Doc. No. 1.02
Aircraft N777UA
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LEASE AGREEMENT
(1995 777 A)
Dated as of May 1, 1995
Between
STATE STREET BANK AND TRUST COMPANY,
Not in its Individual Capacity,
except as expressly
provided herein, but solely as
Owner Trustee,
Lessor
and
UNITED AIR LINES, INC.,
Lessee
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United Air Lines, Inc.
1995 777 A Equipment Trust
One Boeing 777-222 Aircraft
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As set forth in Section 20 hereof, Lessor has assigned to the Indenture
Trustee (as defined herein) certain of its right, title and interest in and to
this Lease. To the extent, if any, that this Lease constitutes chattel paper
(as such term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction) no security interest in this Lease may be created
through the transfer or possession of any counterpart other than the original
executed counterpart, which shall be identified as the counterpart containing
the receipt therefor executed by the Indenture Trustee on the signature page
thereof.
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TABLE OF CONTENTS
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SECTION 1. Definitions................................. 1
SECTION 2. Acceptance and Lease........................ 17
SECTION 3. Term and Rent............................... 17
(a) Interim Term and Basic Term......... 17
(b) Basic Rent.......................... 17
(c) Adjustments to Basic Rent,
Excess Amount, Stipulated Loss
Values, Termination Values,
Special Termination Value
Percentages and the EBO
Percentage.......................... 17
(d) Supplemental Rent................... 20
(e) Payments in General................. 20
(f) [Intentionally Reserved for
Potential Future Use]............... 21
(g) Prepayments of Certain Rent
Payments............................ 21
SECTION 4. Lessor's Representations and
Warranties............................... 22
SECTION 5. Return of the Aircraft...................... 23
(a) Condition Upon Return............... 23
(b) Return of Other Engines............. 27
(c) Fuel and Manuals.................... 28
(d) Storage Upon Return................. 28
(e) Purchase of Engine.................. 29
(f) Severable Parts..................... 29
(g) Special Redelivery Provision........ 29
SECTION 6. Liens....................................... 30
SECTION 7. Registration, Maintenance and
Operation; Possession and
Subleases; Insignia...................... 30
(a) (1) Registration and
Maintenance........................ 31
(2) Operation...................... 32
(3) Reregistration................. 33
(4) Operating Certificates......... 33
(b) Possession and Subleases............ 33
(c) Insignia............................ 39
SECTION 8. Replacement and Pooling of Parts;
Alterations, Modifications and Additions................ 40
(a) Replacement of Parts................ 40
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(b) Pooling of Parts.................... 41
(c) Alterations, Modifications and
Additions........................... 41
SECTION 9. Early Termination........................... 43
(a) [Intentionally reserved for
potential future use]............... 43
(b) Termination for
Obsolescence/Surplus................ 43
(c) Sale of the Aircraft................ 43
(d) Termination as to Engines........... 46
SECTION 10. Loss, Destruction, Requisition, etc........ 46
(a) Event of Loss with Respect to
the Aircraft........................ 46
(b) Event of Loss with Respect to
an Engine........................... 50
(c) Application of Payments from
Governmental Authorities for
Requisition of Title, etc........... 52
(d) Requisition for Use of the
Aircraft by the United States
Government or Government of
Registry of the Aircraft............ 53
(e) Requisition for Use of an
Engine by the United States
Government or the Government
of Registry of the Aircraft......... 54
(f) Application of Payments During
Existence of Events of
Default............................. 54
SECTION 11. Insurance.................................. 55
(a) Public Liability and Property
Damage Insurance.................... 55
(b) Insurance Against Loss or
Damage to the Aircraft.............. 55
(c) Reports, etc........................ 57
(d) Self-Insurance...................... 59
(e) Additional Insurance by Lessor
and Lessee.......................... 59
(f) Indemnification by Government
in Lieu of Insurance................ 60
(g) Application of Payments During
Existence of Default................ 60
(h) Terms of Insurance Policies......... 60
SECTION 12. Inspection................................. 61
SECTION 13. Assignment................................. 63
SECTION 14. Events of Default.......................... 63
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SECTION 15. Remedies................................... 65
SECTION 16. Lessee's Cooperation Concerning
Certain Matters.......................... 69
SECTION 17. Notices.................................... 71
SECTION 18. Net Lease; No Set-Off, Counterclaim,
Etc...................................... 72
SECTION 19. Renewal Options; Purchase Options;
Valuation................................ 74
(a) Renewal Options..................... 74
(1) Fixed Renewal Terms............. 74
(2) Fair Market Renewal Term........ 75
(3) Waiver.......................... 75
(4) Conditions Precedent,
Payment of Basic Rent........... 75
(5) Termination Value;
Stipulated Loss Value........... 76
(b) Purchase Options.................... 76
(c) Valuation........................... 77
SECTION 20. Security for Lessor's Obligation to
Certificate Holders...................... 78
SECTION 21. Lessor's Right to Perform for Lessee....... 79
SECTION 22. Investment of Security Funds;
Liability of Lessor Limited.............. 80
(a) Investment of Security Funds........ 80
(b) Liability of Lessor Limited......... 81
SECTION 23. Miscellaneous.............................. 81
SECTION 24. Successor Trustee.......................... 81
SECTION 25. Bankruptcy................................. 82
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EXHIBITS
EXHIBIT A Form of Lease Supplement
EXHIBIT B Basic Rent and Excess Amount Schedule
EXHIBIT C Stipulated Loss Value Schedule
EXHIBIT D Termination Value Schedule
EXHIBIT E Rent Recalculation and Indemnification Verification
EXHIBIT F Schedule of Countries Authorized for Domicile of Permitted
Sublessees
EXHIBIT G Schedule of Countries Authorized for Aircraft Registration
EXHIBIT H Lessor's Cost, Engine Cost, Commencement Date, Lease Expiry Date,
Stipulated Loss Value Date, EBO Date, EBO Percentage, Special
Purchase Option Dates and Special Termination Value Percentages
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LEASE AGREEMENT (1995 777 A)
This LEASE AGREEMENT (1995 777 A), dated as of May 1, 1995, between
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, not in its
individual capacity, except as expressly provided herein, but solely as Owner
Trustee under the Trust Agreement (as defined in Section 1 hereof) (in such
capacity, "Lessor"), and UNITED AIR LINES, INC., a corporation organized and
existing pursuant to the laws of the State of Delaware ("Lessee").
WITNESSETH:
SECTION 1. Definitions. Unless the context otherwise requires, the
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following terms shall have the following meanings for all purposes of this Lease
Agreement and shall be equally applicable to both the singular and the plural
forms of the terms herein defined:
"Acceptable Alternate Engine" means a Pratt & Whitney Model PW4084
engine or an engine of the same or another manufacturer of equivalent or greater
value and utility, and suitable for installation and use on the Airframe;
provided that such engine shall be of the same make, model and manufacturer as
the other engine installed on the Airframe and shall be an engine of a type then
being utilized by Lessee on other Boeing 777-222 aircraft operated by Lessee and
shall have been maintained, serviced, repaired and overhauled in substantially
the same manner as Lessee maintains, services, repairs and overhauls similar
engines utilized by Lessee and without in any way discriminating against such
engine.
"Actual Knowledge" means, (i) as it applies to the Owner Trustee or
Indenture Trustee, as the case may be, actual knowledge of a responsible officer
in the Trust Office, and (ii) as it applies to the Owner Participant, actual
knowledge of a Vice President or more senior officer of the Owner Participant or
other officer of the Owner Participant in each case having responsibility for
the transactions contemplated by the Operative Documents; provided that each of
the Owner Trustee, the Indenture Trustee and the Owner Participant shall be
deemed to have "Actual Knowledge" of any matter as to which it has been given
notice by any of Lessee, the Owner Participant, any Certificate Holder, the
Owner Trustee or the Indenture Trustee, such notice having been given pursuant
to and in accordance with Section 13(a) of the Participation Agreement.
"Additional Insured" means Lessor, in its individual capacity and as
owner of the Aircraft, the Indenture Trustee, the
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Owner Participant, Lessee in its capacity as sublessor under any Sublease, and,
so long as the Pass Through Trustees are Certificate Holders, each Pass Through
Trustee and each of their respective Affiliates, successors and permitted
assigns; and the respective directors, officers and employees of each of the
foregoing.
"Affiliate" means a Person (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under a common
control with, another Person, (ii) which beneficially owns or holds 10% or more
(by number of votes) of any class of voting securities of such other Person or
(iii) 10% or more (by number of votes) of the voting securities (or in the case
of a Person which is not a corporation, 10% or more of the equity interest) of
which is beneficially owned or held by such other Person or a Subsidiary. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Aircraft" means the Airframe together with the two Engines whether or
not such Engines are installed on the Airframe or any other airframe.
"Airframe" means: (i) The Boeing Company Model 777-222 aircraft
(excluding Engines or engines from time to time installed thereon) specified by
United States Registration Number and Manufacturer's serial number in the Lease
Supplement; (ii) any and all Parts which are from time to time incorporated or
installed in or attached thereto or which have been removed therefrom, but where
title to which remains vested in Lessor in accordance herewith; and (iii) any
replacement airframe which may from time to time be substituted pursuant to
Section 10(a)(ii) hereof.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended
from time to time.
"Base Rate" means the rate of interest announced from time to time by
The First National Bank of Chicago at its principal office in Chicago, Illinois
as its "corporate base rate" (or its equivalent successor rate if the corporate
base rate is no longer used).
"Basic Rent" means, for the Basic Term, the rent payable for the
Aircraft pursuant to Section 3(b) hereof, as adjusted as provided in Section
3(c) and, for a Renewal Term, Basic Rent determined pursuant to Section 19.
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"Basic Term" means the term for which the Aircraft is leased hereunder
pursuant to Section 3(a) hereof beginning on the Commencement Date and ending on
the Lease Expiry Date or such earlier date as this Lease may be terminated in
accordance with the terms hereof.
"Business Day" means any day other than a Saturday or Sunday or a day
on which commercial banks are required or authorized to close in the City of
Chicago, Illinois; New York City, New York; the city and state in which the
principal place of business of the Owner Trustee is located; and, so long as any
Loan Certificate is outstanding, the city and state in which the Indenture
Trustee has its principal place of business and the city and state in which the
Indenture Trustee receives and disburses funds.
"Certificate Holder" has the meaning assigned to the term "Holder" in
the Trust Indenture.
"Certificated Air Carrier" means a Citizen of the United States
holding an air carrier operating certificate issued by the Secretary of
Transportation pursuant to Chapter 447 of Title 49 of the United States Code,
for aircraft capable of carrying ten or more individuals or 6,000 pounds or more
of cargo or that otherwise is certified or registered to the extent required to
fall within the purview of 11 U.S.C. Section 1110 or any analogous successor
provision of the Bankruptcy Code.
"Citizen of the United States" has the meaning given such term in
Section 40102(a)(15) of Title 49 of the United States Code.
"Civil Reserve Air Fleet Program" means the Civil Reserve Air Fleet
Program administered by the United States Government pursuant to Executive Order
No. 11490, as amended, or any substantially similar program.
"Code" means the Internal Revenue Code of 1986, as amended through the
Delivery Date.
"Commencement Date" means the date specified as such in Exhibit H
hereto.
"Commitments" means the respective commitments of the Pass Through
Trustees and the Owner Participant to finance the Owner Trustee's payment of
Lessor's Cost for the Aircraft and "Commitment" means any one of the
Commitments.
"Consent and Agreement" means the Consent and Agreement (1995 777 A),
dated as of the date hereof, executed by the
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Manufacturer, as the same may be amended, modified or supplemented from time to
time in accordance with the applicable provisions thereof.
"Debt Rate" means the weighted average interest rate borne by the Loan
Certificates then outstanding.
"Default" means any event which with the giving of notice or the lapse
of time or both would become an Event of Default.
"Delivery Date" means the date of the initial Lease Supplement for the
Aircraft, which date shall be the date the Aircraft is leased by Lessor to
Lessee and accepted by Lessee hereunder.
"Dollars" and "$" mean the lawful currency of the United States of
America.
"EBO Date" means the date specified as such in Exhibit H hereto.
"EBO Percentage" means the percentage specified as such in Exhibit H
hereto.
"EBO Price" has the meaning set forth in Section 19(b)(2) hereof.
"Engine" means (i) each of the two Pratt & Whitney Model PW4084
engines listed by manufacturer's serial numbers in the initial Lease Supplement
and installed on the Airframe at the time of the Manufacturer's delivery to
Lessee of such Airframe, and whether or not from time to time thereafter
installed on such Airframe or any other airframe; (ii) any Acceptable Alternate
Engine which may from time to time be substituted for any of such two engines
pursuant to the terms hereof; and (iii) in either case, any and all Parts which
are from time to time incorporated or installed in or attached to any such
engine and any and all parts removed therefrom so long as title thereto remains
vested in Lessor in accordance herewith. The term "Engines" means, as of any
date of determination, all Engines then leased hereunder.
"Engine Cost" means the amount specified as Engine Cost in Exhibit H
hereto.
"Event of Default" has the meaning specified in Section 14
hereof.
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"Event of Loss" with respect to the Aircraft, Airframe or any Engine
means any of the following events with respect to such property: (i) the loss
of such property or of the use thereof due to the destruction of or damage to
such property which renders repair uneconomic or which renders such property
permanently unfit for normal use by Lessee for any reason whatsoever; (ii) any
damage to such property which results in an insurance settlement with respect to
such property on the basis of a total loss, or a constructive or compromised
total loss; (iii) the theft or disappearance of such property, or the
confiscation, condemnation, or seizure of, or requisition of title to, or use
of, such property by any governmental or purported governmental authority (other
than a requisition for use by the United States Government or any government of
registry of the Aircraft or any agency or instrumentality thereof), which in the
case of any event referred to in this clause (iii) shall have resulted in the
loss of title or possession of such property by Lessee for a period in excess of
90 consecutive days or, if earlier, until the end of the Term; (iv) as a result
of any law, rule, regulation, order or other action by the FAA or other
governmental body of the government of registry of the Aircraft having
jurisdiction, use of such property in the normal course of the business of air
transportation shall have been prohibited for a period in excess of 180
consecutive days, unless (A) such grounding is applicable to all Boeing 777-222
aircraft registered in such country, (B) Lessee, prior to the expiration of such
180 day period, shall have undertaken and shall be diligently carrying forward,
in a manner that does not discriminate against the Aircraft, all steps which are
necessary or desirable to permit the normal use of such property by Lessee, and
(C) Lessee, within one year from the time of grounding shall have conformed at
least one such aircraft in its fleet to the requirements of any such law, rule,
regulation, order or other action and commenced regular commercial use of the
same in such jurisdiction, provided that no such grounding shall extend beyond
the expiration of the Term; (v) the requisition for use by the United States
Government or any government of registry of the Aircraft or any instrumentality
or agency thereof, which shall have occurred during the Basic Term (or the
Interim Term or any Renewal Term) and shall have, in the case of any government
of registry of the Aircraft (other than the United States Government or any
agency or instrumentality thereof) or any agency or instrumentality thereof,
continued for more than two years (or if earlier, until the end of the Term),
and in the case of the United States Government or any agency or instrumentality
thereof shall have continued for a period that extends beyond the Term and
Lessor shall not have furnished the written notice specified in Section 10(d)
hereof; (vi) the operation of or location of the Aircraft, while under
requisition for use by any government, in any area excluded from coverage by any
insurance policy in effect
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with respect to the Aircraft required by the terms of Section 11, unless in the
case of a requisition by the government of the United States or any agency or
instrumentality thereof, Lessee shall have obtained an indemnity in lieu thereof
from such government; and (vii) any divestiture of title to an Engine treated as
an Event of Loss pursuant to Section 7(b) hereof. An Event of Loss with respect
to the Aircraft shall be deemed to have occurred if an Event of Loss occurs with
respect to the Airframe.
"Excess Amount" for the Commencement Date means the amount determined
by multiplying Lessor's Cost by the percentage specified in Exhibit B hereto
opposite the Commencement Date (as such Exhibit B may be adjusted from time to
time as provided in Section 3(c) hereof).
"Excluded Payments" has the meaning set forth in the Trust Indenture.
"Expenses" means any and all liabilities, obligations, losses,
damages, penalties, claims (including, but not limited to, negligence, strict or
absolute liability, liability in tort and liabilities arising out of violation
of laws or regulatory requirements of any kind), actions, suits, costs, expenses
and disbursements (including reasonable legal fees and expenses and, to the
extent not required to be paid by the Owner Trustee pursuant to Section 16 of
the Participation Agreement, Transaction Expenses, and all costs and expenses
relating to amendments, supplements, waivers and consents to and under the
Operative Documents, any amounts that would be included in Premium, but
excluding internal costs and expenses such as salaries, and overhead of
whatsoever kind and nature).
"Fair Market Rental Value" means the fair market rental value
determined as provided in Section 19(c) hereof.
"Fair Market Sales Value" means the fair market sales value determined
as provided in Sections 19(a) and 19(c) hereof.
"Federal Aviation Act" means the sections of Title 49 of the
United States Code relating to aviation, as amended.
"Federal Aviation Administration" and "FAA" mean the United States
Federal Aviation Administration and any successor agency or agencies thereto.
"Indemnitees" means the Owner Participant, the Owner Trustee, in its
individual capacity and as trustee under the Trust Agreement, the Trust Estate,
the Trust Indenture Estate, the Indenture Trustee, in its individual capacity
and as trustee
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under the Trust Indenture, each Pass Through Trustee (so long as the Pass
Through Trustees are Certificate Holders), and each of their respective
Affiliates, successors, permitted assigns, directors, officers, employees,
servants and agents.
"Indenture Trustee" has the meaning set forth in the Trust Indenture.
"Indenture Trustee Documents" means the Participation Agreement, the
Trust Indenture, each Pass Through Trust Agreement, each Pass Through Trust
Supplement, each Loan Certificate and each Pass Through Certificate and any
other document executed by the Indenture Trustee or the Pass Through Trustee in
connection with the transactions contemplated by the Operative Documents.
"Interim Term" means the period commencing on the Delivery Date and
ending on and including the day immediately preceding the Commencement Date,
unless earlier terminated in accordance with the provisions hereof.
"Lease Agreement", "this Lease Agreement", "this Lease", "this
Agreement", "herein", "hereof", "hereunder", "hereby", or other like words mean
this Lease Agreement as originally executed or as modified, amended or
supplemented in accordance with the applicable provisions hereof and the terms
of the Trust Indenture, including, without limitation, supplementation hereof by
any Lease Supplement entered into in accordance with the applicable provisions
hereof and the terms of the Trust Indenture.
"Lease Expiry Date" means the date specified as such in Exhibit H.
"Lease Period" means each of the consecutive semi-annual periods
throughout the Basic Term and any Renewal Term ending on a Lease Period Date,
the first such period commencing on and including the Commencement Date.
"Lease Period Date" means April 19, 1996 and each succeeding semi-
annual anniversary thereof to and including the last such date in the Term.
"Lease Supplement" means a Lease Supplement (1995 777 A),
substantially in the form of Exhibit A hereto, to be entered into between Lessor
and Lessee on the Delivery Date for the purpose of leasing the Aircraft under
and pursuant to the terms of this Lease Agreement, and any subsequent Lease
Supplement entered into in accordance with the terms hereof and the terms of the
Trust Indenture.
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"Lessee Documents" means the Participation Agreement, the Lease, any
Lease Supplement, the Purchase Agreement, the Owner Trustee's Purchase
Agreement, the Owner Trustee's FAA Bill of Sale, the Owner Trustee's Bill of
Sale, the Tax Indemnity Agreement, each Pass Through Trust Agreement, each Pass
Through Trust Agreement Supplement and any other document executed by Lessee in
connection with the transactions contemplated by the Operative Documents.
"Lessor Liens" means any Lien on, or disposition of title to, the
Aircraft or the Trust Estate arising as a result of (i) claims against Lessor,
State Street Bank and Trust Company, in its individual capacity, or the Owner
Participant not related to the transactions contemplated by the Operative
Documents, (ii) any act or omission of the Owner Participant, Lessor, or State
Street Bank and Trust Company, in its individual capacity, which is not related
to the transactions contemplated by the Operative Documents or is in violation
of any of the terms of the Operative Documents, (iii) claims against the Owner
Participant, Lessor, or State Street Bank and Trust Company, in its individual
capacity, with respect to Taxes or Expenses against which Lessee is not required
to indemnify the Owner Participant, Lessor or State Street Bank and Trust
Company, in its individual capacity or (iv) claims against Lessor or the Owner
Participant arising out of any transfer by Lessor or the Owner Participant of
all or any portion of the respective interests of Lessor or the Owner
Participant in the Aircraft, the Trust Estate or the Operative Documents (other
than a transfer of possession of the Aircraft by Lessor pursuant to this
Agreement, a transfer pursuant to the Trust Indenture (other than a transfer
pursuant to Article 8 of the Trust Indenture not attributable to a Lease Event
of Default) or a transfer pursuant to Section 7, 8, 9, 10 or 19 hereof, pursuant
to Section 17 of the Participation Agreement or pursuant to the exercise of the
remedies set forth in Section 15 hereof); provided, however, that any Lien which
is attributable solely to State Street Bank and Trust Company or the Owner
Participant and would otherwise constitute a Lessor Lien hereunder shall not
constitute a Lessor Lien hereunder so long as (1) the existence of such Lien
poses no material risk of the sale, forfeiture or loss of the Airframe or any
Engine or any interest therein, (2) the existence of such Lien does not
interfere in any way with the use or operation of the Aircraft by Lessee (or any
Sublessee), (3) the existence of such Lien does not affect the priority or
perfection of, or otherwise jeopardize, the Lien of the Trust Indenture, (4)
State Street Bank and Trust Company or the Owner Participant, as the case may
be, is diligently contesting such Lien by appropriate proceeding and (5) the
existence of such Lien does not result in actual interruption in the payment of
Rent assigned to the Indenture Trustee for the benefit of the Certificate
Holders.
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"Lessor's Cost" for the Aircraft means the amount specified as
Lessor's Cost in Exhibit H hereto; provided, however, Lessor's Cost shall be
reduced by Engine Cost for each Engine for which Lessee has paid Stipulated Loss
Value pursuant to the terms of Section 10(b) hereof and has otherwise paid all
other amounts due and payable under said Section 10(b).
"Lien" means any mortgage, pledge, lien, charge, claim, encumbrance,
lease or security interest.
"Loan Certificate" has the meaning assigned to the term "Certificate"
in the Trust Indenture.
"Loss Payment Date" has the meaning set forth in Section 10(a) hereof.
"Manufacturer" means The Boeing Company, a Delaware corporation, and
its subsidiaries, successors and assigns.
"Manufacturer Documents" means the Purchase Agreement, the Consent and
Agreement and any other document executed by the Manufacturer in connection with
the transactions contemplated by the Operative Documents.
"Net Economic Return" means the Owner Participant's net after-tax book
yield, aggregate after-tax cash flow and, with respect to any adjustments
required to maintain the Owner Participant's Net Economic Return, periodic FASB
13 earnings plus or minus 5% for any annual period, utilizing the multiple
investment sinking fund method of analysis, computed on the basis of the same
methodology and assumptions as were utilized by the Owner Participant in
determining Basic Rent, Stipulated Loss Value percentages, Special Termination
Value Percentages, EBO Percentage and Termination Value percentages as of the
Delivery Date, as such assumptions may be revised from time to time for events
which have been the basis for adjustments to Rent pursuant to Section 3(c)
hereof, provided that under no circumstances shall there be a reduction in Owner
Participant's 1995 FASB 13 earnings.
"Net Present Value of Rents" means the net present value, as of the
Delivery Date, of Basic Rent set forth in Exhibit B hereto, discounted at a rate
per Lease Period equal to (a) 11% per annum divided by (b) the number of Lease
Periods per year.
"Operative Documents" means the Lease (including any Lease
Supplement); the Participation Agreement; the Tax Indemnity Agreement; the Trust
Agreement; any Trust Supplement; the Purchase Agreement; the Owner Trustee's
Bill of Sale; the Owner
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Trustee's FAA Bill of Sale; the Owner Trustee's Purchase Agreement; an
acceptance certificate covering the Aircraft in the form agreed to by the
Participants and Lessee (the "Acceptance Certificate"); the Trust Indenture; the
Loan Certificates outstanding at the time of reference; and the Consent and
Agreement.
"Original Amount", with respect to a Loan Certificate, means at any
time prior to the Commencement Date, the Original Issue Price (as defined in the
Trust Indenture) of such Loan Certificate, or, at any time on or after the
Commencement Date, the stated original principal amount of such Loan
Certificate, and with respect to all Loan Certificates means, at any time prior
to the Commencement Date, the aggregate Original Issue Prices for such Loan
Certificates or, at any time on or after the Commencement Date, the aggregate
stated original principal amounts of such Loan Certificates.
"Owner Participant" means the Person executing the Participation
Agreement as the Owner Participant and any Person to which such Person transfers
all or any portion of its right, title and interest in and to the Trust
Agreement, the Trust Estate and the Participation Agreement, to the extent
permitted thereby.
"Owner Participant Documents" means the Participation Agreement, the
Trust Agreement, the Tax Indemnity Agreement and any other document executed by
the Owner Participant in connection with the transactions contemplated by the
Operative Documents.
"Owner Participant Parent" means ____________________, a Delaware
corporation.
"Owner Participant Parent Guaranty" means the guaranty, dated the
Delivery Date, by the Owner Participant Parent in favor of Lessee, the Pass
Through Trustees, and certain other parties, of certain obligations of the Owner
Participant, as the same may be amended or modified in compliance with the
provisions thereof.
"Owner Trustee" means the Person executing the Participation Agreement
as Owner Trustee and any Person appointed as successor Owner Trustee in each
case not in its individual capacity but solely as Owner Trustee under the Trust
Agreement, except as otherwise expressly stated.
"Owner Trustee Documents" means the Participation Agreement, the Trust
Agreement, this Lease, any Lease Supplement, the Owner Trustee's Purchase
Agreement, the Trust Indenture, any Trust Supplement, the Loan Certificates and
any other document
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executed by the Owner Trustee in connection with the transactions contemplated
by the Operative Documents.
"Owner Trustee's Bill of Sale" means a bill of sale for the Aircraft,
dated the Delivery Date, executed by Lessee in favor of Lessor in form and
substance satisfactory to Lessor.
"Owner Trustee's FAA Bill of Sale" means a bill of sale for the
Aircraft on AC Form 8050-2 or such other form as may be approved by the FAA on
the Delivery Date executed by Lessee in favor of Lessor in form and substance
satisfactory to Lessor.
"Owner Trustee's Purchase Agreement" means the Owner Trustee's
Purchase Agreement and Assignment (1995 777 A), dated as of the date hereof,
between Lessee and the Owner Trustee, as the same may be amended, modified or
supplemented from time to time in accordance with the applicable provisions
thereof and the terms of the Trust Indenture.
"Participants" means and includes the Pass Through Trustees and the
Owner Participant.
"Participation Agreement" means that certain Participation Agreement
(1995 777 A), dated as of the date hereof, among Lessee, the Indenture Trustee,
the Owner Participant, the Pass Through Trustees and the Owner Trustee, as such
Participation Agreement may be amended or supplemented from time to time
pursuant to the applicable provisions thereof.
"Parts" means all appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature other than
complete Engines or engines, which are from time to time incorporated or
installed in or attached to an Airframe or any Engine or which have been removed
therefrom, but where title to which remains vested in Lessor in accordance with
Section 8 hereof.
"Pass Through Certificates" has the meaning set forth in the Trust
Indenture.
"Pass Through Trust Agreements" means the Pass Through Trust Agreement
dated as of February 1, 1992, as amended and restated as of May 1, 1995, in each
case between the Lessee and State Street Bank and Trust Company of Connecticut,
National Association, as supplemented by each of the two Pass Through Trust
Supplements, in each case between the Lessee and the Pass Through Trustee, and
as the same may be further modified, amended or supplemented pursuant to the
applicable provisions thereof and the Participation Agreement.
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"Pass Through Trustee" shall mean First Security Bank of Utah,
National Association, a national banking association, in its capacity as Trustee
under each Pass Through Trust Agreement, and each other Person which may from
time to time be acting as successor trustee under any such Pass Through Trust
Agreement.
"Pass Through Trust Supplement" means each of the two separate Trust
Supplements Nos. 1995-A1 and 1995-A2, in each case dated as of May __, 1995
between Lessee and the Pass Through Trustee.
"Past Due Rate" means (i) with respect to the portion of any payment
of Rent that may be required by the Trust Indenture to be paid by the Indenture
Trustee to any Certificate Holder, the "Past Due Rate" as defined in the Trust
Indenture and (ii) with respect to the remaining portion of any payment of Rent
(and the entire amount of any payment of Rent after the satisfaction and
discharge of the Trust Indenture), a fluctuating rate per annum equal to 2% over
the Debt Rate.
"Permitted Lien" means any Lien referred to in clauses (i) through
(vi) of Section 6 hereof.
"Permitted Sublessee" means any air carrier domiciled in a country
listed in Exhibit F hereto as in effect from time to time.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Premium" has the meaning assigned to the term in Section 6.01(b) of
the Trust Indenture.
"Prepaid Rent" has the meaning set forth in Section 3(g) hereof.
"Purchase Agreement" means the agreement between Lessee and the
Manufacturer relating to the purchase by Lessee of the Aircraft, as originally
executed or as modified, amended or supplemented in accordance with the terms
thereof, but only insofar as the foregoing relates to the Aircraft.
"Redemption Date" has the meaning set forth in the Trust Indenture.
"Reimbursement Amount" has the meaning set forth in Section 3(g)
hereof.
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"Renewal Term" means the Fair Market Renewal Term or a Fixed Renewal
Term as those terms are defined in Section 19 hereof.
"Rent" means Basic Rent and Supplemental Rent, collectively.
"Replacement Airframe" means any airframe substituted for an airframe
in accordance with Sections 10(a) of the Lease.
"Replacement Engine" means any engine substituted for an Engine in
accordance with Sections 9(d), 10(a) or 10(b) of the Lease.
"Restricted Country" has the meaning set forth on Exhibits F and G
hereto.
"Restricted Period" means the period ending on the last open day of
the calendar year in which there occurs the seventh anniversary of the Delivery
Date.
"Special Purchase Option Dates" means each of the dates specified as
such on Exhibit H hereto.
"Special Termination Value", with respect to any Special Purchase
Option Date, has the meaning set forth in Section 19(b)(1) hereof.
"Special Termination Value Percentage" means, with respect to any
Special Purchase Option Date, the percentage set forth opposite such Date on
Exhibit H hereto.
"Stipulated Loss Value" with respect to the Aircraft as of any date
through and including the last day of the Basic Term, means the amount
determined by multiplying Lessor's Cost for the Aircraft by the percentage
specified in Exhibit C hereto opposite the Stipulated Loss Value Date with
respect to which the amount of Stipulated Loss Value is determined (as such
Exhibit C may be adjusted from time to time as provided in Section 3(c) hereof
and in Section 8 of the Tax Indemnity Agreement). "Stipulated Loss Value" with
respect to the Aircraft, as of any date during any Renewal Term, shall be the
amount determined as provided in Section 19 hereof. To the extent that an event
giving rise to an obligation to pay any Stipulated Loss Value occurs (with
respect to the Airframe or either Engine), and the actual date on which the loss
of tax benefits resulting from such event occurs shall be earlier or later than
the date assumed in calculating the United States Federal income tax
consequences reflected in the applicable Stipulated Loss Value, such Stipulated
Loss Value shall be appropriately adjusted upwards or downwards to reflect
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<PAGE>
the actual date of such loss of tax benefits, but shall be otherwise based on
the original assumptions used in determining such Stipulated Loss Value.
"Stipulated Loss Value Date" has the meaning specified therefore in
Exhibit H hereto.
"Sublease" means any sublease permitted by the terms of Section
7(b)(viii) hereof.
"Sublessee" means any Person for so long, but only so long, as such
Person is in possession of the Airframe and or any Engine pursuant to the terms
of a Sublease which is then in effect pursuant to Section 7(b)(viii) hereof.
"Subsidiary" means, with respect to any Person that is a corporation,
any other corporation a majority of the voting securities of which are owned by
such person, whether directly or indirectly.
"Supplemental Rent" means all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay to Lessor or
others hereunder or under any of the other Operative Documents, including
payments of Stipulated Loss Value and Termination Value and amounts calculated
by reference thereto, an amount equal to the Premium, if any, payable in
accordance with Section 3(d) hereof and indemnity payments. The parties
acknowledge that Supplemental Rent is a general category and, accordingly, agree
that any provision of any Operative Document which calls for the payment of
Supplemental Rent and also calls for the payment of specific items which are
includable in Supplemental Rent is not to be interpreted as requiring any double
payment.
"Tax Indemnity Agreement" means that certain Tax Indemnity Agreement
(1995 777 A), dated as of the date hereof, between the Owner Participant and
Lessee, as originally executed or as modified, amended or supplemented pursuant
to the applicable provisions thereof.
"Taxes" means any and all fees (including, without limitation,
license, documentation and registration fees), taxes (including, without
limitation, income, gross receipts, sales, rental, use, turnover, value added,
property (tangible and intangible), excise and stamp taxes), licenses, levies,
imposts, duties, recording charges or fees, charges, assessments, or
withholdings of any nature whatsoever, together with any assessments, penalties,
fines, additions to tax and interest thereon (each, individually, a "Tax").
14
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"Term" means the Interim Term, Basic Term and, if actually entered
into, any Renewal Term.
"Termination Date" has the meaning set forth in Section 9(b) hereof.
"Termination Value" with respect to the Aircraft as of any date
through and including the last day of the Basic Term means the amount determined
by multiplying Lessor's Cost for the Aircraft by the percentage specified in
Exhibit D hereto opposite the Termination Date with respect to which the amount
of Termination Value is determined (as such Exhibit D may be adjusted from time
to time as provided in Section 3(c) hereof and in Section 8 of the Tax Indemnity
Agreement). To the extent that an event giving rise to an obligation to pay any
Termination Value occurs, and the actual date on which the loss of tax benefits
resulting from such event occurs shall be earlier or later than the date assumed
in calculating the United States Federal income tax consequences reflected in
the applicable Termination Value, such Termination Value shall be appropriately
adjusted upwards or downwards to reflect the actual date of such loss of tax
benefits, but shall be otherwise based on the original assumptions used in
determining such Termination Value.
"Transaction Expenses" means (i) the reasonable and actual fees,
expenses and disbursements of (1) Ray, Quinney & Nebeker, special counsel for
the Indenture Trustee and the Pass Through Trustee, (2) Bingham, Dana & Gould,
counsel for the Owner Trustee, (3) Crowe & Dunlevy, P.C., special counsel in
Oklahoma City, Oklahoma, (4) Shearman & Sterling, special counsel for the
underwriters (to the extent not payable by the underwriters), (5) Vedder, Price,
Kaufman & Kammholz, special counsel for Lessee, and (6) Dewey Ballantine,
special counsel for the Owner Participant, (ii) all fees, taxes and other
charges payable in connection with the recording or filing of instruments and
financing statements, (iii) the initial fee and reasonable and actual
disbursements of the Owner Trustee under the Trust Agreement, (iv) the initial
fee and reasonable and actual disbursements of the Indenture Trustee under the
Trust Indenture, (v) the fee of BK Associates (or of such other appraiser as
shall be selected by the Owner Participant) with respect to the appraisal of the
Aircraft required on or before the Delivery Date pursuant to Section 4(a) of the
Participation Agreement, (vi) the fees, commissions and expenses of Capstar
Partners, Inc., (vii) the reasonable out-of-pocket expenses of the Owner
Participant relating to the transactions contemplated by the Participation
Agreement including, without limitation, the expenses related to the
organization of the foreign sales corporation, as well as those transactions
relating to the investment by the Owner Participant in the second quarter of
1995 in one Boeing 777-222
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aircraft to be operated by the Lessee up to an aggregate of $25,000 (but
excluding from Transaction Expenses airfare charges incurred for travel on an
airline other than United Air Lines, unless such travel is necessitated by the
foreign sales corporation structure to the extent that United Air Lines does not
offer regularly scheduled flights directly from New York to such foreign
location where negotiations with respect to the transactions will be conducted
for purposes of the foreign sales corporation nature of the transactions) plus
airfare charges incurred for travel on United Air Lines, (viii) the placement or
underwriting fees, commissions and expenses, if any, in placing the debt
contemplated by the Participation Agreement and all costs and expenses
associated with the public offering pursuant thereto and the actual expenses of
each Pass Through Trustee under its respective Pass Through Trust Agreement and
(ix) printing and distribution costs.
"Trust Agreement" means that certain Trust Agreement (1995 777 A),
dated as of the date hereof, between the Owner Participant and State Street Bank
and Trust Company, in its individual capacity, as originally executed or as
modified, amended or supplemented in accordance with the applicable provisions
thereof and the terms of the Trust Indenture, including, without limitation, any
Trust Supplement entered into pursuant to the applicable provisions thereof.
"Trust Estate" has the meaning set forth in the Trust Agreement.
"Trust Indenture" means that certain Trust Indenture and Mortgage
(1995 777 A), dated as of the date hereof, between Lessor and the Indenture
Trustee, as originally executed or as modified, amended or supplemented in
accordance with the provisions thereof and the terms of the Participation
Agreement, including, without limitation, any Trust Supplement entered into
pursuant to the applicable provisions thereof.
"Trust Indenture Estate" has the meaning assigned to the term
"Indenture Estate" in the Trust Indenture.
"Trust Office" has the meaning set forth in the Trust Indenture.
"Trust Supplement" means a supplement to the Trust Agreement and the
Trust Indenture, substantially in the form of Exhibit A to the Trust Agreement.
"U.S. Air Carrier" means any United States air carrier as to which
there is in force a certificate issued pursuant to Section 44102 of the Federal
Aviation Act, and as to which there
16
<PAGE>
is in force an air carrier operating certificate issued pursuant to Part 121 of
the regulations under such Act, or which may operate as an air carrier by
certification or otherwise under any successor or substitute provisions therefor
or in the absence thereof.
"Wet Lease" means any arrangement whereby Lessee agrees to furnish the
Airframe and Engines or engines installed thereon to a third party pursuant to
which such Airframe and Engines or engines (i) shall be operated solely by
regular employees of Lessee possessing all current certificates and licenses
that would be required under the Federal Aviation Act (or if the Aircraft is not
registered in the United States, all certificates and licenses required by the
laws of the jurisdiction of registry) for the performance by such employees of
similar functions within the United States of America (or such jurisdiction of
registry) (it is understood that cabin attendants need not be employees of
Lessee) and (ii) shall be maintained by Lessee in accordance with its normal
maintenance practices.
SECTION 2. Acceptance and Lease. Lessor hereby agrees to accept from
--------------------
the Lessee the transfer of title to and simultaneously to lease to Lessee
hereunder, and Lessee hereby agrees to lease on the Delivery Date from Lessor
hereunder, the Aircraft as evidenced by the execution by Lessor and Lessee of a
Lease Supplement leasing the Aircraft hereunder. Lessee agrees that Lessor will
authorize one or more employees of Lessee, designated by Lessee in writing, as
the authorized representative or representatives of Lessor to accept delivery of
the Aircraft. Lessee hereby agrees that in the event delivery of the Aircraft
shall be accepted by an employee or employees of Lessee pursuant to such
authorization by Lessor, such acceptance of delivery by such employee or
employees on behalf of Lessor shall, without further act, irrevocably constitute
acceptance by Lessee of the Aircraft for all purposes of this Lease.
SECTION 3. Term and Rent. (a) Interim Term and Basic Term. The
------------- ---------------------------
Interim Term shall commence on the Delivery Date and end on and include the day
immediately preceding the Commencement Date unless earlier terminated pursuant
to the provisions hereof. The Basic Term shall commence on the Commencement
Date and end on the Lease Expiry Date or such earlier date as this Lease may be
terminated in accordance with the provisions hereof.
(b) Basic Rent. Lessee shall pay Basic Rent in Dollars with respect
----------
to each Lease Period during the Basic Term on each Lease Period Date during the
Basic Term, in the respective amounts for each Lease Period Date determined in
accordance with Exhibit B hereto.
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(c) Adjustments to Basic Rent, Excess Amount, Stipulated Loss Values,
-----------------------------------------------------------------
Termination Values, Special Termination Value Percentages and the EBO
- ---------------------------------------------------------------------
Percentage.
- -----------
(i) In the event that (A) Transaction Expenses paid by Lessor are
determined to be other than __% of Lessor's Cost, (B) there shall be an
optional redemption or a refinancing or a refunding of the Loan
Certificates in accordance with Section 17 of the Participation Agreement,
(C) the Delivery Date occurs other than on May 15, 1995, or (D) there is an
optimization in accordance with Section 18 of the Participation Agreement;
then in each case the Basic Rent and Excess Amount set forth in Exhibit B,
the Stipulated Loss Value percentages set forth in Exhibit C, the
Termination Value percentages set forth in Exhibit D, and the EBO
Percentage and the Special Termination Value Percentages set forth in
Exhibit H shall be adjusted (upwards or downwards as the case may be) using
the same methods and assumptions (as modified on account of the occurrence
of any of the events referred to in clauses (A)-(D)) used to calculate the
Basic Rent and Excess Amount, the Stipulated Loss Value percentages, the
Termination Value percentages and the EBO Percentage and the Special
Termination Value Percentages set forth in Exhibits B, C, D and H,
respectively, in each case in compliance with clauses (iv) and (v) of this
paragraph (c) and in order to: (1) maintain the Owner Participant's Net
Economic Return and (2) minimize the Net Present Value of Rents to Lessee
to the extent possible consistent with clause (1) hereof; provided,
--------
however, in no event will the EBO Price be adjusted below the greatest of
-------
(i) the Termination Value for the Aircraft as of the EBO Date, (ii) __% of
Lessor's Cost (i.e., the fair market value of the Aircraft as of the EBO
Date as the same was determined on the Delivery Date) and (iii) __%
multiplied by the present value as of the EBO Date of (x) the remaining
Basic Rent plus (y) __% of Lessor's Cost (i.e., the fair market value of
the Aircraft as of the end of the Term as the same was determined on the
Delivery Date) (the present value calculation described in this clause
(iii) shall utilize a semi-annual discount rate that on a compound basis is
equal to ___% per annum).
(ii) [Intentionally reserved for potential future use.]
(iii) Any recalculation of Basic Rent and Excess Amount,
Stipulated Loss Value percentages, Termination Value percentages, EBO
Percentage and Special Termination Value Percentages pursuant to this
Section 3(c) (or pursuant to the definition of Stipulated Loss Value or
Termination
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Value) shall be determined by the Owner Participant and shall be subject to
the verification procedures set forth in Exhibit E hereto. Such
recalculated Basic Rent and Excess Amount, Stipulated Loss Value
percentages, Termination Value percentages, EBO Percentage and Special
Termination Value Percentages shall be set forth in an amendment hereto.
(iv) Anything contained in the Participation Agreement or this
Lease to the contrary notwithstanding, each installment of Basic Rent
payable hereunder, whether or not adjusted in accordance with this Section
3(c), together with the amount of Excess Amount and Supplemental Rent, if
any, in respect of the date on which such installment is payable, and each
payment of Termination Value, Stipulated Loss Value, EBO Price and Special
Termination Value whether or not adjusted in accordance with this Section
3(c) or Section 8 of the Tax Indemnity Agreement, and all other amounts
(excluding Excluded Payments payable simultaneously by Lessee pursuant to
this Lease), in each case, on the date on which such payment is due, shall
be in an amount at least sufficient to pay in full, and shall be available
to be applied by Lessor in payment on account of, any payments then
required to be made on account of the principal amount (and Premium, if
any) of and interest on the Loan Certificates then outstanding. It is
agreed that no installment of Basic Rent or payment of Excess Amount,
Termination Value, Stipulated Loss Value, Special Termination Value or EBO
Price, shall be increased or adjusted by reason of (A) any attachment or
diversion of Rent on account of (x) Lessor Liens (including for this
purpose Liens that would be Lessor Liens but for the proviso to the
definition of Lessor Liens) or (y) any other Lien on or against the Trust
Estate, any part thereof or the Operative Documents arising as a result of
claims against the Indenture Trustee or a Certificate Holder, not related
to the transactions contemplated by the Operative Documents, (B) any
modification of the payment terms of the Loan Certificates made without the
prior written consent of Lessee, or (C) the acceleration of any Loan
Certificate due to the occurrence of an "Event of Default" (as defined in
the Trust Indenture) which does not constitute an Event of Default
hereunder.
(v) All adjustments to Basic Rent under this Section 3(c) shall
be consistent with the requirements of Sections 4.02(5), 4.07(1) and (2)
and Section 4.08(1) of Rev. Proc. 75-28 (provided that the requirements of
Section 4.08(1) shall apply on a prospective basis), as modified and in
effect on the Delivery Date, and shall not cause the Lease to be a
"disqualified leaseback or long-term
19
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agreement" within the meaning of Section 467 of the Code as then in effect
and any final, temporary or proposed regulations thereunder or any
administrative or judicial interpretation thereof in effect on the date of
such adjustment (a "Section 467 Agreement") (it being understood that any
such adjustment shall not be treated as causing the Lease to be a Section
467 Agreement to the extent the Lease would have been a Section 467
Agreement if no such adjustment to Basic Rent had occurred).
(d) Supplemental Rent. Lessee shall pay (or cause to be paid)
-----------------
promptly to Lessor, or to whomsoever shall be entitled thereto, any and all
Supplemental Rent constituting Stipulated Loss Value, Termination Value, EBO
Price and Special Termination Values as the same shall become due and owing and
all other amounts of Supplemental Rent within five Business Days after demand or
on such date, or within such other relevant period, as may be provided in any
Operative Document, and in the event of any failure on the part of Lessee to pay
any Supplemental Rent when due, Lessor shall have all rights, powers and
remedies provided for herein or in any other Operative Document or by law or
equity or otherwise in the case of nonpayment of Basic Rent. Lessee shall also
pay on behalf of Lessor as Supplemental Rent an amount equal to any amount
payable by Lessor as Premium as and when any such Premium shall be due and
payable; provided, however, that Lessee shall have no obligation to pay on
behalf of Lessor any Premium payable under Section 6.01 or 6.02 of the Trust
Indenture due to the occurrence of an "Event of Default" (as defined in the
Trust Indenture) which does not constitute an Event of Default hereunder.
Lessee also will pay to Lessor, or on behalf of Lessor to whomsoever shall be
entitled thereto, on demand, as Supplemental Rent, to the extent permitted by
applicable law, interest at the Past Due Rate with respect to any part of any
installment of Basic Rent not paid prior to 11:00 a.m., New York City time, on
the date when due for any period for which the same shall be overdue and on any
payment of Supplemental Rent not paid prior to 11:00 a.m., New York City time,
on the date when due for the period until the same shall be paid.
(e) Payments in General. All payments of Rent other than Excluded
-------------------
Payments payable to Lessor shall be made directly by Lessee by wire transfer of
immediately available funds prior to 11:00 a.m., New York time, on the date of
payment in Dollars, to Lessor at its office at 225 Franklin Street, Boston,
Massachusetts 02110, Attention: _________________________ (or such other office
of Lessor in the continental United States or such other account as Lessor shall
direct in a notice to Lessee at least 10 Business Days prior to the date such
payment of Rent is due); provided, that so long as the Trust Indenture shall not
20
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have been fully discharged, Lessor hereby directs and Lessee agrees, that all
Basic Rent shall be paid directly to the Indenture Trustee at the times and in
funds specified in this Section 3(e) at the offices of the Indenture Trustee at
Two International Place, Boston, MA 02110, Attention: Corporate Trust Department
(or such other office of Indenture Trustee in the continental United States or
such other account as Indenture Trustee shall direct in a notice to Lessee at
least 10 Business Days prior to the date such payment of Basic Rent is due).
Excluded Payments shall be paid in Dollars in immediately available funds to the
Person to whom payable at the address of such Person specified in Schedule I of
the Participation Agreement.
Notwithstanding anything to the contrary contained herein, if any date
on which a payment of Rent becomes due and payable is not a Business Day then
such payment shall be made on the next succeeding Business Day and no interest
shall accrue on the amount of such payment, if such payment is made on such next
succeeding Business Day.
(f) [Intentionally Reserved for Potential Future Use].
-----------------------------------------------
(g) Prepayments of Certain Rent Payments. Lessor agrees to pay, on
------------------------------------
behalf of the Owner Participant, to the Indenture Trustee for the account of the
Certificate Holders on the Commencement Date an amount equal to the Excess
Amount. To the extent, if any, that there shall not have been received by the
Indenture Trustee at the account of the Indenture Trustee referred to in Section
3(e) by 11:00 a.m., New York City time, on the Commencement Date from Lessor, an
amount equal to the Excess Amount payable for such date, Lessee shall advance to
Lessor, as Prepaid Rent, by paying to the Indenture Trustee on behalf of Lessor
on the Commencement Date an amount equal to the Excess Amount not so paid (such
amount being herein called "Prepaid Rent"); provided that Lessee will also pay
to the Indenture Trustee, on demand, as Supplemental Rent, to the extent
permitted by applicable law, interest at the Debt Rate on any Prepaid Rent not
paid when due for any period for which the same shall be overdue. Lessor agrees
to reimburse Lessee in the manner and subject to the conditions provided in the
following sentence for (x) the Prepaid Rent so paid by Lessee determined as of
the date such payment was made, plus (y) the Supplemental Rent so paid by Lessee
pursuant to this Section 3(g), plus (z) accrued interest on the unreimbursed
portion thereof at a rate per annum equal to the greater of the Base Rate plus
2% or the Debt Rate plus 2% from the date such amount is paid by Lessee to but
not including the date of each such reimbursement (such amounts to be reimbursed
being herein called the "Reimbursement Amount"). So long as no Default or Event
of Default has occurred and is
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continuing, Lessee may with written notice to the Owner Participant and
Indenture Trustee offset (without duplication) against each succeeding payment
(other than as limited by the proviso to this sentence) due from Lessee to
Lessor in respect of Basic Rent, Stipulated Loss Value, Termination Value or any
other amount due hereunder to Lessor, until Lessee has been fully reimbursed for
the Reimbursement Amount; provided, however, that in the case of any payment due
from Lessee which is distributable under the terms of the Trust Indenture,
Lessee's right of offset shall be limited to amounts distributable to Lessor or
the Owner Participant thereunder. No such offset or aggregate combined effect
of separate offsets shall reduce the amount of any installment of Basic Rent to
an amount insufficient, together with all other amounts payable simultaneously
by Lessee, to pay in full the payments then required to be made on account of
the principal amount (and Premium, if any) of and interest on the Loan
Certificates then outstanding.
SECTION 4. Lessor's Representations and Warranties. LESSOR LEASES
---------------------------------------
AND LESSEE TAKES THE AIRCRAFT "AS-IS, WHERE-IS." LESSEE ACKNOWLEDGES AND AGREES
THAT AS BETWEEN LESSOR, ANY PARTICIPANT, THE INDENTURE TRUSTEE, AND LESSEE (A)
THE AIRFRAME AND EACH ENGINE IS OF SIZE, DESIGN, CAPACITY AND MANUFACTURE
SELECTED BY AND ACCEPTABLE TO LESSEE, (B) LESSEE IS SATISFIED THAT THE AIRFRAME
AND EACH ENGINE IS SUITABLE FOR ITS PURPOSES, (C) NEITHER LESSOR NOR OWNER
PARTICIPANT IS A MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND, AND (D)
NEITHER LESSOR, IN ITS INDIVIDUAL CAPACITY OR AS OWNER TRUSTEE, THE INDENTURE
TRUSTEE NOR THE OWNER PARTICIPANT MAKES, HAS MADE OR SHALL BE DEEMED TO HAVE
MADE, AND EACH WILL BE DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION,
DESIGN, OPERATION, VALUE, MERCHANTABILITY OR FITNESS FOR USE FOR A PARTICULAR
PURPOSE OF THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY
PART THEREOF, except as set forth in Sections 8(f)(vi) and 8(p)(ii) of the
Participation Agreement as to Lessor Liens and except that State Street Bank and
Trust Company, in its individual capacity, (i) represents and warrants that on
the Delivery Date, Lessor shall have received whatever title to the Aircraft was
conveyed to it by Lessee, (ii) represents and warrants that on the Delivery Date
the Aircraft shall be free of Lessor Liens (including for this purpose Liens
that would be Lessor Liens but for the proviso to the definition of Lessor
Liens) attributable to it in its individual capacity, (iii) covenants that it
will not, through its own actions or inactions, in such capacity, interfere in
Lessee's or any
22
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Sublessee's quiet enjoyment, use, operation or possession of the Aircraft unless
this Lease shall have been declared in default pursuant to Section 15 hereof,
(iv) agrees that it will not directly or indirectly create, incur, assume or
suffer to exist any Lessor Lien attributable to it in its individual capacity on
or with respect to the Airframe or any Engine or any portion of the Trust Estate
and (v) represents and warrants that it is a Citizen of the United States and
agrees that if at any time it shall cease to be a Citizen of the United States,
it will promptly resign as Owner Trustee (if and so long as such citizenship is
necessary under the Federal Aviation Act as in effect at such time or, if it is
not necessary, if and so long as the Owner Trustee's citizenship would have any
adverse effect on the Owner Participant, the Certificate Holders or Lessee),
effective upon the appointment of a successor Owner Trustee in accordance with
the provisions of the Trust Agreement. None of the provisions of this Section 4
or any other provision of this Agreement shall be deemed to amend, modify or
otherwise affect the representations, warranties or other obligations (express
or implied) of the Manufacturer, any subcontractor or supplier of the
Manufacturer with respect to the Airframe, Engines, or any Parts, or to release
the Manufacturer, or any such subcontractor or supplier from any such
representation, warranty or obligation. Unless a Section 14(a), 14(b), 14(f) or
14(g) Default or any Event of Default shall have occurred and be continuing,
Lessor agrees to make available to Lessee such rights as Lessor may have under
any warranty with respect to the Aircraft made by the Manufacturer or any of its
subcontractors or suppliers and any other claims against the Manufacturer or any
such subcontractor or supplier with respect to the Aircraft, all pursuant to and
in accordance with the terms of the Owner Trustee's Purchase Agreement.
SECTION 5. Return of the Aircraft. (a) Condition Upon Return.
---------------------- ---------------------
Unless purchased by Lessee pursuant to Section 19(b) hereof, upon the
termination of this Lease at the end of the Basic Term or any Renewal Term or
pursuant to Section 9(b) or 15 hereof, Lessee will at its expense return the
Aircraft to Lessor at Lessee's maintenance base located at San Francisco
International Airport (or any principal maintenance base established by Lessee
in the continental United States subsequent to the date hereof), provided that
upon the request of the Lessor given to Lessee at least ten (10) days prior to
the date of such return, Lessee shall return the Airframe to Lessor at a
location on Lessee's route system in the continental United States selected by
Lessor, provided that such location is served on a normal basis by Boeing Model
777-222 aircraft operated by Lessee, and Lessor shall reimburse Lessee on a net
after-tax basis for Lessee's out-of-pocket Expenses (including for this purpose
salary costs for Lessee's personnel) resulting from Lessee's
23
<PAGE>
return of the Aircraft to such alternate return location to the extent such out-
of-pocket Expenses exceed the out-of-pocket Expenses (including, for this
purpose, salary costs for Lessee's personnel) Lessee would have incurred in
returning the Aircraft to its principal maintenance base at San Francisco
International Airport, provided, further, however, that if Lessor shall have
made the request for storage pursuant to Section 5(d) hereof, Lessee shall at
its expense return the Aircraft at the site of storage. At the time of such
return, (A) Lessee will, at its own cost and expense, unless otherwise requested
by Lessor to retain the existing registration of the Aircraft, cause the
Aircraft, if it is not then so registered, to be registered under the laws of
the United States with the FAA in the name of Lessor or its designee, provided
that Lessee shall be relieved of its obligations under this sentence if such
registration is prohibited by reason of the failure of Lessor, the Owner
Participant or Lessor's designee to be eligible on such date to own an aircraft
registered with the Federal Aviation Administration, and (B) subject to Section
5(e) hereof, the Airframe will be fully equipped with the Engines (or Acceptable
Alternate Engines) installed thereon. Also, at the time of such return, Lessor
shall have good title to such Airframe and Engines or Acceptable Alternate
Engines, and such Airframe and Engines or Acceptable Alternate Engines (i) shall
be certified (or, if not then registered under the Federal Aviation Act by
reason of the proviso to clause (A) in the preceding sentence or because Lessor
has so requested that the Aircraft not be so registered, shall hold a valid
certificate of airworthiness issued by the country of registry and be eligible
for certification by the FAA) as an airworthy aircraft by the Federal Aviation
Administration, (ii) shall be free and clear of all Liens (other than Lessor
Liens (including for this purpose Liens that would be Lessor Liens but for the
proviso to the definition of Lessor Liens)) and rights of third parties under
pooling, interchange, overhaul, repair or other similar agreements or
arrangements, (iii) shall be in a regular passenger configuration, and in as
good a condition as when delivered by Lessee to Lessor, ordinary wear and tear
excepted and otherwise in the condition required to be maintained under the
Lease and under Lessee's FAA-approved maintenance plan (notwithstanding any
Sublease theretofore in effect) and shall be in compliance with all mandatory
environmental, noise, air pollution and other standards prescribed by the
federal government of the United States and applicable to the Aircraft
including, without limitation, standards relating to corrosion and structural
integrity and all other applicable manufacturer's mandatory service bulletins
(except for standards, laws, regulations, directives and bulletins that permit
compliance at a later time and would not, in the normal course of Lessee's
maintenance plan, be complied with by the date of return without discriminating
on the basis of the status of the Aircraft as a
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leased aircraft), (iv) in the event that Lessee shall not then be using a
continuous maintenance program with respect to the Airframe immediately prior to
such return but instead shall have been using a block overhaul program with
respect to the Airframe, then (A) such block overhaul program shall have been
approved by the government of registry of the Aircraft and (B) the Airframe
shall have remaining until the next scheduled block overhaul at least 25% of the
allowable hours between block overhauls permitted under the block overhaul
program then used by Lessee, (v) in the event that Lessee during the period of
operation of the Aircraft immediately prior to such return shall not have been
using an on-condition maintenance program with respect to the Engines (or
Acceptable Alternate Engines), Lessee agrees that the average number of hours or
cycles of operation (whichever shall be applicable under the maintenance program
then in use with respect to such Engines (or Acceptable Alternate Engines)) on
such Engines (or Acceptable Alternate Engines) remaining until the next
scheduled engine heavy maintenance shall be at least 25% of the hours or cycles
(whichever shall be applicable) between engine heavy maintenance allowed under
the maintenance program then in use with respect to such Engines (or Acceptable
Alternate Engines), (vi) shall have all Lessee's and any Sublessee's exterior
marking removed or painted over with areas thereof refinished to match adjacent
areas, and (vii) shall be in a state of cleanliness suitable under Lessee's
normal service standards for operation in Lessee's revenue passenger service and
in all such cases the Aircraft shall not have been discriminated against whether
by reason of its leased status or otherwise in maintenance, use, operation or in
any other manner whatsoever.
In addition, the following conditions shall be complied with at the
time of the return of the Aircraft: (i) Lessee shall deliver to Lessor any "no
cost" modification kits designated for the Aircraft that Lessee has in its
possession and that have not been incorporated at the time of the return of the
Aircraft, (ii) Lessor may purchase from Lessee at Lessee's cost any service
bulletin kits purchased or manufactured by Lessee for the Aircraft (provided
that Lessee shall not be obligated to sell to Lessor any service bulletin kit
manufactured by Lessee to the extent Lessee, in its reasonable judgment,
considers the same proprietary) and (iii) without limiting the obligations of
the Lessee set forth in the preceding paragraph, in the event the FAA shall
issue any directive which requires termination thereof prior to the return date,
then such directive shall be terminated prior to the return date, and if Lessee
shall have not been required to terminate such directive in the normal course of
its operations without discriminating against the Aircraft by reason of its
leased status or otherwise prior to the return of the Aircraft but such
directive must be terminated on or before six
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months following such return, then Lessee shall, at the sole cost and expense of
Lessor, comply with such directive but only if (x) at least 540 days prior to
the return of the Aircraft Lessee receives from Lessor a written request to
comply with such directive at Lessor's sole cost and expense (determined on the
basis of what a third party would charge for comparable services) and (y) after
receipt by Lessee of such request, the Aircraft is subject to a maintenance
check of the type at which such modification is made, in accordance with
Lessee's general maintenance program, and Lessee has, or can obtain using
commercial reasonable efforts taking into account the 540 day prior notice
received by Lessee, the personnel, parts, facilities and other resources
available to accomplish the modification and the modification can be made
without materially disrupting the operations of Lessee's maintenance facility or
Lessee's operations.
For purposes of this Section 5(a), any maintenance program used by
Lessee for airframes (including the Airframe) substantially similar to the
maintenance program described in the excerpts from ["United Air Lines 777
Maintenance Program"] furnished to Lessor and the Owner Participant prior to the
Delivery Date (a copy of which was attached to the certificate of the Assistant
Secretary of the Lessee delivered pursuant to Section 4(a)(vii)(6) of the
Participation Agreement) shall be considered a continuous maintenance program
(and not a block maintenance program) and any engine maintenance program used by
Lessee for engines (including the Engines) substantially similar to the
maintenance program described in "United Air Lines 777 Maintenance Program"
shall be considered an on-condition maintenance program.
In the event that the provisions of the preceding paragraph are
inapplicable and upon a return of the Aircraft pursuant to this Section 5,
Lessee and Lessor cannot agree as to whether Lessee, during the period of
operation of the Aircraft immediately prior to such return, shall have been
using a continuous maintenance program or a block overhaul program with respect
to the Airframe (including, without limitation, a dispute as to whether Lessee's
program is substantially similar to the program described in the excerpts to the
["United Air Lines 777 Maintenance Program"] furnished to Lessor as set forth in
the preceding paragraph), then Lessee and Lessor shall mutually appoint an
independent third party, satisfactory to both Lessee and Lessor, who shall make
such a determination, which determination shall be conclusive and final. Lessee
will provide, on a confidential basis, such independent third party with the
maintenance program and records applicable to the Aircraft necessary to make
such determination. The fee of such third party shall be paid equally by Lessor
and Lessee.
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If clause (iv) of the first paragraph of this Section 5(a) shall be
applicable but the Airframe does not meet the conditions specified in said
clause (iv), Lessee shall pay or cause to be paid to Lessor, concurrently with
the return thereof, a Dollar amount computed by multiplying (i) the fair market
cost of obtaining an airframe block overhaul of the type referred to in such
clause (iv) at a location in the United States that has been approved by the FAA
for such work by (ii) a fraction of which (x) the numerator shall be the excess
of 25% of the hours of operation allowable between such block overhauls over the
actual number of hours of operation remaining on the Airframe to the next such
block overhaul and (y) the denominator shall be the number of hours of operation
allowable between such block overhauls in accordance with such block overhaul
program.
If clause (v) of the first paragraph of this Section 5(a) shall be
applicable but the Engines (or Acceptable Alternate Engines) do not meet the
conditions specified in said clause (v), Lessee shall pay or cause to be paid to
Lessor, concurrently with the return thereof, a Dollar amount computed by
multiplying (i) the fair market cost of obtaining the scheduled engine heavy
maintenance under the maintenance program then used by Lessee for engines of the
same model as the Engines (or Acceptable Alternate Engines) at a location in the
United States that has been approved by the FAA for such work by (ii) a fraction
which (x) the numerator shall be the excess of 25% of the hours or cycles
(whichever is applicable) of operation of one Engine between engine heavy
maintenance allowable under the maintenance program then in use with respect to
such Engines (or Acceptable Alternate Engines) over the actual average number of
hours or cycles of operation of such Engines (or Acceptable Alternate Engines)
remaining until the next such scheduled engine heavy maintenance and (y) the
denominator shall be the number of hours or cycles allowable between such
scheduled engine heavy maintenance.
During the last six months of the Term (unless Lessee shall have
irrevocably elected to purchase the Aircraft or renew this Lease in accordance
with the terms of this Lease), with reasonable notice, Lessee will cooperate,
and cause any Sublessee to cooperate, at Lessor's sole cost, in all reasonable
respects with the efforts of Lessor to sell or lease the Aircraft, including,
without limitation, permitting prospective purchasers or lessees to inspect the
Aircraft, any maintenance records relating to the Aircraft then required to be
retained by the FAA or by the comparable government agency of the country in
which the Aircraft is registered, all in accordance with Section 12 hereof,
provided that any such cooperation shall not interfere with the normal operation
or maintenance of the Aircraft by, or the business of, Lessee or any Sublessee.
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<PAGE>
(b) Return of Other Engines. In the event that an Acceptable
-----------------------
Alternate Engine shall be delivered with the returned Airframe as set forth in
paragraph (a) of this Section 5, Lessee, concurrently with such delivery, will,
at no cost to Lessor, furnish, or cause to be furnished, to Lessor a full
warranty (as to title) bill of sale with respect to each such Acceptable
Alternate Engine, in form and substance reasonably satisfactory to Lessor
(together with an opinion of counsel (which may be Lessee's General Counsel) to
the effect that such full warranty bill of sale has been duly authorized and
delivered and is enforceable in accordance with its terms and that each such
Acceptable Alternate Engine is free and clear of all Liens other than Lessor
Liens (including for this purpose Liens that would be Lessor Liens but for the
proviso to the definition of Lessor Liens)) and will, to the extent applicable,
comply with the provisions of Section 9(d) as if Lessee had irrevocably elected,
in accordance with Section 9(d) hereof, to terminate the Lease with respect to
the Engine in replacement for which such Acceptable Alternate Engine is being
delivered and Lessor will provide a bill of sale, at Lessee's expense,
evidencing the transfer, without recourse or warranty (except as to the absence
of Lessor Liens (including for this purpose Liens that would be Lessor Liens but
for the proviso to the definition of Lessor Liens)) by Lessor to Lessee or its
designee of all of Lessor's right, title and interest in and to any Engine not
installed on the Airframe at the time of the return of the Airframe.
(c) Fuel and Manuals. Upon the return of the Airframe upon any
----------------
termination of this Lease in accordance with paragraph (a) of this Section 5,
(i) Lessee shall invoice Lessor, and Lessor shall pay to Lessee the amount of
Lessee's cost for any fuel or oil contained in the fuel or oil tanks on the
Airframe, and (ii) Lessee shall deliver or cause to be delivered to Lessor all
logs, manuals and data and inspection, modification and overhaul records in the
English language (or an English translation of the same), (A) required to be
maintained with respect to the Airframe, the Engines or any part thereof in
accordance with Section 7(a) hereof, (B) created since the Airframe's or
Engine's or Acceptable Alternate Engine's (whichever is applicable) last heavy
maintenance visit and (C) required to lawfully operate the Aircraft in the
United States under a United States Certificate of Airworthiness without
performing additional maintenance.
(d) Storage Upon Return. If, at any time at least 30 days prior to
-------------------
the end of the Basic Term or any Renewal Term or pursuant to Section 9(c) or
Section 15, Lessee receives from Lessor a written request for storage of the
Aircraft upon its return hereunder, Lessee will provide Lessor, or cause Lessor
to be provided, with storage facilities for the Aircraft (at
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<PAGE>
Lessor's risk and at Lessor's cost for insurance, maintenance and Lessee's
reasonable out-of-pocket expenses other than storage fees) for a period not
exceeding forty-five (45) days (and upon prior written notice from Lessor to
Lessee given at least 10 days prior to the end of such 45 day period, at
Lessor's risk and at Lessor's cost for insurance, maintenance and Lessee's
reasonable out-of-pocket expenses including storage fees, for an additional
period not exceeding 45 days) commencing on the date of such termination, at a
location in the forty-eight contiguous states of the United States selected by
Lessee and used as a location for the storage of aircraft. Lessee shall, at
Lessor's written request, maintain insurance (if available) for the Aircraft
during such period and shall be reimbursed by Lessor for the premiums thereon.
(e) Purchase of Engine. In the event that Lessee shall have paid the
------------------
Stipulated Loss Value for any Engine pursuant to Section 10(b) hereof and all
other amounts due and owing under said Section 10(b), then, notwithstanding
anything contained in this Section 5, Lessee shall, subject to the proviso
below, be under no obligation to return any engine installed on the Airframe in
replacement for such Engine to Lessor upon the termination of this Lease;
provided, however, that in such event Lessor shall have the right upon
termination of this Lease (unless Lessee shall have exercised any of its options
to purchase the Aircraft pursuant to Section 19), at its sole option, to
purchase from Lessee an engine or engines suitable for use on the Airframe and
compatible with the other Engine (if any) or the other engine purchased under
this Section 5(e) for such engine's then Fair Market Sales Value and any such
engine shall be installed at no cost to Lessor on the Airframe on the return
thereof.
(f) Severable Parts. At any time after Lessee has advised Lessor that
---------------
it has determined not to renew this Lease or purchase the Aircraft, or the
Aircraft is otherwise to be returned to Lessor, Lessee shall, at Lessor's
request, advise Lessor of the nature and condition of all severable Parts owned
by Lessee which have been used by Lessee during the prior six months and which
Lessee has or intends to remove from the Aircraft as permitted by Section 8
hereof. Lessor may, at its option, upon 30 days written notice to Lessee,
purchase any or all of such Parts from Lessee upon the expiration of the Term at
their then fair market value.
(g) Special Redelivery Provision. Not less than 30 days prior to (A)
----------------------------
the date of redelivery of the Aircraft by Lessee to Lessor in accordance with
this Section 5, (B) the date of redelivery to Lessor or a purchaser pursuant to
Section 9(c) or Section 15 hereof, or (C) a purchase of the Aircraft by Lessee
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<PAGE>
pursuant to Section 19(b), Lessor may provide Lessee with a proposal regarding
the arranging of delivery of the Aircraft so as to enable Lessor to realize
"foreign trade income" (as defined in Section 923(b) of the Code or any
successor provision thereto) from the sale or re-lease of the Aircraft, and
Lessee shall (i) arrange delivery at Lessor's cost (unless the delivery site is
as provided in Section 5(a) hereof) either inside or outside the United States,
as specified in Lessor's proposal, and (ii) otherwise comply with such proposal
to the extent Lessee can do so without incurring any cost, expense or liability
not indemnified against by Lessor in a manner in form and substance reasonably
satisfactory to Lessee.
SECTION 6. Liens. Lessee will not directly or indirectly create,
-----
incur, assume or suffer to exist any Lien on or with respect to the Aircraft,
title thereto or any interest therein or in this Lease, except (i) the
respective rights of Lessor as owner of the Aircraft and Lessee as herein
provided (including any Sublease permitted pursuant to Section 7(b)), the Lien
of the Trust Indenture, and any other rights existing pursuant to the Operative
Documents, (ii) Lessor Liens (including for this purpose Liens that would be
Lessor Liens but for the proviso to the definition of Lessor Liens), (iii) Liens
for Taxes of Lessee (or any Sublessee) either not yet due or being contested in
good faith by appropriate proceeding so long as such proceedings do not involve
any material risk of the sale, forfeiture or loss of the Airframe or any Engine
or any interest thereon, (iv) materialmen's, mechanics', workmen's, repairmen's,
employees' or other like liens arising in the ordinary course of Lessee's or any
Sublessee's business securing obligations that are not overdue for a period of
more than 30 days or are being contested in good faith by appropriate
proceedings so long as during such 30 day period there is not, or such
proceedings do not involve, any material risk of the sale, forfeiture or loss of
the Airframe or any Engine or any interest therein, (v) Liens arising out of any
judgment or award against Lessee (or any Sublessee), unless there exists a
material risk of the sale, forfeiture or loss of the Airframe or any Engine or
any interest therein or unless the judgment secured shall not, within 45 days
after the entry thereof, have been discharged, vacated, reversed or execution
thereof stayed pending appeal or shall not have been discharged, vacated or
reversed within 45 days after the expiration of such stay, and (vi) any other
Lien with respect to which Lessee (or any Sublessee) shall have provided a bond
or other security in an amount and under terms reasonably satisfactory to
Lessor. Lessee will promptly, at its own expense, take (or cause to be taken)
such actions as may be necessary duly to discharge any such Lien not excepted
above if the same shall arise at any time.
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SECTION 7. Registration, Maintenance and Operation; Possession and
--------------------------------------- --------------
Subleases; Insignia. (a) (1) Registration and Maintenance. Lessee, at its
- ------------------- ----------------------------
own cost and expense, shall (or shall cause any Sublessee to): (i) upon
delivery of the Aircraft, cause the Aircraft to be duly registered in the name
of Lessor, and, subject to subparagraph (3) of this Section 7(a), to remain duly
registered in the name of Lessor under the Federal Aviation Act (except to the
extent that such registration cannot be effected because of Lessor's or the
Owner Participant's failure to comply with the citizenship requirements for
registration of aircraft under such Act), provided that Lessor and the Owner
Participant shall execute and deliver all such documents as Lessee (or any
Sublessee) may reasonably request for the purpose of effecting and continuing
such registration, and Lessee shall cause the Trust Indenture to be duly
recorded and maintained of record as a first mortgage on the Aircraft; (ii)
maintain, service, repair, and overhaul (or cause to be maintained, serviced,
repaired, and overhauled) the Aircraft (and any engine which is not an Engine
but which is installed on the Aircraft) (x) so as (p) at all times to keep the
Aircraft in as good an operating condition as when delivered by Manufacturer to
Lessee, ordinary wear and tear excepted, and (q) to keep the Aircraft in such
condition as may be necessary to enable the airworthiness certification for the
Aircraft to be maintained in good standing at all times (other than during
temporary periods of storage in accordance with applicable regulations) under
(I) the Federal Aviation Act, except when all of Lessee's Boeing Model 777-222
aircraft (powered by engines of the same type as those with which the Airframe
shall be equipped at the time of such grounding) registered in the United States
have been grounded by the FAA unless such grounding was caused by the failure of
Lessee to maintain, service, repair or overhaul the Aircraft in accordance with
this Lease, or (II) the applicable laws of any other jurisdiction in which the
Aircraft may then be registered from time to time, except when all of Lessee's
Boeing Model 777-222 aircraft (powered by engines of the same type as those with
which the Airframe shall be equipped at the time of such grounding) registered
in such jurisdiction have been grounded by the aeronautical authority of such
jurisdiction unless such grounding was caused by the failure of Lessee to
maintain, service, repair or overhaul the Aircraft in accordance with this Lease
and (y) in substantially the same manner as Lessee (or any Sublessee) maintains,
services, repairs or overhauls similar aircraft operated by Lessee (or such
Sublessee) in similar circumstances and without in any way discriminating
against the Aircraft, whether by reason of its leased status or otherwise,
including, without limitation, in regard to the termination of airworthiness
directives; or such other manner as shall have been approved in writing by the
Owner Participant; (iii) maintain or cause to be maintained in the English
language
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(or with appropriate English translation) all records, logs and other materials
required to be maintained in respect of the Aircraft by the FAA or the
applicable regulatory agency or body of any other jurisdiction in which the
Aircraft may then be registered (which records, logs and other materials, as
between Lessor and Lessee and all parties claiming through Lessee, shall be the
property of Lessor but shall be maintained by Lessee during the Term of this
Lease and shall become the property of Lessee upon Lessee's purchase of the
Aircraft pursuant to the terms of this Lease or upon the occurrence of an Event
of Loss and Lessee's compliance with Section 10); and (iv) promptly furnish or
cause to be furnished to Lessor or the Owner Participant such information as may
be reasonably required to enable Lessor or the Owner Participant to file any
reports required to be filed by Lessor or the Owner Participant with any
governmental authority because of Lessor's ownership of the Aircraft.
(2) Operation. Lessee will not (or permit any Sublessee to) maintain,
---------
use, service, repair, overhaul or operate the Aircraft in violation of any law
or any rule, regulation, treaty, order or certificate of any government or
governmental authority (domestic or foreign) having jurisdiction, or in
violation of any airworthiness certificate, license or registration relating to
the Aircraft issued by any such authority, except that, after Lessee shall have
provided Lessor and, so long as the Lien of the Trust Indenture shall not have
been released, the Indenture Trustee with a certificate of its President, any
Vice President, the Treasurer or any Assistant Treasurer stating all relevant
facts pertaining thereto, Lessee or any Sublessee may contest in good faith the
validity or application of any such law, rule, regulation, order, certificate,
license, registration or violation in any reasonable manner which does not
jeopardize the right, title and interest of the Lessor or the Owner Participant
in and to the Airframe and/or the Engines or otherwise materially adversely
affect Lessor, the Indenture Trustee or the Owner Participant but only so long
as such proceedings do not involve any risk of criminal liability or any
unindemnified material risk of civil liability to Lessor or the Owner
Participant for which the Lessee is not then willing to indemnify Lessor or the
Owner Participant in a manner reasonably satisfactory to such Person. If the
indemnities or insurance specified in Section 11(f), or some combination thereof
in amounts equal to amounts required by Section 11(f), have not been obtained,
Lessee will not operate the Aircraft, or permit any Sublessee to operate the
Aircraft, in or to any area excluded from coverage by any insurance required to
be maintained by the terms of Section 11, provided, however, that the failure of
Lessee to comply with the provisions of this sentence shall not give rise to an
Event of Default hereunder where such failure is
32
<PAGE>
attributable to a hijacking, medical emergency, equipment malfunction, weather
conditions, navigational error or other isolated extraordinary event beyond the
control of Lessee and Lessee is taking all reasonable steps to remedy such
failure as soon as is reasonably practicable.
(3) Reregistration. At any time after the Restricted Period, Lessor
--------------
shall, at the request and sole expense of Lessee, cooperate with Lessee and take
all actions required to change the country of registration of the Aircraft in
compliance with and subject to the terms and conditions of Section 8(e) of the
Participation Agreement.
(4) Operating Certificates. Lessor hereby authorizes Lessee, at
----------------------
Lessee's sole cost, expense and risk, to act as its agent for the purpose (but
only for the purpose) of obtaining any required replacement operating
certificates from the FAA; provided, however, that in the event that Lessee
shall have received from Lessor written notice that an Event of Default shall
have occurred and be continuing, this authority shall not apply for a period
from the date of receipt of such notice to such time as such Event of Default
shall have been cured by Lessee or waived by Lessor. This authority includes
(without expanding in any way the nature of the limited authority granted
pursuant to the first sentence of this Section 7(a)(4)), but is not limited to,
obtaining registration certificates, airworthiness certificates, certificates of
sanitary construction and ferry permits. In particular, this authority includes
the ability to make use of Exemption No. 5318 issued by the FAA. This authority
will allow duly authorized personnel of Lessee to sign any application forms
required in the process of obtaining such operating certificates, and this
authority will also allow such personnel, where necessary and appropriate, to
sign certificates as the attorney-in-fact for Lessor. Lessee hereby agrees that
it will promptly notify Lessor of any action that it has taken in accordance
with this Section 7(a)(4) as agent for the Lessor. Nothing in this Section
7(a)(4) shall permit the Lessee to change the country of registry of the
Aircraft except as provided in Section 7(a)(3) above.
(b) Possession and Subleases. Lessee will not, without the prior
------------------------
written consent of Lessor, sublease or otherwise in any manner deliver, transfer
or relinquish possession of the Airframe or any Engine or install or permit any
Engine to be installed on any airframe other than the Airframe; provided that,
so long as no Section 14(a), (b), (f) or (g) Default or, in the case of
paragraph (viii) of this Section 7(b), no Section 14(d) (solely with respect to
Lessee's obligations under Section 7(a) or (b)(viii) hereof or Section 8 hereof)
Default, or any Event of Default shall have occurred and be
33
<PAGE>
continuing at the time of such sublease, delivery, transfer or relinquishment of
possession or installation, and so long as the action to be taken shall not
deprive the Indenture Trustee of the Lien of the Trust Indenture on the Airframe
or any Engine and Lessee and any Sublessee shall continue to comply with the
provisions of Sections 7(a) and 11, Lessee may, without the prior written
consent of Lessor:
(i) subject the Airframe and the Engines or engines then
installed thereon to normal interchange agreements or any Engine to normal
pooling or similar arrangements, in each case customary in the airline
industry and entered into by Lessee (or any Sublessee) in the ordinary
course of its business and, in the case of the Airframe, (x) with a U.S.
Air Carrier not in bankruptcy or a Permitted Sublessee or (y) any other air
carrier approved by Lessor; provided, that (A) no such agreement or
arrangement contemplates or requires the transfer of title to the Airframe,
and (B) if Lessor's title to any Engine shall be divested under any such
agreement or arrangement, Lessee shall be deemed to have irrevocably
elected, in accordance with Section 9(d) hereof, to terminate the Lease
with respect to such Engine on the Business Day next following the 44th day
following such divestiture and Lessee shall (or shall cause any Sublessee
to) comply with Section 9(d) hereof in respect thereof;
(ii) deliver possession of the Airframe or any Engine to the
manufacturer thereof or to any other Person for testing, service, repair,
maintenance or overhaul work on the Airframe or Engine or any Part of any
thereof or for alterations or modifications in or additions to such
Airframe or Engine to the extent required or permitted by the terms of
Section 8(c) hereof;
(iii) install an Engine on an airframe owned by Lessee (or any
Sublessee) which airframe is free and clear of all Liens, except: (A)
Permitted Liens and those which apply only to the engines (other than
Engines), appliances, parts, instruments, appurtenances, accessories,
furnishings and other equipment (other than Parts) installed on such
airframe (but not to the airframe as an entirety), (B) the rights of third
parties under interchange agreements which would be permitted under clause
(i) above, provided that Lessor's title to such Engine shall not be
divested as a result thereof and (C) mortgage Liens or other security
interests, provided, that (as regards this clause (C)), such mortgage Liens
or other security interests effectively provide that such Engine shall not
become subject to the
34
<PAGE>
lien of such mortgage or security interest, notwithstanding the
installation thereof on such airframe;
(iv) install an Engine on an airframe leased to Lessee (or any
Sublessee) or purchased by Lessee (or any Sublessee) subject to a
conditional sale or other security agreement, provided that (x) such
airframe is free and clear of all Liens, except: (A) the rights of the
parties to the lease or conditional sale or other security agreement
covering such airframe, or their assignees, and (B) Liens of the type
permitted by subparagraph (iii) of this paragraph (b) and (y) such lease,
conditional sale or other security agreement effectively provides that such
Engine shall not become subject to the lien of such lease, conditional sale
or other security agreement, notwithstanding the installation thereof on
such airframe;
(v) install an Engine on an airframe owned by Lessee (or any
Sublessee), leased to Lessee (or any Sublessee) or purchased by Lessee (or
any Sublessee) subject to a conditional sale or other security agreement
under circumstances where neither subparagraph (iii) nor subparagraph (iv)
of this paragraph (b) is applicable, provided that in the event of such
installation, Lessee shall be deemed to have irrevocably elected, in
accordance with Section 9(d) hereof, to terminate the Lease with respect to
such Engine on the Business Day next following the 44th day following such
installation and Lessee shall (or shall cause any Sublessee to) comply with
Section 9(d) hereof in respect thereof, Lessor not intending hereby to
waive any right or interest it may have to or in such Engine under
applicable law until compliance by Lessee with such Section 9(d);
(vi) transfer (or permit any Sublessee to transfer) possession of
the Airframe or any Engine to the United States of America or any
instrumentality or agency thereof pursuant to the Civil Reserve Air Fleet
Program for a period, including all permissible renewal periods (so long as
such renewal options have been irrevocably exercised by Lessee), that does
not extend beyond the end of the Term so long as Lessee (or any Sublessee)
shall promptly notify Lessor (x) upon transferring possession of the
Airframe or any Engine to the United States of America or any agency or
instrumentality thereof pursuant to the Civil Reserve Air Fleet Program and
(y) of the name and the address of the Contracting Office Representative
for the Military Airlift Command of the United States Air Force to whom
notice must be given pursuant to Section 15 hereof;
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(vii) transfer possession of the Airframe or any Engine to the
United States of America or any instrumentality or agency thereof pursuant
to a contract, a copy of which shall be provided to Lessor provided that
the term of such contract, including all permissible renewal periods (so
long as such renewal options have been irrevocably exercised by Lessee),
shall not continue beyond the end of the Term; or
(viii) So long as the Sublessee is not subject to a proceeding or
final order under applicable bankruptcy, insolvency or reorganization laws
on the date the Sublease is entered into, Lessee may, at any time, enter
into a sublease with (1) a U.S. Air Carrier, (2) after the Restricted
Period any Permitted Sublessee, provided that in the event such Permitted
Sublessee is domiciled in a country listed on Exhibit F hereto and
designated therein as a "Restricted Country" such Sublessee shall be deemed
a Permitted Sublessee only if its country of domicile at the time of such
subleasing imposes and enforces aircraft maintenance standards not
materially less stringent than those of the FAA or the central aviation
authority of any of Canada, France, Germany, Japan or the United Kingdom,
or (3) after the Restricted Period any other Person approved in writing by
the Owner Participant, which approval shall not be unreasonably withheld if
in regard to this subclause (3) (x) the proposed sublessee's country of
domicile imposes maintenance standards not materially less stringent than
those of the FAA or the central aviation authority of any of Canada,
France, Japan, Germany, or the United Kingdom and (y) Lessor, Owner
Participant and the Indenture Trustee receive an opinion of counsel
reasonably acceptable to Lessor, in its individual capacity, and Owner
Participant that the terms of the sublease and other Operative Documents
will be valid in the country where Sublessee is domiciled; that no
Participant is required to register to do business in the Sublessee's
country of domicile; that there is no tort liability for owners not in
possession that is more extensive than under United States law or any state
law (it being understood that if such opinion cannot be given in a form
reasonably satisfactory to the Owner Participant such opinion will be
waived if insurance reasonably satisfactory to the Owner Participant and
the Lessor, in its individual capacity, is provided at Lessee's expense to
cover such risk); that fair compensation in a currency freely convertible
into Dollars is mandated if there is a requisition of use or title of the
Aircraft by the country in which the Sublessee is domiciled (it being
understood that if such opinion cannot be given in a form reasonably
satisfactory to the Owner Participant such opinion will be
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waived if insurance reasonably satisfactory to the Owner Participant, is
provided at Lessee's expense to cover such risk); that there exist no
possessory rights in favor of the Sublessee which upon Lessee's bankruptcy
or other Default hereunder (assuming the Sublessee is not then bankrupt)
would prevent the return of the Aircraft in accordance with the terms
hereof or inhibit the Lessor's rights therein; and as to such other matters
as Lessor, in its individual capacity, and the Owner Participant may
reasonably request, provided, however, (A) that no sublease, including all
permissible renewal periods, shall extend beyond the Basic Term or any
Renewal Term then in effect, unless Lessee shall have irrevocably committed
to purchase the Aircraft or renew the Lease in accordance with the terms
thereof at the end of the Basic Term or Renewal Term, as the case may be,
to a date beyond the latest permissible expiration date of such sublease,
(B) that, on the date of such sublease, the United States and the country
in which sublessee is domiciled and principally located maintain diplomatic
relations, (C) that on or prior to entering into such sublease, Lessee
shall provide to the Lessor, the Owner Participant and, so long as the Lien
of the Trust Indenture shall not have been released, the Indenture Trustee
assurances reasonably satisfactory to Lessor, in its individual capacity,
and Owner Participant to the effect that the provisions of Section 11
hereof have been complied with after giving effect to such sublease and (D)
that, in the case of a sublease to a sublessee described in (3) above, if
the country of domicile of the proposed sublessee at the time of such
subleasing has not unqualifiedly ratified the Geneva Convention for
International Recognition of Rights in Aircraft, the Lessee shall provide
Lessor to the Lessor and, so long as the Lien of the Trust Indenture shall
not have been released, the Indenture Trustee an opinion of counsel, which
counsel and opinion shall be reasonably satisfactory to the Owner
Participant, to the effect that the country in which such sublessee has its
principal office and domicile would give effect to (i) the title of Lessor
in and to the Aircraft, (ii) the registry of the Aircraft in the name of
Lessor (or Lessee or Sublessee, as "lessee" or "sublessee" as appropriate)
and (iii) the priority and validity of the Lien of the Trust Indenture.
The rights of any Sublessee or other transferee (other than a
transferee where the transfer is of an Engine which is deemed a termination
under Section 9(d)) shall be subject and subordinate to, all the terms of the
Lease (and any Sublease shall expressly state that it is so subject and
subordinate), including, without limitation, the covenants contained in Section
7(a) hereof, the inspection rights contained in
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Section 12 hereof and Lessor's (and, so long as the Trust Indenture is in
effect, the Indenture Trustee's (as Lessor's assignee)) rights to repossess the
Aircraft and to void any Sublease upon such repossession, and Lessee shall
remain primarily liable for the performance of all of the terms of the Lease,
and the terms of any such Sublease shall not permit any Sublessee to take any
action not permitted to be taken by Lessee in the Lease with respect to the
Aircraft. No pooling agreement, Sublease or other relinquishment of possession
of the Airframe or any Engine shall in any way discharge or diminish any of
Lessee's obligations to Lessor under this Lease or constitute a waiver of
Lessor's rights or remedies hereunder. Lessor agrees, for the benefit of Lessee
(and any Sublessee) and for the benefit of any mortgagee or other holder of a
security interest in any engine owned by Lessee (or any Sublessee), any lessor
of any engine other than an Engine leased to Lessee (or any Sublessee) and any
conditional vendor of any engine other than an Engine purchased by Lessee (or
any Sublessee) subject to a conditional sale agreement or any other security
agreement, that no interest shall be created under the Lease in any engine so
owned, leased or purchased and that neither Lessor nor its successors or assigns
will acquire or claim, as against Lessee (or any Sublessee) or any such
mortgagee, lessor or conditional vendor or other holder of a security interest
or any successor or assignee of any thereof, any right, title or interest in
such engine as the result of such engine being installed on the Airframe;
provided, however, that such agreement of Lessor shall not be for the benefit of
any lessor or secured party of an airframe leased to Lessee (or any Sublessee)
or purchased by Lessee (or any Sublessee) subject to a conditional sale or other
security agreement or for the benefit of any mortgagee or any other holder of a
security interest in an airframe owned by Lessee (or any Sublessee), on which
airframe Lessee (or any Sublessee) then proposes to install an Engine, unless
such lessor, conditional vendor, other secured party or mortgagee has expressly
agreed (which agreement may be contained in such lease, conditional sale or
other security agreement or mortgage) that neither it nor its successors or
assigns will acquire, as against Lessor, any right title or interest in an
Engine as a result of such Engine being installed on such airframe. Lessee
shall provide the Owner Participant and the Indenture Trustee (A) written notice
(which notice shall be given (i) no later than thirty (30) days prior to
entering into any Sublease with a term of more than one (1) year or (ii) at any
time prior to (to the extent that the giving of prior notice is reasonably
possible) or promptly after entering into any Sublease with a term of one (1)
year or less) of any Sublease and (B) a copy of any Sublease which has a term of
more than one (1) year.
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Lessee shall assign any Sublease to Lessor as security for its
obligations hereunder pursuant to an assignment instrument reasonably
satisfactory to Lessor; provided, however, that any such assignment instrument
shall provide that the assignment of the Sublease shall only be effective,
without any further action, immediately upon the occurrence of a Section 14(a),
14(b), 14(f) or 14(g) Default or any Event of Default (and such effectiveness
shall terminate upon the curing or waiver of the aforesaid Defaults or Events of
Default). In addition, any Sublease entered into by Lessee shall provide that
all payments due under such Sublease shall be paid by the Sublessee to Lessor
during the continuance of a Section 14(a), 14(b), 14(f) or 14(g) Default or an
Event of Default.
In the event that during the term of a Sublease the Aircraft shall
have been maintained under a block-overhaul program, Lessee shall at its option
either (i) cause the Aircraft to be returned to the Lessee by the Sublessee no
later than three months prior to the end of the Term and Lessee shall upon such
return incorporate the Aircraft into Lessee's continuous maintenance program for
aircraft of the same make and model and in active commercial service or (ii)
upon return of the Aircraft to Lessor pursuant to Section 5(a), Lessee shall
comply with those return conditions set forth in such Section 5(a) applicable in
the event Lessee had adopted a block-overhaul program.
Any Wet Lease or similar arrangement under which Lessee maintains
operational control of the Aircraft shall not constitute a delivery, transfer or
relinquishment of possession for purposes of this section. Lessor acknowledges
that any consolidation or merger of Lessee or conveyance, transfer or lease of
all or substantially all of Lessee's assets permitted by the Operative Documents
shall not be prohibited by this Section.
No Sublease permitted pursuant to this Section shall permit any
further sub-subleasing of the Aircraft.
(c) Insignia. On or prior to the Delivery Date, or as soon thereafter
--------
as practicable, Lessee agrees to affix and maintain (or cause to be affixed and
maintained) in the cockpit of the Airframe adjacent to the registration
certificate therein and on each Engine a nameplate bearing the inscription:
Leased From
State Street Bank and Trust Company, not in its individual capacity
but solely as Owner Trustee, Owner and Lessor
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and, for so long as the Airframe and each Engine shall be subject to the Lien of
the Trust Indenture, bearing the following additional inscription:
Mortgaged To
First Security Bank of Utah, National Association, as Indenture
Trustee
(such nameplate to be replaced, if necessary, with a nameplate reflecting the
name of any successor Lessor or successor Indenture Trustee, in each case as
permitted under the Operative Documents).
Except as above provided, Lessee will not allow the name of any
person, association or corporation to be placed on the Airframe or on any Engine
as a designation that might be interpreted as a claim of ownership; provided,
that nothing herein contained shall prohibit Lessee (or any Sublessee) from
placing its customary colors and insignia on the Airframe or any Engine.
SECTION 8. Replacement and Pooling of Parts;
---------------------------------
Alterations, Modifications and Additions.
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(a) Replacement of Parts. Lessee, at its own cost and expense, will
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promptly replace or cause