CONTENTS

 

1.	DEFINITIONS AND CONSTRUCTION	1
2.	DELIVERY AND ACCEPTANCE	1
2.1	Delivery and Lease of Aircraft	1
2.2	Acceptance by Lessee	1
3.	TERM AND RENT	2
3.1	Term	2
3.2	Rent	2
3.3	Payments	4
4.	DISCLAIMER; CERTAIN AGREEMENTS OF LESSOR; SECTION 1110 MATTERS	4
4.1	Disclaimer of Warranties	4
4.2	Warranty Rights	6
4.3	Quiet Enjoyment	6
4.4	Investment of Funds Held as Security	6
4.5	Title Transfers by Lessor	7
4.6	Lease For U.S. Federal Income Tax Law Purposes; Section 1110 of Bankruptcy Code	8
5.	RETURN OF AIRCRAFT	9
5.1	Compliance with Annex B	9
5.2	Storage and Related Matters	9
5.3	Return of Other Engines	10
5.4	Failure to Return Aircraft	10
6.	LIENS	11
7.	REGISTRATION; OPERATION; POSSESSION AND SUBLEASING	13
7.1	Registration and Operation	13
7.2	Possession	14
7.3	Certain Limitations on Subleasing or Other Relinquishment of Possession	22
7.4	Security Assignment of Subleases	23
7.5	Lessor’s Interest in Certain Engines	23

 

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8.	MAINTENANCE; REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS, AND ADDITIONS; OTHER LESSEE COVENANTS	24
8.1	Maintenance; Replacement and Pooling of Parts; Alterations, Modifications, and Additions	24
8.2	Information, Certificates, Notices, and Reports	24
8.3	Lessee Undertakings in Other Documents	27
9.	LOSS, DESTRUCTION, REQUISITION, ETC.	27
9.1	Event of Loss to the Aircraft	27
9.2	Event of Loss to an Engine; Engine Exchanges	30
9.3	Conditions to any Replacement	31
9.4	Conveyance to Lessee	35
9.5	Application of Payments	35
9.6	Requisition of Aircraft for Use	36
9.7	Requisition of an Engine for Use	36
9.8	Application of Requisition Payments	37
9.9	Application of Payments During Default	37
10.	INSURANCE	37
10.1	Lessee’s Obligation to Insure	37
10.2	Insurance for Own Account	38
10.3	Indemnification by Government in Lieu of Insurance	38
10.4	Application of Insurance Proceeds	39
10.5	Application of Payments During Default	39
10.6	Lessor’s Right to Maintain Insurance	39
11.	INSPECTION	40
12.	ASSIGNMENT; SUCCESSOR LESSOR	41
12.1	In General	41
12.2	Successor Lessor	41
13.	LEASE EVENTS OF DEFAULT	42
13.1	Payments	42
13.2	Insurance	42
13.3	Corporate Existence and Commercial Airlines Operations	42
13.4	Certain Covenants	43
13.5	Other Covenants	43
13.6	Representations and Warranties	43

 

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13.7	Bankruptcy and Insolvency	44
13.8	Other Obligations	45
13.9	Judgments	45
14.	REMEDIES AND WAIVERS	45
14.1	Remedies	45
14.2	Limitations Under CRAF	49
14.3	Right to Perform for Lessee	50
14.4	Determination of Fair Market Rental Value and Fair Market Sales Value	50
14.5	Lessor Appointed Attorney-in-Fact	50
14.6	Remedies Cumulative	51
15.	LESSEE’S OBLIGATIONS; NO SETOFF, COUNTERCLAIM, ETC.	51
16.	ADDITIONAL RIGHTS AND OBLIGATIONS	53
17.	MISCELLANEOUS	53
17.1	Amendments	53
17.2	Severability	54
17.3	Third-Party Beneficiary	54
17.4	Reproduction of Documents	54
17.5	Counterparts	55
17.6	Notices	55
17.7	Governing Law; Jurisdiction and Venue; No Jury Trial	55
17.8	No Waiver	57
17.9	Survival	57
17.10	Entire Agreement	58

 

 

EXHIBITS, SCHEDULES AND ANNEXES

 

EXHIBIT A		Lease Supplement
EXHIBIT B		Aircraft Description
EXHIBIT C		Form of Return Acceptance Supplement
SCHEDULE 1	– Part A	Certain Terms
	– Part B	Additional Terms
SCHEDULE 2		Basic Rent

 

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SCHEDULE 3		Stipulated Loss Values
SCHEDULE 4 -		[RESERVED]
SCHEDULE 5		Notional Debt Amortization
SCHEDULE 6		Permitted Countries
SCHEDULE 7		Placards
ANNEX A	– Part 1	Definitions
	– Part 2	Additional Definitions
	– Part 3	Other Definitions
ANNEX B		Return Conditions
ANNEX C		Maintenance
ANNEX D		Insurance
ANNEX E	– Part 1	Certain Rights and Obligations
	– Part 2	Additional Rights and Obligations

 

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2.3                                Registration of International Interests

 

Lessee and Lessor intend that the lease of the Airframe and each Engine by Lessor to Lessee shall create International Interests vested in, and in favor of, Lessor, and accordingly, Lessor and Lessee shall cause the CTC

 

* The United States Registration Number of the Aircraft will be changed from N604AT to N483HA.

 

Registrations to be effected on the International Registry, and Lessee hereby consents to the CTC Registrations and agrees that Lessor shall be entitled to all of the benefits provided for under the CTC with respect such International Interests.

 

3.                                       TERM AND RENT

 

3.1                                Term

 

The Aircraft shall be leased hereunder for the Term, unless this Lease or the leasing of the Aircraft is earlier terminated in accordance with any provision of this Lease.

 

3.2                                Rent

 

3.2.1                      Basic Rent

 

During the Base Term, Lessee shall pay to Lessor, on each Payment Date, Basic Rent in the amount specified on Schedule 2 for such Payment Date.

 

3.2.2                      Supplemental Rent

 

Lessee shall pay to Lessor, or to whomever is entitled to it, any and all Supplemental Rent (including any Make-Whole Amount that is Supplemental Rent) when and as it becomes due and owing.  Lessee will also pay to Lessor, or to whomever is entitled to it, as Supplemental Rent, to the extent permitted by applicable Law, interest at the Past-Due Rate on any part of any amount of Rent (including Supplemental Rent) not paid by 2:00 p.m., New York time, on the date when due (so long as, in the case of any Person not a party to the Participation Agreement, Lessee had received timely notice of the account to which such payment was required to be made), for the period from and including the date on which the same was due to (but excluding) the date of payment in full.

 

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3.2.3                      Security Deposit

 

(a)                                   On or before the Delivery Date, Lessee shall pay to Lessor a security deposit (the “Security Deposit”) in the amount set forth on Schedule 1-Part A hereto.  The Security Deposit will be held by Lessor for the entire remaining Term of this Lease and may be commingled with other amounts of Lessor.

 

(b)                                  The Security Deposit shall be held by Lessor as security for the due and punctual payment by Lessee of all amounts payable by it, and the due and punctual observance and performance by Lessee of all of its obligations, hereunder and under each other Operative Agreement.  Lessee hereby assigns, transfers and pledges to Lessor, and hereby grants to Lessor, a first-priority security interest in, the Security Deposit to secure such payment, observance and performance.  Any interest earned on the Security Deposit shall be solely for the account of Lessor.  If an Event of Default shall occur and be continuing, then in addition to any other rights Lessor may have under applicable Law as a lessor, secured party or otherwise, or under this Lease or any other Operative Agreement, Lessor may set off against, use, apply or retain all or any portion of the Security Deposit in full or partial payment for amounts payable by Lessee under this Lease or any other Operative Agreement or for amounts necessary to compensate Lessor and the Indemnitees for their Expenses arising in connection with such Event of Default.  Any such use or application shall not, however, be deemed a cure by Lessee, or waiver by Lessor, of any Event of Default, unless so agreed by Lessor in writing.

 

(c)                                   So long as no Default or Event of Default shall have occurred and be continuing, that portion, if any, of the Security Deposit that has not previously been used or applied, or set off against, as provided for in this Lease, shall be returned to Lessee by wire transfer of immediately available Dollars to an account of Lessee located in the United States of America, specified in writing by Lessee to Lessor at least 10 Business Days prior to the date of such transfer, (A) on or before the date that is 20 Business Days after and excluding the date upon which the Aircraft is returned to Lessor in the condition, and in the manner, required under Annex B to this Lease and otherwise in accordance with the terms of this Lease, or (B) if an Event of Loss shall have occurred, and Lessee shall have elected, or shall be deemed to have elected, the option set forth in Section 9.1.2 hereof, then on or before the date that is 20 Business Days after and excluding the date upon which Lessor has

 

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been paid all amounts required to be paid under, and as provided in, Section 9.1.2(a) hereof.

 

3.3                                Payments

 

(a)                                   Payments of Rent by Lessee shall be paid by wire transfer of immediately available Dollars, not later than 2:00 p.m., New York City time, on the date when due, to the account of Lessor specified in Schedule 1 to the Participation Agreement (or to such other account in the United States as Lessor specifies to Lessee in writing at least 10 Business Days before such payment of Rent is due), or, in the case of any payment of Supplemental Rent expressly payable to a Person other than Lessor, to the Person that shall be entitled thereto, to such account in the United States as such Person specifies from time to time to Lessee at least 10 Business Days before such payment of Rent is due.

 

(b)                                  Except as otherwise expressly provided herein, whenever any payment of Rent shall be due on a day that is not a Business Day, such payment shall be made on the next day that is a Business Day, and, if such payment is made on such next Business Day, no interest shall accrue on the amount of such payment during such extension.

 

(c)                                   Except as expressly set forth herein, all computations of interest under this Lease shall be made on the basis of a year of 365/366 days and actual days elapsed.

 

(d)                                  The percentages set forth in Schedule 3 with respect to Stipulated Loss Value Dates have been computed on the assumption that the Basic Rent payable on the Payment Date corresponding to any such Stipulated Loss Value Date has not been paid to Lessor.

 

4.                                       DISCLAIMER; CERTAIN AGREEMENTS OF LESSOR; SECTION 1110 MATTERS

 

4.1                                Disclaimer of Warranties

 

Lessor leases and Lessee takes the Aircraft “as-is, where-is.” Lessee acknowledges and agrees that, as between Lessee and each of Lessor and Owner Participant, (a) the Airframe and each Engine are of a size, design, capacity, and manufacture selected by and acceptable to Lessee,

 

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(b) Lessee is satisfied that the Airframe and each Engine are suitable for their respective purposes, and (c) Lessor does not make, has not made, and shall not be deemed to have made, and will be deemed to have expressly disclaimed, and Lessee hereby waives, releases, and renounces, any warranty, representation, guaranty, liability, and obligation of Lessor, and any right, claim and remedy of Lessee against Lessor, express or implied, arising by operation of law, course of performance, course of dealing, usage of trade, or otherwise, as to:

 

(1)                                  the title, airworthiness, value, condition, design, operation, or any implied warranty of merchantability or fitness for use or for any particular purpose of the Airframe, any Engine, any Part, any data, or any other thing delivered, sold, or transferred hereunder,

 

(2)                                  the quality of the material or workmanship with respect to the Airframe, any Engine, any Part, any data, or any other thing delivered, sold, or transferred hereunder,

 

(3)                                  the absence of latent or any other defect or nonconformance in the Airframe, any Engine, any Part, any data, or any other thing delivered, sold, or transferred hereunder, whether or not discoverable, or

 

(4)                                  the absence of any actual or alleged infringement of any patent, trademark, or copyright, or the like.

 

Lessee further waives, disclaims, releases, and renounces any liability, right, claim, remedy, or obligation based on tort, including strict liability, whether or not arising from the negligence (whether active, passive, or imputed) of Lessor, any obligation, liability, right, claim, or remedy for loss of or damage to the Airframe, any Engine, any Part, any data, or any other thing delivered, sold, or transferred hereunder, or any other representation or warranty whatsoever, express or implied, with respect to the Airframe, any Engine, any Part, any data, or any other thing delivered, sold or transferred hereunder, except as expressly set forth in the Operative Agreements.

 

Nothing set forth in this § 4.1 shall limit or impair Lessee’s rights and interests under, and as set forth in, § 7.4.5(a) of the Participation Agreement.

 

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4.2                                Warranty Rights

 

Unless an 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, or made available, by Airframe Manufacturer or Engine Manufacturer, or any of their subcontractors or suppliers.  If an Event of Default shall have occurred and be continuing, and if at such time Owner Participant is an Affiliate of Airframe Manufacturer, then until such time as Lessor commences the exercise of any right or remedy in respect of such Event of Default (whether pursuant to Section 14 or otherwise, and which may include, without limitation, a suspension of performance by Lessor of any of its obligations under this Lease or any of the other Operative Agreements), Lessor shall not, without Lessee’s prior written consent (such consent not to be unreasonably withheld or delayed), waive or release any such rights under any such warranty made by Airframe Manufacturer.

 

4.3                                Quiet Enjoyment

 

So long as no Event of Default exists, Lessor shall not interfere with (or permit any Person acting at the instruction of, or on behalf of, Lessor or Owner Participant to interfere with) Lessee’s rights hereunder (or, subject always to § 7.2.7(d)(3), the rights of any Permitted Sublessee under a Permitted Sublease and any permitted sub-sub-lessee pursuant to § 7.2.7(j))to continued possession, use, and operation of, and quiet enjoyment of, the Aircraft during the Term. The foregoing, however, shall not be construed or deemed to modify or condition in any respect the obligations of Lessee pursuant to § 15, which obligations are absolute and unconditional.

 

4.4                                Investment of Funds Held as Security

 

4.4.1                      Investment

 

Any money required to be paid to, or retained or otherwise applied by, Lessor and that (i) is not required to be paid to Lessee pursuant to § 9.9 or § 10.5 or otherwise applied by Lessor (whether because a Special Default or an Event of Default exists or otherwise), or (ii) is held by Lessor pending payment to Lessee pursuant to § 9.5, § 9.8, § 10.5, Schedule 2 (with respect to the Commitment Fee and its application to Basic Rent) or otherwise, or (iii) is required to be paid to Lessee pursuant to § 9.5, § 9.8, or § 10.5 after completion of a replacement to be made pursuant to § 9.1, § 9.2, or § 9.3, shall, until paid to Lessee as provided in § 9 or § 10 or otherwise, or applied as provided herein or otherwise, be held by Lessor as security for the obligations of Lessee under this Lease and the other Operative Agreements (and Lessee

 

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hereby grants to Lessor a security interest in such money) and shall be invested by Lessor from time to time as directed in writing by Lessee (or, if Lessee does not so direct, by or as directed by Lessor in its sole discretion) and at Lessee’s risk and expense in Cash Equivalents so long as such Cash Equivalents specified by Lessee or Lessor (as applicable) can be acquired by Lessor using its commercially reasonable efforts.  Notwithstanding the foregoing, this Section 4.4.1 shall not apply in any respect to (i) the Security Deposit (Sections 3.2.3 and 14.1.6 hereof shall govern the payment, possession, use, application and repayment of the Security Deposit), or (ii) the Maintenance Reserves (Section F of Annex C hereto shall govern the payment, possession, use, application and repayment of the Maintenance Reserves).

 

4.4.2                      Payment of Gain or Loss

 

Any net gain (including interest received) realized as the result of investments pursuant to § 4.4.1 (net of any fees, commissions, and other reasonable expenses incurred in connection with such investment) shall be held, retained or applied in the same manner as the subject principal amount is to be held, retained or applied, as set forth in § 9, § 10, Schedule 2 (with respect to the Commitment Fee and its application to Basic Rent) or otherwise.  Lessee will promptly pay to Lessor, on demand, the amount of any loss realized as the result of any such investment (together with any fees, commissions, and other reasonable expenses incurred in connection with such investment), such amount so paid to be held and applied by Lessor as contemplated in § 4.4.1.

 

4.4.3                      Limitation of Liability

 

All investments under this § 4.4 shall be at Lessee’s risk and expense, and Lessor shall not be liable for any loss resulting from any investment made under this § 4.4 other than by reason of its willful misconduct or gross negligence. Any such investment may be sold (without regard to its maturity) by Lessor without instructions whenever such sale is necessary to make a distribution required by this Lease.

 

4.5                                Title Transfers by Lessor

 

(a)                                   If Lessor shall be required to transfer title to the Aircraft, the Airframe, or any Engine to Lessee or any other Person pursuant to § 5.3 or § 9 of this Lease, then

 

(1) Lessor shall (aa) transfer to Lessee or such other Person (as

 

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applicable) all of Lessor’s right, title, and interest in and to the Aircraft, the Airframe, or such Engine (as applicable), free and clear of all Lessor Liens attributable to Lessor or Owner Participant, (bb) [RESERVED], (cc) [RESERVED], and (dd) assign to Lessee or such other Person (as applicable), if and to the extent permitted, all claims, if any, for damage to the Aircraft, the Airframe, or such Engine, in each case on an “as is, where is, and with all faults” basis, free of all Lessor Liens attributable to Lessor or Owner Participant, and without recourse or warranty of any kind whatsoever (except as to the transfer described in clause (aa) above and as to the absence of such Lessor Liens), and

 

(2) Lessor shall promptly deliver to Lessee or such other Person (as applicable), a bill of sale and agreements of assignment, evidencing such transfer and assignment, and such other instruments of transfer, all in form and substance reasonably satisfactory to Lessor and Lessee (or such other Person, as applicable), as Lessee (or such other Person, as applicable) may reasonably request; and Lessor shall also promptly consent to the making of such filings on the International Registry as shall be necessary and sufficient to register any such transfer and assignment, and Lessor shall also consent to the discharge on the International Registry of any registrations of International Interests in favor of Lessor with respect to the subject Airframe or Engine(s) under this Lease.

 

(b)                                  Any assignment, sale, transfer, or other conveyance of the Aircraft, the Airframe, or any Engine by Lessor pursuant to this Lease shall be effective to transfer or convey all right, title, and interest of Lessor in and to such Aircraft, Airframe or Engine, as the case may be.  No purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency, or regularity of such assignment, sale, transfer, or conveyance, or as to the application of any sale or other proceeds with respect thereto by Lessor.

 

4.6                                Lease For U.S. Federal Income Tax Law Purposes; Section 1110 of Bankruptcy Code

 

(a)                                   Lessee and Lessor agree that this Lease is, and shall be treated as, a lease for U.S. federal income tax purposes of the Aircraft, Airframe, Engines, and Parts.

 

(b)                                  Lessee and Lessor intend that Lessor shall be entitled to the rights

 

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and benefits of Section 1110 (or any successor provision of federal bankruptcy Law), including the right to take possession of the Aircraft, Airframe, Engines, Parts and Returnable Records as provided in this Lease, and in any instance where more than one construction of the terms and conditions of this Lease or any other Operative Agreement is possible, or of the facts and circumstances underlying the transactions contemplated herein or therein, Lessor and Lessee agree that a construction which would create and preserve such rights and benefits shall control over any construction which would not create and preserve such rights and benefits.

 

(c)                                   Lessor and Lessee agree that, for all purposes of applicable Law, this Lease constitutes an agreement of lease, and nothing contained herein shall be construed as conveying to Lessee any right, title, or interest in the Aircraft, Airframe, Engines, or Parts except as a lessee only.

 

5.                                       RETURN OF AIRCRAFT

 

5.1                                Compliance with Annex B

 

Lessee shall comply with each of the provisions of Annex B, which provisions are hereby incorporated by this reference as if set forth in full herein.

 

5.2                                Storage and Related Matters

 

If Lessor gives written notice to Lessee, not less than 30 days nor more than 120 days before the end of the Term, requesting storage of the Aircraft upon its return hereunder, Lessee will provide Lessor (or cause Lessor to be provided) with outdoor parking facilities for the Aircraft for a period up to 180 days, starting on the date of such return, at Mojave, California or Marana, Arizona or Victorville, California, as Lessor may specify, or if Lessor elects not to store the Aircraft at any of such locations, then the Aircraft shall be stored at such storage facility in the 48 contiguous states of the United States as Lessee may select and which is used as a location for the storage of large commercial aircraft.  At Lessor’s written request, Lessee shall maintain insurance (if available) for the Aircraft during such storage period, provided, that Lessor shall reimburse Lessee for Lessee’s actual incremental out-of-pocket cost of providing such insurance for any period following the initial 90 days of such storage period.  Such storage shall be at Lessor’s risk, and Lessor

 

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shall pay all applicable storage fees, except that Lessee shall pay the parking fees for the initial 90 days of such storage period; provided, that Lessee’s obligation to provide parking shall be subject to Lessor’s entering into an agreement with the storage facility, before the storage period begins, providing that, as between the storage facility, Lessee, and Lessor, Lessor shall bear all maintenance charges (other than maintenance required as a result of Lessee’s failure to comply with the provisions of Annex B hereto) and other costs incurred (other than parking fees for the initial 90 days of such storage period).  In addition, upon the return of the Aircraft, Lessor shall have no obligation with respect to the amount of any fuel or oil contained in the fuel or oil tanks of the Aircraft, it being agreed, however, that Lessee shall not be obligated to return the Aircraft with any fuel or oil other than as required pursuant to § 7(13) of Annex B.

 

5.3                                Return of Other Engines

 

If any Engine owned by Lessor is not installed on the Airframe at the time of return hereunder, Lessee shall return the Airframe hereunder with a Replacement Engine meeting the requirements of, and in accordance with, § 9 and Annex B, as if the Engine replaced had suffered an Event of Loss on or before the return date and had been replaced on the return date. Thereupon, Lessor will transfer to Lessee the Engine constituting part of the Aircraft but not installed on the Airframe at the time of the return of the Airframe, and will deliver the documentation required therefor pursuant to § 4.5.

 

5.4                                Failure to Return Aircraft

 

If Lessee shall, for any reason whatsoever, fail to return the Aircraft and the Returnable Records at the time and in the manner specified herein, all obligations of Lessee under this Lease (including the obligation to pay Basic Rent, as provided in § 4 of Annex B) shall continue in effect with respect to the Aircraft until the Aircraft and Returnable Records are returned to Lessor; provided, that (i) this § 5.4 shall not be construed as permitting Lessee to fail to meet its obligation to return the Aircraft or the Returnable Records at the time and in the manner specified herein or constitute, or be deemed to constitute, a waiver of any Event of Default resulting from Lessee’s failure to return the Aircraft or the Returnable Records or otherwise, and (ii) if Lessee fails to return any Returnable Records at the time and in the manner specified herein, and if such failure does not materially impair, delay or otherwise interfere with the inspection, operation, maintenance, testing, repair, overhaul, marketing, storage, sale, lease or other disposition of the Aircraft, Airframe or any Engine,

 

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the payment of which either is not yet delinquent or is being contested in good faith by appropriate proceedings, if such Liens and such proceedings do not involve any material risk of the sale, forfeiture, or loss (including loss of use) of the Aircraft, the Airframe, any Engine, or any of the Returnable Records, or any interest therein or any discernible risk of criminal liability or any material risk of civil penalty against Lessor or any Owner Participant;

 

(f) Liens arising out of any judgment or award against Lessee or any Permitted Sublessee, if, within 45 days after the entry thereof, that judgment or award is discharged or vacated, or has its execution stayed pending appeal, or is discharged, vacated, or reversed within 45 days after the expiration of such stay, and if during any such 45-day period there is not, or any such judgment or award does not involve, any material risk of the sale, forfeiture, or loss (including loss of use)of the Aircraft, the Airframe, any Engine or any of the Returnable Records, or any interest therein or any discernible risk of criminal liability or any material risk of civil penalty against Lessor or any Owner Participant;

 

(g) any other Lien with respect to which Lessee or any Permitted Sublessee provides a bond, cash collateral, or other security that, in the reasonable opinion of Lessor, fully covers the obligations and liabilities associated with such Lien; and

 

(h) only at the sole discretion of, and only upon the prior written consent of, Lessor, any other Lien.

 

Lessee, at its own cost and expense, shall promptly take or cause to be taken such action as may be necessary duly to discharge and remove (by bonding or otherwise) any Lien not excepted above that arises in respect of the Aircraft, the Airframe, any Engine, any Part, any of the Returnable Records, or all or any other part of the Trust Estate during the Term, and shall promptly notify Lessor of, and provide to Lessor evidence of, such discharge and removal.

 

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7.                                       REGISTRATION; OPERATION; POSSESSION AND SUBLEASING

 

7.1                                Registration and Operation

 

7.1.1                      Registration and Recordation

 

Lessee shall cause the Aircraft to be, and at all times during the Term to remain, duly registered with the FAA under the Transportation Code, in the name of Lessor as owner and lessor (except to the extent that such registration under the Transportation Code is prevented or lost because of Lessor’s or Owner Participant’s failure to comply with the citizenship requirements for registration of the Aircraft under the Transportation Code).  Lessor shall execute and deliver all such documents as Lessee reasonably requests for the purpose of effecting and continuing such registration.

 

7.1.2                      Markings

 

On or reasonably promptly after the Delivery Date, Lessee will cause to be affixed to, and maintained in, the cockpit of the Airframe and on each Engine, in each case in a clearly visible location, a placard of a reasonable size and shape bearing the legend set forth in Schedule 7. Such placards may be removed temporarily, if necessary, in the course of maintenance of the Airframe or Engines. If any such placard is damaged or becomes illegible, Lessee shall promptly replace it with a placard complying with the requirements of this § 7.1.2. Lessee will not allow the name of any Person to be placed on the Airframe or any Engine as a designation that reasonably would be interpreted as a claim of ownership.

 

7.1.3                      Compliance With Laws

 

Lessee shall not, and shall not allow any other Person to, operate, use, maintain, service, test, inspect, repair, or overhaul the Aircraft (a) in violation of any Law binding on or applicable to Lessee or to the Aircraft, the Airframe, any Engine, or any of the Aircraft Documents, or to the operation, use, maintenance, service, repair, or overhaul of the Aircraft, the Airframe, or any Engine, or (b) in violation of any airworthiness certificate, license, or registration of any Government Entity relating to Lessee or to the Aircraft, the Airframe, or any Engine, except (1) immaterial and non-recurring violations with respect to which corrective measures are taken promptly by Lessee or a Permitted Sublessee (as applicable) upon discovery thereof, and (2) to the extent Lessee or any Permitted Sublessee is contesting the validity or application of any such Law or requirement relating to any such certificate, license, or registration in good faith in any reasonable manner which does not involve any material risk of the sale, forfeiture, or loss (including loss of use) of the Aircraft, the Airframe, any Engine, or any of the Returnable Records, or any interest therein, or any discernible risk of criminal liability or any material risk of civil penalty against Lessor or Owner Participant.

 

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7.1.4                      Operation

 

Lessee agrees not to operate, use, or locate the Aircraft, the Airframe, or any Engine, or allow the Aircraft, the Airframe, or any Engine to be operated, used, or located, (a) in any area excluded from coverage by any insurance required by the terms of § 10, except in the case of a requisition by the U.S. Government where the U.S. Government provides an indemnity in lieu of such insurance, or insurance from the U.S. Government, covering such area, in accordance with § 10.3, or (b) in any recognized or threatened area of hostilities unless fully covered in accordance with Annex D by war-risk insurance as required by the terms of § 10 (including § 10.3), unless in any case referred to in this § 7.1.4 the Aircraft is only temporarily operated, used, or located in such area as a result of an emergency, equipment malfunction, navigational error, hijacking, weather condition, or other similar unforeseen circumstances, so long as Lessee diligently and in good faith proceeds to remove the Aircraft from such area immediately.

 

7.1.5                      Grounding and Storage

 

Subject to § 7.1.4, and the other provisions hereof, Lessee may voluntarily store or ground the Aircraft, Airframe or any Engine or Part if and for so long as (i) the equipment so stored or grounded is fully covered by all insurance required to be maintained under § 10 and Annex D hereof, and (ii) such storage or grounding is effected and maintained in accordance with the Maintenance Program, and with Airframe Manufacturer’s or Engine Manufacturer’s recommended storage guidelines, as the case may be, and with all applicable Laws, including, without limitation, all rules, regulations and directives of the FAA.

 

7.2                                Possession

 

Lessee will not, without the prior written consent of Lessor, sublease or otherwise in any manner deliver, transfer, or relinquish possession of the Aircraft, the Airframe, or any Engine, or install any Engine, or permit any Engine to be installed, on any airframe other than the Airframe; provided, that, (i) subject to the provisions of § 7.3, and (ii) if, but only for so long as, all approvals, consents, or authorizations required to be obtained from the Aviation Authority or any other Government Entity, in connection with any sublease, delivery, transfer, or relinquishment of possession described below, have been obtained and remain in full force and effect, then Lessee may, without such prior written consent, do any of the following:

 

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7.2.1                      Interchange and Pooling

 

Subject or permit any Permitted Sublessee to subject any Engine to normal interchange agreements or pooling agreements or arrangements, in each case customary in the commercial airline industry and entered into in writing by Lessee, or such Permitted Sublessee, in the ordinary course of business of Lessee or such Permitted Sublessee; provided , no such agreement or arrangement contemplates or requires the transfer of title to such Engine, but if Lessor’s title to any such Engine is divested under any such agreement or arrangement, then such Engine shall be deemed to have suffered an Event of Loss as of the date of such divestiture, and consequently Lessee shall be required to replace such Engine with a Replacement Engine meeting the requirements of, and in accordance with, § 9.

 

7.2.2                      Testing and Service

 

Deliver or permit any Permitted Sublessee to deliver possession of the Aircraft, Airframe or any Engine to the manufacturer thereof or to any third-party maintenance provider, for testing, service, repair, maintenance, or overhaul work on the Aircraft, Airframe or any Engine, or, to the extent required or permitted by the terms of § D of Annex C, for alterations or modifications in or additions to the Aircraft, the Airframe or any Engine (and delivery of Engines may be accomplished by transport on licensed or bonded common carriers qualified in the shipping and transport of such items).

 

7.2.3                      Transfer to U.S. Government

 

Transfer, or permit any Permitted Sublessee to transfer, possession of the Aircraft, the Airframe, or any Engine to the U.S. Government pursuant to CRAF or otherwise, in which event Lessee shall immediately notify Lessor and Owner Participant in writing of any such transfer of possession and in such notification shall identify by name, address, and telephone numbers the Contracting Office Representative(s) for the Military Airlift Command of the United States Air Force to whom notices must be given and to whom requests or claims must be made; and if such transfer continues beyond the end of the Term, then the Aircraft, Airframe, or Engine(s), as the case may be, shall be deemed to have suffered an Event of Loss with the effect that Lessee would be required to pay, in accordance with § 9.6, the amounts specified in § 9.1.2.

 

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7.2.4                      Installation of Engines on Owned Airframes

 

Install or permit any Permitted Sublessee to install an Engine on an airframe owned by Lessee or such Permitted Sublessee, free and clear of all Liens except (a) Permitted Liens, (b) Liens that do not (at any time) apply to the Engines, and (c) the rights of third parties under normal interchange or pooling agreements and arrangements of the type permitted under § 7.2.1.

 

7.2.5                      Installation of Engines on Other Airframes

 

Install or permit any Permitted Sublessee to install an Engine on an airframe leased to Lessee or such Permitted Sublessee, or purchased or owned by Lessee or such Permitted Sublessee subject to a security agreement, conditional sale, or other secured financing arrangement, but only if (a) such airframe is free and clear of all Liens except (1) the rights of the parties to such lease or secured financing arrangement, covering such airframe, and (2) Liens of the type permitted by clauses (a) and (b) of § 7.2.4, and (b) Lessee or such Permitted Sublessee has received from the lessor, secured party, or conditional seller, in respect of such airframe, a written agreement (which may be a copy of the lease, security agreement, conditional sale agreement, or other agreement covering such airframe), whereby such Person agrees, for the effective and enforceable benefit of Lessor and Owner Participant, that neither it nor its successors or assigns will acquire or claim any right, title, or interest in, or Lien on, such Engine by reason of the installation of such Engine on such airframe at any time while such Engine is subject to this Lease or is owned by Lessor.

 

7.2.6                      Installation of Engines on Financed Airframes

 

Install or permit any Permitted Sublessee to install an Engine on an airframe owned by Lessee or such Permitted Sublessee, leased to Lessee or such Permitted Sublessee, or purchased or owned by Lessee or such Permitted Sublessee subject to a conditional sale or other security agreement under circumstances where neither § 7.2.4 nor § 7.2.5 applies; provided, that any such installation shall be deemed an Event of Loss with respect to such Engine as of the date of such installation, with the effect that Lessee shall be required to replace such Engine with a Replacement Engine meeting the requirements of, and in accordance with, § 9. Until § 9 has been fully complied with, Lessor’s interest in any

 

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such Engine shall continue in full force and effect.

 

7.2.7                      Subleasing

 

With respect to the Aircraft, the Airframe, or any Engine, if no Special Default exists, enter into a sublease with any Permitted Air Carrier, or (if neither Airframe Manufacturer nor any of its Affiliates is the Owner Participant) any Permitted Manufacturer, but only if:

 

(a)                                   Lessee provides written notice to Lessor at least 15 days (30 days, if the Sublessee is not a U.S. Air Carrier) before the sublease term begins;

 

(b)                                  at the time that Lessee enters into such sublease, such Permitted Air Carrier or Permitted Manufacturer shall not be subject to any bankruptcy, insolvency, liquidation, reorganization, dissolution, or similar proceeding, and shall not have substantially all of its property in the possession of any liquidator, trustee, receiver, or similar Person;

 

(c)                                   any such sublease shall provide for payment of rent, or any amount in lieu of rent, no less frequently than monthly and all such rent shall be payable in advance;

 

(d)                                  any such sublease

 

(1) shall end before the date that is three months prior to the expiration of the Term;

 

(2) shall include provisions for the registration, maintenance, operation, possession, inspection, and insurance of the Aircraft that are the same in all substantive respects as the applicable provisions of this Lease;

 

 (3) shall be expressly subject and subordinate to all the terms of this Lease and to Lessor’s rights, powers, and remedies hereunder, including Lessor’s rights under § 14 to repossess the Aircraft, Airframe, Engines, and Returnable Records, and to terminate such sublease if an Event of Default exists; and

 

(4) shall include no purchase option respecting the Aircraft;

 

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(e)                                   in connection with a sublease to a Permitted Foreign Air Carrier, all necessary governmental approvals (if any) required for the Aircraft, Airframe, or Engine(s) to be imported to the applicable jurisdiction shall have been obtained prior to commencement of any such sublease, and any foreign exchange permits necessary to allow all rent and other payments provided for under such sublease shall be in full force and effect; and Lessee shall have provided to Lessor (if the same is reasonably obtainable in such jurisdiction) a power-of-attorney, reasonably satisfactory in form and substance to Lessor, permitting Lessor to exercise all rights of Lessee under such sublease in such jurisdiction, upon the occurrence and continuation of an Event of Default;

 

(f)                                     in connection with a sublease to a Permitted Foreign Air Carrier or non-U.S. Permitted Manufacturer, Lessee furnishes to Lessor a favorable opinion, in form and substance reasonably satisfactory to Lessor, of counsel, selected by Lessee and reasonably satisfactory to Lessor, located in the country of domicile of such Permitted Foreign Air Carrier or non-U.S. Permitted Manufacturer, that

 

(1) the terms of such sublease are legal, valid, and binding obligations of the parties thereto, enforceable under the laws of such jurisdiction, subject to applicable bankruptcy, reorganization, or similar laws affecting creditors’ rights generally (provided that any such qualification, as applied to this part of the opinion, or to the opinion as a whole, shall not qualify, condition or otherwise limit the scope or application of that part of the opinion required under subparagraph (6) of this paragraph (f);

 

(2) it is not necessary for Owner Participant or Lessor to register or qualify to do business in such jurisdiction, if not already so registered or qualified, as a result of the proposed sublease;

 

(3) Lessor’s title to the Aircraft, Airframe, and Engines will be recognized and enforceable in such jurisdiction;

 

(4) such jurisdiction maintains normal diplomatic relations with the United States, and the Laws of such jurisdiction of domicile require fair compensation by the government of such jurisdiction, payable in a currency freely convertible into Dollars, for the loss of use of or title to the Aircraft, Airframe, or Engines in

 

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the event of the requisition by such government of such use or title (unless Lessee provides insurance in the amounts required with respect to hull insurance under § 10 covering the requisition of use of or title to the Aircraft, Airframe, or Engines by the government of such jurisdiction so long as the Aircraft, Airframe, or Engines are subject to such sublease);

 

(5) such Permitted Air Carrier’s or Permitted Manufacturer’s agreement that its rights under the sublease are subject and subordinate to all the terms of this Lease is enforceable against such Permitted Air Carrier or Permitted Manufacturer under applicable law;

 

(6) the Laws and the courts of such jurisdiction (aa) will recognize the rights and interests of Lessor (including Lessor’s title to the Aircraft), and of Owner Participant, as such rights and interests are described in, and are intended to be created under, the Operative Agreements, and (bb) will provide that there are no possessory rights in favor of Lessee, any Permitted Sublessee, or any third party (including any Government Entity) which would, upon bankruptcy or other default by Lessee or any Permitted Sublessee, prevent or delay the return of the Aircraft, Airframe, Engines, Parts or Returnable Documents to Lessor in accordance with and when required or permitted by the terms of this Lease, or, if such possessory rights exist, they are not materially greater than those available to lessees of newly manufactured large passenger aircraft (assuming such lessees to be U.S. Air Carriers) under then current United States Law (including Section 1110), and there are no procedural or other impediments to the return of the Aircraft to Lessor materially greater than under United States Law (including Section 1110), and there is no material impediment under the Laws of such jurisdiction to the enforceability (other than immaterial differences in procedures of enforcement) of the rights and remedies of Lessor provided for in and under the Operative Agreements;

 

(7) there is no tort liability imposed on lenders or lessors having no operational interest in the Aircraft, Airframe, or Engine(s), except liabilities that Lessee or a Permitted Sublessee has agreed to insure against at its expense to the reasonable

 

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satisfaction of Owner Participant; and

 

(8) neither Lessor nor Owner Participant shall be subjected to any adverse tax consequences as a result of such sublease, unless Lessee is required to indemnify such Person, under § 9.2 of the Participation Agreement (or otherwise agrees to indemnify such Person pursuant to a separate indemnity agreement reasonably satisfactory to such Person) against all such adverse tax consequences;

 

(g)                                  in connection with any sublease to any U.S. Air Carrier for a term of more than three months (including any permitted renewals or “back-to-back” or “replacement” lease arrangements), Lessee shall provide Lessor and Owner Participant an opinion of counsel (which may be from counsel to the subject sublessee, and may be the same opinion to be given to Lessee, with the addition of Lessor and Owner Participant as addressees of such opinion) in form and substance reasonably satisfactory to Lessor and Owner Participant as to, among other things, the due authorization, execution and delivery of such sublease (and as to such other matters, including, without limitation, the legality, validity, binding effect and enforceability of such sublease, as Lessee may, in using its commercially reasonable efforts, obtain for its benefit and the benefit of Lessor and Owner Participant); provided that any such opinion, as provided to Lessor and Owner Participant, shall be no less favorable in form or substance than any opinion given to Lessee or to any other party in connection with such sublease transaction;

 

(h)                                  Lessee furnishes to Lessor and Owner Participant evidence reasonably satisfactory to Lessor that the insurance required by § 10 remains in effect;

 

(i)                                      all necessary documents are duly filed, registered, or recorded in such public offices as are required fully to establish, protect, and preserve the title of Lessor in the Aircraft, Airframe, and Engines;

 

(j)                                      no Sublessee may sub-sublease or otherwise Transfer the Aircraft, the Airframe, or any Engine, except that a Permitted Manufacturer may sub-sublease to any Permitted Sublessee to whom a sublease would be permitted under this § 7.2; provided , that (i) such sub-sublease shall not permit any sub-sub-subleasing of the Aircraft, the Airframe, or any Engine (and Lessee shall ensure that the same does not

 

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assignment of its Permitted Sublease pursuant to § 7.4, and the registration on the International Registry of such assignment (as described above in clause (iv)(y)), in each case in a form reasonably satisfactory to Lessor.  Lessee shall pay all reasonable out-of-pocket costs and expenses (including reasonable counsel fees and disbursements) of Lessor and Owner Participant in connection with any sublease or other transfer pursuant to this § 7.2.  No sublease or other transfer of any Airframe, Engine, or Part shall in any way discharge or diminish any of Lessee’s obligations or liabilities under this Lease or under any other Lessee Operative Agreement.

 

7.3                                Certain Limitations on Subleasing or Other Relinquishment of Possession

 

Notwithstanding anything to the contrary in § 7.2:

 

(a)                                   The rights of any Person who receives possession of the Aircraft in accordance with § 7.2 shall be subject and subordinate to all the terms of this Lease, and to Lessor’s rights, powers, and remedies hereunder, including (1) Lessor’s right to repossess the Aircraft pursuant to § 14, (2) Lessor’s right to terminate and avoid such sublease, delivery, transfer, or relinquishment of possession if an Event of Default has occurred and is continuing, and (3) the right to require such Person to deliver the Aircraft, the Airframe, and Engines subject to such transfer forthwith if an Event of Default has occurred and is continuing.

 

(b)                                  Lessee shall remain primarily liable hereunder for the performance of all the terms of this Lease to the same extent as if such transfer had not occurred, and no transfer of possession of the Aircraft, the Airframe, any Engine, any Part, or any Aircraft Document shall in any way discharge or diminish any of Lessee’s obligations to Lessor hereunder or under any other Operative Agreement.

 

(c)                                   Lessee shall ensure that no sublease, delivery, transfer, or relinquishment permitted under § 7.2 shall affect the United States registration of the Aircraft.

 

(d)                                  Any event that constitutes, or would with the passage of time constitute, an Event of Loss under clauses (3), (4), (5), and (6) of the definition of Event of Loss set forth in Annex A hereto shall not be deemed to violate the provisions of § 7.2 hereof.

 

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(e)                                   No Wet Lease shall constitute a delivery, transfer, or relinquishment of possession for purposes of § 7.2, nor shall it be prohibited by the terms hereof.

 

7.4                                Security Assignment of Subleases

 

As security for Lessee’s due and punctual payment of all Rent and performance of all of its other covenants and obligations in the Operative Agreements, Lessee hereby grants to Lessor a first-priority security interest in all of Lessee’s right, title, and interest in and to each Permitted Sublease of any Aircraft, Airframe, or Engine, and all payments, including payments of rent, insurance proceeds (other than public liability insurance proceeds), and other amounts due or to become due thereunder.  Lessee shall enter into a “Sublease Assignment”, in form and substance reasonably satisfactory to Lessor, with respect to each Sublease.  In furtherance of the provisions of this § 7.4; Lessee agrees that each Permitted Sublease shall be accompanied by such Uniform Commercial Code financing statements, FAA filings, filings and registrations on the International Registry and other filings and documents as shall, in Lessor’s reasonable opinion, be required to perfect and protect the security interest of Lessor in such Permitted Sublease.

 

7.5                                Lessor’s Interest in Certain Engines

 

If Lessee or a Permitted Sublessee shall have received from the lessor, conditional seller, or secured party, in respect of any airframe leased to, or owned by, Lessee or any Permitted Sublessee and subject to a lease, conditional sale, or other security agreement, a written agreement complying with clause (b) of § 7.2.5, then Lessor agrees, for the benefit of each lessor, conditional seller, or secured party of any engine leased to, purchased by, or owned by Lessee or such Permitted Sublessee and subject to a lease, conditional sale, or other security agreement, that Lessor will not acquire or claim, as against such lessor, conditional seller, or secured party, any right, title, or interest in such engine as the result of the installation of such engine on the Airframe at any time while such engine is subject to such lease, conditional sale, or other security agreement and owned by such lessor or conditional seller or subject to a security interest in favor of such secured party.

 

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8.                                       MAINTENANCE; REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS, AND ADDITIONS; OTHER LESSEE COVENANTS

 

8.1                                Maintenance; Replacement and Pooling of Parts; Alterations, Modifications, and Additions

 

At all times during the Term, Lessee shall comply with (or cause to be complied with) each of the provisions of Annex C, which provisions are hereby incorporated by this reference as if set forth in full herein.

 

8.2                                Information, Certificates, Notices, and Reports

 

8.2.1                      Financial Information

 

To the extent not otherwise publicly available, Lessee will furnish to Lessor and Owner Participant:

 

(a)                                   within 60 days after the end of each of the first three fiscal quarters in each fiscal year of Lessee, a consolidated balance sheet of Lessee as of the end of such quarter, and related statements of income and cash flows for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, prepared in accordance with GAAP; provided, that while Lessee is subject to the reporting requirements of the Exchange Act, a copy of Lessee’s report on Form 10-Q for such fiscal quarter (together with all documents not available on EDGAR (or its successor) containing such financial information incorporated by reference therein, if not previously delivered to Lessor and Owner Participant) will satisfy this clause (a).

 

(b)                                  within 120 days after the end of each fiscal year of Lessee, a consolidated balance sheet of Lessee as of the end of such fiscal year and related statements of income and cash flows of Lessee for such fiscal year, in comparative form with the preceding fiscal year, prepared in accordance with GAAP, together with a report of Lessee’s independent certified public accountants with respect to their audit of such financial statements; provided, that while Lessee is subject to the reporting requirements of the Exchange Act, a copy of Lessee’s report on Form 10-K for such fiscal year (together with all documents not available on

 

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EDGAR (or its successor) containing such financial information incorporated by reference therein, if not previously delivered to Lessor and Owner Participant) will satisfy this clause (b).

 

8.2.2                      Annual Certificate

 

Within 120 days after the close of each fiscal year of Lessee, Lessee shall deliver to Lessor and Owner Participant an Officer’s Certificate of Lessee to the effect that such officer is familiar with or has reviewed or caused to be reviewed the relevant terms of this Lease and the other Operative Agreements, and has made, or caused to be made under his or her supervision, a review of the transactions and condition of Lessee during the preceding fiscal year, and that following such review such officer does not have knowledge of the existence as at the date of such certificate of any Default (or, if to such officer’s knowledge any Default existed or exists, specifying the nature and period of existence thereof and the action Lessee has taken or is taking or proposes to take with respect thereto).

 

8.2.3                      SEC Reports

 

To the extent not otherwise publicly available, Lessee will furnish to Lessor and Owner Participant:

 

(a)                                   promptly after filing with the SEC, copies of Lessee’s annual reports on Form 10-K (including all corresponding publicly-available annual reports to stockholders, if not previously furnished), if any, and quarterly reports on Form 10-Q, if any (in each case, excluding exhibits unless any such recipient requests otherwise); and

 

(b)                                  if provided by Lessee from time to time to aircraft lessors and other aircraft creditors generally, then (1) promptly after filing with the SEC, copies of current reports on Form 8-K, or any similar reports filed with the SEC (in each case, excluding exhibits unless any such recipient requests otherwise), and (2) promptly upon distribution thereof, copies of all periodic reports furnished by Lessee to its respective stockholders generally.

 

8.2.4                      Notice of Default

 

Lessee will furnish to each of Lessor and Owner Participant, immediately upon acquiring Actual Knowledge that a Default has occurred, a certificate of

 

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Lessee, signed by any such officer of Lessee, describing such Default in reasonable detail, with a statement describing the action Lessee has taken or is taking or proposes to take with respect thereto.

 

8.2.5                      Information for Filings

 

Upon the reasonable request of Lessor or Owner Participant, Lessee shall promptly furnish to Owner Participant and Lessor such information (other than with respect to the citizenship of Owner Participant and Lessor) within Lessee’s or any Permitted Sublessee’s possession, or reasonably available to or obtainable by Lessee or such Permitted Sublessee, as may be required to enable Lessor to file in a timely manner any reports required to be filed by it as lessor under the Lease or to enable Owner Participant to file in a timely manner any reports required to be filed by it as the beneficiary of the Trust Estate, in either case, with any Government Entity because of, or in connection with, the interest of Owner Participant or Lessor in the Aircraft, the Airframe, the Engines, this Lease, or any other part of the Trust Estate; provided, that, with respect to any such information which Lessee reasonably deems commercially sensitive or confidential, Owner Participant or Lessor (as applicable) shall afford Lessee a reasonable opportunity to seek from any such Government Entity a waiver of the obligation of Owner Participant or Lessor to file any such information, or shall consent to the filing of such information directly by Lessee in lieu of filing by Owner Participant or Lessor, and if any such waiver or consent is evidenced to the reasonable satisfaction of Owner Participant or Lessor (as applicable), then Lessee shall not be required to furnish such information to Owner Participant or Lessor.

 

8.2.6                      Other Information

 

Lessee shall promptly furnish to Lessor and Owner Participant from time to time such information with respect to Lessee, the Aircraft, the Airframe, the Engines, the Aircraft Documents, or Lessee’s financial condition, or otherwise relating to the transactions or matters contemplated herein and in the other Operative Agreements, in each case if and to the extent within Lessee’s or any Permitted Sublessee’s possession, or reasonably available to or obtainable by Lessee or such Permitted Sublessee, as Lessor or Owner Participant reasonably requests.

 

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8.3                                Lessee Undertakings in Other Documents

 

Lessee hereby agrees with Lessor that it shall perform the agreements, covenants, and indemnities set forth in the Participation Agreement and the other Operative Agreements, and hereby restates Lessee’s representations and warranties set forth in such documents, in each case as fully and to the same extent and with the same force and effect as if such agreements, covenants, indemnities, representations and warranties were set forth in full in this § 8.3.

 

9.                                       LOSS, DESTRUCTION, REQUISITION, ETC.

 

9.1                                Event of Loss to the Aircraft

 

9.1.1                      Notice and Election

 

(a)                                   If an Event of Loss to the Airframe (and any Engine(s) installed thereon) occurs, Lessee shall promptly (and in any event within 15 days after such occurrence, or, if later, within 15 days after the determination that an Event of Loss has occurred) notify Lessor and Owner Participant of such Event of Loss. Within 45 days after such occurrence or determination, Lessee shall give to Lessor and Owner Participant written notice of Lessee’s election to make payment in respect of such Event of Loss, as provided in § 9.1.2, or to replace the Airframe and any such Engine(s) as provided in § 9.1.3.

 

(b)                                  Lessee’s failure to give the notice of election described in § 9.1.1(a) shall be deemed to be an election of the option set forth in § 9.1.2. In addition, Lessee shall not be entitled to elect the option set forth in § 9.1.3 if, at the time Lessor or Owner Participant receives such notice from Lessee, a Special Default exists.

 

(c)                                   For purposes of § 9.1.2, an Event of Loss to the Airframe shall be deemed to constitute an Event of Loss to the Aircraft. For purposes of § 9.1.3, any Engine not actually suffering an Event of Loss shall not be required to be replaced.

 

(d)                                  If insurance proceeds are received, with respect to any Event of Loss, at any time prior to (1) the date of Lessee’s election, pursuant to paragraph (a) of this § 9.1, under § 9.1.2 or § 9.1.3, or (2) the date upon which any amounts are required to be paid by Lessee under § 9.1.2(a) or § 9.1.3(c), then such proceeds shall immediately be paid to Lessor to be held as security

 

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for Lessee’s obligations under this § 9.1.  Any amounts paid to Lessor pursuant to this paragraph shall be credited against any amounts subsequently payable to Lessor under § 9.1.2(a) or § 9.1.3(c), whichever is applicable.

 

9.1.2                      Payment of Loss and Termination of Lease

 

(a)                                   If Lessee elects, in accordance with § 9.1.1, to make payment in respect of any such Event of Loss, then Lessee shall pay, in the manner and in funds of the type specified in § 3.3, on the SLV Date next following the earlier of (x) the 150th day following the date of the occurrence of such Event of Loss, and (y) the second Business Day following the receipt of the insurance proceeds with respect to such occurrence (but in any event not earlier than the date of Lessee’s election under § 9.1.1 to make payment under this § 9.1.2)(such SLV Date, referred to herein as the “SLV Payment Date”), Lessee shall pay to Lessor:

 

(1)                                   all unpaid Basic Rent payable at any time before the SLV Payment Date (it being understood and agreed that if such SLV Payment Date is also a Payment Date, no Basic Rent shall be payable on and as of such Date); plus

 

(2)                                   the Stipulated Loss Value of the Aircraft computed as of the SLV Payment Date; plus

 

(3)                                   all Transaction Expenses (excluding brokerage commissions and similar expenses payable to any Person not retained by Lessee) incurred by Lessor and Owner Participant in connection with such Event of Loss and the related termination of the Lease; plus

 

(4)                                   to the extent not taken into account in the foregoing clauses (2) and (3), all Supplemental Rent due by Lessee to Lessor, Owner Participant or any other Person entitled thereto, and remaining unpaid under the Lease or any other Operative Agreement; plus

 

(5)                                   as provided in § 3.2.2 of the Lease, interest on the amounts specified in the foregoing clauses (1) through (4) at the Past-Due Rate from and including the date on which any such amount was due to the date of payment of such amount in full;

 

provided, that, (x) if a Payment Date shall occur at any time before the SLV Payment Date, then Lessee shall pay the Basic Rent due on such Payment Date, and (y) if a Payment Date shall occur on the SLV Payment Date, or on a

 

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date occurring after the SLV Payment Date but before the date of payment of the amounts specified above in this clause (a), then Lessee shall pay the Basic Rent due on such Payment Date, and thereupon such amounts payable under this clause (a) shall be reduced by the amount of such payment of Basic Rent.

 

(b)                                  Upon payment in full of all amounts described in the foregoing § 9.1.2(a), the Term for the Aircraft shall end, and Lessor will transfer the Aircraft to Lessee, as-is and where-is, and subject to any insurer’s salvage rights, but otherwise in the manner described in § 4.5.

 

9.1.3                      Replacement of Airframe and Engines

 

(a)                                   If Lessee elects, in accordance with § 9.1.1, to replace the Airframe and any Engine(s) suffering the Event of Loss, then Lessee shall, as promptly as possible and in any event within 180 days after the occurrence of such Event of Loss, convey or cause to be conveyed to Lessor, in compliance with § 9.3 and as replacement for the Airframe and any such Engine(s), title to a Replacement Airframe (which shall comply with § 9.1.3(b)), and for each such Engine a Replacement Engine, in each case free and clear of all Liens other than Permitted Liens not of record. If Lessee makes such election, but for any reason does not effect such replacement within such time period and in compliance with the requirements set forth in § 9.3, then Lessee shall be deemed to have initially made the election set forth in § 9.1.2 with the effect that Lessee shall pay, in the manner and in funds of the type specified in § 3.3, the amounts required under, and in accordance with, § 9.1.2.

 

(b)                                  Any such Replacement Airframe shall be an airframe that is the same model as the Airframe to be replaced thereby, or an improved model, and that has a value, utility, and remaining useful life (without regard to hours or cycles remaining to the next regular maintenance check) at least equal to, and is in at least as good operating condition as, the Airframe to be replaced thereby (assuming that such Airframe was of the value and utility and in the condition and repair required by the terms hereof immediately prior to the occurrence of the Event of Loss). Any such Replacement Engine shall meet the requirements of, and be conveyed by Lessee to Lessor in accordance with, § 9.2 (other than the notice requirement set forth in § 9.2.1).

 

(c)                                   If Lessee elects, in accordance with § 9.1.1, to replace the Airframe and any Engine(s) suffering the Event of Loss, and has not effected such replacement within 60 days after the Event of Loss occurred, then Lessee shall immediately pay to Lessor the amounts required pursuant to § 9.1.2(a), to be

 

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held as security for Lessee’s obligations under this § 9.1. If Lessee elects, under § 9.1.1, the replacement option in § 9.1.3, and pays the deposit required by the preceding sentence, and has not effected such replacement within 180 days, then Lessee shall be deemed to have originally elected the option set forth in § 9.1.2 and such deposit shall be applied to Lessee’s obligations under § 9.1.2, and Lessee shall pay any remaining amounts due under § 9.1.2.

 

9.2                                Event of Loss to an Engine; Engine Exchanges

 

9.2.1                      Notice

 

If an Event of Loss to an Engine occurs under circumstances in which no Event of Loss to the Airframe occurs, Lessee shall promptly (and in any event within 15 days after acquiring Actual Knowledge of such occurrence) notify Lessor and Owner Participant of such Event of Loss.

 

9.2.2                      Replacement of Engine

 

Upon the occurrence of any such Event of Loss, Lessee shall, within the time period set forth below, convey or cause to be conveyed to Lessor, in compliance with § 9.3 and as replacement for the Engine with respect to which such Event of Loss occurred, title to a Replacement Engine, free and clear of all Liens other than Permitted Liens not of record. Such Replacement Engine shall be an engine manufactured by Engine Manufacturer that is the same model as the Engine to be replaced thereby, or an improved model (but, in either event, the same model as the other Engine then subject to this Lease), and that has the same or better modification status as the Engine to be replaced thereby, and that is suitable for installation and use on the Airframe.

 

Any such Replacement Engine shall also be required to have performance and durability characteristics, and a value and utility at least equal to, and a remaining useful life (without regard to hours or cycles remaining to the next regular maintenance check) substantially comparable to, and to be in at least as good operating condition as, the Engine to be replaced thereby (assuming that such Engine was of the value and utility and in the condition and repair required by the terms hereof immediately prior to the occurrence of the Event of Loss).  Any such replacement shall be effected promptly after the occurrence of such Event of Loss but in any event within 60 days thereafter, or within such longer period (not to exceed 120 days thereafter) if such longer period is reasonably necessary in order to obtain a Replacement Engine on commercially reasonable terms.

 

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(d)                                  furnish an opinion or opinions of Lessee’s counsel (which may be Lessee’s internal legal department) reasonably satisfactory to Owner Participant and addressed to Lessor and Owner Participant to the effect that (1) such full warranty bill of sale referred to in § 9.3.1(a) constitutes an effective instrument for the conveyance of title to the Replacement Airframe or Replacement Engine, (2) in the case of a Replacement Airframe, Lessor will be entitled to the benefits of Section 1110 (or any successor provision of federal bankruptcy Law) with respect to such Replacement Airframe, (3) in the case of a Replacement Engine, Lessor will be entitled to the benefits of Section 1110 (or any successor provision of federal bankruptcy Law) with respect to such Replacement Engine, provided, that the opinion referred to in this clause (3) need not be delivered with respect to a Replacement Engine replaced as a result of an Event of Loss to the extent that, immediately before such replacement, (i) the benefits of Section 1110 (or any successor provision of federal bankruptcy Law) were not, solely by reason of a change in law, available to Lessor, and (ii) no engine that would qualify as a Replacement Engine, and that would afford to Lessor the benefits of Section 1110 (or any successor provision of federal bankruptcy Law), is available to Lessee on commercially reasonable terms, and (4) to such further effect as Lessor or Owner Participant may reasonably request;

 

(e)                                   furnish an opinion of Lessee’s aviation law counsel reasonably satisfactory to Owner Participant and addressed to Lessor and Owner Participant as to (1) the due registration of any such Replacement Airframe, the absence of Liens of record at the FAA and on the International Registry as to any such Replacement Airframe and Replacement Engine(s), and (2) the due filing for recordation of each supplement to this Lease with respect to such Replacement Airframe or Replacement Engine under the Transportation Code, and (iii) with respect to the full warranty bill of sale conveying to Lessor title in such Replacement Airframe or Replacement Engine, as the case may be, the registration on the International Registry of such bill of sale as a contract of sale and such other documents as may be necessary to reflect such transfer of title, and (iv) the registration on the International Registry of the interests of Lessor, in such Replacement Airframe or Replacement Engine, as the case may be, under this Lease as an International Interest, and (v) the due filing of any Financing Statements or other filings reasonably requested by Lessor with respect to such Replacement Airframe or Replacement Engine under applicable Law and as to such other matters as Owner Participant may reasonably request;

 

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(f)                                     with respect to any Replacement Airframe, furnish an opinion of tax counsel, selected by Owner Participant and reasonably satisfactory to Lessee, as to the tax consequences to Owner Participant of any such replacement;

 

(g)                                  with respect to the replacement of any Engine, furnish a certificate of a qualified aircraft engineer (who may be an employee of Lessee) certifying that such Replacement Engine is an engine manufactured by Engine Manufacturer that is the same model as the Engine to be replaced thereby, or an improved model (but, in either event, the same model as the other Engine then subject to this Lease), and that has the same or better modification status as the Engine to be replaced thereby, and that is suitable for installation and use on the Airframe, and that has performance and durability characteristics, and a value and utility at least equal to, and a remaining useful life (determined without regard to hours or cycles remaining to the next regular maintenance check) substantially comparable to, the Engine so replaced (assuming that such Engine was of the value and utility and in the condition and repair required by the terms hereof immediately prior to the occurrence of the Event of Loss);

 

(h)                                  with respect to the replacement of the Airframe, furnish a certified report of a qualified independent aircraft Appraiser, reasonably satisfactory to Owner Participant, setting forth such Appraiser’s opinion as to the fair market value, as of the date of conveyance hereunder, of such Replacement Airframe, and certifying that such Replacement Airframe has performance and durability characteristics, and a value and utility (including equivalent current value and estimated residual value at the end of the Term at least equal to, and a remaining useful life substantially comparable to,  the Airframe so replaced (assuming that the Airframe was of the value and utility and in the condition and repair required by the terms hereof immediately prior to the occurrence of the Event of Loss);

 

(i)                                      assign to Lessor the benefit of all assignable manufacturers, and vendors, warranties with respect to such Replacement Airframe and such Replacement Engine(s), provided that Lessor shall, on the terms set forth in  § 4.2, reassign to Lessee the benefits of such warranties during the Term;

 

(j)                                      furnish Lessor and Owner Participant with an Officer’s Certificate of Lessee certifying compliance with this § 9 and, with respect to the replacement of the Airframe, to the effect that, upon consummation of such replacement, no Special Default will exist; and

 

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(k)                                   take such other action and furnish such other certificates and documents as Lessor or Owner Participant reasonably requests in order that such Replacement Airframe and any such Replacement Engine(s) be properly titled in Lessor free and clear of all Liens (except Permitted Liens not of record), and leased hereunder, to the same extent as initially required under the Operative Agreements with respect to the Airframe and any Engine(s) so replaced.

 

Lessee shall cause an airworthiness certificate, with respect to such Replacement Airframe, to be duly issued under the Transportation Code promptly after such substitution.

 

9.3.2                      Other Conditions

 

Lessee shall not be entitled to replace the Airframe under § 9.1.3 and this § 9.3, and shall be deemed to have initially made the election set forth in § 9.1.2, if at the time of such replacement

 

(a)                                   any Special Default exists; or

 

(b)                                  under applicable Law and notwithstanding any actions by Lessor and Lessee under § 9.3.3(a), Lessor shall for any reason not be entitled to the benefits of Section 1110 with respect to such Replacement Airframe or with respect to any Replacement Engine which replaces an Engine installed on the Airframe at the time of such Event of Loss.

 

9.3.3                      Other Obligations

 

(a)                                   Lessor and Lessee agree that, when and after any Replacement Airframe becomes the Airframe hereunder, and when and after any Replacement Engine becomes an Engine hereunder, this Lease shall continue to be, and shall be treated as, a lease for U.S. federal income tax purposes of such Replacement Airframe and such Replacement Engine. Without limiting the foregoing, Lessee and Lessor intend that Lessor shall, in all events, be entitled to the rights and benefits of Section 1110 (or any successor provision of federal bankruptcy Law) with respect to any Replacement Airframe or Replacement Engine (unless, with respect to a Replacement Engine replaced as a result of an Event of Loss, immediately before such replacement, (i) the benefits of Section 1110 (or any successor provision of federal bankruptcy Law) shall not, solely by reason of a change in law, be available to Lessor, and (ii) no engine that would qualify as a Replacement Engine, and that would afford to

 

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Lessor the benefits of Section 1110 (or any successor provision of federal bankruptcy Law), is available to Lessee on commercially reasonable terms), and Lessee and Lessor shall cooperate and take such action as the other may reasonably request so as to ensure that Lessor shall be entitled to such rights and benefits.

 

(b)                                  No Event of Loss to an Engine, or to an Airframe, shall result in, or otherwise allow or permit (other than as provided in § 9.1.2(b)), any reduction, deferral, discharge, or other change in the timing or amount of any Rent payable by Lessee hereunder or any other amount payable by Lessee under any other Operative Agreement, and (subject to such § 9.1.2(b)) Lessee shall pay all such Rent and other amounts as though such Event of Loss had not occurred.

 

9.4                                Conveyance to Lessee

 

Upon full compliance by Lessee with the applicable terms of §§ 9.1.3, 9.2, and 9.3, Lessor will transfer to Lessee the Airframe or Engine(s), as applicable, with respect to which such Event of Loss occurred, in accordance with § 4.5.

 

9.5                                Application of Payments

 

Any amounts  received at any time by Lessor, Lessee, or any Permitted Sublessee, in respect of any Event of Loss (it being understood that amounts received in respect of property damage or loss not constituting an Event of Loss are provided for in § 10), from or on behalf of (i) any Government Entity providing any insurance or indemnity required to be maintained by Lessee pursuant to § 10.3, or (ii) any insurer providing any insurance required to be maintained by Lessee pursuant to § 10, shall in each such case be paid over to and held by Lessor, to the extent provided in § B of Annex D, and shall be applied as follows:

 

9.5.1                      Replacement of Airframe and Engines

 

If such amounts are received with respect to the Airframe or any Engine(s) installed thereon at the time of such Event of Loss, upon Lessee’s compliance with the applicable terms of § 9 with respect to the Event of Loss for which such amounts are received, such amounts shall, subject to § 9.9, be paid over to, or (if received by Lessee after such compliance) retained by, Lessee.

 

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9.5.2                      Loss of Engine

 

If such amounts are received with respect to an Engine (other than an Engine installed on the Airframe when the Airframe suffers an Event of Loss), upon Lessee’s compliance with the applicable terms of § 9 with respect to the Event of Loss for which such amounts are received, such amounts shall, subject to § 9.9, be paid over to, or (if received by Lessee after such compliance) retained by, Lessee.

 

9.5.3                      Payment of Loss

 

If such amounts are received, in whole or in part, with respect to the Airframe, and Lessee makes, has made or is deemed to have made the election set forth in § 9.1.2, such amounts shall be applied as follows:

 

(a)                                   first, if the sum described in § 9.1.2 has not then been paid in full by Lessee, such amounts shall be applied by to the extent necessary to pay in full such sum; and

 

(b)                                  second, the remainder, if any, shall, subject to § 9.9, be paid to Lessee.

 

9.6                                Requisition of Aircraft for Use

 

If any Government Entity requisitions the use of the Airframe and the Engines or engines installed thereon, and if the requisition does not constitute an Event of Loss, Lessee shall promptly notify Lessor and Owner Participant of such requisition, and all of Lessee’s obligations under this Lease shall continue to the same extent as if such requisition had not occurred; provided, that, if the Airframe and Engines or engines installed thereon are not returned to Lessor by Lessee at the end of the Term, then the Aircraft shall be deemed to have suffered an Event of Loss and Lessee shall be deemed to have made the election set forth in § 9.1.2 with the effect that Lessee shall be obligated to pay the Stipulated Loss Value and all other amounts payable pursuant to § 9.1.2 with respect to the Aircraft on the last day of the Term.

 

9.7                                Requisition of an Engine for Use

 

If any Government Entity requisitions for use any Engine but not the Airframe, Lessee will replace such Engine by complying with § 9.2 and § 9.3 to the same extent as if an Event of Loss with respect to that Engine had occurred, and any payments received by Lessor or Lessee from such

 

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Government Entity with respect to such requisition shall be paid or retained in accordance with § 9.5.2.

 

9.8                                Application of Requisition Payments

 

All payments received by Lessor or Lessee, or any Permitted Sublessee, from any Government Entity for the use of the Airframe and Engine(s) or engine(s) installed thereon during the Term shall be paid over to, or retained by, Lessee, and all payments received by Lessor or Lessee from any Government Entity for the use of the Airframe and Engine(s) or engine(s) installed thereon after the Term shall be paid over to, or retained by, Lessor; provided, that, if such requisition constitutes an Event of Loss, then all such payments shall be paid over to Lessor, and held and applied as provided in § 9.5.

 

9.9                                Application of Payments During Default

 

Any amount described in this § 9 that is payable or creditable to, or retainable by, Lessee shall not be paid or credited to, or retained by, Lessee if a Special Default exists when such payment, credit, or retention would otherwise occur, but shall instead be held by or paid over to Lessor as security for Lessee’s obligations under the Operative Agreements, and shall be invested pursuant to § 4.4 hereof, unless and until such amount is applied, at the option of Lessor, from time to time during the existence of a Special Default, to Lessee’s obligations under the Operative Agreements as and when due (any such application shall be made to such Lessee obligations as Lessor determines in its sole discretion).  If and when no Special Default exists, such amount shall be paid to Lessee to the extent not previously applied in accordance with this § 9.9.

 

10.                                INSURANCE

 

10.1                         Lessee’s Obligation to Insure

 

Lessee shall comply with, or cause to be complied with, each of the provisions of Annex D, which provisions are hereby incorporated by this reference as if set forth in full herein.

 

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10.2                         Insurance for Own Account

 

Nothing in this § 10 shall limit or prohibit (a) Lessee from maintaining the policies of insurance required under Annex D with higher limits than those specified in Annex D, or (b) Lessor or Owner Participant from obtaining insurance for its own account (and notwithstanding § 10.5 hereof, any proceeds payable under such separate insurance noted in the foregoing clauses (a) and (b) shall be payable as provided in the policy relating thereto); provided, that no insurance may be obtained or maintained under the foregoing clause (b) that would limit or otherwise adversely affect the coverage of or increase the cost of any insurance required to be obtained or maintained by Lessee pursuant to this § 10 and Annex D.

 

10.3                         Indemnification by Government in Lieu of Insurance

 

During any period that the Aircraft, the Airframe, or any Engine shall have been requisitioned for use by, or possession of the Aircraft, the Airframe, or any Engine shall have been transferred to, the U.S. Government or any other Government Entity, Lessor and Owner Participant shall (subject to the terms of this § 10.3) accept, in lieu of insurance against any risk with respect to the Aircraft described in § B and § C (but, with respect to § C, as to hull coverage only) of Annex D, indemnification from, or insurance provided by, the U.S. Government (or upon Owner Participant’s prior written consent, other Government Entity), against such risk in an amount that, when added to the amount of insurance (including self-insurance otherwise permitted under the terms of Annex D), if any, against such risk that Lessee (or any Permitted Sublessee) may continue to maintain, in accordance with this § 10, during the period of such requisition or transfer, shall be at least equal to the amount of insurance against such risk otherwise required by this § 10 (assuming in all cases that the insurance so continued to be maintained would fully cover the noted increment notwithstanding the existence of the indemnification or insurance provided by the U.S. Government or other Government Entity). Any such indemnification or insurance provided by the U.S. Government shall provide protection no less favorable to the Indemnitees, after taking into account any insurance the Lessee or any Permitted Sublessee may continue to maintain, than the insurance coverage that would comply with the terms of this § 10. Lessee shall provide Lessor and Owner Participant with (1) evidence of such indemnification or insurance no later than two Business Days before the date such indemnification or insurance takes effect, or, if later, promptly after such information becomes available to Lessee, (2) a certificate of a Responsible Officer of Lessee stating that such indemnification or insurance complies with the preceding sentence, and (3) any other information,

 

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documentation or certificates relating to such indemnity or insurance as Owner Participant shall reasonably request.

 

10.4                         Application of Insurance Proceeds

 

All proceeds of insurance or indemnities required to be maintained by Lessee, in accordance with this § 10 and § B of Annex D, in respect of any property damage or loss constituting an Event of Loss shall be paid, held and applied in accordance with § 9.5. All proceeds of insurance or indemnities required to be maintained by Lessee, in accordance with this § 10 and § B of Annex D, in respect of any property damage or loss not constituting an Event of Loss shall be paid over to and held by Lessor or Lessee, in the circumstances and to the extent provided in § B of Annex D, and shall be applied to pay (or to reimburse Lessee) for repairs or for replacement property, effected or obtained in accordance with the terms of § 8.1 and Annex C, as provided in said § B of Annex D; and any balance remaining after such repairs or replacement with respect to such damage or loss shall be paid over to, or retained by, Lessee.

 

10.5                         Application of Payments During Special Default

 

Any amount described in § 9.5.3 or this § 10 that is payable or creditable to, or retainable by, Lessee shall not be paid or credited to, or retained by, Lessee if a Special Default exists when such payment, credit, or retention would otherwise occur, but shall instead be held by or paid over to Lessor as security for Lessee’s obligations under this Lease, and shall be invested pursuant to § 4.4 unless and until such amount is applied, at Lessor’s option, from time to time during the existence of a Special Default, to Lessee’s obligations under this Lease and the other Lessee Operative Agreements as and when due (any such application to be made to such obligations of Lessee as Lessor determines in its sole discretion). If and when no Special Default exists, such amount shall be paid to Lessee to the extent not previously applied in accordance with this § 10.5.

 

10.6                         Lessor’s Right to Maintain Insurance

 

In the event that Lessee shall fail to maintain, or cause to be maintained, insurance as herein provided, Lessor or Owner Participant may at its option (but shall not be obligated to) provide such insurance and, in such event, Lessee shall, upon demand, reimburse such person, as Supplemental Rent, for the cost thereof; provided, that no such action by Lessor or Owner Participant shall be deemed to cure any Default resulting from such failure by Lessee.

 

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11.                                INSPECTION

 

(a)                                   Lessor, Owner Participant, or their authorized representatives (the “Inspecting Parties” ) may, at the times set forth below in this paragraph (a), inspect the Aircraft, Airframe, and Engines and the Aircraft Documents, and Lessee shall cooperate, and shall cause any Permitted Sublessee to cooperate, with the Inspecting Parties in connection with any such inspection, and any such Inspecting Party may make copies of the Aircraft Documents not reasonably deemed confidential by Lessee or a Permitted Sublessee. Lessee shall make any Permitted Sublease expressly subject to inspection rights consistent with this § 11.  The Inspecting Parties shall have the right to conduct such an inspection (i) at any reasonable time, as may be mutually agreed by Lessor, Owner Participant and Lessee (such agreement not to be unreasonably withheld by any such Person), it being understood and agreed, however, that an inspection shall be permitted at least once every 180 days, and (ii) at any reasonable time if and for so long as a Special Default shall have occurred and be continuing.

 

(b)                                  Any inspection of the Aircraft hereunder shall be a visual, walk-around inspection that may include going on board the Aircraft and examining the contents of any open panels, bays, or other components of the Aircraft, Airframe, and Engines, but shall not include the opening of any unopened panels, bays, or other components of the Aircraft, and no such inspection shall unreasonably interfere with Lessee’s or any Permitted Sublessee’s maintenance or operation of the Aircraft, the Airframe, or any Engine.

 

(c)                                   Neither Lessor nor Owner Participant shall have any duty or liability to make any such visit, inspection, or survey, or any duty or (except to the extent arising directly out of its own acts) liability arising out of any such visit, inspection, or survey or failure to make any such visit, inspection, or survey.

 

(d)                                  Each Inspecting Party shall bear its own expenses in connection with any such visit, inspection, or survey (including the cost of any copies made in accordance with § 11(a)), unless a Special Default exists or such Party is making such visit, inspection, or survey to verify the correction of any material failure by Lessee or any Permitted Sublessee to comply with the terms and provisions of this Lease discovered in connection with the prior visit, inspection, or survey, then any such inspection (including the cost of such

 

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filings or registrations on the International Registry that Lessor, in its reasonable judgment, determines to be necessary of desirable to fully effectuate such succession) and without in any way altering the terms of this Lease or Lessee’s obligations under the Operative Agreements. An appointment and designation of a successor as Owner Trustee shall not exhaust the right to appoint and designate further successors or additional trustees as Owner Trustees pursuant to the Participation Agreement and the Trust Agreement, and such right may be exercised repeatedly as long as this Lease shall be in effect.

 

13.                                LEASE EVENTS OF DEFAULT

 

The existence of any one or more of the following circumstances, conditions, acts, or events, for any reason whatsoever and whether any such circumstance, condition, act, or event is voluntary or involuntary or comes about or is effected by operation of Law or pursuant to or in compliance with any judgment, decree, order, rule, or regulation of any Government Entity, shall constitute an Event of Default so long as it shall not have been remedied:

 

13.1                         Payments

 

(a)                                   Lessee fails to pay any amount of Basic Rent, Stipulated Loss Value or Make-Whole Amount within 5 Business Days after it becomes due; or

 

(b)                                  Lessee fails to pay any Supplemental Rent (other than Stipulated Loss Value or Make-Whole Amount) when due and such failure continues for a period in excess of 10 Business Days from and after the date of any written notice to Lessee of the failure to make such payment when due.

 

13.2                         Insurance

 

Lessee fails to carry and maintain, or cause to be carried and maintained, insurance on and in respect of the Aircraft, Airframe, and Engines in accordance with the provisions of § 10, or Lessee shall operate the Aircraft, Airframe, or Engines, or permit or suffer the Aircraft, Airframe, or Engines to be operated, at any time when such insurance shall not be in effect.

 

13.3                         Corporate Existence and Commercial Airlines Operations

 

(a)                                   Lessee shall fail to maintain at all times its legal existence, as

 

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required pursuant to § 7.1.1 of the Participation Agreement, or Lessee shall otherwise wind-up, liquidate, or dissolve, or Lessee shall take or fail to take any action that would have the effect of any of the foregoing; or

 

(b)                                  Lessee shall cease to be a U.S. Air Carrier, as required pursuant to § 7.1.1 of the Participation Agreement, or Lessee shall discontinue all or substantially all of its commercial airline operations; provided, that (i) if such cessation or discontinuance is capable of being corrected and Lessee is diligently proceeding to effect such correction, and (ii) such cessation or discontinuance creates no material risk of the sale, forfeiture, or loss (including loss of use) of, or damage to, the Aircraft, the Airframe, or any Engine, then such cessation or discontinuance shall not be an Event of Default unless and until such condition shall have continued unremedied for a period of (x) 30 days, or (y) if such cessation or discontinuance is not capable of being corrected within 30 days due to reasons beyond Lessee’s control (but Lessee is, nonetheless, diligently proceeding to effect such correction), 120 days.

 

13.4                         Certain Covenants

 

Lessee shall not observe, perform or comply with, or shall otherwise breach, any of its obligations under § 7.1 (other than § 7.1.2 and § 7.1.3, which shall be subject to § 13.5), or § 7.2.7 (in respect of a sublease of the Aircraft or Airframe), or § 1 of Annex E, or under § 7.1.5 or § 7.1.9 of the Participation Agreement.

 

13.5                         Other Covenants

 

Lessee fails to observe or perform (or cause to be observed and performed) in any material respect any other covenant, agreement, or obligation of Lessee in any Operative Agreement, and such failure continues unremedied for a period of 30 days from and after the date of written notice thereof to Lessee from Lessor or Owner Participant unless such failure is capable of being corrected and creates no material risk of the sale, forfeiture, or loss (including loss of use) of, or damage to, the Aircraft, the Airframe, or any Engine, or any discernible risk of criminal liability or any material risk of civil penalty against Lessor or any Participant, and Lessee is diligently proceeding to correct such failure, in which case there shall be no Event of Default unless and until such failure continues unremedied for a period of 180 days after receipt of such notice.

 

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13.6                         Representations and Warranties

 

Any representation or warranty made by Lessee in any Operative Agreement (a) proves to have been untrue or inaccurate in any material respect as of the date made, (b) is material at the time in question, and (c) if the effect of such incorrectness is curable (incorrectness of a representation as to financial condition being incurable), remains uncured for a period in excess of 30 days from and after the date of written notice thereof from Lessor or Owner Participant to Lessee or (if earlier) the date that a Responsible Officer of Lessee is aware of the incorrectness.

 

13.7                         Bankruptcy and Insolvency

 

(a)                                   Lessee consents to the appointment of or the taking of possession by a receiver, trustee, or liquidator of itself or of all or substantially all of its property, or Lessee admits in writing its inability to pay its debts generally as they come due, or does not pay its debts generally as they become due or makes a general assignment for the benefit of creditors, or Lessee files a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization, liquidation or other relief in a case under any bankruptcy Laws or other insolvency Laws (as in effect at such time) or an answer admitting the material allegations of a petition filed against Lessee in any such case, or Lessee seeks relief by voluntary petition, answer, or consent under the provisions of any other bankruptcy or other similar Law providing for the reorganization or winding-up of corporations (as in effect at such time); or

 

(b)                                  an order, judgment, or decree is entered by any court of competent jurisdiction appointing, without Lessee’s consent, a receiver, trustee, or liquidator of Lessee or of all or substantially all of its property, or all or substantially all of Lessee’s property is sequestered, or granting any other relief in respect of Lessee as a debtor under any bankruptcy Laws or other insolvency Laws (as in effect at such time), and any such order, judgment, or decree of appointment or sequestration remains in force undismissed, unstayed, and unvacated for a period of 60 days after the date of entry thereof; or

 

(c)                                   a petition against Lessee in a case under any bankruptcy Laws or other insolvency Laws (as in effect at such time) is filed and not withdrawn or dismissed within 60 days thereafter, or if, under the provisions of any Law providing for reorganization or winding-up of corporations that applies to Lessee, any court of competent jurisdiction assumes jurisdiction, custody, or control of Lessee or of all or substantially all of the property of Lessee, and

 

*** Material has been omitted pursuant to a request for confidential treatment and filed separately with the SEC

 

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such jurisdiction, custody or control remains in force unrelinquished, unstayed, and unterminated for a period of 60 days.

 

13.8                         Other Obligations

 

(a)                                   An “Event of Default” exists under a Related Lease; or

 

(b)                                  Lessee (or any of its Affiliates) fails to pay, when due, any Debt and/or any lease obligations, involving (whether individually or in the aggregate) obligations in excess of $5 million, and the holder or holders of such Debt or such lease obligations (or a trustee on behalf of such holder or holders) accelerates such Debt or such lease obligations, or takes any action to cancel or terminate the associated lease arrangement, or otherwise initiates collection or foreclosure remedies or proceedings to collect such Debt or such lease obligations.

 

13.9                         Judgments

 

                                                Judgment for the payment of money in excess of $5 million (excluding any amount insured by a solvent insurer who has admitted coverage for the underlying claim) is rendered against Lessee (or any of its Affiliates), and the same shall remain undischarged for a period of 30 days during which execution of such judgment shall not be effectively stayed.

 

14.                                REMEDIES AND WAIVERS

 

14.1                         Remedies

 

If any Event of Default exists, Lessor may, at its option and at any time and from time to time, exercise any one or more of the following remedies as Lessor in its sole discretion shall elect:

 

14.1.1               Return and Repossession

 

Lessor may cause Lessee, upon giving written notice to Lessee, to return promptly, and Lessee shall return promptly, all or any part of the Aircraft, Airframe, or Engines, and any of the Returnable Records, as Lessor shall so demand, to Lessor or its order in the manner and condition required by, and otherwise in accordance with, all the provisions of § 5, as if the Aircraft, Airframe, Engines, or Part, or the Returnable Records, were being returned at

 

*** Material has been omitted pursuant to a request for confidential treatment and filed separately with the SEC

 

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the end of the Term, or Lessor, at its option, may enter upon the premises where the Aircraft, the Airframe, any Engine, or any Part thereof, or any of the Returnable Records, is located and take immediate possession of and remove the same by summary proceedings or otherwise, all without liability accruing to Lessor for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise, and Lessee expressly waives any right it may have under applicable Law to a hearing prior to repossession of the Aircraft, Airframe, any Engine, or any Part thereof, or any of the Returnable Records.

 

14.1.2               Sale and Use

 

Lessor may sell all or any part of the Aircraft, the Airframe, or any Engine, or any of the Returnable Records, at public or private sale, at such time(s) and place(s), and to such Person(s) (including Owner Participant), as Lessor determines and, without limiting the generality of the provisions of this § 14, Lessor may hold Lessee liable for the payment of any Basic Rent remaining unpaid at the time of such sale and relating to any period prior to the date of such sale; or Lessor may otherwise dispose of, hold, use, operate, lease to others, or keep idle the Aircraft, the Airframe, or any Engine, or any Part thereof, as Lessor, in its sole discretion, shall determine, all free and clear of any rights of Lessee and without any duty to account to Lessee with respect to such action or inaction or for any proceeds with respect thereto, except as hereinafter set forth in § 14.1.3(b) or as otherwise provided by applicable Law, and except to the extent that such proceeds would constitute, under applicable Law, a mitigation of Lessor’s damages suffered or incurred as a result of the subject Event of Default.  Lessor shall give to Lessee at least 15 days’ prior written notice of the date fixed for any public sale of the Aircraft, the Airframe, or any Engine, or any Part thereof, or any of the Returnable Records, or of the date on or after which will occur the execution of any contract providing for any private sale, and Lessee acknowledges and agrees that such notice shall for all purposes be deemed to be commercially reasonable.

 

14.1.3               Certain Liquidated Damages

 

Whether or not Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights under § 14.1.1 or § 14.1.2 with respect to the Aircraft, the Airframe, any Engine or any of the Returnable Records, Lessor, by written notice to Lessee specifying a payment date (which shall be the first SLV Date occurring not less than 10 days after the date of such notice), may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the

 

*** Material has been omitted pursuant to a req