-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NNDhOu9lSis66hlsOgoPu9KK0LnXU2mxLblz7QDp7nmOIyz2t3CvZiZzXuaOvBUm pJRo9zRfT5Uehb1za7N72w== 0000950148-99-000490.txt : 19990322 0000950148-99-000490.hdr.sgml : 19990322 ACCESSION NUMBER: 0000950148-99-000490 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990319 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL LEASE FINANCE CORP CENTRAL INDEX KEY: 0000714311 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 223059110 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11350 FILM NUMBER: 99568384 BUSINESS ADDRESS: STREET 1: 1999 AVE OF THE STARS 39TH FL CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3107881999 MAIL ADDRESS: STREET 1: 1999 AVE OF THE STARS CITY: CENTURY CITY STATE: CA ZIP: 90067 10-K 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________________ TO ______________________ COMMISSION FILE NUMBER 0-11350 INTERNATIONAL LEASE FINANCE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 22-3059110 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1999 AVENUE OF THE STARS, LOS ANGELES, 90067 CALIFORNIA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 788-1999 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE (TITLE OF CLASS) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K (SEC. 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] AS OF MARCH 15, 1999, THERE WERE 35,818,122 SHARES OF COMMON STOCK, NO PAR VALUE, OUTSTANDING. REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. ================================================================================ 2 INTERNATIONAL LEASE FINANCE CORPORATION 1998 FORM 10-K ANNUAL REPORT ------------------------ TABLE OF CONTENTS PART I
PAGE ---- Item 1. Business.................................................... 1 Item 2. Properties.................................................. 6 Item 3. Legal Proceedings........................................... 7 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................... 8 Item 6. Selected Financial Data..................................... 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 9 Item 7A. Quantitive and Qualitative Disclosures About Market Risk.... 13 Item 8. Financial Statements and Supplementary Data................. 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 13 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................... 13
3 PART I ITEM 1. BUSINESS GENERAL International Lease Finance Corporation (the "Company") is primarily engaged in the acquisition of new and used commercial jet aircraft and the leasing and sale of such aircraft to domestic and foreign airlines. The Company, in terms of the number and value of transactions concluded, is a major owner-lessor of commercial jet aircraft. In addition, the Company is engaged in the remarketing of commercial jets for its own account, for airlines and for financial institutions. As well, the Company provides fleet management services for third party operating lessors. As of December 31, 1998, the Company's lease portfolio consisted of 349 aircraft under operating lease and three aircraft under finance lease. Additionally, the Company managed 60 aircraft. See "Item 2. Properties -- Flight Equipment." At December 31, 1998, the Company had committed to purchase 303 aircraft deliverable through 2006 at an estimated aggregate purchase price of $17.4 billion. See "Item 2. Properties -- Commitments." The Company maintains the mix of flight equipment to meet its customers' needs by purchasing those models of new and used aircraft which it believes will have the greatest airline demand and operational longevity and minimize the time that its aircraft are not leased to customers. The Company purchases, and finances the purchase of, aircraft on terms intended to permit the Company to lease or resell such aircraft at a profit. The Company typically finances the purchase of aircraft with borrowed funds and internally generated cash flow. The Company accesses the capital markets for such funds at times and on terms and conditions it considers appropriate. The Company may, but does not necessarily, engage in financing transactions for specific aircraft. The Company relies significantly on short- and medium-term financing, and thereby attempts to manage interest rate exposure. To date, the Company has been able to purchase aircraft on terms which have permitted it to lease the aircraft at a profit and has not experienced any difficulty in obtaining financing. The Company's aircraft are usually leased on terms under which the Company does not fully recover the acquisition cost of such aircraft. Thus, at the termination of a lease, the Company bears the risk of selling or re-leasing the aircraft on terms which will cover its remaining cost. The airline industry is cyclical, economically sensitive and highly competitive. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's revenue and income may be affected by political or economic instability abroad, changes in national policy, competitive pressures on certain air carriers, fuel shortages, labor stoppages, recessions, and other political or economic events adversely affecting world or regional trading markets or impacting a particular customer. The Company's continued success is partly dependent on management's ability in the future to develop customer relationships for leasing, sales, remarketing and management services with those airlines and other customers best able to maintain their economic viability and survive in a deregulated environment. The Company is incorporated in the State of California and its principal executive offices are located at 1999 Avenue of the Stars, Los Angeles, California 90067. The Company's telephone, telecopier and telex numbers are (310) 788-1999, (310) 788-1990 and 69-1400, respectively. The Company is an indirect wholly owned subsidiary of American International Group, Inc. ("AIG"). AIG is a holding company which through its subsidiaries is primarily engaged in a broad range of insurance and insurance-related activities and financial services in the United States and abroad. The Common Stock of AIG is listed on, among others, the New York Stock Exchange. AIRCRAFT LEASING The initial term of the Company's current leases range in length from one year to 15 years. See "Item 2. Properties -- Flight Equipment" for information regarding scheduled lease terminations. Most of the Company's leases are operating leases under which the Company does not fully recover its aircraft cost and retains the benefit and assumes the risk of the residual value of the aircraft. The Company on occasion also 1 4 enters into finance and sales-type leases where the full cost of the aircraft is substantially recovered over the term of the lease. At December 31, 1998, three of the Company's leases were accounted for as finance leases. The aircraft under operating leases are included as assets on the Company's balance sheet and depreciation is charged to income over the estimated useful lives of the aircraft. In accordance with generally accepted accounting principles, rentals are reported ratably as revenue over the lease term as they become due and are earned. The Company attempts to maintain a mix of short- and medium-term leases to balance the benefits and risks associated with different lease terms. Varying lease terms mitigate the effects of changes in prevailing market conditions at the time aircraft become eligible for re-lease or sale and the uncertainty associated with estimating residual value of the aircraft at the termination of the lease. All leases are on a "net" basis with the lessee responsible for all operating expenses, which customarily include fuel, crews, airport and navigation charges, taxes, licenses, registration and insurance. Normal maintenance and repairs; airframe and engine overhauls; and compliance with return conditions of flight equipment on lease are provided by and paid for by the lessee. Under the provisions of most leases, for certain airframe and engine overhauls, the lessee is reimbursed by the Company for costs incurred up to but not exceeding related contingent rentals paid to the Company by the lessee. Such rentals are included in the caption Rental of flight equipment. The Company provides a charge to operations for such reimbursements based on the estimated reimbursements expected during the life of the lease, which amount is included in overhaul reserves. The lessee is responsible for compliance with all applicable laws and regulations with respect to the aircraft. The Company requires its lessees to comply with the most restrictive standards of either the Federal Aviation Administration (the "FAA") or its foreign equivalent. The Company makes periodic inspections of the condition of its leased aircraft. Generally, the Company requires a deposit which is security for the condition of aircraft upon return to the Company, the rental payments by the lessee and the performance of other obligations by the lessee under the lease. In addition, the leases contain extensive provisions regarding the remedies and rights of the Company in the event of a default thereunder by the lessee and specific provisions regarding the condition of the aircraft upon redelivery to the Company. The lessee is required to continue lease payments under all circumstances, including periods during which the aircraft is not in operation for maintenance, grounding or any other reason whatsoever. The Company obtains and reviews relevant business materials from all prospective lessees and purchasers before entering into a lease or extending credit. Under certain circumstances, the Company may require the lessee to obtain guarantees or other financial support from an acceptable financial institution or other third party. FLIGHT EQUIPMENT MARKETING The Company also regularly disposes of its leased aircraft at or before the expiration of their leases. The buyers include the aircraft's lessee, another airline or a third party lessor. Any gain or loss on disposition of leased aircraft is reflected as revenues from flight equipment marketing. From time to time, the Company also engages in transactions to buy aircraft for resale. In some cases, the Company assists its customers in acquiring or disposing of aircraft through consulting services and procurement of financing from third parties. In addition to its leasing and sales operations, the Company is engaged, from time to time, as an agent for airlines in the disposition of their surplus aircraft. The Company generally acts as an agent under an exclusive remarketing contract whereby it agrees to sell aircraft on a "best efforts" basis within a fixed time period. These activities generally augment the Company's primary activities and also serve to promote relationships with prospective sellers and buyers of aircraft. The Company plans to continue its remarketing services on a selective basis involving specific situations where these activities will not conflict or compete with, but rather will be complementary to, its leasing and selling activities. The Company has guaranteed certain obligations for entities in which it has an investment, which aggregate approximately $57,088,000. Additionally, the Company guaranteed a customer's $3,300,000 loan, collateralized by flight equipment. See Note K of Notes to Consolidated Financial Statements. 2 5 FLEET MANAGEMENT SERVICES The Company provides fleet management services to third party operating lessors who are unable or unwilling to perform this service as part of their own operation. The Company typically provides the same services that it performs for its own fleet. Specifically, the Company provides leasing, re-leasing and sales services on behalf of the lessor for which the Company receives a fee. FINANCING/SOURCE OF FUNDS The Company purchases new aircraft directly from manufacturers and used aircraft from airlines for lease or sale to other airlines. The Company finances the purchase price of flight equipment from internally generated funds, secured and unsecured commercial bank financings and the issuance of commercial paper, public and private debt and preferred stock. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." CUSTOMERS At December 31, 1998, lessees of the Company included: (domestic) Alaska Airlines, American Trans Air, Continental Airlines, Frontier Airlines, North American Airlines, Southwest Airlines, Trans World Airlines (TWA) and World Airways; (foreign) Aer Lingus, Aeroflot, Aero Lloyd Flugreisen, Aeromexico, Aeroperu, Air 2000, Air Afrique, Air Alfa, Air Canada, Air Europa (Air Espana SPA), Air Europe SpA, Air France, Air Jamaica, Air Macau, Air Madagascar, Air Mauritius, Air New Zealand, Air Seychelles, Air Transat, Air Vanuatu, Air World, Alitalia, Ansett, Asiana Airlines, Avianca, Braathens S.A.F.E., Britannia Airways, British Airways, British Midland Airways, Caledonian, Canada 3000, Canadian Airlines, Cathay Pacific, China Airlines, China Hainan Airlines, China Southern Airlines, China Southwest Airlines, China Xinjiang, Color Air, Constellation, El Al Israel Airlines, Emirates, Estonian Air, Far Eastern Air Transport, Finnair, Flying Colours, Garuda Indonesia, GB Airways, Hapag-Lloyd Flug, Hong Kong Dragon Airlines (Dragonair), Icelandair, Kenya Airways, KLM Royal Dutch Airlines, L'Aeropostale, LACSA, Lineas Aereas Privadas Argentinas, S.A. (LAPA), Lithuanian, Lloyd Aero Boliviano (LAB), LAN Chile, Lotus Air, LTU Luftransport-Unternehmen, Lufthansa, Malaysian Airline System, Martinair Holland, Mexicana, Middle East Airlines Airliban, Monarch Airlines, Olympic Airways, ONUR Air, Passaredo, Pegasus, Polynesian Airlines, QANTAS Airways, Rio Sul, Royal Jordanian, Sabre Airways, SAETA, Sahara India Airlines, Shanghai, Sichuan Airlines, Skymark, Skyservice Airlines, Sterling European, Surinam, Swissair, TACV Cabo Verde, TAP Air Portugal, TEA Basel, Turk Hava Yollari (THY), TransAer, Transaero Airlines, Transavia, Transbrasil, Varig, Virgin Atlantic Airways, VIVA Airways, Wuhan Airlines and Xiamen Airlines. No single customer accounted for more than 10% of total revenues in any of the last three years. Revenues include rentals of flight equipment to foreign airlines of $1,623,891,000 (1998), $1,472,075,000 (1997) and $1,202,651,000 (1996) comprising 87.6%, 85.0% and 83.3%, respectively, of total rentals of flight equipment. See Note J of Notes to Consolidated Financial Statements. The following table sets forth the dollar amount and percentage of total rental revenues attributable to the indicated geographic areas for the years indicated:
1998 1997 1996 ------------------ ------------------ ------------------ AMOUNT % AMOUNT % AMOUNT % ---------- ----- ---------- ----- ---------- ----- (DOLLARS IN THOUSANDS) Europe............................. $ 798,773 43.1% $ 705,128 40.7% $ 551,703 38.2% Asia/Pacific....................... 410,600 22.1 358,687 20.7 332,159 23.0 United States and Canada........... 333,472 18.0 345,143 19.9 304,801 21.1 Central, South America and Mexico........................... 190,572 10.3 211,152 12.2 165,819 11.5 Africa and the Middle East......... 120,566 6.5 112,557 6.5 89,957 6.2 ---------- ----- ---------- ----- ---------- ----- $1,853,983 100.0% $1,732,667 100.0% $1,444,439 100.0% ========== ===== ========== ===== ========== =====
3 6 Many foreign countries have currency and exchange laws regulating the international transfer of currencies. The Company attempts to minimize its currency and exchange risks by negotiating substantially all of its aircraft lease and sales transactions in U.S. dollars and all guarantees obtained to support various lease agreements are denominated for payment in U.S. dollars. The Company requires, as a condition to any foreign transaction, that the lessee or purchaser in a foreign country first obtain, if required, written approval of the appropriate government agency, finance ministry or central bank for the remittance of all funds contractually owed to the Company in U.S. dollars. As a result, foreign currency risk is immaterial to the Company. The Company has restructured leases with both foreign and domestic lessees. Such restructurings have involved the voluntary termination of leases prior to lease expiration, the replacement of leased aircraft with smaller, less expensive leased aircraft, the arrangement of subleases from the primary lessee to another airline and the rescheduling of lease payments. In 1996, the Company repossessed one aircraft that was promptly re-leased. In addition, the Company terminated early the leases of four aircraft. In this case, two of the aircraft were sold and two were promptly re-leased. No aircraft were repossessed in 1997. In 1998, the Company repossessed three owned and two managed aircraft, all from one airline, subsequent to the airline's bankruptcy proceeding. All of the aircraft were promptly re-leased. In some situations where the Company repossesses an aircraft, it may decide to export the aircraft from the lessee's jurisdiction. To date, the Company has been able to export all repossessed aircraft which it desired to export. In addition, in connection with the repossession of an aircraft, the Company may be required to pay outstanding mechanic's, airport and other operating liens on the repossessed aircraft, which could include charges relating to other aircraft operated by the lessee. The Company's revenues and income may be affected by political or economic instability abroad, changes in national policy, competitive pressures on certain air carriers, fuel shortages, labor stoppages, recessions and other political or economic events adversely affecting world or regional trading markets or impacting a particular customer. COMPETITION The leasing and sale of jet aircraft is highly competitive. Aircraft manufacturers and the airlines sell new and used jet aircraft. Furthermore, the Company faces competition in leasing aircraft from aircraft manufacturers, banks, other financial institutions and leasing companies. There is also competition with respect to its remarketing activities from many sources, including, but not limited to, aircraft brokers. GOVERNMENT REGULATION The FAA and the U.S. Departments of Transportation and State exercise regulatory authority over the air transportation in the United States. The U.S. Departments of Transportation and State, in general, have jurisdiction over the economic regulation of air transportation, including the negotiation with foreign governments of the rights of U.S. carriers to fly to other countries and the rights of foreign carriers to fly to and within the United States. The FAA has regulatory jurisdiction over the maintenance and operation of U.S. air carriers, the operation of aircraft in the United States by foreign carriers and the registration of aircraft in the United States. The FAA can suspend or revoke the authority of U.S. air carriers or their licensed personnel and can similarly revoke the authority of foreign air carriers to operate within the United States for failure to comply with FAA regulations. The FAA can also ground aircraft if their airworthiness is in question. In every foreign country, similar government agencies regulate such country's air carriers, the operations of foreign airlines in such country and the registration of aircraft. Like the FAA, the civil aviation authority in a foreign country can suspend or revoke the operating authority of an airline and ground aircraft for safety reasons. 4 7 Since the Company does not itself operate its aircraft for public transportation of passengers and property, the Company is not directly subject to the regulatory jurisdiction of the U.S. Departments of Transportation and State or their counterpart organizations in foreign countries. The Company's interface with the FAA consists of the registration with the FAA of those aircraft which are leased by the Company to U.S. carriers and to a number of foreign carriers where, by agreement, the aircraft are to be registered in the United States. In limited circumstances, the Company also obtains from the FAA or its designated representatives a U.S. Certificate of Airworthiness for a particular aircraft or a ferry flight permit. The Company's involvement with the civil aviation authorities of foreign jurisdictions consists largely of requests to register and deregister Company aircraft on lease to carriers in those countries. The Company also works with U.S. Customs with respect to the import and export of Company aircraft into and from the United States for maintenance or lease. EMPLOYEES The Company is in a capital intensive rather than a labor intensive business. As of December 31, 1998, the Company had 92 full-time employees, which it considered adequate for its business operations. The Company will expand its management and administrative personnel, as necessary, to meet future growth. None of the Company's employees is covered by a collective bargaining agreement and the Company believes that it has maintained excellent employee relations. The Company provides certain employee benefits, including retirement plans and health, life, disability and accident insurance. INSURANCE The Company requires its lessees to carry those types of insurance which are customary in the air transportation industry, including comprehensive liability insurance and aircraft hull insurance. In general, the Company is an additional insured on liability policies carried by the lessees. All policies contain a breach of warranty endorsement so that the interests of the Company are not prejudiced by any act or omission of the operator-lessee. Insurance premiums are prepaid by the lessee, with payment acknowledged by the insurance carrier. The territorial coverage is, in each case, suitable for the lessee's area of operations and the policies contain, among other provisions, a "no co-insurance" clause and a provision prohibiting cancellation or material change without at least 30 days advance written notice to the Company. Furthermore, the insurance is primary and not contributory and all insurance carriers are required to waive rights of subrogation against the Company. The stipulated loss value schedule under aircraft hull insurance policies is on an agreed value basis acceptable to the Company, which usually exceeds the book value of the aircraft. In cases where the Company believes that the agreed value stated in the lease is not sufficient, the Company purchases additional Total Loss Only coverage for the deficiency. Additionally, all aircraft in the Company's fleet are covered by Contingent Liability insurance. Aircraft hull policies contain standard clauses covering aircraft engines with deductibles required to be paid by the lessee. Furthermore, the aircraft hull policies contain full war risk endorsements, including, but not limited to, confiscation, seizure, hijacking and similar forms of retention or terrorist acts. All losses under such policies are payable in U.S. dollars. The comprehensive liability insurance policies include provisions for bodily injury, property damage, passenger liability, cargo liability and such other provisions reasonably necessary in commercial passenger and cargo airline operations with minimal deductibles. Such policies generally have combined comprehensive single liability limits of not less than $250 million and all losses are payable in U.S. dollars, U.K. pounds or German marks. The Company also maintains other insurance covering the specific needs of its business operations. Insurance policies are generally placed or reinsured through AIG subsidiaries, with costs allocated back to the Company. The Company believes that its insurance is adequate both as to coverage and amount. 5 8 RECENT EVENTS Due to the economic problems in Brazil, ILFC has initiated discussions with its Brazilian lessees to restructure lease agreements. Discussions with these lessees continue, and the impact of possible restructurings cannot be determined at this time. Lease revenues from Brazilian lessees were $55.4 million in 1998. ITEM 2. PROPERTIES FLIGHT EQUIPMENT The Company's management frequently reviews opportunities to acquire suitable commercial jet aircraft based not only on market demand and customer airline requirements, but also on the Company's fleet portfolio mix criteria and planning strategies for leasing. Before committing to purchase specific aircraft, the Company takes into consideration factors such as estimates of future values, potential for remarketing, trends in supply and demand for the particular type, make and model of aircraft and engines and anticipated obsolescence. As a result, certain types and vintages of aircraft do not necessarily fit the profile for inclusion in the Company's portfolio of aircraft owned and used in its leasing operations. At December 31, 1998, all of the Company's fleet was Stage III compliant, meaning that the aircraft hold or are capable of holding a noise certificate issued under Chapter 3 of Volume 1, Part II of Annex 16 of the Chicago Convention or have been shown to comply with the Stage III noise levels set out in Section 36.5 of Appendix C of Part 36 of the Federal Aviation Regulations of the United States. At December 31, 1998, the average age of the Company's aircraft was 3.78 years. The following table shows the scheduled lease terminations (for the minimum noncancelable period) by aircraft type for the Company's lease portfolio at December 31, 1998:
AIRCRAFT TYPE 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 TOTAL ------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- 737-300/400/500.............. 7 22 18 18 25 8 4 1 1 104 737-600/700/800.............. 4 4 2 1 11 757-200...................... 3 11 6 3 3 2 9 9 7 1 54 767-200...................... 1 2 3 767-300...................... 2 4 6 7 7 5 2 2 1 2 38 777-200...................... 2 3 5 747-300...................... 2 2 747-400...................... 3 4 2 1 10 MD-83........................ 2 1 3 MD-87........................ 1 1 MD-11........................ 3 3 6 A300-600R.................... 2 1 1 1 1 1 7 A310-300..................... 4 2 1 7 A319......................... 2 4 6 A320......................... 2 7 3 5 16 5 1 4 43 A321......................... 4 4 5 3 2 1 2 21 A330-200..................... 2 1 3 A330-300..................... 6 1 3 1 11 A340......................... 1 7 2 1 11 -- -- -- -- -- -- -- -- -- -- -- --- Total........................ 27 63 48 46 61 24 29 29 12 6 1 346
- --------------- This schedule does not include three Boeing 737-500 aircraft committed for sale in 1999. This schedule includes 20 aircraft leased by the Company and subleased to others. 6 9 COMMITMENTS At December 31, 1998, the Company had committed to purchase the following aircraft at an estimated aggregate purchase price (including adjustment for anticipated inflation) of approximately $17.4 billion for delivery as shown:
AIRCRAFT TYPE 1999 2000 2001 2002 2003 2004 2005 2006 TOTAL ------------- ---- ---- ---- ---- ---- ---- ---- ---- ----- 737-600/700/800(a).................. 8 9 12 11 13 13 10 9 85 757-200............................. 7 4 3 2 1 17 767-300............................. 4 4 2 1 1 1 13 767-400............................. 1 2 1 4 777-200............................. 4 3 4 4 4 4 3 3 29 747-400............................. 2 2 A319................................ 5 9 5 6 6 6 6 43 A320-200............................ 6 5 6 4 3 5 4 2 35 A321-200............................ 9 5 3 3 2 2 2 26 A330-200............................ 10 4 4 4 4 4 1 31 A340/300/500/600(a)................. 1 1 2 5 3 2 2 2 18 -- -- -- -- -- -- -- -- --- Total..................... 56 44 42 42 38 37 28 16 303
- --------------- (a) The Company has the right to designate the size of the aircraft within the specific model type at specific dates prior to contractual delivery. Management anticipates that a significant portion of such aggregate purchase price will be funded by incurring additional debt. The exact amount of the indebtedness to be incurred will depend upon the actual purchase price of the aircraft, which can vary due to a number of factors, including inflation, and the percentage of the purchase price of the aircraft which must be financed. The aircraft listed above are being purchased pursuant to master agreements with each of The Boeing Company ("Boeing") and AVSA, S.A.R.L., the sales subsidiary of Airbus Industrie ("Airbus"). These agreements establish the pricing formulas (which include certain price adjustments based upon inflation and other factors) and various other terms with respect to the purchase of aircraft. Under certain circumstances, the Company has the right to alter the mix of aircraft type ultimately acquired. As of December 31, 1998, the Company had made non-refundable deposits (exclusive of capitalized interest) with respect to the aircraft which the Company has committed to purchase of approximately $440,254,000 and $388,387,000 with Boeing and Airbus, respectively. As of March 15, 1999, the Company had entered into contracts for the lease of all of the 56 aircraft to be delivered in 1999, 35 of the 44 aircraft to be delivered in 2000, 19 of the 42 aircraft to be delivered in 2001, 3 of the 42 aircraft to be delivered in 2002 and none of the 119 aircraft to be delivered subsequent to 2002. The Company will need to find customers for aircraft presently on order and any new aircraft ordered and arrange financing for portions of the purchase price of such equipment. Although the Company has been successful to date in placing its new aircraft on lease or sales contracts, and has obtained adequate financing in the past, there can be no assurance as to the future continued availability of lessees or purchasers, or of sufficient amounts of financing on terms acceptable to the Company. FACILITIES The Company's principal offices are located at 1999 Avenue of the Stars, Los Angeles, California. The Company occupies space under leases which expire in 2000. The leases cover approximately 30,000 square feet of office space, provide for annual rentals of approximately $1,597,000, and the rental payments thereunder are subject to certain indexed escalation provisions. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any significant legal proceedings. 7 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company is indirectly wholly owned by AIG and the Company's Common Stock is not listed on any national exchange or traded in any established market. During the years ended December 31, 1998, 1997 and 1996, the Company paid cash dividends to its parent company of $25,200,000, $19,700,000 and $20,600,000, respectively. It is the intent of the Company to pay its parent company an annual dividend of at least 7% of net income subject to the dividend preference of any preferred stock outstanding. Under the most restrictive provisions of the Company's borrowing arrangements, consolidated retained earnings at December 31, 1998 in the amount of $582,174,000 were unrestricted as to the payment of dividends. ITEM 6. SELECTED FINANCIAL DATA The following table summarizes selected consolidated financial data and certain operating information of the Company. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and notes thereto and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K.
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- 1994 1995 1996 1997 1998 ----------- ----------- ----------- ----------- ----------- (DOLLAR AMOUNTS IN THOUSANDS) OPERATING DATA: Rentals of flight equipment..... $ 993,596 $ 1,254,020 $ 1,444,439 $ 1,732,667 $ 1,853,983 Flight equipment marketing...... 76,193 119,078 136,099 176,005 117,194 Interest and other income....... 40,267 49,390 51,976 49,335 74,489 Total revenues.................. 1,110,056 1,422,488 1,632,514 1,958,007 2,045,666 Expenses........................ 798,049 1,084,142 1,237,575 1,431,848 1,483,392 Income before income taxes...... 312,007 338,346 394,939 526,159 562,274 Net income...................... 201,943 196,437 251,774 338,684 369,352 RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS(1): 1.59x 1.43x 1.47x 1.58x 1.60x BALANCE SHEET DATA: Flight equipment under operating leases (net of accumulated depreciation)................. $ 8,851,079 $10,762,870 $12,182,774 $12,792,531 $14,872,430 Net investment in finance and sales-type leases............. 92,233 86,237 103,629 98,026 89,904 Total assets.................... 10,386,256 12,329,182 13,725,596 14,551,954 16,379,632 Total debt...................... 7,583,006 8,892,634 9,794,260 9,954,362 11,184,010 Shareholders' equity............ 1,640,772 2,000,107 2,214,552 2,517,188 2,844,375 OTHER DATA: Aircraft owned at period end(2)........................ 270 278 296 299 329 Aircraft sold or remarketed during the period............. 24 41 37 57 31
- --------------- (1) See Exhibit 12. (2) See "Item 2. Properties -- Flight Equipment." 8 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INDUSTRY CONDITION From time to time, certain of the Company's customers have experienced economic difficulties resulting in the Company's participation in customer restructurings. Such restructurings have involved the voluntary early termination of leases and the rescheduling of payments. In addition, in certain circumstances, the Company has been required to repossess aircraft. Three aircraft owned by the Company were repossessed in 1998 and promptly re-leased. See "Item 1. Business -- Customers." FINANCIAL CONDITION The Company borrows funds to purchase flight equipment, including funds for progress payments during the construction phase, principally on an unsecured basis from various sources. At December 31, 1998, 1997 and 1996, the Company's debt financing and capital lease obligations were comprised of the following:
1998 1997 1996 ----------- ---------- ---------- (DOLLARS IN THOUSANDS) Public term debt with single maturities.......................... $ 3,825,000 $3,950,000 $3,500,000 Public medium-term notes with varying maturities.......................... 3,348,350 2,896,865 2,563,720 Capital lease obligations............. 810,768 903,320 995,872 Bank and other term debt.............. -- -- -- ----------- ---------- ---------- Total term debt and capital lease obligations............... 7,984,118 7,750,185 7,059,592 Commercial paper...................... 3,214,744 2,212,601 2,757,417 Less: Deferred debt discount.......... (14,852) (8,424) (22,749) ----------- ---------- ---------- Debt financing and capital lease obligations......... $11,184,010 $9,954,362 $9,794,260 =========== ========== ========== Composite interest rate............... 6.03% 6.44% 6.23% Percentage of total debt at fixed rate................................ 64.20% 76.49% 68.95% Composite interest rate on fixed debt................................ 6.41% 6.63% 6.58% Bank prime rate....................... 7.75% 8.50% 8.25%
The interest on substantially all of the public debt (exclusive of the commercial paper) is fixed for the term of the note. As of December 31, 1998, the Company had committed revolving loans and lines of credit with 51 commercial banks aggregating $2.75 billion and uncommitted lines of credit with one bank for varying amounts. Bank debt principally provides for interest rates that vary according to the pricing option in effect at the time of borrowing and range from prime to .20% over LIBOR at the Company's option. Bank financings are subject to facility fees of up to .08% of amounts available. Bank financing is used primarily as backup for the Company's Commercial Paper program. In January 1999, the Company replaced $1.35 billion of the committed revolving loans with a new, expanded facility for $1.50 billion. The facility is a 364 day commitment with an 8 basis point annual facility fee. The pricing options available are prime and .22% over LIBOR to .32% over LIBOR, based upon utilization. As of December 31, 1998, the Company had an effective shelf registration statement with respect to $2.13 billion of debt securities, under which $525 million of notes were sold through 1998. Additionally, a $1.25 billion Medium-Term Note program was implemented under the shelf registration statement, under which $1.04 billion was sold through 1998. Through March 15, 1999, the Company increased the size of the Medium-Term Note program to $1.605 billion and sold an additional $465 million of Medium-Term Notes. In March 1999, a new registration statement of the Company with respect to $2.0 billion of debt securities was declared effective. 9 12 The Company has Export Credit Lease financings which provide ten year, amortizing loans in the form of capital lease obligations. The interest rate on 62.5% of the original financing available is 6.55% and the interest rate on 22.5% of the original financing available varies between 6.18% and 6.89%. These two tranches are guaranteed by various European Export Credit Agencies. The remaining 15% of the original financing available provides for LIBOR based pricing. In January 1999, the Company entered into a new Export Credit Facility, up to a maximum of $4.3 billion, for approximately 75 aircraft to be delivered from 1999 through 2001. The Company has the right, but is not required, to use the facility to fund 85% of each aircraft's purchase price. This facility is guaranteed by various European Expert Credit Agencies. The interest rate varies from 5.753% to 5.898% on the first 75 aircraft depending on the delivery date of the aircraft. Through March 15, 1999, the Company borrowed $403.7 million under this facility. In 1995, 1996 and 1997, the Company, through unrestricted subsidiaries, entered into sale-leaseback transactions providing proceeds to the Company in the amounts of $413.0 million, $507.6 million and $601.9 million, respectively, each relating to seven aircraft. The transactions resulted in the sale and leaseback of these aircraft for one year operating leases, each with six one year extension options for a total of seven years for each aircraft. The Company has the option to either buy back the aircraft or redeliver the aircraft for a fee to the lessor at the end of any lease period. The lease rates equate to fixed principal amortization and floating interest payments based on LIBOR or commercial paper pricing. As of December 31, 1998, the Company had repurchased one aircraft which was sold to a third party in January, 1998. The Company believes that the combination of internally generated funds and debt financing currently available to the Company will allow the Company to meet its capital requirements for at least the next 12 months. In the normal course of business, the Company employs a variety of off-balance sheet financial instruments and other derivative products to manage its exposure to interest rates and the resulting impact of changes in interest rates on earnings, with the objective to lower its overall borrowing cost and to maintain its optimal mix of variable and fixed rate interest obligations. The Company only enters into derivative transactions to hedge interest rate risk and not to speculate on interest rates. These derivative products include interest rate swap agreements, interest rate spreadlocks, interest rate swaptions and interest rate floors. The counterparties to the Company's derivative instruments are all recognized U.S. derivative dealers. The counterparties to the majority of the notional amounts of the Company's derivative instruments are "AAA" rated and all have at least an "A" credit rating. The derivatives are subject to a bilateral security agreement which, in certain circumstances, may allow one party to the agreement to require the second party to the agreement to establish a cash collateral account. Any failure of the instruments or counterparties to perform under the derivative contracts would have an immaterial impact on the Company's earnings. Measuring potential losses in fair values has recently become the focus of risk management efforts by many companies. Such measurements are performed through the application of various statistical techniques. One such technique is Value at Risk (VaR), a summary statistical measure that uses historical interest rates and estimates the volatility and correlation of these rates to calculate the maximum loss that could occur over a defined period of time given a certain probability. ILFC believes that statistical models alone do not provide a reliable method of monitoring and controlling market risk. While VaR models are relatively sophisticated, the quantitative market risk information generated is limited by the assumptions and parameters established in creating the related models. Therefore, such models are tools and do not substitute for the experience or judgment of senior management. ILFC is exposed to market risk and the risk of loss of fair value resulting from adverse fluctuations in interest rates. As of December 31, 1998, ILFC statistically measured the loss of fair value through the application of a VaR model. In this analysis the net fair value of ILFC was determined using the financial instrument assets, which included the tax adjusted future flight equipment lease revenue, and the financial instrument liabilities, which included the future servicing of the current debt. The estimated impact of the current derivative positions was also taken into account. 10 13 ILFC calculated the VaR with respect to the net fair value using the variance-covariance (delta-normal) methodology. This calculation also used daily historical interest rates for the two years ending December 31, 1998. The VaR model estimated the volatility of each of these interest rates and the correlation among them. The yield curve was constructed using eleven key points on the curve to model possible curve movements. Thus, the VaR measured the sensitivity of the assets and liabilities to the calculated interest rate exposures. These sensitivities were then applied to a database, which contained the historical ranges of movements in interest rates and the correlation among them. The results were aggregated to provide a single amount that depicts the maximum potential loss in fair value of a confidence level of 95 percent for a time period of one month. As December 31, 1998, the VaR of ILFC with respect to its aforementioned net fair value was $9 million. RESULTS OF OPERATIONS The increase in revenues from rentals of flight equipment from $1,444.4 million in 1996 to $1,732.7 million in 1997 to $1,854.0 million in 1998 is due to the increase in the number of aircraft available for operating lease from 306 in 1996, to 319 in 1997 to 349 in 1998. The increase is also attributable to the increase in the cost of the leased fleet, which includes aircraft subject to sale-leaseback transactions from which rental income is earned, from $14.4 billion in 1996 to $15.9 billion in 1997 and $18.3 billion in 1998. Additionally, the percentage of widebodies, for which higher lease payments are typically received, has increased from 25% to 28% to 30% of the fleet in 1996, 1997 and 1998, respectively. In addition to its leasing operations, the Company engages in the marketing of flight equipment at the end of, or during, the lease term, as well as the sales of flight equipment on a principal and commission basis. Revenue from such flight equipment marketing increased from $136.1 million in 1996 to $176.0 million in 1997, and decreased to $117.2 million in 1998 as a result of the type and the number of the flight equipment marketed in each period which fluctuated from 36 aircraft in 1996 to 57 aircraft in 1997 and to 31 aircraft in 1998. In addition, the Company sold seven engines (1996), 11 engines (1997) and 15 engines (1998). Interest expense fluctuated from $573.6 million in 1996 to $642.3 million in 1997, to $640.0 million in 1998, as a result of an increase in debt outstanding, excluding the effect of debt discount, from $9.817 billion in 1996 to $9.963 billion in 1997 to $11.200 billion in 1998, to finance aircraft acquisitions, offset in part by lower composite borrowing rates in 1998. The Company's composite borrowing rate fluctuated as follows: December 31, 1995........................................... 6.47% March 31, 1996.............................................. 6.31 June 30, 1996............................................... 6.22 September 30, 1996.......................................... 6.28 December 31, 1996........................................... 6.23 March 31, 1997.............................................. 6.20 June 30, 1997............................................... 6.32 September 30, 1997.......................................... 6.34 December 31, 1997........................................... 6.44 March 31, 1998.............................................. 6.29 June 30, 1998............................................... 6.22 September 30, 1998.......................................... 6.18 December 31, 1998........................................... 6.03
Depreciation of flight equipment increased from $485.1 million in 1996 to $546.2 million in 1997 to $556.1 million in 1998 due to the addition of aircraft. The cost of flight equipment during the same periods increased from $13.7 billion at December 31, 1996 to $14.4 billion at December 31, 1997 to $16.9 billion at December 31, 1998. The increase in depreciation expense due to increased flight equipment cost was partially offset by increasing depreciation taken in 1996 and 1997 on older aircraft, which were acquired used, that were either sold or fully depreciated prior to the end of 1997. 11 14 Provisions for overhauls also increased from $85.1 million in 1996 to $99.5 million in 1997 to $102.5 million in 1998 due to an increase in the number of aircraft on which the Company collects overhaul reserves resulting in an increase in the aggregate number of hours flown for which overhaul reserves are provided. Rent expense increased from $51.8 million in 1996 to $103.9 million in 1997 to $138.4 million in 1998 due to the increase in the number of sale-leaseback transactions from 14 aircraft in 1996 to 20 in 1997 and 1998. The effective tax rate decreased from 36.2% in 1996 to 35.7% in 1997 to 34.3% in 1998. IMPACT OF THE YEAR 2000 ISSUE The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. This could result in a failure of the information technology systems (IT systems) and other equipment containing imbedded technology (non-IT systems) in the year 2000, causing disruption of operation of the Company, its lessees, vendors, or business partners. The Company has developed a plan to address the Year 2000 issue as it affects the Company's internal IT and non-IT systems, and to assess Year 2000 issues relating to third parties on which the Company has critical dependencies. A Steering Committee made up of executives of member companies of American International Group, Inc. ("AIG"), the Company's parent, has had oversight of the plan's development and execution. The plan for addressing internal systems includes: an assessment of internal IT and non-IT systems and equipment affected by the Year 2000 issue; definition of strategies to address affected systems and equipment; remediation of identified affected systems and equipment; and review and approval by AIG that each internal system is Year 2000 compliant. The Company has completed this project and testing results have been reviewed and approved by AIG staff. The plan for addressing third party critical dependencies includes: identification of third party critical dependencies including lessees, vendors and financial institutions; circulation to all applicable third parties of a written request for their plans and progress in addressing the Year 2000 issue; evaluation of responses; and development of contingency plans to address risks of non-compliance by third parties. The Company has completed the identification of critical dependencies and the circulation of requests for Year 2000 compliance status. The Company has received responses from 80% of the third parties identified. Based upon these responses, the Company has concluded that 65% of critical dependencies are or will be Year 2000 compliant before December 31, 1999. Follow up with non-compliant third parties and those who have not responded is ongoing. The costs associated with addressing the Year 2000 issue, including developing and implementing the above stated plan and remediating affected systems and equipment, have been nominal and were expensed as incurred. Such costs do not include normal system upgrades and replacements. The Company does not expect to incur any significant future costs relating to internal IT and non-IT systems as a result of the Year 2000 issue. While the Company expects to have no interruption of operations as a result of internal IT and non-IT systems, significant uncertainties remain about the effect of third party critical dependencies who are not Year 2000 compliant. The Company is developing contingency plans for critical vendors. The Company is not aware of any significant Year 2000 system issues with respect to the airworthiness of aircraft; however, should such an issue result in Airworthiness Directives or other manufacturer recommended maintenance, the implementation and the majority of the cost of such implementation would be the responsibility of the aircraft lessee. The Company has notified the lessees of this responsibility. Any resulting costs to the Company cannot be estimated at this time. Non-compliance on the part of a lessee could result in inadequate insurance coverage, lost revenue, and an inability to make lease payments to the Company. Non-compliance by the lessee's financial institution could also affect the ability to process lease payments. The Company has attempted to mitigate such risks by 12 15 inquiring of each lessee about its Year 2000 plans, including whether they have addressed the issue with their financial institution. Non-compliant manufacturing systems at the Company's primary vendors of aircraft and engines may affect their ability to deliver products on a timely basis. As there is no alternative source of supply, such an occurrence would limit the Company's future growth opportunities. A possible scenario would be that a large number of lessees will be unable to operate and generate revenues and as a result be unable to make lease payments. The Company is unable to estimate the likelihood or the magnitude of the resulting lost revenue at this time. Should this occur, the Company would attempt to repossess aircraft from non-compliant lessees and place the aircraft with compliant lessees. No assurances can be given that the Company would be able to re-lease such aircraft at favorable terms or at all. If a significant number of aircraft could not be re-leased at favorable terms or at all, or their re-lease is delayed, the Company's business, financial condition and results of operations would be adversely affected. Certain of the statements in this discussion, as well as other forward-looking statements within this document, contain estimates and projections of cash flows and debt financing to support future capital requirements. While these forward-looking statements are made in good faith, future operating, market, competitive, economic and other conditions and events could cause actual results to differ materially from those in the forward-looking statements. NEW ACCOUNTING PRONOUNCEMENTS, ISSUED BUT NOT YET EFFECTIVE On June 15, 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133). FAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company had not yet determined the impact that the adoption of FAS 133 will have on its earnings or statement of financial position. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this Item is submitted as a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) and (2): Financial Statements and Financial Statement Schedule: The response to this portion of Item 14 is submitted as a separate section of this report beginning on page 14. (a)(3) and (c): Exhibits: The response to this portion of Item 14 is submitted as a separate section on this report beginning on page 14. (b) Reports on Form 8-K: None. 13 16 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES FORM 10-K ITEMS 8, 14(a), AND 14(c) INDEX OF CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE The following consolidated financial statements of the Company and its subsidiaries required to be included in Item 8 are listed below:
PAGE ---- Reports of Independent Auditors............................. 16-17 Consolidated Financial Statements: Balance Sheets at December 31, 1997 and 1998.............. 18 Statements of Income for the years ended December 31, 1996, 1997 and 1998.................................... 19 Statements of Shareholders' Equity for the years ended December 31, 1996, 1997 and 1998....................... 20 Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998.................................... 21-22 Notes to Consolidated Financial Statements................ 23
The following financial statement schedule of the Company and its subsidiaries is included in Item 14(a)(2):
SCHEDULE NUMBER DESCRIPTION PAGE - --------------- ----------- ---- II Valuation and Qualifying Accounts........................... 36
All other financial statements and schedules not listed have been omitted since the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required. The following exhibits of the Company and its subsidiaries are included in Item 14(c):
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Restated Articles of Incorporation of the Company, as amended through December 9, 1992, filed November 3, 1993 (filed as an exhibit to Registration Statement No. 33-50913 and incorporated herein by reference). 3.2 Certificate of Determination of Preferences of Series C Market Auction Preferred Stock (filed as an exhibit to Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 3.3 Certificate of Determination of Preferences of Series D Market Auction Preferred Stock (filed as an exhibit to Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 3.4 Certificate of Determination of Preferences of Series E Market Auction Preferred Stock (filed as an exhibit to Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 3.5 Certificate of Determination of Preferences of Series F Market Auction Preferred Stock (filed as an exhibit to Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 3.6 Certificate of Determination of Preferences of Series G Market Auction Preferred Stock (filed as an exhibit to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 3.7 Certificate of Determination of Preferences of Series H Market Auction Preferred Stock (filed as an exhibit to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 3.8 By-Laws of the Company, including amendment thereto dated August 31, 1990 (filed as an exhibit to Registration Statement No. 33-37600 and incorporated herein by reference).
14 17
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4.1 Indenture dated as of November 1, 1991, between the Company and U.S. Bank Trust National Association (successor to Continental Bank, National Association), as Trustee (filed as an exhibit to Registration Statement No. 33-43698 and incorporated herein by reference). 4.2 The Company agrees to furnish to the Commission upon request a copy of each instrument with respect to issues of long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries. 10.1 Revolving Credit Agreement, dated as of January 17, 1997, among the Company, Union Bank of Switzerland, New York Branch, and the other banks listed therein providing up to $1,250,000,000 (five year facility) (filed as an exhibit to Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 10.2 Revolving Credit Agreement, dated as of January 15, 1999, among the Company, Citicorp USA, Inc., and the other banks listed therein providing up to $1,500,000,000 (364 day facility). 10.3 Aircraft Facility Agreement, dated as of January 19, 1999, among the Company, Halifax PLC and the other banks listed therein providing up to $4,327,260,000 for the financing of approximately seventy-five Airbus aircraft. 12. Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Ernst and Young LLP. 27. Financial Data Schedule.
15 18 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors International Lease Finance Corporation Los Angeles, California In our opinion, the consolidated financial statements listed in the index appearing under Items 14(a)(1) and (2) on page 14 present fairly, in all material respects, the financial position of International Lease Finance Corporation and its subsidiaries (the "Company") at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP February 9, 1999 16 19 REPORT OF INDEPENDENT AUDITORS Shareholders And Board of Directors International Lease Finance Corporation Los Angeles, California We have audited the accompanying consolidated statements of income, shareholders' equity, and cash flows of International Lease Finance Corporation and subsidiaries for the year ended December 31, 1996. Our audit also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of International Lease Finance Corporation and subsidiaries for the year ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Century City, Los Angeles, California February 19, 1997 17 20 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS
DECEMBER 31, -------------------------- 1998 1997 ----------- ----------- Cash, including interest bearing accounts of $33,716 (1998) and $35,113 (1997)......................... $ 52,723 $ 63,754 Current income taxes........................................ 16,007 -- Notes receivable............................................ 340,344 467,688 Net investment in finance and sales-type leases............. 89,904 98,026 Flight equipment under operating leases..................... 16,860,789 14,425,091 Less accumulated depreciation............................. 1,988,359 1,632,560 ----------- ----------- 14,872,430 12,792,531 Deposits on flight equipment purchases...................... 906,197 1,017,628 Accrued interest, other receivables and other assets........ 60,754 60,416 Investments................................................. 11,771 18,731 Deferred debt issue costs -- less accumulated amortization of $62,115 (1998) and $52,444 (1997)......................... 29,502 33,180 ----------- ----------- $16,379,632 $14,551,954 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Accrued interest and other payables......................... $ 235,046 $ 214,106 Current income taxes........................................ -- 64,891 Debt financing, net of deferred debt discount of $14,852 (1998) and $8,424 (1997).......................... 10,373,242 9,051,042 Capital lease obligations................................... 810,768 903,320 Security and other deposits on flight equipment............. 863,832 744,800 Rentals received in advance................................. 119,682 129,586 Deferred income taxes....................................... 1,132,687 927,021 Commitments and contingencies -- Note K SHAREHOLDERS' EQUITY Preferred stock -- no par value; 20,000,000 authorized shares Market Auction Preferred Stock, $100,000 per share liquidation value; Series A, B, C, D, E, F, G and H (1998 and 1997), each having 500 shares issued and outstanding...................... 400,000 400,000 Common stock -- no par value; 100,000,000 authorized shares, 35,818,122 shares (1998 and 1997) issued and outstanding............................................ 3,582 3,582 Paid-in capital........................................... 579,955 579,955 Retained earnings......................................... 1,860,838 1,533,651 ----------- ----------- 2,844,375 2,517,188 ----------- ----------- $16,379,632 $14,551,954 =========== ===========
See accompanying notes. 18 21 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------------------ 1998 1997 1996 ---------- ---------- ---------- Revenues: Rental of flight equipment............................... $1,853,983 $1,732,667 $1,444,439 Flight equipment marketing............................... 117,194 176,005 136,099 Interest and other....................................... 74,489 49,335 51,976 ---------- ---------- ---------- 2,045,666 1,958,007 1,632,514 Expenses: Interest................................................. 639,964 642,321 573,599 Depreciation of flight equipment......................... 556,082 546,226 485,102 Provision for overhaul................................... 102,508 99,458 85,083 Flight equipment rent expense............................ 138,392 103,883 51,809 Selling, general and administrative...................... 46,446 39,960 41,982 ---------- ---------- ---------- 1,483,392 1,431,848 1,237,575 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES............................ 562,274 526,159 394,939 Provision for income taxes................................. 192,922 187,475 143,165 ---------- ---------- ---------- NET INCOME............................................ $ 369,352 $ 338,684 $ 251,774 ========== ========== ==========
See accompanying notes. 19 22 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARKET AUCTION PREFERRED STOCK COMMON STOCK --------------------- -------------------- NUMBER OF NUMBER OF PAID-IN RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL --------- -------- ---------- ------ -------- ---------- ---------- Balance at December 31, 1995........ 4,000 $400,000 35,818,122 $3,582 $580,085 $1,016,440 $2,000,107 Sale of MAPS preferred............ (130) (130) Dividend to AIG................... (20,600) (20,600) Preferred stock dividends......... (16,599) (16,599) Net income........................ 251,774 251,774 ----- -------- ---------- ------ -------- ---------- ---------- Balance at December 31, 1996........ 4,000 $400,000 35,818,122 $3,582 $579,955 $1,231,015 $2,214,552 Dividends to AIG.................. (19,700) (19,700) Preferred stock dividends......... (16,348) (16,348) Net income........................ 338,684 338,684 ----- -------- ---------- ------ -------- ---------- ---------- Balance at December 31, 1997........ 4,000 $400,000 35,818,122 $3,582 $579,955 $1,533,651 $2,517,188 Dividends to AIG.................. (25,200) (25,200) Preferred stock dividends......... (16,965) (16,965) Net income........................ 369,352 369,352 ----- -------- ---------- ------ -------- ---------- ---------- Balance at December 31, 1998........ 4,000 $400,000 35,818,122 $3,582 $579,955 $1,860,838 $2,844,375 ===== ======== ========== ====== ======== ========== ==========
See accompanying notes. 20 23 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- ----------- OPERATING ACTIVITIES: Net income................................................ $ 369,352 $ 338,684 $ 251,774 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of flight equipment........................ 556,082 546,226 485,102 Deferred income taxes................................... 205,666 117,727 148,356 Amortization of deferred debt issue costs............... 10,242 9,505 8,841 Gain on sale of flight equipment included in amount financed.............................................. (10,747) (30,369) (16,063) Increase in notes receivable............................ (18,591) (712) (66,721) Equity in net (income) loss of affiliates............... (1,159) (632) (788) Change in unamortized debt discount..................... (6,428) 14,325 (7,057) Changes in operating assets and liabilities: (Increase) decrease in accrued interest, other receivables and other assets.......................... (338) (9,521) 37,096 Increase (decrease) in accrued interest and other payables.............................................. 20,940 (5,005) 22,435 (Increase) decrease in current income taxes receivable............................................ (80,898) 81,311 14,383 (Decrease) increase in rentals received in advance...... (9,904) 52,479 (3,704) ----------- ----------- ----------- Net cash provided by operating activities................... 1,034,217 1,114,018 873,654 ----------- ----------- ----------- INVESTING ACTIVITIES: Acquisition of flight equipment for operating leases...... (3,274,247) (3,289,744) (3,210,986) Decrease (increase) in deposits and progress payments..... 111,431 (156,273) (55,785) Proceeds from disposal of flight equipment -- net of gain.................................................... 587,882 2,038,390 1,194,946 Advances on notes receivable.............................. (7,000) -- -- Collections on notes receivable........................... 214,067 82,464 163,298 Collections on finance and sales-type leases.............. 8,122 11,049 7,781 Purchase of investments................................... (6) -- -- Dividend from unconsolidated subsidiary................... 8,125 -- -- ----------- ----------- ----------- Net cash used in investing activities....................... (2,351,626) (1,314,114) (1,900,746) ----------- ----------- ----------- FINANCING ACTIVITIES: Proceeds from debt financing and capital lease obligations............................................. 5,772,791 6,084,081 5,042,064 Payments in reduction of debt financing and capital lease obligations............................................. (4,536,715) (5,938,304) (4,133,381) Proceeds from sale of MAPS preferred stock (net of issue costs).................................................. -- -- (130) Debt issue costs.......................................... (6,565) (15,966) (8,057) Payment of common and preferred dividends................. (42,165) (36,048) (37,199) Increase in customer deposits............................. 119,032 133,529 113,256 ----------- ----------- ----------- Net cash provided by financing activities................... 1,306,378 227,292 976,553 ----------- ----------- ----------- Net increase (decrease) in cash............................. (11,031) 27,196 (50,539) Cash at beginning of year................................... 63,754 36,558 87,097 ----------- ----------- ----------- Cash at end of year..................................... $ 52,723 $ 63,754 $ 36,558 =========== =========== =========== (Table continued on next page)
21 24 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid (received) during the year for: Interest (net of amount capitalized $54,297 (1998), $48,818 (1997) and $50,368 (1996))................................... $ 628,819 $ 619,274 $ 559,437 Income taxes (net of amounts paid)...................... 68,154 (11,563) (19,574)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: 1998 Notes and finance and sales-type leases in the amount of $107,155 were received as partial payment in exchange for flight equipment sold with a book value of $96,407. Flight equipment was received in exchange for notes receivable in the amount of $46,023. 1997 Notes and finance and sales-type leases in the amount of $125,741 were received as partial payment in exchange for flight equipment sold with a book value of $95,372. 1996 Notes and finance and sale-type leases in the amount of $173,404 were received as partial payment in exchange for flight equipment sold with a book value of $157,340. Flight equipment was received in exchange for notes receivable in the amount of $46,307. See accompanying notes. 22 25 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization: The Company is primarily engaged in the acquisition of new and used commercial jet aircraft and the leasing and sale of such aircraft to charter and scheduled airlines throughout the world. In addition, the Company is engaged in the remarketing of commercial jets for its own account, for airlines and for financial institutions. Parent Company: International Lease Finance Corporation (the "Company") is an indirect wholly owned subsidiary of American International Group, Inc. ("AIG"). AIG is a holding company which through its subsidiaries is primarily engaged in a broad range of insurance and insurance-related activities and financial services in the United States and abroad. Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Investments of less than 20% in other entities are carried at cost. Investments of between 20% and 50% in other entities are carried under the equity method. All significant intercompany balances and transactions have been eliminated in consolidation. Intercompany Allocations: The Company is party to cost sharing agreements with AIG. Generally, these agreements provide for the allocation of costs upon either a specific identification basis or a proportional cost allocation basis. The charges aggregated $3,828 (1998), $4,526 (1997) and $5,595 (1996). Rentals: The Company, as lessor, leases flight equipment principally under operating leases. Accordingly, income is reported over the life of the lease as rentals become receivable under the provisions of the lease or, in the case of leases with varying payments, under the straight-line method over the noncancelable term of the lease. In certain cases, leases provide for additional rentals based on usage. Flight Equipment Marketing: The Company is a marketer of flight equipment. Marketing revenues include all revenues from such operations consisting of net gains on sales of flight equipment and commissions. Flight Equipment: Flight equipment is stated at cost. Major additions and modifications are capitalized. Normal maintenance and repairs; airframe and engine overhauls; and compliance with return conditions of flight equipment on lease are provided by and paid for by the lessee. Under the provisions of most leases, for certain airframe and engine overhauls, the lessee is reimbursed for costs incurred up to but not exceeding related contingent rentals paid to the Company by the lessee. Such rentals are included in the caption Rental of flight equipment. The Company provides a charge to operations for such reimbursements based on the estimated reimbursements expected during the life of the lease, which amount is included in overhaul reserves. Generally, all aircraft, including aircraft acquired under capital leases, are depreciated using the straight-line method over a 25 year life from the date of manufacture to a 15% residual value. At the time assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the related accounts and the difference, net of proceeds, is recorded as a gain or loss. The Company regularly reviews its flight equipment to determine that its carrying value is not impaired. Capitalized Interest: The Company borrows certain funds to finance progress payments for the construction of flight equipment ordered. The interest incurred on such borrowings is capitalized and included in the cost of the equipment. Deferred Debt Issue Costs: Deferred debt issue costs incurred in connection with debt financing are amortized over the life of the debt using the interest rate method and are charged to interest expense. Financial Instruments: The Company has granted certain parties the right but not the obligation to effectively convert certain of the Company's fixed rate obligations to floating rate obligations based on an established notional amount. The proceeds of such option agreements are initially recorded as a liability. 23 26 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) When swap agreements are effective in modifying the terms of actual debt agreements, such swaps are accounted for by the accrual method. Periodic payments as well as the amortization (by a level yield method) of the initial value are treated as adjustments to interest expense of the related debt. Income Taxes: The Company and its U.S. subsidiaries are included in the consolidated federal income tax return and the combined California unitary tax return of AIG. The provision for income taxes is calculated on a separate return basis. Income tax payments are made pursuant to a tax payment allocation agreement whereby AIG credits or charges the Company for the corresponding increase or decrease (not to exceed the separate return basis calculation) in AIG's current taxes resulting from the inclusion of the Company in AIG's consolidated tax return. Intercompany payments are made when such taxes are due or tax benefits are realized by AIG. The deferred tax liability is determined based on the difference between the financial statement and tax basis of assets and liabilities and is measured at the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is determined by the change in the liability for deferred taxes ("Liability Method"). Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications: Certain amounts have been reclassified in the 1997 and 1996 financial statements to conform to the Company's 1998 presentation. NOTE B -- NOTES RECEIVABLE Notes receivable are primarily from the sale of flight equipment and are summarized as follows:
1998 1997 -------- -------- Fixed rate notes receivable due in varying installments to 2008: Less than 6%..................................... $ 3,504 $ 3,691 6% to 7.99%...................................... 219,493 306,053 8% to 9.99%...................................... 83,711 94,788 10% to 13%....................................... 11,199 6,126 LIBOR plus 1.1% to LIBOR plus 1.5% notes receivable in varying installments to 2002.................. 22,437 57,030 -------- -------- $340,344 $467,688 ======== ========
Included above, the Company had notes receivable of $10,328 (1998) and $4,374 (1997) representing restructured lease payments. 24 27 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE B -- NOTES RECEIVABLE (CONTINUED) At December 31, 1998, the minimum future notes receivable payments to be received are as follows: 1999................................................... $ 54,856 2000................................................... 30,905 2001................................................... 41,163 2002................................................... 33,136 2003................................................... 29,362 Thereafter............................................. 150,922 -------- $340,344 ========
The Company sold notes receivable with certain limited recourse provisions to a related party of the Company. The notes were sold at face value including accrued interest and aggregated $68,694 in 1998 and $116,235 in 1996. The Company continues to collect payments on the notes, transfers the payments to the related party and receives a servicing fee. The Company recorded no gain or loss on the sale. The Company recorded servicing fee income of $1 (1998), $112 (1997) and $16 (1996) related to the notes sold. The Company's maximum exposure under recourse provisions was $13,739 at December 31, 1998 and $0 at December 31, 1997. During 1997 the Company repurchased one note sold in 1996. The note was not repurchased under the recourse provisions. NOTE C -- NET INVESTMENT IN FINANCE AND SALES-TYPE LEASES The following lists the components of the net investment in finance and sales-type leases:
1998 1997 -------- -------- Total minimum lease payments to be received............ $ 93,832 $109,615 Estimated residual values of leased flight equipment... 19,949 19,993 Less: Unearned income.................................. (23,877) (31,582) -------- -------- Net investment in finance and sales-type leases........ $ 89,904 $ 98,026 ======== ========
Minimum future lease payments to be received for flight equipment on finance and sales-type leases at December 31, 1998 are as follows: 1999.................................................... $14,681 2000.................................................... 16,095 2001.................................................... 16,095 2002.................................................... 16,035 2003.................................................... 15,843 Thereafter.............................................. 15,083 ------- Total minimum lease payments to be received............. $93,832 =======
25 28 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE D -- INVESTMENTS Investments consist of the following:
1998 1997 ------------------ ------------------ PERCENT PERCENT OWNED AMOUNT OWNED AMOUNT ------- ------- ------- ------- Cost method: Air Liberte......................... (A) $ 4,792 (A) $ 4,792 Others.............................. 1,158 1,150 Equity method: Pacific Ocean Leasing Ltd........... 50.0% 5,219 50.0% 5,995 Pacific Asia Leasing Ltd............ 25.0% 602 25.0% 6,794 ------- ------- $11,771 $18,731 ======= =======
- --------------- (A) During 1997, Air Liberte was acquired by British Airways. As a result of the acquisition, ILFC's percentage ownership will be reduced. Until the acquisition is complete, ILFC's percentage ownership is not determinable. The Company has a 50% interest in Pacific Ocean Leasing Ltd. ("POL"), a Bermuda corporation. POL owns one Boeing 767-200 aircraft and one spare engine, both of which were on lease to an airline. POL also owns an inventory of spare parts. The aircraft and spare engine were sold in January 1999. Additionally, the Company had guaranteed the bank loan to POL (see Note K). The Company has a 25% interest in Pacific Asia Leasing Ltd. ("PAL"), a Bermuda corporation. PAL owned one Boeing 767-300ER aircraft on lease to an airline. The aircraft was sold in 1998. The Company had a demand note, which bore interest at Libor+1 5/8%, with PAL of $26,751 (1997). The note was paid in full as of December 31, 1998. The Company received a dividend of $8,125 in 1998. 26 29 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE E -- DEBT FINANCING AND CAPITAL LEASE OBLIGATIONS Debt financing and capital lease obligations are comprised of the following:
1998 1997 ----------- ---------- Commercial Paper (weighted average interest rate at December 31, 5.30% (1998) and 5.89% (1997))...... $ 3,214,744 $2,212,601 Term Notes......................................... 3,825,000 3,950,000 Medium-Term Notes.................................. 3,348,350 2,896,865 Capital Lease Obligations.......................... 810,768 903,320 Less: Deferred debt discount....................... (14,852) (8,424) ----------- ---------- $11,184,010 $9,954,362 =========== ==========
Bank Financing: The interest on substantially all of the public debt (exclusive of the commercial paper) is fixed for the term of the note. As of December 31, 1998, the Company had committed revolving loans and lines of credit with 51 commercial banks aggregating $2.75 billion and uncommitted lines of credit with one bank for varying amounts. Bank debt principally provides for interest rates that vary according to the pricing option in effect at the time of borrowing and range from prime to .20% over LIBOR at the Company's option. Bank financings are subject to facility fees of up to .08% of amounts available. Bank financing is used primarily as backup for the Company's Commercial Paper program. 27 30 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE E -- DEBT FINANCING AND CAPITAL LEASE OBLIGATIONS (CONTINUED) Term Notes: The Company has issued the following Notes which provide for a single principal payment at maturity and cannot be redeemed prior to maturity:
INITIAL TERM 1998 1997 -------- ---------- ---------- 8 1/8% Notes due January 15, 1998........................... 3 years $ $ 150,000 5 5/8% Notes due March 1, 1998.............................. 4 years 100,000 5 3/4% Notes due March 15, 1998............................. 5 years 100,000 7% Notes due June 1, 1998................................... 4 years 100,000 6 1/4% Notes due June 15, 1998.............................. 3 years 100,000 Floating Rate Notes due June 19, 1998 (swapped to 6.50%).... 2 years 100,000 5 3/4% Notes due July 1, 1998............................... 5 years 100,000 8.35% Notes due October 1, 1998............................. 7 years 100,000 Floating Rate Notes due November 2, 1998 (swapped to 6.0725%).................................................. 2 years 100,000 5 3/4% Notes due January 15, 1999........................... 5 years 150,000 150,000 5 1/2% Notes due January 15, 1999........................... 3 years 150,000 150,000 7 1/2% Notes due March 1, 1999.............................. 4 years 100,000 100,000 6 5/8% Notes due April 1, 1999.............................. 5 years 100,000 100,000 6.70% Notes due April 30, 1999.............................. 2 years 100,000 100,000 Floating Rate Notes due June 2, 1999 (swapped to 6.64%)..... 4 years 100,000 100,000 Floating Rate Notes due July 15, 1999 (swapped to 6.235%)... 4 years 100,000 100,000 6 1/2% Notes due August 15, 1999............................ 7 years 100,000 100,000 6 1/8% Notes due November 1, 1999........................... 4 years 100,000 100,000 5 3/4% Notes due December 15, 1999.......................... 4 years 150,000 150,000 8 1/4% Notes due January 15, 2000........................... 5 years 100,000 100,000 6 3/8% Notes due January 18, 2000........................... 3 years 200,000 200,000 6.65% Notes due April 1, 2000............................... 3 years 100,000 100,000 6.20% Notes due May 1, 2000................................. 7 years 100,000 100,000 7% Notes due May 15, 2000................................... 5 years 100,000 100,000 6 5/8% Notes due June 1, 2000............................... 3 years 100,000 100,000 6 5/8% Notes due August 15, 2000............................ 4 years 100,000 100,000 6 1/4% Notes due October 15, 2000........................... 5 years 100,000 100,000 Floating Rate Notes due February 1, 2001 (swapped to 6.53%).................................................... 4 years 100,000 100,000 8 7/8% Notes due April 15, 2001............................. 10 years 150,000 150,000 5.875% Notes due January 15, 2001........................... 3 years 200,000 6 7/8% Notes due May 1, 2001................................ 4 years 100,000 100,000 5.95% Notes due June 1, 2001................................ 3 years 100,000 6 1/2% Notes due July 1, 2001............................... 4 years 100,000 100,000 5 7/8% Notes due July 1, 2001............................... 3 years 125,000 6 3/8% Notes due August 1, 2001............................. 4 years 100,000 100,000 6 1/2% Notes due October 15, 2001........................... 5 years 100,000 100,000 6 3/8% Notes due February 15, 2002.......................... 5 years 100,000 100,000 5.90% Notes due April 15, 2002.............................. 4 years 100,000 6.00% Notes due May 15, 2002................................ 4 years 100,000 6 3/8% Notes due August 1, 2002............................. 5 years 100,000 100,000 5 3/4% Notes due January 15, 2003........................... 5 years 100,000 6.00% Notes due June 15, 2003............................... 5 years 100,000 8 3/8% Notes due December 15, 2004.......................... 10 years 100,000 100,000 ---------- ---------- $3,825,000 $3,950,000 ========== ==========
- --------------- See Note L -- Financial Instruments. 28 31 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE E -- DEBT FINANCING AND CAPITAL LEASE OBLIGATIONS (CONTINUED) Medium-Term Notes: The Company's Medium-Term Notes have an average notional amount of $14 million, bear interest at rates varying between 4.85% and 8.55%, inclusive, with maturities from 1999 through 2005. The Medium-Term Notes provide for a single principal payment at the maturity of the respective note. They cannot be redeemed by the Company prior to maturity. Capital Lease Obligations: The Company's Capital Lease Obligations provide 10 year, fully amortizing debt in three interest rate tranches. The first 62.5% of the original debt is at a fixed rate of 6.55%. The second 22.5% of the original debt is at fixed rates varying between 6.18% and 6.89%. These two tranches are guaranteed by various European Export Credit Agencies. The final 15% of the original debt is at a floating LIBOR based rate. The debt matures through 2005. The flight equipment associated with the obligations, and included in flight equipment under operating leases in the balance sheet, had a net book value of $1,104,413 (1998) and $1,147,514 (1997). The following is a schedule by years of future minimum lease payments under capitalized leases together with the present value of the net minimum lease payments as of December 31, 1998: 1999..................................................... $ 144,238 2000..................................................... 138,113 2001..................................................... 131,816 2002..................................................... 125,636 2003..................................................... 119,326 Thereafter............................................... 373,301 ---------- Total minimum lease payments............................. 1,032,430 Less amount representing interest........................ 221,662 ---------- Present value of net minimum lease payments.............. $ 810,768 ==========
Maturities of debt financing and capital lease obligations (excluding commercial paper and deferred debt discount) at December 31, 1998 are as follows: 1999..................................................... $1,975,802 2000..................................................... 1,998,052 2001..................................................... 2,034,552 2002..................................................... 870,652 2003..................................................... 552,052 Thereafter............................................... 553,008 ---------- $7,984,118 ==========
Under the most restrictive provisions of the related borrowings, consolidated retained earnings at December 31, 1998, in the amount of $582,174, are unrestricted as to payment of dividends based on consolidated tangible net worth requirements. The Company has entered into various debt and derivative transactions with an affiliate acting as a broker-dealer. These transactions were either awarded on a competitive bid basis or have terms that are no less favorable to the Company than could be obtained from other broker-dealers. 29 32 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE F -- SHAREHOLDERS' EQUITY Preferred Stock: Issuance costs of $130 for Series G and H Market Auction Preferred Stock ("MAPS"), issued in November 1995, were incurred in 1996. The MAPS have a liquidation value of $100 per share and are not convertible. The dividend rate, other than the initial rate, for each dividend period for each series is reset approximately every 7 weeks (49 days) on the basis of orders placed in an auction. At December 31, 1998, the dividend rates for Series A through H ranged from 4.090% to 4.440%. Stock Appreciation Rights: Stock Appreciation Rights ("SARs") were granted to certain employees of the Company during 1990. The SARs granted generally vest over a nine year period from the effective date and are exercisable immediately upon vesting. SARs initially have no value but can gain a cash value based upon the difference between a Benchmark Price and a Formula Price (based on adjusted pre-tax cash flow of the Company), but not in excess of an aggregate of $150,000, to be accrued and paid over the period of the plan. The SAR plan became effective on January 1, 1991. No value has been earned or accrued under the SAR plan as of December 31, 1998. NOTE G -- RENTAL INCOME Minimum future rentals on noncancelable operating leases and subleases of flight equipment which have been delivered at December 31, 1998 are as follows:
YEAR ENDED ---------- 1999..................................................... $1,588,664 2000..................................................... 1,391,190 2001..................................................... 1,237,333 2002..................................................... 1,055,109 2003..................................................... 802,372 Thereafter............................................... 1,173,187 ---------- $7,247,855 ==========
Additional rentals earned by the Company based on the lessees' usage aggregated $202,425 (1998), $219,380 (1997) and $194,741 (1996). Flight equipment is leased, under operating leases, with remaining terms ranging from one to 12 years. NOTE H -- RENTAL EXPENSE During 1995, 1996 and 1997, the Company entered into sale-leaseback transactions providing proceeds to the Company in the amounts of $412,626, $507,600 and $601,860, respectively, relating to seven aircraft for each transaction. The transactions resulted in the sale and leaseback of these aircraft under one year operating leases, each with six one year extension options, maturing on December 22, 1999, September 20, 1999 and September 13, 1999, respectively. During 1997 one aircraft was repurchased. The lease rates equate to fixed principal amortization and floating interest payments based on LIBOR or commercial paper pricing. Minimum future rental expense for 1999 is $43,977 at December 31, 1998. 30 33 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE I -- INCOME TAXES The provision (benefit) for income taxes is comprised of the following:
1998 1997 1996 -------- -------- -------- Current: Federal(1)........................................... $(10,033) $ 60,003 $(16,700) State................................................ (2,938) 8,280 1,957 Foreign.............................................. 227 1,465 9,381 -------- -------- -------- (12,744) 69,748 (5,362) Deferred: Federal.............................................. 191,633 111,120 138,750 State................................................ 14,033 6,607 9,777 -------- -------- -------- 205,666 117,727 148,527 -------- -------- -------- $192,922 $187,475 $143,165 ======== ======== ========
- --------------- (1) Including U.S. tax on foreign income The provision for deferred income taxes is comprised of the following temporary differences:
1998 1997 1996 -------- -------- -------- Accelerated depreciation on flight equipment........... $194,352 $123,486 $132,101 Excess of state income taxes not currently deductible for Federal income tax purposes...................... (4,912) (2,312) (3,422) Tax versus book lease differences...................... 23,341 18,568 35,933 Provision for overhauls................................ (15,616) (2,873) (7,726) Rentals received in advance............................ 3,464 (18,270) (5,855) Straight line rents.................................... 829 778 (3,020) Other.................................................. 4,208 (1,650) 516 -------- -------- -------- $205,666 $117,727 $148,527 ======== ======== ========
The deferred tax liability consists of the following:
1998 1997 ---------- -------- Accelerated depreciation on flight equipment........ $1,137,213 $942,861 Excess of state income taxes not currently deductible for Federal income tax purposes................... (24,695) (19,783) Tax versus book lease differences................... 109,806 86,465 Provision for overhauls............................. (57,262) (41,646) Rentals received in advance......................... (51,283) (54,747) Straight line rents................................. 16,015 15,186 Other............................................... 2,893 (1,315) ---------- -------- $1,132,687 $927,021 ========== ========
31 34 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE I -- INCOME TAXES (CONTINUED) A reconciliation of computed expected total provision for income taxes to the amount recorded is as follows:
1998 1997 1996 -------- -------- -------- Computed expected provision based upon a federal rate of 35%............................................... $196,796 $184,156 $138,229 State income taxes, net of Federal income taxes........ 7,211 9,676 7,628 Foreign sales corporation benefit...................... (8,719) (6,920) (6,160) Foreign taxes.......................................... (3,194) -- 5,286 Other.................................................. 828 563 (1,818) -------- -------- -------- $192,922 $187,475 $143,165 ======== ======== ========
NOTE J -- OTHER INFORMATION Concentration of Credit Risk The Company leases and sells aircraft to airlines. All of the lease receivables and the majority of notes receivable are from airlines located throughout the world. The Company generally obtains deposits on leases and obtains collateral in flight equipment on notes receivable. The Company has no single customer which accounts for 10% or more of revenues. Segment Information The Company operates within one industry; the leasing, sales and management of flight equipment. Revenues include rentals of flight equipment to foreign airlines of $1,623,891 (1998), $1,472,075 (1997) and $1,202,651 (1996). The following table sets forth the dollar amount and percentage of total rental revenues attributable to the indicated geographic areas for the years indicated:
1998 1997 1996 ------------------ ------------------ ------------------ AMOUNT % AMOUNT % AMOUNT % ---------- ----- ---------- ----- ---------- ----- (DOLLARS IN THOUSANDS) Europe............................. $ 798,773 43.1% $ 705,128 40.7% $ 551,703 38.2% Asia/Pacific....................... 410,600 22.1 358,687 20.7 332,159 23.0 United States and Canada........... 333,472 18.0 345,143 19.9 304,801 21.2 Central, South America and Mexico........................... 190,572 10.3 211,152 12.2 165,819 11.5 Africa and the Middle East......... 120,566 6.5 112,557 6.5 89,957 6.2 ---------- ----- ---------- ----- ---------- ----- $1,853,983 100.0% $1,732,667 100.0% $1,444,439 100.0% ========== ===== ========== ===== ========== =====
Employee Benefit Plans The Company's employees participate in various benefit plans sponsored by AIG, including a noncontributory qualified defined benefit retirement plan, various stock option and purchase plans and a voluntary savings plan (401(k) plan). AIG's U.S. plans do not separately identify projected benefit obligations and plan assets attributable to employees of participating affiliates. AIG's projected benefit obligations exceeded the plan assets at December 31, 1998 by $49,448. 32 35 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE K -- COMMITMENTS AND CONTINGENCIES Aircraft orders At December 31, 1998, the Company had committed to purchase 303 aircraft deliverable from 1999 through 2006 at an estimated aggregate purchase price (including adjustment for anticipated inflation) of approximately $17.4 billion. Most of these purchase commitments and options are based upon master arrangements with each of The Boeing Company ("Boeing") and AVSA, S.A.R.L., the sales subsidiary of Airbus Industrie ("Airbus"). The Boeing aircraft (models 737, 747, 757, 767 and 777), and the Airbus aircraft (models A319, A320, A321, A330 and A340) are being purchased pursuant to agreements executed by the Company and Boeing or Airbus. These agreements establish the pricing formulas (which include certain price adjustments based upon inflation and other factors) and various other terms with respect to the purchase of aircraft. Under certain circumstances, the Company has the right to alter the mix of aircraft type ultimately acquired. As of December 31, 1998, the Company had made non-refundable deposits (exclusive of capitalized interest) with respect to the aircraft which the Company has committed to purchase of approximately $440,254 and $388,387 with Boeing and Airbus, respectively. Management anticipates that a significant portion of such aggregate purchase price will be funded by incurring additional debt. The exact amount of the indebtedness to be incurred will depend upon the actual purchase price of the aircraft, which can vary due to a number of factors, including inflation, and the percentage of the purchase price of the aircraft which must be financed. Asset Value Guarantees The Company has guaranteed a portion of the residual value of 37 aircraft to financial institutions expiring at various dates through 2006. The guarantees generally provide for the Company to pay the difference between the fair market value of the aircraft and the guaranteed value up to certain specified amounts, or, at the option of the Company, purchase the aircraft for the guaranteed value. At December 31, 1998 and 1997, the maximum exposure if the Company were to pay under such guarantees was $155,656 and $145,733 respectively. Other Guarantees The Company has guaranteed certain obligations for entities in which it has an investment. At December 31, 1998 and 1997, the Company guaranteed nine loans collateralized by aircraft aggregating $57,088 and $62,256 respectively. The Company guaranteed a customer loan, collateralized by flight equipment, with a December 31, 1998 balance of $3,300. At December 31, 1997, the Company guaranteed three customer loans, collateralized by flight equipment, with an aggregate balance of $12,850. NOTE L -- FINANCIAL INSTRUMENTS In the normal course of business, the Company employs a variety of off-balance sheet derivative transactions with the objective to lower its overall borrowing cost and to maintain its optimal mix of variable and fixed rate interest obligations. These derivative products include interest rate swap agreements, swaptions and interest rate floors (off-balance sheet derivative transactions). The Company accounts for its off-balance sheet derivative transactions on an accrual basis. As such, accrued future payments or receipts are reflected in operating income in the period incurred or earned. Credit risk exposure arises from the potential that the counterparty may not perform under these agreements with 33 36 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE L -- FINANCIAL INSTRUMENTS (CONTINUED) respect to the off-balance sheet derivative transactions. The Company minimizes such exposure through transacting with recognized U.S. derivative dealers assigned at least an "A" rating by a recognized statistical rating organization. The counterparties to the majority of the off-balance sheet derivative transactions are assigned an "AAA" rating. One of the counterparties is a related party of the Company. The Company monitors each counterparty's assigned credit rating throughout the life of the off-balance sheet derivative transaction. The Company currently does not require, nor is it required by, its counterparties to provide security for its positions with the Company although it can in certain circumstances. The following table provides the notional amounts of the Company's off-balance sheet derivative transactions at December 31, 1998. The notional amounts used to express the extent of the Company's involvement in swap transactions represent a standard measurement of the volume of the Company's swap transactions. Notional amount is not a quantification of market risk or credit risk and is not recorded on the balance sheet. Notional amounts represent those amounts used to calculate contractual cash flows to be exchanged and are not paid or received. The timing and the amount of cash flows relating to swaption and other interest rate option contracts are determined by each of the respective contractual agreements. It is management's belief that any failure of a counterparty to perform under the agreement with respect to these off-balance sheet transactions would have an immaterial effect on the Company's results of operations, financial condition and liquidity. The following table presents the notional amounts of the Company's interest rate swap agreements, swaptions and interest rate floors by maturity at December 31, 1998.
REMAINING LIFE ------------------------------------ TWO TO AFTER FIVE TOTAL TOTAL TYPE ONE YEAR FIVE YEARS YEARS 1998 1997 ---- -------- ---------- ---------- ---------- ---------- Interest Rate: Swaps......................... $472,742 $1,435,793 $2,277,410 $4,185,945 $1,287,527 Swaptions(1).................. 100,000 100,000 100,000 Floors........................ 33,410 797,245 830,655 867,065 -------- ---------- ---------- ---------- ---------- Total......................... $506,152 $2,333,038 $2,277,410 $5,116,600 $2,254,592 ======== ========== ========== ========== ==========
- --------------- (1) Swaptions obligate the Company to convert certain fixed rate obligations to floating rate obligations if the option purchaser chooses to exercise. These amounts do not represent credit exposure. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying value reported in the balance sheet for cash and cash equivalents approximates its fair value. Notes receivable: The fair values for notes receivable are estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Investments: It was not practicable to estimate the fair value of most of the Company's investments in the common and preferred stocks of other companies because of the lack of a quoted market price and the inability to estimate fair value without incurring excessive costs due to their short maturities. The carrying amount of these investments at December 31, 1998 represents the original cost or original cost plus the Company's share of earnings of the investment. For investments held by the Company that had a 34 37 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE L -- FINANCIAL INSTRUMENTS (CONTINUED) quoted market price at December 31, 1998, the Company used such quoted market price in estimating the fair value of such investments. Debt financing: The carrying value of the Company's commercial paper and term debt maturing within one year approximates its fair value. The fair value of the Company's long-term debt is estimated using discounted cash flow analyses, based on the Company's spread to U.S. Treasury bonds for similar debt at year-end. Off-balance-sheet instruments: Fair values for the Company's off-balance-sheet instruments are based on pricing models or formulas using current assumptions (swaps, swaptions and interest rate floors) and the amount of the guarantee which would not be covered by the fair value of the underlying collateral (loan guarantees and asset value guarantees). The carrying amounts and fair values of the Company's financial instruments at December 31, 1998 and 1997 are as follows:
1998 1997 ------------------------------------- ------------------------------------- CARRYING CARRYING AMOUNT OF FAIR VALUE OF AMOUNT OF FAIR VALUE OF ASSET (LIABILITY) ASSET (LIABILITY) ASSET (LIABILITY) ASSET (LIABILITY) ----------------- ----------------- ----------------- ----------------- Cash and cash equivalents............ $ 52,723 $ 52,723 $ 63,754 $ 63,754 Notes receivable..................... 340,344 334,452 467,688 456,592 Investments.......................... 11,771 11,879 18,731 19,056 Debt financing....................... (10,373,242) (10,607,696) (9,051,042) (9,211,790) Off-balance-sheet financial instruments: Swaps........................... (36,260) (36,384) (6,030) 4,386 Swaptions....................... (2,501) -- (2,936) (294) Interest rate floors............ (1,568) (10,824) (1,927) (2,122)
35 38 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E ------ ------------ ----------------------------- ------------ ------------- ADDITIONS BALANCE AT CHARGED TO CHARGED TO BEGINNING OF COSTS AND OTHER ACCOUNTS-- DEDUCTIONS-- BALANCE AT DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE(1) END OF PERIOD ----------- ------------ ---------- ---------------- ------------ ------------- (DOLLARS IN THOUSANDS) Reserve for overhaul: Year ended December 31, 1998...... $110,822 $102,508 $60,566 $152,764 Year ended December 31, 1997...... $102,492 $ 99,458 $91,128 $110,822 Year ended December 31, 1996...... 83,857 85,083 783(2) 67,231 102,492
- --------------- (1) Reimbursements to lessees for overhauls performed and amounts transferred to buyers for aircraft sold. (2) Payments received from lessees in lieu of compliance with return conditions. 36 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 19, 1999 INTERNATIONAL LEASE FINANCE CORPORATION By /s/ LESLIE L. GONDA ------------------------------------ Leslie L. Gonda Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ LESLIE L. GONDA Director March 19, 1999 - ------------------------------------------------ Leslie L. Gonda /s/ STEVEN F. UDVAR-HAZY Chief Executive Officer and March 19, 1999 - ------------------------------------------------ Director Steven F. Udvar-Hazy /s/ LOUIS L. GONDA Director March 19, 1999 - ------------------------------------------------ Louis L. Gonda /s/ M. R. GREENBERG Director March 19, 1999 - ------------------------------------------------ M. R. Greenberg /s/ EDWARD E. MATTHEWS Director March 19, 1999 - ------------------------------------------------ Edward E. Matthews /s/ WILLIAM N. DOOLEY Director March 19, 1999 - ------------------------------------------------ William N. Dooley /s/ HOWARD I. SMITH Director March 19, 1999 - ------------------------------------------------ Howard I. Smith /s/ ALAN H. LUND Chief Financial Officer and March 19, 1999 - ------------------------------------------------ Chief Accounting Officer Alan H. Lund
37 40 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. Since the Registrant is an indirect wholly owned subsidiary of AIG, no annual report to security holders for the year ended December 31, 1998 or proxy statement, form of proxy or other proxy soliciting materials have been sent to securities holders since January 1, 1990. 38 EX-10.2 2 EXHIBIT 10.2 1 EXHIBIT 10.2 EXECUTION COPY $1,500,000,000 364-Day Revolving Credit Agreement dated as of January 15, 1999 among INTERNATIONAL LEASE FINANCE CORPORATION, THE BANKS (as defined herein), CITICORP USA, INC., as Administrative Agent, THE CHASE MANHATTAN BANK, COMMERZBANK, SOCIETE GENERALE, as Co-Syndication Agents, and SALOMON SMITH BARNEY, INC., as Arranger and Book Manager 2 TABLE OF CONTENTS
Page SECTION 1. CERTAIN DEFINITIONS..............................................................1 Section 1.1. Terms Generally.......................................................1 Section 1.2. Specific Terms........................................................1 SECTION 2. BID LOANS AND BID NOTES.........................................................10 Section 2.1. Making of Bid Loans..................................................10 Section 2.2. Procedure for Bid Loans..............................................10 Section 2.3. Funding of Bid Loans.................................................12 Section 2.4. Bid Notes............................................................12 SECTION 3. COMMITTED LOANS AND NOTES.......................................................13 Section 3.1. Agreement to Make Committed Loans....................................13 Section 3.2. Procedure for Committed Loans........................................13 Section 3.3. Maturity of Committed Loans..........................................14 Section 3.4. Committed Notes......................................................14 SECTION 4. INTEREST AND FEES...............................................................15 Section 4.1. Interest Rates.......................................................15 Section 4.2. Interest Payment Dates...............................................15 Section 4.3. Setting and Notice of Committed Loan Rates...........................15 Section 4.4. Facility Fee.........................................................16 Section 4.5. Agent's Fees.........................................................17 Section 4.6. Computation of Interest and Fees.....................................17 SECTION 5. REDUCTION OR TERMINATION OF THE COMMITMENTS; PREPAYMENTS........................17 Section 5.1. Voluntary Termination or Reduction of the Commitments................17 Section 5.2. Voluntary Prepayments................................................17 SECTION 6. MAKING AND PRORATION OF PAYMENTS; SET-OFF; TAXES................................18 Section 6.1. Making of Payments...................................................18 Section 6.2. Pro Rata Treatment; Sharing..........................................18 Section 6.3. Set-off..............................................................19 Section 6.4. Taxes, etc...........................................................19 SECTION 7.INCREASED COSTS AND SPECIAL PROVISIONS FOR ABSOLUTE RATE LOANS AND LIBOR RATE LOANS.................................................................20 Section 7.1. Increased Costs......................................................20 Section 7.2. Basis for Determining Interest Rate Inadequate or Unfair.............21 Section 7.3. Changes in Law Rendering Certain Loans Unlawful......................22 Section 7.4. Funding Losses.......................................................22 Section 7.5. Discretion of Banks as the Manner of Funding.........................23
i 3 Section 7.6. Conclusiveness of Statements; Survival of Provisions.................23 SECTION 8. REPRESENTATIONS AND WARRANTIES.................................................23 Section 8.1. Organization, etc....................................................23 Section 8.2. Authorization; Consents; No Conflict.................................23 Section 8.3. Validity and Binding Nature..........................................24 Section 8.4. Financial Statements.................................................24 Section 8.5. Litigation and Contingent Liabilities................................24 Section 8.6. Employee Benefit Plans...............................................24 Section 8.7. Investment Company Act...............................................25 Section 8.8. Public Utility Holding Company Act...................................25 Section 8.9. Regulation U.........................................................25 Section 8.10. Information.........................................................25 Section 8.11. Compliance with Applicable-Laws, etc................................25 Section 8.12. Insurance...........................................................25 Section 8.13. Taxes...............................................................25 Section 8.14. Use of Proceeds.....................................................26 Section 8.15. Pari Passu..........................................................26 Section 8.16. Ownership and Liens.................................................26 Section 8.17. Year 2000...........................................................26 SECTION 9. COVENANTS......................................................................26 Section 9.1. Reports, Certificates and Other Information..........................26 Section 9.2. Existence............................................................28 Section 9.3. Nature of Business...................................................28 Section 9.4. Books, Records and Access............................................28 Section 9.5. Insurance............................................................28 Section 9.6. Repair...............................................................28 Section 9.7. Taxes................................................................29 Section 9.8. Compliance...........................................................29 Section 9.9. Sale of Assets.......................................................29 Section 9.10. Consolidated Indebtedness to Consolidated Tangible Net Worth Ratio..29 Section 9.11. Fixed Charge Coverage Ratio.........................................29 Section 9.12. Consolidated Tangible Net--Worth....................................29 Section 9.13. Restricted Payments.................................................29 Section 9.14. Liens...............................................................30 Section 9.15. Leases..............................................................32 Section 9.16. Use of Proceeds.....................................................32 SECTION 10. CONDITIONS TO LENDING.........................................................32 Section 10.1. Conditions Precedent to All Loans...................................32 Section 10.2. Conditions to the Availability of the Commitments...................33 SECTION 11. EVENTS OF DEFAULT AND THEIR EFFECT............................................34 Section 11.1. Events of Default....................................................34 Section 11.2. Effect of Event of Default..........................................36
ii 4 SECTION 12. THE AGENT...................................................................36 Section 12.1. Authorization........................................................36 Section 12.2. Indemnification......................................................36 Section 12.3. Action on Instructions of the Required Banks.........................37 Section 12.4. Payments.............................................................37 Section 12.5. Exculpation..........................................................38 Section 12.6. Credit Investigation.................................................38 Section 12.7. CUSA and Affiliates..................................................39 Section 12.8. Resignation..........................................................39 SECTION 13. GENERAL.......................................................................39 Section 13.1. Waiver; Amendments..................................................39 Section 13.2. Notices.............................................................40 Section 13.3. Computations........................................................40 Section 13.4. Assignments; Participations.........................................40 Section 13.5. Costs, Expenses and Taxes...........................................43 Section 13.6. Indemnification.....................................................43 Section 13.7. Regulation U........................................................43 Section 13.8. Extension of Termination Dates; Removal of Banks; Substitution of Banks...............................................................44 Section 13.9. Captions............................................................46 Section 13.10. Governing Law; Severability.........................................46 Section 13.11. Counterparts; Effectiveness.........................................46 Section 13.12. Further Assurances..................................................46 Section 13.13. Successors and Assigns..............................................46 Section 13.14. Waiver of Jury Trial................................................46
iii 5 SCHEDULES AND EXHIBITS Schedule I Schedule of Banks (Sections 1.2 and 13.8) Schedule II Fees and Margins (Sections 1.2, 4.4, 4.5 and 4.6) Exhibit A Form of Notice of Competitive Bid Borrowing (Sections 1.2 and 2.2) Exhibit B Form of Bid (Sections 1.2 and 2.2) Exhibit C Form of Committed Loan Request (Section 1.2 and 3.2) Exhibit D Form of Bid Note (Section 1.2 and 2.4) Exhibit E Form of Committed Note (Section 1.2 and 3.4) Exhibit F Fixed Charge Coverage Ratio (Sections 1.2 and 9.11) Exhibit G Form of Opinion of Counsel for the Company (Section 10.2.5) Exhibit H Form of Opinion of the General Counsel of the Company (Section 10.2.5) Exhibit I Form of Assignment and Assumption Agreement (Section 13.4.1) Exhibit J Form of Request for Extension of Termination Date (Section 13.8) iv 6 364-DAY REVOLVING CREDIT AGREEMENT 364-DAY REVOLVING CREDIT AGREEMENT (this "Agreement"), dated as of January 15, 1999, among INTERNATIONAL LEASE FINANCE CORPORATION, a California corporation (herein called the "Company"), the financial institutions listed on the signature pages hereof (herein, together with their respective successors and assigns, collectively called the "Banks" and individually each called a "Bank") and CITICORP USA, INC. (herein, in its individual corporate capacity, together with its successors and assigns, called "CUSA"), as agent for the Banks (herein, in such capacity, together with its successors and assigns in such capacity, called the "Agent"). W I T N E S S E T H: WHEREAS, the Company has requested the Banks to lend up to $1,500,000,000 to the Company on a 364-day revolving basis to enable the Company to support its commercial paper program and for other general corporate purposes; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows: SECTION 1. CERTAIN DEFINITIONS. Section 1.1. Terms Generally. The definitions ascribed to terms in this Section 1 and elsewhere in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The words "hereby", "herein", "hereof", "hereunder" and words of similar import refer to this Agreement as a whole (including any exhibits and schedules hereto) and not merely to the specific section, paragraph or clause in which such word appears. All references herein to Sections, Exhibits and Schedules shall be deemed references to Sections of and Exhibits and Schedules to this Agreement unless the context shall otherwise require. Section 1.2. Specific Terms. When used herein, the following terms shall have the following meanings: "Absolute Rate" means a rate of interest per annum, expressed as a percentage to four decimal places and set forth in a Bid for a particular Bid Loan amount and a particular Loan Period. "Absolute Rate Loan" means any Loan which bears interest at an Absolute Rate. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another Person if such first Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through ownership of stock, by contract or otherwise. 1 7 "Agent" - see Preamble. "Aggregate Commitment" means $1,500,000,000, as reduced by any reduction in the Commitments made from time to time pursuant to Section 5.1 or 13.8. "Agreement" - see Preamble. "AIG" means American International Group, Inc. "Assignee" - see Section 13.4.1. "Authorized Officer" of the Company means any of the Chairman of the Board, the President, the Executive Vice President and Chief Financial Officer, the Treasurer, the Controller and the Assistant Controller of the Company. "Available Commitment" - see Section 2.2(a). "Bank" - see Preamble. "Bank Parties" - see Section 13.6. "Base LIBOR" means, with respect to any Loan Period for a LIBOR Rate Loan, the rate per annum determined by the Agent to be the arithmetic mean (rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%) of the respective rates of interest communicated by the Reference Banks to the Agent as the rate at which Dollar deposits are offered to the Reference Banks by leading banks in the London interbank deposit market at approximately 11:00 a.m., London time, on the second full Business Day preceding the first day of such Loan Period in an amount substantially equal to the amount of such LIBOR Rate Loan for such Reference Banks and for a period equal to such Loan Period. "Base Rate" means a fluctuating interest rate per annum, as shall be in effect from time to time, which rate per annum shall be equal to the higher of (i) the Prime Rate and (ii) one half of one percent per annum above the Federal Funds Rate. "Base Rate Loan" means any Loan which bears interest at the Base Rate. "Bid" means one or more offers by a Bank to make one or more Bid Loans, submitted to the Agent by telephone no later than the Submission Deadline and promptly confirmed in writing on the same day on a duly completed and executed form substantially similar to Exhibit B, personally delivered or transmitted by facsimile to the Agent. "Bid Borrowing" - see Section 2.2(a). "Bid Loan" means a Loan in Dollars that is an Absolute Rate Loan or a LIBOR Rate Loan made pursuant to Section 2. 2 8 "Bid Note" means a promissory note of the Company, substantially in the form of Exhibit D, duly completed, evidencing Bid Loans made to the Company, as such note may be amended, modified or supplemented or supplanted pursuant to Section 13.4.1 from time to time. "Business Day" means any day of the year on which banks are open for commercial banking business in the City of New York and, if the applicable Business Day relates to the determination of LIBOR for any LIBOR Rate Loan, any such Business Day on which dealings in deposits in Dollars are transacted in the London interbank market. "Capitalized Lease" means any lease under which any obligations of the lessee are, or are required to be, capitalized on a balance sheet of the lessee in accordance with generally accepted accounting principles in the United States. "Capitalized Rentals" means, as of the date of any determination, the amount at which the obligations of the lessee, due and to become due under all Capitalized Leases under which the Company or any Subsidiary is a lessee, are reflected as a liability on a consolidated balance sheet of the Company and its Subsidiaries. "Code" means the Internal Revenue Code of 1986, as amended. "Commitments" means the Banks' commitments to make Committed Loans hereunder; and "Commitment" as to any Bank means the amount set forth opposite such Bank's name on Schedule I (as reduced in accordance with Section 5.1, or as periodically revised in accordance with Section 13.4 or Section 13.8). "Committed Loan" means a Loan in Dollars that is a Base Rate Loan or LIBOR Rate Loan made pursuant to Section 3. "Committed Loan Request" - see Section 3.2(a). "Committed Note" means a promissory note of the Company, substantially in the form of Exhibit E, duly completed, evidencing Committed Loans to the Company, as such note may be amended, modified or supplemented or supplanted pursuant to Section 13.4.1 from time to time. "Company" - see Preamble. "Consolidated Indebtedness" means, as of the date of any determination, the total amount of Indebtedness, less the amount of current and deferred income taxes and rentals received in advance of the Company and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles in the United States. "Consolidated Tangible Net Worth" means, as of the date of any determination, the total of shareholders' equity (including capital stock, additional paid-in capital and retained earnings after deducting treasury stock), less the sum of the total amount of goodwill, organization expenses, unamortized debt issue costs (determined on an after-tax basis), deferred assets other than prepaid insurance and prepaid taxes, the excess of cost of shares acquired over book value of related assets, surplus resulting from any revaluation write-up of assets subsequent 3 9 to September 30, 1994 and such other assets as are properly classified as intangible assets, all determined in accordance with generally accepted accounting principles in the United States consolidating the Company and its Subsidiaries. "CUSA" - see Preamble "Dollar", and $, refer to the lawful money of the United States. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means any corporation, trade or business that is, along with the Company or any Subsidiary, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in sections 414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA. "Eurodollar Reserve Percentage" means for any day in any Loan Period for any LIBOR Rate Loan that percentage in effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor thereto) or other U.S. government agency for determining the reserve requirement (including, without limitation, any marginal, basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars in respect of eurocurrency funding liabilities. LIBOR shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. "Event of Default" means any of the events described in Section 11.1. "Existing Litigation" - see Section 10.1.3. "FASB 13" means the Statement of Financial Accounting Standards No. 13 (Accounting for Leases) as in effect on the date hereof. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Board of Governors of the Federal Reserve System (including any such successor publication, "H.15(519)") for such day opposite the caption "Federal Funds (Effective)". If on any relevant day such rate is not yet published in H.15(519), the rate for such day will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor publication, the "Composite 3:30 p.m. Quotations") for such day under the caption "Federal Funds Effective Rate". If on any relevant day the appropriate rate for such day is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such day will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m., New York City time, on such day by each of three leading brokers of Federal funds transactions in New York City, selected by the Agent. The rate for any day which is not a Business Day shall be the rate for the immediately preceding Business Day. 4 10 "Fixed Charge Coverage Ratio" on the last day of any quarter of any fiscal year of the Company means the ratio for the period of four fiscal quarters ending on such day of earnings to combined fixed charges and preferred stock dividends referred to in Paragraph (d)(1)(i) of Item 503 of Regulation S-K of the Securities and Exchange Commission, as amended from time to time, and determined pursuant to Paragraphs (d)(2) through (d)(10) of such Item 503 with the Company as "registrant" (such ratio for the four fiscal quarters ended September 30, 1996 is attached hereto as Exhibit F); provided, however, that if the Required Banks in their sole discretion determine that amendments to Regulation S-K subsequent to the date hereof substantially modify the provisions of such Item 503, "Fixed Charge Coverage Ratio" shall have the meaning determined by this definition without regard to any such amendments. "Funding Date" means the date on which any Loan is scheduled to be disbursed. "Funding Office" means, with respect to any Bank, any office or offices of such Bank or Affiliate or Affiliates of such Bank through which such Bank shall fund or shall have funded any Loan. A Funding Office may be, at such Bank's option, either a domestic or foreign office of such Bank or a domestic or foreign office of an Affiliate of such Bank. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranties" by any Person means all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person (the "Primary Obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any property or assets constituting security therefor, (b) to advance or supply funds (i) for the purchase or payment of such Indebtedness or obligation or (ii) to maintain working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, (c) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the Primary Obligor to make payment of the Indebtedness or obligation or (d) otherwise to assure the owner of the Indebtedness or obligation of the Primary Obligor against loss in respect thereof; provided, however, that the obligation described in clause (c) shall not include (i) obligations of a buyer under an agreement with a seller to purchase goods or services entered into in the ordinary course of such buyer's and seller's businesses unless such agreement requires that such buyer make payment whether or not delivery is ever made of such goods or services and (ii) remarketing agreements where the remaining debt on an aircraft does not exceed the aircraft's net book value, determined in accordance with industry standards, except that clause (c) shall apply to the amount of remaining debt under a remarketing agreement that exceeds the net book value of the aircraft. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a Guaranty in respect of any other obligation or liability or any 5 11 dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "Indebtedness" of any Person means and includes all obligations of such Person which in accordance with generally accepted accounting principles in the United States shall be classified upon a balance sheet of such Person as liabilities of such Person, and in any event shall include all: (a) obligations of such Person for borrowed money or which have been incurred in connection with the acquisition of property or assets (other than security and other deposits on flight equipment), (b) obligations secured by any Lien or other charge upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (c) obligations created or arising under any conditional sale, or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, (d) Capitalized Rentals of such Person under any Capitalized Lease, (e) obligations evidenced by bonds, debentures, notes or other similar instruments, and (f) Guaranties by such Person to the extent required pursuant to the definition thereof. "Indemnified Liabilities" - see Section 13.6. "Investment" means any investment, made in cash or by delivery of any kind of property or asset, in any Person, whether (i) by acquisition of (x) shares of stock or similar interest, (y) Indebtedness or (z) other obligation or security or (ii) by loan, advance or capital contribution, or otherwise. For purposes of this Agreement, Investment shall exclude any notes receivable and any finance or sales type leases entered into by the Company or any of its Subsidiaries in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto and minus the amount of any portion of such Investment repaid to such Person in cash as a return of capital, but without any other adjustment for increases or decreases in value, or write ups, write-downs or write-offs with respect to such Investment. "LIBOR" means with respect to any Loan Period the rate per annum (rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%), determined pursuant to the following formula: LIBOR= Base LIBOR --------------------------------------------- (1 - Eurodollar Reserve Percentage) 6 12 "LIBOR Rate" means (i) with respect to Committed Loans that are LIBOR Rate Loans, LIBOR plus the applicable rate margin set forth in Schedule II and (ii) with respect to Bid Loans that are LIBOR Rate Loans, LIBOR plus or minus the rate margin set forth in a Bid for a particular Bid Loan amount and a particular Loan Period. "LIBOR Rate Loan" means any Loan which bears interest at a LIBOR Rate. "Lien" means any mortgage, pledge, lien, security interest or other charge, encumbrance or preferential arrangement, including the retained security title of a conditional vendor or lessor. "Litigation Actions" means all litigation, claims and arbitration proceedings, proceedings before any Governmental Authority or investigations which are pending or, to the knowledge of the Company, threatened against, or affecting, the Company or any Subsidiary. "Loan Period" means (i) with respect to any Absolute Rate Loan, the period commencing on such Loan's Funding Date and ending not less than 14 days thereafter nor more than 183 days thereafter as specified in the Bid Loan Request related to such Bid Loan and (ii) with respect to any LIBOR Rate Loan, the period commencing on such Loan's Funding Date and ending 1, 2, 3 or 6 months thereafter as selected by the Company pursuant to Section 3.2(a) or specified in the Notice of Competitive Bid Borrowing, as the case may be; provided, however, that (a) if a Loan Period would otherwise end on a day which is not a Business Day, such Loan Period shall end on the next succeeding Business Day (unless, in the case of a LIBOR Rate Loan, such next succeeding Business Day would fall in the next succeeding calendar month, in which case such Loan Period shall end on the next preceding Business Day); (b) in the case of a Loan Period for any LIBOR Rate Loan, if there exists no day numerically corresponding to the day such Loan was made in the month in which the last day of such Loan Period would otherwise fall, such Loan Period shall end on the last Business Day of such month; and (c) on the date of the making of any Loan by a Bank, the Loan Period for such Loan shall not extend beyond the then-scheduled Termination Date for such Bank. "Loans" means, collectively, the Bid Loans and the Committed Loans and, individually, any Bid Loan or Committed Loan. "Material Adverse Effect" means (i) any material adverse effect on the business, properties, condition (financial or otherwise) or operations, present or prospective, of the Company and its Subsidiaries, taken as a whole since any stated reference date or from and after the date of determination, as the case may be, (ii) any material adverse effect on the ability of the Company to perform its obligations hereunder and under the Notes or (iii) any material adverse effect on the legality, validity, binding effect or enforceability of this Agreement or any Note. 7 13 "Multiemployer Plan" has the meaning assigned to such term in Section 3(37) of ERISA. "New Litigation" - see Section 10.1.3. "Notes" means, collectively, the Bid Notes and the Committed Notes; and "Note" means any individual Bid Note or Committed Note. "Notice of Competitive Bid Borrowing" - see Section 2.2(a). "Notice Office" means the office of CUSA which, as of the date hereof, is located at 2 Penns Way, Suite 200, New Castle, DE 19720, Attn: Christian Laughton, Telecopy Number 302-894-6005; Telephone 302-894-6120. "Operating Lease" means any lease other than a Capitalized Lease; provided, however, that leases with an original term of less than one year shall not be Operating Leases. "Operating Lease Rental" of an Operating Lease means, as of the date of any determination thereof, the net present value of the aggregate unpaid amount due at such date and to become due from the Company or any Subsidiary, on a consolidated basis, as lessee under such Operating Lease discounted at such lessee's incremental borrowing rate or if the interest rate implicit in such Operating Lease can be practically determined and is smaller, at such interest rate, such present value and interest rate being determined in accordance with standard financial practice and such borrowing rate being determined in accordance with FASB 13, excluding from such aggregate amount all amounts which are in excess of the minimum aggregate unpaid amount due at such date and to become due from such lessee under such Operating Lease assuming that such lessee would take or fail to take all actions with respect to all termination, renewal, purchase and other options as would produce the least amount becoming due under such Operating Lease, and "Operating Lease Rentals" means, as of the date of any determination, the aggregate Operating Lease Rental of all Operating Leases as of such date. "Participant" - see Section 13.4.2. "Payment Office" means the office of the Agent which, as of the date hereof, is at 2 Penns Way, Suite 200, New Castle, DE 19720, Account Number: 36852248, Attn: Christian Laughton. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Percentage" means as to any Bank the ratio, expressed as a percentage, that such Bank's Commitment as set forth opposite such Bank's name on Schedule I, as periodically revised in accordance with Section 13.4 or 13.8, bears to the Aggregate Commitment or, if the Commitments have been terminated, the ratio, expressed as a percentage, that the aggregate principal amount of such Bank's outstanding Loans bears to the aggregate principal amount of all outstanding Loans. 8 14 "Person" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "Plan" means, at any date, any employee pension benefit plan (as defined in section 3(2) of ERISA) which is subject to Title IV of ERISA (other than a Multiemployer Plan) and to which the Company or any ERISA Affiliate may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Prime Rate" means the rate of interest publicly announced from time to time by Citibank, N.A. as its prime commercial lending rate. "Reference Banks" means Citibank, N.A., Commerzbank and Societe Generale. "Reportable Event" has the meaning assigned to such term in section 4043 of ERISA. "Required Banks" means Banks having an aggregate Percentage of 51% or more. "Significant Subsidiary" means any Subsidiary which is so defined pursuant to Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange Commission. "Submission Deadline" - see Section 2.2(b). "Subsidiary" means any Person of which or in which the Company and its other Subsidiaries own directly or indirectly 50% or more of: (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such Person, if it is a corporation, (b) the capital interest or profits interest of such Person, if it is a partnership, joint venture or similar entity, or (c) the beneficial interest of such Person, if it is a trust, association or other unincorporated organization. "Successor Bank" - see Section 13.8(c). "Taxes" with respect to any Person means income, excise and other taxes, and all assessments, imposts, duties and other governmental charges or levies, imposed upon such Person, its income or any of its properties, franchises or assets by any Governmental Authority. "Terminating Bank" - see Section 13.8(c). 9 15 "Termination Date" means, with respect to any Bank, the earliest to occur of (i) January 14, 2000 or such later date as may be agreed to by such Bank pursuant to Section 13.8(a), or if such day is not a Business Day, the next preceding Business Day, (ii) the date on which the Commitments shall terminate pursuant to Section 11.2 or the Commitments shall be reduced to zero pursuant to Section 5.1 and (iii) the date specified as such Bank's Termination Date pursuant to Section 13.8(b), or, if such day is not a Business Day, the next preceding Business Day; in all cases, subject to the provisions of Section 13.8(d). "Unmatured Event of Default" means any event which if it continues uncured will, with lapse of time or notice or lapse of time and notice, constitute an Event of Default. "Wholly-owned Subsidiary" means any Person of which or in which the Company and its other Wholly-owned Subsidiaries own directly or indirectly 100% of: (a) the issued and outstanding shares of stock (except shares required as directors, qualifying shares), (b) the capital interest or profits interest of such Person, if it is a partnership, joint venture or similar entity, or (c) the beneficial interest of such Person, if it is a trust, association or other unincorporated organization. SECTION 2. BID LOANS AND BID NOTES. Section 2.1. Making of Bid Loans. On the terms and subject to the conditions of this Agreement, each Bank, severally and for itself alone, may (but is not obligated to) make Bid Loans to the Company from time to time on or after the date hereof and prior to the date which is the fourteenth day preceding such Bank's Termination Date in amounts equal to such Bank's Bids that have been accepted as provided in Section 2.2(c); provided, that the aggregate principal amount of all outstanding Loans shall not at any time exceed the then Aggregate Commitment. Section 2.2. Procedure for Bid Loans. (a) Bid Loan Request. Whenever the Company desires to incur a competitive bid borrowing (a "Bid Borrowing"), it shall give the Agent written notice (or telephonic notice promptly confirmed in writing), such notice to be delivered to the Agent at its Notice Office no later than 12:00 Noon (New York City time), at least three Business Days prior to any proposed LIBOR Rate Loan and at least one Business Day prior to any proposed Absolute Rate Loan. Each such notice shall be substantially in the form of Exhibit A hereto (each a "Notice of Competitive Bid Borrowing"), and shall specify in each case (i) the date of such proposed Bid Borrowing (which shall be a Business Day), (ii) the aggregate amount of the proposed Bid Borrowing, (iii) whether the proposed Bid Borrowing is to be an Absolute Rate Loan or a LIBOR Rate Loan and the Loan Period, (iv) the maturity date for repayment of each Bid Loan to be made as part of such borrowing (which maturity date shall not be earlier than one month after the date of any proposed LIBOR Rate Loan or 14 days after the date of any proposed Absolute Rate Loan or later than the earliest to occur of (x) six months after the date of such proposed Bid Loan, (y) the Termination Date and (z) if the proposed Bid Loan has an interest rate that is the 10 16 LIBOR Rate, the last day of the proposed Loan Period), (v) the interest payment date or dates relating thereto, (vi) the account of the Company to which the proceeds of such Bid Borrowing are to be credited and (vii) any other terms to be applicable to such Bid Borrowing. The Agent shall promptly give each Bank written notice (or telephonic notice promptly confirmed in writing) of each such request for a Bid Borrowing received by it from the Company. Each Notice of Competitive Bid Borrowing shall contemplate Bid Loans in a minimum aggregate principal amount of $10,000,000 or a higher integral multiple of $1,000,000, not to exceed, however, the excess of the then Aggregate Commitment over the aggregate principal amount of all outstanding Loans, calculated as of the relevant Funding Date, assuming that the Company will pay, when due, all Loans maturing on or prior to such Funding Date (the "Available Commitment"). (b) Bidding Procedure. Each Bank shall, if in its sole discretion it elects to do so, irrevocably offer to make one or more Bid Loans to the Company as part of such proposed Bid Borrowing at a rate or rates of interest specified by such Bank in its sole discretion and determined by such Bank independently of each other Bank, by notifying by telephone confirmed in writing to the Agent at its Notice office (which shall give prompt notice thereof to the Company), before 10:00 a.m. (New York City time) on the date (the "Submission Deadline") that is (x) in the case of a proposed Absolute Rate Loan, the same day as the date of such proposed Bid Loan and (y) in the case of a proposed LIBOR Rate Loan, two Business Days before the date of such proposed Bid Loan. Each Bid shall be substantially in the form of Exhibit B (each a "Bid"), and shall specify in each case (i) the Loan Period, (ii) the minimum amount and maximum amount of each Bid Loan that such Bank would be willing to make as part of such proposed Bid Borrowing (which amounts may, subject to the proviso in Section 2.1, exceed such Bank's Commitment), (iii) the rate or rates of interest therefor and (iv) such Bank's lending office with respect to such Bid Loan; provided, that if the Agent in its capacity as a Bank shall, in its sole discretion, elect to make any such offer, it shall notify the Company of such offer before 8:30 a.m. (New York City time) on the Submission Deadline. (c) Acceptance of Bids. The Company shall, in turn, before 10:30 a.m. (New York City time) on the Submission Deadline, either: (i) cancel such proposed Bid Borrowing by giving the Agent notice to that effect, or (ii) accept (such acceptance to be irrevocable) one or more of the offers made by any Bank or Banks pursuant to clause (b) above by giving notice (in writing or by telephone confirmed in writing) to the Agent of the amount of each Bid Loan (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Company by the Agent on behalf of such Bank for such Bid Borrowing pursuant to clause (b) above) to be made by such Bank as part of such Bid Borrowing, and reject any remaining offers made by any Bank pursuant to clause (b) above by giving the Agent notice to that effect; provided, that for any maturity date acceptance of offers may only be made on the basis of ascending Absolute Rates (in the case of an Absolute Rate Loan) or floating rates (in the case of a LIBOR Rate Loan), in each case commencing with the lowest rate so offered and only as to offers made in conformity with the terms hereof; provided, further, however, if offers are made by two 11 17 or more Banks at the same rate or rates and acceptance of all such equal offers would result in a greater principal amount of Bid Loans being accepted than the aggregate principal amount requested by the Company, the Company shall have the right to accept one or more of such equal offers in their entirety and reject the other equal offer or offers or to allocate acceptance among all such equal offers (but giving effect to the minimum and maximum amounts specified for each such offer pursuant to clause (b) above), as the Company may elect in its sole discretion. The Company may not accept offers whose aggregate principal amount is greater than the requested aggregate amount as specified in the related Notice of Competitive Bid Borrowing, subject to the proviso in Section 2.1. (d) Cancellation of Bid Borrowing. If the Company notifies the Agent that such proposed Bid Borrowing is cancelled pursuant to clause (c)(i) above, the Agent shall give prompt notice thereof to the Banks and such Bid Borrowing shall not be made. (e) Notification of Acceptance. If the Company accepts one or more of the offers made by any Bank or Banks pursuant to clause (c)(ii) above, the Agent shall in turn promptly notify (x) each Bank that has made an offer as described in clause (b) above, of the date and aggregate amount of such Bid Borrowing and whether or not any offer or offers made by such Bank pursuant to clause (b) above have been accepted by the Company and (y) each Bank that is to make a Bid Loan as part of such Bid Borrowing, of the amount of each Bid Loan to be made by such Bank as part of such Bid Borrowing. (f) Reliance. The Agent may rely and act upon notice given by telephone by individuals reasonably believed by the Agent to be those designated to the Agent by the Company or by any Bank in writing from time to time, without waiting for receipt of written confirmation thereof, and the Company hereby agrees to indemnify and hold harmless the Agent from and against any and all losses, costs, expenses, damages, claims, actions or other proceedings relating to such reliance. Section 2.3. Funding of Bid Loans. No later than 1:00 p.m. (New York City time) on the date specified in each Notice of Competitive Bid Borrowing, each Bank will make available the Bid Loan, if any, to be made by such Bank as part of the Bid Borrowing requested to be made on such date in the manner provided below. All amounts shall be made available to the Agent in Dollars and immediately available funds at the Payment Office of the Agent and the Agent promptly will make available to the Company at its account specified in the relevant Notice of Competitive Bid Borrowing the aggregate of the amounts so made available in the type of funds received. Unless the Agent shall have been notified by any Bank which has submitted a bid pursuant to Section 2.2(b) prior to the date of the proposed Bid Borrowing that such Bank does not intend to make available to the Agent its portion, if any, of the Bid Borrowing to be made on such date, the Agent may assume that such Bank has made such amount available to the Agent on such date of the Bid Borrowing, and the Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Company a corresponding amount. Section 2.4. Bid Notes. The Bid Loans of each Bank shall be evidenced by a Bid Note payable to the order of such Bank in the original principal amount of the Aggregate Commitment. Each Bank shall record in its records, or at its option on the schedule attached to 12 18 its Bid Note, the date and amount of each Bid Loan made by such Bank, each repayment thereof, and the dates on which the Loan Period for such Loan shall begin and end. The aggregate unpaid principal amount so recorded shall be refutable presumptive evidence of the principal amount owing and unpaid on such Note. The failure to so record or any error in so recording any such amount or any payment thereof shall not, however, limit or otherwise affect the obligations of the Company hereunder or under such Bid Note to repay the principal amount of each Bid Loan together with all interest accruing thereon. SECTION 3. COMMITTED LOANS AND NOTES. Section 3.1. Agreement to Make Committed Loans. On the terms and subject to the conditions of this Agreement, each Bank, severally and for itself alone, agrees to make Loans (herein collectively called "Committed Loans" and individually each called a "Committed Loan") on a revolving basis from time to time from the date hereof until such Bank's Termination Date in such Bank's Percentage of such aggregate amounts as the Company may from time to time request as provided in Section 3.2; provided, that (a) the aggregate principal amount of all outstanding Committed Loans of any Bank shall not at any time exceed the amount set forth opposite such Bank's name on Schedule I (as reduced in accordance with Section 5.1, 13.4 or 13.8) and (b) the aggregate principal amount of all outstanding Committed Loans of all Banks plus the aggregate principal amount of all outstanding Bid Loans of all Banks shall not at any time exceed the then Aggregate Commitment. Within the limits of this Section 3.1, the Company may from time to time borrow, prepay and reborrow Committed Loans on the terms and conditions set forth in this Agreement. Section 3.2. Procedure for Committed Loans. (a) Committed Loan Requests. The Company shall give the Agent irrevocable telephonic notice at the Notice Office (promptly confirmed in writing on the same day), not later than 10:30 a.m., New York City time, (i) at least three Business Days prior to the Funding Date in the case of LIBOR Rate Loans or (ii) on the Funding Date in the case of Base Rate Loans, of each requested Committed Loan, and the Agent shall promptly advise each Bank thereof and, in the case of a LIBOR Rate Loan, request each Reference Bank to notify the Agent of its applicable rate (as contemplated in the definition of Base LIBOR). Each such notice to the Agent (a "Committed Loan Request") shall be substantially in the form of Exhibit C and shall specify (i) the Funding Date (which shall be a Business Day), (ii) the aggregate amount of the Loans requested (in an amount permitted under clause (b) below), (iii) whether each Loan shall be a LIBOR Rate Loan or a Base Rate Loan and (iv) if a LIBOR Rate Loan, the Loan Period therefor (subject to the limitations set forth in the definition of Loan Period). (b) Amount and Increments of Committed Loans. Each Committed Loan Request shall contemplate Committed Loans in a minimum aggregate amount of $10,000,000 or a higher integral multiple of $1,000,000, not to exceed in the aggregate (for all requested Committed Loans) the Available Commitment. 13 19 (c) Funding of Committed Loans. (i) Not later than 1:30 p.m., New York City time, on the Funding Date of a Committed Loan, each Bank shall, subject to this Section 3.2(c), provide the Agent at its Notice Office with immediately available funds covering such Bank's Committed Loan (provided, that a Bank's obligation to provide funds to the Agent shall be deemed satisfied by such Bank's delivery to the Agent at its Notice Office not later than 1:30 p.m., New York City time, of a federal reserve wire confirmation number covering the proceeds of such Bank's Committed Loan) and the Agent shall pay over such funds to the Company not later than 2:00 p.m., New York City time, on such day if the Agent shall have received the documents required under Section 10 with respect to such Loan and the other conditions precedent to the making of such Loan shall have been satisfied not later than 10:00 a.m., New York City time, on such day. If the Agent does not receive such documents or such other conditions precedent have not been satisfied prior to such time, then (A) the Agent shall not pay over such funds to the Company, (B) the Company's Committed Loan Request related to such Loan shall be deemed cancelled in its entirety, (C) in the case of Committed Loan Requests relative to LIBOR Rate Loans, the Company shall be liable to each Bank in accordance with Section 7.4(b) and (D) the Agent shall return the amount previously provided to the Agent by each Bank on the next following Business Day. (ii) The Company agrees, notwithstanding its previous delivery of any documents required under Section 10 with respect to a particular Loan, immediately to notify the Agent of any failure by it to satisfy the conditions precedent to the making of such Loan. The Agent shall be entitled to assume, after it has received each of the documents required under Section 10 with respect to a particular Loan, that each of the conditions precedent to the making of such Loan has been satisfied absent actual knowledge to the contrary received by the Agent prior to the time of the receipt of such documents. Unless the Agent shall have notified the Banks prior to 10:30 a.m., New York City time, on the Funding Date of any Loan that the Agent has actual knowledge that the conditions precedent to the making of such Loan have not been satisfied, the Banks shall be entitled to assume that such conditions precedent have been satisfied. (d) Repayment of Loans. If any Bank is to make a Committed Loan hereunder on a day on which the Company is to repay (or has elected to prepay, pursuant to Section 5.2) all or any part of any outstanding Loan held by such Bank, the proceeds of such new Committed Loan shall be applied to make such repayment and only an amount equal to the positive difference, if any, between the amount being borrowed and the amount being repaid shall be requested by the Agent to be made available by such Bank to the Agent as provided in Section 3.2(c). Section 3.3. Maturity of Committed Loans. Except for a Base Rate Loan, which shall mature on the Termination Date, a Committed Loan made by a Bank shall mature on the last day of the Loan Period applicable to such Committed Loan, but in no event later than the Termination Date for such Bank. Section 3.4. Committed Notes. The Committed Loans of each Bank shall be evidenced by a Committed Note payable to the order of such Bank in the original principal amount of such Bank's Commitment. Each Bank shall record in its records, or at its option on 14 20 the schedule attached to its Committed Note, the date and amount of each Loan made by such Bank thereunder, each repayment or prepayment thereof, and, if applicable, the dates on which the Loan Period for such Loan shall begin and end. The aggregate unpaid principal amount so recorded shall be rebuttable presumptive evidence of the principal amount owing and unpaid on such Note. The failure to so record or any error in so recording any such amount or any payment thereof shall not, however, limit or otherwise affect the obligations of the Company hereunder or under such Committed Note to repay the principal amount of each Committed Loan together with all interest accruing thereon. SECTION 4. INTEREST AND FEES. Section 4.1. Interest Rates. The Company hereby promises to pay interest on the unpaid principal amount of each Loan for the period commencing on the Funding Date until such Loan is paid in full, as follows: (a) if such Loan is a Bid Loan, at a rate per annum equal to the Absolute Rate or the LIBOR Rate, as applicable, offered by the applicable Bank and accepted by the Company for such Bid Loan; (b) if such Loan is a Base Rate Loan, at a rate per annum equal to the Base Rate from time to time in effect; and (c) if such Loan is a Committed Loan that is a LIBOR Rate Loan, at a rate per annum equal to the LIBOR Rate applicable to the Loan Period for such Loan; provided, however, that after the maturity of any Loan (whether by acceleration or otherwise), such Loan shall bear interest on the unpaid principal amount thereof at a rate per annum (calculated on the basis of a 360-day year for the actual number of days involved) equal to the Base Rate from time to time in effect (but not less than the interest rate in effect for such Loan immediately prior to maturity) plus 1% per annum. Section 4.2. Interest Payment Dates. Except for Base Rate Loans, as to which accrued interest shall be payable on the last day of each calendar quarter and on the Termination Date, accrued interest on each Loan shall be payable in arrears on the last day of the Loan Period therefor and (i) with respect to each LIBOR Rate Loan with a Loan Period of six months, on the day that is three months after the first day of such Loan Period (or, if there is no day in such third month numerically corresponding to such first day of the Loan Period, on the last Business Day of such month) and (ii) with respect to each Absolute Rate Loan with a Loan Period exceeding 90 days, on the day that is 90 days after the first day of such Loan Period. After the maturity of any Loan, accrued interest on such Loan shall be payable on demand. If any interest payment date falls on a day that is not a Business Day, such interest payment date shall be postponed to the next succeeding Business Day and the interest paid shall cover the period of postponement (except that if the Loan is a LIBOR Rate Loan and the next succeeding Business Day falls in the next succeeding calendar month, such interest payment date shall be the immediately preceding Business Day). Section 4.3. Setting and Notice of Committed Loan Rates. The applicable interest rate for each Committed Loan hereunder shall be determined by the Agent and notice 15 21 thereof shall be given by the Agent promptly to the Company and to each Bank. Each determination of the applicable interest rate by the Agent shall be conclusive and binding upon the parties hereto in the absence of demonstrable error. In the case of LIBOR Rate Loans, each Reference Bank agrees to use its best efforts to notify the Agent in a timely fashion of its applicable rate after the Agent's request therefor under Section 2.2(a) and Section 3.2(a) (as contemplated in the definition of Base LIBOR). If as to any Loan Period any one or more of the Reference Banks is unable or for any reason fails to notify the Agent of its applicable rate by 11:30 a.m., New York City time, two Business Days before the Funding Date, then the applicable LIBOR Rate shall be determined on the basis of the rate or rates of which the Agent is given notice by the remaining Reference Bank or Banks by such time. If none of the Reference Banks notifies the Agent of the applicable rate prior to 11:30 a.m., New York City time, two Business Days before the Funding Date, then (i) the Agent shall promptly notify the other parties thereof and (ii) at the option of the Company the Committed Loan Request delivered by the Company pursuant to Section 3.2(a) with respect to such Funding Date shall be cancelled or shall be deemed to have specified a Base Rate Loan. The Agent shall, upon written request of the Company or any Bank, deliver to the Company or such Bank a statement showing the computations used by the Agent in determining the interest rate applicable to any LIBOR Rate Loan. Section 4.4. Facility Fee. The Company agrees to pay to the Agent for the accounts of the Banks pro rata in accordance with their respective Percentages an annual facility fee computed by multiplying the average daily amount of the Aggregate Commitment (whether used or unused) by the applicable percentage determined with respect to such facility fee in accordance with Schedule II hereto. Such fee shall be payable quarterly in arrears on the last Business Day of March, June, September and December of each year (beginning with the last Business Day of March, 1999) until the Commitments have expired or have been terminated and on the date of such expiration or termination (and, in the case of any Terminating Bank, such Bank's Termination Date), in each case for the period then ending for which such facility fee has not previously been paid. Section 4.5. Utilization Fee. The Company agrees to pay to the Agent for the accounts of the Banks pro rata in accordance with their respective Percentages, (i) during any period that the aggregate outstanding principal amount of the Loans exceeds 33.33% of the Aggregate Commitment, a utilization fee computed by multiplying the average daily amount of the Aggregate Commitment by the applicable percentage determined with respect to such utilization fee in accordance with Schedule II hereto and (ii) during any period that the aggregate outstanding principal amount of the Loans exceeds 66.66% of the Aggregate Commitment, a utilization fee computed by multiplying the average daily amount of the Aggregate Commitment by the applicable percentage determined with respect to such utilization fee in accordance with Schedule II hereto; provided, that in calculating the aggregate outstanding principal amount of the Loans for purposes of this Section 4.5 only, the aggregate outstanding principal amount of the Loans shall not include the first $300,000,000 of the aggregate outstanding principal amount of Bid Loans. Accrued utilization fees shall be due and payable on each date that interest is payable on each such Loan. 16 22 Section 4.6. Agent's Fees. The Company agrees promptly to pay to the Agent such fees as may be agreed from time to time by the Company and the Agent. Section 4.7. Computation of Interest and Fees. Interest on LIBOR Rate Loans and where the Base Rate is calculated in reference to the Federal Funds Rate, and facility and utilization fees shall be computed for the actual number of days elapsed on the basis of a 360-day year; and interest on Base Rate Loans where the Base Rate is calculated in reference to the Prime Rate shall be computed for the actual number of days elapsed on the basis of a 365/366 day year, as the case may be. The interest rate applicable to each LIBOR Rate Loan and Base Rate Loan, and (to the extent applicable) after the maturity of any other type of Loan, the interest rate applicable to such Loan, shall change simultaneously with each change in the LIBOR Rate or the Base Rate, as applicable. SECTION 5. REDUCTION OR TERMINATION OF THE COMMITMENTS; REPAYMENT; PREPAYMENTS. Section 5.1. Voluntary Termination or Reduction of the Commitments. The Company may at any time on at least 5 days' prior irrevocable notice received by the Agent (which shall promptly on the same day or on the next Business Day advise each Bank thereof) permanently reduce the amount of the Commitments (such reduction to be pro rata among the Banks according to their respective Percentages) to an amount not less than the aggregate principal amount of all outstanding Loans. Any such reduction shall be in the amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. Concurrently with any such reduction, the Company shall prepay the principal of any Committed Loans outstanding to the extent that the aggregate amount of such Loans outstanding shall then exceed the Aggregate Commitment, as so reduced. The Company may from time to time on like irrevocable notice terminate the Commitments upon payment in full of all Loans, all interest accrued thereon, all fees and all other obligations of the Company hereunder; provided, however, that the Company may not at any time terminate the Commitments if any Bid Loan is outstanding (unless the holder of each such outstanding Bid Loan has given its prior written consent to the concurrent repayment of such Bid Loan). Section 5.2. Voluntary Prepayments. The Company may voluntarily prepay Loans (other than Bid Loans, which may only be prepaid with the prior written consent of the holder thereof) without premium or penalty, except as may be required pursuant to subsection (e) below, in whole or in part; provided, that (a) each prepayment shall be in an aggregate principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof, (b) except for the prepayment of the aggregate amount of all Loans outstanding, no such prepayment shall result in there being less than $10,000,000 in Loans outstanding in the aggregate, (c) the Company shall give the Agent at its Notice Office (which shall promptly advise each Bank) not less than three Business Days' prior notice thereof specifying the Loans to be prepaid and the date and amount of prepayment, (d) any prepayment of principal of any Loan shall include accrued interest to the date of prepayment on the principal amount being prepaid and (e) any prepayment of a LIBOR Rate Loan shall be subject to the provisions of Section 7.4. 17 23 SECTION 6. MAKING AND PRORATION OF PAYMENTS; SET-OFF; TAXES. Section 6.1. Making of Payments. Except as provided in Section 3.2(d), payments (including those made pursuant to Sections 5.1) of principal of, or interest on, the Loans and all payments of fees shall be made by the Company to the Agent in immediately available funds at its Payment Office not later than 12:00 Noon, New York City time, on the date due; and funds received after that hour shall be deemed to have been received by the Agent on the next following Business Day. The Agent shall promptly remit to each Bank or other holder of a Note its share (if any) of each such payment. All payments under Section 7 shall be made by the Company directly to the Persons entitled thereto. Section 6.2. Pro Rata Treatment; Sharing. (a) Except as required pursuant to Section 7 or Section 13.8, each payment or prepayment of principal of any Committed Loans, each payment of interest on the Committed Loans, and each payment of the facility fee shall be allocated pro rata among the Banks in accordance with their respective Percentages. Each payment of principal of any Bid Borrowing shall be allocated pro rata among the Banks participating in such Bid Borrowing in accordance with the respective principal amounts of their outstanding Bid Loans comprising such Bid Borrowing. Each payment of interest on any Bid Borrowing shall be allocated pro rata among the Banks participating in such Bid Borrowing in accordance with the respective amounts of accrued and unpaid interest on their outstanding Bid Loans comprising such Bid Borrowing. (b) If any Bank or other holder of a Committed Loan shall obtain any payment or other recovery (whether voluntary, involuntary, by application of offset or otherwise) on account of principal of, interest on or fees or other amounts with respect to any Committed Loan in excess of the share of payments and other recoveries (exclusive of payments or recoveries under Section 7 or pursuant to Section 13.8) such Bank or other holder would have received if such payment had been distributed pursuant to the provisions of Section 6.2(a), such Bank or other holder shall purchase from the other Banks or holders, in a manner to be specified by the Agent, such participations in the Committed Loans held by them as shall be necessary so that all such payments of principal and interest with respect to the Committed Loans shall be shared by the Banks and other holders pro rata in accordance with their respective Percentages; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Bank or holder, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. (c) If any Bank or other holder of a Bid Loan shall obtain any payment or other recovery (whether voluntary, involuntary, by application of offset or otherwise) on account of principal of, interest on or fees or other amounts with respect to any Bid Loan in excess of the share of payments and other recoveries (exclusive of payments or recoveries pursuant to Section 7 or Section 13.8, such Bank or other holder would have received if such payment had been distributed pursuant to the provisions of Section 6.2(a), such Bank or other holder shall purchase from the other Banks or holders participating in such Bid Borrowing, in a manner to be specified by the Agent, such participations in the Bid Loans held by them as shall be necessary so that all such payments of principal and interest with respect to the Bid Loans shall be shared by the 18 24 Banks and other holders participating in such Bid Borrowing in a manner consistent with Section 6.2(a); provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Bank or holder, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. Section 6.3. Set-off. The Company agrees that the Agent, each holder of a Note, each Assignee and each Participant has all rights of set-off and bankers' lien provided by applicable law, and the Company further agrees that at any time (i) any amount owing by the Company under this Agreement is due to any such Person or (ii) any Event of Default exists, each such Person may apply to the payment of any amount payable hereunder any and all balances, credits, deposits, accounts or moneys of the Company then or thereafter with such Person. Section 6.4. Taxes, etc. (a) All payments made by the Company to the Agent, any Bank, any Assignee or any Participant under this Agreement and the Notes shall be made without any set-off or counterclaim, and free and clear of and without deduction for or on account of any present or future Taxes now or hereafter imposed (except to the extent that such withholding or deduction is compelled by law or results from the breach, by the recipient of a payment, of its agreement contained in Section 6.4(b) or would not be required if the representation or warranty contained in Section 6.4(b) were true), excluding any Taxes generally assessed on the overall net income of the Agent, any Bank, any Assignee or any Participant, as the case may be, by the government or other authority of the country in which the Agent, such Bank, such Assignee or such Participant is incorporated or in which its Funding Office or the office through which it is acting is located. If the Company is compelled by law to make any such deductions or withholdings it will: (i) pay to the relevant authorities the full amount required to be so withheld or deducted, (ii) except to the extent that such withholding or deduction results from the breach by the recipient of a payment of its agreement contained in Section 6.4(b) or would not be required if the representation or warranty contained in Section 6.4(b) were true, pay such additional amounts as may be necessary in order that the net amount received by the Agent, each Bank, each Assignee and each Participant after such deductions or withholdings (including any required deduction or withholding on such additional amounts) shall equal the amount such payee would have received had no such deductions or withholdings been made, and (iii) promptly forward to the Agent (for delivery to such payee) an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authorities. Moreover, if any Taxes are directly asserted against the Agent, any Bank, any Assignee or any Participant, such payee may pay such Taxes and the Company shall promptly pay such additional amount (including, without limitation, any penalties, interest or expenses) as may be necessary in order that the net amount received by such payee after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such payee would 19 25 have received had no such Taxes been asserted (provided, that the Agent, the Banks, and any Assignee or Participant shall use reasonable efforts, to the extent consistent with applicable laws and regulations, to minimize to the extent possible any such Taxes if they can do so without material cost or legal or regulatory disadvantage). For purposes of this Section 6.4, a distribution hereunder by the Agent or any Bank to or for the account of any Bank, Assignee or Participant shall be deemed to be a payment by the Company. The Company's agreement under this Section 6.4 shall survive repayment of the Loans, cancellation of the Notes or any termination of this Agreement. (b) In consideration of, and as a condition to, the Company's undertakings in Section 6.4(a), each Bank (other than a Bank that is organized and existing under the laws of the United States of America or any State thereof) agrees to execute and deliver to the Agent at its Payment Office for delivery to the Company, before the first scheduled payment date in each year, two United States Internal Revenue Service Forms 1001 or 4224, or any successor forms, as appropriate, properly completed and claiming complete exemption from withholding and deduction of United States federal Taxes. Each Bank represents and warrants to the Company that, at the date of this Agreement, or at the time such Bank becomes a Bank hereunder pursuant to Section 13.4.1, its Funding Office is entitled to receive payments of principal and interest hereunder without deduction for or on account of any Taxes imposed by the United States or any political subdivision thereof. SECTION 7. INCREASED COSTS AND SPECIAL PROVISIONS FOR ABSOLUTE RATE LOANS AND LIBOR RATE LOANS. Section 7.1. Increased Costs. (a) If (i) Regulation D of the Board of Governors of the Federal Reserve System or (ii) after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or any Funding Office of such Bank) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, (A) shall subject any Bank (or any Funding Office of such Bank) to any tax, duty or other charge with respect to its LIBOR Rate Loans, its Notes or its obligation to make LIBOR Rate Loans, or shall change the basis of taxation of payments to any Bank (or any Funding Office of such Bank) of the principal of or interest on its LIBOR Rate Loans or any other amounts due under this Agreement in respect of its LIBOR Rate Loans or its obligation to make LIBOR Rate Loans (except for changes in the rate of tax on the overall net income of such Bank or its Funding Office imposed by any Governmental Authority of the country in which such Bank is incorporated or in which such Bank's Funding Office is located); (B) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System, but excluding any reserve included in the determination of additional interest pursuant to Section 4.1), special deposit, assessment (including any assessment for 20 26 insurance of deposits) or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or any Funding Office of such Bank); or (C) shall impose on any Bank (or any Funding Office of such Bank) any other condition affecting its LIBOR Rate Loans, its Notes or its obligation to make or maintain LIBOR Rate Loans; and the result of any of the foregoing is to increase the cost to (or to impose an additional cost on) such Bank (or any Funding Office of such Bank) of making or maintaining any LIBOR Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or such Bank's Funding Office) under this Agreement or under its Notes with respect thereto, then within 10 days after demand by such Bank (which demand shall be accompanied by a statement setting forth the basis of such demand), the Company shall pay directly to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or such reduction (without duplication of any amounts which have been reimbursed pursuant to Section 6.4). (b) If, after the date hereof, any Bank shall determine that the adoption, effectiveness or phase-in of any applicable law, rule, guideline or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or any Funding Office of such Bank or any Person controlling such Bank) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Bank or any Person controlling such Bank as a consequence of its obligations hereunder to a level below that which such Bank or such controlling Person could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or such controlling Person's policies with respect to capital adequacy), then, from time to time, within 10 days after demand by such Bank (which demand shall be accompanied by a statement setting forth the basis of such demand), the Company shall pay directly to such Bank such additional amount or amounts as will compensate such Bank or such controlling Person for such reduction. (c) Each Bank shall promptly notify the Company and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section 7.1 and will designate a different Funding Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in such Bank's sole judgment, be otherwise disadvantageous to such Bank. Section 7.2. Basis for Determining Interest Rate Inadequate or Unfair. If with respect to the Loan Period for any LIBOR Rate Loan: (a) the Agent is advised by two or more Reference Banks that deposits in Dollars (in the applicable amounts) are not being offered to such Reference Banks in the relevant market for such Loan Period, or the Agent otherwise determines (which determination shall be binding and conclusive on all parties) that, by reason of circumstances affecting the LIBOR market, adequate and reasonable means do not exist for ascertaining the applicable LIBOR Rate; or 21 27 (b) the Required Banks advise the Agent that the LIBOR Rate, as determined by the Agent will not adequately and fairly reflect the cost to such Required Banks of maintaining or funding LIBOR Rate Loans for such Loan Period, or that the making or funding of LIBOR Rate Loans has become impracticable as a result of an event occurring after the date of this Agreement which in such Required Banks' opinion materially affects LIBOR Rate Loans, then (i) the Agent shall promptly notify the other parties thereof and (ii) so long as such circumstances shall continue, no Bank shall be under any obligation to make any LIBOR Rate Loan. Section 7.3. Changes in Law Rendering Certain Loans Unlawful. In the event that any change in (including the adoption of any new) applicable laws or regulations, or in the interpretation of applicable laws or regulations by any Governmental Authority or other regulatory body charged with the administration thereof, should make it (or in the good faith judgment of such Bank raise a substantial question as to whether it is) unlawful for a Bank to make, maintain or fund any LIBOR Rate Loan, then (a) such Bank shall promptly notify each of the other parties hereto, (b) upon the effectiveness of such event and so long as such unlawfulness shall continue, the obligation of such Bank to make LIBOR Rate Loans shall be suspended and any request by the Company for LIBOR Rate Loans shall, as to such Bank, be deemed to be a request for a Base Rate Loan, if said LIBOR Rate Loan is a Committed Loan, or an Absolute Rate Loan, if said LIBOR Rate Loan is a Bid Loan and (c) on the last day of the current Loan Period for such Bank's LIBOR Rate Loans (or, in any event, if such Bank so requests on such earlier date as may be required by the relevant law, regulation or interpretation) such Bank's Loans which are LIBOR Rate Loans shall cease to be maintained as LIBOR Rate Loans and shall thereafter bear interest at a floating rate per annum equal to the Base Rate, if said LIBOR Rate Loan is a Committed Loan, or at an Absolute Rate, which Absolute Rate shall be the LIBOR Rate in effect during such Loan Period, if said LIBOR Rate Loan is a Bid Loan. If at any time the event giving rise to such unlawfulness shall no longer exist, then such Bank shall promptly notify the Company and the Agent. Section 7.4. Funding Losses. The Company hereby agrees that upon demand by any Bank (which demand shall be accompanied by a statement setting forth the basis for the calculations of the amount being claimed) the Company will indemnify such Bank against any net loss or expense which such Bank may sustain or incur (including, without limitation, any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain any LIBOR Rate Loan or Absolute Rate Loan), as reasonably determined by such Bank, as a result of (a) any payment or mandatory or voluntary prepayment (including, without limitation, any payment pursuant to Section 7.3 or any payment resulting from acceleration) of any LIBOR Rate Loan or Absolute Rate Loan of such Bank on a date other than the last day of the Loan Period for such Loan or (b) any failure of the Company to borrow any Loans on the originally scheduled Funding Date specified therefor pursuant to this Agreement (including, without limitation, any failure to borrow resulting from any failure to satisfy the conditions precedent to such borrowing). For this purpose, all notices to the Agent pursuant to this Agreement (including, without limitation, all acceptances of Bids) shall be deemed to be irrevocable. 22 28 Section 7.5. Discretion of Banks as to Manner of Funding. Notwithstanding any provision of this Agreement to the contrary (but subject to Section 7.1(c)), each Bank shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Bank had actually funded and maintained each LIBOR Rate Loan or Absolute Rate Loan during the Loan Period for such Loan through the purchase of deposits having a maturity corresponding to such Loan Period and bearing an interest rate equal to the rate borne by such Loan for such Loan Period. Section 7.6. Conclusiveness of Statements; Survival of Provisions. Determinations and statements of any Bank pursuant to this Section 7 shall be conclusive absent demonstrable error, and each Bank may use reasonable averaging and attribution methods in determining compensation pursuant to Section 7.1 or 7.4. The provisions of this Section 7 shall survive termination of this Agreement and payment of the Notes. SECTION 8. REPRESENTATIONS AND WARRANTIES. To induce the Banks to enter into this Agreement and to make Loans hereunder, the Company hereby makes the following representations and warranties to the Agent and the Banks, which representations and warranties shall survive the execution and delivery of this Agreement and the Notes and the disbursement of the initial Loans hereunder: Section 8.1. Organization, etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California; each corporate Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; each other Subsidiary (if any) is an entity duly organized and validly existing under the laws of the jurisdiction of its organization; and each of the Company and each Subsidiary has the power to own its property and to carry on its business as now being conducted and is duly qualified and in good standing as a foreign corporation or other entity authorized to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification is required, except where the failure to be so qualified or in good standing could not reasonably be expected to have a Material Adverse Effect. Section 8.2. Authorization; Consents; No Conflict. The execution and delivery by the Company of this Agreement and the Notes, the borrowings hereunder and the performance by the Company of its obligations under this Agreement and the Notes (a) are within the corporate powers of the Company, (b) have been duly authorized by all necessary corporate action on the part of the Company, (c) have received all necessary approvals, authorizations, consents, registrations, notices, exemptions and licenses (if any shall be required) from Governmental Authorities and other Persons, except for any such approvals, authorizations, consents, registrations, notices, exemptions or licenses non-receipt of which could not reasonably be expected to have a Material Adverse Effect, (d) do not and will not contravene or conflict with any provision of (i) law, (ii) any judgment, decree or order to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound, (iii) the charter, by-laws or other organizational documents of the Company or any Subsidiary or (iv) any provision of any agreement or instrument binding on the Company or any Subsidiary, or any agreement or instrument of which the Company is aware affecting the properties of the Company or any 23 29 Subsidiary, except with respect to (i), (ii) and (iv) above, for any such contravention or conflict which could not reasonably be expected to have a Material Adverse Effect and (e) do not and will not result in or require the creation or imposition of any Lien on any of the Company's or its Subsidiaries' properties. Section 8.3. Validity and Binding Nature. This Agreement is, and the Notes when duly executed and delivered will be, legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. Section 8.4. Financial Statements. The Company's audited consolidated financial statements as at December 31, 1997, and unaudited consolidated financial statements as at September 30, 1998, a copy of each of which has been furnished to each Bank, have been prepared in conformity with generally accepted accounting principles in the United States applied on a basis consistent with that of the preceding fiscal year and fairly present the financial condition of the Company and its Subsidiaries as at such dates and the results of their operations for the year then ended. Section 8.5. Litigation and Contingent Liabilities. All Litigation Actions, taken as a whole, could not reasonably be expected to have a Material Adverse Effect. Other than any liability incident to such Litigation Actions or provided for or disclosed in the financial statements referred to in Section 8.4, neither the Company nor any Subsidiary has any contingent liabilities which are material to the business, credit, operations, financial condition or prospects of the Company and its Subsidiaries taken as a whole. Section 8.6. Employee Benefit Plans. Each employee benefit plan (as defined in Section 3(3) of ERISA) as to which the Company, or any Subsidiary or any ERISA Affiliate may have any liability complies in all material respects with all applicable requirements of law and regulations. During the twelve-consecutive-month period prior to the execution and delivery of this Agreement, (i) no steps have been taken to terminate any Plan and no contribution failure has occurred with respect to any Plan sufficient to give rise to a lien under Section 302(f) of ERISA, (ii) no Reportable Event has occurred with respect to any Plan and (iii) neither the Company nor any ERISA Affiliate has either withdrawn or instituted steps to withdraw from any Multiemployer Plan, except in any such case for actions which individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. No condition exists or event or transaction has occurred in connection with any Plan which could reasonably be expected to result in the incurrence by the Company, any Subsidiary or any ERISA Affiliate of any material liability, fine or penalty (imposed by Section 4975 of the Code or Section 502(i) of ERISA or otherwise). Neither the Company nor any ERISA Affiliate is a member of, or contributes to, any Multiemployer Plan. Neither the Company nor any ERISA Affiliate has any contingent liability with respect to any post retirement benefit under an employee welfare benefit plan (as defined in section 3(i) of ERISA), other than liability for continuation coverage described in Part 6 of Title I of ERISA. 24 30 Section 8.7. Investment Company Act. The Company is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. Section 8.8. Public Utility Holding Company Act. Neither the Company nor any Subsidiary is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 8.9. Regulation U. Neither the Company nor any Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System). Section 8.10. Information. (a) All information with respect to the Company contained in the December 2, 1998 memorandum furnished by the Agent to the Banks and all information heretofore furnished by the Company to the Agent or any Bank is, to the best of the Company's knowledge after due inquiry, true and accurate in every material respect as of the date thereof, and none of such information contains any material misstatement of fact or omits to state any material fact necessary to make such information not misleading. (b) All information furnished by the Company to the Agent or any Bank on and after the date hereof shall be, to the best of the Company's knowledge after due inquiry, true and accurate in every material respect as of the date of such information, and none of such information shall contain any material misstatement of fact or shall omit to state any material fact necessary to make such information not misleading. Section 8.11. Compliance with Applicable-Laws, etc. The Company and its Subsidiaries are in material compliance with the requirements of all applicable laws, rules, regulations and orders of all Governmental Authorities (including, without limitation, ERISA and all applicable environmental laws). Neither the Company nor any Subsidiary is in default under any agreement or instrument to which the Company or such Subsidiary is a party or by which it or any of its properties or assets is bound, which default could reasonably be expected to have a Material Adverse Effect on the business, credit, operations, financial condition or prospects of the Company and its Subsidiaries taken as a whole. No Event of Default or Unmatured Event of Default has occurred and is continuing. Section 8.12. Insurance. Each of the Company and each Subsidiary maintains, or, in the case of any property owned by the Company or any Subsidiary and leased to lessees, has caused such lessees to maintain, insurance with financially sound and reputable insurers to such extent and against such hazards and liabilities as is commonly maintained, or caused to be maintained, as the case may be, by companies similarly situated. Section 8.13. Taxes. Each of the Company and each Subsidiary has filed all tax returns which are required to have been filed and has paid, or made adequate provisions for the payment of, all of its Taxes which are due and payable, except such Taxes, if any, as are being 25 31 contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by generally accepted accounting principles have been established and except where failure to pay such Taxes, individually or in the aggregate, cannot reasonably be expected to have a Material Adverse Effect. Section 8.14. Use of Proceeds. The proceeds of the Loans will be used by the Company to support the Company's commercial paper program and for other general corporate purposes. Section 8.15. Pari Passu. All obligations and liabilities of the Company hereunder shall rank at least equally and ratably (pari passu) in priority with all other unsubordinated, unsecured obligations of the Company to any other creditor. Section 8.16. Ownership and Liens. Each of the Company and each Subsidiary has title to, or valid leasehold interests in, all of its properties and assets, real and personal, including the properties and assets, and leasehold interests reflected in the financial statements referred to in Section 8.4 (other than any properties or assets disposed of in the ordinary course of business) other than such imperfections in title or leasehold interests which could not, in the aggregate, reasonably be expected to have a Material Adverse Effect, and none of the properties and assets owned by the Company or any of its Subsidiaries and none of its leasehold interests is subject to any Lien, except as disclosed in such financial statements or as may be permitted under this Agreement. Section 8.17. Year 2000. The Company has reviewed and is currently completing a detailed analysis of its operations with a view to assessing whether it will be vulnerable to a Year 2000 Problem (as defined below). Based on such review, the Company does not believe that a Material Adverse Effect will result from a Year 2000 problem. For purposes of this Section 8.17, "Year 2000 Problem" means any significant risk that computer hardware or software used in the essential business systems, process control systems or other operations of the Company will not, in the case of dates or time periods occurring after December 31, 1999, function adequately so that no Material Adverse Effect will result from the advent of year 2000. SECTION 9. COVENANTS. Until the expiration or termination of the Commitments, and thereafter until all obligations of the Company hereunder and under the Notes are paid in full, the Company agrees that, unless at any time the Required Banks shall otherwise expressly consent in writing, it will: Section 9.1. Reports, Certificates and Other Information. Furnish to the Agent with sufficient copies for each Bank which the Agent shall promptly furnish to each Bank: 9.1.1. Audited Financial Statements. As soon as available, and in any event within 95 days after each fiscal year of the Company, a copy of the audited financial statements and annual audit report of the Company and its Subsidiaries for such fiscal year prepared on a consolidated basis and in conformity with generally accepted accounting principles in the United States and certified by Ernst & Young or by another independent certified public accountant of recognized national standing selected by the Company and satisfactory to the Required Banks. 26 32 9.1.2. Interim Reports. As soon as available, and in any event within 50 days after each quarter (except the last quarter) of each fiscal year of the Company, a copy of the unaudited financial statements of the Company and its Subsidiaries for such quarter prepared in a manner consistent with the audited financial statements referred to in Section 9.1.1, signed by the Company's chief financial officer and consisting of at least a balance sheet as at the close of such quarter and statements of earnings and cash flows for such quarter and for the period from the beginning of such fiscal year to the close of such quarter. 9.1.3. Certificates. Contemporaneously with the furnishing of a copy of each annual audit report and of each set of quarterly statements provided for in this Section 9.1, a certificate of the Company dated the date of delivery of such annual report or such quarterly statements and signed by the Company's chief financial officer, to the effect that no Event of Default or Unmatured Event of Default has occurred and is continuing, or, if there is any such event, describing it and the steps, if any, being taken to cure it and containing a computation of, and showing compliance with, each of the financial ratios and restrictions contained in this Section 9. 9.1.4. Certain Notices. Forthwith upon learning of the occurrence of any of the following, written notice thereof, describing the same and the steps being taken by the Company or the Subsidiary affected with respect thereto: (i) the occurrence of an Event of Default or an Unmatured Event of Default; (ii) the institution of any Litigation Action; provided, that the Company need not give notice of any new Litigation Action unless such Litigation Action, together with all other pending Litigation Actions, could reasonably be expected to have a Material Adverse Effect; (iii) the entry of any judgment or decree against the Company or any Subsidiary if the aggregate amount of all judgments and decrees then outstanding against the Company and all Subsidiaries exceeds $50,000,000 after deducting (i) the amount with respect to which the Company or any Subsidiary is insured and with respect to which the insurer has not denied coverage in writing and (ii) the amount for which the Company or any Subsidiary is otherwise indemnified if the terms of such indemnification are satisfactory to the Agent and the Required Banks; (iv) the occurrence of a Reportable Event with respect to any Plan; the institution of any steps by the Company, any ERISA Affiliate, the PBGC or any other Person to terminate any Plan; the institution of any steps by the Company or any ERISA Affiliate to withdraw from any Plan; the incurrence of any material increase in the contingent liability of the Company or any Subsidiary with respect to any post-retirement welfare benefits; or the failure of the Company or any other Person to make a required contribution to a Plan if such failure is sufficient to give rise to a lien under Section 302(f) of ERISA; provided, however, that no 27 33 notice shall be required of any of the foregoing unless the circumstance could reasonably be expected to have a Material Adverse Effect; or (v) the occurrence of a material adverse change in the business, credit, operations, financial condition or prospects of the Company and its Subsidiaries taken as a whole. 9.1.5. SEC Filings. Promptly after the filing or making thereof, copies of all 8-K's (other than 8-K's relating solely to the issuance by the Company of securities pursuant to an effective registration statement), 10-Q's, 10-K's, and other material reports or registration statements filed by the Company or any Subsidiary with or to any securities exchange or the Securities and Exchange Commission. 9.1.6. Other Information. From time to time such other information concerning the Company and its Subsidiaries as any Bank or the Agent may reasonably request. Section 9.2. Existence. Maintain and preserve, and, subject to the proviso in Section 9.9, cause each Subsidiary to maintain and preserve, its respective existence as a corporation or other form of business organization, as the case may be, and all rights, privileges, licenses, patents, patent rights, copyrights, trademarks, trade names, franchises and other authority to the extent material and necessary for the conduct of its respective business in the ordinary course as conducted from time to time, except as may be determined by the Board of Directors of the Company in good faith to wind up and dissolve a Subsidiary that is not necessary or material to the business of the Company in its ordinary course as conducted from time to time. Section 9.3. Nature of Business. Engage, and cause each Subsidiary to engage, in substantially the same fields of business as it is engaged in on the date hereof. Section 9.4. Books, Records and Access. Maintain, and cause each Subsidiary to maintain, complete and accurate books and records in which full and correct entries in conformity with generally accepted accounting principles in the United States shall be made of all dealings and transactions in relation to its respective business and activities. Permit, and cause each Subsidiary to permit, access by the Agent and each Bank to the books and records of the Company and such Subsidiary during normal business hours, and permit, and cause each Subsidiary to permit, the Agent and each Bank to make copies of such books and records. Section 9.5. Insurance. Maintain, and cause each Subsidiary to maintain, such insurance as is described in Section 8.12. Section 9.6. Repair. Maintain, preserve and keep, and cause each Subsidiary to maintain, preserve and keep, its material properties in good repair, working order and condition, and from time to time make, and cause each Subsidiary to make, all necessary and proper repairs, renewals, replacements, additions, betterments and improvements thereto so that at all times the efficiency thereof shall be fully preserved and maintained. In the case of properties leased by the Company or any Subsidiary to lessees, the Company may satisfy its obligations related to such properties under the previous sentence by causing, or by causing each Subsidiary to cause, such lessees to perform such obligations. 28 34 Section 9.7. Taxes. Pay, and cause each Subsidiary to pay, when due, all of its Taxes, unless and only to the extent that the Company or such Subsidiary, as the case may be, is contesting any such Taxes in good faith and by appropriate proceedings and the Company or such Subsidiary has set aside on its books such reserves or other appropriate provisions therefor as may be required by generally accepted accounting principles in the United States, except where failure to pay such Taxes, individually or in the aggregate, cannot reasonably be expected to have a Material Adverse Effect. Section 9.8. Compliance. Comply, and cause each Subsidiary to comply, in all material respects with all statutes (including without limitation ERISA) and governmental rules and regulations applicable to it; and use reasonable efforts to cause, and cause each Subsidiary to use reasonable efforts to cause, each lessee of property owned by the Company or any Subsidiary to comply in all material respects with all statutes, governmental rules and regulations applicable to such property or applicable to such lessee in connection with its leasing. Section 9.9. Sale of Assets. Not, and not permit any Subsidiary to, transfer, convey, lease or otherwise dispose of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole; provided, however, that any Wholly-owned Subsidiary may sell, transfer, convey, lease or assign all or a substantial part of its assets to the Company or another Wholly-owned Subsidiary if immediately thereafter and after giving effect thereto no Event of Default or Unmatured Event of Default shall have occurred and be continuing. Section 9.10. Consolidated Indebtedness to Consolidated Tangible Net Worth Ratio. Not permit the ratio of Consolidated Indebtedness to Consolidated Tangible Net Worth to exceed 600% on and as of the last day of any fiscal year or 650% at any other time. Section 9.11. Fixed Charge Coverage Ratio. Not permit the Fixed Charge Coverage Ratio on the last day of any quarter of any fiscal year of the Company to be less than 110%. Section 9.12. Consolidated Tangible Net Worth. Not permit the Company's Consolidated Tangible Net Worth to be less than $1,500,000,000 plus 50% of (a) the cumulative net income (but without deduction for cumulative net losses) of the Company and its Subsidiaries since September 30, 1994 determined on a consolidated basis in accordance with United States generally accepted accounting principles, (b) the cumulative equity capital contributions from AIG since September 30, 1994 and (c) the net proceeds from the sale of preferred stock, in each case for the period from September 30, 1994 to and including the date of any determination hereunder. Section 9.13. Restricted Payments. Not declare or pay any dividends whatsoever or make any distribution on any capital stock of the Company (except in shares of, or warrants or rights to subscribe for or purchase shares of, capital stock of the Company), and not, and not permit any Subsidiary to, make any payment to acquire or retire shares of capital stock of the Company, at any time when (i) an Event of Default as described in Section 11.1 has occurred and is continuing and there are Loans outstanding hereunder or (ii) an Event of Default as described in Section 11.1.1 has occurred and is continuing and there are no Loans outstanding hereunder; provided, however, that notwithstanding the foregoing, this Section 9.13 shall not 29 35 prohibit (x) the payment of dividends on any of the Company's market auction preferred stock that was sold to the public pursuant to an effective registration statement under the Securities Act of 1933 or (y) the payment of dividends within 30 days of the declaration thereof if such declaration was not prohibited by this Section 9.13. Section 9.14. Liens. Not, and not permit any Subsidiary to, create or permit to exist any Lien upon or with respect to any of its properties or assets of any kind, now owned or hereafter acquired, or on any income or profits therefrom, except for (a) Liens existing on the date hereof that are reflected in the financial statements of the Company dated prior to the date hereof; (b) Liens upon or in any property (other than property acquired for lease to a Person other than the Company or a Subsidiary) acquired or held by the Company or a Subsidiary in the ordinary course of business to secure the purchase price of such property or to secure Indebtedness permitted under Section 9.15 incurred or guaranteed by the Company or any Subsidiary prior to, at the time of, or within 60 days after the later of the acquisition, completion of construction or commencement of full operation of such property, which Indebtedness was incurred or guaranteed solely for the purpose of financing the acquisition of such property or construction or improvements thereon; provided, however, that in the case of any such acquisition, construction or improvement, the Lien shall not apply to any property theretofore owned by the Company or a Subsidiary, other than, in the case of any such construction or improvement, any theretofore unimproved real property on which the property so constructed, or the improvement, is located; (c) Liens securing the Indebtedness of a Subsidiary owing to the Company or to a Wholly-owned Subsidiary; (d) Liens on property of a corporation existing at the time such corporation is merged into or consolidated with the Company or a Subsidiary or at the time of a purchase, lease or other acquisition of the properties of a corporation or firm as an entirety or substantially as an entirety by the Company or a Subsidiary; provided, that any such Lien shall not extend to or cover any assets or properties of the Company or such Subsidiary owned by the Company or such Subsidiary prior to such merger, consolidation, purchase, lease or acquisition, unless otherwise permitted under this Section 9.14; (e) leases or subleases granted to others in the ordinary and usual course of the Company's business; (f) easements, rights of way, restrictions and other similar charges or encumbrances not interfering with the ordinary conduct of the business of the Company or any Subsidiary; (g) banker's Liens arising, other than by contract, in the ordinary and usual course of the Company's business; 30 36 (h) Liens incurred or deposits made in the ordinary course of business in connection with surety and appeal bonds, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); provided, however, that the obligation so secured is not overdue or is being contested in good faith and by appropriate proceedings diligently pursued; (i) any replacement or successive replacement in whole or in part of any Lien referred to in the foregoing clauses (a) to (h), inclusive; provided, however, that the principal amount of any Indebtedness secured by the Lien shall not be increased and the principal repayment schedule and maturity of such Indebtedness shall not be extended and (i) such replacement shall be limited to all or a part of the property which secured the Lien so replaced (plus improvements and construction on such property) or (ii) if the property which secured the Lien so replaced has been destroyed, condemned or damaged and pursuant to the terms of the Lien other property has been substituted therefor, then such replacement shall be limited to all or part of such substituted property; (j) Liens created by or resulting from any litigation or other proceeding which is being contested in good faith by appropriate proceedings, including Liens arising out of judgments or awards against the Company or any Subsidiary with respect to which the Company or such Subsidiary is in good faith prosecuting an appeal or proceedings for review; or Liens incurred by the Company or any Subsidiary for the purpose of obtaining a stay or discharge in the course of any litigation or other proceeding to which the Company or such Subsidiary is a party; (k) carrier's, warehouseman's, mechanic's, landlord's and materialmen's Liens, Liens for Taxes, assessments and other governmental charges and other similar Liens, in each case arising in the ordinary course of business, securing obligations that are not incurred in connection with the obtaining of any advance or credit and which are either not overdue or are being contested in good faith and by appropriate proceedings diligently pursued; (1) Liens securing Indebtedness of each of the Company's Wholly-owned Subsidiaries to be incorporated outside the United States for the purpose of providing subsidized financing of the acquisition of Airbus Industrie aircraft, the repayment obligations of which will be supported by guaranties issued by certain European government export credit agencies (the European Credit Agency Export Finance Program or "ECA Program") and a Company Guaranty and a pledge of the assets of (including any rights to or interests in any reserve or security deposit held by) each such Wholly-owned Subsidiary; provided, that such Liens shall encumber only the assets of (including any rights to or interests in any reserve or security deposit held by) each such Wholly-owned Subsidiary; and provided, further, that the aggregate amount of Indebtedness of all such Wholly-owned Subsidiaries secured by Liens does not at the time exceed $3 billion minus the amount of outstanding Liens permitted under Section 9.14(m); and (m) other Liens securing Indebtedness of the Company or any Subsidiary in an aggregate amount which, together with all other outstanding Indebtedness of the 31 37 Company and the Subsidiaries secured by Liens not listed in clauses (a) through (l) of this Section 9.14, does not at the time exceed 12.5% of the Consolidated Tangible Net Worth of the Company as shown on its audited consolidated financial statements as of the end of the fiscal year preceding the date of determination minus the amount of outstanding Liens permitted under Section 9.14(l). Section 9.15. Leases. Not, and not permit any Subsidiary to, become obligated, as lessee, under any lease of real or personal property if at the time of entering into such lease and after giving effect thereto the aggregate Operating Lease Rentals would exceed 20% of Consolidated Indebtedness. Section 9.16. Use of Proceeds. Not permit any proceeds of the Loans to be used, either directly or indirectly, (a) for the payment of any dividend or for the repurchase of any of the Company's equity securities; (b) for the purpose, whether immediate, incidental or ultimate, of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended from time to time; (c) for the purpose, whether immediate, incidental or ultimate, of acquiring directly or indirectly any of the outstanding shares of voting stock of any corporation which (i) has announced that it will oppose such acquisition or (ii) has commenced any litigation which alleges that any such acquisition violates, or will violate, applicable law; or (d) for any other purpose except (i) to support the Company's commercial paper program or (ii) for general corporate purposes in the ordinary course of business. SECTION 10. CONDITIONS TO LENDING. Section 10.1. Conditions Precedent to All Loans. Each Bank's obligation to make each Loan is subject to the following conditions precedent: 10.1.1. No Default. (a) No Event of Default or Unmatured Event of Default has occurred and is continuing or will result from the making of such Loan, (b) the representations and warranties contained in Section 8 are true and correct in all material respects as of the date of such requested Loan, with the same effect as though made on the date of such Loan (it being understood that each request for a Loan shall automatically constitute a representation and warranty by the Company that, as at the requested date of such Loan, (x) all conditions under this Section 10.1.1 shall be satisfied and (y) after the making of such Loan the aggregate principal amount of all outstanding Loans will not exceed the Aggregate Commitment). 10.1.2. Documents. The Agent shall have received (a) a certificate signed by an Authorized Officer of the Company as to compliance with Section 10.1.1, which requirement shall be deemed satisfied by the submission of a properly completed Notice 32 38 of Competitive Bid Borrowing or Committed Loan Request and (b) such other documents as the Agent may reasonably request in support of such Loan. 10.1.3. Litigation. No Litigation Action not disclosed in writing by the Company to the Agent and the Banks prior to the date of the last previous Loan hereunder (or, in the case of the initial Loan, prior to the date of execution and delivery of this Agreement) ("New Litigation") has been instituted and no development not so disclosed has occurred in any other Litigation Action ("Existing Litigation"), unless the resolution of all New Litigation and Existing Litigation against the Company and its Subsidiaries could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 10.2. Conditions to the Availability of the Commitments. The obligations of each Bank hereunder are subject to, and the Banks' Commitments shall not become available until the date on which each of the following conditions precedent shall have been satisfied or waived in writing by the Required Banks: 10.2.1. Revolving Credit Agreement. The Agent shall have received this Agreement duly executed and delivered by each of the Banks and the Company and each of the Banks shall have received a fully executed Committed Note and a fully executed Bid Note. 10.2.2. Evidence of Corporate Action. The Agent shall have received certified copies of all corporate actions taken by the Company to authorize this Agreement and the Notes. 10.2.3. Incumbency and Signatures. The Agent shall have received a certificate of the Secretary or an Assistant Secretary of the Company certifying the names of the officer or officers of the Company authorized to sign this Agreement, the Notes and the other documents provided for in this Agreement to be executed by the Company, together with a sample of the true signature of each such officer (it being understood that the Agent and each Bank may conclusively rely on such certificate until formally advised by a like certificate of any changes therein). 10.2.4. Good Standing Certificates. The Agent shall have received such good standing certificates of state officials with respect to the incorporation of the Company, or other matters, as the Agent or the Banks may reasonably request. 10.2.5. Opinions of Company Counsel. The Agent shall have received favorable written opinions of O'Melveny & Myers, counsel for the Company, in substantially the form of Exhibit G, and the General Counsel of the Company, in substantially the form of Exhibit H. 10.2.6. Opinion of Agent's Counsel. The Agent shall have received a favorable written opinion of Milbank, Tweed, Hadley & McCloy, special New York counsel to the Agent, with respect to documents received by the Agent and the Banks and such legal matters as the Agent reasonably may require. 33 39 10.2.7. Other Documents. The Agent shall have received such other certificates and documents as the Agent or the Banks reasonably may require. 10.2.8. Fees. The Agent shall have received for the account of the Agent, the Agent's fees payable to the Funding Date pursuant to Section 4.6 hereof. 10.2.9. Material Adverse Change. The Agent shall have received a certificate of the Company's chief financial officer confirming that since the date of the audited financial statements identified in Section 8.4 hereof, there shall not have occurred any material adverse change in the business, credit, operations, financial condition or prospects of the Company and its Subsidiaries taken as a whole. 10.2.10. Termination of Revolving Credit Facilities. The Company shall have paid all amounts owing and otherwise satisfied and discharged all of its obligations arising under the Revolving Credit Agreement, dated as of January 17, 1997, as amended, among the Company, the Agent and the banks named therein, and such agreements shall have been terminated and be of no further force and effect, evidence of which shall have been made available to the Agent. SECTION 11. EVENTS OF DEFAULT AND THEIR EFFECT. Section 11.1. Events of Default. Each of the following shall constitute an Event of Default under this Agreement: 11.1.1. Non-Payment of Notes, etc. Default in the payment when due of any principal of any Loan; or default, and continuance thereof for three Business Days, in the payment when due of any interest on any Loan, any fees or any other amounts payable by the Company hereunder. 11.1.2. Non-Payment of Other Indebtedness for Borrowed Money. Default in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any principal of, interest on or fees incurred in connection with any other Indebtedness of, or guaranteed by, the Company or any Significant Subsidiary (except (i) any such Indebtedness of any Subsidiary to the Company or to any other Subsidiary and (ii) any Indebtedness hereunder) and, if a default in the payment of interest or fees, continuance of such default for five days, in the case of interest, or 30 days, in the case of fees, or default in the performance or observance of any obligation or condition with respect to any such other Indebtedness if the effect of such default (subject to any applicable grace period) is to accelerate the maturity of any such Indebtedness or to permit the holder or holders thereof, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity; provided, however, that the aggregate principal amount of all Indebtedness as to which there has occurred any default as described above shall equal or exceed $50,000,000. 11.1.3. Bankruptcy, Insolvency, etc. The Company or any Significant Subsidiary becomes insolvent or generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; or the Company or any Significant Subsidiary applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for 34 40 the Company or such Significant Subsidiary or any property thereof, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for the Company or any Significant Subsidiary or for a substantial part of the property of any thereof and is not discharged within 60 days; or any warrant of attachment or similar legal process is issued against any substantial part of the property of the Company or any of its Significant Subsidiaries which is not released within 60 days of service; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding (except the voluntary dissolution, not under any bankruptcy or insolvency law, of a Significant Subsidiary), is commenced in respect of the Company or any Significant Subsidiary, and, if such case or proceeding is not commenced by the Company or such Significant Subsidiary it is consented to or acquiesced in by the Company or such Significant Subsidiary or remains for 60 days undismissed; or the Company or any Significant Subsidiary takes any corporate action to authorize, or in furtherance of, any of the foregoing. 11.1.4. Non-Compliance with this Agreement. Failure by the Company to comply with or to perform any of the Company's covenants herein or any other provision of this Agreement (and not constituting an Event of Default under any of the other provisions of this Section 11.1) and continuance of such failure for 60 days (or, if the Company failed to give notice of such noncompliance or nonperformance pursuant to Section 9.1.4 within one Business Day after obtaining actual knowledge thereof, 60 days less the number of days elapsed between the date the Company obtained such actual knowledge and the date the Company gives the notice pursuant to Section 9.1.4, but in no event less than one Business Day) after notice thereof to the Company from the Agent, any Bank, or the holder of any Note. 11.1.5. Representations and Warranties. Any representation or warranty made by the Company herein is untrue or misleading in any material respect when made or deemed made; or any schedule, statement, report, notice, or other writing furnished by the Company to the Agent or any Bank is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified; or any certification made or deemed made by the Company to the Agent or any Bank is untrue or misleading in any material respect on or as of the date made or deemed made. 11.1.6. Employee Benefit Plans. The institution by the Company or any ERISA Affiliate of steps to terminate any Plan if, in order to effectuate such termination, (i) the Company or any ERISA Affiliate would be required to make a contribution to such Plan or would incur a liability or obligation to such Plan in an amount in excess of $10,000,000 and (ii) immediately after giving effect to the payment or satisfaction of such contribution, liability or obligation (if made or undertaken by the Company or any Subsidiary) an Event of Default or Unmatured Event of Default would exist and be continuing; or the institution by the PBGC of steps to terminate any Plan; or a contribution failure occurs with respect to a Plan sufficient to give rise to a lien under Section 302(f) of ERISA securing an amount in excess of $10,000,000. 35 41 11.1.7. Litigation. There shall be entered against the Company or any Subsidiary one or more judgments or decrees in excess of $50,000,000 in the aggregate at any one time outstanding for the Company and all Subsidiaries and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof, excluding those judgments or decrees for and to the extent to which the Company or any Subsidiary is insured and with respect to which the insurer has not denied coverage in writing or for and to the extent to which the Company or any Subsidiary is otherwise indemnified if the terms of such indemnification are satisfactory to the Required Banks; and 11.1.8. Change of Ownership. AIG shall cease to own beneficially at least 51% of all of the outstanding shares of the common stock of the Company. Section 11.2. Effect of Event of Default. If any Event of Default described in Section 11.1.3 shall occur, the Commitments (if they have not theretofore terminated) shall immediately terminate and all Loans and all interest and other amounts due hereunder shall become immediately due and payable, all without presentment, demand or notice of any kind; and, in the case of any other Event of Default, the Agent may, and upon written request of the Required Banks shall, declare the Commitments (if they have not theretofore terminated) to be terminated and all Loans and all interest and other amounts due hereunder to be due and payable, whereupon the Commitments (if they have not theretofore terminated) shall immediately terminate and all Loans and all interest and other amounts due hereunder shall become immediately due and payable, all without presentment, demand or notice of any kind. The Agent shall promptly advise the Company and each Bank of any such declaration, but failure to do so shall not impair the effect of such declaration. SECTION 12. THE AGENT. Section 12.1. Authorization. Each Bank and the holder of each Note authorizes the Agent to act on behalf of such Bank or holder to the extent provided herein and in any other document or instrument delivered hereunder or in connection herewith, and to take such other action as may be reasonably incidental thereto. Subject to the provisions of Section 12.3, the Agent will take such action permitted by any agreement delivered in connection with this Agreement as may be requested in writing by the Required Banks or if required under Section 13.1, all of the Banks. The Agent shall promptly remit in immediately available funds to each Bank or other holder its share of all payments received by the Agent for the account of such Bank or holder, and shall promptly transmit to each Bank (or share with each Bank the contents of) each notice it receives from the Company pursuant to this Agreement. Section 12.2. Indemnification. The Banks agree to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Company), ratably according to their respective Percentages, from and against any and all actions, causes of action, suits, losses, liabilities, damages and expenses which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided, that no Bank shall be 36 42 liable for the payment to the Agent of any portion of such actions, causes of action, suits, losses, liabilities, damages and expenses resulting from the Agent's or its employees' or agents' gross negligence or willful misconduct. Without limiting the foregoing, subject to Section 13.5 each Bank agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent in such capacity in connection with the preparation, execution or enforcement of, or legal advice in respect of rights or responsibilities under, this Agreement or any amendments or supplements hereto or thereto to the extent that the Agent is not reimbursed for such expenses by the Company. All obligations provided for in this Section 12.2 shall survive repayment of the Loans, cancellation of the Notes or any termination of this Agreement. Section 12.3. Action on Instructions of the Required Banks. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but the Agent shall in all cases be fully protected in acting or refraining from acting upon the written instructions from (i) the Required Banks, except for instructions which under the express provisions hereof must be received by the Agent from all Banks and (ii) in the case of such instructions, from all Banks. In no event will the Agent be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The relationship between the Agent and the Banks is and shall be that of agent and principal only and nothing herein contained shall be construed to constitute the Agent a trustee for any holder of a Note or of a participation therein nor to impose on the Agent duties and obligations other than those expressly provided for herein. Section 12.4. Payments. (a) The Agent shall be entitled to assume that each Bank has made its Loan available in accordance with Section 2.3 or Section 3.2(c), as applicable, unless such Bank notifies the Agent at its Notice Office prior to 11:00 a.m., New York City time, on the Funding Date for such Loan that it does not intend to make such Loan available, it being understood that no such notice shall relieve such Bank of any of its obligations under this Agreement. If the Agent makes any payment to the Company on the assumption that a Bank has made the proceeds of such Loan available to the Agent but such Bank has not in fact made the proceeds of such Loan available to the Agent, such Bank shall pay to the Agent on demand an amount equal to the amount of such Bank's Loan, together with interest thereon for each day that elapses from and including such Funding Date to but excluding the Business Day on which the proceeds of such Bank's Loan become immediately available to the Agent at its Payment Office prior to 12:00 Noon, New York City time, at the Federal Funds Rate for each such day, based upon a year of 360 days. A certificate of the Agent submitted to any Bank with respect to any amounts owing under this Section 12.4(a) shall be conclusive absent demonstrable error. If the proceeds of such Bank's Loan are not made available to the Agent at its Payment Office by such Bank within three Business Days of such Funding Date, the Agent shall be entitled to recover such amount on demand from the Company, together with interest thereon for each day that elapses from and including such Funding Date to but excluding the Business Day on which such proceeds become immediately available to the Agent prior to 12:00 Noon, New York City time, (i) in the case of a Bid Loan, at the rate per annum applicable thereto and (ii) in the case of a Committed Loan, at the rate per annum applicable to Base Rate Loans hereunder, in either case based upon a year of 360 days. Nothing in this paragraph (a) shall relieve any Bank of any 37 43 obligation it may have hereunder to make any Loan or prejudice any rights which the Company may have against any Bank as a result of any default by such Bank hereunder. (b) The Agent shall be entitled to assume that the Company has made all payments due hereunder from the Company on the due date thereof unless it receives notification prior to any such due date from the Company that the Company does not intend to make any such payment, it being understood that no such notice shall relieve the Company of any of its obligations under this Agreement. If the Agent distributes any payment to a Bank hereunder in the belief that the Company has paid to the Agent the amount thereof but the Company has not in fact paid to the Agent such amount, such Bank shall pay to the Agent on demand (which shall be made by telegram, telex, facsimile or personal delivery) an amount equal to the amount of the payment made by the Agent to such Bank, together with interest thereon for each day that elapses from and including the date on which the Agent made such payment to but excluding the Business Day on which the amount of such payment is returned to the Agent at its Payment Office in immediately available funds prior to 12:00 Noon, New York City time, at the Federal Funds Rate for each such day, based upon a year of 360 days. If the amount of such payment is not returned to the Agent in immediately available funds within three Business Days after demand by the Agent, such Bank shall pay to the Agent on demand an amount calculated in the manner specified in the preceding sentence after substituting the term "Base Rate" for the term "Federal Funds Rate". A certificate of the Agent submitted to any Bank with respect to amounts owing under this Section 12.4(b) shall be conclusive absent demonstrable error. Section 12.5. Exculpation. The Agent shall be entitled to rely upon advice of counsel concerning legal matters, and upon this Agreement and any Note, security agreement, schedule, certificate, statement, report, notice or other writing which it believes to be genuine or to have been presented by a proper person. Neither the Agent nor any of its directors, officers, employees or agents shall (i) be responsible for any recitals, representations or warranties contained in, or for the execution, validity, genuineness, effectiveness or enforceability of, this Agreement, any Note or any other instrument or document delivered hereunder or in connection herewith, (ii) be deemed to have knowledge of an Event of Default or Unmatured Event of Default until after having received actual notice thereof from the Company or a Bank, (iii) be under any duty to inquire into or pass upon any of the foregoing matters, or to make any inquiry concerning the performance by the Company or any other obligor of its obligations or (iv) in any event, be liable as such for any action taken or omitted by it or them, except for its or their own gross negligence or willful misconduct. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, the Agent in its individual capacity. Section 12.6. Credit Investigation. Each Bank acknowledges, and shall cause each Assignee or Participant to acknowledge in its assignment or participation agreement with such Bank, that it has (i) made and will continue to make such inquiries and has taken and will take such care on its own behalf as would have been the case had the Loans been made directly by such Bank or other applicable Person to the Company without the intervention of the Agent or any other Bank and (ii) independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made and will continue to make its own credit analysis and decisions relating to this Agreement. Each Bank agrees and acknowledges, and shall cause each Assignee or Participant to agree and 38 44 acknowledge in its assignment or participation agreement with such Bank, that the Agent makes no representations or warranties about the creditworthiness of the Company or any other party to this Agreement or with respect to the legality, validity, sufficiency or enforceability of this Agreement or any Note. Section 12.7. CUSA and Affiliates. CUSA and each of its successors as Agent shall have the same rights and powers hereunder as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and CUSA and any such successor and its Affiliates may accept deposits from, lend money to and generally engage, and continue to engage, in any kind of business with the Company or any Affiliate thereof as if CUSA or such successor were not the Agent hereunder. Section 12.8. Resignation. The Agent may resign as such at any time upon at least 30 days' prior notice to the Company and the Banks. In the event of any such resignation, Banks having an aggregate Percentage of more than 50% shall as promptly as practicable appoint a successor Agent from among the Banks reasonably acceptable to the Company. If no successor Agent shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent from among the Banks reasonably acceptable to the Company, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof or under the laws of another country which is doing business in the United States of America and having a combined capital, surplus and undivided profits of at least $1,000,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from all further duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 12 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. SECTION 13. GENERAL. Section 13.1. Waiver; Amendments. No delay on the part of the Agent, any Bank, or the holder of any Loan in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by any of them of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the Notes shall in any event be effective unless the same shall be in writing and signed and delivered by the Agent and by Banks having an aggregate Percentage of not less than the aggregate Percentage expressly designated herein with respect thereto or, in the absence of such designation as to any provision of this Agreement or the Notes, by the Required Banks, and then any amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No amendment, modification, waiver or consent (i) shall extend or increase the amount of the Commitments, extend the due date for any amount payable hereunder, reduce or waive any fee hereunder, change the definition of "Required Banks" or Percentage in Section 1, amend or modify Section 4.1 or change any of the defined terms used in Section 4.1, amend or modify Section 4.4, Section 4.5, Section 4.7, Section 11.1.1 or Section 11.1.8, modify this Section 13.1 or otherwise change the aggregate Percentage 39 45 required to effect an amendment, modification, waiver or consent without the written consent of all Banks, (ii) shall modify or waive any of the conditions precedent specified in Section 10.1 for the making of any Loan without the written consent of the Bank which is to make such Loan or (iii) shall extend the scheduled maturity or reduce the principal amount of, or rate of interest on, or extend the due date for any amount payable under, any Loan without the written consent of the holder of the Note evidencing such Loan. Amendments, modifications, waivers and consents of the type described in clause (iii) of the preceding sentence with respect to Bid Loans or Bid Notes may be effected with the written consent of the holder of such Bid Loans or Bid Notes and no consent of any other Bank or other holder shall be required in connection therewith. No provisions of Section 12 shall be amended, modified or waived without the Agent's written consent. Section 13.2. Notices. Except as otherwise expressly provided in this Agreement, any notice hereunder to the Company, the Agent, or any Bank or other holder of a Loan shall be in writing and, if by telegram, telex, facsimile or personal delivery, shall be deemed to have been given and received when sent and, if mailed, shall be deemed to have been given and received three Business Days after the date when sent by registered or certified mail, postage prepaid, and addressed to the Company, the Agent, or such Bank (or other holder) at its address shown below its signature hereto or at such other address as it may, by written notice received by the other parties to this Agreement, have designated as its address for such purpose. The Agent, any Bank or the holder of any Note giving any waiver, consent or notice to, or making any request upon, the Company hereunder shall promptly notify the Agent thereof. Correspondence of the type described in Section 2.2 with respect to Bid Loans and notices of Committed Loan Requests made by the Company shall, except as otherwise provided herein, be directed to the persons specified for such purpose for each party on the signature pages hereof or in subsequent writings among the parties. Additional copies of certain notices which any party may have requested on the signature pages hereof need not be delivered at the same time as the primary notices to such party, but the party delivering such primary notices shall use reasonable efforts to distribute such copies on the same Business Day as that on which such primary notices were distributed. Section 13.3. Computations. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any consolidation or other accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall, at any time and to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with generally accepted accounting principles in the United States applied on a basis consistent with those in effect as at the date of the Company's audited financial statements referred to in Section 8.4. If there should be any material change in generally accepted accounting principles in the United States after the date hereof which materially affects the financial covenants in this Agreement, the parties hereto agree to negotiate in good faith appropriate revisions of such covenants (it being understood, however, that such covenants shall remain in full force and effect in accordance with their existing terms pending the execution by the Company and the Banks of any such amendment). Section 13.4. Assignments; Participations. Each Bank may assign, or sell participations in, its Loans and its Commitment to one or more other Persons in accordance with this Section 13.4 (and the Company consents to the disclosure of any information obtained by any Bank in connection herewith to any actual or prospective Assignee or Participant). 40 46 Section 13.4.1. Assignments. Any Bank may with the written consents of the Company and the Agent (which consents will not be unreasonably withheld or delayed) at any time assign and delegate to one or more commercial banks or other financial institutions (any Person to whom an assignment and delegation is made being herein called an "Assignee") all or any fraction of such Bank's Loans and Commitment (which assignment and delegation shall be of a constant, and not a varying, percentage of such assigning Bank's Loans and Commitment); each such assignment of a Bank's Commitment shall be in the minimum amount of $10,000,000 or in integral multiples of $1,000,000 in excess thereof; provided, that any such Assignee will comply, if applicable, with the provisions contained in the first sentence of Section 6.4(b) and shall be deemed to have made, on the date of the effectiveness of such assignment and delegation, the representation and warranty set forth in the second sentence of Section 6.4(b); and provided, further, that the Company and the Agent shall be entitled to continue to deal solely and directly with such assigning Bank in connection with the interests so assigned and delegated to an Assignee until such assigning Bank and/or such Assignee shall have: (i) given written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee, substantially in the form of Exhibit I, to the Company and the Agent; (ii) provided evidence satisfactory to the Company and the Agent that, as of the date of such assignment and delegation, the Company will not be required to pay any costs, fees, taxes or other amounts of any kind or nature with respect to the interest assigned in excess of those payable by the Company with respect to such interest prior to such assignment; (iii) paid to the Agent for the account of the Agent a processing fee of $2,500; and (iv) provided to the Agent evidence reasonably satisfactory to the Agent that the assigning Bank has complied with the provisions of the last sentence of Section 12.6. Upon receipt of the foregoing items and the consents of the Company and the Agent, (x) the Assignee shall be deemed automatically to have become a party hereto and, to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee, such Assignee shall have the rights and obligations of a Bank hereunder and under the other instruments and documents executed in connection herewith and (y) the assigning Bank, to the extent that rights and obligations hereunder have been assigned and delegated by it, shall be released from its obligations hereunder. The Agent may from time to time (and upon the request of the Company or any Bank after any change therein shall) distribute a revised Schedule I indicating any changes in the Banks party hereto or the respective Percentages of such Banks. Within five Business Days after the Company's receipt of notice from the Agent of the effectiveness of any such assignment and delegation, the Company shall execute and deliver to the Agent (for delivery to the relevant Assignee) new Notes in favor of such Assignee and, if the assigning Bank has 41 47 retained Loans and a Commitment hereunder, replacement Notes in favor of the assigning Bank (such Notes to be in exchange for, but not in payment of, the Notes previously held by such assigning Bank). Each such Note shall be dated the date of the predecessor Notes. The assigning Bank shall promptly mark the predecessor Notes "exchanged" and deliver them to the Company. Any attempted assignment and delegation not made in accordance with this Section 13.4.1 shall be null and void. The foregoing consent requirement shall not be applicable in the case of, and this Section 13.4.1 shall not restrict, any assignment or other transfer by any Bank of all or any portion of such Bank's Loans to (i) any Federal Reserve Bank (provided, that such Federal Reserve Bank shall not be considered a "Bank" for purposes of this Agreement) or (ii) any Affiliate of such Bank (provided, that the assigning or transferring Bank shall give notice of such assignment or transfer to the Agent and the Company). Section 13.4.2. Participations. Any Bank may at any time sell to one or more commercial banks or other Persons (any such commercial bank or other Person being herein called a "Participant") participating interests in any of its Loans, its Commitment or any other interest of such Bank hereunder; provided, however, that (a) no participation contemplated in this Section 13.4.2 shall relieve such Bank from its Commitment or its other obligations hereunder; (b) such Bank shall remain solely responsible for the performance of its Commitment and such other obligations hereunder and such Bank shall retain the sole right and responsibility to enforce the obligations of the Company hereunder, including the right to approve any amendment, modification or waiver of any provision of this Agreement (subject to Section 13.4.2(d) below); (c) the Company and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement; (d) no Participant, unless such Participant is an affiliate of such Bank, or is itself a Bank, shall be entitled to require such Bank to take or refrain from taking any action hereunder, except that such Bank may agree with any Participant that such Bank will not, without such Participant's consent, take any actions of the type described in the third sentence of Section 13.1; (e) the Company shall not be required to pay any amount under Sections 4.1, 6.4 or 7.1 that is greater than the amount which the Company would have been required to pay had no participating interest been sold; (f) no Participant may further participate any interest in any Committed Loan (and each participation agreement shall contain a restriction to such effect). The Company acknowledges and agrees that, to the extent permitted by applicable law, each Participant shall be considered a Bank for purposes of Sections 7.1, 7.4, 13.5 and 13.6 and by its acceptance of a participation herein, each Participant 42 48 agrees to be bound by the provisions of Section 6.2(b) as if such Participant were a Bank; and (g) such Bank shall have provided to the Agent evidence reasonably satisfactory to the Agent that such Bank has complied with the provisions of the last sentence of Section 12.6. Section 13.5. Costs, Expenses and Taxes. The Company agrees to pay on demand (a) all out-of-pocket costs and expenses of the Agent (including the fees and out-of-pocket expenses of counsel for the Agent (and of local counsel, if any, who may be retained by said counsel)), in connection with the preparation, execution, delivery and administration of this Agreement, the Notes and all other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith and (b) all out-of-pocket costs and expenses (including reasonable attorneys' fees and legal expenses and allocated costs of staff counsel) incurred by the Agent and each Bank in connection with the enforcement of this Agreement, the Notes or any such other instruments or documents. Each Bank agrees to reimburse the Agent for such Bank's pro rata share (based upon its respective Percentage) of any such costs or expenses incurred by the Agent on behalf of all the Banks and not paid by the Company other than any fees and out-of-pocket expenses of counsel for the Agent which exceed the amount which the Company has agreed with the Agent to reimburse. In addition, the Company agrees to pay, and to hold the Agent and the Banks harmless from all liability for, any stamp or other Taxes which may be payable in connection with the execution and delivery of this Agreement, the borrowings hereunder, the issuance of the Notes or the execution and delivery of any other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith. All obligations provided for in this Section 13.5 shall survive repayment of the Loans, cancellation of the Notes or any termination of this Agreement. Section 13.6. Indemnification. In consideration of the execution and delivery of this Agreement by the Agent and the Banks, the Company hereby agrees to indemnify, exonerate and hold each of the Banks, the Agent, the Affiliates of each of the Banks and the Agent, and each of the officers, directors, employees and agents of the Banks, the Agent and the Affiliates of each of the Banks and the Agent (collectively herein called the "Bank Parties" and individually called a "Bank Party") free and harmless from and against any and all actions, causes of action, suits, losses, liabilities, damages and expenses, including, without limitation, reasonable attorneys' fees and disbursements (collectively herein called the "Indemnified Liabilities"), incurred by the Bank Parties or any of them as a result of, or arising out of, or relating to (i) this Agreement, the Notes or the Loans or (ii) the direct or indirect use of proceeds of any of the Loans or any credit extended hereunder, except for any such Indemnified Liabilities arising on account of such Bank Party's gross negligence or willful misconduct, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. All obligations provided for in this Section 13.6 shall survive repayment of the Loans, cancellation of the Notes or any termination of this Agreement. Section 13.7. Regulation U. Each Bank represents that it in good faith is not relying, either directly or indirectly, upon any margin stock (as such term is defined in 43 49 Regulation U promulgated by the Board of Governors of the Federal Reserve System) as collateral security for the extension or maintenance by it of any credit provided for in this Agreement. Section 13.8. Extension of Termination Dates; Removal of Banks; Substitution of Banks. (a) Not more than 60 days nor less than 45 days prior to the then-effective Termination Date, the Company may, at its option, request all the Banks then party to this Agreement to extend their scheduled Termination Dates by an additional 364 days by means of a letter, addressed to each such Bank and the Agent, substantially in the form of Exhibit J. Each such Bank electing (in its sole discretion) so to extend its scheduled Termination Date shall execute and deliver not earlier than the 30th day nor later than the 20th day prior to the then-effective Termination Date counterparts of such letter to the Company and the Agent, who shall notify the Company, in writing, of the Banks' decisions no later than 15 days prior to the existing Termination Date, whereupon (unless Banks with an aggregate Percentage in excess of 25% decline to extend their respective scheduled Termination Dates, in which event the Agent shall notify all the Banks thereof and no such extension shall occur) such Bank's scheduled Termination Date shall be extended, effective only as of the date that is such Bank's then-current scheduled Termination Date, to the date that is 364 days after such Bank's then-current scheduled Termination Date. Any Bank that declines or fails to respond to the Company's request for such extension shall be deemed to have not extended its scheduled Termination Date. (b) With respect to any Bank (i) on account of which the Company is required to make any deductions or withholdings or pay any additional amounts, as contemplated by Section 6.4, (ii) on account of which the Company is required to pay any additional amounts, as contemplated by Section 7.1, (iii) for which it is illegal to make a LIBOR Rate Loan, as contemplated by Section 7.3 or (iv) which has declined to extend such Bank's scheduled Termination Date and Banks with an aggregate Percentage in excess of 75% have elected to extend their respective Termination Dates, the Company may in its discretion, upon not less than 30 days' prior written notice to the Agent and each Bank, remove such Bank as a party hereto. Each such notice shall specify the date of such removal (which shall be a Business Day and, if such Bank has any outstanding Bid Loans, shall (unless otherwise agreed by such Bank) be on or after the last day of the Loan Period for the Bid Loan of such Bank having the latest maturity date), which shall thereupon become the scheduled Termination Date for such Bank. (c) In the event that any Bank does not extend its scheduled Termination Date pursuant to subsection (a) above or is the subject of a notice of removal pursuant to subsection (b) above, then, at any time prior to the Termination Date for such Bank (a "Terminating Bank"), the Company may, at its option, arrange to have one or more other commercial banks or financial institutions (which may be a Bank or Banks and each of which shall herein be called a "Successor Bank") with the approval of the Agent (such approval not to be unreasonably withheld) succeed to all or a percentage of the Terminating Bank's outstanding Loans, if any, and rights under this Agreement and assume all or a like percentage (as the case may be) of such Terminating Bank's undertaking to make Loans pursuant hereto and other obligations hereunder (as if (i) in the case of any Bank electing not to extend its scheduled Termination Date pursuant to subsection (a) above, such Successor Bank had extended its scheduled Termination Date pursuant to such subsection (a) and (ii) in the case of any Bank that is the subject of a notice of removal pursuant to sub-section (b) above, no such notice of removal had been given by the 44 50 Company); provided, that prior to replacing any Terminating Bank with any Successor Bank, the Company shall have given each Bank which has agreed to extend its Termination Date an opportunity to increase its Commitment by all or a portion of the Terminating Banks' Commitments. Such succession and assumption shall be effected by means of one or more agreements supplemental to this Agreement among the Terminating Bank, the Successor Bank, the Company and the Agent. On and as of the effective date of each such supplemental agreement, each Successor Bank party thereto shall be and become a Bank for all purposes of this Agreement and to the same extent as any other Bank hereunder and shall be bound by and entitled to the benefits of this Agreement in the same manner as any other Bank. (d) On the Termination Date for any Terminating Bank, such Terminating Bank's Commitment shall terminate and the Company shall pay in full all of such Terminating Bank's Loans (except to the extent assigned pursuant to subsection (c) above) and all other amounts payable to such Bank hereunder (including any amounts payable pursuant to Section 7.4 on account of such payment); provided, that if an Event of Default or Unmatured Event of Default exists on the date scheduled as any Terminating Bank's Termination Date, payment of such Terminating Bank's Loans shall be postponed to (and, for purposes of calculating facility fees under Section 4.4, utilization fees under Section 4.5 and determining the Required Banks (except as provided below), but for no other purpose, such Terminating Bank's Commitment shall continue until) the first Business Day thereafter on which (i) no Event of Default or Unmatured Event of Default exists (without regard to any waiver or amendment that makes this Agreement less restrictive for the Company, other than as described in clause (ii) below) or (ii) the Required Banks (which for purposes of this subsection (d) shall be determined based upon the respective Percentages and aggregate Commitments of all Banks other than any Terminating Bank whose scheduled Termination Date has been extended pursuant to this proviso) waive or amend the provisions of this Agreement to cure all existing Events of Default or Unmatured Events of Default or agree to permit any borrowing hereunder notwithstanding the existence of any such event. In the event that CUSA or its Affiliates shall become a Terminating Bank, the Required Banks with the consent of the Company (which consent shall not be unreasonably withheld) shall appoint another Bank or other Person as Agent, which shall have all of the rights and obligations of the Agent upon the effective date of and pursuant to an agreement supplemental hereto among the Company and the Banks, and thereupon CUSA, as Agent, shall be relieved from its obligations as Agent hereunder, it being understood that the provisions of Section 12 shall inure to the benefit of CUSA as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no such successor Agent shall be appointed within 30 days of the Termination Date of the Agent, then the Agent shall, on behalf of the Banks, appoint a successor Agent in accordance with the provisions set forth in Section 12.8 for a resigning Agent. (e) To the extent that all or a portion of any Terminating Bank's obligations are not assumed pursuant to subsection (c) above, the Aggregate Commitment shall be reduced on the applicable Termination Date and each Bank's percentage of the reduced Aggregate Commitment shall be revised pro rata to reflect such Terminating Bank's absence. The Agent shall distribute a revised Schedule I indicating such revisions promptly after the applicable Termination Date. Such revised Schedule I shall be deemed conclusive in the absence of demonstrable error. 45 51 (f) The Agent agrees to use reasonable commercial efforts to assist the Company in locating one or more commercial banks or other financial institutions to replace any Terminating Bank prior to such Terminating Bank's Termination Date. Section 13.9. Captions. Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement. Section 13.10. Governing Law; Severability. THIS AGREEMENT AND EACH NOTE SHALL BE A CONTRACT MADE UNDER, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. All obligations of the Company and the rights of the Agent, the Banks and any other holders of the Notes expressed herein or in the Notes shall be in addition to and not in limitation of those provided by applicable law. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Section 13.11. Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. When counterparts of this Agreement executed by each party shall have been lodged with the Agent (or, in the case of any Bank as to which an executed counterpart shall not have been so lodged, the Agent shall have received telegraphic, telex or other written confirmation of execution of a counterpart hereof by such Bank), this Agreement shall become effective as of the date hereof and the Agent shall so inform all of the parties hereto. Section 13.12. Further Assurances. The Company agrees to do such other acts and things, and to deliver to the Agent and each Bank such additional agreements, powers and instruments, as the Agent or any Bank may reasonably require or deem advisable to carry into effect the purposes of this Agreement or to better assure and confirm unto the Agent and each Bank their respective rights, powers and remedies hereunder. Section 13.13. Successors and Assigns. This Agreement shall be binding upon the Company, the Banks and the Agent and their respective successors and assigns, and shall inure to the benefit of the Company, the Banks and the Agent and the respective successors and assigns of the Banks and the Agent. Subject to Section 9.9, the Company may not assign any of its rights or delegate any of its duties under this Agreement without the prior written consent of all of the Banks. Section 13.14. Waiver of Jury Trial. THE COMPANY, THE AGENT AND EACH BANK HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP 46 52 EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. Section 13.15. No Fiduciary Relationship. The Company acknowledges that neither the Agent nor any Bank has any fiduciary relationship with, or fiduciary duty to, the Company arising out of or in connection with this Agreement, the Notes or the transactions contemplated hereby, and the relationship between the Agent and the Banks, on the one hand, and the Company, on the other, in connection herewith or therewith is solely that of creditor and debtor. This Agreement does not create a joint venture among the parties. 47 53 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. INTERNATIONAL LEASE FINANCE CORPORATION By: /s/ ALAN H. LUND -------------------------------------- Name: ALAN H. LUND Title: EXECUTIVE VICE PRESIDENT By: /s/ PAMELA S. HENDRY -------------------------------------- Name: PAMELA S. HENDRY Title: VICE PRESIDENT AND TREASURER Address: 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 Attention: Pamela S. Hendry Telephone: 310-788-1999 Facsimile: 310-788-1990 Telex: 69-1400 INTERLEAS BVHL 48 54 Agent: CITICORP USA, INC., in its individual corporate capacity and as Agent By: /s/ ROBERT A. DANZIGER -------------------------------------- Name: ROBERT A. DANZIGER Title: Attorney-In-Fact By: -------------------------------------- Name: Title: Address: 2 Penns Way, Suite 200 New Castle, DE 19720 Attention: Christian Laughton Telephone: 302-894-6005 Facsimile: 302-894-6120 49 55 Banks: CITIBANK, N.A. By: /s/ ARTHUR E. DEFFAA -------------------------------------- Name: Arthur E. Deffaa Title: Managing Director Global Aviation Address: 399 Park Avenue, 12th Floor New York, NY 10043 Attention: Mr. Tom Hollohan Telephone: 212-559-4243 Facsimile: 212-793-1246 THE CHASE MANHATTAN BANK By: /s/ RICHARD C. SMITH -------------------------------------- Name: Richard C. Smith Title: Vice President Address: 270 Park Avenue, 38th Floor New York, NY 10017 Attention: Mr. Dick Smith Telephone: 213-270-5435 Facsimile: 213-270-5100 COMMERZBANK AG, LOS ANGELES BRANCH By: /s/ CHRISTIAN JAGENBERG -------------------------------------- Name: Christian Jagenberg Title: SVP and Manager By: /s/ WERNER SCHMIDBAUER -------------------------------------- Name: Werner Schmidbauer Title: Vice President Address: 633 West 5th St., Suite 6600 Los Angeles, CA 90071 Attention: Mr. Werner Schmidbauer Telephone: 213-683-5413 Facsimile: 213-623-0039 50 56 SOCIETE GENERALE By: /s/ MAUREEN KELLY -------------------------------------- Name: Maureen Kelly Title: Director Address: 2029 Century Park East Suite 2900 Los Angeles, CA 90067 Attention: Ms. Maureen Kelly Telephone: 310-788-7110 Facsimile: 310-551-1537 BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ MICHAEL C. IRWIN -------------------------------------- Name: Michael C. Irwin Title: Vice President Address: 1251 Avenue of the Americas New York, NY 10020-1104 Attention: Mr. Michael Irwin Telephone: 212-782-4316 Facsimile: 212-782-6445 CREDIT LYONNAIS By: /s/ PHILLIPPE SOUSTRA -------------------------------------- Name: Phillippe Soustra Title: Senior Vice President Address: 1301 Avenue of the Americas New York, NY 10019-6022 Attention: Mr. Brian Bolotin Telephone: 212-261-3815 Facsimile: 212-261-7368 51 57 DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLAND BRANCHES By: /s/ SUSAN A. MAROS -------------------------------------- Name: Susan A. Maros Title: Director By: /s/ GAYMA Z. SHIVNARA -------------------------------------- Name: Gayma Z. Shivnara Title: Vice President Address: 31 West 52nd Street New York, NY 10019 Attention: Ms. Susan Maros Telephone: 212-469-8104 Facsimile: 212-469-8366 DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH By: /s/ LLOYD C. STEVENS -------------------------------------- Name: Lloyd C. Stevens Title: Vice President By: /s/ RAJIV GUPT -------------------------------------- Name: Rajiv Gupt Title: Associate Address: 75 Wall Street New York, NY 10005-2889 Attention: Mr. Lloyd Stevens Telephone: 212-429-2229 Facsimile: 212-429-2524 THE FIRST NATIONAL BANK OF CHICAGO By: /s/ CORY M. HELFAND -------------------------------------- Name: Cory M. Helfand Title: Vice President Address: 1 First National Plaza 16th Floor Chicago, IL 60670-0084 Attention: Mr. Richard Wilson Telephone: 312-732-2882 Facsimile: 312-732-6222 52 58 FLEET BANK By: [SIG] -------------------------------------- Name: [Illegible] Title: Vice President Address: Mail Stop NY, NY S02T 1185 Avenue of the Americas New York, NY 10017 Attention: Mr. Charles Sabino Telephone: 212-819-6085 Facsimile: 212-819-6212 BAYERISCHE HYPO- UND VEREINSBANK AG, NEW YORK BRANCH By: /s/ PAMELA J. GILLONS -------------------------------------- Name: Pamela J. Gillons Title: Associate Director By: /s/ STEVEN ATWELL -------------------------------------- Name: Steven Atwell Title: Director Address: 150 East 42nd Street 32nd Floor New York, NY 10006-1404 Attention: Ms. Yoram Dankner Telephone: 212-672-5446 Facsimile: 212-672-5530 ROYAL BANK OF CANADA By: /s/ MICHAEL J. MADNICK -------------------------------------- Name: Michael J. Madnick Title: Senior Manager Address: One Liberty Plaza New York, NY 10006-1404 Attention: Mr. Mike Madnik Telephone: 212-428-6203 Facsimile: 212-428-6459 53 59 ABN AMRO BANK By: /s/ CARLA S. WAGGONS -------------------------------------- Name: Carla S. Waggons Title: Assistant Vice President Address: 135 S. LaSalle Street Chicago, IL 60674-9135 Attention: Mr. John Lewis Telephone: 312-904-2946 Facsimile: 312-606-8428 THE BANK OF NEW YORK By: /s/ JONATHAN ROLLINS -------------------------------------- Name: Jonathan Rollins Title: Assistant Vice President Address: 10990 Wilshire St., Suite 1125 Los Angeles, CA 90024 Attention: Mr. Jonathan Rollins Telephone: 310-996-8658 Facsimile: 310-996-8667 BANK OF NOVA SCOTIA By: /s/ ROBERT REYNOLDS -------------------------------------- Name: Robert Reynolds Title: Relationship Manager Address: 580 California Street, Suite 2100 San Francisco, CA 94104 Attention: Mr. Robert Lucchese Telephone: 415-986-1100 Facsimile: 415-397-0791 54 60 BANKBOSTON By: /s/ LAWRENCE C. BIGELOW -------------------------------------- Name: Lawrence C. Bigelow Title: Managing Director Address: P.O. 2016, Mail Location 01-10-08 Boston, MA 02106 Attention: Mr. Larry Bigelow Telephone: 617-434-8868 Facsimile: 617-434-1096 BAYERISCHE LANDESBANK GIROZENTRALE, CAYMAN ISLANDS BRANCH By: /s/ ALEXANDER KOHNERT -------------------------------------- Name: Alexander Kohnert Title: First Vice President By: /s/ JAMES H. BOYLE -------------------------------------- Name: James H. Boyle Title: Second Vice President Address: 560 Lexington Avenue, 17th Floor New York, NY 10022 Attention: Mr. Jim Boyle Telephone: 212-310-9817 Facsimile: 212-310-9868 55 61 BANCA NAZIONALE DEL LAVORO S.P.A. - NEW YORK BRANCH By: /s/ MIGUEL MEDIDA -------------------------------------- Name: Miguel Medida Title: Vice President By: /s/ LEONARDO VALENTINI -------------------------------------- Name: Leonardo Valentini Title: First Vice President Address: 25 West 51st Street New York, NY 10019 Attention: Mr. Giulio Giovine Telephone: 212-314-0239 Facsimile: 212-765-2978 CARIPLO-CASSA DI RISPARMIO DELLE PROVINCIE LOMBARDE S.P.A. By: /s/ ANTHONY GIOBBI -------------------------------------- Name: Anthony Giobbi Title: Asst. Vice President By: /s/ MARIA ELENA GREEK -------------------------------------- Name: Maria Elena Greek Title: Asst. Vice President Address: 10 East 53rd Street, 36th Floor New York, NY 10022 Attention: Mr. Anthony Giobbi Telephone: 212-527-8737 Facsimile: 212-527-8777 DG BANK By: /s/ STEPHANIE GAENSSLEN -------------------------------------- Name: Stephanie Gaensslen Title: Asst. Vice President Address: 609 Fifth Avenue New York, NY 10017 Attention: Ms. Stephanie Gaensslen Telephone: 212-745-1583 Facsimile: 212-745-1556 56 62 FUJI BANK, LTD. By: /s/ MASAHITO FUKUDA -------------------------------------- Name: Masahito Fukuda Title: Joint General Manager Address: 333 S. Hope Street, Suite 3900 Los Angeles, CA 90071-1406 Attention: Mr. Steve Brennan Telephone: 213-253-4174 Facsimile: 213-253-4178 UBS AG, STAMFORD BRANCH By: /s/ DENISE M. CLERKIN -------------------------------------- Name: Denise M. Clerkin Title: Associate Director Loan Portfolio Support, US By: /s/ RICHARD T. CONWAY -------------------------------------- Name: Richard T. Conway Title: Associate Director Loan Portfolio Support, US Address: 677 Washington Boulevard Stamford, CT 06901 Attention: Ms. Marie Mulcahy Telephone: 203-719-3836 Facsimile: 203-719-3092 WESTDEUTSCHE LANDESBANK By: /s/ RAYMOND K. HIND -------------------------------------- Name: Raymond K. Hind Title: Vice President Address: 633 West Fifth Street, Suite 6750 Los Angeles, CA 90024 Attention: Mr. Bob Edmonds Telephone: 213-623-1401 Facsimile: 213-623-4706 57 63 ARAB BANK PLC By: /s/ NOFATT S. BAIBOR -------------------------------------- Name: Nofatt S. Baibor Title: EVP, Regional Manager Address: 520 Madison Avenue, 2nd Floor New York, NY 10022 Attention: Mr. John Adams Telephone: 212-715-9765 Facsimile: 212-593-4632 BANCO DI NAPOLI By: /s/ CLAUDE P. MAPES -------------------------------------- Name: Claude P. Mapes Title: First Vice President By: /s/ VITO SPADA -------------------------------------- Name: Vito Spada Title: Executive Vice President Address: 4 East 54th Street New York, NY 10171-0026 Attention: Mr. Franco Di Mario Telephone: 212-872-2415 Facsimile: 212-872-2426 BANK OF HAWAII By: /s/ ROBERT M. WHEELER III -------------------------------------- Name: Robert M. Wheeler III Title: Vice President Address: P.O. Box 2900 Honolulu, HI 96846-6000 Attention: Mr. Robert Wheeler Telephone: 808-537-8237 Facsimile: 808-537-8301 58 64 BANK OF MONTREAL By: /s/ BRIAN L. BANKE -------------------------------------- Name: Brian L. Banke Title: Director Address: 430 Park Avenue New York, NY 10022 Attention: Mr. Brian L. Banke Telephone: 212-605-1643 Facsimile: 212-605-1454 BANCO CENTRAL HISPANOAMERICANO S.A. By: /s/ LOUIS FERREIRA -------------------------------------- Name: Louis Ferreira Title: Vice President Address: 50 Broadway, 2nd Floor New York, NY 10004 Attention: Mr. Sen Louie Telephone: 212-361-5145 Facsimile: 212-361-5149 BANCA COMMERCIALE ITALIANA, LOS ANGELES FOREIGN BRANCH By: /s/ E. BOMBIERI -------------------------------------- Name: E. Bombieri Title: V.P. & Manager By: /s/ J. WITYAK -------------------------------------- Name: J. Wityak Title: V.P. Address: 555 S. Flower Street Los Angeles, CA 90071 Attention: Mr. Jack Wityak Telephone: 213-624-0440 Facsimile: 213-624-0457 59 65 BANQUE NATIONALE DE PARIS By: /s/ C. BETTLES -------------------------------------- Name: C. Bettles Title: Sr. V.P. & Manager By: TJALLING TERPSTRA -------------------------------------- Name: Tjalling Terpstra Title: V.P. Address: 725 S. Figueroa Street Suite 2090 Los Angeles, CA 90017 Attention: Mr. Tjalling Terpstra Telephone: 213-688-6425 Facsimile: 213-488-9602 FIRST HAWAIIAN BANK By: /s/ TRAVIS RUETENIK -------------------------------------- Name: Travis Ruetenik Title: Corporate Banking Officer Address: 999 Bishop Street, 11th Floor Honolulu, HI 96813 Attention: Mr. Travis Ruetenik Telephone: 808-525-7074 Facsimile: 808-525-6372 THE INDUSTRIAL BANK OF JAPAN By: /s/ H. W. JACK -------------------------------------- Name: H. W. Jack Title: Senior Deputy General Manager Address: 350 S. Grand Avenue, Suite 1500 Los Angeles, CA 90071 Attention: Mr. Craig Papayanis Telephone: 213-893-6441 Facsimile: 213-488-9840 60 66 MELLON BANK By: /s/ DAVID B. WIRL -------------------------------------- Name: David B. Wirl Title: Assistant Vice President Address: One Mellon Bank Center Pittsburgh, PA 15258-0001 Attention: Mr. Dean Pace Telephone: 213-553-9531 Facsimile: 213-553-9970 NATEXIS BANQUE By: /s/ GILLES CHARMEY -------------------------------------- Name: Gilles Charmey Title: Vice President By: /s/ XANE GUYARD -------------------------------------- Name: Xane Guyard Title: Vice President Address: 45 Rue Saint-Dominique 75700 Paris France Attention: Mr. Gilles Charmey Telephone: 011-331-48-00-21-28 Facsimile: 011-331-45-55-45-09 61 67 NORDDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ STEPHEN K. HUNTER -------------------------------------- Name: Stephen K. Hunter Title: SVP By: /s/ STEPHANIE FINNEN -------------------------------------- Name: Stephanie Finnen Title: VP Address: 1270 Avenue of the Americas 14th Floor New York, NY 10020 Attention: Ms. Stephanie Finnen Telephone: 212-332-8606 Facsimile: 212-332-8660 THE SANWA BANK LTD. By: /s/ STEPHEN C. SMALL -------------------------------------- Name: Stephen C. Small Title: Vice President & Area Manager Address: 55 East 52nd Street New York , NY 10022 Attention: Mr. Steve Small Telephone: 212-339-6201 Facsimile: 212-754-1304 62 68 STANDARD CHARTERED By: /s/ ROBERT L. GILBERT -------------------------------------- Name: Robert L. Gilbert Title: Vice President By: /s/ PAUL S. KNOX -------------------------------------- Name: Paul S. Knox Title: Regional Executive Address: 7 World Trade Center, 27th Floor New York, NY 10048 Attention: Mr. Robert Gilbert Telephone: 212-667-0493 Facsimile: 212-667-0251 UNIBANK By: /s/ THOMAS P. HICKEY -------------------------------------- Name: Thomas P. Hickey Title: Vice President By: [SIG] -------------------------------- Name: [Illegible] Title: Assistant Vice President Address: 20 West 55th Street New York, NY 10019 Attention: Mr. Tom Hickey Telephone: 212-603-6953 Facsimile: 212-603-1685 WELLS FARGO BANK By: /s/ EDITH LIM -------------------------------------- Name: Edith Lim Title: Vice President Address: 707 Wilshire Blvd., 16th Floor Los Angeles, CA 90017 Attention: Ms. Edith Lim Telephone: 213-614-3903 Facsimile: 213-614-2305 63 EX-10.3 3 EXHIBIT 10.3 1 EXHIBIT 10.3 DATED 19TH JANUARY 1999 (1) THE BANKS AND FINANCIAL INSTITUTIONS NAMED HEREIN (as Lenders) (2) HALIFAX PLC (as Agent) (3) HALIFAX PLC (as Security Trustee) (4) SIERRA LEASING LIMITED (as Borrower) (5) AIRCRAFT SPC-9, INC. (as Parent) (6) INTERNATIONAL LEASE FINANCE CORPORATION (as Guarantor) (7) INTERNATIONAL LEASE FINANCE CORPORATION (as Subordinated Lender) ________________________________________________ AIRCRAFT FACILITY AGREEMENT in respect of a term facility in the maximum principal amount of US$4,327,260,000 for the financing of approximately seventy-five (75) Airbus Aircraft ________________________________________________ WILDE SAPTE 1 Fleet Place London EC4M 7WS Tel. 0171 246 7000 Fax. 0171 246 7777 CGA/CET/051297/AF341927.26 2 TABLE OF CONTENTS
CLAUSE HEADING PAGE NO. - ------ ------- -------- 1. DEFINITIONS.........................................................................2 2. AVAILABILITY.......................................................................34 3. UTILISATION OF THE FACILITY........................................................40 4. REPAYMENT AND PREPAYMENT...........................................................50 5. GUARANTEE AND INDEMNITY............................................................64 6. REPRESENTATIONS AND WARRANTIES.....................................................68 7. UNDERTAKINGS AND COVENANTS.........................................................73 8. SUBORDINATION......................................................................86 9. TRIGGER EVENTS.....................................................................89 10. DEFAULT............................................................................93 11. PROCEEDS ACCOUNT...................................................................96 12. APPLICATION OF SUMS RECEIVED BY THE LENDERS........................................97 13. INDEMNITIES.......................................................................101 14. CHANGE IN CIRCUMSTANCES...........................................................109 15. MITIGATION AND CONTEST RIGHTS.....................................................113 16. FEES AND EXPENSES.................................................................117 17. CHANGE OF AGENT AND SECURITY TRUSTEE..............................................118 18. ASSIGNMENTS AND TRANSFERS.........................................................119 19. SET-OFF AND PRO RATA PAYMENTS.....................................................123 20. RIGHTS CUMULATIVE, WAIVERS, SEVERABILITY..........................................125 21. FURTHER ASSURANCE.................................................................126 22. BAYERISCHE HYPO-UND VEREINSBANK AG................................................126 23. NOTICES...........................................................................126 24. GOVERNING LAW AND JURISDICTION....................................................129 25. MISCELLANEOUS.....................................................................130 26. CONFIDENTIALITY...................................................................131 27. COUNTERPARTS AND DELIVERY BY FACSIMILE............................................132 SCHEDULE 1 - THE LENDERS - PART I - THE BRITISH LENDERS..............................133 SCHEDULE 1 - PART II - THE FRENCH LENDERS............................................134 SCHEDULE 1 - PART III - THE GERMAN LENDERS...........................................135 SCHEDULE 2 - FORM OF TRANSFER CERTIFICATE............................................137 SCHEDULE 3 - UTILISATION NOTICE......................................................143 SCHEDULE 4 - PART I - Details of Proposed Aircraft and Proposed Delivery Schedule................................................................145 SCHEDULE 4 - PART II - Sample Loan/Lease Profiles as a Percentage of Aircraft Cost...........................................................150 SCHEDULE 5 - GUARANTOR COVENANTS.....................................................151 SCHEDULE 6 - CONDITIONS PRECEDENT AND SUBSEQUENT TO A UTILISATION....................155 PART I..................................................................155 PART II.................................................................158 PART III................................................................161 SCHEDULE 7 - ENGLISH PROCESS AGENTS..................................................163 SCHEDULE 8 - INSURANCE...............................................................164 SCHEDULE 9 - FORM OF CERTIFICATE TO BE GIVEN ON EACH QUARTER DATE....................167 SCHEDULE 10 - BLENDED LASU RATES......................................................168 APPENDIX A - FORM OF LOAN SUPPLEMENT.................................................172 APPENDIX B - FORM OF PARTIAL PURCHASE AGREEMENT ASSIGNMENT...........................173 (INCLUDING AIRFRAME WARRANTIES).........................................173 APPENDIX C - FORM OF ENGLISH LAW AIRCRAFT MORTGAGE...................................174 APPENDIX D - PART I FORM OF ASSIGNMENT OF GENERAL TERMS AGREEMENT RE ENGINE WARRANTIES.......................................................175 PART II FORM OF ASSIGNMENT OF GENERAL TERMS AGREEMENT RE
3
CLAUSE HEADING PAGE NO. - ------ ------- -------- ENGINE WARRANTIES IN RESPECT OF ENGINES MANUFACTURED BY UNITED TECHNOLOGIES CORPORATION, PRATT & WHITNEY GROUP..................176 PART III FORM OF RR ENGINE WARRANTY AGREEMENT...........................177 APPENDIX E - FORM OF BFE BILL OF SALE................................................178 APPENDIX F - FORM OF AIRCRAFT BILL OF SALE...........................................180 APPENDIX G - FORM OF SUB-BORROWER CHARGE OVER SHARES.................................182 APPENDIX H - FORM OF SUB-BORROWER GUARANTEE..........................................183 APPENDIX I - FORM OF SUB-BORROWER DEBENTURE..........................................184 APPENDIX J - FORM OF ACCESSION DEED..................................................185 APPENDIX K - FORM OF BORROWER DEBENTURE..............................................190 APPENDIX L - FORM OF CHARGE OVER SHARES OF INTERMEDIATE LESSEE.......................191 APPENDIX M - FORM OF INTERMEDIATE LESSEE DEBENTURE...................................192 APPENDIX N - FORMS OF LEASE SECURITY ASSIGNMENT AND INTERMEDIATE LEASE SECURITY ASSIGNMENT..............................................................193 APPENDIX O - FORM OF REPLACEMENT BILL OF SALE........................................195 APPENDIX P - FORM OF LETTER COMPRISING NOTICE OF CHARGE AND AIRCRAFT MORTGAGE AND QUIET ENJOYMENT COVENANT...................................196
4 THIS AIRCRAFT FACILITY AGREEMENT is made the 19th day of January 1999 BETWEEN:- (1) HALIFAX PLC (Lead Manager), a banking institution established under the laws of England, whose registered office is at Trinity Road, Halifax, West Yorkshire HX1 2RG (herein together with their successors, permitted assigns and permitted transferees called the "BRITISH LENDERS"); (2) SOCIETE GENERALE (Lead Manager), a banking institution established under the laws of France, whose principal place of business is at Tour Societe Generale, 17 Cours Valmy 92972 Paris - La Defense 7, Cedex, France (herein together with their successors, permitted assigns and permitted transferees called the "FRENCH LENDERS"); (3) COMMERZBANK AG (Lead Manager) a banking institution established under the laws of Germany and whose principal place of business is at Neue Mainzer Strasse 32-36, 60311, Frankfurt, Germany acting through its office at 633 West Fifth Street, Suite 6600, Los Angeles, CA90071, United States of America, BAYERISCHE HYPO-UND VEREINSBANK AG (Co-Lead Manager), a banking institution established under the laws of Germany and having its principal place of business at Am Tucherpark 1, 80538, Munich, Germany and KREDITANSTALT FUR WIEDERAUFBAU, (Parallel Lender) a public corporation established under the laws of Germany and having its principal place of business at Palmengartenstrasse 5-9, 60325 Frankfurt am Main (herein together with their successors, permitted assigns and permitted transferees called the "GERMAN LENDERS"); (the British Lenders, the French Lenders and the German Lenders being herein together called the "LENDERS" and severally a "LENDER") (4) HALIFAX PLC, a banking institution established under the laws of England, whose registered office is at Trinity Road, Halifax, West Yorkshire HX1 2RG in its capacity as Agent for and on behalf of itself and the Lenders (herein in such capacity called the "AGENT"); (5) HALIFAX PLC, a banking institution established under the laws of England, whose registered office is at Trinity Road, Halifax, West Yorkshire HX1 2RG in its capacity as security trustee for and on behalf of itself and the Lenders (herein in such capacity called the "SECURITY TRUSTEE"); (6) SIERRA LEASING LIMITED, a company incorporated under the laws of Bermuda and having its registered office at 29 Richmond Road, Hamilton HM-AX, Bermuda (herein called the "BORROWER"); (7) AIRCRAFT SPC-9, INC., a company incorporated under the laws of California and having its registered office at c/o International Lease Finance Corporation, 1999 Avenue of the Stars, 39th Floor, Los Angeles, CA 90067 (herein called the "PARENT"); (8) INTERNATIONAL LEASE FINANCE CORPORATION, a corporation incorporated under the laws of the State of California and having its principal place of business at 1999 Avenue of the Stars, 39th Floor, Los Angeles, CA 90067 as guarantor (herein in such capacity called the "GUARANTOR"); 5 (9) INTERNATIONAL LEASE FINANCE CORPORATION, a corporation incorporated under the laws of the State of California and having its principal place of business at 1999 Avenue of the Stars, 39th Floor, Los Angeles, CA90067 as subordinated lender (herein in such capacity called the "SUBORDINATED LENDER"). WHEREAS: This Agreement sets out the terms upon which the Lenders will make available to the Borrower the Facility described herein to enable the Borrower to purchase the Aircraft. NOW IT IS HEREBY AGREED as follows:- 1. DEFINITIONS 1.1 In this Agreement (including the Recitals, the Schedules and the Annexes hereto) except where the context otherwise requires or there is express provision to the contrary, the following words and expressions shall have the following meanings:- "ACCELERATION EVENT" means a Termination Event in respect of which the Agent has served a notice in accordance with the provisions of and having the effect set out in Clause 10.2 (Acceleration Rights); "ACCESSION DEED" means a deed of accession to this Agreement to be entered into by the relevant Sub-Borrower and/or Intermediate Lessee in the form of Appendix J; "ADVANCE" means, in respect of a Utilisation, the aggregate of the sums to be advanced by each of the Lenders to the Borrower in respect of that Utilisation; "AFFECTED LENDER" shall have the meaning given thereto in Clauses 4.12 (Deductions and Withholdings), 14.1 (Increased Costs), 14.2 (Market Disruption) 14.3 (Illegality) and 15.2 (Prepayment of Affected Loans and Replacement of Affected Lender); "AGREEMENT" means this aircraft facility agreement; "AIG" means American International Group, Inc. a corporation duly organised and existing under the laws of Delaware whose principal place of business is at 70 Pine Street, New York, N.Y. 10270, USA; "AIG GROUP COMPANY" means AIG and any person of which or in which AIG owns, directly or indirectly, 50% or more of:- (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such person, if it is a corporation; (b) the capital interest or profits interest of such person, if it is a partnership, limited liability company, joint venture or similar entity; or (c) the beneficial interest of such person, if it is a trust, association or other unincorporated organisation; 6 "AIRCRAFT" means, as the context may require, any or all of the Eligible Aircraft financed hereunder by the Borrower pursuant to a Utilisation Notice (and, save where the context otherwise requires, includes any or all of the Replacement Aircraft) comprising, with respect to each individual aircraft, the Airframe together with the relevant Engines (whether or not any of the relevant Engines may from time to time be installed on the Airframe) together with the relevant Technical Records; "AIRCRAFT OPERATIVE DOCUMENTS" means, in respect of an Aircraft, each of: (i) the relevant Loan Supplement, the relevant Utilisation Notice, the relevant Bill of Sale, the relevant BFE Bill of Sale, the relevant Purchase Agreement (to the extent that it relates to the purchase of that Aircraft and the Warranties relating to that Aircraft), the relevant Engine Agreement (to the extent that it relates to the Engine Warranties relating to that Aircraft), the relevant Intermediate Lease (if any), the relevant Accession Deed (if any) and each of the Aircraft Security Documents (but excluding the Lenders' Agreement); and (ii) (a) any other document, instrument or memorandum annexed to any of the documents referred to in (i) above, (b) any notice or acknowledgement required pursuant to the terms of any of the documents referred to in (i) above; and (c) any document, instrument or memorandum (x) which is executed and delivered in connection with a restructuring in accordance with the terms of this Agreement, of any or all of the arrangements contemplated by any of the documents referred to in (i) above or (y) which the Guarantor, the Borrower, the relevant Intermediate Lessee or the relevant Sub-Borrower agrees constitutes an Aircraft Operative Document or (z) which is entered into in substitution for or which amends or augments or varies all or any part of any of the documents referred to in this definition (including this part (ii)(c)(z)) in each case in accordance with the terms of this Agreement; "AIRCRAFT PURCHASE PRICE" means, in respect of an Aircraft, the final contract price for that Aircraft (including any Buyer Furnished Equipment) on delivery, after deduction of all credit memoranda in each case which are expressed to be capable of being applied against the purchase price of that Aircraft as set out in the relevant purchase agreement by the Seller and/or the Manufacturer and/or the relevant Engine Manufacturer and exclusive of any capitalised interest, together with the final contract price for the post-delivery modifications (if any) to be carried out on such Aircraft that are invoiced on or prior to delivery; "AIRCRAFT SECURITY DOCUMENTS" means, in respect of an Aircraft, each of: (i) this Agreement, the Borrower Debenture, the relevant Lease Security Assignment (if any), the relevant Intermediate Lease Security Assignment (if any), the relevant Mortgage, the relevant Sub-Borrower Guarantee (if any), the relevant Assignment of General Terms Agreements Re Engine Warranties, the 7 relevant Partial Purchase Agreement Assignment, the Charge Over Shares of Borrower, the relevant Charge Over Shares of Sub-Borrower (if any), the relevant Sub-Borrower Debenture (if any), the relevant Intermediate Lessee Debenture (if any), the relevant Charge Over Shares of Intermediate Lessee (if any), the relevant Notice of Charge (if any); (ii) (a) any other instrument, document or memorandum annexed to any of the documents referred to in (i) above, (b) any notice or acknowledgement required pursuant to the terms of any of the documents referred to in (i) above; and (c) any document, instrument or memorandum (w) which is executed and delivered in connection with or following a restructuring of any or all of the arrangements contemplated by any of the documents referred to in (i) above or (x) which the Guarantor or the Borrower or any Sub-Borrower or any Intermediate Lessee agrees constitutes an Aircraft Security Document or (y) which secures the obligations of any one or more of the Obligors under any of the Aircraft Operative Documents or (z) which is entered into in substitution for or which amends or augments or varies all or any part of any of the documents referred to in this definition (including this part (ii)(c)(z)) in each case in accordance with the terms of this Agreement; "AIRFRAME" means, in respect of an Aircraft, the airframe more particularly identified in Schedule 1 to the relevant Mortgage including all Parts installed in or on the airframe at the Delivery Date (or which, having been removed therefrom, remain the property of the Borrower or, if applicable, the relevant Sub-Borrower), and all substitutions, renewals and replacements of such Parts from time to time made in or to or installed in or on the said airframe including any Parts which are for the time being detached from the airframe but remain the property of the Borrower or, if applicable, the relevant Sub-Borrower; "ALTERNATIVE UTILISATION" means, in relation to a Eligible Aircraft, a Utilisation which is part of a leveraged or tax-based financing of that Eligible Aircraft; "ASSIGNMENT OF GENERAL TERMS AGREEMENT RE ENGINE WARRANTIES" means, in respect of an Aircraft (other than where such Aircraft is powered by Engines manufactured by Rolls-Royce plc), the deed of assignment of the relevant Engine Agreement in so far as it relates to the Engine Warranties in respect of the Engines relating to that Aircraft to be entered into between the Guarantor and the Borrower or a Sub-Borrower (as the case may be), and including if applicable the Lessee as a party or subject to its rights, in the form agreed by the relevant Engine Manufacturer substantially in the form of Appendix D Part I or, in the case of Engines manufactured by United Technologies Corporation, Pratt & Whitney Group, Appendix D Part II; "ASSUMED FINANCED AMOUNT" means, in relation to an Aircraft, the amount applicable to that Aircraft in the column headed "Assumed Financed Amount" in Schedule 4 Part I; 8 "AVAILABILITY PERIOD" means the period from the date hereof up to and including March 31, 2002 or such later date as the parties hereto may agree, subject to earlier termination as provided for in this Agreement; "AVIATION AUTHORITY" means, in respect of an Aircraft, any Government Entity which under the laws of the State of Registration may from time to time:- (i) have control or supervision of civil aviation in the State of Registration; or (ii) have jurisdiction over the registration, airworthiness or operation of, or other similar matters relating to, that Aircraft; "BANKING DAY" means a day (other than a Saturday, Sunday or holiday scheduled by law) on which banks are open for the transaction of domestic and foreign exchange business and otherwise for the transaction of business of the nature required by this Agreement or the other Transaction Documents, as applicable, in London, Paris, Frankfurt, Luxembourg, Los Angeles and New York City and also, in relation to a day on which a payment is required, in the place where such payment is to be made in accordance with this Agreement or any of the other Transaction Documents, as applicable; "BFE BILL OF SALE" means, in respect of an Aircraft, the bill of sale executed or to be executed by the Guarantor in favour of the Seller substantially in the form of Appendix E pursuant to which title to the Buyer Furnished Equipment is transferred from the Guarantor to the Seller; "BILL OF SALE" means, in respect of an Aircraft, the bill of sale executed or to be executed by the Seller in favour of the Borrower or any Sub-Borrower (as the case may be) substantially in the form set out in Appendix F evidencing the transfer of title to that Aircraft or any confirmation of sale if title to the Aircraft is to pass by way of physical delivery of the Aircraft from the Seller to the Borrower or any Sub-Borrower; "BORROWER ACCOUNTS" means each of the Borrower Maintenance Reserve Account, the Borrower Rental Account and the Borrower Security Deposit Account and "BORROWER ACCOUNT" shall mean any of them; "BORROWER CONSTITUTIONAL DOCUMENTS" means the certificate of incorporation, the memorandum of association and bye-laws of the Borrower; "BORROWER DEBENTURE" means the document so entitled of even date herewith between the Borrower and the Security Trustee in the form set out in Appendix K; "BORROWER MAINTENANCE RESERVE ACCOUNT" means the existing Dollar account in the name of the Borrower with Wells Fargo Bank or Bank of America in California or with such other financial institution as may be approved by the Security Trustee (such approval not to be unreasonably withheld); "BORROWER RENTAL ACCOUNT" means the existing Dollar account in the name of the Borrower with Wells Fargo Bank or Bank of America in California or with such other financial institution as may be approved by the Security Trustee (such approval not to be unreasonably withheld); 9 "BORROWER SECURITY DEPOSIT ACCOUNT" means the existing Dollar account in the name of the Borrower with Wells Fargo Bank or Bank of America in California or with such other financial institution as may be approved by the Security Trustee (such approval not to be unreasonably withheld); "BRITISH CREDITS" shall, in respect of an Advance, have the meaning given to that term in the relevant Loan Supplement; "BUSINESS DAY" means a day (other than a Saturday or Sunday or holiday scheduled by law) on which banks are open for the transaction of domestic and foreign exchange business and otherwise for the transaction of business of the nature required by this Agreement or the other Transaction Documents, as appropriate, in London, Paris, Frankfurt, Luxembourg, Los Angeles, New York City and Bermuda and, when used in respect of an Aircraft of which a Sub-Borrower is or is to be the owner, the city in which such Sub-Borrower has its principal place of business; "BUYER FURNISHED EQUIPMENT" means, in respect of an Aircraft, the buyer furnished equipment relating to that Aircraft supplied by the Guarantor to the Seller prior to the Delivery Date or, as the case may be, during any post delivery modification period relating to the relevant Aircraft; "CANCELLATION NOTICE" shall have the meaning given to such term in Clause 9.3.1(g) (Third Trigger Event); "CHANGE IN LAW" means, in each case after the date of this Agreement, (i) the introduction, abolition, withdrawal or variation of any applicable law, regulation, practice or concession or official directive, ruling, request, notice, guideline, statement of policy or practice statement by the Bank of England, the Banque de France, the Deutsche Bundesbank, the Federal Reserve Bank of New York, the European Union, European Central Bank or any central bank, tax, fiscal, governmental, international, national or other competent authority or agency (whether or not having the force of law but in respect of which compliance by banks or other financial institutions in the relevant jurisdiction is generally considered to be mandatory), or (ii) any change in any interpretation, or the introduction or making of any new or further interpretation, or any new or different interpretation by any court, tribunal, governmental, revenue, international, national, fiscal or other competent authority, or (iii) the compliance by banks or other financial institutions with any new or different request or direction (in each case whether or not having the force of law but in respect of which compliance by banks or other financial institutions in the relevant jurisdiction is generally considered to be mandatory) from any central bank, fiscal, governmental, revenue, international, national, monetary or other authority; PROVIDED always that in respect of a Lender, any such implementation, introduction, abolition, withdrawal or variation, change in interpretation or new or different interpretation in relation to any applicable law or regulation and/or practice, concession, directive, ruling, request, notice, guideline, statement of policy or practice statement having effect in the jurisdiction in which the relevant Lender is organised, has its principal place of business or has its Lending Office shall not constitute a Change in Law if, prior to the date of this Agreement, such implementation, introduction, abolition, withdrawal or variation, change in interpretation or new or different interpretation had been announced or proposed generally to banks and other financial institutions in the jurisdiction in which the relevant Lender is organised or has its principal place of business or has its Lending Office by way of the publication of any Act of Parliament, statute or 10 statutory instrument or the publication or delivery or issue of any notice, directive or guideline applicable to banks generally by the relevant central bank, a European Union institution or other applicable authority, government, department, committee or agency (which under the laws of the jurisdiction in which the relevant Lender has its Lending Office, is organised or has its principal place of business for the time being has control or supervision of banking regulations); "CHARGE OVER SHARES OF BORROWER" means the agreement so entitled having the same date as this Agreement and made between the Parent and the Security Trustee and relating to the shares of the Borrower; "CHARGE OVER SHARES OF INTERMEDIATE LESSEE" means any deed of charge entered into from time to time between the Borrower or any relevant Sub-Borrower (as the case may be) and the Security Trustee in relation to the shares of any Intermediate Lessee substantially in the form of Appendix L; "CHARGE OVER SHARES OF SUB-BORROWER" means any deed of charge entered into from time to time between the Borrower and the Security Trustee in relation to the shares of any Sub-Borrower substantially in the form of Appendix G; "CHARGES OVER SHARES" means together the Charge Over Shares of Borrower, each Charge Over Shares of Intermediate Lessee and each Charge Over Shares of Sub-Borrower; "COFACE" means the export credit agency of the French Republic, represented by Compagnie Francaise d'Assurance pour le Commerce Exterieur; "COMMITMENT" means, in relation to a Lender, at any time the amount described as such set out opposite the name of such Lender in Schedule 1 or, as the case may be, the Schedule to the relevant Transfer Certificate, as the same may be cancelled or reduced pursuant to the terms of this Agreement (including the terms of Clauses 2.5.2 and 2.5.3 (Reduction and Cancellation of the Facility)) and as further reduced or increased pursuant to any Transfer Certificate less the amount of such Lender's Relevant Proportion of any Advances made before such time; "COMPULSORY ACQUISITION" means, in respect of an Aircraft or an Engine, requisition of title or other compulsory acquisition of title (but excluding requisition for use or hire) of such Aircraft or Engine, as the case may be, by a Government Entity; "CONTRACTUAL RATE" means, in relation to a Loan, the single blended rate for the aggregate of Tranche A and Tranche B of such Loan as stated in clause 4 of the relevant Loan Supplement and, provided that the relevant Aircraft is delivered within the same calendar month as its Scheduled Delivery Month, such single blended rate shall be the relevant blended rate set out in Column 9 of Schedule 10; "DEFAULT INTEREST PERIOD" means, in relation to the determination of Default Rate LIBOR, each period (not exceeding six months) as the Agent selects in its absolute discretion, the first such period commencing on the date on which the overdue payment was due and each subsequent period commencing on the last day of the preceding period for so long as the relevant default continues; 11 "DEFAULT RATE" means (a) in relation to any amount of principal or interest in respect of a Loan: (i) in the case of the British Credits and the French Credits, the rate of interest per annum equal to the aggregate of one per cent. (1%) per annum and the higher of (1) the relevant Contractual Rate and (2) Default Rate LIBOR; or (ii) in the case of the German Credits, the rate of interest per annum equal to the aggregate of one per cent. (1%) per annum and the higher of (1) the relevant Contractual Rate and (2) as applicable, (y) Default Rate LIBOR or (z) (if the German Credits or part thereof is at the relevant time funded in any currency other than Dollars) the funding cost incurred by the German Lenders; and (b) in relation to any other amount arising under any Transaction Document, the aggregate of Default Rate LIBOR and one per cent. per annum; "DEFAULT RATE LIBOR" means: (a) the rate per annum which is certified by the Agent to be the rate (rounded upwards to the nearest one sixteenth of one per cent. (1/16%)) for deposits in Dollars in an amount substantially equal to the sum in default for a period comparable to the Default Interest Period which appears on the Telerate/Dow Jones Market Service Page 3750 (or its successor or replacement page) at or about 11.00 a.m. London time on the first day of the relevant Default Interest Period; or (b) if such rate does not appear on Telerate/Dow Jones Market Service Page 3750 (or its successor or replacement page) Default Rate LIBOR for the relevant Default Interest Period shall be the rate per annum, certified by the Agent as the arithmetic mean (rounded upwards to the nearest one sixteenth of one per cent. (1/16%)) of the respective rates per annum notified to the Agent at which the Reference Banks are offered Dollar deposits by prime banks in the London Interbank Euro Currency Market in an amount substantially equal to the sum in default and for a period having a duration equal to or as close as practicable to the Default Interest Period at or about 11.00 a.m. (London time) on the first day of the relevant Default Interest Period provided that (a) if one of the Reference Banks does not provide such rates, Default Rate LIBOR in relation to such Default Interest Period shall be determined on the basis of the rate notified by the Reference Bank providing such rate, and (b) if neither of the Reference Banks provides such a rate, then Default Rate LIBOR in relation to such Default Interest Period shall be the rate per annum certified by the Agent (acting upon the instructions from each Lender) as the arithmetic mean (rounded upwards to the nearest one sixteenth of one per cent. (1/16%)) of the cost to each of the Lenders of funding (in Dollars) an amount substantially equal to that Lender's Relevant Proportion of the sum in default for a period having a duration equal to or as close as practicable to such Default Interest Period at or about 11.00 a.m. (London time) on the first day of such Default Interest Period; 12 "DELIVERY DATE" means, in respect of an Aircraft, the date upon which that Aircraft is delivered to the Borrower, or, as the case may be, a Sub-Borrower by the Seller which date shall be the date of the delivery of the relevant Bill of Sale; "DOLLARS" and "US$" means the lawful currency for the time being of the United States of America; "ECGD" means Her Britannic Majesty's Secretary of State acting by the Export Credits Guarantee Department; "ECGD REFERENCE BANKS" means with respect to sub-paragraph (v) of the definition of Make-Whole Amount: (i) in the case of a prepayment in accordance with Clauses 4.3 (Voluntary Prepayment), 4.4 (Prepayment following a Total Loss), 4.5 (Prepayment on Final Disposition), 4.6 (Prepayment on a Sub-Borrower Sale), Clause 4.8 (Prepayment if not leased), the three reference banks nominated under Clauses 4.3 (Voluntary Prepayment), 4.4 (Prepayment following a Total Loss), 4.5 (Prepayment on Final Disposition), 4.6 (Prepayment on a Sub-Borrower Sale) and Clause 4.8 (Prepayment if not leased) (as the case may be); and (ii) in the case of prepayments in accordance with Clause 4.10 (Mandatory Prepayment Event) or of a declaration by the Agent of a Termination Event under Clause 10.2 (Acceleration Rights), those reference banks as the Lead Manager of the British Credits may select; "ELIGIBLE AIRCRAFT" means, as the context may require (a) any or all of the Airbus A319, A320, A321, A330 and A340 Aircraft purchased pursuant to any Purchase Agreement including the Aircraft referred to in Schedule 4 Part I during the period from the date hereof to March 31, 2002 or (b) such other A319, A320, A321, A330 and A340 Airbus aircraft as may be agreed between the Borrower and the Agent (acting upon the instructions of the Majority Lenders) or such other Airbus aircraft as may be agreed between the Borrower and the Agent (acting upon the unanimous instructions of the Lenders and the Export Credit Agencies), subject always to Clause 2.7.4 (Amount); "ENGINE" or "ENGINES" means, in respect of an Aircraft, (a) each of the engines described in Schedule 1 to the relevant Mortgage, whether or not from time to time during the term of the relevant Loan installed on the Airframe or any other airframe (for so long as it remains property of the Borrower or Sub-Borrower) but which, having been removed from the Airframe, remains the property of the Borrower or, if applicable, the relevant Sub-Borrower (as the case may be), or (b) any other Replacement Engine substituted therefor which becomes the property of the Borrower or the relevant Sub-Borrower (as the case may be), including, if applicable, any other Engine which may from time to time be installed upon or attached to the Airframe and which becomes the property of the Borrower or, if applicable, the relevant Sub-Borrower, and (c) insofar as the same belong to the Borrower or, if applicable, the relevant Sub-Borrower, any and all Parts of whatever nature from time to time relating to an engine referred to in (a) and (b) above whether or not installed on or attached to such engine and (d) insofar as the same belong to the Borrower or the relevant Sub-Borrower (as the case may be), all substitutions, 13 replacements or renewals from time to time made on or to any item referred to in (a), (b) and (c); "ENGINE AGREEMENT" means each of: (a) The General Terms Agreement 6-3987 dated June 22, 1984 between CFM International S.A. and the Guarantor; (b) The General Terms Agreement 6-5792 dated November 1, 1985 between General Electric Company and the Guarantor; (c) The General Terms Agreement dated December 9, 1992 between IAE International Aero Engines AG and the Guarantor; (d) The PW4168 powered A330 Contract dated May 23, 1996 between United Technologies Corporation, Pratt & Whitney Group and the Guarantor; and (e) The Terms of Business Agreement DEG2596 (MG 381) dated October 3, 1997 between Rolls Royce plc and the Guarantor, including, in each case, any relevant amendment, modification, letter agreements and supplements thereto; "ENGINE MANUFACTURERS" means each of CFM International S.A., General Electric Company, IAE International Aero Engines AG, United Technologies Corporation, Pratt & Whitney Group and Rolls Royce plc, and their successors and assigns; "ENGINE WARRANTIES" means, in respect of the Engines relating to an Aircraft, the warranties, including the conditions and limitations applicable thereto, contained in: (i) exhibit B to the Engine Agreement between CFM International S.A. and the Guarantor; (ii) exhibit B to the Engine Agreement between General Electric Company and the Guarantor; (iii) clause 4 of the Engine Agreement between IAE International Aero Engines AG and the Guarantor; (iv) the engine sales warranty and service policy benefits set out in the Engine Agreement between United Technologies Corporation, Pratt & Whitney Group and the Guarantor or, as the case may be; (v) the Rolls Royce Trent Warranty pursuant to the DEG2596 (MG 381) Agreement dated October 3, 1997 between the Guarantor and Rolls Royce plc; (vi) together with, in each case, the patent indemnities set forth in the relevant Engine Agreement and any and all rights of the Guarantor under the relevant Engine Agreement to compel performance of the same and the right to claim damages in respect thereof but only insofar as such warranties, indemnities and rights arise in respect of the Engines relating to the relevant Aircraft; 14 "EXISTING AIRCRAFT" shall have the meaning given to such term in Clause 4.7 (Substitution of Aircraft); "EXPENSES" means any reasonable out-of-pocket costs and expenses (including the agreed or, if not agreed, the reasonable legal fees and expenses of United Kingdom, Bermuda and California counsel, or other counsel in another jurisdiction of organisation of a Sub-Borrower or Intermediate Lessee, acting for the Representatives, the Lenders and the Export Credit Agencies as a group and, after a Third Trigger Event or Termination Event, any other counsel appointed by the Lenders, the Representatives and the Export Credit Agencies as a group and, after a Third Trigger Event or Termination Event, insurance fees and expenses (if any and to the extent approved by the Borrower, such approval not to be unreasonably withheld), and after an Acceleration Event remarketing fees and all other advisers' fees and expenses, but, in any event, excluding all Taxes) as well as any Value Added Tax thereon, which may be reasonably incurred by the Security Trustee, the Agent, the Lenders and the Export Credit Agencies as a group in connection with the execution and delivery of the Transaction Documents or in connection with the performance, enforcement, attempted enforcement or preservation of their respective rights and duties hereunder or thereunder PROVIDED always that the reference to such out-of-pocket costs and expenses being "reasonably" incurred and to legal fees and expenses being "reasonable" shall not apply when such out-of-pocket costs and expenses are incurred or sustained, after a Termination Event, in connection with the enforcement or preservation or attempted enforcement or preservation of rights; "EXPORT CREDIT AGENCIES" means each of COFACE, ECGD and HERMES; "FAA" mean the Federal Aviation Administration (or its successor) of the United States of America; "FACILITY" means the term loan facility made available by the Lenders to the Borrower pursuant to this Agreement; "FACILITY AMOUNT" shall have the meaning given to that term in Clause 2.1 (Facility); "FACILITY DOCUMENTS" means each of: (i) this Agreement, the Charge Over Shares of Borrower, the Borrower Debenture, Sub-Borrower/Intermediate Lessee Regular Jurisdiction Letter Agreement and the other documents, instruments and agreements relating thereto referred to in Clause 2.9.1(B) (Conditions Precedent) and the Borrower Constitutional Documents (but excluding the Lenders' Agreement); and (ii) (a) any other document, instrument or memorandum annexed to any of the documents referred to in (i) above; and (b) any notice or acknowledgement required pursuant to the terms of any of the documents referred to in (i) above; and (c) any document, instrument or memorandum (x) which is executed and delivered in connection with a restructuring in accordance with the terms of this Agreement of any or all of the arrangements 15 contemplated by any of the documents referred to in (i) above or (y) which the Guarantor or any of the Borrower or any Sub-Borrower agrees constitutes a Facility Document or (z) which is entered into in substitution for or which amends or augments or varies or novates all or any part of any of the documents referred to in this definition (including this part (ii)(c)(z)) in each case in accordance with the terms of this Agreement; "FINAL DISPOSITION" means, in relation to an Aircraft:- (a) the sale by the Borrower or the relevant Sub-Borrower (including in each case a sale by a Receiver after an Acceleration Event on behalf of the Borrower or the relevant Sub-Borrower, appointed under the Borrower Debenture or the relevant Sub-Borrower Debenture (as the case may be)) or by the Security Trustee as mortgagee against immediate payment in cash or for other consideration, whether through an agent on its behalf or otherwise, of all its right, title and interest in and to such Aircraft (including, without limitation, a sale to the relevant Lessee, the Guarantor and/or to any other person other than to the Borrower or a Sub-Borrower or a person who becomes the Borrower or a Sub-Borrower in accordance with this Agreement and whether pursuant to the terms of the relevant Lease or otherwise howsoever); or (b) completion by delivery of such Aircraft to the purchaser or lessee, as the case may be, of a sale, lease or other disposition by or on behalf of the Borrower or the relevant Sub-Borrower, (including in each case a sale by a Receiver after an Acceleration Event on behalf of the Borrower or the relevant Sub-Borrower, appointed under the Borrower Debenture or the relevant Sub-Borrower Debenture (as the case may be)), or by the Security Trustee as mortgagee, pursuant to a conditional sale, hire purchase, full pay-out finance lease or other arrangement involving the retention by or on behalf of the Borrower or any Sub-Borrower or the Security Trustee as mortgagee of title to, or a security or similar interest in, such Aircraft; "FINAL DISPOSITION PROCEEDS" means, in relation to an Aircraft, the aggregate amount of:- (a) all consideration (whether cash or otherwise) received and retained by or on behalf of the Borrower or the relevant Sub-Borrower or (after an Acceleration Event) the Security Trustee as mortgagee upon or as a result of the Final Disposition of such Aircraft; (b) any cash received and retained as a result of the sale by the Borrower or the relevant Sub-Borrower or (after an Acceleration Event) the Security Trustee as mortgagee of its right, title and interest in and to any agreement for the Final Disposition of such Aircraft in a manner contemplated by paragraph (b) of the definition of Final Disposition or any non-cash consideration received by either of them as a result of the Final Disposition of such Aircraft (as the case may be); (c) if a Final Disposition proceeds to completion, any non-refundable deposit (not otherwise included under clause (a) or (b) above) in relation to such Final Disposition paid to or for the account of the Borrower or the relevant Sub- 16 Borrower or (after an Acceleration Event) the Security Trustee as mortgagee by a person acquiring or proposing to acquire such Aircraft under a contract or offer to purchase or otherwise acquire it which has been withdrawn, terminated or cancelled or has lapsed; and (d) if an Acceleration Event has occurred any non-refundable deposit paid to or for the account of the Borrower or the relevant Sub-Borrower or (after such Acceleration Event) the Security Trustee as mortgagee by a person acquiring or proposing to acquire such Aircraft under a contract or offer to purchase or otherwise acquire it which has been withdrawn, terminated or cancelled or has lapsed; "FINANCIAL INDEBTEDNESS" shall have the meaning given to such term in paragraph 1 of Schedule 5; "FIRST TRIGGER EVENT" means the long term debt obligations of the Guarantor being rated below A- if and as rated by Standard & Poor's Corporation or A3 if and as rated by Moody's Investor Service, Inc., or an equivalent by an alternative service of equivalent recognition (if neither Standard & Poor's Corporation nor Moody's Investor Service, Inc. has assigned any rating); "FRENCH CREDITS" shall, in respect of an Advance, have the meaning given to that term in the relevant Loan Supplement; "FURTHER UTILISATION" has the meaning given to it in Clause 2.10 (Master Opinions); "GENERAL TERMS AGREEMENT" means, in relation to any of the Aircraft, the General Terms Agreement dated November 10, 1988 between the Seller and the Guarantor; "GERMAN CREDITS" shall, in respect of an Advance, have the meaning given to that term in the relevant Loan Supplement; "GOVERNMENT ENTITY" means (i) any national, state or local government; or (ii) any board, commission, department, division, instrumentality, courts or agency or political sub-division thereof, howsoever constituted; "GUARANTEED OBLIGATIONS" means any and all monies, liabilities and obligations (whether actual or contingent, whether now existing or hereafter arising, whether or not for the payment of money, and including any obligation or liability to pay damages and including any interest which, but for the application of bankruptcy or insolvency laws, would have accrued on the amounts in question), which are now or which may at any time and from time to time hereafter be due, owing, payable or incurred or be expressed to be due, owing, payable or incurred from or by any or all of the Obligors to the Agent, the Security Trustee and/or any of the Lenders under or in connection with any of the Transaction Documents and references to "GUARANTEED OBLIGATIONS" includes references to any part thereof; "HERMES" means the export credit agency of Germany, represented by Hermes Kreditversicherungsaktiengesellschaft; "HOME COUNTRIES" means the United Kingdom, the French Republic and Germany and "HOME COUNTRY" shall mean anyone of them; 17 "HOME COUNTRY AIRCRAFT" means an Aircraft which is leased to a TO Lessee incorporated in a Home Country; "HVB-LUX" means Hypovereinsbank Luxembourg Societe Anonyme of 4 rue Alphonse Weicker, L-2099, Luxembourg; "INDEMNITEE" means each of the Agent, the Security Trustee and each Lender together with their respective officers and employees; "INSURANCES" means, in relation to an Aircraft, any and all contracts or policies of insurance and reinsurance complying with the provisions of Schedule 8 or an indemnity from a Government Entity as indemnitor, as appropriate, and required to be effected and maintained in accordance with this Agreement; "INTEREST PERIOD" means, in respect of a Loan, each period commencing from (and including) the Utilisation Date of the relevant Aircraft or as the case may be, a Repayment Date to (but excluding) the next subsequent Repayment Date; "INTERMEDIATE LEASE" means, in respect of an Aircraft, the lease to be entered into between the Borrower or a Sub-Borrower or another Intermediate Lessee (as the case may be) as lessor and an Intermediate Lessee as lessee; "INTERMEDIATE LEASE SECURITY ASSIGNMENT" means, in respect of an Aircraft, the security assignment relating to the Intermediate Lease in each case for that Aircraft to be entered into between the Borrower or, as the case may be, any Sub-Borrower or another Intermediate Lessee and the Security Trustee substantially in the form of Appendix N; "INTERMEDIATE LESSEE" means, in respect of the delivery of a specific Aircraft, such person (other than the Borrower or a Sub-Borrower) as the Guarantor or the Borrower may determine in accordance with the provisions of Clause 3.3.1 (Sub-Borrowers/Intermediate Lessees) shall enter into a Lease as lessor with the relevant Lessee or with another Intermediate Lessee; "INTERMEDIATE LESSEE ACCOUNTS" means, in respect of an Intermediate Lessee, collectively the Intermediate Lessee Maintenance Reserve Account, the Intermediate Lessee Rental Account and the Intermediate Lessee Security Deposit Account; "INTERMEDIATE LESSEE DEBENTURE" means, in respect of an Intermediate Lessee, a debenture to be granted by such Intermediate Lessee in favour of the Security Trustee, in the form of Appendix M; "INTERMEDIATE LESSEE MAINTENANCE RESERVE ACCOUNT" means, in respect of an Intermediate Lessee the Dollar account with Wells Fargo Bank or Bank of America in California, Bank of Ireland in Ireland or such other financial institution as may be approved by the Security Trustee (such approval not to be unreasonably withheld) in the jurisdiction of organisation of the Intermediate Lessee outside the United Kingdom; "INTERMEDIATE LESSEE RENTAL ACCOUNT" means, in respect of an Intermediate Lessee such Dollar account with Wells Fargo Bank or Bank of America in California, Bank of Ireland in Ireland or such other financial institution as may be approved by the Security Trustee 18 (such approval not to be unreasonably withheld) in the jurisdiction of organisation of the Intermediate Lessee outside the United Kingdom; "INTERMEDIATE LESSEE SECURITY DEPOSIT ACCOUNT" means, in respect of an Intermediate Lessee, such Dollar account with Wells Fargo Bank or Bank of America in California, Bank of Ireland in Ireland or such other financial institution as may be approved by the Security Trustee (such approval not to be unreasonably withheld) in the jurisdiction of organisation of the Intermediate Lessee outside the United Kingdom; "IRREGULAR JURISDICTION" means any jurisdiction other than a Regular Jurisdiction; "LEAD MANAGERS" means each of Halifax plc (in its capacity as lead manager for the British Lenders), Societe Generale (in its capacity as lead manager for the French Lenders) and Commerzbank AG (in its capacity as lead manager for the German Lenders) and "LEAD MANAGER" shall mean any one of them; "LEASE" means, in respect of an Aircraft, any lease agreement relating to that Aircraft to be entered into (including by novation or assignment) between the Borrower, a Sub-Borrower or an Intermediate Lessee (as the case may be) as lessor and the relevant Lessee as lessee; "LEASE SECURITY ASSIGNMENT" means, in respect of an Aircraft, the security assignment relating to the Lease in each case for that Aircraft to be entered into between the Borrower or, as the case may be, any Sub-Borrower or, as the case may be, any Intermediate Lessee and the Security Trustee substantially in the form of Schedule 2 to the relevant Mortgage; "LENDERS' AGREEMENT" means the agreement so entitled of even date herewith and made between the Agent, the Security Trustee and each of the Lenders; "LENDING OFFICE" means, in relation to a Lender, its branch or office at the address specified against its name in Schedule 1 or specified in the Transfer Certificate whereby such Lender becomes a party hereto or such other branch or office determined in accordance with the provisions of this Agreement; "LESSEE" means, in respect of an Aircraft, the Borrower's, the relevant Sub-Borrower's or the relevant Intermediate Lessee's customer who is the lessee of that Aircraft; "LIBOR" means, in respect of an Interest Period or other relevant period: (a) the rate per annum which is conclusively (save for manifest error) certified by the Agent to be the rate (rounded upwards to the nearest one sixteenth of one per cent. (1/16%)) for deposits of Dollars in an amount substantially equal to the relevant Advance or other relevant amount for a period equal to, or as close as practicable to, the relevant Interest Period or other relevant period which appears on the Telerate/Dow Jones Market Service Page 3750 (or its successor or replacement page) at or about 11.00 a.m. (London time) two (2) London Banking Days prior to the commencement of the relevant Interest Period or other relevant period; or (b) if such rate does not appear on the Telerate/Dow Jones Market Service Page 3750 (or its successor or replacement page), LIBOR for the relevant Interest 19 Period or other relevant period shall be the rate per annum, conclusively (save for manifest error) certified by the Agent as the arithmetic mean (rounded upwards if necessary to the nearest one sixteenth of one per cent. (1/16%)), of the respective rates per annum notified to the Agent at which the Reference Banks are offered Dollar deposits by prime banks in the London Interbank Euro Currency Market in an amount substantially equal to the relevant Advance or other relevant amount and for a period having a duration equal to or as close as practicable to such Interest Period or such other relevant period, as the case may be, at or about 11.00 a.m. (London time) two (2) London Banking Days prior to the commencement of such Interest Period or other relevant period provided that if any Reference Bank fails to provide a rate, LIBOR in relation to such Interest Period or such other relevant period shall be determined on the basis of the rate notified by each Reference Bank which does provide such a rate and (ii) if no Reference Bank provides a rate, then LIBOR in relation to such Interest Period or other relevant period shall be the rate per annum certified by the Agent (acting on instructions from each Lender) to be the arithmetic mean (rounded upwards to the nearest one sixteenth of one percent.) of the cost to each Lender of funding (in Dollars) an amount substantially equal to that Lender's Relevant Proportion of the Advance or other relevant amount for a period having a duration equal to or as close as practicable to such Interest Period or other relevant period at or about 11.00 a.m. (London time) on the first day of such Interest Period or other relevant period; "LIEN" means, in relation to an Aircraft, any encumbrance or security interest whatsoever, howsoever created or arising including any right of ownership, security, mortgage, pledge, charge, lease, lien, statutory right in rem, hypothecation, title retention arrangement, attachment, levy, claim, right of detention or security interest whatsoever, howsoever created or arising or any right or arrangement having a similar effect to any of the above; "LOAN" means, in respect of an Advance, together the British Credits, the French Credits and the German Credits or (as the context may require) the aggregate principal amount of the British Credits, the French Credits and the German Credits owing to the Lenders in respect of the relevant Advance from time to time; "LOAN SUPPLEMENT" means, in respect of an Aircraft, the loan supplement relating to that Aircraft to be entered into between the Borrower and the Agent (for itself and as agent for the Security Trustee and the Lenders) substantially in the form set out in Appendix A; "LONDON BANKING DAY" means a day (other than a Saturday, Sunday or holiday scheduled by law) on which banks are open for general interbank business in London (including dealing in Dollar deposits); "LOSSES" means any losses, demands, liabilities, claims, actions, proceedings, penalties, fines, damages, adverse judgments, orders or other sanctions (in each case exclusive of loss of profit or income); "MAINTENANCE RESERVES" means, in respect of an Aircraft, the maintenance reserves, if any, payable from time to time by the Lessee to the Borrower, Sub-Borrower or the Intermediate Lessee (as the case may be) then held by the Borrower, the Intermediate Lessee or the Sub-Borrower (as the case may be) and unutilised; 20 "MAINTENANCE RESERVE ACCOUNTS" means each of the Borrower Maintenance Reserve Account, each Sub-Borrower Maintenance Reserve Account and each Intermediate Lessee Maintenance Reserve Account and "MAINTENANCE RESERVE ACCOUNT" means any of them; "MAJORITY LENDERS" means (i) in relation to any decision, discretion, action or inaction under any of the Transaction Documents in respect of which any Lead Manager either must follow the instructions of the relevant Export Credit Agency under the relevant Support Agreement or, in its good faith opinion, believes the consent of the relevant Export Credit Agency to be necessary, the relevant Lead Manager(s) and (ii) in relation to any other decision, discretion, action or inaction under any of the Transaction Documents that is provided to be made by the Majority Lenders, the simple majority of group votes (that is to say, two to one), of the British Lenders, the French Lenders and the German Lenders (each such group of Lenders having one vote), it being understood that the vote of any one such group of Lenders shall be determined by a simple majority (fifty-one per cent. (51%)) vote of the Lenders in that group based upon the proportion (expressed as a percentage) which the participation of each Lender in such group in the British Credits, the French Credits or, as the case may be, the German Credits which have been committed or, as the case may be, drawn down at the date such calculation is required to be made bears to the aggregate of the commitments or, as the case may be, participations of all of the Lenders in such group with respect to or, as the case may be, in the British Credits, the French Credits or, as the case may be, the German Credits on such date; "MAKE-WHOLE AMOUNT" means the aggregate of all sums payable by the Borrower to the Lenders, the Agent and the Security Trustee in respect of the applicable Loan under this Agreement and each of the other Aircraft Operative Documents (other than payments of principal and interest due hereunder and Expenses) including, with respect to the applicable Loan: (i) all amounts payable by the Borrower pursuant to the indemnities contained in Clauses 4.12 (Deductions and Withholdings), 13 (Indemnities), 14 (Change in Circumstances), 15 (Mitigation and Contest Rights), (provided that any provision of this Agreement which requires payment of the Make-Whole Amount shall not require double payment of any amount described in this paragraph (i) to the extent that such amount is also payable under any of the aforementioned Clauses); (ii) an amount equal to such amount as the Lead Manager of the British Credits shall certify as being equal to the aggregate instalments of the guarantee fee (in an amount equal to one half of one per cent. (0.5%) per annum of the British Credits outstanding throughout the immediately preceding Interest Period) which would, but for a prepayment required in accordance with this Agreement or the declaration by the Agent of a Termination Event under Clause 10.2 (Acceleration Rights), as the case may be, have fallen due after the date of such prepayment or declaration discounted at the rate of interest equal to LIBOR for the period of six months as at the date of prepayment or declaration, as the case may be (it being understood that the repayment of the British Credits to the British Lenders is being guaranteed by ECGD and that the British Lenders finance the fee payable to ECGD in respect of such guarantee from the payments of interest due under Clause 4 (Repayment and Prepayment) and that the rate of interest pursuant to Clause 4 (Repayment and Prepayment) has been 21 calculated on the basis of, inter alia, the obligations of the British Lenders to make such payments); (iii) an amount equal to the aggregate of: (a) on account of the "LASU" rate support mechanism in relation to the French Credits, an amount equal to the French Lenders' indemnity payment due to the financial institution (nominated by the French governmental authorities to be involved in the "LASU" rate support programme) in relation to the cost of breaking or liquidating any funding or hedging arrangements put in place by that financial institution at any time as a result of the French Lenders' undertaking to it pursuant to the LASU rate support programme, such indemnity being determined by such financial institution on the following basis:- (i) the outstanding principal of each Loan is sub-divided into tranches of principal having separate maturity dates corresponding to the then remaining Repayment Dates for each tranche; (ii) the financial institution nominated by the French governmental authorities determines the applicable market placement rate for Dollars in relation to the relevant maturity date for each tranche of principal and the difference (if positive) between the "LASU" rate and that rate accorded to that tranche shall be applied to each relevant tranche for the period between the date of prepayment in accordance with Clause 4 (Prepayment and Repayment) or the declaration by the Agent of a Termination Event under Clause 10.2 (Acceleration Rights) and the maturity date corresponding to the relevant tranche; (iii) each amount which results from the calculation made pursuant to sub-paragraph (ii) will be net present valued utilising the applicable market placement rate for Dollars and the aggregate of each amount as net present valued will represent the costs of breaking or liquidating the funding or hedging arrangements referred to in this sub-paragraph (iii); and (b) the unamortised amount of the French Lenders' Reimbursement Exposure to the Up-front Premium and for this purpose "FRENCH LENDER'S REIMBURSEMENT EXPOSURE" means, in relation to the Up-front Premium, the relevant amount set out against each Repayment Date (amortising the Up-front Premium to zero over the ten-year period for repayment of the French Credits) contained in the Schedule described as the "Amortisation of the COFACE Up-front Premium" to be provided by the Agent as soon as practicable after 22 the date hereof and "UP-FRONT PREMIUM" means, in relation to that portion of the French Credits which is supported by COFACE, an amount equal to the premium stipulated by COFACE two (2) Business Days prior to the Utilisation Date or as soon as practicable thereafter and which is paid to COFACE on, or as soon as practicable, after the Utilisation Date; (it being understood that the whole of the credit insurance premium owing to COFACE is payable up-front and is to be funded during the term of the French Credits at the interest rate for the French Credits and that, in the event that the French Credits or any part thereof is prepaid in accordance with Clause 4 (Repayment and Prepayment) or in respect thereof a Termination Event is declared under Clause 10.2 (Acceleration Rights), such up-front credit insurance premium is not refundable pro rata temporis by COFACE), (iv) an amount, described as the credit insurance premium of HERMES, equal to the present value of one half of one per cent. (0.5%) per annum in relation to the principal then outstanding for the German Credits with respect to a period equal to the average remaining life of those Repayment Instalments which would have fallen due under Clause 3.6.4 (Repayment Schedules) but for a prepayment in accordance with Clause 4 (Repayment and Prepayment) or the declaration by the Agent of a Termination Event under Clause 10.2 (Acceleration Rights), such present value being determined by discounting at a rate directed to the German Lenders by the Ministry of Economics of the Federal Republic of Germany for the period corresponding to the average remaining life of the interest owing under the German Credits, (it being understood that the repayment of the German Credits to the German Lenders is being insured by HERMES and that the German Lenders finance the credit insurance premium payable to HERMES in respect of such credit insurance from the payments of interest due under Clause 4 (Repayment and Prepayment) and that the rate of interest pursuant to Clause 4 (Repayment and Prepayment) has been calculated on the basis of, inter alia, the obligations of the German Lenders to make such payments); (v) an amount, representing the loss to ECGD of losing the benefit of receiving the fixed rate interest payment stream in relation to the British Credits under the interest make-up arrangement between the Agent, the Lenders and ECGD, calculated as being equal to: (a) the premium quoted to ECGD by the relevant ECGD Reference Bank (after disregarding the highest and lowest quotations from the ECGD Reference Banks); or (b) if only two of the ECGD Reference Banks provide quotations, the average of the premia quoted to ECGD; or (c) if only one of the ECGD Reference Banks provides a quotation, the premium quoted to ECGD by that ECGD Reference Bank, 23 on or about the date of a prepayment in accordance with Clause 4 (Repayment or Prepayment) or the declaration by the Agent of a Termination Event, as the case may be, that the relevant ECGD Reference Bank(s) would require on entering into an arrangement with ECGD under which ECGD would: (y) receive a stream of fixed rate interest payments less an amount equal to one half of one percent (0.5%) per annum, but otherwise identical in timing and amount to that which, but for such prepayment, purchase or declaration would have been payable by the Borrower under Clause 4 (Repayment and Prepayment) and calculated as if all amounts payable in relation to the British Credits in accordance with Clause 4 (Repayment and Prepayment) (whether on, before or after the date of the relevant prepayment, purchase or declaration, as the case may be) had been, or (as the case may be) would be, paid in full when due; and (z) pay a corresponding stream of floating rate interest payments calculated on the basis of a rate of interest equal to six month LIBOR for US$ deposits of the appropriate amount and maturity plus such margin as shall be agreed from time to time between the British Lenders and ECGD, PROVIDED that, if none of the ECGD Reference Banks have quoted a premium that it requires from ECGD for entering into the above arrangement such amount shall be zero; (vi) an amount equal to the aggregate of any breakage loss or swap breakage costs incurred by each German Lender calculated as the difference between its cost of funding its respective portion of the German Credits and the proceeds of redeploying an amount equal to its portion of the outstanding principal of the German Credits, it being understood that the Ministry of Economics of the Federal Republic of Germany have the right, on the Utilisation Date and/or on any Repayment Date, to direct each German Lender to fund all or part of its portion of the German Credits either on a floating (six month LIBOR) or a fixed rate basis throughout the tenor of the German Credits or for a shorter period, it being understood that: (x) the methods by which the amounts referred to in sub-paragraphs (ii) to (vi) inclusive are calculated shall, subject to any Change in Law, be the method by which any of the Export Credit Agencies (or any governmental ministries or financial institution involved in the "LASU" rate support programme) will calculate such amounts at the relevant time; and (y) all amounts referred to in sub-paragraphs (ii) to (vi) inclusive shall be determined at the relevant time by, as the case may be, the Agent, each of the Lenders or the relevant Export Credit Agency and each of them shall have certified to the Agent such amounts as are necessary to compensate it and provide reasonable details of the actual computation of the relevant 24 compensation amount, which certification and details shall be given to the Agent who shall in turn make available the same to the Borrower; "MANUFACTURER" means Airbus Industrie G.I.E. currently of 1 Rond Point Maurice Bellonte, Blagnac 31707, France together with its successors and assigns; "MASTER OPINIONS" means the legal opinions required to be given with respect to the applicable Obligors pursuant to sub-paragraphs (a), (b), (c), (d) of paragraph 3 of Part I to Schedule 6 on or before the first Utilisation under this Agreement, and the legal opinions required to be given pursuant to paragraph 4 of Part I to Schedule 6 with respect to a relevant Sub-Borrower or Intermediate Lessee concerning its Accession Deed and the Aircraft Security Documents to which it is a party at the time it accedes to this Agreement, and any replacement opinion given hereunder in respect thereof; "MATERIAL ADVERSE EFFECT" means a material adverse effect on the validity of any of the obligations of any Obligor under this Agreement and the other Transaction Documents to which it is a party; "MORTGAGE" means, in respect of an Aircraft, the first priority mortgage and the deed of assignment of the Warranties in each case relating to that Aircraft to be entered into between the Borrower or, as the case may be, a Sub-Borrower and the Security Trustee substantially in the form of Appendix C; "NOTICE OF CHARGE" means, in respect of an Aircraft, a notice of charge from the Security Trustee, the Intermediate Lessee (if any) and the Borrower or Sub-Borrower (as the case may be) to the Lessee and the Sub-Lessee (if any) in the form of Appendix P; "OBLIGORS" means any or all of the Parent, the Borrower, each Sub-Borrower, each Intermediate Lessee and, where the context so permits, the Guarantor, and "OBLIGOR" means any one of them; "PART" means, in relation to an Aircraft, each module, appliance, part, accessory, instrument, furnishing and other item of equipment of whatsoever nature (including the Buyer Furnished Equipment), other than a complete Engine or engine, which at any time of determination is incorporated or installed in or attached to the relevant Airframe or any relevant Engine, in each case title to which is vested in the Borrower or the relevant Sub-Borrower (as the case may be) or, having been removed therefrom, title to which remains vested in the Borrower or the relevant Sub-Borrower (as the case may be); "PARTIAL PURCHASE AGREEMENT ASSIGNMENT" means, in relation to an Aircraft, the partial purchase agreement assignment to be entered into (subject to the consent of the Seller) between the Guarantor and the Borrower or, as the case may be, the relevant Sub-Borrower substantially in the form set out in Appendix B in respect of the right to take title to that Aircraft under the relevant Purchase Agreement, and including with respect to the warranties the Lessee as a party or subject to its rights; "PERMITTED LIENS" means, in relation to an Aircraft: (a) any Lien affecting that Aircraft for Taxes or other governmental or statutory charges or levies not yet assessed or, if assessed, not yet due and payable or, if due and payable, which the Borrower, the relevant Sub-Borrower, the relevant 25 Intermediate Lessee or the relevant Lessee or the relevant Sub-Lessee is disputing or contesting in good faith by appropriate proceedings (and when required in order to pursue such proceedings, an adequate bond has been provided) so long as such proceedings, or the continued existence of such Lien, do not at that time involve any likelihood of the sale, forfeiture or loss of the Aircraft or any relevant Engine or Part; or (b) any Lien affecting the Aircraft for the fees or charges of any airport or air navigation authority arising in the ordinary course of business by statute or by operation of law, in each case for amounts the payment of which either is not yet due and payable or, if due and payable, is being disputed or contested in good faith by appropriate proceedings (and when required in order to pursue such proceedings, an adequate bond has been provided) so long as such proceedings, or the continued existence of such Lien, do not at that time involve any likelihood of the sale, forfeiture or loss of the Airframe or, any relevant Engine or Part; or (c) any Lien affecting that Aircraft for the fees or charges of any supplier, mechanic, workman, repairer, employee or like lien arising in the ordinary course of business by contract or by statute or by operation of law, in each case for amounts (i) the payment of which is not yet due and payable, or (ii) which are not overdue for payment having regard to the custom of the relevant trade, in circumstances where no enforcement action against the Aircraft has yet been taken by the relevant lienholder or (iii) if due and payable is being disputed or contested in good faith with the relevant lienholder by appropriate proceedings (and when required in order to pursue such proceedings, an adequate bond has been provided) so long as such proceedings, or the continued existence of such Lien, do not at that time involve any likelihood of the sale, forfeiture or loss of the Airframe or, any relevant Engine or Part; or (d) any Lien affecting that Aircraft (other than a Lien for Taxes) arising out of judgments or awards against the Borrower or the relevant Sub-Borrower or the relevant Intermediate Lessee or the relevant Lessee or the relevant Sub-Lessee with respect to which at the time the period for an appeal has not expired or an appeal is being presented in good faith and with respect to which within forty (40) days thereafter there shall have been secured a stay of execution pending such appeal (and when required in order to pursue such proceedings, an adequate bond has been provided) so long as such judgment or award, or the continued existence of such Lien, does not at that time involve any likelihood of the sale, forfeiture or loss of the Airframe, any relevant Engine or Part; or (e) any Lien created pursuant to any of the Transaction Documents for the relevant Aircraft; or (f) a debt, liability or other obligation (whether financial or otherwise) imposed on the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (as the case may be) or any person claiming through or under the Borrower as purchaser of that Aircraft, pursuant to the relevant Partial Purchase Agreement Assignment; or 26 (g) Liens permitted, or (so long as no Third Trigger Event has occurred and is continuing) which are the responsibility of the Lessee, under the relevant Lease including any assignment of the relevant Warranties and Engine Warranties thereunder and the rights of any Sub-Lessee or charterer of the Aircraft (including of any Engine or Part) or any other person under an agreement or arrangements permitted by the provisions of the relevant Lease; or (h) the rights of insurers; or (i) the interests of a voting or owner trustee, as applicable, in connection with the relevant Sub-Borrower or the relevant Intermediate Lessee in the United States; or (j) any Lien bonded against by the Borrower, any Sub-Borrower, any Intermediate Lessee (unless, in each case, a Third Trigger Event has first occurred and is continuing), any Lessee or any Sub-Lessee, or other similar third party security (which does not itself result in a Lien on the Aircraft or any part thereof) is provided with respect to such Lien by any such person provided that, after the occurrence and continuation of a Third Trigger Event, any such bonding or other similar third party security as against any Lessee or any Sub-Lessee is first approved by the Security Trustee, acting reasonably; or (k) any other Lien created with the prior written consent of the Security Trustee; "POST-DELIVERY MODIFICATION PERIOD" means the period of one hundred and eighty (180) days following the Delivery Date of an Aircraft; "PROCEEDS" means, in relation to an Aircraft:- (a) any and all amounts received or recovered under this Agreement; (b) any Final Disposition Proceeds and any Sub-Borrower Sale Proceeds; (c) any and all other proceeds of enforcement of the Aircraft Security Documents relating to such Aircraft; (d) any Total Loss Proceeds; (e) any Requisition Proceeds; and (f) any and all other amounts (other than in respect of fees) received by the Agent, the Security Trustee or any Lender from any of the Obligors (whether directly or through the Borrower) pursuant to the provisions of the Transaction Documents; "PROCEEDS ACCOUNT" means, in relation to each Aircraft, the Dollar account of the Security Trustee with Halifax plc designated by the Security Trustee to which any Proceeds will be credited or such other account as the Security Trustee may designate from time to time by notice to the other parties hereto; 27 "PROHIBITED COUNTRY" means, in relation to an Aircraft, any state, country or jurisdiction which is subject from time to time to any United Nations Sanctions Order, US Export Controls (after obtaining applicable consents), the United Kingdom Export of Goods (Control) Order 1992 or any statutory modification or re-enactment thereof or any similar or corresponding legislation then in effect in France, Spain or Germany, the effect of which after obtaining applicable consents or licences prohibits the Guarantor or its applicable Subsidiary from exporting to and/or consigning for use A319/A320/A321/A330/A340 aircraft (as the case may be) in such country; "PURCHASE AGREEMENT" means, in relation to an Aircraft each of: (a) the A320 aircraft purchase agreement between the Seller and the Guarantor dated November 10, 1988; (b) the A319 aircraft purchase agreement between the Seller and the Guarantor dated December 10, 1992; (c) the A321 aircraft purchase agreement between the Seller and the Guarantor dated February 14, 1990; (d) the A319/A320/A321 aircraft purchase agreement between the Seller and the Guarantor dated August 29, 1997; (e) the A330-200 aircraft purchase agreements between the Seller and the Guarantor dated November 10, 1988 and August 29, 1997; (f) the A340-300 aircraft purchase agreement between the Seller and the Guarantor dated November 10, 1988; pursuant to which the Seller agreed to sell and the Guarantor agreed to purchase, inter alia, the Aircraft together with the exhibits thereto and all applicable change orders, letter agreements and other amendments or supplements thereto; "QUARTER DATE" means each March 31, June 30, September 30 and December 31 in each year; "RECEIVER" means any receiver or receiver and manager appointed after an Acceleration Event by the Agent, the Security Trustee or the Majority Lenders pursuant to any Aircraft Security Document; "REFERENCE BANKS" means Halifax plc, Societe Generale, Citibank N.A. and Commerzbank AG; "REGULAR JURISDICTION" means Bermuda, the United States of America, the Cayman Islands and Ireland or any other jurisdiction in which a Sub-Borrower or an Intermediate Lessee has already been established and such entity has acceded to this Agreement prior to the date of the relevant Utilisation Notice; "RELEVANT EVENT" means any event which with any one or more of the lapse of time, the giving of notice, or the making of a determination, would become a Termination Event 28 were a notice to be given by the Agent to the Borrower pursuant to Clause 10.2 (Acceleration Rights); "RELEVANT PROPORTION" means, with respect to any Lender and a Loan, at any time, the proportion which such Lender's share of the British Credits, the French Credits or the German Credits (as the case may be) bears to the total amount of the Loan at such time; "RENTALS" means, in respect of an Aircraft, the rentals payable by the Lessee to the Borrower, the Sub-Borrower or the Intermediate Lessee (as the case may be) pursuant to the relevant Lease; "RENTAL ACCOUNTS" means each of the Borrower Rental Account, each Sub-Borrower Rental Account and each Intermediate Lessee Rental Account and "RENTAL ACCOUNT" means any of them; "REPAYMENT DATE" means, in relation to a Loan, each repayment date as set forth in Column 1 of Schedule 2 to the relevant Loan Supplement PROVIDED always that if any Repayment Date would otherwise fall on a day which is not a Banking Day, such Repayment Date shall be deemed to fall on the immediately succeeding Banking Day unless such Repayment Date falls in the calendar month next succeeding that in which it would otherwise have fallen, in which case it shall fall on the immediately preceding Banking Day; "REPAYMENT INSTALLMENT" means, in relation to a Loan, with respect to each Repayment Date, the principal amount due and payable on such Repayment Date, as determined in accordance with Clause 4.2 (Repayment of Principal) together with interest thereon payable pursuant to Clause 4.1 (Payment of Interest) all as set out in schedule 2 to the relevant Loan Supplement; "REPLACEMENT AIRCRAFT" has the meaning set forth in Clause 4.7 (Substitution of Aircraft); "REPLACEMENT BILL OF SALE" means a bill of sale substantially in the form set out in Appendix O as contemplated by Clause 4.7.5 (Substitution of Aircraft); "REPLACEMENT ENGINE" means an engine of an Engine Manufacturer, of the same or an improved model and suitable for use on the Airframe and having a utility at least equal to the Engine in respect of which a Total Loss or transfer of title has occurred; "REPRESENTATIVES" means the Agent and the Security Trustee; "REQUIRED INSURED VALUE" means, in relation to an Aircraft, at any time of determination 110% of the principal amount outstanding in respect of the relevant Loan at such time; "REQUISITION PROCEEDS" means, in relation to an Aircraft, any monies and/or other compensation received directly by the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (if any) and/or the Security Trustee in its capacity as mortgagee in respect of the Compulsory Acquisition of such Aircraft; "RR ENGINE WARRANTY AGREEMENT" means, in the case of an Aircraft powered by Engines manufactured by Rolls-Royce plc, the engine warranty agreement relating to such 29 Aircraft and Engines to be entered into by Rolls-Royce plc as Engine Manufacturer, the Guarantor, the relevant Lessee, the Security Trustee and the Borrower or, as appropriate, relevant Sub-Borrower substantially in the form of Appendix D Part III; "SCHEDULED DELIVERY DATE" means, in respect of an Aircraft, the date nominated in the relevant Utilisation Notice for the delivery of that Aircraft from the Seller to the Borrower or the Sub-Borrower (as the case may be); "SCHEDULED DELIVERY MONTH" means, in respect of any Aircraft, the month in which that Aircraft is scheduled to be delivered as set out in Schedule 4 Part I as the same may be varied by any notice delivered by the Borrower to the Agent under Clause 2.5.1 (Reduction and Cancellation of the Facility); "SECOND TRIGGER EVENT" means the long term debt obligations of the Guarantor being rated below BBB+ if and as rated by Standard & Poor's Corporation or BAA1 if and as rated by Moody's Investor Service Inc., or an equivalent by an alternative service of equivalent recognition (if neither Standard & Poor's Corporation nor Moody's Investor Service, Inc. has assigned any rating) or the placing of the Guarantor on "creditwatch" to fall below BBB+ (if and as rated by Standard and Poor's Corporation) or BAA1 (if and as rated by Moody's Investor Service Inc.); "SECURED OBLIGATIONS" means together any and all monies, liabilities and obligations (whether actual or contingent, whether now existing or hereafter arising, whether or not for the payment of money, and including any obligation or liability to pay damages and including any interest which, but for the application of bankruptcy or insolvency laws, would have accrued on the amounts in question) which are now or which may at any time and from time to time hereafter be due, owing, payable or incurred or expressed to be due, owing, payable or incurred from or by the Borrower or any of the other Obligors to any one or more of the Lenders, the Agent and/or the Security Trustee under any of the Transaction Documents; "SECURITY DEPOSIT" means, in respect of an Aircraft, any security deposit payable by the Lessee to the relevant Borrower, Sub-Borrower or Intermediate Lessee (as the case may be) then held by the Borrower, the Intermediate Lessee or the Sub-Borrower (as the case may be) and unutilised; "SECURITY DEPOSIT ACCOUNTS" means each of the Borrower Security Deposit Account, each Sub-Borrower Deposit Account and each Intermediate Lessee Deposit Account and "SECURITY DEPOSIT ACCOUNT" shall mean any of them; "SECURITY PERIOD" means the period commencing on the date hereof and ending on the date upon which the Secured Obligations (exclusive of indemnities in respect of which no claims have been, or to the knowledge of the Security Trustee will be, asserted) shall have been paid in full; "SELLER" means AVSA S.A.R.L., a French societe a responsabilite limitee, duly organised and existing under the laws of the Republic of France and currently having its registered office at 2 Rond Point Maurice-Bellonte 31700 Blagnac, France together with its successors and assigns; 30 "STATE OF REGISTRATION" means, in relation to an Aircraft, any state or territory in which that Aircraft may for the time being be registered pursuant to a Lease, Sub-Lease or pursuant to this Agreement (as the case may be); "SUB-BORROWER" means, in respect of the delivery of a specific Aircraft, such person, as the Guarantor or the Borrower may determine or, as the case may be, approved by the Agent (acting on the instructions of the Majority Lenders) in accordance with the provisions of Clause 3.3 (Sub-Borrowers/Intermediate Lessees) who shall take title to that Aircraft and being in each case, except for shares held by directors, trustees or nominees in order to meet local nationality or other local requirements and which do not have a Material Adverse Effect on the relevant Charge over Shares of Sub-Borrower, a wholly owned direct subsidiary of the Borrower; "SUB-BORROWER ACCOUNTS" means, in respect of a Sub-Borrower, collectively the Sub-Borrower Maintenance Reserve Account, the Sub-Borrower Rental Account and the Sub-Borrower Security Deposit Account; "SUB-BORROWER DEBENTURE" means, in respect of a Sub-Borrower, a debenture to be granted by such Sub-Borrower in favour of the Security Trustee in the form of Appendix I; "SUB-BORROWER GUARANTEE " means, if title to the Aircraft is taken by a Sub-Borrower, each guarantee and indemnity to be entered into between the Sub-Borrower and the Security Trustee as the context requires in respect of all the Secured Obligations; "SUB-BORROWER/INTERMEDIATE LESSEE REGULAR JURISDICTION LETTER AGREEMENT" means the letter agreement dated the date of this Agreement entered into between the Guarantor, the Borrower and the Agent in relation to the settlement of pro forma documentation (including the form of Charge over Shares of Intermediate Lessee and form of Intermediate Lessee Debenture) with respect to a Sub-Borrower or an Intermediate Lessee organised in any of the Regular Jurisdictions (other than Bermuda); "SUB-BORROWER MAINTENANCE RESERVE ACCOUNT" means, in respect of a Sub-Borrower the Dollar account with Wells Fargo Bank or Bank of America in California or such other account outside the United Kingdom with another financial institution approved by the Security Trustee (such approval not to be unreasonably withheld); "SUB-BORROWER RENTAL ACCOUNT" means, in respect of a Sub-Borrower, such Dollar account with Wells Fargo Bank or Bank of America in California or such other account outside the United Kingdom with another financial institution approved by the Security Trustee (such approval not to be unreasonably withheld); "SUB-BORROWER SALE" means, in relation to a Sub-Borrower, the sale by the Borrower (including in each case a sale after an Acceleration Event by a Receiver on behalf of the Borrower, appointed under the Borrower Debenture), or by the Security Trustee against immediate payment in cash or for other consideration, whether through an agent on its behalf or otherwise, of all the Borrower's right, title and interest in and to the shares in such Sub-Borrower (including a sale to the relevant Lessee, the Guarantor and/or any other person other than the Parent, the Borrower or a Sub-Borrower or person who becomes the Parent, the Borrower or the Sub-Borrower in accordance with this Agreement and whether pursuant to the terms of the relevant Lease or otherwise howsoever); 31 "SUB-BORROWER SALE PROCEEDS" means, in relation to a Sub-Borrower, the aggregate amount of:- (a) all consideration (whether cash or otherwise) received and retained by or on behalf of the Borrower (including a sale after an Acceleration Event by a Receiver on behalf of the Borrower appointed under the Borrower Debenture or the Security Trustee) upon or as a result of the Sub-Borrower Sale of the shares in such Sub-Borrower; (b) any cash received and retained as a result of the sale by the Borrower (including a sale after an Acceleration Event by a Receiver on behalf of the Borrower appointed under the Borrower Debenture or the Security Trustee) of its right, title and interest in and to any agreement for the Sub-Borrower Sale of the shares in such Sub-Borrower or any non-cash consideration received by either of them as a result of the Sub-Borrower Sale of the shares in such Sub-Borrower; (c) if a Sub-Borrower Sale proceeds to completion, any non-refundable deposit (not otherwise included under clause (a) or (b) above) in relation to such Sub-Borrower Sale paid to or for the account of the Borrower (including a sale after an Acceleration Event by a Receiver on behalf of the Borrower appointed under the Borrower Debenture or the Security Trustee) by a person acquiring or proposing to acquire the shares in such Sub-Borrower under a contract or offer to purchase or otherwise acquire it which has been withdrawn, terminated or cancelled or has lapsed; (d) if an Acceleration Event has occurred, any non-refundable deposit paid to or for the account of the Borrower (including a sale after an Acceleration Event by a Receiver on behalf of the Borrower appointed under the Borrower Debenture or the Security Trustee) by a person acquiring or proposing to acquire the shares in such Sub-Borrower under a contract or offer to purchase or otherwise acquire it which has been withdrawn, terminated or cancelled or has lapsed; "SUB-BORROWER SECURITY DEPOSIT ACCOUNT" means, in respect of a Sub-Borrower, such Dollar account with Wells Fargo Bank or Bank of America in California or such other account outside the United Kingdom with another financial institution approved by the Security Trustee (such approval not to be unreasonably withheld); "SUB-LEASE" means, in respect of an Aircraft, any sub-lease agreement entered into between a Lessee and a Sub-Lessee; "SUB-LESSEE" means, in respect of an Aircraft the sub-lessee as permitted by the terms of the relevant Lease; "SUBORDINATED LIABILITIES" means all present and future amounts, liabilities and obligations payable or owing by any Obligor (other than the Guarantor) to the Subordinated Lender or the Guarantor whatsoever (whether actual or contingent, jointly or severally or otherwise howsoever) other than any amounts, liabilities or obligations payable or owing by any Obligor (other than the Guarantor) to the Subordinated Lender by virtue of any right of subrogation or indemnity arising as a result of the making of a 32 payment by the Guarantor under Clause 5 (Guarantee and Indemnity) of all or any part of any amount demanded under Clause 5 (Guarantee and Indemnity) (in which case the provisions of Clause 5.7 (Preservation Rights) shall apply) but including (a) all amounts owing under all intercompany loan arrangements between the Subordinated Lender and the Borrower or any other Obligor (other than the Guarantor) by reason of the Subordinated Lender (i) paying or being deemed to have been paid the balance of the Aircraft Purchase Price for each Aircraft pursuant to Clause 2.4 (Purpose), and (ii) making payments of principal and of interest on each Loan at the direction of the Borrower in or towards satisfaction of the Borrower's obligations under Clause 4 (Repayment and Prepayment) and (iii) paying any other amounts in or towards satisfaction of any other obligation of the Borrower or any other Obligor (other than the Guarantor) under the Transaction Documents, and (b) any dividend payable on or other distribution in respect of, shares of the Borrower, any Sub-Borrower or any Intermediate Lessee (including any payment of surplus); "SUBSIDIARY" means any person of which or in which the Guarantor and its other Subsidiaries own directly or indirectly more than 50% of:- (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such person, if it is a corporation; (b) the capital interest or profits interest of such person, if it is a partnership, limited liability company, joint venture or similar entity; or (c) the beneficial interest of such person, if it is a trust, association or other unincorporated organisation; "SUBSTANTIVE LAW CHANGE" means, in each case after the date of this Agreement, the introduction, abolition, withdrawal or variation of any applicable law or regulation or any change in any interpretation, or the introduction or making of any new or further interpretation, by any court, tribunal, governmental, revenue, international, national, fiscal or other competent authority such as to affect any Master Opinion and so rendering it materially incorrect or misleading; "SUPPORT AGREEMENTS" means, in relation to a Utilisation, together (i) the Support Agreement to be entered into between ECGD and the British Lenders and (ii) the Promesse de Garantie and the Police d'Assurance Credit to be entered into between COFACE and the French Lenders and (iii) the Finanzkreditgarantie-Erklarung to be entered into between HERMES and the German Lenders; "TAX" means all present and future taxes, charges, imposts, duties, levies, deductions, withholdings or fees of any kind whatsoever, or any amount payable on account of or as security for any of the foregoing, payable at the instance of or imposed by any statutory, governmental, international, state, federal, provincial, local or municipal authority, agency, body or department whatsoever, or European Union institution, together with any penalties, additions, whether fines, surcharges or interest relating thereto; and "TAXES" and "TAXATION" shall be construed accordingly; "TAX LIABILITY" means, in respect: 33 (a) any liability or any increase in the liability of that person to make any payment or payments of or in respect of Tax; (b) the loss or setting off against income, profits or gains or against any liability to make a payment or payments of or in respect of Tax of any relief, allowance, deduction or credit in respect of Tax (a "RELIEF") which would otherwise have been available to that person; and (c) the loss or setting off against any liability to make a payment or payments of or in respect of Tax of a right to repayment of Tax which would otherwise have been available to that person, and in any case falling within (b) or (c) above the amount that is to be treated as a Tax Liability shall be determined as follows: (i) in a case which falls within (b) above and where the Relief that was the subject of the loss or setting off was or would have been a deduction from or offset against Tax, the Tax Liability shall be the amount of that Relief; (ii) in a case which falls within (b) above and which involves the loss of a Relief which would otherwise have been available as a deduction from or offset against gross income, profits or gains the Tax Liability shall be the amount of Tax which would (on the basis of the Tax rates current at the date of the loss and assuming that the person has sufficient gross income, profits or gains to utilise the Relief) have been saved but for the loss of the Relief; (iii) in a case which falls within (b) above and which involves the setting off of a Relief which would otherwise have been available as a deduction from or offset against gross income, profits or gains, the Tax Liability shall be the amount of Tax which has been or will be saved in consequence of the setting off; (iv) in a case which falls within (c) above, the Tax Liability shall be the amount of the repayment that would have been obtained but for the loss or setting off; and for the purposes of this definition any question of whether or not any relief, allowance, deduction, credit or right to repayment of Tax has been lost or set off, and, if so, the date on which that loss or set off took place, shall be certified by the relevant Lender or, as the case may be, the Representative; "TECHNICAL RECORDS" means, in respect of an Aircraft, all technical data, manuals, computer records, logbooks and other records required to be maintained pursuant to any law or regulation or any requirement for the time being of the applicable Aviation Authority and relating to that Aircraft or, any relevant Engine or Part; "TERMINATION EVENT" means each of the events set out in Clause 10.1 (Termination Events); "THIRD TRIGGER EVENT" means the long term debt obligations of the Guarantor becoming rated below BBB- if and as rated by Standard & Poor's Corporation or BAA3 if and as rated by Moody's Investor Service, Inc., or an equivalent by an alternative service of equivalent 34 recognition (if neither Standard & Poor's Corporation nor Moody's Investor Service, Inc. has assigned any rating) or ceasing to be rated by any agency; "TO LESSEE" shall have the meaning given thereto in Clause 7.2.2; "TOTAL COMMITMENTS" means the aggregate from time to time of all of the Commitments; "TOTAL LOSS" means any of the following in relation to the Aircraft or the Airframe and "TOTAL LOSS DATE" means the date set forth in parenthesis at the end of each sub-clause: (a) destruction, damage beyond repair or being rendered permanently unfit for normal use for any reason (the date such event occurs or, if not known, one hundred and eighty (180) days after the date on which the Aircraft or Airframe was last heard of); (b) constructive, compromised, arranged or agreed total loss (the date on which the insurers make payment of the full amount of the total loss proceeds on the basis of a total loss); (c) requisition for title, or other compulsory acquisition of title for any reason (exclusive of requisition for use or hire) (the date on which the same takes effect); (d) sequestration, confiscation, forfeiture, seizure, restraint, detention, hijacking or theft for any reason, in any case resulting in loss of possession by the Borrower, any Sub-Borrower, any Intermediate Lessee, the Lessee and the Sub-Lessee for a period being in excess of one hundred and eighty (180) consecutive days (the earlier of the date on which the insurers make payment of the total loss proceeds on the basis of the total loss and the expiry of such one hundred and eighty (180) day period); (e) requisition for use by a Government Entity (other than a Government Entity in the state of registration or in the jurisdiction in which the Lessee, a Sub-Lessee, Intermediate Lessee, the relevant Sub-Borrower or the Borrower has its principal place of business) for more than one hundred and eighty (180) consecutive days (the earlier of the date on which the insurers make payment on the basis of a total loss proceeds and the expiry of such one hundred and eighty (180) day period); or (f) the completion or closing of any sale of the Aircraft in connection with overdue and unpaid Eurocontrol charges (the date on which the completion or closing of such sale occurs). "TOTAL LOSS PROCEEDS" means the proceeds of the hull Insurances in respect of an Aircraft or any compensation for a Compulsory Acquisition of an Aircraft, with respect to a Total Loss; "TRANCHE A" shall, in relation to a Utilisation, have the meaning given thereto in Clause 3.6 (Repayment Schedules); "TRANCHE B" shall, in relation to a Utilisation, have the meaning given thereto in Clause 3.6 (Repayment Schedules); 35 "TRANSACTION" means the transaction contemplated by the Transaction Documents; "TRANSACTION DOCUMENTS" means, collectively the Facility Documents and the Aircraft Operative Documents in respect of each Aircraft financed (from time to time) under the Facility; "TRANSFER CERTIFICATE" means a certificate in the form set out in Schedule 2; "TRANSFEREE" shall have the meaning given thereto in Clause 18.3 (Transfer Certificates); "TRANSFEROR" shall have the meaning given to such term in Clause 18.3 (Transfer Certificates); "UNUTILISED FACILITY" means, at any time, the lesser of (i) the Total Commitments and (ii) Four billion three hundred twenty seven million two hundred and sixty thousand Dollars (US$4,327,260,000) as such amount may have been reduced by (a) the amount of each Advance made before such time and (b) the amount of each reduction made to the Facility Amount pursuant to Clause 2.5.2 or 2.5.3 (Reduction and Cancellation of the Facility); "UTILISATION" means each utilisation of the Facility pursuant to Clause 3 (Utilisation of the Facility) or, as the context may require, the amount referred to in a Utilisation Notice as being that part of the Facility Amount in Dollars allocated by the Borrower for financing of the Aircraft referred to in that Utilisation Notice; "UTILISATION DATE" means, in relation to a Utilisation, the Banking Day upon which the Advance relating to that Utilisation is made available to the Borrower in accordance with Clause 3.7 (Disbursement of the Loan) or under Clause 3.7.6 (Disbursement of the Loan), and otherwise subject to the terms and conditions of this Agreement; "UTILISATION DOCUMENTATION" means, in respect of a Utilisation, all documents entered into by the relevant parties to give effect to the financing of the Aircraft the subject matter of the Utilisation as specified in Paragraph 2 Part I of Schedule 6; "UTILISATION NOTICE" means any notice given by the Borrower pursuant to Clause 3.1 (Utilisation Notices) and substantially in the form of Schedule 3; "VALUE ADDED TAX" means value added tax as provided for in the United Kingdom Value Added Tax Act 1994 and legislation (whether delegated or otherwise) supplemental thereto or in any primary or subordinate legislation promulgated by the European Union or any body or agency thereof and any Tax similar or equivalent to value added tax imposed by any country other than the United Kingdom and any similar or turnover tax replacing or introduced in addition to any of the same; "WARRANTIES" means each of: (a) the benefit of the rights with respect to the Aircraft under clause 12 (Warranties and Service Life Policy) of the General Terms Agreement; (b) the rights with respect to the Aircraft under clause 13 (Patent Indemnity) of the General Terms Agreement; and 36 (c) to the extent actually assigned by the Guarantor in its absolute discretion to the Borrower or relevant Sub-Borrower, as the case may be, the rights with respect to the Aircraft under the Product Support Agreement (Exhibit E) applicable to the Purchase Agreement; "1994 FACILITY AGREEMENT" means the aircraft facility agreement dated 28th January 1994 and made between (1) the banks and financial institutions named therein, (2) National Westminster Bank Plc (as Agent), (3) National Westminster Bank Plc (as Security Agent), (4) Bravo Leasing Limited, (5) ILFC (Bermuda) 4, Ltd., (6) ILFC (Bermuda) 5, Ltd., (7) ILFC (Bermuda) 6, Ltd and (8) International Lease Finance Corporation as amended and supplemented from time to time; and "1995 FACILITY AGREEMENT" means the aircraft facility agreement dated 14th December, 1994 between (1) the banks and financial institutions named therein, (2) National Westminster Bank Plc (as Agent), (3) National Westminster Bank Plc (as Security Agent), (4) Encore Leasing Limited, (5) ILFC (Bermuda) 7, Ltd., (6) ILFC Ireland 2 Limited, (7) ILFC (Bermuda) 5, Ltd., (8) ILFC Ireland 3 Limited, (9) ILFC (Bermuda) 6, Ltd and (10) International Lease Finance Corporation as amended and supplemented from time to time. 1.2 Any and all other words and expressions defined in this Agreement shall, unless the context otherwise requires or there is express provision to the contrary, have the same meanings when used in any of the other Transaction Documents. 1.3 Clause headings and the table of contents are inserted for convenience of reference only and shall be ignored in the interpretation of this Agreement. 1.4 In this Agreement and each of the other Transaction Documents unless the context otherwise requires:- (a) references to Clauses, Articles, Schedules and Appendices are to be construed as references to the Clauses of, Articles of, Schedules to, and Appendices to this Agreement, each of the other Transaction Documents, as applicable, and references to this Agreement, each of the Transaction Documents including their respective Schedules and Appendices; (b) references to (or to any specified provision of) this Agreement, each of the other Transaction Documents or any other document shall be construed as references to this Agreement, that other Transaction Document, that document or that provision as in force for the time being and as amended, supplemented, novated or substituted from time to time in accordance with the terms hereof or thereof; (c) references to any law or enactment shall be deemed to include references to such law or enactment as re-enacted, amended, extended, consolidated or replaced and any orders, decrees, proclamations, regulations, instruments or other subordinate legislation made thereunder; (c) words importing the plural shall include the singular and vice versa; (d) words importing any gender shall be construed as including every gender; 37 (e) references to a person shall be construed as including references to an individual, company, corporation, firm, partnership, consortium, joint venture, association, organisation, authority or other unincorporated body of persons, trust or any state or government or international organisation or agency, European Union institution, committee or department, or any instrumentality, agency or political sub-division thereof or authority, board or body created or constituted thereby (in each case, whether or not having separate legal personality); (f) the words "other" and "otherwise" shall not be construed ejusdem generis with any foregoing words where a wider construction is possible; (g) the Borrower, each of the other Obligors, the Agent, the Security Trustee, and each of the Lenders shall include their respective successors and permitted assigns and permitted transferees; and (h) the words "including" and "in particular" shall be construed as being by way of illustration or emphasis only and shall not be construed as, nor shall they take effect as, limiting the generality of any foregoing words. 2. AVAILABILITY 2.1 FACILITY Subject to the terms and conditions of this Agreement and in reliance on the representations and warranties of the Borrower, each Sub-Borrower, the Parent, each Intermediate Lessee and the Guarantor set out in Clause 6 (Representations and Warranties), the Lenders hereby grant and undertake to make available to the Borrower a loan facility in the maximum principal amount equal to the lesser of (i) the aggregate of eighty-five per cent. (85%) of the Aircraft Purchase Price for each of the Eligible Aircraft and (ii) Four billion three hundred twenty seven million two hundred and sixty thousand Dollars (US$4,327,260,000) (the "FACILITY AMOUNT"). 2.2 AVAILABILITY PERIOD The Facility shall be available for drawdown at any time during the Availability Period on the terms and subject to the conditions of this Agreement. 2.3 NUMBER AND COMPOSITIONS OF ADVANCES 2.3.1 The Facility shall be available in multiple Advances, each in respect of one Eligible Aircraft. 2.3.2 The maximum amount of an Advance in respect of an Aircraft shall be the lesser of:- (a) the Unutilised Facility at the time when the Advance is made; and (b) eighty-five per cent. of the Aircraft Purchase Price relating to that Aircraft. 38 2.3.3 Subject to the terms and conditions of this Agreement and the relevant Loan Supplement, the British Lenders, the French Lenders and the German Lenders shall participate in each Advance through their respective Lending Offices in certain proportions, to be determined as follows:- (a) if the Eligible Aircraft and Engine type for each Utilisation is as specified in Schedule 4, the proportions of each Advance to be provided by the British Lenders, the French Lenders and the German Lenders shall be as set out in the columns headed "Assumed British Lenders' Portion", "Assumed French Lenders' Portion" and "Assumed German Lenders' Portion" (respectively) in Schedule 4; and (b) if the Eligible Aircraft type or the Engine type in respect of any Utilisation is not as specified in Schedule 4, the proportions of the relevant Advance to be provided by the British Lenders, the French Lenders and the German Lenders shall be determined by agreement pursuant to Clause 3.2.2 (Loan Supplements) between the Lead Managers and the Export Credit Agencies and the Agent shall notify the Borrower thereof. 2.4 PURPOSE 2.4.1 Each Advance shall be used by the Borrower solely for the purpose of financing the acquisition, and contributing towards the Aircraft Purchase Price, of an Eligible Aircraft. The balance of the Aircraft Purchase Price for each Aircraft in excess of the relevant Advance shall be paid or shall have been paid directly to the Seller on or before the relevant Delivery Date in accordance with the relevant Purchase Agreement, which payment shall be funded or (to the extent that the relevant payment has already been made) deemed to have been funded by the Subordinated Lender, whose rights in respect of the relevant payment shall form part of the Subordinated Liabilities. 2.4.2 If a Sub-Borrower is to take title to an Aircraft, the Borrower will fund the Sub-Borrower's purchase of the Aircraft by way of an inter-company loan. 2.5 REDUCTION AND CANCELLATION OF THE FACILITY 2.5.1 The availability of Utilisations has been predicated on the basis that each of the Eligible Aircraft will be delivered during the Scheduled Delivery Month for such Eligible Aircraft specified in Schedule 4 Part I and accordingly the Borrower shall promptly, following receipt of notice from or agreement with, the Seller, notify the Agent of any change in the Scheduled Delivery Month for an Eligible Aircraft. Upon receipt by the Agent of such notice, and provided that the new Scheduled Delivery Month falls within the Availability Period, the Scheduled Delivery Month for the relevant Eligible Aircraft shall be amended accordingly and thereafter Schedule 4 Part I shall be read and construed as so amended. 2.5.2 If the Borrower fails to provide a Utilisation Notice with respect to an Eligible Aircraft before the relevant Delivery Date, the Facility Amount shall be reduced by an amount equal to the Assumed Financed Amount for that Eligible Aircraft. 2.5.3 Without prejudice to the provisions of Clause 2.5.2, the Borrower may at any time and from time to time give notice to the Agent that it wishes to cancel the Facility in relation to any one or more of the Eligible Aircraft. Following receipt of such notice by the Agent, 39 the Facility Amount shall be reduced by an amount equal to the Assumed Financed Amount for that Eligible Aircraft specified in the Borrower's notice and the Borrower shall not thereafter be entitled to serve a Utilisation Notice or receive an Advance in respect of any such Eligible Aircraft. 2.5.4 Any reduction in the Facility Amount pursuant to Clauses 2.5.2 or 2.5.3 shall reduce the Commitments of the British Lenders, the French Lenders and the German Lenders by the amount specified in the columns in Schedule 4 Part I entitled "Assumed British Lenders Proportion", "Assumed French Lenders Proportion" and "Assumed German Lenders Proportion" in relation to each relevant Eligible Aircraft and the Commitment of each Lender shall be reduced by such proportion of the reduction in the Commitment of the British Lenders, the French Lenders or, as the case may be, the German Lenders as is equal to the proportion which the Commitment of such Lender bears to the aggregate Commitments of the British Lenders, the French Lenders or, as the case may be, the German Lenders. Schedule 4 Part I shall be amended to reflect any additions of Airbus aircraft referred to in the definition of Eligible Aircraft. 2.5.5 Upon the expiry of the Availability Period, the Unutilised Facility (if any) then remaining shall be cancelled. 2.6 CURRENCY The Advances shall be made available wholly in Dollars. 2.7 AMOUNT 2.7.1 The British Lenders severally agree to advance the British Credits to the Borrower in an aggregate amount not exceeding one billion one hundred and twenty-three million Dollars (US$1,123,000,000). 2.7.2 The French Lenders severally agree to advance the French Credits to the Borrower in an aggregate amount not exceeding one billion nine hundred and seventy-five million dollars (US$1,975,000,000). 2.7.3 The German Lenders severally agree to advance the German Credits to the Borrower in an aggregate amount not exceeding one billion two hundred and twenty-nine million, two hundred and sixty thousand Dollars (US$1,229,260,000). 2.7.4 Subject to the provisions of Clauses 2.7.1, 2.7.2 and 2.7.3, the Borrower shall be entitled to finance, pursuant to this Agreement, the acquisition of Eligible Aircraft from the Seller which differ from those set out in Schedule 4, provided always that the total of all Advances shall not exceed the Facility Amount. 2.8 SEVERAL OBLIGATIONS 2.8.1 The obligation of each Lender to make its Commitment or any part thereof available and to perform its obligations in respect of any Utilisation are several and not joint. The failure of any Lender to perform its obligations under this Agreement or any Loan Supplement shall neither:- 40 (i) result in any of the Agent, the Security Trustee or any other Lender assuming any additional obligation or liability whatsoever; or (ii) relieve the Agent, the Security Trustee or any of the Lenders from their respective obligations under any Transaction Document. PROVIDED that: (a) if a Lender fails to fund its Relevant Proportion of an Advance two (2) Business Days prior to the Scheduled Delivery Date, the relevant Lead Manager shall use all reasonable endeavours to persuade the relevant Lender to fund its Relevant Proportion of such Advance; and (b) if, notwithstanding the reasonable endeavours of the relevant Lead Manager, a Lender fails to fund its Relevant Proportion of an Advance by 5pm (New York time) on the Scheduled Delivery Date and such Advance has nevertheless been made available to the Borrower either by the relevant Lead Manager (acting in its absolute discretion) through the Agent or by the Agent with the agreement of the relevant Lead Manager and unless the Lenders fails to fund its Advance in the interim (which it will be obligated to do), the Borrower shall on the date which is three (3) Business Days after receipt by the Borrower of the Agent's first written demand, pay (without any Make-Whole Amount and Expenses (if any)) to the Agent an amount equal to the defaulting Lender's Relevant Proportion of the relevant Advance by way of prepayment and if appropriate the Agent shall in turn remit the prepayment to the relevant Lead Manager. Neither the foregoing nor any other provision hereof shall not be construed as relieving a defaulting Lender from liability for failure to perform its obligations hereunder and the Borrower shall have all rights and remedies available at law or in equity with respect to any Lender's failure to perform its obligations hereunder. 2.8.2 Nothing contained in any Transaction Documents shall constitute a partnership, association, joint venture or other entity between any two or more of the Lenders or Representatives. 2.9 CONDITIONS PRECEDENT PRIOR TO FIRST UTILISATION 2.9.1 The obligations of each of the Lenders, the Agent and the Security Trustee under this Agreement shall be subject to the following conditions precedent having been fulfilled to the satisfaction of, or waived in writing by, the Agent that the Agent shall have received: (A) on or before the date of this Agreement:- (a) evidence of the corporate existence of the Borrower; (b) a definitive draft of a legal opinion from Appleby, Spurling & Kempe, Bermudan counsel to the Lenders; (c) a definitive draft of a legal opinion from Buchalter Nemer, Fields & Younger, Californian counsel to the Lenders; 41 (d) a definitive draft of a legal opinion from in-house counsel to the Guarantor; (e) a definitive draft of a legal opinion from Wilde Sapte, English counsel to the Lenders; (B) no later than five (5) Business Days before the first Utilisation: (a) a certificate signed by a director of the Borrower setting out the specimen signature of those persons authorised to sign the Transaction Documents to which the Borrower is or is to be a party and attaching and certifying as true copies of the originals, copies of: (i) the Borrower's Constitutional Documents; (ii) the resolutions of the board of directors of the Borrower approving the execution and performance by the Borrower of each Transaction Document to which the Borrower will or may be a party; and (iii) a power of attorney appointing those persons authorised to sign on behalf of the Borrower each Transaction Document to which the Borrower is, or may, be a party; (b) a secretary's or an assistant secretary's certificate of the Guarantor setting out the specimen signature of those persons authorised to sign the Transaction Documents to which the Guarantor is a party and attaching thereto, and certifying as true copies of the originals:- (i) the articles of incorporation and bylaws of the Guarantor; and (ii) the resolutions of the board of directors of the Guarantor approving the entry into by the Guarantor of the Transaction Documents to which the Guarantor is or will be a party; (c) a certificate of the secretary or assistant secretary of the Parent setting out the specimen signature of those persons authorised to sign the Transaction Documents to which the Parent is a party and attaching thereto, and certifying as true copies of the originals:- (i) the articles of incorporation and by-laws of the Parent; and (ii) the resolutions of the board of the Parent approving the entry into by the Parent of the Facility Documents to which the Parent is or is to be a party and the entry into by the Parent of each of the Aircraft Operative Documents to which the Parent is or will be a party; 42 (d) extracts of the General Terms Agreement and the Engines Agreements containing the Warranties and the Engine Warranties respectively; (e) a duly executed original of the Charge Over Shares of the Borrower, together with certified copies of the minute books, and the share register (if any) of the Borrower and the originals of the share certificates of the Borrower as referred to therein and duly executed originals of the letters of resignation, irrevocable proxy and undated share transfer forms referred to therein; (f) a duly executed original of the Borrower Debenture; (g) a certificate of tax exemption in respect of the Borrower from the appropriate Bermudan authorities; (h) Bermuda Monetary Authority consent in respect of the Charge Over Shares of the Borrower; and (i) evidence that each of the Borrower Accounts have been opened and that ten Dollars has been deposited in each such Borrower Account. 2.10 MASTER OPINIONS 2.10.1 It is acknowledged and agreed between the parties hereto (including any subsequent acceding parties to any of the Transaction Documents) that, subject to Clause 2.10.3, when a Utilisation further to the first Utilisation (a "FURTHER UTILISATION") is proposed to be drawn by the Borrower for the purpose of financing the acquisition of an Eligible Aircraft by the Borrower or, as the case may be, a Sub-Borrower on the basis of Utilisation Documentation that is in the same form (mutatis mutandis) as that which is the subject of the relevant Master Opinion, then, provided that no Second Trigger Event has occurred and is continuing and that the Borrower has given its certificate in accordance with the provisions of Clause 3.1.1(B) in relation to such Further Utilisation, subject to paragraph 4 of Part I to Schedule 6, it will not be a condition precedent to that Further Utilisation by the Borrower that further legal opinions in relation to the Utilisation Documentation which relates to that Further Utilisation be provided on or before the relevant Utilisation Date. 2.10.2 Subject to Clause 2.10.3, the Borrower and the Agent shall each use all reasonable endeavours to procure that its respective counsel which are to be the providers of the Master Opinions confirm in their relevant Master Opinion that in relation to any Further Utilisation that if the Utilisation Documentation which relates to the relevant Further Utilisation ("FURTHER UTILISATION DOCUMENTATION") is in the same form (mutatis mutandis) as the previous Utilisation which was the subject of the relevant Master Opinion and the Borrower gives its certificate in accordance with Clause 3.1.1(B) in relation to such Further Utilisation Documentation, then the relevant Master Opinion (but subject to the assumptions, reservations and qualifications therein contained) shall be deemed to relate to such Further Utilisation Documentation. Each of the Master Opinions shall be periodically reaffirmed or updated and reissued in accordance with the provisions of Clause 7.1(s) (Undertakings and Covenants). 43 2.10.3 If, with respect to a Further Utilisation: (a) there is a breach in the Guarantor's representation and warranty contained in Clause 6.1(n) (Guarantor's Representations and Warranties) which pursuant to Clause 6.3 (Repetition) is deemed to be repeated on the date of the relevant Utilisation Notice; or (b) the Borrower is unable to or fails to provide a certificate which complies in full with Clause 3.1.1(B) (Utilisation Notices); or (c) the provider of any Master Opinion ("PROVIDER") at any time from the date of the relevant Utilisation Notice to (but including) the date on which the filing or the registration of the relevant Mortgage is completed in the jurisdiction of the Borrower or a Sub-Borrower (as the case may be), notifies either Representative that if the Provider were to issue a legal opinion in the terms of its Master Opinion in relation to the Further Utilisation, such opinion would be materially incorrect or misleading as to the legality, validity or enforceability of the relevant Loan, any of the material rights of the Lenders and/or Representatives thereunder or of a material element of the relevant security package as contemplated by the Aircraft Security Documents in relation to the relevant Loan; or (d) any of the Utilisation Documentation proposed to be used for the purposes of such Further Utilisation is not in the same form (mutatis mutandis) as that which is the subject of a Master Opinion; then, in any such case, the relevant Master Opinion shall not apply and, without prejudice to Clause 14.3 (Illegality), the Borrower shall take all such steps within its control as are reasonably required to enable the Provider to issue, on the instructions of the Agent, its revised opinion (the Expense of which shall be borne by the Borrower) in form and substance satisfactory to the Agent. Until a new relevant opinion is issued, the inapplicability of the relevant Master Opinion shall constitute a failure of a condition precedent for that Utilisation (if it has not then been made) and for future Utilisations in relation to which the relevant Master Opinion would (but for the operation of this Clause 2.10.3) have applied for the purposes of Clause 2.10.1, by giving notice in writing to that effect to the Borrower. 2.10.4 Without prejudice to the provisions of Clause 7.1(s) (Undertakings and Covenants), if, in its good faith opinion, the Agent has reason to believe that a Substantive Law Change has occurred since the date of the applicable Master Opinion that would result in Clause 14.3 (Illegality) becoming applicable, the Agent may at any time request in writing the Provider of the applicable Master Opinion to provide it with a revised opinion as to the portion of the Master Opinion affected by any such Substantive Law Change in a form and substance satisfactory to the Agent, and if such a Substantive Law Change has occurred and if the Provider so provides such a revised opinion, the Borrower shall pay the Expense of such revised opinion. Subject to Clause 14.3 (Illegality) upon such occurrence, the Agent shall be entitled to obtain the re-issue of all Master Opinions affected by such revised opinion in replacement of the existing Master Opinions and the Borrower shall pay the Expense of such replacement Master Opinions so that they relate to all affected Aircraft previously delivered (covered by the original Master Opinions) as well as to Further Utilisations. 44 3. UTILISATION OF THE FACILITY 3.1 UTILISATION NOTICES 3.1.1 In order to effect a Utilisation under this Agreement the Borrower shall serve a Utilisation Notice upon the Agent; (A) identifying: (i) the proposed Utilisation Date which shall be a Business Day within the Availability Period not less than five (5) Business Days (or such shorter period as the Majority Lenders, in any particular case, may agree) after the date of service of such notice PROVIDED that if a Sub-Borrower and/or an Intermediate Lessee is to be used in the structure for such Utilisation, the proposed Utilisation Notice shall be served upon the Agent at least twenty (20) Business Days prior to the proposed Utilisation Date unless (i) the proposed Sub-Borrower or Intermediate Lessee shall be established in a Regular Jurisdiction in which case the proposed Utilisation Notice shall be served upon the Agent at least ten (10) Business Days prior to the proposed Utilisation Date, or (ii) the proposed Sub-Borrower or Intermediate Lessee has already acceded to this Agreement prior to the date of the Utilisation Notice, in which case the Utilisation Notice shall be served on the Agent not less than five (5) Business Days prior to the proposed Utilisation Date; (ii) the amount of the proposed Advance; (iii) the relevant Eligible Aircraft (including its manufacturer's serial number, the proposed registration mark and the type and serial numbers of the Engines to be installed); (iv) if known, the identity of the proposed Lessee of the Aircraft and the jurisdiction in which the Aircraft shall be registered and the principal place of business of the Lessee; (v) subject to Clause 3.1.3, whether a Sub-Borrower and/or an Intermediate Lessee (as the case may be) will be in the structure and whether such Sub-Borrower or Intermediate Lessee will be established in a Regular Jurisdiction or an Irregular Jurisdiction. If a Sub-Borrower and/or an Intermediate Lessee (as the case may be) is required, the Borrower shall provide such details as it is then possible for the Borrower to provide as to the identity and jurisdiction of incorporation of such Sub-Borrower and/or an Intermediate Lessee (as the case may be), and shall request the consent of the Lead Managers and the Borrower thereto in accordance with Clause 3.3.1 (Sub-Borrowers/Intermediate Lessees) if such Sub-Borrower or Intermediate Lessee is to be established in an Irregular Jurisdiction; 45 (vi) the Aircraft Purchase Price; (vii) the total amount of the Loan; and and having attached thereto a certified copy of the latest draft (if any) (or, if the same is then available, a certified copy of the executed version) of the proposed Lease. A Utilisation Notice shall become irrevocable if not revoked on or before the fifth (5th) Business Day prior to the proposed Utilisation Date; and (B) certifying (by the signature of an officer or a director of the Borrower) in the case of any Utilisation after the first Utilisation that: (i) the board minutes of the Borrower and any other relevant Obligor which have previously been the subject of a Master Opinion in respect of a previous Utilisation each remain in effect for the relevant Utilisation or are each in the same form as board minutes which have previously been the subject of a Master Opinion; (ii) the resolutions contained in the minutes referred to in Clause 3.1.1(B)(i) were duly passed in accordance with the Borrower Constitutional Documents or, as the case may be, the constitutional documents of each other relevant Obligor and such resolutions will remain in full force and effect as of the relevant Utilisation Date and any later date on which any Aircraft Security Document is to be entered into in connection with such Utilisation; and (iii) the Transaction Documents in respect of such Utilisation will be signed by one of the officers or directors or attorneys in fact of the Borrower and of each other relevant Obligor as was authorised to sign the Transaction Documents in respect of a previous Utilisation which are the subject of a Master Opinion and the appointments of such officers or directors or attorneys in fact or his or her authority to sign the Transaction Documents in respect of the relevant Utilisation on behalf of the Borrower or any other relevant Obligor has not been or will not be terminated or restricted prior to the due execution of all the Transaction Documents in respect of the relevant Utilisation to which the Borrower or, as the case may be, such other Obligor is or is to be party. 3.1.2 The Borrower may not issue a Utilisation Notice:- (a) if a Relevant Event or Termination Event has occurred and is continuing or would result from the drawdown of the relevant Advance; (b) in respect of any Eligible Aircraft if the delivery of such Eligible Aircraft to the intended Lessee or Sub-Lessee would cause the Borrower to breach Clause 7.2.2 (Leasing and Insurance Covenants of Borrower, Sub-Borrower and Intermediate Lessee); 46 (c) if the Borrower intends that the Eligible Aircraft which the Borrower proposes to be the subject of the relevant Utilisation will be registered in a Prohibited Country, or the jurisdiction of the principal place of business of the intended TO Lessee will be a Prohibited Country, or the jurisdiction of the principal place of business of the intended TO Lessee will be the United States of America. 3.1.3 The Borrower may issue a Utilisation Notice even if the relevant Eligible Aircraft will not be the subject of a Lease or Intermediate Lease on the Delivery Date, provided that the provisions of Clause 7.2.1(b), (c) and (d) (Leasing and Insurance Covenant of Borrower, Sub-Borrower and Intermediate Lessee) shall apply to any such Lease or Intermediate Lease. 3.1.4 The Agent shall: (a) send to each Lender a copy of each Utilisation Notice received from the Borrower which complies with Clause 3.1.1; (b) procure the preparation and circulation to the Lenders and the Borrower of the relevant Utilisation Documentation at least three (3) Business Days prior to the proposed Utilisation Date; (c) if a Sub-Borrower that has not previously acceded to the Agreement is to take title to the Aircraft, procure a definitive draft of an opinion from its legal counsel in the jurisdiction of organisation of such Sub-Borrower at least three (3) Business Days prior to the proposed Utilisation Date regarding the due execution and validity of the relevant Accession Deed, of the relevant Aircraft Security Documents and of other documents as the Representatives may require pursuant to Clause 3.3.3(b) (Sub-Borrowers and Intermediate Lessees); and (d) if an Intermediate Lessee that has not previously acceded to the Agreement is to be incorporated in a structure in relation to a particular Utilisation, procure a definitive draft of an opinion from its legal counsel in the jurisdiction of organisation of such Intermediate Lessee regarding the due execution and validity of the relevant Accession Deed, of the relevant Aircraft Security documents and of other documents as the Representatives may require pursuant to Clause 3.3.3(b) (Sub-Borrowers and Intermediate Lessees). 3.1.5 The Borrower may, at any time on or prior to the Utilisation Date, notify the Agent of any change to the registration mark of the Aircraft or to the identity of the Lessee (including notification that there will not be a Lessee), and any such notification shall not affect the validity of the Utilisation Notice. 3.1.6 The Borrower shall provide the Agent with a certified copy of the executed Lease (if any) and shall provide the Agent with written confirmation of the Aircraft Purchase Price in each case, as soon as the same becomes available from the Seller and in any event not less than three (3) Business Days prior to the proposed Utilisation Date. 47 3.2 LOAN SUPPLEMENTS 3.2.1 The Agent shall prepare the Loan Supplement for each Utilisation by adding the following information to the form set out in Appendix A:- (a) in clause 1.2, the type and serial number of the relevant Aircraft; (b) in clause 2.1(a), the amount of the Advance; (c) in clause 2.1(b), the amount of the British Credits; (d) in clause 2.1(c), the amount of the French Credits; (e) in clause 2.1(d), the amount of the German Credits; (f) in clause 4, the applicable blended rate for the relevant Loan (as agreed pursuant to Clause 3.2.2); (g) in clause 5, the proposed Utilisation Date; and (h) in Parts A, B and C of schedule 2, part I, the assumed repayments (calculated in accordance with Clause 3.6) for the British Lenders, the French Lenders and the German Lenders (respectively) and in schedule 2, part II a summary of the aggregate amount payable by the Borrower on each Repayment Date. 3.2.2 Not less than three (3) Business Days before the proposed Utilisation Date the Agent and the Lead Managers shall (i) confirm the proportions of the relevant Advance to be provided by the British Lenders, the French Lenders and the German Lenders respectively as set out for the relevant Aircraft in Schedule 4 Part I and (ii) confirm the applicable interest rate to be provided for in the relevant Loan Supplement. The Agent shall provide an execution version of the Loan Supplement to the Borrower at least two (2) Business Days prior to the Utilisation Date. 3.2.3 The Agent, the Borrower and any Sub-Borrower or any Intermediate Lessee (as applicable) shall, not less than one Business Day prior to the proposed Utilisation Date, execute a Loan Supplement and the other Utilisation Documents in respect of that Utilisation and the Security Trustee and each Lender hereby authorises and instructs the Agent to execute each Loan Supplement on its behalf. 3.2.4 The Agent shall notify the Borrower if at any time the Agent has determined that all the conditions precedent to funding a particular Utilisation will not be satisfied or waived and in such event will provide to the Borrower a description of the items which remain to be fulfilled. 3.3 SUB-BORROWERS/INTERMEDIATE LESSEES 3.3.1 In respect of the financing of a particular Eligible Aircraft pursuant to the Facility, or the substitution of an Existing Aircraft with a Replacement Aircraft, subject always, in each case, to the provisions of Clause 3.7.4 (Disbursement of the Loan), the Borrower shall be entitled: 48 (a) to cause a Sub-Borrower (which is or is to be established in a Regular Jurisdiction) to take title to that Eligible Aircraft and/or that an Intermediate Lessee (which is or is to be established in a Regular Jurisdiction) be incorporated into the structure; (b) to request that a Sub-Borrower (which is or is to be established in an Irregular Jurisdiction) take title to that Eligible Aircraft and/or that an Intermediate Lessee (which is or is to be established in an Irregular Jurisdiction) be incorporated into the structure. Any such request under paragraph (b) shall be made by the Borrower in the relevant Utilisation Notice and the Agent (acting on the instructions of the Majority Lenders) shall approve a request under Clause 3.3.1(b) in principle or otherwise no later than ten (10) Business Days prior to the proposed Utilisation Date. If the proposed Sub-Borrower or Intermediate Lessee has already acceded to this Agreement prior to the date of the relevant Utilisation Notice, or is organised in a Regular Jurisdiction, the approval of the Agent shall not be required. 3.3.2 Each such Sub-Borrower and/or such Intermediate Lessee shall be a company or trust capable of providing representations and warranties and covenants having substantially the same effect as those given by the Borrower in Clauses 6 (Representations and Warranties) and 7 (Undertakings and Covenants) and each shall be a wholly owned direct Subsidiary of the Borrower, in the case of the Sub-Borrower or a wholly owned direct Subsidiary of a Sub-Borrower or the Borrower in the case of the Intermediate Lessee (in each case, except for shares held by directors, trustees or nominees in order to meet local nationality or other local requirements and which do not have a Material Adverse Effect on any of the Charges over Shares, in favour of the Security Trustee). The Borrower shall use one Intermediate Lessee in any one jurisdiction unless the Borrower has a reason to do otherwise. 3.3.3 If a Sub-Borrower or an Intermediate Lessee has not already acceded to this Agreement and is to be incorporated into the structure then on or prior to the relevant Advance being made: (a) each such Sub-Borrower and/or each such Intermediate Lessee shall accede to this Agreement by executing an Accession Deed and such other Transaction Documents as the Agent in its good faith opinion considers appropriate so that any such Sub-Borrower shall become a party to this Agreement and such of the other Transaction Documents as may be appropriate as if named therein as a party; (b) if the Sub-Borrower or Intermediate Lessee is or will be organised in an Irregular Jurisdiction, each of the applicable Obligors and any such Sub-Borrower organised in an Irregular Jurisdiction and/or any such Intermediate Lessee organised in an Irregular Jurisdiction shall enter into such other documents and provide such security as the Security Trustee may, in its good faith opinion (after taking legal advice from counsel to the Lenders in the jurisdiction of the relevant Sub-Borrower and/or the relevant Intermediate Lessee), require in order to ensure that (i) the Representatives and each of the Lenders are in a position, having a substantially similar effect (including as to their security position) with respect to such Sub-Borrower and/or Intermediate 49 Lessee as they are in with respect to other Sub-Borrowers or other Intermediate Lessees, as the case may be, under the Transaction Documents and (ii) the rights of the Representatives and the Lenders are not materially different than with respect to any Sub-Borrower and/or Intermediate Lessee of a Regular Jurisdiction under the Transaction Documents, it being acknowledged and agreed for the purpose of determining the foregoing matters that (i) any trustee in a United States owner/voting trust will be party to the Transaction Documents not in its individual capacity but solely as trustee, (ii) common law jurisdictions are acceptable and (iii) with respect to civil jurisdictions, the Borrower and the Agent shall negotiate in good faith, to the extent necessary, alternative security to that available in common law jurisdictions which is acceptable to the Security Trustee, acting upon the instruction of the Majority Lenders; (c) upon receipt by the Agent of the Accession Deed signed on behalf of the Borrower, Guarantor, Obligors and by the proposed Intermediate Lessee or Sub-Borrower (as the case may be), the Agent shall sign the same for itself and on behalf of the Lenders and shall as promptly as practicable give notice of such execution to all of the parties to the Accession Deed; and. (d) upon execution of any such Accession Deed, it shall take effect in accordance with, but subject to, the terms hereof and thereof. 3.4 CONDITIONS PRECEDENT TO EACH ADVANCE Each Advance shall be subject to the conditions precedent set out in Parts I and II of Schedule 6. 3.5 CONDITIONS SUBSEQUENT Each Advance shall be subject to the conditions subsequent set out in Part III of Schedule 6. 3.6 REPAYMENT SCHEDULES 3.6.1 Each Advance: (a) shall be divided into two tranches, of which the first tranche ("TRANCHE A") shall be sixty-two point five per cent. of the Aircraft Purchase Price and the second tranche ("TRANCHE B") shall be twenty-two point five per cent. of the Aircraft Purchase Price; and (b) shall amortise as shown in column (5) in Schedule 4 Part II so that the amount outstanding in respect of the Advance (expressed as a percentage of the Aircraft Purchase Price) from time to time is (i) on the Delivery Date of the relevant Aircraft or on a Repayment Date, the percentage shown opposite the Delivery Date or the relevant Repayment Date number in column (5) in Schedule 4 Part II and (ii) in the case of any date other than the Delivery Date or a Repayment Date, the amount (expressed as a percentage of the Aircraft 50 Purchase Price) shown opposite the Repayment Date number immediately preceding such date in column (1) or, in the case of any date preceding the first Repayment Date, the amount (expressed as a percentage of the Aircraft Purchase Price) specified opposite the Delivery Date. 3.6.2 The contents of Schedule 4 are provided for illustration purposes only and are not intended to represent the initial amounts, or the amortisation, of any particular Advance. The repayment profile of each Advance shall be as provided for in the relevant Loan Supplement. 3.6.3 The repayment profiles shown in schedule 2 of the Loan Supplement shall be calculated on the basis of twenty equal repayments of principal on a semi-annual basis (except for the first repayment of principal) together with interest calculated on the relevant Loan outstanding on the relevant Repayment Date at the Contractual Rate. 3.6.4 Each Repayment Instalment and the principal and interest amounts thereof determined in accordance with Clause 3.6 and set out in schedule 2 to the relevant Loan Supplement will be calculated on the assumption that (a) the Utilisation Date will occur on the date specified in the relevant Loan Supplement, (b) the interest rate for the relevant Loan is the rate per annum specified in the Loan Supplement and (c) the total amount of the relevant Loan to be made available to the Borrower on the Utilisation Date will be the Advance. If any such assumption proves to be incorrect, the Agent shall prepare a substitute schedule 2 to the relevant Loan Supplement to replace the existing schedule 2 on the same basis as the initial schedule 2 but with reference to the actual Utilisation Date, the actual rate of interest applicable to the relevant Loan and the actual amount drawn down in respect of the relevant Advance. Such substitute schedule 2 shall be signed by the Agent (for itself and on behalf of the Lenders and the Security Trustee) and the Borrower in substitution for, and shall for all purposes become, schedule 2 to the relevant Loan Supplement. Thereafter all payments of principal and interest in respect of the relevant Loan shall be made in accordance with the substitute schedule 2 to the relevant Loan Supplement. 3.7 DISBURSEMENT OF THE LOAN 3.7.1 On the terms and subject to the conditions of this Agreement, the Lenders severally agree to advance each Loan to the Borrower on the date set forth in the Utilisation Notice as set out below:- (a) the British Lenders severally agree to advance the British Credits to the Borrower; (b) the French Lenders severally agree to advance the French Credits to the Borrower; and (c) the German Lenders severally agree to advance the German Credits to the Borrower. 3.7.2 Each Loan shall be made available in Dollars by payment to the Seller (to such account as the Seller may have specified to the Agent) on behalf of the Borrower. 3.7.3 All payments by the Lenders in respect of the Loan shall be effected on the Delivery Date and as between the British Lenders, the French Lenders and the German Lenders, in the 51 proportions described in Clause 2.3.3 (Number and Composition of Advances) and provided for in the relevant Loan Supplement. 3.7.4 Subject to Parts I, II and III to Schedule 6 and Clause 3.7.6, the Loan shall be made available by each of the British Lenders, the French Lenders and the German Lenders in their respective proportions by payment to the relevant Lead Manager of its Relevant Proportion of the Loan and the Lead Managers shall make the Loan available by one disbursement, through the Agent by 10.00 (New York time), on the date requested by the Borrower if: (a) such date is the Delivery Date and is a Banking Day which falls during the Availability Period; and (b) the Agent shall have received a Utilisation Notice. 3.7.5 Each of the Lead Managers shall send a facsimile to the Agent two (2) Business Days prior to the proposed Utilisation Date attaching a copy of its payment instructions regarding the disbursement of the British Credits, the French Credits and the German Credits (as the case may be). 3.7.6 If, at the Borrower's request (in order that an Aircraft may be delivered outside banking hours New York time) and on receipt by the Agent of the documents required pursuant to Schedule 6 which appear on their face to be in order, the Agent itself delivers or arranges each Lead Manager severally to deliver to the Seller an unconditional and irrevocable undertaking to pay to the Seller an amount equal to the relevant Loan (in the case of an undertaking given by the Agent) or (in the case of such an undertaking of each Lead Manager in respect of a relevant Loan) an amount equal to the British Credits, the French Credits or the German Credits (as the case may be) respectively, on the Delivery Date or (if the Aircraft is to be delivered after the close of New York banking hours on the Delivery Date or the Delivery Date is scheduled to be a day other than a day on which banks in New York are open for business) on the Business Day next succeeding the Delivery Date then, notwithstanding the provisions of Clause 3.7.5, the relevant Loan shall be deemed to have been advanced on the date of such undertaking is delivered and released to the Seller. The Agent shall have no obligation to give such an undertaking to the Seller unless the Agent shall first have received either (i) amounts equal to the British Credits, the French Credits and the German Credits or (ii) corresponding undertakings from each Lead Manager in respect of the British Credits, the French Credits and the German Credits and each Lead Manager shall first have received corresponding undertakings from each relevant Lender in respect of that Lender's Relevant Proportion of the Loan. 3.8 NON-INVASIVE FEATURES 3.8.1 None of the Transaction Documents (except after the occurrence and during the continuation of a Third Trigger Event or a Termination Event) shall be registered, recorded or otherwise filed in any jurisdiction other than the jurisdiction of organisation of the Parent, the Borrower, the relevant Sub-Borrower or relevant Intermediate Lessee. Unless and until a Third Trigger Event or a Termination Event shall have occurred and be continuing (but without prejudice to (a) the provisions of Clause 9.2 (Second Trigger Event) with respect to Advances made during the continuance of a Second Trigger Event in relation to Aircraft then subject to a Lease or an Intermediate Lease and (b) the negative 52 pledge provisions contained in clause 4 of the Borrower Debenture, of each Sub-Borrower Debenture and of each Intermediate Lessee Debenture and in clause 3.8 of each Mortgage), the Borrower, any relevant Sub-Borrower or any relevant Intermediate Lessee shall alone and without any requirement for consent from the Security Trustee or any other person (but without prejudice to Clause 7.4 (Guarantor Covenants)), have all rights, powers, privileges, remedies and other benefits in respect of the Leases, Intermediate Leases and Sub-Leases, and the Warranties and the Engine Warranties, including to amend, supplement, waive or otherwise modify, enforce, extend or terminate a Lease, an Intermediate Lease or a Sub-Lease or to enter into or consent to a new Lease, Intermediate Lease or Sub-Lease or to use, release or modify any Security Deposit, Maintenance Reserves or other support or security, and, subject to the provisions of this Agreement, sell or otherwise transfer any Aircraft or any Sub-Borrower. 3.8.2 Each of the Representatives and the Lenders covenant with the Borrower, any Sub-Borrower and any Intermediate Lessee that, notwithstanding any other provision of the Transaction Documents, at any time so long as no Acceleration Event shall have occurred, not to take any action or cause to be taken any action, or permit any person claiming by, through or on behalf of it to take any action or cause any action, that would interfere with the possession, use, operation and quiet enjoyment of and other rights with respect to any Aircraft and all rents, revenues, profits and income therefrom, including, the right to enforce manufacturers' warranties, the right to apply or obtain insurance proceeds for damage to the Aircraft to the repair of the Aircraft and the right to engage in pooling, leasing and similar actions, in each case in accordance with the terms of this Agreement. 3.8.3 The Security Trustee agrees to release any Lien it may have upon any Engine upon the Borrower providing the Security Trustee with evidence reasonably satisfactory to it that a Replacement Engine has been obtained or upon the Total Loss payment being received (or Replacement Aircraft being provided) or in a case where the Airframe, but not such Engine, was the subject of a Total Loss. 3.8.4 The Security Trustee agrees that it will cooperate with the Borrower in changing the state of registration of any Aircraft at the Borrower's cost and as the Borrower may request provided that such request does not conflict with the Borrower's obligations under this Agreement. 3.8.5 The Security Trustee agrees that it will not claim, and upon the request of the Borrower the Security Trustee will confirm in writing that it does not claim, any right, title or interest in any engine or part (including any audio visual, telephonic, entertainment or similar equipment) that is installed on an Aircraft which does not constitute an Engine or Part. 3.9 ALTERNATIVE UTILISATIONS 3.9.1 The Borrower may, from time to time and by notice to the Agent, request that a Utilisation in respect of an Eligible Aircraft be an Alternative Utilisation, in which case the Borrower shall provide to the Agent such information as the Agent may reasonably request concerning:- (a) the financial structure of the proposed Alternative Utilisation including the tenor, the proposed amortisation schedule and details of the proposed owner of the relevant Aircraft; 53 (b) the proposed security structure, including details of all Liens to be created in respect of the Aircraft or any other property in favour of any relevant party; and (c) the documents proposed to be entered into in relation to such Alternative Utilisation. 3.9.2 The Agent and the Lenders shall consider in good faith but without obligation any request for an Alternative Utilisation provided that the proposed structure confers on the Lenders, the Representatives and the Export Credit Agencies rights which are not materially different from their rights under the Transaction Documents in respect of any other Utilisation (including their respective rights under the relevant Aircraft Security Documents and the Support Agreements and rights of cross-acceleration and cross-collateralisation of Loans), and the Borrower acknowledges that (a) no Lender or Representative shall have any obligation to participate in any Alternative Utilisation except to the extent expressly agreed in any agreement entered into by such Lender or Representative in connection with such Alternative Utilisation and (b) an Export Credit Agency may be unable to support an Alternative Utilisation which utilises tax benefits in its home jurisdiction. 3.10 TAX LEASE The Agent and the Lenders will also consider in good faith, any tax lease proposed by the Borrower (under which the Borrower or Sub-Borrower would, under California law, still be the beneficial owner of the Aircraft) that does not involve an Alternative Utilisation but which may involve a Lien on the Aircraft, and if approved by the Majority Lenders such tax lease shall be permitted hereunder and the representations, warranties and covenants in the Transaction Documents shall be deemed modified accordingly. 4. REPAYMENT AND PREPAYMENT 4.1 PAYMENT OF INTEREST 4.1.1 The Borrower shall pay interest on each Loan for each Interest Period at the fixed rates per annum specified in the relevant Loan Supplement. 4.1.2 Following receipt by the Agent of the Utilisation Notice, not less than two (2) Business Days before the Utilisation Date, the Agent shall confirm to the Guarantor, the Borrower and each Lender the blended rate applicable to the relevant Loan on the basis of the amount requested in the relevant Utilisation Notice. 4.1.3 Interest shall accrue from the Utilisation Date and shall be calculated on the outstanding unpaid principal amount of each Loan on the basis of a year of three hundred and sixty (360) days and the actual number of days elapsed and shall be payable in arrears on each Repayment Date. 54 4.2 REPAYMENT OF PRINCIPAL 4.2.1 The Borrower shall repay each Loan in twenty (20) consecutive semi-annual repayments. Each Repayment Instalment shall comprise principal and accrued unpaid interest and the principal portion thereof shall:- (a) in the case of the British Credits be the aggregate of the amounts set out opposite the relevant Repayment Date in column 4 of Section A of Schedule 2, Part I to the relevant Loan Supplement; (b) in the case of the French Credits be the aggregate of the amounts set out opposite the relevant Repayment Date in column 4 of Section B of Schedule 2, Part I to the relevant Loan Supplement; and (c) in the case of the German Credits be the aggregate of the amounts set out opposite the relevant Repayment Date in Column 4 of Section C of Schedule 2, Part I to the relevant Loan Supplement; it being understood that the first Repayment Date in relation to each Loan shall be the first Business Day succeeding the second Quarter Date following the Delivery Date for the relevant Aircraft. 4.2.2 The principal amount outstanding in respect of each Loan shall amortise to zero in a straight line profile. 4.3 VOLUNTARY PREPAYMENT 4.3.1 The Borrower may voluntarily prepay one or more of the Loans at any time PROVIDED that:- (a) the Agent shall have received from the Borrower not less than seven (7) Business Days' notice (which once given shall be irrevocable) of its intention to make such prepayment specifying the date on which such prepayment is to be made; (b) any such prepayment shall be made in Dollars; and (c) the Borrower shall pay to the Agent (i) the unpaid principal balance of each relevant Loan being prepaid, (ii) all interest on each relevant Loan being prepaid which has accrued to the date of actual prepayment and is unpaid and (iii) the Make-Whole Amount and (iv) Expenses (if any) in respect of each relevant Loan being prepaid as certified in writing by the Agent (which certificate shall be conclusive save for manifest error) providing reasonable details of the computation of such Make-Whole Amount made in accordance with the provisions of Clause 4.3.2 and of the Expenses (if any); and the Agent shall no later than six (6) Business Days prior to the date on which such prepayment is to be made inform each of the Lead Managers of its receipt of the Borrower's notice of prepayment. 55 4.3.2 On the request in writing of the Borrower for a conclusive determination of the Make-Whole Amount in respect of a ten (10) Business Day period in which any prepayment under this Clause 4.3 (Voluntary Prepayment), or Clauses 4.4 (Prepayment following a Total Loss), 4.5 (Prepayment on Final Disposition), 4.6 (Prepayment on a Sub-Borrower Sale), 4.8 (Prepayment if not Leased) or 4.9 (Prepayment if Post-Delivery Modifications not Completed Within Post-Delivery Modification Period) may be made by the Borrower, the Agent shall, within ten (10) Business Days of such request, provide the Borrower with a certificate of its conclusive determination of the Make-Whole Amount (consistent with paragraphs (x) and (y) of the definition of Make-Whole Amount and subject to any necessary rate adjustment referred to below in this Clause 4.3.2) applicable to each Business Day in a period of ten (10) Business Days commencing on the date of such certificate; and no later than one (1) Business Day after the Agent's receipt of such request, the Agent shall arrange for the Lead Manager of the British Credits to provide a list of banks to the Borrower from which the Borrower shall be entitled to nominate three reference banks for the purposes of ECGD's computation of any loss under sub-paragraph (v) of the definition of the Make-Whole Amount but if the Borrower fails to make a choice within two (2) Business Days of its receipt of such list of banks the Lead Manager of the British Credits may select such banks as it may think fit; it being understood, however, that the computation relating to the Make-Whole Amount, in so far as it relates to the French Credits and the German Credits, shall be subject to an adjustment as at the date of actual prepayment an account of any movement of rates between the date of certification and the date of actual prepayment. 4.3.3 No amount prepaid may be re-borrowed. 4.3.4 The Borrower shall pay all amounts due under Clause 4.3.1(c) into the Proceeds Account. 4.3.5 Upon irrevocable receipt in full of the amounts set out in Clause 4.2.1 or Clause 4.3.1 by the Agent, the Security Trustee shall immediately release all the Aircraft Security Documents relating to each relevant Loan (including, with respect to any Sub-Borrower or Intermediate Lessee) and the title to the relevant Aircraft shall immediately be transferred by the Borrower or the relevant Sub-Borrower or the shares in the relevant Sub-Borrower shall immediately be transferred by the Borrower to the Guarantor or to another person which is not a party to any of the Transaction Documents. If the Borrower repays or prepays all the Loans in accordance with Clause 4.2.1 or Clause 4.3.1 and the Secured Obligations (exclusive of indemnities in respect of which no claims have been, or to the knowledge of the Security Trustee will be, asserted) have been paid in full, the Security Trustee shall release all the Aircraft Security Documents. 4.4 PREPAYMENT FOLLOWING A TOTAL LOSS 4.4.1 Subject to Clause 4.7 (Substitution of Aircraft), if at any time a Total Loss occurs in relation to an Aircraft the Borrower shall, on or prior to the expiry of the period of two hundred and ten (210) days commencing on the Total Loss Date or, if earlier, the date upon which the Security Trustee receives the Total Loss Proceeds (in this Clause 4.4 the "TOTAL LOSS PAYMENT DATE"), either:- (a) pay to the Agent the aggregate of (i) the unpaid principal balance of the relevant Loan being prepaid, (ii) all interest on the relevant Loan being prepaid accrued to the actual date of actual prepayment and is unpaid and (iii) the Make-Whole Amount and Expenses (if any) in respect of each relevant Loan 56 being prepaid as certified in writing by the Agent (which certificate shall be conclusive save for manifest error) providing reasonable details of the computation of such Make-Whole Amount made in accordance with the provisions of Clause 4.3.2 and of the Expenses (if any); or (b) substitute the relevant Aircraft (or Sub-Borrower) in accordance with Clause 4.7 (Substitution of Aircraft), and until such repayment or substitution (and, in the case of a substitution, thereafter) the Borrower shall continue to make all payments of principal and interest in respect of the relevant Loan in accordance with this Agreement and the relevant Loan Supplement. 4.4.2 The Borrower shall pay all amounts due under Clause 4.4.1(a) into the Proceeds Account and immediately upon irrevocable receipt of such funds, the Security Trustee shall release the relevant Mortgage and the Borrower Debenture or relevant Sub-Borrower Debenture (as the case may be) in so far as it relates to the relevant Aircraft. 4.4.3 If, at any time prior to the Total Loss Payment Date, an Obligor regains possession of the Airframe after any event within the definition of Total Loss, and, provided the Aircraft is repaired as soon as practicable thereafter, the Borrower shall have the right to notify the Agent to continue the Aircraft under this Facility as if the event giving rise to the Total Loss had never occurred. 4.5 PREPAYMENT ON FINAL DISPOSITION 4.5.1 Subject to Clause 4.7 (Substitution of Aircraft), if the Borrower, or, as the case may be, a Sub-Borrower wishes to sell an Aircraft, the Borrower shall, on or before the date of completion of the Final Disposition, either:- (a) pay to the Agent the aggregate of (i) the unpaid principal balance of the relevant Loan being prepaid (ii) all interest on the relevant Loan being prepaid accrued to the actual date of prepayment that is unpaid and (iii) the Make-Whole Amount and Expenses (if any) in respect of each relevant Loan being prepaid as certified in writing by the Agent (which certificate shall be conclusive save for manifest error) providing reasonable details of the computation of such Make-Whole Amount made in accordance with the provisions of Clause 4.3.2 and of the Expenses (if any); or (b) substitute the relevant Aircraft (or Sub-Borrower) in accordance with Clause 4.7 (Substitution of Aircraft), and until such repayment or substitution (and, in the case of a substitution, thereafter) the Borrower shall continue to make all payments of principal and interest in respect of the relevant Loan in accordance with the terms of this Agreement and the relevant Loan Supplement. 4.5.2 The Borrower shall pay all amounts due under Clause 4.5.1(a) into the Proceeds Account and immediately upon irrevocable receipt of such funds, the Security Trustee shall release the relevant Mortgage and the Borrower Debenture or relevant Sub-Borrower Debenture (as the case may be) in so far as it relates to the relevant Aircraft. 57 4.6 PREPAYMENT ON A SUB-BORROWER SALE 4.6.1 Subject to Clause 4.7 (Substitution of Aircraft), if the Borrower wishes to sell the shares in a Sub-Borrower, the Borrower shall, on or before the date of completion of the Sub-Borrower Sale, either:- (a) pay to the Agent the aggregate of (i) the unpaid principal balance of the relevant Loan being prepaid (ii) all interest on the relevant Loan accrued to the actual date of prepayment that is unpaid and (iii) the Make-Whole Amount and Expenses (if any) in respect of each relevant Loan being prepaid as certified in writing by the Agent (which certificate shall be conclusive save for manifest error) providing reasonable details of the computation of such Make-Whole Amount made in accordance with the provisions of Clause 4.3.2 and of the Expenses (if any); or (b) substitute the relevant Aircraft (or Sub-Borrower) in accordance with Clause 4.7 (Substitution of Aircraft), and until such repayment or substitution (and, in the case of a substitution, thereafter) the Borrower shall continue to make all payments of principal and interest in respect of the relevant Loan in accordance with the terms of this Agreement and the relevant Loan Supplement. 4.6.2 The Borrower shall pay all amounts due under Clause 4.6.1(a) into the Proceeds Account and immediately upon irrevocable receipt of such funds, the Security Trustee shall release the Mortgage in relation to the Aircraft owned by the Sub-Borrower, the relevant Sub-Borrower Debenture and the relevant Charge over Shares of Sub-Borrower. 4.7 SUBSTITUTION OF AIRCRAFT 4.7.1 Subject to no Relevant Event or Termination Event having occurred and continuing, if a Total Loss or a Final Disposition occurs in respect of an Aircraft, or the Borrower sells the shares in a Sub-Borrower, the Borrower or any Sub-Borrower (as the case may be) may substitute for such Aircraft or, as the case may be, the relevant Aircraft owned by such Sub-Borrower (the "EXISTING AIRCRAFT") one or more other Airbus aircraft (the "REPLACEMENT AIRCRAFT") (including by use of a Sub-Borrower) subject always to the provisions of this Clause 4.7. 4.7.2 The Borrower shall give the Security Trustee written notice of its intention to substitute an Existing Aircraft at least twenty (20) Business Days prior to such substitution and, upon receipt of such notice, the Security Trustee shall give a copy of it to the Lead Managers. Such notice shall specify the age of the Replacement Aircraft since delivery by the Manufacturer and whether a Sub-Borrower or an Intermediate Lessee is to be incorporated into the structure. 4.7.3 Each Replacement Aircraft shall be an Airbus aircraft of the same or different type not more than five years older than the Existing Aircraft and of at least the same fair market value (in the aggregate if more than one Replacement Aircraft are being substituted for an Existing Aircraft). If a Replacement Aircraft is one year old or less, then its fair market value will be deemed to be its Aircraft Purchase Price, and if a Replacement Aircraft is 58 more than one year old and the Borrower and the Security Trustee (acting reasonably) are unable to agree the fair market value of such Replacement Aircraft, the Security Trustee may by written notice request the Borrower to appoint an independent aircraft appraiser to assess the fair market value of such Replacement Aircraft without reference to the amount of gross sale proceeds payable to or received by the Borrower or a Sub-Borrower (as the case may be) for the Existing Aircraft or the shares in the Sub-Borrower (as the case may be). The assessment of any such appraiser appointed by the Borrower shall be conclusive and binding on the Borrower and the Security Trustee. 4.7.4 The Borrower shall enter into or shall procure that the relevant Sub-Borrower (if any) or relevant Intermediate Lessee (if any) enters into all such documents as are required in order for the Replacement Aircraft to be an Aircraft including the Aircraft Security Documents in substitution for the Existing Aircraft and for the Loan in respect of the Existing Aircraft to relate to the Replacement Aircraft. 4.7.5 The effectiveness of the substitution of the Replacement Aircraft shall be subject to receipt by the Agent of the following conditions precedent in form and substance satisfactory to the Agent: (a) evidence satisfactory to the Security Trustee (including a legal opinion from counsel to the Lenders in the jurisdiction in which transfer of the Replacement Aircraft takes place) that the Borrower or the relevant Sub-Borrower (as the case may be) has obtained title to the Replacement Aircraft free and clear of any Liens other than Permitted Liens including a certified copy of a Replacement Bill of Sale for the Replacement Aircraft, free of any Liens, other than Permitted Liens; (b) a Mortgage, if applicable, or an alternative security satisfactory to the Security Trustee, acting upon the instructions of the Majority Lenders with respect to the Replacement Aircraft to be executed by the Borrower or the Sub-Borrower (as the case may be) and the Security Trustee; (c) the relevant legal opinions from counsel to the Lenders as provided in paragraph 4 of Part I to Schedule 6. (d) a legal opinion from counsel to the Lenders in the jurisdiction in which the Borrower or the relevant Sub-Borrower (as the case may be) is organised concerning the filing or registration and perfection in that jurisdiction of the Mortgage (or alternative security) with respect to the Replacement Aircraft, the Charge over Shares of Sub-Borrower (if any) and any other Aircraft Security Documents which will be entered into by the Borrower and/or the relevant Sub-Borrower (if any) and the validity of the replacement Sub-Borrower Guarantee; (e) evidence of insurance having been effected in respect of the Aircraft with the Security Trustee named as a contract party and (to the extent possible under AVN67B, or such other endorsement as may be applicable) loss payee; (f) if applicable, copies of the certificate of registration of the Replacement Aircraft and airworthiness issued by the Aviation Authority; 59 (g) evidence that the existing Support Agreements relating to the Existing Aircraft shall have been amended or replaced to such extent (if any) as may be necessary to reflect its substitution by the Replacement Aircraft; (h) if a Sub-Borrower or Intermediate Lessee is introduced upon a substitution into the structure, the following documents: (i) Accession Deed (if such person has not previously acceded to the Transaction Documents); (ii) Sub-Borrower Guarantee (if applicable); (iii) Sub-Borrower Debenture (if applicable); (iv) Intermediate Lessee Debenture (if applicable); (v) Charge Over Shares of Sub-Borrower (if applicable); (vi) Charge Over Shares of Intermediate Lessee (if applicable); (vii) Lease Security Assignment (if applicable); (viii) Intermediate Lease Security Agreement (if applicable); and (i) evidence to the Security Trustee that the Sub-Borrower Accounts or the Intermediate Lessee Accounts (as the case may be) have been opened and that US$10 has been deposited in each of the Sub-Borrower Accounts or Intermediate Lessee Accounts (as the case may be) as a condition precedent to the release of the Mortgage over the Existing Aircraft. 4.7.6 TIMING OF SUBSTITUTION (A) If a substitution is proposed as a result of the Total Loss of an Existing Aircraft, such substitution shall occur within two hundred and ten (210) days of the Total Loss Date for that Aircraft. In the event that the Security Trustee receives Total Loss Proceeds in respect of an Existing Aircraft prior to the expiration of such two hundred and ten (210) day period, at the Borrower's request, such Total Loss Proceeds shall be held for or by the Security Trustee in an interest bearing account at the cost of the Borrower in the jurisdiction chosen by the Borrower, until such substitution is effected, whereupon they will be released with such interest to the Borrower. If such substitution is not effected as provided above within such two hundred and ten (210) day period such Total Loss Proceeds and such interest shall be applied to the prepayment of the amounts set out in Clause 4.4.1 (Prepayment following a Total Loss). (B) If a substitution is proposed as a result of a transfer of an Aircraft or of a Sub-Borrower, the substitution of the Replacement Aircraft for the Existing Aircraft or substitution by the shares of a replacement Sub-Borrower, (as the case may be) shall occur prior to or at the same time as transfer of title in the Existing Aircraft or title in the shares of the existing Sub-Borrower shall pass to the transferee. 60 (C) The Security Trustee shall release the relevant Aircraft Mortgage, the Borrower Debenture or the Sub-Borrower Debenture (as the case may be) and the relevant Sub-Borrower Charge Over Shares (if applicable) in so far as they relate to the Existing Aircraft immediately upon substitution of the shares of a replacement Sub-Borrower or a Replacement Aircraft for the existing Sub-Borrower or for the Existing Aircraft (as the case may be); (D) The Borrower undertakes to indemnify the Security Trustee for any Expenses incurred by the Security Trustee under this Clause 4.7.6. 4.7.7 As soon as a substitution has occurred, the Existing Aircraft shall no longer be an Aircraft under the Transaction Documents and the Replacement Aircraft shall be an Aircraft under the Transaction Documents and the Transaction Documents shall be construed accordingly. The Loan in respect of the Existing Aircraft shall relate to the Replacement Aircraft and shall amortise in accordance with schedule 2 to the relevant Loan Supplement. If the shares in a Sub-Borrower are sold by the Borrower, such Sub-Borrower shall no longer be a Sub-Borrower under the Transaction Documents. 4.7.8 The Borrower shall pay for the cost of obtaining the appraisals referred to in Clause 4.7.3 and shall pay all Expenses incurred by the relevant parties in connection with the execution of and any amendment of the Transaction Documents required as a result of the provisions of this Clause 4.7. 4.8 PREPAYMENT IF NOT LEASED 4.8.1 Without prejudice to Clause 4.8.2, if an Aircraft is not delivered to a Lessee pursuant to a Lease within one hundred and eighty (180) days after the relevant Delivery Date, the Borrower shall, on the first Banking Day following the expiry of such one hundred and eighty (180) day period, pay into the Proceeds Account the aggregate of (i) the unpaid principal balance of the relevant Loan being prepaid (ii) all interest on the relevant Loan accrued to the actual date of prepayment that is unpaid (iii) Expenses (if any) and (iv) the Make-Whole Amount in respect of the relevant Loan being prepaid as certified in writing by the Agent (which certificate shall be conclusive save for manifest error) providing reasonable details of the computation of such Make-Whole Amount made in accordance with the provisions of Clause 4.3.2 and of the Expenses (if any); and immediately upon irrevocable receipt of such funds payable under this Clause 4.8.1 in the Proceeds Account, the Security Trustee shall release the relevant Mortgage and the Borrower Debenture or relevant Sub-Borrower Debenture (as the case may be) in so far as it relates to the relevant Aircraft. 4.8.2 The Borrower may, subject to paragraphs (a), (b), (c) and (d) of Clause 7.2.1 (Leasing and Insurance Covenants of Borrower, Sub-Borrower and Intermediate Lessee), lease an Aircraft to a Subsidiary of the Guarantor incorporated outside the United States of America to avoid having to prepay the relevant Loan pursuant to Clause 4.8.1. 4.9 PREPAYMENT IF POST-DELIVERY MODIFICATIONS NOT COMPLETED WITHIN POST-DELIVERY MODIFICATION PERIOD If any post delivery modifications in respect of an Aircraft are not carried out within the relevant Post-Delivery Modification Period, the Borrower shall, on the first Banking Day following the expiry of the relevant Post-Delivery Modification Period repay into the 61 Proceeds Account the proportion of the relevant Loan relating to such post delivery modifications together with all interest accrued and unpaid thereon, Expenses (if any) and the Make-Whole Amount as certified in writing by the Agent (which shall be conclusive save for manifest error) providing reasonable details of the computation of such Make-Whole Amount made in accordance with the provisions of Clause 4.3.2 and of the Expenses (if any). 4.10 MANDATORY PREPAYMENT EVENT 4.10.1 A mandatory prepayment event in respect of a particular Loan shall exist if: (a) the conditions set out in sub-paragraphs (a) or (b) of paragraph (A) of Part III to Schedule 6 have not been fulfilled; or (b) the Borrower has failed to comply with the provisions of Clause 9.1.1 (First Trigger Event) in relation to such Loan within the period stipulated in Clause 9.1.2. If the mandatory prepayment event shall occur and be continuing the Security Trustee may, without having to resort to any legal procedure, demand immediate repayment of the relevant Loan, whereupon the same shall become immediately due and payable together with all interest accrued thereon, Expenses (if any) and the Make-Whole Amount (as certified in writing by the Agent (which shall be conclusive save for manifest error)); and immediately upon irrevocable receipt of such funds payable under this Clause 4.10.1 in the Proceeds Account, the Security Trustee shall release the relevant Mortgage and the Borrower Debenture or relevant Sub-Borrower Debenture (as the case may be), in so far as each relates to the relevant Aircraft. Failure to pay the amounts referred to in this Clause 4.10.1 shall constitute a Termination Event in accordance with Clause 10.1(a) (Termination Events). 4.10.2 A mandatory prepayment event shall exist in relation to all Loans if the Borrower has failed to comply with the provisions of Clause 9.3.1 (Third Trigger Event) within the period stipulated in Clause 9.3.3. If the mandatory prepayment event shall occur and be continuing the Security Trustee may, without having to resort to any legal procedure, demand immediate repayment of all Loans which are then outstanding, whereupon the same shall become immediately due and payable together with all interest accrued thereon, Expenses (if any) and the Make-Whole Amount in respect of each Loan (as certified in writing by the Agent (which shall be conclusive save for manifest error)). Failure to pay the amount referred to in this Clause 4.10.2 shall constitute a Termination Event in accordance with Clause 10.1(a) (Termination Events). 4.10.3 The Borrower shall pay sums due under this Clause 4.10 into the Proceeds Account. 4.11 OVERDUE PAYMENTS 4.11.1 If the Borrower fails to pay on the due date any sum payable by the Borrower to a Lender or Representative under any Transaction Document (or fails to pay on demand any sum which is expressed to be payable on demand) the Borrower shall pay interest to the Agent for the account of the relevant Lender or Representative on such unpaid amount from (and including) the due date or, as the case may be, the date of demand to (but excluding) the 62 date of actual payment (after as well as before judgement) at the Default Rate for each Default Interest Period. 4.11.2 Interest at the Default Rate for each Default Interest Period shall be calculated on the basis of a year of three hundred and sixty (360) days and the actual number of days elapsed and shall accrue from day to day and be due and payable on the last day of each Default Interest Period and, if not paid, shall, to the extent permitted by applicable law, be compounded on such date. 4.11.3 The payment of interest by the Borrower pursuant to Clause 4.11.1 shall in no way preclude any Lender or Representative from making any other claim or pursuing any other right or remedy that may be available to it or otherwise prejudice any such claim, right or remedy. 4.12 DEDUCTIONS AND WITHHOLDINGS 4.12.1 All sums payable to the Agent, the Security Trustee and the Lenders pursuant to or in connection with any Transaction Document shall be paid in full without any set-off or counterclaim whatsoever and free and clear of all deductions or withholdings of or on account of Tax whatsoever imposed by Bermuda, the United States of America or the jurisdiction of incorporation of a Sub-Borrower (or, if different, the jurisdiction from which it makes any payment) save only as may be required by law. 4.12.2 Without limiting the Borrower's obligations under this Clause 4.12 each party which is organised under the laws of a jurisdiction outside the United States shall in the case of each initial Lender, and each of the Representatives, on or prior to the date of its execution and delivery of this Agreement and, in the case of each Transferee, on the date of execution of each Transfer Certificate pursuant to which it becomes a Lender and in each tax year thereafter, provide the Borrower with the United States of America Internal Revenue Service form 1001, 4224, 8709 or W-8, or any successor or other form prescribed by the Internal Revenue Service of the United States of America (the "INTERNAL REVENUE SERVICE FORMS") as appropriate (subject to having received the relevant form from the Borrower) certifying that such party is exempt or otherwise to obtain an exemption from United States withholding tax on all payments pursuant to this Agreement or in connection with any Transaction Document. 4.12.3 If any deduction or withholding is required by law and is imposed by Bermuda, the United States of America or the jurisdiction of incorporation of a Sub-Borrower (or, if different, the jurisdiction from which it makes any payment) in respect of any payment due (other than payments covered by Clause 4.12.4) to the Agent, the Security Trustee or any Lender pursuant to or in connection with any Transaction Document, the Borrower or the Guarantor or any other Obligor shall:- (a) (if the payment is to be made by the Borrower or the Guarantor or any other Obligor), ensure that the deduction or withholding is made and that it does not exceed the minimum legal requirement therefor; (b) (if the payment is to be made by the Borrower or the Guarantor or any other Obligor), pay or procure the payment of the full amount deducted or withheld to the relevant Taxation or other authority in accordance with the applicable law; 63 (c) (if the payment is to be made by the Borrower or the Guarantor or any other Obligor), increase (subject to Clause 4.12.5) the payment in respect of which the deduction or withholding is required so that the net amount received by the relevant Lender or Representative (as the case may be) after the deduction or withholding has been made (and after taking account of any further deduction or withholding which is required to be made as a consequence of the increase) shall equal the amount which that Lender, Representative or Export Credit Agency would have been entitled to receive in the absence of any requirement to make a deduction or withholding; (d) (if the payment is to be made by any person other than the Borrower or the Guarantor or any other Obligor), the Borrower shall pay (subject to Clause 4.12.5) directly to the Agent for the account of the relevant Representative or the relevant Lender or the relevant Export Credit Agency (as the case may be) such sum (a "COMPENSATING SUM") as will, after taking into account any deduction or withholding which the payer is obliged to make from the compensating sum, enable the relevant Representative, Lender or the relevant Export Credit Agency (as the case may be) to receive, on the due date for payment, a net sum equal to the sum which it would have received in the absence of any requirement to make a deduction or withholding; and (e) (if the payment is to be made by the Borrower or the Guarantor or any other Obligor), promptly deliver to the Agent or procure the delivery of appropriate receipts evidencing the deduction or withholding which has been made PROVIDED that where the Guarantor makes any payment on behalf of the Borrower and/or any other Obligor in applying Clause 4.12.3(d) above, any withholding or deduction arising as a result of the payment being due from any of the Obligors and any deduction or withholding arising as a result of the payment being made by the Guarantor in its capacity as guarantor of the Guaranteed Obligations (as defined in the Agreement) will be taken into account in determining the compensating sum. 4.12.4 If a Representative is obliged to make any deduction or withholding from any payment to a Lender (an "AGENCY PAYMENT") which relates to an amount received by that Representative on a payment from the Borrower, the Guarantor or the Sub-Borrower hereunder, for the account of that Lender pursuant to this Agreement or any of the Aircraft Operative Documents and such deduction or withholding is on account of a Tax imposed by Bermuda, the United States of America or the jurisdiction of incorporation of a Sub-Borrower, the Borrower or the Guarantor or any other Obligor shall, subject to Clause 4.12.5, pay directly to the Lender such sum (a "COMPENSATING SUM") as will, after taking into account any deduction or withholding which the Borrower is obliged to make from the compensating sum, enable the Lender to receive, on the due date for payment of the agency payment, an amount equal to the agency payment which the Lender would have received in the absence of any requirement to make a deduction or withholding. 4.12.5 The Borrower shall not be obliged to make payment to pay an increased amount pursuant to Clause 4.12.3(c) or a compensating sum pursuant to (and as defined in) Clause 4.12.3(d) or Clause 4.12.4 on account of any Tax or Tax Liability to the extent that such Tax or Tax Liability:- 64 (a) is imposed by the United States of America or Bermuda and does not arise as a result of a Change in Law occurring after the date of this Agreement; (b) arises from any action or omission which constitutes wilful misconduct, fraud or reckless disregard with knowledge of the probable consequences thereof on the part of such Indemnitee; (c) is caused by such Indemnitee's breach of any express representation made by it in any Transaction Document or of any express obligation under any Transaction Document (but excluding any such breach or failure in consequence (directly or indirectly) of a breach by the Borrower or any other Obligor of any representation or warranty contained in or of their respective obligations under any Transaction Document); (d) comprises a Tax on the overall net income, profit or capital gains of any Indemnitee (or, in the case of any Indemnitee acting through a branch outside the main jurisdiction in which it is resident for Tax purposes, comprises a Tax on the overall net income, profit or capital gains of that Indemnitee in the jurisdiction to which that Indemnitee's interest in the Transaction is properly attributable for Tax purposes) attributable to any sums receivable by any Indemnitee pursuant to any Transaction Document; (e) comprises any penalty, addition to Tax, fine or interest on or in respect of a Tax or Tax Liability which would not have arisen but for avoidable delay or failure by such Indemnitee in the filing of Tax returns which such Indemnitee was obliged to file by any law of the jurisdiction of incorporation or, in the case of a Lender, the jurisdiction in which its Lending Office is located, and which such Indemnitee ought reasonably to have been aware it was so obliged to file in connection with the Transaction or the payment of Taxes other than any such delay or failure in consequence (directly or indirectly) of a request by the Borrower or any Obligor or a delay of or failure by the Borrower or any Obligor duly and punctually to perform any of their respective obligations under the Transaction Documents or in consequence of any event or circumstance outside the reasonable control of such Indemnitee or otherwise caused (directly or indirectly) by the Borrower or any Obligor; (f) is imposed by a jurisdiction other than the main jurisdiction in which such Indemnitee is resident for Tax purposes to the extent that it gives rise to a corresponding credit which such Indemnitee has retained and utilised against any Tax Liability imposed in the main jurisdiction in which such Indemnitee is so resident; (g) would not have arisen but for:- (i) any failure by such Indemnitee to file any relevant Tax return or Tax computation which such Indemnitee was obliged to file by any law of the jurisdiction of incorporation or, in the case of a Lender, the jurisdiction in which its Lending Office is located or any documents which such Lender is obliged to file as a result of any applicable law, regulation, practice, concession, official directive, ruling, request, notice, guideline, statement of policy or practice 65 statement by the Bank of England, the Banque de France, the Deutsche Bundesbank, the European Central Bank, the Federal Reserve Bank of New York, the European Union or any central bank, Tax, fiscal, governmental, local, international, national or other competent authority or agency (whether or not having the force of law but in respect of which compliance by banks or other financial institutions or other persons in the relevant jurisdiction is customary) and in each case which such Indemnitee ought reasonably to have been aware it was so obliged to file in connection with the Transaction except for any such failure caused (directly or indirectly) by any action or inaction of the Borrower or any Obligor or any event or circumstance outside the reasonable control of such Indemnitee; or (ii) any failure (subject to the same exceptions and exclusions as set out in Clause 4.12.5(g)(i)) to file or provide the Borrower or the relevant Lessee with any Tax claims, forms (including the Internal Revenue Service Forms), affidavits, declarations or other like documents which the Borrower or the relevant Lessee has reasonably requested such Indemnitee in writing to file or provide (any such request containing sufficient detail to enable such Indemnitee to comply with the terms thereof) unless:- (aa) except with respect to the Internal Revenue Service Forms, such Indemnitee determines acting in good faith but nevertheless in its sole discretion that it is unable to file or provide or that it would be illegal or contrary to any applicable law, official regulation, practice, concession, directive, ruling, request, notice, guideline, statement of policy or practice statement by the Bank of England, the Banque de France, the Deutsche Bundesbank, the European Central Bank, the Federal Reserve Bank of New York, the European Union or any central bank, Tax, fiscal, governmental, local, international, national or other competent authority or agency (whether or not having the force of law but in respect of which compliance by banks or other financial institutions or other persons in the relevant jurisdiction is customary) for such Indemnitee so to do or so to do would or may result in the breach of any agreement or confidentiality undertaking or the disclosure of any information about such Indemnitee's Tax affairs which such Indemnitee considers (in its bona fide opinion) to be of a confidential nature; or (bb) in the case of the Internal Revenue Service Forms, such failure is due to a Change in Law occurring subsequent to the date on which any of the Internal Revenue Service Forms was originally required to be provided; or 66 (h) is on or arises from any transfer by a Lender of any of its rights, benefits and/or obligations hereunder other than pursuant to Clause 15.2 (Prepayment of Affected Loans and Replacement of Affected Lender). 4.12.6 TAX BENEFIT If a Lender or Representative (except to the extent that an Export Credit Agency becomes a Lender) determines, in its absolute discretion, that it has received, realised, utilised and retained a Tax benefit by reason of any deduction or withholding in respect of which the Borrower has made an increased payment or paid a compensating sum under this Clause 4.12, such Lender or Representative shall, provided it has received all amounts which are then due and payable by the Borrower, and each of the Obligors under the Transaction Documents or, to the extent that the Tax benefit exceeds the amounts then due and payable, has set-off such amounts against the Tax benefit, pay to the Borrower (to the extent that the Lender or Representative can do so without prejudicing the amount of such benefit or repayment and the right of such Lender or Representative to obtain any other benefit, relief or allowance which may be available to it) such amount, if any, as such Lender or Representative in its bona fide opinion shall determine will leave such Lender or Representative in no worse position than such Lender or Representative would have been in if the deduction or withholding had not been required (and taking into account any set-off as referred to above) PROVIDED that: (a) each Lender and Representative shall have an absolute discretion as to the time at which and the order and manner in which it realises or utilises any Tax benefit and shall not be obliged to arrange its business or its Tax affairs in any particular way in order to be eligible for any Tax benefit; (b) no Lender or Representative shall be obliged to disclose any information regarding its business, Tax affairs or Tax computations; (c) if any Lender or Representative has made a payment to the Borrower pursuant to this Clause 4.12 on account of any Tax benefit and it subsequently transpires that such Lender or Representative did not receive that Tax benefit, or received a lesser Tax benefit or has lost or been denied such Tax benefit, the Borrower shall pay on written demand to such Lender or Representative such sum as such Lender or Representative may determine as being necessary to restore the after-Tax position of the Lender or Representative to that which it would have been had no adjustment under this proviso (c) been necessary; and (d) the Lender or Representative shall not be obliged to make any payment under this Clause 4.12 if, by doing so, it would contravene the terms of any applicable law or any notice, direction or requirement of any governmental or regulatory authority (whether or not having the force of law but in respect of which compliance by banks or other financial institutions or other persons in the relevant jurisdiction is generally customary). 4.13 CURRENCY OF PAYMENT All amounts payable to the Agent, the Security Trustee and/or the Lenders pursuant to or in connection with this Agreement or any of the Aircraft Operative Documents shall, 67 unless otherwise provided in the relevant notice or demand for payment, be paid in Dollars to the Agent (where appropriate, for the account of the relevant Lender or the Security Trustee). 4.14 PERFORMANCE PROCEDURE 4.14.1 On each date on which an amount is due from the Borrower in connection with any Loan pursuant to this Agreement or any of the Aircraft Operative Documents, the Borrower shall no later than 1.00 pm (New York time) on such due date make such amount available to the Agent by payment in Dollars in same day funds (or such other funds as may from time to time be customary for the settlement in New York City of international banking transactions in Dollars) to the Agent's account with First Chicago International, New York Branch, Account Title: Halifax Plc Treasury, Account No. 1043132 (or to such other account in New York City as the Agent may upon not less than five (5) Banking Days' written notice from time to time designate), or, if the payment is to be made in a currency other than Dollars, to such account as may from time to time be nominated in writing by the Agent by not less than five (5) Banking Days' notice. 4.14.2 Upon receipt by the Agent of an amount referred to in Clause 4.14.1 the Agent shall if such amount is received by 1.00 pm (New York time) on the due date make available on such due date (and otherwise on the next Banking Day) to the relevant Lead Manager such portion of the amount so received as represents the aggregate of the entitlement of the British Lenders, the French Lenders or the German Lenders (as the case may be) of such amount in such funds as are received by the Agent by payment to such account as the relevant Lead Manager may have specified in writing. 4.14.3 Without prejudice to the provisions of Clause 4.14.2, the Agent shall not be obliged to make available to any Lead Manager or any Lender any sum which it is expecting to receive for the account of such Lead Manager or such Lender pursuant to this Agreement or any of the Aircraft Operative Documents until it has been able to establish that it has received that sum from the Borrower. If and to the extent that the Agent does pay such sum to a Lead Manager but it subsequently transpires that the Agent had not received the relevant sum:- (a) the relevant Lead Manager shall on request by the Agent refund such sum to the Agent; and (b) the relevant Lead Manager shall on request by the Agent pay to the Agent the amount (as certified by the Agent) which will indemnify the Agent against any funding or other cost, loss, expense or liability as a result of making available or paying out that sum before receiving it; and (c) each Lender shall indemnify the relevant Lead Manager in respect of its Relevant Proportion of the amounts referred to in paragraphs (a) and (b) above. 4.14.4 If any amount falls due to be paid to the Agent or any Lender pursuant to or in connection with this Agreement or any of the other Transaction Documents on a day which is not a Banking Day, then it shall be due and payable on the immediately succeeding Banking Day unless such Repayment Date falls in the calendar month next succeeding that in which it would otherwise have fallen in which case it shall fall on the immediately preceding Banking Day and the amount shall not be adjusted. 68 5. GUARANTEE AND INDEMNITY 5.1 GUARANTEE AND INDEMNITY 5.1.1 In consideration of the Lenders agreeing to make available the Facility to the Borrower, the Guarantor:- (a) as primary obligor and not as surety only, hereby unconditionally and irrevocably guarantees to each Representative and each Lender the due and punctual observance and performance by any or all of the Obligors of all of the Guaranteed Obligations; (b) hereby unconditionally covenants with and undertakes to each Representative and each Lender that in the event of a default by any or all of the Obligors in the observance or performance for whatever reason of any of their respective Guaranteed Obligations, the Guarantor shall on demand perform such Guaranteed Obligation, or cause such Guaranteed Obligation to be performed, punctually as if such Guaranteed Obligation were performed by the relevant Obligor; and (c) as a primary obligation, undertakes to indemnify each Representative and each Lender on demand and on a full indemnity basis from and against any and all Losses including, without duplication, any Make-Whole Amount or Expenses incurred or sustained by any Representative and/or any Lender as a result of the whole or any part of the Guaranteed Obligations being or becoming void, voidable, unenforceable or ineffective as against any or all of the Obligors for any reason whatsoever irrespective of whether such reason or any related fact or circumstance was known or ought to have been known to either of the Representatives, any of the Lenders or any of their respective officers, employees, agents or advisers. 5.1.2 Any demand under Clause 5.1.1 shall be in writing and may be made by the relevant Lender or Representative or by the Agent on its behalf and shall not be made before the last day of the relevant grace period of five (5) Business Days or ten (10) Business Days referred to in Clause 10.1(a) (Termination Events) and the Guarantor shall not be in default hereunder for its failure to pay or perform such Guaranteed Obligation, as demanded hereunder, unless and until expiration of the applicable grace period in Clause 10.1(a) (Termination Events). 5.2 PRINCIPAL DEBTOR As a separate and alternative stipulation in addition to its liabilities in Clause 5.1, the Guarantor hereby agrees that any part of the Guaranteed Obligations which is expressed to be performed by any or all of the Obligors under the Transaction Documents but which may not be recoverable from, or capable of performance by, the Guarantor on the footing of a guarantee (whether by reason of the dissolution of any or all of the Obligors or any reconstruction or amalgamation in which or as a consequence of which any or all of the Obligors loses its separate corporate identity or any other fact or circumstance whatsoever and whether or not such fact or circumstance was known or ought to have been known to 69 either Representative and/or any of the Lenders or any of their respective officers, employees, agents or advisers) shall nevertheless be recoverable from, or capable of performance by, the Guarantor as provided in Clause 5.1 above as if it were the principal debtor. 5.3 LIABILITY FOR INTEREST In addition to its liabilities under Clauses 5.1 and 5.2 above, the Guarantor hereby agrees to pay or cause to be paid to the Agent on demand (i) interest (including compound interest and both before and after judgement) on the amount or any part thereof for the time being unpaid and due to either Representative and/or the Lenders under this Clause 5, together with any interest which, but for the application of bankruptcy or insolvency laws, would have accrued on the amounts in question, from the date of demand on the Guarantor for payment until payment is made at the Default Rate (unless interest at the Default Rate continues to be charged to any or all of the Obligors in respect of that same amount under the Transaction Documents and is thereby payable by the Guarantor pursuant to Clause 5.1 or 5.2), and (ii) all legal and other costs, charges and expenses (on a full indemnity basis) incurred by or on behalf of either Representative and/or any of the Lenders following an Acceleration Event in enforcing or endeavouring to enforce the payment of any sums due under this Clause 5. 5.4 CONTINUING GUARANTEE The Guarantor's obligations under this Clause 5 shall constitute a continuing guarantee and accordingly: (a) shall not be discharged by any partial payment or performance by any Obligor or any other person in respect of the Guaranteed Obligations; (b) shall extend to cover the balance due at any time from any Obligor to any Lender or Representative in respect of any Guaranteed Obligations; (c) shall be in addition to and not in substitution for or derogation of any other security which any Lender or Representative may at any time hold in respect of the Guaranteed Obligations; and (d) shall not be discharged or in any way affected by any action taken or not taken by any Lender or Representative. 5.5 WAIVER OF DEFENCES 5.5.1 Any Lender or Representative may, from time to time, whether before or after any demand for payment under Clause 5.1.1 and without discharging or in any way affecting the Guarantor's liability hereunder, do all or any of the following: (a) terminate or amend any Transaction Document (in accordance with the terms thereof) in any manner whatsoever; (b) grant to any Obligor or to any other person any time or indulgence; 70 (c) deal with, exchange, renew, vary, release, modify or abstain from perfecting or enforcing any securities, guarantees or rights which any Lender or Representative may now or hereafter have from or against any Obligor in respect of the Guaranteed Obligations or otherwise in respect of the Transaction Documents; (d) compound with, discharge or vary the liability of any Obligor or concur in, accept or vary any compromise, arrangement or settlement with any Obligor or concur in or vary any deed of arrangement or deed of assignment for the benefit of creditors of any Obligor; (e) omit to prove or fail to maintain any right of proof for or to claim or enforce payment of any dividend or composition; and (f) take or omit to take any security from any Obligor or any other person or guarantor in respect of the Guaranteed Obligations or otherwise in respect of the Transaction Documents. 5.5.2 The Guarantor waives and agrees not to enforce or claim the benefit of any right it has or may from time to time have as surety under any applicable law which is or may be inconsistent with any of the provisions of this Clause 5. 5.6 IMMEDIATE RECOURSE: NO OBLIGATION TO TAKE ACTION No Lender or Representative shall be obliged, before making a demand under or taking steps to enforce this Agreement: (a) to take action or obtain judgment against any Obligor or any other person in any court or tribunal; or (b) to make or file any claim in a bankruptcy or liquidation of any Obligor or any other person; or (c) to exercise diligence against any Obligor or any other person under any Transaction Document. 5.7 PRESERVATION OF RIGHTS From the date or dates upon which any demand is properly made against the Guarantor under this Agreement, until such time as each Representative and the Lenders have received payment of the Guaranteed Obligations in full (exclusive of indemnities in respect of which no claims have been, or to the knowledge of the Security Trustee will be, asserted) the Guarantor shall not:- (a) claim any set-off or counterclaim against any one or more of the Obligors in respect of any payment by the Guarantor under this Clause 5 or in respect of any outstanding actual or contingent liability between the Guarantor any one or more of the Obligors; or (b) make or enforce any claim or right (including a right of subrogation or contribution) against any one or more of the Obligors or prove in competition 71 with either Representative and/or any of the Lenders, in the event of the liquidation or winding-up of any one or more of the Obligors in respect of any payment by the Guarantor under this Clause 5 or in respect of any outstanding actual or contingent liability between the Guarantor and any one or more of the Obligors; or (c) in competition with either Representative and/or the Lenders, claim the benefit of any security or guarantee now or hereafter held by either Representative and/or the Lenders, for any money or liabilities due or incurred by any one or more of the Obligors to each Representative and/or the Lenders, or any share therein. 5.8 SECURITIES REALISED ACCOUNT For the purpose of enabling each Representative and/or the Lenders to sue any one or more of the Obligors or to prove in the liquidation or insolvency of any one or more of the Obligors or in any similar proceedings for any monies due but unpaid by any one or more of the Obligors to either Representative and/or the Lenders under any of the Transaction Documents, each Representative or the Lenders may at any time and for such time as it may think fit place any monies received or recovered under this Clause 5 after an Acceleration Event to the credit of a securities realised account or accounts (subject to the accrual thereon of interest at market rates as conclusively determined by the Agent which interest shall be credited to the relevant account) without any obligation on the part of the Representative or the Lenders to apply the same or any part thereof in or towards the discharge of the indebtedness and liabilities of the Guarantor. Upon each Representative or the Lenders (as the case may be) reasonably considering the further retention of such monies to be unnecessary, the amount standing to the credit of the relevant account or accounts shall be paid to the Guarantor. 5.9 REINSTATEMENT Where any discharge (whether in respect of the obligations of any Obligor, any security for such obligations or otherwise) is made in whole or in part or any arrangement is made on the faith of any payment, security or other disposition which is avoided or must be repaid on insolvency, administration, liquidation or otherwise without limitation, the liability of the Guarantors under this Clause 5 shall continue as if there had been no such discharge or arrangement. Each Representative and each Lender shall be entitled to concede or compromise any claim that any such payment, security or other disposition is liable to avoidance or repayment. 5.10 ADDITIONAL SECURITY The Guarantor's obligations under this Clause 5 are in addition to and shall not be prejudiced by any other guarantee or security for the Guaranteed Obligations now or hereafter held by any Lender or Representative and it shall not be necessary for any Lender or Representative before claiming payment under this Clause 5, to resort to or seek to enforce any other guarantee or security in respect of the Guaranteed Obligations. 72 6. REPRESENTATIONS AND WARRANTIES 6.1 GUARANTOR'S REPRESENTATIONS AND WARRANTIES To induce the Lenders and the Representatives to enter into the Transaction Documents, the Guarantor represents and warrants to the Lenders and the Representatives that:- (a) it is a corporation duly incorporated and validly existing and in good standing under the laws of the State of California (or any jurisdiction in which it may subsequently be incorporated) and has full power, authority and legal right to own its property and carry on its business as presently conducted; (b) it has the power and capacity to execute and deliver, and to perform its obligations under the Transaction Documents to which it is or will be a party and all necessary action has been taken to authorise the execution, delivery and performance of the same; (c) it has taken all necessary legal action to authorise the person or persons who execute and deliver the Transaction Documents to which it is or will be a party to execute and deliver the same and thereby bind the Guarantor to all the terms and conditions hereof and thereof and to act for and on behalf of the Guarantor as contemplated hereby and thereby; (d) the Transaction Documents to which it is or will be a party constitute (or will when executed constitute) legal, valid and binding obligations of the Guarantor enforceable in accordance with their respective terms subject only to the qualifications set out in the legal opinions to be provided to the Lenders in accordance with the provisions of Clause 2.8 (Several Obligations) (in respect of the Transaction Documents) and Clause 3.1.4 (Utilisation Notices) and Schedule 6 (in respect of the relevant Aircraft Operative Documents); (e) the execution and delivery of, the performance of its obligations under, and compliance with the provisions of, the Transaction Documents to which it is or will be a party will not (i) contravene any existing applicable law to which the Guarantor is subject, (ii) conflict with, or result in any breach of any of the terms of, or constitute a default under, any document, instrument or agreement to which the Guarantor is a party or is subject or by which it or any of its assets may be bound which would be reasonably expected to have a material adverse effect on its financial condition or its payment obligations under the Transaction Documents, (iii) contravene or conflict with any provision of its constitutional documents, or (iv) result in the creation or imposition of, or oblige it to create, any Lien on or over any of its assets (other than the Liens created pursuant to the Transaction Documents); (f) every consent, registration, licence and qualification required by the Guarantor to enable it to carry on its business has been duly obtained or made and is in full force and effect and there has been no default in the observance or performance of any of the conditions or restrictions (if any) imposed on, or in connection with, any such consent, registration, licence or qualification, in each case, which would be reasonably expected to have a material adverse effect on 73 its financial condition or its payment obligations under the Transaction Documents; (g) every consent, registration, licence and qualification required by the Guarantor to authorise, or required by it in connection with, the execution, delivery, legality, validity, priority, enforceability, admissibility in evidence or effectiveness of the Transaction Documents to which it is or will be a party has been duly obtained or made and is in full force and effect and there has been no default in the observance or performance of any of the conditions or restrictions (if any) imposed on, or in connection with, any such consent, licence, registration or qualification, in each case, which would be reasonably expected to have a material adverse effect on the financial condition of the Guarantor or its payment obligations under the Transaction Documents or the legality, validity, priority, enforceability, admissibility in evidence or effectiveness of such Transaction Documents; (h) no litigation, arbitration or administrative proceeding is taking place, pending or, to the actual knowledge of its officers, threatened against it, or against any of its assets, which in any such case would be reasonably expected to have a material adverse effect on its financial condition or its payment obligations under the Transaction Documents; (i) the Guarantor has not taken any action nor, to its knowledge or the knowledge of its officers, have any steps been taken or legal proceedings been started for any insolvency-related winding-up, dissolution or re-organisation or for the appointment of a receiver or administrative receiver, or an administrator, trustee or similar officer of it or of any or all of its assets; (j) the obligations of the Guarantor under the Transaction Documents to which it is or will be a party are, or will when the same are executed be, direct, general and unconditional obligations of the Guarantor and rank at least pari passu with all other present and future unsecured and unsubordinated obligations of the Guarantor save for obligations mandatorily preferred by law; (k) no Relevant Event or Termination Event has occurred and is continuing; (l) the audited consolidated financial statements of the Guarantor for the period ending on December 31, 1997 have been prepared in accordance with generally accepted accounting principles and standards applicable in the United States of America and in conjunction with the notes thereto, fairly present the financial position of the Guarantor and its Subsidiaries as at December 31, 1997; (m) the Guarantor or a Subsidiary of the Guarantor is the legal and beneficial owner of the entire share capital of the Parent; (n) there have been no amendments or supplements to the articles of incorporation and bylaws of the Guarantor from the form of those documents last seen by the Agent that could reasonably be expected to have a Material Adverse Effect; and 74 (o) except as otherwise disclosed in writing to the Agent, the board resolutions supplied by the Guarantor to the Agent pursuant to the provisions of Clause 2.9 (Conditions Precedent) of this Agreement remain in full force and effect and have not been amended, supplemented, varied or revoked, in whole or in part since it was entered into and the authority therein given to the persons therein named to agree and execute on behalf of the Guarantor the Transaction Documents remains in full force and effect and has not been revoked, amended, supplemented or varied, in whole or in part. 6.2 REPRESENTATIONS AND WARRANTIES OF THE BORROWER, EACH SUB-BORROWER, THE PARENT AND EACH INTERMEDIATE LESSEE To induce each of the Lenders and the Representatives to enter into the Transaction Documents, the Borrower, each Sub-Borrower, each Intermediate Lessee and the Parent represents and warrants to the Lenders and the Representatives separately and severally that:- (a) it is duly organised and validly existing under the laws of Bermuda (in the case of the Borrower), the State of California (in the case of the Parent) and the jurisdiction referred to in paragraph 2.1(d) of the relevant Accession Deed (in the case of each Sub-Borrower and each Intermediate Lessee), or in each case in the jurisdiction in which it may subsequently be incorporated, and has full power, authority and legal right to own its property and carry on its business as presently conducted; (b) it has the power and capacity to execute and deliver, and to perform its obligations under the Transaction Documents to which it is or will be a party and all necessary action has been taken to authorise the execution, delivery and performance of the same; (c) it has taken all necessary legal action to authorise the person or persons who execute and deliver the Transaction Documents to which it is or will be a party to execute and deliver the same and thereby bind it to all the terms and conditions hereof and thereof and to act for and on behalf of it as contemplated hereby and thereby; (d) the Transaction Documents to which it is or will be a party constitute or will when executed constitute its legal, valid and binding obligations enforceable in accordance with their terms subject only to the qualifications set out in the legal opinions to be provided to the Lenders in accordance with the provisions of Clause 2.9 (Conditions Precedent) (in respect of the Aircraft) and Schedule 6 (in respect of the Aircraft Operative Documents); (e) the execution and delivery by it of, the performance of its obligations under, and compliance with the provisions of, the Transaction Documents to which it is or will be a party will not (i) contravene any existing applicable law to which it is subject, (ii) conflict with, or result in any breach of any of the terms of, or constitute a default under, any document, instrument or agreement to which it is a party or is subject or by which it or any of its assets may be bound, (iii) contravene or conflict with any provision of its constitutional documents, or (iv) result in the creation or imposition of, or oblige it to create, any Lien on or 75 over any of its assets other than those created pursuant to the Transaction Documents; (f) every consent, registration, licence and qualification required by it to enable it to carry on its business has been duly obtained or made and is in full force and effect and there has been no default in the observance or performance of any of the conditions or restrictions (if any) imposed on, or in connection with, any such consent, registration, licence and/or qualification in each case which could have a material adverse effect on its ability to perform its obligations under any of the Transaction Documents to which it is or will be a party; (g) except as provided in the parenthetical proviso in Clause 7.1(f) (General Covenants of the Borrower, Sub-Borrower and Intermediate Lessee), and except for those that are not customary practice in applicable jurisdictions to obtain or make at such time, every consent, registration, licence and qualification required by it to authorise, or required by it in connection with, the execution, delivery, legality, validity, priority, enforceability, admissibility in evidence or effectiveness of the Transaction Documents to which it is or will be a party has been duly obtained or made and is in full force and effect and there has been no default in the observance or performance of any of the conditions or restrictions (if any) imposed on, or in connection with, any such consent, licence, registration and/or qualification, in each case, which could have a material adverse effect on its ability to perform its obligations under this Agreement or the legality, validity, priority, enforceability, admissibility in evidence or effectiveness of such Transaction Documents; (h) no litigation, arbitration or administrative proceeding is taking place, pending or, to the actual knowledge of its officers, threatened against it, or against any of its assets, which in any such case could have a material adverse effect on its ability to perform its obligations under any of the Transaction Documents to which it is or will be a party; (i) it has not taken any action nor, to its knowledge or the knowledge of its officers, have any steps been taken or legal proceedings been started for any insolvency-related winding-up, dissolution or re-organisation or for the appointment of a receiver or administrative receiver, or an administrator, trustee or similar officer of it or of any or all of its assets; (j) its obligations under the Transaction Documents to which it is or will be a party are, or will when the same are executed be, its direct, general and unconditional obligations and rank at least pari passu with all other present and future unsecured and unsubordinated obligations save for obligations mandatorily preferred by law; (k) no Relevant Event or Termination Event has occurred and is continuing; (l) it has not, prior to entering into the Transaction Documents engaged in any business or transaction or entered into any contract or agreement with any person or otherwise created or incurred any liability to, or acquired any asset from, any person, other than any such transactions, contracts, agreements or liabilities or acquisitions of assets as (i) have been necessary solely in order for 76 it to establish itself as a company duly incorporated and validly existing under the laws of its state of incorporation or (ii) have occurred pursuant to any other Transaction Document or (iii) have been necessary to enable the Parent to become the legal and beneficial owner of the shares in the Borrower, any Sub-Borrower or any Intermediate Lessee or to enable the Borrower to become the legal and beneficial owner of the shares in any Sub-Borrower or any Intermediate Lessee; (m) except as otherwise permitted hereunder, there have been no amendments or supplements to its memorandum of association and by-laws or, as the case may be, articles of association from the form of those documents last seen by the Agent and the memorandum of association and by-laws or, as the case may be, articles of association in the form last seen by the Agent remain in full force and effect; (n) except as otherwise disclosed in writing to the Agent, the board resolutions and, if applicable, power of attorney supplied by it to the Agent pursuant to the provisions of Clause 2.9 (Conditions Precedent) of this Agreement or pursuant to Schedule 6 (as the case may be) remain in full force and effect and have not been amended, supplemented, varied or revoked, in whole or in part since they were entered into and the authority therein given to the persons therein named to agree and execute on its behalf the Transaction Documents remains in full force and effect and has not been revoked, amended, supplemented or varied, in whole or in part; (o) except as otherwise disclosed in writing to the Agent, no Second Trigger Event or Third Trigger Event has occurred and is continuing; (p) the Parent further represents that it is the legal and beneficial owner of the entire issued share capital of the Borrower; and (q) it is the sole legal and beneficial owner of all of the shares (except for shares held by directors, trustees or nominees in order to meet local nationality or other local requirement and which do not have a Material Adverse Effect on the relevant Charge Over Shares) comprised in the Existing Securities (as defined in each of the Charges over Shares to which it is a party) being the entire issued shares in the capital of the Borrower (in the case of the Parent), each Sub-Borrower (in the case of the Borrower) and the relevant Intermediate Lessees (in the case of the Borrower and the Sub-Borrower), that the Existing Securities (as defined in each of the Charges over Shares to which it is a party) are fully paid up and are not subject to any options and none of the Charged Property (as defined in each of the Charges over Shares to which it is a party) is subject to any Lien other than as created pursuant to the relevant Charge over Shares. 6.3 REPETITION The representations and warranties set out in Clauses 6.1 and 6.2 shall be deemed to be repeated by the relevant party on each date the Borrower serves a Utilisation Notice pursuant to Clause 3.1.1 (Utilisation Notices) and on each Utilisation Date in each case in relation to the Eligible Aircraft which is the subject of the relevant Utilisation Notice in 77 respect thereof as though made on each such date with reference to the facts and circumstances then existing on such date. 7. UNDERTAKINGS AND COVENANTS 7.1 GENERAL COVENANTS OF BORROWER, SUB-BORROWER AND INTERMEDIATE LESSEE Until all of the Secured Obligations (exclusive of indemnities in respect of which no claims have been, or to the knowledge of the Security Trustee will be, asserted) have been paid in full, the Borrower, each Sub-Borrower and each Intermediate Lessee hereby undertakes and covenants with each of the Lenders and the Representatives separately and severally that from the date of this Agreement: (a) except as provided in Clause 18.1 (Transfers by Obligors), it shall remain duly incorporated and validly existing under the laws of Bermuda (in the case of the Borrower) and the laws of the jurisdiction stated in paragraph 2.1(d) of the relevant Accession Deed (in the case of each Sub-Borrower and each Intermediate Lessee); (b) at all times, it shall comply and procure the compliance with all laws and regulations applicable to it and which are necessary in relation to the conduct of its business generally, and it shall obtain, maintain in full force and effect and comply in all material respects with, any present or future authorisations (governmental or otherwise), approvals, licences and consents and do, or cause to be done, all other acts and things, in each case, which may from time to time be necessary for the continued due performance of its obligations under the Transaction Documents; (c) it shall inform the Agent of any Relevant Event or Termination Event promptly upon becoming aware of the same and shall provide the Agent with full details of any steps which it is taking, or is considering taking, in order to remedy or mitigate the effect of any Relevant Event or Termination Event or otherwise in connection therewith; (d) it shall pay and discharge all material Taxes and governmental charges prior to the date on which the same become overdue unless, and only to the extent that, such Taxes and charges shall be contested in good faith by appropriate proceedings, pending determination of which payment may lawfully be withheld, and there shall be set aside adequate reserves with respect to any such Taxes or charges so contested (if required in accordance with generally accepted accounting principles); (e) it shall comply with its constitutional documents and neither the Parent nor the Borrower nor any Sub-Borrower shall amend any provision of the constitutional documents of the Borrower, any Sub-Borrower or any Intermediate Lessee respectively except as provided in Clause 18.1 (Transfers by Obligors), or with the consent of the Security Trustee (not to be unreasonably withheld); 78 (f) promptly, upon being requested so to do by either Representatives take all such steps and enter into and execute all such documents of whatsoever nature in order to enable the relevant Representative to effect any registration, recording, filing, notarisation or any other action in respect of any of the Transaction Documents, in each case, which is required by law or reasonably requested by either Representative (provided always that notwithstanding any other provision of the Transaction Documents the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee shall not be required to do any act or thing or take any step in connection with the registration, recording or filing of any instrument creating or evidencing a Lien over an Aircraft in the register of the Aviation Authority where such Aircraft is registered, or any other registration, recording or filing outside the jurisdiction of organisation of the Borrower or, if applicable, any Sub-Borrower or any Intermediate Lessee or the Parent, or any actions with respect to the Lessee or any Sub-Lessee (other than any registration, recording or filing of a Lien over an Aircraft within the jurisdiction of organisation of the Borrower or, if applicable, any Sub-Borrower or any Intermediate Lessee) or with respect to its jurisdiction of organisation or principal place of business, unless a Third Trigger Event or Termination Event has occurred and is continuing) to ensure the validity, enforceability or priority of the liabilities and obligations of the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee or the rights of each Representative and/or each of the Lenders under any of the Transaction Documents; (g) not, without the prior written consent of the Agent, conduct any business other than the acquisition, leasing and sale of the Aircraft and the transactions contemplated by the Transaction Documents to which it is a party and such activities and matter incidental to any of the foregoing; (h) not, without the prior written consent of the Security Trustee acting on the instructions of the Majority Lenders incur any liability to any person, other than: (i) a liability for Tax or other charges arising under applicable law to a Government Entity; or (ii) a liability to the Subordinated Lender in respect of the Subordinated Liabilities; or (iii) a liability to a Lessee under a Lease or a liability to an Intermediate Lessee under an Intermediate Lease or a liability to a Sub-Lessee under a Sub-Lease; or (iv) any liability under the Transaction Documents; or (v) any liability that is an ordinary operating cost or overhead expense or is otherwise in the ordinary course of its permitted business; (i) ensure that at all times its obligations under the Transaction Documents rank at least pari passu with its obligations owed to all its unsecured creditors save for obligations mandatorily preferred by law; 79 (j) duly observe and perform all of its obligations under each of the Transaction Documents to which it is, from time to time, a party; (k) it shall not create or acquiesce in the creation or permit to exist any Lien (other than any Permitted Lien) on or affecting the Aircraft, the Insurances, the Warranties, the Engine Warranties in relation to any Aircraft (or any relevant Engine or Part); (l) not (without the prior written consent of the Security Trustee, which consent shall be exercisable at the discretion of the Security Trustee acting on the instructions of the Majority Lenders) issue any shares (other than to comply with nationally or other local requirements as described in Clause 3.3.2 (Sub-Borrowers/Intermediate Lessees) to the Guarantor or any Subsidiary on terms that any such shares are immediately charged to the Security Trustee on terms substantially the same as those contained in the Charge Over Shares of the Borrower, the relevant Charge Over Shares of Sub-Borrower or the relevant Charge Over Shares of Intermediate Lessee (as the case may be) or on such terms as may otherwise be agreed by the Security Trustee) or pay any dividends on any shares issued by it or redeem any shares except as permitted by Clause 8.1 (Subordination); (m) deliver to the Agent sufficient copies for distribution to each of the Lenders of its audited annual financial statements for each of its financial years (which shall be prepared in accordance with generally accepted accounting principles and practices in the United States of America for those Obligors incorporated in the United States of America or Bermuda (other than principles and practices related to consolidation of accounts) and which shall present fairly the profits and losses of the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (as the case may be) for the relevant financial year at the end of such financial year) as soon as practicable and not later than one hundred and eighty (180) days after the end of the financial year to which they relate; (n) it shall procure that at all times a majority of the members of its board of directors shall be officers or employees of the Guarantor, a Subsidiary, AIG or an AIG Group Company (unless such requirement is contrary to local requirements in its jurisdiction of incorporation and such requirement is not likely to have a Material Adverse Effect on the relevant Charge over Shares, in which case, it shall comply with the requirements of its jurisdiction of incorporation) and it shall procure further that no member of its board of directors shall be replaced or substituted (other than by another officer or employee of the Guarantor, a Subsidiary, AIG or an AIG Group Company) without the prior written consent of the Security Trustee (which consent shall be exercisable in the reasonable discretion of the Security Trustee) unless such substitution is required in order to comply with the requirement of its jurisdiction of incorporation and such substitution is not likely to have a Material Adverse Effect on the relevant Charge over Shares; (o) inform the Representatives: 80 (i) of any proposed Final Disposition of an Aircraft or sale of a Sub-Borrower, no less than seven (7) Business Days before the proposed date for completion of such Final Disposition; and (ii) promptly after it becomes aware of the Total Loss of any Aircraft or of any occurrence which, with the lapse of time, would or would be likely to constitute a Total Loss of any Aircraft, the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (as the case may be) shall provide such details of such Total Loss or other occurrence as each Representative may reasonably request; (p) inform the Representative promptly after it becomes aware of any: (i) Lien which has arisen over or in respect of any of the Aircraft or any Part thereof other than any Permitted Lien; or (ii) any steps being taken by the holders of any Lien (including any Permitted Lien) to exercise or enforce that Lien or any rights in respect thereof; (q) it shall not voluntarily wind itself up except in connection with its solvent liquidation into another Obligor pursuant to Clause 18.1 (Transfers by Obligors); (r) the Borrower shall remain a wholly owned Subsidiary of the Parent, each Sub-Borrower shall remain a wholly owned Subsidiary of the Borrower and each Intermediate Lessee shall remain a wholly owned Subsidiary of the Borrower or a Sub-Borrower (as the case may be), subject always to the provisions of Clause 3.3 (Sub-Borrower/Intermediate Lessees); (s) the Borrower shall pay the Expenses of, and where applicable, instruct its counsel to render to the Agent on June 30 1999, June 30 2000, June 30 2001 and March 31 2002 (i) "bring-down" opinions as of June 30 1999, June 30 2000 and June 30 2001, with respect to each of the Master Opinions to the effect that there has been no Substantive Law Change since the date of the applicable Master Opinion that would cause the counsel rendering such opinion to change its Master Opinion or, if such a Substantive Law Change has occurred, a revised opinion as to the portion of the opinion affected by any such Substantive Law Change and (ii) reissued Master Opinions as of March 31, 2002. 7.2 LEASING AND INSURANCE COVENANTS OF BORROWER, SUB-BORROWER AND INTERMEDIATE LESSEE 7.2.1 Until all of the Secured Obligations (exclusive of indemnities in respect of which no claims have been, or to the knowledge of the Security Trustee will be, asserted) have been paid in full, the Borrower, each Sub-Borrower and each Intermediate Lessee hereby undertakes and covenants with each of the Lenders and the Representatives separately and severally from the date of this Agreement that it shall: 81 (a) ensure that each Lease is in English; (b) not deliver an Aircraft to a TO Lessee (as defined in Clause 7.2.2) directly under a Lease or indirectly under a Sub-Lease which is incorporated or has its principal place of business in the United States of America within two years after the Delivery Date of that Aircraft (unless the Export Credit Agencies agree to a shorter period in their sole discretion); (c) ensure at the time such Lease is entered into that such Aircraft is not registered in or leased to a Lessee or a Sub-Lessee whose principal place of business is in a Prohibited Country; (d) ensure that no Aircraft is subject to any instalment sale agreement, conditional sale agreement or other lease-purchase agreement conferring upon the bailee any ownership right, title or interest to or in the relevant Aircraft, including, without limitation, by means of a purchase option at a nominal price, without obtaining the prior written approval of the Security Trustee, acting on the instructions of the Majority Lenders; (e) ensure that if a Lease contains, or any Aircraft is subject to, a purchase option, such purchase option shall be at a price that is either for fair market value or at a fixed price at or above one hundred and ten per cent. of the outstanding principal under the relevant Loan at the time of Final Disposition (which purchase price is acknowledged and agreed as not being nominal within the meaning or otherwise in violation of Clause 7.2.1(d)); (f) each Aircraft shall, unless in or imminently scheduled for major maintenance or modification or as otherwise agreed between the Borrower or a Sub-Borrower (as the case may be) and the Security Trustee, be registered in the jurisdiction of incorporation of: (i) the Borrower or a Sub-Borrower, whichever is the owner of the Aircraft (including in the name of an owner trust in the United States of America); or (ii) an Intermediate Lessee; or (iii) a Lessee; or (iv) any Sub-Lessee, in each case with the interests of the Borrower or relevant Sub-Borrower as owner noted on the register of the relevant Aviation Authority to the extent permitted by applicable law; (g) the Borrower shall (at its own cost) take all steps, or procure that all steps are taken, which are required by law in the State of Registration and the jurisdiction in which the Lessee or any Sub-Lessee has its principal place of business to protect and perfect the Borrower's or the Sub-Borrower's (as the case may be) legal and beneficial ownership interest in the Aircraft; 82 (h) ensure that each Lease provides (y) for the relevant Aircraft to be maintained in accordance with the maintenance programme described in the relevant Lease and approved by the relevant Aviation Authority and (z) that all airworthiness directives issued by the relevant Aviation Authority are complied with, as stated in such airworthiness directive to the extent required during the term of the relevant Lease; (i) ensure that each Lease provides that, in relation to each Aircraft, all documentation regarding repairs, maintenance, overhauls and modifications is maintained in accordance with the requirements of the relevant Aviation Authority; (j) subject to the rights of the Security Trustee upon the occurrence and continuation of a Second Trigger Event, ensure that the terms of any Lease, in so far as they relate to operations, maintenance and insurance shall be no less favourable than, or substantially similar in substance to, those customarily used by the Guarantor for the leasing of similar aircraft in its portfolio to lessees of similar credit standing, similar geographic location and under similar circumstances. 7.2.2 The Borrower and (as the case may be) each Sub-Borrower shall not and shall not permit an Intermediate Lessee, to deliver an Aircraft to a Lessee (if it is a technical operator of aircraft) or a Sub-Lessee (if the Lessee is not a technical operator of aircraft and the Sub-Lessee is a technical operator of aircraft) ("TO LESSEE") directly under a Lease, indirectly under a Sub-Lease or substitute an Aircraft under Clause 4.7 (Substitution of Aircraft) if such delivery or substitution would breach either or both of the limits specified in paragraphs (a) and (b) below, namely:- (a) if that TO Lessee is the first TO Lessee of such Aircraft and, as a result of delivery of that Aircraft to that TO Lessee or as a result of such substitution (if the substitute aircraft has never been previously leased or sub-leased), either:- (i) more than eleven (11) Aircraft; or (ii) more than twenty five per cent. of the Aircraft then financed under the Facility (determined by number and not by value), whichever is higher, would be Home Country Aircraft; or (b) if, as a result of delivery of that Aircraft to that TO Lessee or as a result of such substitution, more than nineteen (19) Aircraft would be leased to TO Lessees (whether as first or subsequent TO Lessees) incorporated in any one Home Country (it being understood that, in aggregate, up to fifty-seven (57) Aircraft may be Home Country Aircraft so long as no single Home Country accounts for more than nineteen (19) of such Home Country Aircraft). 7.2.3 The limits set out in paragraphs (a) and (b) of Clause 7.2.2 shall not: (a) prevent the delivery of an Aircraft to a TO Lessee in breach of any such limit following the repossession of such Aircraft by, or the delivery or redelivery of such Aircraft to, the Borrower, any Sub-Borrower or any Intermediate Lessee 83 (as the case may be) as a result of the termination of the leasing of such Aircraft under a previous Lease Agreement prior to its scheduled expiry date (other than by reason of the exercise by the relevant Lessee of a voluntary right of early termination); or (b) require the prepayment of a Loan in respect of a Home Country Aircraft if any such limit is breached as a result of (i) the prepayment of a Loan in respect of another Aircraft which is not a Home Country Aircraft (by reason of the Final Disposition or Total Loss of such Aircraft or a Sub-Borrower Sale in relation to such Aircraft or for any other reason), or (ii) the termination or expiry of the leasing of another Aircraft which is not a Home Country Aircraft. 7.2.4 In determining, for the purposes of Clause 7.2.2(a), whether or not a TO Lessee is the first TO Lessee of an Aircraft:- (a) no account shall be taken of a previous Lessee or Sub-Lessee of that Aircraft:- (i) under a Lease with a Subsidiary contemplated by Clause 4.8.2 (Prepayment if not leased) and entered into to avoid an obligation to prepay the relevant Loan under Clause 4.8.1 (Prepayment if not leased); or (ii) subject to paragraph (b) below, under a Lease or Sub-Lease which terminates on or before delivery of the relevant Aircraft occurs thereunder; (b) a previous Lessee or Sub-Lessee of that Aircraft under a Lease or a Sub-Lease which terminates less than six months or before the date on which delivery of the relevant Aircraft is scheduled to occur by reason of a default or failure to satisfy any condition precedent by such Lessee or Sub-Lessee by reason of the bankruptcy of, or other circumstances affecting (including a failure to perform by), such Lessee or Sub-Lessee shall be treated as having been a previous TO Lessee of the relevant Aircraft PROVIDED that this paragraph (b) shall not operate so as to permit (in addition to those Aircraft actually delivered to a TO Lessee as a first TO Lessee) more than eight Aircraft to be Home Country Aircraft which would not, but for this paragraph (b), have been permitted under Clause 7.2.2(b); and (c) in the case of a Replacement Aircraft, the TO Lessee of the Existing Aircraft which it replaced shall be treated as having been a previous TO Lessee of that Replacement Aircraft. 7.2.5 If the total number of seventy five (75) Eligible Aircraft is increased, the limits on numbers of Home Country Aircraft specified in paragraphs (a)(i) and (b) of Clause 7.2.2 (namely eleven (11), nineteen (19) and fifty-seven (57)) shall be deemed to be increased to fifteen per cent., twenty-five per cent. and seventy-five per cent. (respectively) of the increased total number of Eligible Aircraft (in each case rounded up or down to the nearest whole number). 7.2.6 The Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (as the case may be) shall deliver to the Agent a certified true copy of: 84 (a) each Lease (and each side letter or other document amending or supplementing the terms of any Lease) from time to time entered into by the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (as the case may be) in respect of an Eligible Aircraft; and (b) each legal opinion (if any) provided to the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (as the case may be) in connection with any such Lease (or in connection with any amendment thereto) from legal counsel in the jurisdiction in which the relevant Lessee is incorporated or in which the Aircraft is or will be registered, in each case within thirty (30) days after the later of (i) the relevant Utilisation Date and (ii) the date on which such Lease (or the relevant side letter or other document) was entered into or, as the case may be, the date on which such legal opinion was provided to the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (as the case may be). 7.2.7 The Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (as the case may be) shall maintain, or procure that the relevant Lessee or the relevant Sub-Lessee (as the case may be) maintains, hull and third party liability insurance policies in respect of each Aircraft in accordance with the terms of Schedule 8. 7.2.8 The Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (as the case may be) shall deliver to the Agent (i) a certificate evidencing the insurance (and, if applicable, reinsurance) policies required by Clause 7.2.7 on or before the Delivery Date of the relevant Aircraft and (in the case of a replacement certificate) promptly after receipt thereof and (ii) any insurance broker's and reinsurance broker's (if applicable) letter of undertaking. 7.2.9 The Borrower or the relevant Sub-Borrower (as the case may be) shall deliver a notice to the Agent and the Export Credit Agencies as soon as practicable after the Delivery Date of each Aircraft specifying the stated country of origin of each item of Buyer Furnished Equipment installed on each Aircraft. 7.2.10 Each of the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (as the case may be) and the Security Trustee shall, immediately following the delivery of an Aircraft to a Lessee or a Sub-Lessee (as the case may be) execute a Notice of Charge and the Security Trustee shall serve such Notice of Charge on the Lessee or if not the technical operator of the relevant Aircraft to the first technical operator of the relevant Aircraft and, if the Borrower so requests, to any other permitted sub-lessee. 7.2.11 CHANGE OF TITLE HOLDER OF AIRCRAFT OR INTRODUCTION OF AN INTERMEDIATE LESSEE (A) In respect of the leasing of an Aircraft at any time during the Security Period (provided that no Relevant Event or Termination Event has occurred and is continuing), the Borrower shall be entitled by giving notice (a "STRUCTURAL CHANGE NOTICE") to the Agent and the Security Trustee: 85 (a) to cause itself or a Sub-Borrower (which is established in a Regular Jurisdiction) to take title to that Aircraft and/or to incorporate an Intermediate Lessee (which is established in a Regular Jurisdiction) into the structure; or (b) to request that a Sub-Borrower (which is or is to be established in an Irregular Jurisdiction) take title to that Aircraft and/or that an Intermediate Lessee (which is or is to be established in an Irregular Jurisdiction) be incorporated into the structure. (B) Any such Structural Change Notice that constitutes a request under Clause 7.2.11(A)(b) shall be served at least twenty (20) Business Days prior to the proposed transfer of title to the Aircraft or such lesser period as the Agent (acting reasonably) shall agree and the Agent (acting on the instructions of the Majority Lenders) shall approve such request in principle or otherwise no later than ten (10) Business Days prior to the proposed transfer of title. (C) If the proposed Sub-Borrower or Intermediate Lessee has already acceded to this Agreement prior to the date of the relevant Structural Change Notice, or is in a Regular Jurisdiction, the approval of the Agent shall not be required. Any such other Structural Change Notice that applies to a person that has not acceded to this Agreement shall be served at least ten (10) Business Days prior to the proposed transfer of title to the Aircraft or such lesser period as the Agent shall agree. All other Structural Change Notices shall be served at least five (5) Business Days prior to the proposed transfer of title to the Aircraft. (D) Each such Sub-Borrower and/or such Intermediate Lessee shall be a company or trust capable of providing representations and warranties and covenants having substantially the same effect as those given by the Borrower in Clauses 6 (Representations and Warranties) and 7 (Undertakings and Covenants) and each shall be a wholly owned direct Subsidiary of the Borrower, in the case of a Sub-Borrower, or a wholly owned direct Subsidiary of a Sub-Borrower or the Borrower, in the case of an Intermediate Lessee (in each case, except for shares held by directors, trustees or nominees in order to meet local nationality or other local requirements and which do not have a Material Adverse Effect on any of the Charges over Shares, in favour of the Security Trustee). The Borrower shall use one Intermediate Lessee in any one jurisdiction unless the Borrower has a reason to do otherwise. (E) If a Sub-Borrower or an Intermediate Lessee has not already acceded to this Agreement and is to be incorporated into the structure then on or prior to the Security Trustee releasing the relevant Aircraft Security Documents (insofar as they relate to the Aircraft) granted by the Borrower or the relevant Sub-Borrower (as the case may be) whichever is the title holder to the Aircraft: (a) each such Sub-Borrower and/or each such Intermediate Lessee shall accede to this Agreement by executing an Accession Deed and such other Transaction Documents as the Agent in its good faith opinion considers appropriate so that any such Sub-Borrower shall be deemed to be a party to this Agreement and such of the other Transaction Documents as may be appropriate as if named therein as a party; (b) if the Sub-Borrower or Intermediate Lessee is or will be organised in an Irregular Jurisdiction, each of the applicable Obligor parties to this Agreement 86 and any such Sub-Borrower organised in an Irregular Jurisdiction and/or such Intermediate Lessee organised in an Irregular Jurisdiction shall enter into such other documents and provide such security as the Security Trustee may, in its good faith opinion (after taking legal advice from counsel to the Lenders in the jurisdiction of the relevant Sub-Borrower and/or relevant Intermediate Lessee), require in order to ensure that (i) the Representatives and each of the Lenders are in a position having a substantially similar effect (including as to their security position) with respect to such Sub-Borrower and/or such Intermediate Lessee as they are in with respect to other Sub-Borrowers or other Intermediate Lessees, as the case may be, under the Transaction Documents and (ii) the rights of the Representatives and the Lenders is not materially different than with respect to any Sub-Borrower and/or Intermediate Lessee of a Regular Jurisdiction under the Transaction Documents, it being acknowledged and agreed for the purpose of determining the foregoing matters that (i) any trustee in a United States owner/voting trust will be party to the Transaction Documents not in its individual capacity but solely as trustee, (ii) common law jurisdictions are acceptable and (iii) with respect to civil jurisdictions, the Borrower and the Agent shall negotiate in good faith, to the extent necessary, alternative security to that available in common law jurisdictions which is acceptable to the Security Trustee, acting upon the instruction of the Majority Lenders; (c) upon receipt by the Agent of the Accession Deed signed on behalf of the Borrower, Guarantors, Obligors and by the proposed Intermediate Lessee or Sub-Borrower (as the case may be), the Agent shall sign the same for itself and on behalf of the Lenders and shall as promptly as practicable give notice of such execution to all of the parties to the Accession Deed; (d) upon execution of any such Accession Deed it shall take effect in accordance with, but subject to, the terms hereof and thereof. (F) The effectiveness of the change of title holder to the Aircraft or the introduction of an Intermediate Lessee shall be subject to receipt by the Agent of the following conditions precedent in form and substance satisfactory to the Agent: (a) evidence satisfactory to the Security Trustee (including a legal opinion from counsel to the Lenders in the jurisdiction in which transfer of title to the Aircraft takes place) that the Borrower or the relevant Sub-Borrower (as the case may be) has obtained title to the Aircraft free and clear of any Liens other than Permitted Liens including a certified copy of the Bill of Sale to the Borrower or the relevant Sub-Borrower (as the case may be); (b) a legal opinion from counsel to the Lenders in the jurisdiction in which the Borrower or the relevant Sub-Borrower, as the case may be, is organised concerning the assignment of the Mortgage, the filing or registration and perfection in that jurisdiction of the Mortgage (or alternative security) with respect to the Aircraft, the Charge over Shares of Sub-Borrower (if any) and any other Aircraft Security Documents which will be entered into by the Borrower or the relevant Sub-Borrower (as the case may be) and the validity of the relevant Sub-Borrower's guarantee and indemnity (if any) in favour of the Security Trustee; 87 (c) the relevant legal opinions from counsel to the Lenders as provided in paragraph 4 of Part I to Schedule 6; (d) evidence of insurance having been effected in respect of the Aircraft with the Security Trustee named as a contract party and (to the extent possible under AVN67B, or such other endorsement as may be applicable) loss payee; (e) if applicable, copies of the certificate of registration of the Replacement Aircraft and airworthiness issued by the Aviation Authority; (f) if a Sub-Borrower or Intermediate Lessee is introduced into the structure, the following signed documents: (i) Accession Deed (if such person has not previously acceded to the Transaction Documents); (ii) the assignment of the Mortgage (if applicable) or alternative security satisfactory to the Security Trustee, acting upon the instructions of the Majority Lenders; (iii) the assignment of the Warranties (to the extent assignable); (iv) the assignment of the Engine Warranties (to the extent assignable); (v) Sub-Borrower Guarantee (if applicable); (vi) Sub-Borrower Debenture (if applicable); (vii) Intermediate Lessee Debenture (if applicable); (viii) Charge Over Shares of Sub-Borrower (if applicable); (ix) Charge Over Shares of Intermediate Lessee (if applicable); (x) Lease Security Assignment (if applicable); (xi) Intermediate Lease Security Agreement (if applicable); (xii) Notice of Charge as amended to record change of title holder or the introduction of an Intermediate Lessee as the case may be; (g) evidence to the Security Trustee that the Sub-Borrower Accounts or the Intermediate Lessee Accounts (as the case may be) have been opened and that US$10 has been deposited in each of the Sub-Borrower Accounts or Intermediate Lessee Accounts (as the case may be). 7.3 PARENT COVENANTS Until all of the Secured Obligations (exclusive of indemnities in respect of which no claims have been, or to the knowledge of the Security Trustee will be, asserted) have been 88 paid in full, the Parent hereby undertakes and covenants with each of the Lenders, the Agent and the Security Trustee separately and severally that from the date of this Agreement:- (a) except as provided in Clause 18.1 (Transfers by Obligors), it shall remain duly incorporated and validly existing under the laws of the State of California and shall not, without the prior written consent of the Security Trustee (which shall not be unreasonably withheld), make any amendment to the constitutional documents of the Borrower; (b) at all times, it shall comply and procure the compliance with all laws and regulations applicable to it and which are necessary in relation to the conduct of its businesses generally, and it shall obtain, maintain in full force and effect and comply in all material respects with, any present or future authorisations (governmental or otherwise) approvals, licences and consents and do, or cause to be done, all other acts and things, in each case which may from time to time be necessary for the continued due performance of its obligations under the Transaction Documents; (c) it shall inform the Agent of any Relevant Event or Termination Event promptly upon becoming aware of the same and shall provide the Agent with full details of any steps which it is taking, or is considering taking, in order to remedy or mitigate the effect of any Relevant Event or any Termination Event or otherwise in connection therewith; (d) it shall pay and discharge all Taxes and governmental charges which if unpaid would have a Material Adverse Effect prior to the date on which the same become overdue unless, and only to the extent that, such Taxes and charges shall be contested in good faith by appropriate proceedings, pending determination of which payment may lawfully be withheld, and there shall be set aside adequate reserves with respect to any such Taxes or charges so contested (if required in accordance with generally accepted accounting principles); (e) it shall comply with its constitutional documents and shall not amend any provision of its constitutional documents except as provided in Clause 18.1 (Transfers by Obligors) or with the consent of the Security Trustee (not to be unreasonably withheld); (f) it shall promptly, upon being requested so to do by the Agent and/or the Security Trustee take all such steps and enter into and execute all such documents and/or agreements of whatsoever nature in order to enable the Agent or, as the case may be, the Security Trustee to effect any registration, recording, filing, notarisation or any other action in respect of any of the Transaction Documents, in each case, which are required by law or reasonably requested by the Agent, or as the case may be, the Security Trustee (provided always that notwithstanding any of the provisions of the Transaction Documents the Parent shall not be required to do any act or thing or take any step in connection with the registration, recording or filing of any instrument creating or evidencing a Lien over an Aircraft in the register of the Aviation Authority where such Aircraft is registered, or any other registration, recording 89 or filing outside California or any actions with respect to a Lessee or Sub-Lessee or with respect to its jurisdiction of organisation or principal place of business unless a Third Trigger Event or Termination Event has occurred and is continuing) to ensure the validity, enforceability or priority of the liabilities and obligations of any or all of the Obligors or the rights of the Borrower, the Agent, the Security Trustee and/or each of the Lenders under any of the Transaction Documents; (g) the only business of the Parent shall be the legal ownership of the issued shares in the Borrower, and entering into the Charge Over Shares of the Borrower and the documents incidental thereto and the transactions contemplated by the Transaction Documents to which it is, or is to be, a party and such activities and matters incidental to any of the foregoing and the Parent covenants that it shall not, without the prior written consent of the Security Trustee (such consent to be exercisable in the absolute discretion of the Security Trustee) engage in any other business or transaction; (h) it shall not, without the prior written consent of the Security Trustee acting on the instructions of the Majority Lenders incur any liability to any person, other than (a) any Subordinated Liabilities, and (b) such liabilities with respect to Taxes, ordinary operating costs and overhead expenses or as have arisen or may arise in the ordinary course of carrying on its business as referred to in Clause 7.3(g); (i) it shall ensure that at all times its obligations under the Transaction Documents rank at least pari passu with its obligations owed to all its unsecured creditors save for obligations mandatorily preferred by law; (j) it shall duly observe and perform all of the covenants, obligations and conditions which are required to be observed and performed on its part under each of the Aircraft Operative Documents to which it is, or is to be, a party; (k) it shall not create any Lien on or with respect to the Charged Property (as that term is defined in the Charge Over Shares of the Borrower); (l) it shall not (without the prior written consent of the Security Trustee acting on the instructions of the Majority Lenders), issue any shares (other than to comply with nationally or other local requirements as described in Clause 3.3.2 (Sub-Borrowers/Intermediate Lessees) or to the Guarantor or a Subsidiary of the Guarantor) and the Parent shall not (other than pursuant to the Charge Over Shares of the Borrower) sell, transfer or dispose of, encumber or create any Lien over or alter the rights attaching to any of its shares in the Borrower which are owned by the Parent or pay any dividends on any shares issued by it or redeem any shares except as permitted by Clause 8 (Subordination); and (m) it shall procure that at all times a majority of the members of its board of directors shall be officers or employees of the Guarantor, a Subsidiary, AIG or an AIG Group Company and it shall procure further that no member of its board of directors shall be replaced or substituted (other than by another officer or employee of the Guarantor, a Subsidiary, AIG or an AIG Group Company) 90 without the prior written consent of the Security Trustee (which consent shall be exercisable in the absolute discretion of the Security Trustee). 7.4 GUARANTOR COVENANTS Until all of the Secured Obligations (exclusive of indemnities in respect of which no claims have been, or to the knowledge of the Security Trustee will be, asserted) have been paid in full, the Guarantor hereby undertakes and covenants with each of the Lenders, the Agent and the Security Trustee separately and severally from the date of this Agreement in the terms set out in Schedule 5 and that: (a) subject to the provisions of Clause 9 (Trigger Events) it shall ensure that the Borrower, each Sub-Borrower and each Intermediate Lessee enter into Leases and Sub-Leases in respect of any Aircraft whose terms in respect of maintenance, insurance and operations are substantially similar in substance to those which are customarily used by the Guarantor for the leasing of similar aircraft in its portfolio and leased to lessees of similar credit standing, similar geographic location and under similar circumstances; and shall administer such Leases and Sub-Leases in a manner consistent with those standards applied by it with respect to its other owned and/or financed aircraft; (b) subject to the provisions of Clause 9 (Trigger Events), the Guarantor shall procure that, when an Aircraft is not the subject of a Lease, the Borrower, each Sub-Borrower and each Intermediate Lessee shall manage such Aircraft in respect of maintenance and insurance consistently with other similar aircraft owned and not leased by the Guarantor or any Subsidiary; (c) the Guarantor shall ensure that: (a) the Parent remains a wholly owned direct or indirect Subsidiary of the Guarantor; (b) that the Borrower remains a wholly owned direct Subsidiary of the Parent; (c) each Sub-Borrower remains a wholly owned direct Subsidiary of the Borrower (subject to the provisions of Clause 3.3.2 (Sub-Borrower/Intermediate Lessees)); and (d) that each Intermediate Lessee remains a wholly owned direct Subsidiary of the Borrower or a Sub-Borrower (subject to the provisions of Clause 3.3.2 (Sub-Borrower/Intermediate Lessees)). (d) promptly after all post-delivery modifications covered by an Advance in respect of an Aircraft have been completed, the Guarantor shall provide a written notice to the Security Trustee confirming that such post-delivery modifications have been completed, and the Security Trustee shall, in turn, give a copy of such notice to the Lead Managers. If post-delivery modifications covered by an Advance in respect of an Aircraft are not carried out within the Post-Delivery Modification Period, the provisions of Clause 4.9 (Prepayment if 91 Post-Delivery Modifications not completed within Post-Delivery Modification Period) shall apply. 8. SUBORDINATION 8.1 Until all Secured Obligations (exclusive of indemnities in respect of which no claims have been, or to the knowledge of the Security Trustee will be, asserted) have been paid in full, the Subordinated Lender hereby agrees with each of the Lenders, the Agent and the Security Trustee that the rights and remedies of the Subordinated Lender in respect of any of the Subordinated Liabilities shall, except as provided in Clauses 8.2 and 8.4, be subject and subordinate as provided in this Clause 8 to all rights and claims, now or hereafter existing, which the Agent, the Security Trustee or any Lender may have pursuant to or in connection with any Transaction Document. 8.2 Whilst and so long as no Third Trigger Event or Termination Event has occurred and is continuing and no Acceleration Event has occurred, and no Relevant Event would result therefrom, the Subordinated Lender shall be entitled from time to time to make demand on the Borrower or any other Obligor (other than the Guarantor) in respect of, and receive (free from the Lien of any Aircraft Security Document) from the Borrower or any other Obligor (other than the Guarantor), amounts up to (but not exceeding) such amounts (comprising all or any part of the Subordinated Liabilities) as are actually received or otherwise held by or for the credit of such Obligor. 8.3 The Subordinated Lender shall not file or join in any petition to commence any insolvency or bankruptcy proceedings against any Obligor (other than the Guarantor) until all amounts owing by the Borrower to the Lenders, the Agent and the Security Trustee under or in connection with the Transaction Documents have been satisfied in full. 8.4 Whilst and so long as no Third Trigger Event or Termination Event has occurred and is continuing or no Acceleration Event has occurred, the rights of the Subordinated Lender to the payment of any amount of the Subordinated Liabilities shall rank pari passu to all rights and claims, now or hereafter existing, which the Agent, the Security Trustee or any Lender may have pursuant to or in connection with any Transaction Document and there are no restrictions whatsoever on the payment (free from the Lien of any Aircraft Security Document) or other actions in respect of any Subordinated Liabilities save as otherwise set out in Clauses 5 (Guarantee and Indemnity), 9.2 (Second Trigger Event), 9.3 (Third Trigger Event) and 10 (Termination Event) PROVIDED THAT:- (a) the Subordinated Lender shall not at any time assign or transfer to any person the whole or any part of the Subordinated Liabilities without the prior written consent of the Security Trustee acting upon the instructions of the Majority Lenders, other than to an AIG Group Company that agrees to be bound by the provisions of this Clause 8 by executing an Accession Deed on terms acceptable to the Security Trustee and simultaneously provides a legal opinion addressed to the Security Trustee (such opinion to be satisfactory to the Security Trustee, acting reasonably) as to the binding nature of such Accession Deed on the acceding party, which transfers shall not require such consent, or 92 (b) obtain or otherwise have the benefit of any Lien for or in respect of the Subordinated Liabilities other than on the terms reasonably specified by the Agent. 8.5 The Subordinated Lender hereby agrees with the Lenders, the Agent and the Security Trustee that upon and following the occurrence of a Third Trigger Event or Termination Event and for so long as either continues or upon the occurrence of an Acceleration Event and until all amounts owing to the Lenders, the Agent and the Security Trustee under or in connection with the Transaction Documents have been satisfied in full the Subordinated Lender shall not: (a) sue upon or collect or receive payment of any moneys (whether principal, interest or otherwise) now or hereafter comprising all or any part of the Subordinated Liabilities; (b) assign or transfer to any person the whole or any part of the Subordinated Liabilities, other than to an AIG Group Company that agrees to be bound by the provisions of this Clause 8, which transfers shall not require such consent; (c) obtain or otherwise have the benefit of any Lien for or in respect of any of the Subordinated Liabilities; (d) exercise or assert any right of set-off or counterclaim against any Obligor (other than the Guarantor) in respect of all or any part of the Subordinated Liabilities; (e) take any other action whereby the subordination of the Subordinated Liabilities or any part thereof to the rights and claims of the Lenders, the Agent and the Security Trustee pursuant to and in connection with any Transaction Document might be terminated, impaired or adversely affected; (f) make any demand in respect of or attempt to obtain repayment of any of the Subordinated Liabilities. 8.6 In any bankruptcy or insolvency proceeding of any Obligor (other than the Guarantor) any amount payable to the Subordinated Lender in respect of any amount of the Subordinated Liabilities shall be subordinated to the claims of the Lenders, the Agent and the Security Trustee against any Obligor (other than the Guarantor) until such claims have been satisfied in full in cash and the Subordinated Lender shall promptly pay to the Security Trustee (on behalf of the Lenders) any amount received by it on account of any of the Subordinated Liabilities in breach of this Clause 8.6. 8.7 This Agreement, inter alia, is a continuing agreement of subordination and shall apply notwithstanding any intermediate payment in whole or in part of all amounts owing to the Lenders, the Agent and the Security Trustee under or in connection with the Transaction Documents. The Subordinated Lender shall not by virtue of any payment or distribution or other benefit in respect of the Subordinated Liabilities and received by any Lender, the Agent or the Security Trustee be entitled to exercise any right of subrogation until all amounts owing by the Borrower to the Lenders, the Agent and the Security Trustee under or in connection with the Transaction Documents have been satisfied in full. 93 8.8 The Subordinated Lender undertakes that upon and following the occurrence of a Third Trigger Event or Termination Event and for so long as either continues or upon an Acceleration Event it shall promptly pay over to the Security Trustee an amount equal to any sums it receives thereafter from any Obligor (other than the Guarantor) in contravention of this Clause 8. 8.9 The Subordinated Lender acknowledges that upon and at any time after the occurrence of an Acceleration Event, any Proceeds shall be applied in accordance with Clause 12.7 (Application of Proceeds following an Acceleration Event). 8.10 None of the Obligors (other than the Guarantor) shall, without the prior written consent of the Security Trustee acting on the Instructions of the Majority Lenders: (a) secure all or any part of the Subordinated Liabilities; (b) redeem, purchase or otherwise acquire any of the Subordinated Liabilities other than to the extent permitted by Clause 8.2 or 8.4; (c) repay any of the Subordinated Liabilities otherwise than in accordance with this Agreement; or (d) take any action whereby the subordination of the Subordinated Liabilities or any part thereof to the rights and claims of the Lenders and the Representatives pursuant to and in connection with any Transaction Document might be terminated, impaired or adversely affected. 9. TRIGGER EVENTS 9.1 FIRST TRIGGER EVENT 9.1.1 If a First Trigger Event occurs, upon the request of the Security Trustee (acting on the instructions of the Majority Lenders), the Borrower shall provide or shall pay or cause to be paid: (a) an amount equal to each Security Deposit then held by the Borrower, each Sub-Borrower and each Intermediate Lessee into the relevant Security Deposit Account. The Borrower, the relevant Sub-Borrower and the relevant Intermediate Lessee shall procure that a separate ledger entry in the relevant Security Deposit Account is maintained in relation to each Aircraft (if applicable). All Security Deposits received by the Borrower, each Sub-Borrower and each Intermediate Lessee after the occurrence of a First Trigger Event shall be paid into the relevant Security Deposit Account; (b) an amount equal to the Maintenance Reserves then held by the Borrower, each Sub-Borrower and each Intermediate Lessee into the relevant Maintenance Reserve Account. All Maintenance Reserves received by the Borrower, each Sub-Borrower and each Intermediate Lessee after the occurrence of a First Trigger Event shall be paid into the relevant Maintenance Reserve Account. The Borrower, the relevant Sub-Borrower and the relevant Intermediate Lessee 94 shall procure that a separate ledger is maintained in relation to each Aircraft (if applicable) in the relevant Maintenance Reserve Account; and the Borrower, the relevant Sub-Borrower and the relevant Intermediate Lessee shall not remove any sums standing to the credit of either the relevant Security Deposit Account or the relevant Maintenance Reserve Account for the purpose of co-mingling such sums with the general funds of the Guarantor and/or its Subsidiaries (but shall otherwise have sole and absolute control over such sums until the occurrence and continuation of a Third Trigger Event). 9.1.2 If the payments set out in Clause 9.1.1 are not made in relation to a particular Loan to the applicable accounts within ninety (90) days of the Security Trustee's request, the Security Trustee may, acting on the instructions of the Majority Lenders demand immediate repayment of the relevant Loan, whereupon the same shall become immediately due and payable and the Borrower shall prepay the amount referred to in Clause 4.10 (Mandatory Prepayment Event) relating to the First Trigger Event. 9.1.3 If a First Trigger Event ceases by the credit rating of the Guarantor for long term debt rising above A- (as applicable) if and as rated by Standard and Poor's Corporation and A3 if and as rated by Moody's Investor Service Inc., or an equivalent by an alternative service of equivalent recognition (if neither Standard and Poor's Corporation nor Moody's Investor Service Inc. has assigned any rating) the Borrower's obligation to deposit the amounts set out in Clause 9.1.1 shall cease. 9.2 SECOND TRIGGER EVENT Upon the occurrence of a Second Trigger Event and for so long as it continues, the Lenders shall be under no further obligation to make further Advances to the Borrower unless: (a) the Aircraft which the Borrower proposes is to be the subject of the proposed further Utilisation, is subject to a Lease or an Intermediate Lease; and (b) the Security Trustee, acting on the instructions of the Majority Lenders, is satisfied as to the level of Rentals, Security Deposit (if any) and Maintenance Reserves (if any) payable under the Lease or an Intermediate Lease; and (c) if the Lenders make the Advance requested pursuant to the relevant Utilisation Notice, the Borrower shall pay or shall procure the payment of (i) an amount equal to the relevant Maintenance Reserves then held by it and pay all future Maintenance Reserves received by it into the Borrower Maintenance Reserves Account and an amount equal to the relevant Security Deposit then held by it and pay all future Security Deposits received by it into the Borrower Security Deposit Account if the relevant Aircraft is to be leased by the Borrower, (ii) an amount equal to the relevant Maintenance Reserves then held by it and pay all future Maintenance Reserves received by it into the relevant Sub-Borrower Maintenance Reserves Account and the relevant Security Deposit then held by it and pay all future Security Deposits received by it into the relevant Sub-Borrower Security Deposit Account if the Aircraft is to be leased by a Sub-Borrower and (iii) an amount equal to the relevant Maintenance Reserves then held by it and pay all future Maintenance Reserves received by it into the 95 relevant Intermediate Lessee Maintenance Reserve Account and an amount equal to the relevant Security Deposit then held by it and pay all future Security Deposits received by it into the relevant Intermediate Lessee Security Deposit Account if the relevant Aircraft is to be leased by an Intermediate Lessee. The Borrower the relevant Sub-Borrower and the relevant Intermediate Lessee shall ensure that a separate ledger is maintained in relation to each Aircraft (if applicable) in the relevant Maintenance Reserve Account. 9.3 THIRD TRIGGER EVENT 9.3.1 Upon the occurrence of a Third Trigger Event: (a) the provisions of Clause 8 (Subordination) (other than the provisions of Clauses 8.3, 8.6, 8.7 and 8.10 which shall apply in any event) shall apply to the Subordinated Liabilities; (b) the provisions of clause 7.1 of the Borrower Debenture, each Sub-Borrower Debenture and each Intermediate Lessee Debenture shall apply to all Debts and Credit Balances (as such terms are defined in the Borrower Debenture, each Sub-Borrower Debenture and each Intermediate Lessee Debenture (as the case may be)) and the sums standing to the credit of either the relevant Security Deposit Account or the relevant Maintenance Reserve Account shall not be withdrawn without the prior consent of the Security Trustee, such consent not to be withheld if the Security Trustee is satisfied that such withdrawal is for the purposes of administering the relevant Lease or maintaining the relevant Aircraft; (c) the Borrower, each Sub-Borrower and each Intermediate Lessee shall or shall procure that all Rentals and other amounts relating to the use or requisition or hull insurance of an Aircraft payable under the relevant Lease received by the Borrower, each Sub-Borrower and each Intermediate Lessee on or after the occurrence of a Third Trigger Event shall be paid into the relevant Rental Account, and the sums standing to the credit of the relevant Rental Account shall not be withdrawn without the prior consent of the Security Trustee, such consent not to be withheld if such withdrawal is for the purpose of paying any Secured Obligation. The Borrower, the Intermediate Lessee or the Sub-Borrower (as the case may be) shall ensure that a separate ledger entry in the relevant Rental Account is maintained in respect of each Aircraft; (d) the Borrower and each Sub-Borrower shall enter into a Lease Security Assignment in accordance with the provisions of clause 3.2 of each Mortgage and each Intermediate Lessee shall enter into an Intermediate Lease Security Assignment in accordance with the provisions of paragraph 2.1(g) of the relevant Accession Deed; (e) if, notwithstanding the occurrence of such Third Trigger Event, the Security Trustee elects not to give a Cancellation Notice, the Borrower, each Sub-Borrower and each Intermediate Lessee shall enter into a Lease Security Assignment and, as the case may be, an Intermediate Lease Security Assignment on the Delivery Date of each further Aircraft financed pursuant to 96 the Facility and delivered following the occurrence of such Third Trigger Event; (f) if an Aircraft is not leased to a Lessee, then: (i) unless the Security Trustee otherwise agrees (in its sole discretion), the relevant Aircraft shall be registered in the name of the Borrower, or a Sub-Borrower or an Intermediate Lessee in the United States, the United Kingdom, Bermuda or Ireland and to the extent permitted by applicable law, the relevant Aircraft Mortgage shall be registered in the aircraft mortgage register with the Aviation Authority; (ii) the Borrower shall ensure that the relevant Aircraft has a valid certificate of airworthiness issued by the Aviation Authority and that the Aircraft has been maintained in accordance with the maintenance programme approved by that Aviation Authority (including the Manufacturer's maintenance planning document) unless the Aircraft is then undergoing or scheduled for imminent major maintenance or major modifications or is in storage and would not be eligible for an airworthiness certificate from the relevant Aviation Authority; in which event the Borrower shall if requested by the Security Trustee transfer title to a US owner/voting trust so that the Aircraft is US registered for the duration of the major maintenance or major modifications or is in storage even though the Aircraft may not be eligible for an FAA certificate of airworthiness during such major maintenance or major modifications or is in storage; and (g) the Agent acting on the instructions of the Majority Lenders shall be entitled to give a written notice to the Borrower (copied to the Guarantor) declaring that a Third Trigger Event has occurred, in which case if the Agent so specifies in the notice (whereupon such notice will be deemed a "CANCELLATION NOTICE") the right of the Borrower to serve a Utilisation Notice or to require any Advance to be made in relation to any Utilisation shall be suspended until the rating of the Guarantor for long term debt rises in accordance with Clause 9.3.4 or the additional security referred to in paragraph (h)(i) below is provided whereupon the Unutilised Facility shall become available for further Utilisation on the terms and subject to the conditions of this Agreement; and (h) the Security Trustee, acting on the instructions of the Majority Lenders, shall be entitled to notify the Guarantor that, in order to keep the Facility in effect, the Majority Lenders require that the Guarantor shall provide additional security to the Lenders in form and substance satisfactory to the Majority Lenders, including: (i) a letter of credit issued by an institution acceptable to the Majority Lenders or a guarantee and indemnity from a third party acceptable to the Majority Lenders of all or part of the Guarantor's obligations in respect of principal and interest under the Transaction Documents which letter of credit or guarantee and indemnity shall be in a form and substance satisfactory to the Majority Lenders; and 97 (ii) adequate security in the form of existing bonds and cash reserves for the payment of any Permitted Liens which are being contested in accordance with the definition of Permitted Lien; (iii) the perfection of the Liens created by the Aircraft Security Documents and the receipt of satisfactory legal opinion from counsel in the state of registration of the Aircraft and, if different, in the state in which the Intermediate Lessee, the Lessee or a Sub-Lessee (as the case may be) has its principal place of business as to the recognition in those relevant jurisdictions of the Liens created by the Aircraft Security Documents so perfected in the jurisdiction of incorporation of the parties to the Aircraft Security Documents (other than the Security Trustee). 9.3.2 If the Borrower provides the additional security referred to in paragraph h(i) above in form and substance satisfactory to the Majority Lenders within one hundred and twenty (120) days of the Security Trustee's request no Second Trigger Event or Third Trigger Event shall be in effect, the Borrower shall be entitled to issue further Utilisation Notices and the provisions of Clause 3 (Utilisation of the Facility) shall apply to such Utilisation Notices. 9.3.3 If the Borrower does not provide such additional security within one hundred and twenty (120) days, the provisions of Clause 4.10 (Mandatory Prepayment) shall apply in relation to the relevant Third Trigger Event. 9.3.4 If a Third Trigger Event ceases by the credit rating of the Guarantor for long term debt rising to or above BBB- (if and as rated by Standard & Poor's Corporation) and BAA3 (if and as rated by Moody's Investor Service, Inc.) or an equivalent by an alternative service of an equivalent recognition (if neither Standard and Poor's Corporation nor Moody's Investor Service Inc. has assigned any rating) the Borrower's obligation to provide the additional security set out in Clause 9.3.1(d) and (h) shall cease and the Borrower shall thereafter be entitled to issue further Utilisation Notices and the provisions of Clause 3 (Utilisation of the Facility) shall apply to such Utilisation Notices; and the Security Trustee shall promptly (if requested by the Borrower) release, reassign and return such additional security granted pursuant to Clause 9.3.1(d) and (h) including (if the Borrower so requests) any Lease Security Assignments previously perfected and any Mortgages registered in the jurisdiction of organisation or principal place of business of the relevant Lessee. The Borrower shall pay or reimburse the Security Trustee for its Expenses incurred in respect of such release, reassignment and return. 10. DEFAULT 10.1 TERMINATION EVENTS A Termination Event shall occur if:- (a) NON-PAYMENT: the Borrower or the Guarantor fails to pay any Repayment Instalment payable by it hereunder within five (5) Business Days of the due date (other than in the case of the Guarantor following a demand made under and in accordance with Clause 5 (Guarantee and Indemnity), in which case no further grace period shall apply) or, in the case of other amounts due under any 98 Transaction Document on demand, the Borrower or the Guarantor fails to make such payment within ten (10) Business Days after the due date thereof (other than in the case of the Guarantor following a demand made under and in accordance with Clause 5 (Guarantee and Indemnity) in which case no further grace period shall apply); or (b) BREACH: the Borrower, any Sub-Borrower, any Intermediate Lessee, the Parent or the Guarantor fails to observe or perform its obligations under any of the Transaction Documents and, but only if such default is capable of remedy, such default shall continue for more than thirty (30) days after receipt of notice thereof from the Agent without being remedied to the satisfaction of the Agent or if at the end of such thirty (30) day period such failure has not been so remedied but the Borrower, the Parent, the relevant Intermediate Lessee, the relevant Sub-Borrower or the Guarantor (as the case may be) has demonstrated to the reasonable satisfaction of the Agent that there is a reasonable prospect of remedying such failure and the Borrower, the Parent, the relevant Intermediate Lessee, the relevant Sub-Borrower or the Guarantor (as the case may be) is acting in good faith is using all reasonable efforts to remedy such failure within such other period as the Agent agrees acting reasonably; or (c) REPRESENTATION: any representation or warranty made by the Borrower, any Sub-Borrower, any Intermediate Lessee, the Parent or the Guarantor in writing herein or in any of the Transaction Documents or in any certificate furnished by any of them under or in connection with any of the Transaction Documents shall prove to have been misleading or incorrect in any material respect on the date when made with reference to the facts and circumstances then subsisting and, which in the opinion of the Agent would materially and adversely affect the interests or rights of the Lenders, the Agent or the Security Trustee hereunder or thereunder and such material adverse effect is incapable of being remedied, or, if capable of being remedied within thirty (30) days after notice from the Security Trustee/Agent; or (d) INSURANCE: the required Insurances or governmental indemnities, (as the case may be) in respect of the relevant Aircraft cease to be in full force and effect as to the Security Trustee, the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee; or (e) REPUDIATION OF GUARANTEE: any of the terms contained in Clause 5 are repudiated by the Guarantor; (f) INSOLVENCY: the Borrower, the Guarantor, any Sub-Borrower, the Parent or any Intermediate Lessee (in this Clause 10.1(f), the "PARTY") shall (i) admit in writing its inability to pay its debts generally as they become due, (ii) file a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganisation in a proceeding under any bankruptcy laws (as now or hereafter in effect) or an answer admitting the material allegations of a petition filed against the Party shall by voluntary petition, answer or consent, seek relief under the provisions of any other now existing or future bankruptcy or other similar law providing for the reorganisation or winding-up of corporations, or providing for an agreement, composition, extension or adjustment with its creditors, (iii) make a general assignment for the benefit of creditors, or (iv) 99 consent to the appointment of a receiver, administrator, administrative receiver, trustee, liquidator or the like of itself or substantially all of its property; or (g) APPOINTMENT OF TRUSTEE ETC: proceedings or a case shall commence or be commenced, without the application or consent of the Borrower, the Guarantor, the relevant Sub-Borrower, the relevant Intermediate Lessee or the Parent (in this Clause 10.1(g), the "PARTY"), in any court of competent jurisdiction, which shall not be struck out within sixty (60) days of commencement and which seeks (i) the liquidation, reorganisation, dissolution, winding-up, or composition or readjustment of debts of the Party, (ii) appointment of a trustee, receiver, administrator, administrative receiver, custodian, liquidator or the like of the Party or substantially all of the property or assets of the Party, or (iii) similar relief in respect of the Party under any law providing for the relief of debtors, or any order for relief against the Party shall be entered in an involuntary case under such bankruptcy law; or (h) ANALOGOUS EVENTS: any event analogous to any of the events specified in Clause 10.1(f) or 10.1(g) in any jurisdiction shall occur; or (i) CHANGE OR CESSATION OF BUSINESS: the Borrower, any Sub-Borrower, any Intermediate Lessee and/or the Guarantor:- (i) materially changes the nature or scope of its aircraft operating leasing and aircraft trading business or aircraft operating leasing ceases to be a core activity of its business; or (ii) suspends a substantial part of its aircraft operating leasing and aircraft trading business operations (other than suspensions of a temporary nature resulting from (i) a strike or (ii) a similar event not within the control of the Borrower, the relevant Sub-Borrower, the relevant Intermediate Lessee or the Guarantor, as the case may be) which it now conducts directly; or (iii) ceases, or threatens to cease, to carry on all or a substantial part of its aircraft operating leasing and aircraft trading business; or (j) CROSS ACCELERATION OF FINANCIAL INDEBTEDNESS: any Financial Indebtedness of the Guarantor (other than Financial Indebtedness of the Guarantor to a Subsidiary of the Guarantor) exceeding one per cent. of the Financial Indebtedness of the Guarantor in aggregate (or the equivalent thereof, as determined by the Agent by reference to prevailing market exchange rates from time to time, in any other currency):- (i) is not paid when due (or within any applicable grace period relating thereto) on stated final maturity; or (ii) is declared to be due or otherwise becomes due and payable before its stated maturity by reason of a default by the Guarantor or an event of default (howsoever described) under the document relating to that Financial Indebtedness; or 100 (k) CROSS ACCELERATION OF ECA FACILITIES: a "LOAN EVENT OF TERMINATION" (as that term is defined in the 1994 Facility Agreement and the 1995 Facility Agreement) shall occur and be continuing or any other termination event (howsoever described) shall occur and be continuing in respect of any other loan facility to the Guarantor or any Subsidiary which is supported by the Export Credit Agencies, and in each case a declaration of acceleration shall have been made in respect thereof; or (l) UNINSURED USE: the Borrower, any Sub-Borrower or any Intermediate Lessee uses or operates or knowingly permits or causes to be used or operated any Aircraft outside the cover provided by any of the Insurances (including governmental indemnities, as the case may be) except in the case of repossessing the Aircraft in connection with a hijacking, act of war, impoundment (other than for unpaid charges) or similar event to ferry the Aircraft to a jurisdiction where such Insurances (or governmental indemnities) will be in effect. 10.2 ACCELERATION RIGHTS Without prejudice to any other rights of the Lenders (whether under the Transaction Documents or otherwise), at any time after the occurrence of a Termination Event and thereafter for so long as any Termination Event is continuing, the Agent may (acting upon the instructions of the Majority Lenders) give a written notice (an "ACCELERATION NOTICE") to the Borrower declaring that a Termination Event has occurred, in which case:- (a) each Loan shall be cancelled forthwith whereupon the same shall be cancelled and the Commitment of each Lender in respect of each Aircraft shall be reduced to zero; and/or (b) the principal amount of each Loan then outstanding and all interest accrued thereon, Expenses (if any) and the Make-Whole Amount in respect of each Loan (which shall be specified in such notice) shall become immediately due and payable and the Borrower shall immediately pay the same; and/or (c) each of the Representatives may enforce its rights and those of the Lenders under all or any of the Transaction Documents and under applicable law. 11. PROCEEDS ACCOUNT 11.1 On or before the occurrence of any event which will result in the payment of any Proceeds or promptly thereafter the Security Trustee shall open the Proceeds Account in respect of each Aircraft and shall promptly notify all parties to this Agreement of such details of such account as they may require in order to comply with their obligations under Clause 11.3. Such account shall be held in the name of the Security Trustee and all monies from time to time standing to the credit thereof shall be the property of the Security Trustee and no party hereto other than the Security Trustee shall have any proprietary interests in such account or any such monies. 11.2 Any sum received by any party hereto which is required by any provision hereof to be paid to the Security Trustee for credit to the Proceeds Account shall be received by such party 101 on trust for the Security Trustee PROVIDED that in respect of any Total Loss Proceeds, Requisition Proceeds, Final Disposition Proceeds or Sub-Borrower Sale Proceeds received by the Borrower or a Sub-Borrower prior to a Termination Event such amounts shall not be received in trust or be paid to the Proceeds Account but the Borrower or such Sub-Borrower shall pay as provided herein the amounts set out in Clauses 4.4.1 (Prepayment following a Total Loss), 4.5.1(a) (Prepayment on Final Disposition) and 4.6.1(a) (Prepayment on Sub-Borrower Sale) to the Security Trustee for credit to the Proceeds Account. 11.3 Each Representative and each Lender shall from time to time pay any Proceeds (other than any such amounts as may be received by way of distribution from the Proceeds Account) to the Security Trustee promptly upon receipt thereof for application in accordance with the terms of this Agreement. 11.4 All Proceeds received by the Security Trustee (otherwise than by way of distribution from the Proceeds Account) shall, if received in Dollars, be promptly credited to the Proceeds Account. 11.5 If any Proceeds are received by the Security Trustee (otherwise than by way of distribution from the Proceeds Account) in any currency other than Dollars, then they shall be applied in purchase of Dollars at the spot rate of exchange available to the Security Trustee (in the ordinary course of business) in the London foreign exchange market on the date of receipt (or, if it is not practicable to effect such purchase on such date, the immediately following day on which banks in London are generally open for the transaction of such foreign exchange business), and the net amount of Dollars so purchased (after the deduction by the Security Trustee of any reasonable costs of exchange incurred by it in connection with such purchase) shall be credited to the Proceeds Account. 11.6 Each Representative or Lender hereto agrees for the benefit of the others that it shall promptly pay, without any set-off or counterclaim and free and clear of and without any withholding or deduction whatsoever (except as required by compulsion of law) to the Security Trustee, in the currency of receipt, all Proceeds received by it for application by the Security Trustee in accordance with the terms of this Agreement (but if any such deduction or withholding is required by law then the party affected by such requirement (the "AFFECTED PARTY") agrees that it shall consult in good faith with the parties to this Agreement who may be affected thereby with a view to mitigating the effect of any such deduction or withholding provided that the affected party shall not be obliged to incur any additional expense, nor to take any course of action other than it would do in relation to any counterparty to any of its similar contracts who would be affected by the same or any similar legal requirement). 11.7 Interest shall accrue from day to day on the amounts of all Proceeds received by the Security Trustee and from time to time standing to the credit of the Proceeds Account at the rate or rates and for such interest periods and in the manner which the Security Trustee shall reasonably select from time to time. Any such interest shall be credited to the Proceeds Account at the end of each interest period so agreed. 102 12. APPLICATION OF SUMS RECEIVED BY THE LENDERS 12.1 APPLICATION OF PRINCIPAL AND INTEREST PRIOR TO THE OCCURRENCE OF AN ACCELERATION EVENT Upon receipt by the Agent of the amounts referred to in Clause 4.14.1 (Performance Procedure) in respect of the relevant Loan, the Agent shall make the same available in accordance with the provisions of Clause 4.14.2 (Performance Procedure) to each of the Lead Managers in the proportions specified in the relevant Loan Supplement for application by each Lead Manager in or towards the payment of interest and principal outstanding to the relevant Lenders in respect of the Loan relating to such Aircraft such application by each Lead Manager to be in accordance with the terms agreed between that Lead Manager, the relevant Lenders and the relevant Export Credit Agency. 12.2 APPLICATION OF AMOUNTS RECEIVED IN RESPECT OF INDEMNITY OBLIGATIONS Any and all monies received by the Agent or, as the case may be, the Security Trustee, from the Borrower, in respect of any indemnity obligations of the Borrower, shall be paid by the Agent or, as the case may be, the Security Trustee, promptly upon receipt thereof to the relevant Lender or, as the case may be, the relevant Representative in respect of whom the indemnity claim was made up to the total amount owing to that relevant Lender or the relevant Representative in respect of that indemnity claim. 12.3 APPLICATION OF INSURANCE PROCEEDS (OTHER THAN IN RESPECT OF A TOTAL LOSS) (a) Any insurance proceeds in respect of any loss of or damage to an Aircraft not amounting to a Total Loss of such Aircraft which are received by the Security Trustee pursuant to Schedule 8, together with such amount of interest as may have accrued thereon, shall be paid over to the relevant Sub-Borrower or the Borrower or to the relevant Lessee or Sub-Lessee, as instructed by the Borrower or the relevant Sub-Borrower, as the case may be and as soon as practicable thereafter, the Borrower or such Sub-Borrower shall furnish evidence reasonably satisfactory to the Security Trustee that all damage has been properly repaired. (b) Any insurance proceeds received in respect of a Total Loss of an Engine shall be paid to the Borrower or the relevant Sub-Borrower, or as it may instruct, and the Borrower or relevant Sub-Borrower shall as soon as reasonably practicable thereafter obtain title to a Replacement Engine. (c) Any monies paid under liability insurances shall be paid to the person, firm or company to which the liability (or alleged liability) covered by such insurances was incurred or if the liability (or alleged liability) to such persons has been previously discharged, such monies shall be paid to the person who has discharged such liability in reimbursement of the monies so expended by it in satisfaction of such liability or alleged liability. 12.4 APPLICATION OF TOTAL LOSS PROCEEDS (a) If any Total Loss Proceeds in respect of a Total Loss of an Aircraft are received prior to the occurrence of an Acceleration Event and such Aircraft has been substituted in accordance with the provisions of Clause 4.7 (Substitution of 103 Aircraft) such Total Loss Proceeds together with interest thereon as provided in Clause 4.7.6(a) (Timing of Substitution) shall be paid promptly following receipt by the Security Trustee to the Borrower or the relevant Sub-Borrower or their respective designee nominated in writing to the Security Trustee. (b) If any Total Loss Proceeds in respect of a Total Loss of an Aircraft are received prior to the occurrence of an Acceleration Event and such Aircraft has not been and will not be so substituted, such Total Loss Proceeds, together with such amount of interest as may have accrued thereon shall be applied promptly following receipt by the Security Trustee in the following order:- (i) in reimbursement of the Representatives and the Lenders of any and all Expenses incurred by them as a group and approved by the Guarantor (acting reasonably) in collecting such Total Loss Proceeds together with interest thereon at LIBOR from the date of payment of such Expenses; (ii) an amount of up to the total amount of principal and interest outstanding in respect of the Loan relating to such Aircraft to each of the Lead Managers in the proportions specified in the Loan Supplement relating to the relevant Aircraft for application by each Lead Manager in or towards payment of interest and principal outstanding to the relevant Lenders in respect of the Loan relating to such Aircraft, such application by each Lead Manager to be in accordance with the terms agreed between that Lead Manager, the relevant Lenders and the relevant Export Credit Agency; (iii) the Make-Whole Amount to each of the Representatives and each of the Lead Managers on behalf of the Lenders; (iv) any balance shall be paid to the Borrower. (c) If the Total Loss Proceeds are received after the occurrence of an Acceleration Event, the Total Loss Proceeds, together with such amount of interest as may have accrued thereon whilst held in the Security Trustee's bank account, shall be applied in accordance with Clause 12.7 below. 12.5 APPLICATION OF REQUISITION PROCEEDS (a) If any Requisition Proceeds (other than as a result of a Total Loss of an Aircraft) or similar proceeds in respect of an Engine are received prior to the occurrence of an Acceleration Event such Requisition Proceeds, together with such amount of interest as may have accrued thereon, shall be paid promptly following receipt by the Security Trustee to the Borrower or any relevant Sub-Borrower. (b) If the Requisition Proceeds (other than as a result of a Total Loss of an Aircraft) or similar proceeds in respect of an Engine are received after the occurrence of an Acceleration Event the Requisition Proceeds shall be applied in accordance with Clause 12.7 below subject to the Lessee's or the Sub- 104 Lessee's quiet enjoyment rights to any of such Requisition Proceeds or similar proceeds. 12.6 APPLICATION OF SUB-BORROWER SALE PROCEEDS AND FINAL DISPOSITION PROCEEDS (a) If any Final Disposition Proceeds in respect of a Final Disposition of an Aircraft or any Sub-Borrower Sale Proceeds in respect of a Sub-Borrower Sale (as the case may be) are received prior to the occurrence of an Acceleration Event and such Aircraft has been substituted in accordance with Clause 4.7 (Substitution of Aircraft) such Final Disposition Proceeds or such-Sub-Borrower Sale Proceeds (as the case may be), together with such amount of interest as may have accrued thereon, shall be paid promptly following receipt by the Security Trustee to the Borrower or the relevant Sub-Borrower or their respective designee nominated in writing to the Security Trustee. (b) If any Final Disposition Proceeds in respect of a Final Disposition of an Aircraft or any Sub-Borrower Sale Proceeds in respect of a Sub-Borrower Sale (as the case may be) are received prior to the occurrence of an Acceleration Event, such Final Disposition Proceeds or Sub-Borrower Sale Proceeds (as the case may be), together with such amount of interest as may have accrued thereon, shall be applied promptly following receipt by the Security Trustee in the following order:- (i) in reimbursement of the Representatives and the Lenders of any and all Expenses incurred by them as a group and approved by the Guarantor acting reasonably in collecting such Final Disposition Proceeds or Sub-Borrower Sale Proceeds (as the case may be) together with interest thereon at LIBOR from the date of payment of such Expenses; (ii) an amount of up to the total amount of principal and interest outstanding in respect of the Loan relating to such Aircraft to each of the Lead Managers in the proportions specified in the Loan Supplement relating to the relevant Aircraft for application by each Lead Manager in or towards payment of interest and principal outstanding to the relevant Lenders in respect of the Loan relating to such Aircraft, such application by each Lead Manager to be in accordance with the terms agreed between that Lead Manager, the relevant Lenders and the relevant Export Credit Agency; (iii) the Make-Whole Amount to each Representative and each of the Lead Managers on behalf of the Lenders; (iv) any balance shall be paid to the Borrower. (c) If the Final Disposition Proceeds or Sub-Borrower Sale Proceeds (as the case may be) are received after the occurrence of an Acceleration Event, the Final Disposition Proceeds or Sub-Borrower Sale Proceeds (as the case may be), together with such amount of interest as may have accrued thereon whilst held in the Security Trustee's bank account, shall be applied in accordance with Clause 12.7. 105 12.7 APPLICATION OF PROCEEDS FOLLOWING AN ACCELERATION EVENT Any Proceeds in the Proceeds Account relating to an Aircraft or otherwise received by the Security Trustee at the time of an Acceleration Event, or at any time thereafter, together with such amount of interest as may have accrued thereon shall be applied by the Security Trustee forthwith or, as the case may be, forthwith upon receipt by the Security Trustee as follows:- (a) first, in or towards reimbursing each of the Representatives, and/or any Receiver for any Expenses for which the Representatives, and/or any Receiver shall not previously have been reimbursed or indemnified together with interest thereon at LIBOR from the date of payment of such Expenses and in or towards payment of any debts or claims which are by statute payable in preference to the amounts due to the Representatives and/or the Lenders (but only to the extent such debts or claims have such preference); (b) second, an amount of up to the total principal and interest outstanding in respect of the Loan relating to the relevant Aircraft to each of the Lead Managers in the proportions specified in the Loan Supplement relating to such Aircraft for application by each Lead Manager in or towards the payment of interest and principal outstanding to the relevant Lenders in respect of the Loan relating to such Aircraft, such application by each Lead Manager to be in accordance with the terms agreed between that Lead Manager, the relevant Lenders and the relevant Export Credit Agency; (c) third, the Make-Whole Amount to each of the Representatives and each of the Lead Managers on behalf of the Lenders; (d) fourth, any remaining Proceeds relating to the Aircraft shall be distributed first, to the persons, in the order and in respect of the matters referred to in sub-clauses (a), (b) and (c) of this Clause 12.7 in relation to each of the other Aircraft; (e) fifth, once all of the amounts referred to in sub-clauses (a) to (d) inclusive above have been satisfied and discharged in full, any balance shall be paid to the Subordinated Lender; (f) sixth, once all of the amounts referred to in sub-clauses (a) to (e) inclusive above have been satisfied and discharged in full, any balance shall be paid to the Borrower. 12.8 APPLICATION BY LEAD MANAGERS Any application by a Lead Manager of funds received from the Security Trustee by way of distribution from the Proceeds Account pursuant to any provision of this Clause 12 shall be effected in accordance with the terms agreed between that Lead Manager, the relevant Lenders and the relevant Export Credit Agency, and each Lead Manager shall inform each other party hereto, upon such party's request, of the effect of such application on the remaining principal and interest due on the relevant national portion of the relevant Loan. 106 13. INDEMNITIES 13.1 OPERATIONAL INDEMNITY 13.1.1 The Borrower shall indemnify each Indemnitee (within ten (10) Business Days of demand accompanied by supporting particulars in reasonable detail from the applicable Indemnitee) for, each Loss and each Expense which may from time to time be imposed on, incurred or suffered by or asserted against any Indemnitee (whether or not such Loss or Expense is also indemnified or insured against by any other person, but subject to Clause 13.6 (No Double Counting)) resulting from the financing of the Borrower's or any Sub-Borrower's acquisition and ownership of any Aircraft or from the leasing by the Borrower, any Sub-Borrower or any Intermediate Lessee to the relevant Lessee of, or the leasing by the relevant Lessee to any other person of, any Aircraft, or in connection with or arising directly or indirectly out of or in any way connected with the manufacture, acceptance, purchase, delivery, any delay in or postponement of delivery, non-delivery, ownership, possession, charter, use, leasing, sub-leasing, presence, operation, condition, storage, packing, freight, shipping, transportation, modification, alteration, maintenance, insurance, overhaul, replacement, refurbishment, remarketing, management, sale, registration, de-registration, redelivery, servicing or repair of any Aircraft or in connection with or arising from any Indemnitee having or being deemed to have any interest in any Aircraft, whether or not such claim may be attributable to any defect in any Aircraft and regardless of when the same shall arise and whether or not such Aircraft is in the possession or control of the Borrower or any other person. 13.1.2 The Indemnities contained in Clause 13.1.1 shall not extend to any Loss or Expense of any Indemnitee to the extent that such Loss or Expense:- (a) is caused by the wilful misconduct, fraud or reckless disregard with knowledge of the probable consequences on the part of such Indemnitee; (b) is a Loss or Expense for which such Indemnitee has received and is entitled to retain a payment pursuant to another provision of any Transaction Document or an insurance payment pursuant to the Insurances; (c) is required to be paid or borne by such Indemnitee pursuant to the terms of any Transaction Document; (d) is caused by such Indemnitee's breach of any express representation made by it in any Transaction Document or of any express obligation under any Transaction Document (but excluding any such breach in consequence (directly or indirectly) of a breach by the Borrower or any other Obligor of any representation or warranty contained in or of their respective obligations under any Transaction Document); or (e) is upon or is caused by any voluntary transfer of an Indemnitee of any of its rights, benefits or obligation hereunder other than pursuant to Clause 15.2 (Prepayment of Affected Loans and Replacement of Affected Lender). 13.1.3 All payments by way of indemnity under Clause 13.1.1 shall be made in the currency of the relevant Loss or Expense. 107 13.1.4 If a written claim is made against an Indemnitee which is the subject of an indemnity by the Borrower under this Clause 13.1, such Indemnitee shall promptly notify the Borrower. The Borrower (including a Lessee or Sub-Lessee on any Obligor's behalf) at its sole cost and expense, except as provided herein, shall have the right to control, investigate and prosecute the entire defence and compromise of any Loss or Expense for which indemnification is sought (provided that such compromise imposes no additional payment obligations on an Indemnitee, which is not otherwise indemnified under this Clause 13); PROVIDED, if reasonably requested by the Borrower in writing within thirty (30) days following receipt by the Borrower of such notice or thereafter if the Borrower shall have acknowledged its duty to indemnify such Indemnitee hereunder, such Indemnitee shall, at the expense of the Borrower, in good faith contest in the name of such Indemnitee the validity, applicability and amount of such Loss in appropriate administrative and judicial proceedings. If the Borrower (or a Lessee or Sub-Lessee) shall, at its sole expense, assume the defence of any Loss, each Indemnitee shall cooperate with it at the Borrower's expense, in defending such Loss. Each Indemnitee shall supply the Borrower (or a Lessee or Sub-Lessee) with such information as is requested and as is necessary or advisable for the Borrower (or a Lessee or Sub-Lessee) to control or participate in any proceeding. The Borrower shall not have the right to control, investigate, prosecute and comprise such Loss so long as a Termination Event shall have occurred and be continuing provided, however, that the Borrower (or a Lessee or Sub-Lessee) shall have the right to control, investigate, prosecute and compromise such Loss in all cases when required by the terms of the insurance or insurer applicable thereto. An Indemnitee may participate at its own expense and with its own counsel in any judicial proceedings defended by the Borrower (or a Lessee or Sub-Lessee) pursuant to the preceding provisions so long as such participation does not, in the reasonable opinion of the Borrower when the Borrower (or a Lessee or Sub-Lessee) has chosen to assume the defence of any Loss, materially impair such defence. So long as the Borrower (or a Lessee or Sub-Lessee) shall have acknowledged in writing its duty to indemnify an Indemnitee hereunder, no such Indemnitee shall enter into a settlement or other compromise with respect to any such Loss without the prior written consent of the Borrower. 13.1.5 Upon the making of any claim for any Loss by an Indemnitee pursuant to this Clause 13.1, and PROVIDED that the Borrower either pays such Loss or, if such Indemnitee has not been required to make any payment in respect thereof, the Borrower confirms its indemnification obligations with respect thereto in writing, the Borrower, without any further action, shall be subrogated to any claims, rights and remedies the Indemnitee may have relating thereto (except claims under such Indemnitee's own insurance policies). Each Indemnitee agrees, at the Borrower's expense, to give such further assurances or agreements and to cooperate with the Borrower to permit the Borrower to pursue such Loss, if any, to the extent reasonably requested by the Borrower. In the event that the Borrower shall have paid an amount to an Indemnitee pursuant to this Clause 13.1.5, and such Indemnitee subsequently shall be reimbursed in respect of such indemnified amount from any other person, such Indemnitee shall, so long as no Termination Event has occurred and is continuing, promptly pay the Borrower, but not before the Borrower shall have made all payments then due to such Indemnitee pursuant to this Clause 13.1.5, an amount equal to the sum of (a) the amount of such reimbursement, including interest actually received attributable thereto, net of taxes required to be paid by such Indemnitee as a result of any refund received and (b) any tax benefit realised by such Indemnitee as a result of the deductibility for tax purposes of any payment by such Indemnitee made pursuant to this sentence. 108 13.1.6 If any Export Credit Agency were to become a Lender, the provisions of Clause 13.1.4 shall not apply to such Export Credit Agency. 13.2 DOCUMENTARY TAXES 13.2.1 Subject to Clause 13.2.2, the Borrower shall pay, and shall indemnify each Indemnitee within ten (10) Business Days of demand accompanied with supported particulars in reasonable detail for, all present and future stamp, documentary or similar duties or registration taxes or fees or charges, including any penalties, additions, fines or interest relating thereto at any time payable in respect of any of the Transaction Documents and/or the Support Agreements to a Government Entity in Bermuda, the United States or the jurisdiction of organisation of a Sub-Borrower or an Intermediate Lessee or any transaction hereunder or thereunder imposed by Bermuda, the United States of America or the jurisdiction of incorporation of the Sub-Borrower or after an Acceleration Event has occurred, by the jurisdiction in which enforcement of the applicable Transaction Document is sought and shall indemnify within ten (10) Business Days on demand accompanied with supporting particulars in reasonable detail each Indemnitee against any liability arising by reason of any delay or omission by the Borrower to pay on written demand any such duties, taxes, fees or charges. 13.2.2 The Borrower shall not have any obligation under Clause 13.2.1 in respect of any duty, tax, fee or charge to the extent the same is: (a) imposed on or as a result of any transfer (including any partial transfer or agreement to transfer) by a Lender, the Agent or the Security Trustee other than where such transfer (i) takes place at the request of the Borrower or the Guarantor or, (ii) is not undertaken voluntarily (and, for the avoidance of doubt, the provisions concerning voluntary transfer set out in Clause 18 (Assignments and Transfers) shall apply for the purposes of this Clause 13.2); or (b) imposed as a result of any action or omission of the relevant Indemnitee which constitutes wilful misconduct, fraud or reckless disregard with knowledge of the probable consequences on the part of such Indemnitee; or (c) imposed as a result of a Representative or Lender bringing a document into the United Kingdom otherwise than, after a Termination Event, for the purposes of enforcement of the Representatives' or the Lenders' rights under any of the Aircraft Operative Documents; or (d) is caused by the relevant Indemnitee's breach of any express representation made by it in any Transaction Document or of any express obligations under any of the Transaction Document (but excluding any such breach in consequence (directly or indirectly) of a breach by the Borrower or any other Obligor of any representation or warranty contained in or of their respective obligations under any Transaction Document). 13.2.3 If any duty, tax, fee or charge referred to in Clause 13.2.1 arises and no such means referred to in Clause 15.3.1 (Mitigation of Documentary Taxes) is agreed as a result of the 109 consultation procedure referred to in Clause 15.3.1 then (provided no Relevant Event has occurred and is continuing), the Borrower may, having given notice in writing to the Agent and the relevant Lender (in this Clause 13.2.3 the "AFFECTED LENDER") require such Affected Lender to transfer its rights, benefits and obligations pursuant to Clause 18 (Assignment and Transfers) or prepay to the Agent (for the account of the Affected Lender) an amount equal to all amounts outstanding (whether of principal, interest, Expenses (if any) and the Make-Whole Amount) in respect of the Affected Lender's Relevant Proportion of each Loan affected by such circumstances. 13.3 FUNDING INDEMNITIES 13.3.1 If for any reason other than a breach by the relevant Lender of its obligations hereunder:- (a) the Utilisation Date for a Loan is postponed or cancelled for any reason whatsoever; or (b) a Loan is not advanced (including pursuant to the provisions of Clause 3.7.6 (Disbursement of the Loan)) to the Borrower on the Delivery Date as a result of any condition precedent provided for herein to be fulfilled by an Obligor not being fulfilled to the satisfaction of the Agent, then the Borrower shall indemnify the Security Trustee, the Agent and each Lender within five (5) Business Days of demand accompanied with supporting particulars in reasonable detail (which demand, at the Borrower's request in expectation of delivery of the Aircraft, the Security Trustee will delay making on the Borrower for a period not exceeding ten (10) Business Days after the Scheduled Delivery Date) against all Losses and Expenses which the Security Trustee, the Agent or any Lender may suffer, sustain or incur as a consequence thereof (and, in the case of postponement, as a consequence of remaining in readiness for and acting in accordance with such postponed Utilisation Date) in respect of funds borrowed or mobilised by the Security Trustee, the Agent or such Lender in connection with the financing or funding of the relevant Loan, the liquidation or redeployment of any deposits taken or made and funding costs in relation to any interest exchange or other hedging arrangements entered into in connection with its participation in the relevant Loan or any part thereof or in connection with any foreign exchange business transacted for such purpose, the substitute investment (for the then current Interest Period) of such funds with a return lower than the cost of such funds or the prepayment of such funds to the source from which they were borrowed or mobilised, INCLUDING, if delivery of the Aircraft does occur after but not on the Scheduled Delivery Date, (i) the German Lenders' actual cost of financing or funding the relevant German Credits as determined two (2) Business Days prior to the Scheduled Delivery Date with respect to the period from (and including) the Scheduled Delivery Date to (but excluding) the Delivery Date; (ii) Losses in an amount equal to the amount by which the British Lenders' and the French Lenders' actual cost of financing or funding the relevant British Credits and the French Credits respectively as determined two (2) Business Days prior to the Scheduled Delivery Date for the period between the Scheduled Delivery Date and the 110 first Repayment Date exceeds the British Lenders' and French Lenders' notional cost of financing or funding the relevant British Credits and French Credits respectively on the Delivery Date (as determined two (2) Business Days prior to the Delivery Date by the Export Credit Agencies or their respective financial institutions involved in the "LASU" rate support programme) with respect to the period between the Delivery Date and the first Repayment Date; and (iii) if, in addition to financing or funding the relevant Loan, the Lenders have separately financed the guarantee fee and credit insurance premia of the Export Credit Agencies payable in respect of the relevant Loan two (2) Business Days prior to the Scheduled Delivery Date, Losses in the amount by which the Lenders' reimbursement exposure (comprising scheduled repayment of portion of principal together with interest) in financing such guarantee fee and credit insurance premia for the period between the Scheduled Delivery Date and the first Repayment Date exceeds that portion of the Repayment Instalment payable in accordance with the terms of this Agreement and the relevant Loan Supplement, which is attributable to the relevant Lenders' reimbursement exposure (as described above) in financing such guarantee fee and credit insurance premia, for the period between the Delivery Date and the first Repayment Date. The Agent shall keep the relevant British Credits, French Credits and German Credits from the Scheduled Delivery Date proposed in the Utilisation Notice in an interest bearing account as agreed between the Agent and the Borrower and shall, if delivery of the relevant Aircraft occurs within ten (10) Business Days after the Scheduled Delivery Date and if no undertaking has been given by the Agent and released to the Seller pursuant to Clause 3.7.6 (Disbursement of the Loan) and after first having received any payment due under the indemnity in this Clause 13.3.1, pay to the Borrower all amounts of interest actually accrued thereon from (and including) the Scheduled Delivery Date to (but excluding) the Delivery Date. 13.3.2 Any profit or gain realised by any Lender in respect of its funding arrangements as a result of the circumstances contemplated in sub-paragraph (a) or (b) of Clause 13.3.1 shall be for the account of and, subject to the provisions of Clause 19 (Set Off and Pro Rata Payments) be paid to the Borrower. 13.3.3 The Borrower shall indemnify the Security Trustee, the Agent and each Lender within ten (10) Business Days of demand (accompanied by supporting particulars in reasonable detail) for all amounts which the Security Trustee, the Agent or such Lender certifies to be necessary to compensate it for any Loss or Expense suffered or incurred by it (together with amounts calculated pursuant to paragraph (ii) to (vi) inclusive of the Make-Whole Amount) as a consequence of or in connection with:- (a) any prepayment of the Loan or any part thereof or any interest accrued thereon; (b) any amount of principal or interest on a Loan payable by the Borrower hereunder being paid otherwise than on the due date (excluding any grace period in relation to the relevant due date); or 111 (c) the occurrence of an Acceleration Event. PROVIDED THAT this Clause 13.3.3 shall not require double payment of any of the amounts described above to the extent that any Loss or Expense form part of the Make-Whole-Amount, and the Borrower shall have no liability under this Clause 13.3.3 following payment in full on the due date of the aggregate of (i) the Loan, (ii) all interest on the Loan accrued to the date of actual payment, (iii) the Make-Whole Amount (if applicable) and (iv) Expenses (if any). 13.4 CURRENCY INDEMNITY 13.4.1 Any amount received or recovered by the Agent, the Security Trustee or any Lender in respect of any monies due from the Borrower or any other Obligor under any of the Transaction Documents (whether as a result of any judgment or order of any court (including enforcement thereof) or in the bankruptcy, reorganisation, liquidation or dissolution of any of the Borrower or any other Obligor (including making or filing a claim or proof against the Borrower) or by way of damages for any breach of any obligation to make any payment to the Agent, the Security Trustee or such Lender) in a currency (the "CURRENCY OF PAYMENT") other than the currency in which the payment should have been made pursuant to the relevant Transaction Document (the "CURRENCY OF OBLIGATION") in whatever circumstances and for whatever reason shall only constitute a discharge to the Borrower or any other Obligor to the extent of the amount of the Currency of Obligation which the Agent, the Security Trustee or such Lender, as the case may be, is able or would have been able, on the date or dates of receipt by it of such payment or payments in the Currency of Payment (or, in the case of any such date which is not a Banking Day, on the next succeeding Banking Day), to purchase in the foreign exchange market of its choice with the amount or amounts of the Currency of Payment so received. 13.4.2 If the amount of the Currency of Obligation which the Agent, the Security Trustee or the relevant Lender is so able to purchase falls short of the amount originally due to such party hereunder, the Borrower shall indemnify such party on demand against any loss or damage arising as a result of paying to such party that amount in the Currency of Obligation certified by such party as necessary to indemnify and hold it harmless. 13.5 TAX TREATMENT OF INDEMNITY PAYMENTS 13.5.1 Where the Borrower or any other Obligor has an obligation to indemnify or reimburse any Lender or Representative in respect of any Loss or Expense under Clause 13.1.1 (Operational Indemnity), the calculation of the amount payable by way of indemnity or reimbursement shall be based upon the likely Tax treatment in the hands of the Lender or the Representative (as determined by the Lender or the Representative in its bona fide opinion) of the amount payable by way of indemnity or reimbursement and of the Loss or Expense under Clause 13.1.1 (Operational Indemnity) in respect of which that amount is payable so as to leave the Lender or the Representative in the same after-Tax position (the "AFTER-TAX NEUTRAL POSITION") as it would have been in had the payment made to the Lender or the Representative not given rise to a Tax Liability and had the Loss or Expense incurred or payment made by the Lender or the Representative not been deductible in the accounting period in which that Loss, Expense or payment was incurred or made. 112 13.5.2 If a Lender or Representative determines, in its good faith opinion, that as a result of the application of Clause 13.5.1, it has received and retained an amount in excess of that required to preserve its After-Tax Neutral Position, such Lender or, as the case may be, Representative shall, provided it has received all amounts which are then due and payable by the Borrower or any other Obligor under any of the provisions of the Transaction Documents, pay to the Borrower or any other Obligor (to the extent that the Lender or, as the case may be, Representative can do so without prejudicing its After-Tax Neutral Position and the right of such Lender or, as the case may be, Representative to obtain any other benefit, relief or allowance which may be available to it) such amount, if any, as such Lender or, as the case may be, Representative in its absolute discretion shall determine will restore such Lender's or, as the case may be, Representative's After-Tax Neutral Position PROVIDED that:- (a) each Lender and Representative shall have an absolute discretion as to the time at which and the order and manner in which it realises or utilises any Tax benefit and shall not be obliged to arrange its business or its Tax affairs in any particular way in order to be eligible for any Tax benefit; (b) no Lender or Representative shall be obliged to disclose any information regarding its business, Tax affairs or Tax computations; (c) if any Lender or Representative has made a payment to the Borrower pursuant to this Clause 13.5.2 to restore that person's After-Tax Neutral Position and it subsequently transpires that the After-Tax Neutral Position of such Lender or Representative was not so restored, the Borrower shall pay on demand to such Lender or Representative such sum as such Lender or Representative may determine as being necessary to restore the After-Tax Neutral Position of the Lender or Representative to that which it would have been had no adjustment under this paragraph (c) been necessary; and (d) the Lender or Representative shall not be obliged to make any payment under this Clause 13.5.2 if, by doing so, it would contravene the terms of any applicable law or any notice, direction or requirement of any governmental or regulatory authority (whether or not having the force of law but in respect of which compliance by banks or other financial institutions or other persons in the relevant jurisdictions is generally customary), provided that the provisions of this Clause 13.5 shall not apply to any Export Credit Agency which may at any time become a Lender. 13.6 NO DOUBLE-COUNTING No Lender or Representative shall be entitled, pursuant to the terms of any of the Transaction Documents, to recover by way of indemnity any Loss, Expense, Tax Liability to the extent that payment has previously been received and retained by it in respect of such Loss, Expense, Tax Liability under any other provision of any Transaction Document. 13.7 SURVIVAL OF INDEMNITIES AND OTHER OBLIGATIONS The indemnities contained in this Agreement shall constitute a separate and independent obligation from the other obligations contained in this Agreement, shall give rise to a 113 separate and independent cause of action, shall apply irrespective of any indulgence granted by the Agent, the Security Trustee or any Lender from time to time and shall continue in full force and effect notwithstanding (a) the termination or expiry of this Agreement or (b) the satisfaction in full of all amounts owing to the Security Trustee, the Agent and each Lender under the Transaction Documents or (c) any judgment or order for a liquidated sum or sums in respect of amounts due hereunder or under any such judgment or order. 13.8 VALUE ADDED TAX 13.8.1 If any Indemnitee makes any supply to the Borrower or Representatives for Value Added Tax purposes pursuant to or in connection with any of the Transaction Documents, the Borrower shall (save to the extent that the relevant Indemnitee is entitled to be indemnified in respect of Value Added Tax by an increased payment under Clause 13.8.2) pay to the relevant Indemnitee within ten (10) Business Days of demand (accompanied by supporting particulars in reasonable detail) an amount equal to any Value Added Tax which is payable under the laws of Bermuda, the United States of America or the jurisdiction of organisation of a Sub-Borrower or to the extent provided in Expenses in respect of that supply. 13.8.2 All payments made by the Borrower under the Transaction Documents are calculated without regard to Value Added Tax. If any such payment constitutes the whole or any part of the consideration for a taxable or deemed taxable supply to the Borrower or Representatives by any Indemnitee under the laws of Bermuda, the United States of America or the jurisdiction of organisation of a Sub-Borrower or to the extent provided in Expenses the amount of that payment shall be increased by an amount equal to the amount of Value Added Tax which is chargeable in respect of the taxable supply in question. The Borrower's obligations under this Clause 13.8.2 shall be subject to the delivery on or before the due date for that payment to the Borrower of an invoice for Value Added Tax purposes made out in accordance with the applicable regulations. 13.8.3 No payment or other consideration to be made or furnished by any Indemnitee to the Borrower or Representatives pursuant to or in connection with any of the Transaction Documents may be increased or added to by reference to (or as a result of any increase in the rate of) any Value Added Tax which shall be or may become chargeable in respect of the taxable supply in question. 13.8.4 If any Indemnitee makes any payment under, or as contemplated in, any of the Transaction Documents to the Representatives which under the laws of Bermuda, the United States of America or the jurisdiction of organisation of a Sub-Borrower or to the extent provided in Expenses bears or includes Value Added Tax which such Indemnitee determines to be irrecoverable by it, the Borrower shall within ten (10) Business Days of demand (accompanied by supporting particulars in reasonable detail) indemnify such Indemnitee for such Value Added Tax. 114 14. CHANGE IN CIRCUMSTANCES 14.1 INCREASED COSTS 14.1.1 If a Change in Law shall:- (a) subject any Lender to any Tax in connection with its commitment to or participation in the Transaction or any part thereof (except for changes in the rate of Tax on the overall net income of such Lender or Representative or such Lender's lending office imposed by any Government Entity of the country in which such Lender or Representative is incorporated or in which such Lender's lending office is located); or (b) change the basis of Taxation of any Lender in respect of payments of principal, interest or any other amount payable to any Lender in connection with the Transaction (except for changes in the rate of Tax on the overall net income of such Lender or Representative or such Lender's lending office imposed by any Government Entity of the country in which such Lender or Representative is incorporated or in which such Lender's lending office is located) (or the treatment for Taxation purposes of such payments); or (c) impose or modify any reserve, cash ratio, special deposit, capital adequacy, liquidity or any other analogous requirement, or require the making of any special deposit, against or in respect of any assets or liabilities of, or deposit with or for the account of, or loan or commitment by, any Lender in relation to the Transaction; or (d) change the manner in which any Lender is required by any regulatory authority to allocate capital resources in relation to the Transaction; or (e) impose on any Lender any other condition directly affecting its participation in the Transaction, and the result of any of the foregoing is or will be (i) to increase the cost to such Lender of funding, making available or maintaining its participation in the Transaction or any part thereof or of funding, making or maintaining its participation in any Loan or (ii) to render such Lender unable to obtain the rate of return on its overall capital reasonably allocated to its obligations hereunder which it would have been able to obtain but for such Change in Law or (iii) to reduce any amount payable to such Lender by the Borrower hereunder or to reduce its return from the Transaction or any part thereof, then and in any such case:- (y) such Lender shall notify the Borrower (through the Agent); (z) the Borrower shall (subject to Clause 14.1.2) pay from time to time to the Agent (for the account of that Lender) within ten (10) Business Days of demand (accompanied by supporting particulars in reasonable detail) all amounts which that Lender certifies are necessary to compensate that Lender or Representative for such charge to Tax or increase in cost or reduction in return or reduction in the amount payable. 115 14.1.2 The provisions of Clause 14.1.1 shall not apply in respect of any charge to Tax, increased cost, reduction in the rate of return or reduction in an amount payable to the extent that the same:- (a) arises from any action or omission of an Indemnitee which constitutes wilful misconduct, fraud or reckless disregard with knowledge of the probable consequences on the part of such Indemnitee; or (b) is caused by such Indemnitee's breach of any express representation made by it in any Transaction Document or of any express obligation under any Transaction Document (but excluding any such breach in consequence (directly or indirectly) of a breach by the Borrower or any other Obligor of any representation or warranty contained in or of their respective obligations under any Transaction Document); or (c) is a deduction or withholding Tax, Value Added Tax or documentary Tax (it being agreed that such Taxes are exclusively provided for elsewhere in this Agreement and are not covered by Clause 14.1.1) or a charge to Tax for which such Indemnitee has received and retained a payment pursuant to other indemnity provision of any Transaction Document; or (d) is on or arises from any transfer by a Lender of any of its rights, benefits and/or obligations hereunder other than pursuant to Clause 15.2 (Prepayment of Affected Loans and Replacement of Affected Lender); or (e) arises prior to the date of the relevant notice thereof to the Borrower; or (f) arises out of such Indemnitee's own credit or risk based capital rating or otherwise due to its own financial condition; or (g) is not charged to the other borrower customers of such Lender; or (h) comprises a Tax on the overall net income, profit or capital gains of any Indemnitee (or, in the case of any Indemnitee acting through a branch outside the main jurisdiction in which it is resident for Tax purposes, comprises a Tax on the overall net income, profit or capital gains of that Indemnitee in the jurisdiction to which that Indemnitee's interest in the Transaction is properly attributable for Tax purposes) attributable to any sums receivable by any Indemnitee pursuant to any Transaction Document; or (i) comprises any penalty, addition to Tax, fine or interest on or in respect of a Tax or Tax Liability which would not have arisen but for avoidable delay or failure by such Indemnitee in the filing of Tax returns which such Indemnitee was obliged to file by any law of the jurisdiction of incorporation or, in the case of a Lender, the jurisdiction in which its Lending Office is located, and which such Indemnitee ought reasonably to have been aware it was so obliged to file in connection with the Transaction or the payment of Taxes other than any such delay or failure in consequence (directly or indirectly) of a request by the Borrower or any Obligor or a delay of or failure by the Borrower or any Obligor duly and punctually to perform any of their respective obligations under the Transaction Documents or in consequence of any event or 116 circumstance outside the reasonable control of such Indemnitee or otherwise caused (directly or indirectly) by the Borrower or any Obligor; or (j) is imposed by a jurisdiction other than the main jurisdiction in which such Indemnitee is resident for Tax purposes to the extent that it gives rise to a corresponding credit which such Indemnitee has retained and utilised against any Tax Liability imposed in the main jurisdiction in which such Indemnitee is so resident; or (k) would not have arisen but for:- (i) any failure by such Indemnitee to file any relevant Tax return or Tax computation which such Indemnitee was obliged to file by any law of the jurisdiction of incorporation or, in the case of a Lender, the jurisdiction in which its Lending Office is located or any documents which such Lender is obliged to file as a result of any applicable law, regulation, practice, concession, official directive, ruling, request, notice, guideline, statement of policy or practice statement by the Bank of England, the Banque de France, the Deutsche Bundesbank, the European Central Bank, the Federal Reserve Bank of New York, the European Union or any central bank, Tax, fiscal, governmental, local, international, national or other competent authority or agency (whether or not having the force of law but in respect of which compliance by banks or other financial institutions or other persons in the relevant jurisdiction is customary) and in each case which such Indemnitee ought reasonably to have been aware it was so obliged to file in connection with the Transaction except for any such failure caused (directly or indirectly) by any action or inaction of the Borrower or any Obligor or any event or circumstance outside the reasonable control of such Indemnitee; or (ii) any failure (subject to the same exceptions and exclusions as set out in Clause 4.12.5(g)(i)) to file or provide the Borrower or the relevant Lessee with any Tax claims, forms (including the Internal Revenue Service Forms), affidavits, declarations or other like documents which the Borrower or the relevant Lessee has reasonably requested such Indemnitee in writing to file or provide (any such request containing sufficient detail to enable such Indemnitee to comply with the terms thereof) unless:- (aa) except with respect to the Internal Revenue Service Forms, such Indemnitee determines acting in good faith but nevertheless in its sole discretion that it is unable to file or provide or that it would be illegal or contrary to any applicable law, official regulation, practice, concession, directive, ruling, request, notice, guideline, statement of policy or practice statement by the Bank of England, the Banque de France, the Deutsche Bundesbank, the European Central Bank, the Federal Reserve Bank of New York, the European Union or any 117 central bank, Tax, fiscal, governmental, local, international, national or other competent authority or agency (whether or not having the force of law but in respect of which compliance by banks or other financial institutions or other persons in the relevant jurisdiction is customary) for such Indemnitee so to do or so to do would or may result in the breach of any agreement or confidentiality undertaking or the disclosure of any information about such Indemnitee's Tax affairs which such Indemnitee considers (in its bona fide opinion) to be of a confidential nature; or (bb) in the case of the Internal Revenue Service Forms, such failure is due to a Change in Law occurring subsequent to the date on which any of the Internal Revenue Service Forms was originally required to be provided. 14.2 MARKET DISRUPTION 14.2.1 If, in relation to any Interest Period or other relevant period:- (a) the Agent is notified by any Lender (in this Clause 14.2 the "AFFECTED LENDER") that deposits in Dollars in amounts sufficient to fund such affected Lender's participation in the relevant Loan are not, in the ordinary course of business, available in the London inter-bank market for a period equal to the relevant Interest Period or other relevant period; or (b) the Agent determines that, by reason of circumstances affecting the London inter-bank market generally, reasonable and adequate means do not or will not exist for ascertaining LIBOR in relation to such Interest Period or other relevant period, then:- (i) the Agent shall promptly give a notice to the Borrower and each Lender in writing advising of such event; (ii) the Borrower shall on each subsequent Repayment Date for so long as such circumstances continue pay to the Agent for the account of the Affected Lender an amount equal to interest on the Affected Lender's Relevant Proportion of the relevant Loan at the rate which is agreed between the Borrower and such Lender, each acting in good faith, and if no agreement can be reached, equal to the cost to such Affected Lender (as certified by such Affected Lender and notified to the Agent) of obtaining Dollars from whatever source or sources it may in good faith but otherwise in its absolute discretion select for funding its Relevant Proportion of the Loan during such Interest Period or other relevant period. 118 14.3 ILLEGALITY 14.3.1 If, at any time as a result of a Change in Law it is or it will become unlawful for any Lender (the "AFFECTED LENDER"), to make, fund or allow to remain outstanding any part of its Commitment or its participation in the Facility or any Loan, then any Affected Lender may deliver to the Borrower through the Agent a notice to that effect, whereupon subject to Clause 15.1 (Mitigation) the Borrower shall on or before the date the Agent notifies the Borrower that the Affected Lender's obligations hereunder are unlawful prepay each Loan affected by the relevant circumstances together with all interest accrued thereon, the Make-Whole Amount and Expenses (if any) to the Affected Lender pursuant to this Agreement or any relevant Aircraft Operative Document. 14.3.2 If at any time as a result of a Substantive Law Change any Loan or the repayment of any Loan or the payment of interest at the stated non-default rate on any Loan or the guarantee by the Guarantor hereunder or any material element of the security package as contemplated by the Aircraft Security Documents in relation to any Loan shall become illegal or unenforceable, then the Agent may deliver to the Borrower a notice to that effect, whereupon, subject to Clause 15.1.3 (Mitigation), the Borrower shall forthwith prepay each Loan to which such relevant circumstances apply together with all interest accrued thereon, the Make-Whole Amount and Expenses (if any) pursuant to this Agreement or any relevant Aircraft Operative Document. 15. MITIGATION AND CONTEST RIGHTS 15.1 MITIGATION 15.1.1 If circumstances arise in respect of any Lender which would, or upon the giving of notice would, result in the operation of Clause 4.12 (Deductions and Withholdings), 14.1 (Increased Costs), 14.2 (Market Disruption) or 14.3 (Illegality) to the detriment of the Borrower: (a) each such Lender shall promptly upon becoming aware of the same notify the Borrower and upon the written request of the Borrower shall negotiate in good faith with the Borrower for a period not exceeding forty-five (45) days with a view to avoiding or minimising the relevant duty, tax, fee or charge including, in the case of a Lender, a change in its Lending Office or a transfer of its participation in the Loans and its Commitments to another bank or financial institution or in the case a Representative, including resignation in accordance with the provisions of the Lenders' Agreement; and (b) at the request of the Borrower, such Representative will negotiate in good faith with the Borrower with a view to avoiding or minimising the consequences of such including resigning in accordance with the provisions of the Lenders' Agreement. 15.1.2 Without limiting or reducing the obligations of the Obligors (or any of them) under Clause 4.12 (Deductions and Withholdings), Clause 14.1 (Increased Costs), Clause 14.2 (Market Disruption), or Clause 14.3 (Illegality), in relation to Clauses 4.12 (Deductions and Withholdings), 14.1 (Increased costs), 14.2 (Market Disruption) and 14.3 (Illegality) no Lender or Representative shall have any obligation to take any action under Clause 15.1.1 119 if, in its good faith opinion, to do so would be likely to (a) have a material adverse effect upon its business, operation or financial condition, or (b) result in its rights, interests, anticipated financial return or position under or in relation to any of the Transaction Documents being materially less favourable to it than would have been the case in the absence of such action unless indemnified or secured to its satisfaction in respect thereof, or (c) involve it in any unlawful act or activity or any act or activity that is contrary to any official directive, concession, guideline, request or requirement of any competent authority (whether or not having the force of law but, in the case only of any of the same not having the force of law, in respect of which compliance by banks or other institutions of a similar nature to the relevant Lender or Representative, as the case may be, is generally considered mandatory), or (d) (unless indemnified or secured to its satisfaction) involve it in any Tax Liability or any expense which is significant in such Lender's or Representative's bona fide opinion or (e) unless protected by confidentiality procedures involve it in any disclosure of any document or information relating to its business or affairs which it considers (in its good faith opinion) to be of a confidential nature. 15.1.3 If the circumstances referred to in Clause 14.3.2 (Illegality) arise, upon the written request of either the Borrower or the Agent, the Borrower and the Representatives shall negotiate in good faith for a period not exceeding sixty (60) days (or such shorter period as may be required by law) with a view to restructuring each affected Loan and rectifying and amending the relevant Transaction Documents in order to mitigate the effect of the relevant Substantive Law Change and the Borrower shall pay for the Expenses incurred by the Representatives (as a group) for such negotiations as well as (if alternative arrangements are agreed) to complete all steps required to implement such restructuring and all rectifications and amendments to the relevant Transaction Documents in relation to each Loan affected by the circumstances referred to in Clause 14.3.2 (Illegality). If a resolution acceptable to the Borrower and the Representatives is obtained as a result of this mitigation procedure, the Borrower shall implement the rectification and amendments referred to in Clause 15.1.3 to the relevant Transaction Documents, to the satisfaction of the Agent, within sixty (60) days from the earlier of the date when such resolution is reached and the date upon which the period of sixty (60) days (or such shorter period as required by law) is referred to in Clause 15.1.3 expires. If the Borrower fails to implement such rectification and amendment to the relevant Transaction Documents within such period the Borrower shall prepay each Loan to which Clause 14.3.2 (Illegality) applies as aforesaid. 15.1.4 If any Export Credit Agency were to become a Lender, the provisions of Clause 14 (Change of Circumstances) and this Clause 15 shall not apply to such Export Credit Agency. 15.2. PREPAYMENT OF AFFECTED LOANS AND REPLACEMENT OF AFFECTED LENDER 15.2.1 If the circumstances referred to in Clauses 4.12 (Deductions and Withholdings), 14.1 (Increased Costs), 14.2 (Market Disruption) and 14.3 (Illegality) arise, and no resolution acceptable to the parties is obtained as a result of the mitigation procedure referred to in Clause 15.1 (Mitigation and Contest Rights), or if a Lender has defaulted on its obligations hereunder (also an "AFFECTED LENDER"). (a) if requested by the Borrower, the Agent will consult with the Borrower with a view to identifying and approaching bank(s) and financial institution(s) acceptable to the Borrower (acting reasonably) which may be willing to 120 become a party to this Agreement as "Lender(s)" ("REPLACEMENT LENDER") in replacement of the Affected Lender, subject to the approval of the relevant Export Credit Agency. Once a suitable Replacement Lender has been found and is approved by the relevant Export Credit Agency, each Affected Lender shall transfer its Relevant Proportion of each Loan affected by such circumstances and its right, benefits and obligations under the Transaction Documents to another bank which is not affected by such circumstances in accordance with the terms of Clause 18 (Assignment and Transfers). The Borrower shall indemnify the Affected Lender (except in the case of a defaulting Lender) and the Agent for all Expenses incurred by the Affected Lender and the Agent in relation to such transfer; and (b) if the Borrower does not so request the Borrower shall pay to the Agent (for the account of each Affected Lender (the "AFFECTED LENDER")) each Affected Lender's Relevant Proportion of each Loan affected by such circumstances together with all accrued interest thereon and, except in the case of a defaulting Lender, the Make-Whole Amount and Expenses (if any) owing to the Affected Lender in connection with any such Loan or under this Agreement or the relevant Aircraft Operative Documents. 15.2.2 (a) Except in the case of a defaulting Lender, if the Borrower wishes to make any payment referred to in Clause 15.2.1(b), such payment shall be treated as a voluntary prepayment and accordingly the provisions of Clause 4.3 (Voluntary Prepayment) shall apply and in particular the Borrower should comply with provisions of Clause 4.3.1 and 4.3.3 in relation to any such payment referred to in Clause 15.2.1. (b) The Agent shall as soon as reasonably practicable after receipt of the Borrower's prepayment notice, unless the Borrower elects to prepay the entire Loan in relation to an Aircraft, prepare a substitute schedule for schedule 2 to the relevant Loan Supplement showing new amounts for the repayment of the relevant Loan for the period following such prepayment calculated on the same basis and assumptions (other than the assumption as to the total principal amount of the relevant Loan) as were used for the purpose of preparing the original schedule 2 to such Loan Supplement. Upon the Borrower and each Export Credit Agency agreeing to the same, such substitute Schedules shall become for all purposes schedule 2 to the relevant Loan Supplement and shall be binding on all parties with effect from the date of the prepayment. 15.3 MITIGATION OF DOCUMENTARY TAXES 15.3.1 Without prejudice to the provisions of Clause 13.2 (Documentary Taxes), if (in the opinion of any Lender or Representative) any duties, taxes, fees or charges referred to in Clause 13.2 arise and the Borrower so requests, the relevant Lender or Representative shall consult for a period not exceeding thirty (30) days with the Borrower (at the Borrower's cost) with a view to agreeing a means for reducing or avoiding the relevant duty, tax, fee or charge (including, in the case of a Lender, by transferring its rights and obligations under the Transaction Documents to another Lending Office or another person or, in the case of a Representative, by resigning in accordance with the provisions of the Lenders' Agreement once a suitable Replacement Lender has been found and approved by the Export Credit Agencies). 121 15.3.2 Without limiting or reducing the obligations of the Obligors (or any of them) under Clause 13.2 (Documentary Taxes), no Lender or Representative shall have any obligation to take any action under Clause 15.3.1 if, in its good faith opinion, to do so would be likely to (a) have a material adverse effect upon its business, operation or financial condition, or (b) result in its rights, interests, anticipated financial return or position under or in relation to any of the Transaction Documents being materially less favourable to it than would have been the case in the absence of the relevant duty, tax, fee or charge unless indemnified or secured to its satisfaction in respect thereof, or (c) involve it in any unlawful act or activity or any act or activity that is contrary to any official directive, concession, guideline, request or requirement of any competent authority (whether or not having the force of law but, in the case only of any of the same not having the force of law, in respect of which compliance by banks or other institutions of a similar nature to the relevant Lender or Representative, as the case may be, is generally considered mandatory), or (d) (unless indemnified or secured to its satisfaction) unless protected by confidentiality procedures involve it in any Tax Liability or any expense which is significant in such Lender's or Representative's bona fide opinion or (e) involve it in any disclosure of any document or information relating to its business or affairs which it considers (in its good faith opinion) to be of a confidential nature. 15.4 CONTEST RIGHTS If requested by the Borrower in a written notice to the relevant Indemnitee and the Agent, following a demand by such Indemnitee (or by the Agent on its behalf) pursuant to Clause 4.12 (Deductions and Withholdings) or Clause 13.2 (Documentary Taxes) in respect of a Tax Liability of such Indemnitee, such Indemnitee shall, to the extent that (a) it is able and entitled to do so, (b) it is not illegal or contrary to any official directive or policy for it to do so, (c) it is commercially reasonable for it to do so and (d) to do so would not adversely affect its business, operation or financial condition, take such action as the Borrower may reasonably request to contest (including pursuing all administrative appeals) the validity, applicability or amount of such Taxes and shall (x) seek postponement of payment thereof if available and practicable, (y) pay the same only under protest, if payment under protest is a permitted alternative under the laws and procedures of the relevant taxation authority and is in the circumstances, reasonable or (z) if payment must be or shall have been made, seek a refund thereof in appropriate administrative or judicial proceedings PROVIDED THAT:- (a) the Borrower shall indemnify such Indemnitee (and prior to taking such action shall if requested by such Indemnitee, acting reasonably, provide to such Indemnitee security reasonably satisfactory to such Indemnitee in respect of any amounts so payable) against all losses, damages, costs and expenses which such Indemnitee may incur in connection with or as a result of contesting such claim or taking such action (including, without limitation, reasonable costs and expenses of legal counsel and tax advisors) as well as any Tax Liability arising thereon or in connection therewith and the amount of any interest or penalties which may be payable and any other loss or damage whatsoever which may be incurred as a result of contesting such claim or taking such action; (b) if such contest is to be initiated by the payment of, and the claiming of a refund for, such Taxes, the Borrower shall have advanced to such Indemnitee sufficient funds (on an interest-free basis and, if such advance results in taxable 122 income to such Indemnitee, on an after-tax basis taking into account the timing and incidence of tax payments) to make such payment; and (c) nothing herein shall require any Indemnitee to disclose any information or provide any document such Indemnitee, acting in good faith, considers confidential to it, or to take or refrain from taking any action or doing anything which would (or might), in the opinion of such Indemnitee, acting in good faith, materially adversely affect any of the business or commercial interests of such Indemnitee. 16. FEES AND EXPENSES 16.1 TRANSACTION EXPENSES The Borrower shall pay to the Agent within ten (10) Business Days of demand and supported by the relevant invoices or receipts in reasonable detail (whether or not any Utilisation Documentation is entered into and/or any amount is disbursed under the Agreement) all Expenses incurred by the Representatives, the Lenders and the Export Credit Agencies as a group:- (i) in connection with the negotiation, preparation, execution, registration and implementation of each of the Transaction Documents and the other documents contemplated hereby or thereby or at any time hereafter (including the agreed or, if not agreed, the reasonable expenses of the Agent's legal counsel in connection with the preparation of each Aircraft Operative Document and the collection of the conditions precedent listed on Schedule 6, in respect of each Utilisation; (ii) in connection with the granting of any release, waiver or consent in connection with any of the Transaction Documents PROVIDED that the Borrower shall not be liable for the costs and expenses of the Agent, the Security Trustee or the Lenders arising in relation to the granting of any release, waiver or consent requested by the Lenders (other than any such release, waiver or consent required by any of the Export Credit Agencies or as a result of or in consequence of a Change in Law or of a Substantive Law Change or as a result of the Borrower or any other Obligor being in breach of their respective obligations hereunder or under any of the other Transaction Documents); and (iii) in connection with any variation, amendment, supplement, restructuring, novation, discharge or reassignment of any of the Transaction Documents, PROVIDED that the Borrower shall not be liable for the costs and expenses of the Agent, the Security Trustee or the Lenders arising in relation to a variation, amendment, supplement, restructuring, novation, discharge or reassignment requested by the Lenders (other than any such variation, amendment, supplement, novation, discharge or reassignment required by any of the Export Credit Agencies or as a result of or in consequence of a Change in Law or of a Substantive Law Change or as a result of the Borrower or any Obligor being in breach of any of their respective obligations under any of the Transaction Documents). 123 16.2 ENFORCEMENT EXPENSES The Borrower shall pay to the Agent within ten (10) Business Days of demand and supported by the relevant invoices or receipts in reasonable detail all Expenses incurred or sustained by the Representatives, the Lenders and the Export Credit Agencies (provided that in the case of legal expense, they shall only be incurred as a group) in connection with, after a Termination Event, the enforcement or preservation or attempted enforcement or preservation of their respective rights, powers or duties under this Agreement and/or any of the other Transaction Documents or (in the event of a claim against an Export Credit Agency arising as a result of an Acceleration Event) under any of the Support Agreements. 17. CHANGE OF AGENT AND SECURITY TRUSTEE 17.1 Each Representative and each Lender undertakes with the Borrower that any bank or financial institution appointed as Agent or Security Trustee pursuant to the Lenders' Agreement shall be so appointed in respect of all of the Transaction Documents. 17.2 If, in accordance with the Lenders' Agreement, the Agent or the Security Trustee gives notice of its resignation or is dismissed, then the Majority Lenders (after consultation with the Borrower) may appoint any reputable and experienced bank or other financial institution approved by the Borrower (such approval not to be unreasonably withheld) as a successor to the Agent or, as the case may be, the Security Trustee. 17.3 The Borrower shall not be under any obligation to pay any greater amount under this Agreement as a result of a change in the Agent or the Security Trustee if, in the circumstances existing at the time of such change, such greater amount would not have been payable but for the change unless and until a Substantive Law Change or Change in Law occurs and as a result of such Substantive Law Change or Change in Law (excluding any Substantive Law Change or Change in Law which occurs, or the intended implementation of which is officially announced or proposed before the date of such transfer or change in Lending Office), PROVIDED that the provisions of this Clause 17.3 shall not apply if the Agent or the Security Trustee is required by any Export Credit Agency to transfer its functions to an Export Credit Agency or to another bank or financial institution or if such transfer is made pursuant to Clause 15 (Mitigation and Contest Rights). 17.4 The Lenders and the Representatives represent and warrant to the Obligors and agree with the Obligors that the provisions of the Lenders Agreement are not and will not be inconsistent with the provisions of the Transaction Documents, including with respect to the identity of the Agent or Security Trustee or the voting or any other making of determinations by the Majority Lenders, the Agent or the Security Trustee as provided under the Transaction Documents. 124 18. ASSIGNMENTS AND TRANSFERS 18.1 TRANSFERS BY OBLIGORS None of the Obligors shall assign any rights or transfer any obligations arising from this Agreement without the prior written consent of the Security Trustee (acting on the instructions of the Majority Lenders), except that (i) the Borrower or any Sub-Borrower may transfer for the purposes of merger or solvent liquidation or contractually or by operation of law its rights and obligations to a person that becomes the Borrower or a Sub-Borrower, and the Parent or an Intermediate Lessee may transfer for the purposes of merger or solvent liquidation or contractually or by operation of law its rights and obligations to a person that becomes the Parent or an Intermediate Lessee, as the case may be, and is a Subsidiary of the Guarantor (not incorporated in the United States except in the case of the Parent or which in the case of the Sub-Borrower or Intermediate Lessee is an owner trust and/or voting trust) and (ii) in the case of the Guarantor, to a successor or assign permitted under Schedule 5, (in each case the "TRANSFEREE") provided that any such transfer is subject to the conditions precedent that: (a) no Relevant Event or Termination Event has occurred and is continuing; (b) where the Transferee is the Guarantor, a Sub-Borrower or an Intermediate Lessee organised in a Regular Jurisdiction, the Transferee shall accede to this Agreement by executing an Accession Deed (which shall, in the case of the Guarantor, be appropriately amended to the satisfaction of the Agent) and such other Transaction Documents as the Agent, in its good faith opinion, considers appropriate so that such Transferee shall become a party to this Agreement and such of the other Transaction Documents as may be appropriate as if named therein as a party; (c) if Clause 18.1(b) does not apply (including if the Transferee is organised in an Irregular Jurisdiction, if applicable) each of the remaining Obligors and, such Transferee shall enter into such other documents and provide such security as the Security Trustee may, in its good faith opinion (after taking legal advice from counsel to the Lenders in the jurisdiction of the relevant Transferee), require in order to ensure that (i) the Representatives and each of the Lenders are in a position, having a substantially similar effect (including as to their security position) with respect to such Transferee as they were with respect to the transferor under the Transaction Documents and (ii) the rights of the Representatives and the Lenders are not materially different than with respect to the relevant transferor under the Transaction Documents, it being acknowledged and agreed for the purpose of determining the foregoing matters that (i) any trustee in a United States owner/voting trust will be party to the relevant Transaction Documents not in its individual capacity but solely as trustee, (ii) common law jurisdictions are acceptable and (iii) with respect to civil jurisdictions, the Borrower and the Agent shall negotiate in good faith, to the extent necessary, alternative security to that available in common law jurisdictions which is acceptable to the Security Trustee, acting upon the instruction of the Majority Lenders; (d) upon receipt by the Agent of the Accession Deed signed on behalf of the Borrower, Guarantor, other Obligors and by the proposed Transferee, the Agent 125 shall sign the same for itself and on behalf of the Lenders and shall as promptly as practicable give notice of such execution to all of the parties to the Accession Deed; (e) upon execution of any such Accession Deed, the transfer shall take effect in accordance with, but subject to, the terms hereof and thereof; (f) evidence satisfactory to the Security Trustee (including a legal opinion from counsel to the Lenders in the jurisdiction in which transfer of title to the Aircraft takes place) that the Transferee (as the case may be) has obtained title to the Aircraft free and clear of any Liens other than Permitted Liens including a certified copy of the Bill of Sale in relation to each Aircraft, if applicable, to the Transferee; (g) a legal opinion from counsel to the Lenders in the jurisdiction in which the Transferee is organised which is satisfactory to the Security Trustee concerning the relevant Accession Deed or, an adaptation thereof pursuant to sub-paragraphs (b) or (c) above, any assignment of the Mortgage or, if applicable, the relevant Mortgages, the filing or registration and perfection in that jurisdiction of the Mortgage or, if applicable, the relevant Mortgages, (or alternative security) with respect to the Aircraft, the Charge over Shares of Sub-Borrower (if any) and any other Aircraft Security Documents which will be entered into by the Transferee and the validity of a guarantee and indemnity to be entered into by the Transferee (if other than the Guarantor) in place of the Sub-Borrower Guarantee (if the Transferor is a Sub-Borrower) in favour of the Security Trustee; (h) where the Transferee assumes the obligations of the Guarantor under this Agreement, a legal opinion from in-house counsel to the Transferee and from external counsel to the Transferee in the jurisdiction in which the Transferee is organised in favour of the Security Trustee in a form acceptable to it concerning the Accession Deed entered into by the Transferee as appropriately amended in accordance with sub-paragraph (b) above; (i) the relevant legal opinions from counsel to the Lenders as provided in paragraph 4 of Part I to Schedule 6; (j) evidence of insurance having been effected in respect of the Aircraft with the Security Trustee named as a contract party and (to the extent possible under AVN67B, or such other endorsement as may be applicable) loss payee; (k) if applicable, copies of the certificate of registration of the Replacement Aircraft and airworthiness issued by the Aviation Authority; (l) the following signed documents: (i) Accession Deed or an adaptation thereof pursuant to sub-paragraphs (b) or (c) above (if applicable) (if such person has not previously acceded to the Transaction Documents); 126 (ii) the assignment of the Mortgages (if applicable) or alternative security satisfactory to the Security Trustee, acting upon the instructions of the Majority Lenders; (iii) assignment of the Warranties (to the extent assignable); (iv) the assignment of the Engine Warranties (to the extent assignable); (v) Sub-Borrower Debenture (if applicable); (vi) Intermediate Lessee Debenture (if applicable); (vii) Charge Over Shares of Sub-Borrower (if applicable); (viii) Charge Over Shares of Intermediate Lessee (if applicable); (ix) Lease Security Assignment (if applicable); (x) Intermediate Lease Security Agreement (if applicable); (xi) Notice of Charge as amended to record transfer of title to the Aircraft to the Transferee; (m) evidence to the Security Trustee that a maintenance reserve account, a rental account and a security deposit account have been opened in the name of the Transferee with a financial institution acceptable to the Security Trustee and that US$10 has been deposited in each of such accounts. 18.2 TRANSFERS BY LENDERS Any German Lender may at any time after January 19, 1999 and any French Lender or British Lender after March 1, 1999, transfer all or any of its rights, benefits and obligations under this Agreement or change its Lending Office (whether in the same or a different jurisdiction) PROVIDED always that:- (a) prior to the transfer or change in Lending Office becoming effective, the relevant Lender gives notice to the Guarantor (with a copy to the Agent) of the identity of the Transferee or, as the case may be, the new Lending Office and the jurisdiction of tax residence of the Transferee or, as the case may be, the new Lending Office and the jurisdiction of tax residence of the persons controlling the Transferee; (b) the Transferee is eligible for support from each of the Export Credit Agencies and has been approved by the Borrower (such approval not to be unreasonably withheld) or is designated by an Export Credit Agency, and in each case has a credit rating with Standard and Poor's Corporation of at least BBB or a credit rating with Moody's Investor Service Inc. of at least Baa2 or, in each case, the equivalent successor rating, and is not on negative credit watch to fall below such rating; 127 (c) the Transferee shall be able to file for US tax treaty benefits on a zero rate of withholding tax and shall provide US Internal Revenue Service Form 1001 (or its equivalent) to the Agent or the Transferee shall be able to file for exemption from withholding tax on income of a Lender effectively connected with the conduct of a trade or business in the United States and shall provide US Internal Revenue Service Form 4224 (or its equivalent) to the Agent; (d) the Transferee is neither resident in the United Kingdom for United Kingdom tax purposes nor controlled by persons who are so resident if the transfer to the Transferee would result in Advances of Lenders resident in the United Kingdom for United Kingdom tax purposes or controlled by persons who are so resident constituting fifty per cent. (50%) or more of the Advances as at the date of the proposed transfer; (e) all costs and expenses of the Transfer shall be borne by the transferring Lender and no Obligor shall be under any obligation to pay any greater amount or suffer any other material increase in liabilities or material diminution in right or benefit under the Transaction Documents following and as a consequence (directly or indirectly) of any such transfer or change in Lending Office unless and until a Change in Law occurs and as a result of such Change in Law (excluding any Change of Law which occurs, or the intended implementation of which is officially announced or proposed before the date of such transfer or change in Lending Office); and (f) such Transfer does not violate any applicable securities or other law, PROVIDED further that the provisos set out above shall not apply to the extent that any Lender has so assigned or transferred its Relevant Proportion of any Loan or changed its Lending Office in relation to any Loan pursuant to Clause 15 (Mitigation and Contest Rights). 18.3 TRANSFER CERTIFICATES 18.3.1 If any Lender (the "TRANSFEROR") transfers all or any part of its rights, benefits and/or obligations to another bank or financial institution (the "TRANSFEREE"), such transfer shall be effected by way of a novation by the delivery to, and the execution by, the Agent of a duly completed Transfer Certificate or in such other manner as all parties hereto may agree. 18.3.2 On the date specified in the Transfer Certificate:- (i) to the extent that in the Transfer Certificate the Transferor seeks to transfer its rights and obligations hereunder the Borrower, each of the Obligors and the Transferor shall each be released from further obligations to each other under this Agreement and their respective rights against each other shall be cancelled (such rights and obligations being referred to in this Clause 18.3 as "DISCHARGED RIGHTS AND OBLIGATIONS"); (ii) the Borrower, the Agent, the Security Trustee, each of the Obligors and the Transferee shall each assume obligations towards each other and/or acquire rights against each other which, subject to Clause 18.2 above, which differ 128 from the Discharged Rights and Obligations only insofar as the Borrower, each of the Obligors, and the Transferee have assumed and/or acquired the same in place of the Borrower, each of the Obligors and the Transferor; (iii) the Agent, the Security Trustee, each of the Obligors, the Borrower, the Transferee and the other Lenders shall acquire the same rights and assume the same obligations among themselves as they would have acquired and assumed had the Transferee originally been a party hereunder as a Lender with the rights and/or the obligations acquired or assumed by it as a result of the transfer; and (iv) the Transferee, the Agent, the Security Trustee and each of the other Lenders shall acquire the same rights and assume the same obligations amongst themselves in respect of the Lenders Agreement as they would have acquired and assumed had the Transferee originally been a party to the Lenders Agreement as a Lender in the place of the Transferor. 18.3.3 Each of the Obligors (other than the Borrower) each with respect to itself hereby confirm that the execution of any such Transfer Certificate by the Borrower, for and on behalf of, inter alia, each of the other Obligors shall be binding upon and enforceable against each of the other Obligors as if each of the other Obligors had each executed the Transfer Certificate itself. 18.3.4 The Agent and the Borrower shall each promptly complete Transfer Certificates on written request by a Transferor. Each of the Lenders hereby irrevocably authorise the Agent and each Obligor (other than the Borrower) hereby irrevocably authorise the Borrower to execute any duly completed Transfer Certificate on its behalf provided that such authorisation does not extend to the execution of a Transfer Certificate on behalf of either the Transferor or the Transferee named therein. 18.4 COSTS AND EXPENSES In relation to any transfer contemplated by this Clause 18 which is undertaken voluntarily by any Lender, the costs and expenses thereby incurred by the Borrower, the Agent, the Security Trustee and each Lender shall be for the account of the Transferee or the Transferor (as they may agree between themselves). In relation to any other transfer, the Borrower shall pay within ten (10) Business Days of demand supported by the relevant invoices or receipts in reasonable detail all reasonable out-of-pocket Expenses incurred by the Agent, the Security Trustee and each Lender in connection with any transfer contemplated by this Clause 18. For the purposes of this Clause 18.4, a voluntary transfer by any Lender shall mean any transfer except a transfer by a non-defaulting Lender pursuant to Clause 15 (Mitigation and Contest Rights). 19. SET-OFF AND PRO RATA PAYMENTS 19.1 SET-OFF 19.1.1 Each Lender and each of the Representatives may, at any time during the continuance of a Termination Event, set off from any sum payable by it to any one or more of the Obligors under any of the Transaction Documents any sum due and unpaid by the relevant Obligor to such Lender or Representative in each case under or in relation to any of the 129 Transaction Documents and any document or agreement entered into pursuant to or in connection with any of the Transaction Documents. 19.1.2 The Borrower shall not be entitled to deduct any sum which may be due to the Borrower from the Lenders (or any of them) howsoever arising from any sum payable by the Borrower under or in connection with any of the Transaction Documents. 19.1.3 No Obligor shall be entitled to refuse or to postpone performance of any payment or other obligation under any of the Transaction Documents by reason of any claim which it may have or may consider that it has against (i) the Lenders (or any of them) under or in connection with any of the Transaction Documents, or any other agreement with any of the Lenders and/or (ii) any other party under or in connection with any of the Transaction Documents. 19.2 PRO-RATA SHARING (a) Provided that no Acceleration Event has occurred and is continuing, if any Lender (the "SHARING LENDER") shall at any time obtain (whether by way of voluntary or involuntary payment, right of set-off, or otherwise) a proportion of its Loan in any sum due from the Borrower or a proportion in respect of its participation in any sum due from any one or more of the Obligors under any of the Transaction Documents which is greater than the proportion obtained by the Lender or Lenders respectively obtaining the smallest proportion of its Loan, or as the case may be, its participation therein, including a nil receipt, (the amount so obtained by the Sharing Lender which is attributable to such excess being here called "the excess amount"), then:- (i) the Sharing Lender shall promptly pay to the Agent, for the account of the Lenders, an amount equal to the excess amount, whereupon the Agent shall notify the Borrower or, as the case may be, the relevant Obligor of such amount and its receipt by the Agent; (ii) the Agent shall treat such payment as if it were a payment by the Borrower or, as the case may be, the relevant Obligor on account of sums owed to the Lenders; and (iii) as between the Borrower or, as the case may be, the relevant Obligor and the Sharing Lender the excess amount shall be treated as not having been paid, while as between the Borrower or, as the case may be, the relevant Obligor and each Lender it shall be treated as having been paid to the extent any moneys are received by such Lender. (b) Each Lender shall forthwith notify the Agent of any such receipt or recovery by it other than by payment through the Agent. (c) If any excess amount subsequently has to be wholly or partly refunded to the Borrower or, as the case may be, the relevant Obligor by any Sharing Lender which has paid an amount equal thereto to the Agent under (a) above, each Lender to which any part of that amount was distributed shall on request from the Sharing Lender repay to the Sharing Lender such Lender's pro rata share of 130 the amount which has to be so refunded by the Sharing Lender. Each Lender shall on request supply to the Agent such information as the Agent may from time to time request for the purpose of this Clause 19. Notwithstanding the foregoing provisions of this Clause 19, (i) no Sharing Lender shall be obliged to share any excess amount which it receives or recovers pursuant to legal proceedings taken by it to recover any sums owing to it under any of the Transaction Documents with any other party which has a legal right to, but does not, either join in such proceedings or commence and diligently pursue separate proceedings to enforce its rights in the same or another court, unless the proceedings instituted by the Sharing Lender are instituted by it without prior notice having been given to such party through the Agent and (ii) no Lender shall be obliged to exercise any right of set-off it may have against any or all of the Borrower or any of the Obligors at any time, or to set-off against any obligations of the Borrower, or any of the Obligors in relation to the Transaction Documents any sum which such Lender may hold on deposit or otherwise from the Borrower or any Obligor, or any other right against the Borrower or any Obligor in favour of such Lender which sum has been received or right has arisen unrelated to and independent from the Transaction. 20. RIGHTS CUMULATIVE, WAIVERS, SEVERABILITY 20.1 CUMULATIVE RIGHTS The respective rights of the Agent, the Security Trustee and the Lenders pursuant to this Agreement and the other Transaction Documents:- (a) are cumulative, may be exercised as often as they consider appropriate and are in addition to their respective rights under the general law; and (b) shall not be capable of being waived or varied otherwise than by an express waiver or variation in writing. 20.2 WAIVERS Any failure to exercise, or any delay in exercising, on the part of any Representative or Lender any right under any Transaction Document shall not operate as a waiver or variation of that or any other right and any defective or partial exercise of any such right shall not preclude any other or further exercise of that or any other right, and no act or course of conduct or negotiation shall in any way preclude any party hereto from exercising any such right or constitute a suspension or any variation of any such right. 20.3 SEVERABILITY If at any time any provision hereof is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity nor the enforceability of the remaining provisions hereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired. 131 21. FURTHER ASSURANCE The Borrower and each other Obligor shall from time to time and at its own cost promptly sign, seal, execute, acknowledge, deliver, file and register all such additional documents, instruments, agreements, certificates, consents and assurances and do all such other acts and things as may be required by law or reasonably requested by the Agent from time to time in order to give full effect to each Transaction Document or to establish, maintain, protect or preserve the rights of the Security Trustee, the Agent and the Lenders under the Transaction Documents or to enable any of them to obtain the full benefit of each Transaction Document and to exercise and enforce their respective rights and remedies under the Transaction Documents PROVIDED that no Obligor shall be required to do any act or thing or take any step in connection with the registration, recording or filing of any instrument creating or evidencing a Lien over an Aircraft in the register of the Aviation Authority where such Aircraft is registered, or any other registration, recording or filing outside the jurisdiction of organisation of the Borrower or, if applicable, any Sub-Borrower or any Intermediate Lessee, or any actions with respect to the Lessee or any Sub-Lessee (other than any registration, recording or filing of a Lien over an Aircraft within the jurisdiction of organisation of the Borrower or, if applicable, any Sub-Borrower or any Intermediate Lessee or the Parent) or with respect to its jurisdiction of organisation or principal place of business, unless a Third Trigger Event or Termination Event has occurred and is continuing. 22. BAYERISCHE HYPO-UND VEREINSBANK AG Bayerische Hypo-und Vereinsbank AG in its capacity as a German Lender hereby notifies each of the other parties to this Agreement that, for the purposes of this Agreement and the other Transaction Documents, it has appointed HypoVereinsbank Luxembourg Societe Anonyme ("HVB-LUX") as its agent to exercise and/or perform on its behalf any and all rights and/or obligations and to take any and all of its decisions (after consultation with Bayerische Hypo-und Vereinsbank AG) as a German Lender under this Agreement and each of the other Transaction Documents (except as the same pertain to the German export credit insurance). Each of the parties hereto confirms and acknowledges that the performance by HVB-Lux of the rights, obligations and decisions of Bayerische Hypo-und Vereinsbank AG shall, subject to the terms and conditions of this Agreement and the other Transaction Documents and to the extent so performed, be binding on it and each of the parties shall be entitled to perform each and every one of their obligations which are expressed to be due to be performed in favour of Bayerische Hypo-und Vereinsbank AG in favour of HVB-Lux and such performance shall be deemed to constitute good performance of the relevant obligations. 23. NOTICES 23.1 Unless otherwise expressly provided herein, all notices, requests, demands or other communications to or upon the respective parties hereto in connection with any Transaction Document, the Facility, any Utilisation or any Aircraft shall:- (a) in order to be valid be in English and in writing; 132 (b) be deemed to have been duly served on, given to or made in relation to a party if it is:- (i) left at the address of that party set out herein or at such other address as that party may notify to the other parties hereto in writing from time to time or to any officer of the addressee; or (ii) sent by facsimile to the facsimile number of that party set out herein or to such other number as that party may notify to the other parties hereto from time to time; (c) be sufficient if:- (i) executed under the seal of the party giving, serving or making the same; or (ii) signed or sent on behalf of the party giving, serving or making the same by any attorney, director, secretary, agent or other duly authorized representative of such party; (d) be effective:- (i) in the case of a letter, when left at the address referred to in Clause 23.1(b)(i) or delivered in person to any officer of the addressee; and (ii) in the case of a facsimile transmission, when receipt is confirmed by return facsimile or by telephone (or on actual receipt if not so confirmed); 23.2 For the purposes of this Clause 23, all notices, requests, demands or other communications shall be given or made by being addressed as follows:- (a) if to the Borrower to:- SIERRA LEASING LIMITED 29 Richmond Road Hamilton HM-AX Bermuda Facsimile No: +1 441 298 5274 Attention: L. Michael Murphy with a copy to the Guarantor 133 (b) if to the Parent to:- Aircraft SPC-9 Inc. c/o INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars 39th Floor Los Angeles CA 90067 Facsimile No: +1 310 788 1990 Attention: Legal Department and Chief Financial Officer with a copy to the Guarantor (c) if to the Guarantor or the Subordinated Lender to:- INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars 39th Floor Los Angeles CA 90067 United States Tel: +1 310 788 1999 Facsimile No: +1 310 788 1990 Attention: Legal Department and Chief Financial Officer (d) if to the Agent or the Security Trustee to:- HALIFAX plc Group Treasury 33 Old Broad Street London EC2N 1HZ Tel: +44 171 574 8042 Facsimile No: +44 171 574 8139 Attention: Head of Aircraft Finance copy to: HALIFAX plc Group Treasury Operations Trinity Road Halifax West Yorkshire HX1 2RG Tel: +44 1422 333333 Facsimile No: +44 1422 391442 Attention: Senior Manager - Structured Finance Administration 134 (e) if to a Lender from any of the Obligors, then to such Lender care of the Agent. (f) if to a Lead Manager, then to the address and/or facsimile number set out opposite the name of such Lead Manager in the relevant Part of Schedule 1. 24. GOVERNING LAW AND JURISDICTION 24.1 This Agreement shall be governed and construed in accordance with English law. 24.2 The Borrower and each other Obligor irrevocably agrees for the benefit of each of the Agent, the Security Trustee and the Lenders , and each of the Agent, the Security Trustee and each of the Lenders irrevocably agree for the benefit of each Obligor, that the courts of England shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement or any other Transaction Document and, for such purposes, irrevocably submits to the jurisdiction of such courts. 24.3 Each party irrevocably waives any objection which it might now or hereafter have to the courts referred to in Clause 24.2 being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement or any other Transaction Document and agrees not to claim that any such court is not a convenient or appropriate forum in each case whether on the grounds of venue or forum non conveniens or any similar grounds or otherwise. 24.4 For the purpose of any suit, action, proceeding or settlement of dispute in the English courts (whether under this Agreement or any other Transaction Document), the Borrower and each Obligor and each Lender and Representative which is not incorporated in England (or registered as an oversea company pursuant to the Companies Act 1985): (a) appoints the agent specified in Schedule 7 to accept service of process in respect of any such suit, action, proceeding or settlement of dispute; (b) confirms that such agent is willing to accept service of such process on its behalf in respect of this Agreement and the other Transaction Documents; and (c) if the agent specified in Schedule 7 no longer serves as its agent, shall promptly appoint another such agent acceptable to the Agent and advise the Agent thereof. 24.5 The submission to the jurisdiction of the courts referred to in Clause 24.2 shall not (and shall not be construed so as to) limit the right of any party to take proceedings against any other party in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not. 24.6 To the extent that the Borrower or any other Obligor or any of the property of the Borrower or any other Obligor is or becomes entitled at any time to any immunity on the grounds of sovereignty or otherwise from any legal action, suit or proceeding, from set-off or counterclaim, from the jurisdiction of any competent court, from service of process, 135 from attachment prior to judgment, from attachment in aid of execution, or from execution prior to judgment, or other legal process in any jurisdiction, the Borrower and each other Obligor, for itself and its property, hereby irrevocably and unconditionally waives, and agrees not to plead or claim, any such immunity with respect to its obligations, liabilities or any other matter under or arising out of or in connection with any of the Transaction Documents. 25. MISCELLANEOUS 25.1 A certificate given by the Agent, the Security Trustee or any Lender as to the amount of any sum required to be paid to it under any provisions of this Agreement or any of the other Transaction Documents shall, save as otherwise provided for in this Agreement or any of the other Transaction Documents and save in the case of manifest error, be conclusive evidence of the amounts therein stated for all purposes of this Agreement or, as the case may be, any of the other Transaction Documents. Any such certificate shall contain a reasonable explanation of the way in which the sum required to be paid was calculated, together with reasonable supporting evidence, PROVIDED that in providing such a reasonable explanation and such evidence, neither the Agent nor the Security Trustee nor any of the Lenders shall be required to disclose any documents and/or information relating to its business or affairs which it considers (in its bona fide opinion) to be of a confidential nature. 25.2 The parties hereto agree and acknowledge that this Agreement shall continue in full force and effect for all purposes until all Secured Obligations (exclusive of indemnities in respect of which no claims have been, or to the knowledge of the Security Trustee will be, asserted) have been paid in full notwithstanding that the Commitments may at any time be reduced to zero. 25.3 Each of the parties hereto agrees that no amendments, variations, supplements or modifications may be made to any of the Transaction Documents other than by an instrument in writing executed by the applicable Obligor(s) and the Agent or the Security Trustee as provided in the applicable Transaction Document, or where expressly provided in the applicable Transaction Document, the Agent on behalf and on the instructions of the Majority Lenders (which consent shall not be unreasonably withheld). 25.4 Each of the Borrower, the Guarantor and the Parent hereby acknowledges and accepts that under the Support Agreements the Export Credit Agencies have certain rights to require the Lenders, the Agent and/or the Security Trustee to act, or to omit to act, in accordance with the instructions of the Export Credit Agencies. Accordingly, each of the Borrower, the Guarantor and the Parent hereby acknowledges and accepts that if any of the Lenders, the Agent and/or, as the case may be, the Security Trustee have to exercise a right, discretion or power under any of the Transaction Documents "reasonably", "in good faith" or "bona fide" or with any other restriction of whatsoever nature then such Lender, the Agent and/or, as the case may be, the Security Trustee will be deemed to be acting "reasonably", "in good faith" or "bona fide" or in accordance with such other restrictions (as the case may be) if such Lender, the Agent and/or the Security Trustee exercises, or refrains from exercising, such right, discretion or power in accordance with the instructions of the relevant Export Credit Agency. 136 26. CONFIDENTIALITY 26.1 At all times during the Security Period and after the termination thereof, each party hereto shall use all reasonable endeavours to ensure that its respective officers, directors, employees and agents shall keep secret and confidential and not, without the prior written consent of the Borrower, the Guarantor, the Agent and the Security Trustee, disclose to any third party the terms of any of the Transaction Documents, any Lease, Sub-Lease, Insurances, Purchase Agreements or Engine Agreements or any of the information, reports, invoices, or documents supplied by or on behalf of any of the other parties hereto, save that any such party shall be entitled to disclose any such terms, information, reports or documents:- (i) in connection with any proceedings arising out of or in connection with any of the Transaction Documents to the extent that such party may consider necessary to protect its interest; or (ii) to any potential permitted assignee or transferee of all or any of such party's rights under any of the Transaction Documents or any other permitted person proposing to enter into contractual arrangements with such party in relation to or in connection with the transactions contemplated by any of the Transaction Documents, subject to it obtaining an undertaking from such potential permitted assignee or permitted other person in the terms similar to this Clause 26.1; or (iii) if required to do so by an order of a court of competent jurisdiction whether in pursuance of any procedure for discovering documents or otherwise; or (iv) pursuant to any law or regulation having the force of law (including, without limitation, SEC filing requirements); or (v) to any fiscal, monetary, tax, governmental or other competent authority; or (vi) to its auditors, bankers, legal or other professional advisers (which are under an ethical obligation to or agree to hold such information confidential); or (vii) to any of the Export Credit Agencies; or (viii) in any manner contemplated by any of the Transaction Documents. 26.2 In addition, any party shall be entitled to disclose or use any such information, reports or documents if the information contained therein shall have emanated in conditions free from confidentiality bona fide from some person other than the relevant party hereto and such party would, but for the preceding provisions of this Clause 26 have been free to disclose or use the same. 26.3 Each party may, notwithstanding any other provision of this Clause 26, release to any potential assignee or transferee (permitted in each case pursuant hereto or to the relevant Transaction Document), or other person proposing to enter into contractual arrangements with such party in relation to or in connection with the transactions contemplated by any of the Transaction Documents, a copy of any of the Transaction Documents, PROVIDED that each such potential assignee or transferee or other person confirms in writing to the other 137 parties to this Agreement that it is bound by the terms of this Clause 26 as if it had been a party to this Agreement. 27. COUNTERPARTS AND DELIVERY BY FACSIMILE 27.1 This Agreement may be executed in any number of counterparts and by different parties thereto on separate counterparts and any single counterpart or set of counterparts signed, in either case, by all the parties hereto shall be deemed to constitute a full and original agreement for all purposes but all counterparts shall constitute but one and the same instrument. 27.2 Delivery of an executed counterpart of this Agreement by facsimile will be deemed as effective as delivery of an originally executed counterpart. Any party delivering an executed counterpart of this Agreement will also deliver an originally executed counterpart, but the failure of any party to deliver an originally executed counterpart of this Agreement will not affect the validity or effectiveness of this Agreement. IN WITNESS whereof this Agreement has been executed by the duly authorised representatives of the parties hereto (other than the Guarantor) under hand, and has been executed by the Guarantor as a Deed with the intention that it be delivered on the day and year first above written. 138 SCHEDULE 1 - PART I THE BRITISH LENDERS
AMOUNT OF JURISDICTION BRITISH LENDERS LENDING ADDRESS FOR OF COMMITMENTS LENDER OFFICE NOTICES INCORPORATION (US$) - ------ ------- ----------- ------------- --------------- HALIFAX plc Trinity Road HALIFAX PLC England and 1,123,000,000 Halifax 33 Old Broad Street Wales West Yorkshire London HX 2RG EC2N 1HZ Tel: +44 171 574 8042 Fax No:+44 171 574 8139 Attention: Head of Aircraft Finance copy to: HALIFAX plc Group Treasury Operations Trinity Road Halifax West Yorkshire HX1 2RG Tel: +44 1422 333 333 Fax No: +44 1422 391 442 Attention: Senior Manager - Structured Finance Administration
139 SCHEDULE 1 - PART II THE FRENCH LENDERS
AMOUNT OF JURISDICTION FRENCH LENDERS LENDING ADDRESS FOR OF COMMITMENTS LENDER OFFICE NOTICES INCORPORATION (US$) - ------ ------- ----------- ------------- --------------- Societe Generale Societe Generale, Serge Bozovic France 1,975,000,000 FINT/EXT/BAC, Tel: +33 1 42 14 41 19 17 Cours Valmy, Fax: +33 1 42 13 04 15 92972 Paris, La Defense cedex 7, Francoise Refabert France Tel: +33 1 42 14 03 89 Fax: +33 1 42 14 66 04 with a copy to Florence Roussel Pollet Tel: +33 1 42 14 24 02 Fax: +33 1 42 14 85 07
140 SCHEDULE 1 - PART III THE GERMAN LENDERS
AMOUNT OF GERMAN JURISDICTION LENDERS LENDING ADDRESS FOR OF COMMITMENTS LENDER OFFICE NOTICES INCORPORATION (US$) - ------ ------- ----------- ------------- --------------- Bayerische Hypo-und HypoVereinsbank Bayerische Hypo-und Germany 399,509,500 Vereinsbank AG Luxembourg Vereinsbank AG, Global Societe Anonyme, Aircraft Finance (FPA3), 4, rue Alphonse Am Tucherpark 1, 80538 Weicker, L-2099 Munich, Germany Luxembourg Tel: +49 89 37 82 43 03 Fax: +49 89 37 82 03 54 Attention: Michael Trentzsch copy to: HypoVereinsbank Luxembourg Societe Anonyme, 4, rue Alphonse Weicker, L-2099 Luxembourg Tel: +352 4272 2124 Fax: +352 4272 4510 Attention: Credit Department - Corporate and Structured Finance Kreditanstalt fur Kreditanstalt Kreditanstalt fur Germany 430,241,000 Wiederaufbau fur Wiederaufbau, Export and Wiederaufbau, Project Finance - Palmengartenstrasse Aerospace - 5-9, Palmengartenstrasse 5-9, 60325 Frankfurt 60325 Frankfurt am Main, am Main, Germany Germany Tel: +49 69 7431 3741 Fax: +49 69 7431 2944
141
AMOUNT OF GERMAN JURISDICTION LENDERS LENDING ADDRESS FOR OF COMMITMENTS LENDER OFFICE NOTICES INCORPORATION (US$) - ------ ------- ----------- ------------- --------------- Commerzbank Commerzbank AG, Commerzbank AG Germany 399,509,500 Aktiengesellschaft Los Angeles Corporate Finance/ Branch, Aircraft Finance 633 West Fifth 60261 Frankfurt am Street, Main, Germany Suite 6600, Los Angeles, Tel: +49 69 136-23680 CA 90071, USA Fax: +49 69 136-27896 Attention: Matthias Hommel with a copy to: Commerzbank AG, Los Angeles Branch, 633 West Fifth Street, Suite 6600, Los Angeles, CA 90071, USA Tel: +1 213 623-8223/ 683-5408 Fax: +1 213 623 0039 Attention: Werner Schmidbaur/Karla Wirth
142 SCHEDULE 2 FORM OF TRANSFER CERTIFICATE To: [Agent] TRANSFER CERTIFICATE This transfer certificate ("TRANSFER CERTIFICATE") relates to a Agreement dated 19th January 1998 and made between (1) the banks and financial institutions named therein as Lenders, (2) Halifax plc as Agent, (3) Halifax plc as Security Trustee, (4) Sierra Leasing Limited (the "BORROWER"), (5) Aircraft SPC-9, INC. (the "PARENT"), (6) International Lease Finance Corporation as guarantor (the "GUARANTOR") and (7) International Lease Finance Corporation as subordinated lender (the "SUBORDINATED LENDER") (the "AGREEMENT" which term shall include any amendments or supplements thereto) and to each of the Loan Supplements made between the Agent, the Security Trustee and the Borrower in respect of an Advance under the Agreement. Terms defined or incorporated by reference in the Agreement shall, unless otherwise defined, have the same meanings when used in this Transfer Certificate. I. [Details of the Transferor] (the "TRANSFEROR"):- 1. confirms that to the extent that details appear in the Schedule to this Transfer Certificate under the headings "Transferor's Commitment", "Amount of Commitment Transferred and the Related Rights and Obligations of the Transferor to be Transferred", "Transferor's Participation" and "Amount of Transferor's Participation Transferred and Related Rights and Obligations of the Transferor to be Transferred", those details accurately summarise its Commitment and its participation in the Facility and its participation in each Advance already made all or part of which is to be transferred (as more particularly described in the Loan Supplements); 2. requests [Details of Transferee] (the "TRANSFEREE") to accept and procure, in accordance with Clause 18.3 (Transfer Certificates) of the Agreement, the substitution of the Transferor by the Transferee in respect of the amount specified in the Schedule hereto of its Commitment and its participation in the Facility and its participation in each Advance already made (as more particularly described in the Loan Supplements) by signing this Transfer Certificate. II. The Transferee hereby requests each of the Obligors, the Lenders, the Borrower, the Agent and the Security Trustee to accept this executed Transfer Certificate as being delivered under and for the purposes of Clause 18.3 (Transfer Certificates) of the Agreement so as to take effect in accordance with the terms thereof on the Transfer Date or on such later date as may be determined in accordance with the terms thereof. III. The Transferee:- 1. represents that it has received a copy of the Agreement and copies of each Loan Supplement together with such other documents and information as it has requested in connection with this transaction; 143 2. represents that it has not relied and will not rely on the Transferor to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of any such documents or information; and 3. agrees that it has not relied and will not rely on any of the Transferor, the Agent or any of the Lenders to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of any party to any of the Transaction Documents or the legality, validity, priority, adequacy, effectiveness or enforceability of any of the Transaction Documents. 4. represents that its has a credit rating with Standard and Poor's Corporation of at least BBB or a credit rating with Moody's Investor Service Inc. of at least Baa2 or, in each case, the equivalent successor rating, and is not on negative credit watch to fall below such rating; 5. represents that it is able to file for either (i) US tax treaty benefits on a zero rate of withholding tax and agrees to provide US Internal Revenue Service Form 1001 (or its equivalent) to the Agent or (ii) exemption from withholding tax on income effectively connected with the conduct of a trade or business in the United States and agrees to provide US Internal Revenue Service Form 4224 (or its equivalent) to the Agent; 6. represents that it is neither resident in the United Kingdom for United Kingdom tax purposes nor controlled by persons who are so resident if the transfer hereunder would result in Advances of Lenders resident in the United Kingdom for United Kingdom tax purposes or controlled by persons whoa re so resident constituting fifty per cent. (50%) or more of the Advances as at the date of the proposed transfer; 7. represents that it is acquiring the Transferor's right, title and interest hereunder in the ordinary course of its lending business and not with any present view to the distribution thereof in violation of the registration requirements of the U.S. Securities Act of 1933, as amended, and that the transfer is in compliance with all applicable securities and other laws (if any); and 8. agrees that it will be bound by the provisions of the Facility Agreement and the other Transaction Documents and will perform in accordance with the terms of the Facility Agreement and the other Transaction Documents the obligations which by their terms are required to be performed by a Lender. IV. The Transferee undertakes with the Transferor and each of the other parties to the Agreement that it shall perform in accordance with their terms all those obligations which by the terms of Clause V of this Transfer Certificate will be assumed by it upon delivery of the executed copy of this Transfer Certificate to the Agent and further undertakes with the Transferor, each of the other Lenders, the Agent and the Security Trustee that it shall perform in accordance with their terms all of the obligations of the Transferor under the Lenders' Agreement as if the Transferee had originally been a party to the Lenders' Agreement and each of the other Lenders, the Agent and the Security 144 Trustee undertake with the Transferee to perform their obligations under the Lenders' Agreement to the Transferor in favour of the Transferee as if the Transferee had originally been a party to the Lenders' Agreement. V. With effect from the Transfer Date as specified in the Schedule hereto the parties hereto (including in particular but without limitation the Transferee) agree that: (i) to the extent of the Transferor's rights and obligations under the Agreement and the other Transaction Documents in respect of the participation the Borrower and the Transferor shall each be released from further obligations to each other under the Agreement and the other Transaction Documents and their respective rights against each other shall be cancelled (such rights and obligations being referred to in this Clause V as "Discharged Rights and Obligations"); and (ii) the Borrower, the Agent, the Security Trustee and the Transferee shall each assume obligations towards each other and/or acquire rights against each other in respect of the participation which differ from the Discharged Rights and Obligations only insofar as the Borrower and the Transferee have assumed and/or acquired the same in place of the Borrower and the Transferor; and (iii) the Agent, the Security Trustee, the Borrower, the Transferee and the other Lenders shall acquire the same rights and assume the same obligations among themselves as they would have acquired and assumed had the Transferee originally been a party to the Agreement and the other Transaction Documents as a Lender in respect of the participation; and (iv) the Transferee, the Agent, the Security Trustee and each of the other Lenders shall acquire the same rights and assume the same obligations amongst themselves in respect of the Lenders Agreement as they would have acquired and assumed had the Transferee originally been a party to the Lenders' Agreement as a Lender in respect of the participation in the place of the Transferor. (v) all costs and expenses of the transfer hereunder shall be borne by the Transferor or Transferee, as the case may be, and no Obligor shall be under any obligation to pay any greater amount or suffer any other material increase in liabilities or material diminution in right or benefit under the Transaction Documents following and as a consequence (directly or indirectly) of any such transfer or change in Lending Office unless and until a Change in Law occurs and as a result of such Change in Law (excluding any Change of Law which occurs, or the intended implementation of which is officially announced or proposed before the date of such transfer or change in lending Office). VI. None of the Transferor, any of the Lenders, the Agent, the Security Trustee or the Borrower:- 1. makes any representation or warranty or assumes any responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of the Agreement; or 145 2. assumes any responsibility for the financial condition of any of the Obligors or for the performance and observance by any of the Obligors or any other party to any of the Transaction Documents or any other document relating thereto of any of the Obligor's or such other party's obligations under any of the Transaction Documents or any document relating thereto and any and all conditions and warranties, whether express or implied by law or otherwise, are excluded. VII. None of the Obligors assumes any responsibility for the financial condition of any party, or for the performance or observance by any party, other than the Obligors, of any of the Transaction Documents or any other document relating thereto or such party's obligations under the Agreement or any document relating thereto (other than those of the Obligors) and any and all conditions and warranties whether express or implied by law or otherwise, are excluded (other than in relation to the performance or observance of the Obligors). VIII. The Transferee confirms that its Lending Office and address for notices for the purposes of the Agreement are as set out in the Schedule hereto. IX. A. The Transferor hereby gives notice to the Transferee (and the Transferee hereby acknowledges and agrees with the Transferor) that the Transferor is under no obligation to re-purchase (or in any other manner to assume, undertake or discharge any obligation or liability in relation to) the transferred Commitment, and/or transferred participation in the Advances already made (as more particularly described in the Loan Supplements) and/or the transferred rights and/or obligations at any time after this Transfer Certificate shall have taken effect. B. Following the date upon which this Transfer Certificate shall have taken effect, without limiting the provisions hereof, each of the Transferee and the Transferor hereby acknowledges and confirms to the other that in relation to the relative Commitment/participation in the Advances already made (as more particularly described in the Loan Supplements) and the rights and/or obligations under the Agreement assumed by the Transferee (or part thereof), variations, amendments or alterations to any of the terms of the Agreement and/or any of the Loan Supplements arising in connection with any re-negotiation or re-scheduling of the obligations hereunder shall apply to and be binding on the Transferee alone. X. The Transferor hereby gives notice that nothing herein or in the Agreement (or any document relating thereto) shall oblige the Lender to (i) accept a re-transfer from the Transferee of the whole or any part of its rights, benefits and/or obligations under the Agreement transferred pursuant hereto or (ii) support any losses directly or indirectly sustained or incurred by the Transferee for any reason whatsoever including, without limitation, the non-performance by any other party to the Agreement (or any document relating thereto) of its obligations under any such document. The Transferee hereby acknowledges the absence of any such obligation as is referred to in (i) or (ii) above. XI. The Transferee hereby confirms, pursuant to and in accordance with the provisions of Clause 24.4 (Governing Law and Jurisdiction) of the Agreement, that its agent for service of process in England is as set out in the Schedule to this Transfer Certificate and 146 confirms that such agent is willing to accept service of such process as is described in Clause 24.4 of the Agreement on behalf of the Transferee in respect of the Agreement, any other Transaction Document. XII. This Transfer Certificate shall be governed by and construed in accordance with English Law. [Transferee] By: ------------------------------ (Duly Authorised) [Transferor] By: ------------------------------ (Duly Authorised) The Agent on behalf of itself and all other parties to the Agreement (other than the Transferor and the Obligors). By: ------------------------------ (Duly Authorised) The Borrower on behalf of itself and all the other Obligors By: ------------------------------ (Duly Authorised) Dated: [ ] 147 SCHEDULE TO THE TRANSFER CERTIFICATE Transferor's Commitment Amount of Commitment Transferred and the Related Rights and Obligations of the Transferor to be Transferred Transferor's Participation Amount of Transferor's Participation in Advances in Advances already made already made Transferred and Related Rights and Obligations of the Transferor to be Transferred Date: [Transferee] LENDING OFFICE: ADDRESS FOR NOTICES: [___________________] [________________________________] Telephone: [______________] Facsimile: [______________] JURISDICTION OF INCORPORATION: [_____________] English Process Agent: [_____________] Transfer Date: [_________] 148 SCHEDULE 3 UTILISATION NOTICE To: (1) HALIFAX PLC (as Agent) Group Treasury 33 Old Broad Street London EC2N 1HZ Facsimile No: +44 171 574 8139 Tel No: +44 171 574 8042 Attention: Head of Aircraft Finance From: [_____] (the "BORROWER") [_____________________________ ______________________________ ______________________________ ______________________________ ______________________________] RE: AIRCRAFT FACILITY AGREEMENT DATED 19TH JANUARY, 1999 AND MADE BETWEEN THE BANKS AND FINANCIAL INSTITUTIONS NAMED THEREIN AS LENDERS, HALIFAX PLC AS AGENT AND SECURITY TRUSTEE, THE BORROWER, AIRCRAFT SPC 9, INC. AS PARENT, AND INTERNATIONAL LEASE FINANCE CORPORATION AS GUARANTOR AND SUBORDINATED LENDER AS AMENDED, SUPPLEMENTED OR ACCEDED TO FROM TIME TO TIME (THE "AGREEMENT") The Borrower hereby gives notice in accordance with Clause 3.1.1 of the Agreement that:- (i) the Borrower desires to effect a Utilisation on the Delivery Date, which is currently scheduled to be [________]; (ii) the requested amount of the proposed Advance is US$[_____]; (iii) the Aircraft the subject of the Utilisation is one Airbus [A319/A320/A321/A330/A340] Aircraft with manufacturer's serial number [_______], proposed [_______] Registration Mark [_______] and [_______] installed Engines; [(iv) the proposed [Lessee][Sub-Lessee] of the Aircraft the subject of the Utilisation is [_______], a company incorporated in [_______] and having its principal place of business in [_______] and it is proposed that the Aircraft shall be [registered] in [_______]. The Lessee will [and the Sub-Lessee] [will] [will not] require quiet enjoyment covenants from the Borrower and the Security Trustee in the form agreed between the Borrower, the Security Trustee and the Guarantor.] A certified copy of the [executed Lease] [latest draft of the proposed Lease] is attached hereto;] 149 [(v) the Borrower confirms that [______________], as Sub-Borrower, shall be the owner of the Aircraft]; (vi) the Borrower desires the Lenders to disburse the Loan on [____________________________]; and (vii) The Aircraft Purchase Price is US$[______________]; The account into which the Loan should be paid is account no. [______________] with [_______]. The Borrower hereby certifies that as at the date of this notice no Relevant Event, Termination Event, and except as disclosed to the Agent no Second Trigger Event or Third Trigger Event, has occurred and is continuing or would result from the drawdown of the Advance, the subject of this Utilisation. The Borrower hereby certifies that all representations and warranties on its part contained in Clause 6.2 of the Facility Agreement remain true and correct at the date of this notice and shall remain true and correct on the Delivery Date and no event has occurred which constitutes or, with the passing of time or the giving of notice or the making of any determination or any combination thereof would constitute, a Termination Event. Capitalised terms used herein defined in the Agreement have the same meanings herein. [____________________________] By: Name: Title: 150 SCHEDULE 4 PART I DETAILS OF PROPOSED AIRCRAFT AND PROPOSED AIRCRAFT DELIVERY SCHEDULE (ALL FIGURES IN US$)
(1) (2) (3) (4) (5) (6) (7) NATIONAL ASSUMED CONTENT SCHEDULED PROPOSED FINANCED (ASSUMED AIRCRAFT DELIVERY ENGINE INITIAL AMOUNT %) NO. MONTH TYPE TYPE LESSEE (MILLIONS) UK FRANCE GERMANY 1 Feb-99 A319 CFM56-5A4 Air France 29,652.25 18 51 31 2 Mar-99 A319 CFM56-5B TAP 29,652.25 18 51 31 3 Apr-99 A319 CFM56-5A4 Air France 29,435.50 18 51 31 4 Apr-99 A319 CFM58-5A4 Air France 29,435.50 18 51 31 5 May-99 A319 CFM56-5B Swissair 29,435.50 18 51 31 6 Jan-99 A320 V2527-A5 Dragonair #5 35,372.75 32 32 36 7 Mar-99 A320 CFM56-5A3 TAP #4 35,372.75 20 49 31 8 Apr-99 A320 CFM56-5A3 Star Airlines 35,198.50 20 49 31 9 May-99 A320 CFM56-5B4 Iberia 35,198.50 20 49 31 10 Oct-99 A320 CFM56-5B4 Iberia 36,035.75 20 49 31 11 Nov-99 A320 V2527-A5 BMA #1 36,035.75 32 32 36 12 Feb-99 A321 V2533-A5 BMA #3 40,415.80 33 32 35 13 Feb-99 A321 V2533-A5 Aerolloyd #2 40,415.80 33 32 35 14 Mar-99 A321 V2533-A5 Dragonair #6 40,415.80 33 32 35 15 Mar-99 A321 CFM56-5B Aer Lingus 40,415.80 17 52 31 16 Mar-99 A321 V2533-A5 BMA #4 40,415.80 33 32 35 17 Apr-99 A321 V2533-A5 Aerolloyd #3 40,073.25 33 32 35 18 May-99 A321 V2533-A5 Dragonair #7 40,073.25 33 32 35 19 Jul-99 A321 V2533-A5 Asiana #1 40,366.50 33 32 35 20 Dec-99 A321 CFM56-5B Swissair 41,208.00 17 52 31
(1) (8) ASSUMED NATIONAL PROPORTIONS ASSUMED AIRCRAFT BRITISH ASSUMED FRENCH ASSUMED GERMAN NO. LENDERS' LENDERS' LENDERS' PROPORTION PROPORTION PROPORTION 1 5,337,405.00 15,122,647.50 9,192,197.50 2 5,337,405.00 15,122,647.50 9,192,197.50 3 5,298,390.00 15,012,105.00 9,125,005.00 4 5,298,390.00 15,012,105.00 9,125,005.00 5 5,298,390.00 15,012,105.00 9,125,005.00 6 11,319,280.00 11,319,280.00 12,734,190.00 7 7,074,550.00 17,332,647.50 10,965,552.50 8 7,039,700.00 17,247,265.00 10,911,535.00 9 7,039,700.00 17,247,265.00 10,911,535.00 10 7,207.150.00 17,657,517.50 11,171,082.50 11 11,531,440.00 11,531,440.00 12,972,870.00 12 13,337,214.00 12,933,056.00 14,145,530.00 13 13,337,214.00 12,933,056.00 14,145,530.00 14 13,337,214.00 12,933,056.00 14,145,530.00 15 6,870,686.00 21,016,216.00 12,528,898.00 16 13,337,214.00 12,933,056.00 14,145,530.00 17 13,224,172.50 12,823,440.00 14,025,637.50 18 13,224,172.50 12,823,440.00 14,025,637.50 19 13,320,945.00 12,917,280.00 14,128,275.00 20 7,005,360.00 21,428,160.00 12,774,480.00
- 147 - 151
(1) (2) (3) (4) (5) (6) (7) NATIONAL ASSUMED CONTENT SCHEDULED PROPOSED FINANCED (ASSUMED AIRCRAFT DELIVERY ENGINE INITIAL AMOUNT %) NO. MONTH TYPE TYPE LESSEE (MILLIONS) UK FRANCE GERMANY 21 Feb-99 A330-200 Trent 772-60 Air Transat 56,960.63 38 34 28 22 Apr-99 A330-200 Trent 772-60 Air Transat 56,960.63 38 34 28 23 Feb-99 A330-200 PW4168A Swissair #2 56,960.63 24 41 35 24 Feb-99 A330-200 PW4168A Swissair #3 56,960.63 24 41 35 25 Mar-99 A330-200 PW4168A Swissair #4 56,896.17 24 41 35 26 May-99 A330-200 PW4168A Swissair #5 56,896.17 24 41 35 27 May-99 A330-200 CF6-80E1 Canada 3000 56,896.17 22 43 35 #3 28 Aug-99 A330-200 PW4168A Sabena #1 57,128.50 24 41 35 29 Oct-99 A330-200 PW4168A Sabena #2 58,964.50 24 41 35 30 Nov-99 A330-200 PW4168A Sabena #3 58,964.50 24 41 35 31 Feb-99 A340-300 CFM56-5C4 Air Canada #4 72,938.50 20 50 30 32 Jan-00 A319-100 CFM56-5A4 Air France 28,477.83 18 51 31 33 Jan-00 A319 CFM56-5B5 Iberia 28,477.83 18 51 31 34 Feb-00 A319 CFM56-5B5 Iberia 28,477.83 18 51 31 35 Mar-00 A319 CFM56-5A4 Air France 28,477.83 18 51 31 36 Apr-00 A319 V2524-A5 TBD 27,602.33 28 39 33
(1) (8) ASSUMED NATIONAL PROPORTIONS ASSUMED AIRCRAFT BRITISH ASSUMED FRENCH ASSUMED GERMAN NO. LENDERS' LENDERS' LENDERS' PROPORTION PROPORTION PROPORTION 21 21,645,039.40 19,366,614.20 15,948,976.40 22 21,645,039.40 19,366,614.20 15,948,976.40 23 13,670,551.20 23,353,858.30 19,936,220.50 24 13,670,551.20 23,353,858.30 19,936,220.50 25 13,655,080.80 23,327,429.70 19,913,659.50 26 13,655,080.80 23,327,429.70 19,913,659.50 27 12,517,157.40 24,465,353.10 19,913,659.50 28 13,710,840.00 23,422,685.00 19,944,975.00 29 14,151,480.00 24,175,445.00 20,637,575.00 30 14,151,480.00 24,175,445.00 20,637,575.00 31 14,587,700.00 36,469,250.00 21,881,550.00 32 5,126,009.40 14,523,693.30 8,828,127.30 33 5,126,009.40 14,523,693.30 8,828,127.30 34 5,126,009.40 14,523,693.30 8,828,127.30 35 5,126,009.40 14,523,693.30 8,828,127.30 36 7,728,652.40 10,764,908.70 9,108,768.90
- 148 - 152
(1) (2) (3) (4) (5) (6) (7) NATIONAL ASSUMED CONTENT SCHEDULED PROPOSED FINANCED (ASSUMED AIRCRAFT DELIVERY ENGINE INITIAL AMOUNT %) NO. MONTH TYPE TYPE LESSEE (MILLIONS) UK FRANCE GERMANY 37 Apr-00 A319-100 CFM56-5A4 Air France 27,602.33 18 51 31 38 May-00 A319-100 CFM56-5B5 Iberia 27,602.33 18 51 31 39 Nov-00 A319-100 CFM56-5B5 Iberia 26,809.00 18 51 31 40 Feb-00 A320 V2527-A5 BMA #2 36,120.75 32 32 36 41 Mar-00 A320 V2527-A5 BMA #3 36,120.75 32 32 36 42 Apr-00 A320 CFM56-5B4 Iberia 34,875.50 20 49 31 43 Apr-00 A320-200 CFM56-5B4 Iberia 34,875.50 20 49 31 44 May-00 A320 CFM56-5B4 Iberia 34,875.50 20 49 31 45 Feb-00 A319 CFM56-5B Air France 28,477.83 18 51 31 46 Mar-00 A321 V2533-A5 Aerolloyd #4 39,995.33 33 32 35 47 Apr-00 A321 V2533-A5 Aerolloyd #5 41,297.25 33 32 35 48 Jul-00 A321 V2533-A5 Asiana #2 41,297.25 33 32 35 49 Oct-00 A321 V2527-A5 TBD 41,798.33 33 32 35 50 Nov-00 A321 V2527-A5 TBD 41,825.65 33 32 35 51 Feb-00 A330-200 PW4168A Austrian 57,961.50 24 41 35 52 May-00 A330-200 CF6-80E1 Aer Lingus 57,757.50 22 43 35 53 May-00 A330-200 Trent 772-60 TBD 57,774.50 38 34 28 54 Nov-00 A330-200 PW4168A TBD 57,774.50 24 41 35 55 Apr-00 A340-300 CFM56-5C4 TBD 75,514.00 20 50 30
(1) (8) ASSUMED NATIONAL PROPORTIONS ASSUMED AIRCRAFT BRITISH ASSUMED FRENCH ASSUMED GERMAN NO. LENDERS' LENDERS' LENDERS' PROPORTION PROPORTION PROPORTION 37 4,968,419.40 14,077,188.30 8,556,722.30 38 4,968,419.40 14,077,188.30 8,556,722.30 39 4,825,620.00 13,672,590.00 8,310,790.00 40 11,558,640.00 11,558,640.00 13,003,470.00 41 11,558,640.00 11,558,640.00 13,003,470.00 42 6,975,100.00 17,088,995.00 10,811,405.00 43 6,975,100.00 17,088,995.00 10,811,405.00 44 6,975,100.00 17,088,995.00 10,811,405.00 45 5,126,009.40 14,523,693.30 8,828,127.30 46 13,198,458.90 12,798,505.60 13,998,365.50 47 13,628,092.50 13,215,120.00 14,454,037.50 48 13,628,092.50 13,215,120.00 14,454,037.50 49 13,793,448.90 13,375,465.60 14,629,415.50 50 13,802,464.50 13,384,208.00 14,638,977.50 51 13,910,760.00 23,764,215.00 20,286,525.00 52 12,706,650.00 24,835,725.00 20,215,125.00 53 21,954,310.00 19,643,330.00 16,176,860.00 54 13,865,880.00 23,687,545.00 20,221,075.00 55 15,102,800.00 37,757,000.00 22,654,200.00
- 149 - 153
(1) (2) (3) (4) (5) (6) (7) NATIONAL ASSUMED CONTENT SCHEDULED PROPOSED FINANCED (ASSUMED AIRCRAFT DELIVERY ENGINE INITIAL AMOUNT %) NO. MONTH TYPE TYPE LESSEE (MILLIONS) UK FRANCE GERMANY 56 Jan-01 A319-100 CFM56-5B5 Iberia 27,746.13 18 51 31 57 Mar-01 A319 CFM56-5B5 Iberia 27,746.13 18 51 31 58 Mar-01 A319-100 CFM56-5B5 Iberia 27,746.13 18 51 31 59 May-01 A319-100 CFM56-5B5 Iberia 27,047.00 18 51 31 60 Sep-01 A319-100 CFM56-5B5 Iberia 27,055.50 18 51 31 61 Feb-01 A320 V2527-A5 BMA #4 34,680.00 32 32 36 62 Feb-01 A320 CFM56-5B4 Iberia 34,680.00 20 49 31 63 Mar-01 A320-200 V2527-A5 TBD 34,680.00 32 32 36 64 Mar-01 A320 V2527-A5 BMA #5 34,680.00 32 32 36 65 Mar-01 A320-200 V2527-A5 BMA #6 34,680.00 32 32 36 66 May-01 A320 CFM56-5B4 Iberia 32,529.50 20 49 31 67 Feb-01 A321 V2533-A5 Aerolloyd #6 41,565.00 33 32 35 68 Apr-01 A321 V2533-A5 Aerolloyd opt 40,564.83 33 32 35 69 Apr-01 A321-200 V2527-A5 TBD 40,564.83 33 32 35 70 Apr-01 A330-200 PW4168A TBD 58,352.50 24 41 35 71 May-01 A330-200 CF6-80E1 TBD 58,352.50 22 43 35 72 Sep-01 A330-200 Trent 772-60 Star Airlines 58,522.50 38 34 28 73 Nov-01 A330-200 PW4168A Star Airlines 58,718.00 24 41 35
(1) (8) ASSUMED NATIONAL PROPORTIONS ASSUMED AIRCRAFT BRITISH ASSUMED FRENCH ASSUMED GERMAN NO. LENDERS' LENDERS' LENDERS' PROPORTION PROPORTION PROPORTION 56 4,994,303.40 14,150,526.30 8,601,300.30 57 4,994,303.40 14,150,526.30 8,601,300.30 58 4,994,303.40 14,150,526.30 8,601,300.30 59 4,868,460.00 13,793,970.00 8,384,570.00 60 4,869,990.00 13,798,305.00 8,387,205.00 61 11,097,600.00 11,097,600.00 12,484,800.00 62 6,936,000.00 16,993,200.00 10,750,800.00 63 11,097,600.00 11,097,600.00 12,484,800.00 64 11,097,600.00 11,097,600.00 12,484,800.00 65 11,097,600.00 11,097,600.00 12,484,800.00 66 6,505,900.00 15,939,455.00 10,084,145.00 67 13,716,450.00 13,300,800.00 14,547,750.00 68 13,386,393.90 12,980,745.60 14,197,690.50 69 13,386,393.90 12,980,745.60 14,197,690.50 70 14,004,600.00 23,924,525.00 20,423,375.00 71 12,837,550.00 25,091,575.00 20,423,375.00 72 22,238,550.00 19,897,650.00 16,386,300.00 73 14,092,320.00 24,074,380.00 20,551,300.00
- 150 - 154
(1) (2) (3) (4) (5) (6) (7) NATIONAL ASSUMED CONTENT SCHEDULED PROPOSED FINANCED (ASSUMED AIRCRAFT DELIVERY ENGINE INITIAL AMOUNT %) NO. MONTH TYPE TYPE LESSEE (MILLIONS) UK FRANCE GERMANY 74 Apr-01 A340-300 CFM56-5C4 TBD 78,387.00 20 50 30 75 May-01 A340 CFM56-5C4 TBD 78,387.00 20 50 30 3,169,705,530
(1) (8) ASSUMED NATIONAL PROPORTIONS ASSUMED AIRCRAFT BRITISH ASSUMED FRENCH ASSUMED GERMAN NO. LENDERS' LENDERS' LENDERS' PROPORTION PROPORTION PROPORTION 74 15,677,400.00 39,193,500.00 23,516,100.00 75 15,677,400.00 39,193,500.00 23,516,100.00 807,161,405.70 1,318,436,938.60 1,044,107,185.70
NOTE: 1. "*" denotes potential or unconfirmed lessee. ILFC may at its discretion, change the identity of the initial lessees and the engine type. NOTE: 2. Aircraft No. and other information may be changed in accordance with the definition of Eligible Aircraft. NOTE: 3. Scheduled Delivery months may be changed. NOTE: 4. Assumed Financed Amount for each Aircraft is for indicative purposes only and is subject to adjustment. - 151 - 155 SCHEDULE 4 : PART II INTERNATIONAL LEASE FINANCE CORPORATION SAMPLE LOAN PROFILES AS A PERCENTAGE OF AIRCRAFT COST FOR AIRBUS A319/A320/A321/A330/A340 DELIVERIES PURCHASE PRICE 120,000,000 (LASU RATE _____% PER ANNUM CALCULATED ON ACTUAL/360 DAY BASIS)
(1) (2) (3) (4) (5) REPAYMENT DATE NUMBER TRANCHE A ECA TRANCHE B ECA TOTAL LOAN ADVANCE OUTSTANDING (SEMI-ANNUAL REPAYMENTS) (%) DELIVERY DATE 2nd January 1999 75,000,000.00 27,000,000.00 102,000,000.00 85.00 1st July 1999 71,250,000.00 25,650,000.00 96,900,000.00 80.75 2nd January 2000 67,500,000.00 24,300,000.00 91,800,000.00 76.50 1st July 2000 63,750,000.00 22,950,000.00 86,700,000.00 72.25 2nd January 2001 60,000,000.00 21,600,000.00 81,600,000.00 68.00 1st July 2001 56,250,000.00 20,250,000.00 76,500,000.00 63.75 2nd January 2002 52,500,000.00 18,900,000.00 71,400,000.00 59.50 1st July 2002 48,750,000.00 17,550,000.00 66,300,000.00 55.25 2nd January 2003 45,000,000.00 16,200,000.00 61,200,000.00 51.00 1st July 2003 41,250,000.00 14,850,000.00 56,100,000.00 46.75 2nd January 2004 37,500,000.00 13,500,000.00 51,000,000.00 42.50 1st July 2004 33,750,000.00 12,150,000.00 45,900,000.00 38.25 2nd January 2005 30,000,000.00 10,800,000.00 40,800,000.00 34.00 1st July 2005 26,250,000.00 9,450,000.00 35,700,000.00 29.75 2nd January 2006 22,500,000.00 8,100,000.00 30,600,000.00 25.50 1st July 2006 18,750,000.00 6,750,000.00 25,500,000.00 21.25 2nd January 2007 15,000,000.00 5,400,000.00 20,400,000.00 17.00 1st July 2007 11,250,000.00 4,050,000.00 15,300,000.00 12.75 2nd January 2008 7,500,000.00 2,700,000.00 10,200,000.00 8.50 1st July 2008 3,750,000.00 1,350,000.00 5,100,000.00 4.25 2nd January 2009 0.00 0.00 0.00 0.00
- 152 - 156 SCHEDULE 5 GUARANTOR COVENANTS 1. In this Schedule 5 each of the following words shall have the following meanings:- "FINANCIAL INDEBTEDNESS" of any Person means, and includes all obligations of such Person which in accordance with generally accepted accounting principles in the United States of America shall be classified upon a balance sheet of such Person as liabilities of such Person, and in any event shall include all:- (a) obligations of such Person for borrowed money or which have been incurred in connection with the acquisition of property or assets (other than security and other deposits on flight equipment); (b) obligations secured by any Lien or other charge upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations; (c) obligations created or arising under any conditional sale, or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property; (d) obligations evidenced by bonds, debentures, notes or other similar instruments; and (e) Guarantees by such Person to the extent required pursuant to the definition thereof, but: (i) shall not include amounts which would otherwise be taken into account which are owed by the Guarantor to any of its Subsidiaries or by any Subsidiary of the Guarantor to the Guarantor or another Subsidiary of the Guarantor; (ii) no amount shall be taken into account more than once in the same calculation; (iii) shall not include any aircraft lease rentals received in advance; (iv) shall not include any concessions received in advance from manufacturers; (v) shall not include any amounts in respect of current or deferred Tax; "GUARANTEES" by any person means all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Financial Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an 157 agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any property or assets constituting security therefor, (b) to advance or supply funds (i) for the purchase or payment of such Indebtedness or obligation or (ii) to maintain working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, (c) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the primary obligor against loss in respect thereof; provided, however, that the obligation described in clause (c) shall not include (i) obligations of a buyer under an agreement with a seller to purchase goods or services entered into in the ordinary course of such buyer's and seller's business unless such agreement required that such buyer make payment whether or not delivery is ever made of such goods or services and (ii) agreements where the remaining debt on an aircraft does not exceed the aircraft's net book value, determined in accordance with industry standards, except that clause (c) shall apply to the amount of remaining debt that exceeds the net book value of the aircraft. For the purposes of all computations made under this Guarantee, a Guarantee in respect of any Financial Indebtedness for borrowed money shall be deemed to be Financial Indebtedness equal to the principal amount of such Financial Indebtedness for borrowed money which has been guaranteed, and a Guarantee in respect of any other obligation or liability or any dividend shall be deemed to be Financial Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "PERSON" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind; "RELATED PARTY" means any Person (other than a Subsidiary):- (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Guarantor; (ii) which beneficially owns or holds five per cent. (5%) or more of the equity interest of the Guarantor; or (iii) twenty per cent. (20%) or more of the equity interest of which is beneficially owned or held by the Guarantor or a Subsidiary. The term "control" means, for the purposes of the above definition, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; 2. The Guarantor hereby undertakes and covenants with the Agent, the Security Trustee, and each of the Lenders separately and severally that from the date of this Agreement and until all Guaranteed Obligations then payable have been paid in full:- 2.1 the Guarantor shall furnish to the Security Trustee sufficient copies for each Lender (which the Security Trustee shall promptly furnish to each Lender):- 158 (a) as soon as available, and in any event within ninety-five (95) days after the end of each fiscal year of the Guarantor, a copy of the audited financial statements and annual audit report of the Guarantor and its Subsidiaries for such fiscal year beginning with the year ending December 31 1998 prepared on a consolidated basis and in conformity with generally accepted accounting principles in the United States of America and certified by Price Waterhouse Coopers LLP or by another independent United States of America certified public accountant of recognised national standing in the United States of America selected by the Guarantor; (b) as soon as available, and in any event within fifty (50) days after the end of each quarter (except the last quarter) of each fiscal year of the Guarantor, a copy of the unaudited financial statements of the Guarantor and its Subsidiaries for such quarter prepared in a manner consistent with the audited financial statements referred to in Paragraph 2.1(a) signed by the Guarantor's chief financial officer and consisting of at least a balance sheet as at the close of such quarter and statements of earnings and cash flows for such quarter and for the period from the beginning of such fiscal year to the close of such quarter; (c) contemporaneously with the furnishing of a copy of each annual audit report and of each set of quarterly statements provided for in this Paragraph 2.1, a certificate of the Guarantor dated the date of such annual report or such quarterly statements and signed by the Guarantor's chief financial officer or treasurer, to the effect that no Termination Event or Relevant Event has occurred and is continuing, or, if there is any such event, describing it and the steps, if any, being taken to cure it and as to the long term debt rating of the Guarantor as rated by Standard & Poor's Corporation and by Moody's Investor Service, Inc. or by an alternative service of equivalent recognition (if neither Standard & Poor's Corporation nor Moody's Investor Service, Inc. has assigned any rating); (d) promptly after the filing or making thereof, copies of all 8-K's (other than 8-K's relating solely to the issuance by the Guarantor of securities pursuant to an effective registration statement), 10-Q's, 10-K's, and other material reports or registration statements filed by the Guarantor with or to any securities exchange or the Securities and Exchange Commission; (e) from time to time such other information concerning the Guarantor as the Agent or the Security Trustee may reasonably request; 2.2 promptly after learning of the occurrence of any Termination Event or a First Trigger Event, Second Trigger Event or Third Trigger Event, the Guarantor shall furnish to the Security Trustee written notice thereof, describing the same and the steps being taken by the Guarantor affected with respect thereto; 2.3 subject to Paragraph 2.8 the Guarantor will maintain and preserve its existence as a corporation or other form of business organisation; 2.4 the Guarantor will engage in substantially the same fields of business as it is engaged in on the date hereof; 159 2.5 the Guarantor will maintain complete and accurate books and records in which full and correct entries in conformity with generally accepted accounting principles in the United States of America shall be made of all dealings and transactions in relation to its respective business and activities; 2.6 the Guarantor will not declare or pay any dividends whatsoever or make any distribution on any capital stock of the Guarantor (except in shares of, or warrants or rights to subscribe for or purchase shares of, capital stock of the Guarantor), and not, and not permit any Subsidiary to, make any payment to acquire or retire shares of capital stock of the Guarantor, at any time when a Termination Event has occurred and is continuing provided, however, that notwithstanding the foregoing, this Paragraph 2.6 shall not prohibit the payment of dividends on any of the Guarantor's money market preferred stock that was sold to the public pursuant to an effective registration statement under the United States of America Securities Act of 1933 or the payment of dividends within 30 days of the declaration thereof if such declaration was not prohibited by this Section 2.6; 2.7 the Guarantor will not enter into or be a party to any transaction or arrangement, including, without limitation, the purchase, sale, lease or exchange of property or the rendering of any service, with any Related Party, except in the ordinary course of and pursuant to the reasonable requirements of the Guarantor's business and upon fair and reasonable terms no less favourable to the Guarantor than would be obtained in a comparable arm's length transaction with a Person not a Related Party; 2.8 in the event that the Guarantor is a party to any merger or consolidation then the successor person, if other than the Guarantor, shall assume all of the Guaranteed Obligations. 160 SCHEDULE 6 CONDITIONS PRECEDENT AND SUBSEQUENT TO A UTILISATION PART I CONDITIONS PRECEDENT TO EACH UTILISATION The obligations of each of the Lenders and the Representatives, under this Agreement with respect to each Utilisation shall be subject to the following conditions precedent having been fulfilled to the satisfaction of, or waived in writing by, the Agent:- 1. (A) no Cancellation Notice shall have been served and still be in effect and no Relevant Event or Termination Event shall have occurred which is continuing on the relevant Utilisation Date; and (B) all representations and warranties made (or deemed repeated) by or on behalf of the Borrower and each other Obligor in Clause 6 (Representations and Warranties) and paragraph 2 of the relevant Accession Deed on the Utilisation Date shall be true and accurate in the light of the circumstances and with reference to the facts existing on the Utilisation Date (except to the extent that the representation in Clause 6.1(l) specifically relates to an earlier date). 2. three (3) Business Days prior to the Utilisation Date, or such lesser period as the Agent shall have agreed in writing, the Agent shall have received: (A) duly executed originals of all previously undelivered Aircraft Operative Documents to which the Agent and the applicable Obligor is to be a party (other than those referred to in Part II of this Schedule 6) comprising the following documents for the relevant Aircraft: (a) the Partial Purchase Agreement Assignment; (b) the BFE Bill of Sale; (c) a certified copy of the Lease (if available); (d) a certified copy of the assignment of the Lease to the Borrower or the Relevant Sub-Borrower (as the case may be); (e) the Assignment of General Terms Agreement Re Engine Warranties or as the case may be the RR Engine Warranty Agreement; (f) if applicable, Assignment of Warranty and Support Rights (Airframe) between the Guarantor and the Lessee; 161 (g) if applicable, Assignment Agreement (Assignment of Rights (Engines)) between the Guarantor, the Lessee and the relevant Engine Manufacturer; (h) the Loan Supplement; (i) the Mortgage (or alternative security satisfactory to the Security Trustee acting upon the instructions of the Majority Lenders); (j) the Sub-Borrower Debenture (if applicable); (k) Charge Over Shares of Sub-Borrower (if applicable); (l) Sub-Borrower Guarantee (if applicable); (m) Lease Security Assignment (if a Third Trigger Event shall have occurred and be continuing); (n) Accession Deed (if applicable). (o) Intermediate Lessee Debenture (if applicable); (p) Charge Over Shares of Intermediate Lessee (if applicable); (q) Intermediate Lease Security Assignment (if a Third Trigger Event shall have occurred and be continuing) (if applicable); (r) Intermediate Lease (if applicable); (s) Bill of Sale; (t) Notice of Charge; (u) the definitive drafts of legal opinions referred to in Clause 3.1.4(c) and (d) (Utilisation Notices), if applicable; (B) payment instructions relating to payments to be made on the Delivery Date under the Aircraft Operative Documents; (C) with respect to such Utilisation, the Support Agreements or the requisite approval of each of ECGD, COFACE and HERMES in lieu of and/or as a precursor to the issue of the relevant Support Agreement; 3. on or before the first Utilisation the Agent shall have received: 162 (a) a legal opinion from Appleby, Spurling & Kempe, Bermudan counsel to the Lenders; (b) a legal opinion from Buchalter Nemer, Fields & Younger, Californian counsel to the Lenders; (c) a legal opinion from Paul, Hastings, Janofsky & Walker LLP regarding the Guarantor's corporate authority to enter into the Facility Agreement and its due authorisation thereof, and to other matters applicable to the Guarantor or the Parent, from in-house counsel to the Guarantor; (d) a legal opinion from Wilde Sapte, English counsel to the Lenders; it being understood that after the occurrence and continuation of a Second Trigger Event, the Agent shall be entitled to request receipt of such other legal opinions as it in its good faith considers appropriate and the reissue of any other Master Opinion in addition to the Master Opinions and any "bring-down" opinions referred to in Clause 7.1(s) (General Covenants of Borrower, Sub-Borrower and Intermediate Lessee) and from counsel in the state of registration of the Aircraft; 4. on or before each Utilisation in respect of which a Sub-Borrower and/or Intermediate Lessee is incorporated in the structure and in either or both cases has not previously acceded to the Agreement, the Agent shall have received an opinion from legal counsel to the Lenders in the jurisdiction of organisation of such Sub-Borrower and/or Intermediate Lessee (being a legal opinion from Maples & Calder, if the Cayman Islands is the relevant jurisdiction or a legal opinion from A&L Goodbody, if Ireland is the relevant jurisdiction) regarding the due execution and validity of the Accession Deed, of the relevant Aircraft Security Documents and of other documents as the Representatives may have required pursuant to Clause 3.3.3(b) (Sub-Borrowers/Intermediate Lessees). 163 CONDITIONS PRECEDENT AND SUBSEQUENT TO A UTILISATION PART II FURTHER CONDITIONS PRECEDENT In addition, the Agent shall have received on or before the Utilisation Date all of the following:- 1. if applicable, evidence of registration of the Aircraft with the applicable Aviation Authority; 2. a certificate of the insurance broker in respect of the Insurances together with a broker's letter of undertaking (if any) and any certificate of reinsurance and reinsurance broker's letter of undertaking (if any) in form and substance acceptable to the Security Trustee; 3. evidence satisfactory to the Agent that the bills of sale/confirmation of transfer by delivery of possession relating to the transfer of title to the Aircraft and the installed Buyer Furnished Equipment will be delivered by the Seller to the Borrower; 4. a commercial invoice for the Aircraft (including the installed Buyer Furnished Equipment) issued by the Seller specifying the net final contract price as described in the relevant Purchase Agreement in relation to the Aircraft; 5. duly executed originals of all of the notices to the Partial Purchase Agreement Assignment, the Assignment of General Terms Agreement re Engine Warranties, the Mortgage, and duly executed originals of the notices to the relevant Sub-Borrower Debenture or the Borrower Debenture; 6. duly executed originals or, as the case may be, certified copies of the documents ancillary to any Charge Over Shares entered into in connection with the delivery of the Aircraft being certified copies of the memorandum of association and bye-laws and the share register (if any) of the relevant Sub-Borrower or Intermediate Lessee and the originals of the letters of resignation, irrevocable proxy and undated Share Transfer forms referred to in such Charge over Shares; 7. in form and substance satisfactory to the Agent certified copies of all consents, authorisations, approvals, filings and registrations (if any) of or with any governmental or other competent agency or authority (including in relation to exchange control) which any of the legal opinions referred to in paragraph 2 of Part I of this Schedule 6 provide are required to be obtained or made by any party to the Aircraft Operative Documents in connection with the execution, delivery and performance of the Aircraft Operative Documents or any documents contemplated thereby but subject to the parenthetical proviso in Clause 7.1(f) (General Covenants of Borrower, Sub-Borrower and Intermediate Lessee) and except for those which it is not customary practice in the applicable jurisdiction to make or obtain at such time; 8. copies of all documents (not otherwise required under this annex) as are conditions precedent to such Utilisation under any Aircraft Operative Document; 164 9. evidence of the Consent and Agreement of the Seller and the Engine Manufacturer to the provisions of the warranty assignments pursuant to the Partial Purchase Agreement Assignment, the Assignment of General Terms Agreement re Engine Warranties and the Mortgage and (where appropriate) the service of such documents upon the Seller by huissiers de justice in accordance with the provisions of Article 1690 of the French Civil Code; 10. a certified copy of the bill of sale issued by the Guarantor in favour of the Seller and relating to the Buyer Furnished Equipment and having attached thereto a Schedule describing the nature, the quantity, the vendor and the part number of the individual items which comprise the Buyer Furnished Equipment; 11. written confirmation from the Guarantor addressed to the Agent that the Buyer Furnished Equipment (excluding that relating to Post-Delivery Modifications) has been installed on the Aircraft; 12. a certificate from the Manufacturer addressed to the Agent confirming that the Buyer Furnished Equipment (excluding that relating to Post-Delivery Modifications) has been installed on the Aircraft as at the Delivery Date in form and substance satisfactory to the Export Credit Agencies; 13. an undertaking from the Guarantor addressed to the Agent that (i) the Buyer Furnished Equipment as is scheduled for installation within 180 days of the Delivery Date will be installed by the end of the Post-Delivery Modification Period or that the applicable portion of the relevant Loan will be prepaid as required under the Facility Agreement, and (ii) it will provide to the Agent a list of the Buyer Furnished Equipment installed on the Aircraft (after completion, if applicable, of Post-Delivery Modifications) specifying each item's stated country of origin as soon as practicable after the Delivery Date; 14. in the circumstances where the provisions of Clause 3.6.4 (Repayment Schedules) apply, substitute schedules to replace schedule 2 to the Loan Supplement duly signed for and on behalf of the Borrower and the relevant Lessee; 15. if a Sub-Borrower or an Intermediate Lessee, which has not previously acceded to the Transaction Documents, has been incorporated into the structure, evidence that the Sub-Borrower Accounts and/or the Intermediate Lessee Accounts have been opened and that ten Dollars has been deposited in each such Sub-Borrower Account or each such Intermediate Lessee Account (as the case may be); 16. a letter from the relevant Engine Manufacturer to the Agent setting out the credit memoranda deductible from the purchase price of the Aircraft in respect of the relevant Engines; 17. evidence satisfactory to it that no proceedings for insolvency of, and no petition for winding-up or liquidating, the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (as the case may be) has been instituted or filed as at the Utilisation Date in a corporate or similar register against the Borrower, the relevant Sub-Borrower or the relevant Intermediate Lessee (as the case may be) as at the Utilisation Date; 18. with respect to any previous Utilisation (having an analogous structure and/or the same jurisdiction as the proposed Utilisation) as to which the provisions of Clause 14.3.2 165 (Illegality) have applied, evidence that all mitigating action has been completed or the affected Loan has been prepaid pursuant to Clause 14.3 (Illegality) and that relevant Master Opinions in form and substance satisfactory to the Agent have been reissued for the proposed Utilisation; 166 CONDITIONS PRECEDENT AND SUBSEQUENT TO A UTILISATION PART III CONDITIONS SUBSEQUENT TO A UTILISATION It shall be a condition subsequent to each Advance that:- (A) (a) the Borrower shall within sixty (60) days after delivery and title transfer of the relevant Aircraft from the Seller to the Borrower or the relevant Sub-Borrower (or following the occurrence and continuation of a Second Trigger Event within seven (7) days after such delivery and title transfer) locate the Aircraft (including the Engines) at the time the Mortgage is to come into effect, (i) in England and Wales or Hong Kong or (ii) in United Kingdom or Hong Kong airspace or (iii) in such other location in respect of which the Agent is able to obtain a satisfactory legal opinion of counsel to the Lenders in the jurisdiction of such other location of the Aircraft (including the Engines) that, under the relevant conflicts of laws rules, the Mortgage will be recognised as a valid and binding Mortgage governed by English law, and shall provide within such sixty (60) day period or, as the case may be, seven (7) day period, evidence satisfactory to the Agent that the Aircraft (including the Engines) has been located in one of the three applicable locations; and (b) with respect to a substitution of a Replacement Aircraft, the Borrower or any Sub-Borrower (as the case may be) shall within sixty (60) days after title to the Replacement Aircraft has transferred to the Borrower or the relevant Sub-Borrower (as the case may be) pursuant to Clause 4.7 (Substitution of Aircraft) (or following the occurrence and continuation of a Second Trigger Event within seven (7) days after such delivery and title transfer) locate the Replacement Aircraft (including the Engines) at the time the Mortgage is to come into effect, (i) in England and Wales or Hong Kong or (ii) in United Kingdom or Hong Kong airspace or (iii) in such other location in respect of which the Agent is able to obtain a satisfactory legal opinion of counsel to the Lenders in the jurisdiction of such other location of the Replacement Aircraft (including the Engines) that, under the relevant conflicts of laws rules, the Mortgage will be recognised as a valid and binding Mortgage governed by English law, and shall provide within such sixty (60) day period or, as the case may be, seven (7) day period, evidence satisfactory to the Agent that the Replacement Aircraft (including the Engines) has been located in one of the three applicable locations; it being understood, in so far as the Borrower is concerned, that failure to fulfil the condition subsequent in sub-paragraph (a) or (b) above in respect of a 167 particular Loan shall constitute a mandatory prepayment event in accordance with Clause 4.10.1 (Mandatory Prepayment Event); and it being understood, in so far as the Lender and the Agent are concerned, that:- (i) the Agent shall inform the Lead Managers if and when each (if applicable) condition subsequent is fulfilled; and (ii) within such sixty (60) day period, the Agent shall seek, if applicable, the legal opinion of counsel to the Lenders referred to in sub-paragraph (a)(iii) above or sub-paragraph (b) above within such sixty (60) day period and, at the Expense of the Borrower, shall seek a confirmation from its legal counsel in the jurisdiction in which the Borrower or the relevant Sub-Borrower (as the case may be) is organised as to the recording, filing, registration and perfection of the Mortgage (to the extent permitted under applicable law) in that jurisdiction of the Mortgage; (B) the Borrower shall use all reasonable endeavours to cause the Seller to provide to the Security Trustee within thirty (30) days after delivery and title transfer of the relevant Aircraft from the Seller to the Borrower or the relevant Sub-Borrower (as the case may be):- (a) a legal opinion from in-house counsel to the Seller (in relation to its consent and agreement to the Partial Purchase Agreement Assignment and to Mortgage respectively) in form and content satisfactory to the Agent; and (b) a legal opinion from in-house counsel to the relevant Engine Manufacturer (in relation to its consent and agreement to the Assignment of General Terms Agreement Re Engine Warranties and to Mortgage respectively) in form and content satisfactory to the Agent, and the Agent shall inform the Lead Managers of the receipt of such legal opinions promptly after its receipt. 168 SCHEDULE 7 ENGLISH PROCESS AGENTS Societe Generale Societe Generale 60 Gracechurch Street London EC3V 0HD Commerzbank AG Commerzbank AG, London Branch Commerzbank House 23 Austin Friars London EC2N 2EN Bayerishe Hypo-und Vereinsbank AG HypoVereinsbank, London Branch 41 Moorgate London EC2R 6PP Kreditanstalt fur Wiederaufbau Wilde Sapte 1 Fleet Place London EC4M 7WS Attention: Managing Partner Borrower: Paul, Hastings, Janofsky & Walker LLP International Financial Centre Old Broad Street London EC2N 1HQ Parent: Paul, Hastings, Janofsky & Walker LLP International Financial Centre Old Broad Street London EC2N 1HQ Guarantor: Paul, Hastings, Janofsky & Walker LLP International Financial Centre Old Broad Street London EC2N 1HQ Subordinated Lender Paul, Hastings, Janofsky & Walker LLP International Financial Centre Old Broad Street London EC2N 1HQ 169 SCHEDULE 8 INSURANCE 1. OBLIGATION TO INSURE Throughout the Security Period the Borrower or Sub-Borrower will ensure that there is effected and maintained appropriate insurances in respect of each Aircraft and its operation including insurance for: (a) loss or damage to each part of the Aircraft; and (b) any liability for injury to or death of persons and damage to or the destruction of public or private property arising out of or in connection with the operation, storage, maintenance or use of (in each case to the extent available) the Aircraft and of any other part thereof not belonging to the Borrower or Sub-Borrower but from time to time installed on the airframe. 2. SPECIFIC INSURANCES The Borrower or Sub-Borrower will maintain or will cause to be maintained the following specific insurances with respect to each Aircraft (subject to paragraph 3)): (a) All Risks Hull Insurance - All risks hull insurance policy on the Aircraft in an amount at least equal to 110% of the outstanding principal under the Loan (the "Required Insured Value") on an agreed value basis and naming the Security Trustee as a "Contract Party" and loss payee for the Required Insured Value (provided, however, that to the extent it is possible under AVN67B or its then equivalent only to name the Security Trustee as a "Contract Party" or one of the "Contract Parties" the Lessee will only be required to do so); (b) Hull War Risk Insurance -Hull war risk and allied perils insurance, including hijacking, on the Aircraft where the custom in the industry is to carry war risk for aircraft operating on routes or kept in locations similar to the Aircraft in an amount not less than the Required Insured Value on an agreed value basis and naming the Security Trustee as a loss payee for the Required Insured Value (provided, however, that to the extent it is possible under AVN67B or its then equivalent only to name the Security Trustee as a "Contract Party" or one of the "Contract Parties", the Lessee will only be required to do so); (c) Legal Liability Insurance - Third party legal liability insurance for a combined single limit (bodily injured and property damage) of not less than $300,000,000 for a narrow-bodied aircraft and not less than $500,000,000 for wide-bodied aircraft. The Security Trustee on behalf of the Agent and the Lenders shall be named as additional insureds on such policies. (d) Aircraft Spares Insurance - Insurance for the engines and the parts while not installed on the Airframe for their replacement cost or an agreed value basis. 170 3. VARIATIONS ON SPECIFIC INSURANCE REQUIREMENTS In certain circumstances, it is customary that not all of the insurances described in paragraph 2 be carried for the Aircraft. For example, when an Aircraft is not on lease to a passenger air carrier or is in storage or is being repaired or maintained, ferry or ground rather than passenger flight coverages for the Aircraft are applicable. Similarly, when an Aircraft is being utilised by a Government Entity (as defined in each Lease with a Lessee), indemnities may be provided by the Government Entity in lieu of particular insurances. The Borrower or Sub-Borrower will determine the necessary coverages for the Aircraft in such situations consistent with the manner in which the Borrower or Sub-Borrower or the Guarantor or the Guarantor's Subsidiaries or affiliates does so with respect to its other aircraft. 4. HULL INSURANCES IN EXCESS OF REQUIRED INSURANCE VALUE For the avoidance of doubt, the Borrower or Sub-Borrower and/or Lessee may carry hull risks and hull war and allied perils insurance on the Aircraft in excess of the Required Insured Value which will not be payable to the Security Trustee. Such excess insurances will be payable to the Borrower or Sub-Borrower or the Lessee, as the case may be. 5. CURRENCY All insurance and reinsurances effected pursuant to this Schedule 8 shall be payable in Dollars, save that in the case of the insurances referred to in paragraph 2(c) if such denomination is (a) required by the law of the state of registration of the Aircraft; or (b) the normal practice of airlines in the relevant country that operate aircraft leased from lessors located outside such country; or (c) otherwise agreed by the Security Trustee. 6. SPECIFIC TERMS OF INSURANCES Insurance policies which are underwritten in the London insurance market and which pertain to financed or leased aircraft equipment contain the coverage and endorsements described in AVN67B. The present form of AVN67B is set forth in an "Exhibit C" to each Lease. Each of the Borrower and the Sub-Borrower agrees that, throughout the Security Period, the Aircraft will be insured and the applicable insurance policies endorsed either (i) in a manner consistent with AVN67B, as it may be amended or revised or its equivalent or (ii) as may then be customary in the airline industry for aircraft of the same type as the Aircraft utilised by operators in the same country and whose operational network for such Aircraft and credit status is similar to the type of business as the Lessee (if any) and at the time commonly available in the insurance market. In all cases, the Borrower or Sub-Borrower will set the standards, review and manage the insurances on the Aircraft consistent with the manner in which the Borrower or Sub-Borrower or its affiliates does so with respect to its other aircraft. 7. INSURANCE BROKERS AND INSURERS In reviewing and accepting the insurance brokers (if any) and reinsurance brokers (if any) and insurers and reinsurers (if any) providing coverage with respect to the Aircraft, the Borrower or Sub-Borrower will utilise standards consistent with those applied by it or its affiliates with respect to its other aircraft. It is recognised that airlines in certain countries are required to utilise brokers (and sometimes even no brokers) or carry insurance with local insurance brokers and insurers. If at any time the Aircraft is not subject to a Lease or an Intermediate Lease the Borrower or Sub-Borrower will cause its insurance brokers to provide the Security 171 Trustee with evidence that the insurances described in this Schedule 8 are in full force and effect. 8. DEDUCTIBLE AMOUNTS, SELF-INSURANCE AND REINSURANCE With respect to the type of aircraft concerned, the nationality and creditworthiness of the airline operator, the airline operator's use and operation thereof and to the scope of and the amount covered by the insurances carried by the Lessee, the Borrower or Sub-Borrower will apply standards consistent with those of its affiliates in reviewing and accepting the amount of any insurance deductibles, whether the Lessee may self-insure any of the risks covered by the insurances and the scope and terms of reinsurance, if any, including a cut-through and assignment clause. 9. RENEWALS The Borrower or Sub-Borrower will monitor the insurances on the Aircraft and their expiration dates. The Borrower or the Sub-Borrower shall, when requested by the Security Trustee, promptly inform the Security Trustee as to whether or not, the Guarantor has been advised that renewal instructions for any of the insurances have been given by the airline operator or its broker prior to or on the scheduled expiry date of the relevant insurance. The Borrower or the Sub-Borrower shall promptly notify the Security Trustee in writing if it receives notice that any of the insurances have in fact expired without renewal. Promptly after receipt, the Borrower or Sub-Borrower will provide to the Security Trustee evidence of renewal of the insurances and reinsurance (if any). 10. INFORMATION The Borrower or Sub-Borrower shall provide the Security Trustee or shall ensure that the Security Trustee is provided with any information reasonably requested by the Security Trustee from time to time concerning the insurances maintained with respect to the Aircraft or, if reasonably available to the Borrower or Sub-Borrower, in connection with any claim being made or proposed to be made thereunder. 172 SCHEDULE 9 FORM OF CERTIFICATE TO BE GIVEN ON EACH QUARTER DATE QUARTER DATE CERTIFICATE To: Halifax PLC as Agent From: International Lease Finance Corporation (ILFC) as Guarantor Date: [Insert relevant Quarter Date] AIRCRAFT FACILITY AGREEMENT DATED 19TH JANUARY 1999 RELATING TO A TERM FACILITY IN THE MAXIMUM PRINCIPAL AMOUNT OF US$4,327,260,000 FOR THE FINANCING OF APPROXIMATELY SEVENTY FIVE (75) AIRBUS AIRCRAFT AND MADE BETWEEN (1) THE BANKS AND FINANCIAL INSTITUTIONS NAMED THEREIN (AS LENDERS), (2) HALIFAX PLC (AS AGENT), (3) HALIFAX PLC (AS SECURITY TRUSTEE), (4) SIERRA LEASING LIMITED (AS BORROWER), (5) AIRCRAFT SPC-9, INC. (AS PARENT), (6) INTERNATIONAL LEASE FINANCE CORPORATION (AS GUARANTOR) AND (7) INTERNATIONAL LEASE FINANCE CORPORATION (AS SUBORDINATED LENDER) AS AMENDED, SUPPLEMENTED OR ACCEDED TO FROM TIME TO TIME (THE "AGREEMENT") 1. I, [__________] a duly authorised representative of ILFC hereby certify that as of the date hereof to the best of my knowledge, after due enquiry, [the long term debt rating of ILFC as rated by Standard & Poor's Corporation is [__________] and is [__________] as rated by Moody's Investor Service Inc.] [The long term debt rating by [a service of equivalent recognition] is [__________](1). [2. Further, I hereby certify that as of the date hereof to the best of my knowledge, after due enquiry, no Termination Event or Relevant Event (as each are defined in the Agreement) that has occurred and is continuing.] [2. A Termination Event or Relevant Event has occurred and is continuing and in accordance with the provisions of paragraph 2.1 (c) of Schedule 5 we give you notice that the following steps are being taken to cure the same:-. ](2) Yours faithfully [______________________________] FOR AND ON BEHALF OF ILFC - ------------------ (1) Only use this option if no rating by Standard & Poor's and Moody's is available. (2) Delete as appropriate. 173 SCHEDULE 10 BLENDED LASU RATES
(1) (2) (3) (4) (5) (6) (7) (8) (9) SCHEDULED PROPOSED LASU RATE AIRCRAFT DELIVERY PRODUCTION ENGINE INITIAL LASU RATE TRANCHE B BLENDED LASU NO. MONTH NO. TYPE TYPE LESSEE TRANCHE A (1) RATE 1 Feb-99 4009 A319 CFM56-5A4 Air France 5.75% 5.76% 5.753% 2 Mar-99 4010 A319 CFM56-5B TAP 5.75% 5.76% 5.753% 3 Apr-99 4011 A319 CFM56-5A4 Air France 5.75% 5.81% 5.766% 4 Apr-99 4119 A319 CFM58-5A4 Air France 5.75% 5.81% 5.766% 5 May-99 4012 A319 CFM56-5B Swissair 5.75% 5.81% 5.766% 6 Jan-99 4077 A320 V2527-A5 Dragonair #5 5.75% 5.76% 5.753% 7 Mar-99 4079 A320 CFM56-5A3 TAP #4 5.75% 5.76% 5.753% 8 Apr-99 4080 A320 CFM56-5A3 Star Airlines 5.75% 5.81% 5.766% 9 May-99 4081 A320 CFM56-5B4 Iberia 5.75% 5.81% 5.766% 10 Oct-99 4082 A320 CFM56-5B4 Iberia 5.75% 5.87% 5.782% 11 Nov-99 4078 A320 V2527-A5 BMA #1 5.75% 5.87% 5.782% 12 Feb-99 4114 A321 V2533-A5 BMA #3 5.75% 5.76% 5.753% 13 Feb-99 4115 A321 V2533-A5 Aerolloyd #2 5.75% 5.76% 5.753% 14 Mar-99 4116 A321 V2533-A5 Dragonair #6 5.75% 5.76% 5.753% 15 Mar-99 4117 A321 CFM56-5B Aer Lingus 5.75% 5.76% 5.753% 16 Mar-99 4123 A321 V2533-A5 BMA #4 5.75% 5.76% 5.753% 17 Apr-99 4118 A321 V2533-A5 Aerolloyd #3 5.75% 5.81% 5.766% 18 May-99 4121 A321 V2533-A5 Dragonair #7 5.75% 5.81% 5.766% 19 Jul-99 4120 A321 V2533-A5 Asiana #1 5.75% 5.81% 5.766% 20 Dec-99 4122 A321 CFM56-5B Swissair 5.75% 5.87% 5.782% 21 Feb-99 6014 A330-200 Trent 772-60 Air Transat 5.75% 5.76% 5.753% 22 Apr-99 6015 A330-200 Trent 772-60 Air Transat 5.75% 5.81% 5.766% 23 Feb-99 6016 A330-200 PW4168A Swissair #2 5.75% 5.76% 5.753% 24 Feb-99 6017 A330-200 PW4168A Swissair #3 5.75% 5.76% 5.753%
- 170 - 174
(1) (2) (3) (4) (5) (6) (7) (8) (9) SCHEDULED PROPOSED LASU RATE AIRCRAFT DELIVERY PRODUCTION ENGINE INITIAL LASU RATE TRANCHE B BLENDED LASU NO. MONTH NO. TYPE TYPE LESSEE TRANCHE A (1) RATE 25 Mar-99 6018 A330-200 PW4168A Swissair #4 5.75% 5.76% 5.753% 26 May-99 6019 A330-200 PW4168A Swissair #5 5.75% 5.81% 5.766% 27 May-99 6020 A330-200 CF6-80E1 Canada 3000 5.75% 5.81% 5.766% #3 28 Aug-99 6021 A330-200 PW4168A Sabena #1 5.75% 5.81% 5.766% 29 Oct-99 6022 A330-200 PW4168A Sabena #2 5.75% 5.87% 5.782% 30 Nov-99 6023 A330-200 PW4168A Sabena #3 5.75% 5.87% 5.782% 31 Feb-99 6042 A340-300 CFM56-5C4 Air Canada #4 5.75% 5.76% 5.753% 32 Jan-00 4136 A319-100 CFM56-5A4 Air France 5.75% 5.87% 5.782% 33 Jan-00 4124 A319 CFM56-5B5 Iberia 5.75% 5.87% 5.782% 34 Feb-00 4013 A319 CFM56-5B5 Iberia 5.75% 5.87% 5.782% 35 Mar-00 4014 A319 CFM56-5A4 Air France 5.75% 5.87% 5.782% 36 Apr-00 4015 A319 V2524-A5 TBD 5.75% 5.97% 5.808% 37 Apr-00 4137 A319-100 CFM56-5A4 Air France 5.75% 5.97% 5.808% 38 May-00 4138 A319-100 CFM56-5B5 Iberia 5.75% 5.97% 5.808% 39 Nov-00 4139 A319-100 CFM56-5B5 Iberia 5.75% 6.05% 5.829% 40 Feb-00 4083 A320 V2527-A5 BMA #2 5.75% 5.87% 5.782% 41 Mar-00 4084 A320 V2527-A5 BMA #3 5.75% 5.87% 5.782% 42 Apr-00 4085 A320 CFM56-5B4 Iberia 5.75% 5.97% 5.808% 43 Apr-00 4167 A320-200 CFM56-5B4 Iberia 5.75% 5.97% 5.808% 44 May-00 4086 A320 CFM56-5B4 Iberia 5.75% 5.97% 5.808% 45 Feb-00 4178 A319 CFM56-5B Air France 5.75% 5.87% 5.782% 46 Mar-00 4125 A321 V2533-A5 Aerolloyd #4 5.75% 5.87% 5.782% 47 Apr-00 4126 A321 V2533-A5 Aerolloyd #5 5.75% 5.97% 5.808% 48 Jul-00 4127 A321 V2533-A5 Asiana #2 5.75% 5.97% 5.808% 49 Oct-00 4128 A321 V2527-A5 TBD 5.75% 6.05% 5.829% 50 Nov-00 4129 A321 V2527-A5 TBD 5.75% 6.05% 5.829% 51 Feb-00 6024 A330-200 PW4168A Austrian 5.75% 5.87% 5.782% 52 May-00 6025 A330-200 CF6-80E1 Aer Lingus 5.75% 5.97% 5.808%
- 171 - 175
(1) (2) (3) (4) (5) (6) (7) (8) (9) SCHEDULED PROPOSED LASU RATE AIRCRAFT DELIVERY PRODUCTION ENGINE INITIAL LASU RATE TRANCHE B BLENDED LASU NO. MONTH NO. TYPE TYPE LESSEE TRANCHE A (1) RATE 53 May-00 6050 A330-200 Trent 772-60 TBD 5.75% 5.97% 5.808% 54 Nov-00 6051 A330-200 PW4168A TBD 5.75% 6.05% 5.829% 55 Apr-00 6043 A340-300 CFM56-5C4 TBD 5.75% 5.97% 5.808% 56 Jan-01 4140 A319-100 CFM56-5B5 Iberia 5.75% 6.05% 5.829% 57 Mar-01 4016 A319 CFM56-5B5 Iberia 5.75% 6.05% 5.829% 58 Mar-01 4142 A319-100 CFM56-5B5 Iberia 5.75% 6.05% 5.829% 59 May-01 4143 A319-100 CFM56-5B5 Iberia 5.75% 6.15% 5.856% 60 Sep-01 4144 A319-100 CFM56-5B5 Iberia 5.75% 6.15% 5.856% 61 Feb-01 4087 A320 V2527-A5 BMA #4 5.75% 6.05% 5.829% 62 Feb-01 4141 A320 CFM56-5B4 Iberia 5.75% 6.05% 5.829% 63 Mar-01 4168 A320-200 V2527-A5 TBD 5.75% 6.05% 5.829% 64 Mar-01 4088 A320 V2527-A5 BMA #5 5.75% 6.05% 5.829% 65 Mar-01 4169 A320-200 V2527-A5 BMA #6 5.75% 6.05% 5.829% 66 May-01 4132 A320 CFM56-5B4 Iberia 5.75% 6.15% 5.856% 67 Feb-01 4130 A321 V2533-A5 Aerolloyd #6 5.75% 6.05% 5.829% 68 Apr-01 4131 A321 V2533-A5 Aerolloyd opt 5.75% 6.15% 5.856% 69 Apr-01 4179 A321-200 V2527-A5 TBD 5.75% 6.15% 5.856% 70 Apr-01 6052 A330-200 PW4168A TBD 5.75% 6.15% 5.856% 71 May-01 6053 A330-200 CF6-80E1 TBD 5.75% 6.15% 5.856% 72 Sep-01 6054 A330-200 Trent 772-60 Star Airlines 5.75% 6.15% 5.856% 73 Nov-01 6055 A330-200 PW4168A Star Airlines 5.75% 6.31% 5.898% 74 Apr-01 6044 A340-300 CFM56-5C4 TBD 5.75% 6.15% 5.856% 75 May-01 6045 A340 CFM56-5C4 TBD 5.75% 6.15% 5.856%
- 172 - 176 (1) The Tranche B LASU rate is based on the actual delivery month and may change from this schedule. The delivery months and the associated rates are as follows:
DELIVERIES INTEREST FROM TO RATE Oct-98 Mar-99 5.76% Apr-99 Sep-99 5.81% Oct-99 Mar-00 5.87% Apr-00 Sep-00 5.97% Oct-00 Mar-01 6.05% Apr-01 Sep-01 6.15% Oct-01 Mar-02 6.31%
- 173 - 177 APPENDIX A FORM OF LOAN SUPPLEMENT 178 APPENDIX B FORM OF PARTIAL PURCHASE AGREEMENT ASSIGNMENT (INCLUDING AIRFRAME WARRANTIES) 179 APPENDIX C FORM OF ENGLISH LAW AIRCRAFT MORTGAGE 180 APPENDIX D PART I FORM OF ASSIGNMENT OF GENERAL TERMS AGREEMENT RE ENGINE WARRANTIES 181 PART II FORM OF ASSIGNMENT OF GENERAL TERMS AGREEMENT RE ENGINE WARRANTIES IN RESPECT OF ENGINES MANUFACTURED BY UNITED TECHNOLOGIES CORPORATION, PRATT & WHITNEY GROUP 182 PART III FORM OF RR ENGINE WARRANTY AGREEMENT 183 APPENDIX E FORM OF BFE BILL OF SALE KNOW ALL MEN BY THESE PRESENTS: THAT the undersigned, International Lease Finance Corporation, a corporation incorporated under the laws of the State of California (the "Seller"), is the owner of the full legal and beneficial title to the buyer furnished equipment specified in the attached Schedule ("BFE"). THAT for and in consideration of payment to the Seller of the sum of [_______] United States Dollars (U.S.$[_______]), the Seller does this [_______] day of [_______] [_______] grant, convey, transfer, bargain and sell, deliver and set over, all of its right, title and interest in and to the BFE unto AVSA, S.A.R.L., a French societe a responsabilite limitee (the "Buyer"). THAT the Seller hereby warrants to the Buyer, its successors and assigns, that there is hereby conveyed to the Buyer on the date hereof good title to the BFE free and clear of all mortgages, charges, pledges, liens, statutory rights in rem, rights of possession, attachment or detention, rights of set-off, title retention arrangements, rights of ownership, hypothecations, leases, levies, claims or any encumbrances or security interests whatsoever, howsoever created or arising or any right or arrangement having a similar effect to any of the above and that the Seller will warrant and defend such title forever against all claims and demands whatsoever. THAT this Bill of Sale is and shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the Seller has caused this Bill of Sale to be executed by its duly authorised officer this [_______] day of [_______], [_______]. INTERNATIONAL LEASE FINANCE CORPORATION By: Title: AGREED and ACCEPTED this [____] day of [__________], [______] AVSA, S.A.R.L. By: Title: 184 SCHEDULE TO BFE BILL OF SALE NATURE, QUANTITY, VENDOR AND PART NUMBER IN RESPECT OF BFE 185 APPENDIX F FORM OF AIRCRAFT BILL OF SALE Know all men by these presents that AVSA S.A.R.L., a societe a responsabilite limitee (the "Seller"), is the owner of the full, legal and beneficial title to the following airframe (the "Airframe"), the attached engines as specified (the "Engines") and together with all appliances, components, parts, instruments, appurtenances, accessories, furnishings, modules and other equipment or property incorporated, installed in or on or attached to the Airframe and Engines on the date hereof (the "Parts"): Manufacturer of Airframe: Manufacturer of Engines: AIRBUS INDUSTRIE G.I.E. [____________________________] Model: AIRBUS A3[______________] Model: [__________________] Manufacturer's Serial No: [______________] Serial Nos: [______________] [______________] [______________] [______________] Registration Letters: [______________]
The Airframe, Engines and Parts are hereafter together referred to as the "Aircraft". For and in consideration of the payment by [_______] (the "Buyer") to the Seller of the sum of one US Dollars (US$1.00) and other good and valuable consideration in hand received, the Seller does this [___] day of [_______] [_______] sell, transfer and deliver all of its above described rights, title and interest to the Aircraft to the Buyer and to its successors and assigns forever. The Seller hereby warrants to the Buyer, its successors and assigns that it has on the date hereof good and lawful right to sell, deliver and transfer title to the Aircraft to the Buyer and that there is hereby conveyed to the Buyer on the date hereof good, legal and valid title to the Aircraft, free and clear of all liens, claims, charges, encumbrances and rights of others, (save only that in relation to the buyer furnished equipment (supplied to the Seller by International Lease Finance Corporation) the Seller hereby conveys to the Buyer such title to such buyer furnished equipment as was transferred to the Seller by International Lease Finance Corporation pursuant to a bill of sale dated [ ] [ ], and free and clear of all liens, claims, charges and encumbrances and rights of others created by the Seller) and that the Seller will warrant and defend such title forever against all claims and demands whatsoever. THAT this Bill of Sale is and shall be governed by and construed in accordance with the laws of the state of New York. IN WITNESS WHEREOF the undersigned has caused this instrument to be executed by its duly authorised representative this [_______] day of [_______] [_______] 186 In [_____________________] ------------------- AVSA, S.A.R.L. By: ------------------------------------------ Title: --------------------------------------- Signature: ----------------------------------- 187 APPENDIX G FORM OF SUB-BORROWER CHARGE OVER SHARES 188 APPENDIX H FORM OF SUB-BORROWER GUARANTEE 189 APPENDIX I FORM OF SUB-BORROWER DEBENTURE 190 APPENDIX J FORM OF ACCESSION DEED THIS ACCESSION DEED is dated the _____ day of _______________ and made BETWEEN (1) [_____] (the "ACCEDING PARTY"), (2) Halifax plc in its capacity as Security Trustee under the Facility Agreement referred to in Recital (A) hereof and on behalf of each Lender, (3) Halifax plc in its capacity as Agent under the Facility Agreement, (4) Sierra Leasing Limited (the "BORROWER"), (5) Aircraft SPC-9, Inc. (the "PARENT"), (6) International Lease Finance Corporation as guarantor (the "GUARANTOR"), (7) International Lease Financing Corporation as Subordinated Lender (the "SUBORDINATED LENDER") and (8) the other Obligors. WHEREAS: (A) The Borrower, the Parent, the Guarantor, the Subordinated Lender and the other Obligors which have acceded to the Facility Agreement, the Agent and the Security Trustee and the Lenders (each as referred to therein) are parties to a Facility Agreement (the "FACILITY AGREEMENT") dated 19th January, 1999 which term includes any amendments thereto which may at any time be made in relation thereto and also any Transfer Certificates or Accession Deeds in respect thereof. (B) By and upon and subject to the terms of the Facility Agreement a facility for the purchase of certain aircraft was made available to the Borrower. (C) The Acceding Party wishes to become party to the Facility Agreement as a [Sub-Borrower][an Intermediate Lessee] and Obligor pursuant to the procedures established in clauses 3.3 (Sub-Borrowers/Intermediate Lessee), 7.2.11 (Change of Title Holder during Security Period) and 18.1 (Transfers by Obligors) of the Facility Agreement by the execution of this Accession Deed. NOW IT IS HEREBY AGREED as follows:- 1. DEFINITIONS Terms used herein which are defined in or to which a meaning or construction is assigned by or in the Facility Agreement (whether expressly or by reference to another document) shall, unless otherwise defined herein, have the same meaning and construction herein as therein. 2. AGREEMENTS, CONFIRMATIONS, REPRESENTATIONS AND COVENANTS 2.1 The Acceding Party hereby:- (a) confirms that it has received a copy of the Facility Agreement together with such other documents and information as it has required in connection herewith and therewith; (b) agrees to become, with effect from the date of this Accession Deed, [a Sub-Borrower] [an Intermediate Lessee] and Obligor under the Facility Agreement and agrees to be bound in each such capacity with effect from such date by the terms of the Facility Agreement by its terms applicable to it and undertakes 191 accordingly to perform its obligations as [a Sub-Borrower] [an Intermediate Lessee] and Obligor thereunder; (c) confirms the accuracy of the information set out under its name at the end of this Accession Deed; (d) represents and warrants as [a Sub-Borrower] [an Intermediate Lessee] and Obligor to the Security Trustee, the Agent and each of the Lenders in the terms of clause 6 (Representations and Warranties) of the Facility Agreement by reference to the facts and circumstances existing at the date hereof and that it is duly organised and validly existing under the laws of [ ]; (e) confirms that it has not relied on the Security Trustee, the Agent or any of the Lenders to access or inform it as to the legality, validity, effect or enforceability of the Facility Agreement or any other document referred to therein or the accuracy or completeness of any such information as is referred to in paragraph (i) above or the creditworthiness, affairs, condition or status of any of the parties to the Facility Agreement or any such other document; (f) confirms that its registered office is at: [_______________________________________] and its address for notices pursuant to clause 22 (Notices) of the Facility Agreement is as follows: [_______________________________________] [(g) as continuing security for the punctual payment and discharge of the Secured Obligations, the Acceding Party hereby unconditionally and irrevocably agrees and undertakes with the Security Trustee as trustee for and on behalf of itself, the Agent and each of the Lenders that immediately upon the occurrence of a Third Trigger Event it shall execute a Lease Security Assignment in favour of the Security Trustee in substantially the same form as set out in schedule 2 to the Mortgage annexed as Appendix C to the Facility Agreement. If the Intermediate Lessee has entered into another Intermediate Lease with another Intermediate Lessee, upon the occurrence of a Termination Event or a Third Trigger Event, the Mortgagor shall execute an Intermediate Lease Security Assignment in favour of the Security Trustee in substantially the same form as set out in schedule 4 to the Mortgage annexed as Appendix C to the Facility Agreement;](3) (h) The Intermediate Lessee hereby covenants that without the prior written consent of the Security Trustee (such consent to be exercisable in the absolute discretion of the Security Trustee) it shall not nor shall it agree or purport to, other than in connection with a Permitted Lien or pursuant to a Final Disposition of an Aircraft, a Sub-Borrower Sale or a transfer permitted under clauses 7.2.11 (Change of Title Holder of Aircraft or Introduction of an Intermediate Lessee) or 18.1 (Transfers by Obligors) of the Facility Agreement, - ----------------- (3) For Intermediate Lessee only. 192 assign, whether by way of security, absolutely or otherwise, sell, transfer, charge or otherwise dispose of, whether by means of one or a number of transactions related or not and whether at one time or over a period of time, the whole or any part of its interest in any Lease or Intermediate Lease, or any Debts (as defined in the relevant Intermediate Lessee Debenture) or Credit Balances (as defined in the relevant Intermediate Lessee Debenture) relating to any Lease or Intermediate Lease. 2.2 Each Obligor (other than the Acceding Party), the Security Trustee, the Agent and each Lender hereby agree amongst themselves and with the Acceding Party that the Acceding Party shall become party to the Facility Agreement as [a Sub-Borrower] [an Intermediate Lessee] and Obligor with effect from the date of this Accession Deed. 2.3 [The Borrower][The Parent] represents and warrants that on the date hereof it is the legal and beneficial owner of all of the issued share capital of the Acceding Party and covenants that it will remain the legal and beneficial owner of all of the issued share capital in the Acceding Party throughout the Security Period to the extent provided in the Facility Agreement. 2.4 The Guarantor hereby confirms that the guarantee and indemnity set out in clause 5 (Guarantee and Indemnity) of the Facility Agreement is in full force and effect and covers the obligations of the Acceding Party under the Transaction Documents to which it is or shall be a party. 3. LAW 3.1 This Accession Deed shall be governed by and construed in accordance with English law. 3.2 The Acceding Party hereby irrevocably designates, appoints and empowers Paul, Hastings, Janofsky & Walker LLP of International Financial Centre, Old Broad Street, London EC2N 1HQ to receive, for and on behalf of itself, service of process out of the English Courts in any proceedings with respect to the Facility Agreement and/or this Accession Deed or any judgment in connection therewith and agrees that failure by such process agent to give notice of such service of process to the Acceding Party shall not impair or affect the validity of such service or of any judgement based thereon. 4. COUNTERPARTS This Accession Deed may be executed in any number of counterparts and by different parties hereto on separate counterparts and any single counterpart or set of counterparts signed, in either case, by each of the parties hereto shall be deemed to constitute a full and original agreement for all purposes but all counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF the parties hereto have caused this Accession Deed to be duly executed as a deed and it is intended to be and is hereby delivered the day and year first written above. 193 SIGNATURES SIGNED as a DEED, SEALED ) AND DELIVERED ) by [ACCEDING PARTY] ) attorney-in-fact for and on behalf of ) [ACCEDING PARTY] ) in the presence of: ) SECURITY TRUSTEE SIGNED by HALIFAX PLC ) for itself and as Security Trustee for and ) on behalf of each Lender acting through ) its authorised signatories ) in the presence of: ) AGENT SIGNED by HALIFAX PLC ) as Agent ) acting through its authorised signatories ) in the presence of: SIGNED as a DEED, SEALED AND DELIVERED by ) INTERNATIONAL LEASE FINANCE CORPORATION ) as Guarantor acting through its duly ) authorised attorney-in-fact ) in the presence of: ) ) ) 194 SIGNED as a DEED, SEALED AND DELIVERED by ) INTERNATIONAL LEASE FINANCE CORPORATION ) as Suborindated Lender acting through its ) duly authorised attorney-in-fact ) in the presence of: ) ) ) THE COMMON SEAL of ) SIERRA LEASING LIMITED ) as Borrower for and on behalf of each ) other Obligor(4) was hereunto affixed ) in the presence of: ) ) ) SIGNED as a DEED, SEALED AND DELIVERED by ) AIRCRAFT SPC-9, INC. ) as Parent acting through its duly ) authorised attorney-in-fact ) in the presence of: ) ) - ------------------ (4) Other Obligors will need to appoint Sierra as Agent to do this. 195 APPENDIX K FORM OF BORROWER DEBENTURE 196 APPENDIX L FORM OF CHARGE OVER SHARES OF INTERMEDIATE LESSEE (TO BE FINALISED PURSUANT TO SUB-BORROWER/INTERMEDIATE LESSEE LETTER AGREEMENT) 197 APPENDIX M FORM OF INTERMEDIATE LESSEE DEBENTURE (TO BE FINALISED PURSUANT TO SUB-BORROWER/INTERMEDIATE LESSEE LETTER AGREEMENT) 198 APPENDIX N FORMS OF LEASE SECURITY ASSIGNMENT AND INTERMEDIATE LEASE SECURITY ASSIGNMENT PART I FORM OF LEASE SECURITY ASSIGNMENT 199 PART 2 FORM OF INTERMEDIATE LEASE SECURITY ASSIGNMENT 200 APPENDIX O FORM OF REPLACEMENT BILL OF SALE Know all men by these presents that [_________] (the "Seller"), is the owner of the full, legal and beneficial title to the following airframe (the "Airframe"), the attached engines as specified (the "Engines") and together with all appliances, components, parts, instruments, appurtenances, accessories, furnishings, modules and other equipment or property incorporated, installed in or on or attached to the Airframe and Engines on the date hereof (the "Parts"): Manufacturer of Airframe: Manufacturer of Engines: AIRBUS INDUSTRIE G.I.E. [__________________________________________] Model: AIRBUS A3[______________] Model: [______________________________] Manufacturer's Serial No: [______________] Serial Nos: [_____________] [____________] [_____________] [____________] Registration Letters: [______________]
The Airframe, Engines and Parts are hereafter together referred to as the "Aircraft". For and in consideration of the payment by [[_____________] (the "Buyer") to the Seller of the sum of one US Dollar (US$1.00) and other good and valuable consideration in hand received, the Seller does this [[______________]] day of [[______________]] [[______________]] sell, transfer and deliver all of its above described rights, title and interest to the Aircraft to the Buyer and to its successors and assigns forever. The Seller hereby warrants to the Buyer, its successors and assigns that it has on the date hereof good and lawful right to sell, deliver and transfer title to the Aircraft to the Buyer and that there is hereby conveyed to the Buyer on the date hereof good, legal and valid title to the Aircraft, free and clear of all liens, claims, charges, encumbrances and rights of others, and that the Seller will warrant and defend such title forever against all claims and demands whatsoever. THAT this Bill of Sale is and shall be governed by and construed in accordance with the laws of the state of New York. IN WITNESS WHEREOF the undersigned has caused this instrument to be executed by its duly authorised representative this [[______________]] day of [[______________]] [[______________]] In [[______________] ---------------------- [Seller] By: ---------------------------------------- Title: ------------------------------------ Signature: ---------------------------------- 201 APPENDIX P* FORM OF LETTER COMPRISING NOTICE OF CHARGE AND AIRCRAFT MORTGAGE AND QUIET ENJOYMENT COVENANT To: [Lessee] [Sub-Lessee] Dated 19 1. Reference is made to [ ] Aircraft Manufacturer's Serial Number [ ] (the "AIRCRAFT") and the Aircraft Lease Agreement (the "LEASE") dated [ ] 19[ ] between [name of Lessor] (the "LESSOR") and [name of Lessee] (the "LESSEE"). 2. The Lessor and Halifax plc as security trustee on behalf of itself and certain other lenders named therein (the "Security Trustee") hereby give you notice that (a) by a Debenture dated [______________________] the "DEBENTURE") between the Lessor and the Security Trustee the Lessor has charged by way of security to the Security Trustee all the Lessor's rights, title and interest in and to the Lease and (b) by an Aircraft Mortgage [entered into on [__________________________________]] [to be entered into within sixty days of delivery of the Aircraft to the Lessor], the Lessor has mortgaged the Aircraft to the Security Trustee and has agreed to grant a contingent future security assignment of the Lease. 3. Henceforth all moneys that may be payable to the Lessor under the Lease shall continue to be paid to the bank account specified in the Lease or as otherwise directed in writing by the Lessor unless and until the Security Trustee issues to you a Lessor Trigger Notice as defined in and pursuant to paragraph 7(A) below directing you to pay such amounts to another account, whereupon the Lessee is authorised and required to comply with the Security Trustee's directions. Notwithstanding the foregoing sentence, the Lessee shall continue to perform its obligations under the Lease in favour of and for the benefit of the Lessor until such time as the Security Trustee may issue to you a Lessor Default Notice as defined in and pursuant to paragraph 7(B) below. Until such Lessor Default Notice is delivered, the Lessee shall continue to deal solely with the Lessor with respect to, and the Lessor alone shall have, all rights, powers, privileges, remedies and other benefits in respect of the Lease, including, without limitation, to amend, supplement, waive or otherwise modify the Lease, to enforce the Lease, to extend or terminate the Lease, to enter into a new Lease, or to use, apply, release or modify any [Security Deposit, Maintenance Reserves or other] support or security. 4. This notice contained in paragraph 2 above and the instructions contained in paragraph 3 above are irrevocable. The Lessee is hereby authorised to observe and act upon the instructions of the Security Trustee expressed to be assumed by it under paragraph 7 to the effect that, so far as the same would otherwise be incompatible therewith, the Lessee's obligations to the Lessor under the Lease will be modified accordingly. 5. The Security Trustee for and on behalf of the Lenders confirms to you that none of the Lenders nor the Security Trustee nor any person lawfully claiming through the Lenders or the Security Trustee will interfere with the lawful* use, possession and quiet enjoyment of the Aircraft by the Lessee in accordance with the Lease so long as no "event of default" under and as defined in the Lease has occurred and is continuing and the Lessee complies with the provisions contained in paragraph 7 below. This undertaking shall not operate as an 202 assumption by the Security Trustee of any obligation of the Lessor, unless and until the Security Trustee succeeds to the rights and interests of the Lessor in the Lease or a new lease is entered into as provided in paragraph 7 below. 6. The foregoing undertaking is not to be construed as restricting the rights of the Security Trustee to dispose of the Aircraft in certain circumstances to such persons and on such terms as the Security Trustee considers appropriate. However, if the Security Trustee becomes entitled to exercise such rights during the term of the Lease and provided that the Lessee complies with its obligations under the Lease and with the provisions in paragraph 7 below, the Security Trustee will (subject to any requirements or restrictions imposed by applicable law) dispose of the Aircraft expressly subject to the Lease and on terms that the purchaser issues an undertaking to the Lessee that it will not interfere with the lawful* use, possession and quiet enjoyment of the Aircraft by the Lessee in accordance with the Lease, so long as no "event of default" under and as defined in the Lease has occurred and is continuing and the Lessee complies with the provisions contained in paragraph 7 below. 7. (A) If the Security Trustee issues to the Lessee a notice (a "Lessor Trigger Notice") that the Security Trustee's rights as assignee have become exercisable following the occurrence of a Third Trigger Event under a certain Facility Agreement dated January [ ], 1999 with [name of Borrower] the Lessee agrees that the Security Trustee and the Lenders shall not be responsible in any way whatsoever for the actions or inactions of the Lessor, and after issue by the Security Trustee of any Lessor Trigger Notice the Lessee shall pay to the Security Trustee at such account as it may nominate all rentals and other amounts from time to time payable by the Lessee under the Lease. (B) If the Security Trustee issues to the Lessee a notice (a "Lessor Default Notice") that the Security Trustee's rights as assignee have become exercisable following the occurrence of an Acceleration Event under a certain Facility Agreement dated January [ ], 1999 with [name of Borrower] the Lessee agrees that the Security Trustee and the Lenders shall not be responsible in any way whatsoever for the actions or inactions of the Lessor, and after issue by the Security Trustee of any Lessor Default Notice the Lessee shall:- (a) pay to the Security Trustee at such account as it may nominate all rentals and other amounts from time to time payable by the Lessee under the Lease; (b) to the exclusion of the Lessor, perform, observe and comply with all other undertakings and obligations of the Lessee under the Lease in favour and for the benefit of the Security Trustee as if the Security Trustee were named as lessor therein; and (c) if the Security Trustee requests, after (i) the Security Trustee succeeds to the interest of a Lessor in the Lease by exercising its rights under the Debenture or any perfected security assignment of the Lease or (ii) the Security Trustee exercises its rights or remedies under the Mortgage, enter into a lease with the Security Trustee or its nominee, on the same terms (mutatis mutandis) as the Lease. 8. Following the issue of a Lessor Default Notice the Security Trustee shall have the benefit of Clause [________] of the Lease (Disclaimer and Indemnity); provided, however, neither the 203 foregoing, nor any other provision of this letter nor the assignments described herein shall have the effect of increasing the Lessee's liabilities or obligations under the Lease. - ------------------------------------ [Lessor] - ------------------------------------ [Security Trustee] * [WHEN APPLICABLE, THIS FORM SHALL BE ADAPTED TO INCORPORATE REFERENCES TO AN INTERMEDIATE LESSEE AND AN INTERMEDIATE LEASE] - ----------------- * The deletion of the word lawful will only be made on receipt of Californian legal opinion that the Lessor may terminate the Lease on account of illegality without facing a claim from the lessee customer as to a breach by the Lessor of its quiet enjoyment covenant. 204 THE BRITISH LENDERS HALIFAX PLC By: /s/ PETER BARKER ------------------------------- Name: Peter Barker ------------------------------- Title: ------------------------------- THE FRENCH LENDERS SOCIETE GENERALE By: ------------------------------- Name: ------------------------------- Title: ------------------------------- THE GERMAN LENDERS BAYERISCHE HYPO-UND VEREINSBANK A.G. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- 205 THE BRITISH LENDERS HALIFAX PLC By: ------------------------------- Name: ------------------------------- Title: ------------------------------- THE FRENCH LENDERS SOCIETE GENERALE By: /s/ FLORENCE ROUSSEL POLLET ------------------------------- Name: Florence Roussel Pollet ------------------------------- Title: Attorney in Fact ------------------------------- THE GERMAN LENDERS BAYERISCHE HYPO-UND VEREINSBANK A.G. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- 206 THE BRITISH LENDERS HALIFAX PLC By: ------------------------------- Name: ------------------------------- Title: ------------------------------- THE FRENCH LENDERS SOCIETE GENERALE By: ------------------------------- Name: ------------------------------- Title: ------------------------------- THE GERMAN LENDERS BAYERISCHE HYPO-UND VEREINSBANK A.G. By: [SIG] By: /s/ MICHAEL TRENTZSCH ------------------------------- -------------------------------------- Name: Name: Michael Trentzsch ------------------------------- ------------------------------------ Title: Managing Director Title: Vice President Aircraft Finance ------------------------------- ----------------------------------- 207 KREDITANSTALT FUR WIEDERAUFBAU By: /s/ [SIG] By: /s/ SILKE RICHLER ------------------------------- -------------------------------------- Name: Name: Silke Richler ------------------------------- ------------------------------------ Title: First Vice President Title: Senior Project Manager ------------------------------- ----------------------------------- COMMERZBANK AG By: ------------------------------- Name: ------------------------------- Title: ------------------------------- THE AGENT HALIFAX PLC By: ------------------------------- Name: ------------------------------- Title: ------------------------------- THE SECURITY TRUSTEE HALIFAX PLC By: ------------------------------- Name: ------------------------------- Title: ------------------------------- 208 KREDITANSTALT FUR WIEDERAUFBAU By: ------------------------------- Name: ------------------------------- Title: ------------------------------- COMMERZBANK AG By: /s/ [SIG] ------------------------------- Name: ------------------------------- Title: SVP As Treasurer ------------------------------- THE AGENT HALIFAX PLC By: ------------------------------- Name: ------------------------------- Title: ------------------------------- THE SECURITY TRUSTEE HALIFAX PLC By: ------------------------------- Name: ------------------------------- Title: ------------------------------- 209 KREDITANSTALT FUR WIEDERAUFBAU By: ------------------------------- Name: ------------------------------- Title: ------------------------------- COMMERZBANK AG By: ------------------------------- Name: ------------------------------- Title: ------------------------------- THE AGENT HALIFAX PLC By: /s/ PETER BARKER ------------------------------- Name: Peter Barker ------------------------------- Title: ------------------------------- THE SECURITY TRUSTEE HALIFAX PLC By: /s/ PETER BARKER ------------------------------- Name: Peter Barker ------------------------------- Title: ------------------------------- 210 THE BORROWER SIERRA LEASING LIMITED By: /s/ ALAN H. LUND By: /s/ PAMELA HENDRY ------------------------------- -------------------------------------- Name: Alan H. Lund Name: Pamela Hendry ------------------------------- ------------------------------------ Title: Director Title: Vice-President ------------------------------- ----------------------------------- PARENT AIRCRAFT SPC-9, INC By: /s/ ALAN H. LUND By: /s/ PAMELA HENDRY ------------------------------- -------------------------------------- Name: Alan H. Lund Name: Pamela Hendry ------------------------------- ------------------------------------ Title: Chief Financial Officer Title: Treasurer ------------------------------- ----------------------------------- THE GUARANTOR EXECUTED, as a DEED AND ) /s/ ALAN H. LUND /s/ PAMELA S. HENDRY SIGNED and DELIVERED by ) ----------------- --------------------- INTERNATIONAL LEASE FINANCE ) Alan H. Lund Pamela S. Hendry CORPORATION ) Executive Vice Vice President as Guarantor acting through its duly ) President and Treasurer authorised officer ) in the presence of: ) /s/ LEE McLERNON ----------------------- D.L. McLernon 211 SUBORDINATED LENDER INTERNATIONAL LEASE FINANCE CORPORATION By: /s/ ALAN H. LUND By: /s/ PAMELA S. HENDRY ------------------------------- -------------------------------------- Name: Alan H. Lund Name: Pamela S. Hendry ------------------------------ ------------------------------------ Title: Executive Vice President Title: Vice President and Treasurer ----------------------------- ----------------------------------- EX-12 4 EXHIBIT 12 1 EXHIBIT 12 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
YEARS ENDED DECEMBER 31, ---------------------------------------------------------- 1994 1995 1996 1997 1998 -------- -------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Earnings Net income............................ $201,943 $196,437 $ 251,774 $ 338,684 $ 369,352 Add: Provision for income taxes......... 110,064 141,909 143,165 187,475 192,922 Fixed charges...................... 421,170 592,519 655,958 754,246 778,817 Less: Capitalized interest............... 44,610 51,091 50,368 48,818 54,297 -------- -------- ---------- ---------- ---------- Earnings as adjusted (A).............. $688,567 $879,774 $1,000,529 $1,231,587 $1,286,794 ======== ======== ========== ========== ========== Preferred dividend requirements....... $ 6,890 $ 13,096 $ 16,599 $ 16,348 $ 16,965 Ratio of income before provision for income taxes to net income... 155% 172% 157% 155% 152% -------- -------- ---------- ---------- ---------- Preferred dividend factor on pretax basis............................ 10,680 22,525 26,060 25,339 25,787 -------- -------- ---------- ---------- ---------- Fixed charges Interest expense................... 376,560 541,428 573,599 642,321 639,964 Capitalized interest............... 44,610 51,091 50,368 48,818 54,297 Interest factor of rents........... -- -- 31,991 63,107 84,556 -------- -------- ---------- ---------- ---------- Fixed charges as adjusted (B)......... 421,170 592,519 655,958 754,246 778,817 -------- -------- ---------- ---------- ---------- Fixed charges and preferred stock dividends (C)...................... $431,850 $615,044 $ 682,018 $ 779,585 $ 804,604 ======== ======== ========== ========== ========== Ratio of earnings to fixed charges ((A) divided by (B))....................... 1.63x 1.48x 1.53x 1.63x 1.65x ======== ======== ========== ========== ========== Ratio of earnings to fixed charges and preferred stock dividends ((A) divided by (C))............................... 1.59x 1.43x 1.47x 1.58x 1.60x ======== ======== ========== ========== ==========
EX-23.1 5 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-74095) of International Lease Finance Corporation and in the related Prospectus of our report dated February 9, 1999, with respect to the consolidated financial statements and schedule of International Lease Finance Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1998. PricewaterhouseCoopers LLP Los Angeles, California March 17, 1999 EX-23.2 6 EXHIBIT 23.2 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-74095) of International Lease Finance Corporation and in the related Prospectus of our report dated February 19, 1997, with respect to the consolidated statements of income, shareholders' equity, and cash flows for the year ended December 31, 1996 and the related schedule of International Lease Finance Corporation and subsidiaries included in this Annual Report (Form 10-K) for the year ended December 31, 1998. ERNST & YOUNG LLP Century City, Los Angeles, California March 17, 1999 EX-27 7 EXHIBIT 27
5 12-MOS DEC-31-1998 JAN-01-1998 DEC-30-1998 52,723 0 340,344 0 0 0 16,860,789 1,988,359 14,872,430 0 10,373,242 0 400,000 3,582 0 16,379,632 1,853,983 2,045,666 0 843,428 0 0 639,964 562,274 192,922 369,352 0 0 0 369,352 0 0
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