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EXHIBIT 4.9
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SALE AND LEASE AGREEMENT
dated as of April 1, 1995
between
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
Owner Trustee,
Lessor
and
SOUTHWEST AIRLINES CO.,
Lessee
__________________________
One Boeing Model 737-3H4 Aircraft
SOUTHWEST AIRLINES 1995 TRUST N396SW
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All right, title and interest of Lessor in and to this Sale and Lease
Agreement and the Aircraft (including the Engines) has been assigned to and is
subject to a security interest in favor of WILMINGTON TRUST COMPANY, as
Indenture Trustee. This Sale and Lease Agreement has been executed in several
counterparts. No security interest in Lessor's right, title and interest in
and to this Sale and Lease Agreement may be created through the transfer or
possession of any counterpart other than the counterpart identified, for
purposes of perfection of a security interest in chattel paper (as such term is
defined in the UCC), as the original counterpart. This is not the original
counterpart.
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TABLE OF CONTENTS
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Sale, Lease and Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3. Term and Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Basic Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.4 Variable Amounts on Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.5 Supplemental Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.6 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.7 Adjustment to Basic Rent, Stipulated Loss Value and Termination Value . . . . . . . . . . . . . . . 16
3.7.1 Adjustments upon Payment by Lessor of Transaction Costs, Etc . . . . . . . . . . . . . . 16
3.7.2 Recalculation Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.8 Certain Advances; Reimbursement Thereof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4. Lessor's Representations and Warranties; DISCLAIMER; Certain
Agreements of Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1 Lessor's Representations and Warranties; DISCLAIMER . . . . . . . . . . . . . . . . . . . . . . . . 19
4.2 Certain Agreements of Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5. Return of Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1 General Condition upon Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1.1 Airworthiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1.2 Free of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1.3 Operating Configuration and Condition . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1.4 Cleanliness and Operability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.1.5 Parts and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.2 Return of Other Engines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.3 Return at End of Base Lease Term or Renewal Lease Term . . . . . . . . . . . . . . . . . . . . . . . 21
5.4 Manuals; Service Bulletins, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.5 Failure to Return Aircraft or Engines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.6 Aid in Disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.7 Storage upon Return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7. Registration, Operation, Possession, Subleasing and Records . . . . . . . . . . . . . . . . . . . . 24
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7.1 Registration and Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.1.1 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.1.2 Nameplate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.1.3 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1.4 Insurance Requirements; Government Requisition; Indemnity . . . . . . . . . . . . . . . . 25
7.2 Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2.1 Interchange and Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.2.2 Testing and Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.2.3 Civil Reserve Air Fleet Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.2.4 Installation of Engines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.2.5 Installation of Engines on Other Airframes . . . . . . . . . . . . . . . . . . . . . . . 27
7.2.6 Pooling of Parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2.7 Wet Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2.8 Sublease to Permitted Air Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.3 Records and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3.1 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3.2 Information and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3.3 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8. Maintenance; Replacement and Pooling of Parts; Alterations;
Modifications and Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.1 Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.1.1 Maintenance Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.1.2 Compliance with Government Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.2 Replacement of Parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.3 Pooling of Parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.4 Alterations, Modifications and Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.4.1 Mandatory Alterations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.4.2 Voluntary Alterations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9. Voluntary Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.1 Right of Termination upon Obsolescence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.2 Sale of Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.3 Retention by Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.4 Termination As to Engines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10. Loss, Destruction, Requisition, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.1 Event of Loss with Respect to Airframe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.1.1 Lessee's Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.1.2 Replacement of Airframe and Engines . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.1.3 Payment of Stipulated Loss Value and Rent . . . . . . . . . . . . . . . . . . . . . . . . 36
10.1.4 Stipulated Loss Value Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.1.5 Payment of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.1.6 Conditions to Replacement of Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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10.1.6.1 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.1.6.2 Tax Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.1.6.3 Lessee's Obligations with Respect to Replacement Aircraft . . . . . . . . . . . 37
10.1.7 Recordation and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.1.8 Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.2 Event of Loss with Respect to an Engine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.2.1 Event of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.2.2 Conditions; Lessee's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.2.3 Recordation and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.2.4 Conveyance; Replacement Engine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.2.5 No Reduction of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.3 Application of Certain Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.3.1 Replacement of Airframe and Engines . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.3.2 Replacement of Engine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.3.3 Nonreplacement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.4 Requisition of Aircraft for Use by Governmental Authorities . . . . . . . . . . . . . . . . . . . . 43
10.5 Requisition of an Engine for Use by Governmental Authorities . . . . . . . . . . . . . . . . . . . . 43
10.6 Application of Payments During Existence of Default . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 11. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.1 Public Liability and Property Damage Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.1.1 Type, Form and Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.1.2 Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.1.3 Additional Insureds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.2 Insurance Against Loss of or Damage to Aircraft and Engines . . . . . . . . . . . . . . . . . . . . 44
11.2.1 Type, Form and Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.2.2 War-Risk Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.2.3 Certain Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.2.3.1 Additional Insureds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.2.3.2 Payment of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.2.3.3 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.2.4 Deductibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.2.5 Government Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.3 General Policy Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.3.1 Primary Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.3.2 Coverage for Each Insured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.3.3 Waiver of Certain Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.3.4 Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.3.5 Notice of Termination or Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.3.6 Nonliability for Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.3.7 Identity of Insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.3.8 Fifty-fifty Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.4 Application of Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
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11.5 Certificates; Reports, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.6 Lessor's Right to Maintain Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.7 Insurance for Own Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.8 Self-Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 12. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 13. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.2 Security for Lessor's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 14. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.1 Failure to Pay Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.2 Specific Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.3 General Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.4 Misrepresentation and Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.5 Bankruptcy, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 15. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
15.1 Default; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
15.1.1 Return; Repossession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
15.1.2 Sale; Use Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
15.1.3 Certain Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
15.1.3.1 Liquidated Damages--Fair Market Rental Value . . . . . . . . . . . . . . . . . 52
15.1.3.2 Liquidated Damages--Fair Market Sales Value . . . . . . . . . . . . . . . . . . 52
15.1.4 Liquidated Damages upon Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15.1.5 Termination and Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
15.2 Determination of Fair Market Rental Value and Fair Market Sales
Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
15.3 No Waiver, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 16. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 17. Net Lease; Lessee's Obligations; No Setoff, Counterclaim, Etc . . . . . . . . . . . . . . . . . . . 55
Section 18. Renewal and Purchase Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.1 Renewal Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
18.2 Purchase Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 19. Successor Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 20. Right to Perform for Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 21. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
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Section 22. Investment of Security Funds; Miscellaneous; Amendment . . . . . . . . . . . . . . . . . . . . . . . 61
22.1 Investment of Security Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
22.2 Miscellaneous; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 23. Permitted Foreign Air Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
EXHIBIT A Form of Sale and Lease Agreement Supplement
EXHIBIT B-1 Stipulated Loss Value Schedule
EXHIBIT B-2 Termination Value Schedule
EXHIBIT C Rent Payment Schedule and EBO Installment Payment Schedule
EXHIBIT D Permitted Foreign Air Carriers
EXHIBIT E Assumed Interest Amounts
APPENDIX A Certain Return Conditions
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THIS SALE AND LEASE AGREEMENT, dated as of April 1, 1995, is between
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, a national banking association,
not in its individual capacity except as expressly stated herein, and otherwise
as Owner Trustee under the Trust Agreement hereinafter referred to (together
with any successor in such capacity and its permitted assigns, "Lessor"), and
SOUTHWEST AIRLINES CO., a Texas corporation (together with its successors and
permitted assigns, "Lessee").
RECITALS
1. On December 9, 1994, an AC Form 8050-2 ▇▇▇▇ of Sale dated
November 8, 1994, from Manufacturer (as defined below) in favor of Lessee
covering the Aircraft (as defined below) was recorded by the FAA (as defined
below) as Conveyance Number S093890.
2. The parties hereto desire that Lessor purchase the Aircraft
from and lease it back to Lessee as hereinbelow provided.
In consideration of the premises and the mutual agreements herein
contained, Lessor and Lessee agree as follows:
Section 1. Definitions. Unless the context otherwise requires,
the following terms shall have the following meanings for all purposes of this
Lease and shall be equally applicable to both the singular and the plural forms
of the terms herein defined. Any agreement referred to below shall mean such
agreement as amended, supplemented and modified (including as the same may be
amended and restated) from time to time, to the extent permitted by, and in
accordance with, the terms thereof. For all purposes of this Lease the
capitalized terms used but not defined herein are used as defined in the Trust
Indenture or, if not defined therein, as defined in the Participation
Agreement. A reference to a Person shall include the successors and permitted
assigns of such Person.
"Act" means Subtitle VII of Title 49 of the United States Code, as
amended from time to time.
"Advance" is defined in Section 3.8.
"Affiliate" means, with respect to a specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Aircraft" means the Airframe, together with the two Engines, whether
or not any of such Engines may from time to time be installed on the Airframe
or may be installed on any other airframe or on any other aircraft.
SALE AND LEASE AGREEMENT [N396SW]
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"Airframe" means (i) the Boeing Model 737-3H4 aircraft (excluding
Engines or engines from time to time installed thereon) specified in the
initial Lease Supplement, manufactured by Manufacturer and sold by Manufacturer
to Lessee pursuant to the Purchase Agreement, sold hereunder by Lessee to
Lessor, and leased back by Lessor to Lessee, all hereunder and under the
initial Lease Supplement, (ii) any Replacement Airframe, (iii) any and all
Parts so long as the same shall be incorporated in such aircraft or such
Replacement Airframe and title thereto shall have vested in Lessor pursuant to
the terms of Section 8, and any and all Parts removed from such aircraft or
such Replacement Airframe so long as title thereto shall remain vested in
Lessor in accordance with the terms of Section 8, and (iv) all Records at any
time maintained with respect to the foregoing property; provided, however, that
at such time as a Replacement Airframe shall be substituted hereunder and the
replaced Airframe shall be released from the Lien of the Trust Indenture, such
replaced Airframe shall cease to be the Airframe hereunder.
"Assumed Interest Rate" means (i) for the period from and including
the Delivery Date to but excluding the Deferred Equity Date, the equivalent
(computed on the basis of the actual number of days elapsed over a 360-day
year) of 6.75% per annum, compounded semi-annually and (ii) for the period from
and including the Deferred Equity Date, 8.27% per annum, compounded
semi-annually and computed on the basis of a 360-day year of twelve 30-day
months.
"Assumed Interest Amount" means, with respect to the Deferred Equity
Date and each Rent Payment Date, the amount set forth on Exhibit E opposite
such date.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended
from time to time, or any successor statute.
"Base Lease Term" means the period commencing on the Base Lease Term
Commencement Date and expiring at the end of the day on April 2, 2019.
"Base Lease Term Commencement Date" means July 1, 1995.
"Base Rate" means the interest rate publicly announced in New York
City from time to time by The Chase Manhattan Bank (National Association) as
its prime or base lending rate.
"Basic Rent" means the rent identified as Basic Rent in and payable
pursuant to Section 3.3.
"Bills of Sale" means the FAA ▇▇▇▇ of Sale, the Warranty ▇▇▇▇ of Sale,
the Lessee FAA ▇▇▇▇ of Sale and the Lessee Warranty ▇▇▇▇ of Sale.
"Break Amount" is defined in Section 15.05(b) of the Trust Indenture.
"Business Day" shall have the meaning attributed thereto in the Trust
Indenture, so long as the Trust Indenture shall remain in effect, and otherwise
means a day on which banks are
SALE AND LEASE AGREEMENT [N396SW]
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not required or authorized to close in any of the City of New York, New York,
San Francisco, California, Dallas, Texas, and Hartford, Connecticut, or such
other city as shall be the situs of the principal office of Lessee or Lessor at
the time in question.
"Certificate Holder" is defined in Section 1.01(b) of the Trust
Indenture.
"Certificate Rate" means, as of any date of determination thereof, (i)
in respect of amounts owing or distributable pursuant to the Trust Indenture to
the Holders of Certificates issued prior to the Refinancing Date or the Section
18 Refinancing Date, as the case may be, the applicable Assumed Interest Rate,
(ii) in respect of amounts owing to the Holders of Certificates issued on or
after the Refinancing Date or the Section 18 Refinancing Date, as the case may
be, the interest rate or, if such Certificates shall have been issued with more
than one Maturity Date or interest rate, the weighted average of the interest
rates (which weighting is to be based on the Outstanding principal amounts of
the Certificates of each Maturity Date or interest rate), then in effect with
respect to the then Outstanding principal amounts of the Certificates, (iii) in
respect of any portion of Stipulated Loss Value, Termination Value or the
Special Purchase Price expected to be distributed to the Owner Trustee or the
Owner Participant, an interest rate equal to the yield utilized in calculating
the Owner Participant's Net Economic Return, and (iv) in respect of any other
amount owing to the Owner Participant (and which is not required to be
distributed to the Holders pursuant to the Trust Indenture), 1% in excess of
the Base Rate, but in no event to exceed the maximum rate permitted by
applicable law.
"Certificates" means the Certificates (as defined in the Trust
Indenture) issued under the Trust Indenture.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time.
"Deferred Equity Amount" is defined in Section 8(dd) of the
Participation Agreement.
"Deferred Equity Date" means July 1, 1995, the first day of the Base
Lease Term.
"Delivery Date" means the date of the initial Lease Supplement, which
date shall be the date on which the Aircraft is delivered by Lessee to, and
accepted by, Lessor hereunder and in turn leased back by Lessor to Lessee
hereunder, which date shall be a Business Day.
"Dollars" and "$" mean the lawful currency of the United States of
America.
"DOT" means the United States Department of Transportation or any
governmental person, agency or authority succeeding to the functions of such
Department of Transportation.
"EBO Installment Payment Date" means a date set forth in Part II of
Exhibit C hereto.
SALE AND LEASE AGREEMENT [N396SW]
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"Engine" means (i) each of the CFM International Model CFM56-3-B1
engines identified by manufacturer's serial number in the initial Lease
Supplement subjecting the Aircraft to this Lease and originally installed on
the Airframe covered by such Lease Supplement, whether or not from time to time
thereafter installed on such Airframe or installed on any other airframe or on
any other aircraft, and (ii) any Replacement Engine, whether or not from time
to time thereafter installed on the Airframe or any other airframe or on any
other aircraft, together in each case with any and all Parts incorporated in
such Engine or Replacement Engine and any and all Parts removed from such
Engine or Replacement Engine, in each case so long as title thereto shall have
been and shall remain vested in Lessor in accordance with the terms of Section
8, and all Records at any time maintained with respect to the foregoing
property. Except as otherwise set forth herein, at such time as a Replacement
Engine shall be substituted hereunder and the Engine for which the substitution
is made shall be released from the Lien of the Trust Indenture, such replaced
Engine shall cease to be an Engine hereunder. The term "Engines" means, as of
any date of determination, all Engines then leased hereunder.
"Engine Manufacturer" means CFM International, Inc., a Delaware
corporation, in its capacity as manufacturer of the Engines.
"Estate" means the Trust Estate as that term is defined in the Trust
Agreement.
"Event of Loss" means, with respect to the Aircraft, Airframe or any
Engine, any of the following events with respect to such property: (i)
disappearance or theft of such property or the loss of the use thereof for any
reason not covered by any other clause of this definition, including hijacking,
for a period of three consecutive months or for a period continuing through the
last day of the Term, whichever first occurs, or destruction, damage beyond
economic repair or rendition of such property permanently unfit for normal use
for any reason whatsoever; (ii) any damage to such property which results in an
insurance settlement with respect to such property on the basis of a total loss
or a constructive or compromised total loss; (iii) the confiscation,
condemnation or requisition of use of such property by the Government or any
other government or any instrumentality or agency thereof for a period in
excess of six consecutive months or for a period continuing beyond the Term,
whichever first occurs; (iv) as a result of any rule, regulation, order or
other action by the FAA, DOT or other governmental body (including any court)
having jurisdiction, the use of such property in the normal course of
interstate air transportation of persons shall have been prohibited for a
period of more than six consecutive months, unless Lessee, prior to the
expiration of such six-month period, shall have undertaken and shall be
diligently carrying forward all steps which are necessary or desirable to
permit normal use by Lessee, but in any event (a) in any case in which such
prohibition shall apply generally to all similar Boeing Model 737-300 series
aircraft, if such prohibition is continuing on the last day of the Term, or (b)
in all other cases, if such prohibition is continuing on the earlier of the
first anniversary of such prohibition and the last day of the Term; provided,
however, that if such prohibition is continuing on the last day of the Term, no
Event of Loss pursuant to this clause (iv) shall exist if Lessor shall have
delivered to Lessee a written notice not less than two days prior to the end of
the Term that such prohibition on the last day of the Term shall not be deemed
an Event of Loss; (v) the confiscation, condemnation or requisition
SALE AND LEASE AGREEMENT [N396SW]
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of title to such property by the Government or any other government or any
instrumentality or agency thereof; or (vi) respecting any Engine, any
divestiture of title treated as an Event of Loss pursuant to Section 7.2.1 or
any other provision of this Lease. An Event of Loss with respect to the
Aircraft shall be deemed to have occurred if an Event of Loss occurs with
respect to the Airframe. An Event of Loss shall be deemed to occur as of the
date of the disappearance, theft, destruction, damage, divestiture, rendition,
loss of use, insurance settlement, prohibition, confiscation, condemnation or
requisition of title or of use, as applicable, except that no Event of Loss
shall be deemed to have occurred pursuant to clause (i), (iii) or (iv) above
until the expiration of the applicable period referred to therein.
"FAA" or "Federal Aviation Administration" means the Federal Aviation
Administration or any governmental person, agency or other authority succeeding
to the functions of the Federal Aviation Administration.
"FAA ▇▇▇▇ of Sale" means a ▇▇▇▇ of sale for the Aircraft on AC Form
8050-2 delivered to Lessee on the date of delivery of the Aircraft to Lessee by
Manufacturer under the Purchase Agreement.
"FAA Regulations" means the Federal Aviation Regulations issued
pursuant to the Act from time to time, or any successor regulations thereto.
"Government" means the federal government of the United States of
America or any instrumentality or agency thereof having the full faith and
credit of the United States of America.
"Holder" is defined in Section 1.01(b) of the Trust Indenture.
The term "incorporated in" means incorporated or installed in or
attached to or otherwise made a part of.
"Indemnified Parties" means (i) Shawmut Bank Connecticut, National
Association, in its individual capacity and as Owner Trustee, (ii) Wilmington
Trust Company, in its individual capacity and as Indenture Trustee, (iii) the
Owner Participant, (iv) each Holder of a Series SWA 1994 Trust N396SW-I
Certificate (including without limitation the Original Loan Participant), (v)
the Estate and the Trust Indenture Estate, (vi) the respective Affiliates,
successors and assigns of the foregoing, and (vii) the respective directors,
officers, employees, agents, partners and servants of the foregoing.
"Indenture and Trust Supplement" means a supplement to the Trust
Agreement and the Trust Indenture, substantially in the form of Exhibit C to
the Trust Indenture.
"Indenture Trustee" means Wilmington Trust Company, not in its
individual capacity but solely as Indenture Trustee under the Trust Indenture
and any successor, separate or additional Indenture Trustee thereunder.
SALE AND LEASE AGREEMENT [N396SW]
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"Indenture Trustee Agreements" means the Participation Agreement and
the Trust Indenture.
"Interim Lease Term" means the period commencing on the Delivery Date
and expiring at the end of the day on the day before the Base Lease Term
Commencement Date.
"Investment Grade" is defined in Section 11.8.
"Lease", "this Lease", "this Agreement", "hereby", "herein", "hereof",
"hereunder" or other words mean this Sale and Lease Agreement, including
without limitation supplementation hereof by one or more Lease Supplements.
"Lease Default" means any event or condition which, with notice or
lapse of time or both, would constitute a Lease Event of Default.
"Lease Event of Default" is defined in Section 14.
"Lease Period" means each of (i) the Interim Lease Term, (ii) each
six-month period commencing on a January 1 (other than January 1, 2019) or July
1, as the case may be, thereafter during the Term and (iii) the period
commencing on January 1, 2019 and ending on April 2, 2019.
"Lease Supplement" means a supplement to this Lease, in the case of
the initial such supplement substantially in the form attached as Exhibit A
hereto, subjecting the Aircraft or other property to this Lease.
"Lessee FAA ▇▇▇▇ of Sale" means a ▇▇▇▇ of sale for the Aircraft on AC
Form 8050-2 or such other form as may be approved by the FAA and delivered to
Lessor on the Delivery Date by Lessee.
"Lessee Warranty ▇▇▇▇ of Sale" means a full warranty ▇▇▇▇ of sale
covering the Aircraft delivered to Lessor on the Delivery Date by Lessee.
"Lessor's Cost" for the Aircraft means the amount identified as such
in the initial Lease Supplement subjecting the Aircraft to this Lease.
"Lessor Liens" means Liens of any Person claiming by, through or under
Lessor, the Person serving as Owner Trustee, in its individual capacity, or
Owner Participant which arise as a result of (i) claims against Lessor, the
Person serving as Owner Trustee, in its individual capacity, or Owner
Participant, as the case may be, not related to the transactions contemplated
by the Operative Agreements, (ii) any act or omission of Lessor, the Person
serving as Owner Trustee, in its individual capacity, or Owner Participant, as
the case may be, which is not related to the transactions contemplated by the
Operative Agreements, or is in violation of any of the express terms of any of
the Operative Agreements, (iii) Taxes or Losses imposed against or
SALE AND LEASE AGREEMENT [N396SW]
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incurred by Lessor, the Person serving as Owner Trustee, in its individual
capacity, or Owner Participant, as the case may be, for which Lessee is not
obligated to indemnify pursuant to the Participation Agreement or the Tax
Indemnity Agreement, other than Liens for Taxes not yet due or for Taxes or
Losses being contested in good faith (and for the payment of which adequate
reserves have been provided in accordance with generally accepted accounting
principles) by appropriate proceedings so long as such proceedings do not
involve any material danger of the sale, forfeiture, loss or loss of use of the
Aircraft, the Airframe or any Engine or any interest therein, or (iv) claims
against Lessor, the Person serving as Owner Trustee, in its individual
capacity, or Owner Participant, as the case may be, arising out of any transfer
by any of such Persons in violation of the express terms of the Operative
Agreements; provided, however, that no such Lien shall constitute a Lessor Lien
for any purpose of the Operative Agreements if the same shall have been bonded
to the reasonable satisfaction of Lessee and the Indenture Trustee.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease or
security interest, or any claim or exercise of rights, affecting the title to
or any interest in property.
"Loss" is defined in Section 7(c)(i) of the Participation Agreement.
"Maintenance Program" is defined in Section 8.1.1.
"Manufacturer" means The Boeing Company, a Delaware corporation, or
any Affiliate thereof whose obligations are guaranteed by The Boeing Company,
and their respective successors and assigns.
"Manufacturer's Consent" means the Consent and Agreement of
Manufacturer dated as of April 1, 1995, attached to the Purchase Agreement
Assignment and, if applicable, the Agreement of Subsidiary by Boeing Domestic
Sales Corporation of even date therewith.
"Net Economic Return" means the initial Owner Participant's internal
rate of return as calculated by it and anticipated after-tax economic yield,
total aggregate after-tax cash flow and general pattern of book earnings
expected by the initial Owner Participant with respect to the Aircraft for the
Base Lease Term, utilizing the same assumptions (including tax assumptions and
constraints) as were utilized by the Owner Participant in determining Basic
Rent, Stipulated Loss Value and Termination Value percentages as of the
Delivery Date, as such assumptions may be adjusted from time to time to take
into account the impact of any change of the type specified in Section 3.7
which theretofore has resulted in an adjustment of the percentages of Basic
Rent, Stipulated Loss Value or Termination Value.
"Net Present Value of Rents" means, as of any date of determination,
the net present value, as of the Delivery Date, of each of (i) all unpaid Basic
Rent through the end of the Term and (ii) for any date of determination prior
to the Special Purchase Option Date, all unpaid Basic Rent through the Special
Purchase Option Date plus the Special Purchase Price, in each case utilizing a
semi-annual discount rate that, on an annual basis, is equal to 8.60%.
SALE AND LEASE AGREEMENT [N396SW]
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"Officer's Certificate" means a certificate signed by the Chairman,
the President, any Vice President, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Assistant Secretary of the Person providing
such certificate.
"Operative Agreements" means this Agreement, each Lease Supplement,
the Participation Agreement, the Trust Agreement, the Purchase Agreement, the
Purchase Agreement Assignment, the Trust Indenture, the Certificates, each
Indenture and Trust Supplement, the Bills of Sale, the Tax Indemnity Agreement
and the Manufacturer's Consent, including any consents included in or attached
to any thereof.
"Original Loan Participant" means Bank of America National Trust and
Savings Association, and its successors and permitted assigns as holder of the
Series SWA 1994 Trust N396SW-I Certificates.
"Overdue Rate" means (i) in respect of that portion of Basic Rent,
Stipulated Loss Value, Termination Value or Special Purchase Price (or any
installment thereof) expected to be applied to principal of or interest on the
Certificates, the Past Due Rate, or if Certificates shall have been issued
after the Section 18 Refinancing Date with more than one Maturity Date,
interest rate or Past Due Rate, the weighted average of the Past Due Rates in
respect of the then-outstanding Certificates of each Maturity Date (which
weighting is to be based on the Outstanding principal amounts of the
Certificates of each Maturity Date, interest rate or Past Due Rate) and (ii) in
respect of any other portion of Basic Rent, Stipulated Loss Value, Termination
Value or Special Purchase Price (or any installment thereof), any Renewal Rent,
any Supplemental Rent owing to any Person, or any amount payable to Lessee
(except as otherwise provided), 2% in excess of the Base Rate, but in no event
to exceed the maximum rate permitted by applicable law. Any interest payable
at the Overdue Rate that is determined with reference to clause (i) of this
definition shall be computed on the same basis as the Past Due Rate, and any
interest payable at the Overdue Rate that is determined with reference to
clause (ii) of this definition shall be computed on the basis of a year of 365
or 366 days, as the case may be, and actual days elapsed.
"Owner Participant" means Ford Motor Credit Company, a Delaware
corporation, and its successors and permitted assigns.
"Owner Participant Agreements" means the Participation Agreement, the
Trust Agreement and the Tax Indemnity Agreement.
"Owner Trustee" means Shawmut Bank Connecticut, National Association,
not in its individual capacity but solely as trustee under the Trust Agreement,
and any successor, separate or additional Owner Trustee thereunder.
"Owner Trustee Documents" means the Participation Agreement, this
Lease, the Trust Agreement, the Trust Indenture, the Certificates and the
Purchase Agreement Assignment.
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"Participant" means Owner Participant and Original Loan Participant
and their respective successors and permitted assigns.
"Participation Agreement" means the Participation Agreement, dated as
of April 1, 1995, among Lessee, Participants, Lessor and Indenture Trustee,
relating to the Aircraft.
"Parts" means all appliances, parts, components, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
(other than (a) complete Engines or engines and (b) any items leased by Lessee
from a third party (other than Lessor)) which may from time to time be
incorporated in the Airframe or any Engine and title to which shall vest in
Lessor (and "Part" means any of the foregoing) or, so long as title thereto
shall remain vested in Lessor in accordance with Section 8.2 or any other
provision hereof, after removal therefrom.
"Permitted Foreign Air Carrier" means a "foreign air carrier" (as
defined in the Act) named in Exhibit D hereto (as the same may be modified from
time to time in accordance with Section 23) and any successor of any such
carrier.
"Permitted Lien" means any Lien referred to in clauses (a) through (g)
of Section 6.
"Permitted Sublease" means a sublease permitted under Section 7.2.8.
"Permitted Sublessee" means the sublessee under a Permitted Sublease.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
"Prohibited Person" is defined in Section 9.2.
"Purchase Agreement" means the Purchase Agreement between Manufacturer
and Lessee specified in the Purchase Agreement Assignment providing, among
other things, for the manufacture and sale by Manufacturer to Lessee of certain
Boeing Model 737-300 series aircraft (including the Aircraft), as the same has
been or may hereafter (to the extent permitted by the terms of the Purchase
Agreement Assignment) be amended, modified or supplemented and including,
without limitation, as part thereof, the detail specifications referred to
therein and any and all change orders from time to time entered into with
respect thereto (to the extent permitted by the terms of the Purchase Agreement
Assignment), as such Purchase Agreement relates to the Aircraft and has been
assigned pursuant to the Purchase Agreement Assignment.
"Purchase Agreement Assignment" means the Purchase Agreement
Assignment, dated as of April 1, 1995, between Lessee and Lessor, assigning to
Lessor certain of Lessee's rights and interests under the Purchase Agreement
with respect to the Aircraft, which Purchase Agreement Assignment has annexed
thereto the Manufacturer's Consent, executed by Manufacturer.
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"Qualifying Issuing Bank" means any bank or financial institution
principally based in Canada, France, Germany, Switzerland, Japan, the United
Kingdom or the United States (which may be state owned, but may not be the
central bank of such country) having a rating on its certificates of deposits
of "A2" or higher from ▇▇▇▇▇'▇ Investor Service (or a rating from any other
nationally recognized bond rating service equivalent to or better than such a
rating) and a combined capital, surplus and undivided profits of at least
$500,000,000 (or the equivalent thereof) and which is otherwise reasonably
satisfactory to Lessor based upon established credit or country limit policies
and like criteria of the Owner Participant.
"Records" is defined in Section 5.4.
"Refinancing Date" is defined in Section 17(a) of the Participation
Agreement.
"Renewal Rent" means the rent payable in respect of a Renewal Term
determined pursuant to Section 18.1.
"Renewal Term" means any of the successive periods of six months or
one, two, three of four years each, not to exceed four years in the aggregate,
which follow the end of the Base Lease Term and with respect to which Lessee
shall have exercised its option pursuant to Section 18.1 hereof.
"Rent" means Basic Rent, Renewal Rent and Supplemental Rent.
"Rent Differential Amount" is defined in Section 3.3.
"Rent Payment Date" means (i) each January 1 and July 1 during the
Base Lease Term and any Renewal Term, commencing with January 1, 1996, and (ii)
April 2, 2019.
"Replacement Aircraft" means any Aircraft of which a Replacement
Airframe is a part.
"Replacement Airframe" means a Boeing Model 737-300 (or an improved
model) aircraft (except Engines or engines from time to time installed thereon)
which shall be leased hereunder pursuant to Section 10.1.2.
"Replacement Engine" means a CFM International Model CFM56-3-B1 engine
(or an improved model engine manufactured by Engine Manufacturer or an engine
of another manufacturer of at least equivalent utility, remaining useful life
and value, in each case suitable for installation and use on the Airframe and
fully compatible with the other Engine or engine installed thereon) which shall
have been substituted for an Engine leased hereunder pursuant to Section 5.2,
9.4, 10.1 or 10.2.
"Section 18 Refinancing Date" is defined in Section 18(a) of the
Participation Agreement.
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"Securities Act" means the Securities Act of 1933, as amended.
"SLV Determination Date" means any date set forth in Exhibit B-1
hereto.
"Special Purchase Option Date" is defined in Section 18.2(b).
"Special Purchase Price" is defined in Section 18.2(b).
"Special Purchase Price After-Tax Yield" means the after-tax economic
yield, total aggregate after-tax cash flow and general pattern of book earnings
expected by the Owner Participant with respect to the Aircraft through the
Special Purchase Option Date if the Special Purchase Option were exercised and
the Special Purchase Option Price paid in installments, utilizing the multiple
investment sinking fund method of analysis and the same assumptions as used by
such Owner Participant (including the Tax Assumptions set forth in Section 2 of
the Tax Indemnity Agreement and the assumption that the amount of interest
payable on the Certificates on each Rent Payment Date occurring prior to or
concurrent with the Special Purchase Option Date will be the Assumed Interest
Amount set forth on Exhibit E in respect of such Rent Payment Date) in its
economic analysis of the transaction as of the Delivery Date.
"Stipulated Loss Value" means the sum of (i) the amount determined by
multiplying the Lessor's Cost of the Aircraft by the percentage set forth in
Exhibit B-1 hereto opposite the SLV Determination Date next preceding the date
on which Stipulated Loss Value is being paid (or, if such payment date is an
SLV Determination Date, by the percentage set forth opposite such SLV
Determination Date), and (ii) interest on such amount described in clause (i)
above calculated at the Certificate Rate from and including such SLV
Determination Date to but excluding the date of such payment (and, to the
extent that the actual amount of interest paid and to be paid on the
Certificates during the Lease Period in which such SLV Determination Date
occurs up to and including such date is greater or less than the amount
included in calculating the percentage set forth in Exhibit B-1 with respect to
such SLV Determination Date on account of such interest, such percentage shall
be adjusted appropriately to compensate for such differential). Stipulated
Loss Value may be subject to adjustment in accordance with Section 3.7 and
Section 18.2(d) of this Agreement.
"Supplemental Rent" means, without duplication, all amounts,
liabilities and obligations (other than Basic Rent or Renewal Rent) which
Lessee assumes or agrees to pay to Lessor or any other Person hereunder, under
the Participation Agreement or any of the other Operative Agreements,
including, without limitation (i) Stipulated Loss Value and Termination Value
payments and Special Purchase Price payments, (ii) all amounts required to be
paid by Lessee under the agreements, covenants and indemnities contained in the
Participation Agreement and the Tax Indemnity Agreement and (iii) all amounts
required to be paid pursuant to Sections 3.4, 3.5 and 3.8 hereof.
"Tax Indemnity Agreement" means the Tax Indemnity Agreement, dated as
of April 1, 1995, between Owner Participant and Lessee, relating to the
Aircraft.
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"Taxes" is defined in Section 7(b)(i) of the Participation Agreement.
"Term" means the term for which the Aircraft is leased pursuant to
Section 3 hereof and, unless earlier terminated, shall include the Interim
Lease Term, the Base Lease Term and any Renewal Term then in force or committed
to in accordance with Section 18.1.
"Termination Date" is defined in Section 9.1.
"Termination Value" means the amount determined by multiplying the
Lessor's Cost of the Aircraft by the percentage set forth in Exhibit B-2 hereto
opposite the TV Determination Date as of which Termination Value is being
determined (and, to the extent that the actual amount of interest paid and to
be paid on the Certificates during the Lease Period in which such TV
Determination Date occurs up to and including such date is greater or less than
the amount included in calculating the percentage set forth in Exhibit B-2 with
respect to such TV Determination Date on account of such interest, such
percentage shall be adjusted appropriately to compensate for such
differential). Termination Value may be subject to adjustment in accordance
with Section 3.7 of this Agreement.
"Transfer" means, with respect to any Person, to transfer, by ▇▇▇▇ of
sale or otherwise, all such Person's right, title and interest in and to the
Aircraft, Airframe or any Engine, as the case may be, to another Person on an
"as is, where is" basis, free and clear of any Lessor Lien but otherwise
without recourse, representation or warranty, express or implied, and including
an express disclaimer of warranties, representations and guarantees in a manner
comparable to that set forth in Section 4.1.
"Trust Agreement" means the Trust Agreement, dated as of April 1,
1995, between Owner Participant and Shawmut Bank Connecticut, National
Association, in its individual capacity, relating to the Aircraft.
"Trust Indenture" means the Trust Indenture and Security Agreement,
dated as of April 1, 1995, between Owner Trustee and Indenture Trustee,
relating to the Aircraft.
"Trust Indenture Estate" has the meaning attributed to the term
"Indenture Estate" in the Trust Indenture.
"TV Determination Date" means any date set forth in Exhibit B-2 hereto.
"UCC" means the Uniform Commercial Code as in effect in any applicable
jurisdiction.
"U.S. Air Carrier" means any United States air carrier as to which
there is in force a certificate issued pursuant to 49 U.S.C. Section 41102 and
as to which there is in force an air carrier operating certificate issued
pursuant to Part 121 of the FAA Regulations, or which may operate as an air
carrier by certification or otherwise under any successor or substitute
provisions therefor or in the absence thereof.
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"Warranty ▇▇▇▇ of Sale" means the full warranty ▇▇▇▇ of sale for the
Aircraft delivered to Lessee on the date of delivery of the Aircraft to Lessee
by the Manufacturer under the Purchase Agreement.
"Wet Lease" means any arrangement whereby Lessee agrees to furnish the
Airframe and Engines or engines installed thereon to a third party pursuant to
which the Airframe and Engines or engines (i) shall be operated solely by
regular employees of Lessee possessing all current certificates and licenses
that would be required under the Act for the performance by such employees of
similar functions within the United States of America (it being understood that
cabin attendants need not be regular employees of Lessee), (ii) shall be
maintained by Lessee in accordance with its Maintenance Program, and (iii)
shall be and remain, in the hands of such third party, subject to all other
terms and conditions of this Lease.
Section 2. Sale, Lease and Acceptance.
(a) Lessor, subject to satisfaction or waiver of the conditions
set forth in Section 4 of the Participation Agreement and the concurrent
acceptance hereunder by Lessee of the Aircraft, hereby agrees, to the extent
that the funds received by it pursuant to Section 2 of the Participation
Agreement are adequate for the purpose, to purchase at a purchase price equal
to Lessor's Cost and to accept delivery on the Delivery Date from Lessee
hereunder and to lease back (immediately after extension of the Lien of the
Trust Indenture to the Aircraft) to Lessee hereunder, and Lessee hereby agrees
to sell to Lessor and to lease back (immediately after extension of the Lien of
the Trust Indenture to the Aircraft) from Lessor hereunder on the Delivery
Date, the Aircraft, which shall have been accepted by Lessor and Lessee
hereunder as evidenced by the execution by Lessor and Lessee of the Lease
Supplement conveying to Lessor and leasing to Lessee the Aircraft hereunder;
provided, however, that Lessor and Lessee shall have no further obligation
hereunder with respect to the Aircraft if the Delivery Date shall not have
occurred on or before April 30, 1995. The purchase price of the Aircraft shall
be paid by Lessor to Lessee on the Delivery Date in the manner specified in
Section 2 of the Participation Agreement.
(b) Lessor hereby authorizes each of ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇
and ▇▇▇▇▇ ▇▇▇▇▇▇, all of whom are employees of Lessee, as the authorized
representative or representatives of Lessor to accept delivery of the Aircraft
from Lessee pursuant hereto. Lessee hereby agrees that in the event delivery
of the Aircraft shall be accepted by an employee or employees of Lessee
pursuant to such authorization by Lessor, such acceptance of delivery by such
employee or employees on behalf of Lessor shall, without further act, also
irrevocably constitute (i) acceptance by such employee of such appointment and
(ii) acceptance by Lessee of the Aircraft for all purposes of this Agreement.
SALE AND LEASE AGREEMENT [N396SW]
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Section 3. Term and Rent.
3.1 General. Except as otherwise provided herein, the Term for
the Aircraft shall commence on the Delivery Date specified in the initial Lease
Supplement and shall terminate as herein provided.
3.2 Lease Term. Except as provided herein, the Aircraft shall be
leased hereunder for the Interim Lease Term, the Base Lease Term and each
Renewal Term, if any.
3.3 Basic Rent. No Basic Rent shall be paid during the Interim
Lease Term. Lessee hereby agrees to pay to Lessor Basic Rent for the Base
Lease Term with respect to the Aircraft on each Rent Payment Date set forth in
Part I of Exhibit C, in each case in an amount equal to the percentage of
Lessor's Cost of the Aircraft set forth in Part I of Exhibit C opposite such
Rent Payment Date, subject to the terms of the next succeeding paragraphs of
this Section 3.3 and Section 3.7. Each installment (or portion of an
installment) of Basic Rent under the heading "Advance" in Exhibit C payable on
a Rent Payment Date shall relate to the respective Lease Period immediately
following such Rent Payment Date, and each installment (or portion of an
installment) of Basic Rent under the heading "Arrears" in Exhibit C payable on
a Rent Payment Date shall relate to the respective Lease Period immediately
preceding such Rent Payment Date.
Although the Basic Rent amounts set forth in Exhibit C hereto have
been computed on the assumption that the amount of interest payable on the
Certificates on the Rent Payment Dates throughout the Base Lease Term will be
the Assumed Interest Amounts, Lessor and Lessee recognize that the actual
amount of interest payable on the Certificates may, from time to time during
the Base Lease Term, be different from the Assumed Interest Amounts.
Accordingly, Basic Rent shall be increased or decreased (but not below zero),
as the case may be, by the Rent Differential Amount (as defined herein). Any
increase in Basic Rent shall constitute additional arrears Rent on the date in
question, and any decrease in Basic Rent shall first decrease arrears Rent
before affecting advance Rent on the date in question. For purposes hereof,
"Rent Differential Amount" shall mean, as of any Rent Payment Date, the
absolute value of the difference between (i) the aggregate amount of interest
due and payable on such Rent Payment Date on the Certificates (or due and
payable on the next following or next preceding Business Day, as the case may
be, if such date shall not constitute a Business Day) and (ii) the Assumed
Interest Amount with respect to such Rent Payment Date. If, as of such Rent
Payment Date, the amount determined in accordance with clause (i) of the
immediately preceding sentence shall be greater than the amount determined in
accordance with clause (ii) of such sentence, the amount of Basic Rent payable
on such Rent Payment Date shall be increased by the Rent Differential Amount.
If, as of such Rent Payment Date, the amount determined in accordance with such
clause (ii) shall exceed the amount determined in accordance with such clause
(i), the amount of Basic Rent due on such Rent Payment Date shall be decreased
(but not below zero) by the Rent Differential Amount.
SALE AND LEASE AGREEMENT [N396SW]
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Anything contained in the Participation Agreement or this Lease or any
other Operative Agreement to the contrary notwithstanding, (a) each installment
of Basic Rent payable under this Lease, whether or not adjusted in accordance
with the immediately preceding paragraph or the provisions of Section 3.7,
shall be, under any circumstances and in any event, in an amount at least
sufficient to pay in full, on the Rent Payment Date on which such installment
is due and payable, any scheduled payments then required to be made on account
of the principal of and interest on the Certificates, and (b) Stipulated Loss
Value, Termination Value and, unless Lessee shall have assumed the Certificates
pursuant to Section 18.2(c) hereof, the Special Purchase Price and the initial
installment of the Special Purchase Price if paid in installments, in each case
whether or not adjusted in accordance with the provisions of Section 3.7, as of
any date of determination thereof, together with any amount of Basic Rent
required to be paid on such date and all other amounts payable on such date,
shall equal, under any circumstances and in any event, an amount at least
sufficient to pay in full any payments then required to be made on account of
the principal of and interest (including, without limitation, any interest on
overdue principal and, to the extent permitted by applicable law, interest),
Premium, if any, and Break Amount, if any, on the Certificates and all amounts
which would be payable prior thereto or on a parity therewith if Section 3.03
of the Trust Indenture were applicable at the time of such payment.
3.4 Variable Amounts on Certificates. Lessee shall pay (or cause
to be paid) to or on behalf of Lessor an amount of Supplemental Rent equal to
the Break Amount (if any) or the Premium (if any) payable on the Certificates,
amounts due pursuant to Section 15.05 of the Trust Indenture and each other
amount required to be paid (other than principal and interest on the
Certificates) by Lessor as Owner Trustee under the Trust Indenture, on the same
date that such amounts are due under the Trust Indenture, and as provided in
Section 3.6.
3.5 Supplemental Rent. In addition to the amounts payable as
Supplemental Rent pursuant to Section 3.4, Lessee also agrees to pay (or cause
to be paid) to Lessor, or to whomsoever shall be entitled thereto, all
Supplemental Rent with respect to Stipulated Loss Value or Termination Value
when and as the same shall become due and owing and all other amounts of
Supplemental Rent (other than as covered by Section 3.4) within five days after
demand or such other relevant period as may be provided in any Operative
Agreement. Lessee will also pay to Lessor, or to whomsoever shall be entitled
thereto, as Supplemental Rent, to the extent permitted by applicable law,
interest at the Overdue Rate on any part of any installment of Basic Rent or
Renewal Rent not paid when due for any period from and including the date on
which the same was due to but excluding the date of payment in full and (to the
extent permitted by applicable law) on any payment of Supplemental Rent not
paid when due to Lessor, or to whomsoever shall be entitled thereto, as the
case may be, for the period from the date on which the same was due to but
excluding the date of payment in full. The expiration or other termination of
Lessee's obligation to pay Basic Rent or Renewal Rent hereunder shall not limit
or modify the obligations of Lessee with respect to Supplemental Rent.
3.6 Payments. Payments of Rent and any and all other payments
payable to Lessor hereunder shall be paid in funds of the United States of
America which shall be immediately
SALE AND LEASE AGREEMENT [N396SW]
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available not later than 11:00 A.M., New York City time, on the date due at the
office of Lessor at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
Corporate Trust Administration, Re: Southwest Airlines 1995 Trust N396SW, or
as otherwise directed by Lessor in writing at least five Business Days prior to
the date such payment is due; provided, that so long as the Trust Indenture
shall not have been terminated pursuant to Section 10.01 of the Trust
Indenture, Lessor hereby directs and Lessee agrees, that, unless the Indenture
Trustee shall otherwise direct, all Rent (other than Excluded Payments) shall
be paid prior to 11:00 A.M., New York City time, on the due date thereof
directly to Indenture Trustee to its account set forth in Schedule I to the
Participation Agreement. All payments of Supplemental Rent owing to Indenture
Trustee or to any Holder pursuant to the Participation Agreement shall be made
in immediately available funds prior to 11:00 A.M. New York City time, on the
due date thereof at the office of Indenture Trustee or at such other office of
such other financial institution located in the continental United States as
the party entitled thereto may so direct at least five Business Days prior to
the due date thereof. All payments of Supplemental Rent payable to Owner
Participant, to the extent that such amounts constitute Excluded Payments (as
defined in the Trust Indenture), shall be made by wire transfer prior to 11:00
A.M., New York City time, on the due date thereof, to its account set forth in
Schedule I to the Participation Agreement, with sufficient information to
identify the source and application of the funds. Except as otherwise
expressly provided herein, whenever any payment of Rent or other payment to be
made hereunder shall be due on a day which is not a Business Day, such payment
shall be made on the next succeeding day which is a Business Day and (provided
such payment is made on such next succeeding Business Day) no interest shall
accrue on the amount of such payment from and after such scheduled date.
3.7 Adjustment to Basic Rent, Stipulated Loss Value and
Termination Value.
3.7.1 Adjustments upon Payment by Lessor of Transaction
Costs, Etc. If (a) the Transaction Costs referred to in Section 16(a)
of the Participation Agreement paid by Owner Participant in connection
with the closing of this transaction on the Delivery Date are equal to
an amount which is other than 0.365% of Lessor's Cost, (b) the
Transaction Costs referred to in Section 16(a) of the Participation
Agreement paid by Owner Participant in connection with the initial
refinancing or refunding of the Certificates pursuant to Section 18 of
the Participation Agreement are equal to an amount which is other than
0.625% of Lessor's Cost, or no such refinancing or refunding shall
occur within two years of the Delivery Date, (c) the Delivery Date is
not ▇▇▇▇▇ ▇, ▇▇▇▇, (▇) a refinancing or refunding of the Certificates
pursuant to Section 17 or 18 of the Participation Agreement occurs,
(e) any recalculation of Basic Rent, Stipulated Loss Value,
Termination Value and the Special Purchase Price is required by the
terms of the Tax Indemnity Agreement, or (f) the interest portion of
the Deferred Equity Amount is not equal to the Assumed Interest Amount
with respect to the Deferred Equity Date and there shall not have
occurred a refunding or refinancing pursuant to Section 17 or 18 of
the Participation Agreement prior to the first Rent Payment Date, then
in each case, the Basic Rent percentages set forth in Exhibit C, the
Stipulated Loss Value percentages set forth in Exhibit B-1 and the
Termination Value percentages set forth in
SALE AND LEASE AGREEMENT [N396SW]
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Exhibit B-2 shall be recalculated by Owner Participant (i) in the case
of a recalculation pursuant to clause (a) or (c), prior to ▇▇▇▇▇ ▇,
▇▇▇▇, (▇▇) in the case of a recalculation pursuant to clause (b), on
or prior to the later of April 3, 1997 and the second Rent Payment
Date next following the relevant Refinancing Date or Section 18
Refinancing Date, as the case may be, (iii) in the case of a
recalculation pursuant to clause (d), prior to the relevant
Refinancing Date or Section 18 Refinancing Date, as the case may be,
(iv) in the case of a recalculation pursuant to clause (e), prior to
the Rent Payment Date next following (by at least five Business Days)
the event described in clause (e), or (v) in the case of a
recalculation pursuant to clause (f), prior to the first Rent Payment
Date, in each case in order to: (A) maintain Net Economic Return and
(B) minimize the Net Present Value of Rents to the extent possible
consistent with clause (A). In addition, in the event of an
adjustment pursuant to this Section 3.7, the Special Purchase Price
(including any installments thereof) shall be recalculated in
accordance with the terms of Section 18.2(b).
3.7.2 Recalculation Procedures. Any recalculation of Basic
Rent, Stipulated Loss Value and Termination Value percentages and the
Special Purchase Price pursuant to this Section 3.7 shall be
determined by Owner Participant, and shall be subject to the
verification of Lessee and its advisors. Such recalculated Basic
Rent, Stipulated Loss Value and Termination Value percentages and
Special Purchase Price (including installments thereof) shall be set
forth in a Lease Supplement and, in the case of Basic Rent, shall
become effective as of the next succeeding Rent Payment Date and, in
the case of Stipulated Loss Value, Termination Value and the Special
Purchase Price, shall be retroactive to the inception of this Lease.
Such recalculated Basic Rent and, if applicable, the Special Purchase
Price shall be determined so as to conform, in the opinion of Owner
Participant's tax counsel, to all applicable tax constraints and
requirements, including the requirements of Section 467 of the Code
and Sections 4.(1)(B), 4.(6) and 5. of Revenue Procedure 75-21, 75-1
Cum. Bull. 715; provided, however, that notwithstanding the foregoing,
all adjustments provided for herein shall be based on the same
calculation methods and assumptions (including tax assumptions set
forth in Section 2 of the Tax Indemnity Agreement) as were used
initially by the Owner Participant in determining Basic Rent,
Stipulated Loss Values, Termination Values and the Special Purchase
Price for the Aircraft (except and only to the extent such assumptions
are required to be changed by virtue of the event giving rise to the
adjustment or any event giving rise to any prior adjustments pursuant
to the terms of this Lease) and shall take into account the amount and
timing of any contribution made by the Owner Participant to the Estate
subsequent to the Delivery Date. If, upon verification of the
percentages determined by Owner Participant pursuant to this Section
3.7, Lessee does not agree with the determination of Owner
Participant, then an independent accounting firm, to be selected by
Owner Participant and reasonably acceptable to Lessee, shall verify
the computations. Such accounting firm shall be requested to make its
determination within 30 days. Owner Participant shall provide to such
accounting firm such information as it may reasonably require,
including a description of the methodology of the calculations used in
computing such adjustments
SALE AND LEASE AGREEMENT [N396SW]
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and such other information as is necessary to determine whether the
computations are mathematically accurate. The accounting firm shall
hold in strict confidence such methodology and other information. The
computations of Owner Participant or the accounting firm selected as
provided above, whichever is applicable, shall be final, binding and
conclusive upon Lessee and Lessor, and Lessee shall have no right to
inspect the books, records, tax returns or other documents of or
relating to Owner Participant to verify such computations or for any
other purpose in connection with such adjustments. All fees and
expenses payable to the accounting firm selected above under this
Section 3.7.2 shall be borne by Lessee, except that such fees and
expenses shall be payable by Owner Participant if the computations
provided by Owner Participant are higher than those provided by the
accounting firm and the computations of such accounting firm causes
the present value of the Basic Rent (utilizing a semi-annual discount
rate that, on an annual basis, is equal to 8.60%) as computed by Owner
Participant to decrease by ten basis points or more.
Section 3.8 Certain Advances; Reimbursement Thereof. If and to
the extent that the Indenture Trustee shall not have received (i) the Deferred
Equity Amount on the Deferred Equity Date, or such amount is insufficient to
pay all principal and interest on the Certificates due on such date, or (ii)
the payment to be made by the Owner Trustee pursuant to clause (5) of Section
18(a) of the Participation Agreement on the Section 18 Refinancing Date, or the
amount of such payment is insufficient to pay the Break Amount and all accrued
and unpaid interest on the Certificates, then Lessee shall pay to the Indenture
Trustee on behalf of the Owner Participant or the Owner Trustee, as the case
may be, on the Deferred Equity Date or the Section 18 Refinancing Date, as the
case may be, an amount equal to all amounts payable as principal or interest on
the Certificates on the Deferred Equity Date and/or as Break Amount and all
accrued and unpaid interest on the Certificates on the Section 18 Refinancing
Date, as the case may be, less any portion of either such amount so paid by the
Owner Participant or the Owner Trustee, as the case may be (such amount herein
referred to as an "Advance"). In the event Lessee makes any Advance pursuant
to this Section 3.8, then, notwithstanding any provision to the contrary herein
or in any other Operative Agreement, Lessee shall be entitled to demand
immediate repayment of such Advance from the Owner Participant to the extent of
the portion thereof that relates to a payment that the Owner Participant or
Owner Trustee failed to make as required by Section 8(dd) or 18(a)(5A) of the
Participation Agreement, and, in addition, shall be entitled to offset and
deduct (without duplication) against each succeeding payment (other than as
limited by the provisos to this sentence) due from Lessee to Persons other than
the Holders, the Indenture Trustee and Lessor in its individual capacity
(including, without limitation, Basic Rent, payments due under Sections 5, 9,
10, 15 and 18 hereof, and payments due to Persons other than the Holders, the
Indenture Trustee and Lessor in its individual capacity under Section 7 of the
Participation Agreement) the amounts (including interest at the rates provided
therein) due and owing by the Owner Participant to Lessee under Section 8(dd)
of the Participation Agreement until Lessee has been fully reimbursed for such
amounts; provided, that in the case of any payment due from Lessee which is
distributable under the terms of the Trust Indenture, Lessee's right of offset
and deduction shall be limited to amounts distributable to Lessor or the Owner
Participant
SALE AND LEASE AGREEMENT [N396SW]
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thereunder (and shall not include any amounts distributable to the Indenture
Trustee or the Holders); and provided, further, that in no event shall any such
offset or aggregate combined effect of separate offsets reduce the amount of
(i) any installment of Basic Rent to an amount that is insufficient to pay in
full the scheduled payments then required to be made on account of the
Certificates then Outstanding or (ii) any payment of Stipulated Loss Value,
Termination Value or Special Purchase Price (or installment thereof) to an
amount that, together with any other amounts then required to be paid by Lessee
hereunder in connection therewith, is insufficient to pay in full as of the
date of payment thereof, the aggregate unpaid principal of the Outstanding
Certificates, together with all unpaid interest, Premium (if any) and Break
Amount (if any) thereon. Notwithstanding any provision of this Section 3.8 to
the contrary, Lessee's obligation to make any Advance shall terminate at such
time as its obligation to pay Basic Rent terminates under this Lease (other
than by reason of a Lease Event of Default).
Section 4. Lessor's Representations and Warranties; DISCLAIMER;
Certain Agreements of Lessee.
4.1 Lessor's Representations and Warranties; DISCLAIMER. LESSEE
EXPRESSLY AGREES TO TAKE THE AIRCRAFT "AS IS", AND LESSEE HAS SELECTED THE
AIRCRAFT AND THE MANUFACTURER THEREOF (AND EACH PORTION THEREOF) AND ALL
MAINTENANCE FACILITIES REQUIRED FOR THE AIRCRAFT OR HEREUNDER. NEITHER LESSOR
(INDIVIDUALLY OR AS OWNER TRUSTEE) NOR THE INDENTURE TRUSTEE (INDIVIDUALLY OR
AS INDENTURE TRUSTEE) NOR ANY PARTICIPANT MAKES, HAS MADE OR SHALL BE DEEMED TO
HAVE MADE, AND EACH HEREBY EXPRESSLY DISCLAIMS (OR, IF NOT A PARTY HERETO SHALL
BE DEEMED TO HAVE EXPRESSLY DISCLAIMED), ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, VALUE, CONDITION, DESIGN,
OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF THE AIRCRAFT OR ANY PART
THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR
COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT,
OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, except that Shawmut Bank
Connecticut, National Association, in its individual capacity (i) represents
and warrants that on the Delivery Date Lessor shall have received whatever
title thereto as was conveyed to it by the Lessee, (ii) represents and warrants
that on the Delivery Date the Aircraft shall be free of Lessor Liens
attributable to it, (iii) agrees that it will not directly or indirectly
create, incur, assume or suffer to exist any Lessor Lien attributable to it on
or with respect to the Airframe or any Engine or any other portion of the
Estate, and (iv) represents and warrants that it is a "citizen of the United
States" as defined in the Act. Lessor covenants that during the Term (so long
as no Lease Event of Default shall have occurred and be continuing) it will
not, through its own actions or breaches of any of its obligations under the
Operative Agreements, interfere in the quiet enjoyment of the Aircraft by
Lessee or any Permitted Sublessee.
SALE AND LEASE AGREEMENT [N396SW]
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Nothing in this Section 4.1 shall be deemed to modify or otherwise
affect the respective rights and obligations of Lessee and of Manufacturer
under the Purchase Agreement.
4.2 Certain Agreements of Lessee. All obligations of Lessee in
this Lease shall be done, performed or complied with at Lessee's cost and
expense, whether or not so expressed, unless otherwise expressly stated.
Lessee hereby agrees with Lessor for the benefit of the Participants that it
shall perform the agreements, covenants and indemnities set forth in the
Participation Agreement (including, without limitation, Sections 7(b) and 7(c)
of the Participation Agreement) which are incorporated herein, and hereby
restates Lessee's representations and warranties set forth in the Participation
Agreement and the Tax Indemnity Agreement, as fully and to the same extent and
with the same force and effect as if set forth in full in this Section 4.2.
Section 5. Return of Aircraft.
5.1 General Condition upon Return. Unless purchased by Lessee
pursuant to Section 18.2, and subject to Section 10, upon the expiration or
termination of this Lease, Lessee will return the Aircraft to Lessor by
delivering the same at any location in the continental United States at which
Lessee has maintenance facilities (and Section 5.7 shall apply). Lessee shall
give Lessor not less than 15 days prior notice of the return location. All
costs associated with the return flight shall be for the account of Lessee. At
the time of such return, the Airframe and Engines or engines installed thereon:
5.1.1 Airworthiness. Subject to the exception described in
clause (iii) of Section 8.1.1, shall be duly certificated as an
airworthy aircraft by the FAA under Part 121 of the Federal Aviation
Regulations or any successor provision; provided, that Lessee's
ability to satisfy such return condition shall not preclude the
occurrence of an Event of Loss pursuant to clause (iv) of the
definition thereof;
5.1.2 Free of Liens. Shall be free and clear of all Liens
(except Lessor Liens);
5.1.3 Operating Configuration and Condition. Shall be in a
configuration suitable for operation in regularly scheduled commercial
airline passenger service in the United States and shall be in as good
operating condition as when delivered new to Lessee by Manufacturer,
ordinary wear and tear excepted or, in the case of any such engines
not owned by Lessor, shall have a value, utility, airworthiness and
remaining useful life at least equal to, and shall be in as good
operating condition as required by the terms hereof with respect to,
Engines constituting part of the Aircraft but not then installed on
the Airframe. All Lessee or Permitted Sublessee exterior markings, as
the case may be, shall have been painted over in matching exterior
colors. In addition, any appliance, part, instrument, appurtenance,
accessory, furnishing or other equipment leased by Lessee from a third
party (other than Lessor) and incorporated in the Aircraft shall be
removed prior to the date of such return without any damage to the
Aircraft and without diminishing or impairing the value, utility,
remaining useful life or condition
SALE AND LEASE AGREEMENT [N396SW]
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which the Aircraft would have had at such time had such equipment not
been installed, and Lessee shall make all repairs which are required
as a result of such removal;
5.1.4 Cleanliness and Operability. Shall be clean by
United States commercial airline operating standards with all systems
and components operable; and
5.1.5 Parts and Equipment. Shall have installed thereon
all Engines and Parts installed thereon at the commencement of the
Term therefor or replacements therefor made in accordance with the
terms of this Lease.
5.2 Return of Other Engines. In the event that any engine not
owned by Lessor shall be installed on the Airframe returned in accordance with
Section 5.1, such engine shall be a CFM International Model CFM56-3-B1 engine
(or an improved model engine manufactured by Engine Manufacturer, or an engine
of another manufacturer of at least equivalent utility, value, airworthiness
and remaining useful life in each case suitable for installation and use on the
Airframe and fully compatible with the other Engine or engine installed on the
Airframe). At the time of such replacement, such engine shall have performance
and durability characteristics and a value, condition, utility, airworthiness
and remaining useful life at least equal to the Engine it replaced hereunder,
assuming such Engine was maintained in accordance with the requirements of this
Lease, and at the time the Airframe is returned shall fully comply with all the
requirements of this Lease, including this Section 5, which are applicable to
Engines. Upon return of the Aircraft, Lessee shall duly convey to Lessor good
title to any such replacement engine, free and clear of (i) all rights of third
parties under any arrangement, including pooling, interchange, overhaul, repair
or other similar agreements or arrangements and (ii) Liens other than Lessor
Liens; and, upon such conveyance and as a condition thereto, Lessee will (a)
furnish Lessor with a full warranty (as to title) ▇▇▇▇ of sale, in form and
substance reasonably satisfactory to Lessor, with respect to each such
replacement engine, together with an opinion of counsel to the effect that such
▇▇▇▇ of sale has been duly authorized and delivered and is enforceable in
accordance with its terms and that each such replacement engine is free and
clear of all Liens other than Lessor Liens, and (b) take such other action as
Lessor may reasonably request in order that title to such replacement engine
may be duly and properly vested in Lessor to the same extent as the Engine
replaced thereby. Upon compliance by Lessee with the foregoing, Lessor will,
so long as no Lease Event of Default has occurred and is continuing, comply
with the applicable provisions of the Trust Indenture and, upon Indenture
Trustee's release of the Engine from the Lien of the Trust Indenture Estate,
Transfer to Lessee any Engine not installed on the Airframe at the time of
return.
5.3 Return at End of Base Lease Term or Renewal Lease Term. Upon
return of the Aircraft at the expiration or termination of this Lease, Lessee
shall have caused all FAA Airworthiness Directives applicable to the Aircraft
and all mandatory service bulletins from Manufacturer, Engine Manufacturer or
other manufacturer of an engine then installed on the Airframe (in compliance
with Section 5.2) applicable to the Aircraft to have been complied with (except
for any such FAA Airworthiness Directives and bulletins that permit compliance
after the return date and would not, in the normal course of the Maintenance
Program, be complied
SALE AND LEASE AGREEMENT [N396SW]
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with on or prior to the return date). Lessee shall have treated the Aircraft,
including without limitation with respect to maintenance, additions and
modifications (including compliance with FAA Airworthiness Directives), during
the Term similarly to all other Boeing 737-300 aircraft in its fleet, without
in any way discriminating against the Aircraft, whether by reason of its leased
status or otherwise.
In the event that Lessee (or any Permitted Sublessee then in
possession of the Aircraft) shall not then be using a continuous or
"progressive" maintenance program with respect to the Airframe, Lessee agrees
that at the time of such return, the Airframe shall have remaining until the
next scheduled "C" check (which term, as used in this paragraph, shall include
a "C" check and any other check equivalent thereto) at least 50% of the
allowable hours between "C" checks permitted under the Maintenance Program then
used by Lessee (or such Permitted Sublessee, as the case may be), and the
condition set forth in Appendix A shall have been satisfied. In the event that
Lessee (or any Permitted Sublessee then in possession of the Aircraft) shall
then be using a continuous or "progressive" maintenance program with respect to
the Airframe, then the Airframe shall be current on such program. If the
conditions set forth in the first sentence of this paragraph shall be
applicable to the Airframe but shall not have been met at the time of such
return, Lessee shall perform (or cause to be performed) all maintenance work
necessary to meet such conditions or, if Lessee shall so elect, Lessee shall
pay or cause to be paid to Lessor an amount computed by multiplying (i) the
current market cost of a "C" check by (ii) a fraction of which (x) the
numerator shall be the excess of 50% of hours of operation allowable between
such "C" checks over the actual number of hours of operation remaining on the
Airframe to the next such "C" check, and (y) the denominator shall be the
number of hours of operation allowable between such "C" check in accordance
with such Maintenance Program.
Lessee further agrees that, whether or not the then-current engine
maintenance program is on-condition, the number of hours or cycles of operation
(whichever shall be applicable under the Maintenance Program then in use with
respect to such Engines or engines) on such Engines or engines remaining until
the next scheduled engine refurbishment shall be at least 3,000 allowable hours
or cycles (whichever shall be applicable), in the aggregate for both Engines or
engines; provided, that each life-limited Part within each Engine or engine
shall have a minimum of 1,200 allowable hours or cycles (whichever shall be
applicable) remaining until its next required replacement. If, at the time of
such return, the Engines or engines do not meet the aggregate 3,000 hour
condition specified in the previous sentence, Lessee shall perform (or cause to
be performed) all maintenance work necessary to meet such conditions or, if
Lessee shall so elect, Lessee shall pay or cause to be paid to Lessor an amount
computed by multiplying (i) the current market cost of performing for an engine
of the same model as such Engines or engines the scheduled engine refurbishment
under the Maintenance Program then used by Lessee (or such Permitted Sublessee,
as the case may be) for engines of such model by (ii) a fraction of which (x)
the numerator shall be the excess of 3,000 hours or cycles (whichever is
applicable) over the aggregate number of hours or cycles of operation on such
Engines or engines remaining until the next scheduled engine refurbishment, and
(y) the denominator shall be the number of hours or cycles allowable between
such scheduled engine refurbishments. If, at the time of such return, any
life-limited Part within such Engine or engine does not meet the
SALE AND LEASE AGREEMENT [N396SW]
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1,200 hour condition specified in the first sentence of this paragraph, Lessee
shall perform (or cause to be performed) all maintenance work necessary to meet
such conditions or, if Lessee shall so elect, Lessee shall pay or cause to be
paid to Lessor an amount computed by multiplying (i) the current market cost of
replacing such life-limited Part by (ii) a fraction of which (x) the numerator
shall be the excess of 1,200 hours or cycles (whichever is applicable) over the
number of remaining hours or cycles (whichever is applicable) of operation of
such life-limited Part, and (y) the denominator shall be the total number of
hours or cycles allowable on such life-limited Part.
5.4 Manuals; Service Bulletins, Etc. Upon return of the Aircraft
at the expiration or termination of this Lease, Lessee shall deliver or cause
to be delivered to Lessor all logs, manuals, drawings and data and inspection,
modification and overhaul records in respect of the Aircraft required to be
maintained under applicable rules and regulations of the FAA, updated through
the date of return (collectively, "Records"). All "no-charge" service bulletin
kits received by or on behalf of Lessee from Manufacturer, Engine Manufacturer
or vendors for the Aircraft and Engines or engines and not incorporated therein
shall be returned at no charge to Lessor as cargo on board the Aircraft at the
time of its return. At the time the Aircraft is returned, Lessor shall have
the option to purchase from Lessee, at Lessee's cost therefor, any "charge"
service bulletin kits purchased by Lessee which have not been incorporated in
the Aircraft. All such items shall thereupon become the property of Lessor.
5.5 Failure to Return Aircraft or Engines. If Lessee shall, for
any reason whatsoever, fail to return the Aircraft or any Engine at the time
specified herein, the obligations of Lessee as provided in this Lease
(including the obligation to pay Rent on the same basis as that applicable
immediately prior to such failure) shall continue in effect with respect to the
Aircraft or such Engine until the Aircraft or such Engine is returned to
Lessor; but this Section 5.5 shall not be construed as permitting Lessee to
fail to meet its obligation to return the Aircraft or such Engine in accordance
with the requirements of this Lease or constitute a waiver of a Lease Event of
Default.
5.6 Aid in Disposition. Lessee agrees that, unless Lessee shall
have elected to purchase the Aircraft pursuant to Section 18.2, during the last
six months of the Term it will cooperate in all reasonable respects with any
efforts of Lessor to lease or sell the Aircraft, including without limitation
(subject to the provisions of Section 12) permitting potential lessees or
purchasers to inspect the Aircraft and the records relating thereto.
5.7 Storage upon Return. Upon written request of Lessor or Owner
Participant received by Lessee at least 10 days prior to its return of the
Aircraft at the expiration or termination of this Lease, Lessee will attempt to
arrange for parking facilities for the Aircraft for a period not exceeding 60
days following return thereof by Lessee at the location of return pursuant to
Section 5.1; and Lessor shall bear or reimburse Lessee for Lessee's
out-of-pocket expenses of such storage (including maintenance and insurance
expenses).
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Section 6. Liens. Lessee will not directly or indirectly
create, incur, assume or suffer to exist any Lien on or with respect to the
Aircraft, the Airframe or any Engine, title thereto or any interest therein or
in this Lease except: (a) the respective rights of the parties to the
Operative Agreements; (b) the rights of others under agreements or arrangements
to the extent expressly permitted by the terms of Sections 7.2 and 8.3; (c)
Lessor Liens; (d) Liens for taxes, assessments or other governmental charges
either not yet due or being contested in good faith (and for the payment of
which adequate reserves have been provided in accordance with generally
accepted accounting principles) by appropriate proceedings so long as such
proceedings do not involve any material danger of the sale, forfeiture, loss or
loss of use of the Aircraft, the Airframe or any Engine or any interest
therein; (e) materialmen's, mechanics', workers', repairers', employees' or
other like Liens arising in the ordinary course of business for amounts the
payment of which is either not yet due or not overdue for a period of more than
60 days or is being contested in good faith (and for the payment of which
adequate reserves have been provided in accordance with generally accepted
accounting principles) by appropriate proceedings so long as such Liens do not
involve any material danger of the sale, forfeiture, loss or loss of use of the
Aircraft, the Airframe or any Engine or any interest therein; (f) Liens arising
out of any judgment or award against Lessee, unless the judgment secured shall
not, within 45 days after entry thereof, have been discharged or vacated or
execution thereof stayed pending appeal or shall not have been discharged,
vacated or reversed within 45 days after the expiration of such stay; and (g)
any other Lien with respect to which Lessee shall have provided a bond or other
security adequate in the reasonable judgment of Lessor. Lessee will promptly
take (or cause to be taken) such action at its own expense as may be necessary
duly to discharge any such Lien not excepted above if the same shall arise at
any time.
Section 7. Registration, Operation, Possession, Subleasing and
Records.
7.1 Registration and Operation.
7.1.1 Registration. Lessee shall forthwith upon the
delivery of the Aircraft hereunder cause the Aircraft to be duly
registered and at all times thereafter to remain duly registered in
the name of Lessor with the FAA pursuant to and as permitted by the
Act (it being understood that Lessee shall not be required to comply
with this covenant to the extent that Shawmut Bank Connecticut,
National Association's or Owner Participant's failure to comply with
its covenant set forth in Section 8(b) of the Participation Agreement
with regard to its citizenship makes such compliance by Lessee
impossible).
7.1.2 Nameplate. Lessee agrees to affix within 10 days of
the Delivery Date and thereafter to maintain in the cockpit of the
Airframe adjacent to the airworthiness certificate and on each Engine
a nameplate bearing the inscription "OWNED BY AND LEASED FROM SHAWMUT
BANK CONNECTICUT, NATIONAL ASSOCIATION, AS OWNER TRUSTEE, OWNER AND
LESSOR" and, so long as the Trust Indenture shall be in effect,
"SUBJECT TO A SECURITY INTEREST IN FAVOR OF WILMINGTON TRUST COMPANY,
AS INDENTURE TRUSTEE" (such nameplate to be replaced promptly, if
necessary, with a nameplate reflecting the name of any
SALE AND LEASE AGREEMENT [N396SW]
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successor Lessor or successor Indenture Trustee). Except as above
provided, Lessee will not allow the name of any person, association or
corporation to be placed on the Airframe or on any Engine as a
designation that might be interpreted as a claim of ownership;
provided, that nothing herein contained shall prohibit Lessee (or any
Permitted Sublessee) from placing its customary colors and insignia on
the Airframe or any Engine or displaying information concerning the
registration or manufacture of the Aircraft, the Airframe, any Engine
or Part.
7.1.3 Compliance with Laws. Lessee agrees that it will not
use or operate the Aircraft, the Airframe or any Engine in violation
of any law or any rule, regulation or order of any government or
governmental authority having jurisdiction (domestic or foreign) or in
violation of any airworthiness certificate, license or registration
relating to the Aircraft, the Airframe or any Engine issued by any
such authority, except to the extent Lessee is contesting in good
faith the validity or application of any such law, rule, regulation or
order in any reasonable manner which does not materially adversely
affect the Owner Participant or Lessor's title to or interest in the
Aircraft (but subject in any event to Section 5).
7.1.4 Insurance Requirements; Government Requisition;
Indemnity. Lessee agrees not to operate, use or locate the Aircraft,
the Airframe or any Engine, or permit any Permitted Sublessee to
operate, use or locate the Aircraft, the Airframe or any Engine, (i)
in any area excluded from coverage by any insurance required by the
terms of Section 11, except in the case of a requisition by the
Government where Lessee obtains indemnity (backed by the full faith
and credit of the United States of America) in lieu of such insurance
from the Government against the risks and in the amounts required by
Section 11 covering such area, or (ii) in any area where maintenance
of war-risk insurance is required by Section 11 unless fully covered
by war-risk insurance satisfying the terms of Section 11, or unless
the Aircraft, the Airframe or such Engine is operated or used under
contract with the Government under which contract the Government
assumes liability (backed by the full faith and credit of the United
States of America) in an amount not less than the amount of insurance
otherwise required by Section 11 for any damage, loss, destruction or
failure to return possession of the Aircraft, the Airframe or such
Engine at the end of the term of such contract or for injury to
persons or damage to property of others, or (iii) in any area referred
to in subclause 3(iv) immediately following Section 7.2.8.
7.2 Possession. Lessee will not, without the prior written
consent of Lessor, sublease or otherwise in any manner deliver, transfer or
relinquish possession of the Aircraft, the Airframe or any Engine or install
any Engine, or permit any Engine to be installed, on any airframe other than
the Airframe; provided, however, that so long as no Lease Default (of the type
described in Section 14.1 or 14.5) or Lease Event of Default shall have
occurred and be continuing, and so long as Lessee shall comply with the
provisions of Section 11, and all FAA approvals required for such purposes have
been obtained, Lessee may, without such prior written consent:
SALE AND LEASE AGREEMENT [N396SW]
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7.2.1 Interchange and Pooling. Subject or permit any
Permitted Sublessee to subject (i) the Aircraft, Airframe or any
Engine to normal interchange agreements customary in the airline
industry and entered into by Lessee or such Permitted Sublessee in the
ordinary course of its business with, in the case of the Airframe, a
U.S. Air Carrier or a Permitted Foreign Air Carrier, in either case
that is not then subject to bankruptcy or similar proceedings, and
(ii) any Engine to pooling agreements or arrangements customary in the
United States domestic commercial airline industry and entered into by
Lessee or such Permitted Sublessee in the ordinary course of its
business; but in either case (A) no transfer of the registration of
the Airframe or any Engine shall be effected in connection therewith
and the terms of this Lease and the Participation Agreement shall be
observed and (B) no such agreement or arrangement shall contemplate or
require the transfer of title to the Aircraft, Airframe or any Engine
and if Lessor's title to any Engine shall be divested under any such
agreement or arrangement, such divestiture shall be deemed to be an
Event of Loss with respect thereto and Lessee shall comply with
Section 10.2 hereof;
7.2.2 Testing and Service. Deliver or permit any Permitted
Sublessee to deliver possession of the Aircraft, Airframe or any
Engine or Part, to the manufacturer thereof for testing or other
similar purposes, or to any organization for service, repair,
maintenance or overhaul work on the Aircraft, Airframe or any Engine
or Part, or for alterations or modifications in or additions to the
Aircraft, Airframe or any Engine to the extent required or permitted
by the terms of Section 8.4;
7.2.3 Civil Reserve Air Fleet Program. Transfer or permit
any Permitted Sublessee, if required by law to do so, to transfer
possession of the Aircraft, Airframe or any Engine to the Government
pursuant to the Civil Reserve Air Fleet Program or any similar or
substitute programs, so long as such transfer of possession does not
continue beyond the end of the Term and so long as Lessee shall (A)
promptly notify Lessor upon subjecting the Airframe or any Engine to
such program and provide Lessor with the name and address of the
appropriate party to whom notice must be given in connection with any
repossession of the Aircraft under Section 15.1.1, and (B) promptly
notify Lessor upon transferring possession of the Airframe or any
Engine to the Government pursuant to such program;
7.2.4 Installation of Engines. Install or permit any
Permitted Sublessee to install an Engine on an airframe owned by
Lessee or such Permitted Sublessee, as the case may be, free and clear
of all Liens, except (A) Permitted Liens and those which apply only to
the engines (other than Engines), appliances, parts, instruments,
appurtenances, accessories, furnishings and other equipment (other
than Parts) installed on such airframe (but not to the airframe as an
entirety), (B) the rights of air carriers under normal interchange
agreements which are customary in the airline industry and do not
contemplate, permit or require the transfer of title to the airframe
or engines installed thereon, and (C) mortgage liens or other security
interests, provided, that (as regards this clause (C)) such mortgage
liens or other security interests effectively provide
SALE AND LEASE AGREEMENT [N396SW]
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that such Engine shall not become subject to the lien of such mortgage
or security interest, notwithstanding the installation thereof on such
airframe, unless and until Lessee shall become the owner of such
Engine;
7.2.5 Installation of Engines on Other Airframes. Install
or permit any Permitted Sublessee to install an Engine on an airframe
leased to, or purchased by, Lessee or any Permitted Sublessee subject
to a lease, conditional sale, trust indenture or other security
agreement, but only if (A) such airframe is free and clear of all
Liens, except the rights of the parties to the lease, conditional
sale, trust indenture or other security agreement covering such
airframe, or their successors or assigns, and except Liens of the type
permitted by clauses (A) and (B) of Section 7.2.4, and (B) the lease,
conditional sale, trust indenture or other security agreement covering
such airframe effectively provides that such Engine will not become
subject to the Lien thereof at any time while such Engine is subject
to this Lease, notwithstanding the installation thereof on such
airframe;
7.2.6 Pooling of Parts. To the extent permitted by Section
8.3, subject any Parts owned by Lessor and removed from the Airframe
or any Engine to any pooling arrangement referred to in Section 8.3;
7.2.7 Wet Lease. Enter into a Wet Lease for the Airframe
and Engines or engines then installed thereon with any third party for
a term not to continue beyond the Term;
7.2.8 Sublease to Permitted Air Carriers. So long as the
proposed sublessee is not subject to a proceeding or final order under
applicable bankruptcy, insolvency or reorganization laws on the date
the sublease is entered into, enter into a sublease of the Aircraft,
or the Airframe and Engines or engines then installed on the Airframe,
or any Engine, for use on the sublessee's regularly scheduled or
charter routes, with any U.S. Air Carrier or Permitted Foreign Air
Carrier, in any such case for a term not to continue beyond the
remaining Term.
Provided, further, with respect to this Section 7.2, that:
(1) the rights of any transferee who receives
possession by reason of a transfer permitted by this Section
7.2 (other than the transfer of an Engine which is deemed an
Event of Loss) shall be effectively subject and subordinate
to, and any sublease permitted by this Section 7.2 shall be
made expressly subject and subordinate to, all the terms of
this Lease and the Lien of the Trust Indenture, and to
Lessor's rights, powers and remedies under this Lease,
including the rights to repossession pursuant to Section 15
and to terminate and avoid such sublease upon such
repossession and to require such sublessee to forthwith
deliver the Aircraft, Airframe and Engines subject to such
sublease upon such repossession;
SALE AND LEASE AGREEMENT [N396SW]
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(2) Lessee shall remain primarily liable
hereunder for the performance of all the terms of this Lease
(including, without limitation, the payment of Supplemental
Rent representing any indemnities payable as a result of acts
or circumstances respecting a sublease or a sublessee's
operation of the Aircraft) to the same extent as if such
sublease, transfer or relinquishment of possession had not
occurred (it being understood that, without limitation of the
foregoing, any standards established under this Lease with
reference to Lessee's practices respecting other aircraft
owned or operated by it shall continue to refer to such
practices of Lessee rather than of any transferee); provided,
that performance of any such terms by any Permitted Sublessee
shall be as effective, for purposes of this Lease, as
performance thereof directly by Lessee;
(3) any such sublease shall (i) be consistent
with the requirements of this Lease and the applicable
requirements of the Participation Agreement, (ii) include
appropriate provisions for the continued maintenance in
accordance with applicable maintenance standards in the
appropriate jurisdiction, operation, insurance (appropriate
certificates as to which shall be furnished to Lessor and
Indenture Trustee prior to Lessee's entry into any such
sublease with any Permitted Foreign Air Carrier or within 10
days thereafter) and return of the subleased property as
required hereunder, (iii) provide that the sublessee may not
assign or further sublease the Aircraft, (iv) provide that the
Aircraft may not be operated into a country with which the
United States does not maintain diplomatic relations or in
which there is open warfare, whether or not declared, (v) not
provide for sublease rentals to be prepaid or assigned to a
third party; provided, however, that (x) up to six months'
rentals may be prepaid to Lessee and (y) this clause (v) shall
not preclude Lessee's establishing and holding appropriate
reserves for any obligations arising under such sublease, and
(vi) not require the sublessee to purchase the Aircraft or
grant the sublessee any purchase options, or any options for
the renewal of such sublease for a term beyond the Base Lease
Term, in each case on dates other than, or at amounts less
than, corresponding options granted to Lessee hereunder;
(4) no interchange agreement, transfer, sublease
or other relinquishment of possession permitted hereunder
shall affect the registration of the Aircraft or shall permit
any action not permitted to Lessee in this Lease; and
(5) no such interchange agreement, sublease,
transfer or other relinquishment of possession of the
Aircraft, Airframe or any Engine shall in any way discharge or
diminish any of Lessee's obligations to Lessor hereunder or
under any other Operative Agreement or constitute a waiver of
Lessor's rights or remedies hereunder or under any other
Operative Agreement.
Lessee shall notify Lessor within 10 days after the commencement of
any sublease permitted hereunder and shall deliver to Lessor within such period
a duly executed copy of any
SALE AND LEASE AGREEMENT [N396SW]
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sublease or interchange or pooling agreement permitted hereunder. Upon request
of Lessor, Lessee shall promptly duly execute and deliver to Lessor an
assignment of any such sublease having a term in excess of 12 months in favor
of Lessor in form and substance reasonably satisfactory to Lessor. Lessor
hereby agrees, for the benefit of Lessee (and any Permitted Sublessee) and for
the benefit of each lessor, conditional seller, indenture trustee or secured
party of any airframe or engine leased to or purchased by Lessee (or any
Permitted Sublessee) subject to a lease, conditional sale, trust indenture or
other security agreement, that Lessor will not acquire or claim, as against
such lessor, conditional seller, indenture trustee or secured party, or any
successor or assign thereof, any right, title or interest in any engine as the
result of such engine being installed on the Airframe at any time while such
engine is subject to such lease, conditional sale, trust indenture or other
security agreement and owned by such lessor or conditional seller or subject to
a trust indenture or security interest in favor of such indenture trustee or
secured party; provided, however, that such agreement of Lessor shall not be
for the benefit of any lessor or secured party of any airframe (other than the
Airframe) leased to Lessee (or any Permitted Sublessee) or purchased by Lessee
(or any Permitted Sublessee) subject to a conditional sale or other security
agreement or for the benefit of any mortgagee of or any other holder of a
security interest in an airframe owned by Lessee (or any Permitted Sublessee),
unless such lessor, conditional vendor, other secured party or mortgagee has
expressly agreed (which agreement may be contained in such lease, conditional
sale or other security agreement or mortgage) that neither it nor its
successors or assigns will acquire, as against Lessor, any right, title or
interest in an Engine as a result of such Engine being installed on such
airframe.
A consolidation, merger, conveyance, transfer, or lease permitted by
Section 11(f) of the Participation Agreement shall not be deemed to be a
transaction to which this Section 7.2 shall apply.
7.3 Records and Reports. Lessee shall:
7.3.1 Records. Maintain or cause to be maintained all
records, logs and other materials required by the FAA or any other
governmental authority having jurisdiction to be maintained in respect
of the Aircraft, the Airframe and each Engine;
7.3.2 Information and Reports. Upon request, promptly
furnish or cause to be furnished to Lessor (in sufficient number) such
information as may be required to enable Lessor or any Participant to
file any reports, including tax returns, required to be filed by
Lessor or such Participant with any governmental authority because of
Lessor's ownership of the Aircraft, Airframe or any Engine or because
of receipt of Rent or because of the interest of any Participant in
the Estate or Trust Indenture Estate; provided, however, that with
respect to any such information (other than with respect to income
taxes) which Lessee deems commercially sensitive or confidential, if
reasonably feasible, Lessor shall afford Lessee a reasonable
opportunity to seek from any such governmental authority a waiver of
Lessor's or such Participant's obligation to file any such information
or consent to the filing of such information directly by Lessee in
lieu
SALE AND LEASE AGREEMENT [N396SW]
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of filing by Lessor or such Participant and if any such waiver or
consent is evidenced to the reasonable satisfaction of Lessor, then
Lessee shall not be required to furnish such information to Lessor;
and
7.3.3 Financial Information. Promptly provide Lessor, the
Owner Participant, the Original Loan Participant and Indenture Trustee
with (i) such financial information concerning Lessee as is provided
from time to time to the public shareholders of Lessee, (ii) within 60
days after the end of each of the first three quarterly periods of
each fiscal year of Lessee, a consolidated balance sheet of Lessee and
its consolidated subsidiaries prepared by it as of the close of such
period, together with the related consolidated statements of income
for such period, (iii) within 120 days after the close of each fiscal
year of Lessee, a consolidated balance sheet of Lessee and its
consolidated subsidiaries as of the close of such fiscal year,
together with the related consolidated statements of income for such
fiscal year, as certified by independent public accountants, (iv)
promptly upon the sending, making available or filing of the same, all
such reports (other than reports on Form 11-K or similar forms) as
Lessee shall file with the Securities and Exchange Commission, and (v)
from time to time such other information as to its financial condition
as Lessor, Indenture Trustee or any Participant may reasonably
request. In addition, Lessee shall promptly notify Lessor, Indenture
Trustee, the Original Loan Participant and the Owner Participant after
a Responsible Company Officer of Lessee shall acquire knowledge of a
Lease Default or Lease Event of Default.
Section 8. Maintenance; Replacement and Pooling of Parts;
Alterations; Modifications and Additions.
8.1 Maintenance.
8.1.1 Maintenance Program. Lessee shall maintain, service,
repair, overhaul, alter, modify, add to and test (or cause to be
maintained, serviced, repaired, overhauled, altered, modified, added
to and tested) the Aircraft, the Airframe and each Engine, and each
other engine installed from time to time on the Airframe, in
accordance with Lessee's FAA-approved maintenance program for the
Aircraft, Airframe and Engines (the "Maintenance Program"), (i) so as
to keep the Aircraft, the Airframe and each Engine in as good
operating condition as when delivered new to Lessee by the
Manufacturer, ordinary wear and tear excepted, (ii) in the same manner
and with the same care as used by Lessee with similar aircraft owned
or operated by Lessee, without in any way discriminating against the
Aircraft, whether by reason of its leased status or otherwise, and
(iii) so as to keep the Aircraft, the Airframe and each Engine in such
condition as required to enable the FAA certificate of airworthiness
for the Aircraft to be maintained in good standing at all times under
the Act, except when all comparable Boeing Model 737-300 series
aircraft registered in the United States of America have been grounded
by the FAA other than as a result of actions taken or omitted to be
taken by Lessee (or, if a sublease is then in effect, any Permitted
Sublessee).
SALE AND LEASE AGREEMENT [N396SW]
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8.1.2 Compliance with Government Requirements. Lessee will
comply with all service, inspection, maintenance, repair and overhaul
regulations, directives and instructions which are made mandatory by
the FAA or other applicable government authority upon operators of
Boeing Model 737-300 series aircraft and CFM International Model
CFM56-3-B1 engines (or any different model Replacement Engine) and
which require compliance during the Term and prior to return of the
Aircraft under this Lease.
8.2 Replacement of Parts. Lessee, at its own cost and expense,
will promptly replace (or cause to be replaced) all Parts which may from time
to time be incorporated in the Aircraft, Airframe or any Engine and which may
from time to time become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use for
any reason whatsoever, except as otherwise provided in Section 8.4. In
addition, Lessee may, at its own cost and expense, remove in the ordinary
course of maintenance, service, repair, overhaul or testing any Parts, whether
or not worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond
repair or permanently rendered unfit for use; provided, however, Lessee, except
as otherwise provided in Section 8.4, at its own cost and expense, will replace
such Parts as promptly as possible. All replacement parts shall be free and
clear of all Liens (except for Permitted Liens and except in the case of
replacement property temporarily installed on an emergency basis) and shall be
in as good operating condition as, and shall have a value and utility at least
equal to, the Parts replaced assuming such replaced Parts were in the condition
and repair required to be maintained by the terms hereof. All Parts at any
time removed from the Aircraft, Airframe or any Engine shall remain the
property of Lessor, no matter where located, until such time as such Parts
shall be replaced by parts which have been incorporated in the Aircraft,
Airframe or such Engine and which meet the requirements for replacement parts
specified above. Immediately upon any replacement part becoming incorporated
in the Aircraft, Airframe or such Engine as above provided, without further
act, (i) unless the replacement property is temporarily installed on an
emergency basis, title to the replaced Part shall thereupon vest in Lessee free
and clear of all rights of Lessor, and the replaced Part shall no longer be
deemed a Part hereunder, (ii) title to such replacement part shall thereupon
vest in Lessor (subject only to Permitted Liens and except in the case of
replacement property temporarily installed on an emergency basis), and (iii)
such replacement part shall become a Part subject to this Lease and be deemed
part of the Aircraft, Airframe or such Engine for all purposes hereof to the
same extent as the Parts originally incorporated in such Aircraft, Airframe or
Engine.
8.3 Pooling of Parts. Any Part removed from the Aircraft,
Airframe or any Engine as provided in Section 8.2 may be subjected by Lessee
(or a Permitted Sublessee) to a normal pooling arrangement customary in the
airline industry entered into in the ordinary course of business of Lessee or
such Permitted Sublessee, so long as a part replacing such removed Part shall
be incorporated in the Aircraft, Airframe or such Engine in accordance with
Section 8.2 as promptly as practicable after the removal of such removed Part.
In addition, any replacement part when incorporated in the Aircraft, Airframe
or any Engine in accordance with Section 8.2 may be owned by any third party
subject to such a normal pooling arrangement, so long as Lessee (or any
Permitted Sublessee), at its own cost and expense, as promptly thereafter
SALE AND LEASE AGREEMENT [N396SW]
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as practicable either (i) causes title to such replacement part to vest in
Lessor in accordance with Section 8.2 by Lessee (or any Permitted Sublessee)
acquiring title thereto for the benefit of, and transferring such title to,
Lessor free and clear of all Liens (except Permitted Liens), or (ii) replaces
such replacement part by incorporating in the Aircraft, Airframe or such Engine
a further replacement part owned by Lessee (or any Permitted Sublessee) free
and clear of all Liens (except Permitted Liens) and by causing title to such
further replacement part to vest in Lessor in accordance with Section 8.2.
8.4 Alterations, Modifications and Additions.
8.4.1 Mandatory Alterations, Etc. Lessee shall make (or
cause to be made) such alterations and modifications in and additions
to the Aircraft, Airframe and each Engine as may be required from time
to time to meet the standards of the FAA or other governmental
authority having jurisdiction and to maintain the FAA certificate of
airworthiness for the Aircraft; provided, however, that, without
affecting in any manner Lessee's obligations in Section 7.1.3, Lessee
may contest in good faith the validity or application of any such law,
rule, regulation or order in any reasonable manner which does not
materially adversely affect the Owner Participant or Lessor's title to
or interest in the Aircraft. All alterations and modifications made
pursuant to this Section 8.4.1 shall be made at the cost and expense
of Lessee.
8.4.2 Voluntary Alterations, Etc. Lessee, at its own cost
and expense, may, from time to time make (or cause to be made),
subject to the standards set forth in Section 8.1.1, such alterations
and modifications in and additions to the Aircraft, Airframe or any
Engine as Lessee may deem desirable in the proper conduct of its
business, including, without limitation, removal of Parts which Lessee
deems obsolete or no longer suitable or appropriate for use in the
Aircraft, Airframe or such Engine; provided, however, that no such
alteration, modification, addition or removal shall diminish the
value, remaining useful life, or utility of the Aircraft, Airframe or
such Engine, or impair the condition or airworthiness thereof, below
the value, remaining useful life, utility, condition and airworthiness
thereof immediately prior to such alteration, modification or addition
assuming the Aircraft, Airframe or such Engine was then of the value
and utility and in the condition and airworthiness required to be
maintained by the terms of this Lease. Title to all parts
incorporated in the Aircraft, Airframe or such Engine as the result of
such alteration, modification or addition shall remain vested in
Lessee and Lessee may, at any time during the Term, remove any such
part if (i) such part is in addition to, and not in replacement of or
substitution for, any Part originally incorporated in the Aircraft,
Airframe or such Engine at the time of delivery thereof hereunder or
any Part in replacement of or substitution for any such Part, (ii)
such part is not required to be incorporated in the Aircraft, Airframe
or such Engine pursuant to the terms of this Section 8, (iii) such
part can be removed from the Aircraft, Airframe or such Engine without
diminishing or impairing the value, remaining useful life, utility,
condition or airworthiness required to be maintained by the terms of
this Lease which the Aircraft, Airframe or such Engine would have had
at such time had
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such alteration, modification or addition not occurred, and (iv) no
Lease Event of Default or Lease Default shall have occurred and be
continuing. Title to all other such parts shall, without further act,
vest in Lessor and shall constitute "Parts" for all purposes
hereunder. Upon the removal of any part title to which is retained by
Lessee, Lessee shall promptly repair any damage to the Airframe or
Engine from which it was removed which resulted from such removal and
such part shall no longer be deemed part of the Airframe or such
Engine from which it was removed. Any part not removed by Lessee as
above provided prior to the return of the Aircraft, Airframe or such
Engine to Lessor hereunder shall, without further act, vest in Lessor
and shall constitute a "Part" for all purposes hereunder.
Section 9. Voluntary Termination.
9.1 Right of Termination upon Obsolescence. So long as no Lease
Event of Default or Lease Default shall have occurred and be continuing, Lessee
shall have the right at its option to terminate this Lease with respect to the
Aircraft during the Base Lease Term on the first day of any month (a
"Termination Date") occurring on or after the seventh anniversary of the
Delivery Date on at least three months' prior written notice to Lessor, each
Participant and Indenture Trustee specifying a proposed Termination Date;
provided, that such notice shall also include copies of resolutions of Lessee's
board of directors stating that such board of directors has determined, in good
faith, that the Aircraft either has become economically obsolete or is surplus
to Lessee's requirements. Lessee may revoke any notice of termination referred
to in this Section 9.1 by notice to Lessor, each Participant and the Indenture
Trustee not less than 30 days prior to the proposed Termination Date, if Lessor
shall not have received a bid to purchase the Aircraft for at least the
Termination Value thereof pursuant to Section 9.2 and if Lessor shall not have
furnished to Lessee the notice referred to in Section 9.3, and upon doing so,
shall reimburse Lessor and Owner Participant on an after-tax basis for all
reasonable out-of-pocket expenses incurred by them in contemplation of such
termination; provided, however, that Lessee may so revoke a notice of
termination no more than three times during the Term.
9.2 Sale of Aircraft. Lessee, as agent for Lessor, shall, from
the date of such notice of termination until no more than 30 days' prior to the
proposed Termination Date specified by Lessee, use its reasonable best efforts
to obtain bids (in the worldwide market) for the cash purchase of the Aircraft
and Lessor may, if it desires to do so, seek to obtain such bids and may itself
bid to retain the Aircraft. In the event Lessee receives any bid, Lessee shall
within 30 days of receiving such bid (and in any event no later than 30 days
prior to the proposed Termination Date), certify to Lessor in writing the
amount and terms of such bid, and the name and address of the Person submitting
such bid (who shall not be Lessee, an Affiliate of Lessee or a Person who shall
be a party to any arrangement for the further use of the Aircraft by Lessee or
any of its Affiliates (in each case a "Prohibited Person")). In the event
Lessor receives any bid, Lessor shall, at least five Business Days prior to the
proposed Termination Date, certify to Lessee in writing the amount and terms of
such bid and the name and address of the Person submitting such bid. Subject
to Section 9.3, on the Termination Date, (a) Lessee shall deliver the Airframe
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and Engines or engines constituting part of the Aircraft to the bidder, if any,
which shall have submitted the highest cash bid (net of any brokerage
commissions) prior to such date, in the same manner as if delivery were made to
Lessor pursuant to Section 5 and in full compliance with the terms thereof, and
shall duly transfer to Lessor under a full warranty (as to title) ▇▇▇▇ of sale
title to any such engines not owned by Lessor, all in accordance with the terms
of Section 5, and (b) unless Lessor is the successful bidder, Lessor shall
simultaneously therewith Transfer the Airframe and Engines or engines to such
bidder for cash paid to Lessor in the manner and in funds of the type specified
in Section 3.6, provided that no purchaser shall be a Prohibited Person without
the Owner Participant's written consent. The total sales price realized at
such sale shall be paid to and retained by Indenture Trustee, so long as the
Trust Indenture remains in effect, and otherwise shall be paid to and retained
by Lessor and, in addition, on such Termination Date, and as a condition
precedent to such sale and the delivery of the Aircraft and Engines or engines
to such bidder, Lessee shall pay to Indenture Trustee, so long as the Trust
Indenture remains in effect, and otherwise to Lessor the sum of (i) the excess,
if any, of (A) the Termination Value for the Aircraft, computed as of such
Termination Date, over (B) the sales price of the Airframe and Engines or
engines sold (or if the winning bidder is Lessor, the amount of such bid) after
deducting the reasonable fees and expenses incurred by Lessor, Indenture
Trustee and the Participants, if any, in connection with such termination and
sale, (ii) all unpaid Basic Rent due on or prior to the TV Determination Date
with reference to which the Termination Value is computed (it being understood
and agreed that Lessee shall not be required to pay the portion, if any, of
such Basic Rent designated in Exhibit C hereto as payable in advance on such TV
Determination Date, unless attributable to accrued interest on the
Certificates), and (iii) (without duplication) all other amounts (including,
without limitation, Break Amount, if any, or Premium, if any) owing by Lessee
under this Lease or under any other Operative Agreement. Upon such payment,
Lessor will comply with Section 10.01 of the Trust Indenture and, upon
Indenture Trustee's release of such Engines from the Lien of the Trust
Indenture Estate, Transfer to Lessee any Engines constituting part of the
Aircraft but which were not then installed on the Airframe and sold therewith.
If no sale shall have occurred on or as of the Termination Date specified in
such notice of termination, this Lease shall continue in full force and effect,
no Lease Event of Default shall be deemed to have occurred, Lessee shall pay
the reasonable expenses incurred by Lessee, Lessor, each Participant and
Indenture Trustee in connection with the proposed sale, and Lessee shall have
the right at any time to submit another notice of termination pursuant to, and
subject to the terms of, Section 9.1. In the event of any such sale and
receipt by Lessor or Indenture Trustee, as appropriate, of such sale price and
other amounts as provided herein, and upon compliance by Lessee with the
provisions of this Section 9.2, the obligation of Lessee to pay Basic Rent due
after the TV Determination Date with reference to which the Termination Value
is computed shall cease and the Base Lease Term shall end effective as of the
date of such sale. Lessor shall be under no duty to solicit bids, to inquire
into the efforts of Lessee to obtain bids or otherwise to take any action in
connection with any such sale other than to Transfer to the purchaser named in
the highest bid as referred to above the Airframe and Engines or engines
against receipt of the payments provided for herein.
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9.3 Retention by Lessor. Notwithstanding anything in this Section
9 to the contrary, Lessor may, by irrevocable notice to Lessee at least 45 days
prior to the proposed date of sale referred to in Section 9.1, reject all bids
and retain title to the Aircraft (and take possession thereof); provided, that
Lessor shall pay (and, by delivering such notice, Lessor shall be obligated to
pay) to Indenture Trustee on the proposed Termination Date an amount equal to
the unpaid principal amount of the Certificates, together with all interest due
thereon. Upon receipt of notice of such an election by Lessor, Lessee shall
cease any efforts to obtain bids as provided in Section 9.1 and shall reject
all bids theretofore or thereafter received for the Aircraft. In the event
Lessor elects to retain the Aircraft as provided in this Section 9.3, and upon
its payment to Indenture Trustee of such amount, Lessee shall deliver the
Aircraft and Engines to Lessor on the proposed Termination Date pursuant to
Section 5 and in full compliance with the terms thereof and upon such delivery
and payment in full of the amounts specified in the first sentence hereof and
the next following sentence and shall have no obligation to make any payment of
Termination Value. The foregoing shall in no way affect the obligation of
Lessee to make payment of any Basic Rent on or before the proposed Termination
Date and all other amounts of Rent and other amounts payable hereunder or under
the other Operative Agreements and due on or prior to such date, including,
without limitation, all other sums due and payable to the Holders under the
Certificates (including, without limitation, Break Amount or Premium, if any,
as of such TV Determination Date). If the amounts required to be paid pursuant
to this Section 9.3 shall not be received by the respective payees thereof on
the proposed Termination Date, this Lease shall continue in full force and
effect and no Lease Event of Default shall be deemed to have occurred.
9.4 Termination As to Engines. So long as no Lease Event of
Default or Lease Default shall have occurred and be continuing, Lessee shall
have the right, at its option at any time during the Term, on at least 30 days'
prior written notice to Lessor, Indenture Trustee, the Original Loan
Participant and the Owner Participant, to terminate this Lease with respect to
any Engine not then installed or held for use on the Airframe. In such event,
and prior to the date of such termination, Lessee shall replace such Engine
hereunder by complying with the terms of Section 10.2 to the same extent as if
an Event of Loss had occurred with respect to such Engine, and, upon Indenture
Trustee's release of the replaced Engine from the Lien of the Trust Indenture
Estate, Lessor shall Transfer to Lessee the replaced Engine as provided in
Section 5.2.
Section 10. Loss, Destruction, Requisition, Etc.
10.1 Event of Loss with Respect to Airframe.
10.1.1 Lessee's Election. Upon the occurrence of an Event
of Loss with respect to the Aircraft, Lessee shall forthwith (and in
any event within 15 days after such occurrence) give Lessor, Indenture
Trustee and each Participant written notice of such Event of Loss and,
within 60 days after such occurrence, give Lessor, Indenture Trustee
and each Participant written notice of its election to comply either
with Section 10.1.2 or Section 10.1.3, and if Lessee shall not have
given notice of such election within 60
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days after such occurrence (or, if earlier, the last day of the Term
shall have occurred) Lessee shall be deemed to have elected to comply
with Section 10.1.3.
10.1.2 Replacement of Airframe and Engines. As promptly as
practicable, and in any event on or before the Business Day next
preceding the 180th day following the date of occurrence of such Event
of Loss, Lessee shall, in compliance with Section 10.1.6, convey or
cause to be conveyed to Lessor, to be leased by Lessee hereunder in
replacement thereof, a Replacement Airframe (which need not be a new
Replacement Airframe but shall have been placed in service not earlier
than January 1, 1994) together with the same number of Replacement
Engines as the Engines, if any, subject to such Event of Loss, such
Replacement Airframe and Replacement Engines to be free and clear of
all Liens (except Permitted Liens), to have a value, remaining useful
life and utility at least equal to, and to be in as good operating
condition as, the Airframe and Engines, if any, so replaced (for such
purpose, it shall be assumed that the Airframe and such Engines were
in the condition and repair required by the terms of this Lease). If
Lessee shall not effect such replacement hereunder on or before the
Business Day next preceding the 150th day following the date of the
occurrence of such Event of Loss, then Lessee shall immediately
deposit with Lessor, in the manner and in funds of the type specified
in Section 3.6, an amount equal to the excess of the Stipulated Loss
Value for the Aircraft over any funds then being held by Lessor or the
Indenture Trustee with respect to such Event of Loss. If Lessee shall
not perform its obligation to effect such replacement hereunder on or
before the Business Day next preceding the 180th day following the
date of the occurrence of such Event of Loss, then Lessee shall
immediately pay to Lessor, in the manner and in funds of the type
specified in Section 3.6, the aggregate amount specified in clauses
(A), (B) and (C) of Section 10.1.3, net of any amount deposited with
Lessor pursuant to the next preceding sentence of this Section 10.1.2.
10.1.3 Payment of Stipulated Loss Value and Rent. On or
before the Business Day next preceding the earlier of (i) the 180th
day following the date of the occurrence of such Event of Loss, (ii)
the second Business Day next succeeding the last day of the Term, or
(iii) the later of 15 days following the receipt of insurance proceeds
with respect to such occurrence or the date Lessee shall have made or
shall be deemed to have made its election under Section 10.1.1 to
comply with Section 10.1.3, Lessee shall pay to Lessor, in the manner
and in funds of the type specified in Section 3.6, (A) the Stipulated
Loss Value for the Aircraft, determined as of the date of payment (as
described in the definition of Stipulated Loss Value), (B) all unpaid
Basic Rent due on or prior to the SLV Determination Date with
reference to which the Stipulated Loss Value is computed (it being
understood and agreed that Lessee shall not be required to pay the
portion, if any, of such Basic Rent designated in Exhibit C hereto as
payable in advance on such SLV Determination Date, unless attributable
to accrued interest on the Certificates), and (C) (without
duplication) any other Rent which is due and payable through and
including the date of payment.
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10.1.4 Stipulated Loss Value Payment. In the event of
payment in full of the Stipulated Loss Value for the Aircraft pursuant
to Section 10.1.2 or 10.1.3 and, in either case, the amounts referred
to in clauses (B) and (C) of Section 10.1.3, (A) the obligation of
Lessee to pay Basic Rent due after the SLV Determination Date with
reference to which such Stipulated Loss Value is computed shall
terminate, (B) the Term for the Aircraft shall end, and (C) Lessor
will comply with the applicable provisions of Section 10.01 of the
Trust Indenture and, upon Indenture Trustee's release of the Aircraft
from the Lien of the Trust Indenture Estate, will Transfer to Lessee
the Aircraft.
10.1.5 Payment of Rent. In the event of an Event of Loss,
during the period between the occurrence of the Event of Loss and the
date of payment pursuant to Section 10.1.3 or replacement, the
obligation of Lessee to pay Basic Rent or Renewal Rent shall continue
unchanged, except that upon such replacement, it shall become an
obligation to pay such Rent in respect of the Replacement Aircraft.
10.1.6 Conditions to Replacement of Aircraft. Lessee's
right to exercise the replacement options contemplated by Section
10.1.1 with respect to the Aircraft shall be subject to the
fulfillment prior to or at the time of any such replacement, in
addition to the requirements contained in Section 10.1.2, of the
conditions precedent set forth below:
10.1.6.1 No Default. No Lease Event of Default or
Lease Default shall have occurred and be continuing.
10.1.6.2 Tax Loss. Owner Participant and Lessor
shall have received, at Lessee's and the Owner Participant's
joint and equal expense, a tax opinion of tax counsel selected
by the Owner Participant, to the effect that the Event of Loss
or the replacement of the Airframe or Aircraft in connection
therewith will not cause any adverse tax consequences to
Lessor or Owner Participant or its Affiliates (or, in lieu
thereof, Lessee shall have agreed to indemnify for such tax
risk), or if Owner Participant and Lessee shall have agreed
upon the amount, if any, payable and upon the manner of
payment thereof with respect to such replacement by Lessee
pursuant to the Tax Indemnity Agreement or Section 7(b) of the
Participation Agreement, then any such amount shall be paid.
10.1.6.3 Lessee's Obligations with Respect to
Replacement Aircraft. Lessee will promptly (all writings
referred to below to be reasonably satisfactory in form and
substance to Lessor):
(a) furnish Lessor with (i) a full
warranty ▇▇▇▇ of sale and FAA ▇▇▇▇ of sale duly
conveying to Lessor the Replacement Airframe and
Replacement Engines, if any, and (ii) an assignment
of the purchase agreement with respect to the
Replacement Airframe and Replacement
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Engines, if any (if Lessee shall have any rights
thereunder) substantially in the form of the Purchase
Agreement Assignment and a consent and agreement of
the manufacturer thereof substantially in the form of
the Manufacturer's Consent;
(b) cause a Lease Supplement subjecting
such Replacement Airframe and Replacement Engines, if
any, to this Lease, duly executed by Lessee, to be
delivered to Lessor for execution, and an Indenture
and Trust Supplement to be delivered to Lessor for
execution and, in each case upon such execution, to
be filed for recordation with the FAA pursuant to the
Act;
(c) furnish Lessor with such evidence of
compliance with (i) Section 5.01(b) of the Trust
Indenture (if the Trust Indenture shall be in effect
at such time) and (ii) the insurance provisions of
Section 11 hereof with respect to the Replacement
Airframe and Replacement Engines, if any, and the
payment of all premiums then due with respect to all
such insurance, as Lessor may reasonably request;
(d) furnish Lessor with an opinion or
opinions of counsel reasonably satisfactory to Lessor
to the effect that, upon such conveyance, Lessor will
acquire good and marketable title to the Replacement
Airframe and Replacement Engines, if any, free and
clear of all Liens other than Permitted Liens, the
Replacement Airframe and Replacement Engines, if any,
will be leased hereunder and subject to the Lien of
the Trust Indenture (if then in effect) to the same
extent as the Airframe and Engines replaced thereby,
Lessor and (assuming the Trust Indenture is still in
effect) the Indenture Trustee shall be entitled to
the benefit of Section 1110 of the Bankruptcy Code
with respect to the Replacement Aircraft to the same
extent as the Aircraft, and to such further effect as
Lessor may reasonably request;
(e) furnish Lessor with an Officer's
Certificate stating:
(i) a description of the Airframe
which shall be identified by manufacturer,
model, FAA registration number and
manufacturer's serial number;
(ii) a description of the
Replacement Airframe to be received
(including the manufacturer, model, FAA
registration number and manufacturer's serial
number) as consideration for the Airframe to
be released;
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(iii) that on the date of the
Indenture and Trust Supplement and the Lease
Supplement relating to the Replacement
Airframe, Lessor will be the legal owner of
such Replacement Airframe free and clear of
all Liens (other than Permitted Liens), that
such Replacement Airframe will on such date
be in good working order and condition, and
that such Replacement Airframe has been or,
substantially concurrently with such
replacement, will be duly registered in the
name of Lessor under the Act and that an
airworthiness certificate has been duly
issued under the Act with respect to such
Replacement Airframe, and that such
registration and certificate are in full
force and effect, and that Lessee will have
the full right and authority to use such
Replacement Airframe;
(iv) that the insurance required by
Section 11 is in full force and effect with
respect to such Replacement Airframe and all
premiums then due thereon have been paid in
full;
(v) that the Replacement Airframe
is of the same or an improved model as the
Airframe requested to be released from the
Lien of the Trust Indenture;
(vi) that no Lease Default or Lease
Event of Default has occurred and is
continuing or would result from the making
and granting of the request for release and
the addition of a Replacement Airframe; and
(vii) if the Trust Indenture has not
theretofore been discharged, the release of
the Airframe so to be released will not
impair the security of the Trust Indenture or
be in contravention of any of the provisions
of the Trust Indenture;
(f) furnish Lessor with a certificate or
certification of qualified independent aircraft
appraisers reasonably satisfactory to Lessor
certifying that the Replacement Airframe and
Replacement Engines, if any, have a value, remaining
useful life and utility at least equal to, and are in
at least as good operating condition as, the Airframe
and Engines, if any, so replaced (assuming the
Airframe and Engines were in the condition and repair
required by the terms hereof immediately prior to the
occurrence of such Event of Loss); and
(g) furnish such other certificates or
documents (including appropriate UCC-3 amendments to
the financing statements filed on or
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before the Delivery Date) as Lessor or any Participant
may reasonably request to effect such replacement.
10.1.7 Recordation and Opinions. In the case of any
Replacement Airframe and/or Replacement Engines conveyed to Lessor
under this Section 10.l, promptly upon the registration of the
Replacement Aircraft and the recordation of the Lease Supplement and
Indenture and Trust Supplement covering the Replacement Airframe and
Replacement Engines, if any, pursuant to the Act, Lessee will cause to
be delivered to Lessor an opinion of ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ or
other FAA counsel satisfactory to Lessor as to the due registration of
the Replacement Aircraft and the due recordation of such Lease
Supplement and Indenture and Trust Supplement.
10.1.8 Conveyance. Upon compliance by Lessee with all of
the terms of this Section 10.1, (i) Lessor will comply with the
applicable provisions of Section 10.01 of the Trust Indenture and,
upon Indenture Trustee's release of the Aircraft and Engines (if
applicable) from the Lien of the Trust Indenture Estate, Transfer to
Lessee the replaced Airframe and Engines (if any), and (ii) Lessee
will be subrogated to all claims of Lessor, if any, against third
parties for damage to or loss of such Airframe and Engines to the
extent of the then insured value thereof in respect of any insurance
provided by Lessee.
10.2 Event of Loss with Respect to an Engine.
10.2.1 Event of Loss. Upon the occurrence of an Event of
Loss with respect to an Engine under circumstances in which there has
not occurred an Event of Loss with respect to the Airframe, Lessee
shall forthwith (and in any event within 15 days after such
occurrence) give Lessor, Indenture Trustee and each Participant
written notice thereof and shall, as promptly as possible and in any
event within 60 days after the occurrence of such Event of Loss,
convey or cause to be conveyed to Lessor, as replacement for the
Engine with respect to which such Event of Loss occurred, title to a
Replacement Engine free and clear of all Liens, other than Permitted
Liens, and having a value, remaining useful life and utility at least
equal to, and being in as good operating condition as, the Engine with
respect to which such Event of Loss occurred, assuming such Engine was
of the value, remaining useful life and utility and in the condition
and repair required by the terms hereof immediately prior to the
occurrence of such Event of Loss.
10.2.2 Conditions; Lessee's Obligations. Prior to or at the
time of any such conveyance, Lessee will promptly:
(a) furnish Lessor with a full warranty (as to
title) ▇▇▇▇ of sale duly conveying to Lessor such Replacement
Engine;
(b) cause a Lease Supplement subjecting such
Replacement Engine to this Lease, duly executed by Lessee, to
be delivered to Lessor for execution,
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and an Indenture and Trust Supplement to be delivered to Lessor
for execution and, in each case upon execution, to be filed for
recordation with the FAA pursuant to the Act;
(c) furnish Lessor with such evidence of
compliance with (i) Section 5.01(b) of the Trust Indenture (if
the Trust Indenture shall be in effect at such time) and (ii)
the insurance provisions of Section 11 hereof with respect to
such Replacement Engine and the payment of all premiums then
due with respect to such insurance, as Lessor may reasonably
request;
(d) furnish Lessor with an opinion or opinions of
Lessee's counsel, in form, substance and scope reasonably
satisfactory to Lessor, to the effect that, upon such
conveyance, Lessor will acquire good title to such Replacement
Engine free and clear of all Liens other than Permitted Liens,
and that such Replacement Engine will be leased hereunder and
subject to the Lien of the Trust Indenture (if then in effect)
to the same extent as the Engine replaced thereby and to such
further effect as Lessor or Indenture Trustee may reasonably
request;
(e) furnish Lessor with an Officer's Certificate
stating:
(i) a description of the Engine which
shall be identified by manufacturer's serial number;
(ii) a description of the Replacement
Engine (including the manufacturer's name, model and
serial number) as consideration for the Engine to be
released;
(iii) that on the date of the Lease
Supplement and the Indenture and Trust Supplement
relating to the Replacement Engine, Lessor will be
the legal owner of such Replacement Engine free and
clear of all Liens except Permitted Liens, that such
Replacement Engine will on such date be in good
working order and condition, and that such
Replacement Engine is the same or an improved or
equivalent model as the Engine to be released; and
(iv) if the Trust Indenture has not
theretofore been discharged, that the release of the
Engine so to be released will not impair the security
of the Trust Indenture or be in contravention of any
of the provisions of the Trust Indenture;
(f) furnish Lessor with a certificate of a
qualified aircraft engineer (who may be an employee of Lessee)
certifying that such Replacement Engine has a value, remaining
useful life and utility at least equal to, and is in at least
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as good operating condition as, the Engine so replaced assuming
such Engine was in the condition and repair required by the
terms hereof immediately prior to the occurrence of such Event
of Loss; and
(g) furnish such other certificates or documents
(including appropriate UCC-3 amendments to the financing
statements filed on or before the Delivery Date) as Lessor or
any Participant may reasonably request to effect such
replacement.
10.2.3 Recordation and Opinions. In the case of any
Replacement Engine conveyed to Lessor under this Section 10.2,
promptly upon the recordation of the Lease Supplement and the
Indenture and Trust Supplement covering such Replacement Engine
pursuant to the Act, Lessee will cause to be delivered to Lessor an
opinion of ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ or other FAA counsel
satisfactory to Lessor as to the due recordation of such Lease
Supplement and Indenture and Trust Supplement.
10.2.4 Conveyance; Replacement Engine. Upon compliance by
Lessee with the terms of this Section 10.2, Lessor will comply with
the provisions of the Trust Indenture applicable thereto and, upon
Indenture Trustee's release of the Engine with respect to which such
Event of Loss occurred from the Lien of the Trust Indenture Estate,
Transfer such Engine to Lessee, and Lessee will be subrogated to all
claims of Lessor, if any, against third parties for damage to or loss
of such Engine to the extent of the insured value thereof in respect
of any insurance provided by Lessee.
10.2.5 No Reduction of Rent. No Event of Loss with respect
to an Engine under the circumstances contemplated by the terms of this
Section 10.2 shall result in any reduction of Basic Rent or Renewal
Rent.
10.3 Application of Certain Payments. Any payments (other than
insurance proceeds, the application of which is provided for in Section 11)
received at any time by Lessor, Lessee or any Permitted Sublessee from any
governmental authority or other Person with respect to any Event of Loss, will
be applied as follows:
10.3.1 Replacement of Airframe and Engines. If such
payments are received with respect to the Airframe and/or the Engines
(or engines) installed on the Airframe that have been or are being
replaced by Lessee pursuant to Section 10.1 (other than Section
10.1.3), such payments shall be paid over to, or retained by,
Indenture Trustee or, if the Trust Indenture is no longer in effect,
Lessor, and upon completion of such replacement be paid over to
Lessee, provided Lessee shall have fully performed or, concurrently
therewith will fully perform, the terms of Section 10.1 with respect
to the Event of Loss for which such payments are made.
10.3.2 Replacement of Engine. If such payments are received
with respect to an Engine that has been or is being replaced by Lessee
pursuant to Section 10.2, such
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payments shall be paid over to, or retained by, Indenture Trustee or,
if the Trust Indenture is no longer in effect, Lessor, and upon
completion of such replacement be paid over to Lessee, provided Lessee
shall have fully performed or, concurrently therewith will fully
perform, the terms of Section 10.2 with respect to the Event of Loss
for which such payments are made.
10.3.3 Nonreplacement. If such payments are received with
respect to the Airframe and/or the Engines or engines installed on the
Airframe that has not or have not been and are not being replaced
pursuant to Section 10.1 or 10.2, such payments shall be paid over to,
or retained by, Indenture Trustee, or, if the Trust Indenture is no
longer in effect, Lessor, and so much of such payments remaining after
reimbursement of Lessor, Indenture Trustee and each Participant for
costs and expenses shall be applied in reduction of Lessee's
obligation to pay Stipulated Loss Value and other amounts required to
be paid by Lessee hereunder, if not already paid by Lessee, or, if
already paid by Lessee, shall be applied to reimburse Lessee for its
payment of such Stipulated Loss Value and other amounts. The balance,
if any, of such payment remaining thereafter shall be divided between
Lessor and Lessee in proportion to their relative interests in the
Aircraft.
10.4 Requisition of Aircraft for Use by Governmental Authorities.
In the event of the requisition for use of the Airframe and the Engines or
engines installed on such Airframe during the Term by any governmental
authority, Lessee shall notify Lessor promptly of such requisition, and all of
Lessee's obligations under this Lease with respect to the Aircraft shall
continue to the same extent as if such requisition had not occurred. All
payments received by Lessor or Lessee from such governmental authority for the
use of such Airframe and Engines or engines prior to the time such requisition
becomes an Event of Loss shall be paid over to, or retained by, Lessee (or, if
directed by Lessee, any Permitted Sublessee); and all payments received by
Lessor or Lessee from such governmental authority for the use of such Airframe
and Engines or engines after such time shall be paid over to, or retained by,
Indenture Trustee or, if the Trust Indenture is no longer in effect, Lessor,
and upon the performance by Lessee of the terms of Section 10.1 with respect to
such Event of Loss, shall be paid over to Lessee.
10.5 Requisition of an Engine for Use by Governmental Authorities.
In the event of the requisition for use by any governmental authority (other
than in circumstances contemplated by Section 10.4) of any Engine but not the
Airframe, Lessee will replace such Engine hereunder by complying with the terms
of Section 10.2 to the same extent as if an Event of Loss had occurred with
respect to such Engine, and any payments received from such governmental
authority with respect to such requisition shall be paid over to, or retained
by, Indenture Trustee, or if the Trust Indenture is no longer in effect,
Lessor, and upon the performance by Lessee of the terms of Section 10.2 to the
same extent as if an Event of Loss had occurred with respect to such
requisitioned Engine, shall be paid over to Lessee.
10.6 Application of Payments During Existence of Default. Any
amount referred to in this Section 10 which is payable or creditable to or
retainable by Lessee shall not be paid or
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credited to or retained by Lessee if, at the time of such payment, credit or
retention, a Lease Event of Default or Lease Default of the type specified in
Section 14.1 or 14.5 shall have occurred and be continuing hereunder but shall
be paid to and held by Indenture Trustee and applied by it as provided in the
Trust Indenture, or, if the Trust Indenture is no longer in effect, held by
Lessor as security for the obligations of Lessee under this Lease and applied
against Lessee's obligations hereunder as and when due; at such time as there
shall not be continuing any such Lease Event of Default or Lease Default, any
remaining balance of such amount shall be paid to Lessee to the extent not
previously applied in accordance with the preceding clause of this sentence.
Section 11. Insurance.
11.1 Public Liability and Property Damage Insurance. Lessee shall
at all times maintain, or cause to be maintained, at its or any Permitted
Sublessee's expense, public liability (including without limitation contractual
liability, passenger legal liability and property damage, but excluding
manufacturer's product liability coverage) insurance which shall:
11.1.1 Type, Form and Amount. Be of a type and form carried
by similarly situated United States commercial air carriers generally,
and carried in amounts not less than that carried by Lessee on similar
equipment owned or leased by Lessee and not less than the minimum
amount of $350,000,000 (per occurrence) combined single limit (or such
greater amount as Lessee may carry from time to time on other 737-300
series aircraft in its fleet);
11.1.2 Coverage. Include, but not be limited to, public
liability insurance, contractual liability insurance, passenger
liability insurance and property damage liability insurance (including
cargo and baggage liability insurance); and
11.1.3 Additional Insureds. Name as additional insureds
Lessor (in its individual and trust capacities), Indenture Trustee,
USL Capital Corporation (so long as it is an Affiliate of the Owner
Participant), each Participant and each other Indemnified Party, as
their interests may appear.
In addition to the other insurance required by this Section
11.1, the Lessee shall at all times cause the Owner Participant, the
Original Loan Participant and USL Capital Corporation (so long as it
is an Affiliate of the Owner Participant) to be named as additional
insureds on any umbrella or excess liability coverage policy carried
and maintained by Lessee.
11.2 Insurance Against Loss of or Damage to Aircraft and Engines.
Lessee shall at all times maintain, or cause to be maintained, at its or any
Permitted Sublessee's expense, insurance against loss of or damage to the
Aircraft, Airframe and Engines as follows:
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11.2.1 Type, Form and Amount. "All-risk" ground and flight
aircraft hull insurance on the Aircraft and "all-risk" coverage on
each Engine and on Parts while removed from the Aircraft or Engines,
which is of the type and form, and in an amount not less than that,
carried by Lessee on similar equipment owned or leased by Lessee and
in an amount not less than that usually carried by similarly situated
United States commercial air carriers generally; and, to the extent so
usually carried, at all times that the Aircraft or any Engine is not
covered by the insurance described in Section 11.2.2, coverage against
the perils of (i) strikes, riots, civil commotions or labor
disturbances, (ii) any malicious act or act of sabotage, and (iii)
hijacking, or any unlawful seizure or wrongful exercise of control of
the Aircraft or crew in flight (including any attempt at such seizure
or control) made by any person or persons on board the Aircraft acting
without the consent of the insured other than hijacking committed by
persons engaged in a program of irregular warfare for terrorist
purposes. Such insurance shall at all times be for an amount not less
than the Stipulated Loss Value of the Aircraft.
11.2.2 War-Risk Insurance. If at any time (a) war-risk
insurance is maintained by Lessee or any Permitted Sublessee
subleasing the Aircraft or any Engine with respect to other aircraft
operated by Lessee or such Permitted Sublessee on the same or similar
routes, (b) the Aircraft is operated on routes where the custom in the
United States commercial airline industry is to carry war-risk
insurance, (c) the Aircraft is operated by a Permitted Foreign Air
Carrier as a Permitted Sublessee in any recognized or threatened area
of hostilities, or (d) the Aircraft is operated on any route where no
other aircraft is regularly operated by a United States commercial
airline and such route is within any such area of hostilities, then
war-risk and allied perils insurance of the type carried by similarly
situated United States commercial air carriers operating the same or
comparable models of aircraft on the same or similar routes shall be
maintained on the Aircraft in an amount not less than that specified
in Section 11.2.l.
11.2.3 Certain Requirements. The insurance policies
required by this Section 11.2 shall:
11.2.3.1 Additional Insureds. Be endorsed to name
Lessor (in its individual and trust capacities), USL Capital
Corporation (so long as it is an Affiliate of the Owner
Participant), each Participant, the Indenture Trustee and each
other Indemnified Party as additional insureds, as their
interests may appear.
11.2.3.2 Payment of Proceeds. Provide that proceeds
thereunder shall be paid directly to Indenture Trustee, so
long as the Trust Indenture shall be in effect, and thereafter
to Lessor, in either case, as exclusive loss payee; provided,
however, that any proceeds payable as a result of any property
damage to the Airframe or any Engine, which property damage
does not exceed $4,000,000 and does not constitute an Event of
Loss with respect to the Aircraft or such Engine, shall be
paid to Lessee unless Lessor or Indenture Trustee, prior to
such
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payment, shall have notified the insurer making such payment
that a Lease Default (of the type described in Section 14.1 or
14.5) or Lease Event of Default has occurred and is
continuing.
11.2.3.3 Waiver of Subrogation. Provide that the
insurers shall waive any rights of subrogation against Lessor,
Indenture Trustee, each Participant and each other Indemnified
Party except for claims arising out of gross negligence or
willful misconduct of such Person; provided, that the exercise
by insurers of rights of subrogation, if any, permitted by
this Section 11.2 shall not, in any way, delay payment of any
claim that would otherwise be payable by such insurers but for
the existence of such rights of subrogation or entitle such
insurers to exercise or to assert any setoff, recoupment,
counterclaim or any other deduction in respect of any amounts
payable under such policies.
11.2.4 Deductibles. The insurance required by this Section
11.2 may, subject to Section 11.8, provide for standard deductibles
which are from time to time in effect in the aviation insurance
industry generally and which are customarily maintained by similarly
situated United States commercial air carriers generally; provided,
however, such deductibles shall not be more than the deductibles
generally maintained by Lessee (and which Lessee is under no
compulsion to maintain pursuant to any indenture, mortgage, lease or
other agreement) with respect to its fleet of Boeing Model 737-300
series aircraft and CFM International Model CFM56-3 engines generally.
11.2.5 Government Indemnity. In the case of a contract with
the Government in respect of the Aircraft or Engines, a valid
agreement by the Government to indemnify Lessee, Lessor, each
Participant, Indenture Trustee and each other Indemnified Party
against the same risks which are required hereunder to be insured
against in amounts at least equal to the amounts required hereunder
from time to time (such indemnity to be backed by the full faith and
credit of the United States of America), shall be considered adequate
insurance with respect to the Aircraft, Airframe and any Engine
subject to such contract to the extent of the risks and in the amounts
that are the subject of any such agreement to indemnify.
11.3 General Policy Provisions. Each insurance policy to be
procured and maintained hereunder shall:
11.3.1 Primary Insurance. Be primary and without right of
contribution from other insurance which may provide coverage to
Lessor, Indenture Trustee, or any Participant or any other Indemnified
Party with respect to its interest in the Aircraft, Airframe or any
Engine or its liabilities with respect to or arising out of the
transactions contemplated by the Operative Agreements;
11.3.2 Coverage for Each Insured. Expressly provide that
all the provisions thereof, except the agreed values and the limits of
the liability of the insurer under such
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policy, shall operate in the same manner as if there were a separate
policy covering each insured;
11.3.3 Waiver of Certain Rights. Waive any right of the
insurers to any setoff, recoupment, counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any
liability of Lessee, Lessor, Indenture Trustee, any Participant or any
other Indemnified Party;
11.3.4 Breach of Warranty. Provide that, in respect of
Lessor, Indenture Trustee, each Participant and each other Indemnified
Party, such insurance shall not be invalidated by any action or
inaction by Lessee, any Indemnified Party or other Person and shall
insure the interests of Lessor, Indenture Trustee, each Participant
and each other Indemnified Party regardless of any breach or violation
by Lessee, any Indemnified Party or other Person of any
representation, warranty, declaration or condition contained in such
policy;
11.3.5 Notice of Termination or Changes. Provide for not
less than 30 days' prior written notice to be received by Lessor,
Indenture Trustee and each Participant before any lapse, alteration,
termination or cancellation of the insurance evidenced thereby shall
be effective as to Lessor, Indenture Trustee, each Participant and
each other Indemnified Party, except that war-risk and allied perils
policies may provide for not less than seven days' prior written
notice or such lesser or greater notice as shall at the time be
customary in the aviation insurance industry generally, and which are
customarily in effect with respect to major United States commercial
air carriers generally from time to time;
11.3.6 Nonliability for Premiums. Provide that neither
Lessor, Indenture Trustee, any Participant nor any other Indemnified
Party shall be liable for any insurance premium;
11.3.7 Identity of Insurers. Be with insurance companies,
underwriters or funds of recognized responsibility; and
11.3.8 Fifty-fifty Clause. Contain a fifty-fifty clause per
AVS 103 or its equivalent, but only in the event that such clause is
customarily included in such policies maintained by similarly situated
United States commercial air carriers generally.
11.4 Application of Insurance Proceeds. As between Lessor and
Lessee, all insurance proceeds received under policies required to be
maintained (or to be caused to be maintained) by Lessee pursuant to Section
11.2 as a result of the occurrence of an Event of Loss with respect to the
Aircraft, Airframe or any Engine will be applied in accordance with Section
10.3.1, 10.3.2 or 10.3.3, as the case may be (except that the balance referred
to in Section 10.3.3 shall be paid over to, or retained by, Lessee). All
insurance proceeds received under such policies in respect of any property
damage loss not constituting an Event of Loss
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with respect to the Airframe or an Engine will be applied in payment for
repairs or for replacement property in accordance with the terms of Section 8,
if not already paid for by Lessee, and any balance remaining after compliance
with such Section with respect to such loss shall be paid to Lessee. In the
case of a loss with respect to an engine (other than an Engine) installed on
the Airframe, Lessor shall hold any payment to it of any insurance proceeds in
respect of such loss for the account of Lessee or any other third party that is
entitled to receive such proceeds. The provisions of Section 10.6 shall apply
to amounts referred to in this Section 11.4.
11.5 Certificates; Reports, Etc. With respect to any policy
required hereunder, Lessee shall cause to be furnished to Lessor, Indenture
Trustee and each Participant on or prior to the Delivery Date of the Aircraft
and on or prior to expiration of such policy, certificates of the insurer or
insurers (or their authorized representatives) providing insurance pursuant to
the requirements of this Section 11. On or before the Delivery Date of the
Aircraft, and annually thereafter on or before the renewal date of such policy,
Lessee shall cause to be furnished to Lessor, Indenture Trustee, the Original
Loan Participant and Owner Participant a report signed by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Aerospace (or any other firm of independent aircraft insurance brokers,
appointed by Lessee, reasonably satisfactory to the Original Loan Participant
and Owner Participant) describing in reasonable detail the insurance then
carried and maintained with respect to the Aircraft and stating the opinion of
such firm that the insurance then carried and maintained on the Aircraft
complies with the terms hereof. Lessee agrees that it will cause such firm to
advise Lessor, Indenture Trustee, the Original Loan Participant and Owner
Participant in writing promptly of any default in the payment of any premium or
any other act or omission on the part of Lessee or any Permitted Sublessee of
which they have knowledge and which might invalidate or render unenforceable,
in whole or in part, the insurance on the Aircraft.
11.6 Lessor's Right to Maintain Insurance. In the event that
Lessee shall fail to maintain or cause to be maintained insurance as herein
provided, Lessor, Indenture Trustee or any Participant may at its option (but
shall not be obligated to) provide such insurance and in such event, Lessee
shall, upon demand, reimburse such Person, as Supplemental Rent, for the cost
thereof. No such payment, performance or compliance shall be deemed to cure
any Lease Default hereunder or otherwise relieve Lessee of its obligations with
respect thereto.
11.7 Insurance for Own Account. Nothing in Section 11 shall limit
or prohibit Owner Participant (directly or through Lessor) from obtaining
insurance for its own account, and any proceeds payable thereunder shall be
payable as provided in the insurance policy relating thereto; provided,
however, that no such insurance may be obtained which would limit or otherwise
adversely affect the availability or coverage or cost of any insurance required
to be obtained or maintained pursuant to this Section 11. Nothing in this
Section 11 shall limit or prohibit Lessor, Indenture Trustee or any Holder from
obtaining insurance for its own account, and any proceeds payable thereunder
shall be payable as provided in the insurance policy relating thereto;
provided, however, that no such insurance may be obtained which would limit or
otherwise adversely affect the availability or coverage or cost of any
insurance required to be
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obtained or maintained pursuant to this Section 11 or obtained by Owner
Participant pursuant to the preceding sentence.
11.8 Self-Insurance. Notwithstanding the foregoing provisions of
this Section 11, Lessee may, from time to time so long as no Lease Event of
Default has occurred and is continuing, self-insure with respect to the
Aircraft to the same extent as it does with respect to, or maintain policies
with deductibles or premium adjustment provisions consistent with similar
provisions applicable to, other comparable aircraft operated by Lessee;
provided, however, that in the case of public liability insurance, such
self-insurance shall in no event exceed $50,000,000; and provided, further,
that if at any time Lessee's unsecured senior long-term debt securities are not
rated Investment Grade, such self-insurance (inclusive of any such public
liability insurance and without derogation from the preceding proviso) shall in
no case be in amounts greater than 4% of Lessee's tangible net worth. As used
in this Agreement, the term "Investment Grade" means a rating of "Baa3" or
higher from ▇▇▇▇▇'▇ Investors Service or a rating from any other nationally
recognized bond rating service equivalent to or better than such a rating.
Section 12. Inspection. At all reasonable times, and upon
reasonable notice, Lessor, Indenture Trustee or any Participant or its
authorized representatives may inspect the Aircraft and inspect and copy
(subject to any confidentiality agreements, copyright restrictions and the
like) the books and records of Lessee relative thereto. Any such inspection of
the Aircraft shall be without out-of-pocket expense or risk to Lessee and shall
be a visual, walk-around inspection and may not include opening any panels,
bays or the like; provided, that no exercise of such inspection right shall
interfere with the normal operation or maintenance of the Aircraft by, or the
business of, Lessee (or any Permitted Sublessee). Subject to the proviso in
the preceding sentence, upon receipt by Lessee of a written request from the
Owner Participant or the Indenture Trustee specifying that the Owner
Participant or the Indenture Trustee desires to have an authorized
representative observe the major overhaul to be performed on the Aircraft next
following receipt of any such request, Lessee shall permit such authorized
representative to observe such overhaul. Neither Lessor, Indenture Trustee nor
any Participant shall have any duty to make any such inspection or shall incur
any liability or obligation by reason of not making any such inspection.
Section 13. Assignment.
13.1 In General. Except as otherwise expressly permitted in
Section 7.2 or Section 11(f) of the Participation Agreement, or as required in
the case of any requisition by the Government referred to in Section 7.1,
Lessee will not, without the prior or written consent of Lessor, assign or
transfer any of its rights or obligations under this Lease or any other
Operative Agreement. Lessor may assign or convey any of its right, title and
interest in and to this Lease, any of the other Operative Agreements or the
Aircraft in accordance with the Participation Agreement, the Trust Agreement or
the express provisions of this Lease. The terms and provisions of the Lease
shall be binding upon and inure to the benefit of Lessor and Lessee and their
respective permitted successors and assigns.
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13.2 Security for Lessor's Obligations. In order to secure the
indebtedness evidenced by the Certificates, the Trust Indenture provides, among
other things, for the assignment by Lessor to Indenture Trustee of its right,
title and interest in, to and under this Lease and any Permitted Sublease, to
the extent set forth in the Trust Indenture, and for the creation of a first
mortgage lien on and perfected security interest in the Aircraft in favor of
Indenture Trustee. Lessee hereby consents to such assignment and to the
creation of such mortgage and security interest and acknowledges receipt of
copies of the Trust Agreement and the Trust Indenture, it being understood that
such consent shall not affect any requirement or the absence of any requirement
for any consent under any other circumstances. So long as the Trust Indenture
shall be in effect, Lessee will furnish to Indenture Trustee counterparts of
all writings of any kind required to be delivered hereunder by Lessee to
Lessor. Until the Lien of the Trust Indenture has been released, as provided
in the Trust Indenture, certain rights of Lessor with respect to this Lease,
the Aircraft, the Airframe or any Engine (or any Part thereof) or any other
part of the Trust Indenture Estate are exercisable by Indenture Trustee.
Section 14. Events of Default. The following events shall
constitute Lease Events of Default (whether any such event shall be voluntary
or involuntary or come about or be effected by operation of law or pursuant to
or in compliance with any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body), and each such
Lease Event of Default shall continue so long as, but only so long as, it shall
not have been remedied or waived:
14.1 Failure to Pay Rent. Lessee shall fail to make any payment of
Basic Rent, Stipulated Loss Value, Termination Value or Special Purchase Price
or any amount due pursuant to Section 3.4 within seven Business Days from the
due date thereof; or Lessee shall fail to make any other payments required to
be made by it under the Operative Agreements within ten Business Days after the
receipt of written demand therefor delivered to Lessee by Lessor after such
payments were required to have been made (provided, that any failure to pay any
amount owed by Lessee under the Tax Indemnity Agreement or any failure of
Lessee to pay when due any Excluded Payments shall not constitute a Lease Event
of Default unless written notice is given by the Owner Participant to Lessee
and the Indenture Trustee that such failure shall constitute a Lease Event of
Default); or
14.2 Specific Defaults. Lessee shall fail to carry and maintain
(or cause to be carried and maintained) insurance on or with respect to the
Aircraft in accordance with the provisions of Section 11; provided, that any
such failure shall not constitute a Lease Event of Default so long as such
failure is for a period of not more than 30 days, Lessee shall not operate the
Aircraft at a time when such insurance is not in effect and the Aircraft
continues to be covered by such insurance as is required when the Aircraft is
on the ground, or Lessee shall fail to comply with Section 7.1.1; or
14.3 General Default. Lessee shall fail to perform or observe any
other covenant, condition or agreement to be performed or observed by it
hereunder or under any other Operative Agreement (except the Tax Indemnity
Agreement), and such failure shall continue
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unremedied for a period of 30 days after written notice thereof to Lessee,
unless Lessee shall be diligently proceeding to correct such failure and such
failure is cured within 180 days after such notice or by the end of the Term,
whichever first occurs; or
14.4 Misrepresentation and Breach of Warranty. Any representation
or warranty made by Lessee herein or in the Participation Agreement or in any
other Operative Agreement (other than the Tax Indemnity Agreement) or in any
document or certificate furnished by Lessee in connection with any thereof,
shall prove to have been incorrect in any material respect at the time made,
shall remain material at the time of discovery and shall, if curable, remain
incorrect in any material respect after 30 days after written notice thereof to
Lessee;
14.5 Bankruptcy, Etc. Lessee shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official or agency in an
involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any corporate action to authorize
any of the foregoing; or an involuntary case or other proceeding shall be
commenced against Lessee seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official or agency of it or
any substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 90 days.
Section 15. Remedies.
15.1 Default; Remedies. Upon the occurrence of a Lease Event of
Default and at any time thereafter so long as the same shall be continuing,
Lessor may, at its option, so long as any such Lease Event of Default shall be
continuing, exercise one or more of the following remedies as Lessor in its
sole discretion shall elect, to the extent permitted by, and subject to
compliance with any mandatory requirements of, applicable law then in effect
which have not been effectively waived by Lessee:
15.1.1 Return; Repossession. Lessor may cause Lessee, upon
written demand by Lessor and at Lessee's expense, to return promptly,
and Lessee shall return promptly, all or any part of the Aircraft,
Airframe or Engines as Lessor may so demand to Lessor or its order in
the manner and condition required by, and otherwise in accordance with
all the provisions of, Section 5 as if the Aircraft, Airframe or
Engines were being returned at the end of the Term; or Lessor, at its
option, may enter upon the premises where the Aircraft, Airframe or
any Engine, or part thereof is located and take immediate possession
of and remove the same by summary proceedings or otherwise, all
subject to receipt of notice delivered pursuant to Section 7.2.3 (if
applicable) and
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without liability accruing to Lessor for or by reason of such entry or
taking of possession, whether for the restoration of damage to
property caused by such taking or otherwise, and Lessee expressly
waives any right it may have under applicable law to a hearing prior
to repossession of the Aircraft, Airframe or any Engine or part
thereof; or
15.1.2 Sale; Use Etc. Lessor may sell all or any part of
the Aircraft, Airframe or any Engine, at public or private sale, at
such times and places, to such Persons (including Lessor, Indenture
Trustee or any Participant) as Lessor may determine, or otherwise
dispose of, hold, use, operate, lease to others or keep idle the
Aircraft, Airframe or any Engine or part thereof, as Lessor, in its
sole discretion, may determine, all free and clear of any rights of
Lessee except as hereinafter set forth in this Section 15 and without
any duty to account to Lessee with respect to such action or inaction
or for any proceeds with respect thereto; or
15.1.3 Certain Liquidated Damages.
15.1.3.1 Liquidated Damages--Fair Market Rental
Value. Whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under
Section 15.1.1 or 15.1.2 with respect to the Aircraft,
Airframe or any Engine or part thereof, Lessor, by written
notice to Lessee specifying a payment date (which shall be an
SLV Determination Date) not earlier than ten days from the
date of such notice, may cause Lessee to pay to Lessor, and
Lessee shall pay to Lessor, on the payment date specified in
such notice, as liquidated damages for loss of a bargain and
not as a penalty (in lieu of the Basic Rent or Renewal Rent,
as the case may be, due after the date specified for payment
in such notice), any unpaid Basic Rent or Renewal Rent, as the
case may be, due on or prior to such SLV Determination Date
(it being understood and agreed that Lessee shall not be
required to pay the portion, if any, of such Basic Rent
designated in Exhibit C hereto as payable in advance on such
SLV Determination Date, unless the same is attributable to
accrued interest on the Certificates) plus an amount equal to
the excess, if any, of the Stipulated Loss Value for the
Aircraft, computed as of such SLV Determination Date, over the
fair market rental value (determined as hereafter provided in
this Section 15) of the Aircraft for the remainder of the
Term, after discounting such fair market rental value
semiannually (effective on each Rent Payment Date) by a rate
equal to the Certificate Rate to present worth as of the date
specified for payment in such notice, together with interest,
if any, on such amount and unpaid Basic Rent or Renewal Rent,
as the case may be, at the Overdue Rate from the due date
thereof to the date of payment in full; or
15.1.3.2 Liquidated Damages--Fair Market Sales
Value. If Lessor shall not have sold the Aircraft, Lessor, by
written notice to Lessee specifying a payment date (which
shall be an SLV Determination Date) not earlier than ten days
from the date of such notice, may cause Lessee to pay to
Lessor, and Lessee
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shall pay to Lessor, on the payment date specified in such
notice, as liquidated damages for loss of a bargain and not as
a penalty (in lieu of the Basic Rent or Renewal Rent, as the
case may be, due after the date specified for payment in such
notice), any unpaid Basic Rent or Renewal Rent, as the case may
be, due on or prior to such SLV Determination Date (it being
understood and agreed that Lessee shall not be required to pay
the portion, if any, of such Basic Rent designated in Exhibit C
hereto as payable in advance on such SLV Determination Date,
unless the same is attributable to accrued interest on the
Certificates) plus an amount equal to the excess, if any, of
the Stipulated Loss Value for the Aircraft, computed as of such
SLV Determination Date, over the fair market sales value of the
Aircraft (determined as hereafter provided in this Section 15
as of the date specified for payment in such notice), together
with interest, if any, on such amount and unpaid Basic Rent or
Renewal Rent, as the case may be, at the Overdue Rate from the
due date thereof to the date of payment in full; or
15.1.4 Liquidated Damages upon Sale. If Lessor,
pursuant to Section 15.1.2 or applicable law, shall have sold
the Aircraft, Lessor, in lieu of exercising its rights under
Section 15.1.3 with respect to the Aircraft, may, if Lessor
shall so elect, upon giving written notice to Lessee, cause
Lessee to pay Lessor, and Lessee shall pay to Lessor, on the
date of such sale, as liquidated damages for loss of a bargain
and not as a penalty (in lieu of the Basic Rent or Renewal
Rent, as the case may be, due after the date of such sale),
any unpaid Basic Rent or Renewal Rent, as the case may be, due
on or prior to the SLV Determination Date (it being understood
and agreed that Lessee shall not be required to pay the
portion, if any, of such Basic Rent designated in Exhibit C
hereto as payable in advance on such SLV Determination Date,
unless the same is attributable to accrued interest on the
Certificates) on or immediately preceding such date of sale
plus the amount of any deficiency between the net proceeds of
such sale or (if such sale is a private sale and is made to
Lessor, Indenture Trustee, a Participant or any Affiliate
thereof) between the fair market sales value of the Aircraft,
determined as of the date of such sale as hereinafter provided
in this Section 15, and the Stipulated Loss Value of the
Aircraft, computed as of the date of such sale, together with
interest, if any, on such amount and such unpaid Basic Rent or
Renewal Rent at the Overdue Rate from the due date thereof to
the date of payment in full; or
15.1.5 Termination and Other Remedies. Lessor may
terminate this Lease, or may exercise any other right or
remedy which may be available to it under applicable law or
proceed by appropriate court action to enforce the terms
hereof or to recover damages for the breach hereof, including
without limitation Lessee's agreement to lease the Aircraft
for the Term and to pay Rent.
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In addition to the foregoing remedies, Lessee shall be liable (except
as otherwise provided above and without duplication of amounts otherwise
payable hereunder) for any and all unpaid Rent due hereunder before, during or
after the exercise of any of the foregoing remedies and for all legal fees and
other costs and expenses (including the fees and expenses of all appraisers
required by this Section 15) of Lessor, Indenture Trustee and Participants,
incurred by reason of the occurrence of any Lease Event of Default or the
exercise of Lessor's remedies with respect thereto, including all insurance and
storage costs and all costs and expenses incurred in connection with the return
of the Aircraft, Airframe or any Engine or part thereof, in accordance with the
terms of Section 5 or in placing the Aircraft, Airframe or any Engine or part
thereof, in the condition and airworthiness required by Section 5.
Lessor agrees to give Lessee at least 15 days' prior written notice of
the date fixed for any public sale of the Aircraft, the Airframe or any Engine
or part thereof, and of the date on or after which will occur the execution of
any contract providing for any private sale.
15.2 Determination of Fair Market Rental Value and Fair Market
Sales Value. For the purpose of this Section 15, the "fair market rental
value" or the "fair market sales value" of the Aircraft shall be the rental
value or sales value, as the case may be, which would be obtained in an
arm's-length transaction between an informed and willing lessee or purchaser,
as the case may be, under no compulsion to lease or purchase, as the case may
be, and an informed and willing lessor or seller in possession, as the case may
be, and in each case shall be determined on an "as is, where is" basis pursuant
to an appraisal by a recognized independent aircraft appraiser chosen by Lessor
and approved by Lessee, which approval shall not be unreasonably withheld or
delayed and shall be deemed granted if such choice is not rejected within 10
days after Lessee's receipt of notice of Lessor's choice.
15.3 No Waiver, Etc. No remedy referred to in this Section 15 is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to Lessor at law or in
equity; and the exercise or beginning of exercise by Lessor of any one or more
of such remedies shall not preclude the simultaneous or later exercise by
Lessor of any or all of such other remedies. No express or implied waiver by
Lessor of any Lease Event of Default shall in any way be, or be construed to
be, a waiver of any earlier or subsequent Lease Event of Default. To the
extent permitted by applicable law, Lessee hereby waives any rights now or
hereafter conferred by statute or otherwise which may require Lessor to sell,
lease or otherwise use the Aircraft, Airframe or any Engine, or part thereof,
in mitigation of Lessor's damages as set forth in this Section 15 or which may
otherwise limit or modify any of Lessor's rights or remedies under this Section
15.
Section 16. Notices. All notices required under the terms and
provisions hereof shall be in writing and shall be given by certified mail,
telecopy or any other customary means of written communication, addressed:
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If to Lessee, at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇ (telecopy no. 214/904-4022), Attention: Treasurer, or at such other
address as Lessee shall from time to time designate in writing;
If to Lessor, at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(telecopy no. 203/240-7920), Attention: Corporate Trust Administration, or at
such other address as Lessor shall from time to time designate in writing;
If to any Participant or Indenture Trustee, at the applicable address
set forth in the signature pages of the Participation Agreement or Schedule I
thereto, or at such other address as any such Participant or Indenture Trustee,
as the case may be, shall from time to time designate in writing.
The effective date of any such notice shall be, if sent by mail, three
Business Days after mailing and otherwise the date on which it is received by
the addressee. Lessee shall furnish to Lessor for transmission to Indenture
Trustee and Participants a sufficient number of copies of all reports, notices,
requests, demands, certificates, financial statements and other instruments
furnished hereunder, except in any case where Lessee shall have transmitted the
same directly to any such person.
Section 17. Net Lease; Lessee's Obligations; No Setoff,
Counterclaim, Etc. This is a net lease and it is hereby recognized that Lessor
is the owner of the Aircraft (except that Owner Participant will be the owner
for income tax purposes) and Lessee is the lessee thereof. It is the intent of
the parties hereto that this Lease be a "true lease". Lessee's obligation to
pay all Rent payable hereunder as and when due and to the Person entitled
thereto shall, subject to Section 3.8, be absolute and unconditional and shall
not be affected by any circumstance, including without limitation: (a) any
setoff, counterclaim, recoupment, defense or other right which Lessee may have
against Lessor (in its individual or trust capacity), Indenture Trustee (in its
individual or trust capacity), any Participant, Manufacturer, any Indemnified
Party or any other Person for any reason whatsoever; (b) any defect in the
title, airworthiness, condition, design, operation or fitness for use of, or
any damage to or loss, theft, taking, requisition, condemnation, confiscation
or destruction of, the Aircraft, Airframe or any Engine, or any interruption
or cessation in the use or possession thereof by Lessee, any sublessee or any
other Person for any reason whatsoever; (c) any insolvency, bankruptcy,
reorganization or similar proceedings by or against Lessee or any other Person;
(d) any restriction, prevention or curtailment of or interference with any use
of the Aircraft or part thereof; (e) any invalidity or unenforceability or
disaffirmance of this Lease or any provision hereof or any of the other
Operative Agreements or any provision thereof, in each case whether against or
by Lessee or otherwise; or (f) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing; provided, that
nothing in this sentence shall be construed to modify or limit in any way
Lessee's rights under Section 3.8.
If for any reason whatsoever this Lease shall be terminated in whole
or in part by operation of law or otherwise except as specifically provided
herein, Lessee nonetheless agrees,
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subject to Section 3.8, to pay an amount equal to each Basic Rent, Renewal Rent
and Supplemental Rent payment at the time such payment would have become due
and payable in accordance with the terms hereof had this Lease not been
terminated in whole or in part. All Rent payable by Lessee shall be paid
without notice or demand (except as otherwise expressly provided) and, subject
to Section 3.8, without abatement, suspension, deferment, deduction, diminution
or proration by reason of any circumstance or occurrence whatsoever. Lessee
hereby waives, to the extent permitted by applicable law, any and all rights
which it may now have or which at any time hereafter may be conferred upon it,
by statute or otherwise, to terminate, cancel, quit or surrender this Lease or
any part hereof, or to any abatement, suppression, deferment, diminution,
reduction or proration of Rent except in accordance with the express terms
hereof. Each payment of Rent made by Lessee shall, subject to Section 3.8, be
final as to Lessor and Lessee. Lessee will not, subject to Section 3.8, seek
to recover all or any part of any such payment of Rent for any reason
whatsoever. Lessee covenants that it will remain obligated under this Lease in
accordance with its terms and will take no action to terminate, rescind or
avoid this Lease whether or not as a result of the bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding-up
or other similar proceeding affecting Lessor or Owner Participant or any other
action with respect to this Lease which may be taken in any such proceeding by
any trustee or receiver of Lessor or Owner Participant or by any court (it
being understood that nothing in this sentence shall prevent Lessee from taking
any action to which it would have been entitled had such bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding-up or other similar proceeding not occurred).
Section 18. Renewal and Purchase Options.
18.1 Renewal Options. At the end of the Base Lease Term and any
Renewal Term (other than any Renewal Term ending four years after the end of
the Base Lease Term), so long as no Lease Event of Default or Lease Default (of
the type described in Section 14.1 or 14.5) has occurred and is continuing,
Lessee shall have the option to renew this Lease for a Renewal Term. In order
to exercise the option to renew, Lessee shall notify Lessor thereof in writing
not more than nine months nor less than six months prior to the commencement of
the applicable Renewal Term (which notice shall be irrevocable and shall
specify the length of such Renewal Term). Renewal Rent shall be payable in
arrears for each Lease Period occurring during any Renewal Term. The Renewal
Rent payable for any Renewal Term hereunder shall be the fair market rental
value of the Aircraft (as defined below) calculated as of the commencement of
such Renewal Term. Such fair market rental value shall be determined not later
than three months prior to the commencement of such Renewal Term by mutual
consent of Owner Participant and Lessee or, if they shall be unable so to
agree, by three recognized independent aircraft appraisers, one chosen and paid
for by Owner Participant, one chosen and paid for by Lessee and the third
appraiser chosen by the mutual consent of the first two appraisers and paid for
equally by Owner Participant and Lessee, the appraisals of which three
appraisers shall be averaged and such average shall be deemed to be the fair
market rental value of the Aircraft for all purposes hereof; provided, however,
that if the appraisal of one appraiser is more disparate from the average of
all three appraisals than each of the other two
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appraisals, then the appraisal of such appraiser shall be excluded, the
remaining appraisals shall be averaged and such average shall be deemed to be
the fair market rental value of the Aircraft for all purposes hereof. If
either Owner Participant or Lessee shall fail to appoint an appraiser by the
date which is two months prior to the commencement of such Renewal Term or if
such two appraisers cannot agree on the amount of such appraisal and fail to
appoint a third appraiser by the date which is one month before the
commencement of such Renewal Term, then either Owner Participant or Lessee may
apply to any court having jurisdiction (including, without limitation, the
courts referred to in Section 13(b) of the Participation Agreement) to make
such appointment. For purposes of this Section 18.1, fair market rental value
shall be the cash rental obtainable in an arm's-length lease between an
informed and willing lessee (under no compulsion to lease) and an informed and
willing lessor (under no compulsion to lease) and shall be determined on the
assumptions that the Aircraft is in the United States of America, available for
use by Lessee, unencumbered by any renewal or purchase option contained in this
Lease, in the return condition required by Section 5 of this Lease and
otherwise in compliance with and subject to the terms and requirements of this
Lease. Stipulated Loss Value amounts that are payable during any such Renewal
Term shall be calculated as of the date of commencement of such Renewal Term
and shall be determined in the same manner referred to above based on the fair
market sales value of the Aircraft on such date determined in accordance with
Section 18.2(a).
18.2 Purchase Options. (a) Lessee shall have the option to
purchase the Aircraft at the end of the Base Lease Term and each Renewal Term,
so long as (i) no Lease Default (of the type described in Section 14.1 or 14.5)
or Lease Event of Default shall have occurred and be continuing on the date of
notice of exercise of such option and (ii) no Lease Event of Default of the
type described in Section 14.5 or Lease Default of such type shall have
occurred and be continuing on the purchase date. In order to exercise such
option, Lessee shall notify Lessor thereof in writing not more than nine months
nor less than six months prior to the end of the Base Lease Term or such
Renewal Term, as applicable (which notice shall be irrevocable). In such case,
Lessee shall purchase the Aircraft on the last Business Day of the Base Lease
Term or such Renewal Term, as applicable, at a purchase price equal to the fair
market sales value thereof as of such last Business Day. Such fair market
sales value shall be determined not later than three months prior to such last
Business Day by mutual consent of Owner Participant and Lessee or, if they
shall be unable so to agree, by three recognized independent aircraft
appraisers, one chosen and paid for by Owner Participant, one chosen and paid
for by Lessee and the third appraiser chosen by the mutual consent of the first
two appraisers and paid for equally by Owner Participant and Lessee, the
appraisals of which three appraisers shall be averaged and such average shall
be deemed to be the fair market sales value of the Aircraft for all purposes
hereof; provided, however, that if the appraisal of one appraiser is more
disparate from the average of all three appraisals than each of the other two
appraisals, then the appraisal of such appraiser shall be excluded, the
remaining appraisals shall be averaged and such average shall be deemed to be
the fair market sales value of the Aircraft for all purposes hereof. If either
Owner Participant or Lessee shall fail to appoint an appraiser by the date
which is two months prior to such last Business Day or if such two appraisers
cannot agree on the amount of such appraisal and fail to appoint a third
appraiser by the date which
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is one month before such last Business Day, then either Owner Participant or
Lessee may apply to any court having jurisdiction to make such appointment.
For purposes of this Section 18.2, fair market sales value shall be the cash
price obtainable in an arm's-length sale between an informed and willing buyer
(under no compulsion to buy) and an informed and willing seller (under no
compulsion to sell) and shall be determined on the assumptions that the
Aircraft is in the United States of America, available for use by the buyer,
unencumbered by any renewal or purchase option contained in this Lease, in the
return condition required by Section 5 of this Lease and otherwise in
compliance with the requirements of this Lease. At the time of payment to
Lessor, in funds of the type specified in Section 3.6, of the full amount of
the purchase price pursuant to this Section 18.2(a), Lessee shall also pay to
Lessor all unpaid Basic Rent due on or prior to the last day of the Term and
(without duplication) any other Rent which is due and payable through and
including the date of payment.
(b) So long as (i) no Lease Default (of the type described in
Section 14.1 or 14.5) or Lease Event of Default shall have occurred and be
continuing on the date of notice of exercise of such option and (ii) no Lease
Event of Default of the type described in Section 14.5 or Lease Default of such
type shall have occurred and be continuing on the Special Purchase Option Date,
Lessee shall have the option to purchase the Aircraft on January 1, 2014 or, if
such date is not a Business Day, on the next succeeding Business Day (the
"Special Purchase Option Date") at a purchase price equal to 57.72866546% of
Lessor's Cost (the "Special Purchase Price"); provided, that if there has been
an adjustment prior to the Special Purchase Option Date pursuant to Section
3.7, the Special Purchase Price (including any installments thereof) shall be
at all times calculated to preserve the Owner Participant's Special Purchase
Price After- Tax Yield, but in any event subject to Section 3.7.2. Such option
to purchase the Aircraft shall be exercised upon written notice from Lessee to
Lessor given not more than nine months nor less than six months prior to the
Special Purchase Option Date. Such notice shall be irrevocable and shall
contain the statement that this Lease will terminate upon the consummation of
such purchase. On the Special Purchase Option Date, Lessee shall pay to
Lessor, in funds of the type specified in Section 3.6, the full amount of the
Special Purchase Price pursuant to this Section 18.2(b), together with all
unpaid Basic Rent due on or prior to the Special Purchase Option Date (it being
understood and agreed that Lessee shall not be required to pay the portion, if
any, of such Basic Rent designated in Exhibit C hereto as payable in advance on
such Special Purchase Option Date, unless the same is attributable to accrued
interest on the Certificates) and (without duplication) any other Rent
(including Premium, if any, and Break Amount, if any, payable in respect of the
Certificates) which is due and payable through and including the date of
payment; provided, that, if no Lease Default (of the type specified in Section
14.1 or 14.5) or Lease Event of Default exists on the Special Purchase Option
Date and subject to the other conditions herein set forth, Lessee may elect, by
notice to Lessor given at least ten days prior to the Special Purchase Option
Date, to pay the Special Purchase Price in installments as Supplemental Rent,
secured as provided herein, in which case Lessee shall pay to Lessor, on each
EBO Installment Payment Date, the amount determined by multiplying Lessor's
Cost by the percentage set forth opposite such EBO Installment Payment Date in
Part II of Exhibit C.
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(c) In connection with any purchase pursuant to Section 18.2(b),
Lessee may, at its option, as part or all, as the case may be, of the
applicable purchase price, assume all of the rights and obligations of Lessor
under the Trust Indenture in respect of the Certificates (including, without
limitation, any scheduled payment of principal of or accrued interest on the
Certificates due and payable on such date of purchase but only to the extent
that any Basic Rent installment payable by Lessee on any such date of purchase
does not cover such scheduled payment of principal or accrued interest on the
Certificates and excluding any obligations or liabilities of Lessor in its
individual capacity incurred on or prior to such date of purchase, which
obligations and liabilities shall remain the sole responsibility of Lessor in
its individual capacity) in accordance with Section 7.03 of the Trust Indenture
and simultaneously shall pay to Lessor, in funds of the type specified in
Section 3.6, an amount equal to (i) the excess, if any, of the applicable
purchase price over an amount equal to the sum of the principal of, and accrued
and unpaid interest on, the Outstanding Certificates on such date of purchase,
after taking into account any payments of principal and interest made in
respect of the Outstanding Certificates on or before such date of purchase,
plus (ii) all unpaid Basic Rent due and owing by Lessee hereunder on or prior
to such date of purchase and (without duplication) any other Rent which is due
and payable through and including the date of payment (it being understood and
agreed that Lessee shall not be required to pay the portion, if any, of such
Basic Rent designated in Exhibit C hereto as payable in advance on such date of
purchase, unless the same is attributable to accrued interest on the
Certificates); provided, that, if no Lease Default (of the type specified in
Section 14.1 or 14.5) or Lease Event of Default exists on the Special Purchase
Option Date and subject to the other conditions herein set forth or referred to
in Section 8(aa) of the Participation Agreement, Lessee may elect, by notice to
Lessor concurrently with notice of its election to assume such obligations of
Lessor, to pay the amount of the excess calculated pursuant to clause (i) above
in installments as Supplemental Rent, in which case (I) Lessee shall pay to
Lessor on the first EBO Installment Payment Date, the excess, if any, of (x)
the amount determined by multiplying Lessor's Cost by the percentage set forth
opposite such EBO Installment Payment Date in Part II of Exhibit C hereto, over
(y) the principal amount of the Certificates outstanding on such date, and
shall pay to Lessor on each subsequent EBO Installment Payment Date the amount
determined by multiplying Lessor's Cost by the percentage set forth opposite
such EBO Installment Payment Date in Part II of Exhibit C hereto, and (II)
Section 8(aa) of the Participation Agreement shall apply.
(d) Upon full payment to Lessor of the applicable purchase price
for the Aircraft as set forth in this Section 18.2, or the portion thereof due
on the Special Purchase Option Date if Lessee shall have elected to pay the
Special Purchase Price in installments, together with the other amounts
specified above to be paid by Lessee concurrently with such purchase, Lessor
will Transfer to Lessee all of the Lessor's right, title and interest in and to
the Aircraft, this Lease will terminate and, if Lessee shall not have assumed
the rights and obligations of the Owner Trustee under the Trust Indenture in
respect of the Certificates as provided for above, Lessor will request the
Indenture Trustee to execute and deliver to Lessee an appropriate instrument
releasing the Airframe and Engines with respect to which title is transferred
from the lien of the Trust Indenture and releasing the Purchase Agreement, the
Purchase Agreement Assignment, the Engine Purchase Agreement and the Engine
Purchase Agreement Assignment
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from the assignment and pledge, if any, thereunder; provided, that if Lessee
elects to pay the Special Purchase Price in installments, but not to assume the
rights and obligations of Lessor under the Trust Indenture in respect of the
Certificates, as provided for above (and shall have paid in full the
installment thereof due on the Special Purchase Option Date), the following
provisions shall also be applicable (and, as a condition to Lessee's payment of
the Special Purchase Price in installments, the following clauses (a)-(f) shall
have been given effect in one or more amendments to the Operative Agreements,
in each case in form and substance reasonably satisfactory to Lessor): (a)
this Lease shall continue in full force and effect (except as hereinafter
provided) but shall constitute then and thereafter a lease intended for
security securing the payment of such installments (and any appropriate UCC
financing statements or amendments to UCC financing statements shall be filed
in order to indicate that this Lease is intended for security purposes), (b)
Lessor shall permit re-registration of the Aircraft in the name of Lessee or a
Sublessee on the Special Purchase Option Date (it being understood that in all
other respects the registration provisions of the Operative Agreements shall
remain fully applicable), (c) no Basic Rent shall be payable after the Special
Purchase Option Date, except to the extent theretofore accrued, (d) the
Stipulated Loss Value of the Aircraft determined at any time after the Special
Purchase Option Date shall be equal to the aggregate amount of the installments
of the Special Purchase Price which have not been paid at the time of such
determination, (e) the reference to Basic Rent in Section 14.1 shall be deemed
to refer to installments of the Special Purchase Price and (f) in the event of
the occurrence and continuance of a Lease Event of Default after the Special
Purchase Option Date, Lessor shall be entitled to accelerate the unpaid
installments and exercise all the remedies available under applicable law to a
secured creditor with respect thereto.
In connection with, and as a condition to, Lessee's election to pay
the Special Purchase Price in installments pursuant to Section 18.2, but not to
assume the rights and obligations of Lessor under the Trust Indenture in
respect of the Certificates, on the Special Purchase Option Date Lessee shall,
at its sole cost and expense, (a) deliver to Lessor and the Owner Participant
an opinion of ▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.P. or other counsel selected by Lessee and
reasonably satisfactory to Lessor to the effect that this Lease (alone or in
conjunction with other instruments delivered on the Special Purchase Option
Date) creates a valid security interest in the Aircraft securing the payment of
such installments prior to any Liens other than Permitted Liens (except for
those described in Section 6(f)), (b) execute and deliver to Lessor and cause
to be duly filed and recorded such other and further instruments as Lessor may
reasonably request to establish and perfect such a security interest (subject
to no other Liens other than Permitted Liens (except for those described in
clause (f) of Section 6)) in the Aircraft securing the payment by Lessee to
Lessor of such installments and (c) provide to Lessor such other evidence as
Lessor may reasonably request to establish the due authorization and
consummation of the transactions contemplated by this Section 18.2; provided,
that in lieu of satisfying the conditions specified in the foregoing clauses
(a)-(c) of this paragraph, Lessee may deliver to Lessor in support of its
obligation to pay the installments of the Special Purchase Price due after the
Special Purchase Option Date, an irrevocable direct-pay letter of credit issued
by a Qualified Issuing Bank, in form and substance reasonably satisfactory to
Lessor and the Owner
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Participant and in an amount at any time equal to the aggregate amount of such
installments plus an amount equal to 20 days of interest thereon calculated at
the Past Due Rate.
Section 19. Successor Owner Trustee. Lessee agrees that in the
case of the appointment of any successor Owner Trustee pursuant to the terms of
the Trust Agreement, such successor Owner Trustee shall, upon written notice by
such successor Owner Trustee to Lessee, succeed to all the rights, powers and
title of Lessor hereunder and shall be deemed to be Lessor and the owner of the
Aircraft for all purposes hereof without the necessity of any consent or
approval by Lessee (but such successor Owner Trustee shall qualify under the
terms of Section 8(b) of the Participation Agreement) and without in any way
altering the terms of this Lease or Lessee's obligations hereunder. One such
appointment and designation of a successor Owner Trustee shall not exhaust the
right to appoint and designate further successor or additional Owner Trustees
pursuant to the Trust Agreement, and such right may be exercised repeatedly as
long as this Lease shall be in effect.
Section 20. Right to Perform for Lessee. If Lessee fails to make
any payment of Rent required to be made by it hereunder or fails to perform or
comply with any of its agreements contained herein, Lessor (subject to the
terms of the Trust Indenture) or Indenture Trustee may (but shall not be
obligated to) make such payment or perform or comply with such agreement, and
the amount of such payment and the amount of the expenses of Lessor or
Indenture Trustee incurred in connection with such payment or the performance
of or compliance with such agreement, as the case may be, together with
interest thereon at the Overdue Rate, shall be deemed Supplemental Rent,
payable by Lessee upon demand.
Section 21. Quiet Enjoyment. So long as no Lease Event of
Default shall have occurred, and be continuing, during the Term, Lessor will
not, through its own actions or inactions, interfere in the quiet enjoyment of
the Aircraft by Lessee or any Permitted Sublessee.
Section 22. Investment of Security Funds; Miscellaneous;
Amendment.
22.1 Investment of Security Funds. Subject always to the terms of
the Trust Indenture for so long as the Trust Indenture shall remain in effect,
any moneys required to be paid to or retained by Lessor which are not required
to be paid to Lessee pursuant to Section 10.6 or 11.4 solely because a Lease
Event of Default or Lease Default shall have occurred and be continuing, or
which are held by Lessor pending payment to Lessee pursuant to Section 11.4 or
which are required to be paid to Lessee pursuant to Section 10.3 or 11.4 after
completion of a replacement to be made pursuant to Section 10.1 or 10.2, shall,
until paid to Lessee as provided in Section 10 or 11 or applied as provided
herein or in the Trust Indenture or Trust Agreement, be invested by Lessor from
time to time as directed in writing by Lessee and at the expense and risk of
Lessee in the following securities (which shall mature within 91 days of the
date of purchase thereof): (a) direct obligations of the Government; (b)
obligations fully guaranteed by the Government; (c) open market commercial
paper of any corporation incorporated under the laws of the United States of
America or any State thereof rated P-1 or its equivalent by ▇▇▇▇▇'▇ Investors
Service and A-l or its equivalent by Standard & Poor's
SALE AND LEASE AGREEMENT [N396SW]
-61-
68
Rating Group, a division of ▇▇▇▇▇▇-▇▇▇▇, Inc.; or (d) certificates of deposit
issued by, or bankers' acceptances of, or time deposits or a deposit account
with (i) the Owner Trustee or Indenture Trustee (in their individual
capacities) or (ii) any bank, trust company or national banking association
incorporated or doing business under the laws of the United States of America
or any state thereof having a combined capital and surplus of at least
$100,000,000. There shall be promptly remitted to Lessee or its order any gain
(including interest received) realized as the result of any such investment
(net of any fees, commissions and other expenses, if any, incurred in
connection with such investment) unless a Lease Event of Default or a Lease
Default (of the type described in Section 14.1 or 14.5) shall have occurred and
be continuing. Lessee will promptly pay to Lessor, on demand, the amount of
any loss realized as the result of any such investment (together with any fees,
commissions and other expenses, including Taxes, if any, incurred in connection
with such investment), such amount to be disposed of in accordance with the
terms of the Trust Indenture or the Trust Agreement.
22.2 Miscellaneous; Amendment. Lessee shall do, execute,
acknowledge and deliver, or shall cause to be done, executed, acknowledged and
delivered, all such further acts, conveyances and assurances as Owner Trustee,
Indenture Trustee or any Participant shall reasonably require for accomplishing
the purposes of this Agreement and the other Operative Agreements. Any
provision of this Lease which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, Lessee hereby
waives any provision of law which renders any provision hereof prohibited or
unenforceable in any respect. No term or provision of this Lease may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which the enforcement of the change,
waiver, discharge or termination is sought. This Lease shall constitute an
agreement of lease, and nothing herein shall be construed as conveying to
Lessee any right, title or interest in or to the Aircraft, Airframe or Engines
except as a lessee only. The section and paragraph headings in this Lease and
the table of contents are for convenience of reference only and shall not
modify, define, expand or limit any of the terms or provisions hereof and all
references herein to numbered sections, unless otherwise indicated, are to
sections of this Lease. THIS LEASE HAS BEEN, AND EACH LEASE SUPPLEMENT AND
AMENDMENT HERETO IS INTENDED TO BE, DELIVERED IN THE STATE OF NEW YORK AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE IN SUCH STATE BY
RESIDENTS THEREOF AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. This Lease and each Lease
Supplement and amendment hereto may be executed in several counterparts, each
of which shall be deemed an original, and all such counterparts shall
constitute one and the same instrument; provided, that no security interest in
Lessor's right, title and interest in and to this Agreement may be created
through the transfer or possession of any counterpart other than the
counterpart identified, for
SALE AND LEASE AGREEMENT [N396SW]
-62-
69
purposes of perfection of a security interest in chattel paper (as such term is
defined in the UCC), as the original counterpart on the cover hereof.
Section 23. Permitted Foreign Air Carriers. Lessor may, in the
exercise of its reasonable business judgment, by written notice to Lessee,
remove any foreign air carrier from Exhibit D and Lessee may, by written notice
to Lessor, request that any foreign air carrier be added to Exhibit D, subject
to Lessor's prior written consent, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, no deletion of an airline from the
list of Permitted Foreign Air Carriers pursuant hereto shall (i) affect any
existing sublease or other agreement providing for transfer of possession of
the Aircraft, Airframe, any Engine or Part which was permitted hereunder at the
time entered into, or (ii) preclude any subsequent renewal or extension of such
sublease or other agreement to which the Permitted Foreign Air Carrier under a
sublease is entitled by the terms thereof as originally in effect.
SALE AND LEASE AGREEMENT [N396SW]
-63-
70
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to
be duly executed and delivered as of the day and year first above written.
Lessor:
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION, not in its
individual capacity except as expressly stated
herein, and otherwise solely as Owner Trustee
under the Trust Agreement
By: /s/ Pablo de la Canal
-----------------------------------
Corporate Trust Officer
Lessee:
SOUTHWEST AIRLINES CO.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------
Treasurer
SALE AND LEASE AGREEMENT [N396SW]
-64-
71
EXHIBIT A TO
LEASE AGREEMENT
SALE AND LEASE AGREEMENT SUPPLEMENT NO. _____
THIS SALE AND LEASE AGREEMENT SUPPLEMENT NO. _____, dated
______________, _____ between SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
not in its individual capacity but solely as Owner Trustee under that certain
Trust Agreement, dated as of April 1, 1995 (the "Trust Agreement"), between the
Owner Participant named therein and such Bank ("Lessor"), and SOUTHWEST
AIRLINES CO., a Texas corporation ("Lessee"),
RECITALS.
A. On December 9, 1994 an AC Form 8050-2 ▇▇▇▇ of Sale from
Manufacturer (as defined in the Sale and Lease Agreement hereinbelow referred
to) in favor of Lessee covering the Aircraft hereinbelow described was recorded
by the Federal Aviation Administration as Conveyance Number S093890;
▇. ▇▇▇▇▇▇ and Lessee have heretofore entered into that certain
Sale and Lease Agreement dated as of April 1, 1995, as supplemented and amended
from time to time (herein called the "Lease Agreement" and the defined terms
therein being herein used with the same meaning), which Lease Agreement
provides in Section 2 for the execution of a Lease Supplement substantially in
the form hereof for the purpose of Lessee's selling to Lessor, and Lessor's
leasing back to Lessee, the Aircraft under the Lease Agreement as and when
delivered by Lessor to Lessee in accordance with the terms thereof; and
C. The Lease Agreement relates to the airframe and engines
described below, and a counterpart of the Lease Agreement is attached hereto
and made a part hereof and this Lease Supplement, together with such
attachment, is being filed for recordation with the FAA on the date hereof as
one document.
______________________
All of the right, title and interest of Lessor in and to this Sale and
Lease Agreement Supplement has been assigned to and is subject to a security
interest in favor of Wilmington Trust Company, as Indenture Trustee. This Sale
and Lease Agreement Supplement has been executed in several counterparts. No
security interest in Lessor's right, title and interest in and to this Sale and
Lease Agreement Supplement may be created through the transfer or possession of
any counterpart other than the counterpart identified, for purposes of
perfection of a security interest in chattel paper (as such term is defined in
the UCC), as the original counterpart. [This is not the original counterpart.]
A-1
72
In consideration of the premises and other good and sufficient
consideration, and pursuant to Section 2 of the Lease Agreement, Lessor and
Lessee hereby agree as follows:
1. Lessee hereby delivers and sells to Lessor and Lessor hereby
accepts and purchases from Lessee and in turn delivers and leases back to
Lessee, and Lessee hereby accepts and leases back from Lessor, under the Lease
Agreement, as herein supplemented, the following-described Boeing Model 737-3H4
Aircraft (the "Delivered Aircraft"), which Delivered Aircraft as of the date
hereof consists of the following:
Airframe: U.S Registration Number N396SW and Manufacturer's Serial
No. 27690; and
Engines: Two CFM International Model CFM56-3-B1 Engines installed
thereon bearing Engine Manufacturer's Serial Numbers as follows: 856995 and
857982.
Each of the Engines described above has 750 or more rated takeoff
horsepower or the equivalent of such horsepower.
2. The Delivery Date of the Delivered Aircraft is the date of
this Lease Supplement set forth in the opening paragraph hereof.
3. Lessee hereby confirms to Lessor that the Delivered Aircraft
has been or will be duly marked in accordance with the terms of Section 7.l.2
of the Lease and that Lessee has accepted the Delivered Aircraft for all
purposes hereof and of the Lease Agreement, including its being airworthy, in
accordance with specifications, in good working order and repair and without
defect or inherent vice in title, condition, design, operation or fitness for
use, whether or not discoverable by Lessee as of the date hereof, and free and
clear of all Liens except Permitted Liens; provided, however, that this Section
3 is without prejudice to the rights of Lessee or Lessor against Manufacturer
or any supplier of the Aircraft, Engines or any Part.
4. Lessor's Cost for the Delivered Aircraft is $31,650,000.
5. All the provisions of the Lease Agreement are hereby
incorporated by reference in this Lease Supplement, on and as of the date of
this Lease Supplement, to the same extent as if fully set forth herein.
6. THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF NEW
YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE.
A-2
73
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease
Supplement to be duly executed and delivered as of the date and year first
above written.
Lessor:
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION, not in its
individual capacity but solely as Owner
Trustee under the Trust Agreement
By
-----------------------------------
Corporate Trust Officer
Lessee:
SOUTHWEST AIRLINES CO.
By
-----------------------------------
Treasurer
A-3
74
EXHIBIT B-1 TO
LEASE AGREEMENT
STIPULATED LOSS VALUE SCHEDULE
SLV
Determination Stipulated Loss Value
Date (% of Lessor's Cost)
------------------ ---------------------
[The portion of this Exhibit appearing below this text is
intentionally deleted from the FAA filing counterpart as the parties hereto
deem it to contain confidential information.]
_________________________
* NOTE: If the event giving rise to an obligation to pay any Stipulated
Loss Value occurs and the actual date of the loss of tax benefits
resulting from such event shall be earlier or later than the date
assumed in calculating the Federal income tax consequences reflected
in the applicable Stipulated Loss Value, such Stipulated Loss Value
shall be appropriately adjusted upwards or downwards to reflect the
actual timing of the loss of such tax benefits, but otherwise based on
the same original assumptions.
▇-▇-▇
▇▇
▇▇▇▇▇▇▇ ▇-▇ TO
LEASE AGREEMENT
TERMINATION VALUE SCHEDULE
TV
Determination Termination Value
Date (% of Lessor's Cost)
-------------- --------------------
[The portion of this Exhibit appearing below this text is
intentionally deleted from the FAA filing counterpart as the parties hereto
deem it to contain confidential information.]
_________________________
* NOTE: If the event giving rise to an obligation to pay any
Termination Value occurs and the actual date of the loss of tax
benefits resulting from such event shall be earlier or later than the
date assumed in calculating the Federal income tax consequences
reflected in the applicable Termination Value, such Termination Value
shall be appropriately adjusted upwards or downwards to reflect the
actual timing of the loss of such tax benefits, but otherwise based on
the same original assumptions.
B-2-1
76
EXHIBIT C TO
LEASE AGREEMENT
PART I
RENT PAYMENT SCHEDULE
Percentage of
Lessor's Cost
----------------------------------------------------------------------------
Rent Payment
Date Total Advance Arrears
-------------- ----- ------- -------
[The portion of this Exhibit appearing below this text is
intentionally deleted from the FAA filing counterpart as the parties hereto
deem it to contain confidential information.]
C-1
77
EXHIBIT C TO
LEASE AGREEMENT
PART II
EBO INSTALLMENT PAYMENT SCHEDULE
EBO Installment Percentage of
Payment Date Lessor's Cost
---------------- ---------------
[The portion of this Exhibit appearing below this text is
intentionally deleted from the FAA filing counterpart as the parties hereto
deem it to contain confidential information.]
C-2
78
EXHIBIT D TO
LEASE AGREEMENT
PERMITTED FOREIGN AIR CARRIERS
Aer Lingus Icelandair
Aerolineas Argentinas Interflug
Air Afrique Japan Air Lines
Air Canada Japan Air Lines System
Air Europa Japan TransOcean Air
Air France JAT
Air Inter KLM
Air Jamaica Korean Air
Air New Zealand LAN Chile
Air UK Lauda Air
Alitalia Lufthansa
All Nippon Airways Luxair
ALM Maersk
Ansett Airlines of Australia Malaysian Airline System
Australian Airlines Martinair
Austrian Airlines Monarch Airlines
AVENSA Nordair
Bahamasair Olympic Airlines
Braathens S.A.F.E. Philippine Airlines
Britannia QANTAS Airways
British Airways Quebecair
British Midland Ryanair
BWIA Sabena
CAAC SAS
Canadian Airlines International Saudi Arabian Airlines
Cathay Pacific Airways Singapore Airlines
Cayman Airways Swissair
China Airlines TAP
Condor Flugdienst Thai Airways
DanAir Trans Australia Airlines
Egyptair Transavia Holland
El Al Transbrasil
Finnair VARIG
Garuda VIASA
Hopag ▇▇▇▇▇ VIVA Air
Iberia
D-1
79
EXHIBIT E TO
LEASE AGREEMENT
ASSUMED INTEREST AMOUNTS
Rent Payment
Date or Assumed Interest
Deferred Equity Date Amount
-------------------- ----------------
[The portion of this Exhibit appearing below this text is
intentionally deleted from the FAA filing counterpart as the parties hereto
deem it to contain confidential information.]
▇-▇
▇▇
▇▇▇▇▇▇▇▇ ▇ TO
LEASE AGREEMENT
CERTAIN RETURN CONDITIONS
In the event that Lessee (or any Permitted Sublessee then in
possession of the Aircraft) shall not then be using a continuous or
"progressive" maintenance program with respect to the Airframe, Lessee agrees
that at the time of its return of the Aircraft pursuant to Section 5.3, the
Airframe shall have at least one year remaining until the next scheduled "D"
check (which term, as used in this paragraph, shall refer to a "full D" check
accomplished at ten year intervals, rather than to any "quarter D" or "half D"
check which may be scheduled under the Maintenance Program then used by Lessee
or any Permitted Sublessee, as the case may be).
* * *
APP-1