EXHIBIT 10.9.3
SUBLEASE AGREEMENT
(MSN 30808)
Dated as of
October 24, 2001
Between
GENERAL ELECTRIC CAPITAL CORPORATION,
Sublessor
and
POLAR AIR CARGO, INC.,
Sublessee
One Boeing 747-46NF Aircraft
Manufacturer's Serial Number 30808
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As set forth in Section 21 hereof, Sublessor has assigned or will assign to the
Owner Trustee (as defined herein) certain of its right, title and interest in
and to this Sublease. The Owner Trustee will further assign such right, title
and interest to the Indenture Trustee (as defined herein). To the extent, if
any, that this Sublease constitutes chattel paper (as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction) no
security interest in this Sublease may be created through the transfer or
possession of any counterpart other than the original executed counterpart,
which shall be identified as the counterpart containing the receipt therefor
executed by the Indenture Trustee on the signature page thereof.
Sublease Agreement
(MSN 30808)
TABLE OF CONTENTS
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Section 1. Definitions ....................................................... 1
Section 2. Acceptance and Lease .............................................. 1
Section 3. Term and Rent ..................................................... 1
(a) Basic Term ................................................. 1
(b) Basic Rent ................................................. 1
(c) Adjustments to Basic Rent .................................. 1
(d) Supplemental Rent .......................................... 2
(e) Payments in General ........................................ 2
(f) Business Day Convention .................................... 2
(g) Verification ............................................... 3
(h) True Lease ................................................. 3
(i) Head Lease Transactions; Security for Obligations .......... 3
(j) General Tax Indemnity ...................................... 5
(k) General Indemnity .......................................... 17
Section 4. Disclaimer; Sublessor's and Sublessee's Representations,
Warranties and Agreements ......................................... 21
(a) Disclaimer ................................................. 21
(b) Sublessee's Representations and Warranties ................. 22
(c) Sublessor's Covenants ...................................... 23
(d) Manufacturers' Warranties .................................. 23
Section 5. Return of the Aircraft ............................................ 24
(a) Condition Upon Return ...................................... 24
(b) Storage and Related Matters ................................ 24
(c) Return of Other Engines .................................... 24
(d) Obligations Continue Until Return .......................... 24
Section 6. Liens ............................................................. 25
Section 7. Registration, Maintenance, Operation and Registration; Possession
and Sub-Subleases; Insignia ....................................... 26
(a) Registration, Maintenance, Operation and Registration ...... ▇▇
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▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
(▇▇▇ 30808)
TABLE OF CONTENTS
(continued)
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(b) Possession and Sub-subleases ............................... 29
(c) Certain Limitations on Sub-subleasing or Other
Relinquishments of Possession .............................. 33
(d) Wet Leasing, ACMI Contracts or Similar Arrangements;
Mergers; Assignments ....................................... 33
(e) Subordination, Non-Disturbance and Attornment of a Sub-
sublessee .................................................. 34
(f) Insignia ................................................... 34
Section 8. Replacement and Pooling of Parts; Alterations, Modifications and
Additions ......................................................... 35
(a) Replacement of Parts ....................................... 35
(b) Pooling of Parts; Temporary Replacement Parts .............. 35
(c) Alterations, Modifications and Additions ................... 36
Section 9. Voluntary Termination ............................................. 37
(a) Termination Event .......................................... 37
(b) Optional Sale of the Aircraft; Sublessor Retention Option;
Revocation of Termination Notice ........................... 38
Section 10. Loss, Destruction, Requisition, etc. .............................. 41
(a) Sublease Event of Loss with Respect to the Aircraft ........ 41
(b) Sublease Event of Loss with Respect to an Engine ........... 44
(c) Application of Payments from Governmental Authorities
for Requisition of Title, etc. ............................. 45
(d) Requisition for Use of the Aircraft by the United
Government or the Government of Registry of the Aircraft ... 45
(e) Requisition for Use of an Engine by the United States
Government or the Government of Registry of the Aircraft ... 46
(f) Application of Payments During Existence of Sublease
Event of Default ........................................... 47
Section 11. Insurance ......................................................... 47
(a) Sublessee's Obligation to Insure ........................... 47
(b) Insurance for Own Account .................................. 47
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Sublease Agreement
(MSN 30808)
TABLE OF CONTENTS
(continued)
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(c) Indemnification by Government in Lieu of Insurance ......... 47
(d) Application of Insurance Proceeds .......................... 48
Section 12. Inspection ........................................................ 48
Section 13. Assignment ........................................................ 49
Section 14. Sublease Events of Default ........................................ 51
Section 15. Remedies .......................................................... 53
Section 16. Sublessee's Cooperation Concerning Certain Matters ................ 56
(b) Aid in Lease or Sale ....................................... 57
Section 17. Notices ........................................................... 57
Section 18. Net Sublease; No Set-Off, Counterclaim, etc. ....................... 57
Section 19. Renewal Options; Purchase Options; Valuation ...................... 58
(a) Renewal Options; Renewal Term, Additional Renewal Term ..... 58
(b) Purchase Options ........................................... 59
(c) Valuation .................................................. 60
Section 20. Burdensome Purchase Option ........................................ 60
Section 21. Security for Sublessor's Obligation to Holders of Equipment
Notes ............................................................. 61
Section 22. Sublessor's Right to Perform for Sublessee ........................ 62
Section 23. Investment of Security Funds ...................................... 62
Section 24. Jurisdiction ...................................................... 62
Section 25. Miscellaneous ..................................................... 62
Section 26. Third Party Beneficiary ........................................... 63
Section 27. Lease for U.S. Federal Income Tax Law Purposes; Section 1110
of Bankruptcy Code; Head Lease Document Amendments; Transfers ..... 63
(a) Lease for Federal Income Tax Law Purposes .................. 63
(b) Section 1110 of Bankruptcy Code ............................ 63
(c) Head Lease Document Amendments ............................. 63
(d) Transfers .................................................. 64
Section 28. Entire Agreement .................................................. 64
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Sublease Agreement
(MSN 30808)
TABLE OF CONTENTS
(continued)
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Section 29. Confidentiality ................................................... 64
Section 30. Head Lease Documents .............................................. 65
-iv-
Sublease Agreement
(MSN 30808)
SUBLEASE AGREEMENT
(MSN 30808)
This SUBLEASE AGREEMENT (MSN 30808) dated as of October 24, 2001,
between GENERAL ELECTRIC CAPITAL CORPORATION, a corporation organized and
existing pursuant to the laws of the State of Delaware ("SUBLESSOR") and POLAR
AIR CARGO, INC., a corporation organized and existing pursuant to the laws of
the State of California ("SUBLESSEE");
WITNESSETH:
SECTION 1. DEFINITIONS. Capitalized terms used but not defined herein
shall have the respective meanings and rules of usage set forth or incorporated
by reference, and shall be construed and interpreted in the manner described, in
ANNEX A.
SECTION 2. ACCEPTANCE AND LEASE. Sublessor has entered into a Lease
Agreement between Head Lessor, as lessor, and Sublessor, as lessee, for the
leasing of the Aircraft and Sublessor hereby agrees to lease the Aircraft to
Sublessee (subject to satisfaction of the conditions set forth herein to
sublease to Sublessee hereunder), and Sublessee hereby agrees to sublease the
Aircraft from Sublessor (subject to satisfaction of the conditions set forth
herein to Sublease from Sublessor hereunder), as evidenced by the execution by
Sublessor and Sublessee of a Sublease Supplement subleasing the Aircraft
hereunder. Sublessee hereby agrees that such execution shall, without further
act, irrevocably constitute acceptance by Sublessee of such Aircraft for all
purposes of this Sublease.
SECTION 3. TERM AND RENT.
(a) BASIC TERM. The Basic Term shall commence on the Delivery
Date and end on the Basic Term Expiration Date.
(b) BASIC RENT. On each Rent Payment Date, Basic Rent for the
use of the Aircraft shall be due and payable and Sublessee shall pay Basic Rent
in Dollars in an amount specified on EXHIBIT B-1. Each payment of Basic Rent
shall be final, subject to SECTION 18 herein. The amount of Basic Rent allocated
to each Sublease Period shall equal the amount of Basic Rent payable during the
same Sublease Period as provided on EXHIBIT B-1.
(c) ADJUSTMENTS TO BASIC RENT.
(i) In the event that Sublessee pays an indemnity
obligation under the Sublease Tax Indemnity Agreement, then
the Basic Rent, Termination Value amounts set forth in EXHIBIT
C and the EBO Amount set forth on EXHIBIT D shall be
recalculated upwards or downwards by the Sublessor using the
same methods and
Sublease Agreement
(MSN 30808)
assumptions (except to the extent such assumptions shall be
varied to take into account the Loss (as defined in the
Sublease Tax indemnity Agreement) that is the subject of such
indemnification and any prior or contemporaneous Loss) used to
calculate Basic Rent amounts, the Termination Value amounts
and the EBO Amount on the Delivery Date in order to (1)
maintain the Sublessor's Net Economic Return and (2) to the
extent possible consistent with clause (1) hereof, minimize
the Net Present Value of Rents to Sublessee.
(ii) Any recalculation of Basic Rent, Termination Value
amounts and EBO Amounts pursuant to this SECTION 3(c) shall be
determined by Sublessor and shall be subject to the
verification procedure set forth in SECTION 3(g) hereto.
(iii) Any such adjusted Basic Rent, Termination Value
amounts and EBO Amount shall be set forth in a Sublease
Supplement or an amendment to the Sublease.
(d) SUPPLEMENTAL RENT. Sublessee shall pay (or cause to be
paid) promptly to Sublessor, or to whomsoever shall be entitled thereto, any and
all Supplemental Rent, including, without limitation, Termination Value, as the
same shall become due and owing and all other amounts of Supplemental Rent
within five (5) Business Days after demand or within such other relevant period
as may be provided in any Operative Document, as applicable, and in the event of
any failure on the part of Sublessee to pay any Supplemental Rent when due,
Sublessor shall have all rights, powers and remedies provided for herein, in any
other Operative Document, as applicable, or by law or equity or otherwise in the
case of nonpayment of Basic Rent. Sublessee also will pay to Sublessor, or to
whosoever shall be entitled thereto, on demand, as Supplemental Rent, to the
extent permitted by applicable law, interest at the Past Due Rate on any part of
any installment of Basic Rent not paid when due for any period from the due date
for such installment of Basic Rent until the same shall be paid in full and on
any part of any payment of Supplemental Rent not paid when due for the period
until the same shall be paid in full.
(e) PAYMENTS IN GENERAL. All payments of Rent shall be made
directly by Sublessee by wire transfer of immediately available funds in Dollars
prior to 11:00 a.m., New York time, on the date of payment, to Sublessor at its
account at c/o GE Capital Aviation Services, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇, Bankers Trust Company, ABA No. 021 001 033, GECC T&I
Dispository Account, Account No. 50 255 888, Attention: Contracts Leader Credit:
(MSN 30808) (or such other account of Sublessor in the continental United States
of America as Sublessor shall direct in a notice to Sublessee at least ten (10)
Business Days prior to the date such payment of Rent is due).
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Sublease Agreement
(MSN 30808)
(f) BUSINESS DAY CONVENTION. Notwithstanding anything to the
contrary contained herein, if any date on which any payment becomes due and
payable is not a Business Day, then such payment shall not be made on such
scheduled date but shall be made on the next succeeding Business Day (unless
such date falls into the next month, in which case such payment shall be made on
the next preceding Business Day) with the same force and effect as if made on
such scheduled date and (to the extent any such payment is made on such next
succeeding Business Day no interest shall accrue on the amount of such payment
to such next succeeding Business Day.
(g) VERIFICATION. Any recalculation of Basic Rent amounts,
Termination Value amounts and EBO Amount pursuant to this Sublease shall be
determined by the Sublessor, and shall maintain the Sublessor's Net Economic
Return except as assumptions have been modified pursuant to this SECTION 3 or
pursuant to the Sublease Tax Indemnity Agreement, as the case may be; PROVIDED
HOWEVER, that Sublessee may request (i) Sublessee's independent public
accountants to verify such calculations and (ii) if Sublessee believes that such
calculations by the Sublessor are in error then ▇▇▇▇▇▇▇ & ▇▇▇▇▇ Inc. or any
other nationally recognized firm of accountants or lease advisory firm selected
by the Sublessee and acceptable to Sublessor shall be permitted to verify such
calculations and the Sublessor will make available to such firm (subject to the
execution by such firm of a confidentiality agreement acceptable to the
Sublessor) the methodology and assumptions and any changes made therein pursuant
to this SECTION 3. In the event of a verification under CLAUSE (ii) of the first
sentence of this paragraph the determination by such firm of accountants shall
be final. Sublessee will pay the reasonable costs and expenses of the
verification under CLAUSE (ii) of the first sentence of this paragraph unless an
error adverse to Sublessee is established by such firm, and if as a result of
such verification process the Basic Rent is adjusted and such adjustment causes
the Net Present Value of Rents to decline by five (5) or more basis points or
causes a reduction of five (5) or more basis points in the aggregate EBO Amount
or a material reduction in Termination Values (in which event the Sublessor
shall pay the reasonable costs and expenses of such verification process). Such
recalculated Basic Rent amounts, Termination Value amounts and EBO Amount shall
be set forth in a Sublease Supplement or an amendment to the Sublease.
(h) TRUE LEASE. Any adjustments made pursuant to this SECTION
3 shall be made so as to avoid (except to the extent indemnified pursuant to the
Sublease Tax Indemnity Agreement) any risk that the Sublease could not
constitute a "true lease" for federal income tax purposes or result in an
unindemnified loss of assumed tax benefits, except to the extent that on the
Delivery Date, the Sublease was not a "true lease." All adjustments required
pursuant to the Sublease shall be set forth in a Sublease Supplement or in an
amendment to the Sublease, and promptly after execution thereof by Sublessor and
Sublessee.
(i) HEAD LEASE TRANSACTIONS; SECURITY FOR OBLIGATIONS.
Sublessee hereby agrees and consents to (A) ownership of the Aircraft by Head
Lessor,
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Sublease Agreement
(MSN 30808)
(B) to the granting of a security interest by Head Lessor to Indenture Trustee
in the Aircraft and the Head Lease and all rights and remedies thereunder to
secure its obligations under the Trust Indenture,(C) to the assignment for
security by Sublessor to Head Lessor, and further reassignment by Head Lessor to
Indenture Trustee, of this Sublease and all rights and remedies hereunder to
secure Sublessor's and Head Lessor's obligations under the Head Lease and the
Trust Indenture, respectively, and (D) provided that such transactions shall not
cause any impairment of Sublessee's rights under this Sublease and subject to
the granting by Head Lessor and the Indenture Trustee to Sublessee of the
Sublessee's right of quiet enjoyment contained in SECTION 12 of the Sublease
Assignment in the form attached hereto as EXHIBIT E (the "SUBLEASE ASSIGNMENT"),
all other transactions contemplated by the Participation Agreement, the Head
Lease and the Trust Indenture, including the Purchase Documents.
Sublessee hereby agrees, at its own cost and expense (including,
without limitation, its legal fees and expenses), to cooperate with Sublessor in
effecting such ownership of the Aircraft and assignments of this Sublease for
security, including, without limitation, the execution and delivery of the
Sublease Assignment and of such other documents and instruments as may be
reasonably requested by Sublessor, Head Lessor or Indenture Trustee in
connection therewith.
Sublessee hereby agrees that all rights of Sublessor provided for
herein may, in accordance with the assignments of Sublease pursuant to the terms
of the Sublease Assignment, be exercised by or on behalf, and are for the
benefit of, Head Lessor, Owner Participant and Indenture Trustee (so long as the
Head Lease or Lien of the Indenture is in effect). Upon written notice to
Sublessee hereunder by Head Lessor or Indenture Trustee that a Head Lease Event
of Default has occurred and is continuing (the "Head Lease Event of Default
Notice'), Head Lessor or Indenture Trustee may require that all Rent due or to
become due hereunder in respect of the Aircraft, Airframe and Engines shall
thereafter be paid directly to Indenture Trustee, if the Lien of the Indenture
shall not have been discharged, or otherwise to Head Lessor for application as
provided in this Sublease, and as otherwise provided in the assignments of
Sublease referred to in this SECTION 3(i). Notwithstanding anything contained in
this Agreement to the contrary, Sublessor shall remain liable to Sublessee to
perform all of its obligations under this Sublease, whether or not Sublessor
shall be divested of any or all of its right, title or interest in and to the
Sublease, and such obligations of Sublessor shall in no way at any time and
under any circumstances constitute the obligations of Head Lessor or Indenture
Trustee as successor in interest to Sublessor, unless otherwise provided in the
assignments of Sublease referred to in this SECTION 3(i). Sublessee agrees that
after a Head Lease Event of Default has occurred and is continuing, Head
Lessor's and Indenture Trustee's rights to such Rents shall be absolute and
unconditional and shall not be affected by any circumstance whatsoever, except
as otherwise provided for herein and that in no event shall Head Lessor or
Indenture Trustee be deemed to have assumed, or otherwise have, any obligations
or liabilities of Sublessor by virtue of any assignment described herein, unless
otherwise provided in the assignments of Sublease referred to in
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Sublease Agreement
(MSN 30808)
this SECTION 3(i). Sublessor agrees that any payment by Sublessee in accordance
with such notice or any other compliance with such instructions by Sublessee
shall constitute payment or performance by Sublessee under this Sublease.
Sublessee consents and agrees that after a Head Lease Event of Default has
occurred and is continuing, all consents, approvals, requests or other actions
of Sublessor, Head Lessor or Indenture Trustee, respectively, referred to
herein, may be given, exercised or otherwise taken by Head Lessor or Indenture
Trustee pursuant to the Assignment of Sublease.
(j) GENERAL TAX INDEMNITY.
(A) INDEMNITY. Except as provided in SECTION 3(j)(B)
hereof, Sublessee agrees that each payment of Rent shall be free and clear of,
and without deduction for, any and all withholdings on account of Taxes of any
nature whatsoever. If any such deduction or withholding is required, Sublessee
shall pay an additional amount such that the net amount actually received by the
recipient of such payment, after such deduction or withholding, will be equal to
the amount that would have been received if no such deduction or withholding had
been required. If Sublessee pays an additional amount pursuant to the preceding
sentence in respect of any Taxes that are not subject to indemnification
pursuant to the following provisions of this SECTION 3(j)(B), then the Sublessor
shall reimburse Sublessee for such Taxes within thirty (30) days of written
notice accompanied by evidence of payment of such Taxes paid by Sublessee.
Except as provided in SECTION 3(j)(B) hereof, Sublessee hereby agrees to
indemnify, protect, defend and hold harmless Sublessor on an After-Tax Basis
from and against any and all Taxes however imposed, whether levied or imposed
upon Sublessor, Sublessee, or any user or Person in possession of the Aircraft
or any Part, by the United States or any state or local government or taxing
authority of or in the United States, any territory or possession of the United
States, any international authority or any foreign country or political
subdivision or taxing authority thereof or therein upon or with respect to (A)
the Aircraft, the Airframe, an Engine or any Part; (B) the manufacture,
ownership, delivery, lease, sale, alteration, change in registration, sublease,
possession, use, operation, condition, transfer, control, occupancy, servicing,
maintenance, financing, construction, repair, abandonment, substitution,
replacement, re-registration, hire, presence, location, addition, renovation,
insuring, repossession, non-use, interchange, inspection, overhaul, testing,
modification, storage, purchase, acceptance, rejection, return, non-delivery or
registration of or other disposition, action or event with respect to the
Aircraft, the Airframe, an Engine or any Part or the property held by the Trust
Estate under the Trust Indenture, or the imposition of any lien (other than a
Sublessor Lien), modification, improvement, transfer of title, return or other
disposition thereof; (C) the rentals, receipts or earnings arising therefrom;
(D) the execution or delivery of, or the exercise of any rights or remedies
under, the Operative Documents, or any amendment or supplement thereto and any
other documents contemplated thereby or the transaction contemplated thereby;
and (E) the payment or receipt of any amounts pursuant to the Operative
Documents, or any amendment or supplement thereto and any other documents
contemplated thereby or the
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Sublease Agreement
(MSN 30808)
transaction contemplated thereby, or otherwise in connection with the
transactions contemplated by the Operative Documents.
(B) EXCLUSIONS FROM GENERAL TAX INDEMNITY. The
provisions of SECTION 3(i)(A) shall not apply to and Sublessee shall have no
liability hereunder for:
(1) Taxes (other than amounts necessary to make payments
on an After-Tax Basis) on, based on, measured by or with respect to the gross or
net income, gross or net receipts, including capital gains taxes, minimum or
alternative taxes, tax preferences, excess profits taxes, capital taxes,
accumulated earnings taxes, branch profits taxes, personal holding company
taxes, taxes applicable to passive foreign investment companies, successor
taxes, estate taxes, net worth, franchise or conduct of business (but not
excluding sales, use, excise, license, rental, ad valorem, non-recoverable
value added tax (to the extent that such ad valorem or value added tax is not
imposed as a substitute for an income tax that is not subject to indemnification
hereunder and, if imposed as a substitute for such an income tax, to the extent
such ad valorem or value added tax exceeds such income tax that it replaces) or
property taxes and other similar taxes) and any withholding taxes on, or
measured by, gross or net income or receipts imposed on Sublessor by the United
States or by any state or local government or taxing authority in the United
States or by any foreign goverment or taxing authority except to the extent such
Tax (a) results from, or would not have been imposed but for (x) the location,
operation, registration or use of the Aircraft or any Part in such jurisdiction,
(y) the identity, location, place of business, activities or presence of
Sublessee, any Sub-Sublessee, user or person in possession of the Aircraft or
any Part or any Affiliate of the foregoing (each, A "SUBLESSEE PERSON") in such
jurisdiction (including the execution and delivery by such Person of any
Operative Document in such jurisdiction), or (z) the making of any payment under
the Operative Documents by, or on behalf of, Sublessee to a Sublessor in or from
such jurisdiction, and (b) exceeds the Tax that would have been imposed by such
jurisdiction on the Sublessor in the absence of those activities described in
CLAUSES (x), (y) AND (z) herein;
(2) Taxes imposed on the Sublessor or the Trust Estate
that would not have been imposed but for a Sublessor's Lien;
(3) Taxes imposed on Sublessor resulting from a
voluntary sale, assignment, transfer or other disposition by the Sublessor of
its leasehold interest in the Head Lease Documents or the Operative Documents or
any interest in the Rent unless such transfer or other disposition (i) is made
in connection with the exercise of any remedies of Sublessor in accordance with
and pursuant to SECTION 15 of the Sublease when a Sublease Event of Default has
occurred and is continuing, (ii) arises in connection with (A) a Sublease Event
of Loss, (B) the return of the Aircraft upon termination of the Sublease, (C)
the purchase of the Aircraft by Sublessee pursuant to SECTION 19(b) of the
Sublease, (D) the substitution of any Replacement Airframe pursuant
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Sublease Agreement
(MSN 30808)
to SECTION 10(a) of the Sublease or (E) a termination of the Sublease under
SECTION 9 of the Sublease, (iii) results from (A) the maintenance of the
Aircraft during the Basic Term (including the replacement and substitution of
parts and modifications and improvements to the Aircraft) or (B) any Sublease or
assignment of Sublessee's or any Sub-sublessee's rights during the Basic Term or
(iv) is made at Sublessee's request or direction;
(4) Taxes imposed on Sublessor resulting from a transfer
of the Sublessor's leasehold interest in the Aircraft, Airframe, an Engine or
any Part arising out of or relating to bankruptcy or similar proceedings in
which Sublessor is the debtor, or any foreclosure by a creditor of Sublessor,
unless, in each case, such sale, assignment, transfer or other disposition
results from a transfer or disposition made pursuant to an exercise of remedies
following a Sublease Event of Default;
(5) Taxes imposed on the Sublessor resulting from the
willful misconduct or gross negligence of Sublessor;
(6) Taxes relating to the Sublessee, Aircraft, the
Airframe, an Engine or any Part for any period after (x) the expiration or early
termination of the Sublease in accordance with the terms of the Sublease or (y)
possession of the Aircraft, the Airframe, an Engine or any Part has been
redelivered by Sublessee to Sublessor in accordance with the terms of the
Sublease (in each case as it relates to Taxes for the returned items) or
placement of the Aircraft in storage at the request of the Sublessor in
accordance with the terms of the Sublease, except to the extent that Taxes are
incurred in connection with the exercise of any remedies of Sublessor in
accordance with and pursuant to SECTION 15 of the Sublease when a Sublease Event
of Default has occurred and is continuing and to the extent such Taxes relate to
events, acts or omissions occurring or matters arising prior to or
simultaneously with the time of the occurrence of the earliest of (x) or (y),
and until Sublessee has satisfied in full its obligations under the Sublease;
(7) Taxes imposed on any transferee of Sublessor to the
extent such Tax exceeds the amount of Tax that would have been imposed on the
Sublessor; PROVIDED, HOWEVER, the exclusion provided in this CLAUSE (6) shall
not apply to (i) transferees that acquired their interest in connection with the
exercise of remedies following a Sublease Event of Default, and (ii) "gross-up"
amounts necessary to make payments on an After-Tax Basis, as required under the
Operative Documents;
(8) Taxes imposed on Sublessor by a government or taxing
authority of any jurisdiction to the extent such Taxes would not have been
imposed on Sublessor in the absence of activities of such Sublessor in such
jurisdiction unrelated to the transactions contemplated by the Sublease;
(9) Taxes being contested pursuant to the contest
provisions contained in SECTION 3(j)(D) but only for so long as Sublessee is
complying with its obligations under SECTION 3(j)(D).
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Sublease Agreement
(MSN 30808)
(10) Taxes imposed on Sublessor for which Sublessee is
obligated to indemnify Sublessor under the Sublease Tax Indemnity Agreement;
(11) Interest, penalties and additions to Tax imposed
upon Sublessor to the extent imposed as a result of the failure of Sublessor to
timely and properly file any return required to be filed by Sublessor, unless
such failure is caused by Sublessee's failure to timely provide information
required to be provided under the Operative Documents (including pursuant to
SECTION 3(j)(C) herein);
(12) Taxes imposed on Sublessor by section 4975 of the
Code or any successor provision thereto as a consequence of Sublessor engaging
in a "prohibited transaction" within the meaning of such provision; and
(13) Taxes imposed on Sublessor that would not have been
imposed but for Sublessor's breach of any covenant or the inaccuracy of any
representation or warranty of Sublessor in any of the Operative Documents.
References to Sublessor shall include such Sublessor's respective
successors and permitted assigns, officers, directors, servants, employees,
agents and Affiliates.
(C) PAYMENTS.
(1) All Taxes shall be paid when due and payable and all
amounts payable as indemnities pursuant to this SECTION 3(j) shall be payable to
the extent not theretofore paid, no later than thirty (30) days following
Sublessee's receipt of written demand by Sublessor; PROVIDED, HOWEVER, that in
the case of Taxes which are being contested pursuant to subsection (D) of this
SECTION 3(j), any amount payable by Sublessee pursuant to SUBSECTION (a) of this
SECTION 3(j), shall, unless otherwise required by SUBSECTION (D) of this SECTION
3(j), not be required to be paid until thirty (30) days after such contest is
finally resolved.
(2) At Sublessee's written request, the computation of
the amount of any indemnity payment owed by Sublessee or any amount owed by an
Sublessor to Sublessee pursuant to this SECTION 3(j) shall be verified and
certified by an internationally recognized independent public accounting firm
mutually selected by the Sublessor and Sublessee. The costs of such verification
(including the fee of such public accounting firm) shall be borne by Sublessee
unless such verification shall result in an adjustment in Sublessee's favor of
5% or more of the net present value of the payment as computed by such
Sublessor, in which case the costs shall be paid by such Sublessor. Such
determination shall be final and binding, absent manifest error on the part of
the certified public accountants. Sublessor hereby agrees to provide the
accountants with all information and materials as shall be reasonably necessary
in connection therewith; provided that in no event will the Sublessor be
required to deliver its income tax returns or tax books to such accountant. Any
information provided to such accountants by any
8
Sublease Agreement
(MSN 30808)
Person shall be deemed by the parties to be (and the accountants will confirm in
writing that they will treat such information as) the private, proprietary and
confidential property of such Person, and no Person other than such Person and
the accountants shall be entitled thereto, other than as required by Law. In no
event shall Sublessee have the right to examine the information supplied to the
verifying firm or the tax returns or books of the Sublessor in connection with
the verifying procedures described herein. Sublessee and the Sublessor agree
that the accountant's sole responsibility shall be to verify the amount of any
payment hereunder and that the interpretation of the Operative Documents are not
within the scope of the accountant's responsibility. Sublessor shall provide
Sublessee with such certifications, information and documentation as shall be in
such Sublessor's possession and as shall be reasonably requested by Sublessee to
minimize any indemnity payment pursuant to this SECTION 3(j); provided, however,
that, Sublessor shall not be required to provide any information that would, in
its good faith judgment, cause such Indemnitee any material adverse tax
consequences.
(3) Sublessor shall promptly forward to Sublessee any
written notice, ▇▇▇▇ or advice received by it from any government or taxing
authority concerning any Tax for which it seeks indemnification under this
SECTION 3(j); PROVIDED, HOWEVER, that the failure to provide such notice shall
not adversely affect Sublessor's rights to an indemnity under this SECTION 3(j)
except to the extent that such failure effectively precludes Sublessee's ability
to contest (through Sublessor or, if permitted, in its own name) such Tax
pursuant to SECTION 3(j)(D). Sublessee shall pay any amount for which it is
liable pursuant to this Section 3(j) directly to the appropriate government or
taxing authority if legally permissible or, upon demand of Sublessor, to
Sublessor on an After-Tax Basis and free of interest within thirty (30) days of
such demand (or, if a contest occurs in accordance with SECTION (3)(j)(D),
within thirty (30) days after a Final Determination (as defined below)), but in
no event less than five (5) business days prior to the date the Tax to which
such amount payable hereunder relates is due, provided, Sublessee shall not be
required to make any payment in respect of Taxes being contested in accordance
with SECTION 3(j)(D) pursuant to this SECTION 3(j)(C) unless Sublessor elects to
pay such Tax claimed and ▇▇▇ for a refund as provided in SECTION 3(j)(D).
Sublessee shall furnish to Sublessor the original or a certified copy of a
receipt for Sublessee's payment of any Tax subject to indemnification under this
SECTION 3(j) or such other evidence of payment of such Tax reasonably acceptable
to Sublessor. For purposes of this SECTION 3(j), a "Final Determination" shall
mean (A) a decision, judgment, decree or other order by any court of competent
jurisdiction that occurs pursuant to the provisions of SECTION 3(j)(D), which
decision, judgment, decree or other order has become final and unappealable or
the time for filing such appeals has expired, (B) a closing agreement or
settlement agreement entered into in accordance with SECTION 3(j)(D) that has
become binding and is not subject to further review or appeal absent fraud or
misrepresentation, (C) the termination of administrative proceedings and the
expiration of the time for instituting a claim in a court proceeding, or (D) in
any case where judicial review shall at the time be unavailable by reasons of
the proposed adjustment involving a decrease in a net operating loss or business
credit carryforward, a decision, judgment, decree or other
9
Sublease Agreement
(MSN 30808)
order of an administrative official or agency of competent jurisdiction, which
decision, judgment, decree or other order has become final (i.e., when all
administrative appeals in accordance with SECTION 3(j)(D) hereof have been
exhausted by either party).
(4) To the extent permitted by applicable law, interest
at the Base Rate plus two percent (2.0%) shall be paid, on demand, on any amount
or indemnity not paid when due pursuant to this SECTION 3(j) (including any
amounts payable to Sublessee hereunder 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.
(D) CONTESTS.
(1) If a written claim is made against a Sublessor or if
any proceeding is commenced against Sublessor (including a written notice of
such proceeding) for Taxes as to which Sublessee could be liable for payment or
indemnity hereunder, such Sublessor shall promptly give Sublessee notice in
writing of such claim (PROVIDED, HOWEVER, that the failure to provide such
notice shall not affect Sublessee's obligations hereunder to the Sublessor
unless such failure shall effectively preclude Sublessee's right to contest such
claim and shall not take any action with respect to such claim or Tax without
the consent of Sublessee for thirty (30) days following the receipt of such
notice by Sublessee; PROVIDED, HOWEVER, that, if Sublessor shall be required by
Law to take action prior to the end of such 30-day period, Sublessor shall, in
such notice to Sublessee, so inform Sublessee, and Sublessor shall take no
action without the consent of Sublessee for as long as it is legally able to do
so (it being understood that Sublessor shall be entitled to pay the Tax claimed
and ▇▇▇ for a refund prior to the end of such 30-day period if (i) (A) the
failure to so pay the Tax would result in penalties (unless immediately
reimbursed by Sublessee) or (B) the failure to so pay would result in criminal
penalties and (ii) Sublessor uses its good faith efforts to take any action so
required in connection with so paying the Tax in a manner that is the least
prejudicial to the pursuit of the contest). In addition, Sublessor shall
(provided that Sublessee shall have agreed to keep such information confidential
other than to the extent necessary in order to contest the claim in writing in a
manner reasonable satisfactory to Sublessor) furnish Sublessee with copies of
any requests for information from any taxing authority relating to such Taxes
with respect to which Sublessee may be required to indemnify hereunder. If
requested by Sublessee in writing within thirty (30) days or such shorter period
as may be required by Law after its receipt of such notice, Sublessor shall, at
the expense of Sublessee (including all reasonable out-of-pocket costs, and
reasonable in-house or outside attorney and accountants fees), in good faith
contest (or, if permitted by applicable law, allow Sublessee to contest),
through appropriate administrative and judicial proceedings the validity,
applicability or amount of such Taxes by resisting payment thereof, not paying
the same except under protest if protest is necessary and proper or if the
payment is made, using reasonable efforts to obtain a refund thereof in an
appropriate administrative and/or judicial proceeding. If requested to do so by
Sublessee in writing, Sublessor shall appeal any adverse administrative or
judicial decision, except
10
Sublease Agreement
(MSN 30808)
that Sublessor shall not be required to (nor shall Sublessee have the right to)
pursue any appeals to the United States Supreme Court. If and to the extent
Sublessor by exercise of reasonable good faith efforts is able to separate the
contested issue or issues (which cannot include income tax issues) from other
issues arising in the same administrative or judicial proceeding that are
unrelated to the transactions contemplated by the Operative Documents without,
in the good faith judgment of Sublessor, materially adversely affecting it,
Sublessor shall permit Sublessee to control the conduct of any such proceeding
and shall provide to Sublessee such information or data that is in such
Sublessor's control or possession that is reasonably necessary to conduct such
contest and Sublessee shall consult with the Sublessor and keep them reasonably
informed of the progress of such contest. In the case of a contest controlled by
Sublessor, Sublessor shall conduct and control such contest, provided Sublessor
consults with Sublessee in good faith regarding the manner of contesting such
claim and shall keep Sublessee reasonably informed regarding the progress of
such contest but Sublessor shall have ultimate control over all aspects of such
contest. Sublessor shall not fail to take any action expressly required by this
SECTION 3(j)(D) (including, without limitation, any action regarding an appeal
of an adverse determination with respect to any claim) or settle or compromise
any claim without the prior written consent of Sublessee except as contemplated
by SECTION 3(j)(D) herein.
(2) Notwithstanding the foregoing, in no event shall
Sublessor be required to take any action (or to permit Sublessee to take any
action) unless and until (A) Sublessee shall have agreed to pay Sublessor on
demand on an After-tax Basis all reasonable costs and expenses that Sublessor
shall incur in connection with contesting such claim, (including without
limitation, all costs, expenses, losses, reasonable legal and accounting fees,
disbursements, penalties, fines, additions to TAX or interest thereon), (B) if
such contest shall involve the payment of the claim, Sublessee shall advance the
amount thereof plus (to the extent indemnified hereunder) interest, penalties
and additions to tax with respect thereto that are required to be paid prior to
the commencement of such contest on an interest-free basis and with no
additional net after- tax cost to Sublessor (and Sublessor shall promptly pay to
Sublessee any net realized tax benefits resulting from any imputed interest
deduction arising from such interest free advance from Sublessee plus any net
tax benefits resulting from making any such payment), (C) Sublessor shall have
reasonably determined that the action to be taken will not result in any
material risk of forfeiture, foreclosure, sale or loss of Sublessor's leasehold
interest under the Head Lease, the Aircraft, the Trust Estate, the Trust
Indenture Estate, or the creation of any Lien (other than a Permitted Lien)
(unless Sublessee shall have adequately bonded such Lien or otherwise made
provisions to protect the interests of Sublessor in a manner reasonably
satisfactory to Sublessor in its sole discretion), (D) no Sublease Event of
Default shall have occurred and be continuing at the time the contest is begun
unless Sublessee has provided security for its obligations hereunder by
advancing to Sublessor before proceeding with such contest, the amount of the
Tax being contested, plus any interest and penalties and an amount estimated in
good faith by Sublessor for reasonable expenses, (E) in the case of a contest
that is being pursued by
11
Sublease Agreement
(MSN 30808)
Sublessor, the aggregate amount of the claim together with the amount of all
related claims that have been or could be raised with any or all of the other
Aircraft leased by Sublessor to Sublessee or raised in any other audit for which
Sublessee would have an indemnity obligation under this SECTION 3(j)(D) is at
least $50,000, and (F) if requested prior to or during the contest by Sublessor,
independent tax counsel selected by Sublessee and reasonably acceptable to
Sublessor, renders to Sublessor a written opinion that there is a reasonable
basis (under the standard set forth in ABA Formal Opinion 85-352 or any
successor thereto) for contesting such claim. In the case of any contest
controlled by the Sublessee hereunder, Sublessor (including its counsel (at
Sublessor's expense)) shall have the right to participate in all proceedings and
Sublessee shall consult with Sublessor in good faith regarding the manner of
contesting such claim and shall keep Sublessor reasonably informed regarding the
progress of such contest and, if requested by Sublessor, provide an opinion of
tax counsel selected by Sublessee and reasonably acceptable to Sublessor to the
effect that there is a Reasonable Basis for contesting such claims.
Notwithstanding the foregoing, Sublessee shall not be permitted to control or
conduct any contest if such contest involves Taxes based on or measured by the
gross or net income of Sublessor and, PROVIDED, THAT if Sublessor determines in
good faith that it is reasonably likely that such contest may have a material
adverse impact on it, Sublessor may retain or reassert control of any contest
Sublessee would otherwise be permitted to contest, and if Sublessor shall
release, waive, compromise or settle any claim which may be indemnifiable by
Sublessee pursuant to this SECTION 3(j) without the written permission of
Sublessee, Sublessee's obligation to indemnify Sublessor with respect to such
claim (and any claim the contest of which is materially prejudiced as a result
of the release, waiver, compromise or settlement) shall terminate, subject to
this SECTION 3(j)(D), and subject to SECTION 3(j)(C), Sublessor shall repay to
Sublessee any amount previously paid or advanced to Sublessor with respect to
such claim (but not amounts paid or advanced for costs and expenses of any
contests to the extent such amounts have already been expended) plus interest at
the rate that would have been payable by the relevant taxing authority with
respect to a refund of such Tax.
(3) Notwithstanding anything contained in this
SECTION 3(j) to the contrary, Sublessor shall not be required to contest any
claim if the subject matter thereof shall be of a continuing nature and shall
previously have been decided adversely by a court of competent jurisdiction
pursuant to the contest provisions of this SECTION 3(j)(D), unless there shall
have been a change in Law (or interpretation thereof) or a change in facts after
the date with respect to which such previous contest shall have been decided,
and Sublessor shall have received, at Sublessee's expense, an opinion of
independent tax counsel selected by Sublessee and reasonably acceptable to
Sublessor to the effect that as a result of such change in Law (or
interpretation thereof) or change in facts, it is more likely than not that
Sublessor will prevail in such contest.
(4) Nothing contained in this SECTION 3(j) shall require
Sublessor to contest or permit Sublessee to contest a claim which it would
otherwise be required to contest pursuant to this SECTION 3(j) if Sublessor
shall waive payment by
12
Sublease Agreement
(MSN 30808)
Sublessee of any amount that might otherwise be payable by Sublessee under this
SECTION 3(j) by way of indemnity in respect of such claim (and any other claim
for Taxes with respect to any other taxable year the contest of which is
effectively precluded by Sublessor's declination to take action with respect to
the claim).
(E) REFUNDS AND SAVING.
(1) If Sublessor shall receive a refund or credit (or
would have received such refund or credit but for a counterclaim or other claim
not indemnified by Sublessee hereunder (a "deemed refund or credit")) with
respect to all or any part of any Taxes paid, reimbursed or advanced by
Sublessee, in each case, whether by means of a deduction, credit, refund or
otherwise, and which was not taken into account in computing such payment or
indemnity, Sublessor shall pay to Sublessee within thirty (30) days of such
receipt or, in the case of a deemed refund or credit, within thirty (30) days of
the final resolution of such contest, an amount equal to the lesser of (A) the
amount of such refund or credit or deemed refund or credit actually realized by
Sublessor, plus any additional net tax savings actually realized by Sublessor as
a result of any payment made pursuant to this sentence (including CLAUSE (A)),
and (B) such tax payment, reimbursement or advance by Sublessee to Sublessor
theretofore made pursuant to this SECTION 3(j) and the excess, if any, of the
amount described in CLAUSE (A) over the amount described in CLAUSE (B) shall be
carried forward and applied to reduce pro tanto any subsequent obligations of
Sublessee to make payments to Sublessor pursuant to this SECTION 3(j)). If, in
addition to such refund or credit (or deemed refund or credit), Sublessor shall
receive or be credited with (or would have received but for a counterclaim or
other claim not indemnified by Sublessee hereunder) an amount representing
interest on the amount of such refund or credit or deemed refund or credit, as
the case may be, Sublessor shall pay to Sublessee within thirty (30) days of
such receipt or, in the case of a deemed refund or credit, within thirty (30)
days of the final resolution or such contest, that portion of such interest that
shall be fairly attributable to Taxes paid, reimbursed or advanced by Sublessee
prior to the receipt of such refund or credit or deemed refund or credit.
Sublessor agrees to reasonably cooperate with Sublessee in claiming and pursuing
any such refunds or credits of any Taxes payable or indemnifiable pursuant to
this SECTION 3(j).
(2) If Sublessor shall realize a tax savings by reason
of any Tax paid or indemnified by Sublessee pursuant to this SECTION 3(j)
(whether such Tax savings shall be by means of a foreign tax credit,
depreciation or cost recovery deduction or otherwise) and such savings was not
otherwise taken into account in computing such payment or indemnity, Sublessor
shall pay to Sublessee an amount equal to the lesser of (A) the amount of such
tax savings, plus any additional tax savings realized as the result of any
payment made pursuant to this sentence when, as if, and to the extent realized
and (B) the amount of all payments made by Sublessee to Sublessor (reduced by
any payments previously made by Sublessor to Sublessee pursuant to this
SECTION 3(j)), and the excess, if any, of the amount described in CLAUSE (A)
over the amount described in
13
Sublease Agreement
(MSN 30808)
CLAUSE (B) shall be carried forward and applied to reduce pro tanto any
subsequent obligations of Sublessee to make payments to Sublessor pursuant to
this SECTION 3(j)). Sublessor shall not have any obligation to make any payment
while a Sublease Event of Default has occurred and is continuing.
(3) If Sublessor shall have paid Sublessee any refund or
credit of all or any part of any Tax paid by Sublessee and it is subsequently
determined that Sublessor was not entitled to such refund or credit, such
determination shall be treated as the imposition of a Tax for which Sublessee is
obligated to indemnify Sublessor pursuant to the provisions of this SECTION 3(j)
without regard to the exclusions contained in SECTION 3(j)(B), other than
CLAUSE (5) thereof.
(4) Any amount which is payable to Sublessee by
Sublessor pursuant to this SECTION 3(j) shall not be paid to Sublessee if a
Sublease Event of Default has occurred and is continuing or if any payment is
due and owing by Sublessee to Sublessor under the Sublease or any other
Operative Document. At such time as there shall not be continuing any such
Sublease Event of Default or there shall not be due and owing any such payment,
such amount (to the extent not theretofore otherwise applied) shall be paid to
Sublessee.
(F) TAX FILING. If any report, return or statement is
required to be filed by Sublessor with respect to any Tax that is subject to
indemnification under this SECTION 3(j), Sublessee (at its expense) shall (A)
notify Sublessor in writing of such requirement not later than thirty (30) days
prior to the date such report, statement or return is required to be filed
(determined without regard to extensions) and (B) either (I) if permitted by
applicable law, prepare such report, statement or return for filing, send a copy
of such report, statement or return to Sublessor and timely file such report,
statement or return with the appropriate taxing authority, or (II) if Sublessee
is not permitted by law to file such report, statement or return, or if so
directed by Sublessor, prepare and furnish to Sublessor not later than thirty
(30) days prior to the date such report, statement or return is required to be
filed (determined without regard to extensions) a proposed form of such report,
statement or return for filing by Sublessor; provided however, that if such
report, statement or return requires information particularly within the control
of Sublessor that is not provided to Sublessee within a reasonable amount of
time of Sublessee's written request, Sublessee shall prepare (and furnish to
Sublessor within the time frame specified above) a draft of such report,
statement or return by completing those portions of such report, statement or
return which can be completed based upon the information then available to
Sublessee. Each of the Sublessor or Sublessee, as the case may be, shall timely
provide the other party, with all information in its possession that the other
party may reasonably require and request to satisfy its obligation under this
PARAGRAPH (F).
14
Sublease Agreement
(MSN 30808)
(G) FORMS/INFORMATION.
(1) Sublessor agrees to furnish from time to time to
Sublessee or to such other Person as Sublessee may designate, at Sublessee's
written request, 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 or other Tax imposed by any government or taxing authority, if
(A) such reduction or exemption is available to Sublessor and not otherwise
materially adverse to its overall filing, litigation or planning positions, in
the good faith judgment of Sublessor and (B) Sublessee has provided Sublessor
with any information necessary to complete such form not otherwise reasonably
available to Sublessor. Notwithstanding the foregoing, with respect to Taxes
imposed by way of withholding, Sublessor shall be required to provide any
certifications, information and documentation necessary or appropriate in order
to minimize any indemnity payment regardless of whether or not providing such
form would be materially adverse to its overall filing, litigation or planning
position unless there has been a change in applicable Law enacted, adopted or
issued after the Closing Date.
(2) Within a reasonable time after Sublessee receives
from Sublessor a written request for specified information or copies of
specified records reasonably necessary to enable such Person to file its Tax
returns, to engage in an audit or contest Taxes imposed upon it, including
information specifying the location of the Aircraft during the Tax filing period
to which the return or contest relates, Sublessee shall, at its own expense, if
reasonably available, provide such information or copies of such records to the
requesting party.
(H) SUBROGATION. Upon payment of any Tax by
Sublessee pursuant to this SECTION 3(j) to or on behalf of Sublessor, Sublessee,
without any further action, shall be subrogated to any claims that Sublessor may
have relating thereto. Sublessor shall cooperate with Sublessee to permit
Sublessee to pursue such claims.
(I) PAYMENTS ON AFTER-TAX BASIS. Sublessee agrees
that, notwithstanding anything to the contrary that may be contained herein,
with respect to any payment or indemnity under this SECTION 3(j), Sublessee's
indemnity obligation shall include any amount necessary to hold Sublessor
harmless on an After-Tax Basis.
(J) AFFILIATED GROUP. For purposes of this SECTION 3(j),
the term "Sublessor" shall include any combined, consolidated or affiliated
group (and any member thereof) of which Sublessor is or shall become a member if
combined or consolidated returns are or shall be filed for such affiliated group
for foreign, federal, state or local Tax purposes.
15
Sublease Agreement
(MSN 30808)
(K) HEAD LEASE GENERAL TAX INDEMNITY.
(1) Notwithstanding anything to the contrary set forth
in this Agreement (other than the exclusions set forth in Section 3(j)(K)(5)),
if Sublessor is required to pay any Indemnitee any amount pursuant to
SECTION 6(b) of the Participation Agreement (as evidenced by the receipt by
Sublessor of a written demand pursuant to SECTION 6(b)(iii) of the Participation
Agreement (a "HEAD LEASE GENERAL TAX INDEMNITY"), then Sublessor shall promptly
give written notice to Sublessee describing in reasonable detail the Head Lease
General Tax Indemnity to be paid to the applicable Indemnitee and Sublessee
shall pay to Sublessor, on an After-Tax Basis, as Supplemental Rent, the amount
of the Head Lease General Tax Indemnity. (It is the express understanding of the
parties hereto that the amount payable to the Sublessor pursuant to this
SECTION 3(j)(K) shall be an amount equal to (and not in excess of) (i) the
amount payable by Sublessor pursuant to the receipt of the relevant demand, plus
(ii) an amount, which after payment by the Sublessor of the amount set forth in
such demand, shall leave the Sublessor in the same position that the Sublessor
was in prior to the payment of the amount set forth in the demand and the
receipt of the funds set forth in this SECTION 3(j)(K) from Sublessee). Any such
payment will be made by Sublessee to Sublessor at least one (1) business day
prior to the date payment is due from Sublessor to such Indemnitee.
(2) The amount payable to Sublessor pursuant to this
SECTION 3(j)(K) shall be payable in immediately available funds within ten
(10) Business Days of written notice from Sublessor, which notice shall be
deemed to meet the requirements of this SECTION 3(j)(K) if it sets forth the
information provided to Sublessor by the Indemnitee; provided that in no event
shall such amount be payable earlier than one (1) Business Day prior to the date
such amount is due pursuant to the Participation Agreement.
(3) If a claim is made against Sublessor by an
Indemnitee with respect to which Sublessee is required to make a payment to
Sublessor pursuant to this SECTION 3(j)(K), Sublessor shall promptly notify
Sublessee in writing of such claim and, if requested by Sublessee in writing,
Sublessor, as directed by Sublessee (unless a Sublease Event of Default shall
have occurred and be continuing) shall exercise any and all contest rights that
Sublessor may have under the Participation Agreement.
(4) In the event that Sublessee shall have paid an
indemnity pursuant to this SECTION 3(j)(K), then within ten (10) Business Days
of the receipt by Sublessor from the Indemnitee or a taxing authority of any
payment with respect to any tax savings benefit or refund of Taxes that
Sublessor has been indemnified for pursuant to this SECTION 3(j)(K), Sublessor
shall pay to Sublessee an amount equal to such payment (net of any Tax
consequences resulting from the receipt of such payment from the Sublessor, but
taking into account the Tax benefits resulting from such payment to Sublessee);
provided that any such amount shall not be paid to Sublessee so long as a
16
Sublease Agreement
(MSN 30808)
Sublease Event of Default shall have occurred and be continuing, or until
Sublessee shall have made all payments or indemnities then due and payable
hereunder or under the Operative Documents.
(5) Notwithstanding anything in this SECTION 3(j)(K) to
the contrary, Sublessee shall not have any liability to Sublessor with respect
to any indemnity due and owing under SECTION 6(b) of the Participation Agreement
(i) which would not have arisen absent an amendment or modification to
SECTION 6(b) of the Participation Agreement with respect to which Sublessee has
not consented in writing or which occurs during a Sublease Event of Default;
(ii) which is caused by the status of the Sublessor or an affirmative act of the
Sublessor, which act did not occur as a result of, and was not otherwise caused
by, an act or omission of the Sublessee or any Sublessee Person or during a
Sublease Event of Default; (iii) which results from any event occurring after
the termination of the Sublease; (iv) which results from gross negligence or
willful misconduct of Sublessor; or (v) which results from any of the following:
(a) the transfer by the Seller to the Owner Trustee through a transaction or a
series of transactions that are part of a like-kind exchange or any other like
kind exchange which is contemplated by the Head Lease Documents; (b) any payment
of any Increased Costs or Breakage Amount, as defined in the Head Lease (other
than a payment in respect of Breakage Amounts resulting from Sublessee's
exercise of its right to terminate this Sublease pursuant to SECTION 9(a)(i) or
from the exercise by Sublessee of its right to purchase the Aircraft pursuant to
SECTION 20 of this Sublease); (c) any Sublessor Liens (other than a Sublessor
Lien which is the result of, or otherwise caused by, an act of the Sublessee or
any Sublessee Person); (d) any failure on the part of Sublessor to comply with
the terms of the Head Lease Documents (other than a failure which occurs during
a Sublease Event of Default), which failure is not a result of, or otherwise
caused by, an act or omission of the Sublessee or any Sublessee Person or (e) a
refinancing of the Equipment Notes not at the request of the Sublessee.
(L) SURVIVAL. All indemnities, obligations, adjustments
and payments provided for in this SECTION 3(j) shall survive, and remain in full
force and effect, notwithstanding the expiration or other termination of this
Sublease or any other Operative Document. The obligations of Sublessee in
respect of all such indemnities, obligations, adjustments and payments are
expressly made for the benefit of, and shall be enforceable by, the Sublessor
entitled thereto, without declaring the Sublease to be in default or taking
other action thereunder, and notwithstanding any provision of the Indenture.
(k) GENERAL INDEMNITY. Sublessee hereby agrees to indemnify
Sublessor against, and agrees to protect, defend, save and keep it harmless each
of them on an After-Tax Basis from any and all Expenses imposed on, incurred by
or asserted against Sublessor by any Indemnitee pursuant to SECTION 6(c) of the
Participation Agreement, in any way relating to, based on or arising out of any
one or more of the following: (A) the manufacture, design, purchase, acceptance
or rejection of the Airframe
17
Sublease Agreement
(MSN 30808)
or any Engine or Parts; (B) only to the extent as it relates to Sublessee or any
Sub-sublessee, the registration, reregistration, financing, ownership,
delivery, nondelivery, inspection, lease, sublease, sub-sublease, possession,
storage, unworthiness, use, non-use, operation, maintenance, overhaul, testing,
modification, additions, improvements, alteration, condition, replacement,
repair, substitution, sale, transfer, return, or other disposition of the
Aircraft, Airframe, Engine(s) (or any engine used on the Airframe) or any Part
or part used on the Aircraft, the Airframe or any Engine (or any engine used on
the Airframe) Sublessee or any other Sub-sublessee including, without
limitation, any violation of law relating to the Aircraft (including
environmental and noise pollution laws), latent or other defects, whether or not
discoverable, strict tort liability and any claim for patent, trademark or
copyright infringement death or property damage of passengers, shippers or
others (including damage or loss of cargo); (C) the offer or sale of any
interest in the Aircraft, the Operative Documents or any similar interest on or
prior to the Delivery Date by Sublessor and any Lien relating to or arising
during such period, but only to the extent such offer or sale is not in
compliance with the requirements set forth in SECTION 13 or the Assignment of
Sublease; (D) breach by Sublessee of any of its covenants under the Operative
Documents; and (E) SECTION 13 of the Participation Agreement; PROVIDED, that the
foregoing indemnity shall not extend to Sublessor with respect to any Expense to
the extent such Expense is caused or directly related to one or more of the
following: (1) any representation or warranty by such Indemnitee in the
Operative Documents or the Head Lease Documents being incorrect, or (2) the
failure by such Indemnitee to perform or observe any of its agreements,
covenants or conditions in any of the Operative Documents or the Head Lease
Documents, or (3) the willful misconduct or the gross negligence of such
Indemnitee, other than gross negligence or willful misconduct imputed to such
person solely by reason of its interest in the Aircraft, the Operative Documents
or the Head Lease Documents, or (4) (A) in the case of any Indemnitee, the
offer, sale or other disposition (voluntary or involuntary) by such Indemnitee
of all or any part of its interest in the Airframe, any Engine or any Part
(other than during the continuance of a Sublease Event of Default or pursuant to
and in accordance with SECTIONS 9, 10, 15, 19 or 20 of the Lease), or (B) in the
case of any Indemnitee, the offer, sale or other disposition by such Indemnitee
of all or any part of such Indemnitee's interest in the Operative Documents,
except to the extent such offer, sale or other disposition is made while a
Sublease Event of Default has occurred and is continuing and in accordance with
the Operative Documents, or (5) any Tax, whether or not Sublessee is required to
indemnify for such Tax pursuant to SECTION 3(j) hereof (it being understood that
SECTION 3(j) hereof and the Sublease Tax Indemnity Agreement exclusively provide
for Sublessee's liability with respect to Taxes), or (6) in the case of the
Owner Participant, the offer, sale or other disposition by the Owner Participant
of any interest in the Trust Estate or the Trust Agreement or any similar
interest, except to the extent such offer, sale or other disposition is made
while a Head Lease Event of Default (which is also a Sublease Event of Default)
has occurred and is continuing and (B) in accordance with SECTION 7(i) of the
Participation Agreement, or (7) the authorization, giving or withholding of any
future amendments, supplements, waivers or consents with respect to any of the
Operative Documents which amendments, supplements, waivers or
18
Sublease Agreement
(MSN 30808)
consents (a) are not or were not requested by Sublessee, (b) are not occasioned
by a specific requirement of the Operative Documents, or (c) are not entered
into in connection with the exercise of remedies pursuant to SECTION 15 hereof
while a Sublease Event of Default has occurred and is continuing, PROVIDED that
such amendment supplement, waiver or consent (as the case may be) does not have
a material adverse effect on Sublessee's rights thereunder or (8) except to the
extent fairly attributable to acts or events occurring, or circumstances or
conditions existing, during the Term or actions taken (or required to be taken
and not taken) during the Term, actions taken (or required to be taken and not
taken) or events occurring after the earlier of: (I) the return of possession of
the Aircraft to the Sublessor, Owner Trustee or its designee (including the
placement in storage pursuant to SECTION 5 hereof) pursuant to and in accordance
with the terms of this Sublease unless and to the extent an Expense is directly
related to actions, omissions or events occurring in connection with the
exercise of remedies under SECTION 15 hereof while a Sublease Event of Default
has occurred and is continuing, (II) the termination of the Term in accordance
with SECTION 9 hereof, (III) the payment by Sublessee of all amounts required to
be paid under this Sublease and the other Operative Documents following a
Sublease Event of Loss or (IV) termination of this Sublease and payment by
Sublessee of all amounts required to be paid by Sublessee pursuant to the terms
of the Operative Documents or (9) any amount which any Indemnitee expressly
agrees to pay under any Operative Document or Head Lease Document, which is not
subject to reimbursement hereunder or any amount which is expressly stated to be
an Expense that is not reimbursable by Sublessee under the Operative Documents,
or (10) any amount that is an ordinary and usual operating or overhead expense
of any Indemnitee (it being understood out-of-pocket expenses payable to third
parties do not constitute "ordinary and usual operating and overhead expenses"),
or (11) any loss of tax benefits or increases in tax liability (it being
understood that Sublessee may be required to indemnify Sublessor under
SECTION 3(j), under the Sublease Tax Indemnity Agreement or elsewhere in the
Operative Documents).
Sublessee shall not have any liability to Sublessor with respect to
any indemnity due and owing under SECTION 3(k) to the extent it is caused by (i)
the status of Sublessor or an affirmative act of Sublessor, which act did not
occur as a result of, and was not otherwise caused by, an act or omission of
Sublessee or a Sub-sublessee or during a Sublease Event of Default or (ii) any
failure on the part of Sublessor to comply with the terms of the Operative
Documents or Head Lease Documents (other than a failure which occurs during a
Sublease Event of Default) to the extent that such fault is not a result of, or
otherwise caused by, an act or omission of the Sublessee.
Sublessee's indemnity obligation to Sublessor under this
SECTION 3(k) shall equal the amount which, after taking into account any Tax
imposed upon the receipt or accrual of the amounts payable under this
SECTION 3(k) and any tax benefits realized by such Indemnitee as a result of the
accrual or payment of such Expense shall equal the amount of the Expense
indemnifiable under this SECTION 3(k).
19
SUBLEASE AGREEMENT
(MSN 30808)
If any Indemnitee shall realize a tax savings by reason of any Tax
paid or indemnified by Sublessee pursuant to this SECTION 3(k) (whether such tax
savings shall be by means of a foreign tax credit, depreciation or cost recovery
deduction or otherwise) and such savings is not otherwise taken into account in
computing such payment or indemnity, Sublessor shall pay to Sublessee an amount
equal to the lesser of (i) the amount of such tax savings (reduced by any
payments previously made by Sublessor to Sublessee pursuant to this
SECTION 3(k)), plus any additional tax savings recognized as the result of any
payment made pursuant to this sentence, when, as if, and to the extent, realized
and (ii) the amount of all payments pursuant to this SECTION 3(k) by Sublessee
to Sublessor (and the excess, if any, of the amount described in CLAUSE (i) over
the amount described in CLAUSE (ii) shall be carried forward and applied to
reduce PRO TANTO any subsequent obligations of Sublessee to make payments to
such Indemitee pursuant to this SECTION 3(k). Any Taxes that are imposed on
any Indemitee as a result of the disallowance or reduction of any tax refund,
credit or benefit referred to in this SECTION 3(k) or any Tax refund, credit or
benefit that is subsequently disallowed shall be treated as a Tax for which
Sublessee is obligated to indemnify pursuant to this SECTION 3(k) without regard
to the exclusions or contest provisions contained in this SECTION 3. Any amount
which is payable to Sublessee by any Person pursuant to this SECTION 3(k) shall
not be paid to Sublessee if a Sublease Event of Default has occurred and is
continuing or if any payment is due and owing by Sublessee to such Person under
this Sublease or any other Operative Document. At such time as there shall not
be continuing any such Sublease Event of Default or there shall not be due and
owing any such payment, such amount (to the extent not theretofore otherwise
applied) shall be paid to Sublessee.
Nothing in this SECTION 3(k) shall be construed as a guaranty by
Sublessee of the residual value of the Aircraft.
If a claim is made against a Sublessor involving one or more
Expenses and such Indemnitee has notice thereof, Sublessor shall promptly after
receiving such notice give notice of such claim to Sublessee; PROVIDED that the
failure to give such notice shall not affect the obligations of Sublessee
hereunder except to the extent Sublessee is prejudiced by such failure to give
notice in a timely manner or the Sublessee's indemnification obligations are
increased as a result of such failure, in which case, Sublessee's obligations
shall be released to the extent of such increase. If no Sublease Event of
Default shall have occurred and be continuing and Sublessee shall have
acknowledged that the Expense which is the subject of the claim is covered by
SECTION 3(k), Sublessee 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 best efforts to obtain such
20
Sublease Agreement
(MSN 30808)
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 to participate therein. Notwithstanding any of the foregoing to the
contrary, Sublessee shall not be entitled to assume responsibility for and
control of any such judicial or administrative proceedings if such proceedings
will involve a material risk of the sale, foreclosure, forfeiture or loss of the
Aircraft, the Trust Estate, the Trust Indenture Estate or any part thereof
unless in such an event Sublessee shall have posted adequate bond or other
security in respect to such risk or if such proceedings could result in any
criminal liability for any Indemnitee. An Indemnitee may participate at its own
expense and with its own counsel in any judicial proceeding controlled by
Sublessee pursuant to the preceding provisions.
The affected Indemnitee shall supply Sublessee with such information
reasonably requested by Sublessee as is necessary or advisable for Sublessee to
control or participate in any proceeding to the extent permitted by this
SECTION 3(j). Such Indemnitee shall not enter into a settlement or other
compromise with respect to any Expense without the prior written consent of
Sublessee, unless such Indemnitee waives its right to be indemnified with
respect to such Expense under this SECTION 3(j).
Sublessee 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 3(j).
Upon payment of any Expense pursuant to this SECTION 3(j),
Sublessee, without any further action, shall be subrogated to any claims the
Indemnitee may have relating thereto. The Indemnitee agrees to give such further
assurances or agreements and to cooperate with Sublessee at Sublessee's expense,
to permit Sublessee to pursue such claims, if any, to the extent requested by
Sublessee.
If an Indemnitee is reimbursed, in whole or in part, with respect to
any Expense paid by Sublessee hereunder, it will promptly pay the amount
refunded, including interest received thereto (but not an amount in excess of
the amount Sublessee or any of its insurers has paid in respect of such Expense
pursuant to this SECTION 3(j)) over to Sublessee.
To the extent permitted by applicable law, interest at the Base Rate
plus two percent (2.0%) shall be paid, on demand, on any amount or indemnity not
paid when due pursuant to this SECTION 3(k) 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.
It is the express understanding of the parties hereto that the
amount payable by Sublessee to Sublessor under this SECTION 3(k) shall in no
event exceed the amount paid by Sublessor to an Indemnitee (plus the related
costs and expenses of Sublessor) under the Participation Agreement for any
particular indemnity claim.
21
Sublease Agreement
(MSN 30808)
SECTION 4. DISCLAIMER; SUBLESSOR'S AND SUBLESSEE'S REPRESENTATIONS,
WARRANTIES AND AGREEMENTS.
(a) Disclaimer. SUBLESSOR LEASES AND SUBLESSEE TAKES THE
AIRCRAFT, EACH ENGINE AND EACH PART THEREOF "AS-IS," "WHERE-IS" AND "WITH ALL
FAULTS." EXCEPT AS EXPRESSLY PROVIDED HEREIN, NONE OF SUBLESSOR NOR ITS
AFFILIATES MAKES, HAS MADE OR SHALL BE DEEMED TO HAVE MADE, AND EACH HEREBY
EXPRESSLY DISCLAIMS AND WILL BE DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS,
▇▇▇▇▇▇▇-SHIP, CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE
OR FOR A PARTICULAR PURPOSE OF THE AIRCRAFT, EACH ENGINE OR ANY PART THEREOF; AS
TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE; AS TO
THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT; AS TO THE
ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT; OR ANY OTHER
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE
AIRCRAFT, EACH ENGINE OR ANY PART THEREOF.
(b) SUBLESSEE'S REPRESENTATIONS AND WARRANTIES.. Sublessee
hereby represents and warrants, which representations and warranties shall
survive the execution and delivery of this Sublease and the delivery of the
Aircraft, that (i) except for (A) the filing for recordation (and the
recordation) of this Sublease, Sublease Supplement No. 1, the Assignment of
Sublease with the FAA, the Head Lease, the Head Lease Supplement, the Trust
Agreement, the Indenture, the Indenture Supplement and the FAA Bills of Sale,
all with the FAA, (B) the registration of the Aircraft with the FAA pursuant to
the Act in the name of the Owner Trustee, (C) the filing of protective Uniform
Commercial Code financing statements with the Secretary of State of the State of
California, which financing statements shall have been duly effected as of the
Delivery Date (and assignments thereof and continuation statements at periodic
intervals), (D) the taking of possession and retention by the Sublessor of the
original counterparts of the Sublease and Sublease Supplement and (E) the
affixation of placards referred to in SECTION 7(c) of this Sublease no further
filing or recording of this Sublease, the Assignment of Sublease or of any other
document (including any financing statement Under Revised Article 9 or Article 9
of the Uniform Commercial Code) and no further action is necessary, under the
laws of the United States of America or the State of California in order to
fully protect and establish Head Lessor's, Indenture Trustee's and Sublessor's
interests in the Aircraft and this Sublease as against Sublessee or any third
party claiming by, through or under Sublessee;
(ii) Sublessee holds all licenses, permits and
franchises from the appropriate Government Entities necessary
to authorize Sublessee to lawfully engage in air
transportation and
22
Sublease Agreement
(MSN 30808)
to carry on scheduled commercial cargo service as currently
conducted, except where the failure to so hold any such
license, permit or franchise would not have a material adverse
effect on the condition (financial or otherwise), business or
properties of Sublessee;
(iii) Sublessee is a Certificated Air Carrier, and
its jurisdiction of organization (as such term is used in
Article 9 of the Uniform Commercial Code in effect in the
State of California) is located in Long Beach, California;
(iv) No Default has occurred and is continuing;
and
(v) the Sublessor is entitled to the protection of
Section 1110 of the Bankruptcy Code in connection with its
right to take possession of the Airframe and Engines and to
enforce any of its rights or remedies under this Sublease in
the event of a case under the Bankruptcy Code in which
Sublessee is a debtor.
(c) SUBLESSOR'S COVENANTS. Sublessor covenants that neither it
nor any Person claiming by, through or under it will, through its own actions or
inactions, interfere in Sublessee's continued possession, use, operation and
quiet enjoyment of the Aircraft, any Engine or any Part and other rights with
respect to the Aircraft hereunder during the Term unless a Sublease Event of
Default has occurred and is continuing, and this Sublease shall not be
terminated except as provided herein; provided that Head Lessor and the
Indenture Trustee shall have received assignments of this Sublease (and in
connection with their acceptance of such assignment acknowledge Sublessee's
right to quiet enjoyment contained herein) and Sublessee is continuing to
perform its duties and obligations under this Sublease for the benefit of
Sublessor. Sublessor covenants that it will not directly or indirectly create,
incur, assume or suffer to exist any Sublessor Lien on or with respect to the
Airframe or any Engine.
(d) MANUFACTURERS' WARRANTIES. None of the provisions of this
Sublease shall be deemed to amend, modify or otherwise affect the
representations, warranties or other obligations (express or implied) of the
Seller, the Manufacturer, the Engine Manufacturer, any subcontractor or supplier
of the Manufacturer or the Engine Manufacturer with respect to the Airframe, the
Engines or any Parts, or to release the Seller, the Manufacturer, the Engine
Manufacturer, or any such subcontractor or supplier, from any such
representation, warranty or obligation. Unless a Sublease Event of Default shall
have occurred and be continuing under SECTION 14, Sublessor agrees to make
available to Sublessee such rights as Sublessor may have (to the extent
assignable by Sublessor) under any warranty with respect to the Aircraft, the
Airframe or any Engine made by the Seller, the Manufacturer, the Engine
Manufacturer, or any affiliate thereof or
23
Sublease Agreement
(MSN 30808)
any of its subcontractors or suppliers and any other claims against the Seller,
the Manufacturer, the Engine Manufacturer, or any affiliate thereof, or any such
subcontractor or supplier with respect to the Aircraft, all pursuant to and in
accordance with the terms of the Aircraft Warranty Assignment and the Head
Lease. At any time a Sublease Event of Default has occurred and is continuing
and this Sublease has been duly declared in default, all of Sublessee's rights
under any warranty or other obligation with any of such Persons, with respect to
the Aircraft shall automatically revert to Sublessor.
SECTION 5. RETURN OF THE AIRCRAFT.
(a) CONDITION UPON RETURN. Sublessee shall comply with each of
the provisions of EXHIBIT B, which provisions are hereby incorporated by this
reference as if set forth in full herein. All references to "SECTION 5" or "this
SECTION 5" shall be deemed to include EXHIBIT B.
(b) STORAGE AND RELATED MATTERS. Unless Sublessee has elected
to purchase the Aircraft in accordance with the terms hereof, if Sublessor gives
written notice to Sublessee not less than thirty (30) days nor more than one
hundred twenty (120) days prior to the end of the Term requesting storage of the
Aircraft upon its return hereunder, Sublessee will assist Sublessor, at
Sublessor's expense, in arranging storage for the Aircraft for a period up to
thirty (30) days, commencing on the date of such return, and upon request of
Sublessor to Sublessee made at least ten (10) days prior to the end of such
initial thirty (30) day period, for an additional one hundred twenty (120) day
period commencing upon expiration of such initial period, at such storage
facility in the forty eight (48) contiguous states of the United States of
America as Sublessee and Sublessor may agree; PROVIDED that such location shall
be a location generally used for the storage of commercial aircraft by aircraft
owners or operators. Notwithstanding subsection (a) of EXHIBIT B, such storage
shall be deemed to be the return location of the Aircraft for purposes of such
EXHIBIT B. Such storage shall be at Sublessor's risk and expense and Sublessor
shall pay all applicable storage, maintenance and insurance fees and expenses.
Sublessee's obligation to assist Sublessor in arranging storage for the Aircraft
shall be subject to Sublessor entering into an agreement satisfactory to
Sublessee prior to the commencement of the storage period with the storage
facility providing, among other things, that Sublessor shall bear all storage,
maintenance charges (other than those to be paid by Sublessee as set forth
herein and maintenance required as a direct breach of Sublessee's obligations
under this SECTION 5) and other costs (including those costs referred to above)
other than those to be paid by Sublessee as set forth herein) and incurred
relating to such storage. Sublessee agrees to arrange for insurance coverage for
the Aircraft during such storage period; PROVIDED that Head Lessor reimburses
Sublessee for its out-of-pocket costs therefor.
(c) RETURN OF OTHER ENGINES. In the event that any Engine
owned by Head Lessor shall not be installed on the Airframe at the time of
return hereunder, Sublessee shall be required to return the Airframe hereunder
with an
24
Sublease Agreement
(MSN 30808)
Acceptable Alternate Engine meeting the requirements of, and title of which is
transferred to Head Lessor in accordance with, this SECTION 5 and SECTION 10.
Thereupon, Sublessor will transfer or cause to be transferred to Sublessee on an
"as is, where is, with all faults" basis the Engine constituting part of such
Aircraft but not installed on such Airframe at the time of the return of the
Airframe.
(d) OBLIGATIONS CONTINUE UNTIL RETURN. If Sublessee shall
fail to return the Aircraft at the time and in the condition specified herein,
the Term of this Sublease shall be deemed to have been automatically extended
(unless Sublessor has terminated this Sublease pursuant to SECTION 15(e) hereof)
and all obligations of Sublessee under this Sublease shall continue in effect
with respect to the Aircraft until the Aircraft is so returned to Sublessor and
Sublessee shall pay to Sublessor an amount equal to the higher of fair market
rental value and 100% of the average daily Basic Rent payable by Sublessee
during the Term for each day after the end of the Term to, but excluding, the
day of such return; PROVIDED, HOWEVER, that Sublessee shall not be responsible
for Sublessor's failure to accept return of the Aircraft in accordance with this
SECTION 5 in a timely manner or for any Rent with respect to periods after
Sublessee has tendered the Aircraft for return in accordance with this Sublease.
Any Rent owed to Sublessor pursuant to this SECTION 5(d) shall be payable upon
acceptance of the Aircraft by Sublessor. The provisions of this SECTION 5(d)
shall not limit any remedy the Sublessor would otherwise have for breach of
SECTION 5(a).
SECTION 6. LIENS. Sublessee will not directly or indirectly create, incur,
assume or suffer to exist any Lien on or with respect to the Aircraft, title
thereto or any interest therein or in this Sublease, except (i) the respective
rights of Head Lessor as owner of the Aircraft and Sublessor, as Lessee, as
provided in the Head Lease, the rights of Sublessor and Sublessee under this
Sublease, the rights of any Sub-sublessee under a Sub-Sublease, the Lien of the
Trust Indenture, and any other rights of any Person existing pursuant to the
Head Lease Documents and Operative Documents, (ii) the rights of others under
agreements or arrangements to the extent permitted by the terms of SECTIONS 7(b)
and 8(b) hereof, (iii) Sublessor Liens, Lessor Liens and Indenture Trustee
Liens, (iv) Liens for Taxes of Sublessee either not yet due or being contested
in good faith by appropriate proceedings so long as such proceedings do not
involve any material danger of the sale, forfeiture or permanent loss of the
Airframe or any Engine or any interest of any Participant therein or any
impairment of the validity or priority of the Lien of the Indenture, any risk of
any material civil liability or any risk of criminal liability on the part of
Head Lessor, Sublessor, or any Participant or the indenture Trustee, (v)
materialmen's, mechanics', workmen's, repairmen's, employees' or other like
Liens arising in the ordinary course of Sublessee's or any Sub-sublessee's
business (including those arising under maintenance agreements entered into in
the ordinary course of business) securing obligations that are not overdue for a
period of more than sixty (60) days or are being contested in good faith by
appropriate proceedings so long as such proceedings do not involve any material
danger of the sale, forfeiture or loss of the Airframe or any Engine or any
interest of the Head Lessor or any Participant therein or
25
Sublease Agreement
(MSN 30808)
any impairment of the validity or priority of the Lien of the Indenture, any
risk of any material civil liability or any risk of criminal liability on the
part of Head Lessor, Sublessor, or any Participant or the Indenture Trustee,
(vi) Liens arising out of any judgment or award against Sublessee or any
Sub-sublessee not covered by insurance, unless the judgment secured shall not,
within sixty (60) days after the entry thereof, have been discharged, vacated,
reversed or execution thereof stayed pending appeal or shall not have been
discharged, vacated or reversed within sixty (60) days after the expiration of
such stay or any risk of any material civil liability or any risk of criminal
liability on the part of the Head Lessor, Sublessor, or any Participant or the
Indenture Trustee, (vii) any other Lien with respect to which Sublessee or any
Sub-sublessee shall have provided a sufficient bond, cash collateral or other
security or maintains adequate reserves in the reasonable and good faith
judgment of Sublessor, and (viii) Liens approved in writing by Sublessor.
Sublessee will promptly, at its own expense, take (or cause to be taken) such
actions as may be necessary duly to discharge any such Lien not excepted above
if the same shall arise at any time during the Term.
SECTION 7. REGISTRATION, MAINTENANCE, OPERATION AND REGISTRATION;
POSSESSION AND SUB-SUBLEASES; INSIGNIA.
(a) REGISTRATION, MAINTENANCE, OPERATION AND REGISTRATION.
(1) REGISTRATION AND MAINTENANCE. Sublessee, at its
own cost and expense, shall: (A) forthwith upon the delivery thereof hereunder,
cause the Aircraft to be duly registered in the name of Head Lessor, and,
subject to CLAUSE (3) of this SECTION 7(a), and subject to Head Lessor's and
Owner Participant's compliance with SECTION 7(a) of the Participation Agreement
as in effect on the date hereof, to remain duly registered in the name of Head
Lessor under the Transportation Code; PROVIDED that Head Lessor shall execute
and deliver all required documents and any instruments that Sublessee (or any
Sub-sublessee) may reasonably request for the purpose of effecting and
continuing such registration, and shall not register the Aircraft or permit
(except to the extent that such registration cannot be effected with the FAA
because of Head Lessor's or Owner Participant's failure to comply with the U.S.
citizenship requirements for registration under the Transportation Code) the
Aircraft to be registered under any laws other than the Transportation Code at
any time, except as provided in CLAUSE (3) of this SECTION 7(a) and, if the
Trust Indenture is then in effect, shall cause the Trust Indenture, subject to
the requirements of the applicable law, to be duly recorded and maintained of
record as a first mortgage on the Aircraft; (B) on a nondiscriminatory basis
relative to the other aircraft which it operates, maintain, service, repair
and/or overhaul (or cause to be maintained, serviced, repaired and/or
overhauled) (i) so as to keep the Aircraft in as good an operating condition as
when delivered to Sublessee (ordinary wear and tear excepted) and in such
condition as necessary to enable the airworthiness certification for the
Aircraft to be maintained in good standing at all times under Part 121 of the
Federal Aviation Regulations (or under the applicable requirements of the
aviation authority of any other jurisdiction in which the Aircraft may then be
registered as permitted by
26
Sublease Agreement
(MSN 30808)
SECTION 7 hereof except (a) when the Aircraft is being temporarily stored and is
not operational, (b) when the Aircraft is being serviced, repaired, maintained,
overhauled, tested or modified as permitted or required by the terms of this
Sublease or (c) when all of Sublessee's Boeing 747-46NF aircraft of comparable
vintage and configuration, powered by power-plants and having systems and
avionics comparable to the Aircraft ("SIMILAR AIRCRAFT") have been grounded by
the FAA or under the laws of any jurisdiction in which the Aircraft may then be
registered as permitted by SECTION 7 hereof, or such aviation authority has
revoked or suspended the airworthiness certificates for all such aircraft, and
(ii) in accordance with the maintenance program approved by the government of
registry for the Aircraft and utilizing the same manner of maintenance, service,
repair or overhaul used by Sublessee (or any Sub-sublessee) with respect to
Similar Aircraft operated by it and without in any way discriminating against
the Aircraft on the basis of its leased status or otherwise; (C) maintain or
cause to be maintained all records, logs and other materials required to be
maintained in respect of the Aircraft by the FAA or the aviation authority of
any other jurisdiction in which the Aircraft may then be registered as permitted
by this SECTION 7 hereof; and (D) promptly furnish to Head Lessor (with a copy
to Sublessor) any information required to enable Head Lessor to perform any
applicable government filings required of the owner of the Aircraft by such
registration jurisdiction.
(2) OPERATION. Sublessee will not (and will not allow
any other Sub-sublessee to) maintain, use, service, repair, overhaul or operate
the Aircraft in violation of any Law or certificate of any government or
governmental authority (domestic or foreign) having jurisdiction over the
Aircraft, or contrary to any airworthiness certificate, license or registration
relating to the Aircraft issued by any such authority, except (A) immaterial or
non-recurring violations with respect to which corrective measures are taken
promptly by Sublessee or a Sub-sublessee, as the case may be, upon discovery
thereof, and (B) to the extent Sublessee (or any other Sub-sublessee) is
contesting in good faith and by appropriate proceedings the validity or
application of any such law, rule, regulation or order which does not involve
(x) any material risk of sale, forfeiture or permanent loss of the Aircraft, the
Airframe, any Engine or any Part (y) any risk of criminal liability to the Owner
Participant, Sublessor, Head Lessor or Indenture Trustee or (z) any risk of
material civil liability against the Owner Participant, Sublessor, Head Lessor
or Indenture Trustee. Sublessee will not (and will not allow any Sub-sublessee
to) operate the Aircraft in any area excluded from coverage by insurance
provided pursuant to SECTION 11 hereof; PROVIDED, HOWEVER, that the failure of
Sublessee to comply with the provisions of this sentence shall not give rise to
an Sublease Event of Default hereunder if indemnification from the United States
Government complying with SECTION 11(c) has been provided or where such failure
is attributable to extraordinary circumstances involving an isolated occurrence
or series of incidents not in the ordinary course of the regular operations of
Sublessee or any Sub-sublessee such as a hijacking, medical emergency, equipment
malfunction, weather condition, navigational error, or other isolated
extraordinary event beyond the control of Sublessee or any Sub-sublessee
27
Sublease Agreement
(MSN 30808)
and Sublessee or any Sub-sublessee is diligently and in good faith proceeding to
rectify such failure.
(3) REREGISTRATION. Upon Sublessee's compliance with
all of the terms of SECTION 7 hereof, including, without limitation, this CLAUSE
(3), Sublessor shall, at the request and sole expense of Sublessee, cooperate
with Sublessee to take all actions required to change the registration of the
Aircraft to the designated country. So long as no Sublease Event of Default
shall have occurred and be continuing, Sublessee may elect to effect a change in
registration of the Aircraft, at Sublessee's cost and expense, so long as the
country of registry of the Aircraft is a country listed in the last paragraph of
this SECTION 7(a)(3). Upon the request of Sublessee and provided no Sublease
Event of Default shall have occurred and be continuing, the country list in the
last paragraph of this SECTION 7(a)(3) may be amended from time to time to
include any other country which would provide substantially equivalent
protection for the rights and remedies of owner participants, lessors or lenders
in similar transactions and with which the United States of America maintains
normal diplomatic relations, such amendments to be subject to the consent of the
Loan Participant (so long as the Lien of the Trust Indenture is in effect) and
the Owner Participant (such consents not to be unreasonably withheld). In order
for Sublessee to effect a change in the country of registry of the Aircraft,
Sublessee shall deliver to Sublessor and/or as Sublessor otherwise shall direct,
the following:
(i) an Officer's Certificate certifying that (A) the
insurance or self-insurance required by SECTION 11 of the
Sublease shall be in full force and effect at the time of such
change in registration after giving effect to such change in
registration, (B) the Lien of the Trust Indenture in favor of
the Indenture Trustee will continue as a first priority and
perfected lien following such change of registry, (C) such
change will not result in the imposition of, or increase in
the amount of, any Tax for which Sublessee is not required to
indemnify, or is not then willing to enter into a binding
agreement to indemnify Sublessor pursuant to this Agreement or
the Sublease Tax Indemnification Agreement, (D) the new
country of registry imposes aircraft maintenance standards not
materially less stringent than those imposed by the least
stringent of the FAA, the aeronautical authority of Canada,
Switzerland, France, Germany, Japan, The Netherlands or the
United Kingdom, (E) any import or export permits necessary to
take the Aircraft into such jurisdiction of reregistration and
any exchange permits necessary to allow all Rent to continue
to be paid are in full force and effect to the extent
obtainable with commercially reasonable effort and to the
extent customary to obtain, and (F) any value added tax,
customs duty, tariff or other
28
Sublease Agreement
(MSN 30808)
governmental charge or tax relating to the change in
jurisdiction of registration of the Aircraft shall have been
paid; and
(ii) a favorable opinion (subject to customary bankruptcy and
equitable exceptions and to other exceptions customary in foreign legal opinions
generally) of counsel addressed to Sublessor, the Participants, the Owner
Trustee and the Indenture Trustee from counsel qualified in the laws of the
relevant jurisdiction and reasonably acceptable to the addressees to the effect
that: (A) the obligations of Sublessee, and the rights and remedies of
Sublessor, under the Sublease and the rights and remedies of the Owner Trustee
under the Head Lease shall remain valid binding and enforceable under the laws
of such jurisdiction; (B) it is not necessary, solely as a consequence of such
change in registration and without giving effect to any other activity of
Sublessor, the Owner Trustee, the Participants or the Indenture Trustee (or any
Affiliate thereof), as the case may be, for Sublessor, the Owner Trustee, the
Participants or the Indenture Trustee to register or qualify to do business in
such jurisdiction; and (C) after giving effect to such change in registration,
the ownership interest of the Owner Trustee in the Aircraft and the Head Lease
and the Lien of the Trust Indenture shall be recognized and all filing,
recording or other action necessary to protect the same shall be undertaken.
Upon receipt of the foregoing certificate and opinion, Sublessor, Owner
Participant and Indenture Trustee will cause the Owner Trustee to make such
change of registration.
Sublessee shall pay all costs, expenses, fees, recording and
registration Taxes, including the reasonable fees and expenses of counsel to
Sublessor, the Owner Trustee, the Participants and the Indenture Trustee, in
connection with any such change in registration.
The list of countries in which Sublessee is permitted to effect a
reregistration of the Aircraft in accordance with the procedures of this SECTION
7(a)(3) is as follows:
Australia the Netherlands
Austria New Zealand
Bahamas Norway
Belgium People's Republic of China
Bermuda Portugal
Canada Republic of China (Taiwan)
Denmark Singapore
Finland South Africa
France Spain
Greece Sweden
Germany Switzerland
Iceland United Kingdom
Ireland United States of America
29
Sublease Agreement
(MSN 30808)
Italy
Japan
Luxembourg
(b) POSSESSION AND SUB-SUBLEASES. Sublessee will not,
without the prior written consent of Sublessor, sublease or otherwise in any
manner deliver, transfer or relinquish possession of the Airframe or any Engine
or install or permit any Engine to be installed on any airframe other than the
Airframe provided that so long as Sublessee shall comply (or shall cause
compliance) with the provisions of SECTION 7 and SECTION 11 hereof, Sublessee
may, or may permit any Sub-sublessee to, without the prior written consent of
Sublessor:
(i) subject the Airframe and the Engines or engines then
installed thereon to normal interchange agreements or any
Engine to pooling or similar arrangements, in each case on
substantially similar terms as are customarily obtained by
similarly situated U.S. Air Carriers operating Similar
Aircraft and entered into by Sublessee in the ordinary course
of its business; PROVIDED that (A) no such agreement or
arrangement requires the transfer of title to the Airframe,
(B) if Sublessor's interest in any Engine shall be divested
under any such agreement or arrangement, such divestiture
shall be deemed to be an Sublease Event of Loss with respect
to such Engine and Sublessee shall comply with SECTION 10(b)
hereof in respect thereof, Sublessor not intending hereby to
waive any right or interest it may have to or in such Engine
under Law until compliance by Sublessee with such SECTION
10(b), (C) any interchange agreement to which the Airframe may
be subject shall be with a U.S. Air Carrier or a Foreign Air
Carrier and (D) the rights of any Person (other than
Sublessee) under an interchange agreement covering the
Airframe shall be expressly subject and subordinate to all of
the terms of this Sublease;
(ii) deliver possession of the Airframe or any Engine
to the manufacturer thereof (or for delivery thereto) or to
any organization (or for delivery thereto) for testing,
service, repair, maintenance or overhaul work on the Airframe
or Engine or any part of any thereof or for alterations or
modifications in or additions to such Airframe or Engine to
the extent required or permitted by the terms of SECTION 8(c)
hereof;
(iii) install an Engine on an airframe owned by
Sublessee or any Sub-sublessee free and clear of all Liens,
except: (A) Permitted Liens and those which apply only to the
engines
30
Sublease Agreement
(MSN 30808)
(other than Engines), appliances, parts, instruments,
appurtenances, accessories, furnishings and other equipment
(other than Parts) installed on such airframe (but not to the
airframe as an entirety), (B) in the case of airframe
interchange agreements contemplated by CLAUSE (i) above, the
rights of any U.S. Air Carrier or Foreign Air Carrier under
such interchange agreements; PROVIDED that Sublessor's and
Head Lessor's interest in such Engines and, the Lien of the
Trust Indenture shall not be divested or impaired as a result
thereof; (C) in the case of pooling or similar arrangements
contemplated by CLAUSE (i) above, the rights of third parties
under such pooling or similar arrangements; PROVIDED that
Sublessor's and Head Lessor's interest in such Engine and, the
Lien of the Trust Indenture shall not be divested or impaired
as a result thereof and (D) mortgage liens or other security
interests; PROVIDED that (as regards this CLAUSE(D)) the
documents creating such mortgage liens or other security
interests (or, if applicable, another enforceable written
agreement governing such mortgage liens or other security
interests) effectively provide that such Engine shall not
become subject to the Lien of such mortgage or security
interest, notwithstanding the installation thereof on such
airframe;
(iv) install an Engine on an airframe leased to
Sublessee or any Sub-sublessee or purchased by Sublessee or
any Sub-sublessee subject to a conditional sale or other
security agreement; PROVIDED that (x) such airframe is free
and clear of all Liens, except: (A) the rights of the parties
to the lease or conditional sale or other security agreement
covering such airframe, or their assignees and (B) Liens of
the type permitted by CLAUSE (iii) of this PARAGRAPH (b) and
(y) such lease, conditional sale or other security agreement
effectively provides that such Engine shall not become subject
to the Lien of such lease, conditional sale or other security
agreement, notwithstanding the installation thereof on such
airframe;
(v) install an Engine on an airframe owned by
Sublessee, leased to Sublessee or a Sub-sublessee or purchased
by Sublessee or a Sub-sublessee subject to a conditional sale
or other security agreement under circumstances where neither
CLAUSE (iii) nor CLAUSE (iv) of this PARAGRAPH (b) is
applicable; PROVIDED that such installation shall be deemed an
Sublease Event of Loss with respect to such Engine and
Sublessee shall comply with SECTION 10(b) hereof in respect
thereof, Sublessor not intending hereby to waive any right or
interest it may have to or in such Engine under
31
Sublease Agreement
(MSN 30808)
applicable Law until compliance by Sublessee with such SECTION
10(b);
(vi) to the extent permitted by SECTION 8(b) hereof,
subject any appliances, Parts or other equipment owned by Head
Lessor and subleased by Sublessor and removed from the
Airframe or any Engine to any pooling arrangement referred to
in CLAUSES (i) and (iii) of this PARAGRAPH (b);
(vii) subject the Airframe or any Engine to the Civil
Reserve Air Fleet Program and transfer possession of the
Airframe or any Engine to the United States Government or any
instrumentality or agency thereof backed by the full faith and
credit of the United States Government, so long as Sublessee
shall (A) promptly notify Sublessor of any transfer pursuant
to the Civil Reserve Air Fleet Program in any contract year
(and prompt notice of any subsequent transfer pursuant to the
Civil Reserve Air Fleet Program) and provide Sublessor with
the name and address of the Contracting Office Representative
for the Air Mobility Command of the United States Air Force to
whom notice must be given pursuant to SECTION 15 hereof and
(B) promptly notify Sublessor upon transferring possession of
the Airframe or any Engine to the United States of America or
any agency or instrumentality thereof backed by the full faith
and credit of the United States Government;
(viii) RESERVED; and
(ix) so long as no Event of Default has occurred and is
continuing, Sublessee may, at any time in its sole discretion,
enter into any Sub-Sublease with any Sub-sublessee; PROVIDED,
however, that no Sub-Sublease entered into pursuant to this
clause (ix) shall (i) be to a Person that, at the time of
entering into such Sub-sublease, is subject to any bankruptcy,
insolvency, or reorganization proceedings, (ii) permit further
sublease of the Aircraft by any Sub-sublessee or fail to be
expressly made subject and subordinate to the terms of this
Sublease, (iii) require Sublessor or Head Lessor to qualify to
do business in any jurisdiction in which it is not otherwise
required to do so, (iv) extend beyond the expiration of the
Basic Term or any Renewal Term or Additional Renewal Term then
in effect, unless Sublessee shall have irrevocably committed
to purchase the Aircraft or renew the Sublease in accordance
with the terms hereof at the end of the Basic Term, Renewal
Term or Additional Renewal Term, as the
32
Sublease Agreement
(MSN 30808)
case may be, to a date beyond the latest permissible
expiration date of this Sublease; PROVIDED further that in
connection with a Sub-Sublease to a Sub-sublessee which is
domiciled in a foreign country (1) the United States of
America maintains diplomatic relations with the country of
domicile of such Sub-sublessee (and, in the case of the
Republic of China (Taiwan), diplomatic relations at least as
good as those in effect on the Delivery Date) and (2)
Sublessee shall have furnished Sublessor and Head Lessor (if
the Head Lease is then in effect) an opinion, of counsel
reasonably satisfactory to Sublessor, in the country of
domicile of such Sub-sublessee, that (a) the terms of such
Sub-Sublease are the legal, valid and binding obligations of
the parties thereto, enforceable under the laws of such
jurisdiction, (b) it is not necessary for Sublessor to
register or qualify to do business in such jurisdiction (if
not already so registered or qualified) as a result, in whole
or in part, of the proposed Sub-Sublease, (c) Head Lessor's
title to, and the Indenture Trustee's Lien on, the Aircraft,
Airframe and Engines will be recognized in such jurisdiction,
(d) the Laws of such jurisdiction of domicile require fair
compensation by the government of such jurisdiction, payable
in currency freely convertible into Dollars, for the loss of
title to the Aircraft, Airframe or Engines in the event of a
requisition by such government of such title (unless Sublessee
shall provide insurance in the amounts required with respect
to hull insurance under SECTION 11 covering the requisition of
title to the Aircraft, Airframe or Engines by the government
of such jurisdiction so long as the Aircraft, Airframe or
Engines are subject to such Sub-Sublease) (e) the agreement of
such Sub-sublessee that its rights under the Sub-Sublease are
subject and subordinate to all the terms of this Sublease and
is enforceable against such Sub-sublessee under applicable
law; and (f) the terms and conditions of such Sub-Sublease
shall include provisions for the maintenance, operation,
possession, inspection and insurance of the Aircraft that are
the same in all material respects as the applicable provisions
of this Sublease; and; PROVIDED that, (A) Sublessee shall pay
all of each Participant's reasonable outside legal fees and
expenses incurred in connection with any proposed Sub-Sublease
and shall indemnify each of them for any reasonable out-of-
pocket additional costs and expenses to the extent incurred as
a result of such Sub-Sublease, (B) Sublessee shall furnish to
Sublessor and each Participant evidence reasonably
satisfactory that the insurance required by SECTION 11 remains
in effect and (C) all necessary documents shall have been
filed, registered or recorded in such public offices in such
jurisdiction as may be required to fully preserve the Head
33
Sublease Agreement
(MSN 30808)
Lessor's title and the Indenture Trustee's Lien on, the
Aircraft, Airframe and Engines. Sublessee shall provide Head
Lessor, the Owner Participant and the Indenture Trustee with a
copy of any Sub-Sublease which has a term of more than three
(3) years, provided Sublessee may require any such recipient
to enter a suitable confidentiality agreement as to any
information it reasonably may deem commercially sensitive and
confidential. In addition, Sublessee shall furnish to
Sublessor, the Owner Participant and the Indenture Trustee
notice of any Sub-Sublease within a reasonable period of time
(but not more than 30 days) after the commencement of such
Sub-Sublease.
(c) CERTAIN LIMITATIONS ON SUB-SUBLEASING OR OTHER
RELINQUISHMENTS OF POSSESSION. The rights of any Sub-sublessee or other
transferee who receives possession by reason of a transfer permitted by SECTION
7(a) and (b) (other than where the transfer is of an Engine which is deemed a
Sublease Event of Loss) shall be subject and subordinate to, and any
Sub-Sublease or Airframe interchange arrangement permitted by SECTION 7(a) and
(b) shall be expressly subject and subordinate to, all the terms of this
Sublease and Sublessor's and Head Lessor's (and so long as the Trust Indenture
is in effect, the Indenture Trustee's (as Head Lessor's assignee)) rights,
subject in all respects to SECTION 4(c), to repossess and to void such
Sub-Sublease or other permitted transfer upon the occurrence of a Sublease Event
of Default or a Head Lease Event of Default, respectively; and Sublessee shall
remain primarily liable hereunder for the performance of all of the terms of
this Sublease. The terms of any such Sub-Sublease or permitted transfer shall
not by their terms permit any Sub-sublessee or other permitted transferee to
take any action not permitted to be taken by Sublessee in this Sublease with
respect to the Aircraft. No pooling agreements, sublease or other relinquishment
of possession of the Airframe or any Engine or Wet Lease shall in any way
discharge or diminish any of Sublessee's obligations to Sublessor hereunder
(including, without limitation, SECTION 5 hereof) or constitute a waiver of
Sublessor's rights or remedies hereunder with respect to the Aircraft. Sublessor
agrees, for the benefit of Sublessee (and any Sub-sublessee) and for the benefit
of any mortgagee or other holder of a security interest in any engine (other
than an Engine) owned by Sublessee (or any Sub-sublessee), any lessor of any
engine (other than an Engine) leased to Sublessee (or any Sub-sublessee) and
any conditional vendor of any engine (other than an Engine) purchased by
Sublessee (or any Sub-sublessee) subject to a conditional sale agreement or any
other security agreement, that no interest shall be created hereunder in any
engine so owned, leased or purchased and that none of Sublessor, Head Lessor, or
Indenture Trustee or its successors or assigns will acquire or claim, as against
Sublessee (or any Sub-sublessee) or any such mortgagee, lessor or conditional
vendor or other holder of a security interest or any successor or assignee of
any thereof, any right, title or interest in such engine as the result of such
engine being installed on the Airframe.
34
Sublease Agreement
(MSN 30808)
(d) WET LEASING, ACMI CONTRACTS OR SIMILAR ARRANGEMENTS;
MERGERS; ASSIGNMENTS. Any Wet Lease, ACMI Contract or similar arrangement under
which Sublessee maintains operational control of the Aircraft shall not
constitute a delivery, transfer or relinquishment of possession of the Aircraft
for purposes of SECTION 7(b) and shall not be prohibited by the terms hereof.
Neither a Wet Lease nor an ACMI Contract shall be deemed a "Sub-sublease", and
the counterparty of a Wet Lease or an ACMI Contract shall not be deemed to be a
"Sub-sublessee" for any purposes under this Sublease. Sublessor acknowledges
that any consolidation or merger of Sublessee or conveyance, transfer or lease
of all or substantially all of Sublessee's assets otherwise permitted by the
Operative Documents shall not be prohibited by SECTION 7(b). In addition,
Sublessor acknowledges that the restrictions on assignment set forth in SECTION
13 hereof shall not prohibit the exercise by Sublessee of its rights under
SECTION 7(b). Any contract that is part of the United States Civil Reserve Air
Fleet Program shall not be deemed to be a sublease for any purpose under this
Sublease.
(e) SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT OF A SUB-
SUBLESSEE. Notwithstanding anything to the contrary contained in SECTIONS 7(b)
and 7(c), if: (A) the Sublessee assigns a Sub-Sublease to Sublessor as security
for the performance of Sublessee's obligations under this Sublease; (B) the
basic rent and supplemental rent payments under such Sub-Sublease are at least
equal to Sublessee's Basic Rent and Supplemental Rent payments under this
Sublease and such Sub-Sublease is expressly made subject and subordinate to this
Sublease; and (C) the Sublessee and the Sub-sublessee execute and deliver a
Subordination, Non-Disturbance and Attornment Agreement in substantially the
form attached hereto as EXHIBIT F (the "Attornment Agreement") to Sublessor,
then Sublessor: (1) shall execute and deliver such Attornment Agreement to the
Sublessee and Sub-sublessee; (2) agrees that the requirement contained in the
first sentence of SECTION 7(c) shall be deemed satisfied (EXCEPT AS TO ANY
RIGHTS OF HEAD LESSOR OR THE INDENTURE TRUSTEE) by the Attornment Agreement; and
(3) shall not disturb the Sub-sublessee's possession of the Aircraft, Airframe
or Engines during the term of the Sub-Sublease nor void the Sub-Sublease so long
as no event of default has occurred under the Sub-Sublease.
(f) INSIGNIA. On or prior to the Delivery Date, or as soon
as practicable thereafter, Sublessee agrees to affix and maintain (or cause to
be affixed and maintained), at its expense, in the cockpit of the Airframe
adjacent to the airworthiness certificate therein and on each Engine a nameplate
bearing the inscription:
Owned By and Leased From
▇▇▇▇▇ Fargo Bank Northwest, N.A., as Owner Trustee, Lessor
and, for so long as the Airframe and each Engine shall be subject to the Lien of
the Trust Indenture, bearing the following additional inscription:
35
Sublease Agreement
(MSN 30808)
Mortgaged To
First Union Trust Company, National Association,
as Indenture Trustee
(such nameplate to be replaced, if necessary, with a nameplate reflecting the
name of any successor Head Lessor, Sublessor or successor Indenture Trustee).
Except as above provided, Sublessee will not allow the name of any Person to be
placed on the Airframe or on any Engine as a designation that might be
interpreted as a claim of ownership; PROVIDED that nothing herein contained
shall prohibit Sublessee or any Sub-sublessee from placing its customary colors
and insignia on the Airframe or any Engine.
SECTION 8. REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS
AND ADDITIONS.
(a) REPLACEMENT OF PARTS. Sublessee, at its cost and
expense, promptly will replace or cause to be replaced all Parts, including any
such Parts removed from the Airframe or any Engine which may from time to time
become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond
repair or permanently rendered unfit for use for any reason whatsoever, except
as otherwise provided in PARAGRAPHS (b) or (c) of this SECTION 8. In addition,
at its cost and expense, Sublessee may, and may permit a Sub-sublessee (or any
maintenance provider for the Aircraft) to, remove (or cause to be removed) in
the ordinary course of maintenance, service, repair, overhaul or testing, or as
may be required or, in Sublessee's reasonable opinion, advisable, in
contemplation of the return of the Aircraft to Sublessor in accordance with this
Sublease, any Parts, whether or not worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use;
PROVIDED that Sublessee will, except as otherwise provided herein, at its cost
and expense, replace, or cause to be replaced, such Parts as promptly as
practicable. All replacement parts (other than replacement parts temporarily
installed on the Airframe or Engine as provided in SECTION 8(b) hereof) shall be
free and clear of all Liens (except Permitted Liens), and shall be in as good an
operating condition, and shall have value and utility at least equal to, the
Parts replaced, assuming such replaced Parts were in the condition and repair
required to be maintained by the terms hereof (but without taking into
consideration hours and cycles remaining until overhaul) and will not, when
installed, cause the useful life of the Airframe or any Engines to be
diminished. All Parts at any time removed from the Airframe or any Engine shall
remain the property of Head Lessor, no matter where located, until such time as
such Parts shall be replaced by parts which meet the requirements for
replacement parts specified above. Upon any replacement part becoming
incorporated or installed in or attached to the Airframe or any Engine, without
further act (subject only to Permitted Liens and any arrangement permitted by
SECTION 8(b) hereof), (i) such replacement part shall become the property of
Head Lessor and shall become subject to the Head Lease, the Trust Indenture and
this Sublease and be deemed a Part for all purposes hereof to the same extent as
the Parts originally incorporated or installed in or attached to the Airframe or
such Engine and (ii) the replaced Part shall no longer be the property of Head
Lessor
36
Sublease Agreement
(MSN 30808)
and shall no longer be deemed a Part hereunder, or under the Head Lease and
title to such replaced Part shall vest in Sublessee as provided in this
Sublease.
(b) POOLING OF PARTS; TEMPORARY REPLACEMENT PARTS. Any Part
removed from the Airframe or any Engine as provided in SECTION 8(a) hereof may
be subjected by Sublessee or any Sub-sublessee to a normal pooling arrangement
of the type permitted for Engines under SECTION 7(b)(i); PROVIDED that the part
replacing such removed Part shall be incorporated or installed in or attached to
such Airframe or Engine in accordance with SECTION 8(a) hereof as promptly as
practicable after the removal of such removed Part. In addition, Sublessee or
any Sub-sublessee, may use temporary parts or pooled parts on the Aircraft as
temporary replacements for Parts; PROVIDED that Sublessee as promptly thereafter
as practicable, either causes such pooled or temporary replacement part to
become the property of Head Lessor free and clear of all Liens other than
Permitted Liens or replaces such replacement part with a further replacement
part owned by Sublessee which meets the requirements of SECTION 8(a) hereof and
which shall become the property of Head Lessor, free and clear of all Liens
other than Permitted Liens.
(c) ALTERATIONS, MODIFICATIONS AND ADDITIONS. Sublessee
will, at its cost and expense, make (or cause to be made) such alterations,
modifications and additions to the Airframe and Engines as may be required
during the Term to meet the applicable standards of the FAA or the applicable
aviation authority of any other jurisdiction in which the Aircraft may then be
registered as permitted by SECTION 7 hereof; PROVIDED, HOWEVER, that Sublessee
or any Sub-sublessee may, in good faith, contest the validity or application of
any such law, rule, regulation or order by appropriate proceedings which does
not adversely affect Sublessor, Head Lessor or any Participant (or their
respective interests in the Aircraft) or, so long as any Equipment Notes are
outstanding, the Indenture Trustee. In addition, Sublessee or any Sub-sublessee
may from time to time alter the configuration of the Aircraft and may make such
alterations and modifications in and additions to the Airframe or any Engine as
Sublessee reasonably may deem desirable in the proper conduct of its business,
including removal of Parts which Sublessee or any Sub-sublessee reasonably deems
to be obsolete or no longer suitable or appropriate for use on the Airframe or
such Engine (such Parts, "OBSOLETE PARTS"); PROVIDED that no such alteration,
modification, removal or addition impairs the condition or airworthiness of the
Airframe or such Engine, or materially diminishes the value, utility or
remaining useful life of the Airframe or such Engine below the value, utility or
remaining useful life thereof immediately prior to such alteration,
modification, removal or addition, assuming that the Airframe or such Engine is
in the condition required to be maintained by the terms of the Sublease, except
that the value (but not the utility or remaining useful life) of the Airframe or
any Engine may be reduced by the value of Obsolete Parts which shall have been
removed so long as the aggregate value of all Obsolete Parts which shall have
been removed and not replaced shall not exceed in the aggregate $300,000 in
value at the time of removal. All parts incorporated or installed in or attached
or added to the Airframe or an Engine as the result of such alteration,
37
Sublease Agreement
(MSN 30808)
modification or addition (the "ADDITIONAL PART" or "ADDITIONAL PARTS") shall,
without further act, automatically become the property of Head Lessor (provided
that, Removable Parts and Parts which may be removed by any Sublessee pursuant
to the next sentence shall not automatically become property of Head Lessor).
Notwithstanding the foregoing, Sublessee or any Sub-sublessee may remove (and
not replace) any Additional Part, provided that such Additional Part (i) is in
addition to, and not in replacement of or substitution for, any Part originally
incorporated or installed in or attached to the Airframe or any Engine at the
time of delivery thereof under this Sublease or any Part in replacement of or
substitution for any such Part, (ii) is not required to be incorporated or
installed in or attached or added to the Airframe or any Engine pursuant to the
terms of SECTION 7(a)(1) or the first sentence of this SECTION 8(c) and (iii)
can readily be removed from the Airframe or such Engine without causing any
material damage to the Aircraft and without diminishing or impairing the value,
utility, condition or remaining useful life which the Airframe or such Engine
would have had at such time had such alteration, modification or addition not
occurred (a "Removable Part"). Removable Parts may be leased from or financed by
third parties other than Sublessor. Upon removal of such Part, the Airframe or
such Engine affected shall be returned to the condition it was prior to such
change assuming the Airframe or such Engine was in the condition and repair
required to be maintained by the terms hereof. Upon the removal thereof as
provided above, such Additional Parts shall no longer be deemed the property of
Head Lessor or part of the Airframe or Engine from which it was removed and
title thereto shall, without further act, vest in Sublessee (or such
Sub-sublessee or such third party lessor or financing party of the Removable
Parts, as the case may be); PROVIDED that, upon written request to Sublessee
therefor. Any Additional Part not removed as above provided prior to the return
of the Aircraft to Head Lessor hereunder shall remain the property of Head
Lessor.
SECTION 9. VOLUNTARY TERMINATION.
(a) TERMINATION EVENT.
(i) (1) Sublessee shall have the right to elect to
terminate this Sublease on any Rent Payment Date which must
correspond to a Head Lease Rent Payment Date occurring on or
after the close of the calendar year in which the sixth (6th)
anniversary of the Delivery Date occurs if Sublessee shall
have made the good faith determination, which shall be
evidenced by a certificate of a Finance Officer of Sublessee,
that the Aircraft is economically obsolete or surplus to its
needs or the Aircraft is to be disposed of pursuant to a
program of fleet renewal. The parties hereto acknowledge that
the Rent Payment Dates are monthly under this Sublease while
the Head Lease Rent Payment Date is semi-annual. Sublessor
covenants to Sublessee that once every six months the Rent
Payment Date under this Sublease shall be the
38
Sublease Agreement
(MSN 30808)
same date as a Head Lease Rent Payment Date. (2) Sublessee
will also have the right for any reason to terminate the
Sublease on the tenth (10th) and thirteenth (13th)
anniversaries of the Delivery Date. If this Sublease is
terminated pursuant to CLAUSE (2) by Sublessee, Sublessee may
elect to purchase the Aircraft for the greater of Termination
Value or its then Fair Market Sales Value. Any such Fair
Market Sales Value shall be determined by mutual agreement of
Sublessor and Sublessee within 35 days after delivery of a
Termination Notice or if they shall not agree then pursuant to
the Appraisal Procedure. If Sublessee does not so elect,
Sublessee, acting as agent for Sublessor, shall have the
right, but not the obligation, to sell the Aircraft. Sublessor
shall retain the sales proceeds therefrom, net of all
reasonable, out-of-pocket costs and expenses of sale (other
than any fees, commissions or expenses of any broker retained
by more than one broker per transaction). Sublessee shall pay
(i) an amount equal to the excess, if any, of Termination
Value of the Aircraft as of the Termination Date over the net
sales proceeds and (ii) unpaid Rent due on or before the
Termination Date (other than rent payable in advance on such
Termination Date).
(ii) Sublessee shall give to Sublessor at least one
hundred twenty (120) days revocable advance written notice of
Sublessee's intention to so terminate this Sublease pursuant
to CLAUSE (i) above (any such notice, a "TERMINATION NOTICE")
specifying the Rent Payment Date which must correspond to a
Head Lease Rent Payment Date on which Sublessee intends to
terminate this Sublease in accordance with this SECTION 9
(such specified date, a "TERMINATION DATE") and in the case of
CLAUSE(i)(1) above that Sublessee has determined that the
Aircraft is economically obsolete or surplus to its needs.
(b) OPTIONAL SALE OF THE AIRCRAFT; SUBLESSOR RETENTION
OPTION; REVOCATION OF TERMINATION NOTICE. In the event that Sublessee shall have
exercised its right to terminate this Sublease pursuant to SECTION 9(a)(i)(1),
during the period from the giving of the Termination Notice until the proposed
Termination Date (unless Sublessee shall have revoked the Termination Notice
specifying such proposed Termination Date or Sublessor shall have irrevocably
elected to retain the Aircraft pursuant to this SECTION 9 (b)), Sublessee, as
non-exclusive agent for Sublessor and at no expense to Sublessor, shall use
commercially reasonable efforts to obtain bids for the purchase of the Aircraft
and, in the event it receives any bid, Sublessee shall, within five (5) Business
Days after receipt thereof and at least ten (10) Business Days prior to the
proposed Termination Date, certify to Sublessor in writing the amount and terms
of such bid, and the name and address of the party or parties (who shall not be
Sublessee or any Affiliate of Sublessee or
39
Sublease Agreement
(MSN 30808)
any Sub-sublessee or any other Person with whom Sublessee or any such Affiliate
or any Sub-sublessee has an arrangement or understanding regarding the future
use of the Aircraft by Sublessee or any such Affiliate or any Sub-sublessee but
who may be Sublessor, any Affiliate thereof or any Person contacted by
Sublessor) submitting such bid. Subject to the next succeeding sentence, on or
before the Termination Date, subject to the release of all mortgage and security
interests with respect to the Aircraft under the Trust Indenture: (1) Sublessee
shall deliver the Aircraft, or cause the Aircraft to be delivered, to the
bidder(s), if any, which shall have submitted the highest cash bid therefor at
least ten (10) Business Days prior to such Termination Date, in the same manner
and in the same condition and otherwise in accordance with all the terms of this
Sublease as if delivery were made to Sublessor pursuant to SECTION 5, and shall
duly transfer to Head Lessor title to any engines on the Airframe and not owned
by Head Lessor all in accordance with the terms of SECTION 5, (2) Sublessor
shall or shall cause Head Lessor to sell in accordance with the provisions of
SECTION 9(c) hereof, subject to prior or concurrent payment by Sublessee of all
amounts due under CLAUSE (3) of this sentence, all of Head Lessor's (if the Head
Lease is then in effect) or Sublessor's right, title and interest in and to the
Aircraft for cash in Dollars to such bidder(s), the total sales price realized
at such sale to be retained by Head Lessor or by Sublessor (if the Head Lease is
no longer in effect) and (3) Sublessee shall simultaneously pay or cause to be
paid to Head Lessor or to Sublessor (if the Head Lease is no longer in effect)
in funds of the type specified in SECTION 3(e) hereof, an amount equal to the
sum of (A) the excess, if any, of (i) the Termination Value for the Aircraft,
computed as of the Termination Date, over (ii) the sales price of the Aircraft
sold by Head Lessor or by Sublessor (if the Head Lease is no longer in effect)
after deducting the reasonable expenses incurred by Head Lessor, Sublessor, the
Owner Participant or the Indenture Trustee (as the case may be) in connection
with such sale (other than any fees, commissions or expenses of any broker
retained by more than one broker per transaction) (B) all unpaid Basic Rent with
respect to the Aircraft due prior to (but not on) such Termination Date and (C)
all Supplemental Rent due by Sublessee under this Sublease or the other
Operative Documents, if any, payable in connection with a prepayment of the
Equipment Notes, and upon such payment Sublessor (if the Head Lease is no longer
in effect) simultaneously will transfer or cause Head Lessor (if the Head Lease
is in effect) to transfer to Sublessee, in accordance with the provisions of
SECTION 9(c), all of Head Lessor's or Sublessor's (if the Head Lease is no
longer in effect) right, title and interest in and to any Engines constituting
part of the Aircraft which were not sold with the Aircraft. Notwithstanding the
preceding sentence, Head Lessor or Sublessor (if the Head Lease is no longer in
effect) may, elect to retain title to the Aircraft unless Sublessee shall have
revoked the Termination Notice or shall have accepted a bid for the Aircraft
prior to Sublessee's receipt of notice of Lessor's election. If Head Lessor or
if Sublessor (if the Head Lease is no longer in effect) so elects, Head Lessor
or Sublessor (if the Head Lease is no longer in effect) shall give to Sublessee
written notice of such election within thirty (30) days of its receipt of a
Termination Notice accompanied by an irrevocable undertaking by the Owner
Participant to make available to Head Lessor or if the Head Lease is not in
effect, by the Sublessor to provide for payment to the Indenture Trustee on the
Termination Date
40
Sublease Agreement
(MSN 30808)
the amount required to pay in full the unpaid principal amount of the Equipment
Notes outstanding on the Termination Date plus interest accrued thereon through
the Termination Date. Upon receipt of notice of such an election by Head Lessor
or Sublessor (if the Head Lease is no longer in effect) and the accompanying
undertaking by the Owner Participant (or Sublessor if the Head Lease is not in
effect), Sublessee shall cease its efforts to obtain bids as provided above and
shall reject all bids theretofore or thereafter received. On the Termination
Date, Head Lessor or Sublessor (if the Head Lease is no longer in effect) shall
(subject to the payment by Sublessee of all Rent due on or prior to such date)
pay in full the unpaid principal amount of the Equipment Notes outstanding on
the Termination Date plus interest accrued thereon through the Termination Date
due on the Equipment Notes, and, so long as the Equipment Notes are paid as
aforesaid, Sublessee shall deliver the Airframe and Engines or engines to Head
Lessor or Sublessor (if the Head Lease is no longer in effect) in accordance
with SECTION 5 and shall pay all Basic Rent due prior to the Termination Date
and all Supplemental Rent due on or prior to the Termination Date. If no sale
shall have occurred on the Termination Date, Head Lessor or Sublessor (if the
Head Lease is no longer in effect) may, but shall not be obligated to, elect to
retain title to the Aircraft and terminate the Sublease, in which case (1) Head
Lessor or Sublessor (if the Head Lease is no longer in effect) shall pay to the
Indenture Trustee the amount required to pay in full the unpaid principal amount
of the Equipment Notes outstanding on the Termination Date plus interest accrued
thereon through the Termination Date and, to the extent not paid by Sublessee in
accordance with the following CLAUSE (2), the Breakage Amount, if any, due on
the Equipment Notes and (2) Sublessee shall pay all Basic Rent due prior to the
Termination Date and all Supplemental Rent. At such time as all of the payments
described in the preceding sentence shall have been made, this Sublease shall
terminate and Sublessee shall deliver the Aircraft to Head Lessor or Sublessor
(if the Head Lease is no longer in effect) in accordance with SECTION 5 thereof.
If no sale shall have occurred on the Termination Date and Head Lessor or
Sublessor (if the Head Lease is no longer in effect) has not made the payments
contemplated by either of the preceding two sentences and thereby caused this
Sublease to terminate, this Sublease shall continue in full force and effect as
to the Aircraft, Sublessee shall pay the costs and expenses incurred by each
Participant, Head Lessor, Sublessor and the Indenture Trustee (unless such
failure to terminate the Sublease is a consequence of the failure of Sublessor
without due cause to make, or cause to be made, the payments referred to in the
immediately preceding sentence in which case Sublessor shall be responsible for
direct damages), if any in connection with the preparation for such sale other
than any fees, commissions or expenses of any broker retained by Owner
Participant, Head Lessor or Sublessor. In the event of any such sale or such
retention of the Aircraft by Head Lessor or Sublessor (if the Head Lease is no
longer in effect) and upon compliance by Sublessee with the provisions of this
paragraph, the obligation of Sublessee to pay Basic Rent or any other amounts
hereunder shall cease to accrue and this Sublease shall terminate. The Owner
Participant and Head Lessor or Sublessor (if the Head Lease is no longer in
effect) may solicit cash bids on their own behalf, inquire into the efforts of
Sublessee to obtain bids or otherwise act in connection with any such sale other
than to transfer (in accordance with
41
Sublease Agreement
(MSN 30808)
the foregoing provisions) to the purchaser named in the highest cash bid
certified by Sublessee to Head Lessor or Sublessor (if the Head Lease is no
longer in effect) all of Head Lessor's or Sublessor's (if the Head Lease is no
longer in effect) right, title and interest in the Aircraft, against receipt of
the payments provided herein. Sublessee may revoke a Termination Notice
delivered under SECTION 9(a) no more than four (4) times during the Term.
(c) If Sublessor shall be required to transfer title to the
Aircraft, Airframe or any Engine to Sublessee or any other Person pursuant to
this Sublease or cause such title to be transferred, then (a) Sublessor shall or
shall cause (1) the transfer to Sublessee or such other Person, as the case may
be, of all of Head Lessor's (if the Head Lease is then in effect) and
Sublessor's right, title and interest in and to the Aircraft, Airframe or such
Engine, as the case may be, free and clear of all Sublessor Liens and Lessor
Liens, (2) so long as the Lien of the Trust Indenture has not been discharged,
comply with the terms of the Trust Indenture, or cause such terms to be complied
with, relating to the release of the Aircraft, Airframe or such Engine, (3)
assign to Sublessee or such other Person, as the case may be, if and to the
extent permitted, all warranties of the Manufacturer and Engine Manufacturer
with respect to the Airframe, Aircraft or Engine, and (4) assign to Sublessee,
if and to the extent permitted, all claims, if any, for damage to the Aircraft,
Airframe or such Engine, in each case free of Sublessor Liens and Lessor Liens
without recourse or warranty of any kind whatsoever (except as to the transfer
described in clause (1) above and as to the absence of such Liens, Sublessor
Liens or Lessor Liens, as aforesaid), and (b) Sublessor shall deliver, or shall
cause prompt delivery of, a ▇▇▇▇ of sale, to Sublessee or such other Person, as
the case may be, evidencing such transfer on an as-is where-is basis and
conveying right, title and interest no less than that transferred to Head Lessor
by Seller, without recourse, representation or warranty (except as to the
absence of Sublessor Liens or Lessor Liens or the Lien of the Indenture) and in
form and substance reasonably satisfactory to Sublessee or such other Person, as
the case may be.
(d) Termination as to Engines; Replacement. Sublessee shall
have the right at its option at any time during the Term, on at least thirty
(30) days prior written notice, to terminate this Sublease with respect to any
Engine. In such event, and prior to the date of such termination, Sublessee
shall replace such Engine hereunder by complying with the terms of SECTION 10(b)
to the same extent as if a Sublease Event of Loss had occurred with respect to
such Engine, and Sublessor shall transfer such right, title and interest as it
may have to the replaced Engine as provided in SECTION 5(c). No termination of
this Sublease with respect to any Engine as contemplated by this SECTION 9(d)
shall result in any reduction of Basic Rent.
SECTION 10. LOSS, DESTRUCTION, REQUISITION, ETC.
(a) SUBLEASE EVENT OF LOSS WITH RESPECT TO THE AIRCRAFT. Upon
the occurrence of a Sublease Event of Loss with respect to the Airframe or the
Airframe
42
Sublease Agreement
(MSN 30808)
and the Engines and/or engines then installed thereon, Sublessee shall forthwith
(and in any event, within fifteen (15) days after such occurrence) give
Sublessor written notice of such Sublease Event of Loss, and, within sixty (60)
days after such Sublease Event of Loss, Sublessee shall give Sublessor written
notice of its election to perform one of the following options (it being agreed
that if Sublessee shall not have given such notice of election within such
period, Sublessee shall be deemed to have elected the option set forth in CLAUSE
(i) below). Sublessee may elect either to:
(i) make the payments specified in this CLAUSE (i), in
which event not later than the earlier of (x) the Business Day
next succeeding the one hundred eightieth (180th) day
following the occurrence of such Sublease Event of Loss, (y)
the tenth (10th) day (or, if such day is not a Business Day,
the next succeeding Business Day) after receipt of insurance
proceeds in respect of such Sublease Event of Loss; PROVIDED
that in no event shall payment be required under this CLAUSE
(i)(y) prior to the sixtieth (60th) day following the
occurrence of such Sublease Event of Loss or if Sublessee
exercises the option to substitute provided in CLAUSE (ii)
below (except as provided in the proviso contained in said
CLAUSE (ii)) or (z) an earlier Business Day irrevocably
specified fifteen (15) days in advance by notice from
Sublessee to Sublessor (the "LOSS PAYMENT DATE"), Sublessee
shall pay or cause to be paid to Sublessor in funds of the
type specified in SECTION 3(e) hereof, an amount equal to the
Termination Value of the Aircraft corresponding to the
Termination Value Date occurring on or immediately following
the Loss Payment Date (the "DETERMINATION DATE") together
with all other amounts that then may be due hereunder
including, without limitation, all Supplemental Rent, under
the other Operative Documents (including, without limitation
the Sublease Tax Indemnity Agreement); PROVIDED that in any
instance in which the applicable Loss Payment Date shall occur
after the final day of the Term, the Determination Date shall
be the last Termination Value Date in the Term, and the
Termination Value shall be reduced by any amount of Basic Rent
due on the Determination Date that has actually been paid; or
(ii) so long as no Sublease Event of Default has
occurred and is continuing, substitute an aircraft or an
airframe or an airframe and one or more engines, as the case
may be; PROVIDED THAT, if Sublessee does not perform its
obligation to effect such substitution in accordance with this
SECTION 10(a), during the period of time provided herein, then
Sublessee shall pay or cause to be paid to Sublessor, on the
Business Day next succeeding the one hundred twentieth (120th)
day following the occurrence of
43
Sublease Agreement
(MSN 30808)
such Sublease Event of Loss the amount specified in
CLAUSE (i) above.
At such time as Sublessor shall have received the amounts specified
in CLAUSE (i) above and all other amounts due under the Operative Documents, (1)
the obligation of Sublessee to pay the installments of Basic Rent shall cease to
accrue, (2) this Sublease shall terminate, (3) Sublessor will transfer or cause
to be transferred, at the sole cost and expense of Sublessee, to or at the
direction of Sublessee, in accordance with the provisions of SECTION 9(c)
hereof, all of Head Lessor's (if the Head Lease is then in effect) or
Sublessor's (if the Head Lease is no longer in effect) right, title and interest
in and to the Airframe and any Engines subject to such Sublease Event of Loss,
as well as any Engines not subject to such Sublease Event of Loss, and furnish
to or at the direction of Sublessee a ▇▇▇▇ of sale to transfer "as is, where is,
with all faults" all of Head Lessor's (if the Head Lease is then in effect) or
Sublessor's (if the Head Lease is no longer in effect) right, title and interest
therein without recourse, representation or warranty (except as to the absence
of Lessor Liens, Sublessor Liens or Indenture Trustee Liens attributable to such
Person), evidencing such transfer and (4) Sublessee will be subrogated to all
claims of Head Lessor (if the Head Lease is then in effect) or Sublessor (if the
Head Lease is no longer in effect), if any, against third parties, for damage to
or loss of the Airframe and any Engines which were subject to such Sublease
Event of Loss to the extent of the then insured value of the Aircraft.
In the event Sublessee shall elect to substitute an aircraft (or an
airframe or an airframe and one or more engines, as the case may be) (I)
Sublessee shall, at its sole expense, not later than the Business Day next
succeeding the 120th day following the occurrence of such Sublease Event of
Loss, (A) convey or cause to be conveyed to Head Lessor (if the Head Lease is
then in effect) or to Sublessor (if the Head Lease is no longer in effect) and
to be subjected to the Indenture Lien (if the Indenture has not been
discharged), and to be leased by Sublessee hereunder, an aircraft (or an
airframe or an airframe and one or more engines which, together with the Engines
constituting a part of the Aircraft but not installed thereon at the time of
such Sublease Event of Loss constitute the Aircraft) free and clear of all Liens
(other than Permitted Liens) that is the same model as the Airframe to be
replaced, or an improved model and having a value, utility and remaining useful
life (as evidenced by an appraisal, in form and substance reasonably
satisfactory to Sublessor, prepared by a qualified independent aircraft
appraiser selected by Sublessee and reasonably satisfactory to Sublessor at
Sublessee's expense) at least equal to the Aircraft subject to such Sublease
Event of Loss assuming that the Aircraft had been maintained in accordance with
this Sublease and (B) prior to or at the time of any such substitution,
Sublessee, at its own expense, will (1) furnish Head Lessor (if the Head Lease
is then in effect), Sublessor (if the Head Lease is no longer in effect) and the
Indenture Trustee (if the Lien of the Trust Indenture has not been discharged)
(x) with a ▇▇▇▇ of sale, in form and substance reasonably satisfactory to Head
Lessor, Sublessor and the Indenture Trustee (if the Lien of the Trust Indenture
has not been discharged), evidencing such transfer of title and (y) a Trust
Supplement (if the Trust Indenture is still
44
Sublease Agreement
(MSN 30808)
in effect) subjecting the aircraft (or airframe and/or one or more engines) to
the Lien of the Trust Indenture and upon such receipt, Head Lessor shall execute
such Trust Supplement and deliver it to Sublessee for filing in accordance with
the Trust Indenture, and (z) a favorable legal opinion of applicable aviation
law counsel as to the title of Head Lessor (if the Head Lease is then in effect)
or Sublessor (if the Head Lease is no longer in effect) to the Airframe, and the
first priority and perfected Lien of the Trust Indenture on (if such Lien of the
Trust Indenture has not been discharged), such Aircraft (or Airframe and/or one
or more Engines), (2) cause a Sublease Supplement to be duly executed by
Sublessee and cause any Lease Supplement executed pursuant to the Head Lease and
furnished by Sublessor to Sublessee, the Sublease Supplement and the Trust
Supplement described in CLAUSE (1)(y) above to be filed for recording pursuant
to the Transportation Code, or the applicable laws, rules and regulations of any
other jurisdiction in which the Airframe may then be registered as permitted by
SECTION 7 hereof, (3) cause a financing statement or statements with respect to
such substituted property to be filed in such place or places as are reasonably
deemed necessary by Head Lessor, the Sublessor and the Indenture Trustee (if the
Lien of the Trust Indenture has not been discharged) to perfect their respective
interest therein and herein, and (4) furnish Head Lessor, the Sublessor and the
Indenture Trustee (if the Lien of Trust Indenture has not been discharged) with
such evidence of compliance with the insurance provisions of SECTION 11 with
respect to such substituted property as Head Lessor, the Sublessor and the
Indenture Trustee (if the Lien of the Trust Indenture has not been discharged)
may reasonably request, and (5) furnish Sublessor with an opinion of counsel
from counsel chosen by Sublessee and reasonably acceptable to Sublessor, which
is in form and substance satisfactory to Sublessor to the effect that Sublessor
will be entitled to the benefits of SECTION 1110 of the U.S. Bankruptcy Code
with respect to the substitute aircraft; PROVIDED that such opinion need not be
delivered if immediately prior to such replacement the benefits of SECTION 1110
of the Bankruptcy Code were not, solely by reason of a change in law or court
interpretation thereof, available to Sublessor and (II) Sublessor will cause (A)
Head Lessor to simultaneously comply with the terms of the Trust Indenture to
obtain release of the Lien of the Trust Indenture and to transfer to Sublessee,
in accordance with the provisions of SECTION 9(c) hereof, all of Head Lessor's,
Sublessor's and the Indenture Trustee's (if the Lien of the Trust Indenture has
not been discharged) right, title and interest, if any, in and to the Aircraft
or the Airframe and one or more Engines, as the case may be, with respect to
which such Sublease Event of Loss occurred, (B) Sublessee to be subrogated to
all claims of Head Lessor, Sublessor and the Indenture Trustee (if the Indenture
has not been discharged), if any, against third parties for damage to or loss of
the Airframe and any Engine which were subject to such Sublease Event of Loss to
the extent of the then insured value of the Aircraft. For all purposes hereof
and of the other Operative Documents, the property so substituted shall after
such transfer be deemed part of the property leased hereunder and shall be
deemed an "Aircraft", "Airframe" and "Engine", as the case may be, as defined in
ANNEX A. No Sublease Event of Loss with respect to the Airframe or the Airframe
and the Engines or engines then installed thereon for which substitution has
been elected pursuant to SECTION 10(a)(ii) hereof shall result in any suspension
or reduction in Basic Rent.
45
Sublease Agreement
(MSN 30808)
(b) SUBLEASE EVENT OF LOSS WITH RESPECT TO AN ENGINE. Upon the
occurrence of a Sublease Event of Loss with respect to an Engine under
circumstances in which there has not occurred a Sublease Event of Loss with
respect to the Airframe, (I) Sublessee shall forthwith (and in any event, within
fifteen days after such occurrence) give Sublessor written notice thereof and
shall, within ninety (90) days after the occurrence of such Sublease Event of
Loss, convey or cause to be conveyed to Head Lessor or Sublessor (if the Head
Lease is no longer in effect), as replacement for the Engine with respect to
which such Sublease Event of Loss occurred, title to an Acceptable Alternate
Engine. Prior to or at the time of any such conveyance, Sublessee, at its own
expense, will (i) furnish Head Lessor (if the Head Lease is in affect), the
Sublessor (if the Head Lease is no longer in effect) and the Indenture Trustee
(if the Indenture has not been discharged) with (x) a ▇▇▇▇ of sale and a
representation as to title by Sublessee, in form and substance reasonably
satisfactory to Head Lessor, the Sublessor and the Indenture Trustee (if the
Indenture has not been discharged), with respect to such Acceptable Alternate
Engine and (y) a Trust Supplement subjecting the Acceptable Alternate Engine to
the Lien of the Indenture (if the Indenture has not been discharged) and upon
such receipt, Head Lessor shall execute such Trust Supplement and deliver it to
Sublessee for filing, (ii) cause a Sublease Supplement to be duly executed by
Sublessee and cause any Lease Supplement executed pursuant to the Head Lease and
furnished by Sublessor to Sublessee, the Sublease Supplement and the Trust
Supplement in CLAUSE (1)(y) described above to be filed for recording pursuant
to the Transportation Code, or the applicable laws, rules and regulations of any
other jurisdiction in which the Airframe may then be registered as permitted by
SECTION 7 hereof, (iii) furnish Head Lessor (if the Head Lease is in affect),
the Sublessor and the Indenture Trustee (if the Indenture has not been
discharged) with such evidence of compliance with the insurance provisions of
SECTION 11 hereof with respect to such replacement engine as Head Lessor,
Sublessor and the Indenture Trustee (if the Indenture has not been discharged)
may reasonably request and (II) Sublessor will cause Head Lessor to comply with
the terms of the Trust Indenture and obtain release of the Lien of the Trust
Indenture and transfer to or at the direction of Sublessee in accordance with
the provisions of SECTION 9(c) hereof all of Head Lessor's right, title and
interest, if any, in and to (A) the Engine with respect to which such Sublease
Event of Loss occurred and (B) all claims, if any, against third parties,
for damage to or loss of the Engine subject to such Sublease Event of Loss, and
such Engine shall thereupon cease to be the Engine leased under the Head Lease
and subleased hereunder. For all purposes hereof and of the other Operative
Documents, each such replacement engine shall, after such conveyance, be deemed
part of the property subleased hereunder, and shall be deemed an "Engine". No
Sublease Event of Loss with respect to an Engine under the circumstances
contemplated by the terms of this paragraph (b) shall result in any suspension
or reduction in Basic Rent.
(c) APPLICATION OF PAYMENTS FROM GOVERNMENTAL AUTHORITIES FOR
REQUISITION OF TITLE, ETC. Any payments (other than insurance proceeds the
application of which is provided for in SECTION 11) received at any time by
Sublessor or
46
Sublease Agreement
(MSN 30808)
by Sublessee from any governmental authority or other Person with respect to a
Sublease Event of Loss will be applied as follows:
(i) if payments are received with respect to the
Airframe (or the Airframe and any Engine or engines then
installed thereon), (A) unless the same are replaced pursuant
to the last paragraph of SECTION 10(a), so much of such
payments remaining as shall not exceed the Termination Value
required to be paid by Sublessee to Sublessor pursuant to
SECTION 10(a), shall be applied in reduction of Sublessee's
obligation to pay the Termination Value as specified in
SECTION 10(a)(i), if not already paid by Sublessee, or, if
already paid by Sublessee to Sublessor, shall be applied to
reimburse Sublessee for its payment of the Termination Value
as specified in SECTION 10(a)(i), and following the foregoing
application, the balance, if any, of such payments will be
divided between Sublessor and Sublessee to compensate
Sublessor for its loss of its Sublessor's residual interest in
the Aircraft, and to compensate Sublessee for its loss of its
leasehold interest in the Aircraft; or (B) if such property is
replaced pursuant to the last paragraph of SECTION 10(a),
such payments shall be retained by Sublessor or paid as
Sublessor shall otherwise direct, and upon completion of such
replacement procedure turned over to Sublessee to pay for the
replacement; and
(ii) if such payments are received with respect to an
Engine under circumstances contemplated by SECTION 10(b)
hereof, so much of such payments for reasonable costs and
expenses shall be paid over to, or retained by, Sublessee.
(d) REQUISITION FOR USE OF THE AIRCRAFT BY THE UNITED
GOVERNMENT OR THE GOVERNMENT OF REGISTRY OF THE AIRCRAFT. In the event of the
requisition for use of the Airframe and the Engines or engines installed on the
Airframe during the Term by the United States Government or any other
government of registry of the Aircraft or any instrumentality or agency of any
thereof which does not constitute a Sublease Event of Loss, Sublessee shall
promptly notify Head Lessor, Sublessor and the Indenture Trustee (if the
Indenture has not been discharged) of such requisition, and all of Sublessee's
obligations under this Sublease with respect to the Aircraft shall continue to
the same extent as if such requisition had not occurred (except to the extent
that any failure or delay in repairing or maintaining the Aircraft shall have
been caused directly by such requisition). If, in the event of any such
requisition, Sublessee shall fail to return the Aircraft on or before the one
hundred eightieth (180th) day beyond the end of the Term, such failure shall
constitute a Sublease Event of Loss which shall be deemed to have occurred on
the last day of the Term and in such event Sublessee shall make the payment
contemplated by SECTION 10(a)(i) in respect of such Sublease Event of Loss;
provided,
47
Sublease Agreement
(MSN 30808)
however, that Sublessor may notify Sublessee in writing on or before the 30th
day prior to the last day of the Term that, in the event Sublessee shall fail by
reason of such requisition to return the Airframe and Engines or engines on or
before the end of the Term, such failure shall not be deemed an Event of Loss.
Upon the giving of such notice by Sublessor and such failure to return by the
end of the Term, Sublessee shall be relieved of all of its obligations pursuant
to the provisions of SECTION 5 (including the provisions of ANNEX B hereto), but
not under any other Section, except that if any engine not owned by Head Lessor
shall then be installed on the Airframe, Sublessee will, at no cost to
Sublessor, furnish or cause to be furnished to Head Lessor a full warranty (as
to title) ▇▇▇▇ of sale with respect to each such engine in form and substance
reasonably satisfactory to Head Lessor (together with an opinion of counsel,
which counsel and such opinion shall be reasonably satisfactory in form and
substance to Head Lessor) (it being agreed that Sublessee's General Counsel is
acceptable to Head Lessor and Sublessor) to the effect that such full warranty
▇▇▇▇ of sale has been duly authorized and delivered and is enforceable in
accordance with its terms and that such engines are free and clear of liens
other than Lessors Liens attributable to the Owner Participant or the Owner
Trustee), against receipt from Head Lessor of a ▇▇▇▇ of sale evidencing the
transfer, by Head Lessor to Sublessee or its designee of all of Head Lessor's
right, title and interest in and to any Engine constituting part of the
Aircraft, but not then installed on the Airframe in accordance with the
provisions of SECTION 9(c). All payments received by Sublessor or Sublessee from
such government for the use of such Airframe and Engines or engines during the
Term shall be paid over to, or retained by, Sublessee; and all payments received
by Sublessor or Sublessee from such government for the use of such Airframe and
Engines or engines after the end of the Term shall be paid over to, or retained
by, Sublessor unless Sublessee shall have exercised its purchase option
hereunder and paid in full the purchase price for the Aircraft in connection
therewith on or before the date required herein, or Sublessor has notified
Sublessee that failure to return the Airframe and Engines is not considered a
Sublease Event of Loss in which case such payments shall be made to Sublessee.
(e) REQUISITION FOR USE OF AN ENGINE BY THE UNITED STATES
GOVERNMENT OR THE GOVERNMENT OF REGISTRY OF THE AIRCRAFT. In the event of the
requisition for use of an Engine by the United States Government or any other
government of registry of the Aircraft or any agency or instrumentality of any
thereof (other than in the circumstances contemplated by PARAGRAPH (d)),
Sublessee shall replace such Engine hereunder by complying with the terms of
SECTION 10(b) to the same extent as if an Sublease Event of Loss had occurred
with respect thereto, and, upon compliance with SECTION 10(b) hereof, any
payments received by Sublessor or Sublessee from such government with respect to
such requisition shall be paid over to, or retained by, Sublessee.
(f) APPLICATION OF PAYMENTS DURING EXISTENCE OF SUBLEASE EVENT
OF DEFAULT. Any amount referred to in this SECTION 10 which is payable to or
retainable by Sublessee shall not be paid to or retained by Sublessee if at the
time of such
48
Sublease Agreement
(MSN 30808)
payment or retention default under SECTION 14(a), (b), (e), or (f) or a Sublease
Event of Default has occurred and is continuing, but shall be held by or paid
over to Sublessor as security for the obligations of Sublessee under this
Sublease and, applied against Sublessee's obligations hereunder as and when due.
At such time as there shall not be continuing any such default under SECTION
14(a), (b), (e), or (f) or a Sublease Event of Default, such amount shall be
paid to Sublessee to the extent not previously applied in accordance with the
preceding sentence.
SECTION 11. INSURANCE.
(a) SUBLESSEE'S OBLIGATION TO INSURE. Sublessee shall comply
with, or cause to be complied with, each of the provisions of ANNEX B, which
provisions are hereby incorporated by this reference as if set forth in full
herein.
(b) INSURANCE FOR OWN ACCOUNT. Nothing in this SECTION 11
shall limit or prohibit (i) Sublessee (or any Sub-sublessee) from maintaining
the policies of insurance required under ANNEX B with higher limits than those
specified in ANNEX B (and any proceeds greater than those specified in ANNEX B
shall be payable to Sublessee, as provided in the policy relating thereto), or
(ii) Sublessor from obtaining insurance for its own account (and any proceeds
payable under such separate insurance shall be payable as provided in the policy
relating thereto); provided, however, that no insurance may be obtained or
maintained that would limit or otherwise adversely affect the coverage of any
insurance required to be obtained or maintained by Sublessee pursuant to this
SECTION 11 and ANNEX B.
(c) INDEMNIFICATION BY GOVERNMENT IN LIEU OF INSURANCE.
Sublessor agrees to accept, in lieu of insurance against any risk with respect
to the Aircraft described in ANNEX B, indemnification from, or insurance
provided by, the U.S. Government, or upon the written consent of Sublessor,
other Government Entity, against such risk in an amount that, when added to the
amount of insurance (including permitted self-insurance), if any, against such
risk that Sublessee (or any Sub-sublessee) may continue to maintain, in
accordance with this SECTION 11 shall be at least equal to the amount and terms
of insurance against such risk otherwise required by this SECTION 11.
(d) APPLICATION OF INSURANCE PROCEEDS. As between Sublessor
and Sublessee, all insurance proceeds received as a result of the occurrence of
a Sublease Event of Loss with respect to the Aircraft or any Engine under
policies required to be maintained (or caused to be maintained) by Sublessee
pursuant to this SECTION 11 will be applied in accordance with SECTION B(1)(d)
of ANNEX B. All proceeds of insurance required to be maintained (or caused to be
maintained) by Lessee, in accordance with this SECTION 11 and SECTION B of ANNEX
B, in respect of any property damage or loss not constituting a Sublease Event
of Loss with respect to the Aircraft, Airframe or any Engine will be applied in
accordance with SECTION B(1)(c) of ANNEX B.
49
Sublease Agreement
(MSN 30808)
SECTION 12. INSPECTION. At all reasonable times and upon at least fifteen
(15) days prior written notice to Sublessee, Head Lessor, Sublessor, the Owner
Participant or the Indenture Trustee (if the indenture has not been discharged),
or their respective authorized representatives, may inspect the Aircraft and
inspect and make copies of the books and records of Sublessee (and any
Sub-sublessee) required to be maintained by the FAA or the regulatory agency or
body of another jurisdiction in which the Aircraft is then registered and
pursuant to which it is maintained relating to the maintenance of the Aircraft
(at Head Lessor's, Sublessor's, the Owner Participant's or the Indenture
Trustee's risk and expense, as the case may be, unless a Sublease Event of
Default has occurred and is continuing in which case Sublessee shall be
responsible for the reasonable out-of-pocket cost of such inspection by any
Sublessor or Participant's representatives, and shall keep any information or
copies obtained thereby confidential and shall not disclose the same to any
Person, except (A) to Head Lessor and Sublessor and to prospective and permitted
transferees of Head Lessor's, Sublessor's, the Owner Participant's or the
Indenture Trustee's interest, who agree to hold such information confidential or
are otherwise under a legally enforceable duty of confidentiality (and such
prospective and permitted transferee's counsel, independent insurance advisors
or other agents), (B) to the Head Lessor's, Sublessor's, the Owner Participant's
or the Indenture Trustee's counsel, independent insurance advisors or other
agents who agree to hold such information confidential or are otherwise under a
legally enforceable duty of confidentiality, or (C) to banking and other
regulatory or governmental supervisory personnel as may be required by any
statute, court or administrative order or decree or governmental ruling or
regulation; PROVIDED, HOWEVER, that any and all disclosures permitted by CLAUSE
(C) above shall be made only to the extent necessary to meet the specific
requirements or needs of the Persons for whom such disclosures are hereby
permitted. Any such inspection of the Aircraft shall be subject to safety and
security rules of Sublessee (and any Sub-sublessee) applicable to the location
of the Aircraft and, shall be limited to a visual, walk-around inspection and
shall not include the opening any panels, bays or other components of the
Aircraft (although those otherwise open may be inspected) without the express
consent of Sublessee, which consent Sublessee may in its sole discretion
withhold; provided that unless a Sublease Event of Default has occurred and is
continuing, no exercise of such inspection right shall interfere with
Sublessee's or any Sub sublessee's maintenance and operation of the Aircraft,
the Airframe and the Engines. Upon receipt by Sublessee of a written request
from any such Participant or Sublessor specifying that any such Participant or
Sublessor desires to have authorized representative(s) observe the next
scheduled heavy maintenance visit to be performed on the Aircraft during the
Term, Sublessee shall cooperate with any such Participant or Sublessor to enable
any such Participant's representative(s) to observe such scheduled maintenance
to be performed on the Aircraft during the Term; PROVIDED that any such
Participant's or Sublessor's authorized representative(s) shall merely observe
such scheduled heavy maintenance visit, shall not interfere with or extend in
any manner the normal conduct or duration of the scheduled heavy maintenance
visit, and shall not be entitled to direct any of the work performed in
connection with such scheduled heavy maintenance visit. Upon my Participant's or
Sublessor's request made not more than
50
Sublease Agreement
(MSN 30808)
two (2) times in a calendar year, Sublessee will make available to such
Participant or Sublessor, information as to the status of the cycles and hours
of operation of the Airframe and Engines and the status of the life-limited
components of the Engines. No Participant, Sublessor nor the Indenture Trustee
shall have any duty to make any such inspection nor shall either of them incur
any liability or obligation by reason of not making such inspection. Except
during the final six (6) months of the Term or during the continuance of a
Sublease Event of Default under this Sublease, all inspections by such
Participant and its authorized representatives, Sublessor and its authorized
representatives or the Indenture Trustee and its authorized representatives
provided for under this SECTION 12 shall, in regard to each Participant, the
Sublessor and the Indenture Trustee, be limited to one (1) inspection of any
kind contemplated by this SECTION 12 during any calendar year and no exercise of
such inspection right shall interfere with Sublessee's or Sub-sublessee's
maintenance and operation of the Aircraft. During the last three (3) months of
the Term (unless Sublessee shall have elected to purchase the Aircraft or renew
this Sublease in accordance with the terms of this Sublease), with reasonable
notice, Sublessee will cooperate and cause any Sub-sublessee to cooperate, at
Head Lessor's sole cost (unless a Sublease Event of Default shall have occurred
and be continuing, in which case Sublessee shall be responsible for such costs),
in all reasonable respects with the efforts of Head Lessor or Sublessor, as the
case may be, to sell or lease the Aircraft including, without limitation,
permitting prospective purchasers or lessees to inspect the Aircraft, any
maintenance records relating to the Aircraft then required to be retained by the
FAA or by the comparable agency or administration of the government of registry
and which establishes the maintenance standards of the Aircraft, all in
accordance with the provisions set forth above; PROVIDED that any such
cooperation shall not unreasonably interfere with the normal operation or
maintenance of the Aircraft by Sublessee.
SECTION 13. ASSIGNMENT. (a) Except as provided in SECTION 7 hereof
Sublessee will not, without the prior written consent of Sublessor, assign in
whole or in part any of its rights or obligations hereunder. Sublessor agrees
that it will not assign or convey its right, title and interest in and to this
Sublease or the Aircraft except as provided herein. Subject to the foregoing,
the terms and provisions of this Sublease shall be binding upon and inure to the
benefit of Sublessor and Sublessee and their respective successors and permitted
assigns.
(b) During the Term, Sublessor shall not Transfer any or all
of its right, title or interest in the Aircraft, the Head Lease and this
Sublease unless such Transfer is a Transfer of the entire interest held by
Sublessor, and:
(i) The Transferee shall have full power, authority and
legal right to execute and deliver and to perform the
obligations of Sublessor, under the Operative Documents, Head
Lease and the Head Lease Documents, as the case may be, and
Sublessor shall provide or cause to be provided reasonably
satisfactory evidence of such power and authority to
Sublessee;
51
Sublease Agreement
(MSN 30808)
(ii) The Transferee shall enter into an assignment and
assumption agreement in form and substance reasonably
satisfactory to Sublessee;
(iii) Sublessee shall not be obligated to pay any
greater amount or incur any greater obligation than that which
it would have been obliged to pay or incur under this Sublease
or the other Operative Agreements if no transfer or assignment
had taken place, and the terms and conditions of this Sublease
and the other Operative Agreements insofar as they relate to
the rights and obligations of Sublessee shall not be altered;
(iv) Sublessor shall deliver or cause to be delivered to
Sublessee, an opinion of counsel (in form and substance
reasonably satisfactory to Sublessee) to the effect that such
agreement or agreements referred to in paragraphs (a)(ii) and,
if applicable, (a)(vi) hereof are legal, binding and
enforceable in accordance with its or their terms and that
such transfer will not violate the Act, the registration
provisions of the Securities Act of 1933, as amended, or any
other applicable Federal law;
(v) The Transferee is a Citizen of the United States (it
being understood that the existence of any such requirement is
to be determined without giving consideration to section 47.9
of the FAA Regulations or any other provision that may
restrict Sublessee's use or operation of the Aircraft), or
shall use a voting powers trust or similar arrangement in
order to hold an interest in the Aircraft, the Head Lease
and/or this Sublease such that the Aircraft can be registered
in the United States (without giving consideration to Section
47.9 of the FAA Regulations); and
(vi) The Transferee shall be a single entity and shall
be either (A) a Qualifying Institution or (B) any other entity
(other than, without Sublessee's consent, a commercial air
carrier, a commercial aircraft operator, a freight forwarder
or an Affiliate of any of the foregoing) the obligations of
which are guaranteed by a Qualifying Institution in any case,
pursuant to a written guaranty, in form and substance
reasonably satisfactory to Sublessee.
(c) Sublessor shall give written notice to Sublessee at least
10 days prior to any such Transfer, specifying the name and address of the
proposed Transferee, and providing financial statements of the proposed
Transferee evidencing satisfaction of the requirements described in paragraph
(a)(vi)(A) or (B) above.
52
Sublease Agreement
(MSN 30808)
(d) Any fees, charges and expenses, including the reasonable
legal fees, charges and expenses incurred by Sublessee, in connection with any
Transfer by Sublessor, permitted by this SECTION 13 will be paid for by
Sublessor.
SECTION 14. SUBLEASE EVENTS OF DEFAULT. Each of the following events shall
constitute a Sublease Event of Default (whether any such event shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) and
each such Sublease Event of Default shall continue so long as, but only as long
as, it shall not have been remedied:
(a) Sublessee shall not have made a payment of (i) Basic Rent
within five (5) Business Days after the same shall have become due or (ii)
Termination Value or EBO Amount, Burdensome Buyout Price within ten (10)
Business Days from the due date; or
(b) Sublessee shall have failed to make a payment of
Supplemental Rent (other than Termination Value or EBO Amount, Burdensome Buyout
Price) after the same shall have become due and such failure shall continue for
thirty (30) days after receipt by both Sublessor and Sublessee of written demand
therefor by the party entitled thereto (provided that any failure to pay any
amount owed by Sublessee under the Sublease Tax Indemnity Agreement shall not
constitute a Sublease Event of Default unless notice is given by the Sublessor
to Sublessee that such failure shall constitute a Sublease Event of Default); or
(c) Sublessee shall have failed to perform or observe (or
caused to be performed and observed) in any material respect any covenant or
agreement (except the covenants set forth in the Sublease Tax Indemnity
Agreement) to be performed or observed by it under any Operative Document, and
such failure shall continue unremedied for a period of forty-five (45) days
after receipt by Sublessee of written notice thereof from Sublessor; provided,
however, that if Sublessee shall have undertaken to cure any such failure and,
notwithstanding the diligence of Sublessee in attempting to cure such failure,
such failure is not cured within said forty-five (45) day period but is curable
with future due diligence, there shall exist no Sublease Event of Default under
this SECTION 14 so long as Sublessee is proceeding with due diligence to cure
such failure and such failure is remedied not later than one year (sixty (60)
days with respect to any failure to comply with the requirements of Section 5 or
Section 13 hereof) after receipt by Sublessee of such written notice; or
(d) any representation or warranty made by Sublessee herein or
by Guarantor in the Parent Guaranty or any document or certificate furnished by
Sublessee or Guarantor in connection herewith or therewith or pursuant hereto or
thereto (except the representations and warranties set forth in the Sublease Tax
Indemnity Agreement and such documents or certificates as are furnished to the
Sublessor solely in
53
Sublease Agreement
(MSN 30808)
connection with matters dealt with in the Sublease Tax Indemnity Agreement or
any document or instrument finished pursuant thereof) shall prove to have been
incorrect in any material respect at the time made, and such incorrectness shall
not have been cured within thirty (30) days after the receipt by Sublessee or
Guarantor, as the case may be, of a written notice from Sublessor advising
Sublessee or Guarantor of the existence of such incorrectness; or
(e) the commencement of an involuntary case or other
proceeding in respect of Sublessee or Guarantor in an involuntary case under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law in the
United States of America or seeking the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of either
Sublessee or Guarantor or for all or any substantial part of its property, or
seeking the winding-up or liquidation of its affairs and the continuation of any
such case or other proceeding undismissed and unstayed for a period of ninety
(90) consecutive days or an order, judgment or decree shall be entered in any
proceeding by any court of competent jurisdiction appointing, without the
consent of Sublessee or Guarantor, s the case may be, a receiver, trustee or
liquidator of Sublessee or Guarantor, or of any substantial part of its
property, or sequestering any substantial part of the property of Sublessee or
Guarantor and any such order, judgment or decree or appointment or sequestration
shall be final or shall remain in force undismissed, unstayed or unvacated for a
period of ninety (90) days after the date of entry thereof; or
(f) the commencement by Sublessee or Guarantor of a voluntary
case under the federal bankruptcy laws, as now constituted or hereafter amended,
or any other applicable federal or state bankruptcy, insolvency or other similar
law in the United States of America, or the consent by Sublessee or Guarantor to
the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of Sublessee or
Guarantor or for any substantial part of its property, or the making by
Sublessee or Guarantor of any assignment for the benefit of creditors, or
Sublessee or Guarantor shall take any corporate action to authorize any of the
foregoing;
(g) Sublessee shall fail to carry and maintain, or cause to be
carried and maintained, insurance (or governmental indemnity in lieu thereof) on
and in respect of the Aircraft, Airframe and Engines in accordance with the
provisions of Section 11, provided that no such lapse or cancellation shall
constitute a Sublease Event of Default until the earlier of (i) thirty (30) days
(or if thirty (30) days is unavailable pursuant to Section D of Annex B, such
shorter period as is available) after receipt by Sublessor of written notice of
such lapse or cancellation or (ii) the date that such lapse or cancellation is
effective as to Sublessor provided, that, with respect to the lapse or
cancellation of War Risk Insurance, no such lapse or cancellation shall
constitute a Sublease Event of Default until the earlier of (x) fourteen (14)
days from any such lapse or cancellation of the War Risk Insurance; and (y) the
commencement of the first flight
54
Sublease Agreement
(MSN 30808)
of the Aircraft after such lapse or cancellation of War Risk Insurance;
provided, further, that no such lapse or cancellation shall constitute a
Sublease Event of Default so long as the Aircraft remains on the ground in the
United States or Canada and not in commercial operation. Notwithstanding
anything in this SECTION 14(g) to the contrary, nothing in this SECTION 14(g)
shall permit or allow Sublessee to operate the Aircraft after the lapse or
cancellation of the War Risk Insurance;
(h) The Parent Guaranty shall fail to be in full force and
effect and enforceable according to its terms; or
(i) Sublessee shall have failed to satisfy the return
requirement provisions of SECTION 5(a) hereof, and such failure shall continue
unremedied for a period of sixty (60) days from the last day of the Basic Term
or any Renewal Term that is then in effect, PROVIDED that if the Aircraft has
been requisitioned by the United States Government or the government of registry
of the Aircraft as provided in SECTION 10(d) hereof, the Sublessee's failure to
comply with its obligations under SECTION 5 hereof due to the Sublessee's
inability to deliver the Aircraft shall not constitute a Sublease Event of
Default hereunder unless such failure shall continue unremedied beyond the
earlier of (A) the one hundred and eightieth (180th) day from the last day of
the Basic Term or any Renewal Term that is then in effect, or (B) the day the
requisition of the Aircraft by the United States Government or the government of
registry of the Aircraft has been terminated (but not earlier than the sixty
(60) day period specified above in this CLAUSE (i).
SECTION 15. REMEDIES. Upon the occurrence of any Sublease Event of Default
and at any time thereafter so long as the same shall be continuing, Sublessor
may, at its option, declare by written notice to Sublessee this Sublease to be
in default (PROVIDED that upon the occurrence of a Sublease Event of Default
under SECTION 14(e) or (f) of this Sublease, this Sublease automatically shall
be in default without the necessity of a declaration) and at anytime thereafter,
so long as any such outstanding Sublease Events of Default shall not have been
remedied, Sublessor may do one or more of the following with respect to all or
any part of the Aircraft, the Airframe and any or all of the Engines as
Sublessor in its sole discretion shall elect, to the extent permitted by, and
subject to compliance with any mandatory requirements of, applicable law then in
effect, PROVIDED, HOWEVER, that during any period the Aircraft is subject to,
and activated under, the Civil Reserve Air Fleet Program in accordance with the
provisions of SECTION 7(b) hereof and in the possession of the United States
Government or an agency or instrumentality of the United States of America,
Sublessor shall not, on account of any Sublease Event of Default, be entitled to
do any of the following in such manner as to limit Sublessee's control under
this Sublease (or any Sub-sublessee's control under any Sub-sublease) of any
Airframe or any Engines installed thereon, unless at least sixty (60) days (or
such lesser period as may then be applicable under the Air Mobility Command
program of the United States Government) prior written notice of default
hereunder shall have been given by Sublessor by registered or certified mail to
Sublessee (and any Sub-sublessee) with a copy addressed to the Contracting
Office Representative for the Air Mobility
55
Sublease Agreement
(MSN 30808)
Command of the United States of America Air Force under any contract with
Sublessee (or any Sub-sublessee) relating to the Aircraft.
(a) upon the written demand of Sublessor and at Sublessee's
expense, cause Sublessee to return promptly, and Sublessee shall return
promptly, all or any part of the Aircraft, the Airframe or any Engine, as
Sublessor may so demand, to Sublessor or its order in the manner and condition
required by, and otherwise in accordance with all the provisions of Section 5 as
if such Aircraft, Airframe or Engine were being returned at the end of the Term,
or Sublessor, at its option, may enter upon the premises where all or any part
of the Aircraft, Airframe or any Engine is located and take immediate possession
of and remove the same by summary proceedings or otherwise (and/or, at
Sublessor's option, store the same at Sublessee's premises until disposal
thereof by Sublessor), all without liability accruing to Sublessor for or by
reason of such entry or taking of possession or removing whether for the
restoration of damage to property caused by such action or otherwise;
(b) with or without taking possession thereof, sell all or any
part of the Aircraft, Airframe and/or any Engine at public or private sale, as
Sublessor may determine, or otherwise dispose of, hold, use, operate, lease to
others or keep idle the Aircraft as Sublessor, in its sole discretion, may
determine, all free and clear of any rights of Sublessee, except as hereinafter
expressly set forth in this SECTION 15;
(c) whether or not Sublessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under PARAGRAPH (a) or
PARAGRAPH (b) above with respect to all or any part of the Aircraft, Airframe
and/or any Engine, Sublessor, by written notice to Sublessee specifying a
payment date which shall be the Termination Value Date not earlier than ten (10)
days from the date of such notice, may demand that Sublessee pay to Sublessor,
and Sublessee shall pay Sublessor, on the payment date so specified (including,
without limitation, any adjustments payable pursuant to SECTION 3 hereof), as
liquidated damages for loss of a bargain and not as a penalty (in lieu of the
installments of Basic Rent for the Aircraft due on Rent Payment Dates occurring
on or after the Termination Value Date specified as the payment date in such
notice), any unpaid Basic Rent or Renewal Rent due on Rent Payment Dates prior
to (but not on) the payment date so specified plus whichever of the following
amounts Sublessor, in its sole discretion, shall specify in such notice
(together with interest, if any, on such amount at the Past Due Rate from such
Termination Value Date until the date of actual payment of such amount): (i) an
amount equal to the excess, if any, of the present value, computed as of the
Termination Value Date specified in such notice, discounted to such Termination
Value Date at a rate per annum equal to LIBOR plus twenty (20) basis points, of
all unpaid Basic Rent (if the Basic Term has not concluded) or, if a Renewal
Term has commenced, of all unpaid Basic Rent during the remaining portion of
such Renewal Term, over the aggregate fair market rental value (computed as
hereafter in this SECTION 15 provided) of such Aircraft for the remainder of the
Basic Term (if the Basic Term has not concluded) or, if a Renewal Term has
commenced, of the aggregate fair
56
Sublease Agreement
(MSN 30808)
market rental value of such Aircraft during the remaining portion of such
Renewal Term, after discounting such aggregate fair market rental value to
present value as of the Termination Value Date specified in such notice at an
annual rate equal to LIBOR plus twenty (20) basis points; or (ii) an amount
equal to the excess, if any, of the Termination Value for such Aircraft,
computed as of the Termination Value Date in such notice over the fair market
sales value of such Aircraft (computed as hereafter in this Section provided) as
of the Termination Value Date in such notice;
(d) in the event Sublessor, pursuant to paragraph (b) above,
shall have sold the Aircraft, Sublessor, in lieu of exercising its rights under
paragraph (c) above with respect to such Aircraft, may, if it shall so elect,
demand that Sublessee pay Sublessor, and Sublessee shall pay to Sublessor, on
the date of such sale, as liquidated damages for loss of a bargain and not as a
penalty (in lieu of the installments of Basic Rent for the Aircraft due on or
after such date), any unpaid Basic Rent or Renewal Rent with respect to the
Aircraft due with respect to the period prior to (but not on) such date
(including, without limitation, any adjustments payable pursuant to Section 3
hereof) plus the amount of any deficiency between the net proceeds of such sale
(after deduction of all costs of sale) and the Termination Value of such
Aircraft, computed as of the Termination Value Date on or immediately following
the date of such sale together with interest, if any, on any overdue Rent and
the amount of such deficiency, at the annual rate equal to LIBOR plus twenty
(20) basis points, from the date of such sale to the date of actual payment of
such amount; and/or
(e) Sublessor may cancel, terminate or rescind this Sublease,
and/or may exercise any other right or remedy which may be available to it under
applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for breach hereof.
For the purposes of paragraph (c) above, the "FAIR MARKET RENTAL
VALUE" or the "FAIR MARKET SALES VALUE" of the Aircraft shall be the rental
value or sales value, as the case may be, which would be obtained in an
arm's-length transaction between an informed and willing lessee or purchaser, as
the case may be, under no compulsion to lease or purchase, as the case may be,
and an informed and willing lessor or seller in possession under no compulsion
to lease, sell, as the case may be, in each case based upon the actual condition
and location and, if located outside of the United States of America, the
ability to take possession of the Aircraft, which value shall be determined by
mutual agreement or, in the absence of mutual written agreement, pursuant to an
appraisal prepared and delivered by a nationally recognized firm of independent
aircraft appraisers nominated by Sublessor, and Sublessor shall immediately
notify Sublessee of such nomination.
In addition, Sublessee shall be liable, except as otherwise provided
above and without duplication of amounts payable hereunder, for any and all
unpaid Rent due hereunder before or during the exercise of any of the foregoing
remedies (other than
57
Sublease Agreement
(MSN 30808)
Basic Rent due on or after the payment referenced in PARAGRAPH (c) OR (d) above
has been made in full) and for all reasonable legal fees and other costs and
expenses (including fees of the appraisers herein above referred to) incurred by
Sublessor, Head Lessor, the Indenture Trustee and each Participant in connection
with the enforcement of any of their respective rights and remedies hereunder
including, without limitation, return of all or part of the Aircraft, Airframe
or any Engine in accordance with the terms of SECTION 5 or in placing such
Aircraft, Airframe or Engine in the condition and airworthiness required by such
Section.
Sublessor or in the case of a public sale, Sublessee at any sale of
the Aircraft or any part thereof pursuant to this SECTION 15, may bid for and
purchase such property. Sublessor agrees to give Sublessee at least ten (10)
days prior written notice of the date fixed for any public sale of the Aircraft,
Airframe or Engine(s) or of the date on or after which will occur the execution
of any contract providing for any private sale provided Sublessor has received
prior notice thereof. Except as otherwise expressly provided above, no remedy
referred to in this SECTION 15 is intended to be exclusive, but each shall be
cumulative and in addition to any other remedy referred to above or otherwise
available to Sublessor at law or in equity; and the exercise or beginning of
exercise by Sublessor of any one or more of such remedies shall not preclude the
simultaneous or later exercise by Sublessor of any or all of such other
remedies. No waiver by Sublessor of any Sublease Event of Default shall in any
way be, or be construed to be, a waiver of any future or subsequent Sublease
Event of Default.
SECTION 16. SUBLESSEE'S COOPERATION CONCERNING CERTAIN MATTERS.
(a) Forthwith upon the execution and delivery of each Sublease
Supplement from time to time required by the terms hereof and upon the execution
and delivery of any amendment to this Sublease, Sublessee will cause such
Sublease Supplement (and, in the case of the initial Sublease Supplement, this
Sublease as well) or amendment or assignment of this Sublease to be duly filed
and recorded, and maintained of record, in accordance with the applicable laws
of the government of registry of the Aircraft. In addition, Sublessee will
promptly and duly execute and deliver to Sublessor such further agreements,
certificates and documents and take such further action as Sublessor may from
time to time request in order more effectively to carry out the intent and
purpose of this Sublease and to establish and protect the rights and remedies
created or intended to be created in favor of Sublessor hereunder, subjecting to
this Sublease, any airframe or engine substituted for the Airframe or any Engine
pursuant to the terms thereof and the recording or filing of counterparts
thereof, in accordance with the laws of such jurisdictions as Sublessor may from
time to time deem advisable. Sublessee agrees to furnish to Sublessor promptly
after execution and delivery of any supplement and amendment hereto, an opinion
of counsel (which may be Sublessee's General Counsel, Deputy General Counsel,
Associate General Counsel or Assistant General Counsel) satisfactory in form and
substance to Sublessor as to the due recording or filing of such supplement or
amendment. Sublessee further agrees to cooperate with any commercially
58
Sublease Agreement
(MSN 30808)
reasonable request, at Sublessor's expense, to enable Sublessor to comply with
its further assurances obligations under the Head Lease Documents; PROVIDED,
HOWEVER, that Sublessee shall not be required to take any action that would
impair its rights or increase its obligation under this Sublease or any other
Operative Documents.
(b) AID IN LEASE OR SALE. The Sublessee agrees that during the
last six months of the Term (and during the Storage Period) it will cooperate in
all reasonable respects with the efforts of the Sublessor to lease the Aircraft
or sell all of its rights and interests therein, including allowing potential
lessees or purchasers to inspect the Aircraft and the records relating thereto;
PROVIDED that any such cooperation shall not materially interfere with the use
of the Aircraft or cause Sublessee to incur out-of-pocket expenses for which it
is not reimbursed.
SECTION 17. NOTICES. All notices required under the terms and provisions
hereof shall be by telecopier or other telecommunication means (with such
telecopy or other telecommunication means to be confirmed in writing), or if
such notice is impracticable, by registered, first-class airmail, with postage
prepaid, or by personal delivery of written notice and any such notice shall
become effective when received, addressed:
(a) if to Sublessee, at Polar Air Cargo, Inc. c/o Atlas Air
Worldwide Holdings, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ Attn:
▇▇▇▇ ▇▇▇▇▇▇▇ (Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇), or to such other addressor telecopy
number as Sublessee shall from time to time designate in writing to Sublessor;
and
(b) if to Sublessor, c/o GE Capital Aviation Services, Inc.,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: Contracts
Leader (Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇), or to such other address or telecopy
number as Sublessor shall from time to time designate in writing to Sublessee.
SECTION 18. NET SUBLEASE; NO SET-OFF, COUNTERCLAIM, ETC. This Sublease is
a net sublease. All Rent shall be paid by Sublessee to Sublessor in funds of the
type specified in SECTION 3(e). Except as expressly provided herein, Sublessee's
obligation to pay all Rent payable hereunder shall be absolute and unconditional
and shall not be affected by any circumstance including, without limitation, (i)
any set-off, counterclaim, recoupment, defense or other right which Sublessee
may have against Sublessor or any other Person for any reason whatsoever, (ii)
any defect in the title, registration, airworthiness, condition, design,
operation, or fitness for use of, or any damage to or loss or destruction or
theft of, the Aircraft or any Engine, or any interruption, cessation in,
restriction or prohibition of the use or possession thereof by Sublessee (or any
Sub-sublessee) for any reason whatsoever, including, without limitation, any
such interruption, cessation, restriction or prohibition resulting from the act
of any government authority, (iii) any insolvency, bankruptcy, reorganization or
similar case or proceedings by or against Sublessee or any other Person, or (iv)
any other circumstance, happening, or event whatsoever, whether or not
unforeseen or similar to any of the foregoing. If for any
59
Sublease Agreement
(MSN 30808)
reason whatsoever this Sublease shall be terminated in whole or in part by
operation of law or otherwise except as specifically provided herein, Sublessee
nonetheless agrees without limitation of the other rights or remedies of
Sublessor hereunder to pay to Sublessor an amount equal to each Rent payment at
the time such payment would have become due and payable in accordance with the
terms hereof had this Sublease not been terminated in whole or in part.
Sublessee hereby waives, to the extent permitted by applicable law, any and all
rights which it may now have or which at any time hereafter may be conferred
upon it, by statute or otherwise, to terminate, cancel, quit or surrender this
Sublease except in accordance with the express terms hereof. Nothing set forth
in this Section 18 shall be construed to prohibit Sublessee from separately
pursuing any claim that it from time to time may have against Sublessor or any
other Person with respect to any other matter (other than the absolute and
unconditional nature of Sublessee's obligations under this Sublease).
SECTION 19. RENEWAL OPTIONS; PURCHASE OPTIONS; VALUATION.
(a) RENEWAL OPTIONS; RENEWAL TERM, ADDITIONAL RENEWAL TERM.
(1) RENEWAL TERM. Not more than three hundred sixty-
five (365) days and not less than two hundred twenty-five (225) days, before the
scheduled end of the Basic Term or any Renewal Term or Additional Renewal Term
(as hereinafter defined), and so long as no Sublease Event of Default shall have
occurred and be continuing, Sublessee may deliver to Sublessor a written notice
(the "RENEWAL NOTICE") irrevocably electing to renew this Sublease for a term
having a duration and at a Basic Rent as determined below (any such renewal
term, a "RENEWAL TERM"). The duration of any Renewal Term shall be a period
specified by Sublessee in the Renewal Notice which is (I) not less than one year
(provided any such period shall be in six month one (1) year increments), and
(ii) not more than the number of years which, when added to the Base Term or any
prior Renewal Term, will not exceed 80% of the estimated useful life of the
Aircraft as originally appraised. Each monthly installment of Basic Rent during
any Renewal Term shall be equal to the lesser of (A) the then fair market rental
value of the Aircraft or (B) 100% of the average annual Basic Rent during the
Basic Term divided by twelve (12). At the expiration of the Base Term or any
Renewal Term, Sublessee will also have the option to renew the Sublease for two
additional periods of one year each at the then fair market value rental of the
Aircraft (each an "ADDITIONAL RENEWAL TERM") as determined in accordance with
the Appraisal Procedure.
(2) WAIVER. If no written notice is delivered by
Sublessee to Sublessor pursuant to SECTION 19(a) on or before the day specified
therefor, Sublessee shall be deemed to have waived any right to renew this
Sublease.
(3) CONDITIONS PRECEDENT, PAYMENT OF BASIC RENT. At the
end of the Basic Term, any Renewal Term or the first Additional Renewal Term, if
Sublessee has elected to renew this Sublease as aforesaid, (i) this Sublease
shall continue
60
Sublease Agreement
(MSN 30808)
in full force and effect during the Renewal Term or Additional Renewal Term and
(ii) Basic Rent for such Renewal Term or Additional Renewal Term shall be
payable in monthly installments in arrears, each such installment being due and
payable on each Rent Payment Date occurring during the Renewal Term or
Additional Renewal Term, commencing with the Rent Payment Date immediately
following the commencement of the Renewal Term or Additional Renewal Term.
(4) TERMINATION VALUE. The amounts which are payable
during any Renewal Term or Additional Renewal Term in respect of Termination
Value with respect to the Aircraft shall take into account the fair market sales
value of the Aircraft as of the commencement of such Renewal Term or Additional
Renewal Term, and shall be in the amounts set forth IN EXHIBIT C.
(b) PURCHASE OPTIONS. Sublessee shall have the option, (i)
upon at least thirty (30) days irrevocable prior written notice to Sublessor
prior to the EBO Date with respect to the purchase option set forth in CLAUSE
(1) below and (ii) upon at least two hundred twenty-five (225) days irrevocable
prior written notice to Sublessor prior to the relevant purchase date (each a
"PURCHASE OPTION DATE") with respect to the purchase options set forth in
CLAUSES (2) and (3) below, to terminate this Sublease and to purchase the
Aircraft: (1) on an EBO Date, for a purchase price equal to the applicable EBO
Amount set forth on EXHIBIT D; (2) on the last Business Day of the Basic Term
for a purchase price equal to the greater of fair market sales value of the
Aircraft on such date and the amount set forth on EXHIBIT D; or (3) on the last
Business Day of any Renewal Term or Additional Renewal Term for a purchase price
equal to the greater of the fair market sales value of the Aircraft on such date
and the amount set forth on EXHIBIT D; PROVIDED that Sublessee shall not be
entitled to exercise any of the foregoing purchase options at any time a
Sublease Event of Default of the type described in SECTIONS 14(e) or (f) has
occurred and is continuing, in each case unless Sublessee has obtained a final,
non-appealable order from the applicable bankruptcy court or other court having
jurisdiction over the applicable proceeding authorizing the purchase of the
Aircraft and the payment of the full purchase price therefor. For the avoidance
of doubt, if a Sublease Event of Default or Default exists under SECTION 14(a)
or 14(b) hereof, Sublessee may not exercise the foregoing purchase options
unless at or prior to the time it purchases the Aircraft, Sublessee pays all
amounts due to Sublessor under the Operative Documents, thereby curing any such
SECTION 14(a) or 14(b) Default or Sublease Event of Default.
Upon payment to Sublessor in immediately available funds in Dollars
of the full amount of the purchase price and payment of any other amounts then
due hereunder or under the other Operative Documents to Sublessor on or before
the Purchase Option Date (including all Rent and all reasonable costs or
expenses of Sublessor, Head Lessor, Owner Participant and the Indenture Trustee,
if any, in connection with such purchase), Sublessor will (or will cause Head
Lessor to) transfer to Sublessee, all of Head Lessor's and Sublessor's right,
title and interest in and to the Aircraft, in accordance with the provisions of
SECTION 9(c).
61
Sublease Agreement
(MSN 30808)
(c) VALUATION. At any time not earlier than three hundred
sixty-five (365) days prior to the date on which Sublessee may purchase the
Aircraft pursuant to SECTION 19(b)(2) or (b)(3) hereof or renew this Sublease
pursuant to SECTION 19(a)(l) hereof, Sublessee may deliver to Sublessor a
revocable notice of its intent to exercise its renewal option or purchase
option. For all purposes of this SECTION 19 and SECTION 20, including the
appraisal referred to in this SECTION 19(c), in determining "fair market rental
value" or "fair market sales value", the Aircraft shall be valued (i) as if in,
the condition and otherwise in compliance with the terms of SECTION 5 upon a
return of the Aircraft to Sublessor and as if it had been maintained at all
times as required in accordance with SECTION 7(a)(i) during periods when no
Sublease was in effect, (ii) on the basis of the value which would obtain in an
arm's-length transaction between an informed and willing buyer-user or lessee
(other than a lessee or an Affiliate of a lessee currently in possession or a
used equipment or scrap dealer) under no compulsion to buy or lease and an
informed and willing seller or lessor unaffiliated with such buyer-user or
lessee and under no compulsion to sell or lease and disregarding the Sublease
encumbrance, the purchase and renewal options of Sublessee provided in this
Sublease and (iii) in the case of such valuation for determining "fair market
rental value", assuming such lessee would have substantially the same
obligations during any Renewal Term or Additional Renewal Term, as provided
hereunder including without limitation the obligations of Sublessee to carry and
maintain the insurance required by SECTION 11 hereof and to make certain
payments with reference to Termination Value during the applicable Renewal Term
or Additional Renewal Term similar to those required hereunder. Upon receipt of
such notice Sublessor shall provide Sublessee the "fair market rental value" or
"fair market sales value" of the Aircraft. If the parties have not so agreed
within two hundred-seventy (270) days prior to the end of the Basic Term, the
Renewal Term or Additional Renewal Term in question, then the question shall be
determined in accordance with the Appraisal Procedure.
SECTION 20. BURDENSOME PURCHASE OPTION. If a Burdensome Termination Event
shall have occurred, then on any Rent Payment Date which is also a Termination
Value Date occurring no later than three hundred and sixty (360) days after
Sublessee becomes aware of the Burdensome Termination Event, so long as no
Sublease Event of Default has occurred and is continuing, Sublessee shall have
the option, upon at least ninety (90) days irrevocable prior notice (the "BPO
NOTICE") to Sublessor to purchase the Aircraft on such date (which shall
constitute an unconditional obligation of Sublessee) for a purchase price equal
to the higher as of such date of the Termination Value or the fair market sales
value of the Aircraft (determined within thirty-five (35) after delivery of the
BPO Notice by mutual agreement of Sublessor and Sublessee, or if they shall be
unable to agree, as set forth in SECTION 19(c) (such price, the "BURDENSOME
BUYOUT PRICE"). Delivery of such notice by Sublessee shall constitute an
unconditional obligation of Sublessee to purchase the Aircraft pursuant to this
SECTION 20; PROVIDED that no such notice shall bind Sublessor if a Sublease
Event of Default shall have occurred and be continuing on the purchase date or
on the date of such Sublessee notice. Upon such payment in full and payment of
any other amounts then due hereunder (including all Rent
62
due with respect to the period on or prior to such date and all reasonable costs
or expenses of Sublessor in connection with such purchase), Sublessor will
transfer or cause Head Lessor to transfer all of Head Lessor's and Sublessor's
right, title and interest in and to the Aircraft to Sublessee in accordance with
the provisions of SECTION 9(c).
SECTION 21. SECURITY FOR SUBLESSOR'S OBLIGATION TO HOLDERS OF EQUIPMENT
NOTES. In order to secure its obligations under the Head Lease, Sublessor has
agreed to assign its rights under this Sublease to Head Lessor and Head Lessor,
to secure the indebtedness evidenced by the Equipment Notes, has agreed to
further assign to the Indenture Trustee this Sublease, the Sublease Supplements
and any amendments to this Sublease and to mortgage their respective interest in
the Aircraft in favor of the Indenture Trustee, subject to the reservations and
conditions set forth in the Head Lease Documents and the Assignment of Sublease.
To the extent, if any, that this Sublease, the Sublease Supplements and any
amendments to this Sublease constitute chattel paper (as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction), no
security interest in this Sublease, the Sublease Supplements and any amendments
to this Sublease may be created through the transfer or possession of any
counterpart other than the original counterpart, which shall be identified as
the counterpart containing the receipt therefor executed by the Indenture
Trustee on the signature page thereof. Sublessee hereby accepts and consents to
such assignment of Sublessor's right, title and interest in and to this Sublease
to the Head Lessor and the further assignment to the Indenture Trustee pursuant
to the terms of the Trust Indenture. Notwithstanding the foregoing assignments
of this Sublease, the obligations of Sublessor to Sublessee to perform the terms
and conditions of this Sublease shall remain in full force and effect. To the
extent, if any, that this Sublease, the Sublease Supplements and any amendments
to this Sublease constitute chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction), no
security interest in this Sublease, the Sublease Supplements and any amendments
to this Sublease may be created through the transfer or possession of any
counterpart other than the original counterpart, which shall be identified as
the counterpart containing the receipt therefor executed by the Indenture
Trustee on the signature page thereof. Sublessee hereby accepts and consents to
such assignment of Sublessor's right, title and interest in and to this Sublease
to the Head Lessor and the Indenture Trustee pursuant to the terms and
conditions set forth in the Assignment of Sublease. Notwithstanding such
assignment of this Sublease, the obligations of each party to perform for the
benefit of the other the terms and conditions of this Sublease shall remain in
full force and effect. In the event that pursuant to the occurrence and
continuation of an Indenture Event of Default under SECTION 4.02 of the Trust
Indenture, the Indenture Trustee shall foreclose the Lien of the Trust
Indenture, the Sublease, the Sublease Supplements and any amendments to this
Sublease pursuant to the Assignment of Sublease and dispossess the Sublessor of
its right, title and interest in and to the Head Lease thereafter, all
references in the Sublease to the Owner Participant, with respect to the period
arising from and after such date, shall be deemed deleted and of no further
force and effect.
63
Sublease Agreement
(MSN 30808)
SECTION 22. SUBLESSOR'S RIGHT TO PERFORM FOR SUBLESSEE. If Sublessee fails
to make any payment of Rent required to be made by it hereunder or fails to
perform or comply with any of its agreements contained herein, then (but in each
case, except in the case of failure to pay Rent or in the case of failure to
maintain insurance as required hereunder, no earlier than the fifteenth (15th))
day after the occurrence of such failure, whether or not it shall yet constitute
a Sublease Event of Default hereunder) Sublessor may itself make such payment or
perform or comply with such agreement but shall not be obligated hereunder to do
so, and the amount of such payment and the amount of the reasonable expenses of
Sublessor incurred in connection with such payment or the performance of or
compliance with such agreement, as the case may be, together with interest
thereon at the Past Due Rate, shall be deemed Supplemental Rent, payable by
Sublessee upon demand.
SECTION 23. INVESTMENT OF SECURITY FUNDS. Any moneys held by Sublessor as
security hereunder, for future payments to Sublessee at a time when there is not
continuing a Sublease Event of Default shall, until paid to Sublessee or
otherwise applied in accordance with the terms hereof, be invested by Sublessor,
as Sublessee may from time to time direct in writing (and in absence of a
written direction by Sublessee, there shall be no obligation to invest such
moneys) in Cash Equivalents. There shall be promptly remitted to Sublessee or
its order (but no more frequently than monthly) any gain (including interest
received) realized as a result of any such investment (net of any fees,
commissions and other expenses, if any, incurred in connection with such
investment) unless a Sublease Event of Default shall have occurred and be
continuing. Sublessee shall be responsible for any net loss realized as a result
of any such investment and shall reimburse Sublessor therefor on demand.
SECTION 24. JURISDICTION. Sublessor and Sublessee each hereby irrevocably
submits itself to the non-exclusive jurisdiction of the United States of America
District Court for the Southern District of New York and to the non-exclusive
jurisdiction of the Supreme Court of the State of New York, New York County, for
the purposes of any suit, action or other proceeding arising out of this
Sublease, the subject matter hereof or any of the transactions contemplated
hereby brought by Sublessor, Sublessee, or their successors or permitted
assigns.
SECTION 25. MISCELLANEOUS. Any provision of this Sublease which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. No term or provision of
this Sublease may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by Sublessor and Sublessee. This Sublease
shall constitute an agreement of lease, and nothing contained herein shall be
construed as conveying to Sublessee any right, title or interest in the Aircraft
except as a sublessee only. The section and paragraph headings in this Sublease
and the table of contents are
64
Sublease Agreement
(MSN 30808)
for convenience of reference only and shall not modify, define, expand or limit
any of the terms or provisions hereof and all references herein to numbered
sections, unless otherwise indicated, are to sections of this Sublease. THIS
SUBLEASE HAS BEEN DELIVERED IN THE STATE OF NEW YORK AND SHALL IN ALL RESPECTS
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. This
Sublease may be executed by the parties hereto in separate counterparts, each of
which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
SECTION 26. THIRD PARTY BENEFICIARY. This Sublease is not intended to, and
shall not, provide any person not a party hereto with any rights of any nature
whatsoever against either of the parties hereto, and no person not a party
hereto shall have any right, power or privilege in respect of, or have any
benefit arising out of this Agreement, except for the Assignment of Sublease.
SECTION 27. LEASE FOR U.S. FEDERAL INCOME TAX LAW PURPOSES; SECTION 1110
OF BANKRUPTCY CODE; HEAD LEASE DOCUMENT AMENDMENTS; TRANSFERS.
(a) LEASE FOR FEDERAL INCOME TAX LAW PURPOSES. It is the
intent of the parties to this Agreement that this Sublease is a true lease for
U.S. Federal income tax purposes
(b) SECTION 1110 OF BANKRUPTCY CODE. It is the intention of
each of Sublessee and Sublessor that Sublessor shall be entitled to the benefits
of Section 1110 of the Bankruptcy Code with respect to the right to take
possession of the Aircraft, Airframe, Engines and Parts, and to enforce any
other of its rights and remedies as provided in this Sublease.
(c) HEAD LEASE DOCUMENT AMENDMENTS. Sublessor covenants and
agrees that it will not consent to the amendment, modification, supplement or
waiver of any provisions of any Head Lease Document (in form and substance as in
effect on the Delivery Date) that increases Sublessee's obligations or reduces
Sublessee's rights hereunder without the prior written consent of Sublessee, not
to be unreasonably withheld. Notwithstanding anything to the contrary contained
in the Sublease, Sublessee is not responsible for or subject to increased
liability hereunder as a result of any amendment to the Sublease or the Head
Lease Documents unless Sublessee has consented in writing to such amendment.
(d) TRANSFERS. Sublessor covenants and agrees that it will not
consent to any Transfer by the Owner Participant of any of Owner Participant's
right, title or interest in the Aircraft, the Head Lease and this Sublease,
unless such Transfer complies with the provisions of the SECTION 7(j) of the
Participation Agreement
65
Sublease Agreement
(MSN 30808)
SECTION 28. ENTIRE AGREEMENT. This Sublease, together with the other
Operative Agreements, on and as of the date hereof, constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and
all prior or contemporaneous understandings or agreements, whether written or
oral, between the parties hereto with respect to such subject matter are hereby
superseded in their entireties. Sublessee is not assuming or incurring any
obligation to the Sublessor, Head Lessor, Owner Participant or Indenture Trustee
or any Person claiming by or through such parties under the Head Lease,
Participation Agreement, Trust Indenture, Equipment Notes or any other document
executed in connection therewith. No amendment modification, supplement, waiver
or change to any of the Head Lease Documents executed in connection therewith
shall have the effect of altering any of Sublessee's obligations hereunder.
SECTION 29. CONFIDENTIALITY. Sublessee and Sublessor shall keep Exhibits
B-1; C; D and Annexes B to this Sublease and the Sublease Tax Indemnity
Agreement confidential and shall not disclose, or cause to be disclosed, the
same to any Person, except (A) to prospective and permitted transferees of
Sublessee's or Sublessor's interest or their respective counsel or special
counsel, independent insurance brokers, auditors, or other agents who agree to
hold such information confidential, (B) to the parties to the Head Lease
Documents and their respective counsel, special counsel and transaction
advisors; (C) to Sublessee's or Sublessor's counsel or special counsel,
independent insurance brokers, auditors, or other agents, Affiliates or
investors who agree to hold such information confidential, (D) as may be
required by any statute, court or administrative order or decree, legal process
or governmental ruling or regulation, including those of any applicable
insurance regulatory bodies (including, without limitation, the National
Association of Insurance Commissioners ("NAIC"), federal or state banking
examiners, Internal Revenue Service auditors or any stock exchange, (E) by
mutual agreement of Sublessee or Sublessor, or (F) such other Persons as are
reasonably deemed necessary by the disclosing party in order to protect the
interests of such party or for the purposes of enforcing such documents by such
party so long as such other parties agree to maintain the confidentiality of
such documents pursuant to the terms hereof; PROVIDED, that any and all
disclosures permitted by CLAUSES (D), (E) OR (F) above shall be made only to the
extent necessary to meet the specific requirements or needs of the Persons
making such disclosures.
SECTION 30. HEAD LEASE DOCUMENTS.
A11 references to the Participation Agreement, the Head Lease and
the Trust Indenture are to those documents as they exist on the date hereof and
are in the forms attached hereto as EXHIBITS G, H AND I respectively.
References to the "Head Lease", the "Head Lease Supplement", the
"Trust Indenture", the "Trust Indenture Supplement", the "Participation
Agreement", the Trust Agreement" and the "Equipment Notes" shall mean in the
form of such agreement or
66
Sublease Agreement
(MSN 30808)
document as in effect on the Delivery Date, as from time to time amended by any
subsequent amendment which has been agreed to in writing by Sublessee.
[Signature page follows]
67
Sublease Agreement
(MSN 30808)
IN WITNESS WHEREOF, Sublessor and Sublessee have each caused this
Sublease to be duly executed as of the day, month and year first above written.
GENERAL ELECTRIC CAPITAL CORPORATION,
as Sublessor
By: /s/ ▇▇▇▇▇▇ ▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇
Title: Vice President
POLAR AIR CARGO, INC.,
as Sublessee
By:
---------------------------------
Name:
Title:
Sublease Agreement
(MSN 30808)
IN WITNESS WHEREOF, Sublessor and Sublessee have each caused this
Sublease to be duly executed as of the day, month and year first above written.
GENERAL ELECTRIC CAPITAL CORPORATION,
as Sublessor
By:
---------------------------------
Name:
Title:
POLAR AIR CARGO, INC.,
as Sublessee
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: CHIEF MARKETING OFFICER
Sublease Agreement
(MSN 30808)
Receipt of this original counterpart of the foregoing Sublease is
hereby acknowledged on the 14th day of November, 2001.
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, as Indenture Trustee
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title: VICE PRESIDENT
SCHEDULE TO EXHIBIT 10.9.3
The agreements listed below are substantially identical to this exhibit and are
not being filed separately as exhibits pursuant to instruction 2 to Regulation
S-K, Item 601.
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REGISTRATION MANUFACTURER'S
NUMBER SERIAL NUMBER(S) SUBLESSEE SUBLESSOR AGREEMENT
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N451PA 30809 Polar Air Cargo, Inc. General Electric Sublease dated October 24, 2001
Capital Corporation between General Electric Capital
Corporation, as Sublessor and
Polar Air Cargo, Inc., as
Sublessee with respect to
Aircraft N451PA
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N452PA 30810 Polar Air Cargo, Inc. General Electric Sublease dated October 24, 2001
Capital Corporation between General Electric Capital
Corporation, as Sublessor and
Polar Air Cargo, Inc., as
Sublessee with respect to
Aircraft N452PA
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N453PA 30811 Polar Air Cargo, Inc. General Electric Sublease dated October 24, 2001
Capital Corporation between General Electric Capital
Corporation, as Sublessor and
Polar Air Cargo, Inc., as
Sublessee with respect to
Aircraft N453PA
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