-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UnQ28Q4kWFy5WUklIEtAXYH01hCtU1ChmG8B6j9NphH7uFy6l5oa9Qt6wNSnyEf9 +rAzDqCttDxWByEtvAixXg== 0000895345-98-000706.txt : 19981116 0000895345-98-000706.hdr.sgml : 19981116 ACCESSION NUMBER: 0000895345-98-000706 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULFSTREAM AEROSPACE CORP CENTRAL INDEX KEY: 0000715355 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT [3721] IRS NUMBER: 133554834 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08461 FILM NUMBER: 98745831 BUSINESS ADDRESS: STREET 1: P O BOX 2206 STREET 2: 500 GULFSTREAM RD - TRAVIS FIELD CITY: SAVANNAH STATE: GA ZIP: 31402-2206 BUSINESS PHONE: 9129643000 MAIL ADDRESS: STREET 1: 500 GULFSTREAM RD STREET 2: TRAVIS FIELD CITY: SAVANNAH STATE: GA ZIP: 31402-2206 10-Q 1 =========================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 ---------------------- COMMISSION FILE NO. 1-8461 ---------------------- GULFSTREAM AEROSPACE CORPORATION P. O. Box 2206 500 Gulfstream Road Savannah, Georgia 31402-2206 Telephone: (912) 965-3000 State of incorporation: Delaware IRS identification number: 13-3554834 ---------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of October 30, 1998, there were 72,513,424 shares of Gulfstream Aerospace Corporation Common Stock outstanding. =========================================================================== GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION PAGE NO. -------- ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets September 30, 1998 and December 31, 1997.......... 3 Consolidated Statements of Income Three and nine months ended September 30, 1998 and 1997.......................................... 4 Consolidated Statement of Stockholders' Equity Nine months ended September 30, 1998.............. 5 Consolidated Statements of Cash Flows Nine months ended September 30, 1998 and 1997.............................................. 6 Notes to Consolidated Financial Statements......... 7-10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11-15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS..................................... 16 ITEM 2. CHANGES IN SECURITIES......................................... 16 ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................... 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................ 16 ITEM 5. OTHER INFORMATION..................................... 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................16-17 SIGNATURE............................................. 18 GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------- ASSETS Cash and cash equivalents $ 10,552 $ 306,451 Accounts receivable (less allowance for doubtful accounts: $2,596 and $1,144) 227,809 177,228 Inventories 771,610 629,876 Deferred income taxe 28,983 33,795 Prepaids and other assets 7,360 11,318 ------------- ------------- Total current assets 1,046,314 1,158,668 Property and equipment, net 161,145 134,611 Tooling, net of accumulated amortization: $13,140 and $7,680 38,378 43,471 Goodwill, net of accumulated amortization: $9,878 and $8,433 215,267 38,957 Other intangible assets, net 47,235 50,485 Deferred income taxes 28,800 32,950 Other assets and deferred charges 14,680 14,525 ------------- ------------- Total Assets $ 1,551,819 $ 1,473,667 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt $ 75,000 $ 75,000 Accounts payable 195,494 147,618 Accrued liabilities 145,958 93,798 Customer deposits -- current portion 499,331 546,441 ------------- ------------- Total current liabilities 915,783 862,857 Long-term debt 298,750 305,000 Accrued postretirement benefit cost 127,076 115,405 Customer deposits -- long-term 77,825 88,075 Other long-term liabilities 7,102 9,573 Commitments and contingencies Stockholders' equity Common stock; $.01 par value; 300,000,000 shares authorized; 89,797,155 shares issued in 1998 and 86,522,089 shares issued in 1997 898 865 Additional paid-in capital 437,488 370,258 Accumulated deficit (65,181) (225,960) Minimum pension liability (762) (762) Unamortized stock plan expense (248) (1,155) Less: Treasury stock: 17,283,731 shares in 1998 and 11,978,439 shares in 1997 (246,912) (50,489) ------------- ------------- Total stockholders' equity 125,283 92,757 ------------- ------------- Total Liabilities and Stockholders' Equity $ 1,551,819 $ 1,473,667 ============= ============= See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net revenues $ 626,177 $ 464,036 $1,686,626 $1,362,568 Cost and expenses Cost of sales 487,361 372,983 1,322,655 1,125,031 Selling and administrative 29,882 23,920 85,399 69,517 Stock option compensation expense 84 329 907 1,314 Research and development 2,746 4,305 6,950 8,079 Amortization of intangibles and deferred charges 2,428 1,831 6,186 5,477 ---------- ---------- ---------- ---------- Total costs and expenses $ 522,501 $ 403,368 $1,422,097 $1,209,418 ---------- ---------- ---------- ---------- Income from operations 103,676 60,668 264,529 153,150 Interest income 2,033 2,839 7,087 8,201 Interest expense (6,965) (7,495) (20,399) (23,305) ---------- ---------- ---------- ---------- Income before income taxes 98,744 56,012 251,217 138,046 Income tax expense (benefit) 34,023 (63,076) 90,438 (60,576) ---------- ---------- ---------- ---------- Net income $ 64,721 $ 119,088 $ 160,779 $ 198,622 ========== ========== ========== ========== Earnings per share: Net income per share - basic $ .88 $ 1.61 $ 2.19 $ 2.68 ========== ========== ========== ========== Net income per share - diluted $ .86 $ 1.54 $ 2.13 $ 2.54 ========== ========== ========== ========== See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands) (Unaudited) Additional Minimum Unamortized Total Common Paid-In Accumulated Pension Stock Plan Treasury Stockholders' Stock Capital Deficit Liability Expense Stock Equity ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AS OF DECEMBER 31, 1997 $ 865 $ 370,258 $ (225,960) $ (762) $ (1,155) $ (50,489) $ 92,757 Net income 160,779 160,779 Amortization of stock plan expense 907 907 Exercise of common stock options with the Offering, net of expenses 26 25,051 2,044 27,121 Tax benefit of exercised common stock options 40,033 40,033 Exercise of common stock options 7 2,146 2,153 Purchase of treasury stock (198,467) (198,467) ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AS OF SEPTEMBER 30, 1998 $ 898 $ 437,488 $ (65,181) $ (762) $ (248) $ (246,912) $ 125,283 ========== ========== ========== ========== ========== ========== ========== See notes to consolidated financial statements
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- 1998 1997 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 160,779 $ 198,622 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,176 24,342 Postretirement benefit cost 5,060 5,140 Provision for loss on pre-owned aircraft (1,100) Non-cash stock option compensation expense 907 1,314 Other acquisition related non-cash items 3,880 Deferred income taxes 48,995 (64,801) Other, net 677 712 Change in assets and liabilities, excluding effect of acquisition: Accounts receivable (10,985) 7,986 Inventories (93,791) 2,151 Prepaids, other assets, and deferred charges 4,822 (2,640) Accounts payable and accrued liabilities 83,021 (3,942) Customer deposits (78,448) (134,753) Other long-term liabilities (2,471) 615 ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 147,622 33,646 CASH FLOWS FROM INVESTING ACTIVITIES Payment for business acquired (251,087) Investment in unconsolidated affiliate (1,260) Expenditures for property and equipment (16,089) (9,619) Expenditures for tooling (477) (2,613) Proceeds from sales of assets 835 ------------- ------------- NET CASH USED IN INVESTING ACTIVITIES (268,078) (12,232) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of common stock options 29,274 888 Net borrowings under revolving credit loans 50,000 Principal payments on long-term debt (56,250) (13,333) Purchase of treasury stock (198,467) ------------- ------------- NET CASH USED IN FINANCING ACTIVITIES (175,443) (12,445) ------------- ------------- (Decrease) increase in cash and cash equivalents (295,899) 8,969 Cash and cash equivalents, beginning of period 306,451 233,172 ============= ============= Cash and cash equivalents, end of period $ 10,552 $ 242,141 ============= ============= See notes to consolidated financial statements GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules of the Securities and Exchange Commission ("SEC") and, in the opinion of the Company, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of financial position, results of operations and cash flows. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules. The operating results for the three and nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the entire year ended December 31, 1998. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1997 included in the Company's 1997 Annual Report to Stockholders. NOTE 2. EARNINGS PER SHARE Basic earnings per share were computed by dividing net income by the weighted average common shares outstanding during the periods presented. Diluted earnings per share were computed by dividing net income by the weighted average common shares and potential common shares outstanding. The Company adopted Financial Accounting Standards Board SFAS No. 128, Earnings per Share, effective December 15, 1997. As a result, all earnings per share information for prior periods have been restated to conform to the requirements of SFAS No. 128.
The following table sets forth the reconciliation of per share data as of: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net Income $ 64,721 $ 119,088 $ 160,779 $ 198,622 ========== ========== ========== ========== BASIC EPS Weighted average common shares shares outstanding 73,454 74,119 73,269 74,036 ---------- ---------- ---------- ---------- DILUTED EPS Incremental shares from stock options 1,392 2,986 2,106 4,091 ---------- ---------- ---------- ---------- Weighted average common and common equivalent shares outstanding 74,846 77,105 75,375 78,127 ========== ========== ========== ========== EARNINGS PER SHARE: Net income per share - basic $ .88 $ 1.61 $ 2.19 $ 2.68 ========== ========== ========== ========== Net income per share - diluted $ .86 $ 1.54 $ 2.13 $ 2.54 ========== ========== ========== ==========
GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On a pro forma basis, assuming an effective tax rate of 37.5% for the 1997 periods, the Company's basic and diluted earnings per share is as follows: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- PRO FORMA EARNINGS PER SHARE: Net income per share - basic $ .88 $ .47 $ 2.19 $ 1.17 ========== ========== ========== ========== Net income per share - diluted $ .86 $ .45 $ 2.13 $ 1.10 ========== ========== ========== ==========
NOTE 3. INVENTORIES Inventories consisted of the following at: SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------- (In thousands) Work in process $ 415,584 $ 330,155 Raw materials 177,807 134,973 Vendor progress payments 76,747 60,606 Pre-owned aircraft 101,472 104,142 ------------- ------------- $ 771,610 $ 629,876 ============= ============= NOTE 4. INCOME TAXES In the quarter and nine month period ended September 30, 1998, the Company recorded income tax provisions of $ 34.0 million and $90.4 million, respectively, based on an estimated annual effective tax rate of 36.0%. In the comparable periods of 1997, the Company recorded no provision for income taxes, other than alternative minimum taxes, principally as a result of utilization of net operating loss carryforwards. As a result of numerous factors, including, but not limited to the Company's recent earnings trends and the size of its contractual backlog, the Company determined that its net deferred tax asset was more likely than not to be realized, and, in the quarter ending September 30, 1997, released its deferred tax valuation allowance, totaling $94.2 million. Of this amount, $29.4 million related to the exercise of stock options and was credited to additional paid-in capital and $64.8 million was recorded as a one-time, non-cash income tax benefit. NOTE 5. COMMITMENTS AND CONTINGENCIES In the normal course of business, lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to various matters, including products liability. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company, management has made provision for all known probable losses related to lawsuits and claims and believes that the disposition of all matters which are pending or asserted will not have a material adverse effect on the financial statements of the Company. The Company is involved in tax audits by the Internal Revenue Service covering the years 1990 through 1994. The revenue agent's reports include several proposed adjustments involving the deductibility of certain compensation expense, items relating to the initial capitalization of the Company, the allocation of the original purchase price for the acquisition by the Company of the Gulfstream business, including the treatment of advance payments with respect to the cost of aircraft that were in backlog at the time of the acquisition, and the amortization of amounts allocated to intangible assets. The Company believes that the ultimate resolution of these issues will not have a material adverse effect on its financial statements because the financial statements already reflect what the Company currently believes is the expected loss of benefit arising from the resolution of these issues. The Company is currently engaged in the monitoring and cleanup of certain ground water at its Savannah facility under the oversight of the Georgia Department of Natural Resources. Expenses incurred for cleanup have not been significant. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. The Company believes the remainder of the Savannah facility, as well as other Gulfstream properties, are being carefully monitored and are in substantial compliance with current federal, state and local environmental regulations. The Company believes the liabilities, if any, that will result from the above environmental matters will not have a material adverse effect on its financial statements. NOTE 6. COMMON STOCK REPURCHASES During January 1998, the Company announced a program to repurchase up to $200 million of its common stock. As of September 30, 1998, the Company had repurchased approximately 5.5 million shares, at an average price of $35.81 per share, for an aggregate amount of approximately $198.5 million. The repurchase was funded from the Company's available cash. NOTE 7. BUSINESS ACQUISITION On August 19, 1998, the Company acquired K-C Aviation, Inc. for approximately $250 million, including acquisition costs. K-C Aviation is a leading provider of business aviation services and the largest independent completion center for business aircraft in North America. In addition to custom aircraft interiors, K-C Aviation is the second largest engine service center in the United States and also offers maintenance services, spares, auxiliary power unit service, avionics retrofit, non-destructive testing and component overhaul. The purchase of K-C Aviation, Inc. was funded primarily from existing cash balances, and due to the timing of the closing of the transaction, also from the revolving credit facility. The acquisition has been accounted for as a purchase, and accordingly, the operating results of K-C Aviation have been included in the Company's consolidated financial statements since the date of acquisition. The purchase price exceeded the fair value of net assets acquired by approximately $178 million, which is being amortized on a straight-line basis over 40 years. Allocations of the purchase price have been determined based upon preliminary estimates of value, and therefore, are subject to change as asset appraisals are finalized. As refinements are made, goodwill and any other appropriate accounts will be adjusted accordingly. The following unaudited pro forma summary presents the combined results of operations of the Company and K-C Aviation, as if the acquisition had occurred at the beginning of fiscal 1998 and 1997. The pro forma amounts give effect to certain adjustments, including the amortization of goodwill, reduced interest income from cash utilized to complete the acquisition and the related income tax effects. The pro forma consolidated results do not purport to be indicative of results that would have occurred had the acquisitions been in effect for the period presented, nor do they purport to be indicative of the results that will be obtained in the future.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Pro forma Net Revenues $ 650.3 $ 516.2 $ 1,809.8 $ 1,504.9 ========== ========== ========== ========== Pro forma Income Before Income Taxes 99.5 56.3 251.1 129.9 ========== ========== ========== ========== Pro forma Net Income 66.3 120.6 163.1 193.4 ========== ========== ========== ========== Pro forma Earnings Per Share - Basic .90 1.63 2.23 2.61 ========== ========== ========== ========== Pro forma Earnings Per Share - Diluted $ .88 $ 1.56 $ 2.17 $ 2.47 ========== ========== ========== ==========
NOTE 8. CHANGE IN ACCOUNTING PRINCIPLES Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. This Statement requires disclosure of total nonowner changes in stockholders' equity, which is defined as net income plus certain direct adjustments to stockholders' equity such as pension liability adjustments. For the three and nine month periods of 1998 and 1997, the Company had no such adjustments. NOTE 9. NEW ACCOUNTING STANDARD In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which is effective no later than for the Company's 1998 fiscal year-end. Management believes that the adoption of this statement will not have a material effect on the Company's consolidated financial statements. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Notes to Consolidated Financial Statements beginning on page 7 and with Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and the audited consolidated financial statements and notes to consolidated financial statements appearing in the Company's 1997 Annual Report to Stockholders. COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Net Revenues. Total net revenues increased by $162.2 million, or 35.0%, to $626.2 million in the third quarter of 1998 from $464.0 million in the third quarter of 1997. The third quarter 1998 results of operations include net revenues of K-C Aviation, Inc. from the date of acquisition, which were $35.2 million, resulting principally from the delivery of five non-Gulfstream completions. Excluding the net revenues of K-C Aviation, the Company's net revenues were up $127.0 million, or 27.4%. The increase resulted from several factors; an increase in revenues from green aircraft of $44.5 million as the Company delivered 16 aircraft, seven Gulfstream Vs and nine Gulfstream IV-SPs, as compared with 14 aircraft, eight Gulfstream Vs and six Gulfstream IV-SPs, in the third quarter of 1997; and an increase in Gulfstream completion revenues of $30.7 million reflecting 11 Gulfstream completions delivered during the third quarter compared with only five Gulfstream completions delivered in the comparable 1997 period. In addition, revenues associated with the sale of pre-owned aircraft increased $29.2 million to $45.0 million in the third quarter of 1998 as compared to $15.8 million in the same period in 1997. During the nine months ended September 30, 1998, total net revenues increased by $324.0 million (including the effects of the acquisition), or 23.8%, to $1,686.6 million from $1,362.6 million for the nine months ended September 30, 1997. For the nine months ended September 30, 1998, Gulfstream delivered 44 new aircraft; 21 Gulfstream Vs and 23 Gulfstream IV-SPs, up from 37 new aircraft; 21 Gulfstream Vs and 16 Gulfstream IV-SPs in the same period of 1997. Also contributing to the increase in revenues was an increase in completion revenues of $82.5 million, resulting from 12 additional Gulfstream completion deliveries and five non-Gulfstream completion deliveries in 1998. Cost of Sales. Total cost of sales increased to $487.4 million in the third quarter of 1998 from $373.0 million in the third quarter of 1997, and increased $197.7 million to $1,322.7 million for the nine months ended September 30, 1998 from $1,125.0 million for the nine months ended September 30, 1997. Cost of sales of the acquired business includes a non-cash acquisition related charge of $3.9 million for the fair value step-up related to the sale of inventories. Excluding pre-owned aircraft, which generally are sold at break-even levels, and the non-cash inventory step-up of $3.9 million, the gross profit percentage for the third quarter of 1998 was 24.1% compared to 19.3% for the third quarter of 1997, and for the nine months ended September 30, 1998, the gross profit percentage was 23.5% compared to 19.1% for the comparable period in 1997. This increase in gross profit percentages is primarily attributable to reductions in Gulfstream V aircraft production costs. Selling and Administrative Expense. Selling and administrative expense increased by $6.0 million, or 25.1%, to $29.9 million in the third quarter of 1998 from $23.9 million in the third quarter of 1997, but as a percentage of net revenues, decreased to 4.8% in the third quarter of 1998 from 5.2% in the third quarter of 1997. For the nine months ended September 30, 1998, selling and administrative expense was $85.4 million as compared to $69.5 million for the nine months ended September 30, 1997. The principal drivers for the increase for both the quarter and the nine months are additional sales and marketing expenses associated with the increased sales activity, the acquisition of K-C Aviation, and the business systems which are being implemented in 1998 and 1999 to support the production increases described elsewhere herein. Research and Development Expense. Research and development expense was $2.7 million in the third quarter of 1998, as compared to $4.3 million in the third quarter of 1997. For the nine month period ended September 30, 1998, research and development expense was $7.0 million compared to $8.1 million for the corresponding period in 1997. Research and development expense for the nine months ended September 30, 1997 is net of a $10.0 million credit for launch assistance funds received from vendors participating in the development of the Gulfstream V. Research and development expenditures in 1998 and the near-term future are expected to stem principally from product improvements and enhancements, rather than new aircraft development. Interest Income and Expense. Interest income decreased by $0.8 million to $2.0 million in the third quarter of 1998 from $2.8 million in the third quarter of 1997 as a result of lower average cash balances the Company had invested during 1998 compared to the same period of 1997. Interest expense decreased by $0.5 million to $7.0 million for the third quarter of 1998 and by $2.9 million to $20.4 million for the nine months ended September 30, 1998, respectively, over the comparable periods in 1997. This decrease is attributable to both a decrease in average borrowings and lower weighted average interest rates. Income Taxes. In the quarter and nine month period ended September 30, 1998, the Company recorded income tax provisions of $34.0 million and $90.4 million, respectively, based on an estimated effective tax rate of 36.0%. In the comparable periods of 1997, the Company recorded no provision for income taxes, other than alternative minimum taxes, principally as a result of utilization of net operating loss carryforwards. As a result of numerous factors, including, but not limited to the Company's recent earnings trends and the size of its contractual backlog, the Company determined that its net deferred tax asset was more likely than not to be realized, and, in the quarter ending September 30, 1997, released its deferred tax valuation allowance, totaling $94.2 million. Of this amount, $29.4 million related to the exercise of stock options and was credited to additional paid-in capital and $64.8 million was recorded as a one-time, non-cash income tax benefit. The Company's net operating loss carryforward for regular federal income tax purposes was fully utilized during the second quarter 1998. Earnings Per Share. The Company reported diluted earnings per share of $0.86 for the third quarter 1998 as compared to the third quarter of 1997 of $1.54 (or $0.70 per share, excluding the one-time tax benefit discussed above). For the nine months ended September 30, 1998, earnings per share was $2.13, compared to $2.54 (or $1.71 per share excluding the one-time tax benefit discussed above) for the corresponding period in 1997. On a pro forma fully-taxed basis, and assuming an effective tax rate of 37.5% for the 1997 periods, comparable diluted earnings per share would have been $.45 for the third quarter and $1.10 for the nine month period. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity needs arise principally from working capital requirements, capital expenditures, and principal and interest payments on long-term debt (including the revolving credit facility). During 1998, the Company also implemented a share repurchase program and acquired K-C Aviation. During the nine months ended September 30, 1998, the Company relied on both cash balances and its revolving credit facility to fund these needs. The Company had cash and cash equivalents totaling $10.6 million at September 30, 1998 down from $306.5 million at December 31, 1997. This decrease is primarily attributable to the acquisition of K-C Aviation during the third quarter 1998 and the Company's share repurchase program. On August 19, 1998, the Company acquired K-C Aviation, Inc. for approximately $250 million, including acquisition costs. K-C Aviation is a leading provider of business aviation services and the largest independent completion center for business aircraft in North America. In addition to custom aircraft interiors, K-C Aviation is the second largest engine service center in the United States and also offers maintenance services, spares, auxiliary power unit service, avionics retrofit, non-destructive testing and component overhaul. The acquisition allows the Company to obtain a skilled workforce as well as the additional capacity to accelerate the completions ramp-up, while at the same time grow service revenues through three new strategic locations. In January 1998, the Company established a program to repurchase up to $200 million of its common stock. As of September 30, 1998, approximately 5.5 million shares, at an average price of $35.81 per share, had been repurchased under this plan for an aggregate amount of approximately $198.5 million. During the nine months ended September 30, 1998, net cash provided by operating activities was $147.6 million compared with the nine months ended September 30, 1997 when the Company generated $33.6 million in cash from operations. This increase is primarily attributable to an increase in pre-tax earnings. During the third quarter of 1998, the Company together with GATX Capital Corporation, a diversified international financial services company, formed Gulfstream GATX Leasing Company to provide an operating lease program to customers in the large cabin, long range business aircraft market. Gulfstream GATX Leasing Company is owned 85% by GATX Capital and 15% by Gulfstream. During the nine months ended September 30, 1998, additions to property and equipment amounted to $16.1 million. At September 30, 1998, the Company was not committed to the purchase of any significant amount of property and equipment. As a result of the Company's strategic initiative to increase its annual production rate to approximately 65 aircraft by 1999, the Company's planned capital expenditures increased $15 million in 1997, and in 1998, are expected to increase by approximately another $20 million above previously planned annual levels of approximately $15 million. The Company continually monitors its capital spending in relation to current and anticipated business needs. As circumstances dictate, facilities are added, consolidated or modernized. In May 1998, certain shareholders of the Company completed the sale of 18,000,000 shares of common stock in a secondary offering (the "Offering"). The Company did not receive any of the proceeds from the sale of shares in the Offering. In connection with the Offering, certain current and former directors and employees of, and advisors to, the Company exercised stock options to purchase, in the aggregate, approximately 2.9 million shares of common stock from the Company for an aggregate exercise price of approximately $27.1 million, after deducting issuance costs. The Company used the proceeds from these exercises for working capital purposes. At September 30, 1998, borrowings under the Company's revolving credit facilities were $50 million, with available borrowings of $134.7 million. Scheduled repayments remaining under the term facility are $18.8 million in 1998 and $75.0 million in each of the years 1999 through 2001, and $80.0 million in 2002. The Credit Agreement contains customary affirmative and negative covenants including restrictions on the ability of the Company and its subsidiaries to pay cash dividends, as well as financial covenants under which the Company must operate. As of September 30, 1998, the Company was in compliance with the covenants of its credit agreement. The Company's principal source of liquidity both on a short-term and long-term basis is cash flow provided by operations, including customer progress payments and deposits on new aircraft orders. Occasionally, however, the Company may borrow against the credit agreement to supplement cash flow from operations. The Company believes that based upon its analysis of its consolidated financial position, its cash flow during the past 12 months and the expected results of operations in the future, operating cash flow and available borrowings under the credit agreement and other available financing sources will be adequate to fund operations, capital expenditures, and debt service for at least the next 12 months. The Company intends to repay its remaining indebtedness primarily with cash flow from operations. There can be no assurance, however, that future industry specific developments or general economic trends will not adversely affect the Company's operations or its ability to meet its cash requirements. As of September 30, 1998, in connection with orders for 21 Gulfstream V aircraft in the backlog, the Company has offered customers trade-in options (which may or may not be exercised by the customer) under which the Company will accept trade-in aircraft (primarily Gulfstream IVs and IV-SPs) at a guaranteed minimum trade-in price. Additionally, in connection with recorded sales of new aircraft, the Company has agreed to accept pre-owned aircraft with trade-in values totaling $281.9 million as of September 30, 1998. Of this amount, $8.6 million is under contract for resale to pre-owned aircraft customers. Management believes that the fair market value of all such aircraft exceeds the specified trade-in value. On December 24, 1997, the Company executed final documents with the Pension Benefit Guaranty Corporation (the "PBGC") concerning funding of the Company's defined benefit pension plans. The terms were essentially the same as those set out in the agreement in principle reached between the PBGC and the Company during October 1996. Pursuant to this agreement, the Company contributed $18.8 million for the nine months ended September 30, 1998, and has agreed to contribute a total of $25.0 million annually (to be paid quarterly in equal installments) from 1999 through 2000 to its pension plans which payments are expected to result in such plans being fully funded. The payments to be made under this agreement were already part of the Company's overall financial planning, and therefore, are not expected to have a material adverse effect on the Company's financial statements. The funding required under this agreement will not result in any increase in the Company's annual pension expense. CONTRACTUAL BACKLOG At September 30, 1998, Gulfstream had a firm contract backlog of approximately $2.9 billion of revenues, representing a total of 91 aircraft. The Company includes an order in backlog only if the Company has entered into a purchase contract (with no contingencies) with the customer and has received a significant (generally non-refundable) deposit from the customer. During the third quarter of 1998, Gulfstream GATX Leasing Company executed agreements to purchase five Gulfstream Vs and one Gulfstream IV-SP, valued at approximately $210 million, with deliveries from 1999 through 2001. It also executed options to purchase three Gulfstream Vs and three Gulfstream IV-SPs, valued at approximately $200 million, with potential deliveries from 2001 through 2004. During the quarter ended March 31, 1998, the Company signed a $335 million contract for 12 Gulfstream IV-SPs to expand its highly successful Gulfstream Shares fractional ownership program to the Middle East region. The first green aircraft delivery for the Middle East Shares Program occurred during the third quarter of 1998. The remaining 11 undelivered aircraft are not included in the Company's backlog. In 1993, the Company established very stringent deposit requirements for recording aircraft into its backlog. The contract for the Middle East Shares expansion includes modestly different deposit requirements early in the program. The Company has decided for the initial phase of the program to record these orders when the aircraft are delivered. Including the 11 undelivered aircraft in the Middle East contract, the Company had a total of 102 aircraft, valued at approximately $3.2 billion of potential future revenues, under contract at September 30, 1998. As part of the Company's ongoing Gulfstream Shares program, on October 16, 1998, the Company signed agreements in principle with Executive Jet International (EJI) which significantly expands the successful relationship between the two companies. The agreements include plans for a Gulfstream V Shares fractional ownership program, with the purchase of 10 Gulfstream V aircraft and options for an additional 12 Gulfstream V aircraft, the purchase of 14 Gulfstream IV-SP aircraft to supplement the current Gulfstream Shares program and a long-term maintenance agreement for Executive Jet's fleet of Falcons and Hawkers in addition to the Gulfstream jets. The value of the purchase and service agreements is estimated to be nearly $1.3 billion and is excluded from the Company's September 30, 1998 contractual backlog. The Company continually monitors the condition of its backlog and believes, based on the nature of its customers and its historical experience, that there will not be a significant number of cancellations. However, to the extent that there is a lengthy period of time between a customer's aircraft order and its delivery date, there may be increased uncertainty as to changes in business and economic conditions which may affect customer cancellations. OUTLOOK The Company plans to deliver approximately 60 green aircraft in fiscal 1998 and 65 in fiscal 1999, and completions are expected to nearly double in 1998 compared to 1997. The gross margins are expected to improve from 20% in 1997 to the mid-20s by the end of 1998. Based on projections of increasing aircraft production and improving margins, Gulfstream expects diluted earnings per share of approximately $2.95 in 1998 and $3.75 in 1999. The Company is also targeting diluted earnings per share in 2000 to increase 15% over 1999. YEAR 2000 READINESS As part of the Company's initiatives, begun in 1996, to increase production rates and co-produce the Gulfstream IV-SP and Gulfstream V, the Company has, and continues to, upgrade and replace business systems and facility infrastructure. These initiatives help to reduce the potential impact of the Year 2000 issue on the Company's operations. In addition, the Company has implemented a Year 2000 Compliance Plan designed to ensure that all other hardware, software, systems, and products with microprocessors relevant to the Company's business are not adversely affected by the Year 2000 issue. The Company has established a formal program office under the leadership of a senior level executive, to manage the assessment and implementation of the Plan objectives. The program is reviewed regularly with executive management. Gulfstream has reviewed all current production components and systems installed in the Gulfstream IV-SP and Gulfstream V aircraft and has found no issues. Older aircraft which are no longer under warranty have also been reviewed and some required minor component modifications have been identified and communicated to the relevant customers. Gulfstream intends to substantially complete Year 2000 compliance remediation and testing by the first quarter 1999, with some activities continuing through the remainder of 1999. Confirmations of Year 2000 plans for all high and medium risk suppliers has also been completed and low risk suppliers are approximately 90% complete. Supplier Year 2000 compliance monitoring will continue through year-end 1999 and into the Year 2000. The Company currently estimates the total costs of these efforts incurred during the years 1997 through 1999 to be approximately $3.5 million. In addition, some non-compliant systems will be eliminated as the Company installs Year 2000 compliant software in connection with its ongoing integrated resource planning project. The cost of this effort has been included in the Company's capital projections discussed above under the caption "Liquidity and Capital Resources". The Company does not believe that the implementation of this Year 2000 Compliance Plan will have a material effect on the Company's business operations, financial condition, liquidity or capital resources. Management of the Company believes it has an effective program in place to address the Year 2000 issue in a timely manner. As a component of the Year 2000 Compliance Plan, the Company is developing contingency plans to mitigate the effects of potential problems experienced by it or its key vendors or suppliers in the timely implementation of its Year 2000 Compliance Plan. Nevertheless, since it is not possible to anticipate all future outcomes, especially when third parties are involved, there could be circumstances in which the Company's operations would be adversely affected. The statements in this section constitute a "Year 2000 Readiness Disclosure" under the Year 2000 Information and Readiness Disclosure Act to the extent provided therein. FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY Certain statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations", including the statements under the heading "Outlook", as well as other statements elsewhere in this Form 10-Q, contain forward-looking information. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in Exhibit 99.1 to this Form 10-Q. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 5. OTHER INFORMATION Certain statements contained in or incorporated by reference in this Form 10-Q contain forward-looking information. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those contained in the forward-looking statements is contained in Exhibit 99, Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10.33 Amendment dated October 6, 1998 to Credit Agreement among Gulfstream Delaware Corporation, The Chase Manhattan Bank, and the banks and other financial institutions parties thereto. Exhibit 10.34 Lease Agreement, dated January 1, 1998, by and between Immuebles El Vigia, S.A., and Interiores Aeroes, S.A. De C.V. Exhibit 10.35 Amendment No. 3 to Sublease Agreement, dated February 23, 1998, by and between the Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation. Exhibit 10.36 Amendment No. 4 to Sublease Agreement, dated March 23, 1998, by and between the Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation Exhibit 10.37 Lease Agreement, dated January 25, 1968, by and between Outagamie County, Wisconsin and K-C Aviation Incorporated which was assigned to K-C Aviation on October 9, 1980; as amended by Addendum No. 1, dated December 24, 1980, Addendum No. 2, dated February 9, 1988, Addendum No. 3 dated January 26, 1989, Addendum No. 4 dated October 22, 1996, and Addendum No. 5 to Lease Agreement, dated March 11, 1997. Exhibit 10.38 Lease Agreement, dated February 1, 1978, by and between City of Dallas and K-C Aviation, Incorporated for lease of land and facility at Dallas Love Field; as amended by Agreement Amending Lease dated October 28, 1981, Second Amendment dated June 1, 1989, and that certain letter from the City of Dallas to K-C Aviation dated December 9, 1997. Exhibit 10.39 Sublease Agreement, dated January 17, 1989, by and between Dalfort Aviation Services, a division of Dalfort Corporation and K-C Aviation, Incorporated, as amended by that certain First Additional Agreement effective January 17, 1989. Exhibit 10.40 Sublease Agreement, dated December 1, 1996, by and between Dallas Airmotive, Incorporated and K-C Aviation, Incorporated. Exhibit 10.41 Lease Agreement, dated May 1, 1997, by and between Carpenter Freeway Properties and K-C Aviation, Incorporated. Exhibit 27.1 Financial Data Schedule. Exhibit 99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of The Private Securities Litigation Reform Act of 1995. (b) Report on Form 8-K On August 27, 1998 the Company filed a report on Form 8-K, reporting under Items 5 and 7, disclosing the Company's Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995, and the Press Release issued August 19, 1998 pertaining to the Company's acquisition of K-C Aviation. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 12, 1998 GULFSTREAM AEROSPACE CORPORATION /s/ Chris A. Davis -------------------------------- Chris A. Davis Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) EXHIBIT INDEX EXHIBITS Exhibit 10.33 Amendment dated October 6, 1998 to Credit Agreement among Gulfstream Delaware Corporation, The Chase Manhattan Bank, and the banks and other financial institutions parties thereto. Exhibit 10.34 Lease Agreement, dated January 1, 1998, by and between Immuebles El Vigia, S.A., and Interiores Aeroes, S.A. De C.V. Exhibit 10.35 Amendment No. 3 to Sublease Agreement, dated February 23, 1998, by and between the Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation. Exhibit 10.36 Amendment No. 4 to Sublease Agreement, dated March 23, 1998, by and between the Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation Exhibit 10.37 Lease Agreement, dated January 25, 1968, by and between Outagamie County, Wisconsin and K-C Aviation Incorporated which was assigned to K-C Aviation on October 9, 1980; as amended by Addendum No. 1, dated December 24, 1980, Addendum No. 2, dated February 9, 1988, Addendum No. 3 dated January 26, 1989, Addendum No. 4 dated October 22, 1996, and Addendum No. 5 to Lease Agreement, dated March 11, 1997. Exhibit 10.38 Lease Agreement, dated February 1, 1978, by and between City of Dallas and K-C Aviation, Incorporated for lease of land and facility at Dallas Love Field; as amended by Agreement Amending Lease dated October 28, 1981, Second Amendment dated June 1, 1989, and that certain letter from the City of Dallas to K-C Aviation dated December 9, 1997. Exhibit 10.39 Sublease Agreement, dated January 17, 1989, by and between Dalfort Aviation Services, a division of Dalfort Corporation and K-C Aviation, Incorporated, as amended by that certain First Additional Agreement effective January 17, 1989. Exhibit 10.40 Sublease Agreement, dated December 1, 1996, by and between Dallas Airmotive, Incorporated and K-C Aviation, Incorporated. Exhibit 10.41 Lease Agreement, dated May 1, 1997, by and between Carpenter Freeway Properties and K-C Aviation, Incorporated. Exhibit 27.1 Financial Data Schedule. Exhibit 99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of The Private Securities Litigation Reform Act of 1995. EX-10.33 2 FOURTH AMENDMENT FOURTH AMENDMENT, dated as of October 6, 1998 (this "Amendment"), to the Credit Agreement, dated as of October 16, 1996, as heretofore amended (the "Credit Agreement"), among GULFSTREAM DELAWARE CORPORATION, a Delaware corporation (the "Borrower"), the several lenders parties thereto (the "Lenders") and THE CHASE MANHATTAN BANK, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). W I T N E S S E T H: -------------------- WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions of credit to the Borrower; and WHEREAS, the Borrower has requested, and, upon this Amendment becoming effective, the Required Lenders have agreed, that certain provisions of the Credit Agreement be amended in the manner provided for in this Amendment; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Defined Terms. Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. 2. Amendments to Subsection 1.1. (a) Subsection 1.1 of the Credit Agreement is hereby amended by deleting therefrom the definitions of "Consolidated Current Assets," "Consolidated Current Liabilities" and "Regulation G." (b) Subsection 1.1 of the Credit Agreement is hereby amended by adding at the end of the definition of "Consolidated EBITDA" the following: Notwithstanding the foregoing, in calculating Consolidated EBITDA for purposes of subsection 8.10 (but not for purposes of the Applicable Margin), Consolidated EBITDA shall be calculated to give pro forma effect to each acquisition made pursuant to subsection 8.6(g) after September 30, 1998 in the relevant period as if such acquisition had been made on the first day of such period and the Indebtedness and Contingent Obligations incurred to finance such acquisition had been incurred on the first day of such period. (c) Subsection 1.1 of the Credit Agreement is hereby amended by adding at the end of the definition of "Standby L/C" the following: Notwithstanding the foregoing, Performance Guarantees issued by the Issuing Lender for the account of the Company from time to time shall be deemed to be Standby L/Cs for all purposes of this Agreement (including subsections 3.8 and 4.11) if the Company designates such Performance Guarantees to be so treated provided that at the time of such designation (a) the conditions set forth in subsection 6.2 with respect thereto are satisfied and (b) the amount of any such Performance Guarantee does not exceed the amount then permitted by subsection 3.5. The provisions of the Credit Documents applicable to Standby L/Cs shall apply to the Performance Guarantees deemed to be issued hereunder, mutatis mutandis, except that (i) any Performance Guarantee may have an expiry date longer than 365 days as long as such Performance Guarantee expires no later than five Business Days before the Revolving Credit Termination Date, (ii) any Performance Guarantee may be governed by laws other than the Uniform Customs and the laws of the State of New York and (iii) the Company shall not be required to deliver an L/C Application in respect of a Performance Guarantee if not required by the Issuing Lender. (d) Subsection 1.1 of the Credit Agreement is hereby amended by adding the following defined term in proper alphabetical order: "Performance Guarantee": any performance guarantee issued by the Issuing Lender in a form approved by it which is denominated in Dollars and which provides that payments thereunder are to be made against the presentation of documents. 3. Amendment to Subsection 3.3. Subsection 3.3 of the Credit Agreement is hereby amended by adding the following new paragraph (c): (c) The Issuing Lender shall have no obligation to issue a Performance Guarantee unless the issuance of such Performance Guarantee is authorized by OCC Regulation 12 C.F.R. ss.7.1016. 4. Amendment to Subsection 4.6(a). Subsection 4.6(a) of the Credit Agreement is hereby amended by deleting said subsection in its entirety and substituting the following in lieu thereof: (a) Subject to the provisions of subsection 8.5 following the consummation of any Asset Sale by the Company or any of its Subsidiaries, in the case of cash proceeds, and following receipt of cash proceeds representing payments under notes or other securities received in connection with any non-cash consideration obtained in connection with such Asset Sale, the Company shall, to the extent that the cumulative amount of Net Proceeds received after September 30, 1998 exceeds $50,000,000, or to the extent that the cumulative amount of Net Proceeds received after September 30, 1998 and not reinvested in the business of the Company and its Subsidiaries within twelve months exceeds $20,000,000, promptly apply an amount equal to such excess first to the installments of the Term Loans scheduled to be paid during the next twelve months after the date of such prepayment and second to the remaining installments of the Term Loans on a pro rata basis. 5. Amendments to Section 5. Subsection 5.8 of the Credit Agreement is hereby amended by deleting the phrase "G". 6. Amendment to Subsection 7.2. Subsection 7.2 of the Credit Agreement is hereby amended by deleting from clause (ii) of paragraph (b) the phrase "8.9". 7. Amendments to Subsection 8.1. (a) Subsection 8.1(c) of the Credit Agreement is hereby amended by deleting the reference to "$60,000,000" in said subsection and substituting in lieu thereof a reference to "$150,000,000". (b) Subsection 8.1(d) of the Credit Agreement is hereby amended by deleting the reference to "$40,000,000" in said subsection and substituting in lieu thereof a reference to "$75,000,000". (c) Subsection 8.1(g) of the Credit Agreement is hereby amended by deleting the reference to "$50,000,000" in said subsection and substituting in lieu thereof a reference to "$80,000,000". (d) Subsection 8.1(h) of the Credit Agreement is hereby amended by deleting the reference to "$3,000,000" in said subsection and substituting in lieu thereof a reference to "$10,000,000". 8. Amendments to Subsection 8.3. (a) Subsection 8.3(b) of the Credit Agreement is hereby amended by deleting the phrase "for an aggregate amount not to exceed $1,000,000 at any one time outstanding". (b) Subsection 8.3(c) of the Credit Agreement is hereby amended by deleting the reference to "$60,000,000" in said subsection and substituting in lieu thereof a reference to "$150,000,000". 9. Amendment to Subsection 8.5(e). Subsection 8.5(e) of the Credit Agreement is hereby amended by deleting said subsection in its entirety and substituting in lieu thereof the following: (e) for the sale or other disposition by the Company or any of its Subsidiaries of other assets, provided that (i) such sale or other disposition shall be made for fair value on an arm's-length basis, (ii) the aggregate fair market value of all such assets sold or disposed of under this clause after September 30, 1998 shall not exceed $50,000,000 in the aggregate (with Net Proceeds in excess of $20,000,000 to be reinvested in the business of the Company and its Subsidiaries within twelve months or applied in accordance with subsection 4.6), (iii) the Net Proceeds from such sale or other disposition shall be applied in accordance with the provisions of subsection 4.6, and (iv) non-cash consideration therefor shall constitute investments permitted under subsection 8.6(f). 10. Amendments to Subsection 8.6. (a) Subsection 8.6(c) of the Credit Agreement is hereby amended by deleting the phrase: ", provided that the aggregate principal amount of all such loans and advances outstanding at any one time, together with the guarantees of such Loans and advances made pursuant to subsection 8.3(b), shall not exceed $1,000,000". (b) Subsection 8.6(g) of the Credit Agreement is hereby amended by deleting such subsection and substituting therefor the following: (g) the Company and its Subsidiaries may make loans or advances to, incur Contingent Obligations for the benefit of, make acquisitions from or of, and make investments in, other Persons, including, without limitation, Indebtedness described in subsection 8.1(e)(ii) and Contingent Obligations described in subsection 8.1(f); provided that (i) the aggregate amount of the consideration paid or invested and the amounts loaned, advanced or guaranteed by the Company and its Subsidiaries in all such transactions after the Closing Date (net, in the case of loans, advances or investments, of any repayments or return of capital in respect thereof actually received in cash by the Company or such Subsidiary (net of applicable taxes) after the Closing Date), when added to the amount of any transfers or dispositions of assets described in the proviso to subsection 8.5(c), does not exceed an aggregate amount of $50,000,000 in any fiscal year of the Company, and (ii) no Default or Event of Default has occurred or would occur after giving effect thereto. 11. Amendments to Subsection 8.7. (a) Subsection 8.7 of the Credit Agreement is hereby amended by deleting the reference to "$50,000,000" in said subsection and substituting in lieu thereof a reference to "$60,000,000". (b) Subsection 8.7 of the Credit Agreement is hereby amended by deleting the phrase "by a maximum amount of $5,000,000." 12. Amendment to Subsection 8.8. Subsection 8.8 of the Credit Agreement is hereby amended by deleting said subsection in its entirety and substituting in lieu thereof the following: 8.8 Maintenance of Interest Coverage. Permit for any period of four consecutive fiscal quarters the Interest Coverage Ratio for such period to be less than 3.00 to 1.00. 13. Amendment to Subsection 8.9. Subsection 8.9 of the Credit Agreement is hereby amended by deleting said subsection in its entirety. 14. Amendment to Subsection 8.10. Subsection 8.10 of the Credit Agreement is hereby amended by deleting said subsection in its entirety and substituting in lieu thereof the following: 8.10 Maintenance of Leverage Ratio. Permit, as at the end of any fiscal quarter of Holdings, the Leverage Ratio to be more than 3.00 to 1.00. 15. Amendment to Subsection 8.11(e). Subsection 8.11(e) of the Credit Agreement is hereby amended by deleting the reference to "$3,000,000" in said subsection and substituting in lieu thereof a reference to "$6,000,000". 16. Confirmation. Each Lender confirms that upon the issuance of a Performance Guarantee under the Credit Agreement such Lender shall have irrevocably purchased a participating interest in such Performance Guarantee in accordance with subsections 3.4, 3.6, 3.8 and 4.16 of the Credit Agreement. Each Lender represents and warrants to the Borrower, the Issuing Lender, the Administrative Agent and the other Lenders that it has the authority and legal power to purchase a participating interest in the Performance Guarantees and perform its other obligations with respect to the Performance Guarantees, as provided in the Credit Agreement. 17. Effectiveness. This Amendment shall become effective upon the date on which the Administrative Agent shall have received counterparts hereof duly executed by the Company, the Administrative Agent and the Required Lenders. 18. Representations and Warranties. The Company hereby represents and warrants that each of the representations and warranties in or pursuant to Section 5 of the Credit Agreement or which are contained in any other Credit Document or in any certificate, document or financial or other statement furnished by or on behalf of Holdings, the Company or any Subsidiary thereof shall be, after giving effect to this Amendment, true and correct in all material respects as if made on and as of the date hereof (unless such representations and warranties are stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date). 19. Continuing Effect of Credit Agreement. This Amendment shall not be construed as a waiver or consent to any further or future action on the part of the Company that would require a waiver or consent of the Administrative Agent and/or the Lenders. Except as amended hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. 20. Counterparts. This Amendment may be executed in counterparts and all of the said counterparts taken together shall be deemed to constitute one and the same instrument. 21. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 22. Expenses. The Company agrees to pay or reimburse the Administrative Agent for all of its out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this Amendment, including, without limitation, the fees and disbursements of counsel to the Administrative Agent. IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be executed and delivered by their duly authorized officers as of the date first written above. GULFSTREAM DELAWARE CORPORATION By: /s/ Robert L. Williams ----------------------------------- Title: Vice President and Treasurer THE CHASE MANHATTAN BANK, as Administrative Agent and as a Lender By: /s/ William J. Caggiano ----------------------------------- Title: Managing Director ARAB BANKING CORP. By: /s/ Louise Bilbro ----------------------------------- Title: Vice President BANK OF AMERICA By: /s/ [Illegible] ----------------------------------- Title: Vice President BANK OF NEW YORK By: /s/ David C. Siegal ----------------------------------- Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST By: /s/ Joseph P. Devoe ----------------------------------- Title: Vice President CAPTIVA FINANCE LTD. By: ----------------------------------- Title: CERES FINANCE, LTD. By: ----------------------------------- Title: MEDICAL LIABILITY MUTUAL INSURANCE CO. By: Chancellor LGT Senior Secured Management, Inc., as Investment Manager By: ----------------------------------- Title: BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By: /s/ Catherine K. MacDonald ----------------------------------- Title: Vice President By: /s/ Clifford L. Wells ----------------------------------- Title: Vice President CITIBANK, N.A. By: /s/ Larry Farley ----------------------------------- Title: Vice President CREDIT LYONNAIS By: /s/ [Illegible] ----------------------------------- Title: Senior Vice President SUN TRUST BANK, ATLANTA By: /s/ Jenna H. Kelly ----------------------------------- Title: Vice President BANKBOSTON, N.A. By: /s/ Gregory R.D. Clark ----------------------------------- Title: Managing Director THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Aaron Lamb ----------------------------------- Title: Corporate Banking Officer INDUSTRIAL BANK OF JAPAN, LTD. By: /s/ Takuya Honjo ----------------------------------- Title: Senior Vice President KREDIETBANK By: ----------------------------------- Title: LTCB TRUST COMPANY By: /s/ Rebecca J. Silheit ----------------------------------- Title: Senior Vice President LEHMAN COMMERCIAL PAPER INC. By: /s/ Michele Swanson ----------------------------------- Title: Authorized Signatory MARINE MIDLAND BANK, N.A. By: /s/ Christopher F. French ----------------------------------- Title: Authorized Signatory MERRILL LYNCH PRIME RATE PORTFOLIO By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: ----------------------------------- Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: ----------------------------------- Title: MITSUBISHI TRUST & BANKING CORPORATION By: ----------------------------------- Title: NATIONSBANK N.A. By: /s/ [Illegible] ----------------------------------- Title: Vice President PNC BANK, N.A. By: /s/ Marian Egge ----------------------------------- Title: Assistant Vice President SOCIETE GENERALE By: /s/ Ralph Saheb ----------------------------------- Title: Vice President Southwest Operations Manager U.S. BANK NATIONAL ASSOCIATION By: ----------------------------------- Title: VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: /s/ Jeffrey W. Maillet ----------------------------------- Title: Senior Vice President and Director KZH III LLC By: /s/ Virginia Conway ----------------------------------- Title: Authorized Agent The undersigned guarantors hereby consent to the foregoing Amendment: GULFSTREAM AEROSPACE CORPORATION, a Delaware Corporation By:/s/ Robert L. Williams ------------------------------------ Title: Vice President and Treasurer GULFSTREAM AEROSPACE CORPORATION, a Georgia Corporation GULFSTREAM AEROSPACE CORPORATION, D/B/A GULFSTREAM AEROSPACE TECHNOLOGIES, an Oklahoma Corporation GULFSTREAM AEROSPACE CORPORATION, a California Corporation By:/s/ Robert L. Williams ------------------------------------ Title: Vice President and Treasurer EX-10.34 3 Prepared by or at the direction of: Rees M. Sumerlord P.O. Box 190 Brunswick, GA 31521 STATE OF GEORGIA COUNTY OF GLYNN AMENDMENT NO. 3 TO SUBLEASE AGREEMENT ------------------------------------- This Amendment to Sublease Agreement made this the 23rd day of February 1998, by and between the BRUNSWICK AND GLYNN COUNTY DEVELOPMENT AUTHORITY, hereinafter referred to as "Authority" or "Sublessor," and GULFSTREAM AEROSPACE CORPORATION, a Georgia Corporation, hereinafter referred to as "Sublessee." W I T N E S S E T H: -------------------- WHEREAS, the Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation, a Georgia Corporation, entered into a Sublease Agreement on June 1, 1992, a copy of which is recorded in the Office of the Clerk of Glynn County Superior Court in Deed Book 42-W, page 48; and amended by Agreement dated May 23, 1994, recorded in Deed Book 54-D, page 75; and amended by Agreement dated May 25, 1995, recorded in Deed Book 58-L, page 91; and WHEREAS, Glynn County Georgia, as Lessor and Authority, as Lessee, entered into a Lease Agreement dated October 11, 1988, a copy of which is recorded in the Office of the Clerk of Glynn County Superior Court in Deed Book 32-Q, page 595; and amended by Agreement dated May 4, 1990, recorded in Deed Book 35-E, page 335; and amended by Agreement dated June 22, 1990, recorded in Deed Book 35-P, page 61; and amended by Agreement dated October 20, 1995, recorded in Deed Book 60-I, page 217; and amended by Agreement dated August 22, 1996, recorded in Deed Book 65-M, page 148; and WHEREAS, the real property which is the subject of this amendment and said Sublease Agreement dated June 1, 1992, as amended, is a portion of the real property which was the subject of said Lease Agreement dated October 11, 1988, as amended; and WHEREAS, pursuant to said Lease Agreement dated October 11, 1988, as amended, the Authority is the successor in interest to Glynn County, Georgia, and authorized to enter into this amendment; and WHEREAS, the Glynn County Airport Commission (GCAC) has been given the power to carry out and enforce the terms, conditions and provisions of any written lease or sublease between the County or the Authority and any third party occupying any portion of airport property of the County; and WHEREAS, the Authority and Sublessee mutually desire to amend paragraph 3, of said Sublease Agreement entered into on June 1, 1992, as amended; NOW THEREFORE, for and in consideration of the premises herein set forth and the terms and conditions hereinafter stated, the Authority and Sublessee agree to and hereby do amend said Sublease Agreement dated June 1, 1992, as amended, as follows, to-wit: 1. Delete paragraph 3 in its entirety and insert the following in lieu thereof: Paragraph 3. Option to Renew. Sublessee shall have the option to renew this Sublease for five (5) renewal terms of one (1) year and zero (0) months beginning the 1st day of June 1998, unless this Sublease is terminated as a result of Sublessee's default and breach. Sublessee shall not exercise any option to renew for more than one renewal term at a time during either the base term or any renewal term of this Sublease. Sublessee shall deliver to Sublessor written notice of its intent to renew this Sublease at least ninety (90) days prior to the expiration of the base term or any renewal term then in effect. Except for the amount of the rental rate, unless otherwise provided for within Paragraph 4 all agreements and conditions in this Sublease shall have the same force and effect for each renewal term as for the base term unless the parties otherwise agree in writing. At the end of the last of the five renewal terms, the Sublessee may request new negotiations for the leasehold and improvements. This request shall be submitted in writing at least ninety (90) days prior to the termination of the last option period. The Sublessor agrees to enter into good faith negotiations prior to negotiations with any other prospective Sublessee. 2. All other terms and provisions of said Sublease Agreement dated June 1, 1992, as amended, shall remain of full force and effect. IN WITNESS WHEREOF, each of the respective parties hereto (and in the case of a corporation, an authority or partnership, by and through its duly authorized officers or partners) has caused these presents to be duly signed, sealed and delivered as of the date first above written in the preamble, but on the date set forth beside each respective signature. Signed, sealed and delivered SUBLESSOR: his 23rd day of February, 1998, in the presence of: BRUNSWICK AND GLYNN COUNTY DEVELOPMENT AUTHORITY /s/ [Illegible] - ------------------------------- Witness BY: /s/ Ben T. Slade, III --------------------------- Ben T. Slade, III Chairman /s/ Penny P. Moore - ------------------------------- Notary Public ATTEST: /s/ Jack Hartman --------------------------- Jack Hartman Secretary-Treasurer (Agency Seal) Signed, sealed and delivered SUBLESSEE: this 10th day of February, 1998, in the presence of: GULFSTREAM AEROSPACE CORPORATION /s/ [Illegible] - ------------------------------- Witness BY: /s/ Robert L. Williams --------------------------- Treasurer /s/ April S. Wiggins - ------------------------------- Notary Public ATTEST: /s/ Ira P. Berman --------------------------- Senior Vice President (Corporate Seal) EX-10.35 4 STATE OF GEORGIA COUNTY OF GLYNN AMENDMENT NO. 4 TO SUBLEASE AGREEMENT ------------------------------------- This Amendment to Sublease Agreement made this the 23rd day of March, 1998, by and between the BRUNSWICK AND GLYNN COUNTY DEVELOPMENT AUTHORITY, hereinafter referred to as "Authority" or "Sublessor," and GULFSTREAM AEROSPACE CORPORATION, a Georgia Corporation, hereinafter referred to as "Sublessee." W I T N E S S E T H: -------------------- WHEREAS, the Brunswick and Glynn County Development Authority and Gulfstream Aerospace Corporation, a Georgia Corporation, entered into a Sublease Agreement on June 1, 1992, a copy of which is recorded in the Office of the Clerk of Glynn County Superior Court in Deed Book 42-W, page 48; and amended by Agreement dated May 23, 1994, recorded in Deed Book 54-D, page 75, and amended by Agreement dated May 25, 1995, recorded in Deed Book 58-L, page 91; and amended by Agreement dated February 23, 1998, recorded in Deed Book 378, page 218; and WHEREAS, Glynn County Georgia, as Lessor and Authority, as Lessee, entered into a Lease Agreement dated October 11, 1988, a copy of which is recorded in the Office of the Clerk of Glynn County Superior Court in Dead Book 32-Q, page 595, and amended by Agreement dated May 4, 1990, recorded in Deed Book 35-E, page 335, and amended by Agreement dated June 22, 1990, recorded in Deed Book 35-P, page 61, and amended by Agreement dated October 20, 1995, recorded in Deed Book 60-I, page 217; and amended by Agreement dated August 22, 1996, recorded in Deed Book 65-M, page 148; and WHEREAS, the real property which is the subject of this amendment and said Sublease Agreement dated June 1, 1992, as amended, is a portion of the real property which was the subject of said Lease Agreement dated October 11, 1988, as amended; and WHEREAS, pursuant to said Lease Agreement dated October 11, 1988, as amended, the Authority is the successor in interest to Glynn County, Georgia, and authorized to enter into this amendment; and WHEREAS, the Glynn County Airport Commission (GCAC) has been given the power to carry out and enforce the terms, conditions and provisions of any written lease or sublease between the County or the Authority and any third party occupying any portion of airport property of the County; and WHEREAS, pursuant to paragraph 3 of said Sublease Agreement dated June 1, 1992, as amended, between Sublessor and Sublessee, Sublessee desires to exercise and has properly given written notice of the exercise of its option to sublease the premises for a period beginning June 1, 1998, through May 31, 1999. The purpose of this amendment is to set forth the rental rate for the term beginning June 1, 1998, and expiring on May 31, 1999, only. Any additional option terms, if so exercised, and the rental rates therefor, shall be addressed in subsequent amendments. WHEREAS, the Authority and Sublessee mutually desire to amend paragraph 4, of said Sublease Agreement entered into on June 1, 1992, as amended. NOW, THEREFORE, for and in consideration of the premises herein set forth and the terms and conditions hereinafter stated, the Authority and Subleasee agree to and hereby do amend said Sublease Agreement dated June 1, 1992, as amended, as follows, to-wit: 1. Delete paragraph 4 in its entirety and insert the following in lieu thereof: Paragraph 4. Rental. Sublessee shall pay for the use and occupancy of the premises for the terms beginning June 1, 1998, and extending through May 31, 1999, the sum of One Hundred Seventy-Five Thousand and 00/100 Dollars ($175,000,00); payable in equal monthly payments of Fourteen Thousand Five Hundred Eighty-three and 33/100 Dollars ($14,583.33). Provided, however, Two Thousand One Hundred Twenty-five and 00/100 Dollars ($2,125.00) of the monthly payment for the twelve (12) months of said one-year term shall be deferred upon the following condition: the total amount deferred, Twenty-five Thousand Five Hundred and 00/100 Dollars ($25,500.00), less any amounts attributable to improvements made by Sublessee prior to May 31, 1999, and which have not been previously deducted from rental obligations pursuant to this Agreement shall be paid to Sublessor in a lump-sum prior to May 31, 1999. Paid receipt documentation for improvements shall be provided to Sublessor. Sublessee shall not be liable to the Sublessor for any additional charge for purchase or sale of fuel made while utilizing the premises should Sublessee determine, at its option, to purchase or resale fuel, delivered from any Fixed Base Operations resident and operating on Sublessor's premises. Said Fixed Base Operations shall be responsible for payment of any and all appropriate funds, based on the Sublessee's published sales price to the Sublessee's customers and in effect at the time of delivery. Should no resident Fixed Base Operations be agreeable to selling fuel to Sublessee on the Sublessor's premises and the Sublessee elects to sell fuel on the subleased premises, then and if the sale of fuel is permitted on the subleased premises, by applicable Federal and State law, then and only in such an event, said Sublessee shall pay to the Sublessor a sum equal to that charged other Fixed Base Operations on all fuel sold on the subleased premises. Sublessee agrees that the additional rental called for herein will be paid on all fuel used in connection with refueling operations on all aircraft. Sublessee agrees to keep complete and accurate records of all fuel sold by Sublessee on the subleased premises during the term of this Sublease or any extension thereof and Sublessee shall on or before the 25th day of each and every month provide the Sublessor with written notice of such fuel sales together with the payment required by the subparagraph above. In addition. Sublessee shall, on or before the 25th day of June of each lease year provide the Sublessor with a certified statement of fuel sold during the immediately preceding lease year together with any fuel fees due to the Sublessor for that period. The Sublessor shall have the right on upon an annual basis, written notice to the Sublessee to increase the fuel fees, provided however, such increase shall apply to all Fixed Base Operations uniformly. 2. The effective date of this amendment shall be June 1, 1998. 3. All other terms and provisions of said Sublease Agreement dated June 1, 1992, as amended, shall remain of full force and effect. IN WITNESS WHEREOF, each of the respective parties hereto (and in the case of a corporation, an authority or partnership, by and through its duly authorized officers or partners) has caused these presents to be duly signed, sealed and delivered as of the date first above written in the preamble, but on the date set forth beside each respective signature. Signed, sealed and delivered SUBLESSOR: this 27th day of April, 1998, in the presence of: BRUNSWICK AND GLYNN COUNTY DEVELOPMENT AUTHORITY /s/ [Illegible] BY: /s/ Ben T. Slade, III - ----------------------------- ------------------------------ Witness Ben T. Slade, III Chairman /s/ [Illegible] ATTEST: /s/ Jack Hartman - ----------------------------- --------------------------- Notary Public Jack Hartman Secretary-Treasurer (Agency Seal) Signed, sealed and delivered SUBLESSOR: this 22nd day of April, 1998, in the presence of: GULFSTREAM AEROSPACE CORPORATION /s/ [Illegible] BY: /s/ Ira P. Berman - ----------------------------- ------------------------------ Witness Ira P. Berman, Sr. Vice President and Secretary /s/ [Illegible] ATTEST: /s/ Robert L. Williams - ----------------------------- --------------------------- Notary Public Robert L. Williams Vice President and Treasurer (Corporate Seal) EX-10.36 5 LEASE AGREEMENT entered into by and between INMUEBLES EL VIGIA, S.A. DE C.V., hereinafter known as LESSOR, represented by Mr. Rodolfo Nelson Culebro, and INTERIORES AEREOS, S.A. DE C.V. hereinafter known as LESSEE, represented by Mr. Arturo Ruiz, and which is formalized in accordance with the following Recitals and Clauses: DECLARATIONS: WHEREAS, INMUEBLES EL VIGIA, S.A. DE C.V. owns and can freely dispose of a piece of land and construction, located in Calle del Acero, Lots Number 1, 2, 3 and 4 of block No. 1 and Lot Number 19 of block No. 3, located in El Vigia Industrial Subdivision kilometer 12.5 San Luis Rio Colorado Highway, in Mexicali, Baja California, and which property is described in the plot plan attached hereto as Exhibit "A". WHEREAS, different sections of the building located in block No. 1 have been subject of various lease agreements between the parties, execute as follows: Lot 1 building 6 for 9,643 square feet executed on January 1st 1994; Lot 2, Building 7 for 15,574 square feet executed on January 1, 1994; Lot 3, building 3 for 14,346 square feet executed on January 1, 1994; Lot 19, building 19 for 11,913 square feet executed on May 1, 1996; building located in Calle de la Industria del Acero No. 4 with an area of 13,988 square feet executed on February 1, 1997; Lot 17, block 1 for 9,787.24 occupying it on April 1st 1998; and that it is the intent of the parties to consolidate all previous leases under one lease agreement, for total area of 75,251.24 square feet. Such buildings will be hereinafter jointly referred to as the Lease Premises. WHEREAS, it is the intent of the parties to terminate all lease agreement, effective such termination as of the execution of this agreement Pursuant to the above the parties agree as follows. CLAUSES: FIRST.- LESSOR hereby leases to LESSEE, and LESSEE hereby leases from LESSOR under the terms and condition set forth hereafter, the Lease property described in the above recitals with a total area of 75,251.24 square feet. Such Leased Property, for the purposes of this Agreement divided into two areas, one consisting of 51,476 square feet and another with an area of 23,775.24 square feet, this latter area corresponding to building located in Calle de la Industria del Acero No. 4 and also building located in Calle de la Industria del Acero No. 17. SECOND.- The Lease Term is one year binding for both parties (the Initial Lease Term). Upon expiration of the binding Initial Lease Term, LESSEE may at its option, by means of a written notice given to LESSOR ninety days in advance to the termination of the Initial Lease Term, continue to occupy the Leased Premises for five additional periods of one year each, such one year period to be binding for both parties, therefore LESSEE being able to terminate this Lease Agreement at any time with 90 days advance written notice to LESSOR. Notwithstanding the above, LESSEE shall be entitled to terminate this Lease with respect to the building with an area of 13,988 square feet located in Calle de la Industria del Acero No. 4 and/or all of the Leased Property, upon LESSEE'S execution of a lease agreement with LESSOR for similar area of 13,988 square feet, or an equivalent total leased area of 75,251.24 square feet respectively, thereby relocating LESSEE'S one or both operations different building owned by LESSOR or made available by LESSOR. THIRD.- The monthly rental price of the Lease Property referred to in the above recitals for the first Lease Year as of January 1, 1998, (the Anniversary Date) shall be US $0.2316 Dollars per square foot for a total amount of US$17,432.70 Dollar (Seventeen thousand four hundred and thirty two dollars 70/100 US Currency) plus I.V.A., tax or the equivalent in Mexican pesos in accordance with the applicable rate on the date of payment. The parties agree that for each subsequent Lease Year of the Initial Lease Term (years 2-3), and any yearly extensions, the months rent shall be determined and as of each Anniversary Date, by Increasing the previous lease year monthly rent by an amount equal to the percentage increase, if any in the cost of living. The cost of living increase shall be determined by taking the average of the twelve (12) monthly Consumer Price Index ("CPI") immediately preceding the Anniversary Date over the average of twelve (12) monthly CPI immediately preceding the commencement of the Initial Term, or Anniversary Date as the case may be. In no event shall the monthly rent for any Lease Year be decreased below the monthly rent for any immediately preceding lease year. FOURTH.- LESSEE will use the Leased Property object of this lease to carry on in industrial operations. FIFTH.- LESSEE, with previous written authorization by LESSOR shall be able to introduce any and all improvements into the Leased Property and remove the same, provided that any damage to the building upon installation or removal be repaired by LESSEE; consequently LESSEE shall be entitled to remove all equipment and accessories property of LESSEE, including but not limited to lamps, systems and units for distribution and control of electricity, heating and air conditioning units LESSE may not remove integral improvements, made to building such as floor and wall finishing. SIXTH.- In the event that LESSEE has knowledge of any condition of the leased premises that requires repairs that under the terms of Fraction II of Article 2286 of the Civil Code for Baja California should be executed by LESSOR and delay in the execution of such repair may cause greater damage either to the Leased Property or to the items located therein, LESSEE shall have the option to make such repairs without prior authorization from LESSOR and LESSOR shall reimburse LESSEE for the cost of such repairs, and if within a period of one month LESSOR has not reimbursed LESSEE, LESSEE shall be entitled to deduct amount of reimbursement from the next months rent and deliver to LESSOR copy of invoices justifying expense to LESSOR. SEVENTH.. LESSOR promises to obtain an Insurance policy that protects the Leased Property against fire, and other major catastrophes, and LESSEE shall obtain the Insurance to protect its property introduced into the Leased Property consequently each party releases each other from any responsibility that may result from damages to the properties herein referred to. EIGHTH.- LESSEE agrees to pay for its own account al services LESSEE installs or that are installed and service the Leased Property for the exclusive benefit of LESSEE, such as electricity, water, telephone, etc., consequently, LESSEE will deal directly with the person or corporation that renders such services for their installation, removal or suspension. LESSOR shall pay property tax on the Leased Property and other taxes and duties imposed on Leased Property. NINTH.. LESSOR promises to repair and maintain in good order the roof of the Leased Property subject of this lease. LESSOR is responsible for damages caused by not repairing and maintaining the roof. TENTH. LESSEE may assign in whole or in part, the rights and obligations derived from this agreement, or sublease only prior written authorization from LESSOR, who may not unreasonably withhold such approval. However, LESSEE may freely exercise this right to assign or sublease if such assignment or sublease be executed in favor of an affiliated company or subsidiary LESSEE. ELEVENTH.- If during the Lease Term the right of LESSEE to use and hold the Leased Property is limited by any administrative or judicial act not derived from the relations of LESSEE with third parties, LESSOR shall at its own account and expense, perform such acts or initiate such procedures as may be required to invalidate such judicial or administrative decision, and within a period of thirty days LESSEE'S use of the Leased Property is nevertheless thereby affected, LESSEE will have the right to terminate this Lease Agreement without any responsibility. If during the term of this Lease Agreement, any governmental authority establish any legal prohibition that without due cause by LESSEE prevents LESSEE from doing business in Mexico, LESSEE, upon written notice to LESSOR, may terminate this Lease Agreement without further liberty for rental payments due under this Lease Agreement, but without prejudice to the rights of LESSOR and LESSEE to claim from the corresponding authority the damage causes. TWELFTH.- LESSOR grants LESSEE the right to use and occupy (50%) fifty percent of the parking space that is locate beside building number 4 which LESSEE occupies such space representing parking space for at least 60 vehicles, owned or used by LESSEE'S employees or visitors. THIRTEENTH.- The parties agree that effective upon the execution of this Lease Agreement, the former Lease Agreements shall cease to be binding upon the parties and have no further effects. FOURTEENTH.- For the interpretation and compliance of this agreement both parties expressly submit themselves to the jurisdiction and competence of the Courts of the City of Mexicali state of Baja California, waiving any other jurisdiction to which that may have a right due to their present or future domiciles. IN WITNESS WHEREOF this document is drawn in duplicate and signed in his City of Mexicali, Baja California, on first day of January nineteen hundred and ninety eight. LESSOR: LESSEE: /s/ Rodolfo Nelson Culebro /s/ Ing. Arturo Ruiz - -------------------------------- --------------------------------------- INMUEBLES EL VICIA S.A. de C.V. INTERIORES AEREOS S.A. DE C.V. RODOLFO NELSON CULEBRO ING.ARTURO RUIZ WITNESS: WITNESS: /s/ Juan Carlos Nelson Luken /s/ Martha Patricia Castro - -------------------------------- --------------------------------------- JUAN CARLOS NELSON LUKEN MARTHA PATRICIA CASTRO EX-10.37 6 LEASE ----- WHEREAS, OUTAGAMIE COUNTY, a Wisconsin Municipal corporation and KIMBERLY-CLARK CORPORATION, a Delaware corporation, have heretofore entered into a "Lease With Option To Renew" dated January 25, 1968, together with certain subsequent additions, which instrument is hereby assigned (to which assignment Outagamie County hereby consents) by Kimberly-Clark Corporation to its wholly-owned subsidiary, K-C AVIATION INC., a Delaware corporation; and WHEREAS, the said parties now desire to modify, amend and reconstruct the said Lease with such amendments and modifications that it becomes desirable to enter into a totally new agreement; NOW, THEREFORE, it is agreed by and between the parties hereto as follows: 1. PARTIES. Outagamie County shall be hereafter referred to as LESSOR and K-C Aviation Inc. will be hereafter referred to as LESSEE. 2. PREMISES. The LESSOR does hereby and by these presents does lease, let and demise unto the LESSEE and the LESSEE does hereby take and rent from the LESSOR the land situated in the State of Wisconsin, County of Outagamie, Town of Greenville, described on Exhibit "A", which is attached to and made a part of this Lease. [Illegible] being a part of the Outagamie County Airport, and hereafter referred to as the "Premises", upon the terms and conditions hereinafter set forth. LESSEE shall have the exclusive use of and the right at any time to enclose by fencing, the apron and supporting facilities, a "fuel farm" consisting of buried or surface tanks for not less than 20,000 gallons of aviation fuels, 50 gallons of oil and lubricants, and 10,000 gallons of heating fuels together with power lines, pumping, venting and other necessary or desirable facilities as LESSEE may reasonably require, and access roads for heavy transport between the LESSEE Improvements (as hereinafter defined) and fuel farm areas and public access roads. 3. TERM. The initial term of this Lease shall commence upon the cancellation of the heretofore referred to "Lease With Option To Renew" dated January 25, 1968, which said cancellation shall occur at such time as the completion of transfer of ownership of the present improvements on the Premises from the LESSOR to the LESSEE. This initial term shall end on the 31st day of March, 1984. LESSEE is granted an option to renew this Lease for nine (9) additional consecutive five (5) year terms upon written notice to LESSOR sent at least thirty (30) days prior to the expiration of the initial Lease term or any renewal term, on the same terms and conditions as herein stated, except as to the amount of rent. 4. Rents. LESSEE shall pay as rent under this Lease, for the initial term, in equal monthly installments due and payable on the first business day of each and every month, annual rental of $.05 per square foot for the total Premises heretofore described, being 254,720 square feet. If LESSEE shall exercise its option to renew this Lease for the first renewal period commencing April 1, 1984 and ending March 31, 1989, the annual rent to be paid by LESSEE, upon the same terms and conditions, shall be the sum of $.08 per square foot. The annual rental, per square foot, of subsequent renewal periods shall be determined at the commencement of each five year renewal period based on the amount of the rent for the preceding term, adjusted at the rate of one quarter (1/4) of the increase or decrease of the average of the consumer price index (hereafter referred to as "CPI") as published by the United States Department of Labor, Bureau of Labor Statistics for the calendar year preceding the date of renewal as compared to the index used for the calculation of any rent adjustment for the prior renewal term. As example and explanation, the rent for the second renewal term (that commencing April 1, 1989) would be computed by using the average CPI for calendar year 1983 as the base index compared with the average CPI for calendar year 1988, with one quarter (1/4) of the difference of the two average CPIs being used as the percentage to adjust the preceding annual rental amount ($.08 per square foot). The third renewal term shall use the average CPI for calendar year 1988 as the base index to be compared with the average CPI for calendar year 1993; the rent for the fourth and succeeding renewal terms calculated in the same fashion. 5. LESSOR'S CONSTRUCTION OBLIGATION AND LESSEE'S IMPROVEMENTS. In entering into this new Lease, it is the understanding of the parties hereto that the LESSEE will construct an addition (the plans for which have been reviewed and approved by LESSOR) to the presently existing Building improvements on the Premises (the existing Building and the addition shall be referred to herein as the "Lessee Improvements"), the said present existing improvements to be purchased by the LESSEE from the LESSOR for the sum of $300,000. The purchase of the existing Building improvements by LESSEE from LESSOR shall be closed within thirty (30) days of the date of this Lease and shall take place at the site specified by LESSOR in Outagamie County, Wisconsin, unless the parties agree otherwise. LESSOR, at such closing after receipt of payment from LESSEE, shall deliver a Bill of Sale or other similar documents satisfactory in form to LESSEE'S counsel, transferring the present Building improvements to LESSEE free and clear of all liens and encumbrances, except those created by LESSEE. Upon transfer of the present Building improvements and after construction of the addition contemplated by LESSEE, title to these LESSEE Improvements shall be in LESSEE until the expiration or termination of this Lease after which title shall be transferred to LESSOR pursuant to the Purchase Obligation provided for in paragraph 18 hereof. LESSOR agrees that it will promptly construct, at its expense, necessary ramp facilities, as an addition to the presently existing ramp, so as to give access to, and to make usable and serviceable, the addition to the present Building improvements, which said addition is to be constructed by the LESSEE. 6. INSURANCE AND TAXES. LESSEE shall pay all premiums for insurance on the LESSEE Improvements on the Premises, insuring the same as it determines. Taxes assessed against the LESSEE Improvements shall be LESSEE'S responsibility when the initial Lease term begins. 7. LIABILITY INSURANCE. The LESSEE shall pay the premiums for and keep in effect comprehensive general liability insurance with limits of at least $500,000/$1,000,000 for bodily injury, $500,000/$1,000,000 for property damage, and single limit of at least $20,000,000 for liability arising out of repair and servicing of aircraft, insuring LESSOR as well as LESSEE against claims or liability for damages on account of the deficiency or claimed deficiency of any of the LESSEE Improvements on the Premises during the terms hereof. 8. REPAIRS, MAINTENANCE, COMPLIANCE WITH SAFETY RULES, ETC. LESSEE agrees to be responsible for all repairs, maintenance, replacements and general upkeep, whether structural or non-structural and whether of exterior or interior portions, to the LESSEE Improvements, and whether or not the same are required for underground utilities and installations except that at the time of closing of the transfer of ownership of the present Building on the Premises from the LESSOR to the LESSEE, items of repair and maintenance which are the responsibility of the LESSOR under the original "Lease With Option To Renew" shall be completed at the expense of the LESSOR. Lessor will at all times keep all sidewalks, steps and exits (except those within the immediate vicinity of the LESSEE Improvements), aprons, taxiways, access roads and all other Outagamie Airport facilities in good, clean, safe, secure, sanitary condition and repair and will conform to all ordinances, laws, rules and regulations of any public agency having dominion or jurisdiction thereof respecting all matters including safety and sanitation, snow removal and street oiling (including but not limited to Federal Aviation Administration requirements), and will save the LESSEE free and harmless from any personal or other liability whether or not occasioned by the negligence of the LESSOR or any agent or any person contracting with said LESSOR for the maintenance and care of such areas, or out of any accident or occurrence causing injury or claimed injury of any person whomsoever or property whatsoever due directly or indirectly to the maintenance and repair of such areas, including the cost of defending such claim. Snow removal shall be accomplished so as to comply with or exceed air carrier requirements for aircraft departures and arrivals as the same may be in force from time to time. LESSOR shall also be responsible for, throughout the term of this Lease and any renewals thereof, lawn maintenance and similar items which are not connected with the maintenance of the LESSEE Improvements upon the Premises. 9. HEAT, LIGHTS AND WATER. LESSEE shall furnish and pay for all utilities including heat, lights, water and gas required or used by it upon said Premises. 10. USE OF PREMISES. LESSEE covenants and agrees that it will not use the Premises or the LESSEE Improvements thereon, during the term of this Lease for any purpose other than for aviation purposes or for any purpose which is lawful under the laws of the United States, the State of Wisconsin or the ordinances of Outagamie County or any laws, rules or regulations of any proper agency of any government having dominion thereover; otherwise, there shall be no limitation whatsoever on LESSEE'S use of the Premises or the LESSEE Improvements. In the event LESSEE shall, pursuant to 14 CFR 121.1 (a)(1), (2), and (3), commence any commercial aeronautical operations carrying passengers with established schedules on the Premises, LESSEE shall then pay all landing or user fees required of and collected from other such commercial operators and abide by all rules and regulations pertaining to commercial operators on the airport. LESSEE, its agents and employees will not discriminate against any person or class of persons by reason of race, color, creed, sex or national origin in providing any services or in the use of any of its facilities provided for the public in any manner prohibited by 49 CFR Parts 21 and 23 of the Federal Aviation Regulations. 11. ASSIGNMENT. LESSEE may assign or sublet this Lease to its parent corporation, Kimberly-Clark Corporation, or any of the subsidiaries of Kimberly-Clark Corporation now existing or hereafter incorporated, but otherwise shall not assign this Lease or any part thereof without prior written consent of the LESSOR, except to another person, form or corporation acquiring all or a substantial part of LESSEE'S assets used for aviation purposes. LESSOR shall not unreasonably withhold its consent. 12. FORFEITURE ON DEFAULT. If any default shall be made by the LESSEE in any payment of rent, or if LESSEE shall fail to keep and perform any other covenant, condition or agreement herein provided on the part of the said LESSEE to be performed and such default shall exist without being fully remedied for a period of 30 days after LESSOR has given LESSEE written notice thereof, then it shall be lawful without further notice, to declare the term of this Lease ended and LESSOR shall have the right to re-enter and reposess the Premises, either with or without process of law, and LESSEE does hereby waive, in such event, any demand for possession of the demised Premises, and LESSEE covenants and agrees to surrender the Premises to LESSOR or the agents or attorneys of LESSOR, immediately upon the termination of this Lease, at the election of LESSOR. 13. FORFEITURE ON INSOLVENCY. Should LESSEE become bankrupt or make an assignment for the benefit of creditors either voluntary or involuntary, or be placed in receivership either voluntary or involuntary, the term of this Lease, and all the provisions hereof shall terminate forthwith upon such event occurring, without notice. 14. QUIET ENJOYMENT. LESSOR covenants that LESSEE, its successors and assigns, on paying the rent in accordance with this Lease and performing the other covenants of this Lease to be performed by LESSEE, shall and may have, hold, occupy and enjoy peacefully and quietly the Premises for the term of this Lease and any renewal term without hindrance or molestation by anyone whomsoever. If LESSOR'S title shall prove to be defective in any respect, LESSEE may either cure the defect at LESSOR'S expense or forthwith cancel this Lease without liability, at its option. 15. SECURITY, SAFETY AND FACILITIES. It is the intention of both LESSOR and LESSEE that the Premises may be freely, effectively and safely used by LESSEE for its aircraft operations; to that end, LESSOR shall provide or cause to be provided adequate facilities therefor, including but not limited to the following: a. Adequate police and security protection at least equal to generally prevailing standards; b. Adequate fire protection with full water pressure for the present paint and lubrication rooms in the existing Building Improvements sufficient to obtain the lowest fire insurance rates available for such facilities, and a crash [Illegible] c. Complete air navigation and control radio facilities. 16. REMEDIES AND RIGHTS CUMULATIVE. The specific rights and remedies of the parties under this Lease are cumulative, and not intended to be exclusive of or in derogation of any other rights or remedies available in the event of breach or threatened breach, all of which are hereby specifically preserved. The failure to require the strict performance of any covenant of this Lease or to exercise any option under this Lease, in any one or more instance, shall not be construed as a waiver or relinquishment for the future of the same or any other covenant or option. 17. CAPTIONS. The captions in this Lease are for the purposes of convenience and reference only and are not to be deemed or construed as a part of this Lease nor supplemental or amendatory hereto. 18. PURCHASE OBLIGATION. Commencing with the first renewal period of this Lease on April 1, 1984, if such renewal option shall have been exercised by the LESSEE, LESSOR shall purchase any and all LESSEE Improvements on the Premises at any time after the end of the initial term, including those present improvements whose ownership is being transferred from the LESSOR to the LESSEE pursuant to paragraph 5 hereof, upon the occurrence of any one or more of the following conditions: a. Upon either the unremedied default by LESSEE of any provision of this agreement and the retaking of the Premises by LESSOR, in the event LESSEE fails to renew this Lease for the second or subsequent renewal terms pursuant to LESSEE'S renewal rights contained in paragraph 3 of this agreement or at the expiration of this Lease at the end [Illegible] Upon any of these occurrences, the purchase price for the LESSEE Improvements shall be seventy-five percent (75%) of the market value thereof as determined by the appraisal procedure set forth hereafter. b. Upon termination of this Lease by LESSEE pursuant to paragraph 19 hereof, provided LESSEE is not in default of any material provision hereunder, if any one or more of the following events exists: 1. The discontinuance by Outagamie County of the operation known as the Outagamie County Airport in such fashion that the LESSEE will be unable to continue its use of the Premises for the intended purpose; 2. The assumption by the United States Government or any other governmental agency or instrumentality of the operation, control, or use of Outagamie Airport in such a manner as to preclude LESSEE from using such Airport in the conduct of its business; 3. A default by LESSOR to meet and observe any of the material covenants herein contained if such default continues for a period of thirty (30) consecutive days or more after written notice to LESSOR by LESSEE, unless LESSOR has begun, and is continuing, in good faith to remedy in such interval and if such default precludes LESSEE from using such Airport in the conduct of its business. The purchase price for the LESSEE Improvements upon any one of these occurrences shall be the full market value thereof as determined by the appraisal procedures set forth hereafter. In the event that the Purchase Obligation heretofore described shall be activated, the market value of LESSEE'S Improvements shall be established within thirty (30) days after the date requiring LESSEE to so purchase. Closing of the purchase shall occur within thirty (30) days of the establishment of the market value and shall take place at the site specified by LESSOR in Outagamie County, Wisconsin, unless the parties agree otherwise. LESSEE, at such closing after receipt of payment from LESSOR, shall deliver a Bill of Sale or other similar document satisfactory in form to LESSOR'S counsel, transferring the LESSEE Improvements to LESSOR free and clear of all liens and encumbrances arising out of LESSEE'S acts or omissions. The market value of the LESSEE Improvements shall be determined by an appraiser mutually agreed upon by the parties. If the parties cannot agree on a sole appraiser, each of the parties shall name one appraiser, such appraisers shall in turn select a third, and the selected appraisers shall act promptly to determine the market value. The decision, and agreement, of any two of the appraisers as to the market value shall be binding on the parties. Cost of the appraisal shall be shared equally by the parties. 19. LESSEE'S TERMINATION RIGHTS. Upon the occurrence of any of the following events, LESSEE may terminate this Lease in accordance with the following terms and conditions upon sixty (60) days prior written notice to LESSOR: a. The issuance by any court of competent jurisdiction of any order preventing or restricting the use of the Outagamie County Airport for the purposes intended by this Lease, if the same shall apparently be likely to remain in force and effect for a period of sixty (60) consecutive days or more; the rental required of LESSEE shall be abated for that period of time that such order is in effect preventing or restricting the use of Outagamie County Airport prior to LESSEE'S termination of the Lease; b. The assumption by the United States Government of any other governmental agency or instrumentality of the operation, control or use of Outagamie County Airport for national defense in such a manner as to preclude LESSEE from using such Airport in the conduct of its business for a period of ninety (90) consecutive days or more; the rental required of LESSEE shall be abated for that period commencing with the said assumption and prior to the effective date of LESSEE'S termination of the Lease; c. A default by LESSOR to meet and observe any of the material covenants herein contained, if such default continues for a period of thirty (30) consecutive days or more after written notice to LESSOR by LESSEE, unless LESSOR has begun, and is continuing, in good faith to remedy the default in such intervals; the rental required of LESSEE shall be abated during the entire period of such default; or d. In the event a substantial part of the LESSEE Improvements are destroyed by fire, rain, wind, or other cause beyond the control of LESSEE; the rent shall abate as of the date of such destruction. 20. FIXTURES. LESSEE shall have the right to remove from the Premises upon the termination of this Lease all machinery, equipment and fixtures including but not limited to shelving, counters, bins, and storage tanks (whether or not buried), whether or not attached to the LESSEE Improvements or the Premises, but LESSEE shall, following such removal, restore the Premises to their former condition, ordinary wear and tear and damage from fire or other casualty excepted. 21. RIGHT OF FIRST REFUSAL. If LESSOR receives a bona fide offer for the purchase of the Premises or any part thereof or a bona fide offer for the purchase of any tract of which the Premises are a part which LESSOR intends to accept, it will first give LESSEE a right of first refusal; that is, it will give LESSEE written notice of the terms of the offer and LESSEE will then have thirty days in which to notify LESSOR whether it elects to purchase on the same terms and conditions including price as set forth in the offer; if LESSEE notifies LESSOR within such 30 day period that it elects to purchase, the transaction will be closed as soon as feasible; if LESSEE has not notified LESSOR in writing that it elects to purchase within 30 days after having received notice from LESSOR, then LESSEE shall be deemed to have waived its right to purchase and LESSOR shall be free to sell the Premises or the part thereof or the tract of which the Premises are a part, as specified in the notice upon terms and conditions not more favorable to the purchaser than those set forth in the notice, provided the transaction is closed within 6 months after the notice was given; if sale to the proposed purchaser has not been completed within such 6 month period, then LESSOR, before selling to that proposed purchaser or another party, must again give LESSEE notice and a right of first refusal as if the first notice had not been given. 22. ADDITIONS, REMOVALS AND ALTERATIONS BY LESSEE. LESSEE shall have the right, while not in default under this Lease, from time to time, in such manner and to such extent as LESSEE may deem desirable, to construct further improvements on the Premises, subject to the approval by LESSOR of the plans for construction, which approval shall not be unreasonably withheld. All additions to the Premises shall belong to LESSEE and shall be considered an addition to and a part of the LESSEE Improvements after construction. 23. EXPANSION AREA. The area within 200 feet to the west (except that area currently in the roadway right-of-way approximately 175 feet from the west boundary line) and 400 feet to the east of the western and eastern boundaries, respectively, of the Premises and having the same north-south depth as the said western and eastern boundaries (hereinafter called the "expansion area") shall be reserved for expansion of LESSEE'S operations; LESSOR hereby grants to LESSEE an option, to be exercised at any time while any part of the expansion area remains unimproved by LESSOR, by giving 30 days' written notice to LESSOR, to add to the area included within this Lease any or all of such unimproved expansion area at the same rental as is then being paid for the Premises for a term which shall be the same as the unexpired term of this Lease with the same renewal option provisions and subject to the same rental adjustments. LESSOR will not construct any building or otherwise improve the expansion area without LESSEE'S prior written consent. If LESSOR shall request such consent and LESSEE shall deny the same, without itself exercising the aforesaid option to expand, then, in that event, LESSEE shall pay to LESSOR one quarter (1/4) of the then applicable rental per square foot for the Premises for the duration of the Lease and its renewal periods or until the LESSEE shall either exercise its option to utilize the said expansion area or consent to LESSOR'S proposed use of the expansion area. 24. FUEL FLOWAGE CHARGES. LESSEE shall pay to LESSOR a use charge of three cents ($.03) a gallon for all types of aviation fuel, aviation gasoline, jet fuel, now used or which may be used in the future, sold by LESSEE at said airport to purchasers other than to either commercial airlines for the operation of regularly scheduled flights to and from said airport, to any government for military aircraft or to LESSEE'S parent or affiliated corporations. It is expressly understood by and between the LESSOR and LESSEE that said gallonage charge shall be subject to reexamination and reasonable adjustment to a higher or to a lower figure at the end of the initial term and each five (5) year renewal period of this Lease, but no change shall be made without the mutual written consent of LESSOR and LESSEE. LESSOR shall have the right to audit such of LESSEE'S books as pertain to the sale of such fuels for the appropriate period, such audit to verify the accuracy of LESSEE'S payments and will be made by an auditor acceptable to both LESSOR and LESSEE, at a cost to be shared equally by LESSOR and LESSEE, with copies of the audit report to be furnished promptly to LESSOR and LESSEE upon completion. Audit of Fuel Flowage Charges shall be determined in accordance with the Minimum Standard as adopted by the Outagamie County Board of Supervisors. 25. CONTINUITY. This Lease and the provisions hereof shall be binding upon and inure to the benefit of the successors and assigns of LESSOR and, where permitted in harmony with the provisions hereof, to the benefit of the assignees and subtenants of LESSEE. 26. NOTICES. The mailing addresses for mailing of notices required under the terms of this Lease are as follows: LESSOR: Outgamie County 410 S. Walnut Street Appleton, Wisconsin 54911 LESSEE: K-C Aviation Inc. c/o Kimberly-Clark Corporation North Lake Street Neenah, Wisconsin 54956 Notices sent by certified mail to the aforementioned addresses shall be deemed to have been given properly under this Lease. IN WITNESS WHEREOF, the parties hereto have set their hands and seals this 9th day of October, 1980. By: /s/ [Illegible] OUTGAMIE COUNTY ----------------------------- Title Board Chairperson By: /s/ [Illegible] --------------------------- ----------------------------- By: /s/ [Illegible] Title County Executive ----------------------------- ----------------------------- Title County Clerk --------------------------- Approved as to form by: K-C AVIATION INC. /s/ Richard L. Hamilton By: /s/ [Illegible] - --------------------------------- ----------------------------- Richard L. Hamilton, Corporation Title President Counsel ----------------------------- Kimberly-Clark Corporation, as a party to that agreement entitled "Lease With Option To Renew" dated January 25, 1968, together with certain subsequent additions to it, hereby assigns that agreement to its wholly-owned subsidiary, K-C Aviation, Inc., on this 1st day of October, 1980. KIMBERLY-CLARK CORPORATION By /s/ [Illegible] ----------------------------------- ADDENDUM NO. 1 TO LEASE DATED 9 OCTOBER, 1980 ------------------------------ WHEREAS, Outagamie County, a Wisconsin municipal corporation, and K-C Aviation Inc., a Delaware corporation, have heretofore entered into a certain Lease Agreement dated and executed the 9th day of October, 1980 and WHEREAS, said Lease, in Exhibit "A", describes the premises which are the subject of the Lease, the same being 254,720 sq. Ft., and WHEREAS, K-C Aviation Inc. is desirous of increasing the leased area. NOW, THEREFORE, IT IS AGREED, as an Addendum to that Lease, that the description attached hereto, marked Exhibit "B", shall be the revised and correct description of all property which is the subject of the original Lease, being in all 273,090 sq. ft. for which rental shall be paid commencing the 16th day of October, 1980. Dated at Appleton, Wisconsin this 24th day of December, 1980. OUTAGAMIE COUNTY By: /s/ John B. Schreiter ----------------------------------- John B. Schreiter, County Executive By: /s/ Herman V. Ripp ----------------------------------- Herman V. Ripp, Board Chairperson By: /s/ James D. Hensel ----------------------------------- James D. Hensel, County Clerk K-C AVIATION INC. By: /s/ Timothy E. Hoeksema ----------------------------------- Timothy E. Hoeksema, President Approved as to form by: /s/ Richard L. Hamilton - ------------------------ Richard L. Hamilton Corporation Counsel Outagamie County ADDENDUM NUMBER TWO TO LEASE DATED 8 OCTOBER 1980 KIMBERLY CLARK AVIATION, INC. WHEREAS, Outagamie County, a Wisconsin municipal corporation, and K-C Aviation, Inc., a Delaware corporation, have heretofore entered into a certain lease agreement dated and executed the 8th day of October, 1980, together with subsequent addendum dated the 24th day of December 1980; and WHEREAS, paragraph two of the said lease provides lessee with "the exclusive use of and the right at any time to enclose by fencing, the apron and supporting facilities, . . . .;" and WHEREAS, the parties have agreed to deletion of the provisions for exclusive use and the right to enclose by fencing. NOW, THEREFORE, IT IS AGREED by and between the parties hereto: 1. That the promises and covenants contained herein are good and sufficient consideration for the amendment of the said lease. 2. That the lease agreement dated October 8, 1980, be and the same hereby is amended by striking from paragraph two thereof the word exclusive in the second paragraph of paragraph two and the words "and the right at any time to enclose by fending" such that the second paragraph of paragraph two shall now read "lessee shall have the use of the apron and supporting facilities, a "fuel farm" consisting of buried or service tanks for not less than 20,000 gallons of aviation fuels, 50 gallons of oils and lubricants, and 10,000 gallons of heating fuels together with power lines, pumping, venting and other necessary or desirable facilities as lessee may reasonably require, and access roads for heavy transport between the lessee Improvements (as hereinafter defined) and fuel farm areas and public access roads. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals this ___ day of ___________, 1988, and confirm all other portions of the original lease and subsequent addendum the same as if set forth fully herein. OUTAGAMIE COUNTY By: -------------------------------- John R. Schreiter County Executive By: -------------------------------- George H. Schroeder Board Chairperson \ By: -------------------------------- James D. Hensel County Clerk K-C AVIATION, INC. By: -------------------------------- Approved by: /s/ Richard L. Hamilton - -------------------------- Richard L. Hamilton Corporation Counsel Outagamie County ADDENDUM NO. THREE TO LEASE DATED 9 OCTOBER 1980 WHEREAS, Outagamie County, a Wisconsin municipal corporation, and K-C Aviation, Inc., a Delaware corporation, have heretofore entered into a certain Lease Agreement dated and executed the 9th day of October 1980 and subsequently modified by Addendum Number One dated the 24th day of December, 1980 and Addendum Number Two dated the 25th day of March, 1988; and WHEREAS, said original Lease together with the Addendum presently provide for the letting of 273,090 square feet; and WHEREAS, K-C Aviation, Inc., and Outagamie County have agreed to an increase of the leased area of 33,855 square feet, a new total leased area of 306,945 square feet; and WHEREAS, the description attached hereto and marked Exhibit "C" is now the revised correct description of the total property being let to K-C Aviation, Inc., under the original Lease and Addenda one and two. NOW, THEREFORE, IT IS AGREED that Outagamie County does hereby let unto K-C Aviation, Inc., the property described in Exhibit "C", a total of 306,940 square feet for which rent shall be paid commencing the 1st day of February, 1980; and IT IS FURTHER AGREED that in all other respects all terms and conditions of the original Lease are in full force and effect the same as if set forth fully herein. Dated this 26 day of January, 1989. OUTAGAMIE COUNTY By: /s/ John B. Schreiter --------------------------- John B. Schreiter County Executive By: /s/ George H. Schroeder --------------------------- George H. Schroeder Board Chairperson By: /s/ James D. Hensel --------------------------- James D. Hensel County Clerk K-C AVIATION, INC. By: /s/ Richard Emery --------------------------- Richard Emery President Approved as to form by: /s/ Richard L. Hamilton - ---------------------------------- Richard L. Hamilton, Corp. Counsel Outagamie County FOURTH ADDENDUM THIS FOURTH ADDENDUM is entered into this 22nd day of October, 1996, between OUTGAMIE COUNTY ("LESSOR") and K-C AVIATION INC. ("LESSEE"). W I T N E S S E T H : WHEREAS, the parties have entered into a Lease on October 9, 1980, (hereinafter the "Lease"), providing for the lease from LESSOR by LESSEE of land situated in the State of Wisconsin, County of Outagamie, Town of Greenville, located at the Outagamie County Airport; and WHEREAS, the parties have previously amended the Lease by a First Addendum dated the 24th day of December, 1980, a Second Addendum dated the 25th day of March, 1988, and by a Third Addendum dated the 9th day of October, 1990; and WHEREAS, the parties desire to amend the Agreement by this Fourth Addendum; and NOW, THEREFORE, in consideration of the mutual benefits, covenants and obligations of the parties contained in the Lease, in the First, Second and Third Addendums, and in this Fourth Addendum, Lessor and Lessee agree to amend the Lease as follows: 1. Paragraph 2, PREMISES, is amended by adding an additional Exhibit to the Lease designated as Exhibit D which is attached hereto and made a part hereof. Exhibit D describes and provides for additional land leased by LESSEE from LESSOR hereunder and together with the other Exhibits previously added in prior addendums, describe all of the land leased by LESSEE from LESSOR pursuant to the Lease. 2. The rent for the additional land shall be calculated in accordance with the pricing formula in Paragraph 4, RENTS, of the Lease. 3. The parties understand and agree that the purpose of amending the Lease to provide for additional land is to enable LESSEE to construct new facilities. The parties agree that such new facilities shall not be included within the definition of Lessee Improvements in Paragraph 5, LESSOR'S CONSTRUCTION OBLIGATION AND LESSEE'S IMPROVEMENTS, of the Lease. Consequently, the parties agree that LESSOR shall have no obligation to purchase new improvements made on the land leased pursuant to this Fourth Addendum in accordance with Paragraph 18, PURCHASE OBLIGATION, but that LESSOR retains the obligation under the Lease to purchase all improvements in existence on the date of this Fourth Addendum. Further, the parties agree that LESSOR shall not have to purchase any improvements constructed after the date hereof on any part of the land described in and subsequently leased by LESSEE from LESSOR pursuant to Paragraph 23, EXPANSION AREA, of the Lease. 4. Paragraph 18, PURCHASE OBLIGATION, section a., shall be amended by changing the percentage of the market value of Lessee Improvements which shall constitute the purchase price, from seventy-five percent (75%) to fifty percent (50%). 5. Only in the event where LESSEE shall not renew the Lease pursuant to Paragraph 3, TERM, at the end of an extension term, LESSEE shall have the right to continue the Lease in accordance with its provisions for a period of up to two (2) years after the end of such extension term in order to allow LESSEE an opportunity to sell all of the LESSEE Improvements (both the improvements which LESSOR shall be required to purchase and the improvements which are to be constructed hereafter which LESSOR shall have no obligation to purchase). LESSOR'S prior written consent shall be required before the sale of the improvements, which consent shall not be unreasonably withheld. Any sale of the improvements shall be subject to the continuance of the present use of the improvements for aviation purposes and to the proof of the financial viability of the purchasing entity. The rent to be paid during such period shall be reduced to fifty percent (50%) of the rent then being paid by LESSEE to LESSOR at the end of such extension term, but only if LESSEE shall not be conducting aviation completion business on the Premises during such period. Should LESSEE be unable to sell the improvements during the period, LESSOR shall be required to purchase the LESSEE Improvements in existence on the date hereof (but not the new improvements as provided for above in paragraph 3) pursuant to paragraph 18, PURCHASE OBLIGATION, with the market value of the improvements to be determined as of the date when LESSEE advises LESSOR that no purchaser can be located and that the Lease shall be considered to have ended. Further, where LESSEE shall be required to structure any sale of the LESSEE Improvements as a part of an assignment or sublease of this Lease, there shall be no change to LESSOR'S obligation to purchase the applicable (as provided for above in paragraph 3) LESSEE Improvements and LESSOR shall purchase such improvements at the end of the Lease from LESSEE's assignee or sublessee. The parties agree that all of the improvements on the land leased hereunder by LESSEE from LESSOR, shall be conveyed and transferred to LESSOR by LESSEE or its assignee or sublessee at the end of the Lease simultaneously with the closing on LESSOR'S purchase of the applicable LESSEE Improvements. 6. In the first sentence, fourth line of the second paragraph on page 12 of the Lease in Paragraph 18, PURCHASE OBLIGATION, the word "LESSEE" between the words "requiring" and "to so purchase" shall be deleted and the word "LESSOR" shall be inserted. 7. LESSOR shall continue snow removal on the existing parking lots on the Premises, except, however, LESSEE shall be responsible for snow removal on any areas within the leased area described in Exhibit D. 8. LESSOR shall move its fence to outside of the boundaries of the leased area described in Exhibit D. 9. LESSOR shall reserve and make available fifty (50) parking spaces for use of the construction personnel during the duration of the construction of the new improvements on the leased area described in Exhibit D. LESSEE shall pay for the parking permits for such spaces. 10. Except as previously amended, the Lease in all other respects shall be unchanged. IN WITNESS WHEREOF, the parties have executed this Fourth Amendment upon the date first above written. OUTAGAMIE COUNTY K-C AVIATION INC. By: By: /s/ [illegible] -------------------------- --------------------------- Title: President ------------------- OUTAGAMIE COUNTY By: /s/ James P. Schuette ------------------------------ James P. Schuette County Executive By: /s/ Marvin J. Fox ------------------------------ Marvin J. Fox Board Chairman By: /s/ James D. Hensel ------------------------------ James D. Hensel County Clerk FIFTH ADDENDUM THIS FIFTH ADDENDUM is entered into this 19th day of March, 1997, between Outagamie County ("LESSOR") and K-C Aviation Inc., ("LESSEE"). W I T N E S S E T H : WHEREAS, the parties have entered into a Lease on October 9, 1980, (hereinafter the "Lease"), providing for the lease from LESSOR by LESSEE of land situated in the State of Wisconsin, County of Outagamie, Town of Greenville, located at the Outagamie County Airport; and WHEREAS, the parties have previously amended the Lease by a First Addendum dated the 24th day of December, 1980, a Second Addendum dated the 25th day of March, 1988, a Third Addendum dated the 9th day of October, 1990, and by a Fourth Addendum dated the 22nd day of October, 1996; and WHEREAS, the parties desire to amend the Agreement by this Fifth Addendum; and NOW, THEREFORE, in consideration of the mutual benefits, covenants and obligations of the parties contained in the Lease, in the First, Second, Third and Fourth Addendums, and in this Fifth Addendum, LESSOR and LESSEE agree to amend the Lease as follows: 1. Paragraph 2, PREMISES, is amended by adding an additional Exhibit to the Lease designated as Exhibit "E" which is attached hereto and made a part hereof. Exhibit "E" describes and provides for additional land leased by LESSEE from LESSOR hereunder and together with the other Exhibits previously added in prior addendums, describe all of the land leased by LESSEE from LESSOR pursuant to the Lease. 2. The rent for the additional land shall be calculated in accordance with the pricing formula in Paragraph 4, RENTS, of the Lease. 3. The parties understand and agree that the purpose of amending the Lease to provide for additional land is to enable LESSEE to construct new facilities. The parties agree that such new facilities shall not be included within the definition of LESSEE Improvements in Paragraph 5, LESSOR'S CONSTRUCTION OBLIGATION AND LESSEE'S IMPROVEMENTS, of the Lease. Consequently, the parties agree that LESSOR shall have no obligation to purchase new improvements made on the land leased pursuant to this Fifth Addendum in accordance with Paragraph 18, PURCHASE OBLIGATION, but that LESSOR retains the obligation under the Lease to purchase all improvements in existence on the date prior to the Fourth Addendum. Further, the parties agree that LESSOR shall not have to purchase any improvements constructed after the date hereof on any part of the land described in and subsequently leased by LESSEE from LESSOR pursuant to Paragraph 23, EXPANSION AREA, of the Lease. 4. Paragraph 18, PURCHASE OBLIGATION, section a., shall be amended by changing the percentage of the market value of LESSEE Improvements which shall constitute the purchase price, from seventy-five percent (75%) to fifty percent (50%). 5. Only in the event where LESSEE shall not renew the Lease pursuant to Paragraph 3, TERM, at the end of an extension term, LESSEE shall have the right to continue the Lease in accordance with its provisions for a period of up to two (2) years after the end of such extension term in order to allow LESSEE an opportunity to sell all of the LESSEE Improvements (both the improvements which LESSOR shall be required to purchase and the improvements which are to be constructed which LESSOR shall have no obligation to purchase). LESSOR'S prior written consent shall be required before the sale of the improvements, which consent shall not be unreasonably withheld. Any sale of the improvements shall be subject to the continuance of the present use of the improvements for aviation purposes and to the proof of the financial viability of the purchasing entity. The rent to be paid during such period shall be reduced to fifty percent (50%) of the rent then being paid by LESSEE to LESSOR at the end of such extension term, but only if LESSEE shall not be conducting aviation completion business on the Premises during such period. Should LESSEE be unable to sell the improvements during the period, LESOR shall be required to purchase the LESSEE Improvements in existence on the date of the Fourth Addendum (but not the new improvements as provided for above in paragraph 3) pursuant to Paragraph 18, PURCHASE OBLIGATION, with the market value of the improvements to be determined as of the date when LESSEE advises LESSOR that no purchaser can be located and that the Lease shall be considered to have ended. Further, where LESSEE shall be required to structure any sale of the LESSEE Improvements as a part of an assignment or sublease of this Lease, there shall be no change to LESSOR'S obligation to purchase the applicable (as provided for above in paragraph 3) LESSEE Improvements and LESSOR shall purchase such improvements at the end of the Lease from LESSEE'S assignee or sublessee. The parties agree that all of the improvements on the land leased hereunder by LESSEE from LESSOR, shall be conveyed and transferred to LESSOR by LESSEE or its assignee or sublessee at the end of the Lease simultaneously with the closing on LESSOR'S purchase of the applicable LESSEE Improvements. 6. In the first sentence, fourth line of the second paragraph on page 12 of the Lease in Paragraph 18, PURCHASE OBLIGATION, the word "LESSEE" between the words "requiring" and "to so purchase" shall be deleted and the word "LESSOR" shall be inserted. 7. LESSOR shall continue snow removal on the existing parking lots on the Premises, except, however, LESSEE shall be responsible for snow removal on any areas within the leased area described in Exhibit "E". 8. LESSOR shall move its fence to outside of the boundaries of the leased area described in Exhibit "E". 9. LESSOR shall reserve and make available fifty (50) parking spaces for use of the construction personnel during the duration of the construction of the new improvements on the leased area described in Exhibit "E". LESSEE shall pay for the parking permits for such spaces. 10. LESSEE shall assume financial responsibility for any taxiway alterations directly required by the construction of the paint building upon the land described in the attached Exhibit "E". 11. Except as previously amended, the Lease in all other respects shall be unchanged. IN WITNESS WHEREOF, the parties have executed this Fifth Addendum upon the date first above written. OUTAGAMIE COUNTY K-C AVIATION INC. By: /s/ James P. Schuette By: /s/ John F. Rahilly ------------------------ -------------------------- James P. Schuette John F. Rahilly Title: County Executive Title: President By: /s/ Marvin J. Fox ------------------------ Marvin J. Fox Title: Board Chairman By: /s/ James D. Hensel ------------------------ James D. Hensel Title: County Clerk EX-10.38 7 =========================================================================== LEASE OF LAND AND FACILITIES AT DALLAS LOVE FIELD K--C AVIATION, INC. EXECUTED ON , 1978 =========================================================================== TABLE OF CONTENTS ----------------- Parties........................................................... 1 Section I. Description of Leased Premises............... 1 Section II.1. Primary Term and Extension................... 2 Section II.2. Rental....................................... 4 Section II.3. Use Of Premises.............................. 5 Section II.4. Maintenance and Repair of Premises........... 7 Section II.5. Utilities.................................... 8 Section II.6. Inspection................................... 8 Section II.7. Access to Premises........................... 8 Section II.8. Taxes........................................ 9 Section II.9. Insurance.................................... 9 Section II.10. Liens........................................ 10 Section II.11. Termination by Lessor........................ 12 Section II.12. Remedies..................................... 14 Section II.13. Termination by Lessee........................ 15 Section II.14. No Waiver of Right to Declare Forfeiture................................... 17 Section II.15. Lessee's Right to Remove Property............ 17 Section II.16. Surrender of Premises........................ 18 Section II.17. Indemnification.............................. 18 Section II.18. Assignment and Sublease...................... 19 Section II.19 Right of First Refusal....................... 20 Section II.20. Nondiscrimination............................ 22 Section II.21. Signs........................................ 22 Section II.22. Governmental Requirements - Rules and Regulations.................................. 23 Section II.23. Venue........................................ 23 Section II.24. Successors and Assigns....................... 24 Section II.25. Notices...................................... 24 Section II.26. Headings..................................... 24 Section II.27. Counterparts................................. 24 LEASE OF LAND AND FACILITIES AT DALLAS LOVE FIELD ------------------------------------------------- STATE OF TEXAS ) KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS ) This LEASE OF LAND AND FACILITIES AT DALLAS LOVE FIELD, made and entered into by and between the CITY OF DALLAS, a municipal corporation, duly organized and existing under the laws of the State of Texas (called "Lessor"), owner of an airport in Dallas, Dallas County, Texas, known as Dallas Love Field, and K-C AVIATION INC., a Delaware corporation, with its principal offices at Outagamie Aiport, Appleton, Wisconsin 54911 (called "Lessee"). W I T N E S S E T H: -------------------- I. Lessor does hereby grant, lease and demise unto Lessee two (2) parcels of real estate, the first parcel (called "Parcel A") is approximately 148,672.470 square feet of land within the boundaries of Love Field in the City and County of Dallas, State of Texas, together with the improvements thereon, including the following facilities: (1) A hangar building containing approximately 35,475 square feet of floor space, with paved ramp area adjoining (called "Hangar Building"). (2) A prefabricated steel building approximately 175 feet long and 60 feet wide (called "Cargo Building"), containing approximately 10,500 square feet of floor space, which the parties agree may be removed by Lessee at its cost and relocated at Dallas Love Field as directed by Lessor. This parcel is more particularly described on EXHIBIT A which is attached hereto and made a part hereof for all purposes. The second parcel (called "Parcel B") is approximately 247,059.302 square feet of land within the boundaries of Love Field in the City and County of Dallas, State of Texas, which is more particularly described on EXHIBIT B which is attached hereto and made a part hereof for all purposes. II. Lessor and Lessee agree that the terms, conditions and covenants of this Lease are as follows: 1. PRIMARY TERM AND EXTENSION (a) This Lease shall be for a primary term of ten (10) years beginning February 1, 1978, and running through January 31, 1988. (b) Lessee shall have an option to extend this Lease for four(4) additional terms of five (5) years each, the first extension term beginning on February 1, 1988. Each of the options may be exercised by Lessee by giving Lessor's Director of Aviation written notice sixty (60) days prior to the end of the then current term and by negotiating a mutually acceptable rental rate during such sixty (60) day period for such five year extension. The new rental rate will be based on comparable rates then prevailing for similar ground and buildings at comparable airports located in the Southwestern United States (Texas, Oklahoma, New Mexico, Louisiana and Arkansas) without consideration of leasehold improvements added by Lessee. Should Lessee fail to exercise any of its options to extend this Lease, Lessee shall no longer have an option to extend this Lease for subsequent five (5) year terms and this Lease shall thereupon terminate, provided, however, that Lessee may extend this Lease on either Parcel A, Parcel B, or both and if this Lease is extended on one parcel only, Lessee's options to extend this Lease will be extinguished only upon the parcel upon which Lessee did not exercise its option to extend. (c) The parties acknowledge that Parcel A is subject to a lease dated December 14, 1977 between Lessor and ONE AVIATION PLACE, INC., a Texas corporation, whose principal offices are located at 900 Southland Center, Dallas, Texas 75201 (called "One Aviation"), which lease One Aviation has applied to the Lessor for modification to exclude such Parcel A. In consideration of the relinquishment of One Aviation's rights to Parcel A, Lessor agrees that in the event of the cancellation or termination of this Lease for reason of default by either party or in the event Lessee shall fail to exercise any extension option on either Parcel, One Aviation, or its successors or assigns, shall have the first right, but not the obligation, to cure any default of Lessee or exercise such extension upon Parcel A, Parcel B, or both thereby assuming the obligations of Lessee under this Lease. One Aviation will have fifteen (15) days after receipt of notice from Lessor in which to exercise this first right. If One Aviation succeeds to Lessee's interest, Lessee shall be fully released from further liability hereunder, notwithstanding provisions to the contrary herein. 2. RENTAL (a) Subject to reduction pursuant to 2(c) below, the rental for each full year of this Lease during the primary term shall be $79,900.68 (calculated pursuant to 2(b) below) payable in equal monthly installments of $6,658.39. However, no rental shall be due from Lessee for either Parcel A or B until Lessor's Director of Aviation has determined that Lessee is beneficially occupying such Parcel and Lessee is advised accordingly in writing. By the first day of each month, Lessor shall forward to Lessee a written invoice covering such monthly period, which invoice shall be due and payable within ten (10) days after receipt thereof. Payments of such rent shall be made to the City of Dallas, Department of Aviation, Love Field Terminal Building, Dallas, Texas 75235. (b) The amount of rent, as set forth in (a) of this Section, is based on the following rates and computations: Type of Annual Charge Total Per Space Square Feet Per Square Foot Year - ------- ----------- --------------- ---------- Hangar Building 35,475 $1.00 $35,475.00 Cargo Bldg. Space 10,500 $0.90 $ 9,450.00 Unimproved Land (aggregate of Parcels A and B) 349,756.772 $0.10 $34,975.68 ---------- TOTAL $79,900.68 (c) Notwithstanding the foregoing, when the Cargo Building is removed by Lessee, the rental rate for the approximately 10,500 square feet of land occupied by the space of such building shall be reduced from $0.90 per square foot to $0.10 per square foot and the annual rental and monthly installments for the premises and the facilities shall be reduced accordingly beginning as of the first day of the month following removal of such building. 3. USE OF PREMISES Lessee shall have the right to use the premises and facilities for fixed base operations, as follows: (a) Maintenance and operation of a hangar, quarters, facilities and equipment required by Lessee in connection with the conduct of its general aviation business, including air cargo, air mail and air express, the receipt, distribution, manifesting, billing and storage of air cargo, air mail and air express and activities necessary or convenient in connection with the handling thereof, and operations, administrative and other offices. If Lessee commences the sale of aviation fuel at retail at Dallas Love Field, it shall prepare and submit reports indicating fuel flow fees and amounts for landing fees, on such forms and at such reasonable intervals as directed by Lessor's Director of Aviation. (b) Parking, storage, loading, unloading and routine repairing, conditioning, sale and maintenance of aircraft and other equipment used in the operation of private, executive, charter or any other type of flight, the servicing of aircraft and other equipment, by truck or otherwise, with any fuel, or propellant, oil, greases, lubricants, or other supplies, and operation of a flight school. (c) Storage, maintenance and servicing of ramp equipment and any other equipment, materials and supplies. (d) Operation of employee facilities, including parking for automobiles and equipment and the operation of facilities to provide meals for its employees and guests. (e) Constructing, erecting or otherwise obtaining additional buildings and facilities on the premises, at Lessee's sole cost and expense, subject to the prior written approval of Lessor's Director of Aviation, and upon such terms and conditions as may be set out in such approval. Such additional improvements shall become the property of Lessor when placed on the premises, unless either the Lessor grants to Lessee the right of removal in conjunction with its approval of plans for the same or Lessee terminates this Lease pursuant to Section II.13. Lessor agrees that no other rental for the premises and facilities, as hereinbefore set forth, will be charged Lessee in respect to its providing such other services and facilities for itself. (f) Carrying on of any and all other operations and activities reasonably necessary or convenient to the conduct by Lessee of fixed base operations for general aviation purposes. 4. MAINTENANCE AND REPAIR OF PREMISES While this Lease is in effect, the respective obligations of the parties for maintaining and repairing the premises shall be as follows: (a) Lessee shall keep the premises and facilities in a clean and orderly condition. When Lessor calls Lessee's attention to deficiencies in this regard, Lessee shall promptly undertake corrective action. (b) Lessee shall be responsible for maintenance and repair of the existing facilities and any additional ones constructed or installed by Lessee, including interior and exterior of buildings and the heating and air-conditioning systems therein, except that Lessee shall not be responsible for any damage due to ordinary wear, tear, deterioration, Lessor's acts, damage by war or damage due to nuclear hazards. (c) Any damage, excessive wear, tear or deterioration caused by Lessor shall be repaired by Lessor at its cost within a reasonable time following the occurrence thereof and if Lessor does not make the necessary repairs or is not proceeding, in good faith, to do so after being notified in writing by Lessee of any such damage, Lessee may have such repairs made and may deduct the reasonable cost thereof from any rental payable to Lessor. 5. UTILITIES Lessee shall be responsible for payment of the cost of all utility services used by Lessee upon the leased premises and shall make the deposits required in that connection where necessary. 6. INSPECTION Lessor may enter the leased premises during business hours for any purpose connected either with the performance of its obligations hereunder, in the exercise of its governmental functions or to determine the condition of the leased premises from the standpoint of safety. 7. ACCESS TO PREMISES Lessee shall have full and unrestricted access to and egress from the leased premises. In a manner consistent with Lessee's operation of its facilities, this privilege extends to Lessee's employees, customers, guests, and invitees as well as to Lessee's suppliers of materials and furnishers of service, its or their equipment, vehicles, machinery and other property. 8. TAXES Lessee shall be responsible for the payment of all taxes on any equipment, inventory, and movable fixtures and furniture that Lessee places on the leased premises. 9. INSURANCE During the primary term of this Lease or any extension hereof, Lessee shall comply with the following insurance requirements: (a) Lessee shall procure and maintain fire and extended coverage insurance on the facilities located on the leased premises, in an amount to be agreed upon between Lessee and Lessor's Director of Aviation, but in no event shall the amount of coverage on the existing facilities (excluding the Cargo Building when removed) be more than the reasonable cost to replace them in the same condition as that on the date of execution hereof. (b) Lessee shall maintain liability insurance in the minimum amounts of $100,000 for each person; $1,000,000 for each accident and $1,000,000 for property damage. (c) Not later than the date of Lessee's occupancy hereunder, Lessee shall provide Lessor with appropriate certificates of the required insurance, with a company or companies acceptable to Lessor, evidencing the coverage that is in effect and all policies of such insurance shall name Lessor as co-insured, as its interest may appear. Each policy shall provide that Lessor shall be given fifteen (15) days prior written notice of cancellation of material alteration of the insurance covered by such policy. According to Sections 1 and 2 of Chapter XXIII of Lessor's Charter, any person who may have a claim against Lessor must file a written notice thereof with the City Secretary within six (6) months after the injury or damage occurs, which requirement cannot be waived by Lessee's insurance carrier or by any of Lessor's officials or employees. (d) Any sublessee of the leased premises or of any part thereof shall be required by Lessee to maintain similar fire and extended coverage and liability insurance during the term of the sublease. 10. LIENS (a) Lessee shall cause to be removed any and all liens of any nature arising out of construction performed by it or any of its contractors or subcontractors on the leased premises or arising out of the performance of any work or labor by it or them, or the furnishing of any material to it or them for use in making improvements on said leased premises. (b) In addition to the statutory landlord's lien, Lessor shall have at all times a valid contractual lien for all rent and any other sums of money becoming due hereunder from Lessee, upon all equipment, fixtures, furniture, and other personal property of Lessee (excluding motor vehicles or aircraft) situated in or upon the leased premises, subject only to the rights of holders of vendor's and/or initial mortgage liens thereon, with respect to which Lessee, upon request, shall furnish Lessor evidence as to what property is so encumbered. If there are rent arrearages, no property of Lessee not so subject to rights of prior lienholders shall be removed by Lessee from the leased premises without the consent of Lessor's Director of Aviation or his successor in function until such arrearages in rent as well as any and all other sums of money then due Lessor hereunder shall first have been paid and discharged. (c) Upon the occurrence of any of default (as hereafter specified) by Lessee, Lessor may, in addition to any other remedies provided herein or by law, enter upon the leased premises and take possession of any and all equipment, fixtures, furniture and other personal property of Lessee situated on the premises, not subject to rights of prior lienholders and without liability for trespass or conversion, sell the same with or without notice at public or private sale, with or without having such property at the sale, at which Lessor or its assignees may purchase the property and apply the proceeds therefrom, less any and all expenses connected with the taking of possession and sale of the property, as a credit against any sums due by Lessee to Lessor. Any surplus shall be paid to Lessee and Lessee agrees to pay any deficiency forthwith. (d) Lessee shall not place on the leased premises any furniture, fixtures, equipment or improvements which would be subject to a lien of higher or equal dignity that Lessor's landlord's lien, with the exception of vendor's liens and/or initial mortgage liens. 11. TERMINATION BY LESSOR Lessor reserves the right to terminate this Lease before the end of the primary or any extended term hereof if any of the following acts of default should occur: (a) Lessee shall fail to make any payment due Lessor under this Lease on the date that same is due and such failure shall continue for a period of ten (10) days after receipt of written notice from Lessor advising of such failure. Such notice, if the failure remains uncorrected, shall be sufficient notice of termination of this Lease by Lessor. (b) Lessee shall fail to comply with any term, condition or covenant of this Lease, other than one requiring payment to be made when due, and shall not have cured such failure within thirty (30) days after receipt of written notice from Lessor, or if such failure cannot reasonably be cured within the said thirty (30) day period and Lessee shall not have commenced to cure such failure within said thirty (30) days and shall not thereafter, with reasonable diligence and good faith, proceed to cure such failure. (c) Lessee either shall become insolvent, shall make a transfer in fraud of creditors, shall make an assignment for the benefit of creditors, or shall have appointed a receiver or trustee for all or on substantially all of the assets of Lessee. (d) Lessee shall file a voluntary petition under any section or chapter of the National Bankruptcy Act, as amended, or under any similar law or statute of the United States or any State thereof; or an involuntary petition in bankruptcy is filed against Lessee and is not dismissed within sixty (60) days after such filing. (e) The management and/or ownership of Lessee should substantially change to such an extent as to result in unsatisfactory performance under this Lease. Should Lessor exercise its right in this Section, One Aviation shall be so notified. 12. REMEDIES Upon the occurrence of any one of the acts of default giving Lessor the right to terminate this Lease, Lessor shall have the option to pursue the following remedy without any notice or demand other than as required in Section II.11 above. To terminate this Lease, in which event Lessee shall immediately surrender the leased premises to Lessor, and if Lessee fails so to do, Lessor may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the leased premises and expel or remove Lessee and any other person who may be occupying said premises or any part thereof, by force if necessary, without being liable to Lessee for prosecution or any claim for damages therefor. Lessor's pursuit of the foregoing remedy shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due Lessor or of any damages accruing to Lessor by reason of the violation of any of the terms, conditions and convenants herein contained. If legal action is required to enforce any of such remedies, Lessor shall also be entitled to reasonable attorney's fees. 13. TERMINATION BY LESSEE Before the end of either the primary term or any extension hereof, Lessee may terminate this Lease and any or all of its obligations hereunder at any time that Lessee is not in default in the payment of any amount due Lessor, by giving Lessor sixty (60) days written notice upon or after the happening of any one of the following events: (a) The issuance by any court of competent jurisdiction of any order preventing or restraining the use of Love Field Airport for the purposes intended, the same apparently to remain in force and effect for a period of ninety (90) consecutive days or more. For that period of time that such order so preventing or restraining the use of Love Field is in effect prior to Lessee's termination of this Lease, the rental required of Lessee shall be abated. (b) The assumption by the United States Government or any agency or instrumentality thereof of the operation, control or use of Love Field for National defense in such a manner as to preclude Lessee, for a period of ninety (90) consecutive days or more, from using such airport in the conduct of its business. Lessor shall not be liable to Lessee if the latter is so dispossessed, but for any time that such takes place prior to Lessee's termination of this Lease, the rental required of Lessee shall be abated. (c) A material default on the part of the Lessor to meet and observe any of the covenants herein contained, if such default has continued for a period of sixty (60) days or more after written notice to Lessor by Lessee, unless Lessor has begun, and is continuing, in good faith, to remedy the default in such interval. The rental required of Lessee shall abate during the entire period when Lessor has committed such material default and if legal action is required to remedy such default, Lessee shall be entitled to reasonable attorney's fees in addition to any judgment, order, or award entered for Lessee. (d) In the event the premises, existing facilities or Lessee's leasehold improvements, or any part thereof, are rendered wholly or partially untenantable for reasons other than obsolescence, acts or omissions of Lessee, its officers, employees, agents, guests, patrons, invitees, suppliers of materials or furnishers of services, and such remain untenantable for a period of sixty (60) consecutive days or more. The rental required of Lessee shall abate during the entire period of untenantablity. (e) This Lease may, at Lessee's option, be terminated upon either Parcel A, B or both, at any time prior to June 1, 1978, without future liability, if at any time prior to the date of termination it appears to Lessee that either the Jetrail owned by BRANIFF AIRWAYS, INCORPORATED on Parcel B has not been or will not shortly be removed, Lessor has not approved plans for the construction of Lessee's facility on Parcel B, or any representation of Lessor herein is other than as stated. 14. NO WAIVER OF RIGHT TO DECLARE FORFEITURE Any failure or neglect of the Lessor or Lessee at any time to declare a forfeiture of this Lease for any breach or default whatsoever hereunder shall not be taken or considered as a waiver of it rights thereafter to declare a forfeiture for a like or other succeeding breach or default. 15. LESSEE'S RIGHT TO REMOVE PROPERTY Lessee shall be entitled, during the primary term of this Lease and any extension thereof, and upon the termination of this Lease, to remove from the leased premises, or any part thereof, all trade fixtures, tools, machinery, equipment, portable buildings, materials and supplies placed thereon by it; subject, however, to any valid lien Lessor may have thereon for unpaid rent or other amounts, payable to Lessor by Lessee, provided that Lessee shall repair all damage resulting from such removal. Lessor will allow Lessee forty-five (45) consecutive days after the termination date thereof for such removal unless additional time is mutually agreed upon. 16. SURRENDER OF PREMISES Lessee covenants and agrees to yield and deliver peaceably to Lessor possession of the leased premises on the date of cessation of the letting, whether such be by termination, expiration or otherwise, promptly and in as good condition as at the commencement of the letting, except for damage or destruction caused by ordinary wear, tear, deterioration, Lessor's acts, damage by war, and damage due to nuclear hazards, and further excepting structures removed pursuant to the provisions herein or with Lessor's consent. 17. INDEMNIFICATION (a) Lessee shall use due care and diligence in its conduct of activities and operations on the leased premises. Furthermore, Lessee shall defend and save harmless the Lessor and all of its officers, agents, and employees from all suits, actions, or claims of any character, name, or description brought for or on account of any injury, death or damage received or sustained by any person or property as a result of Lessee's conduct of any activity or operation on or in connection with the leased premises. Finally, the Lessee shall pay any judgments, together with costs, which may be obtained against the Lessor or any of its officers, agents, or employees as a result of such suits, actions, or claims for injury or damage. (b) Lessor shall give Lessee prompt notice of any matter covered by Subsection (a) above and shall forward to Lessee every demand, notice, summons, or process received in any claim or legal proceeding covered by Subsection (a) above and cooperate as required by Lessee in the defense of such matter. (c) Lessee shall not be obligated to indemnify, defend, or save harmless Lessor or any of its officers, agents, or employees when the injury or death to a person or damage to property is caused by the negligence or willful misconduct of Lessor, its officers, agents, or employees and Lessor shall indemnify, defend and hold harmless Lessee, its directors, officers, employees and agents from and against any such injury or death or damage. (d) The provisions of this Section which apply to Lessee shall also apply to any party holding by, through, or under Lessee. 18. ASSIGNMENT AND SUBLEASE (a) Lessee shall not assign this Lease in whole or in part, nor sublease all or any part of the leased premises, without the prior written approval of Lessor, acting through its Director of Aviation, which approval shall not be unreasonably withheld. (Such restrictions shall not apply if the assignee of sublessee is a subsidiary, affiliated or successor corporation of Lessee.) (b) In the event that Lessee subleases all or any part of the leased premises, having obtained Lessor's approval, Lessee shall remain fully obligated for payment of rent, which shall continue to be billed to Lessee, and for the performance of the other convenants herein made by Lessee. Likewise, with respect to any assignment of this Lease (other than to an affiliated, subsidiary or successor corporation), Lessee's obligations shall continue in effect unless Lessor, by resolution of its City Council, approves the assignment and authorizes Lessee's release. (c) Lessor shall not transfer or assign this Lease without the prior written approval of Lessee, except to a political subdivision of the State of Texas, and then only if such political subdivision assumes the obligations of Lessor hereunder. 19. RIGHT OF FIRST REFUSAL Lessor hereby grants to Lessee a right of first refusal to lease all or any part of the real estate and any improvements thereon (called Parcels "C", "D" and "E"), constituting approximately 129,565 square feet within the boundaries of Love Field in the City and County of Dallas, State of Texas which is more particularly described on EXHIBIT C which is attached hereto and made a part hereof for all purposes. Should Lessor locate a third party desirous of leasing all or any part of Parcels C, D or E, Lessor shall first offer to lease such property to Lessee at the same rental rate and for the same lease term as offered by the third party. Lessee shall have ten (10) days after receipt of written notice from Lessor advising of such third party offer in which to exercise its rights to lease the premises. If Lessee leases the premises, the provisions of this Lease shall be applicable except for the rental and the term of such leasing. Upon Lessee's failure to exercise this right to lease the property, Lessor may lease it to such third party at the same rental rate and for the same lease term offered to Lessee. This right of first refusal shall never be extinguished by Lessee's failure to exercise it at any time. During the initial term or any extension of this Lease, provided that Lessee is not in default of any provision hereof, Lessee's right of first refusal as to Parcels C, D or E shall be renewed after each vacation of the property by a third party and be extended by Lessor to Lessee prior to Lessor's entry into each future lease upon such property with any third party. 20. NONDISCRIMINATION Lessor and Lessee hereby convenant and agree, as a condition of this Lease, that they will take all necessary action to insure that, in connection with any work or activities conducted under this Lease, neither they, their agents and employees, nor any of their consultants, their agents and employees, will directly or through contractual or other arrangements, on the grounds of race, color, religion, national origin or sex, discriminate in the treatment or employment of any individual or groups of individuals. 21. SIGNS (a) All exterior signs shall comply with the pertinent City ordinances, and also shall be approved by Lessor's Director of Aviation. Unless otherwise specifically authorized, they shall conform in general appearance to the existing signs displayed at Love Field. (b) Directional entrance and exit signs erected by Lessee shall not exceed 18 inches in width and 36 inches in length. Except where Lessor's Director of Aviation has given his prior written consent, any other sign erected by Lessee shall not exceed 5 feet in width and 8 feet in length. (c) Upon the expiration or termination of this Lease, Lessee shall remove, obliterate or paint out, as required by Lessor's Director of Aviation, any and all signs and advertising on the leased premises if pertaining to Lessee, and in this regard, Lessee shall restore the premises to the same condition as prior to the placement thereon of any signs or advertising. In the event that Lessee fails to remove, obliterate or paint out each and every sign or advertisement of Lessee, Lessor's Director of Aviation may, at his option, have the necessary work performed at the expense of Lessee and the charge therefor shall be paid by Lessee to Lessor upon demand. 22. GOVERNMENTAL REQUIREMENTS - RULES AND REGULATIONS (a) Lessee agrees to obtain, from all governmental authorities having jurisdiction, all licenses, certificates and permits necessary for the conduct of its operations and to keep them current. (b) In operating the leased premises, Lessee agrees to comply with the applicable lawful provisions of Federal and State laws and Ordinances of the City of Dallas. (c) Lessor has established, and may, from time to time, establish, rules and regulations pertaining to Love Field. Lessee covenants to observe all such lawful rules and regulations. If such rules or regulations contravene any provision of this Lease or interfere or prevent Lessee's enjoyment and use of the leased premises, Lessee may, at its option, terminate this Lease. 23. VENUE Venue of any action brought under this Lease shall be in Dallas County, Texas, exclusively. 24. SUCCESSORS AND ASSIGNS Subject to the limitations upon assignment herein contained, this Lease shall be binding upon and inure to the benefit of the parties hereto, their respective successors and assigns. 25. NOTICES Notices hereunder shall be sufficient if sent by certified or registered mail, postage fully prepaid, to: City of Dallas ATTN: Director of Aviation Terminal Building Dallas Love Field Dallas, Texas 75235 K-C Aviation Inc. Outagamie Airport Appleton, Wisconsin 54911 One Aviation Place, Inc. 900 Southland Center Dallas, Texas 75201 or to such other respective addresses as the parties may from time to time designate to each other in writing. 26. HEADINGS The headings herein are for convenience in reference and are not intended to define or limit the scope of any provisions of this Lease. 27. COUNTERPARTS This Lease may be executed in any number of counterparts, each of which shall be an original. EXECUTED this 25th day of January, 1978, by the CITY OF DALLAS, Lessor, acting by and through its City Manager in the manner required by the City Charter, being duly authorized by Resolution No. 78-0243 passed by the City Council on the 25th day of January, 1978; and by K-C AVIATION INC., Lessee, acting through its duly authorized officers. LESSOR ------ ATTEST: CITY OF DALLAS GEORGE R. SCHRADER, City Manager /s/ [Illegible] By /s/ [Illegible] - ------------------------------- ------------------------------- ROBERT S. SLOAN, City Secretary Assistant City Manager COUNTERSIGNED: APPROVED AS TO FORM: LEE E. HOLT, City Attorney /s/ Tommy J. Tompkins /s/ Analeslie Muncy - ----------------------------- ------------------------------ TOMMY J. TOMPKINS, ANALESLIE MUNCY City Controller Assistant City Attorney LESSEE ------ ATTEST: K-C AVIATION INC. By /s/ [Illegible] By /s/ [Illegible] - ----------------------------- ----------------------------- Secretary President AGREEMENT AMENDING LEASE STATE OF TEXAS COUNTY OF DALLAS The AGREEMENT, dated October 28, 1981, between the CITY OF DALLAS, a municipal corporation (herein called "CITY" acting herein by and through its City Manager and K-C AVIATION, INC., a Delaware Corporation (herein called "LESSEE"), acting herein and through its duly authorized officer. W I T N E S S E T H : WHEREAS, by Lease dated January 25, 1978, CITY leased to LESSEE certain premises within the boundaries of Dallas Love Field in the City and County of Dallas, State of Texas, together with certain improvements thereon; and WHEREAS, Lessee has exercised certain rights-of-first-refusal-to-lease under terms of the Lease on Parcels "C" and "E" as identified in the Lease; and NOW, THEREFORE, CITY and LESSEE hereby agree as follows: 1. The description of the leased premises appearing in Article 1 of the Lease is hereby amended to read as follows by adding: PARCEL "C" Beginning at a point in the most southeasterly corner of Parcel "B" of the Lease; Thence, S. 44(degree) 53' 32" E. along the westerly side of Airfreight Lane ( now known as Aviation Place) a distance of 303.42 feet to a point for corner; Thence, S. 45(degree) 06' 30(degree) W. a distance of 117.77 feet to a point for corner; Thence, N. 44(degree) 48' 56" W. a distance of 290.45 feet to an angle point; Thence, N. 45(degree) 10' E. along the southeast line of said Parcel "B" a distance of 117.39 feet to the place of beginning and containing approximately 36,390 sq. ft. of land and identified as Parcel "C". PARCEL "E" Beginning at a point in the most Northeasterly corner of Parcel "B" of the Lease; Thence S. 45(degree) 10' 0" W. 48.61 feet to a point for corner; Thence N. 44(degree) 50' W. along the Southwesterly line of Airfreight Lane (now closed) a distance of 350 feet more or less to a fence corner; Thence Southerly along the Easterly line of Aviation Place a distance of 360 feet more or less to a point for corner; Thence N. 45(degree) 10' E a distance of 230 feet more or less to a point for closure and containing 35,143 square feet of land, more or less, and identified as Parcel "E". 2. Effective on and after October 1, 1981, Article 2 of the lease to read and provide as follows: (a) The monthly rental effective October 1, 1981 during the primary term of the lease shall be $7,508.29 based upon the following calculations: ANNUAL CHARGE PER TYPE OF SPACE SQUARE FEET SQUARE FOOT TOTAL PER YEAR - ------------- ----------- ----------- -------------- Hangar Bldg. 35,475 $1.00 $ 35,475.00 Parcel A 113,197.47 $0.10 $ 11,319.75 Parcel B 247,059 $0.10 $ 24,705.90 Parcel C 36,390 $0.26 $ 9,461.40 Parcel E 35,143 $0.26 $ 9,137.18 ----------- $ 90,099.45 ($90,099.45 / 12 months = $7,508.29 per month) (b) Every three (3) years beginning October 1, 1984, the monthly rental on Parcel C (36,390 SF) and Parcel E (35,143 SF) shall be adjusted to the then prevailing rental rate for improved ramp or parking area, which is determined annually by the Aviation Department, for similar premises at Dallas Love Field with a maximum increase of 4% per year in the rental rate. By the first day of each month, Lessor shall forward to Lessee written invoice covering such monthly period, which invoice shall be due and payable within ten (10) days after receipt thereof. Payment of such rent shall be made to the City of Dallas, Department of Aviation, Love Field Terminal Building, Dallas, Texas. In consideration for the improvements to the Love Field Airport to be undertaken by the City of Dallas with the assistance of Federal funds to be provided to the City subject to certain assurances being made by Lessees doing business at the airport, both; (a) The Lessor and Lessee hereby covenant and agree, as a condition of this lease amendment that they will take all necessary action to insure that, in connection with any work or activities conducted under the lease, neither they, their agents and employees, nor their consultants, their agents and employees, will directly or through contractual or other arrangements, on the ground of race, color, religion, national origin, or sex, discriminate in the treatment or employment of any individual or groups of individuals. Lessee assures that it will undertake an affirmative action program as required by 14 CFR Part 152, Subpart E, to insure that no person shall on the grounds of race, creed, color, national origin, or sex be excluded from participating in any employment activities covered in 14 CFR Part 152, Subpart E. The Lessee assures that no person shall be excluded on these grounds from participating in any employment activities covered in 14 CFR Part 152, Subpart E. The Lessee assures that no person shall be excluded on these grounds from participating in or receiving the services or benefits of any program or activity covered by this subpart. The Lessee assures that it will require that its covered suborganizations provide assurances to the Lessee that they similarly will undertake affirmative action programs and that they will require assurances from their suborganizations, as required by 14 CFR Part 152, Subpart E, to the same effect. Lessee agrees to comply with any affirmative action plan or steps for equal employment opportunity required by 14 CFR Part 152, Subpart E, as part of the affirmative action program, or by any Federal, State, or local agency or court, including those resulting from a conciliation agreement, a consent decree, court order, or similar mechanism. The Lessee agrees to obtain similar assurances from its covered suborganizations, as required by 14 CFR Part 152, Subpart E. (b) Lessee assures that no person shall be excluded from participation in, denied the benefits of, or otherwise discriminated against in connection with the conduct or performance of Lessee's activities at Love Field on the grounds of race, color, national origin, or sex. (c) Both parties acknowledge that they have received and have or will read the applicable Federal Regulations, 14 CFR Part 152, Subpart E, and 49 CFR Part 23. (d) The Lessee, for itself, its personal representatives, successors in interest, and assigns, as a part of the consideration hereof, does hereby covenant and agree, as a covenant running with the land, that in the event facilities are constructed, maintained, or otherwise operated on the Leased Premises for a purpose for which a Department of Transportation program or activity is extended or for another purpose involving the provision of similar services or benefits, the Lessee shall maintain and operate such facilities and services in compliance with all other requirements imposed pursuant to Title 49, Code of Federal Regulations, Department of Transportation, Subtitle A, Office of the Secretary, Part 21, Nondiscrimination in Federally-assisted programs of the Department of Transportation-Effectuation of Title VI of the Civil Rights Act of 1964 and as said Regulations may be amended. (e) The Lessee for itself, its personal representatives, successors in interest, and assigns, as part of the consideration hereof, does hereby covenant running with the land, that (1) no person on the grounds of race, color, religion, or national origin shall be excluded from participation in, denied the benefits of, or be otherwise subjected to discrimination in the use of said facilities, (2) that in the construction of any improvements on, over, or under such land and the furnishing of services thereon, no person on the grounds of race, color, or national origin shall be excluded from participation in, denied the benefits of, or otherwise be subjected to discrimination, and (3) that the Lessee shall use the Leased Premises in compliance with all other requirements imposed by or pursuant to Title 49, Code of Federal Regulations, Department of Transportation, Subtitle A, Office of the Secretary, Part 31, Nondiscrimination in Federal-assisted programs of the Department of Transportation-Effectuation of Title VI of the Civil Rights Act of 1964, and as said Regulations may be amended. (f) That in the event of breach of any of the above nondiscrimination covenants, Lessor shall have the right to terminate this Agreement and to reenter and repossess the Leased Premises and the facilities thereon, and hold the same as if the Lease Agreement had never been made or issued. Except as hereby supplemented and amended, the provisions contained in the Lease dated January 25, 1978 and all previous supplements and amendments thereto shall continue in full force and effect and this Amendment, along with the original Lease dated January 25, 1978 and all previous supplements and amendments thereto, shall hereinafter be considered a single agreement. This AGREEEMENT shall bind and insure to the benefit of City's successors and assigns, and Lessee's successors and assigns. IN WITNESS WHEREOF, this Agreement is executed as of the date first herein written. ATTEST: LESSOR: CITY OF DALLAS GEORGE R. SCHRADER, City Manager /s/ [illegible] By: /s/ [illegible] - --------------------------------- -------------------------------- ROBERT S. SLOAN, City Secretary Assistant City Manager COUNTERSIGNED: APPROVED AS TO FORM: Submitted to City Attorney LEE E. HOLT, City Attorney /s/ Jane A. Hart By: /s/ Edward H. Perry - --------------------------------- -------------------------------- JANE A. HART, City Controller Assistant City Attorney ATTEST: LESSOR: K-C AVIATION, INC. By: /s/ Ann Johnson By: /s/ Timothy E. Hoeksema ------------------------------ -------------------------------- Secretary Timothy E. Hoeksema, President SECOND AMENDMENT TO LEASE OF LAND AND FACILITIES AT DALLAS LOVE FIELD This Second Amendment to Lease of Land and Facilities at Dallas Love Field ("Second Amendment") dated June 1, 1989, between the City of Dallas, a municipal corporation, (hereinafter referred to as "Lessor"), acting herein by and through its City Manager, and K-C Aviation, Inc., a Delaware Corporation, (hereinafter referred to as "Lessee"), acting herein by and through its duly authorized officer. W I T N E S S E T H WHEREAS, by Lease executed January 25, 1978 (the "Lease"), Lessor leased to Lessee certain premises within the boundaries of Dallas Love Field, together with certain improvements thereon; and WHEREAS, the initial term of the Lease expired on January 31, 1988 and Lessee exercised its first option to extend the Lease for an additional five-year period with new rental rates which became effective on February 1, 1988; and WHEREAS, Lessee has pursuant to the Agreement Amending Lease dated October 28, 1981 ("Amendment to Lease"), leased Parcels "C" and "E" as described in the Lease and Amendment to Lease; and WHEREAS, Lessee now wishes to lease Parcel "D" as described in the Lease and Amendment to Lease; and WHEREAS, Lessee has agreed to release Parcel "E" to accommodate construction of a new hangar facility for Lessee's use on certain adjacent property leased by Dalfort Corporation ("Dalfort"), and to that end, Lessee and Dalfort have executed a sublease which includes Parcel "E" as well as other tracts; and WHEREAS, it appears in the best interests of both Lessor and Lessee to further amend the Lease, as amended, including changes to the rental rate; Now, therefore, Lessor and Lessee hereby agree to the following: 1. Lessee hereby releases and relinquishes and Lessor accepts Parcel E, more particularly described on Exhibit A and depicted on Exhibit B of this Second Amendment, both Exhibits A and B are attached hereto and made a part hereof. The indemnities set forth in the Lease and Amendment to Lease, as applied to Parcel "E", shall continue in full force and effect as to all incidents, events, or occasions arising or occurring with respect to the time period such parcel was leased by Lessee. 2. Lessor hereby leases, lets and demises to Lessee Parcel D more particularly described on Exhibit C and depicted on Exhibit D of this Second Amendment, which Exhibits C and D are attached hereto and made a part hereof. 3. Section I of the Lease is hereby amended as follows: a. Parcel "E" is hereby deleted, together with the description and depiction as set forth in the pertinent attached Exhibits. b. Parcel "D" is hereby added, together with the description and depiction as set forth in the pertinent attached Exhibit. 4. Section II of the Lease is hereby amended to read as follows: a. Effective with this Second Amendment the monthly rental will be based upon the following calculations: ANNUAL RENTAL RATE TOTAL PER ANNUAL TYPE OF SPACE SQUARE FEET SQUARE FOOT RENTAL - ----------------- --------------- -------------------- ------------ Hangar Building 35,475.00 $2.00 $ 70,950.00 Ground Parcel "A" 123,697.47 $0.165 $ 20,410.09 Ground Parcel "B" 247,059.30 $0.165 $ 40,764.78 Ground Parcel "C" 36,390.00 $0.26 $ 9,461.40 Ground Parcel "D" 41,070.24 $0.26 $ 10,678.26 ------------ $ 152,264.52 ($152,264.52/12 months = $12,688.71 per month) Lessor acknowledges receipt of the monthly rental for the Hangar and Parcels "A", "B" and "C" and "E" from February 1, 1988 through the execution date of this Second Amendment. b. Commencing February 1, 1991 and every three (3) years thereafter for the duration of the Lease, the monthly rental for Parcel "C" and Parcel "D" shall be adjusted to the then prevailing airport rental rate for improved ramp or parking area at Dallas Love Field, as appropriate, which airport rate is determined annually by the Aviation Department; however, each adjustment in the rental rate paid by Lessee shall increase such rental rate for each parcel by no more than 12% of the rental rate for the immediately preceding three-year period. Escalation of the rental for the hangar containing 35,475 square feet and Parcels "A" and "B" shall be determined in accordance with the terms and conditions of the Lease. 5. Section 17 of the Lease is hereby amended in its entirety and the following provision is hereby substituted: INDEMNITY Lessee agreed to defend, indemnify and hold Lessor, its officers, agents, and employees, harmless against any and all claims, lawsuits, judgments, costs, and expenses for personal injury (including death), property damage or other harm for which recovery of damages is sought that may arise out of or be occasioned solely by Lessee's intentional or negligent breach of any of the terms or provisions of this contract, or by any other negligent or strictly liable act or omission of Lessee, its officers, agents, employees, or subcontractors, in the performance of this contract; except that the indemnity provided for in this paragraph shall not apply to any liability resulting from the sole negligence of Lessor, its officers, agents, or employees. In the event of joint and concurrent negligence of Lessee and Lessor, responsibility, if any, shall be apportioned comparatively in accordance with the law of the State of Texas, without waiving any governmental immunity available to the Lessor under Texas Law and without waiving any defenses of the parties under Texas Law. The provisions of this paragraph are solely for the benefit of the parties hereto and not intended to create or grant any rights, contractual or otherwise, to any other person or entity. It is further provided that Lessor shall give to Lessee prompt and reasonable notice of any such claims or actions and Lessee shall have the right to investigate, compromise, and defend same to the extent of its own interest. 6. Except as hereby supplemented and amended, the provisions contained in the Lease and all supplements and amendments thereto shall continue in full force and effect and this Second Amendment, along with the Lease and all supplements and amendments thereto, shall hereinafter be considered a single agreement. The effective date of this Second Amendment is May 1, 1989 IN WITNESS WHEREOF, this Second Amendment is executed this _____ day of _______________, 1989 by the City of Dallas, acting by and through its City Manager in the manner required by the City Charter, being duly authorized by Resolution No. 89-1113, passed by the City Council on April 12, 1989; and by K-C AVIATION, INC., acting through its hereunto duly authorized officers, thereby binding itself, its successors, assigns and representatives for the faithful and full performance of the terms and provisions of this Second Amendment. ATTEST: LESSOR: CITY OF DALLAS RICHARD KNIGHT, JR., City Manager /s/ Robert S. Sloan By: /s/ [Illegible] - --------------------------------- -------------------------------- Robert S. Sloan, City Secretary Assistant City Manager APPROVED AS TO FORM: ANALESLIE MUNCY, City Attorney By: /s/ J. Scott Carlson -------------------------------- Assistant City Attorney Submitted to City Attorney ATTEST: LESSEE: K-C AVIATION, INC. By: /s/ Deborah J. Pasley By: /s/ R. W. Emery, President ----------------------------- -------------------------------- Secretary Authorized Official (Title) CITY OF DALLAS December 9, 1997 Robert Nelson Executive Vice President, Operations K-C Aviation 7440 Aviation Place Dallas, TX 75235 Re: Exercise of 5-year Option to Extend Lease Parcels A & B Dear Mr. Nelson: We are in receipt of your letter dated November 5, 1997 regarding rental rates for the 5-year option period to extend the lease on Parcels A & B beginning February 1, 1998. The current prevailing rates for similar facilities at Dallas Love Field are $0.26 per square foot per year for improved ground (ramp) and $2.24 per square foot for hangar/shop space. Enclosed is a copy of our most recent airport survey regarding ground rental rates. Based on the average of the various rental rates, we believe an increase to $0.26 per square foot for improved ground is fair and equitable for the upcoming option period. Similarly, the current rate of $2.24 per square foot is in line with the prevailing rate at the Airport. The following outlines the proposed rental to be paid for the 5-year option period beginning February 1, 1998:
PROPOSED RENTAL EFFECTIVE 2/1/98 THROUGH 1/31/03: Annual Rental Monthly Rental Hangar 35,475.00 SF @ $2.24/SF = $ 79,464.00 $ 6,822.00 Ground (A) 123,697.47 SF @ 0.26/SF = 32,161.34(ITALICS) 2,680.11(ITALICS) Ground (B) 247,059.30 SF @ 0.26/SF = 64,235.41 5,352.95 Ground (C) 36,390.00 SF @ 0.26/SF = 9,461.40 788.45 Ground (D) 41,070.24 SF @ 0.26/SF = 10,678.26 889.85 ------------ ------------ TOTAL $ 196,000.41 $ 16,333.36 INCREASE FROM CURRENT RENTAL STRUCTURE: $ 22,245.40 $ 1,853.79 (Italics denotes change)
Robert Nelson December 9, 1997 Page 2 Unless we hear from you otherwise, we will implement the new rate on February 1, 1998. If you have any questions or need additional information, you may contact Tommy Poole, Real Estate Supervisor, at 214/670-6153 Sincerely, /s/ Danny L. Bruce - ---------------------------------- Danny L. Bruce Director of Aviation cc: Kenneth Gwyn Tommy Poole EX-10.39 8 SUBLEASE between DALFORT AVIATION SERVICES, a Division of Dalfort Corporation, a Nevada Corporation ("Landlord") and K-C AVIATION INC. a Delaware Corporation ("Tenant") TABLE OF CONTENTS ----------------- Page 1. Premises..............................................................1 1.1 Premises.......................................................1 1.2 Square Footage.................................................2 2. Term..................................................................2 2.1 Initial Term...................................................2 2.2 Extension Options..............................................2 3. Base Rent; Additional Charges.........................................5 3.1 Base Rent......................................................5 3.2 City of Dallas Adjustments.....................................6 3.3 Rent Adjustments...............................................7 3.4 Additional Charges.............................................7 3.5 Late Payments..................................................7 4. Taxes.................................................................8 4.1 Definitions....................................................8 4.2 Payment of Taxes...............................................9 4.3 Commencement Date..............................................9 4.4 Tax Reduction Proceedings.....................................10 4.5 No Forfeiture.................................................10 5. Use of Premises; Conduct of Business; Insurance Requirements; Restrictive Covenant.................................................11 5.1 Use of Premises...............................................11 5.2 Conduct of Business...........................................11 5.3 Insurance Requirements........................................11 5.4 Restrictive Covenant..........................................11 6. Utilities............................................................12 7. Construction of Tenant's Building....................................12 7.1 Construction..................................................12 7.2 Plans and Specifications......................................12 7.3 Approval of Plans and Specifications..........................13 7.4 Completion of Construction....................................14 7.5 Payment Bond and Performance Bond.............................14 7.6 Licenses, Permits.............................................14 7.7 Personal Property.............................................14 7.8 Removal of Personal Property..................................15 7.9 Ownership.....................................................15 7.10 Removal of Signs..............................................15 7.11 Tenant Changes................................................16 8. Maintenance and Repairs..............................................16 8.1 Repairs.......................................................16 8.2 Maintenance...................................................16 8.3 Repair Requirements...........................................17 9. Liens................................................................17 10. Compliance with Laws.................................................16 11. Subordination........................................................17 11.1 Subordination to Ground Lease.................................17 11.2 Compliance with Ground Lease..................................17 11.3 Ground Lessor Approval........................................18 11.4 Expiration of Sublease Agreement..............................19 11.5 Subordination to Mortgages....................................19 11.6 Self-Operating Provisions.....................................20 12. Assignment and Subletting...........................................20 12.1 Consent Required..............................................20 12.2 Notice of Proposed Transfer...................................20 12.3 Landlord's Electives..........................................21 12.4 Takeback Space................................................21 12.5 Landlord's Rights.............................................21 12.6 Conditions of Assignment or Sublease..........................21 12.7 No Release of Tenant; No Waiver...............................22 12.8 Direct or Indirect Sales......................................23 12.9 Assumption of Obligations by Transferee.......................23 12.10 Approval by Ground Lessor....................................24 13. Destruction..........................................................24 13.1 Restoration...................................................24 13.2 Insurance Proceeds............................................25 13.3 Application of Insurance Proceeds Upon Termination............26 13.4 Waiver of Subrogation.........................................26 14. Eminent Domain.......................................................27 14.1 Taking........................................................27 14.2 Restoration...................................................28 14.3 Application of Proceeds Upon Termination......................29 14.4 Condemnation Award............................................29 14.5 Rental Abatement..............................................30 14.6 Temporary Taking..............................................30 15. Expansion Option.....................................................30 15.1 Option........................................................30 15.2 Exercise......................................................30 15.3 Covenant to Build Expansion Facility..........................30 15.4 Rental and Terms..............................................31 15.5 "As Is".......................................................31 15.6 Amendment.....................................................31 16. Common Areas.........................................................32 16.1 Landlord Common Area..........................................32 16.2 Tenant Common Area............................................32 16.3 Tenant Option Common Area.....................................32 16.4 Taxiways......................................................32 16.5 Rules and Regulations.........................................32 16.6 Additional Common Area Rent...................................33 17. Default..............................................................33 17.1 Events of Default by Tenant...................................33 17.2 Rights and Remedies of Landlord...............................33 17.3 Events of Default by Landlord.................................35 17.4 Indemnities...................................................35 18. Insolvency or Bankruptcy.............................................36 19. Fees and Expenses; Indemnity; Insurance..............................36 19.1 Fees and Expenses.............................................36 19.2 Indemnification...............................................36 19.3 Additional Indemnification....................................37 19.4 Insurance.....................................................37 19.5 Landlord Not Responsible......................................38 20. Access to Premises; Security.........................................38 20.1 Access to Premises............................................38 20.2 Security......................................................39 21. Notices..............................................................39 22. Mutual Waivers.......................................................41 22.1 No Waiver.....................................................41 22.2 Written Instrument............................................42 23. Tenant's Certificates................................................42 24. Guaranty.............................................................43 25. Authority............................................................43 25.1 Authority of Tenant...........................................43 25.2 Authority of Landlord.........................................43 26. Arbitration..........................................................43 27. Termination of Sublease by Tenant....................................44 28. Affirmative Covenants................................................44 28.1 Affirmative Covenants.........................................44 28.2 No Exclusion..................................................45 28.3 Review of Federal Regulations.................................45 30. Landlord's Increased Leasehold Area..................................45 31. Miscellaneous........................................................45 31.1 Landlord and Tenant...........................................45 31.2 Successors and Assigns........................................46 31.3 Validity of Provisions........................................46 31.4 Applicable Laws...............................................46 31.5 Execution and Delivery........................................46 31.6 No Representations or Warranties..............................47 31.7 Review of Documents...........................................47 31.8 Legal Expenses................................................47 31.9 Surrender of Premises.........................................47 31.10 Quiet Enjoyment...............................................48 31.11 Holding Over..................................................48 31.12 Brokers.......................................................48 31.13 Cumulative Remedies; Survival of Indemnities..................48 31.14 Time is of Essence............................................49 31.15 Approval of Ground Lessor.....................................49 31.16 Third Party Beneficiary.......................................49 31.17 Headings......................................................49 Exhibits - -------- A. Description of Land B. Description of Premises C. First Additional Agreement SUBLEASE -------- THIS SUBLEASE (the "Sublease"), made and entered into as of the 17th day of January, 1989, by and between DALFORT AVIATION SERVICES, a division of Dalfort Corporation, a Nevada corporation having offices at 7701 Lemmon Avenue, Dallas, Texas 75209 ("Landlord") and K-C AVIATION INC., a Delaware corporation having offices at 7530 Cedar Springs, Dallas, Texas 75234-0145 ("Tenant"), WITNESSETH: THAT WHEREAS, Landlord is the lessee under that certain Love Field Terminal and Air Cargo Facility Lease and Agreement dated May 1, 1967, covering the parcels of land located within the boundaries of Love Field Airport and shown on Exhibit A attached hereto (the "Land") between The City of Dallas as landlord ("Ground Lessor") and Landlord (formerly known as Braniff Realty Company) as tenant, as amended (such ground lease, as now or hereafter from time to time amended, is referred to herein as the "Ground Lease"); WHEREAS, Tenant desires to lease from Landlord and Landlord desires to lease to Tenant a certain portion of the Land in order to construct a facility thereon subject to and upon the terms, covenants and conditions set forth herein; WHEREAS, Landlord and Tenant are entering into that certain Fuel Sales Agreement of even date hereof (the "Fuel Sales Agreement") concurrently with and in consideration of the execution of this Sublease; NOW, THEREFORE, Landlord and Tenant hereby covenant and agree as follows: 1. Premises. 1.1 Premises. Upon and subject to the terms, covenants and conditions hereafter set forth, Landlord hereby exclusively leases to Tenant and Tenant hereby leases from Landlord those premises (the "Premises") consisting of a portion of the Land which is identified as the "Lease Area" on Exhibit B attached hereto. Tenant shall, at its sole cost and expense, construct or cause to be constructed, a facility on the Land (the "Building") in accordance with the terms and provisions of this Sublease. (The Building and any and all other buildings, structures or other improvements on the Land shall be collectively referred to as the "Improvements" ). The purpose of Exhibit B is to show the approximate location of Tenant's Building only, and is not meant to constitute an agreement as to the construction of Tenant's Building, the rentable area thereof or the specific location of the common areas or elements thereof. 1.2 Square Footage. Landlord and Tenant agree that the rentable area of the Premises is approximately 85,000 square feet, and further agree that following the completion of Tenant's Building as provided in Article 7 hereof, the actual square footage of the Premises shall be calculated and agreed upon in writing by the Landlord and Tenant. 2. Term. 2.1 Initial Term. The Premises are leased for a term of ten (10) years (the "Initial Term"), commencing as of the date this Sublease is fully executed by both parties and consented to by the City of Dallas (the "Commencement Date") and expiring at 11:59 p.m. on the day immediately preceding the tenth (10th) anniversary of the date of execution hereof by both parties, subject to the rights of Tenant to extend the term hereof as provided herein, or such earlier date on which this Sublease terminates pursuant to the terms hereof (the "Expiration Date"). Tenant's obligation to pay Rent (as defined in Article 3) pursuant to Article 3 hereof shall begin on a date which is six months after the Commencement Date. 2.2 Extension Options. Tenant shall have the option to extend the term of this Sublease for up to five (5) consecutive renewal terms (the "Extension Terms"). The first four (4) Extension Terms shall consist of five (5) years each and the fifth (5th) consecutive Extension Term shall consist of four (4) years. Tenant may exercise the Extension Options on the following terms and conditions: (a) Provided that Tenant is not in default of any of the terms, covenants or conditions of this Sublease or of the Fuel Sales Agreement, Tenant may elect, upon written notice given to Landlord on or before the date which is seven (7) months prior to the Expiration Date, to extend the Term hereof for an additional period of five (5) years (the "First Extension Term"), commencing upon the first (lst) day immediately following the Expiration Date. If Tenant fails to timely elect to extend the Term hereof as provided in this Section 2.2(a), Tenant conclusively shall be deemed to have waived its right to extend the Term hereof for the First Extension Term. After the election by Tenant to extend the Term hereof pursuant to this Section 2.2(a), each reference to the "Term" hereof shall mean the term of this Sublease as it has been extended by the First Extension Term, and each reference to the "Expiration Date" hereof shall mean the day immediately preceding the fifteenth (15th) anniversary date of the Commencement Date (unless the Commencement Date is a day other than the first day of a calendar month, in which event the Expiration Date shall be the date fifteen (15) years after the last day of the calendar month following the calendar month in which the Commencement Date occurs), or such earlier date on which this Sublease terminates pursuant to the terms hereof. The precise agreements, terms and conditions hereof shall remain in effect and be applicable throughout the First Extension Term. (b) Provided that Tenant (i) has timely exercised its option to extend this Sublease for the First Extension Term, and (ii) is not in default of any of the terms, covenants or conditions of this Sublease or of the Fuel Sales Agreement, Tenant may elect, upon written notice given to Landlord on or before the date which is seven (7) months prior to the Expiration Date (as extended by the First Extension Term), to extend the Term hereof for an additional period of five (5) years (the "Second Extension Term"), commencing upon the first (1st) day immediately following the Expiration Date (as extended by the First Extension Term). If Tenant fails to timely exercise its option to extend this Sublease for the First Extension Term, or to timely elect to extend the Term hereof for the Second Extension Term as provided in this Section 2.2(b), Tenant conclusively shall be deemed to have waived its right to extend the Term hereof for the Second Extension Term. After the election by Tenant to extend the Term hereof pursuant to this Section 2.2(b), each reference to the "Term" hereof shall mean the term of this Sublease as it has been extended by the First Extension Term and the Second Extension Term, and each reference to the "Expiration Date" hereof shall mean the day immediately preceding the twentieth (20th) anniversary date of the Commencement Date (unless the Commencement Date is a day other than the first day of a calendar month, in which event the Expiration Date shall be the date twenty (20) years after the last day of the calendar month following the calendar month in which the Commencement Date occurs), or such earlier date on which this Sublease terminates pursuant to the terms hereof. The precise agreements, terms and conditions hereof shall remain in effect and be applicable throughout the Second Extension Term. (c) Provided that Tenant (i) has timely exercised its option to extend this Sublease for the First and Second Extension Terms, and (ii) is not in default of any of the terms, covenants or conditions of this Sublease or of the Fuel Sales Agreement, Tenant may elect, upon written notice given to Landlord on or before the date which is seven (7) months prior to the Expiration Date (as extended by the First and Second Extension Terms), to extend the Term hereof for an additional period of five (5) years (the "Third Extension Term"), commencing upon the first (1st) day immediately following the Expiration Date (as extended by the First and Second Extension Terms). If Tenant fails to timely exercise its option to extend this Sublease for the First or Second Extension Terms, or to timely elect to extend the Term hereof for the Third Extension Term as provided in this Section 2.2(c), Tenant conclusively shall be deemed to have waived its right to extend the Term hereof for the Third Extension Term. After the election by Tenant to extend the Term hereof pursuant to this Section 2.2(c), each reference to the "Term" hereof shall mean the term of this Sublease as it has been extended by the First, Second and Third Extension Terms, and each reference to the "Expiration Date" hereof shall mean the day immediately preceding the twenty-fifth (25th) anniversary date of the Commencement Date (unless the Commencement Date is a day other than the first day of a calendar month, in which event the Expiration Date shall be the date twenty-five (25) years after the last day of the calendar month following the calendar month in which the Commencement Date occurs), or such earlier date on which this Sublease terminates pursuant to the terms hereof. The precise agreements, terms and conditions hereof shall remain in effect and be applicable throughout the Third Extension Term. (d) Provided that Tenant (i) has timely exercised its option to extend this Sublease for the First, Second and Third Extension Terms, and (ii) is not in default of any of the terms, covenants or conditions of this Sublease or of the Fuel Sales Agreement, Tenant may elect, upon written notice given to Landlord on or before the date which is seven (7) months prior to the Expiration Date (as extended by the First, Second and Third Extension Terms), to extend the Term hereof for an additional period of five (5) years (the "Fourth Extension Term"), commencing upon the first (1st) day immediately following the Expiration Date (as extended by the First, Second and Third Extension Terms). If Tenant fails to timely exercise its option to extend this Sublease for the First, Second or Third Extension Term, or to timely elect to extend the Term hereof for the Fourth Extension Term as provided in this Section 2.02(d), Tenant conclusively shall be deemed to have waived its right to extend the Term hereof for the Fourth Extension Term. After the election by Tenant to extend the Term hereof pursuant to this Section 2.02(d), each reference to the "Term" hereof shall mean the term of this Sublease as it has been extended by the First, Second, Third and Fourth Extension Terms, and each reference to the "Expiration Date" hereof shall mean the day immediately preceding the thirtieth (30th) anniversary date of the Commencement Date (unless the Commencement Date is a day other than the first day of a calendar month, in which event the Expiration Date shall be the date thirty (30) years after the last day of the calendar month following the calendar month in which the Commencement Date occurs), or such earlier date on which this Sublease terminates pursuant to the terms hereof. The precise agreements, terms and conditions hereof shall remain in effect and be applicable throughout the Fourth Extension Term. (e) Provided that Tenant (i) has timely exercised its option to extend this Sublease for the First, Second, Third and Fourth Extension Terms, and (ii) is not in default of any of the terms, covenants or conditions of this Sublease or of the Fuel Sales Agreement, Tenant may elect, upon written notice given to Landlord on or before the date which is seven (7) months prior to the Expiration Date (as extended by the First, Second, Third and Fourth Extension Terms), to extend the Term hereof for an additional period of four (4) years (the "Fifth Extension Term"), commencing upon the first (1st) day immediately following the Expiration Date (as extended by the First, Second, Third and Fourth Extension Terms). If Tenant fails to timely exercise its option to extend this Sublease for the First, Second, Third or Fourth Extension Term, or to timely elect to extend the Term hereof pursuant to this Section 2.02(e), Tenant conclusively shall be deemed to have waived its right to extend the Term hereof for the Fifth Extension Term. After the election by Tenant to extend the Term hereof pursuant to this Section 2.02(e), each reference to the "Term" hereof shall mean the term of this Sublease as it has been extended by the First, Second, Third, Fourth and Fifth Extension Terms and each reference to the "Expiration Date" hereof shall mean the day immediately preceding the thirtieth (30th) anniversary date of the Commencement Date (unless the Commencement Date is a day other than the first day of a calendar month, in which event the Expiration Date shall be the date thirty-four (34) years after the last day of the calendar month in which the Commencement Date occurs), or such earlier date on which this Sublease terminates pursuant to the terms hereof. The precise agreements, terms and conditions hereof shall remain in effect and be applicable throughout the Fifth Extension Term. 3. Base Rent; Additional Charges. 3.1 Base Rent. Tenant shall pay to Landlord during the Initial Term annual base rental in the amount of fifty-five cents ($0.55) per square foot, for a total annual base ground rental of approximately Forty-Six Thousand Seven Hundred Fifty Dollars ($46,750.00) subject to adjustment as provided in Section 1.2 (the "Base Rent"), which sum shall be adjusted as hereinafter provided, and shall be payable by Tenant in equal consecutive monthly installments of Three Thousand Eight Hundred Ninety-Five ($3,895.83) Dollars and Eighty-Three Cents (or such other amount as is equal to one-twelfth (1/12th) of the then prevailing Base Rent hereunder) on or before the first day of each month, in advance, at the address specified for Landlord in Article 21 or such other place as Landlord shall designate, without any prior demand therefor and without any abatement, deductions or setoff whatsoever. If the Commencement Date should occur on a day other than the first day of a calendar month, or the Expiration Date should occur on a day other than the last day of a calendar month, then the rental for such fractional month shall be prorated upon a daily basis based upon a thirty (30) day calendar month. Notwithstanding the foregoing, no Base Rent shall be owed by Tenant for the first six (6) months of the Initial Term. Landlord and Tenant acknowledge that Base Rent stated herein is calculated based on an area of the Premises of 85,000 square feet. Promptly following completion of the Building, Landlord and Tenant shall determine the actual rentable square footage of the Premises whereupon the Base Rent payable hereunder shall be adjusted accordingly, and Landlord and Tenant shall execute a written instrument setting forth the adjusted Base Rent, if applicable, for the Premises. 3.2 City of Dallas Adjustments. Under the Ground Lease, the Ground Lessor has the right, from time to time, to increase the Landlord's stated rental rate by redetermining the rental to be paid by the Landlord as the sum of the following: (A) An amount of rent that is determined by the prevailing rent then being charged by the Ground Lessor, subject to certain limitations, with certain additional triennial adjustments (the "Prevailing Rental Increment"); and (B) Forty Cents ($.40) per annum per square foot of land contained within the premises (the "Additional Fixed Increment"). It is understood and agreed by the Landlord and the Tenant that the Base Rent in effect hereunder shall be increased by each Prevailing Rental Increment (less the Base Rent then in effect hereunder) that is imposed as rent upon the Landlord by the Ground Lessor under the Ground Lease, which increases hereunder shall be effective each and every time and as and when each Prevailing Rental Increment is imposed as rent upon the Landlord by the Ground Lessor under the Ground Lease. It is further understood and agreed by the Landlord and the Tenant that the Base Rent in effect hereunder shall not be increased by any Additional Fixed Increment that is imposed as rent upon the Landlord by the Ground Lessor under the Ground Lease. 3.3 Rent Adjustments. Commencing January 1, 1993 and on January 1st of each year thereafter, subject to a maximum adjustment of no more than seven percent (7%) per annum, the Base Rent shall be adjusted as follows: PPI Adjustment. On January 1st of each year, the Base Rent payable hereunder shall be adjusted such that the Base Rent shall be equal to the greater of (i) the Base Rent in effect as of such January 1st, or (ii) the product of the sum of the initial Base Rent payable hereunder plus all adjustments thereto on account of increases announced by the City of Dallas as provided in Section 3.2, multiplied by a fraction, the numerator of which is the PPI for the July immediately preceding such January 1st, and the denominator of which is the PPI for July of 1992. For purposes of this Sublease, "PPI" shall mean the Dallas-Fort Worth, Texas Standard Metropolitan Statistical Area Producers Price Index relative to aviation, or equivalent index, as published from time to time by the Bureau of Labor Statistics, United States Department of Labor, or the generally accepted replacement or successor index. 3.4 Additional Charges. Tenant shall pay to Landlord all charges and other amounts whatsoever payable by Tenant to Landlord as provided in this Sublease including the Exhibits hereto (collectively "Additional Charges" or "Additional Rent"), including, without limitation, the charges for Real Estate Taxes provided for in Article 4 and Apron Space Rent provided for in Article 16, at the place where the Base Rent is payable. Landlord shall have the same remedies for a default in the payment of Additional Charges or Additional Rent as for a default in the payment of Base Rent. As used herein, the term "Rent" shall mean the Base Rent and all Additional Charges or Additional Rent. 3.5 Late Payments. If Tenant shall fail to pay any Rent within ten (10) days after the date the same is due and payable, such unpaid amounts shall be subject to a late payment charge equal to one and one-half percent (1-1/2%) of such unpaid amounts in each instance. Such late payment charge has been agreed upon by Landlord and Tenant, after negotiation, as a reasonable estimate of the additional administrative costs and detriment to Landlord's ability to meet its own obligations relating to the Building in a timely manner that will be incurred by Landlord as a result of any such failure by Tenant, the actual costs thereof in each instance being extremely difficult if not impossible to determine. Such late payment charge shall constitute liquidated damages to compensate Landlord for its damages resulting from such failure to pay and shall be paid to Landlord together with such unpaid amounts. 4. Taxes. 4.1 Definitions. For purposes of this Article 4, the following terms shall have the meanings hereinafter set forth: (a) "Tenant's Share" shall mean _______ percent (____%). Tenant's Share will be computed (and filled in) by dividing the actual total area of the Premises by the total area of the Land and, in the event that either the area of the Premises or the total area of the Land is changed, Tenant's Share will be appropriately adjusted as of the effective date of such change; and as to the Tax Year or Expense Year (as said terms are hereinafter defined) in which such change occurs, Tenant's Share shall be determined on the basis of the number of days during such Tax Year and Expense Year at each such percentage. (b) "Tax Year" shall mean each twelve (12) consecutive month period commencing January 1st of each year, provided that Landlord, upon notice to Tenant, may change the Tax Year from time to time to any other twelve (12) consecutive month period and, in the event of any such change, Tenant's Share of Taxes (as hereinafter defined) shall be equitably adjusted for the Tax Years involved in any such change. (c) "Real Estate Taxes" shall mean all taxes, assessments, fees, impositions and charges levied upon or with respect to all or any part of the Land, Building and any other Improvements located thereon. The "Land", "Building" and "Improvements" are collectively referred to as the "Real Property", which term shall also include any personal property of Tenant used in connection therewith. Real Estate Taxes shall include, without limitation, and whether now existing or hereafter enacted or imposed, all general real property taxes and general and special assessments (regardless of the method of valuation utilized by the taxing authority in determining the amount of any such tax or assessment), all charges, fees or assessments, whenever arising or paid or payable, for or with respect to transit, housing, police, fire or other governmental services or purported benefits to or burdens attributable to all or any part of the Real Property or any personal property of Tenant used in connection therewith, all service payments in lieu of taxes, and any tax, fee, imposition or excise on the act of entering into this Sublease or any other lease of space in the Building, or on the use or occupancy of all or any part of the Real Property, or on the rent payable under any lease or in connection with the business of renting space in the Building, that are now or hereafter levied or assessed against Landlord or Tenant or any part of the Real Property, by the United States of America, the State of Texas, the County of Dallas, the City of Dallas, or any political subdivision, public corporation, district or other political or public entity, and shall also include any other tax, fee or other excise, however described, that may now or hereafter be levied or assessed as a substitute for, or as an addition to, in whole or in part, any other Real Estate Taxes, whether or not now customary or in the contemplation of the parties on the date of this Sublease. Real Estate Taxes shall not include franchise, transfer, inheritance or capital stock taxes or income taxes measured by the net income of Landlord or Tenant from all sources, unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord or Tenant as a substitute for, or as an addition to, in whole or in part, any other tax that would otherwise constitute a Real Estate Tax. Real Estate Taxes shall also include a prorated portion (based on Tenant's Share) of the reasonable legal fees and other costs and disbursements incurred by Landlord in connection with proceedings to contest, determine or reduce Real Estate Taxes, provided, Landlord has given Tenant prior notice of incurring such fees, costs and disbursements and Tenant has provided Landlord with written approval. 4.2 Payment of Taxes. (a) Prior to Construction of Improvements. Tenant shall be obligated to promptly pay Tenant's Share of the Real Estate Taxes, if any, for such Tax Year, or portion thereof, during the Term of this Lease on or before the due date. Tenant will use its best efforts to obtain a separate tax bill for Tenant's Share of the Real Estate Taxes. Tenant will send Landlord duplicate copies of all paid tax receipts. (b) After Completion of Improvements. Upon completion of the construction of the Improvements in accordance with the terms of this Lease, title to the Improvements shall immediately vest in the City of Dallas. It is the understanding of the parties hereto that the City will be exempt from the payment of any Real Estate Taxes relating to the Improvements. Tenant shall be obligated to promptly pay Tenant's Share of Real Estate Taxes, if any, after the completion of the Improvements and conveyance to the City of Dallas on or before the due date, including, but not limited to, any taxes for Tenant's personal property. Tenant will send Landlord duplicate copies of all paid tax receipts. 4.3 Commencement Date. If the Commencement Date shall occur on a date other than the first day of a Tax Year, Tenant's Share of Real Estate Taxes for the Tax Year in which the Commencement Date occurs shall be in the proportion that the number of days from and including the Commencement Date to and including the last day of the Tax Year in which the Commencement Date occurs bears to 365. 4.4 Tax Reduction Proceedings. (a) Landlord shall have the right to institute tax reduction or other proceedings to reduce the assessed valuation of the Land, Building or other Improvements, unless such Land, Building or other Improvements are separately assessed. Should Landlord be successful in any such reduction proceedings and obtain a rebate for periods during which Tenant has paid Tenant's Share of Real Estate Taxes, Landlord shall, after deducting its expenses prorated based on Tenant's Share, including without limitation reasonable attorneys' fees and disbursements, pay Tenant's Share of such rebate to Tenant (prorated for any partial year if appropriate). (b) Tenant shall also have the right to institute tax reduction or other proceedings to contest the legality or validity of any tax assessment or other imposition that it is directly or indirectly required to pay under this Article 4. Landlord agrees to execute and deliver such documents evidencing Tenant's right under this Article 4 which may be necessary or helpful in any such context. Tenant agrees to indemnify and hold Landlord harmless from any and all liability, cost, expense, penalty or interest which may be assessed as a result of Tenant's actions hereunder, and Tenant agrees to promptly pay any amounts which become due as a result of a final determination of its contest. 4.5 No Forfeiture. Landlord's failure to prepare and deliver any tax bill, notice or statement provided for in this Article 4, or Landlord's or Tenant's failure to make a demand, shall not cause Landlord or Tenant, as the case may be, to forfeit or surrender its right to collect any amount which may become due to it under this Article 4. Notwithstanding the foregoing, Landlord agrees to use reasonable efforts to: (i) notify Tenant before filing a property tax return or responding to any inquiry from a taxing authority concerning the property leased hereunder; or (ii) immediately upon receipt, forward to Tenant a copy of any tax assessment or other tax related notification relating to the property leased. 5. Use of Premises; Conduct of Business; Insurance Requirements; Restrictive Covenant. 5.1 Use of Premises. Tenant shall use and continuously occupy the Premises during the Term of this Sublease solely for the operation of a facility furnishing aviation management services, general aviation maintenance services, aviation repair services, aircraft completion and modification services, aircraft charter, storage of equipment and supplies and for office and aircraft hangar use ancillary or incidental thereto. Tenant shall not use the Premises for any other use without the prior written consent of Landlord and Ground Lessor. 5.2 Conduct of Business. Tenant shall not use or occupy, or permit the use or occupancy of, the Premises or any part thereof for any use other than the use specifically set forth in Section 5.1, or in a manner that would conflict with any other provisions of this Sublease, or that would conflict with or violate any permit, special restriction or certificate of occupancy or completion required, recorded or issued for the Premises or the Building. 5.3 Insurance Requirements. Tenant shall not do anything or permit anything to be done or to exist in or about the Premises which shall subject Landlord or Ground Lessor to any liability or responsibility for injury to any person or property by reason of any business operation or other activity being conducted in the Premises. Tenant, at Tenant's expense, shall comply with all rules, orders, regulations and requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body that shall hereafter perform the function of such Association. 5.4 Restrictive Covenant. (a) Restrictive Covenant. Tenant agrees that, neither it nor any of its subsidiaries or affiliates, or any of them, shall as partner, joint venturer, shareholder, agent, employee, trustee, beneficiary, or in any capacity whatever, directly or indirectly, or in any way participate in the ownership, management, operation or profits of any operation involved in the sale of aviation fuels or recovery and dispatching of general aviation aircraft ("FBO") at Dallas Love Field (the "Restrictive Covenant"), provided that this Restrictive Covenant shall expire on the earliest to occur of (i) 15 years from the Commencement Date, (ii) such time as Landlord permanently discontinues acting as a supplier of aviation fuels at Dallas Love Field Airport, or (iii) the occurrence of a material default under the Fuel Sales Agreement resulting in a termination thereof. (b) Validity. In the event the Restrictive Covenant contained in subparagraph (a) above shall be adjudicated by any court of competent jurisdiction to be partially or totally invalid or unenforceable for any reason, such covenant shall be deemed modified to the extent necessary to render it valid and enforceable under the laws of such jurisdiction, or shall be excised from this Sublease, as circumstances may require, and said subparagraph (a), subject to such modification or deletion, shall be enforced to the maximum extent and scope permitted by the laws of such jurisdiction. (c) Remedies. Landlord, in addition to all other remedies to which it may be entitled, at law or in equity, in the event of a breach of the Restrictive Covenant, shall also be entitled, as a matter of right, to injunctive relief in any court of competent jurisdiction. 6. Utilities. Tenant shall, at its sole cost and expense, furnish to the Premises all water, sewage, gas, fire sprinkler, telephone or other communication services and electrical systems (the "Utility Services"). Tenant shall be solely responsible for the maintenance and repair of such Utility Services and shall comply with all applicable governmental laws, codes and regulations relating to such Utility Services. Tenant shall indemnify and hold Landlord harmless against any liability relating to such Utility Services. 7. Construction of Tenant's Building. 7.1 Construction. Tenant shall, at its sole cost and expense, construct or cause to be constructed, an aircraft hangar facility containing approximately 85,000 square feet of net floor area. This Building shall be constructed in accordance with the Plans and Specifications (as defined in Section 7.2). Upon completion of the Building and other Improvements, title to such Building and other Improvements shall immediately vest in the City of Dallas in accordance with the terms and conditions of the Ground Lease. 7.2 Plans and Specifications. Tenant shall prepare (and shall consult with Landlord in the course of preparing) the following documents (all of which are hereinafter referred to as the "Plans and Specifications"). (a) A site plan (the "Site Plan") showing the locations of the proposed Improvements (including, by way of example, rather than of limitation, the locations of the Buildings, ramps, roadways, sidewalks, any other improvements for vehicular or pedestrian ingress and egress, any utility lines or facilities and storage areas) as they are to be constructed on the Premises, which Site Plan shall be satisfactory for submission to the Ground Lessor and any other applicable governmental agencies who are required to review and approve the same; (b) Schematic, elevation and final architectural plans for such improvements (the "Architectural Plans"); (c) A signage program for the Premises (the "Signage Plans"). All exterior signs located upon the Premises or the building interior signs which are visible from the interior of the Building must comply with all applicable local, municipal and city ordinances and must be approved by Landlord and Ground Lessor; (d) Gardening and landscaping plan for the Premises (the "Landscaping Plan"); (e) A schedule of exterior colors and building materials to be utilized by Tenant for the Building (the "Building Materials Schedule"); (f) A lighting plan for the Premises (the "Lighting Plan"). 7.3 Approval of Plans and Specifications. Tenant shall submit the Plans and Specifications to Landlord for approval by Landlord within one hundred and twenty (120) days after the execution date of this Sublease. Tenant shall take no action to effectuate the Plans and Specifications unless Landlord has approved them, which approval shall not be unreasonably withheld or delayed (and in no event beyond thirty (30) days from the date provided to Landlord by Tenant). If Landlord disapproves any of such Plans and Specifications, it shall promptly notify the Tenant thereof and shall indicate in detail to the Tenant the nature of such revisions as must be made for them to be approved. Tenant shall not be required to seek additional approval from Landlord for minor or non-material revisions to the Plan and Specifications, so long as Tenant complies with the terms and conditions of the Ground Lease. Upon approval of the Plans and Specifications by Landlord, both parties shall sign the Plans and Specifications and it shall be submitted to the Ground Lessor for approval. Upon approval of the Plans and Specifications by the Ground Lessor, the Plans and Specifications shall be submitted to any other applicable governmental agencies, including the Federal Aviation Administration ("FAA"), for requisite review and approval. Tenant agrees to use its best efforts to obtain approval of the Plans and Specifications by Landlord, the Ground Lessor and any other applicable governmental agencies and shall make any necessary revisions to the Plans and Specifications in a timely manner. Landlord agrees to reasonably assist Tenant in obtaining approval of the Ground Lessor of Tenant's Plans and Specifications hereunder. If such Plans and Specifications are not reasonably approved by any of the applicable parties, Tenant shall have the right to terminate this Sublease upon thirty (30) days written notice and all obligations and liabilities shall terminate and Rent shall be prorated accordingly. Tenant agrees to send Landlord copies of all correspondence to Ground Lessor relating to this Sublease. 7.4 Completion of Construction. Tenant shall, within twelve (12) months after the date Tenant receives all requisite approvals of the Plans and Specifications (a) construct upon the Premises all of the proposed Improvements in accordance with the Plans and Specifications and in a good and workmanlike manner utilizing quality materials (and shall complete all of them to the extent required for the Tenant to be issued a permanent, unconditional Certificate of Occupancy therefor by the applicable governmental authorities) and (b) open the Building for the use set forth in Section 5.1; provided, however, that such twelve (12) month period may be extended as necessary for delays due to labor disputes, Acts of God or the public enemy, casualty or other conditions or causes beyond Tenant's control, so long as Tenant notifies Landlord of the delay and the reasons for such delay and so long as Tenant thereafter re-commences construction as soon after the delay as possible. 7.5 Payment Bond and Performance Bond. Prior to the commencement of the construction of the Improvements, Tenant shall furnish to Landlord a true, correct and complete copy of a general construction contract with a reputable and bondable contractor. The Landlord reserves the right to reject the contractor. Tenant shall also provide Landlord with a payment bond and a performance bond for the full amount of such construction contract that are issued by a surety that is acceptable to the Landlord and that are in both form and substance that are acceptable to the Landlord, all in its sole judgement and discretion. 7.6 Licenses, Permits. Tenant shall keep in full force and effect, at its sole cost and expense, during construction and throughout the Term of this Sublease, all licenses, consents and permits necessary for the construction of the Improvements on the Premises and the lawful use of the Premises, and in connection therewith, Landlord agrees to join with Tenant in the application for such licenses, consents and permits, provided that such application is at no cost or expense to Landlord and further provided that Tenant indemnifies and holds Landlord harmless as set forth in Section 19.2 and Section 19.3. 7.7 Personal Property. All furniture, furnishings and other articles of movable personal property installed in the Premises by or for the account of Tenant, without expense to Landlord, and which can be removed without structural or other material damage to the Building or the Premises (all of which are herein called "Tenant's Property") shall be and remain the property of Tenant and may be removed by it at any time during the Term; provided that if any of Tenant's Property is removed, Tenant or any party or person entitled to remove it shall repair or pay the cost of repairing any damage to the Premises or to the Building resulting from such removal, which obligation to perform or pay for such repairs shall survive the termination of this Sublease. 7.8 Removal of Personal Property. At or before the Expiration Date of this Sublease, Tenant shall remove from the Premises all of Tenant's Property except such items as the parties shall have agreed are to remain and to become the property of Landlord, and if Landlord so requests, Tenant shall also remove any additional work or alterations installed by Tenant. In each instance, Tenant at its sole cost and expense shall repair any damage to the Premises or Building resulting from such removal. Tenant's obligations under this Section 7.8 shall survive the termination of this Sublease. Any other items of Tenant's Property which shall remain in the Premises after the Expiration Date or termination of this Sublease, may, at the option of Landlord, be deemed abandoned and in such case may either be retained by Landlord as its property or be disposed of, without accountability, at Tenant's expense in such manner as Landlord may see fit. 7.9 Ownership. Subject to the terms and provisions of the Ground Lease, ownership of and title to the Building and all other Improvements located on the Premises shall be conveyed to the Ground Lessor in accordance with Section 7.1. Upon the expiration or earlier termination of this Sublease, Tenant shall remove Tenant's Property in accordance with Section 7.7 and Section 7.8. The Landlord shall become entitled to possession of the Building and all appurtenances, fixtures, machinery or equipment attached to or used in connection with the Building in the event this Sublease terminates or expires prior to the termination or expiration of the Ground Lease. Tenant shall not remove any appurtenances, fixtures, machinery or equipment (other than Tenant's Property) from the Building or Premises which is required for the operation of the Building for the use set forth in Section 5.1. 7.10 Removal of Signs. Upon the termination of this Sublease, Tenant shall remove, obliterate or paint out, as required by the Director of Aviation of the City of Dallas, any and all such signs and advertising, and shall restore the Premises and the Building to the same condition as prior to the placement thereon of any signs or advertising. In the event that the Tenant fails to remove, obliterate or paint out each and every sign or advertisement of Tenant the Landlord may have the necessary work performed at the expense of the Tenant, and the charge therefor shall be paid by the Tenant to the Landlord within five (5) days after demand therefor, and a copy of the invoice is provided to Tenant. 7.11 Tenant Changes. Subject to the terms and conditions of the Ground Lease, Tenant shall make no alterations, installations, additions or improvements (collectively "Tenant's Changes") in or to the Premises without Landlord's prior written consent, which Landlord may not unreasonably withhold. No Tenant's Changes shall require Landlord to do any work or expend any sums, whether pursuant to any applicable law, code or regulation or otherwise, for or with respect to the Premises or any other part of the Real Property. All Tenant's Changes shall be done at Tenant's expense, at such times and in such manner so as not to interfere with the operations of Landlord or its other Tenants, in accordance with plans and specifications approved by Landlord, only by such contractors or mechanics as are approved by Landlord, in conformity with the requirements of this Sublease, and subject to all other conditions which Landlord may reasonably impose. Any proposed Tenant's Changes to or affecting any of the Utility Services must be approved by Landlord, so long as such approval is not unreasonably withheld. Tenant shall reimburse Landlord for Landlord's reasonable costs and expenses incurred in connection with any proposed Tenant's Changes, including without limitation any fees charged by Landlord's architect or engineer in connection with the preparation or review of any plans and specifications for any proposed Tenant's Changes, within five (5) days after demand therefor by Landlord. 8. Maintenance and Repairs. 8.1 Repairs. Tenant shall, throughout the Term of this Sublease, and at Tenant's sole cost and expense, take good care of the Building, the Utility Service Equipment, the Premises, and any other Improvements located thereon, and keep them in good order and condition to the extent necessary to maintain them in a first-class condition as defined in the Ground Lease; and 8.2 Maintenance. Tenant shall keep and maintain the Premises in a clean and orderly condition, free of accumulation of dirt, rubbish, snow and ice, except as may be necessary for construction work. 8.3 Repair Requirements. All repairs and replacements made by or on behalf of Tenant or any person or entity claiming through or under Tenant shall be made and performed (a) at Tenant's cost and expense in a good and workmanlike manner by licensed and reputable contractors and mechanics so that such repairs and replacements shall be at least equal in quality, value and utility to the original work or installation; and (b) in accordance with any applicable Rules and Regulations and with all Legal Requirements (as defined in Article 10). 9. Liens. Tenant shall keep the Premises free from any liens arising out of the construction of the Improvements in accordance with the Plans and specifications or Tenant's Changes and any other work performed, material furnished or obligations incurred by or for Tenant or any person or entity claiming through or under Tenant. In the event that Tenant shall not, within twenty (20) days after written notice from Landlord or the Ground Lessor of the imposition of any such lien, cause same to be released of record by payment or posting of a proper bond, Landlord shall, in addition to all other remedies provided herein and by law, cause same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by Landlord in connection therewith (including without limitation reasonable attorneys' fees) shall be payable to Landlord by Tenant on demand. 10. Compliance with Laws. Tenant shall not use or occupy, or permit the use or occupancy of, the Premises in a manner that would violate any Legal Requirements, as defined below. Tenant, at Tenant's cost and expense, shall comply with all Legal Requirements (as defined below) that shall impose any duty upon Landlord or Tenant with respect to the Premises or the use or occupancy thereof. The term "Legal Requirements" shall mean all laws, statutes, codes, acts, ordinances, orders, judgements, decrees, injunctions, rules, regulations, permits, licenses, authorizations, restrictions and requirements of and agreements with all courts and governmental authorities now or hereafter in effect and applicable to the Real Property or any part thereof, or any of the adjoining sidewalks, streets or ways. Landlord shall promptly furnish Tenant with copies of any notices Landlord receives regarding the violation of any Legal Requirements relating to the Premises. 11. Subordination 11.1 Subordination to Ground Lease. This Sublease is subject and subordinate to the Ground Lease, the rights of the Ground Lessor thereunder and any modifications, extensions and renewals of the Ground Lease, and also to all existing mortgages and deeds of trust encumbering Landlord's leasehold interest. If the Ground Lease shall terminate for any reason, or if Landlord shall default under any such mortgage or deed of trust and the mortgagee or beneficiary shall foreclose its lien or accept conveyance in lieu of foreclosure, and provided that immediately prior to the time of such termination or such foreclosure or conveyance in lieu thereof, this Sublease shall be in effect, this Sublease shall, at the election of Ground Lessor or such mortgagee or beneficiary, which election shall be subject in any case to the terms of the Ground Lease or the mortgage or deed of trust, as applicable, become a lease of the Premises between Ground Lessor and Tenant upon all of the terms and conditions set forth in this Sublease; provided that neither Ground Lessor nor such mortgagee or beneficiary shall be liable to Tenant for any default of Landlord under this Sublease occurring prior to such termination, foreclosure or conveyance in lieu of foreclosure, or be subject to any offsets, counterclaims or defenses which Tenant may be entitled to assert against Landlord or be bound by payments by Tenant of Base Rent for more than one month in advance of the due date thereof or payments of security deposits or Additional Charges, unless Landlord delivers such amounts to Ground Lessor or such mortgagee or beneficiary. Tenant hereby acknowledges receipt of a copy of the Ground Lease from Landlord. 11.2 Compliance with Ground Lease. In addition to all of the terms and provisions contained herein, Tenant shall comply with all of the provisions of the Ground Lease which are to be observed and performed by Landlord (as Tenant thereunder) save and except those provisions of the, Sublease regarding the payment of rent. The Ground Lease is incorporated in this Sublease for all purposes as if fully set forth herein and Landlord shall notify Tenant of any change or amendments to such Ground Lease prior to the effective date thereof, or if that is not possible, as soon as reasonably possible. Tenant agrees to indemnify, defend and hold Landlord and its directors, officers, agents and employees harmless from any claim or liability arising from Tenant's failure to comply with the provisions of the Ground Lease. Tenant hereby acknowledges receipt of a copy of the Ground Lease. Notwithstanding anything herein to the contrary, in the event of a conflict between the terms and conditions of the Ground Lease, as amended, and the terms and conditions of this Sublease, the Ground Lease shall control. 11.3 Ground Lessor Approval. Landlord and Tenant hereby acknowledge that this Sublease is subject to the approval of Ground Lessor, and it is further acknowledged that nothing herein contained shall enlarge or extend the liabilities and obligations of the Ground Lessor. Notwithstanding anything contained herein to the contrary, the parties hereto shall be bound by all terms and conditions of this Sublease, including, without limitation, Tenant's obligation to pay rental hereunder, pending receipt of approval by the Ground Lessor; provided, however, that Landlord shall not be liable or have any further obligations to Tenant in the event the Ground Lessor does not approve this Sublease. 11.4 Expiration of Sublease Agreement. In the event of cancellation or termination of the Ground Lease prior to the expiration of the Term hereof, or in the event of the surrender thereof, whether voluntary, involuntary, or by operation of law, or should Landlord fail to exercise any of its extension options under the Ground Lease, the Tenant shall make full and complete attornment to the Ground Lessor for the balance of the term of this Sublease, upon the same covenants and conditions as are contained herein, so as to establish direct privity of estate and contract between the Ground Lessor and the Tenant, with the same force and effect as though this Agreement was originally made directly from the Ground Lessor to the Tenant. The Tenant shall make all Rental payments thereafter directly to the Ground Lessor. 11.5 Subordination to Mortgages. In addition to being subject and subordinate to the Ground Lease, this Sublease shall be subject and subordinate at all times to: (a) the lien of any mortgages or deeds of trust that may now exist or hereafter be executed in any amount for which the ground leases or underlying leases, Building rentals, or Landlord's interest or estate in any of said items is specified as security. Landlord shall use its best efforts to secure in any such mortgages or deeds of trust and in any such other ground leases or underlying leases a covenant on the part of the mortgagees, beneficiaries or ground or underlying lessors thereunder to recognize the interest of Tenant under this Sublease in the event of any foreclosure or conveyance in lieu of foreclosure, or any termination of any such ground or underlying lease, if at the time of any such event Tenant is not then in default hereunder. Notwithstanding any recognition of this Sublease by any such mortgagees, beneficiaries, or by Ground Lessor or any existing mortgagee or beneficiary, (i) Tenant's interest under this Sublease shall nevertheless be subject to the rights of such mortgagees or beneficiaries or Ground Lessor to insurance and condemnation proceeds with respect to the Real Property, (ii) any such recognition of Tenant's interest under this Sublease shall not result in any liability or responsibility on the part of any such mortgagees, beneficiaries or Ground Lessor, for any past defaults of Landlord, the prepayment of any Rent by Tenant, any claim or setoff that Tenant may have against Landlord, or any obligations of Landlord with respect to the construction of the Building or the Premises, or any part thereof, and (iii) no amendment of this Sublease shall be binding on any such mortgagees or beneficiaries or ground or underlying lessors or Ground Lessor without such party's written consent. Notwithstanding the foregoing, so long as Tenant shall pay its Rent and perform all of its obligations hereunder, no such mortgagee or beneficiary shall interfere with Tenant's use and occupancy of the Premises in accordance with the terms hereof. 11.6 Self-Operating Provisions. The provisions of this Article 11 shall be self-operative and no further instrument shall be required. Tenant covenants and agrees, however, to execute and deliver, promptly upon demand by Landlord and in the form requested by Landlord, any additional documents evidencing the subordination of this Sublease with respect to the Ground Lease or the lien of any such mortgages or deeds of trust. 12. Assignment and Subletting. 12.1 Consent Required. Neither Tenant, nor any other person or entity which at any time uses or occupies, or holds any interest in this Sublease with respect to, all or any part of the Premises, whether acquired directly or indirectly from Tenant, including without limitation any subtenant or subassignee and any person or entity acquiring any interest of Tenant or any such other person or entity under this Sublease pursuant to any foreclosure sale or conveyance in lieu thereof (collectively "Transferor"), shall directly or indirectly, voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise transfer or hypothecate all or any part of its interest in or rights with respect to the Premises or its leasehold or subleasehold estate (collectively, "Assignment") or permit all or any portion of the Premises to be occupied by anyone other than itself or sublet all or any portion of the Premises (collectively, "Sublease"), without Landlord's and Ground Lessor's prior written consent in each instance as provided hereinbelow, and each Transferor's leasehold estate shall consist only of the right to use and occupy the Premises (or the portion thereof covered by a Sublease) for its own purposes during the term of its leasehold estate. 12.2 Notice of Proposed Transfer. If Tenant or any other Transferor desires at any time to enter into an Assignment or a Sublease, it shall first give written notice to Landlord of its intention to do so (the "Notice of Proposed Transfer"), which notice shall contain (a) the name of the proposed assignee, subtenant or occupant (collectively "Transferee"), (b) the nature of the proposed Transferee's business to be carried on in the Premises, (c) the terms and provisions of the proposed Assignment or Sublease, and (d) the most recent financial statement or other equivalent financial information concerning the proposed Transferee. In addition, Tenant shall provide to Landlord such other financial information as Landlord may request concerning the proposed Transferee. Once given, any such Notice of Proposed Transfer shall be irrevocable for such period of time as is permitted under Section 12.3 for Landlord to make an election and for such election to become final. 12.3 Landlord's Electives. At any time within twenty (20) days after Landlord's receipt of any Notice of Proposed Transfer, Landlord may by written notice to Tenant or other Transferor elect to (a) Sublease itself from Tenant the portion of the Premises covered by the Sublease specified in the Notice of Proposed Transfer, or any portion thereof, on the terms and conditions set forth in the Notice of Proposed Transfer, except as otherwise provided in Section 12.4 and Section 12.5, (b) consent to the Sublease or Assignment, or (c) disapprove the Sublease or Assignment. Landlord may elect the option in clause (a) above in its sole and absolute discretion; provided that if Landlord does not elect the option in clause (a), then Landlord agrees not to unreasonably withhold its consent to the Sublease or Assignment, but in any event such Sublease or Assignment shall be subject to the provisions of Section 12.6. 12.4 Takeback Space. In the event Landlord elects the options set forth in Section 12.3(a) with respect to all or any portion of the Premises (the "Takeback Space"), Tenant or other Transferor shall (a) at all times provide without charge reasonable and appropriate access to the Takeback Space (if less than the entire Premises) and use of any common facilities. 12.5 Landlord's Rights. If Landlord elects to Sublease from Tenant or other Transferor as described in Section 12.3(a), (a) Landlord shall have the right to use the Takeback Space for any legal purpose consistent with the Ground Lease, as amended, or this Sublease, (b) the rent and any other charges payable by Landlord to Tenant or other Transferor thereunder shall be that set forth in the Notice of Proposed Transfer, (c) Landlord may make alterations and improvements to the Takeback Space as it shall elect and any such alterations or improvements may be removed, in whole or in part, prior to or upon the expiration of the Sublease, provided that any damage or injury to the Takeback Space caused by such removal shall be repaired, and (d) Landlord shall have the right to further assign or sublease the Takeback Space to any party without the consent of Tenant or other Transferor, provided, that Landlord shall be and remain liable to Tenant for the payment of the rent and other charges payable by Landlord hereunder and for the performance of all of the terms, covenants, conditions and agreements relating to the Takeback Space to be performed by Landlord. 12.6 Conditions of Assignment or Sublease. If Landlord consents to any Sublease or Assignment as set forth in Section 12.3(b): (a) Tenant or other Transferor may thereafter within ninety (90) days after Landlord's consent enter into such Assignment or Sublease, but only with the party and upon the specific terms and conditions set forth in the Notice of Proposed Transfer; (b) In the case of a Sublease, Tenant shall pay to Landlord monthly, together with the monthly installments of Rent hereunder, fifty percent (50%) of the excess, if any, of any and all sums actually paid to or on behalf of Tenant under or in connection with such Sublease over (i) the Rent payable by Tenant under this Sublease for the space covered by such Sublease (which shall be a pro rata portion of the Rent payable hereunder in the case of a Sublease of a portion of the Premises), (ii) costs of any additional leasehold improvements made to the space sublet in excess of the cost to Landlord of any Landlord's Work which is not billed to and paid for by Tenant, allocated to the space sublet (on a per rentable square foot basis), and provided that such leasehold improvement costs shall be amortized over the shorter of the useful life of such leasehold improvements or the remaining term of this Sublease as of the date of installation of such leasehold improvements, and (iii) Tenant's reasonable costs incurred in subleasing the space, including reasonable commissions and reasonable legal fees and expenses, or incurred in enforcing the terms of the Sublease or pursuing any remedies against the subtenant, including reasonable legal fees and expenses, provided that Tenant shall furnish Landlord with copies of bills or other similar documentation substantiating such costs; and (c) Such Sublease or Assignment shall be subject to and in full compliance with all of the terms and provisions of this Sublease; and Landlord's consent to such Sublease or Assignment shall not be construed as a consent to any terms thereof which are inconsistent or in conflict with any of the provisions of this Sublease unless and only to the extent that Landlord in such consent specifically agrees in writing to be bound by such inconsistent or conflicting terms. 12.7 No Release of Tenant; No Waiver. No consent by Landlord to any Assignment or Sublease by Tenant or other Transferor shall relieve Tenant or other Transferor of any obligation to be performed by Tenant or such Transferor under this Sublease, arising before the Assignment or Sublease, nor shall it relieve Tenant or other Transferor from the obligation to obtain Landlord's express written consent to any other Assignment or Sublease. Any Assignment or Sublease that is not in compliance with this Article 12 shall be void and, at the option of Landlord, shall constitute a material default by Tenant under this Sublease. The acceptance of any Rent by Landlord from a proposed Transferee shall not constitute consent to such Assignment or Sublease by Landlord or a recognition of any Transferee or a waiver by Landlord of any failure of Tenant or other Transferor to comply with this Article 12. 12.8 Direct or Indirect Sales. Subject to the provisions of Section 12.3, any direct or indirect sale or other transfer of a majority of the voting stock of Tenant or other Transferor, if Tenant or such Transferor is a corporation, or any direct or indirect sale or other transfer of a majority of the general partnership interests in Tenant or other Transferor, if Tenant or other Transferor is a partnership, whether any such sale or transfer shall occur as the result of any single transaction or event or any series of transactions or events, shall be an Assignment for purposes of this Article 12 if this Sublease constitutes all or substantially all of the real estate assets of Tenant or other Transferor. In addition, any direct or indirect sale or other transfer, including by merger or consolidation, of all or a substantial part of the assets of Tenant or other Transferor to another person or entity, shall constitute an Assignment for purposes of this Article 12. As used in this Section 12.8, the term "Transferor" shall also mean any entity which has guaranteed Tenant's or other Transferor's obligations under this Sublease, and the prohibitions hereof shall be applicable to any direct or indirect sales or transfers of the stock, partnership interests or assets of said guarantor to the same extent as if such guarantor were the Tenant hereunder. 12.9 Assumption of Obligations by Transferee. Each Transferee, other than Landlord, shall assume all obligations of Tenant under this Sublease and shall be and remain liable for the payment of Rent, and for the performance of all of the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the Term; provided, however, that without limiting the obligations of Tenant under this Sublease the Transferee shall be liable to Landlord for Rent only in the amount set forth in the Assignment or Sublease unless otherwise agreed by the parties thereto. No Assignment shall be binding on Landlord unless Tenant or other Transferor or Transferee shall deliver to Landlord a counterpart of the Assignment and an instrument in recordable form that contains a covenant or assumption by such Transferee satisfactory in substance and form to Landlord and consistent with the requirements of this Section 12.9, but the failure or refusal of such Transferee to execute such instrument of assumption shall not release or discharge such Transferee from its liability as set forth above. Tenant or other Transferor shall reimburse Landlord on demand for any reasonable costs that may be incurred by Landlord in connection with any proposed Assignment or Sublease, including without limitation the costs of making investigations as to the acceptability of the proposed Transferee and reasonable legal costs incurred in connection with the granting of any requested consent. Notwithstanding the foregoing, Tenant shall not be required to pay any of the foregoing costs in connection with the granting of a requested consent which exceed seven hundred fifty dollars ($750.00). If Landlord shall exercise any of its options under Section 12.3 (a) or (c), Transferor shall indemnify, defend and hold harmless Landlord and Ground Lessor against and from any and all loss, liability, damage, cost and expense (including without limitation reasonable attorneys' fees and disbursements) resulting from any claims that may be made against Landlord by the proposed Transferee or by any party engaged or retained by Tenant or other Transferor or the proposed Transferee in connection with any proposed Assignment or Sublease, including without limitation any real estate brokers, agents or sales personnel. 12.10 Approval by Ground Lessor. The parties hereby acknowledge that any Assignment or Sublease of the Premises must be approved and consented to by the Ground Lessor. Landlord shall not be liable to Tenant for Ground Lessor's failure to approve any such Assignment or Sublease. 13. Destruction. 13.1 Restoration. If a substantial portion of the Building or the other Improvements on the Premises shall be damaged or destroyed during the Term of this Sublease, the Tenant shall: immediately notify the Landlord and the Ground Lessor and may elect to promptly commence and complete the restoration of the Building and other Improvements (the "Restoration") within eighteen (18) months after such damage occurs at Tenant's sole cost and expense (even if such cost and expense exceeds the amount of insurance proceeds that is available therefor) as nearly as possible to the value, condition and character of the Improvements immediately before such damage or destruction, all in accordance with Plans and Specifications therefor which have been approved by Landlord, Ground Lessor and any other applicable parties. Tenant shall complete the Restoration of the Premises in accordance with the requirements set forth in Article 7 of this Sublease. If the Restoration is not completed within said eighteen (18) month period, Landlord, in addition to all other rights and remedies available at law or in equity shall be entitled to terminate this Sublease upon fifteen (15) days written notice to Tenant. In the event of any damage or destruction of the Premises, this Sublease shall remain in full force and effect and rent shall not abate during this period. Notwithstanding the foregoing, in the event a substantial portion of the Building is destroyed or damaged during the Term, Tenant shall not be obligated to complete the Restoration and shall notify Landlord of its election not to complete the Restoration within forty-five (45) days after the date the damage or destruction has occurred. In the event Tenant elects not to complete the Restoration or fails to make such election within the forty-five (45) day period, Landlord shall be entitled to terminate this Lease upon thirty (30) days written notice to Tenant and Tenant shall have thirty (30) days thereafter to remove the remaining structure, including all debris and rubbish, so as to surrender the Premises to Landlord in the same condition as on the date hereof. 13.2 Insurance Proceeds. All insurance proceeds payable as a result of such casualty under policies of insurance against the same and received by Tenant shall be deposited with an escrow agent mutually agreed upon by both parties (the "Depository") and shall be applied as follows: (a) in the event that Tenant elects not to complete the Restoration or fails to make such election as provided above, the insurance proceeds shall be applied by the Depository as follows: (i) First, to be paid to Tenant for removal of the remaining structure, including all debris and rubbish, so as to restore the Premises to the same condition as of the Commencement Date hereof; (ii) Second, to be paid to Tenant to satisfy any indebtedness incurred by Tenant solely for the construction, replacement or repair of the Building and other Improvements on the Premises; (iii) Third, to be paid to Tenant for the amount expended by Tenant in connection with the construction of the ramp and the hook-up and related costs for electrical and water utilities on the Premises; and (iv) Fourth, the balance, if any, of such proceeds shall be divided between Tenant and the Ground Lessor in such a way that Ground Lessor receives the amount equal to such balance multiplied by the ratio of which the numerator is the number of months that Tenant has subleased the Premises hereunder and the denominator is 408, which is the total number of months of the maximum term under this Sublease, as determined by the sum of months in the Initial Term and all five (5) Extensions Terms, and the Tenant receives the remainder, if any, of such balance. (b) in the event that the Tenant elects to complete the Restoration, the insurance proceeds shall be applied by the Depository to the Tenant or as the Tenant may direct from time to time as the Restoration progresses, to pay or reimburse the Tenant for the cost of the Restoration, upon Tenant's written request accompanied by evidence satisfactory to the Landlord that an amount equaling the amount requested is then due and payable or has been paid, and is properly a part of such cost, and that the net insurance proceeds not yet advanced will be sufficient to complete the Restoration. Before such construction commences and at any time thereafter upon notice to it from the Landlord, the Tenant shall deposit with the Depository such sums as are required to complete the Restoration. Upon receipt by the Landlord and Ground Lessor of evidence satisfactory to them that such Restoration has been completed and the cost thereof paid in full, and that no mechanics', materialmen' or similar lien for labor or materials supplied in connection therewith may attach to the Premises, the balance, if any, of such proceeds shall be paid to Tenant or as it may direct. 13.3 Application of Insurance Proceeds Upon Termination. Anything contained in the provisions of this Sublease to the contrary notwithstanding, if the Tenant elects to commence Restoration under Section 13.1, then upon the expiration or earlier termination of this Sublease before such Restoration is completed free and clear of any liens, any insurance proceeds not theretofore applied to the cost of such Restoration shall be paid directly to Landlord and Landlord shall utilize such proceeds to complete, or cause to be completed, the Restoration to the extent possible with the insurance proceeds; provided, however, that Landlord shall not be required to pay for any restoration work beyond the amount of insurance proceeds that is available therefor, or, if Landlord elects, such proceeds shall be paid to the Ground Lessor and the Landlord shall have no obligation to complete the Restoration. 13.4 Waiver of Subrogation. Landlord and Tenant shall each obtain and maintain, throughout the Term, in any casualty insurance policies carried by such party covering any part of the Real Property, the Premises, or the contents therein, including Tenant's Property, a waiver of all rights of subrogation which the insurer of one party might have against the other party, which waiver shall be effective so long as a corresponding waiver is carried by the other party in its policies. In further implementation of the foregoing, each party hereby waives (a) any obligation on the part of the other party to make repairs necessitated or occasioned by fire or other casualty that is an insured risk under such policies, and (b) any right of recovery against the other party, any other permitted occupant of the Premises, and any of their servants, employees, agents or contractors, for any loss occasioned by fire or other casualty that is an insured risk under such policies. If such waiver of subrogation can be obtained under any such policy of insurance only upon payment of an additional premium and the party benefiting from such waiver shall not pay such additional premium on demand, or if such waiver cannot be obtained upon other conditions acceptable to the party benefiting from such waiver, then the party benefiting from such waiver shall be deemed to have agreed that the other party shall be released from all of its foregoing obligations and waivers under this Section 13.4. Except to the extent expressly provided in this Section 13.4, nothing contained in this Sublease shall relieve Tenant of any liability to Landlord or to its insurance carriers which Tenant may have under law or under the provisions of this Sublease in connection with any damage to the Premises or the Building by fire or other casualty. 14. Eminent Domain. 14.1 Taking. As used herein, the term "Taking" shall mean a permanent or temporary condemnation or taking of all or any portion of the Premises or the Building, in any manner for public or quasi-public use, including but not limited to a conveyance or assignment in lieu of a condemnation or taking. Except as otherwise provided in Section 14.6: (a) Entire Premises. If a Taking covers the entire Premises, this Sublease shall automatically terminate as of the earlier of the date of the vesting of title or the date of dispossession of Tenant as a result of such Taking and the Annual Base Rent, any Additional Rent and all other sums and charges required to be paid by the Tenant hereunder shall be apportioned and paid to the date of termination. (b) Part of Premises. If a Taking covers only a part of the Premises, this Sublease shall automatically terminate as to the portion of the Premises so taken as of the earlier of the date of the vesting of title or the date of dispossession of Tenant as a result of such condemnation or Taking. (c) Substantial Part of Premises. If a portion of the Premises is taken so as to render the remaining portion untenantable and unusable by Tenant, this Sublease may be terminated by Tenant as of the earlier of the date of the vesting of title or the date of dispossession of Tenant as a result of such Taking, by written notice to Landlord within sixty (60) days following notice to Tenant of the date on which said vesting or dispossession will occur; and if Tenant fails to give such written notice to Landlord within said 60-day period, Tenant's right to so terminate this Sublease shall be deemed to have been waived by Tenant. Upon termination, the Annual Base Rent, any Additional Rent and all other sums and charges required to be paid by the Tenant hereunder shall be apportioned and paid to the date of termination. 14.2 Restoration. If a Taking occurs and it covers less than the entire Premises and less than a substantial part of the Premises (under which circumstances the Tenant would not have a right to terminate this Sublease) then: (a) this Sublease shall continue in full force and effect; (b) the Tenant shall promptly give written notice to Landlord whether Tenant elects to complete Restoration of the Premises in accordance with the terms of this Article 14; (c) whether or not the condemnation proceeds are available or adequate for such purposes and regardless of the cost of Restoration, the Tenant may elect, promptly after the date of Taking, to commence and complete Restoration of the Premises with reasonable diligence at the Tenant's expense, as nearly as possible to its value, condition and character immediately before such Taking, all in accordance with Plans and Specifications therefor which shall have been approved in writing by the Landlord and Ground Lessor and in accordance with the requirements set forth in Article 7 of this Sublease; and (d) in the event the Tenant elects to complete the Restoration, the condemnation proceeds shall be paid to an escrow agent mutually approved by the parties (the "Depository"), and shall be paid by the Depository in the following order: (i) First, the Depository shall reimburse the Tenant for the cost of restoring the Premises, upon the Tenant's written request accompanied by evidence satisfactory to the Landlord that an amount equalling the amount requested is then due and payable or has been paid, and is properly a part of such cost, and that the condemnation proceeds not yet advanced will be sufficient to complete such Restoration. Before such construction commences and at any time thereafter upon notice to it from the Landlord or the Ground Lessor, the Tenant shall deposit with the Depository such sums as are required (in addition to any amount then held by the Depository for such purpose) to complete such Restoration; and (ii) Second, the Depository shall pay the remaining condemnation proceeds, if any, to the Tenant or as it may direct. (e) In the event Tenant elects not to commence Restoration or fails to make such election within sixty (60) days of the Taking, Landlord shall be entitled to terminate this Sublease upon thirty (30) days written notice to Tenant and the condemnation proceeds shall be applied as follows: (i) First, to be paid to Tenant for removal of the remaining structure, including all debris and rubbish, so as to restore the Premises to the same condition as of the Commencement Date hereof; (ii) Second, to be paid to Tenant to satisfy any indebtedness incurred by Tenant solely for the construction, replacement or repair of the Building and other Improvements on the Premises; (iii) Third, to be paid to Tenant for the amount expended by Tenant in connection with the construction of the ramp and the hook-up and related costs for electrical and water utilities on the Premises; and (iv) Fourth, the balance, if any, of such proceeds shall be divided between Tenant and the Ground Lessor in such a way that Ground Lessor receives the amount equal to such balance multiplied by the ratio of which the numerator is the number of months that Tenant has subleased the Premises hereunder and the denominator is 408, which is the total number of months of the maximum term under this Sublease, as determined by the sum of months in the Initial Term and all five (5) Extensions Terms, and the Tenant receives the remainder, if any, of such balance. 14.3 Application of Proceeds Upon Termination. Anything contained in the provisions of this Sublease to the contrary notwithstanding, if the Tenant elects to commence Restoration under Section 14.2(b), then upon the expiration or earlier termination of this Sublease before such Restoration is completed free and clear of any such liens, any of the condemnation proceeds not theretofore applied to the cost of such Restoration shall be paid to the Landlord and Landlord shall utilize such proceeds to complete, or cause to be completed, the Restoration to the extent possible with condemnation proceeds; provided, however, that the Landlord shall not be required to pay for any restoration work beyond the amount of condemnation proceeds that is available therefor, or, if Landlord elects, such proceeds shall be paid to the Ground Lessor and the Landlord shall have no obligation to complete the Restoration. 14.4 Condemnation Award. In the event of a Taking, Landlord and Tenant shall each be entitled to seek separate condemnation awards for their respective interests hereunder. 14.5 Rental Abatement. In the event of a Taking that does not result in a termination of this Sublease as to the entire Premises, then except as otherwise provided in Section 14.4 the Rent shall abate in proportion to the portion of the Premises covered by such Taking, but only to the extent that such Taking materially interferes with the conduct of Tenant's business on the remaining portion of the Premises. 14.6 Temporary Taking. Notwithstanding any other provision of this Article 14 and subject to the provisions of Article 27 hereafter, if a Taking occurs with respect to all or any portion of the Premises for a limited period of time, but in no event more than thirty (30) consecutive days during the Term of this Sublease, this Sublease shall remain unaffected thereby and Tenant shall continue to pay in full all Rent. Rent shall abate if the temporary Taking occurs for longer than the thirty (30) day period. In the event of any such temporary Taking, Landlord and Tenant shall be entitled to seek separate condemnation awards for their interests in the Premises hereunder. 15. Expansion Option. 15.1 Option. Tenant shall have the exclusive option (the "Expansion Option") to sublease approximately 45,000 square feet of additional improved apron space, designated as the "Option Lease Area" on Exhibit B attached hereto (the "Option Premises"), which Expansion Option shall commence on the Commencement Date of this Sublease and shall expire on the third (3rd) year anniversary of the Commencement Date of this Sublease (the "Option Period"). 15.2 Exercise. Provided Tenant is not in default under this Sublease or the Fuel Sales Agreement, Tenant may exercise the Expansion Option by giving notice of such exercise to Landlord six (6) months prior to the date Tenant desires to occupy the Option Premises, but in no event later than the date which is six (6) months prior to the expiration of the Option Period. If Tenant fails to timely exercise the Expansion Option, the Expansion Option shall be null and void and of no further force and effect. 15.3 Covenant to Build Expansion Facility. In the event Tenant exercises the Expansion Option, Tenant shall be obligated to build an expansion facility (the "Expansion Facility") for the purpose set forth in Section 5.1 of this Sublease. Such Expansion Facility shall be completed in accordance with Article 7 of this Sublease. In the event Tenant fails to complete the Expansion Facility within two (2) years after the date the Expansion Option is exercised, Landlord shall have the right, in addition to all other rights and remedies, to terminate this Sublease; provided, however, that such two (2) year period may be extended as necessary for delays due to labor disputes, Acts of God or the public enemy, casualty or other conditions or causes beyond Tenant's control, so long as Tenant notifies Landlord of the delay and the reasons for such delay and so long as Tenant thereafter recommences construction as soon as possible. In the event that the Landlord terminates this Sublease, the Landlord shall complete the Expansion Facility only to the extent that the Tenant, the Tenant's lenders, or the payment bond and the performance bond that the Tenant has obtained supply funds for the payment thereof; provided, however, that the Landlord shall not be required to pay for any completion work with its own funds. 15.4 Rental and Terms. In the event Tenant exercises the Expansion Option, the Option Premises shall be deemed included in the Premises, and Tenant will lease the Option Premises on the same terms and conditions as this Sublease, including, but not limited to the prevailing Base Rent (on a per-square-foot basis) then in effect at the time the Expansion Option is exercised. The Base Rent then in effect hereunder shall thereupon be increased accordingly, and any future Rental Adjustments relating to the Premises shall be based on the area of the Premises including the Option Premises. 15.5 "As Is". In the event Tenant exercises this Expansion Option, Landlord shall demise the Option Premises to Tenant "as is" in the same physical state and condition existing as of the date the Expansion Option is exercised. 15.6 Amendment. If Tenant sends to Landlord the Expansion Notice, then Landlord should prepare an Amendment to this Sublease to reflect changes in the size of the Premises, Annual Base rent and Tenant's Percentage Share, all of which shall be increased by each rentable square foot by which the Premises are increased by the addition of the Option Premises, which Amendment shall be subject to the approval of the Ground Lessor. Tenant shall have twenty (20) days from the date of receipt of such Amendment to enter into the same. 16. Common Areas. 16.1 Landlord Common Area. Tenant, its employees, agents, servants, licensees, subtenants, contractors, customers or invitees shall have the right to use the area designated on Exhibit B attached hereto as the "Landlord Common Area" on a non-exclusive basis for the purpose of taxiing planes, vehicles and other equipment and machinery to and from the Premises so long as such use does not interfere with Landlord's use of the Landlord Common Area. Tenant shall not be permitted to park any planes, vehicles and other machinery or equipment on the Landlord Common Area. 16.2 Tenant Common Area. Tenant, its employees, agents, servants, licensees, subtenants, contractors, customers or invitees shall have the right to use the area designated on Exhibit B attached hereto as the "Tenant Common Area" on a non-exclusive basis for the purpose of taxiing planes, vehicles and other equipment and machinery to and from the Premises, and the parking of planes, vehicles and other machinery or equipment; provided that Tenant's use of the Tenant Common Area shall not interfere with the non-exclusive use of the Tenant Common Area by Landlord for taxiing planes, vehicles and other machinery. 16.3 Tenant Option Common Area. In the event Tenant exercises the Expansion Option, Landlord and Tenant agree that the portion of the Landlord Common Area designated on Exhibit B as the "Tenant Option Common Area" shall thereafter be included in the Tenant Common Area and excluded from the Landlord Common Area, and Tenant, its employees, agents, servants, licensees, subtenants, contractors, customers or invitees shall have the right to use the Tenant Option Common Area on the same basis as the Tenant Common Area. (The Landlord Common Area, the Tenant Common Area and Tenant Option Common Area are hereinafter collectively referred to as the "Common Areas".) 16.4 Taxiways. Landlord and Tenant shall have the right to utilize the taxiways (the "Taxiways") identified in Exhibit B. Neither Tenant nor Landlord are permitted to park vehicles, planes, machinery or other equipment on the Taxiways. 16.5 Rules and Regulations. Landlord may promulgate reasonable rules and regulations relating to the use of the Common Areas by Landlord and Tenant. 16.6 Additional Common Area Rent. Landlord and Tenant hereby acknowledge that the Common Areas are located on a portion of the Land designated as improved apron space by the Ground Lessor, and Landlord is obligated to pay Ground Lessor rental for such improved apron space ("Apron Space Rental") commencing September 1, 1998. Tenant shall be responsible for its pro rata share of Apron Space Rental as and when such Apron Space Rental is payable by Landlord. Tenant's share of such Apron Space Rental shall be Additional Rent hereunder, and shall be payable on or before the date such Apron Space Rental is payable to Ground Lessor by Landlord. 17. Default. 17.1 Events of Default by Tenant. Any vacation or abandonment of the Premises for a continuous period in excess of five (5) business days or any failure to pay any Rent as and when due, or any failure to perform or comply strictly with any material covenant or condition of or representation made under this Sublease (including any Exhibits hereto), or any default under the terms of the Fuel Sales Agreement of even date hereof, shall constitute a default hereunder by Tenant, subject in the specific instances set forth below to the expiration of the appropriate grace period hereinafter provided. Tenant shall have a period of five (5) days from the date of receipt of written notice from Landlord within which to cure any default in the payment of Rent. Tenant shall have a period of fifteen (15) days from the date of receipt of written notice from Landlord within which to cure any other default under this Sublease; provided, however, that with respect to any default other than the payment of Rent that cannot reasonably be cured within fifteen (15) days, the default shall not be deemed uncured if Tenant commences to cure such default within fifteen (15) days from Landlord's notice and continues to prosecute diligently the curing thereof to completion within a reasonable time. 17.2 Rights and Remedies of Landlord. Upon the occurrence of a default by Tenant which is not cured by Tenant within the applicable grace period specified in Section 17.1, Landlord shall have the following rights and remedies in addition to all other rights or remedies available to Landlord at law or in equity: (a) The right to terminate Tenant's right to possession of the Premises and to recover the worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the fair and reasonable rental value of the Premises for the same period. In the computation of such amount the difference between any installment of Rent becoming due hereunder and after the date of termination of this Sublease and the reasonable rental value of the Premises for the period for which such installment was payable shall be discounted to its present value as of the date of termination of this Sublease at the rate of six percent (6%) per annum. (b) The right to continue this Sublease in effect and to enforce all of its rights and remedies under this Sublease, including the right to recover Rent as it becomes due, for so long as Landlord does not terminate Tenant's right to possession. Acts of maintenance or preservation, efforts to relet the Premises or the appointment of a receiver upon Landlord's initiative to protect its interest under this Sublease shall not constitute a termination of Tenant's right to possession. If Landlord exercises its rights under this subsection (b), Landlord, as attorney-in-fact for Tenant, may from time to time sublet the Premises or any part thereof for such term or terms (which may extend beyond the Term) and at such rent and upon such other terms as Landlord in its sole and absolute discretion may deem advisable, with the right to make alterations and repairs to the Premises. Upon each such subletting, (i) Tenant shall be immediately liable for payment to Landlord of, in addition to Rent due hereunder, the cost of such subletting and such alterations and repairs incurred by Landlord and the amount, if any, by which the Rent owing hereunder for the period of such subletting (to the extent such period does not exceed the Term) exceeds the amount to be paid as Rent for the Premises for such period pursuant to such subletting, or (ii) at the option of Landlord, rents received from such subletting shall be applied, first, to payment of any indebtedness other than Rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third, to payment of Rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future Rent as the same becomes due hereunder. If Tenant has been credited with any rent to be received from such subletting under clause (i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or if such rentals received from such subletting under clause (ii) during any month are less than those required to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly within five (5) days following written notice from Landlord. For all purposes set forth in this Section 17.2(b) and in Section 17.2(d), Landlord is hereby irrevocably appointed attorney-in-fact for Tenant, with power of substitution. No taking of possession of the Premises by Landlord, as attorney-in-fact for Tenant, shall be construed as an election on its part to terminate this Sublease or Tenant's right to possession unless a written notice of such intention is given to Tenant. No action taken by Landlord pursuant to this paragraph shall be deemed a waiver of any default by Tenant, and notwithstanding any such subletting without termination, Landlord may at any time thereafter elect to terminate this Sublease for such previous default. Notwithstanding the foregoing, Landlord shall use reasonable efforts to mitigate the damages hereunder. (c) The right to terminate this Sublease and dispossess Tenant by giving notice to Tenant in accordance with applicable Texas law. (d) The right and power, as attorney-in-fact for Tenant, to enter the Premises and remove therefrom all persons and property, to store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant, and to sell such property and apply the proceeds therefrom pursuant to applicable Texas law. (e) The right to have a receiver appointed for Tenant, upon application by Landlord, to take possession of the Premises and to apply any rental collected from the Premises and to exercise all other rights and remedies granted to Landlord as attorney-in-fact for Tenant pursuant to Section 17.2(b) and Section 17.2(d). 17.3 Events of Default by Landlord. In the event Landlord fails to perform any covenant or condition or breaches any representation made under this Sublease (including any Exhibits thereto), this shall constitute an event of default by Landlord. Landlord shall have a period of fifteen (15) days from receipt of written notice from Tenant within which to cure any default under this Sublease; provided, however, that with respect to any default which cannot be cured within fifteen (15) days, the default shall not be deemed to be uncured so long as Landlord commences to cure such default within fifteen (15) days from Tenant's notice and continues to prosecute diligently the curing thereof to completion within a reasonable time. In the event of a default by Landlord, Tenant shall be entitled to all rights and remedies at equity or at law. 17.4 Indemnities. Termination of this Sublease under this Article 17 and exercise of any remedies of Landlord as provided herein shall not affect or terminate the right of Landlord and Ground Lessor to enforce any and all indemnities given Landlord or Ground Lessor by Tenant under the terms of this Sublease, which indemnities shall survive any termination of this Sublease. 18. Insolvency or Bankruptcy. The appointment of a receiver to take possession of all or substantially all of the assets of Tenant, or an assignment by Tenant for the benefit of creditors, or the commencement of a case or proceeding by or against Tenant or any other action taken or suffered by Tenant under any insolvency, bankruptcy, reorganization, moratorium or other debtor relief act or statute, whether now existing or hereafter amended or enacted, shall constitute a breach of this Sublease by Tenant. Upon the happening of any such event, this Sublease shall automatically terminate without further notice of termination from Landlord to Tenant, provided that Landlord may enforce any of its remedies under Section 17.2, except subsection (b) thereof, and provided further that neither such termination nor exercise of remedies shall affect or terminate the right of Landlord to enforce any and all indemnities given Landlord by Tenant under the terms of this Sublease. In no event shall this Sublease be assigned or assignable by operation of law or by virtue of or in any voluntary or involuntary bankruptcy, reorganization or insolvency case or proceeding or otherwise, and in no event shall this Sublease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, reorganization, insolvency or other debtor relief proceeding. 19. Fees and Expenses; Indemnity; Insurance. 19.1 Fees and Expenses. If Tenant shall default in the performance of any of its obligations under this Sublease, Landlord, at any time thereafter and with reasonable notice (unless in the case of an emergency), may remedy such default for Tenant's account and at Tenant's expense, without thereby waiving such default or any rights or remedies of Landlord on account of such default. Except as specifically provided to the contrary in this Sublease, Tenant shall pay to Landlord, within five (5) days after delivery by Landlord to Tenant of bills or statements therefor: (a) sums equal to all expenditures made and monetary obligations incurred by Landlord including, without limitation, expenditures made and obligations incurred for reasonable counsel fees and disbursements, in connection with any remedying by Landlord for Tenant's account pursuant to the immediately preceding sentence; (b) sums equal to all losses, costs, liabilities, damages and expenses referred to in Section 19.2; (c) sums equal to all expenditures made and monetary obligations incurred by Landlord, including, without limitation, expenditures made and obligations incurred for reasonable counsel fees and disbursements, in collecting or attempting to collect any Rent or in enforcing or attempting to enforce any rights of Landlord under this Sublease or pursuant to law. Tenant's obligations under this Section 19.1 shall survive the expiration or other termination of this Sublease. 19.2 Indemnification. Tenant agrees to indemnify Landlord and Ground Lessor against and save Landlord and Ground Lessor harmless from any and all loss, cost, liability, damage and expense including, without limitation, any reasonable counsel fees incurred in attempting to collect any Rent or in enforcing or attempting to enforce any rights of Landlord or Ground Lessor under this Sublease or pursuant to law. Tenant's obligations under this Section 19.2 shall survive the expiration or other termination of this Sublease. 19.3 Additional Indemnification. Tenant agrees to indemnify Landlord and Ground Lessor against and save Landlord and Ground Lessor harmless from any and all loss, cost, liability, damage and expense including, without limitation, penalties, fines and reasonable counsel fees and disbursements, incurred in connection with or arising from any cause whatsoever in, on or about the Premises, including, without limiting the generality of the foregoing (a) any default by Tenant in the observance or performance of any of the terms, covenants or conditions of this Sublease or the Ground Lease on Tenant's part to be observed or performed, or (b) the use or occupancy or manner of use or occupancy of the Premises by Tenant or any person or entity claiming through or under Tenant, or (c) the condition of the Premises or any occurrence or happening on the Premises from any cause whatsoever, or (d) any acts, omissions or negligence of Tenant or any person or entity claiming through or under Tenant, or of the contractors, agents, servants, employees, customers, visitors or licensees of Tenant or any such person or entity, in, on or about the Premises, or all or any part of the Real Property, either prior to, during, or after the expiration of, the Term including, without limitation, any acts, omissions or negligence in the making or performing of any Tenant Changes. Tenant further agrees to indemnify and save harmless Landlord and Landlord's agents, and the lessor or lessors under the Ground Lease and under all other ground or underlying leases, from and against any and all loss, cost, liability, damage and expense including, without limitation, reasonable counsel fees and disbursements, incurred in connection with or arising from any claims by reason of injury to persons or damage to property occasioned by any default, use, occupancy, condition, occurrence, happening, act, omission or negligence referred to in the preceding sentence. In the event any action or proceeding is brought against Landlord or Ground Lessor for any claim against which Tenant is obligated to indemnify Landlord or Ground Lessor hereunder, Tenant upon notice from Landlord shall defend such action or proceeding at Tenant's sole expense by counsel selected by Tenant and reasonably approved by Landlord. Tenant's obligations under this Section 19.3 shall survive the expiration or other termination of this Sublease. 19.4 Insurance. Tenant shall procure at its cost and expense and keep in effect during the Term (a) comprehensive general liability insurance, including without limitation contractual liability and specific coverage of risks arising out of any activities of Tenant pursuant to Article 7, with a minimum combined single limit of liability of Three (3) million dollars ($3,000,000.00), which limit of liability Landlord may increase from time to time in its reasonable discretion to a level then generally maintained by prudent Fixed Base Operations ("FBOs") for the coverage of comparable risks by giving written notice to Tenant of such adjustment in the required limit of liability of Tenant's insurance, and which insurance shall specifically include all liability (subject to standard policy exclusions) assumed hereunder by Tenant (provided that the amount of such insurance shall not be construed to limit the liability of Tenant hereunder); (b) insurance against damage or destruction by fire, lightning and other risks from time to time included under generally available extended coverage endorsements in an amount adequate to cover the cost of replacement of all Improvements, Tenant Changes and Tenant's Property and within the Premises; (c) workmen's compensation insurance having such limits, and under such terms and conditions, as are required by applicable law; and (d) Builders Risk insurance during the period of construction, in an amount determined by Landlord in its reasonable discretion. To the extent that either of Landlord or Ground Lessor, or both of them, have an insurable interest hereunder, such insurance shall name Landlord and Ground Lessor as an additional insured, shall provide that it is primary insurance, and not excess over or contributory with any other valid, existing and applicable insurance in force for or on behalf of Landlord, and shall provide that Landlord and Ground Lessor shall receive thirty (30) days' written notice from the insurer prior to any cancellation or change of coverage. Tenant shall deliver policies of such insurance or certificates thereof to Landlord and Ground Lessor on or before the Commencement Date, and thereafter at least thirty (30) days before the expiration dates of expiring policies; and, in the event Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at its option, upon three (3) days prior written notice to Tenant, procure same for the account of Tenant, and the cost thereof shall be paid to Landlord within five (5) days after delivery to Tenant of a statement therefor. Tenant's compliance with the provisions of this Section 19.4 shall in no way limit Tenant's liability under any of the other provisions of this Article 19. 19.5 Landlord Not Responsible. Landlord shall not be responsible for or liable to Tenant for any loss or damage that may be occasioned by or through the acts or omissions of persons occupying or using any part of the Real Property, or for any loss or damage resulting to Tenant or its property from burst, damaged, stopped or leaking water, gas, sewer, steam, air or heat pipes or ducts or from any electrical equipment accidents or malfunctions, or for any damage or loss of property within the Premises from any causes whatsoever, including theft. 20. Access to Premises; Security. 20.1 Access to Premises. Landlord reserves and at all times during the Term shall have the right to enter the Premises at all reasonable times upon prior notice to Tenant (except in the case of emergencies) to inspect same, to show the Premises to prospective purchasers, mortgagees and tenants, to post notices of non-responsibility, and to alter, improve or repair the Premises and any portion of the Building. Landlord may for any of the above purposes erect, use and maintain scaffolding, pipes, conduits and other necessary structures in and through the Premises where reasonably required by the character of the work to be performed, the business of Tenant shall not be interfered with unreasonably. For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes, or special security areas (designated in advance in writing by Tenant), and Landlord shall have the right to use any and all means that Landlord may deem necessary or proper to open said doors in an emergency in order to obtain entry to any portion of the Premises, and any entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. Landlord shall have the right to enter and inspect any special security areas referred to in the immediately preceding sentence upon notice to Tenant, provided that Tenant may require Landlord to be accompanied by a representative of Tenant during such inspection. Tenant shall be liable to Landlord for all of Landlord's damages, including consequential damages, to the extent Landlord is unable to protect all or any part of the Real Property during an emergency because of Landlord's lack of access to a special security area. Landlord acknowledges that in gaining access to the Premises it may be exposed to certain confidential information. Landlord and its agents and employees shall use reasonable measures not to disclose such confidences to third parties. 20.2 Security. Landlord shall have no obligation to furnish guards, watchmen, patrols or similar security personnel for the Building and the Premises at any time during the Term, and Tenant hereby expressly assumes (i) the obligation to furnish such security personnel, at such hours and at such stations, as Tenant deems necessary or desirable for the safety of Tenant's employees and invitees, and (ii) any and all risk of injury, damage or loss sustained to or by persons or property arising out of the absence of security personnel at the Building and the Premises and abrogation of any responsibility on the part of Landlord to furnish security personnel for the Building or the Premises pursuant to this Sublease. 21. Notices. Except as otherwise expressly provided in this Sublease, any bills, statements, notices, demands, requests or other communications given or required to be given under this Sublease shall be effective only if rendered or given in writing, sent by certified mail or delivered personally, as follows: If to Tenant: K-C Aviation Inc. 7350 Cedar Springs Dallas, Texas 75234-0145 Attention: Richard Emery With a copy to: Bradford Bates K-C Aviation Inc. 1201 Pennsylvania Avenue, N.W. Suite 730 Washington, D.C. 20004 If to Landlord: Dalfort Aviation 7701 Lemmon Avenue Dallas, Texas 75209 Attention: Vice President/Controller With a copy to: Cyril David Kasmir Kasmir & Krage 2001 Bryan Tower Suite 2700 Dallas, Texas 75201-3059 or to such other address as either Landlord or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Section 21. Any such bill, statement, notice, demand, request or other communication shall be deemed to have been rendered or given upon the earlier of receipt or five (5) days after the date when it shall have been mailed as provided in this Section 21. If sent by certified mail, or upon the date personal delivery is made, provided, however, that any refusal to accept personal delivery or delivery by mail shall be deemed to constitute receipt thereof. If Tenant is notified of the identity and address of any ground or underlying lessors of the Land or any part thereof, or any mortgagees or deed of trust beneficiaries of Landlord, at Landlord's request Tenant shall give to such ground or underlying lessors, or such mortgagees or beneficiaries, as applicable, notice of any default by Landlord under the terms of this Sublease, which notice shall be in writing sent by certified mail, and such ground or underlying lessors, or such mortgagees or beneficiaries, as applicable, shall be given a reasonable opportunity, but shall have no obligation, to cure such default prior to Tenant exercising any remedy available to it. 22. Mutual Waivers. 22.1 No Waiver. No failure by either party to insist upon the strict performance of any obligation of the other party under this Sublease or to exercise any right, power or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or of such term, covenant or condition. No acceptance of full or partial Rent during the continuance of any such breach, and no acceptance of the keys to or possession of the Premises by any employee of Landlord prior to the termination of the Term, shall constitute a waiver of any such breach or of such term, covenant or condition or operate as a surrender of this Sublease. No payment by Tenant or receipt by Landlord of a lesser amount than the aggregate of all Rent then due under this Sublease shall be deemed to be other than on account of the first items of such Rent then accruing or becoming due, unless Landlord elects otherwise; and no endorsement or statement on any check and no letter or other writing accompanying any check or other payment of Rent in any such lesser amount and no acceptance of any such check or other such payment by Landlord shall constitute an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue any other legal remedy. 22.2 Written Instrument. Neither this Sublease nor any term or provision hereof may be changed, waived, discharged or terminated orally, and no breach thereof shall be waived, altered or modified, except by a written instrument signed by the party against which the enforcement of the change, waiver, discharge or termination is sought, and subject in any event to the provisions of Section 11.1. No waiver of any breach shall affect or alter this Sublease, but each and every term, covenant and condition of this Sublease shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. The consent of Landlord given in any instance under the terms of this Sublease shall not relieve Tenant of any obligation to secure the consent of Landlord in any other or future instance under the terms of this Sublease. 23. Tenant's Certificates. Tenant at any time and from time to time upon not less than ten (10) days' prior written notice from Landlord or Ground Lessor will execute, acknowledge and deliver to Landlord and, at Landlord's request, to any prospective purchaser or any then current or prospective ground or underlying lessor or mortgagee of any part of the Real Property, a certificate of Tenant stating: (a) that Tenant has accepted the Premises (or, if Tenant has not done so, that Tenant has not accepted the Premises and specifying the reasons therefor), (b) the Commencement and Expiration Dates of this Sublease, (c) that this Sublease is unmodified and in full force and effect (or, if there have been modifications, that same is in full force and effect as modified and stating the modifications), (d) whether or not there are then existing any defenses against the enforcement of any of the obligations of Tenant under this Sublease (and, if so, specifying same), (e) whether or not there are then existing any defaults by Landlord in the performance of its obligations under this Sublease (and, if so, specifying same), (f) the dates, if any, to which the Rent has been paid, and (g) any other information, including, without limitation, any public financial information of Tenant or its parent or affiliate corporations, that may reasonably be required by any of such persons. It is intended that any such certificate of Tenant delivered pursuant to this Section 23 may be relied upon by Landlord and any prospective purchaser or any then current or prospective ground or underlying lessor or mortgagee of all or any part of the Real Property. 24. Guaranty. [INTENTIONALLY DELETED] 25. Authority. 25.1 Authority of Tenant. Each of the persons executing this Sublease on behalf of Tenant does hereby covenant and warrant that Tenant is a duly authorized and existing Delaware corporation, Tenant has full right and authority to enter into and perform this Sublease, and that each and all of the persons signing on behalf of Tenant are authorized to do so. Upon Landlord's request, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord confirming the foregoing covenants and warranties. 25.2 Authority of Landlord. Each of the persons executing this Sublease on the part of Landlord does hereby covenant and warrant that Landlord is a duly authorized and existing Nevada corporation, Landlord has full right and authority to enter into and perform this Sublease, and that each and all of the persons behalf of Landlord are authorized to do so. Upon Tenant's request, Landlord shall provide Tenant with evidence reasonably satisfactory to Tenant confirming the foregoing covenants and warranties. 26. Arbitration. Any dispute, controversy or claim which this Sublease expressly requires or permits to be submitted to arbitration, or the determination of the amount of any abatement of Rent provided for in this Sublease which is not agreed to by the parties within a reasonable time following the event or condition giving rise to such abatement, shall be settled by arbitration in the City of Dallas by three arbitrators, one of whom shall be selected by Landlord, one of whom shall be selected by Tenant and the other of whom shall be selected by the mutual agreement of the arbitrators so selected by Landlord and Tenant. Such arbitration shall be conducted in accordance with the Rules of Commercial Arbitration of the American Arbitration Association, or its successor. The arbitrators shall have no power to modify any of the provisions of this Sublease and their jurisdiction is limited accordingly. The expenses of arbitration shall be borne equally by the parties, provided that each party shall be responsible for the fees and expenses of its own experts, evidence and attorneys, and of the arbitrator appointed by such party. The decision of the arbitrators shall be conclusive, nonappealable and binding upon the parties hereto, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. It is understood and agreed by the Landlord and Tenant that the Ground Lessor shall not be subject to or bound by arbitration. 27. Termination of Sublease by Tenant. Tenant may terminate this Sublease and its obligations hereunder so long as Tenant is not in default in the payment of any amount due the Landlord, by giving Landlord thirty (30) days written notice upon or after the happening of any one of the following events: (a) The issuance by any court of competent jurisdiction of any injunction preventing or restraining the use of Love Field Airport for the purposes described herein, the same to remain in force and effect for a period of ninety (90) consecutive days or more. Landlord shall not be liable to Tenant if the latter is so dispossessed; but any time that such takes place, the rental required of Tenant shall be abated and that period of time shall be added as an extension to the term of the Sublease; provided, however, that in no event shall the term of this Sublease be extended beyond the term of the Ground Lease; and (b) The assumption by the United States Government or any agency or instrumentality thereof of the operation, control or use of Love Field Airport for national defense in such a manner as to preclude Tenant, for a period of ninety (90) consecutive days or more, from using the Premises in the conduct of its business. Landlord shall not be liable to Tenant if the latter is so dispossessed; however, for any time that such takes place, the rental required of Tenant shall be abated, and that period of time shall be added as an extension of the Term of the Sublease. 28. Affirmative Covenants. 28.1 Affirmative Covenants. In consideration for the improvements to the Love Field Airport to be undertaken by the City with the assistance of Federal funds to be provided to the City subject to certain assurances being made by tenants and subtenants doing business at the Airport, Tenant assures that it will undertake an affirmative action program as required by 14 CFR Part 152, Subpart E, to ensure that no person shall on the grounds of race, creed, color, national origin, or sex be excluded from participating in any employment activities covered in 14 CFR Part 152, Subpart E. Tenant assures that no person shall be excluded on these grounds from participating in or receiving the services or benefits of any program or activity covered by this subpart. Tenant assures that it will require that its covered suborganizations provide assurances to Landlord and Ground Lessor that such suborganizations similarly will undertake affirmative action programs and that they will require assurances from their suborganizations, as required by 14 CFR Part 152, Subpart E, to the same effect. 28.2 No Exclusion. Tenant assures that no person shall be excluded from participation in, denied the benefits of, or otherwise discriminated against in connection with the performance of the Sublease on the grounds of race, color, national origin or sex. 28.3 Review of Federal Regulations. Tenant acknowledges that it has read the applicable Federal Regulations, 14 CFR Part 152, Subpart E, and 49 CFR Part 23. 30. Landlord's Increased Leasehold Area. 30.1 The parties hereby acknowledge that a portion of the Building and Improvements which Tenant proposes to construct in accordance with the Plans and Specifications will be situated on property which is currently being leased to Tenant by the Ground Lessor pursuant to that certain Lease dated January 25, 1978, by and between Tenant, as tenant, and the Ground Lessor, as landlord (the "K-C Lease"). Concurrently with the execution of this Sublease and effective as of the date hereof, the Ground Lessor will enter into a Second Amendment to Lease (the "K-C Amendment") with respect to the K-C Lease to delete the property that is designated as "Parcel E" on Exhibit B attached hereto (the "K-C Land"). The Ground Lessor will further amend the Ground Lease by entering into a 1989 Amendment to Love Field Terminal and Air Cargo Facility Lease and Agreement (the "1989 Amendment") with Landlord to provide that the Ground Lease will include the K-C Land. 30.2 The 1989 Amendment will provide that Landlord will be obligated to pay the same rental rate for the K-C Land that Tenant was required to pay under the K-C Lease at the time of the K-C Amendment. Landlord and Tenant hereby agree that the rent payable by Landlord for the K-C Land pursuant to the 1989 Amendment, as well as any additional payments or adjustments relating to the K-C Land which are due and owing during the Term of this Sublease, shall be paid by Tenant as Additional Rent hereunder. Tenant shall make such payments to Landlord concurrently with the payment by Tenant of the monthly installments of Base Rent payable hereunder. 31. Miscellaneous. 31.1 Landlord and Tenant. The words "Landlord" and "Tenant" as used herein shall include the permitted successors and assigns of each. The plural number shall include the singular, and vice-versa. Words used in the neuter gender include the masculine and feminine. If there is more than one Tenant, the obligations under this Sublease imposed on Tenant shall be joint and several. The captions preceding the articles of this Sublease have been inserted solely as a matter of convenience and such captions in no way define or limit the scope or intent of any provision of this Sublease. As used herein, the term "including," when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as "without limitation," or "but not limited to," or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such general statement, term or matter. 31.2 Successors and Assigns. The terms, covenants and conditions contained in this Sublease shall bind and inure to the benefit of Landlord and Tenant and, except as otherwise provided herein, their respective personal representatives and successors and assigns; provided, however, upon the sale, assignment or transfer by the Landlord named herein (or by any subsequent landlord) of its interest in the Real Property as owner or ground lessee, including any transfer by operation of law, the Landlord (or subsequent landlord) shall be relieved from all subsequent obligations or liabilities under this Sublease, and all obligations subsequent to such sale, assignment or transfer (but not any obligations or liabilities that have accrued prior to the date of such sale, assignment or transfer) shall be binding upon the grantee, assignee or other transferee of such interest, and any such grantee, assignee or transferee, by accepting such interest, shall be deemed to have assumed such subsequent obligations and liabilities, and Landlord shall also be relieved of all responsibility or liability for any security deposit of Tenant held by Landlord upon the transfer thereof to any grantee, assignee or transferee in connection with such sale assignment or transfer. 31.3 Validity of Provisions. If any provision of this Sublease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Sublease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Sublease shall be valid and be enforced to the full extent permitted by law. 31.4 Applicable Laws. This Sublease shall be construed and enforced in accordance with the laws of the State of Texas. 31.5 Execution and Delivery. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or an option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant and approval by Ground Lessor. Tenant shall not be authorized to record this Sublease or any memorandum thereof without Landlord's prior written consent. 31.6 No Representations or Warranties. This instrument, including the Exhibits hereto, which are hereby made a part of this Sublease, contains the entire agreement between the parties and all prior negotiations and agreements are merged herein. Neither Landlord nor Landlord's agents have made any representations or warranties with respect to the Premises, the Building, the Real Property or this Sublease except as may be expressly set forth herein, and no rights, easements or licenses are or shall be acquired by Tenant by implication or otherwise unless expressly set forth herein. 31.7 Review of Documents. The review, approval, inspection or examination by Landlord or Ground Lessor, of any plans, specifications or any other item to be reviewed, approved, inspected or examined by Landlord or Ground Lessor under the terms of this Sublease (including any of the Exhibits attached hereto) shall not constitute the assumption of any responsibility for or any representation by Landlord or Ground Lessor as to the accuracy or sufficiency of such plans, specifications or other item, or the quality or suitability of such plans, specifications or other item for its or their intended use. Any such review, approval, inspection or examination by Landlord or Ground Lessor is for the sole purpose of protecting Landlord's and Ground Lessor's interests under this Sublease, and neither Tenant nor any person or entity claiming through or under Tenant nor any third party, including, without limitation, the contractors, agents, servants, employees, visitors or licensees of Tenant or any such person or entity shall. have any rights hereunder or claim against Landlord or Ground Lessor on account of any such review, approval, inspection or examination by Landlord. 31.8 Legal Expenses. In the event that either Landlord or Tenant fails to perform any of its obligations under this Sublease or in the event a dispute arises concerning the meaning or interpretation of any provision of this Sublease, the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other party in enforcing or establishing its rights hereunder, including, without limitation, court costs and reasonable counsel fees. 31.9 Surrender of Premises. Upon the expiration or sooner termination of the Term, Tenant will quietly and peacefully surrender to Landlord the Premises in the condition which existed upon final completion and acceptance of the Building or other Improvements on the Premises, ordinary wear and tear and the provisions of Article 13 excepted. 31.10 Quiet Enjoyment. Upon Tenant paying the Rent and performing all of Tenant's obligations under this Sublease, Tenant may peacefully and quietly enjoy the Premises during the Term as against all persons or entities lawfully claiming by or through Landlord; subject, however, to the provisions of this Sublease and to any mortgages and deeds of trust and the Ground Lease referred to in Article 11. 31.11 Holding Over. Any holding over after the expiration of the Term with the express written consent of Landlord shall be construed to be a tenancy from month to month at double the Base Rent herein specified (prorated on a monthly basis), and shall otherwise be on the terms and conditions herein specified so far as applicable. Any holding over without Landlord's express written consent shall constitute a continuing default by Tenant and entitle Landlord to exercise any or all of its remedies as provided in Article 17, notwithstanding that Landlord may elect to accept one or more payments of Rent from Tenant. At the option of Landlord exercised by written notice to Tenant, and not otherwise, such holding over shall constitute a renewal of this Sublease for a period of one (1) year at the Basic Rent specified in this Section 31.11. Any holding over after the expiration or termination of the Ground Lease shall be subject to the approval of the Ground Lessor. 31.12 Brokers. Each party hereto represents to the other that it has dealt with no broker in connection with the execution and delivery of this Sublease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all losses, costs, damages, liabilities and expenses (including without limitation court costs and reasonable counsel fees) resulting from a breach by the indemnifying party of the foregoing representation. 31.13 Cumulative Remedies; Survival of Indemnities. All rights and remedies of either party set forth herein shall be cumulative, unless specifically provided to the contrary herein. All provisions of this Sublease requiring one party to indemnify the other with respect to any matter, occurrence, condition, event, claim or liability shall survive the expiration or other termination of this Sublease. 31.14 Time is of Essence. Time is of the essence with respect to the performance of the obligations of the parties hereto as set forth in this Sublease and all Exhibits hereto. 31.15 Approval of Ground Lessor. Notwithstanding anything to the contrary contained herein, this Sublease shall not become effective, and the parties shall not have any obligations or liabilities under or in connection with this Sublease, unless and until this Sublease shall have received the written approval of the Ground Lessor and all mortgagees or trust deed beneficiaries presently holding any lien on or security interest in all or any part of the Real Property. Landlord shall use its best efforts to secure such approval, provided that Landlord shall not be deemed to have agreed to pay any consideration for such approval to any such mortgagee or beneficiary. Upon receipt of such written approval, Landlord shall promptly send Tenant written notice thereof. If this Sublease is disapproved by the Ground Lessor or any such mortgagee or beneficiary, or if written notice of approval is not received from such mortgagee or beneficiary within sixty (60) days from the date of execution of this Sublease, this Sublease shall be deemed cancelled and of no further force or effect, and neither party shall have any further liability to the other hereunder. 31.16 Third Party Beneficiary. The parties hereto intend that the City of Dallas be a third party beneficiary with respect to this Sublease and the provisions, covenants and indemnities set forth herein. 31.17 Headings. The titles and headings contained in this Sublease are used for convenience of reference only and shall not be construed as part of this Sublease. IN WITNESS WHEREOF, Landlord and Tenant have executed this Sublease the day and year first above written. LANDLORD: DALFORT AVIATION SERVICES, a Division of Dalfort Corporation By: /s/ Ronald G. Kiripolsky ------------------------------ RONALD G. KIRIPOLSKY PRESIDENT AND CHIEF EXECUTIVE OFFICER TENANT: K-C AVIATION INC., a Delaware corporation By: /s/ [Illegible] ------------------------------ Name:[Illegible] Title: President CONSENT: CITY OF DALLAS RICHARD KNIGHT, JR., City Manager By: /s/ Richard Knight, Jr. -------------------------- Assistant City Manager Date: June 1, 1989 FIRST ADDITIONAL AGREEMENT In connection with that certain Sublease that was entered into effective as of January 17, 1989 (the "Sublease"), by and between Dalfort Aviation Services (the "Landlord") and K-C Aviation Inc. (the "Tenant"), for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Landlord and the Tenant hereby additionally agree as follows: (1) As used in this First Additional Agreement, each term having its initial letter capitalized shall have the same meaning that was given to such term in the Sublease unless it is otherwise defined herein. (2) In the event that the Tenant exercises the Expansion Option that is set forth in Article 15 of the Sublease, the Landlord agrees that it will provide, without additional charge and to the extent then available at no cost or expense to the Landlord, a reasonable number of parking spaces on the southwesterly side of the Option Premises in the area that is designated as "Tenant Option Common Area" on Exhibit B for use by the Tenant during the term of the Sublease. (3) Except as amended hereby, the Sublease shall remain in full force and effect. In the event of any conflict between the Sublease and this First Additional Agreement, the provisions of this First Additional Agreement shall control. IN WITNESS WHEREOF, Dalfort Aviation Services, the Landlord, and K-C Aviation Inc., the Tenant, have executed this First Additional Agreement effective as of the 17th day of January, 1989. Dalfort Aviation Services Landlord By: /s/ Ronald G. Kiripolsky ---------------------------- Ronald G. Kiripolsky President and Chief Executive Officer K-C Aviation Inc. Tenant By: /s/ R.W. Emery ---------------------------- Name: /s/ R.W. Emery ----------------------- Title: /s/ President ----------------------- EX-10.40 9 SUBLEASE OF FACILITY AT DALLAS LOVE FIELD This Sublease (hereinafter referred to as "Sublease") is by and between Dallas Airmotive, Inc., a Texas corporation (hereinafter referred to as "Landlord"), and the assignee of Ryder Aviall, and K-C AVIATION, INC., a Delaware Corporation, (hereinafter referred to as "Subtenant"). WITNESSETH WHEREAS, Landlord leases and shall continue to lease certain land and improvements at Love Field ("Leased Premises") from the City of Dallas, Texas, a Texas municipal corporation, pursuant to an agreement (the "Prime Lease") entitled "Lease of Land and Facilities Agreement" effective November 1, 1993, and the Amended and Restated Leasehold Deed of Trust, Security Agreement, Assignment of Leases and Rents and Financing Statement dated October 20, 1995 (the "Deed of Trust"); and WHEREAS, Landlord desires to sublet a portion of the Leased Premises to Subtenant, and is permitted to do so under the Prime Lease and the Deed of Trust; NOW THEREFORE, in consideration of the rent herein provided to be paid by Subtenant and such other mutual covenants and consideration as herein provided, Landlord does hereby sublease to Subtenant the property described below, together with the nonexclusive right to use any common improvements, aprons, taxiways, ramps and access of Landlord, on the following terms and conditions: (1) SUBLEASED PREMISES. Landlord hereby subleases to Subtenant that certain Building at 8411 Lemmon Avenue, Dallas, Texas, 75209, containing approximately 53,400 square feet of office, shop, and hangar space, plus the parking area (the cross-hatched area as shown on attached Exhibit "A"), together with the non-exclusive right for ingress and egress to the space, all of which is a portion of the Leased Premises as set forth above, and is hereafter referred to as the "Property". A description of the Property is attached hereto as Exhibit A and is incorporated into this Sublease by this reference. (2) TERM. This Sublease shall be for a term of approximately five (5) years, commencing on December 1, 1996 and ending on October 31, 2001 (hereinafter referred to as the "Initial Term"). Upon the faithful performance of all obligations under this Initial Term by Subtenant, Subtenant shall have the right and privilege to renew this Sublease for an additional two (2) year period, (the "First Extended Term") commencing on November 1, 2001, and expiring on October 31, 2003, provided that Subtenant notifies Landlord of its intent to renew at least 120 days prior to the expiration of the Initial Term. In the event that Landlord renews or extends the Prime Lease, at the end of the First Extended Term, Subtenant shall have the right of first refusal, upon written notice at least 120 days prior to the end of the then current term, to continue to rent the property on the same terms and conditions as herein provided, but for a term and at a rental to be renegotiated at that time. Notwithstanding anything to the contrary contained herein, the parties agree that Subtenant may cancel this Sublease upon sixty (60) days prior written notice and the payment of (i) a termination fee of ninety thousand dollars ($90,000.00) if termination occurs prior to or on October 31, 1997, eighty thousand dollars ($80,000.00) if termination occurs after October 31, 1997 and prior to or on October 31, 1998, seventy thousand dollars ($70,000.00) if termination occurs after October 31, 1998 and prior to or on October 31, 1999, sixty thousand dollars ($60,000.00) if termination occurs after October 31, 1999 and prior to or on October 31, 2000, fifty thousand dollars ($50,000.00) if termination occurs after October 31, 2000, plus (ii) an additional two thousand dollars ($2,000.00) for each month that would have remained in the Initial Term after such termination (but for such termination). The termination fee for the First Extended Term will be four times the average monthly rental charged during the first renewal period. The early termination compensation shall be paid to Landlord, in full, thirty (30) days prior to the early termination date. (3) USE. Subject to the other terms and conditions hereof, Subtenant shall use the Property for air transportation related services, parking, maintenance, fitting and storage of aircraft and parking of automobiles, and other lawful aviation related activities permitted by Lessor, and for no other purpose. In particular, the Property shall not be used for non-aviation related activities without the prior written consent of Landlord, which may be withheld in its reasonable discretion. In addition, Subtenant shall not occupy or permit the use of the Property for any unlawful or hazardous purposes or permit any activity to exist which could constitute a nuisance to others, or increase the cost of insurance to Landlord. (4) IMPROVEMENTS. Except as set forth on the attached Exhibit B, Subtenant shall not make any improvements or alterations to the Property without the prior written consent of Landlord, which shall not be unreasonably withheld or delayed, except any improvements or series of improvements costing in the aggregate less than $20,000.00 shall require no approval. (a) Prior to entering into any contract for such work, Subtenant shall first submit a written request to Landlord for approval of conceptual plans (hereinafter referred to as "Construction Application") together with complete drawings and specifications of the proposed work and the name of the contractor to whom Subtenant proposes to award the contract for such work. Such approval shall not be unreasonably withheld or delayed. Subtenant further agrees that it will obtain a "Performance Bond and Payment Bond" from all contractors if requested by the City of Dallas and/or reasonably requested by Landlord. (b) Subtenant shall include in all construction contracts entered into by it in connection with any work at the Property, a provision requiring the contractor to indemnify and hold harmless Landlord, the City of Dallas, any successor-in-interest, as their interests may appear, and their directors, officers, agents, and employees against losses occasioned by death, injury to persons or damages to property, arising out of or in connection with the performance of any or all of such construction work, against the risk of loss or damage to the construction prior to the completion thereof, and against the losses resulting from claims and demands by third persons arising out of the performance of the construction work; and Subtenant shall require all contractors to carry such insurance as may be reasonably required by the City of Dallas or Landlord. The provisions of this subparagraph shall not apply to the extent the foregoing are caused by the sole negligence or breach of obligations by the parties indemnified in this paragraph. (c) Subtenant agrees that all work to be performed by it or its contractors, including all workmanship and materials, shall be of first-class quality and shall be performed in compliance with all plans and specifications reviewed and approved by Landlord, and such work shall be subject to Landlord's inspection. Subtenant shall assume the risk of loss or damage to all such work prior to the completion thereof and shall repair or replace any such loss or damage without cost to Landlord. Subtenant shall deliver to Landlord progress reports of Subtenant's work and shall at all times during the term of this Sublease keep drawings thereof current, showing thereon any changes or modifications made in or to the improvements constructed on the Leased Property all in accordance with Paragraphs 4(f) and 4(g) of the Prime Lease as they apply to Subtenant. (d) Subtenant shall discharge promptly all obligations to contractors, subcontractors, materialmen, workmen and/or other persons for all work performed and for materials furnished for or on account of Subtenant. Nothing in this Sublease shall limit the right of Subtenant to contest any claims of contractor, subcontractor, materialmen, workmen or other person without being considered in breach hereof. (e) Subtenant acknowledges that the creation, noticing, or filing or the attempt to create, notice or file any claim arising out of improvements to the Property against the Property is expressly prohibited in Landlord's Prime Sublease. Accordingly, Subtenant agrees to insert a provision precluding the imposition of such liens into all contracts entered into for work, promptly remove and discharge any such lien or claim and to indemnify and hold harmless the Landlord from any and all loss, cost, damage or claim that may be incurred by Landlord where Subtenant failed to abide by this provision. (f) Landlord agrees to perform and pay for up to fifty thousand dollars ($50,000.00) of hangar, shop, and/or office repairs and improvements including, but not limited to, painting the exterior of the hangar and Seal Coating and striping the parking lots, before December 31, 1996. Should the cost of the above named repairs and improvements total less than the sum of fifty thousand dollars ($50,000.00), Landlord agrees to pay Subtenant any excess to use toward additional improvements of the Property, in Subtenant's discretion. Subtenant shall propose to Landlord those Subtenant improvements and Landlord shall not withhold approval as long as they qualify as a capital expense which can be amortized by Landlord using generally accepted methods and principles of accounting. Landlord and Subtenant agree to exchange freely contractor bids, invoices, supporting cost data and/or receipted payments, as necessary, for the mutual monitoring and accounting of the individual and cumulative expenditures up to the fifty thousand dollars ($50,000.00) referred to hereinabove. (5) MAINTENANCE AND REPAIRS. Other than the repairs and improvements to be made as described above, Subtenant has inspected the Property, and agrees to accept the Property in the same condition as received and to maintain the Property as provided in this Section with reasonable and ordinary wear and tear and loss or damage from fire or casualty excepted. Landlord will be responsible and pay for (including any necessary maintenance, repair, or replacement of) the building structural components, ramps, taxi ways, parking areas, sidewalks and driveways on the premises. Landlord will also be responsible to perform and pay for the significant repair and/or replacement of the mechanical, electrical, plumbing, air conditioning, ventilation, and heating systems on the Leased Premises. Subject to the foregoing, Subtenant will be responsible for routine and preventative maintenance of the facilities, including, but not limited to, janitorial service, minor repairs to air-conditioning and heating units, electrical, plumbing and grounds upkeep. Notwithstanding the foregoing responsibilities of the Landlord, but subject to the waiver of subrogation and claims contained herein, Subtenant understands and agrees that the Landlord shall not be responsible for any repairs necessitated by the negligence or willful or wanton misconduct of the Subtenant or Subtenant's employees, agents or invitees. (6) INSPECTION. Subtenant agrees that, with reasonable prior notice, Landlord or the City of Dallas, its agents or representatives, may enter upon the Property at any reasonable time for any reasonable purpose, and Subtenant agrees to cooperate with them. In addition, Subtenant shall provide Landlord, upon written request from Landlord, with a listing of Subtenant contacts and telephone numbers for emergency access to the Property. Subtenant shall have the right to accompany anyone inspecting the Property. Landlord agrees to treat Subtenant's activities as confidential in nature and not to disclose such activities to third parties. (7) RENT. Subtenant shall pay to Landlord as monthly rent, without deduction, setoff, prior notice or demand of any kind, in advance on the first day of each month, commencing on the date the Initial Term commences and continuing throughout the Sublease term in accordance with the following schedule: MONTHLY RENT ($) ---------------- Commencement Date through October 31, 1999 20,000.00 November 1, 1999 through October 31, 2000 21,000.00 November 1, 2000 through October 31, 2001 22,050.00 The amount of monthly rent payable for the period from November 1, 2001 through October 31, 2003 shall be the rent for the month of October, 2001, increased by the same percentage as the increase in the Consumer Price Index, U.S. Department of Labor, (all cities, from October, 2000 to October, 2001. Unless otherwise provided to Subtenant in writing, all rental payments shall be made to Landlord at the following address: Dallas Airmotive, Inc. P.O. Box 200720 Dallas, Texas 75320-0720 If this Sublease shall start or end on any day other than the first day of a month, then the rental due hereunder for such month shall be equitably prorated. (8) FUEL. This Paragraph shall be of no force or effect during the time that the Fuel Sales Agreement between Dalfort Corporation and Subtenant dated January 17, 1989, remains in effect. Subject to the foregoing, during the term of this Sublease, Landlord agrees to sell to Subtenant and Subtenant agrees to purchase from Landlord jet aviation fuel and fueling services required by Subtenant for the operation of airplanes that may be stored, receiving maintenance, or otherwise located at the Property on Love Field, if Subtenant is not otherwise legally bound. For all purchases of fuel made pursuant to this section of this Sublease, Subtenant shall pay a discounted price off Landlord's then current posted price in accordance with the following volume schedule: Dallas Airmotive ---------------- Monthly Volume KC Price (gal) Posted Price - -------------- ------------- ------------ 0 to 18,999 less 30% $2.38* 19,000 to 23,999 less 33% $2.38* 24,000 or more less 35% $2.38* * Today's Posted Price for transient aircraft is $2.38 - Price changes may be made without notice. Notwithstanding the foregoing, the parties agree that this section shall not prohibit Subtenant from purchasing its aviation fuel requirements elsewhere should Landlord be unable to supply such requirements as herein provided anytime, or should Subtenant's aircraft require fueling at a location other than Dallas Love Field, or should Subtenant's customers require a fueling source other than Landlord. Furthermore, Landlord shall not be liable to Subtenant for Landlord's inability to provide Subtenant with aircraft fuel for reasons beyond the control of Landlord during the term hereof. Subtenant's failure to abide by its obligation to purchase fuel, as outlined above, where such failure continues for 15 days after written notice from Landlord shall entitle the Landlord to terminate this Sublease or recover monies from Subtenant equal to one hundred twenty-five percent (125%) of the amount which would have been charged by Landlord for fuel purchased in violation of the covenant. (9) INSURANCE. Subtenant shall maintain commercial general liability insurance in an amount no less than $1,000,000, naming the City of Dallas and Landlord as additional insureds with regard to their interests in this Sublease. In addition, Subtenant shall maintain any statutorily required Worker's Compensation and Employer's Liability Insurance. Landlord shall provide "All Risk" fire and extended coverage casualty insurance. Subtenant agrees to obtain such other insurance as Landlord may reasonably require after taking into account Subtenant's activities at the Property. Certificates of the insurance required above shall be delivered to Landlord prior to Subtenant's occupancy of the Property, and such certificates shall provide that the City of Dallas and Landlord shall receive no less than fifteen (15) days prior written notice prior to the cancellation, modification or expiration of said policy. Insurance requirements, as they apply to Subtenant under the terms of this Sublease, shall be consistent with the insurance requirements set forth in Attachment I to Landlord's Prime Lease, a copy of which Attachment I is attached to this Sublease. LANDLORD AND SUBTENANT HEREBY WAIVE ANY RIGHTS EACH MAY HAVE AGAINST THE OTHER ON ACCOUNT OF ANY LOSS OR DAMAGE OCCASIONED TO LANDLORD OR SUBTENANT, AS THE CASE MAY BE (WHETHER OR NOT SUCH LOSS OR DAMAGE IS CAUSED BY THE NEGLIGENCE OR FAULT OF THE OTHER PARTY), TO THEIR RESPECTIVE REAL OR PERSONAL PROPERTY, INCLUDING THE PROPERTY (AS DEFINED IN THIS SUBLEASE), ITS CONTENTS OR ANY OTHER PORTION OF THE PROPERTY ARISING FROM ANY RISK THAT WOULD BE COVERED BY THE STANDARD FORM OF FIRE AND EXTENDED COVERAGE INSURANCE USED IN THE STATE OF TEXAS AT THE TIME OF THE LOSS OR DAMAGE. If a party waiving rights under this paragraph is carrying a fire and extended coverage insurance policy in the standard form used in the State of Texas and an amendment to such standard form is passed, such amendment shall be deemed not a part of such standard form until it applies to the policy being carried by the waiving party. The parties hereto each, on behalf of their respective insurance companies insuring the property of either Landlord or Subtenant against any such loss, waive any right of subrogation that it may have against the other party. Each party to this Lease agrees immediately to give to each such insurance company written notification of the terms of the mutual waivers contained in this paragraph, and to have said insurance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverages by reason of said waivers. This paragraph shall control over any provision in or applicable to this Sublease which is, may be or may appear to be in conflict with this paragraph. (10) TAXES. Subtenant shall pay, before delinquent, all taxes on its equipment, inventory, movable fixtures, furniture and personal property that may be located at the Property or Love Field. (11) SUBLETTING AND ASSIGNMENT. Subtenant may sublet, assign, or share the Property with another entity only with Landlord's prior written consent. Any request for such consent shall set forth all relevant information regarding the entity, the nature of its operations, its financial condition, and at least five (5) credit references. Upon any subletting or assignment, Landlord shall be entitled to receive fifty percent (50%) of all rental received by Subtenant in excess of that paid by Subtenant hereunder and one hundred percent (100%) of all fuel revenue without rebate or discount for gallons delivered to non K.C. Aviation controlled airplanes that may be stored, receiving maintenance, or otherwise located at the Property on Love Field. Furthermore, in the event of an assignment or subletting, Subtenant shall remain fully liable for the performance of all obligations and liabilities under this Sublease. Occupancy of all or part of the Property by parent, subsidiary or affiliated companies of Subtenant shall not be deemed an assignment or subletting. Notwithstanding the foregoing, Landlord reserves the right, upon notice and request from Subtenant for the subletting or assignment of its interest under this Sublease, to terminate this Sublease, whereupon the Sublease shall terminate sixty (60) days after such notice, provided, this termination right shall be of no effect if Subtenant withdraws its subletting request within thirty (30) days after receipt of written notice from Landlord of Landlord's election to terminate the Sublease. (12) UTILITIES. Landlord shall provide utilities to the Property in sufficient amounts for the reasonable use of the Property by Subtenant. Notwithstanding same, Subtenant shall be responsible for paying all telephone charges, and utilities will be directly metered to Subtenant and Subtenant will remit directly to provider. (13) TERMINATION. Landlord reserves the right to terminate this Sublease before the end of its term if any of the following circumstances shall occur: (a) Subtenant shall fail to make any payment due under this Sublease on the date that same is due and shall not cure such failure for fifteen (15) days after written notice thereof. (b) Subtenant shall fail to meet and observe any material term, condition or covenant of this Sublease and shall not cure such failure within thirty (30) days after written notice thereof or, if such failure cannot reasonably be cured within the said thirty (30) days and Subtenant shall not have commenced to cure such failure within said thirty (30) days and shall not thereafter, with reasonable diligence and good faith, proceed to cure such failure. (c) Subtenant shall become insolvent, or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of creditors, or a receiver or trustee shall be appointed for all or substantially all of the assets of Subtenant. (d) Subtenant shall file a voluntary petition, or an involuntary petition is filed against Subtenant, in bankruptcy, where such suit is not dismissed within sixty (60) days after such filing. (e) The Prime Lease between the City of Dallas and Landlord terminates. (f) Subtenant commits any act or fails to perform any act, the consequence of which is to cause Landlord to be in default of its Prime Lease with the City of Dallas, which default is not cured within the time periods provided in the Prime Lease. (14) REMEDIES. With the exception of 13(e) above, upon the occurrence of any of the events giving Landlord the right to terminate this Sublease, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand other than as required in the section above. (a) Terminate this Sublease, in which event Subtenant shall immediately, upon written notice, surrender the Property to Landlord, and if Subtenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or rent, enter upon and take possession of the Property and expel or remove Subtenant or any other persons who may be occupying the Property or any part thereof. (b) Terminate this Sublease, in which event Subtenant shall pay Landlord the cancellation amount due under paragraph 2 of this Sublease as liquidated damages and as Landlord's sole and exclusive remedy solely for the rents that otherwise would have become due hereunder after the termination of this Sublease. Such liquidated damages shall not be Landlord's sole remedy for any damages owed by Tenant that arose or accrued during the Lease term. (c) Pursue all remedies available under applicable state law. (15) COST OF ENFORCEMENT. The court costs and reasonable attorney's fees incurred by either party in a successful prosecution or defense of any legal or equitable proceedings to construe this Sublease or enforce any right or obligation arising from it shall become an obligation and payable from the other party. (16) COVENANT OF QUIET ENJOYMENT. Landlord agrees that, subject to the terms of its Prime Lease with the City of Dallas, and the terms and conditions of this Sublease, upon the faithful performance of its obligations hereunder, Subtenant shall have and enjoy peaceful possession and use of the Property. The Landlord shall use its best efforts to cause the Prime Lease to remain in effect. (17) WAIVER. Any failure or neglect on the part of Landlord or Subtenant to enforce this Sublease shall not be taken or construed as a waiver of its rights hereunder. (18) SURRENDER OF PROPERTY. Subtenant agrees to deliver the Property to Landlord on the date of cessation of this Sublease, whether such be by termination, expiration, or otherwise, promptly and in as good a condition as received as of the commencement of this Sublease, reasonable wear and tear and damage or loss by fire or other casualty excepted. Subtenant shall be allowed fifteen (15) days after the end date of this Sublease to remove personalty, trade fixtures, tools, machinery, equipment, portable buildings, materials and supplies from the Property. (19) INDEMNIFICATION. (a) As a condition hereof, Subtenant agrees to, and does hereby, indemnify, defend and hold Landlord and the City of Dallas, their directors, officers, agents and employees, harmless against any and all claims, suits, judgments, fines, costs and expenses for personal injury (including death), property damage or other harm, brought or sought by any person, entity or any governmental agency that may arise out of, be incident to or occasioned by 1) Subtenant's use, occupancy, maintenance, or construction on the Property, or Subtenant's installations and improvements to the Property, or (with respect to the City of Dallas) from any act or omission of any representative, officer, agent, invitee, employee, contractor, or subcontractor of Subtenant, or (with respect to Landlord) from any negligent or strictly liable act or omission of any representative, officer, agent, invitee, employee, contractor or subcontractor of Subtenant, or 2) Subtenant's breach of any of the terms and provisions of this Sublease, or 3) any negligent or strictly liable act or omission of Subtenant, its directors, officers, invitees, agents, contractors and subcontractors in any type of use, occupancy maintenance or construction of the Property. The indemnity provided for in this paragraph shall not apply to any liability resulting from the sole negligence or fault of Landlord or the City of Dallas, or their representatives, officers, agents, invitees, employees, contractors or subcontractors. In the event of joint or coincidental negligence or fault of both the Subtenant and the Landlord and/or the City of Dallas, responsibility and indemnity, if any, shall be allocated comparatively in accordance with the portion of responsibility attributable to each party, without, however, waiving any governmental immunity available to the City of Dallas under Texas law and without waiving any defenses of the parties under Texas law. (b) The City of Dallas assumes no responsibility for any property placed in or on the Property, and the City of Dallas is hereby expressly released and discharged from any and all liability for any loss, injury or damage to persons or property that may be sustained by reason of the use and occupancy of the Property and/or Love Field under this Sublease, unless same is caused by the negligence or willful act of the City of Dallas or its officers, invitees, agents, contractors and subcontractors, or by breach of contract by the City of Dallas. (c) Landlord agrees to and does hereby indemnify, defend and hold harmless Subtenant, its directors, officers, agents and employees, from any and all claims, suits, judgments, fines, costs and expenses for personal injury (including death), property damage or other harm, brought or sought by any person, entity, or any governmental agency that may arise out of, be incident to or occasioned by 1) Landlord's use, occupancy, maintenance, or construction on the Property, or Landlord's installations and improvements to the Property, or from any negligent or strictly liable act or omission of any representative, officer, agent, invitee, employee, contractor or subcontractor of Landlord, or 2) Landlord's breach of any of the terms and provisions of this Sublease, or 3) any negligent or strictly liable act or omission of Landlord, its directors, officers, invitees, agents, contractors and subcontractors in any type of use, occupancy maintenance or construction of the Property, or 4) any gross negligent or strictly liable act or omission of Landlord, its directors, officers, invitees, agents, contractors, and subcontractors in any type of use, occupancy, or construction of the Property. (20) CONDEMNATION. If, during the term of this Sublease, any portion of the Property (such that the remainder cannot reasonably used as Subtenant then intends and desires) shall be taken by condemnation or eminent domain proceedings, then this Sublease shall terminate as of the date of such taking, and all rights, titles, interests, covenants, agreements and obligations of the parties hereto thereafter accruing shall terminate with Subtenant hereby assigning and releasing to Landlord Subtenant's rights to any compensation for the taking; provided, however, any condemnation award for Subtenant's personal property and relocation costs are not assigned to Landlord and shall belong to Subtenant. (21) NON-DISCRIMINATION. Subtenant, as a part of the consideration hereof, does hereby covenant and agree, as a covenant running with the land, that (1) no person on the grounds of race, color, national origin, or handicap shall be excluded from participation in, denied the benefits of, or be otherwise subjected to discrimination in the use of any facilities operated or used by Subtenant at Love Field; (2) that Subtenant shall use the Property in compliance with all requirements imposed by or pursuant to 49 CFR Part 21, "Nondiscrimination in Federally Assisted Programs of the Department of Transportation", as said regulations may be amended. (22) SIGNS. All exterior signs shall comply with the pertinent City ordinances, and shall also have prior written approval of Landlord, which shall not be unreasonably withheld, and the Director of Aviation for the City of Dallas. Unless otherwise specifically authorized, they shall conform in general appearance with the existing signs displayed at Dallas Love Field. Upon the termination of the Sublease, Subtenant shall remove the signage as required by the Director of Aviation and/or Landlord, at Subtenant's expense. If Subtenant fails to do as required, Landlord shall have the option but not the obligation of removing the signs and the cost thereof shall be due from Subtenant to Landlord upon demand. (23) GOVERNMENTAL REQUIREMENTS-RULES & REGULATIONS. Subtenant agrees to obtain and maintain in effect from all governmental authorities having jurisdiction, all licenses, certificates, and permits necessary for its operations. In addition, Subtenant agrees to comply with all applicable Federal, State and local laws and regulations in connection with Subtenant's use and occupancy of the Property. (24) NO REPRESENTATIONS. Neither Landlord nor the City of Dallas has made, nor does hereby make, any representation, guarantee, promise, agreement, or warranty of any kind whatsoever, whether expressed or implied, oral or written, past, present or future, relating to or concerning the nature, quality or condition of the Property, the income to be derived, the suitability of the Property for the uses allowed under this Sublease, or merchantability or fitness for a particular purpose. (25) ENVIRONMENTAL CONCERNS. Subtenant agrees to comply strictly with all applicable environmental laws, rules and regulations pertaining to its Sublease and occupancy of Property at Love Field and agrees to, and does hereby, indemnify and hold harmless Landlord and the City of Dallas from any and all loss, cost, damage or claim alleged or sustained by them, or either of them, to the extent arising out of Subtenant's non-compliance with applicable environmental laws, rules and regulations or breach of terms of this Sublease. Furthermore, Subtenant acknowledges the relationship of Landlord to the City of Dallas and agrees that if any environmental remediation is required, Landlord shall have the right, upon notice, unless an emergency situation exists, in which event, no notice shall be required, to undertake and complete such remediation to the extent required under the applicable laws. Subtenant shall promptly reimburse Landlord for any and all reasonable and documented costs incurred in such action to the extent such action was required as a result of Subtenant or Subtenant's invitees', customers' or guests' use or occupancy of the Property. Landlord shall use its best efforts not to interfere with the operations of Subtenant. If remediation interferes with Subtenant's operations, an equitable rent adjustment will be made. Notwithstanding any of the foregoing, any environmental remediation, response or other action, obligation or liability required in or around the Property resulting directly or indirectly from any actions or omissions of parties other than Subtenant prior to the commencement date of this Sublease shall not be the obligation, duty or responsibility of Subtenant. Landlord agrees to defend, indemnify and hold Subtenant, its officers, agents, contractors, and subcontractors (Indemnitees) harmless from and against, and to reimburse Indemnitees with respect to any and all claims and expenses (including reasonable attorney's fees and court costs) of any and every kind or character, known or unknown, fixed or contingent, asserted against or incurred by Indemnitees at any time and, from time to time, by reason of, in connection with or arising out of any act, omission, event or circumstance relating to health, safety, or the environment existing or occurring prior to the commencement date of this Sublease. Landlord shall have and bear the burden of proof to show that any actual or alleged liabilities or obligations related to environmental matters relate to the period after the commencement date of this Sublease and/or are the responsibility of Subtenant, Landlord and Subtenant agreeing there is a rebuttable presumption to the contrary. (26) SUBORDINATION. Although the obligations of Subtenant are fully set forth herein, or by specific reference to the Prime Lease, this Sublease shall be subject and subordinate in all respects to the Prime Lease and the rights of the City of Dallas thereunder. Additionally, at Landlord's option, this Sublease shall be subject and subordinate to any future mortgage or encumbrance which Landlord may incur on the Property, so long as such subordination does not interfere with Subtenant's right of use and peaceful possession of the Property through the completion of the term of Sublease. (27) SUCCESSORS AND ASSIGNS. Subject to the limitations of assignment herein contained, this Sublease shall be binding upon and inure the benefit of the parties hereto, their respective successors and assigns. (28) NOTICES. The exercise of options and the delivery of notices provided for herein shall be effective only if delivered to Landlord at: DALLAS AIRMOTIVE, INC. cc: Richard Jones, Esq. 7511 Lemmon Avenue Fishman, Jones, Walsh & Marsh Building B - Love Field 8117 Preston Road, Suite 440 Dallas, Texas 75209 Dallas, Texas 75225 Attn: George Derby and unless otherwise provided to Landlord in writing, to Subtenant at: K-C AVIATION, INC. cc: Gregg Davis, Esq. 7440 Aviation Place Thompson & Knight Dallas, Texas 75235 1700 Pacific Avenue, Suite 3300 Attn: John Rahilly Dallas, Texas 75201-4693 The first attempted mailing by United States registered or certified mail, postage prepaid, return receipt requested, shall constitute delivery. No employee or other representative of Subtenant at any other address shall have authority to receive notices. (29) MISCELLANEOUS. This Sublease Agreement is not binding on either party until it is executed by both parties. (30) ENTIRE AGREEMENT. This Sublease and the following exhibits attached hereto constitute the entire agreement between the parties regarding the Property, and no oral representations or agreements may be relied upon by either party relating to this Sublease: Exhibit A - Description of Property Exhibit B - Description of Subtenant's Improvements Attachment I - Insurance Requirements In addition, Subtenant acknowledges that Landlord has prepared this Sublease evidencing their agreement as a convenience to the parties, and anything that is subject to interpretation shall not be construed against Landlord merely because Landlord drafted this Sublease. (31) Each party acknowledges and agrees that it has read this Sublease carefully, agrees to its terms, and, by this section, is advised to seek the advice of an attorney prior to entering into this Sublease. Landlord: Subtenant: Landlord: Subtenant: DALLAS AIRMOTIVE, INC. K-C AVIATION, INC. By: /s/ Steve Joiner By: /s/ John F. Rahilly ------------------------------- ------------------------------ Name: Steve Joiner Name: John F. Rahilly ------------------------------ ----------------------------- Title: Director, Terminal Services Title: President ----------------------------- ---------------------------- Dated: 12/2/96 Dated: 12/2/96 ----------------------------- ---------------------------- EX-10.41 10 COMMERCIAL LEASE ARTICLE 1.00 BASIC LEASE TERMS 1.01 PARTIES. This lease agreement ("Lease") is entered into by and between the following Lessor and Lessee: CARPENTER FREEWAY PROPERTIES, a Texas joint venture ("Lessor") K-C AVIATION, INC., a Delaware corporation ("Lessee") 1.02 LEASED PREMISES. In consideration of the rents, terms, provisions and covenants of this Lease, Lessor hereby leases, lets and demises to Lessee the following described premises ("leased premises"): approximately 3.421 acres of land, described on Exhibit "A" attached hereto and made a part hereof, including a building containing approximately 47,518 rentable square feet, commonly known as 7611 Carpenter Freeway, Dallas, Texas 75247. 1.03 TERM. Subject to and upon the conditions set forth herein, the term of this Lease shall commence on the later to occur of (i) May 1, 1997, or (ii) five (5) business days after the completion by Lessor of all ACM Abatement Work (hereinafter defined) (the "Commencement Date") and shall continue thereafter for a period of five (5) years following the Commencement Date unless sooner terminated in accordance with the terms and provisions of this Lease. Lessee shall have a renewal option for one sixty (60) month "Renewal Term," as described in Exhibit "D" attached hereto and made a part hereof. 1.04 BASE RENT AND SECURITY DEPOSIT. (a) Base rent shall be payable in the following respective amounts (regardless of whether the actual square footage of the building comprising a portion of the leased premises is proven to be greater or less than the approximate square footage set forth in section 1.02 above): (i) commencing on the Commencement Date through and including the thirty-sixth (36th) month of the term of this Lease, base rent shall be payable in equal consecutive monthly installments of Fifteen Thousand Eight Hundred Thirty-Nine and 33/100 Dollars ($15,839.33) each; and (ii) commencing on the first (1st) day of the thirty-seventh (37th) month of the term of this Lease through and including the sixtieth (60th) month of the term of this Lease, base rent shall be payable in equal consecutive monthly installments of Sixteen Thousand Four Hundred Thirty-Three and 31/100 Dollars ($16,433.31) each. If the final day of the 36th month of the term of this Lease occurs on a day other than the first day of a calendar month, then the base rent for that calendar month shall be prorated between $15,839.33 and $16,433.31 based upon the applicable number of days in that calendar month which occur, respectively, before and after the last day of such 36th month. (b) There shall be no security deposit. 1.05 ADDRESSES. Unless and until changed by written notice from one party to the other in accordance with the provisions of section 13.06 of this Lease, the respective addresses of the parties for notices pursuant to this Lease are as follows: Lessor's Address: Lessee's Address: Carpenter Freeway Properties K-C Aviation, Inc. c/o Cencor Realty Services 7440 Aviation Place 3102 Maple Avenue, Suite 500 Dallas, Texas 75235 Dallas, Texas 75201 Attn: John Rahilly With a copy to: With a copy to: Jenkens & Gilchrist, Thompson & Knight, P.C. a Professional Corporation 1700 Pacific Avenue 1445 Ross Avenue, Suite 3200 Suite 3300 Dallas, Texas 75202-2799 Dallas, Texas 75201 Attn: James H. Wallenstein, Esq. Attn: Gregg C. Davis, Esq. 1.06 PERMITTED USE. General office use and jet engine overhaul (but with no testing of jet engines at the leased premises), and no other use without the prior written consent of Lessor, which consent shall not be unreasonably withheld or delayed. With regard to Lessee's use of the leased premises for jet engine overhaul, Lessor's inclusion of same as a "Permitted Use" refers only to permission from Lessor, subject to Applicable Laws (as defined in section 3.03 below) and applicable deed restrictions, if any; and in no way should it be deemed as a representation or warranty from Lessor that such use is permitted under Applicable Laws and applicable deed restrictions. ARTICLE 2.00 RENT 2.01 BASE RENT. Lessee agrees, without demand, setoff or deduction (except as expressly provided in this Lease), to pay monthly as base rent during the term of this Lease the sum of money set forth in section 1.04 of this Lease, which amount shall be payable to Lessor at the address shown above. One monthly installment of rent shall be due and payable on the Commencement Date for the first month's rent and a likely monthly installment shall be due and payable on or before the first day of each calendar month succeeding the Commencement Date during the term of this Lease; provided, if the Commencement Date or the expiration date of this Lease should be a date other than the first day of a calendar month, the monthly rental set forth above shall be prorated to the end of that calendar month, and all succeeding installments of rent shall be payable on or before the first day of each succeeding calendar month during the term of this Lease. Lessee shall pay, as additional rent, all other sums due under this Lease. 2.02 PROPERTY TAX AND INSURANCE ESCALATIONS. In the event Lessor's Tax and Insurance Expenses for the leased premises shall, in any calendar year during the term of this Lease, exceed the actual Tax and Insurance Expenses paid or incurred by Lessor for the leased premises for the calendar year 1997 (the "Base Year"), Lessee agrees to pay as additional rent such excess Tax and Insurance Expenses. Accordingly, Lessee shall not be liable or responsible for payment of any excess Tax and Insurance Expenses pursuant to this section 2.02 during the Base Year and such liability or responsibility shall not begin accruing until January 1, 1998; provided, however, that if the Tax and Insurance Expenses paid or incurred by Lessor for the leased premises for the calendar year 1998 are less than those paid or incurred by Lessor for the calendar year 1997, the Base Year shall be the calendar year 1998. Notwithstanding the foregoing, with regard to that portion of Tax and Insurance Expenses comprised of real property taxes, Lessee shall only be responsible for such tax expenses to the extent they exceed the greater of (i) the actual tax expenses incurred by Lessor for the leased premises for the Base Year or (ii) the tax expenses that would have been incurred by Lessor for the leased premises for the Base Year had this Lease been in effect and had Lessee been in occupancy of the leased premises on January 1, 1997. Lessor may invoice Lessee monthly for the estimated Tax and Insurance Expenses for each calendar year, which amount shall be adjusted each year based upon anticipated Tax and Insurance Expenses. Within nine months following the close of each calendar year, Lessor shall provide Lessee an accounting showing in reasonable detail all computations of additional rent due under this section. In the event the accounting shows that the total of the monthly payments made by Lessee exceeds the amount of additional rent due by Lessee under this section, the accounting shall be accompanied by a refund. In the event the accounting shows that the total of the monthly payments made by Lessee is less than the amount of additional rent due by Lessee under this section, the account shall be accompanied by an invoice for the additional rent. Notwithstanding any other provision in this Lease, during the year in which the Lease terminates, Lessor, prior to the termination date, shall have the option to invoice Lessee for the excess Tax and Insurance Expenses based upon the previous year's Tax and Insurance Expenses. If this Lease shall terminate on a day other than the last day of a calendar year, the amount of any additional rent payable by Lessee applicable to the year in which such termination shall occur shall be prorated on the ratio that the number of days from the commencement of the calendar year to and including the termination date bears to 365. Lessee shall have the right, at its own expense and within a reasonable time (not to exceed six (6) months after Lessee's receipt of an invoice from Lessor), to audit Lessor's books relevant to the additional rent payable under this section upon reasonable notice to Lessor, but not more than once each calendar year, and if all of the following apply to such audit: (i) the audit is conducted by an independent certified accountant who is compensated at an hourly rate (i.e., as opposed to a contingency method of compensation), and (ii) the audit discloses an overpayment by Lessee of more than five percent (5%), the Lessor shall pay for the reasonable cost of such audit. Lessee agrees to pay any additional rent due under this section within thirty (30) days following receipt of the invoice or accounting showing additional rent due. 2.03 DEFINITION OF TAX AND INSURANCE EXPENSES. The term "Tax and Insurance Expenses" shall mean all real property taxes, general and special assessments (with Lessor being required to either elect the installment treatment for special assessments or otherwise treat Tax and Insurance Expenses as though Lessor had elected the installment treatment with regard to special assessments) and taxes or assessments on rentals, including dues and assessments by means of deed restrictions and/or owners' associations which accrue against the leased premises during the term of this Lease; and all insurance premiums Lessor is required to pay or reasonably deems necessary to pay, including public liability insurance, with respect to the leased premises. 2.04 LATE PAYMENT CHARGE. Other remedies for nonpayment of rent notwithstanding, if the monthly base rental payment is not received by Lessor on or before the tenth day of the month for which the rent is due, or if any other payment of rent due Lessor by Lessee is not received by Lessor on or before the tenth day following the date on which such payment is due to Lessor, a late payment charge of three percent (3%) of such past due amount shall become due and payable in addition to such amounts owed under this Lease. 2.05 INCREASE IN INSURANCE PREMIUMS. If an increase in any insurance premiums paid by Lessor for the leased premises is caused by Lessee's use of the leased premises in a manner other than as set forth in section 1.06, or if Lessee vacates the leased premises and causes an increase in such premiums, then Lessee shall pay as additional rent the amount of such increase to Lessor. 2.06 HOLDING OVER. In the event that Lessee does not vacate the leased premises upon the expiration of this Lease, Lessee shall be a tenant at will for the holdover period and all of the terms and provisions of this Lease shall be applicable during that period, except that Lessee shall pay Lessor as base rent for the period of such holdover an amount equal to one and one-fourth (1 1/4) times the base rent which would have been payable by Lessee had the holdover period been a part of the original term of this Lease. Lessee agrees to vacate and deliver the leased premises to Lessor upon Lessee's receipt of notice from Lessor to vacate. No holding over by Lessee, whether with or without the consent of Lessor, shall operate to extend the term of this Lease. ARTICLE 3.00 OCCUPANCY AND USE 3.01 USE. Lessee warrants and represents to Lessor that the leased premises shall be used and occupied only for the purposes which are permitted in section 1.06. Lessee shall occupy the leased premises, conduct its business and control its agents, employees, invitees and visitors in such a manner as is lawful, reputable and will not create a nuisance. Lessee shall neither permit any waste on the leased premises nor allow the leased premises to be used in any way which would, in the reasonable opinion of Lessor, be extra hazardous on account of fire or which would in any way increase or render void the fire insurance on the leased premises. If at any time during the term of this Lease the State Board of Insurance or other insurance authority imposes an additional penalty or surcharge in Lessor's insurance premiums because of Lessee's original or subsequent placement or use of storage racks or bins, method of storage or nature of Lessee's inventory or any other act of Lessee, Lessee agrees to pay as additional rent the increase in Lessor's insurance premiums. With specific regard to the hazardous or possibly hazardous materials used in connection with Lessee's intended business at the leased premises, Lessee agrees as follows: (i) Lessee shall include in Lessee's Work (hereinafter defined) whatever fixtures and improvements may be required by Applicable Laws in connection with the handling of such materials; (ii) Lessee shall use all such materials in accordance with all Applicable Laws; (iii) at the conclusion of the term of this Lease, Lessee shall provide to Lessor a Phase I environmental survey of the leased premises prepared by an independent environmental engineer reasonably acceptable to Lessor, who has been fully apprised of Lessee's operations at the leased premises; and (iv) Lessee, at its sole cost and expense, shall (a) cause such additional studies to be performed on the leased premises as are recommended by such environmental survey to investigate or assess the obligations of Lessee under Applicable Laws pertaining to the environment based on Lessee's operations at the leased premises or conditions observed at the leased premises, and (b) perform or cause to be performed such remedial work as is recommended by such environmental survey, to the extent required by Applicable Laws pertaining to the environment, to the extent and only to the extent that such remedial work is necessary as the result of the acts of Lessee, its agents, employees or invitees during the term of this Lease. 3.02 SIGNS. No sign of any type or description shall be erected, placed or painted in or about the leased premises except those signs submitted to Lessor in writing and approved by Lessor in writing, and which signs are in conformance with Lessor's sign criteria established for the leased premises. Notwithstanding the foregoing, Lessor agrees that Lessee shall be allowed to erect or install, at Lessee's sole cost and expense, exterior signage on the leased premises, provided that such exterior signage shall in all respects be in compliance with all Applicable Laws and applicable deed restrictions (as to which Lessor makes no representations or warranties to Lessee), as well as being approved in writing by Lessor with respect to location, size, materials, color, graphics and layout. Any such signage shall be constructed and maintained by Lessee at its sole cost and expense, in accordance with any and all applicable restrictive covenants, approval rights of any existing property association and any and all other applicable laws, rules, ordinances and regulations and in accordance with Lessor's signage criteria as the same may be reasonably amended by Lessor from time to time. Lessor agrees that its approval of any signage requested by Lessee shall not be unreasonably withheld or delayed. 3.03 COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Lessee, at Lessee's sole cost and expense, shall comply with all laws, ordinances, orders, rules and regulations of state, federal, municipal or other agencies or bodies having jurisdiction over use, condition and occupancy of the leased premises. Lessee must use and maintain the leased premises in a clean, careful, safe and proper manner and in compliance with all applicable laws, ordinances, orders, rules and regulations of all governmental entities and regulatory agencies (collectively, "Applicable Laws"), including Applicable Laws pertaining to health, safety, disabled persons and the environment; provided, however, that Lessee shall not be required to make any structural changes or repairs to the leased premises unless the need for such structural changes or repairs is caused by Lessee, its agents, employees, invitees or others for whom Lessee is responsible pursuant to the terms and provisions of this Lease. Notwithstanding anything to the contrary contained elsewhere in this section 3.03, it is expressly agreed and understood that Lessee's obligation to comply with all Applicable Laws does not apply to any violations of Applicable Laws which were in effect and the leased premises was not in compliance with or were being violated immediately prior to the time Lessee accepted the leased premises, including without limitation, any existing environmental contamination. Further, Lessor, at Lessor's sole cost and expense, shall be responsible for any structural changes or other repairs, alterations or other actions necessary to bring the leased premises into compliance with Applicable Laws as in effect immediately prior to the time Lessee accepted the leased premises, including without limitation, all Applicable Laws pertaining to health, safety, the environment and disabled persons. Lessee will comply with the rules and regulations of the leased premises adopted by Lessor which are set forth on Exhibit "B" attached to this Lease. Lessor shall have the right at all times to change and amend the rules and regulations in any reasonable manner as may be deemed advisable for the safety, care, cleanliness, preservation of good order and operation or use of the leased premises. All changes and amendments to the rules and regulations of the leased premises will be sent by Lessor to Lessee in writing and shall thereafter be carried out and observed by Lessee. 3.04 WARRANTY OF POSSESSION. Lessor warrants that it has the right and authority to execute this Lease, and Lessee, upon payment of the required rents and subject to the terms, conditions, covenants and agreements contained in this Lease, shall have possession of the leased premises during the full term of this Lease as well as any extension or renewal thereof. Lessor shall not be responsible for the acts or omissions of any third party that may interfere with Lessee's use and enjoyment of the leased premises; provided, however, Lessor agrees to utilize reasonable efforts in a good faith attempt to prevent any third party from interfering with or continuing to interfere with Lessee's use and enjoyment of the leased premises. 3.05 INSPECTION. Lessor or its authorized agents shall at any and all reasonable times have the right to enter the leased premises to inspect the same, to supply any service to be provided by Lessor, to show the leased premises to prospective purchasers or lessees (which right to show the leased premises to prospective lessees shall be limited to the last one hundred eighty [180] days of the term of this Lease, as the same may have been extended hereunder), and to alter, improve or repair the leased premises in accordance with the terms of this Lease; provided, however, that except in the event of an emergency, Lessor or its authorized agents shall at all times be accompanied by a representative of Lessee. Lessee hereby waives any claim for damages for injury or inconvenience to or interference with Lessee's business, any loss of occupancy or use of the leased premises, and any other loss occasioned thereby. Lessor shall at all times have and retain a key with which to unlock all of the doors in, upon and about the leased premises. Lessee shall not change Lessor's lock system or in any other manner prohibit Lessor from entering the leased premises. Lessor shall have the right to use any and all means which Lessor may deem proper to open the leased premises in an emergency without liability therefor. Notwithstanding anything to the contrary contained hereinabove, Lessor agrees to (a) utilize reasonable efforts (except in the event that an emergency either exists or reasonably appears to exist or be imminent) to give Lessee twenty-four (24) hours advance written notice of any intended entry by Lessor or its agents or representatives upon the leased premises during regular business hours and (b) utilize reasonable efforts in a good faith attempt to cause as little interruption and interference with the conduct of business by Lessee in the leased premises as is reasonably practicable. 3.06. TITLE REPORT. Within five (5) days after execution of this Lease, Lessor shall, at Lessor's sole cost and expense, deliver to Lessee a current commitment for title insurance or other comparable evidence of title to the leased premises issued by a title company and copies of all underlying documents shown as exceptions to title affecting the leased premises. In the event that such title commitment or underlying exception documents are unacceptable to Lessee for any reason, in Lessee's sole and absolute discretion, Lessee shall have the right, at Lessee's option, to terminate this Lease by delivering a written termination notice to Lessor within ten (10) days after Lessee's receipt of such title commitment and underlying exception documents. ARTICLE 4.00 UTILITIES AND SERVICE 4.01. UTILITIES. Lessee shall pay the cost of all utility services, including, but not limited to, initial connection charges, all charges for gas, electricity, water, sanitary and storm sewer service, and for all electric lights. Lessee shall pay all costs caused by Lessee introducing excessive pollutants or solids other than ordinary human waste into the sanitary sewer system, including permits, fees and charges levied by any governmental subdivision for any such pollutants or solids. Lessee shall be responsible for the installation and maintenance of any dilution tanks, holding tanks, settling tanks, sewer sampling devices, sand traps, grease traps or similar devices as may be required by any governmental subdivision for Lessee's use of the sanitary sewer system. Lessor shall not be required to pay for any utility services, supplies or upkeep in connection with the leased premises. Notwithstanding anything set forth in this Lease to the contrary, Lessee shall be solely liable and obligated for, and shall make payment directly to the service provider for, any and all electrical power now or hereafter provided to the leased premises and any and all janitorial and/or cleaning services utilized by Lessee in connection with the leased premises, and Lessor shall have no duty, obligation or responsibility whatsoever with respect to the providing of any such services. 4.02 THEFT OR BURGLARY. Lessor shall not be liable to Lessee for losses to Lessee's property or personal injury caused by criminal acts or entry by unauthorized persons into the leased premises. ARTICLE 5.00 REPAIRS AND MAINTENANCE 5.01 LESSOR REPAIRS. Lessor shall maintain only the roof (but not the HVAC Units which shall be maintained at the sole cost and expense of Lessee, except that Lessor shall be responsible for ensuring that all parts of the leased premises, including without limitation the HVAC Units, plumbing and electrical systems, sprinkler system and doors to the leased premises, are initially in good working order and Lessor will promptly repair same for a period of ninety (90) days following the Commencement Date of this Lease), foundation, and the structural soundness of the exterior walls (excluding windows, window glass, plate glass and doors) of the building comprising a part of the leased premises, except for damages caused by the negligence of Lessee, its agents, employees, contractors, guests and invitees which damage shall be repaired at the sole cost and expense of Lessee and which will constitute additional rent due hereunder upon demand by Lessor therefor. Lessor agrees to utilize reasonable efforts to effectuate and promptly complete any maintenance or repairs required to be performed by Lessor hereunder in a manner calculated to cause as little interruption and interference with the conduct of business by Lessee in the leased premises as is reasonably practicable. In addition, if Lessor fails to perform any of its repair and maintenance obligations hereunder and such default is not cured by Lessor in accordance with the terms and provisions of section 11.03 hereinbelow, then Lessee shall have the right to perform such repair and maintenance obligations as are reasonably necessary to either (a) prevent any damage to Lessee's inventory or other personal property and/or (b) obviate any material and adverse effects to Lessee's business operations resulting therefrom. Any and all reasonable costs and expenses paid or incurred by Lessee in performing any of Lessor's maintenance obligations in accordance with the terms, conditions and requirements of the immediately preceding sentence, may be offset by Lessee against the next accruing installments of rent hereunder. 5.02 LESSEE REPAIRS. Lessee shall, as its sole cost and expense, maintain, repair and replace all other parts of the leased premises in good repair and condition, including, but not limited to, heating, ventilating and air conditioning systems (save and except for Lessor's obligation to maintain the HVAC Units for the first ninety (90) days following the Commencement Date), down spouts, dock bumpers, drives and parking areas, lawn and landscape irrigation equipment, lawn and landscape maintenance (i.e., keeping same in substantially the same condition as now exists, ordinary wear and tear and damage from fire or other casualty excepted), pest control and extermination, trash pick-up and removal, and painting the building and exterior doors. Lessee shall repair and pay for any damage caused by any act or omission of Lessee or Lessee's agents, employees, invitees, licensees or visitors. If Lessee fails to make the repairs or replacements promptly as required herein, Lessor may, at its option and after the expiration of any applicable notice and cure period, make the repairs and replacements and the cost of such repairs and replacements shall be charged to Lessee as additional rent and shall become due and payable by Lessee within thirty (30) days from receipt of Lessor's invoice. 5.03 REQUEST FOR REPAIRS. All requests for repairs or maintenance that are the responsibility of Lessor pursuant to any provision of this Lease must be made in writing to Lessor at the address of Lessor set forth in section 1.05. 5.04 LESSEE DAMAGES. Subject to the controlling terms and provisions of section 7.04 below, Lessee shall not allow any damage to be committed by Lessee or Lessee's agents, employees, invitees, licensees or visitors on any portion of the leased premises and at the termination of this Lease, by lapse of time or otherwise, Lessee shall deliver the leased premises to Lessor in as good condition as existed at the Commencement Date of this Lease, ordinary wear and tear and damage from casualty excepted. The cost and expense of any repairs necessary to restore the condition of the leased premises shall be borne by Lessee. ARTICLE 6.00 ALTERATIONS AND IMPROVEMENTS 6.01 ASBESTOS SURVEY AND ACM ABATEMENT WORK. Lessee, at Lessee's sole cost and expense, has caused that certain asbestos survey of the leased premises entitled Report of Survey for Asbestos-Containing Materials, dated April 23, 1997, prepared by Law Engineering & Environmental Services, Inc. (the "ACM Survey") to be performed. Lessee has delivered a copy of the ACM Survey to Lessor. Lessee and Lessor hereby agree that Lessor shall, on or before the later to occur of (i) ten (10) business days after execution of this Lease, or (ii) the date on which Lessee no longer has a right to terminate this Lease pursuant to section 6.2 below, cause a contractor to commence and diligently pursue to completion within fifteen (15) days after commencement the abatement and removal of all acoustic wall tile in the former computer room, all mechanical equipment insulation above the cooler and in the HVAC and boiler room, and the two sinks with ACM sink undercoating, all as referenced in the ACM Survey (the "ACM Abatement Work"), with all of such ACM Abatement Work to be performed and completed in accordance with Applicable Laws. Except for the completion of the ACM Abatement Work and Lessor's warranty that all portions of the leased premises shall be initially in good working order (including Lessor's obligation to promptly repair same for a period of ninety (90) days following the Commencement Date of this Lease), Lessee acknowledges and agrees that Lessee will accept the leased premises "AS IS" and in its present condition as of the Commencement Date, and that, except as provided in sections 5.01 and 6.03 of this Lease, Lessor shall have no other obligations to alter, refurbish, repair or otherwise improve the leased premises. 6.02 ENVIRONMENTAL SURVEY. Within thirty (30) days after execution of this Lease, Lessee, at Lessee's sole cost and expense, shall cause an environmental survey (the "Environmental Survey") of the leased premises to be performed. In the event that the results of the Environmental Survey are unacceptable to Lessee for any reason, in Lessee's sole and absolute discretion, Lessee shall have the right, at Lessee's option, to terminate this Lease by delivering a written termination notice to Lessor within ten (10) days after Lessee's receipt of the Environmental Survey. Regardless of whether or not Lessee terminates this Lease pursuant to the immediately preceding sentence, Lessee shall promptly deliver a copy of the Environmental Survey to Lessor. 6.03 LESSEE IMPROVEMENTS. Upon Lessee's occupancy of the leased premises, Lessee may perform the work ("Lessee's Work") described in Exhibit "C" attached hereto and made a part hereof, which Lessee's Work is hereby deemed approved by Lessor for all purposes. Lessor hereby agrees to perform, at its sole cost and expense, any and all future removal, encapsulation or other abatement or handling of asbestos and/or asbestos containing material as is required by Applicable Laws or which is not unreasonably requested by Lessee in connection with (i) Lessee's Work, or (ii) any future alterations, additions or improvements to the leased premises permitted by the terms of this Lease. Notwithstanding the foregoing, however, Lessee agrees that, with the exception of the ACM Abatement Work prescribed in section 6.1 above, Lessee will not request that Lessor remove, encapsulate or abate any asbestos and/or asbestos containing material referred to in the ACM Survey (e.g., the wallboard joint compound and paint texture or the resilient flooring and associated mastic referenced in the summary set forth on page 4 of the ACM Survey), unless the building materials associated with such items are (a) being altered by Lessee in such a manner that the asbestos contained in such items will be disturbed or (b) are being removed. Such removal, encapsulation or other abatement or handling shall be performed by Lessor (i) in accordance with the schedule of such work established by Lessee, provided Lessee is not unreasonable in establishing such schedule, and (ii) in a manner that will minimize interference with Lessee's business in the leased premises. Except with respect to Lessee's Work and interior, non-structural alterations or additions to the leased premises costing less than $50,000, Lessee shall not make or allow to be made any alterations or physical additions in or to the leased premises without first obtaining the written consent of Lessor, which consent shall not be unreasonably withheld or delayed. Any alterations, physical additions or improvements to the leased premises made by Lessee shall at once become the property of Lessor and shall be surrendered to Lessor upon the termination of this Lease. This clause shall not apply to moveable equipment, furniture or trade fixtures owned by Lessee, which may be removed by Lessee at the end of the term of this Lease if Lessee is not then in default and if such equipment and furniture are not then subject to any other rights, liens and interest of Lessor. ARTICLE 7.00 CASUALTY AND INSURANCE 7.01 SUBSTANTIAL DESTRUCTION. If the building and/or other improvements comprising a part of the leased premises should be totally destroyed by fire or other casualty, or if the leased premises should be damaged so that rebuilding cannot reasonably be substantially completed within ninety (90) working days after the date of written notification by Lessee to Lessor of the destruction, this Lease shall, at the option of Lessor or Lessee [exercised by written notice to the other party on or before that date which is thirty (30) days after the damage or destruction], terminate and the rent shall be abated for the unexpired portion of the Lease, effective as of the date of the written notification. 7.02 PARTIAL DESTRUCTION. (a) If the building and/or other improvements comprising a part of the leased premises should be partially damaged by fire or other casualty, and rebuilding or repairs can reasonably be completed within ninety (90) working days from the date of written notification by Lessee to Lessor of the destruction, this Lease shall not terminate, and Lessor shall proceed with reasonable diligence to rebuild or repair the building or other improvements to substantially the same condition in which they existed prior to the damage. However, Lessor's duty or obligation to repair or rebuild the leased premises shall be limited to the extent, and only to the extent, that Lessor actually receives insurance proceeds in connection with any such damage or destruction after payment of all of Lessor's reasonable costs and expenses in obtaining such insurance proceeds. (b) Notwithstanding the preceding subsection, in the event that Lessor fails to substantially complete the necessary repairs or rebuilding within one hundred twenty (120) working days from the date of written notification by Lessee to Lessor of the destruction, Lessee may at its option terminate this Lease by delivering written notice of termination to Lessor before such time as Lessor has substantially completed the repairs or rebuilding, whereupon all rights and obligations under this Lease shall cease to exist. (c) If the leased premises are to be rebuilt or repaired and are untenantable in whole or in part following the damage, and the damage or destruction was not caused or contributed to by act or negligence of Lessee, its agents, employees, invitees, or those for whom Lessee is responsible, the rent payable under this Lease during the period for which the leased premises are untenantable shall be adjusted to such an extent as may be fair and reasonable under the circumstances. 7.3 INSURANCE. (a) Lessee must procure and maintain throughout the term of this Lease and any extensions or renewals of the term of this Lease commercial general liability insurance (including blanket contractual liability coverage), which shall cover any claims for bodily injury, death and/or property damage occurring in or resulting from any occurrence on the leased premises, including injury, death and/or damage caused by the condition of or any defect in the building or other improvements comprising a part of the leased premises. The policies evidencing such insurance must be in form reasonably satisfactory to Lessor, must name Lessor as an additional insured, must be issued by insurance companies reasonably acceptable to Lessor, and must afford immediate protection to the limit of not less than $1,000,000 per accident. With respect to each policy evidencing such liability insurance, Lessee shall obtain any available endorsements reasonably required by Lessor. Lessee shall also deliver the policy or a certificate evidencing the same to Lessor prior to occupying the leased premises or commencing the construction of any improvements thereon or in the building comprising a part of the leased premises, and Lessee shall deliver a certificate of renewal from the applicable insurer at least ten days prior to the expiration of the policy. In addition, Lessee shall obtain and deliver to Lessor a written obligation on the part of each of its insurance companies to notify Lessor at least 10 days prior to any cancellation of or material change to such insurance. (b) Lessor shall at all times during the term of this Lease maintain a policy or policies of insurance with the premiums paid in advance, issued by and binding upon an insurance company reasonably acceptable to Lessee, insuring the building against all risk of direct physical loss in an amount equal to the full replacement cost of the building structure and its improvements as of the date of the loss; provided, Lessor shall not be obligated in any way or manner to insure any personal property (including, but not limited to, any furniture, machinery, goods or supplies) of Lessee upon or within the leased premises. Lessor shall at times during the term of this Lease maintain a policy or policies of general liability insurance with the premiums paid in advance, issued by and binding upon an insurance company reasonably acceptable to Lessee, with respect to Lessor's activities in the leased premises, such insurance to afford minimum protection of not less than One Million Dollars ($1,000,000.00) combined single limit coverage of bodily injury, death, property damage or a combination thereof. Lessor shall not be required to maintain insurance against thefts within the leased premises. Lessee accepts responsibility for keeping all personal property and equipment in the leased premises adequately insured and for maintaining adequate business interruption insurance. Lessee shall have no right in claim to the proceeds of any policy of insurance maintained by Lessor even though the cost of such insurance is borne by Lessee as set forth in Article 2.00. 7.04 WAIVER OF SUBROGATION. Anything in this Lease to the contrary notwithstanding, Lessor and Lessee hereby waive and release each other of and from any and all right of recovery, claim, action or cause of action, against each other, their agents, officers and employees, for any loss or damage that is insurable pursuant to customary insurance coverage and occurs to the leased premises, improvements to the leased premises or personal property within the leased premises, by reason of fire or the elements, regardless of cause or origin, including negligence of Lessor or Lessee and their agents, officers and employees; provided, however, that this waiver of subrogation shall not apply to the deductible (up to a maximum deductible of $50,000) which is applicable to the insurance coverage of each respective waiving party. Lessor and Lessee agree immediately to give their respective insurance companies which have issued policies of insurance covering all risk of direct physical loss, written notice of the terms of the mutual waivers contained in this section, and to have the insurance policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverages by reason of the mutual waivers. WITHOUT LIMITATION, IT IS THE INTENTION OF LESSOR AND LESSEE THAT THE FOREGOING RELEASES BY LESSOR AND LESSEE BE EFFECTIVE NOTWITHSTANDING ANY NEGLIGENCE (BUT NOT GROSS NEGLIGENCE) ON THE PART OF THE OTHER PARTY. 7.05 HOLD HARMLESS. Lessee shall indemnify and hold Lessor harmless of and from any loss, attorneys' fees, expenses, claims, fines, suits, costs and liability of every kind arising because of any bodily injury, death and/or damage to property occurring in or resulting from any occurrence in the leased premises during the term of this Lease and any holdover period save and except for any costs occasioned by the negligence or willful wrongful acts of Lessor or Lessor's agents or employees. Except to the extent caused by a breach of this Lease or the negligence or willful wrongful acts of Lessor or Lessor's agents or employees, Lessor shall not be liable to Lessee's employees, agents, invitees, licensees or visitors, or to any other person, for any injury to person or damage to property on or about the leased premises caused by any act or omission of Lessee, its agents, servants or employees, or of any other person entering upon the leased premises under express or implied invitation by Lessee, or caused by the improvements located on the leased premises becoming out of repair, the failure or cessation of any service provided by Lessor, or caused by leakage of gas, oil, water or steam or by electricity emanating from the leased premises. ARTICLE 8.00 CONDEMNATION 8.01 SUBSTANTIAL TAKING. If all or a substantial part of the leased premises are taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain or by purchase in lieu thereof, and the taking would prevent or materially interfere with the use of the leased premises for the purpose for which it is then being used, this Lease shall at the option of Lessor or Lessee [exercised by written notice to the other party on or before that date which is thirty (30) days after the date of the taking] terminate and the rent shall be abated during the unexpired portion of this Lease effective on the date physical possession is taken by the condemning authority. Lessee shall have no claim to the condemnation award or proceeds in lieu thereof. Notwithstanding anything to the contrary contained hereinabove, Lessee shall have the right to recover from the condemning authority, but not Lessor, any compensation as may be separately awarded to Lessee on account of moving and relocation expenses and depreciation to and removal of Lessee's physical property and all other interest and property (but expressly excluding any improvements constructed and installed in the leased premises and any other property which would otherwise be or become the property of Lessor upon the termination or expiration of this Lease) for which Lessee is entitled to compensation from such condemning authority under common law or applicable statutes, so long as and conditioned upon any award to Lessee not having the effect of reducing the award which Lessor would otherwise be entitled to receive under common law or applicable statutes. 8.02 PARTIAL TAKING. If a portion of the leased premises shall be taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain or by purchase in lieu thereof, and this Lease is not terminated as provided in section 8.1 above, Lessor shall restore and reconstruct the building and other improvements on the leased premises to the extent necessary to make it reasonably tenantable. The rent payable under this Lease during the unexpired portion of the term shall be adjusted to such an extent as may be fair and reasonable under the circumstances. Lessee shall have no claim to the condemnation award or proceeds in lieu thereof. Notwithstanding anything set forth herein to the contrary, Lessor's obligation to restore and/or reconstruct the building and other improvements under this section 8.02 shall be limited to the extent, and only to the extent, that condemnation proceeds are actually received by Lessor in connection with any such taking after payment of all of Lessor's reasonable costs and expenses in obtaining such condemnation proceeds. In the event that Lessor fails to restore or reconstruct the building and other improvements on the leased premises within one hundred twenty (120) working days from the date of such taking, Lessee shall have the right to terminate this Lease by delivering written notice of such termination to Lessor. Notwithstanding anything to the contrary contained hereinabove, Lessee shall have the right to recover from the condemning authority, but not Lessor, any compensation as may be separately awarded to Lessee on account of moving and relocation expenses and depreciation to and removal of Lessee's physical property and all other interest and property (but expressly excluding any improvements constructed and installed in the leased premises and any other property which would otherwise be or become the property of Lessor upon the termination or expiration of this Lease) for which Lessee is entitled to compensation from such condemning authority under common law or applicable statutes, so long as and conditioned upon any award to Lessee not having the effect of reducing the award which Lessor would otherwise be entitled to receive under common law or applicable statutes. ARTICLE 9.00 ASSIGNMENT OR SUBLEASE 9.01 LESSOR ASSIGNMENT. Lessor shall have the right to sell, transfer or assign, in whole or in part, its rights and obligations under this Lease and in the leased premises. Any such sale, transfer or assignment shall operate to release Lessor from any and all liabilities under this Lease arising after the date of such sale, assignment or transfer. Additionally, Lessee shall continue to make payment of all rent and other amounts due and payable from Lessee to Lessor hereunder to the named Lessor at the address set forth in section 1.05 hereinabove until such time as Lessee receives an instrument executed by both the Lessor and such transferee or assignee, giving notice of such transfer or assignment and instructions for the delivery of payments and notices by Lessee to such transferee or assignee and affirming the assumption (by the transferee or assignee identified therein) of all obligations and responsibilities of Lessor under the Lease which are properly due, performable, allocable and attributable to any period of time subsequent to the date of such transfer or conveyance. 9.02 LESSEE ASSIGNMENT. Lessee shall not assign, in whole or in part, this Lease, or allow it to be assigned, in whole or in part, or sublet the leased premises, in whole or in part, without the prior written consent of Lessor (which consent shall not be unreasonably withheld or delayed). In no event shall any such assignment or sublease ever release Lessee or any guarantor from any obligation or liability hereunder; moreover, in the event that Lessee shall receive any payments from an assignee or sublessee in excess of (i) the base rent and other payments required to be paid by Lessee pursuant to this Lease and (ii) any refurbishment, commissions or other expenses Lessee may incur in connection with such assignment or subletting, then Lessee shall promptly forward all such excess payments to Lessor. Notwithstanding the foregoing provisions of this Article 9.00 to the contrary, Lessee may from time to time, without Lessor's consent, assign this Lease or sublet the leased premises, or any portion thereof, to any parent or subsidiary of Lessee or the guarantor of this Lease or any subsidiary of a parent corporation of either Lessee or the guarantor of this Lease (hereinafter collectively referred to as a "Related Party"). Further, any sale or exchange of Lessee's stock on a nationally recognized exchange, any change in ownership of Lessee as a result of a merger, consolidation, reorganization or the exchange of stock between Lessee's parent company or a subsidiary of Lessee or of Lessee's parent company or the sale of all or substantially all of Lessee's stock or assets shall not be considered an assignment under this article 9.00 and Lessee shall have no obligation to obtain Lessor's consent in the event of any of such events. 9.03 CONDITIONS OF ASSIGNMENT. If Lessee desires to assign or sublet all or any part of the leased premises, Lessee shall so notify Lessor at least fifteen (15) days in advance of the date on which Lessee desires to make such assignment or sublease. Lessee shall provide Lessor with a copy of the proposed assignment or sublease and such information as Lessor might request concerning the proposed sublessee or assignee to allow Lessor to make informed judgments as to the financial condition, reputation, operations and general desirability of the proposed sublessee or assignee. Within ten (10) days after Lessor's receipt of Lessee's proposed assignment or sublease and all required information concerning the proposed sublessee or assignee, Lessor shall have the following options: (1) consent to the proposed assignment or sublease; or (2) refuse to consent to the proposed assignment or sublease, which refusal shall be deemed to have been exercised unless Lessor gives Lessee written notice providing otherwise. Upon the occurrence of an event of default, if all or any part of the leased premises are then assigned or sublet, Lessor, in addition to any other remedies provided by this Lease or provided by law, may, at its option, collect directly from the assignee or sublessee all rents becoming due to Lessee by reason of the assignment or sublease. Any collection directly by Lessor from the assignee or sublessee shall not be construed to constitute a novation or a release of Lessee or any guarantor from the further performance of its obligations under this Lease. The terms of this section 9.03 shall not apply to an assignment or subletting to a Related Party. 9.04 SUBORDINATION. Lessee accepts this Lease subject and subordinate to any recorded mortgage or deed of trust lien presently existing or hereafter created upon the leased premises and to all existing recorded restrictions, covenants, easements and agreements with respect to the leased premises, subject to and conditioned upon, Lessor causing any holder of any lien(s) now or hereafter affecting the project or any part thereof to execute and deliver the agreement hereinafter described in this section 9.04. Lessee agrees upon demand to execute additional instruments subordinating this Lease as Lessor may reasonably require. If the interests of Lessor under this Lease shall be transferred by reason of foreclosure or other proceedings for the enforcement of any mortgage or deed of trust lien on the leased premises, Lessee shall be bound to the transferee (sometimes called the "Purchaser"), under the terms, covenants and conditions of this Lease for the balance of the term remaining, including any extensions or renewals, with the same force and effect as if the Purchaser were Lessor under this Lease, and Lessee agrees to attorn to the Purchaser, including the mortgagee under any such mortgage if it be the Purchaser, as its Lessor. Provided further, as a material inducement to cause Lessee to enter into this Lease, Lessor agrees to cause the holder of any existing or future lien placed against the leased premises or any portion thereof to enter into an agreement with Lessee making this Lease expressly subject and subordinate to such lien and all renewals, modifications, consolidations, replacements and extensions thereof, wherein the Lessee shall agree to attorn to the Purchaser at any foreclosure sale of such lien and such agreement shall contain a covenant binding upon the holder of such lien to the effect that, as long as there shall be no event of default on the part of Lessee entitling Lessor to terminate this Lease, or if any such event of default exists, any time in which to cure the event of default as contained herein shall not have expired, (a) this Lease shall not be terminated or modified in any respect whatsoever nor shall the rights of Lessee hereunder or its occupancy of the leased premises be affected in any manner by reason of such lien or any foreclosure action or other proceeding that may be instituted in connection therewith or in lieu thereof and (b) Lessee shall not be named by such holder as a defendant in any such foreclosure action or other proceeding. Lessee and Lessor agree to execute (together with any future holder of any lien[s] hereafter placed against the leased premises or any portion thereof), within thirty (30) days following receipt of written request therefor from Lessor or Lessee (as the case may be), such an agreement containing the aforesaid terms, together with such additional changes as the future holder of any such lien(s) may otherwise reasonably require. 9.05 ESTOPPEL CERTIFICATES. Lessee agrees to furnish, from time to time, within ten days after receipt of a request from Lessor or Lessor's mortgagee, a statement certifying, if applicable, the following: Lessee is in possession of the leased premises; the Lease is in full force and effect; the Lease is unmodified (or, if modified, describing such modifications); Lessee claims no present charge, lien, or claim of offset against rent; the rent is paid for the current month, but is not prepaid for more than one month and will not be prepaid for more than one month in advance; and there is no existing default by reason of some act or omission by Lessor. Lessor agrees to furnish, from time to time, within ten days after receipt of a request from Lessee, a statement certifying, if applicable, the following: the Lease is in full force and effect; the Lease is unmodified (or, if modified, describing such modifications); Lessor claims no present charge, lien, or claim against Lessee (other than base rent and Tax and Insurance Expenses); and there is no existing default by reason of some act or omission by Lessee. ARTICLE 10.00 LIENS 10.01 LESSOR'S LIEN. Lessor hereby waives any statutory or other landlord's lien upon Lessee's personal property or any other property located within the leased premises that may be available to Lessor to secure the performance of Lessee's obligations under this Lease. ARTICLE 11.00 DEFAULT AND REMEDIES 11.01 DEFAULT BY LESSEE. The following shall be deemed to be events of default by Lessee under this Lease: (1) Lessee shall fail to pay when due any installment of rent or any other payment required pursuant to this Lease and the failure is not cured within ten (10) days after written notice thereof; (2) Lessee shall abandon any substantial portion of the leased premises; (3) Lessee shall fail to comply with any term, provision or covenant of this Lease, other than the payment of rent, and the failure is not cured within thirty (30) days after written notice to Lessee, or if such failure cannot reasonably be cured within such thirty (30) day period, within such period of time as is reasonably necessary; provided, however, that Lessee commences the cure of such failure within such thirty (30) day period and diligently pursues such cure to completion; or (4) Lessee or any guarantor under this lease shall file a petition or be adjudged bankrupt or insolvent under any applicable federal or state bankruptcy or insolvency law or admit that it cannot meet its financial obligations as they become due; or a receiver or trustee shall be appointed for all or substantially all of the assets of Lessee; or Lessee shall make a transfer in fraud of creditors or shall make an assignment for the benefit of creditors, generally. 11.02 REMEDIES OF LESSOR. Upon the occurrence of any event of default set forth in this Lease, Lessor shall have the option without any notice to Lessee (except as expressly provided below) and with or without judicial process, to pursue any one or more of the remedies set forth herein without any notice or demand: (1) Lessor may pursue all of its rights at law and in equity. (2) Lessor may enter upon and take custodial possession of the leased premises, by picking or changing locks if necessary, and lock out, expel or remove Lessee and any other person who may be occupying all or any part of the leased premises without being liable for any claim for damages, and relet the leased premises on behalf of Lessee and receive the rent directly by reason of the reletting. Lessee agrees to pay Lessor on demand any deficiency that may arise by reason of any reletting of the leased premises; further, Lessee agrees to reimburse Lessor for any reasonable expenditures made by it in order to relet the leased premises, including, but not limited to, remodeling and repair costs. (3) Lessor may enter upon the leased premises, by picking or changing locks if necessary, without being liable for any claim for damages, and do whatever Lessee is obligated to do under the terms of this Lease. Lessee agrees to reimburse Lessor on demand for any expenses which Lessor may incur in effecting compliance with Lessee's obligations under this Lease; further, Lessee agrees that Lessor shall not be liable for any damages resulting to Lessee from effecting compliance with Lessee's obligations under this Lease. (4) Lessor may terminate this Lease, in which event Lessee shall immediately surrender the leased premises to Lessor, and if Lessee fails to surrender the leased premises, Lessor may, without prejudice to any other remedy which it may have for possession or arrearages in rent enter upon and take possession of the leased premises, by picking or changing locks if necessary, and lock out, expel or remove Lessee and any other person who may be occupying all or any part of the leased premises without being liable for any claim for damages. With specific regard to an abandonment by Lessee of the leased premises or a termination of Lessee's right to possession of the leased premises, Lessor shall use reasonable efforts to mitigate its damages by attempting to relet the leased premises; however, Lessor shall have no obligation to agree to any lease terms which it reasonably deems to be unacceptable, nor shall Lessor be obligated to (i) travel outside a radius of thirty (30) miles from Dallas County, Texas, in order to meet with a prospective tenant, or (ii) expend monies for finish-out requested by a prospective tenant unless Lessor in its reasonable discretion approves both the lease terms and the credit of such prospective tenant. 11.03 DEFAULT BY LESSOR. All covenants of Lessee in the Lease are independent covenants, not conditioned upon Lessor's satisfaction of its obligations hereunder, except to the extent otherwise specifically provided herein. Lessee waives any statutory lien it may have against the rent due under this Lease or against Lessor's property in Lessee's possession. If Lessor defaults in the performance of any of its obligations under this Lease, it will have thirty (30) days to cure after Lessee delivers written notice to Lessor of the default; or if the default is of a nature to require more than thirty (30) days to remedy, Lessor will have the time reasonably necessary to cure it. Whenever a period of time is prescribed in the Lease for action to be taken by Lessor or Lessee, Lessor or Lessee, as applicable, will not be liable or responsible for, and there shall be excluded from the computation for any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, war, Applicable Laws or any other causes of any kind whatsoever which are beyond the control of Lessor or Lessee, as applicable. ARTICLE 12.00 DEFINITIONS 12.01 ABANDON. "Abandon" means the vacating of all or a substantial portion of the leased premises by Lessee, whether or not Lessee is in default of the rental payments due under this Lease. 12.02 ACT OF GOD OR FORCE MAJEURE. An "act of God" or "force majeure" is defined for purposes of this Lease as strikes, lockouts, sitdowns, material or labor restrictions by any governmental authority, unusual transportation delays, riots, floods, washouts, explosions, earthquakes, fire, storms, weather (including wet grounds or inclement weather which prevents construction), acts of the public enemy, wars, insurrections and any other cause not reasonably within the control of Lessor or Lessee, as applicable, and which by the exercise of due diligence Lessor is unable, wholly or in part, to prevent or overcome. 12.03 COMMENCEMENT DATE. "Commencement Date" shall be the date set forth in section 1.03. The Commencement Date shall constitute the commencement of the term of this Lease for all purposes, whether or not Lessee has actually taken possession. Notwithstanding anything set forth in this Lease to the contrary, all possession and/or occupancy of the leased premises by Lessee prior to the Commencement Date shall be subject to all of the terms and provisions of this Lease, save and except only those provisions requiring the payment of rent. ARTICLE 13.00 MISCELLANEOUS 13.01 WAIVER. Failure of Lessor or Lessee to declare an event of default immediately upon its occurrence, or delay in taking any action in connection with an event of default, shall not constitute a waiver of the default, but Lessor or Lessee, as applicable, shall have the right to declare the default at any time and take such action as is lawful or authorized under this Lease. Pursuit of any one or more of the remedies set forth in article 11.00 above shall not preclude pursuit of any one or more of the other remedies provided elsewhere in this Lease or provided by law, nor shall pursuit of any remedy constitute forfeiture or waiver of any rent or damages accruing to Lessor or Lessee by reason of the violation of any of the terms, provisions or covenants of this Lease. Failure by Lessor or Lessee to enforce one or more of the remedies provided upon an event of default shall not be deemed or construed to constitute a waiver of the default or of any other violation or breach of any of the terms, provisions and covenants contained in this Lease. 13.02 ACT OF GOD. Lessor or Lessee, as applicable, shall not be required to perform any covenant or obligations in this Lease, or be liable in damages to Lessee or Lessor, as applicable, so long as the performance or non-performance of the covenant or obligation is delayed, caused or prevented by an act of God, force majeure or by Lessee or Lessor, as applicable. Notwithstanding anything to the contrary contained or implied elsewhere herein, it is expressly agreed that the mere inability to pay any monetary amounts shall not be deemed to constitute an "act of God" or "force majeure" hereunder. 13.03 ATTORNEYS' FEES. In the event either party defaults in the performance of any of the terms, covenants, agreements or conditions contained in this Lease and the other party places in the hands of an attorney the enforcement of all or any part of this Lease, the collection of any rent due or to become due or recovery of the possession of the leased premises, the non-prevailing party agrees to pay the prevailing party's costs of collection, including reasonable attorneys' fees for the services of the attorney, whether suit is actually filed or not. 13.04 SUCCESSORS. This Lease shall be binding upon and inure to the benefit of Lessor and Lessee and their respective heirs, personal representatives, successors and permitted assigns. It is hereby covenanted and agreed that should Lessor's interest in the leased premises cease to exist for any reason during the term of this Lease, then notwithstanding the happening of such event (subject to the terms and provisions of section 9.1 hereof), this Lease nevertheless shall remain unimpaired and in full force and effect, and Lessee hereunder agrees to attorn to the then owner of the leased premises. 13.05 CAPTIONS. The captions appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of any section. 13.06 NOTICE. All rent and other payments required to be made by Lessee shall be payable to Lessor at the initial address for Lessor set forth in section 1.05, or at any other address within Dallas County, Texas, as Lessor may specify from time to time by written notice. All payments required to be made by Lessor to Lessee shall be payable to Lessee at the initial address for Lessee set forth in section 1.05, or at any other address within Dallas County, Texas, as Lessee may specify from time to time by written notice. Any notice or document required or permitted to be delivered by the terms of this Lease shall be deemed to be delivered when actually received at the office of the intended recipient or if earlier, and regardless of whether or not actually received, two business days after being deposited in the United States Mail, postage prepaid, certified mail, return receipt requested, addressed to the intended recipient at its respective address set forth in section 1.05. 13.07 SUBMISSION OF LEASE. Submission of this Lease to Lessee for signature does not constitute a reservation of space or an option to lease. This Lease is not effective until execution by and delivery to both Lessor and Lessee. 13.08 ENTITY AUTHORITY. If Lessee or Lessor executes this Lease as a corporation, each of the persons executing this Lease on behalf of Lessee or Lessor, as applicable, does hereby personally represent and warrant that Lessee or Lessor, as applicable, is a duly authorized and existing corporation, that Lessee or Lessor, as applicable, is qualified to do business in the state in which the leased premises are located, that the corporation has full right and authority to enter this Lease, and that each person signing on behalf of the corporation is authorized to do so. In the event any representation or warranty is false, all persons who execute this Lease shall be liable, individually, as Lessee or Lessor, as applicable. 13.09 SEVERABILITY. If any provision of this Lease or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Lease and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 13.10 LESSOR'S LIABILITY. If Lessor shall be in default under this Lease and, if as a consequence of such default, Lessee shall recover a money judgment against Lessor, such judgment shall be satisfied only out of the right, title and interest of Lessor in the leased premises as the same may then be encumbered and neither Lessor nor any person or entity comprising Lessor shall be liable for deficiency. In no event shall Lessee have the right to levy execution against any property of Lessor nor any person or entity comprising Lessor other than its interest in the leased premises as herein expressly provided. 13.11 INDEMNITY AND DISCLOSURE. Lessor agrees to indemnify and hold harmless Lessee from and against any liability or claim, whether meritorious or not, arising with respect to any broker whose claim arises by, through or on behalf of Lessor, including but not limited to, Herbert D. Weitzman of The Weitzman Group (the "Broker"), the Broker representing Lessor in accordance with a separate written agreement executed by and between Broker and Lessor. Lessee agrees to indemnify and hold harmless Lessor from and against any liability or claim, whether meritorious or not, arising with respect to any broker whose claim arises by, through or on behalf of Lessee, save and except for the Broker who shall be paid by Lessor as provided in the immediately preceding sentence and Greg Cannon of Cushman & Wakefield, who shall be paid by the Broker pursuant to a separate written agreement executed by and between Greg Cannon and the Broker. Lessor, Broker and Herbert D. Weitzman hereby advise Lessee that Herbert D. Weitzman is a principal in Lessor. 13.12 GOVERNING LAW; VENUE. This Lease shall be governed by the laws of the State of Texas. Any legal action relating to this Lease shall be conducted in Dallas County, Texas. 13.13 CONFIDENTIALITY. Lessor and Lessee hereby agree to hold in strictest confidence and refrain from disclosing to any third party the economic terms and conditions of this Lease, other than to their attorneys, accountants, financial advisors, prospective purchasers, prospective financial sources, prospective assignees or sublessees or as required by law. Further, Lessor agrees that it will not publish or publicize in any way (whether by press release, newspaper or magazine article or otherwise) the fact that Lessee has leased the leased premises from Lessor). Either party shall have the right to seek and obtain from a court of competent jurisdiction, in an action for that purpose, a judgment enjoining and prohibiting the other party from disclosing confidential information in violation of this provision. The party bringing such action shall be entitled to recover its attorneys' fees and court costs in any such action in which it is successful. ARTICLE 14.00 AMENDMENT AND LIMITATION OF WARRANTIES 14.01 ENTIRE AGREEMENT. IT IS EXPRESSLY AGREED BY LESSEE, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE OR TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN WRITING IN THIS LEASE. 14.02 AMENDMENT. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE. 14.03 LIMITATION OF WARRANTIES. LESSOR AND LESSEE EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE. ARTICLE 15.00 EXHIBITS The following Exhibits are attached hereto and hereby made a part of this Lease for all purposes: Exhibit "A": Description of Land Exhibit "B": Rules and Regulations Exhibit "C": Lessee's Work Exhibit "D": Renewal Option ARTICLE 16.00 SIGNATURES SIGNED at Dallas, Texas this 29th day of April, 1997. LESSOR LESSEE CARPENTER FREEWAY PROPERTIES, K-C AVIATION, INC., A DELAWARE A TEXAS JOINT VENTURE CORPORATION By: /s/ Herbert D. Weitzman By: /s/ John F. Rahilly ------------------------------- --------------------------- Herbert D. Weitzman, Name: John F. Rahilly Venture Manager Title: President EX-27.1 11 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. EXHIBIT 27.1 Financial Data Schedule GULFSTREAM AEROSPACE CORPORATION AND SUBSIDIARIES (Unaudited) (In millions, except per share data) THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
5 9-MOS DEC-31-1998 SEP-30-1998 11 0 230 2 772 1,046 297 136 1,552 916 299 0 0 1 124 1,552 1,687 1,706 1,323 1,422 0 0 20 251 90 161 0 0 0 161 2.19 2.13 Amounts inapplicable or not disclosed as a separate line on the Statement of Financial Position or Results of Operations are reported as 0 herein. Notes and accounts receivable - trade are reported net of allowances for doubtful accounts in the Consolidated Balance Sheet. Property, plant and equipment are reported net of accumulated depreciation in the Consolidated Balance Sheet.
EX-99.1 12 EXHIBIT 99.1 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES REFORM ACT OF 1995 ------------------------------------------------------- Gulfstream Aerospace Corporation (the "Company" or "Gulfstream") cautions readers that the important factors set forth below, as well as factors discussed in other documents filed by the Company with the Securities and Exchange Commission (the "SEC"), among others, could cause the Company's actual results to differ materially from statements contained in this report, future filings by the Company with the SEC, the Company's press releases and oral statements made by or on behalf of the Company. The words "estimate", "project", "anticipate", "expect", "intend", "believe", "target" and similar expressions are intended to identify forward looking statements. In addition, these factors relate specifically to the Company's statements regarding earnings per share for 1998 and subsequent years and the assumptions underlying those statements, including assumptions regarding green aircraft deliveries, completions, margin improvements, new aircraft sales and backlog stability. AIRCRAFT PRODUCTION AND COMPLETION The Company records revenue from the sale of a new "green" aircraft (i.e., before exterior painting and installation of customer selected interiors and optional avionics) when the green aircraft is delivered to the customer. The Company records revenues from completion services when the outfitted aircraft is delivered to the customer. The Company plans to deliver approximately 60 green aircraft in fiscal 1998 and 65 in fiscal 1999, and completions are expected to nearly double in 1998 compared to 1997. Risks associated with green deliveries and completions include the following: Purchased Materials and Equipment. Approximately 70% of the production costs of both the Gulfstream IV-SP and the Gulfstream V consist of materials and equipment purchased from other manufacturers. While the Company's production activities have never been materially affected by its inability to obtain components, and while the Company maintains business interruption insurance in the event that a disruption should occur, the failure of the Company's suppliers to meet the Company's performance specifications, quality standards or delivery schedules could have a material adverse impact on the Company's delivery schedule. Workforce. The Company's ability to meet its production and completion schedules depends on the Company meeting its needs for skilled labor. Although the Company's ability to hire required skilled labor has not to date adversely affected its ability to meet its production and completion schedules, there can be no assurance that this favorable condition will continue. In 1996, the Company entered into a 5-year contract with a union representing certain of its employees at its Oklahoma Facility. Although employee relations are generally good, a work stoppage or other labor action could materially and adversely affect the Company's production schedule. Facilities. Green aircraft are assembled at one facility. Detailed parts and subassemblies are manufactured at two additional facilities. Completions are performed at five facilities. Although the Company maintains property and business interruption insurance, any severe property damage or other casualty loss at one of these facilities could materially and adversely affect the Company's delivery schedule. Gulfstream V Efficiency. The Company expects to become more efficient at producing and completing Gulfstream V aircraft as it gains more experience in this aircraft program. If the Company is unable to achieve anticipated efficiencies, its delivery schedule could be adversely impacted. Period-to-Period Fluctuations. Since the Company relies on the sales of a relatively small number of high unit selling price new aircraft to provide the substantial portion of its revenues, even a small decrease in the number of deliveries in any period could have a material adverse effect on the results of operation for that period. As a result, a delay or an acceleration in the delivery of new aircraft may affect the Company's revenues for a particular quarter or year and may make quarter-to-quarter or year-to-year comparisons difficult. MARGIN IMPROVEMENTS The Company expects gross margins (excluding inventory step-up resulting from the K-C Aviation acquisition and pre-owned aircraft, which are typically sold at break-even levels) to improve from 20% in 1997 to the mid-20s by the end of 1998. Risks associated with projected margin improvement include the following: Gulfstream V Learning Curve. The Company expects production and completion costs to fall as the Company gains more experience in producing and completing Gulfstream V aircraft. Delays in anticipated cost reductions would adversely affect projected margin improvements. If subsequent improvement is not achieved as quickly or to the extent anticipated, the Company may be unable to achieve its margin targets. Cost of Materials. Approximately 70% of the production costs of both the Gulfstream IV-SP and the Gulfstream V consist of materials and equipment purchased from other manufacturers. Although the Company has in place revenue share and long-term supply arrangements that help protect it against materials price increases, if the Company experiences price pressure on materials, margins could be adversely affected. STABILITY OF BACKLOG At September 30, 1998, the Company had a backlog of $2.9 billion. The Company is currently selling outfitted Gulfstream IV-SPs for delivery in the first half of 2000 and outfitted Gulfstream Vs for delivery in the second half of 2000. Although the Company's revenues are, therefore, essentially under contract for the foreseeable future, the following factors could adversely affect the stability of the backlog: New Orders. The Company's principal business is the design, development, manufacture and marketing of large and ultra-long range business jet aircraft. Because of the high unit selling price of its aircraft products and the availability of commercial airlines and charters as alternative means of business travel, a downturn in general economic conditions could result in a reduction in the orders received by the Company for its new and pre-owned aircraft. The Company would not be able to rely on sales of other products to offset a reduction in sales of its aircraft. If a potential purchaser is experiencing a business downturn or is otherwise seeking to limit its capital expenditures, the high unit selling price of a new Gulfstream aircraft could result in the potential purchaser deferring its purchase or changing its operating requirements and electing to purchase a competitor's lower priced aircraft. In addition, if a significant number of customers resell their purchase contracts, the Company's new order intake could be adversely affected. If the Company's new order intake rate varies, the Company could be required to adjust its production rate. Production Delays. While the Company generally receives non-refundable deposits in connection with each order, an order may be canceled (and the deposit returned) under certain conditions if the delivery of a Gulfstream V aircraft is delayed more than six months after a customer's scheduled delivery date. An extended delay in the production or completion process could cause an increase in the number of cancellations of orders, which could have an adverse effect on the Company's results of operations. Business and Economic Conditions. Although 75% of the Company's backlog consists of North American customers and 43% of North American customers are Fortune 500 companies, adverse business and economic conditions could cause customers to be unable or unwilling to consummate the purchase of an aircraft and could, therefore, increase the number of cancellations experienced by the Company. YEAR 2000 READINESS As part of the Company's initiatives, begun in 1996, to increase production rates and co-produce the Gulfstream IV-SP and Gulfstream V, the Company has, and continues to, upgrade and replace business systems and facility infrastructure. These initiatives help to reduce the potential impact of the Year 2000 date issue on the Company's operations. In addition, the Company has implemented a Year 2000 Compliance Plan designed to ensure that all other hardware, software, systems, and products with microprocessors relevant to the Company's business are not adversely affected by the Year 2000 date issue. The Company does not believe that the implementation of this Year 2000 Compliance Plan will have a material effect on the Company's business operations, financial condition, liquidity or capital resources. Management of the Company believes it has an effective program in place to address the Year 2000 issue in a timely manner. As a component of the Year 2000 Compliance Plan, the Company is developing contingency plans to mitigate the effects of potential problems experienced by it or its key vendors or suppliers in the timely implementation of its Year 2000 Compliance Plan. Nevertheless, since it is not possible to anticipate all future outcomes, especially when third parties are involved, there could be circumstances in which the Company's operations would be adversely affected. SAFETY RECORD The Company believes that its reputation and the exemplary safety record of its aircraft are important selling points for new and pre-owned Gulfstream aircraft. However, if one or a number of catastrophic events were to occur with the Gulfstream fleet, Gulfstream's reputation and sales of Gulfstream aircraft could be adversely affected. PRE-OWNED AIRCRAFT MARKET In many cases, the Company has agreed to accept, at the customer's option, the customer's pre-owned aircraft as a trade-in in connection with the purchase of a Gulfstream IV-SP or Gulfstream V. Based on the current market for pre-owned aircraft, the Company expects to continue to be able to resell pre-owned aircraft taken in trade, and does not expect to suffer a loss with respect to these trade-ins and resales. However, an increased level of pre-owned aircraft or changes in the market for pre-owned aircraft may increase the Company's inventory costs and may result in the Company receiving lower prices for its pre-owned aircraft. COMPETITION The market for large cabin business jet aircraft is highly competitive. The Gulfstream IV-SP competes in the large cabin business jet aircraft market segment, principally with Dassault Aviation S.A. and Bombardier Inc. ("Bombardier"). The Gulfstream V competes in the ultra-long range business jet aircraft market segment, primarily with the Global Express, which is being marketed by Canadair, a subsidiary of Bombardier, and which will not be certified by the FAA until more than 21 months after the initial delivery of the Gulfstream V. The Boeing Company, in partnership with General Electric Co., is marketing a version of the Boeing 737 into the ultra-long range business jet aircraft market segment. Boeing has indicated that it expects this aircraft to be available for delivery in the fourth quarter of 1998. In June 1997, Airbus Industrie announced it would market a version of the Airbus A319 into this market segment as well. Airbus has indicated that it expects the aircraft to be available in early 1999. The Company's competitors may have access to greater resources (including, in certain cases, governmental subsidies) than are available to the Company. The Company's ability to compete successfully in the large business jet and ultra-long range business jet aircraft markets over the long term requires continued technological and performance enhancements to Gulfstream aircraft. No assurance can be given that the Company's competitors will not be able to produce aircraft capable of performance comparable or superior to Gulfstream aircraft in the future. Increased price-based competition by the Company's competitors could pressure the Company to also reduce its prices. Price reductions could have a significant impact on the Company's margins. In addition, if a significant number of customers were to cancel orders for the Company's aircraft in order to purchase a competitive product, there could be a material adverse effect on the Company's backlog. PENDING TAX AUDIT The Company is involved in tax audits by the Internal Revenue Service covering the years 1990 through 1994. The revenue agent's reports include several proposed adjustments involving the deductibility of certain compensation expense, items relating to the initial capitalization of the Company, the allocation of the original purchase price for the acquisition by the Company of the Gulfstream business, including the treatment of advance payments with respect to and the cost of aircraft that were in backlog at the time of the acquisition, and the amortization of amounts allocated to intangible assets. The Company believes that the ultimate resolution of these issues will not have a material adverse effect on its financial statements because the financial statements already reflect what the Company currently believes is the expected loss of benefit arising from the resolution of these issues. However, because the revenue agent's reports are proposing adjustments in amounts materially in excess of what the Company has reflected in its financial statements and because it may take several years to resolve the disputed matters, the ultimate extent of the Company's expected loss of benefit and liability with respect to these matters cannot be predicted with certainty and no assurance can be given that the Company's financial position or results of operations will not be adversely affected. LEVERAGE AND DEBT SERVICE The degree to which the Company is leveraged at a particular time could have important consequences to the Company, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, product development, acquisitions, general corporate purposes or other purposes may be impaired; (ii) a portion of the Company's and its subsidiaries' cash flow from operations must be dedicated to the payment of the principal of and interest on its indebtedness; (iii) the Company's credit agreement contains certain restrictive financial and operating covenants, including, among others, requirements that the Company satisfy certain financial ratios; (iv) a significant portion of Gulfstream's borrowings will be at floating rates of interest, causing Gulfstream to be vulnerable to increases in interest rates; (v) the Company's degree of leverage may make it more vulnerable in a downturn in general economic conditions; and (vi) the Company's financial position may limit its flexibility in responding to changing business and economic conditions. -----END PRIVACY-ENHANCED MESSAGE-----