Document:

Exhibit
10.2

 

 

FORM
OF

LEASE
AGREEMENT

[NW
200      ]

 

Dated
as of

 

            ,
200 

 

Between

 

NORTHWEST
AIRLINES, INC.,

                Sublessor

 

AND

 

PINNACLE
AIRLINES, INC.,
             Sublessee

 

One
Bombardier Inc. Canadair Regional Jet Model CL-600-2B19 Aircraft

 

 

 

TABLE
OF CONTENTS TO SUBLEASE AGREEMENT [NW 200      ]

 

	
  SECTION 1.

  	
  Definitions

  
	
  SECTION 2.

  	
  Acceptance and
  Sublease

  
	
  SECTION 3.

  	
  Term and Rent

  
	
  SECTION
  4.

  	
  Sublessor’s
  Representations and Warranties

  
	
  SECTION 5.

  	
  Return of the Aircraft

  
	
  SECTION 6.

  	
  Liens

  
	
  SECTION 7.

  	
  Registration, Maintenance and
  Operation; Possession; Insignia

  
	
  SECTION
  8.

  	
  Replacement
  and Pooling of Parts; Alterations, Modifications and Additions

  
	
  SECTION 9.

  	
  Voluntary Termination

  
	
  SECTION
  10.

  	
  Loss,
  Destruction, Requisition, etc

  
	
  SECTION 11.

  	
  Insurance

  
	
  SECTION 12.

  	
  Inspection

  
	
  SECTION 13.

  	
  Assignment

  
	
  SECTION 14.

  	
  Events of Default

  
	
  SECTION
  15.

  	
  Remedies;
  Automatic Termination

  
	
  SECTION
  16.

  	
  Sublessee’s
  Cooperation Concerning Certain Matters

  
	
  SECTION 17.

  	
  Notices

  
	
  SECTION 18.

  	
  No Set-Off,
  Counterclaim, etc

  
	
  SECTION 19.

  	
  No Renewal

  
	
  SECTION 20.

  	
  Maintenance Program

  
	
  SECTION
  21.

  	
  Sublessor’s
  Right to Perform for Sublessee

  
	
  SECTION 22.

  	
  [Intentionally
  Omitted]

  
	
  SECTION 23.

  	
  Service of Process

  
	
  SECTION 24.

  	
  Miscellaneous

  
	
  SECTION 25.

  	
  Subordination

  
	
  SECTION 26.

  	
  Covenant of
  Quiet Enjoyment

  
	
  SECTION 27.

  	
  Federal Bankruptcy
  Code

  
	
  SECTION 28.

  	
  Use of Funds

  
	
  SECTION
  29.

  	
  Sublessee’s
  Representations, Warranties and Indemnities

  
	
  SECTION
  30.

  	
  Certain
  Representations, Warranties and Covenants

  
	
  SECTION 31.

  	
  Covenants of Sublessee

  
	
  SECTION 32.

  	
  Consent to Jurisdiction

  
	
  SECTION 33.

  	
  Owner for Federal Tax Purposes

  

 

i

 

EXHIBITS

 

	
  EXHIBIT A
  - Form
  of Sublease Supplement

  
	
  EXHIBIT B
  - Basic
  Rent

  
	
  EXHIBIT C
  - Stipulated Loss Value
  Schedule

  
	
  EXHIBIT
  D - Return Conditions

  
	
  EXHIBIT
  E - Minimum Liability Amount

  
	
  EXHIBIT
  F - Maintenance Reserve Rates

  

 

ii

 

SUBLEASE AGREEMENT

 

[NW 200 
    ]

 

This SUBLEASE
AGREEMENT [NW 200        ], dated as of
                 ,
200 , between NORTHWEST AIRLINES, INC., a corporation organized and
existing pursuant to the laws of the State of Minnesota (“Sublessor”), and PINNACLE
AIRLINES, INC., a corporation organized and existing pursuant to the laws of
the State of Georgia (“Sublessee”);

 

W
I T N E S S E T H:

 

WHEREAS,
Sublessor has agreed to sublease the Aircraft to Sublessee, Sublessee has
agreed to enter into this Sublease for use by Sublessee in its operations in
accordance with the Airline Services Agreement and for no other purpose, and
the parties hereto intend this Sublease to be an operating lease; and

 

WHEREAS,
Sublessor is providing a valuable financial accommodation to Sublessee by
making the Aircraft available to Sublessee pursuant to this Sublease Agreement,
and Sublessor is entering into this Sublease solely to provide the Aircraft to
Sublessee for use in its operations in accordance with the Airline Services
Agreement; and

 

NOW,
THEREFORE, in consideration of the mutual agreements contained herein and for
other good and valuable consideration, the receipt and legal sufficiency of
which is hereby acknowledged, Sublessee and Sublessor intending to be legally
bound agree as follows:

 

SECTION 1.  Definitions.  Unless the context otherwise requires, the
following terms shall have the following meanings for all purposes of this
Sublease Agreement [NW 200       ] and shall
be equally applicable to both the singular and the plural forms of the terms
herein defined:

 

“Acceptance
Certificate” has the meaning specified in the Participation
Agreement.

 

“Additional
Insured” has the meaning specified in the Head Lease.

 

“Affiliate”
means, with respect to any Person, any other Person directly or indirectly
controlling, controlled by or under common control with such Person.  For the purposes of this definition,
“control” (including “controlled by” and “under common control with”) shall
mean the power, directly or indirectly, to direct or cause the direction of the
management and policies of such person whether through the ownership of voting
securities or by contract or otherwise. 
For the avoidance of doubt, Sublessor and its Affiliates are not
Affiliates of Sublessee.

 

 

“After-Tax Basis” means
an amount, which, after deduction of all Federal, state, local and foreign
taxes required to be paid by or on behalf of the recipient in respect of the
receipt or realization of such amount, is equal to the payment required under
the provisions of the Sublessee Documents that requires payments to be made on
an After-Tax Basis.

 

“Aircraft”
means the Airframe to be delivered and subleased hereunder together with the
two Engines initially subleased hereunder (or any engine substituted for any of
such Engines pursuant to the terms hereof), whether or not any of such initial
or substituted Engines may from time to time be installed on such Airframe or
may be installed on any other airframe or on any other aircraft, and when the
context permits the Aircraft Documentation.

 

“Aircraft Documentation”
has the meaning specified in Exhibit D hereto.

 

“Airframe”
means: (i) the Bombardier Inc. Canadair Regional Jet Model CL-600-2B19 aircraft
(except Engines or engines from time to time installed thereon) specified in
the initial Sublease Supplement, which aircraft shall be subleased by Sublessor
to Sublessee hereunder and under such Sublease Supplement; and (ii) any and all
Parts (A) so long as the same shall be incorporated or installed in or attached
to such aircraft (except Engines or engines from time to time installed
thereon), or (B) so long as title thereto shall remain vested in the Owner in
accordance with the terms of Section 8 after removal from such aircraft (except
Engines or engines from time to time installed thereon).

 

[“Airframe Maintenance Reserves” has the
meaning specified in Section 22(2) hereof.]*

 

“Airline Services Agreement”
means the Airline Services Agreement dated as of March 1, 2002 among
Sublessor and Sublessee, as modified, amended or supplemented from time to time
pursuant to the terms thereof.

 

“APU”
has the meaning specified in Exhibit D hereto.

 

[“APU Maintenance Reserves” has the meaning
specified in Section 22(2) hereof.]*

 

“APU
Manufacturer” means Honeywell Corporation.

 

“Bankruptcy
Code” means the Bankruptcy Reform Act of 1978, as amended, or
any subsequent legislation that amends, supplements or supersedes such
provisions.

 

*   To be inserted in Subleases entered into an
accordance with Section 3.02(a)(iv) of the Airline Services Agreement.

 

2

 

“Base
Rate” means the rate of interest announced publicly by
Citibank, N.A. in New York, New York from time to time as its base rate.

 

“Basic
Rent” means, for the Term, the rent payable for the Aircraft
pursuant to Section 3(b).

 

“Basic
Shop Visit” means, with respect to any Engine or the APU, any
shop visit, as defined by the Engine Manufacturer or the APU Manufacturer, as
the case may be, that is based on an approved program of condition monitoring
and trend monitoring of performance deterioration that results in an Engine or
the APU, as the case may be, being restored to full performance standard.

 

“Business
Day” means any day other than a Saturday or Sunday or a day
on which commercial banks are required or authorized to close in the City of
New York, New York; Salt Lake City, Utah; Boston, Massachusetts; or
Minneapolis, Minnesota.

 

“‘C’ Check” means
a “C” Check, as such term is defined in the Maintenance Program relating to the
Aircraft that meets the requirements of a “C” Check as defined in the
Bombardier Inc. Maintenance Requirement Manual.

 

“Certificate Holder” means
Certificate Holder as defined in the Trust Indenture.

 

“Certificated
Air Carrier” means a Citizen of the United States holding a
carrier operating certificate issued by the Secretary of Transportation
pursuant to Chapter 447 of Title 49, United States Code, for aircraft capable
of carrying ten or more individuals or 6,000 pounds or more of cargo or that
otherwise is certified or registered to the extent required to fall within the
purview of 11 U.S.C. Section 1110 or any analogous successor provision of the
Bankruptcy Code.

 

“Citizen
of the United States” has the meaning specified in Section
40102(a)(15) of Title 49 of the United States Code or any similar legislation
of the United States of America enacted in substitution or replacement
therefor.

 

“Code”
means the Internal Revenue Code of 1986, as amended.

 

“Commencement
Date” has the meaning specified in Sublease Supplement No. 1.

 

“Consent
and Agreement” has the meaning specified in the Head Lease.

 

“Default”
means any event which with the giving of notice or the lapse of time or both
would become an Event of Default.

 

“Delivery
Date” has the meaning specified in the Head Lease.

 

3

 

“Dollars”
and “$”
means the lawful currency of the United States of America.

 

“Engine”
means (i) each of the two General Electric Model CF34-3B1 type engines listed
by manufacturer’s serial number in the initial Sublease Supplement, whether or
not from time to time thereafter installed on the Airframe or installed on any
other airframe or on any other aircraft; and (ii) any engine which may from
time to time be substituted, pursuant to the terms hereof, for any of such two
engines, together in each case with the applicable Aircraft Documentation and
any and all Parts normally incorporated or installed in or attached thereto
including any and all Parts removed therefrom so long as title thereto shall
remain vested in the Owner in accordance with the terms of Section 8 after
removal from such Engine; provided, however, that at such time as an
engine shall be deemed part of the property subleased hereunder in substitution
for an Engine pursuant to the applicable provisions hereof, the replaced Engine
shall cease to be an Engine hereunder. 
The term “Engines” means, as of any date of determination, all
Engines then subleased hereunder.

 

[“Engine LLP
Maintenance Reserves” has the meaning specified in Section 22
hereof.]*

 

[“Engine
Maintenance Reserves” has the meaning specified in Section 22 (2)
hereof.]*

 

“Engine Manufacturer”
means General Electric Aircraft Engines, a division of General Electric
Corporation.

 

“Equity Tax Indemnitee”
means any Tax Indemnitee which is the Owner Participant, the Owner Trustee or
the Trust Estate, or a successor, assign or Affiliate thereof.

 

“ERISA” means the Employee
Retirement Income Security Act of 1974, as amended from time to time, and the
regulations promulgated and rulings issued thereunder.  Section references to ERISA are to ERISA, as
in effect at the date of the Participation Agreement and any subsequent provisions
of ERISA, amendatory thereof, supplemental thereto or substituted therefor.

 

“Event
of Default” has the meaning specified in Section 14 hereof.

 

“Event
of Loss” with respect to the Aircraft, Airframe or any Engine
means any of the following events with respect to such property: (i) the loss
of such property or of the use thereof due to the destruction of or damage to
such property which renders repair uneconomic or which renders such property
permanently unfit for normal use by Sublessee for any reason whatsoever; (ii)
any 

 

*   To be inserted in Subleases entered into an
accordance with Section 3.02(a)(iv) of the Airline Services Agreement.

 

4

 

damage to such
property which results in an insurance settlement with respect to such property
on the basis of a total loss, or a constructive or compromised total loss;
(iii) the theft or disappearance of such property, or the confiscation,
condemnation, or seizure of, or requisition of title to, or use of, such
property (other than a requisition for use by the United States Government or
any agency or instrumentality of any thereof) which in the case of any event
referred to in this clause (iii) (other than a requisition of title) shall have
resulted in the loss of possession of such property by Sublessee for a period
in excess of 180 consecutive days or, in the case of a requisition of title,
the requisition of title shall not have been reversed within 90 days from the
date of such requisition of title; (iv) as a result of any law, rule,
regulation, order or other action by the Federal Aviation Administration, the
use of such property in the normal course of the business of air transportation
shall have been prohibited for a period of 180 consecutive days, unless
Sublessee, prior to the expiration of such 180 day period, shall have
undertaken and shall be diligently carrying forward all steps which are
necessary or desirable to permit the normal use of such property by Sublessee,
but in any event if such use shall have been prohibited for a period of two
consecutive years, provided that no Event of Loss shall be
deemed to have occurred if such prohibition has been applicable to the entire
U.S. registered fleet of Bombardier Inc. Canadair Regional Jet Series 200 aircraft
of Sublessee and Sublessee, prior to the expiration of such two-year period,
shall have conformed at least one such aircraft in its fleet to the
requirements of any such law, rule, regulation, order or other action and
commenced regular commercial use of the same in such jurisdiction and shall be
diligently carrying forward, in a manner which does not discriminate against
the Aircraft in so conforming the Aircraft, all steps which are necessary or
desirable to permit the normal use of the Aircraft by Sublessee, provided,
further,
that, notwithstanding any of the foregoing, such prohibition shall constitute
an Event of Loss if such use shall have been prohibited for a period of three
consecutive years, if such use shall be prohibited at the expiration of the
Term; (v) any divestiture of title to or interest in an Engine treated as
an Event of Loss pursuant to Section 7(b) hereof.  An Event of Loss with respect to the Aircraft shall be deemed to
have occurred if an Event of Loss occurs with respect to the Airframe.

 

“Expenses”
has the meaning specified in Section 29(c) hereof.

 

“Expiration
Date” means February 29, 2012.

 

“FAR” means the
regulations promulgated under the Federal Aviation Act.

 

“Federal
Aviation Act” means that portion of the United States Code
comprising those provisions formerly referred to as the Federal Aviation Act of
1958, as amended, or any subsequent legislation that amends, supplements or
supersedes such provisions.

 

5

 

“Federal
Aviation Administration” and “FAA” mean the United States
Federal Aviation Administration and any agency or instrumentality of the United
States government succeeding to their functions.

 

“Flight Hour”
means:  (i) with respect to the
Airframe, each hour or part thereof which elapses from the time the wheels of
the Airframe leave the ground on take-off and the time when the wheels of the
Airframe touch the ground on landing, and (ii) with respect to an Engine or
other engine or any Part, including the APU, each hour or part thereof which
elapses from the time the wheels of the airframe, whether or not the Airframe
leased hereunder, on which such Engine or other engine or Part is installed,
leave the ground on take-off and the time when the wheels of such airframe
touch the ground on landing.

 

“Guarantee”  has
the meaning specified in the Head Lease.

 

“Guarantor” means
Northwest Airlines Corporation, a Delaware corporation.

 

“Head
Lease” means the Lease Agreement [NW
200       ], dated as
of             ,
200 , between Head Lessor and Sublessor, as lessee thereunder, as the same
may be modified, amended or supplemented from time to time.  The term “Head Lease” shall also include
each Head Lease Supplement entered into pursuant to the applicable terms of
such Head Lease Agreement.

 

“Head
Lessor” means the Owner Trustee designated in the Head Lease
as the lessor thereunder.

 

“Head
Lessor Liens” means any Lien or disposition of title or
interest arising as a result of (i) claims against Head Lessor, Wells Fargo in
its individual capacity, or the Owner Participant not related to the
transactions contemplated by the Operative Documents, (ii) any act or omission
of the Owner Participant, Head Lessor, or Wells Fargo, in its individual
capacity, which is not related to the transactions contemplated by the
Operative Documents or is in violation of any of the terms of the Operative
Documents, (iii) claims against the Owner Participant, Head Lessor, or Wells
Fargo, in its individual capacity, with respect to Taxes or Expenses against
which Sublessor is not required to indemnify the Owner Participant, Head Lessor
or Wells Fargo in its individual capacity, pursuant to the Participation
Agreement or the Tax Indemnity Agreement or (iv) claims against Head
Lessor or the Owner Participant arising out of any transfer by Head Lessor or
the Owner Participant of all or any portion of the respective interests of Head
Lessor or the Owner Participant in the Aircraft, the Trust Estate or the
Operative Documents other than the transfer of possession of the Aircraft by
Head Lessor pursuant to the Head Lease, the transfer pursuant to the Trust
Indenture or a transfer of the Aircraft pursuant to Section 9, 10 or 19 of the
Head Lease or pursuant to the exercise of remedies set forth in Section 15 of the
Head Lease; provided,
however, that any Lien which is attributable solely to Wells Fargo
or the Owner Participant and would otherwise constitute a Head Lessor Lien
shall 

 

6

 

not constitute a
Head Lessor Lien so long as (1) the existence of such Lien poses no material
risk of the sale, forfeiture or loss of the Aircraft, (2) the existence of such
Lien does not interfere in any way with the use, possession or operation of the
Aircraft by Sublessee, (3) Wells Fargo or the Owner Participant, as
appropriate, is diligently contesting such Lien, and (4) the existence of such
Lien does not pose a material threat of interference with the payment of Rent
in favor of Wells Fargo or the Owner Participant, as appropriate).

 

“Indemnitee”
means (i) Sublessor, (ii) the Owner Trustee, in its individual capacity and as
trustee under the Trust Agreement, (iii) the Indenture Trustee, (iv) the Owner
Participant, (v) the Trust Estate, (vi) the Loan Participants and each other
Certificate Holder (vii) each Affiliate of the Persons described in clauses (i)
through (v), inclusive, and (viii) the respective directors, officers,
employees, agents and servants, successors and permitted assigns of each of the
Persons described in clauses (i) through (vi), inclusive.

 

“Indenture Trustee”
means the Indenture Trustee under the Trust Indenture, and any entity which may
from time to time be acting as indenture trustee under the Trust Indenture.

 

“Indenture Trustee’s Liens”
means any Lien which arises as a result of (A) claims against the Indenture
Trustee not related to its interest in the Aircraft or the administration of
the Trust Estate pursuant to the Trust Indenture, (B) acts of the Indenture
Trustee not permitted by, or failure of the Indenture Trustee to take any
action required by, the Operative Documents to the extent such acts arise or
such failure arises from or constitutes gross negligence or willful misconduct,
(C) claims against the Indenture Trustee relating to Taxes or Expenses which
are excluded from the indemnification provided by Section 7 of the
Participation Agreement pursuant to said Section 7, or (D) claims against the
Indenture Trustee arising out of the transfer by the Indenture Trustee of all
or any portion of its interest in the Aircraft, the Trust Estate, the Trust
Indenture Estate or the Operative Documents other than a transfer of the
Aircraft pursuant to Section 9, 10 or 19 of the Head Lease or Article IV or V
of the Trust Indenture, or a transfer of the Aircraft pursuant to Section 15 of
the Head Lease while an Event of Default is continuing and prior to the time
that the Indenture Trustee has received all amounts due pursuant to the Trust
Indenture.

 

“Landing
Gear” means the landing gear installed on the Airframe on the
Delivery Date (or such landing gear as may be substituted therefor after the
Delivery Date in accordance with this Lease.

 

[“Landing Gear Maintenance Reserves” has
the meaning specified in Section 22(2) hereof.]*

 

*   To be inserted in Subleases entered into an
accordance with Section 3.02(a)(iv) of the Airline Services Agreement.

 

7

 

“Landing
Gear Overhaul” means any full overhaul of any Landing Gear to
full manufacturer specification and operating condition.

 

“Lien”
means any mortgage, pledge, lien, charge, claim, encumbrance, lease, sublease,
sub-sublease or security interest.

 

“Life Limited Parts”
means those parts which have a specific hour, cycle and/or calendar life limit
as specified by the Manufacturer.

 

“Loan Participant”
means each institution executing the Participation Agreement as a Loan
Participant and its respective successors and registered assigns, including any
Certificate Holder; at any time when there is only one Certificate Holder, “each
Loan Participant” shall mean such Certificate Holder.

 

“Loan Participant Liens”
means any Lien which arises from acts or claims against any Loan Participant
not related to the transactions contemplated by the Operative Documents.

 

“Loss
Payment Date” has the meaning specified in Section 10(a)
hereof.

 

“Maintenance
Program” has the meaning specified in Exhibit D
hereto.

 

[“Maintenance Reserves” has the meaning
specified in Section 22(2) hereof.]*

 

“Major
Modifications” include, but shall not be limited to (i)
changes that alter the fundamental nature of the Aircraft as a passenger and
cargo carrying aircraft, or cabin modifications that materially change the
interior layout of the Aircraft, (ii) changes to the Aircraft structure or
performance of the Aircraft, (iii) changes that adversely affect
interchangeability or replaceability of Parts, (iv) substitution of different
types of equipment or accessories which are not equivalent in cost, value
and/or operational capability to the equipment or accessories being replaced,
(v) changes that invalidate or impair any warranty with respect to the Aircraft
or any Engine or Part, (vi) changes that adversely affect the eligibility of
the Aircraft to obtain an airworthiness certificate from the FAA or (vii) any changes
that result in a variation from the original type certificate for the Aircraft,
but shall exclude changes pursuant to airworthiness directives.

 

“Manufacturer”
means with respect to the Airframe, and where the context permits, the
Aircraft, Bombardier Inc., a Canadian Corporation, and its successors and
assigns and, with respect to the Engines, General Electric Company, a New York
corporation, and its successors and assigns.

 

*   To be inserted in Subleases entered into an
accordance with Section 3.02(a)(iv) of the Airline Services Agreement.

 

8

 

“Minimum
Liability Amount” has the meaning specified in Exhibit E
hereto.

 

“Operative
Documents” and “Operative Document” means each of the
Participation Agreement, the Trust Indenture, the Tax Indemnity Agreement, the
Trust Agreement, the Head Lease, this Sublease, the Sublease Supplement
covering the Aircraft, the Acceptance Certificate, the Trust Supplement
covering the Aircraft, the Purchase Agreement (insofar as it relates to the
Aircraft), the Residual Agreement, the Guarantee,  the Purchase Agreement Assignment and the Consent and Agreement.

 

[“Original
Predecessor Lease” means the Sublease Agreement [NW
200       ], dated as of
          , 200 ,
between Sublessor and Sublessee.]

 

“Owner” means
(i) Head Lessor (or any permitted assignee or successor thereof) for so
long as the Head Lease remains in effect and title to the Aircraft remains
vested in Head Lessor pursuant to the terms thereof and (ii) Sublessor (or
any permitted assignee or successor thereof) for so long as this Sublease
remains in effect and title to the Aircraft remains vested in Sublessor
pursuant to the terms hereof.

 

“Owner
Participant” means the entity executing the Participation
Agreement as the Owner Participant, and thereafter any Person to which such
entity transfers all of its right, title and interest in and to the Trust
Agreement, the Trust Estate and the Participation Agreement, to the extent
permitted by Section 8.01 of the Trust Agreement and Section 8 of the
Participation Agreement.

 

“Owner
Trustee” means Wells Fargo Bank Northwest, N. A., a national
banking association, and any entity appointed as successor Owner Trustee
pursuant to Section 9.01 of the Trust Agreement, and references to a
predecessor Owner Trustee in its individual capacity by name in the Operative
Documents shall include such successor Owner Trustee in its individual capacity
from and after such succession.

 

“Participants”
means and includes the Owner Participant.

 

“Participation
Agreement” means that certain Participation Agreement [NW
200       ], dated as of the date hereof,
among Sublessor, the Loan Participant, the Indenture Trustee, the Guarantor,
the Owner Participant and Owner Trustee, as such Participation Agreement may be
amended or supplemented from time to time pursuant to the applicable provisions
thereof.

 

“Parts”
means all appliances, parts, instruments, appurtenances, accessories,
furnishings and other equipment of whatever nature (other than (a) complete
Engines or engines and (b) cargo containers) which may from time to time be
incorporated or installed in or attached to the Airframe or any Engine or so
long as title thereto shall remain vested in the Owner in accordance with
Section 8 after removal therefrom.

 

9

 

“Past
Due Rate” means a rate per annum equal to the greater of (a)
5% over the Base Rate and (b) 15%.

 

“PBH Agreement”
means a maintenance agreement which (i)
provides shop repair/overhaul of Engines or Parts (including APU and Landing
Gear) on a continuous basis at an agreed upon Flight Hour or cycle based rate,
(ii) provides unrestricted assignment rights to Sublessor and Sublessor’s
future operators of the Aircraft, and (iii) has been approved in writing by
Sublessor (including but not limited to specific Sublessor approval of the
maintenance provider, rates, payment terms, scope, term, maintenance standard,
assignment rights and financial adjustments that are made when an Engine or
Part exits such program at termination or expiration of the PBH Agreement
relative to such Engine or Part).

 

“Permitted
Lien” means any Lien referred to in clauses (i) through (iii)
of Section 6 hereof.

 

“Person”
means any individual, corporation, partnership, limited liability company,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.

 

[“Predecessor
Lease” means the Sublease Agreement [NW
200        ], dated as
of             ,
200 , between Sublessor and Sublessee.]

 

“Purchase
Agreement” means that certain Purchase Agreement No.
[PA-0427, dated February 12, 1999,] [PA–0498, dated July   ,
2001,] between the Manufacturer and Sublessor relating to the purchase by
Sublessor of the Aircraft, as originally executed or as modified, amended or
supplemented in accordance with the terms thereof, but only insofar as the
foregoing relates to the Aircraft.

 

“Purchase
Agreement Assignment” means that certain Purchase Agreement
Assignment [NW 200     ], dated as of the date hereof,
between Sublessor and Head Lessor, as the same may be amended, supplemented or
modified from time to time, with a form of Consent and Agreement to be executed
by the Manufacturer attached thereto.

 

“Rent”
means Basic Rent and Supplemental Rent, collectively.

 

“Residual
Agreement” means that certain Residual Agreement [NW
200       ], dated as of the date hereof,
among the Manufacturer, the Owner Participant and the Owner Trustee.

 

“Secured Certificates”
has the meaning assigned to that term in the Trust Indenture.

 

“Security Deposit”
means the cash security deposited with Sublessor pursuant to Section 3(c)
hereof.

 

10

 

“Stipulated
Loss Value” with respect to the Aircraft, as of any date
through and including the Expiration Date, means, the amount specified in Exhibit
C hereto opposite the Stipulated Loss Value Date with respect to which the
amount is determined.

 

“Stipulated
Loss Value Date” means the [    - same as Head
Lease] calendar day of each calendar month during the Term.

 

“Structural
Inspection” means a Structural Inspection as such term is
defined in the Maintenance Program that meets the requirements of a Structural
Inspection as defined in the Bombardier Inc. Maintenance Requirement Manual.

 

[“Structural Inspection Reserves” has the
meaning specified in Section 22(2) hereof.]*

 

“Sublease
Agreement”, “this Sublease Agreement”, “this Sublease”, “this Agreement”,
“herein”, “hereof”, “hereunder”, “hereby” or other like words
mean this Sublease Agreement [NW
200          ], as originally
executed or as modified, amended or supplemented pursuant to the applicable
provisions hereof, including, without limitation, supplementation hereof by one
or more Sublease Supplements entered into pursuant to the applicable provisions
hereof.

 

“Sublease
Guaranty” means the Sublease Guaranty [NW
200       ] dated as of the date hereof made
by Sublessee Guarantor for the benefit of Sublessor and Guarantor.

 

“Sublease Period” means
each of the consecutive monthly periods throughout the Term beginning on a
Sublease Period Date, the first such period commencing on the first Sublease
Period Date after the Commencement Date.

 

“Sublease
Period Date” means the 1st calendar day of each
month during the Term.

 

“Sublease
Supplement” means a Sublease Supplement, substantially in the
form of Exhibit A hereto, to be entered into between Sublessor and
Sublessee on the Commencement Date for the purpose of subleasing the Aircraft
under and pursuant to the terms of this Sublease Agreement, and any subsequent
Sublease Supplement entered into in accordance with the terms hereof.

 

“Sublessee”
means Pinnacle Airlines, Inc. a Georgia corporation, and its successors and
permitted assigns, as sublessee under the Sublease.

 

“Sublessee
Documents” means the Sublease, the Sublease Supplement
covering the Aircraft, the acceptance certificate covering the Aircraft in the
form 

 

*   To be inserted in Subleases entered into an
accordance with Section 3.02(a)(iv) of the Airline Services Agreement.

 

11

 

agreed to by
Sublessor and Sublessee (herein called the “Sublease Acceptance Certificate”)
and the Airline Services Agreement.

 

“Sublessee
Guarantor” means Pinnacle Airlines Corp., a Delaware
corporation, and its successors and permitted assigns.

 

“Sublessor
Liens” means any Lien affecting or disposition of title or
interest affecting or in respect of the Trust Estate, the Aircraft, the
Airframe or any Engine arising as a result of (i) claims against or affecting
Sublessor not arising from the transactions contemplated by the Participation
Agreement, Head Lease and this Sublease, (ii) any act or omission of Sublessor
not related to the transactions contemplated by the Participation Agreement,
Head Lease and this Sublease, (iii) Taxes imposed against Sublessor which
Sublessee has not agreed to indemnify against pursuant to this Sublease, (iv)
Taxes imposed against Head Lessor or the Owner Participant which Sublessor has
not agreed to indemnify against pursuant to the Participation Agreement or (v)
claims against Sublessor arising out of the voluntary transfer of all or any
portion of Sublessor’s interest in the Aircraft or in any of the Sublessee
Documents other than a transfer pursuant to Sections 5, 8, 10 or 15 hereof, provided,
however, that any Lien which is attributable solely to Sublessor and
would otherwise constitute a Sublessor Lien hereunder shall not constitute a
Sublessor Lien hereunder so long as (1) the existence of such Lien poses no
material risk of the sale, forfeiture or loss of the Aircraft, (2) the
existence of such Lien does not interfere in any way with the use, possession
or operation of the Aircraft by Sublessee, (3) the existence of such Lien does
not affect the priority of perfection of, or otherwise jeopardize, the Lien of
the Trust Indenture, and (4) Sublessor is diligently contesting such Lien.

 

“Supplemental
Rent” means, without duplication, all amounts, liabilities,
indemnities and obligations (other than Basic Rent) which Sublessee assumes or
agrees to pay under any Sublessee Document to or on behalf of Sublessor or any
other Person hereunder or under any other Sublessee Document.  The parties acknowledge that Supplemental
Rent is a general category and, accordingly, agree that any provision of any
Sublessee Document which calls for the payment of Supplemental Rent and also
calls for the payment of specific items which are includable in Supplemental
Rent is not to be interpreted as requiring any double payment.

 

“Tax
Indemnitee” means (i) Sublessor, the Owner Participant, the
Owner Trustee, in its individual capacity and as trustee under the Trust
Agreement, the Trust Estate, the Indenture Trustee, the Loan Participants and
each other Certificate Holder, and (ii) the respective directors,
officers, employees, agents and servants of each Person described in clause
(i), and (iii) the respective Affiliates, successors and permitted assigns of
each of the entities described in the preceding clause (i).

 

“Tax
Indemnity Agreement” means that certain Tax Indemnity
Agreement [NW 200       ], dated as of the
date hereof, between the Owner Participant and 

 

12

 

Sublessor, as
originally executed or as modified, amended or supplemented pursuant to the
applicable provisions thereof.

 

“Taxes”
means any and all fees (including, without limitation, license, recording,
documentation and registration fees), taxes (including, without limitation,
income, gross receipts, sales, rental, use, turnover, value added, property
(tangible and intangible), excise and stamp taxes), license, levies, imposts,
duties, charges, assessments or withholdings of any nature whatsoever, together
with any and all penalties, fines, additions to tax and interest thereon (each,
individually a “Tax”).

 

“Term” means
the term for which the Aircraft is subleased hereunder pursuant to Section 3(a)
hereof commencing on the Commencement Date and ending on the Expiration Date,
or such earlier date as this Sublease may be terminated in accordance with the
provisions hereof.

 

“Trust
Agreement” means that certain Trust Agreement [NW
200      ], dated as of the date hereof, between
the Owner Participant and Wells Fargo Bank Northwest, N. A., in its individual
capacity, as originally executed or as modified, amended or supplemented
pursuant to the applicable provisions thereof, including, without limitation,
supplementation thereof by one or more Trust Supplements entered into pursuant
to the applicable provisions thereof.

 

“Trust
Estate” means the Trust Estate as that term is defined in the
Trust Agreement.

 

“Trust
Indenture” has the meaning specified in the Head Lease.

 

“Trust Indenture Estate”
has the meaning assigned to that term in the Trust Indenture.

 

“Trust Supplement”
means a supplement to the Trust Agreement and the Trust Indenture,
substantially in the form of Exhibit A to the Trust Indenture.

 

“Wells Fargo”
means Wells Fargo Bank Northwest, N. A., a national banking association.

 

13

 

SECTION 2.  Acceptance and Sublease.  (a) Generally.  Sublessor hereby agrees to sublease to
Sublessee hereunder, and Sublessee hereby agrees to sublease from Sublessor
hereunder, the Aircraft as evidenced by the execution by Sublessor and
Sublessee of a Sublease Supplement leasing the Aircraft hereunder.  Sublessee hereby agrees that such acceptance
of the Aircraft by Sublessor shall, without further act, irrevocably constitute
acceptance by Sublessee of such Aircraft for all purposes of this
Sublease.  As provided in Section 25
hereof, the rights of Sublessee hereunder are subject and subordinate to all
the terms of the Head Lease, including any amendments or restatements thereto
as may occur from time to time, and the parties intend this Sublease to
constitute a true lease.

 

(b)           Airline
Services Agreement. 
Sublessee acknowledges that Sublessor is providing a valuable financial
accommodation to Sublessee by entering into the Operative Documents to which it
is a party and this Sublease to allow Sublessee to obtain the use of the
Aircraft pursuant to the terms of the Airline Services Agreement.  As a condition to their rights hereunder,
Sublessee and Sublessor hereby confirm and ratify the Airline Services
Agreement, which is incorporated herein by reference for all purposes, and
agree, as a material term of this Sublease and as a material inducement to
Sublessor to enter into this Sublease, to fully perform all of their respective
obligations under the Airline Services Agreement as a part of this Sublease
Agreement as though the same were set forth herein.

 

SECTION 3.  Term and
Rent. 
(a) Term.  The Term shall commence on the Commencement
Date and end on the Expiration Date or such earlier date as this Sublease may
be terminated in accordance with the provisions hereof.

 

(b)           Basic Rent.  Sublessee shall pay Basic Rent with respect
to each Sublease Period during the Term on each  Sublease Period Date during
the Term, in consecutive monthly installments in the amounts as provided in the
next sentence.  Each such installment of
Basic Rent shall be payable in advance, 
shall be equal to the amount specified for each Sublease Period Date
specified in Exhibit B hereto, and shall be allocated to the Sublease
Period commencing on such Sublease Period Date.  In addition, Sublessee shall pay Basic Rent on the Commencement
Date in the amount specified in Exhibit B hereto, which shall be
allocated to the period from the Commencement Date to the day prior to the
first Sublease Period Date.  If Sublessee
shall for any reason whatsoever fail to return the Aircraft on the Expiration
Date in the condition specified herein, or return of the Aircraft is not
accepted by Sublessor because of Sublessee’s failure to meet the requirements
of this Sublease, the obligations of Sublessee provided in this Sublease and in
each other Operative Document to which Sublessee is a party, including the
obligation to pay Basic Rent, which, after the Expiration Date, shall be on a
per diem basis based on a pro rata application of 125% of the Basic Rent due
during the last Sublease Period of the Term, shall continue in effect with
respect to the Aircraft, and the Term shall be deemed to be extended until
return of the Aircraft to Sublessor in accordance with the requirements of this
Sublease; provided
that nothing in this Section shall be construed as permitting or authorizing
Sublessee to fail to meet, or consenting to or waiving any failure by Sublessee
to perform, Sublessee’s obligation to return the Aircraft in accordance with
the requirements of this Sublease and Sublessor shall be entitled to all of the
benefits of, and all of its rights and remedies set forth in, Sections 14 and
15 hereof.

 

14

 

(c)           Security
Deposit.  Upon the execution
of this Sublease, Sublessee shall deposit an amount equal to one month of Basic
Rent in cash with Sublessor to be held as security for performance of all of
Sublessee’s obligations hereunder and as provided in Section 28 hereof.  At any time after the repayment in full of
the Promissory Note owing from Pinnacle Airlines Corp. to NWA, Inc., dated as
of [date], Sublessor shall have the right, upon written notice to Sublessee, to
require an additional deposit by Sublessee in an amount equal to a second month
of Basic Rent in cash to be held as security for performance of all of
Sublessee’s obligations hereunder and as provided in Section 28 hereof.  Sublessee shall deposit such additional
month of Basic Rent in cash with Sublessor no later than 6 months after receipt
by Sublessee of the notice referred to in the preceding sentence.  Sublessee agrees to maintain the Security
Deposit with Sublessor for the full amount thereof throughout the Term and
Sublessor may apply such amount as specified in Section 28 hereof.  Sublessor may commingle the Security Deposit
with its general funds, and Sublessee shall not be entitled to earn interest on
the Security Deposit.

 

Upon the
expiration of this Sublease and full performance by Sublessee of all of its obligations
hereunder, and provided that no Default or Event of Default shall have
occurred and be continuing, Sublessor shall return the Security Deposit to
Sublessee unless previously applied pursuant to the preceding paragraph.

 

(d)           Supplemental
Rent.  Sublessee shall pay
(or cause to be paid) promptly to Sublessor, or to whomsoever shall be entitled
thereto, any and all Supplemental Rent constituting Stipulated Loss Value [and
Maintenance Reserves]* as the same shall become due and owing and all other amounts
of Supplemental Rent within five days after demand or within such other
relevant period as may be provided in any Sublessee Document, and in the event
of any failure on the part of Sublessee to pay any Supplemental Rent when due,
Sublessor shall have all rights, powers and remedies provided for herein or in
any other Sublessee Document or by law or equity or otherwise in the case of
nonpayment of Basic Rent. Sublessee also will pay to Sublessor, or to
whomsoever shall be entitled thereto, on demand, as Supplemental Rent, to the
extent permitted by applicable law, interest at the Past Due Rate on any part
of any installment of Basic Rent not paid when due for any period for which the
same shall be overdue and on any payment of Supplemental Rent not paid when due
for the period until the same shall be paid.

 

(e)           Payments in
General.  All payments of
Rent shall be made directly by Sublessee by wire transfer of immediately
available funds prior to 10:30 A.M., New York time, on the date of payment, to
Sublessor at its account at USBank, Minneapolis, ABA No. 091000022, for the
account of Northwest Airlines, Inc., Account No. 150250099440 (or such other
account of Sublessor in the continental United States as Sublessor shall direct
in a notice to Sublessee at least 10 Business Days prior to the date such
payment of Rent is due).  All payments
of Supplemental Rent shall be made in Dollars in immediately available funds
prior to 10:30 A.M., New York time, on the due date thereof at such office of
such other financial institution located in the continental United States as
the party entitled thereto may so direct at least ten (10) Business Days prior
to the due date thereof.

 

*   To be inserted in Subleases entered into an
accordance with Section 3.02(a)(iv) of the Airline Services Agreement.

 

15

 

Notwithstanding
anything to the contrary contained herein, if any date on which a payment of
Rent becomes due and payable is not a Business Day, then such payment shall not
be made on such scheduled date but shall be made on the next succeeding
Business Day with the same force and effect as if made on such scheduled date
and (provided
such payment is made on such next succeeding Business Day) no interest shall
accrue on the amount of such payment from and after such scheduled date.

 

SECTION 4.  Sublessor’s Representations and Warranties.  SUBLESSOR SUBLEASES AND SUBLESSEE
TAKES THE AIRCRAFT AND EACH PART THEREOF “AS-IS,” “WHERE-IS.”  NONE OF HEAD LESSOR, SUBLESSOR, THE INDENTURE
TRUSTEE NOR ANY PARTICIPANT MAKES, HAS MADE OR SHALL BE DEEMED TO HAVE MADE,
AND EACH HEREBY EXPRESSLY DISCLAIMS AND WILL BE DEEMED TO HAVE EXPRESSLY
DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE
TITLE, AIRWORTHINESS, WORKMANSHIP, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE OR A PARTICULAR PURPOSE OF THE AIRCRAFT OR
ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR
COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT,
OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, except that Sublessor (i)
represents and warrants that on the Commencement Date the Aircraft shall be
free of Sublessor Liens (including for this purpose Liens which would be
Sublessor Liens but for the proviso in the definition of Sublessor Liens) and
(ii) agrees that it will not directly or indirectly create, incur, assume or
suffer to exist any Sublessor Lien attributable to it on or with respect to the
Airframe or any Engine, and it agrees that it will promptly, at its own
expense, take such action as may be necessary duly to discharge such Sublessor
Lien.  None of the provisions of this
Sublease shall be deemed to amend, modify or otherwise affect the
representations, warranties or other obligations (express or implied) of the
Manufacturer, any subcontractor or supplier of the Manufacturer with respect to
the Airframe, the Engines or any Parts, or to release the Manufacturer, or any
such subcontractor or supplier, from any such representation, warranty or
obligation, or to diminish any right that Sublessee may have with respect to
the Airframe, Engines or Parts against the Manufacturer or any such
subcontractor or supplier under the Purchase Agreement or otherwise.

 

SECTION 5.  Return of the Aircraft.  (a)  Condition Upon Return. Upon the
termination of this Sublease at the end of the Term or pursuant to Section 15,
Sublessee, at its own expense, will return the Aircraft to or at the direction
of Sublessor at either Minneapolis/St. Paul International Airport, St. Paul,
Minnesota, or Wayne County Metropolitan Airport, Detroit, Michigan, as designated
by Sublessor or at such other location in the 48 contiguous states of the
United States as may be specified by Sublessor.  At the time of such return, the Aircraft will be registered under
the laws of the United States in the name of the Owner or its designee; the
Airframe will be fully equipped with the Engines (or other General Electric
Model CF34-3B1 type engines satisfactory to Sublessor) duly installed thereon
and properly functioning.  Also, at the
time of such return, such Airframe and Engines or engines (i) shall be
certified as an airworthy aircraft by the Federal Aviation Administration,
(ii) shall be free and clear of all Liens (other than Sublessor Liens
(including for this purpose Liens which would be Sublessor Liens 

 

16

 

but for the
proviso in the definition of Sublessor Liens), Indenture Trustee’s Liens and
Loan Participant Liens), Head Lessor Liens (including for this purpose Liens
which would be Head Lessor Liens but for the proviso in the definition of Head
Lessor Liens) and rights of third parties under pooling, interchange, overhaul,
repair or other similar agreements or arrangements, (iii) shall be in as good
an operating condition as when delivered by the Manufacturer to Sublessor, ordinary
wear and tear excepted, or, in the case of any such engines owned by Sublessee,
shall have been approved for substitution by Sublessor, and (iv) shall be in
compliance with the return conditions set forth in Exhibit D.

 

During the last
twelve (12) months of the Term, with reasonable notice, Sublessee will
cooperate in all reasonable respects with the efforts of Sublessor or Head
Lessor to sublease the Aircraft, including, without limitation, permitting
prospective sublessees to inspect fully the Aircraft and the records relating
thereto, provided,
that such cooperation shall not interfere with the operation or maintenance of
the Aircraft by Sublessee.  In addition,
Sublessee shall notify Sublessor in writing of its plans for meeting the return
conditions contained herein prior to commencing the C-Check immediately prior
to the C-Check required to be provided by Sublessee upon the return of the
Aircraft, and again approximately six months prior to the Expiration Date, and
Sublessee shall notify Sublessor in writing at any time within the last twelve
(12) months of the Term prior to initiating any significant maintenance or
repairs designed to cause the Aircraft to meet the return conditions contained
herein.  Sublessor shall have the right
to approve or reject Sublessee’s proposed plans for meeting the return
conditions contained herein, with such approval not to be unreasonably
withheld.

 

(b)           Return of
the Engines.  In the event
that any engine not owned by Sublessor shall be delivered with the returned Airframe
as set forth in paragraph (a) of this Section 5, Sublessee, concurrently with
such delivery, will, at no cost to Sublessor or Head Lessor, furnish, or cause
to be furnished, to or at the direction of the Owner a full warranty (as to
title) bill of sale including as to the absence of Liens other than Sublessor
Liens (including for this purpose Liens which would be Sublessor Liens but for
the proviso in the definition of Sublessor Liens), Loan Participant Liens,
Indenture Trustee Liens and Head Lessor Liens (including for this purpose Liens
which would be Head Lessor Liens but for the proviso in the definition of Head
Lessor Liens) with respect to each such engine, in form and substance
satisfactory to the Owner (together with an opinion of counsel to the effect
that such full warranty bill of sale has been duly authorized and delivered and
is enforceable in accordance with its terms and that such engines are free and
clear of Liens other than Sublessor Liens (including for this purpose Liens
which would be Sublessor Liens but for the proviso in the definition of
Sublessor Liens), Loan Participant Liens, Indenture Trustee Liens and Head
Lessor Liens (including for this purpose Liens which would be Head Lessor Liens
but for the proviso in the definition of Head Lessor Liens)), against receipt
from the Owner of a bill of sale or other instrument evidencing the transfer,
without recourse or warranty (except, if the Owner is Head Lessor, as to the
absence of Head Lessor Liens, including for this purpose Liens which would be
Head Lessor Liens but for the proviso in the definition of Head Lessor Liens,
and if the Owner is Sublessor, as to the absence of Sublessor Liens, including
for this purpose Liens which would be Sublessor Liens but for the proviso in
the definition of Sublessor Liens) by the Owner, to Sublessee or its designee
of all of the Owner’s right, title and interest in and to any Engine
constituting part of the Aircraft but not installed on the Airframe at the time
of the return of the Airframe.

 

17

 

(c)           Aircraft
Documentation.  Upon the
return of the Airframe upon any termination of this Sublease in accordance with
paragraph (a) of this Section 5, Sublessee shall deliver or cause to be
delivered to Sublessor or its designee, in English, current and complete
Aircraft Documentation.

 

(d)           Storage Upon
Return.  If, at least ten
(10) days prior to termination of this Sublease at the end of the Term,
Sublessee receives from Sublessor a written request for storage of the Aircraft
upon its return hereunder, Sublessee will provide Sublessor, or cause Sublessor
to be provided, with free parking facilities for, and unrestricted access to,
the Aircraft (maintenance costs and other out-of-pocket costs other than parking
fees to be for the account of Sublessor) for a period not exceeding sixty (60)
days commencing on the date of such termination, at a location in the
continental United States selected by Sublessee used as a location for the
parking or storage of aircraft. 
Sublessee will maintain insurance for the Aircraft during such period
not exceeding sixty (60) days and be reimbursed by Sublessor or its designee
for the premiums thereon.

 

(e)           PBH
Agreements.  If at return of the
Aircraft, an Engine or Part (including Landing Gear and APU) is being
maintained under a PBH Agreement, Sublessee shall not be required to satisfy
minimum maintenance time remaining requirements specified in Exhibit D that are
directly and fully covered by such PBH Agreement.  [During any period that Sublessee is required to pay Sublessor
Maintenance Reserves under the Sublease, Maintenance Reserves will not be
required for Engines or Parts where the maintenance intended to be covered by
such Maintenance Reserve is being directly and fully covered by a PBH
Agreement.]*

 

SECTION 6.  Liens.  Sublessee will not directly or indirectly
create, incur, assume or suffer to exist any Lien on or with respect to the
Aircraft, title thereto or any interest therein or in this Sublease, except
(i) the respective rights of Sublessor and Sublessee as herein provided,
the respective rights of Sublessor and Head Lessor as provided in the Head
Lease, the rights of Head Lessor as owner of the Aircraft, the Lien of the
Trust Indenture, and any other rights existing pursuant to the Operative
Documents, (ii) the rights of others under agreements or arrangements to
the extent permitted by the terms of Sections 7(b) and 8(b) hereof and (iii)
Head Lessor Liens (including for this purpose Liens which would be Head Lessor Liens
but for the proviso in the definition of Head Lessor Liens), Sublessor Liens
(including for this purpose Liens which would be Sublessor Liens but for the
proviso in the definition of Sublessor Liens), Loan Participant Liens and
Indenture Trustee’s Liens.  Sublessee
will promptly, at its own expense, take (or cause to be taken) such actions as
may be necessary duly to discharge any such Lien not excepted above if the same
shall arise at any time.

 

SECTION 7.  Registration, Maintenance and Operation; Possession;
Insignia.   (a)(I)  Registration and Maintenance.  Sublessee, at its own cost and
expense, shall: (i) forthwith upon the delivery thereof hereunder, cause
the Aircraft to be duly registered in the name of the Owner and to remain duly
registered in the name of Owner under the Federal Aviation Act, provided
that Sublessor shall execute and deliver all such documents as Sublessee may
reasonably request for the purpose of effecting and continuing such
registration, and shall 

 

*   To be inserted in Subleases entered into an
accordance with Section 3.02(a)(iv) of the Airline Services Agreement.

 

18

 

 

not register the
Aircraft or permit the Aircraft to be registered under any laws other than the
Federal Aviation Act at any time; (ii) continuously operate, maintain,
service, repair and overhaul (or cause to be maintained, serviced, repaired and
overhauled) the Aircraft (including, without limitation, the Airframe, Engines
and Parts) in compliance with the Maintenance Program and in compliance with
all FAA requirements for FAR Part 121 operation and the Manufacturers’
recommended maintenance program so as to keep the Aircraft in as good an
operating condition as when delivered by the Manufacturer to Sublessor,
ordinary wear and tear excepted, so as to maintain in effect all material
Manufacturers’ warranties and guaranties and as may be necessary to enable the
airworthiness certification for the Aircraft to be maintained in good standing
at all times under the Federal Aviation Act, except when all Bombardier Inc.
Canadair Regional Jet Model Series 200 aircraft powered by engines of the same
type as those with which the Airframe shall be equipped at the time of such
grounding and registered in the United States have been grounded by the FAA,
and utilizing the same manner and standard of maintenance, service, repair and
overhaul used by Sublessee with respect to similar aircraft operated by
Sublessee in similar circumstances and without in any case discriminating
against the Aircraft by reason of its leased status; provided, however, that in
all circumstances the Aircraft shall be maintained by Sublessee in accordance
with maintenance standards required by the FAA for FAR Part 121 operation;
(iii) maintain or cause to be maintained in English all Aircraft
Documentation and all other records, logs and other materials maintained in
respect of the Aircraft; and (iv) promptly furnish or cause to be
furnished to Sublessor, Head Lessor and the Owner Participant such information
as may be required to enable Sublessor, Head Lessor or the Owner Participant to
monitor the maintenance status and condition of the Aircraft and to file any
reports required to be filed by Sublessor, Head Lessor or the Owner Participant
with any governmental authority because of Sublessor’s or the Owner
Participant’s interest in or Head Lessor’s ownership of the Aircraft. (II) Operation.  Sublessee will continuously operate the
Aircraft in accordance with its FAA approved flight manual which shall comply
with all Manufacturer recommendations and requirements for the Aircraft and
Engine type.  Sublessee will not
maintain, use, service, repair, overhaul or operate the Aircraft in violation
of any law or any rule, regulation, order or certificate of any government or
governmental authority (domestic or foreign) having jurisdiction, or in
violation of any airworthiness certificate, license or registration relating to
the Aircraft issued by any such authority, except to the extent Sublessee is
contesting in good faith the validity or application of any such law, rule,
regulation or order in any reasonable manner which does not adversely affect
Sublessor, Head Lessor or the Owner Participant or their respective right,
title or interest in the Aircraft or, so long as any Secured Certificates shall
be outstanding, adversely affect the Lien of the Trust Indenture and does not
involve any risk of sale, forfeiture or loss of the Aircraft or any risk of
civil liability or criminal liability being imposed on Sublessor, Head Lessor
or the Owner Participant.  Sublessee
will not operate the Aircraft (a) in any area excluded from coverage by any
insurance required by the terms of Section 11; provided, however, that the
failure of Sublessee to comply with the provisions of this clause (a) shall not
give rise to an Event of Default hereunder where such failure is attributable
to causes beyond the reasonable control of Sublessee or to Sublessee’s response
to extraordinary circumstances involving an isolated occurrence or isolated
series of incidents not in the ordinary course of the regular operations of
Sublessee and in each such case Sublessee is taking all reasonable steps to
remedy such failure as soon as is reasonably practicable or (b) other than in
operations in accordance with the Airline Services Agreement.  Sublessee further agrees not to operate the
Aircraft or any Engine outside the United States in 

 

19

 

any taxable year
in a manner that would cause more than 20% of the Basic Rent payable under the
Sublease to be treated as derived from sources outside the United States.

 

(b)           Possession.  Sublessee
will not, without the prior written consent of Sublessor, in any manner
deliver, transfer or relinquish possession of the Airframe or any Engine or
install or permit any Engine to be installed on any airframe other than the
Airframe or enter into any wet lease; provided that, so long as no Default or
Event of Default shall have occurred and be continuing at the time of such
delivery, transfer or relinquishment of possession or installation and so long
as the action to be taken shall not deprive the Indenture Trustee of the
perfected first priority Lien of the Trust Indenture on the Airframe or any
Engine, and so long as Sublessee shall comply with the provisions of Sections
7(a) and 11 hereof, Sublessee may, without the prior written consent of
Sublessor:

 

(i)            deliver
possession of the Airframe or any Engine to the manufacturer thereof (or for
delivery thereto) or to any FAA approved organization (or for delivery thereto)
for testing, service, repair, maintenance or overhaul work on the Airframe or
Engine or any part of any thereof or for alterations or modifications in or
additions to such Airframe or Engine to the extent required or permitted by the
terms of Section 8(c) hereof; or

 

(ii)           install
an Engine on an airframe leased to Sublessee by Sublessor or any of its
Affiliates, provided
that (x) such airframe is free and clear of all Liens, except the rights of the
parties to the lease covering such airframe, or their assignees, and (y) such
lease effectively provides that such Engine shall not become subject to the
lien of such lease notwithstanding the installation thereof on such airframe;
or

 

(iii)          to
the extent permitted by Section 8(b) hereof, subject any appliances, Parts or
other equipment owned by Sublessor and removed from the Airframe or any Engine
to any pooling arrangement referred to in Section 8(b) hereof.

 

The rights of any
transferee who receives possession by reason of a transfer permitted by this
paragraph (b) shall be effectively subject and subordinate to all the terms of
this Sublease and the Head Lease and to the Lien of the Trust Indenture,
including, without limitation, the covenants contained in Section 7(a) hereof
and Sublessor’s rights to repossession pursuant to Section 15 hereof, and
Sublessee shall remain primarily liable hereunder for the performance of all of
the terms of this Sublease to the same extent as if such transfer had not
occurred.  No pooling agreement or other
relinquishment of possession of the Airframe or any Engine shall in any way
discharge or diminish any of Sublessee’s obligations to Sublessor hereunder or
constitute a waiver of Sublessor’s rights or remedies hereunder.  Notwithstanding anything to the contrary
contained herein, Sublessee under any and all circumstances may not sublease or
sub-sublease, and is prohibited from entering into any sublease or sub-sublease
with respect to, the Aircraft, the Airframe or any Engine.  Sublessor agrees, subject to the rights of
Head Lessor under the Head Lease, for the benefit of Sublessee and for the
benefit of any mortgagee or other holder of a security interest in any engine
(other than an Engine) owned by Sublessee, any lessor of any engine (other than
an Engine) leased to Sublessee and any 

 

20

 

conditional
vendor of any engine (other than an Engine) purchased by Sublessee subject to a
conditional sale agreement or any other security agreement, that no interest
shall be created hereunder in any engine so owned, leased or purchased and that
none of Sublessor, its successors or assigns will acquire or claim, as against
Sublessee or any such mortgagee, lessor or conditional vendor or other holder
of a security interest or any successor or assignee of any thereof, any right,
title or interest in such engine as the result of such engine being installed
on the Airframe; provided, however, that such agreement of Sublessor shall
not be for the benefit of any lessor or secured party of any airframe (other
than the Airframe) leased to Sublessee or purchased by Sublessee subject to a
conditional sale or other security agreement or for the benefit of any
mortgagee of or any other holder of a security interest in an airframe owned by
Sublessee, unless such lessor, conditional vendor, other secured party or
mortgagee has expressly agreed (which agreement may be contained in such lease,
conditional sale or other security agreement or mortgage) that neither it nor
its successors or assigns will acquire, as against Sublessor, any right, title
or interest in an Engine as a result of such Engine being installed on such
airframe.

 

(c)           Insignia.  On or prior to the Commencement Date, or as
soon as practicable thereafter (but in no event later than ten (10) days
thereafter), Sublessee agrees to affix and maintain (or cause to be affixed and
maintained), at its expense, in the cockpit of the Airframe adjacent to the
airworthiness certificate therein and on each Engine a nameplate bearing the
inscription:

 

Leased from

 

Wells Fargo Bank Northwest, N. A.,

as Owner Trustee,

Lessor

 

Subleased From

 

Northwest Airlines Inc.,

Sublessor

 

and, for so long as the Airframe and each Engine shall be subject to
the Lien of the Trust Indenture, bearing the following additional inscription:

 

Mortgaged to State Street Bank and Trust
Company, as Indenture Trustee

 

(such nameplate to
be replaced, if necessary, with a nameplate reflecting the name of any Head
Lessor or successor Sublessor or successor Indenture Trustee, in each case as
permitted under the Operative Documents and this Sublease).  Except as above provided, Sublessee will not
allow the name of any Person to be placed on the Airframe or on any Engine as a
designation that might be interpreted as a claim of ownership; provided
that nothing contained in this paragraph shall prohibit Sublessee from placing
its customary colors and insignia on the Airframe or any Engine.

 

21

 

SECTION 8.  Replacement and Pooling of Parts; Alterations, Modifications and
Additions.    (a)  Replacement of Parts.  Sublessee, at its own cost and expense, will
promptly replace or cause to be replaced all Parts which may from time to time
become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond
repair or permanently rendered unfit for use for any reason whatsoever, except
as otherwise provided in paragraph (c) of this Section 8 or if the Airframe or
an Engine to which a Part relates has suffered an Event of Loss.  In addition, Sublessee may, at its own cost
and expense, remove in the ordinary course of maintenance, service, repair,
overhaul or testing, any Parts, whether or not worn out, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use, provided that Sublessee, except as otherwise provided in
paragraph (c) of this Section 8, will, at its own cost and expense, promptly
replace such Parts.  All replacement
Parts shall be free and clear of all Liens (except for Permitted Liens and
pooling arrangements to the extent permitted by paragraph (b) of this Section 8
and except in the case of replacement property temporarily installed on an
emergency basis) and shall be serviceable in accordance with the Maintenance
Program and FAA requirements for FAR Part 121 operation and shall be in as good
operating condition as, and shall have a maintenance status, modification
status, value and utility at least equal to, the Parts replaced assuming such replaced
Parts were in the condition and repair required to be maintained by the terms
hereof.  Except as otherwise provided in
paragraph (c) of this Section 8, all Parts at any time removed from the
Airframe or any Engine shall remain the property of the Owner, no matter where
located, until such time as such Parts shall be replaced by Parts which have
been incorporated or installed in or attached to the Airframe or such Engine
and which meet the requirements for replacement Parts specified above.  Immediately upon any replacement part
becoming incorporated or installed in or attached to the Airframe or any Engine
as above provided, without further act (subject only to Permitted Liens and any
pooling arrangement to the extent permitted by paragraph (b) of this Section 8
and except in the case of replacement property temporarily installed on an
emergency basis), (i) title to such replacement Part shall thereupon vest in
the Owner, (ii) such replacement Part shall become subject to the Head Lease
and this Sublease and be deemed part of the Airframe or such Engine for all
purposes hereof to the same extent as the Parts originally incorporated or
installed in or attached to the Airframe or such Engine, and (iii) title to the
replaced Part shall thereupon vest in Sublessee free and clear of all rights of
the Owner and Sublessor, and shall no longer be deemed a Part hereunder.

 

(b)           Pooling of
Parts.  Only after receiving
Sublessor’s written consent thereto, which may be granted or withheld in its
sole discretion, any Part removed from the Airframe or any Engine as provided
in paragraph (a) of this Section 8 may be subjected by Sublessee to a normal
pooling arrangement customary in the airline industry of which Sublessee is a
party entered into in the ordinary course of Sublessee’s business; provided
that the Part replacing such removed Part shall be incorporated or installed in
or attached to such Airframe or Engine in accordance with such paragraph (a) as
promptly as practicable after the removal of such removed Part.  In addition, only after receiving
Sublessor’s written consent thereto, which may be granted or withheld in its
sole discretion, any replacement Part when incorporated or installed in or
attached to the Airframe or any Engine in accordance with such paragraph (a)
may be owned by any third party subject to such a normal pooling arrangement, provided
that Sublessee, at its expense, as promptly thereafter as practicable, either
(i) causes title to such replacement Part to vest in the Owner in accordance
with such paragraph (a) by Sublessee acquiring title thereto for the benefit
of, and transferring such title to, the Owner free and clear of all Liens
except

 

22

 

Permitted Liens (other
than pooling arrangements), at which time such temporary replacement part shall
become a Part or (ii) replaces such replacement Part by incorporating or
installing in or attaching to the Airframe or Engine a further replacement Part
owned by Sublessee free and clear of all Liens except Permitted Liens (other
than permitted pooling arrangements) and by causing title to such further
replacement Part to vest in the Owner in accordance with such paragraph (a).

 

(c)           Alterations, Modifications and Additions.  Sublessee, at its own expense, will make (or
cause to be made) such alterations and modifications in and additions to the
Airframe and Engines as may be required from time to time to meet the
applicable standards of the FAA or any other governmental authority having
jurisdiction regardless of upon whom nominally imposed; provided, however, that
Sublessee may, in good faith, contest the validity or application of any such
law, rule, regulation or order in any reasonable manner which does not
adversely affect Head Lessor, the Owner Participant, Sublessor or, so long as
any Secured Certificates shall be outstanding, the Indenture Trustee, or their
respective right, title and interest in the Aircraft and does not involve any
risk of sale, forfeiture or loss of the Aircraft or any risk of civil liability
or criminal liability being imposed on the Owner Participant, Head Lessor, or,
so long as any Secured Certificates shall be outstanding, the Indenture
Trustee, or Sublessor; provided, further, that no appliance,
part, instrument, appurtenance, accessory, furnishing or other equipment of
whatever nature relating to such alteration, modification or addition may be
leased from any Person other than Sublessor. 
In addition, Sublessee, at its own expense, may from time to time add
further parts or accessories and make such alterations and modifications in and
additions to the Airframe or any Engine as Sublessee may deem desirable in the
proper conduct of its business, including, without limitation, removal of Parts
which Sublessee has determined in its reasonable judgment to be obsolete or no
longer suitable or appropriate for use on the Airframe or such Engine (such
parts, “Obsolete
Parts”); provided that no such alteration,
modification or addition shall diminish the value, utility or remaining useful
life of the Airframe or such Engine below the value, utility or remaining
useful life thereof immediately prior to such alteration, modification or
addition, assuming the Airframe or such Engine was then in the condition
required to be maintained by the terms of this Sublease, except that the value
(but not the utility or remaining useful life) of the Airframe or any Engine
may be reduced by the value of Obsolete Parts which shall have been removed so
long as the aggregate original cost of all Obsolete Parts which shall have been
removed and not replaced pursuant to this Sublease or any other lease between
Sublessee and Sublessor (or any affiliate thereof) shall not exceed
$100,000.  Title to all Parts incorporated
or installed in or attached or added to the Airframe or an Engine as the result
of such alteration, modification or addition (the “Additional Parts”) shall,
without further act, vest in the Owner, and the Owner shall not be required
under any circumstances under this Sublease to pay directly for any alteration,
modification or addition. 
Notwithstanding the foregoing sentence, Sublessee may remove or suffer
to be removed any Additional Part, provided that such Additional Part (i) is
in addition to, and not in replacement of or substitution for, any Part
originally incorporated or installed in or attached to the Airframe or any
Engine at the time of delivery thereof hereunder or any Part in replacement of,
or substitution for, any such Part, (ii) is not required to be incorporated or
installed in or attached or added to the Airframe or any Engine pursuant to the
terms of Section 7 hereof or the first sentence of this paragraph (c) and (iii)
can be removed from the Airframe or such Engine without diminishing or
impairing the value, utility or remaining useful life of the Airframe or such
Engine.  Upon the removal by Sublessee
of any Part as provided above, title thereto shall, without further act, vest
in Sublessee and such Part shall no longer be deemed part of the Airframe or
Engine from which it was

 

23

 

removed.  Any Part not removed by Sublessee as above
provided prior to the return of the Airframe or Engine to Sublessor hereunder
shall remain the property of the Owner.

 

Sublessee shall not, without
Sublessor’s prior written consent, make any Major Modifications, including,
without limitation, modifications as to type or manufacture of the avionics, or
cabin modifications which change the interior layout, to the Aircraft.

 

SECTION
9.  Voluntary Termination.  (a)  Termination by Sublessor.  In the event the Lease is being terminated,
Sublessor shall have the right to elect to terminate this Sublease on any date
upon at least two (2) days advance written notice to Sublessee specifying the
date on which Sublessor intends to terminate this Sublease in accordance with
this Section 9 (the “Voluntary Termination Date”).  On or before the Voluntary Termination Date,
Sublessee shall simultaneously pay or cause to be paid to or at the direction
of Sublessor in funds of the type specified in Section 3(e) hereof, an amount
equal to the sum of all unpaid Basic Rent with respect to the Aircraft due
prior to such Voluntary Termination Date, and all unpaid Supplemental Rent due
on or prior to the Voluntary Termination Date.

 

(b)            [Intentionally Omitted].

 

(c)            [Intentionally Omitted].

 

(d)           Termination as to Engines.  So long as no Event of Default shall have
occurred and be continuing and with the prior written consent of Sublessor,
Sublessee shall have the right during the Term, on at least sixty (60) days
prior written notice, to terminate this Sublease with respect to any
Engine.  In such event, and prior to the
date of such termination, Sublessee shall replace such Engine hereunder by
complying with the terms of Section 10(b) to the same extent as if an Event of
Loss had occurred with respect to such Engine and shall indemnify Sublessor,
Head Lessor and the Owner Participant for any adverse tax consequences
resulting from such substitution, and Sublessor shall transfer, and shall
exercise any such rights as it may have to cause Head Lessor to transfer, such
right, title, and interest as Sublessor or Head Lessor, as the case may be, may
have to the replaced Engine as provided in Section 5(b).  No termination of this Sublease with respect
to any Engine as contemplated by this Section 9(d) shall result in any
reduction of Basic Rent.

 

SECTION
10.  Loss, Destruction, Requisition, etc.  (a)  Event of
Loss with Respect to the Aircraft. 
Upon the occurrence of an Event of Loss with respect to the Airframe or
the Airframe and the Engines and/or engines then installed thereon, Sublessee
shall forthwith (and in any event, within five (5) days after such occurrence)
give Sublessor and Head Lessor written notice of such Event of Loss.  Not later than the earlier of (x) the
Business Day next succeeding the 90th day following the occurrence of such
Event of Loss or (y) an earlier Business Day irrevocably specified fifteen (15)
days in advance by notice from Sublessee to Sublessor and the Indenture Trustee
(the “Loss
Payment Date”), Sublessee shall pay or cause to be paid to Sublessor
(or its designee) in funds of the type specified in Section 3(d) hereof, an
amount equal to the Stipulated Loss Value corresponding to the Stipulated Loss
Value Date occurring on or immediately following the Loss Payment Date; provided,
however, that if a Sublease Period Date shall occur on or prior to
the Loss Payment Date with respect to which Stipulated Loss Value is
determined, Sublessee shall pay on such Sublease Period Date an

 

24

 

amount equal to the Basic
Rent that would have been due on or prior to such Sublease Period Date if such
Event of Loss had not occurred.  At such
time as Sublessor shall have received the amounts specified in the preceding
sentence, together with all other amounts that then may be due hereunder
(including, without limitation, all Basic Rent due before the Stipulated Loss
Value Date by reference to which the Stipulated Loss Value is calculated for
the Loss Payment Date and all Supplemental Rent then due) (1) the obligation of
Sublessee to pay the installments of Basic Rent, Supplemental Rent, Stipulated
Loss Value or any other amount shall cease to accrue (but without affecting the
provisions of Section 29(b) or 29(c) hereof), (2) except for the provisions of
Sections 29(b) and 29(c) of this Sublease (which shall survive), this Sublease
shall terminate, (3) Sublessor will, if the Lien of the Trust Indenture is
still in effect, exercise such rights as it may have to cause Head Lessor to
comply with the terms of the Trust Indenture relating to the release of the
Aircraft from the Lien of the Trust Indenture and will transfer, and exercise
such rights as it may have to cause Head Lessor to transfer, to or at the
direction of Sublessee, without recourse or warranty (except, with respect to
Head Lessor, as to the absence of Head Lessor Liens, including for this purpose
Liens which would be Head Lessor Liens but for the proviso in the definition of
Head Lessor Liens, and, with respect to Sublessor, as to the absence of
Sublessor Liens, including for this purpose Liens which would be Sublessor
Liens but for the proviso in the definition of Sublessor Liens), all of Head
Lessor’s and Sublessor’s, as the case may be, right, title and interest in and
to the Airframe and any Engines subject to such Event of Loss, as well as any
Engines not subject to such Event of Loss, and will exercise such rights as it
may have to cause the Owner to furnish to or at the direction of Sublessee a
bill of sale in form and substance reasonably satisfactory to Sublessee,
evidencing such transfer, and (4) Sublessee will be subrogated to all claims of
Sublessor and Head Lessor, if any, against third parties, for damage to or loss
of the Airframe and any Engines which were subject to such Event of Loss to the
extent of the then insured value of the Aircraft.

 

If at any time Sublessor
shall be permitted to substitute an airframe for the Airframe pursuant to
Section 10 of the Head Lease, Sublessor shall have the right, in its sole
discretion, to substitute an airframe for the Airframe under this Sublease.

 

(b)           Event of Loss with Respect to an Engine.  Upon the occurrence of an Event of Loss with
respect to an Engine under circumstances in which there has not occurred an
Event of Loss with respect to the Airframe, Sublessee shall forthwith (and in
any event, within five (5) days after such occurrence) give Sublessor and Head
Lessor written notice thereof and shall, use its best efforts within forty-five
(45) days (and in any event within sixty (60) days) after the occurrence of
such Event of Loss, convey or cause to be conveyed to the Owner, as replacement
for any Engine with respect to which such Event of Loss occurred, title to
another General Electric Model CF34-3B1 type engine satisfactory to Sublessor,
free and clear of all Liens (other than Permitted Liens, which engine may upon
its transfer to the Owner become subject to any and all Permitted Liens) and
having a value, utility and remaining useful life (including taking into
account its cycle and life-limited parts and its maintenance condition and
modification status) at least equal to the Engine subject to such Event of Loss
assuming no Event of Loss had occurred and that such Engine had been maintained
in accordance with this Sublease.

 

Prior to or at the time
of any such conveyance, Sublessee, at its own expense, will:

 

25

 

(1)           furnish the Owner
with a full warranty (as to title) bill of sale, in form and substance
reasonably satisfactory to the Owner, with respect to such replacement engine,

 

(2)           cause a Sublease
Supplement to be duly executed by Sublessee and to be filed for recording
pursuant to the Federal Aviation Act,

 

(3)           furnish Sublessor,
Head Lessor and the Indenture Trustee with such evidence of compliance with the
insurance provisions of Section 11 hereof with respect to such replacement
engine as Sublessor may reasonably request,

 

(4)           furnish Sublessor, Head
Lessor and the Indenture Trustee with an opinion of qualified FAA counsel, as
to the due recordation of the Sublease Supplement and the Head Lease Supplement
and the Trust Supplement and all other documents or instruments the recordation
of which is necessary to perfect and protect the rights of Sublessor, Head
Lessor and Indenture Trustee in the replacement engine,

 

(5)           furnish Sublessor,
Head Lessor and the Indenture Trustee with an opinion of counsel (which shall
be chosen by Sublessee and satisfactory to Sublessor, Head Lessor and the
Indenture Trustee) reasonably satisfactory to Sublessor, Head Lessor and the
Owner Trustee to the effect that (A) the certificates, opinions and other
instruments and/or property which have been or are therewith delivered to and
deposited with the Indenture Trustee in connection with such substitution
conform to the requirements of the Trust Indenture, the Head Lease and this
Sublease, and, upon the basis of such application, the property so sold or
disposed of may be lawfully released from the Lien of the Trust Indenture and
all conditions precedent in the Trust Indenture provided for or relating to
such release have been complied with, (B) the replacement property has been
validly subjected to the Lien of the Trust Indenture and covered by the Head
Lease and this Sublease, the instruments subjecting such replacement engine to
the Head Lease, this Sublease and the Lien of the Trust Indenture, as the case
may be, have been duly filed for recordation pursuant to the Federal Aviation
Act, and no further action, filing or recording of any document is necessary or
advisable in order to establish and perfect the right, title, estate and
interest of the Owner to and the Lien of the Trust Indenture on such
replacement engine, and (C) the full warranty bill of sale referred to in
clause (1) constitutes an effective instrument for the conveyance of title to
the replacement engine,

 

(6)           cause a financing
statement or statements with respect to such substituted property to be filed
in such place or places as are deemed necessary or advisable by Sublessor, Head
Lessor or the Indenture Trustee, or their respective counsel, to perfect their
respective interests in the replacement engine,

 

(7)           furnish Sublessor,
Head Lessor and the Indenture Trustee with an opinion of counsel (which shall
be counsel chosen by Sublessee and acceptable to Sublessor, Head Lessor and the
Indenture Trustee) reasonably satisfactory to

 

26

 

Sublessor, Head Lessor and the Indenture Trustee to the effect that
Sublessor, Head Lessor and the Indenture Trustee will be entitled to the
benefits of Section 1110 of the U.S. Bankruptcy Code with respect to the
substitute engine, provided that such opinion need not be
delivered to the extent that immediately prior to such substitution the
benefits of Section 1110 of the U.S. Bankruptcy Code were not, solely by reason
of a change in law or governmental interpretation thereof, available to
Sublessor and, so long as any Secured Certificates are outstanding, the
Indenture Trustee as assignee of Sublessor’s rights under the Head Lease with
respect to the Aircraft,

 

(8)           furnish Sublessor,
Head Lessor and the Indenture Trustee with an officer’s certificate duly
executed by the chairman, vice chairman, president, any execute vice president,
any senior vice president, or any vice president of Sublessee stating (A) that
the replacement engine has at least an equal maintenance status, modification
status, value, utility and remaining useful life as the Engine it replaces
assuming no Event of Loss had occurred and such Engine had been maintained in
the condition required hereunder, (B) each of the conditions specified in this
Section 10(b) with respect to such replacement engine have been satisfied and
that Sublessee will not be in default, by the making and granting of the
request for release and the addition of the replacement engine, in the
performance of any of the terms and covenants of this Sublease, (C) a
description of the Engine which shall be identified by manufacturer’s serial
number, (D) a description of the replacement engine (including the
manufacturer’s name and serial number) as consideration for the Engine to be
released, (E) that on the date of the Sublease Supplement relating to the
replacement engine the Owner will be the legal owner of such replacement engine
free and clear of all Liens except Permitted Liens, that such replacement
engine will on such date be in good working order and condition and that such
replacement engine is substantially the same as or better than the Engine to be
released, (F) the maintenance status, modification status, value, utility and
remaining useful life of the replacement engine as of the date of such
certificate (which shall not be less than the maintenance status, modification
status, value, utility and remaining useful life of the Engine to be released
(assuming no Event of Loss and that such Engine was in the condition and repair
required to be maintained hereunder), (G) that, with respect to the replacement
of an Engine pursuant to Section 9(d) hereof, no Event of Default or no Default
has occurred which has not been remedied or waived, and (H) that the release of
the Engine to be released will not be in contravention of any of the provisions
hereof, and

 

(9)           assign (or cause to
be assigned) to the Owner the benefit of all manufacturer’s and vendor’s
warranties generally available with respect to the substituted property in
substantially the same manner and to substantially the same extent as pursuant
to the Purchase Agreement Assignment,

 

Sublessor will, if the
Lien of the Trust Indenture is still in effect, exercise such rights as it may
have to cause Head Lessor to comply with the terms of the Trust Indenture
relating to the release of the Aircraft from the Lien of the Trust Indenture
and will transfer and exercise such rights as it

 

27

 

may have to cause the
Owner to transfer, to or at the direction of Sublessee without recourse or
warranty (except, with respect to Head Lessor, as to absence of Head Lessor
Liens, including for this purpose Liens which would be Head Lessor Liens but
for the proviso in the definition of Head Lessor Liens or, with respect to
Sublessor, as to absence of Sublessor Liens, including for this purpose Liens
which would be Sublessor Liens but for the proviso in the definition of
Sublessor Liens) all of Sublessor’s and Head Lessor’s respective right, title
and interest, if any, in and to (I) the Engine with respect to which such Event
of Loss occurred and furnish or exercise such rights it may have to cause the
Owner to furnish to or at the direction of Sublessee a bill of sale in form and
substance reasonably satisfactory to Sublessee, evidencing such transfer and
(II) all claims, if any, against third parties, for damage to or loss of the
Engine subject to such Event of Loss, and such Engine shall thereupon cease to
be the Engine subleased hereunder.  For
all purposes hereof, each such replacement engine shall, after such conveyance,
be deemed part of the property subleased hereunder, and shall be deemed an
“Engine”, as the case may be.  No Event
of Loss with respect to an Engine under the circumstances contemplated by the
terms of this paragraph (b) shall result in any reduction in Basic Rent.

 

(c)           Application of Payments from Governmental Authorities
for Requisition of Title, etc.  Any
payments (other than insurance proceeds the application of which is provided
for in Section 11) received at any time by Sublessor or by Sublessee from any
governmental authority or other Person with respect to an Event of Loss will be
applied as follows:

 

(1)           if payments are
received with respect to the Airframe (or the Airframe and any Engine or
engines then installed thereon), (A) unless the same are replaced pursuant to
the last paragraph of Section 10(a), after reimbursement of Sublessor and Head
Lessor for reasonable costs and expenses, so much of such payments remaining as
shall not exceed the Stipulated Loss Value required to be paid by Sublessee
pursuant to Section 10(a), shall be applied in reduction of Sublessee’s
obligation to pay Stipulated Loss Value, if not already paid by Sublessee, or,
if already paid by Sublessee, shall be applied to reimburse Sublessee for its
payment of Stipulated Loss Value, and following the foregoing application, the
balance, if any, of such payments will be paid over to, or retained by
Sublessee, provided
that Sublessor (or Head Lessor) shall be entitled to so much of the excess, if
any, of such payment over Stipulated Loss Value as is attributable to
compensation for loss of Sublessor’s (or Head Lessor’s) interest in the
Aircraft as distinguished from the loss of use of the Aircraft; or (B) if such
property is replaced pursuant to the last paragraph of Section 10(a), such
payments shall be paid over to, or retained by, Sublessee; provided that Sublessee
shall have fully performed or, concurrently therewith, will fully perform the
terms of the last paragraph of Section 10(a) with respect to the Event of Loss
for which such payments are made; and

 

(2)           if such payments are
received with respect to an Engine under circumstances contemplated by Section
10(b) hereof, so much of such payments remaining after reimbursement of
Sublessor and Head Lessor for reasonable costs and expenses shall be paid over
to, or retained by, Sublessee, provided that Sublessee shall have fully
performed, or concurrently therewith will perform, the

 

28

 

terms of Section 10(b) with respect to the Event of Loss for which such
payments are made.

 

(d)           Requisition for Use of the Aircraft by the United
States Government.  In the
event of the requisition for use of the Airframe and the Engines or engines
installed on the Airframe during the Term by the United States Government or
any instrumentality or agency thereof, Sublessee shall promptly notify
Sublessor and Head Lessor of such requisition, and all of Sublessee’s
obligations under this Sublease Agreement with respect to the Aircraft shall continue
to the same extent as if such requisition had not occurred, provided that
if such Airframe and Engines or engines installed thereon are not returned by
such government (or instrumentality or agency) prior to the end of the Term,
Sublessee shall be obligated to return the Airframe and such Engines or engines
to or at the direction of Sublessor pursuant to, and in all other respects in
compliance with the provisions of, Section 5 promptly on the date of such
return by such government (or instrumentality or agency).  All payments received by Sublessor, Head
Lessor or Sublessee from such government (or instrumentality or agency) for the
use of such Airframe and Engines or engines during the Term shall be paid over
to, or retained by, Sublessee; and all payments received by Sublessor, Head
Lessor or Sublessee from such government (or instrumentality or agency) for the
use of such Airframe and Engines or engines after the end of the Term shall be
paid over to, or retained by, Sublessor or Head Lessor.

 

(e)           Requisition for Use of an Engine by the United States
Government.  In the event of
the requisition for use of an Engine by the United States Government or any
agency or instrumentality thereof (other than in the circumstances contemplated
by subsection (d)), Sublessee shall replace such Engine hereunder by complying
with the terms of Section 10(b) to the same extent as if an Event of Loss had
occurred with respect thereto, and, upon compliance with Section 10(b) hereof,
any payments received by Sublessor or Sublessee from such government (or
instrumentality or agency) with respect to such requisition shall be paid over
to, or retained by, Sublessee.

 

(f)            Application
of Payments During Existence of Default.

 

(i)            Any amount referred
to in this Section 10 which is payable to or retainable by Sublessee shall not
be paid to or retained by Sublessee if at the time of such payment or retention
a Default or an Event of Default shall have occurred and be continuing or if
the Airline Services Agreement shall have been terminated or canceled or shall
have been terminated in accordance with its terms, but shall be held by
Sublessor and applied in accordance with Section 28 hereof.  At such time as there shall not be
continuing any such Default or Event of Default and the Airline Services
Agreement shall not have been terminated or canceled or shall not have
terminated in accordance with its terms, such amount shall be paid to Sublessee
to the extent not previously applied in accordance with the preceding sentence.

 

(ii)           Any amount referred
to in this Section 10 which is payable to or retainable by Sublessee shall not
be paid to or retained by Sublessee if at the time of such payment or retention
an Event of Default (as such term is defined in the Head Lease) shall have
occurred and be continuing, but shall be held by or paid

 

29

 

over to or at the
direction of Head Lessor as security for the obligations of Sublessor under the
Head Lease and, if Head Lessor declares the Head Lease to be in default
pursuant to Section 15 of the Head Lease, applied against Sublessor’s
obligations thereunder as and when due. 
At such time as there shall not be continuing any such Event of Default
(as such term is defined in the Head Lease), such amount shall be paid to
Sublessee to the extent not previously applied in accordance with the preceding
sentence.

 

SECTION
11.  Insurance.  (a)  Public
Liability and Property Damage Insurance.  Sublessee will carry at its expense (i) comprehensive airline
third party legal liability insurance or the equivalent (including, without
limitation, passenger legal liability) (and including aircraft war risk and
hijacking insurance, unless otherwise agreed by Sublessor) insurance and
property damage insurance (exclusive of manufacturer’s product liability
insurance) with respect to the Aircraft, in an amount, with respect to third
party legal liability insurance (including passenger legal liability) other
than aircraft war risk and hijacking insurance, not less than the greater of
(x) the amount of public liability and property damage insurance from time to
time applicable to aircraft owned or operated by Sublessee of the same type as
the Aircraft and (y) the Minimum Liability Amount, and with respect to aircraft
war risk and hijacking insurance, in an amount not less than $1,000,000,000 per
occurrence and (ii) cargo liability insurance, in the case of both clause (i)
and clause (ii), (A) of the type and covering the same risks as from time to
time applicable to aircraft operated by Sublessee of the same type as the
Aircraft and (B) which is maintained in effect with insurers of recognized
responsibility reasonably acceptable to Sublessor.  Any policies of insurance carried in accordance with this
paragraph (a) and any policies taken out in substitution or replacement for any
of such policies (A) shall be amended to name Sublessor, Head Lessor in its
individual capacity and as owner trustee, each Additional Insured and the Owner
Participant (but without imposing on any such parties liability to pay the
premiums for such insurance) as additional insureds as their respective
interests may appear, (B) shall provide that in respect of the respective
interests of Sublessor, the Head Lessor, the Additional Insureds and the Owner Participant
in such policies the insurance shall not be invalidated by any action or
inaction of Sublessee or any other Person and shall insure each of Sublessor,
Head Lessor, the Additional Insureds and the Owner Participant regardless of
any breach or violation of any warranty, declaration or condition contained in
such policies by Sublessee, and (C) shall provide that if the insurers cancel
such insurance for any reason whatever or if any change is made in such
insurance which adversely affects the interest of Sublessor, Head Lessor, the
Indenture Trustee or the Owner Participant, or such insurance shall lapse for
non-payment of premium, such cancellation, lapse or change shall not be
effective as to Sublessor, Head Lessor or the Owner Participant for thirty (30)
days (seven (7) days in the case of war risk and allied perils coverage) after
issuance to Sublessor, Head Lessor, the Indenture Trustee or the Owner
Participant, respectively, of written notice by such insurers of such
cancellation, lapse or change; provided, however, that if any notice
period specified above is not reasonably obtainable, such policies shall
provide for as long a period of prior notice as shall then be reasonably
obtainable.  Each liability policy (1)
shall be primary without right of contribution from any other insurance which
is carried by Sublessor, Head Lessor, any Additional Insured or the Owner
Participant, (2) shall expressly provide that all of the provisions thereof,
except the limits of liability, shall operate in the same manner as if there
were a separate policy covering each insured, and (3) shall waive any right of
the insurers to any set-off or counterclaim or any other deduction, whether by
attachment or otherwise, in respect of any

 

30

 

liability of Sublessor,
Head Lessor, in its individual capacity or as owner trustee, any Additional
Insured or the Owner Participant to the extent of any moneys due to Sublessor,
Head Lessor, any Additional Insured or the Owner Participant.

 

(b)           Insurance Against Loss or Damage to the Aircraft.  Sublessee shall maintain in effect at its
expense, with insurers of recognized responsibility, all-risk ground and flight
aircraft hull insurance covering the Aircraft and all-risk ground and flight
coverage of Engines and Parts while temporarily removed from the Aircraft and
not replaced by similar components (including, without limitation, war risk and
governmental confiscation and expropriation (other than by the government of
registry of the Aircraft) and hijacking insurance, unless otherwise agreed by
Sublessor); provided
that such insurance shall at all times while the Aircraft is subject to this
Sublease be for an amount not less than the Stipulated Loss Value for the
Aircraft.  Any policies carried in
accordance with this paragraph (b) covering the Aircraft and any policies taken
out in substitution or replacement for any such policies (i) shall name
Sublessor, Head Lessor, in its individual capacity and as owner trustee, the
Indenture Trustee and the Owner Participant as additional insureds, as their
respective interests may appear (but without imposing on any such party
liability to pay premiums with respect to such insurance), (ii) shall provide
that (A) in the event of a loss involving proceeds in excess of $250,000, the
proceeds in respect of such loss up to an amount equal to the Stipulated Loss
Value for the Aircraft shall be payable to or at the direction of Sublessor
(including, so long as the Trust Indenture shall not have been discharged, to
the Indenture Trustee) (except in the case of a loss with respect to an Engine
installed on an airframe other than the Airframe, in which case Sublessee shall
arrange for any payment of insurance proceeds in respect of such loss to be
held for the account of Sublessor (or, so long as the Trust Indenture shall not
have been discharged, to the Indenture Trustee) whether such payment is made to
Sublessee or any third party), it being understood and agreed that in the case
of any payment to Sublessor or its designee (including the Indenture Trustee)
otherwise than in respect of an Event of Loss, Sublessor shall, upon receipt of
evidence satisfactory to it that the damage giving rise to such payment shall
have been repaired or that such payment shall then be required to pay for
repairs then being made, pay, or exercise such rights as it may have to cause
to be paid, the amount of such payment to Sublessee or its order and (B) the
entire amount of any loss involving proceeds of $250,000 or less or the amount
of any proceeds of any loss in excess of the Stipulated Loss Value for the
Aircraft shall be paid to Sublessee or its order unless (x) a Default or an
Event of Default shall have occurred and be continuing and the insurers have
been notified thereof by Sublessor, Head Lessor or the Indenture Trustee or (y)
an Event of Default (as such term is defined in the Head Lease) shall have
occurred and be continuing and the insurers have been notified thereof by
Sublessor, Head Lessor or the Indenture Trustee, (iii) shall provide that if
the insurers cancel such insurance for any reason whatever, or such insurance
lapses for non-payment of premium or if any change is made in the insurance
which adversely affects the interest of Sublessor, Head Lessor, the Indenture Trustee
or the Owner Participant, such cancellation, lapse or change shall not be
effective as to Sublessor, Head Lessor, the Indenture Trustee or the Owner
Participant for thirty (30) days (seven (7) days in the case of hull war risk
and allied perils coverage) after issuance to Sublessor, Head Lessor, the
Indenture Trustee or the Owner Participant, respectively, of written notice by
such insurers of such cancellation, lapse or change, provided, however, that if
any notice period specified above is not reasonably obtainable, such policies
shall provide for as long a period of prior notice as shall then be reasonably
obtainable, (iv) shall provide that in respect of the respective interests of
Sublessor, Head Lessor, the Indenture Trustee and the Owner

 

31

 

Participant in such
policies the insurance shall not be invalidated by any action or inaction of
Sublessee or any other Person and shall insure the respective interests of
Sublessor, Head Lessor, the Indenture Trustee and the Owner Participant, as
they appear, regardless of any breach or violation of any warranty, declaration
or condition contained in such policies by Sublessee, (v) shall be primary
without any right of contribution from any other insurance which is carried by
Sublessor, Head Lessor, the Indenture Trustee or the Owner Participant, (vi)
shall waive any right of subrogation of the insurers against Sublessor, Head
Lessor, the Indenture Trustee and the Owner Participant, and (vii) shall waive
any right of the insurers to set-off or counterclaim or any other deduction,
whether by attachment or otherwise, in respect of any liability of Sublessor,
Head Lessor, the Indenture Trustee, the Owner Participant or Sublessee to the
extent of any moneys due to Sublessor, the Indenture Trustee or the Owner
Participant.  In the case of a loss with
respect to an engine (other than an Engine) installed on the Airframe,
Sublessor or its designee shall hold any payment to it of any insurance
proceeds in respect of such loss for the account of Sublessee or any other
third party that is entitled to receive such proceeds.

 

As between Sublessor and
Sublessee, it is agreed that all insurance payments received as the result of
the occurrence of an Event of Loss will be applied as follows:

 

(x)            if such payments
are received with respect to the Airframe (or the Airframe and the Engines
installed thereon), so much of such payments remaining, after reimbursement of
Sublessor for reasonable costs and expenses, as shall not exceed the Stipulated
Loss Value required to be paid by Sublessee pursuant to Section 10(a) hereof
shall be applied in reduction of Sublessee’s obligation to pay such Stipulated
Loss Value, if not already paid by Sublessee, or, if already paid by Sublessee,
shall be applied to reimburse Sublessee for its payment of such Stipulated Loss
Value, and the balance, if any, of such payments remaining thereafter will be
paid over to, or retained by, Sublessee; and

 

(y)           if such payments are
received with respect to an Engine under the circumstances contemplated by
Section 10(b) hereof, so much of such payments remaining, after reimbursement
of Sublessor and Head Lessor for reasonable costs and expenses, shall be paid
over to, or retained by, Sublessee, provided that Sublessee shall have fully
performed, or concurrently therewith will fully perform, the terms of
Section 10(b) with respect to the Event of Loss for which such payments
are made.

 

As between Sublessor and
Sublessee, the insurance payments for any property damage loss to the Airframe
or any Engine not constituting an Event of Loss with respect thereto will be
applied in payment for repairs or for replacement property in accordance with
the terms of Sections 7 and 8, if not already paid for by Sublessee,
and any balance (or if already paid for by Sublessee, all such insurance
proceeds) remaining after compliance with such Sections with respect to such
loss shall be paid to Sublessee.

 

(c)           Reports, etc.  Sublessee will furnish, or cause to be furnished, to Sublessor,
Head Lessor, the Indenture Trustee and the Owner Participant, on or before the
Commencement Date and on or before July 1 in each year thereafter during the
Term commencing July, 200   [July
following closing date], a report, signed by Aon Risk Services,

 

32

 

Inc. or any other
independent firm of insurance brokers reasonably acceptable to Sublessor and
Head Lessor (the “Insurance Brokers”), describing in
reasonable detail the insurance and reinsurance then carried and maintained
with respect to the Aircraft and stating the opinion of such firm that the
insurance then carried and maintained with respect to the Aircraft complies
with the terms hereof; provided, however, that all information
contained in the foregoing report shall not be made available by Sublessor,
Head Lessor, the Indenture Trustee, the Loan Participants or the Owner
Participant to anyone except (A) to prospective and permitted transferees
of Sublessor’s, Head Lessor’s, the Loan Participants’ or the Owner
Participant’s or the Indenture Trustee’s interest who  agree to hold such
information confidential, (B) to Sublessor’s, Head Lessor’s, the Loan
Participants’ or the Owner Participant’s or the Indenture Trustee’s counsel or
independent certified public accountants or independent insurance advisors who
agree to hold such information confidential, (C) as may be required by any
statute, court or administrative order or decree or governmental ruling or
regulation or as may be requested by any regulatory agency or body having
authority or (D) as may be necessary for purposes of protecting the interests
of any such Person or for the enforcement of this Sublease by Sublessor or the
Head Lease by Head Lessor.  Sublessee
will cause such Insurance Brokers to agree to advise Sublessor, Head Lessor,
the Indenture Trustee and the Owner Participant and the Loan Participants in
writing of any default in the payment of any premium and of any other act or
omission on the part of Sublessee of which it has knowledge and which might
invalidate or render unenforceable, in whole or in part, any insurance on the
Aircraft.  To the extent such agreement
is reasonably obtainable, Sublessee will also cause such Insurance Brokers to
agree to advise Sublessor, the Head Lessor, the Indenture Trustee and the Owner
Participant and the Loan Participants in writing at least thirty (30) days
(seven (7) days in the case of war risk and allied perils coverage), prior to
the expiration or termination date of any insurance carried and maintained on
the Aircraft pursuant to this Section 11. 
In addition, Sublessee will also cause such Insurance Brokers to deliver
to Sublessor, Head Lessor, the Indenture Trustee and the Owner Participant and
the Loan Participants, on or prior to the date of expiration of any insurance
policy referenced in a previously delivered certificate of insurance, a new
certificate of insurance, substantially in the same form as delivered by
Sublessee to such parties on the Commencement Date.  In the event that Sublessee shall fail to maintain or cause to be
maintained insurance as herein provided, Sublessor or its designee may at its
sole option provide such insurance and, in such event, Sublessee shall, upon
demand, reimburse Sublessor, as Supplemental Rent, for the cost thereof to
Sublessor or such designee, as the case may be, without waiver of any other
rights Sublessor or such designee may have; provided, however, that no exercise by
Sublessor or such designee of said option shall affect the provisions of this
Sublease, including the provisions of Section 14(g) hereof.

 

(d)           Self-Insurance.  Sublessee may not self-insure the risks required to be insured
against pursuant to this Section 11; provided, however, that Sublessee may
self-insure the risks required to be insured against pursuant to Section 11(a)
and (b) hereof solely to the extent of any applicable mandatory minimum per
aircraft (or, if applicable, per annum or other period) hull or liability
insurance deductible imposed by the aircraft hull or liability insurers.

 

(e)           Additional Insurance by Head Lessor and Sublessor.  Sublessee may at its own expense carry
insurance with respect to its interest in the Aircraft in amounts in excess of
that required to be maintained by this Section 11; the Owner Participant
(either directly or through Head Lessor) or Sublessor may carry for its own
account at its sole cost and expense

 

33

 

insurance with respect to
its interest in the Aircraft, provided that such insurance does not prevent
Sublessee from carrying the insurance required or permitted by this Section 11
or adversely affect such insurance or the cost thereof.

 

(f)            Indemnification by Government in Lieu of Insurance.  With
Sublessor’s written consent which may be given or withheld in its sole
discretion, notwithstanding any provisions of this Section 11 requiring
insurance, Sublessee may provide, in lieu of insurance against any risk with
respect to the Aircraft, indemnification from, or insurance provided by, the
United States Government or any agency or instrumentality thereof the
obligations of which are backed by the full faith and credit of the United
States against such risk in an amount which, when added to the amount of
insurance against such risk maintained by Sublessee with respect to the
Aircraft (including permitted self-insurance) shall be at least equal to the
amount of insurance against such risk otherwise required by this Section 11.

 

(g)           Application of Payments During Existence of Default.

 

(i)            Any amount referred
to in paragraph (b) of this Section 11 which is payable to or retainable by
Sublessee shall not be paid to or retained by Sublessee if at the time of such
payment or retention a Default or an Event of Default shall have occurred and
be continuing or if the Airline Services Agreement shall have been terminated
or canceled  or shall have terminated in
accordance with its terms, but shall be held by Sublessor and applied in
accordance with Section 28 hereof.  At
such time as there shall not be continuing any such Default or Event of Default
and the Airline Services Agreement shall not have been terminated or canceled
or shall not have terminated in accordance with its terms, such amount shall be
paid to Sublessee to the extent not previously applied in accordance with the
preceding sentence.

 

(ii)           Any amount referred
to in paragraph (b) of this Section 11 which is payable to or retainable by
Sublessee shall not be paid to or retained by Sublessee if at the time of such
payment or retention an Event of Default (as such term is defined in the Head
Lease) shall have occurred and be continuing, but shall be held by or paid over
to or at the direction of Head Lessor as security for the obligations of
Sublessor under the Head Lease and, if Head Lessor declares the Head Lease to
be in default pursuant to Section 15 of the Head Lease, may be applied against
Sublessor’s obligations thereunder as and when due.  At such time as there shall not be continuing any such Event of
Default (as such term is defined in the Head Lease), such amount shall be paid
to Sublessee to the extent not previously applied in accordance with the
preceding sentence.

 

SECTION
12.  Inspection.  At all reasonable times and upon reasonable
notice to Sublessee, Head Lessor, the Owner Participant or the Indenture
Trustee or their respective authorized representatives may each inspect the
Aircraft and inspect and make copies (at Head Lessor’s, the Owner Participant’s
or the Indenture Trustee’s expense, as the case may be) of the Aircraft
Documentation and other manuals, logs, books and records of Sublessee relating
to the maintenance of the Aircraft; any such inspection of the Aircraft shall
be limited to a visual, walk-around inspection and may include opening any
panels, bays or the like; provided that no

 

34

 

exercise of such
inspection right shall unreasonably interfere with the scheduled operation or
maintenance of the Aircraft by, or the business of, Sublessee unless deemed
critical by Sublessor.  At all times
upon notice to Sublessee, Sublessor or its authorized representative may
inspect the Aircraft and inspect and make copies (at its expense) of the
Aircraft Documentation and other manuals, logs, books and records of Sublessee
relating to the maintenance of the Aircraft; any such inspection may, at
Sublessor’s election, include a visual, walk-around inspection, opening any
panels, bays or the like, Engine borescope inspections, Engine power assurance
runs, ground operation and function checks; provided that no exercise of such
inspection right shall unreasonably interfere with the scheduled operation or
maintenance of the Aircraft by, or the business of, Sublessee unless deemed
critical by Sublessor.  In addition,
upon receipt by Sublessee of a written request from the Owner Participant, the
Indenture Trustee or Sublessor specifying that the Owner Participant, the
Indenture Trustee or Sublessor desires to have an authorized representative
observe the next scheduled “C” Check or, if Sublessee is then maintaining the
Aircraft under a fully equalized maintenance program, the next scheduled
maintenance visit under such equalized maintenance program to be performed on
the Aircraft (or substitute equivalent successor type of maintenance work),
Sublessee shall cooperate with the Owner Participant, the Indenture Trustee or
Sublessor, as the case may be, to enable the Owner Participant’s, the Indenture
Trustee’s or Sublessor’s authorized representative to each observe the next
scheduled maintenance visit to be performed on the Aircraft, including
reasonable advance notification to the Owner Participant, the Indenture Trustee
and Sublessor of the time and place of such scheduled maintenance visit; provided
that the authorized representative of the Owner Participant or the Indenture
Trustee shall merely observe such scheduled maintenance visit, shall not
interfere with or extend in any manner the conduct or duration of the
maintenance visit and shall not be entitled to direct any of the work performed
in connection with such visit.  None of
Sublessor, Head Lessor, the Indenture Trustee, the Owner Participant or any
Loan Participant shall have any duty to make any such inspection nor shall any
of them incur any liability or obligation by reason of not making such inspection.

 

SECTION
13.  Assignment.  Sublessee will not, without the prior
express written consent of Sublessor, assign in whole or in part this Sublease
or any of its rights or obligations hereunder. 
Sublessor may assign in whole or in part, or convey all or any part of
its right, title and interest in and to, this Sublease after giving Sublessee
ten (10) days notice thereof.  Subject
to the foregoing, the terms and provisions of this Sublease shall be binding
upon and inure to the benefit of Sublessor and Sublessee and their respective
successors and permitted assigns.

 

SECTION
14.  Events of Default.  Each of the following events shall
constitute an Event of Default (whether any such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body) and each such
Event of Default shall continue so long as, but only as long as, it shall not
have been remedied:

 

(a)           Sublessee shall not
have made a payment of Basic Rent or Stipulated Loss Value when the same shall
have become due; or

 

35

 

(b)           Sublessee shall have
failed to make a payment of Supplemental Rent (other than Stipulated Loss
Value) after the same shall have become due and such failure shall continue for
five (5) days; or

 

(c)           (i) Sublessee shall
have failed to perform or observe (or caused to be performed and observed) any
covenant or agreement to be performed or observed by it under any Sublessee
Document other than the Airline Services Agreement and such failure shall
continue unremedied for a period of five (5) days after the earlier of (x)
receipt by Sublessee of written notice thereof from Sublessor, or (y) insofar
as the failure to perform or observe (or caused to be performed and observed)
any covenant or agreement relates to any material covenant or agreement, an
officer of Sublessee, whose functions and duties would make him familiar with
the terms of this Sublease has knowledge; or

 

(ii) Sublessee Guarantor shall have failed to perform or observe any
covenant or agreement to be performed or observed by it under the Sublease
Guarantee and such failure shall continue unremedied for a period of five (5)
days after the earlier of (x) receipt by Sublessee Guarantor of written notice
thereof from Sublessor, or (y) insofar as the failure to perform or observe (or
caused to be performed and observed) any covenant or agreement relates to any
material covenant or agreement, an officer of Sublessee Guarantor whose
functions and duties would make him familiar with the terms of the Sublease
Guarantee has knowledge; or

 

(d)           (i) any
representation or warranty made by Sublessee herein or any document or
certificate furnished by Sublessee in connection herewith or therewith or
pursuant hereto or thereto, shall prove to have been incorrect in any material
respect at the time made and such incorrectness shall not have been cured (to
the extent of the adverse impact of such incorrectness on the interests of
Sublessor) within ten (10) days after the receipt by Sublessee of a written
notice from Sublessor advising Sublessee of the existence of such
incorrectness; or

 

(ii) any representation or warranty made by Sublessee Guarantor in the
Sublease Guarantee or any document or certificate furnished by Sublessee
Guarantor in connection herewith or therewith or pursuant hereto or thereto,
shall prove to have been incorrect in any material respect at the time made and
such incorrectness shall not have been cured (to the extent of the adverse
impact of such incorrectness on the interests of Sublessor) within ten (10)
days after the receipt by Sublessee Guarantor of a written notice from
Sublessor advising Sublessee Guarantor of the existence of such incorrectness;
or

 

(e)           the commencement of
an involuntary case or other proceeding in respect of Sublessee or Sublessee
Guarantor in an involuntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law in the United States or seeking the appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of Sublessee or Sublessee Guarantor or for all or

 

36

 

substantially
all of its property, or seeking the winding-up or liquidation of its affairs
and the continuation of any such case or other proceeding undismissed and unstayed
for a period of thirty (30) consecutive days or an order, judgment or decree
shall be entered in any proceeding by any court of competent jurisdiction
appointing, without the consent of Sublessee or Sublessee Guarantor, as the
case may be, a receiver, trustee or liquidator of Sublessee or Sublessee
Guarantor, as the case may be, or of any substantial part of its property, or
sequestering or attaching any substantial part of the property of Sublessee or
Sublessee Guarantor, as the case may be, and any such order, judgment or decree
or appointment or sequestration shall be final or shall remain in force
undismissed, unstayed or unvacated for a period of thirty (30) days after the
date of entry thereof; or

 

(f)            the commencement by
Sublessee or Sublessee Guarantor of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law in the
United States, or the consent by Sublessee or Sublessee Guarantor to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of Sublessee or
Sublessee Guarantor, as the case may be, or for all or substantially all of its
property, or the making by Sublessee or Sublessee Guarantor of any assignment
for the benefit of creditors, or Sublessee or Sublessee Guarantor shall enter
into any agreement, composition, extension or adjustment with creditors or
shall take any corporate action to authorize any of the foregoing; or

 

(g)           Sublessee shall fail
to carry and maintain on or with respect to the Aircraft insurance required to
be maintained in accordance with the provisions of Section 11 hereof; or

 

(h)           Sublessee shall
cease to be a Certificated Air Carrier; or

 

(i)            an event of default
shall have occurred and be continuing under any aircraft, engine, spare parts
or facility lease or sublease between Sublessor or any Affiliate thereof and
Sublessee or any Affiliate thereof or under any other agreement, instrument or
document evidencing obligations owing from Sublessee or any Affiliate thereof
to Sublessor or any Affiliate thereof; or

 

(j)            the attachment or
taking possession by a creditor of a material part of, or the levy or
enforcement of a distress, execution, sequestration or other process upon any
assets, rights or revenues of Sublessee and such attachment or order is not
discharged within thirty (30) days; or

 

(k)           any event described
in Section 10.02 of the Airline Services Agreement giving Sublessor the ability
to terminate the Airline Services Agreement shall have occurred; or

 

(l)            any event described
in Section 10.03 of the Airline Services Agreement shall have occurred; or

 

37

 

(m)          Sublessee shall have
materially breached or shall be in default under any material purchase
agreement, service agreement, maintenance agreement or other material agreement
with any vendor relating to the Airframe or Engines, including components; or

 

(n)           the Sublease
Guarantee shall for any reason be terminated or become unenforceable or
Sublessee Guarantor shall rescind or repudiate the Sublease Guarantee.

 

SECTION
15.  Remedies; Automatic Termination.  (a) Remedies. Upon the occurrence of any Event
of Default and at any time thereafter so long as the same shall be continuing,
Sublessor may, at its option, declare by written notice to Sublessee this
Sublease Agreement to be in default (provided that this Sublease shall be
deemed to be declared in default without the necessity of such written
declaration upon the occurrence of any Event of Default described in Section
14(e) or Section 14(f)); and at any time thereafter, Sublessor may do one or
more of the following with respect to all or any part of the Airframe and any
or all of the Engines as Sublessor in its sole discretion shall elect, to the
extent permitted by, and subject to compliance with any mandatory requirements
of, applicable law then in effect:

 

(i)            upon the written
demand of Sublessor and at Sublessee’s expense, cause Sublessee to immediately
return the Airframe or any Engine as Sublessor may so demand to Sublessor or
its order in the manner and condition required by, and otherwise in accordance
with all the provisions of, Section 5 as if such Aircraft, Airframe or Engine
were being returned at the end of the Term, or Sublessor, acting in its
individual capacity or as attorney for Sublessee, at its option, may enter upon
the premises where all or any part of the Aircraft, Airframe or any Engine or
Part is located and take immediate possession of and remove the same (together
with any engine which is not an Engine but which is installed on the Airframe,
subject to all the rights of the owner, lessor, lien holder or secured party of
such engine, and such engine shall be held for the account of any such owner,
lessor, lien holder or secured party or, if owned by Sublessee, may at the
option of Sublessor, be exchanged with Sublessee for an Engine in accordance
with the provisions of Section 9(d)), without the necessity of first
instituting proceedings, or by summary proceedings or otherwise, and Sublessee
waives any right it may have under applicable law to a hearing prior to
repossession of the Aircraft, Airframe, Engine or Part (and/or, at Sublessor’s
option, store the same at Sublessee’s premises until disposal thereof by
Sublessor), all without liability accruing to Sublessor for or by reason of
such entry or taking of possession or removing whether for the restoration of
damage to property caused by such action or otherwise.  Sublessee acknowledges and agrees that its
obligations to return the Aircraft in those instances is incontrovertible
without prejudice to its right to dispute any amounts, damages, interests or
other amounts claimed by Sublessor upon termination of this Sublease and as
such this Sublease will be incontrovertible written evidence of such obligation
of Sublessee to return the Aircraft which Sublessor will be entitled to enforce
via injunctive orders.  Without limiting
any other provision of this Sublease or of any other Operative Document, if an
Event of Default has occurred

 

38

 

and is continuing,
Sublessor shall have the right to withhold or set-off against all amounts
otherwise payable to Sublessee hereunder or under the Airline Services
Agreement or under any other aircraft, engine, spare parts or facility lease or
sublease between Sublessor or any Affiliate thereof and Sublessee, all as
security for Sublessee’s obligations and liabilities under this Sublease and
the other Operative Documents, and to use and apply in whole or in part any or
all of such amounts and set-offs to and against such obligations and
liabilities of Sublessee, and any such use, application or setoff shall be
absolute, final and irrevocable;

 

(ii)           sell the Aircraft,
Airframe and/or any Engine at public or private sale, as Sublessor may
determine, or otherwise dispose of, hold, use, operate, lease to others or keep
idle the Aircraft as Sublessor, in its sole discretion, may determine, all free
and clear of any rights of Sublessee and without any duty to account to
Sublessee with respect to such action or inaction or for any proceeds with
respect thereto, except as hereinafter set forth in this Section 15;

 

(iii)          whether or not
Sublessor shall have exercised, or shall thereafter at any time exercise, any
of its rights under paragraph (a) or paragraph (b) above with respect to the
Airframe and/or any Engine, Sublessor, by written notice to Sublessee
specifying a payment date which shall be a Sublease Period Date not earlier
than ten (10) days from the date of such notice (such specified date, the “Termination
Date”), may demand that Sublessee pay to Sublessor, and Sublessee
shall pay Sublessor, on the Termination Date, as liquidated damages for loss of
a bargain and not as a penalty (in lieu of the installments of Basic Rent for
the Aircraft due for Sublease Periods commencing on or after the Termination
Date), any unpaid Basic Rent due on or prior to the Termination Date plus
whichever of the following amounts Sublessor, in its sole discretion, shall
specify in such notice (together with interest, if any, on such amount at the
Past Due Rate from the Termination Date until the date of actual payment of
such amount): (A) an amount equal to the excess, if any, of (I) the
Stipulated Loss Value for the Aircraft, computed as of the Termination Date,
over (II) the aggregate fair market rental value (computed as hereafter in this
Section 15 provided) of such Aircraft for the remainder of the Term, after
discounting such aggregate fair market rental value to the present value
thereof as of the Termination Date at an annual rate equal to the Base Rate; or
(B) an amount equal to the excess, if any, of the Stipulated Loss Value
for such Aircraft, computed as of the Termination Date, over (II) the fair
market sales value of such Aircraft (computed as hereafter in Section 15
provided) as of the Termination Date;

 

(iv)          in the event
Sublessor, pursuant to paragraph (b) above, shall have sold or caused a sale of
the Airframe and/or any Engine, Sublessor, in lieu of exercising its rights
under paragraph (c) above with respect to such Aircraft, may, if it shall so
elect, demand that Sublessee pay Sublessor, and Sublessee shall pay to
Sublessor, on the date of such sale, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of the installments of Basic Rent for the
Aircraft due on or after such date), any unpaid Basic Rent with respect to the
Aircraft due on or prior to such date plus the amount of any deficiency between
(I) the net

 

39

 

proceeds of such
sale (after deduction of all reasonable costs of sale) and (II) the Stipulated
Loss Value of such Aircraft, computed as of the Stipulated Loss Value Date on
or immediately preceding the date of such sale together with interest, if any,
on the amount of such deficiency, at the Past Due Rate, from the date of such
sale to the date of actual payment of such amount; and/or

 

(v)           Sublessor may
rescind, terminate or cancel this Sublease Agreement as to the Aircraft, and/or
may exercise any other right or remedy which may be available to it under
applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for breach hereof.

 

For the purposes of
paragraph (iii) above, the “fair market rental value” or the “fair market sales
value” of the Aircraft shall be the rental value or sales value, as the case
may be, which would be obtained in an arm’s-length transaction between an
informed and willing Sublessee or purchaser, as the case may be, under no
compulsion to lease or purchase, as the case may be, and an informed and
willing Sublessor or seller in possession under no compulsion to lease or sell,
as the case may be, in each case based upon the actual condition and location
of the Aircraft, which value shall be determined pursuant to an appraisal
prepared and delivered by a nationally recognized firm of independent aircraft
appraisers chosen by Sublessor. The cost of such appraisal or appointment shall
be borne by Sublessee.

 

In addition, Sublessee
shall be liable, except as otherwise provided above and without duplication of
amounts payable hereunder, for any and all unpaid Rent due hereunder before,
after or during the exercise of any of the foregoing remedies and for all
reasonable legal fees and other costs and expenses (including fees of the
appraisers hereinabove referred to) incurred by Sublessor, Head Lessor, the
Indenture Trustee, the Loan Participants and the Owner Participant by reason of
the occurrence of any Event of Default or the exercise of Sublessor’s remedies
with respect thereto, including all costs and expenses incurred in connection
with the return of the Airframe or any Engine in accordance with the terms of
Section 5 or in placing such Airframe or Engine in the condition and
airworthiness required by such Section.

 

At any sale of the
Aircraft or any part thereof pursuant to this Section 15(a), Sublessor (or Head
Lessor, the Indenture Trustee, any Loan Participant or the Owner Participant)
may bid for and purchase such property. 
Sublessor agrees to give Sublessee at least ten (10) days prior written
notice of the date fixed for any public sale of the Airframe or any Engine or
of the date on or after which will occur the execution of any contract
providing for any private sale.  Except
as otherwise expressly provided above, no remedy referred to in this Section
15(a) is intended to be exclusive, but each shall be cumulative and in addition
to any other remedy referred to above or otherwise available to Sublessor at
law or in equity; and the exercise or beginning of exercise by Sublessor of any
one or more of such remedies shall not preclude the simultaneous or later
exercise by Sublessor of any or all of such other remedies.  No waiver by Sublessor of any Event of
Default shall in any way be, or be construed to be, a waiver of any future or
subsequent Event of Default.

 

(b)           Automatic Termination.  If the Airline Services Agreement shall be
terminated or canceled or shall terminate in accordance with its terms, except
for the provisions of Sections 29(b) and 29(c) of this Sublease (which shall
survive) this Sublease shall thereupon

 

40

 

terminate forthwith and
without notice.  Upon the termination of
this Sublease as aforesaid and at any time thereafter, Sublessor may, to the
extent permitted by, and subject to compliance with any mandatory requirements
of, applicable law then in effect, and at Sublessee’s expense, cause Sublessee
to immediately return, and Sublessee shall immediately return, the Aircraft,
Airframe or any Engine as Sublessor may so demand to Sublessor or its order in
the manner and condition required by, and otherwise in accordance with all the
provisions of Section 5 as if such Aircraft, Airframe or Engine were being
returned at the end of the Term, or Sublessor, at its option, may enter upon
the premises where all or any part of the Aircraft, Airframe or any Engine is
located and take immediate possession of and remove the same (together with any
engine which is not an Engine but which is installed on the Airframe, subject
to all the rights of the owner, lessor, lien holder or secured party of such
engine, and such engine shall be held for the account of any such owner,
lessor, lien holder or secured party or, if owned by Sublessee, may at the
option of Sublessor, be exchanged with Sublessee for an Engine in accordance
with the provisions of Section 9(d)), without the necessity of first
instituting proceedings, or by summary proceedings or otherwise, and Sublessee
waives any right it may have under applicable law to a hearing prior to
repossession of the Aircraft, Airframe, Engine or Part (and/or, at Sublessor’s
option, store the same in accordance with the provisions of Section 5(d)), all
without liability accruing to Sublessor for or by reason of such entry or
taking of possession or removing whether for the restoration of damage to
property caused by such action or otherwise. 
Sublessee acknowledges and agrees that its obligations to return the
Aircraft in those instances is incontrovertible without prejudice to its right
to dispute any amounts, damages, interests or other amounts claimed by
Sublessor upon termination of this Sublease and as such this Sublease will be
incontrovertible written evidence of such obligation of Sublessee to return the
Aircraft which Sublessor will be entitled to enforce via injunctive orders.

 

In addition, Sublessee
shall be liable for any and all unpaid Rent due hereunder before or during the
occurrence of the events referred to in the preceding paragraph, and all costs
and expenses incurred in connection with the return of the Airframe or any
Engine in accordance with the terms of Section 5 or in placing such Airframe or
Engine in the condition and airworthiness required by such Section.

 

SECTION
16.  Sublessee’s Cooperation Concerning Certain Matters. 
Forthwith upon the execution and delivery of each Sublease
Supplement from time to time required by the terms hereof and upon the
execution and delivery of any amendment to this Sublease, Sublessee will cause
such Sublease Supplement or amendment to be duly filed and recorded, and
maintained of record, in accordance with the applicable laws of the government of
registry of the Aircraft.  In addition,
Sublessee will promptly and duly execute and deliver to Sublessor such further
documents (including the filing of Uniform Commercial Code continuation
statements with respect to previously filed financing statements) and
assurances and take such further action as may be identified in the annual
opinion of counsel required to be furnished pursuant to Section 30(d) and/or as
Sublessor may from time to time reasonably request in order more effectively to
carry out the intent and purpose of this Sublease and to establish and protect
the rights and remedies created or intended to be created in favor of
Sublessor, hereunder or in respect thereof, including, without limitation, if
requested by Sublessor, at the expense of Sublessee, the execution and delivery
of supplements or amendments hereto, each in recordable form, subjecting to
this Sublease, any airframe or engine substituted for the Airframe or any
Engine pursuant to the terms thereof and the recording or

 

41

 

filing of counterparts
thereof, in accordance with the laws of such jurisdictions as Sublessor may
from time to time deem advisable. 
Sublessee agrees to furnish to Sublessor, promptly after execution and
delivery of any supplement and amendment hereto, an opinion of counsel
reasonably satisfactory to Sublessor as to the due recording or filing of such
supplement or amendment.  Commencing in
200_ [calendar year following closing date] on or before April 30 of each year
during the Term, Sublessee will deliver to Sublessor a certificate of
Sublessee, signed by the President, a Vice President or the Chief Financial
Officer of Sublessee to the effect that the signer is familiar with or has
reviewed the relevant terms of this Sublease and the signer does not have
actual knowledge of the existence, as of the date of such certificate, of any
condition or event which constitutes a Default or an Event of Default.  Sublessee agrees that if an officer of
Sublessee has actual knowledge of the existence of a Default or an Event of
Default, then Sublessee shall promptly give to Sublessor notice thereof and
such other information relating thereto as Sublessor may reasonably
request.  Sublessee will deliver to
Sublessor (i) within forty-five (45) days after the end of the first three
quarterly periods of each fiscal year of Sublessee, a balance sheet of
Sublessee as of the close of such period, together with related statements of
financial performance and cash flows for such period and, upon filing with the
Securities and Exchange Commission (and in any event no later than sixty (60)
days after the end of the first three quarterly periods of each fiscal year of
Sublessee Guarantor), the form 10–Q of Sublessee Guarantor for such
period; (ii) within one hundred and twenty (120) days after the close of such
fiscal year, a balance sheet of Sublessee as of the close of such fiscal year,
together with the related statements of financial performance and cash flows
for such fiscal year and the form 10-K of Sublessee Guarantor for such period,
prepared in the case of clause (i) and (ii) in accordance with generally
accepted accounting principles, consistently applied; (iii) within thirty (30)
days after the end of each calendar quarter, if not previously provided to
Sublessor, any Securities and Exchange Commission filings of Sublessee and
Sublessee Guarantor during the preceding calendar quarter; (iv) upon
filing with the Securities and Exchange Commission (and in any event no later
than ninety (90) days after the close of Sublessee Guarantor’s fiscal year),
the annual report of Sublessee Guarantor for such fiscal year; and (v) from
time to time, such financial statements and other information relating to
Sublessee and Sublessee Guarantor as Sublessor may reasonably request.

 

SECTION
17.  Notices.  All notices required under the terms and
provisions hereof shall be by telecopy or other telecommunication means (with
such telecopy or other telecommunication means to be confirmed in writing), or
if such notice is impracticable, by registered, first-class airmail, with
postage prepaid, or by nationally recognized overnight courier service, or by
personal delivery of written notice and any such notice shall become effective
when received, addressed:

 

(i)            if to Sublessor, at
2700 Lone Oak Parkway (A4010), Eagan, Minnesota 55121-1534, Attention:
Treasurer (Telecopy No. (612) 726–2221), or to such other address or
telecopy number as Sublessor shall from time to time designate in writing to
Sublessee,

 

(ii)           if to Sublessee, at
1689 Nonconnah Blvd., Suite 111, Memphis, TN 
38132, Attention: Chief Financial Officer (Telecopy No. (901)348-4103),
or to such other address or telecopy number as Sublessee shall from time to time
designate in writing to Sublessor, and

 

42

 

(iii)          if to Head Lessor,
a Loan Participant, the Indenture Trustee or the Owner Participant, addressed
to Head Lessor, such Loan Participant, the Indenture Trustee or the Owner
Participant at such address or telecopy number as Head Lessor, such Loan
Participant, the Indenture Trustee or the Owner Participant shall have
furnished by notice to Sublessor and to Sublessee, and, until an address is so
furnished, addressed to Head Lessor, such Loan Participant, the Indenture
Trustee or the Owner Participant at its address or telecopy number set forth in
Schedule I to the Participation Agreement.

 

SECTION
18.  No Set-Off, Counterclaim, etc.  This Sublease is a net lease.  All Rent shall be paid by Sublessee to Sublessor
in funds of the type specified in Section 3(d).  Sublessee’s obligation to pay all Rent payable hereunder shall be
absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, (i) any set-off, counterclaim, recoupment,
defense or other right which Sublessee may have against Sublessor, Head Lessor
(in its individual capacity or as Owner Trustee under the Trust Agreement), the
Indenture Trustee (in its individual capacity or as Indenture Trustee), any Loan
Participant, the Owner Participant, or anyone else for any reason whatsoever
(whether in connection with the transactions contemplated hereby or any other
transactions), including, without limitation, any breach by Sublessor, Head
Lessor, or the Owner Participant of their respective warranties, agreements or
covenants contained in any of the Operative Documents or Sublessee Documents,
each of which rights Sublessee expressly waives, (ii) any defect in the title,
registration, airworthiness, condition, design, operation, or fitness for use
of, or any damage to or loss or destruction of, the Aircraft, or any
interruption or cessation in or prohibition of the use or possession thereof by
Sublessee for any reason whatsoever, including, without limitation, any such
interruption, cessation or prohibition resulting from the act of any government
authority, (iii) any insolvency, bankruptcy, reorganization or similar case or
proceedings by or against Sublessee or any other person, or (iv) any other
circumstance, happening, or event whatsoever, whether or not unforeseen or
similar to any of the foregoing.  If for
any reason whatsoever this Sublease shall be terminated in whole or in part by
operation of law or otherwise except as specifically provided herein, Sublessee
nonetheless agrees without limitation of the other rights or remedies of
Sublessor hereunder, to pay to Sublessor an amount equal to each Rent payment
at the time such payment would have become due and payable in accordance with
the terms hereof had this Sublease not been terminated in whole or in
part.  Sublessee hereby waives, to the
extent permitted by applicable law, any and all rights which it may now have or
which at any time hereafter may be conferred upon it, by statute or otherwise,
to terminate, cancel, quit or surrender this Sublease except in accordance with
the express terms hereof.

 

SECTION
19.  No Renewal.  Sublessee shall not have the right to renew
this Sublease.

 

SECTION
20.  Maintenance Program. 
Sublessor shall have the right in its sole discretion upon and after
return of the Aircraft to utilize the Maintenance Program at no cost to
Sublessor and Sublessee hereby agrees that is shall permit Sublessor to utilize
the Maintenance Program upon and after return of the Aircraft at no cost to Sublessor.

 

SECTION
21.  Sublessor’s Right to Perform  for
Sublessee.  If Sublessee
fails to make any payment of Rent required to be made by it hereunder or fails
to perform or comply

 

43

 

with any of its agreements
contained herein, then Sublessor or Head Lessor may itself make such payment or
perform or comply with such agreement but shall not be obligated hereunder to
do so, and the amount of such payment and the amount of the reasonable expenses
of Sublessor or Head Lessor, as the case may be, incurred in connection with
such payment or the performance of or compliance with such agreement, as the
case may be, together with interest thereon at the Past Due Rate, shall be
deemed Supplemental Rent, payable by Sublessee upon demand.

 

SECTION
22.  [Intentionally Omitted] 
[Maintenance Reserves; Investment of Security Funds; Liability of
Sublessor Limited.  (1)  Upon written notice to Sublessee, Sublessor may require
Sublessee to pay to Sublessor, as Supplemental Rent, Maintenance Reserves.  Such written notice shall specify the
calendar month in respect of which such Maintenance Reserves shall commence to
accrue, which may not be earlier than the calendar month in which such notice
is given.

 

(2)           Amount.  Commencing with the calendar month specified
in Sublessor’s notice given pursuant to Section 22(1), Sublessee shall pay the
following Maintenance Reserves to Sublessor during the Term:

 

(i)            in respect of the
Airframe, the amount specified in Table 1 on Exhibit F hereto for each
Airframe Flight Hour operated by the Aircraft to cover the “C” Checks performed
on the Aircraft during the Term (“C-Check
Maintenance Reserves”);

 

(ii)           in respect of the
Airframe, the amount specified in Table 2 on Exhibit F hereto for each
Airframe Flight Hour operated by the Aircraft to cover the 24 month interval
(and multiples thereof) scheduled structural inspections performed on the
Aircraft during the Term (the “Structural Inspection Maintenance Reserves”);

 

(iii)          in respect of each
Engine, the amount specified in Table 3 on Exhibit F hereto for each
Engine Flight Hour operated by that Engine to cover such Engine’s Basic Shop
Visits during the Term (each, “Engine Maintenance Reserves”);

 

(iv)          in respect of each
Engine, the amount specified in Table 4 on Exhibit F hereto for each
Engine Flight Hour operated by that Engine to cover replacement of such
Engine’s life-limited parts during the Term (each, “Engine LLP Maintenance Reserves”);

 

(v)           in respect of the
APU, the amount specified in Table 5 on Exhibit F hereto for each
Airframe Flight Hour operated by the Aircraft to cover APU Basic Shop Visits
during the Term (unless the APU is covered under a power-by-hour maintenance
agreement that is acceptable to Sublessor in its sole discretion) (“APU
Maintenance Reserves”); and

 

(vi)          in respect of the
Landing Gear, the amount specified in Table 6 on Exhibit F hereto for
each Airframe cycle operated by the Aircraft to cover the

 

44

 

Landing Gear Overhaul
during the Term (“Landing Gear Maintenance Reserves”).

 

The C–Check
Maintenance Reserves, the Structural Inspection Maintenance Reserves, the
Engine Maintenance Reserves, the Engine LLP Maintenance Reserves, the APU
Maintenance Reserves and the Landing Gear Maintenance Reserves are referred to
collectively herein as the “Maintenance Reserves.”   The amount to be paid for each Maintenance
Reserve may be adjusted by Sublessor during the Term to reflect increases in
actual or forecast maintenance expenses.

 

(3)           Payments.  Sublessee shall pay the Maintenance Reserves
in respect of each calendar month during which Maintenance Reserves accrue
(commencing with the calendar month specified in Sublessor’s notice given
pursuant to Section 22(1)) on the tenth day of the subsequent calendar month
beginning on the tenth day of the calendar month following the calendar month
specified in Sublessor’s notice given pursuant to Section 22(1) and ending on
the tenth day of the calendar month following the last day of the Term.  Sublessor shall keep notional running
accounts in respect of the Airframe, each Engine, the APU and the Landing Gear
to which shall be credited all amounts in respect thereof received under this
Section 22(3) and debited all sums paid in respect thereof by Sublessor to, or
on behalf of, Sublessee under Section 22(4).

 

(4)           Release of Maintenance Reserves.  If Sublessee submits to Sublessor, within
six months after the commencement of such maintenance work and before the
thirtieth (30th) day following the Expiration Date, an invoice and supporting
documentation evidencing performance of the following work (including work
performed to satisfy return conditions in accordance with Section 5(a)) by or
on behalf of Sublessee, Sublessor shall, provided that (x) no reimbursement
shall be made in respect of replacement, repair or overhaul caused by foreign
object damage, operational or other mishandling, faulty maintenance or any
accidental cause or in respect of any cost which is reimbursable by insurance,
and (y) no Default or Event of Default has occurred and is continuing,
release to Sublessee the following amounts from the respective Maintenance
Reserves:

 

(i)            “C” Checks:  with respect to the completed scheduled “C”
Check of the Airframe, the lesser of (i) the amount of such invoice and (ii)
the balance of C–Check Maintenance Reserves held by Sublessor at the time
of payment;

 

(ii)           24 Month
Interval Inspections:  with respect
to the completed 24 month interval scheduled structural inspections of the
Airframe, the lesser of (i) the amount of such invoice and (ii) the
balance of Structural Inspection Maintenance Reserves held by Sublessor at the
time of payment;

 

(iii)          Engine
Refurbishment:  with respect to any
Engine Basic Shop Visit (excluding controls, accessories and QEC
repair/overhaul), the lesser of (i) the amount of such invoice and (ii) the
balance of Engine Maintenance Reserves held by Sublessor in respect of that
Engine at the time of payment;

 

45

 

(iv)          Engine Life
Limited Parts:  with respect to the
exchange of new Life Limited Parts of each Engine in replacement of existing
Life Limited Parts during scheduled off-the-wing maintenance, Sublessor shall
release the lesser of (i) the amount of such invoice less any credit or value
Sublessee receives in respect of any such replaced existing life limited part
and (ii) the balance of Engine LLP Maintenance Reserves held by Sublessor in
respect of such Engine at the time of payment; and

 

(v)           APU and Landing
Gear:  with respect to any scheduled
APU Basic Shop Visit or Landing Gear Overhaul, the lesser of (i) the amount of
such invoice and (ii) the balance of APU Maintenance Reserves or Landing Gear
Maintenance Reserves, as applicable, held by the Sublessor at the time of
payment.

 

For the avoidance of
doubt, Sublessee has no right to payment of any amount from the Maintenance
Reserves except as expressly provided in this Section 22(4), and any remaining
balances of the Maintenance Reserves on the thirtieth (30th) day following the
Expiration Date, after application of the foregoing provisions, shall be
retained by Sublessor as its sole property.  
Subject to its rights and obligations hereunder, Sublessee will not
assign, transfer or otherwise dispose of its rights or interest in the
Maintenance Reserves.  To the extent any
maintenance expenses exceed the amount available in the applicable Maintenance
Reserves account, such expenses shall be for the account of the Sublessee and the
shortfall, if any, shall not be carried forward or made the subject of any
further claim for reimbursement. 
Sublessor may commingle the Maintenance Reserves with its general funds,
and Sublessee shall not be entitled to earn interest on the Maintenance
Reserves.]*

 

SECTION
23.  Service of Process. 
Sublessor and Sublessee each hereby irrevocably submits
itself to the non-exclusive jurisdiction of the United States District Court
for the Southern District of New York and to the non-exclusive jurisdiction of
the Supreme Court of the State of New York, New York County, for the purposes
of any suit, action or other proceeding arising out of this Sublease, the
subject matter hereof or any of the transactions contemplated hereby brought by
Sublessor, Head Lessor, the Indenture Trustee, the Loan Participants or the
Owner Participant or their successors or assigns.

 

SECTION
24.  Miscellaneous. Subject to Section
15(b), any provision of this Sublease which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.  No term or
provision of this Sublease may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by Sublessor and
Sublessee.  Sublessor, however, shall
have the right to amend, supplement or otherwise modify the terms of this
Sublease without the consent of Sublessee in the event of any amendment,
supplement or other modification of the terms of the Head Lease.  This Sublease shall constitute an agreement
of sublease, and nothing contained herein shall be construed as conveying to
Sublessee any right, title or interest in the Aircraft

 

*   To be inserted in Subleases entered into in accordance with
Section 3.02(a)(iv) of the Airline Services Agreement.

 

46

 

except as a sublessee
only.  Neither Sublessee nor any
Affiliate of Sublessee will file any tax returns in a manner inconsistent with
the foregoing fact or with the Owner’s ownership of the Aircraft.  The section and paragraph headings in this
Sublease and the table of contents are for convenience of reference only and
shall not modify, define, expand or limit any of the terms or provisions hereof
and all references herein to numbered sections, unless otherwise indicated, are
to sections of this Sublease.  The Exhibits
attached hereto are intended to be an integral part of this Sublease and are
incorporated into this Sublease by reference for all purposes.  THIS SUBLEASE HAS BEEN DELIVERED IN THE STATE OF NEW
YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE. 
This Sublease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.  This Sublease, the
Airline Services Agreement, and the Sublease Supplement contain the complete
and exclusive statement of the terms and conditions of the entire Aircraft
sublease agreement between Sublessor and Sublessee for the Term.  Nothing in this Sublease shall be
interpreted or construed as establishing between the parties a partnership,
joint venture or other similar arrangement.

 

SECTION
25.  Subordination.  Notwithstanding any other provision hereof,
this Sublease and Sublessee’s rights hereunder shall be subject and subordinate
to all the terms of the Head Lease, including, without limitation, the
covenants contained in Section 7(a) of the Head Lease and Head Lessor’s rights
to repossession of the Aircraft pursuant to Section 15 of the Head Lease and to
avoid this Sublease for any reason upon such repossession, and Sublessee shall
not be permitted to take any action hereunder not permitted to be taken by
Sublessor as “lessee” in the Head Lease. 
Sublessee agrees to execute such further documents confirming such
subordination of this Sublease as may be reasonably requested by Sublessor.  Sublessee acknowledges receipt of an
executed copy of each of the Head Lease, the Participation Agreement, the Trust
Indenture, the Tax Indemnity Agreement and the Head Lease Supplement.

 

SECTION
26.  Covenant of Quiet Enjoyment.  So long as (a) no Event of
Default shall have occurred and be continuing and (b) the Airline Services
Agreement shall not have been terminated or canceled or shall not have
terminated in accordance with its terms, Sublessor shall not interfere with
Sublessee’s continued use and operation of, and quiet enjoyment of, the
Aircraft.

 

SECTION 27.  Federal
Bankruptcy Code. 
It is the intention of the parties that the provisions of 11 U.S.C.
Section 1110, or any analogous section of the Federal bankruptcy laws, as
amended from time to time, shall be applicable to the interest of Sublessor in
the Aircraft and to any right of Sublessor to take possession of the Aircraft
in compliance with the provisions of this Sublease, as the same may be amended,
modified or supplemented from time to time.

 

SECTION
28.  Use of Funds.  If a Default or an Event of Default shall
have occurred and is continuing, or if a default or an event of default under
any other aircraft, engine, spare parts or facility lease or sublease or any
other agreement, instrument or document between Sublessor or any Affiliate
thereof and Sublessee or any Affiliate thereof shall have occurred and

 

47

 

is continuing, Sublessor
shall have the right in its sole discretion to apply any funds of Sublessee
that it holds including, without limitation, those which are part of the
Security Deposit[, Maintenance Reserves]* or Basic Rent and those which are
held pursuant to Sections 10(f)(i) and 11(g)(i) hereof, to cure any Default or
Event of Default or any default or event of default under any agreement, instrument
or document between Sublessor or any Affiliate thereof and Sublessee or any
Affiliate thereof; provided, however, that Sublessor
shall have no obligation hereunder to apply any such funds. The amount of any
such funds so applied and the amount of the reasonable expenses of Sublessor
incurred in connection with such application, together with interest thereon at
the Past Due Rate shall be deemed Supplemental Rent, payable by Sublessee upon
demand.

 

SECTION
29.  Sublessee’s Representations, Warranties and
Indemnities. (a) 
In
General.  Sublessee
represents, warrants and covenants to Sublessor that as of the Commencement
Date:

 

(i)            Sublessee is a
Certificated Air Carrier and corporation duly organized and validly existing
pursuant to the laws of the State of Georgia; is duly qualified to do business
as a foreign corporation in each jurisdiction in which its operations or the
nature of its business requires, other than failures to qualify which would not
have a material adverse effect on the consolidated business, assets, properties
or condition (financial or otherwise) of Sublessee and its subsidiaries taken
as a whole or on the ability of Sublessee to perform its obligations under the
Sublessee Documents; has its chief executive office (as such term is used in
Article 9 of the Uniform Commercial Code) located at Memphis, Tennessee; holds
all licenses, certificates, permits and franchises from the appropriate
agencies of the United States and/or all other governmental authorities having
jurisdiction necessary to conduct its business as presently conducted (other
than those licenses, certificates, permits and franchises which, if not
obtained, would not have an adverse effect on the consolidated business assets,
properties or condition (financial or otherwise) of Sublessee or on the ability
of Sublessee to perform its obligations under the Sublessee Documents); and has
the corporate power and authority to own or hold under the Sublease its
properties wherever located or used and to enter into and perform its
obligations under the Sublessee Documents;

 

(ii)           the execution,
delivery and performance by Sublessee of the Sublessee Documents to which
Sublessee is a party will, on the Commencement Date, have been duly authorized
by all necessary corporate action on the part of Sublessee, do not require any
stockholder approval, or approval or consent of any trustee or holders of any
indebtedness or obligations of Sublessee except such as have been duly obtained
or by the Commencement Date will have been duly obtained, and neither the
execution or delivery thereof or the consummation by Sublessee of the
transactions contemplated thereby nor the compliance by Sublessee with any of
the terms and provisions of such agreements contravenes

 

*   To be inserted in Subleases entered into in accordance with
Section 3.02(a)(iv) of the Airline Services Agreement.

 

48

 

any law, judgment,
government rule, regulation or order binding on Sublessee or the certificate of
incorporation or by–laws of Sublessee or contravenes the provisions of,
or constitutes a default under, or results in the creation of any Lien (other
than Permitted Liens) upon the property of Sublessee under, any indenture,
mortgage, contract or other agreement to which Sublessee is a party or by which
it or its properties may be bound or affected;

 

(iii)          neither the
execution and delivery by Sublessee of the Sublessee Documents to which
Sublessee is a party nor the performance by Sublessee of its obligations
thereunder require the consent or approval of, the giving of notice to, or the
registration with, or the taking of any other action in respect of, any
Federal, state or foreign government authority or agency, except for (A) the
orders, permits, waivers, exemptions, authorizations and approvals of the
regulatory authorities having jurisdiction over the operation of the Aircraft
by Sublessee required to be obtained on or prior to the Commencement Date,
which orders, permits, waivers, exemptions, authorizations and approvals have
been duly obtained and are, or will on the Commencement Date be in full force
and effect, (B) [Intentionally Omitted] and (C) such consents, approvals,
notices, registrations and other actions required by the terms of the Sublessee
Documents to the extent required to be given or obtained only after the
Commencement Date;

 

(iv)          on the Commencement
Date the Sublessee Documents to which Sublessee is a party will each constitute
legal, valid and binding obligations of Sublessee enforceable against Sublessee
in accordance with the terms thereof (except as enforceability may be limited
by (A) general principles of equity, (B) applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws affecting the
rights of creditors generally, (C) applicable laws which may affect the
remedies provided therein; which laws, however, do not make the remedies
provided therein inadequate for the practical realization of the benefits
provided thereby, except that no representation or warranty is made as to the
amount of priority of any recovery under any particular circumstances, and (D)
in the case of indemnity provisions contained in such documents, as limited by
public policy considerations);

 

(v)           there are no pending
or, to the best of Sublessee’s knowledge, threatened actions, suits or
proceedings before any court, governmental body, arbitration board, tribunal or
administrative agency which might adversely affect the business, condition
(financial or otherwise), operations or properties of Sublessee or Sublessee’s
ability to perform its obligations under the Sublessee Documents to which
Sublessee is a party;

 

(vi)          except for (A) the
filing for recording pursuant to the Federal Aviation Act of the Sublease with
the Sublease Supplement covering the Aircraft, 
(B) the filing for recording of the termination of the Predecessor
Lease, and (C) the filing of financing statements (and continuation statements
at periodic intervals) with respect to the security and other interests created
by such documents under the Uniform Commercial Code, no further action,
including any

 

49

 

filing or
recording of any document (including any financing statement in respect thereof
under Article 9 of the Uniform Commercial Code of any applicable jurisdiction),
is necessary in order to establish and perfect Sublessor’s interest in the
Aircraft as against Sublessee in any applicable jurisdictions in the United
States;

 

(vii)         there has not
occurred any event which constitutes an Event of Default under the Sublease or
a default or an event of default under any other aircraft, engine, spare parts
or facility lease or sublease or any other agreement, instrument or document
between Sublessor or any of its Affiliates and Sublessee (or any event which
with the giving of notice or the passage of time or both would constitute an
Event of Default under the Sublease or an event of default under any other
aircraft, engine, spare parts or facility lease or sublease between Sublessor
or any of its Affiliates and Sublessee) which is presently continuing;

 

(viii)        the Aircraft will be
free and clear of all Liens, except Permitted Liens (including, for this
purpose, any Lien which would be a Sublessor Lien or Head Lessor Lien but for
the proviso to either such definition);

 

(ix)           the Aircraft will
be duly certified by the FAA as to type and airworthiness, will be insured by
Sublessee in accordance with the terms of this Sublease and will be in the
condition and state of repair required under the terms of this Sublease;

 

(x)            Sublessor, as
sublessor hereunder, will be entitled to the benefits of 11 U.S.C.
Section 1110 (or any successor statute containing the material terms of 11
U.S.C. Section 1110) in the event of any reorganization of Sublessee under
such Section; and

 

(xi)           there has not been
any material adverse change in the operations or financial condition of
Sublessee since March 1, 2002.

 

(b)           General Tax Indemnity.

 

(i)            Indemnity.  Except as provided in Section 29(b)(ii)
hereof, Sublessee shall on an After–Tax Basis pay, protect, save and on
written demand shall indemnify and hold harmless any Tax Indemnitee from and
against any and all Taxes howsoever imposed against any Tax Indemnitee,
Sublessee, Sublessee Person or the Aircraft, the Airframe, any Engine, or any
Part thereof or interest therein by any Federal, state or local government or
other taxing authority in the United States or by any foreign government or any
political subdivision or taxing authority thereof or by any territory or
possession of the United States or by any international authority (“Taxing
Authority”) upon or in connection with or relating to (A) the
construction, financing, refinancing, purchase, acquisition, acceptance,
rejection, delivery, nondelivery, transport, ownership, registration,
re-registration, insuring, assembly, possession, repossession, operation,
location, use, control, condition, maintenance, repair, sale, return,
abandonment, installation,

 

50

 

storage,
redelivery, replacement, leasing, subleasing, modification, rebuilding,
importation, exportation, transfer of title, transfer of registration, or other
application or disposition of the Aircraft, the Airframe, any Engine, or any
Part thereof or any interest in the foregoing, (B) the rentals, receipts or
earnings from the Aircraft, the Airframe, any Engine, any Part or any interest
in the foregoing, (C) any amount paid or payable pursuant to any Operative
Document or Sublessee Document or any document related to any Operative
Document or Sublessee Document or the property or the income or other proceeds
with respect to any of the property held in the Trust Estate of the Trust
Indenture Estate, (D) the Aircraft, the Airframe, any Engine, any Part or any
interest in the foregoing, (E) any or all of the Operative Documents or the
Sublessee Documents or the execution, issuance, delivery or registration of, or
the performance under, or otherwise with respect to the Secured Certificates or
any of the Operative Documents or Sublessee Documents and any other documents
contemplated hereby or thereby and amendments and supplements hereto and
thereto or the execution, delivery or performance of any thereof or the
issuance, acquisition, modification, holding or subsequent transfer thereof, or
(F) the payment of principal of, interest, Make-Whole Amount or other premium
on, or other amounts payable on or with respect to the Secured Certificates, or
(G) otherwise with respect to or in connection with the transactions
contemplated by the Operative Documents or the Sublessee Documents.

 

(ii)           Exclusions
from General Tax Indemnity. 
The provisions of Section 29(b)(i) shall not apply:

 

(1)           with respect to any Equity Tax
Indemnitee and Sublessor, to any Income Tax (as defined in Section 29(d)
hereof) imposed on such Tax Indemnitee by the United States Federal government,
provided,
however,
that notwithstanding the foregoing, Sublessee will indemnify and hold harmless
each Equity Tax Indemnitee and Sublessor for any withholding taxes imposed on
or with respect to the payment of principal, interest, Make-Whole Amount or
other premium on the Secured Certificates and the Sublessor with respect to any
withholding tax imposed on any rent payable by Sublessor under the Head Lease,
including interest and penalties thereon;

 

(2)           to any Tax to the extent imposed as a
result of a voluntary transfer or disposition by a Tax Indemnitee including,
without limitation, the revocation of the trust created by the Trust Agreement
or a transfer or disposition of all or any portion of its respective equitable
or legal ownership or leasehold interest in the Aircraft, any Engine, any Part,
the Trust Estate, a Secured Certificate (including sales of participations
therein), the Trust Indenture Estate or any Operative Document or Sublessee
Document or any interest in such Tax Indemnitee, unless such transfer or
disposition shall occur (A) during the continuance of a Default or Event of
Default under the Lease or this Sublease or upon the termination or
cancellation of the Airline Services Agreement, (B) in

 

51

 

connection with the
termination of the Head Lease or Sublease, as the case may be, or the action or
direction of Sublessee pursuant to Sections 2, 5 ,6, 7, 8, 9, 10 or 19 of this
Sublease or of Sublessor pursuant to Sections 2, 5, 6, 7, 8, 9, 10 or 19 of the
Head Lease, as the case may be, (C) in connection with the substitution or
replacement of the Aircraft, any Engine or Part pursuant to Section 10 of the
Head Lease or (D) as a result of the assumption pursuant to Section 8(x) of the
Participation Agreement by Sublessor of the obligations of the Owner Trustee
under the Trust Indenture and Secured Certificates;

 

(3)           to Taxes to the extent based on or
measured by any fees received by the Owner Trustee or the Indenture Trustee in
connection with any transaction contemplated by the Operative Documents;

 

(4)           to Taxes to the extent imposed with
respect to events occurring or matters arising, after the earlier of (x) the
return of physical possession of the Aircraft to Sublessor or its designee
pursuant to the terms of this Sublease or (y) the commencement of storage
pursuant to Section 5(d) hereof; provided the exclusion set forth in this
subparagraph (4) shall not apply to Taxes to the extent such Taxes relate to
events, periods or matters occurring or arising prior to or simultaneously with
such time or arise as a result of amounts payable by Sublessee after such time
or are imposed on a Loan Participant with respect to events occurring, or
matters arising, prior to payment in full of the Secured Certificates, or occur
during the continuance of a Default or Event of Default under this Sublease;

 

(5)           to any Tax to the extent arising out
of or caused by, or to the extent such Tax would not have been incurred but
for, (A) the willful misconduct of such Tax Indemnitee or (B) the breach of any
representation, covenant or agreement by such Tax Indemnitee in any Operative
Document;

 

(6)           with respect to any Tax Indemnitee
(other than Sublessor and its Affiliates, successors and assigns and their
respective directors, officers, employees, agents and servants) to any Tax to
the extent such Tax Indemnitee is not entitled to indemnification pursuant to
Section 7(b) of the Participation Agreement.

 

Nothing contained in Section 29(b)(ii) hereof shall apply to any Tax in
the nature of a sales, use, value added, goods and services, transfer,
recording, excise or registration Tax imposed on or with respect to the
Aircraft, any Engine or any Part or interest therein or title thereto incurred
prior to, or on the date of, the execution and delivery of this Sublease.  For the avoidance of doubt, and
notwithstanding any provision herein to the contrary, Sublessee agrees to indemnify
Sublessor on an After-Tax Basis against, and agrees to hold Sublessor

 

52

 

harmless from, any and all payments, indemnities and gross-ups required
to be made by Sublessor pursuant to Section 7 of the Participation Agreement.

 

(iii)          Calculation
of General Tax Indemnity Payments. 
Notwithstanding any provision contained in Section 29(b)(ii)
hereof, any payment which Sublessee shall be required to make to, or for the
account of, any Tax Indemnitee, with respect to any Tax (or any payment made in
connection with the payment or contest of any Tax) which is subject to
indemnification under this Section 29(b) shall be paid on an After-Tax
Basis.  Any calculation of an indemnity
payment for an inclusion item, and of any gross-up of an indemnity or reverse
indemnity payment, will be on the basis of then-actual Federal, state, and
local tax rates applicable to such Tax Indemnitee, and based upon the
assumption that the Tax Indemnitee is fully taxable at such tax rates.

 

If a Tax Indemnitee (other than Sublessor or any of its Affiliates)
shall pay any amount to Sublessor pursuant to Section 7(b)(iii) of the
Participation Agreement for which Sublessee has previously paid an indemnity
under this Section 29, Sublessor shall pay such amount to Sublessee within 15
Business Days after Sublessor has received such amount, after deduction of
Sublessor’s reasonable costs and expenses (including any net tax cost) in
connection therewith but not in excess of Sublessee’s prior payments with
respect to such indemnified Tax.

 

Any Taxes that are imposed on any Tax Indemnitee as a result of the
disallowance or reduction of any tax benefit (including foreign tax credits)
referred to in this subsection as to which Sublessor has made a payment to
Sublessee required hereby (or as to which such Sublessor would have made
payment but for Section 29(b)(viii) or which benefit was otherwise taken
into account in computing Sublessee’s indemnity obligation pursuant to this
Section 29(b)) in a taxable year subsequent to the utilization by the Tax
Indemnitee, or any amount required to be paid by Sublessor to a Tax Indemnitee
pursuant to the penultimate paragraph of Section 7(b)(iii) of the Participation
Agreement, shall be treated as a Tax for which Sublessee is obligated to
indemnify the relevant Tax Indemnitee or reimburse Sublessor pursuant to the
provisions of this Section 29(b), without regard to the exclusions set
forth in Section 29(b)(ii) hereof.

 

(iv)          General Tax Indemnity - Contests.  With respect to any Tax Indemnitee that is
Sublessor or any Affiliate thereof (a “Sublessor Tax Indemnitee”) at Sublessee’s
written request and with the written consent of Sublessor, Sublessee shall be
entitled to contest any claim with respect to any Tax imposed on such Sublessor
Tax Indemnitee other than an Income Tax either in Sublessee’s name or in the
name of such Sublessor Tax Indemnitee at Sublessee’s sole cost and expense (a “Sublessee
Controlled Contest”) . If Sublessor receives a written claim from
any Tax Indemnitee or any Taxing Authority for any Tax for which Sublessee is
obligated pursuant to Section 29(b)(i), Sublessor shall notify Sublessee
promptly of such claim (it being understood and agreed that failure to

 

53

 

provide such
notice shall not adversely affect or otherwise prejudice any Tax Indemnitee’s
right to an indemnity hereunder except to the extent such failure precludes any
contest of such claim).  If the Tax
cannot be contested in a Sublessee Controlled Contest for any reason
(including, but not limited to the refusal of the Sublessor or other Tax
Indemnitee to consent thereto), upon written request from Sublessee received by
Sublessor within ten (10) Business Days of such notice Sublessor shall exercise
its rights, if any, under Section 7(b)(iv) of the Participation Agreement in
good faith (if the Tax Indemnitee is other than a Sublessor Tax Indemnitee) or
Sublessor shall contest such claim in good faith (if the Tax Indemnitee is a
Sublessor Tax Indemnitee) in each case at Sublessee’s sole cost and
expense.  Any such contest shall be at
such Tax Indemnitee’s or Sublessor’s control and direction.  In any such contest the Tax Indemnitee or
Sublessor, as the case may be, may in its sole discretion select the forum for
such contest and determine whether any such contest shall be by (A) resisting
payment of such Tax, (B) paying such Tax under protest or (C) paying such Tax
and seeking a refund or other repayment thereof.  In no event shall Sublessor be required to contest, or to request
a Tax Indemnitee to contest, or Sublessee be permitted to contest, the
imposition of any Tax for which Sublessee is obligated pursuant to this
Section 29(b) unless (W) no Default or Event of Default shall have occurred
and be continuing under the Sublease and no Event of Default (as such term is
defined in the Head Lease) shall have occurred and be continuing, (X) Sublessee
shall have agreed to pay to Sublessor and to the Tax Indemnitee on demand on an
After-Tax Basis all reasonable costs and expenses that Sublessor and the Tax
Indemnitee may incur in connection with contesting such claim (including,
without limitation, all reasonable legal and accounting fees and
disbursements), (Y) such action to be taken will not result in a risk of sale,
forfeiture or loss of, or the creation of any Lien on, the Aircraft, the
Engines or any Part, other than Permitted Liens or a material risk of loss of
the Lien of the Trust Indenture or a risk of imposition of criminal penalties,
and (Z) if such contest shall be conducted in a manner requiring the payment of
the claim, Sublessee shall have paid the amount required directly to the
appropriate authority or made an advance of the amount thereof to such Tax
Indemnitee on an interest-free basis and agreed to indemnify Sublessor and such
Tax Indemnitee on an after-tax basis for any cost or Taxes payable with respect
to such advance.  In addition, Sublessee
shall not have any right to request Sublessor or any other Tax Indemnitee to
contest a claim unless (x) the amount of indemnity payments that Sublessee
would be required to make if the contest were unsuccessful is at least $50,000,
(y) prior to commencement of any contest, Sublessee has delivered to Sublessor
and, if requested by Sublessor, the Tax Indemnitee a written acknowledgment of
Sublessee’s obligation under this Section 29(b) to indemnify such
Sublessor and such Tax Indemnitee with respect to the Tax at issue to the
extent that the contest is unsuccessful; and (z) Sublessor and the relevant Tax
Indemnitee has received an opinion of independent tax counsel selected by
Sublessor that concludes that a Reasonable Basis exists with respect to the tax
position Sublessee has asserted.  For
the purposes of this Section 29(b), the term “Reasonable Basis” shall have the
meaning set forth for such term in Formal

 

54

 

Opinion 85-352
issued by the Standing Committee on Ethics and Professional Responsibility of
the American Bar Association.  Sublessee
shall have no right to pursue or appeal or cause any Tax Indemnitee or
Sublessor to pursue or appeal an adverse judicial decision without the prior
written consent of Sublessor and, if required by Sublessor, the relevant Tax
Indemnitee.

 

If Sublessor receives from any Tax Indemnitee (other than from its
Affiliate) a payment with respect to a refund of all or any part of any Tax
paid by Sublessee, Sublessor shall pay Sublessee an amount equal to the amount
of such payment less any cost and/or expenses, including net tax cost, incurred
in respect thereof.

 

Nothing contained in this Section 29(b)(iv) shall require a
Sublessor or a Tax Indemnitee to contest, or permit Sublessee to contest, a
claim which such Tax Indemnitee would otherwise be required to contest, if such
Tax Indemnitee shall waive payment by Sublessor and Sublessee of any amount
that might otherwise be payable by Sublessee under this Section 29(b) or
Sublessor under Section 7(b) of the Tax Indemnity Agreement in respect of such
claim and any other claim, the contest of which would be precluded.  In addition, for the avoidance of doubt,
Sublessee shall have no right to contest or require any other party to contest
any Tax imposed on a Tax Indemnitee in a manner or to the extent that is
inconsistent with Sublessor’s rights under the Participation Agreement.

 

(v)           General Tax Indemnity — Reports.  If any report, return or statement is
required to be filed with respect to any Tax which is subject to
indemnification under this Section 29(b), Sublessee shall timely file the
same at its sole expense (except for any such report, return or statement which
a Tax Indemnitee has notified Sublessor or Sublessee that such Tax Indemnitee
intends to file or which such Tax Indemnitee is required by law to file in its
own name).  Sublessee shall either file
such report, return or statement so as to show the ownership of the Aircraft in
the Owner Trustee or the Owner Participant where appropriate and send a copy of
such report, return or statement to Sublessor, the Tax Indemnitee and Owner
Trustee or, where Sublessee is not so permitted to file such report, return or
statement, it shall notify the Tax Indemnitee and Sublessor of such requirement
and prepare and deliver such report, return or statement to the Tax Indemnitee
and Sublessor in a manner satisfactory to such Tax Indemnitee and Sublessor
within a reasonable time prior to the time such report, return or statement is
to be filed.  Sublessee shall hold
Sublessor and the Tax Indemnitee harmless on an After-Tax Basis from and
against any penalties, interest, fines or additions to Tax caused by the
inaccuracy of any report, return or statement prepared and filed by Sublessee
on behalf of Sublessor or any other Tax Indemnitee. Sublessee will provide at
Sublessee’s expense to Sublessor and the Tax Indemnitee such information
maintained in the regular course of Sublessee’s business as Sublessor or any
Tax Indemnitee may reasonably request in writing that is reasonably necessary
to enable Sublessor or such Tax Indemnitee to comply with their tax filings,
audit and litigation requirements.  If
Sublessee receives written notice from a Taxing Authority or a Tax Indemnitee
or otherwise

 

55

 

of a Tax that is
imposed upon a Tax Indemnitee but not indemnified against by Sublessee
hereunder, Sublessee will promptly forward a copy of such notice to Sublessor
and the Tax Indemnitee.  Sublessee shall
also provide or cause to be provided to Sublessor, upon request and at
Sublessee’s expense, all documents, records and other information that
Sublessor is required to provide any Tax Indemnitee under Section 7(b) of the
Participation Agreement.

 

(vi)          Verification.  At Sublessee’s written request after
Sublessee receives computations showing the amount of any indemnity payable by
Sublessee pursuant to Section 29(b)(i), Sublessor shall exercise its
rights, if any, under Section 7(b)(vi) of the Participation Agreement with
respect to verification of such computation. 
If Sublessee pays such indemnity in whole or in part before completion
of the verification procedure, appropriate adjustments will be made promptly
after completion of the verification procedure to take into account any
redetermination of the indemnity by the accounting firm.  Any fee and disbursements of the accounting
firm payable by Sublessor shall be paid by Sublessee.  Sublessee will have no right under this Section 29(b) to
examine any tax return of any Tax Indemnitee or Sublessor.  The sole responsibility of such accounting
firm shall be to verify the computations of the amount payable hereunder and
the interpretation of this Agreement or any other agreement shall not be within
the scope of such accounting firm’s responsibilities.

 

(vii)         General Tax Indemnity — Payment.  Except as provided in
Section 29(b)(iv) hereof, Sublessee shall pay any Tax for which it is
liable pursuant to Section 29(b)(i) directly to the appropriate taxing
authority if legally permissible or upon demand of a Tax Indemnitee or
Sublessor shall pay such Tax and any other amounts due hereunder to such Tax
Indemnitee or to Sublessor as indicated in such demand within ten (10) Business
Days of such demand.  Any such demand
for payment from a Tax Indemnitee or Sublessor shall specify in reasonable
detail the payment and the facts upon which the right to payment is based.  Sublessor shall request that the Tax
Indemnitee promptly forward to Sublessee a copy of any notice, bill or advice
received by it to the extent concerning any Tax indemnified against hereunder,
(provided
that the failure of the Sublessor to make such request or the failure of the
Tax Indemnitee to forward such notice, bill or advice shall not adversely
affect the Sublessor’s or Tax Indemnitee’s rights to indemnification
hereunder).  Within twenty (20) days
after the date of each payment by Sublessee of any Tax indemnified against
hereunder, Sublessee shall furnish the appropriate Tax Indemnitee (with a copy
to Sublessor) the original or a certified copy of a receipt for Sublessee’s
payment of such Tax or such other evidence of payment of such Tax as is
reasonably acceptable to such Tax Indemnitee.

 

(viii)        Application of Payments During
Existence of Default or Event of Default. 
Any amount payable to Sublessee pursuant to the terms of this
Section 29(b) shall not be paid to or retained by Sublessee if at the time
of such payment or retention a Default or Event of Default shall have occurred
and be continuing or if any event described in Section 10.02 of the Airline
Services

 

56

 

Agreement giving
Sublessor the ability to terminate the Airline Services Agreement shall have
occurred, if any event described in Section 10.03 of the Airline Services
Agreement shall have occurred or if the Airline Services Agreement shall have
been terminated or cancelled or shall have been terminated in accordance with
its terms, but shall be held by Sublessor and applied pursuant to Section 28
hereof.

 

(ix)           [Intentionally
Omitted].

 

(x)            Inclusions.  If Sublessor is required by any Taxing
Authority to include in its income for income tax purposes, or Sublessor
receives an opinion from independent tax counsel selected by Sublessor and
reasonably acceptable to Sublessee, that Sublessor does not have a Reasonable
Basis to exclude from its income for income tax purposes, any amount in respect
of, or resulting from (i) any modification, repair, improvement, addition,
substitution or replacement of the Aircraft, the Airframe or any Engine or any
Part, (ii) any payment of Basic Rent or Supplemental Rent under the
Sublease by or on behalf of Sublessee in an amount greater, or at a time
earlier, than the amounts or times provided in the Sublease, (iii) any
warranty or indemnity payments or refunds attributable to the Aircraft, the
Airframe or any Engine received from the manufacturer which was not remitted
to, and retained by, Sublessor, (iv) the theft, destruction or other loss
of the Aircraft, Airframe or any Engine or any Part; (v) any application
of Section 467(b)(2) to the Sublease; (vi)   any payment of
indemnities to a Tax Indemnitee or Indemnitee (other than Sublessor) or fees,
expenses or reimbursement to a trustee, agent or other Person pursuant to this
Agreement, (vii) any payment of the Security Deposit under Section 3(c) hereof
or of Maintenance Reserves under Section 22 hereof; or (viii) any act or
payment by Sublessee not required under the terms of the Sublessee Documents,
(herein called a “Sublessor Inclusion”), Sublessee shall pay
to Sublessor an amount which, on an After-Tax Basis, shall be equal to the
amount of the additional taxes on or measured by gross or net income (plus any
and all fines, penalties, additions to tax and interest calculated by reference
thereto) payable by Sublessor as a result of such Sublessor Inclusion.

 

(xi)           Contests
Etc.  The provisions of
Section 29(b)(iii) (relating to tax savings) and 29(b)(iv) (relating to
contests) of this Agreement shall apply, mutatis mutandis, with respect to any
Sublessor Inclusion.

 

(xii)          Pass-through
of Tax Indemnity Agreement Indemnities. 
(1)  Indemnity.  If Sublessor is required to pay Head Lessor
or Owner Participant any amount (herein called a “TIA Liability”) pursuant to
the Tax Indemnity Agreement, Sublessee shall pay to Sublessor an amount, which,
on an After-Tax Basis, shall be equal to such TIA Liability.  Such payment shall be made at least five (5)
Business Days prior to the date Sublessor must pay Head Lessor under the Tax
Indemnity Agreement.

 

57

 

(2)           Exceptions. Sublessee shall
not be required to indemnify Sublessor for any TIA Liability to the extent that
such TIA Liability would not have occurred but for any of the following:

 

(y)                                 Sublessor
claiming deductions for depreciation of the Aircraft for federal income tax
purposes or claiming on any federal income tax return to be the owner of the
Aircraft for federal income tax purposes;

 

(z)                                   the
status of Sublessor as a “tax-exempt entity” within the meaning of Section
168(h) of the Code but only if such status is not caused by a Sublessee Person.

 

(3)           Tax Saving.  If Head Lessor or the Owner Participant pays
an amount to Sublessor pursuant to Section 4(c) of the Tax Indemnity Agreement,
for which Sublessee has previously paid an indemnity to Sublessor pursuant to
paragraph (1) hereof, Sublessor shall pay such amount to Sublessee within 5
Business Days after Sublessor receives such amount, but not in excess of any
payment previously made by Sublessee with respect to such TIA Liability and net
of any tax liability incurred by Sublessor with respect to receipt and payment
of such amount.

 

(4)           Contest.  If Sublessor receives a written claim for an
indemnity pursuant to the Tax Indemnity Agreement for which Sublessee would be
required to pay Sublessor an indemnity hereunder, Sublessor shall notify
Sublessee thereof in writing (but it being understood and agreed that failure
of Sublessor to provide such notice to Sublessee shall not adversely affect or
otherwise prejudice any Sublessor’s right to an indemnity hereunder).  If requested by Sublessee in writing within
ten (10) Business Days before the latest day on which Sublessor may request a
contest pursuant to Section 6 of the Tax Indemnity Agreement, Sublessor shall
exercise its rights, if any, under Section 6 of the Tax Indemnity Agreement provided
that in no event shall Sublessor be required to initiate or continue (or be
required to request any other person to initiate or continue) a contest unless:
(i) the amount of the obligation on the part of Sublessee to indemnify
Sublessor pursuant to subsection (1) hereof shall be at least $50,000,
(ii)  Sublessee agrees to reimburse Sublessor on demand (and complies with
such agreement) for all of the Owner Participant’s and Sublessor’s reasonable
costs and expenses (including, without limitation, reasonable legal and
accounting fees and disbursements) which each may incur in contesting such
disallowance, (iii) if Owner Participant elects to contest the disallowance by
paying the tax claimed (including interest, penalties or additions to tax) and
seeking a refund, Sublessee shall advance to Sublessor on an interest free
basis the aggregate amount of taxes, interest, penalties and additions to the
tax applicable to such disallowance and agree to indemnify Sublessor and the
Owner Participant for any adverse tax consequences resulting from such

 

58

 

advance, (iv) such
contest would not entail any risk of criminal penalties, (v) with respect
to such disallowance, Sublessee shall have furnished Sublessor at Sublessee’s
expense, with a written opinion of independent tax counsel selected by
Sublessor that a Reasonable Basis exists to contest such disallowance and prior
to filing any appeal an opinion that a successful outcome on appeal is more likely
than not and have posted a bond or other security for such appeal, (vi) no
Default or Event of Default, under any of the Operative Documents by Sublessor
or the Airline Services Agreement, has occurred and is continuing, and (vii)
Sublessee shall have delivered to Sublessor a written acknowledge of
Sublessee’s obligation to indemnify in full Sublessor pursuant to this
Agreement to the extent that the contest is not successful. Sublessor shall
have no obligation to cause Owner Participant and Owner Participant shall have
no obligation to appeal any adverse decision of an appellate court to the
United States Supreme Court.

 

(xiii)         Minimum
Indemnity.  The amount of any
indemnity payable by Sublessee to Sublessor pursuant to this Section 29 shall
in all events be an amount sufficient to restore Sublessor to the position that
Sublessor would be in if the Sublessor Inclusion, TIA Liability or any
indemnity otherwise payable pursuant to Section 7 of the Participation
Agreement that gave rise to Sublessee’s obligation hereunder had not occurred.

 

(xiv)        [Predecessor Lease.  Notwithstanding the termination
of the Predecessor Lease [and the Original Predecessor Lease], Sublessee hereby
confirms and agrees that it remains fully obligated with respect to any and all
claims asserted by Sublessor or any Tax Indemnitee (as such term is defined in
the Predecessor Lease [and in the Original Predecessor Lease]) pursuant to
Section 29(b) of the Predecessor Lease [or pursuant to Section 29(b) of the
Original Predecessor Lease].]

 

(c)           General Indemnity.  Sublessee hereby agrees to indemnify each
Indemnitee against, and agrees to protect, defend, save and keep harmless each
thereof from (whether or not the transactions contemplated herein or in any of
the other Sublessee Documents are consummated), any and all liabilities,
obligations, losses, damages, penalties, claims, actions, suits, out-of-pocket
costs, expenses and disbursements (including reasonable legal fees and expenses
but excluding internal costs and expenses such as salaries and overhead), of
whatsoever kind and nature (collectively called “Expenses”) imposed on,
incurred by or asserted against any Indemnitee, in any way relating to or
arising out of (A) any of the Operative Documents or the Sublessee Documents or
any of the transactions contemplated thereby or the enforcement of any of the
terms thereof or any amendment, modification or waiver in respect thereof, (B)
the manufacture, purchase, acceptance or rejection of the Aircraft, Airframe or
any Engine or Part, (C) the Aircraft (or any portion thereof or any Engine
or engine affixed to the Airframe) whether or not arising out of the finance,
refinance, ownership, delivery, nondelivery, storage, sublease, possession,
use, non-use, operation, maintenance, registration, reregistration, condition,
modification, alteration, replacement, repair, substitution, sale, return or
other disposition of the Aircraft (or any portion thereof or any Engine or
engine or Part affixed to the Airframe)

 

59

 

including, without
limitation, latent or other defects, whether or not discoverable, strict tort
liability, any damage to property or the environment, death of or injury to any
person and any claim for patent, trademark or copyright infringement; provided
that the foregoing indemnity as to any Indemnitee shall not extend to any
Expense to the extent resulting from or arising out of or attributable to one
or more of the following: (A) any representation or warranty by such Indemnitee
in the Operative Documents being incorrect in any material respect, or (B) the
failure by such Indemnitee to perform or observe any agreement, covenant or
condition in any of the Operative Documents applicable to it including, without
limitation, with respect to the creation or existence of a Sublessor Lien
(including for this purpose Liens which would be Sublessor Liens but for the
proviso in the definition of Sublessor Liens) attributable to it (except to the
extent such failure was caused by the failure of Sublessee to perform any
obligation under a Sublessee Document), or (C) the willful misconduct of such
Indemnitee, or (D) with respect to any Indemnitee, a disposition by such
Indemnitee of all or any part of such Indemnitee’s interest in the Airframe,
any Engine or in the Operative Documents other than during the continuance of a
Default or an Event of Default under the Sublease, or (E) except to the
extent relating to the payment of any Expenses on an After-Tax Basis, any Tax
whether or not Sublessee is required to indemnify for such Tax pursuant to
Section 29(b) hereof, or (F) except to the extent fairly attributable to
acts, omissions or events occurring prior thereto, acts or events which occur
with respect to the Airframe or any Engine or Part after the return of physical
possession of the Airframe or such Engine or Part to Sublessor pursuant to the
terms of the Sublease.  Sublessee
further agrees to indemnify Sublessor against, and agrees to protect, defend,
save and keep harmless Sublessor from (whether or not the transactions
contemplated herein or in any of the other Sublessee Documents are
consummated), any and all liabilities, obligations, losses, damages, penalties,
claims, actions, suits, out-of-pocket costs, expenses and disbursements of
whatsoever kind and nature imposed on, incurred by or asserted against
Sublessor pursuant to Section 7(c) of the Participation Agreement.  [In addition, notwithstanding the
termination of the Predecessor Lease [and the Original Predecessor Lease],
Sublessee hereby confirms and agrees that Sublessee remains fully obligated
with respect to any and all claims asserted by Sublessor and any Indemnitee (as
such term is defined in the Predecessor Lease [or in the Original Predecessor
Lease, as the case may be]) pursuant to Section 29(c) of the Predecessor Lease
[or pursuant to Section 29(c) of the Original Predecessor Lease, as the case
may be].]

 

Sublessee further agrees
that any payment or indemnity pursuant to this Section 29(c) in respect of
any Expenses or other amounts payable by Sublessee pursuant to this Section
29(c) shall be paid on an After-Tax Basis.

 

If, by reason of any
Expense payment made to or for the account of an Indemnitee by Sublessee
pursuant to this Section 29(c), such Indemnitee subsequently realizes a
tax deduction or credit or any reduction in Taxes not previously taken into
account in computing such payment, such Indemnitee shall promptly pay to
Sublessee, but only if Sublessee shall have made all payments then due and
owing to such Indemnitee under the Sublessee Documents, an amount equal to the
sum of (I) the actual reduction in Taxes realized by such Indemnitee which is
attributable to such deduction or credit, and (II) the actual reduction in
Taxes realized by such Indemnitee as a result of any payment made by such
Indemnitee pursuant to this sentence; provided, however, that no Indemnitee
shall be obligated to make any payment pursuant to this sentence to the extent
that the amount of such payment would exceed (i) the aggregate amount of all
prior payments by Sublessee to such Indemnitee under this Section 29(c)
less (ii) the

 

60

 

aggregate amount
of all prior payments with respect to such Tax by such Indemnitee to Sublessee
pursuant to this sentence, with any excess being carried forward to offset
Sublessee’s obligations, if any, to make subsequent payments to such Indemnitee
under this Section 29(c).

 

Nothing in this Section
29(c) shall be construed as a guaranty by Sublessee of the residual value of
the Aircraft.

 

If a claim is made
against an Indemnitee involving one or more Expenses and such Indemnitee has
notice thereof, such Indemnitee shall promptly, upon receiving such notice,
give notice of such claim to Sublessee and Sublessor; provided that the failure to
provide such notice shall not release Sublessee from any of its obligations to
indemnify hereunder, and no payment by Sublessee to an Indemnitee pursuant to
this Section 29(c) shall be deemed to constitute a waiver or release of
any right or remedy which Sublessee may have against such Indemnitee for any
actual damages as a result of the failure by such Indemnitee to give Sublessee
such notice.  Sublessee shall be
entitled, at its sole cost and expense, acting through counsel acceptable to the
respective Indemnitee, (A) so long as Sublessee has agreed in a writing
acceptable to such Indemnitee that Sublessee is liable to such Indemnitee for
such Expense hereunder, in any judicial or administrative proceeding that
involves solely a claim for one or more Expenses, to assume responsibility for
and control thereof, (B) so long as Sublessee has agreed in a writing
acceptable to such Indemnitee that Sublessee is liable to such Indemnitee for
such Expense hereunder, in any judicial or administrative proceeding involving
a claim for one or more Expenses and other claims related or unrelated to the
transactions contemplated by the Operative Documents, to assume responsibility
for and control of such claim for Expenses to the extent that the same may be and
is severed from such other claims (and such Indemnitee shall use its reasonable
efforts to obtain such severance, provided that Sublessee has requested such
severance and agrees to pay the reasonable out-of-pocket costs and expenses
(including, without limitation, reasonable counsel fees and disbursements)
incurred by such Indemnitee, if any, in connection with such severance), and
(C) in any other case, to be consulted by such Indemnitee with respect to
judicial proceedings subject to the control of such Indemnitee.  Notwithstanding any of the foregoing to the
contrary, Sublessee shall not be entitled to assume responsibility for and
control of any such judicial or administrative proceedings (M) while a Default
or an Event of Default or an Event of Default (as such term is defined in the
Head Lease) or a Default (as such term is defined in the Head Lease) of the
type referred to in Section 14(a), 14(b) or 14(e) of the Head Lease shall have
occurred and be continuing, (N) if such proceedings will involve a risk of the
sale, forfeiture or loss of, or the creation of any Lien (other than a
Permitted Lien) on the Aircraft, the Trust Indenture Estate or the Trust Estate
or any part thereof, or (O) if such proceeding could in the good faith opinion
of such Indemnitee entail any risk of civil liability or criminal liability or
present a conflict of interest making separate representation necessary.  The affected Indemnitee may participate at
its own expense and with its own counsel in any judicial proceeding controlled
by Sublessee pursuant to the preceding provisions.

 

The affected Indemnitee
shall supply Sublessee with such information reasonably requested by Sublessee
as is necessary or advisable for Sublessee to control or participate in any
proceeding to the extent permitted by this Section 29(c).  Unless a Default or an Event of Default
shall have occurred and be continuing (in which case the consent of Sublessee
shall not be required), such Indemnitee shall not enter into a settlement or
other compromise with respect to any Expense without the prior written consent
of Sublessee, which consent shall not be

 

61

 

unreasonably
withheld or delayed, unless such Indemnitee waives its right to be indemnified
with respect to such Expense under this Section 29(c).

 

Sublessee shall supply
the affected Indemnitee and Sublessor with such information reasonably
requested by such Indemnitee as is necessary or advisable for such Indemnitee
to control or participate in any proceeding to the extent permitted by this
Section 29(c).

 

Upon payment in full of
any Expense or Tax pursuant to this Section 29, Sublessee, or, if any
Expense or Tax has been paid by insurers, the insurers, without any further
action, shall be subrogated to any claims the affected Indemnitee may have
relating thereto; provided that Sublessee shall not be so subrogated so long
as a Default or an Event of Default has occurred and is continuing.  Such Indemnitee agrees to give such further
reasonable assurances or agreements and to provide such reasonable cooperation
to Sublessee or the insurers to permit Sublessee or the insurers to pursue such
claims, if any, to the extent reasonably requested by Sublessee or the
insurers.

 

In the event that
Sublessee shall have paid an amount to an Indemnitee pursuant to this
Section 29(c), and such Indemnitee subsequently shall be reimbursed in
respect of such indemnified amount from any other Person, such Indemnitee shall
promptly pay to Sublessee an amount equal to the amount of such reimbursement
(but in no event more than such payment from Sublessee) plus any net tax
benefit (or minus any net tax detriment) realized by such Indemnitee as a
result of any reimbursement received and payment made by such Indemnitee
pursuant to this sentence; provided, that Sublessor shall not be
obligated to make any payment pursuant to this Section 29(c) to the extent
that the amount of such payment would exceed (i) the aggregate amount of all
prior payments by Sublessee to Sublessor under this Section 29(c) less
(ii) the aggregate amount of all prior payments by Sublessor to Sublessee
pursuant to this Section 29(c), with any excess being carried forward to
offset Sublessee’s obligations, if any, to make subsequent payments to Sublessor
under this Section 29(c); provided, further, that such Indemnitee
shall have no obligation to reimburse Sublessee if (i) a Default or an Event of
Default or an Event of Default (as such term is defined in the Head Lease) has
occurred and is continuing or if the Airline Services Agreement shall have been
terminated or canceled or shall have terminated in accordance with its terms or
(ii) Sublessee has not paid such Indemnitee all amounts required pursuant
to this Section 29(c) and any other amounts then due to such Indemnitee
from Sublessee under any of the Operative Documents or Sublessee Documents.

 

Sublessee’s obligations
under the indemnities provided for in this Sublease shall be those of a primary
obligor, whether or not the Person indemnified shall also be indemnified with
respect to the same matter under the terms of any other document or instrument,
and the Person seeking indemnification from Sublessee pursuant to any provision
of this Sublease may proceed directly against Sublessee without first seeking
to enforce any other right of indemnification.

 

(d)           Income Tax.  For purposes of this Section 29, the term “Income Tax”
means any Tax based on or measured by net income (other than sales, use,
license, rental, ad valorem and value added or property Taxes) (including,
without limitation, capital gains taxes,

 

62

 

minimum taxes, income
taxes collected by withholding and taxes on tax preference items), and
interest, additions to tax, penalties, or other charges in respect thereof.

 

(e)           Survival. 
Notwithstanding anything to the contrary contained in this Sublease, the
provisions of this Section 29 shall survive any termination or expiration of
this Sublease.

 

SECTION 30.  Certain Representations, Warranties and Covenants.  (a)  Sublessor represents and
warrants to Sublessee as follows:

 

(i)          Sublessor is a
corporation duly organized and validly existing in good standing under the laws
of its jurisdiction of organization, and has the corporate power and authority
to carry on its business as now conducted, to own or hold under lease its
properties and to enter into and perform its obligations under, the Sublessee
Documents to which Sublessor is a party;

 

(ii)         the Sublessee
Documents to which Sublessor is a party have been duly authorized by all
necessary corporate action on the part of Sublessor, do not require any
approval not already obtained of stockholders of Sublessor or any approval or
consent not already obtained of any trustee or holders of any indebtedness or
obligations of Sublessor, and have been duly executed and delivered by
Sublessor, and neither the execution and delivery thereof, nor the consummation
of the transactions contemplated thereby, nor compliance by Sublessor with any
of the terms and provisions thereof, will contravene any United States Federal
or state law, judgment, governmental rule, regulation or order applicable to or
binding on Sublessor (it being understood that no representation or warranty is
made with respect to laws, rules or regulations relating to aviation or to the
nature of the equipment owned by Sublessor) or contravene or result in any
breach of or constitute any default under, or result in the creation of any
Lien (other than Liens provided for in the Operative Documents or the Sublessee
Documents) upon any property of Sublessor under, any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, bank loan or
credit agreement, corporate charter, by–law or other agreement or
instrument to which Sublessor is a party or by which it or its properties may
be bound or affected; and

 

(iii)        each of Sublessee
Documents to which Sublessor is a party constitutes a legal, valid and binding
obligation of Sublessor enforceable against Sublessor in accordance with the
terms thereof (except as may be limited by (A) general principles of equity,
(B) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting the rights of creditors generally, (C)
applicable laws which may affect the remedies provided therein, which laws,
however, do not make the remedies provided therein inadequate for the practical
realization of the benefits provided thereby, except that no representation or
warranty is made as to the amount of priority of any recovery under any
particular circumstances, and (D) in the case of indemnity

 

63

 

provisions
contained in such documents, as limited by public policy considerations).

 

(b)           [Intentionally Omitted]

 

(c)           Sublessee covenants and agrees that
it shall at all times be a Certificated Air Carrier.

 

(d)           Sublessee, at its expense, will take,
or cause to be taken, such action with respect to the recording, filing,
re-recording and refiling of this Sublease, the Sublease Supplement, and any
financing statements or other instruments as are necessary to maintain (or as
are reasonably requested by Sublessor) the perfection of any security interest
that may be claimed to have been created by this Sublease or will furnish to Sublessor
timely notice of the necessity of such action, together with such instruments,
in execution form, and such other information as may be required to enable
Sublessor to take such action. 
Sublessee shall furnish to Sublessor annually after the execution hereof
(but not later than March 15th of each year, commencing with the year 200_ [the
calendar year following closing date]) an opinion of Crowe & Dunlevy, P.C.
and/or other counsel reasonable satisfactory to Sublessor nationally recognized
in FAA matters covering such matters with respect to the interests of Sublessor
in the Aircraft and the perfection of security interests therein as Sublessor
may reasonably request.  Sublessee will
notify Sublessor of any change in the location of its chief executive office
(as such term is used in Article 9 of the Uniform Commercial Code) prior to
making such change.

 

SECTION 31.  Covenants of Sublessee.  Sublessee covenants and agrees with Sublessor as follows:

 

Sublessee will, at its
own cost and expense, cause to be done, executed, acknowledged and delivered
all and every such further acts, conveyances and assurances as Sublessor shall
reasonably require for accomplishing the purposes of this Sublease and the
other Sublessee Documents; provided that any instrument or other
document so executed by Sublessee will not expand any obligations or limit any
rights of Sublessee in respect of the transactions contemplated by any
Sublessee Document.  Sublessee, upon
delivery of the Aircraft under this Sublease, shall at all times thereafter
cause the same to remain duly registered in the name of Sublessor, except as
otherwise required or permitted hereunder or under this Sublease, under the
Federal Aviation Act, or shall furnish to Sublessor such information as may be
required to enable Sublessor to make application for such registration, and
shall promptly furnish to Sublessor such information as may be required (or
reasonably requested by Sublessor) to enable Sublessor to timely file any
reports required to be filed by Sublessor, as the case may be, as a result of
its interest in the Aircraft with any governmental authority.

 

SECTION 32.  Consent to Jurisdiction.  Each of the parties hereto (A) hereby irrevocably submits itself
to the non-exclusive jurisdiction of the United States District Court for the
Southern District of New York and to the non-exclusive jurisdiction of the
Supreme Court of the State of New York, New York County, for the purposes of
any suit, action or other proceeding arising out of
this Sublease or any other Operative Document or Sublessee Document, the
subject matter of any thereof or any of the transactions contemplated hereby or
thereby brought by any party or parties thereto, or their successors or
assigns, and (B) hereby

 

64

 

waives,
and agrees not to assert, by way of motion, as a defense, or otherwise, in any
such suit, action or proceeding, to the extent
permitted by applicable law, that the suit, action or proceeding is brought in
an inconvenient forum, that the venue of the suit, action or proceeding is
improper, or that this Sublease or any other Operative Document or Sublessee
Document or the subject matter of any thereof or any of the
transactions contemplated hereby or thereby may not be enforced in or by such
courts.  Sublessee hereby generally
consents to service of process at CT Corporation System, 1633 Broadway, New
York, New York 10019.

 

SECTION 33.  Owner for Federal Tax Purposes.  It is hereby agreed among Sublessor and
Sublessee that for Federal income tax purposes the Owner will be the owner of
the Aircraft and Sublessee will be the sublessee thereof, and each party hereto
agrees to characterize this Sublease as a lease for Federal income tax
purposes.

 

65

 

IN WITNESS WHEREOF,
Sublessor and Sublessee have each caused this Sublease to be duly executed as
of the day and year first above written.

 

	
   

  	
  NORTHWEST
  AIRLINES, INC.,

  
	
   

  	
    Sublessor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	 

	
   

  	
   

  	
  Name:

  	 

	
   

  	
   

  	
  Title:

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  PINNACLE
  AIRLINES, INC.,

  
	
   

  	
    Sublessee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

	
  Agreed this
          day of
        , 200  :

  	
   

  
	
   

  	
   

  
	
  PINNACLE
  AIRLINES CORP.,

  	
   

  
	
    Sublessee Guarantor

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	 
	
  By:

  	
   

  	
   

  	 

	 
	
   

  	
  Name:

  	
   

  	 

	 
	
   

  	
  Title:

  	
   

  	 

					

 

 

	
   

  	
  EXHIBIT A

  to

  Sublease Agreement

  [NW 200        ]

  

 

SUBLEASE SUPPLEMENT No.
     

[NW 200       ]

 

SUBLEASE SUPPLEMENT NO.     , dated
         ,
20      , between NORTHWEST AIRLINES, INC. (“Sublessor”),
and PINNACLE AIRLINES, INC. (“Sublessee”).

 

Sublessor and Sublessee
have heretofore entered into that certain Sublease Agreement [NW
200       ], dated as of
           ,
200  , relating to one Bombardier Inc. Canadair Regional Jet Model
CL-600-2B19  aircraft (herein called the
“Sublease,”
and the defined terms therein being hereinafter used with the same
meanings).  The Sublease provides for
the execution and delivery from time to time of Sublease Supplements for the
purpose of subleasing the Airframe and Engines under the Sublease as and when
delivered by Sublessor to Sublessee in accordance with the terms thereof.

 

(1)The Sublease relates
to the Airframe and Engines described below, and a counterpart of the Sublease
is attached hereto, and made a part hereof, and this Sublease Supplement,
together with such attachment, is being filed for recordation on the date
hereof with the Federal Aviation Administration as one document.

 

(2)The Sublease Agreement
relates to the Airframe and Engines described below, and a counterpart of the
Sublease Agreement, attached and made a part of Sublease Supplement No. 1 dated
             ,
20    to the Sublease Agreement, has been recorded by the
Federal Aviation Administration on
             ,
20   , as one document and assigned Conveyance No.
    .

 

NOW, THEREFORE, in
consideration of the premises and other good and sufficient consideration,
Sublessor and Sublessee hereby agree as follows:

 

1.             Sublessor hereby delivers and subleases to Sublessee
under the Sublease and Sublessee hereby accepts and subleases from Sublessor
under the Sublease the following described Bombardier Inc. Canadair Regional
Jet Model CL-600-2B19 aircraft (the “Aircraft”), which Aircraft as of the date
hereof consists of the following components:

 

(i)            Airframe:  FAA Registration No.
             ;
manufacturer’s serial no.         , and

 

(ii)           Engines:  two (2) General Electric Model CF34-3B1 type
engines bearing, respectively, manufacturer’s serial nos.
          and
          (each of

 

(1)   This language for Sublease Supplement No.
1.

(2)   This language for other Sublease
Supplements.

 

1

 

which engines has 750 or more rated takeoff horsepower or the
equivalent of such horsepower).

 

2.             The Commencement Date of the Aircraft is the date of
this Sublease Supplement set forth in the opening paragraph hereof.  Except as otherwise provided in the
Sublease, the Term for the Aircraft shall commence on the Commencement Date and
end on the Expiration Date.

 

3.             Sublessee hereby confirms its agreement to pay Sublessor
Basic Rent for the Aircraft throughout the Term therefor in accordance with
Section 3 of the Sublease.

 

4.             Sublessee hereby confirms to Sublessor that Sublessee
has accepted the Aircraft for all purposes hereof and of the Sublease as being
airworthy, in good working order and repair and without defect or inherent vice
in title, condition, design, operation or fitness for use.

 

5.             All of the terms and provisions of the Sublease are
hereby incorporated by reference in this Sublease Supplement to the same extent
as if fully set forth herein.

 

6.             This Sublease Supplement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.

 

2

 

IN WITNESS WHEREOF,
Sublessor and Sublessee have caused this Sublease Supplement to be duly
executed on the day and year first above written.

 

	
   

  	
  NORTHWEST
  AIRLINES, INC.,

  	 

	
   

  	
   

  	
  Sublessor

  
	
   

  	
   

  	 

	
   

  	
   

  	 

	 
	
   

  	
  By:

  	
   

  	 

	 
	
   

  	
   

  	
  Name:

  	 

	 
	
   

  	
   

  	
  Title:

  	 

	 
	
   

  	
   

  	
   

  	 

	
   

  	
  PINNACLE AIRLINES, INC.,

  	 

	
   

  	
  Sublessee

  	 

	
   

  	
   

  	 

	
   

  	
   

  	 

	 
	
   

  	
  By:

  	
   

  	 

	 
	
   

  	
   

  	
  Name:

  	 

	 
	
   

  	
   

  	
  Title:

  	 

					

 

3

 

	
   

  	
  EXHIBIT B

  to

  Sublease Agreement

  [NW 200       ]

  

 

BASIC RENT SCHEDULE

 

The portion of this
Exhibit appearing below this text is intentionally deleted from the FAA filing
counterpart as the parties hereto deem it to contain confidential information.

 

Basic Rent:

 

	
  Sublease Period Date

  	
   

  	
  Basic Rent

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

1

 

	
   

  	
  EXHIBIT C

  to

  Sublease Agreement

  [NW 200_ __]

  

 

STIPULATED LOSS VALUE SCHEDULE

 

The portion of this
Exhibit appearing below this text is intentionally deleted from the FAA filing
counterpart as the parties hereto deem it to contain confidential information.

 

	
  Stipulated
  Loss Value Date

  	
   

  	
  Stipulated
  Loss Value (In Dollars)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

1

 

STIPULATED LOSS VALUE
SCHEDULE

 

	
  Stipulated Loss Value Date

  	
   

  	
  Stipulated
  Loss Value (In Dollars)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

2

 

STIPULATED LOSS VALUE
SCHEDULE

 

	
  Stipulated Loss Value Date

  	
   

  	
  Stipulated
  Loss Value (In Dollars)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

3

 

STIPULATED LOSS VALUE
SCHEDULE

 

	
  Stipulated Loss Value Date

  	
   

  	
  Stipulated
  Loss Value (In Dollars)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

4

 

STIPULATED LOSS VALUE
SCHEDULE

 

	
  Stipulated Loss Value Date

  	
   

  	
  Stipulated
  Loss Value (In Dollars)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

5

 

	
   

  	
  EXHIBIT D

  
	
   

  	
  to

  
	
   

  	
  Sublease Agreement

  
	
   

  	
  [NW 200  
        ]

  

 

RETURN
CONDITIONS

 

The portion of
this Exhibit appearing below this text is intentionally deleted from the FAA
filing counterpart as the parties hereto deem it to contain confidential
information.

 

Unless the
context shall otherwise require and except as set forth herein, the capitalized
terms used in this Exhibit shall have the meanings given to such terms in the
Sublease.

 

Definitions

 

Aircraft Documentation:
means records, manuals, logs and documents delivered with the Aircraft and
those developed and maintained with respect to the Aircraft during the Term,
including, without limitation, all of those required by the FAA to be
maintained for FAR Part 121 operation and the Aircraft Documentation listed in
Appendix I hereto.

 

Approved Air Authority:  means the Federal Aviation Administration.

 

APU:  means the Honeywell model 3800488-3
auxiliary power unit originally installed on the Aircraft on the Delivery Date
or any auxiliary power unit of the same or another manufacturer and of a
comparable or improved model substituted for such originally installed
auxiliary power unit.

 

Calendar controlled components or parts:  those components or parts which at specific
calendar-time intervals, in accordance with the Maintenance Program, are to be
discarded, overhauled, or recertified upon reaching such time limit.

 

Configuration Deviation List:  the list provided by the Aircraft
manufacturer specifying which parts of the Aircraft that can be removed without
affecting the continued service of the Aircraft as the same may be modified
from time to time pursuant to and in accordance with the approval of the
Governmental Authority.

 

Cycle-controlled components or parts:  those components or parts which at specific
flight-cycle intervals, in accordance with the Maintenance Program,  are to be discarded, overhauled, or
recertified upon reaching such interval.

 

Flight Hour:  shall mean each hour or part thereof,
measured to two decimal places, elapsing from the moment the wheels of the
Airframe leave the ground on take-off to the moment when the wheels of the
Airframe touch the ground on landing.

 

Governmental Authority:  shall mean (a) the FAA; (b) any national
government, or political subdivision thereof or local jurisdiction therein; (c)
any board, commission, department, division,

 

1

 

organ, instrumentality, court,
or agency of any entity described in (b) above, however constituted; and (d)
any association, organization, or institution of which any entity described in
(b) or (c) above is a member or to whose jurisdiction any such entity is
subject or in whose activities any such entity is a participant but only
(except for purposes of defining Law below) to the extent that any of the
preceding have jurisdiction over the Aircraft or its operations.

 

Hour-controlled components or parts:  those components or parts at specified
Flight-Hour intervals, in accordance with the Maintenance Program, are to be
discarded, overhauled, or recertified upon reaching such interval.

 

Law:  shall mean (a) any statute, decree,
constitution, regulation, order, judgment or other directive of any
Governmental Authority; (b) any treaty, pact, compact or other agreement to
which any Governmental Authority is a signatory or party; (c) any judicial or
administrative interpretation or application of any Law described in (a) or (b)
above; and (d) any amendment or revision of any Law described in (a), (b) or
(c) above.

 

Maintenance Manual:  shall mean Sublessee’s FAA approved
maintenance manual for the Aircraft which incorporates the procedures, limits
and requirements of the Manufacturer’s maintenance manual and related
documents.

 

Maintenance Program:  shall mean Sublessee’s FAA approved
maintenance program which shall define all scheduled maintenance activities,
condition monitoring and on-condition programs for Airframe, Engines and Parts,
including but not limited to servicing, testing, preventative maintenance,
structural inspections, systems checks, overhauls, corrosion control
inspections and corrosion treatments, and compliance with approved
modifications, service bulletins, and Airworthiness Directives as the same may
be modified from time to time pursuant to and in accordance with the prior
written approval of the applicable Governmental Authority and which at all
times (a) complies in all material respects with all FAA requirements for
FAR Part 121 operation, the MRB Report and Bombardier Inc.’s Maintenance
Requirement Manual, including incorporation of Bombardier Inc.’s corrosion
prevention and control program for aircraft of the same type as the Aircraft
and (b) complies in all material respects with General Electric
Corporation’s Engine Management Program for the Engine type.  Substantive Changes to the Maintenance
Program shall be subject to Sublessor’s prior written approval, such approval
not to be unreasonably withheld.  “Substantive Changes” means (i) changes
from block to phase maintenance or vice versa, (ii) scheduled maintenance
interval escalations or (iii) any other changes which could be materially
adverse to Sublessor or to the condition of the Aircraft on return or which
would impact the basis on which the Maintenance Reserve have been calculated.

 

Maintenance Review Board Report (“MRB
Report”):  the
report published by the Maintenance Review Board for the Bombardier CL-600-2B19
aircraft detailing the intervals and description of the maintenance tasks and,
where applicable, the life limits required for continued airworthiness of the
Aircraft.  Where the intervals specified
in the MRB Report differ from the limit specified by the component
manufacturer, the MRB Report shall take precedence.

 

Manufacturer: shall
mean, with respect to the Airframe, Bombardier Inc., and its successors and assigns,
with respect to the Engines, General Electric Aircraft Engines, a division of
General Electric Corporation and, with respect to the APU, Honeywell
Corporation.

 

2

 

Terminating Action:  the alteration or modification of the
Aircraft, Airframe, Engine or Part in accordance with mandatory service
bulletins, orders, airworthiness directives, and instructions required to
eliminate repetitive inspections or maintenance action.

 

Time Between Overhauls (“TBO”):  the maximum elapse time allowed between
successive overhauls or its equivalent of a Part as specified by the
Maintenance Program.

 

ARTICLE 1 - CONDITION OF
AIRCRAFT

 

1.0                          General
Conditions.

 

At the time of
return, the Aircraft shall (i) have been maintained in accordance
with the Maintenance Program as approved and authorized by the Governmental
Authority, as if the Aircraft were to be kept in further commercial passenger
service by Sublessee, (ii) the Aircraft shall not have been discriminated
against whether by reason of its leased status or otherwise in maintenance,
use, operation or in any other manner whatsoever, including, without
limitation, as to the type of maintenance program applicable to the Aircraft,
including any Engine, or as to compliance with Airworthiness Directives,
and (iii) the Aircraft shall meet the following requirements:

 

(i)                                     Operating
Condition - The Aircraft shall be in as good operating condition as on the
Delivery Date, reasonable wear and tear excepted, with all of the Aircraft
equipment, components, and systems fully operational and serviceable in
accordance with the Maintenance Manual and Sublessee’s FAA approved airplane
flight manual.

 

(ii)                                  Certification
- The Aircraft shall have, and be in compliance with, a current and valid
standard FAA Certificate of Airworthiness for FAR Part 121 operation.  If requested by Sublessor, Sublessee shall
provide a current and valid FAA Certificate of Airworthiness for Export to
Canada or other country specified by Sublessor.

 

(iii)                               General
Appearance - The Aircraft shall be clean, cosmetically acceptable, with all
components reasonably free of foreign objects, accumulated dirt, grime, grease
and liquids, and be prepared for immediate placement into commercial service.  Any deterioration of paint or other
protective coatings due to leakage, improper adhesion, impact damage or
presence of foreign materials or liquids shall be repaired and replaced per the
Maintenance Manual.

 

(iv)                              Interior
Cabin - All ceiling, sidewall, bulkhead, galley, lavatory, overhead bin and
closet panels and doors shall be free from significant or unserviceable damage.
All seats 

 

3

 

shall be
serviceable and in good overall condition in accordance with major U.S. carrier
standards.  The Aircraft shall be
returned in Sublessor’s standard seating configuration for CRJ–200 or CRJ–440
Aircraft, as directed by Sublessor.  If
such direction requires conversion from a CRJ-200 to a CRJ-440 or vice versa,
the reasonable costs directly related to such conversion shall be borne by
Sublessor.

 

(v)                                 Airworthiness
Directives - The Aircraft shall be in compliance with all FAA requirements for
FAR Part 121 operation including all FAA issued airworthiness directives
(“Airworthiness Directives”) and Manufacturer alert service bulletins that are
issued prior to Sublease expiration and are applicable to the Aircraft, without
special deferment, exemption or alternate means of compliance, with terminating
action accomplished for all Airworthiness Directives which require termination
be accomplished prior to 180 days after Sublease expiration.

 

(vi)                              Deferred
Maintenance - There shall be no open outstanding or deferred maintenance items
scheduled or unscheduled, routine or non-routine, against the Aircraft.  The Airframe, each Engine, the APU and the
landing gear shall be serviceable and free from defects and discrepancies that
are outside the serviceable limits of the Maintenance Manual.

 

(vii)                           Corrosion
- There shall be no evidence of untreated, improperly treated or noticeable
corrosion.  Sublessee shall provide
documentation evidencing full compliance with the Sublessee’s Maintenance
Program including Sublessee’s FAA approved corrosion prevention and control
program and with all applicable Manufacturer recommendations and requirements
for corrosion prevention and control.

 

(viii)                        Title
- The Aircraft shall be returned in compliance with the provisions of clause
(ii) of the third sentence of Section 5(a) of the Sublease.

 

(ix)                                Alterations,
Modifications and Additions

 

a.   Replacement of Parts - Sublessee, at its
own cost and expense, shall have replaced all components or Parts which may
have from time to time become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use for
any reason whatsoever.  All replacement
Parts (a) shall be free and 

 

4

 

clear of all
Liens, except Permitted Liens, (b) shall be in good condition and in as good
operating condition as, and shall have 
a value, utility, maintenance and modification status at least equal to,
the Parts replaced, assuming such replaced parts were in the condition and
repair required to be maintained by the terms of the Sublease, and (c) shall
have documentation certifying compliance with all applicable Governmental
Authority regulations, including, without limitation, (1) serviceable tags
indicating time since overhaul, and overhaul or repair by a Governmental
Authority certified repair station, (ii) overhaul records, (iii) documentation
of modification status and compliance with applicable airworthiness directives,
and (iv) any other appropriate documentation required by the FAA for continued
FAR Part 121 operation.

 

1.1                          Condition
of Airframe.

 

The Aircraft
airframe at the time of its return to Sublessor shall meet the requirements and
shall have such hours and cycles remaining under Maintenance Program as set
forth below:

 

(i)                                     C
Check Inspection - Without regard to any payment made or to be made pursuant to
Section 1.8, the Airframe shall have completed, immediately after removal from
service and prior to return to Sublessor, the next sequential C check, or the
next set of phased C checks which make up the full compliment of a C check, as
applicable, and in each case shall include all lesser multiple C checks and all
phase checks. If Sublessee has elected to maintain the Aircraft in accordance
with an equalized maintenance check program, the Airframe shall have completed
immediately after removal from service and prior to return to Sublessor the
next six (6) equalized maintenance checks which shall include all phase
checks.  All defects observed during
such C check which exceed the Sublessee’s Maintenance Manual allowable limits
shall be rectified at Sublessee’s expense.

 

(ii)                                  Structural
Inspection Tasks - The airframe shall have remaining at least fifty percent
(50%) of the hours/cycles/calendar days to the initial threshold or fifty
percent (50%) of the hour/cycles/calendar days of the repeat inspection
interval whichever is applicable to all structural tasks; provided that, without
regard to any payment made or to be made pursuant to Section 1.8, the airframe
shall have a minimum remaining life of one 

 

5

 

C-Check
interval before any structural inspection task is due;

 

(iii)                               Landing
Gear Life - The main Landing Gear and the nose Landing Gear shall have at least
fifty percent (50%) landings, hours or calendar life remaining, whichever is
the most limiting prior to removal for overhaul in accordance with the  Maintenance Program; provided that, without
regard to any payment made or to be made pursuant to Section 1.8, the main
Landing Gear and the nose Landing Gear shall each have a minimum remaining life
of one C–Check interval; and

 

(iv)                              Brakes
- Brakes shall have remaining on average fifty percent (50%) or more of the
full service life on all brakes; provided that, without regard to any
payment made or to be made pursuant to Section 1.8, the brakes shall have a
minimum remaining life of one C-Check interval.

 

1.2                          Condition
of Controlled Components.

 

Aircraft and
Engine hour-controlled components or parts, at time of return to Sublessor,
shall have remaining, as a minimum, one half life and/or fifty percent (50%) of
the manufacturers approved hour limit, before any scheduled removals for
overhaul, test, disassembly or replacement. 
Aircraft and Engine life cycle fatigue (“LCF”), controlled components or parts, at time of return to
Sublessor, shall have remaining, as a minimum, one half life and/or fifty
percent (50%) of the manufacturers approved cycle limits, before any scheduled
removals for overhaul, test, disassembly or replacement; provided that, without
regard to any payment made or to be made pursuant to Section 1.8,  all components or parts controlled on a
calendar basis shall have at least one C check interval (or, if the service
interval is less that one C check, 100% of the service interval) remaining before
scheduled removal for testing, overhaul or replacement.

 

1.3.                         Condition
of Installed Engines.

 

At time of
return, each Engine will have at least fifty percent (50%) of hours or cycles
remaining, whichever is most limiting, before the next scheduled Engine removal
for inspection, test or disassembly for replacement of Life Limited Parts.  Cycle limits are as specified in the Power
Plant Limitations section of the Canadair MRB Report.  Additionally, the Engines shall satisfy the following conditions:

 

(i)                                     Power
Assurance Runs - Without regard to any payment made or to be made pursuant to
Section 1.8, each Engine shall pass power assurance performance tests
without 

 

6

 

operational
limitations in accordance with the Manufacturer’s maintenance manual.  The Aircraft and Engines shall be capable of
certificated full rated performance without limitation throughout the entire
operating envelopes as defined by the Sublessee’s FAA approved airplane flight
manual.

 

(ii)                                  Borescope
Inspection - Without regard to any payment made or to be made pursuant to
Section 1.8, each Engine shall pass a complete video-taped borescope inspection
of all accessible Engine sections performed in accordance with the
Manufacturer’s maintenance manual by Sublessor or Sublessor’s designated
representative after the Power Assurance Runs during the ground inspection per
Article 3.1 herein.  Any discrepancies
found during such inspection which exceed the Manufacturer’s maintenance manual
allowable limits for unrestricted continued service (without reduced interval
inspections), shall be corrected prior to Return by Sublessee at Sublessee’s
sole expense.

 

(iii)                               Adverse
Performance Data - No Engine shall be on engineering watch or on a reduced
interval inspection of any nature that could lead to premature removal of the
Engine.  If the Engine historical and
maintenance records, power assurance runs and/or trend monitoring data indicate
a level of performance deterioration or an abnormal rate of acceleration in
performance deterioration or oil consumption which based on manufacturer
specifications and/or experience indicate the Engine would require maintenance
prior to 3,500 engine flying hours after return, Sublessee shall correct or
cause to be corrected, such condition as necessary to rectify all deficient
Engine parameters in accordance with Manufacturer specifications.

 

(iv)                              APU
Life -The installed APU shall have remaining at least fifty percent (50%) of
the MRB HSI or the Sublessee’s demonstrated on-wing mean time between failure
(MTBF)  for APU hours and/or cycles,
whichever is applicable, before scheduled removal for overhaul, heavy
maintenance, or replacement of hour limited or Life Limited Parts at the time
of return.

 

7

 

1.4                           Intentionally
left blank.

 

1.5                           Service
Bulletin Kits.

 

At or upon
this return of the Aircraft, Sublessee shall deliver to Sublessor, at no cost
to Sublessor, all Service Bulletin Kits furnished without charge by a
manufacturer for installation on the Aircraft which have not been so
installed.  Sublessee shall load such
kits on board the Aircraft as cargo prior to the Aircraft departure unless
restricted by large size or hazardous material regulations.  In the event such Service Bulletin Kits were
purchased or manufactured by Sublessee, Sublessor shall have the exclusive
right to purchase such kits at Sublessee’s actual cost for a period of 30 days
after such return and the non-exclusive right so to purchase such kits
thereafter.

 

1.6                           Unique
Markings.

 

At time of return
to Sublessor of the Aircraft, Sublessee shall, at its cost remove from the
exterior and interior of the Aircraft Sublessee’s operator specific exterior
logos and insignias and interior markings where applicable.  The area where such markings were removed or
painted over shall blend in with the surrounding surface in a cosmetically
acceptable manner.  In the event that,
notwithstanding Sublessee’s obligation to do so, Sublessee does not remove such
markings, Sublessor shall have no obligation to remove such markings prior to
the sale, lease, or other disposition of the Aircraft by Sublessor after its
return.

 

1.7                           Repairs
and Repair Inspections.

 

The Aircraft
shall conform to its Type Certificate Data Sheet.  All major repairs (as defined for FAR Part 121 operations by the
FAA) and Major Modifications shall have been performed in accordance with FAA
approved data that is returned with the Aircraft.

 

All repairs
performed by Sublessee or its designee since the Aircraft delivery to
Sublessee, and which exist on  the
Aircraft, shall be in accordance with the manufacturer’s approved repair
schemes and/or structural repair manual and/or the recommendations of Advisory
Circulars AC25.529-1 or equivalent, and AC 25.571-1A or equivalent, and/or
Sublessee’s approved Maintenance Manual. The Sublessee shall maintain a damage
and repair history log which shall contain all major repair approval
documentation including, but not limited to, repair schemes and structural
repair manual references and damage tolerance analysis performed if
applicable.  The Aircraft shall be
returned with all temporary repairs replaced by permanent repairs per the
Manufacturer’s repair manual.  The
Aircraft, including the fuselage, wings, flight control 

 

8

 

surfaces and
empenage, shall be free of significant dents, abrasions and loose or pulled
rivets.

 

1.8                          Equivalency
Charge.

 

If the
Sublessee does not meet any of the remaining life conditions set forth in
Section 1.1 and 1.2, unless otherwise specified therein, in place of correcting
the specified hour, cycle or calendar life deficiency, Sublessee may elect to
pay to Sublessor an Equivalency Charge (for deficient condition) calculated in
accordance with the following formula (if the formula results in a positive
amount): 

 

	
  Pmt = [A
  (b-c)]/d

  

 

Where:

 

“Pmt”     is the Equivalency Charge payment

 

“A”                          is,
in respect of Engines, APU, Landing Gear or Airframe checks specified in
Articles 1.1, 1.2 and 1.3, the average of Sublessee’s demonstrated cost for overhauls,
bench checks or inspections (whichever is applicable to the section) at the
time of return, or, in respect of the Landing Gear and Engine LCF components,
the manufacturer’s list price for replacement parts at the time of return.  When demonstrated average costs for
overhauls or maintenance checks are not available from Sublessee, the average
of three quotes from three mutually acceptable repair stations shall be used as
the cost basis for the Equivalency Charge calculation;

 

“b”                             is
50% (or, if specified, the number specified) of the total operating
hours/cycles/time (whichever is applicable and most limiting) allowable between
such overhaul, inspection, bench check or removals;

 

“c”                              is
the actual number of operating hours/cycles/time (whichever is applicable and
most limiting) remaining to the next overhaul, inspection, bench check or
removals; and

 

“d”                             is
the total operating hours/cycles/time (whichever is applicable and most
limiting) allowable between such overhaul, inspection, bench check or removals.

 

Calculation of
the Equivalency Charge shall be based on each item identified in the
requirements of Articles 1.1, 1.2 and 1.3 in aggregate.  For example, each LCF part shall be assessed
on its status as far as accumulated cycles are concerned and the adjustment
amount for each is established.  All
other parts subject to this Equivalency Charge shall be similarly assessed and
the individual charges are to be added together.  For 

 

9

 

example, under
this plan, a positive charge on an Engine could offset a negative charge on the
Landing Gear.  If the total net result
is positive (indicating Sublessee returned the Aircraft in a state that, in
aggregate, has less than the 50% limit remaining), the net Equivalency Charge
shall be paid by Sublessee to Sublessor. 
In the event such a total is negative, no payment shall be made to
Sublessee from Sublessor.

 

ARTICLE 2 - AIRCRAFT
DOCUMENTATION AND SAFETY DEVICES

 

2.1                                                                                 Aircraft
Documentation.  Concurrently with return
of the Aircraft to Sublessor, Sublessee shall deliver to Sublessor one (1)
copy, in English, of the Aircraft Documentation (including current revisions
thereto). It is recognized that the Aircraft Documentation may be titled or
described differently than set forth in Appendix I due to Sublessee’s method of
maintaining the Aircraft Documentation. 
Accordingly, the information described in the Aircraft Documentation
shall be provided to Sublessor in the form and manner under which Sublessee
maintains such information, and shall include data pertinent to the
Aircraft.  All Aircraft Documentation
provided to Sublessor at time of the Aircraft return shall be listed and
described by Sublessee’s title or description with cross-reference to the
titles or descriptions provided in Appendix I, and included as an attachment to
the Aircraft Documentation.  All
Aircraft Documentation provided to Sublessor shall be in good condition,
readable and capable of being reproduced using standard reproduction processes,
complete, up to date and accurate as to content.  Any Aircraft Documentation, to the extent required by the
Governmental Authorities, not returned in its “original” form shall be stamped
“Certified True Copy” and both signed and dated by the Sublessee’s authorized personnel
at the time of its creation. Sublessee shall provide to Sublessor, upon
reasonable request, advance copies of any of the Aircraft Documentation as
Sublessor may desire or require in order to plan or accomplish recertification,
modification, sale, lease or other disposition or utilization of the Aircraft
upon receipt of such Aircraft by Sublessor.

 

Sublessor
shall provide, as part of the Aircraft Documentation, the original
certification tags and release notes for all life limited and rotable Parts
installed after delivery. The certification tags and release notes shall
provide traceability of the last overhaul and/or repair shop visit to the
approved repair facility that conducted the overhaul and/or repair.

 

Sublessee
shall, for the period that the Aircraft was operated by it:

 

i.                                          certify,
in writing as identified in Appendix I, that the Aircraft has not been involved
in any incidents or accidents.  If the
Aircraft has been in involved in any incidents or accidents the Sublessee shall
certify in a letter, full disclosure of all such events involving the

 

10

 

Aircraft
detailing all relevant details, including but not limited to, any subsequent
repairs; and

 

ii.                                       certify,
in writing, that there are no leased or rented parts installed on the Aircraft;
and

 

iii.                                    certify,
in writing, that Sublessee has no knowledge of parts installed on the Aircraft
that have been manufactured without appropriate Governmental Authority approval
and /or that do not conform to an internationally recognized airworthiness
standard and are approved for installation in the Aircraft.

 

2.2                                                                                 Remedy
for Non-Compliance. Sublessee shall take action to ensure that the Sublessor
and the Governmental Authority are provided with, but not limited to, all
requested guarantees of methods of compliance, component overhaul and records
management, quality control, part number and serial number verification.  If any such records or other data are
missing, incomplete or otherwise not in accordance with the Governmental
Authority standards, Sublessee shall re-accomplish the maintenance tasks
necessary to produce such records in accordance with the Maintenance Program
prior to return of the Aircraft or otherwise perform all necessary acts to
obtain such records in a manner satisfactory to the Governmental Authority.

 

2.3                                                                                 Flyaway
Kit.  Concurrently with return of the
Aircraft, Sublessee shall deliver to Sublessor on board the Aircraft one (1)
aircraft ship set of Aircraft safety devices for the Landing Gear down-locks,
engine plugs or the equivalent.  Loose
equipment would remain installed on the Aircraft as if Sublessee were to
continue operating the same in continued regular passenger service, each such
item functioning in accordance with its intended use.

 

ARTICLE 3 - INSPECTION AND
FLIGHTS

 

3.0                                                                                 Tests
Flight.  Upon return of the Aircraft, at
Sublessor’s request Sublessee shall conduct, at Sublessee’s expense and risk of
loss or damage, a test flight of the Aircraft to and from Memphis, Tennessee,
Detroit, Michigan or Minneapolis, Minnesota or such other location as mutually
agreed lasting at least one hour and 30 minutes, during which Sublessee shall
conduct demonstration, performance, avionics, systems and flight
characteristics testing requested by Sublessor to confirm that the Aircraft has
been maintained, and is being returned, in accordance with the terms of the
Sublease.  At its sole cost and expense,
Sublessee shall provide the pilot and the first officer for the test
flight.  Sublessor may have up to three
additional technical representatives on board the Aircraft during the test
flight.

 

11

 

3.1                                                                                 Ground
Inspection. The Aircraft including the Aircraft Documentation and Vendor
Documentation shall be made available to Sublessor for ground inspection by
Sublessor or its designee at Sublessee’s facilities.  Such inspection shall commence twenty (20) working days (in the
case of the Aircraft documentation and Vendor Documentation) and fifteen (15)
working days (in the case of the Aircraft) prior to the date of return of the
Aircraft to Sublessor.  At Sublessor’s
request, Sublessee shall remove the Aircraft from scheduled service and open
the areas of the Aircraft as required to perform the necessary checks as specified
in Article 1.2 and 1.3.  In addition,
Sublessee shall allow Sublessor to accomplish its inspection to determine that
the Aircraft, including the Aircraft Documentation and Vendor Documentation are
in the condition set forth in Article 2. 
During such checks, Sublessor’s personnel shall have the right to
reasonably request (and such request shall not be unreasonably denied by
Sublessee) that adjacent additional panels or areas be opened in order to allow
Sublessor’s personnel to confirm the Aircraft is in the condition set forth in
Articles 1.1, 1.2 and 1.3.

 

Sublessee
shall promptly correct any discrepancies from the requirements set out in
Articles 1 or 2 which are observed during such inspection and are communicated
in writing by Sublessor to Sublessee.

 

3.2                                                                                 Operational
Ground Check.  Promptly after completion
of any corrections required under Article 3.1, Sublessee shall conduct an
operations ground check on the Aircraft in accordance with the manufacturer’s
maintenance manual criteria for the purpose of demonstrating to Sublessor
the  operation of the systems comply
with allowable maintenance manual limitations, including a full fuel tank leak
check, pilot and static systems check and hydraulic system internal leak check.
Sublessee shall promptly correct those discrepancies that exceed maintenance
manual allowable limits.

 

3.3                                                                                 Operational
Test Flight.  Promptly after completion
of any corrections required under Articles 3.1 and 3.2, the Aircraft shall be
test flown by Sublessee, using qualified flight test personnel, for the amount
of time necessary to satisfactorily demonstrate the airworthiness of the
Aircraft and the proper functioning of all systems and components. Such Flight
Test profile will consist of the items specified in Appendix II hereto.  During such test flight command, care,
custody and control of the Aircraft shall remain at all times with
Sublessee.  Two (2) of Sublessor’s
designated representatives (or more if mutually agreed and permitted by the
FAA) may participate in such flight as observers.  Upon completion of such operational flight testing, the
representatives of Sublessee and Sublessor participating in such testing shall
agree in writing upon any discrepancies required to be corrected by Sublessee
in order to comply with Articles 1 and 2. 
If any of the discrepancies referred to in Articles 3.1, 3.2 and 3.3
continue to persist, Sublessor may, at its option, agree to

 

12

 

provisionally technically accept the Aircraft.  As used herein, “discrepancy(ies)” means (a)
for items addressed in the Manufacturer’s maintenance manual, a detected
condition that exceeds Manufacturer’s maintenance manual allowable limits,
(b) for items not addressed in the Manufacturer’s maintenance manual, a
detected condition that exceeds 
allowable limits under Sublessee’s FAA approved airplane flight manual
and (c) for items not addressed in the Manufacturer’s maintenance manual or
Sublessee’s FAA approved airplane flight manual, a detected condition that renders
the Aircraft not airworthy.  Upon
completion of the operational test flight and after Sublessee has corrected any
discrepancies in the condition of the Aircraft as required under this Exhibit
D and that exceed allowable limits, the Aircraft shall be technically
accepted by Sublessor’s representatives as evidenced by the signed acceptance
certificate.

 

3.4                                                                                 Ferry
Flight to Place of Redelivery.  Upon
receipt of the acceptance certificate from Sublessor, the Sublessee shall ferry
the Aircraft, at its sole cost and expense, to the re-delivery location. All
risk of loss or damage to the Aircraft shall remain Sublessee’s responsibility
until the Aircraft is delivered to Sublessor at the re-delivery location.  Up to two (2) of Sublessor’s designated
representatives (or more if mutually agreed and permitted by the FAA),
participating in the inspection or operational test flight relating to the
technical acceptance, may participate in such ferry flight as observers.

 

3.5                                                                                 Flight
Cost.  All flights pursuant to Articles
3.3. and 3.4 shall be made at Sublessee’s expense. Sublessee shall reimburse
Sublessor for any costs incurred by Sublessor associated with such flights,
including but not limited to costs for fuel, oil, airport fees, insurance,
takeoff/landing fees, customs duties, ground handling charges and airways
communication charges.

 

13

 

APPENDIX I TO EXHIBIT D

 

AIRCRAFT DOCUMENTATION

 

The term Aircraft Documentation
shall be provided in English and shall include the following:

 

1.                                       All
historical records for Aircraft including Airframes and Engines, including
original Airworthiness Certificate from country of Manufacturer and Sublessee’s
Airworthiness Certificate as issued by the Governmental Authority. Sublessee
shall supply all original (i.e. not copies) certification tags and release
notes from manufacturers or repair agencies for Parts installed by Sublessee.

 

2.                                       APU
historical records and schedule of overhaul.

 

3.                                       Copy
of the Maintenance Program including a task list indicating when items thereon
were last performed, and copies of job cards for all maintenance checks.

 

4.                                       Airframe
and Engines current inspection and maintenance status and operating times
including structural sampling inspection records of inspections performed on
other of Sublessee’s aircraft where credit for such inspections were applied
against the Aircraft.

 

5.                                       List
and status of time, cycle and calendar controlled components and parts -
Aircraft and Engines.

 

6.                                       List
and status of Life Limited Parts - Aircraft, Engines and APU.

 

7.                                       Summary
and control status of Airworthiness Directives - Aircraft including Airframe,
Engines, auxiliary power unit and Parts and the method of incorporation
(i.e.:  repetitive inspections, interim
fix or terminating action).

 

8.                                       List
of manufacturer’s service bulletins incorporated and method of incorporation
for Airframe, Engines and equipment. 
Where only a portion of a service bulletin is accomplished Sublessee
shall identify which portion was accomplished.

 

9.                                       List
of major modifications and/or alterations accomplished on the Aircraft,
Engines, and equipment together with all supporting documents required by the
FAA including one copy of each modification, alteration, engineering order and
associated drawings.

 

10.                                 List
of major repairs performed on Aircraft. 
A copy of all supporting documents required by the FAA including all
Engineering, Maintenance, Quality Control and regulatory documentation
associated with the major repairs shall be provided.

 

11.                                 List
of Supplemental Type Certificates (STC’s) incorporated together with a copy of
each certificate and associated data.

 

12.                                 Approved
Airplane Flight Manual (AFM).

 

13.                                 Flight
(operations) manual currently used by present operator.  (FCOM)

 

14

 

14.                                 Weight
and balance documents, including last weighing report.

 

15.                                 Sublessee’s
then-current weight and balance supplement - equipment list.

 

16.                                 Cross
reference parts catalogue (listing of Aircraft manufacturer’s part numbers
corresponding to parts manufacturer’s and current operator’s part numbers for
the same parts) if applicable.

 

17.                                 Flight
test reports - last flight accomplished prior to return.

 

18.                                 Last
accomplished flight recorder calibration (if the Aircraft is to be delivered
before any calibration is required to be accomplished, the Sublessee is to
provide the record of the initial or last certification of the flight
recorder).

 

19.                                 Inventory
list of Aircraft loose equipment.

 

20.                                 Letter
detailing any major incident and/or accidents involving the Aircraft (if none,
the letter should so state), certified by Sublessee’s chief inspector or
corporate officer responsible for aircraft maintenance.

 

21.                                 All
records required to comply with FAA requirements for FAR Part 121 operation
and/or initiated by Sublessee for Sublessee’s own benefit.

 

22.                                 List
of current equipment in passenger and flight crew compartments and/or current
interior arrangement diagram.

 

23.                                 Cross
reference list for Service Bulletins and other manufacturer published
instructions to Sublessee’s engineering orders.

 

Aircraft Documentation Supplement

 

24.                                 Certificates:

1.                                       Certificate
of Airworthiness

2.                                       Noise
Certificate

3.                                       Radio
License Certificate

4.                                       Original
Export Certificate of Airworthiness delivered in connection with original
delivery of Aircraft from Bombardier

5.                                       Certificate
of Sanitary Construction of Galleys

 

25.           Aircraft Status Records:

1.                                       Technical
Log Books

2.                                       Airframe
Maintenance Status Report

3.                                       Service
Bulletin Status Report

4.                                       Airworthiness
Directive Compliance Report (terminated and repetitive)

5.                                       Local
Modification Status Report List

6.                                       Last
Weighing Report

7.                                       Last
Compass Swing

 

15

 

26.          Aircraft Maintenance Records:

1.                                       Test
Flight Reports

2.                                       All
“C” Checks and last lower level maintenance check

3.                                       Work
Cards for each C-Check multiple (or segment)

4.                                       Modification
records including accomplishing documents

5.                                       CPCP
compliance report

6.                                       Aging
Aircraft compliance report

 

27.          Aircraft History Records:

1.                                       Aircraft
Structural Repair History

2.                                       Service
Difficulty Report

3.                                       Accident
or Incident Report

4.                                       Damage
Chart

 

28.          Engine Records:

1.                                       Log
Books

2.                                       Last
overhaul and repair documents for each module

3.                                       Airworthiness
Directive Compliance Report (terminated and repetitive)

4.                                       Manufacturer’s
Service Bulletin Status Report

5.                                       Engine
Disk Sheet

6.                                       Engine
Data Submittal Sheet

7.                                       Condition
Monitoring Status Report including trend monitoring data for the immediately
preceding 90 days of operation

8.                                       Back-to-birth
traceability for all life limited parts

9.                                       Last
test cell run performance report

 

30.          APU Records:

1.                                       Log
Book

2.                                       Last
overhaul and repair documents

3.                                       Manufacturer’s
Service Bulletin Status Report

 

31.          Component Records (including
components installed on Engines and APU):

1.                                       Time
Monitored Component Status Report with installed part numbers, serial numbers,
remaining hours and cycles (if applicable)

2.                                       Serviceability
tags and other appropriate back-up documentation (including 8130’s) for
currently installed components replaced since delivery from the Manufacturer

3.                                       Serialized
latest shop records, including all serviceable tags, release to service, and
repair orders detailing maintenance checks, inspections, tests, repairs,
replacements, restorations, overhauls, modifications and refurbishments

4.                                       Back-to-birth
traceability for all life limited parts

 

32.          Manuals:

1.                                       Airplane
Flight Manual

2.                                       Quick
Reference Handbook

3.                                       Aircraft
Operating Manual

4.                                       Weight
and Balance Manual Supplement

5.                                       Wiring
Diagram Manual

 

16

 

6.                                       Sublessee
Illustrated Parts Catalog

7.                                       Bombardier
Illustrated Parts Catalog (if different from item 6)

8.                                       Sublessee’s
FAA approved Maintenance Manual

9.                                       Bombardier
maintenance manual (if different from item 8)

10.                                 GE
Engine Illustrated Parts Catalog

11.                                 GE
Engine Shop Manual

12.                                 Systems
Schematic Manual

13.                                 Sublessee’s
Minimum Equipment List

14.                                 Master
Minimum Equipment List

15.                                 Configuration
Deviation List

16.                                 Dispatch
Deviation Guide

 

33.          Miscellaneous Technical Documents:

1.                                       Maintenance
Program Specifications/Requirements Schedule

2.                                       Interior
Configuration Drawings

3.                                       Loose
Equipment Inventory List

 

17

 

APPENDIX II TO EXHIBIT D

 

FLIGHT TEST PROFILE

 

18

 

	
   

  	
  EXHIBIT E

  
	
   

  	
  to

  
	
   

  	
  Sublease Agreement

  
	
   

  	
  [NW 200  
       ]

  

 

MINIMUM
LIABILITY AMOUNT

 

The portion of
this Exhibit appearing below this text is intentionally deleted from the FAA
filing counterpart as the parties hereto deem it to contain confidential
information.

 

The Minimum
Liability Amount shall be $1,000,000,000 per occurrence (or such other minimum
amount as may be reasonably requested by Sublessor from time to time in the
event Sublessee no longer obtains airline liability insurance coverage as part
of the Sublessor’s airline aviation liability insurance placement).

 

1

 

	
   

  	
  EXHIBIT F*

  
	
   

  	
  to

  
	
   

  	
  Sublease Agreement

  
	
   

  	
  [NW 200  
       ]

  

 

[MAINTENANCE RESERVE RATES

 

The portion of
this Exhibit appearing below this text is intentionally deleted from the FAA
filing counterpart as the parties hereto deem it to contain confidential
information.

 

Table 1:  C-CHECK MAINTENANCE RESERVE RATES**

 

	
  Check

  	
   

  	
  Rate

  	
   

  
	
  C1

  	
   

  	
  $

  	
  0

  	
   

  
	
  C2

  	
   

  	
  $

  	
  18

  	
   

  
	
  C3

  	
   

  	
  $

  	
  18

  	
   

  
	
  C4

  	
   

  	
  $

  	
  30

  	
   

  
	
  C5

  	
   

  	
  $

  	
  24

  	
   

  
	
  C6

  	
   

  	
  $

  	
  24

  	
   

  

 

Table 2:  STRUCTURAL INSPECTION MAINTENANCE RESERVE
RATES**

 

	
  Check

  	
   

  	
  Rate

  	
   

  
	
  24 mo

  	
   

  	
  $

  	
  0

  	
   

  
	
  48 mo

  	
   

  	
  $

  	
  10

  	
   

  
	
  72 mo

  	
   

  	
  $

  	
  10

  	
   

  
	
  96 mo

  	
   

  	
  $

  	
  33

  	
   

  
	
  120 mo

  	
   

  	
  $

  	
  7

  	
   

  
	
  144 mo

  	
   

  	
  $

  	
  7

  	
   

  

 

Table 3:  ENGINE MAINTENANCE RESERVE RATE**

 

	
   

  	
  Rate

  	
   

  
	
   

  	
  $

  	
  57.50

  	
   

  
				

 

*     To be inserted in Subleases entered into
in accordance with Section 3.02(a)(iv) of the Airline Services Agreement.

**   Rates listed are those to be paid prior to
the referenced event.

 

1

 

 

Table 4:  ENGINE LLP MAINTENANCE RESERVE RATE**

 

	
   

  	
  Rate

  	
   

  
	
   

  	
  $

  	
  18.50

  	
   

  
				

 

Table 5:  APU MAINTENANCE RESERVE RATE**

 

	
   

  	
  Rate

  	
   

  
	
   

  	
  $

  	
  20.00

  	
   

  
				

 

Table 6:  LANDING GEAR MAINTENANCE RESERVE RATE**

 

	
   

  	
  Rate

  	
   

  
	
   

  	
  $

  	
  10.00]

  	
   

  
				

 

**   Rates listed are those to be paid prior to the referenced event.

 

2Exhibit
10.3

 

 

FORM OF

ENGINE
LEASE AGREEMENT

[NW
200      ]

 

Dated as of

 

            ,
200  

 

Between

 

NORTHWEST AIRLINES, INC.,

             Lessor

 

AND

 

PINNACLE AIRLINES, INC.,

             Lessee

 

One General Electric Model CF34-3B1 Engine

 

 

 

TABLE OF CONTENTS

TO

ENGINE LEASE AGREEMENT [NW 200 
    ]

 

	
  SECTION 1.

  	
  Definitions

  
	
  SECTION 2.

  	
  Acceptance and Lease

  
	
  SECTION 3.

  	
  Term and Rent

  
	
  SECTION
  4.

  	
  Lessor’s
  Representations and Warranties

  
	
  SECTION 5.

  	
  Return of the Engine

  
	
  SECTION
  6.

  	
  Liens

  
	
  SECTION
  7.

  	
  Maintenance
  and Operation; Possession; Insignia

  
	
  SECTION
  8.

  	
  Replacement
  and Pooling of Parts; Alterations, Modifications and Additions

  
	
  SECTION 9.

  	
  Voluntary Termination

  
	
  SECTION 10.

  	
  Loss,
  Destruction, Requisition, etc.of Engine

  
	
  SECTION 11.

  	
  Insurance

  
	
  SECTION 12.

  	
  Inspection

  
	
  SECTION 13.

  	
  Assignment

  
	
  SECTION 14.

  	
  Events of
  Default

  
	
  SECTION 15.

  	
  Remedies;
  Automatic Termination

  
	
  SECTION 16.

  	
  Lessee’s
  Cooperation Concerning Certain Matters

  
	
  SECTION 17.

  	
  Notices

  
	
  SECTION 18.

  	
  No Set-Off,
  Counterclaim, etc

  
	
  SECTION 19.

  	
  No Renewal

  
	
  SECTION 20.

  	
  Maintenance
  Program

  
	
  SECTION 21.

  	
  Lessor’s
  Right to Perform for Lessee

  
	
  SECTION 22.

  	
  [Intentionally
  Omitted] [Maintenance Reserves; Investment of Security Funds; Liability of
  Lessor Limited]

  
	
  SECTION 23.

  	
  Service of
  Process

  
	
  SECTION 24.

  	
  Miscellaneous

  
	
  SECTION 25.

  	
  [Reserved]

  
	
  SECTION 26.

  	
  Covenant of
  Quiet Enjoyment

  
	
  SECTION 27.

  	
  Federal
  Bankruptcy Code

  
	
  SECTION 28.

  	
  Use of Funds

  
	
  SECTION 29.

  	
  Lessee’s
  Representations, Warranties and Indemnities

  
	
  SECTION 30.

  	
  Certain
  Representations, Warranties and Covenants

  
	
  SECTION 31.

  	
  Covenants of
  Lessee

  
	
  SECTION 32.

  	
  Consent to
  Jurisdiction

  
	
  SECTION 33.

  	
  Owner for
  Federal Tax Purposes

  

 

i

 

EXHIBITS

 

	
  EXHIBIT A

  	
  –

  	
  Form
  of Lease Supplement

  
	
  EXHIBIT B

  	
  –

  	
  Basic
  Rent

  
	
  EXHIBIT C

  	
  –

  	
  Stipulated
  Loss Value Schedule

  
	
  EXHIBIT
  D

  	
  –

  	
  Return
  Conditions

  
	
  EXHIBIT
  E

  	
  –

  	
  Minimum
  Liability Amount

  
	
  EXHIBIT
  F

  	
  –

  	
  Maintenance
  Reserve Rates

  
	
  EXHIBIT
  G

  	
  –

  	
  Headlease
  Variations

  
	
  [EXHIBIT H

  	
  –

  	
  Quick Engine Change Kit Specifications](1)

  

 

(1)  Will apear only in lease of
engine with QEC.

 

ii

 

ENGINE
LEASE AGREEMENT

 

[NW
200         ]

 

This ENGINE LEASE
AGREEMENT [NW 200           ], dated as
of                 , 200  , between NORTHWEST AIRLINES, INC., a
corporation organized and existing pursuant to the laws of the State of
Minnesota (“Lessor”), and PINNACLE AIRLINES, INC., a corporation organized
and existing pursuant to the laws of the State of Georgia (“Lessee”);

 

W I T N
E S S E T H:

 

WHEREAS, Lessor
has agreed to lease the Engine to Lessee, Lessee has agreed to enter into this
Lease for use of the Engine by Lessee in its operations in accordance with the
Airline Services Agreement and for no other purpose, and the parties hereto
intend this Lease to be an operating lease; and

 

WHEREAS, Lessor is
providing a valuable financial accommodation to Lessee by making the Engine
available to Lessee pursuant to this Lease, and Lessor is entering into this
Lease solely to provide the Engine to Lessee for use in its operations in
accordance with the Airline Services Agreement; and

 

NOW, THEREFORE, in
consideration of the mutual agreements contained herein and for other good and
valuable consideration, the receipt and legal sufficiency of which is hereby
acknowledged, Lessee and Lessor intending to be legally bound agree as follows:

 

SECTION
1.  Definitions. 
Unless the context otherwise requires, the following terms shall have
the following meanings for all purposes of this Lease and shall be equally
applicable to both the singular and the plural forms of the terms herein
defined:

 

“Additional
Insured” means Lessor or such other Person as Lessor may designate.

 

“Affiliate”
means, with respect to any Person, any other Person directly or indirectly
controlling, controlled by or under common control with such Person.  For the purposes of this definition,
“control” (including “controlled by” and “under common control with”) shall
mean the power, directly or indirectly, to direct or cause the direction of the
management and policies of such person whether through the ownership of voting
securities or by contract or otherwise. 
For the avoidance of doubt, Lessor and its Affiliates are not Affiliates
of Lessee.

 

“After-Tax Basis” means
an amount, which, after deduction of all Federal, state, local and foreign
taxes required to be paid by or on behalf of the recipient in respect of the
receipt or realization of such amount, is equal to the payment

 

 

required under the provisions of the Lessee Documents that requires
payments to be made on an After-Tax Basis.

 

“Aircraft”
means any Airframe leased or subleased to Lessee or an Affiliate of Lessee by
Lessor or an Affiliate of Lessor suitable for Lessee’s installation, use and
operation of the Engine.

 

“Aircraft Documentation”
has the meaning specified in Exhibit D hereto.

 

“Airframe”
means: any Bombardier Inc. Canadair Regional Jet Model CL-600-2B19 aircraft
(except engines from time to time installed thereon) specified in the lease or
sublease of such aircraft between Lessor or an Affiliate of Lessor and Lessee
or an Affiliate of Lessee; and (ii) any and all parts associated therewith
(except engines from time to time installed thereon) and covered by such
sublease.

 

“Airline Services Agreement”
means the Airline Services Agreement dated as of March 1, 2002 between
Lessor and Lessee, as modified, amended or supplemented from time to time
pursuant to the terms thereof.

 

“Bankruptcy
Code” means the Bankruptcy Reform Act of 1978, as amended, or
any subsequent legislation that amends, supplements or supersedes such
provisions.

 

“Base
Rate” means the rate of interest announced publicly by
Citibank, N.A. in New York, New York from time to time as its base rate.

 

“Basic
Rent” means, for the Term, the rent payable for the Engine
pursuant to Section 3(b).

 

“Basic
Shop Visit” means any shop visit, as defined by the Engine
Manufacturer that is based on an approved program of condition monitoring and
trend monitoring of performance deterioration that results in an Engine being
restored to full performance standard.

 

“Business
Day” means any day other than a Saturday or Sunday or a day
on which commercial banks are required or authorized to close in the City of
New York, New York; or Minneapolis, Minnesota.

 

“‘C’ Check” means
a “C” Check, as such term is defined in the Maintenance Program relating the
Aircraft that meets the requirements of a “C” Check as defined in the
Bombardier Inc. Maintenance Requirement Manual.

 

“Certificated
Air Carrier” means a Citizen of the United States holding a
carrier operating certificate issued by the Secretary of Transportation
pursuant to Chapter 447 of Title 49, United States Code, for aircraft capable
of carrying ten or more individuals or 6,000 pounds or more of cargo or that otherwise
is certified or 

 

2

 

registered to the
extent required to fall within the purview of 11 U.S.C. Section 1110 or any
analogous successor provision of the Bankruptcy Code.

 

“Citizen
of the United States” has the meaning specified in Section
40102(a)(15) of Title 49 of the United States Code or any similar legislation
of the United States of America enacted in substitution or replacement
therefor.

 

“Code”
means the Internal Revenue Code of 1986, as amended.

 

“Commencement
Date” means the date specified as the Commencement Date in the Lease
Supplement delivered on the Delivery Date.

 

“Default”
means any event which with the giving of notice or the lapse of time or both
would become an Event of Default.

 

“Delivery
Date” of the Engine means the date the Lease Supplement
subjecting the Engine to the Lease is executed and delivered by the Lessor and
the Lessee.

 

“Dollars”
and “$”
means the lawful currency of the United States of America.

 

“Engine”
means the General Electric Model CF34-3B1 type engine identified by
manufacturer’s serial number in the initial Lease Supplement, whether or not
from time to time thereafter installed on an Airframe or airframe or on any
other aircraft; and (ii) any engine which may from time to time be substituted,
pursuant to the terms hereof, for such engine, together in each case with
Shipping Stand, any QEC, the applicable Aircraft Documentation and any and all
Parts normally incorporated or installed in or attached thereto including any
and all Parts removed therefrom so long as title thereto shall remain vested in
the Lessor in accordance with the terms of Section 8 after removal from such
Engine; provided,
however, that at such time as an engine shall be deemed part of the
property leased hereunder in substitution for the Engine pursuant to the
applicable provisions hereof, the replaced Engine shall cease to be the Engine
hereunder.  The term “Engines”
means, as of any date of determination, all engines then leased by Lessor or any
Affiliate of Lessor to Lessee or any Affiliate of Lessee, whether under this
Lease or under any other engine lease, other than the engines initially leased
as part of an Aircraft by Lessor to Lessee unless the context requires.

 

[“Engine LLP Maintenance Reserves”
has the meaning specified in Section 22 (2) hereof.](1)

 

(1)  To be inserted in Engine
leases entered into in accordance with Section 3.02(a)(iv) of the Airline
Services Agreement.

 

3

 

[“Engine Maintenance Reserves”
has the meaning specified in Section 22 (2) hereof.](2)

 

“Engine Manufacturer”
means General Electric Aircraft Engines, a division of General Electric
Corporation.

 

“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended from time
to time, and the regulations promulgated and rulings issued thereunder.  Section references to ERISA are to ERISA, as
in effect at the date of the Participation Agreement and any subsequent provisions
of ERISA, amendatory thereof, supplemental thereto or substituted therefor.

 

“Event
of Default” has the meaning specified in Section 14 hereof.

 

“Event
of Loss” with respect to the Engine means any of the
following events with respect to such property: (i) the loss of such property
or of the use thereof due to the destruction of or damage to such property
which renders repair uneconomic or which renders such property permanently
unfit for normal use by Lessee for any reason whatsoever; (ii) any damage to
such property which results in an insurance settlement with respect to such
property on the basis of a total loss, or a constructive or compromised total
loss; (iii) the theft or disappearance of such property, or the confiscation,
condemnation, or seizure of, or requisition of title to, or use of, such
property (other than a requisition for use by the United States Government or
any agency or instrumentality of any thereof) which in the case of any event
referred to in this clause (iii) (other than a requisition of title) shall have
resulted in the loss of possession of such property by Lessee for a period in
excess of 90 consecutive days or, in the case of a requisition of title, the
requisition of title shall not have been reversed within 60 days from the date
of such requisition of title; (iv) as a result of any law, rule, regulation,
order or other action by the Federal Aviation Administration, the use of the
Engine (or any Aircraft on which the Engine is in use) in the normal course of
the business of air transportation shall have been prohibited for a period of
90 consecutive days, unless Lessee, prior to the expiration of such 90 day
period, shall have undertaken and shall be diligently carrying forward all
steps which are necessary or desirable to permit the normal use of the Engine
by Lessee, but in any event if such use shall have been prohibited for a period
of two consecutive years, provided that no Event of Loss shall be
deemed to have occurred if such prohibition has been applicable to the entire
U.S. registered fleet of Bombardier Inc. Canadair Regional Jet Series 200
aircraft of Lessee and Lessee, prior to the expiration of such two-year period,
shall have conformed at least one such aircraft in its fleet to the
requirements of any such law, rule, regulation, order or other action and
commenced regular commercial use of the same in such jurisdiction and shall be
diligently carrying forward all steps which are necessary or desirable to
permit the normal use of such aircraft by Lessee, provided, further,
that, notwithstanding any 

 

(2)  To be inserted in Engine
leases entered into in accordance with Section 3.02(a)(iv) of the Airline
Services Agreement.

 

4

 

of the foregoing,
such prohibition shall constitute an Event of Loss if such use shall have been
prohibited for a period of three consecutive years, or if such use shall be
prohibited at the expiration of the Term; or (v) any divestiture of title
to or interest in an Engine treated as an Event of Loss pursuant to Section
7(b) hereof.  An Event of Loss with
respect to the Engine shall be deemed to have occurred if an Event of Loss (as
defined in the related Aircraft Lease) occurs with respect to an Aircraft on
which the Engine is then installed unless no damage occurs to the Engine and the
Engine is recovered by Lessee, as established to Lessor’s satisfaction within
the time period hereunder for performance of Lessee’s obligations in respect of
an Event of Loss.

 

“Expenses”
has the meaning specified in Section 29(c) hereof.

 

“Expiration
Date” means February 29, 2012.

 

“FAR” means the
regulations promulgated under the Federal Aviation Act.

 

“Federal
Aviation Act” means that portion of the United States Code
comprising those provisions formerly referred to as the Federal Aviation Act of
1958, as amended, or any subsequent legislation that amends, supplements or
supersedes such provisions.

 

“Federal
Aviation Administration” and “FAA” mean the United States
Federal Aviation Administration and any agency or instrumentality of the United
States government succeeding to their functions.

 

“Flight Hour”
means: with respect to the Engine or any Part, each hour or part thereof,
measured to two decimal places, which elapses from the time the wheels of the
airframe, whether or not an Airframe leased by Lessor to Lessee, on which such
Engine or Part is installed, leave the ground on take-off and the time when the
wheels of such airframe touch the ground on landing.

 

“Headlease” means
a lease or other agreement or instrument (other than a bill of sale or other
such instrument by which Lessor obtained legal title to the Engine) between
Lessor and a third-party owner of the Engine, pursuant to which Lessor obtains
rights in and to the Engine leased to Lessee hereunder.

 

“Headlease Documents”
means the agreements, instruments and other documents identified pursuant to
Exhibit G hereto in the event that the Engine is subject to a Headlease during
the Term.

 

“Headlease Interest” means
any of Headlessor (in its capacity as such), any entity serving as Headlessor in
its individual capacity, and,  but only
if a party to any Headlease Document, any owner participant in or comparable
beneficial owner of Headlessor.

 

5

 

“Headlessor” means
the Person
designated in the Headlease as the lessor of the Engine.  Except as Lessor and Headlessor may
otherwise agree, the Headlessor shall be the Owner of the Engine.

 

“Indemnitee”
means (i) Lessor, (ii) each Affiliate of Lessor, (iii) if and so long as the
Engine is subject to a Headlease during the Term, such Persons as are
identified pursuant to Exhibit G hereto and (iv) the respective directors,
officers, employees, agents and servants, successors and permitted assigns of
each of the Persons described in clauses (i), (ii) and (iii), inclusive.

 

“Lease
Agreement”, “this Lease Agreement”, “this Lease”, “this Agreement”, “herein”,
“hereof”, “hereunder”, “hereby” or other like words mean this
Engine Lease Agreement [NW 200       ],
as originally executed or as modified, amended or supplemented pursuant to the
applicable provisions hereof, including, without limitation, supplementation
hereof by one or more Lease Supplements entered into pursuant to the applicable
provisions hereof.

 

“Lease
Guaranty” means the Lease Guaranty [NW 200       ] dated as of the date hereof made by Lessee Guarantor for the
benefit of Lessor.

 

“Lease
Period” means each of the monthly periods throughout the Term
ending on a Lease Period Date.

 

“Lease
Period Date” means the 1st calendar day of each
month during the Term.

 

“Lease
Supplement” means a Lease Supplement, substantially in the
form of Exhibit A hereto, to be entered into between Lessor and Lessee
on the Commencement Date for the purpose of leasing the Engine under and
pursuant to the terms of this Lease Agreement, and any subsequent Lease
Supplement entered into in accordance with the terms hereof.

 

“Lessee”
means Pinnacle Airlines, Inc. a Georgia corporation, and its successors and
permitted assigns, as lessee under the Lease.

 

“Lessee
Documents” means the Lease, the Lease Supplement covering the
Engine, the acceptance certificate covering the Engine in the form agreed to by
Lessor and Lessee (herein called the “Lease Acceptance Certificate”) and the
Airline Services Agreement.

 

“Lessee
Guarantor” means Pinnacle Airlines, Corp., a Delaware
corporation, and its successors and permitted assigns.

 

“Lessor
Liens” means any Lien affecting or disposition of title or
interest affecting or in respect of the Engine arising as a result of (i)
claims against or affecting Lessor not arising from the transactions
contemplated by this Lease, (ii) any act or omission of Lessor not related to
the transactions contemplated by this Lease, (iii) Taxes imposed against Lessor
which Lessee has not agreed to

 

6

 

indemnify against
pursuant to this Lease, (iv) [reserved] or (v) claims against Lessor arising
out of the voluntary transfer of all or any portion of Lessor’s interest in any
Aircraft on which the Engine is then installed, or  in any of the Lessee Documents other than a transfer pursuant to
Sections 5, 8, 10 or 15 hereof, provided, however, that any Lien which is
attributable solely to Lessor and would otherwise constitute a Lessor Lien
hereunder shall not constitute a Lessor Lien hereunder so long as (1) the
existence of such Lien poses no material risk of the sale, forfeiture or loss
of the Engine, (2) the existence of such Lien does not interfere in any way
with Lessee’s use, possession or operation of Engine or of the Aircraft on
which it is then installed and (3) Lessor is diligently contesting such Lien.

 

“Lien”
means any mortgage, pledge, lien, charge, claim, encumbrance, lease, sublease,
sub-sublease or security interest.

 

“Life Limited Parts”
means those parts which have a specific hour, cycle and/or calendar life limit
as specified by the Manufacturer.

 

“Loss
Payment Date” has the meaning specified in Section 10(a)
hereof.

 

“Maintenance
Program” has the meaning specified in Exhibit D
hereto.

 

[“Maintenance
Reserves” has the meaning specified in Section 22 (2)
hereof.](3)

 

“Major
Modifications” include, but shall not be limited to (i)
changes that alter the fundamental nature of an Aircraft as a passenger and
cargo carrying aircraft, (ii) changes to the Engine or an engine that affects
the performance of an Aircraft or the Engine, (iii) changes that adversely
affect interchangeability or replaceability of Parts, (iv) substitution of
different types of equipment or accessories which are not equivalent in cost,
value and/or operational capability to the equipment or accessories being
replaced, (v) changes that invalidate or impair any warranty with respect to
the Engine or any Part, (vi) changes that adversely affect the eligibility of
an Aircraft or Engine to obtain an airworthiness certificate from the FAA or
(vii) any changes that result in a variation from the original type certificate
for an Aircraft (other than changes between 44 seat and 50 seat configurations
of an Aircraft as permitted by the Airline Services Agreement), but shall
exclude changes pursuant to airworthiness directives.

 

“Manufacturer”
means with respect to any Airframe, and where the context permits, any
Aircraft, Bombardier Inc., a Canadian Corporation, and its successors and
assigns and, with respect to the Engine, General Electric Company, a New York
corporation, and its successors and assigns.

 

(3)  To be inserted in Engine
leases entered into in accordance with Section 3.02(a)(iv) of the Airline
Services Agreement.

 

7

 

“Minimum
Liability Amount” has the meaning specified in Exhibit E
hereto.

 

“Operative
Documents” and “Operative Document” means this Lease, the
Lease Supplement covering the Engine, the Acceptance Certificate, any
Headlease, any Headlease Documents and the Purchase Agreement.

 

“Owner”
means (i) if the Engine is not subject to a Headlease, Lessor (or any
permitted assignee or successor thereof) for so long as this Lease remains in
effect and title to the Engine remains vested in Lessor pursuant to the terms
hereof or (ii) if and so long as the Engine is subject to a Headlease during
..the Term, the lessor of the Engine to Lessor pursuant to such Headlease,
unless such lessor and Lessor otherwise agree.

 

“Parts”
means all appliances, parts, instruments, appurtenances, accessories,
furnishings and other equipment of whatever nature (including QEC parts) (other
than the complete Engine or a complete other engine) which may from time to
time be incorporated or installed in or attached to the Engine or so long as
title thereto shall remain vested in the Owner in accordance with Section 8
after removal therefrom.

 

“Past
Due Rate” means a rate per annum equal to the greater of (a)
5% over the Base Rate and (b) 15%.

 

“PBH Agreement”
means a maintenance agreement which (i)
provides shop repair/overhaul of Engines or Parts on a continuous basis at an
agreed upon Flight Hour or cycle based rate, (ii) provides unrestricted
assignment rights to Lessor and Lessor’s future operators of any Aircraft on
which the Engine is installed, and (iii) has been approved in writing by Lessor
(including but not limited to specific Lessor approval of the maintenance
provider, rates, payment terms, scope, term, maintenance standard, assignment
rights and financial adjustments that are made when an Engine or Part exits
such program at termination or expiration of the PBH Agreement relative to such
Engine or Part).

 

“Permitted
Lien” means any Lien referred to in clauses (i) through (iii)
of Section 6 hereof.

 

“Person”
means any individual, corporation, partnership, limited liability company,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.

 

“Purchase
Agreement” means that certain General Terms Agreement No.
CF34-0798-057[A] dated July     , 2001, between the
Manufacturer and Lessor or Headlessor, as the case may be, relating to the
purchase of the Engine, as originally executed or as modified, amended or
supplemented in accordance with the terms thereof, but only insofar as the
foregoing relates to the Engine.

 

8

 

“QEC” mean the
quick engine change parts and components, if any, installed on the Engine as
identified in Exhibit H.

 

“Rent”
means Basic Rent and Supplemental Rent, collectively.

 

“Security Deposit”
means the cash security deposited with Lessor pursuant to Section 3(c) hereof.

 

“Shipping Stand”
means an engine shipping stand, designed and manufactured in accordance with
Manufacturer recommendations and requirements, for long distance ground and air
transportation of CF34-3B2 engines.

 

“Stipulated
Loss Value” with respect to the Engine, as of any date
through and including the Expiration Date, means, the amount specified in Exhibit
C hereto opposite the Stipulated Loss Value Date with respect to which the
amount is determined.

 

“Stipulated
Loss Value Date” means the [    ] calendar day of each calendar month during the Term.

 

“Supplemental
Rent” means, without duplication, all amounts, liabilities,
indemnities and obligations (other than Basic Rent) which Lessee assumes or
agrees to pay under any Lessee Document to or on behalf of Lessor or any other
Person hereunder or under any other Lessee Document.  The parties acknowledge that Supplemental Rent is a general
category and, accordingly, agree that any provision of any Lessee Document
which calls for the payment of Supplemental Rent and also calls for the payment
of specific items which are includable in Supplemental Rent is not to be
interpreted as requiring any double payment.

 

“Tax
Indemnitee” means (i) Lessor, (ii) the respective directors,
officers, employees, agents and servants of Lessor, (iii) if and so long as the
Engine is subject to a Headlease during the Term, the other parties identified
in Exhibit G as indemnitees of Lessor under such Headlease and (iv) the
respective Affiliates, successors and permitted assigns of each of the entities
described in the preceding clauses (i), (ii) and (iii) inclusive.

 

“Taxes”
means any and all fees (including, without limitation, license, recording,
documentation and registration fees), taxes (including, without limitation,
income, gross receipts, sales, rental, use, turnover, value added, property
(tangible and intangible), excise and stamp taxes), license, levies, imposts,
duties, charges, assessments or withholdings of any nature whatsoever, together
with any and all penalties, fines, additions to tax and interest thereon (each,
individually a “Tax”).

 

“Term” means
the term for which the Engine is leased hereunder pursuant to Section 3(a)
hereof commencing on the Commencement Date and ending on

 

9

 

the Expiration
Date, or such earlier date as this Lease may be terminated in accordance with
the provisions hereof.

 

SECTION 2.  Acceptance and Lease.  (a) Generally.  Lessor hereby agrees to lease to Lessee hereunder, and Lessee
hereby agrees to lease from Lessor hereunder, the Engine as evidenced by
the execution by Lessor and Lessee of a Lease Supplement leasing the Engine
hereunder.  Lessee hereby agrees that
such acceptance of the Engine by Lessor shall, without further act, irrevocably
constitute acceptance by Lessee of such Engine for all purposes of this
Lease.  As provided in Section 25 hereof,
the rights of Lessee hereunder are subject and subordinate to all the terms of
the Head Lease, including any amendments or restatements thereto as may occur
from time to time, and the parties intend this Lease to constitute a true
lease.

 

(b)  Airline Services Agreement.  Lessee acknowledges that Lessor is providing
a valuable financial accommodation to Lessee by entering into the Operative
Documents to which it is a party and this Lease to allow Lessee to obtain the
use of the Engine pursuant to the terms of the Airline Services Agreement.  As a condition to their rights hereunder,
Lessee and Lessor hereby confirm and ratify the Airline Services Agreement,
which is incorporated herein by reference for all purposes, and agree, as a
material term of this Lease and as a material inducement to Lessor to enter
into this Lease, to fully perform all of their respective obligations under the
Airline Services Agreement as a part of this Lease Agreement as though the same
were set forth herein.

 

(c)  Engine Headlease.  Notwithstanding any provision of this Lease to
the contrary, in the event that the Engine is at any time subject to a
Headlease, the terms and conditions set forth on Exhibit G hereto shall be
applicable to the Engine and this Lease during such portion of the Term as such
Headlease is in effect, and all terms and provisions set forth in this Lease
shall be construed in a manner consistent therewith.

 

SECTION
3.  Term and Rent.  (a) Term.  The Term shall commence on the Commencement
Date and end on the Expiration Date or such earlier date as this Lease may be
terminated in accordance with the provisions hereof.

 

(b)  Basic Rent.  Lessee shall pay Basic Rent with respect to
each Lease Period during the Term on each  Lease Period Date during the Term, in
consecutive monthly installments in the amounts as provided in the next
sentence.  Each such installment of
Basic Rent shall be payable in advance with respect to the month commencing on
such Lease Period Date and shall be equal to the amount specified for each
Lease Period Date specified in Exhibit B hereto.  In addition, Lessee shall pay Basic Rent on
the Commencement Date in the amount specified in Exhibit B hereto,
allocable to the period commencing on the Commencement Date and ending on such
date or on (but excluding) the immediately succeeding Lease Period Date (if
other than the Commencement Date).  If
Lessee shall for any reason whatsoever fail to return the Engine on the
Expiration Date in the condition specified herein, or return of the Engine is not
accepted by Lessor because of Lessee’s failure to meet the requirements of this
Lease, the obligations of Lessee provided in this Lease and in each other
Operative Document to which Lessee is a party, including the obligation to pay
Basic Rent, which, after the Expiration Date, shall be on a per diem basis
based on a pro rata application of 125% of the Basic Rent due during

 

10

 

the last Lease Period of
the Term, shall continue in effect with respect to the Engine, and the Term
shall be deemed to be extended until return of the Engine to Lessor in
accordance with the requirements of this Lease; provided that nothing in
this Section shall be construed as permitting or authorizing Lessee to fail to
meet, or consenting to or waiving any failure by Lessee to perform, Lessee’s
obligation to return the Engine in accordance with the requirements of this
Lease and Lessor shall be entitled to all of the benefits of, and all of its
rights and remedies set forth in, Sections 14 and 15 hereof.

 

(c)  Security Deposit.  Upon the execution of this Lease, Lessee
shall deposit an amount equal to one month of Basic Rent in cash with Lessor to
be held as security for performance of all of Lessee’s obligations hereunder
and as provided in Section 28 hereof. 
At any time after the repayment in full of the Promissory Note owing
from Pinnacle Airlines Corp. to NWA, Inc., dated as of [date], Lessor shall
have the right, upon written notice to Lessee, to require an additional deposit
by Lessee in an amount equal a second month of Basic Rent in cash to be held as
security for performance of all of Lessee’s obligations hereunder and as
provided in Section 28 hereof.  Lessee
shall deposit such additional month Basic Rent in cash with Lessor no later
than 6 months after receipt by Lessee of the notice referred to in the
preceding sentence.  Lessee agrees to
maintain the Security Deposit with Lessor for the full amount thereof
throughout the Term and Lessor may apply such amount as specified in Section 28
hereof.  Lessor may commingle the
Security Deposit with its general funds, and Lessee shall not be entitled to
earn interest on the Security Deposit.

 

Upon the
expiration of this Lease and full performance by Lessee of all of its
obligations hereunder, and provided that no Default or Event of
Default shall have occurred and be continuing, Lessor shall return the Security
Deposit to Lessee unless previously applied pursuant to the preceding
paragraph.

 

(d)  Supplemental Rent.  Lessee shall pay (or cause to be paid)
promptly to Lessor, or to whomsoever shall be entitled thereto, any and all
Supplemental Rent constituting Stipulated Loss Value [and Maintenance
Reserves](4) as the same shall become due and owing and all other amounts of
Supplemental Rent within five days after demand or within such other relevant
period as may be provided in any Lessee Document, and in the event of any
failure on the part of Lessee to pay any Supplemental Rent when due, Lessor
shall have all rights, powers and remedies provided for herein or in any other
Lessee Document or by law or equity or otherwise in the case of nonpayment of
Basic Rent. Lessee also will pay to Lessor, or to whomsoever shall be entitled
thereto, on demand, as Supplemental Rent, to the extent permitted by applicable
law, interest at the Past Due Rate on any part of any installment of Basic Rent
not paid when due for any period for which the same shall be overdue and on any
payment of Supplemental Rent not paid when due for the period until the same
shall be paid.

 

(e)  Payments in General.  All payments of Rent shall be
made directly by Lessee by wire transfer of immediately available funds prior
to 10:30 A.M., New York time, on the date of payment, to Lessor at its account
at USBank, Minneapolis, ABA No. 091000022, for the account of Northwest
Airlines, Inc., Account No. 150250099440 (or such other account of

 

(4)  To be inserted in Engine
leases entered into in accordance with Section 3.02(a)(iv) of the Airline
Services Agreement.

 

11

 

Lessor in the continental
United States as Lessor shall direct in a notice to Lessee at least 10 Business
Days prior to the date such payment of Rent is due).  All payments of Supplemental Rent shall be made in Dollars in
immediately available funds prior to 10:30 A.M., New York time, on the due date
thereof at such office of such other financial institution located in the
continental United States as the party entitled thereto may so direct at least
ten (10) Business Days prior to the due date thereof.

 

Notwithstanding
anything to the contrary contained herein, if any date on which a payment of
Rent becomes due and payable is not a Business Day, then such payment shall not
be made on such scheduled date but shall be made on the next succeeding
Business Day with the same force and effect as if made on such scheduled date
and (provided
such payment is made on such next succeeding Business Day) no interest shall
accrue on the amount of such payment from and after such scheduled date.

 

SECTION 4.  Lessor’s Representations and Warranties.  LESSOR
LEASES AND LESSEE TAKES THE ENGINE AND EACH PART THEREOF “AS-IS,”
“WHERE-IS.”  LESSOR HAS NOT MADE, NOR
SHALL LESSOR BE DEEMED TO HAVE MADE, AND LESSOR HEREBY EXPRESSLY DISCLAIMS AND
WILL BE DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, WORKMANSHIP, CONDITION,
DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OR A PARTICULAR PURPOSE
OF THE ENGINE OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER
DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF
ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON
STRICT LIABILITY IN
TORT, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED,
WITH RESPECT TO THE ENGINE OR ANY PART THEREOF, except that Lessor (i)
represents and warrants that on the Commencement Date the Engine shall be free
of Lessor Liens (including for this purpose Liens which would be Lessor Liens but for the proviso in the definition
of Lessor Liens) and (ii) agrees that it will not directly or indirectly  create, incur, assume
or suffer to exist any Lessor Lien attributable to it on or with respect to any
Engine, or with respect to any Airframe while the Engine is installed thereon
not otherwise permitted under the Aircraft Lease relating to such Airframe, and
it agrees that it will promptly, at its own expense, take such action as may be
necessary duly to discharge such Lessor Lien. 
None of the provisions of this Lease shall be deemed to amend, modify or
otherwise affect the representations, warranties or other obligations (express
or implied) of the Manufacturer, any subcontractor or supplier of the
Manufacturer with respect to the Engine or any Parts, or to release the
Manufacturer, or any such subcontractor or supplier, from any such representation,
warranty or obligation, or to diminish any right that Lessee may have with
respect to the Engine or any Parts against the Manufacturer or any such
subcontractor or supplier under the Purchase Agreement or otherwise.

 

SECTION 5.  Return of the Engine.  (a) 
Upon the termination of this Lease at the end of the Term or pursuant to
Section 15, Lessee, at its own expense, will return the Engine to or at
the direction of Lessor at either Minneapolis/St. Paul International Airport,
St. Paul, Minnesota, or Wayne County Metropolitan Airport, Detroit, Michigan, as designated by Lessor or at such
other location in the 48 contiguous states of the United States as may be
specified by

 

12

 

Lessor.  At the time of such return, the Engine
will be fully serviceable and functioning properly in accordance with
Manufacturer’s specifications.  Also, at
the time of such return,  the Engine (i)
shall have a current and valid FAA serviceable tag, issued by an FAA Part 145
repair station, (ii) shall be free and clear of all Liens (other than
Lessor Liens (including for this purpose Liens which would be Lessor Liens but
for the proviso in the definition of Lessor Liens) and rights of third parties
under pooling, interchange, overhaul, repair or other similar agreements or
arrangements (all of which shall be certified to Lessor by Lessee in a
certificate delivered concurrently with such return in form and substance
satisfactory to Lessor), (iii) shall be in as good an operating condition as
when delivered by the Manufacturer to Lessor, ordinary wear and tear excepted and (iv) shall be in compliance with the
return conditions set forth in Exhibit D.

 

During the last
twelve (12) months of the Term, with reasonable notice, Lessee will cooperate
in all reasonable respects with the efforts of Lessor to sell or lease the
Engine, including, without limitation, permitting prospective purchasers and
lessees to inspect fully the Engine and the records relating thereto, provided,
that such cooperation shall not interfere with the operation or maintenance of
the Engine by Lessee.  In addition,
Lessee shall notify Lessor in writing of its plans for meeting the return
conditions contained herein at least six months prior to the Expiration Date,
and Lessee shall notify Lessor in writing at any time within the last twelve
(12) months of the Term prior to initiating any significant shop maintenance or
repairs to the Engine.  Lessor shall
have the right to approve or reject Lessee’s proposed plans for meeting the
return conditions contained herein, with such approval not to be unreasonably
withheld.

 

(b)  Aircraft Documentation.  Upon the return of the Engine
upon any termination of this Lease in accordance with paragraph (a) of this
Section 5, Lessee shall deliver or cause to be delivered to Lessor or its
designee, in English, current and complete Aircraft Documentation relating to
the Engine, together with a complete list, by manufacturer’s serial number and
registration number, of each Airframe or airframe on which the Engine has been
installed during the Term, including the dates installed and removed, and the
Flight Hours and cycles accumulated on each.

 

(c)  Storage Upon Return.  If, at least ten (10) days prior
to termination of this Lease at the end of the Term, Lessee receives from
Lessor a written request for storage of the Engine upon its return hereunder,
Lessee will provide Lessor, or cause Lessor to be provided, with free sheltered
storage facilities for, and unrestricted access to, the Engine (maintenance
costs and other out-of-pocket costs other than packing, storage and security
fees to be for the account of Lessor) for a period not exceeding sixty (60)
days commencing on the date of such termination, at a location in the
continental United States selected by Lessee used as a location and suitable
for the storage of commercial jet engines and readily accessible to Lessor.  Lessee will maintain insurance for the
Engine during such period not exceeding sixty (60) days and be reimbursed by
Lessor or its designee for the premiums thereon.

 

(d)  PBH Agreements.  If at return of the Engine, the Engine or any
Part is being maintained under a PBH Agreement, Lessee shall not be required to
satisfy minimum maintenance time remaining requirements specified in Exhibit D
that are directly and fully covered by such PBH Agreement.  [During any period that Lessee is required
to pay Lessor Maintenance Reserves under this Lease, Maintenance Reserves will
not be required for the

 

13

 

Engine or any Part where the maintenance intended to be covered by such
Maintenance Reserve is being directly and fully covered by a PBH Agreement.](5)

 

SECTION
6.  Liens.   Lessee
will not directly or indirectly create, incur, assume or suffer to exist any
Lien on or with respect to the Engine, title thereto or any interest therein or
in this Lease, except (i) the respective rights of Lessor and Lessee as
herein provided, the rights of the Owner of the Engine, rights existing under
and pursuant to any PBH Agreement and any other rights
existing pursuant to the Operative Documents, (ii) the rights of others
under agreements or arrangements to the extent permitted by the terms of
Sections 7(b) and 8(b) hereof and (iii) Lessor Liens (including for this
purpose Liens
which would be Lessor Liens but for the proviso in the definition of Lessor
Liens).  Lessee will promptly, at its own expense,
take (or cause to be taken) such actions as may be necessary duly to discharge
any such Lien not excepted above if the same shall arise at any time.

 

SECTION 7.  Maintenance and Operation; Possession; Insignia. (a)(I)  Maintenance.  Lessee, at its own cost and expense, shall: (i) continuously operate,
maintain, service, repair and overhaul (or cause to be maintained, serviced,
repaired and overhauled) the Engine (including, without limitation, all
Parts thereof, including the QEC) in compliance with the Maintenance Program
and in compliance with all FAA requirements for FAR Part 121 operation and the
Manufacturers’ recommended maintenance program so as to keep the Engine in as
good an operating condition as when delivered by the Manufacturer to Lessor,
ordinary wear and tear excepted, so as to maintain in effect all material
Manufacturers’ warranties and guaranties and as may be necessary to enable the
airworthiness and serviceability certification for the Engine and airworthiness
certification for any Airframe or airframe on which the Engine may be installed
from time to time to be maintained in good standing at all times under the
Federal Aviation Act, except when all Bombardier Inc. Canadair Regional Jet
Model Series 200 aircraft powered by engines of the same type as the Engine and
registered in the United States have been grounded by the FAA, and utilizing
the same manner and standard of maintenance, service, repair and overhaul used
by Lessee with respect to similar engines used by Lessee in similar
circumstances and without in any case discriminating against the Engine by
reason of its leased status; provided, however, that in all
circumstances the Engine shall be maintained by Lessee in accordance with
maintenance standards required by the FAA for FAR Part 121 operation;
(ii) maintain or cause to be  maintained in English
all Aircraft Documentation relating to the Engine and all other records, logs
and other materials maintained in respect of the Engine; and
(iii) promptly furnish or cause to be furnished to Lessor such information as may be required to
enable Lessor to monitor the maintenance status and condition of the Engine and
to file any reports required to be filed by Lessor with any governmental
authority because of Lessor’s ownership of the Engine or any Aircraft
on which the Engine is installed.

 

(II) Operation.  While installed on an Airframe or airframe and while being
operated in any static testing configuration not on an Airframe or airframe,
Lessee will continuously operate the Engine in
accordance with its FAA approved flight manual (which shall comply with all
Manufacturer recommendations and requirements for the Engine type) and the
Manufacturer’s 

 

(5)  To be
inserted in Engine leases entered into in accordance with Section 3.02(a)(iv)
of the Airline Services Agreement.

 

14

 

maintenance
manual.  Lessee will not maintain, use,
service, repair, overhaul or operate the Engine in violation of any law or any
rule, regulation, order or certificate of any government or governmental
authority (domestic or foreign) having jurisdiction, or in violation of any
airworthiness certificate, license or registration relating
to the Airframe or airframe on which the Engine is installed issued by any such
authority, except to the extent Lessee is contesting in good faith the validity or application of
any such law, rule, regulation or order in any reasonable manner which does not
adversely affect Lessor or Lessor’s right, title or interest in the Engine and
does not involve any risk of sale, forfeiture or loss
of the Engine or the Airframe or airframe on which the Engine is installed or
any risk of civil liability or criminal liability being imposed on Lessor.  Lessee will not store or operate the Engine
or any Airframe or airframe on which the Engine is installed (a) in any area
excluded from coverage by any insurance required by the terms of Section 11; provided,
however, that the failure of Lessee to comply with the provisions of
this clause (a) shall not give rise to an Event of Default hereunder where such
failure is attributable to causes beyond the reasonable control of Lessee or to
Lessee’s response to extraordinary circumstances involving an isolated
occurrence or isolated series of  incidents not in
the ordinary course of the regular operations of Lessee and in each such case
Lessee is taking all reasonable steps to remedy such failure as soon as is
reasonably practicable or
(b) other than in operations in accordance with the Airline Services
Agreement.  Lessee further  agrees not to store or
operate the Engine, or any Airframe or airframe on which the Engine is
installed, outside the United States in any taxable year in a manner that would
cause more than 20% of the Basic Rent payable under the Lease to be treated as
derived from sources outside the United States.

 

(b)  Possession.  Lessee
will not, without the prior written consent of Lessor, in any manner deliver,
transfer or relinquish possession of the Engine or any Airframe or airframe on
which the Engine is installed, or install or permit any Engine to be installed
on any airframe other than an Airframe; provided that, so long as no Default or
Event of Default shall have occurred and be continuing at the time of such
delivery, transfer or relinquishment of possession or installation and so long
as Lessee shall comply with the provisions of Sections 7(a) and 11 hereof,
Lessee may, without the prior written consent of Lessor:

 

(i)            deliver possession
of the Engine, or an Airframe on which it is then installed, to the
manufacturer of either thereof (or for delivery thereto) or to any FAA approved
organization (or for delivery thereto) for testing, service, repair,
maintenance or overhaul work on the Engine or any part of any thereof or such Airframe
or for alterations or modifications in or additions to the Engine or such
Airframe to the extent required or permitted by the terms of Section 8(c)
hereof; or

 

(ii)           to the extent
permitted by Section 8(b) hereof, subject any appliances, Parts or other
equipment owned by Lessor and removed from the Engine to any pooling
arrangement referred to in Section 8(b) hereof.

 

The rights of any
transferee who receives possession by reason of a transfer permitted by this
paragraph (b) shall be effectively subject and subordinate to all the terms of
this Lease, including, without limitation, the covenants contained in Section
7(a) hereof and Lessor’s rights to repossession pursuant to Section 15 hereof,
and Lessee shall remain primarily liable hereunder for the performance of all
of the terms of this Lease to the same extent as if such

 

15

 

transfer
had not occurred.  No pooling agreement
or other relinquishment of possession of the Engine or any Airframe or airframe
on which it is installed shall in any way discharge or diminish any of Lessee’s
obligations to Lessor hereunder or constitute a waiver of Lessor’s rights or
remedies hereunder.  Notwithstanding
anything to the contrary contained herein, Lessee under any and all
circumstances may not sublease or sub-sublease, and is prohibited from entering
into any sublease or sub-sublease with respect to, the Engine (whether by
itself or installed on an Airframe or airframe).

 

(c)  Insignia.  On or prior to the Commencement Date, or as
soon as practicable thereafter (but in no event later than ten (10) days
thereafter), Lessee agrees to affix and maintain (or cause to be affixed and
maintained), at its expense, on the Engine a nameplate bearing the inscription:

 

Leased from

 

Northwest Airlines
Inc.,

Lessor

 

(such nameplate to
be replaced, if necessary, with a nameplate reflecting the name of any
successor Lessor).  Except as above
provided, Lessee will not allow the name of any Person to be placed on the
Engine, or on any Airframe or airframe on which the Engine is installed, as a
designation that might be interpreted as a claim of ownership; provided
that nothing contained in this paragraph shall prohibit Lessee from placing its
customary colors and insignia on the Engine or such Airframe or airframe.

 

(d)           Engine Records.  No later than the 10th day of each calendar month
during the Term, Lessee shall deliver to Lessor a written report setting forth
the following information for the previous calendar month:

 

(i)    the manufacturer’s serial number and the
registration number of each Airframe or airframe on which the Engine was
installed or, if not installed on an Airframe or airframe during any portion of
such reporting period, the location of the Engine and a description of steps
taken for its preservation and storage;

 

(ii)   the Flight Hours and cycles performed by the
Aircraft on which the Engine was then installed;

 

(iii)  the maintenance inspections and repairs
performed on the Engine in accordance with the Maintenance Program;

 

(iv)  any airworthiness directives accomplished on
the Engine; and

 

(v)   any Engine malfunctions or performance
discrepancies requiring shop-level repair or special- or reduced-interval
inspections, including the flight log or technical log entries against the
Engine relating thereto together with full details of the corrective
maintenance and repair actions taken.

 

The form of such
report shall be acceptable to Lessor, and Lessor and Lessee shall promptly
develop the form thereof following execution and delivery of this Lease.

 

16

 

SECTION 8.  Replacement and Pooling of Parts; Alterations, Modifications and
Additions.   (a)  Replacement of Parts.  Lessee, at its own cost and expense, will
promptly replace or cause to be replaced all Parts which
may from time to time become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use for
any reason whatsoever, except as otherwise provided in paragraph (c) of this
Section 8 or if the Engine has suffered an Event of Loss.  In addition, Lessee may, at its own cost and
expense, remove in the ordinary course of
maintenance, service, repair, overhaul or testing, any Parts, whether or not
worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair
or permanently rendered unfit for use, provided that Lessee, except as otherwise
provided in paragraph (c) of this Section 8, will, at its own cost and expense,
promptly replace such Parts.  All
replacement Parts shall be free and clear of all Liens (except for Permitted
Liens and pooling arrangements to the extent permitted by
paragraph (b) of this Section 8 and except in the case of replacement property
temporarily installed on an emergency basis) and shall be serviceable in
accordance with the Maintenance Program and FAA requirements for FAR Part 121
operation and shall be in as good operating condition as, and shall have a
maintenance status, modification status, value and utility at least equal to, the
Parts replaced assuming such replaced Parts were in the condition and repair
required to be maintained by the terms hereof. 
Except as otherwise provided in paragraph (c) of this Section 8, all
Parts at any time
removed from the Engine shall remain the property of the Owner, no matter where
located, until such time as such Parts shall be replaced by Parts which have
been incorporated or installed in or attached to the Engine and which meet the requirements
for replacement Parts specified above. 
Immediately upon any replacement part becoming incorporated or installed
in or attached to the Engine as above provided, without further act
(subject only to Permitted Liens and any pooling arrangement to the extent permitted by paragraph (b) of this
Section 8 and except in the case of replacement property temporarily installed
on an emergency basis), (i) title to such replacement Part shall thereupon vest
in the Owner, (ii) such replacement Part shall become subject to the Headlease
(if any) and this Lease and be deemed part of the Engine for all purposes
hereof to the same extent as the Parts originally incorporated or installed in
or attached to the Engine, and (iii) title to the replaced Part
shall thereupon vest in Lessee free and clear of all rights of the Owner, and
shall no longer be deemed a Part hereunder.

 

(b)  Pooling of Parts.  Only after receiving Lessor’s written
consent thereto, which may be granted or withheld in its sole discretion, any
Part removed from the Engine as provided in paragraph (a) of this Section 8 may
be subjected by Lessee to a normal pooling arrangement customary in the airline
industry of which Lessee is a party entered into in the ordinary course of
Lessee’s business; provided that the Part replacing such
removed Part shall be incorporated or installed in or attached to the Engine in
accordance with such paragraph (a) as promptly as practicable after the removal
of such removed Part.  In addition, only
after receiving Lessor’s written consent thereto, which may be granted or
withheld in its sole discretion, any replacement Part when incorporated or
installed in or attached to the Engine in accordance with such paragraph (a)
may be owned by any third party subject to such a normal pooling arrangement, provided
that Lessee, at its expense, as promptly thereafter as practicable, either (i)
causes title to such replacement Part to vest in the Owner in accordance with
such paragraph (a) by Lessee acquiring title thereto for the benefit of, and
transferring such title to, the Owner free and clear of all Liens except
Permitted Liens (other than pooling arrangements), at which time such temporary
replacement part shall become a Part or (ii) replaces such replacement Part by
incorporating or installing in or attaching to the Engine a further replacement
Part owned by

 

17

 

Lessee free and
clear of all Liens except Permitted Liens (other than permitted pooling
arrangements) and by causing title to such further replacement Part to vest in
the Owner in accordance with such paragraph (a).

 

(c)  Alterations, Modifications and
Additions.  Lessee, at its
own expense, will make (or cause to be made) such alterations and modifications
in and additions to the Engine as may be required from time to time to meet the
applicable standards of the FAA or any other governmental authority having
jurisdiction regardless of upon whom nominally imposed; provided, however, that
Lessee may, in good faith, contest the validity or application of any such law,
rule, regulation or order in any reasonable manner which does not adversely
affect Lessor or its right, title and interest in the Engine or any Airframe
and does not involve any risk of sale, forfeiture or loss of the Engine or any
Airframe (or airframe on which it is installed) or any risk of civil liability
or criminal liability being imposed on Lessor; provided, further, that no
appliance, part, instrument, appurtenance, accessory, furnishing or other
equipment of whatever nature relating to such alteration, modification or
addition may be leased from any Person other than Lessor.  In addition, Lessee, at its own expense, may
from time to time add further parts or accessories and make such alterations
and modifications in and additions to the Engine as Lessee may deem desirable
in the proper conduct of its business; provided that no such alteration,
modification or addition shall diminish the value, utility or remaining useful
life of the Engine below the value, utility or remaining useful life thereof
immediately prior to such alteration, modification or addition, assuming the
Engine was then in the condition required to be maintained by the terms of this
Lease.  Title to all Parts incorporated
or installed in or attached or added to the Engine as the result of such
alteration, modification or addition (the “Additional Parts”) shall, without further
act, vest in the Owner, and the Owner shall not be required under any
circumstances under this Lease to pay directly for any alteration, modification
or addition.  Any Part installed by
Lessee as above provided prior to the return of the Engine to Lessor hereunder
shall remain the property of the Owner.

 

Lessee shall not,
without Lessor’s prior written consent, make any Major Modifications to the
Engine if such Major Modifications to such Airframe or airframe would affect
the value, utility or remaining useful life of the Engine.

 

SECTION 9.  Voluntary Termination. 
(a)  Termination by Lessor.  In the event the Engine is installed on an
Airframe and the lease of such Aircraft is being terminated, Lessor shall have
the right to elect to terminate this Lease concurrently
with such Aircraft lease termination on at least two (2) days advance written
notice to Lessee (the “Voluntary Termination Date”).  On or before the Voluntary Termination Date,
Lessee shall simultaneously pay or cause to be paid to or at the direction of
Lessor in funds of the type specified in Section 3(e) hereof, an amount equal
to the sum of all unpaid Basic Rent with respect to the Engine due prior to such
Voluntary Termination Date, and all unpaid Supplemental Rent due on or prior to
the Voluntary Termination Date.

 

(b)    [Intentionally Omitted].

 

(c)    [Intentionally Omitted].

 

18

 

(d)   Termination by Lessee.  So long as no Event of Default shall have
occurred and be continuing and with the prior written consent of Lessor, Lessee
shall have the right at its option at any time during the Term, on at least
sixty (60) days prior written notice, to terminate this Lease as to the Engine
concurrently with replacement of such Engine as provided in this Section
9(d).  In such event, and prior to the
date of such termination, Lessee shall replace the Engine hereunder by
complying with the terms of Section 10(a) to the same extent as if an Event of
Loss had occurred with respect to the Engine and shall indemnify the Owner for
any adverse tax consequences resulting from such substitution, and the Owner
shall transfer such right, title, and interest as the Owner may have to the replaced
Engine as provided in Section 5(b).  No
termination of this Lease with respect to the replaced Engine as contemplated
by this Section 9(d) shall result in any reduction of Basic Rent.

 

SECTION
10.  Loss, Destruction, Requisition, etc. of Engine.  (a)  Event of
Loss.  Upon the occurrence of
an Event of Loss with respect to the Engine, whether or not installed on an
Airframe or an airframe at the time of such Event of Loss, Lessee shall
forthwith (and in any event, within five (5) days after such occurrence) give
Lessor and any Headlessor written notice  thereof
and shall use its best efforts within forty-five (45) days (and in any event
within sixty (60) days) after the occurrence of such Event of Loss, to convey
to the Owner, as replacement for the Engine, title to another General Electric
Model CF34-3B1 type engine satisfactory to Lessor, free and clear of all Liens
(other than Permitted Liens, which engine may upon its transfer to the Owner
become subject to any and all Permitted Liens) and having a value, utility and
remaining useful life (including taking into account its cycle and life-limited
parts and its maintenance condition and modification status) at least equal to
the Engine subject to such Event of Loss assuming no Event of Loss had occurred
and that such Engine had been maintained in accordance with this Lease.  Under no circumstances shall the occurrence
of an Event of Loss with respect to an Engine while installed on an Airframe or
an airframe diminish any obligations of Lessee pursuant to the related Aircraft
Lease in respect of the circumstances giving rise to such Event of Loss or in
respect of any Event of Loss (as defined in such Aircraft Lease) relating to
such Aircraft, nor shall Lessee be entitled to any setoff or discharge of any
of its obligations under this Lease or under the Aircraft Lease by virtue of
performance of its obligations under the other such agreement.

 

Prior to or at the
time of any such conveyance, Lessee, at its own expense, will:

 

(1)           furnish the Owner with a full warranty
(as to title) bill of sale, in form and substance reasonably satisfactory to
the Owner, with respect to such replacement engine,

 

(2)           cause a Lease Supplement to be duly
executed by Lessee and to be filed for recording pursuant to the Federal Aviation
Act,

 

(3)           furnish Lessor with such evidence of
compliance with the insurance provisions of Section 11 hereof with respect to
such replacement engine as Lessor may reasonably request,

 

(4)           furnish Lessor with an opinion of
qualified FAA counsel, as to the due recordation of the Lease Supplement and
all other documents or instruments

 

19

 

the recordation of
which is necessary to perfect and protect the rights of Lessor in the
replacement engine,

 

(5)           furnish Lessor with an opinion of
counsel (which shall be chosen by Lessee) reasonably satisfactory to Lessor to
the effect that (A) the certificates, opinions and other instruments and/or
property which have been or are therewith delivered to Lessor in connection
with such substitution conform to the requirements of this Lease, (B) the
replacement property has been validly covered by this Lease, the instruments
subjecting such replacement engine to this Lease have been duly filed for
recordation pursuant to the Federal Aviation Act, and no further action, filing
or recording of any document is necessary or advisable in order to establish
and perfect the right, title, estate and interest of the Owner to such
replacement engine, and (C) the full warranty bill of sale referred to in
clause (1) constitutes an effective instrument for the conveyance of title to
the replacement engine,

 

(6)           cause a financing statement or
statements with respect to such substituted property to be filed in such place
or places as are deemed necessary or advisable by Lessor or its counsel to
perfect its interest in the replacement engine,

 

(7)           furnish Lessor with an opinion of
counsel (which shall be counsel chosen by Lessee and acceptable to Lessor,
reasonably satisfactory to Lessor, to the effect that Lessor will be entitled
to the benefits of Section 1110 of the U.S. Bankruptcy Code with respect to the
substitute engine, provided that such opinion need not be
delivered to the extent that immediately prior to such substitution the
benefits of Section 1110 of the U.S. Bankruptcy Code were not, solely by reason
of a change in law or governmental interpretation thereof, available to Lessor,

 

(8)           furnish Lessor with an officer’s
certificate duly executed by the chairman, vice chairman, president, any
execute vice president, any senior vice president, or any vice president of
Lessee stating (A) that the replacement engine has at least an equal
maintenance status, modification status, value, utility and remaining useful
life as the Engine it replaces assuming no Event of Loss had occurred and such
Engine had been maintained in the condition required hereunder, (B) each of the
conditions specified in this Section 10(b) with respect to such replacement
engine have been satisfied and that Lessee will not be in default, by the
making and granting of the request for release and the addition of the
replacement engine, in the performance of any of the terms and covenants of
this Lease, (C) a description of the Engine which shall be identified by
manufacturer’s serial number, (D) a description of the replacement engine
(including the manufacturer’s name and serial number) as consideration for the
Engine to be released, (E) that on the date of the Lease Supplement relating to
the replacement engine the Owner will be the legal owner of such replacement
engine free and clear of all Liens except Permitted Liens, that such
replacement engine will on such date be in good working order and condition and
that such replacement engine is substantially the same as or better than the
Engine to be released, (F) the maintenance status, modification status, value,
utility and

 

20

 

remaining useful
life of the replacement engine as of the date of such certificate (which shall
not be less than the maintenance status, modification status, value, utility
and remaining useful life of the Engine to be released (assuming no Event of
Loss and that such Engine was in the condition and repair required to be
maintained hereunder), (G) that, with respect to the replacement of an Engine
pursuant to Section 9(d) hereof, no Event of Default or no Default has occurred
which has not been remedied or waived, and (H) that the release of the Engine
to be released will not be in contravention of any of the provisions hereof,
and

 

(9)           assign (or cause to be assigned) to
the Owner the benefit of all manufacturer’s and vendor’s warranties generally
available with respect to the substituted property in substantially the same
manner and to substantially the same extent as pursuant to the Purchase
Agreement Assignment,

 

Lessor will
transfer, to or at the direction of Lessee without recourse or warranty
(except, with respect to Lessor, as to absence of Lessor Liens, including for
this purpose Liens which would be Lessor Liens but for the proviso in the
definition of Lessor Liens) all of Lessor’s right, title and interest, if any,
in and to (I) the Engine with respect to which such Event of Loss occurred and
furnish to or at the direction of Lessee a bill of sale in form and substance
reasonably satisfactory to Lessee, evidencing such transfer and (II) all
claims, if any, against third parties, for damage to or loss of the Engine, and
such Engine shall thereupon cease to be the Engine leased hereunder.  For all purposes hereof, each such
replacement engine shall, after such conveyance, be deemed part of the property
leased hereunder, and shall be deemed an “Engine”, as the case may be.  No Event of Loss with respect to an Engine
under the circumstances contemplated by the terms of this paragraph (b) shall
result in any reduction in Basic Rent.

 

(b)  Application of Payments from
Governmental Authorities for Requisition of Title, etc.  Whether or not the Engine was
then installed on an Airframe or an airframe, so much of any payments (other
than insurance proceeds the application of which is provided for in Section 11)
received at any time by Lessor or by Lessee from any governmental authority or
other Person with respect to an Event of Loss and that are remaining after
reimbursement of Lessor for reasonable costs and expenses, shall be paid over
to, or retained by, Lessee, provided that Lessee shall have fully
performed, or concurrently therewith will perform, the terms of Section 10(b)
with respect to the Event of Loss for which such payments are made.

 

(c)  Requisition for Use of an Aircraft by
the United States Government.  In the event of the requisition for use by the United States
Government or any instrumentality or agency thereof, during the Term, of an
Airframe or an airframe on which, in either case, the Engine is installed, and
the Engine is included within such requisition for use, Lessee shall promptly
notify Lessor of such requisition, and all of Lessee’s obligations under this
Lease Agreement with respect to the Engine shall continue to the same extent as
if such requisition had not occurred, provided that if the Engine (with or
without such Airframe or airframe) is not returned by such government (or
instrumentality or agency) prior to the end of the Term, Lessee shall be
obligated to return the Engine to or at the direction of Lessor pursuant to,
and in all other respects in compliance with the provisions of, Section 5
promptly on the date of such return by such government (or instrumentality or
agency).  All payments received by
Lessor or Lessee from such government (or instrumentality or agency) for, or
allocable to, the use of the Engine

 

21

 

during the Term
shall be paid over to, or retained by, Lessee; and all payments received by
Lessor or Lessee from such government (or instrumentality or agency) for the
use of, or allocable to, the Engine after the end of the Term shall be paid
over to, or retained by, Lessor.

 

(d)  Requisition for Use of the Engine by
the United States Government. 
In the event of the requisition for use of the Engine by the United
States Government or any agency or instrumentality thereof (other than in the
circumstances contemplated by subsection (c)), Lessee shall replace the Engine
hereunder by complying with the terms of Section 10(a) to the same extent as if
an Event of Loss had occurred with respect thereto, and, upon compliance with
Section 10(a), any payments received by Lessor or Lessee from such government
(or instrumentality or agency) with respect to such requisition shall be paid
over to, or retained by, Lessee.

 

(e)  Application of Payments During
Existence of Default.  Any
amount referred to in this Section 10 which is payable to or retainable by
Lessee shall not be paid to or retained by Lessee if at the time of such
payment or retention a Default or an Event of Default shall have occurred and
be continuing or if the Airline Services Agreement shall have been terminated
or canceled or shall have been terminated in accordance with its terms, but
shall be held by Lessor and applied in accordance with Section 28 hereof.  At such time as there shall not be
continuing any such Default or Event of Default and the Airline Services Agreement
shall not have been terminated or canceled or shall not have terminated in
accordance with its terms, such amount shall be paid to Lessee to the extent
not previously applied in accordance with the preceding sentence.

 

SECTION
11.  [Insurance  (a)  Public
Liability and Property Damage Insurance.  Lessee will carry at its expense (i) comprehensive airline third
party legal liability insurance or the equivalent (including, without
limitation, passenger legal liability) (and including aircraft war risk and hijacking
insurance, unless otherwise agreed by Lessor) insurance and property damage insurance (exclusive of
manufacturer’s product liability insurance) with respect to the Engine, in an
amount, with respect to third party legal liability insurance (including
passenger legal liability) other than aircraft war risk and hijacking
insurance, not less than the greater of (x) the amount of public liability and
property damage insurance from time to time applicable to engines owned or
operated by Lessee of the same type as the Engine and (y) the Minimum Liability
Amount, and with respect to aircraft war risk and hijacking insurance, in an
amount not less than $1,000,000,000 per occurrence and (ii) cargo liability
insurance, in the case of both clause (i) and clause (ii), (A) of the type and
covering the same risks as from time to time applicable to aircraft operated
by Lessee of the same type as the  Engine and (B) which is maintained in effect with insurers
of recognized responsibility reasonably acceptable to Lessor.]  Any policies of insurance carried in
accordance with this paragraph
(a) and any policies taken out in substitution or replacement for any of such
policies (A) shall be amended to name Lessor (but without imposing on Lessor
liability to pay the premiums for such insurance) as an additional insured as
its interest may appear, (B) shall provide that in
respect of the interest of Lessor in such policies the insurance shall not be invalidated by any action or inaction of
Lessee or any other Person and shall insure Lessor regardless of any breach or
violation of any warranty, declaration or condition contained in such policies
by Lessee, and (C) shall provide that if the insurers cancel such insurance for
any reason whatever or if any change is made in such insurance which adversely
affects the interest of Lessor, or such insurance shall lapse for non-

 

22

 

payment of premium, such cancellation, lapse or change
shall not be effective as to Lessor for thirty (30) days (seven (7) days in the
case of war risk and allied perils coverage) after issuance to Lessor of written notice by such insurers of such cancellation,
lapse or change; provided, however, that if any notice period specified above
is not reasonably obtainable, such policies shall provide for as long a period
of prior notice as shall then be reasonably obtainable.  Each liability policy (1) shall be primary
without right of contribution from any other insurance which is carried by
Lessor, (2) shall expressly provide that all of the provisions thereof, except
the limits of liability, shall operate in the same manner as if there were a
separate policy covering each insured, and (3) shall waive any right of the
insurers to any set-off or counterclaim or any other deduction, whether by
attachment or
otherwise, in respect of any liability of Lessor or any other Additional
Insured to the extent of any moneys due to Lessor or such Additional Insured.

 

(b)  Insurance Against Loss or Damage to the
Engine.  Lessee shall
maintain in effect at its expense, with insurers of recognized responsibility,
all-risk ground and flight coverage of the Engine and Parts while installed on
any Aircraft and while not so installed (whether such removal is temporary or
of indefinite duration) and not replaced by similar components (including,
without limitation, war risk and governmental confiscation and expropriation
(other than by the government of registry of the Aircraft) and hijacking
insurance, unless otherwise agreed by Lessor); provided that such insurance
shall at all times while the Engine is subject to this Lease be for an amount
not less than the Stipulated Loss Value for the Engine.  Any policies carried in accordance with this
paragraph (b) covering the Engine  and
any policies taken out in substitution or replacement for any such policies (i)
shall name Lessor as additional insured, as its interest may appear (but
without imposing on such party liability to pay premiums with respect to such
insurance), (ii) shall provide that (A) in the event of a loss involving
proceeds in excess of $[50,000], the proceeds in respect of such loss up to an
amount equal to the Stipulated Loss Value for the Engine shall be payable to or
at the direction of Lessor (except in the case of a loss with respect to the
Engine while installed on an airframe other than the Airframe, in which case
Lessee shall arrange for any payment of insurance proceeds in respect of such
loss to be held for the account of Lessor whether such payment is made to
Lessee or any third party), it being understood and agreed that in the case of
any payment to Lessor or its designee otherwise than in respect of an Event of
Loss, Lessor shall, upon receipt of evidence satisfactory to it that the damage
giving rise to such payment shall have been repaired or that such payment shall
then be required to pay for repairs then being made, pay, or exercise such
rights as it may have to cause to be paid, the amount of such payment to Lessee
or its order and (B) the entire amount of any loss involving proceeds of $[50,000]
or less or the amount of any proceeds of any loss in excess of the Stipulated
Loss Value for the Engine shall be paid to Lessee or its order unless a Default
or an Event of Default shall have occurred and be continuing and the insurers
have been notified thereof by Lessor, (iii) shall provide that if the insurers
cancel such insurance for any reason whatever, or such insurance lapses for
non-payment of premium or if any change is made in the insurance which
adversely affects the interest of Lessor, such cancellation, lapse or change
shall not be effective as to Lessor for thirty (30) days (seven (7) days in the
case of hull war risk and allied perils coverage) after issuance to Lessor of
written notice by such insurers of such cancellation, lapse or change, provided,
however, that if any notice period specified above is not reasonably
obtainable, such policies shall provide for as long a period of prior notice as
shall then be reasonably obtainable, (iv) shall provide that in respect of the
interest of Lessor in such policies the insurance shall not be invalidated by
any action or inaction of Lessee or any other Person and shall insure the
interest of Lessor as they appear,

 

23

 

regardless of any
breach or violation of any warranty, declaration or condition contained in such
policies by Lessee, (v) shall be primary without any right of contribution from
any other insurance which is carried by Lessor, and (vii) shall waive any right
of the insurers to set-off or counterclaim or any other deduction, whether by
attachment or otherwise, in respect of any liability of Lessor or Lessee to the
extent of any moneys due to Lessor.

 

As between Lessor
and Lessee, it is agreed that all insurance payments received as the result of
the occurrence of an Event of Loss will be applied as follows:

 

(x)            if such payments are received with
respect to the Engine while not installed on an Airframe, so much of such
payments remaining, after reimbursement of Lessor for reasonable costs and
expenses, as shall not exceed the Stipulated Loss Value of the Engine
determined as of the date of such Event of Loss shall be applied by Lessee to
its obligations under Section 10(a) hereof, or, if such obligations have
already been performed by Lessee, shall be applied to reimburse Lessee in
respect of such obligations, and the balance, if any, of such payments
remaining thereafter will be paid over to, or retained by, Lessee, provided
that if an Event of Default has occurred and is continuing, such balance, if
any, shall be paid over to or retained by Lessor as additional collateral for
Lessee’s obligations hereunder until such time as such Event of Default is no
longer continuing or this Lease has been terminated (and such amounts applied
by Lessor); and

 

(y)           if such payments are received with
respect to an Engine while installed on an Airframe, so much of such payments
remaining, after payment by Lessee of any Stipulated Loss Value (as defined in
the related Aircraft Lease) payable under the Aircraft Lease relating to such
Airframe after reimbursement of Lessor for reasonable costs and expenses, shall
be paid over to, or retained by, Lessee, provided that Lessee shall have fully
performed, or concurrently therewith will fully perform, the terms of Section 10(a)
with respect to the Event of Loss for which such payments are made.

 

As between Lessor
and Lessee, the insurance payments for any property damage loss to the Engine
not constituting an Event of Loss with respect thereto will be applied in
payment for repairs or for replacement property in accordance with the terms of
Sections 7 and 8, if not already paid for by Lessee, and any balance
(or if already paid for by Lessee, all such insurance proceeds) remaining after
compliance with such Sections with respect to such loss shall be paid to
Lessee.

 

(c)  Reports, etc.  Lessee will furnish, or cause to be
furnished, to Lessor, on or before the Commencement Date and on or before July
1 in each year thereafter during the Term commencing July, 200_ [July following
closing date], a report, signed by Aon Risk Services, Inc. or any other
independent firm of insurance brokers reasonably acceptable to Lessor (the “Insurance
Brokers”), describing in reasonable detail the insurance and
reinsurance then carried and maintained with respect to the Engine and stating
the opinion of such firm that the insurance then carried and maintained with
respect to the Engine complies with the terms hereof; provided, however, that all
information contained in the foregoing report shall not be made available by

 

24

 

Lessor to anyone
except (A) to prospective and permitted transferees of Lessor’s interest
who  agree
to hold such information confidential, (B) to Lessor’s counsel or independent
certified public accountants or independent insurance advisors who agree to
hold such information confidential, (C) as may be required by any statute,
court or administrative order or decree or governmental ruling or regulation or
as may be requested by any regulatory agency or body having authority or (D) as
may be necessary for purposes of protecting the interests of any such Person or
for the enforcement of this Lease by Lessor. 
Lessee will cause such Insurance Brokers to agree to advise Lessor in
writing of any default in the payment of any premium and of any other act or
omission on the part of Lessee of which it has knowledge and which might
invalidate or render unenforceable, in whole or in part, any insurance on the
Engine.  To the extent such agreement is
reasonably obtainable, Lessee will also cause such Insurance Brokers to agree
to advise Lessor in writing at least thirty (30) days (seven (7) days in the
case of war risk and allied perils coverage), prior to the expiration or
termination date of any insurance carried and maintained on the Engine pursuant
to this Section 11.  In addition,
Lessee will also cause such Insurance Brokers to deliver to Lessor, on or prior
to the date of expiration of any insurance policy referenced in a previously
delivered certificate of insurance, a new certificate of insurance,
substantially in the same form as delivered by Lessee to such parties on the
Commencement Date.  In the event that
Lessee shall fail to maintain or cause to be maintained insurance as herein
provided, Lessor or its designee may at its sole option provide such insurance
and, in such event, Lessee shall, upon demand, reimburse Lessor, as
Supplemental Rent, for the cost thereof to Lessor or such designee, as the case
may be, without waiver of any other rights Lessor or such designee may have; provided,
however, that no exercise by Lessor or such designee of said option
shall affect the provisions of this Lease, including the provisions of Section
14(g) hereof.

 

(d)  Self-Insurance.  Lessee may not self-insure the risks
required to be insured against pursuant to this Section 11; provided,
however,
that while the Engine is installed on an Airframe Lessee may self-insure the
risks required to be insured against pursuant to Section 11(a) and (b) hereof
solely to the extent of any applicable mandatory minimum (or, if applicable,
per annum or other period) hull or liability insurance deductible imposed by
the hull or liability insurers.

 

(e)  Additional Insurance by Lessor.  Lessee may at its own expense carry
insurance with respect to its interest in the Engine in amounts in excess of
that required to be maintained by this Section 11; Lessor may carry for
its own account at its sole cost and expense insurance with respect to its
interest in the Engine, provided that such insurance does not
prevent Lessee from carrying the insurance required or permitted by this
Section 11 or adversely affect such insurance or the cost thereof.

 

(f)  Indemnification by Government in Lieu
of Insurance.  With Lessor’s written consent which may be
given or withheld in its sole discretion, notwithstanding any provisions of
this Section 11 requiring insurance, Lessee may provide, in lieu of insurance
against any risk with respect to the Engine, indemnification from, or insurance
provided by, the United States Government or any agency or instrumentality
thereof the obligations of which are backed by the full faith and credit of the
United States against such risk in an amount which, when added to the amount of
insurance against such risk maintained by Lessee with respect to the Engine

 

25

 

(including
permitted self-insurance) shall be at least equal to the amount of insurance
against such risk otherwise required by this Section 11.

 

(g)  Application of Payments During
Existence of Default.  Any
amount referred to in paragraph (b) of this Section 11 which is payable to or
retainable by Lessee shall not be paid to or retained by Lessee if at the time
of such payment or retention a Default or an Event of Default shall have
occurred and be continuing or if the Airline Services Agreement shall have been
terminated or canceled  or shall have
terminated in accordance with its terms, but shall be held by Lessor and
applied in accordance with Section 28 hereof. 
At such time as there shall not be continuing any such Default or Event
of Default and the Airline Services Agreement shall not have been terminated or
canceled or shall not have terminated in accordance with its terms, such amount
shall be paid to Lessee to the extent not previously applied in accordance with
the preceding sentence.]

 

SECTION
12.  Inspection.  At all times upon notice to Lessee, Lessor
or its authorized representative may inspect the Engine, whether or not
installed on an Airframe or airframe and inspect and make copies (at its
expense) of the Aircraft Documentation and other manuals, logs, books and
records of Lessee relating to the maintenance of the Engine, any such
inspection may, at Lessor’s election, include a visual, walk-around inspection,
opening any panels, cowls or the like, Engine borescope inspections, Engine
power assurance runs, ground operation and function checks; provided
that no exercise of such inspection right shall unreasonably interfere with the
scheduled operation or maintenance of the Engine or any Airframe on which it is
then installed by, or the business of, Lessee unless deemed critical by
Lessor.  In addition, upon receipt by
Lessee of a written request from Lessor specifying that Lessor desires to have
an authorized representative observe the next shop visit of the Engine (whether
or not installed on any Airframe or airframe), under any maintenance program or
regimen then maintained by Lessee, Lessee shall cooperate with Lessor to enable
Lessor’s authorized representative to each observe such next shop visit,
including reasonable advance notification to Lessor of
the time and place of such shop visit.  Lessor
shall have no duty to make any such
inspection nor shall it incur any liability or obligation by reason of not
making such inspection.

 

SECTION
13.  Assignment.  Lessee will not, without the prior express
written consent of Lessor, assign in whole or in part this Lease or any of its
rights or obligations hereunder.  Lessor
may assign in whole or in part, or convey all or any
part of its right, title and interest in and to, this Lease after giving Lessee
ten (10) days notice thereof.  Subject
to the foregoing, the terms and provisions of this Lease shall be binding upon
and inure to the benefit of Lessor and Lessee and their respective successors
and permitted assigns.

 

SECTION
14.  Events of Default.  Each of the following events shall
constitute an Event of Default (whether any such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body)  and
each such Event of Default shall continue so long as, but only as long as, it
shall not have been remedied:

 

26

 

(a)           Lessee shall not have made a payment
of Basic Rent or Stipulated Loss Value when the same shall have become due; or

 

(b)           Lessee shall have failed to make a
payment of Supplemental Rent (other than Stipulated Loss Value) after the same
shall have become due and such failure shall continue for five (5) days; or

 

(c)           (i)            Lessee
shall have failed to perform or observe (or caused to be performed and
observed) any covenant or agreement to be performed or observed by it under any
Lessee Document other than the Airline Services Agreement and such failure
shall continue unremedied for a period of five (5) days after the earlier of
(x) receipt by Lessee of written notice thereof from Lessor, or (y) insofar as
the failure to perform or observe (or caused to be performed and observed) any
covenant or agreement relates to any material covenant or agreement, an officer
of Lessee as the case may be, whose functions and duties would make him
familiar with the terms of this Lease has knowledge; or

 

(ii)           Lessee Guarantor shall have failed to
perform or observe any covenant or agreement to be performed or observed by it
under the Lease Guarantee and such failure shall continue unremedied for a
period of five (5) days after the earlier of (x) receipt by Lessee Guarantor of
written notice thereof from           Lessor,
or (y) insofar as the failure to perform or observe (or caused to be performed
and observed) any covenant or agreement relates to any material covenant or
agreement, an officer of Lessee Guarantor whose functions and duties would make
him familiar with the terms of the Lease Guarantee has knowledge; or

 

(d)           (i)            any
representation or warranty made by Lessee herein or any document or certificate
furnished by Lessee in connection herewith or therewith or pursuant hereto or
thereto, shall prove to have been incorrect in any material respect at the time
made and such incorrectness shall not have been cured (to the extent of the adverse
impact of such incorrectness on the interests of Lessor) within ten (10) days
after the receipt by Lessee of a written notice from Lessor advising Lessee of
the existence of such incorrectness; or

 

(ii)           any representation or warranty made
by Lessee Guarantor in the Lease Guarantee or any document or certificate
furnished by Lessee Guarantor in connection herewith or therewith or pursuant
hereto or thereto, shall prove to have been incorrect in any material respect
at the time made and such incorrectness shall not have been cured (to the
extent of the adverse impact of such incorrectness on the interests of Lessor)
within ten (10) days after the receipt by Lessee Guarantor of a written notice
from Lessor advising Lessee Guarantor of the existence of such incorrectness;
or

 

(e)           the commencement of an involuntary
case or other proceeding in respect of Lessee or Lessee Guarantor in an
involuntary case under the federal

 

27

 

bankruptcy laws, as now
or hereafter constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law in the United States or seeking the appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of Lessee or Lessee Guarantor or for all or substantially all
of its property, or seeking the winding-up or liquidation of its affairs and
the continuation of any such case or other proceeding undismissed and unstayed
for a period of thirty (30) consecutive days or an order, judgment or decree
shall be entered in any proceeding by any court of competent jurisdiction
appointing, without the consent of Lessee or Lessee Guarantor, as the case may
be, a receiver, trustee or liquidator of Lessee or Lessee Guarantor, as the
case may be, or of any substantial part of its property, or sequestering or
attaching any substantial part of the property of Lessee or Lessee Guarantor,
as the case may be, and any such order, judgment or decree or appointment or
sequestration shall be final or shall remain in force undismissed, unstayed or
unvacated for a period of thirty (30) days after the date of entry thereof; or

 

(f)            the commencement by Lessee or Lessee
Guarantor of a voluntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar law in the United States, or the
consent by Lessee or Lessee Guarantor to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Lessee or Lessee Guarantor, as the
case may be, or for all or substantially all of its property, or the making by
Lessee or Lessee Guarantor of any assignment for the benefit of creditors, or
Lessee or Lessee Guarantor shall enter into any agreement, composition,
extension or adjustment with creditors or shall take any corporate action to
authorize any of the foregoing; or

 

(g)           Lessee shall fail to carry and
maintain on or with respect to the Engine
(whether or not installed on an Airframe) insurance required to be maintained
in accordance with the provisions of Section 11 hereof; or

 

(h)           Lessee shall cease to be a
Certificated Air Carrier; or

 

(i)            an event of default shall have
occurred and be continuing under any aircraft, engine, spare parts or facility
lease or sublease between Lessor or any Affiliate thereof and Lessee or any
Affiliate thereof or under any other agreement, instrument or document
evidencing obligations owing from Lessee or any Affiliate thereof to Lessor or
any Affiliate thereof; or

 

(j)            the attachment or taking possession
by a creditor of a material part of, or the levy or enforcement of a distress,
execution, sequestration or other process upon any assets, rights or revenues
of Lessee and such attachment or order is not discharged within thirty (30)
days; or

 

28

 

(k)           any event described in Section 10.02
of the Airline Services Agreement giving Lessor the ability to terminate the
Airline Services Agreement shall have occurred; or

 

(l)            any event described in Section 10.03
of the Airline Services Agreement shall have occurred; or

 

(m)          Lessee shall have materially breached
or shall be in default under any material purchase agreement, service
agreement, maintenance agreement or other material agreement with any vendor
relating to the Engine, including components; or any Airframe on which the
Engine is then installed; or

 

(n)           the Lease Guarantee shall for any
reason be terminated or become unenforceable or Lessee Guarantor shall rescind
or repudiate the Lease Guarantee.

 

SECTION
15.  Remedies; Automatic Termination.  (a) Remedies. Upon the occurrence of any Event
of Default and at any time thereafter so long as the same shall be continuing, Lessor
may, at its option, declare by written notice to Lessee this Lease Agreement to
be in default (provided that this Lease shall be deemed to be declared in
default without the necessity of such written declaration upon the occurrence
of any Event of Default described in Section 14(e) or Section 14(f)); and at
any time thereafter, Lessor may do one or more of the following with respect to
all or any part of the Engine as Lessor in its sole
discretion shall elect, to the extent permitted by, and subject to compliance
with any mandatory requirements of, applicable law then in effect:

 

(i)            upon the written
demand of Lessor and at Lessee’s expense, cause Lessee to immediately return
the Engine to Lessor or its order in the manner and condition required by, and
otherwise in accordance with all the provisions of, Section 5 as if the Engine
were being returned at the end of the Term, or Lessor, acting in its individual
capacity or as attorney for Lessee, at its option, may enter upon the premises
where all or any part of the Engine or any Part is located and take immediate
possession of and remove the same, without the necessity of first instituting
proceedings, or by summary proceedings or otherwise, and Lessee waives any
right it may have under applicable law to a hearing prior to repossession of
the Engine or Part (and/or, at Lessor’s option, store the same at Lessee’s
premises until disposal thereof by Lessor), all without liability accruing to
Lessor for or by reason of such entry or taking of possession or removing
whether for the restoration of damage to property caused by such action or
otherwise.  Lessee acknowledges and
agrees that its obligations to return the Engine in those instances is
incontrovertible without prejudice to its right to dispute any amounts,
damages, interests or other amounts claimed by Lessor upon termination of this
Lease and as such this Lease will be incontrovertible written evidence of such
obligation of Lessee to return the Engine which Lessor will be entitled to
enforce via injunctive orders.  Without
limiting any other provision of this Lease or of any other Operative Document,
if an Event of Default has occurred and is continuing, Lessor shall have the
right to withhold or set-off

 

29

 

against all
amounts otherwise payable to Lessee hereunder or under the Airline Services
Agreement or under any other aircraft, engine, spare parts or facility lease or
sublease between Lessor or any Affiliate thereof and Lessee, all as security
for Lessee’s obligations and liabilities under this Lease and the other
Operative Documents, and to use and apply in whole or in part any or all of
such amounts and set-offs to and against such obligations and liabilities of
Lessee, and any such use, application or setoff shall be absolute, final and
irrevocable;

 

(ii)           sell the Engine at
public or private sale, as Lessor may determine, or otherwise dispose of, hold,
use, operate, lease to others or keep idle the Engine as Lessor, in its sole
discretion, may determine, all free and clear of any rights of Lessee and
without any duty to account to Lessee with respect to such action or inaction
or for any proceeds with respect thereto, except as hereinafter set forth in
this Section 15;

 

(iii)          whether or not
Lessor shall have exercised, or shall thereafter at any time exercise, any of
its rights under paragraph (a) or paragraph (b) above with respect to the
Engine, Lessor, by written notice to Lessee specifying a payment date which
shall be a Lease Period Date not earlier than ten (10) days from the date of
such notice (such specified date, the “Termination Date”), may demand that Lessee
pay to Lessor, and Lessee shall pay Lessor, on the Termination Date, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of the
installments of Basic Rent for the Engine due for Lease Periods commencing on
or after the Termination Date), any unpaid Basic Rent due on or prior to the
Termination Date plus whichever of the following amounts Lessor, in its sole
discretion, shall specify in such notice (together with interest, if any, on
such amount at the Past Due Rate from the Termination Date until the date of
actual payment of such amount): (A) an amount equal to the excess, if any,
of (I) the Stipulated Loss Value for the Engine, computed as of the Termination
Date, over (II) the aggregate fair market rental value (computed as hereafter
in this Section 15 provided) of the Engine for the remainder of the Term, after
discounting such aggregate fair market rental value to the present value
thereof as of the Termination Date at an annual rate equal to the Base Rate; or
(B) an amount equal to the excess, if any, of the Stipulated Loss Value
for such Aircraft, computed as of the Termination Date, over (II) the fair market
sales value of the Engine (computed as hereafter in Section 15 provided) as of
the Termination Date;

 

(iv)          in the event Lessor,
pursuant to paragraph (b) above, shall have sold or caused a sale of the
Engine, Lessor, in lieu of exercising its rights under paragraph (c) above with
respect to the Engine, may, if it shall so elect, demand that Lessee pay
Lessor, and Lessee shall pay to Lessor, on the date of such sale, as liquidated
damages for loss of a bargain and not as a penalty (in lieu of the installments
of Basic Rent for the Engine due on or after such date), any unpaid Basic Rent
with respect to the Engine due on or prior to such date plus the amount of any
deficiency between (I) the net proceeds of such sale (after deduction of all
reasonable costs of sale) and (II) the Stipulated Loss Value of the Engine,

 

30

 

computed as of the
Stipulated Loss Value Date on or immediately preceding the date of such sale
together with interest, if any, on the amount of such deficiency, at the Past
Due Rate, from the date of such sale to the date of actual payment of such
amount; and/or

 

(v)           Lessor may rescind,
terminate or cancel this Lease Agreement as to the Engine, and/or may exercise
any other right or remedy which may be available to it under applicable law or
proceed by appropriate court action to enforce the terms hereof or to recover
damages for breach hereof.

 

For the purposes
of paragraph (iii) above, the “fair market rental value” or the “fair market
sales value” of the Engine shall be the rental value or sales value, as the
case may be, which would be obtained in an arm’s-length transaction between an
informed and willing Lessee or purchaser, as the case may be, under no
compulsion to lease or purchase, as the case may be, and an informed and
willing Lessor or seller in possession under no compulsion to lease or sell, as
the case may be, in each case based upon the actual condition and location of
the Engine, which value shall be determined pursuant to an appraisal prepared
and delivered by a nationally recognized firm of independent aircraft
appraisers chosen by Lessor. The cost of such appraisal or appointment shall be
borne by Lessee.

 

In addition,
Lessee shall be liable, except as otherwise provided above and without
duplication of amounts payable hereunder, for any and all unpaid Rent due
hereunder before, after or during the exercise of any of the foregoing remedies
and for all reasonable legal fees and other costs and expenses (including fees
of the appraisers hereinabove referred to) incurred by Lessor by reason of the
occurrence of any Event of Default or the exercise of Lessor’s remedies with
respect thereto, including all costs and expenses incurred in connection with
the return of the Engine in accordance with the terms of Section 5 or in
placing the Engine in the condition and airworthiness required by such Section.

 

At any sale of the
Engine or any part thereof pursuant to this Section 15(a), Lessor  may bid for and purchase such property.  Lessor agrees to give Lessee at least ten
(10) days prior written notice of the date fixed for any public sale of the
Engine or of the date on or after which will occur the execution of any
contract providing for any private sale. 
Except as otherwise expressly provided above, no remedy referred to in
this Section 15(a) is intended to be exclusive, but each shall be cumulative
and in addition to any other remedy referred to above or otherwise available to
Lessor at law or in equity; and the exercise or beginning of exercise by Lessor
of any one or more of such remedies shall not preclude the simultaneous or
later exercise by Lessor of any or all of such other remedies.  No waiver by Lessor of any Event of Default
shall in any way be, or be construed to be, a waiver of any future or
subsequent Event of Default.

 

(b)  Automatic Termination.  If the Airline Services Agreement shall be
terminated or canceled or shall terminate in accordance with its terms, except
for the provisions of Sections 29(b) and 29(c) of this Lease (which shall
survive) this Lease shall thereupon terminate forthwith and without
notice.  Upon the termination of this
Lease as aforesaid and at any time thereafter, Lessor may, to the extent
permitted by, and subject to compliance with any mandatory requirements of,
applicable law then in effect, and at Lessee’s expense, cause Lessee to
immediately return, and Lessee shall immediately return, the Engine to Lessor
or its order in the

 

31

 

manner and
condition required by, and otherwise in accordance with all the provisions of
Section 5 as if the Engine were being returned at the end of the Term, or
Lessor, at its option, may enter upon the premises where all or any part of the
Engine is located and take immediate possession of and remove the same, without
the necessity of first instituting proceedings, or by summary proceedings or
otherwise, and Lessee waives any right it may have under applicable law to a
hearing prior to repossession of the Engine or Part (and/or, at Lessor’s
option, store the same in accordance with the provisions of Section 5(d)), all
without liability accruing to Lessor for or by reason of such entry or taking
of possession or removing whether for the restoration of damage to property
caused by such action or otherwise. 
Lessee acknowledges and agrees that its obligations to return the Engine
in those instances is incontrovertible without prejudice to its right to
dispute any amounts, damages, interests or other amounts claimed by Lessor upon
termination of this Lease and as such this Lease will be incontrovertible
written evidence of such obligation of Lessee to return the Engine which Lessor
will be entitled to enforce via injunctive orders.

 

In addition,
Lessee shall be liable for any and all unpaid Rent due hereunder before or
during the occurrence of the events referred to in the preceding paragraph, and
all costs and expenses incurred in connection with the return of the Engine in
accordance with the terms of Section 5 or in placing the Engine in the
condition and airworthiness required by such Section.

 

SECTION
16.  Lessee’s Cooperation Concerning Certain Matters.  Forthwith upon the execution and
delivery of each Lease Supplement from time to time required
by the terms hereof and upon the execution and delivery of any amendment to
this Lease, Lessee will cause such Lease Supplement or amendment to be duly
filed and recorded, and maintained of record, in accordance with the applicable
laws of the registry of any aircraft on which the Engine may be installed.  In addition, Lessee will promptly and duly
execute and deliver to Lessor such further documents (including the filing of
Uniform Commercial Code financing statements and continuation statements with
respect to previously filed financing statements) and assurances and take such
further action as identified in the annual opinion of counsel required to be
furnished pursuant to Section 30(d), and/or as Lessor may, in connection with
the delivery of the Engine hereunder and from time to time thereafter,
reasonably request, in order more effectively to carry out the intent and
purpose of this Lease and to establish and protect the rights and remedies
created or intended to be created in favor of Lessor, hereunder or in respect
thereof, including, without limitation, if requested by Lessor, at the expense
of Lessee, the execution and delivery of supplements or amendments hereto, each
in recordable form, subjecting to the Engine pursuant to the terms thereof and
the recording or filing of counterparts thereof, in accordance with the laws of
such jurisdictions as Lessor may from time to time deem advisable.  Lessee agrees to furnish to Lessor, promptly
after execution
and delivery of any  supplement and
amendment hereto, an opinion of counsel reasonably satisfactory to Lessor as to
the due recording or filing of such supplement or amendment.  Commencing in
200   [calendar year following closing date] on or before April 30 of
each year during the Term, Lessee will deliver to Lessor a certificate of Lessee,
signed by the President, a Vice President
or the Chief Financial Officer of Lessee to the effect that the signer is
familiar with or has reviewed the relevant terms of this
Lease and the signer does not have actual knowledge of the existence, as of the
date of such certificate, of any condition or event which constitutes a Default
or an Event of Default.  Lessee agrees
that if an officer of Lessee has actual knowledge of the existence of a Default
or an Event of Default, then Lessee shall promptly give to Lessor notice
thereof and such other information relating thereto as

 

32

 

Lessor may reasonably request.  Lessee will deliver to Lessor (i) within
forty-five (45) days after the end of the first three quarterly periods of each
fiscal year of Lessee, a balance sheet of Lessee as of the close of such
period, together with related statements of financial performance and cash
flows for such period and, upon filing with the Securities and Exchange
Commission (and in any event no later than sixty (60) days after the end of the
first three quarterly periods of each fiscal year of Lessee Guarantor), the
form 10–Q of Lessee Guarantor for such period; (ii) within one hundred
and twenty (120) days after the close of such fiscal year, a balance sheet of
Lessee as of the close of such fiscal year, together with the related
statements of financial performance and cash flows for such fiscal year and the
form 10–K of Lessee Guarantor for such period, prepared in the case of
clause (i) and (ii) in accordance with generally accepted accounting
principles, consistently applied; (iii) within thirty (30) days after the end
of each calendar quarter, if not previously provided to Lessor, any Securities
and Exchange Commission filings of Lessee and Lessee Guarantor during the
preceding calendar quarter; (iv) upon filing with the Securities and
Exchange Commission (and in any event no later than ninety (90) days after the
close of Lessee Guarantor’s fiscal year), the annual report of Lessee Guarantor
for such fiscal year; and (v) from time to time, such financial statements and
other information relating to Lessee and Lessee Guarantor as Lessor may
reasonably request.

 

SECTION
17.  Notices.  All notices required under the terms and provisions
hereof shall be by telecopy or other telecommunication means (with such
telecopy or other telecommunication means to be confirmed in writing), or if
such notice is impracticable, by registered, first-class airmail, with postage
prepaid, or by nationally recognized overnight courier service, or by personal
delivery of written notice and any such notice shall become effective when
received, addressed:

 

(i)            if to Lessor, at
2700 Lone Oak Parkway (A4010), Eagan, Minnesota 55121–1534, Attention:
Treasurer (Telecopy No. (612) 726–2221), or to such other address or
telecopy number as Lessor shall from time to time designate in writing to
Lessee, and

 

(ii)           if to Lessee, at
1689 Nonconnah Blvd., Suite 111, Memphis, TN 
38132, Attention: Chief Financial Officer (Telecopy No. (901)348-4103),
or to such other address or telecopy number as Lessee shall from time to time
designate in writing to Lessor.

 

SECTION
18.  No Set-Off, Counterclaim, etc.  This Lease is a net lease.  All Rent shall be paid by Lessee to Lessor
in funds of the type specified in Section 3(d).  Lessee’s  obligation to pay all Rent payable hereunder shall be
absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other
right which Lessee may have against Lessor or
anyone else for any reason whatsoever (whether in connection with the
transactions contemplated hereby or any other transactions), including, without
limitation, any breach
by Lessor of its warranties, agreements
or covenants contained in any of the Operative Documents or Lessee Documents,
each of which rights Lessee expressly waives, (ii) any defect in the title,
registration, airworthiness, condition, design, operation, or fitness for use
of, or any damage to or loss or destruction of, the Engine, or any interruption
or cessation in or prohibition of the use or possession thereof by Lessee for
any reason whatsoever, including, without limitation, any such

 

33

 

interruption,
cessation or prohibition resulting from the act of any government authority,
(iii) any insolvency, bankruptcy, reorganization or similar case or proceedings
by or against Lessee or any other person, or (iv) any other circumstance,
happening, or event whatsoever, whether or not unforeseen or similar to any of
the foregoing.  If for any reason
whatsoever this Lease shall be terminated in whole or in part by operation of
law or otherwise except as specifically provided herein, Lessee nonetheless
agrees without limitation of the other rights or remedies of Lessor hereunder,
to pay to Lessor an amount equal to each Rent payment at the time such payment
would have become due and payable in accordance with the terms hereof had this Lease not been terminated in whole or in
part.  Lessee hereby waives, to the
extent permitted by applicable law, any and all rights which it may now have or
which at any time hereafter may be conferred upon it, by statute or otherwise,
to terminate, cancel, quit or surrender this Lease except in accordance with
the express terms hereof.

 

SECTION
19.  No Renewal.  Lessee shall not have the right to renew
this Lease.

 

SECTION
20.  Maintenance Program.  Lessor shall have the right in its sole
discretion upon and after return of the Engine to utilize the Maintenance
Program at no cost to Lessor and Lessee hereby agrees that is shall permit
Lessor to  utilize the Maintenance
Program upon and after return of the Engine at no cost to Lessor.

 

SECTION
21.  Lessor’s Right to Perform  for Lessee.  If Lessee fails to make any
payment of Rent required to be made by it hereunder or fails to perform or
comply with any of its agreements contained herein, then Lessor may itself make
such payment or perform or comply with such agreement but shall not be
obligated hereunder to do so, and the amount of such payment and the amount of
the reasonable expenses of Lessor incurred in connection with such payment or
the performance of or compliance with such agreement, as the case may be,
together with interest thereon at the Past Due Rate, shall be deemed
Supplemental Rent, payable by Lessee upon demand.

 

SECTION
22.  [Intentionally Omitted] [Maintenance Reserves;
Investment of Security Funds; Liability of Lessor Limited.  (1)  Upon written notice to Lessee, Lessor may require Lessee
to pay to Lessor, as Supplemental Rent, Maintenance Reserves.  Such written notice shall specify the
calendar month in respect of which such Maintenance
Reserves shall commence to accrue, which may not be earlier than the calendar
month in which such notice is given.

 

(2)           Amount.  Commencing with the calendar month specified
in Lessor’s notice given pursuant to Section 22(1), Lessee shall pay the
following Maintenance Reserves to Lessor during the Term:

 

(i)            the amount
specified in Table 1 on Exhibit F hereto for each Engine Flight Hour
operated by the Engine to cover the Engine’s Basic Shop Visits during the Term
(each, “Engine
Maintenance Reserves”); and

 

(ii)           the amount
specified in Table 2 on Exhibit F hereto for each Engine Flight Hour
operated by the Engine to cover replacement of the Engine’s life-limited parts
during the Term (each, “Engine LLP Maintenance Reserves”).

 

34

 

The Engine
Maintenance Reserves and the Engine LLP Maintenance Reserves are referred to
collectively herein as the “Maintenance Reserves.”  The amount to be paid for each Maintenance
Reserve may be adjusted by Lessor during the Term to reflect increases in
actual or forecast maintenance expenses.

 

(3)           Payments.  Lessee shall pay the Maintenance Reserves in
respect of each calendar month during which Maintenance Reserves accrue
(commencing with the calendar month specified in Lessor’s notice given pursuant
to Section 22(1)) on the tenth day of the subsequent calendar month beginning
on the tenth day of the calendar month following the calendar month specified
in Lessor’s notice given pursuant to Section 22(1) and ending on the tenth day
of the calendar month following the last day of the Term.  Lessor shall keep notional running accounts
in respect of the Engine to which shall be credited all amounts in respect
thereof received under this Section 22(3) and debited all sums paid in respect
thereof by Lessor to, or on behalf of, Lessee under Section 22(4).

 

(4)           Release of Maintenance Reserves.  If Lessee submits to Lessor, within six
months after the commencement of such maintenance work and before the thirtieth
(30th) day following the Expiration Date, an invoice and supporting
documentation evidencing performance of the following work (including work
performed to satisfy return conditions in accordance with Section 5(a)) by or
on behalf of Lessee, Lessor shall, provided that (x) no reimbursement
shall be made in respect of replacement, repair or overhaul caused by foreign
object damage, operational or other mishandling, faulty maintenance or any
accidental cause or in respect of any cost which is reimbursable by insurance,
and (y) no Default or Event of Default has occurred and is continuing,
release to Lessee the following amounts from the respective Maintenance
Reserves:

 

(i)            Engine Refurbishment:  with respect to any Engine Basic Shop Visit
(excluding controls, accessories and QEC repair/overhaul), the lesser of (i)
the amount of such invoice and (ii) the balance of Engine Maintenance Reserves
held by Lessor in respect of the Engine at the time of payment;  and

 

(ii)           Engine Life Limited Parts:  with respect to the exchange of new Life
Limited Parts of the Engine in replacement of existing Life Limited Parts
during scheduled off-the-wing maintenance, Lessor shall release the lesser of
(i) the amount of such invoice less any credit or value Lessee receives in
respect of any such replaced existing life limited part and (ii) the balance of
Engine LLP Maintenance Reserves held by Lessor in respect of the Engine at the
time of payment.

 

For the avoidance
of doubt, Lessee has no right to payment of any amount from the Maintenance
Reserves except as expressly provided in this Section 22(4), and any remaining
balances of the Maintenance Reserves on the thirtieth (30th) day
following the Expiration Date, after application of the foregoing provisions,
shall be retained by Lessor as its sole property.   Subject to its rights and obligations hereunder, Lessee will not
assign, transfer or otherwise dispose of its rights or interest in the
Maintenance Reserves.  To the extent any
maintenance expenses exceed the amount available in the applicable Maintenance
Reserves account, such expenses shall be for the account of the Lessee and the
shortfall, if any, shall not be carried forward or made the subject of

 

35

 

any further claim
for reimbursement.  Lessor may commingle
the Maintenance Reserves with its general funds, and Lessee shall not be
entitled to earn interest on the Maintenance Reserves.](6)

 

SECTION
23.  Service of Process. 
Lessor and Lessee each hereby irrevocably submits
itself to the non-exclusive jurisdiction of the United States District Court
for the Southern District of New York and to the
non-exclusive jurisdiction of the Supreme Court of the State of New York, New
York County, for the purposes of any suit, action or other proceeding arising
out of this Lease, the subject matter hereof or any of the transactions contemplated
hereby brought by Lessor (or, if and so long as the Engine is subject to a
Headlease, by any other party to the Headlease Documents) or their respective
successors or assigns.

 

SECTION
24.  Miscellaneous. Subject to
Section 15(b), any provision of this Lease which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.  No term or provision of this Lease may be
changed, waived, discharged or terminated orally, but only by an instrument in writing signed by Lessor
and Lessee.  This
Lease shall constitute an agreement of lease, and nothing contained herein
shall be construed as conveying to Lessee any right, title or interest in the
Engine except as a lessee only.  Neither
Lessee nor any Affiliate of Lessee will file any tax returns in a manner
inconsistent with the foregoing fact or with the Owner’s ownership of the
Engine.  The section and paragraph headings
in this Lease and the table of contents are for convenience of reference only and
shall not modify, define, expand or limit any of the terms or provisions hereof
and all references herein to numbered sections, unless otherwise indicated, are
to sections of this Lease.  The Exhibits
attached hereto are intended to be an integral part of this Lease and are
incorporated into this Lease by reference for all purposes.  THIS LEASE HAS BEEN DELIVERED IN THE STATE OF NEW YORK
AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE. 
This Lease may be executed by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument.  This Lease, the Airline Services Agreement,
and the Lease Supplement contain the complete and exclusive statement of the
terms and conditions of the entire Engine lease agreement between Lessor and
Lessee for the Term.  Nothing
in this Lease shall be interpreted or construed as establishing between the
parties a partnership, joint venture or other similar arrangement.

 

SECTION
25.  [Reserved]

 

SECTION
26.  Covenant of Quiet Enjoyment.  So long as (a) no Event of
Default shall have occurred and be continuing and (b) the Airline Services
Agreement shall not have been terminated or canceled or shall not have
terminated in accordance with its terms, Lessor shall not interfere with
Lessee’s continued use and operation of, and quiet enjoyment of, the Engine.

 

(6)  To be inserted in Engine leases entered into in accordance with
Section 3.02(a)(iv) of the Airline Services Agreement.

 

36

 

SECTION 27.  Federal Bankruptcy Code.  It is the intention of the parties that the
provisions of 11 U.S.C. Section 1110, or any analogous section of the Federal
bankruptcy laws, as amended from time to time, shall be
applicable to the interest of Lessor in the Engine and to any right of Lessor
to take possession of the Engine in compliance with the provisions of this
Lease, as the same may be amended, modified or supplemented from time to time.

 

SECTION
28.  Use of Funds.  If a Default or an Event of Default shall
have occurred and is continuing, or if a default or an event of default under
any other aircraft, engine, spare parts or facility lease or sublease or any
other agreement, instrument or document between Lessor or any Affiliate thereof
and Lessee or any Affiliate thereof shall have occurred and is continuing,
Lessor shall have the right in its sole discretion to apply any funds of Lessee
that it holds including, without limitation, those which
are part of the Security Deposit, [Maintenance Reserves](7) or Basic Rent and
those which are held pursuant to Sections 10(f)(i) and 11(g)(i) hereof, to cure
any Default or Event of Default or any default or event of default under any
agreement, instrument or document between Lessor or any Affiliate thereof and
Lessee or any Affiliate thereof; provided, however, that Lessor shall
have no obligation hereunder to apply any such funds. The amount of any such
funds so applied and the amount of the reasonable expenses of Lessor incurred
in connection with such application, together with interest thereon at the Past
Due Rate shall be deemed Supplemental Rent, payable by Lessee upon demand.

 

SECTION
29.  Lessee’s Representations, Warranties and Indemnities.
(a)  In General.  Lessee represents, warrants and covenants to Lessor that as of
the Commencement Date:

 

(i)            Lessee is a
Certificated Air Carrier and corporation duly organized and validly existing
pursuant to the laws of the State of Georgia; is duly qualified to do business
as a foreign corporation in each jurisdiction in which its operations or the
nature of its business requires, other than failures to qualify which would not
have a material adverse effect on the consolidated business, assets, properties
or condition (financial or otherwise) of Lessee and its subsidiaries taken as a
whole or on the ability of Lessee to perform its obligations under the Lessee
Documents; has its chief executive office (as such term is used in Article 9 of
the Uniform Commercial Code) located at Memphis, Tennessee; holds all licenses,
certificates, permits and franchises from the appropriate agencies of the
United States and/or all other governmental authorities having jurisdiction
necessary to conduct its business as presently conducted (other than those
licenses, certificates, permits and franchises which, if not obtained, would not
have an adverse effect on the consolidated business assets, properties or
condition (financial or otherwise) of Lessee or on the ability of Lessee to
perform its obligations under the Lessee Documents); and has the corporate
power and authority to own or hold under the Lease its properties wherever
located or used and to enter into and perform its obligations under the Lessee
Documents;

 

(7)  To be inserted in Engine
leases entered into in accordance with Section 3.02(a)(iv) of the Airline
Services Agreement.

 

37

 

(ii)           the execution,
delivery and performance by Lessee of the Lessee Documents to which Lessee is a
party will, on the Commencement Date, have been duly authorized by all
necessary corporate action on the part of Lessee, do not require any
stockholder approval, or approval or consent of any trustee or holders of any
indebtedness or obligations of Lessee except such as have been duly obtained or
by the Commencement Date will have been duly obtained, and neither the
execution or delivery thereof or the consummation by Lessee of the transactions
contemplated thereby nor the compliance by Lessee with any of the terms and
provisions of such agreements contravenes any law, judgment, government rule,
regulation or order binding on Lessee or the certificate of incorporation or by–laws
of Lessee or contravenes the provisions of, or constitutes a default under, or
results in the creation of any Lien (other than Permitted Liens) upon the
property of Lessee under, any indenture, mortgage, contract or other agreement
to which Lessee is a party or by which it or its properties may be bound or
affected;

 

(iii)          neither the
execution and delivery by Lessee of the Lessee Documents to which Lessee is a
party nor the performance by Lessee of its obligations thereunder require the
consent or approval of, the giving of notice to, or the registration with, or
the taking of any other action in respect of, any Federal, state or foreign
government authority or agency, except for (A) the orders, permits, waivers,
exemptions, authorizations and approvals of the regulatory authorities having
jurisdiction over the operation of the Aircraft by Lessee required to be
obtained on or prior to the Commencement Date, which orders, permits, waivers,
exemptions, authorizations and approvals have been duly obtained and are, or
will on the Commencement Date be in full force and effect, (B) [Intentionally
Omitted] and (C) such consents, approvals, notices, registrations and other
actions required by the terms of the Lessee Documents to the extent required to
be given or obtained only after the Commencement Date;

 

(iv)          on the Commencement
Date the Lessee Documents to which Lessee is a party will each constitute
legal, valid and binding obligations of Lessee enforceable against Lessee in
accordance with the terms thereof (except as enforceability may be limited by
(A) general principles of equity, (B) applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws affecting the
rights of creditors generally, (C) applicable laws which may affect the
remedies provided therein; which laws, however, do not make the remedies
provided therein inadequate for the practical realization of the benefits
provided thereby, except that no representation or warranty is made as to the
amount of priority of any recovery under any particular circumstances, and (D)
in the case of indemnity provisions contained in such documents, as limited by
public policy considerations);

 

(v)           there are no pending
or, to the best of Lessee’s knowledge, threatened actions, suits or proceedings
before any court, governmental body, arbitration board, tribunal or
administrative agency which might adversely affect the business, condition
(financial or otherwise), operations or properties of Lessee

 

38

 

or Lessee’s
ability to perform its obligations under the Lessee Documents to which Lessee
is a party;

 

(vi)          [except
for (A) the filing for recording pursuant to the Federal Aviation Act of the
Lease with the Lease Supplement covering the Aircraft,  (B) the filing for recording of the
termination of the Predecessor Lease, and (C) the filing of financing
statements (and continuation statements at periodic intervals) with respect to
the security and other interests created by such documents under the Uniform
Commercial Code, no further action, including any filing or recording of any
document (including any financing statement in respect thereof under Article 9 of
the Uniform Commercial Code of any applicable jurisdiction), is necessary in
order to establish and perfect Lessor’s interest in the Aircraft as against
Lessee in any applicable jurisdictions in the United States;](8)

 

(vii)         there has not
occurred any event which constitutes an Event of Default under the Lease or a
default or an event of default under any other aircraft, engine, spare parts or
facility lease or sublease or any other agreement, instrument or document
between Lessor or any of its Affiliates and Lessee (or any event which with the
giving of notice or the passage of time or both would constitute an Event of
Default under the Lease or an event of default under any other aircraft,
engine, spare parts or facility lease or sublease between Lessor or any of its
Affiliates and Lessee) which is presently continuing;

 

(viii)        the Engine will be
free and clear of all Liens, except Permitted Liens (including, for this
purpose, any Lien which would be a Lessor Lien but for the proviso to either
such definition);

 

(ix)           the Engine will be
duly certified by the FAA as to type, serviceability and airworthiness, will be
insured by Lessee in accordance with the terms of this Lease and will be in the
condition and state of repair required under the terms of this Lease;

 

(x)            Lessor, as lessor
hereunder, will be entitled to the benefits of 11 U.S.C. Section 1110 (or any
successor statute containing the material terms of 11 U.S.C Section 1110) in
the event of any reorganization of Lessee under such Section; and

 

(xi)           there has not been
any material adverse change in the operations or financial condition of Lessee
since March 1, 2002.

 

(b)   General Tax
Indemnity.

 

(i)            Indemnity.  Except as provided in Section 29(b)(ii)
hereof, Lessee shall on an After–Tax Basis pay, protect, save and on
written demand shall indemnify and hold harmless any Tax Indemnitee from and
against any and all

 

(8)  As applicable.

 

39

 

Taxes howsoever
imposed against any Tax Indemnitee, Lessee, Lessee Person or any Aircraft,
Airframe or airframe on which the Engine is installed from time to time, the
Engine, or any Part thereof or interest therein by any Federal, state or local
government or other taxing authority in the United States or by any foreign
government or any political subdivision or taxing authority thereof or by any
territory or possession of the United States or by any international authority
(“Taxing
Authority”) upon or in connection with or relating to (A) the
construction, financing, refinancing, purchase, acquisition, acceptance,
rejection, delivery, nondelivery, transport, ownership, registration,
re-registration, insuring, assembly, possession, repossession, operation,
location, use, control, condition, maintenance, repair, sale, return,
abandonment, installation, storage, redelivery, replacement, leasing,
subleasing, modification, rebuilding, importation, exportation, transfer of
title, transfer of registration, or other application or disposition of the
Engine or any Part thereof or any interest in the foregoing, (B) the rentals,
receipts or earnings from the Engine or any Part thereof or any interest in the
foregoing, (C) any amount paid or payable pursuant to any Operative Document or
Lessee Document or any document related to any Operative Document or Lessee
Document, (D) any Aircraft, Airframe or airframe on which the Engine is
installed from time to time, the Engine or any Part thereof or any interest in
the foregoing, (E) any or all of the Operative Documents or the Lessee Documents
or the execution, issuance, delivery or registration of, or the performance
under, or otherwise with respect to any of the Operative Documents or Lessee
Documents and any other documents contemplated hereby or thereby and amendments
and supplements hereto and thereto or the execution, delivery or performance of
any thereof or the issuance, acquisition, modification, holding or subsequent
transfer thereof, or (F) otherwise with respect to or in connection with the
transactions contemplated by the Operative Documents or the Lessee Documents.

 

(ii)           Exclusions
from General Tax Indemnity. 
The provisions of Section 29(b)(i) shall not apply:

 

(1)  to any
Income Tax (as defined in Section 29(d) hereof) imposed on Lessor by the
United States Federal government;

 

(2)  to any Tax
to the extent imposed as a result of a voluntary transfer or disposition by a
Tax Indemnitee including, without limitation, a transfer or disposition of all
or any portion of its equitable or legal ownership or leasehold interest in the
Engine, any Part or any Operative Document or Lessee Document, or any interest
in such Tax Indemnitee, unless such transfer or disposition shall occur (A)
during the continuance of a Default or Event of Default under this Lease or the
Aircraft Lease with respect to any Aircraft or Airframe on which the Engine is
then installed, or upon the termination or cancellation of the Airline Services
Agreement or (B) in connection with the termination of the Lease or the
action or direction of Lessee pursuant to Sections 2, 5 ,6, 7, 8, 9 or 10 of
this Lease;

 

40

 

(3) 
[reserved];

 

(4)  to Taxes
to the extent imposed with respect to events occurring or matters arising,
after the earlier of (x) the return of physical possession of the Engine to
Lessor or its designee pursuant to the terms of this Lease or (y) the
commencement of storage pursuant to Section 5(c) hereof; provided the exclusion set
forth in this subparagraph (4) shall not apply to Taxes to the extent such Taxes
relate to events, periods or matters occurring or arising prior to or
simultaneously with such time or arise as a result of amounts payable by Lessee
after such time or occur during the continuance of a Default or Event of
Default under this Lease;

 

(5)  to any Tax
to the extent arising out of or caused by, or to the extent such Tax would not
have been incurred but for, (A) the willful misconduct of such Tax Indemnitee
or (B) the breach of any representation, covenant or agreement by such Tax
Indemnitee in any Operative Document; or

 

(6) 
[reserved].

 

Nothing contained
in Section 29(b)(ii) hereof shall apply to any Tax in the nature of a sales,
use, value added, goods and services, transfer, recording, excise or
registration Tax imposed on or with respect to the Engine or any Part or
interest therein or title thereto, incurred prior to, or on the date of, the
execution and delivery of this Lease.

 

For the avoidance
of doubt, and notwithstanding any provision herein to the contrary, Lessee
agrees to indemnify Lessor on an After-Tax Basis against, and agrees to hold
Lessor harmless from, any and all payments, indemnities and gross-ups required
to be made by Lessor to or for the benefit of any other Person pursuant to any
agreement between Lessor and such other Person relating to the Engine or any
Part thereof.

 

(iii)          Calculation
of General Tax Indemnity Payments. 
Notwithstanding any provision contained in Section 29(b)(ii)
hereof, any payment which Lessee shall be required to make to, or for the
account of, any Tax Indemnitee, with respect to any Tax (or any payment made in
connection with the payment or contest of any Tax) which is subject to
indemnification under this Section 29(b) shall be paid on an After-Tax
Basis.  Any calculation of an indemnity
payment for an inclusion item, and of any gross–up of an indemnity or
reverse indemnity payment, will be on the basis of then–actual Federal,
state, and local tax rates applicable to such Tax Indemnitee, and based upon
the assumption that the Tax Indemnitee is fully taxable at such tax rates.

 

Any Taxes that are
imposed on any Tax Indemnitee as a result of the disallowance or reduction of
any tax benefit (including foreign tax credits) referred to in this subsection
as to which Lessor has made a payment to Lessee

 

41

 

required hereby
(or as to which such Lessor would have made payment but for
Section 29(b)(viii) or which benefit was otherwise taken into account in
computing Lessee’s indemnity obligation pursuant to this Section 29(b)) in
a taxable year subsequent to the utilization by the Tax Indemnitee, or any
amount required to be paid by Lessor to a Tax Indemnitee pursuant to any other
agreement with such Tax Indemnitee relating to the Engine shall be treated as a
Tax for which Lessee is obligated to indemnify the relevant Tax Indemnitee or
reimburse Lessor pursuant to the provisions of this Section 29(b), without
regard to the exclusions set forth in Section 29(b)(ii) hereof.

 

(iv)          General Tax Indemnity — Contests.
 With respect to any Tax Indemnitee that
is Lessor or any Affiliate thereof (a “Lessor Tax Indemnitee”) at Lessee’s written
request and with the written consent of Lessor, Lessee shall be entitled to
contest any claim with respect to any Tax imposed on such Lessor Tax Indemnitee
other than an Income Tax either in Lessee’s name or in the name of such Lessor
Tax Indemnitee at Lessee’s sole cost and expense (a “Lessee Controlled Contest”).
If Lessor receives a written claim from any Tax Indemnitee or any Taxing
Authority for any Tax for which Lessee is obligated pursuant to
Section 29(b)(i), Lessor shall notify Lessee promptly of such claim (it
being understood and agreed that failure to provide such notice shall not
adversely affect or otherwise prejudice any Tax Indemnitee’s right to an
indemnity hereunder except to the extent such failure precludes any contest of
such claim).  If the Tax cannot be
contested in a Lessee Controlled Contest for any reason (including, but not
limited to the refusal of the Lessor or other Tax Indemnitee to consent
thereto), upon written request from Lessee received by Lessor within ten (10)
Business Days of such notice Lessor or such Tax Indemnitee shall contest such
claim in good faith at Lessee’s sole cost and expense.  Any such contest shall be at Lessor’s or
such Tax Indemnitee’s, as the case may be, control and direction.  In any such contest the Tax Indemnitee or
Lessor, as the case may be, may in its sole discretion select the forum for
such contest and determine whether any such contest shall be by (A) resisting
payment of such Tax, (B) paying such Tax under protest or (C) paying such Tax
and seeking a refund or other repayment thereof.  In no event shall Lessor be required to contest, or to request a
Tax Indemnitee to contest, or Lessee be permitted to contest, the imposition of
any Tax for which Lessee is obligated pursuant to this Section 29(b)
unless (W) no Default or Event of Default shall have occurred and be
continuing, (X) Lessee shall have agreed to pay to Lessor and to the Tax
Indemnitee on demand on an After-Tax Basis all reasonable costs and expenses
that Lessor and the Tax Indemnitee may incur in connection with contesting such
claim (including, without limitation, all reasonable legal and accounting fees
and disbursements), (Y) such action to be taken will not result in a risk of
sale, forfeiture or loss of, or the creation of any Lien on, the Engine or any
Part, or any Aircraft, Airframe or airframe on which the Engine is installed,
other than Permitted Liens or a risk of imposition of criminal penalties, and
(Z) if such contest shall be conducted in a manner requiring the payment of the
claim, Lessee shall have paid the amount required directly to the appropriate
authority or made an advance of the amount thereof to such Tax Indemnitee on an
interest-free basis and agreed to indemnify

 

42

 

Lessor and such
Tax Indemnitee on an after-tax basis for any cost or Taxes payable with respect
to such advance.  In addition, Lessee
shall not have any right to request Lessor or any other Tax Indemnitee to
contest a claim unless (x) the amount of indemnity payments that Lessee would
be required to make if the contest were unsuccessful is at least $50,000, (y)
prior to commencement of any contest, Lessee has delivered to Lessor and, if
requested by Lessor, the Tax Indemnitee a written acknowledgment of Lessee’s
obligation under this Section 29(b) to indemnify such Lessor and such Tax
Indemnitee with respect to the Tax at issue to the extent that the contest is
unsuccessful; and (z) Lessor and the relevant Tax Indemnitee has received an
opinion of independent tax counsel selected by Lessor that concludes that a
Reasonable Basis exists with respect to the tax position Lessee has asserted.  For the purposes of this Section 29(b), the
term “Reasonable Basis” shall have the meaning set forth for such term in
Formal Opinion 85-352 issued by the Standing Committee on Ethics and
Professional Responsibility of the American Bar Association.  Lessee shall have no right to pursue or
appeal or cause any Tax Indemnitee or Lessor to pursue or appeal an adverse
judicial decision without the prior written consent of Lessor and, if required
by Lessor, the relevant Tax Indemnitee.

 

Nothing contained
in this Section 29(b)(iv) shall require a Lessor or a Tax Indemnitee to
contest, or permit Lessee to contest, a claim which such Tax Indemnitee would
otherwise be required to contest, if such Tax Indemnitee shall waive payment by
Lessor and Lessee of any amount that might otherwise be payable by Lessee under
this Section 29(b) in respect of such claim and any other claim, the
contest of which would be precluded.  In
addition, for the avoidance of doubt, Lessee shall have no right to contest or
require any other party to contest any Tax imposed on a Tax Indemnitee in a
manner or to the extent that is inconsistent with Lessor’s rights under any
Operative Document or Lessee Document.

 

(v)           General Tax Indemnity — Reports.  If any report, return or statement is required
to be filed with respect to any Tax which is subject to indemnification under
this Section 29(b), Lessee shall timely file the same at its sole expense
(except for any such report, return or statement which a Tax Indemnitee has
notified Lessor or Lessee that such Tax Indemnitee intends to file or which
such Tax Indemnitee is required by law to file in its own name).  Lessee shall either file such report, return
or statement so as to show the ownership of the Engine in the Owner and send a
copy of such report, return or statement to Lessor, the Tax Indemnitee and the
Owner or, where Lessee is not so permitted to file such report, return or
statement, it shall notify the Tax Indemnitee and Lessor of such requirement
and prepare and deliver such report, return or statement to the Tax Indemnitee
and Lessor in a manner satisfactory to such Tax Indemnitee and Lessor within a
reasonable time prior to the time such report, return or statement is to be
filed.  Lessee shall hold Lessor and the
Tax Indemnitee harmless on an After-Tax Basis from and against any penalties,
interest, fines or additions to Tax caused by the inaccuracy of any report,
return or statement prepared and filed by Lessee on behalf of Lessor or any
other Tax Indemnitee. Lessee will provide at

 

43

 

Lessee’s expense
to Lessor and the Tax Indemnitee such information as Lessor or any Tax
Indemnitee may reasonably request in writing that is reasonably necessary to
enable Lessor or such Tax Indemnitee to comply with their tax filings, audit
and litigation requirements.  If Lessee
receives written notice from a Taxing Authority or a Tax Indemnitee or
otherwise of a Tax that is imposed upon a Tax Indemnitee but not indemnified
against by Lessee hereunder, Lessee will promptly forward a copy of such notice
to Lessor and the Tax Indemnitee. 
Lessee shall also provide or cause to be provided to Lessor, upon
request and at Lessee’s expense, all documents, records and other information
that Lessor is required to provide any Tax Indemnitee under any applicable
agreements between Lessor and such Tax Indemnitee.

 

(vi)          Verification.  At Lessee’s written request after Lessee
receives computations showing the amount of any indemnity payable by Lessee
pursuant to Section 29(b)(i), Lessor shall exercise its rights, if any,
under applicable agreements with the claimant Tax Indemnitee with respect to
verification of such computation.  If
Lessee pays such indemnity in whole or in part before completion of the
verification procedure, appropriate adjustments will be made promptly after
completion of the verification procedure to take into account any
redetermination of the indemnity by the accounting firm.  Any fee and disbursements of the accounting
firm payable by Lessor shall be paid by Lessee.  Lessee will have no right under this Section 29(b) to
examine any tax return of any Tax Indemnitee or Lessor.  The sole responsibility of such accounting
firm shall be to verify the computations of the amount payable hereunder and
the interpretation of this Agreement or any other agreement shall not be within
the scope of such accounting firm’s responsibilities.

 

(vii)         General Tax Indemnity — Payment.  Except as provided in
Section 29(b)(iv) hereof, Lessee shall pay any Tax for which it is liable
pursuant to Section 29(b)(i) directly to the appropriate taxing authority
if legally permissible or upon demand of a Tax Indemnitee or Lessor shall pay
such Tax and any other amounts due hereunder to such Tax Indemnitee or to
Lessor as indicated in such demand within ten (10) Business Days of such
demand.  Any such demand for payment
from a Tax Indemnitee or Lessor shall specify in reasonable detail the payment
and the facts upon which the right to payment is based.  Lessor shall request that the Tax Indemnitee
promptly forward to Lessee a copy of any notice, bill or advice received by it
to the extent concerning any Tax indemnified against hereunder (provided
that the failure of the Lessor to make such request or the failure of the Tax
Indemnitee to forward such notice, bill or advice shall not adversely affect
the Lessor’s or Tax Indemnitee’s rights to indemnification hereunder).  Within twenty (20) days after the date of
each payment by Lessee of any Tax indemnified against hereunder, Lessee shall
furnish the appropriate Tax Indemnitee (with a copy to Lessor) the original or
a certified copy of a receipt for Lessee’s payment of such Tax or such other
evidence of payment of such Tax as is reasonably acceptable to such Tax
Indemnitee.

 

44

 

(viii)        Application of Payments During
Existence of Default or Event of Default. 
Any amount payable to Lessee pursuant to the terms of this
Section 29(b) shall not be paid to or retained by Lessee if at the time of
such payment or retention a Default or Event of Default shall have occurred and
be continuing or if the Airline Services Agreement shall have been terminated
or cancelled or shall have been terminated in accordance with its terms, but
shall be held by Lessor and applied pursuant to Section 28 hereof..

 

(ix)           [Intentionally
Omitted].

 

(x)            Inclusions.  If Lessor is required by any Taxing
Authority to include in its income for income tax purposes, or Lessor receives
an opinion from independent tax counsel selected by Lessor and reasonably
acceptable to Lessee, that Lessor does not have a Reasonable Basis to exclude
from its income for income tax purposes, any amount in respect of, or resulting
from (i) any modification, repair, improvement, addition, substitution or
replacement of the Engine or any Part, or of any Aircraft, Airframe or airframe
on which the Engine is installed from time to time, (ii) any payment of
Basic Rent or Supplemental Rent under the Lease by or on behalf of Lessee in an
amount greater, or at a time earlier, than the amounts or times provided in the
Lease, (iii) any warranty or indemnity payments or refunds attributable to
the Engine received from the Manufacturer which was not remitted to, and
retained by, Lessor, (iv) the theft, destruction or other loss of the
Engine or any Part; (v) any application of Section 467(b)(2) to the Lease;
(vi)   any payment of indemnities to a Tax Indemnitee or Indemnitee
(other than Lessor) or fees, expenses or reimbursement to a trustee, agent or
other Person pursuant to this Agreement, or (vii) any act or payment by
Lessee not required under the terms of the Lessee Documents (herein called a “Lessor
Inclusion”), Lessee shall pay to Lessor an amount which, on an
After-Tax Basis, shall be equal to the amount of the additional taxes on or
measured by gross or net income (plus any and all fines, penalties, additions
to tax and interest calculated by reference thereto) payable by Lessor as a
result of such Lessor Inclusion.

 

(xi)           Contests
Etc.  The provisions of Section
29(b)(iii) and 29(b)(iv) of this Agreement shall apply, mutatis mutandis, with
respect to any Lessor Inclusion.

 

(xii)          Minimum
Indemnity.  The amount of any
indemnity payable by Lessee to Lessor pursuant to this Section 29 shall in all
events be an amount sufficient to restore Lessor to the position that Lessor
would be in if the Lessor Inclusion or any indemnity otherwise payable by
Lessor pursuant to any agreement with a Tax Indemnitee that gave rise to
Lessee’s obligation hereunder had not occurred.

 

(c)  General Indemnity.  Lessee hereby agrees to indemnify each
Indemnitee against, and agrees to protect, defend, save and keep harmless each
thereof from (whether or not the transactions contemplated herein or in any of
the other Lessee Documents are consummated),

 

45

 

any and all
liabilities, obligations, losses, damages, penalties, claims, actions, suits,
out-of-pocket costs, expenses and disbursements (including reasonable legal
fees and expenses but excluding internal costs and expenses such as salaries
and overhead), of whatsoever kind and nature (collectively called “Expenses”)
imposed on, incurred by or asserted against any Indemnitee, in any way relating
to or arising out of (A) any of the Operative Documents or the Lessee Documents
or any of the transactions contemplated thereby or the enforcement of any of
the terms thereof or any amendment, modification or waiver in respect thereof,
(B) the manufacture, purchase, acceptance or rejection of any Aircraft,
Airframe, airframe, the Engine or any Part, (C) any Aircraft, Airframe or
airframe (or any portion of any thereof) or the Engine or any Part whether or
not arising out of the finance, refinance, ownership, delivery, nondelivery,
storage, sublease, possession, use, non-use, operation, maintenance,
registration, reregistration, condition, modification, alteration, replacement,
repair, substitution, sale, return or other disposition of any Aircraft,
Airframe, airframe (or any portion of any thereof) or the Engine or any Part)
including, without limitation, latent or other defects, whether or not
discoverable, strict tort liability, any damage to property or the environment,
death of or injury to any person and any claim for patent, trademark or copyright
infringement; provided that the foregoing indemnity as to any Indemnitee
shall not extend to any Expense to the extent resulting from or arising out of
or attributable to one or more of the following: (A) any representation or
warranty by such Indemnitee in the Operative Documents being incorrect in any
material respect, or (B) the failure by such Indemnitee to perform or observe
any agreement, covenant or condition in any of the Operative Documents
applicable to it including, without limitation, with respect to the creation or
existence of a Lessor Lien (including for this purpose Liens which would be
Lessor Liens but for the proviso in the definition of Lessor Liens)
attributable to it (except to the extent such failure was caused by the failure
of Lessee to perform any obligation under a Lessee Document), or (C) the
willful misconduct of such Indemnitee, or (D) with respect to any Indemnitee, a
disposition by such Indemnitee of all or any part of such Indemnitee’s interest
in the Engine or in the Operative Documents other than during the continuance
of a Default or an Event of Default under the Lease, or (E) except to the
extent relating to the payment of any Expenses on an After-Tax Basis, any Tax
whether or not Lessee is required to indemnify for such Tax pursuant to
Section 29(b) hereof, or (F) except to the extent fairly attributable to
acts, omissions or events occurring prior thereto, acts or events which occur
with respect to the Engine or any Part after the return of physical possession
of the Engine or such Part to Lessor pursuant to the terms of the Lease.  Lessee further agrees to indemnify Lessor
against, and agrees to protect, defend, save and keep harmless Lessor from
(whether or not the transactions contemplated herein or in any of the other
Lessee Documents are consummated), any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, out-of-pocket costs,
expenses and disbursements of whatsoever kind and nature imposed on, incurred
by or asserted against Lessor pursuant to any indemnification obligations of
Lessor under any agreement with any other person relating to the Engine or any
Aircraft or Airframe on which it is installed.

 

Lessee further
agrees that any payment or indemnity pursuant to this Section 29(c) in
respect of any Expenses or other amounts payable by Lessee pursuant to this
Section 29(c) shall be paid on an After-Tax Basis.

 

If, by reason of
any Expense payment made to or for the account of an Indemnitee by Lessee
pursuant to this Section 29(c), such Indemnitee subsequently realizes a
tax deduction or credit or any reduction in Taxes not previously taken into
account in computing such payment,

 

46

 

such
Indemnitee shall promptly pay to Lessee, but only if Lessee shall have made all
payments then due and owing to such Indemnitee under the Lessee Documents, an
amount equal to the sum of (I) the actual reduction in Taxes realized by such
Indemnitee which is attributable to such deduction or credit, and (II) the
actual reduction in Taxes realized by such Indemnitee as a result of any
payment made by such Indemnitee pursuant to this sentence; provided, however,
that no Indemnitee shall be obligated to make any payment pursuant to this
sentence to the extent that the amount of such payment would exceed (i) the
aggregate amount of all prior payments by Lessee to such Indemnitee under this
Section 29(c) less (ii) the aggregate amount of all prior payments with
respect to such Tax by such Indemnitee to Lessee pursuant to this sentence,
with any excess being carried forward to offset Lessee’s obligations, if any,
to make subsequent payments to such Indemnitee under this Section 29(c).

 

Nothing in this
Section 29(c) shall be construed as a guaranty by Lessee of the residual value
of the Engine.

 

If a claim is made
against an Indemnitee involving one or more Expenses and such Indemnitee has
notice thereof, such Indemnitee shall promptly, upon receiving such notice,
give notice of such claim to Lessee and Lessor; provided that the failure to
provide such notice shall not release Lessee from any of its obligations to
indemnify hereunder, and no payment by Lessee to an Indemnitee pursuant to this
Section 29(c) shall be deemed to constitute a waiver or release of any right
or remedy which Lessee may have against such Indemnitee for any actual damages
as a result of the failure by such Indemnitee to give Lessee such notice.  Lessee shall be entitled, at its sole cost
and expense, acting through counsel acceptable to the respective Indemnitee,
(A) so long as Lessee has agreed in a writing acceptable to such
Indemnitee that Lessee is liable to such Indemnitee for such Expense hereunder,
in any judicial or administrative proceeding that involves solely a claim for
one or more Expenses, to assume responsibility for and control thereof,
(B) so long as Lessee has agreed in a writing acceptable to such
Indemnitee that Lessee is liable to such Indemnitee for such Expense hereunder,
in any judicial or administrative proceeding involving a claim for one or more
Expenses and other claims related or unrelated to the transactions contemplated
by the Operative Documents, to assume responsibility for and control of such
claim for Expenses to the extent that the same may be and is severed from such
other claims (and such Indemnitee shall use its reasonable efforts to obtain
such severance, provided that Lessee has requested such severance and agrees
to pay the reasonable out-of-pocket costs and expenses (including, without
limitation, reasonable counsel fees and disbursements) incurred by such
Indemnitee, if any, in connection with such severance), and (C) in any
other case, to be consulted by such Indemnitee with respect to judicial
proceedings subject to the control of such Indemnitee.  Notwithstanding any of the foregoing to the
contrary, Lessee shall not be entitled to assume responsibility for and control
of any such judicial or administrative proceedings (M) while a Default or an
Event of Default shall have occurred and be continuing, (N) if such proceedings
will involve a risk of the sale, forfeiture or loss of, or the creation of any
Lien (other than a Permitted Lien) on the Engine or on any Aircraft, Airframe
or airframe on which the Engine is installed, or (O) if such proceeding could in
the good faith opinion of such Indemnitee entail any risk of civil liability or
criminal liability or present a conflict of interest making separate
representation necessary.  The affected
Indemnitee may participate at its own expense and with its own counsel in any
judicial proceeding controlled by Lessee pursuant to the preceding provisions.

 

47

 

The affected
Indemnitee shall supply Lessee with such information reasonably requested by
Lessee as is necessary or advisable for Lessee to control or participate in any
proceeding to the extent permitted by this Section 29(c).  Unless a Default or an Event of Default
shall have occurred and be continuing (in which case the consent of Lessee
shall not be required), such Indemnitee shall not enter into a settlement or
other compromise with respect to any Expense without the prior written consent
of Lessee, which consent shall not be unreasonably withheld or delayed, unless
such Indemnitee waives its right to be indemnified with respect to such Expense
under this Section 29(c).

 

Lessee shall
supply the affected Indemnitee and Lessor with such information reasonably
requested by such Indemnitee as is necessary or advisable for such Indemnitee
to control or participate in any proceeding to the extent permitted by this
Section 29(c).

 

Upon payment in
full of any Expense or Tax pursuant to this Section 29, Lessee, or, if any
Expense or Tax has been paid by insurers, the insurers, without any further
action, shall be subrogated to any claims the affected Indemnitee may have
relating thereto; provided that Lessee shall not be so subrogated so long as a
Default or an Event of Default has occurred and is continuing.  Such Indemnitee agrees to give such further
reasonable assurances or agreements and to provide such reasonable cooperation
to Lessee or the insurers to permit Lessee or the insurers to pursue such
claims, if any, to the extent reasonably requested by Lessee or the insurers.

 

In the event that
Lessee shall have paid an amount to an Indemnitee pursuant to this
Section 29(c), and such Indemnitee subsequently shall be reimbursed in
respect of such indemnified amount from any other Person, such Indemnitee shall
promptly pay to Lessee an amount equal to the amount of such reimbursement (but
in no event more than such payment from Lessee) plus any net tax benefit (or
minus any net tax detriment) realized by such Indemnitee as a result of any
reimbursement received and payment made by such Indemnitee pursuant to this
sentence; provided,
that Lessor shall not be obligated to make any payment pursuant to this
Section 29(c) to the extent that the amount of such payment would exceed
(i) the aggregate amount of all prior payments by Lessee to Lessor under this
Section 29(c) less (ii) the aggregate amount of all prior payments by
Lessor to Lessee pursuant to this Section 29(c), with any excess being
carried forward to offset Lessee’s obligations, if any, to make subsequent
payments to Lessor under this Section 29(c); provided, further, that such
Indemnitee shall have no obligation to reimburse Lessee if (i) a Default or an
Event of Default has occurred and is continuing or if the Airline Services
Agreement shall have been terminated or canceled or shall have terminated in
accordance with its terms or (ii) Lessee has not paid such Indemnitee all
amounts required pursuant to this Section 29(c) and any other amounts then
due to such Indemnitee from Lessee under any of the Operative Documents or
Lessee Documents.

 

Lessee’s
obligations under the indemnities provided for in this Lease shall be those of
a primary obligor, whether or not the Person indemnified shall also be
indemnified with respect to the same matter under the terms of any other
document or instrument, and the Person seeking indemnification from Lessee
pursuant to any provision of this Lease may proceed directly against Lessee
without first seeking to enforce any other right of indemnification.

 

48

 

(d)  Income Tax.  For purposes of this Section 29, the
term “Income
Tax” means any Tax based on or measured by net income (other than
sales, use, license, rental, ad valorem and value added or property Taxes)
(including, without limitation, capital gains taxes, minimum taxes, income taxes
collected by withholding and taxes on tax preference items), and interest,
additions to tax, penalties, or other charges in respect thereof.

 

(e)  Survival.  Notwithstanding anything to the contrary
contained in this Lease, the provisions of this Section 29 shall survive any
termination or expiration of this Lease.

 

SECTION
30.  Certain Representations, Warranties and Covenants.  (a)  Lessor represents and
warrants to Lessee as follows:

 

(i)            Lessor is a
corporation duly organized and validly existing in good standing under the laws
of its jurisdiction of organization, and has the corporate power and authority
to carry on its business as now conducted, to own or hold under lease its
properties and to enter into and perform its obligations under, the Lessee Documents
to which Lessor is a party;

 

(ii)           the Lessee
Documents to which Lessor is a party have been duly authorized by all necessary
corporate action on the part of Lessor, do not require any approval not already
obtained of stockholders of Lessor or any approval or consent not already
obtained of any trustee or holders of any indebtedness or obligations of
Lessor, and have been duly executed and delivered by Lessor, and neither the
execution and delivery thereof, nor the consummation of the transactions contemplated
thereby, nor compliance by Lessor with any of the terms and provisions thereof,
will contravene any United States Federal or state law, judgment, governmental
rule, regulation or order applicable to or binding on Lessor (it being
understood that no representation or warranty is made with respect to laws,
rules or regulations relating to aviation or to the nature of the equipment
owned by Lessor) or contravene or result in any breach of or constitute any
default under, or result in the creation of any Lien (other than Liens provided
for in the Operative Documents or the Lessee Documents) upon any property of
Lessor under, any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, bank loan or credit agreement, corporate charter,
by–law or other agreement or instrument to which Lessor is a party or by
which it or its properties may be bound or affected; and

 

(iii)          each of Lessee
Documents to which Lessor is a party constitutes a legal, valid and binding
obligation of Lessor enforceable against Lessor in accordance with the terms
thereof (except as may be limited by (A) general principles of equity, (B)
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting the rights of creditors generally, (C)
applicable laws which may affect the remedies provided therein, which laws,
however, do not make the remedies provided therein inadequate for the practical
realization of the benefits provided thereby, except that no representation or
warranty is made as to the amount of priority of any recovery under any
particular circumstances, and (D) in the case of indemnity

 

49

 

provisions
contained in such documents, as limited by public policy considerations).

 

(b)  [Intentionally Omitted]

 

(c)  Lessee covenants and agrees
that it shall at all times be a Certificated Air Carrier.

 

(d)  Lessee, at its expense,
will take, or cause to be taken, such action with respect to the recording,
filing, re-recording and refiling of this Lease, the Lease Supplement, and any
financing statements or other instruments as are necessary to maintain (or as
are reasonably requested by Lessor) the perfection of any security interest
that may be claimed to have been created by this Lease or will furnish to
Lessor timely notice of the necessity of such action, together with such
instruments, in execution form, and such other information as may be required
to enable Lessor to take such action. 
Lessee shall furnish to Lessor annually after the execution hereof (but
not later than March 15th of each year, commencing with the year
200_ [the calendar year following closing date]) an opinion of Crowe &
Dunlevy, P.C. and/or other counsel reasonable satisfactory to Lessor nationally
recognized in FAA matters covering such matters with respect to the interests
of Lessor in the Engine and the perfection of security interests therein as
Lessor may reasonably request.  Lessee
will notify Lessor of any change in the location of its chief executive office
(as such term is used in Article 9 of the Uniform Commercial Code) prior to
making such change.

 

SECTION
31.  Covenants of
Lessee.   Lessee covenants and agrees with Lessor as
follows:

 

Lessee will, at
its own cost and expense, cause to be done, executed, acknowledged and
delivered all and every such further acts, conveyances and assurances as Lessor
shall reasonably require for accomplishing the purposes of this Lease and the
other Lessee Documents; provided that any instrument or other
document so executed by Lessee will not expand any obligations or limit any
rights of Lessee in respect of the transactions contemplated by any Lessee
Document.  Lessee, upon delivery of the
Engine under this Lease, shall at all times thereafter cause the same to remain
duly registered in the name of Lessor, except as otherwise required or
permitted hereunder or under this Lease, under the Federal Aviation Act, or
shall furnish to Lessor such information as may be required to enable Lessor to
make application for such registration, and shall promptly furnish to Lessor
such information as may be required (or reasonably requested by Lessor) to
enable Lessor to timely file any reports required to be filed by Lessor, as the
case may be, as a result of its interest in the Engine with any governmental
authority.

 

SECTION
32.  Consent to
Jurisdiction.   Each of the parties hereto (A) hereby
irrevocably submits itself to the non-exclusive jurisdiction of the United
States District Court for the Southern District of New York and to the
non-exclusive jurisdiction of the Supreme Court of the State of New York, New
York County, for the purposes of any suit, action or other proceeding arising out of this Lease or any other
Operative Document or Lessee Document, the subject matter of any thereof
or any of the transactions contemplated hereby or thereby brought  by any party or parties thereto, or their successors or
assigns, and (B) hereby waives, and agrees

 

50

 

not to assert, by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, to the extent
permitted by applicable law, that the suit, action or proceeding is brought in
an inconvenient forum, that the venue of the suit, action or proceeding is
improper, or that this Lease or any other Operative Document or Lessee Document
or the subject matter of any thereof or any of the
transactions contemplated hereby or thereby may not be enforced in or by such
courts.  Lessee hereby generally consents
to service of process at CT Corporation System, 1633 Broadway, New York, New
York 10019.

 

SECTION
33.  Owner for
Federal Tax Purposes.   It is
hereby agreed among Lessor and Lessee that for Federal income tax purposes the
Owner will be the owner of the Engine and Lessee will be the lessee thereof,
and each party hereto agrees to characterize this Lease as a lease for Federal
income tax purposes.

 

51

 

IN WITNESS
WHEREOF, Lessor and Lessee have each caused this Lease to be duly executed as
of the day and year first above written.

 

	
   

  	
  NORTHWEST AIRLINES, INC.,

  
	
   

  	
    Lessor

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  PINNACLE AIRLINES, INC.,

  	
   

  
	
   

  	
    Lessee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
				

 

	
  Agreed
  this        day
  of       , 200  :

  	
   

  
	
   

  	
   

  
	
  PINNACLE AIRLINES CORP.,

  	
   

  
	
    Lessee
  Guarantor

  	
   

  
	
   

  	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
				

 

 

EXHIBIT
A

to

Lease Agreement

[NW 200      ]

 

LEASE SUPPLEMENT
No.    

[NW 200      ]

 

LEASE SUPPLEMENT
NO.   ,
dated            ,
20    , between NORTHWEST AIRLINES, INC. (“Lessor”),
and PINNACLE AIRLINES, INC. (“Lessee”).

 

Lessor and Lessee have
entered into that certain Engine Lease Agreement [NW 200   
    ], dated as
of           ,
200  , relating to one General Electric Model CF34-3B1 Engine (herein
called the “Lease,” and the defined terms therein being hereinafter used
with the same meanings).  The Lease
provides for the execution and delivery of a Lease Supplement for the purpose
of leasing the Engine under the Lease as and when delivered by Lessor to Lessee
in accordance with the terms thereof.

 

(1)The Lease
relates to the Engine described below, and a counterpart of the Lease is
attached hereto, and made a part hereof, and this Lease Supplement, together
with such attachment, is being filed for recordation on the date hereof with
the Federal Aviation Administration as one document.

 

(2)The Lease
Agreement relates to the Engine described below, and a counterpart of the Lease
Agreement, attached and made a part of Lease Supplement No. 1
dated                     ,
20    to the Lease Agreement, has been recorded by the
Federal Aviation Administration
on                        ,
20   , as one document and assigned Conveyance
No.   .

 

NOW, THEREFORE, in
consideration of the premises and other good and sufficient consideration,
Lessor and Lessee hereby agree as follows:

 

1.             Lessor hereby delivers and
subleases to Lessee under the Lease and Lessee hereby accepts and subleases
from Lessor under the Lease the following described Engine (the “Engine”):

 

General Electric Model CF34-3B1 type engine bearing manufacturer’s
serial no.         (which engine
has 750 or more rated takeoff horsepower or the equivalent of such horsepower)

 

[together with the QEC](3).

 

2.             The Commencement Date of the lease
of the Engine is the date of this Lease Supplement set forth in the opening
paragraph hereof.  Except as otherwise
provided in the

 

(1)      This language for Lease Supplement No. 1.

 

(2)      This language for other Lease Supplements.

 

(3)      For inclusion only if the Engine has QEC.

 

1

 

Lease,
the Term for the Engine shall commence on the Commencement Date and end on the
Expiration Date.

 

3.             Lessee hereby confirms its
agreement to pay Lessor Basic Rent for the Engine throughout the Term therefor
in accordance with Section 3 of the Lease.

 

4.             Lessee hereby confirms to Lessor
that Lessee has accepted the Engine for all purposes hereof and of the Lease as
being airworthy, serviceable, in good working order and repair and without
defect or inherent vice in title, condition, design, operation or fitness for
use.

 

5.             All of the terms and provisions of
the Lease are hereby incorporated by reference in this Lease Supplement to the
same extent as if fully set forth herein.

 

6.             This Lease Supplement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.

 

2

 

IN WITNESS WHEREOF, Lessor and Lessee have caused this
Lease Supplement to be duly executed on the day and year first above written.

 

	
   

  	
  NORTHWEST AIRLINES, INC.,

  	
   

  
	
   

  	
  Lessor

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  PINNACLE AIRLINES, INC.,

  	
   

  
	
   

  	
  Lessee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
				

 

3

 

EXHIBIT
B

to

Lease Agreement

[NW 200      ]

 

BASIC RENT SCHEDULE

 

The portion of
this Exhibit appearing below this text is intentionally deleted from the FAA
filing counterpart as the parties hereto deem it to contain confidential
information.

 

Basic Rent:

 

	
  Lease
  Period Date

  	
   

  	
  Basic Rent

  	
   

  

 

 

1

 

EXHIBIT
C

to

Lease Agreement

[NW 200      ]

 

STIPULATED LOSS VALUE SCHEDULE

 

The portion of
this Exhibit appearing below this text is intentionally deleted from the FAA
filing counterpart as the parties hereto deem it to contain confidential
information.

 

	
  Stipulated

  Loss Value Date

  	
   

  	
  Stipulated
  Loss

  Value (In Dollars)

  	
   

  

 

 

1

 

STIPULATED LOSS VALUE SCHEDULE

 

	
  Stipulated

  Loss Value Date

  	
   

  	
  Stipulated
  Loss

  Value (In Dollars)

  	
   

  

 

 

2

 

STIPULATED LOSS VALUE SCHEDULE

 

	
  Stipulated

  Loss Value Date

  	
   

  	
  Stipulated
  Loss

  Value (In Dollars)

  	
   

  

 

 

3

 

STIPULATED LOSS VALUE SCHEDULE

 

	
  Stipulated

  Loss Value Date

  	
   

  	
  Stipulated
  Loss

  Value (In Dollars)

  	
   

  

 

 

4

 

STIPULATED LOSS VALUE SCHEDULE

 

	
  Stipulated

  Loss Value Date

  	
   

  	
  Stipulated
  Loss

  Value (In Dollars)

  	
   

  

 

 

5

 

EXHIBIT D

to

Lease Agreement

[NW 200      ]

 

RETURN
CONDITIONS

 

The portion of
this Exhibit appearing below this text is intentionally deleted from the FAA
filing counterpart as the parties hereto deem it to contain confidential
information.

 

Unless the context
shall otherwise require and except as set forth herein, the capitalized terms
used in this Exhibit shall have the meanings given to such terms in the Lease.

 

Definitions

 

Aircraft Documentation:
means records, manuals, logs and documents delivered with the Engine and those
developed and maintained with respect to the Engine during the Term, including,
without limitation, all of those required by the FAA to be maintained for FAR
Part 121 operation and the Aircraft Documentation listed in Appendix I hereto,
and true and correct excerpts of such records, manuals, logs and documents
maintained with respect to any Airframe or airframe on which the Engine is
installed during the Term as relate to the Engine and are not duplicative of
information contained in the other Aircraft Documentation.

 

Approved Air Authority: 
means the Federal Aviation Administration.

 

Calendar controlled components or
parts:  those
components or parts which at specific calendar-time intervals, in accordance
with the Maintenance Program, are to be discarded, overhauled, or recertified
upon reaching such time limit.

 

Configuration Deviation List:  the list provided by the Aircraft
manufacturer specifying which parts of the Aircraft that can be removed without
affecting the continued service of the Aircraft as the same may be modified
from time to time pursuant to and in accordance with the approval of the
Governmental Authority.

 

Governmental Authority:  shall mean (a) the FAA; (b) any national
government, or political subdivision thereof or local jurisdiction therein; (c)
any board, commission, department, division, organ, instrumentality, court, or agency
of any entity described in (b) above, however constituted; and (d) any
association, organization, or institution of which any entity described in (b)
or (c) above is a member or to whose jurisdiction any such entity is subject or
in whose activities any such entity is a participant but only (except for
purposes of defining Law below) to the extent that any of the preceding have
jurisdiction over the Aircraft or its operations.

 

Law:  shall mean (a) any statute, decree,
constitution, regulation, order, judgment or other directive of any
Governmental Authority; (b) any treaty, pact, compact or other agreement to
which any Governmental Authority is a signatory or party; (c) any judicial or
administrative interpretation or application of any Law described in (a) or (b)
above; and (d) any amendment or revision of any Law described in (a), (b) or
(c) above.

 

1

 

Life
Limited Parts means those parts which have a specific hour,
cycle and/or calendar life limit as specified by the Manufacturer.

 

Maintenance Manual:  shall mean Lessee’s FAA approved maintenance
manual for the Aircraft and the Engine which incorporates the procedures,
limits and requirements of the Manufacturer’s maintenance manual,
Manufacturer’s shop manual and other related Manufacturer’s documents.

 

Maintenance Program:  shall mean Lessee’s FAA approved maintenance
program which shall define all scheduled maintenance activities, condition
monitoring and on-condition programs for the Engine and any Parts, and for any
Airframe or airframe on which the Engine may be installed (whether or not the
Engine is then installed thereon), including but not limited to servicing,
testing, preventative maintenance, structural inspections, shop visits, systems
checks, overhauls, corrosion control inspections and corrosion treatments, and
compliance with approved modifications, service bulletins, and Airworthiness
Directives as the same may be modified from time to time pursuant to and in
accordance with the prior written approval of the applicable Governmental
Authority and which at all times (a) complies in all material respects
with all FAA requirements for FAR Part 121 operation, the MRB Report and
Bombardier Inc.’s Maintenance Requirement Manual, and (b) complies in all
material respects with General Electric Corporation’s Engine Management Program
for the Engine type.  Substantive
Changes to the Maintenance Program shall be subject to Lessor’s prior written
approval, such approval not to be unreasonably withheld.  “Substantive Changes” means (i) changes
from block to phase maintenance or vice versa, (ii) scheduled maintenance
interval escalations or (iii) any other changes which could be materially
adverse to Lessor or to the condition of the Engine on return [or which would
impact the basis on which the Maintenance Reserves have been calculated](1).

 

Maintenance Review Board Report
(“MRB Report”):  the
report published by the Maintenance Review Board for the Bombardier CL-600-2B19
aircraft detailing the intervals and description of the maintenance tasks and,
where applicable, the life limits required for continued airworthiness of the
Aircraft.  Where the intervals specified
in the MRB Report differ from the limit specified by the component
manufacturer, the MRB Report shall take precedence.

 

Manufacturer:
shall mean, with respect to any Airframe, Bombardier Inc., and its successors
and assigns and with respect to the Engine, General Electric Aircraft Engines,
a division of General Electric Corporation.

 

Terminating Action:  the alteration or modification of the
Aircraft, Airframe, Engine or Part in accordance with mandatory service
bulletins, orders, airworthiness directives, and instructions required to
eliminate repetitive inspections or maintenance action.

 

(1)  To be inserted in Engine leases entered into
in accordance with Section 3.02(a)(iv) of the Airline Services Agreement.

 

2

 

ARTICLE 1 - CONDITION OF ENGINE

 

1.0                 General
Conditions.

 

At the time of
return, the Engine shall (i) have been maintained in accordance with the
Maintenance Program as approved and authorized by the Governmental Authority,
as if the Engine were to be kept in further commercial passenger service by
Lessee, (ii) the Engine shall not have been discriminated against whether
by reason of its leased status or otherwise in maintenance, use, operation or
in any other manner whatsoever, including, without limitation, as to the type
of maintenance program applicable to the Engine, or as to compliance with
Airworthiness Directives, and (iii) the Engine shall meet the
following requirements:

 

(i)                                     Operating
Condition - The Engine shall be in as good operating condition as on the
Delivery Date, reasonable wear and tear excepted, with all of the equipment,
components, and systems fully operational and serviceable in accordance with
the Maintenance Manual and Lessee’s FAA approved airplane flight manual.

 

(ii)                                  Certification
- The Engine shall have, and be in compliance with, a current and valid serviceable
tag, issued by an FAA Part 145 Repair Agency for FAR Part 121 operation, it
being understood that such serviceable tag is to evidence the Engine passing
the test cell performance run required in Section 1.3(i), and, if applicable,
evidence satisfactory completion of repairs required in order to satisfy any
other conditions required in this Exhibit D.

 

(iii)                               General Appearance - The
Engine shall be clean, cosmetically acceptable, with all components reasonably
free of foreign objects, accumulated dirt, grime, grease and liquids, and be
prepared for immediate placement into commercial service.  Any deterioration of paint or other
protective coatings due to leakage, improper adhesion, impact damage or
presence of foreign materials or liquids shall be repaired and replaced per the
Maintenance Manual.

 

(iv)                              Airworthiness
Directives — The Engine shall be in compliance with all FAA requirements for
FAR Part 121 operation including all FAA issued airworthiness directives (“Airworthiness
Directives”) and Manufacturer alert service bulletins that are
issued prior to Lease expiration and are applicable to the Engine, without
special deferment, exemption or alternate means of compliance, with

 

3

 

terminating action accomplished for all Airworthiness
Directives which require termination be accomplished prior to 180 days after
Lease expiration.

 

(v)                                 Deferred
Maintenance — There shall be no open outstanding or deferred maintenance items
(including special- or reduced-interval inspections) scheduled or unscheduled,
routine or non-routine, against the Engine. 
The Engine shall be serviceable and free from defects and discrepancies
that are outside the serviceable limits of the Maintenance Manual.

 

(vi)                              Title
- The Engine shall be returned in compliance with the provisions of clause (ii)
of the third sentence of Section 5(a) of the Lease.

 

(vii)                           Alterations, Modifications
and Additions

 

a.     Replacement of Parts —
Lessee, at its own cost and expense, shall have replaced all components or
Parts which may have from time to time become worn out, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use for any reason whatsoever. 
All replacement Parts (a) shall be free and clear of all Liens, except
Permitted Liens, (b) shall be in good condition and in as good operating
condition as, and shall have  a value,
utility, maintenance and modification status at least equal to, the Parts
replaced, assuming such replaced parts were in the condition and repair
required to be maintained by the terms of the Lease, and (c) shall have
documentation certifying compliance with all applicable Governmental Authority
regulations, including, without limitation, (1) serviceable tags indicating
time since overhaul, and overhaul or repair by a Governmental Authority
certified repair station, (ii) overhaul records, (iii) documentation of
modification status and compliance with applicable airworthiness directives,
and (iv) any other appropriate documentation required by the FAA for continued
FAR Part 121 operation.

 

1.1                Intentionally
left blank.

 

1.2                Condition
of Controlled Components.

 

Engine hour, cycle
or calendar-controlled components or parts, at time of return to Lessor, shall
have remaining, as a minimum, one half life and/or fifty percent (50%) of the
manufacturers approved hour, cycle or calendar

 

4

 

limit (whichever
is applicable and most limiting), before any scheduled removals for overhaul,
test, disassembly or replacement; provided that, without regard to any payment
made or to be made pursuant to Section 1.8, all components or parts controlled
on an hour, cycle or calendar basis shall have at least one C check interval
(assuming annual utilization of 2700 hours and 2700 cycles) (or, if the service
interval is less than one C check, 100% of the service interval) remaining
before scheduled removal for testing, overhaul or replacement.

 

1.3.                Condition
of Engine.

 

At time of return,
the Engine will have at least fifty percent (50%) of hours or cycles remaining,
whichever is greater, before the next scheduled Engine removal for inspection,
test or disassembly for replacement of Life Limited Parts.  Cycle limits are as specified in the Power
Plant Limitations section of the Canadair MRB Report.  Additionally, the Engine shall satisfy the following conditions:

 

(i)                                     Test
Cell Performance — Without regard to any payment made or to be made pursuant to
Section 1.8, the Engine shall pass a full test cell performance run without
operational limitations in accordance with the Manufacturer’s shop manual.  The Engine shall be capable of certificated
full rated performance without limitation throughout the entire operating
envelopes as defined by the Manufacturer’s shop manual.

 

(ii)                                  Borescope
Inspection — Without regard to any payment made or to be made pursuant to
Section 1.8, the Engine shall pass a complete video-taped borescope inspection
of all accessible Engine sections performed in accordance with the
Manufacturer’s maintenance manual by Lessor or Lessor’s designated
representative after the test cell performance run per Article 3.2 herein.  Any discrepancies found during such
inspection which exceed the Manufacturer’s maintenance manual allowable limits
for unrestricted continued service (without special- or reduced-interval
inspections), shall be corrected prior to Return by Lessee at Lessee’s sole
expense.

 

(iii)                               Adverse Performance Data
— No Engine shall be on engineering watch or on a special- or reduced-interval
inspection of any nature that could lead to premature removal of the
Engine.  If the Engine historical and
maintenance records, test cell performance runs, power assurance runs and/or
trend monitoring data indicate a level of performance deterioration or an
abnormal rate of

 

5

 

acceleration in performance deterioration or oil
consumption which based on manufacturer specifications and/or experience
indicate the Engine would require maintenance prior to 3,500 engine flying
hours after return, Lessee shall correct or cause to be corrected, such
condition as necessary to rectify all deficient Engine parameters in accordance
with Manufacturer specifications.

 

1.4                Intentionally
left blank.

 

1.5                Service
Bulletin Kits.

 

At or upon this
return of the Aircraft, Lessee shall deliver to Lessor, at no cost to Lessor,
all Service Bulletin Kits furnished without charge by a manufacturer for
installation on the Engine which have not been so installed.  In the event such Service Bulletin Kits were
purchased or manufactured by Lessee, Lessor shall have the exclusive right to
purchase such kits at Lessee’s actual cost for a period of 30 days after such
return and the non-exclusive right so to purchase such kits thereafter.

 

1.6                Intentionally
left blank.

 

1.7                Repairs
and Repair Inspections.

 

All major repairs
(as defined for FAR Part 121 operations by the FAA) and Major Modifications
shall have been performed in accordance with FAA approved data that is returned
with the Engine.

 

All repairs
performed by Lessee or its designee since the Engine delivery to Lessee, and
which exist on  the Engine, shall be in
accordance with the Manufacturer’s maintenance manual.

 

1.8                Equivalency
Charge.

 

If the Lessee does
not meet any of the remaining life conditions set forth in Section 1.1 and 1.2,
unless otherwise specified therein, in place of correcting the specified hour,
cycle or calendar life deficiency, Lessee may elect to pay to Lessor an
Equivalency Charge (for deficient condition) calculated in accordance with the
following formula (if the formula results in a positive amount):

 

Pmt = [A(b-c)]    d

 

Where:

 

“Pmt” is the Equivalency Charge payment

 

6

 

“A”                          is, in
respect of the Engine the average of Lessee’s demonstrated cost for Engine
Basic Shop Visits at the time of return, or, in respect of Engine Life Limited
Parts, the manufacturer’s list price for replacement parts at the time of
return.  When demonstrated average costs
for Engine Basic Shop Visits are not available from Lessee, the average of
three quotes from three mutually acceptable FAA approved repair shops shall be
used as the cost basis for the Equivalency Charge calculation;

 

“b”                             is
50% (or, if specified, the number specified) of the total operating
hours/cycles/time (whichever is applicable and most limiting) allowable
between, in the case of Life Limited Parts, such component overhaul, component
inspection, component bench check or component replacement and, in the case of
the Engine, such Engine Basic Shop Visits;

 

“c”                              is
the actual number of operating hours/cycles/time (whichever is applicable and
most limiting) remaining to, in the case of Life Limited Parts, the next
overhaul, inspection, bench check or replacement and, in the case of the
Engine, the next Engine Basic Shop Visit; and

 

“d”                             is
the total operating hours/cycles/time (whichever is applicable and most
limiting) allowable between such overhaul, inspection, bench check, replacement
or Engine Basic Shop Visits.

 

Calculation of the
Equivalency Charge shall be based on each item identified in the requirements
of Articles 1.2 and 1.3 in aggregate. 
For example, each Life Limited Part shall be assessed on its status as
far as accumulated cycles are concerned and the adjustment amount for each is
established.  All other parts subject to
this Equivalency Charge shall be similarly assessed and the individual charges
are to be added together.  For example,
under this plan, a positive charge on particular Life Limited Parts or the
Engine could offset a negative charge on other Life Limited Parts.  If the total net result is positive
(indicating Lessee returned the Engine in a state that, in aggregate, has less
than the 50% limit remaining), the net Equivalency Charge shall be paid by
Lessee to Lessor.  In the event such a
total is negative, no payment shall be made to Lessee from Lessor.

 

ARTICLE 2 - AIRCRAFT DOCUMENTATION AND SAFETY DEVICES

 

2.1                                                                                 Aircraft
Documentation.  Concurrently with return
of the Engine to Lessor, Lessee shall deliver to Lessor one (1) copy, in
English, of the Aircraft Documentation (including current revisions thereto).
It is recognized that the Aircraft Documentation may be titled or described

 

7

 

differently than
set forth in Appendix I due to Lessee’s method of maintaining the Aircraft
Documentation.  Accordingly, the
information described in the Aircraft Documentation shall be provided to Lessor
in the form and manner under which Lessee maintains such information, and shall
include data pertinent to the Engine, provided that such form and manner is
approved by Lessor, such approval not to be unreasonably withheld.  All Aircraft Documentation provided to
Lessor at time of the Engine return shall be listed and described by Lessee’s
title or description with cross-reference to the titles or descriptions
provided in Appendix I, and included as an attachment to the Aircraft
Documentation.  All Aircraft
Documentation provided to Lessor shall be in good condition, readable and
capable of being reproduced using standard reproduction processes, complete, up
to date and accurate as to content.  Any
Aircraft Documentation, to the extent required by the Governmental Authorities,
not returned in its “original” form shall be stamped “Certified True Copy” and
both signed and dated by the Lessee’s authorized personnel at the time of its
creation. Lessee shall provide to Lessor, upon reasonable request, advance
copies of any of the Aircraft Documentation as Lessor may desire or require in
order to plan or accomplish recertification, modification, sale, lease or other
disposition or utilization of the Engine upon receipt of such Engine by Lessor.

 

Lessor shall
provide, as part of the Aircraft Documentation, the original certification tags
and release notes for all life limited and rotable Parts installed after
delivery. The certification tags and release notes shall provide traceability
of the last overhaul and/or repair shop visit to the approved repair facility
that conducted the overhaul and/or repair.

 

Lessee
shall, for the period that the Engine was operated by it:

 

i.                                          certify,
in writing as identified in Appendix I, that the Engine has not been involved
in any incidents or accidents.  If the
Engine has been in involved in any incidents or accidents the Lessee shall
certify in a letter, full disclosure of all such events involving the Engine
detailing all relevant details, including but not limited to, any subsequent
repairs; and

 

ii.                                       certify,
in writing, that there are no leased or rented parts installed on the Engine;
and

 

iii.                                    certify,
in writing, that Lessee has no knowledge of parts installed on the Engine that
have been manufactured without appropriate Governmental Authority approval and
/or that do not conform to an internationally recognized airworthiness standard
and are approved for installation in the Engine.

 

8

 

2.2                                                                                 Remedy
for Non-Compliance. Lessee shall take action to ensure that the Lessor and the
Governmental Authority are provided with, but not limited to, all requested
guarantees of methods of compliance, component overhaul and records management,
quality control, part number and serial number verification.  If any such records or other data are
missing, incomplete or otherwise not in accordance with the Governmental
Authority standards, Lessee shall re-accomplish the maintenance tasks necessary
to produce such records in accordance with the Maintenance Program prior to
return of the Engine or otherwise perform all necessary acts to obtain such
records in a manner satisfactory to the Governmental Authority.

 

2.3                                                                                 Shipping
Stand.  Lessee shall deliver the Engine
to Lessor properly installed in its Shipping Stand.

 

ARTICLE 3 - INSPECTION AND FLIGHTS

 

3.0                                                                                 Intentionally
left blank.

 

3.1                                                                                 Ground
Inspection. The Engine including the Aircraft Documentation and Vendor
Documentation shall be made available to Lessor for ground inspection by Lessor
or its designee at Lessee’s facilities. 
Such inspection shall commence twenty (20) working days (in the case of
the Aircraft Documentation and Vendor Documentation) and fifteen (15) working
days (in the case of the Engine) prior to the date of return of the Engine to
Lessor.  At Lessor’s request, Lessee
shall remove the Engine from scheduled service and open the areas of the Engine
as required to perform the necessary checks as specified in Article 1.2 and
1.3.  In addition, Lessee shall allow
Lessor to accomplish its inspection to determine that the Engine, including the
Aircraft Documentation and Vendor Documentation are in the condition set forth
in Article 2.

 

Lessee shall
promptly correct any discrepancies from the requirements set out in Articles 1
or 2 which are observed during such inspection and are communicated in writing
by Lessor to Lessee.

 

3.2                                                                                 Test
Cell Run.  Promptly after completion of
any corrections required under Article 3.1, Lessee shall conduct a complete
test cell performance run of the Engine in accordance with the Manufacturer’s
shop manual for the purpose of demonstrating to Lessor that the  operation and performance of the Engine and
its systems comply with all performance requirements for the Engine throughout
its certified operating envelope, without limitation or special exception in
accordance with the Manufacturer’s shop manual.  Lessee shall promptly correct those discrepancies that exceed
Manufacturer’s shop manual allowable limits.

 

3.3                                                                                 Intentionally
left blank.

 

9

 

3.4                                                                                 Intentionally
left blank.

 

3.5                                                                                 Intentionally
left blank.

 

10

 

APPENDIX I TO EXHIBIT D

 

AIRCRAFT DOCUMENTATION

 

The Aircraft
Documentation shall be provided in English and shall include the following:

 

1.                                       All
historical records for the Engine including original serviceability
documentation and a current, valid unrestricted serviceable tag, and FAA Form
337 (or its equivalent), both issued by an FAA Part 145 repair station that is
certified by the FAA and the Manufacturer for the performance of Engine Basic
Shop Visits on CF34-3B1 engines. Lessee shall supply all original (i.e. not
copies) certification tags and release notes from manufacturers or repair
agencies for Parts installed by Lessee.

 

2.             Intentionally left blank.

 

3.             Copy of the Maintenance Program
including a task list indicating when items thereon were last performed.

 

4.             Current inspection and maintenance
status and operating times.

 

5.             List and status of time, cycle and
calendar controlled components and parts.

 

6.             List and status of Life Limited
Parts.

 

7.                                       Summary
and control status of Airworthiness Directives, the method of compliance and
incorporation (i.e.: repetitive inspections, interim fix or terminating
action), and accomplishing documents.

 

8.                                       List
of manufacturer’s service bulletins incorporated and method of
incorporation.  Where only a portion of
a service bulletin is accomplished Lessee shall identify which portion was
accomplished.

 

9.                                       List
of Major Modifications and/or alterations accomplished on the Engine together
with all supporting documents required by the FAA including one copy of each
modification, alteration, engineering order and associated drawings.

 

10.                                 List
of major repairs performed on the Engine. 
A copy of all supporting documents required by the FAA including all
Engineering, Maintenance, Quality Control and regulatory documentation
associated with the major repairs shall be provided.

 

11.                                 List
of Supplemental Type Certificates (STC’s) incorporated together with a copy of
each certificate and associated data.

 

12.           Intentionally left blank..

 

13.           Intentionally left blank.

 

14.           Intentionally left blank.

 

11

 

15.           Intentionally left blank.

 

16.                                 Cross
reference parts catalogue (listing of Manufacturer’s part numbers corresponding
to parts manufacturer’s and current operator’s part numbers for the same parts)
if applicable.

 

17.           Intentionally left blank.

 

18.           Intentionally left blank.

 

19.           Intentionally left blank.

 

20.                                 Letter
detailing any major incident and/or accidents involving the Engine (if none,
the letter should so state), certified by Lessee’s chief inspector or corporate
officer responsible for aircraft maintenance.

 

21.                                 All
records required to comply with FAA requirements for FAR Part 121 operation
and/or initiated by Lessee for Lessee’s own benefit.

 

22.           Intentionally left blank.

 

23.           Cross reference list for Service
Bulletins and other manufacturer published instructions to Lessee’s engineering
orders.

 

Aircraft Documentation Supplement

24.           Intentionally left blank.

25.           Intentionally left blank.

26.           Intentionally left blank.

27.           Intentionally left blank.

 

28.          Engine Records:

1.             Log Books

2.             Last overhaul and repair documents
for each module

3.             Airworthiness Directive Compliance
Report (terminated and repetitive)

4.             Manufacturer’s Service Bulletin
Status Report

5.             Engine Disk Sheet

6.             Engine Data Submittal Sheet

7.             Condition Monitoring Status Report

8.             Back-to-birth traceability for all
life limited parts

9.             Last test cell run performance
report

10.           FAA Form 337s for the last Engine
Basic Shop Visit and each subsequent shop visit

 

30.           Intentionally left blank.

 

31.          Component Records
(components installed in or on the Engine):

1.                                       Time
Monitored Component Status Report with installed part numbers, serial numbers, remaining
hours and cycles (if applicable)

2.                                       Serviceability
tags and other appropriate back-up documentation (including 8130s) for
currently installed components replaced since delivery from the Manufacturer

 

12

 

3.                                       Serialized
latest shop records, including all serviceable tags, release to service, and
repair orders detailing maintenance checks, inspections, tests, repairs,
replacements, restorations, overhauls, modifications and refurbishments

4.                                       Back-to-birth
traceability for all life limited parts

 

32.          Manuals:

1.                                       Lessee
Illustrated Parts Catalog (if different from item 2)

2.                                       Bombardier
Illustrated Parts Catalog

3.                                       Lessee’s
FAA approved Maintenance Manual (if different from item 4)

4.                                       Bombardier
maintenance manual

5.                                       GE
Engine Illustrated Parts Catalog

6.                                       GE
Engine Shop Manual

7.                                       Lessee’s
Minimum Equipment List

8.                                       Master
Minimum Equipment List

9.                                       Configuration
Deviation List

10.                                 Dispatch
Deviation Guide

 

33.          Miscellaneous
Technical Documents:

1.                                       Maintenance
Program Specifications/Requirements Schedule

 

13

 

EXHIBIT
E

to

Lease Agreement

[NW 200        ]

 

MINIMUM
LIABILITY AMOUNT

 

The portion of
this Exhibit appearing below this text is intentionally deleted from the FAA
filing counterpart as the parties hereto deem it to contain confidential
information.

 

The Minimum
Liability Amount shall be $1,000,000,000 per occurrence (or such other minimum
amount as may be reasonably requested by Lessor from time to time in the event
Lessee no longer obtains airline liability insurance coverage as part of the
Lessor’s airline aviation liability insurance placement).

 

1

 

EXHIBIT
F

to

Lease Agreement

[NW 200        ]

 

[INTENTIONALLY OMITTED]

[MAINTENANCE RESERVE RATES

 

The portion of
this Exhibit appearing below this text is intentionally deleted from the FAA
filing counterpart as the parties hereto deem it to contain confidential
information.

 

Table 1: 
ENGINE MAINTENANCE RESERVE RATE*

 

	
   

  	
  Rate

  	
   

  
	
   

  	
  $

  	
  57.50

  	
   

  
				

 

Table 2: 
ENGINE LLP MAINTENANCE RESERVE RATE*

 

	
   

  	
  Rate

  	
   

  
	
   

  	
  $

  	
  18.50

  	
  ](1)

  
				

 

*      Rates listed are those to be paid prior to the referenced
event.

 

(1)   To be inserted in Engine leases entered into
in accordance with Section 3.02(a)(iv) of the Airline Services Agreement.

 

1

 

EXHIBIT
G

to

Lease Agreement

[NW 200        ]

 

HEADLEASE VARIATIONS

 

The portion of this
Exhibit appearing below this text is intentionally deleted  from the FAA filing counterpart as the
parties hereto deem it to contain confidential information.

 

If and so long as the
Engine is subject to a Headlease at any time during the Term, Lessor shall so
notify Lessee in writing and, pursuant to Section 2(c) of the Lease, the terms
and conditions set forth in this Exhibit G shall apply to this Lease from and
after the date specified in such notice until the earlier to occur of the
expiration or termination of such Headlease or of the Term:

 

1.             Amended, Modified,
Supplemented or Supplemental Definitions.

 

“Event of Loss” means an Event of Loss as
defined in Section 1 of the Lease and any other event or circumstance
constituting and “Event of Loss” as defined in the Headlease.

 

“Headlease Documents” means the agreements
and instruments, identified in the Headlease Notice, among Lessor and one or
more other Persons relating to the ownership of, and Lessor’s rights in and to,
the Engine.

 

“Headlease Notice” means any written
notice provided by Lessee to Lessor from time to time pursuant to Section 2 of
this Exhibit G.

 

“Headlease Parties” means those parties
identified in the Headlease Notice that as the parties to the respective
Headlease Documents.

 

“Headlease Tax Indemnity Agreement”
means a tax indemnity agreement entered into between Lessor, as headlessee and
any Headlease Interest.

 

“Headlessor Liens” means any Lien or
disposition of title or interest arising as a result of (i) claims against and
Headlease Interest not related to the transactions contemplated by the Headlease
Documents or the Operative Documents, (ii) any act or omission of the any of
the Head Lease Interests which is not related to the transactions contemplated
by the Headlease Documents or the Operative Documents or is in violation of any
of the terms of the Headlease Documents or the Operative Documents, (iii)
claims against any of the Headlease Interests with respect to Taxes or Expenses
against which Lessor is not required to indemnify the Headlease Interests
pursuant to the Headlease Documents or (iv) any claim against any of the
Headlease Interests arising out of any transfer by any thereof of all or any
portion of their respective interests in any Aircraft, the Engine, the Trust
Estate, the Headlease Documents or the Operative Documents other than the transfer
of possession of the Engine pursuant to the Headlease or of any Aircraft;
provided, however, that any Lien which is attributable solely to any Headlease
Interest (other than the Owner) and would otherwise constitute a Headlessor
Lien shall not constitute a Headlessor Lien so long as (1) the existence of
such Lien poses no material risk of

 

1

 

the sale, forfeiture or
loss of the Engine or any Aircraft on which the Engine is or may be installed,
(2) the existence of such Lien does not interfere in any way with the use,
possession or operation of the Engine by Lessee, (3) such Headlease Interest is
diligently contesting such Lien, and (4) the existence of such Lien does not
pose a material threat of interference with the payment of rent under the
Headlease Documents in favor of such Headlease Interest.

 

“Indemnitee” means an Indemnitee as
defined in Section 1 of the Lease and shall include, for purposes of subclause
(iii) of such definition, the Headlease Interests, any Lenders, any Indenture
Trustee and all other Persons entitled to general indemnification by Lessor
pursuant to the Headlease Documents.

 

“Indenture Trustee” means any indenture
trustee or other Person engaged in a similar capacity on behalf of the Lenders
under the Headlease Documents.

 

“Indenture Trustee’s Liens” any Lien which
arises as a result of (A) claims against the Indenture Trustee not related to
its interest in the Engine or the administration of the Trust Indenture Estate
pursuant to the Headlease Documents, (B) acts of the Indenture Trustee not
permitted by, or failure of the Indenture Trustee to take any action required
by, the Headlease Documents or the Operative Documents to the extent such acts
arise or such failure arises from or constitutes gross negligence or willful
misconduct, (C) claims against the Indenture Trustee relating to Taxes or
Expenses which are excluded from the indemnification provided by Lessor
pursuant to the Headlease Documents, or (D) claims against the Indenture
Trustee arising out of the transfer by the Indenture Trustee of all or any
portion of its interest in the Engine, any Aircraft, the Trust Estate, the
Trust Indenture Estate, the Headlease Documents or the Operative Documents
other than a transfer of the Engine pursuant to the express requirements of the
Headlease Documents or a transfer of the Engine pursuant to the Headlease
Documents while an Event of Default (as defined in the Headlease) is continuing
and prior to the time that the Indenture Trustee has received all amounts due
pursuant to the Trust Indenture.

 

“Lender” means each Person holding a Loan
Certificate issued pursuant to the Headlease Documents.

 

“Lender Interests” means collectively each
Lender and the Indenture Trustee.

 

“Lender Liens” means any Lien which arises
from acts or claims against any Lender not related to the transactions
contemplated by the Headlease Documents or the Operative Documents.

 

“Loan Certificate” means any instrument,
however styled, issued pursuant to the Headlease Documents to a Lender
evidencing a right to payment or repayment of money.

 

“Loan Documents” means any instrument
(including any Loan Certificate) or agreement evidencing or relating to any
loan or other debt financing with respect to the Engine by Lessor or any
Headlessor, which are disclosed and identified by Lessor to Lessee.

 

“Tax Indemnitee” means a Tax Indemnitee as
defined in Section 1 of the Lease and shall include, for purposes of subclause
(iii) of such definition, the Headlease Interests, any Lenders,

 

2

 

any Indenture Trustee and
all other Persons entitled to tax indemnification by Lessor pursuant to the
Headlease Documents.

 

“Trust Estate” means all right, title and
interest of the Owner in and to the Engine and all other property (including
but not limited to its rights under the Headlease) at any time in existence
pursuant to the Headlease Documents.

 

“Trust Indenture Estate”
means the interest (including but not limited to security interest and Lien) of
the Indenture Trustee in and to such portion of the Trust Estate and such other
property as has been pledged, assigned and transferred to the Indenture Trustee
to secure the obligations of the Owner to the Lenders pursuant to the Headlease
Documents.

 

2.             Contents of
Written Notice to Lessee Concerning Headlease.

 

Lessee shall deliver to
Lessor, promptly following the execution and delivery of Headlease Documents
during the Term, a written statement setting forth the following information together
with such other information as Lessor may determine necessary or appropriate in
the administration of the Headlease Documents and this Lease:

 

(a)           The parties to the Headlease
Documents.

 

(b)           The address, telephone number and
facsimile number of each Headlease Interest and of the Indenture Trustee for
purposes of such notices as Lessee may be required to provide to such Persons.

 

(c)           The name and date of each of the
Headlease Documents and a statement of the parties thereto.

 

(d)           The term of the Headlease, excluding
any renewals or extensions.

 

(e)           The bank account or bank accounts to
which Lessee is to make payment of any portion of the Rent due hereunder that
may be payable to Persons other than Lessor, whether by virtue of assignment,
designation as an express beneficiary or otherwise.

 

Any Headlease Notice
shall include a true copy of the Headlease and such other Headlease Documents
as Lessor determines necessary or appropriate for the proper administration of
the Headlease and this Lease.

 

3.             Agreements
Regarding Headlease Documents.

 

Lessee hereby
acknowledges and agrees that the Headlease Documents permit Lessor  to make the Engine available to Lessee
pursuant to this Lease, thus providing a valuable financial accommodation to
Lessee, and accordingly Lessee agrees that whether or not the following terms
and conditions shall be set forth in a separate amendment to, or restatement or
replacement of, this Lease, Lessee shall, at its sole expense:

 

3

 

(a)           comply with the terms and conditions
of the Headlease Documents that set forth actions to be performed, obligations
to be fulfilled and limitations to be observed by the sublessee of the Engine
from Lessor;

 

(b)           maintain insurance on the Engine in
compliance with the requirements of the Headlease in addition to the
requirements of the Lease, including but not limited to the identity of named
assureds and loss payees, inclusion of coverages and clauses and provision of
periodic reports;

 

(c)           cooperate with the exercise of the
inspection rights set forth in the Headlease Documents;

 

(d)           comply during the Headlease term with
any more comprehensive operating, maintenance and return conditions set forth
in the Headlease Documents;

 

(e)           extend the coverage and benefit of
the indemnities (including all procedures relating thereto) set forth in
Sections 9(d), 29(b) and 29(c) to the parties to the Headlease Documents who
are Indemnitees and Tax Indemnitees (which Persons shall be third party
beneficiaries of such Sections), modified to include any more comprehensive
indemnification provisions undertaken by Lessor as set forth in the Headlease
Documents but otherwise on the same terms and conditions as applicable to
Lessor;

 

(f)            comply with the requirements of the
Headlease for maintaining insignia on the Engine disclosing the interests of
the Headlease Parties as set forth therein and recordations of the Headlease
Documents, and comply with the requirements of any Loan Documents for
maintaining any Liens granted thereunder relating to the Engine;

 

(g)           promptly furnish or cause to be
furnished to any Headlease Interest such information as may be required to
enable such Persons to monitor the maintenance status and condition of the
Engine and to file any reports required to be filed by such Headlease Interest
with any governmental authority because of such Person’s ownership or
beneficial ownership of the Engine;

 

(h)           furnish Headlessor and any Indenture
Trustee with original counterparts (or certified copies if only one original
counterpart is available) of the information and documentation required to be
provided to Lessor in connection with an Event of Loss as specified in Sections
10(a)(3), (4) and (5), (7) and (8) and file such additional financing
statements with respect to a substituted Engine as are deemed necessary or
advisable by Headlessor or any Indenture Trustee or its respective counsel;

 

(i)            provide the same notices to the
Headlease Interests and any Lender Interests with respect to an Event of Loss
or requisition for use of the Engine as it is required to provide to Lessor
under the Lease, at such address or telecopy number as the Headlease Interests
or Lender Interests shall have furnished to Lessor, which Lessor shall furnish
to Lessee in the Headlease Notice, or such other address or telecopy number for
any such Person as such Person or Lessor shall provide thereafter to Lessee;
and

 

4

 

(j)            at Lessee’s request, enter into a
written amendment to, or restatement or replacement of, the Lease to set forth
more comprehensively the integration of the Headlease Documents with the
undertakings of Lessor and Lessee in the Lease.  Whether or not such written amendment, restatement or replacement
is executed and delivered, Lessor shall have the right to amend, supplement or
otherwise modify the terms of the Lease without the consent of Lessee in the
event of any amendment, supplement or other modification of the terms of the
Headlease.

 

Lessee agrees that the representations and warranties of Lessee set
forth in the Lease shall be deemed for the benefit of, and relied upon by, the
Headlease Parties.

 

Lessor and Lessee agree that Lessee shall have no obligation with
respect to Headlessor Liens, Indenture Trustee Liens or Lender Liens at any
time during the Term.  In addition, the
following rights and interests shall also be excluded from the obligations of
Lessee under Section 6: the respective rights of Lessor and Headlessor as provided
in the Headlease, the rights of Headlessor as owner of the Engine, the Lien of
any Trust Indenture and any other rights existing pursuant to the Headlease
Documents.

 

Whenever the Lease permits actions to be taken or omitted by Lessee on
the condition that no civil liability, criminal liability, loss in whole or in
part of interest of any nature, or other adverse consequence be incurred by
Lessor as a result thereof, such condition shall be deemed to include and
extend to any such liability or loss of, or consequence to,  or effect on, the Headlease Interests or any
Lender Interests.

 

Headlessor shall be entitled, to the same extent as Lessor (a) to place
additional insurance on the Engine pursuant to Section 11(e) of the Lease and
(b) to perform for Lessee to the same extent, under the same conditions and
with the same right to receive Supplemental Rent in respect thereof, as Lessor
pursuant to Section 21 of the Lease, without in either case limiting the rights
of Lessor under the Lease.

 

Without limiting the effect of Section 18 of the Lease in respect of
any circumstance relating to Lessor, Lessee’s obligations to pay Rent under the
Lease shall not be affected by any circumstance relating to any Headlease
Interest or any Lender Interest, including but not limited to any circumstance
relating to any such Person of a type described in respect of Lessor in
subclauses (i) through (iv) of the first sentence thereof.

 

Lessor’s and Lessee’s submissions to jurisdiction and agreements
regarding service of process under Sections 23 and 32 of the Lease shall also
be applicable to any suit, action or other proceeding arising out of the Lease,
the subject matter of the Lease or any of the transactions contemplated by the
Lease, brought by any Headlease Interest or any Lender Interest.

 

Notwithstanding any other provision of the Lease or this Exhibit G, the
Lease is and Lessee’s rights hereunder shall be subject and subordinate to all
the terms of the Headlease and the Lien of any Indenture, including, without
limitation, Headlessor’s (and any Indenture Trustee’s) rights to repossession
of the Engine and to avoid the Lease for any reason upon such repossession, and
Lessee shall not be permitted to take any action hereunder not permitted to be
taken by Lessor as “lessee” in the Head Lease. 
Lessee agrees to execute such further documents confirming such

 

5

 

subordination of the Lease as may be reasonably requested by
Lessor.  Lessee will acknowledge receipt
of an executed copy of each of the Headlease Documents delivered to it by
Lessor.

 

Lessee shall be responsible at its expense for effecting and
maintaining the status of any registration, recordation or other filing
(including the amendment of any existing registration, recordation or other
filing) with respect to the Engine to properly reflect the Headlease Interests
and any Lender Interests, at the Lessor’s request.  Lessor shall provide Lessee with such information as Lessee may
reasonably request to enable it to effect and maintain such registration,
recordation or other filing.

 

4.             Certain Tax
Provisions

 

Headlease Tax Indemnity Provisions

 

Indemnity.  If Lessor is required to pay any Headlease Interest any amount
(herein called a “HTIA Liability”) pursuant to any Headlease
Tax Indemnity Agreement, Lessee shall pay to Lessor an amount, which, on an
After-Tax Basis, shall be equal to such HTIA Liability.  Such payment shall be made at least five (5)
Business Days prior to the date Lessor must pay the claimant Headlease Interest
under the Headlease Tax Indemnity Agreement.

 

In addition, Lessee shall indemnify any Tax Indemnitee (as defined in
the Lease, without giving effect to this Exhibit G, for purposes of this
paragraph) under Section 29(b)(i) of the Lease with respect to Taxes howsoever
imposed against such Tax Indemnitee, the Engine, or otherwise, on the property
or the income or other proceeds with respect to any of the property held by any
of the Headlease Interests or the Lender Interests, or on the payment of
principal of, interest or premium on, or other amounts payable on or with
respect to, any Loan Certificates or under any Loan Documents, and whether
imposed by withholding tax or otherwise.

 

Exceptions. Lessee shall not
be required to indemnify Lessor for any HTIA Liability to the extent that such
HTIA Liability would not have occurred but for any of the following:

 

(a)                                  Lessor
claiming deductions for depreciation of the Engine for federal income tax
purposes or claiming on any federal income tax return to be the owner of the
Engine for federal income tax purposes (for the avoidance of doubt, the
foregoing shall not limit any such claim by Lessor under the Head Lease Tax
Indemnity Agreement with respect to any period of time during which no
Headlease is or was in effect); or

 

(b)                                 the
status of Lessor as a “tax-exempt entity” within the meaning of Section 168(h)
of the Code but only if such status is not caused by a Lessee Person.

 

Tax
Savings.  If a
Headlease Interest pays an amount to Lessor pursuant to the Headlease Tax
Indemnity Agreement, for which Lessee has previously paid an indemnity to
Lessor pursuant to paragraph (1) hereof, Lessor shall pay such amount to Lessee
within 5 Business Days after Lessor receives such amount, but not in excess of
any payment previously made by Lessee with respect to such HTIA Liability and
net of any tax liability incurred by Lessor with respect to receipt and payment
of such amount.

 

6

 

Contest.  If Lessor receives a written claim for an
indemnity pursuant to the Head Lease Tax Indemnity Agreement for which Lessee
would be required to pay Lessor an indemnity hereunder, Lessor shall notify
Lessee thereof in writing (but it being understood and agreed that failure of
Lessor to provide such notice to Lessee shall not adversely affect or otherwise
prejudice any Lessor’s right to an indemnity hereunder).  If requested by Lessee in writing within ten
(10) Business Days before the latest day on which Lessor may request a contest
pursuant to the Head Lease Tax Indemnity Agreement, Lessor shall exercise its
rights, if any, under the Head Lease Tax Indemnity Agreement provided
that in no event shall Lessor be required to initiate or continue (or be
required to request any other person to initiate or continue) a contest unless:
(i) the amount of the obligation on the part of Lessee to indemnify Lessor
in respect of the HTIA Liability shall be at least $50,000, (ii)  Lessee
agrees to reimburse Lessor on demand (and complies with such agreement) for all
of the Headlease Interests’ and Lessor’s reasonable costs and expenses
(including, without limitation, reasonable legal and accounting fees and
disbursements) which each may incur in contesting such disallowance, (iii) if
the claimant Headlease Interest elects to contest the disallowance by paying
the tax claimed (including interest, penalties or additions to tax) and seeking
a refund, Lessee shall advance to Lessor on an interest free basis the
aggregate amount of taxes, interest, penalties and additions to the tax
applicable to such disallowance and agree to indemnify Lessor and such
Headlease Interest for any adverse tax consequences resulting from such
advance, (iv) such contest would not entail any risk of criminal penalties,
(v) with respect to such disallowance, Lessee shall have furnished Lessor
at Lessee’s expense, with a written opinion of independent tax counsel selected
by Lessor that a Reasonable Basis exists to contest such disallowance and prior
to filing any appeal an opinion that a successful outcome on appeal is more
likely than not and have posted a bond or other security for such appeal,
(vi) no Default or Event of Default, under any of the Operative Documents
by Lessor or the Airline Services Agreement, has occurred and is continuing,
and (vii) Lessee shall have delivered to Lessor a written acknowledge of
Lessee’s obligation to indemnify in full Lessor pursuant to this Agreement to
the extent that the contest is not successful. Lessor shall have no obligation
to cause any Headlease Interest and no Headlease Interest shall have any
obligation to appeal any adverse decision of an appellate court to the United
States Supreme Court.

 

Minimum Indemnity.  The amount of any indemnity payable by
Lessee to Lessor pursuant to, or in connection with, any HTIA Liability shall
in all events be an amount sufficient to restore Lessor to the position that
Lessor would be in if the HTIA Liability or any indemnity otherwise payable to
any Headlease Interest by Lessor that gave rise to Lessee’s obligation
hereunder had not occurred.

 

5.             Certain Provisions Relating to
the General Indemnity.

 

Anything
to the contrary in Section 29(c) notwithstanding, Lessee shall not be entitled
to assume responsibility for and control any judicial or administrative
proceedings relating to a claim made against an Indemnitee, nor shall Lessee be
entitled to receive any reimbursement payments that may be received by an
Indemnitee in respect of an indemnity payment theretofore made by Lessee to
such Indemnitee, in either case while an event constituting an event of default
or an incipient event of default under the Headlease Documents shall have
occurred and be continuing.

 

7

 

EXHIBIT
H(1)

to

Lease Agreement

[NW 200        ]

 

QUICK
ENGINE CHANGE KIT SPECIFICATIONS

 

[The
Engine does not have QEC installed on the Delivery Date.]

 

[The
Engine has QEC installed and covered under the Lease on the Delivery Date.  The QEC includes the following components
and parts delivered with the Engine on the Delivery Date to the Lessee:

 

1.  Neutral Engine QEC Kit (Optimum)

 

[2.  Left Hand Engine QEC Kit (Optimum)](2)

 

[2.  Right Hand Engine QEC Kit (Optimum)]

 

3.  Consumables

 

and the
specific items included in each of the preceding categories is as identified in
the Canadair Regional Jet CF34-3A1/3B1 Quick Engine Kit Listing Document (issue
date: 25/03/01).]

 

(1)           Alternative
statements in Exhibit to be selected.

 

(2)           If Engine has QEC,
either a Left Hand Engine or Right Hand Engine QEC Kit will be designated.

 

1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00039-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00039-of-00352.parquet"}]]