessee shall deliver the Airframe and Engines or engines to Lessor
in accordance with Section 5 and shall pay all Basic Rent due on or prior to the
Redemption Date (other than Basic Rent payable in advance on the Redemption
Date, if any) and all unpaid Supplemental Rent due on or prior to such
Redemption Date, and Premium, if any, on the Loan Certificates. If no sale
shall have occurred on the Termination Date for any reason (including, without
limitation, by reason of Lessee's revocation of its Termination Notice) or
Lessor has not, after making its election referred to above, made the payment
contemplated by the preceding sentence and thereby caused this Lease to
terminate, this Lease shall continue in full force and effect as to the
Aircraft, Lessee shall be entitled to keep any deposits or other advances
received from the proposed purchaser(s) of the Aircraft (without in any way
limiting any other rights or remedies against such proposed purchaser(s)
available to Lessor or Lessee), Lessee shall pay the reasonable out-of-pocket
costs and expenses, including legal fees, incurred by the Owner Participant,
Indenture Trustee and Lessor (unless such failure to terminate this Lease is a
consequence of the failure of Lessor or the Owner Participant without due cause
to make, or cause to be made, the payment referred to in the immediately
preceding sentence), if any, in connection with preparation for such sale and
Lessee may give one or more additional Termination Notices, provided no more
than three such notices may be given during the Term and only one such notice
may be given during any 365 day period (not counting, in either case, any
Termination Notice for a Termination Date on which this Lease does not terminate
as a consequence of the failure of Lessor or the Owner Participant without due
cause to make or cause to be made the payment referred to in the immediately
preceding sentence). In the event of any such sale or such retention of the
Aircraft by Lessor and upon compliance by Lessee with the provisions of this
paragraph, the obligation of Lessee to pay Basic Rent or any other amounts
hereunder shall cease to accrue. Upon payment of all amounts that may then be
due hereunder, this Lease shall terminate. Lessor may, but shall be under no
duty to, solicit bids, inquire into the efforts of Lessee to obtain bids or
otherwise take any action in connection with any such sale other than to
transfer (in accordance with the foregoing provisions) to the purchaser named in
the highest bid certified by Lessee to Lessor all of Lessor's right, title and
interest in the Aircraft, against receipt of the payments provided herein.
48
[Second Amended and Restated
Lease Agreement (1993 747 A)]
(d) Termination as to Engines. Upon compliance with the terms of the
Tax Indemnity Agreement, Lessee shall have the right at its option at any time
during the Term, on at least 30 days' prior written notice, to terminate this
Lease with respect to any Engine. In such event, and prior to the date of such
termination, Lessee shall replace such Engine hereunder 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 (provided that Lessee shall have no right to pay
Stipulated Loss Value with respect to such Engine), and Lessor shall transfer
title to the replaced Engine as provided in Section 5(b). No termination of
this Lease with respect to any Engine as contemplated by this Section 9(d) shall
result in any reduction of Basic Rent.
SECTION 10. Loss, Destruction, Requisition, etc. (a) Event of Loss
with Respect to the Aircraft. Upon the occurrence of an Event of Loss with
respect to the Airframe or the Airframe and the Engines and/or engines then
installed thereon, Lessee shall (1) forthwith (and in any event, within fifteen
days after such occurrence) give Lessor written notice of such Event of Loss and
(2) within 60 days after such occurrence, give Lessor written notice of its
election to perform one of the following options (it being understood that the
failure to give such notice shall be deemed to be an election of the option set
forth in clause (i) below):
(i) Not later than the earlier of (x) the Business Day next
succeeding the 100th day following the occurrence of such Event of Loss or
(y) the third Business Day following receipt by the loss payee of the
insurance proceeds in respect to such Event of Loss (but not earlier than
the first Business Day next succeeding the 65th day following the
occurrence of such Event of Loss) (the applicable day being the "Loss
Payment Date"), Lessee shall, to the extent not paid to Lessor or Indenture
Trustee, as the case may be, as insurance proceeds, pay or cause to be paid
to Lessor as specified in Section 3(e) hereof, (A) the Stipulated Loss
Value of the Aircraft computed as of the Stipulated Loss Value Date
occurring on or immediately following the date of such Event of Loss, plus
(B) if such Stipulated Loss Value Date is a Lease Period Date, Basic Rent
due on such Lease Period Date (excluding Basic Rent payable in advance on
such Lease Period Date), plus (C) unpaid Supplemental Rent with respect to
the Aircraft due on or prior to the date of payment, plus (D) interest on
such Stipulated Loss Value at the Debt Rate from and including such
Stipulated Loss Value Date to, but not including, the date of any advance
payment in respect of Stipulated Loss
49
[Second Amended and Restated
Lease Agreement (1993 747 A)]
Value as provided below, and thereafter on the unpaid balance of such
Stipulated Loss Value from and including the date of such advance payment
to, but excluding, the date such Stipulated Loss Value is paid in full;
provided, however, that if a Lease Period Date shall occur after the
Stipulated Loss Value Date with respect to which Stipulated Loss Value is
determined but prior to the date of such payment of the sum of the amounts
specified in clauses (A), (B), (C) and (D) above or if Basic Rent is
payable in advance on the Stipulated Loss Value Date, Lessee shall pay on
such Lease Period Date an amount equal to the Basic Rent that would have
been due on such Lease Period Date if such Event of Loss had not occurred,
which amount shall be credited as an advance against the amounts payable
pursuant to clauses (A), (B), (C) and (D) above, or
(ii) Not later than the Business Day next succeeding the 100th day
following the occurrence of such Event of Loss, Lessee shall, provided that
no Section 14(a), (b), (f) or (g) Default or any Event of Default shall
have occurred and be continuing, substitute an aircraft or an airframe or
an airframe and one or more engines, as the case may be in accordance with
the terms hereof, provided that if Lessee shall have elected to make a
substitution under this clause (ii) and shall fail for any reason to make
such substitution in accordance with the terms hereof, Lessee shall make
the payments required by clause (i) above as and when due thereunder.
At such time as Lessor shall have received the sum of the amounts
specified in clauses (A), (B), (C) and (D) of subparagraph (i) above, together
with all other amounts that then may be due hereunder (including, without
limitation, all Basic Rent due on or before the date of such payment (other than
Basic Rent payable in advance, if any, on such date)), under the Participation
Agreement and under the Tax Indemnity Agreement, (1) the obligation of Lessee to
pay the installments of Basic Rent, Supplemental Rent, Stipulated Loss Value,
Termination Value or any other amount shall cease to accrue, (2) this Lease
shall terminate, (3) Lessor will comply with the terms of the Trust Indenture
and transfer to or at the direction of Lessee, without recourse or warranty
(except as to the absence of Lessor Liens (including for this purpose Liens that
would be Lessor Liens but for the proviso to the definition of Lessor Liens)),
all Lessor's right, title and interest in and to the Airframe and the Engines
"as-is, where-is" and furnish to or at the direction of Lessee, at Lessee's
expense, a bill of sale in form and substance reasonably satisfactory to Lessee
(or any Sublessee), evidencing such transfer, and (4) Lessee will be subrogated
to all claims of
50
[Second Amended and Restated
Lease Agreement (1993 747 A)]
Lessor if any against third parties (other than Lessor's or the Owner
Participant's insurers under policies independently maintained at its own cost
and expense in accordance with Section 11(e) hereof), but only to the extent the
same relate to physical damage to or loss of the Airframe and any Engines which
were subject to such Event of Loss.
In the event Lessee shall elect to substitute an aircraft (or an
airframe or an airframe and one or more engines, as the case may be) Lessee
shall (A) convey or cause to be conveyed to Lessor an aircraft (or an airframe
or an airframe and an engine which, together with the Engines or Engine
constituting a part of the Aircraft but not installed thereon at the time of
such Event of Loss, constitute the Aircraft) free and clear of all Liens (other
than Permitted Liens) and having at least the fair market value, utility and
remaining useful life and being in as good an operating condition as, the
Aircraft subject to such Event of Loss assuming that the Aircraft had been
maintained in accordance with this Lease; provided that any aircraft or airframe
so substituted hereunder shall be of the same make and model or improved model
as those initially leased hereunder and any engine substituted hereunder shall
be an Acceptable Alternate Engine and (B) prior to or at the time of any such
substitution, Lessee (or any Sublessee), at its own expense, will (1) furnish
Lessor with a full warranty bill of sale and a FAA bill of sale, in form and
substance reasonably satisfactory to the Owner Participant, evidencing such
transfer of title, (2) cause a Lease Supplement and a Trust Supplement to be
duly executed by Lessee and filed for recording pursuant to the Federal Aviation
Act, or the applicable laws, rules and regulations of any other jurisdiction in
which the Airframe may then be registered, and cause a financing statement or
statements or other requisite documents of a similar nature (including
precautionary filings) to be filed in such place or places as necessary in order
to perfect the security interests therein created by or pursuant to the Trust
Indenture (and, with regard to precautionary filings, this Lease), (3) furnish
the Owner Participant with such evidence of Lessor's title to such replacement
aircraft and of compliance with the insurance provisions of Section 11 with
respect to such substituted property as Lessor, in its individual capacity, and
the Owner Participant may reasonably request, (4) provide Owner Participant an
opinion of outside tax counsel, which opinion and counsel shall be satisfactory
to Owner Participant, to the effect that such substitution will not result in
any adverse tax consequences (including under Section 861 of the Code as then in
effect) to Lessor and/or the Owner Participant (it being understood that if such
opinion cannot be given Lessee may indemnify Owner Participant for such adverse
tax consequences in lieu of such opinion in a manner satisfactory in form and
51
[Second Amended and Restated
Lease Agreement (1993 747 A)]
substance to the Owner Participant), (5) provide Lessor, Owner Participant and
the Indenture Trustee an opinion of counsel, which counsel and opinion shall be
reasonably acceptable to Lessor, in its individual capacity, and the Owner
Participant, to the effect that Lessor and the Indenture Trustee (as assignee of
all right, title and interest of Lessor under the Lease) shall be entitled to
the benefits and protections of Section 1110 of the Bankruptcy Code with respect
to the aircraft substituted hereunder, (6) provide an opinion of counsel to
Lessor and the Indenture Trustee, which opinion and counsel shall be reasonably
acceptable to the Lessor, in its individual capacity, and the Owner Participant,
to the effect that title to such replacement aircraft has been duly conveyed to
Lessor free and clear of all Liens except Permitted Liens and that such
replacement aircraft is duly subjected to the Lien of the Trust Indenture and
(7) provide Lessor, Owner Participant and Indenture Trustee all the
documentation required (or, following the termination of the Trust Indenture,
all the documentation that prior to such termination would have been required)
to be provided by it pursuant to Section 5.01(b) of the Trust Indenture, and
Lessor simultaneously will comply with the terms of the Trust Indenture and
transfer to or at the direction of Lessee, without recourse or warranty (except
as to the absence of Lessor Liens (including for this purpose Liens that would
be Lessor Liens but for the proviso to the definition of Lessor Liens)), all of
Lessor's right, title and interest, if any, in and to the Aircraft or the
Airframe and one or more Engines, as the case may be, "as-is, where-is" with
respect to which such Event of Loss occurred and furnish to or at the direction
of Lessee, at Lessee's expense, a bill of sale in form and substance reasonably
satisfactory to Lessee, evidencing such transfer. Lessee will be subrogated to
all claims of Lessor, if any, against third parties (other than Lessor's or the
Owner Participant's insurers under policies independently maintained at their
own cost and expense in accordance with Section 11(e) hereof) but only to the
extent the same relate to physical damage to or loss of the Airframe and any
Engine which were subject to such Event of Loss. For all purposes hereof, the
property so substituted shall after such transfer be deemed part of the property
leased hereunder and shall be deemed an "Aircraft," "Airframe" and "Engine," as
the case may be, as defined herein. No Event of Loss with respect to the
Airframe or the Airframe and the Engines or engines then installed thereon for
which substitution has been elected pursuant to Section 10(a)(ii) hereof shall
result in any reduction in Basic Rent.
(b) Event of Loss with Respect to an Engine. Upon the occurrence of
an Event of Loss with respect to an Engine under circumstances in which there
has not occurred an Event of Loss
52
[Second Amended and Restated
Lease Agreement (1993 747 A)]
with respect to the Airframe, Lessee shall forthwith (and in any event, within
fifteen days after such occurrence) give Lessor written notice thereof and
shall, within forty-five (45) days after the occurrence of such Event of Loss,
convey or cause to be conveyed to Lessor, as replacement for the Engine with
respect to which such Event of Loss occurred, title to an Acceptable Alternate
Engine free and clear of all Liens (other than Permitted Liens, which engine may
upon its transfer to Lessor become subject to any and all Permitted Liens) and
having a value and utility at least equal to, and being in as good an operating
condition as and having been maintained in the same manner as, the Engine
subject to such Event of Loss (assuming that such Engine had been maintained in
accordance with this Lease); provided, however, upon written notice to Lessee
given within 20 days after Lessor has received notice of such Event of Loss, the
Lessor may require Lessee to pay with respect to the Engine subject to such
Event of Loss within 45 days after the occurrence of such Event of Loss
(provided that in no event shall such payment be required to be made prior to
the Commencement Date) an amount equal to (A) Engine Cost multiplied by the
percentage specified in Exhibit C hereto opposite the Stipulated Loss Value Date
occurring on or immediately following the date of such Event of Loss, plus (B)
interest on the amount determined pursuant to clause (A) above at the Debt Rate
from and including such Stipulated Loss Value Date to, but excluding, the date
such amount is paid in full; and provided, further, if Lessee pays such
Stipulated Loss Value and interest, then, subject to Section 5(e), Lessee shall
only be obligated to return the Aircraft to Lessor with any Engine attached
thereto with respect to which Lessee has not paid Stipulated Loss Value pursuant
to this Section 10(b) at any time that Lessee is required to return the Aircraft
to Lessor pursuant to the terms hereof; provided further, however, that, in lieu
of paying such Stipulated Loss Value and interest, Lessee may replace the Engine
in accordance with this Section 10(b) if Lessee provides to the Owner
Participant either: (x) an opinion of outside tax counsel, which opinion and
counsel shall be satisfactory to the Owner Participant, to the effect that such
substitution will not result in any adverse tax consequences to the Owner
Participant, or (y) an indemnity, satisfactory in form and substance to the
Owner Participant, for any adverse tax consequences resulting from such
substitution. Prior to or at the time of any such conveyance, Lessee, at its
own expense, will (i) furnish Lessor with a warranty (as to title) bill of sale,
in form and substance reasonably satisfactory to Lessor, with respect to such
replacement engine, (ii) cause a Lease Supplement and Trust Supplement to be
duly executed by Lessee and to be filed for recording pursuant to the Federal
Aviation Act, or the applicable laws, rules and regulations of any other
jurisdiction in which
53
[Second Amended and Restated
Lease Agreement (1993 747 A)]
the Airframe may then be registered, and cause a financing statement or
statements or other requisite documents of a similar nature (including
precautionary filings) to be filed in such place or places as necessary in order
to perfect the security interests therein created by or pursuant to the Trust
Indenture (and, with regard to precautionary filings, this Lease), (iii) furnish
Lessor with such evidence of Lessor's title to such Acceptable Alternate Engine
and of compliance with the insurance provisions of Section 11 hereof with
respect to such replacement engine as Lessor, in its individual capacity, or the
Owner Participant may reasonably request, (iv) provide Lessor and the Indenture
Trustee an opinion of Lessee's counsel which counsel and opinion shall be
reasonably satisfactory to Lessor, in its individual capacity, or the Owner
Participant to the effect that title to such Acceptable Alternate Engine has
been duly conveyed to Lessor free and clear of all Liens except Permitted Liens
and that such Acceptable Alternate Engine is duly subjected to the Lien of the
Trust Indenture, and (v) provide Lessor, Owner Participant and Indenture Trustee
all the documentation required (or, following the termination of the Trust
Indenture, all the documentation that prior to such termination would have been
required) to be provided by it pursuant to Section 5.01(b) of the Trust
Indenture, and Lessor will comply with the terms of the Trust Indenture and
transfer to or at the direction of Lessee without recourse or warranty (except
as to absence of Lessor Liens (including for this purpose Liens that would be
Lessor Liens but for the proviso to the definition of Lessor Liens)) all of
Lessor's right, title and interest, if any, in and to (1) the Engine with
respect to which such Event of Loss occurred and furnish to or at the direction
of Lessee, and at Lessee's expense, a bill of sale in form and substance
reasonably satisfactory to Lessee, evidencing such transfer and (2) all claims,
if any, against third parties (other than Lessor's or the Owner Participant's
insurers under policies independently maintained at their own cost and expense
in accordance with Section 11(e) hereof), for damage to or loss of the Engine
subject to such Event of Loss, and such Engine shall thereupon cease to be an
Engine leased hereunder. For all purposes hereof, each such replacement engine
shall, after such conveyance, be deemed part of the property leased hereunder,
and shall be deemed an "Engine." Except to the extent Lessor's Cost is reduced
pursuant to the definition thereof, no Event of Loss with respect to an Engine
under the circumstances contemplated by the terms of this paragraph (b) shall
result in any reduction in Basic Rent.
(c) Application of Payments from Governmental Authorities for
Requisition of Title, etc. Any payments (other than insurance proceeds the
application of which is provided for in Section 11) received at any time by
Lessor or by Lessee from
54
[Second Amended and Restated
Lease Agreement (1993 747 A)]
any governmental authority or other Person with respect to an Event of Loss,
other than a requisition for use by the United States Government or other
government of registry of the Aircraft or any instrumentality or agency of any
thereof not constituting an Event of Loss, will be applied as follows:
(i) if payments are received with respect to the Airframe (or the
Airframe and any Engine or engines then installed thereon), (A) unless the
same are replaced pursuant to the last paragraph of Section 10(a), after
reimbursement of Lessor (as provided in Section 7.01 of the Trust
Agreement) and the Owner Participant for reasonable costs and expenses, so
much of such payments remaining as shall not exceed the Stipulated Loss
Value and the other amounts payable under Section 10(a) hereof required to
be paid by Lessee pursuant to Section 10(a), shall be applied in reduction
of Lessee's obligation to pay Stipulated Loss Value and the other amounts
payable under Section 10(a) hereof, if not already paid by Lessee, or, if
already paid by Lessee, shall be applied to reimburse Lessee for its
payment of Stipulated Loss Value and such other amounts, and following the
foregoing application, the balance, if any, of such payments shall be
distributed between Lessee and Lessor as their respective interests may
appear; or (B) if such property is replaced pursuant to the last paragraph
of Section 10(a), such payments shall be paid over to or retained by,
Lessee; provided, that Lessee shall have fully performed or, concurrently
therewith, will fully perform the terms of the last paragraph of Section
10(a) with respect to the Event of Loss for which such payments are made;
and
(ii) if such payments are received with respect to an Engine under
circumstances contemplated by Section 10(b) hereof, (A) unless the same is
replaced pursuant to the terms of Section 10(b), after reimbursement of
Lessor (as provided for in Section 7.01 of the Trust Agreement) and the
Owner Participant for reasonable costs and expenses, so much of such
payments remaining as shall not exceed the amounts payable under Section
10(b) hereof by Lessee, shall be applied in reduction of Lessee's
obligation to pay the same, if not already paid by Lessee, or if already
paid by Lessee, shall be applied to reimburse Lessee for its payment of
such amounts and following the foregoing application, the balance, if any,
shall be paid to Lessee; or (B) if such property is replaced pursuant to
Section 10(b), such payments shall be paid over to, or retained by, Lessee,
provided that Lessee shall have fully performed, or concurrently therewith
will perform, the terms of Section
55
[Second Amended and Restated
Lease Agreement (1993 747 A)]
10(b) with respect to the Event of Loss for which such payments are made.
(d) Requisition for Use of the Aircraft by the United States
Government or Government of Registry of the Aircraft. In the event of the
requisition for use of the Airframe and the Engines or engines installed on the
Airframe during the Term by the United States Government or any other government
of registry of the Aircraft or any instrumentality or agency of any thereof,
Lessee shall promptly notify Lessor of such requisition, and all of Lessee's
obligations under this Lease Agreement with respect to the Aircraft shall
continue to the same extent as if such requisition had not occurred (unless
deemed prior to the end of the Term an Event of Loss in which case the foregoing
provisions of this Section 10 shall be applicable). If Lessee shall fail to
return the Aircraft (i) on or before the end of the Term, in the case of a
requisition by the United States government or any agency or instrumentality
thereof or (ii) within the earlier of the end of the Term or two years after
such requisition in the case of a requisition for use by the government of
registry of the Aircraft or any agency or instrumentality thereof (other than
the United States government or any agency or instrumentality thereof), such
failure shall constitute an Event of Loss which shall be deemed to have occurred
in the case of clause (i) on the last day of the Term, and in the case of clause
(ii), on the earlier of the last day of the Term or the expiration of such two-
year period, provided, however, that Lessor may notify Lessee in writing on or
before the twentieth day prior to the last day of the Term that, in the event
Lessee shall fail by reason of such requisition to return the Airframe and such
Engines or engines on or before the end of the Term, such failure shall not be
deemed an Event of Loss. Upon the giving of such notice and such failure to
return by the end of the Term, Lessee shall be relieved of all of its
obligations pursuant to the provisions of Section 5 (but not under any other
Section), except that if any engine not owned by Lessor shall then be installed
on the Airframe, Lessee will, at no cost to Lessor, furnish, or cause to be
furnished, to Lessor a full warranty (as to title) bill of sale with respect to
each such engine, in form and substance reasonably satisfactory to Lessor, in
its individual capacity, and the Owner Participant (together with an opinion of
counsel (which may be Lessee's General Counsel) to the effect that such full
warranty bill of sale has been duly authorized and delivered and is enforceable
in accordance with its terms and that such engines are free and clear of Liens
other than Lessor Liens (including for this purpose Liens that would be Lessor
Liens but for the proviso to the definition of Lessor Liens), against receipt
from Lessor, at Lessee's expense, of a bill of sale evidencing the transfer,
without recourse or warranty (except as
56
[Second Amended and Restated
Lease Agreement (1993 747 A)]
to the absence of Lessor Liens (including for this purpose Liens that would be
Lessor Liens but for the proviso to the definition of Lessor Liens)), by Lessor
to Lessee or its designee of all of Lessor's right, title and interest in and to
any Engine constituting part of the Aircraft but not then installed on the
Airframe. All payments received by Lessor or Lessee from such government for
the use of such Airframe and Engines or engines during the Term shall be paid
over to, or retained by, Lessee (or, if directed by Lessee, any Sublessee); and
all payments received by Lessor or Lessee from such government for the use of
such Airframe and Engines or engines after the end of the Term shall be paid
over to, or retained by, Lessor unless Lessee shall have exercised its purchase
option hereunder, or there is a deemed Event of Loss hereunder, in which case
such payments shall be made to Lessee.
(e) Requisition for Use of an Engine by the United States Government
or the Government of Registry of the Aircraft. In the event of the requisition
for use of an Engine during the Term by the United States Government or any
other government of registry of the Aircraft or any agency or instrumentality of
any thereof (other than in the circumstances contemplated by subsection (d))
which shall have continued for more than 180 days or, if earlier, until the end
of the Term, Lessee shall replace (or cause any Sublessee to replace) such
Engine hereunder and Lessor and Lessee (or Sublessee as the case may be) shall
comply with the terms of Section 10(b) to the same extent as if an Event of Loss
had occurred with respect to such Engine. Upon compliance with Section 10(b)
hereof, any payments received by Lessor or Lessee from such government with
respect to such requisition shall be paid over to, or retained by Lessee.
(f) Application of Payments During Existence of Events of Default.
Any amount referred to in this Section 10 which is payable to or retainable by
Lessee (or any Sublessee) shall not be paid to or retained by Lessee (or any
Sublessee) if at the time of such payment or retention a Default or an Event of
Default shall have occurred and be continuing, but shall be held by or paid over
to Lessor as security for the obligations of Lessee (or such Sublessee) under
this Lease and applied against Lessee's obligations hereunder as and when due.
At such time as there shall not be continuing any such Default or Event of
Default, such amount shall be paid to Lessee to the extent not previously
applied in accordance with the preceding sentence.
SECTION 11. Insurance. (a) Public Liability and Property Damage
Insurance. (1) Except as provided in clause (2) of this Section 11(a), and
subject to self-insurance to the extent permitted by Section 11(d) hereof,
Lessee will carry or
57
[Second Amended and Restated
Lease Agreement (1993 747 A)]
cause to be carried with respect to the Aircraft at its or any Sublessee's
expense (i) comprehensive airline liability (including, without limitation,
passenger, contractual, bodily injury, and property damage liability) insurance
(exclusive of manufacturer's product liability insurance) and (ii) cargo
liability insurance, (A) in an amount not less than the greater of (x) the
amounts of comprehensive airline liability insurance from time to time
applicable to aircraft owned or leased, and operated by Lessee of the same type
as the Aircraft and (y) $500,000,000 per occurrence, (B) of the type and
covering the same risks as from time to time are applicable to aircraft owned or
leased, and operated by Lessee of the same type as the Aircraft, and (C) which
is maintained in effect with insurers of recognized reputation and
responsibility; provided, however, that Lessee need not maintain cargo liability
insurance, or may maintain such insurance in an amount less than $500,000,000
per occurrence, as long as the amount of cargo liability insurance, if any,
maintained with respect to the Aircraft is the same as the cargo liability
insurance, if any, maintained for other Boeing Model 747-422 aircraft owned or
leased, and operated by Lessee.
(2) During any period that the Airframe or an Engine, as the case may
be, is on the ground and not in operation, Lessee may carry or cause to be
carried as to such non-operating property, in lieu of the insurance required by
clause (1) above, and subject to the self-insurance to the extent permitted by
Section 11(d) hereof, insurance by insurers of recognized reputation and
responsibility otherwise conforming with the provisions of clause (1) except
that (A) the amounts of coverage shall not be required to exceed the amounts of
comprehensive airline liability insurance from time to time applicable to
property owned or leased by Lessee of the same type as such non-operating
property and which is on the ground and not in operation; and (B) the scope of
the risks covered and the type of insurance shall be the same as from time to
time shall be applicable to property owned or leased by Lessee of the same type
as such non-operating property and which is on the ground and not in operation.
(b) Insurance Against Loss or Damage to the Aircraft. (1) Except as
provided in clause (2) of this Section 11(b), and subject to the provisions of
Section 11(d) hereof permitting self-insurance, Lessee shall maintain or cause
to be maintained in effect, at its or any Sublessee's expense, with insurers of
recognized reputation and responsibility, all-risk aircraft hull insurance
covering the Aircraft and fire and extended coverage and all-risk aircraft hull
insurance covering Engines and Parts while temporarily removed from the Aircraft
and not replaced by
58
[Second Amended and Restated
Lease Agreement (1993 747 A)]
similar components (including, without limitation, aircraft war risk and
governmental confiscation and expropriation (other than by the government of
registry of the Aircraft) and hijacking insurance, if and to the extent the same
is maintained by Lessee (or any Sublessee) with respect to other aircraft owned
or leased, and operated by Lessee (or such Sublessee) on the same routes);
provided, that such insurance shall at all times while the Aircraft is subject
to this Lease be for an amount (taking into account self-insurance to the extent
permitted by Section 11(d) hereof) not less than the Stipulated Loss Value for
the Aircraft; and provided further, that subject to compliance with Section
11(d) hereof, such all-risk property damage insurance covering Engines and Parts
while temporarily removed from the Airframe or an airframe of (in the case of
Parts) an Engine need be obtained only to the extent available at reasonable
cost (as reasonably determined by Lessee). In the case of a loss with respect
to an engine (other than an Engine) installed on the Airframe in circumstances
which do not constitute an Event of Loss with respect to the Airframe, Lessor
shall promptly remit any payment made to it of any insurance proceeds in respect
of such loss to Lessee or any other third party that is entitled to receive such
proceeds.
Except during a period when a Section 14(a), (b), (f) or (g) Default
or an Event of Default has occurred and is continuing, all losses will be
adjusted by Lessee with the insurers giving due regard to Lessor's interest. As
between Lessor and Lessee, it is agreed that all proceeds of insurance
maintained in compliance with the preceding paragraph and received as the result
of the occurrence of an Event of Loss will be applied as follows:
(x) if such payments are received with respect to the Airframe
(or the Airframe and the Engines installed thereon), (i) unless such
property is replaced pursuant to the last paragraph of Section 10(a)
hereof, so much of such payments remaining, after reimbursement of Lessor
(as provided in Section 7.01 of the Trust Agreement) and the Owner
Participant for reasonable costs and expenses, as shall not exceed the
Stipulated Loss Value and the other amounts payable under Section 10(a)
hereof required to be paid by Lessee pursuant to Section 10(a) hereof shall
be applied in reduction of Lessee's obligation to pay such Stipulated Loss
Value and the other amounts payable under Section 10(a) hereof, 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 the
other amounts payable under Section 10(a) hereof, and the balance, if any,
of such payments remaining thereafter will be paid
59
[Second Amended and Restated
Lease Agreement (1993 747 A)]
over to, or retained by, Lessee (or if directed by Lessee, any Sublessee);
or (ii) if such property is replaced pursuant to the last paragraph of
Section 10(a) hereof, such payments shall be paid over to, or retained by,
Lessee (or if directed by Lessee, any Sublessee), provided that Lessee
shall have fully performed or, concurrently therewith, will fully perform
the terms of the last paragraph of Section 10(a) hereof with respect to the
Event of Loss for which such payments are made; and
(y) if such payments are received with respect to an Engine under
the circumstances contemplated by Section 10(b) hereof, so much of such
payments remaining after reimbursement of Lessor and the Owner Participant
for reasonable costs and expenses shall be paid over to, or retained by,
Lessee (or if directed by Lessee, any Sublessee), provided that Lessee
shall have fully performed or, concurrently therewith, will fully perform
the terms of Section 10(b) hereof with respect to the Event of Loss for
which such payments are made.
(2) During any period that the Aircraft is on the ground and not in
operation, Lessee may carry or cause to be carried, in lieu of the insurance
required by clause (1) above, and subject to the self-insurance to the extent
permitted by Section 11(d) hereof, insurance otherwise conforming with the
provisions of said clause (1) except that the scope of the risks and the type of
insurance shall be the same as from time to time applicable to aircraft owned or
leased by Lessee of the same type as the Aircraft similarly on the ground and
not in operation, provided that, subject to the self-insurance to the extent
permitted by Section 11(d) hereof, Lessee shall maintain insurance against risk
of loss or damage to the Aircraft in an amount at least equal to the Stipulated
Loss Value of the Aircraft during such period that the Aircraft is on the ground
and not in operation.
(c) Reports, etc. Lessee will furnish, or cause to be furnished, to
Lessor, the Indenture Trustee, the Owner Participant and, so long as the Pass
Through Trustees are the Certificate Holders, each Pass Through Trustee, on or
before the Delivery Date, and each annual anniversary of the Delivery Date
during the Term, a report, signed by Rollins Hudig Hall of Illinois, Inc. or any
other independent firm of insurance brokers reasonably acceptable to Lessor
which brokers may be in the regular employ of Lessee (the "Insurance Brokers"),
describing in reasonable detail the hull and liability insurance (and property
insurance for detached engines and parts) then carried and maintained with
respect to the Aircraft and stating the opinion
60
[Second Amended and Restated
Lease Agreement (1993 747 A)]
of such firm that (a) such insurance complies with the terms hereof and (b) that
such insurance together with any self-insurance permitted hereby provides
coverage that are in substantially similar forms, are of such types and have
limits within the range of limits as are customarily carried by U.S. carriers;
provided, however, that the opinion set forth in clause (b) shall not be
required if the Insurance Broker then generally does not provide such an opinion
or will provide such an opinion for material additional cost; and provided
further that all information contained in the foregoing report shall not be made
available by Lessor, the Indenture Trustee, the Pass Through Trustees or the
Owner Participant to anyone except (A) to prospective and permitted transferees
of Lessor's, the Owner Participant's, any Pass Through Trustee's or the
Indenture Trustee's interest or their respective counsel, independent certified
public accountants, independent insurance brokers or other agents, who agree to
hold such information confidential, (B) to Lessor's, Owner Participant's, any
Pass Through Trustee's or the Indenture Trustee's counsel or independent
certified public accountants, independent insurance brokers or other agents who
agree to hold such information confidential, (C) as may be required by any
statute, court or administrative order or decree or governmental ruling or
regulation, or (D) as may be necessary for purposes of protecting the interest
of any such Person or for enforcement of this Lease by Lessor or the Indenture
Trustee; provided, however, that any and all disclosures permitted by clauses
(C) or (D) above shall be made only to the extent necessary to meet the specific
requirements or needs of the Persons to whom such disclosures are hereby
permitted. Lessee will cause such Insurance Broker to agree to advise Lessor,
the Indenture Trustee, the Owner Participant and, so long as the Pass Through
Trustees are the Certificate Holders, each Pass Through Trustee in writing of
any act or omission on the part of Lessee of which it has knowledge and which
might invalidate or render unenforceable, in whole or in part, any insurance on
the Aircraft and to advise such Persons in writing at least 30 days (7 days in
the case of war risk and allied perils coverage) prior to the cancellation or
material adverse change of any insurance maintained pursuant to this Section 11,
provided that if the notice period specified above is not reasonably obtainable,
the Insurance Broker shall provide for as long a period of prior notice as shall
then be reasonably obtainable. In addition, Lessee will also cause such
Insurance Broker to deliver to Lessor, the Indenture Trustee, the Owner
Participant and, so long as the Pass Through Trustees are the Certificate
Holders, each Pass Through Trustee, on or prior to the date of expiration of any
insurance policy referenced in a previously delivered certificate of insurance,
a new certificate of insurance, substantially in the same form as delivered by
Lessee to such
61
[Second Amended and Restated
Lease Agreement (1993 747 A)]
parties on the Delivery Date except for the changes in the report or the
coverage consistent with the terms hereof. In the event that Lessee or any
Sublessee shall fail to maintain or cause to be maintained insurance as herein
provided, Lessor, the Indenture Trustee or, so long as the Pass Through Trustees
are the Certificate Holders, each Pass Through Trustee may at its sole option,
but shall be under no duty to, provide such insurance and, in such event, Lessee
shall, upon demand, reimburse Lessor, the Indenture Trustee or such Pass Through
Trustee, as Supplemental Rent, for the cost thereof to Lessor, such Pass Through
Trustee or the Indenture Trustee, as the case may be; provided, however, that no
exercise by Lessor, a Pass Through Trustee or the Indenture Trustee, as the case
may be, of said option shall affect the provisions of this Lease, including the
provisions that failure by Lessee to maintain the prescribed insurance shall
constitute an Event of Default.
(d) Self-Insurance. Lessee may self-insure the risks required to be
insured against pursuant to this Section 11 under a program applicable to all
aircraft (whether owned or leased) in Lessee's fleet, but in no case shall the
aggregate amount of such self-insurance in regard to Sections 11(a) and 11(b)
hereof exceed for any calendar year, with respect to all of the aircraft
(whether owned or leased) in Lessee's fleet (including, without limitation, the
Aircraft) the lesser of (A) 50% of the highest replacement value of any single
aircraft in Lessee's fleet or (B) 1-1/2% of the average aggregate insurable
value (during the preceding calendar year) of all aircraft (including, without
limitation, the Aircraft) on which Lessee carries insurance. In addition to the
foregoing right to self-insure, Lessee (and any Sublessee) may self-insure to
the extent of any applicable mandatory minimum per aircraft (or, if applicable,
per annum or other period) hull or liability insurance deductible imposed by the
aircraft hull or liability insurer.
(e) Additional Insurance by Lessor and Lessee. Lessee (and any
Sublessee) may at its own expense carry insurance with respect to its interest
in the Aircraft in amounts in excess of that required to be maintained by this
Section 11. The Owner Participant or Lessor may carry for its own account at
its sole cost and expense insurance with respect to its interest in the
Aircraft, provided that such insurance does not prevent Lessee (or any
Sublessee) from carrying the insurance required or permitted by this Section 11
or adversely affect such insurance or materially increase the cost thereof.
(f) Indemnification by Government in Lieu of Insurance.
Notwithstanding any provisions of this Section 11 requiring insurance, Lessor
agrees to accept, in lieu of
62
[Second Amended and Restated
Lease Agreement (1993 747 A)]
insurance against any risk with respect to the Aircraft, indemnification from,
or insurance provided by, the United States Government or any agency or
instrumentality thereof, the obligations of which are supported by the full
faith and credit of the federal government of the United States, against such
risk in an amount which, when added to the amount of insurance against such risk
maintained by Lessee (or any Sublessee) shall be at least equal to the amount of
insurance against such risk otherwise required by this Section 11 (taking into
account self-insurance permitted by Section 11(d) hereof).
(g) Application of Payments During Existence of Default. Any amount
referred to in this Section 11 which is payable to or retainable by Lessee (or
any Sublessee) shall not be paid to or retained by Lessee (or any Sublessee) if
at the time of such payment or retention a Default or an Event of Default shall
have occurred and be continuing, but shall be held by or paid over to Lessor as
security for the obligations of Lessee under this Lease and, if such a Default
or an Event of Default shall have occurred and be continuing, applied against
Lessee's obligations hereunder as and when due. At such time as there shall not
be continuing any such Default or Event of Default, such amount shall be paid to
Lessee to the extent not previously applied in accordance with the preceding
sentence.
(h) Terms of Insurance Policies. Any policies carried in accordance
with Sections 11(a) and 11(b) hereof covering the Aircraft, and any policies
taken out in substitution or replacement for any such policies, (A) shall name
the Additional Insureds as additional insureds, or, if appropriate, loss payees,
as their respective interests may appear (but without imposing on any such party
liability to pay premiums with respect to such insurance), (B) may provide for
self-insurance to the extent permitted in Section 11(d) hereof, (C) shall
provide that if the insurers cancel such insurance for any reason whatever, or
if the same is allowed to lapse for non-payment of premium or if any material
change is made in the insurance which adversely affects the interest of any
Additional Insured, such lapse, cancellation or change shall not be effective as
to any Additional Insured for thirty days (ten days in the case of lapse for
nonpayment of premium and seven days in the case of war risk and allied perils
coverage) after receipt by such Additional Insured of written notice by such
insurers of such lapse, cancellation or change; provided, however, that if any
notice period specified above is not reasonably obtainable, such policies shall
provide for as long a period of prior notice as shall then be reasonably
obtainable, (D) shall provide that in respect of the respective interests of
each Additional Insured in such policies the insurance shall not be invalidated
by any action or inaction of
63
[Second Amended and Restated
Lease Agreement (1993 747 A)]
Lessee (or any Sublessee) or any other Person and shall insure the respective
interests of the Additional Insureds, as they appear, regardless of any breach
or violation of any warranty, declaration or condition contained in such
policies by Lessee (or any Sublessee) or by any other Person, (E) shall be
primary without any right of contribution from any other insurance which is
carried by any Additional Insured, (F) shall expressly provide that all of the
provisions thereof, except the limits of liability, shall operate in the same
manner as if there were a separate policy covering each insured, (G) shall waive
any right of the insurers to set-off or counterclaim or any other deduction,
whether by attachment or otherwise, in respect of any liability of any
Additional Insured, and (H) shall provide that (i) in the event of a loss
involving the Aircraft, Airframe, or an Engine for which proceeds are in excess
of $5,000,000 ($2,500,000 if the Aircraft is under sublease), the proceeds in
respect of such loss up to the amount of Stipulated Loss Value for the Aircraft
shall be payable to Lessor (or, so long as the Trust Indenture shall be in
effect, the Indenture Trustee), it being understood and agreed that in the case
of any payment to Lessor (or the Indenture Trustee) otherwise than in respect of
an Event of Loss, Lessor (or the Indenture Trustee) shall, upon receipt of
evidence reasonably satisfactory to it that the damages giving rise to such
payment shall have been repaired or that such payment shall then be required to
pay for repairs then being made, pay the amount of such payment, and any
interest or income earned thereon in accordance with Section 22 hereof, to
Lessee or its order, and (ii) the entire amount of any such loss for which
proceeds are $5,000,000 ($2,500,000 if the Aircraft is under sublease) or less
or the amount of any proceeds of any such loss in excess of Stipulated Loss
Value for the Aircraft shall be paid to Lessee or its order unless a Default or
an Event of Default shall have occurred and be continuing and the insurers have
been notified thereof by Lessor or the Indenture Trustee.
SECTION 12. Inspection. At reasonable times, and upon at least 10
days (or one day if a Section 14(a), 14(b), 14(d) (solely with respect to
Lessee's obligations under Section 7(a) or (b)(viii) or Section 8 hereof), 14(f)
or 14(g) Default or any Event of Default shall have occurred and be continuing)
prior written notice, the Owner Participant or the Indenture Trustee, or their
respective authorized representatives, may inspect the Aircraft (provided,
however, that such inspections by the Owner Participant and its authorized
representatives or the Indenture Trustee and its authorized representative
shall, in regard to each of the Owner Participant and the Indenture Trustee, be
limited to one inspection of the Aircraft during any consecutive twelve-month
period except during the continuance of a Default or an Event of Default when
such inspection right shall not be so
64
[Second Amended and Restated
Lease Agreement (1993 747 A)]
limited) and inspect and make copies of the books and records of Lessee and any
Sublessee required to be maintained by the FAA or the regulatory agency or body
of another jurisdiction in which the Aircraft is then registered relating to the
maintenance of the Aircraft (at the Owner Participant's or the Indenture
Trustee's risk and expense (unless a Section 14(a), 14(b), 14(f) or 14(g)
Default or any Event of Default shall have occurred and be continuing in which
case such inspection shall be at Lessee's expense), as the case may be) and
shall keep any information or copies obtained thereby confidential and shall not
disclose the same to any Person, except (A) to Lessor and the Pass Through
Trustees and to prospective and permitted transferees of Lessor's, the Owner
Participant's, any Pass Through Trustee's or the Indenture Trustee's interest
(and such prospective and permitted transferee's counsel, independent insurance
advisors or other agents) who agree to hold such information confidential, (B)
to Lessor's, the Owner Participant's, any Pass Through Trustee's or the
Indenture Trustee's counsel, independent insurance advisors or other agents who
agree to hold such information confidential, (C) as may be required by any
statute, court or administrative order or decree or governmental ruling or
regulation, (D) as may be necessary for purposes of protecting the interest of
any such Person or for enforcement of this Lease by Lessor or the Indenture
Trustee; provided, however, that any and all disclosures permitted by clauses
(C) and (D) above shall be made only to the extent necessary to meet the
specific requirements or needs of Persons for whom such disclosures are hereby
permitted. Any such inspection of the Aircraft shall be subject to Lessee's
safety and security rules applicable at the location of the Aircraft, shall be a
visual, walk-around inspection of the interior and exterior of the Aircraft and
shall not include opening any panels, bays or the like without the express
consent of Lessee (except in connection with a heavy maintenance visit when a
panel, bay or the like is scheduled or required to be open), which consent
Lessee may in its sole discretion withhold; provided that no exercise of such
inspection right shall interfere with the normal operation or maintenance of the
Aircraft by, or the business of, Lessee (or any Sublessee). Upon receipt by
Lessee of a written request from the Owner Participant specifying that the Owner
Participant desires to have an authorized representative observe the last
scheduled heavy maintenance visit to be performed on the Aircraft (or
substantially equivalent successor type of maintenance work) during the Term,
Lessee shall cooperate with the Owner Participant to enable the Owner
Participant's representative to observe such last scheduled heavy maintenance
visit to be performed on the Aircraft during the Term, including reasonable
advance notification to the Owner Participant of the time and place of such
scheduled heavy maintenance visit; provided that
65
[Second Amended and Restated
Lease Agreement (1993 747 A)]
the Owner Participant's authorized representative shall merely observe such
scheduled heavy maintenance visit, shall not interfere with or extend in any
manner the normal conduct or duration of the scheduled heavy maintenance visit,
and shall not be entitled to direct any of the work performed in connection with
such scheduled heavy maintenance visit. Neither the Owner Participant nor the
Indenture Trustee shall have any duty to make any such inspection nor shall any
of them incur any liability or obligations by reason of not making any such
inspection.
SECTION 13. Assignment. Except as otherwise provided in the
Operative Documents, Lessee will not, without the prior written consent of
Lessor, assign any of its rights hereunder. Lessor agrees that it will not
assign or convey its right, title and interest in and to this Lease or the
Aircraft except as provided in the Operative Documents. Subject to the
foregoing, the terms and provisions of this Lease shall be binding upon and
inure to the benefit of Lessor and Lessee and their respective successors and
permitted 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) and each such Event of
Default shall continue so long as, but only as long as, it shall not have been
remedied:
(a) Lessee shall not have made a payment of Basic Rent, Stipulated
Loss Value, Termination Value, EBO Price, Special Termination Value or Premium
within ten (10) days after the same shall have become due; or
(b) Lessee shall have failed to make a payment of Supplemental Rent
(other than Supplemental Rent referred to in paragraph (a) of this Section 14)
after the same shall have become due and such failure shall continue for fifteen
(15) days after Lessee's receipt of written demand therefor by the party
entitled thereto (provided that any failure to pay any amount owed by Lessee
under the Tax Indemnity Agreement or any failure of Lessee to pay to Lessor or
the Owner Participant when due any Excluded Payments shall not constitute an
Event of Default unless written notice is given by the Owner Participant to
Lessee and the Indenture Trustee that such failure shall constitute an Event of
Default); or
(c) Lessee shall fail to carry and maintain on or with respect to the
Aircraft (or cause to be carried and maintained)
66
[Second Amended and Restated
Lease Agreement (1993 747 A)]
insurance required to be maintained in accordance with the provisions of Section
11 hereof; or
(d) Lessee shall have failed to perform or observe (or caused to be
performed and observed) any other covenant or agreement to be performed or
observed by it under any Operative Document, and such failure shall continue
unremedied for a period of thirty days after written notice thereof by Lessor or
the Indenture Trustee; provided, however, that if Lessee shall have undertaken
to cure any such failure and, notwithstanding the reasonable diligence of Lessee
in attempting to cure such failure, such failure is not cured within said thirty
day period but is curable with future due diligence, there shall exist no Event
of Default under this Section 14 so long as Lessee is proceeding with due
diligence to cure such failure and such failure is in fact cured within 180
days); or
(e) any representation or warranty made by Lessee herein or in the
Participation Agreement or in the Redemption and Refinancing Agreement or any
document or certificate furnished by Lessee in connection herewith or therewith
or pursuant hereto or thereto (except the representations and warranties set
forth in Section 4 of the Tax Indemnity Agreement) shall prove to have been
incorrect in any material respect at the time made and shall remain material at
the time in question; provided, however, such incorrectness shall constitute a
default hereunder only if such incorrectness shall continue uncured for a period
of thirty (30) days after the receipt by Lessee of a written notice from Lessor
or the Indenture Trustee advising Lessee of the existence of such incorrectness;
or
(f) the commencement of an involuntary case or other proceeding in
respect of Lessee in an involuntary case under the federal bankruptcy laws, as
now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law in the United States or seeking the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of Lessee or for all or substantially all of
its property, or seeking the winding-up or liquidation of its affairs and the
continuation of any such case or other proceeding undismissed or unstayed for a
period of ninety (90) consecutive days or an order for relief under Chapter 11
of the Bankruptcy Code with respect to Lessee as debtor or any other order,
judgment or decree shall be entered in any proceeding by any court of competent
jurisdiction appointing, without the consent of Lessee, a receiver, trustee or
liquidator of Lessee, or for all or substantially all of its property, or
sequestering of all or substantially all of the property of Lessee and any such
order, judgment or decree or appointment or sequestration shall
67
[Second Amended and Restated
Lease Agreement (1993 747 A)]
be final or shall remain in force undismissed, unstayed or unvacated for a
period of ninety (90) days after the date of entry thereof; or
(g) the commencement by Lessee of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law in the
United States, or the consent by Lessee to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator
(or other similar official) of Lessee or for all or substantially all of its
property, or the making by Lessee of any assignment for the benefit of creditors
or Lessee shall take any corporate action to authorize any of the foregoing; or
(h) Lessee shall not be a Certificated Air Carrier;
provided, however, that, notwithstanding anything to the contrary contained in
this Section 14, any failure of Lessee to perform or observe any covenant,
condition, agreement or any error in a representation or warranty shall not
constitute an Event of Default if such failure or error is caused solely by
reason of any event that constitutes an Event of Loss so long as Lessee is
continuing to comply with all of the terms of Section 10 hereof.
SECTION 15. Remedies. Upon the occurrence of any Event of Default
and at any time thereafter so long as any such Event of Default shall not have
been remedied, Lessor may, at its option, declare by written notice to Lessee
this Lease Agreement to be in default; and at any time thereafter, so long as
such Event of Default shall be continuing, Lessor may do one or more of the
following with respect to all or any part of the Airframe and any or all of the
Engines as Lessor in its sole discretion shall elect, to the extent permitted
by, and subject to compliance with any mandatory requirements of, applicable law
then in effect; provided, however, that during any period the Aircraft is
subject to the Civil Reserve Air Fleet Program in accordance with the provisions
of Section 7(b) hereof and in the possession of the United States Government or
an instrumentality or agency thereof, Lessor shall not, on account of any Event
of Default, be entitled to do any of the following in such manner as to limit
Lessee's control under this Lease (or any Sublessee's control under any
Sublease) of any Airframe or any Engines, unless at least 60 days' (or such
lesser period as may then be applicable under the Military Airlift Command
program of the United States Government) prior written notice of default
hereunder shall have been given by Lessor by registered or certified mail to
Lessee (and any Sublessee) with a copy
68
[Second Amended and Restated
Lease Agreement (1993 747 A)]
addressed to the Contracting Office Representative for the Military Airlift
Command of the United States Air Force under any contract with Lessee (or any
Sublessee) relating to the Aircraft:
(a) upon the written demand of Lessor and at Lessee's expense,
cause Lessee to return promptly, and Lessee shall return promptly, the
Airframe or any Engine as Lessor may so demand to Lessor or its order in
the manner and condition required by, and otherwise in accordance with all
the provisions of, Section 5 as if such Airframe or Engine were being
returned at the end of the Term, or Lessor, at its option, may enter upon
the premises where all or any part of the Airframe or any Engine is located
and take immediate possession of and remove the same by summary proceedings
or otherwise, (and, at Lessor's option, store the same at Lessee's
premises until disposal thereof by Lessor), all without liability accruing
to Lessor for or by reason of such entry or taking of possession or
removing whether for the restoration of damage to property caused by such
action or otherwise;
(b) sell the Aircraft, the Airframe or any Engine at public or
private sale, as Lessor may determine, or otherwise dispose of, hold, use,
operate, lease to others or keep idle the Aircraft as Lessor, in its sole
discretion, may determine, all free and clear of any rights of Lessee,
except as hereinafter set forth in this Section 15;
(c) Lessor may hold, keep idle or lease to others the Aircraft,
the Airframe or any Engine or any Part thereof, as Lessor in its sole
discretion may determine, free and clear of any rights of Lessee and
without any duty to account to Lessee with respect thereto, except that
Lessee's obligation to pay Basic Rent with respect to the Aircraft on Lease
Period Dates subsequent to the date upon which Lessee shall have been
deprived of use of the Aircraft pursuant to this Section 15 shall be
reduced by the net proceeds, if any, received by Lessor from leasing the
Aircraft, the Airframe or any Engine to any Person other than Lessee;
(d) whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a), (b)
or (c) above with respect to the Aircraft, Lessor, by written notice to
Lessee specifying a payment date which shall be the Lease Period Date not
earlier than ten days from the date of such notice, may demand that Lessee
pay to Lessor, and Lessee shall pay Lessor, on the payment date so
specified, as liquidated
69
[Second Amended and Restated
Lease Agreement (1993 747 A)]
damages for loss of a bargain and not as a penalty (in lieu of the
installments of Basic Rent for the Aircraft due for Lease Periods
commencing on or after the Commencement Date or the Lease Period Date, as
the case may be, specified as the payment date in such notice), any unpaid
Basic Rent due on Lease Period Dates on or prior to the payment date so
specified plus whichever of the following amounts Lessor, in its sole
discretion, shall specify in such notice (with interest thereon at the Past
Due Rate from such specified payment date until the date of actual payment
of such amount): (i) an amount equal to the excess, if any, of the
Stipulated Loss Value for the Aircraft, computed as of the Lease Period
Date specified as the payment date in such notice over the aggregate fair
market rental value (computed as hereafter in this Section 15 provided) of
such Aircraft for the remainder of the Term, after discounting such
aggregate fair market rental value to present value as of the Lease Period
Date specified as the payment date in such notice at an annual rate equal
to the Past Due Rate; or (ii) an amount equal to the excess, if any, of the
Stipulated Loss Value for such Aircraft, computed as of the Lease Period
Date specified as the payment date in such notice, over the fair market
sales value of such Aircraft (computed as hereafter in this Section
provided) as of the Lease Period Date specified as the payment date in such
notice;
(e) in the event Lessor pursuant to paragraph (b) above, shall
have sold the Aircraft, Lessor, in lieu of exercising its rights under
paragraph (d) above with respect to such Aircraft, may, if it shall so
elect, 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, any unpaid Basic Rent with respect to the Aircraft due on or
prior to such date plus the amount of any deficiency between the net
proceeds of such sale (after deduction of all reasonable costs of sale) and
the Stipulated Loss Value of such Aircraft, computed as of the Stipulated
Loss Value date on or immediately following the date of such sale, together
with interest, if any, on the amount of such deficiency, at the Past Due
Rate, from the date of such sale to the date of actual payment of such
amount; and/or
(f) Lessor may rescind or terminate this Lease Agreement, and/or
may exercise any other right or remedy which may be available to it under
applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for breach hereof.
70
[Second Amended and Restated
Lease Agreement (1993 747 A)]
For the purposes of paragraph (c) above, the "fair market rental
value" or the "fair market sales value" of the Aircraft shall be the rental
value or sales value, as the case may be, which would be obtained in an arm's-
length transaction between an informed and willing lessee or purchaser, as the
case may be, under no compulsion to lease or purchase, as the case may be, and
an informed and willing lessor or seller in possession, as the case may be, in
each case based upon the actual condition and location of the Aircraft, which
value shall be determined by mutual agreement or, in the absence of mutual
written agreement, pursuant to an appraisal prepared and delivered by a
nationally recognized firm of independent aircraft appraisers nominated by
Lessor, and Lessor shall promptly notify Lessee of such nomination. Any
appraisal obtained pursuant to this Section 15 shall take into account then
prevailing market conditions for aircraft of the same type as the Aircraft. The
cost of such appraisal or appointment shall be borne by Lessee.
In addition, Lessee shall be liable, except as otherwise provided
above, without duplication of amounts payable hereunder, for any and all unpaid
Rent due hereunder before, after or during the exercise of any of the foregoing
remedies, for the payment of Premium, if any, and for all reasonable and actual
legal fees and other costs and expenses incurred by Lessor, the Indenture
Trustee, the Certificate Holders and the Owner Participant in connection with
any default or the exercise of remedies hereunder including the return of the
Airframe or any Engine in accordance with the terms of Section 5 or in placing
such Airframe or Engine in the condition and airworthiness required by such
Section.
At any sale of the Aircraft or any part thereof pursuant to this
Section 15, Lessor, the Indenture Trustee, a Certificate Holder or the Owner
Participant may bid for and purchase such property. Lessor agrees to give
Lessee at least 10 days' written notice of the date fixed for any public sale of
any Airframe or Engine or of the date on or after which will occur the execution
of any contract providing for any private sale. 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; and the
exercise or beginning of exercise by Lessor of any one or more of such remedies
shall not preclude the simultaneous or later exercise by Lessor of any or all of
such other remedies. No waiver by Lessor of any Default or Event of Default
shall in any way be, or be construed to be, a waiver of any future or subsequent
Default or Event of Default. To the extent permitted by applicable law, Lessee
hereby waives any right now or
71
[Second Amended and Restated
Lease Agreement (1993 747 A)]
hereafter conferred by statute or otherwise which may require Lessor to sell,
lease, or otherwise use the Aircraft or Parts thereof in mitigation of Lessor's
damages as set forth in this Section 15 or which may otherwise limit or modify
any of Lessor's rights and remedies in this Section 15.
SECTION 16. Lessee's Cooperation Concerning Certain Matters. (a)
Forthwith upon the execution and delivery of each Lease Supplement and Trust
Supplement from time to time required by the terms hereof and upon the execution
and delivery of any amendment to this Lease or to the Trust Agreement or Trust
Indenture, Lessee at its expense will cause such Lease Supplement, Trust
Supplement (and, in the case of the initial Lease Supplement and Trust
Supplement, this Lease, the Trust Agreement and the Trust Indenture as well) or
amendment to be duly filed and recorded, and maintained of record, in accordance
with the applicable laws of the government of registry of the Aircraft. In
addition, Lessee at its expense will promptly and duly execute and deliver to
Lessor such further documents and take such further action as Lessor may from
time to time reasonably request in order more effectively to carry out the
intent and purpose of this Lease and to establish and protect the rights and
remedies created or intended to be created in favor of Lessor and the Indenture
Trustee hereunder, including, without limitation, if requested by Lessor, at the
expense of Lessee, the execution and delivery of supplements or amendments
hereto, each in recordable form, subjecting to this Lease and the Trust
Indenture, any airframe or engine substituted for the Airframe or any Engine
pursuant to the terms thereof and the recording or filing of counterparts
thereof, in accordance with the laws of such jurisdictions as Lessor may from
time to time reasonably request.
(b) Lessee will furnish to Lessor, the Indenture Trustee, the Owner
Participant and, so long as the Pass Through Trustees are the Certificate
Holders, the Pass Through Trustees:
(i) Quarterly Statements - As soon as practicable after the end
of the first, second, and third quarterly fiscal periods in each fiscal
year of Lessee, and in any event within 60 days thereafter, duplicate
copies of:
(1) a consolidated balance sheet of Lessee as at the end of
such quarter setting forth in comparative form the amount for the end
of the corresponding period of the preceding fiscal year,
(2) consolidated statements of income and retained earnings
of Lessee for such quarterly period,
72
[Second Amended and Restated
Lease Agreement (1993 747 A)]
setting forth in comparative form the amount for the corresponding
period of the preceding fiscal year, and
(3) consolidated statements of cash flow of Lessee for the
portion of the fiscal year ending with said quarter, setting forth in
comparative form the amount for the corresponding period of the
preceding fiscal year;
(ii) Annual Statements - As soon as practicable after the end of
each fiscal year, and in any event within 120 days thereafter, duplicate
copies of:
(1) a consolidated balance sheet of Lessee as at the end of
such year, and
(2) consolidated statements of income and retained earnings
and of cash flow of Lessee for such year,
prepared in accordance with generally accepted accounting principles and
setting forth in each case in comparative form the figures for the previous
fiscal year and accompanied by an auditor's report of a firm of independent
certified public accountants of recognized national standing (which report
may be adverse, qualified or disclaim an opinion);
(iii) SEC Reports - Promptly upon their becoming available, one
copy of each financial statement, report, or proxy statement sent by UAL
Corporation to its shareholders generally, and of each regular or periodic
report and any prospectus (in the form in which it becomes effective) filed
by Lessee or UAL Corporation with the Securities and Exchange Commission or
any successor agency; and
(iv) Notice of Default or Claimed Default -Immediately upon an
officer of Lessee becoming aware of the existence of a Default or an Event
of Default (or that Lessor has given notice or taken any other action with
respect to an Event of Default or a claimed default under this Lease), a
written notice specifying the nature of the Default, Event of Default, or
claimed default and any such notice given or action taken by Lessor and
what action Lessee is taking or proposes to take with respect thereto.
(c) Commencing in 1994, on or before April 30 of each year during the
Term, Lessee will deliver to Lessor and the Indenture Trustee a certificate of
Lessee, signed by the
73
[Second Amended and Restated
Lease Agreement (1993 747 A)]
President, a Vice President, the Chief Financial Officer or the principal
accounting officer of Lessee to the effect that the signer is familiar with or
has reviewed the relevant terms of this Lease and the signer does not have
knowledge of the existence, as of the date of such certificate, of any condition
or event which constitutes a Default or an Event of Default.
SECTION 17. Notices. All notices required under the terms and
provisions hereof shall be in writing (including telex, telecopier or similar
writing) and shall be effective (a) if given by telecopier when transmitted and
the appropriate confirmation received; provided, that any such notice is
confirmed by certified mail, (b) if given by certified mail, three Business Days
after being deposited in the mails, (c) if given by telex, upon receipt by the
party transmitting the telex of such party's callback code at the end of such
telex (receipt of confirmation in writing not being necessary to the
effectiveness of any telex) and (d) if given by other means, when received or
personally delivered, addressed:
(i) if to Lessee, at P. O. Box 66100, Chicago, Illinois 60666(or,
if given by overnight delivery service, 1200 East Algonquin Road, Elk Grove
Township, Illinois 60007) Attention: Vice President and Treasurer,
telecopier number (708) 952-7117, or to such other address or telecopier
number as Lessee shall from time to time designate in writing to Lessor;
(ii) if to Lessor, at 225 Franklin Street, Boston, Massachusetts
02110 (or, if given by overnight delivery service) Two International Place,
Boston, Massachusetts 02110) Attention: _____________________, telecopier
number (617) 664-5367 or to such other address or telecopier number as
Lessor shall from time to time designate in writing to Lessee;
(iii) if to the Indenture Trustee, the Owner Participant or any
Pass Through Trustee, addressed to the Indenture Trustee, the Owner
Participant or such Pass Through Trustee at such address or telecopier
number as the Indenture Trustee, the Owner Participant or such Pass Through
Trustee shall have furnished by notice to Lessor and to Lessee, and, until
an address is so furnished, addressed to the Indenture Trustee, the Owner
Participant or such Pass Through Trustee at its address or telecopier
number set forth in Schedule I to the Participation Agreement; and
(iv) If to a Certificate Holder which is not a Pass Through
Trustee, addressed to such Certificate Holder
74
[Second Amended and Restated
Lease Agreement (1993 747 A)]
at its address stated in the Loan Certificate Register maintained pursuant
to the Trust Indenture.
A copy of each notice to Lessor shall be given by the sender thereof to the
Owner Participant.
SECTION 18. Net Lease; No Set-Off, Counterclaim, Etc.
(a) This Lease is a net lease, and it is intended that the Lessee
shall pay all costs and expenses of every character, whether seen or unforeseen,
ordinary or extraordinary or structural or non-structural, in connection with
the use, operation, maintenance, repair and reconstruction of the Airframe and
each Engine by the Lessee, including the costs and expenses particularly set
forth in this Lease. Except as set forth in this Section 18(a), the Rent which
Lessee is obligated to pay shall be paid without the necessity of notice or
demand and without set-off, counterclaim, abatement, suspension, deduction or
defense. If at any time that Lessee is required (a) to make a payment of
Termination Value or Fair Market Sales Value pursuant to Section 9 or Stipulated
Loss Value pursuant to Section 10, or (b) to pay the purchase price of the
Aircraft pursuant to Section 19(b), there shall exist a Lessor Lien with respect
to the Aircraft (including for this purpose Liens that would be Lessor Liens but
for the proviso to the definition of Lessor Liens) relating to the Owner
Participant (or Lessee shall have previously incurred a charge to discharge such
a Lessor Lien), then Lessee shall be entitled to deduct from the portion
required to be paid to the Owner Participant of such payment of Termination
Value or Fair Market Sales Value, or such payment of the purchase price, or any
combination thereof, as the case may be, an amount sufficient to so reimburse
Lessee or to reimburse Lessee for the cost of discharging such Lessor Lien, as
the case may be. Notwithstanding anything contained in this Section 18(a) to
the contrary, any payments of Fair Market Sales Value, Termination Value,
Stipulated Loss Value, Special Termination Value or EBO Price made to the
Indenture Trustee shall be in an amount which, together with any other amounts
payable hereunder, is at least sufficient to pay in full, as of the date of
payment thereof, the amount of principal of, and any accrued and unpaid interest
on, the outstanding Loan Certificates, together with Premium, if any, thereon
and amounts due the Certificate Holders under the Trust Indenture, if any, and,
to such extent, shall not be subject to set-off hereunder.
(b) Except as otherwise expressly provided, this Lease shall not
terminate nor shall the Lessee have any right to terminate this Lease or be
entitled to abatement, suspension, deferment or reduction of any Rent which the
Lessee is obligated
75
[Second Amended and Restated
Lease Agreement (1993 747 A)]
to pay hereunder, nor shall the obligations hereunder of the Lessee be affected,
by reason of (A) any damage to or the destruction or loss of all or any portion
of the Airframe or any Engine from whatever cause, (B) the loss or theft of any
portion of the Airframe or any Engine, (C) the taking of the Airframe or any
Engine or any portion thereof by condemnation, confiscation, requisition or
otherwise, (D) the prohibition, limitation or restriction of the Lessee's use of
all or any part of the Airframe or any Engine, or the interference with such use
by any Person, (E) the inadequacy or incorrectness of the description of any
portion of the Airframe or any Engine or the failure of this Lease to demise to
the Lessee the Airframe or any Engine or any portion thereof, (F) the Lessee's
acquisition or ownership of all or any part of the Airframe or any Engine
otherwise than pursuant to an express provision of this Lease, (G) any defect in
compliance with specifications, condition, merchantability, design,
airworthiness, quality, durability, operation or fitness for use for any purpose
of the Airframe or any Engine or any portion thereof, (H) any defect in the
title to, or registration of or the existence of any Liens or rights of others
whatsoever with respect to, the Airframe or any Engine or any portion thereof,
(I) any insolvency, bankruptcy, reorganization or similar proceedings by or
against any Sublessee or any Person (J) any breach, default or misrepresentation
by the Lessor, any Participant or the Indenture Trustee under this Lease or any
other Operative Document or any of the documents referred to herein or therein
or (K) any invalidity or unenforceability, in whole or in part, of this Lease or
any other Operative Document or any of the documents referred to herein or
therein, or any other infirmity herein or therein, or any lack of power or
authority of any party to this Lease or any other Operative Document or any such
documents to enter into the same, or (L) any other circumstance, happening or
act whatsoever, whether or not unforeseen or similar to any of the foregoing, it
being the intention of the parties hereto that the obligations of the Lessee
shall be absolute and unconditional and shall be separate and independent
covenants and agreements and shall continue unaffected unless and until this
Lease shall have terminated in accordance with its terms upon payment by Lessee
of all sums payable by Lessee hereunder and performance by Lessee of all
obligations required to be performed by Lessee hereunder.
The Lessee covenants that it will remain obligated under this Lease in
accordance with its terms and will take no action to terminate, rescind or avoid
this lease, notwithstanding the bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding-up or other
proceeding affecting the Lessor or the Owner Participant or any assignee of the
Lessor the Owner Participant or any other action
76
[Second Amended and Restated
Lease Agreement (1993 747 A)]
with respect to this Lease which may be taken in any such proceeding by any
trustee or receiver of the Lessor or the Owner Participant or of any assignee of
the Lessor or the Owner Participant or by any court or any of the foregoing
actions which may be taken by or against any of the Lessor's predecessors in
interest in the Airframe or any Engine.
If for any reason whatsoever this Lease shall be terminated in whole
or in part by operation of law or otherwise except as specifically provided
herein, Lessee nonetheless agrees, without limitation of the other rights and
remedies of Lessor hereunder, to pay to Lessor 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 terminated in whole or in part.
Except as expressly provided herein, the Lessee waives all rights now
or hereafter conferred by law (x) to quit, terminate, rescind or surrender this
Lease or the Airframe or any Engine or any part thereof, or (y) to any
abatement, suspension, deferment, return or reduction of the Rent.
SECTION 19. Renewal Options; Purchase Options; Valuation.
(a) Renewal Options.
(1) Fixed Renewal Terms. Not less than 180 days nor more than
365 days before the end of the Basic Term or any Fixed Renewal Term, Lessee
may, so long as no Section 14(a), (b), (d) (solely with respect to Lessee's
obligations under Section 7(a) or (b)(viii) hereof or Section 8 hereof),
(f) or (g) Default or any Event of Default has occurred and is continuing,
deliver to Lessor an irrevocable written notice (which at the option of
Lessee made at any time prior to 90 days prior to the end of the Basic Term
or such Fixed Renewal Term may be deemed a notice to exercise the
applicable purchase option in Section 19(b)) electing to renew this Lease
for a term or terms having a duration and at a Basic Rent as determined
below (each such term being herein referred to as a "Fixed Renewal Term").
At least 180 days, before the end of the Basic Term Lessee shall, as a
condition to its exercise of any option set forth in this Section 19(a)(1),
notify Lessor of its demand for an appraisal pursuant to the appraisal
procedures of Section 19(c) hereof. The appraiser(s) so appointed shall
determine the total useful life, the remaining useful life and the future
residual value of the Aircraft on the expiration date for a Fixed Renewal
Term as may be set by reason of the maximum period therefor in accordance
with the constraints set forth in the following two sentences. The
duration of
77
[Second Amended and Restated
Lease Agreement (1993 747 A)]
each Fixed Renewal Term shall be a period specified by Lessee before the
end of the Basic Term (or the preceding Fixed Renewal Term, as the case may
be) which is not less than one year and not more than three years (in
integral multiples of six months). Notwithstanding the foregoing, the
aggregate term of all Fixed Renewal Terms shall not exceed the lesser of
(a) three years and (b) the longest period of time (i) which would cause
the Term, after giving effect to all such Fixed Renewal Terms, to be equal
to at least 80% of the then estimated useful life of the Aircraft as
determined by the appraiser(s) and (ii) at the expiration of which the
residual value of the Aircraft, as estimated by the appraiser(s), would be
at least equal to 20% of Lessor's Cost (without taking into account
inflation or deflation during the Term). The annual Basic Rent payable
during each Fixed Renewal Term shall be equal to one-half of the average
annual Basic Rent payments for the Aircraft over the Basic Term.
(2) Fair Market Renewal Term. So long as no Section 14(a), (b),
(d) (solely with respect to Lessee's obligations under Section 7(a) or
(b)(viii) hereof or Section 8 hereof), (f) or (g) Default or any Event of
Default has occurred and is continuing, Lessee shall have the right to
renew this Lease for additional periods of at least one year commencing at
the end of the Basic Term, any Fixed Renewal Term or any prior Fair Market
Renewal Term for a Basic Rent equal to the Fair Market Rental Value of the
Aircraft for such period (each such renewal term, a "Fair Market Renewal
Term"); provided, however, each Fair Market Renewal Term shall be an
integral multiple of six months. Notwithstanding the foregoing, the
aggregate term for all Fair Market Renewal Terms shall not exceed three
years. Each such option to renew shall be exercised upon delivery by
Lessee to Lessor of irrevocable written notice of Lessee's intent to renew
the Lease at least 180 days (but not more than 365 days) prior to the
commencement of such Fair Market Renewal Term (which at the option of the
Lessee made at any time prior to 90 days prior to the anticipated
commencement of such Fair Market Renewal Term may be deemed a notice to
exercise the applicable purchase option in Section 19(b)).
(3) Waiver. If no written notice is delivered by Lessee to
Lessor pursuant to Section 19(a)(1) or (2) on or before the day specified
therefore, Lessee shall be deemed to have waived any right to renew this
Lease.
78
[Second Amended and Restated
Lease Agreement (1993 747 A)]
(4) Conditions Precedent, Payment of Basic Rent. At the end of
the Basic Term or any Renewal Term, if Lessee has elected to renew this
Lease as aforesaid, and provided that there shall not then have occurred
and be continuing a Default or an Event of Default and that all necessary
governmental authorizations and approvals shall have been received and that
Basic Rent for the Renewal Term has already been determined as above
provided, (i) this Lease shall continue in full force and effect during the
Renewal Term, and (ii) Basic Rent for such Renewal Term shall be payable in
semi-annual installments in advance or arrears as was the basis of the
Basic Rent being paid immediately prior to such Renewal Term, each such
installment being due and payable on each Lease Period Date occurring
during the Renewal Term.
(5) Termination Value; Stipulated Loss Value. The amounts which
are payable during any Renewal Term in respect of Termination Value as used
in Section 15 and Stipulated Loss Value with respect to the Aircraft shall
be determined on the basis of the Fair Market Sales Value of the Aircraft
as of the commencement of such Renewal Term, amortized on a straight-line
basis over such Renewal Term to the projected Fair Market Sales Value of
the Aircraft as of the expiration of such Renewal Term, as such Fair Market
Sales Value in each case is determined prior to the commencement of such
Renewal Term. In determining Fair Market Sales Value for purposes of
calculating Stipulated Loss Value and Termination Value for any Renewal
Term effect shall be given to the encumbrance on the Aircraft of any Fixed
Renewal Term available or in force.
(b) Purchase Options. Lessee shall have the option, so long as no
Section 14(a), (b), (f) or (g) Default or any Event of Default exists on the
date notice of exercise may be given, (i) with respect to subsections (1) and
(2) below, upon not more than 365 days and not less than 90 days irrevocable
prior written notice to Lessor and (ii) with respect to subsections (3) and (4)
below, upon not more than 365 days and not less than 180 days irrevocable prior
written notice to Lessor (which at the option of the Lessee made at any time
prior to 90 days prior to the relevant purchase date may be deemed a notice of
the applicable renewal option pursuant to Section 19(a)(1) or 19(a)(2) as the
Lessee may designate) (each a "Purchase Option Date"), to terminate this Lease
and to purchase the Aircraft:
(1) on any Special Purchase Option Date for a purchase price
equal to the greater of (x) the Fair Market Sales Value of the Aircraft on
such date or (y) the amount
79
[Second Amended and Restated
Lease Agreement (1993 747 A)]
determined by multiplying Lessor's Cost by the Special Termination Value
Percentage with respect to such Date (with respect to any such Date, the
"Special Termination Value");
(2) on the EBO Date for a purchase price equal to the amount
determined by multiplying Lessor's Cost by the EBO Percentage payable on
the EBO Date as provided in Exhibit H hereto (the "EBO Price");
(3) on the last Business Day of the Basic Term for a purchase
price equal to the Fair Market Sales Value of the Aircraft on such date;
and
(4) on the last Business Day of any Renewal Term for a purchase
price equal to the Fair Market Sales Value of the Aircraft on such date.
Notwithstanding the foregoing but subject to the provisions of Section 8(r) of
the Participation Agreement, the purchase price on any Purchase Option Date
shall be sufficient, together with all other amounts payable simultaneously by
Lessee, to pay in full the payments then required to be made on account of the
principal amount (and Premium, if any) of and interest on the Loan Certificates
then outstanding. Upon payment to Lessor in immediately available funds of the
full amount of the purchase price (less the principal amount of the Loan
Certificates assumed by the Lessee in accordance with Section 8(r) of the
Participation Agreement) plus all Basic Rent due on or prior to such purchase
date (unless denominated "advance" rental), all Supplemental Rent due on or
prior to such purchase date (including amounts equal to Premium, if any) and
payment of any other amounts then due hereunder (including all reasonable costs
or expenses of Lessor (including any applicable sales or transfer taxes) and the
Owner Participant in connection with such purchase), Lessor will transfer to
Lessee, without recourse or warranty (except as to the absence of Lessor Liens
(including for this purpose Liens that would be Lessor Liens but for the proviso
to the definition of Lessor Liens)), all of Lessor's right, title and interest
in and to the Aircraft.
(c) Valuation. At any time not earlier than 365 days prior to the
date on which Lessee may purchase an Aircraft pursuant to Section 19(b) hereof
or renew this Lease pursuant to Section 19(a) hereof, Lessee may deliver to
Lessor a revocable notice of its intent to exercise its renewal option or
purchase option. For all purposes of this Section 19, including the appraisal
referred to in this Section 19(c), in determining Fair Market Rental Value or
Fair Market Sales Value, the Aircraft shall be valued (i) as if in the condition
and otherwise in
80
[Second Amended and Restated
Lease Agreement (1993 747 A)]
compliance with the terms of Section 5 (but subject to Section 5(e)) upon a
return of the Aircraft in the United States and as if it had been maintained at
all times as required in accordance with Section 7(a)(1) and (2) and Section 8,
(ii) on the basis of the value which would obtain in an arm's-length transaction
between an informed and willing buyer or user or lessee (other than a lessee or
an Affiliate of a lessee currently in possession or a used equipment scrap
dealer) under no compulsion to buy or lease and an informed and willing seller
or lessor unaffiliated with such buyer-user or lessee and under no compulsion to
sell or lease, and (iii) in the case of such valuation for determining Fair
Market Rental Value, assuming such lessee would have substantially the same
obligations during the Fair Market Renewal Term as provided hereunder including
without limitation the obligations of Lessee to carry and maintain the insurance
required by Section 11 hereof. Upon receipt of such notice Lessor and Lessee
shall confer in good faith with a view to reaching agreement on the Fair Market
Rental Value or Fair Market Sales Value of the Aircraft. If the parties have
not so agreed by 240 days prior to the end of the Basic Term or the Renewal Term
in question, then the question shall be determined by an appraisal mutually
agreed to by two recognized independent aircraft appraisers, one of which
appraisers shall be chosen by Lessor and one by Lessee within five Business Days
after Lessor or Lessee shall have received written notice from the other party
of a demand that such an appraisal be made, which notice shall specify the
appraiser chosen by the party giving the notice or, if such appraisers cannot
agree on the amount of such appraisal within five Business Days after the end of
such five-day period, each shall render its own appraisal and shall by mutual
consent choose another appraiser within five Business Days after the end of such
five-day period. If, within such five-day period, such two appraisers fail to
appoint a third appraiser, then either Lessor or Lessee, on behalf of both, may
apply to the American Arbitration Association (or any successor organization
thereto) in Chicago, Illinois for the appointment of such third appraiser. The
decision of the third appraiser so appointed shall be given within ten Business
Days after the appointment of such third appraiser. As soon as the third
appraiser has delivered his appraisal, that appraisal shall be compared with the
appraisals given by the other two appraisers. If the determination of one
appraiser is more disparate from the average of all three determinations than
each of the other two determinations, then the determination of such appraiser
shall be excluded, the remaining two determinations shall be averaged and such
average shall be final and binding upon the parties hereto; otherwise the
average of all three determinations shall be final and binding upon the parties
thereto. Lessee and Lessor shall equally bear all expenses relating to such
appraisal procedure (other than an
81
[Second Amended and Restated
Lease Agreement (1993 747 A)]
appraisal procedure related to Lessee's purchase option under Section 19(b)(1),
the costs of which Lessee shall in all events bear), provided, that if such
transaction is not consummated (other than as the result of the fault of Lessor)
Lessee shall bear all expenses relating to such appraisal procedure.
SECTION 20. Security for Lessor's Obligation to Certificate Holders.
In order to secure the indebtedness evidenced by the Loan Certificates, Lessor
has agreed in the Trust Indenture, among other things, to assign to the
Indenture Trustee this Lease and to mortgage the Aircraft in favor of the
Indenture Trustee, subject to the reservations and conditions therein set forth.
To the extent, if any, 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 created through the
transfer or possession of any counterpart other than the original counterpart,
which shall be identified as the counterpart containing the receipt therefor
executed by the Indenture Trustee as indenture trustee under the Trust Indenture
on the signature page thereof. Lessee hereby accepts and consents to the
assignment of all Lessor's right, title and interest in and to this Lease
pursuant to the terms of the Trust Indenture. Lessee agrees to pay directly to
the Indenture Trustee (or, after receipt by Lessee of notice from the Indenture
Trustee of the discharge of the Trust Indenture, to Lessor), all amounts of Rent
(other than Excluded Payments) due or to become due hereunder and assigned to
the Indenture Trustee and Lessee agrees that the Indenture Trustee's right to
such payments hereunder shall be absolute and unconditional and shall not be
affected by any circumstance. Notwithstanding the foregoing assignment of this
Lease, the obligations of Lessor to Lessee to perform the terms and conditions
of this Lease shall remain in full force and effect. Lessee further
acknowledges that the Trust Indenture provides that so long as the Loan
Certificates are outstanding Lessor may not consent to any amendment,
modification or waiver to this Lease without the prior consent of the Indenture
Trustee (except as provided in Section 11.06 of the Trust Indenture) and Lessee
agrees to provide to the Indenture Trustee a copy of all notices, consents,
certificates or other information provided hereunder to Lessor.
SECTION 21. Lessor's Right to Perform for Lessee. If Lessee fails to
make any payment of Rent required to be made by it hereunder or fails to perform
or comply with any of its agreements contained herein, then (but in each case,
except in the case of failure to pay Rent or in the case of failure to maintain
insurance as required hereunder, no earlier than five Business Days after notice
as to the occurrence of such failure,
82
[Second Amended and Restated
Lease Agreement (1993 747 A)]
whether or not it shall yet constitute an Event of Default hereunder) Lessor may
itself make such payment or perform or comply with such agreement but shall not
be obligated hereunder to do so, and the amount of such payment and the amount
of the reasonable expenses of Lessor incurred in connection with such payment or
the performance of or compliance with such agreement, as the case may be,
together with interest thereon at the Past Due Rate, shall be deemed
Supplemental Rent, payable by Lessee upon demand.
SECTION 22. Investment of Security Funds; Liability of Lessor Limited.
(a) Investment of Security Funds. Any moneys held by Lessor as
security hereunder for future payments to Lessee shall, until paid to Lessee, be
invested by Lessor or, if the Trust Indenture shall not have been discharged, by
the Indenture Trustee, as the case may be, as Lessee (or in the event a Default
under Section 14(a), (b), (f) or (g) or an Event of Default has occurred and is
continuing, Lessor) may from time to time direct in writing (and in absence of a
written direction by Lessee, there shall be no obligation to invest such moneys)
in (i) obligations of, or guaranteed by, the United States Government or
agencies thereof, (ii) open market commercial paper of any corporation
incorporated under the laws of the United States of America or any State thereof
rated at least P-1 or its equivalent by Moody's Investors Service, Inc. or at
least A-1 or its equivalent by Standard & Poor's Corporation, (iii) certificates
of deposit issued by commercial banks organized under the laws of the United
States or of any political subdivision thereof having a combined capital and
surplus in excess of $200,000,000 which banks or their holding companies have a
rating of A or its equivalent by Moody's Investors Service, Inc. or Standard & Poor's Corporation; provided, however, that the aggregate amount at any one time
so invested in certificates of deposit issued by any one bank shall not exceed
5% of such bank's capital and surplus, (iv) U.S. dollar denominated offshore
certificates of deposit issued by, or offshore time deposits with, any
commercial bank described in (iii) or any subsidiary thereof and (v) repurchase
agreements with any financial institution having combined capital and surplus of
at least $200,000,000 with any of the obligations described in clause (i)
through (iv) as collateral. There shall be promptly remitted to Lessee or its
order (but no more frequently than monthly) any gain (including interest
received) realized as a result of any such investment (net of any fees, taxes,
commissions and other expenses, if any, incurred in connection with such
investment) unless a Section 14(a), (b), (d) (solely with respect to Lessee's
obligations under Section 7(a) or (b)(viii) or Section 8 hereof), (f) or (g)
Default or an Event of Default shall have occurred and be continuing. If a
Default
83
[Second Amended and Restated
Lease Agreement (1993 747 A)]
under Section 14(a), (b), (d) (solely with respect to Lessee's obligations under
Section 7(a) or (b)(viii) or Section 8 hereof), (f) or (g) or an Event of
Default shall have occurred and be continuing, Lessor or if the Trust Indenture
shall not have been discharged, the Indenture Trustee as assignee of Lessor,
shall hold any such gain as security for the obligations of Lessee under this
Lease and apply it against such obligations as and when due, and once all such
Defaults and Events of Default have been remedied any gain not so applied shall
be remitted to Lessee. Lessee shall be responsible for any net loss realized as
a result of any such investment and shall reimburse Lessor (or the Indenture
Trustee, as the case may be) therefor on demand.
(b) Liability of Lessor Limited. It is expressly agreed and
understood that all representations, warranties and undertakings of Lessor
hereunder shall be binding upon Lessor only in its capacity as trustee under the
Trust Agreement, and the institution acting as Lessor shall not be liable in its
individual capacity for any breach thereof except for its gross negligence or
willful misconduct or for breach of its covenants, representations and
warranties contained herein, to the extent covenanted or made in its individual
capacity.
SECTION 23. 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 unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. No term or provision of
this Lease may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by Lessor, Lessee and any assignee of Lessor's
rights hereunder. This Lease shall constitute an agreement of lease, and
nothing contained herein shall be construed as conveying to Lessee any right,
title or interest in the Aircraft except as a lessee only. The section and
paragraph headings in this Lease and the table of contents are for convenience
of reference only and shall not modify, define, expand or limit any of the terms
or provisions hereof and all references herein to numbered sections, unless
otherwise indicated, are to sections of this Lease. THIS LEASE HAS BEEN
DELIVERED IN THE STATE OF ILLINOIS AND SHALL IN ALL RESPECTS BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 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.
84
[Second Amended and Restated
Lease Agreement (1993 747 A)]
SECTION 24. Successor Trustee. Lessee agrees that in the case of the
appointment of any successor Owner Trustee pursuant to the terms of the Trust
Agreement, such successor Owner Trustee shall, upon written notice by such
successor Owner Trustee, succeed to all the rights, powers and title of Lessor
hereunder and shall be deemed to be Lessor and the owner of the Aircraft for all
purposes hereof without in any way altering the terms of this Lease or Lessee's
obligations hereunder. One such appointment and designation of a successor
Owner Trustee shall not exhaust the right to appoint and designate further
successor Owner Trustees pursuant to the Trust Agreement, but such right may be
executed repeatedly as long as this Lease shall be in effect.
SECTION 25. Bankruptcy. Lessee hereby acknowledges that Lessor and
the Indenture Trustee are entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to the Aircraft and that this Lease is a "lease"
within the meaning of said Section 1110, including that it is to be treated as a
lease for federal tax purposes. Lessee agrees not to take any position in
connection with any bankruptcy proceedings involving it that is inconsistent
with a lessor's rights under Section 1110 of the Bankruptcy Code or any
comparable or successor provision affording protection to lessors of aircraft.
* * *
85
[Second Amended and Restated
Lease Agreement (1993 747 A)]
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Second
Amended and Restated Lease Agreement to be duly executed as of the day and year
first above written.
STATE STREET BANK AND TRUST COMPANY, not in its
individual capacity, except as expressly
provided in Section 4 hereof, but solely as
Owner Trustee,
Lessor
By __________________________________
Vice President
UNITED AIR LINES, INC.,
Lessee
By __________________________________
Vice President and Treasurer
Receipt of this original counterpart of the foregoing Second Amended and
Restated Lease Agreement is hereby acknowledged on this _____ day of May,
1995./1/
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION
Indenture Trustee
By _________________________________
Authorized Officer
- --------------------
/1/This language contained in the original counterpart only.
86
[Second Amended and Restated
Lease Agreement (1993 747 A)]
EXHIBIT A
FIRST AMENDED AND RESTATED LEASE SUPPLEMENT NO. 1 (1993 747 A)
FIRST AMENDED AND RESTATED LEASE SUPPLEMENT No. 1 (1993 747 A), dated
May __, 1995, between STATE STREET BANK AND TRUST COMPANY, not in its individual
capacity, but solely as Owner Trustee under the First Amended and Restated Trust
Agreement (1993 747 A), dated as of May 1, 1995, between such Owner Trustee and
the Owner Participant referred to therein (such Owner Trustee, in its capacity
as such Owner Trustee being herein called "Lessor"), and UNITED AIR LINES, INC.
("Lessee").
Lessor and Lessee have heretofore entered into that certain Second
Amended and Restated Lease Agreement (1993 747 A), dated as of May 1, 1995,
relating to one Boeing 747-422 aircraft (herein called the "Lease" and the
defined terms therein being hereinafter used with the same meanings). The Lease
provides for the execution and delivery from time to time of Lease Supplements
for the purpose of leasing the Airframe and Engines under the Lease as and when
delivered by Lessor to Lessee in accordance with the terms thereof.
The Lease relates to the Airframe and Engines described below, and a
counterpart of the Lease is attached hereto, and made a part hereof, and this
Lease Supplement together with such attachment, is being filed for recordation
on the date hereof with the Federal Aviation Administration as one document./2/
The Lease relates to the Airframe and Engines described below, and a
counterpart of that certain Lease Agreement (1993 747 A) dated as of April 1,
1993 between Lessee and Wilmington Trust Company, as Original Lessor, attached
and made a part of Lease Supplement No. 1 (1993 747 A) dated April 20, 1993, has
been recorded by the Federal Aviation Administration on April 21, 1995, as one
document and assigned Conveyance No. FF08936./3/
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee under the Lease
and Lessee hereby accepts and leases from Lessor under the Lease the
following described Boeing Model
- -------------------
/2/This language for Lease Supplement No. 1.
/3/This language for other Lease Supplements.
87
[Second Amended and Restated
Lease Agreement (1993 747 A)]
747-422 aircraft (the "Aircraft"), which Aircraft as of the date hereof
consists of the following components:
(i) Airframe: U.S. Registration No. N189UA and
manufacturer's serial no. 26878; and
(ii) Engines: four (4) Pratt & Whitney Model PW4056 engines
bearing, respectively, manufacturer's serial nos. P727301, P727302,
P727303 and P727304 (each of which engines has 750 or more rated
takeoff horsepower or the equivalent of such horsepower).
2. The Delivery Date of the Aircraft was April 20, 1993. Except
as otherwise provided in the Lease, the Term for the Aircraft shall
commence on the Delivery Date and end on the Lease Expiry Date.
3. Lessee hereby confirms its agreement to pay Lessor Basic Rent
for the Aircraft throughout the Term therefor in accordance with Section 3
of the Lease.
4. Lessee hereby confirms to Lessor that Lessee has accepted the
Aircraft for all purposes hereof and of the Lease as being airworthy, in
good working order and repair and without defect or inherent vice in title,
condition, design, operation or fitness for use; provided, however, that
nothing contained herein or in the Lease shall in any way diminish or
otherwise affect any right Lessee or Lessor may have with respect to the
Aircraft against The Boeing Company, or any subcontractor or supplier of
The Boeing Company, under the Purchase Agreement or otherwise.
5. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
6. This Lease Supplement may be executed by the parties hereto
in separate counterparts, 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.
* * *
88
[Second Amended and Restated
Lease Agreement (1993 747 A)]
IN WITNESS WHEREOF, Lessor and Lessee have caused this First Amended and
Restated Lease Supplement to be duly executed on the day and year first above
written.
STATE STREET BANK AND TRUST
COMPANY, not in its individual
capacity, but solely as Owner
Trustee,
Lessor
By:
---------------------------------
Title:
------------------------------
UNITED AIR LINES, INC.,
Lessee
By:
---------------------------------
Vice President and Treasurer
Receipt of this original counterpart of the foregoing First Amended and
Restated Lease Supplement is hereby acknowledged on this _____ day of May,
1995./4/
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION
Indenture Trustee
By
----------------------------------
Authorized Officer
- ---------------------
/4/This language contained in the original counterpart only.
A-3
[Second Amended and Restated
Lease Agreement (1993 747 A)]
EXHIBIT B
BASIC RENT AND EXCESS AMOUNT SCHEDULE
-------------------------------------
ARREARS RENT ADVANCE RENT EXCESS AMOUNT
AS A PERCENTAGE AS A PERCENTAGE AS A PERCENTAGE
DATE OF LESSOR'S COST OF LESSOR'S COST OF LESSOR'S COST
- ---- ---------------- ---------------- ----------------
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT B TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.
[Second Amended and Restated
Lease Agreement (1993 747 A)]
EXHIBIT C
STIPULATED LOSS VALUE SCHEDULE
------------------------------
STIPULATED LOSS VALUE
DATE (as a percentage of Lessor's Cost)
- ---- ----------------------------------
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT C TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.
[Second Amended and Restated
Lease Agreement (1993 747 A)]
EXHIBIT D
TERMINATION VALUE SCHEDULE
--------------------------
TERMINATION VALUE
DATE (as a percentage of Lessor's Cost)
- ---- ----------------------------------
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT D TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.
[Second Amended and Restated
Lease Agreement (1993 747 A)]
EXHIBIT E
RENT RECALCULATION AND
INDEMNIFICATION VERIFICATION
----------------------------
Any recalculation of Basic Rent, Stipulated Loss Value percentages,
Termination Value percentages, Special Termination Value percentages and EBO
Percentage pursuant to the Lease and any calculation of any payment to the Owner
Participant or Lessee under the Tax Indemnity Agreement or Section 7(b) of the
Participation Agreement shall be determined by the Owner Participant, computed
on the basis of the same methodology and assumptions used by the Owner
Participant in determining the Basic Rent, Stipulated Loss Value percentages,
Termination Value percentages, Special Termination Value percentages and EBO
Percentage as of the Delivery Date except as such assumptions have been modified
pursuant to Section 3 of the Lease; provided, however, Lessee may request (A)
Capstar Partners, Inc., or any other financial advisor to Lessee to verify such
calculations but without any requirement that the Owner Participant disclose to
such advisor such methodology and assumptions and (B) if Lessee believes that
such calculations by the Owner Participant are in error then a nationally
recognized firm of accountants selected by the Owner Participant and reasonably
acceptable to Lessee (which may be the Owner Participant's independent public
accountants) shall be permitted to verify such calculations and the Owner
Participant will make available to such firm (subject to the execution by such
firm of a confidentiality agreement reasonably acceptable to the Owner
Participant) such methodology and assumptions and any changes made therein
pursuant to Section 3 of the Lease and any other information reasonably
necessary for such verification requested by such firm. In the event of a
verification under clause (B) of this Exhibit E the determination by such firm
of accountants shall be final. Lessee will pay the reasonable costs and expenses
of the verification under clause (B) of this Exhibit E; provided, however, if as
a result of such verification process the Basic Rent is adjusted and such
adjustment causes the Net Present Value of Rents to decline by 10 or more basis
points or there is a material error in the computation of the Stipulated Loss
Value percentages, Termination Value percentages, Special Termination Value
percentages or EBO Percentage in the Owner Participant's original statement in
the Owner Participant's favor, or indemnity payment is reduced by $10,000 or
more, the Owner Participant shall pay the reasonable costs and expenses of such
verification process. Such recalculated Basic Rent, Stipulated Loss Value
percentages, Termination Value percentages, Special Termination Value
percentages and EBO Percentage shall be set forth in an amendment to the Lease.
[Second Amended and Restated
Lease Agreement (1993 747 A)]
EXHIBIT F
SCHEDULE OF COUNTRIES AUTHORIZED
FOR DOMICILE OF PERMITTED SUBLESSEES
------------------------------------
Australia Luxembourg
Austria *Malaysia
Belgium Netherlands
*Brazil New Zealand
Canada Norway
Denmark *Portugal
Finland Singapore
France *South Korea
Germany *Spain
*Greece Sweden
*Iceland Switzerland
Ireland *Thailand
Italy United Kingdom
Japan *Venezuela
_______________________
* Designates "Restricted Country".
[Second Amended and Restated
Lease Agreement (1993 747 A)]
EXHIBIT G
SCHEDULE OF COUNTRIES AUTHORIZED
FOR AIRCRAFT REGISTRATION
--------------------------------
Australia Luxembourg
Austria *Malaysia
Belgium Netherlands
*Brazil New Zealand
Canada Norway
Denmark *Portugal
Finland Singapore
France *South Korea
Germany *Spain
*Greece Sweden
*Iceland Switzerland
Ireland *Thailand
Italy United Kingdom
Japan *Venezuela
_______________________
* Designates "Restricted Country".
[Second Amended and Restated
Lease Agreement (1993 747 A)]
EXHIBIT H
LESSOR'S COST, ENGINE COST, COMMENCEMENT DATE,
LEASE EXPIRY DATE, STIPULATED LOSS VALUE DATE,
EBO DATE, EBO PERCENTAGE, SPECIAL PURCHASE
OPTION DATES AND SPECIAL TERMINATION VALUE PERCENTAGES
(EBO Percentage, EBO Installment Percentages and
Special Termination Value Percentages expressed
as a percentage of Lessor's Cost)
--------------------------------------------------------------
Lessor's Cost: $127,500,000
Engine Cost: $ 7,000,000
Commencement Date: October 19, 1993
Lease Expiry Date: October 19, 2017
Stipulated Loss Value Date: the 19th day of each
calendar month during the
Interim Term, the Basic
Term and any Renewal Term
EBO Date: October 19, 2011
EBO Percentage: _____%
Special Purchase Special Termination
Option Dates: Value Percentages:
---------------- -------------------
_______________ _____%
_______________ _____%
_______________ _____%
[Second Amended and Restated
Lease Agreement (1993 747 A)]
EXHIBIT H
LESSOR'S COST, ENGINE COST, COMMENCEMENT DATE,
LEASE EXPIRY DATE, STIPULATED LOSS VALUE DATE,
EBO DATE, EBO PERCENTAGE, SPECIAL PURCHASE
OPTION DATES AND SPECIAL TERMINATION VALUE PERCENTAGES
(EBO Percentage, EBO Installment Percentages and
Special Termination Value Percentages expressed
as a percentage of Lessor's Cost)
------------------------------------------------------------------------
FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT H TO THE LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE LEASE AGREEMENT ON FILE WITH THE
FEDERAL AVIATION ADMINISTRATION.