Doc. No. 1.01
Aircraft N777UA
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PARTICIPATION AGREEMENT
(1995 777 A)
Dated as of May 1, 1995
Among
UNITED AIR LINES, INC.,
Lessee,
_________________,
Owner Participant,
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
in its capacity as
Pass Through Trustee under each of the
Pass Through Trust Agreements,
STATE STREET BANK AND TRUST COMPANY,
Not in its Individual Capacity,
except as expressly provided herein,
but solely as Owner Trustee,
and
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
In its Individual Capacity and as Indenture Trustee
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United Air Lines, Inc.
1995 777 A Equipment Trust
One Boeing 777-222 Aircraft
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TABLE OF CONTENTS
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Page
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SECTION 1. Certain Definitions; Participations in
Lessor's Cost of the Aircraft.......... 3
SECTION 2. Lessee's Notice of Delivery Date........ 4
SECTION 3. Instructions to the Owner Trustee and
Indenture Trustee...................... 5
SECTION 4. Conditions.............................. 6
(a) Conditions Precedent to the
Participations in the Aircraft.... 6
(b) Conditions Precedent to the
Obligations of Lessee............. 15
SECTION 5. Confidentiality of Purchase Agreement... 16
SECTION 6. Extent of Interest of Certificate
Holders................................ 17
SECTION 7. Lessee's Representations, Warranties
and Indemnities
(a) In General........................ 17
(b) General Tax Indemnity............. 22
(c) General Indemnity................. 34
(d) Withholding....................... 40
SECTION 8. Representations, Warranties and
Covenants.............................. 40
SECTION 9. [Intentionally Omitted]................. 63
SECTION 10. Other Documents; Amendment.............. 63
SECTION 11. Certain Covenants of Lessee............. 64
SECTION 12. Owner for Income Tax Purposes........... 65
SECTION 13. Notices; Consent to Jurisdiction........ 65
SECTION 14. Change of Situs of Owner Trust.......... 66
SECTION 15. Miscellaneous........................... 67
SECTION 16. Invoices and Payment of Expenses........ 69
SECTION 17. Optional Redemption of Certificates..... 70
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Page
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SECTION 18. Optimization............................ 74
SECTION 19. Nondisclosure.......................... 75
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SCHEDULES
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SCHEDULE I -- Names and Addresses
SCHEDULE II -- Commitments
SCHEDULE III -- Legal Opinions
EXHIBIT A-1 -- Form of Transferor Opinion Re: Transfer of
Owner Participant's Interest
EXHIBIT A-2 -- Form of Transferee Opinion Re: Transfer of
Owner Participant's Interest
EXHIBIT B -- Form of Assignment and Assumption Agreement
EXHIBIT C -- Form of Guaranty Agreement
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PARTICIPATION AGREEMENT
(1995 777 A)
THIS PARTICIPATION AGREEMENT (1995 777 A) dated as of May 1, 1995
among (i) United Air Lines, Inc., a Delaware corporation (the "Lessee"), (ii)
[____________], a corporation organized under the laws of Delaware (the "Owner
Participant"), (iii) 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 (the "Owner Trustee"),
(iv) FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, a national banking
association, not in its individual capacity, except as otherwise provided
herein, but solely as trustee under the Pass Through Trust Agreement (the "Pass
Through Trustee"), dated as of February 1, 1992, as amended and restated as of
May 1, 1995 (the "Basic Agreement"), in each case between the Lessee and STATE
STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, as
supplemented by Trust Supplements Nos. 1995-A1 and 1995-A2, each dated as of May
__, 1995 between the Lessee and the Pass Through Trustee creating the 1995-A1
Pass Through Trust and the 1995-A2 Pass Through Trust, respectively (the Basic
Agreement as so supplemented being the "1995-A1 Pass Through Trust Agreement"
and the "1995-A2 Pass Through Trust Agreement", respectively, each of the 1995-
A1 Pass Through Trust Agreement and the 1995-A2 Pass Through Trust Agreement
being a "Pass Through Trust Agreement") and (v) FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION, a national banking association, in its individual capacity
and as Indenture Trustee under the Trust Indenture (the "Indenture Trustee").
WITNESSETH:
WHEREAS, pursuant to the Purchase Agreement between Lessee and the
Manufacturer, the Manufacturer has agreed to sell to Lessee, among other things,
certain Boeing Model 777-222 aircraft, one of which has been recently purchased
from the Manufacturer by Lessee and is the subject of this Agreement; and
WHEREAS, concurrently with the execution and delivery of this
Agreement, the Owner Participant is entering into the Trust Agreement pursuant
to which Trust Agreement the Owner Trustee agrees, among other things, to hold
the Trust Estate defined in Section 1.01 thereof (the "Trust Estate") for the
use and benefit of the Owner Participant; and
WHEREAS, concurrently with the execution and delivery of this
Agreement,
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(i) Lessee and the Owner Trustee are entering into the Owner Trustee's
Purchase Agreement and Assignment (1995 777 A) dated as of May 1, 1995 (the
"Owner Trustee's Purchase Agreement"), whereby Lessee agrees to sell the
Aircraft to the Owner Trustee and assigns to the Owner Trustee certain
rights and interests of Lessee under the Purchase Agreement with respect to
the Aircraft; and
(ii) the Manufacturer has executed the Consent and Agreement (1995
777 A) dated as of May 1, 1995 substantially in the form attached to the
Owner Trustee's Purchase Agreement, with respect to the Owner Trustee's
Purchase Agreement; and
WHEREAS, the Indenture Trustee and the Owner Trustee concurrently with
the execution and delivery of this Agreement are entering into the Trust
Indenture and Mortgage (1995 777 A) dated as of May 1, 1995 pursuant to which
the Owner Trustee agrees, among other things, to issue one or more Loan
Certificates in the form set forth in Exhibit A-1 or Exhibit A-2 to the Trust
Indenture to each Pass Through Trustee on behalf of the related grantor trusts
created by the applicable Pass Through Trust Agreement as evidence of the Owner
Trustee's indebtedness to each Pass Through Trustee, which Loan Certificates are
to be secured by the mortgage and security interest in the Aircraft created
pursuant to the Trust Indenture by the Owner Trustee in favor of the Indenture
Trustee, and the Owner Trustee shall execute and deliver the Trust Supplement
covering the Aircraft, supplementing the Trust Agreement and the Trust
Indenture; and
WHEREAS, as described in Section 2 hereof, the Owner Trustee and
Lessee are entering into a Lease Agreement (1995 777 A) dated as of May 1, 1995
whereby, subject to the terms and conditions set forth therein, the Owner
Trustee agrees to lease to Lessee, and Lessee agrees to lease from the Owner
Trustee, the Aircraft on the Delivery Date; and
WHEREAS, in connection with the foregoing, each Pass Through Trustee
will issue the Pass Through Certificates substantially in the form of Exhibit A
to each Pass Through Trust Agreement; and
WHEREAS, to facilitate the Owner Trustee's issuance of the Loan
Certificates to the applicable Pass Through Trustee and the purchase of the Loan
Certificates by each such Pass Through Trustee, the Lessee has duly authorized
the execution and delivery of each of the two Pass Through Trust Agreements as
the "issuer" thereunder, as such term is defined in and solely for purposes of
the Securities Act of 1933, as amended, and of the Pass Through Certificates
being issued thereunder as the
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"obligor" thereunder, as such term is defined in and solely for purposes of the
Trust Indenture Act of 1939, as amended, with respect to the Pass Through
Certificates and is undertaking to perform certain administrative and
ministerial duties thereunder and is also undertaking to pay the fees and
expenses of the Pass Through Trustees; and
WHEREAS, certain terms are used herein as defined in Section 1(a)
hereof.
NOW THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
SECTION 1. Certain Definitions; Participations in Lessor's Cost of
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the Aircraft. (a) The terms "Lessee," "Owner Participant," "Pass Through
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Trustee," "Owner Trustee" and "Indenture Trustee" shall have the further
meanings attributed thereto in the Lease Agreement referred to above and, except
as otherwise defined in this Agreement, terms used herein in capitalized form
shall have the meanings attributed thereto in the Lease Agreement referred to
above. Unless the context otherwise requires, any reference herein to any of
the Operative Documents refers to such document as it may be amended from time
to time in accordance with its terms and the terms of each other agreement
restricting the amendment thereof.
(b) Subject to the terms and conditions of this Agreement, (i) each of
the Pass Through Trustees agrees to finance in part, the Owner Trustee's payment
of Lessor's Cost for the Aircraft by making a secured loan to the Owner Trustee
(herein called a "Loan" and collectively, the "Loans") on a date to be
designated pursuant to Section 2 hereof, but in no event later than May 31,
1995, in the amount in Dollars equal to the amount set forth opposite its name
on Schedule II hereto and (ii) the Owner Participant hereby agrees, in
connection with its equity investment in the beneficial ownership of the
Aircraft and the sale of the Aircraft by the Lessee to the Owner Trustee
pursuant to the Owner Trustee's Bill of Sale, as contemplated hereby and by the
Owner Trustee's Purchase Agreement, to make its equity investment in the
beneficial ownership of the Aircraft on a date to be designated as set forth
above, but in no event later than May 31, 1995, in an amount in Dollars equal to
the amount set forth opposite its name on Schedule II hereto. To fund its
obligations set out in (i) above, each Pass Through Trustee shall, in accordance
with Section 2.01 of the applicable Pass Through Trust Agreement, execute,
authenticate and deliver Pass Through Certificates, dated a date not later than
the Delivery Date and of the maturities, in the principal amounts, bearing the
interest rates and of the other economic terms specified in the request of the
Company (as defined in the Basic Agreement)
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delivered pursuant to such Section 2.01, and deliver such Pass Through
Certificates to the Underwriters (as defined in Section 4(a)(xvii) as specified
in such request against payment by the Underwriters of an amount equal to the
aggregate principal amount of its Loan. In the case of the Owner Participant,
the amount of its participation to be made as provided above in the payment of
Lessor's Cost and, in the case of each Pass Through Trustee, the amount of its
Loan, is hereinafter called such Participant's "Commitment" for the Aircraft.
In case any Participant shall default in its obligation to make the amount of
its Commitment available pursuant to Section 2 hereof in respect of the
Aircraft, the other Participants shall have no obligation to make any portion of
such amount available or to increase the amount of its Commitment and the
obligation of the nondefaulting Participants shall remain subject to the terms
and conditions set forth in this Agreement.
SECTION 2. Lessee's Notice of Delivery Date. Lessee agrees to give
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the Owner Participant, the Owner Trustee, the Pass Through Trustees and the
Indenture Trustee at least two Business Days' prior written notice of the
Delivery Date for the Aircraft, which Delivery Date shall be a Business Day not
later than May 31, 1995, which notice shall specify the amount of Lessor's Cost
and the amount of each Participant's Commitment for the Aircraft. As to each
Participant, the making of its Commitment for such Aircraft available in the
manner required by this Section 2 shall constitute a waiver of such notice. The
Owner Trustee and the Indenture Trustee shall be deemed to have waived such
notice if the Indenture Trustee shall have received from the Owner Participant
funds in the full amount of the Owner Participant's Commitment and the proceeds
of the sale of the Loan Certificates in the full amount of the Pass Through
Trustees' Commitments.
Subject to the terms and conditions of this Agreement, and
simultaneously with receipt by the parties hereto of all amounts to be paid to
them on the Delivery Date pursuant to this Section 2, the Lessee shall transfer
title to and deliver the Aircraft to the Owner Trustee, the Owner Trustee shall
purchase and take title to, and accept delivery of, the Aircraft, and the Owner
Trustee shall lease the Aircraft to Lessee, it being understood that the
transactions described in this Section 2 are simultaneous and mutually
dependent. On the Delivery Date, subject to the terms and conditions of this
Agreement, and in consideration for the transfer of title to the Aircraft to the
Owner Trustee, the Owner Trustee and the Indenture Trustee (on behalf of the
Owner Trustee) shall pay over the funds made available to it equal to Lessor's
Cost to Lessee's account no. ____________ at First Security Bank of Utah,
National Association. In addition, subject to the terms and conditions of this
Agreement, the Owner Trustee shall, on the Delivery Date,
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issue to the Pass Through Trustees the Loan Certificates to evidence the Loans
The Owner Participant agrees, subject to the terms and conditions of
this Agreement, to make its Commitment available to the Owner Trustee at the
Owner Trustee's account no. ________ at First Security Bank of Utah, National
Association, and the Pass Through Trustees agree to make their Commitment
available to the Indenture Trustee at the Indenture Trustee's account no.
_________ at First Security Bank of Utah, National Association, at or before
10:00 a.m., New York City time, on the Delivery Date specified in Lessee's
notice referred to in the first paragraph of this Section 2 (such specified
Delivery Date being herein called the "Scheduled Delivery Date").
SECTION 3. Instructions to the Owner Trustee and Indenture Trustee.
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Subject to the terms and conditions of this Agreement, the Owner Trustee and the
Indenture Trustee, upon their respective receipts in full of the Owner
Participant's and the Pass Through Trustees' Commitments for the Aircraft, as
provided in Section 2 hereof, together with instructions from such Participant
or its special counsel to release such funds to Lessee, shall transfer such
funds to the Lessee and the Owner Trustee shall purchase the Aircraft from the
Lessee and lease the Aircraft to Lessee and such action shall constitute,
without further act, authorization and direction by the Owner Participant to the
Owner Trustee and the Indenture Trustee acting on behalf of the Owner
Participant (in regard to item (a) below) and to the Owner Trustee (in regard to
items (b) - (f) below):
(a) to pay to Lessee the Lessor's Cost in the manner set forth in
Section 2;
(b) to the extent not previously accomplished by a prior
authorization, to authorize a representative or representatives of the Owner
Trustee (who shall be an employee or employees, or an agent or agents, of Lessee
designated by Lessee) to accept delivery of the Aircraft on the Delivery Date
pursuant to the Owner Trustee's Bill of Sale;
(c) to accept from the Lessee the Owner Trustee's Bill of Sale and the
Owner Trustee's FAA Bill of Sale;
(d) to execute an Aircraft Registration Application, a Lease
Supplement and a Trust Supplement, in each case covering the Aircraft;
(e) to borrow from the Pass Through Trustees amounts equal to their
respective Loans to finance a portion of Lessor's
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Cost and to issue to the Pass Through Trustees Loan Certificates in the amounts
specified herein; and
(f) to take such other action as may be required to be taken by the
Owner Trustee on the Delivery Date by the terms of any Operative Document.
SECTION 4. Conditions. (a) Conditions Precedent to the
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Participations in the Aircraft. It is agreed that the respective obligations of
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the Participants to participate in the payments of Lessor's Cost are subject to
the satisfaction prior to or on the Delivery Date of the following conditions
precedent, except that paragraphs (iii), (xx), (xxiv) (insofar as it relates to
the Pass Through Trustees), (xxv), (xxvi) and (xxviii) shall not be a condition
precedent to the obligation of the Pass Through Trustees, and paragraphs (iv),
(x) (insofar as it relates to the Owner Participant), (xiv), (xix) and (xxvii)
shall not be a condition precedent to the obligation of the Owner Participant:
(i) The Participants shall have received due notice with respect
to such participation pursuant to Section 2 hereof (or shall have waived
such notice either in writing or as provided in Section 2).
(ii) No change shall have occurred after the date of the execution
and delivery of this Agreement in applicable law or regulations thereunder
or interpretations thereof by appropriate regulatory or judicial
authorities which, in the opinion of the Owner Participant or the Pass
Through Trustees, as the case may be, would make it a violation of law or
regulations for (x) the Lessee, the Indenture Trustee, any Participant or
the Owner Trustee to execute, deliver and perform the Operative Documents
to which any of them is a party or (y) the Pass Through Trustees or the
Owner Participant to make their respective Commitments available or, in the
case of any Pass Through Trustee, to acquire a Loan Certificate or to
realize the benefits of the security afforded by the Trust Indenture.
(iii) In the case of the Owner Participant, the Pass Through
Trustees shall have made available the amount of their respective
Commitments for the Aircraft in accordance with Section 1 hereof.
(iv) In the case of the Pass Through Trustees, the Owner
Participant shall have made available the amount of its Commitment for the
Aircraft in accordance with Section 1 hereof.
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(v) The following documents shall have been duly authorized,
executed and delivered by the respective party or parties thereto, shall
each be satisfactory in form and substance to the Participants and shall be
in full force and effect and executed counterparts shall have been
delivered to the Participants, and their respective counsel, provided that
only the applicable Pass Through Trustee shall receive an executed original
of its Loan Certificate, only the Indenture Trustee, acting on behalf of
the Certificate Holders, shall receive the original counterparts of the
Lease and the Lease Supplement, only the Owner Participant shall receive a
copy of the Purchase Agreement which shall be delivered to and retained by
the Owner Trustee (the Owner Trustee and the Owner Participant and their
respective counsel may inspect the Purchase Agreement prior to the Delivery
Date but thereafter shall not have access to the same until the return of
the Aircraft to Lessor (but only to the extent the Purchase Agreement has
any continued effectiveness on such return date) or unless a Lease Default
or Event of Default shall have occurred and be continuing) and provided
further that only the Lessee and the Owner Participant shall receive copies
of the Tax Indemnity Agreement:
(1) the Lease;
(2) a Lease Supplement covering the Aircraft and dated the
Delivery Date;
(3) the Tax Indemnity Agreement;
(4) the Trust Agreement;
(5) a Trust Supplement covering the Aircraft and dated the
Delivery Date;
(6) the Owner Trustee's Bill of Sale and the Owner Trustee's
FAA Bill of Sale;
(7) the Owner Trustee's Purchase Agreement;
(8) an acceptance certificate covering the Aircraft in the
form agreed to by the Participants and Lessee (the "Acceptance
Certificate") duly completed and executed by the Owner Trustee or its
agent, which shall be a representative of Lessee, and by such
representative on behalf of Lessee;
(9) the Trust Indenture;
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(10) the Loan Certificates;
(11) the Consent and Agreement;
(12) the Purchase Agreement;
(13) the Owner Participant Parent Guaranty; and
(14) the Pass Through Trust Agreements.
(vi) A Uniform Commercial Code financing statement or statements
covering all the security interests created by or pursuant to the Granting
Clause of the Trust Indenture shall have been executed and delivered by the
Owner Trustee and the Indenture Trustee, and such financing statement or
statements shall have been duly filed in all places necessary or advisable,
and any additional Uniform Commercial Code financing statements deemed
advisable by the Owner Participant or the Pass Through Trustees shall have
been executed and delivered by Lessee, the Indenture Trustee or the Owner
Trustee and duly filed.
(vii) Each Participant and the Indenture Trustee shall have
received the following, in each case in form and substance satisfactory to
it, provided that only the Owner Participant shall receive a copy of the
Purchase Agreement which shall be delivered to and retained by the Owner
Trustee (the Owner Trustee and the Owner Participant and their respective
counsel may inspect the Purchase Agreement prior to the Delivery Date but
thereafter shall not have access to the same until the return of the
Aircraft to Lessor (but only to the extent the Purchase Agreement has any
continued effectiveness on such return date) or unless a Lease Default or
Event of Default shall have occurred and be continuing):
(1) a certified copy of the Certificate of Incorporation and
By-Laws of Lessee and a copy of resolutions of the board of directors
of Lessee or the executive committee thereof, certified by the
Secretary or an Assistant Secretary of Lessee, duly authorizing the
execution, delivery and performance by Lessee of this Agreement, the
Lease, the Owner Trustee's Purchase Agreement, the Owner Trustee's
Bill of Sale, the Owner Trustee's FAA Bill of Sale, the Tax Indemnity
Agreement and each other document required to be executed and
delivered by Lessee on the Delivery Date in accordance with the
provisions hereof and thereof;
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(2) such other documents and evidence with respect to
Lessee, the Manufacturer, the Owner Trustee, the Indenture Trustee and
the Participants, as the Pass Through Trustees or the Owner
Participant, or their respective counsel, may reasonably request in
order to establish the authority of such parties to consummate the
transactions contemplated by this Agreement, the taking of all
corporate proceedings in connection therewith and the compliance with
the conditions herein set forth;
(3) a certificate of Lessee (i) as to the Person or Persons
authorized to execute and deliver this Agreement, the other Lessee
Documents, and any other documents to be executed on behalf of Lessee
in connection with the transactions contemplated hereby and as to the
signature of such person or persons, and (ii) to the effect that the
application of the proceeds from the Pass Through Certificates as
provided for herein will not be inconsistent with any of the
provisions of the Pass Through Trust Agreements;
(4) a copy of the Purchase Agreement certified by the
Secretary or an Assistant Secretary of Lessee as being a true and
accurate copy of the same with all amendments attached thereto that
relate to the Manufacturer's warranties or related obligations or any
right in such Agreement assigned by the Lessee to the Owner Trustee
pursuant to the Owner Trustee's Purchase Agreement;
(5) a copy of the general authorizing resolutions of the
boards of directors (or executive committees) or other satisfactory
evidence of authorization of the Indenture Trustee, the Owner Trustee,
the Pass Through Trustees, the Owner Participant and the Owner
Participant Parent, certified as of the Delivery Date by the Secretary
or an Assistant Secretary of the Indenture Trustee, the Owner Trustee,
the Pass Through Trustees, the Owner Participant and the Owner
Participant Parent, respectively, which authorize the execution,
delivery and performance by the Indenture Trustee, the Owner Trustee,
the Pass Through Trustees, the Owner Participant and the Owner
Participant Parent of all of the Operative Documents to which it is a
party, together with such other documents and evidence with respect to
the Indenture Trustee, the Owner Trustee, the Pass Through Trustees,
the Owner Participant and the Owner Participant Parent as either the
Pass Through
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Trustees (or their counsel) or the Owner Participant (or its counsel)
may reasonably request in order to establish the consummation of the
transactions contemplated by this Agreement, the taking of all
corporate proceedings in connection therewith and compliance with the
conditions herein set forth; provided, this clause shall not be a
condition precedent as to any Participant as to documents to be
provided by that Participant; and
(6) a copy of the excerpts the "United Air Lines 777
Maintenance Program" referred to in Section 5 of the Lease.
(viii) All appropriate action required to have been taken by the
Federal Aviation Administration, or any governmental or political agency,
subdivision or instrumentality of the United States, on or prior to the
Delivery Date in connection with the transactions contemplated by this
Agreement shall have been taken, and all orders, permits, waivers,
authorizations, exemptions and approvals of such entities required to be in
effect on the Delivery Date in connection with the transactions
contemplated by this Agreement shall have been issued, and all such orders,
permits, waivers, authorizations, exemptions and approvals shall be in full
force and effect on the Delivery Date.
(ix) On the Delivery Date, the following statements shall be true,
and the Participants and the Indenture Trustee shall have received evidence
satisfactory to each of them to the effect that:
(1) the Owner Trustee has good and marketable title (subject
to filing and recording of the Owner Trustee's FAA Bill of Sale with
the Federal Aviation Administration) to the Aircraft, free and clear
of Liens other than the rights of Lessee under the Lease and Lease
Supplement covering the Aircraft, the mortgage and security interest
created by the Trust Indenture, the rights of the Owner Participant
under the Trust Agreement and the Trust Supplement and Liens permitted
by clause (iii) (solely for Taxes not yet due) of Section 6 of the
Lease;
(2) application for registration of the Aircraft in the name
of the Owner Trustee (together with any required affidavits) and the
Owner Trustee's FAA Bill of Sale have been duly filed with the FAA;
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(3) the Trust Agreement, the Trust Indenture and the Trust
Supplement and the Lease and the Lease Supplement have been duly filed
with the FAA for recordation;
(4) the Owner Trustee, as lessor under the Lease, and the
Indenture Trustee, as assignee of the Owner Trustee's rights under the
Lease Agreement pursuant to the Trust Indenture, are entitled to the
protection of Section 1110 of the Bankruptcy Code in connection with
the Owner Trustee's and the Indenture Trustee's right to take
possession of the Airframe and Engines in the event of a case under
Chapter 11 of the Bankruptcy Code in which the Lessee is a debtor; and
(5) the Aircraft has been duly certified by the FAA as to
type and airworthiness in accordance with the terms of the Lease and
has a current, valid U.S. standard certificate of airworthiness issued
by the FAA.
(x) On the Delivery Date, (A) the representations and warranties
of Lessee, the Owner Participant and the Owner Trustee contained in
Sections 7 and 8 of this Agreement and in the Tax Indemnity Agreement and
the Owner Participant Parent contained in the Owner Participant Parent
Guaranty shall be true and accurate as though made on and as of such date
except to the extent that such representations and warranties relate solely
to an earlier date (in which case such representations and warranties shall
have been true and accurate on and as of such earlier date), (B) no event
shall have occurred and be continuing, or would result from the purchase,
sale, lease or mortgage of the Aircraft, which constitutes (or would, with
the passage of time or the giving of notice or both, constitute) an Event
of Default as defined in the Lease or the Trust Indenture, and (C) no event
shall have occurred that might have the effect of materially and adversely
affecting the ability of Lessee to carry on its business as conducted on
December 31, 1994 or to perform its obligations under the Operative
Documents.
(xi) The Participants shall have received an opinion addressed to
the Participants, the Indenture Trustee, and the Owner Trustee from (a)
Francesca M. Maher, Vice President-Law, Deputy General Counsel and
Corporate Secretary for Lessee, in substantially the form of Schedule III-
1(a) hereto and (b) Vedder, Price, Kaufman & Kammholz, special counsel to
the Lessee, in substantially the form of Schedule III-1(b) hereto.
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(xii) The Participants shall have received an opinion addressed to
the Participants, the Owner Trustee, the Indenture Trustee and Lessee from
counsel to the Manufacturer, in substantially the form of Schedule III-2
hereto.
(xiii) The Participants shall have received an opinion addressed to
the Participants, the Indenture Trustee, the Owner Trustee and Lessee, from
Bingham, Dana & Gould, special counsel for the Owner Trustee, in
substantially the form of Schedule III-3 hereto.
(xiv) The Pass Through Trustees shall have received an opinion
addressed to the Indenture Trustee, the Pass Through Trustees, the Owner
Trustee and Lessee from (a) Dewey Ballantine, special counsel to the Owner
Participant and the Owner Participant Parent, in substantially the form of
Schedule III-4(a) hereto and (b) Michael Flynn, Vice President-General
Counsel and Secretary to the Owner Participant and the Owner Participant
Parent in substantially the form of Schedule III-4(b) hereto.
(xv) The Participants shall have received an opinion addressed to
the Participants, the Indenture Trustee, the Owner Trustee and Lessee, from
Crowe & Dunlevy, P.C., special counsel in Oklahoma City, Oklahoma, in
substantially the form of Schedule III-5 hereto.
(xvi) The Participants shall have received an opinion addressed to
the Participants, the Owner Trustee and Lessee from Ray, Quinney & Nebeker,
special counsel for the Indenture Trustee and the Pass Through Trustees, in
substantially the form of Schedule III-6 hereto.
(xvii) The Owner Participant shall have received an opinion
addressed to it from Vedder, Price, Kaufman & Kammholz, special counsel to
the Lessee, substantially to the same effect as the opinion delivered
pursuant to Section 5(b)(1) of the Purchase Agreement dated ____________
(the "Underwriting Agreement") among Lessee, Merrill Lynch & Co. and Lehman
Brothers (the "Underwriter").
(xviii) The Participants and the Indenture Trustee shall have
received a certificate signed by the President or any Vice President of
Lessee, dated the Delivery Date, addressed to the Participants and the
Indenture Trustee and certifying as to the fulfillment of all conditions in
this Section 4(a) insofar as they relate to Lessee and as to the matters
stated in paragraphs (viii), (x) (insofar as it relates to Lessee), (xxii)
and (xxiii) (to the knowledge of
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Lessee, except in regard to matters relating to the Participants, Indenture
Trustee or the Owner Trustee, in which event such representation shall be
to the knowledge of Lessee without any investigation whatsoever) of this
Section 4(a).
(xix) (a) The Owner Participant shall, by making its Commitment
available as provided in Section 1(b)(ii) of this Agreement, (b) the
Indenture Trustee shall by authenticating the Loan Certificates issued on
the Delivery Date, (c) the Owner Trustee shall, by accepting the Owner
Trustee's Bill of Sale and the Owner Trustee's FAA Bill of Sale and (d) the
Pass Through Trustees shall, by making their respective Commitments
available as provided in Section 1(b)(i) of this Agreement, be respectively
deemed to have reaffirmed as of the Delivery Date the representations and
warranties made by it in Section 8 of this Agreement.
(xx) The Owner Participant shall have received an opinion, in form
and substance reasonably satisfactory to the Owner Participant, from BK
Associates, independent aircraft appraisers, or such other recognized
aircraft appraiser selected by the Owner Participant, to the effect that
(A) on the Delivery Date, the fair market value of the Aircraft is equal to
Lessor's Cost; (B) on the Delivery Date, the Aircraft is expected to have
an economic useful life of at least 125% of the aggregate of the Interim
Term and the Basic Term; (C) on the Delivery Date, the Aircraft is expected
to have a residual value at the end of the Basic Term of at least 20% of
Lessor's Cost (without considering the effects of inflation or deflation
and assuming the Aircraft is in compliance with Section 5 of the Lease);
(D) on the Delivery Date, the Aircraft is expected to have a fair market
value on the EBO Date that does not exceed an amount equal to the EBO
Price; (E) the fair market value of each Engine is at least equal to Engine
Cost; and (F) the Aircraft is not limited use property.
(xxi) The Participants and the Indenture Trustee shall have
received an independent insurance broker's report, and certificates of
insurance, in form and substance reasonably satisfactory to the
Participants, as to the due compliance with the terms of Section 11 of the
Lease relating to insurance with respect to the Aircraft.
(xxii) On the Delivery Date it shall be true that no Event of Loss
(or event which with the passage of time would become an Event of Loss)
with respect to the Airframe or any Engine has occurred.
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(xxiii) No action or proceeding shall have been instituted nor shall
governmental action be threatened before any court or governmental agency,
nor shall any order, judgment or decree have been issued or proposed to be
issued by any court or governmental agency at the time of the Delivery Date
to set aside, restrain, enjoin or prevent the completion and consummation
of this Agreement or the transactions contemplated hereby.
(xxiv) The respective representations and warranties of the
Indenture Trustee and the Pass Through Trustees contained in Section 8
hereof shall be true and accurate as of the Delivery Date as though made on
and as of such date except to the extent that such representations and
warranties relate solely to an earlier date (in which event such
representations and warranties shall have been true and accurate on and as
of such earlier date) and the Lessee and each Participant shall have
received a certificate signed by the Chairman of the Board, the President,
any Vice President or any Assistant Vice President of the Indenture Trustee
and the Pass Through Trustees certifying as to the foregoing matters with
respect to the Indenture Trustee and the Pass Through Trustees, as
applicable.
(xxv) The Owner Participant shall have received from Dewey
Ballantine, special counsel to the Owner Participant, a favorable opinion,
in form and substance satisfactory to the Owner Participant, with respect
to certain income tax aspects of the transactions contemplated by the
Operative Documents.
(xxvi) In the opinion of the Owner Participant and its special
counsel, no law (including tax laws), regulation or regulatory order or
holding applicable to the Owner Participant or the Owner Participant's
participation in the transactions contemplated hereby, shall have been
enacted, issued or proposed prior to the Delivery Date that would have a
material adverse impact on the Owner Participant.
(xxvii) The Pass Through Trustees shall have received a letter from
BK Associates to the effect that the fair market value of the Aircraft on
the Delivery Date is not less than 125% of the aggregate amount of the
Loans.
(xxviii) The Lessee shall have executed and delivered to Owner
Participant a letter relating to Lessee's average cost of capital together
with appropriate supporting documentation.
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Promptly upon the registration of the Aircraft and the recording of
the Lease, the Trust Indenture, the Trust Agreement, the Lease Supplement and
the Trust Supplement covering the Aircraft pursuant to the Federal Aviation Act,
Lessee will cause Crowe & Dunlevy, P.C., special counsel in Oklahoma City,
Oklahoma, to deliver to the Owner Participant, the Indenture Trustee, the Pass
Through Trustees, the Owner Trustee and Lessee an opinion as to the due and
valid registration of the Aircraft in the name of the Owner Trustee, the due
recording of the Owner Trustee's FAA Bill of Sale, the Trust Indenture, the
Lease Supplement, the Trust Supplement, the Lease and the Trust Agreement and
the lack of filing of any intervening documents with respect to the Aircraft.
(b) Conditions Precedent to the Obligations of Lessee. It is agreed
-------------------------------------------------
that the obligations of Lessee (A) to sell the Aircraft to the Owner Trustee,
(B) to accept delivery of the Aircraft under the Lease and (C) to enter into its
other Operative Documents, are all subject to the fulfillment to the
satisfaction of Lessee prior to or on the Delivery Date of the following
conditions precedent:
(i) The conditions specified in Section 4(a)(iii), 4(a)(iv),
4(a)(viii), 4(a)(xxii) and 4(a)(xxiii) hereof shall have been satisfied,
unless such nonsatisfaction is the result of the actions of Lessee.
(ii) Those documents described in Section 4(a)(v) shall have been
duly authorized, executed and delivered by the respective party or parties
thereto (other than Lessee) in the manner specified in Section 4(a)(v),
shall each be satisfactory in form and substance to Lessee, shall be in
full force and effect on the Delivery Date, and an executed counterpart of
each thereof (other than the Loan Certificates) shall have been delivered
to Lessee or its counsel.
(iii) Lessee shall have received a copy of the general authorizing
resolutions of the boards of directors (or executive committees) or other
satisfactory evidence of authorization of the Indenture Trustee, the Owner
Trustee, the Pass Through Trustees, the Owner Participant and the Owner
Participant Parent, certified as of the Delivery Date by the Secretary or
an Assistant Secretary of the Indenture Trustee, the Owner Trustee, the
Pass Through Trustees, the Owner Participant and the Owner Participant
Parent, respectively, which authorize the execution, delivery and
performance by the Indenture Trustee, the Owner Trustee, the Pass Through
Trustees, the Owner Participant and the Owner Participant Parent of all the
Operative Documents to which
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it is a party, together with such other documents and evidence with respect
to the Indenture Trustee, the Owner Trustee, the Pass Through Trustees, the
Owner Participant and the Owner Participant Parent as Lessee or its counsel
may reasonably request in order to establish the consummation of the
transactions contemplated by this Agreement, the taking of all corporate
proceedings in connection therewith and compliance with the conditions
herein set forth.
(iv) The representations and warranties of the Participants, the
Indenture Trustee and the Owner Trustee contained in Section 8 hereof and
the Owner Participant Parent in the Owner Participant Parent Guaranty shall
be true and accurate as of the Delivery Date as though made on and as of
such date except to the extent that such representations and warranties
relate solely to an earlier date (in which event such representations and
warranties shall have been true and accurate on and as of such earlier
date) and Lessee shall have received a certificate signed by the Chairman
of the Board, the President, any Vice President or any Assistant Vice
President or other authorized representative of the Indenture Trustee, the
Owner Participant, the Pass Through Trustees and the Owner Trustee,
respectively, certifying as to the foregoing matters with respect to the
Indenture Trustee, the Owner Participant and the Owner Trustee,
respectively.
(v) Lessee shall have received the opinions set forth in Sections
4(a)(xii), 4(a)(xiii), 4(a)(xiv), 4(a)(xv), and 4(a)(xvi), in each case
addressed to Lessee and dated the Delivery Date.
(vi) No change shall have occurred after the date of the execution
and delivery of this Agreement in applicable law or regulations thereunder
or interpretations thereof by appropriate regulatory authorities which, in
the opinion of Lessee, would make it a violation of law or regulations for
Lessee to enter into any transaction contemplated by the Operative
Documents.
(vii) No law (including tax laws), regulation or regulatory order
or holding applicable to the Lessee or Lessee's participation in the
transactions contemplated hereby, shall have been enacted, issued, or
proposed prior to the Delivery Date that would have a material adverse
impact on Lessee.
SECTION 5. Confidentiality of Purchase Agreement. Lessor, the
-------------------------------------
Participants, and the Indenture Trustee shall keep
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the Purchase Agreement confidential and shall not disclose the same to any
Person, except (A) to prospective and permitted transferees of Lessor's, a Pass
Through Trustee's, the Owner Participant's or the Indenture Trustee's interest
who agree to hold such information confidential, (B) to the aforementioned
prospective and permitted transferees', Lessor's, Pass Through Trustees', the
Owner Participant's or the Indenture Trustee's counsel or special counsel,
independent insurance brokers or other agents who agree to hold such information
confidential, (C) as may be required by any statute, court or administrative
order or decree or governmental ruling or regulation, including Federal or state
banking examiners or tax auditors or (D) as may be necessary or desirable for
purposes of protecting the interest of any such Person or for enforcement of the
Lease by Owner Trustee, the Participants or the Indenture Trustee; provided,
however, that any and all disclosures of all or any part of the Purchase
Agreement which are permitted by (C) or (D) above shall be made only to the
extent necessary to meet the specific requirements or needs of the Persons to
whom such disclosures are hereby permitted.
SECTION 6. Extent of Interest of Certificate Holders. No Certificate
-----------------------------------------
Holder shall have any further interest in, or other right with respect to, the
mortgage and security interests created by the Trust Indenture when and if the
Original Amount of, Premium, if any, and interest on all Loan Certificates held
by such Certificate Holder and all other sums payable to such Certificate Holder
hereunder, under the Trust Indenture and under such Loan Certificates shall have
been paid in full. Each Certificate Holder by its acceptance of a Loan
Certificate, agrees that it will look solely to the income and proceeds from the
Trust Indenture Estate to the extent available for distribution to such
Certificate Holder as provided in Section 2.09 of the Trust Indenture and that
neither the Owner Participant nor the Owner Trustee shall be personally liable
to any Certificate Holder for any amounts payable under the Loan Certificates,
the Trust Indenture, hereunder, or under any other Operative Documents
(including, without limitation, amounts payable as Premium), except as expressly
provided in this Agreement or (in the case of the Owner Trustee) in the Trust
Indenture.
SECTION 7. Lessee's Representations, Warranties and Indemnities. (a) In
---------------------------------------------------- --
General. Lessee represents and warrants that as of the Delivery Date:
- -------
(i) Lessee is a corporation duly organized and validly existing
in good standing pursuant to the laws of the State of Delaware; is duly
qualified to do business as a foreign corporation in each jurisdiction in
which its
17
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operations or the nature of its business requires, except where the failure
to be so qualified would not have a material adverse effect on Lessee or
its business; is a Citizen of the United States and a Certificated Air
Carrier; holds all material licenses, certificates, permits and franchises
from the appropriate agencies of the United States of America and/or all
other governmental authorities having jurisdiction, necessary to authorize
Lessee to engage in air transport and to carry on scheduled passenger
service, in each case as presently conducted; has its chief executive
office (as such term is defined in Article 9 of the Uniform Commercial
Code) in Elk Grove Township, Illinois; and has the corporate power and
authority to conduct its business as it is presently being conducted, to
hold under lease the Aircraft and to enter into and perform its obligations
under the Lessee Documents;
(ii) the execution, delivery and performance by Lessee of the
Lessee Documents have been duly authorized by all necessary corporate
action on the part of Lessee, do not require any stockholder approval, or
approval or consent of any trustee or holders of any indebtedness or
obligations of Lessee except such as have been duly obtained, and none of
such Lessee Documents contravenes any law, judgment, governmental rule,
regulation or order binding on Lessee or the certificate of incorporation
or by-laws of Lessee or contravenes the provisions of, or constitutes a
default under, or results in the creation of any Lien (other than Permitted
Liens) upon the property of Lessee under, its certificate of incorporation
or bylaws, or any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, bank loan or credit agreement or other
agreement or instrument to which Lessee is a party or by which it or its
properties may be bound or affected;
(iii) neither the execution and delivery by Lessee of the Lessee
Documents nor the performance by Lessee of its obligations thereunder
require the consent or approval of, the giving of notice to, or the
registration with, or the taking of any other action in respect of any
federal, state or foreign government authority or agency, except for (A)
the orders, permits, waivers, exemptions, authorizations and approvals of
the regulatory authorities having jurisdiction over the operation of the
Aircraft by Lessee, which orders, permits, waivers, exemptions,
authorizations and approvals have been duly obtained, and are in full force
and effect, (B) the registration of the Aircraft referred to in Section
4(a)(ix)(2), (C) any normal periodic and other reporting requirements under
the applicable rules and regulations of the FAA to the extent required to
be given or obtained only
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after the Delivery Date, (D) the recordings with the FAA described in the
opinion referred to in Section 4(a)(xv) and (E) any normal periodic and
other reporting requirements under the applicable rules and regulations of
the FAA to the extent required to be given or obtained only after the
Delivery Date, it being understood that the registration of the issuance
and sale of the Pass Through Certificates to be issued pursuant to the
provisions of the Pass Through Trust Agreements under the Securities Act of
1933, as amended, and under the securities laws of any state in which the
Pass Through Certificates may be offered for sale if the laws of such state
require such action has been duly accomplished and the qualification of
each Pass Through Trust Agreement under the Trust Indenture Act of 1939, as
amended, has been duly obtained;
(iv) each of the Lessee Documents has been duly executed and
delivered by Lessee and constitutes legal, valid and binding obligations of
Lessee enforceable against Lessee in accordance with the terms thereof;
(v) there are no pending or threatened actions or proceedings
before any court or administrative agency involving any Lessee Document or
the transactions contemplated hereby or which individually (or in the
aggregate in the case of any group of related lawsuits) is expected to have
a material adverse effect on the financial condition of Lessee or the
ability of Lessee to perform its obligations under the Lessee Documents;
(vi) except for (A) the registration of the Aircraft pursuant to
the Federal Aviation Act, (B) the filing for recording pursuant to said Act
of the Trust Agreement, the Lease with the Lease Supplement covering the
Aircraft, the Trust Indenture and the Trust Supplement attached thereto and
made a part thereof, and the Owner Trustee's FAA Bill of Sale, (C) the
filing of financing statements (and continuation statements at periodic
intervals) with respect to the security and other interests created by such
documents under the Uniform Commercial Code of Illinois (which financing
statement Lessee has caused to be presented in due form for filing with the
appropriate filing office in the State of Illinois) and such other states
as may be specified in the opinions furnished pursuant to Section 4(a)(xi)
hereof and (D) the taking of possession by the Indenture Trustee of the
original counterparts of the Lease and the Lease Supplement covering the
Aircraft, no further action, including any filing or recording of any
document (including any financing statement in respect thereof under
Article 9 of the Uniform Commercial
19
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Code of any applicable jurisdiction), is necessary or advisable in order to
establish and perfect the Owner Trustee's title to and interest in the
Aircraft as against the Lessee and the Indenture Trustee's security
interest in the Aircraft as against the Owner Trustee, and in each case as
against any third parties in any applicable jurisdictions in the United
States;
(vii) there has not occurred any event which constitutes a Default
or an Event of Default under the Lease which is presently continuing and
there has not occurred any event which constitutes or would, with the
passage of time or the giving of notice, or both, constitute an Event of
Loss;
(viii) the statements of financial position of Lessee as of
December 31, 1994 and the related statements of earnings and cash flow of
Lessee for the year then ended, copies of which have been furnished to the
Participants, fairly present the financial condition of Lessee as at such
date and the results of operations and cash flow of Lessee for the period
ended on such date, in accordance with generally accepted accounting
principles consistently applied (except as may be stated in the notes
thereto), and since December 31, 1994, there has been no material adverse
change in such condition or operations, except for such matters timely
disclosed in press releases issued by UAL Corporation or Lessee or in
public filings, effective as of the date hereof, with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended,
by UAL Corporation or Lessee;
(ix) the Owner Trustee will have received good and marketable
title to the Aircraft free and clear of all Liens, except the rights of
Lessee under the Lease and the Lease Supplement covering the Aircraft, the
Lien of the Trust Indenture, the beneficial interest of the Owner
Participant in the Aircraft, and the Liens permitted by clause (iii)
(solely for Taxes not yet due) of Section 6 of the Lease;
(x) none of the proceeds from the issuance of the Loan
Certificates or from the acquisition by the Owner Participant of its
beneficial interest in the Trust Estate will be used directly or indirectly
by Lessee to purchase or carry any "margin stock" as such term is defined
in Regulation G or U of the Board of Governors of the Federal Reserve
System;
20
<PAGE>
(xi) neither Lessee nor anyone acting on behalf of Lessee has (A)
directly or indirectly offered any interest in the Trust Estate for sale
to, or solicited any offer to acquire any of the same from, anyone other
than the Owner Participant, and not more than ____________ (__) other
institutions believed capable of evaluating and bearing the risks of
investment in the transactions contemplated hereby, or (B) offered any
interest in the Trust Estate or any Pass Through Certificate or any Loan
Certificate in a manner which would violate the Securities Act of 1933, as
amended, the regulations thereunder, administrative and judicial
interpretation thereof or the securities laws, rules or regulations of any
state;
(xii) Lessee is not in default in the performance of any term or
condition of the Owner Trustee's Purchase Agreement, and is not in default
in the performance of any term or condition of the Purchase Agreement which
materially adversely impairs the transactions contemplated hereby;
(xiii) no governmental approval of any kind is required of the
Owner Participant, any Pass Through Trustee, the Owner Trustee or the
Indenture Trustee for their respective execution of or performance under
this Agreement, the Pass Through Trust Agreements or any agreement
contemplated hereby solely by reason of any fact or circumstance peculiar
to: (a) Lessee, (b) the nature of the Aircraft, or (c) Lessee's proposed
operations or use of the Aircraft;
(xiv) all sales or use tax then due and for which Lessee is
responsible pursuant to Section 7(b)(i) hereof shall have been paid, other
than such taxes which are being contested by Lessee in good faith and by
appropriate proceedings so long as such proceedings do not involve any
material risk of the sale, forfeiture or loss of the Aircraft or any
interest therein;
(xv) The Aircraft has been duly certified by the FAA as to type
and airworthiness and such certification remains in full force and effect;
(xvi) Owner Trustee, as lessor under the Lease, and the Indenture
Trustee, as assignee of the Owner Trustee's rights under the Lease pursuant
to the Trust Indenture, are entitled to the protection of Section 1110 of
the Bankruptcy Code in connection with the Owner Trustee's and the
Indenture Trustee's right to take possession of the Airframe and Engines in
the event of a case under Chapter 11 of the Bankruptcy Code in which Lessee
is a debtor; and
21
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(xvii) neither Lessee nor any subsidiary of Lessee is an "investment
company" or a company "controlled by an investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(b) General Tax Indemnity. (i) Indemnity. Except as provided in
--------------------- ---------
Section 7(b)(ii) hereof, whether or not any of the transactions contemplated
herein are consummated, Lessee shall pay when due and assume liability for, and
protect, save and shall indemnify and hold harmless each Indemnitee (except
that, for purposes of this Section 7(b)(i), an Indemnitee shall not include any
Certificate Holder) from and against (x) any and all Taxes howsoever imposed
against any Indemnitee, Lessee or all or any part of the Aircraft, the Airframe,
the Engines, the Parts or any part thereof or otherwise by any federal, state or
local government or other taxing authority in the United States or by any
foreign government or any political subdivision or taxing authority thereof or
by any territory or possession of the United States or by any international
authority upon or in connection with, relating to, or measured by (A) the
assembly, manufacture, construction, substitution, improvement, location,
conditioning, installation, financing, refinancing, purchase, acquisition,
acceptance, delivery, nondelivery, transport, ownership, registration,
reregistration, possession, repossession, control, operation, use, maintenance,
repair, replacement, insuring, sale, return, abandonment, storage, redelivery,
leasing, subleasing, modification, rebuilding of, transfer of title to, transfer
of registration of, rejection, importation, mortgaging, exportation or
disposition of, or the imposition of any Lien (or the incurrence of any
liability to refund or pay over any amount as the result of any Lien) on, the
Aircraft, the Airframe, the Engines, the Parts or any part thereof, (B) the
rentals, receipts or earnings from the Aircraft, the Airframe, the Engines, the
Parts or any part thereof, (C) any amount paid or payable pursuant to any
Operative Documents or any Pass Through Trust Agreement or any document related
thereto or the property or the income or other proceeds with respect to any of
the property held in the Trust Estate or the Trust Indenture Estate or the
property held by each Pass Through Trustee under the respective Pass Through
Trust Agreement, (D) the Aircraft, the Airframe, the Engines, the Parts or any
part thereof or any contract relating to the manufacture, construction,
acquisition or delivery thereof, (E) any or all of the Operative Documents, the
Pass Through Trust Agreements, or the issuance of the Loan Certificates or the
Pass Through Certificates (or the refinancing thereof) and any other documents
contemplated hereby or thereby and amendments and supplements hereto and thereto
which have been approved by Lessee or the execution, delivery, recording or
performance of any thereof or the issuance, acquisition, holding or subsequent
transfer thereof, (F) the payment of the Original
22
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Amount of, or interest or Premium on, or other amounts payable with respect to,
the Loan Certificates or the payment of principal of, interest on or any other
amounts payable with respect to the Pass Through Certificates, (G) otherwise
with respect to or in connection with the transactions contemplated by the
Operative Documents, or (H) any change in the Owner Trustee or the situs of the
Trust Estate made pursuant to Sections 8(c) or 14 hereof; and (y) any reasonable
out-of-pocket costs and expenses fairly attributed to any of the foregoing
incurred by any Indemnitee.
(ii) Exclusions from General Tax Indemnity. The provisions of
-------------------------------------
Section 7(b)(i) shall not apply:
(1) in the case of an Indemnitee which is the Owner
Participant, the Owner Trustee, the Trust Estate, or a successor,
assign, or Affiliate of any thereof, to any Income Tax (as defined in
Section 7(b)(xii) hereof) imposed by (A) the United States Federal
government, (B) any state or local taxing jurisdiction or authority in
the United States to the extent such Income Taxes would not have been
imposed if (I) the use, location or operation of the Aircraft, or (II)
the activities of the Lessee, to or in such state or local
jurisdiction, had been the only connection between the Indemnitee and
such jurisdiction, or (C) any foreign government or any political
subdivision or taxing authority thereof or by any territory or
possession of the United States or by any international authority,
except to the extent such Income Taxes are attributable to (I) the
use, location or operation of the Aircraft, or (II) the activities of
the Lessee, to or in such jurisdiction;
(2) to any Tax imposed on an Indemnitee which is the Owner
Participant, the Owner Trustee, or the Trust Estate, or any successor,
assign or Affiliate of any thereof, as a result of a voluntary
transfer or disposition by such Indemnitee including, without
limitation, the revocation of the trust created by the Trust Agreement
or an involuntary transfer or disposition relating to bankruptcy or
similar proceedings of all or any portion of its respective equitable
or legal ownership interest in the Aircraft, the Airframe, the
Engines, the Parts or any part thereof, the Trust Estate or the
Operative Documents and each Pass Through Trust Agreement, unless such
transfer or disposition, whether or not voluntary or involuntary,
shall occur, (A) during a period when an Event of Default has occurred
and is continuing under
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<PAGE>
the Lease at the time of transfer or disposition and such transfer is
as a result of such Event of Default, or (B) in connection with the
termination of the Lease or action or direction of the Lessee pursuant
to Sections 7, 8, 9, 10 or 19 thereof;
(3) to any Tax imposed on any Indemnitee which is the
Indenture Trustee, the Trust Indenture Estate or a Pass Through
Trustee or any successor, assign or Affiliate of any thereof, as a
result of a voluntary or involuntary transfer or other disposition of
all or any portion of its respective equitable or legal interests in
the Trust Estate or the Trust Indenture Estate or the Operative
Documents and each Pass Through Trust Agreement unless, in each case,
such transfer or disposition shall occur (A) during a period when an
Event of Default has occurred and is continuing under the Lease at the
time of transfer or disposition and such transfer or disposition is a
result of such Event of Default, or (B) in connection with the
termination of the Lease or action or direction of the Lessee pursuant
to Sections 9, 10 or 19 thereof;
(4) to any Tax imposed on the Owner Participant, Trust
Estate or Owner Trustee which results from the willful misconduct or
gross negligence of (i) the Owner Participant, to the extent imposed
on the Owner Participant, Trust Estate or Owner Trustee, or (ii) to
the extent imposed on the Owner Trustee, the Owner Trustee;
(5) to any Tax imposed on an Indemnitee which is the
Indenture Trustee, the Trust Indenture Estate or a Pass Through
Trustee which results from the willful misconduct or gross negligence
of such Indemnitee;
(6) to any Tax based on or measured by any fees received by
the Owner Trustee, the Indenture Trustee or a Pass Through Trustee in
connection with any transaction contemplated by the Operative
Documents;
(7) so long as no Event of Default or event which, with the
passage of time or the giving of notice or both, would become an Event
of Default, shall be continuing, to any Tax imposed with respect to
(A) any period after the expiration of the Term and, unless purchased
by the Lessee, return of the Aircraft, (B) the earlier discharge in
full of Lessee's obligation to
24
<PAGE>
pay the Stipulated Loss Value or the Termination Value and all other
amounts due under the Lease or (C) placement in storage or parking of
the Aircraft pursuant to Section 5(d) of the Lease; provided, however,
that this Section 7(b)(ii)(8) shall not apply to any Tax (x) relating
to events or conditions occurring or matters arising upon or prior to
such expiration, discharge, storage or parking, or (y) imposed on or
with respect to any payments of Tax indemnified hereunder which are
due after such expiration, discharge, storage or parking until after
such payments have been made;
(8) in the case of an Indemnitee which is the Trust
Indenture Estate or any successor, assign or Affiliate thereof, to any
Tax in the nature of an intangible or similar tax upon or with respect
to the value of the interest of the Trust Indenture Estate or the Pass
Through Certificates, as the case may be, in any of the Loan
Certificates imposed by any government or taxing authority;
(9) to any Tax which Lessee or an Indemnitee is contesting
in good faith under the provisions of Section 7(b)(iv) hereof until
the conclusion of such contest;
(10) to any Tax imposed on the Owner Trustee or an Owner
Participant resulting from, or which would not have occurred but for,
a Lessor Lien (including for this purpose Liens that would be Lessor
Liens but for the proviso to the definition of Lessor Liens);
(11) in the case of an Indemnitee which is the Owner
Participant or the Owner Trustee, to any Taxes to the extent of the
amount of such Taxes that are imposed by any jurisdiction on and with
respect to any activities of such Indemnitee in such jurisdiction
which activities are unrelated to the transactions contemplated by the
Operative Documents and each Pass Through Trust Agreement; and
(12) to any Tax which has been properly included in the
Lessor's Cost.
The provisions of this Section 7(b)(ii) shall not apply to any
Tax imposed in respect of the receipt or accrual of any indemnity payment
made by Lessee pursuant to this Section 7(b) or Section 7(c) hereof or
pursuant to the Tax Indemnity Agreement; provided, however, that this
clause
25
<PAGE>
shall not result in any duplication of any amounts of any gross-up payable
under Section 7(b)(iii) or Section 7(c) hereof or the Tax Indemnity
Agreement.
Notwithstanding the exclusions set forth in this Section 7(b) or
any other provision of the Operative Documents or the Pass Through Trust
Agreements, the Lessee hereby agrees to indemnify and hold harmless on a
net after-tax basis the Trust Estate, the Owner Trustee and the Owner
Participant for any failure to withhold U.S. Federal Income Taxes upon
payments of principal, interest, Premium or discount on the Loan
Certificates or the Pass Through Certificates, including interest and
penalties, unless the Owner Participant has been timely advised by the
Lessee in writing that such withholding is required.
(iii) Calculation of General Tax Indemnity Payments. Any payment
---------------------------------------------
which Lessee shall be required to make to or for the account of any
Indemnitee in connection with any Tax which is subject to indemnification
under this Section 7(b) shall be in an amount which, after reduction by the
amount of all Taxes required to be paid by such Indemnitee in respect of
the receipt or accrual of such amount and after consideration of any
current savings of such Indemnitee resulting by way of any deduction,
credit or other tax benefit attributable to such indemnified Tax that
actually reduces any taxes for which Lessee is not actually required to
indemnify such Indemnitee pursuant to Section 7(b) hereof or the Tax
Indemnity Agreement shall be equal to the payment otherwise required
hereunder.
If, by reason of any Tax payment made to or for the account of an
Indemnitee by Lessee pursuant to this Section 7(b), such Indemnitee
subsequently realizes a tax deduction, savings or credit (including any
foreign tax credit and any reduction in Taxes) not previously taken into
account in computing such payment, such Indemnitee shall promptly pay to
Lessee an amount equal to the sum of (I) the actual reduction in Taxes, if
any, realized by such Indemnitee which is attributable to such deduction,
savings or credit and (II) the actual reduction in Taxes realized by such
Indemnitee as a result of any payment made by such Indemnitee pursuant to
this sentence; provided, however, that in the case of an Indemnitee which
is the Owner Participant or the Owner Trustee, such Indemnitee shall not be
obligated to make any payment pursuant to this Section 7(b)(iii) to the
extent that the amount calculated pursuant to (I) above would exceed (x)
the amount of all prior payments (determined without regard to any amount
paid in respect of Taxes required to be paid by such Indemnitee in
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respect of the receipt or accrual of such amounts received by such
Indemnitee) from Lessee pursuant to this Section 7(b), less (y) the portion
of all prior payments computed pursuant to (I) above by such Indemnitee to
Lessee hereunder.
For purposes of this Section 7(b)(iii), items of foreign Tax of
any Indemnitee shall be deemed to be utilized by such Indemnitee as credits
or deductions for any taxable year in accordance with the following
priorities:
First, all available foreign Taxes other than those
described below in Second; and
Second, all available foreign Taxes arising out of any
equipment leasing transaction to the extent that such Indemnitee was
indemnified or held harmless for such Taxes by a lessee on a pari
passu basis.
Any Taxes that are imposed on any Indemnitee as a result of the
disallowance or reduction of any tax benefit referred to in this subsection
as to which such Indemnitee has made in full the payment to Lessee required
hereby (or as to which such Indemnitee would have made its payment but for
Section 7(b)(vii) hereof) or which is otherwise taken into account in
calculating Lessee's indemnity obligation, in a taxable year subsequent to
the utilization by such Indemnitee (including the expiration of any tax
credit carryovers or carrybacks of such Indemnitee that would not otherwise
have expired) shall be treated as a Tax for which Lessee is obligated to
indemnify such Indemnitee pursuant to the provisions of this Section 7(b)
without regard to the provisions of Section 7(b)(ii), 7(b)(iv) or the third
paragraph of this Section 7(b)(iii).
(iv) General Tax Indemnity -- Contests. If a written claim shall
---------------------------------
be made against any Indemnitee for any Tax for which Lessee is obligated
pursuant to this Section 7(b), such Indemnitee shall notify Lessee in
writing promptly after receipt thereof (as well as the name of independent
tax counsel for purposes of this Section 7(b)(iv)) and, in any event,
within 30 days of receipt of such notice and shall provide Lessee such
information regarding such claim as Lessee may reasonably request, but the
failure to give such notice or to provide such information when required
shall not diminish Lessee's obligation hereunder unless such failure
effectively precludes Lessee's ability to (A) require such Indemnitee to
contest the Tax or (B) contest the Tax itself (in a case
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<PAGE>
where Lessee cannot require the Indemnitee to contest such Tax).
If a written claim shall be made for any Tax, other than an
Income Tax, for which Lessee is obligated pursuant to this Section 7(b),
and under applicable law of the taxing jurisdiction Lessee is allowed to
directly contest such Tax and the Tax to be contested is not reflected in a
report or return with other Taxes of any Indemnitee and if the Indemnitee
determines in good faith that it will not suffer any adverse consequences
as a result, then the Lessee shall be permitted, at its expense and in its
own name, or, if consented to by the Indemnitee, in the name of such
Indemnitee, to contest the imposition of such Tax; provided, however, that
Lessee shall not be permitted or entitled to contest any Tax (A) if such
contest will result in the risk of an imposition of criminal penalties or a
material risk of a sale, forfeiture or loss of the Aircraft, the Airframe,
the Engines, the Parts or any part thereof or the creation of any Lien
other than Liens for Taxes of Lessee (x) either not yet due or being
contested in good faith by appropriate proceedings so long as such
proceedings do not involve the risk of an imposition of criminal penalties
or the material risk of any sale, forfeiture or loss of the Aircraft, and
(y) for the payment of which such reserves, if any, as required to be
provided under generally accepted accounting principles have been provided
and, to the extent permitted by law, Lessee shall be entitled to withhold
payment during pendency of such contest, (B) if an Event of Default shall
have occurred and be continuing, unless the Lessee shall have, at the
option of the Owner Participant, either (i) provided security for its
obligations hereunder reasonably satisfactory to the Owner Participant by
placing in escrow sufficient funds to cover any such contested Tax or (ii)
paid such Tax, (C) unless in Lessee's request to the Indemnitee to contest
such Tax, Lessee shall have agreed to pay such Indemnitee on demand all
costs and expenses that such Indemnitee actually incurs in connection with
contesting such claim (including, without limitation, all costs, expenses,
losses, reasonable legal and accounting fees, disbursements, penalties,
interest and additions to tax) or (D) unless in the case of an Indemnitee
which is the Owner Participant or the Owner Trustee, or a successor, assign
or Affiliate of the Owner Participant or the Owner Trustee, prior to the
commencement of a contest Lessee shall have delivered to such Indemnitee a
written acknowledgement of Lessee's obligation to indemnify fully such
Indemnitee to the extent that the contest is not successful; provided,
however, that Lessee will not be bound by its acknowledgement of liability
if and
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<PAGE>
to the extent that the contest results in a determination which clearly and
unambiguously demonstrates that Lessee is not otherwise liable under this
Section 7(b) with respect to such Tax.
If requested by Lessee in writing (A) within 30 days of Lessee's
receipt of notice from an Indemnitee under the first paragraph of this
Section 7(b)(iv) and (B) with respect to a Tax for which Lessee is
obligated to indemnify pursuant to this Section 7(b) which is not described
in the previous paragraph exclusive of the proviso thereto, such Indemnitee
shall in good faith at Lessee's expense contest the imposition of any such
Tax. After consulting with Lessee and Lessee's counsel concerning the
forum in which the adjustment is most likely to be favorably resolved, such
Indemnitee shall, in its sole discretion, select the forum for such contest
and determine whether any such contest shall be by (A) resisting payment of
such Tax, (B) paying such Tax under protest or (C) paying such Tax and
seeking a refund or other repayment thereof. In no event shall such
Indemnitee be requested or required to contest the imposition of any Tax
for which Lessee is liable under this Section 7(b) unless (I) in Lessee's
request to the Indemnitee to contest such Tax, Lessee shall have agreed to
pay such Indemnitee on demand all reasonable costs and expenses that such
Indemnitee actually incurs in connection with contesting such claim
(including, without limitation, all costs, expenses, losses, reasonable
legal and accounting fees, disbursements, penalties, interest and additions
to tax), (II) such action to be taken will not result in the risk of an
imposition of criminal penalties or the material risk of any sale,
forfeiture or loss of the Aircraft, or the creation of any Lien other than
Liens for Taxes of Lessee (x) either not yet due or being contested in good
faith by appropriate proceedings so long as such proceedings do not involve
the risk of an imposition of criminal penalties or the material risk of any
sale, forfeiture or loss of the Aircraft and (y) for the payment of which
such reserves, if any, as are required to be provided under generally
accepted accounting principles have been provided by Lessee, (III) if such
contest shall be conducted in a manner requiring the payment of the claim,
Lessee shall have paid the amount required directly to the appropriate
authority or made an advance of the amount thereof to such Indemnitee on an
interest-free basis and agreed to indemnify the Indemnitee against any
additional net after-tax cost to such Indemnitee with respect to such
advance or payment, (IV) with regard to an Income Tax on an Indemnitee
which is the Owner Participant or the Owner Trustee, or a successor, assign
or Affiliate of the Owner Participant or the Owner Trustee,
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<PAGE>
independent tax counsel selected by such Indemnitee and reasonably
satisfactory to the Lessee shall furnish an opinion, prepared at the
Lessee's expense, to the effect that there is a reasonable basis to contest
such claim and with respect to appeal, to the effect that it is more likely
than not such appeal will be successful, (V) in the case of an Indemnitee
which is the Owner Participant or the Owner Trustee, or a successor, assign
or Affiliate of the Owner Participant or the Owner Trustee, prior to the
commencement of a contest Lessee shall have delivered to such Indemnitee a
written acknowledgment of Lessee's obligation to indemnify fully such
Indemnitee to the extent that the contest is not successful; provided,
however, that Lessee will not be bound by its acknowledgment of liability
if and to the extent that the contest results in a determination which
clearly and unambiguously demonstrates that Lessee is not otherwise liable
under this Section 7(b) with respect to such Tax, (VI) if an Event of
Default shall have occurred and be continuing, the Lessee shall have, at
the option of the Owner Participant, either (i) provided security for its
obligations hereunder reasonably satisfactory to the Owner Participant by
placing in escrow sufficient funds to cover any such contested Tax or (ii)
paid such Tax, and (VII) the amount of the indemnity computed under Section
7(b) arising from a claim for Tax exceeds $10,000. In no event shall an
Indemnitee be required to appeal or to seek leave to appeal an adverse
determination with respect to Taxes contested by, or in the name of, the
Indemnitee to the United States Supreme Court.
If any Indemnitee shall obtain a refund of all or any part of any
Tax paid by Lessee such Indemnitee shall pay Lessee an amount equal to the
sum of (I) the amount of such refund, including interest received
attributable thereto, net of taxes required to be paid by such Indemnitee
as a result of any refund and/or interest received and (II) any tax benefit
realized by such Indemnitee as a result of any payment by such Indemnitee
made pursuant to this sentence; provided, however, that in the case of any
Indemnitee which is the Owner Participant or any successor, assign or
Affiliate of the Owner Participant such amount attributable to (I) above
shall not be in excess of the amount of such Tax payment (determined
without regard to any amount paid in respect of Taxes required to be paid
by such Indemnitee in respect of the receipt or accrual of such payment or
advance made by Lessee to such Indemnitee) plus interest received, if any,
from the relevant taxing authority with respect to such Tax payment (net of
Taxes required to be paid by such Indemnitee in connection with the receipt
of such interest), it being intended that such Indemnitee shall realize a
net
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benefit pursuant to this Section 7(b) only if Lessee shall first have been
reimbursed for any payments by it to such Indemnitee pursuant to this
Section 7(b) arising from the same Loss. If any Indemnitee shall have paid
Lessee any refund of all or part of any Tax paid by Lessee and it is
subsequently determined that such Indemnitee was not entitled to the
refund, such determination shall be treated as the imposition of a Tax for
which Lessee is obligated to indemnify such Indemnitee pursuant to the
provisions of this Section 7(b) without regard to Section 7(b)(ii) or
Section 7(b)(iv).
Nothing contained in this Section 7(b)(iv) shall require any
Indemnitee to contest, or permit Lessee to contest, a claim with respect to
the imposition of any Tax if such Indemnitee shall waive its right to
indemnification under this Section 7 with respect to such claim or a claim
with respect to which a previous contest pursuant to the provision of this
Section 7(b)(iv) shall have been determined adversely to the taxpayer.
(v) General Tax Indemnity -- Reports. Lessee will provide such
--------------------------------
information (including information on the routes and operations of the
Aircraft) as may be reasonably requested by an Indemnitee or required to
enable an Indemnitee to fulfill its tax filing or audit requirements with
respect to the transactions contemplated by the Operative Documents. In
the event any return, statement or report is required to be made or filed
with respect to any Tax imposed on or indemnified against by Lessee under
this Section 7(b) (other than with respect to Income Taxes), Lessee shall
notify the Indemnitee of such requirement and (i) to the extent permitted
by law, and not otherwise requested by the Indemnitee, or required by law,
Lessee shall make and file in its own name (and pay the tax shown due on)
such return, statement or report in such manner as will show the ownership
of the Aircraft in the Owner Trustee and furnish the Indemnitee with a copy
of such return, statement or report; provided, however, that Lessee shall
have no obligation under this clause (i) to the extent such Indemnitee
after receipt of Lessee's written request shall have failed to furnish
Lessee with such information as is peculiarly within such Indemnitee's
control and is necessary to file such returns, statements or reports, and
(ii) in the case of a return, statement or report required (or requested by
the Indemnitee) to be in the name of or filed by such Indemnitee, Lessee
shall prepare and furnish such return, statement or report for filing by
such Indemnitee in such manner as shall be reasonably satisfactory to such
Indemnitee and send the same to such Indemnitee for filing
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<PAGE>
no later than 10 Business Days prior to the due date; provided, however,
that Lessee shall have no obligation under this clause (ii) to the extent
such Indemnitee after receipt of Lessee's written request shall have failed
to furnish Lessee with such information as is peculiarly within such
Indemnitee's control and is necessary to prepare such return, statement or
report. Lessee shall hold each Indemnitee harmless from and against any
liabilities, including, but not limited to penalties, additions to tax,
fines and interest, arising out of any insufficiency or inaccuracy in any
such return, statement, report or information if such insufficiency or
inaccuracy is attributable to Lessee.
(vi) General Tax Indemnity -- Payment. Except as provided in
--------------------------------
Section 7(b)(iv) or (v) hereof, Lessee shall pay any Tax directly to the
appropriate taxing authority if legally permissible and upon demand of an
Indemnitee shall pay such Tax and any other amounts due hereunder to such
Indemnitee within 20 Business Days of such demand, but in no event shall
any such payments be made more than 10 Business Days prior to the date the
Tax to which any such payment hereunder relates is due (unless Lessee has
not received such demand at least 15 Business Days prior to such date in
which case within five Business Days after receipt of such demand), in
immediately available funds. Any such demand for payment from an
Indemnitee shall specify in reasonable detail, the payment and the facts
upon which the right to payment is based. Each Indemnitee shall promptly
forward to Lessee any notice, bill or advice received by it concerning any
Tax indemnified against hereunder. As soon as practicable after each
payment by Lessee of any Tax indemnified against hereunder, Lessee shall
furnish the appropriate Indemnitee the original or a certified copy of a
receipt for Lessee's payment of such Tax or such other evidence of payment
of such Tax as is acceptable to such Indemnitee. Lessee shall also furnish
promptly upon request such data as any Indemnitee may reasonably require to
enable such Indemnitee to comply with the requirements of any taxing
jurisdiction.
(vii) Application of Payments During Existence of Default or Event
------------------------------------------------------------
of Default. Any amount payable to Lessee pursuant to the terms of this
----------
Section 7(b) shall not be paid to or retained by Lessee if at the time of
such payment or retention a Default or an Event of Default shall have
occurred and be continuing under the Lease. At such time as there shall
not be continuing any Default or Event of Default, such amount shall be
paid to the Lessee to the extent not previously applied against Lessee's
obligations
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<PAGE>
hereunder as and when due after the Owner Trustee shall have declared the
Lease in default pursuant to Section 15 thereof.
(viii) Reimbursements by Indemnitees Generally. If, for any
---------------------------------------
reason, Lessee is required to make any payment with respect to any Taxes
imposed on any Indemnitee in respect of the transactions contemplated by
the Operative Documents or on the Aircraft, the Airframe, the Engines, the
Parts or any part thereof, which Taxes are not the responsibility of Lessee
under this Section 7(b), then such Indemnitee shall pay to Lessee an amount
which equals the amount paid by Lessee with respect to such Taxes plus
interest thereon, computed from the date of payment by Lessee, at the Base
Rate.
(ix) Forms, etc. Each Indemnitee agrees to furnish to Lessee from
-----------
time to time, at the Lessee's request and expense, such duly executed and
properly completed forms as may be necessary or appropriate in order to
claim any reduction of or exemption from any withholding tax imposed by any
taxing authority in respect of any payments otherwise required to be made
by Lessee pursuant to the Operative Documents and each Pass Through Trust
Agreement, which reduction or exemption may be available to such
Indemnitee. In addition, any Indemnitee shall, at Lessee's expense,
execute and deliver any forms or documents which Lessee reasonably requests
and which are reasonably related to any indemnified Taxes. Notwithstanding
the foregoing, an Indemnitee shall not be required to (A) make available
any Income Tax returns; or to (B) execute and deliver any forms or
documents which would in the good faith determination of such Indemnitee
disadvantage such Indemnitee in the context of its overall filing position
or with regard to other Taxes not indemnified under this Agreement or the
Tax Indemnity Agreement.
(x) Non-Parties. If an Indemnitee is not a party to this
-----------
Agreement, Lessee may require the Indemnitee to agree to the terms of this
Section 7(b) prior to making any payment to such Indemnitee under this
Section 7(b).
(xi) Owner Participant. For the purposes of this Section 7(b),
-----------------
the term "Owner Participant" shall mean and include [__________________]
(and its permitted successors and assigns) and where appropriate the
affiliated group of corporations (and each member thereof) making a
consolidated or combined return of which [_____________] (and its permitted
successors and assigns) is a member.
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(xii) Income Tax. For purposes of this Section 7, the term Income
----------
Tax means any Tax based on or measured by or with respect to net income
(including, without limitation, capital gains taxes, minimum taxes, income
taxes collected by withholding, and taxes on tax preference items) or net
receipts and taxes imposed on gross income or gross receipts which are
expressly in lieu of a net income tax (provided, however, that sales, use,
value added, rental, license, ad valorem or property Taxes shall not
constitute an Income Tax) and Taxes which are capital, doing business,
franchise, excess profits, net worth taxes and interest, additions to tax,
penalties, or other charges in respect thereof.
(c) General Indemnity. Lessee hereby agrees to indemnify, on an
-----------------
after-tax basis, each Indemnitee against, and agrees to protect, save and keep
harmless each of them from (whether or not the transactions contemplated herein
or in any of the other Operative Documents or the Pass Through Trust Agreements
are consummated), any and all Expenses imposed on, incurred by or asserted
against any Indemnitee, in any way relating to or arising out of (A) the
Operative Documents and each Pass Through Trust Agreement (and any amendments
thereto), the negotiation and the consummation of the transactions contemplated
thereby or any sublease under the Lease Agreement or the enforcement of any of
the terms of any thereof; or (B) the manufacture, design, purchase, resale,
acceptance or rejection of the Airframe or any Engine or Parts; or (C) the
Aircraft (or any portion thereof) or any Engine whether or not installed on the
Airframe or any airframe on which an Engine is installed whether or not arising
out of the finance, refinance, ownership, delivery, nondelivery, storage, lease,
sublease, possession, use, non-use, operation, maintenance, modification,
alteration, condition, sale, replacement, substitution, return or other
disposition, registration, reregistration or airworthiness of the Aircraft (or
any portion thereof) including, without limitation, latent or other defects,
whether or not discoverable, strict tort liability and any damage to property or
the environment, death or injury to any person and any claim for patent,
trademark or copyright infringement; or (D) the offer, sale, holding, transfer
or delivery of the Loan Certificates or the Pass Through Certificates, whether
before, on or after the Delivery Date (the indemnity in this clause (D) to
extend also to any person who controls an Indemnitee, its successors, assigns,
employees, directors, officers, servants and agents within the meaning of
Section 15 of the Securities Act of 1933, as amended); or (E) the offer,
holding, transfer or sale of any interest in the Trust Estate or the Trust
Agreement or any similar interest (a) on or prior to the Delivery Date, or (b)
subsequent to the Delivery Date during the continuation of an Event of Default
under the Lease or in connection with the exercise by the Lessee of its
34
<PAGE>
purchase options under the Lease or in connection with a refinancing pursuant to
Section 17 hereof or in connection with the termination of the Lease or action
or direction of Lessee pursuant to Sections 7, 8, 9, 10, or 19 thereof;
provided, that the foregoing indemnity shall not extend to any Expense to the
extent resulting from or arising out of one or more of the following: (1) any
representation or warranty by such Indemnitee in the Operative Documents or in
any Pass Through Trust Agreement being incorrect, or (2) the failure by such
Indemnitee to perform or observe any agreement, covenant or condition in any of
the Operative Documents or in any Pass Through Trust Agreement including,
without limitation, the creation or existence of a Lessor Lien (including for
this purpose Liens that would be Lessor Liens but for the proviso to the
definition of Lessor Liens), or (3) the willful misconduct or the gross
negligence of such Indemnitee (other than gross negligence imputed to such
Indemnitee solely by reason of its interest in the Aircraft), or (4) (A) in the
case of such Indemnitee a disposition (voluntary or involuntary) of all or any
part of its interest in the Airframe or any Engine, (B) in the case of a
Certificate Holder a disposition (voluntary or involuntary) by such Certificate
Holder of all or any part of its interest in any Loan Certificate or (C) in the
case of any Indemnitee a disposition by such Indemnitee of all or any part of
such Indemnitee's interest in the Operative Documents or the Pass Through Trust
Agreements other than in each of (A), (B) and (C) during the continuance of an
Event of Default under the Lease or pursuant to the exercise by the Lessee of
its purchase options under the Lease or in connection with a refinancing
pursuant to Section 17 hereof or in connection with the termination of the Lease
or action or direction of Lessee pursuant to Sections 7, 8, 9, 10 or 19 thereof,
or (5) other than to the extent provided in the succeeding paragraph, any Tax
(as defined in Section 7(b) hereof) whether or not Lessee is required to
indemnify for such Tax pursuant to Section 7(b) hereof (it being understood that
Section 7(b) hereof and the Tax Indemnity Agreement and provisions requiring
payments to be made on an after-tax basis or expressly providing for additional
indemnification by Lessee exclusively provide for Lessee's liability with
respect to Taxes), or (6) the offer or sale by the Owner Participant after the
Delivery Date of any interest in the Trust Estate or the Trust Agreement or any
similar interest, unless such offer or sale shall occur (A) during a period when
an Event of Default has occurred and is continuing under the Lease at the time
of such offer or sale or (B) in connection with the exercise by Lessee of its
purchase options under the Lease or, (7) in the case of the Owner Participant, a
failure on the part of the Owner Trustee to distribute in accordance with the
Trust Agreement any amounts received and distributable by it thereunder or, in
the case of a Certificate Holder, a failure on the part of the Indenture Trustee
to distribute in accordance with the Trust
35
<PAGE>
Indenture any amounts received and distributable by it thereunder to such
Certificate Holder or a failure on the part of any Pass Through Trustee to
distribute in accordance with the applicable Pass Through Trust Agreement any
amounts received and distributable by such Pass Through Trustee under such Pass
Through Trust Agreement, or (8) other than during the continuation of a Default
or an Event of Default under the Lease the authorization or giving or
withholding of any future amendments, supplements, waivers or consents with
respect to any of the Operative Documents or any Pass Through Trust Agreement
unless such amendments, supplements, waivers or consents (a) are requested by
Lessee or (b) are required or permitted pursuant to the terms of the Operative
Documents (unless the same results from the actions of an Indemnitee) (provided
if Lessee is not responsible for the Expense associated with such amendment,
supplement, waiver or consent, the party requesting the execution of the same
shall be responsible for such expense), or (9) other than to the extent provided
in the succeeding paragraph any loss of tax benefits or increase in tax
liability under any tax law whether or not Lessee is required to indemnify
therefor pursuant to this Agreement or the Tax Indemnity Agreement (it being
understood that Section 7(b) hereof and the Tax Indemnity Agreement and
provisions requiring payments to be made on an after-tax basis or expressly
providing for additional indemnification by Lessee exclusively provide for
Lessee's liability with respect to Taxes), or (10) except to the extent fairly
attributable to acts or events occurring on or prior thereto, acts or events
which occur after the earlier of: (I) the return of possession of the Airframe
or any Engine or any Part to the Owner Trustee or its designee pursuant to the
terms of the Lease (other than pursuant to Section 15 thereof, in which case
Lessee's liability under this Section 7(c) shall survive for so long as Owner
Trustee shall be entitled to exercise remedies under such Section 15), (II) the
termination of the Term in accordance with Sections 5, 9 or 19 of the Lease,
(III) the last day of the Term if Owner Trustee shall have furnished the notice
referred to in Section 10(d) of the Lease and Lessee shall have failed to return
possession to Owner Trustee on such day or (IV) the payment by Lessee of all
amounts required to be paid under the Lease following an Event of Loss (but
excluding from the terms of this subsection (IV) an Event of Loss followed by
the replacement of the Aircraft).
Notwithstanding clause 7(c)(5) or (9) above, Lessee further agrees
that any payment or indemnity pursuant to this Section 7(c) in respect of any
"Expenses" shall be in an amount which, after deduction of all Taxes required to
be paid by such recipient with respect to such payment or indemnity under the
laws of any federal, state or local government or taxing authority in the United
States, or under the laws of any taxing
36
<PAGE>
authority or governmental subdivision of a foreign country, or any territory or
possession of the United States or any international authority, shall be equal
to the excess, if any, of (A) the amount of such Expense over (B) the current
net reduction in Taxes actually required to be paid by such recipient resulting
from the accrual or payment of such Expense.
Nothing in this Section 7(c) shall be construed as a guaranty by
Lessee of payments due pursuant to the Loan Certificates or the Pass Through
Certificates or of the residual value of the Aircraft.
If a claim is made against an Indemnitee involving one or more
Expenses and such Indemnitee has notice thereof, such Indemnitee shall promptly
after receiving such notice give notice of such claim to Lessee; provided that
the failure to provide such notice shall not release Lessee from any of its
obligations to indemnify hereunder or from any other obligation that the Lessee
may have to such Indemnitee at law or in equity, and no payment by Lessee to an
Indemnitee pursuant to this Section 7(c) shall be deemed to constitute a waiver
or release of any right or remedy which the Lessee may have against such
Indemnitee for any actual damages as a result of the failure by such Indemnitee
to give Lessee such notice. So long as Lessee has acknowledged its obligation
to indemnify pursuant to this Section 7(c), Lessee shall be entitled, at its
sole cost and expense, acting through counsel reasonably acceptable to the
respective Indemnitee, (A) in any judicial or administrative proceeding that
involves solely a claim for one or more Expenses, to assume responsibility for
and control thereof, (B) in any judicial or administrative proceeding involving
a claim for one or more Expenses and other claims related or unrelated to the
transactions contemplated by the Operative Documents, to assume responsibility
for and control of such claim for Expenses to the extent that the same may be
and is severed from such other claims (and such Indemnitee shall use reasonable
efforts to obtain such severance), and (C) in any other case, to be consulted by
such Indemnitee with respect to judicial proceedings subject to the control of
such Indemnitee and to be allowed, at Lessee's sole expense, to participate
therein. Notwithstanding any of the foregoing to the contrary, Lessee shall not
be entitled to assume responsibility for and control of any such judicial or
administrative proceedings if (i) any Default under Section 14(a), (b), (f) or
(g) of the Lease or an Event of Default under the Lease shall have occurred and
be continuing, (ii) if such proceedings will involve a material risk of the
sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted
Lien) on, the Aircraft, the Trust Indenture Estate or the Trust Estate or any
part thereof unless Lessee shall have posted a bond or other security reasonably
satisfactory to the relevant Indemnitees in respect to such risk
37
<PAGE>
or (iii) if such proceedings could, in the good faith opinion of the Indemnitee
entail any risk of criminal liability or any material risk of civil liability
(unless, in the case of such civil liability, Lessee has agreed to indemnify
against such civil liability in a manner reasonably acceptable to such
Indemnitee). The Indemnitee may participate at its own expense and with its own
counsel in any judicial proceeding controlled by Lessee pursuant to the
preceding provisions; provided, however, that if in the written opinion of
-------- -------
counsel to such Indemnitee (which opinion and counsel shall be reasonably
acceptable to Lessee) an actual or potential material conflict of interest
exists where it is advisable for such Indemnitee to be represented by separate
counsel, the reasonable fees and expenses of such separate counsel shall be
borne by Lessee.
The Indemnitee shall supply Lessee, at Lessee's expense, with such
information reasonably requested by Lessee as is necessary or advisable for
Lessee to control or participate in any proceeding to the extent permitted by
this Section 7(c). Such Indemnitee shall not enter into a settlement or other
compromise with respect to any Expense as to which Lessee has acknowledged its
obligation to indemnify (and if Lessee has not so acknowledged only upon 5
Business Days' prior written notice to Lessee) without the prior written consent
of Lessee (except during the continuance of any Default under Section 14(a),
(b), (f) or (g) of the Lease or an Event of Default under the Lease when such
consent shall not be required if such Indemnitee gives 30 days' prior written
notice to Lessee describing the proposed settlement or compromise), which
consent shall not be unreasonably withheld or delayed, unless such Indemnitee
waives its right to be indemnified with respect to such Expense under this
Section 7(c).
The Lessee shall supply the Indemnitee with such information
reasonably requested by the Indemnitee as is necessary or advisable for the
Indemnitee to control or participate in any proceeding to the extent permitted
by this Section 7(c).
Upon payment of any Expense pursuant to this Section 7(c), Lessee,
without any further action, shall be subrogated to any claims the Indemnitee may
have relating thereto other than claims under Section 9.06 of the Trust
Indenture or Section 5.03 or 7.01 of the Trust Agreement. The Indemnitee agrees
to give such further assurances or agreements and to cooperate with Lessee to
permit Lessee to pursue such claims, if any, to the extent reasonably requested
by Lessee.
In the event that Lessee shall have paid an amount to an Indemnitee
pursuant to this Section 7(c), and such Indemnitee
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subsequently shall be reimbursed in respect of such indemnified amount from any
other person, such Indemnitee shall, unless a Default under Section 14(a), (b),
(d) (solely with respect to Lessee's obligations under Section 7(a) or (b)(viii)
of the Lease or Section 8 of the Lease), (f) or (g) of the Lease or an Event of
Default under the Lease shall have occurred and be continuing, promptly pay
Lessee but not before Lessee shall have made all payments then due to such
Indemnitee pursuant to this Section 7(c) and any other payments then due under
any of the Operative Documents, an amount equal to the sum of (I) the amount of
such reimbursement, including interest received attributable thereto, net of
taxes required to be paid by such Indemnitee as a result of any reimbursement
including interest received attributable thereto and (II) any tax benefit
actually realized by such Indemnitee as a result of any payment by such
Indemnitee made pursuant to this sentence; provided, however, that in the case
of any Indemnitee which is the Owner Participant or any successor, assign or
Affiliate of the Owner Participant such amount attributable to (I) above shall
not be in excess of the amount of such Expense payment net of any amount paid in
respect of Taxes required to be paid by such Indemnitee in respect of the
receipt or accrual of such payment or advance made by Lessee to such Indemnitee
plus interest received, if any, from the relevant taxing authority with respect
to any such Expense payment, it being intended that such Indemnitee shall
realize a net benefit pursuant to this Section 7(c) only if Lessee shall first
have been reimbursed for any payments by it to such Indemnitee pursuant to this
Section 7(c).
Lessee agrees to pay the reasonable and continuing fees and expenses
of the Indenture Trustee (including, but not limited to, the reasonable fees and
expenses of its counsel and any agent appointed in accordance with Section
9.02(c) of the Trust Indenture) and each Pass Through Trustee (including, but
not limited to, the reasonable fees and expenses of its counsel) and, as
provided in Section 6.07 of the Trust Agreement, the Owner Trustee (including,
but not limited to, the reasonable fees and expenses of its counsel), in each
case without cost, on a net after-tax basis, to the Owner Participant, for
acting as such, other than such fees and expenses which constitute Transaction
Expenses.
Lessee's obligations under the indemnities provided for in this
Agreement shall be those of a primary obligor, whether or not the Person
indemnified shall also be indemnified with respect to the same matter under the
terms of any other document or instrument, and the Person seeking
indemnification from Lessee pursuant to any provision of this Agreement may
proceed directly against Lessee without first seeking to enforce any other right
of indemnification.
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To the extent permitted by applicable law, interest at the Past Due
Rate shall be paid, on demand, on any amount or indemnity not paid when due
pursuant to this Section 7 until the same shall be paid. Such interest shall be
paid in the same manner as the unpaid amount in respect of which such interest
is due.
Any amount which is payable to Lessee by any Person pursuant to this
Section 7 shall not be paid to Lessee if a Default under Section 14(a), (b), (d)
(solely with respect to Lessee's obligations under Section 7(a) or (b)(viii) of
the Lease or Section 8 of the Lease), (f) or (g) of the Lease or an Event of
Default under the Lease shall have occurred and be continuing or if any payment
is due and owing by Lessee under the Lease or to such Person under any other
Operative Document. Any such amount shall be held by such Person and, if such
Default or an Event of Default under the Lease shall have occurred and be
continuing, shall be applied against Lessee's obligations hereunder to such
Person as and when due (and, to the extent that Lessee has no obligations
hereunder to such Person, such amount shall be paid to Lessee). At such time as
there shall not be continuing any such Default or an Event of Default or there
shall not be due and owing any such payment, such amount shall be paid to Lessee
to the extent not previously applied in accordance with the immediately
preceding sentence.
(d) Withholding. If Lessee advises the Owner Trustee, the Indenture
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Trustee and the relevant Certificate Holder in writing that interest on its Loan
Certificates is subject to United States withholding tax, then the Owner Trustee
shall instruct the Indenture Trustee to, and Indenture Trustee shall, withhold
as provided in Section 9.11 of the Trust Indenture.
SECTION 8. Representations, Warranties and Covenants. (a) The Owner
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Participant represents that it is acquiring its interest in the Trust Estate for
investment purposes only and not with a present intent as to any resale or
distribution thereof (subject nonetheless to any requirement of law that the
disposition of its properties shall at all times be and remain within its
control) and that neither it nor anyone acting on its behalf (other than for
purposes of this paragraph, Lessee and the Underwriter) has directly or
indirectly offered any interest in the Trust Estate or any Loan Certificates or
Pass Through Certificates or any similar securities for sale to, or solicited
any offer to acquire any of the same from, anyone in a manner which would result
in a violation of the Securities Act of 1933, as amended or the securities laws,
rules and regulations of any state.
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(b) Each of the Owner Participant and State Street Bank and Trust
Company, in its individual capacity, represents and warrants to the other
parties to this Agreement that it is, and on the Delivery Date will be, a
Citizen of the United States. The Owner Participant agrees, solely for the
benefit of Lessee and the Certificate Holders, that if during such time as the
Aircraft is registered in the United States (or if Lessee desires to register
the Aircraft in the United States) (i) it shall not be a Citizen of the United
States and (ii) the Aircraft shall be, or would therefore become, ineligible for
registration in the name of the Owner Trustee under the Federal Aviation Act and
regulations then applicable thereunder, then the Owner Participant shall (at its
own expense and without any reimbursement or indemnification from Lessee) as
soon as is reasonably practicable but in any event within 30 days after
obtaining Actual Knowledge of such ineligibility and of such loss of citizenship
(A) effect voting trust or other similar arrangements or take any other action
as may be necessary to prevent any deregistration or to maintain the United
States registration of the Aircraft, or (B) transfer its beneficial interest in
the Trust Estate in accordance with Section 8(l) hereof. It is understood that:
(1) the Owner Participant shall be liable to any of the other parties hereto for
any damages suffered by any such other party as the result of the representation
and warranty of the Owner Participant in the first sentence of this Section 8(b)
proving to be untrue as of the Delivery Date; and (2) the Owner Participant
shall be liable to Lessee, any Sublessee and any Certificate Holder for any
damages which may be incurred by Lessee, any Sublessee or such Certificate
Holder as a result of the Owner Participant's failure to immediately comply with
its obligations pursuant to the second sentence of this Section 8(b) unless such
failure is a result of such party's breach of its obligations to cooperate set
forth in the following sentence (including any damages suffered by any such
party (other than damages suffered by Lessee which Lessee could have mitigated
by taking reasonable steps (Lessee having no obligation to restrict the use of
the Aircraft to so mitigate)) at any time after the fifth Business Day following
the Owner Participant's having obtained Actual Knowledge of such ineligibility
or loss of citizenship). Each party hereto agrees, upon the request and at the
sole expense of the Owner Participant, to reasonably cooperate with the Owner
Participant in complying with its obligations under the provisions of the second
sentence of this Section 8(b) and such request shall not be subject to the
indemnity contained in Section 7(c) hereof. State Street Bank and Trust Company
in its individual capacity, agrees that if at any time a responsible officer of
State Street Bank and Trust Company, shall obtain Actual Knowledge that State
Street Bank and Trust Company has ceased to be a Citizen of the United States,
it will promptly