Document No. 3
--------------------------------------------------------------------------------
SALE AND LEASE AGREEMENT
dated as of September 1, 1990
between
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION
as Owner Trustee,
Lessor
and
SOUTHWEST AIRLINES CO.,
Lessee
--------------------------------
One Boeing Model ▇▇▇-▇▇▇ ▇▇▇▇▇▇▇▇
(▇▇▇▇▇)
▇▇▇▇▇▇▇▇▇ AIRLINES 1990 TRUST II
--------------------------------------------------------------------------------
The rights of Lessor under this Sale and Lease Agreement have been
assigned to, and are subject to a security interest in favor of, Progress Credit
Corporation as Lender under a Security Agreement and Assignment of Leases 55SW
dated as of September 1, 1990. This Sale and Lease Agreement has been executed
in counterparts. To the extent that this Sale and Lease Agreement constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no security interest in this Sale and
Lease Agreement may be created through the transfer or possession of any
counterpart other than the counterpart that states on its cover that it is the
original counterpart. This is not the original counterpart.
TABLE OF CONTENTS
Section Page
------- ----
Section 1. Definitions ..................................................... 1
Section 2. Sale, Lease and Acceptance ...................................... 9
Section 3. Term and Rent ................................................... 9
3.1 General ................................................... 9
3.2 Lease Term ................................................ 9
3.3 Basic Rent ................................................ 9
3.4 Supplemental Rent ......................................... 10
3.5 Payments .................................................. 10
Section 4. Lessor's Representations and Warranties; DISCLAIMER;
Certain Agreements of Lessee ................................. 11
4.1 Lessor's Representations and Warranties; DISCLAIMER ....... 11
4.2 Certain Agreements of Lessee .............................. 11
Section 5. Return of Aircraft .............................................. 12
5.1 General Condition upon Return ............................. 12
5.1.1 Airworthiness ...................................... 12
5.1.2 Free of Liens ...................................... 12
5.1.3 Operating Configuration and Condition .............. 12
5.1.4 Cleanliness and Operability ........................ 12
5.1.5 Parts and Equipment ................................ 12
5.1.6 Corrosion Treatment ................................ 12
5.1.7 Hush Kits ......................................... 13
5.1.8 Other Conditions ................................... 13
5.2 Return of Other Engines ................................... 13
5.3 Return at End of Base Lease Term or Renewal Lease Term .... 13
5.3.1 Airframe ........................................... 14
5.3.2 Engines ............................................ 14
SALE AND LEASE AGREEMENT
i
Section Page
------- ----
5.3.3 Boroscope .......................................... 15
5.3.4 Landing Gears ...................................... 15
5.3.5 APU ................................................ 15
5.3.6 Other Components ................................... 15
5.4 Financial Adjustments .................................... 15
5.4.1 Airframe ........................................... 15
5.4.2 [Intentionally omitted.] ........................... 15
5.4.3 Landing Gears ...................................... 16
5.5 Manuals; Service Bulletins, Etc ........................... 16
5.6 Storage upon Return ....................................... 16
5.7 Failure to Return Aircraft or Engines ..................... 16
5.8 Aid in Disposition ........................................ 17
Section 6. Liens ........................................................... 17
Section 7. Registration, Operation, Possession, Subleasing and Records ..... 17
7.1 Registration and Operation ................................ 17
7.1.1 Registration ....................................... 17
7.1.2 Nameplate .......................................... 18
7.1.3 Compliance with Laws ............................... 18
7.1.4 Insurance Requirements; Government
Requisition; Indemnity ........................... 18
7.2 Possession ................................................ 19
7.2.1 Interchange and Pooling ............................ 19
7.2.2 Testing and Service ................................ 19
7.2.3 Civil Reserve Air Fleet Program .................... 19
7.2.4 Installation of Engines ............................ 20
7.2.5 Installation of Engines on Other Airframes ......... 20
7.2.6 Pooling of Parts ................................... 20
7.2.7 Wet Lease .......................................... 20
7.2.8 Sublease to Permitted Air Carriers ................. 20
SALE AND LEASE AGREEMENT
ii
Section Page
------- ----
7.3 Records and Reports ....................................... 22
7.3.1 Records ............................................ 22
7.3.2 Information and Reports ............................ 22
7.3.3 Financial Information .............................. 23
Section 8. Maintenance; Replacement and Pooling of Parts; Alterations,
Modifications and Additions .................................. 23
8.1 Maintenance ............................................... 23
8.1.1 Maintenance Program ............................... 23
8.1.2 Compliance with Government Requirements ........... 24
8.2 Replacement of Parts ...................................... 24
8.3 Pooling of Parts .......................................... 24
8.4 Alterations, Modifications and Additions .................. 25
Section 9. [Intentionally Omitted] ......................................... 26
Section 10. Loss, Destruction, Requisition, Etc ............................ 26
10.1 Event of Loss with Respect to Aircraft .................... 26
10.2 Event of Loss with Respect to an Engine ................... 26
10.2.1 Event of Loss ..................................... 26
10.2.2 Conditions; Lessee's Obligations .................. 27
10.2.3 Recordation and Opinions .......................... 28
10.2.4 Conveyance; Replacement Engine .................... 28
10.2.5 No Reduction of Rent .............................. 28
10.3 Application of Certain Payments ........................... 28
10.3.1 Replacement of Engine ............................. 28
10.3.2 Nonreplacement .................................... 28
10.4 Requisition of Aircraft for Use by
Governmental Authorities ................................ 29
10.5 Requisition of an Engine for Use by
Governmental Authorities ................................ 29
SALE AND LEASE AGREEMENT
iii
Section Page
------- ----
10.6 Application of Payments During Existence of Default ...... 29
Section 11. Insurance ...................................................... 29
11.1 Public Liability and Property Damage Insurance ........... 29
11.1.1 Type, Form and Amount ............................. 30
11.1.2 Coverage .......................................... 30
11.1.3 Additional Insureds ............................... 30
11.2 Insurance Against Loss of or Damage to Aircraft
and Engines ............................................. 30
11.2.1 Type, Form and Amount ............................. 30
11.2.2 War-Risk Insurance ................................ 30
11.2.3 Certain Requirements .............................. 31
11.2.3.1 Additional Insureds ....................... 31
11.2.3.2 Payment of Proceeds ....................... 31
11.2.3.3 Waiver of Subrogation ..................... 31
11.2.4 Deductibles ....................................... 31
11.2.5 Government Indemnity .............................. 32
11.3 General Policy Provisions ................................. 32
11.3.1 Primary Insurance ................................. 32
11.3.2 Coverage for Each Insured ......................... 32
11.3.3 Waiver of Certain Rights .......................... 32
11.3.4 Breach of Warranty ................................ 32
11.3.5 Notice of Termination or Changes .................. 32
11.3.6 Nonliability for Premiums ......................... 33
11.3.7 Identity of Insurers .............................. 33
11.4 Application of Insurance Proceeds ......................... 33
11.5 Certificates; Reports, Etc. ............................... 33
11.6 Lessor's Right to Maintain Insurance ...................... 34
11.7 Insurance for Own Account ................................. 34
11.8 Self-Insurance ............................................ 34
SALE AND LEASE AGREEMENT
iv
Section Page
------- ----
Section 12. Inspection ..................................................... 35
Section 13. Assignment ..................................................... 35
13.1 General .................................................. 35
13.2 Security for Lessor's Obligations ........................ 35
Section 14. Events of Default .............................................. 36
14.1 Failure To Pay Rent ...................................... 36
14.2 Specific Defaults ........................................ 36
14.3 General Default .......................................... 36
14.4 Misrepresentation and Breach of Warranty ................. 36
14.5 Bankruptcy, Etc. ......................................... 36
14.6 Cross Default ............................................ 37
Section 15. Remedies ....................................................... 37
15.1 Default; Remedies ......................................... 37
15.1.1 Return; Repossession .............................. 37
15.1.2 Sale, Use, Etc. ................................... 38
15.1.3 Certain Liquidated Damages ........................ 38
15.1.3.1 Liquidated Damages--
Fair Market Rental Value .............. 38
15.1.3.2 Liquidated Damages--
Fair Market Sales Value ............... 38
15.1.4 Liquidated Damages upon Sale ...................... 39
15.1.5 Rescission and Other Remedies ..................... 39
15.2 Determination of Fair Market Rental Value and
Fair Market Sales Value ................................ 40
15.3 No Waiver, Etc. .......................................... 40
Section 16. Notices ........................................................ 40
Section 17. Net Lease; Lessee's Obligations; No Setoff, Counterclaim, Etc. . 41
SALE AND LEASE AGREEMENT
v
Section Page
------- ----
Section 18. Renewal Options; Early Termination ............................. 42
18.1 Renewal Options .......................................... 42
18.2 Early Termination ........................................ 43
18.3 Default Purchase Option .................................. 43
Section 19. Successor Owner Trustee ........................................ 43
Section 20. Right to Perform for Lessee .................................... 44
Section 21. Quiet Enjoyment ................................................ 44
Section 22. Investment of Security Funds; Miscellaneous; Amendment ......... 44
22.1 Investment of Security Funds ............................. 44
22.2 Miscellaneous; Amendment ................................. 45
Section 23. Permitted Foreign Air Carriers ................................. 46
Signatures
EXHIBIT A FORM OF LEASE SUPPLEMENT
EXHIBIT B PERMITTED FOREIGN AIR CARRIERS
EXHIBIT C OTHER RETURN CONDITIONS
EXHIBIT D TERMINATION VALUE SCHEDULE
SCHEDULE I LESSOR'S COST
SALE AND LEASE AGREEMENT
vi
THIS SALE AND LEASE AGREEMENT is dated as of September 1, 1990, between
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement hereinafter
referred to ("Lessor"), and SOUTHWEST AIRLINES CO., a Texas corporation
("Lessee").
Recitals
1. Lessee owns the Aircraft.
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 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
Participation Agreement.
"Act" means the Federal Aviation Act of 1958, as amended from time
to time.
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person.
"Aircraft" means the Airframe, together with the two Engines (or any
Replacement Engine substituted for either of such Engines hereunder), whether or
not any of such initial or Replacement Engines may on the Delivery Date or from
time to time thereafter be installed on the Airframe or may be installed on any
other airframe or on any other aircraft.
"Airframe" means (i) the Boeing Model 737-2H4 aircraft (excluding
Engines or engines from time to time installed thereon) specified in the initial
Lease Supplement sold hereunder by Lessee to Lessor, and leased back by Lessor
to Lessee, all hereunder and under the initial Lease Supplement, and (ii) any
and all Parts so long as the same shall be incorporated in such aircraft and any
and all Parts removed from such aircraft so long as title thereto shall remain
vested in Lessor in accordance with the terms of Section 8.
SALE AND LEASE AGREEMENT
1
"Base Lease Term" means the period commencing on the Base Lease Term
Commencement Date and expiring on December 31, 1995.
"Base Lease Term Commencement Date" means October 1, 1990.
"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 and the Warranty ▇▇▇▇ of
Sale.
"Business Day" means a day on which banks are not required or
authorized to close in any of New York City, Dallas, Texas, the State of Florida
or Salt Lake City, Utah, or such other city as shall be the situs of the
principal office of Owner Participant, Lender, Lessee or Lessor at the time in
question.
"Cards" is defined in Section 5.3.1.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time.
"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.
"DOT" means the United States Department of Transportation or any
governmental person, agency or authority succeeding to the functions of such
Department of Transportation.
"Engine" means (i) each of the ▇▇▇▇▇ & ▇▇▇▇▇▇▇ JT8D-9A engines
identified by manufacturer's serial number in the initial Lease Supplement
subjecting the Aircraft to this Lease, whether or not on the Delivery Date or
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 and any and all Parts removed from such Engine
so long as title thereto shall remain vested in Lessor in accordance with the
terms of Section 8. Except as otherwise set forth herein, at such time as a
Replacement Engine shall be substituted hereunder 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.
SALE AND LEASE AGREEMENT
2
"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 180 consecutive days or more (unless the location of the
property is known and Lessee is diligently pursuing recovery of the property,
but in no event beyond the expiration of the Term) 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 or
requisition of use of such property by the Government or any foreign government
or any instrumentality or agency thereof for a period in excess of twelve
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 or other governmental body (including any court) having jurisdiction, the
use of such property in the normal course of interstate air transportation of
persons or cargo 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, and, (A) in the
case in which such prohibition shall apply generally to all similar Boeing Model
737-200 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; (v) the condemnation or requisition of title to such property by the
Government or any foreign government or any instrumentality or agency thereof;
or (vi) respecting any Engine, any divestiture of title to an Engine treated as
an Event of Loss pursuant to Section 7.2.1 or any other provision hereof. An
Event of Loss with respect to the Aircraft shall be deemed to have occurred if
an Event of Loss occurs with respect to the Airframe. The date of an Event of
Loss shall be deemed to be the date of such insurance settlement, loss of use,
theft, disappearance, condemnation, confiscation, divestiture, taking or
requisition of title or use or prohibition, except that, for the purposes of
clauses (i), (iii) and (iv) above, no Event of Loss shall be deemed to have
occurred until the expiration of the applicable period referred to therein.
"FAA" means the Federal Aviation Administration or any governmental
person, agency or other authority succeeding to the functions of the Federal
Aviation Administration.
"FAA Regulations" means the Federal Aviation Regulations issued
pursuant to the Act from time to time, or any successor regulations thereto.
SALE AND LEASE AGREEMENT
3
"Government" means the federal government of the United States of
America or any instrumentality or agency thereof.
"Guarantor" means Cauff, ▇▇▇▇▇▇▇ & Co., Inc., a Florida corporation.
The term "incorporated in" means incorporated or installed in or
attached to or otherwise made a part of.
"Indemnified Parties" means (i) First Security Bank of Utah,
National Association, in its individual capacity and as Owner Trustee, (ii)
Owner Participant, (iii) Lender, (iv) the Trust Estate, (v) the respective
successors and assigns of the foregoing and (vi) the respective officers and
directors of the foregoing.
"Interim Lease Term" means the period from the Delivery Date to and
including September 30, 1990.
"Lease", "this Lease", "this Agreement", "hereby", "herein",
"hereof", "hereunder" or other like 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 three-month period commencing on October
1, January 1, April 1 and July 1, as the case may be, during the Term.
"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.
"Lender" means Progress Credit Corporation, a Florida corporation,
and its successors and assigns.
"Lessee" means Southwest Airlines Co., a Texas corporation, and its
permitted successors or assigns.
"Lessor" means Owner Trustee.
"Lessor's Cost" for the Aircraft means the amount identified as such
in Schedule I hereto.
SALE AND LEASE AGREEMENT
4
"Lessor Liens" means Liens of any Person claiming by, through or
under Lessor, First Security Bank of Utah, National Association, in its
individual capacity, or Owner Participant which arise as a result of (i) claims
against any such Person not related to the transactions contemplated by the
Operative Agreements (it being understood that, for purposes of this clause (i),
incurrence of any Successor Indebtedness to refund or refinance debt represented
by the Note is deemed to be a transaction contemplated by the Operative
Agreements), (ii) any act or omission of any such Person 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 incurred by any such Person for which Lessee is not
obligated to indemnify pursuant to the Participation Agreement, or (iv) claims
against any such Person arising out of any transfer by such Person in violation
of the express terms of the Operative Agreements.
"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.
"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.
"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, the Guaranty, each
Lease Supplement, the Participation Agreement, the Mortgage, the Loan Agreement,
the Note, the Trust Agreement, the Bills of Sale, and the Tax Indemnification
Agreement, including any consents included in or attached to any thereof.
"Overdue Rate" means 3% in excess of the interest rate publicly
announced in New York City from time to time by Citibank, N.A. as its prime or
base lending rate, but in no event to exceed the maximum rate permitted by
applicable law. Any interest payable hereunder at the Overdue Rate 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 CL Aircraft XXXI, Inc., a Florida
corporation, and its successors and permitted assigns.
SALE AND LEASE AGREEMENT
5
"Owner Trustee" means First Security Bank of Utah, National
Association, not in its individual capacity but solely as trustee under the
Trust Agreement, and any successor, separate or additional Owner Trustee
thereunder.
"Participants" means Owner Participant and Lender and their
respective successors and permitted assigns.
"Participation Agreement" means the Participation Agreement, dated
as of September 1, 1990, among Lessee, Lender, Guarantor, Owner Participant, and
Lessor.
"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 severable 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 "Part" means any of the
foregoing) or, so long as title thereto shall remain vested in Lessor in
accordance with Section 8.2, after removal therefrom.
"Permitted Foreign Air Carrier" means any "foreign air carrier" (as
defined in the Act) listed on Exhibit B hereto (as the same may be modified from
time to time in accordance with Section 23) or any successor of any such air
carrier, which carrier or successor is not in any case, at the time a Permitted
Sublease is (or is proposed to be) entered into, the subject of bankruptcy,
reorganization or similar proceedings.
"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.
"Renewal Rent" means the rent payable in respect of a Renewal Term
determined pursuant to Section 18.1.
SALE AND LEASE AGREEMENT
6
"Renewal Term" means any of the successive periods of integral
multiples of two years each but not more than six years in the aggregate which
follow the end of the Base Lease Term with respect to which Lessee shall have
exercised its option pursuant to Section 18.
"Rent" means Basic Rent, Renewal Rent and Supplemental Rent.
"Rent Payment Date" means each December 31, March 31, June 30 and
September 30 during the Term commencing September 30, 1990.
"Replacement Engine" means a ▇▇▇▇▇ & ▇▇▇▇▇▇▇ JT8D-9A engine (or an
improved model engine 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 or
10.2.
"Securities Act" means the Securities Act of 1933, as amended.
"Stipulated Loss Value" means (i) $12,100,000.00 during the Base
Lease Term and (ii), during any Renewal Lease Term, such amount as shall be
calculated in accordance with Section 18.1, in each case as adjusted pursuant to
Section 13 of the Participation 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,
(ii) all amounts required to be paid by Lessee under the agreements, covenants
and indemnities contained in the Participation Agreement and (iii) all amounts
required to be paid pursuant to Section 3.4.
"Tax Indemnification Agreement" means the Tax Indemnification
Agreement, dated as of September 1, 1990, between Owner Participant and Lessee.
"Term" means the term for which the Aircraft is leased pursuant to
Section 3 hereof and shall include the Interim Lease Term, Base Lease Term and
any Renewal Term.
"Termination Value" means the greater of (i) the sum of (A) the
amount set forth in Exhibit D hereto opposite the Rent Payment Date as of which
Termination Value is being determined and paid plus (B) such amount of Lessee's
Actual Cost and the Purchase Price as Owner Participant shall have paid pursuant
to Section 13 of the Participation Agreement, or (ii) the amount of indebtedness
represented by the Note or
SALE AND LEASE AGREEMENT
7
any Successor Indebtedness (including interest accrued thereon) on such Rent
Payment Date plus any other amount due and payable to Lender under any Operative
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 September
1, 1990, between Owner Participant and First Security Bank of Utah, National
Association, in its individual capacity.
"Trust Estate" means the Trust Estate as that term is defined in the
Trust Agreement.
"UCC" means the Uniform Commercial Code as in effect in any
applicable jurisdiction.
"U.S. Air Carrier" means any United States air carrier (i) as to
which there is in force a certificate issued pursuant to Section 401 of the Act,
(ii) 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 a United
States air carrier by certification or otherwise under any successor or
substitute provisions therefor or in the absence thereof and (iii) which, in any
case, at the time a Permitted Sublease is (or proposed to be) entered into, is
not the subject of proceedings under the Federal Bankruptcy Code of 1978, as
amended.
"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.
SALE AND LEASE AGREEMENT
8
Section 2. Sale, Lease and Acceptance.
(a) Lessor, subject to satisfaction or waiver of the conditions set
forth in Section 5 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 to
Lessee hereunder, and Lessee hereby agrees, expressly for the direct benefit of
Lessor and Owner Participant to sell to Lessor and to lease back 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 September 28, 1990. The purchase price of the
Aircraft shall be paid by Lessor to Lessee on the Delivery Date in the manner
specified in Section 3 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 acceptance by Lessee of the Aircraft for all purposes of this
Agreement.
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 the Renewal
Terms, if any.
3.3 Basic Rent. Lessee hereby agrees to pay to Lessor Basic Rent
with respect to the Aircraft, in arrears, on each Rent Payment Date, in the
amount of $432,000; provided that (i) on the first Rent Payment Date (September
30, 1990), only Basic Rent in the amount of $4,800 per each day elapsed during
the Interim Lease Term shall be due and (ii), if Lessee shall exercise its
option under Section 18.2 or 18.3, then the installment
SALE AND LEASE AGREEMENT
9
of Basic Rent (or Rent, as the case may be) due on such early termination date
shall be reduced by $4,800 per day (or in the case of Renewal Rent, by the
quotient of the quarterly installment thereof divided by 90) for each day the
final Lease Period has been foreshortened.
3.4 Supplemental Rent. 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 when and as the same shall become due
and owing and all other amounts of Supplemental Rent 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.
3.5 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 available not later than noon, New York City
time, on the date due, to Owner Participant's account set forth in Schedule I to
the Participation Agreement, or as otherwise directed by Owner Participant in
writing at least five Business Days prior to the date such payment is due;
provided, however, that so long as Lessee shall not have received such five
Business Days' prior written notice of the fact that the Mortgage shall have
been terminated, Lessor hereby directs and Lessee agrees, that, unless Lender
shall otherwise direct in writing, all Rent payable to Lessor and assigned to
Lender pursuant to the Mortgage shall be paid prior to noon, New York City time,
on the due date thereof directly to Lender by wire transfer to *
(ABA No. 063-000-021),for the account of Progress Credit
Corporation (account no. 175-003-956-35), with reference to ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Interest. 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.
* First Union National Bank of Florida, Jacksonville, Florida
SALE AND LEASE AGREEMENT
10
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". NEITHER LESSOR (INDIVIDUALLY OR
AS OWNER TRUSTEE) NOR OWNER PARTICIPANT MAKES, HAS MADE OR SHALL BE DEEMED TO
HAVE MADE, AND EACH HEREBY EXPRESSLY DISCLAIMS, 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 First Security Bank of
Utah, 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 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 Trust Estate, and (iv)
represents and warrants that it is a "citizen of the United States" as defined
in Section 101(16) of the Act and agrees that if at any time a responsible
officer in its Corporate Trust Department shall obtain actual knowledge that it
has ceased to be a "citizen of the United States" within the meaning of Section
101(16) of the Act it will promptly resign as Owner Trustee, effective upon the
appointment of a successor Owner Trustee in accordance with Section 9.01 of the
Trust Agreement. 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 or cause any interference in the quiet enjoyment of the
Aircraft by Lessee or any Permitted Sublessee and 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.
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 Owner Participant that it shall perform
the agreements, covenants and indemnities set forth in the Participation
Agreement (including, without limitation, Sections 8.1 and 8.2 of the
Participation Agreement) which are incorporated herein, and hereby restates
Lessee's representations and warranties set forth in the Participation
Agreement,
SALE AND LEASE AGREEMENT
11
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. Subject to Section 10, upon the
expiration or termination of this Lease, Lessee will cause the Aircraft, if then
not registered in the name of Lessor with the FAA for any reason, to be
reregistered in the name of Lessor with the FAA and will return the Aircraft to
Lessor by delivering the same at any location in the continental United States
selected by Lessee at which Lessee has maintenance facilities (and Section 5.6
shall apply). 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;
5.1.2 Free of Liens. Shall be free and clear of all Liens
except Lessor Liens and Liens arising by, through or under Lender;
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 in the same configuration as a
majority of the remainder of all 737-200 series aircraft operated by Lessee,
shall be in compliance with the Maintenance Program and shall be in as good
operating condition as on the Delivery Date, ordinary wear and tear and changes
and alterations made by Lessee as permitted under Section 8.4 hereof or Section
13 of the Participation Agreement excepted. All Lessee or Permitted Sublessee
exterior or interior insignia, logos or markings, as the case may be, shall have
been painted over in matching colors in a workmanlike manner;
5.1.4 Cleanliness and Operability. Shall be clean by United
States commercial airline operating standards with all systems and components
operable;
5.1.5 Parts and Equipment. Shall have installed thereon the
Engines identified in the initial Lease Supplement, as well as all Parts
installed thereon at the commencement of the Term, or replacements therefor made
in accordance with the terms of this Lease;
5.1.6 Corrosion Treatment. Shall comply with the corrosion
prevention procedures to the extent set forth in the Maintenance Program;
SALE AND LEASE AGREEMENT
12
5.1.7 Hush Kits. Shall be fitted with a hush kit, if a Stage
III Upgrade shall have occurred and the Owner Participant shall have financed
such upgrade pursuant to the provisions of Section 13.4 of the Participation
Agreement; and
5.1.8 Other Conditions. Shall otherwise be in the condition
set forth in Exhibit C hereto.
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 ▇▇▇▇▇ & ▇▇▇▇▇▇▇ JT8D-9A engine (or an improved model
engine 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 and utility 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 all Liens except Lessor Liens and Liens arising by, through or
under Lender; 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 except Lessor Liens and Liens arising by, through or under
Lender, 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, Transfer to Lessee any Engine not installed on the
Airframe at the time of return, free and clear of all Liens, including Lessor
Liens.
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 and the manufacturer of
the Engines or any 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 with on or prior to the return date). Lessee shall have treated the
Aircraft, including without limitation, with respect to maintenance, additions
and modifications, during the Term, similarly to all other Boeing 737-200
aircraft in its fleet.
SALE AND LEASE AGREEMENT
13
At the request of Lessor delivered to Lessee not more than 30 days prior
to the end of the Term, the Aircraft shall be check flown by Lessee (or any
Permitted Sublessee) at Lessee's expense using qualified flight personnel, for
not more than two hours, on a non-commercial flight, for the purpose of
demonstrating to Lessor the satisfactory operation of the Aircraft and its
equipment and systems; provided, however, that such check flight shall not
interfere with the normal operation or maintenance of the Aircraft by, or the
business of, Lessee (or any Permitted Sublessee). Up to five of Owner
Participant's designees or representatives may participate in such flight as
observers. The form of test flight procedure to be followed shall be in
accordance with Lessee's normal test flight procedure, and the test flight may
be a return delivery flight. The Aircraft shall be check flown only once
pursuant to the provisions of this Section 5.3, unless further check flights are
required in order to verify the correction of any discrepancy or malfunction
detected in such first check flight, in which case a second check flight shall
be performed in accordance with the procedures set forth herein solely in order
to verify such correction.
At redelivery of the Aircraft to Lessor hereunder, the following specific
requirements shall be met by Lessee or, in lieu thereof, Lessee shall compensate
Lessor therefor, as specifically provided for in this Section:
5.3.1 Airframe. (I) At least 40% of the time (or cycles, if
applicable) shall remain before the next required performance of each structural
work task card (the "Cards") (or the then equivalent under Lessee's Maintenance
Program) (it being understood that, as used herein, "Cards" refers to the
heaviest airframe check currently used under Lessee's Maintenance Program), and
all Cards currently performed on a sampling basis under the Maintenance Program
shall have been fully accomplished without regard to any sampling then permitted
under the Maintenance Program, (II) Lessee shall have performed a complete "C"
check or its equivalent (all phases) on the Airframe no more than 200 flight
hours prior to its return to Lessor (and Lessee shall have corrected to the
Lessor's reasonable satisfaction any deficiencies discovered during such check,
and will not have deferred any maintenance discrepancies), and (III) Lessee
shall have completed a complete "▇" ("▇▇" and "B2") check immediately prior to
redelivery;
5.3.2 Engines. Every ESV-1 Engine shall have no more than
4,000 hours or cycles since its last ESV-1. Each ESV-2 Engine shall have no more
than 6,000 hours or cycles since its last ESV-2. No life limited component of an
Engine shall have less than 3,000 hours or cycles remaining until its next
required replacement. For the purposes of this Section, an ESV-1 Engine shall be
an Engine or engine installed on the Airframe (in compliance with Section 5.2)
whose last engine service visit (or the equivalent under the Maintenance
Program) was an ESV-1, and an ESV-2 Engine shall be an Engine
SALE AND LEASE AGREEMENT
14
or engine installed on the Airframe (in compliance with Section 5.2) whose last
engine service visit (or the equivalent under the Maintenance Program) was an
ESV-2;
5.3.3 Boroscope. The hot section of each Engine or engine
installed on the Airframe (in compliance with Section 5.2) shall be inspected by
boroscope at Lessee's expense and any defects which are outside the
manufacturer's recommended limitations shall be corrected such that they are
brought within such limitations;
5.3.4 Landing Gears. The landing gears shall have a minimum of
40% of the time remaining on each of the main and nose gears until the next
scheduled shop visit or retirement, as the case may be;
5.3.5 APU. The auxiliary power unit shall not have more than
2,500 hours since the last "hot section" inspection; and
5.3.6 Other Components. All time-controlled components and
life-limited components, other than engines, landing gear and auxiliary power
units, shall have a minimum of 3,000 hours or twelve months (unless one-half of
the allowable hours or months, as the case may be, permitted between shop visits
or replacements is actually less than 3,000 hours or twelve months, in which
case one-half of such allowable hours or months) remaining to the next scheduled
shop visit or replacement.
5.4 Financial Adjustments. In the event that the conditions
described in Sections 5.3.1 and 5.3.4 are not met, Lessee may elect, as to any
or all of such conditions (a) to perform the work necessary to conform the
Aircraft to the required condition or (b) to make a financial adjustment between
Lessee and Lessor pursuant to this provision, provided that in no event shall
the Aircraft or any landing gear be returned with less than 25% of the allowable
hours or cycles, as appropriate, remaining between Cards (with respect to the
Aircraft) or until the next scheduled shop visit (with respect to the landing
gears):
5.4.1 Airframe. In the event that the Airframe is returned to
Lessor with less than 40% but more than 25% of the allowable hours (or cycles,
if applicable) between Cards as provided in Section 5.3.1, then Lessee shall pay
to Lessor on the date the Term ends an amount determined by multiplying the
difference between the actual number of hours (or cycles, if applicable)
remaining to the next Cards and 40% of the allowable hours (or cycles, if
applicable) between Cards times the cost to Lessee of having another Person
perform such Cards.
5.4.2 [Intentionally omitted.]
SALE AND LEASE AGREEMENT
15
5.4.3 Landing Gears. In the event that any of the landing
gears is returned to Lessor with less than 40% but more than 25% of the cycles
remaining until the next scheduled shop visit as provided in Section 5.3.4
above, then Lessee shall pay to Lessor on the date the term ends an amount
computed by multiplying the difference between the actual number of cycles
remaining to the next scheduled shop visit for such gear and 40% of the
allowable cycles between shop visits times the cycle rate for the nose gear or
the main gear, as the case may be. For purposes of this Section 5.4.3, the term
cycle rate" shall be deemed to be the cost that Lessee is paying to third
parties at the time the Aircraft is returned under Section 5.3 for overhauling a
nose gear or a main gear. as the case may be, divided by the number of cycles
permissible between such overhauls under the Maintenance Program.
At the end of the Term the Lessee shall furnish Lessor with an Officer's
Certificate setting forth the hours and cycles remaining on the Engines or
engines installed on the Airframe (in compliance with Section 5.2), the landing
gear and the Airframe.
5.5 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 (in English) 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. 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.
5.6 Storage upon Return. Upon written request of Lessor received by
Lessee at least 10 days prior to its return of the Aircraft at the expiration or
termination of this Lease, Lessee will provide free parking facilities for the
Aircraft for a period not exceeding 30 days following return thereof by Lessee
at the location of return pursuant to Section 5.1; provided that such storage
shall be at Lessor's risk and any expenses in connection with such storage
(other than parking charges) shall be paid by Lessor, including the cost of any
insurance therefor.
5.7 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
SALE AND LEASE AGREEMENT
16
to Lessor; but this Section 5.7 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 Default or
Lease Event of Default.
5.8 Aid in Disposition. Lessee agrees that, during the Term (and
during any storage period) 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.
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 30 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 execution 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
SALE AND LEASE AGREEMENT
17
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 First Security Bank of Utah,
National Association's or Owner Participant's failure to comply with its
covenant set forth in Section 6.3.1.5 or Section 6.2.5, respectively, of the
Participation Agreement with regard to its citizenship makes such compliance by
Lessee impossible).
7.1.2 Nameplate. As soon as practicable after the Delivery
Date, Lessee agrees to affix 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 FIRST SECURITY BANK
OF UTAH, NATIONAL ASSOCIATION, AS OWNER TRUSTEE, OWNER AND LESSOR" and, so long
as the Mortgage shall remain in effect, "SUBJECT TO A SECURITY INTEREST IN FAVOR
OF PROGRESS CREDIT CORPORATION, MORTGAGEE" (such nameplate to be replaced, if
necessary, with a nameplate reflecting the name of any successor Lessor or
Lender, upon receipt of written notice from Lessor to such effect). 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 or Lien; 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 Lessor's interest in the Aircraft.
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
SALE AND LEASE AGREEMENT
18
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) with respect to
any sublease to a Permitted Foreign Air Carrier, in any area referred to in
subclause (3)(iv) of Section 7.2.
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 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:
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 United States domestic airline industry
and entered into by Lessee or such Permitted Sublessee in the ordinary course of
its business, and (ii) any Engine to pooling agreements or arrangements
customary in the 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 administered pursuant to Executive Order No. 10999, as
amended, or any similar or substitute programs, so long as such transfer of
possession does not continue beyond
SALE AND LEASE AGREEMENT
19
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
pursuant to Section 16 hereof, 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 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, 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, 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, or other security agreement
covering such airframe effectively provides that such Engine shall 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 Pans 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. 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 (a) any
SALE AND LEASE AGREEMENT
20
U.S. Air Carrier or (b) any 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 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;
(2) Lessee shall remain primarily liable hereunder for the
performance of all the terms of this Lease to the same extent as if such
sublease or transfer had not occurred, 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 registration,
maintenance in accordance with applicable maintenance standards in the
appropriate jurisdiction, operation, insurance (appropriate certificates as to
which shall be furnished to Lessor and Lender 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, and
(iv) provide that the Aircraft may not be operated in a country with which the
United States does not maintain diplomatic relations or in which there is open
warfare, whether or not declared;
(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.
SALE AND LEASE AGREEMENT
21
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 sublease or interchange or pooling agreement permitted
hereunder together with any certification required by Section 7.2.8. Upon
request of Lessor, Lessee shall promptly and 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, or secured party of any airframe or
engine leased to or purchased by Lessee (or any Permitted Sublessee) subject to
a lease, conditional sale, or other security agreement, that Lessor will not
acquire or claim, as against such lessor, conditional seller, 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, or other security
agreement and owned by such lessor or conditional seller or subject to a
security interest in favor of such 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 7.4 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, or Lender's
security interest in, the Aircraft, Airframe or any Engine or because of receipt
of Rent or because of the interest of any Participant in the Trust Estate;
provided, however, that with respect to any such information which Lessee
SALE AND LEASE AGREEMENT
22
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 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 and each
Participant 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 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
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, and (iv) from time to time such other
information as to its financial condition as Lessor or any Participant may
reasonably request.
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 on the Delivery Date, 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, 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
737-200 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
23
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 Government authority upon United States operators of Boeing Model 737-200
series aircraft and ▇▇▇▇▇ & ▇▇▇▇▇▇▇ JT8D-9A engines 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) 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 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,
SALE AND LEASE AGREEMENT
24
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 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. Lessee, at its own
cost and expense, 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 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
Lessor's interest in the Aircraft; and provided, further, that Lessee's failure
to make (or cause to be made) any such alterations or modifications shall not
constitute noncompliance with the requirements of this Section 8.4 or a breach
of Lessee's undertaking hereunder for so long a period as may be necessary to
remedy such failure, if such failure can be remedied, so long as during such
period Lessee is using due diligence and reasonable efforts to remedy such
failure. In addition, Lessee, at its own cost and expense, may, from time to
time make (or cause to be made) 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 or addition shall, in Lessee's reasonable judgment,
materially diminish the value or utility of the Aircraft, Airframe or such
Engine, or materially impair the condition or airworthiness thereof, below the
value, 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, without further act, vest in Lessor.
Notwithstanding the foregoing sentence of this Section 8.4, so long as no Lease
Event of Default or Lease Default shall have occurred and be continuing, Lessee
may, at any time during the Term, remove any Part if (i) such Part is in
addition to, and not in replacement of or substitution for, any Part originally
incorporated (or required by the provisions of this Lease to be incorporated) in
the Aircraft, Airframe or such Engine at the time of delivery thereof hereunder
or any Part in replacement of or substitution for
SALE AND LEASE AGREEMENT
25
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, and
(iii) such Part can be removed from the Aircraft, Airframe or such Engine
without diminishing or impairing the value, 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 such alteration,
modification or addition not occurred. Upon the removal by Lessee of any Part as
above provided, title thereto shall, without further act, vest in Lessee and
such Part shall no longer be deemed part of the Aircraft, 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 remain the property of Lessor.
Section 9. [Intentionally Omitted]
Section 10. Loss, Destruction, Requisition, Etc.
10.1 Event of Loss with Respect to Aircraft. 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 and each Participant
written notice of such Event of Loss. 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, or (ii) 15 days following the receipt of insurance
proceeds with respect to such occurrence, Lessee shall pay to Lessor, in the
manner and in funds of the type specified in Section 3.5, (A) the Stipulated
Loss Value for the Aircraft, (B) all unpaid Basic Rent or Renewal Rent accrued
through and including the date of payment of Stipulated Loss Value and (C)
(without duplication) any other Rent which is due and payable through and
including the date of such payment. Upon payment in full of Stipulated Loss
Value and all such accrued Basic or Renewal Rent pursuant hereto, (A) the
obligation of Lessee to pay Basic or Renewal Rent due after the date of such
payment shall terminate (but Lessee shall remain liable for all payments of
Supplemental Rent due through and including the date of such payment of
Stipulated Loss Value), (B) the Term for the Aircraft shall end, and (C) Lessor
will Transfer to Lessee the Aircraft. Upon compliance by Lessee with all of the
terms of this Section 10.1, 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.
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 give Lessor and each
Participant prompt written notice (and in any event within 15 days after such
occurrence) thereof and shall,
SALE AND LEASE AGREEMENT
26
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 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 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) cooperate with any reasonable request of Lender to subject
such Replacement Engine to the Lien of the Mortgage; and cause a Lease
Supplement subjecting such Replacement Engine to this Lease, duly executed by
Lessee, to be delivered to Lessor for execution and, upon execution, to be filed
for recordation with the FAA pursuant to the Act;
(c) furnish Lessor and Lender with such evidence of compliance
with 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 or Lender may reasonably request;
(d) furnish Lessor and Lender with an opinion or opinions of
Lessee's counsel, in form, substance and scope reasonably satisfactory to Lessor
and Lender, 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 (including Lender's interests), and that such Replacement Engine
will be leased hereunder and will be subject to the Lien of the Mortgage to the
same extent as the Engine replaced thereby and to such further effect as Lessor
or Lender may reasonably request;
(e) furnish Lessor and Lender with an Officer's Certificate
certifying that, upon consummation of such replacement, no Lease Event of
Default or Lease Default will exist hereunder; and
(f) 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.
SALE AND LEASE AGREEMENT
27
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 any supplement or amendment to the
Mortgage covering such Replacement Engine pursuant to the Act, Lessee will cause
to be delivered to Lessor and Lender an opinion of ▇▇▇▇▇▇▇ ▇. Boston &
Associates or other FAA counsel satisfactory to Lessor as to the due recordation
of such Lease Supplement and any such supplement or amendment to the Mortgage.
10.2.4 Conveyance; Replacement Engine. Upon compliance by
Lessee with the terms of this Section 10.2, Lessor will Transfer to Lessee the
Engine with respect to which such Event of Loss occurred, 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.
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 changes 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 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, so much of such payments remaining after reimbursement of
Lessor and Owner Participant for costs and expenses shall be paid over to, or
retained by, 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.
10.3.2 Nonreplacement. If such payments are received with
respect to the Airframe and/or Engines that have not been and will not be
replaced pursuant to Section 10.2, so much of such payments remaining after
reimbursement of Lessor and Owner Participant for costs and expenses as shall
not exceed the Stipulated Loss Value and other amounts required to be paid by
Lessee hereunder shall be applied in reduction of Lessee's obligation to pay
such Stipulated Loss Value and other amounts 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 interests in the Aircraft.
SALE AND LEASE AGREEMENT
28
10.4 Requisition of Aircraft for Use by Governmental Authorities. In
the event of the requisition, unless and until such requisition becomes an Event
of Loss, 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 of such requisition, and, unless and until such requisition becomes an
Event of Loss, 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, Lessor unless Lessee shall have fully performed or, concurrently
therewith, will fully perform the terms of Section 10.1 with respect to such
Event of Loss.
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 by Lessor or Lessee from such
governmental authority with respect to such requisition shall be paid over to,
or retained by, Lessee (subject to 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).
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 credited to or retained by Lessee if, at the time
of such payment, credit or retention, (A) a Lease Event of Default or (B) a
Lease Default under Section 14.1 or 14.5 shall have occurred and be continuing
hereunder, but shall be paid to and 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, or at such earlier time as Lessee
shall have paid in full all Rent and other amounts due and payable hereunder and
under the other Operative Agreements by Lessee, 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,
SALE AND LEASE AGREEMENT
29
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 $350,000,000 (per occurrence) combined single limit (or
such greater amount as Lessee may carry from time to time on other 737-200
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), Lender and Owner Participant, as their
interests may appear.
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:
11.2.1 Type, Form and Amount. "All-risk" 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, form and in an amount in
compliance with the last sentence of this Section 11.2.1, not less than that
carried by Lessee on similar equipment owned or leased by Lessee and not less
than that usually carried by similarly situated United States commercial air
carriers; 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 Stipulated Loss Value for 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, or (b) the Aircraft is
operated on routes where the custom in the
SALE AND LEASE AGREEMENT
30
commercial airline industry is to carry war-risk insurance, then war-risk
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 11.2.1.
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), Lender and Owner Participant as
additional insureds, as their interests may appear.
11.2.3.2 Payment of Proceeds. Provide that proceeds
thereunder shall be paid directly to Lender, so long as the Aircraft is subject
to the Lien of the Mortgage 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 $1,500,000 and does not constitute an Event of Loss with respect to
the Aircraft or such Engine, shall be paid to Lessee, unless Lessor or Lender,
prior to such payment, shall have notified the insurer making such payment that
a Lease Event of Default or a Lease Default specified in Section 14.1 or 14.5
has occurred and is continuing.
11.2.3.3 Waiver of Subrogation. Provide that the
insurers shall waive any rights of subrogation against Lessor, Lender and Owner
Participant except for claims arising out of gross negligence or willful
misconduct of such Persons; 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; 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 mortgage, lease or other agreement) with
respect to its fleet of Boeing Model 737-200 series aircraft and ▇▇▇▇▇ & ▇▇▇▇▇▇▇
JT8D-9A engines generally.
SALE AND LEASE AGREEMENT
31
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, Lender and Owner Participant 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, Lender
or Owner Participant 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 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, Lender,
Lessor or Owner Participant;
11.3.4 Breach of Warranty. Provide that, in respect of Lessor,
Lender and Owner Participant, such insurance shall not be invalidated by any
action or inaction by Lessee or any additional insured (other than such
additional insured, as to such additional insured) and shall insure the
interests of Lessor, Lender and Owner Participant regardless of any breach or
violation by Lessee or any additional insured (other than such additional
insured, as to such additional insured) 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, Lender and Owner
Participant before any lapse, alteration, termination or cancellation of the
insurance evidenced thereby shall be effective as to Lessor, Lender and Owner
Participant, 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
SALE AND LEASE AGREEMENT
32
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,
Lender nor Owner Participant shall be liable for any insurance premium; and
11.3.7 Identity of Insurers. Be with insurance companies.
underwriters or funds of recognized responsibility.
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 or
10.3.2, as the case may be (except that the balance referred to in Section
10.3.2 shall be paid over to, or retained by, Lessee). All insurance proceeds in
respect of any property damage loss not constituting an Event of Loss 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 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, as to hull and liability insurance. On or before the Delivery Date
of the Aircraft, and annually thereafter on or before such expiration date,
Lessee shall cause to be furnished to Lessor and each Participant a report
signed by ▇▇▇▇▇ ▇. ▇▇▇▇ & Co. (or any other firm of independent aircraft
insurance brokers, appointed by Lessee, reasonably satisfactory to the
Participants) 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 as to hull and liability insurance. Lessee agrees that it will
cause such firm to advise Lessor and each 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. To the extent such agreement is reasonably obtainable, Lessee
further agrees to cause such
SALE AND LEASE AGREEMENT
33
firm to advise Lessor and each Participant in writing at least 30 days (seven
days in the case of war-risk and allied perils coverage) prior to the expiration
or termination date of any insurance carried and maintained on the Aircraft
pursuant to this Section 11.
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 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 Event of Default or
Lease Default or otherwise relieve Lessee of its obligations with respect
thereto. At Lessor's or Lender's request and expense, and subject to the
permission of Lessee's insurance carriers, Lessee will increase the amount of
coverage under any insurance policy that Lessee maintains pursuant to Section
11.2.1 or 11.2.2, and notwithstanding the provisions of Section 11.4, the
proceeds of any such additional insurance shall be payable to Lessor or Lender,
as the case may be; 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.
11.7 Insurance for Own Account. Nothing in this 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 or Lender 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 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, 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 if at any time Lessee's unsecured senior long-term debt
securities are not rated "Investment Grade", in the case of hull insurance such
self-insurance shall in no case be in an amount greater than 4% of Lessee's
tangible net worth (as defined in accordance with accepted financial practice);
and provided, further that, in the case of public liability insurance, such
self-insurance shall in no event exceed $50,000,000. As used in this Section
11.8, the term "Investment Grade"
SALE AND LEASE AGREEMENT
34
means a rating of "Baa3" or higher from ▇▇▇▇▇'▇ Investors Service, Inc. 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 or any Participant or its authorized representatives or designees
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; 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 to the preceding sentence of this Section 12, Owner Participant may
observe the "C" check (or its equivalent) referred to in clause (I) of Section
5.3.1 and any Card inspection during the Term. Neither Lessor nor any
Participant shall have any duty to make any such inspection and shall not incur
any liability or obligation by reason of not making any such inspection.
Section 13. Assignment.
13.1 General. Except as otherwise expressly permitted in Section 7.2
hereof or Section 12.5.1 of the Participation Agreement, or as required in the
case of any requisition by the Government referred to in Section 7.1.4, Lessee
will not, without the prior written consent of Lessor, assign or transfer any of
its rights or obligations under this Lease. Lessor may assign or convey any of
its right, title and interest in and to this Lease 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.
13.2 Security for Lessor's Obligations. In order to secure the
indebtedness evidenced by the Note, the Mortgage provides, among other things,
for the assignment by Lessor to Lender of its right, title and interest in, to
and under this Lease and any Permitted Sublease, to the extent set forth in the
Mortgage, and for the creation of a first mortgage lien on and perfected
security interest in the Aircraft in favor of Lender. Lessee hereby consents to
such assignment and to the creation of such mortgage and security interest.
Except as may otherwise be provided in the Mortgage, all rights of Lessor and
Owner Participant with respect to the Lease, the Aircraft, the Airframe or any
Engine (or any part thereof) shall be exercisable by Lender.
SALE AND LEASE AGREEMENT
35
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 or Renewal Rent within 5 Business Days from the due date thereof; or
any other payments required under the Operative Agreements within 10 Business
Days after the receipt of written notice of such default to Lessee from Lessor.
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
14.3 General Default. Lessee shall fail to perform or observe any
other material covenant, condition or agreement to be performed or observed by
it hereunder or under any other Operative Agreement (except the Tax
Indemnification Agreement), and such failure shall continue unremedied for a
period of 30 days after Lessee's receipt of written notice thereof from Lessor
or Lender, unless Lessee shall be diligently proceeding to correct such failure
and such failure is cured within 180 days after receipt of such notice or the
end of the Term, whichever shall first occur; 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 Indemnification 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 and
shall remain incorrect in any material respect 30 days after Lessee's receipt of
written notice thereof from Lessor or Lender; or
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
SALE AND LEASE AGREEMENT
36
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 unless the subject of a bona fide dispute, within the meaning of
Title 11 of the United States Code, 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; or
14.6 Cross Default. A Lease Event of Default shall have occurred and
be continuing under either of the other two Sale and Lease Agreements of even
date herewith, each relating to a Boeing 737-200 series aircraft having FAA
registration number N56SW or N57SW; provided, that Lender (or lender of any
Successor Indebtedness) shall then be Lender (or lender of any Successor
Indebtedness) (as such terms are defined therein) under such other Sale and
Lease Agreement.
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, declare by written notice to Lessee this Lease to be
in default (provided, however, that any Lease Event of Default specified in
Section 14.5 shall be automatic and shall not require any such declaration or
notice) and at any time thereafter, so long as any such Lease Event of Default
shall be continuing, Lessor may 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 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
SALE AND LEASE AGREEMENT
37
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 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 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 on or after the date specified for payment in such notice), any
unpaid Basic Rent or Renewal Rent, as the case may be, due prior to such date
plus an amount equal to the excess, if any, of the Stipulated Loss Value for the
Aircraft, computed as of such 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 Overdue 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 date specified for payment in such
notice 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 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 on or after the date specified for payment in such notice), any
unpaid Basic Rent or Renewal Rent, as the case may be, due prior to such date
plus an amount equal to the excess, if any, of the Stipulated Loss Value for the
Aircraft, computed as of such 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
SALE AND LEASE AGREEMENT
38
Renewal Rent, as the case may be, at the Overdue Rate from the date specified
for payment in such notice 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 on or after the date of such
sale), any unpaid Basic Rent or Renewal Rent, as the case may be, due prior to
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, 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 date of such sale
to the date of payment in full; or
15.1.5 Rescission and Other Remedies. Lessor may terminate or
rescind this Lease as to the Aircraft, 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.
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 reasonable and actual
legal fees and other costs and expenses (including the fees and expenses of all
appraisers required by this Section 15) of Lessor 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, and any such public sale shall be
conducted in general so as to afford Lessee a reasonable opportunity to bid.
SALE AND LEASE AGREEMENT
39
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:
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. 801/350-5053), Attention: Corporate Trust Department,
or at such other address as Lessor shall from time to time designate in writing;
If to any Participant, at its address set forth in the signature pages of
the Participation Agreement, or at such other address as such Participant shall
from time to time designate in writing.
SALE AND LEASE AGREEMENT
40
The effective date of any such notice shall be the date on which it is
received by the addressee. Lessee shall furnish to Lessor for transmission to
Owner Participant and Lender 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 shall 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), any Participant, any Indemnified Party or any
other Person for any reason whatsoever (except as expressly provided in Section
13.5.2 of the Participation Agreement or in Sections 6 and 7 of the Tax
Indemnification Agreement); (b) any defect in the title, airworthiness,
condition, design, operation or fitness for use of, or any damage to or loss or
destruction of, the Aircraft, Airframe or any Engine, or any interruption or
cessation in the use or possession thereof by Lessee for any reason whatsoever;
(c) any insolvency, bankruptcy, reorganization or similar proceedings by or
against Lessee; (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.
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 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 without abatement,
suspension, deferment, deduction, diminution or proration by reason of any
circumstance or occurrence whatsoever (except as expressly provided in Section
13.5.2 of the Participation Agreement or in Sections 6 and 7 of the Tax
Indemnification Agreement). 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
SALE AND LEASE AGREEMENT
41
payment of Rent made by Lessee shall be final as to Lessor and Lessee. Lessee
will not seek to recover all or any part of any such payment of Rent for any
reason whatsoever.
Section 18. Renewal Options; Early Termination.
18.1 Renewal Options. At the end of the Base Lease Term or any
Renewal Term, so long as no Lease Event of Default or Lease Default has occurred
and is continuing and the aggregate of all Renewal Terms shall not exceed six
years, Lessee shall have the option to renew this Lease for a Renewal Term;
provided, that if, at the time of exercise by Lessee of any of its renewal
rights set forth in this Section 18.1, Owner Participant and its Affiliates
shall be the owner of all of the beneficial interest in one or more other Boeing
Model 737-200 series aircraft then subject to a lease under which the lessee is
Lessee (all of such aircraft, together with the Aircraft, referred to as the
"Owner Group Aircraft"), then Lessee shall be obligated to exercise such renewal
rights (or to have exercised such renewal rights for a Renewal Term which shall
be then continuing) with respect to at least three of such Owner Group Aircraft
(or such lesser number of Owner Group Aircraft as shall exist at such time). In
order to exercise the option to renew, except as otherwise provided in Section
13.4.1 of the Participation Agreement, Lessee shall notify Lessor thereof in
writing not more than 360 days nor less than 180 days prior to the commencement
of the applicable Renewal Term (which notice shall be irrevocable). The Renewal
Rent payable for such Renewal Term hereunder shall be the fair market rental
value of the Aircraft calculated as of the commencement of such Renewal Term;
provided, that if a Stage III Upgrade shall have occurred and (i) Owner
Participant shall have performed its obligations set forth in Section 13.4 of
the Participation Agreement, upon proper request by Lessee, then such fair
market value shall be determined taking into account the value of the hush kit
installed pursuant to such upgrade, and (ii) if Owner Participant shall not have
so performed or shall not have been requested to do so by Lessee, then such fair
market value shall be determined without taking into account the value of the
hush kit installed pursuant to such upgrade, i.e., as if no Stage III Upgrade
had occurred. 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 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
SALE AND LEASE AGREEMENT
42
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 to
make such appointment. 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 the lessee and
in the return condition required by Section 5 of this Lease and otherwise in
compliance with the requirements of this Lease. Stipulated Loss Value amounts
that are payable during each such Renewal Term shall be calculated as of the
date of commencement of such Renewal Term and shall be determined by multiplying
1.1 times the appraised value of the Aircraft at such time; provided, however,
that no such amount shall be less than the principal amount of any indebtedness
then secured by a Lien on the Aircraft.
18.2 Early Termination. Provided that this Lease has not been
terminated and provided that no Lease Default or Lease Event of Default shall
have occurred and be continuing hereunder, Lessee shall have the option to
terminate this Lease with respect to the Aircraft not more than 42 days prior to
the expiration of the Base Lease Term or the applicable Renewal Term. Lessee may
exercise such option of termination by delivering irrevocable written notice of
such exercise to Lessor not less than six months' prior written notice of such
advanced date of termination. Such notice shall provide the date elected by
Lessee for such early termination and a calculation of the final payment of
Rent, which shall be due on such early termination date and shall be calculated
as provided in clause (ii) of Section 3.3.
18.3 Default Purchase Option. In the event of Owner Participant's
failure to satisfy its obligations specified in Section 13.4 of the
Participation Agreement, Lessee shall have the option to purchase the Aircraft.
In order to exercise such option, Lessee shall notify Lessor (and, if the
Mortgage is then in effect, Lender) thereof in writing, specifying a Rent
Payment Date on which such purchase is to occur. In such case, Lessee shall
purchase the Aircraft on such Rent Purchase Date at a purchase price equal to
Termination Value. Upon receipt of such purchase price from Lessee and all Rent
and other amounts due hereunder and under any other Operative Agreement, Lessor
shall Transfer to Lessee the Aircraft.
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
SALE AND LEASE AGREEMENT
43
without the necessity of any consent or approval by Lessee (but such successor
Owner Trustee shall qualify under the terms of Section 10.2 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 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 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 this Lease shall not have been
declared to be in default pursuant to Section 15, 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. 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
under Section 14.1 or 14.5 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 10.2, shall, until paid to
Lessee as provided in Section 10 or 11 or applied as provided herein or in the
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, except in the case of the shares described in clause (e) below, 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, Inc. and A-1 or its equivalent by Standard & Poor's
Corporation; or (d) certificates of deposit issued by, or bankers' acceptances
of, or time deposits or a deposit account with 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
SALE AND LEASE AGREEMENT
44
surplus of at least $50,000,000; or (e) shares of a money market fund registered
under the Investment Company Act of 1940, as amended, the sole assets of which
are direct obligations of the Government. 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 of a Lease Default under 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, if any, incurred in connection with such
investment), such amount to be disposed of in accordance with the terms of 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 Lessor 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 TEXAS AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS 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.
SALE AND LEASE AGREEMENT
45
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 B and Lessee may, by written notice to Lessor,
request that any foreign air carrier be added to Exhibit B, 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) reduce the number of
Permitted Foreign Air Carriers below 35, (ii) 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
(iii) 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
46
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:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity except
as expressly stated herein, but solely as Owner
Trustee under the Trust Agreement
By /s/ [Illegible]
-----------------------------
Title: ASSISTANT VICE PRESIDENT
Lessee:
SOUTHWEST AIRLINES CO.
By /s/ ▇▇▇▇ ▇. ▇▇▇▇
-----------------------------
▇▇▇▇ ▇. ▇▇▇▇
Treasurer
SALE AND LEASE AGREEMENT
EXHIBIT A TO
LEASE AGREEMENT
SALE AND LEASE AGREEMENT SUPPLEMENT NO. ______
THIS SALE AND LEASE AGREEMENT SUPPLEMENT NO. _________ dated ___________,
____ is between FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its
individual capacity but solely as Owner Trustee under that certain Trust
Agreement, dated as of September 1, 1990 (the "Trust Agreement"), between the
Owner Participant named therein and such Bank ("Lessor"), and SOUTHWEST AIRLINES
CO., a Texas corporation ("Lessee").
RECITALS.
A. Lessor and Lessee have heretofore entered into that certain Sale and
Lease Agreement dated as of September 1, 1990, 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
B. 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.
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 737-2H4 Aircraft (the
"Delivered Aircraft"), which Delivered Aircraft as of the date hereof consists
of the following:
SALE AND LEASE AGREEMENT
A-1
Airframe: U.S Registration Number N _________ SW; Manufacturer's Serial
No._____; and
Engines: Two ▇▇▇▇▇ & ▇▇▇▇▇▇▇ JT8D-9A Engines bearing Engine Manufacturer's
Serial Numbers as follows: __________ and _______________.
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 7.1.2 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.
4. 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.
5. THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF TEXAS AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
SALE AND LEASE AGREEMENT
A-2
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:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity but solely
as Owner Trustee under the Trust
Agreement
By
-----------------------------
Title:
Lessee:
SOUTHWEST AIRLINES CO.
By
-----------------------------
▇▇▇▇ ▇. ▇▇▇▇
Treasurer
SALE AND LEASE AGREEMENT
A-3
EXHIBIT B TO
LEASE AGREEMENT
PERMITTED FOREIGN AIR CARRIERS
Aer Lingus Interflug
Aerolineas Argentinas Japan Air Lines
Aeromexico Japan Air System
Air Canada KLM
Air Europa Korean Air
Air Europe Lan Chile
Air France Lauda Air
Air Inter Linjeflyg
Air Jamaica Lufthansa
Air New Zealand Luxair
Alitalia Maersk
All Nippon Airways Malaysian Airline System
ALM Martinair
Ansett Airlines of Australia Mexicana
Asiana Airlines Monarch Airlines
Australian Airlines Olympic Airlines
Austrian Airlines Qantas Airways
AVENSA Ryanair
Bahamasair Sabena
Bavaria SAS
Braathens S.A.F.E. Saudi Arabia Airlines
Britannia Singapore Airlines
British Airways SouthWest Airlines
British Midland Swissair
CAAC TAP
Canadian Airlines International Thai Airways
Cathay Pacific Airways Transavia Holland
Cayman Airways Transbrasil
China Airlines TransEuropean
Condor Flugdienst UTA
▇▇▇-Air Varig
Finnair Viasa
Garuda Viva Air
Hapag ▇▇▇▇▇
Iberia
Icelandair
SALE AND LEASE AGREEMENT
B-1
EXHIBIT C TO
LEASE AGREEMENT
OTHER RETURN CONDITIONS
At the time of the return of the Aircraft upon the expiration or earlier
termination of the Term, the Aircraft shall be in the following condition:
1. General Condition
(a) The Aircraft shall be clean and free of leaks, in each case in
accordance with United States commercial airline operating
standards.
(b) All decals shall be clean, secure and legible.
2. Fuselage, Windows and Doors
(a) The fuselage shall be free of loose or pulled or missing
rivets.
(b) The doors shall be free moving, correctly rigged and be fitted
with serviceable seals.
3. Wings and Empennage
(a) The wings shall be free of fuel leaks.
4. Interior
(a) The ceilings, sidewalls and bulkhead panels shall be clean and
free of cracks and stains.
(b) All carpet and seat covers shall be in good condition, clean
and stain free and meet FAR fire resistance regulations.
(c) All seats shall meet FAA fire retardant regulations and be
serviceable, in good condition and repainted as necessary.
(d) All signs and decals shall be in English and be clean and
legible.
SALE AND LEASE AGREEMENT
C-1
(e) All emergency equipment having a calendar life shall have a
minimum of one year or one hundred per cent of its total
approved life, whichever is less, remaining.
5. Cockpit
(a) All decals shall be in English and be clean, secure and
legible.
(b) All seat covers shall be in good condition, clean and shall
conform to FAR fire resistance regulation.
(c) All seats shall be fully serviceable and shall be repainted as
necessary.
6. Cargo Compartment
(a) All panels shall be in good condition.
(b) All nets shall be in good condition.
7. Fuel Tanks
(a) The fuel tanks shall be substantially free of bacteria growth
and water.
SALE AND LEASE AGREEMENT
C-2
EXHIBIT D TO
LEASE AGREEMENT
TERMINATION VALUE SCHEDULE
Rent Payment Date Termination Date
----------------- ----------------
December 31, 1990 ..................................... $ 11,150,500
March 31, 1991 ........................................ 10,997,263
June 30, 1991 ......................................... 10,840,194
September 30, 1991 .................................... 10,679,199
December 31, 1991 ..................................... 10,514,179
March 31, 1992 ........................................ 10,345,033
June 30, 1992 ......................................... 10,171,659
September 30, 1992 .................................... 9,993,951
December 31, 1992 ..................................... 9,811,799
March 31, 1993 ........................................ 9,625,094
June 30, 1993 ......................................... 9,433,722
September 30, 1993 .................................... 9,237,565
December 31, 1993 ..................................... 9,036,504
March 31, 1994 ........................................ 8,830,417
June 30, 1994 ......................................... 8,619,177
September 30, 1994 .................................... 8,402,656
December 31, 1994 ..................................... 8,180,723
March 31, 1995 ........................................ 7,953,241
June 30, 1995 ......................................... 7,720,072
September 30, 1995 .................................... 7,481,074
December 31, 1995 ..................................... 7,236,101
March 31, 1996 ........................................ 6,985,003
June 30, 1996 ......................................... 6,727,628
September 30, 1996 .................................... 6,463,819
December 31, 1996 ..................................... 6,193,414
March 31, 1997 ........................................ 5,916,250
June 30, 1997 ......................................... 5,632,156
September 30, 1997 .................................... 5,340,960
December 31, 1997 ..................................... 5,042,484
March 31, 1998 ........................................ 4,736,546
June 30, 1998 ......................................... 4,422,960
September 30, 1998 .................................... 4,101,533
December 31, 1998 ..................................... 3,772,072
SALE AND LEASE AGREEMENT
D-1
SCHEDULE I TO
LEASE AGREEMENT
The Lessor's Cost for the Aircraft is $11,000,000.
SALE AND LEASE AGREEMENT
SALE AND LEASE AGREEMENT SUPPLEMENT NO. 1
THIS SALE AND LEASE AGREEMENT SUPPLEMENT NO. 1 dated September 27, 1990 is
between FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual
capacity but solely as Owner Trustee under that certain Trust Agreement, dated
as of September 1, 1990 (the "Trust Agreement"), between the Owner Participant
named therein and such Bank ("Lessor"), and SOUTHWEST AIRLINES CO., a Texas
corporation ("Lessee").
RECITALS.
A. Lessor and Lessee have heretofore entered into that certain Sale and
Lease Agreement dated as of September 1, 1990, 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
B. 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.
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 737-2H4 Aircraft (the
"Delivered Aircraft"), which Delivered Aircraft as of the date hereof consists
of the following:
Airframe: U.S Registration Number N55SW; Manufacturer's Serial No. 21593;
and
Engines: Two ▇▇▇▇▇ & ▇▇▇▇▇▇▇ JT8D-9A Engines bearing Engine Manufacturer's
Serial Numbers as follows: P707374B and P707334B.
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 7.1.2 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.
4. 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.
5. THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF TEXAS AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
-2-
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:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Owner Trustee under the Trust Agreement
By /s/ [Illegible]
--------------------------------------
Title: ASSISTANT VICE PRESIDENT
Lessee:
SOUTHWEST AIRLINES CO.
By /s/ ▇▇▇▇ ▇. ▇▇▇▇
--------------------------------------
▇▇▇▇ ▇. ▇▇▇▇
Treasurer
SALE AND LEASE AGREEMENT
3
SALE AND LEASE AGREEMENT SUPPLEMENT NO. 1
THIS SALE AND LEASE AGREEMENT SUPPLEMENT NO. 1 dated September 27, 1990 is
between FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual
capacity but solely as Owner Trustee under that certain Trust Agreement, dated
as of September 1, 1990 (the "Trust Agreement"), between the Owner Participant
named therein and such Bank ("Lessor"), and SOUTHWEST AIRLINES CO., a Texas
corporation ("Lessee").
RECITALS.
A. Lessor and Lessee have heretofore entered into that certain Sale and
Lease Agreement dated as of September 1, 1990, 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
B. 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.
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 737-2H4 Aircraft (the
"Delivered Aircraft"), which Delivered Aircraft as of the date hereof consists
of the following:
Airframe: U.S Registration Number N55SW; Manufacturer's Serial No. 21593;
and
Engines: Two ▇▇▇▇▇ & ▇▇▇▇▇▇▇ JT8D-9A Engines bearing Engine Manufacturer's
Serial Numbers as follows: P707374B and P707334B.
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 7.1.2 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.
4. 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.
5. THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF TEXAS AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
-2-
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:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Owner Trustee under the Trust Agreement
By /s/ [Illegible]
------------------------------------
Title: ASSISTANT VICE PRESIDENT
Lessee:
SOUTHWEST AIRLINES CO.
By /s/ ▇▇▇▇ ▇. ▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇
Treasurer
SALE AND LEASE AGREEMENT
3
